KKR Real Estate Finance Trust Inc. (NYSE:KREF) Q1 2021 Earnings Conference Call April 27, 2021 10:00 AM ET Corporate Participants Jack Switala - Head of Investor Relations Matt Salem - Chief Executive Officer Patrick Mattson - President and Chief Operating Officer Mostafa Nagaty - Chief Financial Officer Conference Call Participants Jade Rahmani - KBW Stephen Laws - Raymond James Tim Hayes - BTIG Charlie Arestia - JPMorgan Don Fandetti - Wells Fargo Steve DeLaney - JMP Securities Arren Cyganovich - Citi Ope ...

Part I - Financial Information [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) KKR Real Estate Finance Trust Inc.'s unaudited condensed consolidated financial statements and comprehensive notes are presented for the quarter ended March 31, 2021 [Condensed Consolidated Balance Sheets (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) This section provides KKR Real Estate Finance Trust Inc.'s unaudited condensed consolidated balance sheets as of March 31, 2021, and December 31, 2020 | Metric | March 31, 2021 ($k) | December 31, 2020 ($k) | | :-------------------------------------- | :-------------------- | :--------------------- | | Total Assets | 5,272,880 | 4,965,612 | | Total Liabilities | 4,219,502 | 3,920,206 | | Total KKR Real Estate Finance Trust Inc. stockholders' equity | 1,050,816 | 1,043,554 | | Commercial real estate loans, held-for-investment, net | 4,968,447 | 4,784,733 | [Condensed Consolidated Statements of Income (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20(Unaudited)) This section presents KKR Real Estate Finance Trust Inc.'s unaudited condensed consolidated statements of income for the three months ended March 31, 2021 and 2020 | Metric | Three Months Ended March 31, 2021 ($k) | Three Months Ended March 31, 2020 ($k) | | :-------------------------------------- | :------------------------------------- | :------------------------------------- | | Net Income (Loss) | 30,092 | (34,572) | | Net Income (Loss) Attributable to Common Stockholders | 29,184 | (35,164) | | Basic EPS | 0.52 | (0.61) | | Diluted EPS | 0.52 | (0.61) | | Total net interest income | 37,383 | 31,997 | | Provision for (reversal of) credit losses, net | (1,588) | 55,274 | [Condensed Consolidated Statements of Changes in Equity (Unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity%20(Unaudited)) This section details KKR Real Estate Finance Trust Inc.'s unaudited condensed consolidated statements of changes in equity for the period ended March 31, 2021 | Metric | December 31, 2020 ($k) | March 31, 2021 ($k) | | :-------------------------------------- | :--------------------- | :-------------------- | | Total KKR Real Estate Finance Trust Inc. stockholders' equity (beginning) | 1,043,554 | 1,043,554 | | Net income (loss) | 29,894 | 29,894 | | Common dividends declared ($0.43 per share) | (23,916) | (23,916) | | Total KKR Real Estate Finance Trust Inc. stockholders' equity (ending) | 1,050,816 | 1,050,816 | [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) This section outlines KKR Real Estate Finance Trust Inc.'s unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2021 and 2020 | Cash Flow Activity | Three Months Ended March 31, 2021 ($k) | Three Months Ended March 31, 2020 ($k) | | :-------------------------------------- | :------------------------------------- | :------------------------------------- | | Net cash provided by (used in) operating activities | 30,268 | 27,376 | | Net cash provided by (used in) investing activities | (201,230) | (154,593) | | Net cash provided by (used in) financing activities | 269,477 | 429,465 | | Net Increase (Decrease) in Cash, Cash Equivalents | 98,515 | 302,248 | | Cash, Cash Equivalents at End of Period | 209,347 | 369,867 | [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section provides detailed notes supporting the unaudited condensed consolidated financial statements, covering business, policies, and specific financial instruments [Note 1. Business and Organization](index=9&type=section&id=Note%201.%20Business%20and%20Organization) This note describes KREF's business as a mortgage REIT, its management structure, and KKR's beneficial ownership - KREF operates as a mortgage REIT, primarily originating and acquiring transitional senior loans secured by commercial real estate (CRE) assets[26](index=26&type=chunk) - KREF is externally managed by KKR Real Estate Finance Manager LLC, an indirect subsidiary of KKR & Co Inc[28](index=28&type=chunk) - As of March 31, 2021, KKR beneficially owned **20,000,000 shares** of KREF's common stock[29](index=29&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=10&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines KREF's significant accounting policies, including GAAP compliance, CECL model adoption, and COVID-19 impact - The financial statements are prepared in accordance with GAAP for interim financial information[32](index=32&type=chunk) - KREF adopted ASU No 2016-13 (CECL model) on January 1, 2020, replacing the incurred loss methodology with an expected loss model for credit losses[62](index=62&type=chunk) - The COVID-19 pandemic continues to adversely impact global commercial activity, financial markets, and KREF's operating partners, borrowers, and properties, creating significant uncertainty for future financial performance[33](index=33&type=chunk)[34](index=34&type=chunk)[35](index=35&type=chunk) [Note 3. Commercial Real Estate Loans](index=20&type=section&id=Note%203.%20Commercial%20Real%20Estate%20Loans) This note details KREF's commercial real estate loan portfolio, including outstanding principal, credit loss allowance, and risk ratings | Metric | March 31, 2021 ($k) | December 31, 2020 ($k) | | :-------------------------------------- | :-------------------- | :--------------------- | | Total outstanding principal of loans held-for-investment | 5,051,520 | 4,869,696 | | Allowance for credit losses | 58,473 | 59,801 | | Provision for (reversal of) credit losses, net (Q1 2021) | (1,328) | N/A | - The average risk rating of KREF's portfolio was **3.1 (Average Risk)** as of March 31, 2021, consistent with December 31, 2020[120](index=120&type=chunk) | Risk Rating | Number of Loans (Mar 31, 2021) | Total Loan Exposure ($k) (Mar 31, 2021) | Exposure % (Mar 31, 2021) | | :---------- | :----------------------------- | :-------------------------------------- | :------------------------ | | 1 | — | — | — % | | 2 | 1 | 194,400 | 3.7 % | | 3 | 36 | 4,539,577 | 85.7 % | | 4 | 4 | 445,395 | 8.4 % | | 5 | 2 | 115,071 | 2.2 % | | **Total** | **43** | **5,294,443** | **100.0 %** | | Collateral Property Type (Mar 31, 2021) | Percentage of Loans' Principal Amounts | | :-------------------------------------- | :------------------------------------- | | Multifamily | 52.1 % | | Office | 32.1 % | | Condo (Residential) | 6.0 % | | Hospitality | 4.1 % | | Retail | 2.3 % | | Industrial | 1.9 % | | Student Housing | 1.5 % | | **Total** | **100.0 %** | [Note 4. Debt Obligations](index=24&type=section&id=Note%204.%20Debt%20Obligations) This note provides an overview of KREF's debt obligations, including secured financing, CLO, term loan, and convertible notes | Metric | March 31, 2021 ($k) | December 31, 2020 ($k) | | :-------------------------------------- | :-------------------- | :--------------------- | | Secured financing agreements, net (Carrying Value) | 2,876,743 | 2,574,747 | | Collateralized loan obligation, net | 807,000 | 810,000 | | Secured term loan, net | 287,720 | 288,028 | | Convertible notes, net | 140,806 | 140,465 | | Loan participations sold, net | 66,237 | 66,232 | | Year | Nonrecourse ($k) | Recourse ($k) | Total ($k) | | :--- | :--------------- | :------------ | :--------- | | 2021 | 703,373 | 101,191 | 804,564 | | 2022 | 1,099,221 | 294,245 | 1,393,466 | | 2023 | 402,192 | 58,542 | 460,734 | | 2024 | 181,896 | 40,430 | 222,326 | | Thereafter | — | — | — | | **Total** | **2,386,682** | **494,408** | **2,881,090** | - KREF was in compliance with all financial debt covenants as of March 31, 2021, and December 31, 2020[139](index=139&type=chunk) [Note 5. Collateralized Loan Obligation](index=27&type=section&id=Note%205.%20Collateralized%20Loan%20Obligation) This note details KREF's consolidated collateralized loan obligation, including collateral assets, financing, and net interest income | Metric | March 31, 2021 ($k) | December 31, 2020 ($k) | | :-------------------------------------- | :-------------------- | :--------------------- | | CLO collateral assets (Outstanding Principal) | 997,000 | 1,000,000 | | CLO financing provided (Outstanding Principal) | 807,000 | 810,000 | | Metric | Three Months Ended March 31, 2021 ($k) | Three Months Ended March 31, 2020 ($k) | | :-------------------------------------- | :------------------------------------- | :------------------------------------- | | Net interest income | 7,089 | 3,068 | - The CLO's two-year reinvestment period ended in December 2020[141](index=141&type=chunk) [Note 6. Secured Term Loan, Net](index=28&type=section&id=Note%206.%20Secured%20Term%20Loan%2C%20Net) This note describes KREF's secured term loan, including principal, carrying amount, interest cost, and covenant compliance | Metric | March 31, 2021 ($k) | | :-------------------------------------- | :-------------------- | | Principal amount | 299,250 | | Carrying amount | 287,720 | - The total cost of the secured term loan is LIBOR plus **5.3%** per annum[147](index=147&type=chunk) - KREF was in compliance with all covenants related to the secured term loan as of March 31, 2021, and December 31, 2020[148](index=148&type=chunk) [Note 7. Convertible Notes, Net](index=29&type=section&id=Note%207.%20Convertible%20Notes%2C%20Net) This note outlines KREF's convertible notes, including principal, net book value, total interest expense, and annual cost | Metric | March 31, 2021 ($k) | December 31, 2020 ($k) | | :-------------------------------------- | :-------------------- | :--------------------- | | Principal | 143,750 | 143,750 | | Net book value | 140,806 | 140,465 | | Metric | Three Months Ended March 31, 2021 ($k) | Three Months Ended March 31, 2020 ($k) | | :-------------------------------------- | :------------------------------------- | :------------------------------------- | | Total interest expense | 2,543 | 2,547 | - The total cost of the May 2018 Convertible Notes issuance is **6.92%** per annum[152](index=152&type=chunk) [Note 8. Loan Participations Sold](index=30&type=section&id=Note%208.%20Loan%20Participations%20Sold) This note details KREF's vertical loan participation, including outstanding principal and related interest income and expense | Metric | March 31, 2021 ($k) | December 31, 2020 ($k) | | :-------------------------------------- | :-------------------- | :--------------------- | | Vertical loan participation (Outstanding Principal) | 66,248 | 66,248 | - KREF recorded **$0.7 million** of interest income and **$0.7 million** of interest expense related to the vertical loan participation sold for both the three months ended March 31, 2021, and 2020[157](index=157&type=chunk) [Note 9. Variable Interest Entities](index=31&type=section&id=Note%209.%20Variable%20Interest%20Entities) This note discusses KREF's involvement with variable interest entities, including a consolidated CLO and equity method investments - KREF is the primary beneficiary of a consolidated collateralized loan obligation (CLO) that closed in November 2018[160](index=160&type=chunk) - As of March 31, 2021, KREF held a **3.5% interest** in RECOP I, an unconsolidated VIE, at its fair value of **$33.3 million**[162](index=162&type=chunk) - KREF's Taxable REIT Subsidiary (TRS) holds **4.7%** of the Manager's outstanding limited liability company interests, accounted for using the equity method[163](index=163&type=chunk) [Note 10. Equity](index=32&type=section&id=Note%2010.%20Equity) This note provides details on KREF's equity, including common shares outstanding, KKR ownership, and share repurchase program | Metric | March 31, 2021 | December 31, 2020 | | :-------------------------------------- | :------------- | :---------------- | | Common shares outstanding | 55,619,428 | 55,619,428 | | KKR beneficial ownership of common stock | 20,000,000 | 21,234,528 | | KKR beneficial ownership percentage | 36.0 % | 38.2 % | | Dividends declared per common share | $0.43 | $0.43 | - KREF did not repurchase any common stock during the three months ended March 31, 2021[171](index=171&type=chunk) - As of March 31, 2021, KREF had **$100.0 million** of availability to repurchase shares under its share repurchase program[410](index=410&type=chunk) [Note 11. Stock-based Compensation](index=35&type=section&id=Note%2011.%20Stock-based%20Compensation) This note outlines KREF's stock-based compensation expense, unrecognized expense, and unvested restricted stock units | Metric | Three Months Ended March 31, 2021 ($k) | Three Months Ended March 31, 2020 ($k) | | :-------------------------------------- | :------------------------------------- | :------------------------------------- | | Stock-based compensation expense | 1,994 | 1,607 | - As of March 31, 2021, there was **$11.4 million** of total unrecognized stock-based compensation expense, expected to be recognized over a weighted average period of **1.1 years**[183](index=183&type=chunk) - Unvested Restricted Stock Units (RSUs) outstanding as of March 31, 2021, totaled **787,942**[181](index=181&type=chunk) [Note 12. Commitments and Contingencies](index=36&type=section&id=Note%2012.%20Commitments%20and%20Contingencies) This note details KREF's future funding requirements, commitments to RECOP I, legal proceedings, and COVID-19 uncertainties - As of March 31, 2021, KREF had future funding requirements of **$454.2 million** related to its commercial real estate loans[190](index=190&type=chunk) - KREF had a remaining commitment of **$4.3 million** to RECOP I as of March 31, 2021[191](index=191&type=chunk) - KREF was not involved in any material legal proceedings as of March 31, 2021[188](index=188&type=chunk) - The magnitude and duration of the COVID-19 pandemic and its impact on KREF's operations and liquidity remain uncertain[192](index=192&type=chunk) [Note 13. Related Party Transactions](index=37&type=section&id=Note%2013.%20Related%20Party%20Transactions) This note describes KREF's related party transactions, including management fees, incentive compensation, and expense reimbursements | Metric | Three Months Ended March 31, 2021 ($k) | Three Months Ended March 31, 2020 ($k) | | :-------------------------------------- | :------------------------------------- | :------------------------------------- | | Management fees to affiliate | 4,290 | 4,299 | | Incentive compensation to affiliate | 2,192 | 1,606 | | Expense reimbursements and other | 352 | 299 | | **Total affiliate expenses** | **6,834** | **6,204** | | Metric | March 31, 2021 ($k) | December 31, 2020 ($k) | | :-------------------------------------- | :-------------------- | :--------------------- | | Due to affiliates | 4,516 | 6,243 | - KREF paid various structuring and placement agent fees to KKR Capital Markets (KCM), an affiliate, for financing facilities and loan syndications[203](index=203&type=chunk)[205](index=205&type=chunk)[206](index=206&type=chunk)[207](index=207&type=chunk)[208](index=208&type=chunk)[210](index=210&type=chunk)[211](index=211&type=chunk)[212](index=212&type=chunk) [Note 14. Fair Value of Financial Instruments](index=41&type=section&id=Note%2014.%20Fair%20Value%20of%20Financial%20Instruments) This note presents the fair value of KREF's financial instruments, including loans, investments, and various debt obligations | Financial Instrument | Fair Value (March 31, 2021, $k) | | :-------------------------------------- | :------------------------------ | | Commercial real estate loans, held-for-investment, net | 4,953,599 | | Equity method investments | 33,624 | | Secured financing agreements, net | 2,881,090 | | Collateralized loan obligation, net | 807,571 | | Secured term loan, net | 301,120 | | Convertible notes, net | 147,811 | | Loan participations sold, net | 66,237 | - Commercial real estate loans are generally valued using a discounted cash flow model (Level 3 input)[223](index=223&type=chunk) [Note 15. Income Taxes](index=43&type=section&id=Note%2015.%20Income%20Taxes) This note explains KREF's REIT tax election and its impact on federal income tax, along with current income tax provision - KREF has elected to be taxed as a REIT, generally not subject to U.S. federal income tax on distributed income if at least **90%** of its REIT taxable income is distributed[225](index=225&type=chunk) | Metric | Three Months Ended March 31, 2021 ($k) | Three Months Ended March 31, 2020 ($k) | | :-------------------------------------- | :------------------------------------- | :------------------------------------- | | Current income tax provision (benefit) | 0 | 100 | [Note 16. Subsequent Events](index=44&type=section&id=Note%2016.%20Subsequent%20Events) This note details significant events occurring after March 31, 2021, including new loan originations and preferred stock issuance | Loan Type | Month Originated | Committed Principal Amount ($k) | Initial Principal Funded ($k) | | :-------------------------------------- | :--------------- | :------------------------------ | :---------------------------- | | Senior Loan, Irving, TX (Multifamily) | April 2021 | 117,600 | 105,000 | | Senior Loan, Phoenix, AZ (Single Family Rental) | April 2021 | 72,105 | 10,127 | | **Total/Weighted Average** | | **189,705** | **115,127** | - In April 2021, KREF issued **6,900,000 shares** of **6.5%** Series A Cumulative Redeemable Preferred Stock, receiving **$167.1 million** in net proceeds[232](index=232&type=chunk) - In April 2021, KREF paid **$23.9 million** in common stock dividends (**$0.43 per share**) for the first quarter of 2021[233](index=233&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=44&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses KREF's financial condition, operations, investment strategy, portfolio performance, and COVID-19 impact for Q1 2021 [Overview](index=44&type=section&id=Overview) This section outlines KREF's investment strategy, external management by KKR, and objective of capital preservation and returns - KREF's investment strategy focuses on originating or acquiring transitional senior loans collateralized by institutional-quality CRE assets in liquid markets[236](index=236&type=chunk) - KREF is externally managed by KKR Real Estate Finance Manager LLC, an indirect subsidiary of KKR & Co Inc[237](index=237&type=chunk) - The investment objective is capital preservation and generating attractive risk-adjusted returns for stockholders, primarily through dividends[236](index=236&type=chunk) [Key Financial Measures and Indicators](index=47&type=section&id=Key%20Financial%20Measures%20and%20Indicators) This section presents KREF's key financial measures, including EPS, dividends, distributable earnings, and book value per share | Metric | March 31, 2021 | December 31, 2020 | | :-------------------------------------- | :------------- | :---------------- | | Net income per share, basic | $0.52 | $0.52 | | Dividends declared per share | $0.43 | $0.43 | | Distributable Earnings per Diluted Weighted Average Share | $0.55 | $0.48 | | Book value per share of common stock | $18.89 | $18.76 | [Our Portfolio](index=49&type=section&id=Our%20Portfolio) This section details KREF's diversified investment portfolio, its performing loan status, floating rate interest, and loan activity - KREF's diversified investment portfolio totaled **$5,330.2 million** as of March 31, 2021[251](index=251&type=chunk) - The loan portfolio was **97.8%** performing as of March 31, 2021, with **99.9%** of loans earning a floating rate of interest[252](index=252&type=chunk)[253](index=253&type=chunk) - Approximately **69%** of the portfolio was subject to a LIBOR floor of at least **1.00%**, with a weighted average floor of **1.43%**[253](index=253&type=chunk) | Loan Activity | Three Months Ended March 31, 2021 ($k) | | :-------------------------------------- | :------------------------------------- | | Loan originations | 534,500 | | Loan fundings | 575,826 | | Loan repayments/syndications | (244,348) | [Portfolio Surveillance and Credit Quality](index=53&type=section&id=Portfolio%20Surveillance%20and%20Credit%20Quality) This section describes KREF's active portfolio management, credit quality assessment, risk ratings, and loan modification details - KREF's Manager actively manages the portfolio, assessing credit quality quarterly and assigning risk ratings from **1 (very low risk)** to **5 (impaired/loss likely)**[272](index=272&type=chunk)[275](index=275&type=chunk)[279](index=279&type=chunk) - The average risk rating of the loan portfolio remained stable at **3.1 (Average Risk)** as of March 31, 2021, compared to December 31, 2020[283](index=283&type=chunk) - One hotel loan was modified in Q1 2021, including a **$10.0 million** principal paydown, resulting in an upgrade of its risk rating from **4 to 3**[281](index=281&type=chunk) - One senior retail loan was modified in Q4 2020, extending maturity and deferring interest, and was placed on non-accrual status with a **risk rating of 5**[282](index=282&type=chunk) [CMBS B-Piece Investments](index=54&type=section&id=CMBS%20B-Piece%20Investments) This section explains KREF's monitoring of CMBS B-Piece investments through surveillance calls and independent valuation firms - KREF's Manager monitors CMBS B-Piece investments through monthly surveillance calls with the special servicer and independent valuation firms[287](index=287&type=chunk)[288](index=288&type=chunk) - Current CMBS exposure is held through RECOP I, an equity method investment[289](index=289&type=chunk) [Portfolio Financing](index=55&type=section&id=Portfolio%20Financing) This section details KREF's portfolio financing, including non-mark-to-market sources, repurchase agreements, and various debt types - Non-Mark-to-Market Financing Sources accounted for **76%** of KREF's total secured financing (excluding the corporate revolver) as of March 31, 2021[291](index=291&type=chunk) - The remaining **24%** of secured borrowings are comprised of three master repurchase agreements, subject only to credit marks[291](index=291&type=chunk) | Financing Type | Outstanding Principal Balance (March 31, 2021, $k) | Outstanding Principal Balance (December 31, 2020, $k) | | :-------------------------------------- | :--------------------------------------------- | :---------------------------------------------- | | Master repurchase agreements | 1,017,633 | 673,120 | | Term loan financing | 903,457 | 948,204 | | Term lending agreement | 900,000 | 900,000 | | Collateralized loan obligations | 807,000 | 810,000 | | Secured term loan | 299,250 | 300,000 | | Asset specific financing | 60,000 | 60,000 | | Non-consolidated senior interests | 309,171 | 158,672 | | **Total portfolio financing** | **4,296,511** | **3,849,996** | - The CLO (KREF 2018-FL1) provides match-term, non-mark-to-market, and non-recourse financing, with its two-year reinvestment period ending in December 2020[308](index=308&type=chunk) - The secured term loan had **$299.3 million** outstanding as of March 31, 2021, is partially amortizing, matures in September 2027, and is secured by corporate-level guarantees[318](index=318&type=chunk)[319](index=319&type=chunk) - KREF issued **$143.75 million** of **6.125%** Convertible Notes in May 2018, maturing on May 15, 2023[320](index=320&type=chunk) [Results of Operations](index=62&type=section&id=Results%20of%20Operations) This section analyzes KREF's results of operations, focusing on net income, net interest income, and provision for credit losses | Metric | Three Months Ended March 31, 2021 ($k) | Three Months Ended March 31, 2020 ($k) | Change ($k) | Change (%) | | :-------------------------------------- | :------------------------------------- | :------------------------------------- | :---------- | :--------- | | Net Income (Loss) Attributable to Common Stockholders | 29,184 | (35,164) | 64,348 | 183.0 % | | Total net interest income | 37,383 | 31,997 | 5,386 | 16.8 % | | Provision for (reversal of) credit losses, net | (1,588) | 55,274 | (56,862) | (102.9) % | | Basic EPS | 0.52 | (0.61) | 1.13 | 185.2 % | - Net interest income increased by **$5.4 million (16.8%)** year-over-year, primarily due to an **$11.7 million (29.9%)** decrease in interest expense from lower LIBOR, partially offset by a **$6.3 million (8.9%)** decrease in interest income[333](index=333&type=chunk) - Total operating expenses decreased by **$56.5 million (87.1%)** year-over-year, mainly due to a **$56.9 million** decrease in provision for credit losses[336](index=336&type=chunk) - Quarter-over-quarter (Q1 2021 vs Q4 2020), net interest income increased by **$3.0 million**, driven by a **$1.6 million** increase in interest income (due to higher loan portfolio balance) and a **$1.5 million** decrease in interest expense (due to fully amortized CLO deferred financing costs)[341](index=341&type=chunk)[342](index=342&type=chunk)[343](index=343&type=chunk) [COVID-19 Impact](index=65&type=section&id=COVID-19%20Impact) This section discusses the ongoing adverse impact of the COVID-19 pandemic on KREF's operations, financial markets, and real estate - The COVID-19 pandemic continues to significantly disrupt financial markets, business shutdowns, and the U.S and global economies, adversely impacting KREF's operating partners, borrowers, and properties[347](index=347&type=chunk) - The magnitude and duration of the pandemic's impact on KREF's business, financial performance, and operating results remain highly uncertain and cannot be reasonably estimated[348](index=348&type=chunk) - Potential future declines in rental rates, increased concessions, and borrower defaults could negatively impact real estate values and KREF's ability to make distributions or meet financing obligations[347](index=347&type=chunk)[375](index=375&type=chunk) [Liquidity and Capital Resources](index=67&type=section&id=Liquidity%20and%20Capital%20Resources) This section details KREF's liquidity and capital resources, including cash, available borrowings, and leverage ratios | Metric | March 31, 2021 ($k) | December 31, 2020 ($k) | | :-------------------------------------- | :-------------------- | :--------------------- | | Cash and cash equivalents | 209,347 | 110,832 | | Available borrowings under revolving credit agreements | 335,000 | 335,000 | | Available borrowings under master repurchase agreements | 26,805 | 19,319 | | **Total available liquidity** | **571,152** | **481,801** | - Non-Mark-to-Market Financing Sources accounted for **76%** of KREF's total secured financing (excluding the corporate Revolver) as of March 31, 2021[350](index=350&type=chunk) - In April 2021, KREF issued **6,900,000 shares** of Series A Preferred Stock, generating **$167.1 million** in net proceeds, further expanding capitalization sources[350](index=350&type=chunk)[358](index=358&type=chunk) | Metric | March 31, 2021 | December 31, 2020 | | :-------------------------------------- | :------------- | :---------------- | | Debt-to-equity ratio | 2.1x | 1.9x | | Total leverage ratio | 3.7x | 3.6x | | Cash Flow Activity | Three Months Ended March 31, 2021 ($k) | Three Months Ended March 31, 2020 ($k) | | :-------------------------------------- | :------------------------------------- | :------------------------------------- | | Net Increase in Cash, Cash Equivalents, and Restricted Cash | 98,515 | 302,248 | [Contractual Obligations and Commitments](index=70&type=section&id=Contractual%20Obligations%20and%20Commitments) This section outlines KREF's contractual obligations and future funding commitments for commercial real estate loans | Obligation Type | Total ($k) (March 31, 2021) | Less than 1 year ($k) | 1 to 3 years ($k) | 3 to 5 years ($k) | Thereafter ($k) | | :-------------------------------------- | :---------------------------- | :-------------------- | :---------------- | :---------------- | :-------------- | | Recourse Obligations | 3,043,494 | 1,409,790 | 1,280,858 | 45,172 | 307,674 | | Non-Recourse Obligations | 1,788,911 | 522,435 | 435,400 | 24,076 | 807,000 | | **Total** | **4,832,405** | **1,932,225** | **1,716,258** | **69,248** | **1,114,674** | - Future funding obligations for commercial real estate loans totaled **$454.2 million**, primarily for construction projects and capital improvements[368](index=368&type=chunk) [Recent Market Conditions](index=70&type=section&id=Recent%20Market%20Conditions) This section addresses the adverse impact of COVID-19 on commercial real estate markets and KREF's operations and performance - The COVID-19 pandemic continues to adversely impact commercial real estate markets, KREF's operating partners, borrowers, and the economy as a whole[372](index=372&type=chunk) - The magnitude and duration of the COVID-19 pandemic and its impact on KREF's operations and financial performance remain highly uncertain[374](index=374&type=chunk) - Potential for future declines in rental rates, increased concessions, and borrower defaults could negatively impact real estate values and KREF's ability to make distributions or meet financing obligations[375](index=375&type=chunk) [Subsequent Events](index=71&type=section&id=Subsequent%20Events) This section refers to Note 16 for details on events occurring after the reporting period - Refer to Note 16 to the condensed consolidated financial statements for details on events occurring subsequent to March 31, 2021[376](index=376&type=chunk) [Critical Accounting Policies and Use of Estimates](index=71&type=section&id=Critical%20Accounting%20Policies%20and%20Use%20of%20Estimates) This section confirms no material changes to KREF's critical accounting policies and use of estimates - There have been no material changes to KREF's Critical Accounting Policies and Use of Estimates as described in its Annual Report on Form 10-K[377](index=377&type=chunk) [Allowance for Credit Losses](index=71&type=section&id=Allowance%20for%20Credit%20Losses) This section explains KREF's adoption of the CECL model for estimating expected credit losses on its loan portfolio - KREF adopted ASU No 2016-13 (CECL model) on January 1, 2020, to estimate expected credit losses for its commercial real estate loan portfolio[378](index=378&type=chunk) - CECL forecasting methods include probability of default and loss given default, and probability-weighted expected cash flow, utilizing loan-specific inputs, internal risk ratings, and macro-economic forecasts[379](index=379&type=chunk)[380](index=380&type=chunk)[381](index=381&type=chunk) - The individual loan internal risk rating is the primary credit quality indicator underlying the CECL assessment, with ratings from **1 (Very Low Risk)** to **5 (Impaired/Loss Likely)**[383](index=383&type=chunk)[387](index=387&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=72&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section details KREF's exposure to market risks, including credit, interest rate, LIBOR transition, prepayment, financing, and real estate [Credit Risk](index=72&type=section&id=Credit%20Risk) This section discusses KREF's exposure to credit risk, including default risk, and the impact of the COVID-19 pandemic - KREF's investments are subject to credit risk, including default risk, which is monitored by the Manager through regular contact with sponsors and collateral performance review[392](index=392&type=chunk) - The COVID-19 pandemic has adversely impacted commercial real estate markets, potentially impairing borrowers' ability to pay principal and interest[393](index=393&type=chunk) - Despite belief that principal amounts are adequately protected by collateral value and CECL reserves, there is a risk of not realizing the entire principal value of certain investments[394](index=394&type=chunk) [Credit Yield Risk](index=74&type=section&id=Credit%20Yield%20Risk) This section explains how increasing credit-sensitive instrument supply and reduced demand can lead to higher yields and lower prices - Increasing supply of credit-sensitive financial instruments and reduced demand can cause the market to require a higher yield, resulting in lower prices for KREF's financial instruments[395](index=395&type=chunk) [Interest Rate Risk](index=74&type=section&id=Interest%20Rate%20Risk) This section outlines KREF's interest rate risk, including the impact of LIBOR floors and potential changes in cash flows - KREF's net income generally increases with rising interest rates and decreases with declining rates[396](index=396&type=chunk) - As of March 31, 2021, **69%** of KREF's loan portfolio was subject to a LIBOR floor of at least **1.00%**, with a weighted average floor of **1.43%**[397](index=397&type=chunk) - A **25 basis point** increase in LIBOR would decrease expected cash flows by approximately **$8.5 million ($0.15 per common share)** for the twelve months following March 31, 2021[397](index=397&type=chunk) [LIBOR Transition](index=76&type=section&id=LIBOR%20Transition) This section addresses the impending LIBOR cessation, KREF's exposure, and the uncertainty of its financial impact - Most USD LIBOR tenors are expected to cease publication by **June 30, 2023**[398](index=398&type=chunk) - As of March 31, 2021, **99.9%** of KREF's loans and **100.0%** of its outstanding financing arrangements (excluding convertible notes) are indexed to LIBOR[399](index=399&type=chunk) - All arrangements provide procedures for determining an alternative base rate, but the impact of the LIBOR transition on KREF's financial condition and results of operations is uncertain[399](index=399&type=chunk) [Prepayment Risk](index=76&type=section&id=Prepayment%20Risk) This section defines prepayment risk as early principal repayment, potentially reducing returns or requiring reinvestment at lower yields - Prepayment risk involves principal being repaid earlier than anticipated, potentially reducing expected returns by accelerating premium amortization or requiring reinvestment at lower yields[400](index=400&type=chunk) [Financing Risk](index=76&type=section&id=Financing%20Risk) This section discusses financing risk, where market weakness could reduce available financing or increase costs for KREF's assets - KREF finances its assets using various leverage sources, and market weakness or volatility could adversely affect lenders, reducing available financing or increasing costs[401](index=401&type=chunk) [Real Estate Risk](index=76&type=section&id=Real%20Estate%20Risk) This section highlights real estate risk, where asset values are subject to volatility from economic and local conditions, leading to losses - Commercial real estate asset values are subject to volatility due to national/local economic conditions, local real estate conditions, and other factors, which could lead to collateral value declines and losses[402](index=402&type=chunk) [Item 4. Controls and Procedures](index=74&type=section&id=Item%204.%20Controls%20and%20Procedures) KREF's management evaluated disclosure controls and procedures, confirming their effectiveness and no material changes to internal controls [Evaluation of Disclosure Controls and Procedures](index=77&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms KREF's management, including CEO and CFO, concluded disclosure controls were effective as of March 31, 2021 - KREF's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective as of March 31, 2021[404](index=404&type=chunk) [Changes in Internal Control over Financial Reporting](index=77&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section states no material changes occurred in KREF's internal control over financial reporting during the quarter - No material changes occurred in KREF's internal control over financial reporting during the quarter ended March 31, 2021[405](index=405&type=chunk) Part II - Other Information [Item 1. Legal Proceedings](index=75&type=section&id=Item%201.%20Legal%20Proceedings) KREF was not involved in any material legal proceedings as of March 31, 2021, as detailed in Note 12 - KREF was not involved in any material legal proceedings regarding claims or legal actions against it as of March 31, 2021[407](index=407&type=chunk)[188](index=188&type=chunk) [Item 1A. Risk Factors](index=75&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors previously disclosed in the Annual Report on Form 10-K are reported - There have been no material changes to the risk factors previously disclosed in the Form 10-K[408](index=408&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=76&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) KREF did not repurchase common stock in Q1 2021, with $100.0 million remaining available under its share repurchase program - KREF did not repurchase any shares of its common stock during the three months ended March 31, 2021[410](index=410&type=chunk) - As of March 31, 2021, KREF had **$100.0 million** of availability to repurchase shares under its program, which has no expiration date[410](index=410&type=chunk) - The share repurchase program allows for repurchases when the market price per share is below book value per share[409](index=409&type=chunk) [Item 3. Defaults Upon Senior Securities](index=76&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[411](index=411&type=chunk) [Item 4. Mine Safety Disclosures](index=76&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to KREF - Mine safety disclosures are not applicable[412](index=412&type=chunk) [Item 5. Other Information](index=76&type=section&id=Item%205.%20Other%20Information) No other information is disclosed in this section - No other information to disclose[413](index=413&type=chunk) [Item 6. Exhibits](index=77&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, certifications, and XBRL data - Exhibits include Articles Supplementary for **6.5%** Series A Cumulative Redeemable Preferred Stock[416](index=416&type=chunk) - Certificates of the Chief Executive Officer and Chief Financial Officer are included pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[416](index=416&type=chunk) - Inline XBRL Instance Document and Taxonomy Extension Documents are provided[416](index=416&type=chunk) [Signatures](index=78&type=section&id=Signatures) This section contains the official signatures of KREF's CEO and CFO, certifying the report on April 26, 2021 - The report was signed by Matthew A Salem, Chief Executive Officer, and Mostafa Nagaty, Chief Financial Officer and Treasurer[420](index=420&type=chunk) - The signing date for the report was **April 26, 2021**[420](index=420&type=chunk)

KKR Real Estate Finance Trust Inc. (NYSE:KREF) Q4 2020 Earnings Conference Call February 17, 2021 10:00 AM ET Company Participants Anna Thomas - Head of Investor Relations Matt Salem - Chief Executive Officer Patrick Mattson - President & Chief Operating Officer Mostafa Nagaty - Chief Financial Officer Conference Call Participants Jade Rahmani - KBW Stephen Laws - Raymond James Steve DeLaney - JMP Securities Charlie Arestia - JP Morgan Timothy Hayes - BTIG Matthew Howlett - Wolfe Research Operator Good mor ...

[UNITED STATES SECURITIES AND EXCHANGE COMMISSION FORM 10-K](index=1&type=section&id=UNITED%20STATES%20SECURITIES%20AND%20EXCHANGE%20COMMISSION%20FORM%2010-K) This section presents the annual report filed with the SEC under the Securities Exchange Act of 1934 [DOCUMENTS INCORPORATED BY REFERENCE](index=3&type=section&id=DOCUMENTS%20INCORPORATED%20BY%20REFERENCE) This section lists documents incorporated by reference into this annual report [INDEX](index=4&type=section&id=INDEX) This section provides a comprehensive table of contents for the entire report [CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS](index=5&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section warns readers about the inherent uncertainties and risks associated with forward-looking statements in the report [SUMMARY OF MATERIAL RISKS](index=5&type=section&id=SUMMARY%20OF%20MATERIAL%20RISKS) This section outlines the most significant risks that could materially affect the company's business and financial results [PART I](index=8&type=section&id=PART%20I.) This part covers the company's business, risk factors, properties, legal proceedings, and mine safety disclosures [ITEM 1. BUSINESS](index=8&type=section&id=ITEM%201.%20BUSINESS) KREF is a real estate finance company primarily operating by originating and acquiring transitional senior loans supported by institutional-grade commercial real estate, aiming for capital preservation and attractive risk-adjusted returns for shareholders through dividends - KREF is a real estate finance company primarily operating by originating and acquiring transitional senior loans supported by institutional-grade commercial real estate[19](index=19&type=chunk) - The company's investment objective is capital preservation and creating attractive risk-adjusted returns for shareholders through dividends[19](index=19&type=chunk) - KREF is externally managed by KKR Real Estate Finance Manager LLC, an indirect subsidiary of KKR, and operates as a REIT listed on the New York Stock Exchange under the ticker symbol "KREF"[21](index=21&type=chunk)[22](index=22&type=chunk)[23](index=23&type=chunk) 2020 Portfolio Overview as of December 31 | Metric | Amount/Ratio | | :--------------------------------- | :---------- | | **Total Portfolio** | $4,997.8 million | | **Primary Components** | Senior Loans, Mezzanine Loans, CMBS B-Pieces | | **Primary Investment Strategy** | Origination of Floating-Rate Transitional Senior Loans | | **Portfolio Composition (by Type)** | 99.9% Floating Rate | | **Portfolio Composition (by Geography)** | 100% Located in the U.S. | | **Book Value** | $1,043.6 million | | **Outstanding Principal** | $4,997.8 million | [Our Company](index=8&type=section&id=Our%20Company) This section details the company's foundational structure and operational model [Our Manager and KKR](index=8&type=section&id=Our%20Manager%20and%20KKR) This section describes the external management structure and relationship with KKR [Our Investment Strategy](index=9&type=section&id=Our%20Investment%20Strategy) This section outlines the company's approach to identifying and executing investment opportunities [Our Target Assets](index=9&type=section&id=Our%20Target%20Assets) This section specifies the types of assets the company aims to acquire or originate [Our Portfolio](index=10&type=section&id=Our%20Portfolio) This section presents an overview of the company's current investment holdings and their characteristics [Our Financing Strategy](index=12&type=section&id=Our%20Financing%20Strategy) This section explains the methods and sources used to fund the company's investment activities [Investment Guidelines](index=15&type=section&id=Investment%20Guidelines) This section defines the parameters and criteria governing the company's investment decisions [Impact of Interest Rate Environment](index=15&type=section&id=Impact%20of%20Interest%20Rate%20Environment) This section analyzes how changes in interest rates affect the company's financial performance [Taxation of the Company](index=17&type=section&id=Taxation%20of%20the%20Company) This section discusses the tax implications and REIT status of the company [Competition](index=17&type=section&id=Competition) This section identifies the competitive landscape and factors influencing the company's market position [Human Capital](index=18&type=section&id=Human%20Capital) This section addresses the company's approach to managing its workforce and talent [Additional Information Available](index=18&type=section&id=Additional%20Information%20Available) This section indicates where further public information about the company can be accessed [ITEM 1A. RISK FACTORS](index=19&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section details various risks that could materially and adversely affect the company's business, financial condition, and operating results, including those related to the COVID-19 pandemic, lending and investment activities, financing and hedging, relationships with the manager, legal and regulatory matters, and REIT status - The COVID-19 pandemic has severely disrupted the company's business, financial performance, operating results, and cash flows, potentially leading to borrower defaults, capital market instability, difficulty estimating loan loss reserves, and deteriorating real estate performance[56](index=56&type=chunk)[57](index=57&type=chunk) - The company faces intense market competition, which may limit its ability to acquire desirable loans and investments and impact asset yields[63](index=63&type=chunk) - Fluctuations in interest rates and credit spreads may reduce income from loans and investments, affect cash flows and investment market values, and potentially impair the ability to pay dividends to shareholders[68](index=68&type=chunk)[69](index=69&type=chunk) - The company relies on its external manager and its personnel, and termination of the management agreement or loss of key personnel could materially and adversely affect its performance[157](index=157&type=chunk) - Failure to maintain REIT qualification would result in the company being taxed as a regular corporation and could lead to substantial tax liabilities[196](index=196&type=chunk) [Risks Related to the COVID-19 Pandemic](index=19&type=section&id=Risks%20Related%20to%20the%20COVID-19%20Pandemic) This section highlights the adverse impacts and uncertainties stemming from the COVID-19 pandemic on business operations [Risks Related to Our Lending and Investment Activities](index=22&type=section&id=Risks%20Related%20to%20Our%20Lending%20and%20Investment%20Activities) This section addresses potential challenges and losses associated with the company's core lending and investment operations [Risks Related to Our Financing and Hedging](index=36&type=section&id=Risks%20Related%20to%20Our%20Financing%20and%20Hedging) This section covers risks related to funding strategies, debt obligations, and derivative instruments [Risks Related to Our Relationship with Our Manager and Its Affiliates](index=42&type=section&id=Risks%20Related%20to%20Our%20Relationship%20with%20Our%20Manager%20and%20Its%20Affiliates) This section examines potential conflicts of interest and dependencies arising from the external management structure [Legal and Regulatory Risks](index=48&type=section&id=Legal%20and%20Regulatory%20Risks) This section discusses the potential impact of legal proceedings, compliance requirements, and regulatory changes [Risks Related to Our REIT Status and Certain Other Tax Considerations](index=53&type=section&id=Risks%20Related%20to%20Our%20REIT%20Status%20and%20Certain%20Other%20Tax%20Considerations) This section outlines the specific tax-related risks, particularly concerning the company's REIT qualification [Structural, Organizational and Operational Risks](index=58&type=section&id=Structural,%20Organizational%20and%20Operational%20Risks) This section identifies risks inherent in the company's organizational structure, internal processes, and day-to-day operations [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=66&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) There are no unresolved staff comments in this company report - There are no unresolved staff comments in this company report[256](index=256&type=chunk) [ITEM 2. PROPERTIES](index=66&type=section&id=ITEM%202.%20PROPERTIES) The company's main administrative office is located at 30 Hudson Yards, Suite 7500, New York, New York, and it does not own any real estate but considers existing facilities sufficient for business management and operations - The company's main administrative office is located at 30 Hudson Yards, Suite 7500, New York, New York[257](index=257&type=chunk) - The company does not own any real estate but considers existing facilities sufficient for business management and operations[257](index=257&type=chunk) [ITEM 3. LEGAL PROCEEDINGS](index=66&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) As of December 31, 2020, the company was not involved in any material legal proceedings - As of December 31, 2020, the company was not involved in any material legal proceedings[258](index=258&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=66&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This disclosure is not applicable - This disclosure is not applicable[259](index=259&type=chunk) [PART II](index=67&type=section&id=PART%20II.) This part covers market information for common equity, selected financial data, management's discussion and analysis, and financial statements [ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS](index=67&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%20AND%20RELATED%20STOCKHOLDER%20MATTERS) This section discusses the company's common stock trading on the NYSE, dividend policy, shareholder return performance, equity compensation plans, and stock repurchase programs, with 26 registered common stock shareholders as of February 11, 2021, and an aim to distribute at least 90% of taxable income annually to maintain REIT qualification - As of February 11, 2021, the company had **26 registered common stock shareholders**[261](index=261&type=chunk) - The company aims to maintain REIT qualification by distributing at least **90% of its taxable income annually**[262](index=262&type=chunk) Common Stock Dividends for 2020 and 2019 | Declaration Date | Record Date | Payment Date | Amount Per Share | | :--------- | :--------- | :--------- | :------- | | **2020** | | | | | March 16, 2020 | March 31, 2020 | April 15, 2020 | $0.43 | | June 15, 2020 | June 30, 2020 | July 15, 2020 | $0.43 | | September 15, 2020 | September 30, 2020 | October 15, 2020 | $0.43 | | December 15, 2020 | December 31, 2020 | January 15, 2021 | $0.43 | | **2019** | | | | | March 18, 2019 | March 29, 2019 | April 12, 2019 | $0.43 | | June 14, 2019 | June 28, 2019 | July 15, 2019 | $0.43 | | September 13, 2019 | September 30, 2019 | October 16, 2019 | $0.43 | | December 16, 2019 | December 31, 2019 | January 15, 2020 | $0.43 | Equity Compensation Plan Information as of December 31, 2020 | Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column 1) | | :--------------------------------- | :--------------------------------- | :--------------------------------- | :--------------------------------------------------------------------------------- | | Equity compensation plans approved by security holders | 787,942 | $— | 2,932,529 | | Equity compensation plans not approved by security holders | — | $— | — | | **Total** | **787,942** | **$—** | **2,932,529** | - The company repurchased **2,037,637 shares of common stock** in 2020 at an average price of **$12.27 per share**, totaling **$25.0 million**[271](index=271&type=chunk) [Dividends](index=67&type=section&id=Dividends) This section details the company's dividend declaration and payment history [Stockholder Return Performance](index=68&type=section&id=Stockholder%20Return%20Performance) This section compares the company's stock performance against relevant market indices [Equity Compensation Plan Information](index=68&type=section&id=Equity%20Compensation%20Plan%20Information) This section provides data on outstanding options, warrants, and securities available for future issuance under equity plans [Issuer Purchases of Equity Securities](index=69&type=section&id=Issuer%20Purchases%20of%20Equity%20Securities) This section reports on any share repurchase programs undertaken by the company [ITEM 6. SELECTED FINANCIAL DATA](index=70&type=section&id=ITEM%206.%20SELECTED%20FINANCIAL%20DATA) This section provides selected consolidated financial data for the years ended December 31, 2020, and prior periods, including operating, per share, and balance sheet data, intended to be read in conjunction with management's discussion and analysis and the consolidated financial statements Selected Consolidated Financial Data (as of December 31, 2020) | (In thousands, except ratios, shares, and per share data) | December 31, 2020 | December 31, 2019 | December 31, 2018 | December 31, 2017 | December 31, 2016 | | :------------------------------------------------- | :------------- | :------------- | :------------- | :------------- | :------------- | | **Operating Data:** | | | | | | | Interest income | $269,188 | $274,335 | $183,575 | $83,145 | $32,659 | | Interest expense | 127,312 | 158,860 | 85,017 | 21,224 | 7,432 | | **Total Net Interest Income** | **141,876** | **115,475** | **98,558** | **61,921** | **25,227** | | Other income | 1,281 | 5,998 | 20,093 | 17,688 | 15,968 | | **Total Net Revenue** | **143,157** | **121,473** | **118,651** | **79,609** | **41,195** | | Operating expenses | 88,348 | 30,929 | 28,914 | 18,428 | 8,569 | | Net income (loss) attributable to KKR Real Estate Finance Trust Inc. and subsidiaries | 54,397 | 89,965 | 89,744 | 59,062 | 31,157 | | **Net Income (Loss) Attributable to Common Stockholders** | **$53,553** | **$90,492** | **$87,293** | **$58,818** | **$31,141** | | **Per Share Data:** | | | | | | | Net income (loss) per common share - Diluted | $0.96 | $1.57 | $1.58 | $1.30 | $1.61 | | Dividends declared per common share | $1.72 | $1.72 | $1.69 | $1.62 | $1.22 | | Book value per common share | $18.76 | $19.52 | $19.66 | $19.73 | $20.60 | | Leverage ratio | 3.6 | 3.4 | 2.5 | 0.8 | 0.7 | | **Balance Sheet Data (Period End):** | | | | | | | Total assets | $4,965,612 | $5,057,018 | $4,151,590 | $2,137,967 | $951,829 | | Collateralized financing agreements, net | 2,574,747 | 2,884,887 | 1,951,049 | 964,800 | 439,144 | | Collateralized loan obligations, net | 810,000 | 803,376 | 800,346 | — | — | | Secured term loan, net | 288,028 | — | — | — | — | | Convertible notes, net | 140,465 | 139,075 | 137,688 | — | — | | **Total KKR Real Estate Finance Trust Inc. stockholders' equity** | **1,043,554** | **1,122,018** | **1,132,342** | **1,059,145** | **497,698** | | **Total Equity** | **$1,045,406** | **$1,123,712** | **$1,135,188** | **$1,063,184** | **$508,067** | [ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=72&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides a detailed analysis of the company's financial condition and operating results for fiscal year 2020, highlighting operational outcomes, investment activities, financing strategies, and capital market activities, with net income attributable to common stockholders of $53.6 million, diluted EPS of $0.96, and declared dividends of $1.72 per common share, alongside a $5.0 billion portfolio with 97.7% performing loans and 99.2% floating-rate loans, and increased non-mark-to-market financing to mitigate market volatility 2020 Operating Highlights | Metric | 2020 | | :--------------------------------- | :--------------------------------- | | Net Income Attributable to Common Stockholders | $53.6 million | | Diluted Net Income Per Share | $0.96 | | Distributable Earnings | $109.3 million | | Diluted Distributable Earnings Per Share | $1.95 | | Common Stock Dividends Declared | $1.72 | | Total Portfolio | $5.0 million | | Portfolio Performing Rate | 97.7% | | Portfolio Floating Rate Percentage | 99.2% | | Portfolio Weighted Average LTV | 67% | | Non-Mark-to-Market Financing | $3.2 million (83% of total financing) | | Stock Repurchases | 2,037,637 shares, totaling $25.0 million | | Book Value | $1,043.6 million | | Book Value Per Common Share | $18.76 | Earnings Per Share and Dividends for 2020 and 2019 | Metric | Year Ended December 31, 2020 | Year Ended December 31, 2019 | | :--------------------------------- | :-------------------- | :-------------------- | | Net Income Attributable to Common Stockholders | $53,553 | $90,492 | | Basic Net Income Per Share | $0.96 | $1.58 | | Diluted Net Income Per Share | $0.96 | $1.57 | | Dividends Declared Per Share | $1.72 | $1.72 | Distributable Earnings for 2020 and 2019 | Metric | Year Ended December 31, 2020 | Year Ended December 31, 2019 | | :--------------------------------- | :-------------------- | :-------------------- | | Net Income Attributable to Common Stockholders | $53,553 | $90,492 | | Adjustments (non-cash equity compensation, unrealized gains/losses, credit loss provision, etc.) | 55,768 | 5,820 | | **Distributable Earnings** | **$109,321** | **$96,313** | | Diluted Distributable Earnings Per Share | $1.95 | $1.67 | Book Value Per Share for 2020 and 2019 | Metric | December 31, 2020 | December 31, 2019 | | :--------------------------------- | :-------------- | :-------------- | | KKR Real Estate Finance Trust Inc. Stockholders' Equity | $1,043,554 | $1,122,018 | | Common Shares Outstanding at Period End | 55,619,428 | 57,486,583 | | **Book Value Per Common Share** | **$18.76** | **$19.52** | | Impact of CECL Credit Loss Provision (per share) | ($1.09) | — | | Impact of Loan Write-offs (per share) | ($0.08) | — | Changes in Operating Expenses for 2020 and 2019 | Operating Expense Category | 2020 | 2019 | Change Amount | Percentage Change | | :--------------------- | :----- | :----- | :----- | :--------- | | Total Operating Expenses | $88,348 | $30,929 | $57,419 | 185.6% | | Provision for Credit Losses | $50,344 | $— | $50,344 | 100.0% | | Manager Incentive Compensation | $6,774 | $3,272 | $3,502 | 107.0% | | Non-cash Equity Compensation Expense | Increased by $1.6 million | | | | | Non-recurring Failed Transaction Costs | $2.0 million | | | | Sources of Liquidity for 2020 and 2019 | Source of Liquidity | December 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--------------------------------- | :----------------------- | :----------------------- | | Cash and Cash Equivalents | $110,832 | $67,619 | | Available Borrowings Under Revolving Credit Agreement | $335,000 | $250,000 | | Available Borrowings Under Master Repurchase Agreements | $19,319 | $6,174 | | Available Borrowings Under Term Loan Financing Facilities | $— | $41,364 | | Available Borrowings Under Term Lending Agreement | $— | $15,922 | | Available Borrowings Under Warehouse Facilities | $— | $— | | Available Borrowings Under Asset Specific Financings | $800 | $2,592 | | Principal Repayments Receivable on Loans | $15,850 | $— | | **Total** | **$481,801** | **$383,671** | [Introduction](index=72&type=section&id=Introduction) This section provides an overview and context for the management's discussion and analysis [2020 Highlights](index=72&type=section&id=2020%20Highlights) This section summarizes key achievements and financial performance indicators for the year 2020 [Key Financial Measures and Indicators](index=73&type=section&id=Key%20Financial%20Measures%20and%20Indicators) This section discusses the primary financial metrics used to evaluate the company's performance [Earnings (Loss) Per Share and Dividends Declared](index=73&type=section&id=Earnings%20(Loss)%20Per%20Share%20and%20Dividends%20Declared) This section analyzes the company's profitability on a per-share basis and its dividend distributions [Distributable Earnings](index=73&type=section&id=Distributable%20Earnings) This section explains the calculation and significance of distributable earnings for shareholders [Book Value per Share](index=74&type=section&id=Book%20Value%20per%20Share) This section examines the company's book value on a per-share basis and its changes [Our Portfolio](index=76&type=section&id=Our%20Portfolio) This section provides a detailed breakdown and analysis of the company's investment portfolio [Portfolio Surveillance and Credit Quality](index=80&type=section&id=Portfolio%20Surveillance%20and%20Credit%20Quality) This section describes the processes for monitoring investment performance and assessing credit risk [CMBS B-Piece Investments](index=81&type=section&id=CMBS%20B-Piece%20Investments) This section details the company's investments in Commercial Mortgage-Backed Securities B-Pieces [Portfolio Financing](index=82&type=section&id=Portfolio%20Financing) This section explains the financing structures and strategies used for the investment portfolio [Financing Agreements](index=83&type=section&id=Financing%20Agreements) This section outlines the various agreements used to secure funding for the company's operations [Master Repurchase Agreements](index=83&type=section&id=Master%20Repurchase%20Agreements) This section describes the terms and conditions of the company's master repurchase agreements [Term Loan Financing](index=84&type=section&id=Term%20Loan%20Financing) This section details the company's term loan financing arrangements [Term Lending Agreement](index=84&type=section&id=Term%20Lending%20Agreement) This section explains the specific terms of the company's term lending agreements [Warehouse Facility](index=84&type=section&id=Warehouse%20Facility) This section describes the company's warehouse financing facilities [Asset Specific Financing](index=84&type=section&id=Asset%20Specific%20Financing) This section details financing arrangements tied to specific assets [Revolving Credit Agreement](index=84&type=section&id=Revolving%20Credit%20Agreement) This section outlines the terms of the company's revolving credit facilities [Collateralized Loan Obligations](index=85&type=section&id=Collateralized%20Loan%20Obligations) This section explains the company's collateralized loan obligations [Loan Participations Sold](index=85&type=section&id=Loan%20Participations%20Sold) This section describes the company's activities in selling loan participations [Non-Consolidated Senior Interests](index=86&type=section&id=Non-Consolidated%20Senior%20Interests) This section details the company's non-consolidated senior interests [Secured Term Loan](index=86&type=section&id=Secured%20Term%20Loan) This section explains the company's secured term loan arrangements [Convertible Notes](index=86&type=section&id=Convertible%20Notes) This section describes the company's convertible notes and their terms [Borrowing Activities](index=87&type=section&id=Borrowing%20Activities) This section summarizes the company's debt issuance and repayment activities [Results of Operations](index=89&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance over specific periods [Year Ended December 31, 2020 Compared to Year Ended December 31, 2019](index=89&type=section&id=Year%20Ended%20December%2031,%202020%20Compared%20to%20Year%20Ended%20December%2031,%202019) This section compares the company's operating results for the fiscal years 2020 and 2019 [Year Ended December 31, 2019 Compared to Year Ended December 31, 2018](index=90&type=section&id=Year%20Ended%20December%2031,%202019%20Compared%20to%20Year%20Ended%20December%2031,%202018) This section compares the company's operating results for the fiscal years 2019 and 2018 [COVID-19 Impact](index=91&type=section&id=COVID-19%20Impact) This section assesses the specific effects of the COVID-19 pandemic on the company's operations and financial health [Liquidity and Capital Resources](index=92&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's ability to meet short-term obligations and fund long-term growth [Overview](index=92&type=section&id=Overview) This section provides a general summary of the company's liquidity and capital position [Debt-to-Equity Ratio and Total Leverage Ratio](index=92&type=section&id=Debt-to-Equity%20Ratio%20and%20Total%20Leverage%20Ratio) This section analyzes the company's financial leverage and debt management [Sources of Liquidity](index=93&type=section&id=Sources%20of%20Liquidity) This section identifies the various channels through which the company obtains liquid funds [Cash Flows](index=93&type=section&id=Cash%20Flows) This section examines the company's cash generation and utilization from operating, investing, and financing activities [Contractual Obligations and Commitments](index=95&type=section&id=Contractual%20Obligations%20and%20Commitments) This section details the company's future payment obligations and other contractual agreements [Recent Market Conditions](index=95&type=section&id=Recent%20Market%20Conditions) This section discusses prevailing market trends and their potential influence on the company [Subsequent Events](index=96&type=section&id=Subsequent%20Events) This section reports on significant events that occurred after the balance sheet date [Off-Balance Sheet Arrangements](index=97&type=section&id=Off-Balance%20Sheet%20Arrangements) This section describes financial arrangements not recognized on the company's balance sheet [Critical Accounting Policies and Use of Estimates](index=97&type=section&id=Critical%20Accounting%20Policies%20and%20Use%20of%20Estimates) This section explains the significant accounting policies and judgments that materially affect financial reporting [Interest Income Recognition](index=97&type=section&id=Interest%20Income%20Recognition) This section details the methods used to recognize interest income from loans and investments [Allowance for Loan Losses](index=97&type=section&id=Allowance%20for%20Loan%20Losses) This section explains the methodology for estimating and recording provisions for potential loan losses [Income Taxes](index=99&type=section&id=Income%20Taxes) This section discusses the company's accounting for income taxes and its REIT status implications [Recently Adopted Accounting Standard](index=99&type=section&id=Recently%20Adopted%20Accounting%20Standard) This section reports on new accounting standards recently implemented by the company [Credit Losses](index=99&type=section&id=Credit%20Losses) This section details the adoption and impact of new accounting standards related to credit losses [ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=100&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section discloses the primary market risks faced by the company, including credit risk, credit yield risk, interest rate risk, LIBOR transition risk, prepayment risk, financing risk, and real estate risk, and outlines strategies to manage them - The company's investments face credit risk, including default risk, which is monitored through portfolio review and regular communication with originators[438](index=438&type=chunk) - The COVID-19 pandemic has adversely impacted the commercial real estate market, potentially leading to declining rents, tenant requests for rent deferrals or abatements, and impaired borrower debt service capacity[439](index=439&type=chunk) - Regarding interest rate risk, rising rates generally increase the company's net income, while falling rates decrease it; as of December 31, 2020, **99.2% of investments were floating-rate**, and **85% of the portfolio was protected by LIBOR floors**[442](index=442&type=chunk)[443](index=443&type=chunk) - The potential discontinuation of LIBOR may affect the value of the company's financial instruments and could lead to increased interest expense or ineffective hedging strategies[445](index=445&type=chunk)[446](index=446&type=chunk) - Prepayment risk may result in early principal repayments, potentially reducing investment returns if reinvestment yields are lower than anticipated[447](index=447&type=chunk) [Credit Risk](index=100&type=section&id=Credit%20Risk) This section addresses the potential for losses arising from a borrower's or counterparty's failure to meet obligations [Credit Yield Risk](index=100&type=section&id=Credit%20Yield%20Risk) This section discusses the risk associated with changes in credit spreads affecting investment returns [Interest Rate Risk](index=100&type=section&id=Interest%20Rate%20Risk) This section examines the impact of fluctuations in interest rates on the company's financial performance [LIBOR Transition](index=101&type=section&id=LIBOR%20Transition) This section addresses the challenges and implications of transitioning away from LIBOR as a benchmark rate [Prepayment Risk](index=101&type=section&id=Prepayment%20Risk) This section discusses the risk that borrowers may repay loans earlier than expected, affecting investment yields [Financing Risk](index=101&type=section&id=Financing%20Risk) This section covers the risks associated with obtaining and maintaining adequate funding for operations [Real Estate Risk](index=101&type=section&id=Real%20Estate%20Risk) This section examines the inherent risks associated with investments in commercial real estate markets [ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](index=102&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section contains the company's consolidated financial statements for the year ended December 31, 2020, and the preceding three years, including consolidated balance sheets, statements of income, statements of changes in equity, and statements of cash flows, along with related notes and a schedule of mortgage loans on real estate - The company's consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and have been audited by an independent registered public accounting firm[453](index=453&type=chunk) - The company adopted ASU No. 2016-13 (Credit Losses) on January 1, 2020, which changed the accounting for impairment of financial assets to an expected loss model (CECL)[454](index=454&type=chunk)[459](index=459&type=chunk) Consolidated Balance Sheets Summary (as of December 31, 2020) | Assets | December 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--------------------------------- | :----------------------- | :----------------------- | | Cash and Cash Equivalents | $110,832 | $67,619 | | Commercial Real Estate Loans, Held for Investment, Net | $4,784,733 | $4,931,042 | | Equity Method Investments | $33,651 | $37,469 | | **Total Assets** | **$4,965,612** | **$5,057,018** | | Liabilities | | | | Collateralized Financing Agreements, Net | $2,574,747 | $2,884,887 | | Collateralized Loan Obligations, Net | $810,000 | $803,376 | | Secured Term Loan, Net | $288,028 | $— | | Convertible Notes, Net | $140,465 | $139,075 | | **Total Liabilities** | **$3,920,206** | **$3,933,306** | | **Total KKR Real Estate Finance Trust Inc. Stockholders' Equity** | **$1,043,554** | **$1,122,018** | Consolidated Statements of Income Summary (for the Year Ended December 31, 2020) | Operating Data | 2020 (in thousands) | 2019 (in thousands) | 2018 (in thousands) | | :--------------------------------- | :-------------- | :-------------- | :-------------- | | Interest Income | $269,188 | $274,335 | $183,575 | | Interest Expense | $127,312 | $158,860 | $85,017 | | **Total Net Interest Income** | **$141,876** | **$115,475** | **$98,558** | | Other Income (Loss) | $1,281 | $5,998 | $20,093 | | Operating Expenses | $88,348 | $30,929 | $28,914 | | **Net Income (Loss) Attributable to Common Stockholders** | **$53,553** | **$90,492** | **$87,293** | | Basic Net Income (Loss) Per Share | $0.96 | $1.58 | $1.58 | | Diluted Net Income (Loss) Per Share | $0.96 | $1.57 | $1.58 | Consolidated Statements of Cash Flows Summary (for the Year Ended December 31, 2020) | Cash Flow Category | 2020 (in thousands) | 2019 (in thousands) | 2018 (in thousands) | | :--------------------------------- | :-------------- | :-------------- | :-------------- | | Net Cash Flow from Operating Activities | $115,062 | $91,713 | $76,830 | | Net Cash Flow from Investing Activities | $88,709 | ($926,314) | ($1,997,213) | | Net Cash Flow from Financing Activities | ($160,558) | $815,689 | $1,903,394 | | **Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash** | **$43,213** | **($18,912)** | **($16,989)** | | Cash and Cash Equivalents at End of Period | $110,832 | $67,619 | $86,531 | [Report of Independent Registered Public Accounting Firm](index=103&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) This section presents the auditor's opinion on the fairness and accuracy of the consolidated financial statements [Consolidated Balance Sheets](index=105&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's assets, liabilities, and equity at specific points in time [Consolidated Statements of Income](index=106&type=section&id=Consolidated%20Statements%20of%20Income) This section reports the company's revenues, expenses, and net income over a period [Consolidated Statements of Changes in Equity](index=107&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Equity) This section details the changes in the company's equity accounts over a period [Consolidated Statements of Cash Flows](index=108&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section summarizes the cash inflows and outflows from operating, investing, and financing activities [Notes to Consolidated Financial Statements](index=110&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the consolidated financial statements [Note 1. Business and Organization](index=110&type=section&id=Note%201.%20Business%20and%20Organization) This note describes the company's nature of business and organizational structure [Note 2. Summary of Significant Accounting Policies](index=111&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting principles and methods applied in preparing the financial statements [Note 3. Commercial Real Estate Loans](index=123&type=section&id=Note%203.%20Commercial%20Real%20Estate%20Loans) This note provides detailed information on the company's commercial real estate loan portfolio [Note 4. Debt Obligations](index=127&type=section&id=Note%204.%20Debt%20Obligations) This note details the company's various debt instruments and their terms [Note 5. Collateralized Loan Obligation](index=130&type=section&id=Note%205.%20Collateralized%20Loan%20Obligation) This note explains the company's collateralized loan obligations and related accounting [Note 6. Secured Term Loan, Net](index=132&type=section&id=Note%206.%20Secured%20Term%20Loan,%20Net) This note provides information on the company's secured term loans, net of unamortized costs [Note 7. Convertible Notes, Net](index=133&type=section&id=Note%207.%20Convertible%20Notes,%20Net) This note details the company's convertible notes, net of unamortized discounts and issuance costs [Note 8. Loan Participations Sold](index=134&type=section&id=Note%208.%20Loan%20Participations%20Sold) This note describes the accounting treatment and details of loan participations sold by the company [Note 9. Variable Interest Entities](index=135&type=section&id=Note%209.%20Variable%20Interest%20Entities) This note discusses the company's involvement with variable interest entities and consolidation considerations [Note 10. Equity](index=136&type=section&id=Note%2010.%20Equity) This note provides a breakdown of the company's equity accounts and changes therein [Note 11. Stock-based Compensation](index=140&type=section&id=Note%2011.%20Stock-based%20Compensation) This note details the company's stock-based compensation plans and related expenses [Note 12. Commitments and Contingencies](index=141&type=section&id=Note%2012.%20Commitments%20and%20Contingencies) This note reports on the company's contractual commitments and potential liabilities [Note 13. Related Party Transactions](index=142&type=section&id=Note%2013.%20Related%20Party%20Transactions) This note discloses transactions between the company and its related parties [Note 14. Fair Value of Financial Instruments](index=146&type=section&id=Note%2014.%20Fair%20Value%20of%20Financial%20Instruments) This note provides information on the fair value measurements of the company's financial instruments [Note 15. Income Taxes](index=148&type=section&id=Note%2015.%20Income%20Taxes) This note details the company's income tax provisions and deferred tax assets/liabilities [Note 16. Subsequent Events](index=149&type=section&id=Note%2016.%20Subsequent%20Events) This note reports on significant events occurring after the balance sheet date but before financial statement issuance [Note 17. Summary Quarterly Consolidated Financial Information (Unaudited)](index=150&type=section&id=Note%2017.%20Summary%20Quarterly%20Consolidated%20Financial%20Information%20(Unaudited)) This note presents unaudited summarized financial data for each quarter of the reported fiscal years [Schedule IV - Mortgage Loans on Real Estate](index=152&type=section&id=Schedule%20IV%20-%20Mortgage%20Loans%20on%20Real%20Estate) This section provides a detailed schedule of the company's mortgage loans on real estate [ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE](index=153&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) There were no changes in or disagreements with accountants on accounting and financial disclosure in this company report - There were no changes in or disagreements with accountants on accounting and financial disclosure in this company report[715](index=715&type=chunk) [ITEM 9A. CONTROLS AND PROCEDURES](index=153&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Company management assessed and concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2020, and this report does not include an attestation report of the registered public accounting firm regarding internal control effectiveness because the company is an "emerging growth company" - As of December 31, 2020, the company's disclosure controls and procedures were assessed as effective[717](index=717&type=chunk) - Management believes that the company's internal control over financial reporting was effective at the end of fiscal year 2020[720](index=720&type=chunk) - This report does not include an attestation report of the registered public accounting firm regarding internal control effectiveness because the company is an "emerging growth company"[721](index=721&type=chunk) [Evaluation of Disclosure Controls and Procedures](index=153&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section reports on the effectiveness of the company's disclosure controls and procedures [Management's Annual Report on Internal Control Over Financial Reporting](index=153&type=section&id=Management%27s%20Annual%20Report%20on%20Internal%20Control%20Over%20Financial%20Reporting) This section presents management's assessment of the effectiveness of internal control over financial reporting [Changes in Internal Control over Financial Reporting](index=153&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section reports on any material changes in the company's internal control over financial reporting [ITEM 9B. OTHER INFORMATION](index=155&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) There is no other information to report in this company report - There is no other information to report in this company report[722](index=722&type=chunk) [PART III](index=156&type=section&id=PART%20III.) This part covers directors, executive officers, corporate governance, executive compensation, security ownership, and related party transactions [ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE](index=156&type=section&id=ITEM%2010.%20DIRECTORS,%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) This section discloses the company's adopted code of business conduct and ethics applicable to all directors, employees, and officers of the manager and its affiliates, with other required information to be supplemented by reference to the definitive proxy statement filed by April 30, 2021 - The company has adopted a code of business conduct and ethics applicable to all directors, employees, and senior officers and employees of the manager and its affiliates[724](index=724&type=chunk) - The code of business conduct and ethics is available on the investor relations section of the company's website[725](index=725&type=chunk) - Other required information will be supplemented by reference to the company's definitive proxy statement to be filed by April 30, 2021[726](index=726&type=chunk) [ITEM 11. EXECUTIVE COMPENSATION](index=156&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) Information required for this section will be incorporated by reference from the company's definitive proxy statement to be filed by April 30, 2021 - Information required for this section will be incorporated by reference from the company's definitive proxy statement to be filed by April 30, 2021[727](index=727&type=chunk) [ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS](index=156&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) Information required for this section will be incorporated by reference from the company's definitive proxy statement to be filed by April 30, 2021 - Information required for this section will be incorporated by reference from the company's definitive proxy statement to be filed by April 30, 2021[728](index=728&type=chunk) [ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE](index=156&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%20AND%20DIRECTOR%20INDEPENDENCE) Information required for this section will be incorporated by reference from the company's definitive proxy statement to be filed by April 30, 2021 - Information required for this section will be incorporated by reference from the company's definitive proxy statement to be filed by April 30, 2021[729](index=729&type=chunk) [ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES](index=156&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) Information required for this section will be incorporated by reference from the company's definitive proxy statement to be filed by April 30, 2021 - Information required for this section will be incorporated by reference from the company's definitive proxy statement to be filed by April 30, 2021[730](index=730&type=chunk) [PART IV](index=156&type=section&id=PART%20IV.) This part includes exhibits, financial statement schedules, and signatures [ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES](index=156&type=section&id=ITEM%2015.%20EXHIBITS,%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists the exhibits and financial statement schedules filed as part of the Form 10-K annual report, including organizational documents, management agreements, shareholder agreements, registration rights agreements, and various financing agreement amendments - This section lists the exhibits and financial statement schedules filed as part of the Form 10-K annual report[731](index=731&type=chunk) - Exhibits include the company's certificate of incorporation, management agreement, shareholder agreement, registration rights agreement, and various financing agreement amendments[732](index=732&type=chunk)[734](index=734&type=chunk)[736](index=736&type=chunk) [ITEM 16. FORM 10-K SUMMARY](index=161&type=section&id=ITEM%2016.%20FORM%2010-K%20SUMMARY) There is no Form 10-K summary in this company report - There is no Form 10-K summary in this company report[741](index=741&type=chunk) [SIGNATURES](index=162&type=section&id=SIGNATURES) This section contains the required signatures of authorized representatives of the company, affirming compliance with the Securities Exchange Act of 1934, and lists the names and titles of the signatories - This report has been signed by authorized representatives of the company, in compliance with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934[744](index=744&type=chunk) - Signatories include CEO Matthew A. Salem, CFO and Treasurer Mostafa Nagaty, and several directors[746](index=746&type=chunk)[747](index=747&type=chunk)

KKR Real Estate Finance Trust Inc. 3rd Quarter 2020 Supplemental Information October 26, 2020 Legal Disclosures 2 This presentation has been prepared for KKR Real Estate Finance Trust Inc. (NYSE: KREF) for the benefit of its stockholders. This presentation is solely for informational purposes in connection with evaluating the business, operations and financial results of KKR Real Estate Finance Trust Inc. and its subsidiaries (collectively, "KREF" or the "Company"). This presentation is not and shall not be ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission File Number: 001-38082 KKR Real Estate Finance Trust Inc. (Exact name of registrant as specified in its charter) Marylan ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☒ If an emergi ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission File Number: 001-38082 KKR Real Estate Finance Trust Inc. (Exact name of registrant as specified in its charter) Maryland 47 ...

PART I. [ITEM 1. BUSINESS](index=5&type=section&id=ITEM%201%2E%20BUSINESS) KKR Real Estate Finance Trust Inc. (KREF) is a real estate finance company focused on originating and acquiring senior loans secured by institutional-quality commercial real estate (CRE), operating as an externally managed REIT and leveraging KKR's global investment platform [Our Company](index=5&type=section&id=Our%20Company) KREF commenced investment activities in October 2014 with initial capital commitments and operates as a REIT for federal income tax purposes, avoiding Investment Company Act registration - KREF commenced investment activities in October 2014 with an initial **$400.0 million** commitment from KKR, followed by **$438.1 million** in equity commitments from third-party investors and KKR employees, totaling **$838.1 million** in committed capital prior to its IPO[18](index=18&type=chunk) - The company operates as a REIT for federal income tax purposes, aiming to avoid U.S. federal income taxes on distributed net taxable income, and seeks to avoid registration under the Investment Company Act of 1940[20](index=20&type=chunk) [Our Manager and KKR](index=5&type=section&id=Our%20Manager%20and%20KKR) KREF is externally managed by KKR Real Estate Finance Manager LLC, benefiting from KKR's extensive global investment platform and real estate expertise - KREF is externally managed by KKR Real Estate Finance Manager LLC, an indirect subsidiary of KKR, a global investment firm with **$218.4 billion** in AUM as of December 31, 2019[22](index=22&type=chunk) - The Manager benefits from KKR's real estate group, KKR Real Estate, which had **$9.4 billion** of AUM as of December 31, 2019, and a team of approximately **85 dedicated professionals** globally, providing significant advantages in sourcing, evaluating, underwriting, and managing investments[23](index=23&type=chunk) - The Manager's investment committee, comprising senior KKR Real Estate professionals, advises on investment strategy, portfolio construction, financing, investment guidelines, and risk management, and approves all KREF investments[25](index=25&type=chunk) [Our Investment Strategy](index=6&type=section&id=Our%20Investment%20Strategy) KREF's investment strategy focuses on originating or acquiring senior loans collateralized by institutional-quality CRE assets, seeking opportunities for value increase - KREF's investment strategy focuses on originating or acquiring senior loans collateralized by institutional-quality CRE assets, owned and operated by experienced sponsors in liquid markets with strong fundamentals[26](index=26&type=chunk) - The company seeks opportunities where it can lend at a substantial discount to its Manager's intrinsic real estate value assessment and aims to invest in properties with potential for value increase through improved management or capital initiatives[27](index=27&type=chunk) [Our Target Assets](index=6&type=section&id=Our%20Target%20Assets) KREF targets a range of real estate debt-related assets, including senior loans, mezzanine loans, preferred equity, and CMBS B-Pieces - **Senior Loans**: Primarily first-priority mortgages on CRE properties, typically floating-rate and shorter-term duration, including whole loans or pari passu participations[29](index=29&type=chunk) - **Mezzanine Loans**: Subordinated debt positions, secured by equity interests in the mortgage borrower, subordinate to senior loans but senior to owner's equity[29](index=29&type=chunk) - **Preferred Equity**: Investments subordinate to mortgage or mezzanine loans but senior to common equity, typically paying a preferred return from cash flow[29](index=29&type=chunk) - **CMBS B-Pieces (New Issue)**: Below investment-grade bonds from CMBS securitization pools, acquired in aggregate, with a first-loss position and subject to Dodd-Frank Act risk retention rules (e.g., 5-year holding period)[29](index=29&type=chunk) - **Other Real Estate Securities**: Investments in CMBS (other than B-Pieces) or Collateralized Loan Obligations (CLO) collateralized by real estate debt, or debt securities of other REITs/real estate entities[31](index=31&type=chunk) [Our Portfolio](index=7&type=section&id=Our%20Portfolio) As of December 31, 2019, KREF's diversified portfolio of performing senior loans and other investments totaled $5,075.0 million, showing a 23% increase from 2018 - As of December 31, 2019, KREF's portfolio of diversified investments had a value of **$5,075.0 million**, representing a **23% increase** from 2018. The portfolio consists of performing senior loans, mezzanine loans, and CMBS B-Pieces (indirectly-owned)[30](index=30&type=chunk) - The portfolio is **100% performing**, with no impairments or legacy assets originated prior to October 2014, and all investments are located in the United States[30](index=30&type=chunk) Loan Portfolio Diversification (as of December 31, 2019) | Category | Percentage of Total Assets | | :-------------------- | :------------------------- | | **Type of Investment** | | | Senior Loans | 99.9% | | Mezzanine Loans | 0.1% | | CMBS B-Pieces (indirect) | Excluded from this chart (A) | | **Interest Rate** | | | Floating Rate | 99.2% | | Fixed Rate | 0.8% | | **Underlying Property Type** | | | Multifamily | 58.3% | | Office | 25.5% | | Retail | 4.7% | | Hospitality | 4.4% | | Condo (Residential) | 3.0% | | Industrial | 2.8% | | Student Housing | 1.3% | | **Geographic Location** | | | New York | 22.5% | | Illinois | 9.7% | | Pennsylvania | 9.2% | | Virginia | 8.2% | | Massachusetts | 7.7% | | California | 6.9% | | Florida | 6.9% | | Washington | 6.9% | | Georgia | 4.3% | | Minnesota | 3.7% | | New Jersey | 3.1% | | Colorado | 2.8% | | Oregon | 2.5% | | Texas | 2.5% | | Alabama | 1.2% | | Washington D.C. | 0.9% | | Tennessee | — | | Other U.S. | 1.0% | | **Weighted Average LTV** | 66% | [Our Financing Strategy](index=10&type=section&id=Our%20Financing%20Strategy) KREF diversifies its capital sources through equity and debt offerings, utilizing various leverage types, and increased non-mark-to-market financing to reduce market exposure - KREF raises capital through equity and debt securities offerings and utilizes both direct and structural leverage, including repurchase facilities, term lending arrangements, asset-based financing, collateralized loan obligations (CLOs), and revolving credit agreements[37](index=37&type=chunk) - The company increased its non-mark-to-market financing to **$2.8 billion** as of December 31, 2019, representing **72% of total outstanding portfolio financing**, up from **60% in 2018**, to reduce exposure to market fluctuations[38](index=38&type=chunk) Outstanding Financing Arrangements (as of December 31, 2019) | Financing Type | Balance (thousands) | Maximum Capacity (thousands) | | :-------------------------- | :-------------------- | :--------------------------- | | Master repurchase agreements | $1,088,217 | $2,000,000 | | Term loan financing | $798,180 | $1,000,000 | | Term lending agreement | $870,051 | $900,000 | | Collateralized loan obligations | $810,000 | $810,000 | | Asset specific financing | $142,268 | $300,000 | | Revolving credit agreements | $— | $250,000 | | Non-consolidated senior interests | $143,600 | $143,600 | | **Total portfolio financing** | **$3,852,316** | **$5,403,600** | [Financing Risk Management](index=11&type=section&id=Financing%20Risk%20Management) KREF targets a specific leverage ratio and aims to match asset and liability terms to minimize mark-to-market and recourse borrowing risks - KREF targets a leverage ratio on senior loans between **3.5 and 4.0-to-1** on a debt to equity basis, with a total leverage ratio of **3.5-to-1** as of December 31, 2019[42](index=42&type=chunk) - The company aims to match the terms and indices of its assets and liabilities and minimize risks associated with mark-to-market and recourse borrowing[42](index=42&type=chunk) [Investment Guidelines](index=11&type=section&id=Investment%20Guidelines) KREF's investment guidelines focus on broad CRE debt investments, REIT qualification, and limits on individual investment concentration - Invest capital in a broad range of CRE debt-related investments[45](index=45&type=chunk) - Avoid investments that would jeopardize REIT qualification or require Investment Company Act registration[45](index=45&type=chunk) - Allow allocation of investment opportunities sourced by the Manager to KKR funds or affiliates, consistent with allocation policy[45](index=45&type=chunk) - Invest capital in short-term, high-quality instruments prior to deployment into long-term investments[45](index=45&type=chunk) - Limit individual investment concentration to not more than **25% of equity** without board approval[45](index=45&type=chunk) [Impact of Interest Rate Environment](index=11&type=section&id=Impact%20of%20Interest%20Rate%20Environment) KREF's net income generally increases with rising interest rates and benefits from LIBOR floors in its predominantly floating-rate loan portfolio - Rising interest rates generally increase KREF's net income, while declining rates decrease it. The company's net interest income benefits from in-the-money LIBOR floors in its loan portfolio, which are expected to decrease as LIBOR increases[43](index=43&type=chunk) - As of December 31, 2019, **99.2%** of KREF's investments earned a floating rate of interest indexed to one-month LIBOR, and all financed investments were with floating-rate liabilities, strategically positioning the portfolio for a rising interest rate environment[43](index=43&type=chunk) - Approximately half of the loan portfolio had a LIBOR floor of **2.0% or higher** as of December 31, 2019, which can offset some impact from declining rates[46](index=46&type=chunk) [Taxation of the Company](index=12&type=section&id=Taxation%20of%20the%20Company) KREF operates as a REIT for U.S. federal income tax purposes, aiming to avoid corporate income taxes on distributed net taxable income, subject to continuous compliance with REIT tests - KREF elected to be treated as a REIT for U.S. federal income tax purposes starting December 31, 2014, and expects to maintain this qualification, generally avoiding U.S. federal income tax on distributed net taxable income[50](index=50&type=chunk) - Maintaining REIT qualification requires continuous satisfaction of tests regarding income sources, asset composition, stockholder distributions, and stock ownership diversity, which may limit investment and expansion opportunities[50](index=50&type=chunk) [Competition](index=13&type=section&id=Competition) KREF operates in a competitive lending and investing market, facing various institutional lenders, but leverages KKR's expertise for competitive advantages - KREF operates in a competitive lending and investing market, competing with various institutional lenders and investors, including other REITs, specialty finance companies, and commercial banks[52](index=52&type=chunk) - Competitors may have lower cost of funds, access to different funding sources, or different risk tolerances, potentially limiting KREF's ability to originate desirable loans or achieve satisfactory returns[52](index=52&type=chunk) - KREF believes its access to KKR's professionals, industry expertise, and relationships provides competitive advantages in assessing risks and pricing investments[53](index=53&type=chunk) [Employees](index=13&type=section&id=Employees) KREF does not have direct employees, as it is externally managed by its Manager, whose employees serve as KREF's executive officers - KREF does not have any direct employees; it is externally managed by its Manager, and its executive officers are employees of the Manager or its affiliates[54](index=54&type=chunk) - KREF is a real estate finance company primarily focused on originating and acquiring senior loans secured by institutional-quality commercial real estate (CRE) properties. Its investment objective is capital preservation and attractive risk-adjusted returns, primarily through dividends[17](index=17&type=chunk) - KREF is externally managed by KKR Real Estate Finance Manager LLC, an indirect subsidiary of KKR, leveraging KKR's extensive resources, relationships, and expertise in real estate and credit markets for investment sourcing, evaluation, underwriting, and management[19](index=19&type=chunk)[22](index=22&type=chunk)[23](index=23&type=chunk) Key Financial and Portfolio Metrics (as of December 31, 2019) | Metric | Value | | :--------------------------------- | :------------------- | | Book Value | $1,122.0 million | | Portfolio Value | $5,075.0 million | | Portfolio Increase (YoY) | 23% | | Non-Mark-to-Market Financing | $2.8 billion (72% of total) | | Borrowing Capacity Increase (YoY) | 28% (to $5.5 billion) | | Average Loan Size Originated | $173.0 million (20% increase over 2018) | | Portfolio Performance | 100% performing, no impairments | | Floating-Rate Loans | 99% of portfolio | | Weighted Average LTV | 66% | | AUM (KKR) | $218.4 billion | | AUM (KKR Real Estate) | $9.4 billion | [ITEM 1A. RISK FACTORS](index=14&type=section&id=ITEM%201A%2E%20RISK%20FACTORS) This section outlines various risks that could materially and adversely affect KREF's business, financial condition, results of operations, and stock price, including market competition, real estate market volatility, and interest rate fluctuations [Risks Related to Our Lending and Investment Activities](index=14&type=section&id=Risks%20Related%20to%20Our%20Lending%20and%20Investment%20Activities) KREF's lending and investment activities are exposed to risks such as market competition, real estate market deterioration, interest rate fluctuations, and the illiquidity of target assets - Competition from other lenders and investors may limit KREF's ability to originate or acquire desirable loans and investments, affecting yields and profitability[57](index=57&type=chunk) - Investments are exposed to general real estate market deterioration, increasing default risk for borrowers and making it harder to generate returns[58](index=58&type=chunk) - Fluctuations in interest rates and credit spreads can reduce income, cash flows, and investment values, potentially impairing distributions[59](index=59&type=chunk) - Lack of control over certain loans and investments (e.g., minority participations, reliance on third-party management) may limit KREF's ability to manage its portfolio effectively[60](index=60&type=chunk) - CRE-related investments are subject to delinquency, foreclosure, and loss, dependent on property operations and economic conditions[61](index=61&type=chunk) - Transitional loans involve greater risk of loss due to potential cost overruns, noncompletion of renovations, or inability of borrowers to secure permanent financing[62](index=62&type=chunk) - Prepayment rates can adversely affect portfolio value and reinvestment opportunities, especially in declining interest rate environments[63](index=63&type=chunk) - Difficulty in redeploying proceeds from repayments may lead to lower financial performance and returns[64](index=64&type=chunk) - Due diligence may not reveal all relevant facts, and incorrect risk evaluations can lead to losses[65](index=65&type=chunk) - Subordinated investments (CMBS B-Pieces, mezzanine loans, preferred equity) carry greater risk of loss due to their junior position in the capital structure[66](index=66&type=chunk) - Concentration in geography, asset types, or sponsors increases risk of loss from localized downturns[67](index=67&type=chunk) - Investments in CMBS and structured finance pose additional risks, including securitization process risks, potential for non-recovery, regulatory impacts (e.g., Dodd-Frank risk retention rules), and illiquidity[69](index=69&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk)[74](index=74&type=chunk)[75](index=75&type=chunk)[77](index=77&type=chunk)[78](index=78&type=chunk)[79](index=79&type=chunk)[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk)[85](index=85&type=chunk)[86](index=86&type=chunk)[87](index=87&type=chunk)[88](index=88&type=chunk)[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk)[99](index=99&type=chunk)[100](index=100&type=chunk)[101](index=101&type=chunk)[102](index=102&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk) - Credit ratings on investments are subject to downgrades, which could significantly decline value and liquidity[69](index=69&type=chunk) - Foreclosure processes can be lengthy, expensive, and may not recover full cost basis, potentially leading to losses[70](index=70&type=chunk) - Exposure to lender liability claims and risks associated with distressed loans or bankruptcy proceedings[71](index=71&type=chunk) - Prolonged economic slowdowns or declining real estate values can impair investments and harm operations[72](index=72&type=chunk) - Decline in fair value of assets may require recognition of 'other-than-temporary' impairments under GAAP[73](index=73&type=chunk) - Uncertainty in valuing non-publicly traded investments recorded at fair value[74](index=74&type=chunk) - Investment in derivative instruments may subject KREF to increased risk of loss due to leverage, illiquidity, volatility, imperfect correlation, valuation risk, and counterparty risk[75](index=75&type=chunk) - Transactions in foreign currencies expose KREF to foreign currency risks[77](index=77&type=chunk) - Investments in international real estate-related assets are subject to special risks (e.g., currency exchange, less developed markets, political hostility)[78](index=78&type=chunk) - Illiquidity of target assets may make timely disposition difficult, potentially realizing less than recorded value[79](index=79&type=chunk) - Non-recourse long-term securitizations may expose KREF to losses if sufficient eligible investments are not acquired or market conditions are unfavorable, and risk retention requirements may increase liabilities or reduce profits[80](index=80&type=chunk) [Risks Related to Our Company](index=25&type=section&id=Risks%20Related%20to%20Our%20Company) KREF faces risks related to its investment strategy, complex accounting rules, operational vulnerabilities, and compliance with various legal and regulatory requirements - KREF's investment strategy can be changed without stockholder consent, potentially leading to riskier investments[119](index=119&type=chunk) - Complex accounting rules for loan impairment, securitization, and consolidation involve significant judgment, which could impact timely financial statement preparation[120](index=120&type=chunk) - Provisions for loan losses are difficult to estimate, and the adoption of the CECL model in fiscal 2020 is expected to materially affect allowance for loan losses, potentially increasing volatility[121](index=121&type=chunk) - Operational risks, including reliance on KKR's systems, cyberattacks, and third-party service providers, could disrupt business, result in losses, or limit growth[122](index=122&type=chunk) - All KREF assets may be subject to recourse to satisfy liabilities[123](index=123&type=chunk) - State licensing requirements incur expenses, and failure to be properly licensed could adversely affect operations[124](index=124&type=chunk) - Avoiding Investment Company Act registration imposes significant limits on operations and investment structuring, potentially hindering profit maximization[125](index=125&type=chunk) - Changes in laws or regulations (e.g., Dodd-Frank Act, Basel III, 'shadow banking' oversight) could require business practice changes, negatively impact operations, or increase competition[126](index=126&type=chunk) - Changes in laws or regulations governing borrowers' operations (e.g., taxes, zoning, rent control) could affect KREF's returns[127](index=127&type=chunk) - KREF is subject to litigation risks, including lender liability claims and bankruptcy proceedings, which could result in substantial losses[128](index=128&type=chunk) - Obligations as a public company require significant resources and attention from the Manager's senior management[129](index=129&type=chunk) - Inability to implement and maintain effective internal controls over financial reporting could negatively affect investor confidence and stock price[130](index=130&type=chunk) - As an 'emerging growth company,' KREF benefits from reduced reporting requirements, but this status may make its common stock less attractive to some investors[131](index=131&type=chunk) [Risks Related to Our Financing and Hedging](index=31&type=section&id=Risks%20Related%20to%20Our%20Financing%20and%20Hedging) KREF's financing and hedging strategies involve risks such as substantial indebtedness, restrictive covenants, interest rate fluctuations, and counterparty risk - Substantial indebtedness increases risk of loss, potentially leading to insufficient cash flow for debt payments, inability to obtain financing, or loss of collateral[151](index=151&type=chunk) - Leveraging target assets may reduce returns and cash available for distribution if financing costs increase relative to asset income[152](index=152&type=chunk) - Utilization of repurchase facilities is subject to lender pre-approval, potentially limiting financing options[153](index=153&type=chunk) - Master repurchase agreements and other lending facilities impose restrictive covenants (e.g., financial ratios, liquidity requirements) that could limit operational flexibility or lead to defaults and acceleration of debt[154](index=154&type=chunk) - Dependence on various financing sources means inability to access funding could materially adversely affect operations, financial condition, and business[155](index=155&type=chunk) - Interest rate fluctuations could increase financing costs, decreasing results of operations, cash flows, and investment market value[156](index=156&type=chunk) - Changes in LIBOR determination or its replacement (e.g., SOFR) may affect the value of LIBOR-linked financial obligations and could impact KREF's financial condition or results of operations[157](index=157&type=chunk) - Counterparty risk associated with debt obligations, as financial institutions may face turmoil or insolvency, restricting KREF's access to financing[158](index=158&type=chunk) - Use of derivative financial instruments for risk management entails greater than ordinary investment risks, including ineffectiveness, imperfect correlation, and counterparty risk[159](index=159&type=chunk) - Hedging may adversely affect earnings and reduce cash available for distributions due to costs, imperfect correlation, and tax limitations[160](index=160&type=chunk) - Hedging transactions could expose KREF to contingent liabilities, requiring cash payments in certain circumstances[161](index=161&type=chunk) - Failure to obtain and maintain an exemption from being regulated as a commodity pool operator by the Manager could subject KREF to additional regulation and compliance requirements[162](index=162&type=chunk) [Risks Related to Our Relationship with Our Manager and Its Affiliates](index=37&type=section&id=Risks%20Related%20to%20Our%20Relationship%20with%20Our%20Manager%20and%20Its%20Affiliates) KREF's success depends on its Manager and personnel, and potential conflicts of interest with KKR and its affiliates may arise due to fee structures and competing activities - KREF's success depends on its Manager and its personnel; finding a suitable replacement or retaining key personnel is a risk[181](index=181&type=chunk) - Termination of the management agreement without cause would be costly, requiring a significant termination fee[182](index=182&type=chunk) - The Manager's liability is limited under the management agreement, and KREF indemnifies the Manager against certain liabilities, potentially leading to uncompensated losses[183](index=183&type=chunk) - Historical returns of KKR-managed funds are not indicative of KREF's future results due to differing investment objectives, leverage, fee structures, and market conditions[184](index=184&type=chunk) - The Manager's fee structure (base management fees and incentive fees) may create incentives for riskier or speculative investments, potentially misaligning interests with stockholders[185](index=185&type=chunk) - Various conflicts of interest exist due to KKR's control and its affiliates' activities, including fee arrangements, competing investment advisory and proprietary activities, allocation of investment opportunities, duties owed to other KKR vehicles, co-investments, and information sharing limitations[186](index=186&type=chunk) - The Manager operates under broad investment guidelines and is not required to seek board approval for every decision, potentially leading to riskier loans and investments[187](index=187&type=chunk) - KREF's use of the 'KKR' name is under a license agreement, and its termination or use by other parties could harm KREF's business and market recognition[188](index=188&type=chunk) [Risks Related to Our REIT Status and Certain Other Tax Considerations](index=43&type=section&id=Risks%20Related%20to%20Our%20REIT%20Status%20and%20Certain%20Other%20Tax%20Considerations) Failure to maintain REIT qualification would subject KREF to corporate tax and limit investment opportunities, while compliance may necessitate disadvantageous distributions or asset restructuring - Failure to maintain REIT qualification would subject KREF to corporate tax, substantial tax liability, and ineligibility for REIT status for four subsequent years[200](index=200&type=chunk) - Even with REIT qualification, KREF may incur tax liabilities (e.g., prohibited transactions tax, excise taxes, state/local taxes) that reduce cash available for distributions[201](index=201&type=chunk) - Complying with REIT requirements may force KREF to forego attractive opportunities, limit expansion, or make distributions at disadvantageous times[202](index=202&type=chunk) - REIT requirements may necessitate liquidating or restructuring otherwise attractive investments to meet asset and income tests[203](index=203&type=chunk) - REIT provisions limit KREF's ability to hedge effectively, potentially increasing hedging costs or exposing it to greater interest rate risks[204](index=204&type=chunk) - KREF's charter limits individual ownership to **9.8% of capital stock** (with KKR exemption) to maintain REIT status, which could deter takeover attempts[205](index=205&type=chunk) - KREF may make distributions in stock, requiring stockholders to pay income taxes without receiving cash dividends, potentially leading to stock sales and downward pressure on market price[206](index=206&type=chunk) - REIT dividends do not qualify for reduced tax rates available for some dividends, potentially making REIT investments less attractive to certain non-corporate investors[207](index=207&type=chunk) - Taxable income may exceed cash flow, leading to 'phantom income' and requiring KREF to sell assets, borrow, or make taxable stock distributions to meet REIT distribution requirements[208](index=208&type=chunk) - Modifications of debt instruments could be deemed 'significant modifications,' potentially jeopardizing REIT asset qualification or causing income recognition[209](index=209&type=chunk) - Failure of mezzanine loans to qualify as real estate assets could adversely affect REIT qualification[210](index=210&type=chunk) - IRS challenges to estimates of real property improvements' fair value for construction loans could jeopardize REIT qualification[211](index=211&type=chunk) - IRS successfully recharacterizing mezzanine loans or preferred equity as equity or debt could cause KREF to fail REIT income or asset tests[212](index=212&type=chunk) - The **100% tax** on prohibited transactions limits KREF's ability to engage in certain sales, securitizations, or syndications of mortgage loans[213](index=213&type=chunk) - Failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect REIT qualification[214](index=214&type=chunk) - Liquidation of assets may jeopardize REIT qualification or incur a **100% tax** on gains from dealer property[215](index=215&type=chunk) - Certain financing activities (e.g., taxable mortgage pools) may subject KREF to U.S. federal income tax and negative tax consequences for stockholders (e.g., 'excess inclusion income')[216](index=216&type=chunk) - REIT qualification may depend on the accuracy of legal opinions or issuer statements, and inaccuracies could result in significant corporate-level tax[217](index=217&type=chunk) - Taxable REIT subsidiaries are subject to corporate-level taxes, and dealings with them may incur a **100% excise tax**[218](index=218&type=chunk) - Adverse legislative or regulatory tax changes could increase KREF's tax liability, reduce operating flexibility, and decrease common stock price[219](index=219&type=chunk) [Risks Related to Ownership of Our Common Stock](index=48&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) Ownership of KREF's common stock carries risks related to KKR's control, limited stockholder protections, and potential conflicts of interest, as well as uncertainties regarding distributions - KKR controls KREF (**38% voting power** as of December 31, 2019) and can influence business affairs and stockholder approvals, potentially conflicting with other stockholders' interests[229](index=229&type=chunk) - As a 'controlled company' under NYSE rules, KREF relies on exemptions from certain corporate governance requirements, reducing protections for stockholders[230](index=230&type=chunk) - Pre-IPO stockholders holding interests in the Manager may have incentives that conflict with other stockholders' interests[231](index=231&type=chunk) - Provisions in KREF's charter, bylaws, and Maryland law (e.g., issuance of stock without stockholder approval, advance notice bylaws, takeover statutes) may deter takeover attempts, limiting opportunities for stockholders to sell shares at a favorable price[232](index=232&type=chunk) - Rights of stockholders to take action against directors and officers are limited by KREF's charter and Maryland law, reducing recourse for actions not in their best interests[233](index=233&type=chunk) - Charter provisions make director removal difficult, potentially hindering changes to management[234](index=234&type=chunk) - Charter provisions reduce or eliminate duties of KKR and its affiliates and KREF directors regarding corporate opportunities and competitive activities[235](index=235&type=chunk) - KREF has not established a minimum distribution payment level, and its ability to pay distributions depends on various factors, with no assurance of market yield or maintenance over time[236](index=236&type=chunk) - Distributions are generally taxable as ordinary income, and stock distributions may require U.S. holders to pay taxes without receiving cash[237](index=237&type=chunk) - KREF faces significant competition for lending and investment opportunities, which may limit its ability to acquire desirable assets or affect yields, potentially impacting its business, financial condition, and results of operations[57](index=57&type=chunk)[58](index=58&type=chunk) - Fluctuations in interest rates and credit spreads could reduce KREF's income, cash flows, and investment values, potentially impairing its ability to pay distributions to stockholders, especially given its reliance on floating-rate investments and financing[63](index=63&type=chunk)[64](index=64&type=chunk) - KREF's external management structure means its success depends heavily on its Manager and key personnel, and conflicts of interest with KKR and its affiliates, particularly in investment allocation and fee structures, could arise and not always be resolved in KREF's favor[181](index=181&type=chunk)[188](index=188&type=chunk)[190](index=190&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=54&type=section&id=ITEM%201B%2E%20UNRESOLVED%20STAFF%20COMMENTS) There are no unresolved staff comments to report - No unresolved staff comments were reported[255](index=255&type=chunk) [ITEM 2. PROPERTIES](index=54&type=section&id=ITEM%202%2E%20PROPERTIES) KREF's principal executive offices are located in leased office space in New York, NY, which are considered suitable and adequate for business operations - KREF's principal executive offices are located in leased office space at 9 West 57th Street, New York, New York[256](index=256&type=chunk) - The company does not own any real property and considers its leased facilities suitable and adequate for its business[256](index=256&type=chunk) [ITEM 3. LEGAL PROCEEDINGS](index=54&type=section&id=ITEM%203%2E%20LEGAL%20PROCEEDINGS) As of December 31, 2019, KREF was not involved in any material legal proceedings - As of December 31, 2019, KREF was not involved in any material legal proceedings[257](index=257&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=54&type=section&id=ITEM%204%2E%20MINE%20SAFETY%20DISCLOSURES) Mine safety disclosures are not applicable to KREF - Mine safety disclosures are not applicable[258](index=258&type=chunk) PART II. [ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS](index=55&type=section&id=ITEM%205%2E%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%20AND%20RELATED%20STOCKHOLDER%20MATTERS) KREF's common stock began trading on the NYSE in May 2017, with the company intending to make regular quarterly distributions and having a share repurchase program in place - KREF's common stock began trading on the NYSE under the symbol 'KREF' on May 5, 2017[260](index=260&type=chunk) - The company intends to make regular quarterly distributions to common stockholders, as U.S. federal income tax law generally requires REITs to distribute at least **90%** of their REIT taxable income annually[261](index=261&type=chunk)[262](index=262&type=chunk) Dividends Declared Per Share of Common Stock | Year | Q1 | Q2 | Q3 | Q4 | | :--- | :--- | :--- | :--- | :--- | | **2019** | $0.43 | $0.43 | $0.43 | $0.43 | | **2018** | $0.40 | $0.43 | $0.43 | $0.43 | - A **$100.0 million** share repurchase program, initially approved in May 2018, was extended through June 30, 2020. In 2019, KREF repurchased **212,809 shares** for **$4.1 million** at an average price of **$19.25 per share**[270](index=270&type=chunk) - An 'At the Market' (ATM) stock offering program was established in February 2019, allowing KREF to sell up to **$100.0 million** of common stock, but no shares were sold under this program in 2019[281](index=281&type=chunk)[582](index=582&type=chunk) [ITEM 6. SELECTED FINANCIAL DATA](index=58&type=section&id=ITEM%206%2E%20SELECTED%20FINANCIAL%20DATA) This section presents selected consolidated financial data for KREF from 2015 to 2019, highlighting significant growth in total net interest income, total assets, and leverage ratio Selected Consolidated Financial Data (2015-2019) | Metric (in thousands, except per share) | 2019 | 2018 | 2017 | 2016 | 2015 | | :-------------------------------------- | :----- | :----- | :----- | :----- | :----- | | **Operating Data:** | | | | | | | Interest income | $274,335 | $183,575 | $83,145 | $32,659 | $12,536 | | Interest expense | $158,860 | $85,017 | $21,224 | $7,432 | $554 | | Total net interest income | $115,475 | $98,558 | $61,921 | $25,227 | $11,982 | | Total Net Revenue | $121,473 | $118,651 | $79,609 | $41,195 | $22,310 | | Operating Expenses | $30,929 | $28,914 | $18,428 | $8,569 | $4,745 | | Net Income (Loss) Attributable to KKR Real Estate Finance Trust Inc. and Subsidiaries | $89,965 | $89,744 | $59,062 | $31,157 | $16,763 | | Net Income (Loss) Attributable to Common Stockholders | $90,492 | $87,293 | $58,818 | $31,141 | $16,748 | | **Per Share Data:** | | | | | | | Net Income (Loss) Per Share of Common Stock (Diluted) | $1.57 | $1.58 | $1.30 | $1.61 | $1.95 | | Dividends declared per share of common stock | $1.72 | $1.69 | $1.62 | $1.22 | $0.73 | | Book value per share of common stock | $19.52 | $19.66 | $19.73 | $20.60 | $20.78 | | Leverage ratio | 3.5x | 2.6x | 1.0x | 0.7x | 0.3x | | **Balance Sheet Data (at period end):** | | | | | | | Total assets | $5,057,018 | $4,151,590 | $2,137,967 | $951,829 | $420,090 | | Total KKR Real Estate Finance Trust Inc. stockholders' equity | $1,122,018 | $1,132,342 | $1,059,145 | $497,698 | $281,460 | - Total net interest income increased from **$11,982 thousand** in 2015 to **$115,475 thousand** in 2019, demonstrating significant growth[274](index=274&type=chunk) - Total assets grew substantially from **$420,090 thousand** in 2015 to **$5,057,018 thousand** in 2019[274](index=274&type=chunk) - The leverage ratio increased from **0.3x** in 2015 to **3.5x** in 2019, indicating increased use of debt financing[274](index=274&type=chunk) [ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=61&type=section&id=ITEM%207%2E%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides a detailed discussion of KREF's financial condition and results of operations, highlighting significant growth in its loan portfolio, diversification of financing sources, and key financial performance metrics for 2019 [Introduction](index=61&type=section&id=Introduction) KKR Real Estate Finance Trust Inc. is a mortgage REIT focused on originating and acquiring senior CRE loans, externally managed by KKR Real Estate Finance Manager LLC - KKR Real Estate Finance Trust Inc. is a real estate finance company focused on originating and acquiring senior loans secured by CRE assets, externally managed by KKR Real Estate Finance Manager LLC, and operates as a REIT traded on the NYSE under 'KREF'[279](index=279&type=chunk) - KREF conducts operations as a REIT for U.S. federal income tax purposes, aiming to avoid registration under the Investment Company Act, and operates primarily through various subsidiaries as a holding company[280](index=280&type=chunk) [2019 Highlights](index=61&type=section&id=2019%20Highlights) KREF's 2019 highlights include increased net income, significant portfolio growth, enhanced non-mark-to-market financing, and capital markets activities - **Operating Results**: Net Income Attributable to Common Stockholders increased **4%** to **$90.5 million** (**$1.57 diluted EPS**). Net Core Earnings decreased **3.7%** to **$96.3 million** (**$1.67 diluted EPS**). Declared dividends of **$1.72 per common share**[281](index=281&type=chunk) - **Investment Activity**: Originated **18 floating-rate senior loans** totaling **$3.1 billion** commitments (**$2.7 billion funded**). Current portfolio of **$5.1 billion** (**23% increase YoY**) is **100% performing** and **99% floating-rate** with **66% weighted average LTV**. Exited direct CMBS B-piece investments with **18.8% gross realized IRR**[282](index=282&type=chunk) - **Portfolio Financing**: Non-mark-to-market financing reached **$2.8 billion** (**72% of total outstanding**). Borrowing capacity increased **28%** to **$5.5 billion**. Entered new **$900.0 million** non-mark-to-market term lending agreement and increased corporate revolving credit facility to **$250.0 million**[281](index=281&type=chunk) - **Capital Markets Activity**: Established **$100.0 million** 'At the Market' (ATM) stock offering program (no sales in 2019). Repurchased **212,809 shares** for **$4.1 million**. Book value of **$1.1 billion**, consistent with 2018[282](index=282&type=chunk) [Key Financial Measures and Indicators](index=63&type=section&id=Key%20Financial%20Measures%20and%20Indicators) This section presents KREF's key financial measures, including earnings per share, dividends, and book value, along with non-GAAP Core Earnings Earnings Per Share and Dividends Declared | Metric | 2019 (Year Ended) | 2018 (Year Ended) | | :----------------------------------- | :------------------ | :------------------ | | Net income per share, basic | $1.58 | $1.58 | | Net income per share, diluted | $1.57 | $1.58 | | Dividends declared per share | $1.72 | $1.69 | - Core Earnings and Net Core Earnings are non-GAAP measures used to evaluate performance, excluding non-cash equity compensation, incentive compensation, depreciation/amortization, and unrealized gains/losses. Net Core Earnings for 2019 was **$96.3 million** (**$1.67 per diluted share**), a decrease from **$100.0 million** (**$1.81 per diluted share**) in 2018[285](index=285&type=chunk)[286](index=286&type=chunk)[288](index=288&type=chunk) Book Value per Share | Metric | December 31, 2019 | December 31, 2018 | | :-------------------------- | :------------------ | :------------------ | | KKR Real Estate Finance Trust Inc. stockholders' equity | $1,122,018 | $1,132,342 | | Shares of common stock outstanding | 57,486,583 | 57,596,217 | | Book value per share of common stock | $19.52 | $19.66 | [Our Portfolio](index=65&type=section&id=Our%20Portfolio) KREF's portfolio of diversified investments totaled $5,075.0 million as of December 31, 2019, primarily consisting of performing, floating-rate senior loans with an average risk rating of 2.9 - KREF's portfolio of diversified investments totaled **$5,075.0 million** as of December 31, 2019, primarily consisting of performing senior loans. The portfolio is **99.9% floating-rate**, with approximately half subject to a LIBOR floor of **2.0% or higher**[293](index=293&type=chunk)[294](index=294&type=chunk) Quarterly Loan Activity (2019) | Metric (thousands) | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | Year Ended Dec 31, 2019 | | :----------------------- | :-------- | :-------- | :-------- | :-------- | :---------------------- | | Loan originations | $214,000 | $1,649,600 | $484,000 | $764,089 | $3,111,689 | | Loan fundings | $325,787 | $1,474,022 | $471,634 | $619,748 | $2,891,191 | | Loan repayments/syndications | $(648,493) | $(272,025) | $(193,470) | $(765,418) | $(1,879,406) | | Net fundings | $(322,706) | $1,201,997 | $278,164 | $(145,670) | $1,011,785 | Loan Portfolio Statistics (as of December 31, 2019) | Metric | Balance Sheet Portfolio | Total Loan Portfolio | | :--------------------------------- | :---------------------- | :------------------- | | Number of loans | 39 | 39 | | Principal balance | $4,960,698 | $5,039,298 | | Carrying value | $4,931,042 | $5,009,642 | | Unfunded loan commitments | $616,372 | $616,372 | | Weighted-average cash coupon | 5.1% | 5.0% | | Weighted-average all-in yield | 5.4% | 5.3% | | Weighted-average maximum maturity (years) | 4.1 | 4.1 | | LTV | 66% | 66% | - KREF's portfolio risk rating averaged **2.9 (Average Risk)** as of December 31, 2019, weighted by total loan exposure, with **100%** of commercial mortgage loans rated **3 (Average Risk)** or better. No investments were rated **4 (High Risk/Potential for Loss)** or **5 (Impaired/Loss Likely)**[315](index=315&type=chunk) [Portfolio Financing](index=70&type=section&id=Portfolio%20Financing) KREF continues to expand and diversify its financing sources, with non-mark-to-market financing representing 72% of its portfolio financing as of December 31, 2019 - KREF continues to expand and diversify its financing sources, with non-mark-to-market financing representing **72%** of its portfolio financing as of December 31, 2019, primarily through term lending agreements, asset-based financing, term loan facilities, and CLOs[320](index=320&type=chunk) Portfolio Financing Outstanding Principal Balance (thousands) | Financing Type | December 31, 2019 | December 31, 2018 | | :-------------------------- | :------------------ | :------------------ | | Master repurchase agreements | $1,088,217 | $1,157,261 | | Term loan financing | $798,180 | $748,414 | | Term lending agreement | $870,051 | $— | | Collateralized loan obligations | $810,000 | $810,000 | | Asset specific financing | $142,268 | $60,000 | | Non-consolidated senior interests | $143,600 | $67,155 | | **Total portfolio financing** | **$3,852,316** | **$2,928,710** | - KREF entered into a new **$900.0 million** non-mark-to-market Term Lending Agreement in June 2019 and increased its corporate revolving credit facility to **$250.0 million**[330](index=330&type=chunk)[332](index=332&type=chunk) - As of December 31, 2019, KREF was in compliance with all financial covenants of its financing facilities, including interest income to interest expense ratio (**1.5 to 1.0**), minimum consolidated tangible net worth, cash liquidity, and total indebtedness[346](index=346&type=chunk)[542](index=542&type=chunk) [Results of Operations](index=76&type=section&id=Results%20of%20Operations) This section summarizes KREF's consolidated statements of income, detailing changes in net interest income, other income, and operating expenses for 2017-2019 Consolidated Statements of Income Summary (2017-2019) | Metric (thousands) | 2019 | 2018 | 2017 | | :---------------------------------------------------- | :------- | :------- | :------- | | **Net Interest Income** | | | | | Interest income | $274,335 | $183,575 | $83,145 | | Interest expense | $158,860 | $85,017 | $21,224 | | Total net interest income | $115,475 | $98,558 | $61,921 | | **Other Income (Loss)** | | | | | (Loss) gain on sale of investments | $(2,688) | $13,000 | $— | | Total other income (loss) | $5,998 | $20,093 | $17,688 | | **Operating Expenses** | | | | | General and administrative | $10,522 | $7,812 | $4,936 | | Management fees to affiliate | $17,135 | $16,346 | $13,492 | | Incentive compensation to affiliate | $3,272 | $4,756 | $— | | Total operating expenses | $30,929 | $28,914 | $18,428 | | **Net Income (Loss) Attributable to Common Stockholders** | $90,492 | $87,293 | $58,818 | - **2019 vs. 2018**: Net interest income increased by **$16.9 million** (**17.2%**) due to a **$1.6 billion** increase in the loan portfolio's weighted-average principal balance, partially offset by higher interest expense from increased borrowings. Total other income decreased by **$14.1 million** (**70.1%**) primarily due to a **$13.0 million** gain from CMBS B-Piece sales in 2018 not recurring in 2019. Total operating expenses increased by **$2.0 million** (**7.0%**) due to higher non-cash stock-based compensation and management fees, partially offset by a decrease in incentive compensation[352](index=352&type=chunk)[353](index=353&type=chunk)[354](index=354&type=chunk)[355](index=355&type=chunk)[356](index=356&type=chunk) - **2018 vs. 2017**: Net interest income increased by **$36.6 million** (**59.2%**) due to a **$1.6 billion** increase in the loan portfolio's weighted-average principal balance. Total other income increased by **$2.4 million** (**13.6%**) primarily from a **$2.1 million** increase in equity method investment income and a **$13.0 million** realized gain from CMBS B-Piece sales, partially offset by a **$13.3 million** decrease in directly-held CMBS B-Piece income. Total operating expenses increased by **$10.5 million** (**56.9%**) due to **$4.8 million** in incentive compensation (none in 2017), increased management fees, and higher stock-based compensation and general and administrative expenses[358](index=358&type=chunk)[359](index=359&type=chunk)[360](index=360&type=chunk)[361](index=361&type=chunk) [Liquidity and Capital Resources](index=79&type=section&id=Liquidity%20and%20Capital%20Resources) KREF's liquidity needs include debt repayment and distributions, primarily funded by equity issuances, secured financing, and cash flows from operations, with a new cash management strategy implemented in Q4 2019 - KREF's primary liquidity needs include debt repayment, asset financing, funding obligations, stockholder distributions, and operating expenses. Primary sources are equity issuances, secured financing agreements, CLOs, convertible notes, and cash flows from operations[363](index=363&type=chunk)[364](index=364&type=chunk) - As of December 31, 2019, cash and cash equivalents were **$67.6 million**. KREF implemented a new cash management strategy in Q4 2019, acquiring and subsequently selling **$94.0 million** of investment grade available-for-sale CMBS securities to minimize cash drag[365](index=365&type=chunk) Debt-to-Equity Ratio and Total Leverage Ratio | Ratio | December 31, 2019 | December 31, 2018 | | :------------------ | :------------------ | :------------------ | | Debt-to-equity ratio | 1.9x | 1.1x | | Total leverage ratio | 3.5x | 2.6x | Sources of Liquidity (thousands) | Source | December 31, 2019 | December 31, 2018 | | :---------------------------------------- | :------------------ | :------------------ | | Cash and cash equivalents | $67,619 | $86,531 | | Available borrowings under master repurchase agreements | $6,174 | $58,751 | | Available borrowings under term loan financing facility | $41,364 | $33,637 | | Available borrowings under term lending agreement | $15,922 | $— | | Available borrowings under asset specific financing | $2,592 | $5,423 | | Available borrowings under revolving credit agreements | $250,000 | $100,000 | | **Total** | **$383,671** | **$284,342** | Cash Flows Summary (thousands) | Cash Flow Activity | 2019 | 2018 | 2017 | | :--------------------------------------- | :--------- | :----------- | :--------- | | Cash Flows From Operating Activities | $91,713 | $76,830 | $53,801 | | Cash Flows From Investing Activities | $(926,314) | $(1,997,213) | $(1,083,677) | | Cash Flows From Financing Activities | $815,689 | $1,903,394 | $1,037,050 | | Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | $(18,912) | $(16,989) | $7,174 | Contractual Obligations and Commitments (thousands) | Obligation Type | Total | Less than 1 year | 1 to 3 years | 3 to 5 years | Thereafter | | :------------------------------------ | :---------- | :--------------- | :------------- | :------------- | :--------- | | **Recourse Obligations:** | | | | | | | Master Repurchase Facilities | $1,151,808 | $261,766 | $889,042 | $1,000 | $— | | Term Lending Agreement | $917,728 | $32,195 | $885,533 | $— | $— | | Asset Specific Financing | $152,626 | $64,930 | $87,696 | $— | $— | | Convertible Notes | $173,856 | $8,951 | $17,829 | $147,076 | $— | | Future funding obligations | $616,372 | $263,156 | $286,234 | $66,247 | $735 | | RECOP I commitment | $4,324 | $4,324 | $— | $— | $— | | **Non-Recourse Obligations:** | | | | | | | Collateralized Loan Obligations | $937,359 | $25,514 | $50,818 | $861,027 | $— | | Term Loan Financing | $903,220 | $108,670 | $627,499 | $167,051 | $— | | **Total** | **$4,857,293** | **$769,506** | **$2,845,651** | **$1,241,401** | **$735** | [Subsequent Events](index=82&type=section&id=Subsequent%20Events) Subsequent events are detailed in Note 15 to the consolidated financial statements - Subsequent events are detailed in Note 15 to the consolidated financial statements[386](index=386&type=chunk) [Off-Balance Sheet Arrangements](index=83&type=section&id=Off-Balance%20Sheet%20Arrangements) KREF has off-balance sheet arrangements related to Variable Interest Entities (VIEs) accounted for using the equity method, with limited maximum risk of loss - KREF has off-balance sheet arrangements related to Variable Interest Entities (VIEs) accounted for using the equity method, with a maximum risk of loss limited to the carrying value of its investment and unfunded capital commitments[387](index=387&type=chunk) - As of December 31, 2019, KREF held **$37.5 million** of interests in such entities and had a remaining commitment of **$4.3 million** to RECOP I[387](index=387&type=chunk) [Critical Accounting Policies and Use of Estimates](index=83&type=section&id=Critical%20Accounting%20Policies%20and%20Use%20of%20Estimates) This section outlines KREF's critical accounting policies, including interest income recognition, allowance for loan losses, and income taxes, and the expected impact of the CECL model - **Interest Income Recognition**: Accrues interest on performing loans based on contractual terms; loans are considered past due at **60 days** and non-performing at **120 days** past due (unless well secured and in collection). No nonaccrual or past due loans as of December 31, 2019[389](index=389&type=chunk)[390](index=390&type=chunk)[391](index=391&type=chunk)[392](index=392&type=chunk)[393](index=393&type=chunk)[394](index=394&type=chunk) - **Allowance for Loan Losses**: Quarterly evaluation for impairment on a loan-by-loan basis for held-for-investment loans. Impairment indicated if collection of contractual amounts is improbable, leading to an allowance reducing carrying value to present value of expected future cash flows or collateral fair value. Loans are rated **1 (Very Low Risk)** to **5 (Impaired/Loss Likely)**[395](index=395&type=chunk)[396](index=396&type=chunk)[397](index=397&type=chunk)[398](index=398&type=chunk)[399](index=399&type=chunk)[400](index=400&type=chunk) - **Income Taxes**: KREF elected REIT status, generally avoiding U.S. federal income tax on distributed income. Subject to state/local taxes through consolidated subsidiaries. No material deferred tax assets/liabilities or uncertain tax positions as of December 31, 2019[400](index=400&type=chunk) - KREF adopted the Current Expected Credit Loss (CECL) model in Q1 2020, which is expected to result in a cumulative-effect adjustment to accumulated deficit of approximately **$16.1 million** (**$0.28 per common share**) as of January 1, 2020[402](index=402&type=chunk)[404](index=404&type=chunk) - KREF achieved Net Income Attributable to Common Stockholders of **$90.5 million** (**$1.57 per diluted share**) in 2019, a **4% increase** from 2018, and declared dividends of **$1.72 per common share**[281](index=281&type=chunk)[284](index=284&type=chunk) - The company's current portfolio grew **23%** over 2018 to **$5.1 billion**, is **100% performing**, **99% floating-rate**, and has a weighted average LTV of **66%**[281](index=281&type=chunk)[294](index=294&type=chunk) - Non-mark-to-market financing reached **$2.8 billion**, representing **72% of total outstanding portfolio financing**, up from **60% in 2018**, enhancing stability[281](index=281&type=chunk)[320](index=320&type=chunk) [ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=86&type=section&id=ITEM%207A%2E%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section details KREF's exposure to various market risks, including credit, interest rate, liquidity, prepayment, and real estate risks, with a focus on managing interest rate risk and the LIBOR transition - **Credit Risk**: Investments are subject to default risk, monitored through regular contact with sponsors and performance review of underlying properties[406](index=406&type=chunk) - **Credit Yield Risk**: No credit yields exposure as of December 31, 2019, due to the sale of directly held CMBS investments[407](index=407&type=chunk) - **Interest Rate Risk**: Rising interest rates generally increase net income, while declining rates decrease it. **99.2%** of investments are floating-rate (indexed to one-month USD LIBOR). Approximately half of the loan portfolio has a LIBOR floor of **2.0% or higher**[408](index=408&type=chunk)[409](index=409&type=chunk)[410](index=410&type=chunk) - **LIBOR Transition**: LIBOR is expected to be discontinued after 2021. **99.9%** of loans and **100%** of financing arrangements are LIBOR-indexed. KREF is monitoring developments and working to minimize impact, but alternative rates may be more or less favorable[411](index=411&type=chunk)[412](index=412&type=chunk) - **Prepayment Risk**: Risk that principal is repaid earlier than anticipated, potentially reducing returns. Increased prepayment rates accelerate amortization of premiums (reducing income) or accretion of discounts (increasing income)[413](index=413&type=chunk) - **Financing Risk**: Dependence on various financing facilities (repurchase, term lending, CLOs). Weakness in financial markets could limit access to financing or increase costs[414](index=414&type=chunk) - **Real Estate Risk**: Market values of commercial mortgage assets are volatile, affected by economic conditions, local real estate dynamics, and property values, which could lead to losses[415](index=415&type=chunk) [ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](index=88&type=section&id=ITEM%208%2E%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section presents KREF's audited consolidated financial statements for 2017-2019, including balance sheets, income statements, equity changes, cash flows, and comprehensive notes, along with the independent auditor's report [Report of Independent Registered Public Accounting Firm](index=89&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Deloitte & Touche LLP issued an unqualified opinion on KREF's consolidated financial statements for the three years ended December 31, 2019, confirming fair presentation in accordance with GAAP - Deloitte & Touche LLP audited KREF's consolidated financial statements for the three years ended December 31, 2019, and issued an unqualified opinion, confirming fair presentation in accordance with GAAP[418](index=418&type=chunk) - The audit assessed risks of material misstatement and evaluated accounting principles and significant management estimates, but did not include an audit of internal control over financial reporting[420](index=420&type=chunk) [Consolidated Balance Sheets](index=90&type=section&id=Consolidated%20Balance%20Sheets) This section presents KREF's consolidated balance sheets as of December 31, 2019 and 2018, detailing assets, liabilities, and stockholders' equity Consolidated Balance Sheets (thousands) | Asset/Liability | December 31, 2019 | December 31, 2018 | | :---------------------------------------------------- | :------------------ | :------------------ | | **Assets** | | | | Cash and cash equivalents | $67,619 | $86,531 | | Commercial mortgage loans, held-for-investment, net | $4,931,042 | $4,001,820 | | Equity method investments | $37,469 | $30,734 | | Commercial mortgage loans held in variable interest entities, at fair value | $— | $1,092,986 | | **Total Assets** | **$5,057,018** | **$5,231,845** | | **Liabilities** | | | | Secured financing agreements, net | $2,884,887 | $1,951,049 | | Collateralized loan obligation, net | $803,376 | $800,346 | | Convertible notes, net | $139,075 | $137,688 | | Loan participations sold, net | $64,966 | $85,465 | | Variable interest entity liabilities, at fair value | $— | $1,080,255 | | **Total Liabilities** | **$3,933,306** | **$4,096,657** | | **Total KKR Real Estate Finance Trust Inc. stockholders' equity** | **$1,122,018** | **$1,132,342** | - Total assets decreased from **$5,231,845 thousand** in 2018 to **$5,057,018 thousand** in 2019, primarily due to the deconsolidation of CMBS variable interest entities[425](index=425&type=chunk) - Commercial mortgage loans held-for-investment, net, increased from **$4,001,820 thousand** in 2018 to **$4,931,042 thousand** in 2019[425](index=425&type=chunk) - Secured financing agreements, net, increased from **$1,951,049 thousand** in 2018 to **$2,884,887 thousand** in 2019[425](index=425&type=chunk) [Consolidated Statements of Income](index=91&type=section&id=Consolidated%20Statements%20of%20Income) This section presents KREF's consolidated statements of income for the years ended December 31, 2019, 2018, and 2017, detailing revenues, expenses, and net income Consolidated Statements of Income (thousands) | Metric | 2019 | 2018 | 2017 | | :---------------------------------------------------- | :------- | :------- | :------- | | Interest income | $274,335 | $183,575 | $83,145 | | Interest expense | $158,860 | $85,017 | $21,224 | | Total net interest income | $115,475 | $98,558 | $61,921 | | (Loss) gain on sale of investments | $(2,688) | $13,000 | $— | | Change in net assets related to CMBS consolidated variable interest entities | $1,665 | $2,588 | $15,845 | | Income from equity method investments | $4,568 | $3,065 | $875 | | Other income | $2,453 | $1,440 | $968 | | Total other income (loss) | $5,998 | $20,093 | $17,688 | | General and administrative | $10,522 | $7,812 | $4,936 | | Management fees to affiliate | $17,135 | $16,346 | $13,492 | | Incentive compensation to affiliate | $3,272 | $4,756 | $— | | Total operating expenses | $30,929 | $28,914 | $18,428 | | Net Income (Loss) Attributable to Common Stockholders | $90,492 | $87,293 | $58,818 | | Basic EPS | $1.58 | $1.58 | $1.30 | | Diluted EPS | $1.57 | $1.58 | $1.30 | | Dividends Declared per Share of Common Stock | $1.72 | $1.69 | $1.62 | - Net interest income increased by **$16.9 million** (**17.2%**) from 2018 to 2019[427](index=427&type=chunk) - Total other income decreased by **$14.1 million** (**70.1%**) from 2018 to 2019, primarily due to a non-recurring gain on sale of investments in 2018[427](index=427&type=chunk) - Total operating expenses increased by **$2.0 million** (**7.0%**) from 2018 to 2019[427](index=427&type=chunk) - Net Income Attributable to Common Stockholders increased by **$3.2 million** (**3.7%**) from 2018 to 2019[427](index=427&type=chunk) [Consolidated Statements of Changes in Equity](index=92&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Equity) This section presents KREF's consolidated statements of changes in equity for the years ended December 31, 2019, 2018, and 2017, detailing changes in stockholders' equity and preferred stock Consolidated Statements of Changes in Equity (thousands) | Metric | December 31, 2019 | December 31, 2018 | December 31, 2017 | | :---------------------------------------------------- | :------------------ | :------------------ | :------------------ | | Total KKR Real Estate Finance Trust Inc. Stockholders' Equity | $1,122,018 | $1,132,342 | $1,059,145 | | Total Permanent Equity | $1,122,018 | $1,132,342 | $1,059,145 | | Redeemable Preferred Stock | $1,694 | $2,846 | $949 | - Total KKR Real Estate Finance Trust Inc. stockholders' equity decreased by **$10.3 million** from **$1,132,342 thousand** in 2018 to **$1,122,018 thousand** in 2019[429](index=429&type=chunk)[430](index=430&type=chunk) - Common dividends declared amounted to **$98,860 thousand** in 2019, compared to **$93,798 thousand** in 2018[429](index=429&type=chunk)[430](index=430&type=chunk) - Repurchases of common stock totaled **$4,106 thousand** in 2019, a decrease from **$31,347 thousand** in 2018[429](index=429&type=chunk)[430](index=430&type=chunk) [Consolidated Statements of Cash Flows](index=94&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section presents KREF's consolidated statements of cash flows for the years ended December 31, 2019, 2018, and 2017, detailing cash flows from operating, investing, and financing activities Consolidated Statements of Cash Flows (thousands) | Cash Flow Activity | 2019 | 2018 | 2017 | | :---------------------------------------------------- | :--------- | :----------- | :--------- | | Cash Flows From Operating Activities | $91,713 | $76,830 | $53,801 | | Cash Flows From Investing Activities | $(926,314) | $(1,997,213) | $(1,083,677) | | Cash Flows From Financing Activities | $815,689 | $1,903,394 | $1,037,050 | | Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | $(18,912) | $(16,989) | $7,174 | | Cash, Cash Equivalents at End of Period | $67,619 | $86,531 | $103,520 | - Net cash provided by operating activities increased to **$91,713 thousand** in 2019 from **$76,830 thousand** in 2018[433](index=433&type=chunk)[434](index=434&type=chunk) - Net cash used in investing activities decreased significantly from **$(1,997,213) thousand** in 2018 to **$(926,314) thousand** in 2019[433](index=433&type=chunk)[434](index=434&type=chunk) - Net cash provided by financing activities decreased from **$1,903,394 thousand** in 2018 to **$815,689 thousand** in 2019[433](index=433&type=chunk)[434](index=434&type=chunk) [Note 1. Business and Organization](index=97&

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2019 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission File Number: 001-38082 KKR Real Estate Finance Trust Inc. (Exact name of registrant as specified in its charter) Marylan ...