Core Viewpoint - KKR Real Estate Finance (KREF) is expected to report a year-over-year decline in earnings and revenues for the quarter ended December 2024, with the actual results being crucial for stock price movement [1][3]. Earnings Expectations - The consensus estimate for KREF's quarterly earnings is $0.30 per share, reflecting a year-over-year decrease of 36.2% [3]. - Expected revenues for the quarter are $36.46 million, down 21.6% from the previous year [3]. Estimate Revisions - The consensus EPS estimate has been revised 10% lower in the last 30 days, indicating a reassessment by analysts [4]. - The Most Accurate Estimate matches the Zacks Consensus Estimate, resulting in an Earnings ESP of 0% [10][11]. Earnings Surprise Prediction - A positive or negative Earnings ESP reading indicates the potential deviation of actual earnings from the consensus estimate, with positive readings being more predictive of earnings beats [7][8]. - KREF's current Zacks Rank is 4 (Sell), complicating predictions of an earnings beat [11]. Historical Performance - KREF has beaten consensus EPS estimates in the last four quarters, with a notable surprise of +29.03% in the last reported quarter [12][13]. Industry Comparison - Annaly Capital Management (NLY), another player in the REIT and Equity Trust industry, is expected to report EPS of $0.67, with a year-over-year change of -1.5% and revenues expected to rise significantly [17]. - NLY's consensus EPS estimate has been revised 3.1% higher, but it has a negative Earnings ESP of -1.98% combined with a Zacks Rank of 2 (Buy) [18].

Core Insights - Binary Tree Analytics (BTA) aims to provide transparency and analytics in capital markets instruments and trades, focusing on Closed-End Funds (CEFs), Exchange-Traded Funds (ETFs), and Special Situations [1] - The company has over 20 years of investment experience and seeks to deliver high annualized returns with a low volatility profile [1] Group 1 - BTA has a background in investment banking cash and derivatives trading [1] - The company emphasizes analytics and transparency in its operations [1] - BTA's investment strategy is centered around CEFs, ETFs, and Special Situations [1] Group 2 - The company aims for high annualized returns while maintaining a low volatility profile [1] - BTA has a strong educational foundation with a Finance major from a top university [1]

Financial Data and Key Metrics - GAAP net loss of $13 million or $0.19 per share, driven by a CECL allowance increase of $0.52 per share due to the downgrade of two loans [3] - Book value per share decreased 2.6% quarter-over-quarter to $14.84 per share as of September 30, 2024 [3] - Distributable earnings were $25.9 million or $0.37 per share, covering the $0.25 per share dividend [3] - Received $290 million in loan repayments compared to $55 million in fundings in Q3 [7] - Year-to-date repayments exceeded $1 billion, surpassing the original expectation of $1 billion for the full year [8] Business Line Data and Key Metrics - Commercial real estate lending pipeline averages $20 billion per week, up 40% from the beginning of the year [4] - U.S. banks are shifting from direct mortgage origination to financing alternative lenders through loan-on-loan facilities, creating opportunities for non-bank lenders and CMBS [5] - KREF's four-rated loans now represent only 3% of the total portfolio, the lowest since Q4 2019 [6] - Office loan exposure reduced to 18% of the loan portfolio after selling a $138 million office loan at par [12] Market Data and Key Metrics - Increased transaction volumes in commercial real estate, with acquisition-oriented activity rising to 20% of the pipeline, up from 10% last year [18] - Multifamily, industrial, and student housing assets are seeing the most transaction activity, while office remains challenged [19] - Cap rates have come down across property types as the rate complex has cleared up, with expectations of a more normal transaction volume in 2025 [20] Company Strategy and Industry Competition - KREF plans to actively reinvest repayments into new loan originations and evaluate share repurchases [5] - The company is focusing on maintaining portfolio size and optimizing the REO portfolio, with potential to generate $0.12 per share in distributable earnings per quarter [10] - KREF is exploring opportunities in data centers and European markets, leveraging its global platform and relationships [24][25] Management Commentary on Operating Environment and Future Outlook - Management believes the company is well-positioned with ample liquidity and reduced leverage, expecting 2025 to be an active origination year [15] - The office market is showing signs of liquidity returning, with institutional investors re-entering the market for high-quality assets [42] - KREF expects to resolve watch list loans and REO assets over the next year, with potential upside in certain assets like the Portland and Philadelphia properties [30][36] Other Important Information - KREF has $8.3 billion in financing capacity, including $3 billion of undrawn capacity, with no corporate debt due until 2027 [11] - The company's K-Star asset management platform manages over $33 billion in loans and is named special servicer on an additional $46 billion of CMBS [9] Q&A Session Summary Question: Price discovery and transaction activity trends [17] - Transaction volumes are picking up, with acquisition activity rising to 20% of the pipeline, still below the historical average of 50% [18][19] - Values are settling in favored asset classes like multifamily, industrial, and student housing, with cap rates declining [20] Question: Impact of loans on cost recovery on distributable earnings [21] - The downgrade of two loans to five resulted in a $0.02 per share impact on interest income in Q3 [21] Question: Focus areas for new loan originations [23] - KREF will focus on multifamily, industrial, student housing, data centers, and European markets [24][25] Question: Note-on-note financing and spreads [26] - KREF has strong relationships with financing providers, with leverage typically in the 75% to 80% range and pricing around SOFR plus 150 to 175 basis points [27] Question: Timing for resolving watch list and REO assets [30] - Watch list loans are expected to be resolved over the next year, with REO assets like Portland and Mountain View likely taking longer [31][32] Question: Office market outlook and buyer profile [42] - Institutional investors are returning to the office market, focusing on high-quality assets with long lease terms [42] Question: Transitional loan opportunities and origination timing [45] - Demand for transitional loans is increasing, with KREF having sufficient liquidity to start new originations ahead of 2025 repayments [46][48] Question: Portfolio size and CLO financing efficiency [50] - KREF expects to maintain its current portfolio size, with potential to refinance CLOs as the market improves [51][52] Question: Loan portfolio sales and credit risk transfers [55] - Loan portfolio sales from banks remain muted, but credit risk transfer activity is beginning to develop [55][56]

Group 1: Earnings Performance - KKR Real Estate Finance (KREF) reported quarterly earnings of $0.40 per share, exceeding the Zacks Consensus Estimate of $0.31 per share, but down from $0.47 per share a year ago, representing an earnings surprise of 29.03% [1] - The company has surpassed consensus EPS estimates in all four of the last quarters [1] - Revenues for the quarter ended September 2024 were $37.01 million, missing the Zacks Consensus Estimate by 6.36% and down from $44.61 million year-over-year [1] Group 2: Stock Performance and Outlook - KKR Real Estate shares have declined approximately 9% since the beginning of the year, contrasting with the S&P 500's gain of 23% [2] - The future performance of the stock will largely depend on management's commentary during the earnings call and the company's earnings outlook [2][3] - The current consensus EPS estimate for the upcoming quarter is $0.31 on revenues of $40.65 million, and for the current fiscal year, it is $1.47 on revenues of $159.76 million [4] Group 3: Industry Context - The REIT and Equity Trust industry, to which KKR Real Estate belongs, is currently ranked in the bottom 38% of over 250 Zacks industries, indicating potential challenges for stock performance [5] - Another company in the same industry, Apollo Commercial Finance (ARI), is expected to report quarterly earnings of $0.25 per share, reflecting a year-over-year decline of 32.4% [5]

KKR Real Estate Finance (KREF) shares soared 5.7% in the last trading session to close at $12.24. The move was backed by solid volume with far more shares changing hands than in a normal session. This compares to the stock's 8.4% gain over the past four weeks. Shares of KREF witnessed a strong price increase as long-term bond yields have declined with the Fed's announcement of an interest rate cut starting this month. This resulted in a decline in mortgage rates. Housing affordability challenges are expecte ...

The upward trend in estimate revisions for this real estate finance company reflects growing optimism of analysts on its earnings prospects, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- has this insight at its core. Consensus earnings estimates for the next quarter and full year have moved considerably higher for KKR Real Est ...

JULY 22, 2024 | --- | --- | |-------|-----------| | | | | Senior loans secured primarily by | | | transitional, institutional | Conservative liability management focused on | | multifamily and industrial | diversified non-mark-to-market | | properties owned by high quality sponsors | financing | Dividend declared per share | --- | --- | --- | --- | --- | --- | --- | --- | |-----------------|---------|--------|-------------|-------|--------|--------|---------| | ($ in Millions) | | Net Income and Distributab ...

Group 1 - KKR Real Estate Finance (KREF) reported quarterly earnings of $0.40 per share, exceeding the Zacks Consensus Estimate of $0.33 per share, but down from $0.48 per share a year ago [1][10] - The company has surpassed consensus EPS estimates in all four of the last quarters [2] - KKR Real Estate's revenues for the quarter ended June 2024 were $40.43 million, surpassing the Zacks Consensus Estimate by 8.63%, compared to $43.95 million in the same quarter last year [11] Group 2 - The current consensus EPS estimate for the upcoming quarter is $0.31 on revenues of $36.61 million, and for the current fiscal year, it is $1.33 on revenues of $151.28 million [6] - The estimate revisions trend for KKR Real Estate is favorable, leading to a Zacks Rank 2 (Buy) for the stock, indicating expected outperformance in the near future [5] - The outlook for the REIT and Equity Trust industry is currently in the bottom 22% of Zacks industries, which may impact KKR Real Estate's stock performance [7]

• adverse developments in the availability of attractive loan and other investment opportunities whether they are due to competition, regulation or otherwise, could adversely affect our results of operations; • global economic trends and economic conditions, including heightened inflation, slower growth or recession, changes to fiscal and monetary policy, higher interest rates, labor shortages, currency fluctuations and challenges in global supply chains; • increased competition from entities engaged in mor ...

[Financial and Operational Highlights](index=1&type=section&id=Financial%20and%20Operational%20Highlights) KREF reported Q2 2024 net income of $20.2 million but a $108.7 million distributable loss, driven by $136.0 million in realized losses, while maintaining strong liquidity Q2 2024 vs Q1 2024 Financial Results (per diluted share) | Metric | Q2 2024 | Q1 2024 | | :--- | :--- | :--- | | **Net Income (Loss) Attributable to Common Stockholders** | $20.2M ($0.29/share) | ($8.7)M (($0.13)/share) | | **Distributable Earnings (Loss)** | ($108.7)M (($1.57)/share) | $26.7M ($0.39/share) | - The company took title to two properties (office and life science) and wrote off a mezzanine office loan, resulting in a combined realized loss of **$136.0 million**[4](index=4&type=chunk) - Maintained a strong liquidity position of **$643.9 million** and reduced total leverage ratio to **3.9x** after receiving **$384.5 million** in loan repayments[4](index=4&type=chunk) - The **$6.6 billion** loan portfolio is **99%** floating rate, with **60%** in Multifamily and Industrial assets, and a weighted average LTV of **65%**[4](index=4&type=chunk) - Management commentary highlighted meaningful progress in working through the portfolio, resulting in increased liquidity, lower leverage, and a stable book value[4](index=4&type=chunk) [Portfolio Summary](index=3&type=section&id=Portfolio%20Summary) KREF's portfolio as of June 30, 2024, totaled $6.9 billion outstanding principal, primarily senior loans ($6.6 billion) with a 65% weighted average LTV Portfolio Composition as of June 30, 2024 ($ in millions) | Investment | Outstanding Principal Amount | Carrying Value | Weighted Average LTV | | :--- | :--- | :--- | :--- | | Senior Loans | $6,575.9 | $6,450.3 | 65% | | Real Estate Assets | $335.5 | $335.5 | n.a. | | CMBS B-Pieces | $35.3 | $35.3 | 58% | | **Total/Weighted Average** | **$6,946.7** | **$6,821.1** | **65%** | [Non-GAAP Financial Measures](index=3&type=section&id=Non-GAAP%20Financial%20Measures) KREF reconciled GAAP Net Income of $20.2 million to a $108.7 million Distributable Loss for Q2 2024, primarily due to a $135.8 million net realized loss on loan write-offs Reconciliation to Distributable Loss for Q2 2024 ($ in thousands) | Metric | Amount | | :--- | :--- | | Net Income Attributable to Common Stockholders | $20,223 | | Adjustments (Non-cash equity comp, unrealized gains, etc.) | $7,531 | | **Distributable Earnings before realized loss** | **$27,754** | | Net realized loss on loan write-offs | ($135,811) | | **Distributable Loss** | **($108,672)** | - The significant Distributable Loss was driven by a **$135.8 million** charge for net realized losses, which included a **$98.5 million** write-off on two senior loans upon deed-in-lieu of foreclosure and a **$37.5 million** write-off of a mezzanine loan[7](index=7&type=chunk) [Corporate Information](index=4&type=section&id=Corporate%20Information) KREF, a REIT managed by KKR & Co. Inc., specializes in transitional senior loans for commercial real estate and will host a conference call to discuss results and non-GAAP measures - The company will host a conference call on Tuesday, July 23, 2024, at 10:00 a.m. Eastern Time to discuss its financial results[9](index=9&type=chunk) - KREF is a REIT that primarily originates or acquires transitional senior loans collateralized by institutional-quality commercial real estate assets and is externally managed by an affiliate of KKR & Co. Inc[12](index=12&type=chunk) - Distributable Earnings is a non-GAAP measure defined as GAAP net income adjusted for non-cash items (like equity compensation and unrealized gains/losses) and including realized losses, to better represent the company's capacity to pay dividends[16](index=16&type=chunk)[19](index=19&type=chunk)