KKR Real Estate Finance Trust Inc. Q4 FY2024 earnings call

• KREF leveraged KKR's significant resources, with KKR managing ~$80 billion in real estate assets globally. The dedicated K-Star Asset Management platform manages over $36 billion in loans and is special servicer on an additional $45 billion of CMBS.
• 2024 was a year of transition for KREF, with a decrease in watchlist percentage from 13% in Q4 2023 to 8% today. REO assets in office and life science sectors showed green shoots. The CMBS market had large office transactions in 2024 and a healthy 2025 pipeline.
• Liability structure is a differentiator with 79% of financing non-mark-to-market and $685 million in liquidity at quarter end. Repayments in 4Q 2024 exceeded $450 million, full-year repayments $1.5 billion (19% of portfolio).
• CECL reserve decreased to $120 million with 92% of portfolio risk-rated 3% or better. Leverage ratio at 3.6 times, on the lower end of target, actively originating loans. Repurchased $10 million of stock in 4Q with weighted average price $11.64.

For the fourth quarter of 2024, KKR Real Estate Finance Trust reported GAAP net income of $14.6 million or $0.21 per share. Book value as of December 31, 2024, was $14.76 per share, relatively flat quarter-over-quarter. Distributable loss this quarter was negative $14.7 million or negative $0.21 per share. The company has a $0.25 per share dividend, which yields 10% as of yesterday's closing price.

• Repayments expected to exceed $1 billion in 2025, with originations likely to outpace repayments near term.
• Confident in portfolio quality, liability structure, and leverage, with active origination planned. January saw $225 million in loan closings, including a multifamily portfolio deal.
• Anticipate continued progress on watchlist loans and potential to generate additional $0.12 per share on distributable earnings as REO equity is repatriated.

• Potential for further credit migration despite being beyond peak stress.
• Market volatility, including changes in interest rates and economic conditions, could impact asset valuations and loan performance.
• Uncertainty around the resolution of certain watchlist loans, particularly in challenging markets like Minneapolis office.

Q: How has the steepening of the yield curve trended with repayments and what's the outlook for 2025 repayments?

A: Patrick Mattson said yield curve steepening isn't a main driver of repayments; repayments are related to loans reaching business plans. Forecast for 2025 repayments is over $1 billion, with middle to back-ended timing.

Q: Can you talk about the pipeline and asset classes targeted?

A: Matt Salem said they target institutional sponsorship and high-quality real estate, focusing on multifamily, industrial, student housing. Europe is a potential area for diversification, and data centers are a new potential asset class.

Q: What's the outlook for office loans, both in the book and REO?

A: Matt Salem noted green shoots in office REO with leasing activity, three rated office loans have positive signs with returning financing markets, and a Minneapolis office loan is well-leased with ongoing evaluation of resolution path.

Q: How do you view stock repurchases versus new originations?

A: Matt Salem said there's a balance, with the business being to invest capital and make loans, but they'll continue to evaluate stock repurchase opportunities when undervalued.

Q: What's the outlook for CECL with new originations?

A: Patrick Mattson said new originations may lead to a marginal increase in CECL due to model-driven factors for three-rated loans, especially for shorter-duration loans compared to newly originated ones.

Q: What's the expected portfolio growth range?

A: Patrick Mattson said the current portfolio could grow to $6.6 billion to $6.7 billion range, absent REO resolution impacts.

Q: How does market sentiment affect asset clearing and loan duration?

A: Matt Salem said market sentiment is a function of seller willingness and capital structure maturity; loans are now on shorter durations as sponsors can execute business plans and refinance earlier.

Q: Update on life science deals and multifamily watchlist?

A: Matt Salem said progress on life science deals with high-quality assets and green shoots in leasing; multifamily watchlist loans have varying issues, like supply-driven in some and value-related in others.