• Sat. Feb 24th, 2024

    KREF Reports Decline in Fourth Quarter Earnings Amid Challenging Market

    ByNuala Hafner

    Feb 8, 2024
    KREF Reports Decline in Fourth Quarter Earnings Amid Challenging Market

    KKR Real Estate Finance Trust Inc (KREF) recently reported its financial results for the fourth quarter of 2023, revealing a decline in earnings during a challenging market environment. The company announced a GAAP net loss of $18.7 million or negative $0.27 per share. Distributable earnings for the quarter were negative $26 million or negative $0.37 per share, including a write-off of $59 million or $0.85 per share.

    Despite the decline in earnings, KREF managed to maintain high levels of liquidity and fortify its liability structure throughout 2023. The company boasted a market-leading liquidity position, with cash on hand and undrawn corporate revolver capacity totaling nearly $600 million. KREF’s financing remained strong, and it upsized its repurchase agreement by $160 million while extending the term. The company does not have any corporate debt or final facility maturities for the next two years.

    KREF’s portfolio composition saw positive developments as well. Multifamily and industrial properties accounted for over half of the portfolio, with multifamily remaining the largest property type at approximately 41% of the portfolio. The company also witnessed stable performance in the multifamily sector, with weighted average rent increases of 3.9% year over year. The office property type decreased from 26% to 22% of the portfolio, including the successful payoff of a previously risk-rated loan secured by a Washington DC property.

    Looking ahead to 2024, KREF anticipates increased acquisition and refinance activity, driven by market sentiment improvements and the Federal Reserve’s indication of potential interest rate cuts. While the company expects these positive trends to continue, it acknowledges challenges in the real estate capital structure due to higher interest rates, carrying costs, interest rate cap costs, and near-term maturity dates.

    Despite the tough market conditions, KREF remains optimistic about its capabilities and access to KKR’s broader real estate platform, leveraging its dedicated professionals and over $68 billion of assets under management. The company aims to navigate the challenges and continue delivering strong financial performance while actively using various tools to execute workout options and manage its real estate portfolio effectively.

    FAQ Section:

    1. What were the financial results reported by KKR Real Estate Finance Trust Inc (KREF) for the fourth quarter of 2023?
    – KREF reported a GAAP net loss of $18.7 million or negative $0.27 per share. Distributable earnings for the quarter were negative $26 million or negative $0.37 per share, including a write-off of $59 million or $0.85 per share.

    2. How did KREF maintain its liquidity and liability structure?
    – KREF maintained high levels of liquidity and fortified its liability structure by having cash on hand and undrawn corporate revolver capacity totaling nearly $600 million, as well as strong financing and an upsized repurchase agreement.

    3. What is the portfolio composition of KREF?
    – Multifamily and industrial properties accounted for over half of the portfolio, with multifamily remaining the largest property type at approximately 41% of the portfolio. The office property type decreased from 26% to 22% of the portfolio.

    4. What positive developments did KREF witness in the multifamily sector?
    – KREF witnessed stable performance in the multifamily sector, with weighted average rent increases of 3.9% year over year.

    5. What does KREF anticipate for 2024?
    – KREF anticipates increased acquisition and refinance activity driven by market sentiment improvements and potential interest rate cuts indicated by the Federal Reserve.

    6. What challenges does KREF acknowledge in the real estate capital structure?
    – KREF acknowledges challenges due to higher interest rates, carrying costs, interest rate cap costs, and near-term maturity dates.

    Key Terms:
    1. GAAP – Generally Accepted Accounting Principles, a standard framework of guidelines for financial accounting.
    2. Liquidity – The ability to convert assets into cash quickly without significant loss in value.
    3. Repurchase Agreement – A short-term loan where securities are sold with an agreement to repurchase them later at a higher price.
    4. Portfolio – A collection of investments or assets held by an individual or organization.

    Related Links:
    1. KKR Official Website
    2. Federal Reserve Official Website