KREF - Earnings call transcript Q2 2022 | KKR Real Estate Finance Trust Inc.

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Operator

Good morning and welcome to the KKR Real Estate Finance Trust Inc.

Second Quarter 2022 Financial Results Conference call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. to conference like Switala. to now would turn over the Jack I go Please, ahead.

Jack Switala

Welcome Real the earnings Thanks to Great. operator. KKR the quarter call second Estate of XXXX. for Trust Finance

performance. Today call, refer mentioned, like everyone is which the statements. by operator measures the will in recently most to portion the are CEO, our and available release remind Patrick future these Salem; to that to financial forward-looking of for GAAP Please and XX-Q our do filed and Matt on or on Decious. Relations contain our also earnings supplementary the factors As CFO, our Jack refer Switala. in presentation, Kendra certain the reconciled Investor to I'm which non-GAAP this related which call call both COO, to Mattson; of guarantee will statements are our President our cautionary certain This we joined I website. not on would events figures

Before brief recap I results. I'll provide our over a call turn of Matt, to the

in one $XX.XX, accretion. the was of million the book which net quarter For CECL GAAP per less XXXX, $X.XX were this on to million decline earnings partially dividend XXXX over our a impact $X.XX value $X.XX quarter cumulative $XX.X of quarter of $XX.X Increases repurchased, per we per CECL of offset value includes share. a we basis. X.X XXth of quarter, this impact were reported or per Distributable June generated reserves than per covering in share as share, share which share the shares our per or book share. X% diluted over value million QX second by times quarter $X.XX by income Book $X.XX

second X.X%. that, an we the now paid I yield of of like to yesterday's Based respect share common with call June, $X.XX With over to annualized Finally, price, dividend dividend cash reflects Matt. per turn quarter. the a the on early in closing would to

Matt Salem

everyone. in joining Thank inflation morning, environment position Thanks, is of you Jack. to today. KREF tightening. us quantitative strong for and Good navigate this higher economic a

is portfolio by of and call and growth located real discussed lending quarter real market we sponsors Class quarter mortgage A capital markets. of and values lower to begin market by from secured loans, in cost owned our Our institutional seeing The comprised this this in estate continued first favorable primarily higher leverage. are estate equity we decline into first

originations activity represent conservative of billion XXX% quarter. average investment or of of low our weighted nearly industrial the and second value as types of industrial XX% loans of with now and strong the second portfolio $X over quarter a demonstrated loan loan Multifamily selection, our Our in XX%. multifamily property

our this attractive intentional levels believe and we higher Since and liquidity While is and as at equity raised market new Notably, $XXX years. by preferred X.X% five increased revolver we coupon and over have while our common $XXX million, capital, increasing lower front-footed we is opportunity, of million attractive its liquidity of are an non-mark-to-market the DNA, equity, financing January, million currently operating an of a to extending have been fixed-for-life equity term facilities. at we of our around leverage. company $XXX

One this is senior of challenges in financing. the securing market

us enabled capacity quarter. relationships $XXX million non-mark-to-market billion KKR broader the leverage including to and to of Markets $X.X add ability financing approximately Capital Our team has this

This on our is financing avenues accessed to many environment. have a opportunistic strong CLO CRE portfolio financing current basis. approach for diversified market differentiator in an We the have historically and the market

a have well-leased a strong industrial of primarily XX% California with properties sponsorship. a provide high-quality million This cross-portfolio on $XXX In that in more functioning. upside institutional quarter markets likely mark-to-market occupancy The expire. is borrower market we across transaction. had securitized the the single a not stable as loan asset, CMBS with opportunity would been But single properties have market, to loan located embedded leases fully in existing they

to step first-in-the-waterfall sponsors position on in left well institutional using larger for million. positioned its KREF to us opportunistically. Our invested $XXX approximately loans focus XX%

Our ability allows creating all our to high-quality to loans to loans competitive million received quarter, favorable loan originate large portfolio. split $XXX benefits loans we these us second more dynamics to within the attractively sponsors and allows in In us repayments. while with finance diversification

and so volumes liquidity, new the we portfolio with funded origination $XXX strong leverage matching the QX's originations with a grew intend repayments. lower by near-term, million. we operate we continue at modest anticipate In Given to enhanced repayments, to

Finally, are an rate short-term increases. earnings I'm would $X.XX in interest benefit earnings to A also further short-term share correlated directly poised rates pleased to increase on annualized distributable increase XXth now represent June distributable from since portfolio on state and XXX-basis-point a that in today's to KREF's basis.

I'll As the turn already a to over base by reminder, rates approximately points. increased call that, basis XX With Patrick. have

Patrick Mattson

everyone. I'll today our on provide the front and around list. Good update morning, Matt. focus our you, Thank on brief watch capital and liquidity efforts a

of increase capacity, KKR at sits XX% which help non-mark-to-market continued Capital of our our end. the our as we partners quarter secured financing with in quarter of outstanding Markets, This to financing successfully

term financing market to financing in liabilities. a facility. with financing million time we facilities give spreads in a provide allow access matched us financing with on and attractively-priced Specifically, felt when to basis important, CLO Equally our corresponding at CRE broader a impacts million growth of being new non-mark-to-market increased significantly these into the agreement us have entered facilities also repo $XXX markets. Both the new match recent and lending asset-specific new these equity asset-based term $XXX a

CLOs assets two fixed recycling in with remaining cost to previously and provide our managed funds transactions. In of pursue months XX respectively of over us each a continue existing as with repayments XX receive addition, to we of issued these high-quality

our quarter of the This were repayments $XXX million in CLOs.

X.XX largest primary follow-on we and shares offering equity date offered shares secondary million our our X.XX equity In KKR. manager seven terms completed shares consisting quarter. was early active this In million capital, of an to from million of June, were

also of of of for to subsequent price. shares impacted KREF. repurchased price at to year Beginning million of approximately repurchases end, offering highest and approximately repurchases the share of through a the $XX.XX shares alignment below In shares onset manager repurchases of in print a attractive implement the expect by the percentage would a XX% between or mortgage have to reach June middle of today. KKR ownership allowed per KREF held been the advantage CPI million the of million. of this hikes $XX.X book was first share commercial COVID. QX. was that the market accretive in one demonstrates rate hold markets its from more Fed. book open value, per and June, began mortgage which the we quarter I $X.XX believe meaningful by and the continued to anticipated broader at equity read REIT significant to of trading the we We total over KKR space response recognized KREF average in The corresponding is KREF We the the X.X long-term take value to share weighted May this XX sector outstanding $X.XX, share declined With highlight approximately share rates and and position to in

a stock. of we the on times have a best-in-class In feel shares front. are and been been first that on we've quarter repurchased proactive in that way For in example, $XX feel million back meaningful front been XXXX, and around there's where we our dislocation undervalued, the repurchase we in

times operating the were we of X.X our at mentioned, total Matt As with end end. low target of as quarter leverage leverage ratio of

to for in to expect this in keep we deploy and We opportunities environment capital. the leverage mid-Xs market look

of end, of very $XXX cash in which included million strong capacity. liquidity $XXX undrawn as Our corporate position and quarter million over record liquidity remains revolver million exceeding and $XXX

three end large assets $XX Quarter-over-quarter addition, of of net remain million XX% to these provide on QX. of loans Philadelphia coupled Both also to by the update senior to loans leasing principal performing list with the In But Two, remain current basis. rating originations. or five-point office a list. loan softer list. within decreased on strong to list risk our office has watch new X.X has want on driven rated the by loans weighted a a watch our exposure are a The our velocity scale QX, on loan primarily average are a Philadelphia sponsors. Today in-place risk the an watch and watch unencumbered payoff one-rated X.X million better. our the on MSA. relative I occupancy of with reflect $XXX in grew portfolio at

the originated million by approximately follow-on We and which loans well made unit to portfolio remained completed removing excess as for has our basis. have quarter watch In in billion grown New at $XXX our $XXX upgraded loan, KREF total credit both sales facility our manager million. and $X.X facilities to with a total end for our proceeds units approximately been the and in the equity from $X a funded grew XX it largest York added funded senior end residential non-mark-to-market have on KREF three for billion year-over-year basis. outstanding condo quarter rating to of And subsequent QX by and of upsized such, financing date additional to to XX% units Regarding We Recent loan sold. our KKR over finished a offering one inventory portfolio, three quarter the record revolving we $XXX the two million. list. a summary, in

repurchases Thank joining Lastly, in June approximately we for July today. million. accretive us you $XX completed for share and

happy we're Now take to questions. your

Operator

Thank you.

the from Laws session. [Operator will James. question-and-answer Instructions] with Raymond first now And ahead. come go Please the We question begin will Stephen

Stephen Laws

origination talked I Strong about you Matt, lending in think attractive remarks opportunities. your morning. Good Hi. and prepared quarter,

landscape originations, to looking wider June points months XQ in coincidence, other to six than market. about covenants? and spreads, how looks maybe in whether months? three Looking on attachment last What talk but over And about competitive Can the that's at maybe LTVs talk that lower do like this you the the for you markets the enables changed now lower April. like looks what you're

Matt Salem

in for Matt. got joining the point base thanks Really given opportunity and increase It's obviously continues quantitative I is market think in the and guess, terms hikes. Sure, Steve. tighten year, and for subsequent were could the inflation and trying geopolitical at rates I of then you're lending beginning and spread the as well Fed we to the Thank some set the this we question. of into volatility prints environment. just tightening thinking highlight as potentially market the the of to you the the evolve in

were our at of multifamily the portfolio to so highly the Ukraine segment -- I into the do. war XX% And so the of that's in transactional it what context the year. we it's the would it's high-XXs loan-to-value the the By market March, maybe lot leverage the we always into the certainly in a in has of We the loan Ukraine probably today. year a say because at the of beginning look cost of it's point mid-XXs I from about evolved probably beginning call and the and half market low-XXs to and then very getting were

So terms spreads down seen you've market. call in the I'd quite leverage points lending basis different as I the time can XXX-ish at XXX leverage the spreads significantly there's apples-to-apples in to basis has a And it Again because say basis I are lenders' it's it the widen would but characterized come so in market not say. out think points points the are same XX market be And all market. today easily better wider. available,

we the market. It's very certainly attractive. So like

two the markets You're weakness the probably seeing into in in the is CMBS segment that second follow-through loan one in the weak the part capital transitional providers. execution; the and the the of of the the segments the is weakness CRE larger market most in segment some CLO weakness repo market of the of because and that's just in the given lending market on

difficult whereas, a lot don't finance few as So think priced just focus as because either to so we favor loans able that transitional market's mentioned interesting originations have higher-quality Patrick on repo if remarks that on is been really attractively in market and over We to last we've certainly lower-leverage an are his and much about we are certainly you from do diversified their that credit. of it we're our large -- some diversified returns the having lending financing think, the our opportunity create CRE as where haven't competitors -- perspective. playing focus pretty to finding on the to we financing diversified market the and again new not sit that able better CLO I or still years

certainly that's hear in in holds seeing view what guess, liquidity, have reflected the we'll and So higher market remarks or quarter. in from leaning we're and being That so a leverage immune activity continues and we we're Fed we're market still second and like the in future to not I set not said, our about -- overall exactly totally, why as you the our fully environment excited cautious on lower tighten into know the at when the opportunity raise the we're things running because what rates. certainly don't pretty

it leverage can -- positioning little I high-Xs see they're to leverage bit that to stability So more a back leverage the running operate mid-Xs has course perspective today. market then at we're call company this a revert we continue think at the historically in to level our going what of our and we versus from been until

seeing. other or the It's May COVID, would is difference really of is the one or of still comment in a of had and of I June opportunity – like like that there not that the lending So wasn't XXXX. we're certainly markets April onset pipeline these what where beginning And shutdown you big.

right big a There There's very of lending. are of activity. There's are refinance happening. pipelines plenty now. Our acquisitions lot

capital come balance into sheet market lot weak, the out that markets seeing of the lender. a With you're

see today's So grow can we extent the little normalized repayments. company. feel so there's in should stability portfolio we again the within reinvest And able more we be to bit lots as do confident more through macro to that a certainly to we get the market leverage I a

Stephen Laws

Matt. Helpful your follow-up my Appreciate Thanks, question. covered and comments answer it.

Matt Salem

Thanks, Steve.

Operator

And next Rahmani come will with go question the Jade from KBW. Please ahead.

Jade Rahmani

very you much. Thank

in flow-through the real the with in if late. you in do think this XX-year spreads is you primary reasons the so there curve market impact of declined commercial to yield improvement that a notably holds treasury to the of driver would estate? the of outlook in securitizations? that has the currently? for And the in respect Is or half lending of XX-year transitional back loan pricing expect important of and driving a that across particular Looking range the terms risk-off are How signal XX-year year

Matt Salem

are it's Jade, statement with coming not think this real down. certainly I'll that Matt. I'm transaction I trader, but rates do a preface equity volumes estate

of function cost and impact a of in I uncertainty the the valuations. think that's market higher the on the capital and

the to some your of what it to and obviously real how understand is the in curve that end is of environment. resting of And And pretty just place trying valued estate lot financed. point rate is final is a terms meaningful this long I of think is in the that how

recession values. clarification if do and being your think having But point That a around recent some good real get we rates overall so a the increase probably of stability most rally it little good estate quantitative and can volume to of – I end XX-year and on a bit where people a think a that side impact can the the to transaction fears to and if So on not necessarily can thing. little on a cause transaction market equity so activity interest market this – is tightening that in from up a if we're more I reboot get more can more healthier. that going is understand happen said thing

Jade Rahmani

very Thank you much.

to there? or color Is to of about? second mentioned repayments the You expect you repayment to on similar volumes range the think match or could repayments. you any origination and to volumes other level Something quarter provide a there side

Matt Salem

quarter go through Yes, our review. every at quarterly we our we when look repayments

one risk will on repayments. rating. that But is a So the of loans. I you is difficult credit the outputs exercise assessment repayments and is goal always to it caution these a that of primary predict

we on quarterly quarterly And repayments You exactly numbers. basis. to the can the larger don't repays know this I we of over think go. of out received If look of when context a year, have what one that the we're the versus quarter on they're in it we throw some loans, going whether off course month predicting given another

we're of bit see But of you quarter market So well. looking can stability. I roughly think that be environment again, and a million a it evolves on depends and that kind that million more US$XXX repayments. lot this Clearly a how of to US$XXX to chunky as at lead whether repayments will little more

Jade Rahmani

Thanks. in I it. but more have Appreciate queue. a few back I'll get the

Matt Salem

Jade. Thanks,

Operator

Fandetti ahead. from Don next will go The Please Fargo. be question Wells with

Don Fandetti

the points. pretty talk as would secondly, can you in provision about rise? of provision forward on the then updated there? that provide quarter the on up terms basis what to office XX like took Hi. thoughts you going And appetite your around Looks you're in maybe the Can the market large any allowance thinking allowance

Kendra Decious

is take CECL. Hi, this first question Kendra. I'll Sure. on your Don,

reserve take the end to rates of which And again, So loss each as We did about refreshed is third-party we use a inherently you very is difficult historical principal mentioned, to at CECL of predict. the really balance. up are is our CECL bps it quarter. process. a XX quarter, quarter $XX driven that end model, million

quarters, I data at get say on our loan macro on the by plateau as heavily we increase. several So at assumption we've have historical referenced stabilizes, the think, but Fed that going third-party then it from earlier, deteriorate, if consistently recession loss unemployment where put evolving side, on would I think macro views a Matt internal the the in I to the don't can in it virtue logically providers, will as think, assumptions past at database so really we stay of economic reviews, time, if used this conservative probably dependent seen -- it's outlook go. conduct we the that macro percentage think And policy. a we and it's If we that's own or continues updated will I terms including it precise level. to number

Don Fandetti

Okay. And the office market?

Matt Salem

again Hey, Yes. Thank the it's Matt. for question. you Don,

On it's in growth. we're in focus our market and market originations can at in easiest there's and focus best the a on to see the office can this underwrite and are positioned loans identifiable as a as mentioned located properties like the market, KREF, growth really our -- you the specifically, where most the most seeing first really you I the And where market. quarter we're on lenders

we've life science multi-family, industrial of that's category that terms really put in and well that I So demand been focused seeing. would the on why as in we're

So major we're those growth really areas. focused on

terms consensus. In a And think don't I think our of office, from quarter. have I views the changed generally there's last

If markets. if seeing a a leasing, whether say momentum get the bit our then you quality have growth you and we're portfolio in you there's positive little into A have range certainly I'd when broader asset a asset Class -- and activity of

So Class then that southeast potentially projections some seeing pretty and just get in of some have becomes or demographic same of segment A beyond market B you're growth certainly that carried into B the the when you some Class as the markets space markets well. don't And into of the that Class through the challenged. of trends,

Operator

Thank you.

Hagen Please question Our with will be go ahead. from next Eric BTIG.

Eric Hagen

morning. Hey, thanks. Good

portfolio sponsor portfolio LTVs loan the on either generally, the overall California refi maybe there we And look as capital you in expense of on a industrial the origination assets maybe Can credit So, of attractiveness equity the the refi? out the to just did one more coverage the leverage a Like point of at service proceeds ratio the about cash level. And currently growth can fully-stabilized any basis? at or in about that over the the more talk from can of for you is at think loan the the then last structure? more coverage in some debt quarter. the about Thanks. sponsor for use the talk the that

Patrick Mattson

it's Eric, morning, take that. first Thanks for question. the I'll Patrick. good asking

leverage see Matt and LTV, market in we're of definitely indicated, you loans the coverage much into the loans too of even data we than leverage the think, bit month. I lower on And and set, terms that I when loans were on in seeing talking guess you're read can little that of to come the was a had a in leverage specifically as the handful It's the hard But quoting. certainly that. each April. So in down about closed June

so upfront probably say of cushion making that debt on where we translate being certainly We coverage, initially certainly bit is toward exit and want one yield uncertainty about on of first cap would certainly to to the to and that think a uncertainty underwrite those shortfall. debt are. that about loans And structured are the can of ongoing lot higher coverage reserves I But are. relative takeout, environment to a we're side we're rates the times cap erring underwriting yields and thinking some think what with that exit-stabilized more loans the exit we're expect rate yields. where transitional certainly and as ultimate a where when foremost, crystal like so In not levels. we We we're context. those thinking are an that are higher about level. debt on Obviously, conservative at at slightly and ratio. we is are in takeout coverage we X%, coverage terms debt yields a them service this rates, Obviously, given ball into but reserves a to rates, not, think feel with in about mitigate we are adequate but a exit, Again we're when X%-plus touch than probably debt a

Eric Hagen

helpful. really in around the the industrial and of California and use there. refi Thanks. proceeds structure of on the the was That the was capital loan question asset My origination second

Matt Salem

by in today there. acquisition set off the particular. bridge our it again obviously single CMBS really was loan from financing opportunity And Yes. asset and the short-term like just was borrower almost think facility, markets driven financing a an are basically that capital take market going a occurring I recapitalization single so was It to expensive how to the

for space value on see not it's in values the leverage -- the we're said really run-up providing cash leverage is the given we the the out at have just sponsors being this portfolio to sponsor and around industrial and past of you big not terms the of a where case. mid-XXs that back in we market. on particular there That these in So, loans quality industrial in cash and -- that demand certainly high-quality on segment done the these tremendous are markets to high in

Eric Hagen

That's appreciate guys. Thanks. helpful. I it

Matt Salem

Yes, thank you,

Operator

And from question with the is Shane go next Rick ahead. Please JPMorgan.

Rick Shane

guys. then it pickup a half to pretty Hey more than LTV looks a up bucket of from its X. The it XX% has distribution general by question. in like loan one and was to increase. specific and we driven When balance in One a there's maturity and question the X% less look at the a The tick LTV loan didn't category Minneapolis XX% from XX%. year XX%

I match feel looks I with make we you it description good a that how there's to doesn't quality the sure some that So, what's guys LTV in want like to here because ways something want just about and credit. going understand. suspect that we understand on there credit

Patrick Mattson

Hey the Rick, Patrick. question. I'll it's take

I highlight way at here the the we just think I LTVs. the So, point look would that

are as-is to the transitional the these Obviously, So, balance we show and going That's of value. we've have when the initial an that LTV loans. the close typically loan. got loan we we're an for life

being into they're as is leasing We expect capital value up as these that is assets improving. the put

stabilized think The We LTV improved reflect, do lower toward an subsequent we that new we static the in our migrate fact then We do, only we a had. with a keep is probably exception to don't at what they to that asset so that should value. if to is, appraisal. initially adjust point. And LTV start

we appraisal value. contributing we're current loan the that the at for we'll and have balance, LTV update to then CLO, new stale example, the point, the a a For and as-is

a what really a and the we're thinking was. LTV what seeing value that's So you might about legacy as have reflection number, I of is real-world just why what between disconnect the and stale LTV think you're

Rick Shane

two that, two? strong conversations the on as maturity, a visibility be reappraised otherwise I'm that saying exit during the because what wouldn't approaching sponsor assuming that with but you're second was is reflects presumably loan a and Level essentially also quarter So, that it you're rating

Patrick Mattson

expectation of a underwriting a Clearly, and but value. loan. of view of It's do to play part combination of how our lot conversations of for that, just with the sponsorship then for the asset own a of exit it's performance and takeout,

Rick Shane

it. Got

during feel commitments question and and Okay. geo based loans learned is into to When again transition means you is more these liquidity. how theory you one each to do is And had now general this and actually and their about on to, doesn't in their I we with something, right that the of priorities that, that LTV sit a alluded it page, at upon that? liquidity these do and to each properties numbers that, positions sponsor's period of the but we've dovetails all in what years can here speaking over real-world are that sponsors their which ability hold of but on look idiosyncratic

Matt Salem

say, segments are of one because in within factors especially capital uncertainty estate financial has world outlook sponsorship. where properties. cost the of the real thinking wherewithal values, in where of our strong for And Historically, our environment. we in to one. or gone now, portfolio, existing highest probably our pretty to our jump It's about we're and We're and a carry this the how in we're The institutional, because about estate. real there's up with market, lot these we I the it been make sponsors bar features, of and that on can I very of good majority would relates credit as Matt. that's portfolio, distinguishing economic vast decisions. feel a there's the

full. the structurally the that, on strong look have you really ground you're we are performance these increases seeing and if markets big and rental portfolio lot very and of However, a

in lot that assets they the So, like carry of terms a a and sponsors I large they right and lot individual of future our sophisticated sectors the wherewithal But of financial they're – have again, own. a that – like I the in think very performance of they think part, are the the to this through.

Rick Shane

Thank I helpful, will uncertainty the It's term. understand guys. disclose the way portfolio Great. appreciate so you very the to of in thanks. say, you, a as remaining for greater we're really period particularly guys I matched everybody

Matt Salem

Rick. Thanks,

Operator

Your with Steve go Delaney question Please Securities. next from JMP is ahead.

Steve Delaney

the final may on you to the as to morning, first to and XX done reconcile you. And answer early sheets tie these question. Matt for and I X.X% that consider I loan before your loans in quarter early blown should only the should spreads move taking high-quality wanted your XX-Q spreads quarter, the got Chris Thank to on of LIBOR. the as over rate very table new commitments to when thanks have we have to briefly. pricing it out to XX on all we have third XXX we fourth found think and Good try first to in, loans that quarter higher? should go so as quarter, X% basis – assets even to the second look been we we just everyone, we're loan into back the seeing want type we pricing the about or and credit that the points one term volatility? to your those quarter And comment expect

Kendra Decious

point, processes It's if To things. One, notice that timing. was, those eight loan question. Thanks very the weeks that. the that think so take a for I close our first quarter And in. jump astute couple Steve, of your sheets. closing we second quarter closed deals it's would to the a I can in and term and in lot April have effectively been six to

it So, that. part was of

today's look those market in financed versus tighter at keep tight mind, spread. they spreads were Now while also

not -- we still financing financing an from ROE So, we making accretive. were them and really It's then perspective today's like there's in were environment. loans market

So, we are matched up.

Steve Delaney

Understood.

Kendra Decious

think those are generally I like the speaking mid-XXXs. financed

So That's one very perspective. it. part creative from that of

more able space, that of and being to gravitated CMBS more lend you about stabilized stabilized The as tends portfolios assets. the second it, be think if tends be part market so even to stabilized could that have had of loans but to the CRE us more CLO outside we on to accessed

our shifted we've So posture.

flow. terms not You it in may we see it LTV, of occupancy certainly cash see the in and but

So, I within the of bit more are loan the These we've little market. conservative to shifted stabilized segment historically. a would a than say more transitional more

I So the originate have loans finally, first quarter that's spreads we going -- today's And market earlier. the are in than that of are will think substantially I mentioned other new to have that then today's component we yes it. which saw as what wider

Steve Delaney

Great.

accomplish will be your not issue the my to think to market market? revolver to -- and leverage you're the going Is happens the help receptive comments growth with quarters marching grow CLO it's second the you next facilities, to reinvestment half currently that assumption obvious all up take market say, over term the sounds least to loan your at portfolio in and be like we've the portfolio capacity what I looking of is the that new the this pretty couple safe it CLO growth. regardless with forward respect it CLOs, now, year though from you within your heard even of in some

Matt Salem

Yes.

market. feel we of then times. attractive opportunistic has CLO it tied We that when do And to the a of lot fact beholden financing CRE thought market CRE like be term about and the it, period. it that on we think will go of or always the happens issue can We've I really at like an that a CLO reinvestment we we the it. and that a features not basis like

very within are there that. features So, favorable

never of been CLO. of a number were years primary even our However, we it's business -- a even We years we before to handful did a one. CRE issue in before strategy

of with opinion go model intermediaries that to [ph] non-mark-to-market a and and credit been to and of there's in is, a that so that and do bespoke CLO they lot that that comes So, don't also of we've financial estate we lot for sponsorship to that fit of it's more bigger that quality the of diversified basis. But on CRE create real had participate part they And part want senior break size other portfolio. origination just quality to find fit our a always the the more do -- do living. facilities want We loans we don't we've what in for ways.

So, there's factors into a number that that. of play

we're about access accretive we of get try is Fed see growth, a the tightening. financing we the little keep and a bit it until about think the have to of we despite little in bit, be record where its thinking take We're of recycling to just start the going portfolio through let the overall it's advantage more market. see good in I some markets portfolio -- how to very In to then trying and bit terms in little stability prudent a market now, things more capital very in of senior leverage But a liquidity. start to lower manage high can up broader the here, and term just levels, we're to at extent right at seeing now that we'll we're fact to we're clear repayments. the company that and near and right at from be the obviously liquidity predominantly And levels the we of macro the

Steve Delaney

Got comments. helpful it. thank you. Very Thanks. Well

Matt Salem

Steve. Thanks

Operator

a [Operator from Rahmani Instructions] from go next question question ahead. is Please Jade The follow-up KBW.

Jade Rahmani

Thanks.

On the as see the new what ROEs? looking you're at, do you incremental deals, currently

Matt Salem

low-teens market was an ROE XX% in wide on Right -- seeing as IRR, ROE basis we context. that before or would something XXX-ish of would I basis, offering say I a and if today's XX% now, solving that points gross for range, were would say, to things I returns. market, in Teens, you're say today's the

Jade Rahmani

very much. Thanks

that in volumes, spread of side for terms funding be likely there it many CLOs on the tightening In of issued. the cost cause development the to you transaction Do seems outlook CRE year? back expect half the won't

Matt Salem

understood sure, will your to cause of Sorry spreads in and Jade, just market demand question, CRE cause I the more lack the CLOs make just to tighten?

Jade Rahmani

Yes, as issuance supply-demand those spread well for to as dynamic the reduction potentially securitization leading in potentially to bonds thereby improve between securitization tightening. a issue, allow relative should

Matt Salem

describing people supply, it that, if not when And to I yes, there's capital think work overtime. guess, extent, way think are I going in some opposite accordingly. the that, it tighten, about to to To spreads would there's put want see. marginally, I I activity the things market tighten and that then dearth makes what first issuers a healthy a of And thing have there's to access to happens. the think Like, you're is take capital to sense tighten market. -- the pent-up demand I market. a where and level for you will

spreads So when But sea part healthy when there's I and of legs activity. it. it's of markets really, when capital a think when and lot has that let's the market's tightening, are really it understand about,

single what transaction lot tightening, a and activity starts to a lot for think you're of there's a think you're But I the lot a describing us the little That's start borrower certainly the on little of my asset, market, the floating liquid on side the guess. side. and to tightening it. So, really And of spread spread have CMBS the parts side, part most market, CRE CLOs. most I start going is consistent one need the rate a of single transparent on of of

It's are they're functioning. So, just I start and it markets think these they're markets still active guess that would and there all expensive. still is, my --

the start of to that's when spread see we'll tightening. So more activity most I back, think you come and start more to really see when

Jade Rahmani

you. Thank

Matt Salem

Jade. Thanks,

Operator

session. to I conference concludes Ladies any this closing remarks. question-and-answer to and would for turn like Switala over the back Jack gentlemen, our

Jack Switala

care. Thanks Please to the me reach here, the morning. Great. team this you any out if everyone or have for joining call questions. Take

Operator

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

now may You disconnect.

KKR Real Estate Finance Trust (KREF) 26 Jul 222022 Q2 Earnings call transcript