On Tuesday, BTIG maintained its Buy rating and $13.00 price target on KKR Real Estate Financial Trust (NYSE:KREF), following the company's third-quarter earnings report. The real estate finance company surpassed analyst expectations, posting Distributable Earnings per Share (EPS) of $0.37, compared to the anticipated $0.33.
This figure factored in net realized losses of $1.8 million. The analyst highlighted that the adjusted third-quarter Distributable EPS, excluding realized losses, reached approximately $0.40 per share. This result not only exceeded the second quarter's figure by $0.01 but was also $0.07 higher than BTIG's estimate. Additionally, the earnings covered the quarterly dividend of $0.25 per share by 160%.
Despite the positive distributable earnings, KREF's GAAP EPS showed a loss of $0.19 per share, which included a Current Expected Credit Loss (CECL) provision of $38.2 million, or $0.55 per share. The increase in the CECL provision was significant, rising from the second quarter's allowance of $114.5 million, or $1.65 per share, to a total of $150.9 million, or $2.17 per share. The adjustment was due to the downgrading of two watchlist loans from a risk rating of 4 to 5 during the third quarter.
The company's book value per share decreased to $14.84 from $15.24 in the second quarter, after accounting for the total CECL. In the third quarter, KREF funded $55 million of prior agreements and received $290 million in repayments. The company concluded the quarter with an unpaid principal balance (UPB) loan portfolio of $6.34 billion, which collected 100% of interest payments, an improvement from 96% in the previous quarter.
KREF reported a slight reduction in leverage, from 3.9x to 3.8x, and extended the final maturity date of a $1 billion term credit facility from September 2026 to September 2029. The company ended the quarter with liquidity of $638 million, a slight decrease of $6 million from the second quarter. BTIG plans to update its estimates following KREF's earnings call scheduled for the following day.
In other recent news, KKR Real Estate Finance Trust reported its financial results for the quarter ending September 30, 2024. The company disclosed a GAAP net income of $20.2 million, countered by distributable losses of $108.7 million, significantly affected by realized losses of $136 million.
Despite these losses, KKR Real Estate Finance Trust reported a slight increase in book value per share to $15.24 and a reduction in its CECL allowance. Additionally, the company reported a robust lending pipeline valued at over $20 billion and a strong liquidity position exceeding $644 million, indicating a strategic focus on favored asset classes and potential expansion into Western Europe.
KKR Real Estate Finance Trust anticipates that repayments will surpass future funding obligations in 2024, with over $900 million in repayments already received this year. In other developments, BTIG raised its price target for KKR Real Estate Finance Trust from $11.50 to $13.00, maintaining a Buy rating.
InvestingPro Insights
Recent data from InvestingPro adds depth to KREF's financial picture. The company's market capitalization stands at $809.81 million, with a P/E ratio of 57.25. This high earnings multiple aligns with one of the InvestingPro Tips, which notes that KREF is "Trading at a high earnings multiple." However, another tip suggests that KREF is "Trading at a low P/E ratio relative to near-term earnings growth," indicating potential value for investors looking at future prospects.
KREF's dividend yield of 8.56% supports the InvestingPro Tip that the company "Pays a significant dividend to shareholders." This high yield could be particularly attractive to income-focused investors, especially in the current market environment.
The company's strong performance is further evidenced by its 18.13% price total return over the past three months, corroborating the InvestingPro Tip of a "Strong return over the last three months." This recent momentum may be of interest to investors considering KREF's potential for continued growth.
For readers interested in a more comprehensive analysis, InvestingPro offers 7 additional tips for KREF, providing a deeper understanding of the company's financial health and market position.
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