KKR Real Estate Finance (NYSE:KREF) held its first-quarter earnings conference call on Thursday. Below is the complete transcript from the call.
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The full earnings call is available at https://event.choruscall.com/mediaframe/webcast.html?webcastid=w0xtbxq5
Summary
KKR Real Estate Finance Trust Inc reported a GAAP net loss of $62 million or negative $0.96 per share for the first quarter of 2026, with a book value of $11.87 per share.
The company is focusing on reducing legacy office exposure, resolving watch list loans, and addressing life science exposure as part of its 2026 transition strategy.
A dividend reduction to $0.10 per share per quarter was announced, aligning with expectations for distributable earnings amidst a strategic shift towards share repurchases and higher quality investments.
Management highlighted significant liquidity of $653 million and plans for a $75 million share repurchase program to enhance shareholder value.
Operational updates include the refinancing of a $225 million office loan and leasing success in Mountain View, with a full property lease signed with OpenAI.
Full Transcript
OPERATOR
Good morning and welcome to the KKR Real Estate Finance Trust Inc First Quarter 2026 Financial Results Conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press then one on your telephone keypad. To withdraw your question, please press then 2. Please note this event is being recorded. I would now like to turn the conference over to Jack Switala. Please go ahead. Great.
Jack Switala
Thanks operator and welcome to the KKR Real Estate Finance Trust earnings call for the first quarter of 2026. As the operator mentioned, this is Jack Switala. This morning I’m joined on the call by our CEO Matt Salem, our President and COO Patrick Matson and our CFO Kendra Decius. I’d like to remind everyone that we will refer to certain non GAAP financial measures on the call which are reconciled to GAAP figures in our earnings release and in the supplementary presentation, both of which are available on the investor relations portion of our website. This call will also contain certain forward looking statements which do not guarantee future events or performance. Please refer to our Most recently filed 10Q for cautionary factors related to these statements. Before I turn the call over to Matt, I will go through our Results. For the first quarter of 2026. We reported a GAAP net loss of $62 million or negative $0.96 per share. Book value as of March 31, 2026 is $11.87 per share. We reported a distributable loss of $4 million or negative $0.06 per share. Distributable earnings before realized losses was $13 million or $0.20 per share. Finally, we paid a $0.25 cash dividend in April which with respect to the first quarter. With that, I’d now like to turn the call over to Matt. Thanks Jack. Good morning everyone and thank you for joining us. As we outlined last quarter, 2026 represents a transition year for the company with the goal of narrowing the gap between share price and book value per share. Our focus is on two key priorities. First, executing an aggressive resolution strategy across our watch list assets and certain legacy office exposures. And second, positioning a portion of our REO portfolio for liquidity. We have significant liquidity sitting at 653 million today in extensive capabilities across KKR to execute both our asset management and REO strategies. Today I want to provide additional detail on our progress against those objectives and what you should expect over the course of the year this quarter book value declined by 9% as we position our watch list loans for resolution. Our action plan is designed to reposition the portfolio to optimize medium and long term performance. However, as we execute, we may choose to incur book value declines as we seek liquidity on legacy assets to create a higher quality portfolio. As we complete this transition, we see a clear path to redeploy capital in newer vintage higher quality investments which we believe will support a return to book value per share stability and over time drive earnings and book value accretion. Overall. Our specific goals for 2026 as outlined on page 8 of the Supplemental are to reduce our watch list and legacy office exposure, rotate the portfolio into newer vintage higher quality assets and reduce our REO footprint. With that, I want to walk through our action plan for 2026 in further detail. First, reduce legacy office exposure from 21% to under 10%. We expect over half this reduction to come from par repayments with the remaining driven by resolution of our watch list loans. We’ve already begun to action both prongs. Our largest office loan $225 million loan in Bellevue was refinanced in the first quarter at par with a CMBS single asset single borrower transaction and the property securing our largest watch list office loan is currently being marketed for sale. Second, we plan to resolve all of our current watch list loans by year end by positioning these assets for sale or modification and accelerating their resolution. Third, address our life science exposure. Our goal is to have 100% of this exposure modified. We already have made progress here having modified 19% and when including our Cambridge asset this quarter we have modified 30% of our life science exposure. We also took a material increase in reserves for our Seaport loan in anticipation of a potential modification. Finally, we are continuing to originate new investments as we reposition the portfolio. As a result of this activity, loans originated between 2024 and 2026 are expected to represent approximately 50% of the portfolio by year end. This highlights the significant turnover into newer vintage assets which we believe will have improved earnings potential. Let me turn to liquidity and capital allocation which is another priority for us as a management team. For 2026 we announced a dividend reduction to $0.10 per share per quarter payable on July 15th. This decision is not driven by liquidity constraints. In fact, as we look ahead through the year, we expect to have over $500 million of capital to invest, largely driven by over $2 billion of expected repayments in 2026. Rather, the dividend decision reflects a disciplined approach to capital allocation. At this stage, we see more attractive opportunities, including repurchasing our stock and funding new originations. While we have ample liquidity to pay dividends at the current level, the new dividend level has the added benefit of being aligned with our expectations for distributable earnings per share before realized losses as we work through repositioning our portfolio. While we expect $0.40 per year of dividends to be covered by earnings excluding losses, quarterly results may vary in the near term, with earnings expected to trough in the second half of 2026 into the first half of 2027. Once we get through this period, we expect distributable earnings per share to increase. Regarding capital allocation, given our current trading levels relative to book value, we believe share repurchases represent an attractive opportunity to drive accretion to book value per share while also providing greater strategic flexibility. We were largely inactive with respect to share buybacks this past quarter due to trading restrictions, while we were actively evaluating our dividend policy. With that process now complete and our dividend framework established, those constraints have been lifted. On April 14, our board authorized a new $75 million share repurchase program providing us with meaningful flexibility to deploy capital as a management team. Together with our board of directors, we have not taken this dividend decision lightly, but given where the stock is trading, we believe the dividend cut and meaningful share buybacks are in the best interest of shareholder value creation. With that, I will turn the call over to Patrick.
Patrick
Thanks, Matt. Good morning, everyone. Let me start with a few changes to the watch list. This quarter we downgraded our Philadelphia office assets with two smaller Texas multifamily loans from risk rated 3 to 4 as previously previewed on last quarter’s earnings call. We also downgraded our Boston Life Science asset from risk rated 3 to 5. We upgraded our Cambridge Life Science from risk rated 5 to 3 following the loan restructuring that includes new sponsor equity commitment and a loan paydown. As a result, we recorded CECL provisions of 74 million, bringing our total allowance to 260 million. These actions are part of our broader action plan to proactively reposition the portfolio. Turning next to our REO portfolio, we are actively managing these assets with a clear focus on monetization and value realization. To help frame it, we’ve grouped these assets into near medium and longer term monetization buckets. Starting with the near term bucket West Hollywood condos where units are currently listed and actively being marketed with proceeds returning equity as closings occur Raleigh, North Carolina Multifamily where we’re completing targeted upgrades to common areas and expect to list the asset for sale by year end. Philadelphia Office where our business plan is largely complete. The asset is now approximately 85% leased and we plan to sell the property this year. In the medium term bucket we have Mountain View, California office where our platform, market positioning and patience have driven meaningful value creation. As we announced in March, we signed a long term full property lease with OpenAI. We expect to bring this asset to market within the next 12 to 16 months as we complete the remaining work and the tenant takes occupancy. Portland Redevelopment where we’ve executed on our plan and are near final entitlement on over 4 million square feet of mixed use space and expect to begin our monetization strategy over …
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