Yahoo Finance KKR Real Estate Finance Trust Inc (KREF) (Q1 2024) Earnings Call Transcript Highlights: ...
GAAP Net Loss: $8.7 million or -$0.13 per share.
Distributable Earnings: $26.7 million or $0.39 per share.
Book Value Per Share: $15.18 as of March 31, 2024.
CECL Allowance: Increased to $3.54 per share.
Cash Dividend: $0.25 per common share for Q1.
Liquidity: $620 million available at quarter end.
Loan Repayments: $336 million received, including full repayments of significant loans.
Net Reduction in Funding: $232 million after accounting for $103 million funded for previous loans.
Projected Repayments: Over $1 billion throughout 2024.
Debt to Equity Ratio: 2.1 with a look-through leverage ratio of 4.1 as of Q1 2024.
Release Date: April 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q & A Highlights
Q: Can you discuss the reserve rate at the end of the first quarter and the implications for future losses? A: W. Patrick Mattson, President and COO of KKR Real Estate Finance Trust, explained that the reserve rate is around 150 to 160 basis points on the balance, which he believes is appropriate given the current market conditions. He anticipates that as they work through more challenged assets, the reserve pool will reflect a cleaner composition, potentially making the current reserve rate feel slightly high but appropriate for now.
Q: What are the key factors you are monitoring that might influence the movement of four-rated multifamily loans in your portfolio? A: Matthew Salem, CEO, noted that while there is potential for multifamily properties to transition between ratings, the fundamental value of these assets relative to their loan basis remains strong. He emphasized that there isn't significant loss content in this segment of the portfolio, suggesting a stable outlook for these assets despite potential rating changes.
Q: How are you approaching originations given the current market conditions? A: Matthew Salem mentioned that the decision to resume originations will depend more on internal portfolio assessments rather than external market conditions. Key factors include consistent loan repayments, stabilization in portfolio credit migration, and achieving targeted leverage ratios. He highlighted the importance of portfolio velocity and stability before scaling up new lending activities.
Q: Could you provide insights into the leasing outlook for your life science portfolio, particularly for assets that are nearing completion but remain vacant? A: Matthew Salem responded that about 70% of their life science exposure involves new, high-quality constructions in prime markets, which are well-positioned for leasing despite some being in early stages. He observed increased leasing activity in newly built, purpose-designed life science facilities compared to converted properties.
Q: What are your expectations for handling the REO portfolio, particularly regarding potential CapEx spend and foreclosures? A: Matthew Salem indicated that while specific business plans are still being finalized, the strategy involves investing in CapEx to enhance asset value and attract quality tenants. He reassured that any significant CapEx would be managed without materially impacting earnings due to ample liquidity and the capitalization of major expenses.
Q: What trends are you observing in the broader CRE loan market, particularly regarding loan maturities and refinancing? A: Matthew Salem noted an increase in loan extensions as lenders and borrowers navigate the higher interest rate environment. He downplayed the risks associated with the maturity wall, suggesting that lenders are generally willing to offer extensions to facilitate adjustments to the evolving economic landscape.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
