KKR Real Estate Finance Trust Inc. Q4 FY2025 earnings call

• Strengthened liquidity by closing a 7-year, $550 million Term Loan B which was upsized and repriced to $650 million with a lower coupon, and upsizing the corporate revolver to $700 million. • Closed first loan in Europe, a milestone in building the real estate credit platform there. • Experienced $1.5 billion in repayments and $1.1 billion in new originations, operating at high end of leverage ratio and targeted portfolio size. • 2026 to be a transition year with REO portfolio positioned for liquidity, aggressive resolution strategy for watch list and select office assets to compress stock price discount to book value. • Evaluating dividend as part of capital allocation, balancing near-term earnings and long-term shareholder value. • Downgraded certain loans to risk rating 5, recorded $44 million in CECL provisions, and entered modification discussions on another loan. • Ended the year with near record liquidity over $880 million, $700 million undrawn on corporate revolver, and $47 million remaining in share buyback authorization.

For the fourth quarter of 2025, KKR Real Estate Finance Trust reported a GAAP net loss of negative $32 million or negative $0.49 per share. Book value as of December 31 was $13.04. Distributable earnings were $14 million or $0.22 per share, and a $0.25 cash dividend was paid. New originations totaled $1.1 billion, while repayments were $1.5 billion. More than 75% of new originations during the year were concentrated in multifamily and industrial loans, with multifamily being the largest property type exposure.

• 2026 is a transition year with REO portfolio positioned for liquidity and aggressive resolution of watch list and select office assets to compress stock price discount to book value. • Expect full year repayments in 2026 to exceed $1.5 billion, exceeding prior years. • Dividend is under evaluation as part of broader capital allocation discussion, balancing near-term earnings and long-term shareholder value.

• Downgrades of Cambridge Life Science and San Diego multifamily loans led to $44 million in incremental CECL provisions. • Anticipated ratings downgrade and CECL increase in first quarter for Boston Life Science loan despite current contractual interest payments. • Market conditions and asset valuations could impact the resolution and monetization of REO and watch list assets.

Q: Tom Catherwood asked about accelerating resolutions on watch list and REO assets and if KREF would revamp business like ARI.

A: Matt Salem said they've made progress on REO, plan to deal with watch list and select office assets to create a newer portfolio, and are optimistic the market will recognize the new portfolio.

Q: Rick Shane asked about loans in REO or nonaccrual and potential negative carry.

A: Patrick Mattson said some assets are paying contractual interest, REO assets are dragging earnings but there's near-term opportunity to convert to performing assets.

Q: Jade Rahmani asked about potential pivot to value creation via loan sales, repurchases.

A: Matt Salem said they're doing loan sales, unlocking REO gains, and evaluating all strategies, focusing on repositioning portfolio for public market recognition.

Q: Gabe Poggi asked about KKR's view on commercial real estate demand.

A: Matt Salem said KKR is seeing increased allocation to real estate credit and equity, with sentiment shifting, and private funds raising capital in real estate credit.

Q: Chris Muller asked about rate cuts affecting REO assets and office loans.

A: Matt Salem said rate cuts help liquidity, office loans are attractive on high-quality, stabilized assets, and originations will balance repayments and recycling capital.