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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
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
kreflogoa23.jpg
KKR Real Estate Finance Trust Inc.
(Exact name of registrant as specified in its charter)
Maryland47-2009094
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
30 Hudson Yards,Suite 7500New York,NY10001
(Address of principal executive offices)(Zip Code)
(212) 750-8300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.01 per shareKREFNew York Stock Exchange
6.50% Series A Cumulative Redeemable Preferred Stock, par value $0.01 per shareKREF PRANew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒ Yes    ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒ Yes    ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
    Large accelerated filer    ☒    Accelerated filer    ☐
    Non-accelerated filer     ☐    Smaller reporting company    
            Emerging growth company    
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes    ☒ No

The number of shares of the registrant's common stock, par value $0.01 per share, outstanding as of April 19, 2024 was 69,313,860.




KKR REAL ESTATE FINANCE TRUST INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2024
INDEX

PAGE



CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as "outlook," "believe," "expect," "potential," "continue," "may," "should," "seek," "approximately," "predict," "intend," "will," "plan," "estimate," "anticipate," the negative version of these words, other comparable words or other statements that do not relate strictly to historical or factual matters. By their nature, forward-looking statements speak only as of the date they are made, are not statements of historical fact or guarantees of future performance and are subject to risks, uncertainties, assumptions or changes in circumstances that are difficult to predict or quantify. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.

There are many factors that may cause our actual results to differ materially from the forward-looking statements, including factors set forth under Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the "Form 10-K") and Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q, as such factors may be updated from time to time in our other periodic filings with the SEC, which are accessible on the SEC's website at www.sec.gov and on the investor relations section of our website at www.kkrreit.com. You should evaluate all forward-looking statements made in this Form 10-Q in the context of these risks and uncertainties.

We caution you that the risks, uncertainties and other factors referenced below may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. All forward-looking statements in this Form 10-Q apply only as of the date made and are expressly qualified in their entirety by the cautionary statements included in this Form 10-Q and in other filings we make with the SEC. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances, except as required by law.

Except where the context requires otherwise, the terms "Company," "we," "us," "our" and "KREF" refer to KKR Real Estate Finance Trust Inc., a Maryland corporation, and its subsidiaries; "Manager" refers to KKR Real Estate Finance Manager LLC, a Delaware limited liability company, our external manager; and "KKR" refers to KKR & Co. Inc., a Delaware corporation, and its subsidiaries.

SUMMARY OF MATERIAL RISKS

The following is a summary of the risk factors associated with investing in our securities. You should read this summary together with a more detailed description of these risks in the "Risk Factors" section of this report and in other filings that we make from time to time with the SEC.

the general political, economic, competitive, and other conditions in the United States and in any foreign jurisdictions in which we invest and their impact on our loan portfolio, financial condition and business operations;

fluctuations in interest rates and credit spreads could reduce our ability to generate income on our loans and other investments, which could lead to a significant decrease in our results of operations, cash flows and the market value of our investments and could materially impair our ability to pay distributions to our stockholders;

adverse developments in the real estate and real estate capital markets could negatively impact our performance;
adverse legislative or regulatory developments, including with respect to tax laws, securities laws, and the laws governing financial and lending institutions;

adverse developments in the availability of attractive loan and other investment opportunities whether they are due to competition, regulation or otherwise, could adversely affect our results of operations;



global economic trends and economic conditions, including heightened inflation, slower growth or recession, changes to fiscal and monetary policy, higher interest rates, labor shortages, currency fluctuations and challenges in global supply chains;

events giving rise to increases in our current expected credit loss reserve;

reduced demand for office, multifamily or retail space, including as a result of the COVID-19 pandemic and/or hybrid work schedules which allow work from remote locations other than the employer's office premises;

our results of operations, financial condition, liquidity position, and business could be adversely affected if we experience (i) difficulty accessing financing or raising capital, including due to a significant dislocation in or shut-down of the capital markets, (ii) a reduction in the yield on our investments, (iii) an increase in the cost of our financing, (iv) an inability to borrow incremental amounts or an obligation to repay amounts under our financing arrangements, or (v) defaults by borrowers in paying debt service on outstanding loans;

deterioration in the performance of the properties securing our investments that may cause deterioration in the performance of our investments, adversely impact certain of our financing arrangements and our liquidity, risks in collection of contractual interest payments, and potentially, principal losses to us;

difficulty or delays in redeploying the proceeds from repayments of our existing investments may cause our financial performance to decline;

acts of God such as hurricanes, earthquakes and other natural disasters, pandemics such as COVID-19, acts of war and/or terrorism and other events that may cause unanticipated and uninsured performance declines and/or losses to us or the owners and operators of the real estate securing our investments;

increased competition from entities engaged in mortgage lending and/or investing in our target assets;

conflicts with KKR and its affiliates, including our Manager, could result in decisions that are not in the best interests of our stockholders;

we are dependent on our Manager and its access to KKR’s investment professionals and resources. We may not find a suitable replacement for the Manager if the Management Agreement is terminated, or if key personnel leave the employment of KKR or otherwise become unavailable to us.

our qualification as a real estate investment trust ("REIT") for U.S. federal income tax purposes and our exclusion from registration under the Investment Company Act of 1940, as amended (the "Investment Company Act"); and
authoritative accounting principles generally accepted in the United States of America ("GAAP") or policy changes from such standard-setting bodies such as the Financial Accounting Standards Board (the "FASB"), the Securities and Exchange Commission (the "SEC"), the Internal Revenue Service, the New York Stock Exchange and other authorities that we are subject to, as well as their counterparts in any foreign jurisdictions where we might do business.




PART I — FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

KKR Real Estate Finance Trust Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)
(Amounts in thousands, except share and per share data)
March 31, 2024December 31, 2023
Assets
Cash and cash equivalents$106,517 $135,898 
Commercial real estate loans, held-for-investment7,113,256 7,343,548 
Less: Allowance for credit losses(243,634)(210,470)
Commercial real estate loans, held-for-investment, net6,869,622 7,133,078 
Real estate owned assets, held for sale99,977 101,017 
Real estate owned, held for investment, net82,669 82,091 
Accrued interest receivable40,602 41,003 
Equity method investments35,108 35,076 
Other assets22,200 19,455 
Total Assets$7,256,695 $7,547,618 
Liabilities and Equity
Liabilities
Secured financing agreements, net$3,521,796 $3,782,419 
Collateralized loan obligations, net1,942,569 1,942,171 
Secured term loan, net334,977 335,331 
Accrued interest payable19,247 20,207 
Real estate owned liabilities, held for sale16,334 15,883 
Dividends payable17,328 29,805 
Due to affiliates8,087 8,270 
Other liabilities16,267 9,350 
Total Liabilities5,876,605 6,143,436 
Commitments and Contingencies (Note 13)  
Equity
Preferred Stock, $0.01 par value, 50,000,000 shares authorized
Series A cumulative redeemable preferred stock, (13,110,000 shares issued and outstanding as of March 31, 2024 and December 31, 2023); liquidation preference of $25.00 per share
131 131 
Common stock, $0.01 par value, 300,000,000 authorized (75,299,556 shares issued and 69,313,860 shares outstanding; as of March 31, 2024 and December 31, 2023, respectively)
693 693 
Additional paid-in capital1,817,373 1,815,077 
Accumulated deficit(340,437)(314,370)
Repurchased stock (5,985,696 shares repurchased as of March 31, 2024 and December 31, 2023)
(96,764)(96,764)
Total KKR Real Estate Finance Trust Inc. Stockholders’ Equity1,380,996 1,404,767 
Noncontrolling interests in equity of consolidated joint venture
(906)(585)
Total Equity1,380,090 1,404,182 
Total Liabilities and Equity$7,256,695 $7,547,618 

See Notes to Condensed Consolidated Financial Statements.
5

KKR Real Estate Finance Trust Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)
(Amounts in thousands, except share and per share data)
Three Months Ended March 31,
20242023
Net Interest Income
Interest income$151,620 $152,530 
Interest expense112,476 105,976 
Total net interest income39,144 46,554 
Other Income
Income (loss) from equity method investments845 (347)
Other miscellaneous income1,792 2,711 
Revenue from real estate owned operations4,978 2,246 
Total other income7,615 4,610 
Operating Expenses
Provision for credit losses, net33,266 60,467 
Management fee to affiliate6,340 6,523 
Incentive compensation to affiliate 1,811 
General and administrative4,992 4,690 
Expenses from real estate owned operations5,549 2,758 
Total operating expenses50,147 76,249 
Income (Loss) Before Income Taxes(3,388)(25,085)
Income tax expense41 169 
Net Income (Loss)(3,429)(25,254)
Net income (loss) attributable to noncontrolling interests
(321)(177)
Net Income (Loss) Attributable to KKR Real Estate Finance Trust Inc. and Subsidiaries
(3,108)(25,077)
Preferred stock dividends5,326 5,326 
Participating securities' share in earnings305 407 
Net Income (Loss) Attributable to Common Stockholders$(8,739)$(30,810)
Net Income (Loss) Per Share of Common Stock
Basic and Diluted$(0.13)$(0.45)
Weighted Average Number of Shares of Common Stock Outstanding
Basic and Diluted69,386,568 69,095,011 
Dividends Declared per Share of Common Stock$0.25 $0.43 

See Notes to Condensed Consolidated Financial Statements.
6

KKR Real Estate Finance Trust Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Equity (Unaudited)
(Amounts in thousands, except share data)
Series A Preferred StockCommon Stock
SharesPar ValueSharesPar ValueAdditional Paid-In CapitalAccumulated DeficitRepurchased StockTotal KKR Real Estate Finance Trust Inc. Stockholders' EquityNoncontrolling Interests in Equity of Consolidated Joint VentureTotal Equity
Balance at December 31, 202313,110,000 $131 69,313,860 $693 $1,815,077 $(314,370)$(96,764)$1,404,767 $(585)$1,404,182 
Series A preferred dividends declared, $0.41 per share
— — — — — (5,326)— (5,326)— (5,326)
Common dividends declared, $0.25 per share
— — — — — (17,328)— (17,328)— (17,328)
Participating security dividends declared, $0.25 per share
— — — — — (305)— (305)— (305)
Stock-based compensation, net— — — — 2,296 — — 2,296 — 2,296 
Net income (loss)— — — — — (3,108)— (3,108)(321)(3,429)
Balance at March 31, 202413,110,000 $131 69,313,860 $693 $1,817,373 $(340,437)$(96,764)$1,380,996 $(906)$1,380,090 

Series A Preferred StockCommon Stock
SharesPar ValueSharesPar ValueAdditional Paid-In CapitalAccumulated DeficitRepurchased StockTotal KKR Real Estate Finance Trust Inc. Stockholders' EquityNoncontrolling Interests in Equity of Consolidated Joint VentureTotal Equity
Balance at December 31, 202213,110,000 $131 69,095,011 $691 $1,808,983 $(141,503)$(96,764)$1,571,538 $(102)$1,571,436 
Series A preferred dividends declared, $0.41 per share
— — — — — (5,326)— (5,326)— (5,326)
Common dividends declared, $0.43 per share
— — — — — (29,711)— (29,711)— (29,711)
Participating security dividends declared, $0.43 per share
— — — — — (407)— (407)— (407)
Stock-based compensation, net— — — — 2,152 — — 2,152 — 2,152 
Net income (loss)— — — — — (25,077)— (25,077)(177)(25,254)
Contribution by noncontrolling interest— — — — — — — — 255 255 
Balance at March 31, 202313,110,000 $131 69,095,011 $691 $1,811,135 $(202,024)$(96,764)$1,513,169 $(24)$1,513,145 

See Notes to Condensed Consolidated Financial Statements.
7

KKR Real Estate Finance Trust Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)
(Amounts in thousands)
Three Months Ended March 31,
20242023
Cash Flows From Operating Activities
Net income (loss)$(3,429)$(25,254)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Accretion of deferred loan fees and discounts(4,724)(5,888)
Payment-in-kind interest(25) 
Amortization of deferred debt issuance costs and discounts5,029 6,796 
(Income) loss from equity method investments(32)1,130 
Provision for credit losses, net33,266 60,467 
Stock-based compensation expense2,296 2,152 
Changes in operating assets and liabilities:
Assets related to real estate owned, held for sale, net of liabilities3,023  
Accrued interest receivable, net401 (1,507)
Other assets499 658 
Accrued interest payable(960)3,841 
Due to affiliates(183)(155)
Other liabilities(673)(605)
Net cash provided by (used in) operating activities34,488 41,635 
Cash Flows From Investing Activities
Proceeds from principal repayments of commercial real estate loans334,680 89,669 
Originations and fundings of commercial real estate loans(95,814)(201,881)
Capital expenditures on real estate owned(2,110)(868)
Net cash provided by (used in) investing activities236,756 (113,080)
Cash Flows From Financing Activities
Proceeds from borrowings under secured financing agreements118,754 162,436 
Proceeds from noncontrolling interest contributions 255 
Principal repayments on borrowings under secured financing agreements(382,144)(39,592)
Payments of debt and collateralized debt obligation issuance costs(2,249)(919)
Payments of common stock dividends(29,805)(29,711)
Payments of preferred stock dividends(5,326)(5,326)
Net cash provided by (used in) financing activities(300,770)87,143 
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash(29,526)15,698 
Cash, Cash Equivalents and Restricted Cash at Beginning of Period148,313 250,621 
Cash, Cash Equivalents and Restricted Cash at End of Period$118,787 $266,319 
8

Three Months Ended March 31,
20242023
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents$106,517 $254,096 
Restricted cash (Note 8)12,270 12,223 
Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows$118,787 $266,319 
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest$108,407 $95,339 
Supplemental Schedule of Non-Cash Investing and Financing Activities
Dividend declared, not yet paid17,328 29,711 
Loan funding held in escrow7,325  
Loan principal payments held by a servicer3,500  
Deferred financing costs, not yet paid2,060 2,331 
Modifications accounted for as repayments and new loans, net of write-offs 111,000 

See Notes to Condensed Consolidated Financial Statements.
9

KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(amount in tables in thousands, except per share amounts)
Note 1. Business and Organization

KKR Real Estate Finance Trust Inc. (together with its consolidated subsidiaries, referred to throughout this report as the "Company" or "KREF") is a Maryland corporation that was formed and commenced operations on October 2, 2014 as a mortgage real estate investment trust ("REIT") that focuses primarily on originating and acquiring transitional senior loans secured by commercial real estate ("CRE") assets.

KREF has elected and intends to maintain its qualification to be taxed as a REIT under the requirements of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), for U.S. federal income tax purposes. As such, KREF will generally not be subject to U.S. federal income tax on that portion of its income that it distributes to stockholders if it distributes at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gains. See Note 16 regarding taxes applicable to KREF.

KREF is externally managed by KKR Real Estate Finance Manager LLC ("Manager"), an indirect subsidiary of KKR & Co. Inc. (together with its subsidiaries, "KKR"), through a management agreement ("Management Agreement") pursuant to which the Manager provides a management team and other professionals who are responsible for implementing KREF’s business strategy, subject to the supervision of KREF’s board of directors. For its services, the Manager is entitled to management fees and incentive compensation, both defined in, and in accordance with the terms of, the Management Agreement (Note 14).

As of March 31, 2024, KKR beneficially owned 10,000,001 shares, or 14.4% of KREF's outstanding common stock.

KREF's principal business activities are related to the origination and purchase of credit investments related to CRE. Management assesses the performance of KREF's current portfolio of leveraged and unleveraged commercial real estate loans and makes operating decisions accordingly. As a result, management presents KREF's operations within a single reporting segment.

10

KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(amount in tables in thousands, except per share amounts)
Note 2. Summary of Significant Accounting Policies

Basis of Presentation The accompanying unaudited condensed consolidated financial statements and related notes of KREF are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and instructions to Form 10-Q. The condensed consolidated financial statements, including the accompanying notes, are unaudited and exclude some of the disclosures required in annual financial statements. The condensed consolidated financial statements include the accounts of KREF and its consolidated subsidiaries, and all intercompany transactions and balances have been eliminated. In the opinion of management, all adjustments considered necessary for a fair presentation of KREF’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These condensed consolidated financial statements should be read in conjunction with KREF's Annual Report on Form 10-K.

Use of Estimates — The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Management makes subjective estimates to project cash flows KREF expects to receive on its investments in loans and securities as well as the related market discount rates, which significantly impact the interest income, impairments, allowance for loan loss and fair values recorded or disclosed. Actual results could materially differ from those estimates.

Consolidation — KREF consolidates those entities that (i) it controls through either majority ownership or voting rights or (ii) management determines that KREF is the primary beneficiary of entities deemed to be variable interest entities ("VIEs").

Variable Interest Entities — VIEs are entities (i) in which equity investors do not have an interest with the characteristics of a controlling financial interest, (ii) that do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties or (iii) established with non-substantive voting rights. A VIE is required to be consolidated only by its primary beneficiary, which is defined as the party that has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and that has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could be potentially significant to the VIE (Note 9).

To assess whether KREF has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, KREF considers all the facts and circumstances, including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes, first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power to direct those activities. To assess whether KREF has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE, KREF considers all of its economic interests and applies judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE.

Collateralized Loan Obligations — KREF consolidates collateralized loan obligations (“CLOs”) when it determines that the CLO issuers are VIEs and that KREF is the primary beneficiary of such VIEs.

The collateral assets of KREF's CLOs, comprised of a pool of loan participations, are included in “Commercial real estate loans, held-for-investment, net” on the Condensed Consolidated Balance Sheets. The liabilities of KREF's consolidated CLOs consist solely of obligations to the senior CLO noteholders, excluding subordinated CLO tranches held by KREF as such interests are eliminated in consolidation, and are presented in “Collateralized loan obligations, net” on the Condensed Consolidated Balance Sheets. The collateral assets of the CLOs can only be used to settle the obligations of the consolidated CLOs. The interest income from the CLOs’ collateral assets and the interest expense on the CLOs’ liabilities are presented on a gross basis in “Interest income” and “Interest expense”, respectively, in KREF's Condensed Consolidated Statements of Income.

11

KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(amount in tables in thousands, except per share amounts)
Real Estate Owned Joint Venture — KREF consolidates a joint venture that holds the majority of KREF’s investment in a real estate owned (“REO”) retail property that was acquired in 2021, in which a third party owns a 10% noncontrolling interest (Note 9). Management determined the joint venture to be a VIE as the joint venture had insufficient equity at risk. KREF owns 90% of the equity interest in the joint venture and participates in the profits and losses. Management concluded that KREF is the primary beneficiary of the joint venture as KREF holds decision-making power over the activities that most significantly impact the economic performance of the joint venture and has the obligation to absorb losses of, or the right to receive benefits from, the joint venture that could be potentially significant to the joint venture.

Noncontrolling Interests — Noncontrolling interests represent the ownership interests in certain consolidated subsidiaries held by entities or persons other than KREF. These noncontrolling interests do not include redemption features and are presented as "Noncontrolling interests in equity of consolidated joint venture" on the Condensed Consolidated Balance Sheets.

Equity Method Investments — Investments are accounted for under the equity method when KREF has significant influence over the operations of an investee but does not consolidate that investment. Equity method investments, for which management has not elected a fair value option, are initially recorded at cost and subsequently adjusted for KREF's share of net income or loss and cash contributions and distributions each period.

Management determined that KREF's investment in an aggregator vehicle alongside KKR Real Estate Credit Opportunity Partners L.P. ("RECOP I ") is an interest in a VIE, however KREF is not the primary beneficiary and does not have substantive participating or kick-out rights. KREF records its share of net asset value in RECOP I in “Equity method investments” on its Condensed Consolidated Balance Sheets and its share of unrealized gains or losses in “Income (loss) from equity method investments” in its Condensed Consolidated Statements of Income. Management elected the fair value option for KREF's investment in RECOP I.

KREF classifies distributions received from equity method investees using the cumulative earnings approach. Distributions received up to the cumulative earnings from each equity method investee are considered returns on investment and presented within “Cash Flows from Operating Activities” in the Condensed Consolidated Statements of Cash Flows; excess distributions received are considered returns of investment and presented within “Cash Flows From Investing Activities” in the Condensed Consolidated Statements of Cash Flows.

Fair Value — GAAP requires the categorization of the fair value of financial instruments into three broad levels that form a hierarchy based on the transparency of inputs to the valuation.

Level 1 —    Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 —    Inputs are other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability.

Level 3 —    Inputs are unobservable for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

KREF follows this hierarchy for its financial instruments. The classifications are based on the lowest level of input that is significant to the fair value measurement.

Valuation Process — The Manager reviews the valuation of Level 3 financial instruments as part of KKR's quarterly process. As of March 31, 2024, KKR’s valuation process for Level 3 measurements, as described below, subjected valuations to the review and oversight of various committees. KKR has a global valuation committee assisted by the asset class-specific valuation committees, including a real estate valuation committee that reviews and approves all preliminary Level 3 valuations for real estate assets, including the financial instruments held by KREF. The global valuation committee is responsible for coordinating and implementing KKR’s valuation process to ensure consistency in the application of valuation principles across portfolio investments and between periods. All Level 3 valuations are also subject to approval by the global valuation committee.

Valuation of Commercial Real Estate Loans — Management considers KREF's commercial real estate loans to be Level 3 assets in the fair value hierarchy as such assets are illiquid, structured investments that are specific to the sponsor, underlying
12

KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(amount in tables in thousands, except per share amounts)
property and its operating performance (Note 15). For financial statement disclosure purposes, on a quarterly basis, management generally engages an independent valuation firm to estimate the fair value of each loan categorized as a Level 3 asset. These loans are generally valued using a discounted cash flow model based on assumptions regarding the collection of principal and interest and estimated market rates. Management reviews the quarterly loan valuation estimates provided by the independent valuation firm. For collateral dependent loans, KREF may apply alternative valuation methods based on the fair value of the underlying collateral. Determination of collateral value involves significant judgment, including assumptions regarding capitalization rates, discount rates, leasing, occupancy rates, and other factors.

Valuation of CLO Consolidated VIEs — Management estimates the fair value of the CLO liabilities using prices obtained from an independent valuation firm. If prices received from the independent valuation firm are inconsistent with values determined in connection with management’s independent review, management makes inquiries to the independent valuation firm about the prices received and related methods. In the event management determines the price obtained from an independent valuation firm to be unreliable or an inaccurate representation of the fair value of the CLO liabilities (based on considerations given to observable market data), management then compiles evidence independently and presents the independent valuation firm with such evidence supporting a different value. As a result, the independent valuation firm may revise their price after evaluating any additional evidence.

However, if management continues to disagree with the price from the independent valuation firm, in light of evidence that management compiled independently and believes to be compelling, valuations are then prepared using inputs based on non-binding broker quotes obtained from independent, well-known, major financial brokers that are CLO market makers. In validating any non-binding broker quote used in this circumstance, management compares the non-binding quote to the observable market data points in addition to understanding the valuation methodologies used by the market makers. These market participants may utilize a similar methodology as the independent valuation firm to value the CLO liabilities, with the key input of expected yield determined independently based on both observable and unobservable factors. To avoid reliance on any single broker-dealer, management receives a minimum of two non-binding quotes, of which the average is used.

Other Valuation Matters — For Level 3 financial assets originated, or otherwise acquired, and financial liabilities assumed during the current calendar quarter that were conducted in an orderly transaction with an unrelated party, management generally believes that the transaction price provides the most observable indication of fair value given the illiquid nature of these financial instruments, unless management is aware of any circumstances that may cause a material change in the fair value through the remainder of the reporting period. For instance, significant changes to the underlying property or its planned operations may cause material changes in the fair value of commercial real estate loans acquired, or originated, by KREF.

KREF’s determination of fair value is based upon the best information available for a given circumstance and may incorporate assumptions that are management’s best estimates after consideration of a variety of internal and external factors. When an independent valuation firm expresses an opinion on the fair value of a financial instrument in the form of a range, management selects a value within the range provided by the independent valuation firm, generally the midpoint, to assess the reasonableness of management’s estimated fair value for that financial instrument.

See Note 15 for additional information regarding the valuation of KREF's financial assets and liabilities.

Sales of Financial Assets and Financing Agreements — KREF will, from time to time, transfer loans, securities and other assets as well as finance assets in the form of secured borrowings. In each case, management evaluates whether the transaction constitutes a sale through legal isolation of the transferred financial asset from KREF, the ability of the transferee to pledge or exchange the transferred asset without constraint and the transfer of control of the transferred asset. For transfers that constitute sales, KREF (i) recognizes the financial assets it retains and liabilities it has incurred, if any, (ii) derecognizes the financial assets it has sold, and derecognizes liabilities when extinguished and (iii) recognizes a realized gain, or loss, based upon the excess, or deficient, proceeds received over the carrying value of the transferred asset. KREF does not recognize a gain, or loss, on interests retained, if any, where management elected the fair value option prior to sale.

Balance Sheet Measurement

Cash and Cash Equivalents and Restricted Cash — KREF considers cash equivalents as highly liquid short-term investments with maturities of 90 days or less when purchased. KREF maintains its cash deposits with major financial institutions. Substantially all such amounts on deposit exceed insured limits.

13

KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(amount in tables in thousands, except per share amounts)
KREF must maintain sufficient cash and cash equivalents to satisfy liquidity covenants related to its secured financing agreements. However, such amounts are not restricted from use in KREF's current operations, and KREF does not present these cash and cash equivalents as restricted. As of March 31, 2024 and December 31, 2023, KREF was required to maintain unrestricted cash and cash equivalents of at least $56.5 million and $60.2 million, respectively, to satisfy its liquidity covenants (Note 5).

As of March 31, 2024 and December 31, 2023, KREF had $12.3 million and $12.4 million of restricted cash held in lender-controlled bank accounts, respectively. Such amounts are presented within "Other Assets" in the Condensed Consolidated Balance Sheets (Note 8).

Commercial Real Estate Loans Held-For-Investment and Allowance for Credit Losses — KREF recognizes its investments in commercial real estate loans based on management's intent, and KREF's ability, to hold those investments through their contractual maturity. Management classifies those loans that management does not intend to sell in the foreseeable future, and KREF is able to hold until maturity, as held-for-investment. Loans that are held-for-investment are carried at their aggregate outstanding principal, net of applicable (i) unamortized origination or acquisition premiums and discounts, (ii) unamortized deferred nonrefundable fees and other direct loan origination costs, and (iii) allowance for credit losses, net of write-offs of impaired loans. If a loan is determined to be impaired, management writes off the loan through a charge to the "Allowance for credit losses" and to the respective loan balance. KREF applies the interest method to amortize origination or acquisition premiums and discounts and deferred nonrefundable fees or other direct loan origination costs, or on a straight-line basis when it approximates the interest method. Loans for which management elects the fair value option at the time of origination, or acquisition, are carried at fair value on a recurring basis (Note 3).

KREF recognizes and measures the allowance for credit losses under the Current Expected Credit Loss ("CECL") model which amended the previous credit loss model to reflect a reporting entity's current estimate of all expected credit losses, not only based on historical experience and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looking information. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, and off-balance sheet credit exposures such as unfunded loan commitments. The allowance for credit losses required under ASU 2016-13 is deducted from the respective loans’ amortized cost basis on KREF's Condensed Consolidated Balance Sheets. The allowance for credit losses attributed to unfunded loan commitments is included in “Other liabilities” on the Condensed Consolidated Balance Sheets (Note 8).

KREF has implemented loan loss forecasting models for estimating expected life-time credit losses, at the individual loan level, for its commercial real estate loan portfolio. The CECL forecasting methods used by KREF include (i) a probability of default and loss given default method using an underlying third-party CMBS/CRE loan database with historical loan losses from 1998 through 2024 and (ii) a probability weighted expected cash flow method, depending on the type of loan and the availability of relevant historical market loan loss data. KREF might use other acceptable alternative approaches in the future depending on, among other factors, the type of loan, underlying collateral and availability of relevant historical market loan loss data.

KREF estimates the CECL allowance for its loan portfolio, including unfunded loan commitments, at the individual loan level. Significant inputs to KREF’s forecasting methods include (i) key loan-specific inputs such as vintage year, loan term, underlying property type, geographic location, most recent appraisal, and expected timing and amount of future loan fundings, (ii) performance against the underwritten business plan and KREF's internal loan risk rating and (iii) a macro-economic forecast. These estimates may change in future periods based on available future macro-economic data and might result in a material change in KREF’s future estimates of expected credit losses for its loan portfolio. KREF considers the individual loan internal risk rating as the key credit quality indicator in assessing the CECL allowance. KREF may also consider relevant loan-specific qualitative factors for certain loans.

For collateral dependent loans for which KREF determines foreclosure of the collateral is probable, KREF measures the expected losses based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. For collateral dependent loans for which KREF determines foreclosure is not probable, KREF applies a practical expedient to estimate expected losses using the difference between the collateral’s fair value (less costs to sell the asset if repayment is expected through the sale of the collateral) and the amortized cost basis of the loan. A loan is determined to be collateral dependent if (i) a borrower or sponsor is experiencing financial difficulty, and (ii) the loan is expected to be substantially repaid through the sale of the underlying collateral. Such determination requires the use of significant judgment and can be based on several factors subject to uncertainty. Considerations used in determination of financial difficulty may include, but are not limited to, whether the borrower's operating cash flow is sufficient to cover the current and future debt
14

KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(amount in tables in thousands, except per share amounts)
service requirements, the borrower’s ability to refinance the loan, market liquidity and other circumstances that can affect the borrower’s ability to satisfy its contractual obligations under the loan agreement.

See "Expense Recognition — Commercial Real Estate Loans, Held-For-Investment" for additional discussion regarding management’s determination for loan losses.

Commercial Real Estate Loans Held-For-Sale — Loans that KREF originates or acquires, which KREF is unable to hold, or management intends to sell or otherwise dispose of, in the foreseeable future are classified as held-for-sale and are carried at the lower of amortized cost or fair value.

Real Estate Owned — To maximize recovery from a defaulted loan, KREF may assume legal title or physical possession of the underlying collateral through foreclosure or the execution of a deed in lieu of foreclosure. Foreclosed properties are initially recognized at fair value in accordance with ASC 805 on KREF's Condensed Consolidated Balance Sheets as "Real Estate Owned" when KREF assumes either legal title or physical possession. KREF’s cost basis in REO equals the estimated fair value on the acquisition date. The value of acquired REO is allocated based on the relative fair values of assets acquired and liabilities assumed, including, but not limited to, land, building, furniture and fixtures, and intangibles.

REO assets held for investment, except for land, are depreciated using the straight-line method over estimated useful lives. Renovations and/or replacements that improve or extend the life of the REO asset are capitalized and depreciated over their estimated useful lives. The cost of ordinary repairs and maintenance are expensed as incurred.

REO assets held for investment are evaluated for impairment on a quarterly basis. KREF considers the following factors when performing the impairment analysis: (i) significant underperformance relative to anticipated operating results; (ii) significant negative industry and economic outlook or trends; (iii) expected material costs necessary to extend the life or operate the REO asset; and (iv) KREF’s ability to hold and dispose of the REO asset in the ordinary course of business. A REO asset is considered for impairment when the sum of estimated future undiscounted cash flows to be generated by the REO asset over the estimated remaining holding period is less than the carrying value of such REO asset. An impairment charge is recorded when the carrying value of the REO exceeds the fair value. When determining the fair value of a REO asset, KREF makes certain assumptions including, but not limited to, projected operating cash flows, comparable selling prices and projected cash flows from the eventual disposition of the REO asset.

REO assets are classified as held for sale in the period when they meet the criteria under ASC 360. Once a REO is classified as held for sale, depreciation is suspended and the asset is reported at the lower of its carrying value or fair value less cost to sell. The actual sales price of the REO could differ from the estimated fair value. If circumstances arise that were previously considered unlikely and, as a result, KREF decides not to sell the real estate asset previously classified as held for sale, the real estate asset is reclassified as held for investment. Upon reclassification, the real estate asset is measured at the lower of (i) its carrying amount prior to classification as held for sale, adjusted for depreciation expense that would have been recognized had the real estate been classified as held for investment, and (ii) its estimated fair value at the time of reclassification.

For all REO assets (Note 4), KREF may opportunistically transact as suitable opportunities emerge.

Secured Financing Agreements — KREF's secured financing agreements, including uncommitted repurchase facilities, term lending agreements, warehouse facility, asset specific financings and term loan facility, are treated as floating-rate collateralized financing arrangements carried at their contractual amounts, net of unamortized debt issuance costs (Note 5). Included within KREF's secured financing agreements is KREF's corporate revolving credit agreement ("Revolver"), which is full recourse to certain guarantor wholly-owned subsidiaries of KREF.

Secured Term Loan, Net — KREF records its secured term loan at its contractual amount, net of unamortized original issuance discount and deferred financing costs (Note 7) on its Condensed Consolidated Balance Sheets. Any original issuance discount or deferred financing costs are amortized through the maturity date of the secured term loan as additional non-cash interest expense.

Dividends Payable — KREF records dividends payable on its common stock and preferred stock upon declaration of such dividends. In February 2024, KREF's board of directors declared a dividend of $0.25 per share of common stock to stockholders of record as of March 28, 2024, which was accrued in “Dividends payable” on KREF’s Condensed Consolidated Balance Sheets as of March 31, 2024 and was subsequently paid on April 15, 2024. In February 2024, KREF's board of directors declared a dividend of $0.41 per each issued and outstanding share of the Company’s 6.50% Series A Cumulative
15

KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(amount in tables in thousands, except per share amounts)
Redeemable Preferred Stock, which represents an annual dividend of $1.625 per share. The dividend was paid on March 15, 2024 to KREF’s preferred stockholders of record as of February 29, 2024.

Repurchased Stock — KREF accounts for repurchases of its common stock based on the settlement date and presents repurchased stock in “Repurchased stock” on its Condensed Consolidated Balance Sheets (Note 10). Payments for stock repurchases that are not yet settled as of the reporting date are presented within “Other assets” on the Condensed Consolidated Balance Sheets. As of March 31, 2024, KREF had not retired any repurchased stock.

Income Recognition

Interest Income — KREF accrues interest income on loans based on the outstanding principal amount and contractual terms of the loan. Interest income also includes origination fees, direct loan origination costs and related exit fees for loans that KREF originates, but where management did not elect the fair value option, as a yield adjustment using the interest method over the loan term, or on a straight line basis when it approximates the interest method. KREF expenses origination fees and direct loan origination costs for loans acquired, but not originated, by KREF as well as loans for which management elected the fair value option, as incurred.

Revenue from Real Estate Owned Operations — Revenue from REO operations is primarily comprised of rental income, including base rent and reimbursements of property operating expenses. For leases that have fixed and measurable base rent escalations, KREF recognizes base rent on a straight-line basis over the non-cancelable lease terms. The difference between such rental income earned and the cash rent amount is recorded as straight-line rent receivable and presented within "Other assets" on the Condensed Consolidated Balance Sheets. Reimbursement of property operating expenses arises from tenant leases which provide for the recovery of certain operating expenses and real estate taxes of the respective property. This revenue is accrued in the same periods as the expenses are incurred. Rental income is presented within Revenue from real estate owned operations in the Condensed Consolidated Statements of Income.

Other Income — KREF recognizes interest income earned on its cash balances and miscellaneous fee income in “Other miscellaneous income” on its Condensed Consolidated Statements of Income.

Realized Gain (Loss) on Sale of Investments — KREF recognizes the excess, or deficiency, of net proceeds received, less the net carrying value of such investments, as realized gains or losses, respectively. KREF reverses cumulative, unrealized gains or losses previously reported in its Condensed Consolidated Statements of Income with respect to the investment sold at the time of sale.

Expense Recognition

Commercial Real Estate Loans, Held-For-Investment — For each loan in KREF's portfolio, management performs an evaluation, at least quarterly, of credit quality indicators of loans classified as held-for-investment using applicable loan, property, market and sponsor information obtained from borrowers, loan servicers and local market participants. Such indicators may include the net present value of the underlying collateral, property operating cash flows, the sponsor’s financial wherewithal and competency in managing the property, macroeconomic trends, and property submarket—specific economic factors. The evaluation of these credit quality indicators requires significant judgment by management to determine whether failure to collect contractual amounts is probable.

If management deems that it is probable that KREF will be unable to collect all amounts owed according to the contractual terms of a loan, deterioration in credit quality of that loan is indicated. Management evaluates all available facts and circumstances that might impact KREF’s ability to collect outstanding loan balances when determining loan write-offs. These facts and circumstances may vary and may include, but are not limited to, (i) the underlying collateral performance and/or value, (ii) communications with the borrower, (iii) compliance with debt covenants, (iv) events of default by the borrower, or (v) other facts that impact the borrower’s ability to pay the contractual amounts due under the terms of the loan.

If management considers a loan to be impaired, management writes off the loan through a charge to "Allowance for credit losses" based on the present value of expected future cash flows discounted at the loan’s contractual effective rate or the fair value of the collateral, if repayment is expected solely from the collateral. Significant judgment is required in determining impairment and in estimating the resulting credit loss allowance, and actual losses, if any, could materially differ from those estimates.
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KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(amount in tables in thousands, except per share amounts)

Loans are placed on nonaccrual status when principal or interest is 90 days or more past due unless the loan is both well secured and in the process of collection, or when repayment of interest and principal is, in management's judgment, in doubt. Interest received on loans placed on nonaccrual status may be accounted for under the cost-recovery method under certain circumstances, whereby interest collected on a loan is a reduction to its amortized cost. Management may return a loan to accrual status when repayment of principal and interest is reasonably assured.

In certain circumstances, KREF may also modify terms of a loan agreement to accommodate a borrower experiencing financial difficulty. Such modifications typically include interest rate reductions, payment extension and modification of loan covenants.

In conjunction with reviewing commercial real estate loans held-for-investment for impairment, KREF evaluates its commercial real estate loans at least once per quarter, assesses the risk factors of each loan, and assigns a risk rating based on a variety of factors, including, without limitation, underlying real estate performance, values of comparable properties, durability and quality of property cash flows, sponsor experience and financial wherewithal, and the existence of a risk-mitigating loan structure. Additional key considerations include debt service coverage ratios, loan structure, real estate and credit market dynamics, and risk of default or principal loss. Based on a five-point scale, KREF's loans are rated "1" through "5," from less risk to greater risk, which ratings are defined as follows: 1 (Very Low Risk); 2 (Low Risk); 3 (Medium Risk); 4 (High Risk/Potential for Loss); and 5 (Impaired/Loss Likely).

Commercial Real Estate Loans, Held-For-Sale — For commercial real estate loans held-for-sale, KREF applies the lower of cost or fair value accounting and may be required, from time to time, to record a nonrecurring fair value adjustment.

Accrued Interest Receivables — KREF elected not to measure an allowance for credit losses for accrued interest receivables. KREF generally writes off an accrued interest receivable balance when interest is 90 days or more past due unless the loan is both well secured and in the process of collection. Write-offs of accrued interest receivable are recognized as “Provision for (reversal of) credit losses, net” in the Condensed Consolidated Statements of Income.

Tenant Receivables — KREF periodically reviews its REO tenant receivables for collectability, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area where the property is located. Tenant receivables, including receivables arising from the straight-lining of rents, are written-off directly when management deems that the collectability of substantially all future lease payments from a specified lease is not probable, at which point, KREF will begin recognizing revenue on a cash basis, based on actual amounts received. (Note 4) Any receivables that are deemed to be uncollectible are recognized as a reduction to Revenue from real estate owned operations in the Condensed Consolidated Statements of Income.

Interest Expense — KREF expenses contractual interest due in accordance with KREF's financing agreements as incurred.

Deferred Debt Issuance Costs — KREF capitalizes and amortizes deferred financing costs incurred in connection with financing arrangements over their respective expected term using the interest method, or on a straight line basis when it approximates the interest method. KREF presents such expensed amounts, as well as deferred amounts written off, as additional interest expense in its Condensed Consolidated Statements of Income.

General and Administrative Expenses — KREF expenses general and administrative costs, including legal and audit fees, insurance premiums, and other costs as incurred.

Management and Incentive Compensation to Affiliate — KREF expenses management fees and incentive compensation earned by the Manager on a quarterly basis in accordance with the Management Agreement (Note 14).

Income Taxes — Certain activities of KREF are conducted through joint ventures that are formed as limited liability companies, taxed as partnerships, and consolidated by KREF. Some of these joint ventures are subject to state and local income taxes, based on the tax jurisdictions in which they operate. In addition, certain activities of KREF are conducted through taxable REIT subsidiaries consolidated by KREF. Taxable REIT subsidiaries are subject to federal, state and local income taxes (Note 16).

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KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(amount in tables in thousands, except per share amounts)
As of March 31, 2024 and December 31, 2023, KREF did not have any material deferred tax assets or liabilities arising from future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities in accordance with GAAP and their respective tax bases.

KREF recognizes tax benefits for uncertain tax positions only if it is more likely than not that the position is sustainable based on its technical merits. Interest and penalties on uncertain tax positions are included as a component of the provision for income taxes in KREF's Condensed Consolidated Statements of Income. As of March 31, 2024, KREF did not have any material uncertain tax positions.         

Stock-Based Compensation

KREF's stock-based compensation consists of awards issued to employees of the Manager or its affiliates that vest over the life of the awards, as well as restricted stock units issued to certain members of KREF's board of directors. KREF recognizes the compensation cost of stock-based awards to its directors and employees of the Manager or its affiliates on a straight-line basis over the awards’ term at their grant date fair value. Certain stock-based awards are entitled to nonforfeitable dividends, at the same rate as those declared on the common stock, during the vesting period. Such nonforteitable dividends are deducted from "Retained earnings (Accumulated deficit)" in the condensed consolidated financial statements. KREF accounts for forfeitures as they occur. Refer to Note 11 for additional information.

Earnings per Share

KREF calculates basic earnings per share ("EPS") using the two-class method, which defines unvested share-based payment awards that contain nonforfeitable rights to dividends as participating securities. The two-class method is an allocation formula that determines earnings per share for each share of common stock and participating securities according to dividends declared and participation rights in undistributed earnings. Under this method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights. Basic EPS, is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of common stock outstanding for the period.

KREF presents diluted EPS under the more dilutive of the treasury stock and if-converted methods or the two-class method. Under the treasury stock and if-converted methods, the denominator includes weighted average common stock outstanding plus the incremental dilutive shares issuable from restricted stock units and an assumed conversion of convertible instruments. The numerator includes any changes in income (loss) attributable to common stockholders that would result from the assumed conversion of these potential shares of common stock. Refer to Note 12 for additional discussion of earnings per share.

Recent Accounting Pronouncements

In 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280. The guidance is effective for KREF in its 2024 annual reporting. The guidance is applied retrospectively to all periods presented in the financial statements, unless it is impracticable. KREF is evaluating the impact of ASU 2023-07.
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KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(amount in tables in thousands, except per share amounts)
Note 3. Commercial Real Estate Loans

The following table summarizes KREF's investments in commercial real estate loans as of March 31, 2024 and December 31, 2023:
Weighted Average(C)
Loan TypeOutstanding Principal
Amortized Cost(A)
Carrying Value(B)
Loan CountFloating Rate Loan %
Coupon(D)
Life (Years)(E)
March 31, 2024
Loans held-for-investment(F)
Senior loans(G)
$7,092,599 $7,068,558 $6,854,924 65 98.9 %8.7 %2.5
Mezzanine loans44,667 44,698 14,698 2 100.0 18.3 1.8
Total/Weighted Average$7,137,266 $7,113,256 $6,869,622 67 98.9 %8.7 %2.5
December 31, 2023
Loans held-for-investment(F)
Senior loans(G)
$7,324,758 $7,298,844 $7,089,930 67 98.9 %8.7 %2.7
Mezzanine loans44,667 44,704 43,148 2 100.0 14.1 2.1
Total/Weighted Average$7,369,425 $7,343,548 $7,133,078 69 98.9 %8.7 %2.7

(A)    Amortized cost represents the outstanding principal of loan, net of applicable unamortized discounts, loan origination fees, cost recovery interest and write-offs on uncollectible loan balances.
(B)    Carrying value represents the amortized cost of loan, net of applicable allowance for credit losses.
(C)    Average weighted by outstanding loan principal.
(D)    Weighted average coupon assumes the greater of applicable index rate, or the applicable contractual rate floor. Excludes loans accounted for under the cost recovery method.
(E)    The weighted average life assumes all extension options are exercised by the borrowers.
(F)    Excludes fully written off risk-rated 5 loans.
(G)    Senior loans may include accommodation mezzanine loans in connection with the senior mortgage financing.

Activity For the three months ended March 31, 2024, the loan portfolio activity was as follows:

Amortized CostAllowance for
Credit Losses
Carrying Value
Balance at December 31, 2023
$7,343,548 $(210,470)$7,133,078 
Originations and future fundings, net(A)(B)
103,139  103,139 
Proceeds from loan repayments and cost recovery interest(C)
(338,180) (338,180)
Accretion of loan discount and other amortization, net4,724  4,724 
Payment-in-kind interest25  25 
(Provision for) Reversal of credit losses— (33,164)(33,164)
Balance at March 31, 2024
$7,113,256 $(243,634)$6,869,622 

(A)    Net of applicable premiums, discounts and deferred loan origination costs. Includes fundings on previously originated loans.
(B)     Includes $7.3 million of loan funding held in escrow.
(C)    Includes $2.5 million of cost recovery interest collections applied as a reduction to loan amortized cost during the three months ended March 31, 2024.

As of March 31, 2024 and December 31, 2023, there was $16.4 million and $20.8 million, respectively, of unamortized origination discounts and deferred fees included in "Commercial real estate loans, held-for-investment, net" on the Condensed Consolidated Balance Sheets. During the three months ended March 31, 2024, KREF recognized no prepayment fee income or net accelerated fee income, relating to loan repayments. During the three months ended March 31, 2023, KREF recognized prepayment fee income of $0.4 million and net accelerated fee income of $0.3 million.

KREF may enter into loan modifications that include, among other changes, incremental capital contributions or partial repayments from certain borrowers, repurposing of reserves, and a temporary partial deferral for a portion of the coupon as payment-in-kind interest (“PIK Interest”) due, which is capitalized, compounded, and added to the outstanding principal balance of the respective loans.

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KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(amount in tables in thousands, except per share amounts)
In January 2023, KREF modified a risk-rated 5 senior office loan located in Philadelphia, PA, with an outstanding principal balance of $161.0 million. The terms of the modification included, among others, a $25.0 million principal repayment and a restructure of the $136.0 million senior loan (after the $25.0 million repayment) into (i) a $116.5 million committed senior mortgage loan (with $5.5 million in unfunded commitment) and (ii) a $25.0 million junior mezzanine note. The restructured senior loan earns a coupon rate of S+2.75% and has a new term of up to four years, assuming all extension options are exercised. The $25.0 million junior mezzanine note is subordinate to a new $41.5 million committed senior mezzanine note held by the sponsor (with $16.5 million in unfunded commitment) and was deemed uncollectible and written off in December 2022. The loan modification was accounted for as a new loan for GAAP purposes. The restructured senior loan with an outstanding principal balance of $114.3 million was risk-rated 3 as of March 31, 2024.

In June 2023, KREF modified a risk-rated 5 senior office loan located in Minneapolis, MN, with an outstanding principal balance of $194.4 million. The terms of the modification included, among others, a restructure of the $194.4 million senior loan into (i) a $120.0 million senior mortgage loan (fully funded) and (ii) a $79.4 million mezzanine note (with $5.0 million in unfunded commitment). The restructured senior loan earns a coupon rate of S+2.25% and the mezzanine note earns a fixed 4.5% PIK interest rate. Post modification, the whole loan’s maximum maturity is July 2025, assuming all extension options are exercised. The restructured whole loan with an outstanding principal balance of $194.4 million was risk-rated 5 as of March 31, 2024.

In September 2023, KREF modified a risk-rated 4 senior office loan located in Chicago, IL, with an outstanding principal balance of $118.4 million. The terms of the modification included, among others, a $15.0 million principal repayment, a $15.0 million reduction in unfunded loan commitment, and a restructure of the $103.4 million senior loan (after the $15.0 million repayment) into (i) a $105.0 million committed senior mortgage loan (with $16.6 million in unfunded commitment) and (ii) a $15.0 million subordinated note. The restructured senior loan earns a coupon rate of S+2.25% and has a new term of five years. The $15.0 million subordinated note is subordinate to a new $18.5 million sponsor interest and was deemed uncollectible and written off. The loan modification was accounted for as a new loan for GAAP purposes. The restructured senior loan with an outstanding principal balance of $88.4 million was risk-rated 3 as of March 31, 2024.

Loan Risk Ratings — As further described in Note 2, KREF evaluates its commercial real estate loan portfolio at least once per quarter. In conjunction with its commercial real estate loan portfolio review, KREF assesses the risk factors of each loan and assigns a risk rating based on a variety of factors. Loans are rated “1” (Very Low Risk) through “5” (Impaired/Loss Likely), which ratings are defined in Note 2.

The following tables summarize the carrying value of the loan portfolio based on KREF's internal risk ratings:

March 31, 2024December 31, 2023
Risk Rating
Number of Loans(A)
Carrying Value
Total Loan Exposure(B)
Total Loan Exposure %
Number of Loans(A)
Carrying Value
Total Loan Exposure(B)
Total Loan Exposure %
1 $ $  % $ $  %
22 19,845 58,386 1 2 19,392 57,925 1 
357 6,158,113 6,172,095 84 60 6,493,506 6,511,894 86 
44 394,585 395,480 5 4 325,286 476,112 6 
54 540,713 699,916 10 3 505,364 512,105 7 
Total loan receivable67 $7,113,256 $7,325,877 100 %69 $7,343,548 $7,558,036 100 %
Allowance for credit losses(243,634)(210,470)
Loan receivable, net$6,869,622 $7,133,078 
* Numbers presented may not foot due to rounding.

(A)    Excludes fully written off risk-rated 5 loans.
(B)    In certain instances, KREF finances its loans through the non-recourse sale of a senior interest that is not included in the condensed consolidated financial statements. Total loan exposure includes the entire loan KREF originated and financed, including $188.6 million of such non-consolidated interests as of March 31, 2024 and December 31, 2023.

As of March 31, 2024, the average risk rating of KREF's portfolio was 3.2, weighted by total loan exposure, consistent with that as of December 31, 2023.

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KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(amount in tables in thousands, except per share amounts)
Loan Vintage The following tables present the amortized cost of the loan portfolio by KREF's internal risk rating and year of origination. The risk ratings are updated as of March 31, 2024 and December 31, 2023 in the corresponding table.

March 31, 2024
Amortized Cost by Year of Origination(A)
Risk Rating
Number of Loans(B)
Outstanding Principal(B)
20232022202120202019PriorTotal
Commercial Real Estate Loans
1 $ $ $ $ $ $ $ $ 
22 19,775    19,845   19,845 
357 6,172,095 203,569 1,912,616 3,355,075 217,092 344,179 125,582 6,158,113 
44 395,480  290,010 104,575    394,585 
54 549,916   350,595   190,118 540,713 
67 $7,137,266 $203,569 $2,202,626 $3,810,245 $236,937 $344,179 $315,700 $7,113,256 
Current period gross write-offs$ $ $ $ $ $ $ 

December 31, 2023
Amortized Cost by Year of Origination(A)
Risk Rating
Number of Loans(B)
Outstanding Principal(B)
20232022202120202019PriorTotal
Commercial Real Estate Loans
1 $ $ $ $ $ $ $ $ 
22 19,314    19,392   19,392 
360 6,511,894 203,576 1,953,866 3,323,800 217,375 517,491 277,398 6,493,506 
44 326,112  184,539 140,748    325,286 
53 512,105   315,240   190,123 505,364 
69 $7,369,425 $203,576 $2,138,405 $3,779,788 $236,767 $517,491 $467,521 $7,343,548 
Current period gross write-offs$ $ $ $ $73,706 $ $73,706 

(A)    Represents the date a loan was originated or acquired. Origination dates are subsequently updated to reflect material loan modifications.
(B)    Excludes fully written off risk-rated 5 loans.

Allowance for Credit Losses — The following tables present the changes to the allowance for credit losses for the three months ended March 31, 2024 and 2023, respectively:

Commercial
Real Estate Loans
Unfunded Loan CommitmentsTotal
Balance at December 31, 2023$210,470 $2,052 $212,522 
Provision for (reversal of) credit losses, net33,164 102 33,266 
Balance at March 31, 2024$243,634 $2,154 $245,788 

Commercial
Real Estate Loans
Unfunded Loan CommitmentsTotal
Balance at December 31, 2022$106,974 $4,138 $111,112 
Provision for (reversal of) credit losses, net60,386 81 60,467 
Balance at March 31, 2023$167,360 $4,219 $171,579 

As of March 31, 2024, the allowance for credit losses was $245.8 million. The CECL provision of $33.3 million for the three months ended March 31, 2024 was primarily due to additional reserves on risk-rated 5 senior loans predominantly in the office sector, as well as macroeconomic conditions.

KREF had a risk-rated 5 senior office loan located in Mountain View, CA, originated in July 2021. The property is located in a challenged leasing market. As of March 31, 2024, the loan had an outstanding principal balance of $200.9 million, an unfunded commitment of $49.1 million and an amortized cost of $198.9 million. This loan's maximum maturity is August 2026, assuming all extension options are exercised. Since June 2023, the loan has been on nonaccrual status and subsequent interest
21

KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(amount in tables in thousands, except per share amounts)
collections are accounted for under the cost recovery method. During the three months ended March 31, 2024, no interest income was received on this loan.

KREF had a risk-rated 5 senior office loan located in Minneapolis, MN, originated in November 2017. The property is located in a challenged leasing market. As of March 31, 2024, the loan had an outstanding principal balance of $194.4 million, an unfunded commitment of $5.0 million and an amortized cost of $190.1 million. In June 2023, KREF restructured the $194.4 million senior loan into (i) a $120.0 million senior mortgage loan (fully funded) and (ii) a $79.4 million mezzanine note (with $5.0 million in unfunded commitment). The restructured senior loan earns a coupon rate of S+2.25% and the mezzanine note earns a fixed 4.5% PIK interest rate. Post modification, the whole loan’s maximum maturity is July 2025, assuming all extension options are exercised. Since June 2023, the senior loan has been on nonaccrual status. During the three months ended March 31, 2024 , KREF recognized $2.3 million of interest income on this loan.

KREF had a risk-rated 5 senior life science loan located in Seattle, WA, originated in October 2021. The property is located in a challenged leasing market. As of March 31, 2024, the loan had an outstanding principal balance of $117.1 million, an unfunded commitment of $23.2 million and an amortized cost of $114.2 million. The loan's maximum maturity is October 2026, assuming all extension options are exercised. Since December 2023, this loan has been on nonaccrual status and subsequent interest collections are accounted for under the cost recovery method. During the three months ended March 31, 2024, $2.5 million of contractual interest payments were received and applied as a reduction to this loan's amortized cost.

KREF had a risk-rated 5 mezzanine office loan located in Boston, MA, originated in February 2021.The property is located in a market with weakened office leasing activity. As of March 31, 2024, the loan had an outstanding principal balance and amortized cost of $37.5 million. The loan's maximum maturity is February 2026, assuming all extension options are exercised. In March 2024, this loan was placed on nonaccrual status and subsequent interest collections are accounted for under the cost recovery method. During the three months ended March 31, 2024, KREF recognized $0.1 million of interest income on this loan.

The 5-rated loans were determined to be collateral dependent as of March 31, 2024. KREF estimated expected losses based on each loan’s collateral fair value, which was determined by applying a capitalization rate between 7.0% and 9.0% and a discount rate between 9.0% and 12.0%, respectively.

As of March 31, 2023, the allowance for credit losses was $171.6 million. The CECL provision of $60.5 million for the three months ended March 31, 2023 was primarily due to increased uncertainty in the macroeconomic outlook, as well as volatility and reduced liquidity in the office sector.