The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q. The historical consolidated financial data below reflects the historical results and financial position of KREF. In addition, this discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including those described under Part I, Item 1A. "Risk Factors" in the Form 10-K and under "Cautionary Note Regarding Forward-Looking Statements." Actual results may differ materially from those contained in any forward-looking statements.
Overview
Our Company and Our Investment Strategy
We are a real estate finance company that focuses primarily on originating and
acquiring transitional senior loans secured by commercial real estate ("CRE")
assets. We are a Maryland corporation that was formed and commenced operations
on October 2, 2014 , and we have elected to qualify as a REIT for U.S. federal
income tax purposes. Our investment strategy is to originate or acquire
transitional senior loans collateralized by institutional-quality CRE assets
that are owned and operated by experienced and well-capitalized sponsors and
located in top markets with strong underlying fundamentals. The assets in which
we invest include senior loans, mezzanine loans, preferred equity and commercial
mortgage-backed securities ("CMBS") and other real estate-related securities.
Our investment allocation strategy is influenced by prevailing market conditions
at the time we invest, including interest rate, economic and credit market
conditions. In addition, we may invest in assets other than our target assets in
the future, in each case subject to maintaining our qualification as a REIT for
U.S. federal income tax purposes and our exclusion from registration under the
Investment Company Act. Our investment objective is capital preservation and
generating attractive risk-adjusted returns for our stockholders over the long
term, primarily through dividends.
Our Manager
We are externally managed by our Manager,KKR Real Estate Finance Manager LLC , an indirect subsidiary of KKR & Co. Inc. KKR is a leading global investment firm with an over 45-year history of leadership, innovation, and investment excellence. KKR manages multiple alternative asset classes, including private equity, real estate, energy, infrastructure and credit, with strategic manager partnerships that manage hedge funds. Our Manager manages our investments and our day-to-day business and affairs in conformity with our investment guidelines and other policies that are approved and monitored by our board of directors. Our Manager is responsible for, among other matters, (i) the selection, origination or purchase and sale of our portfolio investments, (ii) our financing activities and (iii) providing us with investment advisory services. Our Manager is also responsible for our day-to-day operations and performs (or causes to be performed) such services and activities relating to our investments and business and affairs as may be appropriate. Our investment decisions are approved by an investment committee of our Manager that is comprised of senior investment professionals of KKR, including senior investment professionals of KKR's global real estate group. For a summary of certain terms of the management agreement, see Note 14 to our condensed consolidated financial statements included in this Form 10-Q.
Macroeconomic Environment
The year endedDecember 31, 2022 and quarter endedMarch 31, 2023 were impacted by significant volatility in global markets, largely driven by rising inflation, rising interest rates, slowing economic growth, geopolitical uncertainty and instability in the banking sector following multiple bank failures. Central banks have responded to rapidly rising inflation with monetary policy tightening actions that are likely to create headwinds to economic growth. TheFederal Reserve has raised interest rates nine times sinceJanuary 2022 , and has signaled that further interest rate increases may be forthcoming throughout the year and into 2024. Although our business model is such that rising interest rates will generally correlate to increases in our net income, increases in interest rates may adversely affect our existing borrowers. Higher interest rates imposed by theFederal Reserve to address inflation may adversely impact real estate asset values and increase our interest expense, which expense may not be fully offset by any resulting increase in interest income, and may lead to decreased prepayments from our borrowers and an increase in the number of our borrowers who exercise extension options. With respect to the COVID-19 pandemic, while the global economy has largely re-opened, the longer-term macro-economic effects of the pandemic continue to impact many industries, including those of certain of our borrowers. In particular, the 49 -------------------------------------------------------------------------------- Table of Contents increase in remote working arrangements in response to the pandemic has contributed to a decline in commercial real estate values and reduced demand for commercial real estate compared to pre-pandemic levels, which may adversely impact certain of our borrowers and has persisted even as the pandemic continues to subside. 50 -------------------------------------------------------------------------------- Table of Contents Key Financial Measures and Indicators
As a real estate finance company, we believe the key financial measures and
indicators for our business are earnings per share, dividends declared,
Distributable Earnings and book value per share.
Earnings (Loss) Per Share and Dividends Declared
The following table sets forth the calculation of basic and diluted net income
(loss) per share and dividends declared per share (amounts in thousands, except
share and per share data):
Three Months Ended,
March 31, 2023 December 31, 2022
Net income (loss) attributable to common stockholders $ (30,810) $ 14,602
Weighted-average number of shares of common stock
outstanding
Basic 69,095,011 69,109,790
Diluted 69,095,011 69,109,790
Net income per share, basic $ (0.45) $ 0.21
Net income per share, diluted $ (0.45) $ 0.21
Dividends declared per share $ 0.43 $ 0.43
Distributable Earnings
Distributable Earnings, a measure that is not prepared in accordance with GAAP,
is a key indicator of our ability to generate sufficient income to pay our
quarterly dividends and in determining the amount of such dividends, which is
the primary focus of yield/income investors who comprise a significant portion
of our investor base. Accordingly, we believe providing Distributable Earnings
on a supplemental basis to our net income as determined in accordance with GAAP
is helpful to our stockholders in assessing the overall performance of our
business.
We define Distributable Earnings as net income (loss) attributable to our
stockholders or, without duplication, owners of our subsidiaries, computed in
accordance with GAAP, including realized losses not otherwise included in GAAP
net income (loss) and excluding (i) non-cash equity compensation expense,
(ii) depreciation and amortization, (iii) any unrealized gains or losses or
other similar non-cash items that are included in net income for the applicable
reporting period, regardless of whether such items are included in other
comprehensive income or loss, or in net income, and (iv) one-time events
pursuant to changes in GAAP and certain material non-cash income or expense
items agreed upon after discussions between our Manager and our board of
directors and after approval by a majority of our independent directors. The
exclusion of depreciation and amortization from the calculation of Distributable
Earnings only applies to debt investments related to real estate to the extent
we foreclose upon the property or properties underlying such debt investments.
While Distributable Earnings excludes the impact of our unrealized current
provision for (reversal of) credit losses, any loan losses are charged off and
realized through Distributable Earnings when deemed non-recoverable.
Non-recoverability is generally determined (i) upon the resolution of a loan
(i.e. when the loan is repaid, fully or partially, or, in the case of
foreclosure, when the underlying asset is sold), or (ii) if, in our
determination, it is nearly certain that all amounts due under a loan will not
be collected.
Distributable Earnings should not be considered as a substitute for GAAP net
income. We caution readers that our methodology for calculating Distributable
Earnings may differ from the methodologies employed by other REITs to calculate
the same or similar supplemental performance measures, and as a result, our
reported Distributable Earnings may not be comparable to similar measures
presented by other REITs.
Historically, when calculating our share count for purposes of GAAP earnings per
diluted share and Distributable Earnings per diluted share, we have excluded the
number of shares that may be issued upon the conversion of the Convertible
Notes. As a result of updated accounting guidance, beginning with the first
quarter of 2022, we are now required to include such shares in our diluted
shares outstanding under GAAP notwithstanding that we currently have the intent
and ability to settle the Convertible Notes in cash. Accordingly, beginning with
the first quarter of 2022, for purposes of calculating Distributable Earnings
per diluted weighted average share, the weighted average diluted shares
outstanding has been adjusted from the weighted average diluted shares
outstanding under GAAP to exclude potential shares that may be issued upon the
conversion of the Convertible Notes, when the effect is dilutive. Consistent
with the treatment of other unrealized adjustments to Distributable
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Earnings, these potentially issuable shares are excluded until a conversion
occurs, which we believe is a useful presentation for investors. We believe that
excluding shares issued in connection with a potential conversion of the
Convertible Notes from our computation of Distributable Earnings per diluted
weighted average share is useful to investors for various reasons, including:
(i) conversion of Convertible Notes to shares would require the holder of a note
to elect to convert the Convertible Note and for us to elect to settle the
conversion in the form of shares, and we currently intend to settle the
Convertible Notes in cash; (ii) future conversion decisions by note holders will
be based on our stock price in the future, which is presently not determinable;
and (iii) we believe that when evaluating our operating performance, investors
and potential investors consider our Distributable Earnings relative to our
actual distributions, which are based on shares outstanding and not shares that
might be issued in the future.
The table below reconciles the weighted average diluted shares under GAAP to the
weighted average diluted shares used for Distributable Earnings:
Three Months Ended,
March 31, 2023 December 31, 2022
Diluted weighted average common shares outstanding, GAAP 69,095,011 69,109,790
Less: Dilutive shares under assumed conversion of the - -
Convertible Notes (ASU 2020-06)
Less: Anti-dilutive restricted stock units - -
Diluted weighted average common shares outstanding, 69,095,011 69,109,790
Distributable Earnings
We also use Distributable Earnings (before incentive compensation payable to our
Manager) to determine the management and incentive compensation we pay our
Manager. For its services to KREF, our Manager is entitled to a quarterly
management fee equal to the greater of $62,500 or 0.375% of weighted average
adjusted equity and quarterly incentive compensation equal to 20.0% of the
excess of (a) the trailing 12-month Distributable Earnings (before incentive
compensation payable to our Manager) over (b) 7.0% of the trailing 12-month
weighted average adjusted equity(1) ("Hurdle Rate"), less incentive compensation
KREF already paid to the Manager with respect to the first three calendar
quarters of such trailing 12-month period. The quarterly incentive compensation
is calculated and paid in arrears with a three-month lag.
(1) For purposes of calculating incentive compensation under our Management
Agreement, adjusted equity excludes: (i) the effects of equity issued that
provides for fixed distributions or other debt characteristics and (ii) the
unrealized provision for (reversal of) credit losses.
The following table provides a reconciliation of GAAP net income attributable to
common stockholders to Distributable Earnings (amounts in thousands, except
share and per share data):
Three Months Ended,
March 31, 2023 December 31, 2022
Net Income (Loss) Attributable to Common Stockholders $ (30,810) $ 14,602
Adjustments
Non-cash equity compensation expense 2,152 1,494 Unrealized (gains) or losses, net(A) 1,173 (25) Provision for (reversal of) credit losses, net 60,467 21,189 Non-cash convertible notes discount amortization 89 91 Loan write-offs(B) - (25,000) Distributable Earnings$ 33,071 $ 12,351 Weighted average number of shares of common stock outstanding Basic 69,095,011 69,109,790 Adjusted Diluted Shares Outstanding(C) 69,095,011 69,109,790
Distributable Earnings per Diluted Weighted Average Share $
0.48 $ 0.18
(A) Includes
adjustment to our RECOP I’s underlying CMBS investments for the three months
ended
(B) Includes a
portion of which was deemed uncollectible during the three months ended
(C) See the reconciliation from weighted average diluted shares under GAAP to
the adjusted weighted average diluted shares used for Distributable Earnings
above.
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Book Value per Share
We believe that book value per share is helpful to stockholders in evaluating
the growth of our company as we have scaled our equity capital base and continue
to invest in our target assets. The following table calculates our book value
per share of common stock (amounts in thousands, except share and per share
data):
March 31, 2023 December 31, 2022
KKR Real Estate Finance Trust Inc. stockholders' equity $
1,513,169
Series A preferred stock (liquidation preference of
per share)
(327,750) (327,750) Common stockholders' equity$ 1,185,419 $ 1,243,788 Shares of common stock issued and outstanding at period end 69,095,011 69,095,011 Book value per share of common stock $ 17.16 $ 18.00
Book value as of
loss allowance of
Summary of Significant Accounting Policies, to our condensed consolidated
financial statements included in this Form 10-Q for detailed discussion of
allowance for credit losses.
53 -------------------------------------------------------------------------------- Table of Contents Our Portfolio We have established a$8,034.0 million portfolio of diversified investments, consisting primarily of senior and mezzanine commercial real estate loans as ofMarch 31, 2023 . During the three months endedMarch 31, 2023 , we collected 100% of interest payments due on our loan portfolio. As ofMarch 31, 2023 , the average risk rating of our loan portfolio was 3.2, weighted by total loan exposure. As ofMarch 31, 2023 , the average loan commitment in our portfolio was$123.7 million and multifamily and industrial loans comprised 57% of our loan portfolio.
In addition, as a result of taking title to the collateral of one defaulted
senior retail loan, we owned one REO asset with a net carrying value of
capitalized transaction and redevelopment costs, as of
property is held for investment and reflected on our Condensed 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. As ofMarch 31, 2023 , 100% of our loans by total loan exposure earned a floating rate of interest. We expect the majority of our future investment activity to focus on originating floating-rate senior loans that we finance with our repurchase and other financing facilities, with a secondary focus on originating floating-rate loans for which we syndicate a senior position and retain a subordinated interest for our portfolio. As ofMarch 31, 2023 , all of our investments were located inthe United States . The following charts illustrate the diversification and composition of our loan portfolio(A), based on type of investment, interest rate, underlying property type, geographic location, vintage and LTV as ofMarch 31, 2023 : [[Image Removed: 10Q2023 v4.jpg]]
The charts above are based on total loan exposure of our commercial real estate
loans.
(A) Excludes: (i) one REO retail asset with net carrying value of$81.1 million as ofMarch 31, 2023 , (ii) CMBS B-Piece investments held through RECOP I, an equity method investment and (iii) two fully written off risk-rated 5 mezzanine loans with a combined outstanding principal balance of$30.5 million . (B) Senior loans include senior mortgages and similar credit quality loans, including related contiguous junior participations in senior loans where we have financed a loan with structural leverage through the non-recourse sale of a corresponding first mortgage.
(C) We classify a loan as life science if more than 50% of the gross leasable
area is leased to, or will be converted to, life science-related space.
(D) Other property type includes Condo (Residential) (2%),
(1%), Single Family Rental (1%) and Self-Storage (1%).
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(E) LTV is generally based on the initial loan amount divided by the as-is
appraised value as of the date the loan was originated or by the current
principal amount as of the date of the most recent as-is appraised value.
Weighted average LTV excludes risk-rated 5 loans.
The following table details our quarterly loan activity (dollars in thousands):
Three Months Ended
December 31, September 30,
March 31, 2023 2022 2022 June 30, 2022
Loan originations $ - $ 370,400 $ 457,685 $ 1,034,191
Loan fundings(A) $ 203,612 $ 423,330 $ 224,724 $ 1,077,132
Loan repayments (86,928) (209,152) (387,264) (444,313)
Net fundings 116,684 214,178 (162,540) 632,819
PIK interest - 457 470 479
Write-off (B) - (25,000) - -
Total activity $ 116,684 $ 189,635 $ (162,070) $ 633,298
(A) Includes initial funding of new loans and additional fundings made under
existing loans.
(B) Includes a
defaulted senior office loan that was deemed uncollectible during the three
months ended
The following table details overall statistics for our loan portfolio(A) as of
Total Loan Exposure(B)
Balance Sheet Total Loan Floating Rate
Portfolio Portfolio Loans Fixed Rate Loans
Number of loans 75 75 75 -
Principal balance $ 7,653,082 $ 7,917,161 $ 7,917,161 $ -
Amortized cost $ 7,612,238 $ 7,876,317 $ 7,876,317 $ -
Unfunded loan commitments(C) $ 1,342,584 $ 1,342,584 $ 1,342,584 $ -
Weighted average cash coupon(D) 8.2 % +3.3 % +3.3 % n.a.
Weighted average all-in yield(D) 8.5 % +3.6 % +3.6 % n.a.
Weighted average maximum 3.2 3.2 3.2 n.a.
maturity (years)(E)
LTV(F) 66 % 66 % 66 % n.a.
(A) Excludes two fully written off risk-rated 5 mezzanine loans with a
combined outstanding principal balance of $30.5 million .
(B) In certain instances, we finance our loans through the non-recourse sale of
a senior interest that is not included in our condensed consolidated financial
statements. Total loan exposure includes the entire loan we originated and
financed.
(C) Unfunded commitments will primarily be funded to finance property
improvements and renovations or lease-related expenditures by the borrowers.
These future commitments will be funded over the term of each loan, subject in
certain cases to an expiration date.
(D) As of March 31, 2023, 63.8% and 36.2% of floating rate loans by loan
exposure were indexed to Term SOFR and LIBOR, respectively. In addition to cash
coupon, all-in yield includes the amortization of deferred origination fees,
loan origination costs and purchase discounts. The calculations of weighted
average cash coupon and all-in yield excludes loans accounted for under the cost
recovery method.
(E) Maximum maturity assumes all extension options are exercised by the
borrower; however, our loans may be repaid prior to such date. As of March 31,
2023 , based on total loan exposure, 48.0% of our loans were subject to yield
maintenance or other prepayment restrictions and 52.0% were open to repayment by
the borrower without penalty.
(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.
55 -------------------------------------------------------------------------------- Table of Contents The table below sets forth additional information relating to our portfolio as ofMarch 31, 2023 (dollars in millions): Committed Current Total Whole Principal Principal Max Remaining Term Loan Per SF / Investment(A) Location Property Type Investment Date Loan(B) Amount(B) Amount Net Equity(C) Coupon(D)(E) (Years)(D)(F) Unit / Key(G) LTV(D)(H) Risk Rating Senior Loans(I) 1 Senior LoanArlington, VA Multifamily9/30/2021 $ 381.0 $ 381.0 $ 363.9 $ 81.6 + 3.3% 3.5$ 327,843 / unit 69 % 3 2 Senior LoanBoston, MA Life Science8/3/2022 312.5 312.5 99.8 12.4 + 4.2 4.4$ 747 / SF 56 3 3 Senior LoanBellevue, WA Office9/13/2021 520.8 260.4 131.4 36.7 + 3.6 4.0$ 855 / SF 63 3 4 Senior LoanLos Angeles, CA Multifamily2/19/2021 260.0 260.0 250.0 38.6 + 3.6 2.9$ 466,400 / unit 68 3 5 Senior Loan Various Industrial4/28/2022 504.5 252.3 252.3 49.6 + 2.7 4.1$ 98 / SF 64 3 6 Senior LoanMountain View, CA Office7/14/2021 362.8 250.0 197.5 51.3 + 3.4 3.4$ 643 / SF 73 4 7 Senior LoanBronx, NY Industrial8/27/2021 381.2 228.7 177.4 39.5 + 4.2 3.4$ 277 / SF 52 3 8 Senior Loan Various Multifamily5/31/2019 216.5 216.5 216.5 39.2 + 4.0 1.2$ 202,336 / unit 74 3 9 Senior LoanMinneapolis, MN Office11/13/2017 194.4 194.4 194.4 87.5 + 3.8 0.1$ 179 / SF n.a. 5 10 Senior Loan Various Industrial6/15/2022 375.5 187.8 160.2 31.4 + 2.9 4.3$ 115 / SF 50 3 11 Senior LoanWashington, D.C. Office11/9/2021 187.7 187.7 173.2 44.1 + 3.3 3.7$ 485 / SF 55 4 12 Senior LoanBoston, MA Office2/4/2021 375.0 187.5 187.5 37.4 + 3.3 2.9$ 506 / SF 71 3 13 Senior LoanThe Woodlands, TX Hospitality9/15/2021 183.3 183.3 176.9 34.0 + 4.2 3.5$ 194,570 / key 64 3 14 Senior LoanPhiladelphia, PA Office4/11/2019 176.7 176.7 153.0 23.4 + 2.6 1.1$ 214 / SF n.a. 5 15 Senior LoanWashington, D.C. Office12/20/2019 175.5 175.5 154.3 64.0 + 3.4 1.8$ 755 / SF 58 4 16 Senior LoanNew York, NY Condo (Residential)12/20/2018 173.5 173.5 167.8 59.5 + 3.7 0.8$ 1,395 / SF 69 3 17 Senior LoanWest Palm Beach, FL Multifamily12/29/2021 171.5 171.5 170.7 26.9 + 2.8 3.8$ 210,275 / unit 73 3 18 Senior LoanBoston, MA Life Science4/27/2021 332.3 166.2 146.6 29.4 + 3.6 3.1$ 609 / SF 66 3 19 Senior Loan Various Self Storage12/21/2022 320.0 160.0 43.5 9.7 + 3.8 4.8$ 202 / SF 67 3 20 Senior LoanOakland, CA Office10/23/2020 509.9 159.7 135.3 21.3 + 4.3 2.6$ 416 / SF 55 3 21 Senior LoanPlano, TX Office2/6/2020 150.7 150.7 150.7 23.4 + 2.8 1.9$ 209 / SF 63 3 22 Senior LoanChicago, IL Office7/15/2019 150.0 150.0 118.2 21.1 + 3.3 1.4$ 114 / SF 57 4 23 Senior LoanRedwood City, CA Life Science9/30/2022 580.7 145.2 - (1.3) + 4.5 4.5$ 885 / SF 53 3
24 Senior Loan(J) Various Industrial
6/30/2021 283.6 141.8 91.6 59.8 + 5.5 3.3$ 72 / SF 62 3 25 Senior LoanSeattle, WA Life Science10/1/2021 188.0 140.3 114.6 33.1 + 3.1 3.5$ 731 / SF 69 3 26 Senior LoanDallas, TX Office12/10/2021 138.0 138.0 138.0 27.6 + 3.7 3.7$ 439 / SF 68 3 27 Senior LoanBoston, MA Multifamily3/29/2019 137.0 137.0 137.0 30.8 + 3.4 1.0$ 351,282 / unit 59 3 28 Senior LoanArlington, VA Multifamily1/20/2022 135.3 135.3 131.8 32.8 + 2.9 3.9$ 439,225 / unit 65 3 29 Senior LoanFontana, CA Industrial5/11/2021 132.0 132.0 94.8 55.6 + 4.7 3.2$ 113 / SF 64 3 30 Senior LoanFort Lauderdale, FL Hospitality11/9/2018 130.0 130.0 130.0 24.2 + 3.5 0.7$ 375,723 / key 66 3 31 Senior LoanSan Carlos, CA Life Science2/1/2022 195.9 125.0 90.1 23.7 + 3.6 3.9$ 615 / SF 68 3 32 Senior LoanIrving, TX Multifamily4/22/2021 117.6 117.6 112.6 17.9 + 3.3 3.1$ 124,028 / unit 70 3
33 Senior Loan(K) Philadelphia, PA Office
1/12/2023 116.5 116.5 111.5 61.8 + 3.3 3.9$ 114 / SF 53 3 34 Senior LoanCambridge, MA Life Science12/22/2021 401.3 115.7 72.9 18.5 + 4.0 3.8$ 1,072 / SF 51 3 35 Senior LoanPittsburgh, PA Student Housing 6/8/2021 112.5 112.5 112.5 17.1 + 2.9 3.2$ 155,602 / unit 74 3 36 Senior LoanMiami, FL Multifamily10/28/2022 110.4 110.4 94.0 22.6 + 3.8 4.6$ 333,333 / unit 51 3 37 Senior LoanLas Vegas, NV Multifamily12/28/2021 106.3 106.3 102.0 20.0 + 2.7 3.8$ 193,182 / unit 61 3 56
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Committed Current
Total Whole Principal Principal Max Remaining Term Loan Per SF / Unit /
Investment(A) Location Property Type Investment Date Loan(B) Amount(B) Amount Net Equity(C) Coupon(D)(E) (Years)(D)(F) Key(G) LTV(D)(H) Risk Rating
38 Senior Loan Doral, FL Multifamily 12/10/2021 212.0 106.0 106.0 21.1 + 2.9 3.7 $ 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 3.6 $ 448,052 / unit 71 3
40 Senior Loan Orlando, FL Multifamily 12/14/2021 102.4 102.4 90.1 22.9 + 3.1 3.8 $ 237,808 / unit 74 3
41 Senior Loan West Hollywood, CA Multifamily 1/26/2022 102.0 102.0 102.0 15.4 + 3.0 3.9 $ 2,756,757 / unit 65 4
42 Senior Loan Boston, MA Industrial 6/28/2022 285.5 100.0 99.3 20.3 + 3.0 4.3 $ 198 / SF 52 3
43 Senior Loan Washington, D.C. Office 1/13/2022 228.5 100.0 59.3 10.8 + 3.2 4.9 $ 217 / SF 55 3
44 Senior Loan Phoenix, AZ Industrial 1/13/2022 195.3 100.0 44.6 10.6 + 4.0 3.9 $ 57 / SF 57 3
45 Senior Loan Cary, NC Multifamily 11/21/2022 100.0 100.0 93.4 17.6 + 3.4 4.7 $ 239,398 / unit 63 3
46 Senior Loan Brisbane, CA Life Science 7/22/2021 95.0 95.0 90.8 17.7 + 3.1 3.4 $ 784 / SF 71 3
47 Senior Loan Brandon, FL Multifamily 1/13/2022 90.3 90.3 65.9 10.5 + 3.1 3.9 $ 195,473 / unit 75 3
48 Senior Loan Dallas, TX Multifamily 12/23/2021 90.0 90.0 77.5 15.1 + 2.8 3.8 $ 238,488 / unit 67 3
49 Senior Loan Miami, FL Multifamily 10/14/2021 89.5 89.5 89.5 17.3 + 2.9 3.6 $ 304,422 / unit 76 3
50 Senior Loan Dallas, TX Office 1/22/2021 87.0 87.0 87.0 25.6 + 3.3 2.9 $ 294 / SF 65 3
51 Senior Loan Charlotte, NC Multifamily 12/14/2021 86.8 86.8 78.6 13.7 + 3.1 3.8 $ 213,615 / unit 74 3
52 Senior Loan San Antonio, TX Multifamily 6/1/2022 246.5 86.3 80.3 19.7 + 2.8 4.2 $ 103,007 / unit 68 3
53 Senior Loan Scottsdale, AZ Multifamily 5/9/2022 169.0 84.5 84.5 12.9 + 2.9 4.2 $ 457,995 / unit 64 3
54 Senior Loan Raleigh, NC Multifamily 4/27/2022 82.9 82.9 78.1 16.5 + 3.0 4.1 $ 244,139 / unit 68 3
55 Senior Loan Hollywood, FL Multifamily 12/20/2021 81.0 81.0 81.0 14.9 + 3.1 3.8 $ 327,935 / unit 74 3
56 Senior Loan Phoenix, AZ Single Family Rental 4/22/2021 72.1 72.1 49.5 16.6 + 4.9 3.1 $ 157,092 / unit 50 3
57 Senior Loan Arlington, VA Multifamily 10/23/2020 141.8 70.9 70.9 11.8 + 3.8 2.5 $ 393,858 / unit 73 3
58 Senior Loan Denver, CO Multifamily 9/14/2021 70.3 70.3 70.0 11.9 + 2.7 3.5 $ 289,128 / unit 78 3
59 Senior Loan Washington, D.C. Multifamily 12/4/2020 69.0 69.0 66.7 10.9 + 3.5 2.7 $ 266,727 / unit 63 3
60 Senior Loan Dallas, TX Multifamily 8/18/2021 68.2 68.2 68.2 10.0 + 3.9 3.4 $ 189,444 / unit 70 3
61 Senior Loan Manassas Park, VA Multifamily 2/25/2022 68.0 68.0 68.0 13.2 + 2.7 3.9 $ 223,684 / unit 73 3
62 Senior Loan Plano, TX Multifamily 3/31/2022 67.8 67.8 66.1 17.7 + 2.8 4.0 $ 248,572 / unit 75 3
63 Senior Loan Nashville, TN Hospitality 12/9/2021 66.0 66.0 64.7 10.4 + 3.7 3.8 $ 281,237 / key 68 3
64 Senior Loan Atlanta, GA Multifamily 12/10/2021 61.5 61.5 58.3 15.0 + 3.0 3.8 $ 193,189 / unit 67 3
65 Senior Loan Durham, NC Multifamily 12/15/2021 60.0 60.0 54.4 10.5 + 3.0 3.8 $ 157,709 / unit 67 3
66 Senior Loan San Antonio, TX Multifamily 4/20/2022 57.6 57.6 56.1 11.0 + 2.7 4.1 $ 164,107 / unit 79 3
67 Senior Loan Sharon, MA Multifamily 12/1/2021 56.9 56.9 56.9 8.4 + 2.8 3.7 $ 296,484 / unit 70 3
68 Senior Loan Queens, NY Industrial 2/22/2022 55.3 55.3 52.7 13.7 + 4.0 0.9 $ 85 / SF 68 3
69 Senior Loan Reno, NV Industrial 4/28/2022 140.4 50.5 50.5 11.2 + 2.7 4.1 $ 117 / SF 74 3
70 Senior Loan Carrollton, TX Multifamily 4/1/2022 48.5 48.5 46.3 12.5 + 2.9 4.0 $ 144,631 / unit 74 3
71 Senior Loan Dallas, TX Multifamily 4/1/2022 43.9 43.9 41.2 10.0 + 2.9 4.0 $ 115,655 / unit 73 3
72 Senior Loan Georgetown, TX Multifamily 12/16/2021 41.8 41.8 41.8 10.2 + 3.4 3.8 $ 199,048 / unit 68 3
73 Senior Loan San Diego, CA Multifamily 4/29/2022 203.0 40.0 39.2 7.0 + 2.6 4.1 $ 450,468 / unit 63 3
74 Senior Loan(L) New York, NY Condo (Residential) 8/4/2017 20.1 20.1 20.1 20.1 + 4.2 0.1 $ 1,061 / SF 73 3
75 Senior Loan Denver, CO Industrial 12/11/2020 15.4 15.4 9.5 5.6 + 3.8 2.8 $ 47 / SF 61 3
Total/Weighted Average $ 13,175.4 $ 9,280.4 $ 7,917.2 $ 1,845.0 + 3.3% 3.2 66 % 3.2
Senior Loans Unlevered
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Committed Current
Principal Principal Max Remaining Term Loan Per SF /
Investment(A) Location Property Type Investment Date Total Whole Loan(B) Amount(B) Amount Net Equity(C) Coupon(D)(E) (Years)(D)(F) Unit / Key(G) LTV(D)(H) Risk Rating
CMBS B-Pieces
1 RECOP I(M) Various Various2/13/2017 n.a. 40.0 35.7 35.7 4.7 6.2 n.a. 58 n.a. Total/Weighted Average$ 40.0 $ 35.7 $ 35.7 4.7% 6.2 58 % CMBS B-Pieces Unlevered Real Estate Owned 1 Real Estate AssetPortland, OR Retail12/16/2021 n.a. n.a. 81.1 81.1 n.a. n.a. n.a. n.a. n.a. Total/Weighted Average$ 81.1 $ 81.1 Real Estate Owned Grand Total / Weighted$ 9,320.4 $ 8,034.0 $ 1,961.8 8.2% 3.2 66 % 3.2 Average * Numbers presented may not foot due to rounding. (A) Our total portfolio represents the current principal amount on senior and mezzanine loans, net equity in RECOP I, which holds CMBS B-Piece investments, and net carrying value of our sole REO investment. Excludes one impaired mezzanine loan with an outstanding principal of$5.5 million that was fully written off. For Senior Loan 12, the total whole loan is$375.0 million , co-originated and co-funded by us and a KKR affiliate. Our interest was 50% of the loan or$187.5 million , of which$150.0 million in senior notes were syndicated to a third party. Post syndication, we retained a mezzanine loan with a commitment of$37.5 million , fully funded as ofMarch 31, 2023 , at an interest rate of L+7.9%. 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. Post syndication, we retained a mezzanine loan with a commitment of$25.0 million , of which$21.2 million was funded as ofMarch 31, 2023 , at an interest rate of L+12.9%.
(B) Total Whole Loan represents total commitment of the entire whole loan
originated. Committed Principal Amount includes participations by KKR affiliated
entities and third parties that are syndicated/sold.
(C) Net equity reflects (i) the amortized cost basis of our loans, net of
borrowings; and (ii) the cost basis of our investments in RECOP I and REO.
(D) Weighted average is weighted by the current principal amount for our senior and mezzanine loans and by net equity for our RECOP I CMBS B-Pieces. Non-Senior Loan 1 and risk-rated 5 loans are excluded from the weighted average LTV. (E) Coupon expressed as spread over the relevant floating benchmark rates, which include LIBOR and Term SOFR, as applicable to each loan. As ofMarch 31, 2023 , 63.8% and 36.2% of our loans by principal amount earned a floating rate of interest indexed to Term SOFR and LIBOR, respectively.
(F) Max remaining term (years) assumes all extension options are exercised, if
applicable.
(G) Loan Per SF / Unit / Key is based on the current principal amount divided by the current SF / Unit / Key. For Senior Loans 2, 3, 7, 23, 24, 29, 34, 44, 56, and 75, Loan Per SF / Unit / Key is calculated as the total commitment amount of the loan divided by the proposed SF / Unit / Key. (H) For senior loans, LTV is generally based on the initial loan amount divided by the as-is appraised value as of the date the loan was originated or by the current principal amount as of the date of the most recent as-is appraised value; for mezzanine loans, LTV is based on the current balance of the whole loan divided by the as-is appraised value as of the date the loan was originated; for RECOP I CMBS B-Pieces, LTV is based on the weighted average LTV of the underlying loan pool at issuance. Weighted Average LTV excludes risk rated-5 loans.
For Senior Loans 16 and 74, LTV is based on the current principal amount divided
by the adjusted appraised gross sellout value net of sales cost.
For Senior Loans 2, 3, 7, 23, 24, 29, 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.
(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) For Senior Loan 24, the total whole loan facility is$283.6 million , co-originated and co-funded by us and a KKR affiliate. Our interest was 50% of the facility or$141.8 million . The facility is comprised of individual cross-collateralized whole loans. As ofMarch 31, 2023 , there were ten underlying senior loans in the facility with a commitment of$141.8 million and outstanding principal of$91.6 million .
(K) For Senior Loan 33, Total Whole Loan, Committed Principal Amount, and
Current Principal Amount excludes junior mezzanine notes with a total
outstanding principal of
(L) For Senior Loan 74, Loan per SF of$1,061 is based on the allocated loan amount of the residential units. Excluding the value of the retail and parking components of the collateral, the Loan per SF is$2,321 based on allocating the full amount of the loan to only the residential units. (M) Represents our investment in an aggregator vehicle alongside RECOP I that invests in CMBS B-Pieces. Committed principal represents our total commitment to the aggregator vehicle whereas current principal represents the current funded amount. 58 -------------------------------------------------------------------------------- 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. Our loan documents generally give us the right to receive regular property, borrower and guarantor financial statements; approve annual budgets and tenant leases; and enforce loan covenants and remedies. In addition, our Manager evaluates the macroeconomic environment, prevailing real estate fundamentals and micro-market dynamics where the underlying property is located. Through site inspections, local market experts and various data sources, as part of its risk assessment, our Manager monitors criteria such as new supply and tenant demand, market occupancy and rental rate trends, and capitalization rates and valuation trends.
We maintain a robust asset management relationship with our borrowers and have
utilized these relationships to maximize the performance of our portfolio,
including during periods of volatility such as the COVID-19 pandemic.
We believe our loan sponsors are generally committed to supporting assets collateralizing our loans through additional equity investments, and that we will benefit from our long-standing core business model of originating senior loans collateralized by large assets in major markets with experienced, well-capitalized institutional sponsors. While we believe the principal amounts of our loans are generally adequately protected by underlying collateral value, there is a risk that we will not realize the entire principal value of certain investments. In addition to ongoing asset management, our Manager performs a quarterly review of our portfolio whereby each loan is assigned a risk rating of 1 through 5, from lowest risk to highest risk. Our Manager is responsible for reviewing, assigning and updating the risk ratings for each loan at least once per quarter. The risk ratings are based on many factors, including, but not limited to, underlying real estate performance and asset value, values of comparable properties, durability and quality of property cash flows, sponsor experience and financial wherewithal, and the existence of a risk-mitigating loan structure. Additional key considerations include LTVs, debt service coverage ratios, real estate and credit market dynamics, and risk of default or principal loss. Based on a five-point scale, our loans are rated "1" through "5," from less risk to greater risk, which ratings are defined as follows: 1 (Very Low Risk); 2 (Low Risk); 3 (Medium Risk); 4 (High Risk/Potential for Loss); and 5 (Impaired/Loss Likely). As ofMarch 31, 2023 , the average risk rating of our loan portfolio was 3.2, weighted by total loan exposure, consistent with that as ofDecember 31, 2022 . March 31, 2023 December 31, 2022 Total Loan Total Loan Total Loan Total Loan Risk Rating Number of Loans(A) Carrying Value Exposure(A) Exposure %* Number of Loans(A) Carrying Value Exposure(B) Exposure %* 1 - $ - $ - - % - $ - $ - - % 2 - - - - - - - - 3 68 6,525,552 6,824,605 86 70 6,560,166 6,864,941 88 4 5 742,057 745,156 9 3 443,957 446,322 6 5 2 344,629 347,400 4 3 490,015 489,214 6 Total loan receivable 75$ 7,612,238 $ 7,917,161 100 76$ 7,494,138 $ 7,800,477 100 Allowance for credit losses (167,360) (106,974) Loan receivable, net$ 7,444,878 $ 7,387,164
*Numbers presented may not foot due to rounding.
(A) Excludes two fully written off risk-rated 5 mezzanine loans with a combined outstanding principal balance of$30.5 million as ofMarch 31, 2023 . Excludes one fully written off risk-rated 5 mezzanine loan with an outstanding principal balance of$5.5 million as ofDecember 31, 2022 . (B) In certain instances, KREF finances its loans through the non-recourse sale of a senior interest that is not included in the condensed consolidated financial statements. Total loan exposure includes the entire loan KREF originated and financed, including$264.1 million and$263.1 million of such non-consolidated interests as ofMarch 31, 2023 andDecember 31, 2022 , respectively. 59 -------------------------------------------------------------------------------- Table of Contents InJanuary 2023 , we completed the modification of a senior office loan located inPhiladelphia, PA , that was risk-rated 5 with an outstanding principal balance of$161.0 million , of which$25.0 million was deemed uncollectible and written off, as ofDecember 31, 2022 . The terms of the modification included, among others, a$25.0 million principal repayment and a restructure of KREF's$136.0 million senior loan (after the$25.0 million repayment) into a$116.5 million committed senior mortgage loan (including future funding of$5.5 million ) and a$25.0 million junior mezzanine note. The junior mezzanine note is subordinated to a new$41.5 million committed senior mezzanine note (including future funding of$16.5 million ) held by the sponsor. The restructured senior loan earns a coupon rate of S+3.25% and has a new term of up to four years, assuming all extension options are exercised. Post modification, the restructured senior loan was risk-rated 3 as ofMarch 31, 2023 .
CMBS B-Piece Investments
Our current CMBS exposure is through RECOP I, an equity method investment. Our
Manager has processes and procedures in place to monitor and assess the credit
quality of our CMBS B-Piece investments and promote the regular and active
management of these investments. This includes reviewing the performance of the
real estate assets underlying the loans that collateralize the investments and
determining the impact of such performance on the credit and return profile of
the investments. Our Manager holds monthly surveillance calls with the special
servicer of our CMBS B-Piece investments to monitor the performance of our
portfolio and discuss issues associated with the loans underlying our CMBS
B-Piece investments. At each meeting, our Manager is provided with a due
diligence submission for each loan underlying our CMBS B-Piece investments,
which includes both property- and loan-level information. These meetings assist
our Manager in monitoring our portfolio, identifying any potential loan issues,
determining if a re-underwriting of any loan is warranted and examining the
timing and severity of any potential losses or impairments.
Valuations for our CMBS B-Piece investments are prepared using inputs from an
independent valuation firm and confirmed by our Manager via quotes from two or
more broker-dealers that actively make markets in CMBS. As part of the quarterly
valuation process, our Manager also reviews pricing indications for comparable
CMBS and monitors the credit metrics of the loans that collateralize our CMBS
B-Piece investments.
Total Financing
Our financing arrangements include term loan facility, term lending agreements,
collateralized loan obligations, secured term loan, warehouse facility, asset
specific financing, corporate revolving credit agreement ("Revolver"),
non-consolidated senior interest (collectively "Non-Mark-to-Market Financing
Sources") and master repurchase agreements.
Our Non-Mark-to-Market Financing Sources, which accounted for 76% of our total
financing as of March 31, 2023 , are not subject to credit or capital markets
mark-to-market provisions. The remaining 24% of our total financing, which is
primarily comprised of three master repurchase agreements, are only subject to
credit marks.
We continue to expand and diversify our financing sources, especially those
sources that provide non-mark-to-market financing, reducing our exposure to
market volatility.
The following table summarizes our financing (dollars in thousands):
Financing Outstanding Principal Balance
Non-/Mark-to-Market March 31, 2023 December 31, 2022
Master repurchase agreements Mark-to-Credit
$ 1,528,699
Collateralized loan obligations
Non-Mark-to-Market 1,942,750 1,942,750 Term lending agreements Non-Mark-to-Market 1,536,553 1,530,105 Term loan facility Non-Mark-to-Market 644,378 631,557 Secured term loan Non-Mark-to-Market 345,625 346,500 Asset specific financing Non-Mark-to-Market 184,789 172,873 Warehouse facility Non-Mark-to-Market - - Revolver Non-Mark-to-Market - - Non-consolidated senior interests Non-Mark-to-Market 264,078 263,086 Total financing $ 6,446,872$ 6,323,037 60
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Financing Agreements
The following table details our financing agreements (dollars in thousands):
March 31, 2023
Maximum Collateral Borrowings
Facility Size(A) Assets(B) Potential(C) Outstanding Available
Master Repurchase
Agreements
Wells Fargo $ 1,000,000 $ 973,506 $ 730,131 $ 714,667 $ 15,464
Morgan Stanley 600,000 822,247 580,986 574,032 6,954
Goldman Sachs 240,000 422,493 240,000 240,000 -
Term Loan Facility 1,000,000 803,770 644,378 644,378 -
Term Lending Agreements
KREF Lending IX 1,000,000 932,979 745,238 741,922 3,316
KREF Lending V 517,310 696,930 491,072 489,245 1,827
KREF Lending XII 350,000 221,575 166,771 166,771 -
BMO Facility 300,000 179,601 139,109 138,615 494
Warehouse Facility
HSBC 500,000 - - - -
Asset Specific Financing
KREF Lending XIII 265,625 99,752 84,789 84,789 -
KREF Lending XIV 125,000 - - - -
KREF Lending XI 100,000 125,000 100,000 100,000 -
Revolver 610,000 - 610,000 - 610,000
$ 6,607,935 $ 5,277,853 $ 4,532,474 $ 3,894,419 $ 638,055
(A) Maximum facility size represents the largest amount of borrowings available
under a given facility once sufficient collateral assets have been approved by
the lender and pledged by us.
(B) Represents the principal balance of the collateral assets.
(C) Potential borrowings represents the total amount we could draw under each facility based on collateral already approved and pledged. When undrawn, these amounts are available to us under the terms of each credit facility.
Master Repurchase Agreements
We utilize master repurchase facilities to finance the origination of senior
loans. After a mortgage asset is identified by us, the lender agrees to advance
a certain percentage of the principal of the mortgage to us in exchange for a
secured interest in the mortgage. We have not received any margin calls on any
of our master repurchase facilities to date.
Repurchase agreements effectively allow us to borrow against loans and
participations that we own in an amount generally equal to (i) the market value
of such loans and/or participations multiplied by (ii) the applicable advance
rate. Under these agreements, we sell our loans and participations to a
counterparty and agree to repurchase the same loans and participations from the
counterparty at a price equal to the original sales price plus an interest
factor. The transaction is treated as a secured loan from the financial
institution for GAAP purposes. During the term of a repurchase agreement, we
receive the principal and interest on the related loans and participations and
pay interest to the lender under the master repurchase agreement. At any point
in time, the amounts and the cost of our repurchase borrowings will be based
upon the assets being financed-higher risk assets will result in lower advance
rates (i.e., levels of leverage) at higher borrowing costs and vice versa. In
addition, these facilities include various financial covenants and limited
recourse guarantees, including those described below.
Each of our existing master repurchase facilities includes "credit
mark-to-market" features. "Credit mark-to-market" provisions in repurchase
facilities are designed to keep the lenders' credit exposure generally constant
as a percentage of the underlying collateral value of the assets pledged as
security to them. If the credit underlying collateral value decreases, the gross
amount of leverage available to us will be reduced as our assets are
marked-to-market, which would reduce our liquidity. The lender under the
applicable repurchase facility sets the valuation and any revaluation of the
collateral assets in its sole, good faith discretion. As a contractual matter,
the lender has the right to reset the value of the assets at any time based on
then-current market conditions, but the market convention is to reassess
valuations on a monthly, quarterly and annual basis using the financial
information delivered pursuant to the facility documentation regarding the real
property, borrower and guarantor under such underlying loans. Generally, if the
lender determines (subject to certain conditions) that the market value of the
collateral in a repurchase transaction has decreased by more than a defined
minimum amount, the lender may require us to provide additional
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collateral or lead to margin calls that may require us to repay all or a portion
of the funds advanced. We closely monitor our liquidity and intend to maintain
sufficient liquidity on our balance sheet in order to meet any margin calls in
the event of any significant decreases in asset values. As of March 31, 2023 and
December 31, 2022 , the weighted average haircut under our repurchase agreements
was 31.1% and 31.5%, respectively (or 30.1% and 25.6%, respectively, if we had
borrowed the maximum amount approved by its repurchase agreement counterparties
as of such dates). In addition, our existing master repurchase facilities are
not entirely term-matched financings and may mature before our CRE debt
investments that represent underlying collateral to those financings. As we
negotiate renewals and extensions of these liabilities, we may experience lower
advance rates and higher pricing under the renewed or extended agreements.
Term Loan Facility
InApril 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 inOctober 2018 ("Term Loan Facility"). The facility provides us with asset-based financing on a non-mark-to-market basis with match-term up to five years and is non-recourse to us. Borrowings under the facility are collateralized by senior loans, held-for-investment.
Term Lending Agreements
InAugust 2018 , we entered into a$200.0 million loan financing facility withBMO Harris Bank (the "BMO Facility"). InMay 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. InJune 2019 , we entered into a Master Repurchase and Securities Contract Agreement ("KREF Lending V Facility") withMorgan Stanley Mortgage Capital Holdings LLC ("Administrative Agent"), as administrative agent on behalf ofMorgan Stanley Bank, N.A. ("Initial Buyer"), which provides non-mark-to-market financing. InJune 2022 , the current stated maturity was extended toJune 2023 , subject to three additional one-year extension options, which may be exercised by us upon the satisfaction of certain customary conditions and thresholds. The Initial Buyer subsequently syndicated a portion of the facility to multiple financial institutions. As ofMarch 31, 2023 , the Initial Buyer held 23.9% of the total commitment under the facility. InJuly 2021 , we entered into a$500.0 million Master Repurchase and Securities Contract Agreement with a financial institution ("KREF Lending IX Facility"). InMarch 2022 , we increased the borrowing capacity to$750.0 million . InAugust 2022 , we further increased the borrowing capacity to$1,000.0 million . The facility, which provides financing on a non-mark-to-market basis with partial recourse to us, has a three-year draw period and match- term to the underlying loans. InJune 2022 , we entered into a$350.0 million Master Repurchase Agreement and Securities Contract with a financial institution ("KREF Lending XII Facility"). The facility, which provides financing on a non-mark-to-market basis with partial recourse to KREF, has a two-year draw period and match-term to the underlying loans. In addition, we have the option to increase the facility amount to$500.0 million . Warehouse Facility
In
extended the facility maturity date to
warehouse financing on a non-mark-to-market basis with partial recourse to us.
Asset Specific Financing
In
financial institution (“KREF Lending XI Facility”). The facility provides
non-recourse match-term asset-based financing on a non-mark-to-market basis.
In
financial institution (“KREF Lending XIII Facility”). The facility provides
non-recourse match-term asset-based financing on a non-mark-to-market basis.
In
financial institution (“KREF Lending XIV Facility”). The facility provides
non-recourse match-term asset-based financing on a non-mark-to-market basis.
62 -------------------------------------------------------------------------------- Table of Contents Revolving Credit Agreement InMarch 2022 , we upsized our corporate revolving credit agreement ("Revolver"), administered byMorgan Stanley Senior Funding, Inc. , to$520.0 million and extended the maturity date toMarch 2027 . InApril 2022 , we further upsized our Revolver to$610.0 million . We may use our Revolver as a source of financing, which is designed to provide short-term liquidity to originate or de-lever loans, pay operating expenses and borrow amounts for general corporate purposes. Borrowings under the Revolver bear interest at a per annum rate equal to Term SOFR plus a fixed margin. Our Revolver is secured by corporate level guarantees and includes net equity interests in the investment portfolio.
Collateralized Loan Obligations
InAugust 2021 , we financed a pool of loan participations from our existing loan portfolio through a managed collateralized loan obligation ("CLO" or "KREF 2021-FL2") and, inFebruary 2022 , we financed a pool of loan participations from our existing multifamily loan portfolio through a managed CLO ("KREF 2022-FL3"). The CLOs provide us with match-term financing on a non-mark-to-market and non-recourse basis. The CLOs have a two-year reinvestment feature that allows principal proceeds of the collateral assets to be reinvested in qualifying replacement assets, subject to the satisfaction of certain conditions set forth in the indentures. The following table outlines the CLO collateral assets and respective borrowing (dollars in thousands): March 31, 2023 Outstanding Count Principal Amortized Cost Carrying Value Wtd. Avg. Yield/Cost(A) Wtd. Avg. Term(B) KREF 2021-FL2 Collateral assets(C)(D) 18$ 1,300,000 $ 1,300,000 $ 1,274,367 + 3.3% May 2026 Financing provided 1 1,095,250 1,093,476 1,093,476 L + 1.7% February 2039 KREF 2022-FL3 Collateral assets(C) 16$ 1,000,000 $ 1,000,000 $ 990,028 + 3.1% October 2026 Financing provided 1 847,500 844,126 844,126 S + 2.2% February 2039 (A)Expressed as a spread over the relevant benchmark rates, which include one-month LIBOR and/or Term SOFR, as applicable to each loan. As ofMarch 31, 2023 , 50.9% and 49.1% of the CLO collateral loan assets by principal balance earned a floating rate of interest indexed to one-month LIBOR and Term SOFR, respectively. In addition to cash coupon, yield/cost includes the amortization of deferred origination/financing costs. (B)Loan term represents weighted-average final maturity, assuming all extension options are exercised by the borrower, weighted by outstanding principal. Repayments of CLO notes are dependent on timing of underlying collateral loan asset repayments post reinvestment period. The term of the CLO notes represents the rated final distribution date. (C)Collateral loan assets represent 28.9% of the principal of our commercial real estate loans as ofMarch 31, 2023 . As ofMarch 31, 2023 , 100% of our loans financed through the CLOs are floating rate loans. (D)Including$83.1 million cash held in the CLO KREF 2021-FL2 as ofMarch 31, 2023 .
Non-Consolidated Senior Interests
In certain instances, we finance our loans through the non-recourse sale of a
senior loan interest that is not included in our condensed consolidated
financial statements. These non-consolidated senior interests provide structural
leverage on a non-mark-to-market, match-term basis for our net investments,
which are typically reflected in the form of mezzanine loans or other
subordinate interests on our balance sheets and in our statements of income.
The following table details the subordinate interests retained on our balance
sheet and the related non-consolidated senior interests (dollars in thousands):
March 31, 2023
Principal Wtd. Avg.
Non-Consolidated Senior Interests Count Balance Carrying Value Wtd. Avg. Yield/Cost Guarantee Term
Total loan 2 $ 322,752 n.a. L + 3.7% n.a. December 2025
Senior participation 2 264,078 n.a. L + 2.4% n.a. December 2025
Interests retained 58,674 L + 9.7% January 2026
63
-------------------------------------------------------------------------------- Table of Contents Secured Term Loan InSeptember 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. InNovember 2021 , we completed a repricing of a$297.8 million existing secured term loan and a$52.2 million add-on, for an aggregate principal amount of$350.0 million , which was issued at par. The new secured term loan bears interest at LIBOR plus a 3.50% margin, and is subject to a 0.50% LIBOR floor. The secured term loan matures onSeptember 1, 2027 and contains restrictions relating to liens, asset sales, indebtedness, investments and transactions with affiliates. Our secured term loan is secured by corporate level guarantees and does not include asset-based collateral. Refer to Notes 2 and 7 to our condensed consolidated financial statements for additional discussion of our secured term loan. Convertible Notes We may issue convertible debt to take advantage of favorable market conditions. InMay 2018 , we issued$143.75 million of 6.125% Convertible Notes due onMay 15, 2023 . The Convertible Notes bear interest at a rate of 6.125% per year, payable semi-annually in arrears onMay 15 andNovember 15 of each year, beginning onNovember 15, 2018 . The Convertible Notes mature onMay 15, 2023 , unless earlier repurchased or converted. Refer to Notes 2 and 8 to our condensed consolidated financial statements for additional discussion of our Convertible Notes. Borrowing Activities
The following tables provide additional information regarding our borrowings
(dollars in thousands):
Three Months Ended
Outstanding
Principal as of Average Daily Amount Maximum Amount Weighted Average
March 31, 2023 Outstanding(A) Outstanding Daily Interest Rate
Master Repurchase Agreements
Wells Fargo $ 714,667 $ 677,192 $ 714,667 6.0 %
Morgan Stanley 574,032 594,082 594,537 6.5
Goldman Sachs 240,000 178,162 240,000 6.8
Term Loan Facility 644,378 634,874 644,378 6.3
Term Lending Agreements
KREF Lending IX 741,922 732,035 741,922 6.3
KREF Lending V 489,245 492,915 502,878 6.5
KREF Lending XII 166,771 161,203 166,771 5.9
BMO Facility 138,615 138,615 138,615 6.4
Asset Specific Financing
KREF Lending XIII 84,789 79,884 84,789 7.6
KREF Lending XIV - - - -
KREF Lending XI 100,000 100,000 100,000 7.3
Revolver - - - -
Total/Weighted Average $ 3,894,419 6.4 %
(A) Represents the average for the period the facility was outstanding.
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Average Daily Amount Outstanding(A)
Three Months Ended
March 31, 2023 December 31, 2022
Master Repurchase Agreements
Wells Fargo $ 677,192 $ 713,810
Morgan Stanley 594,082 585,009
Goldman Sachs 178,162 153,433
Term Loan Facility 634,874 596,801
Term Lending Facility
KREF Lending IX 732,035 669,488
KREF Lending V 492,915 521,240
KREF Lending XII 161,203 161,140
BMO Facility 138,615 41,215
Asset Specific Financing
KREF Lending XIII 79,884 42,902
KREF Lending XIV - -
KREF Lending XI 100,000 100,000
Revolver - 51,739
(A) Represents the average for the period the debt was outstanding.
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. (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);
With respect to our secured term loan, we are required to comply with customary
loan covenants and event of default provisions that include, but are not limited
to, negative covenants relating to restrictions on operations with respect to
our status as a REIT, and financial covenants. Such financial covenants include
a minimum consolidated tangible net worth of $650.0 million and a maximum total
debt to total assets ratio of 83.3% (the "Leverage Covenant").
As of
facilities.
Guarantees-In connection with our financing arrangements including; master repurchase agreements, our term lending agreements, and our asset specific financing, ourOperating Partnership has entered into a limited guarantee in favor of each lender, under which ourOperating Partnership guarantees the obligations of the borrower under the respective financing agreement (i) in the case of certain defaults, up to a maximum liability of 25.0% of the then-outstanding repurchase price of the eligible loans, participations or securities, as applicable, or (ii) up to a maximum liability of 100.0% in the case of certain "bad boy" defaults. The borrower in each case is a special purpose subsidiary of ours. In addition, some guarantees include certain full recourse insolvency-related trigger events.
With respect to our Revolver, amounts borrowed are full recourse to certain
guarantor wholly-owned subsidiaries of ours.
Real Estate Owned and Joint Venture
In 2015, we originated a$177.0 million senior loan secured by a retail property inPortland, Oregon . The loan had a risk rating of 5 and was placed on a nonaccrual status inOctober 2020 , with an amortized cost and carrying value of$109.6 million and$69.3 million , respectively, as ofSeptember 30, 2021 . InDecember 2021 , we took title to the retail property; such acquisition was accounted for as an asset acquisition under ASC 805. Accordingly, we recognized the property on our balance sheet as 65 -------------------------------------------------------------------------------- Table of Contents REO with a carrying value of$78.6 million , which included the estimated fair value of the property and capitalized transaction costs. In addition, we assumed$2.0 million in other net assets of the REO. Concurrently with taking the title of our sole REO asset, we contributed the majority of the REO's net assets to a joint venture with a third party local development operator ("JV Partner"), whereby we have a 90% interest in the joint venture and the JV Partner has a 10% interest. As ofMarch 31, 2023 , the joint venture held REO assets with a net carrying value of$71.2 million . We have priority of distributions up to$73.2 million before the JV Partner can participate in the economics of the joint venture. 66 -------------------------------------------------------------------------------- Table of Contents Results of Operations Three Months EndedMarch 31, 2023 Compared to Three Months EndedDecember 31, 2022 The following table summarizes the changes in our results of operations for three months endedMarch 31, 2023 andDecember 31, 2022 (dollars in thousands, except per share data): Three Months Ended Increase (Decrease) December 31, March 31, 2023 2022 Dollars Percentage Net Interest Income Interest income$ 152,530 $ 143,508 $ 9,022 6 % Interest expense 105,976 91,592 14,384 16 Total net interest income 46,554 51,916 (5,362) (10) Other Income Revenue from real estate owned operations 2,246 2,417 (171) (7) Income (loss) from equity method investments (347) 820 (1,167) (142) Other income 2,711 1,576 1,135 - 72 Total other income 4,610 4,813 (203) (4) Operating Expenses General and administrative 4,690 4,576 114 2 Provision for (reversal of ) credit losses, net 60,467 21,189 39,278 185 Management fee to affiliate 6,523 6,578 (55) (1) Incentive compensation to affiliate 1,811 634 1,177 186 Expenses from real estate owned operations 2,758 3,593 (835) (23) Total operating expenses 76,249 36,570 39,679 109 Income (Loss) Before Income Taxes, Noncontrolling Interests, PreferredDividends and Participating Securities' Share in Earnings (25,085) 20,159 (45,244) (224) Income tax expense 169 58 111 191 Net Income (Loss) (25,254) 20,101 (45,355) (226) Net income (loss) attributable to noncontrolling interests (177) (227) 50 22 Net Income (Loss) Attributable toKKR Real Estate Finance Trust Inc. and Subsidiaries (25,077) 20,328 (45,405) (223) Preferred stock dividends 5,326 5,326 - - Participating securities' share in earnings 407 400 7 2 Net Income (Loss) Attributable to Common Stockholders$ (30,810) $ 14,602 $ (45,412) (311) Net Income (Loss) Per Share of Common Stock Basic $ (0.45)$ 0.21 $ (0.66) (314) Diluted $ (0.45)$ 0.21 $ (0.66) (314) Weighted Average Number of Shares of Common Stock Outstanding Basic 69,095,011 69,109,790 (14,779) - Diluted 69,095,011 69,109,790 (14,779) - Dividends Declared per Share of Common Stock $ 0.43$ 0.43 $ - - 67
-------------------------------------------------------------------------------- Table of Contents Net Interest Income Net interest income decreased by$5.4 million during the three months endedMarch 31, 2023 , as compared to the preceding three-month period. This decrease was primarily due to higher interest expenses resulting from an increase in the weighted-average index rates, including LIBOR and Term SOFR, and a$151.8 million quarter-over-quarter increase in our weighted average portfolio financing. The proceeds from our financing facilities were used to fund our draws on previously closed loans. Interest income increased due primarily to an increase in market rates and a$140.1 million quarter-over-quarter increase in our weighted average loan principal, as a result of continued capital deployment from loan repayments and financing proceeds. The increase is partially offset by the placement of two 5-rated senior loans on nonaccrual status; during the three months endedMarch 31, 2023 ,$2.7 million of interest collections on such loans were applied as a reduction to the loan amortized cost. In addition, interest income included$0.4 million in prepayment penalty income in connection with loan repayments during the three months endedMarch 31, 2023 , as compared to$2.8 million for the preceding period. We recognized$5.9 million of deferred loan fees and origination discounts accreted into interest income during the three months endedMarch 31, 2023 , as compared to$6.1 million for the preceding period. We recorded$6.8 million of deferred financing costs amortization into interest expense during the three months endedMarch 31, 2023 , consistent with the preceding period.
Other Income
Total other income decreased by$0.2 million during the three months endedMarch 31, 2023 , as compared to the preceding period. This decrease was primarily due to a$1.2 million change in unrealized mark-to-market adjustment on our RECOP I's underlying CMBS investments during the three months endedMarch 31, 2023 , which was partially offset by a$0.8 million increase in money market dividend income, as compared to the prior year period, resulting from higher market rates. Operating Expenses Total operating expenses increased by$39.7 million during the three months endedMarch 31, 2023 , as compared to the preceding period. This increase was primarily due to a net increase of$39.3 million in the provision for credit losses and a$1.2 million increase in Manager incentive compensation. This increase was partially offset by a$0.8 million quarter-over-quarter decrease in REO operating expenses. 68
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Table of Contents
Three Months Ended
The following table summarizes the changes in our results of operations for the three months endedMarch 31, 2023 and 2022 (dollars in thousands, except per share data): Three Months Ended March 31, Increase (Decrease) 2023 2022 Dollars Percentage Net Interest Income Interest income$ 152,530 $ 73,230 $ 79,300 108 % Interest expense 105,976 32,459 73,517 226 Total net interest income 46,554 40,771 5,783 14 Other Income Revenue from real estate owned operations 2,246 2,629 (383) (15) Income (loss) from equity method investments (347) 1,886 (2,233) (118) Other income 2,711 1,915 796 42 Total other income (loss) 4,610 6,430 (1,820) (28) Operating Expenses General and administrative 4,690 4,446 244 5 Provision for (reversal of ) credit losses, net 60,467 (1,218) 61,685 5,064 Management fee to affiliate 6,523 6,007 516 9 Incentive compensation to affiliate 1,811 - 1,811 100 Expenses from real estate owned operations 2,758 2,554 204 8 Total operating expenses 76,249 11,789 64,460 547 Income (Loss) Before Income Taxes, Noncontrolling Interests, PreferredDividends and Participating Securities' Share in Earnings (25,085) 35,412 (60,497) (171) Income tax expense 169 - 169 100 Net Income (Loss) (25,254) 35,412 (60,666) (171) Net income (loss) attributable to noncontrolling interests (177) (56) (121) 216 Net Income (Loss) Attributable toKKR Real Estate Finance Trust Inc. and Subsidiaries (25,077) 35,468 (60,545) (171) Preferred stock dividends 5,326 5,326 - - Participating securities' share in earnings 407 346 61 18 Net Income (Loss) Attributable to Common Stockholders$ (30,810) $ 29,796 $ (60,606) (203) Net Income (Loss) Per Share of Common Stock Basic $ (0.45)$ 0.47 $ (0.92) (195) Diluted $ (0.45)$ 0.46 $ (0.91) (198) Weighted Average Number of Shares of Common Stock Outstanding Basic 69,095,011 63,086,452 6,008,559 10 Diluted 69,095,011 69,402,626 (307,615) - Dividends Declared per Share of Common Stock $ 0.43$ 0.43 $ - - 69
-------------------------------------------------------------------------------- Table of Contents Net Interest Income Net interest income increased by$5.8 million , during the three months endedMarch 31, 2023 , as compared to the corresponding period in prior year. The increase was primarily attributable to an increase in the weighted-average index rates, including LIBOR and Term SOFR. Interest income further increased due to a$936.8 million increase in weighted average principal of our loan portfolio for the three months endedMarch 31, 2023 , as compared to the prior year period, as a result of continuing capital deployment from loan repayments and financing proceeds. The increase in interest expense was due primarily to an increase in market rates and a$827.7 million increase in the weighted average principal balance of our financing facilities for the three months endedMarch 31, 2023 , as compared to the prior year period. The proceeds from our financing facilities were used to fund our draws on previously closed loans. In addition, we recognized$5.9 million of deferred loan fees and origination discounts accreted into interest income during the three months endedMarch 31, 2023 , as compared to$6.1 million during the three months endedMarch 31, 2022 . We recorded$6.8 million of deferred financing costs amortization into interest expense during the three months endedMarch 31, 2023 , as compared to$4.8 million during the prior year period. Other Income Total other income decreased by$1.8 million during the three months endedMarch 31, 2023 , as compared to the prior year period. This decrease was due to (i) a$2.2 million change in unrealized mark-to-market adjustment on our RECOP I's underlying CMBS investments, as compared to the prior year period, and (ii) a nonrecurring$1.3 million of profit sharing income in connection with the repayment of an industrial senior loan during the prior year period. The decrease was partially offset by a$2.2 million increase in money market dividend income, as compared to the prior year period, resulting from higher market rates. Operating Expenses Total operating expenses increased by$64.5 million during the three months endedMarch 31, 2023 , as compared to the prior year period. This increase was primarily due to a net increase of$61.7 million in the provision for credit losses and a$1.8 million increase in Manager incentive compensation. COVID-19 Impact Since its onset in 2020, the COVID-19 pandemic has created significant disruption in global supply chains, increased rates of unemployment and adversely impacted many industries, including industries related to the collateral underlying certain of our loans. Moreover, the increase in remote working arrangements in response to the pandemic has contributed to and may further contribute to a decline in commercial real estate values and reduce demand for commercial real estate compared to pre-pandemic levels, which may adversely impact certain of our borrowers and may persist even as the pandemic continues to subside. While the global economy has largely re-opened, the longer-term macro-economic effects of the pandemic continue to impact many industries, including those of certain of our borrowers. In addition, the COVID-19 pandemic has contributed to global supply chain disruptions, labor shortages and has broad inflationary pressures, each of which has a potential negative impact on our borrowers' ability to execute on their business plans and potentially their ability to perform under the terms of their loan obligations. TheFederal Reserve has raised interest rates nine times sinceJanuary 2022 , and has signaled that further increases may be forthcoming throughout the year and into 2024. Higher interest rates imposed by theFederal Reserve to address inflation may adversely impact real estate asset values and increase our interest expense, which expense may not be fully offset by any resulting increase in interest income, and may lead to decreased prepayments from our borrowers and an increase in the number of our borrowers who exercise extension options. 70 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources
Overview
We have capitalized our business to date primarily through the issuance and sale of our common stock and preferred stock, borrowings from Non-Mark-to-Market Financing Sources(1), borrowings from three master repurchase agreements, the issuance of convertible notes and secured term loan. Our Non-Mark-to-Market Financing Sources, which accounted for 76% of our total financing as ofMarch 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. We have not received any margin calls on our master repurchase agreements to date, nor do we expect any at this time. Our primary sources of liquidity include$254.1 million of cash on our Condensed Consolidated Balance Sheet,$610.0 million of available capacity on our corporate revolver,$28.1 million of available borrowings under our financing arrangements based on existing collateral and cash flows from operations. In addition, we had$99.6 million of unencumbered senior loans that can be financed, as ofMarch 31, 2023 . Our corporate revolver and secured term loan are secured by corporate level guarantees and include net equity interests in the investment portfolio. We may seek additional sources of liquidity from syndicated financing, other borrowings (including borrowings not related to a specific investment) and future offerings of equity and debt securities. Our primary liquidity needs include our ongoing commitments to repay the principal and interest on our borrowings and to pay other financing costs, financing our assets, meeting future funding obligations, making distributions to our stockholders, funding our operations that includes making payments to our Manager in accordance with the management agreement, and other general business needs. We believe that our cash position and sources of liquidity will be sufficient to meet anticipated requirements for financing, operating and other expenditures in both the short- and long-term, based on current conditions. As described in Note 9 to our condensed consolidated financial statements, we have off-balance sheet arrangements related to VIEs that we account for using the equity method of accounting and in which we hold an economic interest or have a capital commitment. Our maximum risk of loss associated with our interests in these VIEs is limited to the carrying value of our investment in the entity and any unfunded capital commitments. As ofMarch 31, 2023 , we held$35.7 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. The quarter endedMarch 31, 2023 witnessed significant volatility in the banking sector as a result of disruptions to the banking system and financial market volatility resulting from multiple bank failures. While we maintained no accounts at these failed banks, substantially all of our cash currently on deposit with other major financial institutions exceeds insured limits. We limit exposure relating to our short-term financial instruments by diversifying these financial instruments among various counterparties. Generally, deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit and therefore we believe bear minimal credit risk. To facilitate future offerings of equity, debt and other securities, we have in place an effective shelf registration statement (the "Shelf") with theSEC . The amount of securities to be issued pursuant to this Shelf was not specified when it was filed and there is no specific dollar limit on the amount of securities we may issue. The securities covered by this Shelf include: (i) common stock, (ii) preferred stock, (iii) depository shares, (iv) debt securities, (v) warrants, (vi) subscription rights, (vii) purchase contracts, and (viii) units. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering material, at the time of any offering. We have also entered into an equity distribution agreement with certain sales agents, pursuant to which we may sell, from time to time, up to an aggregate sales price of$100.0 million of our common stock, pursuant to a continuous offering program (the "ATM"), under the Shelf. Sales of our common stock made pursuant to the ATM may be made in negotiated transactions or transactions that are deemed to be "at the market" offerings as defined in Rule 415 under the Securities Act. During the three months endedMarch 31, 2023 , we did not sell any shares of common stock under the ATM. As ofMarch 31, 2023 ,$93.2 million remained available for issuance under the ATM. (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. 71 -------------------------------------------------------------------------------- Table of Contents See Notes 5, 6, 7, 8 and 10 to our condensed consolidated financial statements for additional details regarding our secured financing agreements, collateralized loan obligations, secured term loan, convertible notes and stock activity.
Debt-to-Equity Ratio and Total Leverage Ratio
The following table presents our debt-to-equity ratio and total leverage ratio:
March 31, 2023 December 31, 2022
Debt-to-equity ratio(A) 2.2x 2.0x
Total leverage ratio(B) 4.0x 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.
(B) Represents (i) total outstanding debt agreements, secured term loan,
convertible notes, and collateralized loan obligations, less cash to (ii) total
permanent equity, in each case, at period end.
Sources of Liquidity
Our primary sources of liquidity include cash and cash equivalents and available
borrowings under our secured financing agreements, inclusive of our Revolver.
Amounts available under these sources as of the date presented are summarized in
the following table (dollars in thousands):
March 31, 2023 December 31, 2022
Cash and cash equivalents $ 254,096 $ 239,791
Available borrowings under revolving credit
agreements 610,000 610,000
Available borrowings under master repurchase
agreements 22,418 94,426
Available borrowings under term lending agreements 5,637 7,583
$ 892,151 $ 951,800
We also had $99.6 million and $179.4 million of unencumbered senior loans that
can be pledged to financing facilities subject to lender approval, as of
March 31, 2023 and December 31, 2022 , respectively. In addition to our primary
sources of liquidity, we have the ability to access further liquidity through
our ATM program and public offerings of debt and equity securities. Our existing
loan portfolio also provides us with liquidity as loans are repaid or sold, in
whole or in part, and the proceeds from repayment become available for us to
invest.
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