KKR Real Estate Finance Trust (NYSE:KREF) announced a GAAP net income of $21.4 million or $0.31 per diluted share for the third quarter of 2023 in its recent earnings call. The company also reported distributable earnings of $17.4 million or $0.25 per share, which includes a $15 million write-off. Despite a minor decline in book value per share, the firm maintains high liquidity levels and a robust liability structure, with no corporate debt or facility maturities until Q4 2025.
Key takeaways from the call:
- KREF ended the quarter with $716 million of liquidity and a portfolio of $7.9 billion in assets, with multifamily properties as the largest segment. This aligns with the InvestingPro data, indicating that KREF's liquid assets exceed short-term obligations.
- The company does not foresee further negative ratings migrations in the office sector, which constitutes 25% of the portfolio.
- The CECL allowance decreased to $222 million or 293 basis points on the loan principal balance.
- KREF is actively working on resolving watch list loans and maximizing shareholder value. This is in line with the InvestingPro Tip that the company pays a significant dividend to shareholders, with a dividend yield of 16.6% as of 2023, according to InvestingPro data.
During the call, KREF's executives addressed several queries. In response to analysts' questions on reserves for office loans and potential asset buyers, Matt Salem, a company representative, stated that the reserves take into account cap rates, lease-up assumptions, and market pricing for the assets. Salem also indicated that while the company is currently focused on maintaining liquidity and monitoring the market environment, it may consider deploying capital for sourcing high coupon loans in 2024.
The company also discussed its property situations in Mountain View and Philadelphia. KREF is considering a joint venture structure for the Mountain View property, and the sale of the Philadelphia property fell through. No write-offs are expected for the Washington DC loan workout.
The company expressed confidence in its liquidity position and covenant structure, despite reducing its covenant from 1.5 times to 1.4 times due to an increase in the SOFR benchmark rate. KREF also anticipates an increase in transaction volume once the rate hike environment settles. This is consistent with the InvestingPro Tip that net income is expected to grow this year.
Regarding the office market, KREF noted better leasing activity than anticipated, indicating a healthy demand for office space. The company concluded the call by focusing on loan-by-loan outcomes and asset management, rather than forecasting the macro component of CECL reserves. For more insightful tips like these, explore the InvestingPro product that includes additional tips, with a total of eight tips listed for KREF.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.