KKR Real Estate Finance Trust (US:KREF)2022-04-26 18:04Financial Data and Key Metrics Changes - For Q1 2022, the company reported GAAP net income of $29.8 million, or $0.47 per basic share, and $0.46 per diluted share, with distributable earnings also at $29.8 million, covering a dividend of $0.43 per share [5][6] - Book value per share increased to $19.46 as of March 31, 2022, up from $19.37 as of December 31, 2021, marking the eighth consecutive quarter of growth [5][6] Business Line Data and Key Metrics Changes - The company originated nine senior loans totaling $844 million in Q1 2022, bringing the total funded portfolio to a record $7.25 billion, which is a 36% increase year-over-year [10][25] - Multifamily loans represented 55% of Q1 origination commitments, with industrial and life sciences making up 18% and 15% respectively [11] Market Data and Key Metrics Changes - Increased volatility and geopolitical risks led to a more conservative lending environment, with rates in the senior secured CRE lending market widening by approximately 25 basis points compared to the previous quarter [11] - The company noted strong activity in the pipeline, with approximately $1.3 billion of loans either closed or under exclusivity subsequent to quarter end [14] Company Strategy and Development Direction - The company focuses on first mortgage loans secured by high-quality real estate owned by institutional sponsors, aiming for strong risk-adjusted returns [12] - The management emphasized the importance of adapting to the current market conditions, with a strategy to lend conservatively while capitalizing on strong demand for real estate as an inflation hedge [31] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the uncertainty in the macro environment due to inflation and interest rate increases but noted healthy conditions in the real estate sector, particularly in growth areas [30] - The company expects earnings to become positively correlated with rate increases in the second half of the year, as they transition to new loans with lower rate floors [14][44] Other Important Information - The company raised $151 million in net proceeds through a follow-on issuance of preferred shares and $134 million through a common equity offering, which is accretive to book value [20] - The liquidity position remains strong, exceeding $750 million as of quarter end, including over $170 million in cash [20] Q&A Session Summary Question: Can you talk to the tone in the current market and what you’re seeing from borrowers as well as competitor lenders? - Management noted a cautious tone in the lending market, with increased structure and reduced leverage, but still observed strong demand for real estate as an inflation hedge [30] Question: What impact do you believe the growth in the non-traded REIT sector is having on the market? - Management indicated that the growth in non-traded REITs is creating more lending opportunities, as these entities are typically low-leverage borrowers [35] Question: Can you walk through ROE on a new dollar put into a senior loan multifamily today versus how that looked in the fall? - Management stated that asset and liability spreads have widened by about 25 basis points, but leverage available to borrowers remains largely unchanged [40] Question: Can you talk about the two Philadelphia office buildings that were added to the watch list? - Management explained that the loans were added to the watch list due to business plan delays and a lack of progress in leasing, influenced by the broader Philadelphia market conditions [47][64] Question: How does the competitive landscape impact deal terms and pricing? - Management observed that leverage has dialed back about 5% across property types, with multifamily loans currently at high 60s to 70% LTV and office loans around 60 to 65% LTV [51]