KREF - Earnings call transcript Q2 2018 | KKR Real Estate Finance Trust Inc.

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Operator

Good day, and welcome to the KKR Real Estate Finance Trust second quarter financial results conference call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Sasha Hamilton of Investor Relations. Please go ahead.

Sasha Hamilton

you. Thank KKR of Trust XXXX. the the Call Estate Quarter Second Real to Earnings Finance for Welcome Mostafa I'm Matt Patrick and Salem, today our our joined by co-CEOs; Mattson, Chris our Lee and Nagaty, CFO. COO;

refer of call portion reconciled future of statements, or precautionary would in our Chris. I This results these Relations the our do performance. release the which on remind I our filed of we to financial recently begin, before we to to which figures on forward-looking to which in website. statements. turn Investor like contain non-GAAP also are Before will certain call, recap and over A both are GAAP refer not XX-K events everyone guarantee related most available quick supplementary to that factors Please things presentation, will to the earnings measures our

$XX.X $X.XX sale share, quarter million the For B-Piece Net core the was income gain due second $XX.X were or the in quarter investments net annualized CMBS of of respect per of In on June quarter. $XX.XX, per our the $X.XX. was as yield on a stock price July, prior share. GAAP realized closing significantly $X.XX from our million $X.XX yesterday's dividend or of to XXXX, to earnings with up dividend an Book X.X%.. we the of XX, share the reflects up second paid Based value per share per XXXX, quarter. $XX.XX, of

the now this shortly turn call With dividend, we'll announcement and meet to Our thereafter. Lee. to board Chris QX has would I make scheduled September over to the in discuss to that, an like

Christen Lee

quarter and us for morning, joining for you our earnings second Thank you, Sasha. Good call. thank

senior XX% entire increase volume originated same of August ended of total of our last over originated additional us. the a loans, year XX over franchise the million billion for $XXX $X.X an billion of XX% XXXX. record originations. demonstrate $XXX Post August loans, originations months and quarterly strength year the $X.X XXXX full We to year-to-date bringing ended to the continue of we increase originations a end, quarter originated loans, XXXX, We billion we a X, million for compared to XXXX, quarter. In X, this of period us $X.X

We have of built months another million close in we pipeline coming to under up loans, exclusivity, $XXX a subject conditions. currently closing robust to expect of customary the that

on we $X since As risk-return attractive had of the able several June capital, year. the at XX, Despite beginning over investment competitive invest lending parameters we a our environment, increase details consistent with shortly. the total the billion, quarters. XX% to Matt to the last same of stood portfolio activity more opportunities secure provide a been have will have

intermediaries the in sponsors relationships from sourcing record and of that our pace with the benefit Our KKR role demonstrates and extensive our the These months XXXX. originations we perspective. and integration advantages the loans key seven of in played Estate with a competitive underwriting a platform the have first marketplace originated in Real

have market, complexity. improved, creativity and speed, to penetration. it very improved continued this In presence to we as which market and has relates like, certainty competitive ourselves awareness differentiate brand Our structuring variables noneconomic to around led through have market

significant We our have the of also as which portfolio. post-close developed during loan, across a pace repeat borrower-friendly the business strong being driving a reputation lender is

our segment cost focus positioning a on to capital, best-in-class the lighter competitive opportunity originate of enhances transitional achieving continued of also our trying set. loan in have to We when which

the We we are encouraged and by are having with conversations borrowers intermediaries.

right of balance to remainder origination lending side of to the first I'll of had We and our the pleased secure highest quality our the activity, pipeline are our transitional have half are it sheet. in year to this making an confident with for ability robust and look over forward We We've a competitive that, positioning of turn opportunities. and With Matt. share continuing our the we're the XXXX. on the momentum progress exciting

Matthew Salem

basis, and I'll Philadelphia. respectively. floating-rate investments. class Chris, discussing million. these good start by collateralized loans we originated and by loans coupon is totaling spot portfolio. average program sponsors XX%, second in loans the quarter, existing these loans, three These lending XX% XX.X% our markets. And recent in-place properties have weighted LTV possibility IRR which the our and on three of office institutional a the of Queens, located the senior morning, cash fit are LIBOR office for light B+ Thanks, plus flow are X.X%, These Boston and weighted transitional everyone. major average average Notably, three and for creates occupancy loans B and $XXX near-term consistent which three levered our In to a LIBOR, with underwritten and properties is The stabilization. in of

third quarter. the into continued has pace origination strong Our

senior closed a secured by multifamily million portfolio and We in loans, occupied loan senior XX% have two $XXX located Tampa. already Atlanta an

loans senior property $XX refinanced with an an Atlanta, also loan a in portfolio, our in We XX% Georgia, existing an XX weighted additional occupied LTV protection. by million of secured class creating call average plus LIBOR. two months coupon loan new The at basis, B+ industrial IRR underwritten levered XX% on a respectively. loans and the repeat spot are average loans And these X.X%, these LIBOR of for have are to XX.X% weighted borrowers. Both of and a

management, with of that key through estate been the team's we extensive borrowers owners origination borrowers provide real the with first-class our platform and activity. have We've to and able been of operators our our experience drivers asset team Our relationships differentiate subsequent nearly X/X XX-month and our Repeat process. and of our last to year-to-date about of process originations and volumes borrowers originations. speaks borrowers and repeat existing borrowers represent convert XX% to our ability closing

pace the million. exclusivity our under totaling over few Looking continued, close has at origination pipeline, months, five approximately forward strong with to our next loans $XXX

borrowers. X existing by X as pipeline the these driven As closing conditions. for repeat always, are relationships, is of to customary to are subject this Again, loans

had $XX end, the to loan paydown condo of million mentioned I of received our of loan of a Austin, multifamily income $XXX,XXX inventory quarter. sale prepayment earlier, $XX by of a terms property million a quarter, in addition repayments, to a in refinance secured this senior with in associated approximately In the the the Subsequent resulting units. we in we quarter repayment third

As our portfolio in starting a see to pickup repayment seasons, we are volume.

in We quarters repayments first run few rate of the expect pay-off a additional next to over the and XXXX. half enter schedule

to Turning portfolio. our

across XX, have diversified, portfolio June and in is and was multifamily invested senior our than of funding as both the with billion, securities performing loans million of performing. XX% is another portfolio. XXX% $X note, As And of construction loans is in property portfolio expected. the portfolio. are types. exposure and geographically obligations. we $XXX of the future portfolio hotel our Office XX% comprise X% loans no less and our is of loans Also The

continue transitional discussed calls, few concentrate business multifamily we office the plans. in the As last and due we short-term, types to property on their light to

of As the office in was average end, of XX%. portfolio properties our the occupancy quarter

approximately CMBS note, target focused are creating we B-Piece million. for a yield and sold of the of net We our highest On to creating majority quality. we on credit incremental defensively the $XXX investment for the quarter, proceeds during another portfolio will opportunities, quality positioned continue

income, of in recorded which, the of as net the $X.X a XX, realized GAAP unrealized we June gain for million quarter. first X $XX ended was million For months

million of realized share basis per a CMBS cost investments earnings, core the gain of For $X.XX initial we $XX.X or the over sold.

incentive and income completed quarter, has been gain in discuss the of when is This result in but fee excluded quarter. this realized. this GAAP, earnings until All third shortly. in the been in will Patrick more sale $X.X detail this the recognized million has from a core will was

sale million positive we we impact company We continue of and million, the In our the the Post half to pleased year. $XX summary, the value CMBS with is for are to a and the shareholders. of made $XX.X with outcome XX% we good first RECOP, and sale, direct have which of commitment hold funded. a progress fair economic investments the this

pending portfolio. $X And as loans We pace originations, closing we and with are approximately the our today. quality of are with line target in of with of closed our the billion or performance of pleased

I'll call Now the Patrick. turn over to

Patrick Mattson

good everyone. you, Matt, and Thank morning,

the the a average point a rating $X of weighted consistent risk of on totaled which at prior five quarter. has end with portfolio, Our the scale, quarter X.X billion

which Additionally, loans, well as in short-term LIBOR-based of end, benefit quarter increases from in positions XX% of floating-rate us portfolio was the rates. invested to interest

balance Looking at the right-hand of sheet. the side

We continue to optimize our financing.

improve a on term highlighted with call, we nonrecourse. a of loan been working matched-term funding to In cost Capital us non-mark-to-market provides As and the financing options structure and our Markets agreement April, into we've that financing and entered closely liabilities. explore basis KKR last

capacity. $XXX size the of quarter, $XXX the During subsequently million total this million from to we of facility increased

this average X.X%. XX, which on earlier partial June the non-mark-to-market on LIBOR facility is was of recourse facility, As and the term million month, we weighted the similar of a rate plus matched-term, with closed these LIBOR the loan new lending $XXX rates opportunities and attractive secure the an to KREF, to The delivering allows mid-XXXs. while the still attractive credit pricing of highest-quality better costs facilities company, plus of compete return for company. us for Separately,

ability from In and perspective improves balance the a risk more and is mark-to-market liability to addition, sheet. structure on our liquidity durable the manage

additional of focused capacity. size with are matched-term, work these to create KKR both facilities. Capital to the continue financing We we'll on of And increasing Markets non-mark-to-market

convertible facilities, proceeds notes issued new our positive net $XXX quarter, sheet, new interest the In correlation addition we us provide the year this to the of these increase power balance raising $XXX These to and company further grow for portfolio to our of rates. five rising earnings and million company. of notes diversify million also capital

closed debt-to-equity total to X.Xx a at perspective. Turning X.Xx and quarter the the We leverage from ratio.

we repurchased the higher the to as And a other on note of price share. shares and $XX.XX non-mark-to-market a financing new XX,XXX shares year-to-date share. at target continue fund new Xx In $XX.XX end, repurchases basis. XXX,XXX per when weighted second as price quarter we sheet. reminder, releverage average senior One ratio of we on Post originations. repurchased X,XXX loans slightly at we leverage to average an additional the bringing shares, a on per weighted We portfolio quarter, a balance generally

Our one new board starting in year authorized for repurchase a program million $XXX June.

million And million generally is this As below $XX during repurchases an available value. of today, book future additional period. authorization $XX.X remaining for stock is

questions. it to incentive one fee Finally, item the clarifying open to we before up related

quarterly with be trailing rate. pays third connection of hurdle will will in fee the run of expect CMBS gain to rate current a quarter we as fee company directly in million, is the earnings quarter, the incentive include expense the a on second sale. calculated net CMBS million earnings. XX% $X.X and a lag, reminder, operations, our of The per things quarter, of a XX-month $X.X incentive X% incentive which which incentive $X.X with over core of up. the As on a so sale estimated to Wrapping of approximately fee investments fees million included million related is $X.X total approximately an calculating for Based paid

quarter and solid strong third to Another a start quarter. the

Our And thank performing, support. is creating questions. pace and are Thank you our we you And again to us differentiated significant financing. remains today. your take now origination progress robust, joining happy we your for portfolio made for

Operator

[Operator Instructions].

from Laws will question come first Our Raymond of Stephen James.

Stephen Laws

half earnings, quarter? And much that touch we of I idea back the portfolio? and isolate quarter to you core how rate an core we of CMBS a those on of run the guess, the consider first, second need impact assets first B-Piece as maybe in Can kind think assets the contributed EPS about year? from loan the can then in maybe any we give we us try if

Mostafa Nagaty

Mostafa This Nagaty. is

just of on proceeds net $XXX CMBS So our the million. about the quarter, during majority we obviously, the of CMBS, for picking sold

the Pieces about and Our as million, initial sold cost was the CMBS of million. XX, basis fair December for $XX was value $XXX

And mentioned as ended in that was we million Matt months $XX for of $XX for in unrealized and net million, quarter. XX. remarks, the GAAP first remember, So Patrick the realized six income $X.X million the June

the As $XX $XX and million. remaining around of million have amounted, balance principal of June fees value a of fair XX, I guess,

and QX $X.X for between million the XX look So includes approximately our of related you million, the December our months, at CMBS the million unrealized $X.X core $X.X reversal -- piece six mark. $XX.X and basis in includes earnings, to initial if the cost million that the difference

Stephen Laws

in And gains correct? the that on the Okay. $X.XX earnings, is $X.XX, contributed core

Mostafa Nagaty

$X.XX.

unrealized net $XX.X is of is $X.X as and QX; million the included basically QX pieces income, December difference $X.X the and So in the realized the the as this million, between the during million, million, $X.X reversal mark. which you initial basis cost well the the define

Stephen Laws

Seems and the out yields have about Okay, little new second out bit. a numbers. great. like tight it seeing you Appreciate Is in investments? those on asset do other like a things on bit just Can got talk what LIBOR? little a little widened willing quarter, are Can to you're bit a has new about to competition feel you and small sample lend? flattened you're where little seeing as competitors investment talk size, spread what as borrowers the far a you

Matthew Salem

Yes, thanks It's I'll so Stephen, for Matt. I and that. answer joining -- mean us.

end, to I It's think if largely what compete you and price we feels we've the I competitive. look similar. quarter clearly done quarter-over-quarter would subsequent on spread. base, market mostly in say,

And so I spread nature mostly quarterly quarter-over-quarter, and property in that's when think of due the the would of just underlying to you say, the business in see, differences I terms originations transitional plan.

for were or very what the did of at transitional specifically so second think the you'll for those note market. quarter, segment lending the within you And us that light if we I look

see tighter those spread you for of slightly And types so a opportunity.

we the market between XXXs. really low plus we anywhere I the see that the call, mid-XXXs think on LIBOR mentioned to last

with still underlying again, doing is. the and And nature I that of think that's property largely we're what today. is consistent business transitional how plan the based that, on the largely range

Stephen Laws

guys And in that room do switching financing is see financing, that? mind Is of cost your job the driving down do go? of a color, Matt. great as Where more there appreciate done your to Where -- in as target have Right, financing. sides stand your far there a blended costs? to you you

Patrick Mattson

there's question. to here. Yes, Stephen, think definitely Patrick. go Thanks it's for room more the I

is kind matched-term, this of do to I increase we're to financing. non-mark-to-market trying think what

look don't bring in costs the down. if to where can mid-XXXs, we're have compression have on that But which the financing a those obviously, in of an regular show to newer said, facilities kind see can eye achieving And side other seen on continue market. course, deals, continuing in repos, our our we the non-mark-to-market basis. of rates then That So you of been grow that, at that blended the some market. more on we've financing, as such way up alternative we more overall compression we on the we CLO

and the think to facilities, So down. in the for are the non-mark-to-market to at ways increase drive drive same costs I us continue overall the there time,

Operator

Our will next question Jade Rahmani of from KBW. come

Jade Rahmani

can a you're the loans, the Concerning concentration risk-management these if uptick find approaching and quarter average size, one out give your on loan risk loan recent And in in the large the recent perspective? how wanted also, to from you post three some color multifamily quarter end?

Christen Lee

concentration, start Jade, on first question. is. part with it's Chris. the it I'll of that with think about how loan we to respect the Yes, transitional

all, the stable made of -- tenant. XX-plus an office But it that to It a was major on was quite quarter, that we we was that a was profile. have thought loan the underlying year I Queens, in larger a in which think second investment-grade from risk leased basis we an XX% First loan. loan

little top-tier a extent. equity really more credit underlying private We is a in the liked also lean take concentration So to and to we're bit the sponsor. willing to

on -- cross-collateralized the more repeat was above recent million, I it was also borrower, that but was in think $XXX also collateral. it loan,

have the a we classes, think stable one of multifamily, So and base. more had collateral multiple we is properties which comprising we that asset

also targeting. in willing So a were was risk we it thought enough we to profile very that were to where this liked on we we And size. again, attractive lean

markets. continue range. size more opportunities kind we I gravitate will that to $XXX you of you to million that to think $XXX larger better see target. million-plus have up. Number mature, larger or one, of we larger some loan in think loans, occasionally, gravitate continue And should find sponsors these business we as But will to to slightly our the we liquid expect us average in

the So over that that, Matt, maybe can few with to talk he I'll of turn and it some deals we about did. last

Jade Rahmani

plans. to if on execute strategy, give the it the takes these line color office could And any you just that lease-up time

Christen Lee

-- business where typically it's it's of Yes, to XX- business plans plan. XX-month a look kind we to

quite Some short. can be

Some done, we've the already plan is of process. refinancings business the in

leasing Philadelphia. had that's of with XX% to was in business was of been loan leased. we renovation that quite already Similar or it creation lot to the due and had done. think already And that this intent fair recut already is of letters in the consistent of leased substantially made we place. in think about effectively consistent plan value made a The loan a I The Boston, short, large amount It The process. this also that's loan the Queens. the majority in there's of already I I tenant lease. talked major occurred with in

we of ours, we economic expect months. really to think We're that leasing business XX% lot a the business X remaining a happen a can XX shorter plans risks next the longer-dated It's the environment these to around is taking months of plan, years of have to XX so not kind focus we And in real time over of today. out. underwrite uncertain more X to

Jade Rahmani

in of providing the strategy? prior they are And bridge finding value-add paying other off loans? existing of the loans you the as off loan, and that and nature refinancing a Or on to paying that with you a debt indebtedness property the loans had terms new are owner that properties are or longer-term your are

Christen Lee

paying it's was I mean, mix. loan. off another mean, paying acquisition we're Philadelphia, an the The bridge I Southeast, down like in really off loan. Yes, we're cross-collateralized a Boston another loan. deal

a existing new it's business and right So mix But plan of probably, now, loans a it's what for refinancings really is it's between fair the assets. acquisition depending the sponsor. on mix

Jade Rahmani

Or trend a nature of And light range. LTV's, be a the transitional function an you last in uptick right seem of just that the to few in the LTVs? of in seeing is of Are terms XX% asset? the

Matthew Salem

uptick we're see I Matt. LTV. it's don't in an seeing Jade,

you portfolio transitional I occupancy, and function like just today XX% said, if about described, think we that's on lending Chris we're in. lending a it's when mean, of, the right, nature. think multifamily came I us if And -- that light the multifamily occupied you

a on And of we So at quarter remarks. in as this for I prepared on with mentioned loan, higher the the mostly office did we stabilized, bit advanced can rate. it's is that lend clearly, kind -- little true same the what

on Our weighted-average is XXs the in or the occupancy basis. a board on across really those

months XX like light business lease-up months So of to execution, XX plan strategy.

opposed slightly going as want you're loan, those or we feel be to, lower or you're loan at loan-to-value leverage levels, to loan-to-cost. full And making construction at lease-up a a comfortable so higher a to if much

Jade Rahmani

wondering just I'm if that condo Looks loan? like could asset performing? sequentially. declined you on the an update give How's the inventory balance

Christen Lee

of Jade, expected. kind as it's It's performing Chris.

We sponsor very have there. a strong

very We have a good collateral.

As is loan probably condo slow and have borrower behind New But of York aware, us. bit we the structure, little lot a a equity a right you're we amount sales market of now. in for significant have

see to continue to that expect loan the down paid coming we So quarters. over

Jade Rahmani

And the just confirm fee. incentive lastly, I wanted

will -- earnings incentive you added earnings. fee, for core back be forward, Is be your Going will that the so saying? were comments be it core what won't after

Christen Lee

after earnings be incentive Yes, core the will net fee.

Operator

Instructions]. [Operator

will come Rick from question Shane next Our of JP Morgan.

Richard Shane

look, of trends. size again, out to And sample terms sort in of have originations a small we here figure

then well. question, trend it, circle of little like think but LTV. asked The back Jade as to sort bit and a I of a this I'd is one in pickup other on

that's think noise to signal. more your Jade was answer than I

loans. here due is a more wondering that million, improves to seem for pricing place it's in the market, competition? that be Is around trend see pricing does less the where and we largest I'm to there other $XXX if there The attractive

Matthew Salem

just on mean, noise, comment, LTV. just first higher I'm the sure your it's not Yes. I

a of the are. think I again, function how assets it's stabilized it's just,

to lease-up of construction you LTV focus think and these full So -- on you'll the start type is kind Where you'll real, loans through. I if doing assets, continue of when low get really LTVs similar coming XX% occupied see we you're other strategies.

can there's there want I in we higher you the just way less I sure think checkpoints gravitate think clear that. of multiple And another, I on $XXX competition. is along competition we're suppose. and see to make clearly, around people as less or million, there's loan space. is threshold, of when to So I balance, you you above kind do get you start in one as million, handful $XXX million, $XXX that that can of think kind play get above only Then a

So to to on to loan focus also sponsorships. of in we'll the we the average up. continue and like us markets our the and gravitate size target that participate It quality allows

think think there's it's So a do I do outside overall. it that. see to a us of to just of credit better continue reasons We bunch to you'll competitive But try dynamics.

Operator

gentlemen, any Sasha questions. conclude I'd like back question-and-answer showing At to further closing Hamilton no our will to session. and the This this conference for remarks. time, Ladies over turn

Sasha Hamilton

Thanks, joining today. us everyone, for

any have If to you free feel after additional you. questions, me please call. call the Thank

Operator

Thank now has you for concluded. attending conference today's The presentation.

disconnect You your may lines. now

KKR Real Estate Finance Trust (KREF) 7 Aug 182018 Q2 Earnings call transcript