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Key takeaways from the call:
During the call, KREF’s executives addressed several queries. In response to analysts’ questions on reserves for office loans and potential asset buyers, Matt Salem, a company representative, stated that the reserves take into account cap rates, lease-up assumptions, and market pricing for the assets. Salem also indicated that while the company is currently focused on maintaining liquidity and monitoring the market environment, it may consider deploying capital for sourcing high coupon loans in 2024.
The company also discussed its property situations in Mountain View and Philadelphia. KREF is considering a joint venture structure for the Mountain View property, and the sale of the Philadelphia property fell through. No write-offs are expected for the Washington DC loan workout.
The company expressed confidence in its liquidity position and covenant structure, despite reducing its covenant from 1.5 times to 1.4 times due to an increase in the SOFR benchmark rate. KREF also anticipates an increase in transaction volume once the rate hike environment settles. This is consistent with the InvestingPro Tip that net income is expected to grow this year.
Regarding the office market, KREF noted better leasing activity than anticipated, indicating a healthy demand for office space. The company concluded the call by focusing on loan-by-loan outcomes and asset management, rather than forecasting the macro component of CECL reserves. For more insightful tips like these, explore the InvestingPro product that includes additional tips, with a total of eight tips listed for KREF.
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