Attached files
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| EX-99.1 - EXHIBIT 99.1 - KKR Real Estate Finance Trust Inc. | a20170614-exhibit99x1.htm |
| 8-K - 8-K - KKR Real Estate Finance Trust Inc. | a20170614-kref8xk.htm |
KKR Real Estate Finance Trust Inc.
1st Quarter 2017 Supplemental Information
June 14, 2017
Legal Disclosures
2
This presentation has been prepared for KKR Real Estate Finance Trust Inc. (NYSE: KREF) for the benefit of its stockholders. This presentation is solely
for informational purposes in connection with evaluating the business, operations and financial results of KKR Real Estate Finance Trust Inc. and its
subsidiaries (collectively, "KREF"). This presentation is not and shall not be construed as an offer to purchase or sell, or the solicitation of an offer to
purchase or sell, any securities, any investment advice or any other service by KREF. Nothing in this presentation constitutes the provision of any tax,
accounting, financial, investment, regulatory, legal or other advice by KREF or its advisors. This presentation may not be referenced, quoted or linked by
website by any third party, in whole or in part, except as agreed to in writing by KREF.
This presentation contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which reflect KREF’s current views with respect to, among other things, its future operations
and financial performance. You can identify these forward looking statements by the use of words such as "outlook," "believe," "expect," "potential,"
"continue," "may," "should," "seek," "approximately," "predict," "intend," "will," "plan," "estimate," "anticipate," the negative version of these words,
other comparable words or other statements that do not relate strictly to historical or factual matters. The forward-looking statements are based on
KREF’s beliefs, assumptions and expectations, taking into account all information currently available to it. These beliefs, assumptions and expectations
can change as a result of many possible events or factors, not all of which are known to KREF or are within its control. Such forward-looking statements
are subject to various risks and uncertainties, including, among other things: the general political, economic and competitive conditions in the United
States and in any foreign jurisdictions in which KREF invests; the level and volatility of prevailing interest rates and credit spreads; adverse changes in
the real estate and real estate capital markets; general volatility of the securities markets in which KREF participates; changes in KREF’s business,
investment strategies or target assets; difficulty in obtaining financing or raising capital; reductions in the yield on KREF’s investments and increases in
the cost of KREF’s financing; deterioration in the performance of properties securing KREF’s investments that may cause deterioration in the
performance of KREF’s investments and potentially principal losses to KREF; defaults by borrowers in paying debt service on outstanding indebtedness;
the adequacy of collateral securing KREF’s investments and declines in the fair value of KREF’s investments; KREF’s qualification as a REIT for U.S.
federal income tax purposes and KREF’s exclusion from registration under the Investment Company Act; and other risks and uncertainties, including
those described under the section entitled "Risk Factors" in KREF’s prospectus dated May 4, 2017, filed with the SEC on May 8, 2017, as such factors
may be updated from time to time in KREF’s periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. Accordingly, there
are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in this presentation. These factors
should not be construed as exhaustive and should be read in conjunction with the other cautionary statements and information included in this
presentation and in KREF’s filings with the SEC.
All forward looking statements in this presentation speak only as of June 14, 2017. KREF undertakes no obligation to publicly update or review any
forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by law.
All financial information in this presentation is as of March 31, 2017 unless otherwise indicated.
This presentation also includes non-GAAP financial measures, including Core Earnings, Core Earnings per Weighted Average Share, Net Core Earnings
and Net Core Earnings per Weighted Average Share. Such non-GAAP financial measures should be considered only as supplemental to, and not as
superior to, financial measures prepared in accordance with U.S. GAAP. Please refer to the Appendix of this presentation for a reconciliation of the non-
GAAP financial measures included in this presentation to the most directly comparable financial measures prepared in accordance with U.S. GAAP.
1Q17 Key Highlights
3
(1) See Appendix for definition and reconciliation to financial results prepared in accordance with GAAP.
(2) LTV is generally based on the initial loan amount divided by the as-is appraised value as of the date the loan was originated.
Financials
Net income attributable to common stockholders of $10.4 million or $0.39
per share; Net Core Earnings(1) of $8.9 million or $0.33 per share
Paid 1Q dividend of $0.28 per share on April 18, 2017
Declared 2Q dividend of $0.25 per share payable on July 14, 2017 to
shareholders of record on June 30, 2017
Originations
Total Portfolio
Capitalization
Interest Rate
Sensitivity
Originated $291 million of floating-rate senior loans with a weighted average
LTV of 71%(2)
Subsequent to quarter end, originated $224 million of floating rate senior
loans with a weighted average LTV of 64%(2)
$1.1 billion portfolio comprised of 25 investments
80% senior loans
Portfolio weighted average LTV of 67%(2)
Senior loans weighted average LTV of 67%(2)
Weighted average risk rating of 3 (Average Risk)
$907 million of undrawn capacity on repurchase facilities
Subsequent to quarter end: (1) completed an IPO for net proceeds of ~$226
million; (2) added $250 million of term repurchase facility capacity; and (3)
closed $75 million revolving credit facility
88% of the portfolio is floating-rate
A 50 basis point increase in one-month USD LIBOR would increase net
interest income by $1.6 million over the next twelve months
1Q17 Financial Summary
4
(1) See Appendix for definition and reconciliation to financial results prepared in accordance with GAAP.
(2) Represents facilities outstanding face amount less cash divided by total stockholders’ equity.
Income Statement
($ in Millions, except per share data)
1Q17
Net Interest Income $9.0
Other Income 4.8
Operating Expenses and Other (3.4)
Net Income Attributable to
Common Stockholders $10.4
Weighted Average Shares
Outstanding 26,879,428
Net Income Per Share $0.39
Net Core Earnings(1) $8.9
Net Core Earnings(1) per Share $0.33
1Q17
Total Portfolio $1,079
Facilities Outstanding Face Amount 593
Total Stockholders Equity 647
Cash 154
Debt-to-Equity Ratio(2) 0.7x
Shares Outstanding 31,544,600
Book Value Per Share $20.51
Balance Sheet
($ in Millions, except per share data)
1Q17 Loan Originations
5
$841
$238
4Q16
Portfolio
1Q17
Fundings
1Q17
Repayments
1Q17
Portfolio
($ in Millions)
$1,079
$217
Future
Funding
Obligations
Summary of 1Q17 Originations Outstanding Portfolio
• New loans originated3
• Committed to new loans$291mm
• Senior loans100%
• Floating-rate loans100%
• Weighted average LTV71.1%
• Weighted average
couponL+4.12%
• Weighted average
underwritten IRR(1)13.8%
$0
$1,296
(1) See Appendix for definition.
1Q17 Loan Originations – Case Studies
6
Investment Austin Multifamily Denver Multifamily Brooklyn Office
Loan Type Floating-Rate Senior Loan Floating-Rate Senior Loan Floating-Rate Senior Loan
Loan Size $73 million Senior Loan $86 million Senior Loan(2) $132 million Senior Loan
Location Austin, TX Denver, CO Brooklyn, NY
Collateral 253-unit Class A multifamily rentalwith ground floor retail
431-unit Class A-
multifamily rental 271k SF Class A office
Loan Purpose Acquisition Acquisition Refinance
LTV(1) 71% 75% 68%
Investment Date February 2017 February 2017 March 2017
Asset Photos
(1) LTV: Initial loan amount divided by the as-is appraised value as of the date the loan was originated.
(2) Post closing, KREF sold a senior mortgage and retained a mezzanine loan.
1Q17 KREF Portfolio by the Numbers
7
• $1.1 billion portfolio comprised of 25 investments
• Portfolio weighted average LTV of 67%(1)
Investment Type(2)
Property Type(3)
Interest Rate Type
Geography(3)
Senior Loans
80%
CMBS
10%
Mezz
7%
Pref. Equity
3%
Office
38%
Retail
27%
Multifamily
24%
Industrial
7%
Hospitality
4%
Floating
88%
Fixed
12%
NY
28%
CA
15%
OR
12%
DC
11%
Other
34%
Note: The charts above are based on total assets. Total assets reflect (i) the current principal amount of our senior and mezzanine loans, net of a 5% noncontrolling interest in the entity that holds certain of our
mezzanine loans; (ii) the cost basis of our preferred equity investment, net of a 20% noncontrolling interest in the entity that holds our preferred equity investment; and (iii) the cost basis of our CMBS B-Pieces,
net of VIE liabilities. In accordance with GAAP, we carry our CMBS B-Pieces at fair value, which we valued above our cost basis as of March 31, 2017.
(1) LTV is generally based on the initial loan amount divided by the as-is appraised value as of the date the loan was originated.
(2) Senior loans include senior mortgages and similar credit quality loans, including related contiguous junior participations in senior loans where KREF has financed a loan with structural leverage through the
non-recourse sale of a corresponding first mortgage.
(3) Excludes CMBS.
Maximum Capacity Outstanding Face Amount
Weighted Average
Cost
Credit Facilities $1,500 $593 L+2.16%
Financing Overview
8
• Total financing capacity of $1.5 billion with $907 million of undrawn capacity
• Subsequent to quarter end, upsized Wells Fargo term facility by $250 million and extended maturity to 2022 on a
fully-extended basis and entered into a $75 million corporate revolving credit facility with Barclays, increasing the
total financing capacity to $1.8 billion
($ in Millions)
Summary of Outstanding Financing
Debt-to-Equity Ratio of 0.7x(1)
(1) Represents facilities outstanding face amount less cash divided by total stockholders’ equity.
Interest Rate Sensitivity
9
• KREF benefits in a rising rate environment
• 88% of the portfolio is indexed to one-month USD LIBOR
• A 50 basis point increase in one-month USD LIBOR would increase net interest income by $1.6 million(1) over the
next 12 months
Net Interest Income Sensitivity to LIBOR Increases(1)
$0.0
$1.6
$3.1
$4.7
$6.3
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
0.00% 0.50% 1.00% 1.50% 2.00%
Change in one-month USD LIBOR
($ in Millions)
(1) As of March 31, 2017, assumes loans are drawn up to maximum approved advance rate based on current principal amount.
Appendix
10
Portfolio Details
11
(1) Senior loans include senior mortgages and similar credit quality investments, including junior participations in our originated senior loans for which we have syndicated the senior participations and retained the junior
participations for our portfolio.
(2) Net equity reflects (i) the amortized cost basis of our loans, net of borrowings and a 5% noncontrolling interest in the entity that holds certain of our mezzanine loans; (ii) the cost basis of our preferred equity investment, net
of a 20% noncontrolling interest in the entity that holds our preferred equity investment; and (iii) the cost basis of our CMBS B-Pieces, net of VIE liabilities.
(3) Weighted averages are weighted by current principal amount for senior loans, mezzanine loans, and preferred equity; weighted averages are weighted by net equity for CMBS B-Pieces; weighted average coupon calculation
includes one-month USD LIBOR for floating-rate Mezzanine Loans.
(4) L = one-month USD LIBOR rate; spot one-month USD LIBOR rate of 0.98% included in mezzanine loan and portfolio-wide averages represented as fixed rates.
(5) Max remaining term (years) assumes all extension options are exercised, if applicable.
(6) For senior and mezzanine loans, loan-to-value ratio ("LTV") is based on the initial loan amount divided by the as-is appraised value as of the date the loan was originated; for Mezzanine Loan 1, LTV is based on the total loan
amount divided by the as-is appraised value at March 17, 2017; for the preferred equity investment, LTV is based on the total loan amount plus the current principal amount of the preferred equity investment, divided by the as-
is appraised value at March 30, 2017; for CMBS B-Pieces, LTV is based on the weighted average LTV of the underlying loan pool.
(7) Committed principal amount does not include principal paydowns.
(8) Coupon includes a 3.5% fixed accrual rate which steps up to a 4.0% fixed accrual in years six and seven. The investment includes a 1.0% LIBOR floor.
# Investment Location
Property
Type
Investment
Date
Committed
Principal
Amount
Current
Principal
Amount
Net
Equity(2) Coupon(3)(4)
Max
Remaining
Term
(Yrs)(3)(5) LTV(3)(6)
Senior Loans(1)
1 Senior Loan Portland, OR Retail 10/26/2015 $177.0 $119.8 $43.5 L + 5.0% 3.6 61%
2 Senior Loan San Diego, CA Office 9/9/2016 168.0 139.6 35.5 L + 4.2% 4.5 71%
3 Senior Loan Brooklyn, NY Retail 9/27/2016 138.6 116.9 34.6 L + 5.0% 4.5 59%
4 Senior Loan Brooklyn, NY Office 3/30/2017 132.3 97.0 22.9 L + 4.4% 5.0 68%
5 Senior Loan Crystal City, VA Office 9/14/2016 103.5 74.1 19.4 L + 4.5% 4.5 59%
6 Senior Loan Denver, CO Multifamily 2/28/2017 85.9 75.8 44.9 L + 3.8% 4.9 75%
7 Senior Loan New York, NY Multifamily 10/7/2016 74.5 61.1 15.5 L + 4.4% 4.6 68%
8 Senior Loan Atlanta, GA Industrial 12/17/2015 73.0 67.3 17.8 L + 4.0% 3.8 73%
9 Senior Loan Austin, TX Multifamily 2/15/2017 72.8 59.0 14.1 L + 4.2% 4.9 71%
10 Senior Loan Nashville, TN Office 5/19/2016 55.0 52.8 13.3 L + 4.3% 4.2 70%
Total / Weighted Average $1,080.6 $863.4 $261.5 L + 4.4% 4.4 67%
Mezzanine Loans
1 Mezzanine Loan Clearwater, FL Hospitality 1/22/2015 $35.0 $35.0 $33.3 L + 9.8% 2.9 73%
2 Mezzanine Loan(7) Various Portfolio 3/11/2015 25.0 4.4 4.4 L + 8.5% 2.7 75%
3 Mezzanine Loan Chicago, IL Retail 6/23/2015 16.5 16.5 16.4 L + 9.2% 3.3 82%
4 -9 Fixed Rate Mezzanine Loans Various Various Various 26.2 26.2 24.9 10.6% 8.1 77%
Total / Weighted Average $102.7 $82.1 $79.0 10.6% 4.6 76%
Preferred Equity
Preferred Equity(8) Washington, D.C. Multifamily 2/5/2015 $36.8 $36.8 $29.4 L + 10.5% 4.9 60%
Total / Weighted Average $36.8 $36.8 $29.4 L + 10.5% 4.9 60%
CMBS
Total / Weighted Average $309.2 $309.2 $104.5 4.2% 8.6 65%
Portfolio Total / Weighted Average $1,529.3 $1,291.5 $474.4 5.9% 4.9 67%
Fully Extended Loan Maturities
12
Fully Extended Loan Maturities(1)
$4.4
$171.3
$511.8
$261.2
$8.0 $18.2
$0
$100
$200
$300
$400
$500
$600
2017 2018 2019 2020 2021 2022 2023 2024 2025
Fully extended maturity
($ in Millions)
(1) Excludes CMBS; includes preferred equity.
• Fully extended weighted average loan maturity of 4.5 years(1)
13
(in thousands - except share and per share data)
March 31, 2017 December 31, 2016
Assets
Cash and cash equivalents $ 153,624 $ 96,189
Restricted cash and cash equivalents 500 157
Commercial mortgage loans, held-for-investment, net 909,903 674,596
Commercial mortgage loans, held-for-sale, net 26,175 26,230
Preferred interest in joint venture, held-to-maturity 36,764 36,445
Equity investment in unconsolidated subsidiary 16 -
Accrued interest receivable 4,224 2,974
Other assets 5,332 2,728
Commercial mortgage loans held in variable interest entities, at fair value 5,447,026 5,426,084
Total Assets $ 6,583,564 $ 6,265,403
Liabilities and Equity
Liabilities
Secured financing agreements, net $ 586,935 $ 439,144
Accounts payable, accrued expenses and other liabilities 4,905 2,297
Accrued interest payable 742 593
Due to affiliates 262 1,728
Variable interest entity liabilities, at fair value 5,333,009 5,313,574
Total Liabilities 5,925,853 5,757,336
Commitments and Contingencies
Temporary Equity
Redeemable noncontrolling interests in equity of consolidated joint venture 3,039 3,030
Redeemable preferred stock 359 -
Permanent Equity
Preferred stock, 50,000,000 authorized (125 shares with stated value of $1,000.00
issued and outstanding as of March 31, 2017 and December 31, 2016 and 1 share with
par value of $0.01 issued and outstanding as of March 31, 2017) 125 125
Common stock, 300,000,000 authorized (31,544,600 and 24,158,392 shares with par
value of $0.01 issued and outstanding as of March 31, 2017 and December 31, 2016,
respectively) 315 242
Additional paid-in capital 626,647 479,417
Retained earnings 19,823 17,914
Total KKR Real Estate Finance Trust Inc. stockholders’ equity 646,910 497,698
Noncontrolling interests in equity of consolidated joint venture 7,403 7,339
Total Permanent Equity 654,313 505,037
Total Liabilities and Equity $ 6,583,564 $ 6,265,403
Consolidated Balance Sheet
Consolidated Statement of Operations
14
(in thousands - except share and per share data) For the Three Months Ended
March 31, 2017 March 31, 2016
Net Interest Income
Interest income $ 12,906 $ 6,269
Interest expense 3,953 1,150
Total net interest income 8,953 5,119
Other Income
Change in net assets related to consolidated variable interest entities 4,610 (2,084)
Income from equity investment in unconsolidated subsidiary 16 —
Other income 164 61
Total other income (loss) 4,790 (2,023)
Operating Expenses
General and administrative 952 484
Management fees to affiliate 2,036 1,138
Incentive compensation to affiliate - 277
Total operating expenses 2,988 1,899
Income (Loss) Before Income Taxes, Noncontrolling Interests and Preferred Dividends 10,755 1,197
Income tax expense 122 71
Net Income (Loss) 10,633 1,126
Redeemable Noncontrolling Interests in Income (Loss) of Consolidated Joint
Venture 46 81
Noncontrolling Interests in Income (Loss) of Consolidated Joint Venture 210 184
Net Income (Loss) Attributable to KKR Real Estate Finance Trust Inc. and Subsidiaries 10,377 861
Preferred Stock Dividends 13 4
Net Income (Loss) Attributable to Common Stockholders $ 10,364 $ 857
Net Income (Loss) Per Share of Common Stock, Basic and Diluted $ 0.39 $ 0.06
Weighted Average Number of Shares of Common Stock Outstanding, Basic and Diluted 26,879,428 14,911,141
Dividends Declared per Share of Common Stock $ 0.35 $ 0.36
Reconciliation of GAAP Net Income to Core Earnings
15
1Q 2017
($ in millions, except per share data)
Net Income Attributable to Common Stockholders $10.4
Adjustments
Non-cash equity compensation expense -
Incentive compensation to affiliate -
Depreciation and amortization -
Unrealized (gains) or losses (1.5)
Core Earnings(1) $8.9
Weighted Average Shares Outstanding (MM) 26.879
Core Earnings per Weighted Average Share(1) $0.33
Core Earnings(1) $8.9
Less: Incentive compensation to affiliate -
Net Core Earnings(1) $8.9
Weighted Average Shares Outstanding (MM) 26.879
Net Core Earnings(1) per Weighted Average Share $0.33
(1) See Appendix page 16 for definitions. Excludes $1.2 million, or $0.05 per weighted average share outstanding, of original issue discount on CMBS B-Pieces accreted as a
component of taxable income during 1Q 2017.
Key Definitions
16
• "Core Earnings" and “Net Core Earnings”: Used by the Company to evaluate the Company's performance excluding the effects of certain
transactions and GAAP adjustments the Company believes are not necessarily indicative of the current loan activity and operations. Core Earnings and
Net Core Earnings are measures that are not prepared in accordance with GAAP. The Company defines Core Earnings as net income (loss) attributable
to stockholders or, without duplication, owners of the Company's subsidiaries, computed in accordance with GAAP, including realized losses not
otherwise included in GAAP net income (loss) and excluding (i) non-cash equity compensation expense, (ii) the incentive compensation payable to the
Company's Manager, (iii) depreciation and amortization, (iv) any unrealized gains or losses or other similar non-cash items that are included in net
income for the applicable reporting period, regardless of whether such items are included in other comprehensive income or loss, or in net income, and
(v) one-time events pursuant to changes in GAAP and certain material non-cash income or expense items after discussions between the Company's
Manager and board of directors (and after approval by a majority of the independent directors). The exclusion of depreciation and amortization from
the calculation of Core Earnings only applies to debt investments related to real estate to the extent the Company forecloses upon the property or
properties underlying such debt investments. Net Core Earnings is Core Earnings less incentive compensation payable to the Company’s Manager.
The Company believes providing Core Earnings and Net Core Earnings on a supplemental basis to net income as determined in accordance with GAAP is
helpful to stockholders in assessing the overall performance of the Company's business. Core Earnings and Net Core Earnings should not be considered
as substitutes for GAAP net income. The Company's methodology for calculating Core Earnings and Net Core Earnings may differ from the
methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, the Company's reported
Core Earnings and Net Core Earnings may not be comparable to similar measures presented by other REITs.
• “IRR”: IRR is the annualized effective compounded rate of return that accounts for the time-value of money and represents the rate of return on an
investment over a holding period. It is the discount rate that makes the net present value of all cash outflows (the costs of investment) equal to the net
present value of cash inflows (returns on investment). It is derived from the negative and positive cash flows resulting from or produced by each
investment, whether positive, such as investment returns, or negative, such as transaction expenses or other costs of investment, taking into account
the dates on which such cash flows occurred or are expected to occur, and compounding interest accordingly. The weighted average IRR shown in this
presentation reflects the assumed returns on the investments underwritten by KKR Real Estate Finance Manager LLC, the Company’s external manager,
assuming the forward looking one-month USD LIBOR curve at the time the loan was originated, the spread component of the cost of borrowings
remains constant over the loan term, loan leverage at the underwritten advance rate, no dispositions, prepayments or defaults, and exercise of all
applicable extension options. With respect to certain loans included in the weighted average IRR shown, the calculation also assumes estimates with
respect to the timing and magnitude of the initial and future fundings for the total loan commitments. There can be no assurance that the actual
weighted average IRRs will equal the weighted average IRRs shown.