KKR Real Estate Finance Trust Inc. Q1 FY2026 earnings call

• 2026 is a transition year with focus on narrowing share price and book value gap. Priorities: executing resolution strategy on watch list assets and legacy office exposures, and positioning REO portfolio for liquidity. • Goal to reduce legacy office exposure from 21% to under 10%, resolve all watch list loans by year end, address life science exposure with goal to modify 100%, and originate new investments with loans from 2024 - 2026 expected to be 50% of portfolio by year end. • Announced dividend reduction to 10 cents per share per quarter, with board authorizing $75 million share repurchase program. • Changes to watch list: downgraded Philadelphia office assets and Boston Life Science asset, upgraded Cambridge Life Science. Recorded CECL provisions of 74 million. • Actively managing REO portfolio with near, medium, and longer-term monetization buckets. Estimate potential to generate over 15 cents per share of incremental quarterly earnings from REO monetization. • At quarter end, $653 million liquidity, $184 million originations, $415 million repayments. First three weeks of second quarter closed over $400 million new loans. Debt to equity ratio 2.2 times, total leverage 4 times consistent with target range.

For the first quarter of 2026, gap net loss was $62 million or negative 96 cents per share. Book value as of March 31st, 2026 was $11.87 per share. Distributable loss was $4 million or negative 6 cents per share. Distributable earnings before realized losses was $13 million, or 20 cents per share. Paid a 25-cent cash dividend in April. No specific product segments detailed with revenue contribution % as it's not focused on product lines but overall company performance.

• Dividend reduced to 10 cents per share per quarter, aligned with expectations for distributable earnings per share before realized losses. • Expect earnings to trough in second half of 2026 into first half of 2027, then distributable earnings per share to increase. • Board authorized $75 million share repurchase program providing flexibility to deploy capital. • Loans originated between 2024 - 2026 expected to be ~50% of portfolio by year end, indicating turnover into newer vintage assets with improved earnings potential.

• Uncertainty in market conditions affecting asset valuations and resolutions. • Potential challenges in resolving watch list loans and legacy office exposures as expected. • Market dynamics impacting REO portfolio monetization and value realization. • Fluctuations in earnings due to portfolio repositioning and market variability. • Risks associated with life science exposure modifications and potential losses. • Impact of external factors like oil prices, inflation, AI on company performance and valuations.

Q: Portfolio target of 50% newer vintage loans by year end implies billion to billion two origination activity, are we in ballpark?

A: Matt says it's in the ballpark, depends a bit on share buyback amount.

Q: Use of liquidity for originations and buybacks, tied to REO sales?

A: Most liquidity from loan repayments, not tied to REO sales timing.

Q: On watch list, expectations for remaining assets repaid vs modified?

A: Goal to clear all by end of year, combination of modifications, note sales, some sold by sponsors.

Q: Dividend and earnings X losses, expect earnings to cover 10 cents?

A: Matt says expect to cover on annualized intermediate basis, but quarters may have noise.

Q: $42 million CMBS investment, attractive vs bridge loans?

A: Evaluated on relative value, providing duration and access to different markets.

Q: Green shoots in life science leasing?

A: Jade says seeing revitalization in some areas, tenants coming back but early.

Q: Credit risk management, migration from risk three to five?

A: Patrick says normal progression is three, four, five, majority follow that, analysis done quarterly.

Q: Contemplation of fee cut from KKR during transition?

A: Matt says evaluating all options.

Q: Mountain View lease term details?

A: Subject to NDA, long-term lease thought to trade like net lease.