KKR Real Estate Finance Trust (US:KREF)2024-02-07 16:24Financial 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]