imaginima/iStock via Getty Images On our last coverage of KKR Real Estate Finance Trust Inc. (NYSE:KREF) we identified the potential reasons that we did not want to chase this. The stock has moved lower, and even the large yield has failed to get total returns into positive territory. The total return has lagged the broader S&P 500 (SPY) by almost 27%. Seeking Alpha We look at the recently released Q1-2024 results and explain why you should not take your eyes off the ball, even though it might appear that t ...

Financial Data and Key Metrics Changes - For Q1 2024, the company reported a GAAP net loss of $8.7 million or negative $0.13 per share, while distributable earnings were $26.7 million or $0.39 per share [34] - Book value per share as of March 31, 2024, was $15.18, reflecting a decline of approximately 2% quarter-over-quarter [34] - The CECL allowance increased to $3.54 per share from $3.06 per share in the previous quarter [34] Business Line Data and Key Metrics Changes - The office sector remains challenged, but there is increased liquidity compared to six months ago [45] - Life science loans saw one additional downgrade to the watch list due to short-term leasing slowdowns, despite long-term demand remaining positive [46] - Multifamily fundamentals have slowed, with a 50% decline in multifamily construction starts in 2024 versus 2022, yet the sector has performed well with a weighted average rent increase of 3.4% year-over-year [47] Market Data and Key Metrics Changes - The commercial real estate market is healing with increased transaction volume and price transparency, despite higher-than-expected CPI impacting near-term interest rate expectations [36] - The lending environment is competitive, with significant capital availability, leading to tighter spreads on stabilized real estate [42] - The company expects repayments to exceed fundings, projecting over $1 billion in repayments throughout 2024 [50] Company Strategy and Development Direction - The company aims to optimize its REO portfolio and believes that selling these assets can generate an additional $0.12 per share in distributable earnings per quarter [52] - The strategy includes focusing on internal portfolio management and monitoring credit migration before resuming new originations [76][80] - The company maintains a strong liquidity position with $620 million available at quarter-end, including $107 million in cash [49] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the market's recovery, noting that the supply-demand imbalance in lending is expected to normalize [42] - The company anticipates that the office sector will not see further negative ratings migration from its watch list [45] - Management highlighted the importance of consistent repayments and portfolio stability before increasing lending activities [76] Other Important Information - The company has diversified financing sources totaling $8.7 billion, with 78% of secured financing being non-mark-to-market [49] - The weighted average risk rating on the portfolio remains at 3.2, with 85% rated 3 or better [59] Q&A Session Summary Question: How should we think about reserve rates as losses are realized? - Management indicated that the reserve rate is around 150-160 basis points and is reflective of the current market conditions [64] Question: What is the outlook for 4-rated loans, particularly in multifamily? - Management believes there is still good coverage from a collateral standpoint and does not anticipate material loss content in the multifamily segment [73] Question: What factors will influence the decision to resume new originations? - Management is looking for consistent repayments, portfolio migration stability, and leverage ratios to return to historical levels before resuming new lending [76][80]

KKR Real Estate Finance (KREF) reported $39.14 million in revenue for the quarter ended March 2024, representing a year-over-year decline of 15.9%. EPS of $0.39 for the same period compares to $0.48 a year ago.The reported revenue compares to the Zacks Consensus Estimate of $43.16 million, representing a surprise of -9.29%. The company delivered an EPS surprise of +5.41%, with the consensus EPS estimate being $0.37.While investors scrutinize revenue and earnings changes year-over-year and how they compare w ...

KKR Real Estate Finance (KREF) came out with quarterly earnings of $0.39 per share, beating the Zacks Consensus Estimate of $0.37 per share. This compares to earnings of $0.48 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 5.41%. A quarter ago, it was expected that this real estate finance company would post earnings of $0.45 per share when it actually produced earnings of $0.47, delivering a surprise of 4.44%.Over the last f ...

[Part I - Financial Information](index=5&type=section&id=Part%20I%20-%20Financial%20Information) This section presents the company's unaudited condensed consolidated financial statements, management's discussion and analysis, and disclosures on market risk and internal controls [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20%28Unaudited%29) The company reported a reduced net loss in Q1 2024, driven by a lower provision for credit losses, while total assets and equity saw slight decreases [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20%28Unaudited%29%20as%20of%20March%2031%2C%202024%20and%20December%2031%2C%202023) Total assets decreased to **$7.26 billion** as of March 31, 2024, primarily due to reduced commercial real estate loans, with a corresponding decline in liabilities and a slight decrease in total equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | **Total Assets** | **$7,256,695** | **$7,547,618** | | Commercial real estate loans, held-for-investment, net | $6,869,622 | $7,133,078 | | Cash and cash equivalents | $106,517 | $135,898 | | **Total Liabilities** | **$5,876,605** | **$6,143,436** | | Secured financing agreements, net | $3,521,796 | $3,782,419 | | Collateralized loan obligations, net | $1,942,569 | $1,942,171 | | **Total Equity** | **$1,380,090** | **$1,404,182** | [Condensed Consolidated Statements of Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20%28Unaudited%29%20for%20the%20Three%20Months%20Ended%20March%2031%2C%202024%20and%202023) For Q1 2024, the company reported a net loss of **$8.7 million**, a significant improvement from the prior year, mainly due to a reduced provision for credit losses despite lower net interest income Condensed Consolidated Statement of Income Highlights (in thousands, except per share data) | Account | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Total net interest income | $39,144 | $46,554 | | Provision for credit losses, net | $33,266 | $60,467 | | Total operating expenses | $50,147 | $76,249 | | Net Income (Loss) | $(3,429) | $(25,254) | | Net Income (Loss) Attributable to Common Stockholders | $(8,739) | $(30,810) | | **Basic and Diluted Net Income (Loss) Per Share** | **$(0.13)** | **$(0.45)** | | Dividends Declared per Share of Common Stock | $0.25 | $0.43 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20%28Unaudited%29%20for%20the%20Three%20Months%20Ended%20March%2031%2C%202024%20and%202023) Net cash provided by operating activities was **$34.5 million** in Q1 2024, with investing activities providing **$236.8 million**, while financing activities resulted in a **$300.8 million** outflow, leading to a net cash decrease of **$29.5 million** Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $34,488 | $41,635 | | Net cash provided by (used in) investing activities | $236,756 | $(113,080) | | Net cash provided by (used in) financing activities | $(300,770) | $87,143 | | **Net Increase (Decrease) in Cash** | **$(29,526)** | **$15,698** | [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20%28Unaudited%29) The notes detail accounting policies, the **$7.1 billion** commercial real estate loan portfolio, increased allowance for credit losses, and **$5.8 billion** in debt obligations, confirming covenant compliance - The company is a mortgage REIT focused on originating and acquiring transitional senior loans secured by commercial real estate (CRE) assets and is externally managed by KKR Real Estate Finance Manager LLC[29](index=29&type=chunk)[31](index=31&type=chunk) - The allowance for credit losses is measured under the Current Expected Credit Loss (CECL) model, using methods like probability of default/loss given default and probability-weighted expected cash flow, incorporating macroeconomic forecasts[65](index=65&type=chunk)[66](index=66&type=chunk) - As of March 31, 2024, the company had future funding commitments of **$725.0 million** related to its commercial real estate loans and a remaining commitment of **$4.3 million** to the RECOP I aggregator vehicle[220](index=220&type=chunk)[221](index=221&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=47&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the impact of macroeconomic factors on its **$7.5 billion** loan portfolio, reporting Q1 2024 Distributable Earnings of **$0.39** per share and maintaining strong liquidity with **78%** non-mark-to-market financing - The company's investment strategy is to originate or acquire transitional senior loans collateralized by institutional-quality CRE assets, with an objective of capital preservation and generating attractive risk-adjusted returns[256](index=256&type=chunk) - As of March 31, 2024, the loan portfolio was **$7.5 billion**, with **99%** of loans earning a floating rate. Multifamily and industrial loans comprised **58%** of the portfolio[272](index=272&type=chunk)[273](index=273&type=chunk)[275](index=275&type=chunk) - The company's financing is comprised of **78%** Non-Mark-to-Market sources, which are not subject to credit or capital markets mark-to-market provisions, reducing exposure to market volatility[304](index=304&type=chunk)[345](index=345&type=chunk) Key Financial Indicators per Share | Indicator | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Net Income (Loss) per Share | $(0.13) | $(0.27) | | Dividends Declared per Share | $0.25 | $0.43 | | Distributable Earnings per Share | $0.39 | $(0.37) | | Book Value per Share | $15.18 | $15.52 | [Our Portfolio](index=50&type=section&id=Our%20Portfolio) As of March 31, 2024, the company's **$7.5 billion** investment portfolio consisted primarily of senior commercial real estate loans, with an average risk rating of **3.2**, and loan repayments exceeding new fundings Loan Portfolio Risk Rating (by Total Loan Exposure) | Risk Rating | % of Portfolio (Mar 31, 2024) | % of Portfolio (Dec 31, 2023) | | :--- | :--- | :--- | | 1 (Very Low Risk) | 0% | 0% | | 2 (Low Risk) | 1% | 1% | | 3 (Medium Risk) | 84% | 86% | | 4 (High Risk) | 5% | 6% | | 5 (Impaired/Loss Likely) | 10% | 7% | Collateral Property Type Diversification | Property Type | % of Portfolio (Mar 31, 2024) | | :--- | :--- | | Multifamily | 43.4% | | Office | 20.7% | | Industrial | 15.1% | | Life Science | 11.0% | | Hospitality | 5.1% | | Other | 4.7% | - The average risk rating of the loan portfolio was **3.2** as of March 31, 2024, weighted by total loan exposure, consistent with the prior quarter[295](index=295&type=chunk) [Results of Operations](index=62&type=section&id=Results%20of%20Operations) Net interest income decreased quarter-over-quarter and year-over-year due to non-accrual loans, while total operating expenses significantly declined in both periods, primarily driven by a lower provision for credit losses - Q1 2024 vs Q4 2023: Net interest income decreased by **$7.3 million** (**16%**) primarily due to the suspension of interest income accrual on loans accounted for under the cost recovery method[333](index=333&type=chunk)[334](index=334&type=chunk) - Q1 2024 vs Q4 2023: Total operating expenses decreased by **$13.4 million** (**21%**), mainly due to a **$16.2 million** lower provision for credit losses[333](index=333&type=chunk)[337](index=337&type=chunk) - Q1 2024 vs Q1 2023: Total operating expenses decreased by **$26.1 million** (**34%**), primarily due to a **$27.2 million** lower provision for credit losses and a **$1.8 million** decrease in incentive compensation[339](index=339&type=chunk)[343](index=343&type=chunk) [Liquidity and Capital Resources](index=66&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2024, the company had **$620.1 million** in total liquidity, a debt-to-equity ratio of **2.1x**, and believes its current liquidity is sufficient to meet all financial obligations Sources of Liquidity (in thousands) | Source | March 31, 2024 | | :--- | :--- | | Cash and cash equivalents | $106,517 | | Available borrowings under revolving credit agreement | $450,000 | | Available borrowings under other financing | $63,552 | | **Total** | **$620,069** | Leverage Ratios | Ratio | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Debt-to-equity ratio | 2.1x | 2.3x | | Total leverage ratio | 4.1x | 4.2x | - The company had **$108.4 million** of unencumbered senior loans that can be pledged to financing facilities as an additional source of liquidity[346](index=346&type=chunk)[355](index=355&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=71&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company is exposed to credit, interest rate, prepayment, financing, and real estate risks, with a 100 basis point change in index rates impacting net cash flows by approximately **$2.1 million**, and **78%** of financing being non-mark-to-market - The company's net income is sensitive to interest rate changes. A 100 basis point decrease in index rates would decrease expected cash flows by approximately **$2.1 million** (**$0.03** per share) for a three-month period, while a 100 basis point increase would increase cash flows by the same amount[385](index=385&type=chunk) - The company faces credit risk from potential borrower defaults, exacerbated by inflation and rising interest rates which can negatively impact underlying real estate collateral values[378](index=378&type=chunk)[379](index=379&type=chunk) - Financing risk is managed by using various forms of leverage, including repurchase facilities and collateralized loan obligations. Weakness in financial markets could adversely affect lenders and increase financing costs[388](index=388&type=chunk) [Item 4. Controls and Procedures](index=73&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2024, the company's disclosure controls and procedures were effective at a reasonable assurance level[392](index=392&type=chunk) - No changes occurred during the quarter ended March 31, 2024, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[393](index=393&type=chunk) [Part II - Other Information](index=74&type=section&id=Part%20II%20-%20Other%20Information) This section covers legal proceedings, risk factors, unregistered sales of equity securities, defaults, mine safety disclosures, other information, and a list of exhibits [Item 1. Legal Proceedings](index=74&type=section&id=Item%201.%20Legal%20Proceedings) The company is not involved in any material legal proceedings - As of March 31, 2024, KREF was not involved in any material legal proceedings[218](index=218&type=chunk)[394](index=394&type=chunk) [Item 1A. Risk Factors](index=74&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - There have been no material changes to the risk factors previously disclosed in the Form 10-K[395](index=395&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=74&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase any common stock during Q1 2024, retaining **$100.0 million** in remaining capacity under its share repurchase program - The company did not repurchase any of its common stock during the three months ended March 31, 2024[397](index=397&type=chunk) - As of March 31, 2024, the company had **$100.0 million** of remaining capacity under its share repurchase program[397](index=397&type=chunk) [Item 3. Defaults Upon Senior Securities](index=74&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) None [Item 4. Mine Safety Disclosures](index=74&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable [Item 5. Other Information](index=74&type=section&id=Item%205.%20Other%20Information) None [Item 6. Exhibits](index=75&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including officer certifications and XBRL data files

New York, NY, April 23, 2024 - KKR Real Estate Finance Trust Inc. (the "Company" or "KREF") (NYSE: KREF) today reported its financial results for the quarter ended March 31, 2024. KKR REAL ESTATE FINANCE TRUST INC. REPORTS FIRST QUARTER 2024 FINANCIAL RESULTS Reported net loss attributable to common stockholders of ($8.7) million, or ($0.13) per diluted share of common stock, for the three months ended March 31, 2024, compared to net loss attributable to common stockholders of ($18.7) million, or ($0.27) pe ...

Financial Data and Key Metrics Changes - For Q4 2023, the company reported a GAAP net loss of $18.7 million or negative $0.27 per diluted share, with distributable earnings of negative $26 million or negative $0.37 per share, including a write-off of $59 million or $0.85 per share [76] - Distributable earnings prior to realized losses were $0.47 per share, compared to a dividend of $0.43 per share [76] - Book value per share as of December 31, 2023, was $15.52, a decline of approximately 5% quarter-over-quarter [76] Business Line Data and Key Metrics Changes - The multifamily segment remains the largest property type, representing approximately 41% of the portfolio, with stable underlying performance and weighted average rent increases of 3.9% year-over-year [78] - Office properties decreased from 26% to 22% of the portfolio, with a full payoff of a $173 million previously risk-rated 4 loan secured by a Washington, D.C. property [78] - The weighted average risk rating on the portfolio remained at 3.2, with 87% of the portfolio rated 3 or better [70] Market Data and Key Metrics Changes - The company noted a significant increase in transaction volumes, both acquisitions and refinances, with the lending pipeline up over 50% from the previous year [104] - The broader market sentiment has improved, with capital flowing into the markets as tail risks driven by inflation and higher interest rates have subsided [55] - The company expects acquisition and refinance activity to increase this year, reflecting a healthy lending market [94] Company Strategy and Development Direction - The company aims to maintain high levels of liquidity and fortify its liability structure while proactively managing its portfolio [87] - The strategy includes taking title to certain assets to stabilize cash flows before selling, with a focus on high-quality real estate [58] - The company is looking to redeploy capital as it realizes losses and removes loans from non-accrual status, aiming to generate additional distributable earnings [102] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the multifamily portfolio, expecting minimal losses despite some noise due to interest rate caps and modifications [36] - The company highlighted the importance of patience in managing REO assets and the need to protect book value while working through challenges [80] - Management noted that the market has changed significantly compared to the previous year, with a better understanding of interest rates and inflation [40] Other Important Information - The Board of Directors declared a dividend of $0.25 per share for Q1 2024, payable on April 15, 2024 [77] - The company has built a diversified liability structure with $8.9 billion of financing capacity and $2.8 billion of undrawn capacity [70] - The CECL allowance decreased to $3.06 per share from $3.21 per share in the previous quarter [76] Q&A Session Summary Question: What drove the decision to cut the dividend? - The dividend cut was primarily driven by earnings drag from REO assets and non-performing loans, with concerns about multifamily loan maturities also playing a role [73] Question: How will the Seattle life science asset discussions play out? - Management indicated that discussions regarding the Seattle asset are ongoing and an update is expected by the next call [74] Question: What are the expectations for the office portfolio? - Management expressed confidence that there would not be significant intermediate-term migration of the office portfolio into higher risk ratings, despite ongoing market stress [81]

Financial Performance - The Company's Book Value per Share (BVPS) was $15.52, which includes a CECL allowance of $213 million, representing 288 basis points of loan principal balance as of December 31, 2023[19, 20] - The company declared a dividend of $0.25 per share of common stock for the first quarter of 2024[21] - Net Income (Loss) was ($0.27) per diluted share for 4Q 2023 and ($0.78) per diluted share for full year 2023, including a CECL provision of $50 million and $175 million, respectively[22] - Distributable Earnings (Loss) was ($0.37) per diluted share for 4Q 2023 and $0.83 per diluted share for full year 2023, including write-offs of $59 million and $74 million, respectively[22] Portfolio Overview - The company has a $7.8 billion predominantly senior loan portfolio with a weighted average unlevered all-in yield of 90%[17, 22] - Multifamily and industrial assets represent 55% of the loan portfolio[17, 22] - The company collected 98% of interest payments during 2023[17, 22, 37] Liquidity and Capitalization - The company has $630 million of available liquidity, including $136 million in cash and $450 million undrawn capacity on the corporate revolver[17, 23] - The company has diversified financing sources totaling $8.9 billion with $2.8 billion of undrawn capacity[17, 23, 58] - 76% of the company's secured financing is fully non-mark-to-market[17, 23, 52, 58]

PART I [ITEM 1. BUSINESS](index=7&type=section&id=ITEM%201.%20BUSINESS) KREF is a real estate finance company focused on originating transitional senior loans for institutional-quality commercial real estate, externally managed by an affiliate of KKR - KREF is a real estate finance company primarily focused on originating and acquiring transitional senior loans secured by institutional-quality commercial real estate (CRE)[18](index=18&type=chunk) - The company is externally managed by KKR Real Estate Finance Manager LLC, an indirect subsidiary of KKR & Co. Inc., which had **$552.8 billion in assets under management** as of December 31, 2023[23](index=23&type=chunk) Portfolio Overview as of December 31, 2023 | Metric | Value (USD) | | :--- | :--- | | Total Investment Portfolio | $7.8 billion | | Senior and Mezzanine CRE Loans (Principal) | $7.6 billion | | Net Investment in Real Estate Owned (REO) | $158.6 million | | Investment in CMBS B-Pieces | $35.7 million | | Common Book Value | $1,077.0 million | - The loan portfolio is heavily weighted towards floating-rate instruments, with **99% of loans** by total loan exposure earning a floating rate of interest as of December 31, 2023[43](index=43&type=chunk)[307](index=307&type=chunk) - KREF utilizes a diversified financing strategy with a focus on non-mark-to-market sources, which represented **76% of its $4.8 billion in secured financing** as of December 31, 2023, reducing exposure to market fluctuations[36](index=36&type=chunk)[37](index=37&type=chunk) Loan Portfolio Diversification as of December 31, 2023 | Category | Top Allocations | | :--- | :--- | | **Property Type** | Multifamily (42%), Office (22%), Industrial (14%), Life Science (10%) | | **Geographic Location** | California (18%), Texas (15%), Massachusetts (10%), Florida (9%) | | **Loan to Value (LTV)** | Weighted Average LTV of 66% | | **Investment Type** | Senior Loans (93%), Mezzanine Loans (7%) | [ITEM 1A. RISK FACTORS](index=18&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company faces risks from lending competition, credit and market volatility, leverage, its external manager relationship, and complex legal and regulatory requirements - **Lending and Investment Risks:** The company operates in a highly competitive market, which may limit its ability to source desirable loans and could negatively affect yields, with investments exposed to economic downturns and interest rate fluctuations[56](index=56&type=chunk)[59](index=59&type=chunk)[62](index=62&type=chunk) - **Financing and Hedging Risks:** KREF's use of leverage subjects it to increased risk of loss, restrictive covenants, and potential margin calls if collateral values decline, while hedging activities may be imperfect and involve counterparty risk[132](index=132&type=chunk)[136](index=136&type=chunk)[145](index=145&type=chunk) - **Manager and Affiliate Risks:** The company's dependence on its external KKR manager creates potential conflicts of interest regarding fees and investment allocations, and termination of the management agreement would be difficult and costly[156](index=156&type=chunk)[159](index=159&type=chunk)[165](index=165&type=chunk) - **Legal and Regulatory Risks:** KREF must maintain its exclusion from the Investment Company Act, which limits operations, and navigate changing regulations, state licensing, and public company obligations[176](index=176&type=chunk)[177](index=177&type=chunk)[192](index=192&type=chunk) - **REIT and Tax Risks:** **Failure to maintain REIT qualification** would result in substantial corporate tax liability, and the required 90% income distribution may force asset sales or borrowings at disadvantageous times[199](index=199&type=chunk)[201](index=201&type=chunk)[209](index=209&type=chunk) - **Operational and Structural Risks:** The company is exposed to cybersecurity threats through its reliance on KKR's IT systems, and KKR's significant ownership stake and anti-takeover provisions may deter transactions favorable to shareholders[232](index=232&type=chunk)[241](index=241&type=chunk)[242](index=242&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=63&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[261](index=261&type=chunk) [ITEM 1C. CYBERSECURITY](index=63&type=section&id=ITEM%201C.%20CYBERSECURITY) KREF's cybersecurity is managed through KKR's comprehensive program, with oversight from the KREF audit committee and no material incidents reported - KREF is externally managed and participates in KKR's comprehensive cybersecurity program, which is led by KKR's Chief Information Security Officer (CISO)[262](index=262&type=chunk)[263](index=263&type=chunk) - Governance includes oversight from KKR's technology and information security risk committee and periodic presentations to the KREF audit committee on cybersecurity matters[265](index=265&type=chunk)[267](index=267&type=chunk) - KKR's risk management strategy includes an incident response plan, continuous infrastructure monitoring, regular audits, and periodic employee training[268](index=268&type=chunk)[269](index=269&type=chunk) - As of the filing date, the company has **not been materially affected by any cybersecurity incidents** for the reporting period[270](index=270&type=chunk) [ITEM 2. PROPERTIES](index=65&type=section&id=ITEM%202.%20PROPERTIES) The company's principal executive offices are located in New York, and it does not own any real property for its own use - The company's principal executive offices are located at 30 Hudson Yards, New York, New York, and it does not own any real property for corporate use[271](index=271&type=chunk) [ITEM 3. LEGAL PROCEEDINGS](index=65&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company was not involved in any material legal proceedings as of the end of the fiscal year - As of December 31, 2023, **KREF was not involved in any material legal proceedings**[676](index=676&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=65&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - Not applicable[273](index=273&type=chunk) PART II [ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES](index=66&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT'S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) KREF's common stock trades on the NYSE, and the dividend for Q1 2024 was reduced to $0.25 per share, with no shares repurchased in 2023 - The company's common stock began trading on the NYSE under the symbol "KREF" on May 5, 2017[274](index=274&type=chunk) Dividends Declared Per Common Share | Year | Q1 | Q2 | Q3 | Q4 | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | **2023** | $0.43 | $0.43 | $0.43 | $0.43 | $1.72 | | **2022** | $0.43 | $0.43 | $0.43 | $0.43 | $1.72 | - The common stock dividend for the first quarter of 2024 was **reduced to $0.25 per share** to support dividend coverage from the performing loan portfolio[276](index=276&type=chunk) - The company has a **$100.0 million share repurchase program**, under which no shares were repurchased during the year ended December 31, 2023[284](index=284&type=chunk)[285](index=285&type=chunk) [ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=69&type=section&id=ITEM%207.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) The company reported a net loss of $(53.9) million in 2023, driven by a significant provision for credit losses, resulting in a book value decline to $15.52 per share 2023 Operating Results Highlights | Metric | Value | | :--- | :--- | | Net Loss Attributable to Common Stockholders | $(53.9) million | | Net Loss per Diluted Share | $(0.78) | | Distributable Earnings | $57.6 million | | Distributable Earnings per Diluted Share | $0.83 | | Dividends Declared per Common Share | $1.72 | - The company took title to a defaulted senior office loan, recognizing a **$58.7 million realized loss**, which equated to $(0.85) per diluted share[292](index=292&type=chunk) Book Value Per Share Reconciliation | Metric | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Stockholders' Equity | $1,404.8M | $1,571.5M | | Less: Preferred Stock Liquidation Preference | $(327.8)M | $(327.8)M | | Common Stockholders' Equity | $1,077.0M | $1,243.8M | | Total Shares Outstanding | 69,386,568 | 69,095,011 | | **Book Value per Share** | **$15.52** | **$18.00** | - The book value as of December 31, 2023, includes the impact of a **$212.5 million CECL credit loss allowance**, equivalent to $(3.06) per share[302](index=302&type=chunk) - The loan portfolio's average risk rating was 3.2, with loans rated 4 or 5 (High Risk/Impaired) representing **13% of the total loan exposure**[305](index=305&type=chunk)[332](index=332&type=chunk)[333](index=333&type=chunk) - Net interest income decreased by $4.3 million YoY to $181.6 million, primarily due to the suspension of interest income accrual on nonaccrual loans[374](index=374&type=chunk)[375](index=375&type=chunk) - Operating expenses increased by $66.3 million YoY, driven mainly by a **$62.7 million increase in the provision for credit losses**[378](index=378&type=chunk) [ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=94&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company is primarily exposed to credit, interest rate, and real estate market risks, with rising rates generally increasing net income from its floating-rate portfolio - The company's primary market risks include credit risk, interest rate risk, prepayment risk, financing risk, and real estate risk[425](index=425&type=chunk) - As of December 31, 2023, the company's floating-rate loan portfolio and financing arrangements were all indexed to Term SOFR, completing the transition from LIBOR[436](index=436&type=chunk) Interest Rate Sensitivity Analysis (as of Dec 31, 2023) | Change in Index Rates | Impact on Quarterly Cash Flow | Impact per Common Share | | :--- | :--- | :--- | | **+100 bps** | +$2.2 million | +$0.03 | | **+50 bps** | +$1.1 million | +$0.02 | | **-50 bps** | -$1.1 million | -$0.02 | | **-100 bps** | -$2.2 million | -$0.03 | - The company faces financing risk from potential weakness or volatility in financial markets, which could affect lenders' ability or willingness to provide financing[439](index=439&type=chunk) [ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](index=97&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section contains the audited consolidated financial statements, which received an unqualified opinion, and detailed notes on the company's financial condition - The independent registered public accounting firm, Deloitte & Touche LLP, issued an **unqualified opinion** on the company's financial statements and its internal control over financial reporting as of December 31, 2023[446](index=446&type=chunk) - **Critical Audit Matters** identified by the auditor include the estimation of the Allowance for Credit Losses (specifically regarding economic conditions and collateral value determination) and the valuation of Real Estate Owned (REO) assets[452](index=452&type=chunk)[453](index=453&type=chunk)[458](index=458&type=chunk) Consolidated Balance Sheet Summary (in thousands) | | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$7,547,618** | **$7,802,321** | | Commercial real estate loans, net | $7,133,078 | $7,387,164 | | Real estate owned assets (total) | $183,108 | $80,231 | | **Total Liabilities** | **$6,143,436** | **$6,230,885** | | Secured financing agreements, net | $3,782,419 | $3,748,691 | | Collateralized loan obligations, net | $1,942,171 | $1,935,592 | | **Total Equity** | **$1,404,182** | **$1,571,436** | Consolidated Statement of Income Summary (in thousands) | | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Total net interest income | $181,610 | $185,873 | | Total other income | $21,199 | $19,194 | | Total operating expenses | $233,756 | $167,416 | | *Provision for credit losses, net* | *$175,116* | *$112,373* | | **Net Income (Loss)** | **$(31,657)** | **$37,593** | | **Net Income (Loss) Attributable to Common Stockholders** | **$(53,919)** | **$15,371** | [Note 3. Commercial Real Estate Loans](index=119&type=section&id=Note%203.%20Commercial%20Real%20Estate%20Loans) The loan portfolio's carrying value was $7.13 billion, net of a significantly increased $210.5 million allowance for credit losses driven by office sector stress Loan Portfolio Summary | Metric | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | **Outstanding Principal** | **$7,369.4M** | **$7,562.4M** | | Amortized Cost | $7,343.5M | $7,494.1M | | Allowance for Credit Losses | $(210.5)M | $(107.0)M | | **Carrying Value** | **$7,133.1M** | **$7,387.2M** | | Number of Loans | 69 | 76 | Allowance for Credit Losses Activity (in thousands) | | Commercial Real Estate Loans | Unfunded Loan Commitments | Total | | :--- | :--- | :--- | :--- | | **Balance at Dec 31, 2022** | **$106,974** | **$4,138** | **$111,112** | | Provision for credit losses, net | $177,202 | $(2,086) | $175,116 | | Write-offs charged | $(73,706) | — | $(73,706) | | **Balance at Dec 31, 2023** | **$210,470** | **$2,052** | **$212,522** | - The portfolio's weighted average risk rating was 3.2, with loans rated 5 (Impaired/Loss Likely) having a total exposure of **$512.1 million (7% of total)** and a carrying value of $505.4 million as of December 31, 2023[576](index=576&type=chunk)[579](index=579&type=chunk) [Note 5. Debt Obligations](index=127&type=section&id=Note%205.%20Debt%20Obligations) KREF maintained $3.78 billion in secured financing with a weighted average cost of 7.6% and was in compliance with all financial covenants Secured Financing Agreements Summary (as of Dec 31, 2023) | Facility Type | Maximum Size | Outstanding Principal | Weighted Avg. Funding Cost | | :--- | :--- | :--- | :--- | | Master Repurchase Agreements | $2,000.0M | $1,477.2M | 7.5% (avg) | | Term Loan Facility | $1,000.0M | $561.4M | 7.3% | | Term Lending Agreements | $1,977.4M | $1,329.4M | 7.6% (avg) | | Revolving Credit Agreement | $610.0M | $160.0M | 7.5% | | **Total / Weighted Average** | **$6,578.0M** | **$3,794.1M** | **7.6%** | - The company is subject to financial covenants including a minimum interest coverage ratio of 1.4x and a maximum total indebtedness ratio of 83.3% of total assets, and **was in compliance with all covenants** as of December 31, 2023[615](index=615&type=chunk) [Note 10. Equity](index=135&type=section&id=Note%2010.%20Equity) KKR and its affiliates held 14.4% of KREF's common stock, and the company did not repurchase shares or issue stock via its ATM program in 2023 - As of December 31, 2023, KKR and its affiliates beneficially owned 10,000,001 shares, representing **14.4% of KREF's outstanding common stock**[646](index=646&type=chunk) - The company **did not repurchase any common stock** under its $100.0 million repurchase program during 2023, with the full capacity remaining available[649](index=649&type=chunk) - **No shares were sold** under the At-The-Market (ATM) stock offering program in 2023, with $93.2 million remaining available for issuance[651](index=651&type=chunk) [ITEM 9A. CONTROLS AND PROCEDURES](index=152&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of year-end 2023 - The Chief Executive Officer and Chief Financial Officer concluded that the company's **disclosure controls and procedures were effective** as of December 31, 2023[728](index=728&type=chunk) - Management concluded that the company's **internal control over financial reporting was effective** as of December 31, 2023, based on the COSO 2013 framework[731](index=731&type=chunk) - **No material changes** to internal control over financial reporting occurred during the quarter ended December 31, 2023[732](index=732&type=chunk) PART III [ITEMS 10-14. Directors, Executive Officers, Corporate Governance, Compensation, Security Ownership, and Accountant Fees](index=154&type=section&id=ITEMS%2010-14) Information regarding directors, corporate governance, compensation, and other related matters is incorporated by reference from the company's 2024 proxy statement - Information for Items 10, 11, 12, 13, and 14 is **incorporated by reference** from the company's definitive proxy statement, to be filed no later than 120 days after the fiscal year-end[739](index=739&type=chunk)[740](index=740&type=chunk)[741](index=741&type=chunk)[742](index=742&type=chunk)[743](index=743&type=chunk) PART IV [ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES](index=154&type=section&id=ITEM%2015.%20EXHIBITS%2C%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists all financial statements, schedules, and exhibits filed as part of the annual report - This section provides a comprehensive list of all documents filed as part of the Form 10-K, including financial statements, schedules, and exhibits[744](index=744&type=chunk) [ITEM 16. FORM 10-K SUMMARY](index=160&type=section&id=ITEM%2016.%20FORM%2010-K%20SUMMARY) The company has not provided a summary for its Form 10-K - None[752](index=752&type=chunk)

KKR Real Estate Finance Trust Inc. (NYSE:KREF) Q3 2023 Results Conference Call October 24, 2023 10:00 AM ET Company Participants Jack Switala - IR Matt Salem - CEO Patrick Mattson - President and COO Kendra Decious - CFO Conference Call Participants Sarah Barcomb - BTIG Stephen Laws - Raymond James Don Fandetti - Wells Fargo Jade Rahmani - KBW Rick Shane - JP Morgan Steve Delaney - JMP Securities Operator Good morning, and welcome to the KKR Real Estate Finance Trust Incorporated Third Quarter 2023 Financia ...