UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
FORM 10-Q
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
☐
For the quarterly period ended September 30, 2017
or
¨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
For the transition period from ________________ to ________________
Commission File Number: 001-38082
kref-20220930_g1.jpg
KKR Real Estate Finance Trust Inc.
(Exact name of registrant as specified in its charter)
Maryland47-200909447-2009094
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

30 Hudson Yards,Suite 7500New York,NY10001
9 West 57th Street, Suite 4200
New York, NY
10019
(Address of principal executive offices)(Zip Code)
(212) 750-8300
(212) 750-8300
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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.    x☒ Yes    ¨☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
x☒ 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     (Do not check if a smaller reporting company) x☐    Smaller reporting company    ¨☐
Emerging growth company    x☐

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.     x☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨☐ Yes    x☒ No

The number of shares of the registrant's common stock, par value $0.01 per share, outstanding as of November 4, 2017October 19, 2022 was was69,095,01153,685,440..





KKR REAL ESTATE FINANCE TRUST INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2022
INDEX

PAGE
6
Item 1. Condensed Consolidated Financial Statements (Unaudited)
6
Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2022 and December 31, 2021
6
Condensed Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended September 30, 2022 and 2021
7
Condensed Consolidated Statements of Changes in Equity (Unaudited) for the Three and Nine Months Ended September 30, 2022 and 2021
8
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2022 and 2021
10
Notes to Condensed Consolidated Financial Statements (Unaudited)
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
54
Item 3. Quantitative and Qualitative Disclosures about Market Risk
82
84
85
Item 1. Legal Proceedings
85
Item 1A. Risk Factors
85
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
86
Item 3. Defaults Upon Senior Securities
86
Item 4. Mine Safety Disclosures
86
Item 5. Other Information
86
Item 6. Exhibits
87
88

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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”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 the heading “Risk Factors”Part I, Item 1A. "Risk Factors" in our prospectus dated May 4, 2017, filed withAnnual Report on Form 10-K for the Securities and Exchange Commissionfiscal year ended December 31, 2021 (the “SEC”"Form 10-K") on May 8, 2017 pursuant to Rule 424(b)(4) under the Securities Act (the “Prospectus”), and in this Form 10-Q, as such risk factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. .Such risks and uncertainties include, but are not limited to, the following:

•the potential negative impacts of COVID-19 on the global economy and on our loan portfolio, financial condition and business operations;

•how widely utilized COVID-19 vaccines will be, whether they will be effective in preventing the spread of COVID-19 (including its variant strains), and their impact on the ultimate severity and duration of the COVID-19 pandemic;

•actions that may be taken by governmental authorities to contain the COVID-19 outbreak or to treat its impact;

•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;

•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;

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

•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;

•adverse developments in the availability of desirable investment opportunities whether they are due to competition, regulation or otherwise;

•the general political, economic and competitive conditions in the United States and in any foreign jurisdictions in which we invest;

•the level and volatility of prevailing interest rates and credit spreads; spreads, including as a result of the planned

    discontinuance of LIBOR and the transition to alternative reference rates;

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

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


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

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

difficulty in obtaining financing or raising capital; 

reductions•deterioration in the yield onperformance of the properties securing our investments that may cause deterioration in the performance of our investments and, increases in the cost of our financing; 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;

deterioration in the performance of properties securing our investments that may cause deterioration in the performance of our investments and potentially principal losses to us; 

defaults by borrowers in paying debt service on outstanding indebtedness; 

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

adverse developments•difficulty in the availability of desirable investment opportunities whether they are due to competition, regulationobtaining financing or otherwise; 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 our 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 and the cost of operating as a publicly traded company; platform;

the availability of qualified personnel and our relationship with our Manager;•adverse legislative or regulatory developments;

KKR controls us and its interests may conflict with those of our stockholders in the future; 

•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;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 SEC,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 disclosedset forth under the sections entitledPart I, Item 1A. "Risk Factors" in the ProspectusForm 10-K and Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q.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

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Delaware limited liability company, our external manager; and "KKR" refers to KKR & Co. L.P.Inc., a Delaware limited partnership,corporation, and its subsidiaries.



KKR REAL ESTATE FINANCE TRUST INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2017Table of Contents
INDEX
PAGE
Part I — Financial Information
1
Item 1. Condensed Consolidated Financial Statements (Unaudited)
1
Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2017 and December 31, 2016
1
Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2017 and 2016
2
Condensed Consolidated Statements of Changes in Equity (Unaudited) for the nine months ended September 30, 2017 and 2016
3
Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2017 and 2016
4
Notes to Condensed Consolidated Financial Statements (Unaudited)
6
Note 1. Business and Organization
6
Note 2. Summary of Significant Accounting Policies
6
Note 3. Commercial Mortgage Loans
14
Note 4. Preferred Interest in Joint Venture
16
Note 5. Debt
17
Note 6. Variable Interest Entities
19
Note 7. Equity
21
Note 8. Commitments and Contingencies
23
Note 9. Related Party Transactions
23
Note 10. Fair Value of Financial Instruments
26
Note 11. Income Taxes
29
Note 12. Subsequent Events
30
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
31
Overview
31
Key Financial Measures and Indicators
32
Our Portfolio
34
Results of Operations
39
Liquidity and Capital Resources
40
Contractual Obligations and Commitments
46
Subsequent Events
47
Off-Balance Sheet Arrangements
47
Critical Accounting Policies
48
Recent Accounting Pronouncements
48
Item 3. Quantitative and Qualitative Disclosures about Market Risk
49
Item 4. Controls and Procedures
51
Part II — Other Information
52
Item 1. Legal Proceedings
52
Item 1A. Risk Factors
52
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
52
Item 3. Defaults Upon Senior Securities
53
Item 4. Mine Safety Disclosures
53
Item 5. Other Information
53
Item 6. Exhibits
54
Signatures
55

PART I — FINANCIAL INFORMATION

ITEM I.1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


KKR Real Estate Finance Trust Inc. and Subsidiaries

Condensed ConsolidatedBalance Sheets (Unaudited)
(Amounts in thousands, except share and per share data)
September 30, 2022December 31, 2021
Assets
Cash and cash equivalents(A)
$183,341 $271,487 
Commercial real estate loans, held-for-investment7,306,565 6,316,733 
Less: Allowance for credit losses(110,798)(22,244)
Commercial real estate loans, held-for-investment, net7,195,767 6,294,489 
Real estate owned, net79,688 78,569 
Equity method investments36,856 35,537 
Accrued interest receivable30,574 15,241 
Other assets(B)
14,824 7,916 
Total Assets$7,541,050 $6,703,239 
Liabilities and Equity
Liabilities
Secured financing agreements, net$3,469,126 $3,726,593 
Collateralized loan obligations, net1,933,656 1,087,976 
Secured term loan, net337,181 338,549 
Convertible notes, net142,888 141,851 
Dividends payable29,767 26,589 
Accrued interest payable14,822 6,627 
Due to affiliates9,271 5,952 
Accounts payable, accrued expenses and other liabilities(C)
9,125 7,521 
Total Liabilities5,945,836 5,341,658 
Commitments and Contingencies (Note 14)— — 
Permanent Equity
Preferred Stock, 50,000,000 shares authorized
Series A cumulative redeemable preferred stock, $0.01 par value (13,110,000 and 6,900,000 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively; liquidation preference of $25.00 per share)131 69 
Common stock, $0.01 par value, 300,000,000 authorized (74,871,191 and 65,271,058 shares issued; 69,338,283 and 61,370,732 shares outstanding as of September 30, 2022 and December 31, 2021, respectively)
694 613 
Additional paid-in capital1,810,149 1,459,959 
Accumulated deficit(126,394)(38,208)
Repurchased stock (5,532,908 and 3,900,326 shares repurchased as of September 30, 2022 and December 31, 2021, respectively)(89,323)(60,999)
Total KKR Real Estate Finance Trust Inc. Stockholders’ Equity1,595,257 1,361,434 
Noncontrolling interests in equity of consolidated joint venture(43)147 
Total Permanent Equity1,595,214 1,361,581 
Total Liabilities and Equity$7,541,050 $6,703,239 

(A)    Includes $79.0 million and $54.0 million held in collateralized loan obligation as of September 30, 2022 and December 31, 2021, respectively.
(B)    Includes $7.3 million and $2.3 million of restricted cash as of September 30, 2022 and December 31, 2021, respectively.
(C)    Includes $4.1 million and $1.5 million of expected loss reserve for unfunded loan commitments as of September 30, 2022 and December 31, 2021, respectively.
See Notes to Condensed Consolidated Financial Statements.
6
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KKR Real Estate Finance Trust Inc. and Subsidiaries

Condensed Consolidated Balance SheetsStatements of Income (Unaudited)
(Amounts in thousands, except share and per share data)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Net Interest Income
Interest income$114,627 $75,320 $278,460 $207,235 
Interest expense67,311 29,832 144,503 84,173 
Total net interest income47,316 45,488 133,957 123,062 
Other Income
Revenue from real estate owned operations2,092 — 6,554 — 
Income (loss) from equity method investments914 2,162 3,835 4,508 
Other income840 130 3,992 296 
Total other income (loss)3,846 2,292 14,381 4,804 
Operating Expenses
General and administrative4,286 3,659 13,040 10,852 
Provision for (reversal of) credit losses, net80,604 1,165 91,184 (982)
Management fee to affiliate6,589 4,964 19,102 14,089 
Incentive compensation to affiliate— 2,215 — 6,810 
Expenses from real estate owned operations2,598 — 7,520 — 
Total operating expenses94,077 12,003 130,846 30,769 
Income (Loss) Before Income Taxes, Noncontrolling Interests, Preferred Dividends, Redemption Value Adjustment and Participating Securities' Share in Earnings(42,915)35,777 17,492 97,097 
Income tax expense— 106 — 257 
Net Income (Loss)(42,915)35,671 17,492 96,840 
Noncontrolling interests in (income) loss of consolidated joint venture161 — 283 — 
Net Income (Loss) Attributable to KKR Real Estate Finance Trust Inc. and Subsidiaries(42,754)35,671 17,775 96,840 
Preferred stock dividends and redemption value adjustment5,326 3,682 15,978 6,403 
Participating securities' share in earnings341 — 1,028 — 
Net Income (Loss) Attributable to Common Stockholders$(48,421)$31,989 $769 $90,437 
Net Income (Loss) Per Share of Common Stock
Basic$(0.70)$0.57 $0.01 $1.63 
Diluted$(0.70)$0.57 $0.01 $1.62 
Weighted Average Number of Shares of Common Stock Outstanding
Basic69,382,730 55,637,480 67,029,140 55,629,810 
Diluted69,382,730 56,011,243 67,029,140 55,883,197 
Dividends Declared per Share of Common Stock$0.43 $0.43 $1.29 $1.29 
  September 30,
2017		 December 31,
2016
Assets    
Cash and cash equivalents $89,976
 $96,189
Restricted cash and cash equivalents 600
 157
Commercial mortgage loans, held-for-investment, net 1,543,851
 674,596
Commercial mortgage loans, held-for-sale, net 81,550
 26,230
Preferred interest in joint venture, held-to-maturity —
 36,445
Equity method investments in unconsolidated subsidiaries, at fair value 8,328
 —
Accrued interest receivable 6,930
 2,974
Other assets 2,894
 2,728
Commercial mortgage loans held in variable interest entities, at fair value 5,429,874
 5,426,084
Total Assets $7,164,003
 $6,265,403
     
Liabilities and Equity    
Liabilities    
Secured financing agreements, net $755,987
 $439,144
Accounts payable, accrued expenses and other liabilities 3,014
 2,297
Dividends payable 19,992
 —
Accrued interest payable 1,108
 593
Due to affiliates 4,036
 1,728
Variable interest entity liabilities, at fair value 5,313,914
 5,313,574
Total Liabilities 6,098,051
 5,757,336
     
Commitments and Contingencies 

 

     
Temporary Equity    
Redeemable noncontrolling interests in equity of consolidated joint venture 3,053
 3,030
Redeemable preferred stock 949
 —
     
Permanent Equity    
Preferred stock, 50,000,000 authorized (1 share with par value of $0.01 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively, and 125 shares with stated value of $1,000.00 issued and outstanding as of December 31, 2016) —
 125
Common stock, 300,000,000 authorized (53,685,440 and 24,158,392 shares with par value of $0.01 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) 537
 242
Additional paid-in capital 1,052,826
 479,417
Retained earnings 9,110
 17,914
Treasury stock: 26,398 shares held at cost as of September 30, 2017 (523) —
Total KKR Real Estate Finance Trust Inc. stockholders’ equity 1,061,950
 497,698
Noncontrolling interests in equity of consolidated joint venture —
 7,339
Total Permanent Equity 1,061,950
 505,037
Total Liabilities and Equity $7,164,003
 $6,265,403

See Notes to Condensed Consolidated Financial Statements.

7
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KKR Real Estate Finance Trust Inc. and Subsidiaries

Condensed ConsolidatedStatements of Changes in Equity (Unaudited)
(Amounts in thousands, except share data)
Permanent EquityTemporary Equity
KKR Real Estate Finance Trust Inc.
Preferred StockSeries A Preferred StockCommon Stock
SharesStated ValueSharesPar ValueSharesPar ValueAdditional Paid-In CapitalAccumulated DeficitRepurchased StockTotal KKR Real Estate Finance Trust Inc. Stockholders' EquityNoncontrolling Interests in Equity of Consolidated Joint VentureTotal Permanent EquityRedeemable Preferred Stock
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 $— 
8
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Permanent EquityTemporary Equity
KKR Real Estate Finance Trust Inc.
Preferred StockSeries A Preferred StockCommon Stock
SharesStated ValueSharesPar ValueSharesPar ValueAdditional Paid-In CapitalAccumulated DeficitRepurchased StockTotal KKR Real Estate Finance Trust Inc. Stockholders' EquityNoncontrolling Interests in Equity of Consolidated Joint VentureTotal Permanent EquityRedeemable Preferred Stock
Balance at December 31, 20201 $— — $— 55,619,428 $556 $1,169,695 $(65,698)$(60,999)$1,043,554 $— $1,043,554 $1,852 
Special non-voting preferred dividends declared— — — — — — — — — — — — (198)
Common dividends declared, $0.43 per share— — — — — — — (23,916)— (23,916)— (23,916)— 
Stock-based compensation— — — — — — 1,994 — — 1,994 — 1,994 — 
Adjustment of redeemable preferred stock to redemption value— — — — — — — (710)— (710)— (710)710 
Net income (loss)— — — — — — — 29,894 — 29,894 — 29,894 198 
Balance at March 31, 20211 $— — $— 55,619,428 $556 $1,171,689 $(60,430)$(60,999)$1,050,816 $— $1,050,816 $2,562 
Issuance of preferred stock— — 6,900,000 69 — — 166,997 — — 167,066 — 167,066 — 
Offering costs— — — — — — (720)— — (720)— (720)— 
Series A preferred dividends declared, $0.27 per share— — — — — — — (1,838)— (1,838)— (1,838)— 
Special non-voting preferred dividends declared— — — — — — — — — — — — (221)
Common dividends declared, $0.43 per share— — — — — — — (23,924)— (23,924)— (23,924)— 
Stock-based compensation— — — — 18,052 *1,993 — — 1,993 — 1,993 — 
Adjustment of redeemable preferred stock to redemption value— — — — — — — 246 — 246 — 246 (246)
Net income (loss)— — — — — — — 30,856 — 30,856 — 30,856 221 
Balance at June 30, 20211 $— 6,900,000 $69 55,637,480 $556 $1,339,959 $(55,090)$(60,999)$1,224,495 $— $1,224,495 $2,316 
Series A preferred dividends declared, $0.46 per share— — — — — — — (3,177)— (3,177)— (3,177)— 
Special non-voting preferred dividends declared— — — — — — — — — — — — (231)
Common dividends declared, $0.43 per share— — — — — — — (23,924)— (23,924)— (23,924)— 
Stock-based compensation— — — — — — 2,027 — — 2,027 — 2,027 — 
Adjustment of redeemable preferred stock to redemption value— — — — — — — (273)— (273)— (273)273 
Net income (loss)— — — — — — — 35,440 — 35,440 — 35,440 231 
Balance at September 30, 20211 $— 6,900,000 $69 55,637,480 $556 $1,341,986 $(47,024)$(60,999)$1,234,588 $— $1,234,588 $2,589 

* Rounds to zero.

See Notes to Condensed Consolidated Financial Statements.
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KKR Real Estate Finance Trust Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)
(Amounts in thousands, except share and per share data)
  For the Three Months Ended September 30, For the Nine Months Ended September 30,
  2017 2016 2017 2016
Net Interest Income        
Interest income $24,408
 $7,896
 $54,760
 $20,884
Interest expense 5,414
 1,627
 12,592
 3,976
Total net interest income 18,994
 6,269
 42,168
 16,908
  
 
 
 
Other Income        
Change in net assets related to consolidated variable interest entities 4,025
 6,220
 12,810
 9,960
Income from equity method investments in unconsolidated subsidiaries 115
 —
 461
 —
Other income 177
 64
 616
 143
Total other income (loss) 4,317
 6,284
 13,887
 10,103
         
Operating Expenses        
General and administrative 1,339
 548
 3,254
 1,748
Management fees to affiliate 3,989
 1,621
 9,513
 4,088
Incentive compensation to affiliate —
 —
 —
 365
Total operating expenses 5,328
 2,169
 12,767
 6,201
  
 
 
 
Income (Loss) Before Income Taxes, Noncontrolling Interests and Preferred Dividends 17,983
 10,384
 43,288
 20,810
Income tax expense 120
 71
 388
 214
Net Income (Loss) 17,863
 10,313
 42,900
 20,596
Redeemable Noncontrolling Interests in Income (Loss) of Consolidated Joint Venture 54
 87
 134
 248
Noncontrolling Interests in Income (Loss) of Consolidated Joint Venture 377
 210
 801
 601
Net Income (Loss) Attributable to KKR Real Estate Finance Trust Inc. and Subsidiaries 17,432
 10,016
 41,965
 19,747
Preferred Stock Dividends 93
 4
 181
 12
Net Income (Loss) Attributable to Common Stockholders $17,339
 $10,012
 $41,784
 $19,735
         
Net Income (Loss) Per Share of Common Stock        
Basic $0.32
 $0.48
 $0.98
 $1.12
Diluted $0.32
 $0.48
 $0.98
 $1.12
Weighted Average Number of Shares of Common Stock Outstanding        
Basic 53,696,967 20,810,322 42,501,356
 17,668,177
Diluted 53,697,041 20,810,322 42,501,530
 17,668,177
         
Dividends Declared per Share of Common Stock $0.37
 $0.26
 $1.25
 $0.95

See Notes to Condensed Consolidated Financial Statements.

KKR Real Estate Finance Trust Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Equity (Unaudited)

For the Nine Months Ended September 30, 2017 and 2016
(Amounts in thousands, except share data)

  Permanent Equity Temporary Equity
  KKR Real Estate Finance Trust Inc.        
  Preferred Stock Common Stock                
  Shares Stated Value Shares Par Value Additional Paid-In Capital Retained Earnings Treasury Stock Total KKR Real Estate Finance Trust Inc. Stockholders' Equity Noncontrolling Interests in Equity of Consolidated Joint Venture Total Permanent Equity Redeemable Noncontrolling Interests in Equity of Consolidated Joint Venture Redeemable Preferred Stock
Balance at December 31, 2015 125
 $125
 13,636,416
 $136
 $272,518
 $8,681
 $—
 $281,460
 $4,914
 $286,374
 $4,643
 $—
Issuance of stock —
 —
 10,521,976
 106
 209,898
 —
 —
 210,004
 —
 210,004
 —
 —
Offering costs —
 —
 —
 —
 (2,999) —
 —
 (2,999) —
 (2,999) —
 —
Preferred dividends declared —
 —
 —
 —
 —
 (12) —
 (12) —
 (12) —
 —
Common dividends declared —
 —
 —
 —
 —
 (16,352) —
 (16,352) —
 (16,352) —
 —
Capital contributions —
 —
 —
 —
 —
 —
 —
 —
 2,048
 2,048
 —
 —
Capital distributions —
 —
 —
 —
 —
 —
 —
 —
 (291) (291) (254) —
Net income (loss) —
 —
 —
 —
 —
 19,747
 —
 19,747
 601
 20,348
 248
 —
Balance at September 30, 2016 125
 $125
 24,158,392
 $242
 $479,417
 $12,064
 $—
 $491,848
 $7,272
 $499,120
 $4,637
 $—
                         
Balance at December 31, 2016 126
 $125
 24,158,392
 $242
 $479,417
 $17,914
 $—
 $497,698
 $7,339
 $505,037
 $3,030
 $—
Issuance of stock —
 —
 29,553,446
 295
 580,011
 —
 —
 580,306
 —
 580,306
 —
 949
Acquisition of treasury stock —
 —
 (26,398) —
 —
 —
 (523) (523) —
 (523) —
 —
Redemption of preferred stock (125) (125) —
 —
 —
 —
 —
 (125) —
 (125) —
 —
Offering costs —
 —
 —
 —
 (6,642) —
 —
 (6,642) —
 (6,642) —
 —
Preferred dividends declared —
 —
 —
 —
 —
 (6) —
 (6) —
 (6) —
 (175)
Common dividends declared —
 —
 —
 —
 —
 (50,588) —
 (50,588) —
 (50,588) —
 —
Capital distributions —
 —
 —
 —
 —
 —
 —
 —
 (8,140) (8,140) (111) —
Equity compensation —
 —
 —
 —
 40
 —
 —
 40
 —
 40
 —
 —
Net income (loss) —
 —
 —
 —
 —
 41,790
 —
 41,790
 801
 42,591
 134
 175
Balance at September 30, 2017 1
 $—
 53,685,440
 $537
 $1,052,826
 $9,110
 $(523) $1,061,950
 $—
 $1,061,950
 $3,053
 $949

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,
20222021
Cash Flows From Operating Activities
Net income (loss)$17,492 $96,840 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Amortization of deferred debt issuance costs and discounts17,070 10,491 
Accretion of deferred loan fees and discounts(18,942)(15,693)
Payment-in-kind interest(1,413)(1,676)
(Income) Loss from equity method investments(1,319)(2,085)
Provision for (reversal of) credit losses, net91,184 (982)
Stock-based compensation expense6,341 6,014 
Changes in operating assets and liabilities:
Accrued interest receivable, net(15,333)1,488 
Other assets1,642 (355)
Accrued interest payable8,195 2,112 
Accounts payable, accrued expenses and other liabilities(1,596)41 
Due to affiliates632 663 
Net cash provided by (used in) operating activities103,953 96,858 
Cash Flows From Investing Activities
Proceeds from principal repayments and sale/syndication of commercial real estate loans, held-for-investment1,035,110 1,674,488 
Origination of commercial real estate loans, held-for-investment(2,004,587)(2,247,673)
Investment in real estate owned(1,119)— 
Net cash provided by (used in) investing activities(970,596)(573,185)
Cash Flows From Financing Activities
Proceeds from borrowings under secured financing agreements1,901,607 2,080,383 
Proceeds from issuance of collateralized loan obligations847,500 1,095,250 
Net proceeds from issuance of common stock194,225 — 
Net proceeds from issuance of preferred stock151,167 167,066 
Payments of common stock dividends(85,551)(71,756)
Payments of preferred stock dividends(16,214)(5,675)
Principal repayments on collateralized loan obligations— (810,000)
Principal repayments on loan participations— (66,248)
Payments of debt and collateralized debt obligation issuance costs(26,004)(17,504)
Principal repayments on borrowings under secured financing agreements(2,153,944)(1,694,571)
Payments of stock issuance costs(936)(414)
Payments to reacquire common stock(28,340)— 
Tax withholding on stock-based compensation— (1,720)
Net cash provided by (used in) financing activities783,510 674,811 
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash(83,133)198,484 
Cash, Cash Equivalents and Restricted Cash at Beginning of Period273,770 110,832 
Cash, Cash Equivalents and Restricted Cash at End of Period$190,637 $309,316 
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents$183,341 $307,731 
Restricted cash7,296 1,585 
Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows$190,637 $309,316 
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  For the Nine Months Ended September 30,
  2017 2016
Cash Flows From Operating Activities    
Net income (loss) $42,900
 $20,596
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:    
Amortization of deferred debt issuance costs 1,731
 1,009
Accretion of net deferred loan fees and discounts (2,301) (495)
Interest paid-in-kind (864) (1,476)
Change in noncash net assets of consolidated variable interest entities (3,453) (974)
(Income) from equity investment in unconsolidated subsidiary (461) —
Equity compensation 40
 —
Origination and purchase of commercial loans, held-for-sale (91,475) —
Proceeds from sale of commercial loans, held-for-sale 10,000
 —
Changes in operating assets and liabilities:    
Accrued interest receivable, net (3,956) (462)
Other assets 2,421
 4,615
Due to affiliates 2,308
 (708)
Accounts payable, accrued expenses and other liabilities (1,330) (3,813)
Accrued interest payable 515
 252
Net cash (used in) provided by operating activities (43,925) 18,544
     
Cash Flows From Investing Activities    
Proceeds from principal repayments of commercial mortgage loans, held-for-investment 18,568
 5,207
Proceeds from principal repayments of preferred interest in joint venture, held-to-maturity 37,310
 —
Proceeds from sale of commercial mortgage loans 60,991
 —
Origination and purchase of commercial mortgage loans, held-for-investment (920,358) (381,348)
Investment in commercial mortgage-backed securities, equity method investee
 (27,588) —
Proceeds from commercial mortgage-backed securities, equity method investee 19,588
 —
Purchases of commercial mortgage-backed securities —
 (36,351)
Investment in preferred interest in joint venture —
 (10,240)
Purchases of other capitalized assets —
 (455)
Net cash used in investing activities (811,489) (423,187)
Nine Months Ended September 30,
20222021
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest$119,240 $69,492 
Cash paid during the period for income taxes— 409 
Supplemental Schedule of Non-Cash Investing and Financing Activities
Loan principal payments held by servicer— 8,205 
Dividend declared, not yet paid29,815 24,348 

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)

11
  For the Nine Months Ended September 30,
  2017 2016
Cash Flows From Financing Activities    
Proceeds from borrowings under secured financing agreements 776,447
 273,705
Proceeds from issuances of common stock 581,255
 210,004
Redemption of preferred stock (125) —
Proceeds from noncontrolling interest contributions —
 2,048
Payments of common stock dividends (30,715) (16,352)
Payments of preferred stock dividends (63) (8)
Principal repayments on borrowings under secured financing agreements (460,432) (21,771)
Payments of debt issuance costs (3,051) (1,796)
Payments of stock issuance costs (4,898) (2,920)
Payments of redeemable noncontrolling interest distributions (111) (254)
Payments of noncontrolling interest distributions (8,140) (291)
Payments to acquire treasury stock (523) —
Net cash provided by financing activities 849,644
 442,365
     
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash (5,770) 37,722
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period 96,346
 26,786
Cash, Cash Equivalents, and Restricted Cash at End of Period $90,576
 $64,508
     
Supplemental Disclosure of Cash Flow Information    
Cash paid during the period for interest expense $10,116
 $2,715
Cash paid during the period for income tax expense 252
 460
     
Supplemental Schedule of Non-Cash Investing and Financing Activities    
Consolidation of variable interest entities (incremental assets and liabilities) $—
 $940,806
Dividend declared, not yet paid 19,992
 —

See Notes to Condensed Consolidated Financial Statements.


5
Table of Contents
KKR Real Estate Finance Trust Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars 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 "realreal estate investment trust"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 1117 regarding taxes applicable to KREF.

KREF is externally managed by KKR Real Estate Finance Manager LLC ("Manager"), aan indirect subsidiary of KKR & Co. L.P.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 9)15).

As of September 30, 2017,2022, KKR beneficially owned 23,758,61610,000,001 shares, or 14.4% of KREF's outstanding common stock of which 3,758,616 shares were held by KKR on behalf of a third-party investor..

As of September 30, 2017, KREF's principal business activities are related to the origination and purchase of credit investments related to commercial real estate.CRE. Management assesses the performance of KREF's current portfolio of leveraged and unleveraged commercial mortgagereal estate loans and commercial mortgage-backed securities ("CMBS") as a whole and makes operating decisions accordingly. As a result, management presents KREF's operations within a single reporting segment.

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Table of Contents
KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(dollars 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 thesethe accompanying notes, are unaudited and exclude some of the disclosures required in annual financial statements. Accordingly, certain information and footnote disclosures normally included in the consolidated financial statements have been condensed or omitted. 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. During 2020, the COVID-19 pandemic 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 such restrictions have largely been lifted, governments and businesses may reinstitute restrictions if new strains of COVID-19 emerge, including mandatory business shut-downs, travel restrictions, reduced business operations and social distancing requirements, which could dampen or delay any economic recovery and could materially and adversely affect KREF’s prospectus dated May 4, 2017, filedresults and financial condition.

In 2021 and 2022, the global economy has, with certain setbacks, begun reopening, and wider distribution of vaccines will likely encourage greater economic activity. While vaccine availability and uptake has increased, the Securitieslonger-term macro-economic effects of the pandemic continue to impact many industries, including those of certain of KREF’s borrowers. Moreover, the increase in remote working arrangements in response to the pandemic may contribute to a decline in commercial real estate values and Exchange Commission (the “SEC”)reduce demand for commercial real estate compared to pre-pandemic levels, which may adversely impact certain of KREF's borrowers and may persist even as the pandemic continues to subside. In addition, the COVID-19 pandemic continues to disrupt global supply chains, has caused labor shortages and has added broad inflationary pressures, each of which has a potential negative impact on May 8, 2017 pursuantKREF's borrowers’ ability to Rule 424(b)(4)execute on their business plans and potentially their ability to perform under the Securities Act (the “Prospectus”).terms of their loan obligations. In response to such inflationary pressures, the Federal Reserve has begun raising interest rates in 2022 and has indicated that it foresees further interest rate increases throughout the year and into 2023 and 2024. 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. The effects of COVID-19 may negatively and materially impact significant estimates and assumptions used by the Company including, but not limited to, estimates of expected credit losses, valuation of our equity method investments and the fair value estimates of the Company’s assets and liabilities. Actual results could materially differ from those estimates.

Consolidation — KREF consolidates those entities for whichthat (i) it controls significant operating, financial and investing decisions of the entitythrough 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 defined as entities (i) in which equity investors do not have an interest with the characteristics of a controlling financial interest, or(ii) that do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.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
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KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
activities of the VIE that most significantly impact itsthe 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 6)10).

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

6
Table of Contents
KKR Real Estate Finance Trust Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in tables in thousands, except per share amounts)

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.

CMBSCollateralized Loan Obligations — KREF consolidates those trustscollateralized loan obligations (“CLOs”) when it determines that issue beneficial ownership interests in mortgage loans secured by commercial real estate (commonly known as CMBS) whenthe CLO issuers, wholly-owned subsidiaries of KREF, holds a variable interest in,are VIEs and management considers KREF to be the primary beneficiary of, those trusts. Management believes the performance of the assets that underlie CMBS issuances most significantly impacts the economic performance of the trust, and the primary beneficiary is generally the entity that conducts activities that most significantly impact the performance of the underlying assets. In particular, the most subordinate tranches of CMBS expose the holder to the greater variability of economic performance when compared to more senior tranches since the subordinate tranches absorb a disproportionately higher amount of the credit risk related to the underlying assets. Generally, a trust designates the most junior subordinate tranche outstanding as the controlling class, which entitles the holder of the controlling class to unilaterally appoint and remove the special servicer for the trust. The special servicer is responsible for the servicing and administration of delinquent and nonperforming loans as well as real estate owned ("REO") properties held as collateral delivered on foreclosed loans. While the special servicer cannot prevent losses, its services to the trust are designed to mitigate credit losses to holders of the CMBS.

For the trusts that KREF consolidates, KREF holds non-investment grade rated and unrated CMBS that represent the most subordinate tranches of the CMBS issued by those trusts, which include the controlling class. As the holder of the most subordinate tranche, KREF is in a first loss position and has the right to receive benefits. As the holder of the controlling class, KREF has the ability to unilaterally appoint and remove the special servicer for the trust. In these cases, management considers KREF to be the primary beneficiary and consolidates the CMBS trusts.

For VIEs in which management determines KREF is the primary beneficiary all of the underlying assets, liabilities and equity of the trusts are recorded on KREF's books, and the initial investment, along with any associated unrealized holding gains and losses, are eliminated in consolidation. Similarly, the interest income earned from these trusts is eliminated in consolidation.

such VIEs.
Management elected the fair value option for KREF's initial and subsequent recognition of the
The collateral assets and liabilities of KREF's consolidated CMBS VIEsCLOs, comprised of a pool of loan participations, are included in order to provide users of the financial statements with better information regarding the effects of credit risk and other market factors“Commercial real estate loans, held-for-investment, net” on the CMBS beneficially held by KREF's stockholders. Since the changes in fair value include the interest income and interest expense associated with these CMBS VIEs, management does not consider the separate presentation of the components of fair value changes to be relevant. Management has elected to present these items in aggregate as "Other Income — Change in net assets related to consolidated variable interest entities" in the accompanying Condensed Consolidated Statements of Operations; the residual difference represents KREF's beneficial interest in the CMBS VIEs.

Management separately presents the assets and liabilities of KREF's consolidated VIEs as individual line items on KREF's Condensed Consolidated Balance Sheets for entities in which the VIEs assets can only be used to settle the VIE’s obligations.Sheets. The liabilities of KREF's consolidated VIEsCLOs consist solely of obligations to the CMBS holders of the consolidated trusts,senior CLO noteholders, excluding CMBSsubordinated CLO tranches held by KREF as such interests are eliminated in consolidation, and are presented in “Collateralized loan obligations, net” on the interest accrued thereon, presented as "Liabilities — Variable interest entity liabilities, at fair value."Condensed Consolidated Balance Sheets. The collateral assets of KREF's consolidated VIEs consist principally of commercial mortgage loans and the interest accrued thereon, and are likewise presented as a single line item entitled "Assets — Commercial mortgage loans held in variable interest entities, at fair value."

Assets of a CMBS trust, as a whole,CLOs can only be used to settle the obligations of the consolidated CMBS VIE.CLOs. The assets of KREF's CMBS VIEs are not individually accessible by, and obligations ofinterest income from the CMBS VIEs are not recourse to, the bondholders.

REO assets generally represent a small percentage of the overall asset pool of a CMBS trust. In a new issue CMBS trust there are no REOCLOs’ collateral assets and no REO existedthe interest expense on the CLOs’ liabilities are presented on a gross basis in “Interest income” and “Interest expense”, respectively, in KREF's consolidated VIE assets asCondensed Consolidated Statements of September 30, 2017. KREF derives the fair value of its Level 3 CMBS VIE assets from its Level 3 CMBS VIE liabilities, which management considers to possess more observable market value data than the CMBS VIE assets. See "— Fair Value — Income.
Valuation of Consolidated VIEs" for additional discussion regarding management's valuation of consolidated CMBS VIEs.

Commercial Mezzanine LoanReal Estate Owned Joint Venture — KREF consolidatesconsolidated a joint venture that holds a portionheld the majority of KREF's investmentsKREF’s sole investment in commercial mezzanine loans, andreal estate owned (“REO”) property that was acquired in the fourth quarter of 2021, in which a third-party ownsthird party owned a 5.0% redeemable10% noncontrolling interest (Note 6)10). Management determined the joint venture to be a VIE as the third party owners of the redeemable noncontrolling interest do not

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KKR Real Estate Finance Trust Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in tables in thousands, except per share amounts)

have substantive participating or kick-out rights.joint venture had insufficient equity-at-risk. KREF owns 95.0%90% of the equity interestsinterest in the joint venture and participates in the profits and losses. Management considers KREF to be 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.

Preferred Interest in Joint Venture— KREF consolidated a joint venture that held a lending agreement with an entity engaged in the management of a multi-family tower, and in which a third-party owned a 20.0% noncontrolling interest (Note 4). Management determined the joint venture to be a VIE as the third-party owners of the noncontrolling interest did not have substantive participating or kick-out rights. KREF owned 80.0% of the equity interests in the joint venture and participated in the profits and losses. Management consideredconcluded KREF to be the primary beneficiary of the joint venture as KREF held decision-making power over the activities that most significantly impactedimpact the economic performance 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. ThoseThese noncontrolling interests that allow the holder to redeem before liquidation or termination of the entity that issued those interestsdo not include redemption features and are considered redeemable noncontrolling interests.

The redeemable noncontrolling interests issued by subsidiaries of KREF are subject to certain restrictions and require KREF to transfer assets or issue equity to satisfy the redemption. As KREF does not control the circumstances under which the noncontrolling interests may redeem their interests, management considers these redeemable noncontrolling interests as temporary equity, presented as "Temporary Equity — Redeemable noncontrolling"Noncontrolling interests in equity of consolidated joint venture" inon the accompanying Condensed Consolidated Balance SheetsSheet.

Temporary Equity— KREF's Special Non-Voting Preferred Stock (“SNVPS”) became redeemable by the SNVPS holder in the second quarter of 2018. As a result, starting with the second quarter of 2018, KREF adjusted the carrying value of the SNVPS to its redemption value quarterly. The SNVPS Redemption Value Adjustment was treated similar to a dividend on preferred stock for GAAP purposes and their share of "Nettherefore was deducted from (or added back to) “Net Income (Loss)" as "Redeemable Noncontrolling Interests in” to arrive at “Net Income (Loss) of Consolidated Joint Venture" in theAttributable to Common Stockholders” on KREF's Condensed Consolidated Statements of Operations. Income.

KREF recorded the redeemable noncontrolling interests at faira $3.3 million non-cash redemption value upon issuance by subsidiaries of KREF, and accretesadjustment to the redemption values at each subsequent reporting period date if KREF determinesSNVPS (“SNVPS Redemption Value Adjustment”) during the noncontrolling interests are redeemable or probable to become redeemable. As of September 30, 2017, KREF determined thatyear ended December 31, 2021, which increased the redeemable noncontrolling interests were not currently redeemable or probable to become redeemable, and as a result did not adjust thecarrying value of the redeemable noncontrolling interests.SNVPS to its redemption value of $5.1 million prior to redemption of the SNVPS by KREF on October 1, 2021 for a cash redemption value of $5.1 million (Note 10).

KREF reflects noncontrolling interests that are not redeemable as permanent equity that is not attributable to KREF's stockholders. KREF presents these interests as "Permanent Equity — Noncontrolling interests in equity of consolidated joint venture" in the accompanying Condensed Consolidated Balance Sheets and their share of "Net Income (Loss)" as "Noncontrolling Interests in Income (Loss) of Consolidated Joint Venture" in the Condensed Consolidated Statements of Operations.

Equity investments in unconsolidated subsidiariesMethod Investments — Investments are accounted for under the equity method when KREF has significant influence over the operations of an investee but KREF 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 itsKREF's investment in the Manager is an interest in a VIE, ashowever KREF didis not the primary beneficiary. KREF does not have substantive participating or kick-out rights. KREF does not haverights nor the power to direct activities and the obligation to absorb losses of the Manager that could be significant to the Manager. KREF accounts for its investment in the Manager using the equity method sincemethod. On October 1, 2021, KREF is not the primary beneficiary ofTRS redeemed its interest in the Manager for a cash call amount of $5.1 million when the KKR Member exercised its Call Option to redeem the Non-Voting Manager Units, including the Non-Voting Manager Units held by KREF TRS (Note 6)10).
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KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)

Management determined that itsKREF's investment in an aggregator vehicle alongside KKR Real Estate Credit Opportunity Partners L.P. ("RECOP")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. Management elected the fair value option for KREF's investment in RECOP. KREF records its share of net asset value in RECOP asI in “Equity investments in unconsolidated subsidiaries, at fair value” inmethod investments” on its Condensed Consolidated Balance Sheets and its share of unrealized gains or losses in "Income“Income (loss) from equity investments in unconsolidated subsidiaries"method investments” in its Condensed Consolidated Statements of Operations (Note 6).

Income. Management elected the fair value option for KREF's investment in RECOP I.
Use of Estimates
— The preparation of condensed consolidated financial statements
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 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 impacts the

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KKR Real Estate Finance Trust Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)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.
(dollars in tables in thousands, except per share amounts)

interest income, impairments, allowance for loan loss and fair values recorded or disclosed. Actual results could differ from those estimates.

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 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 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.
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 September 30, 2017,2022, 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 subcommittees,committees, including a real estate valuation committee that reviews and approves all preliminary Level 3 valuations for certain real estate assets, including the financial instruments held by KREF. The global valuation committee provides general oversight of the valuation subcommittees. 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 Consolidated VIEsCommercial Real Estate Loans and Participation Sold — Management categorizes the financial assets and liabilities of the CMBS trusts that KREF consolidates as Level 3 assets and liabilities in the fair value hierarchy and has elected the fair value option for financial assets and liabilities of each CMBS trust. Management has adopted the measurement alternative included in Accounting Standards Update ("ASU") No. 2014-13, Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity ("ASU 2014-13"). Pursuant to ASU 2014-13, management measures both the financial assets and financial liabilities of the CMBS trusts consolidated by KREF using the fair value of the financial liabilities, which managementgenerally considers more observable than the fair value of the financial assets. As a result, KREF presents the CMBS issued by the consolidated trust, but not beneficially owned by KREF's stockholders, as financial liabilities in KREF's condensed consolidated financial statements, measured at their estimated fair value; KREF measures the financial assets as the total estimated fair value of the CMBS issued by the consolidated trust, regardless of whether such CMBS represent interests beneficially owned by KREF's stockholders. Under the measurement alternative prescribed by ASU 2014-13, KREF's "Net Income (Loss)" reflects the economic interests in the consolidated CMBS beneficially owned by KREF's stockholders, presented as "Change in net assets related to consolidated variable interest entities" in the Condensed Consolidated Statements of Operations, which includes applicable (i) changes in the fair value of CMBS beneficially owned by KREF, (ii) interest and servicing fees earned from the CMBS trust and (iii) other residual returns or losses of the CMBS trust, if any (Note 6).

Management categorizes the preferred interest and commercial mezzaninereal estate loans held by separate joint ventures, VIEs consolidated by KREF as primary beneficiary, as Level 3 assets in the fair value hierarchy as such assets are illiquid, structured instrumentsinvestments that are specific to the propertiessponsor, underlying property and their correspondingits operating performance (Note 10)16). On a quarterly basis, management engages an independent valuation firm to estimate the fair value of each loan categorized as a Level 3 asset. Management reviews the quarterly loan valuation estimates provided by the independent valuation firm. These loans are generally valued using a discounted cash flow model using discount rates derived from observable market data applied to the capital structure of the respective sponsor and/or estimated property value. In the event that management's estimate of fair value differs from the fair value estimate provided by the independent valuation firm, KREF ultimately relies solely upon the valuation prepared by the investment personnel of the Manager.

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.
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Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)

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 month immediately preceding a quarter end 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 quarterly reporting period. For instance, significant changes to the underlying property or its planned operations may cause material changes in the fair value of commercial mortgagereal estate loans acquired, or originated, by KREF.


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KKR Real Estate Finance Trust Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in tables in thousands, except per share amounts)

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 1016 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, selltransfer 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 Cashand Cash Equivalents — KREF considers cash equivalents as highly liquid short-term investments with maturities of 90 days or less when purchased. Substantially all amounts on deposit with major financial institutions exceed insured limits.

As of September 30, 2017 and December 31, 2016, KREF held $0.6 million and $0.2 million, respectively, of restricted cash related to good faith deposits and surety bond deposits. KREF receives good faith deposits from potential borrowers when originating or acquiring commercial mortgage loans, which KREF must return to the borrower in the event of a successful transaction or use to pay the costs it incurs in the event of a broken deal. Management considers these deposits restricted until the good faith deposit is returned to the borrower or management considers the deal broken.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash and cash equivalents reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows.
 September 30, 2017 December 31, 2016
Cash and cash equivalents$89,976
 $96,189
Restricted cash and cash equivalents600
 157
Total cash, cash equivalents and restricted cash and cash equivalents shown in the Condensed Consolidated Statements of Cash Flows$90,576
 $96,346


KREF must also 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 September 30, 20172022 and December 31, 2016,2021, KREF was required to maintain unrestricted cash and cash equivalents of at least $10.0$51.9 million and $11.1$65.6 million, respectively, to satisfy its liquidity covenants (Note 5).

As of September 30, 2022 and December 31, 2021, KREF had $7.3 million and $2.3 million of restricted cash held in lender-controlled bank accounts, respectively. Such amount is presented within "Other Assets" in the Condensed Consolidated Balance Sheet.

Commercial MortgageReal Estate Loans Held‑For‑InvestmentHeld-For-Investment and ProvisionAllowance for LoanCredit 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‑investmentheld-for-investment are carried at their aggregate outstanding face amount,principal, net of applicable (i) unamortized origination or acquisition premiums and discounts, (ii) unamortized
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Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
deferred nonrefundable fees and other direct loan origination costs, and (iii) allowance for loancredit losses, and (iv) charge-offs or write-downsnet of write-offs of impaired loans.loans. If a loan is determined to be impaired, management writes downoff the loan through a charge to the provision"Allowance for credit losses" and respective loan losses. See "—balance.Expense Recognition — Loan Impairment— Commercial Mortgage Loans, Held-For-Investment" for additional discussion regarding management’s determination for loan losses. KREF applies the effective interest method to amortize origination or acquisition premiums and discounts and deferred nonrefundable fees or other direct loan origination costs.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).


On January 1, 2020, KREF adopted ASU No. 2016-13, Financial Instruments-Credit Losses, and subsequent amendments (“ASU 2016-13”), which replaced the incurred loss methodology with an expected loss model known as the Current Expected Credit Loss ("CECL") model. CECL 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 “Accounts payable, accrued expenses and other liabilities” on the Condensed Consolidated Balance Sheets.

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TableKREF 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 Contentsdefault and loss given default method using an underlying third-party CMBS/CRE loan database with historical loan losses from 1998 through 2022 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.
KKR
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 loan-to-value ("LTV"), vintage year, loan-term, underlying property type, geographic location, 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 primary credit quality indicator underlying the CECL assessment. In certain instances, KREF considers relevant loan-specific qualitative factors to certain loans to estimate its CECL allowance.

For collateral dependent loans that 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 where 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 operation or sale of the underlying collateral; such determination requires the use of significant judgment and can be based on several factors subject to uncertainty.

See "Expense Recognition — Commercial Real Estate Finance Trust Inc. and SubsidiariesLoans, Held-For-Investment" for additional discussion regarding management’s determination for loan losses.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in tables in thousands, except per share amounts)

Commercial MortgageReal Estate Loans Held‑For‑SaleHeld-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‑saleheld-for-sale and are carried at the lower of amortized cost or fair value.

Preferred InterestReal 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 Joint Venture Held-To-Maturitylieu of foreclosure. Foreclosed properties are generally recognized at fair value in accordance with ASC 805 on KREF's consolidated balance sheets as Real Estate Owned (“REO”) when KREF assumes either legal title or physical possession. KREF’s cost basis in REO equals the estimated fair value on the acquisition date plus related acquisition costs. Any difference between the estimated fair value of the REO from the net carrying value of the related loan is recorded in “Provision for (reversal of) credit losses, net” in the Consolidated Statements of Income.
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Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
—
REO assets, 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 are evaluated for impairment on a quarterly basis. KREF investedconsiders the following factors when performing the impairment analysis: (1) significant underperformance relative to anticipated operating results; (2) significant negative industry and economic outlook or trends; (3) expected material costs necessary to extend the life or operate the REO asset; and (4) KREF’s ability to hold and dispose of the REO asset in preferred equity issued by a limited liability company engaged in commercial real estate activities that KREF accountsthe ordinary course of business. A REO asset is considered for as a debt security. Management held this investment until it was repaid in fullimpairment when the sum of estimated future undiscounted cash flows to be generated by the borrower in August 2017. Accordingly, KREF presented this preferred interest in joint venture held‑to‑maturity for which management did not electREO 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 option, at cost, net of unamortized premiums and discounts; KREF applied the effective interest method to amortize applicable premiums and discounts through interest income. In the event thatvalue. 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 preferred interest in joint venture held‑to‑maturity was less than its amortized cost, management considered whethereventual disposition of the unrealized holding loss represented an other-than-temporary impairment ("OTTI"). For the nine months ended September 30, 2017 and 2016, KREF did not recognize an OTTI related to its investment in preferred interest in joint venture held-to-maturity (Note 4).REO asset.

Secured Financing Agreements — KREF's secured financing agreements, including uncommitted repurchase facilities, term lending agreements, warehouse facility, asset specific financings and term loan financings, are treated as floating-rate collateralized financing transactions and consist of floating rate, uncommitted repurchase facilitiesarrangements 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 facility ("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.

Convertible Notes, Net— KREF accounts for its convertible debt with a cash conversion feature in accordance with ASC 470-20, Debt with Conversion and Other Options, which requires the liability and equity components of convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement, to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The initial proceeds from the sale of convertible notes are allocated between a liability component and an equity component in a manner that reflects interest expense at the rate of similar nonconvertible debt that could have been issued at such time. The equity component represents the excess initial proceeds received over the fair value of the liability component of the notes as of the date of issuance. KREF measured the estimated fair value of the debt component of the 6.125% convertible senior notes due May 15, 2023 (“Convertible Notes”) as of the issuance date based on KREF’s nonconvertible debt borrowing rate. The equity component of the Convertible Notes is reflected within "Additional paid-in capital" on the Condensed Consolidated Balance Sheets, and the resulting debt discount is amortized over the period during which such Convertible Notes are expected to be outstanding (through the maturity date) as additional non-cash interest expense using the interest method, or on a straight line basis when it approximates the interest method. The additional non-cash interest expense attributable to such convertible notes will increase in subsequent periods through the maturity date as the notes accrete to their par value over the same period (Note 8).

Loan Participations Sold, Net— In connection with its investments in CRE loans, KREF finances certain investments through the syndication of non-recourse, or limited-recourse, loan participation to unaffiliated third parties. KREF’s presentation of the senior loan and related financing involved in the syndication depends upon whether the transaction is recognized as a sale under GAAP, though such differences in presentation do not generally impact KREF’s net stockholders’ equity or net income aside from timing differences in the recognition of certain transaction costs.

To the extent that a sale is recognized under GAAP from the syndication, KREF derecognizes the participation in the senior/whole loan that KREF sold and continues to carry the retained portion of the loan as an investment. While KREF does not generally expect to recognize a material gain or loss on these sales, KREF would realize a gain or loss in an amount equal to the difference between the net proceeds received from the third party purchaser and its carrying value of the loan participation that KREF sold at time of sale. Furthermore, KREF recognizes interest income only on the portion of the loan that it retains as a result of the sale.

To the extent that a sale is not recognized under GAAP from the syndication, KREF does not derecognize the participation in the senior/whole loan that it sold. Instead, KREF recognizes a loan participation sold liability in an amount equal to the
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KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
principal of the loan participation syndicated less any unamortized discounts or financing costs resulting from the syndication. KREF continues to recognize interest income on the entire senior loan, including the interest attributable to the loan participation sold, as well as interest expense on the loan participation sold liability (Note 9).

Other Assets and Accounts Payable, Accrued Expenses and Other Liabilities — OtherAs of September 30, 2022, other assets included $7.3 million of restricted cash and $5.2 million of deferred financing costs related to KREF's Revolver (Note 5). As of December 31, 2021, other assets included $2.3 million of restricted cash,$1.7 million of deferred financing costs related to KREF's Revolver, $1.4 million of interest collections held by the servicer and $1.4 million of prepaid expenses.

As of September 30, 2022, accounts payable, accrued expenses and other liabilities are comprisedincluded $3.5 million of REO liabilities, $4.1 million of allowance for credit losses related to KREF's unfunded loan commitments and $1.2 million of accrued expenses. As of December 31, 2021, accounts payable, accrued expenses and other liabilities included $3.9 million of accrued expenses, $3.3 million of assumed REO liabilities, $1.5 million of allowance for credit losses related to KREF's unfunded loan commitments and $0.6 million of prepaid stub interests.

Dividends Payable — KREF records dividends payable on its common stock and preferred stock upon declaration of such dividends. In September 2022, KREF's board of directors declared a dividend of $0.43 per share of common stock to stockholders of record as of September 30, 2022, which was accrued in “Dividends payable” on KREF’s Condensed Consolidated Balance Sheet as of September 30, 2022 and was subsequently paid on October 14, 2022. In July 2022, KREF's board of directors declared a dividend of $0.41 per each issued and outstanding share of the following:Company’s 6.50% Series A Cumulative Redeemable Preferred Stock, which represents an annual dividend of $1.625 per share. The dividend was paid on September 15, 2022 to KREF’s preferred stockholders of record as of August 31, 2022.
  Other Assets   Accounts Payable, Accrued Expenses And Other Liabilities
  September 30, December 31,   September 30, December 31,
  2017 2016   2017 2016
Deferred debt issuance costs, net(A)
 $1,822
 $448
 Accrued expenses $2,147
 $558
Refundable loan costs 504
 —
 Accounts payable 652
 1,538
Prepaid expenses, net 430
 22
 Income taxes payable 215
 141
Other assets 138
 30
 Accrued stock issuance costs —
 60
Due from affiliates —
 360
   $3,014
 $2,297
Deferred stock issuance costs, net —
 1,326
      
Accounts receivable —
 542
      
  $2,894
 $2,728
      

(A)Deferred debt issuance costs related to undrawn repurchase facilities are presented net of accumulated amortization of $0.2 million and $0.0 million as of September 30, 2017 and December 31, 2016, respectively.

Special Non-Voting Preferred Stock ("SNVPS") — Equity instruments that are redeemable for cash or other assets are classified as temporary equity if the instrument is redeemable, at the option of the holder, at a fixed or determinable price on a fixed or determinable date or upon the occurrence of an event that is not solely within the control of the issuer. Redeemable equity instruments are initially carried at the fair value of the equity instrument at the issuance date, which is subsequently adjusted at each balance sheet date if the instrument is currently redeemable. The fair value of the instrument is adjusted to reflect the instrument’s redemption amount at each balance sheet date if KREF determines the SNVPS is redeemable or it is probable that the SNVPS will becomeof becoming redeemable. KREF accounted for the SNVPS as redeemable preferred stock since a third party holdsheld a redemption option, exercisable after May 5, 2018, and such redemption iswas not solely within KREF’sKREF's control. As a result, starting with the second quarter of September 30, 2017,2018, KREF determined thatadjusted the carrying value of the SNVPS was not currently redeemable or it was not probable thatto its redemption value quarterly.

KREF recorded a $3.3 million SNVPS Redemption Value Adjustment during the year ended December 31, 2021, which increased the carrying value of the SNVPS would become redeemable,to its redemption value of $5.1 million prior to SNVPS redemption by KREF on October 1, 2021 for a cash redemption value of $5.1 million (Note 11).

Repurchased Stock — KREF accounts for repurchases of its common stock based on the settlement date and did not adjustpresents repurchased stock in “Repurchased stock” on its value as a result. KREF presents the SNVPS as “Temporary Equity — Redeemable preferred stock” in the accompanying Condensed Consolidated Balance Sheets (Note 7)11). 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 September 30, 2022, KREF did not retire any repurchased stock.

Income Recognition

Interest Income — Loans where management expects to collect all contractually required principal and interest payments are considered performing loans. KREF accrues interest income on performing loans based on the outstanding principal amount and contractual terms of the loan. Interest income also includes origination fees, and 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 effective interest

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Table of Contents
KKR Real Estate Finance Trust Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in tables in thousands, except per share amounts)

method over the loan term.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 also includedrecognizes 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
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KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
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 arising fromearned on its preferred interestcash balances and miscellaneous fee income in joint venture held-to-maturity.“Other 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 OperationsIncome with respect to the investment sold at the time of sale.

Expense Recognition
Expense Recognition

Loan Impairment— KREF holds commercial mortgage loans for both investment and sale, which management periodically evaluates for impairment.
Commercial MortgageReal Estate Loans, Held-For-Investment —— For each loan in KREF's portfolio, management performs a quarterly evaluation of impairmentcredit quality indicators of loans classified as held‑for‑investmentheld-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-specificsubmarket—specific economic factors. The evaluation of these credit quality indicators of impairment 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, impairmentdeterioration 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 establishes an allowance forwrites-off the loan losses, through a valuation provision in earnings, which reduces the carrying value of the loancharge 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.

Management considers loans to be past due when a monthly payment is due and unpaid for 60 days or more. Loans are placed on nonaccrual status and considered non-performing when full payment of principal and interest is in doubt, which generally occurs when principal or interest is 12090 days or more past due unless the loan is both well secured and in the process of collection.collection, or when repayment of interest and principal is, in our judgment, in doubt. Interest received on loans placed on nonaccrual status may be accounted for under the cost-recovery method under certain circumstances. Management may return a loan to accrual status when repayment of principal and interest is reasonably assured under the terms of the restructured loan.assured. As of September 30, 2017, KREF did not hold any loans that management placed2022, one mezzanine loan with an outstanding principal balance of $5.5 million was on nonaccrual status or otherwise considered past due.and was fully written-off (Note 3).

In additioncertain circumstances, KREF may also modify the original terms of a loan agreement by granting a concession to a borrower experiencing financial difficulty. Such modifications are considered troubled debt restructurings (“TDR”) under GAAP and typically include interest rate reductions, payment extension and modification of loan covenants.

In conjunction with reviewing commercial mortgagereal estate loans held-for-investment for impairment, managementthe Manager evaluates KREF's commercial mortgagereal estate loans to determine if an allowance for loan loss should be established. In conjunction with this review, managementon a quarterly basis, 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 and asset value, 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 loan-to-value ratios, 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 –    Average Risk
4 –    High Risk/Potential for Loss: A loan that has a risk of realizing a principal loss.
5 –    Impaired/Loss Likely: A loan that has a very high risk of realizing a principal loss or has otherwise incurred a principal loss.

As of September 30, 2017, the average risk rating of KREF's portfolio was 3.0 (Average Risk), weighted by investment carrying value, with 99.0% of commercial mortgage loans held-for-investment rated 3 (Average Risk) or better by the Manager. As of September 30, 2017 and December 31, 2016, no investments were rated 5 (Impaired/Loss Likely).


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Table of Contents
KKR Real Estate Finance Trust Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in tables in thousands, except per share amounts)
1—Very Low Risk

2—Low Risk

3—Medium Risk

4—High Risk/Potential for Loss: A loan that has a risk of realizing a principal loss.

5—Impaired/Loss Likely: A loan that has a very high risk of realizing a principal loss or has otherwise incurred a principal loss.

Commercial MortgageReal Estate Loans, Held-For-Sale — For commercial mortgagereal 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 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 of collection, at which point, KREF will begin recognizing revenue on a cash basis, based on actual amounts received. Any receivables that are deemed to be uncollectable are recognized as a reduction to “Revenue from real estate owned operations” in the Condensed Consolidated Statements of Income.

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

Deferred Debt Issuance Costs — ManagementKREF capitalizes and amortizes deferred debt facilityfinancing costs incurred when entering repurchase agreementsin connection with financing arrangements over their respective expected term using the interest method, or on a straight-linestraight line basis overwhen it approximates the expected term of the facility and incremental costs incurred when KREF draws on those facilities using the effective interest method over the expected term of the draw.method. KREF presents such expensed amounts, as well as deferred amounts written off, as additional interest expense in its Condensed Consolidated Statements of Operations.Income.

Recent Accounting PronouncementsGeneral and Administrative Expenses— KREF expenses general and administrative costs, including legal, diligence and audit fees; information technology costs; 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 15).

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 May 2014,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 17).

As of September 30, 2022 and December 31, 2021, KREF did not have any material deferred tax assets or liabilities arising from future tax consequences attributable to differences between the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, Revenues from Contractscarrying amounts of existing assets and liabilities in accordance with Customers (Topic 606)GAAP and their respective tax bases.

. The standard’s core principle
KREF recognizes tax benefits for uncertain tax positions only if it is more likely than not that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The ASUposition is effective for KREF in the first quarter of 2018. Early adoption is permitted. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance in the ASU. KREF does not expect the adoption of this new guidance to have a material impactsustainable based on its condensed consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognitiontechnical merits. Interest and Measurement of Financial Assets and Financial Liabilities. The standard: (i) requires that certain equity investments be measured at fair value, and modifies the assessment of impairment for certain other equity investments, (ii) changes certain disclosure requirements related to the fair value of financial instruments measured at amortized cost, (iii) changes certain disclosure requirements related to liabilities measured at fair value, (iv) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and (v) clarifies that an entity should evaluate the need forpenalties on uncertain tax positions are included as a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01 is effective for KREF in the first quarter of 2018. Early adoption is permitted subject to certain application guidance. An entity should apply ASU No. 2016-01 by means of a cumulative-effect adjustment to the balance sheet ascomponent of the beginningprovision for income taxes in KREF's Condensed Consolidated Statements of the fiscal yearIncome. As of adoption.September 30, 2022, KREF doesdid not expect the adoption of this new guidance to have aany material impact on its condensed consolidated financial statements.uncertain tax positions.


In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses. The standard amends the existing credit loss model to reflect a reporting entity's current estimate of all expected credit losses and requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at a net amount expected to be collected through deduction of an allowance for credit losses from the amortized cost basis of the financial asset(s). ASU No. 2016-13 is effective for KREF in the first quarter of 2020. Early adoption is permitted beginning in the first quarter of 2019. KREF is currently evaluating the new guidance to determine the impact it may have on its condensed consolidated financial statements.

The FASB has recently issued or discussed a number of proposed standards on such topics as consolidation, financial statement presentation, financial instruments, restricted cash and hedging. Some of the proposed changes are significant and could have a material impact on KREF’s reporting. KREF has not yet fully evaluated the potential impact of these proposals, but will make such an evaluation as the standards are finalized.


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Table of Contents
KKR Real Estate Finance Trust Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in tables in thousands, except per share amounts)

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 3. 12 for additional information.
Commercial Mortgage Loans
Earnings per Share

KREF recognizes its investmentscalculates 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 commercial mortgage loansundistributed earnings. Under this method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on management'stheir 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.

On January 1, 2022, KREF adopted ASU No. 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which requires KREF to include convertible instruments in the diluted EPS calculation, regardless of a company's intent and KREF's ability to hold those investments through their contractual maturity. Management classifies those loans that management does not intendsettle such debt in cash. KREF may include 6,316,174 of potentially issuable shares related to sellits Convertible Notes, when dilutive, in the foreseeable future,dilutive EPS calculations.

KREF presents diluted EPS under the more dilutive of the treasury stock and KREF is ableif-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 the Convertible Notes. The numerator includes any changes in income (loss) attributable to hold until maturity, as held-for-investment. Management classifies remaining loans as held-for-sale. Seecommon stockholders that would result from the assumed conversion of these potential shares of common stock. Refer to Note 211 for additional information regarding KREF'sdiscussion of earnings per share.

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting for its investments in commercial mortgage loans.to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The following table summarizes KREF's investments in commercial mortgage loans asguidance is effective upon issuance and generally may be elected over time through December 31, 2022. KREF has not adopted any of the optional expedients or exceptions through September 30, 20172022, but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve.

In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments — Credit Losses (Topic 326): Troubled Debt Restructurings and December 31, 2016:Vintage Disclosures, which eliminates the recognition and measurement guidance for a troubled debt restructuring (TDR) for creditors that have adopted CECL and requires public business entities to present gross write-offs by year of origination in their vintage disclosures. The guidance is effective for KREF in the first quarter of 2023. The guidance allows the use of a prospective or modified retrospective transition method. KREF expects the adoption of ASU 2022-02 to have no significant impact on its condensed consolidated financial statements.
22
        Weighted Average
Loan Type Outstanding Face Amount Carrying Value Loan Count 
Floating Rate Loan %(A)
 
Coupon(A)
 
Life (Years)(B)
September 30, 2017            
Loans held-for-investment            
Senior loans $1,448,260
 $1,437,421
 15
 100.0% 5.6% 3.7
Mezzanine loans(C)
 106,730
 106,430
 10
 75.4
 11.1
 3.9
  1,554,990
 1,543,851
 25
 98.3
 6.0
 3.7
Loans held-for-sale            
Senior loans 82,000
 81,550
 1
 100.0
 3.0
 4.8
  82,000
 81,550
 1
 100.0
 3.0
 4.8
  $1,636,990
 $1,625,401
 26
 98.4% 5.8% 3.8
December 31, 2016            
Loans held-for-investment            
Senior loans $625,638
 $618,779
 7
 100.0% 4.4% 4.0
Mezzanine loans 55,932
 55,817
 3
 100.0
 9.5
 2.9
  681,570
 674,596
 10
 100.0
 4.8
 3.9
Loans held-for-sale            
Mezzanine loans 26,230
 26,230
 6
 —
 10.6
 6.5
  26,230
 26,230
 6
 —
 10.6
 6.5
  $707,800
 $700,826
 16
 96.3% 5.0% 4.0

(A)Average weighted by outstanding face amount of loan. Weighted average coupon assumes applicable floating benchmark rates as of September 30, 2017.
(B)The weighted average life of each loan is based on the expected timing of the receipt of contractual cash flows.
(C)A joint venture consolidated as a VIE in which a third-party owns a 5.0% redeemable noncontrolling interest (Note 6) holds (i) seven commercial mezzanine loans, held-for-investment, with a $61.2 million outstanding face amount and carrying value as of September 30, 2017.



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Table of Contents
KKR Real Estate Finance Trust Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars 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 September 30, 2022 and December 31, 2021:

Weighted Average(C)
Loan TypeOutstanding Principal
Amortized Cost(A)
Carrying Value(B)
Loan CountFloating Rate Loan %
Coupon(D)
Life (Years)(E)
September 30, 2022
Loans held-for-investment
Senior loans(F)
$7,254,289 $7,209,207 $7,098,824 72 100.0 %6.4 %3.5
Mezzanine and other loans(G)
103,192 97,358 96,943 4 94.7 13.6 3.2
Total/Weighted Average$7,357,481 $7,306,565 $7,195,767 76 99.9 %6.5 %3.4
December 31, 2021
Loans held-for-investment
Senior loans(F)
$6,263,370 $6,222,058 $6,200,078 59 100.0 %3.9 %3.6
Mezzanine and other loans(G)
100,735 94,675 94,411 4 94.5 11.2 4.0
Total/Weighted Average$6,364,105 $6,316,733 $6,294,489 63 99.9 %4.1 %3.6

(A)    Amortized cost represents the outstanding principal of loan, net of applicable unamortized discounts, loan origination fees and write-off on uncollectable 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, including one-month LIBOR and Term SOFR, or the applicable contractual rate floor.
(E)    The weighted average life assumes all extension options are exercised by the borrowers.
(F)    Senior loans may include accommodation mezzanine loans in connection with the senior mortgage financing. Also, includes CLO loan participations of $2,221.0 million and $1,246.0 million as of September 30, 2022 and December 31, 2021, respectively.
(G)    Includes one real estate corporate loan to a multifamily operator with a principal and a carrying value of $40.0 million and $39.5 million, respectively, as of September 30, 2022, and $41.1 million and $40.3 million, respectively, as of December 31, 2021.

Activity — For the nine months ended September 30, 2022, the loan portfolio activity was as follows:

Amortized CostAllowance for
Credit Losses		Carrying Value
Balance at December 31, 2021$6,316,733 $(22,244)$6,294,489 
Originations and future fundings, net(A)
2,004,587 — 2,004,587 
Proceeds from sales and loan repayments(1,035,110)— (1,035,110)
Accretion of loan discount and other amortization, net(B)
18,942 — 18,942 
Payment-in-kind interest1,413 — 1,413 
(Provision for) Reversal of credit losses— (88,554)(88,554)
Balance at September 30, 2022$7,306,565 $(110,798)$7,195,767 

(A)    Net of applicable premiums, discounts and deferred loan origination costs. Includes fundings on previously originated loans.
(B)    Includes accretion of applicable discounts, certain fees and deferred loan origination costs.

As of September 30, 2022 and December 31, 2021, there was $45.4 million and $41.9 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. KREF recognized prepayment fee income of $1.5 million and $6.8 million, respectively, during the three and nine months ended September 30, 2022. KREF recognized net accelerated fee income of $0.7 million and $1.6 million, respectively, during the three and nine months ended September 30, 2022. KREF recognized net accelerated deferred loan fees and prepayment fee income of $6.4 million and $8.5 million, respectively, during the three and nine months ended September 30, 2021.

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
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KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
balance of the respective loans. As of September 30, 2022, KREF had no outstanding PIK interest in connection with loan modifications.

Loan Risk Ratings — As further described in Note 2, our Manager evaluates KREF's commercial real estate loan portfolio on a quarterly basis. In conjunction with the quarterly commercial real estate loan portfolio review, KREF's Manager 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:

September 30, 2022December 31, 2021
Risk Rating
Number of Loans(B)
Carrying Value
Total Loan Exposure(A)
Total Loan Exposure %
Number of Loans(B)
Carrying Value
Total Loan Exposure(A)
Total Loan Exposure %
1— $— $— — %1 $243,549 $243,552 3.6 %
21 91,287 91,476 1.2 3 410,293 411,424 6.2 
369 6,367,631 6,670,183 87.6 54 5,268,590 5,627,927 84.3 
43 496,219 497,466 6.6 4 394,301 394,336 5.9 
53 351,428 351,716 4.6 1 — — — 
Total loan receivable76 $7,306,565 $7,610,841 100.0 %63 $6,316,733 $6,677,239 100.0 %
Allowance for credit losses(110,798)(22,244)
Loan receivable, net$7,195,767 $6,294,489 

(A)    In certain instances, KREF finances its loans through the non-recourse sale of a senior interest that is not included in the consolidated financial statements. Total loan exposure includes the entire loan KREF originated and financed, including $258.9 million and $318.6 million of such non-consolidated interests as of September 30, 2022 and December 31, 2021, respectively.
(B)    Includes one impaired 5-rated mezzanine retail loan that was fully written off.

As of September 30, 2022, KREF had one risk-rated 4 senior loan secured by office properties located in Philadelphia, PA that was past its current maturity date of September 2022. The maximum maturity date of this senior loan, assuming all extension options are exercised, is July 2023. The loan had an amortized cost of $161.8 million and was not pledged to any secured financing facility as of September 30, 2022. The borrower paid its October monthly interest payment subsequent to quarter end.

As of September 30, 2022, the average risk rating of KREF's portfolio was 3.1, weighted by total loan exposure, as compared to 2.9 as of December 31, 2021.

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 September 30, 2022 and December 31, 2021 in the corresponding table.

September 30, 2022
Amortized Cost by Year of Origination
Risk Rating
Number of Loans(A)
Outstanding Principal20222021202020192018PriorTotal
Commercial Real Estate Loans
1— $— $— $— $— $— $— $— $— 
21 91,477 — — — 91,287 — — 91,287 
369 6,411,322 1,646,778 3,469,767 348,877 471,556 410,511 20,142 6,367,631 
43 497,466 — 190,654 — 143,740 161,825 — 496,219 
53 357,216 — — — 157,115 — 194,313 351,428 
76 $7,357,481 $1,646,778 $3,660,421 $348,877 $863,698 $572,336 $214,455 $7,306,565 

(A)    Includes one impaired 5-rated mezzanine retail loan that was fully written off.
24
Table of Contents
KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)

December 31, 2021
Amortized Cost by Year of Origination
Risk Rating
Number of Loans(A)
Outstanding Principal20212020201920182017PriorTotal
Commercial Real Estate Loans
11 $243,552 $— $— $— $243,549 $— $— $243,549 
23 411,424 — 130,400 — 85,943 193,950 — 410,293 
354 5,309,293 3,523,611 203,961 1,017,080 523,938 — — 5,268,590 
44 394,336 — — 76,221 210,701 107,379 — 394,301 
51 5,500 — — — — — — — 
63 $6,364,105 $3,523,611 $334,361 $1,093,301 $1,064,131 $301,329 $— $6,316,733 

(A)    Includes one impaired 5-rated mezzanine retail loan that was fully written off.

Allowance for Credit Losses — The following tables present the changes to the allowance for credit losses for the nine months ended September 30, 2022 and 2021, respectively:

Commercial
Real Estate Loans		Unfunded Loan CommitmentsTotal
Balance at December 31, 2021$22,244 $1,495 $23,739 
Provision for (reversal of) credit losses, net88,554 2,630 91,184 
Write-off charged— — — 
Recoveries— — — 
Balance as September 30, 2022$110,798 $4,125 $114,923 

Commercial
Real Estate Loans		Unfunded Loan CommitmentsTotal
Balance at December 31, 2020$59,801 $902 $60,703 
Provision for (reversal of) credit losses, net(994)13 (981)
Write-off charged— — — 
Recoveries— — — 
Balance as September 30, 2021$58,807 $915 $59,722 

As of September 30, 2022, the allowance for credit losses was $114.9 million, which represented an increase of $80.6 million and $91.2 million during the three and nine months ended September 30, 2022, respectively. The allowance for credit losses was impacted by increased uncertainty in the macro-economic outlook, including weakening credit indicators, surging inflationary pressures and rising short-term interest rates. In addition, the office sector has experienced volatility and reduced liquidity. As a result, the increase in the allowance was primarily due to additional provisions on the KREF’s risk-rated 4 and 5 loans, which are all collateralized by office properties.

KREF had one risk-rated 5 senior office loan located in Philadelphia, PA, originated April 2019, with an outstanding principal balance of $157.3 million and an unfunded commitment of $25.3 million as of September 30, 2022. The property experienced slower than anticipated leasing activity due to softness in the overall Philadelphia market and COVID-accelerated office trends. This loan is current on contractual interest payments and its next maturity is May 2023.

KREF had one risk-rated 5 senior office loan located in Minneapolis, MN, originated November 2017, with an outstanding principal balance of $194.4 million and no unfunded commitment as of September 30, 2022. There is uncertainty as to whether the borrower will be able to obtain refinancing with desirable economic terms in the current market. This loan is current on contractual interest payments and its next maturity is December 2022.

The $1.0 million net benefit from the reversal of credit losses during the nine months ended September 30, 2021 was primarily attributable to a more stable macro-economic outlook based on improved observed economic data, partially offset by an increase to the allowance for risk-rated 4 and 5 loans and an increase to the allowance related to newly originated loans.


25
Table of Contents
KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)

Concentration of Credit Risk — The following tables present the geographies and property types of collateral underlying KREF's commercial mortgagereal estate loans as a percentage of the loans' carrying values, net of noncontrolling interests:principal amounts:

Loans Held-for-Investment
  September 30, 2017 December 31, 2016   September 30, 2017 December 31, 2016
Geography 
 Collateral Property Type 
New York 36.8% 25.9% Office 36.4% 39.2%
California 18.1
 20.3
 Multifamily 21.3
 8.8
Georgia 8.0
 9.8
 Retail 16.8
 37.2
Oregon 7.7
 17.6
 Condo (Residential) 14.5
 —
Hawaii 6.4
 —
 Industrial 8.3
 9.8
Colorado 6.2
 —
 Hospitality 2.7
 5.0
Washington D.C. 5.0
 10.6
 Total 100.0% 100.0%
Texas 4.0
 —
      
Tennessee 3.4
 7.9
 
 
 
Florida 2.7
 5.1
 
 
 
Illinois 1.2
 2.4
 
 
 
South Carolina —
 0.2
 
 
 
Alabama —
 0.2
      
Other U.S. 0.5
 —
 
 
 
Total 100.0% 100.0% 
 
 

Loans Held-for-Sale
  September 30, 2017 December 31, 2016   September 30, 2017 December 31, 2016
Geography 
 Collateral Property Type 
Georgia 100.0% —% Office 100.0% 16.3%
Florida —
 30.5
 Multifamily —
 32.2
California —
 21.2
 Hospitality —
 30.5
Michigan —
 16.3
 Retail —
 21.0
Texas —
 11.1
 Total 100.0% 100.0%
Iowa —
 8.9
      
Illinois —
 5.9
      
Oklahoma —
 3.9
      
Missouri —
 2.2
      
Total 100.0% 100.0%      


September 30, 2022December 31, 2021September 30, 2022December 31, 2021
Geography(A)
Collateral Property Type
California16.9 %10.8 %Multifamily45.4 %46.7 %
Texas16.3 15.0 Office24.2 25.4 
Florida10.1 10.5 Industrial12.1 4.4 
Virginia8.5 6.7 Life Science7.1 9.3 
Massachusetts7.8 10.3 Hospitality5.0 6.9 
Pennsylvania7.1 8.2 Condo (Residential)3.0 3.9 
Washington D.C.5.8 4.7 Student Housing2.8 3.1 
New York5.8 11.5 Single Family Rental0.3 0.2 
Washington3.8 3.6 Retail0.1 0.1 
North Carolina2.8 2.0 Total100.0 %100.0 %
Minnesota2.8 3.1 
Arizona2.3 1.2 
Georgia2.3 2.2 
Nevada2.1 1.6 
Illinois1.6 3.8 
Colorado1.1 2.7 
Other U.S.2.9 2.1 
Total100.0 %100.0 %
Activities
(A)    Excludes one real estate corporate loan to a multifamily operator with an outstanding principal amount of — Activities related to the carrying value$40.0 million and $41.1 million, representing 0.5% and 0.6% of KREF’s commercial mortgagereal estate loans, were as follows:of September 30, 2022 and December 31, 2021, respectively.

26
  Held-for-Investment Held-for-Sale Total
Balance at December 31, 2016 $674,596
 $26,230
 $700,826
Purchases and originations, net(A)
 920,358
 91,475
 1,011,833
Transfer to held-for-investment(B)
 26,230
 (26,230) —
Proceeds from principal repayments (18,568) —
 (18,568)
Proceeds from principal repaid upon loan sale (60,991) (10,000) (70,991)
Accretion of loan discount and other amortization, net(C)
 2,226
 75
 2,301
Balance at September 30, 2017 $1,543,851
 $81,550
 $1,625,401

(A)Net of applicable premiums, discounts and deferred loan origination costs.
(B)Non-cash transfer of commercial mortgage loans, as management no longer intends to sell, and has the ability to hold-to-maturity, the loans originally placed for sale. 
(C)Includes amortization and accretion of applicable premiums, discounts and deferred loan origination costs.


15
Table of Contents
KKR Real Estate Finance Trust Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in tables in thousands, except per share amounts)

Note 4. Preferred Interest in Joint VentureReal Estate Owned


DuringIn 2015, KREF investedoriginated a $177.0 million senior loan secured by a retail property in Portland, OR. The loan had a joint venture that entered into a lending agreementrisk rating of 5 and was placed on non-accrual status in October 2020, with an entity engaged inamortized cost and carrying value of $109.6 million and $69.3 million, respectively, as of September 30, 2021. On December 17, 2021, KREF took title to the managementretail property. Such acquisition was accounted for as an asset acquisition under ASC 805. Accordingly, KREF recognized the property on the Condensed Consolidated Balance Sheets as REO with a carrying value of a multi-family tower. The consolidated joint venture classifies that lending agreement as a debt security held-to-maturity. See Note 2 for additional information regarding KREF's accounting for$78.6 million, which included the joint venture's investment treated as a debt security under GAAP.

In August 2017, the joint venture in which KREF invested received a redemption payment of $37.3 million, representing repaymentestimated fair value of the investmentproperty and capitalized transaction costs. In addition, KREF assumed $2.0 million in full,other net assets of the REO. As a result KREF recognized an $8.2 million benefit from the reversal of credit losses, representing the difference between the carrying value of the foreclosed loan and all redemption obligations were satisfied. KREF also received a guaranteed minimum return paymentthe fair value of $1.1 million reflected as interest income inthe REO’s net assets.

The following table presents the REO assets and liabilities included on KREF's Condensed Consolidated StatementBalance Sheets:

September 30, 2022
December 17, 2021(C)
Assets
Cash$1,229 $3,377 
Real estate owned - land78,569 78,569 
Real estate owned - land improvements1,119 — 
In-place lease intangibles(A)
284335
Tenant receivables(A)
657 — 
Other assets(A)
19 1,119 
Total$81,877 $83,400 
Liabilities
Below-market lease intangibles(B)
$1,552 $1,825 
Accounts payable, accrued expenses and other liabilities(B)
1,932 1,742 
Total$3,484 $3,567 

(A)    Included in “Other assets” on the Condensed Consolidated Balance Sheets.
(B)    Included in “Accounts payable, accrued expenses and other liabilities” on the Condensed Consolidated Balance Sheets.
(C)    The REO operations and related income (loss) were immaterial between the acquisition date and December 31, 2021.

KREF assumed certain legacy lease arrangements upon the acquisition of Operationsthe REO and has entered into short-term lease arrangements during the redevelopment process. These arrangements entitle KREF to receive contractual rent payments during the lease periods and tenant reimbursements for certain property operating expenses, including common area costs, insurance, utilities and real estate taxes. KREF elects the threepractical expedient to not separate the lease and nine months ended September 30, 2017.non-lease components of the rent payments and accounts for these lease arrangements as operating leases.

The following table presents the REO operations and related income (loss) included in KREF’s Condensed Consolidated Statements of Income:

Three Months EndedNine Months Ended
September 30, 2022September 30, 2022
Rental income(A)
$1,908 $5,773 
Other operating income(A)
185 781 
Expenses from real estate owned operations2,598 7,520 
Other income(B)
45 1,382 
Total$(461)$417 

(A)    Included in “Revenue from real estate owned operations” on the Condensed Consolidated Statements of Income.
(B)    Represents nonrecurring local tax and energy credits received.

16
27
Table of Contents
KKR Real Estate Finance Trust Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in tables in thousands, except per share amounts)

The following table presents the amortization of lease intangibles included in KREF’s Condensed Consolidated Statements of Income:
Note 5. Debt
Three Months EndedNine Months Ended
Income Statement LocationSeptember 30, 2022September 30, 2022
Asset
In-place lease intangiblesExpenses from real estate owned operations17 50 
Liability
Below-market lease intangiblesRevenue from real estate owned operations91 273 

The following table summarizes KREF's secured financing agreements and other consolidated debt obligations in place aspresents the amortization of September 30, 2017 and December 31, 2016:lease intangibles for each of the five succeeding fiscal years:

YearIn-place Lease Intangible AssetsBelow-market Lease Intangible Liabilities
2022$17 $92 
202367 365 
202467 365 
202567 365 
202667 365 

Future Minimum Lease Payments — The following table presents the future minimum lease payments to be collected under non-cancelable operating leases, excluding tenant reimbursements of expenses:

YearContractual
Lease Payments
2022$2,349 
20233,811 
20242,932 
20252,234 
20261,180 
Thereafter— 
28
  September 30, 2017 December 31, 2016
  Facility Collateral Facility
            
Weighted Average(B)
       
  
  Month Issued Outstanding Face Amount 
Carrying Value(A)
 Maximum Facility Size Final Stated Maturity Funding Cost Life (Years) Outstanding Face Amount Amortized Cost Basis Carrying Value 
Weighted Average Life (Years)(C)
 
Carrying Value(A)
Secured Financing Agreements                     
Master Repurchase Agreements(D)
                    
Wells Fargo(E)
 Oct 2015 $485,250
 $482,060
 $750,000
 Apr 2022 3.5% 1.8 $679,553
 $674,829
 $674,829
 4.0 $262,883
Morgan Stanley(F)
 Dec 2016 266,347
 264,802
 500,000
 Dec 2020 3.8
 2.2 687,707
 682,245
 682,245
 3.8 177,764
JP Morgan(G)
 Oct 2015 —
 (875) 250,000
 Oct 2018 0.4
 0.0 n.a.
 n.a.
 n.a.
 n.a. (1,503)
Goldman Sachs(H)
 Sep 2016 10,000
 10,000
 250,000
 Sep 2020 3.9
 1.9 81,000
 80,412
 80,412
 4.8 —
Revolving Credit Agreement                      
Barclays(I)
 May 2017 —
 —
 75,000
 May 2020 1.7
 0.0 n.a.
 n.a.
 n.a.
 n.a. n.a.
    761,597
 755,987
 1,825,000
   3.6% 1.9         439,144
VIE Liabilities                     
CMBS(J)
 Various 5,007,422
 5,313,914
 n.a.
 Mar 2048 to Feb 2049 4.3% 7.4 5,316,581
 n.a.
 5,429,874
 7.4 5,313,574
    5,007,422
 5,313,914
 n.a.
   4.3
 7.4         5,313,574
Total / Weighted Average $5,769,019
 $6,069,901
 $1,825,000
   4.2% 6.7         $5,752,718

(A)Net of $5.6 million and $6.4 million unamortized debt issuance costs as of September 30, 2017 and December 31, 2016, respectively.
(B)Average weighted by the outstanding face amount of borrowings.
(C)Average based on the fully extended loan maturity, weighted by the outstanding face amount of the collateral.
(D)Borrowings under these repurchase agreements are collateralized by senior loans, held-for-investment, and bear interest equal to the sum of (i) a floating rate index, subject to a floor of no less than zero, equal to one-month LIBOR, or an index approximating LIBOR, and (ii) a margin, based on the collateral. As of September 30, 2017 and December 31, 2016, the percentage of the outstanding face amount of the collateral sold and not borrowed under these repurchase agreements, or average "haircut" weighted by outstanding face amount of collateral, was 47.4% and 28.8%, respectively (or 28.1% and 25.9%, respectively, if KREF had borrowed the maximum amount approved by its repurchase agreement counterparties as of such dates).
(E)In April 2017, KREF and Wells Fargo Bank, National Association ("Wells Fargo") amended and restated the master repurchase agreement to extend the facility maturity date and to increase the maximum facility size from $500.0 million to $750.0 million. In September 2017, KREF and Wells Fargo amended the amended and restated repurchase agreement to make certain operational changes.The current stated maturity of the facility is April 2020, which does not reflect two, twelve-month facility term extensions available to KREF, which is contingent upon certain covenants and thresholds. As of September 30, 2017, the collateral-based margin was between 1.80% and 2.15%.
(F)In December 2016, KREF entered into a $500.0 million repurchase facility with Morgan Stanley Bank, N.A. ("Morgan Stanley"). The current stated maturity of the facility is December 2019, which does not reflect one, twelve-month facility term extension available to KREF, which is contingent upon certain covenants and thresholds and, even if such covenants and thresholds are satisfied, is at the sole discretion of Morgan Stanley. As of September 30, 2017, the collateral-based margin was between 2.00% and 2.45%.
(G)
The current stated maturity of the facility is October 2018, which does not reflect facility term extensions available to KREF at the discretion of JPMorgan Chase Bank, National Association ("JP Morgan"). In December 2016, KREF used the $500.0 million repurchase facility with Morgan Stanley to repurchase all of the senior loans financed by the master repurchase facility with JP Morgan. The negative carrying value reflects unamortized debt issuance costs presented in KREF's Condensed Consolidated Balance Sheets as a direct deduction from the carrying amount of the recognized debt liability in accordance with ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.
(H)In September 2016, KREF entered into a $250.0 million repurchase facility with Goldman Sachs Bank USA ("Goldman Sachs"). The facility has a revolving period of one year, and a three-year term on a per-asset basis as those assets are pledged to the facility. As of September 30, 2017, the carrying value excluded $0.5 million unamortized debt issuance costs presented as " — Other assets" in KREF's Condensed Consolidated Balance Sheets. As of September 30, 2017, the collateral-based margin was 2.50%. See Note 12 for activities subsequent to September 30, 2017.
(I)In May 2017, KREF entered into a $75.0 million corporate secured revolving credit facility administered by Barclays Bank PLC ("Barclays "). The current stated maturity of the facility is May 2019, which does not reflect one, twelve-month facility term extension available to KREF at the discretion of Barclays. Borrowings under the facility bear interest at a per annum rate equal to the sum of (i) a floating rate index and (ii) a fixed margin. Amounts borrowed under this facility are 100% recourse to KREF. As of September 30, 2017, the carrying value excluded $1.3 million unamortized debt issuance costs presented as " — Other assets" in KREF's Condensed Consolidated Balance Sheets.

17
Table of Contents
KKR Real Estate Finance Trust Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in tables in thousands, except per share amounts)
Note 5. Debt Obligations

(J)Facility amounts represent CMBS issued by five trusts that KREF consolidates, but that are not beneficially owned by KREF's stockholders. The facility and collateral carrying amounts included $18.7 million accrued interest payable and $19.8 million accrued interest receivable as of September 30, 2017. As of December 31, 2016, the facility and collateral carrying amounts included $18.8 million accrued interest payable and $19.9 million accrued interest receivable. The final stated maturity date represents the rated final distribution date of CMBS issued by trusts that KREF consolidates, but that are not beneficially owned by KREF's stockholders.
The following table summarizes KREF's secured master repurchase agreements and other financing arrangements in place as of September 30, 2022 and December 31, 2021:

September 30, 2022December 31, 2021
FacilityCollateralFacility
Month IssuedMaximum Facility SizeOutstanding Principal
Carrying Value(A)
Final Stated Maturity
Weighted Average Funding Cost(B)
Weighted Average Life (Years)(B)
Outstanding PrincipalAmortized Cost BasisCarrying Value
Weighted Average Life (Years)(C)
Carrying Value(A)
Master Repurchase Agreements(D)
Wells Fargo(E)
Oct 2015$1,000,000 $715,981 $713,925 Sep 20264.4 %2.6$978,669 $967,968 $957,673 3.9$978,615 
Morgan Stanley(F)
Dec 2016600,000 583,716 583,415 Dec 20235.1 1.0790,539 785,813 776,154 3.3382,081 
Goldman Sachs(G)
Sep 2016240,000 123,658 122,912 Oct 20255.3 2.4287,517 282,844 281,585 4.0189,456 
Term Lending Agreements
KREF Lending V(H)
Jun 2019567,115 539,050 538,621 Jun 20264.8 0.5686,622 686,143 664,130 1.3617,185 
KREF Lending IX(I)
Jul 20211,000,000 642,438 633,223 n.a5.0 2.4813,181 805,757 802,926 4.3493,853 
KREF Lending XII(J)
Jun 2022350,000 161,140 159,553 n.a4.8 3.1217,395 215,713 214,982 4.5— 
Warehouse Facility
HSBC Facility(K)
Mar 2020500,000 — — Mar 2023— 0.4— — — n.a(55)
Asset Specific Financing
BMO Facility(L)
Aug 2018300,000 — — n.a— 0.0— — — n.a60,000 
KREF Lending XI(M)
Apr 2022100,000 100,000 98,942 n.a6.0 1.9125,000 124,324 124,178 3.9— 
KREF Lending XIII(N)
Aug 2022265,625 38,165 34,853 n.a6.2 3.944,900 41,901 41,818 4.9— 
Revolving Credit Agreement
Revolver(O)
Dec 2018610,000 — — Mar 2027— 4.5 n.a n.an.an.a135,000 
Total / Weighted Average$5,532,740 $2,904,148 $2,885,444 4.9 %1.8$2,856,135 

(A)    Net of $18.7 million and $11.3 million unamortized deferred financing costs as of September 30, 2022 and December 31, 2021, respectively.
(B)    Average weighted by the outstanding principal of borrowings. Funding cost includes deferred financing costs.
(C)    Average based on the fully extended loan maturity, weighted by the outstanding principal of the collateral.
(D)    Borrowings under these repurchase agreements are collateralized by senior loans, held-for-investment, and bear interest equal to the sum of (i) a floating rate index, including one-month LIBOR and Term SOFR, and (ii) a margin, based on the collateral. As of September 30, 2022 and December 31, 2021, the percentage of the outstanding principal of the collateral sold and not borrowed under these repurchase agreements, or average "haircut" weighted by outstanding principal of collateral, was 30.8% and 30.3%, respectively (or 25.5% and 25.9%, respectively, if KREF had borrowed the maximum amount approved by its repurchase agreement counterparties as of such dates).
(E)    The current stated maturity date is September 2024, which does not reflect two twelve-month facility term extension options available to KREF, which are subject to certain covenants and thresholds. As of September 30, 2022, the collateral-based margin was between 1.25% and 1.55%.
(F)    The current stated maturity is December 2022, with a one-year extension option upon KREF giving written notice and another two one-year extension periods subject to approval by the lender. In addition, KREF has the option to increase the facility amount to $750.0 million. As of September 30, 2022, the collateral-based margin was between 1.70% and 2.40%.
(G)    In September 2022, KREF paid an extension fee to extend the final extended maturity date to October 2025. As of September 30, 2022, the collateral-base margin was between 1.75% and 3.20%.
(H)    KREF, through its wholly–owned subsidiary KREF Lending V LLC, entered into a Master Repurchase and Securities Contract Agreement ("KREF Lending V Facility") with Morgan Stanley Mortgage Capital Holdings LLC ("Administrative Agent"), as administrative agent on behalf of Morgan Stanley Bank, N.A. ("Initial Buyer"), which provides non-mark-to-market financing. The Initial Buyer subsequently syndicated a portion of the facility to multiple financial institutions. As of September 30, 2022, the Initial Buyer held 23.8% of the total commitment under the facility. Borrowings under the facility are collateralized by certain loans, held for investment, and bear interest equal to one-month LIBOR, plus a 1.90% margin. The current stated maturity is June 2023, subject to three additional one-year extension options, which may be exercised by KREF upon the satisfaction of certain customary conditions and thresholds.
(I)    KREF, through its wholly–owned subsidiary KREF Lending IX LLC, entered into a $500.0 million Master Repurchase and Securities Contract Agreement with a financial institution ("KREF Lending IX Facility"). In March 2022, KREF increased the borrowing capacity to $750.0 million. In August 2022, KREF further increased the borrowing capacity to $1,000.0 million. The facility, which provides financing on a non-mark-to-market basis with partial recourse to KREF, has a three-year draw period and match-term to the underlying loans. As of September 30, 2022, the collateral-based margin was between 1.65% and 1.79%.
(J)    KREF, through its wholly–owned subsidiary KREF Lending XII LLC, entered into a $350.0 million Master Repurchase Agreement and Securities Contract with a financial institution ("KREF Lending XII Facility"). The facility, which provides financing on a non-mark-to-market basis with partial recourse to KREF, has a two-year draw period and match-term to the underlying loans. In addition, KREF has the option to increase the facility amount to $500.0 million. As of September 30, 2022, the collateral-based margin was between 1.35% and 1.45%.
(K)    KREF entered into a $500.0 million Loan and Security Agreement with HSBC Bank USA, National Association (“HSBC Facility”). The facility, which matures in March 2023, provides warehouse financing on a non-mark-to-market basis with partial recourse to KREF.
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Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
(L)    KREF entered into a $200.0 million loan financing facility with BMO Harris Bank ("BMO Facility") and subsequently increased the borrowing capacity to $300.0 million. The facility provides asset-based financing on a non-mark to market basis with match-term up to five years with partial recourse to KREF.
(M)    KREF, through its wholly-owned subsidiary KREF Lending XI LLC, entered into a $100.0 million loan financing facility with a financial institution ("KREF Lending XI Facility"). The facility provides match-term asset-based financing on a non-mark-to-market and non-recourse basis. As of September 30, 2022, the collateral-based margin was 2.65%.
(N)    KREF, through its wholly-owned subsidiary KREF Lending XIII LLC, entered into a $265.6 million loan financing facility with a financial institution ("KREF Lending XIII Facility"). The facility provides match-term asset-based financing on a non-mark-to-market and non-recourse basis. As of September 30, 2022, the collateral-based margin was 3.0%.
(O)    KREF entered into a $100.0 million corporate revolving credit facility (“Revolver”) administered by Morgan Stanley Senior Funding, Inc. Additional lenders were added subsequently, further increasing the Revolver borrowing capacity to $610.0 million as of September 30, 2022. The current stated maturity of the facility is March 2027. Borrowings under the facility bear interest at a per annum rate equal to the sum of (i) a floating rate index and (ii) a fixed margin. Borrowings under this facility are full recourse to certain guarantor wholly-owned subsidiaries of KREF. As of September 30, 2022, the carrying value excluded $5.2 million unamortized debt issuance costs presented within "Other assets" on KREF's Condensed Consolidated Balance Sheets.

As of September 30, 20172022 and December 31, 2016,2021, KREF had outstanding repurchase agreements and term lending agreements where the amount at risk with any individual counterparty, or group of related counterparties, exceeded 10.0% of KREF’s stockholders' equity. The amount at risk under repurchasethese agreements is the net counterparty exposure, defined as the excess of the carrying amount (or market value, if higher than the carrying amount)amount, for repurchase agreements) of the assets sold under agreement to repurchase, including accrued interest plus any cash or other assets on deposit to secure the repurchase obligation, over the amount of the repurchase liability, adjusted for accrued interest. The following table summarizes certain characteristics of KREF's repurchase agreements where the amount at risk with any individual counterparty, or group of related counterparties, exceeded 10.0% of KREF’s stockholders' equity as of September 30, 20172022 and December 31, 2016:

  Outstanding Face Amount Net Counterparty Exposure Percent of Stockholders' Equity 
Weighted Average Life (Years)(A)
September 30, 2017        
Wells Fargo Bank, National Association $485,250
 $191,618
 18.0% 1.8
Morgan Stanley Bank, N.A. 266,347
 417,376
 39.3
 2.2
Total / Weighted Average $751,597
 $608,994
 57.3% 1.9
December 31, 2016        
Wells Fargo, National Association $265,650
 $107,664
 21.6% 2.0
Morgan Stanley Bank, N.A. 179,932
 65,533
 13.2
 3.0
Total / Weighted Average $445,582
 $173,197
 34.8% 2.4

(A)Average weighted by the outstanding face amount of borrowings under the secured financing agreement.

2021:

Outstanding PrincipalNet Counterparty ExposurePercent of Stockholders' Equity
Weighted Average Life (Years)(A)
September 30, 2022
Wells Fargo$715,981 $254,175 15.9 %2.6
Morgan Stanley583,716 195,815 12.3 1.0
KREF Lending IX642,438 165,872 10.4 2.4
Goldman Sachs123,658 162,289 10.2 2.4
Total / Weighted Average$2,065,793 $778,151 48.8 %2.1
December 31, 2021
Wells Fargo$980,593 $409,489 30.1 %3.4
Morgan Stanley383,592 166,426 12.2 0.8
KREF Lending V(B)
617,627 139,149 10.2 0.5
Total / Weighted Average$1,981,812 $715,064 52.5 %2.0

(A)    Average weighted by the outstanding principal of borrowings under the secured financing agreement.
(B)    There were multiple counterparties to the KREF Lending V Facility. Morgan Stanley Bank, N.A. represented 2.5% of the net counterparty exposure as a percent of stockholders' equity as of December 31, 2021.

Debt obligations included in the tables above are obligations of KREF’s consolidated subsidiaries, which own the related collateral, and such collateral is generally not available to other creditors of KREF. In particular, holders of CMBS, including KREF, are unable to directly own the mortgages, properties or other collateral held by the issuing trust that KREF presents as "
Assets — Commercial mortgage loans held in variable interest entities, at fair value" in its Condensed Consolidated Balance Sheets.

While KREF is generally not required to post margin under certain repurchase agreement terms for changes in general capital market conditions such as changes in credit spreads or interest rates, KREF may be required to post margin for changes in conditions to specific to loans that serve as collateral for those repurchase agreements. Such changes may include declines in the appraised value of property that secures a loan or a negative change in the borrower's ability or willingness to repay a loan. To the extent that KREF is required to post margin, KREF's liquidity could be significantly impacted. Both KREF and its lenders work cooperatively to monitor the performance of the properties and operations related to KREF's loan investments to mitigate investment-specific credit risks. Additionally, KREF incorporates terms in the loans it originates to further mitigate risks related to loan nonperformance.


Term Loan Financing

In April 2018, KREF, through its consolidated subsidiaries, entered into a term loan financing agreement (“Term Loan Facility”) with third party lenders for an initial borrowing capacity of $200.0 million that was subsequently increased to $1.0 billion in October 2018. The facility provides asset-based financing on a non-mark-to-market basis with match-term up to five
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KKR Real Estate Finance Trust Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in tables in thousands, except per share amounts)

years and is non-recourse to KREF. Borrowings under the facility are collateralized by senior loans, held-for-investment, and bear interest equal to one-month LIBOR plus a margin. The weighted average margin on the facility were 1.8% and 1.6% as of September 30, 2022 and December 31, 2021, respectively.
Activities
The following tables summarize our borrowings under the Term Loan Facility:

September 30, 2022
Term Loan FacilityCountOutstanding PrincipalAmortized CostCarrying Value
Wtd. Avg. Yield/Cost(A)
Guarantee(B)
Wtd. Avg. Term(C)
Collateral assets10$719,961 $716,517 $688,843 + 3.4%n.a.February 2026
Financing providedn.a.584,033 583,681 583,681 + 1.8%n.a.February 2026
December 31, 2021
Term Loan FacilityCountOutstanding PrincipalAmortized CostCarrying Value
Wtd. Avg. Yield/Cost(A)
Guarantee(B)
Wtd. Avg. Term(C)
Collateral assets12$1,078,795 $1,076,241 $1,074,116 L + 3.4%n.a.August 2024
Financing providedn.a.870,458 870,458 870,458 L + 1.6%n.a.August 2024

(A)     Floating rate loans and related liabilities are indexed to one-month LIBOR and/or Term SOFR. KREF's net interest rate exposure is in direct proportion to its interest in the net assets indexed to that rate. In addition to cash coupon, yield/cost includes the amortization of deferred origination/financing costs.
(B)    Financing under the Term Loan Facility is non-recourse to KREF.
(C)    The weighted-average term is weighted by outstanding principal, using the maximum maturity date of the underlying loans assuming all extension options are exercised by the borrower.

Activity — ActivitiesFor the nine months ended September 30, 2022, the activity related to the carrying value of KREF’s secured financing agreements and other consolidated debt obligations were as follows:
Secured Financing Agreements, Net
Balance as of December 31, 2021$3,726,593
Principal borrowings1,901,607 
Principal repayments/sales(2,151,319)
Deferred debt issuance costs(15,715)
Amortization of deferred debt issuance costs7,960 
Balance as of September 30, 2022$3,469,126
  Secured Financing Agreements, Net Variable Interest Entity Liabilities, at Fair Value Total
Balance at December 31, 2016 $439,144
 $5,313,574
 $5,752,718
Principal borrowings
776,447

—

776,447
Principal repayments
(460,432)
(34,957)
(495,389)
Deferred debt issuance costs
(1,329)
—

(1,329)
Amortization of deferred debt issuance costs
1,346

—

1,346
Fair value adjustment
—

35,400

35,400
Other(A)

811

(103)
708
Balance at September 30, 2017
$755,987

$5,313,914

$6,069,901

(A)    Amounts principally consist of changes in accrued interest payable and cost adjustments.

Maturities — KREF’s secured financing agreements, term loan financing and other consolidated debt obligations in place as of September 30, 20172022 had current contractual maturities as follows:

Year 
Nonrecourse(A)
 
Recourse(B)
 Total
2017 $3,315
 $75,000
 $78,315
2018 49,610
 87,900
 137,510
2019 61,593
 296,347
 357,940
2020 455,101
 302,350
 757,451
2021 75,545
 —
 75,545
Thereafter 4,362,258
 —
 4,362,258
  $5,007,422
 $761,597
 $5,769,019
YearNonrecourse
Recourse(A)
Total
2022$220,535 $49,245 $269,780 
2023892,789 248,386 1,141,175 
2024854,634 158,439 1,013,073 
2025423,976 141,325 565,301 
Thereafter404,751 94,100 498,851 
$2,796,685 $691,495 $3,488,180 

(A)Amounts related to consolidated CMBS VIE liabilities that represent securities not beneficially owned by KREF's stockholders.
(B)Amounts borrowed subject to a maximum 25.0% recourse limit.
(A)    Except for the Revolver, which is full recourse, amounts borrowed subject to a maximum 25.0% recourse limit. The Revolver expires in March 2027.

Covenants — KREF is required to comply with customary loan covenants and event of default provisions related to its secured financing agreements and Revolver, including, but not limited to, negative covenants relating to restrictions on operations with respect to KREF’s status as a REIT, and financial covenants. Such financial covenants include an interest income to interest expense ratio covenant (1.5 to 1.0); a minimum consolidated tangible net worth covenant (75.0% of the aggregate cash proceeds of any equity issuances made and any capital contributions received by KREF and certain subsidiaries)subsidiaries or up to approximately $1,353.4 million depending upon the facility); a cash liquidity covenant (the greater of $10.0 million or 5.0% of KREF's recourse indebtedness); and a total indebtedness covenant (75.0%(83.3% of KREF's total assets, netTotal Assets, as defined in the applicable
31
Table of VIE liabilities); a maximum debt-to-equity ratio (3.5Contents
KKR Real Estate Finance Trust Inc.
Notes to 1.0); and a minimum fixed charge coverage ratio (1.5 to 1.0)Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
financing agreements). As of September 30, 20172022 and December 31, 2016,2021, KREF was in compliance with its financial loandebt covenants.


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KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Note 6. Collateralized Loan Obligations

In August 2021, KREF financed a pool of loan participations from its existing loan portfolio through a managed CLO ("KREF 2021-FL2"). KREF 2021-FL2 provides KREF with match-term financing on a non-mark-to-market and non-recourse basis. KREF 2021-FL2 has a two-year reinvestment feature that allows principal proceeds of the collateral assets to be reinvested in qualifying replacement assets, subject to the satisfaction of certain conditions set forth in the indenture. Upon the execution of the KREF 2021-FL2, KREF recorded $8.9 million in issuance costs, inclusive of $0.9 million in structuring and placement agent fees paid to KKR Capital Markets LLC ("KCM"), an affiliate of KREF.

In February 2022, KREF financed a pool of loan participations from its existing multifamily loan portfolio through a managed CLO ("KREF 2022-FL3"). KREF 2022-FL3 provides KREF with match-term financing on a non-mark-to-market and non-recourse basis and has a two-year reinvestment feature. Upon the execution of the KREF 2022-FL3, KREF recorded $7.4 million in issuance costs, inclusive of $0.5 million in structuring and placement agent fees paid to KCM.

The CLO issuance costs are netted against the outstanding principal balance of the CLO notes in "Collateralized loan obligations, net" in the Condensed Consolidated Balance Sheets.

The following tables outline CLO collateral assets and respective borrowing as of September 30, 2022 and December 31, 2021:

September 30, 2022
 Count Outstanding Principal Amortized Cost Carrying Value
Wtd. Avg. Yield/Cost(A)
Wtd. Avg. Term(B)
KREF 2021-FL2
Collateral assets(C)(D)
19$1,300,000 $1,300,000 $1,281,618 + 3.3%January 2026
Financing provided11,095,250 1,091,258 1,091,258 L + 1.7%February 2039
KREF 2022-FL3
Collateral assets(C)
15$1,000,000 $1,000,000 $995,326 + 3.0%September 2026
Financing provided1847,500 842,398 842,398 S + 2.1%February 2039

December 31, 2021
KREF 2021-FL2 Count Outstanding Principal Amortized Cost Carrying ValueWtd. Avg. Yield/Cost
Wtd. Avg. Term(B)
Collateral assets(C)(D)
20$1,300,000 $1,300,000 $1,296,745 L + 3.4%June 2025
Financing provided11,095,250 1,087,976 1,087,976 L + 1.7%February 2039

(A)    Expressed as a spread over the relevant benchmark rates, which include one-month LIBOR and Term SOFR, as applicable to each loan. As of September 30, 2022, 83.9% and 16.1% of the CLO collateral loan assets by principal balance earned a floating rate of interest indexed to one-month LIBOR and Term SOFR, respectively. In addition to cash coupon, yield/cost includes the amortization of deferred origination/financing costs.
(B)    Loan term represents weighted-average final maturity, assuming all extension options are exercised by the borrowers, weighted by outstanding principal. Repayments of CLO notes are dependent on timing of underlying collateral loan asset repayments post reinvestment period. The term of the CLO notes represents the rated final distribution date.
(C)    Collateral loan assets represent 30.2% and 19.6% of the principal of KREF's commercial real estate loans as of September 30, 2022 and December 31, 2021, respectively. As of September 30, 2022 and December 31, 2021, 100% of KREF loans financed through the CLOs are floating rate loans.
(D)    Including $79.0 million and $54.0 million cash held in CLO as of September 30, 2022 and December 31, 2021, respectively.

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KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
The following table presents the CLO assets and liabilities included in KREF’s Condensed Consolidated Balance Sheets:

AssetsSeptember 30, 2022December 31, 2021
Cash$79,000 $54,000 
Commercial real estate loans, held-for-investment2,221,000 1,246,000 
Less: Allowance for credit losses(23,056)(3,255)
Commercial real estate loans, held-for-investment, net2,197,944 1,242,745 
Accrued interest receivable8,687 3,091 
Other assets155 766 
Total$2,285,786 $1,300,602 
Liabilities
Collateralized loan obligations, net(A)
$1,933,656 $1,087,976 
Accrued interest payable3,160 852 
Total$1,936,816 $1,088,828 

(A)     Net of $9.1 million and $7.3 million of unamortized deferred financing costs as of September 30, 2022 and December 31, 2021, respectively.

The following table presents the components of net interest income of CLOs included in KREF’s Condensed Consolidated Statements of Income:

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Net Interest Income
  Interest income$31,403 $11,979 $72,289 $33,932 
  Interest expense(A)
20,325 3,926 41,152 9,857 
    Net interest income$11,078 $8,053 $31,137 $24,075 

(A)     Net of interest expense on internally held CLO notes. Includes$2.0 million and $5.7 million of deferred financing costs amortization for the three and nine months ended September 30, 2022, respectively.
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Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Note 7. Secured Term Loan, Net

In September 2020, KREF entered into a $300.0 million secured term loan at a price of 97.5%, which bears interest at a per annum rate equal to LIBOR plus a 4.75% margin, subject to a 1.0% LIBOR floor, payable quarterly beginning in December 2020. The secured term loan is partially amortizing, with an amount equal to 1.0% per annum of the principal balance due in quarterly installments starting March 31, 2021. The secured term loan matures on September 1, 2027 and contains restrictions relating to liens, asset sales, indebtedness, investments and transactions with affiliates. The secured term loan is secured by KREF level guarantees and does not include asset-based collateral. Upon the execution of the secured term loan, KREF recorded a $7.5 million issuance discount and $5.1 million in issuance costs, inclusive of $1.1 million in arrangement and structuring fees paid to KCM.

In November 2021, KREF completed the repricing of a $297.8 million then existing secured term loan and a $52.2 million add-on, for an aggregate principal amount of $350.0 million due September 2027, which was issued at par. The upsize of the secured term loan was accounted for as partial debt extinguishment under GAAP, accordingly, KREF recognized an accelerated deferred loan financing cost of $0.7 million during the fourth quarter of 2021. The new secured term loan bears interest at LIBOR plus 3.5% and is subject to a LIBOR floor of 0.5%. KREF recorded $2.0 million in issuance costs, inclusive of $0.8 million in arrangement and structuring fees paid to KCM.

Inclusive of the amortization of the discount and issuance costs, KREF’s total cost of the secured term loan is LIBOR plus 4.1% per annum, subject to the applicable LIBOR floor, as of September 30, 2022. The following table summarizes KREF’s secured term loan at September 30, 2022 and December 31, 2021, respectively:
September 30, 2022December 31, 2021
Principal amount$347,375 $350,000 
Unamortized discount(4,907)(5,652)
Deferred financing costs(5,287)(5,799)
Carrying amount$337,181 $338,549 

Covenants — KREF is required to comply with customary loan covenants and event of default provisions related to its secured term loan that include, but are not limited to, negative covenants relating to restrictions on operations with respect to KREF’s status as a REIT, and financial covenants. Such financial covenants include a minimum consolidated tangible net worth of $650.0 million and a maximum Total Debt to Total Assets ratio, as defined in the secured term loan agreements, of 83.3% (the “Leverage Covenant”). KREF was in compliance with such covenants as of September 30, 2022 and December 31, 2021.
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KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Note 8. Convertible Notes, Net

In May 2018, KREF issued $143.75 million of Convertible Notes, which bear interest at a rate of 6.125% per year, payable semi-annually in arrears on May 15 and November 15 of each year, beginning on November 15, 2018. The Convertible Notes mature on May 15, 2023, unless earlier repurchased or converted. The Convertible Notes’ issuance costs of $5.1 million are amortized through interest expense over the life of the Convertible Notes.

The initial conversion rate for the Convertible Notes is 43.9386 shares of KREF’s common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $22.76 per share of KREF’s common stock, which represents a 10% conversion premium over the last reported sale price of $20.69 per share of KREF’s common stock on the New York Stock Exchange on May 15, 2018. The conversion rate is subject to adjustment under certain circumstances. In addition, upon a make-whole fundamental change as defined within the indenture governing the Convertible Notes, KREF will, under certain circumstances, increase the applicable conversion rate for a holder that elects to convert its Notes in connection with such make-whole fundamental change. Prior to February 15, 2023, the Convertible Notes will be convertible only upon satisfaction of certain conditions and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. KREF will satisfy any conversion elections by paying or delivering, as the case may be, cash, shares of KREF’s common stock or a combination of cash and shares of KREF’s common stock, at its election.

Upon the issuance of the Convertible Notes, KREF recorded a $1.8 million discount based on the implied value of the conversion option and an assumed effective interest rate of 6.50%, as well as $5.1 million of initial issuance costs, inclusive of $0.8 million paid to KCM. Inclusive of the amortization of this discount and the issuance costs, KREF’s total cost of the May 2018 Convertible Notes issuance is 6.92% per annum.

The following table details the carrying value of the Convertible Notes on KREF's Condensed Consolidated Balance Sheets:

September 30, 2022December 31, 2021
Principal$143,750 $143,750 
Deferred financing costs(638)(1,405)
Unamortized discount(224)(494)
Carrying value$142,888 $141,851 

The following table details the interest expense related to the Convertible Notes:

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Cash coupon$2,201 $2,202 $6,604 $6,604 
Discount and issuance cost amortization349 350 1,037 1,037 
Total interest expense$2,550 $2,552 $7,641 $7,641 

Accrued interest payable for the Convertible Notes was $3.3 million and $1.1 million as of September 30, 2022 and December 31, 2021. Refer to Note2 for additional discussion of accounting policies for the Convertible Notes.
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KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Note 9. Loan Participations Sold

KREF finances certain loan investments through the syndication of a non-recourse, or limited-recourse, loan participations to unaffiliated third parties. In October 2019, KREF syndicated a $65.0 million vertical participation in one of its loan investments with a principal balance of $328.5 million to an unaffiliated third party, at par value. In June 2020, KREF increased the maximum loan amount by $6.5 million and syndicated an additional $1.2 million vertical participation to the same third party. Such syndications did not qualify for "sale" accounting under GAAP and therefore were consolidated in KREF's condensed consolidated financial statements. In September 2021, KREF fully repaid the $66.2 million vertical loan participation in connection with the payoff of the underlying loan.

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KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Note 6.10. Variable Interest Entities


CMBSCollateralized Loan Obligations — KREF's stockholders beneficially owned CMBS with an unpaid principal balance and fair value of $309.2 million and $114.9 million, respectively, as of September 30, 2017.

KREF was required to consolidate each of the five trusts from the date of acquisition through September 30, 2017 since KREF retained the controlling class and management determined KREF was the primary beneficiary of those trusts. Further, management irrevocably elected the fair value option for each of the five trusts and carries the fair values of the trusts' assets and liabilities at fair value in its Condensed Consolidated Balance Sheets; recognizes changes in the trusts' net assets, including fair value adjustments, in its Condensed Consolidated Statements of Operations; and records cash interest received from the trusts, net of cash interest paid to CMBS not beneficially owned by KREF, as operating cash flows. As of September 30, 2017, KREF recognized trust assets and liabilities of $5.4 billion, including $19.8 million of accrued interest receivable, and $5.3 billion, including $18.7 million of accrued interest payable but excluding amounts eliminated in consolidation, respectively, at their fair values.


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KKR Real Estate Finance Trust Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in tables in thousands, except per share amounts)

For the nine months ended September 30, 2017, the $12.8 million of "Other Income — Change in net assets related to consolidated variable interest entities" in the accompanying Condensed Consolidated Statements of Operations principally consists of $9.3 million of interest earned, net of amounts that KREF does not expect to collect, and $3.5 million of unrealized gain (loss) on KREF's investments in CMBS in which KREF stockholders hold a beneficial interest.

See Note 10 for additional information regarding the valuation of financial assets and liabilities held by KREF's consolidated VIEs.

Concentration of Credit Risk — The following tables present the geographies and property types of collateral underlying the CMBS trusts consolidated by KREF, as a percentage of the collateral unpaid principal balance and weighted by the fair value of the CMBS beneficially owned by KREF's stockholders:
  September 30, 2017 December 31, 2016   September 30, 2017 December 31, 2016
Geography   Collateral Property Type  
California 23.2% 23.0% Office 26.4% 26.3%
Texas 12.7
 12.7
 Retail 25.2
 25.2
New York 9.2
 9.2
 Hospitality 15.0
 15.1
Illinois 7.1
 7.1
 Multifamily 10.6
 10.6
Florida 5.5
 5.5
 Industrial 9.6
 9.6
Missouri 4.6
 4.6
 Mixed Use 7.0
 7.0
Pennsylvania 4.5
 4.5
 Self Storage 3.0
 3.1
Georgia 2.9
 3.0
 Mobile Home 2.7
 2.7
Michigan 2.7
 2.7
 Other 0.5
 0.4
Ohio 2.5
 2.5
 Total 100.0% 100.0%
Other U.S. 25.1
 25.2
      
Total 100.0% 100.0%      



Commercial Mezzanine Loan Joint Venture — KREF holds a 95.0% interest, and is the primary beneficiary of its consolidated CLOs (Note 6). Management considers the CLO Issuers, wholly-owned subsidiaries of KREF, to be the primary beneficiary as the CLO Issuers have the ability to control the most significant activities of the CLO, the obligation to absorb losses, and the right to receive benefits of the CLO through the subordinate interests the CLO Issuers own.

Real Estate Owned Joint Venture — Concurrently with taking title of KREF’s sole REO asset, KREF contributed the REO to a joint venture consolidated aswith a third party local developer operator (“JV Partner”), whereby KREF has a 90% interest in the joint venture and the JV Partner has a 10% interest. Management determined the joint venture to be a VIE as the joint venture has insufficient equity-at-risk and concluded that invests in commercial mezzanine loans (Note 3). 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.

As of September 30, 2017,2022, the joint venture held seven loansREO assets with an amortized cost basisa net carrying value of $61.2$69.8 million presented within "Assets. KREF has priority of distributions up to $70.5 million — Commercial mortgage loans, held-for-investment, net"before the JV Partner can participate in the accompanying Condensed Consolidated Balance Sheets. economics of the joint venture.

Equity Method Investments

As of September 30, 2017, the joint venture did not have any liabilities.

Equity Investments in Unconsolidated Subsidiaries —2022, KREF holds two investments in entities that it records using the equity method.

As of September 30, 2017, KREF holdsheld a 3.5% interest in RECOP I, an unconsolidated VIE of which KREF is not the primary beneficiary.beneficiary, at its fair value of $36.9 million. The aggregator vehicle in which KREF invests is controlled and advised by affiliates of the Manager. RECOP intends toI primarily acquireacquired junior tranches of CMBS newly issued by third parties but may also make purchases on the secondary market.parties. KREF will not pay any fees to RECOP I, but KREF bears its pro rata share of RECOP'sRECOP I's expenses. KREF reported its share of the net asset value of RECOP I in its Condensed Consolidated Balance Sheets, presented as “Equity investments in unconsolidated subsidiaries”method investments” and its share of net income, presented as “Income (loss) from equity investments in unconsolidated subsidiaries”method investments” in the Condensed Consolidated StatementStatements of Operations.Income.

As of September 30, 2017, theKREF, through a Taxable REIT Subsidiary ("TRS"), held non-voting limited liability company interests issued by the Manager ("Non-Voting Manager Units"), a VIE, and held by a taxable REIT subsidiary ("TRS") of KREF for the benefit of the holder of the SNVPS represented 4.7% of the Manager’s outstanding limited liability company interests (Note 7)11). KREF reported its allocable percentage of the assets and liabilities of the Manager in its Condensed Consolidated Balance Sheets, presented as “Equity investment in unconsolidated subsidiary” and its share of net income, presented as “Income (loss) from equity investment in unconsolidated subsidiary”method investments” in the Condensed Consolidated StatementStatements of Operations.

Income. On October 1, 2021, KREF TRS redeemed its interest in the Manager for a cash call amount of $5.1 million when the KKR Member exercised its Call Option to redeem the Non-Voting Manager Units, including the Non-Voting Manager Units held by KREF TRS.
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KKR Real Estate Finance Trust Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in tables in thousands, except per share amounts)

Note 11. Equity
Note 7. Equity

Authorized Capital — On October 2, 2014, KREF's board of directors authorized KREF to issue up to 350,000,000 shares of stock, at $0.01 par value per share, consisting of 300,000,000 shares of common stock and 50,000,000 shares of preferred stock, subject to certain restrictions on transfer and ownership of shares. Restrictions placed on the transfer and ownership of shares relate to KREF's REIT qualification requirements.

Common Stock — In March 2016,As further described below, since December 2015, KREF obtained $277.4 million of capital commitments in connection withissued the completion of a private placement priced at $20.00 per share. Of these capital commitments, $190.1 million consisted of approximately $178.4 million from third parties and approximately $11.8 million from certain current and former employees of, and consultants to, KKR. KKR committed $87.3 million in addition to its aggregate capital contributions of $312.7 million immediately prior to the completion of the private placement. In connection with the completion of the private placement, KREF formed an advisory board consisting of certain third-party investors. The advisory board possessed certain protective approval rights over KREF's activities outside its ordinary course of business, including certain business combinations and equity issuances. The advisory board dissolved upon KREF's public listing on May 5, 2017.

In February 2017, KREF called a portion of capital from investors in the private placements closed during the year ended December 31, 2016 and issued 7,386,208 common shares, at $20.00 per share, for net proceeds of $147.7 million.

In April 2017, KREF called the remaining capital from investors in the private placements completed during the year ended December 31, 2016 and issued 10,379,738following shares of its common stock at $20.00 per share forstock:

Pricing Date
Shares Issued(A)
Net Proceeds
As of December 31, 201513,636,416 $272,728 
February 20162,000,000 40,000 
May 20163,000,138 57,130 
June 2016(B)
21,838 — 
August 20165,500,000 109,875 
As of December 31, 201624,158,392 $479,733 
February 20177,386,208 147,662 
April 201710,379,738 207,595 
May 2017 - Initial Public Offering11,787,500 219,356 
As of December 31, 201753,711,838 $1,054,346 
August 20185,000,000 98,326 
November 2018500,000 9,351 
As of December 31, 201859,211,838 $1,162,023 
November 20215,000,000 108,800 
November 2021(C)
1 — 
November 2021547,361 11,911 
As of December 31, 202164,759,200 $1,282,734 
February 2022(D)
68,817 1,426 
March 20226,494,155 133,845 
As of March 31, 202271,322,172 $1,418,005 
June 20222,750,000 53,653 
As of June 30, 202274,072,172 $1,471,658 
August 2022(D)
271,641 5,300 
As of September 30, 202274,343,813 $1,476,958 

(A)    Excludes 527,378 net proceeds of $207.6 million.

In connection with the capital commitments described above, third-party investors and certain current and former employees of, and consultants to, KKR were allocated non-voting limited liability company interests of the Manager. For each $100.0 million shares of KREF’s common stock acquired by investors through the private placement, the investors were allocated non-voting limited liability company interests, representing 6.67% of the Manager’s then-outstanding total limited liability company interests. Each investor was allocated its pro rata share of the non-voting limited liability company interests of the Manager based on the investor’s shares of KREF’s common stock.

In May 2017, KREF completed its initial public offering of 11,787,500 shares of its common stock at a price to the public of $20.50 per share, which included 1,537,500 shares of common stock issued in connection with vested restricted stock units.
(B)    KREF did not receive any proceeds with respect to 21,838 shares of common stock issued to certain current and former employees of, and non-employee consultants to, KKR and third-party investors in the private placement completed in March 2016, in accordance with KREF's Stockholders Agreement dated as of March 29, 2016.
(C)    KREF did not receive any proceeds with respect to 1 share of common stock issued to KKR in connection with the conversion of the special voting preferred stock, in accordance with KREF’s Articles of Restatement dated as of May 10, 2017.
(D)    Represents shares issued under the ATM.

In May 2021 and June 2022, KKR sold 5,750,000 and 4,250,000 shares of KREF common stock, respectively, through secondary offerings, including the exercise of the underwriters' exercise in full of their option to purchase additional shares. The offering generatedcommon shares, and received all of the $100.4 million and $82.9 million net proceeds from the offerings, respectively. On November 1, 2021, KKR converted its special voting preferred stock into one share of approximately $225.9 million.KREF common stock when KREF issued 5,000,000 shares of common stock, resulting in KKR’s ownership to decrease below 25.0% of KREF’s outstanding common stock.

As of September 30, 2017, KKR and affiliates beneficially owned 23,758,61610,000,001 and 14,250,001 shares, or 14.4% and 23.2% of KREF's common stock, of which 3,758,616 shares were held by KKR on behalf of a third-party investor (Note 1).

Of the 53,711,838 common shares KREF issued, there are 53,685,440 common shares outstanding and 26,398 common shares held as treasury stock as of September 30, 2017.2022 and December 31, 2021, respectively.

The value of KREF's common stock prior to its listing on the New York Stock Exchange was based upon its equity value using a combination of net asset value (market) and discounted cash flow (income) approaches, as well as the pricing of third-party transactions involving KREF's common stock.

During the nine months ended September 30, 2017, KREF's board of directors declared the following dividends on shares of its common stock:
      Amount
Declaration Date Record Date Payment Date Per Share Total
February 3, 2017 February 3, 2017 February 3, 2017 $0.35
 $8,455
April 18, 2017 April 18, 2017 April 18, 2017 0.28
 8,832
June 14, 2017 June 30, 2017 July 14, 2017 0.25
 13,428
September 14, 2017 September 30, 2017 October 12, 2017 0.37
 19,873
        $50,588


In March and June of 2022, KREF issued 6,494,155 and 2,750,000 shares of common stock in an underwritten offering, respectively, which included the partial exercise of the underwriters’ option to purchase additional shares of common stock, and received net proceeds after underwriting discounts and commissions of $133.8 million and $53.7 million, respectively.


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KKR Real Estate Finance Trust Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in tables in thousands, except per share amounts)

During the nine months ended September 30, 2022 and 2021, 15,520 and 18,052 shares of common stock were issued related to the vesting of restricted stock units. Upon any payment of shares as a result of restricted stock unit vesting, the related tax withholding obligation will generally be satisfied by KREF, reducing the number of shares to be delivered by a number of shares necessary to satisfy the related applicable tax withholding obligation. Refer to Note 12 for further detail.
Preferred
Of the 74,871,191 common shares KREF issued, there were 69,338,283 common shares outstanding as of September 30, 2022, which includes 527,378 net shares of common stock issued in connection with vested restricted stock units and is net of 5,532,908 common shares repurchased.

Share Repurchase Program— Under the Company’s current share repurchase program, which has no expiration date, the Company may repurchase up to $100.0 million of its common stock beginning July 1, 2020, of which up to $50.0 million may be repurchased under a pre-set trading plan meeting the requirements of Rule 10b5-1 under the Exchange Act, and provide for repurchases of common stock when the market price per share is below book value per share (calculated in accordance with GAAP as of the end of the most recent quarterly period for which financial statements are available), and the remaining $50.0 million may be used for repurchases in the open market, pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act, in privately negotiated transactions or otherwise. The timing, manner, price and amount of any common stock repurchases will be determined by the Company in its discretion and will depend on a variety of factors, including legal requirements, price and economic and market conditions. The program does not require the Company to repurchase any specific number of shares of common stock, and the program may be suspended, extended, modified or discontinued at any time.

During the three months ended September 30, 2022, KREF repurchased 587,890 shares of common stock under the repurchase program at an average price per share of $17.42, for a total of $10.3 million. During the nine months ended September 30, 2022, KREF repurchased 1,632,582 shares of common stock under the repurchase program at an average price per share of $17.33, for a total of $28.3 million. During the nine months ended September 30, 2021, KREF did not repurchase any of its common stock. As of September 30, 2022, KREF had $71.7 million of remaining capacity to repurchase shares under the program.

At the Market Stock Offering Program — On January 23, 2015,February 22, 2019, KREF entered into an equity distribution agreement with certain sales agents, pursuant to which KREF may sell, from time to time, up to an aggregate sales price of $100.0 million of its common stock pursuant to a continuous offering program (the “ATM”). Sales of KREF’s common stock made pursuant to the ATM may be made in negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended. The timing and amount of actual sales will depend on a variety of factors including market conditions, the trading price of KREF’s common stock, KREF’s capital needs, and KREF’s determination of the appropriate sources of funding to meet such needs.

During the three and nine months ended September 30, 2022, KREF issued 125and sold 271,641 and 340,458 shares of Series A cumulative, non-voting preferred stock with a par value of $0.01 per share and a stated value of $1,000.00 per share ("Series A Preferred Stock") that are senior to common stock. Holders of Series A Preferred Stock are entitled to cumulative distributions of 12.5% of the stated value per annum, payable semi-annually in arrears on or before June 30 and December 31 of each year, but are unable to convert Series A Preferred Stock into common stock or vote on matters brought to KREF's stockholders.under the ATM, generating net proceeds totaling $5.3 million and $6.7 million, respectively. As of September 30, 2022, $93.2 million remained available for issuance under the ATM.

In May 2017, KREF redeemed all 125 issued and outstanding shares of Series A Preferred Stock for $0.1 million, representing the sum of $1,000.00 per share and all accrued and unpaid dividends.

Special Voting Preferred Stock — In March 2016, KREF issued aone share of special voting preferred stock to KKR Fund Holdings L.P. ("KKR Fund Holdings") for $20.00 per share, which KKR Fund Holdings transferred to its subsidiary, KKR REFT Asset Holdings.Holdings LLC. The holder of the special voting preferred stock hashad special voting rights related to the election of members to KREF's board of directors until KKR and its affiliates ceaseceased to own at least 25.0% of KREF's issued and outstanding common stock.

On November 1, 2021, KREF issued 5,000,000 shares of common stock, which resulted in KKR’s ownership decreasing below 25.0% of KREF’s outstanding common stock. Accordingly, KKR converted its special voting preferred share into one share of KREF common stock and ceased to possess its special voting rights related to the election of members to KREF's board of directors.

Special Non-Voting Preferred Stock — In connection with KREF's existinginitial investors’ subscription for shares of KREF's common stock in the private placements prior to the initial public offering of KREF's equity on May 5, 2017, those investors were also allocated a class of non-voting limited liability company interest in the Manager ("Non-Voting Manager Units"). In February 2017, KREF issued an investor one share of SNVPS, at $0.01 per share, in lieu of that investor receiving Non-Voting Manager Units to facilitate compliance by the investor with regulatory requirements applicable to it. The corresponding Non-VotingNon-
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KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Voting Manager Units arewere held by a wholly-owned TRS of KREF.KREF ("KREF TRS"). All distributions received by that subsidiaryKREF TRS from these Non-Voting Manager Units arewere passed through to the investor as preferred distributions on its SNVPS, less applicable taxes and withholdings. Except for the Non-Voting Manager Units, an indirect subsidiary of KKR owns("KKR Member"), owned and controlscontrolled the limited liability company interests of the Manager.

Dividends on the SNVPS arewere payable quarterly, and will accrueaccrued whether or not KREF hashad earnings, there arewere assets legally available for the payment of those dividends or those dividends havehad been declared. Any dividend payment made on the SNVPS shallwould first be credited against the earliest accumulated but unpaid dividend due with respect to the SNVPS. Upon redemption of the SNVPS or liquidation of KREF, the holder of the SNVPS iswas entitled to payment of $0.01 per share, together with any accumulated but unpaid preferred distributions, including respective call or put amounts, before any holder of junior security interests, which includesincluded KREF's common stock. As KREF doesdid not control the circumstances under which the holder of the SNVPS maycould redeem its interests, management considersconsidered the SNVPS as temporary equity (Note 2).

KREF willwas required to redeem the SNVPS at the option of the holder.holder at any time or upon the redemption by the KKR Member of the Non-Voting Manager Units (the "Call Option"). Upon redemption, KREF will paypaid a price in cash equal to $0.01 per share of the SNVPS, together with any accumulated but unpaid preferred distributions, including respective call or put amounts, and the SNVPS will bewas canceled automatically and ceaseceased to be outstanding. Concurrently, upon redemption of the SNVPS, the KKR Member acquired from KREF TRS its respective Non-Voting Manager Units, resulting in a one-time gain, thus substantially eliminating the historical cumulative impact of the SNVPS redemption value adjustments recorded in KREF's permanent equity.

On October 1, 2021, the KKR Member exercised its Call Option to redeem the Non-Voting Manager Units, including the Non-Voting Manager Units held by KREF TRS. Accordingly, KREF TRS received a cash call amount of $5.1 million and KREF concurrently redeemed the SNVPS, which resulted in book value accretion in the fourth quarter of $2.6 million, or $0.05 per common share, thus eliminating the cumulative negative impact of the SNPVS on book value.

6.50% Series A Cumulative Redeemable Preferred Stock — In April 2021 and January 2022, KREF issued 6,900,000 and 6,210,000 shares of 6.50% Series A Cumulative Redeemable Preferred Stock (the “Series A Preferred Stock”), which included the exercise of the underwriters' option to purchase additional shares of Series A Preferred Stock, and received net proceeds after underwriting discount and commission of $167.1 million and $151.2 million, respectively.

The perpetual Series A Preferred Stock is redeemable, at KREF's option, at a liquidation price of $25.00 per share plus accrued and unpaid dividends commencing in April 2026. Dividends on the Series A Preferred Stock are payable quarterly at a rate of 6.50% per annum of the $25.00 liquidation preference, which is equivalent to $1.625 per annum per share. With respect to dividend rights and liquidation, the Series A Preferred Stock ranks senior to KREF's common stock.

Noncontrolling Interests— Noncontrolling interests represented a 20.0% third-party interest in a consolidated entity that held KREF’s investment in preferred joint venture interests (Note 4).

Redeemable noncontrolling interests represent a 5.0% third-partythird party’s 10.0% interest in a joint venture, a consolidated as a VIE, that holds a portion of KREF’s investments in certain commercial mezzanine loans (Note 3). The redeemablesole REO investment. KREF and the noncontrolling interests issued byinterest holder contribute to the joint venture’s ongoing operating shortfalls and capital expenditures on a pari passu basis. Distributions from the joint venture are subject to certain restrictionsallocated between KREF and require KREF to transfer assets or issue equity to satisfy the redemption. As KREF does not control the circumstances under which the noncontrolling interests may redeem their interests, management considers these redeemable noncontrolling interestsinterest holder based on contractual terms and waterfalls as temporary equity (Note 2).

outlined in the joint venture agreement.
Share Repurchase Program
Dividends —KREF adopted a program to repurchase in the open market up to $100.0 million in shares of KREF's common stock over the 12 month period commencing in June 2017. During the threenine months ended September 30, 2017, KREF had purchased 26,3982022 and 2021, KREF's board of directors declared the following dividends on shares of its common stock at an average price of $19.80 for a total of $0.5 million.and special voting preferred stock:

Earnings per Share — KREF presents basic and diluted earnings per share ("EPS"). Basic EPS, or Net Income (Loss) Per Share of Common Stock, Basic, is calculated by dividing Net Income (Loss) Attributable to Common Stockholders by the Weighted Average Number of Shares of Common Stock Outstanding, Basic for the period.

Diluted EPS, or Net Income (Loss) Per Share of Common Stock, Diluted, is calculated by starting with Basic EPS and adding the weighted average dilutive shares issuable from restricted stock units, computed using the treasury stock method, to the

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Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in tables in thousands, except per share amounts)

Amount
Declaration DateRecord DatePayment DatePer ShareTotal
2022
March 15, 2022March 31, 2022April 15, 2022$0.43 $29,211 
June 15, 2022June 30, 2022July 15, 20220.43 29,951 
September 13, 2022September 30, 2022October 14, 20220.43 29,815 
$88,977 
2021
March 15, 2021March 31, 2021April 15, 2021$0.43 $23,916 
June 15, 2021June 30, 2021July 15, 20210.43 23,924 
September 15, 2021September 30, 2021October 15, 20210.43 23,924 
$71,764 

During the nine months ended September 30, 2022, KREF's board of directors declared the following dividends on shares of its Series A Preferred Stock:

Amount
Declaration DateRecord DatePayment DatePer ShareTotal
2022
February 1, 2022February 28, 2022March 15, 2022$0.41 $5,326 
April 22, 2022May 31, 2022June 15, 2022$0.41 5,326 
July 19, 2022August 31, 2022September 15, 2022$0.41 $5,326 
$15,978 
2021
April 23, 2021May 31, 2021June 15, 2021$0.27 $1,838 
September 8, 2021September 17, 2021September 27, 20210.46 3,177 
$5,015 


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KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Note 12. Stock-based Compensation

KREF is externally managed by the Manager and does not currently have any employees. However, as of September 30, 2022, certain individuals employed by the Manager and affiliates of the Manager and certain members of KREF's board of directors were compensated, in part, through the issuance of stock-based awards.

As of September 30, 2022, KREF had restricted stock unit (“RSU”) awards outstanding under the KKR Real Estate Finance Trust Inc. 2016 Omnibus Incentive Plan that was adopted on February 12, 2016 and amended and restated on November 17, 2016 (the "Incentive Plan") to certain members of KREF’s board of directors and employees of the Manager or its affiliates, none of whom are KREF employees. RSUs awarded to employees of the Manager or its affiliates, generally vest over three consecutive one-year periods and awards to certain members of KREF's board of directors generally vest over a one-year period, pursuant to the terms of the respective award agreements and the terms of the Incentive Plan.

In December 2021, KREF's board of directors granted 400,000 shares of RSU awards that are entitled to nonforfeitable dividends during the vesting periods, at the same rate as those declared on the common stock. In February 2022, KREF's board of directors approved a modification that entitled the unvested RSU awards granted prior to December 2021 to dividends during the vesting periods, at the same rate as those declared on the common stock, starting with the first quarter of 2022.

The following table summarizes the activity in KREF’s outstanding RSUs and the weighted-average grant date fair value per RSU:

Restricted Stock Units
Weighted Average Grant Date Fair Value Per RSU(A)
Unvested as of December 31, 2021808,330 $19.50 
Granted27,625 19.91 
Vested(15,520)19.65 
Forfeited / cancelled(28,501)19.04 
Unvested as of September 30, 2022791,934 $19.53 

(A)    The grant-date fair value is based upon the closing price of KREF’s common stock at the date of grant.

KREF expects the unvested RSUs outstanding to vest during the following years:

YearRestricted Stock Units
2022375,716 
2023286,439 
2024129,779 
Total791,934 

KREF recognizes the compensation cost of RSUs awarded to employees of the Manager, or one or more of its affiliates, on a straight-line basis over the awards’ term at their grant date fair value, consistent with the RSUs awarded to certain members of KREF's board of directors.

During the three and nine months ended September 30, 2022, KREF recognized $2.2 million and $6.3 million, respectively, of stock-based compensation expense included in “General and administrative” expense in the Condensed Consolidated Statements of Income. During the three and nine months ended September 30, 2021, KREF recognized $2.0 million and $6.0 million, respectively, of stock-based compensation expense. As of September 30, 2022, there was $7.9 million of total unrecognized stock-based compensation expense related to unvested share-based compensation arrangements. This cost is expected to be recognized over a weighted average period of 1.0 year.

During the nine months ended September 30, 2022 and 2021, KREF declared $1.0 million and $0.0 million, respectively, of nonforfeitable dividends on unvested RSUs. Such nonforfeitable dividends were deducted from “Retained earnings (Accumulated deficit)” in the Condensed Consolidated Statement of Changes in Equity.

Upon any payment of shares as a result of restricted stock unit vesting, the related tax withholding obligation will generally be satisfied by KREF, reducing the number of shares to be delivered by a number of shares necessary to satisfy the related
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Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
applicable tax withholding obligation. The amount results in a cash payment related to this tax liability and a corresponding reduction to additional paid-in capital in the Condensed Consolidated Statement of Changes in Equity. No shares were delivered for vested RSUs during the nine months ended September 30, 2022.

Refer to Note 15 for additional information regarding the Incentive Plan.

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Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Note 13. Earnings (Loss) per Share

Earnings (Loss) per Share — KREF calculates its basic EPS using the two-class method, which defines unvested share-based payment awards that contain nonforfeitable rights to dividends as participating securities. Under the two-class method 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 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 the Convertible Notes. The numerator includes any changes in income (loss) that would result from the assumed conversion of these potential shares of common stock.

For the nine months ended September 30, 2022, 6,316,174 potentially issuable shares related to the Convertible Notes were included in the denominator.dilutive EPS denominator after the adoption of ASU 2020-06. For the three months ended September 30, 2022, such shares were excluded from the dilutive EPS denominator because the effect was anti-dilutive. For the three and nine months ended September 30, 2021, before the adoption of ASU 2020-06, all potentially issuable shares related to the Convertible Notes were excluded from the calculation of diluted EPS because KREF included 74had the intent and 174 weighted average dilutive sharesability to settle the Convertible Notes in cash.

The following table illustrates the computation of basic and diluted EPS for the three and nine months ended September 30, 2017, respectively.2022 and 2021:

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Basic Earnings
Net Income (Loss)$(42,754)$35,671 $17,775 $96,840 
Less: Preferred stock dividends and redemption value adjustment5,326 3,682 15,978 6,403 
Less: Participating securities' share in earnings341 — 1,028 — 
Net income (loss) attributable to common stockholders$(48,421)$31,989 $769 $90,437 
Diluted Earnings
Net income (loss) attributable to common stockholders$(48,421)$31,989 $769 $90,437 
Add: Interest expense attributable to the Convertible Notes— — — — 
Less: Reallocation of undistributed earnings to participating securities— — — — 
Net income (loss) attributable to common stockholders, diluted$(48,421)$31,989 $769 $90,437 
Denominator
Basic weighted average common shares outstanding69,382,730 55,637,480 67,029,140 55,629,810 
Dilutive shares under assumed conversion of the Convertible Notes— — — — 
Dilutive restricted stock units(A)
— 373,763 — 253,387 
Diluted weighted average common shares outstanding69,382,730 56,011,243 67,029,140 55,883,197 
Net income (loss) attributable to common stockholders, per:
Basic common share$(0.70)$0.57 $0.01 $1.63 
Diluted common share$(0.70)$0.57 $0.01 $1.62 

(A)    For the three and nine months ended September 30, 2022, 285,834 and 222,369 weighted average unvested RSUs, respectively, were excluded from the calculation of diluted EPS because the effect was anti-dilutive.
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Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Note 8.14. Commitments and Contingencies

As of September 30, 2017,2022, KREF was subject to the following commitments and contingencies:

Litigation — From time to time, KREF may be involved in various claims and legal actions arising in the ordinary course of business. KREF establishes an accrued liability for legal proceedings only when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. No loss contingency is recorded for matters where such losses are either not probable or reasonably estimable (or both) at the time of determination. Such matters may be subject to many uncertainties, including among others (i) the proceedings may be in early stages; (ii) damages sought may be unspecified, unsupportable, unexplained or uncertain; (iii) discovery may not have been started or is incomplete; (iv) there may be uncertainty as to the outcome of pending appeals or motions; (v) there may be significant factual issues to be resolved; or (vi) there may be novel legal issues or unsettled legal theories to be presented or a large number of parties. In addition, loss contingencies may be, in part or in whole, subject to insurance or other payments such as contributions and/or indemnity, which may reduce any ultimate loss.

As of September 30, 2017,2022, KREF was not involved in any material legal proceedings regarding claims or legal actions against KREF.

Indemnifications — In the normal course of business, KREF enters into contracts that contain a variety of representations and warranties that provide general indemnifications and other indemnities relating to contractual performance. In addition, certain of KREF’s subsidiaries have provided certain indemnities relating to environmental and other matters and has provided nonrecourse carve-out guarantees for fraud, willful misconduct and other customary wrongful acts, each in connection with the financing of certain real estate investments that KREF has made. KREF’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against KREF that have not yet occurred. However, KREF expects the risk of material loss to be low.

Capital Commitments — As of September 30, 2017,2022, KREF had future funding requirementscommitments of $286.7$1,649.1 million related to its investments in commercial mortgagereal estate loans. These future funding commitments primarily relate to construction projects, capital improvements, tenant improvements and leasing commissions. Generally, funding commitments are subject to certain conditions that must be met, such as customary construction draw certifications, minimum credit metrics or executions of new leases before advances are made to the borrower.

In January 2017, KREF committed $40.0 million to invest in an aggregator vehicle alongside RECOP.RECOP I. The two-year investment period for RECOP I ended in April 2019. As of September 30, 2017,2022, KREF had a remaining commitment of $32.0$4.3 million to RECOP.

RECOP I.
Debt Covenants
COVID-19 — COVID-19 has adversely impacted global commercial activity and has contributed to significant volatility in financial markets. During 2020, the COVID-19 pandemic 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 such restrictions have largely been lifted, governments and businesses may reinstitute restrictions if new strains of COVID-19 emerge, including mandatory business shut-downs, travel restrictions, reduced business operations and social distancing requirements, which could dampen or delay any economic recovery and could materially and adversely affect KREF’s results and financial condition.

In 2021 and 2022, the global economy has, with certain setbacks, begun reopening, and wider distribution of vaccines will likely encourage greater economic activity. While vaccine availability and uptake has increased, the longer-term macro-economic effects of the pandemic continue to impact many industries, including those of certain of KREF’s borrowers. Moreover, the increase in remote working arrangements in response to the pandemic may contribute to a decline in commercial real estate values and reduce demand for commercial real estate compared to pre-pandemic levels, which may adversely impact certain of KREF's borrowers and may persist even as the pandemic continues to subside. In addition, the COVID-19 pandemic continues to disrupt global supply chains, has caused labor shortages and has added 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.

Macroeconomic Environment — KREF’s secured financing agreements contain various customary debt covenants. AsIn response to inflationary pressures, the Federal Reserve has begun raising interest rates in 2022 and has indicated that it foresees further interest rate increases throughout the year and into 2023 and 2024. 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 September 30, 2017, KREF wasKREF's borrowers who exercise extension options.

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KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in compliance with its financial loan covenants (Note 5).tables in thousands, except per share amounts)

Note 9.15. Related Party Transactions

Management Agreement — The Management Agreement between KREF and the Manager is a three-year agreement that provides for automatic one-year renewal periods starting October 8, 2017, subject to certain termination and nonrenewal rights, which in the case of KREF are exercisable by a two-thirds vote by the independent directors of KREF's board of directors. If the independent directors of KREF's board of directors declinesdecline to renew the Management Agreement other than for cause, KREF is required to pay the Manager a termination fee equal to three times the total 24-month trailing average annual management fee and incentive compensation earned by the Manager through the most recently completed calendar quarter. For administrative efficiency purposes, the Management Agreement was amended in August 2019 to change the expiration date of each automatic renewal period from October 7th to December 31st.

Pursuant to the Management Agreement, the Manager, as agent to KREF and under the supervision of KREF's board of directors, manages the investments, subject to investment guidelines approved by KREF's board of directors; financing activities; and day-to-day business and affairs of KREF and its subsidiaries.

For its services to KREF, the Manager is entitled to a quarterly management fee equal to the greater of $62,500 or 0.375% of a weighted average adjusted equity and quarterly incentive compensation equal to 20.0% of the excess of (a) the trailing 12-

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KKR Real Estate Finance Trust Inc. and Subsidiaries
Notes12-month distributable earnings (before incentive compensation payable to Condensed Consolidated Financial Statements (Unaudited)
(dollars in tables in thousands, except per share amounts)

month adjusted earningsthe Manager) over (b) 7.0% of the trailing 12-month weighted average adjusted equity (“Hurdle Rate”), less incentive compensation KREF already paid to the Manager with respect to the first three calendar quarters of such trailing 12-month period. The quarterly incentive compensation is calculated and paid in arrears with a one-quarter lag.

Adjusted equity generally represents the proceeds received by KREF and its subsidiaries from equity issuances, without duplication and net of offering costs, and adjusteddistributable earnings, reduced by distributions, equity repurchases, and incentive compensation paid. AdjustedDistributable earnings generally representsrepresent the net income, or loss, attributable to equity interests in KREF and its subsidiaries, without duplication, as well as realized losses not otherwise included in such net income, or loss, excluding non-cash equity compensation expense, incentive compensation, depreciation and amortization and unrealized gains or losses.losses, from and after the effective date to the end of the most recently completed calendar quarter. KREF's board of directors, after majority approval by independent directors, may also exclude one-time events pursuant to changes in GAAP and certain material non-cash income or expense items from adjusteddistributable earnings. For purposes of calculating incentive compensation, both adjusted equity and adjusted earnings excludeexcludes: (i) the effects of equity issued by KREF and its subsidiaries that provides for fixed distributions or other debt characteristics.characteristics and (ii) unrealized provision for (reversal of) credit losses.

KREF is also required to reimburse the Manager or its affiliates for documented costs and expenses incurred by it and its affiliates on behalf of KREF, except those specifically required to be borne by the Manager under the Management Agreement. The Manager is responsible for, and KREF does not reimburse the Manager or its affiliates for, the expenses related to investment personnel of the Manager and its affiliates who provide services to KREF. However, KREF does reimburse the Manager for KREF's allocable share of compensation paid to certain of the Manager’s non-investment personnel, based on the percentage of time devoted by such personnel to KREF's affairs.

Incentive Plan — The KKR Real Estate Finance Trust Inc. 2016 Omnibus Incentive Plan was adopted on February 12, 2016 and amended and restated on November 17, 2016 (the “Incentive Plan”). KREF's compensation committee or board of directors may administer the Incentive Plan, which provides for awards of stock options; stock appreciation rights (“SARs”);rights; restricted stock; restricted stock units;RSUs; limited partnership interests of KKR Real Estate Finance Holdings L.P. (the "Operating Partnership"), a wholly owned subsidiary of KREF, that are directly or indirectly convertible into or exchangeable or redeemable for shares of KREF's common stock pursuant to the limited partnership agreement of the Operating Partnership (“OP Interests”); awards payable by (i) delivery of KREF's common stock or other equity interests, or (ii) reference to the value of KREF's common stock or other equity interests, including OP Interests; cash-based awards; or performance compensation awards.

No more than 7.5% of the issued and outstanding shares of common stock on a fully diluted basis, assuming the exercise of all outstanding stock options granted under the Incentive Plan and the conversion of all warrants and convertible securities into shares of common stock, or a total of 4,028,387 shares of common stock, will be available for awards under the Incentive Plan. In addition, (i) the maximum number of shares of common stock subject to awards granted during a single fiscal year to any non-employee director (as defined in the Incentive Plan), taken together with any cash fees paid to such non-employee director during the fiscal year, may not exceed $1.0 million and (ii) the maximum amount that can be paid to any participant for a single fiscal year during a performance period (or with respect to each single fiscal year if a performance period extends beyond a single fiscal year) pursuant to a performance compensation award denominated in cash will bemay not exceed $10.0 million.

47
KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)

No awards may be granted under the Incentive Plan on and after February 12, 2026. The Incentive Plan will continue to apply to awards granted prior to such date. During the three and nine months ended September 30, 2017,2022, KREF granted 4,878 restricted stock units. zero and 27,625 RSUs to KREF's directors, respectively. During the three and nine months ended September 30, 2021, KREF granted zero and 15,520 RSUs to KREF's directors, respectively. During the year ended December 31, 2021, KREF granted 415,520 RSUs to KREF's directors and employees of the Manager. As of September 30, 2017, 4,023,509 shares2022, 2,709,075 shares of common stock remained available for awards under the Incentive Plan.

Due to Affiliates — The following table contains the amounts presented in KREF's Condensed Consolidated Balance Sheets that it owes to affiliates:

 September 30, December 31,
 2017 2016September 30, 2022December 31, 2021
Management fees $3,753
 $1,616
Management fees$6,589 $5,289 
Expense reimbursements and other 283
 112
Expense reimbursements and other(A)
Expense reimbursements and other(A)
2,682 663 
 $4,036
 $1,728
$9,271 $5,952 


(A)    Includes $2.7 million and $0.6 million of accrued KCM fees as of September 30, 2022 and December 31, 2021, respectively.
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Table of Contents
KKR Real Estate Finance Trust Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in tables in thousands, except per share amounts)

Affiliates Expenses — The following table contains the amounts included in KREF's Condensed Consolidated Statements of OperationsIncome that arisearose from transactions with affiliates:the Manager:

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Management fees$6,589 $4,964 $19,102 $14,089 
Incentive compensation— 2,215 — 6,810 
Expense reimbursements and other(A)
904 362 3,412 1,161 
$7,493 $7,541 $22,514 $22,060 

(A)    KREF presents these amounts in "General and administrative" in its Condensed Consolidated Statements of Income. Affiliate expense reimbursements presented in the table above exclude the out-of-pocket amounts paid by the Manager to parties unaffiliated with the Manager on behalf of KREF, and for which KREF reimburses the Manager in cash. For the three and nine months ended September 30, 2022, these cash reimbursements totaled $0.9 million and $3.5 million, respectively; and for the three and nine months ended September 30, 2021, these cash reimbursements totaled $0.4 million and $2.8 million, respectively.

In connection with the ATM, KCM, in its capacity as one of the sales agents, will receive commissions for the shares of KREF’s common stock it sells. This amount is not to exceed, but may be less than, 2.0% of the gross sales price per share. KREF sold 271,641 and 340,458 shares under the ATM through a third-party broker and did not incur or pay any commissions to KCM during the three and nine months ended September 30, 2022, respectively.

In connection with the HSBC Facility entered into in March 2020, and in consideration for structuring and sourcing this arrangement, KREF is obligated to pay KCM a structuring fee equal to 0.25% of the respective committed loan advances under the agreement. Such fees are capitalized as deferred financing cost and amortized to interest expense over the lesser of the initial term of the loan or the facility. During the nine months ended September 30, 2022 and 2021, KREF did not incur or pay any KCM structuring fees in connection with the facility.

In connection with the secured term loan, and in consideration for structuring and arranging the loan, KREF paid KCM a $1.1 million arrangement and structuring fee equal to 0.37% of the principal amount of the secured term loan in the third quarter of 2020. In addition, KREF paid KCM a $0.8 million arrangement and structuring fee in connection with the secured term loan repricing and upsize in the fourth quarter of 2021. Such fees were capitalized as deferred financing cost and amortized to interest expense over the life of the secured term loan.

In connection with the syndication of a senior mortgage loan in February 2021, and in consideration for its services as the placement agent, KREF paid KCM a $0.4 million placement agent fee equal to 0.25% of KREF’s proportionate share of the senior loan commitment. Such fee was capitalized as a direct loan origination cost and amortized to interest income over the life of the loan.

48
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Management fees $3,989
 $1,621
 $9,513
 $4,088
Incentive compensation —
 —
 —
 365
Expense reimbursements and other(A)
 366
 111
 931
 375
  $4,355
 $1,732
 $10,444
 $4,828

(A)
KREF presents these amounts in "Operating Expenses — General and administrative" in its Condensed Consolidated Statements of Operations. Affiliate expense reimbursements presented in the table above exclude the out-of-pocket costs paid by the Manager to parties unaffiliated with the Manager on behalf of KREF, and for which KREF reimburses the Manager in cash. For the three and nine months ended September 30, 2017, these cash reimbursements were $0.9 million and $1.1 million, respectively. For the three and nine months ended September 30, 2016 these cash reimbursements were $0.4 million and $2.4 million, respectively.


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Table of Contents
KKR Real Estate Finance Trust Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in tables in thousands, except per share amounts)
In connection with the Series A Preferred Stock issuance in April 2021 and January 2022, and in consideration for its services as joint bookrunner, KREF incurred and paid KCM $1.6 million and $1.3 million in underwriting discount and commission, respectively. The underwriting discount and commission was settled net of the preferred stock issuance proceeds and recorded as a reduction to additional paid-in-capital in KREF's condensed consolidated financial statements.

In connection with the KREF Lending IX Facility entered into in July 2021, and in consideration for structuring and sourcing this arrangement, KREF is obligated to pay KCM a structuring fee equal to 0.75% of the respective committed loan advances under the agreement. Such fees are capitalized as deferred financing cost and amortized to interest expense over the draw period of the facility. In connection with the upsize of the KREF Lending IX Facility in March and August 2022, and in consideration for its services as the arranger, KREF paid KCM $1.7 million in structuring fees during the nine months ended September 30, 2022 and accrued additional $2.7 million as of September 30, 2022.

In connection with the KREF 2021-FL2 and KREF 2022-FL3 CLO issuances in August 2021 and February 2022, and in consideration for its services as the co-lead manager and joint bookrunner, KREF paid KCM $0.9 million and $0.5 million, respectively, in structuring and placement agent fees in the third quarter of 2021 and first quarter of 2022. These fees were capitalized as deferred financing cost and amortized to interest expense over the estimated life of the CLOs.

In connection with the extension and upsize of the Revolver in March 2022, and in consideration for its services as the arranger, KREF is obligated to pay KCM an arrangement fee equal to 0.375% of the aggregate amount of existing commitments plus 0.75% of the aggregate amount of new commitments. Such fees were capitalized as deferred financing cost included within "Other assets" on the Condensed Consolidated Balance Sheet and amortized to interest expense over the life of the Revolver. KREF paid $3.3 million of arrangement fees in connection with the Revolver in the second quarter of 2022.

In connection with the KREF Lending XI Facility entered into in April 2022, and in consideration for its services as the structuring agent, KREF paid KCM $0.5 million in structuring fees in the second quarter of 2022. Such fees are capitalized as deferred financing cost and amortized to interest expense over the estimated life of the facility.

In connection with the KREF Lending XII Facility entered into in June 2022, and in consideration for structuring and sourcing this arrangement, KREF is obligated to pay KCM a structuring fee equal to 0.35% of the respective loan advances under the agreement. Such fees are capitalized as deferred financing cost and amortized to interest expense over the draw period of the facility. KREF paid $0.6 million in KCM structuring fees in connection with the facility as of September 30, 2022.

In connection with the KREF Lending XIII Facility entered into in August 2022, and in consideration for structuring and sourcing this arrangement, KREF is obligated to pay KCM a structuring fee equal to 0.5% of the facility amount under the agreement. Such fees are capitalized as deferred financing cost and amortized to interest expense over the draw period of the facility. KREF paid $1.3 million in KCM structuring fees in connection with the facility as of September 30, 2022.
49
KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Note 10.16. Fair Value of Financial Instruments

The carrying values and fair values of KREF’s financial assets and liabilities recorded at fair value on a recurring basis, as well as other financial instruments not carried at fair value, as of September 30, 20172022, were as follows:

      Fair Value
  
Principal Balance(A)
 
Carrying Value(B)
 Level 1 Level 2 Level 3 Total
Assets            
Cash and cash equivalents $89,976
 $89,976
 $89,976
 $—
 $—
 $89,976
Restricted cash and cash equivalents 600
 600
 600
 —
 —
 600
Commercial mortgage loans, held-for-investment, net 1,554,590
 1,543,851
 —
 —
 1,550,943
 1,550,943
Commercial mortgage loans, held-for-sale, net 82,000
 81,550
 —
 —
 81,550
 81,550
Equity method investments in unconsolidated subsidiaries, at fair value 8,328
 8,328
 —
 —
 8,328
 8,328
Commercial mortgage loans held in variable interest entities, at fair value 5,316,581
 5,429,874
 —
 —
 5,429,874
 5,429,874
  $7,052,075
 $7,154,179
 $90,576
 $—
 $7,070,695
 $7,161,271
Liabilities            
Secured financing agreements, net $761,597
 $755,987
 $—
 $—
 $761,597
 $761,597
Variable interest entity liabilities, at fair value 5,007,422
 5,313,914
 —
 —
 5,313,914
 5,313,914
  $5,769,019
 $6,069,901
 $—
 $—
 $6,075,511
 $6,075,511
Fair Value
Principal Balance
Amortized Cost(A)
Carrying Value(B)
Level 1Level 2Level 3Total
Assets
Cash and cash equivalents$183,341 $183,341 $183,341 $183,341 $— $— $183,341 
Commercial real estate loans, held-for-investment, net(C)
7,357,481 7,306,565 7,195,767 — — 7,253,370 7,253,370 
Equity method investments36,856 36,856 36,856 — — 36,856 36,856 
$7,577,678 $7,526,762 $7,415,964 $183,341 $— $7,290,226 $7,473,567 
Liabilities
Secured financing agreements, net$3,488,181 $3,469,126 $3,469,126 $— $— $3,469,126 $3,469,126 
Collateralized loan obligations, net1,942,750 1,933,656 1,933,656 — — 1,852,284 1,852,284 
Secured term loan, net347,375 337,181 337,181 — 346,507 — 346,507 
Convertible notes, net143,750 142,888 142,888 — 143,069 — 143,069 
$5,922,056 $5,882,851 $5,882,851 $— $489,576 $5,321,410 $5,810,986 

(A)The principal balance of commercial mortgage loans excludes premiums and unamortized discounts.
(B)The carrying value of commercial mortgage loans is presented net of $11.2 million unamortized origination discounts and deferred nonrefundable fees. The carrying value of secured financing agreements is presented net of $5.6 million unamortized debt issuance costs.
(A)    The amortized cost of commercial real estate loans is net of $5.5 million write-off on a mezzanine loan and $45.4 million unamortized origination discounts and deferred fees. The amortized cost of secured financing agreements is net of $19.1 million unamortized debt issuance costs. The amortized cost of collateralized loan obligations is net of $9.1 million unamortized debt issuance costs.
(B)    The carrying value of commercial mortgage loans is net of $110.8 million allowance for credit losses.
(C)    Includes $2,221.0 million of CLO loan participations as of September 30, 2022.

The carrying values and fair values of KREF’s financial assets recorded at fair value on a recurring basis, as well as other financial instruments for which fair value is disclosed, as of December 31, 20162021, were as follows:

      Fair Value
  
Principal Balance(A)
 
Carrying Value(B)
 Level 1 Level 2 Level 3 Total
Assets            
Cash and cash equivalents $96,189
 $96,189
 $96,189
 $—
 $—
 $96,189
Restricted cash and cash equivalents 157
 157
 157
 —
 —
 157
Commercial mortgage loans, held-for-investment, net 681,570
 674,596
 —
 —
 676,169
 676,169
Commercial mortgage loans, held-for-sale, net 26,230
 26,230
 —
 —
 26,495
 26,495
Preferred interest in joint venture, held-to-maturity 36,445
 36,445
 —
 —
 36,482
 36,482
Commercial mortgage loans held in variable interest entities, at fair value 5,351,539
 5,426,084
 —
 —
 5,426,084
 5,426,084
  $6,192,130
 $6,259,701
 $96,346
 $—
 $6,165,230
 $6,261,576
Liabilities            
Secured financing agreements, net $445,600
 $439,144
��$—
 $—
 $445,600
 $445,600
Variable interest entity liabilities, at fair value 5,042,380
 5,313,574
 —
 —
 5,313,574
 5,313,574
  $5,487,980
 $5,752,718
 $—
 $—
 $5,759,174
 $5,759,174
Fair Value
Principal Balance
Amortized Cost(A)
Carrying Value(B)
Level 1Level 2Level 3Total
Assets
Cash and cash equivalents$271,487 $271,487 $271,487 $271,487 $— $— $271,487 
Commercial real estate loans, held-for-investment, net(C)
6,364,105 6,316,733 6,294,489 — — 6,340,837 6,340,837 
Equity method investments35,537 35,537 35,537 — — 35,537 35,537 
$6,671,129 $6,623,757 $6,601,513 $271,487 $— $6,376,374 $6,647,861 
Liabilities
Secured financing agreements, net$3,737,893 $3,726,593 $3,726,593 $— $— $3,726,593 $3,726,593 
Collateralized loan obligations, net1,095,250 1,087,976 1,087,976 — — 1,094,834 1,094,834 
Secured term loan, net350,000 338,549 338,549 — 352,625 — 352,625 
Convertible notes, net143,750 141,851 141,851 — 152,203 — 152,203 
$5,326,893 $5,294,969 $5,294,969 $— $504,828 $4,821,427 $5,326,255 

(A)The principal balance of commercial mortgage loans excludes premiums and discounts.
(B)The carrying value of commercial mortgage loans is presented net of $9.2 million origination discounts and deferred nonrefundable fees. The carrying value of secured financing agreements is presented net of $6.4 million unamortized debt issuance costs.


(A)    The amortized cost of commercial real estate loans is net of $5.5 million write-off on a mezzanine loan and $41.9 million unamortized origination discounts and deferred fees. The amortized cost of secured financing agreements is net of $11.3 million unamortized debt issuance costs. The amortized cost of collateralized loan obligations is net of $7.3 million unamortized debt issuance costs.
(B)    The carrying value of commercial mortgage loans is net of $22.2 million allowance for credit losses.
(C)    Includes $1,246.0 million of CLO loan participations as of December 31, 2021.
26
50
KKR Real Estate Finance Trust Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in tables in thousands, except per share amounts)

KREF reported the following financial assets and liabilities at fair value on a recurring basis using Level 3 inputs as of September 30, 2017.

  Assets Liabilities  
  Commercial Mortgage Loans Held in Variable Interest Entities, at Fair Value Variable Interest Entity Liabilities, at Fair Value Net
Balance at December 31, 2016 $5,426,084
 $5,313,574
 $112,510
Gains (losses) included in net income      
Included in change in net assets related to consolidated variable interest entities 38,853
 35,400
 3,453
Purchases and repayments      
Purchases —
 —
 —
Repayments (34,957) (34,957) —
Other(A)
 (106) (103) (3)
Balance at September 30, 2017 $5,429,874
 $5,313,914
 $115,960

(A)    Amounts principally consist of changes in accrued interest.

The following table contains the Level 3 inputs used to value assets and liabilities on a recurring and nonrecurring basis or where KREF discloses fair value as of September 30, 2017:2022:

  Fair Value Valuation Methodologies 
Unobservable Inputs(A)
 
Weighted Average(B)
 Range
Assets          
Commercial mortgage loans, held-for-investment, net $1,550,943
 Discounted cash flow Loan-to-value ratio 64.1% 53.3% - 85.7%
      Discount rate 6.6% 3.8% - 14.8%
Commercial mortgage loans, held-for-sale, net 81,550
 Discounted cash flow Loan-to-value ratio 56.0% 56.0% - 56.0%
      Discount rate 3.6% 2.6% - 4.6%
Commercial mortgage loans held in variable interest entities, at fair value(C)
 5,429,874
 Discounted cash flow Yield 7.5% 1.9% - 31.7%
  $7,062,367
        
Liabilities          
Secured financing agreements, net $761,597
 Market comparable Credit spread 2.1% 1.8% - 2.5%
Variable interest entity liabilities, at fair value 5,313,914
 Discounted cash flow Yield 5.5% 1.9% - 27.9%
  $6,075,511
        
Fair ValueValuation Methodologies
Unobservable Inputs(A)
Weighted Average(B)
Range
Assets and Liabilities(C)
Commercial real estate loans, held-for-investment(D)
$7,253,370 Discounted cash flowDiscount rate4.3%2.9% - 17.2%
$7,253,370 

(A)
(A)    An increase (decrease) in the valuation input results in a decrease (increase) in value.
(B)Represents the average of the input value, weighted by the unpaid principal balance of the financial instrument.
(C)Management measures the fair value of "Commercial mortgage loans held in variable interest entities, at fair value" using the fair value of the CMBS trust liabilities. The Level 3 inputs presented in the table above reflect the inputs used to value the CMBS trust liabilities, including the CMBS beneficially owned by KREF stockholders eliminated in consolidation of the CMBS trusts.


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Table of Contents
KKR Real Estate Finance Trust Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in tables in thousands, except per share amounts)

Valuation Methodologies

Commercial Mortgage-Backed Securities — As of September 30, 2017, management categorized CMBS investments as Level 3 assets and liabilities in the fairvaluation input results in a decrease (increase) in value.
(B)    Represents the average of the input value, hierarchy and obtained prices from an independent valuation firm, which uses a discounted cash flow model, to value each CMBS. The key input is the expected yield of each CMBS using both observable and unobservable factors, which may include recently offered or completed trades and published yields of similar securities, security-specific characteristics (e.g. securities ratings issued by nationally recognized statistical rating organizations, credit support by other subordinate securities issuedweighted by the CMBS and coupon type) and other characteristics. Management performs quarterly reviewsunpaid principal balance of the inputs received from the independent valuation firm based on consideration given tofinancial instrument.
(C)    KREF carries a number of observable market data points including, but not limited to, trading activity$36.9 million investment in the marketplace of like-kind securities, benchmark security evaluations and bid list results from various sources. 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 inadequate representationaggregator vehicle alongside RECOP I (Note 10) at its pro rata share of the aggregator's net asset value, which management believes approximates fair value of the CMBS (based on consideration given to the observable market data points detailed above), 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. However, if management continues to disagree with the price from the independent valuation firm, in light of evidence presented that management compiled independently and believes to be compelling, management considers the quotation unreliable or an inadequate representation of the fair value of the CMBS.

In the event that the quotation from the independent valuation firm is not available or determined to be unreliable or an inadequate representation of the fair value of the CMBS (based on the procedures detailed above), valuations(D)    Commercial real estate loans are prepared using inputs based on non-binding broker quotes obtained from independent, well-known, major financial brokers that make markets in CMBS. In validating any non-binding broker quote used in this circumstance, management compares the non-binding quote to the observable market data points at such time and used to validate prices received from the independent valuation firm in addition to understanding the valuation methodologies used by the market makers. These market participants utilize a similar methodology as the independent valuation firm to value each CMBS, with the key input of expected yield determined independently based on both observable and unobservable factors (as described above). To avoid reliance on any single broker-dealer, management receives a minimum of two non-binding quotes, of which the average is used.

The fair values of the CMBS not beneficially owned by KREF stockholders neither impact the net assets of KREF nor the net income attributable to KREF's stockholders.

Commercial Mortgage Loans— Management generally considers KREF's commercial mortgage loans Level 3 assets in the fair value hierarchy as such assets are illiquid, structured investments that are specific to the property and its operating performance. These loans are valued using a discounted cash flow model using a discount ratesrate derived from observablerelevant market data applied to the capital structureindices and/or estimates of the respective sponsor and estimated propertyunderlying property's value. On a quarterly basis, management engages an independent valuation firm to express an opinion on the fair value of each loan categorized as a Level 3 asset in the form of a range. Management selects a value within the range provided by the independent valuation firm to assess the reasonableness of the fair value as determined by management. In the event that management's estimate of fair value differs from the opinion of fair value provided by the independent valuation firm, KREF ultimately relies solely upon the valuation prepared by the investment personnel of Manager.

Preferred Interest in Joint Venture
— Management categorized KREF's preferred interest in joint venture as Level 3 assets in the fair value hierarchy. On a quarterly basis, management engaged an independent valuation firm to express an opinion on the fair value of its preferred interest in joint venture based upon a range of values. Management selected a value within the range provided by the independent valuation firm to assess the reasonableness of management's estimated fair value for that security. The independent valuation firm employed a discounted cash flow model using discount rates derived from observable market data applied to the internal rate of return implied by the expected contractual cash flows. In the event that management's estimate of fair value differed from the opinion of fair value provided by the independent valuation firm, KREF ultimately relied solely upon the valuation prepared by the investment personnel of Manager. In August 2017, this investment was repaid in full. (Note 4).

Secured Financing Agreements— Management considers KREF's repurchase facilities Level 3 liabilities in the fair value hierarchy as such liabilities represent borrowings on illiquid collateral with terms specific to each borrower. Given the short-to-moderate term of the floating rate facilities, management generally expects the fair value of KREF's repurchase facilities to

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Table of Contents
KKR Real Estate Finance Trust Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in tables in thousands, except per share amounts)

approximate their outstanding principal balances. On a quarterly basis, management engages an independent valuation firm to express an opinion on the fair value of KREF's repurchase facilities. The independent valuation firm employs a market-based methodology to compare the pricing of KREF's financing agreements with other similar financing agreements entered into by other mortgage REIT and recent financing transactions.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets not measured at fair value on an ongoing basis but subject to fair value adjustments only in certain circumstances, such as when there is evidence of impairment, are measured at fair value on a nonrecurring basis. ForKREF measures commercial mortgagereal estate loans held-for-sale KREF appliesat the lower of cost or fair value accounting and may be required, from time to time, to record a nonrecurring fair value adjustment. ForKREF measures commercial mortgagereal estate loans held-for-investment and preferred interest in joint venture held-to-maturity, KREF applies theat amortized cost, method of accounting, but may be required, from time to time, to record a nonrecurring fair value adjustment in the form of a valuation provision or impairment.

KREF did not report any significant financial assets or liabilities at fair value on a nonrecurring basis as of September 30, 2017 or2022 and December 31, 2016.2021.

Assets and Liabilities for Which Fair Value is Only Disclosed

KREF does not carry its secured financing agreements at fair value as management did not elect the fair value option for these liabilities. As of September 30, 2017,2022, the fair value of KREF's floating rate repurchasefinancing facilities approximated the outstanding principal balance.

their respective carrying value.
Note 11. Income Taxes
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KKR Real Estate Finance Trust Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in tables in thousands, except per share amounts)
Note 17. Income Taxes

KREF has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with its taxable year ended December 31, 2014. A REIT is generally not subject to U.S. federal and state income tax on that portion of its income that is distributed 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. A REIT will also be subject to a nondeductible excise tax to the extent certain percentages of its taxable income are not distributed within specified dates. While KREF expects to distribute 100%at least 90% of its net taxable income for the foreseeable future, while retaining sufficientKREF will continue to evaluate its capital to support its ongoing needs.and liquidity needs in light of the significant uncertainties created by the COVID-19 pandemic, including the potential for a continued and prolonged adverse impact on economic and market conditions.

KREF consolidates subsidiaries that incur U.S. federal, state and local income taxes, based on the tax jurisdiction in which each subsidiary operates. During each of the nine months ended September 30, 20172022 and 2016,2021, KREF recorded a current income tax (benefit) provision of $0.4 millionzero and $0.2$0.3 million respectively, related to the operations of its taxable REIT subsidiaries and various other state and local taxes. There were no deferred tax assets or liabilities as of September 30, 20172022 and December 31, 2016.2021.

As of September 30, 2022, tax years 2017 tax years 2014 through 2016 remain2021 remain subject to examination by taxing authorities.

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Table of Contents
KKR Real Estate Finance Trust Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in tables in thousands, except per share amounts)

Note 12.18. Subsequent Events


These condensed consolidated financial statements include a discussion of certainThe following events that have occurred subsequent to September 30, 2017 (referred to as "subsequent events") through the issuance of these condensed consolidated financial statements. Events subsequent to the date of issuance have not been considered in these condensed consolidated financial statements.2022:

Investing Activities

KREF originated the following senior loan subsequent to September 30, 2017:

Description/ LocationProperty TypeMonth OriginatedMaximum Face AmountInitial Face Amount Funded
Interest Rate(A)
Maturity Date(B)
LTV
Senior Loan, North Bergen, NJMultifamilyOctober 2017$150,000
$133,500
   L + 4.3%November 202257%

(A)Floating rate based on one-month USD LIBOR.
(B)Maturity date assumes all extension options are exercised, if applicable.

Funding of Previously Closed Loans

The Company funded approximately $8.2 million for previously closed loans subsequent to September 30, 2017.

Financing Activities

Loan Financing Facility

In October 2017,2022, KREF borrowed $75.0entered into a new $125.0 million in proceeds under the Morgan Stanley master repurchase facility.

In November 2017, KREF amended and restated the Goldman Sachs master repurchaseasset specific financing facility, to (i) increase the maximum facility size from $250.0 million to $400.0 million, (ii) extend the maturity date, and (iii) amend certain other terms. The amended and restated facility includes a $250.0 million term facility with a maturity date of October 2020 and a $150.0 million swingline facility with a revolving period of one year, and a three-year termwhich provides non-recourse matched-term asset-based financing on a per-asset basis as those assets are pledged to the facility.non-mark-to-market basis.

Corporate Activities

DividendsStock Repurchase

In October 2017,2022, KREF repurchased 452,788 shares of its common stock at an average price per share of $16.41 for a total of $7.4 million.

Dividends

In October 2022, KREF paid the $19.9$29.8 million dividend in dividends on its common stock, or $0.37$0.43 per share, with respect to the third quarter of 2017,2022, to stockholders of record on September 30, 2017.2022.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with ourthe unaudited condensed consolidated financial statements and the related notes includedthereto appearing elsewhere in this Form 10-Q, and the Prospectus, including the audited10-Q. The historical consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained therein. The historical condensed consolidated financial data discussed below reflects the historical results and financial position of KREF. In addition, this discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including those described under “Cautionary Note Regarding Forward-Looking Statements" in this Form 10-Q and under "Forward-Looking Statements" andPart I, Item 1A. "Risk Factors" in the Prospectus.Form 10-K and under "Cautionary Note Regarding Forward-Looking Statements." Actual results may differ materially from those contained in any forward-looking statements.

Overview

Our Company and Our Investment Strategy

We are a real estate finance company that focuses primarily on originating and acquiring transitional senior loans secured by commercial real estate ("CRE") assets. We are a Maryland corporation that was formed and commenced operations on October 2, 2014, and we have elected to qualify as a REIT for U.S. federal income tax purposes. Our investment strategy is to originate or acquire transitional senior loans collateralized by institutional-quality CRE assets that are owned and operated by experienced and well-capitalized sponsors and located in liquid markets with strong underlying fundamentals. The assets in which we invest include senior loans, mezzanine loans, preferred equity and the junior-most bonds ("CMBS B-Pieces") of commercial mortgage-backed securities ("CMBS") and other real estate-related securities. Our investment allocation strategy is influenced by prevailing market conditions at the time we invest, including interest rate, economic and credit market conditions. In addition, we may invest in assets other than our target assets in the future, in each case subject to maintaining our qualification as a REIT for U.S. federal income tax purposes and our exclusion from registration under the Investment Company Act of 1940.Act. Our investment objective is capital preservation and generating attractive risk-adjusted returns for our stockholders over the long term, primarily through dividends.

Our Manager
       
We are externally managed by our Manager, KKR Real Estate Finance Manager LLC, aan indirect subsidiary of KKR.KKR & Co. Inc. KKR is a leading global investment firm with a 40-yearan over 45-year history of leadership, innovation, and investment excellence and has committed $400.0 million in equity capital to us.excellence. KKR manages multiple alternative asset classes, including private equity, real estate, energy, infrastructure and credit, and, through itswith strategic manager partnerships that manage hedge funds. Our Manager manages our investments and our day-to-day business and affairs in conformity with our investment guidelines and other policies that are approved and monitored by our board of directors. Our Manager is responsible for, among other matters, (i) the selection, origination or purchase and sale of our portfolio investments, (ii) our financing activities and (iii) providing us with investment advisory services. Our Manager is also responsible for our day-to-day operations and performs (or causes to be performed) such services and activities relating to our investments and business and affairs as may be appropriate. Our investment decisions are approved by an investment committee of our Manager that is comprised of senior investment professionals of KKR, including senior investment professionals of KKR's global real estate group. For a summary of certain terms of the management agreement, see Note 915 to our condensed consolidated financial statements included in this Form 10-Q.

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Key Financial Measures and Indicators

As a real estate finance company, we believe the key financial measures and indicators for our business are earnings per share, dividends declared, Core Earnings, Net CoreDistributable Earnings and book value per share.

Earnings (Loss) Per Share and Dividends Declared

The following table sets forth the calculation of basic and diluted net income (loss) per share and dividends declared per share (amounts in thousands, except share and per share data):

  Three Months Ended
  September 30, 2017 June 30, 2017
Net income(A)
 $17,339
 $14,081
Weighted-average shares outstanding, basic 53,696,967
 46,632,975
Weighted-average shares outstanding, diluted 53,697,041
 46,633,248
Net income per share, basic $0.32
 $0.30
Net income per share, diluted $0.32
 $0.30
Dividends declared per share(B)
 $0.37
 $0.53

(A)     Represents net income attributable to common stockholders.
(B)During the three months ended September 30, 2017, we declared a dividend of $0.37 per share of common stock paid on October 12, 2017 to shareholders of record on September 30, 2017 related to income generated during the three months ended September 30, 2017. During the three months ended June 30, 2017, we declared two dividends of: (i) $0.28 per share of common stock paid on April 18, 2017 to shareholders of record on that date related to income generated during the three months ended March 31, 2017 and (ii) $0.25 per share of common stock paid on July 14, 2017 to shareholders of record on June 30, 2017 related to income generated during the three months ended June 30, 2017.

Three Months Ended,
September 30, 2022June 30, 2022
Net income attributable to common stockholders$(48,421)$19,394 
Weighted-average number of shares of common stock outstanding
Basic69,382,73068,549,049
Diluted69,382,73068,549,049
Net income per share, basic$(0.70)$0.28 
Net income per share, diluted$(0.70)$0.28 
Dividends declared per share$0.43 $0.43 
Core Earnings and Net Core Earnings

Distributable Earnings
We use Core
Distributable Earnings, and Net Core Earnings to evaluate our performance excluding the effects of certain transactions and GAAP adjustments we believe are not necessarily indicative of our current loan activity and operations. Core Earnings and Net Core Earnings are measuresa measure that areis not prepared in accordance with GAAP. GAAP, is a key indicator of our ability to generate sufficient income to pay our quarterly dividends and in determining the amount of such dividends, which is the primary focus of yield/income investors who comprise a significant portion of our investor base. Accordingly, we believe providing Distributable Earnings on a supplemental basis to our net income as determined in accordance with GAAP is helpful to our stockholders in assessing the overall performance of our business.

We define CoreDistributable Earnings as net income (loss) attributable to our stockholders or, without duplication, owners of our subsidiaries, computed in accordance with GAAP, including realized losses not otherwise included in GAAP net income (loss) and excluding (i) non-cash equity compensation expense, (ii) the incentive compensation payable to our Manager, (iii) depreciation and amortization, (iv)(iii) any unrealized gains or losses or other similar non-cash items that are included in net income for the applicable reporting period, regardless of whether such items are included in other comprehensive income or loss, or in net income, and (v)(iv) one-time events pursuant to changes in GAAP and certain material non-cash income or expense items agreed upon after discussions between our Manager and our board of directors (and subject to theand after approval by a majority of our independent directors).directors. The exclusion of depreciation and amortization from the calculation of CoreDistributable Earnings only applies to debt investments related to real estate to the extent we foreclose upon the property or properties underlying such debt investments.
Net Core Earningsis Core Earningsless incentive compensation payable to our Manager.

We believe providing CoreWhile Distributable Earnings and Net Core Earnings on a supplemental basis to our net income as determined in accordance with GAAP is helpful to stockholders in assessingexcludes the overall performanceimpact of our business. Coreunrealized current provision for (reversal of) credit losses, any loan losses are charged off and realized through Distributable Earnings and when deemed non-recoverable. Non-recoverability is generally determined (i) upon the resolution of a loan (i.e. when the loan is repaid, fully or partially, or, in the case of foreclosure, when the underlying asset is sold), or (ii) if, in our determination, it is nearly certain that all amounts due under a loan will not be collected.

Net Core
Distributable Earnings should not be considered as a substitute for GAAP net income. We caution readers that our methodology for calculating CoreDistributable Earnings and Net Core Earnings may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, our Corereported Distributable Earnings and Net Core Earnings may not be comparable to similar measures presented by other REITs.


Historically, when calculating our share count for purposes of GAAP earnings per diluted share and Distributable Earnings per diluted share, we have excluded the number of shares that may be issued upon the conversion of the Convertible Notes. As a result of updated accounting guidance, beginning with the first quarter of 2022, we are now required to include such shares in our diluted shares outstanding under GAAP notwithstanding that we currently have the intent and ability to settle the Convertible Notes in cash. Accordingly, beginning with the first quarter of 2022, for purposes of calculating Distributable Earnings per diluted weighted average share, the weighted average diluted shares outstanding has been adjusted from the weighted average diluted shares outstanding under GAAP to exclude potential shares that may be issued upon the conversion of the Convertible Notes, when the effect is dilutive. Consistent with the treatment of other unrealized adjustments to Distributable
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Earnings, these potentially issuable shares are excluded until a conversion occurs, which we believe is a useful presentation for investors. We believe that excluding shares issued in connection with a potential conversion of the Convertible Notes from our computation of Distributable Earnings per diluted weighted average share is useful to investors for various reasons, including: (i) conversion of Convertible Notes to shares would require the holder of a note to elect to convert the Convertible Note and for us to elect to settle the conversion in the form of shares, and we currently intend to settle the Convertible Notes in cash; (ii) future conversion decisions by note holders will be based on our stock price in the future, which is presently not determinable; and (iii) we believe that when evaluating our operating performance, investors and potential investors consider our Distributable Earnings relative to our actual distributions, which are based on shares outstanding and not shares that might be issued in the future.

The table below reconciles the weighted average diluted shares under GAAP to the weighted average diluted shares used for Distributable Earnings:
Three Months Ended,
September 30, 2022June 30, 2022
Diluted weighted average common shares outstanding, GAAP69,382,730 68,549,049 
Less: Dilutive shares under assumed conversion of the Convertible Notes (ASU 2020-06)— — 
Less: Anti-dilutive restricted stock units— — 
Diluted weighted average common shares outstanding, Distributable Earnings69,382,730 68,549,049 

We also use CoreDistributable Earnings (before incentive compensation payable to our Manager) to determine the management and incentive feescompensation we pay our Manager. For information on the fees we payits services to KREF, our Manager seeis entitled to a quarterly management fee equal to the Note 9greater of $62,500 or 0.375% of a weighted average adjusted equity and quarterly incentive compensation equal to 20.0% of the excess of (a) the trailing 12-month Distributable Earnings (before incentive compensation payable to our condensed consolidated financial statements includedManager) over (b) 7.0% of the trailing 12-month weighted average adjusted equity(1) (“Hurdle Rate”), less incentive compensation KREF already paid to the Manager with respect to the first three calendar quarters of such trailing 12-month period. The quarterly incentive compensation is calculated and paid in this Form 10-Q.







arrears with a three-month lag.

(1)    For purposes of calculating incentive compensation under our Management Agreement, adjusted equity excludes: (i) the effects of equity issued that provides for fixed distributions or other debt characteristics and (ii) unrealized provision for (reversal of) credit losses.

The following tables providetable provides a reconciliation of GAAP net income attributable to common stockholders to CoreDistributable Earnings and Net Core Earnings (amounts in thousands, except share and per share data):
Three Months Ended,
September 30, 2022June 30, 2022
Net Income (Loss) Attributable to Common Stockholders$(48,421)$19,394 
Adjustments
Non-cash equity compensation expense2,175 2,040 
Unrealized (gains) or losses, net(A)
(79)(190)
Provision for credit losses, net80,604 11,798 
Non-cash convertible notes discount amortization91 90 
Distributable Earnings$34,370 $33,132 
Weighted average number of shares of common stock outstanding
  Basic69,382,73068,549,049
  Adjusted Diluted Shares Outstanding(B)
69,382,73068,549,049
Distributable Earnings per Diluted Weighted Average Share(C)
$0.50 $0.48 

(A)    Includes ($0.1) million and ($0.2) million of unrealized mark-to-market adjustment to our RECOP I's underlying CMBS investments for the three months ended September 30, 2022 and June 30, 2022, respectively.
(B)    See the reconciliation from weighted average diluted shares under GAAP to the adjusted weighted average diluted shares used for Distributable
Earnings above.

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  Three Months Ended
  September 30, 2017 June 30, 2017
Net Income (Loss) Attributable to Common Stockholders $17,339
 $14,081
Adjustments    
Non-cash equity compensation expense 25
 15
Incentive compensation to affiliate —
 —
Depreciation and amortization —
 —
Unrealized (gains) or losses (887) (1,068)
Core Earnings(A)
 16,477
 13,028
Incentive compensation to affiliate —
 —
Net Core Earnings(A)
 $16,477
 $13,028
Weighted average number of shares of common stock outstanding    
Diluted 53,697,041
 46,633,248
Core Earnings per Diluted Weighted Average Share $0.31
 $0.28
Net Core Earnings per Diluted Weighted Average Share $0.31
 $0.28

(A)Excludes $1.3 million and $1.3 million, or $0.02 and $0.03 per diluted weighted average share outstanding, of original issue discount on CMBS B-Pieces accreted as a component of taxable income during the three months ended September 30, 2017 and June 30, 2017, respectively.

Book Value per Share

We believe that book value per share is helpful to stockholders in evaluating the growth of our company as we have scaled our equity capital base and continue to invest in our target assets. The following table calculates our book value per share of common stock (amounts in thousands, except share and per share data):
September 30, 2022December 31, 2021
KKR Real Estate Finance Trust Inc. stockholders' equity$1,595,257 $1,361,434 
Series A preferred stock (liquidation preference of $25.00 per share)(327,750)(172,500)
Common stockholders' equity$1,267,507 $1,188,934 
Shares of common stock issued and outstanding at period end69,338,283 61,370,732 
Book value per share of common stock$18.28 $19.37 

Book value as of September 30, 2022 included the impact of an estimated CECL credit loss allowance of $114.9 million, or ($1.66) per common share. See Note 2 — Summary of Significant Accounting Policies, to our condensed consolidated financial statements included in this Form 10-Q for detailed discussion of allowance for credit losses.
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  September 30, 2017 June 30, 2017
KKR Real Estate Finance Trust Inc. stockholders' equity $1,061,950
 $1,065,226
Shares of common stock issued and outstanding at period end 53,685,440
 53,711,838
Book value per share of common stock $19.78
 $19.83


Our Portfolio

We have established an $1,811.6a $7,726.3 million portfolio of diversified investments, consisting primarily of performing senior loans,and mezzanine commercial real estate loans preferred equity and CMBS B-Pieces as of September 30, 2017. We believe2022.

During the nine months ended September 30, 2022, we collected 100.0% of interest payments due on our currentloan portfolio. As of September 30, 2022, the average risk rating of our loan portfolio was 3.1, weighted by total loan exposure. As of September 30, 2022, approximately 5% of our loans, based on total loan exposure, was risk-rated 5. As of September 30, 2022, the average loan commitment in our portfolio was $123.8 million and multifamily and industrial loans comprised 56% of our loan portfolio, while hospitality loans comprised 5% of the portfolio.

In addition to our loan portfolio, as of September 30, 2022, as a result of taking title to the collateral of one defaulted senior retail loan, we owned one REO asset with a net carrying value of $79.7 million, comprised of target assets representativethe fair value of the acquired retail property and the capitalized transaction and redevelopment costs, as of September 30, 2022. This property is held for investment and reflected on our investment philosophy, validatescondensed consolidated balance sheets.

Since our abilityIPO, we have continued to execute on our stated market opportunity andprimary investment strategy including lending against high-quality real estate in liquid markets with strong fundamentals to experiencedof originating floating-rate transitional senior loans and, well-capitalized sponsors. Asas we continue to scale our loan portfolio, we expect that our originations will continue to be heavily weighted toward floating-rate loans. As of September 30, 2022, 100.0% of our loans by total loan exposure earned a floating rate of interest. We expect the majority of our future investment activity to focus on originating floating-rate senior loans that we finance with our repurchase and other financing facilities, with a secondary focus on originatedoriginating floating-rate loans for which we syndicate a senior position and retain a subordinated interest for our portfolio. As a result, we expect that the percentage of our target portfolio comprised of CMBS B-Pieces will decrease over time and the percentage of floating-rate investments, including senior loans, will increase over time. As of September 30, 2017, our portfolio had experienced no impairments and did not contain any legacy assets that were originated prior to October 2014. As of September 30, 2017,2022, all of our investments were located in the United States.

The following charts illustrate the diversification and composition of our loan portfolio(A), based on type of investment, interest rate, underlying property type, and geographic location, vintage and LTV as of September 30, 2017:

2022:

kref930charta01.jpg
kref-20220930_g2.jpg



The charts above are based on total assets. Total assets reflectoutstanding principal amount of our commercial real estate loans.

(A)    Excludes: (i) one REO retail asset on a defaulted loan with net carrying value of $79.7 million as of September 30, 2022, (ii) CMBS B-Piece investments held through RECOP I, an equity method investment and (iii) one impaired mezzanine loan with an outstanding principal of $5.5 million that was fully written off.
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(B)    Senior loans include senior mortgages and similar credit quality loans, including related contiguous junior participations in senior loans where we have financed a loan with structural leverage through the non-recourse sale of a corresponding first mortgage.
(C)    We classify a loan as life science if more than 50% of the gross leasable area is leased to, or will be converted to, life science-related space.
(D)    “Other” property types include: 3% Condo (Residential), 3% Student Housing, and <1% Single Family Rental.
(E)    Excludes (i) risk-rated 5 loans and (ii) one real estate corporate loan to a multifamily operator with an outstanding principal amount of $40.0 million, representing 0.5% of our commercial real estate loans as of September 30, 2022.
(F)    LTV is generally based on the initial loan amount divided by the as-is appraised value as of the date the loan was originated or by the current principal amount of our senior and mezzanine loans; and (ii) the cost basis of our CMBS B-Pieces, net of VIE liabilities. In accordance with GAAP, we carry our CMBS B-Pieces at fair value, which we valued above our cost basis as of September 30, 2017.the date of the most recent as-is appraised value.

(A)    Excludes CMBS B-Pieces. Our CMBS B-Piece portfolio diversification is as follows: 

•
Vintage: 2015 (65.8%), 2016 (34.2%).
•
Geography: California (23.2%), Texas (12.7%), New York (9.2%), Illinois (7.1%), Florida (5.5%), Other (42.3%). As of September 30, 2017, no other individual geography comprised more than 5% of our total CMBS B‑Piece portfolio.
•
Property Type: Office (26.4%), Retail (25.2%), Hospitality (15.0%), Multifamily (10.6%), Other (22.8%). As of September 30, 2017, no other individual property type comprised more than 10% of our total CMBS B‑Piece portfolio.




The following table details our quarterly loan activity (dollars in thousands):
Three Months Ended
September 30, 2022June 30, 2022March 31, 2022December 31, 2021
Loan originations$457,685 $1,034,191 $843,624 $1,804,897 
Loan fundings(A)
$224,724 $1,077,132 $744,192 $1,680,890 
Loan repayments/syndications(387,264)(444,313)(282,282)(679,749)
Net fundings(162,540)632,819 461,910 1,001,141 
PIK interest470 479 464 418 
Write-off— — — (32,905)
Transfer to REO— — — (77,516)
Total activity$(162,070)$633,298 $462,374 $891,138 
  Three Months Ended
  September 30, 2017 June 30, 2017
Loan originations(A)
 $629,300
 $224,000
Loan fundings $589,273
 $181,912
Loan repayments(B)
 (46,732) (1,685)
Net fundings 542,541
 180,227
Non-consolidated senior interest —
 (60,991)
Total activity $542,541
 $119,236
(A)    Includes initial funding of new loans and additional fundings made under existing loans.
(A)Includes new loan originations and additional commitments made under existing loans.
(B)Includes our share of the redemption payment from our preferred equity investment.

The following table details overall statistics for our loan portfolio as of September 30, 20172022 (dollars in thousands):
Total Loan Exposure(A)
Balance Sheet PortfolioTotal Loan PortfolioFloating Rate LoansFixed Rate Loans
Number of loans767575—
Principal balance$7,357,481$7,610,841$7,610,841$—
Amortized cost$7,306,565$7,565,426$7,565,426$—
Unfunded loan commitments(B)
$1,649,112$1,649,112$1,649,112$—
Weighted-average cash coupon(C)
6.5 %+3.3 %+3.3 %n.a.
Weighted-average all-in yield(C)
6.8 %+3.6 %+3.6 %n.a.
Weighted-average maximum maturity (years)(D)
3.43.43.4n.a.
LTV(E)
67 %67 %67 %n.a.

(A)     In certain instances, we finance our loans through the non-recourse sale of a senior interest that is not included in our condensed consolidated financial statements. Total loan exposure includes the entire loan we originated and financed and excludes one impaired mezzanine loan with an outstanding principal of $5.5 million that was fully written off.
(B)     Unfunded commitments will primarily be funded to finance property improvements and renovations or lease-related expenditures by the borrowers. These future commitments will be funded over the term of each loan, subject in certain cases to an expiration date.
(C)     As of September 30, 2022, 64.1% and 35.9% of floating rate loans by loan exposure were indexed to one-month USD LIBOR and Term SOFR, respectively. In addition to cash coupon, all-in yield includes the amortization of deferred origination fees, loan origination costs and purchase discounts.
(D)     Maximum maturity assumes all extension options are exercised by the borrower; however, our loans may be repaid prior to such date. As of September 30, 2022, based on total loan exposure, 65.6% of our loans were subject to yield maintenance or other prepayment restrictions and 34.4% were open to repayment by the borrower without penalty.
(E)     LTV is generally based on the initial loan amount divided by the as-is appraised value as of the date the loan was originated or by the current principal amount as of the date of the most recent as-is appraised value. Weighted average LTV excludes risk-rated 5 loans and one real estate corporate loan to a multifamily operator with an outstanding principal of $40.0 million as of September 30, 2022.



59
    
Total Loan Exposure(A)
  Balance Sheet Portfolio Total Loan
Portfolio		 Floating Rate
Loans		 Fixed Rate
Loans
Number of loans 26
 26
 20
 6
Principal balance $1,636,990
 1,698,949
 $1,672,719
 $26,230
Carrying value $1,625,401
 1,687,371
 $1,661,141
 $26,230
Unfunded loan commitments(B)
 $286,723
 286,723
 $286,723
 $—
Weighted-average cash coupon(C)
 5.8% 5.8% L + 4.4% 10.6%
All-in yield(C)
 6.3% 6.2% L + 4.8% 11.3%
Weighted-average maximum maturity (years)(D)
 3.8
 3.8
 3.7
 6
Loan to value ratio ("LTV")(E)
 67% 67% 67% 77%
(A)In certain instances, we finance our loans through the non-recourse sale of a senior interest that is not included in our consolidated financial statements. Total loan exposure includes the entire loan we originated and financed, including $62.0 million of such non-consolidated interests that are not included within our balance sheet portfolio.

(B)Unfunded commitments will primarily be funded to finance property improvements or lease-related expenditures by the borrowers. These future commitments will be funded over the term of each loan, subject in certain cases to an expiration date.

(C)As of September 30, 2017, 100.0% of floating rate loans by principal balance are indexed to one-month USD LIBOR. In addition to cash coupon, all-in yield includes the amortization of deferred origination fees, loan origination costs and purchase discounts. Cash coupon and all-in yield for the total portfolio assume applicable floating benchmark rates as of September 30, 2017.

(D)Maximum maturity assumes all extension options are exercised by the borrower, however, our loans may be repaid prior to such date. As of September 30, 2017, based on total loan exposure, 100.0% of our loans were subject to yield maintenance or other prepayment restrictions and 6.0% were open to repayment by the borrower without penalty.

(E)Based on LTV as of the dates loans were originated or acquired by us.




The table below sets forth additional information relating to our portfolio as of September 30, 20172022 (dollars in millions):

Investment(A)
LocationProperty TypeInvestment Date
Total Whole Loan(B)
Committed Principal Amount(B)
Current Principal Amount
Net Equity(C)
Coupon(D)(E)
Max Remaining Term (Years)(D)(F)
Loan Per SF / Unit / Key(G)
LTV(D)(H)
Risk Rating
Senior Loans(J)
1Senior LoanArlington, VAMultifamily9/30/2021$381.0 $381.0 $355.0 $72.4 +3.2%4.0 $ 319,793 / unit69 %3
2Senior LoanBoston, MALife Science8/3/2022312.5 312.5 44.9 3.7 +4.24.9 $ 649 / SF56 3
3Senior LoanBellevue, WAOffice9/13/2021520.8 260.4 93.0 28.3 +3.64.5 $ 855 / SF63 3
4Senior LoanLos Angeles, CAMultifamily2/19/2021260.0 260.0 250.0 38.3 +3.63.4 $ 466,400 / unit68 3
5Senior LoanVariousIndustrial4/28/2022504.5 252.3 252.3 49.0 +2.74.6 $ 98 / SF64 3
6Senior LoanMountain View, CAOffice7/14/2021362.8 250.0 192.2 48.0 +3.33.9 $ 626 / SF73 4
7Senior LoanBronx, NYIndustrial8/27/2021381.2 228.7 137.5 36.0 +4.13.9 $ 277 / SF52 3
8Senior LoanVariousMultifamily5/31/2019216.5 216.5 216.5 39.2 +4.01.7 $ 202,336 / unit74 3
9
Senior Loan(K)
VariousIndustrial6/30/2021425.0 212.5 47.0 45.4 +5.53.8 $ 163 / SF67 3
10Senior LoanNew York, NYCondo (Residential)12/20/2018211.2 211.2 200.1 60.9 +3.61.3 $ 1,388 / SF69 3
11Senior LoanMinneapolis, MNOffice11/13/2017194.4 194.4 194.4 33.2 +3.80.2 $ 179 / SFn.a.5
12Senior LoanVariousIndustrial6/15/2022375.5 187.8 137.5 30.4 +2.94.8 $ 99 / SF50 3
13Senior LoanWashington, D.C.Office11/9/2021187.7 187.7 154.8 41.3 +3.34.2 $ 434 / SF55 3
14Senior LoanBoston, MAOffice2/4/2021375.0 187.5 187.5 37.4 +3.33.4 $ 506 / SF71 3
15Senior LoanThe Woodlands, TXHospitality9/15/2021183.3 183.3 170.9 30.4 +4.24.0 $ 187,957 / key64 3
16Senior LoanPhiladelphia, PAOffice4/11/2019182.6 182.6 157.3 25.4 +2.61.6 $ 220 / SFn.a.5
17Senior LoanWashington, D.C.Office12/20/2019175.5 175.5 144.2 37.6 +3.42.3 $ 706 / SF58 4
18Senior LoanWest Palm Beach, FLMultifamily12/29/2021171.5 171.5 169.8 25.7 +2.74.3 $ 209,072 / unit73 3
19Senior LoanBoston, MALife Science4/27/2021332.3 166.2 135.9 25.3 +3.63.6 $ 564 / SF66 3
20Senior LoanPhiladelphia, PAOffice6/19/2018161.0 161.0 161.0 160.2 +3.50.8 $ 165 / SF71 4
21Senior LoanOakland, CAOffice10/23/2020509.9 159.7 129.1 20.3 +4.33.1 $ 397 / SF65 3
22Senior LoanPlano, TXOffice2/6/2020153.7 153.7 145.3 22.3 +2.72.4 $ 201 / SF63 3
23Senior LoanChicago, ILOffice7/15/2019150.0 150.0 117.6 20.3 +3.31.9 $ 113 / SF57 3
24Senior LoanRedwood City, CALife Science9/30/2022580.7 145.2 — (1.5)+4.55.0 $ 1,206 / SF53 3
25Senior LoanSeattle, WALife Science10/1/2021188.0 140.3 103.8 25.2 +3.14.0 $ 662 / SF69 3
26Senior LoanDallas, TXOffice12/10/2021138.0 138.0 135.8 25.2 +3.74.2 $ 432 / SF68 3
27Senior LoanBoston, MAMultifamily3/29/2019137.0 137.0 137.0 30.8 +2.71.5 $ 351,282 / unit59 3
28Senior LoanArlington, VAMultifamily1/20/2022135.3 135.3 130.9 31.7 +2.94.4 $ 436,300 / unit65 3
29Senior LoanFontana, CAIndustrial5/11/2021132.0 132.0 72.6 43.5 +4.73.7 $ 113 / SF64 3
30Senior LoanFort Lauderdale, FLHospitality11/9/2018130.0 130.0 130.0 24.3 +3.41.2 $ 375,723 / key66 3
31Senior LoanSan Carlos, CALife Science2/1/2022195.9 125.0 84.9 24.0 +3.64.4 $ 580 / SF68 3
32Senior LoanIrving, TXMultifamily4/22/2021117.6 117.6 112.2 17.3 +3.33.6 $ 123,586 / unit70 3
33Senior LoanCambridge, MALife Science12/22/2021401.3 115.7 61.5 16.7 +3.94.3 $ 1,072 / SF51 3
34Senior LoanPittsburgh, PAStudent Housing6/8/2021112.5 112.5 112.5 17.0 +2.93.7 $ 155,602 / unit74 3
35Senior LoanLas Vegas, NVMultifamily12/28/2021106.3 106.3 102.0 19.8 +2.74.3 $ 193,182 / unit61 3
36Senior LoanDoral, FLMultifamily12/10/2021212.0 106.0 106.0 21.0 +2.84.2 $ 335,975 / unit77 3
37Senior LoanSan Diego, CAMultifamily10/20/2021103.5 103.5 103.5 18.5 +2.84.1 $ 448,052 / unit71 3
60
 
Investment(A)
 Investment Date Committed Principal Amount Current Principal Amount 
Net Equity(B)
 Location Property Type 
Coupon(C)(D)
 
Max Remaining Term (Years)(C)(E)
 
LTV(C)(F)
 
Senior Loans(G)
                  
1Senior Loan 8/4/2017 $239.2
 $225.1
 $223.7
 New York, NY Condo (Residential)   L + 4.8% 2.8
 69%
2Senior Loan 10/26/2015 177.0
 119.8
 43.7
 Portland, OR Retail L + 5.5 3.1
 61
3Senior Loan 9/9/2016 168.0
 144.4
 40.6
 San Diego, CA Office L + 4.2 4.0
 71
4Senior Loan 4/11/2017 162.1
 130.0
 32.3
 Irvine, CA Office L + 3.9 4.6
 62
5Senior Loan 9/27/2016 138.6
 119.6
 37.5
 Brooklyn, NY Retail L + 5.0 4.0
 59
6Senior Loan 3/30/2017 132.3
 98.8
 24.8
 Brooklyn, NY Office L + 4.4 4.5
 68
7Senior Loan 8/15/2017 119.0
 95.3
 94.7
 Atlanta, GA Office L + 3.0 4.9
 66
8Senior Loan 8/23/2017 105.0
 100.0
 89.2
 Honolulu, HI Multifamily L + 4.0 4.9
 66
9Senior Loan 9/14/2016 103.5
 78.1
 23.6
 Crystal City, VA Office L + 4.5 4.0
 59
10Senior Loan 2/28/2017 85.9
 77.8
 15.6
 Denver, CO Multifamily L + 3.8 4.4
 75
11Senior Loan 8/4/2017 81.0
 81.0
 70.4
 Denver, CO Multifamily L + 4.0 4.8
 73
12Senior Loan 2/15/2017 79.2
 59.9
 15.0
 Austin, TX Multifamily L + 4.2 4.4
 71
13Senior Loan 7/21/2017 75.1
 61.3
 14.8
 Queens, NY Industrial L + 3.7 4.8
 72
14Senior Loan 10/7/2016 74.5
 66.2
 17.0
 New York, NY Multifamily L + 4.4 4.1
 68
15Senior Loan 12/17/2015 73.0
 67.5
 18.1
 Atlanta, GA Industrial L + 4.0 3.3
 73
16Senior Loan 5/12/2017 61.9
 43.8
 11.7
 Atlanta, GA Office L + 4.0 4.7
 71
17Senior Loan 5/19/2016 55.0
 52.8
 13.3
 Nashville, TN Office L + 4.3 3.7
 70
 Total/Weighted Average Senior Loans Unlevered   $1,930.3
 $1,621.4
 $786.0
        L + 4.3% 4.1
 67%
 Mezzanine Loans                  
1Mezzanine Loan 1/22/2015 $35.0
 $35.0
 $33.3
 Clearwater, FL Hospitality    L + 9.8% 2.4
 73%
2Mezzanine Loan 6/23/2015 16.5
 16.5
 16.4
 Chicago, IL Retail L + 9.2 2.8
 82
3-8Other Mezzanine Loans Various 26.2
 26.2
 24.9
 Various Various 10.6 7.6
 77
 Total/Weighted Average Mezzanine Loans Unlevered   $77.7
 $77.7
 $74.6
     10.8% 4.2
 76%
 CMBS B-Pieces                  
1CMBS B-Piece 2/10/2016 $86.0
 $86.0
 $36.4
 Various Various 4.6% 8.3
 64%
2CMBS B-Piece 10/23/2015 46.2
 46.2
 20.9
 Various Various 4.7 8.0
 64
3CMBS B-Piece 8/15/2015 52.7
 52.7
 17.6
 Various Various 4.6 7.9
 69
4CMBS B-Piece 6/24/2015 66.1
 66.1
 16.7
 Various Various 3.3 8.3
 66
5CMBS B-Piece 5/21/2015 58.2
 58.2
 12.9
 Various Various 3.0 7.6
 65
6
RECOP(H)
 2/13/2017 40.0
 8.0
 8.0
 Various Various 4.5 9.8
 59
 Total/Weighted Average CMBS B-Pieces Unlevered   $349.2
 $317.2
 $112.5
     4.2% 8.2
 65%
Investment(A)
LocationProperty TypeInvestment Date
Total Whole Loan(B)
Committed Principal Amount(B)
Current Principal Amount
Net Equity(C)
Coupon(D)(E)
Max Remaining Term (Years)(D)(F)
Loan Per SF / Unit / Key(G)
LTV(D)(H)
Risk Rating
38Senior LoanOrlando, FLMultifamily12/14/2021102.4 102.4 88.9 21.5 +3.04.3 $ 234,565 / unit74 3
39Senior LoanWest Hollywood, CAMultifamily1/26/2022102.0 102.0 102.0 15.3 +3.04.4 $ 2,756,757 / unit65 3
40Senior LoanBoston, MAIndustrial6/28/2022285.5 100.0 98.5 97.7 +3.04.8 $ 197 / SF52 3
41Senior LoanWashington, D.C.Office1/13/2022228.5 100.0 58.5 10.0 +3.25.4 $ 214 / SF55 3
42Senior LoanPhoenix, AZIndustrial1/13/2022195.3 100.0 33.3 22.1 +4.04.4 $ 57 / SF57 3
43Senior LoanBrisbane, CALife Science7/22/202195.0 95.0 90.8 22.3 +3.13.9 $ 784 / SF71 3
44Senior LoanState College, PAStudent Housing10/15/201993.4 93.4 91.5 23.5 +2.72.1 $ 76,614 / SF64 2
45Senior LoanBrandon, FLMultifamily1/13/202290.3 90.3 63.9 10.6 +3.14.4 $ 194,363 / unit75 3
46Senior LoanDallas, TXMultifamily12/23/202190.0 90.0 77.5 15.0 +2.84.3 $ 238,488 / unit67 3
47Senior LoanMiami, FLMultifamily10/14/202189.5 89.5 89.5 17.2 +2.94.1 $ 304,422 / unit76 3
48Senior LoanDallas, TXOffice1/22/202187.0 87.0 87.0 21.2 +3.33.4 $ 288 / SF65 3
49Senior LoanCharlotte, NCMultifamily12/14/202186.8 86.8 76.0 10.9 +3.04.3 $ 206,522 / unit74 3
50Senior LoanSan Antonio, TXMultifamily6/1/2022246.5 86.3 80.3 79.9 +2.84.7 $ 88,134 / unit68 3
51Senior LoanScottsdale, AZMultifamily5/9/2022169.0 84.5 84.5 12.8 +2.94.7 $ 457,995 / unit64 3
52Senior LoanRaleigh, NCMultifamily4/27/202282.9 82.9 77.3 15.5 +3.04.6 $ 241,488 / unit68 3
53Senior LoanHollywood, FLMultifamily12/20/202181.0 81.0 81.0 14.8 +3.04.3 $ 327,935 / unit74 3
54Senior LoanSeattle, WAOffice3/20/201880.7 80.7 80.7 13.2 +4.10.5 $ 468 / SF56 3
55Senior LoanPhoenix, AZSingle Family Rental4/22/202172.1 72.1 32.6 15.4 +4.83.6 $ 157,092 / unit50 3
56Senior LoanArlington, VAMultifamily10/23/2020141.8 70.9 70.9 11.7 +3.83.0 $ 393,858 / unit73 3
57Senior LoanDenver, COMultifamily9/14/202170.3 70.3 69.6 11.4 +2.74.0 $ 287,596 / unit78 3
58Senior LoanWashington, D.C.Multifamily12/4/202069.0 69.0 66.4 10.6 +3.53.2 $ 265,617 / unit63 3
59Senior LoanDallas, TXMultifamily8/18/202168.2 68.2 68.2 9.9 +3.93.9 $ 189,444 / unit70 3
60Senior LoanManassas Park, VAMultifamily2/25/202268.0 68.0 68.0 13.2 +2.74.4 $ 223,684 / unit73 3
61Senior LoanPlano, TXMultifamily3/31/202267.8 67.8 65.0 17.9 +2.84.5 $ 244,451 / unit75 3
62Senior LoanNashville, TNHospitality12/9/202166.0 66.0 64.7 10.3 +3.64.3 $ 281,237 / key68 3
63Senior LoanAtlanta, GAMultifamily12/10/202161.5 61.5 57.3 15.3 +3.04.3 $ 189,893 / unit67 3
64Senior LoanDurham, NCMultifamily12/15/202160.0 60.0 52.2 10.4 +3.04.3 $ 151,263 / unit67 3
65Senior LoanSan Antonio, TXMultifamily4/20/202257.6 57.6 55.8 10.6 +2.74.6 $ 163,277 / unit79 3
66Senior LoanSharon, MAMultifamily12/1/202156.9 56.9 56.9 8.3 +2.84.2 $ 296,484 / unit70 3
67Senior LoanQueens, NYIndustrial2/22/202255.3 55.3 52.4 13.3 +4.01.4 $ 85 / SF68 3
68Senior LoanReno, NVIndustrial4/28/2022140.4 50.5 50.5 11.1 +2.74.6 $ 117 / SF74 3
69Senior LoanCarrollton, TXMultifamily4/1/202248.5 48.5 44.9 13.0 +2.94.5 $ 140,288 / unit74 3
70Senior LoanDallas, TXMultifamily4/1/202243.9 43.9 39.5 10.4 +2.94.5 $ 110,895 / unit73 3
71Senior LoanGeorgetown, TXMultifamily12/16/202141.8 41.8 41.8 10.1 +3.44.3 $ 199,048 / unit68 3
72Senior LoanSan Diego, CAMultifamily4/29/2022203.0 40.0 38.9 6.5 +2.64.6 $ 446,056 / unit63 3
73
Senior Loan(L)
New York, NYCondo (Residential)8/4/201720.1 20.1 20.1 20.1 +4.20.6 $ 942 / SF73 3
74Senior LoanDenver, COIndustrial12/11/202015.4 15.4 7.3 3.1 +3.83.3 $ 47 / SF61 3
Total/Weighted Average
Senior Loans Unlevered		$13,051.6 $9,245.8 $7,570.9 $1,900.8 +3.3%3.4 67 %3.1

61
(A)Our total portfolio represents the current principal amount on senior and mezzanine loans and the net equity of our CMBS B-Piece investments.
(B)Net equity reflects (i) the amortized cost basis of our loans, net of borrowings and a 5% noncontrolling interest in the entity that holds certain of our mezzanine loans; (ii) the cost basis of our CMBS B-Pieces, net of VIE liabilities; and (iii) the cost basis of our investment in RECOP.
(C)Weighted average is weighted by current principal amount for our senior and mezzanine loans and by net equity for our CMBS B-Pieces. Weighted average coupon calculation includes one-month USD LIBOR for floating-rate mezzanine loans. 
(D)L = one-month USD LIBOR rate; spot rate of 1.23% included in mezzanine loan and portfolio-wide averages represented as fixed rates.
(E)Max remaining term (years) assumes all extension options are exercised, if applicable. 
(F)For our senior and mezzanine loans, the LTV is based on the initial loan amount divided by the as-is appraised value as of the date the loan was originated. For Senior Loan 1, LTV is based on the total loan amount of $239.2 million divided by the appraised net sell-out value of $345.4 million. For Mezzanine Loan 1, LTV is based on the total loan amount divided by the as-is appraised value at March 17, 2017. For our CMBS B-Pieces, LTV is based on the weighted average LTV of the underlying loan pool at issuance.
(G)Senior loans include senior mortgages and similar credit quality investments, including junior participations in our originated senior loans for which we have syndicated the senior participations and retained the junior participations for our portfolio. 
(H)Represents our investment in an aggregator vehicle alongside RECOP that invests in CMBS. Committed principal represents our total commitment to the aggregator vehicle whereas current principal represents the current funded amount.


Investment(A)
LocationProperty TypeInvestment Date
Total Whole Loan(B)
Committed Principal Amount(B)
Current Principal Amount
Net Equity(C)
Coupon(D)(E)
Max Remaining Term (Years)(D)(F)
Loan Per SF / Unit / Key(G)
LTV(D)(H)
Risk Rating
Non-Senior Loans
1Corporaten.a.Multifamily12/11/2020100.0 40.0 40.0 39.6 +12.03.2 n.a.n.a.3
Total/Weighted Average
Non-Senior Loans Unlevered		$100.0 $40.0 $40.0 $39.6 +12.0%3.2 n.a.3.0
CMBS B-Pieces
1
RECOP I(I)
VariousVarious2/13/2017n.a.40.0 35.7 35.7 4.86.7 n.a.58 n.a.
Total/Weighted Average
CMBS B-Pieces Unlevered		$40.0 $35.7 $35.7 4.8%6.7 58 %
Real Estate Owned
1Real Estate AssetPortland, ORRetail12/16/2021n.a.n.a.79.7 79.7 n.a.n.a.n.a.n.a.n.a.
Total/Weighted Average
Real Estate Owned		$79.7 $79.7 
Grand Total / Weighted Average$9,325.8 $7,726.3 $2,055.8 6.5%3.5 67 %3.1
*    Numbers presented may not foot due to rounding.
(A)    Our total portfolio represents the current principal amount on senior, mezzanine and corporate loans, net equity in RECOP I, which holds CMBS B-Piece investments, and net carrying value of our sole REO investment. Excludes one impaired mezzanine loan with an outstanding principal of $5.5 million that was fully written off.
For Senior Loan 14, the total whole loan is $375.0 million, co-originated and co-funded by us and a KKR affiliate. Our interest was 50% of the loan or $187.5 million, of which $150.0 million in senior notes were syndicated to a third party. Post syndication, we retained a mezzanine loan with a commitment of $37.5 million, fully funded as of September 30, 2022, at an interest rate of L+7.9%.
For Senior Loan 21, the total whole loan is $509.9 million, co-originated and co-funded by us and a KKR affiliate. Our interest was 31% of the loan or $159.7 million, of which $134.7 million in senior notes were syndicated to third party lenders. Post syndication, we retained a mezzanine loan with a commitment of $25.0 million, of which $20.2 million was funded as of September 30, 2022, at an interest rate of L+12.9%.
(B)    Total Whole Loan represents total commitment of the entire whole loan originated. Committed Principal Amount includes participations by KKR affiliated entities and third parties that are syndicated/sold.
(C)    Net equity reflects (i) the amortized cost basis of our loans, net of borrowings; and (ii) the cost basis of our investments in RECOP I and REO.
(D)    Weighted average is weighted by the current principal amount for our senior, mezzanine and corporate loans and by net equity for our RECOP I CMBS B-Pieces. Non-Senior Loan 1 and risk-rated 5 loans are excluded from the weighted average LTV.
(E)    Coupon expressed as spread over the relevant floating benchmark rates, which include one-month LIBOR and Term SOFR, as applicable to each loan. As of September 30, 2022, 64.1% and 35.9% of floating rate loans by principal amount were indexed to one-month LIBOR and Term SOFR, respectively.
(F)    Max remaining term (years) assumes all extension options are exercised, if applicable.
(G)    Loan Per SF / Unit / Key is based on the current principal amount divided by the current SF / Unit / Key. For Senior Loans 2, 3, 7, 9, 24, 29, 33, 42, 55, and 74, Loan Per SF / Unit / Key is calculated as the total commitment amount of the loan divided by the proposed SF / Unit / Key.
(H)    For senior loans, LTV is generally based on the initial loan amount divided by the as-is appraised value as of the date the loan was originated or by the current principal amount as of the date of the most recent as-is appraised value; for mezzanine loans, LTV is based on the current balance of the whole loan divided by the as-is appraised value as of the date the loan was originated; for RECOP I CMBS B-Pieces, LTV is based on the weighted average LTV of the underlying loan pool at issuance. Weighted Average LTV excludes one fully funded corporate loan to a multifamily operator with an outstanding principal amount of $40.0 million.
For Senior Loans 10 and 73, LTV is based on the current principal amount divided by the adjusted appraised gross sellout value net of sales cost.
For Senior Loans 2, 3, 7, 9, 24, 29, 33, 42, 55 and 74, LTV is calculated as the total commitment amount of the loan divided by the as-stabilized value as of the date the loan was originated.
(I)    Represents our investment in an aggregator vehicle alongside RECOP I that invests in CMBS B-Pieces. Committed principal represents our total commitment to the aggregator vehicle whereas current principal represents the current funded amount.
(J)    Senior loans include senior mortgages and similar credit quality investments, including junior participations in our originated senior loans for which we have syndicated the senior participations and retained the junior participations for our portfolio and excludes vertical loan participations.
(K)    For Senior Loan 9, the total whole loan facility is $425.0 million, co-originated and co-funded by us and a KKR affiliate. Our interest was 50% of the facility or $212.5 million. The facility is comprised of individual cross-collateralized whole loans. As of September 30, 2022, there were eight underlying senior loans in the facility with a commitment of $98.4 million and outstanding principal of $47.0 million.
(L)    For Senior Loan 73, Loan per SF of $942 is based on the allocated loan amount of the residential units. Excluding the value of the retail and parking components of the collateral, the Loan per SF is $2,061 based on allocating the full amount of the loan to only the residential units.
62
Portfolio Surveillance and Credit Quality

Senior and Mezzanine Loans

Our Manager actively manages our portfolio and assesses the risk of any loan impairmentdeterioration in credit quality by regularlyquarterly evaluating the performance of the underlying property, the valuation of comparable assets as well as the financial wherewithal of the associated borrower. Our loan documents generally give us the right to receive regular property, borrower and guarantor financial statements; approve annual budgets and tenant leases; and enforce loan covenants and remedies. In addition, our Manager evaluates the macroeconomic environment, prevailing real estate fundamentals and micro-market dynamics where the underlying property is located. Through site inspections, local market experts and various data sources, as part of its risk assessment, our Manager monitors criteria such as new supply and tenant demand, market occupancy and rental rate trends, and capitalization rates and valuation trends.

We maintain a robust asset management relationship with our borrowers and have utilized these relationships to maximize the performance of our portfolio, including during periods of volatility such as the COVID-19 pandemic.

We believe our loan sponsors are generally committed to supporting assets collateralizing our loans through additional equity investments, and that we will benefit from our long-standing core business model of originating senior loans collateralized by large assets in major markets with experienced, well-capitalized institutional sponsors. While we believe the principal amounts of our loans are generally adequately protected by underlying collateral value, there is a risk that we will not realize the entire principal value of certain investments.

In addition to ongoing asset management, our Manager performs a quarterly review of our portfolio whereby each loan is assigned a risk rating of 1 through 5, from lowest risk to highest risk. Our Manager is responsible for reviewing, assigning and updating the risk ratings for each loan on a quarterly basis. The risk ratings are based on many factors, including, but not limited to, underlying real estate performance and asset value, 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 LTVs, debt service coverage ratios, real estate and credit market dynamics, and risk of default or principal loss. Based on a five-point scale, our loans are rated "1" through "5," from less risk to greater risk, which ratings are defined as follows (dollars in thousands):follows:

1—Very Low Risk



2—Low Risk

3—Medium Risk


3—Average Risk


4—High Risk/Potential for Loss: A loan that has a risk of realizing a principal loss.



5—Impaired/Loss Likely: A loan that has a very high risk of realizing a principal loss or has otherwise incurred a principal loss.

As of September 30, 2022, the average risk rating of our loan portfolio was 3.1, weighted by total loan exposure, as compared to 2.9 as of December 31, 2021.

September 30, 2022December 31, 2021
Risk RatingNumber of LoansCarrying Value
Total Loan Exposure(A)
Total Loan Exposure %Number of LoansCarrying Value
Total Loan Exposure(A)
Total Loan Exposure %
1— $— $— — %1 $243,549 $243,552 3.6 %
21 91,287 91,476 1.2 3 410,293 411,424 6.2 
369 6,367,631 6,670,183 87.6 54 5,268,590 5,627,927 84.3 
43 496,219 497,466 6.6 4 394,301 394,336 5.9 
53 351,428 351,716 4.6 1 — — — 
Total loan receivable76 $7,306,565 $7,610,841 100.0 %63 $6,316,733 $6,677,239 100.0 %
Allowance for credit losses(110,798)(22,244)
Loan receivable, net$7,195,767 $6,294,489 

63
  September 30, 2017
Risk Rating Number of Loans Net Book Value 
Total Loan Exposure(A)
1 —
 $—
 $—
2 3
 75,002
 75,473
3 22
 1,533,989
 1,606,976
4 1
 16,410
 16,500
5 —
 —
 —
(A)    In certain instances, we finance our loans through the non-recourse sale of a senior interest that is not included in our condensed consolidated financial statements under GAAP. Total loan exposure includes the entire loan we originated and financed, including $258.9 million and $318.6 million of such non-consolidated senior interests as of September 30, 2022 and December 31, 2021, respectively.

(A)In certain instances, we finance our loans through the non-recourse sale of a senior interest that is not included in our consolidated financial statements. Total loan exposure includes the entire loan we originated and financed, including $62.0 million of such non-consolidated interests as of September 30, 2017.

As of September 30, 2017, the average risk rating2022, we had one risk-rated 4 senior loan secured by office properties located in Philadelphia, PA that was past its current maturity date of KREF's portfolioSeptember 2022. The maximum maturity date of this senior loan, assuming all extension options are exercised, is July 2023. The loan had an amortized cost of $161.8 million and was 3.0 (Average Risk), weighted by investment carrying value, with 99.0% of commercial mortgage loans held-for-investment, rated 3 (Average Risk) or better by our Manager. Asnot pledged to any secured financing facility as of September 30, 2017 and December 31, 2016, no investments were rated 5 (Impaired/Loss Likely).2022. The borrower paid its October monthly interest payment subsequent to quarter end.

CMBS B-Piece Investments

Our current CMBS exposure is through RECOP I, an equity method investment. Our Manager has processes and procedures in place to monitor and assess the credit quality of our CMBS B-Piece investments and promote the regular and active management of these investments. This includes reviewing the performance of the real estate assets underlying the loans that collateralize the investments and determining the impact of such performance on the credit and return profile of the investments. Our Manager holds monthlymonthly surveillance meetingscalls with the special servicer of our CMBS B-Piece investments to monitor the performance of our portfolio and discuss issues associated with the loans underlying our CMBS B-Piece investments. At each meeting, our Manager is provided with a due diligence submission for each loan underlying our CMBS B-Piece investments, which includes both property- and loan-level information. These meetings assist our Manager in monitoring our portfolio, identifying any potential loan issues, determining if a re-underwriting of any loan is warranted and examining the timing and severity of any potential losses or impairments.


In addition to monthly surveillance, our Manager is involved in all major decision approval requests by borrowers relating to the loans that collateralize our CMBS B-Piece investments. Our Manager engages a third-party special servicer to administer each request, which in turn presents each request to our Manager for review and approval. This process helps our Manager anticipate potential loan issues and proactively formulate responses as it relates to each loan approval request. As part of this process, our Manager receives updated financial information, rent rolls and performance metrics for each loan, which allows our Manager to regularly assess the performance of our loan collateral. In addition to monitoring loans that collateralize our CMBS B-Piece investments, our Manager also actively monitors watch list loans, loans that have been transferred into special servicing, and loan defaults in the CMBS B-Piece market generally, which helps our Manager anticipate potential market- and/or asset-specific issues that may affect our portfolio.

Valuations for our CMBS B-Piece investments are prepared using inputs from an independent valuation firm and confirmed by our Manager via quotes from two or more broker-dealers that actively make markets in CMBS. As part of the quarterly valuation process, our Manager also reviews pricing indications for comparable CMBS and monitors the credit metrics of the loans that collateralize our CMBS B-Piece investments.

AsPortfolio Financing

Our portfolio financing arrangements include term loan financing, term lending agreements, collateralized loan obligations, secured term loan, warehouse facility, asset specific financing, non-consolidated senior interest (collectively “Non-Mark-to-Market Financing Sources”) and master repurchase agreements.

Our Non-Mark-to-Market Financing Sources, which accounted for 76% of our total secured financing (excluding our corporate revolver) as of September 30, 2017, there were no delinquencies associated with any loans underlying2022, are not subject to credit or capital markets mark-to-market provisions. The remaining 24% of our CMBS B-Piece investments.secured borrowings, which is primarily comprised of three master repurchase agreements, are only subject to credit marks.

Secured We continue to expand and diversify our financing sources, especially those sources that provide non-mark-to-market financing, reducing our exposure to market volatility.

The following table summarizes our portfolio financing (dollars in thousands):
Portfolio Financing Outstanding Principal Balance
Non-/Mark-to-MarketSeptember 30, 2022December 31, 2021
Master repurchase agreementsMark-to-Credit$1,423,355 $1,554,808 
Collateralized loan obligationsNon-Mark-to-Market1,942,750 1,095,250 
Term lending agreementsNon-Mark-to-Market1,342,628 1,117,627 
Term loan financingNon-Mark-to-Market584,033 870,458 
Secured term loanNon-Mark-to-Market347,375 350,000 
Asset specific financingNon-Mark-to-Market138,165 60,000 
Warehouse facilityNon-Mark-to-Market— — 
Non-consolidated senior interestsNon-Mark-to-Market258,861 318,634 
Total portfolio financing$6,037,167 $5,366,777 

Financing Agreements

The following table details our secured financing agreements (dollars in thousands):
64
  September 30, 2017
  Maximum Collateral Secured Financing Borrowings
Lender 
Facility Size(A)
 
Assets(B)
 
Potential(C)
 Outstanding Available
Wells Fargo $750,000
 $679,553
 $638,475
 $485,250
 $153,225
Morgan Stanley 500,000
 687,707
 500,000
 266,347
 233,653
JP Morgan 250,000
 n.a.
 —
 —
 —
Goldman Sachs 250,000
 81,000
 60,750
 10,000
 50,750
Barclays 75,000

n.a.

75,000

—

75,000
  $1,825,000
 $1,448,260
 $1,274,225
 $761,597
 $512,628

(A)Maximum facility size represents the largest amount of borrowings available under a given facility once sufficient collateral assets have been approved by the lender and pledged by us.

(B)Represents the principal balance of the collateral assets.

(C)Potential borrowings represents the total amount we could draw under each facility based on collateral already approved and pledged. When undrawn, these amounts are available to us under the terms of each credit facility.


Non-Consolidated Senior Interests

In certain instances, we finance our loans through the non-recourse saleTable of a senior loan interest that is not included in our consolidated financial statements. These non-consolidated senior interests provide structural leverage for our net investments which are reflected in the form of mezzanine loans or other subordinate interests on our balance sheet and in our results of operations. The following table details the subordinate interests retained on our balance sheet and the related non-consolidated senior interests as of September 30, 2017 (dollars in thousands):

  September 30, 2017
Non-Consolidated Senior Interests Count Principal Balance Carrying Value 
Wtd. Avg. Yield/Cost(A)
 Guarantee Wtd. Avg. Term
Total loan 1
 $77,709
 n.a L + 3.8% n.a March 2022
Senior participation 1
 61,959
 n.a L + 2.0% n.a. March 2022
(A)Our floating rate loans and related liabilities were indexed to one-month LIBOR. Our net interest rate exposure is in direct proportion to our net assets.

Results of Operations

Three and Nine Months Ended September 30, 2017 Compared to the Three and Nine Months Ended September 30, 2016Contents

The following table compares the results of operations for the three and nine months ended September 30, 2017 to the three and nine months ended September 30, 2016 (dollars in thousands):

  For the Three Months Ended September 30,   For the Nine Months Ended September 30,  
  2017 2016 Increase (Decrease) 2017 2016 Increase (Decrease)
Net Interest Income            
Interest income $24,408
 $7,896
 $16,512
 $54,760
 $20,884
 $33,876
Interest expense 5,414
 1,627
 3,787
 12,592
 3,976
 8,616
Total net interest income 18,994
 6,269
 12,725
 42,168
 16,908
 25,260
Other Income            
Change in net assets related to consolidated variable interest entities 4,025
 6,220
 (2,195) 12,810
 9,960
 2,850
Income from equity method investments in unconsolidated subsidiaries 115
 —
 115
 461
 —
 461
Other income 177
 64
 113
 616
 143
 473
Total other income (loss) 4,317
 6,284
 (1,967) 13,887
 10,103
 3,784
Operating Expenses            
General and administrative 1,339
 548
 791
 3,254
 1,748
 1,506
Management fees to affiliate 3,989
 1,621
 2,368
 9,513
 4,088
 5,425
Incentive compensation to affiliate —
 —
 —
 —
 365
 (365)
Total operating expenses 5,328
 2,169
 3,159
 12,767
 6,201
 6,566
Income (Loss) Before Income Taxes, Noncontrolling Interests and Preferred Dividends 17,983
 10,384
 7,599
 43,288
 20,810
 22,478
Income tax expense 120
 71
 49
 388
 214
 174
Net Income (Loss) 17,863
 10,313
 7,550
 42,900
 20,596
 22,304
Redeemable Noncontrolling Interests in Income (Loss) of Consolidated Joint Venture 54
 87
 (33) 134
 248
 (114)
Noncontrolling Interests in Income (Loss) of Consolidated Joint Venture 377
 210
 167
 801
 601
 200
Net Income (Loss) Attributable to KKR Real Estate Finance Trust Inc. and Subsidiaries 17,432
 10,016
 7,416
 41,965
 19,747
 22,218
Preferred Stock Dividends 93
 4
 89
 181
 12
 169
Net Income (Loss) Attributable to Common Stockholders $17,339
 $10,012
 $7,327
 $41,784
 $19,735
 $22,049

Net Interest Income

Net interest income increased $12.7 million and $25.3 million during the three and nine months ended September 30, 2017, respectively, compared to the comparable periods in 2016 primarily due to increased interest income in connection with additional capital deployed in investments as we continued to scale our portfolio. This increase was partially offset by increased interest expense resulting from interest on amounts outstanding under our repurchase facilities used to finance investments in senior loans. The partial offset to interest income includes $1.0 million and $0.2 million of net deferred loan fees and origination discounts during the three months ended September 30, 2017 and 2016, respectively, and $2.3 million and $0.5 million during the nine months ended September 30, 2017 and 2016, respectively.

Other Income

Total other income decreased $2.0 million during the three months ended September 30, 2017 as compared to the three months ended September 30, 2016, primarily due to a $0.9 million unrealized gain on our investments in CMBS B-Pieces during the three months ended September 30, 2017 as compared to a $3.1 million unrealized gain during 2016. Partially offsetting this decrease, other income increased $0.1 million during the three months ended September 30, 2017 as compared to the same period during 2016 due to income from equity investments in unconsolidated subsidiaries in which we entered during 2017.

Total other income increased $3.8 million during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, primarily due to a $3.5 million unrealized gain on our investments in CMBS B-Pieces during the nine months ended September 30, 2017 as compared to a $1.0 million unrealized gain during the nine months ended September 30, 2016. Other income also increased $0.5 million during the nine months ended September 30, 2017 as compared to the same period during 2016 due to income from equity investments in unconsolidated subsidiaries in which we entered during 2017.

Operating Expenses

Total operating expenses increased $3.2 million and $6.6 million during the three and nine months ended September 30, 2017, respectively, compared to the same periods in 2016. This increase is primarily due to increased management fees during the three and nine months ended September 30, 2017, of $2.4 million and $5.4 million, respectively, resulting from an increase in our equity from the private placement of our common stock and our initial public offering, as well as an additional $0.8 million and $1.5 million of general and administrative expenses during the three and nine months ended September 30, 2017, respectively, primarily consisting of legal, audit, insurance, information technology, and other increased costs as we scaled our portfolio and became a public company. This increase was partially offset by decreased incentive compensation expense payable to our Manager resulting from the time required to invest our proceeds received from equity issuances.

September 30, 2022
MaximumCollateralBorrowings
Facility Size(A)
Assets(B)
Potential(C)
OutstandingAvailable
Master Repurchase Agreements
Wells Fargo$1,000,000 $978,669 $734,002 $715,981 $18,021 
Morgan Stanley600,000 790,539 590,520 583,716 6,804 
Goldman Sachs240,000 287,517 206,214 123,658 82,556 
Term Loan Facility1,000,000 719,961 584,033 584,033 — 
Term Lending Agreements
KREF Lending V567,115 686,622 540,406 539,050 1,356 
KREF Lending IX1,000,000 813,181 654,000 642,438 11,562 
KREF Lending XII350,000 217,395 163,698 161,140 2,558 
Warehouse Facility
HSBC500,000 — — — — 
Asset Specific Financing
BMO Facility300,000 — — — — 
KREF Lending XI100,000 125,000 100,000 100,000 — 
KREF Lending XIII265,625 44,900 38,165 38,165 — 
Revolver610,000 — 610,000 — 610,000 
$6,532,740 $4,663,784 $4,221,038 $3,488,181 $732,857 
Liquidity
(A)     Maximum facility size represents the largest amount of borrowings available under a given facility once sufficient collateral assets have been approved by the lender and Capital Resourcespledged by us.

Overview

Our primary liquidity needs include ongoing commitments to repay(B)     Represents the principal balance of the collateral assets.
(C)     Potential borrowings represents the total amount we could draw under each facility based on collateral already approved and interest on our borrowings and pay other financing costs; finance our assets; meet future funding obligations; make distributionspledged. When undrawn, these amounts are available to our stockholders; fund our operations, which includes making payments to our Manager in accordance withus under the management agreement; and other general business needs.

Asterms of September 30, 2017, our primary sources of liquidity and capital resources to date have been derived from $1,060.9 million in net proceeds from equity issuances, $761.6 million in net advances from our repurchase facilities, $71.0 million in proceeds from syndicated financing, and cash flows from operations. We may seek additional sources of liquidity from repurchase facilities, syndicated financing, other borrowings (including borrowings not related to a specific investment), and future offerings of equity and debt securities. In addition, we may apply our existing cash and cash equivalents and cash flows from operations to any liquidity needs. As of September 30, 2017, our cash and cash equivalents were $90.0 million.

Debt-to-Equity Ratio and Total Leverage Ratio

The following table presents our debt-to-equity ratio and total leverage ratio:
September 30, 2017December 31, 2016
Debt-to-equity ratio(A)
0.6x0.7x
Total leverage ratio(B)
0.7x0.7x

(A)Represents (i) total outstanding secured debt agreements less cash to (ii) total stockholders’ equity, in each case, at period end.
(B)Represents (i) total outstanding secured debt agreements and non-consolidated senior interests, less cash to (ii) total stockholders’ equity, in each case, at period end.

Sources of Liquidity

Our primary sources of liquidity include cash and cash equivalents, and available borrowings under our secured financing agreements which are set forth in the following table (dollars in thousands):
  September 30, 2017 December 31, 2016
Cash and cash equivalents $89,976
 $96,189
Available borrowings under secured debt arrangements 437,628
 139,818
Available borrowings under revolving credit agreements 75,000
 —


each credit facility.
Consolidated Debt Obligations

The following table summarizes our secured financing agreements and other consolidated debt obligations in place as of September 30, 2017 and December 31, 2016 (dollars in thousands):
  September 30, 2017 December 31, 2016
  Facility Collateral Facility
            
Weighted Average(B)
          
  Month Issued Outstanding Face Amount 
Carrying Value(A)
 Maximum Facility Size Final Stated Maturity Funding Cost Life (Years) Outstanding Face Amount Amortized Cost Basis Carrying Value 
Weighted Average Life (Years)(C)
 
Carrying Value(A)
Secured Financing Agreements                      
Master Repurchase Agreements(D)
                    
Wells Fargo(E)
 Oct 2015 $485,250
 $482,060
 $750,000
 Apr 2022 3.5% 1.8 $679,553
 $674,829
 $674,829
 4.0 $262,883
Morgan Stanley(F)
 Dec 2016 266,347
 264,802
 500,000
 Dec 2020 3.8
 2.2 687,707
 682,245
 682,245
 3.8 177,764
JP Morgan(G)
 Oct 2015 —
 (875) 250,000
 Oct 2018 0.4
 0.0 n.a.
 n.a.
 n.a.
 n.a. (1,503)
Goldman Sachs(H)
 Sep 2016 10,000
 10,000
 250,000
 Sep 2020 3.9
 1.9 81,000
 80,412
 80,412
 4.8 —
Revolving Credit Agreement                     
Barclays(I)

May 2017
—

—

75,000

May 2020
1.7

0.0
n.a.

n.a.

n.a.

n.a.
n.a.
    761,597
 755,987
 1,825,000
   3.6% 1.9         439,144
VIE Liabilities                        
CMBS(J)
 Various 5,007,422
 5,313,914
 n.a.
 Mar 2048 to Feb 2049 4.3% 7.4 5,316,581
 n.a.
 5,429,874
 7.4 5,313,574
    5,007,422
 5,313,914
 n.a.
   4.3
 7.4         5,313,574
Total / Weighted Average   $5,769,019
 $6,069,901
 $1,825,000
   4.2% 6.7         $5,752,718

(A)Net of $5.6 million and $6.4 million unamortized debt issuance costs as of September 30, 2017 and December 31, 2016, respectively.
(B)Average weighted by the outstanding face amount of borrowings.
(C)Average based on the fully extended loan maturity, weighted by the outstanding face amount of the collateral.
(D)Borrowings under these repurchase agreements are collateralized by senior mortgage loans, held-for-investment, and bear interest equal to the sum of (i) a floating rate index, subject to a floor of no less than zero, equal to one-month LIBOR, or an index approximating LIBOR, and (ii) a margin, based on the collateral. As of September 30, 2017 and December 31, 2016, the percentage of the outstanding face amount of the collateral sold and not borrowed under these repurchase agreements, or average "haircut" weighted by outstanding face amount of collateral, was 47.4% and 28.8%, respectively (or 28.1% and 25.9%, respectively, if we had borrowed the maximum amount approved by its repurchase agreement counterparties as of such dates).
(E)In April 2017, we and Wells Fargo Bank, National Association ("Wells Fargo") amended and restated the master repurchase agreement to extend the facility maturity date and to increase the maximum facility size from $500.0 million to $750.0 million. In September 2017, we and Wells Fargo amended the amended and restated master repurchase agreement to make certain operational changes. The current stated maturity of the facility is April 2020, which does not reflect two, twelve-month facility term extensions available to us, which is contingent upon certain covenants and thresholds. As of September 30, 2017, the collateral-based margin was between 1.80% and 2.15%.
(F)In December 2016, we entered into a $500.0 million repurchase facility with Morgan Stanley Bank, N.A. ("Morgan Stanley"). The current stated maturity of the facility is December 2019, which does not reflect one, twelve-month facility term extension available to us, which is contingent upon certain covenants and thresholds and, even if such covenants and thresholds are satisfied, is at the sole discretion of Morgan Stanley. As of September 30, 2017, the collateral-based margin was between 2.00% and 2.45%.
(G)
The current stated maturity of the facility is October 2018, which does not reflect facility term extensions available to us at the discretion of JPMorgan Chase Bank, National Association ("JP Morgan"). In December 2016, we used the $500.0 million repurchase facility with Morgan Stanley to repurchase all of the senior loans financed by the master repurchase facility with JP Morgan. The negative carrying value reflects unamortized debt issuance costs presented in our Condensed Consolidated Balance Sheets as a direct deduction from the carrying amount of the recognized debt liability in accordance with ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.
(H)In September 2016, we entered into a $250.0 million repurchase facility with Goldman Sachs Bank USA ("Goldman Sachs"). The facility has a revolving period of one year, and a three-year term on a per-asset basis as those assets are pledged to the facility. As of September 30, 2017, the carrying value excluded $0.5 million unamortized debt issuance costs presented as " — Other assets" in our Condensed Consolidated Balance Sheets. As of September 30, 2017, the collateral-based margin was 2.50%. See "—Subsequent Events" for activities subsequent to September 30, 2017.
(I)In May 2017, we entered into a $75.0 million corporate secured revolving credit facility administered by Barclays Bank PLC ("Barclays "). The current stated maturity of the facility is May 2019, which does not reflect one, twelve-month facility term extension available to us at the discretion of Barclays. Borrowings under the facility bears interest at a per annum rate equal to the sum of (i) a floating rate index and (ii) a fixed margin. Amounts borrowed under this facility are 100% recourse to us. As of September 30, 2017, the carrying value excluded $1.3 million unamortized debt issuance costs presented as " — Other assets" in our Condensed Consolidated Balance Sheets.
(J)Facility amounts represent CMBS issued by five trusts that we consolidate, but that are not beneficially owned by our stockholders. The facility and collateral carrying amounts included $18.7 million accrued interest payable and $19.8 million accrued interest receivable as of September 30, 2017. As of December 31, 2016, the facility and collateral carrying amounts included $18.8 million accrued interest payable and $19.9 million accrued interest receivable. The final stated maturity date represents the rated final distribution date of CMBS issued by trusts that we consolidate, but that are not beneficially owned by our stockholders.



Master Repurchase Agreements

Currently, our primary source of financing is ourWe utilize master repurchase facilities which we use to finance the origination of senior loans. After a mortgage asset is identified by us, the lender agrees to advance a certain percentage of the face valueprincipal of the mortgage to us in exchange for a secured interest in the mortgage. We have not received any margin calls on any of our master repurchase facilities to date.

Repurchase agreements effectively allow us to borrow against loans participations and securitiesparticipations that we own in an amount generally equal to (i) the market value of such loans participations and/or securitiesparticipations multiplied by (ii) the applicable advance rate. Under these agreements, we sell our loans participations and securitiesparticipations to a counterparty and agree to repurchase the same loans and securitiesparticipations from the counterparty at a price equal to the original sales price plus an interest factor. The transaction is treated as a secured loan from the financial institution for GAAP purposes. During the term of a repurchase agreement, we receive the principal and interest on the related loans participations and securitiesparticipations and pay interest to the lender under the master repurchase agreement. At any point in time, the amounts and the cost of our repurchase borrowings will be based upon the assets being financed—higher risk assets will result in lower advance rates (i.e., levels of leverage) at higher borrowing costs and vice versa. In addition, these facilities include various financial covenants and limited recourse guarantees, including those described below.

Each of our existing master repurchase facilities includes "credit mark"mark-to-market" features. "Credit mark"mark-to-market" provisions in repurchase facilities are designed to keep the lenders' credit exposure generally constant as a percentage of the underlying collateral value of the assets pledged as security to them. If the credit underlying collateral value decreases, the gross amount of leverage available to us will be reduced as our assets are marked to market,marked-to-market, which would reduce our liquidity. The lender under the applicable repurchase facility sets the valuation and any revaluation of the collateral assets in its sole, good faith discretion. As a contractual matter, the lender has the right to reset the value of the assets at any time based on then-current market conditions, but the market convention is to reassess valuations on a monthly, quarterly and annual basis using the financial information delivered pursuant to the facility documentation regarding the real property, borrower and guarantor under such underlying loans. Generally, if the lender determines (subject to certain conditions) that the market value of the collateral in a repurchase transaction has decreased by more than a defined minimum amount, the lender may require us to provide additional collateral or lead to margin calls that may require us to repay all or a portion of the funds advanced. We closely monitor our liquidity and intend to maintain sufficient liquidity on our balance sheet in order to meet any margin calls in the event of any significant decreases in asset values. As of September 30, 20172022 and December 31, 2016,2021, the weighted average haircut under our repurchase agreements was 47.4%30.8% and 28.8%30.3%, respectively (or 28.1%25.5% and 25.9%, respectively, if we had borrowed the
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maximum amount approved by its repurchase agreement counterparties as of such dates). In addition, our existing master repurchase facilities are not entirely term-matched financings and may mature before our CRE debt investments that represent underlying collateral to those financings. As we negotiate renewals and extensions of these liabilities, we may experience lower advance rates and higher pricing under the renewed or extended agreements.

Term Loan Financing

In connection with our efforts to diversify our financing sources, further expand our non-mark-to-market borrowing base and reduce our exposure to market volatility, we entered into a term loan financing agreement in April 2018 with third party lenders for an initial borrowing capacity of $200.0 million that was increased to $1.0 billion in October 2018 (“Term Loan Facility”). The facility provides us with asset-based financing on a non-mark-to-market basis with match-term up to five years and is non-recourse to us. Borrowings under the facility are collateralized by senior loans, held-for-investment.

The following table summarizes our borrowings under the Term Loan Facility (dollars in thousands):
September 30, 2022
Term Loan FacilityCountOutstanding PrincipalAmortized CostCarrying Value
Wtd. Avg. Yield/Cost(A)
Guarantee(B)
Wtd. Avg. Term(C)
Collateral assets10$719,961 $716,517 $688,843 + 3.4%n.a.February 2026
Financing providedn.a.584,033 583,681 583,681 + 1.8%n.a.February 2026
(A)     Collateral loan assets are indexed to one-month LIBOR and/or Term SOFR. In addition to cash coupon, yield/cost includes the amortization of deferred origination/financing costs.
(B)    Financing under the Term Loan Facility is non-recourse to us.
(C)    The weighted-average term is weighted by outstanding principal, using the maximum maturity date of the underlying loans assuming all extension options are exercised by the borrower.

Term Lending Agreements

In June 2019, we entered into a Master Repurchase and Securities Contract Agreement ("KREF Lending V Facility") with Morgan Stanley Mortgage Capital Holdings LLC ("Administrative Agent"), as administrative agent on behalf of Morgan Stanley Bank, N.A. ("Initial Buyer"), which provides non-mark-to-market financing. In June 2022, the current stated maturity was extended to June 2023, subject to three additional one-year extension options, which may be exercised by us upon the satisfaction of certain customary conditions and thresholds. The Initial Buyer subsequently syndicated a portion of the facility to multiple financial institutions. As of September 30, 2022, the Initial Buyer held 23.8% of the total commitment under the facility. Borrowings under the facility are collateralized by certain loans, held for investment, and bear interest equal to one-month LIBOR, plus a 1.9% margin.

In July 2021, we entered into a $500.0 million Master Repurchase and Securities Contract Agreement with a financial institution (“KREF Lending IX Facility”). In March 2022, we increased the borrowing capacity to $750.0 million. In August 2022, we further increased the borrowing capacity to $1,000.0 million. The facility, which provides financing on a non-mark-to-market basis with partial recourse to us, has a three-year draw period and match- term to the underlying loans.

In June 2022, we entered into a $350.0 million Master Repurchase Agreement and Securities Contract with a financial institution (“KREF Lending XII Facility”). The facility, which provides financing on a non-mark-to-market basis with partial recourse to KREF, has a two-year draw period and match-term to the underlying loans. In addition, we have the option to increase the facility amount to $500.0 million.

Warehouse Facility

In March 2020, we entered into a $500.0 million Loan and Security Agreement with HSBC Bank USA, National Association (“HSBC Facility”). The facility, which matures in March 2023, provides warehouse financing on a non-mark-to-market basis with partial recourse to us. Borrowings under the facility are collateralized by certain loans, held for investment, and bear interest equal to one-month LIBOR, plus a margin.

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Asset Specific Financing

In August 2018, we entered into a $200.0 million loan financing facility with BMO Harris Bank (the "BMO Facility”). In May 2019, we increased the borrowing capacity to $300.0 million. The facility provides asset-based financing on a non-mark-to-market basis with match-term up to five years with partial recourse to us.

In April 2022, we entered into a $100.0 million loan financing facility with a financial institution ("KREF Lending XI Facility"). The facility provides match-term asset-based financing on a non-mark-to-market and non-recourse basis.

In August 2022, we entered into a $265.6 million loan financing facility with a financial institution ("KREF Lending XIII Facility"). The facility provides non-recourse match-term asset-based financing on a non-mark-to-market basis.

Revolving Credit Agreement

We may also useIn March 2022, we upsized our securedcorporate revolving credit facility (“Revolver”), administered by Morgan Stanley Senior Funding, Inc., to $520.0 million and extended the maturity date to March 2027. In April 2022, we further upsized our Revolver to $610.0 million. We may use our Revolver as a source of financing, which is designed to provide short termshort-term liquidity to purchaseoriginate or de-lever loans, or other eligible assets, pay operating expenses and borrow amounts for general corporate purposes. Any amounts borrowed are full recourse to us. Borrowings under the facilityRevolver bear interest at a per annum rate equal to the sum of (i) a floating rate indexTerm SOFR and (ii) a fixed margin. Our Revolver is secured by corporate level guarantees and includes net equity interests in the investment portfolio.


Collateralized Loan Obligations


In August 2021, we financed a pool of loan participations from our existing loan portfolio through a managed collateralized loan obligation ("CLO" or "KREF 2021-FL2") and, in February 2022, we financed a pool of loan participations from our existing multifamily loan portfolio through a managed CLO ("KREF 2022-FL3"). The CLOs provide us with match-term financing on a non-mark-to-market and non-recourse basis. The CLOs have a two-year reinvestment feature that allows principal proceeds of the collateral assets to be reinvested in qualifying replacement assets, subject to the satisfaction of certain conditions set forth in the indentures.


The following table outlines the CLO collateral assets and respective borrowing (dollars in thousands):


September 30, 2022
 Count Outstanding Principal Amortized Cost Carrying Value
Wtd. Avg. Yield/Cost(A)
 
Wtd. Avg. Term(B)
KREF 2021-FL2
Collateral assets(C)(D)
19$1,300,000 $1,300,000 $1,281,618 + 3.3%January 2026
Financing provided11,095,250 1,091,258 1,091,258 L + 1.7%February 2039
KREF 2022-FL3
Collateral assets(C)
151,000,000 1,000,000 995,326 + 3.0%September 2026
Financing provided1847,500 842,398 842,398 S + 2.1%February 2039


(A)Expressed as a spread over the relevant benchmark rates, which include one-month LIBOR and Term SOFR, as applicable to each loan. As of September 30, 2022, 83.9% and 16.1% of the CLO collateral loan assets by principal balance earned a floating rate of interest indexed to one-month LIBOR and Term SOFR, respectively. In addition to cash coupon, yield/cost includes the amortization of deferred origination/financing costs.

(B)Loan term represents weighted-average final maturity, assuming all extension options are exercised by the borrower, weighted by outstanding principal. Repayments of CLO notes are dependent on timing of underlying collateral loan asset repayments post reinvestment period. The term of the CLO notes represents the rated final distribution date.

(C)Collateral loan assets represent 30.2% of the principal of our commercial real estate loans as of September 30, 2022. As of September 30, 2022, 100% of our loans financed through the CLOs are floating rate loans.

(D)Including $79.0 million cash held in the CLOs as of September 30, 2022.


Loan Participations Sold


In connection with our investments in CRE loans, we finance certain investments through the syndication of a non-recourse, or limited-recourse, loan participation to unaffiliated third parties. Our presentation of the senior loan and related financing involved in the syndication depends upon whether GAAP recognized the transaction as a sale, though such differences in

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presentation do not generally impact our net stockholders’ equity or net income aside from timing differences in the recognition of certain transaction costs.

To the extent that GAAP recognizes a sale resulting from the syndication, we derecognize the participation in the senior/whole loan that we sold and continue to carry the retained portion of the loan as an investment. While we do not generally expect to recognize a material gain or loss on these sales, we would realize a gain or loss in an amount equal to the difference between the net proceeds received from the third party purchaser and our carrying value of the loan participation we sold at time of sale. Furthermore, we recognize interest income only on the portion of the senior loan that we retain after the sale.

To the extent that GAAP does not recognize a sale resulting from the syndication, we do not derecognize the participation in the senior/whole loan that we sold. Instead, we recognize a loan participation sold liability in an amount equal to the principal of the loan participation syndicated less any unamortized discounts or financing costs resulting from the syndication. We continue to recognize interest income on the entire senior loan, including the interest attributable to the loan participation sold, as well as interest expense on the loan participation sold liability.

Non-Consolidated Senior Interests

In certain instances, we finance our loans through the non-recourse sale of a senior loan interest that is not included in our condensed consolidated financial statements. These non-consolidated senior interests provide structural leverage on a non-mark-to-market, match-term basis for our net investments, which are typically reflected in the form of mezzanine loans or other subordinate interests on our balance sheets and in our statements of income.

The following table details the subordinate interests retained on our balance sheet and the related non-consolidated senior interests (dollars in thousands):
September 30, 2022
Non-Consolidated Senior InterestsCountPrincipal BalanceCarrying ValueWtd. Avg. Yield/CostGuarantee
Wtd. Avg.
Term
Total loan2$316,566 n.a.L + 3.7%n.a.December 2025
Senior participation2258,861 n.a.L + 2.4%n.a.December 2025
Interests retained57,706 L + 9.6%January 2026

Secured Term Loan

In September 2020, we entered into a $300.0 million secured term loan at a price of 97.5%. The secured term loan is partially amortizing, with an amount equal to 1.0% per annum of the principal balance due in quarterly installments. In November 2021, we completed a repricing of a $297.8 million existing secured term loan and a $52.2 million add-on, for an aggregate principal amount of $350.0 million, which was issued at par. The new secured term loan bears interest at LIBOR plus a 3.50% margin, and is subject to a 0.50% LIBOR floor.

The secured term loan matures on September 1, 2027 and contains restrictions relating to liens, asset sales, indebtedness, investments and transactions with affiliates. Our secured term loan is secured by corporate level guarantees and does not include asset-based collateral. Refer to Notes 2 and 7 to our condensed consolidated financial statements for additional discussion of our secured term loan.

Convertible Notes

We may issue convertible debt to take advantage of favorable market conditions. In May 2018, we issued $143.75 million of 6.125% Convertible Notes due on May 15, 2023. The Convertible Notes bear interest at a rate of 6.125% per year, payable semi-annually in arrears on May 15 and November 15 of each year, beginning on November 15, 2018. The Convertible Notes mature on May 15, 2023, unless earlier repurchased or converted. Refer to Notes 2 and 8 to our condensed consolidated financial statements for additional discussion of our Convertible Notes.

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Borrowing Activities

The following tables provide additional information regarding our borrowings (dollars in thousands):
Nine Months Ended September 30, 2022
   Nine Months EndedOutstanding Principal as of September 30, 2022
Average Daily Amount Outstanding(A)
Maximum Amount OutstandingWeighted Average Daily Interest Rate
   September 30, 2017
 Outstanding Face Amount at September 30, 2017 
Average Daily Amount Outstanding(A)
 Maximum Amount Outstanding Weighted Average Daily Interest Rate
Master Repurchase AgreementsMaster Repurchase Agreements
Wells Fargo $485,250
 $308,646
 $485,250
 3.0%Wells Fargo$715,981 $716,227 $980,593 2.4 %
Morgan Stanley 266,347
 143,993
 266,347
 3.3
Morgan Stanley583,716 514,787 583,716 3.0 
JPMorgan —
 —
 —
 —
Goldman Sachs 10,000
 29,000
 30,000
 3.4
Goldman Sachs123,658 127,517 192,305 3.2 
Barclays
—

—

—

—
Term Loan FacilityTerm Loan Facility584,033 775,801 918,959 2.6 
Term Lending AgreementsTerm Lending Agreements
KREF Lending VKREF Lending V539,050 587,020 617,627 2.9 
KREF Lending IXKREF Lending IX642,438 510,983 642,438 2.9 
KREF Lending XIIKREF Lending XII161,140 154,736 161,140 3.5 
Asset Specific FinancingAsset Specific Financing
BMO FacilityBMO Facility— 2,637 60,000 1.8 
KREF Lending XIKREF Lending XI100,000 97,328 100,000 4.3 
KREF Lending XIIIKREF Lending XIII38,165 38,165 38,165 5.5 
RevolverRevolver— 55,458 395,000 2.7 
Total/Weighted Average $761,597
     3.1%Total/Weighted Average$3,488,181 2.9 %

(A)     Represents the average for the period the facility was outstanding.

Average Daily Amount Outstanding(A)
Three Months Ended
September 30, 2022June 30, 2022
Master Repurchase Agreements
Wells Fargo$702,403 $671,211 
Morgan Stanley571,198 500,877 
Goldman Sachs123,658 105,799 
Term Loan Facility616,291 812,104 
Term Lending Facility
KREF Lending V553,304 598,508 
KREF Lending IX642,438 492,795 
KREF Lending XII161,140 81,085 
Asset Specific Financing
BMO Facility— — 
KREF Lending XI98,058 96,278 
KREF Lending XIII38,165 — 
Revolver— 147,253 

(A)     Represents the average for the period the debt was outstanding.

  
Average Daily Amount Outstanding(A)
  Three Months Ended
  September 30, 2017 June 30, 2017 March 31, 2017
Wells Fargo $388,620
 $248,436
 $287,775
Morgan Stanley 163,883
 86,743
 181,548
JPMorgan —
 —
 —
Goldman Sachs 10,000
 30,000
 30,000
Barclays —
 —
 n.a.

(A)     Represents the average for the period the debt was outstanding.

Covenants—Each of our repurchase facilities, containsterm lending agreements, warehouse facility and our Revolver contain customary terms and conditions, for repurchase facilities of this type, including, but not limited to, negative covenants relating to restrictions on our operations with respect to our status as a REIT, and financial covenants, such as:

•an interest income to interest expense ratio covenant (1.5 to 1.0); 

•a minimum consolidated tangible net worth covenant (75.0% of the aggregate net cash proceeds of any equity issuances made and any capital contributions received by us and our Operating Partnership); KKR Real Estate Finance Holdings L.P. (our "Operating Partnership") or up to approximately $1,353.4 million, depending on the agreement; 

•a cash liquidity covenant (the greater of $10.0 million or 5.0% of our recourse indebtedness, dependent upon the facility)indebtedness);

•a total indebtedness covenant (75.0%(83.3% of our Total Assets, as defined in the applicable financing agreements);
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With respect to our secured term loan, we are required to comply with customary loan covenants and event of default provisions that include, but are not limited to, negative covenants relating to restrictions on operations with respect to our status as a REIT, and financial covenants. Such financial covenants include a minimum consolidated tangible net worth of $650.0 million and a maximum total debt to total assets netratio of VIE liabilities);

a maximum debt-to-equity ratio covenant (3.5 to 1.0); and

a minimum fixed charge coverage ratio covenant (1.5 to 1.0)83.3% (the “Leverage Covenant”).

As of September 30, 2017,2022, we were in compliance with the covenants of our repurchase facility covenants.financing facilities.

Guarantees—In connection with eachour financing arrangements including; master repurchase agreement,agreements, our term lending agreements, and our asset specific financing, our Operating Partnership has entered into a limited guarantee in favor of each lender, under which our Operating Partnership guarantees the obligations of the borrower under the respective master repurchasefinancing agreement (i) in the case of certain defaults, up to a maximum liability of 25.0% of the then-outstanding repurchase price of the eligible loans, participations or securities, as applicable, or (ii) up to a maximum liability of 100.0% in the case of certain "bad boy" defaults. The borrower in each case is a special purpose subsidiary of our Company. ours. In addition, some guarantees include certain full recourse insolvency-related trigger events.

With respect to our secured revolving credit facility, theRevolver, amounts borrowed are full recourse to us.certain guarantor wholly-owned subsidiaries of ours.


Real Estate Owned and Joint Venture


CMBS-related Liabilities

In connection2015, we originated a $177.0 million senior loan secured by a retail property in Portland, Oregon. The loan had a risk rating of 5 and was placed on a non-accrual status in October 2020, with an amortized cost and carrying value of $109.6 million and $69.3 million, respectively, as of September 30, 2021. In December 2021, we took title to the retail property; such acquisition was accounted for as an asset acquisition under ASC 805. Accordingly, we recognized the property on our investmentsbalance sheet as REO with a carrying value of $78.6 million, which included the estimated fair value of the property and capitalized transaction costs. In addition, we assumed $2.0 million in CMBS B-Pieces, we consolidateother net assets of the trust entities, called VIEs, that hold the pools of senior loans underlying the CMBS because we are considered the primary beneficiary of such entities.REO. As a result, we recognized an $8.2 million benefit from the reversal of the allowance for credit losses for GAAP, and a $32.1 million realized loss on loan write-off through distributable earnings (representing the difference between the carrying value of the foreclosed loan and the fair value of the REO’s net assets).

Concurrently with taking the title of our sole REO asset, we contributed the majority of the REO's net assets to a joint venture with a third party local development operator (“JV Partner”), whereby we have a 90% interest in the joint venture and the JV Partner has a 10% interest. As of September 30, 2022, the joint venture held REO assets with a net carrying value of $69.8 million. We have priority of distributions up to $70.5 million before the JV Partner can participate in the economics of the joint venture.
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Results of Operations

Three Months Ended September 30, 2022 Compared to Three Months Ended June 30, 2022

The following table summarizes the changes in our results of operations for the three months ended September 30, 2022 and June 30, 2022 (dollars in thousands, except per share data):

Three Months Ended,Increase (Decrease)
September 30, 2022June 30, 2022DollarsPercentage
Net Interest Income
Interest income$114,627 $90,603 $24,024 26.5 %
Interest expense67,311 44,733 22,578 50.5 
Total net interest income47,316 45,870 1,446 3.2 
Other Income
Revenue from real estate owned operations2,092 1,833 259 14.1 
Income (loss) from equity method investments914 1,035 (121)(11.7)
Other income840 1,237 (397)(32.1)
Total other income (loss)3,846 4,105 (259)(6.3)
Operating Expenses
General and administrative4,286 4,308 (22)(0.5)
Provision for (reversal of ) credit losses, net80,604 11,798 68,806 583.2 
Management fee to affiliate6,589 6,506 83 1.3 
Expenses from real estate owned operations2,598 2,368 230 9.7 
Total operating expenses94,077 24,980 69,097 276.6 
Income (Loss) Before Income Taxes, Noncontrolling Interests, Preferred Dividends and Participating Securities' Share in Earnings(42,915)24,995 (67,910)(271.7)
Income tax expense— — — — 
Net Income (Loss)(42,915)24,995 (67,910)(271.7)
Noncontrolling interests in (income) loss of consolidated joint venture161 66 95 143.9 
Net Income (Loss) Attributable to KKR Real Estate Finance Trust Inc. and Subsidiaries(42,754)25,061 (67,815)(270.6)
Preferred stock dividends5,326 5,326 — — 
Participating securities' share in earnings341 341 — — 
Net Income (Loss) Attributable to Common Stockholders$(48,421)$19,394 $(67,815)(349.7)%
Net Income (Loss) Per Share of Common Stock
Basic$(0.70)$0.28 $(0.98)(350.0)%
Diluted$(0.70)$0.28 $(0.98)(350.0)%
Weighted Average Number of Shares of Common Stock Outstanding
Basic69,382,730 68,549,049 833,681 1.2 %
Diluted69,382,730 68,549,049 833,681 1.2 %
Dividends Declared per Share of Common Stock$0.43 $0.43 $— — %


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Net Interest Income

Net interest income increased by $1.4 million during the three months endedSeptember 30, 2022, compared to the three months ended June 30, 2022. This increase was primarily due to an increase in the weighted-average index rates, including LIBOR and Term SOFR. Interest income further increased due to a $101.4 million quarter-over-quarter increase in our weighted average loan principal, as a result of continuing capital deployment from loan repayments. Interest expense increased accordingly due to an increase in market rates and an $87.6 million quarter-over-quarter increase in our weighted average portfolio financing.

In addition, interest income included $1.5 million in prepayment penalty income in connection with loan repayments during the three month ended September 30, 2022, as compared to $4.0 million during the prior quarter. We recognized $7.0 million and $5.9 million of deferred loan fees and origination discounts accreted into interest income during the three months ended September 30, 2022 and June 30, 2022, respectively. We recorded $6.5 million of deferred financing costs amortization into interest expense during the three months endedSeptember 30, 2022, as compared to $5.8 million during the prior quarter.

Other Income

Total other income decreased by $0.3 million during the three months ended September 30, 2022, as compared to the prior quarter. This decrease was primarily due to a $0.4 million one-time gain from local tax credit received during the three months ended June 30, 2022. Other income further decreased due to a $0.1 million decrease in unrealized mark-to-market gain on our RECOP I's underlying CMBS investments, which was partially offset by a $0.3 million increase in REO operating revenue.

Operating Expenses

Total operating expenses increased by $69.1 million during the three months ended September 30, 2022, as compared to the prior quarter. This increase was primarily due to (i) a net increase of $68.8 million in the provision for credit losses and (ii) a $0.2 million increase in REO operating expenses.
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Nine months ended September 30, 2022 Compared to Nine months ended September 30, 2021

The following table summarizes the changes in our results of operations for the nine months ended September 30, 2022 and 2021 (dollars in thousands, except per share data):

Nine Months Ended September 30,Increase (Decrease)
20222021DollarsPercentage
Net Interest Income
Interest income$278,460 $207,235 $71,225 34.4 %
Interest expense144,503 84,173 60,330 71.7 
Total net interest income133,957 123,062 10,895 8.9 
Other Income
Revenue from real estate owned operations6,554 — 6,554 100.0 
Income (loss) from equity method investments3,835 4,508 (673)(14.9)
Other income3,992 296 3,696 1,248.6 
Total other income (loss)14,381 4,804 9,577 199.4 
Operating Expenses
General and administrative13,040 10,852 2,188 20.2 
Provision for (reversal of ) credit losses, net91,184 (982)92,166 9,385.5 
Management fee to affiliate19,102 14,089 5,013 35.6 
Incentive compensation to affiliate— 6,810 (6,810)(100.0)
Expenses from real estate owned operations7,520 — 7,520 100.0 
Total operating expenses130,846 30,769 100,077 325.3 
Income (Loss) Before Income Taxes, Noncontrolling Interests, Preferred Dividends, Redemption Value Adjustment and Participating Securities' Share in Earnings17,492 97,097 (79,605)(82.0)
Income tax expense— 257 (257)(100.0)
Net Income (Loss)17,492 96,840 (79,348)(81.9)
Noncontrolling interests in (income) loss of consolidated joint venture283 — 283 100.0 
Net Income (Loss) Attributable to KKR Real Estate Finance Trust Inc. and Subsidiaries17,775 96,840 (79,065)(81.6)
Preferred stock dividends and redemption value adjustment15,978 6,403 9,575 149.5 
Participating securities' share in earnings1,028 — 1,028 100.0 
Net Income (Loss) Attributable to Common Stockholders$769 $90,437 $(89,668)(99.1)%
Net Income (Loss) Per Share of Common Stock
Basic$0.01 $1.63 $(1.62)(99.4)%
Diluted$0.01 $1.62 $(1.61)(99.4)%
Weighted Average Number of Shares of Common Stock Outstanding
Basic67,029,140 55,629,810 11,399,330 20.5 %
Diluted67,029,140 55,883,197 11,145,943 19.9 %
Dividends Declared per Share of Common Stock$1.29 $1.29 $— — %


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Net Interest Income

Net interest income increased by $10.9 million, during the nine months ended September 30, 2022, as compared to the corresponding period in the prior year. This increase was primarily due to an increase in the weighted-average index rates, including LIBOR and Term SOFR. Interest income further increased due to an increase in the weighted average principal of our loan portfolio of $1,798.9 million for the nine months ended September 30, 2022, as compared to the prior year period, as a result of continuing capital deployment from loan repayments and deployment of the proceeds from the preferred and common stock issuances.

The increase in interest expense was primarily due to an increase in market rates and an increase in the weighted average principal balance of our financing facilities of $1,537.0 million for the nine months ended September 30, 2022, as compared to the prior year period. The proceeds from our financing facilities were used to fund our loan originations and funding on previously closed loans.

In addition, we recognized $18.9 million of deferred loan fees and origination discounts accreted into interest income during the nine months ended September 30, 2022, as compared to $20.1 million during the prior year period. We recorded $17.1 million of deferred financing costs amortization into interest expense during the nine months ended September 30, 2022, as compared to $10.5 million during the prior year period.

Other Income

Total other income increased by $9.6 million during the nine months endedSeptember 30, 2022, as compared to the prior year period. This increase was primarily due to a $6.6 million increase in REO operating revenue and $1.3 million of profit sharing income in connection with the repayment of an industrial senior loan. This increase was partially offset by a $0.7 million decrease in unrealized mark-to-market gain from our RECOP I's underlying CMBS investments as compared to the prior year period.

Operating Expenses

Total operating expenses increased by $100.1 million during the nine months ended September 30, 2022, as compared to the prior year period. This increase was primarily due to a (i) net increase of $92.2 million in the provision for credit losses, (ii) $7.5 million increase in REO operating expenses and (iii) $5.0 million increase in management fees resulting from our preferred and common stock issuances. This increase was partially offset by a $6.8 million decrease in incentive fee, as compared to the prior year period.

The following table provides additional information regarding total operating expenses (dollars in thousands):
Three Months Ended
September 30, 2022June 30, 2022March 31, 2022December 31, 2021September 30, 2021
Operating expenses$2,111 $2,268 $2,320 $1,970 $1,632 
Stock-based compensation2,175 2,040 2,126 1,413 2,027 
Total general and administrative expenses4,286 4,308 4,446 3,383 3,659 
Provision for (reversal of) credit losses, net80,604 11,798 (1,218)(3,077)1,165 
Management fee to affiliate6,589 6,506 6,007 5,289 4,964 
Incentive compensation to affiliate— — — 3,463 2,215 
Expenses from real estate owned operations2,598 2,368 2,554 — — 
Total operating expenses$94,077 $24,980 $11,789 $9,058 $12,003 

COVID-19 Impact

Since its onset in 2020, the COVID-19 pandemic has created significant 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. Moreover, the increase in remote working arrangements in response to the pandemic may contribute to a decline in commercial real estate values and reduce demand for commercial real estate compared to pre-pandemic levels, which may adversely impact certain of our borrowers and may persist even as the pandemic continues to subside.
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In 2021 and 2022, the global economy has, with certain setbacks, begun reopening and wider distribution of vaccines will likely encourage greater economic activity. Although we have observed signs of economic recovery and are generally encouraged by the response of our borrowers, with the potential for new strains of COVID-19 to emerge, governments and businesses may re-impose aggressive measures to help slow its spread in the future, and for this consolidation,reason, among others, as the COVID-19 pandemic continues, the potential global impacts remain uncertain and difficult to assess. In addition, the COVID-19 pandemic continues to disrupt global supply chains, has caused labor shortages and has added broad inflationary pressures, which has a potential negative impact on our borrowers’ ability to execute on their business plans and potentially their ability to perform under the terms of their loan obligations. In response to such inflationary pressures, the Federal Reserve has begun raising interest rates in 2022 and has indicated that it foresees further interest rate increases throughout the year and into 2023 and 2024. Higher interest rates imposed by the Federal Reserve to address inflation may adversely impact real state asset values and increase our interest expenses, which expenses may not be fully offset by any resulting increase in interest income, and may lead to decreased prepayments from our borrowers and an increase in the number of our borrowers who exercise extension options. Further, declines in economic conditions caused by the COVID-19 pandemic could negatively impact real estate and real estate capital markets and result in lower occupancy, lower rental rates and declining values in our portfolio, which could adversely impact the value of our investments, making it more difficult for us to make distributions or meet our financing obligations.

We believe any future impact of COVID-19 on our business, financial performance and operating results will in part be significantly driven by a number of factors that we are unable to predict or control, including, for example: the severity and duration of the pandemic; the distribution and acceptance of vaccines and their impact on the timing and speed of economic recovery; the spread of new variants of the virus; the pandemic’s impact on the U.S. and global economies, including concerns regarding additional surges of the pandemic or the expansion of the economic impact thereof as a result of certain jurisdictions “re-opening” or otherwise lifting certain restrictions prematurely; the availability of U.S. federal, state, local or non-U.S. funding programs aimed at supporting the economy during the COVID-19 pandemic, including uncertainties regarding the potential implementation of new or extended programs; the timing, scope and effectiveness of additional governmental responses to the pandemic; and the negative impact on our financing sources, vendors and other business partners that may indirectly adversely affect us.
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Liquidity and Capital Resources

Overview

We have capitalized our business to date primarily through the issuance and sale of our common stock and preferred stock, borrowings from Non-Mark-to-Market Financing Sources(1), borrowings from three master repurchase agreements, the issuance and sale of convertible notes and our secured term loan. Our Non-Mark-to-Market Financing Sources, which accounted for 76% of our total secured financing (excluding our corporate Revolver) as of September 30, 2022, are not subject to credit or capital markets mark-to-market provisions. The remaining 24% of our secured borrowings, which are comprised of three master repurchase agreements, are only subject to credit marks. We have not received any margin calls on our master repurchase agreements to date, nor do we expect any at this time.

Our primary sources of liquidity include $183.3 million of cash on our consolidated balance sheet, $610.0 million of available capacity on our corporate revolver, $122.9 million of available borrowings under our financing arrangements based on existing collateral and cash flows from operations. In addition, we had $369.5 million of unencumbered senior loans that can be financed, as of September 30, 2022. Our corporate revolver and secured term loan are secured by corporate level guarantees and includes net equity interests in the investment portfolio. We may seek additional sources of liquidity from syndicated financing, other borrowings (including borrowings not related to a specific investment) and future offerings of equity and debt securities.

Our primary liquidity needs include our ongoing commitments to repay the principal and interest on our borrowings and pay other financing costs, financing our assets, meeting future funding obligations, making distributions to our stockholders, funding our operations that includes making payments to our Manager in accordance with the management agreement, and other general business needs. We believe that our cash position and sources of liquidity will be sufficient to meet anticipated requirements for financing, operating and other expenditures in both the short- and long-term, based on current conditions.

As described in Note 10 to our condensed consolidated financial statements, includewe have off-balance sheet arrangements related to VIEs that we account for using the liabilitiesequity method of these VIEs. However, these liabilities are not recourse to us,accounting and ourin which we hold an economic interest or have a capital commitment. Our maximum risk of loss associated with our interests in these VIEs is limited to the carrying value of our investment in the related CMBS B-Piece. entity and any unfunded capital commitments. As of September 30, 2022, we held $36.9 million of interests in such entities, which does not include a remaining commitment of $4.3 million to RECOP I that we are required to fund if called.

We are continuing to monitor the COVID-19 pandemic and its impact on our operating partners, financing sources, borrowers and their tenants, and the economy as a whole. While the availability of approved COVID-19 vaccines and their impact on the economy is encouraging, the distribution and acceptance of such vaccines and their effectiveness with respect to new variants of the virus remain unknown. Accordingly, the ultimate magnitude and duration of the COVID-19 pandemic, as well as its impact on our borrowers, lenders and the economy as a whole, remains uncertain and continues to evolve. To the extent that our operating partners, financing sources, borrower’s and their tenants continue to be impacted by the COVID-19 pandemic, or by the other risks disclosed in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K, it would have a material adverse effect on our liquidity and capital resources.

To facilitate future offerings of equity, debt and other securities, we have in place an effective shelf registration statement (the “Shelf”) with the SEC. The amount of securities to be issued pursuant to this Shelf was not specified when it was filed and there is no specific dollar limit on the amount of securities we may issue. The securities covered by this Shelf include: (i) common stock, (ii) preferred stock, (iii) depository shares, (iv) debt securities, (v) warrants, (vi) subscription rights, (vii) purchase contracts, and (viii) units. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering material, at the time of any offering. In January 2022, we issued 6,210,000 shares of 6.50% Series A Preferred Stock under the Shelf, which included the exercise of the underwriters option to purchase additional shares of Series A Preferred Stock, and received net proceeds after underwriting discounts and commissions of $151.2 million. In March and June of 2022, we issued 6,494,155 and 2,750,000 shares of Common Stock under the Shelf, respectively, which included the partial exercise of the underwriters’ option to purchase additional shares of Common Stock, and received net proceeds after underwriting discounts and commissions of $133.8 million and $53.7 million, respectively.


(1)    Comprised of term loan financing, term lending agreements, collateralized loan obligations, secured term loan, warehouse facility, asset specific financing, and non-consolidated senior interests.
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We have also entered into an equity distribution agreement with certain sales agents, pursuant to which we may sell, from time to time, up to an aggregate sales price of $100.0 million of our common stock, pursuant to a continuous offering program (the “ATM”), under the Shelf. Sales of our common stock made pursuant to the ATM may be made in negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act. During the three and nine months ended September 30, 2022, we issued and sold 271,641 and 340,458 shares of common stock under the ATM, generating net proceeds totaling $5.3 million and $6.7 million, respectively. As of September 30, 2022, $93.2 million remained available for issuance under the ATM.

See Notes 5, 6, 7, 8 and 11 to our condensed consolidated financial statements for additional details regarding our secured financing agreements, collateralized loan obligations, secured term loan, convertible notes and stock activity.

Debt-to-Equity Ratio and Total Leverage Ratio

The following table presents our debt-to-equity ratio and total leverage ratio:
September 30, 2022December 31, 2021
Debt-to-equity ratio(A)
1.9x2.3x
Total leverage ratio(B)
3.6x3.7x

(A)     Represents (i) total outstanding debt agreements (excluding non-recourse facilities), secured term loan and convertible notes, less cash to (ii) total permanent equity, in each case, at period end.
(B)    Represents (i) total outstanding debt agreements, secured term loan, convertible notes, and collateralized loan obligations, less cash to (ii) total permanent equity, in each case, at period end.

Sources of Liquidity

Our primary sources of liquidity include cash and cash equivalents and available borrowings under our secured financing agreements, inclusive of our Revolver. Amounts available under these sources as of the date presented are summarized in the following table under "Consolidated Debt Obligations" above for a summary(dollars in thousands):
September 30, 2022December 31, 2021
Cash and cash equivalents$183,341 $271,487 
Available borrowings under revolving credit agreements610,000 200,000 
Available borrowings under master repurchase agreements107,381 51,601 
Available borrowings under term lending agreements15,476 5,826 
Available borrowings under asset specific financing— — 
$916,198 $528,914 

We also had $369.5 million and $235.3 million of these liabilitiesunencumbered senior loans that can be pledged to financing facilities subject to lender approval, as of September 30, 2017.2022 and December 31, 2021. In addition to our primary sources of liquidity, we have the ability to access further liquidity through our ATM program and public offerings of debt and equity securities. Our existing loan portfolio also provides us with liquidity as loans are repaid or sold, in whole or in part, and the proceeds from repayment become available for us to invest.

Cash Flows

The following table sets forth changes in cash and cash equivalents for the nine months ended September 30, 20172022 and 20162021 (dollars in thousands):

Nine Months Ended September 30,
20222021
Cash Flows From Operating Activities$103,953 $96,858 
Cash Flows From Investing Activities(970,596)(573,185)
Cash Flows From Financing Activities783,510 674,811 
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash$(83,133)$198,484 
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 For the Nine Months Ended September 30,  
 2017 2016 Increase (Decrease)
Cash Flows (Used In) From Operating Activities$(43,925) $18,544
 $(62,469)
Cash Flows Used In Investing Activities(811,489) (423,187) (388,302)
Cash Flows From Financing Activities849,644
 442,365
 407,279
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash$(5,770) $37,722
 $(43,492)

Cash Flows from Operating Activities

Our cash flows from operating activities were primarily driven by our net interest income, which is driven by the income generated by our investments less financing costs, and activities related to our commercial mortgage loans held-for-sale.costs. The following table sets forth interest received by, and paid for, our investments for the nine months ended September 30, 20172022 and 20162021 (dollars in thousands):

Nine Months Ended September 30,
20222021
Interest Received:
Commercial real estate loans$237,915 $187,399 
237,915 187,399 
Interest Paid:
Interest expense119,240 69,492 
Net interest collections$118,675 $117,907 
 For the Nine Months Ended September 30,
 2017 2016
Interest Received:   
Senior and mezzanine loans$44,324
 $14,412
CMBS B-Pieces9,356
 6,311
Preferred equity interest(A)
1,986
 1,453
 55,666
 22,176
Interest Paid:   
Borrowings secured by senior loans10,116
 2,715
Net interest collections$45,550
 $19,461

(A)
Excludes an early termination fee of $1.1 million reflected as interest income in KREF's Condensed Consolidated Statement of Operations for the three months ended September 30, 2017.

Our net interest collections were partially offset by cash used to pay management and incentive fees, as follows (dollars in thousands):
Nine Months Ended September 30,
20222021
Management Fees to affiliate$17,802 $13,377 
Incentive Fees to affiliate— 6,810 
Net decrease in cash and cash equivalents$17,802 $20,187 
 For the Nine Months Ended September 30,  
 2017 2016 Increase (Decrease)
Management Fees to Affiliate$7,332
 $3,468
 $3,864
Incentive Compensation to Affiliate—
 496
 (496)
Net Decrease in Cash and Cash Equivalents$7,332
 $3,964
 $3,368


In addition to these operating cash flows, we originated a loan with the intent to finance $81.5 million through a non-recourse sale, which offset our net interest collections. We also originated and sold a $10.0 million loan during the nine months ended September 30, 2017.


Cash Flows from Investing Activities

Our cash flows from investing activities were primarily driven by the amountsconsisted of cash usedoutflows to originatefund new loan originations and fund or purchase newour commitments under existing loan investments, partially offset by cash inflows from the sale/syndication and principal repayments on our loan investments. During the nine months ended September 30, 2017,2022, we funded or purchased $920.4$2,004.6 million of senior and mezzanineCRE loans received $61.0 million from the sale of a commercial mortgage loan and received $55.9$1,035.1 million from repayments of principal repayments on certain mezzanine loans and our preferred equity interests. We also made a net investment in CMBS, held through an equity method investee, of $8.0 million. CRE loans.

During the nine months ended September 30, 2016,2021, we funded or purchased $381.3 million, $36.4 million and $10.2$2,247.7 million of senior and mezzanineCRE loans CMBS and preferred equity interests, respectively, and received $5.2$1,674.5 million from the sale/syndication and repayments of principal repayments on certain mezzanineCRE loans.

Cash Flows from Financing Activities

Our cash flows from financing activities were primarily driven by theproceeds from borrowings under our financing agreements of $1,901.6 million, CLO 2022-FL3 issuance proceeds of our$847.5 million, and net proceeds from Series A preferred and common stock for net proceedsissuances of $581.3$345.4 million and $210.0 million duringduring the nine months ended September 30, 20172022, partially offset by (i) repayments of $2,153.9 million on borrowings under our financing agreements, (ii) payment of $101.8 million in dividends and 2016, respectively. (iii) the payment of $28.3 million for our share repurchases.

During the nine months ended September 30, 2017 and 2016, we received proceeds from borrowings under repurchase agreements of $776.4 million and $273.7 million, respectively. During the nine months ended September 30, 2017 and 2016, we made principal payments on our repurchase agreements of $460.4 million and $21.8 million, respectively. As a result of the payment of common and preferred stock dividends,2021, our cash flows from financing activities decreasedwere primarily driven by $30.8proceeds from borrowings under our financing agreements of $2,080.4 million, proceeds from CLO KREF 2021-FL2 issuance of $1,095.3 million and $16.4net proceeds from Series A preferred stock issuance of $167.1 million, during the nine months ended September 30, 2017which were offset by (i) repayments of $1,694.6 million on borrowings under our financing agreements, (ii) principal repayment of $810.0 million under CLO KREF 2018-FL1 and 2016, respectively.(iii) payment of $77.4 million in dividends.


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Contractual Obligations and Commitments

The following table presents our contractual obligations and commitments (including interest payments) as of September 30, 20172022 (dollars in thousands):
TotalLess than 1 year1 to 3 years3 to 5 yearsThereafter
Recourse Obligations:
Master Repurchase Facilities(A)
Wells Fargo(B)
$779,383 $31,964 $747,419 $— $— 
Morgan Stanley(C)
589,266 589,266 — — — 
Goldman Sachs(D)
144,250 6,675 13,350 124,225 — 
Term Lending Agreements(A)
KREF Lending V(E)
558,417 558,417 — — — 
KREF Lending IX712,037 29,494 548,488 134,055 — 
KREF Lending XII182,702 6,909 72,834 102,959 
Warehouse Facility
HSBC— — — — — 
Asset Specific Financing
BMO Facility(A)
— — — — — 
Total secured financing agreements2,966,055 1,222,725 1,382,091 361,239 — 
Convertible Notes149,302 149,302 — — — 
Secured Term Loan415,102 17,535 34,682 29,820 333,065 
Future funding obligations(F)
1,649,112 694,873 814,235 140,004 — 
RECOP I commitment(G)
4,324 4,324 — — — 
Revolver(H)
— — — — — 
Total recourse obligations5,183,895 2,088,759 2,231,008 531,063 333,065 
Non-Recourse Obligations:
Collateralized Loan Obligations2,381,624 87,727 175,453 175,694 1,942,750 
Term Loan Financing628,627 241,734 298,380 88,513 — 
KREF Lending XI110,754 5,544 105,210 — — 
KREF Lending XIII46,884 2,262 4,530 40,092 — 
Total$8,351,784 $2,426,026 $2,814,581 $835,362 $2,275,815 
 Total Less than 1 year 1 to 3 years 3 to 5 years Thereafter
Recourse Obligations:         
Master Repurchase Facilities(A):
         
Wells Fargo$531,162
 $15,290
 $515,872
 $—
 $—
Morgan Stanley294,371
 9,333
 285,038
 —
 —
JPMorgan—
 —
 —
 —
 —
Goldman Sachs11,121
 373
 748
 10,000
 —
Revolving Credit Agreement(B):
         
Barclays—
 —
 —
 —
 —
Total secured financing agreements836,654
 24,996
 801,658
 10,000
 —
Future funding obligations(C)
286,720
 138,733
 147,987
 —
 —
RECOP commitment(D)
32,000
 16,000
 16,000
 —
 —
Total recourse obligations1,155,374
 179,729
 965,645
 10,000
 —
Non-Recourse Obligations(E):
         
CMBS6,615,678
 265,252
 844,534
 662,840
 4,843,052
Total$7,771,052
 $444,981
 $1,810,179
 $672,840
 $4,843,052

(A)    The allocation of repurchase facilities and term lending agreements is based on the current maturity date of each individual borrowing under these facilities. The amounts include the related future interest payment obligations, which are estimated by assuming the amounts outstanding under these facilities and the interest rates in effect as of September 30, 2022 will remain constant into the future. This is only an estimate, as actual amounts borrowed and rates may vary over time. Amounts borrowed are subject to a maximum 25.0% recourse limit.
(B)    The current stated maturity is September 2024, with two twelve-month facility term extensions available to us, which are contingent upon certain covenants and thresholds.
(C)    The current stated maturity is December 2022, with one-year extension option upon KREF giving written notice and another two one-year extension periods subject to approval by Morgan Stanley.
(D)    In September 2022, we paid an extension fee to extend the final extended maturity date to October 2025.
(E)    The current stated maturity is June 2023, with three additional one-year extension options, which may be exercised by us upon the satisfaction of certain customary conditions and thresholds.
(F)    We have future funding obligations related to our investments in senior loans. These future funding obligations primarily relate to construction projects, capital improvements, tenant improvements and leasing commissions. Generally, funding obligations are subject to certain conditions that must be met, such as customary construction draw certifications, minimum debt service coverage ratios, minimal debt yield tests, or executions of new leases before advances are made to the borrower. As such, the allocation of our future funding obligations is based on the earlier of the expected funding or commitment expiration date.
(G)    Amounts committed to invest in an aggregator vehicle alongside RECOP I, which had a two-year investment period which ended in April 2019.
(H)    Any amounts borrowed are full recourse to certain subsidiaries of KREF. Includes principal and assumes interest outstanding over a one-year period. Amounts are estimated based on the amount outstanding under the Revolver and the interest rate in effect as of September 30, 2022. This is only an estimate as actual amounts borrowed, the timing of repayments and interest rates may vary over time. The Revolver matures in March 2027.

(A)The allocation of repurchase facilities is based on the current maturity date of each individual borrowing under the facilities. The amounts include the related future interest payment obligations, which are estimated by assuming the amounts outstanding under our repurchase facilities and the interest rates in effect as of September 30, 2017 will remain constant into the future. This is only an estimate, as actual amounts borrowed and rates may vary over time. Amounts borrowed are subject to a maximum 25.0% recourse limit.
(B)The allocation of the revolving credit agreement is based on the current maturity date of the individual borrowing under the agreement. The amounts include the related future interest payment obligations, which are estimated by assuming the amounts outstanding under our revolving credit agreement and the interest rates in effect as of September 30, 2017 will remain constant into the future. This is only an estimate, as actual amounts borrowed and rates may vary over time. Amounts borrowed are 100.0% recourse to us.
(C)We have future funding obligations related to our investments in senior loans. These future funding obligations primarily relate to construction projects, capital improvements, tenant improvements and leasing commissions. Generally, funding obligations are subject to certain conditions that must be met, such as customary construction draw certifications, minimum debt service coverage ratios, minimal debt yield tests, or executions of new leases before advances are made to the borrower. As such, the allocation of our future funding obligations is based on the earlier of the expected funding or commitment expiration date.
(D)Amounts committed to invest in an aggregator vehicle alongside RECOP, which has a two year investment period ending February 2019.
(E)Amounts relate to VIE liabilities that represent securities not beneficially owned by our stockholders.

We are required to pay our Manager a base management fee, an incentive fee and reimbursements for certain expenses pursuant to our management agreement. The table above does not include the amounts payable to our Manager under our management agreement as they are not fixed and determinable. See Note 915 to our condensed consolidated financial statements included in this Form 10-Q for additional terms and details of the fees payable under our management agreement.

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As a REIT, we generally must distribute substantially allat least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains, to stockholders in the form of dividends to comply with the REIT provisions of the Internal Revenue Code of 1986, as amended.Code. Our taxable income does not necessarily equal our net income as calculated in accordance with GAAP, or our CoreDistributable Earnings as described above under " — Key"Key Financial Measures and Indicators — Core Earnings and Net CoreDistributable Earnings."


Subsequent Events

The followingOur subsequent events occurred subsequent to September 30, 2017:

Investing Activities

We originated the following senior loan subsequent to September 30, 2017 (dollars in thousands):

Description/ LocationProperty TypeMonth OriginatedMaximum Face AmountInitial Face Amount Funded
Interest Rate(A)
Maturity Date(B)
LTV
Senior Loan, North Bergen, NJMultifamilyOctober 2017$150,000
$133,500
   L + 4.3%November 202257%

(A)Floating rate based on one-month USD LIBOR.
(B)Maturity date assumes all extension options are exercised, if applicable.

Funding of Previously Closed Loans

We funded approximately $8.2 million for previously closed loans subsequent to September 30, 2017.

Financing Activities

In October 2017, we borrowed $75.0 million in proceeds under the Morgan Stanley master repurchase facility.

In November 2017, we amended and restated the Goldman Sachs master repurchase facility to (i) increase the maximum facility size from $250.0 million to $400.0 million, (ii) extend the maturity date, and (iii) amend certain other terms. The amended and restated facility includes a $250.0 million term facility with a maturity date of October 2020 and a $150.0 million swingline facility with a revolving period of one year, and a three-year term on a per-asset basis as those assets are pledged to the facility.

Corporate Activities

Dividends

In October 2017, we paid a $19.9 million dividend on our common stock, or $0.37 per share, with respect to the third quarter of 2017, to stockholders of record on September 30, 2017.

Off-Balance Sheet Arrangements

As describeddetailed in Note 618 to our condensed consolidated financial statements, we have off-balance sheet arrangements related to VIEs that we account for using the equity method of accounting and in which we hold an economic interest or have a capital commitment. Our maximum risk of loss associated with our interests in VIEs is limited to the carrying value of our investment in the entity and any unfunded capital commitments. As of September 30, 2017, we held $8.3 million of interests in such entities, which does not include a remaining commitment of $32.0 million to RECOP that we are required to fund when called.statements.


Critical Accounting Policies and Use of Estimates

The preparationOur discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAPGAAP. The preparation of these condensed consolidated financial statements requires our managementManager to make estimates and judgmentsassumptions that affect the reported amounts of assets, liabilities, revenue and liabilities, interest incomeexpenses, and other revenue recognition, allowance for loan losses, expense recognition, tax liability, future impairment of our investments, valuation of our investment portfolio andrelated disclosure of contingent assets and liabilities, among other items. Our Management basesliabilities. Actual results could differ from these estimates and judgments about current, and for some estimates, future economic and market conditions and their effects on available information, historical experience and other assumptions that we believe are reasonable under the circumstances. However, these estimates, judgments and assumptions are often subjective and may be impacted negatively based on changing circumstances or changes in our analyses.

If conditions change from those expected, it is possible that our judgments, estimates and assumptions described below could change, which may result in a change in our interest income and other revenue recognition, allowance for loan losses, expense recognition, tax liability, future impairment of our investments, and valuation of our investment portfolio, among other effects. If actual amounts are ultimately different from those estimated, judged or assumed, revisions are included in the condensed consolidated financial statements in the period in which the actual amounts become known. We believe our critical accounting policies could potentially produce materially different results if we were to change underlying estimates, judgments or assumptions.

estimates. There have been no material changes to our critical accounting policiesCritical Accounting Policies and Use of Estimates described in our Prospectus. Annual Report on Form 10-K.

Allowance for Credit Losses

We originate and purchase CRE debt and related instruments generally to be held as long-term investments at amortized cost. We adopted ASU No. 2016-13, Financial Instruments—Credit Losses, and subsequent amendments (“ASU 2016-13”), which replaced the incurred loss methodology with an expected loss model known as the Current Expected Credit Loss or CECL model. CECL amends the previous credit loss model to reflect our 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.

We have implemented loan loss forecasting models for estimating expected life-time credit losses, at the individual loan level, for our commercial mortgage loan portfolio. The CECL forecasting methods used by us include (i) a probability of default and loss given default method using underlying third-party CMBS/CRE loan database with historical loan losses from 1998 to 2022, and (ii) probability weighted expected cash flow method, depending on the type of loan and the availability of relevant historical market loan loss data. We 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.

We estimate our CECL allowance for our loan portfolio, including unfunded loan commitments, at the individual loan level. Significant inputs to our forecasting methods include (i) key loan-specific inputs such as loan-to-value ("LTV"), vintage year, loan-term, underlying property type, geographic location, and expected timing and amount of future loan fundings, (ii) performance against the underwritten business plan and our internal loan risk rating and (iii) a macro-economic forecast. In certain instances, we consider relevant loan-specific qualitative factors to certain loans to estimate its CECL allowance.

For collateral dependent loans that we determine foreclosure of the collateral is probable, we measure 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 where we determine foreclosure is not probable, we apply a full discussionpractical 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 operation or sale of the underlying collateral; such determination requires the use of significant judgment and can be based on several factors subject to uncertainty.

We consider the individual loan internal risk rating as the primary credit quality indicator underlying the CECL assessment. We perform a quarterly review of our significant accounting policies, seeloan portfolio at the individual loan level to determine the internal risk rating for each of our loans by assessing the risk factors of each loan, including, without limitation, LTV, debt yield, property type, geographic and local market dynamics, physical condition, cash flow volatility, leasing and tenant profile, loan structure and exit plan, and project sponsorship. Considering these factors, we rate our loans based on a five-point scale, "1" though "5", from less risk to greater risk.

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Refer to Note 2 to our condensed consolidated financial statements for the description of our significant accounting policies.

Recently Adopted Accounting Standard

Earnings per Share

On January 1, 2022, we adopted ASU No. 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which requires us to include convertible instruments in the diluted EPS calculation, regardless of a company’s intent and ability to settle such debt in cash.

We included in this Form 10-Q.

Recent Accounting Pronouncements

For a full discussion of recently issued accounting pronouncements, see Note 2the potentially issuable shares related to our condensed consolidated financial statements includedConvertible Notes, when dilutive, in this Form 10-Q.the diluted EPS calculations starting with the first quarter of 2022. Prior to December 31, 2021, all potentially issuable shares related to the Convertible Notes were excluded from the calculation of diluted EPS because we had the intent and ability to settle the Convertible Notes in cash.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We seek to manage our risks related to the credit quality of our assets, interest rates, liquidity, prepayment rates and market value, while at the same time seeking to provide an opportunity to stockholders to realize attractive risk-adjusted returns. While risks are inherent in any business enterprise, we seek to quantify and justify risks in light of available returns and to maintain capital levels consistent with the risks we undertake.

Credit Risk

Our investments are subject to credit risk, including the risk of default. The performance and value of our investments depend upon the sponsors' ability to operate the properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due to us. To monitor this risk, our Manager reviews our investment portfolio and is in regular contact with the sponsors, monitoring performance of the collateral and enforcing our rights as necessary.

The COVID-19 pandemic continues to disrupt global supply chains, has caused labor shortages and has added broad inflationary pressures, which has a potential negative impact on our borrowers’ ability to execute on their business plans and potentially their ability to perform under the terms of their loan obligations. The COVID-19 pandemic has adversely impacted the commercial real estate markets, causing reduced occupancy, requests from tenants for rent deferral or abatement, and delays in property renovations currently planned or underway. While the economy has improved significantly from the initial outbreak of the COVID-19 pandemic, these negative conditions may persist into the future and impair our borrowers’ ability to pay principal and interest due under our loan agreements. We maintain robust asset management relationships with our borrowers and have leveraged these relationships to address the potential impact of the COVID-19 pandemic on our loans secured by properties experiencing cash flow pressure, most significantly hospitality and retail assets, to which we have limited exposure.

Based on the limited loan modifications completed to date, and the relative performance of most modified loans, we are encouraged by our borrowers’ response to the COVID-19 pandemic’s impact on their properties and current trends. We believe our loan sponsors are generally committed to supporting assets collateralizing our loans through additional equity investments. While we believe the principal amounts of our loans are generally adequately protected by underlying collateral value and have adequate CECL reserves, there is a risk that we will not realize the entire principal value of certain investments.

Credit Yield Risk

Credit yields measure the return demanded on financial instruments by the lending market based on their risk of default. Increasing supply of credit-sensitive financial instruments and reduced demand will generally cause the market to require a higher yield on such financial instruments, resulting in a lower price for the financial instruments we hold.

As of September 30, 2017, a 100 basis point increase in credit yields would decrease our net book value by approximately $6.1 million, and a 100 basis point decrease in credit yields would increase our net book value by approximately $6.2 million, based on the investments we held on that date. Changes in credit yields do not directly affect our earnings or cash flow as we intend to hold our positions.

Interest Rate Risk

Generally, the composition of our investments is such that rising interest rates will increase our net income, while declining interest rates will decrease our net income. Our net interest income currently benefits from in-the-money rate floors in our loan portfolio, which benefit is expected to decrease as the index rates increase. There can be no assurance that we will continue to utilize rate floors. There can be no assurance of how our net income may be affected in future quarters, which will depend on, among other things, the interest rate environment and our then-current portfolio.

Recently, interest rates have remained at relatively low levels on a historical basis and the Federal Reserve maintained the federal funds target range at 0.0% to 0.25% for much of 2021. However, in March 2022, the Federal Reserve approved a 0.25% rate increase and in each of June, July and September of 2022 approved a further 0.75% rate increase. The Federal Reserve has indicated that, in light of increasing signs of inflation, it foresees further increases in interest rates throughout the year and into 2023 and 2024.

As of September 30, 2017, 92.3%2022, 100.0% of our investmentsloan portfolio and related portfolio financing by total assetsprincipal amount earned or paid a floating rate of interest. The remaining 7.7% of our investments earned a fixed rate of interest. If interest rates wereindexed to decline, the value of these fixed-rate investments may increase and if interest rates were to increase, the value of these fixed-rate investments may fall; however, the interest income generated by these investments would not be affected by market interest rates. The interest rates we pay under our current repurchase agreements are floating rate.one-month USD LIBOR and/or Term SOFR. Accordingly, our interest income and expense will generally increase as interestchange directionally with index rates; however, in certain circumstances, rate floors relating to our loan portfolio may partially offset the impact from changing rates increase and decrease and interest rates decrease.

. As of September 30, 2017, a 50 basis point increase in short-term interest rates, based on a shift in the yield curve, would increase our cash flows by approximately $2.9 million during the 2017 fiscal year, whereas2022, a 50 basis point decrease in short-term interestthe index rates would decrease our expected cash flows by approximately $2.8$7.4 million, duringor $0.11 per common share, for the 2017 fiscal year, based onfollowing twelve-month period. Conversely, a 50 basis point and a 100 basis point increase in the net floating-rate exposureindex rates would increase our expected cash
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flows by approximately $7.4 million and $14.8 million, or $0.11 and $0.21 per common share, respectively, for the same period.

LIBOR Transition

On March 5, 2021, the Financial Conduct Authority of the investments we heldU.K. (the “FCA”), which regulates LIBOR, announced (the “FCA Announcement”) that all relevant LIBOR tenors will cease to be published or will no longer be representative after June 30, 2023. The FCA Announcement coincides with the March 5, 2021 announcement of LIBOR’s administrator, the ICE Benchmark Administration Limited (the “IBA”), indicating that, as a result of not having access to input data necessary to calculate relevant LIBOR tenors on a representative basis after June 30, 2023, the IBA would have to cease publication of such LIBOR tenors immediately after the last publication on June 30, 2023. Further, on March 15, 2022, the Consolidated Appropriations Act of 2022, which includes the Adjustable Interest Rate (LIBOR) Act, was signed into law in the United States. This legislation establishes a uniform benchmark replacement process for financial contracts maturing after June 30, 2023 that date.do not contain clearly defined or practicable fallback provisions. The legislation also creates a safe harbor that shields lenders from litigation if they choose to utilize a replacement rate recommended by the Board of Governors of the Federal Reserve.

The United States Federal Reserve has also advised banks to cease entering into new contracts that use USD LIBOR as a reference rate. The Federal Reserve, in conjunction with the Alternative Reference Rate Committee, a committee convened by the Federal Reserve that includes major market participants, has identified the Secured Overnight Financing Rate, or SOFR, a new index calculated by short-term repurchase agreements, backed by Treasury securities, as its preferred alternative rate for LIBOR. There are significant differences between LIBOR and SOFR, such as LIBOR being an unsecured lending rate while SOFR is a secured lending rate, and SOFR is an overnight rate while LIBOR reflects term rates at different maturities. If our LIBOR-based borrowings are converted to SOFR, the differences between LIBOR and SOFR, could result in higher interest costs for us, which could have a material adverse effect on our operating results. Although SOFR is the ARRC’s recommended replacement rate, it is also possible that lenders may instead choose alternative replacement rates that may differ from LIBOR in ways similar to SOFR or in other ways that would result in higher interest costs for us. We cannot predict the effect of the decision not to sustain LIBOR, or the potential transition to SOFR or another alternative reference rate as LIBOR’s replacement.

As of September 30, 2022, 64.1% and 35.9% of our loans by principal amount earned a floating rate of interest indexed to LIBOR and Term SOFR, respectively; and 62.0% and 38.0% of our outstanding floating rate financing arrangements bear interest indexed to LIBOR and Term SOFR, respectively. All of our LIBOR-based arrangements provide procedures for determining an alternative base rate in the event that LIBOR is discontinued. Regardless, there can be no assurances as to what additional alternative base rates may be and whether such base rate will be more or less favorable than LIBOR and any other unforeseen impacts of the discontinuation of LIBOR. We are monitoring the developments with respect to the phasing out of LIBOR and are working with our lenders and borrowers to minimize the impact of any LIBOR transition on our financial condition and results of operations, but can provide no assurances regarding the impact of the discontinuation of LIBOR.

Prepayment Risk

Prepayment risk is the risk that principal will be repaid at a different ratean earlier date than anticipated, potentially causing the return on certain investments to be less than expected. As we receive prepayments of principal on our assets, any premiums paid on such assets are amortized against interest income. In general, an increase in prepayment rates accelerates the amortization of purchase premiums, thereby reducing the interest income earned on the assets. Conversely, discounts on such assets are accreted into interest income. In general, an increase in prepayment rates accelerates the accretion of purchase discounts, thereby increasing the interest income earned on the assets. Additionally, we may not be able to reinvest the principal repaid at the same or higher yield of the original investment.

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. This could have a negative impact on our results of operations, and in some situations, we may be forced to sell assets to maintain adequate liquidity, which could cause us to incur losses.
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Financing Risk

We finance our target assets with borrowed funds underusing our repurchase facilities, our term lending agreements, our Term Loan Financing, Warehouse Facility, Asset Based Financing, secured term loan, collateralized loan obligations and bythrough syndicating senior participations in our originated senior loans. Over time, as market conditions change, we may use other forms of leverage in addition to these methods of financing. Weakness or volatility in the financial markets, the commercial real estateCRE and mortgage markets andor the economy generally could adversely affect one or more of our lenders or potential lenders and could cause one or more of our lenders or potential lenders to be unwilling or unable to provide us with financing, or to decrease the amount of our available financing through a market to market, or to increase the costs of that financing.



Real Estate Risk

The market values of commercial mortgagereal estate assets are subject to volatility and may be adversely affected by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; and retroactive changes to building or similar codes. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loans, which could also cause us to suffer losses.


ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that the information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Co-ChiefChief Executive OfficersOfficer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired controls.
Our management,
As of September 30, 2022, we carried out an evaluation, under the supervision and with the participation of our Co-Chiefmanagement, including the Chief Executive OfficersOfficer and the Chief Financial Officer, has evaluatedof the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2017.procedures. Based upon that evaluation, our Co-ChiefChief Executive OfficersOfficer and Chief Financial Officer have concluded that, as of September 30, 2017, the design and operation of2022, our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Changes in Internal ControlsControl over Financial Reporting

No changeschange in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act) occurred during the three monthsquarter ended September 30, 20172022 that materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The section entitled “Litigation” appearing in Note 814 of our condensed consolidated financial statements included in this Form 10-Q is incorporated herein by reference.

ITEM 1A. RISK FACTORS

For a discussioninformation regarding the risk factors that could affect the Company’s business, results of our potential risksoperations, financial condition and uncertainties,liquidity, see the information under the headingPart I, Item 1A. “Risk Factors” in the Prospectus. There have been no material changes to our principal risks that we believe are material to our business, results of operations, and financial condition from the risk factors previously disclosed in the Prospectus,Form 10-K, which is accessible on the SEC’s website at www.sec.gov.www.sec.gov. There have been no material changes to the risk factors previously disclosed in the Form 10-K.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities
OurIn May 2018, our board of directors approved a $100.0 million share repurchase program, effective June 12, 2018, which was originally scheduled to expire on June 30, 2019. On June 17, 2019, we announced that our board of directors approved an extension of the program through June 30, 2020, and on June 15, 2020, our board of directors authorized a further extension of the program. Under the extended program, which no longer has authorized thean expiration date, we may repurchase of up to $100.0 million of our common stock over the 12 month period commencing June 12, 2017. Of this amount, a totalbeginning July 1, 2020, of which up to $50.0 million is covered bymay be repurchased under a pre-set trading plan meeting the requirements of Rule 10b5-1 under the Exchange Act whichthat provides for repurchases of our common stock when the market price per share of our common stock is below book value per share (calculated in accordance with GAAP)GAAP as of the end of the most recent quarterly period for which financial statements are available), withand the remaining $50.0 million availablemay be used for repurchases in the open market, pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act, in privately negotiated transactions or otherwise. The timing, manner, price and amount of any common stock repurchases will be determined by us in our discretion and will depend on a variety of factors, including legal requirements, price and economic and market conditions. The program does not require us to repurchase any specific number of shares of common stock, and the program may be suspended, extended, modified or discontinued at any time during the repurchase period. As of September 30, 2017, $49.5 million remained available for repurchases under this 10b5-1 plan.time.

The following table sets forth information regarding purchases of shares of our common stock by us or on our behalf during the three months ended September 30, 2017:2022:
Period BeginningPeriod EndingTotal number of shares purchasedAverage price paid per shareTotal number of shares purchased as part of publicly announced programAmounts paid for shares purchased as part of publicly announced program
Approximate dollar value of shares that may yet be purchased under the program(A)
July 1, 2022July 31, 2022401,844 $17.44 1,446,536 $7,019,679 $74,898,831 
August 1, 2022August 31, 2022— — 1,446,536 — 74,898,831 
September 1, 2022September 30, 2022186,046 17.38 1,632,582 3,239,100 71,659,731 
Total/Average587,890 $17.42 $10,258,779 

(A)    Includes $21.7 million reserved for repurchases at prices below the then book value per share under pre-set trading plans meeting the requirements
of Rule 10b5-1 under the Exchange Act as of September 30, 2022.

Period Beginning Period Ending Total number of shares purchased Average price paid per share Total number of shares repurchased as part of publicly announced program Approximate dollar value of shares that may yet be purchased under the program
July 1, 2017 July 31, 2017 —
 $—
 —
 $100,000,000
August 1, 2017 August 31, 2017 26,398
 19.80
 26,398
 99,477,000
September 1, 2017 September 30, 2017 —
 —
 —
 99,477,000


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.



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ITEM 6. EXHIBITS

Exhibit
Number		Exhibit Description
Exhibit
Number
10.1*Exhibit Description
10.1
10.2
Reaffirmation of Guaranty, dated as of November 1, 2017, made byKREF Capital LLC, KKR Real Estate Finance Holdings L.P. in favor of Goldman Sachsand MUFG Bank, USA.Ltd.
10.331.1
31.1
Certificate of Christen E.J. Lee, Co-President and Co-ChiefMatthew A. Salem, Chief Executive Officer, pursuant to Section 302 of the Sarbanes­OxleySarbanes-Oxley Act of 2002.
31.2
31.3
Certificate of William B. Miller,Kendra L. Decious, Chief Financial Officer, pursuant to Section 302 of the Sarbanes­OxleySarbanes-Oxley Act of 2002.
32.1
32.2
32.3
Certificate of William B. Miller,Kendra L. Decious, Chief Financial Officer, pursuant to Section 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema Document.
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Interactive Data File, formatted in Inline XBRL and contained in Exhibit 101.

________________________

*Certain agreementsinformation contained in this agreement has been omitted because it is not material and other documents filed as exhibits to this Form 10-Q contain representations and warrantiesis the type that the parties thereto made to each other. These representations and warranties have been made solely for the benefit of the other parties to such agreements and may have been qualified by certain information that has been disclosed to the other parties to such agreements and other documents and that may not be reflected in such agreements and other documents. In addition, these representations and warranties may be intendedregistrant
treats as a way of allocating risks among parties if the statements contained therein prove to be incorrect, rather than as actual statements of fact. Accordingly, there can be no reliance on any such representations and warranties as characterizations of the actual state of facts. Moreover, information concerning the subject matter of any such representations and warranties may have changed since the date of such agreements and other documents.private or confidential.

_______________________

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

KKR REAL ESTATE FINANCE TRUST INC.
Date:October 24, 2022KKR REAL ESTATE FINANCE TRUST INC.
Date:November 7, 2017By:/s/ Christen E.J. Lee
Name:    Christen E.J. Lee
Title:    Co-Chief Executive Officer and Co-President
(Co-Principal Executive Officer)
Date:November 7, 2017By:
/s/ Matthew A. Salem

Name:    Matthew A. Salem
Title:    Co-ChiefChief Executive Officer and Co-President
(Co-PrincipalPrincipal Executive Officer)
Date:November 7, 2017October 24, 2022By:
/s/ Kendra L. DeciousWilliam B. Miller

Name:    William B. MillerKendra L. Decious
Title:    Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)



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