KKR Real Estate Finance Trust (KREF) - 2025 Q2 - Quarterly Report

Part I - Financial Information Item 1. Condensed Consolidated Financial Statements (Unaudited) KREF's unaudited condensed consolidated financial statements, including balance sheets, income, equity, and cash flows, are presented Condensed Consolidated Balance Sheets (Unaudited) Total assets increased to $6.76 billion by June 30, 2025, driven by secured financing and CMBS trust consolidation | Metric | June 30, 2025 (in millions) | December 31, 2024 (in millions) | Change (in millions) | | :----------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Total Assets | $6,755.27 | $6,350.40 | +$404.87 | | Total Liabilities | $5,462.13 | $4,951.52 | +$510.61 | | Total Equity | $1,293.14 | $1,398.88 | -$105.74 | | Commercial real estate loans, held-for-investment, net | $5,605.55 | $5,771.52 | -$165.97 | | Allowance for credit losses | $(171.59) | $(117.10) | +$54.49 | | Secured financing agreements, net | $2,948.25 | $2,798.67 | +$149.57 | | Collateralized loan obligations, net | $1,447.84 | $1,766.10 | -$318.26 | | Secured term loan, net | $535.05 | $333.85 | +$201.20 | | Variable interest entity assets, CMBS trust, at fair value | $492.04 | $0.00 | +$492.04 | | Variable interest entity liabilities, CMBS trust, at fair value | $482.97 | $0.00 | +$482.97 | Condensed Consolidated Statements of Income (Unaudited) Net loss of $(35.4) million for Q2 2025, down from $20.2 million net income YoY, primarily due to higher credit loss provision | Metric (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (YoY) | | :----------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net Interest Income | $30.17 | $40.43 | -25.4% | $61.51 | $79.58 | -22.7% | | Total Other Income | $5.70 | $7.22 | -21.0% | $9.58 | $14.84 | -35.5% | | Total Operating Expenses | $66.44 | $22.05 | +201.3% | $107.41 | $72.20 | +48.8% | | Provision for credit losses, net | $49.85 | $4.55 | +996.7% | $74.71 | $37.81 | +97.6% | | Net Income (Loss) Attributable to Common Stockholders | $(35.43) | $20.22 | -275.2% | $(45.98) | $11.48 | -500.3% | | Basic and Diluted EPS | $(0.53) | $0.29 | -282.8% | $(0.68) | $0.17 | -500.0% | Condensed Consolidated Statements of Changes in Equity (Unaudited) Total KREF Stockholders' Equity decreased to $1.24 billion by June 30, 2025, due to net losses and common stock repurchases | Metric (in millions) | December 31, 2024 | March 31, 2025 | June 30, 2025 | | :----------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Total KKR Real Estate Finance Trust Inc. Stockholders' Equity | $1,345.03 | $1,309.82 | $1,240.05 | | Repurchase and retirement of common stock | N/A | $(9.83) | $(20.06) | | Net income (loss) | N/A | $(4.86) | $(29.73) | | Common dividends declared | N/A | $(16.96) | $(16.42) | Condensed Consolidated Statements of Cash Flows (Unaudited) Operating cash flow decreased to $37.0 million in H1 2025, while investing activities shifted to providing $16.2 million | Metric (in millions) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (YoY) (in millions) | | :----------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $37.04 | $65.13 | -$28.09 | | Net cash provided by (used in) investing activities | $16.21 | $464.77 | -$448.56 | | Net cash provided by (used in) financing activities | $(49.84) | $(565.54) | +$515.70 | | Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | $3.41 | $(35.64) | +$39.05 | | Cash, Cash Equivalents and Restricted Cash at End of Period | $109.96 | $112.67 | -$2.71 | Notes to Condensed Consolidated Financial Statements (Unaudited) Detailed explanations of KREF's business, accounting policies, and specific financial statement line items are provided Note 1. Business and Organization KREF operates as a mortgage REIT, externally managed by KKR, focusing on transitional senior loans secured by commercial real estate - KREF operates as a mortgage REIT, focusing on originating and acquiring transitional senior loans secured by commercial real estate assets[30] - KREF is externally managed by KKR Real Estate Finance Manager LLC, an indirect subsidiary of KKR & Co Inc[32] - As of June 30, 2025, KKR beneficially owned 15.2% of KREF's outstanding common stock[33] Note 2. Summary of Significant Accounting Policies This note details KREF's accounting policies, including consolidation principles, fair value measurement, and CECL model adoption - KREF prepares its financial statements in accordance with GAAP and consolidates entities it controls or is the primary beneficiary of VIEs (CMBS trusts, CLOs, REO joint ventures)[37][39][40] - KREF recognizes and measures allowance for credit losses under the Current Expected Credit Loss (CECL) model, using the Weighted-Average Remaining Maturity (WARM) method, incorporating historical loss data and forward-looking macroeconomic conditions[71][72][74] - KREF elected the fair value option for assets and liabilities of consolidated CMBS trusts, presenting changes in net assets within the Condensed Consolidated Statements of Income[47] Note 3. Commercial Real Estate Loans KREF's loan portfolio decreased to $5.78 billion, with allowance for credit losses increasing to $171.6 million, primarily for risk-rated 5 loans | Metric (in millions) | June 30, 2025 | December 31, 2024 | Change (in millions) | | :----------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Outstanding Principal | $5,790.98 | $5,900.16 | -$109.18 | | Amortized Cost | $5,777.14 | $5,888.62 | -$111.48 | | Carrying Value (net of allowance) | $5,605.55 | $5,771.52 | -$165.97 | | Allowance for credit losses | $171.59 | $117.10 | +$54.49 | | Weighted Average Floating Rate Loan % | 98.7% | 98.6% | +0.1% | | Weighted Average Coupon | 7.4% | 7.5% | -0.1% | | Weighted Average Life (Years) | 1.9 | 2.0 | -0.1 | | Risk Rating | June 30, 2025 (Carrying Value in millions) | December 31, 2024 (Carrying Value in millions) | Change (in millions) | | :----------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | 2 (Low Risk) | $465.12 | $0.00 | +$465.12 | | 3 (Medium Risk) | $4,670.84 | $5,393.33 | -$722.50 | | 4 (High Risk/Potential for Loss) | $202.36 | $193.69 | +$8.67 | | 5 (Impaired/Loss Likely) | $438.82 | $301.60 | +$137.22 | - The CECL provision of $74.7 million for the six months ended June 30, 2025, was primarily due to additional reserves for risk-rated 5 loans in the life science, office, and multifamily sectors[131] Note 4. Real Estate Owned KREF sold portions of Portland and Philadelphia properties, recognizing gains, and acquired a West Hollywood condo through foreclosure - KREF sold portions of its Portland, OR Retail/Redevelopment property for $6.0 million, recognizing a $0.7 million gain in June 2025[139] - KREF sold a portion of its Philadelphia, PA Office portfolio for $25.3 million, recognizing a $0.5 million gain in May 2025[143] - Acquisition of West Hollywood, CA Condo through assignment-in-lieu of foreclosure resulted in a $20.4 million loan write-off[144] | REO Operations (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Revenue from REO operations | $4.03 | $5.77 | $6.91 | $10.76 | | Expenses from REO operations | $(6.18) | $(6.34) | $(11.65) | $(11.89) | | Total (Net Loss) | $(2.15) | $(0.58) | $(4.74) | $(1.13) | Note 5. Debt Obligations Secured financing agreements, net, increased to $2.95 billion by June 30, 2025, with a weighted average funding cost of 6.4% | Debt Type | June 30, 2025 (Carrying Value in millions) | December 31, 2024 (Carrying Value in millions) | Weighted Average Funding Cost (June 30, 2025) | | :----------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Master Repurchase Agreements | $1,097.53 | $1,609.24 | 6.4% | | Term Loan Facility | $542.42 | $692.61 | 6.4% | | Term Lending Agreements | $791.26 | $1,304.27 | 6.0% | | Asset Specific Financing | $359.17 | $400.00 | 7.4% | | Revolving Credit Agreement | $40.00 | $80.00 | 6.5% | | Total Secured Financing Agreements, net | $2,948.25 | $2,798.67 | 6.4% | - KREF was in compliance with its financial debt covenants as of June 30, 2025, and December 31, 2024[164] Note 6. Collateralized Loan Obligations KREF's CLOs decreased to $1.45 billion by June 30, 2025, providing match-term, non-mark-to-market financing | Metric (in millions) | June 30, 2025 | December 31, 2024 | Change (in millions) | | :----------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Collateralized loan obligations, net | $1,447.84 | $1,766.10 | -$318.26 | | Weighted Average Funding Cost | 6.0% | N/A | N/A | | CLO Net Interest Income (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net interest income | $11.96 | $15.08 | $23.87 | $29.58 | Note 7. Secured Term Loan, Net KREF refinanced its secured term loan in March 2025, increasing the principal to $548.6 million and extending maturity to March 2032 - KREF refinanced its secured term loan in March 2025, increasing it to $550.0 million (from $339.5 million) due March 2032, with a total cost of S+3.6%[171][172] | Metric (in millions) | June 30, 2025 | December 31, 2024 | Change (in millions) | | :----------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Principal | $548.62 | $339.50 | +$209.12 | | Carrying value | $535.05 | $333.85 | +$201.20 | Note 8. Variable Interest Entity Assets and Liabilities, CMBS Trust, at Fair Value KREF consolidated a CMBS trust from June 18, 2025, reporting its assets at $492.0 million and liabilities at $483.0 million at fair value - KREF consolidated a CMBS trust from June 18, 2025, reporting its assets and liabilities at fair value[176] | Metric (in millions) | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Variable interest entity assets, CMBS trust, at fair value | $492.04 | $0.00 | | Variable interest entity liabilities, CMBS trust, at fair value | $482.97 | $0.00 | Note 9. Other Assets and Liabilities Other assets increased to $17.3 million and other liabilities to $10.6 million by June 30, 2025 | Metric (in millions) | June 30, 2025 | December 31, 2024 | Change (in millions) | | :----------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Total Other Assets | $17.30 | $8.85 | +$8.45 | | Deferred financing cost, Revolver | $6.19 | $2.81 | +$3.38 | | Loan principal repayments held by a servicer | $4.50 | $0.00 | +$4.50 | | Total Other Liabilities | $10.61 | $8.52 | +$2.09 | | Liabilities related to real estate owned, held for investment | $6.20 | $4.30 | +$1.90 | Note 10. Consolidation and Equity Method Investments KREF consolidates CMBS trusts, CLOs, and REO joint ventures, and holds equity method investments in a Seattle life science property and CMBS B-Pieces - KREF consolidates CMBS trusts, CLOs, and REO joint ventures where it is the primary beneficiary due to control over significant activities and obligation/right to absorb losses/benefits[181][182][183][184] - KREF holds a 74.6% economic interest in a Seattle life science property through an equity method investment[185] - KREF holds a 3.5% interest in RECOP I, an unconsolidated VIE that primarily acquires junior tranches of CMBS[186] Note 11. Equity Common stock outstanding decreased to 65.7 million shares, with $29.8 million in repurchases and $60.2 million remaining capacity - As of June 30, 2025, 65,676,132 common shares were issued and outstanding[189] - KREF repurchased and retired 3,060,004 shares of common stock for $29.8 million during the six months ended June 30, 2025, with $60.2 million remaining capacity under the share repurchase program[191] - No shares were issued or sold under the ATM program during the six months ended June 30, 2025, with $93.2 million remaining available[193] | Dividends Declared (in millions) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Common Stock Dividends | $33.38 | $34.66 | | Series A Preferred Stock Dividends | $10.65 | $10.65 | Note 12. Stock-based Compensation KREF adopted the 2025 Omnibus Incentive Plan with 2.75 million shares available, incurring $4.3 million in stock-based compensation expense - KREF adopted the 2025 Omnibus Incentive Plan, making 2,750,000 shares of common stock available for awards to directors and Manager employees[199][200][201] - Stock-based compensation expense was $4.3 million for the six months ended June 30, 2025, with $9.9 million of unrecognized expense remaining[204] Note 13. Earnings (Loss) per Share Basic and diluted EPS was $(0.68) for the six months ended June 30, 2025, a significant decrease from $0.17 in the prior year | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net Income (Loss) Attributable to Common Stockholders (in millions) | $(35.43) | $20.22 | $(45.98) | $11.48 | | Basic and Diluted Common Share EPS | $(0.53) | $0.29 | $(0.68) | $0.17 | Note 14. Commitments and Contingencies KREF had $388.7 million in future funding commitments for loans and was not involved in any material legal proceedings - KREF had future funding commitments of $388.7 million for commercial real estate loans as of June 30, 2025[219] - KREF had a remaining commitment of $4.3 million to RECOP I as of June 30, 2025[220] - KREF was not involved in any material legal proceedings as of June 30, 2025[217] Note 15. Related Party Transactions KREF pays its Manager management fees and incentive compensation, with total fees incurred with affiliates reaching $19.4 million in H1 2025 - The Manager receives a quarterly management fee (greater of $62,500 or 0.375% of weighted average adjusted equity) and quarterly incentive compensation (20.0% of distributable earnings exceeding a 7.0% Hurdle Rate)[225] | Fees Incurred (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Management fees | $5.74 | $6.37 | $11.53 | $12.71 | | Expense reimbursements | $1.15 | $0.87 | $2.63 | $2.08 | | Structuring fees (KCM) | $0.59 | $0.00 | $5.05 | $0.00 | | Diligence and servicing fees (K-Star) | $0.10 | $0.00 | $0.20 | $0.00 | | Total | $7.58 | $7.24 | $19.41 | $14.79 | Note 16. Fair Value of Financial Instruments Commercial real estate loans and consolidated CMBS trust assets/liabilities are classified as Level 3, valued using discounted cash flow models - KREF classifies commercial real estate loans and consolidated CMBS trust assets/liabilities as Level 3 in the fair value hierarchy due to illiquidity and reliance on unobservable inputs[59][60] | Level 3 Unobservable Inputs (June 30, 2025) | Weighted Average | Range | | :----------------------------------- | :----------------------------- | :----------------------------- | | Discount margin (Commercial real estate loans) | 4.0% | 2.3% - 5.7% | | Discount rate (Commercial real estate loans) | 10.6% | 9.1% - 11.0% | | Capitalization rate (Commercial real estate loans) | 9.0% | 5.1% - 10.3% | Note 17. Income Taxes KREF maintains REIT status, generally avoiding federal and state income tax on distributed income, with no material deferred tax assets or liabilities - KREF maintains REIT status, requiring distribution of at least 90% of REIT taxable income to avoid federal and state income tax[244] - No material deferred tax assets or liabilities were present as of June 30, 2025, and December 31, 2024[245] Note 18. Subsequent Event In July 2025, KREF paid $16.4 million in common stock dividends for the second quarter of 2025 - KREF paid $16.4 million in common stock dividends ($0.25 per share) in July 2025 for Q2 2025[247] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses KREF's financial performance, condition, and outlook, considering macroeconomic factors, key measures, and portfolio strategies Overview KREF is a mortgage REIT externally managed by KKR, focusing on transitional senior loans, facing challenges from elevated interest rates and slowing economic growth - KREF is a mortgage REIT focused on originating and acquiring transitional senior loans secured by institutional-quality CRE assets, aiming for capital preservation and attractive risk-adjusted returns[249] - KREF is externally managed by KKR Real Estate Finance Manager LLC, an indirect subsidiary of KKR & Co Inc[250] - Elevated interest rates and slowing economic growth continue to adversely impact the real estate industry, leading to challenges in commercial real estate values and transaction activity[251][252] Key Financial Measures and Indicators KREF reported a net loss of $(35.4) million for Q2 2025, with diluted EPS of $(0.53) and book value per share decreasing to $13.84 | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended March 31, 2025 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) attributable to common stockholders (in millions) | $(35.43) | $(10.55) | | Net income (loss) per share, basic and diluted | $(0.53) | $(0.15) | | Dividends declared per share | $0.25 | $0.25 | - Distributable Earnings (non-GAAP) is a key indicator for dividend payment ability; for Q2 2025, Distributable Earnings was $(2.9) million, compared to $17.0 million in Q1 2025[255][260] | Metric (in millions) | June 30, 2025 | December 31, 2024 | Change (in millions) | | :----------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Common stockholders' equity | $912.30 | $1,017.28 | -$104.98 | | Total shares outstanding at period end | 65,916,054 | 68,919,708 | -3,003,654 | | Book value per share | $13.84 | $14.76 | -$0.92 | Our Portfolio KREF's $6.24 billion investment portfolio, primarily senior CRE loans, collected 99.9% of interest payments in Q2 2025, with an average risk rating of 3.1 - KREF's investment portfolio totaled $6,242.5 million as of June 30, 2025, primarily senior commercial real estate loans[263] - 99.9% of interest payments were collected in Q2 2025, and the average risk rating was 3.1; multifamily and industrial loans constituted 62% of the portfolio[264] | Loan Activity (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended March 31, 2025 | 3 Months Ended December 31, 2024 | 3 Months Ended September 30, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Loan originations | $210.65 | $376.27 | $0.00 | $0.00 | | Loan fundings | $230.23 | $405.67 | $53.04 | $55.34 | | Loan repayments | $(450.05) | $(183.60) | $(457.03) | $(290.04) | | Net fundings | $(219.82) | $222.07 | $(403.99) | $(234.71) | | Net write-offs | $(20.43) | $0.00 | $(35.90) | $(1.83) | | Transfer to REO | $(91.77) | $0.00 | $0.00 | $0.00 | | Portfolio Statistics (June 30, 2025) | Value | | :----------------------------------- | :----------------------------- | | Number of loans | 53 | | Principal balance (in millions) | $5,790.98 | | Unfunded loan commitments (in millions) | $388.69 | | Weighted average cash coupon | 7.4% | | Weighted average all-in yield | 7.6% | | Weighted average maximum maturity (years) | 1.9 | | Weighted average LTV | 66% | Portfolio Surveillance and Credit Quality KREF's Manager actively monitors credit quality, maintaining an average risk rating of 3.1, with two risk-rated 5 loans modified in 2024 - KREF's Manager actively monitors the portfolio quarterly, assessing credit quality based on property performance, valuations, sponsor financial strength, and macroeconomic trends[279][282] - The average risk rating of the loan portfolio was 3.1 as of June 30, 2025, consistent with December 31, 2024[283] - A risk-rated 5 mezzanine office loan in Boston, MA, was restructured and partially written off in June 2024; a risk-rated 5 senior life science loan in San Carlos, CA, was also restructured and partially written off in December 2024[286][287] Total Financing KREF's total financing includes 78% Non-Mark-to-Market sources and 22% master repurchase agreements, with recent upsizing of its corporate Revolver and secured term loan - Non-Mark-to-Market Financing Sources (CLOs, term lending, term loan, warehouse, asset specific, Revolver) constitute 78% of total financing and are not subject to mark-to-market provisions[290] - Master repurchase agreements, comprising 22% of total financing, are subject only to credit marks[290] - KREF upsized its corporate Revolver to $660.0 million and extended its maturity to March 2030[300] - KREF refinanced its secured term loan to $550.0 million due March 2032[302] | Financing Type (in millions) | June 30, 2025 Borrowings Outstanding Principal | December 31, 2024 Borrowings Outstanding Principal | | :----------------------------------- | :----------------------------- | :----------------------------- | | Master Repurchase Agreements | $1,100.18 | $1,038.07 | | Collateralized Loan Obligations | $1,447.87 | $1,766.23 | | Term Lending Agreements | $910.55 | $789.65 | | Term Loan Facility | $542.55 | $553.97 | | Asset Specific Financing | $361.72 | $343.22 | | Revolver | $40.00 | $80.00 | | Secured Term Loan | $548.62 | $339.50 | | Total leverage | $4,951.49 | $4,910.63 | Real Estate Assets, Held For Investment KREF holds a 90% interest in a Portland retail property and a 68.9% interest in a Mountain View office property, with a portion of the Portland property sold for a $0.7 million gain - KREF holds a 90% interest in a Portland, OR retail property REO JV and a 68.9% interest in a Mountain View, CA office property JV with a KKR affiliate[310][311] - A portion of the Portland property was sold for $6.0 million, recognizing a $0.7 million gain in June 2025[310] Real Estate Assets, Held For Sale Philadelphia Office and West Hollywood Condo properties were classified as held for sale, with a portion of the Philadelphia portfolio sold for a $0.5 million gain - Philadelphia, PA Office and West Hollywood, CA Condo properties were classified as held for sale as of June 30, 2025[312][315] - A portion of the Philadelphia office portfolio was sold for $25.3 million, recognizing a $0.5 million gain in May 2025[315] - The acquisition of the West Hollywood multifamily property resulted in a $20.4 million loan write-off[316] Real Estate Asset, Equity Method Investment KREF holds a 74.6% economic interest in a Seattle life science property through an equity method investment - KREF holds a 74.6% economic interest in a Seattle life science property through a Tenant-in-Common (TIC) agreement with a KKR affiliate, accounted for as an equity method investment[317] Results of Operations KREF experienced a significant decline in net income for both the three and six months ended June 30, 2025, primarily due to increased provision for credit losses Three Months Ended June 30, 2025 Compared to Three Months Ended March 31, 2025 Net interest income decreased by $1.2 million QoQ, while operating expenses surged by $25.5 million due to a higher credit loss provision | Metric (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended March 31, 2025 | Change (QoQ) (in millions) | Percentage Change (QoQ) | | :----------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Total net interest income | $30.17 | $31.34 | $(1.17) | (4)% | | Total other income | $5.70 | $3.88 | $1.82 | 47% | | Total operating expenses | $66.44 | $40.96 | $25.48 | 62% | | Provision for credit losses, net | $49.85 | $24.86 | $24.99 | 100% | | Net Income (Loss) Attributable to Common Stockholders | $(35.43) | $(10.55) | $(24.88) | (236)% | - Net interest income decreased due to additional loans placed on nonaccrual status and a decline in overall portfolio size[319] - The increase in other income was primarily due to a $1.2 million gain on sale of REO investments[320] - The increase in operating expenses was primarily due to a $25.0 million change in the provision for credit losses, mainly for risk-rated 5 loans in the office and life science sectors[321] Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 Net interest income decreased by $18.1 million YoY, and operating expenses increased by $35.2 million, leading to a $(46.0) million net loss | Metric (in millions) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (YoY) (in millions) | Percentage Change (YoY) | | :----------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Total net interest income | $61.51 | $79.58 | $(18.07) | (23)% | | Total other income | $9.58 | $14.84 | $(5.26) | (35)% | | Total operating expenses | $107.41 | $72.20 | $35.21 | 49% | | Provision for credit losses, net | $74.71 | $37.81 | $36.90 | 98% | | Net Income (Loss) Attributable to Common Stockholders | $(45.98) | $11.48 | $(57.46) | (500)% | - Net interest income decreased due to a reduced loan portfolio size and lower index rates[324] - Other income decreased primarily due to a $3.8 million decrease in revenue from REO operations and a $2.1 million operating loss related to the real estate asset equity method investment[325] - Operating expenses increased primarily due to a $36.9 million change in the provision for credit losses, mainly on risk-rated 5 loans in the office and life science sectors[326] Liquidity and Capital Resources KREF's total available liquidity was $756.7 million as of June 30, 2025, with debt-to-equity increasing to 2.0x - Primary liquidity sources include $107.7 million cash, $620.0 million available on the corporate Revolver, and $29.0 million from other financing arrangements[329][337] | Metric | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Debt-to-equity ratio | 2.0x | 1.6x | | Total leverage ratio | 3.9x | 3.6x | | Cash Flows (in millions) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (YoY) (in millions) | | :----------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Operating Activities | $37.04 | $65.13 | -$28.09 | | Investing Activities | $16.21 | $464.77 | -$448.56 | | Financing Activities | $(49.84) | $(565.54) | +$515.70 | Contractual Obligations and Commitments KREF's total contractual obligations and commitments amounted to $6.41 billion as of June 30, 2025, including secured financing, CLOs, and future funding | Obligation Type (in millions) | Total | Less than 1 year | 1 to 3 years | 3 to 5 years | Thereafter | | :----------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Total secured financing agreements | $2,954.99 | $417.61 | $2,064.50 | $372.88 | $100.00 | | Collateralized Loan Obligations | $1,447.87 | $0.00 | $0.00 | $0.00 | $1,447.87 | | Secured Term Loan | $548.62 | $5.50 | $11.00 | $11.00 | $521.12 | | Interest payable | $1,063.46 | $302.07 | $404.91 | $286.88 | $69.60 | | Future funding obligations | $388.69 | $289.16 | $97.34 | $2.19 | $0.00 | | Total Contractual Obligations and Commitments | $6,407.97 | $1,018.66 | $2,577.75 | $672.96 | $2,138.60 | Subsequent Events Subsequent events are detailed in Note 18, primarily concerning the payment of common stock dividends in July 2025 - Subsequent events are detailed in Note 18, primarily concerning the payment of common stock dividends in July 2025[352] Critical Accounting Policies and Use of Estimates KREF's financial statements rely on management estimates, particularly for credit loss allowance under CECL, with no material policy changes - KREF's financial statements require management to make estimates and assumptions, particularly for the allowance for credit losses under the CECL model[353][354] - No material changes to Critical Accounting Policies and Use of Estimates since the Annual Report on Form 10-K[353] Recent Accounting Pronouncements KREF is evaluating the impact of ASU No 2024-03, effective for its 2027 annual reporting - KREF is evaluating the impact of ASU No 2024-03, "Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures," effective for its 2027 annual reporting[359] Item 3. Quantitative and Qualitative Disclosures about Market Risk KREF manages various market risks, including credit, interest rate, prepayment, financing, and real estate risks Credit Risk KREF's investments are exposed to credit risk, monitored through property performance and sponsor financial health, with macroeconomic factors potentially impacting collateral values - Investments are subject to credit risk, including default, monitored through property performance and sponsor financial health[361] - Inflation, rising interest rates, and global trade tensions may negatively impact collateral values and borrower performance[362] Credit Yield Risk Increasing supply and reduced demand for credit-sensitive financial instruments can lead to higher required yields and lower prices for KREF's holdings - Increasing supply and reduced demand for credit-sensitive financial instruments can lead to higher required yields and lower prices for KREF's holdings[363] Interest Rate Risk KREF's floating-rate portfolio means rising interest rates generally increase net income, while declining rates decrease it, with rate floors offering some offset - Rising interest rates generally increase KREF's net income, while declining rates decrease it, with rate floors potentially offsetting some impact[364][366] | Index Rate Change | Expected Cash Flow Impact (3 months) (in millions) | Per Common Share Impact (3 months) | | :----------------------------------- | :----------------------------- | :----------------------------- | | -50 basis points | -$0.8 | -($0.01) | | -100 basis points | -$1.5 | -($0.02) | | +50 basis points | +$0.8 | +$0.01 | | +100 basis points | +$1.6 | +$0.02 | Prepayment Risk Prepayment risk involves earlier principal repayment, potentially reducing returns, while higher interest rates may decrease prepayment speeds and increase borrower extension options - Prepayment risk means principal may be repaid earlier than anticipated, potentially reducing returns[368] - Higher interest rates may decrease prepayment speeds and increase borrower extension options, potentially impacting liquidity and leading to losses[369] Financing Risk Market weakness or volatility could limit financing availability or increase costs, impacting KREF's liquidity - Market weakness or volatility could limit financing availability or increase costs, impacting KREF's liquidity[370] Real Estate Risk Commercial real estate asset values are volatile and can be adversely affected by economic conditions, local market factors, and construction issues - Commercial real estate asset values are volatile and can be adversely affected by economic conditions, local market factors, and construction issues, potentially reducing collateral value and increasing losses[371] Item 4. Controls and Procedures KREF's management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting Evaluation of Disclosure Controls and Procedures KREF's CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025 - KREF's CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025[373] Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025 - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[374] Part II - Other Information Item 1. Legal Proceedings KREF was not involved in any material legal proceedings as of June 30, 2025 - KREF was not involved in any material legal proceedings as of June 30, 2025[375] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K - No material changes to risk factors previously disclosed in the Form 10-K[376] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds KREF repurchased 2,170,904 shares for $20.0 million during Q2 2025, with $60.2 million remaining capacity Issuer Purchases of Equity Securities KREF repurchased 2,170,904 shares of common stock for $20.0 million during Q2 2025, with $60.2 million remaining capacity | Period | Total shares purchased | Average price paid per share | Amounts paid for shares purchased as part of publicly announced program (in millions) | Approximate dollar value of shares that may yet be purchased under the program (in millions) | | :----------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | April 1, 2025 - April 30, 2025 | 68,207 | $9.56 | $0.65 | $79.54 | | May 1, 2025 - May 31, 2025 | 1,267,000 | $9.23 | $11.70 | $67.84 | | June 1, 2025 - June 30, 2025 | 835,697 | $9.15 | $7.65 | $60.20 | | Total/Average (Q2 2025) | 2,170,904 | $9.21 | $20.00 | N/A | - As of June 30, 2025, KREF had $60.2 million of remaining capacity to repurchase shares under the program[378] Item 3. Defaults Upon Senior Securities No defaults upon senior securities - No defaults upon senior securities[379] Item 4. Mine Safety Disclosures Mine Safety Disclosures are not applicable - Mine Safety Disclosures are not applicable[380] Item 5. Other Information No other information to disclose - No other information to disclose[381] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the 2025 Omnibus Incentive Plan and CEO/CFO certifications - Exhibits include the KKR Real Estate Finance Trust Inc 2025 Omnibus Incentive Plan, restricted stock unit grant notices, CEO/CFO certifications (Sarbanes-Oxley Act), and Inline XBRL documents[382] Signatures The report was signed by Matthew A Salem (CEO) and Kendra L Decious (CFO and Treasurer) on July 22, 2025 - The report was signed by Matthew A Salem (CEO) and Kendra L Decious (CFO and Treasurer) on July 22, 2025[386]