KKR Real Estate Finance Trust Inc.

07/22/2025 | Press release | Distributed by Public on 07/22/2025 14:38

Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)

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 top 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 15 to our condensed consolidated financial statements included in this Form 10-Q.
Macroeconomic Environment
The last several quarters have been marked by significant volatility in global markets, driven by inflation, elevated interest rates, slowing economic growth, increased tariffs, trade tensions, geopolitical conditions, and political and regulatory uncertainty. These conditions have adversely impacted, and may continue to adversely impact, the U.S. and global economies, the real estate industry and our borrowers, and the performance of the properties securing our loans. Collectively, these market dynamics pose challenges to commercial real estate values and transaction activity, which have resulted in lower demand for office space and elevated levels of vacancy and default rates.
Although the Federal Reserve lowered interest rates by 50 basis points in September 2024, by 25 basis points in November 2024 and by 25 basis points in December 2024, interest rates remain elevated and the timing, direction and extent of any future interest rate changes remain uncertain. Although higher interest rates will generally correlate to increases in our net income, increases in interest rates may adversely affect our existing borrowers and the cost of financing their properties and lead to nonperformance. Higher interest rates may also adversely impact real estate asset values and increase our interest expense, which expense may not be fully offset by any resulting increase in interest income.
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
June 30, 2025 March 31, 2025
Net income (loss) attributable to common stockholders $ (35,425) $ (10,550)
Weighted-average number of shares of common stock outstanding, basic and diluted 67,191,309 68,765,877
Net income (loss) per share, basic and diluted $ (0.53) $ (0.15)
Dividends declared per share $ 0.25 $ 0.25
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 generally determined (i) upon the resolution of a loan (i.e. when the loan is repaid, fully or partially, or, in the case of foreclosure, when the underlying asset is sold), or (ii) if, in our determination, it is nearly certain that all amounts due under a loan will not be collected.
Distributable Earnings should not be considered as a substitute for GAAP net income or taxable 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.
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 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 ("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. 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) the unrealized provision for (reversal of) credit losses. The quarterly incentive compensation is calculated and paid in arrears with a three-month lag.
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 Per Diluted Three Months Ended Per Diluted
June 30, 2025 Share* March 31, 2025 Share*
Net Income (Loss) Attributable to Common Stockholders $ (35,425) $ (0.53) $ (10,550) $ (0.15)
Adjustments
Non-cash equity compensation expense 2,141 0.03 2,127 0.03
Depreciation and amortization 740 0.01 740 0.01
Unrealized (gains) or losses, net 238 - (131) -
Provision for credit losses, net 49,848 0.74 24,863 0.36
(Gain) loss on sale of investments (1,192) (0.02) - -
Distributable Earnings before realized gains or losses $ 16,350 $ 0.24 $ 17,049 $ 0.25
Realized loss on loan write-offs, net (20,434) (0.30) - -
Realized gain on sale of investments 1,192 0.02 - -
Distributable Earnings (Loss) $ (2,892) $ (0.04) $ 17,049 $ 0.25
Diluted weighted average common shares outstanding 67,191,309 68,765,877
* Per share amounts presented may not foot due to rounding.
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 (amounts in thousands, except share and per share data):
June 30, 2025 December 31, 2024
KKR Real Estate Finance Trust Inc. stockholders' equity $ 1,240,053 $ 1,345,030
Series A preferred stock (liquidation preference of $25.00 per share)
(327,750) (327,750)
Common stockholders' equity $ 912,303 $ 1,017,280
Shares of common stock issued and outstanding at period end 65,676,132 68,713,596
Add: Deferred stock units 239,922 206,112
Total shares outstanding at period end 65,916,054 68,919,708
Book value per share $ 13.84 $ 14.76
Book value as of June 30, 2025 included the impact of an estimated CECL allowance of $173.9 million, or ($2.64) per 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.
Our Portfolio
We have established a $6,242.5 million portfolio of diversified investments, consisting primarily of senior commercial real estate loans as of June 30, 2025.
During the three months ended June 30, 2025, we collected 99.9% of interest payments due on our loan portfolio. As of June 30, 2025, the average risk rating of our loan portfolio was 3.1, weighted by loan outstanding principal. As of June 30, 2025, the average loan commitment in our portfolio was $116.6 million and multifamily and industrial loans comprised 62% of our loan portfolio.
In addition, we owned Real Estate Assets with an investment amount of $407.0 million, comprised of the acquired properties (directly or indirectly) and capitalized redevelopment costs, as of June 30, 2025. These properties are reflected on our Condensed Consolidated Balance Sheets.
We have executed 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 be heavily weighted toward floating-rate loans. As of June 30, 2025, substantially all of our loans by outstanding principal earned a floating rate of interest. We expect the majority of our future investment activity to focus on originating floating-rate senior loans that we finance with our repurchase and other financing facilities. As of June 30, 2025, all of our investments were located in the United States.
The following charts illustrate the diversification and composition of our loan portfolio as of June 30, 2025, based on type of investment, interest rate, underlying property type, geographic location, vintage and LTV:
(A) Charts are based on outstanding principal of our commercial real estate loans. Excludes fully written off loans and loans held in consolidated CMBS trust.
(B) 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.
(C) "Other" property type includes Student Housing (2%) and Mixed Use (<1%).
(D) LTV is generally based on the initial loan amount divided by the as-is appraised value as of the date the loan was originated. Weighted average LTV excludes risk-rated 5 loans.
The following table details our quarterly loan activity (amounts in thousands):
Three Months Ended
June 30, 2025 March 31, 2025 December 31, 2024 September 30, 2024
Loan originations $ 210,650 $ 376,270 $ - $ -
Loan fundings $ 230,232 $ 405,667 $ 53,044 $ 55,337
Loan repayments(A)
(450,053) (183,595) (457,033) (290,044)
Net fundings (219,821) 222,072 (403,989) (234,707)
PIK interest 369 402 388 324
Net write-offs (20,434) - (35,902) (1,832)
Transfer to REO (91,766) - - -
Total activity $ (331,652) $ 222,474 $ (439,503) $ (236,215)
(A) Includes a repayment of $38.6 million of non-consolidated senior interests as our retained mezzanine loan was fully repaid during the three months ended September 30, 2024.
The following table details overall statistics for our loan portfolio as of June 30, 2025 (amounts in thousands):
Outstanding Principal
Total Floating Rate Loans
Fixed Rate Loans(A)
Number of loans(B)
53 53 -
Principal balance $ 5,790,984 $ 5,716,584 $ 74,400
Amortized cost 5,777,138 5,702,738 74,400
Unfunded loan commitments 388,694 383,694 5,000
Weighted average cash coupon(C)
7.4 % S + 3.1 % *
Weighted average all-in yield(C)
7.6 % S + 3.3 % *
Weighted average maximum maturity (years)(D)
1.9 1.9 1.0
Weighted average LTV(E)
66 % 66 % n.a.
* Rounds to zero
(A) Represents a mezzanine loan with a commitment of $79.4 million accompanying a senior loan. $74.4 million of loan principal was funded and on nonaccrual status as of June 30, 2025. Refer to Note 3 to our condensed consolidated financial statements for additional information.
(B) Excludes fully written off loans.
(C) In addition to cash coupon, all-in yield includes the amortization of deferred origination fees, loan origination costs and purchase discounts. Weighted average cash coupon and all-in yield excludes loans on nonaccrual status.
(D) Maximum maturity assumes all extension options are exercised by the borrower; however, our loans may be repaid prior to such date.
(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. Weighted average LTV excludes risk-rated 5 loans.
The table below sets forth additional information relating to our portfolio as of June 30, 2025 (amounts in millions):
Investment(A)
Location Property Type Investment Date
Total Whole Loan(B)
Committed Principal/Investment Amount Outstanding Principal/ Investment Amount
Net Equity(C)
Coupon(D)(E)
Max Remaining Term (Years)(D)(F)
Loan/Investment Per SF / Unit / Key(G)
Origination LTV(D)(H)
Risk Rating
Senior Loans
1 Senior Loan Arlington, VA Multifamily 9/30/2021 $ 381.0 $ 381.0 $ 378.3 $ 89.0 + 3.3% 1.3 $340,779 / unit 69 % 3
2 Senior Loan Boston, MA Life Science 8/3/2022 312.5 312.5 229.6 33.6 + 4.2 2.1 $747 / SF 56 3
3 Senior Loan Bellevue, WA Office 9/13/2021 520.8 260.4 224.6 55.8 + 3.7 1.8 $851 / SF 63 3
4 Senior Loan Various Industrial 4/28/2022 504.5 252.3 252.3 64.1 + 2.7 1.9 $98 / SF 64 3
5 Senior Loan Bronx, NY Industrial 8/27/2021 381.2 228.7 217.2 47.9 + 4.2 1.2 $277 / SF 52 3
6 Senior Loan Los Angeles, CA Multifamily 2/19/2021 220.0 220.0 220.0 43.2 + 2.9 0.7 $410,430 / unit 68 3
7 Senior Loan Minneapolis, MN Office 11/13/2017 199.4 199.4 194.4 96.2 + 2.3 1.0 $182 / SF n.a. 5
8 Senior Loan The Woodlands, TX Hospitality 9/15/2021 181.4 181.4 181.4 38.6 + 4.3 1.3 $199,513 / key 64 2
9 Senior Loan Washington, D.C. Office 11/9/2021 181.0 181.0 178.0 69.7 + 3.1 2.4 $499 / SF 55 3
10 Senior Loan Various Industrial 6/15/2022 346.6 173.3 159.1 40.6 + 2.9 2.0 $130 / SF 64 3
11 Senior Loan West Palm Beach, FL Multifamily 12/29/2021 171.5 171.5 171.4 33.1 + 2.8 1.5 $211,091 / unit 73 2
12 Senior Loan Boston, MA Life Science 4/27/2021 332.3 166.2 163.2 41.8 + 3.7 0.9 $678 / SF n.a. 5
13 Senior Loan Redwood City, CA Life Science 9/30/2022 580.7 145.2 83.1 16.2 + 4.5 2.3 $885 / SF 53 3
14 Senior Loan Plano, TX Office 2/6/2020 141.8 141.8 137.8 29.9 + 3.9 1.1 $190 / SF 64 3
15 Senior Loan Raleigh, NC Industrial 6/24/2025 407.6 125.0 125.0 23.8 + 2.4 5.0 $152 / SF 71 3
16 Senior Loan Arlington, VA Multifamily 1/20/2022 119.3 119.3 119.3 26.1 + 2.9 1.6 $397,644 / unit 65 3
17 Senior Loan Cambridge, MA Life Science 12/22/2021 401.3 115.7 97.6 25.1 + 4.0 1.5 $1,072 / SF 51 3
18 Senior Loan San Diego, CA Multifamily 10/20/2021 115.0 115.0 111.7 39.8 + 3.5 1.4 $483,492 / unit 71 4
19 Senior Loan Philadelphia, PA Office 6/19/2018 114.3 114.3 114.3 25.9 + 2.8 1.6 $117 / SF 71 3
20 Senior Loan Pittsburgh, PA Student Housing 6/8/2021 112.5 112.5 112.5 21.8 + 3.0 0.9 $155,602 / unit 74 2
21 Senior Loan Chicago, IL Office 7/15/2019 105.0 105.0 90.7 73.7 + 2.3 3.1 $87 / SF 59 4
22 Senior Loan Las Vegas, NV Multifamily 12/28/2021 101.1 101.1 101.1 19.8 + 2.8 1.5 $191,460 / unit 61 3
23 Senior Loan Washington, D.C. Office 1/13/2022 228.5 100.0 99.9 15.0 + 3.3 2.6 $365 / SF 55 3
24 Senior Loan Cary, NC Multifamily 11/21/2022 100.0 100.0 95.3 20.0 + 3.4 2.4 $244,275 / unit 63 3
25 Senior Loan Boston, MA Industrial 6/28/2022 273.2 95.7 95.0 20.0 + 3.0 2.0 $195 / SF 52 3
26 Senior Loan Orlando, FL Multifamily 12/14/2021 95.4 95.4 95.4 24.4 + 3.1 1.5 $251,715 / unit 74 3
27 Senior Loan Raleigh, NC Multifamily 4/27/2022 91.7 91.7 85.5 45.5 + 3.2 1.9 $267,108 / unit n.a. 5
28 Senior Loan Brisbane, CA Life Science 7/22/2021 91.3 91.3 83.8 23.8 + 3.4 3.1 $724 / SF 71 3
29 Senior Loan Brandon, FL Multifamily 1/13/2022 90.3 90.3 73.0 20.6 + 3.1 1.6 $196,704 / unit 75 3
30 Senior Loan San Carlos, CA Life Science 2/1/2022 139.7 89.1 58.6 20.1 + 1.0 2.4 $400 / SF 68 3
31 Senior Loan Dallas, TX Office 1/22/2021 87.0 87.0 87.0 18.8 + 3.4 0.6 $294 / SF 65 3
32 Senior Loan North Palm Beach, FL Multifamily 5/22/2025 85.7 85.7 85.4 16.3 + 2.3 4.9 $341,600 / unit 72 3
33 Senior Loan Various Multifamily 1/31/2025 142.2 85.3 84.3 20.4 + 3.0 4.6 $212,223 / unit 70 3
34 Senior Loan Miami, FL Multifamily 10/14/2021 84.5 84.5 84.5 19.3 + 2.9 1.4 $287,415 / unit 76 3
35 Senior Loan Phoenix, AZ Multifamily 3/26/2025 79.0 79.0 79.0 15.1 + 2.3 4.8 $312,332 / unit 69 3
36 Senior Loan Dallas, TX Multifamily 12/23/2021 78.4 78.4 78.4 17.4 + 2.9 1.5 $241,164 / unit 67 3
Investment(A)
Location Property Type Investment Date
Total Whole Loan(B)
Committed Principal/Investment Amount Outstanding Principal/ Investment Amount
Net Equity(C)
Coupon(D)(E)
Max Remaining Term (Years)(D)(F)
Loan/Investment Per SF / Unit / Key(G)
Origination LTV(D)(H)
Risk Rating
37 Senior Loan Philadelphia, PA Mixed Use 6/28/2024 77.7 77.7 24.4 8.8 + 4.0 4.0 $75 / SF 72 3
38 Senior Loan Nashville, TN Hospitality 1/6/2025 75.8 75.8 75.0 14.4 + 3.3 4.5 $326,087 / key 64 3
39 Senior Loan Delray Beach, FL Multifamily 3/26/2025 73.0 73.0 73.0 14.0 + 2.3 4.8 $257,042 / unit 71 3
40 Senior Loan Hollywood, FL Multifamily 12/20/2021 71.0 71.0 71.0 14.5 + 2.8 1.5 $287,449 / unit 74 3
41 Senior Loan Charlotte, NC Multifamily 12/14/2021 70.3 70.3 68.0 9.5 + 3.1 1.5 $184,712 / unit 74 3
42 Senior Loan Denver, CO Multifamily 9/14/2021 70.3 70.3 70.3 12.4 + 2.8 1.3 $290,496 / unit 78 3
43 Senior Loan Plano, TX Multifamily 3/31/2022 63.3 63.3 63.3 23.7 + 0.9 2.1 $238,000 / unit 75 3
44 Senior Loan Dallas, TX Multifamily 8/18/2021 63.1 63.1 63.1 13.3 + 3.9 1.2 $175,278 / unit 70 3
45 Senior Loan Durham, NC Multifamily 12/15/2021 59.5 59.5 57.8 18.5 + 2.8 2.5 $167,501 / unit 67 3
46 Senior Loan San Antonio, TX Multifamily 4/20/2022 57.6 57.6 56.4 15.2 + 2.7 1.9 $164,950 / unit 79 3
47 Senior Loan Sharon, MA Multifamily 12/1/2021 51.9 51.9 51.9 9.1 + 2.9 1.4 $270,443 / unit 70 3
48 Senior Loan Atlanta, GA Multifamily 12/10/2021 51.4 51.4 51.4 13.0 + 3.0 1.5 $170,197 / unit 67 3
49 Senior Loan Reno, NV Industrial 4/28/2022 140.4 50.5 50.5 11.5 + 2.7 1.9 $117 / SF 74 3
50 Senior Loan Birmingham, AL Multifamily 5/31/2019 46.0 46.0 46.0 46.0 + 4.0 0.1 $144,595 / unit 46 3
51 Senior Loan Dallas, TX Multifamily 4/1/2022 43.7 43.7 42.4 11.8 + 2.9 0.4 $119,144 / unit 73 3
52 Senior Loan Carrollton, TX Multifamily 4/1/2022 43.7 43.7 43.7 13.8 + 0.9 2.1 $136,478 / unit 74 3
53 Senior Loan Georgetown, TX Multifamily 12/16/2021 35.2 35.2 35.2 8.8 + 3.4 1.5 $167,381 / unit 68 3
Total/Weighted Average
Senior Loans Unlevered 		$ 8,691.4 $ 6,179.7 $ 5,791.0 $ 1,510.3 + 3.1% 1.9 66 % 3.1
Real Estate Assets
1 Real Estate Owned Mountain View, CA Office 6/28/2024 n.a. $ 120.9 120.9 120.9 n.a. n.a. $391 / SF n.a. n.a.
2 Real Estate Owned West Hollywood, CA Condo 4/15/2025 n.a. 93.5 93.5 38.5 n.a. n.a. $2,527,027 / unit n.a. n.a.
3 Real Estate Owned Portland, OR Retail / Redevelopment 12/16/2021 n.a. 85.4 85.4 85.4 n.a. n.a. n.a. n.a. n.a.
4
Equity Method Investment(I)
Seattle, WA Life Science 6/28/2024 n.a. 85.3 85.3 44.3 n.a. n.a. $537 / SF n.a. n.a.
5 Real Estate Owned Philadelphia, PA Office 12/22/2023 n.a. $ 21.9 21.9 21.9 n.a. n.a. $104 / SF n.a. n.a.
Total/Weighted Average
Real Estate Assets 		$ 407.0 $ 407.0 $ 311.0
CMBS Investments
1
CMBS B-Pieces(J)
Various Various 2/13/2017 n.a. 40.0 35.5 35.5 4.8 4.0 58 n.a.
2 CMBS B-Pieces Various Various 6/18/2025 n.a. 9.1 9.1 9.1 5.9 9.7 42 n.a.
Total/Weighted Average
CMBS Investments 		$ 49.1 $ 44.6 $ 44.6 5.0% 5.2 55 %
Grand Total / Weighted Average $ 6,635.8 $ 6,242.5 $ 1,865.8 7.5% 1.9 65 % 3.1
* Numbers presented may not foot due to rounding.
(A) Our total portfolio represents the current principal amount or investment amount on senior and mezzanine loans, real estate assets and other investments. Excludes loans that were fully written off.
For Senior Loan 7, the total whole loan is $199.4 million, including (i) a fully funded senior mortgage loan of $120.0 million, at an interest rate of S+2.25% and (ii) a mezzanine note with a commitment of $79.4 million, of which $74.4 million was funded as of June 30, 2025, at a fixed interest rate of 4.5%. The mezzanine note interest is payment-in-kind ("PIK Interest"), which is capitalized, compounded, and added to the outstanding principal balance of the respective loan.
(B) Total Whole Loan represents the total commitment of the entire loan originated, including participations by KKR affiliated entities.
(C) Net equity reflects (i) the amortized cost basis of our loans, net of borrowings; (ii) Real Estate Owned ("REO"), net of borrowings and noncontrolling interests, and (iii) the investment amount of equity method investments, net of borrowings.
(D) Weighted average is weighted by the current principal amount of our loans and the investment amount of CMBS investments. Weighted average LTV excludes risk-rated 5 loans and weighted average coupon excludes loans on nonaccrual status.
(E) Coupon expressed as spread over Term SOFR.
(F) Maximum remaining term (years) assumes all extension options are exercised, if applicable.
(G) Loan Per SF / Unit / Key is based on the current principal amount divided by the current SF / Unit / Key. For Senior Loans 2, 3, 5, 13 and 17, 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; for mezzanine loans, LTV is based on the initial balance of the whole loan divided by the as-is appraised value as of the date the loan was originated; for CMBS investments, LTV is based on the weighted average LTV of the underlying loan pool at issuance. Weighted Average LTV excludes risk-rated 5 loans.
For Senior Loans 2, 3, 5, 13 and 17, 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. For senior loans where an appraisal has been obtained post origination, the LTV, presented as follows, is calculated based on the current principal amount divided by the as-is appraised value as of the new appraisal date: Senior Loan 14 (77%); Senior Loan 16 (78%); Senior Loan 19 (64%); Senior Loan 21 (57%); Senior Loan 22 (75%); Senior Loan 26 (83%); Senior Loan 28 (70%); Senior Loan 30 (81%); Senior Loan 31 (63%); and Senior Loan 40 (81%).
(I) Represents real estate assets held through a Tenant-in-Common ("TIC") agreement between us and a KKR affiliate. We hold a 74.6% economic interest in the real estate assets and share decision-making with the KKR affiliate under the TIC agreement.
(J) Represents our investment in an aggregator vehicle that invests in CMBS B-Pieces. Committed principal represents our total commitment to the aggregator vehicle whereas current principal represents the current funded amount.
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 maximize the performance of our portfolio, including during periods of volatility.
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 at least once per quarter. The risk ratings are based on many factors, including, but not limited to, underlying real estate performance, values of comparable properties, durability and quality of property cash flows, sponsor experience and financial wherewithal, and the existence of a risk-mitigating loan structure. Additional key considerations include debt service coverage ratios, real estate and credit market dynamics, and risk of default or principal loss. In performing this review and assigning a risk rating with respect to each loan, our Manager assesses these various factors holistically and considers these factors on a case-by-case basis, determining whether to give additional weight to any of these factors based upon the specific facts and circumstances of each loan. 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); 2 (Low Risk); 3 (Medium Risk); 4 (High Risk/Potential for Loss); and 5 (Impaired/Loss Likely).
As of June 30, 2025, the average risk rating of our portfolio was3.1, weighted by outstanding loan principal, consistent with that as of December 31, 2024.
June 30, 2025 December 31, 2024
Risk Rating
Number of Loans(A)
Carrying Value Outstanding Principal Outstanding Principal %*
Number of Loans(A)
Carrying Value Outstanding Principal Outstanding Principal %*
1 - $ - $ - - % - $ - $ - - %
2 3 465,122 465,264 8 - - - -
3 45 4,670,837 4,680,271 81 47 5,393,333 5,400,698 92
4 2 202,357 202,357 3 2 193,687 193,727 3
5 3 438,822 443,092 8 2 301,602 305,738 5
Total loan receivable 53 $ 5,777,138 $ 5,790,984 100 % 51 $ 5,888,622 $ 5,900,163 100 %
Allowance for credit losses (171,591) (117,103)
Loan receivable, net $ 5,605,547 $ 5,771,519
* Numbers presented may not foot due to rounding.
(A) Excludes fully written off loans.
In June 2024, we modified a risk-rated 5 mezzanine office loan located in Boston, MA, with an outstanding principal balance of $37.5 million. The terms of the modification included, among others, a restructure of the mezzanine loan into (i) a $12.5 million senior mezzanine note and (ii) a $25.0 million junior mezzanine note which is subordinate to a new $10.0 million sponsor interest. The senior and junior mezzanine notes earn a PIK interest rate of S+7.0% and have a maximum maturity of February 2028. Both mezzanine notes were deemed uncollectible and written off in June 2024.
In December 2024, we modified a risk-rated 5 senior life science loan located in San Carlos, CA, with an outstanding principal balance of $103.2 million. The terms of the modification included a $13.1 million principal repayment, and a restructure of the $90.1 million senior loan (after the $13.1 million repayment) into (i) a $89.1 million committed senior mortgage loan (with $34.9 million in unfunded commitment), and (ii) a $35.9 million subordinated note which is subordinate to a new $20.0 million sponsor interest. The restructured senior loan earns a coupon rate of S+1.00% and has a new term of three years. The $35.9 million subordinated note was deemed uncollectible and written off in December 2024. The loan modification was accounted for as a new loan for GAAP purposes. The restructured senior loan with an outstanding principal balance of $58.6 million was risk-rated 3 as of June 30, 2025.
CMBS B-Piece Investments
Our Manager has processes and procedures in place to monitor and assess the credit quality of our CMBS B-Piece investments and promote the regular and active management of these investments. This includes reviewing the performance of the real estate assets underlying the loans that collateralize the investments and determining the impact of such performance on the credit and return profile of the investments. Our Manager holds 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-level 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.
Total Financing
Our financing arrangements include our term loan facility, term lending agreements, collateralized loan obligations, secured term loan, warehouse facility, asset specific financing, corporate revolving credit agreement ("Revolver"), non-consolidated senior interest (collectively "Non-Mark-to-Market Financing Sources") and master repurchase agreements.
Our Non-Mark-to-Market Financing Sources, which accounted for 78% of our total financing as of June 30, 2025, are not subject to credit or capital markets mark-to-market provisions. The remaining 22% of our total financing, which is comprised of three master repurchase agreements, are only subject to credit marks.
We plan 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 financing agreements (amounts in thousands):
June 30, 2025 December 31, 2024
Borrowings Collateral Borrowings
Non-/Mark-to-Market
Maximum Facility Size(A)
Outstanding Principal
Available(B)
Outstanding Principal Outstanding Principal
Master Repurchase Agreements Mark-to-Credit $ 2,000,000 $ 1,100,177 $ 25,734 $ 1,642,247 $ 1,038,066
Collateralized Loan Obligations Non-Mark-to-Market 1,447,874 1,447,874 - 1,805,124 1,766,231
Term Lending Agreements Non-Mark-to-Market 1,514,885 910,546 3,237 1,338,283 789,647
Term Loan Facility Non-Mark-to-Market 1,000,000 542,552 - 701,615 553,966
Warehouse Facility Non-Mark-to-Market 500,000 - - - -
Asset Specific Financing Non-Mark-to-Market 490,625 361,717 - 437,793 343,216
Revolver Non-Mark-to-Market 660,000 40,000 620,000 n.a. 80,000
Secured Term Loan Non-Mark-to-Market 548,625 548,625 - n.a. 339,500
Total leverage $ 8,162,009 $ 4,951,491 $ 648,971 $ 4,910,626
(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) Available borrowings represents the undrawn amount we could draw under the terms of each credit facility, based on collateral already approved and pledged.
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 receivedany 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 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, 2025, the weighted average haircut under our repurchase agreements was 33.0% (or 31.4%, if we had borrowed the 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 Lending Agreements
Our term lending agreements provide us with asset-based financing on a non-mark-to-market basis, are match-term to the underlying loans and are partial recourse.
Term Loan Facility
Our term loan facility provides us with asset-based financing on a non-mark-to-market basis, is match-term up to five years, with an additional two-year extension available, and is non-recourse.
Warehouse Facility
Our warehouse facility provides us with asset-based financing on a non-mark-to-market basis, has a current facility maturity of March 2026, and is partial recourse.
Asset Specific Financing
Our asset specific financing facilities provide us with asset-based financing on a non-mark-to-market basis, are match-term to the underlying loans and are non-recourse.
Revolving Credit Agreement
In March 2025, we upsized our corporate revolving credit agreement ("Revolver"), administered by Morgan Stanley Senior Funding, Inc., to $660.0 million and extended the maturity date to March 2030. We may use our Revolver as a source of financing, which is designed to provide short-term liquidity to originate or de-lever loans, pay operating expenses and borrow amounts for general corporate purposes. Our Revolver is secured by corporate level guarantees and includes net equity interests in the investment portfolio.
Collateralized Loan Obligations
In 2021, we financed a pool of loan participations from our existing loan portfolio through a managed collateralized loan obligation ("CLO" or "KREF 2021-FL2") and, in 2022, we financed a pool of loan participations from our existing multifamily loan portfolio through a managed CLO ("KREF 2022-FL3"). The CLOs provide us with match-term financing on a non-mark-to-market and non-recourse basis.
Secured Term Loan
In March 2025, we refinanced our existing term loan of $339.5 million with a new $550.0 million secured term loan due March 2032. 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 June 30, 2025. The secured term loan contains restrictions relating to liens, asset sales, indebtedness, investments and transactions with affiliates, and is secured by corporate level guarantees and does not include asset-based collateral.
Refer to Notes 2 and 7 to our condensed consolidated financial statements for additional discussion of our secured term loan.
Covenants - Each of our repurchase facilities, 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:
•a trailing four quarter interest income to interest expense ratio covenant (1.3 to 1.0 beginning September 30, 2024 through June 30, 2026, then 1.4 to 1.0 thereafter);
•a 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 $1.3 billion, depending on the agreement;
•a total indebtedness covenant (83.3% of our Total Assets, as defined in the applicable financing agreements); and
•a cash liquidity covenant (the greater of (i) $10.0 million or (ii) 5.0% of KREF's recourse indebtedness; from September 30, 2024 and through June 30, 2026 the Revolver has a minimum cash liquidity covenant of $75.0 million)
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%.
As of June 30, 2025, we were in compliance with the covenants of our financing facilities.
Non-Consolidated Senior Interests
In certain instances, we finance our loans through the non-recourse sale of a senior loan interest that is not included in our condensed consolidated financial statements. These non-consolidated senior interests provide structural leverage on a non-mark-to-market, match-term basis for our net investments, which are typically reflected in the form of mezzanine loans or other subordinate interests on our condensed consolidated balance sheets and in our condensed consolidated statement of income. We had no outstanding financing through non-consolidated senior interests as of June 30, 2025.
Guarantees - In connection with our financing arrangements, including master repurchase agreements, term lending agreements, and 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 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 ours. In addition, some guarantees include certain full recourse insolvency-related trigger events.
With respect to our Revolver, amounts borrowed are full recourse to certain guarantor wholly-owned subsidiaries of ours.
Variable Interest Entity Liabilities
In connection with our investments in CMBS B-Pieces, we consolidate these CMBS trusts that hold the pools of senior loans underlying the CMBS because we determined such trusts are VIEs and we are the primary beneficiary of such VIEs. As a result of the consolidation, our financial statements include the liabilities of the consolidated CMBS trusts. However, these liabilities are not recourse to us, and our risk of loss is limited to the value of our investment in the related CMBS B-Pieces. See Note 8 to the condensed consolidated financial statements for additional information on these liabilities as of June 30, 2025.
Real Estate Assets, Held For Investment
Portland, OR Retail/ Redevelopment - In December 2021, we took title a Portland retail property and recorded the property and its net assets on the Condensed Consolidated Balance Sheets based on the estimated fair value of acquired assets and assumed liabilities. We contributed a portion of the REO asset to a joint venture (the "REO JV") with a third party local developer ("JV Partner"), whereby we had a 90% interest and the JV Partner had a 10% interest. The JV Partner's interest in the property was presented within "Noncontrolling interests in equity of consolidated joint ventures" on the Condensed Consolidated Balance Sheets. In June 2025, we sold a portion of the property for $6.0 million and recognized a realized gain of $0.7 million after closing costs. As of June 30, 2025, we have a priority of distributions up to $77.7 million before the JV Partner can participate in the economics of the REO JV.
Mountain View, CA Office- In June 2024, we and the KKR affiliate took title to a Mountain View office property through a DIL and we accounted for the property on a consolidated basis. Ours and the KKR affiliate's interest in the property were 68.9% and 31.1%, respectively. We recorded the property and its net assets on the Condensed Consolidated Balance Sheets based on the estimated fair value of acquired assets and assumed liabilities. The KKR affiliate's interest in the property was presented within "Noncontrolling interests in equity of consolidated joint ventures" on the Condensed Consolidated Balance Sheets.
Real Estate Assets, Held For Sale
As of June 30, 2025, the Philadelphia, PA Office and West Hollywood, CA Condo properties met the criteria to be classified as held for sale under ASC 360. As such, depreciation and amortization on the properties and related lease intangibles were suspended.
Philadelphia, PA Office- In December 2023, we took title to a Philadelphia office portfolio through a deed-in-lieu of foreclosure ("DIL") and recorded the portfolio and its net assets on the Condensed Consolidated Balance Sheets based on the estimated fair value of acquired assets and assumed liabilities.
In June 2024, we sold a portion of the portfolio and provided financing to the buyer through a senior loan. The senior loan had an outstanding principal balance of $24.4 million ($77.7 million total commitment) as of June 30, 2025 and earned a coupon rate of S+4.0% with a maximum maturity of July 2029, assuming all extension options are exercised. The senior loan is presented within "Commercial real estate loans, held-for-investment, net" on the Condensed Consolidated Balance Sheets.
In May 2025, we sold a portion of the portfolio for $25.3 million and recognized a realized gain of $0.5 million after closing costs. As of June 30, 2025, there was one office property remaining.
West Hollywood, CA Condo -In April 2025, we took title to a West Hollywood multifamily property through an assignment-in-lieu of foreclosure. We recorded the property and its net assets on the Condensed ConsolidatedBalance Sheets based on the estimated fair value of acquired assets and assumed liabilities.
Real Estate Asset, Equity Method Investment
Seattle, WA Life Science -In June 2024, we and the KKR affiliates took title to a Seattle life science property through a DIL under a Tenant-in-Common ("TIC") agreement. Under the TIC agreement, we and the KKR affiliate held an economic interest of 74.6% and 25.4%, respectively, and shared decision-making. Under ASC 970-810, we accounted for the TIC agreement as an undivided interest in the property and recorded an equity method investment based on our share of the estimated fair value of the property's net assets.
Results of Operations
Three Months Ended June 30, 2025 Compared to Three Months Ended March 31, 2025
The following table summarizes the changes in our results of operations for three months ended June 30, 2025 and March 31, 2025 (amounts in thousands, except per share data):
Three Months Ended Increase (Decrease)
June 30, 2025 March 31, 2025 Dollars Percentage
Net Interest Income
Interest income $ 112,272 $ 113,967 $ (1,695) (1) %
Interest expense 82,101 82,626 (525) (1)
Total net interest income 30,171 31,341 (1,170) (4)
Other Income
Revenue from real estate owned operations 4,025 2,889 1,136 39
Income (loss) from equity method investments (619) (201) (418) 208
Change in net assets of consolidated variable interest entity, CMBS trust 41 - 41 100
Gain (loss) on sale of investments 1,192 - 1,192 100
Other miscellaneous income 1,061 1,187 (126) (11)
Total other income 5,700 3,875 1,825 47
Operating Expenses
Provision for credit losses, net 49,848 24,863 24,985 100
Expenses from real estate owned operations 6,178 5,474 704 13
Management fee to affiliate 5,737 5,797 (60) (1)
General and administrative 4,681 4,831 (150) (3)
Total operating expenses 66,444 40,965 25,479 62
Income (Loss) Before Income Taxes (30,573) (5,749) (24,824) (432)
Income tax expense - - - -
Net Income (Loss) (30,573) (5,749) (24,824) (432)
Net income (loss) attributable to noncontrolling interests
(847) (888) 41 5
Net Income (Loss) Attributable to KKR Real Estate Finance Trust Inc. and Subsidiaries (29,726) (4,861) (24,865) (512)
Preferred stock dividends 5,326 5,326 - -
Participating securities' share in earnings 373 363 10 3
Net Income (Loss) Attributable to Common Stockholders $ (35,425) $ (10,550) $ (24,875) (236)
Net Income (Loss) Per Share of Common Stock
Basic and Diluted $ (0.53) $ (0.15) $ (0.38) (253)
Weighted Average Number of Shares of Common Stock Outstanding
Basic and Diluted 67,191,309 68,765,877 (1,574,568) (2)
Dividends Declared per Share of Common Stock $ 0.25 $ 0.25 $ - -
Net Interest Income
Net interest income decreased by $1.2 million during the three months ended June 30, 2025, as compared to the preceding three-month period. This decrease was due primarily to additional loans placed on nonaccrual status and a decline in overall portfolio size. We recorded $4.4 million of deferred loan fees and origination discounts accreted into interest income during the three months ended June 30, 2025, as compared to $3.4 million during the preceding period. In addition, we recorded $3.0 million of deferred financing costs amortization into interest expense during the three months ended June 30, 2025, as compared to $3.1 million for the preceding period.
Other Income
Total other income increased by $1.8 million during the three months ended June 30, 2025, as compared to the preceding period. This increase was due primarily to a $1.2 million gain on sale of REO investments.
Operating Expenses
Total operating expenses increased by $25.5 million during the three months ended June 30, 2025, as compared to the preceding period. This increase was primarily due to a $25.0 million change in the provision for credit losses. The provision for credit losses during the three months ended June 30, 2025 was due primarily to additional reserves for risk-rated 5 loans in the office and life science sectors.
Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024
The following table summarizes the changes in our results of operations for the six months ended June 30, 2025 and 2024 (amounts in thousands, except per share data):
Six Months Ended June 30,
Increase (Decrease)
2025 2024 Dollars Percentage
Net Interest Income
Interest income $ 226,239 $ 300,869 $ (74,630) (25) %
Interest expense 164,727 221,292 (56,565) (26)
Total net interest income 61,512 79,577 (18,065) (23)
Other Income
Revenue from real estate owned operations 6,914 10,763 (3,849) (36)
Income (loss) from equity method investments (820) 1,463 (2,283) (156)
Change in net assets of consolidated variable interest entity, CMBS trust 41 - 41 100
Gain (loss) on sale of investments 1,192 (615) 1,807 294
Other miscellaneous income 2,248 3,224 (976) (30)
Total other income 9,575 14,835 (5,260) (35)
Operating Expenses
Provision for credit losses, net 74,711 37,811 36,900 98
Expenses from real estate owned operations 11,652 11,890 (238) (2)
Management fee to affiliate 11,534 12,713 (1,179) (9)
General and administrative 9,512 9,787 (275) (3)
Total operating expenses 107,409 72,201 35,208 49
Income (Loss) Before Income Taxes (36,322) 22,211 (58,533) (264)
Income tax expense - 112 (112) (100)
Net Income (Loss) (36,322) 22,099 (58,421) (264)
Net income (loss) attributable to noncontrolling interests
(1,735) (625) (1,110) (178)
Net Income (Loss) Attributable to KKR Real Estate Finance Trust Inc. and Subsidiaries (34,587) 22,724 (57,311) (252)
Preferred stock dividends 10,652 10,652 - -
Participating securities' share in earnings 736 588 148 25
Net Income (Loss) Attributable to Common Stockholders $ (45,975) $ 11,484 $ (57,459) (500)
Net Income (Loss) Per Share of Common Stock
Basic and Diluted $ (0.68) $ 0.17 $ (0.85) (500)
Weighted Average Number of Shares of Common Stock Outstanding
Basic and Diluted 67,974,243 69,404,906 (1,430,663) (2)
Dividends Declared per Share of Common Stock $ 0.50 $ 0.50 $ - -
Net Interest Income
Net interest income decreased by $18.1 million during the six months ended June 30, 2025, as compared to the corresponding period in the prior year. This decrease was due primarily to a reduced loan portfolio size as a result of repayments or other resolutions and lower index rates. We recorded $7.8 million of deferred loan fees and origination discounts accreted into interest income during the six months ended June 30, 2025, as compared to $9.6 million during the prior year period. In addition, we recorded $6.1 million of deferred financing costs amortization into interest expense during the six months ended June 30, 2025, as compared to $9.3 million during the prior year period.
Other Income
Total other income decreased by $5.3 million during the six months ended June 30, 2025, as compared to the prior year period. This decrease was due primarily to a $3.8 million decrease in revenue from REO operations and a $2.1 million operating loss related to our real estate asset equity method investment, which was partially offset by a $1.2 million gain on sale of REO investments during the current period.
Operating Expenses
Total operating expenses increased by $35.2 million during the six months ended June 30, 2025, as compared to the prior year period. This increase was due primarily to a $36.9 million change in the provision for credit losses. This change was due primarily to a higher provision for credit losses on risk-rated 5 loans in the office and life science sectors during the current period.
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 three master repurchase agreements, and borrowings from our Non-Mark-to-Market Financing Sources, which were comprised of collateralized loan obligations, term lending agreements, term loan facility, secured term loan, asset specific financing, warehouse facility, and corporate Revolver. Our Non-Mark-to-Market Financing Sources, which accounted for 78% of our total financing as of June 30, 2025, are not subject to credit or capital markets mark-to-market provisions. The remaining 22% of our total financing, which are comprised of three master repurchase agreements, are only subject to credit marks.
Our primary sources of liquidity include $107.7 million of cash on our Condensed Consolidated Balance Sheets, $620.0 million of available capacity on our corporate Revolver, $29.0 million of available borrowings under our financing arrangements based on existing collateral, and cash flows from operations. In addition, we had $253.0 million of total unencumbered assets, including $206.3 million of real estate owned assets, $44.6 million of CMBS investments and $2.1 million of unencumbered senior loans, that can be financed, as of June 30, 2025. Our corporate Revolver and secured term loan are secured by corporate level guarantees and include 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 to 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 by either consolidating or by using the equity method of accounting when 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 net investment in such entities and any unfunded capital commitments. As of June 30, 2025, we held $9.1 million of net investment in a consolidated CMBS trust and $35.5 million of interests in a CMBS equity method investment.
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 be issued pursuant to this Shelf is not to exceed $750 million. The securities covered by this Shelf include: (i) common stock, (ii) preferred stock, (iii) depository shares, (iv) debt securities, (v) warrants, (vi) subscription rights, (vii) purchase contracts, and (viii) units. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering material, at the time of any offering.
We have also entered into an equity distribution agreement with certain sales agents, pursuant to which we may sell, from time to time, up to an aggregate sales price of $100.0 million of our common stock, pursuant to a continuous offering program (the "ATM"), under the Shelf. Sales of our common stock made pursuant to the ATM may be made in negotiated transactions or transactions that are deemed to be "at the market" offerings as defined in Rule 415 under the Securities Act. During the six months ended June 30, 2025, we did not sell any shares of common stock under the ATM. As of June 30, 2025, $93.2 million remained available for issuance under the ATM.
See Notes 5, 6, 7 and 11 to our condensed consolidated financial statements for additional details regarding our secured financing agreements, collateralized loan obligations, secured term loan and stock activity.
Debt-to-Equity Ratio and Total Leverage Ratio
The following table presents our debt-to-equity ratio and total leverage ratio:
June 30, 2025 December 31, 2024
Debt-to-equity ratio(A)
2.0x 1.6x
Total leverage ratio(B)
3.9x 3.6x
(A) Represents (i) total outstanding debt agreements (excluding non-recourse facilities) and secured term loan, less cash to (ii) KREF's stockholders' equity, in each case, at period end.
(B) Represents (i) total outstanding debt agreements, secured term loan, and collateralized loan obligations, less cash to (ii) KREF's stockholders' equity, in each case, at period end.
Sources of Liquidity
Our primary sources of liquidity include cash and cash equivalents and available borrowings under our secured financing agreements, inclusive of our Revolver. Amounts available under these sources as of the date presented are summarized in the following table (amounts in thousands):
June 30, 2025 December 31, 2024
Cash and cash equivalents $ 107,717 $ 104,933
Available borrowings under revolving credit agreement 620,000 530,000
Available borrowings under master repurchase agreements 25,734 46,121
Available borrowings under term lending agreements 3,237 3,234
Available borrowings under term loan agreements - 524
Total $ 756,688 $ 684,812
We also had $253.0 million of total unencumbered assets, including $206.3 million of real estate owned assets, $44.6 million of CMBS investments and $2.1 million of unencumbered senior loans as of June 30, 2025. In addition to our primary sources of liquidity, we have the ability to access further liquidity through our ATM program and public offerings of debt and equity securities. Our existing loan portfolio also provides us with liquidity as loans are repaid or sold, in whole or in part, and the proceeds from repayment become available for us to invest.
Cash Flows
The following table sets forth changes in cash and cash equivalents for the six months ended June 30, 2025 and 2024 (amounts in thousands):
Six Months Ended June 30,
2025 2024
Cash Flows From Operating Activities $ 37,043 $ 65,131
Cash Flows From Investing Activities 16,213 464,769
Cash Flows From Financing Activities (49,843) (565,540)
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash $ 3,413 $ (35,640)
Cash Flows from Operating Activities
Our cash flows from operating activities were primarily driven by our net interest income, which is a result of the income generated by our investments less financing costs. The following table sets forth interest received from, and paid for, our investments (amounts in thousands):
Six Months Ended June 30,
2025 2024
Interest received $ 220,161 $ 295,490
Interest paid 165,526 215,524
Net interest collections $ 54,635 $ 79,966
Our net interest collections were partially offset by cash used to pay management fees, as follows (amounts in thousands):
Six Months Ended June 30,
2025 2024
Management Fees to affiliate $ 11,715 $ 12,863
Cash Flows from Investing Activities
Our cash flows from investing activities primarily consisted of cash outflows for loan originations and funding commitments under existing loan investments, partially offset by cash inflows from loan repayments and net proceeds from the sale of real estate owned. During the six months ended June 30, 2025, we funded $626.5 million of CRE loans, received $629.8 million from the repayments and sale of CRE loans and received net proceeds of $30.3 million from the sale of REO investments.
During the six months ended June 30, 2024, we funded $186.4 million of CRE loans and received $660.7 million from the repayments of CRE loans.
Cash Flows from Financing Activities
During the six months ended June 30, 2025, our cash flows from financing activities were primarily driven by borrowing proceeds of $1,003.3 million under our secured financing agreements and proceeds of $209.8 million issued under our secured term loan, partially offset by repayments of $853.2 million on our secured financing agreements and repayments of $318.4 million on our collateralized loan obligations.
During the six months ended June 30, 2024, our cash flows from financing activities were primarily driven by (i) repayments of $771.5 million under our secured financing agreements and (ii) payment of $57.8 million in dividends, partially offset by borrowing proceeds of $266.6 million under our secured financing agreements.
Contractual Obligations and Commitments
The following table presents our contractual obligations and commitments (including interest payments) as of June 30, 2025 (amounts in thousands):
Total Less than 1 year 1 to 3 years 3 to 5 years Thereafter
Master Repurchase Facilities(A)
$ 1,100,178 $ 294,117 $ 702,767 $ 103,294 $ -
Term Lending Agreements(A)
910,546 47,705 572,905 189,936 100,000
Warehouse Facility - - - - -
Term Loan Facility 542,551 35,785 427,112 79,654 -
Asset Specific Facility 361,717 - 361,717 - -
Revolver(B)
40,000 40,000 - - -
Total secured financing agreements 2,954,992 417,607 2,064,501 372,884 100,000
Collateralized Loan Obligations 1,447,873 - - - 1,447,873
Secured Term Loan 548,625 5,500 11,000 11,000 521,125
Interest payable(C)
1,063,461 302,067 404,912 286,884 69,598
Future funding obligations(D)
388,694 289,159 97,341 2,194 -
CMBS investments 4,324 4,324 - - -
Total $ 6,407,969 $ 1,018,657 $ 2,577,754 $ 672,962 $ 2,138,596
(A) The allocation of repurchase facilities and term lending agreements is based on the earlier of (i) the maximum maturity of the underlying loans pledged as collateral or (ii) the maximum maturity of the respective financing agreements. Amounts borrowed are subject to a maximum 25.0% recourse limit.
(B) Any amounts borrowed are full recourse to certain subsidiaries of KREF. Amounts are estimated based on the amount outstanding under the Revolver and the interest rate in effect as of June 30, 2025. This is only an estimate as actual amounts borrowed, the timing of repayments and interest rates may vary over time. The Revolver matures in March 2030.
(C) The amounts are estimated by assuming the amounts outstanding under these facilities and the interest rates in effect as of June 30, 2025 will remain constant into the future. The actual amounts borrowed and rates may vary over time.
(D) 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.
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 15 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 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 18 to our condensed consolidated financial statements.
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 recognize and measure the allowance for credit losses under the Current Expected Credit Loss ("CECL") model, which requires us to estimate 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 is deducted from the respective loans' amortized cost basis on our Condensed Consolidated Balance Sheets. The allowance for credit losses attributed to unfunded loan commitments is included in "Other liabilities" on the Condensed Consolidated Balance Sheets.
We have estimated CECL reserves using the Weighted-Average Remaining Maturity, or WARM method, which has been identified as a loss-rate method for estimating CECL reserves by the Financial Accounting Standards Board ("FASB"). In estimating a CECL reserve using the WARM method, we reference historical loan loss data across a comparable data set and apply such loss rate to each loan over its expected remaining term, taking into consideration expected economic conditions over the relevant timeframe. In certain instances, 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.
To arrive at a CECL reserve using the WARM method, we considered various factors including (i) historical loss experience in the commercial real estate lending market, (ii) timing of expected repayments and expected loan future funding, (iii) and our current and future view of the macroeconomic environment for a reasonable and supportable forecast period. We derive a historical loss rate predominately based on a CMBS database with historical losses since 1998 provided by a third party. We focus on the most relevant subset of CMBS data that is determined to be the most comparable to our own portfolio. The historical loss rate is further adjusted to consider expected macroeconomic conditions, such as commercial real estate price indices, unemployment rates and market liquidity, over reasonable and supportable forecast periods. There is significant uncertainty related to future macroeconomic conditions. Therefore, we also consider other loan specific credit quality factors such as the risk rating of the loan, a near-term maturity, nature of construction loans, and economic conditions specific to the property type of the underlying collateral.
For collateral dependent loans that we determine foreclosure of the collateral is probable, we measure the expected losses based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. For collateral dependent loans where we determine foreclosure is not probable, we apply a practical expedient to estimate expected losses using the difference between the collateral's fair value (less costs to sell the asset if repayment is expected through the sale of the collateral) and the amortized cost basis of the loan. A loan is determined to be collateral dependent if (i) a borrower or sponsor is experiencing financial difficulty, and (ii) the loan is expected to be substantially repaid through the sale of the underlying collateral; such determination requires the use of significant judgment and can be based on several factors subject to uncertainty. Considerations used in determination of financial difficulty may include, but are not limited to, whether the borrower's operating cash flow is sufficient to cover the current and future debt service requirements, the borrower's ability to refinance the loan, market liquidity and other circumstances that can affect the borrower's ability to satisfy its contractual obligations under the loan agreement.
Refer to Note 2 to our condensed consolidated financial statements for the description of our significant accounting policies.
Recent Accounting Pronouncements
In November 2024, the FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40), which requires a public business entity to provide disaggregated disclosures, in the notes to the financial statements, of certain categories of expenses that are included in expense line items on the face of the income statement. The guidance is effective for our 2027 annual reporting. The guidance is applied prospectively and may be applied retrospectively. We are evaluating the impact of ASU 2024-03.
KKR Real Estate Finance Trust Inc. published this content on July 22, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on July 22, 2025 at 20:39 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]