KKR Real Estate Finance Trust Reports Mixed Q3 Results, Net Loss and Decreased Assets Amid Challenging Macro Environment

KKR Real Estate Finance Trust Inc. (KREF) reported significant financial changes for the third quarter and the nine months ended September 30, 2024, compared to the same periods in 2023. As of September 30, 2024, KREF's total assets decreased to $6.77 billion from $7.55 billion at the end of 2023, primarily due to a reduction in commercial real estate loans held-for-investment, which fell to $6.04 billion from $7.13 billion. Total liabilities also decreased to $5.36 billion from $6.14 billion, while total stockholders' equity slightly declined to $1.36 billion from $1.40 billion.

For the three months ended September 30, 2024, KREF reported a net loss of $7.33 million, a stark contrast to a net income of $26.83 million in the same quarter of 2023. The loss attributable to common stockholders was $12.99 million, compared to a profit of $21.40 million in the prior year. Earnings per share for the quarter were $(0.19), down from $0.31. The decline in profitability was attributed to a significant increase in total operating expenses, which rose to $54.26 million from $23.06 million, largely due to a $33.7 million increase in the provision for credit losses.

Net interest income for the quarter decreased to $37.01 million from $44.61 million year-over-year, reflecting a reduced loan portfolio size and two additional loans placed on nonaccrual status. However, total other income increased to $10.02 million from $5.44 million, driven by higher revenue from real estate owned (REO) operations, which saw a substantial rise to $8.54 million from $1.80 million.

For the nine months ended September 30, 2024, KREF reported a net income of $14.77 million, a significant recovery from a net loss of $18.54 million in the same period of 2023. The net income attributable to common stockholders improved to a loss of $1.51 million from a loss of $35.18 million. Revenue from REO operations surged to $19.30 million, up from $6.03 million, while total operating expenses decreased by $43.7 million, primarily due to a reduction in the provision for credit losses.

KREF's cash and cash equivalents decreased to $108.80 million from $135.90 million at the end of 2023. The company also reported a significant increase in proceeds from principal repayments of commercial real estate loans, totaling $959.18 million for the nine months ended September 30, 2024, compared to $477.89 million in the prior year.

Strategically, KREF has focused on originating and acquiring transitional senior loans secured by commercial real estate assets, with a notable shift towards floating-rate loans, which comprised 99% of the loan portfolio as of September 30, 2024. The company continues to navigate a challenging macroeconomic environment characterized by inflation and elevated interest rates, which have impacted borrower performance and asset values.