KKR Real Estate Finance Trust (US:KREF)2022-07-26 18:55Financial Data and Key Metrics Changes - For Q2 2022, the company reported GAAP net income of $19.4 million or $0.28 per diluted share, with distributable earnings of $33.1 million or $0.48 per share, covering the $0.43 per share dividend by over 1.1 times [6][8] - Book value per share as of June 30, 2022, was $19.36, a decline of less than 1% quarter over quarter, impacted by cumulative CECL reserves [7] - The company paid a cash dividend of $0.43 per common share, reflecting an annualized yield of 9.2% based on the closing price [8] Business Line Data and Key Metrics Changes - Strong loan originations of over $1 billion in Q2 2022, with 100% of activity in multifamily or industrial property types and a low weighted average loan value of 63% [12] - Multifamily and industrial loans now represent nearly 60% of the portfolio as of Q2 2022 [12] - The funded portfolio grew by $633 million, reaching a total of $7.9 billion, a 40% increase year-over-year [30] Market Data and Key Metrics Changes - The company raised over $187 million of common equity and $150 million of preferred equity at a fixed coupon of 6.5% [13] - Increased revolver by $275 million, extending its term to five years [13] - The current portfolio has a weighted average risk rating of 3.0, with 96% of loans rated three or better [27] Company Strategy and Development Direction - The company is focused on maintaining higher liquidity and lower leverage in the current economic environment [12][25] - The strategy includes diversifying financing sources, with approximately $1.5 billion of non-mark-to-market financing capacity added [14] - The company aims to continue operating at lower leverage levels until more stability is observed in the market [43][104] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the economic environment of higher inflation and quantitative tightening, highlighting a favorable lending market [10][11] - The company anticipates that short-term interest rate increases will positively impact distributable earnings, with a potential $0.30 per share increase from a 150-basis-point rise [17] - Management remains cautious about the overall market environment, emphasizing the importance of liquidity and risk management [42][104] Other Important Information - The company repurchased approximately 1.4 million shares at a weighted average price of $17.32, which was accretive to book value [23][24] - The liquidity position remains strong, exceeding $790 million, including over $118 million in cash [26] Q&A Session Summary Question: Can you discuss the changes in the lending market over the past few months? - Management noted that leverage has decreased significantly, with loan-to-value ratios dropping from the high-60s to low-60s, and spreads widening by 75 to 100 basis points, indicating a lenders' market [38][39] Question: How does the decline in the 10-year treasury impact the commercial real estate outlook? - Management indicated that while the decline may signal uncertainty, stability in interest rates could lead to increased transaction volumes in real estate [50][52] Question: What is the outlook for repayments in the coming quarters? - Management expects repayments to be in the range of $400 million to $500 million per quarter, but noted that this can vary based on market conditions [54] Question: Can you provide insights on the provision for CECL and the office market? - The CECL reserve increased to $34 million, and management remains cautious about the office market, focusing on quality assets in growth areas [58][61] Question: How do you view the liquidity positions of your sponsors? - Management expressed confidence in the financial strength of their sponsors, noting that most are institutional with significant financial resources [85]