Business Context and Reporting Period
KKR Real Estate Finance Trust Inc. (KREF) filed a Form 8-K on April 9, 2021, announcing preliminary, unaudited results for the three months ended March 31, 2021. The filing was made in connection with a potential preferred stock offering. The Company is an emerging growth company focused on providing senior loans to real estate owners and developers.
Key Financial Metrics
- Net Income: Estimated at $0.50 to $0.52 per basic and diluted share, inclusive of a $0.03 per share unrealized CECL benefit.
- Distributable Earnings: Estimated at $0.53 to $0.55 per basic and diluted share (Non-GAAP).
- Dividends: Declared $0.43 per share of common and special voting preferred stock, payable April 15, 2021.
- Book Value: Estimated between $1,049.5 million and $1,050.8 million ($18.87 to $18.89 per share) as of March 31, 2021.
- Liquidity: Total available liquidity of $571.1 million, comprising $209.3 million in cash, $335.0 million in undrawn corporate revolver capacity, and $26.8 million in undrawn secured financing commitments.
- Leverage: Debt-to-equity ratio estimated at 2.1x; total leverage ratio (including non-recourse financing) estimated at 3.7x.
- Portfolio: Funded portfolio of $5.3 billion as of March 31, 2021. Average loan size was $123.1 million.
Material Changes vs. Prior Period
- Book Value Growth: Book value increased from $1,043.6 million ($18.76 per share) as of December 31, 2020, to the estimated range of $1,049.5 million to $1,050.8 million ($18.87 to $18.89 per share) as of March 31, 2021.
- Leverage Increase: Debt-to-equity ratio rose from 1.9x (Dec 31, 2020) to 2.1x (Mar 31, 2021). Total leverage remained substantially consistent at 3.7x compared to 3.6x in the prior period.
- Portfolio Activity: The Company originated three senior loans totaling $534.5 million (initial funding of $517.5 million) and syndicated $150.0 million in senior notes. Net borrowing on secured financing facilities was $299.8 million.
- Credit Quality: The Company collected 97.1% of interest payments due. The average risk rating is expected to remain consistent with the prior period at 3.1 (Average Risk).
Outlook, Risks, and Management Commentary
- CECL Impact: Results include an estimated unrealized Current Expected Credit Losses (CECL) benefit of $0.03 per share due to changes in the allowance for credit losses.
- LIBOR Floors: As of March 31, 2021, 69% of the loan portfolio was subject to a LIBOR floor of at least 1.0%, and 50% to a floor of at least 1.65%, with a weighted average floor of 1.43%.
- Financing Structure: 76% of secured financing was non-mark-to-market, with the remainder not subject to capital markets mark-to-market provisions. The maturity on the term lending agreement was extended to June 2022.
- Forward-Looking Statements: The filing contains forward-looking statements regarding future performance, which are subject to risks and uncertainties. Actual results may differ materially from estimates.
- Disclaimer: These are preliminary estimates subject to completion of financial statement closing procedures. Final results are expected to be released on or about April 26, 2021.
Investor Verification Checklist
- Verify the final audited Q1 2021 results when released on or about April 26, 2021, to confirm the preliminary net income and Distributable Earnings ranges.
- Confirm the details and pricing of the potential preferred stock offering mentioned in the filing.
- Monitor the 97.1% interest collection rate and the stability of the 3.1 average risk rating in subsequent quarters.
- Review the reconciliation of Distributable Earnings to GAAP net income in the final 10-Q to understand the specific adjustments for non-cash items and credit loss provisions.
- Assess the impact of the increased debt-to-equity ratio (2.1x) on the Company's cost of capital and liquidity position.