UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

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

For the quarterly period ended June 30, ~~2021~~2022

☐

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

For the transition period from ________________ to ________________

Commission File Number: 001-38082

KKR Real Estate Finance Trust Inc.

(Exact name of registrant as specified in its charter)

Maryland

47-2009094

(State or other jurisdiction of incorporation or organization)

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

30 Hudson Yards,

Suite 7500

New York,

10001

(Address of principal executive offices)

(Zip Code)

(212) 750-8300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

KREF

New York Stock Exchange

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

KREF PRA

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐☒ Accelerated filer ☒☐

Non-accelerated filer ☐ Smaller reporting company ☐

Emerging growth company ☒☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒☐

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

The number of shares of the registrant's common stock, par value $0.01 per share, outstanding as of July ~~22, 2021~~20, 2022 was69,252,688~~55,637,480.~~.

KKR REAL ESTATE FINANCE TRUST INC.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, ~~2021~~2022

INDEX


			PAGE
Part I - Financial Information			5
Item 1. Condensed Consolidated Financial Statements (Unaudited)			5
Condensed Consolidated Balance Sheets (Unaudited) as of June 3 0 ~~, 2021~~ 30, 2022 and December 31, ~~2020~~2021			5
Condensed Consolidated Statements of Income (Unaudited) for the Three and Six Months Ended June 30,, 2022 and 2021 ~~and 2020~~			6
Condensed Consolidated Statements of Changes in Equity (Unaudited) for the Three and Six Months Ended June 30,, 2022 and 2021 ~~and 2020~~			7
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30,, 2022 and 2021 ~~and 2020~~			9
Notes to Condensed Consolidated Financial Statements (Unaudited)			1011
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			4552
Item 3. Quantitative and Qualitative Disclosures about Market Risk			7381
Item 4. Controls and Procedures			7583
Part II - Other Information			7684
Item 1. Legal Proceedings			7684
Item 1A. Risk Factors			7684
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			7785
Item 3. Defaults Upon Senior Securities			7785
Item 4. Mine Safety Disclosures			7785
Item 5. Other Information			7785
Item 6. Exhibits			7886
Signatures			8087

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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"), 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, in particular due to the uncertainties created by the COVID-19 pandemic, including the projected impact of COVID-19 on our business, financial performance and operating results.~~quantify. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.

There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Such risks, uncertainties and other important factors include, among others, the risks, uncertainties and factors set forth under Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020~~2021 (the "Form 10-K"). 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;

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

•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;

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

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

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

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

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

• or expansion of economic sanctions or trade restrictions;

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•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;

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

•difficulty in obtaining financing or raising capital;

~~Table of Contents~~

•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. ~~control~~have significant influence over us and KKR's interests may conflict with those of our stockholders in the future;

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

•adverse legislative or regulatory developments;

•our qualification as a real estate investment trust ("REIT") for U.S. federal income tax purposes and our exclusion from registration under the Investment Company Act of 1940, as amended (the "Investment Company Act"); and

•authoritative accounting principles generally accepted in the United States of America ("GAAP") or policy changes from ~~such~~ standard-setting bodies such as the Financial Accounting Standards Board (the "FASB"), the Securities and Exchange Commission (the "SEC"), the Internal Revenue Service, the New York Stock Exchange and other authorities that we are subject to, as well as their counterparts in any foreign jurisdictions where we might do business.

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

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

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

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PART I — FINANCIAL INFORMATION

ITEM 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)


		June 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
Assets	Assets					Assets
Cash and cash equivalents(A)	Cash and cash equivalents(A)	$	119,172	$	110,832	Cash and cash equivalents(A)	$	118,020	$	271,487
Commercial real estate loans, held-for-investment	Commercial real estate loans, held-for-investment	5,308,500		4,844,534		Commercial real estate loans, held-for-investment	7,473,101		6,316,733
Less: Allowance for credit losses	Less: Allowance for credit losses	(58,011)		(59,801)		Less: Allowance for credit losses	(31,529)		(22,244)
Commercial real estate loans, held-for-investment, net	Commercial real estate loans, held-for-investment, net	5,250,489		4,784,733		Commercial real estate loans, held-for-investment, net	7,441,572		6,294,489
Real estate owned, net						Real estate owned, net	79,168		78,569
Equity method investments	Equity method investments	33,773		33,651		Equity method investments	36,782		35,537
Accrued interest receivable	Accrued interest receivable	15,752		15,412		Accrued interest receivable	22,498		15,241
Other assets(A)		104,153		20,984
Other assets(B)						Other assets(B)	15,569		7,916
Total Assets	Total Assets	$	5,523,339	$	4,965,612	Total Assets	$	7,713,609	$	6,703,239

Liabilities and Equity	Liabilities and Equity					Liabilities and Equity
Liabilities	Liabilities					Liabilities
Secured financing agreements, net	Secured financing agreements, net	$	2,996,564	$	2,574,747	Secured financing agreements, net	$	3,569,581	$	3,726,593
Collateralized loan obligation, net		767,000		810,000
Collateralized loan obligations, net						Collateralized loan obligations, net	1,931,605		1,087,976
Secured term loan, net	Secured term loan, net	287,418		288,028		Secured term loan, net	337,609		338,549
Convertible notes, net	Convertible notes, net	141,152		140,465		Convertible notes, net	142,538		141,851
Loan participations sold, net		66,242		66,232

Dividends payable	Dividends payable	24,348		24,287		Dividends payable	29,915		26,589
Accrued interest payable	Accrued interest payable	5,432		5,381		Accrued interest payable	9,837		6,627
Accounts payable, accrued expenses and other liabilities~~(B)~~(C)						Accounts payable, accrued expenses and other liabilities~~(B)~~(C)	7,782		7,521
Due to affiliates	Due to affiliates	5,117		6,243		Due to affiliates	8,298		5,952
Accounts payable, accrued expenses and other liabilities~~(B)~~(C)		3,255		4,823
Total Liabilities	Total Liabilities	4,296,528		3,920,206		Total Liabilities	6,037,165		5,341,658

Commitments and Contingencies (Note 12)		0		0
Commitments and Contingencies (Note 14)						Commitments and Contingencies (Note 14)	—		—

Temporary Equity
Redeemable preferred stock		2,316		1,852

Permanent Equity	Permanent Equity					Permanent Equity
Preferred Stock, 50,000,000 shares authorized	Preferred Stock, 50,000,000 shares authorized					Preferred Stock, 50,000,000 shares authorized
Preferred stock, $0.01 par value (1 share issued and outstanding as of June 30, 2021 and December 31, 2020)		0		0
Series A cumulative redeemable preferred stock, $0.01 par value (6,900,000 and 0 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively; liquidation preference of $25.00 per share)		69		0
Common stock, $0.01 par value, 300,000,000 authorized (59,537,806 and 59,519,754 shares issued; 55,637,480 and 55,619,428 shares outstanding as of June 30, 2021 and December 31, 2020, respectively)		556		556

Series A cumulative redeemable preferred stock, $0.01 par value (13,110,000 and 6,900,000 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively; liquidation preference of $25.00 per share)						Series A cumulative redeemable preferred stock, $0.01 par value (13,110,000 and 6,900,000 shares issued and outstanding as of June 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 (74,599,550 and 65,271,058 shares issued; 69,654,532 and 61,370,732 shares outstanding as of June 30, 2022 and December 31, 2021, respectively)						Common stock, $0.01 par value, 300,000,000 authorized (74,599,550 and 65,271,058 shares issued; 69,654,532 and 61,370,732 shares outstanding as of June 30, 2022 and December 31, 2021, respectively)	697		613
Additional paid-in capital	Additional paid-in capital	1,339,959		1,169,695		Additional paid-in capital	1,802,725		1,459,959
Accumulated deficit	Accumulated deficit	(55,090)		(65,698)		Accumulated deficit	(48,158)		(38,208)
Repurchased stock (3,900,326 shares repurchased as of June 30, 2021 and December 31, 2020)		(60,999)		(60,999)
Total KKR Real Estate Finance Trust Inc. stockholders’ equity		1,224,495		1,043,554
Repurchased stock (4,945,018 and 3,900,326 shares repurchased as of June 30, 2022 and December 31, 2021, respectively)						Repurchased stock (4,945,018 and 3,900,326 shares repurchased as of June 30, 2022 and December 31, 2021, respectively)	(79,070)		(60,999)
Total KKR Real Estate Finance Trust Inc. Stockholders’ Equity						Total KKR Real Estate Finance Trust Inc. Stockholders’ Equity	1,676,325		1,361,434
Noncontrolling interests in equity of consolidated joint venture						Noncontrolling interests in equity of consolidated joint venture	119		147
Total Permanent Equity	Total Permanent Equity	1,224,495		1,043,554		Total Permanent Equity	1,676,444		1,361,581
Total Liabilities and Equity	Total Liabilities and Equity	$	5,523,339	$	4,965,612	Total Liabilities and Equity	$	7,713,609	$	6,703,239

(A) Includes ~~$99.8~~$0.5 million ofand $54.0 million held in collateralized loan ~~repayment proceeds held by the servicer, including $59.3 million receivable by the CLO and $40.5 million receivable by KREF,~~obligation as of June 30, ~~2021.~~ ~~Includes $15.9 million of loan repayment proceeds held by the servicer~~2022 and ~~receivable by KREF as of~~ December 31, ~~2020.~~2021, respectively.

(B) Includes $~~0.5~~7.7 million and ~~$0.9~~$2.3 million of restricted cash as of June 30, 2022 and December 31, 2021, respectively.

(C) Includes $2.8 million and $1.5 million of expected loss reserve for unfunded loan commitments as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

See Notes to Condensed Consolidated Financial Statements.

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KKR Real Estate Finance Trust Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

(Amounts in thousands, except share and per share data)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Net Interest Income	Net Interest Income									Net Interest Income
Interest income	Interest income	$	67,149	$	67,219	$	131,915	$	138,298	Interest income	$	90,603	$	67,149	$	163,833	$	131,915
Interest expense	Interest expense	26,958		30,563		54,341		69,645		Interest expense	44,733		26,958		77,192		54,341
Total net interest income	Total net interest income	40,191		36,656		77,574		68,653		Total net interest income	45,870		40,191		86,641		77,574

Other Income	Other Income									Other Income
Revenue from real estate owned operations										Revenue from real estate owned operations	1,833		—		4,462		—
Income (loss) from equity method investments	Income (loss) from equity method investments	1,256		297		2,346		(1,604)		Income (loss) from equity method investments	1,035		1,256		2,921		2,346
Other income	Other income	100		196		166		556		Other income	1,237		100		3,152		166
Total other income (loss)	Total other income (loss)	1,356		493		2,512		(1,048)		Total other income (loss)	4,105		1,356		10,535		2,512

Operating Expenses	Operating Expenses									Operating Expenses
General and administrative	General and administrative	3,688		4,046		7,193		7,813		General and administrative	4,308		3,688		8,754		7,193
Provision for (reversal of) credit losses, net	Provision for (reversal of) credit losses, net	(559)		(1,366)		(2,147)		53,908		Provision for (reversal of) credit losses, net	11,798		(559)		10,580		(2,147)
Management fees to affiliate		4,835		4,218		9,125		8,517
Management fee to affiliate										Management fee to affiliate	6,506		4,835		12,513		9,125
Incentive compensation to affiliate	Incentive compensation to affiliate	2,403		1,249		4,595		2,855		Incentive compensation to affiliate	—		2,403		—		4,595
Expenses from real estate owned operations										Expenses from real estate owned operations	2,368		—		4,922		—
Total operating expenses	Total operating expenses	10,367		8,147		18,766		73,093		Total operating expenses	24,980		10,367		36,769		18,766

Income (Loss) Before Income Taxes, Preferred Dividends and Redemption Value Adjustment		31,180		29,002		61,320		(5,488)
Income (Loss) Before Income Taxes, Noncontrolling Interests, Preferred Dividends, Redemption Value Adjustment and Participating Securities' Share in Earnings										Income (Loss) Before Income Taxes, Noncontrolling Interests, Preferred Dividends, Redemption Value Adjustment and Participating Securities' Share in Earnings	24,995		31,180		60,407		61,320
Income tax expense	Income tax expense	103		77		151		159		Income tax expense	—		103		—		151
Net Income (Loss)	Net Income (Loss)	31,077		28,925		61,169		(5,647)		Net Income (Loss)	24,995		31,077		60,407		61,169
Noncontrolling interests in (income) loss of consolidated joint venture										Noncontrolling interests in (income) loss of consolidated joint venture	66		—		122		—
Net Income (Loss) Attributable to KKR Real Estate Finance Trust Inc. and Subsidiaries										Net Income (Loss) Attributable to KKR Real Estate Finance Trust Inc. and Subsidiaries	25,061		31,077		60,529		61,169
Preferred stock dividends and redemption value adjustment	Preferred stock dividends and redemption value adjustment	1,813		335		2,721		927		Preferred stock dividends and redemption value adjustment	5,326		1,813		10,652		2,721
Participating securities' share in earnings										Participating securities' share in earnings	341		—		687		—
Net Income (Loss) Attributable to Common Stockholders	Net Income (Loss) Attributable to Common Stockholders	$	29,264	$	28,590	$	58,448	$	(6,574)	Net Income (Loss) Attributable to Common Stockholders	$	19,394	$	29,264	$	49,190	$	58,448

Net Income (Loss) Per Share of Common Stock	Net Income (Loss) Per Share of Common Stock									Net Income (Loss) Per Share of Common Stock
Basic	Basic	$	0.53	$	0.52	$	1.05	$	(0.12)	Basic	$	0.28	$	0.53	$	0.75	$	1.05
Diluted	Diluted	$	0.52	$	0.52	$	1.05	$	(0.12)	Diluted	$	0.28	$	0.52	$	0.74	$	1.05
Weighted Average Number of Shares of Common Stock Outstanding	Weighted Average Number of Shares of Common Stock Outstanding									Weighted Average Number of Shares of Common Stock Outstanding
Basic	Basic	55,632,322		55,491,937		55,625,911		56,419,332		Basic	68,549,049		55,632,322		65,832,841		55,625,911
Diluted	Diluted	55,907,086		55,504,077		55,819,110		56,419,332		Diluted	68,549,049		55,907,086		72,149,015		55,819,110

Dividends Declared per Share of Common Stock	Dividends Declared per Share of Common Stock	$	0.43	$	0.43	$	0.86	$	0.86	Dividends Declared per Share of Common Stock	$	0.43	$	0.43	$	0.86	$	0.86

See Notes to Condensed Consolidated Financial Statements.

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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 Equity Temporary Equity
KKR Real Estate Finance Trust Inc.
Preferred Stock Series A Preferred Stock Common Stock
Shares Stated Value Shares Par Value Shares Par Value Additional Paid-In Capital Accumulated Deficit Repurchased Stock Total KKR Real Estate Finance Trust Inc. Stockholders' Equity Redeemable Preferred Stock
Balance at December 31, 2020 1 $ 0 — $ — 55,619,428 $ 556 $ 1,169,695 $ (65,698) $ (60,999) $ 1,043,554 $ 1,852
Special non-voting preferred dividends declared — — — — — — — — — — (198)
Common dividends declared, $0.43 per share — — — — — — — (23,916) — (23,916) —
Stock-based compensation — — — — — — 1,994 — — 1,994 —
Adjustment of redeemable preferred stock to redemption value — — — — — — — (710) — (710) 710
Net income (loss) — — — — — — — 29,894 — 29,894 198
Balance at March 31, 2021 1 $ 0 0 $ 0 55,619,428 $ 556 $ 1,171,689 $ (60,430) $ (60,999) $ 1,050,816 $ 2,562
Issuance of Series A cumulative redeemable preferred stock (liquidation preference of $25.00 per share) — — 6,900,000 69 — — 172,431 — — 172,500 —
Offering costs — — — — — — (6,154) — — (6,154) —
Series A preferred dividends declared, $0.27 per share — — — — — — — (1,838) — (1,838) —
Special non-voting preferred dividends declared — — — — — — — — — — (221)
Common dividends declared, $0.43 per share — — — — — — — (23,924) — (23,924) —
Stock-based compensation — — — — 18,052 * 1,993 — — 1,993 —
Adjustment of redeemable preferred stock to redemption value — — — — — — — 246 — 246 (246)
Net income (loss) — — — — — — — 30,856 — 30,856 221
Balance at June 30, 2021 1 $ 0 6,900,000 $ 69 55,637,480 $ 556 $ 1,339,959 $ (55,090) $ (60,999) $ 1,224,495 $ 2,316

* ~~Rounds to zero.~~


	Permanent Equity																				Temporary Equity
	KKR Real Estate Finance Trust Inc.
	Preferred Stock			Series A Preferred Stock			Common Stock
	Shares	Stated Value		Shares	Par Value		Shares	Par Value		Additional Paid-In Capital		Accumulated Deficit		Repurchased Stock		Total KKR Real Estate Finance Trust Inc. Stockholders' Equity		Noncontrolling Interests in Equity of Consolidated Joint Venture		Total Permanent Equity		Redeemable 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	$	—

Table of Contents


		Permanent Equity																		Temporary Equity				Permanent Equity																																Temporary Equity
		KKR Real Estate Finance Trust Inc.																						KKR Real Estate Finance Trust Inc.
		Preferred Stock			Series A Preferred Stock			Common Stock																Preferred Stock					Series A Preferred Stock					Common Stock
		Shares	Stated Value		Shares	Par Value		Shares	Par Value		Additional Paid-In Capital		Accumulated Deficit		Repurchased Stock		Total KKR Real Estate Finance Trust Inc. Stockholders' Equity			Redeemable Preferred Stock				Shares			Stated Value		Shares			Par Value		Shares			Par Value			Additional Paid-In Capital			Accumulated Deficit			Repurchased Stock			Total KKR Real Estate Finance Trust Inc. Stockholders' Equity			Noncontrolling Interests in Equity of Consolidated Joint Venture			Total Permanent Equity				Redeemable Preferred Stock
Balance at December 31, 2019		1	$	0	—	$	—	57,486,583	$	575	$	1,165,995	$	(8,594)	$	(35,958)	$	1,122,018		$	1,694
Cumulative-effect adjustment upon adoption of ASU 2016-13 (Note 2)		—	—		—	—		—	—		—		(15,009)		—		(15,009)			—
Repurchase of common stock		—	—		—	—		(1,648,551)	—		—		—		(19,244)		(19,244)			—
Balance at December 31, 2020																			Balance at December 31, 2020				1		$	—		—		$	—		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	Special non-voting preferred dividends declared	—	—		—	—		—	—		—		—		—		—			(178)		Special non-voting preferred dividends declared		—			—		—			—		—			—			—			—			—			—			—			—				(198)
Common dividends declared, $0.43 per share	Common dividends declared, $0.43 per share	—	—		—	—		—	—		—		(24,010)		—		(24,010)			—		Common dividends declared, $0.43 per share		—			—		—			—		—			—			—			(23,916)			—			(23,916)			—			(23,916)				—
Stock-based compensation	Stock-based compensation	—	—		—	—		—	—		1,607		—		—		1,607			—		Stock-based compensation		—			—		—			—		—			—			1,994			—			—			1,994			—			1,994				—
Adjustment of redeemable preferred stock to redemption value	Adjustment of redeemable preferred stock to redemption value	—	—		—	—		—	—		—		(414)		—		(414)			414		Adjustment of redeemable preferred stock to redemption value		—			—		—			—		—			—			—			(710)			—			(710)			—			(710)				710
Net income (loss)	Net income (loss)	—	—		—	—		—	—		—		(34,750)		—		(34,750)			178		Net income (loss)		—			—		—			—		—			—			—			29,894			—			29,894			—			29,894				198
Balance at March 31, 2020		1	$	0	—	$	—	55,838,032	$	575	$	1,167,602	$	(82,777)	$	(55,202)	$	1,030,198		$	2,108
Repurchase of common stock		—	—		—	—		(389,086)	(20)		—		—		(5,797)		(5,817)			—
Balance at March 31, 2021																			Balance at March 31, 2021				1		$	—		—		$	—		55,619,428		$	556		$	1,171,689		$	(60,430)		$	(60,999)		$	1,050,816		$	—		$	1,050,816			$	2,562
Issuance of preferred stock																			Issuance of preferred stock				—		—			6,900,000		69			—		—			166,997			—			—			167,066			—			167,066				—
Offering costs																			Offering costs				—		—			—		—			—		—			(720)			—			—			(720)			—			(720)				—
Series A preferred dividends declared, $0.27 per share																			Series A preferred dividends declared, $0.27 per share				—		—			—		—			—		—			—			(1,838)			—			(1,838)			—			(1,838)				—
Special non-voting preferred dividends declared	Special non-voting preferred dividends declared	—	—		—	—		—	—		—		—		—		—			(168)		Special non-voting preferred dividends declared		—			—		—			—		—			—			—			—			—			—			—			—				(221)
Common dividends declared, $0.43 per share	Common dividends declared, $0.43 per share	—	—		—	—		—	—		—		(23,861)		—		(23,861)			—		Common dividends declared, $0.43 per share		—			—		—			—		—			—			—			(23,924)			—			(23,924)			—			(23,924)				—
Stock-based compensation	Stock-based compensation	—	—		—	—		42,459	*		1,118		—		—		1,118			—		Stock-based compensation		—			—		—			—		18,052			*			1,993			—			—			1,993			—			1,993				—
Adjustment of redeemable preferred stock to redemption value	Adjustment of redeemable preferred stock to redemption value	—	—		—	—		—	—		—		(167)		—		(167)			167		Adjustment of redeemable preferred stock to redemption value		—			—		—			—		—			—			—			246			—			246			—			246				(246)
Net income (loss)	Net income (loss)	—	—		—	—		—	—		—		28,757		—		28,757			168		Net income (loss)		—			—		—			—		—			—			—			30,856			—			30,856			—			30,856				221
Balance at June 30, 2020		1	$	0	—	$	—	55,491,405	$	555	$	1,168,720	$	(78,048)	$	(60,999)	$	1,030,228		$	2,275
Balance at June 30, 2021																			Balance at June 30, 2021				1		$	—		6,900,000		$	69		55,637,480		$	556		$	1,339,959		$	(55,090)		$	(60,999)		$	1,224,495		$	—		$	1,224,495			$	2,316

* 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 Cash Flows (Unaudited)

(Amounts in thousands)


		Six Months Ended June 30,					Six Months Ended June 30,
		2021		2020			2022		2021
Cash Flows From Operating Activities	Cash Flows From Operating Activities					Cash Flows From Operating Activities
Net income (loss)	Net income (loss)	$	61,169	$	(5,647)	Net income (loss)	$	60,407	$	61,169
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:					Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Amortization of deferred debt issuance costs and discounts	Amortization of deferred debt issuance costs and discounts	6,582		10,779		Amortization of deferred debt issuance costs and discounts	10,618		6,582
Accretion of net deferred loan fees and discounts		(9,200)		(8,423)
Accretion of deferred loan fees and discounts						Accretion of deferred loan fees and discounts	(11,961)		(9,200)
Payment-in-kind interest	Payment-in-kind interest	(1,303)		(926)		Payment-in-kind interest	(943)		(1,303)
Loss (Income) from equity method investments		(727)		3,362
(Income) Loss from equity method investments						(Income) Loss from equity method investments	(1,245)		(727)
Provision for (reversal of) credit losses, net	Provision for (reversal of) credit losses, net	(2,147)		53,908		Provision for (reversal of) credit losses, net	10,580		(2,147)
Stock-based compensation expense	Stock-based compensation expense	3,987		2,981		Stock-based compensation expense	4,166		3,987
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accrued interest receivable, net	Accrued interest receivable, net	(996)		(555)		Accrued interest receivable, net	(7,257)		(996)
Other assets	Other assets	(594)		(1,541)		Other assets	1,547		(594)
Accrued interest payable	Accrued interest payable	92		(2,410)		Accrued interest payable	3,210		92
Accounts payable, accrued expenses and other liabilities	Accounts payable, accrued expenses and other liabilities	656		1,462		Accounts payable, accrued expenses and other liabilities	(1,287)		656
Due to affiliates	Due to affiliates	590		52		Due to affiliates	549		590
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	58,109		53,042		Net cash provided by (used in) operating activities	68,384		58,109

Cash Flows From Investing Activities	Cash Flows From Investing Activities					Cash Flows From Investing Activities
Proceeds from principal repayments and sale/syndication of commercial real estate loans, held-for-investment	Proceeds from principal repayments and sale/syndication of commercial real estate loans, held-for-investment	514,490		233,972		Proceeds from principal repayments and sale/syndication of commercial real estate loans, held-for-investment	647,814		514,490
Origination of commercial real estate loans, held-for-investment	Origination of commercial real estate loans, held-for-investment	(1,119,158)		(411,762)		Origination of commercial real estate loans, held-for-investment	(1,791,277)		(1,119,158)
Investment in real estate owned						Investment in real estate owned	(599)		—
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	(604,668)		(177,790)		Net cash provided by (used in) investing activities	(1,144,062)		(604,668)

Cash Flows From Financing Activities	Cash Flows From Financing Activities					Cash Flows From Financing Activities
Proceeds from borrowings under secured financing agreements	Proceeds from borrowings under secured financing agreements	1,014,306		900,560		Proceeds from borrowings under secured financing agreements	1,817,044		1,014,306
Proceeds from issuance of collateralized loan obligations						Proceeds from issuance of collateralized loan obligations	847,500		—
Net proceeds from issuance of common stock						Net proceeds from issuance of common stock	188,924		—
Net proceeds from issuance of preferred stock	Net proceeds from issuance of preferred stock	167,066		0		Net proceeds from issuance of preferred stock	151,167		167,066
Payments of common stock dividends	Payments of common stock dividends	(47,832)		(48,729)		Payments of common stock dividends	(55,600)		(47,832)
Payments of preferred stock dividends	Payments of preferred stock dividends	(2,204)		(429)		Payments of preferred stock dividends	(10,888)		(2,204)
Principal repayments on borrowings under secured financing agreements	Principal repayments on borrowings under secured financing agreements	(572,503)		(636,735)		Principal repayments on borrowings under secured financing agreements	(1,972,793)		(572,503)

Payments of debt and collateralized debt obligation issuance costs	Payments of debt and collateralized debt obligation issuance costs	(1,806)		(3,774)		Payments of debt and collateralized debt obligation issuance costs	(18,552)		(1,806)
Payments of stock issuance costs	Payments of stock issuance costs	(408)		(157)		Payments of stock issuance costs	(1,140)		(408)
Payments to reacquire common stock	Payments to reacquire common stock	0		(25,061)		Payments to reacquire common stock	(18,081)		—
Tax withholding on stock-based compensation	Tax withholding on stock-based compensation	(1,720)		(1,296)		Tax withholding on stock-based compensation	—		(1,720)
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	554,899		184,379		Net cash provided by (used in) financing activities	927,581		554,899

Net Increase (Decrease) in Cash, Cash Equivalents		8,340		59,631
Cash, Cash Equivalents at Beginning of Period		110,832		67,619
Cash, Cash Equivalents at End of Period		$	119,172	$	127,250
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash						Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	(148,097)		8,340
Cash, Cash Equivalents and Restricted Cash at Beginning of Period						Cash, Cash Equivalents and Restricted Cash at Beginning of Period	273,770		110,832
Cash, Cash Equivalents and Restricted Cash at End of Period						Cash, Cash Equivalents and Restricted Cash at End of Period	$	125,673	$	119,172

Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest		$	46,296	$	61,785
Cash paid during the period for income taxes		409		0
Supplemental Schedule of Non-Cash Investing and Financing Activities
Loan principal payments held by servicer		167,057		0
Principal repayments on secured financing agreements on KREF's behalf by borrower		(67,259)		0
Dividend declared, not yet paid		24,348		24,097
Reconciliation of cash, cash equivalents and restricted cash						Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents						Cash and cash equivalents	$	118,020	$	119,172
Restricted cash						Restricted cash	7,653		—
Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows						Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows	$	125,673	$	119,172

Table of Contents


Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest	$	63,365	$	46,296

Cash paid during the period for income taxes	—		409
Supplemental Schedule of Non-Cash Investing and Financing Activities
Loan principal payments held by servicer	—		167,057
Principal repayments on secured financing agreements on KREF's behalf by borrower	—		(67,259)
Dividend declared, not yet paid	29,951		24,348

See Notes to Condensed Consolidated Financial Statements.

910

Table of Contents

KKR Real Estate Finance Trust Inc.

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"~~, "we", "us" and "our"~~) is a Maryland corporation that was formed and commenced operations on October 2, 2014 as a mortgage real estate investment trust ("REIT") that focuses primarily on originating and acquiring transitional senior loans secured by commercial real estate ("CRE") assets.

KREF has elected and intends to maintain its qualification to be taxed as a REIT under the requirements of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), for U.S. federal income tax purposes. As such, KREF will generally not be subject to U.S. federal income tax on that portion of its income that it distributes to stockholders if it distributes at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gains. See Note 1517 regarding taxes applicable to KREF.

KREF is externally managed by KKR Real Estate Finance Manager LLC ("Manager"), an indirect subsidiary of KKR & Co. Inc. (together with its subsidiaries, "KKR"), through a management agreement ("Management Agreement") pursuant to which the Manager provides a management team and other professionals who are responsible for implementing KREF’s business strategy, subject to the supervision of KREF’s board of directors. For its services, the Manager is entitled to management fees and incentive compensation, both defined in, and in accordance with the terms of, the Management Agreement (Note ~~13)~~15).

As of June 30, ~~2021,~~2022, KKR beneficially owned ~~14,250,000~~10,000,001 shares, or ~~25.6%~~14.4% of KREF's outstanding common stock.

KREF's principal business activities are related to the origination and purchase of credit investments related to CRE. Management assesses the performance of KREF's current portfolio of leveraged and unleveraged commercial real estate loans and 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.

1011

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KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~

(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 the 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 ~~outbreak of the~~ coronavirus pandemic ("COVID-19") ~~around the globe continues to~~has adversely ~~impact~~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. The impact of the outbreak has been rapidly evolving around the globe, with several countries taking 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.

In 2021 and 2022, the global economy has, with certain setbacks, begun reopening, and wider distribution of vaccines will likely encourage greater economic activity.~~Nevertheless, KREF is unable~~ While vaccine availability and uptake has increased, the longer-term macro-economic effects of the pandemic continue to ~~predict how widely utilized~~impact many industries, including those of certain of KREF’s borrowers. Moreover, with the ~~vaccines will be, whether they will be effective in preventing the spread~~potential for new strains of COVID-19 ~~(including its variant strains),~~to emerge, governments and ~~when or if normal economic activity and~~businesses may reinstitute restrictions, including mandatory business shut-downs, travel restrictions, reduced business operations ~~will resume.~~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 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. 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 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 our borrowers and an increase in the number of our 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 ~~impacts~~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 which~~that (i) it controls through either majority ownership or voting rights or (ii) management determines that KREF is the primary beneficiary of entities deemed to be variable interest entities ("VIEs").

Variable Interest Entities — VIEs are entities (i) in which equity investors do not have an interest with the characteristics of a controlling financial interest, (ii) that do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties or (iii) established with non-substantive voting rights. A VIE is required to be consolidated only by its primary beneficiary, which is defined as the party that has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and that has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could be potentially significant to the VIE (Note 9)10).

Table of Contents

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in tables in thousands, except per share amounts)

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

~~Table of Contents~~

~~KKR Real Estate Finance Trust Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(dollars in tables in thousands, except per share amounts)~~

Collateralized Loan ~~Obligation~~Obligations — KREF consolidates a collateralized loan ~~obligation~~obligations (“CLOs”) when it determines that ~~closed in November 2018 (“KREF 2018-FL1” or “CLO”) (Note 5). Management determined that KREF 2018-FL1 Ltd. and KREF 2018-FL1 LLC (the "CLO Issuers"),~~the CLO issuers, wholly-owned subsidiaries of KREF, ~~were~~are VIEs and that ~~KREF was the primary beneficiary.~~ KREF is the primary beneficiary of the VIEs since it has the ability to control the most significant activities of the CLO Issuers through ownership of non-investment grade rated subordinated controlling tranches, has the obligation to absorb losses, and the right to receive benefits, that could potentially be significant to these entities. As a result, KREF consolidates the CLO Issuers.such VIEs.

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

Real Estate Owned Joint Venture — KREF consolidated a joint venture that held the majority of KREF’s sole investment in real estate owned (“REO”) property that was acquired in the fourth quarter of 2021, in which a third party owned a 10% noncontrolling interest (Note 10). Management determined the joint venture to be a VIE as the joint venture had insufficient equity-at-risk. KREF owns 90% of the equity interest in the joint venture and participates in the profits and losses. Management concluded KREF to be the primary beneficiary of the joint venture as KREF held decision-making power over the activities that most significantly impact 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. These noncontrolling interests do not include redemption features and are presented as "Noncontrolling interests in equity of consolidated joint venture" on the Condensed Consolidated Balance Sheet.

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 ~~adjusts the carrying value of the SNVPS to its redemption value quarterly. Accordingly, KREF~~ adjusted the carrying value of the SNVPS to its redemption value ~~of $2.3 million as of June 30, 2021, and recorded a ($0.2) million~~ ~~and~~ ~~$0.5 million non-cash redemption value adjustment to the SNVPS (“SNVPS Redemption Value Adjustment”) during the three and~~ ~~six months ended~~ ~~June 30, 2021, respectively.~~quarterly. The SNVPS Redemption Value Adjustment iswas treated similar to a dividend on preferred st~~ock~~stock for GAAP purposes and therefore iswas deducted from (or added back to) “Net Income (Loss)” to arrive at “Net Income (Loss) Attributable to Common Stockholders” on KREF's Condensed Consolidated Statements of Income.

~~Table~~KREF recorded a $3.3 million non-cash redemption value adjustment to the SNVPS (“SNVPS Redemption Value Adjustment”) during the year ended December 31, 2021, which increased the carrying value of ~~Contents~~the 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).

~~KKR Real Estate Finance Trust Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(dollars in tables in thousands, except per share amounts)~~

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

Management determined that KREF's investment in the Manager is an interest in a VIE, however KREF is not the primary beneficiary. KREF does not have substantive participating or kick-out rights 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~~method. 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 (Note 9)10).

Management determined that KREF's investment in an aggregator vehicle alongside KKR Real Estate Credit Opportunity Partners L.P. ("RECOP I ") is an interest in a VIE, however KREF is not the primary beneficiary and does not have substantive

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participating or kick-out rights. KREF records its share of net asset value in RECOP I in “Equity method investments” on its Condensed Consolidated Balance Sheets and its share of unrealized gains or losses in “Income (loss) from equity method investments” in its Condensed Consolidated Statements of Income. Management elected the fair value option for KREF's investment in RECOP I.

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

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

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

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

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

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

Valuation Process — The Manager reviews the valuation of Level 3 financial instruments as part of KKR's quarterly process. As of June 30, ~~2021,~~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 committees, including a real estate valuation committee that reviews and approves all preliminary Level 3 valuations for real estate assets, including the financial instruments held by KREF. The global valuation committee is responsible for coordinating and implementing KKR’s valuation process to ensure consistency in the application of valuation principles across portfolio investments and between periods. All Level 3 valuations are also subject to approval by the global valuation committee.

Valuation of Commercial Real Estate Loans and Participation Sold — Management generally considers KREF's commercial real estate loans Level 3 assets in the fair value hierarchy as such assets are illiquid, structured investments that are specific to the sponsor, underlying property and its operating performance (Note ~~14)~~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.

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~~(dollars in tables in thousands, except per share amounts)~~

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

However, if management continues to disagree with the price from the independent valuation firm, in light of evidence that management compiled independently and believes to be compelling, valuations are then prepared using inputs based on ~~non-binding~~non-

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(dollars in tables in thousands, except per share amounts)

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

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

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

See Note 1416 for additional information regarding the valuation of KREF's financial assets and liabilities.

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

Balance Sheet Measurement

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

KREF must maintain sufficient cash and cash equivalents to satisfy liquidity covenants related to its secured financing agreements. However, such amounts are not restricted from use in KREF's current operations, and KREF does not present these cash and cash equivalents as restricted. As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, KREF was required to maintain unrestricted cash and cash equivalents of at least $~~47.2~~51.7 million and ~~$42.6~~$65.6 million, respectively, to satisfy its liquidity covenants (Note 4)5).

~~Table~~As of ~~Contents~~

~~KKR Real Estate Finance Trust Inc.~~

~~Notes to~~June 30, 2022 and December 31, 2021, KREF had $7.7 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 ~~Financial Statements (Unaudited)~~Balance Sheet.

~~(dollars in tables in thousands, except per share amounts)~~

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

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and discounts and deferred nonrefundable fees or other direct loan origination costs, or on a straight-line basis when it approximates the interest method. Loans for which management elects the fair value option at the time of origination, or acquisition, are carried at fair value on a recurring basis (Note 3).

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. ~~The guidance also required a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption.~~

In connection with KREF’s adoption of ASU 2016-13, KREF implemented new processes including the utilization of loan loss forecasting models, updates to KREF's reserve policy documentation, changes to internal reporting processes and related internal controls. KREF has implemented loan loss forecasting models for estimating expected life-time credit losses, at the individual loan level, for its commercial real estate loan portfolio. The CECL forecasting methods used by KREF include (i) a probability of default and loss given default method using an underlying third-party CMBS/CRE loan database with historical loan losses from 1998 ~~to 2021~~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.

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 ~~the~~ 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.

KREF considers loan investments that are both (i) expected to be substantially repaid through the operation or sale of the underlying collateral, and (ii) for which the borrower is experiencing financial difficulty, to be “collateral-dependent” loans. For such loans that KREF determines that 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 that 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.

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

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~~(dollars in tables in thousands, except per share amounts)~~

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

Real Estate Owned — To maximize recovery from a defaulted loan, KREF may assume legal title or physical possession of the underlying collateral through foreclosure or the execution of a deed in lieu of foreclosure. Foreclosed properties are 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.

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.

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REO assets are evaluated for impairment on a quarterly basis. KREF considers 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 the ordinary course of business. A REO asset is considered for impairment when the sum of estimated future undiscounted cash flows to be generated by the REO asset over the estimated remaining holding period is less than the carrying value of such REO asset. An impairment charge is recorded when the carrying value of the REO exceeds the fair value. When determining the fair value of a REO asset, KREF makes certain assumptions including, but not limited to, projected operating cash flows, comparable selling prices and projected cash flows from the eventual disposition of the REO asset.

Secured Financing Agreements — KREF's secured financing agreements, including uncommitted repurchase facilities, term lending ~~agreement,~~agreements, warehouse facility, asset specific financings and term loan financings, are treated as floating-rate collateralized financing arrangements carried at their contractual amounts, net of unamortized debt issuance costs (Note 4)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 6)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"~~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 7)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 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 8)9).

~~Other Assets and Accounts Payable, Accrued Expenses and Other Liabilities— As of June 30, 2021, other assets included $99.8 million of loan re~~payment proceeds held by the servicer, $2.1 million of deferred financing costs related to KREF's Revolver (Note 4) and $0.8 million of prepaid expenses. As of December 31, 2020, other assets included $15.9 million of ~~loan repayment proceeds held by the servicer and receivable by~~ ~~KREF~~, ~~$2.5 million~~ of ~~deferred financing costs related to KREF's Revolver and $0.5 million of prepaid expenses.~~

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(dollars in tables in thousands, except per share amounts)

Other Assets and Accounts Payable, Accrued Expenses and Other Liabilities— As of June 30, 2022, other assets included $7.7 million of restricted cash, $5.5 million of deferred financing costs related to KREF's Revolver (Note 5), $0.8 million of prepaid expenses and $0.6 million of REO accounts receivable. 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 June 30, 2022, accounts payable, accrued expenses and other liabilities ~~consisted of~~included $~~1.8~~3.0 million of ~~accrued expenses,~~REO liabilities, $~~0.5~~2.8 million of allowance for credit losses related to KREF's unfunded loan commitments and $~~1.0~~1.8 million of ~~good faith deposits.~~accrued expenses. As of December 31, ~~2020,~~2021, accounts payable, accrued expenses and other liabilities ~~consisted of~~ ~~$3.1~~included $3.9 million of accrued expenses, $3.3 million of assumed REO liabilities, $~~0.9~~1.5 million of al~~lowance~~allowance for credit losses related to KREF's unfunded loan commitments and ~~$0.8~~$0.6 million of ~~good faith deposits.~~prepaid stub interests.

Dividends Payable — KREF records dividends payable on its common stock and preferred stock upon declaration of such dividends. In June ~~2021,~~2022, KREF's board of directors declared a dividend of ~~$0.43~~$0.43 per share of common stock to ~~shareholders~~stockholders of record as of June 30, ~~2021,~~2022, which was accrued in “Dividends payable” on KREF’s Condensed Consolidated Balance Sheet as of June 30, ~~2021~~2022 and was subsequently paid on July 15, ~~2021.~~2022. In April ~~2021,~~2022, KREF's board of directors declared a dividend of ~~$0.27~~$0.41 per each issued and outstanding share of the 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 June 15, ~~2021~~2022 to KREF’s preferred stockholders of record as of May 31, ~~2021.~~2022.

Special Non-Voting Preferred Stock — 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 or probable of becoming redeemable. KREF accounted for the SNVPS as redeemable preferred stock since a third party ~~holds~~held a redemption option, exercisable after May 5, 2018, and such redemption iswas not solely within KREF's control. As a result, starting with the second quarter of 2018, KREF ~~adjusts~~adjusted the carrying value of the SNVPS to its redemption value quarterly. ~~Accordingly,~~

KREF ~~adjusted~~recorded a $3.3 million SNVPS Redemption Value Adjustment during the year ended December 31, 2021, which increased the carrying value of the SNVPS to its redemption value of ~~$2.3~~$5.1 million as prior to SNVPS redemption by KREF on October 1, 2021 for a cash redemption value of ~~June 30, 2021, and recorded a ($0.2)~~$5.1 million ~~and $0.5 million non-cash SNVPS Redemption Value Adjustment during the three and six months ended June 30, 2021, respectively.~~(Note 11).

Repurchased Stock — KREF accounts for repurchases of its common stock based on the settlement date and presents repurchased stock in “Repurchased stock” on its Condensed Consolidated Balance Sheets (Note ~~10)~~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 June 30, ~~2021,~~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, direct loan origination costs and related exit fees for loans that KREF originates, but where management did not elect the fair value option, as a yield adjustment using the interest method over the loan term, or on a straight line basis when it approximates the interest method. KREF expenses origination fees and direct loan origination costs for loans acquired, but not originated, by KREF as well as loans for which management elected the fair value option, as incurred.

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

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(dollars in tables in thousands, except per share amounts)

Other Income — KREF recognizes interest income earned on its cash balances and miscellaneous fee income in “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 Income with respect to the investment sold at the time of sale.

Expense Recognition

Commercial Real Estate Loans, Held-For-Investment — For each loan in KREF's portfolio, management performs a quarterly evaluation of credit quality indicators of loans classified as held-for-investment using applicable loan, property, market and sponsor information obtained from borrowers, loan servicers and local market participants. Such indicators may include the net present value of the underlying collateral, property operating cash flows, the sponsor’s financial wherewithal and competency in managing the property, macroeconomic trends, and property submarket—specific economic factors. The evaluation of

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~~thesecredit~~ these credit quality indicators requires significant judgment by management to determine whether failure to collect contractual amounts is probable.

If management deems that it is probable that KREF will be unable to collect all amounts owed according to the contractual terms of a loan, deterioration in credit quality of that loan is indicated. Management evaluates all available facts and circumstances that might impact KREF’s ability to collect outstanding loan balances when determining loan write-offs. These facts and circumstances may vary and may include, but are not limited to, (i) significant deterioration in the underlying collateral performance and/or value, if repayment is solely based on the collateral, (ii) correspondence from the borrower indicating that it does not intend to pay the contractual principal and interest, (iii) violation of multiple debt covenants without indication the borrower has the ability to remediate such violations, (iv) occurrence of one or more events of default by the borrower, or (v) KREF has sufficient information to determine that the borrower is insolvent, or the borrower has filed for bankruptcy, and the value of the underlying collateral is below the loan basis.

If management considers a loan to be impaired, management writes-off the loan through a charge to "Allowance for credit losses" based on the present value of expected future cash flows discounted at the loan’s contractual effective rate or the fair value of the collateral, if repayment is expected solely from the collateral. Significant judgment is required in determining impairment and in estimating the resulting credit loss allowance, and actual losses, if any, could materially differ from those estimates.

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 repayment of principal and interest is in doubt, which generally occurs when principal or interest is 120 days or more past due unless the loan is both well secured and in the process of collection. Interest received on loans placed on nonaccrual status are accounted for under the cost-recovery method, until qualifying for return to accrual. Management may return a loan to accrual status when repayment of principal and interest is reasonably assured under the terms of the restructured loan. As of June 30, ~~2021, 1 senior loan and~~2022, 1 mezzanine loan with ~~a total~~an outstanding principal balance of ~~$115.1~~$5.5 million ~~were~~ was on nonaccrual status ~~(Note~~and was fully written-off (Note 3).

In certain 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.~~ ~~Refer to Note 3 for additional discussion~~covenants. None of KREF’s loan ~~modifications.~~modifications in 2022 to-date are considered a TDR.

In conjunction with reviewing commercial real estate loans held-for-investment for impairment, the Manager evaluates KREF's commercial real estate loans on 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:

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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)

1—Very Low Risk—The underlying property performance has surpassed underwritten expectations, and the sponsor’s business plan is generally complete. The property demonstrates stabilized occupancy and/or rental rates resulting in strong current cash flow and/or a very low loan-to-value ratio (<65%). At the level of performance, it is very likely that the underlying loan can be refinanced easily in the period’s prevailing capital market conditions.

2—Low Risk—The underlying property performance has matched or exceeded underwritten expectations, and the sponsor’s business plan may be ahead of schedule or has achieved some or many of the major milestones from a risk mitigation perspective. The property has achieved improving occupancy at market rents, resulting in sufficient current cash flow and/or a low loan-to-value ratio (65%-70%). Operating trends are favorable, and the underlying loan can be refinanced in today’s prevailing capital market conditions. The sponsor/manager is well capitalized or has demonstrated a history of success in owning or operating similar real estate.

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~~KKR Real Estate Finance Trust Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(dollars in tables in thousands, except per share amounts)~~

The property exhibits a moderate loan-to-value ratio (<75%). Loan structure appropriately mitigates additional risks. The sponsor/manager has a stable credit history and experience owning or operating similar real estate.

4—High Risk/Potential for Loss—A loan that has a risk of realizing a principal loss. The underlying property performance is behind underwritten expectations, or the sponsor is behind schedule in executing its business plan. The underlying market fundamentals may have deteriorated, comparable property valuations may be declining or property occupancy has been volatile, resulting in current cash flow that may not support debt service payments. The loan exhibits a high loan-to-value ratio (>80%), and the loan covenants are unlikely to fully mitigate some risks. Interest payments may come from an interest reserve or sponsor equity.

5—Impaired/Loss Likely—A loan that has a very high risk of realizing a principal loss or has otherwise incurred a principal loss. The underlying property performance is significantly behind underwritten expectations, the sponsor has failed to execute its business plan and/or the sponsor has missed interest payments. The market fundamentals have deteriorated, or property performance has unexpectedly declined or valuations for comparable properties have declined meaningfully since loan origination. Current cash flow does not support debt service payments. With the current capital structure, the sponsor might not be incentivized to protect its equity without a restructuring of the loan. The loan exhibits a very high loan-to-value ratio (>90%), and default may be imminent.

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

Accrued Interest Receivables — KREF elected not to measure an allowance for credit losses for accrued interest receivables. KREF generally writes off an accrued interest receivable balance when interest is 120 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 — KREF expenses contractual interest due in accordance with KREF's financing agreements as incurred.

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

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Notes to Condensed Consolidated Financial Statements

(dollars in tables in thousands, except per share amounts)

General 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 ~~13)~~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 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 ~~15)~~17).

As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, KREF did not have any material deferred tax assets or liabilities arising from future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities in accordance with GAAP and their respective tax bases.

KREF recognizes tax benefits for uncertain tax positions only if it is more likely than not that the position is sustainable based on its technical merits. Interest and penalties on uncertain tax positions are included as a component of the provision for income taxes in KREF's Condensed Consolidated Statements of Income. As of June 30, ~~2021,~~2022, KREF did not have any material uncertain tax positions.

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~~KKR Real Estate Finance Trust Inc.~~

~~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 1112 for additional information.

Earnings per Share

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

~~Diluted~~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 ~~or Net Income (Loss) Per Share~~calculation, regardless of ~~Common Stock, Diluted, is calculated by~~a company's intent and ability to settle such debt in cash. KREF included 6,316,174 potentially issuable shares related to its Convertible Notes, when dilutive, in the dilutive EPS calculations starting with ~~Basic~~the first quarter of 2022.

KREF presents diluted EPS under the more dilutive of the treasury stock and ~~adding~~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 ~~computed using~~and an assumed conversion of the ~~treasury stock method,~~Convertible Notes. The numerator includes any changes in income (loss) attributable to common stockholders that would result from the ~~weighted average~~assumed conversion of these potential shares of common ~~shares outstanding in the denominator.~~stock. Refer to Note 1011 for additional discussion 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

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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)

guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The guidance 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 June 30, ~~2021,~~2022, 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 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 is evaluating the impact of ASU 2022-02.

2022

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KKR Real Estate Finance Trust Inc.

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 June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:

Weighted Average
Loan Type Outstanding Principal
Amortized Cost(A)
Carrying Value(B)
Loan Count
Floating Rate Loan %(C)
Coupon(C)
Life (Years)(D)
June 30, 2021
Loans held-for-investment
Senior loans(E)
$ 5,224,467 $ 5,200,619 $ 5,143,599 44 100.0 % 4.6 % 3.1
Mezzanine and other loans(F)
113,332 107,881 106,890 5 95.1 11.1 4.3
$ 5,337,799 $ 5,308,500 $ 5,250,489 49 99.9 % 4.7 % 3.1
December 31, 2020
Loans held-for-investment
Senior loans(E)
$ 4,779,367 $ 4,759,624 $ 4,701,268 38 100.0 % 4.7 % 3.3
Mezzanine and other loans(F)
90,329 84,910 83,465 4 93.9 12.6 4.6
$ 4,869,696 $ 4,844,534 $ 4,784,733 42 99.9 % 4.9 % 3.3


								Weighted Average(C)
Loan Type	Outstanding Principal		Amortized Cost(A)		Carrying Value(B)		Loan Count	Floating Rate Loan %		Coupon(D)		Life (Years)(E)
June 30, 2022
Loans held-for-investment
Senior loans(F)	$	7,421,886	$	7,374,986	$	7,343,629	73	100.0	%	5.0	%	3.6
Mezzanine and other loans(G)	104,025		98,115		97,943		4	94.7		12.3		3.5
Total/Weighted Average	$	7,525,911	$	7,473,101	$	7,441,572	77	99.9	%	5.1	%	3.6
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.

(D) Weighted average coupon assumes the greater of applicable index rate, including one-month LIBOR ~~rates of~~ ~~0.10%~~and ~~0.14% as of June 30, 2021 and December 31, 2020, respectively,~~Term SOFR, or the applicable contractual ~~LIBOR~~rate floor.

~~(D)~~(E) The weighted average life ~~of each loan is based on the expected timing of the receipt of contractual principal repayments assuming~~assumes all extension options are exercised by the ~~borrower.~~borrowers.

~~(E)~~(F) Senior loans may include accommodation mezzanine loans in connection with the senior mortgage financing. Also, includes ~~vertical loan participations sold with a principal and a carrying value of~~ ~~$66.2 million as of June 30, 2021 and December 31, 2020. Includes~~ CLO loan participations of ~~$897.7~~$2,299.5 million and ~~$1.0 billion~~$1,246.0 million as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

~~(F)~~(G) Includes 1 real estate corporate loan to a multifamily operator with a principal and a carrying value of $~~38.1~~42.0 million and $~~36.6~~41.5 million, respectively, as of June 30, ~~2021,~~2022, and ~~$50.0~~$41.1 million and ~~$48.0~~$40.3 million, respectively, as of December 31, ~~2020.~~2021.

Activity — For the six months ended June 30, ~~2021,~~2022, the loan portfolio activity was as follows:

Amortized Cost Allowance for
Credit Losses Carrying Value
Balance at December 31, 2020 $ 4,844,534 $ (59,801) $ 4,784,733
Originations and future fundings, net(A)
1,119,158 — 1,119,158
Proceeds from sales and loan repayments(B)
(665,696) — (665,696)
Accretion of loan discount and other amortization, net(C)
9,201 — 9,201
PIK interest 1,303 — 1,303
Reversal of credit losses, net — 1,790 1,790
Loan write-off 0 0 —
Balance at June 30, 2021 $ 5,308,500 $ (58,011) $ 5,250,489


	Amortized Cost		Allowance for Credit Losses		Carrying Value









Balance at December 31, 2021	$	6,316,733	$	(22,244)	$	6,294,489
Originations and future fundings, net(A)	1,791,277		—		1,791,277
Proceeds from sales and loan repayments	(647,813)		—		(647,813)
Accretion of loan discount and other amortization, net(B)	11,961		—		11,961
Payment-in-kind interest	943		—		943

(Provision for) Reversal of credit losses	—		(9,285)		(9,285)

Balance at June 30, 2022	$	7,473,101	$	(31,529)	$	7,441,572

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

(B) Includes ~~$150.0 million in net proceeds from non-recourse sale of senior interests during the six months ended June 30, 2021.~~

~~(C) Includes~~ accretion of applicable discounts, certain fees and deferred loan origination costs.

As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, there was $~~25.2~~47.3 million and ~~$20.5~~$41.9 million, respectively, of unamortized origination discounts and deferred ~~loan~~ fees ~~and discounts~~ included in "Commercial ~~Real Estate Loans, Held-for-investment, Net" in~~real estate loans, held-for-investment, net" on the Condensed Consolidated Balance Sheets. KREF recognized prepayment fee income of $4.0 million and $4.1 million, respectively, during the three and six months ended June 30, 2022. KREF recognized net accelerated fee income of $0.0 million and $0.8 million, respectively, during the three and six months ended June 30, 2022. KREF recognized net accelerated fee income of $1.1 million and $2.1 million, respectively, during the three and six months ended June 30, 2021. ~~KREF recognized net accelerated fee income of $0.1 million and $0.3 million, respectively, during the three and six months ended June 30, 2020.~~

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~~KKR Real Estate Finance Trust Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(dollars in tables in thousands, except per share amounts)~~

KREF may enter into loan modifications that include, among other changes, incremental capital contributions or partial repayments from certain borrowers, repurposing of reserves, and a temporary partial deferral for a portion of the coupon as payment-in-kind interest (“PIK Interest”) due, which is capitalized, compounded, and added to the outstanding principal balance of the respective loans. As of June 30, ~~2021, total PIK Interest outstanding relating to loan modifications was~~ ~~$2.8 million~~.

~~During the first quarter of 2021,~~2022, KREF ~~modified 1 hotel loan, including a principal paydown of $10.0 million, full payment of~~had no outstanding PIK interest ~~of $1.6 million, and amended extension hurdles, with no change to the overall coupon. As a result of the improved performance of the underlying property, coupled with the paydown~~ in connection with ~~the modification, KREF upgraded the risk rating~~loan modifications.

Table of ~~this loan from a 4 rating~~Contents

KKR Real Estate Finance Trust Inc.

Notes to ~~a 3 during the first quarter. This hotel loan had an outstanding principal balance and amortized cost of~~ ~~$130.0 million~~ ~~and~~ ~~$129.9 million, respectively, as of June 30, 2021.~~Condensed Consolidated Financial Statements

~~During the fourth quarter of 2020, KREF modified 1 senior retail loan with a principal balance and an amortized cost of~~ ~~$109.6 million, respectively. The loan modification included a deferral of interest due and a Deed~~(dollars in ~~Lieu of Foreclosure, which allows KREF to obtain title of the underlying property~~tables in the event of default, as defined. As of June 30, 2021, the loan had a risk rating of 5, and was placed on non-accrual status in October 2020; the loan is currently in restructuring discussions. KREF had 0 remaining unfunded commitment as of June 30, 2021. While KREF did not forgive or charge-off any amounts due under this loan, this modification is considered a TDR under GAAP. There were no other material modifications during the six months ended June 30, 2021.thousands, except per share amounts)

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 ~~net book~~carrying value of the loan portfolio based on KREF's internal risk ratings:

June 30, 2021 December 31, 2020
Risk Rating Number of Loans Net Book Value
Total Loan Exposure(A)
Total Loan Exposure % Risk Rating Number of Loans Net Book Value
Total Loan Exposure(A)
Total Loan Exposure %
1 0 $ 0 $ 0 0 % 1 0 $ 0 $ 0 0 %
2 1 194,064 194,400 3.5 2 2 321,686 323,026 6.5
3 42 4,580,309 4,854,305 87.0 3 32 3,715,132 3,836,983 77.3
4 4 405,995 418,532 7.5 4 6 675,727 687,040 13.9
5 2 70,121 115,071 2.0 5 2 72,188 115,071 2.3
49 $ 5,250,489 $ 5,582,308 100.0 % 42 $ 4,784,733 $ 4,962,120 100.0 %


June 30, 2022								December 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	%
2	3	415,670		416,146		5.4		3	410,293		411,424		6.2
3	71	6,739,319		7,038,720		90.6		54	5,268,590		5,627,927		84.3
4	2	318,112		318,045		4.0		4	394,301		394,336		5.9
5	1	—		—		—		1	—		—		—
Total loan receivable	77	$	7,473,101	$	7,772,911	100.0	%	63	$	6,316,733	$	6,677,239	100.0	%
Allowance for credit losses		(31,529)							(22,244)
Loan receivable, net		$	7,441,572						$	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 $~~310.8~~252.5 million and ~~$158.7~~$318.6 million of such non-consolidated interests ~~and excludes~~ ~~$66.2 million~~ ~~and $66.2 million vertical loan participation~~ as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

(B) Includes 1 impaired 5-rated mezzanine retail loan that was fully written off.

As of June 30, ~~2021,~~2022, the average risk rating of KREF's portfolio was ~~3.1~~3.0 (Average Risk), weighted by total loan exposure, as compared to 2.9~~consistent with that~~ as of March 31, ~~2021~~2022 and December 31, ~~2020.~~2021.

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~~KKR Real Estate Finance Trust Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(dollars in tables in thousands, except per share amounts)~~

Loan Vintage — The following tables present the amortized cost of the loan portfolio by KREF's internal risk rating and year of origination. The risk ratings are updated as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 in the corresponding table.

June 30, 2021
Amortized Cost by Year of Origination
Risk Rating Number of Loans Outstanding Principal 2021 2020 2019 2018 2017 Prior Total Carrying Amount
Commercial Real Estate Loans
1 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
2 1 194,400 0 0 0 0 194,193 0 194,193 194,064
3 42 4,609,796 859,210 586,035 1,832,013 1,308,716 0 0 4,585,974 4,580,309
4 4 418,532 0 0 77,088 202,409 138,414 0 417,911 405,995
5 2 115,071 0 0 0 0 0 110,422 110,422 70,121
49 $ 5,337,799 $ 859,210 $ 586,035 $ 1,909,101 $ 1,511,125 $ 332,607 $ 110,422 $ 5,308,500 $ 5,250,489


June 30, 2022
				Amortized Cost by Year of Origination
Risk Rating	Number of Loans	Outstanding Principal		2022		2021		2020		2019		2018		Prior		Total
Commercial Real Estate Loans
1	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
2	3	416,146		—		—		135,404		—		86,075		194,191		415,670
3	71	6,786,221		1,570,594		3,639,210		213,290		714,377		576,612		25,236		6,739,319
4	2	318,044		—		—		—		156,758		161,354		—		318,112
5	1	5,500		—		—		—		—		—		—		—
	77	$	7,525,911	$	1,570,594	$	3,639,210	$	348,694	$	871,135	$	824,041	$	219,427	$	7,473,101


December 31, 2020
December 31, 2021																					December 31, 2021
					Amortized Cost by Year of Origination																				Amortized Cost by Year of Origination
Risk Rating	Risk Rating	Number of Loans	Outstanding Principal		2020		2019		2018		2017		2016		2015		Total		Carrying Amount		Risk Rating	Number of Loans	Outstanding Principal		2021		2020		2019		2018		2017		Prior		Total
Commercial Real Estate Loans	Commercial Real Estate Loans																				Commercial Real Estate Loans
1	1	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	1	1	$	243,552	$	—	$	—	$	—	$	243,549	$	—	$	—	$	243,549
2	2	2	323,026		0		128,514		0		193,633		0		0		322,147		321,686		2	3	411,424		—		130,400		—		85,943		193,950		—		410,293
3	3	32	3,744,559		461,406		2,105,972		1,159,818		0		0		0		3,727,196		3,715,132		3	54	5,309,293		3,523,611		203,961		1,017,080		523,938		—		—		5,268,590
4	4	6	687,040		101,586		76,670		340,745		165,751		0		0		684,752		675,727		4	4	394,336		—		—		76,221		210,701		107,379		—		394,301
5	5	2	115,071		0		0		0		0		0		110,439		110,439		72,188		5	1	5,500		—		—		—		—		—		—		—
		42	$	4,869,696	$	562,992	$	2,311,156	$	1,500,563	$	359,384	$	0	$	110,439	$	4,844,534	$	4,784,733		63	$	6,364,105	$	3,523,611	$	334,361	$	1,093,301	$	1,064,131	$	301,329	$	—	$	6,316,733

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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)

Allowance for Credit Losses — The following tables present the changes to the allowance for credit losses for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively:


		Commercial Real Estate Loans		Unfunded Loan Commitments		Total			Commercial Real Estate Loans		Unfunded Loan Commitments		Total
Balance at December 31, 2020		$	59,801	$	902	$	60,703
Balance at December 31, 2021								Balance at December 31, 2021	$	22,244	$	1,495	$	23,739
Provision for (reversal of) credit losses, net	Provision for (reversal of) credit losses, net	(1,790)		(356)		(2,146)		Provision for (reversal of) credit losses, net	9,285		1,295		10,580
Write-off charged	Write-off charged	0		0		0		Write-off charged	—		—		—
Recoveries	Recoveries	0		0		0		Recoveries	—		—		—
Balance as June 30, 2021		$	58,011	$	546	$	58,557
Balance as June 30, 2022								Balance as June 30, 2022	$	31,529	$	2,790	$	34,319


		Commercial Real Estate Loans		Unfunded Loan Commitments		Total			Commercial Real Estate Loans		Unfunded Loan Commitments		Total
Balance at December 31, 2019		$	0	$	0	$	0
Cumulative-effect adjustment upon adoption of ASU 2016-13		13,909		1,100		15,009
Balance at December 31, 2020								Balance at December 31, 2020	$	59,801	$	902	$	60,703
Provision for (reversal of) credit losses, net	Provision for (reversal of) credit losses, net	53,140		768		53,908		Provision for (reversal of) credit losses, net	(1,790)		(357)		(2,147)
Write-off charged	Write-off charged	(4,650)		0		(4,650)		Write-off charged	—		—		—
Recoveries	Recoveries	0		0		0		Recoveries	—		—		—
Balance as June 30, 2020		$	62,399	$	1,868	$	64,267
Balance as June 30, 2021								Balance as June 30, 2021	$	58,011	$	545	$	58,556

The $10.6 million increase in the provision for credit losses during the six months ended ~~$2.1~~June 30, 2022 was primarily due to increased uncertainty in the macro-economic outlook and increased reserves on watch list loans, as well as growth in the loan portfolio. The $2.1 million net benefit from the reversal of credit losses during the six months ended June 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 4- and 5-rated loans. The $53.9 million in provision for credit loss during the six months ended June 30, 2020 was primarily due to the significant adverse change in the economic outlook resulting from the outbreak of COVID-19 pandemic and incremental reserves for 4- and 5-risk ratedcertain loans.

~~Table of Contents~~

~~KKR Real Estate Finance Trust Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(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 real estate loans as a percentage of the loans' principal amounts:

June 30, 2021 December 31, 2020 June 30, 2021 December 31, 2020
Geography(A)
Collateral Property Type
New York 12.6 % 14.5 % Multifamily 51.7 % 51.0 %
Pennsylvania 11.1 9.7 Office 29.8 30.2
Illinois 10.8 11.8 Condo (Residential) 5.1 6.1
Texas 9.8 6.6 Hospitality 3.9 4.5
Massachusetts 9.5 8.4 Student Housing 3.6 1.4
Virginia 7.7 10.1 Industrial 3.5 1.8
California 7.7 7.7 Retail 2.2 5.0
Colorado 6.6 4.7 Single Family Rental 0.2 0
Washington 6.5 7.2 Total 100.0 % 100.0 %
Florida 5.0 5.7
Minnesota 3.7 4.0
Washington D.C. 3.1 2.9
Oregon 2.1 2.3
Georgia 1.6 1.8
Alabama 1.3 1.4
Other U.S. 0.9 1.2
Total 100.0 % 100.0 %


	June 30, 2022		December 31, 2021			June 30, 2022		December 31, 2021
Geography(A)					Collateral Property Type
California	16.2	%	10.8	%	Multifamily	48.6	%	46.7	%
Texas	15.7		15.0		Office	23.2		25.4
Florida	9.8		10.5		Industrial	11.0		4.4
New York	8.9		11.5		Life Science	6.0		9.3
Virginia	8.3		6.7		Hospitality	4.8		6.9
Pennsylvania	6.9		8.2		Condo (Residential)	3.2		3.9
Massachusetts	6.9		10.3		Student Housing	2.7		3.1
Washington D.C.	5.4		4.7		Single Family Rental	0.4		0.2
Washington	3.4		3.6		Retail	0.1		0.1
North Carolina	2.7		2.0		Total	100.0	%	100.0	%
Minnesota	2.7		3.1
Colorado	2.3		2.7
Georgia	2.2		2.2
Nevada	2.0		1.6
Arizona	1.9		1.2
Illinois	1.8		3.8
Alabama	0.9		1.1
Other U.S.	2.0		1.0
Total	100.0	%	100.0	%

(A) Excludes 1 real estate corporate loan to a multifamily operator with an outstanding principal amount of $~~38.1~~42.0 million and ~~$50.0~~$41.1 million, representing ~~0.7%~~0.6% ~~and 1.0%~~ of KREF’s commercial real estate loans, as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

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KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~

(dollars in tables in thousands, except per share amounts)

Note 4. Real Estate Owned

In 2015, KREF 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 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. On December 17, 2021, KREF took title to the retail 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 $78.6 million, which included the estimated fair value of the property and capitalized transaction costs. In addition, KREF assumed $2.0 million in 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 the fair value of the REO’s net assets.

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


	June 30, 2022		December 17, 2021(C)
Assets
Cash	$	1,619	$	3,377
Real estate owned - land	78,569		78,569
Real estate owned - land improvements	599		—
In-place lease intangibles(A)	301		335
Tenant receivables(A)	566		—
Other assets(A)	24		1,119
Total	$	81,678	$	83,400
Liability
Below-market lease intangibles(B)	$	1,643	$	1,825
Accounts payable, accrued expenses and other liabilities(B)	1,376		1,742
Total	$	3,019	$	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.

KREF assumed certain legacy lease arrangements upon the acquisition of the 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 practical expedient to not separate the lease and 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 Ended		Six Months Ended
	June 30, 2022		June 30, 2022
Rental income(A)	$	1,578	$	3,865
Other operating income(A)	255		597
Expenses from real estate owned operations	(2,368)		(4,922)
Other income(B)	934		1,337
Total	$	399	$	877

(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.

Table of Contents

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 amortization of lease intangibles included in KREF’s Condensed Consolidated Statements of Income:

Three Months Ended

Six Months Ended

Income Statement Location

June 30, 2022

Asset

In-place lease intangibles

Expenses from real estate owned operations

Liability

Below-market lease intangibles

Revenue from real estate owned operations

182

The following table presents the amortization of lease intangibles for each of the five succeeding fiscal years:


Year	In-place Lease Intangible Assets		Below-market Lease Intangible Liabilities
2022	$	34	$	183
2023	67		365
2024	67		365
2025	67		365
2026	67		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:


Year	Contractual Lease Payments
2022	$	2,505
2023	4,236
2024	3,462
2025	2,715
2026	1,850
Thereafter	45

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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 4.5. Debt Obligations

The following table summarizes KREF's secured master repurchase agreements and other financing arrangements in place as of June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:

June 30, 2021 December 31, 2020
Facility Collateral Facility
Month Issued Maximum Facility Size Outstanding Principal
Carrying Value(A)
Final Stated Maturity
Weighted Average Funding Cost(B)
Weighted Average Life (Years)(B)
Outstanding Principal Amortized Cost Basis Carrying Value
Weighted Average Life (Years)(C)
Carrying Value(A)
Master Repurchase Agreements(D)
Wells Fargo(E)
Oct 2015 $ 1,000,000 $ 498,276 $ 496,651 Nov 2023 1.7 % 1.8 $ 917,770 $ 911,971 $ 870,816 3.6 $ 443,745
Morgan Stanley(F)
Dec 2016 600,000 448,562 447,918 Dec 2022 2.2 1.3 615,210 612,068 603,261 3.8 148,772
Goldman Sachs(G)
Sep 2016 240,000 100,754 100,358 Oct 2023 3.2 1.9 182,716 181,006 180,444 2.6 76,163
Term Lending Agreement
KREF Lending V(H)
Jun 2019 900,000 900,000 899,110 Jun 2026 2.1 1.1 1,132,905 1,129,179 1,127,297 2.9 899,363
Warehouse Facility
HSBC Facility(I)
Mar 2020 500,000 0 (213) Mar 2023 0 1.7 0 0 0 n.a (353)
Asset Specific Financing
BMO Facility(J)
Aug 2018 300,000 60,000 59,963 n.a 1.8 0.7 76,000 75,862 73,324 2.6 59,795
Revolving Credit Agreement
Revolver(K)
Dec 2018 335,000 0 0 Dec 2023 0 2.4 n.a n.a n.a n.a 0
Total / Weighted Average $ 3,875,000 $ 2,007,592 $ 2,003,787 2.1 % 1.4 $ 1,627,485


	June 30, 2022																		December 31, 2021
	Facility											Collateral							Facility
	Month Issued	Maximum Facility Size		Outstanding Principal		Carrying Value(A)		Final Stated Maturity	Weighted Average Funding Cost(B)		Weighted Average Life (Years)(B)	Outstanding Principal		Amortized Cost Basis		Carrying Value		Weighted Average Life (Years)(C)	Carrying Value(A)
Master Repurchase Agreements(D)
Wells Fargo(E)	Oct 2015	$	1,000,000	$	689,958	$	688,735	Sep 2026	2.9	%	2.8	$	935,728	$	923,910	$	921,614	4.2	$	978,615
Morgan Stanley(F)	Dec 2016	600,000		573,542		572,830		Dec 2023	3.6		1.3	777,737		772,289		770,521		3.5	382,081
Goldman Sachs(G)	Sep 2016	240,000		123,658		123,089		Oct 2023	4.2		1.5	219,026		213,876		212,954		4.2	189,456
Term Lending Agreements
KREF Lending V(H)	Jun 2019	583,304		555,239		554,662		Jun 2026	3.3		0.6	724,378		723,836		721,638		1.5	617,185
KREF Lending IX(I)	Jul 2021	750,000		642,438		634,579		n.a	3.5		2.6	803,846		795,549		793,445		4.6	493,853
KREF Lending XII(J)	Jun 2022	350,000		161,140		159,365		n.a	3.5		3.4	213,907		212,085		211,597		4.7	—
Warehouse Facility
HSBC Facility(K)	Mar 2020	500,000		—		—		Mar 2023	—		0.7	—		—		—		n.a	(55)
Asset Specific Financing
BMO Facility(L)	Aug 2018	300,000		—		—		n.a	—		0.0	—		—		—		n.a	60,000
KREF Lending XI(M)	Apr 2022	100,000		96,278		95,089		n.a	4.5		2.2	123,838		123,074		122,939		4.2	—
Revolving Credit Agreement
Revolver(N)	Dec 2018	610,000		—		—		Mar 2027	—		4.7	n.a		n.a		n.a		n.a	135,000
Total / Weighted Average		$	5,033,304	$	2,842,253	$	2,828,349		3.4	%	2.0								$	2,856,135

(A) Net of $~~3.8~~13.9 million and ~~$5.6~~$11.3 million unamortized ~~debt issuance~~deferred financing costs as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

(B) Average weighted by the outstanding principal of borrowings. Funding cost includes deferred financing costs.

(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, ~~equal to~~including one-month LIBOR ~~or an index approximating LIBOR,~~and Term SOFR, and (ii) a margin, based on the collateral. As of June 30, ~~2021~~2022 and December 31, ~~2020,~~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 ~~38.9%~~28.2% and ~~36.7%~~30.3%, respectively (or ~~30.8%~~25.4% and ~~34.8%~~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 dadate is ~~te is November 2021,~~September 2024, which does not reflect 2 twelve-month facility term ~~extensions~~extension options available to KREF, which ~~is contingent upon~~are subject to certain covenants and thresholds. As of June 30, ~~2021,~~2022, the collateral-based margin was ~~betwee~~betwenen 1.25% and ~~2.15%~~1.55%.

(F) ~~In November 2020, the~~The current stated maturity ~~was extended to~~is December ~~2021,~~2022, with a one-year extension option upon KREF giving written notice and another 2 one-year extension periods subject to approval by ~~Morgan Stanley.~~the lender. In addition, KREF has the option to increase the facility amount to $750.0 million. As of June 30, ~~2021,~~2022, the collateral-based margin was between ~~1.75%~~1.70% and ~~2.35%~~2.40%.

(G) ~~In May 2020, the facility was amended to extend the~~The current stated maturity ~~date to~~is October ~~30, 2021.~~ 2022. In addition, KREF has the option to extend the maturity date to October 31, 2023, by (i) electing to permanently reduce the maximum advance rate for each pledged loan to the lesser of 65% or the advance rate in effect for such loan at October 30, 2021, and (ii) payment of the applicable contractual fee, subject to the satisfaction of certain conditions. As of June 30, ~~2021,~~2022, the collateral-base margin was between ~~1.90%~~1.75% and 3.20%.

(H) ~~In June 2019,~~ KREF, through its wholly–owned subsidiary KREF Lending V LLC, entered into a Master Repurchase and Securities Contract Agreement ~~(the "Term~~("KREF Lending ~~Agreement"~~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 ~~for current and future financings of up to $900.0 million on a~~ non-mark-to-market ~~basis.~~financing. The Initial Buyer subsequently syndicated a portion of the facility to multiple financial institutions. As of June 30, ~~2021,~~2022, the Initial Buyer held ~~22.2%~~23.8% of the total commitment under the facility. Borrowings under the ~~Term Lending Agreement~~facility are collateralized by certain loans, held for investment, and bear interest equal to one-month LIBOR, plus a 1.90% margin. In ~~March 2021,~~June 2022, the current stated maturity was extended to June ~~2022, subject~~2023, subject to 43 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 ~~2020,~~2022, KREF increased the borrowing capacity to $750.0 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 June 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 June 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.

~~(J) In August 2018,~~(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 ~~matched-term~~match-term up to five years with partial recourse to KREF. ~~During May 2019,~~

Table of Contents

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in tables in thousands, except per share amounts)

(M) KREF, ~~increased the borrowing capacity to $300.0 million. As of June 30, 2021, the collateral-based margin was~~ ~~1.70%~~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.

~~(K) In December 2018,~~(N) KREF entered into a $100.0 million corporate revolving credit facility (“Revolver”) administered by Morgan Stanley Senior Funding, Inc. Additional lenders were added ~~in 2019 and 2020,~~subsequently, further increasing the Revolver borrowing capacity ~~under the Revolver~~ to ~~$335.0~~$610.0 million as of June 30, ~~2021.~~2022. The current stated maturity of the facility is DMarch 2027~~ecember 2023.~~. 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 June 30, ~~2021,~~2022, the carrying value excluded ~~$2.1~~$5.5 million unamortized debt issuance costs presented within "Other assets" on KREF's Condensed Consolidated Balance Sheets.

~~The preceding table excludes loan participations sold (Note 8).~~

~~Table of Contents~~

~~KKR Real Estate Finance Trust Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(dollars in tables in thousands, except per share amounts)~~

As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, KREF had outstanding repurchase agreements and ~~a Term Lending Agreement~~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 these agreements is the net counterparty exposure, defined as the excess of the carrying amount (or market value, if higher than the carrying 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 June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:

Outstanding Principal Net Counterparty Exposure Percent of Stockholders' Equity
Weighted Average Life (Years)(A)
June 30, 2021
Wells Fargo $ 498,276 $ 374,332 30.6 % 1.8
Morgan Stanley 448,562 159,148 13.0 1.3
Term Lending Agreement(B)
900,000 230,507 18.8 1.1
Total / Weighted Average $ 1,846,838 $ 763,987 62.4 % 1.3
December 31, 2020
Wells Fargo $ 446,208 $ 196,715 18.9 % 2.0
Term Lending Agreement(B)
900,000 214,135 20.5 1.5
Total / Weighted Average $ 1,346,208 $ 410,850 39.4 % 1.7


	Outstanding Principal		Net Counterparty Exposure		Percent of Stockholders' Equity		Weighted Average Life (Years)(A)
June 30, 2022
Wells Fargo	$	689,958	$	240,780	14.4	%	2.8
Morgan Stanley	573,542		198,572		11.8		1.3
KREF Lending V(B)	555,239		168,217		10.0		0.6
Total / Weighted Average	$	1,818,739	$	607,569	36.2	%	1.6
December 31, 2021
Wells Fargo	$	980,593	$	409,489	30.1	%	3.4
Morgan Stanley	383,592		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 ~~Term~~KREF Lending ~~Agreement.~~V Facility. Morgan Stanley Bank, N.A. represented ~~4.2%~~2.4% and ~~4.6%~~2.5% of the net counterparty exposure as a percent of stockholders' equity as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

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.

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 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 ~~matched term~~match-term up to five 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 ~~was~~were 1.7% and 1.6% as of June 30, ~~2021~~2022 and December 31, ~~2020.~~2021, respectively.

~~The following tables summarize our borrowings under the Term Loan Facility:~~

June 30, 2021
Term Loan Facility Count Outstanding Principal Amortized Cost Carrying Value
Wtd. Avg. Yield/Cost(A)
Guarantee(B)
Wtd. Avg. Term(C)
Collateral assets 13 $ 1,195,821 $ 1,192,567 $ 1,191,508 L + 3.2% n.a. May 2024
Financing provided n.a. 992,777 992,777 992,777 L + 1.6% n.a. May 2024

2629

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KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~

(dollars in tables in thousands, except per share amounts)

December 31, 2020
Term Loan Facility Count Outstanding Principal Amortized Cost Carrying Value
Wtd. Avg. Yield/Cost(A)
Guarantee(B)
Wtd. Avg. Term(C)
Collateral assets 13 $ 1,155,378 $ 1,151,144 $ 1,147,517 L + 3.0% n.a. January 2024
Financing provided n.a. 948,204 947,262 947,262 L + 1.9% n.a. January 2024
The following tables summarize our borrowings under the Term Loan Facility:

June 30, 2022

Term Loan Facility

Count

Outstanding Principal

Amortized Cost

Carrying Value

Wtd. Avg. Yield/Cost(A)

Guarantee(B)

Wtd. Avg. Term(C)

Collateral assets

907,931

903,544

893,694

+ 3.5%

n.a.

October 2025

Financing provided

n.a.

741,640

741,232

+ 1.7%

n.a.

October 2025

December 31, 2021

Term Loan Facility

Count

Outstanding Principal

Amortized Cost

Carrying Value

Wtd. Avg. Yield/Cost(A)

Guarantee(B)

Wtd. Avg. Term(C)

Collateral assets

1,078,795

1,076,241

1,074,116

L + 3.4%

n.a.

August 2024

Financing provided

n.a.

870,458

L + 1.6%

n.a.

August 2024

(A) Floating rate loans and related liabilities are indexed to one-month ~~LIBOR.~~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 ~~determined~~weighted by outstanding principal, using the maximum maturity date of the ~~corresponding~~underlying loans assuming all extension options are exercised by the borrower.

Activity — For the six months ended June 30, ~~2021,~~2022, the activity related to the carrying value of KREF’s secured financing agreements were as follows:


	Secured Financing Agreements, Net





Balance as of December 31, ~~2020~~2021	$	~~2,574,747~~3,726,593
Principal borrowings	~~1,014,306~~1,817,044
Principal repayments/sales	~~(595,262)~~(1,971,043)
Deferred debt issuance costs	~~(1,761)~~(7,773)
Amortization of deferred debt issuance costs	~~4,534~~4,759
Balance as of June 30, ~~2021~~2022	$	~~2,996,564~~3,569,580

Maturities — KREF’s secured financing agreements, term loan financing and other consolidated debt obligations in place as of June 30, ~~2021~~2022 had contractual maturities as follows:

Year Nonrecourse
Recourse(A)
Total
2021 669,522 89,907 759,429
2022 1,111,683 292,714 1,404,397
2023 471,145 78,847 549,992
2024 151,396 40,429 191,825
Thereafter 94,725 0 94,725
$ 2,498,471 $ 501,897 $ 3,000,368


Year	Nonrecourse		Recourse(A)		Total
2022	$	383,416	$	73,505	$	456,921
2023	945,058		253,343		1,198,401
2024	839,576		144,625		984,201
2025	356,749		118,916		475,665
Thereafter	372,600		96,104		468,704
	$	2,897,399	$	686,493	$	3,583,892

(A) Except for the Revolver, which is full recourse, amounts borrowed subject to a maximum 25.0% recourse limit. The Revolver expires in ~~December 2023.~~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 or up to approximately $~~1,005.0~~1,349.4 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 (83.3% of KREF's Total Assets, as ~~defined)~~defined in the applicable financing agreements). As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, KREF was in compliance with its financial debt covenants.

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Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~

(dollars in tables in thousands, except per share amounts)

Note 5.6. Collateralized Loan ~~Obligation~~Obligations

In ~~November 2018,~~August 2021, KREF financed a pool of loan participations from ~~our~~its existing loan portfolio through a managed ~~CLO.~~ CLO ("KREF ~~2018-FL1~~2021-FL2"). KREF 2021-FL2 provides KREF with match-term financing on a non-mark-to-market and non-recourse basis. KREF ~~2018-FL1~~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. ~~The~~ 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 ~~period ended~~feature. Upon the execution of the KREF 2022-FL3, KREF recorded $7.4 million in ~~December 2020. During~~issuance costs, inclusive of $0.5 million in structuring and placement agent fees paid to KCM.

The CLO issuance costs are netted against the ~~three and six months ended June 30, 2021, KREF repaid $40.0 million and $43.0 million~~outstanding principal balance of ~~its outstanding~~the CLO ~~debts~~notes in ~~connection with repayments of underlying collateral~~"Collateralized loan ~~assets.~~obligations, net" in the Condensed Consolidated Balance Sheets.

The following tables outline ~~KREF 2018-FL1~~CLO collateral assets and respective borrowing as of June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:

June 30, 2021
Collateralized Loan Obligation Count Outstanding Principal Amortized Cost Carrying Value Wtd. Avg. Yield/Cost
Wtd. Avg. Term(B)
Collateral assets(A)
19 $ 957,000 $ 957,000 $ 956,276 L + 3.1% March 2024
Financing provided 1 767,000 767,000 767,000 L + 1.4% June 2036

December 31, 2020
Collateralized Loan Obligation Count Outstanding Principal Amortized Cost Carrying Value Wtd. Avg. Yield/Cost
Wtd. Avg. Term(B)
Collateral assets(A)
21 $ 1,000,000 $ 1,000,000 $ 997,336 L + 2.9% March 2024
Financing provided 1 810,000 810,000 810,000 L + 1.4% June 2036


	June 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)	21	$	1,300,000	$	1,300,000	$	1,293,709	+ 3.3%	December 2025
Financing provided	1	1,095,250		1,090,150		1,090,150		L + 1.7%	February 2039
KREF 2022-FL3
Collateral assets(C)	16	$	1,000,000	$	1,000,000	$	996,846	+ 3.0%	September 2026
Financing provided	1	847,500		841,455		841,455		S + 2.1%	February 2039


	December 31, 2021
KREF 2021-FL2	Count	Outstanding Principal		Amortized Cost		Carrying Value		Wtd. 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 provided	1	1,095,250		1,087,976		1,087,976		L + 1.7%	February 2039

(A) ~~Collateral loan assets represent 16.8%~~ Expressed as a spread over the relevant benchmark rates, which include one-month LIBOR and ~~20.5% of the principal of KREF's commercial real estate loans~~Term SOFR, as ~~of June 30, 2021 and December 31, 2020, respectively.~~applicable to each loan. As of June 30, ~~2021~~2022, 91.1% and ~~December 31, 2020, 100%~~8.9% of ~~KREF loans financed through~~ the CLO ~~are~~collateral loan assets by principal balance earned a floating rate ~~loans.~~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.~~borrowers, weighted by outstanding principal. Repayments of CLO notes are dependent on timing of ~~related~~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 30.6% and 19.6% of the principal of KREF's commercial real estate loans as of June 30, 2022 and December 31, 2021, respectively. As of June 30, 2022 and December 31, 2021, 100% of KREF loans financed through the CLOs are floating rate loans.

(D) Including $0.5 million and $54.0 million cash held in CLO as of June 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 ~~KREF 2018-FL1 Assets~~CLO assets and ~~Liabilities~~liabilities included in KREF’s Condensed Consolidated Balance Sheets:

Assets June 30, 2021 December 31, 2020
Commercial real estate loans, held-for-investment $ 897,678 $ 1,000,483
Less: Allowance for credit losses (724) (2,669)
Commercial real estate loans, held-for-investment, net 896,954 997,814
Accrued interest receivable 2,659 3,075
Other assets(A)
59,559 5
Total $ 959,172 $ 1,000,894
Liabilities
Collateralized loan obligation, net $ 767,000 $ 810,000
Accrued interest payable 578 668
Accounts payable, accrued expenses and other liabilities 0 72
Total $ 767,578 $ 810,740


Assets	June 30, 2022		December 31, 2021
Cash	$	500	$	54,000
Commercial real estate loans, held-for-investment	2,299,500		1,246,000
Less: Allowance for credit losses	(9,445)		(3,255)
Commercial real estate loans, held-for-investment, net	2,290,055		1,242,745
Accrued interest receivable	6,736		3,091
Other assets	206		766
Total	$	2,297,497	$	1,300,602
Liabilities
Collateralized loan obligations, net(A)	$	1,931,605	$	1,087,976
Accrued interest payable	1,883		852

Total	$	1,933,488	$	1,088,828

(A) Net of ~~Includes $59.3~~$11.1 million and $7.3 million of ~~loan repayment proceeds held with the servicer and receivable by the CLO~~unamortized deferred financing costs as of June 30, ~~2021.~~2022 and December 31, 2021, respectively.

The following table presents the components of net interest income of ~~KREF 2018-FL1~~CLOs included in KREF’s Condensed Consolidated Statements of Income:

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Net Interest Income
  Interest income $ 10,832 $ 11,429 $ 21,953 $ 23,265
  Interest expense(A)
3,922 6,386 7,954 15,154
    Net interest income $ 6,910 $ 5,043 $ 13,999 $ 8,111


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net Interest Income
Interest income	$	23,775	$	10,832	$	40,886	$	21,953
Interest expense(A)	13,059		2,906		20,827		5,931
Net interest income	$	10,716	$	7,926	$	20,059	$	16,022

(A) ~~Includes~~Net of interest expense on internally held CLO notes. Includes $~~1.7~~2.1 million and ~~$3.3~~$3.7 million of deferred financing costs amortization for the three and six months ended June 30, ~~2020. Deferred financing costs incurred in connection with the CLO were fully amortized as of December 31, 2020.~~2022, respectively.

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Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~

(dollars in tables in thousands, except per share amounts)

Note 6.7. 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. ~~The secured term loan is open for repricing following its first anniversary.~~

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 ~~KKR Capital Markets ("KCM"),~~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 ~~affiliate~~aggregate principal amount of ~~KREF.~~ $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 ~~5.3%~~4.1% per ~~annum.~~

annum, subject to the applicable LIBOR floor, as of June 30, 2022. The following table summarizes KREF’s secured term loan at June 30, ~~2021:~~

2022 and December 31, 2021, respectively:


	~~June 30, 2021~~
~~Principal amount~~	$	~~298,500~~
~~Unamortized discount~~	~~(6,614)~~
~~Deferred financing costs~~	~~(4,468)~~
~~Carrying amount~~	$	~~287,418~~


	June 30, 2022		December 31, 2021
Principal amount	$	348,250	$	350,000
Unamortized discount	(5,158)		(5,652)
Deferred financing costs	(5,483)		(5,799)
Carrying amount	$	337,609	$	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 June 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

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Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~

(dollars in tables in thousands, except per share amounts)

Note 7.8. 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,~~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. ~~KREF has the intent and ability to settle the Convertible Notes in cash and, as a result, the Convertible Notes did not have an impact on our diluted earnings per share.~~

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 ~~an affiliate of KREF.~~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 ~~interest expense related to the Convertible Notes:~~

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Cash coupon $ 2,201 $ 2,201 $ 4,402 $ 4,402
Discount and issuance cost amortization 345 346 687 692
Total interest expense $ 2,546 $ 2,547 $ 5,089 $ 5,094

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


		June 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
Principal	Principal	$	143,750	$	143,750	Principal	$	143,750	$	143,750
Deferred financing costs	Deferred financing costs	(1,923)		(2,431)		Deferred financing costs	(897)		(1,405)
Unamortized discount	Unamortized discount	(675)		(854)		Unamortized discount	(315)		(494)
Net book value		$	141,152	$	140,465
Carrying value						Carrying value	$	142,538	$	141,851

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Cash coupon	$	2,201	$	2,201	$	4,402	$	4,402
Discount and issuance cost amortization	346		345		687		687
Total interest expense	$	2,547	$	2,546	$	5,089	$	5,089

Accrued interest payable for the Convertible Notes was $1.1 million ~~and~~ ~~$1.1 million~~as of June 30, ~~2021~~2022 and December 31, ~~2020, respectively.~~2021. Refer to Note 2 for additional discussion of accounting policies for the Convertible Notes.

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Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~

(dollars in tables in thousands, except per share amounts)

Note 8.9. 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 ~~are~~were consolidated in KREF's condensed consolidated financial ~~statements as~~statements. In September 2021, KREF fully repaid the $66.2 million vertical loan participation in connection with the payoff of ~~June 30, 2021 and December 31, 2020.~~the underlying loan.

The following tables summarize the loan participation sold liabilities that KREF recognized since the corresponding syndications of the respective loan participations were not treated as "sales" as of June 30, 2021 and December 31, 2020:

June 30, 2021
Loan Participations Sold Count Outstanding Principal Amortized Cost Carrying Value
Yield/Cost(A)
Guarantee Term
Total loan 1 $ 337,327 $ 336,656 $ 336,251 L + 2.6% n.a. July 2024
Vertical loan participation(B)
1 66,248 66,242 66,242 L + 2.6% n.a. July 2024

December 31, 2020
Loan Participations Sold Count Outstanding Principal Amortized Cost Carrying Value
Yield/Cost(A)
Guarantee Term
Total loan 1 $ 337,327 $ 336,329 $ 335,507 L + 2.6% n.a. July 2024
Vertical loan participation(B)
1 66,248 66,232 66,232 L + 2.6% n.a. July 2024

~~(A) Floating rate loans and related liabilities are indexed to one-month LIBOR. KREF's net interest rate exposure is in direct proportion to its interest in the net assets of the senior loan.~~

~~(B) During the three months ended June 30, 2021 and 2020, KREF recorded~~ ~~$0.7 million~~ ~~and $0.7 million of interest income, respectively, and~~ ~~$0.7 million~~ ~~and $0.7 million of interest expense, respectively, related to the vertical loan participation sold; and during the six months ended June 30, 2021 and 2020, KREF recorded~~ ~~$1.5 million~~ ~~and $1.4 million of interest income, respectively, and~~ ~~$1.5 million~~ ~~and $1.4 million of interest expense, respectively, related to the vertical loan participation sold.~~

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Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~

(dollars in tables in thousands, except per share amounts)

Note 9.10. Variable Interest Entities

Collateralized Loan ~~Obligation~~Obligations — KREF is the primary beneficiary of ~~a collateralized loan obligation~~its consolidated ~~as a VIE that closed in November 2018~~CLOs (Note 5)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.

~~Equity method investments~~Real Estate Owned Joint Venture — Concurrently with taking title of KREF’s sole REO asset, KREF contributed the REO to a joint venture with 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 KREF is the primary beneficiary of the joint venture as KREF holds ~~2 investments in entities~~decision-making power over the activities that ~~it records using~~most significantly impact the ~~equity method.~~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 June 30, ~~2021,~~2022, the joint venture held REO assets with a net carrying value of $69.3 million. KREF has priority of distributions up to $69.5 million before the JV Partner can participate in the economics of the joint venture.

Equity Method Investments

As of June 30, 2022, KREF held a 3.5% interest in RECOP I, an unconsolidated VIE of which KREF is not the primary beneficiary, at its fair value of $~~33.5~~36.8 million. The aggregator vehicle in which KREF invests is controlled and advised by affiliates of the Manager. RECOP I primarily acquired junior tranches of CMBS newly issued by third parties. KREF will not pay any fees to RECOP I, but KREF bears its pro rata share of RECOP I's expenses. KREF reported its share of the net asset value of RECOP I in its Condensed Consolidated Balance Sheets, presented as “Equity method investments” and its share of net income, presented as “Income (loss) from equity method investments” in the Condensed Consolidated Statements of Income.

~~As of June 30, 2021, the~~KREF, 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 ~~10)~~11). KREF reported ~~its interest in the Manager on its Condensed Consolidated Balance Sheets, presented as “Equity method investments” and~~ its share of net income, presented as “Income (loss) from equity method investments” in the Condensed Consolidated Statements of 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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Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~

(dollars in tables in thousands, except per share amounts)

Note ~~10.~~11. 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 — As further described below, since December 2015, KREF issued the following shares of common stock:


Pricing Date	Pricing Date	Shares Issued	Net Proceeds		Pricing Date	Shares Issued(A)		Net Proceeds
As of December 31, 2015	As of December 31, 2015	13,636,416	$	272,728	As of December 31, 2015	13,636,416		$	272,728
February 2016	February 2016	2,000,000	40,000		February 2016	2,000,000		40,000
May 2016	May 2016	3,000,138	57,130		May 2016	3,000,138		57,130
June 2016~~(A)~~(B)	June 2016~~(A)~~(B)	21,838	0		June 2016~~(A)~~(B)	21,838		—
August 2016	August 2016	5,500,000	109,875		August 2016	5,500,000		109,875
As of December 31, 2016	As of December 31, 2016	24,158,392	$	479,733	As of December 31, 2016	24,158,392		$	479,733
February 2017	February 2017	7,386,208	147,662		February 2017	7,386,208		147,662
April 2017	April 2017	10,379,738	207,595		April 2017	10,379,738		207,595
May 2017 - Initial Public Offering	May 2017 - Initial Public Offering	11,787,500	219,356		May 2017 - Initial Public Offering	11,787,500		219,356
As of December 31, 2017	As of December 31, 2017	53,711,838	$	1,054,346	As of December 31, 2017	53,711,838		$	1,054,346
August 2018	August 2018	5,000,000	98,326		August 2018	5,000,000		98,326
November 2018	November 2018	500,000	9,351		November 2018	500,000		9,351
As of December 31, 2018	As of December 31, 2018	59,211,838	$	1,162,023	As of December 31, 2018	59,211,838		$	1,162,023
November 2021					November 2021	5,000,000		108,800
November 2021(C)					November 2021(C)	1		—
November 2021					November 2021	547,361		11,911
As of December 31, 2021					As of December 31, 2021	64,759,200		$	1,282,734
February 2022					February 2022	68,817		1,426
March 2022					March 2022	6,494,155		133,845
As of March 31, 2022					As of March 31, 2022	71,322,172		$	1,418,005
June 2022					June 2022	2,750,000		53,653
As of June 30, 2022					As of June 30, 2022	$	74,072,172	$	1,471,658

(A) Excludes 527,378 net 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 ~~issue additional~~receive any proceeds with respect to 1 share of common stock ~~between January 1, 2019 and June 30, 2021 other than related~~issued to KKR in connection with the ~~vesting~~conversion of ~~restricted~~the special voting preferred stock, ~~units discussed below.~~in accordance with KREF’s Articles of Restatement dated as of May 10, 2017.

In May 2021 and June 2022, KKR sold 5,750,000 and 4,250,000 shares of KREF common stock, respectively, through a secondary ~~offering,~~offerings, including the exercise of the underwriters' option to purchase additional common shares, and received all of the $100.4 million and $82.9 million net proceeds from the ~~offering.~~ offerings, respectively. On November 1, 2021, KKR converted its special voting preferred stock into 1 share of 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.

KKR and affiliates beneficially owned ~~14,250,000~~10,000,001 and ~~21,234,528~~14,250,001 shares, or ~~25.6%~~14.4% and ~~38.2%~~23.2% of KREF's outstanding common stock as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

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.

During the six months ended June 30, 2022 and 2021, 15,520 and ~~2020,~~18,052 shares of ~~18,052~~ ~~and 42,459~~ common stock ~~was~~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

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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)

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 1112 for further detail.

Of the ~~59,537,806~~74,599,550 common shares KREF issued, there were ~~55,637,480~~69,654,532 common shares outstanding as of June 30, ~~2021,~~2022, which includes ~~325,968~~527,378 net shares of common stock issued in connection with vested restricted stock units and is net of ~~3,900,326~~4,945,018 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.

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~~KKR Real Estate Finance Trust Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(dollars in tables in thousands, except per share amounts)~~

~~KREF did~~ 0t ~~repurchase any of its common stocks during the three and six months ended June 30, 2021.~~ During the three months ended June 30, ~~2020,~~2022, KREF repurchased ~~389,086~~1,044,692 shares of common stock under the repurchase

program at an average price per share ~~of $14.92,~~ of $17.28 for a total of ~~$5.8~~$18.1 million. During the six months ended June 30, ~~2020,~~2021, KREF ~~repurchased 2,037,637 shares~~did not repurchase any of its common ~~stock under the repurchase program at an average price per share of $12.27 for a total of $25.0 million.~~stock. As of June 30, ~~2021,~~2022, KREF had ~~$100.0~~$81.9 million of remaining capacity to repurchase shares under the program.

At the Market Stock Offering Program — On 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 six months ended June 30, 2022, KREF ~~has not~~issued and sold ~~any~~68,817 shares of ~~its~~ common stock under the ATM, ~~to date.~~generating net proceeds totaling $1.4 million. As of June 30, 2022, $98.6 million remained available for issuance under the ATM.

Special Voting Preferred Stock — In March 2016, KREF issued 1 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 LLC. The holder of the special voting preferred stock ~~has~~had special voting rights related to the election of members to KREF's board of directors until KKR and its affiliates ~~cease~~ceased 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 ~~existing~~initial 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 1 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-Voting Manager Units ~~are~~were held by a wholly-owned TRS of KREF ("KREF TRS"). All distributions received by KREF TRS from these Non-Voting Manager Units ~~are~~were 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 ("KKR Member"), ~~owns~~owned and ~~controls~~controlled the limited liability company interests of the Manager.

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Notes to Condensed Consolidated Financial Statements

(dollars in tables in thousands, except per share amounts)

Dividends on the SNVPS ~~are~~were payable quarterly, and ~~will accrue~~accrued whether or not KREF ~~has~~had earnings, there ~~are~~were assets legally available for the payment of those dividends or those dividends ~~have~~had been declared. Any dividend payment made on the SNVPS ~~shall~~would 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 ~~includes~~included KREF's common stock. As KREF ~~does~~did not control the circumstances under which the holder of the SNVPS ~~may~~could redeem its interests, management ~~considers~~considered the SNVPS as temporary equity (Note 2).

KREF ~~will~~was 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 pay~~paid 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 be~~was canceled automatically and ~~cease~~ceased to be outstanding. Concurrently, upon redemption of the SNVPS, the KKR Member ~~will acquire~~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.~~ 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 represent a third party’s 10.0% interest in a joint venture, a consolidated VIE, that holds portion of KREF’s sole REO investment. KREF and the noncontrolling interest holder contribute to the joint venture’s ongoing operating shortfalls and capital expenditures on a pari passu basis. Distributions from the joint venture are allocated between KREF and the noncontrolling interest holder based on contractual terms and waterfalls as outlined in the joint venture agreement.

Dividends— During the six months ended June 30, 2022 and 2021, KREF's board of directors declared the following dividends on shares of its common stock ~~SNVPS~~ and special voting preferred ~~stock.~~stock:


			Amount
Declaration Date	Record Date	Payment Date	Per Share		Total
2022
March 15, 2022	March 31, 2022	April 15, 2022	$	0.43	$	29,211
June 15, 2022	June 30, 2022	July 15, 2022	0.43		29,951


					$	59,162
2021
March 15, 2021	March 31, 2021	April 15, 2021	$	0.43	$	23,916
June 15, 2021	June 30, 2021	July 15, 2021	0.43		23,924


					$	47,840

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Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~

(dollars in tables in thousands, except per share amounts)

~~Dividends~~— During the six months ended June 30, ~~2021 and 2020, KREF's board of directors declared the following dividends on shares of its common stock and special voting preferred stock:~~

Amount
Declaration Date Record Date Payment Date Per Share Total
2021
March 15, 2021 March 31, 2021 April 15, 2021 $ 0.43 $ 23,916
June 15, 2021 June 30, 2021 July 15, 2021 0.43 23,924
$ 47,840
2020
March 16, 2020 March 31, 2020 April 15, 2020 $ 0.43 $ 24,010
June 15, 2020 June 30, 2020 July 15, 2020 0.43 23,861
$ 47,871

~~During the six months ended June 30, 2021,~~2022, KREF's board of directors declared the following dividends on shares of its Series A Preferred Stock:

Amount
Declaration Date Record Date Payment Date Per Share Total
2021
April 23, 2021 May 31, 2021 June 15, 2021 $ 0.27 $ 1,838
$ 1,838


			Amount
Declaration Date	Record Date	Payment Date	Per Share		Total
2022
February 1, 2022	February 28, 2022	March 15, 2022	$	0.41	$	5,326
April 22, 2022	May 31, 2022	June 15, 2022	$	0.41	5,326
					$	10,652
2021
April 23, 2021	May 31, 2021	June 15, 2021	$	0.27	$	1,838


					$	1,838

~~Earnings (Loss) per Share~~ ~~— The following table illustrates the computation of basic and diluted earnings (loss) per share for the three and six months ended June 30, 2021 and 2020:~~

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Numerator
Net income (loss) attributable to common stockholders $ 29,264 $ 28,590 $ 58,448 $ (6,574)
Denominator
Basic weighted average common shares outstanding 55,632,322 55,491,937 55,625,911 56,419,332
Dilutive restricted stock units 274,764 12,140 193,199 0
Diluted weighted average common shares outstanding 55,907,086 55,504,077 55,819,110 56,419,332
Net income (loss) attributable to common stockholders, per:
Basic common share $ 0.53 $ 0.52 $ 1.05 $ (0.12)
Diluted common share $ 0.52 $ 0.52 $ 1.05 $ (0.12)

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Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~

(dollars in tables in thousands, except per share amounts)

Note ~~11.~~12. Stock-based Compensation

KREF is externally managed by the Manager and does not currently have any employees. However, as of June 30, ~~2021,~~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 June 30, ~~2021,~~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 3 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 ~~not~~ entitled to nonforfeitable dividends ~~until KREF issues shares~~during the vesting periods, at the same rate as those declared on the common stock. In February 2022, KREF's board of ~~its~~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, ~~which are issuable on a 1-to-one basis upon~~starting with the ~~RSU award vesting.~~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, 2020 787,942 $ 18.78
Granted 15,520 19.65
Vested (18,886) 14.60
Forfeited / cancelled (8,226) 18.13
Unvested as of June 30, 2021 776,350 $ 18.91


	Restricted Stock Units	Weighted Average Grant Date Fair Value Per RSU(A)
Unvested as of December 31, 2021	808,330	$	19.50
Granted	27,625	19.91
Vested	(15,520)	19.65
Forfeited / cancelled	(28,501)	19.04
Unvested as of June 30, 2022	791,934	$	19.53

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

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

Year Restricted Stock Units
2021 368,020
2022 269,174
2023 139,156
Total 776,350


Year						Restricted Stock Units
2022						375,716
2023						286,439
2024						129,779
Total						791,934

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 six months ended June 30, ~~2021,~~2022, KREF recognized $2.0 million and ~~$4.0~~and $4.2 million, respectively, of stock-based compensation expense included in “General and administrative” expense in the Condensed Consolidated Statements of Income. During the three and six months ended June 30, ~~2020,~~2021, KREF recognized $~~1.4~~2.0 million and ~~$3.0~~and $4.0 million, respectively, of stock-based compensation expense. As of June 30, ~~2021,~~2022, there was $~~9.6~~10.1 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 ~~years.~~.

During the six months ended June 30, 2022 and 2021, KREF declared $0.7 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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KKR Real Estate Finance Trust Inc.

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 ~~adjustment~~reduction to additional paid-in capital in the Condensed Consolidated Statement of Changes in ~~Stockholders' Equity. During~~Equity. No

shares were delivered for vested RSUs during the six months ended June 30, ~~2021, KREF paid $1.7 million of withholding tax in connection with employee RSUs vested in the fourth quarter of 2020.~~2022.

Refer to Note 1315 for additional information regarding the Incentive Plan.

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KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~

(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 six months ended June 30, 2022, 6,316,174 potentially issuable shares related to the Convertible Notes were included in the dilutive EPS denominator after the adoption of ASU 2020-06. For the three months ended June 30, 2022, such shares were excluded from the dilutive EPS denominator because the effect was anti-dilutive. For the three and six months ended June 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 had the intent and ability to settle the Convertible Notes in cash.

The following table illustrates the computation of basic and diluted EPS for the three and six months ended June 30, 2022 and 2021:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Basic Earnings
Net Income (Loss)	$	25,061	$	31,077	$	60,529	$	61,169
Less: Preferred stock dividends and redemption value adjustment	5,326		1,813		10,652		2,721
Less: Participating securities' share in earnings	341		—		687		—
Net income (loss) attributable to common stockholders	$	19,394	$	29,264	$	49,190	$	58,448

Diluted Earnings
Net income (loss) attributable to common stockholders	$	19,394	$	29,264	$	49,190	$	58,448
Add: Interest expense attributable to the Convertible Notes	—		—		4,402		—
Less: Reallocation of undistributed earnings to participating securities	—		—		—		—
Net income (loss) attributable to common stockholders, diluted	$	19,394	$	29,264	$	53,592	$	58,448

Denominator
Basic weighted average common shares outstanding	68,549,049		55,632,322		65,832,841		55,625,911
Dilutive shares under assumed conversion of the Convertible Notes	—		—		6,316,174		—
Dilutive restricted stock units(A)	—		274,764		—		193,199
Diluted weighted average common shares outstanding	68,549,049		55,907,086		72,149,015		55,819,110

Net income (loss) attributable to common stockholders, per:
Basic common share	$	0.28	$	0.53	$	0.75	$	1.05
Diluted common share	$	0.28	$	0.52	$	0.74	$	1.05

(A) For the three and six months ended June 30, 2022, 199,713 and 190,637 weighted average unvested RSUs, respectively, were excluded from the calculation of diluted EPS because the effect was anti-dilutive.

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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.~~14. Commitments and Contingencies

As of June 30, ~~2021,~~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.

As of June 30, ~~2021,~~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 June 30, ~~2021,~~2022, KREF had future funding ~~requirements~~commitments of $~~847.7~~1,412.2 million related to its investments in commercial real 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 I. The two-year investment period for RECOP I ended in April 2019. As of June 30, ~~2021,~~2022, KREF had a remaining commitment of $4.3 million to RECOP I.

Impact of the COVID-19 Pandemic — Although the global economy has, with certain setbacks, begun reopening and wider distribution of vaccines will likely encourage greater economic activity, KREF is unable to predict how widely utilized the vaccines will be, whether they will be effective in preventing the spread of COVID-19 (including its variant strains), and when or if normal economic activity and business operations will resume. Accordingly, theThe full extent of the impact of COVID-19 and certain macroeconomic indicators, including inflation and interest rates, on the global economy generally, and ~~on KREF’s~~KREF's business ~~and on the businesses of KREF’s borrowers,~~ in particular, is uncertain. However, to the extent COVID-19 ~~continues~~and other macroeconomic indicators continue to cause dislocations in the global economy, ~~our~~KREF's financial condition, results of operations and cash flows may be adversely impacted. Refer to “Note 2 — Summary of Significant Accounting Policies” for further discussion regarding COVID-19.

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KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~

(dollars in tables in thousands, except per share amounts)

Note ~~13.~~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 decline to renew the Management Agreement other than for cause, KREF is required to pay the Manager a termination fee equal to 3 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-month distributable earnings (before incentive compensation payable to the 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 3 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 distributable earnings, reduced by distributions, equity repurchases, and incentive compensation paid. Distributable earnings generally represent 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, 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 distributable earnings. For purposes of calculating incentive compensation, adjusted equity excludes: (i) the effects of equity issued by KREF and its subsidiaries that provides for fixed distributions or other debt 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 — KREF's compensation committee or board of directors may administer the Incentive Plan, which provides for awards of stock options; stock appreciation rights; restricted stock; 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 may not exceed $10.0 million.

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Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~

(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 six months ended June 30, ~~2021,~~2022, KREF granted ~~15,520~~27,625 RSUs to KREF's directors. During the three and six months ended June 30, ~~2020,~~2021, KREF granted ~~18,052~~15,520 RSUs to KREF's directors. During the year ended December 31, ~~2020,~~2021, KREF granted ~~443,052~~415,520 RSUs to KREF's directors and employees of the Manager. As of June 30, ~~2021, 2,925,235~~2022, 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:

June 30, 2021 December 31, 2020
Management fees $ 4,835 $ 4,252
Expense reimbursements and other 282 1,991
$ 5,117 $ 6,243


	June 30, 2022		December 31, 2021
Management fees	$	6,506	$	5,289
Expense reimbursements and other(A)	1,791		663
	$	8,297	$	5,952

(A) Includes $1.8 million and $0.6 million of accrued KCM fees as of June 30, 2022 and December 31, 2021, respectively.

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

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Management fees $ 4,835 $ 4,218 $ 9,125 $ 8,517
Incentive compensation 2,403 1,249 4,595 2,855
Expense reimbursements and other(A)
447 386 799 685
$ 7,685 $ 5,853 $ 14,519 $ 12,057


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Management fees	$	6,506	$	4,835	$	12,513	$	9,125
Incentive compensation	—		2,403		—		4,595
Expense reimbursements and other(A)	1,781		447		2,507		799
	$	8,287	$	7,685	$	15,020	$	14,519

(A) KREF presents these amounts in ~~"Operating Expenses — General~~"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 six months ended June 30, 2022, these cash reimbursements totaled $1.8 million and $2.6 million, respectively; and for the three and six months ended June 30, 2021,, these cash reimbursements totaled $0.3 million and $2.4 million, ~~respectively;~~ ~~and for the three and~~ ~~six months ended June 30, 2020,~~ ~~these~~ ~~cash reimbursements totaled~~ ~~$0.7 million~~ ~~and $2.2 million,~~ respectively.

In connection with the CLO issuance, and in consideration for its services as the co-placement agent, KREF incurred and paid KCM a $0.9 million placement agent fee equal to 0.105% of the CLO proceeds in the fourth quarter of 2018. The fee was capitalized as deferred financing cost and amortized to interest expense over the estimated life of the CLO.

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 ~~did not sell any~~sold 68,817 shares under the ATM through a third-party broker and did not incur or pay any commissions to KCM during the six months ended June 30, ~~2021.~~

In connection with the BMO Facility, and in consideration for structuring and sourcing this arrangement, KREF is obligated to pay KCM a $0.2 million structuring fee equal to 0.35% of the respective committed loan advances under the agreement in the first quarter of 2019. Such fees are capitalized as deferred financing cost and amortized to interest expense over the estimated life of the facility.

In connection with the Term Loan Facility (Note 4), KREF paid KKR Capital Markets or KCM, an affiliate of the Manager, a $1.5 million structuring fee equal to 0.75% of the respective committed loan advances, as defined, in the second quarter of 2019. Such fees are capitalized as deferred financing cost and amortized to interest expense over the life of the facility.

In connection with the Revolver, and in consideration for structuring and sourcing this arrangement, KREF paid KCM a structuring fee equal to 0.75% of the aggregate amount of commitments first made available. The structuring fees are capitalized as deferred financing cost included within "Other Assets" in the Condensed Consolidated Balance Sheet and amortized to interest expense over the life of the Revolver. During the six months ended June 30, 2021 and 2020, KREF incurred~~$0.0 million and $0.6 million, respectively, in structuring fees in connection with the Revolver.~~2022.

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

~~Table of Contents~~

~~KKR Real Estate Finance Trust Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(dollars in tables in thousands, except per share amounts)~~

initial term of the loan or the facility. During the six months ended June 30, ~~2021and 2020,~~2022 and 2021, KREF ~~incurred and paid~~did not incur or pay any KCM ~~$0.0 million~~ ~~and $0.1 million~~ in 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 ~~fee was~~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 October 2020, and in consideration for its services as the placement agent, KREF paid KCM a $0.4 million placement agent fee equal to 0.30% of KREF's proportion 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.

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.

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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)

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 a $1.6 million and $1.3 million in underwriting discount and ~~commission.~~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 2022, and in consideration for its services as the arranger, KREF paid KCM $0.6 million in structuring fees during the six months ended June 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 accrued $0.6 million in KCM structuring fees in connection with the facility as of June 30, 2022.

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KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~

(dollars in tables in thousands, except per share amounts)

Note ~~14.~~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 June 30, ~~2021~~2022, were as follows:

Fair Value
Principal Balance(A)
Amortized Cost(B)
Carrying Value(C)
Level 1 Level 2 Level 3 Total
Assets
Cash and cash equivalents $ 119,172 $ 119,172 $ 119,172 $ 119,172 $ 0 $ 0 $ 119,172
Commercial real estate loans, held-for-investment, net(D)
5,337,799 5,308,500 5,250,489 0 0 5,250,674 5,250,674
Equity method investments 33,773 33,773 33,773 0 0 33,773 33,773
$ 5,490,744 $ 5,461,445 $ 5,403,434 $ 119,172 $ 0 $ 5,284,447 $ 5,403,619
Liabilities
Secured financing agreements, net $ 3,000,369 $ 2,996,564 $ 2,996,564 $ 0 $ 0 $ 2,996,564 $ 2,996,564
Collateralized loan obligation, net 767,000 767,000 767,000 0 0 767,124 767,124
Secured term loan, net 298,500 287,418 287,418 0 301,858 0 301,858
Convertible notes, net 143,750 141,152 141,152 0 154,267 0 154,267
Loan participations sold, net 66,248 66,242 66,242 0 0 66,242 66,242
$ 4,275,867 $ 4,258,376 $ 4,258,376 $ 0 $ 456,125 $ 3,829,930 $ 4,286,055


							Fair Value
	Principal Balance		Amortized Cost(A)		Carrying Value(B)		Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents	$	118,020	$	118,020	$	118,020	$	118,020	$	—	$	—	$	118,020
Commercial real estate loans, held-for-investment, net(C)	7,525,911		7,473,101		7,441,572		—		—		7,452,409		7,452,409
Equity method investments	36,782		36,782		36,782		—		—		36,782		36,782
	$	7,680,713	$	7,627,903	$	7,596,374	$	118,020	$	—	$	7,489,191	$	7,607,211
Liabilities
Secured financing agreements, net	$	3,583,894	$	3,569,581	$	3,569,581	$	—	$	—	$	3,569,581	$	3,569,581
Collateralized loan obligations, net	1,942,750		1,931,605		1,931,605		—		—		1,869,554		1,869,554
Secured term loan, net	348,250		337,609		337,609		—		346,073		—		346,073
Convertible notes, net	143,750		142,538		142,538		—		142,816		—		142,816
	$	6,018,644	$	5,981,333	$	5,981,333	$	—	$	488,889	$	5,439,135	$	5,928,024

(A) ~~The principal balance of commercial real estate loans excludes premiums and unamortized discounts.~~

~~(B)~~ The amortized cost of commercial real estate loans is net of $~~4.7~~5.5 million write-off on a mezzanine loan and $~~25.2~~47.3 million unamortized origination discounts and deferred ~~nonrefundable~~ fees. The amortized cost of secured financing agreements is net of $~~3.8~~14.3 million unamortized debt issuance costs. The amortized cost of collateralized loan obligations is net of $11.1 million unamortized debt issuance costs.

~~(C)~~(B) The carrying value of commercial mortgage loans is net of $~~58.0~~31.5 million allowance for credit losses.

~~(D)~~(C) Includes $~~897.7~~2,299.5 million of CLO loan participations as of June 30, ~~2021. Includes senior loans for which KREF syndicated a vertical loan participation that did not qualify for sale accounting under GAAP, with a carrying value and a fair value of~~ ~~$66.2 million~~ ~~as of June 30, 2021.~~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, ~~2020~~2021, were as follows:

Fair Value
Principal Balance(A)
Amortized Cost(B)
Carrying Value(C)
Level 1 Level 2 Level 3 Total
Assets
Cash and cash equivalents $ 110,832 $ 110,832 $ 110,832 $ 110,832 $ 0 $ 0 $ 110,832
Commercial real estate loans, held-for-investment, net(D)
4,869,696 4,844,534 4,784,733 0 0 4,757,203 4,757,203
Equity method investments 33,651 33,651 33,651 0 0 33,651 33,651
$ 5,014,179 $ 4,989,017 $ 4,929,216 $ 110,832 $ 0 $ 4,790,854 $ 4,901,686
Liabilities
Secured financing agreements, net $ 2,581,324 $ 2,574,747 $ 2,574,747 $ 0 $ 0 $ 2,581,324 $ 2,581,324
Collateralized loan obligation, net 810,000 810,000 810,000 0 0 803,766 803,766
Secured term loan, net 300,000 288,028 288,028 0 303,000 0 303,000
Convertible notes, net 143,750 140,465 140,465 0 145,817 0 145,817
Loan participations sold, net 66,248 66,232 66,232 0 0 66,232 66,232
$ 3,901,322 $ 3,879,472 $ 3,879,472 $ 0 $ 448,817 $ 3,451,322 $ 3,900,139


							Fair Value
	Principal Balance		Amortized Cost(A)		Carrying Value(B)		Level 1		Level 2		Level 3		Total
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 investments	35,537		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, net	1,095,250		1,087,976		1,087,976		—		—		1,094,834		1,094,834
Secured term loan, net	350,000		338,549		338,549		—		352,625		—		352,625
Convertible notes, net	143,750		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 real estate loans excludes premiums and unamortized discounts.~~

~~(B)~~ The amortized cost of commercial real estate loans is net of ~~$4.7~~$5.5 million write-off on a mezzanine loan and ~~$20.5~~$41.9 million unamortized origination discounts and deferred ~~nonrefundable~~ fees. The amortized cost of secured financing agreements is net of ~~$6.6~~$11.3 million unamortized debt issuance costs. The amortized cost of collateralized loan obligations is net of $7.3 million unamortized debt issuance costs.

~~(C)~~(B) The carrying value of commercial mortgage loans is net of ~~$59.8~~$22.2 million allowance for credit losses.

~~(D)~~(C) Includes ~~$1.0 billion~~$1,246.0 million of CLO loan participations as of December 31, 2020. Includes senior loans for which KREF syndicated a vertical loan participation that did not qualify for sale accounting under GAAP, with a carrying value and a fair value of $66.2 million as of December 31, 2020.

2021.

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KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~

(dollars in tables in thousands, except per share amounts)

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 June 30, ~~2021:~~2022:

Fair Value

Valuation Methodologies

Unobservable Inputs(A)

Weighted Average(B)

Range

Fair Value

Valuation Methodologies

Unobservable Inputs(A)

Weighted Average(B)

Range

Assets and Liabilities~~(D)~~(C)

Commercial real estate loans, held-for-investment~~(E)~~(D)

5,250,674

Discounted cash flow

Discount rate

4.4%

1.9% - 19.1%

Commercial real estate loans, held-for-investment~~(E)~~(D)

7,452,409

Discounted cash flow

Discount rate

4.1%

2.6% - 16.6%

5,250,674

7,452,409

(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) KREF carries a $~~33.5~~36.8 million investment in an aggregator vehicle alongside RECOP I (Note 9)10) at its pro rata share of the aggregator's net asset value, which management believes approximates fair value.

(D) ~~Does not include~~ ~~$66.2 million~~ ~~of vertical loan syndication which was syndicated at par value and included in “Loan participation sold, net” on the Condensed Consolidated Balance Sheet.~~

~~(E)~~ Commercial real estate loans are generally valued using a discounted cash flow model using a discount rate derived from relevant market indices and/or estimates of the underlying property's value.

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. ~~For~~KREF measures commercial real estate loans held-for-sale ~~KREF applies~~at the lower of cost or fair value ~~accounting~~ and may be required, from time to time, to record a nonrecurring fair value adjustment. ~~For~~KREF measures commercial real estate loans held-for-investment ~~and preferred interest in joint venture held-to-maturity, KREF applies the~~at 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 June 30, ~~2021~~2022 and December 31, ~~2020.~~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 June 30, ~~2021,~~2022, the fair value of KREF's financing facilities approximated their respective ~~outstanding principal balances.~~carrying value.

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KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~

(dollars in tables in thousands, except per share amounts)

Note ~~15.~~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 at least 90% of its net taxable income for the foreseeable future, KREF will continue to evaluate its capital 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 the six months ended June 30, 2022, KREF recorded no income tax provision. During the six months ended June 30, 2021, ~~and 2020,~~ KREF recorded a current income tax provision ~~(benefit)~~ of~~$0.2 million~~ ~~and~~ $0.2 million, ~~respectively,~~ related to the operations of its taxable REIT subsidiaries and various other state and local taxes. There were 0no deferred tax assets or liabilities as of June 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

As of June 30, ~~2021,~~2022, tax ~~years~~years 2017 through ~~2020 remain~~2021 remain subject to examination by taxing authorities.

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KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~

(dollars in tables in thousands, except per share amounts)

Note ~~16.~~18. Subsequent Events

The following events occurred subsequent to June 30, ~~2021:~~2022:

~~Investing~~Corporate Activities

~~KREF originated the following loans:~~

Description/ Location Property Type Month Originated Committed Principal Amount Initial Principal Funded
Interest Rate (A)
Maturity Date(B)
LTV
Senior Loan, Mountain View, CA(C)
Office July 2021 $ 250,000 $ 181,571 L + 3.3% August 2026 73%
Senior Loan, Brisbane, CA Life Science July 2021 95,000 84,875 L + 3.0 August 2026 71
Total/ Weighted Average $ 345,000 $ 266,446 L + 3.2% 72%

~~(A) Floating rate based on one-month USD LIBOR.~~

~~(B) Maturity date assumes all extension options are exercised, if applicable.~~

~~(C) The total whole loan is $362.8 million, co-originated and co-funded by the Company and a KKR affiliate. The Company's interest is 69% of the loan.~~

~~Financing Activities~~Stock Repurchase

In July ~~2021,~~2022, KREF ~~priced~~repurchased 401,844 shares of its common stock at an average price per share of $17.44 for a $1.30 billion managed CLO expected to close on or around August 16, 2021, subject to customary closing conditions (“KREF 2021-FL2”). KREF 2021-FL2 will provide KREF with match-term financing on a non-mark-to-market and non-recourse basis, and features a two-year reinvestment period with an 84.25% advance rate at a weighted average running costtotal of ~~capital of LIBOR plus 1.30%, before transaction costs.~~

~~KREF borrowed~~ ~~$288.5 million~~ ~~under its secured financing agreements. In addition, KREF paid down~~ ~~$59.3 million~~ ~~of financing under the CLO.~~

~~Corporate Activities~~$7.0 million.

Dividends

In July ~~2021,~~2022, KREF paid ~~$23.9~~$30.0 million in dividends on its common stock, or $0.43 per share, with respect to the second quarter of ~~2021,~~2022, to stockholders of record on June 30, ~~2021.~~2022.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q. The historical consolidated financial data 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 Part I, Item 1A. "Risk Factors" in the 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 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. 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, an indirect subsidiary of KKR & Co. Inc. KKR is a leading global investment firm with an over 45-year history of leadership, innovation, and investment excellence. KKR manages multiple alternative asset classes, including private equity, real estate, energy, infrastructure and credit, with 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 1315 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, Distributable 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					Three Months Ended,
		June 30, 2021		March 31, 2021			June 30, 2022		March 31, 2022
Net income attributable to common stockholders	Net income attributable to common stockholders	$	29,264	$	29,184	Net income attributable to common stockholders	$	19,394	$	29,796
Weighted-average number of shares of common stock outstanding	Weighted-average number of shares of common stock outstanding					Weighted-average number of shares of common stock outstanding
Basic	Basic	55,632,322		55,619,428		Basic	68,549,049		63,086,452
Diluted	Diluted	55,907,086		55,731,061		Diluted	68,549,049		69,402,626
Net income per share, basic	Net income per share, basic	$	0.53	$	0.52	Net income per share, basic	$	0.28	$	0.47
Net income per share, diluted	Net income per share, diluted	$	0.52	$	0.52	Net income per share, diluted	$	0.28	$	0.46
Dividends declared per share	Dividends declared per share	$	0.43	$	0.43	Dividends declared per share	$	0.43	$	0.43

Distributable Earnings

Distributable Earnings, a measure that is not prepared in accordance with 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 Distributable 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) depreciation and amortization, (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 (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 after approval by a majority of our independent directors. The exclusion of depreciation and amortization from the calculation of Distributable Earnings only applies to debt investments related to real estate to the extent we foreclose upon the property or properties underlying such debt investments.

While Distributable Earnings excludes the impact of our unrealized current provision for (reversal of) credit losses, any loan losses are charged off and realized through Distributable Earnings when deemed non-recoverable. Non-recoverability is 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) with respect to any amount due under any loan, when such amount is determined to be non-collectible.

Distributable Earnings should not be considered as a substitute for GAAP net income. We caution readers that our methodology for calculating Distributable Earnings may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, our reported Distributable 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,
	June 30, 2022	March 31, 2022
Diluted weighted average common shares outstanding, GAAP	68,549,049	69,402,626
Less: Dilutive shares under assumed conversion of the Convertible Notes (ASU 2020-06)	—	(6,316,174)
Less: Anti-dilutive restricted stock units	—	—
Diluted weighted average common shares outstanding, Distributable Earnings	68,549,049	63,086,452

We also use Distributable Earnings (before incentive compensation payable to our Manager) to determine the management and incentive compensation we pay our Manager. For its services to KREF, our 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-month Distributable Earnings (before incentive compensation payable to our Manager) 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 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.

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The following table provides a reconciliation of GAAP net income attributable to common stockholders to Distributable Earnings (amounts in thousands, except share and per share data):


		Three Months Ended					Three Months Ended,
		June 30, 2021		March 31, 2021			June 30, 2022		March 31, 2022
Net Income (Loss) Attributable to Common Stockholders	Net Income (Loss) Attributable to Common Stockholders	$	29,264	$	29,184	Net Income (Loss) Attributable to Common Stockholders	$	19,394	$	29,796
Adjustments	Adjustments					Adjustments
Non-cash equity compensation expense	Non-cash equity compensation expense	1,994		1,994		Non-cash equity compensation expense	2,040		2,126
Unrealized (gains) or losses(A)	Unrealized (gains) or losses(A)	(364)		708		Unrealized (gains) or losses(A)	(190)		(1,032)
Provision for (reversal of) credit losses, net	Provision for (reversal of) credit losses, net	(559)		(1,588)		Provision for (reversal of) credit losses, net	11,798		(1,218)
Loan write-off		—		—
Non-cash convertible notes discount amortization	Non-cash convertible notes discount amortization	90		89		Non-cash convertible notes discount amortization	90		89

Distributable Earnings	Distributable Earnings	$	30,425	$	30,387	Distributable Earnings	$	33,132	$	29,761
Weighted average number of shares of common stock outstanding	Weighted average number of shares of common stock outstanding					Weighted average number of shares of common stock outstanding
Basic	Basic	55,632,322		55,619,428		Basic	68,549,049		63,086,452
Diluted(B)		55,907,086		55,731,061
Distributable Earnings per Diluted Weighted Average Share		$	0.54	$	0.55
Adjusted Diluted Shares Outstanding(B)						Adjusted Diluted Shares Outstanding(B)	68,549,049		63,086,452
Distributable Earnings per Diluted Weighted Average Share(C)						Distributable Earnings per Diluted Weighted Average Share(C)	$	0.48	$	0.47

(A) ~~Inclu~~Include~~des~~s ($0.2) ~~million~~million and ~~$0.7 million~~ ~~non-cash redemption value adjustment of our Special Non-Voting Preferred Stock, and ($0.1) million~~ ~~and $0.0~~($1.0) million of unrealized mark-to-market adjustment to our RECOP I's underlying CMBS investments for the three months ended June 30, ~~2021~~2022 and March 31, ~~2021,~~2022, respectively.

(B) ~~Includes~~ ~~274,764and 111,633~~ ~~dilutive restricted stock units~~See the reconciliation from weighted average diluted shares under GAAP to the adjusted weighted average diluted shares used for ~~the three months ended June 30, 2021 and March 31, 2021, respectively.~~Distributable

Earnings above.

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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):


		June 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
KKR Real Estate Finance Trust Inc. stockholders' equity	KKR Real Estate Finance Trust Inc. stockholders' equity	$	1,224,495	$	1,043,554	KKR Real Estate Finance Trust Inc. stockholders' equity	$	1,676,325	$	1,361,434
Series A preferred stock (liquidation preference of $25.00 per share)	Series A preferred stock (liquidation preference of $25.00 per share)	(172,500)		—		Series A preferred stock (liquidation preference of $25.00 per share)	(327,750)		(172,500)
Common stockholders' equity	Common stockholders' equity	$	1,051,995	$	1,043,554	Common stockholders' equity	$	1,348,575	$	1,188,934
Shares of common stock issued and outstanding at period end	Shares of common stock issued and outstanding at period end	55,637,480		55,619,428		Shares of common stock issued and outstanding at period end	69,654,532		61,370,732
Book value per share of common stock	Book value per share of common stock	$	18.91	$	18.76	Book value per share of common stock	$	19.36	$	19.37

Book value ~~per share~~ as of June 30, ~~2021~~2022 ~~includes~~included the impact of an estimated CECL credit loss allowance of ~~$58.6~~$34.3 million, or ($~~1.05)~~0.49) per common ~~share, and is net of $6.2 million, or ($0.11) per common share, Series A Cumulative Redeemable Preferred Stock offering costs.~~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.

~~In addition, book value per share includes the impact~~ ~~of a~~ ~~$0.5 million, or~~ ~~$(0.01)~~ ~~per common share, non-cash redemption value adjustment to our redeemable Special Non-Voting Preferred Stock (“SNVPS”) for the six months ended~~ ~~June 30, 2021, resulting in a cumulative (since issuance of the SNVPS) decrease~~ of ~~$2.3 million, or~~ ~~($0.04)~~ ~~per common share to our book value (“SNVPS Cumulative Impact”) as of~~ ~~June 30, 2021~~.

~~During the third quarter of 2021, we expect to recognize an increase~~ ~~of approximately~~ ~~$0.3 million~~ ~~to the redemption value of our SNVPS and a corresponding increase to our book value. The non-cash redemption value adjustment will decrease our third quarter of 2021 Net Income Attributable to Common Stockholders (in accordance with GAAP) and will be added back to Distributable Earnings.~~

Effective October 1, 2021, our call right becomes exercisable and allows us to redeem the SNVPS at the Call Amount, as defined. Upon redemption of the SNVPS, our book value will increase as a result of a one-time gain, thus substantially eliminating the SNVPS Cumulative Impact on our book value. See Note 10 — Equity, to our ~~condensed consolidated~~ ~~financial statements included in this Form 10-Q for detailed discussion of the SNVPS.~~

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Our Portfolio

We have established a ~~$5,618.0~~$7,887.8 million portfolio of diversified investments, consisting primarily of performing senior and mezzanine commercial real estate loans as of June 30, ~~2021.~~2022.

Our loan portfolio is ~~97.9%~~100.0% performing as of June 30, ~~2021.~~2022. During the ~~three~~six months ended June 30, ~~2021,~~2022, we ~~collecte~~collected 100.0% d~~97.3%~~of interest payments due on our loan portfolio. As of June 30, ~~2021,~~2022, the average risk rating of our loan portfolio was ~~3.1~~3.0 (Average Risk), weighted by total loan exposure. As of June 30, ~~2021,~~2022, ~~90.4%~~96.0% of our loans, based on total loan exposure, was risk-rated 3 or better. As of June 30, ~~2021,~~2022, the average loan commitment in our portfolio was $~~132.4~~121.3 million and multifamily and office loans comprised ~~83%~~73% of our loan portfolio, while hospitality ~~and retail~~ loans comprised 6%5% of the portfolio.

In addition to our loan portfolio, as of June 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 $79.2 million, comprised of the fair value of the acquired retail property and the capitalized transaction and redevelopment costs, as of June 30, 2022. This property is held for investment and reflected on our condensed consolidated balance sheets.

Since our IPO, we have continued to execute on our primary investment strategy of originating floating-rate transitional senior loans and, as we continue to scale our loan portfolio, we expect that our originations will continue to be heavily weighted toward floating-rate loans. As of June 30, ~~2021,~~2022, ~~99.9%~~100.0% of our loans by total loan exposure earned a floating rate of ~~interest a~~nd ~~approximately~~ ~~57%~~ ~~of our portfolio was subject to a LIBOR floor of at least~~ ~~1.00%, with a weighted average floor of~~ ~~1.34%~~.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 originating floating-rate loans for which we syndicate a senior position and retain a subordinated interest for our portfolio. As of June 30, ~~2021,~~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, geographic location, vintage and LTV as of June 30, ~~2021(A)~~:2022:

The charts above are based on total ~~assets. Total assets reflect the~~outstanding principal amount of our commercial real estate loans.

(A) ~~Excludes~~Excludes: (i) one REO retail asset on a defaulted loan with net carrying value of $79.2 million as of June 30, 2022, (ii) CMBS B-Piece investments held through RECOP I, an equity method ~~investment.~~investment and (iii) one impaired mezzanine loan with an outstanding principal of $5.5 million that was fully written off.

(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.

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~~(B)~~(D) Excludes one real estate corporate loan to a multifamily operator with an outstanding principal amount of $~~38.1~~42.0 million, representing ~~0.7%~~0.5% of our commercial real estate loans as of June 30, ~~2021.~~2022.

~~(C)~~(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. ~~Excludes (i) one real estate corporate loan to a multifamily operator with an outstanding principal of~~ ~~$38.1 million~~ ~~as of June 30, 2021, and (ii) two non-performing 5-rated loans on non-accrual status; with a total outstanding principal of~~ ~~$115.1 million, representing 2.1% of our commercial real estate loan~~ ~~portfolio as of June 30, 2021.~~

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The following table details our quarterly loan activity (dollars in thousands):


		Three Months Ended									Three Months Ended
		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020			June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021
Loan originations	Loan originations	$	967,108	$	534,500	$	565,351	$	—	Loan originations	$	1,034,191	$	843,624	$	1,804,897	$	1,536,993
Loan fundings(A)	Loan fundings(A)	$	558,387	$	575,826	$	496,005	$	50,577	Loan fundings(A)	$	1,077,132	$	744,192	$	1,680,890	$	1,142,969
Loan repayments/syndications~~(B)~~	Loan repayments/syndications~~(B)~~	(270,980)		(244,348)		(534,581)		(274,311)		Loan repayments/syndications~~(B)~~	(444,313)		(282,282)		(679,749)		(934,899)
Net fundings	Net fundings	287,407		331,478		(38,576)		(223,734)		Net fundings	632,819		461,910		1,001,141		208,070
PIK interest	PIK interest	458		845		1,872		1,433		PIK interest	479		464		418		373
Write-off										Write-off	—		—		(32,905)		—
Transfer to REO										Transfer to REO	—		—		(77,516)		—
Total activity	Total activity	$	287,865	$	332,323	$	(36,704)	$	(222,301)	Total activity	$	633,298	$	462,374	$	891,138	$	208,443

(A) Includes initial funding of new loans and additional fundings made under existing loans.

(B) Includes $1.2 million of proceeds from syndication of vertical participation during the three months ended September 30, 2020, which did not qualify for sale accounting for GAAP purposes. Excludes $150.5 million and $79.9 million of proceeds from senior note syndications during the three months ended March 31, 2021 and December 31, 2020, respectively.

The following table details overall statistics for our loan portfolio as of June 30, ~~2021~~2022 (dollars in thousands):


					Total Loan Exposure(A)													Total Loan Exposure(A)
		Balance Sheet Portfolio			Total Loan Portfolio			Floating Rate Loans			Fixed Rate Loans				Balance Sheet Portfolio			Total Loan Portfolio			Floating Rate Loans			Fixed Rate Loans
Number of loans	Number of loans	49			49			48			1			Number of loans	77			76			76			—
Principal balance	Principal balance	$	5,337,799		$	5,582,308		$	5,576,808		$	5,500		Principal balance	$	7,525,911		$	7,772,911		$	7,772,911		$	—
Amortized cost	Amortized cost	$	5,308,500		$	5,553,008		$	5,552,158		$	850		Amortized cost	$	7,473,101		$	7,725,600		$	7,725,600		$	—
Unfunded loan commitments(B)	Unfunded loan commitments(B)	$	847,696		$	847,696		$	847,696		$	—		Unfunded loan commitments(B)	$	1,412,237		$	1,412,237		$	1,412,237		$	—
Weighted-average cash coupon(C)	Weighted-average cash coupon(C)	4.7		%	4.6		%	L + 3.3		%	11.0		%	Weighted-average cash coupon(C)	5.1		%	+ 3.3		%	+ 3.3		%	n.a.
Weighted-average all-in yield(C)	Weighted-average all-in yield(C)	5.0		%	4.9		%	L + 3.6		%	11.0		%	Weighted-average all-in yield(C)	5.5		%	+ 3.6		%	+ 3.6		%	n.a.
Weighted-average maximum maturity (years)(D)	Weighted-average maximum maturity (years)(D)	3.1			3.2			3.2			4.0			Weighted-average maximum maturity (years)(D)	3.6			3.6			3.6			n.a.
LTV(E)	LTV(E)	67		%	67		%	67		%	n.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.~~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 June 30, ~~2021, 100.0%~~2022, 73.7% and 26.3% of floating rate loans by ~~principal balance are~~loan exposure were indexed to one-month USD ~~LIBOR.~~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. ~~Cash coupon and all-in yield for the total portfolio assume applicable floating benchmark rates as of June 30, 2021. L = the greater of one-month USD LIBOR; spot rate of~~ ~~0.10%, and the applicable contractual LIBOR floor, included in portfolio-wide averages represented as fixed rates. Does not factor in prepayment fee income that might be earned upon prepayment.~~

(D) Maximum maturity assumes all extension options are exercised by the borrower; however, our loans may be repaid prior to such date. As of June 30, ~~2021,~~2022, based on total loan exposure, ~~50.1%~~69.8% of our loans were subject to yield maintenance or other prepayment restrictions and ~~49.9%~~30.2% were open to repayment by the borrower without penalty.

(E) ~~Loan-to-value ratio ("LTV")~~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 ~~(i)~~ one real estate corporate loan to a multifamily operator with an outstanding principal of $~~38.1~~42.0 million as of June 30, ~~2021 and (ii) two non-performing 5-rated loans on non-accrual status; with a total outstanding principal of~~ ~~$115.1 million~~ ~~as of June 30, 2021.~~2022.

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The table below sets forth additional information relating to our portfolio as of June 30, ~~2021~~2022 (dollars in millions):


		Investment(A)	Location	Property Type	Investment Date	Total Whole Loan		Committed Principal Amount		Current Principal Amount		Net Equity(B)		Coupon(C)(D)	Max Remaining Term (Years)(C)(E)	Loan Per SF / Unit / Key			LTV(C)(F)			Risk Rating			Investment(A)		Location		Property Type		Investment 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(H)																							Senior Loans(J)
1	1	Senior Loan	Chicago, IL	Multifamily	6/28/2019	$	340.0	$	340.0	$	339.8	$	79.0	L + 2.8	5.0	$ 424,752 / unit			75	%		3	1		Senior Loan		Arlington, VA		Multifamily		9/30/2021		$	381.0		$	381.0		$	353.9		$	71.2		+		3.2%		4.3		$ 318,784 / unit	69	%	3
2	2	Senior Loan	Arlington, VA	Multifamily	6/28/2019	345.0		278.8		271.1		72.0		L + 2.6	3.0	$ 244,215 / unit			70			3	2		Senior Loan		Bellevue, WA		Office		9/13/2021		520.8			260.4			75.4			19.7			+		3.6		4.8		$ 855 / SF	63		3
3	3	Senior Loan	Los Angeles, CA	Multifamily	2/19/2021	260.0		260.0		248.0		101.1		L + 3.6	4.7	$ 462,687 / unit			68			3	3		Senior Loan		Los Angeles, CA		Multifamily		2/19/2021		260.0			260.0			250.0			38.1			+		3.6		3.7		$ 466,400 / unit	68		3
4	4	Senior Loan	Boston, MA	Office	5/24/2018	250.5		250.5		225.4		38.9		L + 3.2	2.5	$ 482 / SF			53			3	4		Senior Loan		Various		Industrial		4/28/2022		504.5			252.3			252.3			48.7			+		2.7		4.9		$ 98 / SF	64		3
5	5	Senior Loan	New York, NY	Condo (Residential)	12/20/2018	234.5		234.5		202.8		46.2		L + 3.6	2.5	$ 1,267 / SF			71			4	5		Senior Loan		Mountain View, CA		Office		7/14/2021		362.8			250.0			189.3			47.5			+		3.3		4.1		$ 616 / SF	73		3
6	6	Senior Loan	Various	Multifamily	5/31/2019	216.5		216.5		213.3		40.6		L + 3.1	2.9	$ 199,302 / unit			74			3	6		Senior Loan		New York, NY		Condo (Residential)		12/20/2018		234.5			234.5			218.1			62.6			+		3.6		1.5		$ 1,362 / SF	69		3
7	7	Senior Loan(K)	Various	Industrial	6/30/2021	425.0		212.5		0.5		(1.7)		L + 5.4	5.0	$ 4 / SF			76			3	7		Senior Loan		Bronx, NY		Industrial		8/27/2021		381.2			228.7			124.8			26.9			+		4.1		4.2		$ 277 / SF	52		3
8	8	Senior Loan	Minneapolis, MN	Office	11/13/2017	194.4		194.4		194.4		38.0		L + 3.8	1.4	$ 179 / SF			63			2	8		Senior Loan		Various		Multifamily		5/31/2019		216.5			216.5			216.3			39.0			+		4.0		1.9		$ 202,104 / unit	74		3
9	9	Senior Loan	Boston, MA	Office	2/4/2021	375.0		187.5		187.5		37.3		L + 3.3	4.6	$ 506 / SF			71			3	9		Senior Loan(K)		Various		Industrial		6/30/2021		425.0			212.5			30.2			28.5			+		5.5		4.0		$ 163 / SF	67		3
10	10	Senior Loan	Chicago, IL	Multifamily	6/6/2019	186.0		186.0		179.5		39.7		L + 3.6	2.9	$ 364,837 / unit			72			3	10		Senior Loan		Minneapolis, MN		Office		11/13/2017		194.4			194.4			194.4			33.1			+		3.8		0.4		$ 179 / SF	77		2
11	11	Senior Loan	Denver, CO	Multifamily	8/13/2019	185.0		185.0		177.0		57.0		L + 2.8	3.2	$ 297,954 / unit			64			3	11		Senior Loan		Various		Industrial		6/15/2022		375.5			187.8			132.6			25.3			+		2.9		5.0		$ 95 / SF	50		3
12	12	Senior Loan	Philadelphia, PA	Office	4/11/2019	182.6		182.6		155.5		24.9		L + 2.6	2.9	$ 216 / SF			65			3	12		Senior Loan		Washington, D.C.		Office		11/9/2021		187.7			187.7			145.1			38.5			+		3.3		4.4		$ 417 / SF	55		3
13	13	Senior Loan	Washington, D.C.	Office	12/20/2019	175.5		175.5		98.8		27.5		L + 3.4	3.5	$ 483 / SF			58			3	13		Senior Loan		Boston, MA		Office		2/4/2021		375.0			187.5			187.5			37.4			+		3.3		3.6		$ 506 / SF	71		3
14	14	Senior Loan	Seattle, WA	Office	9/13/2018	172.0		172.0		172.0		34.3		L + 3.9	2.3	$ 502 / SF			62			3	14		Senior Loan		The Woodlands, TX		Hospitality		9/15/2021		183.3			183.3			169.3			31.0			+		4.2		4.3		$ 186,198 / key	64		3
15	15	Senior Loan	Chicago, IL	Office	7/15/2019	170.0		170.0		133.3		24.5		L + 3.3	3.1	$ 128 / SF			59			3	15		Senior Loan		Philadelphia, PA		Office		4/11/2019		182.6			182.6			157.0			25.0			+		2.6		1.9		$ 220 / SF	68		4
16	16	Senior Loan	Boston, MA	Office	4/27/2021	332.3		166.2		105.9		62.4		L + 3.6	4.9	$ 440 / SF			66			3	16		Senior Loan		Washington, D.C.		Office		12/20/2019		175.5			175.5			134.6			36.8			+		3.4		2.5		$ 659 / SF	58		3
17	17	Senior Loan	Philadelphia, PA	Office	6/19/2018	165.0		165.0		165.0		37.7		L + 2.5	2.0	$ 169 / SF			71			3	17		Senior Loan		West Palm Beach, FL		Multifamily		12/29/2021		171.5			171.5			169.6			25.3			+		2.7		4.5		$ 208,857 / unit	73		3
18	18	Senior Loan	New York, NY	Multifamily	12/5/2018	163.0		163.0		148.0		24.0		L + 2.6	2.4	$ 556,391 / unit			67			3	18		Senior Loan		Chicago, IL		Office		7/15/2019		170.0			170.0			137.6			40.5			+		3.3		2.1		$ 132 / SF	57		3
19	19	Senior Loan	Oakland, CA	Office	10/23/2020	509.9		159.7		97.2		15.4		L + 4.3	4.4	$ 299 / SF			65			3	19		Senior Loan		Boston, MA		Life Science		4/27/2021		332.3			166.2			130.7			22.5			+		3.6		3.9		$ 543 / SF	66		3
20	20	Senior Loan	Plano, TX	Office	2/6/2020	153.7		153.7		120.0		26.2		L + 2.7	3.6	$ 166 / SF			64			3	20		Senior Loan		New York, NY		Multifamily		12/5/2018		163.0			163.0			148.5			22.9			+		4.0		1.4		$ 558,300 / unit	77		3
21	21	Senior Loan	Fort Lauderdale, FL	Hospitality	11/9/2018	140.0		140.0		130.0		25.8		L + 3.4	2.4	$ 375,723 / key			66			3	21		Senior Loan		Philadelphia, PA		Office		6/19/2018		161.0			161.0			161.0			161.4			+		3.5		1.0		$ 165 / SF	71		4
22	22	Senior Loan	Boston, MA	Multifamily	3/29/2019	138.0		138.0		137.0		22.9		L + 2.7	2.8	$ 351,282 / unit			63			3	22		Senior Loan		Oakland, CA		Office		10/23/2020		509.9			159.7			121.5			19.1			+		4.3		3.4		$ 373 / SF	65		3
23	23	Senior Loan	West Palm Beach, FL	Multifamily	11/7/2018	135.0		135.0		133.2		23.3		L + 2.9	2.4	$ 164,090 / unit			73			3	23		Senior Loan		Plano, TX		Office		2/6/2020		153.7			153.7			135.7			21.4			+		2.7		2.6		$ 188 / SF	63		2
24	24	Senior Loan	Fontana, CA	Industrial	5/11/2021	119.9		119.9		42.2		12.7		L + 4.6	4.9	$ 36 / SF			64			3	24		Senior Loan		Seattle, WA		Life Science		10/1/2021		188.0			140.3			96.2			25.3			+		3.1		4.3		$ 614 / SF	69		3
25	25	Senior Loan	Irving, TX	Multifamily	4/22/2021	117.6		117.6		105.0		62.8		L + 3.3	4.9	$ 115,639 / unit			70			3	25		Senior Loan		Dallas, TX		Office		12/10/2021		138.0			138.0			135.8			25.1			+		3.6		4.4		$ 432 / SF	68		3
26	26	Senior Loan	Pittsburgh, PA	Student Housing	6/8/2021	112.5		112.5		112.5		16.8		L + 2.9	4.9	$ 155,602 / bed			74			3	26		Senior Loan		Boston, MA		Multifamily		3/29/2019		137.0			137.0			137.0			30.7			+		2.7		1.8		$ 351,282 / unit	59		3
27	27	Senior Loan	Portland, OR	Retail	10/26/2015	109.6		109.6		109.6		89.6		L + 5.5	—	$ 101 / SF			n.a.			5	27		Senior Loan		Arlington, VA		Multifamily		1/20/2022		135.3			135.3			130.9			31.6			+		2.9		4.6		$ 436,300 / unit	65		3
28	28	Senior Loan	San Diego, CA	Multifamily	2/3/2020	102.3		102.3		102.3		14.8		L + 3.3	3.6	$ 442,965 / unit			71			3	28		Senior Loan		Fort Lauderdale, FL		Hospitality		11/9/2018		130.0			130.0			130.0			24.2			+		3.4		1.4		$ 375,723 / key	66		3
29	29	Senior Loan	Denver, CO	Industrial	12/11/2020	95.8		95.8		43.9		18.5		L + 3.8	4.5	$ 29 / SF			61			3	29		Senior Loan		San Carlos, CA		Life Science		2/1/2022		195.9			125.0			82.0			21.1			+		3.6		4.6		$ 560 / SF	68		3
30	30	Senior Loan	State College, PA	Student Housing	10/15/2019	93.4		93.4		78.2		25.9		L + 2.7	3.4	$ 65,510 / bed			64			3	30		Senior Loan		Fontana, CA		Industrial		5/11/2021		119.9			119.9			57.0			28.0			+		4.6		3.9		$ 102 / SF	64		3
31	31	Senior Loan	Seattle, WA	Multifamily	9/7/2018	92.3		92.3		92.3		17.1		L + 3.4	2.2	$ 515,571 / unit			76			3	31		Senior Loan		Irving, TX		Multifamily		4/22/2021		117.6			117.6			112.0			19.1			+		3.3		3.9		$ 123,317 / unit	70		3
32	32	Senior Loan	Denver, CO	Multifamily	6/24/2021	88.5		88.5		88.5		57.5		L + 3.0	5.0	$ 295,000 / unit			77			3	32		Senior Loan		Cambridge, MA		Life Science		12/22/2021		401.3			115.7			57.1			14.8			+		3.9		4.5		$ 1,072 / SF	51		3
33	33	Senior Loan	Dallas, TX	Office	1/22/2021	87.0		87.0		87.0		21.0		L + 3.3	4.6	$ 288 / SF			65			3	33		Senior Loan		Pittsburgh, PA		Student Housing		6/8/2021		112.5			112.5			112.5			17.0			+		2.9		3.9		$ 155,602 / unit	74		3
34	34	Senior Loan	New York, NY	Multifamily	3/29/2018	86.0		86.0		86.0		14.9		L + 4.0	1.8	$ 462,366 / unit			48			3	34		Senior Loan		Las Vegas, NV		Multifamily		12/28/2021		106.3			106.3			102.0			19.8			+		2.7		4.5		$ 193,182 / unit	61		3
35	35	Senior Loan	Seattle, WA	Office	3/20/2018	80.7		80.7		80.7		14.9		L + 4.1	1.8	$ 468 / SF			61			3	35		Senior Loan		Doral, FL		Multifamily		12/10/2021		212.0			106.0			106.0			20.9			+		2.8		4.4		$ 335,975 / unit	77		3
36																	36	Senior Loan			San Diego, CA			Multifamily		10/20/2021		103.5		103.5		103.5			18.4			+			2.8			4.4		$ 448,052 / unit		71		3
37																	37	Senior Loan			Orlando, FL			Multifamily		12/14/2021		102.4		102.4		88.9			21.4			+			3.0			4.5		$ 234,565 / unit		74		3

5058

Table of Contents


		Investment(A)	Location	Property Type	Investment Date	Total Whole Loan		Committed Principal Amount		Current Principal Amount		Net Equity(B)		Coupon(C)(D)	Max Remaining Term (Years)(C)(E)	Loan Per SF / Unit / Key			LTV(C)(F)			Risk Rating			Investment(A)		Location		Property Type		Investment 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
36		Senior Loan	Austin, TX	Multifamily	12/4/2020	80.0		80.0		78.6		17.5		L + 3.7	3.4	$ 201,499 / unit			77			3
37		Senior Loan	Mesa, AZ	Industrial	5/4/2021	77.8		77.8		33.6		32.9		L + 3.2	4.9	$ 39 / SF			55			3
38	38	Senior Loan	Brooklyn, NY	Hospitality	1/18/2019	77.2		77.2		77.2		17.1		L + 2.9	2.6	$394,009 / key			69			4	38		Senior Loan		West Hollywood, CA		Multifamily		1/26/2022		102.0		102.0		102.0		15.2		+		3.0		4.6		$ 2,756,757 / unit	65	3
39	39	Senior Loan	Philadelphia, PA	Multifamily	10/30/2018	77.0		77.0		77.0		13.5		L + 2.7	2.4	$ 150,391 / unit			73			3	39		Senior Loan		Boston, MA		Industrial		6/28/2022		285.5		100.0		98.2		97.4		+		3.0		5.0		$ 196 / SF	52	3
40	40	Senior Loan	Phoenix, AZ	Single Family Rental	4/22/2021	72.1		72.1		10.6		2.8		L + 4.8	4.9	$ 23,013 / unit			50			3	40		Senior Loan		Washington, D.C.		Office		1/13/2022		228.5		100.0		57.7		9.2		+		3.2		5.6		$ 211 / SF	55	3
41	41	Senior Loan	New York, NY	Condo (Residential)	8/4/2017	71.6		71.6		71.6		50.3		L + 4.7	0.3	$ 1,665 / SF (I)			73			4	41		Senior Loan		Phoenix, AZ		Industrial		1/13/2022		195.3		100.0		14.2		2.9		+		4.0		4.6		$ 57 / SF	57	3
42	42	Senior Loan	Arlington, VA	Multifamily	10/23/2020	141.8		70.9		70.5		15.5		L + 3.8	4.3	$ 391,938 / unit			73			3	42		Senior Loan		Brisbane, CA		Life Science		7/22/2021		95.0		95.0		88.4		19.9		+		3.0		4.1		$ 763 / SF	71	3
43	43	Senior Loan	Queens, NY	Industrial	7/21/2017	70.1		70.1		66.9		16.7		L + 3.0	1.1	$ 111 / SF			77			4	43		Senior Loan		State College, PA		Student Housing		10/15/2019		93.4		93.4		89.1		23.1		+		2.7		2.4		$ 74,659 / unit	64	3
44	44	Senior Loan	Washington, D.C.	Multifamily	12/4/2020	69.0		69.0		66.1		16.8		L + 3.5	4.4	$ 264,205 / unit			63			3	44		Senior Loan		Brandon, FL		Multifamily		1/13/2022		90.3		90.3		63.4		9.9		+		3.1		4.6		$ 192,590 / unit	75	3
45	45	Senior Loan	Austin, TX	Multifamily	9/12/2019	67.5		67.5		67.5		13.1		L + 2.5	3.2	$ 190,678 / unit			75			3	45		Senior Loan		Dallas, TX		Multifamily		12/23/2021		90.0		90.0		77.5		14.9		+		2.8		4.5		$ 238,488 / unit	67	3
46	46	Senior Loan	Denver, CO	Multifamily	10/14/2020	80.0		40.0		38.7		7.6		L + 3.6	3.4	$ 461,266 / unit			49			3	46		Senior Loan		Miami, FL		Multifamily		10/14/2021		89.5		89.5		89.5		17.1		+		2.8		4.4		$ 304,422 / unit	76	3
		Total/Weighted Average Senior Loans Unlevered				$	7,518.5	$	6,425.0	$	5,521.7	$	1,467.3	L + 3.3%	3.2				67	%		3.1
		Non-Senior Loans
1		Mezzanine	Westbury, NY	Multifamily	1/27/2020	17.0		17.0		17.0		16.9		L + 9.0	3.1	$ 451,477 / unit			64			3
2		Mezzanine(J)	Various	Retail	6/19/2015	5.5		5.5		5.5		0.9		11.0%	4.0	$ 45 / SF			n.a.			5
3		Corporate	n.a.	Multifamily	12/11/2020	95.3		38.1		38.1		37.4		L + 12.0	4.5	n.a.			n.a.			3
		Total/Weighted Average Non-Senior Loans Unlevered				$	117.8	$	60.6	$	60.6	$	55.2	12.3%	4.1				n.a.			3.2
		CMBS B-Pieces
1		RECOP I(G)	Various	Various	2/13/2017	n.a.		40.0		35.7		35.7		4.8	8.0	n.a.			58			n.a.
		Total/Weighted Average CMBS B-Pieces Unlevered						$	40.0	$	35.7	$	35.7	4.8%	8.0				58	%
47																	47	Senior Loan			Denver, CO			Multifamily		6/24/2021		88.5		88.5		88.5		15.4		+		3.0		4.0		$ 295,000 / unit		77		3
48																	48	Senior Loan			Dallas, TX			Office		1/22/2021		87.0		87.0		87.0		21.2		+		3.3		3.6		$ 288 / SF		65		3
49																	49	Senior Loan			Charlotte, NC			Multifamily		12/14/2021		86.8		86.8		76.0		10.9		+		3.0		4.5		$ 206,522 / unit		74		3
50																	50	Senior Loan			San Antonio, TX			Multifamily		6/1/2022		246.5		86.3		80.3		79.9		+		2.8		4.9		$ 88,134 / unit		68		3
51																	51	Senior Loan			New York, NY			Multifamily		3/29/2018		86.0		86.0		86.0		13.3		+		4.0		0.8		$ 462,366 / unit		63		2
52																	52	Senior Loan			Scottsdale, AZ			Multifamily		5/9/2022		169.0		84.5		84.5		12.7		+		2.9		4.9		$ 457,995 / unit		64		3
53																	53	Senior Loan			Raleigh, NC			Multifamily		4/27/2022		82.9		82.9		76.5		14.7		+		3.0		4.9		$ 239,063 / unit		68		3
54																	54	Senior Loan			Hollywood, FL			Multifamily		12/20/2021		81.0		81.0		81.0		14.7		+		3.0		4.5		$ 327,935 / unit		74		3
55																	55	Senior Loan			Seattle, WA			Office		3/20/2018		80.7		80.7		80.7		46.9		+		4.1		0.8		$ 468 / SF		56		3
56																	56	Senior Loan			Phoenix, AZ			Single Family Rental		4/22/2021		72.1		72.1		27.2		9.8		+		4.8		3.9		$ 157,092 / unit		50		3
57																	57	Senior Loan			Arlington, VA			Multifamily		10/23/2020		141.8		70.9		70.9		11.6		+		3.8		3.3		$ 393,858 / unit		73		3
58																	58	Senior Loan			Denver, CO			Multifamily		9/14/2021		70.3		70.3		69.3		11.0		+		2.7		4.3		$ 286,157 / unit		78		3
59																	59	Senior Loan			Washington, D.C.			Multifamily		12/4/2020		69.0		69.0		66.4		10.5		+		3.5		3.4		$ 265,617 / unit		63		3
60																	60	Senior Loan			Dallas, TX			Multifamily		8/18/2021		68.2		68.2		68.2		9.8		+		3.8		4.2		$ 189,444 / unit		70		3
61																	61	Senior Loan			Manassas Park, VA			Multifamily		2/25/2022		68.0		68.0		68.0		13.1		+		2.7		4.7		$ 223,684 / unit		73		3
62																	62	Senior Loan			Plano, TX			Multifamily		3/31/2022		67.8		67.8		64.2		17.0		+		2.8		4.8		$ 241,165 / unit		75		3
63																	63	Senior Loan			Nashville, TN			Hospitality		12/9/2021		66.0		66.0		64.3		9.8		+		3.6		4.5		$ 279,498 / key		68		3
64																	64	Senior Loan			Atlanta, GA			Multifamily		12/10/2021		61.5		61.5		56.7		14.6		+		2.9		4.5		$ 187,771 / unit		67		3
65																	65	Senior Loan			Durham, NC			Multifamily		12/15/2021		60.0		60.0		51.0		9.1		+		2.9		4.5		$ 147,758 / unit		67		3
66																	66	Senior Loan			San Antonio, TX			Multifamily		4/20/2022		57.6		57.6		55.2		9.9		+		2.7		4.9		$ 161,404 / unit		79		3
67																	67	Senior Loan			Sharon, MA			Multifamily		12/1/2021		56.9		56.9		56.9		8.3		+		2.8		4.4		$ 296,484 / unit		70		3
68																	68	Senior Loan			Queens, NY			Industrial		2/22/2022		55.3		55.3		52.0		12.8		+		4.0		1.7		$ 84 / SF		68		3
69																	69	Senior Loan			Reno, NV			Industrial		4/28/2022		140.4		50.5		50.5		11.0		+		2.7		4.9		$ 117 / SF		74		3
70																	70	Senior Loan			Carrollton, TX			Multifamily		4/1/2022		48.5		48.5		43.4		11.6		+		2.9		4.8		$ 135,778 / unit		74		3
71																	71	Senior Loan			Dallas, TX			Multifamily		4/1/2022		43.9		43.9		38.3		9.2		+		2.9		4.8		$ 107,607 / unit		73		3
72																	72	Senior Loan			Georgetown, TX			Multifamily		12/16/2021		41.8		41.8		41.8		10.1		+		3.3		4.5		$ 199,048 / unit		68		3
73																	73	Senior Loan			San Diego, CA			Multifamily		4/29/2022		203.0		40.0		38.5		6.1		+		2.6		4.9		$ 441,379 / unit		63��		3
74																	74	Senior Loan			Denver, CO			Industrial		12/11/2020		28.8		28.8		16.2		5.6		+		3.8		3.5		$ 58 / SF		61		3
75																	75	Senior Loan(L)			New York, NY			Condo (Residential)		8/4/2017		25.2		25.2		25.2		25.2		+		4.2		0.3		$ 1,120 / SF		73		3

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Table of Contents


	Investment(A)	Location	Property Type	Investment 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
	Total/Weighted Average Senior Loans Unlevered				$	12,545.6	$	9,175.3	$	7,730.9	$	1,905.3	+	3.3%	3.6		67	%	3.0
	Non-Senior Loans
1	Corporate	n.a.	Multifamily	12/11/2020	105.0		42.0		42.0		41.6		+	12.0	3.5	n.a.	n.a.		3
	Total/Weighted Average Non-Senior Loans Unlevered				$	105.0	$	42.0	$	42.0	$	41.6	+	12.0%	3.5		n.a.		3.0
	CMBS B-Pieces
1	RECOP I(I)	Various	Various	2/13/2017	n.a.		40.0		35.7		35.7			4.8	6.9	n.a.	58		n.a.
	Total/Weighted Average CMBS B-Pieces Unlevered						$	40.0	$	35.7	$	35.7		4.8%	6.9		58	%
	Real Estate Owned
1	Real Estate Asset	Portland, OR	Retail	12/16/2021	n.a.		n.a.		79.2		79.2			n.a.	n.a.	n.a.	n.a.		n.a.
	Total/Weighted Average Real Estate Owned								$	79.2	$	79.2
	Grand Total / Weighted Average						$	9,257.3	$	7,887.8	$	2,061.7		5.1%	3.6		67	%	3.0

* Numbers presented may not foot due to rounding.

(A) Our total portfolio represents the current principal amount on senior, mezzanine and corporate loans, ~~and~~ net equity in RECOP I, which holds CMBS B-Piece ~~investments.~~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 9,13, 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 June 30, ~~2021,~~2022, at an interest rate of L+~~7.9%.~~

For Senior Loan 10, the total whole loan is $186.0 million, of which a $81.6 million senior note was syndicated to a third party lender. Post syndication, we retained the mezzanine loan and a 45% interest in the senior loan with a total commitment of $104.4 million, of which ~~$100.7 million~~7.9% ~~was funded as of June 30, 2021, at a blended interest rate of L+4.7%~~.

For Senior Loan ~~19,~~ 22, 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 ~~$15.2~~$19.0 million was funded as of June 30, ~~2021,~~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 ~~investment~~investments in RECOP I.I and REO.

~~(C)~~(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.

~~(D) L =~~(E) Coupon expressed as spread over the ~~greater of~~relevant floating benchmark rates, which include one-month ~~USD LIBOR; spot rate~~LIBOR and Term SOFR, as applicable to each loan. As of ~~0.10%~~June 30, 2022, 73.7% and ~~the applicable contractual~~26.3% of floating rate loans by principal amount were indexed to one-month LIBOR ~~floor, included in portfolio-wide averages represented as fixed rates.~~and Term SOFR, respectively.

~~(E)~~(F) Max remaining term (years) assumes all extension options are exercised, if applicable.

~~(F)~~(G) Loan Per SF / Unit / Key is based on the current principal amount divided by the current SF / Unit / Key. For Senior Loans 2, 7, 9, 30, 32, 41, 56, 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 ~~does not include (i)~~excludes one fully funded corporate loan to a multifamily operator with an outstanding principal ~~amount~~amount of ~~$38.1 million and~~ ~~(ii) two non-performing 5-rated loans on non-accrual status; with a total outstanding principal of~~ ~~$115.1 million~~ ~~as of June 30, 2021.~~$42.0 million.

For Senior Loan 5,6, LTV is based on the initial loan amount divided by the appraised bulk sale value assuming a condo-conversion and no renovation.

For Senior Loan ~~28,~~75, LTV is based on the current principal amount divided by the adjusted appraised gross sellout value net of sales cost.

For Senior Loans 2, 7, ~~24, 29, 37, 40~~9, 30, 32, 41, 56 and ~~Mezzanine~~ ~~Loan 1,~~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.

~~(G)~~(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.

~~(H)~~(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.

~~(I) For Senior Loan 41, Loan per SF~~ ~~of $1,665 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~~ ~~$2,133 based on allocating the full amount of the loan to only the residential units.~~

~~(J) For Mezzanine Loan 2, Current Principal Amount is gross of $4.7 million write-off (of amortized cost).~~

(K) For Senior ~~Loan 7, the~~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 June 30, ~~2021,~~2022, there ~~was one underlying~~were seven underlying senior ~~loan~~loans in the facility with a commitment of ~~$10.4~~$83.0 million and outstanding principal of ~~$0.5 million.~~$30.2 million.

(L) For Senior Loan 75, Loan per SF of $1,120 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 $1,987 based on allocating the full amount of the loan to only the residential units.

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Portfolio Surveillance and Credit Quality

Our Manager actively manages our portfolio and assesses the risk of any deterioration in credit quality by quarterly 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 ~~proactively address~~maximize the ~~potential impacts~~performance of our portfolio, including during periods of volatility such as the COVID-19 pandemic on our loans secured by properties experiencing cash flow pressure, most significantly hospitality and retail assets. Some of our borrowers have indicated that due to the impact of the COVID-19 pandemic, they will be unable to timely execute their business plans, have had to temporarily close their businesses, or have experienced other negative business consequences and have requested temporary interest deferral or forbearance, or other modifications of their loans. Accordingly, discussions we have had with our borrowers have addressed potential near-term defensive loan modifications, which could include repurposing of reserves, temporary deferrals of interest, or performance test or covenant waivers on loans collateralized by assets directly impacted by the COVID-19 pandemic, and which would generally be coupled with an additional equity commitment and/or guaranty from sponsors.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:

1—Very Low Risk—The underlying property performance has surpassed underwritten expectations, and the sponsor’s business plan is generally complete. The property demonstrates stabilized occupancy and/or rental rates resulting in strong current cash flow and/or a very low LTV (<65%). At the level of performance, it is very likely that the underlying loan can be refinanced easily in the period’s prevailing capital market conditions.

2—Low Risk—The underlying property performance has matched or exceeded underwritten expectations, and the sponsor’s business plan may be ahead of schedule or has achieved some or many of the major milestones from a risk mitigation perspective. The property has achieved improving occupancy at market rents, resulting in sufficient current cash flow and/or a low LTV (65%-70%). Operating trends are favorable, and the underlying loan can be refinanced in today’s prevailing capital market conditions. The sponsor/manager is well capitalized or has demonstrated a history of success in owning or operating similar real estate.

3—Average Risk—The underlying property performance is in-line with underwritten expectations, or the sponsor may be in the early stages of executing its business plan. Current cash flow supports debt service payments, or there is an ample interest reserve or loan structure in place to provide the sponsor time to execute the value-improvement plan. The property exhibits a moderate LTV (<75%). Loan structure appropriately mitigates additional risks. The sponsor/manager has a stable credit history and experience owning or operating similar real estate.

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4—High Risk/Potential for Loss—A loan that has a risk of realizing a principal loss. The underlying property performance is behind underwritten expectations, or the sponsor is behind schedule in executing its business plan. The underlying market fundamentals may have deteriorated, comparable property valuations may be declining or property occupancy has been volatile, resulting in current cash flow that may not support debt service payments. The loan exhibits a high LTV (>80%), and the loan covenants are unlikely to fully mitigate some risks. Interest payments may come from an interest reserve or sponsor equity.

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We may enter into loan modifications that include, among other changes, incremental capital contributions or partial repayments from certain borrowers, repurposing of reserves, and a temporary partial deferral for a portion of the coupon as payment-in-kind interest (“PIK Interest”) due, which is capitalized, compounded, and added to the outstanding principal balance of the respective loans. As of June 30, 2021, total PIK Interest relating to loan modifications was $2.8 million.

~~During the three months ended March 31, 2021, we modified one hotel loan with an outstanding principal balance and amortized cost of~~ ~~$130.0 million~~ ~~and~~ ~~$129.9 million~~, respectively, as of June 30, 2021. The loan modification included a principal paydown of $10.0 million, full payment of outstanding PIK interest of $1.6 million, and amended extension hurdles, with no change to the overall coupon. As a result of the improved performance of the underlying property, coupled with the paydown in connection with the modification, we upgraded the risk rating of this loan from a 4 rating to a 3 in the first quarter of 2021.

During the fourth quarter of 2020, we modified one senior retail loan with a principal balance and an amortized cost of $109.6 million, respectively, to extend the maturity date through March 2021 with an option to extend to April 2021. The loan modification included a deferral of interest due and a Deed in Lieu of Foreclosure, which allows us to obtain title of the underlying property in the event of default, as defined. As of June 30, 2021, the loan had a risk rating of 5, and was placed on non-accrual status in October 2020. We had no remaining unfunded commitment as of June 30, 2021. While we did not forgive or charge-off any amounts due under this loan, this modification is considered a TDR under GAAP. There were no other material modifications during the six months ended June 30, 2021.

As of June 30, ~~2021,~~2022, the average risk rating of our loan portfolio was ~~3.1~~3.0 (Average Risk), weighted by total loan exposure, ~~consistent with~~ ~~that~~as compared to 2.9 (Average Risk) as of ~~March~~December 31, 2021.


June 30, 2021									March 31, 2021
June 30, 2022																	June 30, 2022								December 31, 2021
Risk Rating	Risk Rating	Number of Loans	Net Book Value		Total Loan Exposure(A)(B)		Total Loan Exposure %		Risk Rating	Number of Loans	Net Book Value		Total Loan Exposure(A)(B)		Total Loan Exposure %		Risk Rating	Number of Loans	Carrying Value		Total Loan Exposure(A)		Total Loan Exposure %		Number of Loans	Carrying Value		Total Loan Exposure(A)		Total Loan Exposure %
1	1	—	$	—	$	—	—	%	1	—	$	—	$	—	—	%	1	—	$	—	$	—	—	%	1	$	243,549	$	243,552	3.6	%
2	2	1	194,064		194,400		3.5		2	1	193,791		194,400		3.7		2	3	415,670		416,146		5.4		3	410,293		411,424		6.2
3	3	42	4,580,309		4,854,305		87.0		3	36	4,267,263		4,539,577		85.7		3	71	6,739,319		7,038,720		90.6		54	5,268,590		5,627,927		84.3
4	4	4	405,995		418,532		7.5		4	4	437,272		445,395		8.4		4	2	318,112		318,045		4.0		4	394,301		394,336		5.9
5	5	2	70,121		115,071		2.0		5	2	70,121		115,071		2.2		5	1	—		—		—		1	—		—		—
		49	$	5,250,489	$	5,582,308	100.0	%		43	$	4,968,447	$	5,294,443	100.0	%
Total loan receivable																	Total loan receivable	77	$	7,473,101	$	7,772,911	100.0	%	63	$	6,316,733	$	6,677,239	100.0	%
Allowance for credit losses																	Allowance for credit losses		(31,529)							(22,244)
Loan receivable, net																	Loan receivable, net		$	7,441,572						$	6,294,489

(A) ~~Excludes~~ ~~$66.2 million~~ ~~of vertical loan syndication as of June 30, 2021 and March 31, 2021.~~

~~(B)~~ 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 $~~310.8~~252.5 million and ~~$309.2~~$318.6 million of such non-consolidated senior interests as of June 30, ~~2021~~2022 and ~~March~~December 31, 2021, respectively.

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

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credit and return profile of the investments. Our Manager holds monthly surveillance calls 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.

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.

~~Our current CMBS exposure is through RECOP I, an equity method investment.~~

Portfolio Financing

Our portfolio financing arrangements include term loan financing, term lending ~~agreement,~~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, and loan participations sold (excluding vertical loan syndications).~~agreements.

Our Non-Mark-to-Market Financing Sources, which accounted for ~~76%~~77% of our total secured financing (excluding our corporate revolver) as of June 30, ~~2021,~~2022, are not subject to credit or capital markets mark-to-market provisions. The remaining ~~24%~~23% of our secured borrowings, which is primarily comprised of three master repurchase agreements, are only subject to credit marks.

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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(A)
Non-/Mark-to-Market June 30, 2021 December 31, 2020
Master repurchase agreements Mark-to-Credit $ 1,047,592 $ 673,120
Term loan financing Non-Mark-to-Market 992,777 948,204
Term lending agreement Non-Mark-to-Market 900,000 900,000
Collateralized loan obligations Non-Mark-to-Market 767,000 810,000
Secured term loan Non-Mark-to-Market 298,500 300,000
Asset specific financing Non-Mark-to-Market 60,000 60,000
Warehouse Facility Non-Mark-to-Market — —
Non-consolidated senior interests Non-Mark-to-Market 310,756 158,672
Total portfolio financing $ 4,376,625 $ 3,849,996

~~(A) Excludes~~ ~~$66.2 million~~ of vertical loan participations sold as of June 30, 2021 and December 31, 2020. Such participations did not qualify for sale accounting under GAAP and therefore were consolidated in our Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020.


		Portfolio Financing Outstanding Principal Balance
	Non-/Mark-to-Market	June 30, 2022		December 31, 2021
Master repurchase agreements	Mark-to-Credit	$	1,387,158	$	1,554,808
Collateralized loan obligations	Non-Mark-to-Market	1,942,750		1,095,250
Term lending agreements	Non-Mark-to-Market	1,358,817		1,117,627
Term loan financing	Non-Mark-to-Market	741,640		870,458
Secured term loan	Non-Mark-to-Market	348,250		350,000
Asset specific financing	Non-Mark-to-Market	96,278		60,000
Warehouse facility	Non-Mark-to-Market	—		—
Non-consolidated senior interests	Non-Mark-to-Market	252,500		318,634
Total portfolio financing		$	6,127,393	$	5,366,777

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Financing Agreements

The following table details our financing agreements (dollars in thousands):


		June 30, 2021											June 30, 2022
		Maximum		Collateral		Borrowings							Maximum		Collateral		Borrowings
		Facility Size(A)		Assets(B)		Potential(C)		Outstanding		Available			Facility Size(A)		Assets(B)		Potential(C)		Outstanding		Available
Master Repurchase Agreements	Master Repurchase Agreements											Master Repurchase Agreements
Wells Fargo	Wells Fargo	$	1,000,000	$	917,770	$	626,149	$	498,276	$	127,873	Wells Fargo	$	1,000,000	$	935,728	$	701,796	$	689,958	$	11,838
Morgan Stanley	Morgan Stanley	600,000		615,210		459,214		448,562		10,652		Morgan Stanley	600,000		777,737		582,493		573,542		8,951
Goldman Sachs	Goldman Sachs	240,000		182,716		101,059		100,754		305		Goldman Sachs	240,000		219,026		157,124		123,658		33,466
Term Loan Facility	Term Loan Facility	1,000,000		1,195,821		992,777		992,777		—		Term Loan Facility	1,000,000		907,931		741,640		741,640		—
Term Lending Agreement
Term Lending Agreements												Term Lending Agreements
KREF Lending V	KREF Lending V	900,000		1,132,905		900,000		900,000		—		KREF Lending V	583,304		724,378		556,390		555,239		1,151
KREF Lending IX												KREF Lending IX	750,000		803,846		646,497		642,438		4,059
KREF Lending XII												KREF Lending XII	350,000		213,907		161,140		161,140		—
Warehouse Facility	Warehouse Facility											Warehouse Facility
HSBC	HSBC	500,000		—		—		—		—		HSBC	500,000		—		—		—		—
Asset Specific Financing	Asset Specific Financing											Asset Specific Financing
BMO Facility	BMO Facility	300,000		76,000		60,000		60,000		—		BMO Facility	300,000		—		—		—		—
KREF Lending XI												KREF Lending XI	100,000		123,838		99,071		96,278		2,793
Revolver	Revolver	335,000		—		335,000		—		335,000		Revolver	610,000		—		610,000		—		610,000
		$	4,875,000	$	4,120,422	$	3,474,199	$	3,000,369	$	473,830		$	6,033,304	$	4,706,391	$	4,256,151	$	3,583,893	$	672,258

(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.

Master Repurchase Agreements

We utilize master repurchase facilities 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 principal 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 and participations that we own in an amount generally equal to (i) the market value of such loans and/or participations multiplied by (ii) the applicable advance rate. Under these agreements, we sell our loans and participations to a counterparty and agree to repurchase the same loans and participations 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

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interest on the related loans and participations 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-to-market" features. "Credit 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, 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 June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the weighted average haircut under our repurchase agreements was ~~38.9%~~28.2% and ~~36.7%~~30.3%, respectively (or ~~30.8%~~25.4% and ~~34.8%~~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 ~~matched term~~match-term up to five years and is non-recourse to us. Borrowings under the facility are collateralized by senior loans, ~~held-for-investment, and bear intere~~held-for-investment.

~~st equal to one-month LIBOR plus a margin. As of June 30, 2021, the weighted average margin on the facility was 1.6%~~.

The following table summarizes our borrowings under the Term Loan Facility (dollars in thousands):

June 30, 2021

June 30, 2022

Term Loan Facility

Count

Outstanding Principal

Amortized Cost

Carrying Value

Wtd. Avg. Yield/Cost(A)

Guarantee(B)

Wtd. Avg. Term(C)

Term Loan Facility

Count

Outstanding Principal

Amortized Cost

Carrying Value

Wtd. Avg. Yield/Cost(A)

Guarantee(B)

Wtd. Avg. Term(C)

Collateral assets

1,195,821

1,192,567

1,191,508

L + 3.2%

n.a.

May 2024

Collateral assets

907,931

903,544

893,694

+ 3.5%

n.a.

October 2025

Financing provided

n.a.

992,777

L + 1.6%

n.a.

May 2024

Financing provided

n.a.

741,640

741,232

+ 1.7%

n.a.

October 2025

(A) ~~Floating rate loans and related liabilities~~Collateral loan assets are indexed to one-month ~~LIBOR. Our net interest rate exposure is in direct proportion to our interest in the net assets indexed to that rate.~~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.

Term Lending ~~Agreement~~Agreements

In June 2019, we entered into a Master Repurchase and Securities Contract Agreement ~~(the "Term~~("KREF Lending ~~Agreement"~~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 ~~for current and future financings of up to $900.0 million on a~~ non-mark-to-market ~~basis.~~financing. In ~~March 2021,~~June 2022, the current stated maturity was extended to June ~~2022,~~2023, subject to ~~four~~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 June 30, ~~2021,~~2022, the Initial Buyer held ~~22.2%~~23.8% of the total commitment under the facility. Borrowings under the ~~Term Lending Agreement~~facility are collateralized by certain loans, held for investment, and bear interest equal to one-month LIBOR, plus a 1.9% margin. ~~Total outstanding borrowings under~~

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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 ~~Term~~borrowing capacity to $750.0 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 ~~Agreement as of June 30, 2021 totaled $900.0~~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. ~~As of June 30, 2021, there was no balance outstanding~~ ~~on this facility.~~

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 ~~matched-term~~match-term up to five years with partial recourse to us. ~~As of June 30, 2021, there was~~ ~~$60.0 million~~ ~~outstanding on this facility.~~

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.

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Revolving Credit Agreement

~~We have a $335.0 million~~In March 2022, we upsized our corporate 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-term liquidity to ~~purchase~~originate or de-lever loans, pay operating expenses and borrow amounts for general corporate purposes. Borrowings under the Revolver bear interest at a per annum rate equal to the sum of (i) ~~a floating rate index~~Term SOFR and (ii) a fixed margin. Our Revolver is secured by corporate level guarantees and ~~does not include asset-based collateral. As of June 30, 2021, there was no balance outstanding on this facility.~~includes net equity interests in the investment portfolio.

Collateralized Loan Obligations

In ~~November 2018,~~August 2021, we financed a pool of loan participations from our existing loan portfolio through a managed collateralized loan obligation ("CLO" or "KREF ~~2018-FL1"~~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 ~~CLO provides~~CLOs provide us with match-term financing on a non-mark-to-market and non-recourse basis. The ~~CLO had~~CLOs have a two-year reinvestment feature that ~~allowed~~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. The two-year reinvestment period ended in December 2020.~~indentures.

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The following table outlines ~~KREF 2018-FL1~~the CLO collateral assets and respective borrowing (dollars in thousands):


	June 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)	21	$	1,300,000	$	1,300,000	$	1,293,709	+ 3.3%	December 2025
Financing provided	1	1,095,250		1,090,150		1,090,150		L + 1.7%	February 2039
KREF 2022-FL3
Collateral assets(C)	16	1,000,000		1,000,000		996,846		+ 3.0%	September 2026
Financing provided	1	847,500		841,455		841,455		S + 2.1%	February 2039

(A)~~Collateral~~Expressed as a spread over the relevant benchmark rates, which include one-month LIBOR and Term SOFR, as applicable to each loan. As of March 31, 2022, 91.1% and 8.9% of the CLO collateral loan assets ~~represent~~ ~~16.8% of the~~by principal ~~of our commercial real estate loans as of June 30, 2021. As of June 30, 2021, 100% of our loans financed through the CLO are~~balance earned a floating rate ~~loans.~~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.~~borrower, weighted by outstanding principal. Repayments of CLO notes are dependent on timing of ~~related~~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 30.6% of the principal of our commercial real estate loans as of June 30, 2022. As of June 30, 2022, 100% of our loans financed through the CLOs are floating rate loans.

(D)Including $0.5 million cash held in CLO as of June 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 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 ~~as a result of~~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.

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~~The following table details our loan participations sold (dollars in thousands):~~

June 30, 2021
Loan Participations Sold Count Principal Balance Amortized Cost Carrying Value
Yield/Cost(A)
Guarantee Term
Total loan 1 $ 337,327 $ 336,656 $ 336,251 L + 2.6% n.a. July 2024
Vertical loan participation(B)
1 66,248 66,242 66,242 L + 2.6% n.a. July 2024

~~(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.~~

~~(B) During the six months ended June 30, 2021, we recorded~~ ~~$1.5 million~~ ~~of interest income and~~ ~~$1.5 million~~ ~~of interest expense, respectively, related to the vertical loan participations sold.~~

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, ~~matched-term~~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):

June 30, 2021

June 30, 2022

Non-Consolidated Senior Interests

Count

Principal Balance

Carrying Value

Wtd. Avg. Yield/Cost

Guarantee

Wtd. Avg.

Term

Non-Consolidated Senior Interests

Count

Principal Balance

Carrying Value

Wtd. Avg. Yield/Cost

Guarantee

Wtd. Avg.

Term

Total loan

464,191

n.a.

L + 3.6%

n.a.

May 2025

Total loan

309,025

n.a.

L + 3.7%

n.a.

January 2026

Senior participation

310,756

n.a.

L + 2.3%

n.a.

August 2025

Senior participation

252,500

n.a.

L + 2.3%

n.a.

December 2025

Interests retained

153,435

L + 6.3%

December 2024

Interests retained

56,525

L + 9.6%

January 2026

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Secured Term Loan

In September 2020, we 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. As

In November 2021, we completed a repricing of ~~June 30, 2021, outstanding borrowing under the~~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 ~~$298.5 million. Our~~issued at par. The new secured term loan bears interest at LIBOR plus a 3.50% margin, and is ~~open for repricing following its first anniversary.~~subject to a 0.50% LIBOR floor, which is an aggregate improvement of 1.75% over the 2020 secured term loan.

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 67 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 78 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):


				Six Months Ended June 30, 2021									Six Months Ended June 30, 2022
		Outstanding Principal as of June 30, 2021		Average Daily Amount Outstanding(A)		Maximum Amount Outstanding		Weighted Average Daily Interest Rate			Outstanding Principal as of June 30, 2022		Average Daily Amount Outstanding(A)		Maximum Amount Outstanding		Weighted Average Daily Interest Rate
Master Repurchase Agreements										Master Repurchase Agreements
Wells Fargo	Wells Fargo	$	498,276	$	510,884	$	614,878	1.6	%	Wells Fargo	$	689,958	$	723,253	$	980,593	1.9	%
Morgan Stanley	Morgan Stanley	448,562		390,202		448,562		2.1		Morgan Stanley	573,542		486,114		573,542		2.4
Goldman Sachs	Goldman Sachs	100,754		83,958		107,617		3.0		Goldman Sachs	123,658		129,479		192,313		2.6
Term Loan Facility	Term Loan Facility	992,777		910,075		992,777		1.7		Term Loan Facility	741,640		856,877		918,959		2.1
Term Lending Agreements										Term Lending Agreements
KREF Lending V	KREF Lending V	900,000		900,000		900,000		2.0		KREF Lending V	555,239		604,158		617,627		2.4
Warehouse Facility		—		—		—		—
KREF Lending IX										KREF Lending IX	642,438		444,166		642,438		2.2
KREF Lending XII										KREF Lending XII	161,140		81,085		161,140		2.9
Asset Specific Financing										Asset Specific Financing
BMO Facility	BMO Facility	60,000		60,000		60,000		1.8		BMO Facility	—		3,978		60,000		1.8
KREF Lending XI										KREF Lending XI	96,278		96,278		96,278		3.6
Revolver	Revolver	—		10,249		265,000		2.1		Revolver	—		83,646		395,000		3.2
Total/Weighted Average	Total/Weighted Average	$	3,000,369					1.9	%	Total/Weighted Average	$	3,583,893					2.3	%

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

Average Daily Amount Outstanding(A)
Three Months Ended
June 30, 2021 March 31, 2021
Wells Fargo $ 529,169 $ 492,395
Morgan Stanley 429,449 350,519
Goldman Sachs 91,075 76,762
Term Loan Facility 878,021 942,484
KREF Lending V 900,000 900,000
Warehouse Facility — —
BMO Facility 60,000 60,000
Revolver — 20,611

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	Average Daily Amount Outstanding(A)
	Three Months Ended
	June 30, 2022		March 31, 2022
Master Repurchase Agreements
Wells Fargo	$	671,211	$	775,874
Morgan Stanley	500,877		471,188
Goldman Sachs	105,799		153,422
Term Loan Facility	812,104		902,148
Term Lending Facility
KREF Lending V	598,508		609,870
KREF Lending IX	492,795		394,996
KREF Lending XII	81,085		—
Asset Specific Financing
BMO Facility	—		8,000
KREF Lending XI	96,278		—
Revolver	147,253		19,333

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

Covenants—Each of our repurchase facilities, ~~Term Lending Agreement, Warehouse Facility~~term lending agreements, warehouse facility and our Revolver contain customary terms and conditions, 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 KKR Real Estate Finance Holdings L.P. (our "Operating Partnership") or up to approximately $~~1,005.0~~1,349.4 million, depending on the agreement;

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

•a total indebtedness covenant (83.3% of our Total Assets, as ~~defined)~~defined in the applicable financing agreements);

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 ratio of 83.3% (the “Leverage Covenant”).

As of June 30, ~~2021,~~2022, we were in compliance with the covenants of our financing facilities.

Guarantees—In connection with ~~each~~our 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 repurchase~~financing 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 ~~us.~~

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In connection with our Term Lending Agreement, our Operating Partnership entered into a guarantee in favor of Morgan Stanley Mortgage Capital Holdings LLC, in its capacity as the Administrative Agent, under which our Operating Partnership guarantees the obligations of KREF Lending V LLC under the agreement. The guarantee includes; in the case of certain defaults, up to a maximum liability of 25.0% of the then outstanding aggregate repurchase price under the agreement, and liability to indemnify the Administrative Agent against losses related to "bad boy" acts.ours. In addition, ~~the guarantee includes certain full recourses in the case of bankruptcy of KREF Lending V LLC.~~

In connection with our BMO Facility, our Operating Partnership entered into a guarantee in favor of BMO Harris Bank, N.A., in its capacity as the Administrative Agent and Lender, under which our Operating Partnershipsome guarantees the obligations of our borrower entity, under the agreement. The guarantee includes; in the case of certain defaults, up to a maximum liability of 25.0% of the then current outstanding payment obligations under the agreement, and liability to indemnify the Administrative Agent and Lender against losses related to "bad boy" acts. In addition, the guarantee includesinclude certain full recourse insolvency-related trigger events.

With respect to our Revolver, amounts borrowed are full recourse to certain guarantor wholly-owned subsidiaries of ~~us.~~ours.

Real Estate Owned and Joint Venture

In ~~connection~~2015, 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 ~~HSBC Warehouse Facility, our Operating Partnership entered into~~balance sheet as REO with a ~~guarantee in favor~~carrying value of ~~HSBC Bank USA, National Association, in its capacity as~~$78.6 million, which included the Administrative Agent and Lender, under which our Operating Partnership guarantees the obligations of our borrower entity, under the agreement. The guarantee includes; in the case of certain defaults, up to a maximum liability of 25.0%estimated fair value of the ~~then current outstanding payment obligations under the agreement,~~property and ~~liability to indemnify the Administrative Agent and Lender against losses related to "bad boy" acts.~~capitalized transaction costs. In addition, we assumed $2.0 million in other net assets of the ~~guarantee includes certain full recourse insolvency-related trigger events.~~REO. As a result, we recognized an $8.2 million benefit

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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).

~~In connection~~Concurrently with taking the title of our ~~secured term loan, our Operating Partnership and certain of its subsidiaries entered into a guarantee in favor of JPMorgan Chase Bank, N.A., in its capacity as~~sole REO asset, we contributed the ~~Administrative Agent and collateral agent for the lenders under which they provide a payment guaranty~~majority of the ~~secured term loan.~~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 June 30, 2022, the joint venture held REO assets with a net carrying value of $69.3 million. We have priority of distributions up to $69.5 million before the JV Partner can participate in the economics of the joint venture.

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Results of Operations

Three Months Ended June 30, ~~2021~~2022 Compared to Three Months Ended March 31, ~~2021~~

As previously disclosed, beginning with our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, and for all subsequent reporting periods, we have elected to present results of operations by comparing to the immediately preceding period. Given the dynamic nature of our business and the sensitivity to the real estate and capital markets, we believe providing analysis of results of operations by comparing to the immediately preceding period is more meaningful to our stockholders in assessing the overall performance of our current business.2022

The following table summarizes the changes in our results of operations for the three months ended June 30, ~~2021~~2022 and March 31, ~~2021~~2022 (dollars in thousands, except per share data):

Three Months Ended Increase (Decrease)
June 30, 2021 March 31, 2021 Dollars Percentage
Net Interest Income
Interest income $ 67,149 $ 64,766 $ 2,383 3.7 %
Interest expense 26,958 27,383 (425) (1.6)
Total net interest income 40,191 37,383 2,808 7.5
Other Income
Income (loss) from equity method investments 1,256 1,090 166 15.2
Other income 100 66 34 51.5
Total other income (loss) 1,356 1,156 200 17.3
Operating Expenses
General and administrative 3,688 3,505 183 5.2
Provision for (reversal of) credit losses, net (559) (1,588) 1,029 64.8
Management fees to affiliate 4,835 4,290 545 12.7
Incentive compensation to affiliate 2,403 2,192 211 9.6
Total operating expenses 10,367 8,399 1,968 23.4
Income (Loss) Before Income Taxes, Preferred Dividends and Redemption Value Adjustment 31,180 30,140 1,040 3.5
Income tax expense (benefit) 103 48 55 114.6
Net Income (Loss) 31,077 30,092 985 3.3
Preferred stock dividends and redemption value adjustment 1,813 908 905 99.7
Net Income (Loss) Attributable to Common Stockholders $ 29,264 $ 29,184 $ 80 0.3 %
Net Income (Loss) Per Share of Common Stock
Basic $ 0.53 $ 0.52 $ — — %
Diluted $ 0.52 $ 0.52 $ — — %
Weighted Average Number of Shares of Common Stock Outstanding
Basic 55,632,322 55,619,428 12,894 — %
Diluted 55,907,086 55,731,061 176,025 0.3 %
Dividends Declared per Share of Common Stock $ 0.43 $ 0.43 $ — — %

~~Net Interest Income~~


	Three Months Ended,				Increase (Decrease)
	June 30, 2022		March 31, 2022		Dollars		Percentage
Net Interest Income
Interest income	$	90,603	$	73,230	$	17,373	23.7	%
Interest expense	44,733		32,459		12,274		37.8
Total net interest income	45,870		40,771		5,099		12.5
Other Income
Revenue from real estate owned operations	1,833		2,629		(796)		(30.3)

Income (loss) from equity method investments	1,035		1,886		(851)		(45.1)


Other income	1,237		1,915		(678)		(35.4)
Total other income (loss)	4,105		6,430		(2,325)		(36.2)
Operating Expenses
General and administrative	4,308		4,446		(138)		(3.1)
Provision for (reversal of ) credit losses, net	11,798		(1,218)		13,016		1,068.6
Management fee to affiliate	6,506		6,007		499		8.3

Expenses from real estate owned operations	2,368		2,554		(186)		(7.3)
Total operating expenses	24,980		11,789		13,191		111.9
Income (Loss) Before Income Taxes, Noncontrolling Interests, Preferred Dividends and Participating Securities' Share in Earnings	24,995		35,412		(10,417)		(29.4)
Income tax expense	—		—		—		—
Net Income (Loss)	24,995		35,412		(10,417)		(29.4)
Noncontrolling interests in (income) loss of consolidated joint venture	66		56		10		17.9
Net Income (Loss) Attributable to KKR Real Estate Finance Trust Inc. and Subsidiaries	25,061		35,468		(10,407)		(29.3)
Preferred stock dividends	5,326		5,326		—		—
Participating securities' share in earnings	341		346		(5)		(1.4)
Net Income (Loss) Attributable to Common Stockholders	$	19,394	$	29,796	$	(10,402)	(34.9)	%

Net Income (Loss) Per Share of Common Stock
Basic	$	0.28	$	0.47	$	(0.19)	(40.7)	%
Diluted	$	0.28	$	0.46	$	(0.18)	(39.2)	%

Weighted Average Number of Shares of Common Stock Outstanding
Basic	68,549,049		63,086,452		5,462,597		8.7	%
Diluted	68,549,049		69,402,626		(853,577)		(1.2)	%

Dividends Declared per Share of Common Stock	$	0.43	$	0.43	$	—	—	%

~~Net interest income increased~~ by $2.8 million, or 7.5%, during the three months ended June 30, 2021, compared to the three months ended March 31, 2021, resulting from a $2.4 million, or 3.7%, increase in our interest income and a $0.4 million, or 1.6%, decrease in our interest expense.

Our interest income increased primarily as the weighted average principal balance of our loan portfolio increased by $188.0 million for the three months ended June 30, 2021, compared to the three months ended March 31, 2021, as a result of

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Net Interest Income

Net interest income increased by $5.1 million during the three months endedJune 30, 2022, compared to the three months ended March 31, 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 $604.2 million quarter-over-quarter increase in our weighted average loan principal, as a result of continuing capital deployment from loan repayments and ~~the net proceeds from the Series A preferred~~a common stock ~~issuance in April 2021.~~

~~The decrease in interest~~issuance. Interest expense ~~was primarily~~increased accordingly due to ~~lower LIBOR during the quarter. The decrease was partially offset by incremental interest expense from additional borrowings on~~a $445.2 million quarter-over-quarter increase in our financing facilities to finance loan originations. The weighted-average principal balance of our borrowings increased by $8.9 million for the three months ended June 30, 2021, compared to the three months ended March 31, 2021.weighted average portfolio financing.

In addition, ~~our loans continued to benefit from in-the-money LIBOR floors~~interest income included $4.0 million in prepayment penalty income in connection with loan repayments during the three ~~months~~month ended June 30, ~~2021. As~~ 2022. We recognized $5.9 million of deferred loan fees and origination discounts accreted into interest income during the three months endedJune 30, ~~2021, 57%~~2022, consistent with those during the prior quarter. We recorded $5.8 million of ~~our loan portfolio~~deferred financing costs amortization into interest expense during the three months endedJune 30, 2022, as compared to $4.8 million during the prior quarter.

Other Income

Total other income decreased by $2.3 million during the three months ended June 30, 2022, as compared to the prior quarter. This decrease was ~~subject~~primarily due to a ~~LIBOR floor~~$0.9 million decrease in unrealized mark-to-market gain on our RECOP I's underlying CMBS investments and $0.8 million decrease in REO operating revenue. In addition, other income decreased due to $1.3 million of ~~at least 1.00%,~~nonrecurring profit sharing income in connection with ~~a weighted average floor of 1.34%; by contrast, only 14% of total outstanding financing (inclusive of~~an industrial senior loan payoff in the ~~secured term loan) is subject to a LIBOR floor greater than 0.0%.~~prior quarter.

Operating Expenses

Total operating expenses increased by ~~$2.0~~$13.2 million during the three months ended June 30, ~~2021,~~2022, as compared to the ~~three months ended March 31, 2021.~~prior quarter. This increase was primarily due to (i) a ~~$1.0~~net increase of $13.0 million ~~decrease~~ in the ~~benefit from reversal of~~provision for credit ~~loss provision~~losses and (ii) a $0.5 million increase in ~~Management fee compensation~~management fees resulting from ~~the Series A preferred~~our common stock ~~issuance in April 2021.~~

issuance.

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Six Months Ended June 30, ~~2021~~2022 Compared to Six Months Ended June 30, ~~2020~~2021

The following table summarizes the changes in our results of operations for the six months ended June 30, ~~2021~~2022 and ~~2020~~2021 (dollars in thousands, except per share data):

Six Months Ended Increase (Decrease)
June 30, 2021 June 30, 2020 Dollars Percentage
Net Interest Income
Interest income $ 131,915 $ 138,298 $ (6,383) (4.6) %
Interest expense 54,341 69,645 (15,304) (22.0)
Total net interest income 77,574 68,653 8,921 13.0
Other Income
Income (loss) from equity method investments 2,346 (1,604) 3,950 246.3
Other income 166 556 (390) (70.1)
Total other income (loss) 2,512 (1,048) 3,560 339.7
Operating Expenses
General and administrative 7,193 7,813 (620) (7.9)
Provision for (reversal of) credit losses, net (2,147) 53,908 (56,055) (104.0)
Management fees to affiliate 9,125 8,517 608 7.1
Incentive compensation to affiliate 4,595 2,855 1,740 60.9
Total operating expenses 18,766 73,093 (54,327) (74.3)
Income (Loss) Before Income Taxes, Preferred Dividends and Redemption Value Adjustment 61,320 (5,488) 66,808 1,217.3
Income tax expense (benefit) 151 159 (8) (5.0)
Net Income (Loss) 61,169 (5,647) 66,816 1,183.2
Preferred stock dividends and redemption value adjustment 2,721 927 1,794 193.5
Net Income (Loss) Attributable to Common Stockholders $ 58,448 $ (6,574) $ 65,022 989.1 %
Net Income (Loss) Per Share of Common Stock
Basic $ 1.05 $ (0.12) $ 1.17 1001.76 %
Diluted $ 1.05 $ (0.12) $ 1.17 1001.76 %
Weighted Average Number of Shares of Common Stock Outstanding
Basic 55,625,911 56,419,332 (793,421) (1.4) %
Diluted 55,819,110 56,419,332 (600,222) (1.1) %
Dividends Declared per Share of Common Stock $ 0.86 $ 0.86 $ — — %


	Six Months Ended June 30,				Increase (Decrease)
	2022		2021		Dollars		Percentage
Net Interest Income
Interest income	$	163,833	$	131,915	$	31,918	24.2	%
Interest expense	77,192		54,341		22,851		42.1
Total net interest income	86,641		77,574		9,067		11.7
Other Income
Revenue from real estate owned operations	4,462		—		4,462		100.0

Income (loss) from equity method investments	2,921		2,346		575		24.5


Other income	3,152		166		2,986		1,798.8
Total other income (loss)	10,535		2,512		8,023		319.4
Operating Expenses
General and administrative	8,754		7,193		1,561		21.7
Provision for (reversal of ) credit losses, net	10,580		(2,147)		12,727		592.8
Management fee to affiliate	12,513		9,125		3,388		37.1
Incentive compensation to affiliate	—		4,595		(4,595)		(100.0)
Expenses from real estate owned operations	4,922		—		4,922		100.0
Total operating expenses	36,769		18,766		18,003		95.9
Income (Loss) Before Income Taxes, Noncontrolling Interests, Preferred Dividends, Redemption Value Adjustment and Participating Securities' Share in Earnings	60,407		61,320		(913)		(1.5)
Income tax expense	—		151		(151)		(100.0)
Net Income (Loss)	60,407		61,169		(762)		(1.2)
Noncontrolling interests in (income) loss of consolidated joint venture	122		—		122		100.0
Net Income (Loss) Attributable to KKR Real Estate Finance Trust Inc. and Subsidiaries	60,529		61,169		(640)		(1.0)
Preferred stock dividends and redemption value adjustment	10,652		2,721		7,931		291.5
Participating securities' share in earnings	687		—		687		100.0
Net Income (Loss) Attributable to Common Stockholders	$	49,190	$	58,448	$	(9,258)	(15.8)	%

Net Income (Loss) Per Share of Common Stock
Basic	$	0.75	$	1.05	$	(0.30)	(28.6)	%
Diluted	$	0.74	$	1.05	$	(0.31)	(29.5)	%

Weighted Average Number of Shares of Common Stock Outstanding
Basic	65,832,841		55,625,911		10,206,930		18.3	%
Diluted	72,149,015		55,819,110		16,329,905		29.3	%

Dividends Declared per Share of Common Stock	$	0.86	$	0.86	$	—	—	%

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Net Interest Income

Net interest income increased by ~~$8.9~~$9.1 million ~~or 13.0%~~, during the six months ended June 30, ~~2021,~~2022, as compared to the corresponding period in the prior year. This increase was primarily due to an increase in the weighted average principal of our loan portfolio of $1,775.7 million for the six months ended June 30, ~~2020. Th~~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 ~~a $15.3 million, or 22.0%, decrease~~an increase in ~~interest expense resulting from a decrease in~~ ~~LIBOR,~~market rates and ~~a $24.8 million decrease~~an increase in the weighted average principal balance of our financing facilities o~~. Our interest income decreased by~~ f $1,518.9 million~~$6.4 million, or 4.6%,~~ ~~due~~ for the six months ended June 30, 2022, as compared to the ~~decline in LIBOR, partially offset by the~~ ~~benefits~~prior year period. The proceeds from ~~in-the-money LIBOR floors in~~ our ~~loans. As noted above, as of June 30, 2021,~~ ~~57% of~~financing facilities were used to fund our loan portfolio was subject to a LIBOR floor of at least 1.00%, with a weighted average floor of 1.34%; by contrast, only 14% of total outstanding financing (inclusive of the secured term loan) is subject to a LIBOR floor greater than 0.0%.originations and funding on previously closed loans.

In addition, we recognized ~~recognized $9.5~~$12.0 millionof deferred loan fees and origination discounts accreted into interest income during the six months ended June 30, ~~2021,~~2022, as co~~mpared~~compared to ~~$8.9~~$9.5 million during the ~~six months endedJune 30, 2020~~.prior year period. We recorded ~~$6.6~~$10.6 millionof deferred financing costs amortization into interest expense during the six months ended June 30, ~~2021,~~2022, as compared to ~~$10.8~~$6.6 million during the prior year period.

Other Income

Total other income increased by $8.0 million during the six months ended June 30, ~~2020~~2022.

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~~Other Income~~

To~~tal other income increased by $3.6 million~~, as compared to the prior year period. This increase was primarily due to ~~$0.1~~a $4.5 million increase in REO operating revenue and $1.3 million of profit sharing income in connection with the repayment of an industrial senior loan. In addition, the unrealized mark-to-market gain ~~from~~on our RECOP ~~I equity method investment during the six months ended June 30, 2021, as~~I's underlying CMBS investments increased by $1.1 million compared to ~~a $3.8 million unrealized loss during~~ the ~~six months ended June 30, 2020.~~prior year period.

Operating Expenses

Total operating expenses ~~decreased~~ increased by ~~$54.3~~$18.0 million ~~or 74.3%,~~ during the six months ended June 30, ~~2021,~~2022, as compared to the ~~six months ended June 30, 2020. This decrease was~~prior year period. This increase was primarily due to a (i) net increase of $~~56.1~~12.7 million in the provision for credit losses, (ii) $4.9 million increase in REO operating expenses and (iii) $3.4 million increase in management fees resulting from our preferred and common stock issuances. This increase was partially offset by a $4.6 million decrease in ~~provision for credit losses, partially offset by a (i) $1.7 million increase in Manager~~ incentive ~~compensation and (ii) a $1.0 million increase in non-cash stock-based compensation expense. In addition, we accrued for $1.5 million of dead deal costs related to deals canceled~~fee, as ~~a result of the COVID-19 impact during the six months ended June 30, 2020, which did not recur during the six months ended June 30, 2021.~~

~~The~~ ~~$2.1 million~~ net benefit from the reversal of credit losses during the six months ended June 30, 2021 was primarily attributable to a more stable macro-economic outlook based on improved observed economic data, partially offset by an increasecompared to the ~~allowance for 4- and 5-rated loans. The~~ ~~$53.9 million~~ in provision for credit loss during the six months ended June 30, 2020 was primarily due to the significant adverse change in the economic outlook resulting from the outbreak of COVID-19 pandemic and incremental reserves for our 4- and 5-risk rated loans.prior year period.

The following table provides additional information regarding total operating expenses (dollars in thousands):


		Three Months Ended											Three Months Ended
		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020		June 30, 2020			June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021		June 30, 2021
Professional services		$	527	$	567	$	348	$	362	$	566
Operating and other costs		1,167		946		1,209		1,811		2,106
Operating expenses												Operating expenses	$	2,268	$	2,320	$	1,970	$	1,632	$	1,694
Stock-based compensation	Stock-based compensation	1,994		1,992		1,305		1,390		1,374		Stock-based compensation	2,040		2,126		1,413		2,027		1,994
Total general and administrative expenses	Total general and administrative expenses	3,688		3,505		2,862		3,563		4,046		Total general and administrative expenses	4,308		4,446		3,383		3,659		3,688
Provision for (reversal of) credit losses, net	Provision for (reversal of) credit losses, net	(559)		(1,588)		(3,438)		(126)		(1,366)		Provision for (reversal of) credit losses, net	11,798		(1,218)		(3,077)		1,165		(559)
Management fees to affiliate		4,835		4,290		4,252		4,223		4,218
Management fee to affiliate												Management fee to affiliate	6,506		6,007		5,289		4,964		4,835
Incentive compensation to affiliate	Incentive compensation to affiliate	2,403		2,192		2,929		990		1,249		Incentive compensation to affiliate	—		—		3,463		2,215		2,403
Expenses from real estate owned operations												Expenses from real estate owned operations	2,368		2,554		—		—		—
Total operating expenses	Total operating expenses	$	10,367	$	8,399	$	6,605	$	8,650	$	8,147	Total operating expenses	$	24,980	$	11,789	$	9,058	$	12,003	$	10,367

COVID-19 Impact

~~During~~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. The impact of the outbreak has been rapidly evolving around the globe, with several countries taking 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.

In 2021 and 2022, the global economy has, with certain setbacks, begun reopening and wider distribution of vaccines will likely encourage greater economic activity. ~~Nevertheless, KREF is unable to predict how widely utilized the vaccines will be, whether they will be effective in preventing the spread~~Although we have observed signs of ~~COVID-19 (including its variant strains),~~economic recovery and ~~the timing and duration of the economic recovery.~~

~~The pandemic has resulted in, and may continue to result in, declines in rental rates and increases in rental concessions, including free rent to renew tenants early, to retain tenants who~~ are ~~up for renewal or to attract new tenants, or rent abatements for tenants severely impacted~~generally encouraged by the ~~COVID-19 pandemic. Such responses have resulted in, and may continue to result in, decreases in cash flows to certain~~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 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

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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 ~~defaults~~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 increase our interest expenses, which expenses may not be fully offset by any resulting increase in ~~paying debt service on outstanding indebtedness, which could adversely impact~~interest income, and may lead to decreased prepayments from our ~~results~~borrowers and an increase in the number of ~~operations and financial performance. In addition,~~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.

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We believe ~~COVID-19’s adverse~~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~~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. The prolonged duration and impact of the COVID-19 pandemic could materially disrupt our business operations and negatively impact our business, financial performance and operating results for the year ending December 31, 2021 and potentially longer.

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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%~~77% of our total secured financing (excluding our corporate Revolver) as of June 30, ~~2021,~~2022, are not subject to credit or capital markets mark-to-market provisions. The remaining ~~24%~~23% 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 ~~$119.2~~$118.0 million of cash on ourour consolidated balance sheet, ~~$335.0~~$610.0 million of available capacity on our corporate revolver, ~~$138.8~~$62.3 million ofof available borrowings under our financing arrangements based on existing collateral~~, $40.5 million of loan repayment proceeds held by the servicer and receivable by us, and~~ ~~net proceeds from secured term loan~~ and cash flows from operations. In addition, we had $416.0 million of unencumbered senior loans that can be financed, as of June 30, 2022. Our corporate revolver and secured term loan are secured by corporate level guarantees and ~~do not include asset-based collateral.~~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, 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 these VIEs is limited to the carrying value of our investment in the entity and any unfunded capital commitments. As of June 30, 2022, we held $36.8 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 ~~that may~~to be issued pursuant to this Shelf was not specified when it was filed and there is ~~not to exceed $750.0 million.~~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) ~~and~~ 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 ~~February 2019,~~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. ~~We have not~~During the six months ended June 30, 2022, we issued and sold ~~any~~68,817 shares of ~~our~~ common stock under the ATM, ~~to date. In addition, in April 2021, we issued 6,900,000 shares~~generating net proceeds totaling $1.4 million. As of ~~6.50% Series A Preferred Stock~~June 30, 2022, $98.6 million remained available for issuance under the Shelf, which included the exercise of the underwriters' option to purchase additional shares of Series A Preferred Stock. The aggregate offering price for the Series A Preferred Stock registered and sold by us was approximately $172.5 million, and we received net proceeds after underwriting discount and commission of $167.1 million.ATM.

See Notes 4, 5, 6, 7, 8 and 1011 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.

(1) Comprised of term loan financing, term lending agreement, collateralized loan obligations, secured term loan, warehouse facility, asset specific financing, and non-consolidated senior interests.

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Debt-to-Equity Ratio and Total Leverage Ratio

The following table presents our debt-to-equity ratio and total leverage ratio:

June 30, ~~2021~~2022

December 31, ~~2020~~2021

Debt-to-equity ratio(A)

1.9x

~~1.9x~~2.3x

Total leverage ratio(B)

~~3.3x~~3.5x

~~3.6x~~3.7x

(A) Represents (i) total outstanding debt agreements (excluding non-recourse ~~term loan facility)~~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 ~~obligation,~~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 (dollars in thousands):


		June 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
Cash and cash equivalents	Cash and cash equivalents	$	119,172	$	110,832	Cash and cash equivalents	$	118,020	$	271,487
Available borrowings under revolving credit agreements	Available borrowings under revolving credit agreements	335,000		335,000		Available borrowings under revolving credit agreements	610,000		200,000
Available borrowings under master repurchase agreements	Available borrowings under master repurchase agreements	138,830		19,319		Available borrowings under master repurchase agreements	54,255		51,601

Available borrowings under term lending agreements						Available borrowings under term lending agreements	5,210		5,826

Available borrowings under asset specific financing						Available borrowings under asset specific financing	2,793		—

							$	790,278	$	528,914
Available borrowings under asset specific financing		—		800
Loan principal payments receivable		40,476		15,850
		$	633,478	$	481,801

We also had $416.0 million and $235.3 million of unencumbered senior loans that can be pledged to financing facilities subject to lender approval, as of June 30, 2022 and December 31, 2021. In addition to our primary sources of liquidity, we have the ability to access to 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 six months ended June 30, ~~2021~~2022 and ~~2020~~2021 (dollars in thousands):


		Six Months Ended June 30,					Six Months Ended June 30,
		2021		2020			2022		2021
Cash Flows From Operating Activities	Cash Flows From Operating Activities	$	58,109	$	53,042	Cash Flows From Operating Activities	$	68,384	$	58,109
Cash Flows From Investing Activities	Cash Flows From Investing Activities	(604,668)		(177,790)		Cash Flows From Investing Activities	(1,144,062)		(604,668)
Cash Flows From Financing Activities	Cash Flows From Financing Activities	554,899		184,379		Cash Flows From Financing Activities	927,581		554,899
Net Increase in Cash, Cash Equivalents, and Restricted Cash		$	8,340	$	59,631
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash						Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash	$	(148,097)	$	8,340

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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. The following table sets forth interest received by, and paid for, our investments for the six months ended June 30, ~~2021~~2022 and ~~2020~~2021 (dollars in thousands):


		Six Months Ended June 30,					Six Months Ended June 30,
		2021		2020			2022		2021
Interest Received:	Interest Received:					Interest Received:
Commercial real estate loans	Commercial real estate loans	$	118,304	$	123,667	Commercial real estate loans	$	139,532	$	118,304
		118,304		123,667
							139,532		118,304
Interest Paid:	Interest Paid:					Interest Paid:
Interest expense	Interest expense	46,296		61,785		Interest expense	63,365		46,296
Net interest collections	Net interest collections	$	72,008	$	61,882	Net interest collections	$	76,167	$	72,008

Our net interest collections were partially offset by cash used to pay management and incentive fees, as follows (dollars in thousands):


		Six Months Ended June 30,					Six Months Ended June 30,
		2021		2020			2022		2021
Management Fees to affiliate	Management Fees to affiliate	$	8,541	$	8,580	Management Fees to affiliate	$	11,296	$	8,541
Incentive Fees to affiliate	Incentive Fees to affiliate	4,595		2,855		Incentive Fees to affiliate	—		4,595
Net decrease in cash and cash equivalents	Net decrease in cash and cash equivalents	$	13,136	$	11,435	Net decrease in cash and cash equivalents	$	11,296	$	13,136

Cash Flows from Investing Activities

Our cash flows from investing activities consisted of cash outflows to fund new loan originations and our commitments under existing loan investments, partially offset by cash inflows from the sale/syndication and principal repayments on our loan investments. During the six months ended June 30, ~~2021,~~2022, we funded ~~$1,119.2~~$1,791.3 million of CRE loans and received $647.8 million~~$514.5 million~~ from ~~the~~ repayments ~~and sales/syndications~~ of CRE loans.

During the six months ended June 30, ~~2020,~~2021, we funded ~~$411.8~~$1,119.2 million of CRE loans and received ~~$234.0~~$514.5 million from the sale/syndication and repayments of CRE loans.

Cash Flows from Financing Activities

Our cash flows from financing activities were primarily driven by proceeds from borrowings under our financing agreements of $1,817.0 million, CLO 2022-FL3 issuance proceeds of $847.5 million, and net proceeds from Series A preferred and common stock issuances of $340.1 million du~~$1,014.3~~ring the six months ended June 30, 2022, partially offset by (i) repayments of $1,972.8 million on borrowings under our financing agreements, (ii) payment of $66.5 million in dividends and (iii) the payment of $18.1 million for our share repurchases.

During the six months ended June 30, 2021, our cash flows from financing activities were primarily driven by proceeds from borrowings under our financing agreements of $1,014.3 million and net proceeds from Series A preferred stock issuance of ~~$167.1~~$167.1 million, ~~during the six months ended June 30, 2021,~~ which were ~~partially~~ offset by (i) repayments of ~~$572.5~~$572.5 million on borrowings under our financing agreements and (ii) payment of $50.0 million in dividends.

During the six months ended June 30, 2020, our cash flows from financing activities were primarily driven by proceeds from borrowings under our financing agreements of $900.6 million, which were partially offset by (i) principal repayments of $636.7 million on borrowings under our financing agreements, (ii) payment of $49.2 million in dividends, and (iii) payment of $25.1 million for our share repurchases.

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Contractual Obligations and Commitments

The following table presents our contractual obligations and commitments (including interest payments) as of June 30, ~~2021~~2022 (dollars in thousands):


		Total		Less than 1 year		1 to 3 years		3 to 5 years		Thereafter			Total		Less than 1 year		1 to 3 years		3 to 5 years		Thereafter
Recourse Obligations:	Recourse Obligations:											Recourse Obligations:
Master Repurchase Facilities(A)	Master Repurchase Facilities(A)											Master Repurchase Facilities(A)
Wells Fargo(B)	Wells Fargo(B)	$	501,609	$	501,609	$	—	$	—	$	—	Wells Fargo(B)	$	732,737	$	19,135	$	713,602	$	—	$	—
Morgan Stanley(C)	Morgan Stanley(C)	452,709		452,709		—		—		—		Morgan Stanley(C)	581,846		581,846		—		—		—
Goldman Sachs(D)	Goldman Sachs(D)	101,775		101,775		—		—		—		Goldman Sachs(D)	125,135		125,135		—		—		—
Term Lending Agreement(A)
Term Lending Agreements(A)												Term Lending Agreements(A)
KREF Lending V~~(B)~~(E)	KREF Lending V~~(B)~~(E)	917,756		917,756		—		—		—		KREF Lending V~~(B)~~(E)	573,140		573,140		—		—		—
KREF Lending IX												KREF Lending IX	701,927		22,778		544,958		134,191		—
KREF Lending XII												KREF Lending XII	178,060		5,015		69,849		103,196
Warehouse Facility	Warehouse Facility											Warehouse Facility
HSBC	HSBC	—		—		—		—		—		HSBC	—		—		—		—		—
Asset Specific Financing	Asset Specific Financing											Asset Specific Financing
BMO Facility(A)	BMO Facility(A)	60,659		60,659		—		—		—		BMO Facility(A)	—		—		—		—		—
Total secured financing agreements	Total secured financing agreements	2,034,508		2,034,508		—		—		—		Total secured financing agreements	2,892,845		1,327,049		1,328,409		237,387		—
Convertible Notes	Convertible Notes	160,479		8,927		151,552		—		—		Convertible Notes	151,552		7,802		143,750		—		—
Secured Term Loan	Secured Term Loan	402,773		20,337		40,195		39,449		302,792		Secured Term Loan	419,535		17,570		34,753		34,147		333,065
Future funding obligations(C)		847,696		404,797		439,739		3,160		—
RECOP I commitment(D)		4,324		4,324		—		—		—
Revolver(E)		—		—		—		—		—
Future funding obligations(F)												Future funding obligations(F)	1,412,237		627,162		722,431		62,644		—
RECOP I commitment(G)												RECOP I commitment(G)	4,324		4,324		—		—		—
Revolver(H)												Revolver(H)	—		—		—		—		—
Total recourse obligations	Total recourse obligations	3,449,780		2,472,893		631,486		42,609		302,792		Total recourse obligations	4,880,493		1,983,907		2,229,343		334,178		333,065
Non-Recourse Obligations:	Non-Recourse Obligations:											Non-Recourse Obligations:
Collateralized Loan Obligations	Collateralized Loan Obligations	823,691		11,332		22,664		22,695		767,000		Collateralized Loan Obligations	2,237,725		58,963		117,925		118,087		1,942,750
Term Loan Financing	Term Loan Financing	1,014,316		644,248		242,063		128,005		—		Term Loan Financing	785,691		369,540		327,809		88,342		—
KREF Lending XI												KREF Lending XI	105,770		4,331		101,439		—		—
Total	Total	$	5,287,787	$	3,128,473	$	896,213	$	193,309	$	1,069,792	Total	$	8,009,679	$	2,416,741	$	2,776,516	$	540,607	$	2,275,815

(A) The allocation of repurchase facilities and ~~Term Lending Agreement~~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 June 30, ~~2021~~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) ~~In March 2021, the~~The current stated maturity ~~was extended~~is September 2024, with two twelve-month facility term extensions available to ~~June~~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 ~~four~~approval by Morgan Stanley.

(D) The current stated maturity is October 2022, with one twelve-month extension option available to us, subject to the satisfaction of certain conditions.

(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.

~~(C)~~(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.

~~(D)~~(G) Amounts committed to invest in an aggregator vehicle alongside RECOP I, which had a two-year investment period which ended in April 2019.

~~(E)~~(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 June 30, ~~2021.~~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 ~~December 2023.~~March 2027.

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 1315 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.

As a REIT, we generally must distribute at 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

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of the Code. Our taxable income does not necessarily equal our net income as calculated in accordance with GAAP, or our Distributable Earnings as described above under "Key Financial Measures and Indicators — Distributable Earnings."

Subsequent Events

Our subsequent events are detailed in Note 1618 to our condensed consolidated financial statements.

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Critical Accounting Policies and Use of Estimates

Our 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 GAAP. The preparation of these condensed consolidated financial statements requires our Manager to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Actual results could differ from these estimates. There have been no material changes to our Critical Accounting Policies and Use of Estimates described in our 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.

In connection with our adoption of ASU No. 2016-13 on January 1, 2020, we implemented new processes including the utilization of loan loss forecasting models, updates to our reserve policy documentation, changes to our internal reporting processes and related internal controls. 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 2020, 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.

We consider loan investments that are both (i) expected to be substantially repaid through the operation or sale of the underlying collateral, and (ii) for which the borrower is experiencing financial difficulty, to be “collateral-dependent” loans. For such loans that we determine that 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 that we determine foreclosure is not probable, we apply 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.

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 loan 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, which ratings are defined as follows:

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strong current cash flow and/or a very low loan-to-value ratio (<65%). At the level of performance, it is very likely that the underlying loan can be refinanced easily in the period’s prevailing capital market conditions.

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3—Average Risk—The underlying property performance is in-line with underwritten expectations, or the sponsor may be in the early stages of executing its business plan. Current cash flow supports debt service payments, or there is an ample interest reserve or loan structure in place to provide the sponsor time to execute the value-improvement plan. The property exhibits a moderate loan-to-value ratio (<75%). Loan structure appropriately mitigates additional risks. The sponsor/manager has a stable credit history and experience owning or operating similar real estate.

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 the potentially issuable shares related to our Convertible Notes, when dilutive, in 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. ~~These~~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 ~~borrower’s~~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’ ~~initial~~ 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 ~~has~~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.

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 ~~LIBOR~~rate floors in our loan portfolio, which benefit is expected to ~~initially~~ decrease as ~~LIBOR increases.~~the index rates increase. There can be no assurance that we will continue to utilize ~~LIBOR~~rate floors. ~~As of June 30, 2021, one-month USD LIBOR was~~ ~~0.10%, as compared to 0.14% as of December 31, 2020.~~ 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 June 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 June 30, ~~2021, 99.9%~~2022, 100.0% of our ~~loans~~loan portfolio and related portfolio financing by principal ~~balance~~amount earned or paid a floating rate of interest indexed to one-month USD ~~LIBOR.~~ ~~The interest rates we pay under our current financing facilities are floating rate.~~LIBOR and/or Term SOFR. Accordingly, our interest income and expense will generally ~~increase as interest rates increase and decrease as interest rates decrease.~~

~~As noted above, our interest income generally decreases as LIBOR decreases;~~change directionally with index rates; however, in certain circumstances, ~~however, LIBOR~~rate floors relating to our loan portfolio may partially offset ~~some of~~ the impact from ~~declining~~changing rates. As of June 30, ~~2021,~~ ~~approximately~~ ~~57%~~ ~~of our portfolio was subject to~~2022, a ~~LIBOR floor of at least~~ ~~1.00%~~ ~~with a weighted average floor of~~ ~~1.34%. Due to~~ ~~these LIBOR floors, a 10 basis point or greater decrease in LIBOR would increase our expected cash flows by approximately $3.6 million, or $0.06 per common share, for the twelve months following June 30, 2021. Conversely, a 25 basis point and~~ 50 basis point ~~increase~~decrease in ~~LIBOR~~the index rates would decrease our expected cash flows by approximately ~~$8.9 million and $17.0~~$3.4 million, or ~~$0.16 and $0.31~~$0.05 per common share, for the following twelve-month period. Conversely, a 50 basis point and a 100 basis point increase in the index rates would increase our expected cash flows by approximately $5.4 million and $12.8 million, or $0.08 and $0.18 per common share, respectively, for the same ~~period, respectively.~~

period.

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LIBOR Transition

OnOn March 5, 2021, the ~~United Kingdom’s~~ Financial Conduct Authority ~~(“FCA”~~of the U.K. (the “FCA”), which regulates LIBOR, announced (the “FCA Announcement”) that all LIBOR ~~settings~~tenors relevant to us will ~~either~~ cease to be ~~provided by any administrator~~published or will no longer be ~~representative: (a) immediately~~representative after ~~December 31,~~June 30, 2023. The FCA Announcement coincides with the March 5, 2021 inannouncement of LIBOR’s administrator, the ~~case~~ICE Benchmark Administration Limited (the “IBA”), indicating that, as a result of ~~the one week and two month U.S. dollar settings; and (b) immediately~~not having access to input data necessary to calculate LIBOR tenors relevant to us on a representative basis after June 30, 2023, in the ~~case~~IBA would have to cease publication of such LIBOR tenors immediately after the ~~remaining U.S. dollar settings.~~last publication on June 30, 2023. 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. ~~At this time,~~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 ~~not~~also possible ~~to predict how markets will respond~~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 ~~rates~~rate as the transition away from the LIBOR benchmarks is anticipated in coming years. Accordingly, the outcome of these reforms is uncertain and any changes in the methods by which LIBOR is determined or regulatory activity related to LIBOR’s ~~phaseout could cause LIBOR to perform differently than in the past.~~replacement.

As of June 30, ~~2021,~~2022, ~~99.9%~~73.7% and 26.3% of our loans by principal ~~balance~~amount earned a floating rate of interest indexed to LIBOR and ~~100.0%~~Term SOFR, respectively; and 64.0% and 36.0% of our outstanding floating rate financing arrangements ~~(excluding convertible notes)~~ bear interest indexed to ~~LIBOR.~~LIBOR and Term SOFR, respectively. All of ~~these~~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 an 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 to rein in inflation 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.

Financing Risk

We finance our target assets using our repurchase facilities, our ~~Term Lending Agreement,~~term lending agreements, our Term Loan Financing, Warehouse Facility, Asset Based Financing, secured term loan, collateralized loan obligations and through 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 CRE and mortgage markets or 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 real 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.

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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 such information is accumulated and communicated to management, including the Chief Executive Officer 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.

As of June 30, ~~2021,~~2022, we carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, ~~2021,~~2022, our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act) occurred during the quarter ended June 30, ~~2021~~2022 that materially affected, or is 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 1214 of our condensed consolidated financial statements included in this Form 10-Q is incorporated herein by reference.

ITEM 1A. RISK FACTORS

For information regarding the risk factors that could affect the Company’s business, results of operations, financial condition and liquidity, see the information under Part I, Item 1A. “Risk Factors” in the Form 10-K, which is accessible on the SEC’s website at 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

In 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 an expiration date, we may repurchase up to $100.0 million of our 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 that provides 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 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.

~~We did not repurchase any~~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 June 30, ~~2021. As~~2022:


Period Beginning	Period Ending	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced program	Amounts paid for shares purchased as part of publicly announced program		Approximate dollar value of shares that may yet be purchased under the program(A)
April 1, 2022	April 30, 2022	—	$	—	—	$	—	$	100,000,000
May 1, 2022	May 31, 2022	—	—		—	—		100,000,000
June 1, 2022	June 30, 2022	1,044,692	17.28		1,044,692	18,081,490		81,918,510
Total/Average		1,044,692	$	17.28		$	18,081,490

(A) Includes $31.9 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 June 30, ~~2021, we had $100.0 million of availability to repurchase shares under the program.~~2022.

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

	~~3.1~~	~~Articles Supplementary, designating the Company's 6.5~~0 ~~% Series A Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on April 16, 2021).~~

	~~4.1~~	Form of Specimen Certificate for the Company’s 6.50% Series A Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on April 16, 2021).

	~~10.1~~	Fourth Amendment to Amended and Restated Master Repurchase Agreement, dated as of June 30, 2021, between KREF Lending III LLC, KREF Lending III TRS LLC, Goldman Sachs Bank USA and, solely with respect to Section 3 thereof, KREF Holdings III LLC and KKR Real Estate Finance Holdings L.P.

	~~10.2~~	~~First Amendment to Guaranty, dated as of December 31, 2018, between KKR Real Estate Finance Holdings L.P. and Goldman Sachs Bank USA~~.

	~~10.3~~	~~Second Amendment to Guaranty, dated as of June 30, 2021, between KKR Real Estate Finance Holdings L.P. and Goldman Sachs Bank USA.~~

	~~10.4~~	~~Sixth Amendment to Master Repurchase Agreement, dated as of June 29, 2021, between Morgan Stanley Bank, N.A. and KREF Lending IV LLC and KKR Real Estate Finance Holdings L.P.~~

	~~10.5~~	~~Amendment No. 5 to Guarantee Agreement, dated as of June 30, 2021 between Wells Fargo Bank, National Association and KKR Real Estate Finance Holdings L.P.~~

	~~10.6~~	Second Omnibus Amendment to Master Repurchase Agreement, dated as of June 29, 2021, by and among Morgan Stanley Mortgage Capital Holdings LLC, Morgan Stanley Bank, N.A. and the other Buyers named therein, and KREF Lending V LLC.

	31.1	Certificate of Matthew A. Salem, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2	Certificate of ~~Mostafa Nagaty,~~Kendra L. Decious, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32.1	Certificate of Matthew A. Salem, Chief Executive 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).

	32.2	Certificate of ~~Mostafa Nagaty,~~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.INS	Inline 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.SCH	Inline XBRL Taxonomy Extension Schema Document.

	101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.

	101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.

	101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.

	101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.

	104	Cover Page Interactive Data File, formatted in Inline XBRL and contained in Exhibit 101.

_______________________

Certain agreements and other documents filed as exhibits to this Form 10-Q contain representations and warranties 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

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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 intended 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.

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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:	July ~~26, 2021~~25, 2022	By:	/s/ Matthew A. Salem
			Name: Matthew A. Salem
			Title: Chief Executive Officer
			(Principal Executive Officer)

Date:	July ~~26, 2021~~25, 2022	By:	/s/ ~~Mostafa Nagaty~~Kendra L. Decious
			Name: ~~Mostafa Nagaty~~Kendra L. Decious
			Title: Chief Financial Officer and Treasurer
			(Principal Financial and Accounting Officer)

8087


								Weighted Average
Loan Type	Outstanding Principal		Amortized Cost(A)		Carrying Value(B)		Loan Count	Floating Rate Loan %(C)		Coupon(C)		Life (Years)(D)
June 30, 2021
Loans held-for-investment
Senior loans(E)	$	5,224,467	$	5,200,619	$	5,143,599	44	100.0	%	4.6	%	3.1
Mezzanine and other loans(F)	113,332		107,881		106,890		5	95.1		11.1		4.3
	$	5,337,799	$	5,308,500	$	5,250,489	49	99.9	%	4.7	%	3.1
December 31, 2020
Loans held-for-investment
Senior loans(E)	$	4,779,367	$	4,759,624	$	4,701,268	38	100.0	%	4.7	%	3.3
Mezzanine and other loans(F)	90,329		84,910		83,465		4	93.9		12.6		4.6
	$	4,869,696	$	4,844,534	$	4,784,733	42	99.9	%	4.9	%	3.3


	June 30, 2021
Collateralized Loan Obligation	Count	Outstanding Principal		Amortized Cost		Carrying Value		Wtd. Avg. Yield/Cost	Wtd. Avg. Term(B)
Collateral assets(A)	19	$	957,000	$	957,000	$	956,276	L + 3.1%	March 2024
Financing provided	1	767,000		767,000		767,000		L + 1.4%	June 2036


	Restricted Stock Units	Weighted Average Grant Date Fair Value Per RSU(A)
Unvested as of December 31, 2020	787,942	$	18.78
Granted	15,520	19.65
Vested	(18,886)	14.60
Forfeited / cancelled	(8,226)	18.13
Unvested as of June 30, 2021	776,350	$	18.91


							Fair Value
	Principal Balance(A)		Amortized Cost(B)		Carrying Value(C)		Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents	$	119,172	$	119,172	$	119,172	$	119,172	$	0	$	0	$	119,172
Commercial real estate loans, held-for-investment, net(D)	5,337,799		5,308,500		5,250,489		0		0		5,250,674		5,250,674
Equity method investments	33,773		33,773		33,773		0		0		33,773		33,773
	$	5,490,744	$	5,461,445	$	5,403,434	$	119,172	$	0	$	5,284,447	$	5,403,619
Liabilities
Secured financing agreements, net	$	3,000,369	$	2,996,564	$	2,996,564	$	0	$	0	$	2,996,564	$	2,996,564
Collateralized loan obligation, net	767,000		767,000		767,000		0		0		767,124		767,124
Secured term loan, net	298,500		287,418		287,418		0		301,858		0		301,858
Convertible notes, net	143,750		141,152		141,152		0		154,267		0		154,267
Loan participations sold, net	66,248		66,242		66,242		0		0		66,242		66,242
	$	4,275,867	$	4,258,376	$	4,258,376	$	0	$	456,125	$	3,829,930	$	4,286,055