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What changed in KKR Real Estate Finance Trust Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of KKR Real Estate Finance Trust Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+428 added−460 removedSource: 10-K (2024-02-06) vs 10-K (2023-02-07)

Top changes in KKR Real Estate Finance Trust Inc.'s 2023 10-K

428 paragraphs added · 460 removed · 317 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

32 edited+2 added−12 removed60 unchanged
Biggest changeJenny Box, Co-Head of KKR’s Special Situations, Billy Butcher, Chief Operating Officer of KKR's Global Real Estate, Roger Morales, Head of KKR's Real Estate Acquisitions Americas and Justin Pattner, Head of KKR's Real Estate Equity Americas, advises and consults with our Manager and its investment professionals with respect to our investment strategy, portfolio construction, financing and investment guidelines and risk management and approves all of our investments.
Biggest changeOur Manager's investment committee, which is comprised of Ralph Rosenberg, KKR’s Global Head of Real Estate and Chairman of our board of directors, Chris Lee, Co-President of KKR Real Estate and Vice Chairman of our board of directors, Matt Salem, Head of KKR’s Real Estate Credit and Chief Executive Officer of KREF, Patrick Mattson, Chief Operating Officer of KKR’s Real Estate Credit and President and Chief Operating Officer of KREF, Joel Traut, Partner & Head of Originations, Jenny Box, Co-Head of KKR’s Special Situations, Billy Butcher, Co-President of KKR Real Estate, Roger Morales, Head of KKR's Real Estate Acquisitions Americas and Justin Pattner, Head of KKR's Real Estate Equity Americas, advises and consults with our Manager and its investment professionals with respect to our investment strategy, portfolio construction, financing and investment guidelines and risk management and approves all of our investments.
Following a default on a mezzanine loan, and subject to negotiated terms with the mortgage lender or other mezzanine lenders, the mezzanine lender generally has the right to foreclose on its equity interest and become the owner of the property, directly or 2 Table of Contents indirectly, subject to the lien of the senior loan and any other debt senior to it including any outstanding senior mezzanine loans. • Preferred Equity— We may make investments that are subordinate to any mortgage or mezzanine loan, but senior to the common equity of the mortgage borrower or owner of a mortgage borrower, as applicable.
Following a default on a mezzanine loan, and subject to negotiated terms with the mortgage lender or other mezzanine lenders, the mezzanine 2 Table of Contents lender generally has the right to foreclose on its equity interest and become the owner of the property, directly or indirectly, subject to the lien of the senior loan and any other debt senior to it including any outstanding senior mezzanine loans. • Preferred Equity— We may make investments that are subordinate to any mortgage or mezzanine loan, but senior to the common equity of the mortgage borrower or owner of a mortgage borrower, as applicable.
Investment Guidelines Under the management agreement with our Manager, our Manager is required to manage our business in accordance with certain investment guidelines, which include: • seeking to invest our capital in a broad range of investments in or relating to CRE debt; • not making investments that would cause us to fail to qualify as a REIT for U.S. federal income tax purposes; • not making investments that would cause us or any of our subsidiaries to be required to be registered as an investment company under the Investment Company Act; • allowing allocation of investment opportunities sourced by our Manager to one or more KKR funds advised by our Manager or its affiliates in addition to us, in accordance with the allocation policy then in effect, as applied by our Manager in a fair and equitable manner; • prior to the deployment of capital into investments, causing our capital to be invested in any short-term investments in money market funds, bank accounts, overnight repurchase agreements with primary federal reserve bank dealers collateralized by direct U.S. government obligations and other instruments or investments reasonably determined by our Manager to be of high quality; and • investing not more than 25% of our "equity" in any individual investment without the approval of a majority of our board of directors or a duly constituted committee of our board of directors (it being understood, however, that for 7 Table of Contents purposes of the foregoing concentration limit, in the case of any investment that is comprised (whether through a structured investment vehicle or other arrangement) of securities, instruments or assets of multiple portfolio issuers, such investment for purposes of the foregoing limitation will be deemed to be multiple investments in such underlying securities, instruments and assets and not such particular vehicle, product or other arrangement in which they are aggregated).
Investment Guidelines Under the management agreement with our Manager, our Manager is required to manage our business in accordance with certain investment guidelines, which include: • seeking to invest our capital in a broad range of investments in or relating to CRE debt; • not making investments that would cause us to fail to qualify as a REIT for U.S. federal income tax purposes; • not making investments that would cause us or any of our subsidiaries to be required to be registered as an investment company under the Investment Company Act; • allowing allocation of investment opportunities sourced by our Manager to one or more KKR funds advised by our Manager or its affiliates in addition to us, in accordance with the allocation policy then in effect, as applied by our Manager in a fair and equitable manner; • prior to the deployment of capital into investments, causing our capital to be invested in any short-term investments in money market funds, bank accounts, overnight repurchase agreements with primary federal reserve bank dealers collateralized by direct U.S. government obligations and other instruments or investments reasonably determined by our Manager to be of high quality; and • investing not more than 25% of our "equity" in any individual investment without the approval of a majority of our board of directors or a duly constituted committee of our board of directors (it being understood, however, that for purposes of the foregoing concentration limit, in the case of any investment that is comprised (whether through a structured investment vehicle or other arrangement) of securities, instruments or assets of multiple portfolio issuers, such investment for purposes of the foregoing limitation will be deemed to be multiple investments in such underlying securities, instruments and assets and not such particular vehicle, product or other arrangement in which they are aggregated).
"Management's Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk." On March 5, 2021, the Financial Conduct Authority of the U.K. (the “FCA”), which regulates LIBOR, announced (the “FCA Announcement”) that all relevant LIBOR tenors will cease to be published or will no longer be representative after June 30, 2023.
"Management's Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk." On March 5, 2021, the Financial Conduct Authority of the U.K. (the “FCA”), which regulates LIBOR, announced (the “FCA Announcement”) that all relevant LIBOR tenors would cease to be published or would no longer be representative after June 30, 2023.
Further, on March 15, 2022, the Consolidated Appropriations Act of 2022, which includes the Adjustable Interest Rate (LIBOR) Act, was signed into law in the United States. This legislation establishes a uniform benchmark replacement process for financial contracts maturing after June 30, 2023 that do not contain clearly defined or practicable fallback provisions.
Further, on March 15, 2022, the Consolidated Appropriations Act of 2022, which includes the Adjustable Interest Rate (LIBOR) Act, was signed into law in the United States. This legislation established a uniform benchmark replacement process for financial contracts maturing after June 30, 2023 that do not contain clearly defined or practicable fallback provisions.
The FCA Announcement coincides with the March 5, 2021 announcement of LIBOR’s administrator, the ICE Benchmark Administration Limited (the “IBA”), indicating that, as a result of not having access to input data necessary to calculate relevant LIBOR tenors on a representative basis after June 30, 2023, the IBA would have to cease publication of such LIBOR tenors immediately after the last publication on June 30, 2023.
The FCA Announcement coincided with the March 5, 2021 announcement of LIBOR’s administrator, the ICE Benchmark Administration Limited (the “IBA”), indicating that, as a result of not having access to input data necessary to calculate relevant LIBOR tenors on a representative basis after June 30, 2023, the IBA would have to cease publication of such LIBOR tenors immediately after the last publication on June 30, 2023.
The remaining 23% of our secured borrowings, which is primarily comprised of three master repurchase agreements, are only subject to credit marks. In addition, we may use structural leverage by syndicating senior mortgage interests in our originated senior loans to other investors and create a subordinated interest that we retain for our portfolio.
The remaining 24% of our secured borrowings, which is primarily comprised of three master repurchase agreements, are only subject to credit marks. In addition, we may use structural leverage by syndicating senior mortgage interests in our originated senior loans to other investors and create a subordinated interest that we retain for our portfolio.
For additional information regarding our portfolio as of December 31, 2022, see Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our Financing Strategy We raise capital through offerings of our equity and debt securities to fund future investments.
For additional information regarding our portfolio as of December 31, 2023, see Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our Financing Strategy We raise capital through offerings of our equity and debt securities to fund future investments.
Term lending arrangements, asset based financing and collateralized loan obligations provide us with Non-Mark-to-Market financing sources, which reduces our exposure to market fluctuations. These Non-Mark-to-Market financing sources, which represented 77% of our secured financing as of December 31, 2022, are not subject to credit or capital markets mark-to-market provisions.
Term lending arrangements, asset based financing and collateralized loan obligations provide us with Non-Mark-to-Market financing sources, which reduces our exposure to market fluctuations. These Non-Mark-to-Market financing sources, which represented 76% of our secured financing as of December 31, 2023, are not subject to credit or capital markets mark-to-market provisions.
The Federal Reserve, in conjunction with the Alternative Reference Rate Committee ("ARRC"), 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.
The Federal Reserve, in conjunction with the Alternative Reference Rate Committee, a committee convened by the Federal Reserve that includes major market participants, identified the Secured Overnight Financing Rate, or SOFR, an index calculated by short-term repurchase agreements, backed by Treasury securities, as its preferred alternative rate for LIBOR.
Weighted average LTV excludes risk-rated 5 loans. 5 Table of Contents Our senior loans a s of December 31, 2022 had a weighted average LTV of 66% , and we have focused our portfolio on senior positions in the capital structure where the sponsor has meaningful cash or imputed equity subordinated to our position to provide what we believe is downside protection in the event of credit impairment at the asset level.
Our senior loans a s of December 31, 2023 had a weighted average LTV of 66%, and we have focused our portfolio on senior positions in the capital structure where the sponsor has meaningful cash or imputed equity subordinated to our position to provide what we believe is downside protection in the event of credit impairment at the asset level.
The following chart illustrates the sensitivity of our net interest income to changes in index rates on a per weighted average diluted common share basis: (1) Assumes loans are drawn up to maximum approved advance rate based on current principal amount outstanding as of December 31, 2022. 8 Table of Contents For a further discussion, see Part II, Item 7.
The following chart illustrates the sensitivity of our net interest income to changes in Term SOFR on a per weighted average diluted common share basis: (1) Assumes loans are drawn up to maximum approved advance rate based on current principal amount outstanding as of December 31, 2023. For a further discussion, see Part II, Item 7.
Rosenberg, who has over 35 years of real estate equity and debt transactions experience, is supported at KKR Real Estate by a team of approximate ly 165 dedicated investment and asset management professionals across 16 offices globally.
Rosenberg, who has over 35 years of real estate equity and debt transactions experience, is supported at KKR Real Estate by a team of approximately 150 dedicated investment and asset/portfolio management professionals across 16 offices globally.
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.
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.
When utilizing structural leverage, our retained interest is generally a mezzanine loan, secured by a pledge of 100% of the equity ownership interests in the owner of the real property and is generally not subject to recourse. Our retained interest when utilizing structural leverage is subordinate to the lien of the third-party lender that owns the senior interest.
When utilizing structural leverage, our retained interest is generally a mezzanine loan, secured by a pledge of 100% of the equity ownership interests in the owner of the real property and is generally not subject to recourse.
Patrick Mattson, our President and Chief Operating Officer, who each has over 25 years of 1 Table of Contents CRE experience. Our Manager's senior leadership team is supported by approximately 65 other investment professionals with significant expertise in executing our investment strategy.
Salem, our Chief Executive Officer, and W. Patrick Mattson, our President and Chief Operating Officer, who each has over 25 years of CRE experience. Our Manager's senior leadership team is supported by 56 other investment professionals with significant expertise in executing our investment strategy.
We had a common book value of $1,243.8 million as of December 31, 2022 and established a diversified investment portfolio which totaled $7,916.4 million, consisting primarily of performing senior and mezzanine commercial real estate loans.
We had a common book value of $1,077.0 million as of December 31, 2023 and established a diversified investment portfolio which totaled $7,752.3 million, consisting primarily of performing senior and mezzanine commercial real estate loans.
Our aggregate investment portfolio totaled $7,916.4 million as of December 31, 2022, which is primarily comprised of $7,800.5 million of total outstanding principal of senior and mezzanine CRE loans, a $80.2 million net investment in real estate owned asset (“REO”), and a $35.7 million investment in CMBS B-Pieces (indirectly-owned through RECOP I).
Our aggregate investment portfolio totaled $7.8 billion as of December 31, 2023, which is primarily comprised of $7.6 billion of total outstanding principal of senior and mezzanine CRE loans, $158.6 million net investment in real estate owned assets (“REO”), and a $35.7 million investment in CMBS B-Pieces (indirectly-owned through RECOP I).
Further, our Manager benefits from KKR Capital Markets, comprised of a team approximatel y 75 i nvestment professionals that advise KKR's investment teams and portfolio companies on executing equity and debt capital markets solutions. Our Manager is led by an experienced team of senior real estate investment professionals, including Matthew A. Salem, our Chief Executive Officer, and W.
Further, our Manager benefits from KKR's capital markets team, comprised of a team of approximately 70 professionals that advise KKR's investment teams and portfolio companies on executing equity and debt capital markets solutions. 1 Table of Contents Our Manager is led by an experienced team of senior real estate investment professionals, including Matthew A.
(B) Common book value as of December 31, 2022 was net of $111.1 million CECL allowance. 4 Table of Contents The map below illustrates the geographic distribution of the properties securing our loan portfolio as of December 31, 2022: The following charts illustrate the diversification of our loan portfolio (A) , based on type of investment, interest rate, underlying property type, geographic location, vintage and loan to value ("LTV") as of December 31, 2022: The charts above are based on total outstanding principal amount of our senior, mezzanine and real estate corporate loans.
The map below illustrates the geographic distribution of the properties securing our loan portfolio as of December 31, 2023: 4 Table of Contents The following charts illustrate the diversification of our loan portfolio (A) , based on type of investment, interest rate, underlying property type, geographic location, vintage and loan to value ("LTV") as of December 31, 2023: The charts above are based on total loan exposure of our commercial real estate loans.
KKR sponsors investment funds that invest in private equity, credit and real assets, and as strategic partners that manage hedge funds. KKR is listed on the NYSE (NYSE: KKR) and reporte d $496.2 billion of a ssets under management ("AUM") as of September 30, 2022 .
KKR sponsors investment funds that invest in private equity, credit and real assets, and as strategic partners that manage hedge funds. KKR is listed on the NYSE (NYSE: KKR) and reported $552.8 billion of assets under management ("AUM") as of December 31, 2023.
On average, we are targeting a leverage ratio between 3.5 and 4.0-to-1. As of December 31, 2022, our total leverage ratio was 3.8 -to-1. We will endeavor to match the terms and indices of our assets and liabilities and will also seek to minimize the risks associated with mark-to-market and recourse borrowing.
We plan to maintain leverage levels appropriate to our specific portfolio. As of December 31, 2023, our total leverage ratio was 4.2-to-1. We will endeavor to match the terms and indices of our assets and liabilities and will also seek to minimize the risks associated with mark-to-market and recourse borrowing.
(F) LTV is generally based on the initial loan amount divided by the as-is appraised value as of the date the loan was originated or by the current principal amount as of the date of the most recent as-is appraised value.
(E) LTV is generally based on the initial loan amount divided by the as-is appraised value as of the date the loan was originated or by the current principal amount as of the date of the most recent as-is appraised value. Weighted average LTV includes non-consolidated senior interests and excludes risk-rated 5 loans.
(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.
(C) We classify a loan as life science if more than 50% of the gross leasable area is leased to, or will be converted to, life science-related space. (D) Other property type includes Condo (Residential) (2%), Self-Storage (2%), Student Housing (1%) and Single Family Rental (1%).
Impact of Interest Rate Environment Generally, our business model is such that rising interest rates will result in an increase to our net income, while declining interest rates will decrease our net income.
Impact of Interest Rate Environment Generally, our business model is such that rising interest rates will result in an increase to our net income, while declining interest rates will decrease our net income. As of December 31, 2023, 99.0% of our loans by total loan exposure earned a floating rate of interest indexed to Term SOFR.
The legislation also creates a safe harbor that shields lenders from litigation if they choose to utilize a replacement rate recommended by the Board of Governors of the Federal Reserve. The United States Federal Reserve has also advised banks to cease entering into new contracts that use USD LIBOR as a reference rate.
The legislation also created a safe harbor that shields lenders from litigation if they choose to utilize a replacement rate recommended by the Board of Governors of the Federal Reserve.
Such CMBS securities are purchased at a substantial discount to their face amount and are much more sensitive to changes in the underlying credit of the securities and credit spreads than to fluctuations in interest rates. However, an increase in long-term rates, with other factors held constant, may have a negative impact on the market value of the CMBS portfolio.
Such CMBS securities are purchased at a substantial discount to their principal amount and are much more sensitive to changes in the underlying credit of the securities and credit 7 Table of Contents spreads than to fluctuations in interest rates.
(A) Excludes: (i) one REO retail asset on a defaulted loan with net carrying value of $80.2 million as of December 31, 2022, (ii) CMBS B-Piece investments held through RECOP I, an equity method investment and (iii) one impaired mezzanine loan with an outstanding principal of $5.5 million that was fully written off.
(A) Excludes: (i) REO with net carrying value of $158.6 million , (ii) CMBS B-Piece investments held through an equity method investment and (iii ) fully written off risk-rated 5 loans with a combined outstanding principal balance of $45.5 million.
Rosenberg, Global Head of KKR Real Estate and Chairman of our board of directors, KKR Real Estat e had $64.2 billion of AUM as of September 30, 2022. M r.
Rosenberg, Global Head of KKR Real Estate and Chairman of our board of directors, KKR Real Estate had over $68 billion of AUM as of December 31, 2023. Mr.
As of December 31, 2022, all of our investments were located in the United States. 3 Table of Contents The following charts illustrate the growth in our portfolio, average loan size originated, net interest income and common book value, as well as the compound annual growth rate ("CAGR"), over the years ended December 2018, 2019, 2020, 2021 and 2022 (dollars in millions): (A) The average size of committed loan originated, net of amounts committed by KKR affiliate s, was $108.2 million and $130.9 million f or the years ended December 31, 2022 and 2021, respectively.
As of December 31, 2023, all of our investments were located in the United States. 3 Table of Contents The following charts illustrate the size of our portfolio and related compound annual growth rate ("CAGR") and common book value, over the years ended December 31, 2023 and the preceding four years (dollars in millions): (A) Common book value as of December 31, 2023 includes the impact of a CECL allowance of $212.5 million.
The following table details our outstanding financing arrangements as of December 31, 2022 (amounts in thousands): Portfolio Financing Outstanding Principal Balance Maximum Capacity Master repurchase agreements $ 1,436,166 $ 1,840,000 Collateralized loan obligation 1,942,750 1,942,750 Term lending agreements 1,391,490 1,880,943 Term loan facility 631,557 1,000,000 Asset specific financing 311,488 790,625 Warehouse facility — 500,000 Secured term loan 346,500 346,500 Revolving credit agreement — 610,000 Non-consolidated senior interests 263,086 263,086 Total portfolio financing $ 6,323,037 $ 9,173,904 6 Table of Contents The following chart illustrates our progress in diversifying our financing sources and expanding our non-mark-to-market financing sources to reduce our exposure to market volatility: (1) Based on outstanding principal amount of secured financing facilities and excludes convertible notes and Revolver.
The following table details our outstanding financing arrangements as of December 31, 2023 (amounts in thousands): Portfolio Financing Outstanding Principal Balance Maximum Capacity Master repurchase agreements $ 1,477,227 $ 2,000,000 Collateralized loan obligation 1,942,750 1,942,750 Term lending agreements 1,329,390 1,977,399 Term loan facility 561,377 1,000,000 Asset specific financing 266,072 490,625 Warehouse facility — 500,000 Secured term loan 343,000 343,000 Revolving credit agreement 160,000 610,000 Non-consolidated senior interests 188,611 188,611 Total portfolio financing $ 6,268,427 $ 9,052,385 The following chart illustrates our progress in diversifying our financing sources and expanding our non-mark-to-market financing sources to reduce our exposure to market volatility: (1) Based on outstanding principal amount of secured financing, including non-consolidated senior interests, that resulted from non-recourse sales of senior loan interest in loans we originated 6 Table of Contents Financing Risk Management The amount of leverage employed on our assets will depend on our Manager's assessment of the credit, liquidity, price volatility and other risks of those assets and the financing counterparties and availability of particular types of financing at any given time.
“Risk Factors—Risks Related to Our Financing and Hedging—Changes in the method for determining LIBOR or the elimination of LIBOR may affect the value of the financial obligations to be held or issued by us that are linked to LIBOR and could affect our results of operations or financial condition.” Taxation of the Company We elected to be treated as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2014 and expect to continue to operate so as to qualify as a REIT.
As of December 31, 2023, our floating-rate loan portfolio and financing arrangements were all indexed to Term SOFR. 8 Table of Contents Taxation of the Company We elected to be treated as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2014 and expect to continue to operate so as to qualify as a REIT.
Removed
Our Manager's investment committee, which is comprised of Ralph Rosenberg, KKR’s Global Head of Real Estate and Chairman of our board of directors, Chris Lee, Head of KKR's Real Estate Americas and Vice Chairman of our board of directors, Matt Salem, Head of KKR’s Real Estate Credit and Chief Executive Officer of KREF, Patrick Mattson, Chief Operating Officer of KKR’s Real Estate Credit and President and Chief Operating Officer of KREF, Joel Traut, Partner & Head of Originations, Ms.
Added
Our retained interest when utilizing structural leverage is subordinate to the lien of the third-party lender that owns the senior interest. 5 Table of Contents During the year ended and as of December 31, 2023, we: • Extended a $600.0 million master repurchase agreement and a $500.0 million warehouse facility maturity date to March 2026 • Upsized a $240.0 million master repurchase agreement to $400.0 million and extended the final maturity date to December 2027 • Repaid $143.8 million convertible notes in cash • Had no corporate debt or final facility maturities due until the first quarter of 2026 As a result, our Non-Mark-to-Market financing was $4.8 billion as of December 31, 2023, representing 76% of our secured financing.
Removed
Includes 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 pari passu and vertical loan participations.
Added
However, an increase in long-term rates, with other factors held constant, may have a negative impact on the market value of the CMBS portfolio.
Removed
(D) Other property types include Condo (Residential) (3%), Student Housing (1%), Single Family Rental ( (E) Excludes one real estate corporate loan to a multifamily operator with an outstanding principal amount of $40.4 million, representing 0.5% of our commercial real estate loans as of December 31, 2022.
Removed
During the year ended December 31, 2022, we: • Closed a $1.0 billion managed multifamily CLO, with a two-year reinvestment period providing $847.5 million of non-mark-to-market and non-recourse financing equating to an 84.75% advance rate, at a weighted average cost of capital of Term SOFR+1.71% before transaction costs, • Entered into three new asset specific financing facilities totaling $490.6 million, which provide non-recourse matched-term asset-based financing on a non-mark-to-market basis, • Entered into a new $350.0 million term lending agreement, which provides match-term financing on a non-mark-to-market basis with an option to increase the facility to $500.0 million, • Increased the borrowing capacity of existing $500.0 million term lending agreement to $1.0 billion, which provides match-term asset-based financing on a non-mark-to-market basis. • Increased the borrowing capacity on the corporate revolving credit facility (“Revolver”) by $275.0 million to $610.0 million and extended the maturity date through March 2027.
Removed
As a result, our Non-Mark-to-Market financing is $4.9 billion as of December 31, 2022, representing 77% of our secured financing.
Removed
Financing Risk Management The amount of leverage employed on our assets will depend on our Manager's assessment of the credit, liquidity, price volatility and other risks of those assets and the financing counterparties and availability of particular types of financing at any given time. We plan to maintain leverage levels appropriate to our specific portfolio.
Removed
As of December 31, 2022, 100.0% of our loan portfolio earned a floating rate of interest indexed to one-month LIBOR and/or Term SOFR, and of those investments that were financed, all were financed with liabilities that pay a floating rate of interest indexed to LIBOR and/or Term SOFR.
Removed
Although SOFR is the ARRC’s recommended replacement rate, it is also possible that lenders may instead choose alternative replacement rates that may differ from LIBOR in ways similar to SOFR or in other ways that would result in higher interest costs for us.
Removed
We cannot predict the effect of the decision not to sustain LIBOR, or the potential transition to SOFR or another alternative reference rate as LIBOR’s replacement.
Removed
As of December 31, 202 2, 55.4% and 44.6% of our loans by principal amount earned a floating rate of interest indexed to Term SOFR and LIBOR, respectively; and 60.5% and 39.5% of our outstanding floating rate financing arrangements bear interest indexed to Term SOFR and LIBOR, respectively.
Removed
All of our LIBOR-based arrangements provide procedures for determining an alternative base rate in the event that LIBOR is discontinued. Regardless, there can be no assurances as to what additional alternative base rates may be and whether such base rate will be more or less favorable than LIBOR and any other unforeseen impacts of the discontinuation of LIBOR.
Removed
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. For a further discussion, see Part I, Item 1A.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

139 edited+49 added−50 removed542 unchanged
Biggest changeIf we were required to register as an investment company under the Investment Company Act, we would become subject to substantial regulation with respect to our capital structure (including our ability to use borrowings or corporate leverage, which would have an adverse impact on our investment returns), management, operations, transactions with affiliated persons (as defined in the Investment Company Act) and portfolio composition, including disclosure requirements and restrictions with respect to diversification and industry concentration and other matters.
Biggest changeIf it were established that we were an unregistered investment company, there would be a risk that we would be subject to monetary penalties and injunctive relief in an action brought by the SEC, that we would be unable to enforce contracts with third parties, that third parties could seek to obtain rescission of transactions undertaken during the period it was established that we were an unregistered investment company. 38 Table of Contents If we were required to register as an investment company under the Investment Company Act, we would become subject to substantial regulation with respect to our capital structure (including our ability to use borrowings or corporate leverage, which would have an adverse impact on our investment returns), management, operations, transactions with affiliated persons (as defined in the Investment Company Act) and portfolio composition, including disclosure requirements and restrictions with respect to diversification and industry concentration and other matters.
For example, under certain circumstances, a lender who has inappropriately exercised control over the management and policies of a debtor may have its claims subordinated or disallowed or may be found liable for damages suffered by parties as a result of such actions.
For example, under certain circumstances, a lender who has inappropriately exercised control over the management and policies of a debtor may have its claims subordinated or disallowed or may be found liable for damages suffered by parties as a result of such actions.
The Commodity Exchange Act of 1936, as amended, and rules promulgated thereunder (the “CFTC Rules”) by the U.S. Commodity Futures Trading Commission (the “CFTC”) establish a comprehensive regulatory framework for certain derivative instruments, including swaps, futures and foreign exchange derivatives (“Regulated CFTC Instruments”).
The Commodity Exchange Act of 1936, as amended, and rules promulgated thereunder (“CFTC Rules”) by the U.S. Commodity Futures Trading Commission (“CFTC”) establish a comprehensive regulatory framework for certain derivative instruments, including swaps, futures and foreign exchange derivatives (“Regulated CFTC Instruments”).
The management agreement may be terminated upon the affirmative vote of at least two-thirds of our independent directors, based upon (1) unsatisfactory performance by our Manager that is materially detrimental to us and our subsidiaries taken as a whole or (2) our determination that the management fee and incentive fee payable to our Manager are not fair, subject to our Manager’s right to prevent any termination due to unfair fees by accepting a reduction of management and/or incentive fees agreed to by at least two-thirds of our independent directors.
The management agreement may be terminated upon the affirmative vote of at least two-thirds of our independent directors, based upon our determination that (1) our Manager's performance is unsatisfactory and is materially detrimental to us and our subsidiaries taken as a whole or (2) the management fee and incentive fee payable to our Manager are not fair, subject to our Manager’s right to prevent any termination due to unfair fees by accepting a reduction of management and/or incentive fees agreed to by at least two-thirds of our independent directors.
There may be no guidance from the SEC staff that applies directly to our factual situations and as a result we may have to apply SEC staff guidance that relates to other factual situations by analogy. No assurance can be given that the SEC or its staff will concur with our classification of our assets.
There may be no guidance from the SEC staff that applies directly to our factual situations and as a result we may have to apply SEC staff guidance that relates to other factual situations by analogy. No assurance can be given that the SEC or its staff will concur with our classification of our assets.
We cannot predict the degree to which economic conditions generally, and the conditions for real estate debt investing in particular, will improve or decline. Any declines in the performance of the U.S. and global economies or in the real estate debt markets could have a material adverse effect on our business, financial condition, and results of operations.
We cannot predict the degree to which economic conditions generally, and the conditions for real estate debt investing in particular, will improve or decline. Any future declines in the performance of the U.S. and global economies or in the real estate debt markets could have a material adverse effect on our business, financial condition, and results of operations.
While our investment strategy focuses primarily on investments in “performing” real estate-related interests, our investment program may include making distressed investments from time to time (e.g., investments in defaulted, out-of-favor or distressed loans and debt securities) or may involve investments that become “non-performing” following our acquisition thereof.
While our investment strategy focuses primarily on investments in “performing” real estate-related interests, our investment program may include making distressed investments from time to time (e.g., investments in defaulted, out-of-favor or distressed loans and debt securities) or may involve investments that become “non-performing” following our origination or acquisition thereof.
To the extent that our financing costs are determined by reference to floating rates, such as LIBOR, SOFR or a Treasury index, the amount of such costs will depend on the level and movement of interest rates. In recent years, interest rates had remained at relatively low levels on a historical basis.
To the extent that our financing costs are determined by reference to floating rates, such as SOFR or a Treasury index, the amount of such costs will depend on the level and movement of interest rates. In recent years, interest rates had remained at relatively low levels on a historical basis.
We invest in debt instruments (including, indirectly through RECOP I, in CMBS B-Pieces) and preferred equity that are subordinated or otherwise junior in an issuer’s capital structure and that involve privately negotiated structures.
We invest in debt instruments (including, indirectly through RECOP I, in CMBS B-Pieces) and may invest in preferred equity that are subordinated or otherwise junior in an issuer’s capital structure and that involve privately negotiated structures.
A decline in the value of our assets may require us to recognize an “other-than-temporary” impairment or write-off against such assets under GAAP if we were to determine that, with respect to any assets in unrealized loss positions, we do not have the ability and intent to hold such assets to maturity or for a period of time sufficient to allow for recovery to the original acquisition cost of such assets.
A decline in the value of our assets may require us to recognize an “other-than-temporary” impairment or write-offs against such assets under GAAP if we were to determine that, with respect to any assets in unrealized loss positions, we do not have the ability and intent to hold such assets to maturity or for a period of time sufficient to allow for recovery to the original acquisition cost of such assets.
Under the terms of the management agreement, our Manager and its affiliates and their respective directors, officers, 32 Table of Contents employees, managers, trustees, control persons, partners, equityholders and stockholders are not liable to us, our directors, stockholders or any subsidiary of ours, or their directors, officers, employees or stockholders for any acts or omissions performed in accordance with and pursuant to the management agreement, whether by or through attempted piercing of the corporate veil, by or through a claim, by the enforcement of any judgment or assessment or by any legal or equitable proceeding, or by virtue of any statute, regulation or other applicable law, or otherwise, except by reason of acts or omissions constituting bad faith, willful misconduct, gross negligence, or reckless disregard of their duties under the management agreement.
Under the terms of the management agreement, our Manager and its affiliates and their respective directors, officers, employees, managers, trustees, control persons, partners, equityholders and stockholders are not liable to us, our directors, stockholders or any subsidiary of ours, or their directors, officers, employees or stockholders for any acts or omissions performed in accordance with and pursuant to the management agreement, whether by or through attempted piercing of the corporate veil, by or through a claim, by the enforcement of any judgment or assessment or by any legal or equitable proceeding, or by virtue of any statute, regulation or other applicable law, or otherwise, except by reason of acts or omissions constituting bad faith, willful misconduct, gross negligence, or reckless disregard of their duties under the management agreement.
In addition, our investment portfolio will always be exposed to certain risks that cannot be fully or effectively hedged, such as credit risk relating both to particular securities and counterparties. Hedging against interest rates or currency exposure may adversely affect our earnings, which could reduce our cash available for distribution to stockholders.
In addition, our investment portfolio will always be exposed to certain risks that cannot be fully or effectively hedged, such as credit risk relating both to particular securities and counterparties. Hedging against interest rate or currency exposure may adversely affect our earnings, which could reduce our cash available for distribution to stockholders.
We believe that a change in any one of the following factors could adversely affect our results of operations and impair our ability to pay distributions to our stockholders: • our ability to make profitable investments; • margin calls or other expenses that reduce our cash flow; • defaults in our asset portfolio or decreases in the value of our portfolio; • the impact of declining interest rates on our net interest income; and • the fact that anticipated operating expense levels may not prove accurate, as actual results may vary from estimates.
We believe that a change in any one of the following factors could adversely affect our results of operations and impair our ability to pay distributions at current levels or at all to our stockholders: • our ability to make profitable investments; • margin calls or other expenses that reduce our cash flow; • defaults in our asset portfolio or decreases in the value of our portfolio; • the impact of declining interest rates on our net interest income; and • the fact that anticipated operating expense levels may not prove accurate, as actual results may vary from estimates.
If we enter into such a transaction in the future, 47 Table of Contents we could be taxable at the highest corporate income tax rate on a portion of the income arising from a taxable mortgage pool, referred to as “excess inclusion income,” that is allocable to the percentage of our shares held in record name by disqualified organizations (generally tax-exempt entities that are exempt from the tax on unrelated business taxable income, such as state pension plans and charitable remainder trusts and government entities).
If we enter into such a transaction in the future, we could be taxable at the highest corporate income tax rate on a portion of the income arising from a taxable mortgage pool, referred to as “excess inclusion income,” that is allocable to the percentage of our shares held in record name by disqualified organizations (generally tax-exempt entities that are exempt from the tax on unrelated business taxable income, such as state pension plans and charitable remainder trusts and government entities).
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Our Portfolio.” Any credit ratings assigned to our investments will be subject to ongoing evaluations and revisions and we cannot assure you that those ratings will not be downgraded. Some of our investments may be rated by rating agencies.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Our Portfolio.” Any credit ratings assigned to our investments or to us will be subject to ongoing evaluations and revisions and we cannot assure you that those ratings will not be downgraded. Some of our investments may be rated by rating agencies.
However, in circumstances where KKR’s global conflicts and compliance committee approves a transaction of this type, approval by our board of directors is generally not required, and our interests and those of KKR or such KKR investment vehicle may not always be aligned, which may give rise to actual or potential conflicts of interest and actions taken for us may be adverse to KKR or such KKR investment vehicle, or vice versa. • Competing interests; allocation of resources.
However, in circumstances where KKR’s global conflicts and compliance committee approves a transaction of this type, approval by our board of directors is generally not 34 Table of Contents required, and our interests and those of KKR or such KKR investment vehicle may not always be aligned, which may give rise to actual or potential conflicts of interest and actions taken for us may be adverse to KKR or such KKR investment vehicle, or vice versa. • Competing interests; allocation of resources.
In an extreme eventuality, it is possible that such regulations could render the continued operation of our company unviable. In the United States, the process established by the Dodd-Frank Act for designation of systemically important nonbank firms has provided a means for ensuring that the perimeter of prudential regulation can be extended as appropriate to cover large shadow banking institutions.
In an extreme eventuality, it is possible that such regulations could render the continued operation of our company unviable. 39 Table of Contents In the United States, the process established by the Dodd-Frank Act for designation of systemically important nonbank firms has provided a means for ensuring that the perimeter of prudential regulation can be extended as appropriate to cover large shadow banking institutions.
While we primarily seek to make real estate-related debt investments, our Manager may otherwise implement on our behalf strategies or discretionary approaches it believes from time to time may be best suited to prevailing market conditions in furtherance of that purpose, subject to the supervision and direction of our board of directors and the limitations set forth in our 18 Table of Contents organizational documents and governing agreements.
While we primarily seek to make real estate-related debt investments, our Manager may otherwise implement on our behalf strategies or discretionary approaches it believes from time to time may be best suited to prevailing market conditions in furtherance of that purpose, subject to the supervision and direction of our board of directors and the limitations set forth in our organizational documents and governing agreements.
See “—Risks Related to Our Financing and Hedging —We will be subject to counterparty risk associated with any hedging activities.” Additionally, our Manager may cause us to take advantage of investment opportunities with respect to derivative instruments that are neither presently contemplated nor currently available, but which may be developed in the future, to the extent such opportunities are both consistent with our investment objectives and legally permissible.
See “Risks Related to Our Financing and Hedging —We may be subject to counterparty risk associated with any hedging activities.” Additionally, our Manager may cause us to take advantage of investment opportunities with respect to derivative instruments that are neither presently contemplated nor currently available, but which may be developed in the future, to the extent such opportunities are both consistent with our investment objectives and legally permissible.
The current term of the management agreement extends to December 31, 2023 and will be automatically renewed for additional one-year terms thereafter; provided, however, that our Manager may terminate the management agreement annually upon 180 days’ prior notice.
The current term of the management agreement extends to December 31, 2024 and will be automatically renewed for additional one-year terms thereafter; provided, however, that our Manager may terminate the management agreement annually upon 180 days’ prior notice.
Interest rate and currency hedging may fail to protect or could adversely affect us because, among other things: • interest, currency and/or credit hedging can be expensive and may result in us generating less net income; • available interest or currency rate hedges may not correspond directly with the interest rate or currency risk for which protection is sought; • due to a credit loss, prepayment or asset sale, the duration of the hedge may not match the duration of the related asset or liability; • the amount of income that a REIT may earn from hedging transactions (other than hedging transactions that satisfy certain requirements of the Internal Revenue Code of 1986, as amended (the “Code”) or that are done through a taxable REIT subsidiary) to offset interest rate losses is limited by U.S. federal income tax provisions governing REITs; • the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; • we may fail to recalculate, readjust and execute hedges in an efficient manner; and • legal, tax and regulatory changes could occur and may adversely affect our ability to pursue hedging strategies and/or increase the costs of implementing such strategies.
Interest rate and currency hedging may fail to protect or could adversely affect us because, among other things: 28 Table of Contents • interest rate, currency and/or credit hedging can be expensive and may result in us generating less net income; • available interest rate or currency hedges may not correspond directly with the interest rate or currency risk for which protection is sought; • due to a credit loss, prepayment or asset sale, the duration of the hedge may not match the duration of the related asset or liability; • the amount of income that a REIT may earn from hedging transactions (other than hedging transactions that satisfy certain requirements of the Internal Revenue Code of 1986, as amended (the “Code”) or that are done through a taxable REIT subsidiary) to offset interest rate losses is limited by U.S. federal income tax provisions governing REITs; • the hedging counterparty owing money in the hedging transaction may default on its obligation to pay; • the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; • we may fail to recalculate, readjust and execute hedges in an efficient manner; and • legal, tax and regulatory changes could occur and may adversely affect our ability to pursue hedging strategies and/or increase the costs of implementing such strategies.
As a result, with respect to our investments in CMBS B-Pieces, mezzanine loans and other subordinated debt, we would potentially receive payments or interest distributions after, and must bear the effects of losses or defaults on the senior debt (including underlying senior loans, senior mezzanine loans, B-Notes, preferred equity or senior CMBS bonds, as applicable) before, the holders of other more senior tranches of debt instruments with respect to such issuer.
As a result, with respect to our investments in CMBS B-Pieces, mezzanine loans and other subordinated debt, we would potentially receive 16 Table of Contents payments or interest distributions after, and must bear the effects of losses or defaults on the senior debt (including underlying senior loans, senior mezzanine loans, B-Notes, preferred equity or senior CMBS bonds, as applicable) before, the holders of other more senior tranches of debt instruments with respect to such issuer.
Under our charter, KKR and its affiliates and our directors or any person our 52 Table of Contents directors control will not be obligated to present to us opportunities unless those opportunities are expressly offered to such person in his or her capacity as a director or officer of our company and those persons will be able to engage in competing activities without any restriction imposed as a result of KKR’s or its affiliates’ status as a stockholder or KKR affiliates’ status as officers or directors of our company.
Under our charter, KKR and its affiliates and our directors or any person our directors control will not be obligated to present to us opportunities unless those opportunities are expressly offered to such person in his or her capacity as a director or officer of our company and those persons will be able to engage in competing activities without any restriction imposed as a result of KKR’s or its affiliates’ status as a stockholder or KKR affiliates’ status as officers or directors of our company.
Our taxable income may be greater than our cash flow available for distribution, including as a result of our investments in certain debt instruments, causing us to recognize “phantom income” for U.S. federal income tax purposes, and certain 45 Table of Contents modifications of debt instruments by us could cause the modified debt to not qualify as a good REIT asset, thereby jeopardizing our REIT qualification.
Our taxable income may be greater than our cash flow available for distribution, including as a result of our investments in certain debt instruments, causing us to recognize “phantom income” for U.S. federal income tax purposes, and certain modifications of debt instruments by us could cause the modified debt to not qualify as a good REIT asset, thereby jeopardizing our REIT qualification.
See “Risks Related to Our REIT Status and Certain Other Tax Considerations.” Loans or investments involving international real estate-related assets are subject to special risks that we may not manage effectively, which could have a material adverse effect on our results of operations and our ability to make distributions to our stockholders.
See “Risks Related to Our REIT Status and Certain Other Tax Considerations.” 22 Table of Contents Loans or investments involving international real estate-related assets are subject to special risks that we may not manage effectively, which could have a material adverse effect on our results of operations and our ability to make distributions to our stockholders.
Certain 20 Table of Contents of our investments may, therefore, include specific securities of companies that typically are highly leveraged, with significant burdens on cash flow and, therefore, involve a high degree of risk of substantial or total losses on our investments and in certain circumstances, may become subject to certain additional potential liabilities that may exceed the value of our original investment therein.
Certain of our investments may, therefore, include specific securities of companies that typically are highly leveraged, with significant burdens on cash flow and, therefore, involve a high degree of risk of substantial or total losses on our investments and in certain circumstances, may become subject to certain additional potential liabilities that may exceed the value of our original investment therein.
Accordingly, we may be unable to obtain the consent of a lender to finance an investment and alternate sources of financing for such asset may not exist. Our master repurchase agreements impose, and additional lending facilities may impose, restrictive covenants, which would restrict our flexibility to determine our operating policies and investment strategy and to conduct our business.
Accordingly, we may be unable to obtain the consent of a lender to finance an investment and alternate sources of financing for such asset may not exist. 26 Table of Contents Our master repurchase agreements impose, and additional lending facilities may impose, restrictive covenants, which would restrict our flexibility to determine our operating policies and investment strategy and to conduct our business.
In the case of KKR’s allocation of investment opportunities between us and Global Atlantic, for example, we will continue to be KKR's primary vehicle for transitional senior loans, receiving first priority with respect to 34 Table of Contents those investments, which have been our primary target asset since our IPO, while Global Atlantic will receive priority with respect to stabilized senior loan opportunities.
In the case of KKR’s allocation of investment opportunities between us and Global Atlantic, for example, we will continue to be KKR's primary vehicle for transitional senior loans, receiving first priority with respect to those investments, which have been our primary target asset since our IPO, while Global Atlantic will receive priority with respect to stabilized senior loan opportunities.
Although members of the KKR Real Estate team intend to devote such time as may be necessary to conduct our business affairs in an appropriate manner, our Manager and KKR will continue to devote the resources necessary to manage the investment activities of KKR, KKR investment vehicles, other entities affiliated with KKR and the executives of KKR and, therefore, conflicts may arise in the allocation of time, services and resources.
Although members of the KKR Real Estate team intend to devote such time as may be necessary to conduct our business affairs in an appropriate manner, our Manager and KKR will continue to devote the resources necessary to manage the investment activities of KKR, KKR investment vehicles, other entities affiliated with 33 Table of Contents KKR and the executives of KKR and, therefore, conflicts may arise in the allocation of time, services and resources.
Moreover, even if the “protective” election were to be effective, the Subsidiary REIT would be subject to regular corporate income tax, and we cannot assure you that we would not 48 Table of Contents fail to satisfy the requirement that not more than 20% of the value of our total assets may be represented by the securities of one or more taxable REIT subsidiaries.
Moreover, even if the “protective” election were to be effective, the Subsidiary REIT would be subject to regular corporate income tax, and we cannot assure you that we would not fail to satisfy the requirement that not more than 20% of the value of our total assets may be represented by the securities of one or more taxable REIT subsidiaries.
See “Risks Related to Our REIT Status and Certain Other Tax Items—Our charter does not permit any person (including certain entities treated as individuals for this purpose) to own more than 9.8% of any class or series of our outstanding capital stock, and attempts to acquire shares of any class or series of our capital stock in excess of this 9.8% limit would not be effective without a prior exemption from those prohibitions by our board of directors.” Our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit your recourse in the event of actions not in your best interests.
See “Risks Related to Our REIT Status and Certain Other Tax Considerations—Our charter does not permit any person (including certain entities treated as individuals for this purpose) to own more than 9.8% of any class or series of our outstanding capital stock, and attempts to acquire shares of any class or series of our capital stock in excess of this 9.8% limit would not be effective without an exemption from those prohibitions by our board of directors.” Our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit your recourse in the event of actions not in your best interests.
If such renovation is not completed in a timely manner, or if it costs more than expected, the borrower may experience a prolonged reduction of net 15 Table of Contents operating income and may not be able to make payments on our investment on a timely basis or at all, which could result in significant losses.
If such renovation is not completed in a timely manner, or if it costs more than expected, the borrower may experience a prolonged reduction of net operating income and may not be able to make payments on our investment on a timely basis or at all, which could result in significant losses.
In addition, certain regulatory requirements with respect to derivatives, including record keeping, financial responsibility or segregation of customer funds and positions are still under development and could impact our hedging transactions and how we and our counterparty must manage such transactions. 30 Table of Contents We may be subject to counterparty risk associated with any hedging activities.
In addition, certain regulatory requirements with respect to derivatives, including record keeping, financial responsibility or segregation of customer funds and positions are still under development and could impact our hedging transactions and how we and our counterparty must manage such transactions. We may be subject to counterparty risk associated with any hedging activities.
Incurring substantial debt could subject us to many risks that, if realized, would materially and adversely affect us, including the risk that: 26 Table of Contents • our cash flow from operations may be insufficient to make required payments of principal of and interest on our debt or we may fail to comply with covenants contained in our debt agreements, which is likely to result in (1) acceleration of such debt (and any other debt containing a cross-default or cross-acceleration provision), which we then may be unable to repay from internal funds or to refinance on favorable terms, or at all, (2) our inability to borrow undrawn amounts under our financing arrangements, even if we are current in payments on borrowings under those arrangements, which would result in a decrease in our liquidity, and/or (3) the loss of some or all of our collateral assets to foreclosure or sale; • our debt may increase our vulnerability to adverse economic and industry conditions with no assurance that investment yields will increase in an amount sufficient to offset the higher financing costs; • we may be required to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for operations, future business opportunities, stockholder distributions or other purposes; and • we may not be able to refinance any debt that matures prior to the maturity (or realization) of an underlying investment it was used to finance on favorable terms or at all.
Incurring substantial debt could subject us to many risks that, if realized, would materially and adversely affect us, including the risk that: • our cash flow from operations may be insufficient to make required payments of principal of and interest on our debt or we may fail to comply with covenants contained in our debt agreements, which is likely to result in (i) acceleration of such debt (and any other debt containing a cross-default or cross-acceleration provision), which we then may be unable to repay from internal funds or to refinance on favorable terms, or at all, (ii) our inability to borrow undrawn amounts under our financing arrangements, even if we are current in payments on borrowings under those arrangements, which would result in a decrease in our liquidity, and/or (iii) the loss of some or all of our collateral assets to foreclosure or sale; • our debt may increase our vulnerability to adverse economic and industry conditions with no assurance that investment yields will increase in an amount sufficient to offset the higher financing costs; • we may be required to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for operations, future business opportunities, stockholder distributions or other purposes; and • we may not be able to refinance any debt that matures prior to the maturity (or realization) of an underlying investment it was used to finance on favorable terms or at all.
Net operating income of an income-producing property can be affected by, among other things: • tenant mix and tenant bankruptcies; • success of tenant businesses; • property management decisions, including with respect to capital improvements, particularly in older building structures; 14 Table of Contents • property location and condition; • competition from other properties offering the same or similar services; • changes in laws that increase operating expenses or limit rents that may be charged; • any liabilities relating to environmental matters at the property; • changes in global, national, regional or local economic conditions and/or specific industry segments; • global trade disruption, supply chain issues, significant introduction of trade barriers and bilateral trade frictions; • labor shortages and increasing wages; • higher inflation rates; • declines in global, national, regional or local real estate values; • declines in global, national, regional or local rental or occupancy rates; • changes in interest rates and in the state of the credit and securitization markets and the debt and equity capital markets, including diminished availability or lack of debt financing for CRE; • changes in real estate tax rates and other operating expenses; • changes in governmental rules, regulations and fiscal policies, including environmental legislation, income tax regulations and other tax legislation; • outbreaks of contagious or pandemic diseases, including COVID-19; • acts of God, natural disasters, climate change related risks, terrorism, social unrest and civil disturbances, which may decrease the availability of or increase the cost of insurance or result in uninsured losses; and • adverse changes in zoning laws.
Net operating income of an income-producing property can be affected by, among other things: • tenant mix and tenant bankruptcies; • success of tenant businesses; • property management decisions, including with respect to capital improvements, particularly in older building structures; • property location and condition; • competition from other properties offering the same or similar services; • changes in laws that increase operating expenses or limit rents that may be charged; • any liabilities relating to environmental matters at the property; • changes in global, national, regional or local economic conditions and/or specific industry segments; 13 Table of Contents • increases in remote working arrangements and the subsequent effect on demand for CRE; • global trade disruption, supply chain issues, significant introduction of trade barriers and bilateral trade frictions; • labor shortages and increasing wages; • higher inflation rates; • declines in global, national, regional or local real estate values; • declines in global, national, regional or local rental or occupancy rates; • changes in interest rates and in the state of the credit and securitization markets and the debt and equity capital markets, including diminished availability or lack of debt financing for CRE; • changes in real estate tax rates and other operating expenses; • changes in governmental rules, regulations and fiscal policies, including environmental legislation, income tax regulations and other tax legislation; • outbreaks of contagious or pandemic diseases, including COVID-19; • acts of God, natural disasters, climate change related risks, terrorism, social unrest and civil disturbances, which may decrease the availability of or increase the cost of insurance or result in uninsured losses; and • adverse changes in zoning laws.
Any interruption or deterioration in the performance of these third parties or failures of their information systems and technology could impair the quality of our operations and could affect our reputation and hence adversely affect our business. KKR has significant influence over us and its interests may conflict with ours or those of our stockholders in the future.
Any interruption or deterioration in the performance of these third parties or failures of their information systems and technology could impair the quality of our operations and could affect our reputation and hence adversely affect our business. 49 Table of Contents KKR has significant influence over us and its interests may conflict with ours or those of our stockholders in the future.
Even after the lapse of the five-year prohibition period, any business combination with an interested stockholder must be recommended by our board of directors and approved by the affirmative vote of at least: • 80% of the votes entitled to be cast by stockholders; and • two-thirds of the votes entitled to be cast by stockholders other than the interested stockholder and affiliates and associates thereof.
Even after the lapse of the five-year prohibition period, any business combination with an interested stockholder must be recommended by our board of directors and approved by the affirmative vote of at least: • 80% of the votes entitled to be cast by stockholders; and 50 Table of Contents • two-thirds of the votes entitled to be cast by stockholders other than the interested stockholder and affiliates and associates thereof.
As a result, we could experience poor performance or losses for which our Manager would not be liable. The historical returns generated by funds managed by affiliates of our Manager should not be considered indicative of our future results or of any returns expected on an investment in shares of our common stock.
As a result, we could experience poor performance or losses for which our Manager would not be liable. 31 Table of Contents The historical returns generated by funds managed by affiliates of our Manager should not be considered indicative of our future results or of any returns expected on an investment in shares of our common stock.
Increasing governmental, investor and societal attention to ESG matters, including expanding mandatory and voluntary reporting, diligence, and disclosure on topics such as climate change, human capital, labor and risk oversight, could expand the nature, scope, and complexity of matters that we are required to control, assess and report.
Increasing governmental, investor and societal attention to ESG matters, including expanding mandatory and voluntary reporting, diligence, and disclosure on topics such as climate change, human capital, labor and risk oversight, could expand the nature, 40 Table of Contents scope, and complexity of matters that we are required to control, assess and report.
No assurance can be given that such claims will not arise or that we will not be subject to significant liability if a claim of this type did arise. Any distressed loans or investments we make, or loans and investments that later become distressed, may subject us to losses and other risks relating to bankruptcy proceedings.
No assurance can be given that such claims will not arise or that we will not be subject to significant liability if a claim of this type did arise. 19 Table of Contents Any distressed loans or investments we make, or loans and investments that later become distressed, may subject us to losses and other risks relating to bankruptcy proceedings.
Among other things, the CFTC may suspend or revoke the registration of a person 31 Table of Contents who fails to comply, prohibit such a person from trading or doing business with registered entities, impose civil money penalties, require restitution and seek fines or imprisonment for criminal violations.
Among other things, the CFTC may suspend or revoke the registration of a person who fails to comply, prohibit such a person from trading or doing business with registered entities, impose civil money penalties, require restitution and seek fines or imprisonment for criminal violations.
In addition, certain of our investments may become less liquid after investment as a result of periods of delinquencies, defaults 24 Table of Contents or turbulent market conditions, which may make it more difficult for us to dispose of such assets at advantageous times or in a timely manner.
In addition, certain of our investments may become less liquid after investment as a result of periods of delinquencies, defaults or turbulent market conditions, which may make it more difficult for us to dispose of such assets at advantageous times or in a timely manner.
If any of our counterparties were to limit or cease operation, it could lead to financial losses for us. 29 Table of Contents We may utilize a wide variety of derivative financial instruments for risk management purposes, the use of which may entail greater than ordinary investment risks.
If any of our counterparties were to limit or cease operation, it could lead to financial losses for us. We may utilize a wide variety of derivative financial instruments for risk management purposes, the use of which may entail greater than ordinary investment risks.
We may co-invest together with KKR investment vehicles and/or KKR proprietary balance sheet entities in some or all of our investment opportunities. KKR may also offer co-investment opportunities to 35 Table of Contents vehicles in which KKR personnel, non-employee consultants and other associated persons of KKR or any of its affiliate entities may invest and to third-party co-investors.
We may co-invest together with KKR investment vehicles and/or KKR proprietary balance sheet entities in some or all of our investment opportunities. KKR may also offer co-investment opportunities to vehicles in which KKR personnel, non-employee consultants and other associated persons of KKR or any of its affiliate entities may invest and to third-party co-investors.
Any distributions we make to our stockholders will be at the discretion of our board of directors and will depend on our earnings, financial condition, liquidity, debt covenants, maintenance of our REIT qualification, applicable law and such other factors as our board of directors may deem relevant from time to time.
Any distributions we make to our 52 Table of Contents stockholders will be at the discretion of our board of directors and will depend on our earnings, financial condition, liquidity, debt covenants, maintenance of our REIT qualification, applicable law and such other factors as our board of directors may deem relevant from time to time.
Further, such modifications and/or restructuring may entail, among other things, a substantial reduction in the interest rate and a substantial write-off of the principal of such loan, debt securities or other interests.
Further, such modifications and/or restructuring may entail, among other things, a substantial reduction in the interest rate and substantial write-offs of the principal of such loan, debt securities or other interests.
As of December 31, 2022, 13,160,000 shares of preferred stock are classified as 6.50% Series A Cumulative Redeemable Preferred Stock and one share of preferred stock is classified as special non-voting preferred stock.
As of December 31, 2023, 13,160,000 shares of preferred stock are classified as 6.50% Series A Cumulative Redeemable Preferred Stock and one share of preferred stock is classified as special non-voting preferred stock.
To the extent we suffer such losses with respect to these transitional loans, it could adversely affect our results of operations and financial condition. Prepayment rates may adversely affect the value of our portfolio of assets. Generally, our borrowers may repay their loans prior to their stated final maturities.
To the extent we suffer such losses with respect to these transitional loans, it could adversely affect our results of operations and financial condition. 14 Table of Contents Prepayment rates may adversely affect the value of our portfolio of assets. Generally, our borrowers may repay their loans prior to their stated final maturities.
Significant losses related to our mezzanine loans and our indirect CMBS B-Piece investments would result in operating losses for us and may limit our ability to make distributions to our stockholders.
Significant losses related to our mezzanine loans and our indirect CMBS B-Piece investments could result in operating losses for us and may limit our ability to make distributions to our stockholders.
Any credit ratings on our investments are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that any such ratings will not be downgraded or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant.
Any credit ratings assigned to our investments or to us are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that any such ratings will not be downgraded or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant.
In addition, actual or implied daily limits on price fluctuations and speculative position limits on the exchanges or OTC markets in which we may conduct our transactions in derivative instruments may prevent prompt liquidation of positions, 22 Table of Contents subjecting us to the potential of greater losses.
In addition, actual or implied daily limits on price fluctuations and speculative position limits on the exchanges or OTC markets in which we may conduct our transactions in derivative instruments may prevent prompt liquidation of positions, subjecting us to the potential of greater losses.
In addition, the SEC or its staff may, in the future, issue further guidance that may require us to re-classify our assets for 38 Table of Contents purposes of the Investment Company Act, including for purposes of our subsidiaries’ compliance with the exclusion provided in Section 3(c)(5)(C) of the Investment Company Act.
In addition, the SEC or its staff may, in the future, issue further guidance that may require us to re-classify our assets for purposes of the Investment Company Act, including for purposes of our subsidiaries’ compliance with the exclusion provided in Section 3(c)(5)(C) of the Investment Company Act.
B y virtue of KKR’s stock ownership, KKR has the power to significantly influence our business and affairs and is able to influence the outcome of matters required to be submitted to stockholders for approval, including the election of our directors, amendments to our charter, mergers or sales of assets.
By virtue of KKR’s stock ownership, KKR has the power to significantly influence our business and affairs and is able to influence the outcome of matters required to be submitted to stockholders for approval, including the election of our directors, amendments to our charter, mergers or sales of assets.
We also may be subject to state and local or foreign taxes on our income or property, including franchise, payroll, 43 Table of Contents mortgage recording and transfer taxes, either directly or at the level of the other companies through which we indirectly own assets.
We also may be subject to state and local or foreign taxes on our income or property, including franchise, payroll, mortgage recording and transfer taxes, either directly or at the level of the other companies through which we indirectly own assets.
As a result, the acquisition of less than 9.8% of any class or series of our outstanding capital stock by an individual or entity could cause an individual to own constructively in excess of 9.8% of such class or series of our 44 Table of Contents outstanding capital stock, and thus violate the ownership limit.
As a result, the acquisition of less than 9.8% of any class or series of our outstanding capital stock by an individual or entity could cause an individual to own constructively in excess of 9.8% of such class or series of our outstanding capital stock, and thus violate the ownership limit.
For example, we may acquire assets, including debt securities requiring us to accrue OID or recognize market discount income, that generate taxable income in excess of economic income or in advance of the corresponding cash flow from the assets referred to as “phantom income.” In addition, if a borrower with respect to a particular debt instrument encounters financial difficulty rendering it unable to pay stated interest as due, we may nonetheless be required to continue to recognize the unpaid interest as taxable income with the effect that we will recognize income but will not have a corresponding amount of cash available for distribution to our stockholders.
For example, we may acquire assets, including debt securities requiring us to accrue original issue discount or recognize market discount income, that generate taxable income in excess of economic income or in advance of the corresponding cash flow from the assets referred to as “phantom income.” In addition, if a borrower with respect to a particular debt instrument encounters financial difficulty rendering it unable to pay 44 Table of Contents stated interest as due, we may nonetheless be required to continue to recognize the unpaid interest as taxable income with the effect that we will recognize income but will not have a corresponding amount of cash available for distribution to our stockholders.
However, one can rise or fall faster than the other, causing our net interest margin to 13 Table of Contents expand or contract. In addition, we could experience reductions in the yield on our investments and an increase in the cost of our financing.
However, one can rise or fall faster than the other, causing our net interest margin to expand or contract. In addition, we could experience reductions in the yield on our investments and an increase in the cost of our financing.
Significant losses related to such loans or investments could adversely affect our results of operations and financial condition. 17 Table of Contents Investments in subordinated debt involve greater credit risk of default than the senior classes of the issue or series.
Significant losses related to such loans or investments could adversely affect our results of operations and financial condition. Investments in subordinated debt involve greater credit risk of default than the senior classes of the issue or series.
Our charter contains a provision whereby we have elected to be subject to the provisions of MUTA relating to the filling of vacancies on our board of directors. In addition, our charter includes certain limitations on the ownership and transfer of our common stock.
Our 51 Table of Contents charter contains a provision whereby we have elected to be subject to the provisions of MUTA relating to the filling of vacancies on our board of directors. In addition, our charter includes certain limitations on the ownership and transfer of our common stock.
In addition, any dislocation or weakness in the capital and credit markets could adversely affect our lenders and could cause one or more of our lenders to be unwilling or unable to provide us with financing or to increase the costs of that financing.
In addition, any dislocation or weakness 27 Table of Contents in the capital and credit markets could adversely affect our lenders and could cause one or more of our lenders to be unwilling or unable to provide us with financing or to increase the costs of that financing.
Accordingly, each of these CLO subsidiaries is subject to an indenture (or similar transaction documents) that contains specific guidelines and restrictions limiting the discretion of the CLO subsidiary and its collateral manager, if applicable.
Accordingly, each of these CLO subsidiaries is subject to an indenture (or similar transaction documents) that contains specific guidelines and restrictions limiting the discretion of the CLO subsidiary and its collateral manager, if 37 Table of Contents applicable.
Moreover, conditions in the capital markets, including volatility and disruption in the capital and credit markets, may not permit a non-recourse securitization at any particular time or may make the issuance of any such securitization less attractive to us even when we do have sufficient eligible assets.
Moreover, conditions in the capital markets which we are currently experiencing, including volatility and disruption in the capital and credit markets, may not permit a non-recourse securitization at any particular time or may make the issuance of any such securitization less attractive to us even when we do have sufficient eligible assets.
Obtaining and maintaining licenses will cause us to incur expenses and failure to be properly licensed under state law or otherwise may have a material adverse effect on us and our operations. Maintaining an exclusion from registration under the Investment Company Act imposes significant limits on our operations.
Obtaining and maintaining licenses will cause us to incur expenses and failure to be properly licensed under state law or otherwise may have a material adverse effect on us and our operations. 36 Table of Contents Maintaining an exclusion from registration under the Investment Company Act imposes significant limits on our operations.
We are unable to predict at this time the effect of any such reforms. 40 Table of Contents There has been increasing commentary amongst regulators and intergovernmental institutions on the role of nonbank institutions in providing credit and, particularly, so-called “shadow banking,” a term generally taken to refer to credit intermediation involving entities and activities outside the regulated banking system.
We are unable to predict at this time the effect of any such reforms. In recent years, there has been increasing commentary amongst regulators and intergovernmental institutions on the role of nonbank institutions in providing credit and, particularly, so-called “shadow banking,” a term generally taken to refer to credit intermediation involving entities and activities outside the regulated banking system.
In addition, we may choose not to enforce, or to enforce less vigorously, our rights under the management agreement because of our desire to maintain an ongoing relationship with our Manager. • Service providers.
In addition, we may choose not to enforce, or to enforce less vigorously, our rights under the management agreement because of our desire to maintain an ongoing relationship with our Manager. 35 Table of Contents • Service providers.
Furthermore, amounts paid by us as premiums and cash or other assets held in margin accounts with respect to our derivative instruments would not be available to us for other investment purposes, which may result in lost opportunities for gain.
Furthermore, amounts paid by us as premiums and cash or other assets held in margin 21 Table of Contents accounts with respect to our derivative instruments would not be available to us for other investment purposes, which may result in lost opportunities for gain.
A change in our investment strategy may also increase our exposure to interest rate and real estate market fluctuations and could adversely affect our results of operations and financial condition.
A change in our investment strategy may 17 Table of Contents also increase our exposure to interest rate and real estate market fluctuations and could adversely affect our results of operations and financial condition.
For example, in August 2013, the Financial Stability Board issued a policy framework for strengthening oversight and regulation of “shadow banking” entities. The report outlined initial steps to define the scope of the shadow banking system and proposed general governing principles for a monitoring and regulatory framework.
For example, the Financial Stability Board has issued a policy framework for strengthening oversight and regulation of “shadow banking” entities. The report outlined initial steps to define the scope of the shadow banking system and proposed general governing principles for a monitoring and regulatory framework.
Actions taken by any of these third-party hedge fund managers in respect of any of the foregoing may adversely impact our company. 36 Table of Contents • Transactions with any KKR fund or affiliate.
Actions taken by any of these third-party hedge fund managers in respect of any of the foregoing may adversely impact our company. • Transactions with any KKR fund or affiliate.
If that partnership or limited liability company owned nonqualifying assets or earned nonqualifying income, we may not be able to satisfy all of the REIT income or asset tests.
If that partnership or limited liability company owned nonqualifying assets or earned nonqualifying income, we may not be able to satisfy all of the REIT income or 45 Table of Contents asset tests.
A return of capital is not taxable, but has the effect of reducing the basis of a stockholder’s investment in our common stock. 53 Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS None.
A return of capital is not taxable, but has the effect of reducing the basis of a stockholder’s investment in our common stock. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Our inability to timely prepare our consolidated financial statements in the future would likely have a significant adverse effect on our stock price. Provisions for credit losses are difficult to estimate. Our provision for credit losses is evaluated on a quarterly basis.
Our inability to timely prepare our consolidated financial statements in the future would likely have a significant adverse effect on our stock price. 24 Table of Contents Provisions for credit losses are difficult to estimate. Our provision for credit losses is evaluated on a quarterly basis.
There can be no assurances that our credit ratings will not be downgraded in the future, whether as a result of deteriorating general economic conditions, failure to successfully implement our operating strategy or the adverse impact on our results of operations or liquidity position of any of the above, or otherwise.
Our credit rating has been downgraded in the past and there can be no assurances that our credit ratings will not be downgraded in the future, whether as a result of deteriorating general economic conditions, failure to successfully implement our operating strategy or the adverse impact on our results of operations or liquidity position of any of the above, or otherwise.
We cannot predict when or if any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation or interpretation may take effect retroactively.
We cannot predict when or if any new U.S. federal income tax law, regulation or administrative interpretation, 47 Table of Contents or any amendment to any existing U.S. federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation or interpretation may take effect retroactively.
If such a determination were to be made, we would recognize unrealized losses through earnings and write-off the amortized cost of such assets to a new cost basis, based on the value of such assets on the date they are 21 Table of Contents considered to be other-than-temporarily impaired.
If such a determination were to be made, we would recognize unrealized losses through earnings and write-offs the amortized cost of such assets to a new cost basis, based on the value of such assets on the date they are considered to be other-than-temporarily impaired.
As of December 31, 2022, KKR and its affiliates beneficially owned shares of our common stock providing them with an aggregate 14.5% of the total voting power of our company.
As of December 31, 2023, KKR and its affiliates beneficially owned shares of our common stock providing them with an aggregate 14.4% of the total voting power of our company.
The IRS could challenge our estimates as to the loan value of the real property associated with such 46 Table of Contents construction loans.
The IRS could challenge our estimates as to the loan value of the real property associated with such construction loans.
A number of other regulators, such as the Federal Reserve, and international organizations, such as the International Organization of Securities Commissions, are studying the shadow banking system. At this time, it is too early to assess whether any rules or regulations will be proposed or to what extent any finalized rules or regulations will have on the nonbank lending market.
A number of other regulators, such as the Federal Reserve, and international organizations, such as the International Organization of Securities Commissions, are studying the shadow banking system. It is not possible to assess whether any rules or regulations will be proposed or to what extent any finalized rules or regulations will have on the nonbank lending market.
To the extent that we invest in non-U.S. real estate-related assets, we may be subject to certain risks associated with international investments generally, including, among others: • currency exchange matters, including fluctuations in currency exchange rates and costs associated with conversion of investment principal and income from one currency to another; • less developed or efficient financial markets than in the United States, which may lead to potential price volatility and relative illiquidity; • the burdens of complying with international regulatory requirements and prohibitions that differ between jurisdictions; • changes in laws or clarifications to existing laws that could impact our tax treaty positions, which could adversely impact the returns on our investments; 23 Table of Contents • a less developed legal or regulatory environment, differences in the legal and regulatory environment or enhanced legal and regulatory compliance; • political hostility to investments by foreign investors; • higher inflation rates; • higher transaction costs; • difficulty enforcing contractual obligations; • fewer investor protections; • potentially adverse tax consequences; or • other economic and political risks.
To the extent that we invest in non-U.S. real estate-related assets, we may be subject to certain risks associated with international investments generally, including, among others: • currency exchange matters, including fluctuations in currency exchange rates and costs associated with conversion of investment principal and income from one currency to another; • less developed or efficient financial markets than in the United States, which may lead to potential price volatility and relative illiquidity; • the burdens of complying with international regulatory requirements and prohibitions that differ between jurisdictions; • changes in laws or clarifications to existing laws that could impact our tax treaty positions, which could adversely impact the returns on our investments; • a less developed legal or regulatory environment, differences in the legal and regulatory environment or enhanced legal and regulatory compliance; • political hostility to investments by foreign investors; • higher inflation rates; • higher transaction costs; • difficulty enforcing contractual obligations; • fewer investor protections; • war or other hostilities; • potentially adverse tax consequences; or • other economic and political risks, including potential exchange control regulations and restrictions on our non-U.S. investments and repatriation of profits from investments or of capital invested, the risks of political, economic or social instability, the possibility of expropriation or confiscatory taxation and adverse economic or political developments.
We may need to periodically access the capital markets to raise cash to fund new investments. Unfavorable economic or capital market conditions may increase our funding costs, limit our access to the capital markets or could result in a decision by our potential lenders not to extend credit.
We may need to periodically access the capital markets to raise cash to fund new investments. Unfavorable economic or capital market condition s may increase our funding costs, limit our access to the capital markets o r result in a decision by our potential lenders not to extend credit.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS The section entitled “Litigation” appearing in Note 14 of our consolidated financial statements included in this Form 10-K is incorporated herein by reference. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 54 Table of Contents PART II.
Biggest changeITEM 3. LEGAL PROCEEDINGS The section entitled “Litigation” appearing in Note 13 of our consolidated financial statements included in this Form 10-K is incorporated herein by reference. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 54 Table of Contents PART II.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeITEM 4. MINE SAFETY DISCLOSURES 54 PART II. 55 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 55 ITEM 6. RESERVED 57 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 58 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 87 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 90
Biggest changeITEM 4. MINE SAFETY DISCLOSURES 54 PART II. 55 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 55 ITEM 6. RESERVED 57 ITEM 7. MANAGEMENT ' S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 58 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 82 ITEM 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+1 added−1 removed8 unchanged
Biggest change“Risk Factors.” The following table sets forth the dividends declared on our common stock during each calendar quarter for 2022 and 2021: Declaration Date Record Date Payment Date Per Share 2022 March 15, 2022 March 31, 2022 April 15, 2022 $ 0.43 June 15, 2022 June 30, 2022 July 15, 2022 0.43 September 13, 2022 September 30, 2022 October 14, 2022 0.43 December 13, 2022 December 30, 2022 January 13, 2023 0.43 2021 March 15, 2021 March 31, 2021 April 15, 2021 $ 0.43 June 15, 2021 June 30, 2021 July 15, 2021 0.43 September 15, 2021 September 30, 2021 October 15, 2021 0.43 December 14, 2021 December 31, 2021 January 14, 2022 0.43 55 Table of Contents Stockholder Return Performance The following graph is a comparison of the cumulative total stockholder return on shares of our common stock, the Russell 2000 Index (the “Russell 2000”), and the Bloomberg REIT Mortgage Index, a published industry index, from December 31, 2017 to December 31, 2022.
Biggest changeThe following table sets forth the dividends declared on our common stock during each calendar quarter for 2023 and 2022: Declaration Date Record Date Payment Date Per Share 2023 March 17, 2023 March 31, 2023 April 14, 2023 $ 0.43 June 15, 2023 June 30, 2023 July 14, 2023 0.43 September 15, 2023 September 29, 2023 October 13, 2023 0.43 December 15, 2023 December 29, 2023 January 12, 2024 0.43 2022 March 15, 2022 March 31, 2022 April 15, 2022 $ 0.43 June 15, 2022 June 30, 2022 July 15, 2022 0.43 September 13, 2022 September 30, 2022 October 14, 2022 0.43 December 13, 2022 December 30, 2022 January 13, 2023 0.43 55 Table of Contents Stockholder Return Performance The following graph is a comparison of the cumulative total stockholder return on shares of our common stock, the Russell 2000 Index (the “Russell 2000”), and the Bloomberg REIT Mortgage Index, a published industry index, from December 31, 2018 to December 31, 2023.
The graph assumes that $100 was invested on December 31, 2017 in our common stock, the Russell 2000 and the Bloomberg REIT Mortgage Index and that all dividends were reinvested without the payment of any commissions.
The graph assumes that $100 was invested on December 31, 2018 in our common stock, the Russell 2000 and the Bloomberg REIT Mortgage Index and that all dividends were reinvested without the payment of any commissions.
For more information regarding risk factors that could materially adversely affect our actual results of operations, see Part I. Item IA.
For more information regarding risk factors that could materially adversely affect our actual results of operations, see Part I. Item IA. “Risk Factors”.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS On May 5, 2017, our common stock began trading on the NYSE under the symbol “K REF.” As of February 2, 2023, there were 20 holders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES On May 5, 2017, our common stock began trading on the NYSE under the symbol “K REF.” A s of February 2, 2024, the re were 20 holders of record of our common stock.
Total Return Performance Period Ended 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 KKR Real Estate Finance Trust, Inc. $ 100.0 $ 104.2 $ 121.0 $ 117.8 $ 148.8 $ 110.4 Russell 2000 100.0 89.0 111.7 133.9 153.7 122.3 Bloomberg REIT Mortgage Index 100.0 97.1 120.0 93.4 109.8 83.1 Equity Compensation Plan Information The following table summarizes information, as of December 31, 2022, relating to our equity compensation plans pursuant to which shares of our common stock or other equity securities may be granted from time to time: Plan Category Number of securities to be issued upon exercise of outstanding options, warrants, and rights (1) Weighted-average exercise price of outstanding options, warrants and rights (2) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column 1) Equity compensation plans approved by security holders 935,218 $ — 2,356,275 Equity compensation plans not approved by security holders — — — Total 935,218 $ — 2,356,275 (1) Reflects the aggregate number of equity-based awards granted under our Amended and Restated KKR Real Estate Finance Trust Inc. 2016 Omnibus Incentive Plan that remained outstanding as of December 31, 2022.
Total Return Performance Period Ended 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 KKR Real Estate Finance Trust, Inc. $ 100.0 $ 116.1 $ 113.1 $ 142.8 $ 106.0 $ 115.6 Russell 2000 100.0 125.5 150.5 172.7 137.4 160.6 Bloomberg REIT Mortgage Index 100.0 123.6 96.2 113.1 85.5 97.9 Equity Compensation Plan Information The following table summarizes information, as of December 31, 2023, relating to our equity compensation plans pursuant to which shares of our common stock or other equity securities may be granted from time to time: Plan Category Number of securities to be issued upon exercise of outstanding options, warrants, and rights (1) Weighted-average exercise price of outstanding options, warrants and rights (2) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column 1) Equity compensation plans approved by security holders 1,220,635 $ — 1,852,009 Equity compensation plans not approved by security holders — — — Total 1,220,635 $ — 1,852,009 (1) Reflects the aggregate number of equity-based awards granted under our Amended and Restated KKR Real Estate Finance Trust Inc. 2016 Omnibus Incentive Plan that remained outstanding as of December 31, 2023.
The program does not have an expiration date and may be suspended, modified or discontinued at any time.
The program does not have an expiration date and may be suspended, modified or discontinued at any time. We did not repurchase any shares of our common stock during the year ended December 31, 2023.
Our earnings, financial condition and liquidity will be affected by various factors, including the net interest and other income from our portfolio, our operating expenses and any other expenditures.
Our earnings, financial condition and liquidity will be affected by various factors, including the net interest and other income from our portfolio, our operating expenses and any other expenditures. Based on current market conditions, macroeconomic factors, and the status of our loan portfolio, we reduced our common stock dividend for the first quarter of 2024 to $0.25 per share.
Removed
The following table sets forth the Company's repurchases of common stock during the three months ended December 31, 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) October 1, 2022 October 31, 2022 452,788 $ 16.41 2,085,370 $ 7,445,198 $ 64,214,533 November 1, 2022 November 30, 2022 — — 2,085,370 — 64,214,533 December 1, 2022 December 31, 2022 — — 2,085,370 — 64,214,533 Total/Average 452,788 $ 16.41 $ 7,445,198 (A) Includes $14.2 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 December 31, 2022.
Added
This level should support coverage of the dividend with operating earnings from our performing loan portfolio, while simultaneously managing our REO assets, as well as expectations for future interest rate reductions.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

123 edited+55 added−68 removed67 unchanged
Biggest changeOffice 12/20/2019 175.5 175.5 149.0 42.4 + 3.4 2.0 $ 729 / SF 58 4 17 Senior Loan West Palm Beach, FL Multifamily 12/29/2021 171.5 171.5 170.2 26.2 + 2.8 4.0 $ 209,632 / unit 73 3 18 Senior Loan Boston, MA Life Science 4/27/2021 332.3 166.2 139.5 27.7 + 3.6 3.4 $ 579 / SF 66 3 19 Senior Loan Various Self-Storage 12/21/2022 320.0 160.0 20.1 3.5 + 3.8 5.0 $ 34 / SF 61 3 20 Senior Loan Oakland, CA Office 10/23/2020 509.9 159.7 134.1 21.1 + 4.3 2.9 $ 412 / SF 54 3 21 Senior Loan Plano, TX Office 2/6/2020 153.7 153.7 148.0 25.0 + 2.7 2.1 $ 205 / SF 63 3 22 Senior Loan Chicago, IL Office 7/15/2019 150.0 150.0 118.2 21.0 + 3.3 1.6 $ 114 / SF 57 3 23 Senior Loan Redwood City, CA Life Science 9/30/2022 580.7 145.2 — (1.4) + 4.5 4.8 $ 885 / SF 53 3 24 Senior Loan (J) Various Industrial 6/30/2021 283.6 141.8 71.9 70.6 + 5.5 3.5 $ 72 / SF 62 3 25 Senior Loan Seattle, WA Life Science 10/1/2021 188.0 140.3 111.2 29.7 + 3.1 3.8 $ 710 / SF 69 3 26 Senior Loan Dallas, TX Office 12/10/2021 138.0 138.0 136.5 25.9 + 3.7 3.9 $ 434 / SF 68 3 27 Senior Loan Boston, MA Multifamily 3/29/2019 137.0 137.0 137.0 30.8 + 3.4 1.3 $ 351,282 / unit 59 3 28 Senior Loan (K) Philadelphia, PA Office 6/19/2018 136.0 136.0 136.0 136.8 + 3.5 0.5 $ 139 / SF n.a. 5 29 Senior Loan Arlington, VA Multifamily 1/20/2022 135.3 135.3 131.4 32.3 + 2.9 4.1 $ 438,078 / unit 65 3 30 Senior Loan Fontana, CA Industrial 5/11/2021 132.0 132.0 88.4 59.5 + 4.7 3.4 $ 113 / SF 64 3 31 Senior Loan Fort Lauderdale, FL Hospitality 11/9/2018 130.0 130.0 130.0 24.1 + 3.5 0.9 $ 375,723 / key 66 3 32 Senior Loan San Carlos, CA Life Science 2/1/2022 195.9 125.0 87.8 21.3 + 3.6 4.1 $ 599 / SF 68 3 33 Senior Loan Irving, TX Multifamily 4/22/2021 117.6 117.6 112.5 17.7 + 3.3 3.4 $ 123,877 / unit 70 3 34 Senior Loan Cambridge, MA Life Science 12/22/2021 401.3 115.7 67.4 18.9 + 4.0 4.0 $ 1,072 / SF 51 3 35 Senior Loan Pittsburgh, PA Student Housing 6/8/2021 112.5 112.5 112.5 17.1 + 2.9 3.4 $ 155,602 / unit 74 3 36 Senior Loan Miami, FL Multifamily 10/28/2022 110.4 110.4 94.0 22.5 + 3.8 4.9 $ 333,333 / unit 51 3 37 Senior Loan Las Vegas, NV Multifamily 12/28/2021 106.3 106.3 102.0 19.9 + 2.7 4.0 $ 193,182 / unit 61 3 65 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 38 Senior Loan Doral, FL Multifamily 12/10/2021 212.0 106.0 106.0 21.0 + 2.8 3.9 $ 335,975 / unit 77 3 39 Senior Loan San Diego, CA Multifamily 10/20/2021 103.5 103.5 103.5 18.6 + 2.8 3.9 $ 448,052 / unit 71 3 40 Senior Loan Orlando, FL Multifamily 12/14/2021 102.4 102.4 88.9 21.6 + 3.1 4.0 $ 234,565 / unit 74 3 41 Senior Loan West Hollywood, CA Multifamily 1/26/2022 102.0 102.0 102.0 15.3 + 3.0 4.1 $ 2,756,757 / unit 65 4 42 Senior Loan Boston, MA Industrial 6/28/2022 285.5 100.0 98.7 19.6 + 3.0 4.5 $ 197 / SF 52 3 43 Senior Loan Washington, D.C.
Biggest changeOffice 12/20/2019 175.5 175.5 173.4 83.4 + 3.5 1.0 $848 / SF 58 3 15 Senior Loan West Palm Beach, FL Multifamily 12/29/2021 171.5 171.5 170.9 26.1 + 2.8 3.0 $210,456 / unit 73 3 16 Senior Loan Various Self-Storage 12/21/2022 336.6 168.3 129.6 26.1 + 3.8 4.0 $19,498 / unit 64 3 17 Senior Loan Boston, MA Life Science 4/27/2021 332.3 166.2 161.1 31.5 + 3.7 2.4 $669 / SF 66 3 18 Senior Loan (J) New York, NY Condo (Residential) 12/20/2018 151.3 151.3 149.9 55.6 + 3.7 — $2,498,416 / unit 69 3 19 Senior Loan Plano, TX Office 2/6/2020 150.7 150.7 150.7 23.3 + 2.8 1.1 $208 / SF 64 3 20 Senior Loan Redwood City, CA Life Science 9/30/2022 580.7 145.2 — (1.0) + 4.5 3.8 $885 / SF 53 3 21 Senior Loan Seattle, WA Life Science 10/1/2021 188.0 140.3 116.8 45.6 + 3.2 2.8 $745 / SF n.a. 5 22 Senior Loan Dallas, TX Office 12/10/2021 138.0 138.0 138.0 25.8 + 3.7 2.9 $439 / SF 68 3 23 Senior Loan Boston, MA Multifamily 3/29/2019 137.0 137.0 137.0 27.8 + 3.4 0.3 $351,282 / unit 64 3 24 Senior Loan Arlington, VA Multifamily 1/20/2022 135.3 135.3 133.1 30.6 + 2.9 3.1 $443,550 / unit 78 3 25 Senior Loan Fontana, CA Industrial 5/11/2021 132.0 132.0 109.4 42.9 + 4.7 2.4 $113 / SF 64 3 26 Senior Loan Fort Lauderdale, FL Hospitality 11/9/2018 127.5 127.5 127.5 65.5 + 5.0 0.2 $368,497 / key 66 3 27 Senior Loan San Carlos, CA Life Science 2/1/2022 195.9 125.0 102.8 30.5 + 3.6 3.1 $702 / SF 68 3 28 Senior Loan Cambridge, MA Life Science 12/22/2021 401.3 115.7 87.6 21.3 + 4.0 3.0 $1,072 / SF 51 3 29 Senior Loan (K) Philadelphia, PA Office 6/19/2018 114.3 114.3 114.3 20.4 + 2.8 3.1 $117 / SF 64 3 30 Senior Loan Pittsburgh, PA Student Housing 6/8/2021 112.5 112.5 112.5 17.3 + 3.0 2.4 $155,602 / unit 74 3 31 Senior Loan West Hollywood, CA Multifamily 1/26/2022 107.0 107.0 105.1 18.6 + 3.1 3.1 $2,839,392 / unit 65 4 32 Senior Loan Las Vegas, NV Multifamily 12/28/2021 106.3 106.3 102.0 17.4 + 2.8 3.0 $193,182 / unit 75 3 33 Senior Loan (L) Chicago, IL Office 7/15/2019 105.0 105.0 88.4 19.9 + 2.3 4.6 $85 / SF 57 3 34 Senior Loan San Diego, CA Multifamily 10/20/2021 103.5 103.5 103.5 18.9 + 2.9 2.9 $448,052 / unit 71 4 35 Senior Loan Boston, MA Industrial 6/28/2022 285.5 100.0 99.3 20.5 + 3.0 3.5 $198 / SF 52 3 36 Senior Loan Washington, D.C.
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.
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 for creditors that have adopted CECL and requires public business entities to present gross write-offs by year of origination in their vintage disclosures.
(C) Net equity reflects (i) the amortized cost basis of our loans, net of borrowings; and (ii) the cost basis of our investments in RECOP I and REO. (D) Weighted average is weighted by the current principal amount for our senior, mezzanine and corporate loans and by net equity for our RECOP I CMBS B-Pieces.
(C) Net equity reflects (i) the amortized cost basis of our loans, net of borrowings; and (ii) the cost basis of our investments in RECOP I and REO. (D) Weighted average is weighted by the current principal amount for our senior and mezzanine loans and by net equity for our RECOP I CMBS B-Pieces.
Recently Accounting Pronouncements In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates.
Recent Accounting Pronouncements In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates.
Committed principal represents our total commitment to the aggregator vehicle whereas current principal represents the current funded amount. 68 Table of Contents 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.
Committed principal represents our total commitment to the aggregator vehicle whereas current principal represents the current funded amount. 65 Table of Contents 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.
Term Lending Agreements In June 2019, we entered into a Master Repurchase and Securities Contract Agreement ("KREF Lending V Facility") with Morgan Stanley Mortgage Capital Holdings LLC ("Administrative Agent"), as administrative agent on behalf of Morgan Stanley Bank, N.A. ("Initial Buyer"), which provides non-mark-to-market financing.
In June 2019, we entered into a Master Repurchase and Securities Contract Agreement ("KREF Lending V Facility") with Morgan Stanley Mortgage Capital Holdings LLC ("Administrative Agent"), as administrative agent on behalf of Morgan Stanley Bank, N.A. ("Initial Buyer"), which provides non-mark-to-market financing .
Additional key considerations include LTVs, debt service coverage ratios, real estate and credit market dynamics, and risk of default or principal loss.
Additional key considerations include debt service coverage ratios, real estate and credit market dynamics, and risk of default or principal loss.
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 December 31, 2022, we were in compliance with the covenants of our financing facilities.
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 December 31, 2023, we were in compliance with the covenants of our financing facilities.
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.
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.
As described in Note 10 to our 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.
As described in Note 9 to our 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 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 consolidated financial statements.
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 17 to our consolidated financial statements.
We have not adopted any of the optional expedients or exceptions through December 31, 2022, but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve.
We have not adopted any of the optional expedients or exceptions through December 31, 2023, but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve.
Generally, if the lender determines (subject to certain conditions) that the market value of the collateral in a 71 Table of Contents 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.
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.
The following table outlines the CLO collateral assets and respective borrowing (dollars in thousands): December 31, 2022 Count Outstanding Principal Amortized Cost Carrying Value Wtd. Avg. Yield/Cost (A) Wtd. Avg.
The following table outlines the CLO collateral assets and respective borrowing (dollars in thousands): December 31, 2023 Count Outstanding Principal Amortized Cost Carrying Value Wtd. Avg. Yield/Cost (A) Wtd. Avg.
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.
A loan is determined to be collateral dependent if (i) 80 Table of Contents 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.
The CECL forecasting methods used by us include (i) a probability of default and loss given default method using underlying third-party CMBS/CRE loan database with historical loan losses from 1998 to 2022, and (ii) a probability weighted expected cash flow method, depending on the type of loan and the availability of relevant historical market loan loss data.
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 through 2023, 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.
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: • 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.
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 (1.4 to 1.0); • 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.
These non-consolidated senior interests provide structural leverage on a non-mark-to-market, match-term basis for our net investments, which are typically reflected in the form of mezzanine loans or other subordinate interests on our balance sheets and in our statements of income.
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 consolidated balance sheet and in our consolidated statement of income.
Debt-to-Equity Ratio and Total Leverage Ratio The following table presents our debt-to-equity ratio and total leverage ratio: December 31, 2022 December 31, 2021 Debt-to-equity ratio (A) 2.0x 2.3x Total leverage ratio (B) 3.8x 3.7x (A) Represents (i) total outstanding debt agreements (excluding non-recourse facilities), secured term loan and convertible notes, less cash to (ii) total permanent equity, in each case, at period end.
Debt-to-Equity Ratio and Total Leverage Ratio The following table presents our debt-to-equity ratio and total leverage ratio: December 31, 2023 December 31, 2022 Debt-to-equity ratio (A) 2.3x 2.0x Total leverage ratio (B) 4.2x 3.8x (A) Represents (i) total outstanding debt agreements (excluding non-recourse facilities), secured term loan and convertible notes, less cash to (ii) total permanent equity, in each case, at period end.
As of December 31, 2022, the Initial Buyer held 23.9% of the total commitment under the facility. 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, w e increased the borrowing capacity to $750.0 million.
As of December 31, 2023, the Initial Buyer held 23% of the total comm itment under the facility. 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, w e increased the borrowing capacity to $750.0 million.
(our "Operating Partnership") or up to approximately $1,353.4 million, depending on the agreement; • a cash liquidity covenant (the greater of $10.0 million or 5.0% of our recourse indebtedness); • a total indebtedness covenant (83.3% of our Total Assets, as defined in the applicable financing agreements); 75 Table of Contents 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.
(our "Operating Partnership") or up to approximately $1,307.7 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 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.
Asset Specific Financing In August 2018, we entered into a $200.0 million loan financing facility with BMO Harris Bank (the "BMO Facility”). In May 2019, we increased the borrowing capacity to $300.0 million. The facility provides asset-based financing on a non-mark-to-market basis with match-term up to five years with partial recourse to us.
Term Lending Agreements 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 financing on a non-mark-to-market basis with match-term up to five years with partial recourse to us.
If conditions change from those expected, it is possible that the judgments and estimates described below could change, which may result in a change in our allowance for credit losses, future write-off of our investments, and valuation of our investment portfolio, among other effects.
If conditions change from those expected, it is possible that the judgments and estimates described below could change, which may result in a change in our allowance for credit losses, future write-offs of our investments, and valuation of our investment 79 Table of Contents portfolio, among other effects.
As of December 31, 2022, all of our investments were located in the United States.
As of December 31, 2023, all of our investments were located in the United States.
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.
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.
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 December 31, 2022: The charts above are based on total outstanding principal amount of our commercial real estate loans.
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 December 31, 2023: The charts above are based on total loan exposure of our commercial real estate loans.
In addition, we had $179.4 million of unencumbered senior loans that can be financed, as of December 31, 2022. Our corporate revolver and secured term loan are secured by corporate level guarantees and include net equity interests in the investment portfolio.
In addition, we had $43.1 million of unencumbered senior loans that can be financed, as of December 31, 2023. Our corporate Revolver and secured term loan are secured by corporate level guarantees and include net equity interests in the investment portfolio.
(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.
(B) Represents the principal balance of the collateral assets. (C) 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.
We maintain a robust asset management relationship with our borrowers and have utilized these relationships to maximize the performance of our portfolio, including during periods of volatility such as the COVID-19 pandemic.
We 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.
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 December 31, 2022, at an interest rate of L+ 7.9% .
Our interest is 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 December 31, 2023, at an interest rate of S+ 7.96% .
As of December 31, 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.
As of December 31, 2023, we held $35.1 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.
See Note 2 — Summary of Significant Accounting Policies, to our consolidated financial statements included in this Form 10-K for detailed discussion of allowance for credit losses. 62 Table of Contents Our Portfolio We have established a $7,916.4 million portfolio of diversified investments, consisting primarily of senior and mezzanine commercial real estate loans as of December 31, 2022.
See Note 2 — Summary of Significant Accounting Policies, to our consolidated financial statements included in this Form 10-K for detailed discussion of allowance for credit losses. 60 Table of Contents Our Portfolio We have established a $7,752.3 million portfolio of diversified investments, consisting primarily of senior commercial real estate loans as of December 31, 2023.
The facility pro vides non-recourse m atch-term asset-based financing on a non-mark-to-market basis. In October 2022, we entered into a $125.0 million loan financing facility with a financial institution ("KREF Lending XIV Facility"). The facility pro vides non-recourse m atch-term asset-based financing on a non-mark-to-market basis.
In August 2022, we entered into a $265.6 million loan financing facility with a financial institution ("KREF Lending XIII Facility"). The facility pro vides non-recourse m atch-term asset-based financing on a non-mark-to-market basis. 69 Table of Contents In October 2022, we entered into a $125.0 million loan financing facility with a financial institution ("KREF Lending XIV Facility").
As of December 31, 2022, 100% of our loans by total loan exposure earned a floating rate of interest.
As of December 31, 2023, 99% of our loans by total loan exposure earned a floating rate of interest.
Concurrently with taking the title of our sole REO asset, we contributed the majority of the REO's net assets to a joint venture with a third party local development operator (“JV Partner”), whereby we have a 90% interest in the joint venture and the JV Partner has a 10% interest.
Concurrently with taking the title to the REO asset, we contributed a portion of the REO asset to a joint venture (the "REO JV") with a third party local development operator (“JV Partner”), whereby we have a 90% interest and the JV Partner has a 10% interest.
This property is held for investment and reflected on our consolidated balance sheet. 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.
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.
In June 2022, the current stated maturity was extended to June 2023, subject to three additional one-year extension options, which may be exercised by us upon the satisfaction of certain customary conditions and thresholds. The Initial Buyer subsequently syndicated a portion of the facility to multiple financial institutions.
In June 2023, the current stated maturity was extended to June 2024, subject to two additional one-year extension options, which we may exercise upon the satisfaction of certain customary conditions and thresholds. The Initial Buyer subsequently syndicated a portion of the facility to multiple financial institutions.
(I) 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) 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. (J) Senior Loan 14 and Senior Loan 18 were fully repaid in January 2024.
During the year ended December 31, 2022, we collecte d 100% of interest payments due on our loan portfolio. As of December 31, 2022, the average risk rating of our loan portfolio was 3.2, weighted by total loan exposure.
During the year ended December 31, 2023, we collected 97.6% of interest payments due on our loan portfolio. As of December 31, 2023, the average risk rating of our loan portfolio was 3.2, weighted by total loan exposure.
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.
The lender under the applicable repurchase facility sets the valuation and any revaluation of the collateral assets in its sole, good faith discretion. 68 Table of Contents 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.
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 December 31, Year Ended December 31, 2022 2022 2021 Net income attributable to common stockholders $ 14,602 $ 15,371 $ 125,635 Weighted-average number of shares of common stock outstanding Basic 69,109,790 67,553,578 56,571,200 Diluted 69,109,790 67,553,578 56,783,388 Net income per share, basic $ 0.21 $ 0.23 $ 2.22 Net income per share, diluted $ 0.21 $ 0.23 $ 2.21 Dividends declared per share $ 0.43 $ 1.72 $ 1.72 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.
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 December 31, Year Ended December 31, 2023 2023 2022 Net income (loss) attributable to common stockholders $ (18,738) $ (53,919) $ 15,371 Weighted-average number of shares of common stock outstanding, basic and diluted 69,384,309 69,180,039 67,553,578 Net income (loss) per share, basic and diluted $ (0.27) $ (0.78) $ 0.23 Dividends declared per share $ 0.43 $ 1.72 $ 1.72 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.
(C) Collateral loan assets represent 28.4% of the principal of our commercial real estate loans as of December 31, 2022. As of December 31, 2022, 100% of our loans financed through the CLOs are floating rate loans. (D) Including $151.0 million cash held in the CLO KREF 2021-FL2 as of December 31, 2022.
(C) Collateral assets represent 31.0% of the principal of our commercial real estate loans as of December 31, 2023. As of December 31, 2023, 100% of our loans financed through the CLOs are floating-rate loans. (D) Including $5.0 million cash held in the KREF 2021-FL3 as of December 31, 2023.
Cash Flows The following table sets forth changes in cash and cash equivalents for the years ended December 31, 2022, 2021 and 2020 (dollars in thousands): For the Year Ended December 31, 2022 2021 2020 Cash Flows From Operating Activities $ 141,125 $ 124,793 $ 115,062 Cash Flows From Investing Activities (1,177,133) (1,540,836) 88,709 Cash Flows From Financing Activities 1,012,859 1,578,981 (160,558) Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash $ (23,149) $ 162,938 $ 43,213 82 Table of Contents 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.
Cash Flows The following table sets forth changes in cash and cash equivalents for the years ended December 31, 2023, 2022 and 2021 (dollars in thousands): Year Ended December 31, 2023 2022 2021 Cash Flows From Operating Activities $ 155,715 $ 141,125 $ 124,793 Cash Flows From Investing Activities 13,487 (1,177,133) (1,540,836) Cash Flows From Financing Activities (271,510) 1,012,859 1,578,981 Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash $ (102,308) $ (23,149) $ 162,938 77 Table of Contents 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.
Post syndication, we retained a mezzanine loan with a commitment of $25.0 million, of which $21.0 million was funded as of December 31, 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.
Post syndication, we retained a mezzanine loan with a commitment of $10.1 million, of which $7.2 million was funded as of December 31, 2023, at an interest rate of S+ 13.02% . (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.
December 2025 Interests retained 58,490 L + 9.7% January 2026 Secured Term Loan In September 2020, we entered into a $300.0 million secured term loan at a price of 97.5%. The secured term loan is partially amortizing, with an amount equal to 1.0% per annum of the principal balance due in quarterly installments.
January 2026 Interests retained 44,667 S + 8.8% January 2026 70 Table of Contents Secured Term Loan In September 2020, we entered into a $300.0 million secured term loan at a price of 97.5%. The secured term loan is partially amortizing, with an amount equal to 1.0% per annum of the principal balance due in quarterly installments.
The following table sets forth interest received from, and paid for, our investments for the years ended December 31, 2022, 2021 and 2020 (dollars in thousands): For the Year Ended December 31, 2022 2021 2020 Interest Received: Commercial real estate loans $ 362,178 $ 249,564 $ 242,313 362,178 249,564 242,313 Interest Paid: Interest expense 201,007 95,256 103,405 Net interest collections $ 161,171 $ 154,308 $ 138,908 Our net interest collections were partially offset by cash used to pay management and incentive fees, as follows (dollars in thousands): For the Year Ended December 31, 2022 2021 2020 Management Fees to affiliate $ 24,391 $ 18,341 $ 17,020 Incentive Fees to affiliate 634 10,273 6,774 Net decrease in cash and cash equivalents $ 25,025 $ 28,614 $ 23,794 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.
The following table sets forth interest received from, and paid for, our investments for the years ended December 31, 2023, 2022 and 2021 (dollars in thousands): Year Ended December 31, 2023 2022 2021 Interest Received: Commercial real estate loans $ 612,046 $ 362,178 $ 249,564 612,046 362,178 249,564 Interest Paid: Interest expense 430,275 201,007 95,256 Net interest collections $ 181,771 $ 161,171 $ 154,308 Our net interest collections were partially offset by cash used to pay management and incentive fees, as follows (dollars in thousands): Year Ended December 31, 2023 2022 2021 Management Fees to affiliate $ 26,225 $ 24,391 $ 18,341 Incentive Fees to affiliate 2,491 634 10,273 Total management and incentive fee payments $ 28,716 $ 25,025 $ 28,614 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 principal repayments and sale/syndication of our loan investments.
(F) LTV is generally based on the initial loan amount divided by the as-is appraised value as of the date the loan was originated or by the current principal amount as of the date of the most recent as-is appraised value. Weighted average LTV excludes risk-rated 5 loans.
(G) 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.
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 December 31, 2022 will remain constant into the future. This is only an estimate, as actual amounts borrowed and rates may vary over time.
This is only an estimate as actual amounts borrowed, the timing of repayments and interest rates may vary over time. The Revolver matures in March 2027. (C) The amounts are estimated by assuming the amounts outstanding under these facilities and the interest rates in effect as of December 31, 2023 will remain constant into the future.
Our Non-Mark-to-Market Financing Sources, which accounted for 77% of our total secured financing (excluding our corporate revolver) as of December 31, 2022, are not subject to credit or capital markets mark-to-market provisions. The remaining 23% of our secured borrowings, which is primarily comprised of three master repurchase agreements, are only subject to credit marks.
Our Non-Mark-to-Market Financing Sources, which accounted for 76% of our total financing as of December 31, 2023, are not subject to credit or capital markets mark-to-market provisions. The remaining 24% of our total financing, which are comprised of three master repurchase agreements, are only subject to credit marks.
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.
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 year ended December 31, 2023, we did not sell any shares of common stock under the ATM.
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.
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.
Amounts available under these sources as of the date presented are summarized in the following table (dollars in thousands): December 31, 2022 December 31, 2021 Cash and cash equivalents $ 239,791 $ 271,487 Available borrowings under revolving credit agreements 610,000 200,000 Available borrowings under master repurchase agreements 94,426 51,601 Available borrowings under term lending agreements 7,583 5,826 $ 951,800 $ 528,914 We also had $179.4 million and $235.3 million of unencumbered senior loans that can be pledged to financing facilities subject to lender approval, as of December 31, 2022 and 2021.
Amounts available under these sources as of the date presented are summarized in the following table (dollars in thousands): December 31, 2023 December 31, 2022 Cash and cash equivalents $ 135,898 $ 239,791 Available borrowings under revolving credit agreement 450,000 610,000 Available borrowings under master repurchase agreements 35,610 94,426 Available borrowings under term lending agreements 8,394 7,583 $ 629,902 $ 951,800 We also had $43.1 million and $179.4 million of unencumbered senior loans that can be pledged to financing facilities subject to lender approval, as of December 31, 2023 and 2022, respectively.
As of December 31, 2022, the average risk rating of our loan portfolio was 3.2, weighted by total loan exposure, as compared to 2.9 as of December 31, 2021.
As of December 31, 2023, the average risk rating of our loan portfolio was 3.2, weighted by total loan exposure, consistent with that as of December 31, 2022.
During the year ended December 31, 2022, we funded $2,419.7 million of CRE loans and received $1,244.3 million from repayments of CRE loans. During the year ended December 31, 2021, we funded $3,904.6 million of CRE loans and received $2,362.4 million from the sale/syndication and repayments of CRE loans.
During the year ended December 31, 2023, we funded $677.3 million of CRE loans and received $691.3 million from repayments of CRE loans. During the year ended December 31, 2022, we funded $2,419.7 million of CRE loans and received $1,244.3 million from the repayments of CRE loans.
In April 2022, we entered into a $100.0 million loan financing facility with a financial institution ("KREF Lending XI Facility"). The facility provides non-recourse match-term asset-based financing on a non-mark-to-market basis. In August 2022, we entered into a $265.6 million loan financing facility with a financial institution ("KREF Lending XIII Facility").
In March 2023, we extended the facility maturity date to March 2026. The facility provides warehouse financing on a non-mark-to-market basis with partial recourse to us. Asset Specific Financing In April 2022, we entered into a $100.0 million loan financing facility with a financial institution ("KREF Lending XI Facility"). The facility provides non-recourse match-term asset-based financing on a non-mark-to-market basis.
As of December 31, 2022, the average loan commitment in our portfolio was $123.2 million and multifamily and industrial loans comprised 57% of our loan portfolio.
As of December 31, 2023, the average loan commitment in our portfolio was $121.6 million and multifamily and industrial loans comprised 55% of our loan portfolio.
For Senior Loan 20, 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.
For Senior Loan 58, the total whole loan is $205.5 million, co-originated and co-funded by us and a KKR affiliate. Our interest is 31% of the loan or $64.4 million, of which $54.3 million in senior notes were syndicated to third party lenders.
Revolving Credit Agreement 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.
The facility pro vides non-recourse m atch-term asset-based financing on a non-mark-to-market basis. Revolving Credit Agreement In March 2022, we upsized our corporate revolving credit agreement (“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.
As of December 31, 2022, the joint venture held REO assets with a net carrying value of $70.4 million.
As of December 31, 2023, the REO JV held REO assets with a net carrying value of $72.4 million.
The following table details the subordinate interests retained on our balance sheet and the related non-consolidated senior interests (dollars in thousands): December 31, 2022 Non-Consolidated Senior Interests Count Principal Balance Carrying Value Wtd. Avg. Yield/Cost Guarantee Wtd. Avg. Term Total loan 2 $ 321,576 n.a. L + 3.7% n.a. December 2025 Senior participation 2 263,086 n.a. L + 2.4% n.a.
The following table details the subordinate interests retained on our balance sheet and the related non-consolidated senior interests (dollars in thousands): December 31, 2023 Non-Consolidated Senior Interests Count Principal Balance Carrying Value Wtd. Avg. Yield/Cost Guarantee Wtd. Avg. Term Total loan 2 $ 233,278 n.a S + 3.6% n.a. January 2026 Senior participation 2 188,611 n.a S + 2.3% n.a.
(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.
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.
In November 2021, we completed a repricing of a $297.8 million existing secured term loan and a $52.2 million add-on, for an aggregate principal amount of $350.0 million, which was issued at par. The new secured term loan bears interest at LIBOR plus a 3.50% margin, and is subject to a 0.50% LIBOR floor.
In November 2021, we completed a repricing of a $297.8 million existing secured term loan and a $52.2 million add-on, for an aggregate principal amount of $350.0 million, which was issued at par. In June 2023, the secured term loan was amended to transition the benchmark rate from LIBOR to SOFR.
The following table calculates our book value per share of common stock (amounts in thousands, except share and per share data): Year Ended December 31, 2022 2021 KKR Real Estate Finance Trust Inc. stockholders' equity $ 1,571,538 $ 1,361,434 Series A preferred stock (liquidation preference of $25.00 per share) (327,750) (172,500) Common stockholders' equity $ 1,243,788 $ 1,188,934 Shares of common stock issued and outstanding at period end 69,095,011 61,370,732 Book value per share of common stock $ 18.00 $ 19.37 Book value as of December 31, 2022 included the impact of an estimated CECL credit loss allowance of $111.1 million, or ($1.61) per common share.
The following table calculates our book value per share (amounts in thousands, except share and per share data): Year Ended December 31, 2023 2022 KKR Real Estate Finance Trust Inc. stockholders' equity $ 1,404,767 $ 1,571,538 Series A preferred stock (liquidation preference of $25.00 per share) (327,750) (327,750) Common stockholders' equity $ 1,077,017 $ 1,243,788 Shares of common stock issued and outstanding at period end 69,313,860 69,095,011 Add: Deferred stock units 72,708 — Total shares outstanding at period end 69,386,568 69,095,011 Book value per share $ 15.52 $ 18.00 Book value as of December 31, 2023 included the impact of an estimated CECL credit loss allowance of $212.5 million, or ($3.06) per share.
Weighted average LTV excludes risk-rated 5 loans and one real estate corporate loan to a multifamily operator with an outstanding principal amount of $40.4 million as of December 31, 2022. 64 Table of Contents The table below sets forth additional information relating to our portfolio as of December 31, 2022 (dollars in millions): 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 (I) 1 Senior Loan Arlington, VA Multifamily 9/30/2021 $ 381.0 $ 381.0 $ 361.5 $ 79.1 + 3.3% 3.8 $ 325,707 / unit 69 % 3 2 Senior Loan Boston, MA Life Science 8/3/2022 312.5 312.5 85.7 10.1 + 4.2 4.6 $ 747 / SF 56 3 3 Senior Loan Bellevue, WA Office 9/13/2021 520.8 260.4 104.7 29.4 + 3.6 4.3 $ 855 / SF 63 3 4 Senior Loan Los Angeles, CA Multifamily 2/19/2021 260.0 260.0 250.0 38.4 + 3.6 3.2 $ 466,400 / unit 68 3 5 Senior Loan Various Industrial 4/28/2022 504.5 252.3 252.3 49.3 + 2.7 4.4 $ 98 / SF 64 3 6 Senior Loan Mountain View, CA Office 7/14/2021 362.8 250.0 195.3 49.0 + 3.4 3.6 $ 636 / SF 73 4 7 Senior Loan Bronx, NY Industrial 8/27/2021 381.2 228.7 156.7 40.3 + 4.2 3.7 $ 277 / SF 52 3 8 Senior Loan Various Multifamily 5/31/2019 216.5 216.5 216.5 39.2 + 4.0 1.4 $ 202,336 / unit 74 3 9 Senior Loan Minneapolis, MN Office 11/13/2017 194.4 194.4 194.4 87.6 + 3.8 0.3 $ 179 / SF n.a. 5 10 Senior Loan Various Industrial 6/15/2022 375.5 187.8 142.2 27.6 + 2.9 4.5 $ 102 / SF 50 3 11 Senior Loan Washington, D.C.
Weighted average LTV includes non-consolidated senior interests and excludes risk-rated 5 loans. 62 Table of Contents The table below sets forth additional information relating to our portfolio as of December 31, 2023 (dollars in millions): 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 (I) 1 Senior Loan Arlington, VA Multifamily 9/30/2021 $ 381.0 $ 381.0 $ 369.0 $ 74.1 + 3.3 2.8 $332,439 / unit 69 % 3 2 Senior Loan Boston, MA Life Science 8/3/2022 312.5 312.5 195.4 27.3 + 4.2 3.6 $747 / SF 56 3 3 Senior Loan Bellevue, WA Office 9/13/2021 520.8 260.4 182.5 47.7 + 3.7 3.3 $855 / SF 63 3 4 Senior Loan Various Industrial 4/28/2022 504.5 252.3 252.3 50.6 + 2.7 3.4 $98 / SF 64 3 5 Senior Loan Mountain View, CA Office 7/14/2021 362.8 250.0 200.9 118.5 + 3.4 2.6 $654 / SF n.a. 5 6 Senior Loan Bronx, NY Industrial 8/27/2021 381.2 228.7 198.9 43.0 + 4.2 2.7 $277 / SF 52 3 7 Senior Loan Los Angeles, CA Multifamily 2/19/2021 220.0 220.0 220.0 33.9 + 2.9 2.2 $410,430 / unit 68 3 8 Senior Loan Various Multifamily 5/31/2019 206.5 206.5 206.5 41.9 + 4.0 1.4 $192,991 / unit 74 3 9 Senior Loan Minneapolis, MN Office 11/13/2017 199.4 199.4 194.4 89.0 + 2.3 1.5 $182 / SF n.a. 5 10 Senior Loan Various Industrial 6/15/2022 375.5 187.8 173.3 37.7 + 2.9 3.5 $125 / SF 50 3 11 Senior Loan Boston, MA Office 2/4/2021 375.0 187.5 187.5 37.5 + 3.4 2.1 $506 / SF 71 4 12 Senior Loan The Woodlands, TX Hospitality 9/15/2021 183.3 183.3 180.9 33.0 + 4.3 2.8 $199,015 / key 64 3 13 Senior Loan Washington, D.C.
We continue to recognize interest income on the entire senior loan, including the interest attributable to the loan participation sold, as well as interest expense on the loan participation sold liability. Non-Consolidated Senior Interests In certain instances, we finance our loans through the non-recourse sale of a senior loan interest that is not included in our consolidated financial statements.
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 consolidated financial statements.
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.
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.
The secured term loan matures on September 1, 2027 and contains restrictions relating to liens, asset sales, indebtedness, investments and transactions with affiliates. Our secured term loan is secured by corporate level guarantees and does not include asset-based collateral. Refer to Notes 2 and 7 to our consolidated financial statements for additional discussion of our secured term loan.
Our secured term loan is secured by corporate level guarantees and does not include asset-based collateral. Refer to Notes 2 and 7 to our consolidated financial statements for additional discussion of our secured term loan.
(1) Comprised of collateralized loan obligations, term lending agreements, term loan facility, secured term loan, asset specific financing, warehouse facility, and non-consolidated senior interests. 81 Table of Contents 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.
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.
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.
Includes a $25.0 million partial write-off of a defaulted senior loan during the year ended December 31, 2022. 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.
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.
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.
Our Revolver is secured by corporate level guarantees and includes net equity interests in the investment portfolio. Term Loan Facility 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”).
In addition, we have the option to increase the facility amount to $500.0 million. Term Loan Facility In April 2018, we entered into a term loan financing agreement 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”).
See Note 15 to our consolidated financial statements included in this Form 10-K for additional terms and details of the fees payable under our management agreement. 84 Table of Contents 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.
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.
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.
The facility provides us with asset-based financing on a non-mark-to-market basis with match-term up to five years, with additional two-year extension available, and is non-recourse to us. Warehouse Facility In March 2020, we entered into a $500.0 million Loan and Security Agreement with HSBC Bank USA, National Association (“HSBC Facility”).
We are organized as a holding company and conduct our business primarily through our various subsidiaries. 2022 Highlights Operating Results: • Net Income Attributable to Common Stockholder s of $15.4 million, or $0.23 per d iluted share of common stock. • Distributable Earni ngs of $109.6 million, or $1.62 per diluted share of c ommon stock. • Declared dividends of $1.72 per common share.
We are organized as a holding company and conduct our business primarily through our various subsidiaries. 2023 Highlights Operating Results: • Net Loss Attributable to Common Stockholders of $53.9 million, or $(0.78) per diluted share of common stock • Distributable Earnings of $57.6 million, or $0.83 per diluted share of common stock • Declared dividends of $1.72 per common share.
For Senior Loa ns 2, 3, 7, 23, 24, 30, 34, 44, 56, and 75, Loa n Per SF / Unit / Key is calculated as the total commitment amount of the loan divided by the proposed SF / Unit / Key.
For Senior Loa ns 2, 3, 6, 20, 25, 28, 37, 50, 51, and 69, Loa n Per SF / Unit / Key is calculated as the total commitment amount of the loan divided by the proposed SF / Unit / Key.
We have priority of distributions up to $71.8 million before the JV Partner can participate in the economics of the joint venture. 76 Table of Contents Results of Operations The following table summarizes the changes in our results of operations for years ended December 31, 2022, 2021 and 2020 (dollars in thousands, except per share data): For the Year Ended December 31, Increase (Decrease) For the Year Ended December 31, Increase (Decrease) 2022 2021 Dollars Percentage 2021 2020 Dollars Percentage Net Interest Income Interest income $ 421,968 $ 279,950 $ 142,018 50.7 % $ 279,950 $ 269,188 $ 10,762 4.0 % Interest expense 236,095 114,439 121,656 106.3 114,439 127,312 (12,873) (10.1) Total net interest income 185,873 165,511 20,362 12.3 165,511 141,876 23,635 16.7 Other Income Revenue from real estate owned operations 8,971 — 8,971 100.0 — — — — Income from equity method investments 4,655 6,371 (1,716) (26.9) 6,371 537 5,834 1,086.4 Other income 5,568 686 4,882 — 711.7 686 744 (58) (7.8) Gain on sale of investments — 5,126 (5,126) (100.0) 5,126 — 5,126 100.0 Total other income 19,194 12,183 7,011 57.5 12,183 1,281 10,902 851.1 Operating Expenses General and administrative 17,616 14,235 3,381 23.8 14,235 14,238 14,238 (3) — Provision for (reversal of ) credit losses, net 112,373 (4,059) 116,432 2,868.5 (4,059) 50,344 50,344 (54,403) (108.1) Management fee to affiliate 25,680 19,378 6,302 32.5 19,378 16,992 16,992 2,386 14.0 Incentive compensation to affiliate 634 10,273 (9,639) (93.8) 10,273 6,774 6,774 3,499 51.7 Expenses from real estate owned operations 11,113 — 11,113 100.0 — — — — — Total operating expenses 167,416 39,827 127,589 320.4 39,827 88,348 88,348 (48,521) (54.9) Income (Loss) Before Income Taxes, Noncontrolling Interests, Preferred Dividends, Redemption Value Adjustment and Participating Securities' Share in Earnings 37,651 137,867 (100,216) (72.7) 137,867 54,809 83,058 151.5 Income tax expense 58 684 (626) (91.5) 684 412 272 66.0 Net Income (Loss) 37,593 137,183 (99,590) (72.6) 137,183 54,397 82,786 152.2 Noncontrolling interests in income (loss) of consolidated joint venture (510) — (510) 100.0 — — — — Net Income (Loss) Attributable to KKR Real Estate Finance Trust Inc. and Subsidiaries 38,103 137,183 (99,080) (72.2) 137,183 54,397 82,786 152.2 Preferred stock dividends and redemption value adjustment 21,304 11,369 9,935 87.4 11,369 844 10,525 1,247.0 Participating securities' share in earnings 1,428 179 1,249 697.8 179 — 179 100.0 Net Income (Loss) Attributable to Common Stockholders $ 15,371 $ 125,635 $ (110,264) (87.8) $ 125,635 $ 53,553 $ 72,082 134.6 Net Income (Loss) Per Share of Common Stock Basic $ 0.23 $ 2.22 $ (1.99) (89.6) $ 2.22 $ 0.96 $ 1.26 131.3 Diluted $ 0.23 $ 2.21 $ (1.98) (89.6) $ 2.21 $ 0.96 $ 1.25 130.2 Weighted Average Number of Shares of Common Stock Outstanding Basic 67,553,578 56,571,200 10,982,378 19.4 56,571,200 55,985,014 586,186 1.0 Diluted 67,553,578 56,783,388 10,770,190 19.0 56,783,388 56,057,237 726,151 1.3 Dividends Declared per Share of Common Stock $ 1.72 $ 1.72 $ — — $ 1.72 $ 1.72 $ — — 77 Table of Contents Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Net Interest Income Net interest income increased by $20.4 million during the year ended December 31, 2022, as compared to the year ended December 31, 2021.
As such, depreciation on the building and building improvements was suspended. 72 Table of Contents Results of Operations The following table summarizes the changes in our results of operations for years ended December 31, 2023, 2022, and 2021 (dollars in thousands, except per share data): For the Year Ended December 31, Increase (Decrease) For the Year Ended December 31, Increase (Decrease) 2023 2022 Dollars Percentage 2022 2021 Dollars Percentage Net Interest Income Interest income $ 640,412 $ 421,968 $ 218,444 52 % $ 421,968 $ 279,950 $ 142,018 51 % Interest expense 458,802 236,095 222,707 94 236,095 114,439 121,656 106 Total net interest income 181,610 185,873 (4,263) (2) 185,873 165,511 20,362 12 Other Income Revenue from real estate owned operations 8,545 8,971 (426) (5) 8,971 — 8,971 100 Income (loss) from equity method investments 1,417 4,655 (3,238) (70) 4,655 6,371 (1,716) (27) Other income 11,237 5,568 5,669 102 5,568 686 4,882 712 Gain on sale of investments — — — — — 5,126 (5,126) (100) Total other income 21,199 19,194 2,005 10 19,194 12,183 7,011 58 Operating Expenses General and administrative 18,788 17,616 1,172 7 17,616 14,235 3,381 24 Provision for (reversal of ) credit losses, net 175,116 112,373 62,743 56 112,373 (4,059) 116,432 2,868 Management fee to affiliate 26,171 25,680 491 2 25,680 19,378 6,302 33 Incentive compensation to affiliate 2,491 634 1,857 293 634 10,273 (9,639) (94) Expenses from real estate owned operations 11,190 11,113 77 1 11,113 — 11,113 100 Total operating expenses 233,756 167,416 66,340 40 167,416 39,827 127,589 320 Income (Loss) Before Income Taxes, Noncontrolling Interests, Preferred Dividends, Redemption Value Adjustment and Participating Securities' Share in Earnings (30,947) 37,651 (68,598) (182) 37,651 137,867 (100,216) (73) Income tax expense 710 58 652 1,124 58 684 (626) (92) Net Income (Loss) (31,657) 37,593 (69,250) (184) 37,593 137,183 (99,590) (73) Net income (loss) attributable to noncontrolling interests (806) (510) (296) 58 (510) — (510) 100 Net Income (Loss) Attributable to KKR Real Estate Finance Trust Inc. and Subsidiaries (30,851) 38,103 (68,954) (181) 38,103 137,183 (99,080) (72) Preferred stock dividends and redemption value adjustment 21,304 21,304 — — 21,304 11,369 9,935 87 Participating securities' share in earnings 1,764 1,428 336 24 1,428 179 1,249 698 Net Income (Loss) Attributable to Common Stockholders $ (53,919) $ 15,371 $ (69,290) (451) $ 15,371 $ 125,635 $ (110,264) (88) Net Income (Loss) Per Share of Common Stock Basic $ (0.78) $ 0.23 $ (1.01) (439) $ 0.23 $ 2.22 $ (1.99) (90) Diluted $ (0.78) $ 0.23 $ (1.01) (439) $ 0.23 $ 2.21 $ (1.98) (90) Weighted Average Number of Shares of Common Stock Outstanding Basic 69,180,039 67,553,578 1,626,461 2 67,553,578 56,571,200 10,982,378 19 Diluted 69,180,039 67,553,578 1,626,461 2 67,553,578 56,783,388 10,770,190 19 Dividends Declared per Share of Common Stock $ 1.72 $ 1.72 $ — — $ 1.72 $ 1.72 $ — — 73 Table of Contents Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Net Interest Income Net interest income decreased by $4.3 million, during the year ended December 31, 2023, as compared to the prior year.
Excludes one impaired mezzanine loan with an outstanding principal of $5.5 million that was fully written off. For Senior Loan 12 , the total whole loan is $375.0 million, co-originated and co-funded by us and a KKR affiliate.
(L) For Senior Loan 33, the Total Whole Loan, Committed Principal Amount, and Current Principal Amount excludes a subordinated note with a total outstanding principal of $15.0 million that was fully written off. (M) For Senior Loan 50, the total whole loan facility is $153.0 million co-originated and co-funded by us and a KKR affiliate.
Weighted Average LTV excludes risk rated-5 loans and one fully funded corporate loan to a multifamily operator with an outstanding principal amoun t of $40.4 million. For Senior Loans 13 and 74, LTV is based on the current principal amount divided by the adjusted appraised gross sellout value net of sales cost.
Weighted Average LTV excludes risk-rated 5 loans . For Senior Loan 18, LTV is based on the current principal amount divided by the adjusted appraised gross sellout value net of sales cost.
See Notes 5, 6, 7, 8 and 11 to our 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 collateralized loan obligations, term lending agreements, term loan facility, secured term loan, asset specific financing, warehouse facility, corporate revolver and non-consolidated senior interests. 76 Table of Contents See Notes 5, 6, 7, 8 and 10 to our consolidated financial statements for additional details regarding our secured financing agreements, collateralized loan obligations, secured term loan, convertible notes and stock activity.
For Senior Loans 2, 3, 7, 23, 24, 30, 34, 44, 56, and 75, 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 2, 3, 6, 20, 25, 28, 37, 50, 51, and 69, 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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

14 edited+4 added−12 removed13 unchanged
Biggest changeFederal Reserve increased interest rates seven times. The U.S. Federal Reserve has also indicated that it expects continued increases in interest rates in 2023 and 2024. As of December 31, 2022, 100.0% of our loan portfolio and related portfolio financing by principal amount earned or paid a floating rate of interest indexed to one-month USD LIBOR and/or Term SOFR.
Biggest changeHowever, rate floors relating to our loan portfolio may offset some of the impact from declining rates. In addition, interest we are charged on our fixed-rate debt would not change. As of December 31, 2023, our accruing loan portfolio and related portfolio financing by principal amount earned or paid a floating rate of interest indexed to Term SOFR.
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. Rate floors relating to our loan portfolio may offset some of the impact from declining rates. There can be no assurance that we will continue to utilize rate floors.
Interest Rate Risk The composition of our investments is such that rising interest rates will increase our net income, while declining interest rates will generally decrease our net income. Rate floors relating to our loan portfolio may offset some of the impact from declining rates. There can be no assurance that we will continue to utilize rate floors.
Further, on March 15, 2022, the Consolidated Appropriations Act of 2022, which includes the Adjustable Interest Rate (LIBOR) Act, was signed into law in the United States. This legislation establishes a uniform benchmark replacement process for financial contracts maturing after June 30, 2023 that do not contain clearly defined or practicable fallback provisions.
Further, on March 15, 2022, the Consolidated Appropriations Act of 2022, which includes the Adjustable Interest Rate (LIBOR) Act, was signed into law in the United States. This legislation established a uniform benchmark replacement process for financial contracts maturing after June 30, 2023 that do not contain clearly defined or practicable fallback provisions.
The FCA Announcement coincides with the March 5, 2021 announcement of LIBOR’s administrator, the ICE Benchmark Administration Limited (the “IBA”), indicating that, as a result of not having access to input data necessary to calculate relevant LIBOR tenors on a representative basis after June 30, 2023, the IBA would have to cease publication of such LIBOR tenors immediately after the last publication on June 30, 2023.
The FCA Announcement coincided with the March 5, 2021 announcement of LIBOR’s administrator, the ICE Benchmark Administration Limited (the “IBA”), indicating that, as a result of not having access to input data necessary to calculate relevant LIBOR tenors on a representative basis after June 30, 2023, the IBA would have to cease publication of such LIBOR tenors immediately after the last publication on June 30, 2023.
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.
The Federal Reserve, in conjunction with the Alternative Reference Rate Committee, a committee convened by the Federal Reserve that includes major market participants, identified the Secured Overnight Financing Rate, or SOFR, an index calculated by short-term repurchase agreements, backed by Treasury securities, as its preferred alternative rate for LIBOR.
(the “FCA”), which regulates LIBOR, announced (the “FCA Announcement”) that all relevant LIBOR tenors will cease to be published or will no longer be representative after June 30, 2023.
(the “FCA”), which regulates LIBOR, announced (the “FCA Announcement”) that all relevant LIBOR tenors would cease to be published or would no longer be representative after June 30, 2023.
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. 89 Table of Contents
In 83 Table of Contents 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. 84 Table of Contents
Conversely, a 50 basis point and a 100 basis point increase in the index rates would increase our expected cash flows by approximately $7.0 million and $14.0 million, or $0.10 and $0.20 per common share, respectively, for the same period. 87 Table of Contents LIBOR Transition On March 5, 2021, the Financial Conduct Authority of the U.K.
Conversely, a 50 basis point and a 100 basis point increase in the index rates would increase our expected cash flows by approximately $1.1 million and $2.2 million, or $0.02 and $0.03 per common share, respectively, for the same period. 82 Table of Contents LIBOR Transition On March 5, 2021, the Financial Conduct Authority of the U.K.
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.
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.
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. In recent years, interest rates had remained at relatively low levels on a historical basis. However, in 2022, in light of increasing inflation, the U.S.
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. In light of increasing inflation in recent years, the U.S. Federal Reserve has raised interest rates eleven times since January 2022.
Financing Risk We finance our target assets using our repurchase facilities, our term lending agreements, our Term Loan Facility, Warehouse Facility, Asset Based Financing, secured term loan, collateralized loan obligations and through syndicating senior participations in our originated senior loans.
Financing Risk We finance our target assets using our repurchase facilities, our term lending agreements, our Term Loan Facility, 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.
As of December 31, 2022, a 50 basis point and a 100 basis point decrease in the index rates would decrease our expected cash flows by approximately $7.0 million and $13.9 million, or $0.10 and $0.20 per common share, respectively, for the following twelve-month period.
As of December 31, 2023, a 50 basis point and a 100 basis point decrease in the index rates would decrease our expected cash flows by appro ximately $1.1 million and $2.2 million, or ($0.02) and ($0.03) p er common share, respectively, for the following three-month period.
The legislation also creates a safe harbor that shields lenders from litigation if they choose to utilize a replacement rate recommended by the Board of Governors of the Federal Reserve. The United States Federal Reserve has also advised banks to cease entering into new contracts that use USD LIBOR as a reference rate.
The legislation also created a safe harbor that shields lenders from litigation if they choose to utilize a replacement rate recommended by the Board of Governors of the Federal Reserve.
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.
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. As of December 31, 2023, our floating-rate loan portfolio and financing arrangements were all indexed to Term SOFR.
Removed
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.
Added
Inflation, rising interest rates and increasing costs may dampen consumer spending and slow corporate profit growth, which may negatively impact the value of underlying real estate collateral relating to KREF’s investments and impair KREF's borrowers’ ability to execute on their business plans and potentially their ability to perform under the terms of their loan obligations.
Removed
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.
Added
In addition to the risks related to fluctuations in cash flows and asset values associated with movements in interest rates, there is also the risk of non-performance on floating-rate assets.
Removed
While the economy has improved significantly from the initial outbreak of the COVID-19 pandemic, these negative conditions may persist into the future and impair our borrowers’ ability to pay principal and interest due under our loan agreements.
Added
In the case of a significant increase in interest rates, the cash flows of the collateral real estate assets may not be sufficient to pay debt service due under our loans, which may contribute to non-performance or, in severe cases, default. Notwithstanding the current period of relatively high interest rates, the U.S.
Removed
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.
Added
Federal Reserve has indicated that it may decrease in interest rates in 2024. In a period of declining interest rates, our interest income on floating-rate investments would generally decrease, while any decrease in the interest we are charged on our floating-rate debt may be subject to floors and may not compensate for such decrease in interest income.
Removed
Based on the limited loan modifications completed to date, and the relative performance of most modified loans, we are encouraged by our borrowers’ response to the COVID-19 pandemic’s impact on their properties and current trends. We believe our loan sponsors are generally committed to supporting assets collateralizing our loans through additional equity investments.
Removed
While we believe the principal amounts of our loans are generally adequately protected by underlying collateral value and have adequate CECL reserves, there is a risk that we will not realize the entire principal value of certain investments. Credit Yield Risk Credit yields measure the return demanded on financial instruments by the lending market based on their risk of default.
Removed
Although SOFR is the ARRC’s recommended replacement rate, it is also possible that lenders may instead choose alternative replacement rates that may differ from LIBOR in ways similar to SOFR or in other ways that would result in higher interest costs for us.
Removed
We cannot predict the effect of the decision not to sustain LIBOR, or the potential transition to SOFR or another alternative reference rate as LIBOR’s replacement.
Removed
As of December 31, 2022, 44.6% of our loans by principal amount earned a floating rate of interest indexed to LIBOR and 39.5% of our outstanding floating rate financing arrangements bear interest indexed to LIBOR. All of our LIBOR-based arrangements provide procedures for determining an alternative base rate in the event that LIBOR is discontinued.
Removed
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.
Removed
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.
Removed
Over time, as market conditions change, we may use other forms of leverage in addition to these 88 Table of Contents methods of financing.

Other KREF 10-K year-over-year comparisons