KKR Real Estate Finance Trust Inc. (NYSE:KREF) Q3 2021 Earnings Conference Call October 26, 2021 9:00 AM ET Company Participants Jack Switala - 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 Tim Hayes - BTIG Stephen Laws - Raymond James Don Fandetti - Wells Fargo Rick Shane - JPMorgan Operator Good morning and welcome to the KKR Real Estate Finance Trust T ...

Part I - Financial Information [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents KKR Real Estate Finance Trust Inc.'s unaudited condensed consolidated financial statements as of September 30, 2021, and for the three and nine months then ended [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to **$5.75 billion** from **$4.97 billion** at year-end 2020, driven by commercial real estate loans, with total equity reaching **$1.23 billion** Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $307,731 | $110,832 | | Commercial real estate loans, held-for-investment, net | $5,383,927 | $4,784,733 | | **Total Assets** | **$5,753,498** | **$4,965,612** | | **Liabilities** | | | | Secured financing agreements, net | $2,960,833 | $2,574,747 | | Collateralized loan obligations, net | $1,086,900 | $810,000 | | **Total Liabilities** | **$4,516,321** | **$3,920,206** | | **Equity** | | | | Total KKR Real Estate Finance Trust Inc. stockholders' equity | $1,234,588 | $1,043,554 | [Condensed Consolidated Statements of Income](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Net income attributable to common stockholders for Q3 2021 was **$32.0 million** (**$0.57** diluted EPS), with nine-month net income reaching **$90.4 million**, up from **$24.8 million** in 2020 Key Income Statement Data (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total net interest income | $45,488 | $38,857 | $123,062 | $107,510 | | Provision for (reversal of) credit losses, net | $1,165 | $(126) | $(982) | $53,782 | | Net Income Attributable to Common Stockholders | $31,989 | $31,351 | $90,437 | $24,777 | | Diluted EPS | $0.57 | $0.56 | $1.62 | $0.44 | [Condensed Consolidated Statements of Changes in Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity) Total stockholders' equity increased to **$1.23 billion** from **$1.04 billion** at year-end 2020, driven by net income and **$172.5 million** from preferred stock issuance - In the first nine months of 2021, the company issued 6,900,000 shares of Series A cumulative redeemable preferred stock, raising **$172.5 million** before offering costs[23](index=23&type=chunk) - Common dividends declared totaled **$71.8 million** (**$1.29** per share) for the nine months ended September 30, 2021, consistent with the prior year period[20](index=20&type=chunk)[23](index=23&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash and cash equivalents increased by **$198.5 million** for the nine months ended September 30, 2021, with **$96.9 million** from operations and **$674.8 million** from financing activities Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $96,858 | $91,418 | | Net cash (used in) provided by investing activities | $(573,185) | $4,141 | | Net cash provided by financing activities | $674,811 | $138,197 | | **Net Increase in Cash** | **$198,484** | **$233,756** | - Significant financing activities in the first nine months of 2021 included **$2.1 billion** in proceeds from secured financing, **$1.1 billion** from a new CLO issuance, and **$167.1 million** from a preferred stock issuance[28](index=28&type=chunk) [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section details accounting policies and financial data, covering the commercial real estate loan portfolio, debt obligations, equity structure, related party transactions, and fair value measurements [Note 1. Business and Organization](index=13&type=section&id=Note%201.%20Business%20and%20Organization) KREF is a mortgage REIT focused on originating and acquiring transitional senior loans secured by commercial real estate, externally managed by a KKR affiliate - KREF's primary business is originating and acquiring transitional senior loans secured by commercial real estate assets[31](index=31&type=chunk) - As of September 30, 2021, KKR beneficially owned **25.6%** of KREF's outstanding common stock[34](index=34&type=chunk) [Note 3. Commercial Real Estate Loans](index=24&type=section&id=Note%203.%20Commercial%20Real%20Estate%20Loans) The commercial real estate loan portfolio grew to **$5.38 billion**, comprising 52 predominantly senior loans with an improved average risk rating of **3.0** and **91.2%** rated 'Average Risk' or better Loan Portfolio by Type (September 30, 2021) | Loan Type | Outstanding Principal | Carrying Value | Loan Count | | :--- | :--- | :--- | :--- | | Senior loans | $5,370,827 | $5,282,882 | 47 | | Mezzanine and other loans | $107,217 | $101,045 | 5 | | **Total** | **$5,478,044** | **$5,383,927** | **52** | Loan Portfolio by Risk Rating (September 30, 2021) | Risk Rating | Number of Loans | Net Book Value | Total Loan Exposure % | | :--- | :--- | :--- | :--- | | 1 - Very Low Risk | 0 | $0 | 0.0% | | 2 - Low Risk | 3 | $517,168 | 8.9% | | 3 - Average Risk | 43 | $4,415,030 | 82.3% | | 4 - High Risk | 4 | $381,608 | 6.8% | | 5 - Impaired/Loss Likely | 2 | $70,121 | 2.0% | - The allowance for credit losses decreased to **$58.8 million** from **$59.8 million** at year-end 2020, with a net reversal of credit losses of **$1.0 million** recorded in the first nine months of 2021[129](index=129&type=chunk) [Note 4. Debt Obligations](index=28&type=section&id=Note%204.%20Debt%20Obligations) KREF had **$2.97 billion** in outstanding principal under secured financing agreements and was in compliance with all financial debt covenants as of September 30, 2021 Secured Financing Agreements Summary (September 30, 2021) | Facility Type | Maximum Facility Size | Outstanding Principal | | :--- | :--- | :--- | | Master Repurchase Agreements | $1,840,000 | $846,972 | | Term Lending Agreements | $1,213,378 | $1,008,327 | | Warehouse Facility | $500,000 | $0 | | Asset Specific Financing | $300,000 | $60,000 | | Revolving Credit Agreement | $335,000 | $150,000 | - The company is subject to financial covenants including an interest income to interest expense ratio of **1.5 to 1.0**, a minimum consolidated tangible net worth, a cash liquidity covenant, and a total indebtedness covenant of **83.3%** of Total Assets; KREF was in compliance with all covenants as of September 30, 2021[145](index=145&type=chunk) [Note 5. Collateralized Loan Obligations](index=31&type=section&id=Note%205.%20Collateralized%20Loan%20Obligations) In August 2021, KREF issued a new **$1.1 billion** managed CLO (KREF 2021-FL2) for non-mark-to-market financing and fully repaid its KREF 2018-FL1 CLO notes - In August 2021, KREF issued a new CLO, KREF 2021-FL2, with **$1.1 billion** in financing provided against a **$1.3 billion** pool of collateral assets[147](index=147&type=chunk)[148](index=148&type=chunk) - The company fully repaid its outstanding CLO notes under KREF 2018-FL1 in August 2021[146](index=146&type=chunk) [Note 10. Equity](index=37&type=section&id=Note%2010.%20Equity) In April 2021, KREF issued **6.9 million** shares of 6.50% Series A Preferred Stock, raising **$167.1 million**, with **$100.0 million** remaining in its share repurchase program - Issued **6,900,000** shares of **6.50%** Series A Cumulative Redeemable Preferred Stock in April 2021, receiving net proceeds of **$167.1 million**[185](index=185&type=chunk) - The share repurchase program has **$100.0 million** of remaining capacity as of September 30, 2021; no shares were repurchased during the first nine months of 2021[177](index=177&type=chunk)[178](index=178&type=chunk) 2021 Common Stock Dividends Declared | Declaration Date | Per Share | Total Amount | | :--- | :--- | :--- | | March 15, 2021 | $0.43 | $23,916 | | June 15, 2021 | $0.43 | $23,924 | | September 15, 2021 | $0.43 | $23,924 | [Note 12. Commitments and Contingencies](index=41&type=section&id=Note%2012.%20Commitments%20and%20Contingencies) KREF had **$1.22 billion** in future funding commitments for commercial real estate loans and a **$4.3 million** commitment to the RECOP I aggregator vehicle, with no material legal proceedings - KREF has future funding requirements of **$1.22 billion** related to its investments in commercial real estate loans, primarily for construction, capital improvements, and leasing[198](index=198&type=chunk) - A remaining commitment of **$4.3 million** exists for the investment in an aggregator vehicle alongside RECOP I[199](index=199&type=chunk) [Note 13. Related Party Transactions](index=42&type=section&id=Note%2013.%20Related%20Party%20Transactions) KREF pays management and incentive fees to its KKR affiliate, totaling **$14.1 million** and **$6.8 million** respectively for the first nine months of 2021, and also engages KKR Capital Markets for various services Expenses to Affiliate (in thousands) | Expense | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Management fees | $4,964 | $14,089 | | Incentive compensation | $2,215 | $6,810 | | Expense reimbursements and other | $362 | $1,161 | - In 2021, KREF paid its affiliate KCM fees for services including a **$1.6 million** underwriting discount for the Series A Preferred Stock issuance, a **$2.6 million** structuring fee for the KREF Lending IX Facility, and a **$0.9 million** fee for the KREF 2021-FL2 CLO issuance[220](index=220&type=chunk)[221](index=221&type=chunk)[222](index=222&type=chunk) [Note 16. Subsequent Events](index=49&type=section&id=Note%2016.%20Subsequent%20Events) Post-quarter end, KREF originated three new senior loans totaling **$333.3 million** and redeemed its Special Non-Voting Preferred Stock, expecting **$2.6 million** book value accretion in Q4 2021 - Originated three new loans post-quarter end with total commitments of **$333.3 million**[240](index=240&type=chunk) - On October 1, 2021, the company redeemed its Special Non-Voting Preferred Stock (SNVPS), which is expected to result in a book value accretion of **$2.6 million**, or **$0.05** per common share, in Q4 2021[244](index=244&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=50&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses investment strategy, portfolio performance, and financing, highlighting strong origination, stable loan portfolio, and non-mark-to-market financing, alongside analysis of operational results, liquidity, and capital resources [Key Financial Measures and Indicators](index=51&type=section&id=Key%20Financial%20Measures%20and%20Indicators) Key performance metrics include diluted EPS of **$0.57** and Distributable Earnings per diluted share of **$0.62** for Q3 2021, with book value per common share rising to **$19.09** Q3 2021 Key Metrics per Share | Metric | Q3 2021 | Q2 2021 | | :--- | :--- | :--- | | Net income per share, diluted | $0.57 | $0.52 | | Distributable Earnings per Diluted Share | $0.62 | $0.54 | | Dividends declared per share | $0.43 | $0.43 | - Book value per common share rose to **$19.09** at September 30, 2021, from **$18.76** at December 31, 2020, despite the dilutive impact of preferred stock offering costs[258](index=258&type=chunk) [Our Portfolio](index=53&type=section&id=Our%20Portfolio) The loan portfolio totaled **$5.8 billion** across 52 loans, with **98.0%** performing, an average risk rating of **3.0**, and **$1.5 billion** in Q3 2021 originations - The loan portfolio is **98.0%** performing with an average risk rating of **3.0** (Average Risk); **91.2%** of loans by total exposure were risk-rated 3 or better[262](index=262&type=chunk) - Loan originations in Q3 2021 were **$1.54 billion**, with net fundings of **$208.1 million** for the quarter[266](index=266&type=chunk) - The portfolio's weighted average LTV was **67%**, and **99.9%** of loans earned a floating rate of interest[263](index=263&type=chunk)[268](index=268&type=chunk) [Portfolio Financing](index=60&type=section&id=Portfolio%20Financing) KREF's financing strategy emphasizes non-mark-to-market sources, comprising **81%** of **$4.5 billion** in total secured financing, utilizing a diversified mix of agreements and CLOs - **81%** of the company's total secured financing (excluding the corporate revolver) is from non-mark-to-market sources, reducing exposure to market volatility[297](index=297&type=chunk) Portfolio Financing Breakdown (in thousands) | Financing Type | Outstanding Principal Balance | | :--- | :--- | | Master repurchase agreements (Mark-to-Credit) | $846,972 | | Term loan financing (Non-Mark-to-Market) | $904,087 | | Term lending agreements (Non-Mark-to-Market) | $1,008,327 | | Collateralized loan obligations (Non-Mark-to-Market) | $1,095,250 | | Other Non-Mark-to-Market Sources | $670,457 | | **Total** | **$4,525,093** | [Results of Operations](index=66&type=section&id=Results%20of%20Operations) Net interest income increased by **13.2%** to **$45.5 million** in Q3 2021, while nine-month net income surged to **$90.4 million** from **$24.8 million** in 2020, driven by a **$54.8 million** favorable swing in credit loss provision - Q3 2021 vs Q2 2021: Net interest income increased by **$5.3 million** (**13.2%**) due to a larger loan portfolio and **$6.5 million** in accelerated deferred loan fees and prepayment income[336](index=336&type=chunk)[338](index=338&type=chunk) - Nine Months 2021 vs 2020: Total operating expenses decreased by **$51.0 million**, mainly due to a **$54.8 million** decrease in the provision for credit losses, reflecting a more stable macroeconomic outlook in 2021 compared to the onset of the COVID-19 pandemic in 2020[347](index=347&type=chunk)[348](index=348&type=chunk) [Liquidity and Capital Resources](index=71&type=section&id=Liquidity%20and%20Capital%20Resources) Primary liquidity totaled **$516.2 million**, including **$307.7 million** cash and **$185.0 million** available on the corporate revolver, with leverage ratios decreasing to **3.4x** total and **1.8x** debt-to-equity Leverage Ratios | Ratio | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Debt-to-equity ratio | 1.8x | 1.9x | | Total leverage ratio | 3.4x | 3.6x | - Primary sources of liquidity as of September 30, 2021, included **$307.7 million** in cash and **$185.0 million** of available capacity on the corporate revolver[356](index=356&type=chunk)[363](index=363&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=77&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company faces credit, interest rate, and financing risks, with **99.9%** of its loan portfolio being floating-rate, and is actively managing the transition from LIBOR to alternative reference rates - **99.9%** of the company's loans by principal balance earn a floating rate of interest, making net income sensitive to changes in interest rates[397](index=397&type=chunk) - A **25 basis point** increase in LIBOR would decrease expected cash flows by approximately **$6.1 million** annually, while a **50 basis point** increase would decrease cash flows by **$10.1 million**[398](index=398&type=chunk) - The company is monitoring the transition away from LIBOR, scheduled for June 2023 for most USD settings, and notes that all of its financing arrangements have procedures for determining an alternative base rate[399](index=399&type=chunk)[400](index=400&type=chunk) [Item 4. Controls and Procedures](index=80&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[405](index=405&type=chunk) - No material changes to internal control over financial reporting occurred during the quarter ended September 30, 2021[406](index=406&type=chunk) Part II - Other Information [Item 1. Legal Proceedings](index=81&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no involvement in any material legal proceedings - As of September 30, 2021, KREF was not involved in any material legal proceedings[196](index=196&type=chunk)[408](index=408&type=chunk) [Item 1A. Risk Factors](index=81&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K were reported - No material changes to the risk factors previously disclosed in the Form 10-K were reported[409](index=409&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=82&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase common stock in Q3 2021, leaving **$100.0 million** available under its share repurchase program with no expiration date - The company has a **$100.0 million** share repurchase program with no expiration date[410](index=410&type=chunk) - No shares were repurchased during the three months ended September 30, 2021, leaving the full **$100.0 million** available under the program[411](index=411&type=chunk) [Item 6. Exhibits](index=83&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including the KREF 2021-FL2 CLO indenture, a master repurchase agreement amendment, and CEO/CFO certifications

KKR REAL ESTATE FINANCE TRUST Investor Presentation | July 2021 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", the "Company", "we", or "us"). This presentation is not and shall not be construed as an ...

KKR Real Estate Finance Trust, Inc. (NYSE:KREF) Q2 2021 Earnings Conference Call July 27, 2021 9:00 AM ET Company Participants Jack Switala - IR Matthew Salem - CEO Patrick Mattson - COO & President Conference Call Participants Jade Rahmani - KBW Steven Delaney - JMP Securities Stephen Laws - Raymond James & Associates Donald Fandetti - Wells Fargo Securities Richard Shane - JPMorgan Chase & Co. Timothy Hayes - BTIG Operator Good morning, and welcome to the KKR Real Estate Finance Trust Inc. Second Quarter ...

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, 2021 UNITED STATES ☐ 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- ...

KKR REAL ESTATE FINANCE TRUST Investor Presentation | May 2021 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", the "Company", "we", or "us"). This presentation is not and shall not be construed as an o ...

KKR REAL ESTATE FINANCE TRUST INC. REPORTS FIRST QUARTER 2021 FINANCIAL RESULTS New York, NY, April 26, 2021 - KKR Real Estate Finance Trust Inc. (the "Company" or "KREF") (NYSE: KREF) today reported its financial results for the quarter ended March 31, 2021. Reported net income attributable to common stockholders of $29.2 million, or $0.52 per diluted share of common stock, for the three months ended March 31, 2021, compared to $28.8 million, or $0.52 per diluted share of common stock, for the three months ...

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)

Financial Data and Key Metrics Changes - For Q4 2020, the company reported GAAP net income of $28.8 million or $0.52 per share, which included a $3.4 million benefit from a lower CECL provision [6] - Distributable earnings for the quarter were $26.5 million or $0.48 per share, reflecting strong portfolio performance [6] - Book value per share increased to $18.76 as of December 31, 2020, compared to $18.73 as of September 30, 2020 [6][7] Business Line Data and Key Metrics Changes - The total portfolio balance was approximately $5 billion, with only $472 million or 9% of total commitments in future funding obligations [11] - The portfolio consisted of 98% senior loans, with an average loan size of $118 million, and interest was collected on approximately 98% of the portfolio [11] - In Q4, the company originated $565 million across seven loans, with 55% of originations secured by multifamily properties [13] Market Data and Key Metrics Changes - The company noted improving trends in several properties on its watch list, indicating potential positive credit momentum [12] - The demand for industrial space has accelerated, leading to increased opportunities for lending on industrial construction projects [13] Company Strategy and Development Direction - The company aims to continue benefiting from a conservative lending and liability strategy, with a focus on high-quality real estate and light transitional business plans [10] - KREF is positioned to capitalize on increased connectivity following KKR's acquisition of Global Atlantic, which broadens the lending products available [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the portfolio's performance, with a weighted average risk rating of 3.1 on a 5-point scale, consistent with previous quarters [11] - The company anticipates repayments to be a key driver of near-term origination pace, with expectations for additional duration in the existing portfolio [20] Other Important Information - The company maintained a strong liquidity position with over $480 million, including $110 million in cash and access to a $335 million corporate revolver [21] - The company repurchased 2 million shares totaling $25 million at an average price of $12.27 per share [25] Q&A Session Summary Question: Capital management and options for raising capital - Management is focused on managing originations through repayments and is considering raising capital if it can be done accretively [30] Question: Watch list assets and potential risks - Management acknowledged improvements in several watch list loans and is in discussions regarding the Portland Retail loan, which remains a small portion of the overall portfolio [32][33] Question: Changes in underwriting for new loans - The company noted that the biggest change in underwriting is the timing for borrowers to implement their business plans due to the ongoing economic environment [36] Question: Co-origination strategy - Management explained that co-origination allows for diversification and reduced exposure to any one project, while still prioritizing KREF for senior lending opportunities [41][44] Question: Net interest margin and cost of funds - The company reported an effective net interest margin of over 2.5%, with existing loans yielding around 480 basis points [62] Question: Loan modifications and interest collections - Management indicated that only a few loans have undergone material modifications, and the overall performance remains strong with 98% interest collection [82]