KKR Real Estate Finance Trust Inc. [KREF] Filings

10-Q 1 kref-20230930.htm 10-Q kref-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission File Number: 001-38082

KKR Real Estate Finance Trust Inc.

(Exact name of registrant as specified in its charter)

Maryland

47-2009094

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

30 Hudson Yards,

Suite 7500

New York,

10001

(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 class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

KREF

New York Stock Exchange

6.50% Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share

KREF PRA

New 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 October 19, 2023 was 69,313,860.

KKR REAL ESTATE FINANCE TRUST INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2023

INDEX


			PAGE
Part I - Financial Information			5
Item 1. Condensed Consolidated Financial Statements (Unaudited)			5
Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2023 and December 31, 2022			5
Condensed Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended Se ptember 30, 2023 and 2022			6
Condensed Consolidated Statements of Changes in Equity (Unaudited) for the Three and Nine Months Ended September 30, 2023 and 2022			7
Condensed Consolidated Statements of Cash Flows (Unaudited) for the N ine Months Ended September 30, 2023 and 2022			9
Notes to Condensed Consolidated Financial Statements (Unaudited)			11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			51
Item 3. Quantitative and Qualitative Disclosures about Market Risk			78
Item 4. Controls and Procedures			80
Part II - Other Information			81
Item 1. Legal Proceedings			81
Item 1A. Risk Factors			81
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			82
Item 3. Defaults Upon Senior Securities			82
Item 4. Mine Safety Disclosures			82
Item 5. Other Information			82
Item 6. Exhibits			83
Signatures			84

Table of Contents

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 a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Such risks, uncertainties and other important factors include, among others, the risks, uncertainties and 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, 2022 (the "Form 10-K"). Such risks and uncertainties include, but are not limited to, the following:

•the general political, economic and competitive 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;

•accelerating inflationary trends, spurred by multiple factors including high commodity prices, a tight labor market, and low residential vacancy rates, may result further in interest rate increases and lead to increased market volatility;

•higher interest rates imposed by the Federal Reserve may lead to a decrease in prepayment speeds and an increase in the number of our borrowers who exercise extension options, which could extend beyond the term of certain secured financing agreements we use to finance our loan investments;

•the economic impact of escalating global trade tensions, the conflict between Russia and Ukraine, and the adoption or expansion of economic sanctions or trade restrictions;

•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;

•the impact of, and market dislocations that may result from, governmental intervention in the economic and financial system or from regulatory reform of the oversight of financial markets;

•the failure of any banks with which we and/or our borrowers have a commercial relationship could adversely affect, among other things, our or our borrower’s ability to access deposits or borrow from financial institutions on favorable terms;

•interest rate mismatches between our target assets and any borrowings used to fund such assets;

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

•the level and volatility of prevailing interest rates and credit spreads;

•adverse changes in the real estate and real estate capital markets;

•difficulty or delays in redeploying the proceeds from repayments of our existing investments;

•general volatility of the securities markets in which we participate;

Table of Contents

•changes in our business, investment strategies or target assets;

•deterioration in the performance of the properties securing our investments that may cause deterioration in the performance of our investments, risks in collection of contractual interest payments, and potentially, principal losses to us;

•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;

•the adequacy of collateral securing our investments and declines in the fair value of our investments;

•difficulty in obtaining financing or raising capital;

•difficulty in successfully managing our growth, including integrating new assets into our existing systems;

•reductions in the yield on our investments and increases in the cost of our financing;

•defaults by borrowers in paying debt service on outstanding indebtedness;

•the availability of qualified personnel and our relationship with KKR Real Estate Finance Manager LLC ("Manager");

•subsidiaries of KKR & Co. Inc. have significant influence over us and KKR's interests may conflict with those of our stockholders in the future;

•the cost of operating our platform, including, but not limited to, the cost of operating a real estate investment platform;

•adverse legislative or regulatory developments;

•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.

There may be other 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 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 above 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.

Table of Contents

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)


	September 30, 2023		December 31, 2022
Assets
Cash and cash equivalents(A)	$	108,038	$	239,791
Commercial real estate loans, held-for-investment	7,528,451		7,494,138
Less: Allowance for credit losses	(218,992)		(106,974)
Commercial real estate loans, held-for-investment, net	7,309,459		7,387,164
Real estate owned, net	81,618		80,231
Accrued interest receivable	39,930		39,005
Equity method investments	35,540		36,849
Other assets(B)	50,857		19,281
Total Assets	$	7,625,442	$	7,802,321

Liabilities and Equity
Liabilities
Secured financing agreements, net	$	3,827,399	$	3,748,691
Collateralized loan obligations, net	1,941,114		1,935,592
Secured term loan, net	335,680		336,828
Convertible notes, net	—		143,237

Dividends payable	29,716		29,711
Accrued interest payable	19,388		17,859
Other liabilities	10,535		10,245
Due to affiliates	8,313		8,722
Total Liabilities	6,172,145		6,230,885

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 September 30, 2023 and December 31, 2022); liquidation preference of $25.00 per share	131		131
Common stock, $0.01 par value, 300,000,000 authorized (75,091,757 and 75,080,707 shares issued; 69,106,061 and 69,095,011 shares outstanding; as of September 30, 2023 and December 31, 2022, respectively)	691		691
Additional paid-in capital	1,815,493		1,808,983
Accumulated deficit	(265,827)		(141,503)
Repurchased stock (5,985,696 shares repurchased as of September 30, 2023 and December 31, 2022)	(96,764)		(96,764)
Total KKR Real Estate Finance Trust Inc. Stockholders’ Equity	1,453,724		1,571,538
Noncontrolling interests in equity of consolidated joint venture	(427)		(102)
Total Equity	1,453,297		1,571,436
Total Liabilities and Equity	$	7,625,442	$	7,802,321

(A) Includes $10.0 million and $151.0 million held in collateralized loan obligation as of September 30, 2023 and December 31, 2022, respectively.

(B) Includes $30.0 million of loan repayment proceeds held by a servicer and receivable by KREF as of September 30, 2023.

See Notes to Condensed Consolidated Financial Statements.

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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net Interest Income
Interest income	$	163,229	$	114,627	$	475,388	$	278,460
Interest expense	118,617		67,311		340,270		144,503
Total net interest income	44,612		47,316		135,118		133,957

Other Income
Revenue from real estate owned operations	1,795		2,092		6,025		6,554
Income (loss) from equity method investments	839		914		1,043		3,835
Other income	2,809		840		9,957		3,992
Total other income	5,443		3,846		17,025		14,381

Operating Expenses
General and administrative	4,788		4,286		14,188		13,040
Provision for (reversal of) credit losses, net	8,814		80,604		125,616		91,184
Management fee to affiliate	6,566		6,589		19,648		19,102
Incentive compensation to affiliate	69		—		2,491		—
Expenses from real estate owned operations	2,819		2,598		8,233		7,520
Total operating expenses	23,056		94,077		170,176		130,846

Income (Loss) Before Income Taxes, Noncontrolling Interests, Preferred Dividends and Participating Securities' Share in Earnings	26,999		(42,915)		(18,033)		17,492
Income tax expense	165		—		511		—
Net Income (Loss)	26,834		(42,915)		(18,544)		17,492
Net income (loss) attributable to noncontrolling interests	(307)		(161)		(580)		(283)
Net Income (Loss) Attributable to KKR Real Estate Finance Trust Inc. and Subsidiaries	27,141		(42,754)		(17,964)		17,775
Preferred stock dividends	5,326		5,326		15,978		15,978
Participating securities' share in earnings	414		341		1,239		1,028
Net Income (Loss) Attributable to Common Stockholders	$	21,401	$	(48,421)	$	(35,181)	$	769

Net Income (Loss) Per Share of Common Stock
Basic	$	0.31	$	(0.70)	$	(0.51)	$	0.01
Diluted	$	0.31	$	(0.70)	$	(0.51)	$	0.01
Weighted Average Number of Shares of Common Stock Outstanding
Basic	69,122,636		69,382,730		69,111,201		67,029,140
Diluted	69,122,636		69,382,730		69,111,201		67,029,140

Dividends Declared per Share of Common Stock	$	0.43	$	0.43	$	1.29	$	1.29

See Notes to Condensed Consolidated Financial Statements.

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 Stock		Common Stock
		Shares	Par Value		Shares	Par Value		Additional Paid-In Capital		Accumulated Deficit		Repurchased Stock		Total KKR Real Estate Finance Trust Inc. Stockholders' Equity		Noncontrolling Interests in Equity of Consolidated Joint Venture		Total Equity
Balance at December 31, 2022		13,110,000	$	131	69,095,011	$	691	$	1,808,983	$	(141,503)	$	(96,764)	$	1,571,538	$	(102)	$	1,571,436



Contribution by noncontrolling interest		—	—		—	—		—		—		—		—		255		255
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)
Balance at March 31, 2023		13,110,000	$	131	69,095,011	$	691	$	1,811,135	$	(202,024)	$	(96,764)	$	1,513,169	$	(24)	$	1,513,145



Series A preferred dividends declared, $0.41 per share		—	—		—	—		—		(5,326)		—		(5,326)		—		(5,326)
Common dividends declared, $0.43 per share		—	—		—	—		—		(29,716)		—		(29,716)		—		(29,716)
Participating security dividends declared, $0.43 per share		—	—		—	—		—		(418)		—		(418)		—		(418)
Stock-based compensation , net		—	—		11,050	*		2,174		—		—		2,174		—		2,174
Net income (loss)		—	—		—	—		—		(20,028)		—		(20,028)		(96)		(20,124)
Balance at June 30, 2023		13,110,000	$	131	69,106,061	$	691	$	1,813,309	$	(257,512)	$	(96,764)	$	1,459,855	$	(120)	$	1,459,735



Series A preferred dividends declared, $0.41 per share		—	—		—	—		—		(5,326)		—		(5,326)		—		(5,326)
Common dividends declared, $0.43 per share		—	—		—	—		—		(29,716)		—		(29,716)		—		(29,716)
Participating security dividends declared, $0.43 per share		—	—		—	—		—		(414)		—		(414)		—		(414)
Stock-based compensation, net		—	—		—	—		2,184		—		—		2,184		—		2,184
Net income (loss)		—	—		—	—		—		27,141		—		27,141		(307)		26,834
Balance at September 30, 2023		13,110,000	$	131	69,106,061	$	691	$	1,815,493	$	(265,827)	$	(96,764)	$	1,453,724	$	(427)	$	1,453,297

* Rounds to zero.




	Series A Preferred Stock		Common Stock
		Shares	Par Value		Shares	Par Value		Additional Paid-In Capital		Accumulated Deficit		Repurchased Stock		Total KKR Real Estate Finance Trust Inc. Stockholders' Equity		Noncontrolling Interests in Equity of Consolidated Joint Venture		Total Equity
Balance at December 31, 2021		6,900,000	$	69	61,370,732	$	613	$	1,459,959	$	(38,208)	$	(60,999)	$	1,361,434	$	147	$	1,361,581
Issuance of common stock		—	—		6,562,972	66		135,205		—		—		135,271		—		135,271
Issuance of preferred stock		6,210,000	62		—	—		151,105		—		—		151,167		—		151,167
Offering costs		—	—		—	—		(1,055)		—		—		(1,055)		—		(1,055)
Contribution by noncontrolling interest		—	—		—	—		—		—		—		—		94		94
Series A preferred dividends declared, $0.41 per share		—	—		—	—		—		(5,326)		—		(5,326)		—		(5,326)
Common dividends declared, $0.43 per share		—	—		—	—		—		(29,211)		—		(29,211)		—		(29,211)
Participating security dividends declared, $0.43 per share		—	—		—	—		—		(339)		—		(339)		—		(339)
Stock-based compensation , net		—	—		—	—		2,126		—		—		2,126		—		2,126
Net income (loss)		—	—		—	—		—		35,468		—		35,468		(56)		35,412
Balance at March 31, 2022		13,110,000	$	131	67,933,704	$	679	$	1,747,340	$	(37,616)	$	(60,999)	$	1,649,535	$	185	$	1,649,720
Issuance of common stock		—	—		2,750,000	28		53,625		—		—		53,653		—		53,653
Offering costs		—	—		—	—		(280)		—		—		(280)		—		(280)
Repurchase of common stock		—	—		(1,044,692)	(10)		—		—		(18,071)		(18,081)		—		(18,081)
Series A preferred dividends declared, $0.41 per share		—	—		—	—		—		(5,326)		—		(5,326)		—		(5,326)

Common dividends declared, $0.43 per share		—	—		—	—		—		(29,951)		—		(29,951)		—		(29,951)
Participating security dividends declared, $0.43 per share		—	—		—	—		—		(326)		—		(326)		—		(326)
Stock-based compensation , net		—	—		15,520	*		2,040		—		—		2,040		—		2,040

Net income (loss)		—	—		—	—		—		25,061		—		25,061		(66)		24,995
Balance at June 30, 2022		13,110,000	$	131	69,654,532	$	697	$	1,802,725	$	(48,158)	$	(79,070)	$	1,676,325	$	119	$	1,676,444
Issuance of common stock		—	—		271,641	3		5,298		—		—		5,301		—		5,301
Offering costs		—	—		—	—		(49)		—		—		(49)		—		(49)
Repurchase of common stock		—	—		(587,890)	(6)		—		—		(10,253)		(10,259)		—		(10,259)
Series A preferred dividends declared, $0.41 per share		—	—		—	—		—		(5,326)		—		(5,326)		—		(5,326)
Common dividends declared, $0.43 per share		—	—		—	—		—		(29,815)		—		(29,815)		—		(29,815)
Participating security dividends declared, $0.43 per share		—	—		—	—		—		(341)		—		(341)		—		(341)
Stock-based compensation , net		—	—		—	—		2,175		—		—		2,175		—		2,175
Net income (loss)		—	—		—	—		—		(42,754)		—		(42,754)		(162)		(42,916)
Balance at September 30, 2022		13,110,000	$	131	69,338,283	$	694	$	1,810,149	$	(126,394)	$	(89,323)	$	1,595,257	$	(43)	$	1,595,214

* Rounds to zero.

See Notes to Condensed Consolidated Financial Statements.

KKR Real Estate Finance Trust Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Amounts in thousands)


	Nine Months Ended September 30,
	2023		2022
Cash Flows From Operating Activities
Net income (loss)	$	(18,544)	$	17,492
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Amortization of deferred debt issuance costs and discounts	20,448		17,070
Accretion of deferred loan fees and discounts	(17,714)		(18,942)
Payment-in-kind interest	—		(1,413)
(Income) loss from equity method investments	1,309		(1,319)
Provision for (reversal of) credit losses, net	125,616		91,184
Stock-based compensation expense	6,510		6,341
Changes in operating assets and liabilities:
Accrued interest receivable, net	(925)		(15,333)
Other assets	313		1,642
Accrued interest payable	1,530		8,195
Other liabilities	443		(1,596)
Due to affiliates	(112)		632
Net cash provided by (used in) operating activities	118,874		103,953

Cash Flows From Investing Activities
Proceeds from principal repayments of commercial real estate loans	477,890		1,035,110
Originations and fundings of commercial real estate loans	(539,489)		(2,004,587)
Capital expenditures on real estate owned	(1,387)		(1,119)

Net cash provided by (used in) investing activities	(62,986)		(970,596)

Cash Flows From Financing Activities
Proceeds from borrowings under secured financing agreements	656,554		1,901,607
Proceeds from issuance of collateralized loan obligations	—		847,500
Proceeds from noncontrolling interest contributions	255		—
Net proceeds from issuance of common stock	—		194,225
Net proceeds from issuance of preferred stock	—		151,167
Payments of common stock dividends	(89,138)		(85,551)
Payments of preferred stock dividends	(15,978)		(16,214)


Principal repayments on borrowings under secured financing agreements	(588,475)		(2,153,944)
Principal repayments on borrowings under convertible notes	(143,750)		—
Payments of debt and collateralized debt obligation issuance costs	(4,349)		(26,004)
Payments of stock issuance costs	—		(936)
Payments to repurchase common stock	—		(28,340)

Net cash provided by (used in) financing activities	(184,881)		783,510

Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	(128,993)		(83,133)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	250,621		273,770
Cash, Cash Equivalents and Restricted Cash at End of Period	$	121,628	$	190,637


	Nine Months Ended September 30,
	2023		2022
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	108,038	$	183,341
Restricted cash	13,590		7,296
Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows	$	121,628	$	190,637

Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest	$	318,292	$	119,240

Cash paid during the period for income taxes	296		—
Supplemental Schedule of Non-Cash Investing and Financing Activities
Loan principal payments held by a servicer	30,000		—

Modifications accounted for as repayments and new loans, net of write-offs	199,439		—
Dividend declared, not yet paid	29,716		29,815

See Notes to Condensed Consolidated Financial Statements.

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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 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 September 30, 2023, KKR beneficially owned 10,000,001 shares, or 14.5% 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.

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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 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.

Risks and Uncertainties — The coronavirus pandemic ("COVID-19") has adversely impacted global commercial activity and has contributed to significant volatility in financial markets. Since its onset in 2020, the COVID-19 pandemic has created disruption in global supply chains, increased rates of unemployment and adversely impacted many industries, including industries related to the collateral underlying certain of our loans. In response to the pandemic, several countries took drastic measures to limit the spread of the virus by instituting quarantines or lockdowns, imposing travel restrictions and limiting operations of non-essential offices and retail centers.

While the global economy has re-opened, the longer-term macro-economic effects of the pandemic continue to impact many industries, including those of certain of KREF’s borrowers. In particular, the increase in remote working arrangements in response to the pandemic has contributed to a decline in commercial real estate values and reduced demand for commercial real estate compared to pre-pandemic levels, which have adversely impacted and may continue to adversely impact certain of KREF's borrowers and has persisted even as the pandemic continues to subside. In addition, the COVID-19 pandemic has contributed to global supply chain disruptions, labor shortages and has broad inflationary pressures, each of which has a potential negative impact on KREF's borrowers’ ability to execute on their business plans and potentially their ability to perform under the terms of their loan obligations. The Federal Reserve has raised interest rates eleven times since January 2022, and has signaled that further interest rate increases may be forthcoming. Higher interest rates imposed by the Federal Reserve to address inflation may adversely impact real estate asset values and increase our interest expense, which expense may not be fully offset by any resulting increase in interest income, and may lead to decreased prepayments from KREF's borrowers and an increase in the number of KREF's borrowers who exercise extension options.

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,

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KKR Real Estate Finance Trust Inc. [KREF] Filings

KKR Real Estate Finance Trust Inc. [KREF-PA] Filings