KKR Real Estate Finance Trust Q2 2025 Earnings Report

KKR Real Estate Finance Trust EPS Results

• Actual EPS: -$0.53
• Consensus EPS: -$0.16
• Beat/Miss: Missed by -$0.37
• One Year Ago EPS: N/A

KKR Real Estate Finance Trust Revenue Results

• Actual Revenue: $35.75 million
• Expected Revenue: $32.55 million
• Beat/Miss: Beat by +$3.20 million
• YoY Revenue Growth: N/A

KKR Real Estate Finance Trust Announcement Details

• Quarter: Q2 2025
• Date: 7/22/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, July 23, 2025
• Conference Call Time: 10:00AM ET

KKR Real Estate Finance Trust (NYSE:KREF) Inc., a mortgage real estate investment trust, focuses primarily on originating and acquiring transitional senior loans secured by commercial real estate (CRE) assets. It engages in the origination and purchase of credit investments related to CRE, including leveraged and unleveraged commercial real estate loans. The company has elected to be taxed as a real estate investment trust and would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. KKR Real Estate Finance Trust Inc. was incorporated in 2014 and is headquartered in New York, New York.

KKR Real Estate Finance Trust Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Real estate credit transaction activity recovered since tariff volatility, with a record‐level pipeline offering attractive lending opportunities at reset values below replacement costs.
• Neutral Sentiment: The company reported a GAAP net loss of $35 million (-$0.53/sh), a distributable loss of $3 million primarily from the West Hollywood acquisition, but distributable earnings before realized losses were $16 million ($0.24/sh) and paid a $0.25 dividend.
• Positive Sentiment: Q2 originations totaled $211 million against $450 million in full and partial repayments, with nearly $1 billion of incremental repayments projected in H2 and $757 million of available liquidity.
• Positive Sentiment: KKR Real Estate Finance Trust is diversifying into the European loan market, anticipating originations by year‐end, and increasing duration via CMBS B‐piece investments, closing on a 34‐loan fixed‐rate pool this quarter.
• Negative Sentiment: Credit quality pressures led to downgrades of a Boston life sciences loan to rating 5 and a Chicago office loan to rating 4, with expected extensions amid ongoing market deterioration.

Presentation

[Operator]

Good morning, and welcome to the KKR Real Estate Finance Trust Incorporated Second Quarter twenty twenty five Financial Results Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Jack Switala. Please go ahead.

[Jack Switala, Director - Capital Markets & IR at KKR Real Estate Finance Trust]

Great. Thanks, operator, and welcome to the KKR Real Estate Finance Trust earnings call for the second quarter of twenty twenty five. 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 Deshis. 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.

[Jack Switala, Director - Capital Markets & IR at KKR Real Estate Finance Trust]

This call will also contain certain forward looking statements, which do not guarantee future events or performance. Please refer to our most recently filed 10 Q for cautionary factors related to these statements. Before I turn the call over to Matt, I'll go through our results. For the second quarter of twenty twenty five, we reported a GAAP net loss of $35,000,000 or negative $0.53 per share. Book value per share as of 06/30/2025 is $13.84 We reported a distributable loss of $3,000,000 due primarily to taking ownership of our West Hollywood property.

[Jack Switala, Director - Capital Markets & IR at KKR Real Estate Finance Trust]

Prior to realized losses, distributable earnings was $16,000,000 or $0.24 per share. We paid a $0.25 cash dividend with respect to the second quarter. With that, I'd now like to turn the call over to Matt.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

Thank you, Jack. Good morning, everyone, and thanks for joining our call today. Let's begin with an update on the real estate credit market. Transaction activity and loan demand has recovered from the volatility of the initial tariff announcement and we are seeing significant opportunities within our loan pipeline, which continue to run near record levels. Competition has returned and most lenders are active in the market.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

Despite the competitive environment, we believe the lending opportunity remains highly attractive offering both absolute and relative value. Most of that is driven by the ability to lend on reset values well below replacement costs. Fundamentals remain healthy across most property types and construction starts have decreased meaningfully, likely leading to stronger rental growth over the next few years. Commercial banks are increasing their participation while shifting some of their lending to loan on loan or other back leverage facilities allowing KREF to borrow at attractive rates on a non mark to market and match term basis. Now turning to second quarter results.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

Originations in the quarter totaled $211,000,000 comprised of two loans secured by industrial and multifamily properties. We had two full repayments and six partial repayments, which totaled $450,000,000 We will continue to reinvest repayments and are projecting nearly $1,000,000,000 of incremental repayments over the second half of the year. Now that we have turned the investment pipeline on, we are focused on two newer areas. First, diversifying our portfolio geographically into Europe and second, creating some more duration through CMBS investments. We have an active pipeline in the European loan market and anticipate new originations in the region by the end of this year.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

In addition, this quarter we closed on a BPs investment where returns are very attractive. The pool consists of 34 low leverage fixed rate first mortgage loans diversified across property types and geographies. We have a best in class team and a long track record of CMBS investing including the ability to leverage our KSAR platform which is a rated special servicer. Turning to risk ratings, we downgraded a Boston Life Science asset from a four rated loan to a five rated loan and expect to extend the loan through February. We also downgraded our Chicago office loan from a three rated loan to a four rated loan due to continued market deterioration.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

As a reminder, this loan has already been modified twice with a reduction in loan balance by approximately 35% through $35,000,000 of equity repayments and a $15,000,000 hope note. Turning to our Life Science exposure. Our Life Science sector is 12% as of the second quarter comprised of six assets located in the top two Life Science MSAs of Boston and South San Francisco. 60% is comprised of newly constructed and purpose built properties that are targeting larger pharmaceutical tenants, which are less susceptible to some of the cyclical issues the sector is experiencing. As a reminder, we've added additional detail in our supplemental, which can be found on page 10. With that, I'll turn it over to Patrick.

[W. Patrick Mattson, President & COO at KKR Real Estate Finance Trust]

Thanks, Matt. Good morning, everyone. Let me begin with an update on our watch list as well as progress on the REO assets. As we reported last quarter, we took title to the West Hollywood multifamily loan in April and recorded a loss to distributable earnings of $20,000,000 which was a slight improvement over our CECL reserve. We're progressing on our execution plan for a condo sellout and expect sales to commence in the third quarter.

[W. Patrick Mattson, President & COO at KKR Real Estate Finance Trust]

On the five rated Raleigh multifamily, we are proceeding on an assignment in lieu of foreclosure and expect to complete the process in the third quarter, at which point we will convert our approximately $15,000,000 CECL reserve to a realized loss. As of June 30, this asset is 96% occupied and we will implement a smaller value add program to enhance the value and reposition the property as market fundamentals continue to improve. Three updates on the REO side. First, Mountain View, California office. The market here has improved materially from our initial ownership from both the capital markets and tenant demand perspective.

[W. Patrick Mattson, President & COO at KKR Real Estate Finance Trust]

And we are actively responding to tenant requests for proposals. Given our asset offers tenants the ability to have a full campus setting, we continue to position leasing toward a single user. Next, in Portland, Oregon. During the quarter, we closed on the sale of a parcel, which will be developed as a multi genre concert space, providing an entertainment venue to the site. Additionally, we're working toward the completion of the entitlement of four plus million square feet of mixed use space, creating a path to opportunistically sell additional development parcels and repatriate capital.

[W. Patrick Mattson, President & COO at KKR Real Estate Finance Trust]

Finally, in Philadelphia, we completed the sale of the garage in 2Q to a private parking operator at a level slightly above our carry basis. The garage was a 13 storey four sixty nine parking space facility amongst the larger Philadelphia REO portfolio. At the office property, we're continuing to focus on retaining tenants and increasing occupancy and remain open to selling the property at an appropriate basis. As a reminder, at just our basis in the REO assets, we could generate over $0.12 per share per quarter on distributor earnings as we effectuate our business plans, repatriate capital and reinvest into performing loans. Our OREO portfolio represents approximately $352,000,000 of pro form a equity or $5.34 per share, which which was reflected on Page 14 of our supplemental.

[W. Patrick Mattson, President & COO at KKR Real Estate Finance Trust]

Moving to share repurchases. We repurchased $20,000,000 of KREF stock in the second quarter for a weighted average price of $9.21 Over the last three quarters, we have repurchased almost $40,000,000 of common stock, representing approximately $0.25 of book value per share accretion. Since inception of our buyback plan, we have bought back $137,000,000 of KREF common stock. We'll continue to evaluate the allocation of capital across both share buybacks and loan origination. Liquidity remains robust.

[W. Patrick Mattson, President & COO at KKR Real Estate Finance Trust]

And at quarter end, we had $757,000,000 of liquidity available, including $108,000,000 of cash on hand and $620,000,000 of undrawn corporate revolver capacity. With the assistance of the KKR Capital Markets team, 78% of our financing remains fully non mark to market. Overall, we are well positioned for the opportunity in front of us in 2025 and beyond. We've been making progress on our watch list and REO as well as actively making new investments. We'll continue to be transparent and proactive in managing the portfolio to maximize shareholder value.

[W. Patrick Mattson, President & COO at KKR Real Estate Finance Trust]

Thank you for joining us today. With that, we are happy to take your questions.

[Operator]

We will now begin the question and answer session. The first question comes from Jade Rahmani Please go ahead.

[Jade Rahmani, Managing Director at Keefe, Bruyette & Woods (KBW)]

Thank you very much. Can you talk about the level of ROEs that you're able to achieve in the market and give some color around loan spreads, all in yields that would be helpful considering the uptick in competition that we've seen this year?

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

Jade, it's Matt. Thanks for joining this morning and thank you for the question. Yes, so just in terms of what we're seeing in the market, which we made some comments on call today. Pipeline's as big as it's ever been and we've set kind of two records in our own pipeline this year just in terms of the market opportunity. We're generally running over $30,000,000,000 a week of which is within our actionable within our actual pipeline.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

That's U. S. And Europe and that's across all of our pools of capital. We have bank capital, insurance capital and more transitional bridge type of capital that we lend for KREF. So pretty robust opportunity set, lots to look at.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

I'd say on the competitive side, definitely competitive. I think all the pools of capital are turned on. But it's led to spreads compressing back to where we were pre tariff announcement. I would characterize the market for call it transitional lending, the stuff we're focused on anyway in the institutional segment of the market in the call it mid-200s. I'd say most of the stuff we're looking at is around the $2.65 or so area.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

So kind of basically back to where we were, pre tariff, you'll see this quarter, we did close two deals that are on the tighter end of probably the tightest end honestly of where we see the transitional loan market right now. So we closed two deals this quarter in like the $2.40 area. That's about as tight as you can go. Now this goes back to I think some of the comments we made on previous calls where we're seeing a lot of opportunities to lend on what I think of as like mostly stabilized assets. These are they're once an industrial portfolio that was scheduled to or slated to go for the single asset single borrower market, then the tariff announcement hit.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

We are able to pull that out and provide balance sheet financing. So pretty much stabilized, well occupied industrial portfolio. And then the second one was again a mostly stabilized, very well located institutional sponsor multifamily property. So there's no real business plans here. And so when you start to get into these things that aren't even light transitional, it's in that $240,000,002 50,000,000 area.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

We've always tried to play in the kind of higher quality section of the part of the market, and we're able to finance those really effectively as well. So when you think about these spreads, we're translating, these into the similar ROEs in that call it on the tight end, we're probably in the mid-11s, and that ranges all the way out to end of the 13s. So ROE is pretty similar to what we have seen really through most of our lending. I think these two deals we closed in the quarter are both like the 12s. So certainly what we're targeting, but I'd say the fact patterns are more stabilized, a little bit more well occupied assets.

[Jade Rahmani, Managing Director at Keefe, Bruyette & Woods (KBW)]

Thank you. You mentioned the $1,000,000,000 in repayments you expect in the second half. Can you talk about what kind of originations you expect in the second half? And also any loans with upcoming maturities that could create some conversations on how those ultimately get paid off or if the plan is to extend?

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

Yes. I guess a couple of comments. We're still trying to match the repayments with new originations. So if we got that $1,000,000,000 of repayments, which we think is I think we'd say nearly $1,000,000,000 If we got that, I think you would see us pretty actively originating to try to replace the vast majority of that. The only thing we're just mindful of is obviously watching our leverage ratio.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

We're right in line with where we want to be right now, maybe slightly the slightly the higher end, certainly within the range within a reasonable range. I don't think we have as we think about near term maturities, there's nothing currently on the radar. We have one industrial property in New York that we're watching. But outside of that, there's really nothing else coming down that we're particularly watching closely.

[Jade Rahmani, Managing Director at Keefe, Bruyette & Woods (KBW)]

Thank you very much.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

Sure.

[Operator]

The next question comes from Rick Shane with JPMorgan. Please go ahead.

[Rick Shane, Analyst at JP Morgan]

Hey guys, thanks for taking my questions. And always tough to be after Jade because he asked great questions and covered a lot of what I was interested in. The thing I'd like to talk about is it sort of dovetails with the last topic you guys were on. 2026, you have $2,000,000,000 2 plus billion dollars of maturities, 27,000,000,000, 2,700,000,000.0. Obviously, those are pretty big walls.

[Rick Shane, Analyst at JP Morgan]

I think the conversation we just had was about near term maturities. But as you really look into the heavy lift next year, can you sort of give us a sense of maybe even sort of the pie chart of that 2,000,000,000 Hey, we think we're going to 50% are going to pay off, 40% are going to extend and 10% are going to be problematic. Can you give us some sense of how to think about that 2026 maturity wall?

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

Yes, Rick. Unfortunately, don't think I'll make sure I could be as precise as you're asking and predicting the future. A couple of comments I'd make. One, a lot of that's getting pulled forward. So when you think about like the $1,000,000,000 that's coming down this our expectation around $1,000,000,000 coming down in the second half of the year, that's all coming in before a maturity date.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

The market I think these business plans are getting executed, completed if you will. I think it's going to look a lot different at the end of this year. And then we start to think about the '27 maturity wall, I think a lot of that will get pulled forward into '26. People are just the markets are active, there's financing availability and people are taking advantage of that. I would say when you look at our pipeline, our pipeline is for new investments, it's a lot of it is lot of it is refinance.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

And so it is it's sponsors buying more time and creating more runway. Because if you think about it, if you own a multifamily property or industrial, you're watching these supply pipelines get absorbed. You're watching the supply starts drop dramatically and which they have done over the last handful of quarters as well impact on some of these tariffs on new starts. And I think people are becoming very optimistic about what that can mean for rental increases and therefore enhanced property values. And so I'd say a lot of our pipeline right now is sponsors just again trying to buy the time so they can hold the assets for another two, three years, and get into a window where the fundamentals are really in the landlord's favor.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

So, I expect to see our within our portfolio to translate that to our borrowers. I think a lot of people are pulling this financing forward, buying that time now, and they're going to hold these assets and wait it out. As it relates to credit issues, I think we're going to see less and less credit issues around maturities. We've already identified, I think most of the issues. I'm to say there won't be more, but the maturity used to be like a rate reset, interest rate caps or things would cause some of the issues or maybe you had an initial maturity date that caused issues.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

Just given where we are now in the cycle, I think it's a lot of the problems have reared their heads at this point in time. So it's kind of less about a date, and more about what's going on in the particular property type or that specific asset. So I wouldn't expect that to be a big catalyst for defaults at a maturity date. I think they could kind of come earlier or it's due to something else happening like a tenant leaving or something like that.

[Rick Shane, Analyst at JP Morgan]

No. Look, it's really interesting point about rate resets. We think about this all the time in terms of consumer finance. At a certain point, demonstrate an ability to absorb over time have demonstrated an ability to absorb certain changes given how long rates have been higher and the fact that basically everybody has been reset already. One, the business models have proven, the ones that survived have proven out and also incrementally it's probably not any more costly.

[Rick Shane, Analyst at JP Morgan]

I am curious, you talk about refinance. Is that refinance for sponsors who are borrowing outside of your portfolio? Or is that refinance of existing loans? And to the extent it's refinance of existing loans that you've made, can you help us just sort of understand the different criteria between a refinance versus an extension? Because as outsiders, I think we probably look at them the same way, but I think internally you probably have very different criteria and it's perhaps a different signal.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

Yes. That's a good question. I'd say the vast majority of the refinancings that we're seeing they would be new credits for us, new assets for us. So we do very little of like kind of refinancing our own portfolio. Obviously to your point like we do modifications, we do extensions.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

There are isolated cases where we kind of provide a new what we think of as in a new loan because it's new terms. We have a new five year term. We have like refresh on all the reserves and structure, etcetera. So that has happened in the past, but it's very isolated. I mean, are really just new opportunities coming into the into our pipeline.

[Rick Shane, Analyst at JP Morgan]

Okay, perfect. Thank you for clarifying. And I apologize for taking so much time. Thank you guys.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

Thanks, Rick.

[Operator]

The next question comes from Steve Delaney with Citizens JMP Securities. Please go ahead.

[Steven Delaney, Analyst at Citizens JMP Securities, LLC]

Thanks. Good morning, everyone. First, let me applaud the buyback. I think it's a great allocation of capital even though it is obviously you'd like to pay offense more than defense. But as a representative of the shareholders, I say thank you.

[Steven Delaney, Analyst at Citizens JMP Securities, LLC]

Assume it will probably continue if the stock stays down here under 70% of book. Matt, just looking and Patrick, looking at the portfolio, you're now $5,800,000,000 about 20% off the recent high of, I guess, a year and a half ago, a little over $7,000,000,000 When you look at the capital base today, you look at the opportunity, as we're updating models and we're thinking out to the 2026 or so, is it realistic to think that the loan portfolio could grow back to something close to that $7,000,000,000 figure or given the buyback and given the other allocations is that unrealistic? I guess I'm just asking if you guys have a target level for where your loan portfolio could stabilize in the current environment? Thank you.

[W. Patrick Mattson, President & COO at KKR Real Estate Finance Trust]

Good morning, Steve. It's Patrick. It's a good question. I guess a couple of things I'd comment on there. I think one, we don't think about it in terms of a target that way.

[W. Patrick Mattson, President & COO at KKR Real Estate Finance Trust]

We think about it in terms of allocating capital and thinking about it in terms of our leverage levels. And so if you look at what's happened since we've been at that peak level, a couple of things here. One, I think the mix will change slightly over the course of the next couple of quarters. We mentioned the CMBS investment we made. Obviously, that's capital that you could sort of gross up what the loan equivalent would be.

[W. Patrick Mattson, President & COO at KKR Real Estate Finance Trust]

But if we allocate capital towards CMBS, then the loan portfolio is not going to be at a peak level. You mentioned the buybacks. Clearly, as we remove equity from the company that's not available to grow the loan portfolio. So we'll see some shrinkage from that. The other area though on the flip side, we do have equity that is in effect trapped in some of our REO assets.

[W. Patrick Mattson, President & COO at KKR Real Estate Finance Trust]

And as we work through those business plans, as we return that capital back, then there's an opportunity for us to redeploy that into new loans. And so, you could see some growth there. But you will all of that will just be constrained by what our total equity is and what our target leverage level is. I would just lastly comment that as you look at it on a spot moment, Matt alluded to that we're right in our target leverage level. For the year, we're probably just off from a redeployment of repayments.

[W. Patrick Mattson, President & COO at KKR Real Estate Finance Trust]

We're about $50,000,000 less of originations relative to the repayments that we received. That's just quarter to quarter. There's going to be some fluctuations. The pipeline, as Matt mentioned, is pretty active. So we've got quite a bit that's in closing now.

[W. Patrick Mattson, President & COO at KKR Real Estate Finance Trust]

And so as we look toward the back half of the year, we would certainly expect that we're going close that gap, and probably see a slightly higher level from where we are today. Hopefully that addresses what you were asking.

[Steven Delaney, Analyst at Citizens JMP Securities, LLC]

Yes. That's very helpful. Thanks. And I totally get the from your view it's an allocation of capital. It's not a particular dollar level of a portfolio given other places you're allocating capital.

[Steven Delaney, Analyst at Citizens JMP Securities, LLC]

I'm just curious on the B pieces. Do you view that as somewhat opportunistic given some market disruption or do you see that as a core piece of the pie, the investment pie going forward for four ks ref?

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

Thanks, Steve. I can jump in there. It's Matt.

[Steven Delaney, Analyst at Citizens JMP Securities, LLC]

Yes. Hey, Matt.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

I think we'd like it to be to grow it and it to be a more consistent piece of our investing. We've got a pretty strong position in that market. We've been very large participants in that space, really going back to when risk retention started in CMBS in 2017. In fact, we were the first investor ever to acquire conduit BPs that was subject to risk retention. So negotiated all the precedent documents with the banks to kind of set that program up.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

And since then, we've been the largest investor in risk retention across our various pools of capital. So we've got a really strong position there. And so I think we'd like to continue to be active in the market. That market tends to be a little bit more consistent from an opportunity set as well, in terms of just given the risk retention, it's it's not as volatile from a return perspective as what we've seen in other markets. So we're hoping that continues and we can continue to kind of participate.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

Of course, every investment we make, we're making relative value decisions. So for that to change, we'd obviously react to that. But we're hoping that, just given the way that market operates that it'll be we can be consistent there.

[Steven Delaney, Analyst at Citizens JMP Securities, LLC]

Okay.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

And would you

[Steven Delaney, Analyst at Citizens JMP Securities, LLC]

do you see the return the ROE on that CMBSV piece book? Do you look at that as being incremental to shareholders versus if you had a 100% bridge loan portfolio? So in other words, is that a on a dollar of capital invested, do you see as that has an incrementally higher ROE contributing to what a KREF shareholder receives than if you weren't in that business?

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

Yes. It kind of depends on what you're which kind of loans you're comparing it against. Tends to be slightly higher what we're doing on the loan side from a total return or IRR perspective. Yes. So there is a slightly more return.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

I would say that's nice, not necessarily why we're doing it. I think we're doing it more for the fact that we do think there's good risk reward in the sector. Number two, it's a diversifier for us. And number three, I think the duration component is important. And you see this in our peers as well.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

I think the industry is evolving a little bit, in terms of trying to create a little bit more duration, which I think does a number of things, but just from a risk management perspective, it just helps us. If you think about these loan our loan portfolio as being kind of shorter duration three ish year loans, we're not having to recycle the entire portfolio every three years and kind of subject to some of the cyclicality of markets, etcetera. So I think it kind of takes a little bit more of that vintage risk out of the portfolio. So that's another reason. I'd say one of the primary reasons why we decided to enter that space.

[Steven Delaney, Analyst at Citizens JMP Securities, LLC]

Thank you both for the comments this morning.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

Thanks Steve.

[Operator]

The next question comes from John Nicodemus with BTIG. Please go ahead.

[John Nickodemus, VP - Equity Research at BTIG]

Hi. Good morning, everyone. I wanted to start with a two part question on your life science loans. First, obviously, the Boston loans downgraded for the second straight quarter here. I was curious what a potential plan for resolution could look like there?

[John Nickodemus, VP - Equity Research at BTIG]

I know, Matt, you mentioned the extension. I was just curious if it could be something like what we saw at the San Carlos modification a few quarters ago. Then second, of your other five life science loans, they're all three rated. How do you feel about where those stand and their ability to stay off the watch list in the coming quarters? Thanks.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

Thanks, John. Appreciate the question. Thanks again for joining the call. I would say on the Boston asset, I don't think we have the answer there yet. We're still working through a number of different options and in discussions with the borrower, which is kind of leading to this extension.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

So let us come back on that one. And next earnings call, we'd love to kind of give everybody an update on how that may proceed. It's obviously kind of live discussions happening right now. On the rest of the life science, a couple of things. One was obviously modified one of them and as you kind of as you mentioned.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

And then a few of those, which I made the remarks on the call as well, three of them in particular are really new assets purpose built. Were originally construction loans, and those are largely effectively largely delivered at this point in time. And so I think we still feel good about those. They're in great locations. They are very strong real estate.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

And we've got, for the most part, some pretty good sponsors within that. So I think obviously it's a very challenging market, although we're starting to see a little bit of green shoots. It's early still, but we are starting to see a little bit of the tenants returning to the market, picking up in some of these sectors some of these submarkets. And so we obviously want that to continue. But for right now, I think we're rated appropriately and we'll just have to kind of see what happens as time progresses here in terms of our sponsors' plans with those particular assets.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

But we're in it's very good real estate, very well located, and again, for the most part, strong sponsors, there. One thing that people haven't asked yet, but perhaps there's a corollary here certainly we're hoping so. On the office side, we're seeing a lot more liquidity in that sector. Now there's still a bifurcation in terms of quality. All the liquidity is coming back to the higher quality assets first and tenants are returning to the market.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

There's real leases getting done. And Patrick alluded or mentioned this in his remarks in terms of like some of the stuff we're seeing in Mountain View, which is completely changed from when we took title to that asset. So these markets can change and tenants can come back, supply is dropping off. And so we feel like if we're in really high quality real estate that over time, these asset values can recover. So that's a little bit of how we're thinking about the overall portfolio specifically on the REO and some of these life science assets as well.

[John Nickodemus, VP - Equity Research at BTIG]

Great. Thanks so much, Matt. And appreciate the added detail on the office sector. That's great to hear. And then other one from me.

[John Nickodemus, VP - Equity Research at BTIG]

One of the notable developments this year has been the move by some of your peers into the owned net lease space. I know you've mentioned diversifying into more European loans, obviously, the CMBS B pieces. Just curious to hear your team's thoughts on more commercial mortgage REITs owning net lease real estate and if that's something that you would ever consider in the KRAS vehicle? Thanks.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

Sure, John. Well, I think it's a positive that the market is evolving. And so I'd like to see the peers adding new investments, new types of investments to their portfolio. And we obviously made remarks already around how that helps the duration. These assets can fund differently as well.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

So I just think it's going to create at the end of the day a more robust industry and maybe more shareholders attracted to the market. So I think it's real positive. For us on the net lease, we've done it, in other parts of our real estate business. So it's certainly a sector we have a couple of teams that do it today. It's a sector that we're very familiar with.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

I'd say we're still evaluating whether we think it makes sense for KREF. And so we'll kind of keep everyone posted on that. There's nothing I would say imminent there, but it's certainly on a list of things, when we talk to our Board about possibilities of expanding our portfolio. So I think we'll continue to look at it, but certainly nothing in the near term horizon.

[John Nickodemus, VP - Equity Research at BTIG]

Great. Thanks so much, Matt. Appreciate the answers.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

Thank you.

[Operator]

And we have a follow-up from Rick Shane with JPMorgan. Please go ahead.

[Rick Shane, Analyst at JP Morgan]

Hey, guys. Excuse me. Hey, guys. Thanks for taking my second question. Very quick.

[Rick Shane, Analyst at JP Morgan]

On the $400,000,000 REO portfolio, we got a question. What's sort of the timeline to repatriating that capital back into loans?

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

Yes. Maybe I could just go one by one, if that's helpful. If you have the supplemental open, it's on Page 14. But it just gives some context. So Mountain View, again, that's a campus office building or property. And there, we want to be patient, and we really are targeting a single user. The real estate is somewhat it's high quality real estate. There's other competitors in the market. There's obviously vacancy in the market that we're competing against there.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

But I'd say we're on the shortlist tenant for tenants that want high quality in Mountain View. We've seen that leasing pick up substantially as we've mentioned. And because we're a campus offering, it kind of gives there's a little bit of uniqueness to that, where obviously the amenity package, the security, etcetera could be very attractive for a tenant. Most of our competitors are multi tenant buildings. So we stand out a little bit in that regard.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

In terms of timing, again, we need to be patient here. The market is coming back. There's real activity. So, we're actively working on RFPs for tenants, but I think we're willing to wait, to get the right deal with the right tenant. So that one's a little bit of an unknown.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

On West Hollywood, we will be in market selling, shortly within the third quarter. And so that will be and that's condo sales, so that will start going coming out over the course of the next year or so. We'll start whittling down at that as we sell condo units. On Portland, again similar a little bit similar story from Hollywood where we've been working in the background on this redevelopment entitlement for some time now. And we're getting to the stage where we should be able to sell lots for development, predominantly multifamily development.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

We're very excited about that project. But over the course of next year, we are hoping that we can begin to kind of sell lots and repatriate some of that capital. But again, it won't be a likely will not be a wholesale one sale. It will likely be individual parcels that we sell to developers there. On Seattle, I'd probably put this a little bit more in the Mountain View camp where, we've if you recall, we've signed kind of an anchor tenant there in the life science space, which we think is going to really help drive future leasing.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

But this is a multi tenant asset and I'd say the leasing here is not as robust as we're seeing in Mountain View. So this will take a little bit more time, but again still probably TBD on this one we'll see how the market recovers. But of all these assets, that's probably the one that has the longest tail. And then the Philadelphia asset, it's mostly stabilized office building. There's a couple of leases that we're working on there.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

And if we could hit a couple of those, we could that would be more of a short term sale over the course So we'll see kind of what the market is doing. And then finally, the Raleigh multifamily property that will likely be a short term hold. This is well it's well occupied. As we mentioned, we'll probably do a slight value add business plan.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

Supply is coming down in that market as well. So we kind of like the setup there. So think about that as a I don't know, it's a twelve or eighteen month hold. It won't be a long term hold, but I think we'd like to get a little bit further down the road and put a little money into it and then try to exit that. So kind of when you think through all this stuff, you're getting a few of these back in relatively short order like a couple of within a few of them within the next year to eighteen months.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

And then in my mind, kind of comes down to Mountain View and what's the success we have there. It's a big asset. And can we execute there in short amount of time and certainly like what we're seeing in that market right now.

[Rick Shane, Analyst at JP Morgan]

It's an incredibly helpful answer. Thank you so much.

[Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit at KKR Real Estate Finance Trust]

Thanks for the question.

[Operator]

This concludes our question and answer session. I would like to turn the conference back over to Jack Switala for any closing remarks.

[Jack Switala, Director - Capital Markets & IR at KKR Real Estate Finance Trust]

Great. Thanks, operator, and thanks, everyone, for joining us today. You can reach out to me or the team here if you have any questions. Take care.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Jack Switala, Director - Capital Markets & IR
• Matthew Salem, CEO, Director, Partner & Head - Real Estate Credit
• W. Patrick Mattson, President & COO

Analysts

• Jade Rahmani, Managing Director at Keefe, Bruyette & Woods (KBW)
• Rick Shane, Analyst at JP Morgan
• Steven Delaney, Analyst at Citizens JMP Securities, LLC
• John Nickodemus, VP - Equity Research at BTIG