KKR Real Estate Finance Trust Inc./media/Files/K/KKR/reports-and...KKR Real Estate Finance Trust...

KKR Real Estate Finance Trust Inc.

Investor Presentation

November 2017

68 68 70

217 217 218

180 180 182

142 142 145

51 51 53

83 40 79

230 203 227

205 151 200

179 98 172

62 30 59

Legal Disclosures

2

This presentation has been prepared for KKR Real Estate Finance Trust Inc. (NYSE: KREF) for the benefit of its stockholders. This presentation is solely for

informational purposes in connection with evaluating the business, operations and financial results of KKR Real Estate Finance Trust Inc. and its subsidiaries

(collectively, "KREF"). This presentation is not and shall not be construed as an offer to purchase or sell, or the solicitation of an offer to purchase or sell, any

securities, any investment advice or any other service by KREF. Nothing in this presentation constitutes the provision of any tax, accounting, financial,

investment, regulatory, legal or other advice by KREF or its advisors. This presentation may not be referenced, quoted or linked by website by any third party, in

whole or in part, except as agreed to in writing by KREF.

This presentation contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of

the Securities Exchange Act of 1934, as amended, which reflect KREF’s current views with respect to, among other things, its future operations and financial

performance. You can identify these forward looking statements by the use of words such as "outlook," "believe," "expect," "potential," "continue," "may,"

"should," "seek," "approximately," "predict," "intend," "will," "plan," "estimate," "anticipate," the negative version of these words, other comparable words or

other statements that do not relate strictly to historical or factual matters. The forward-looking statements are based on KREF’s beliefs, assumptions and

expectations, taking into account all information currently available to it. These beliefs, assumptions and expectations can change as a result of many possible

events or factors, not all of which are known to KREF or are within its control. Such forward-looking statements are subject to various risks and uncertainties,

including, among other things: the general political, economic and competitive conditions in the United States and in any foreign jurisdictions in which KREF

invests; the level and volatility of prevailing interest rates and credit spreads; adverse changes in the real estate and real estate capital markets; general

volatility of the securities markets in which KREF participates; changes in KREF’s business, investment strategies or target assets; difficulty in obtaining financing

or raising capital; reductions in the yield on KREF’s investments and increases in the cost of KREF’s financing; acts of God such as hurricanes, earthquakes and

other natural disasters, acts of war and/or terrorism and other events that may cause unanticipated and uninsured performance declines and/or losses to KREF or

the owners and operators of the real estate securing KREF’s investments; deterioration in the performance of properties securing KREF’s investments that may

cause deterioration in the performance of KREF’s investments and potentially principal losses to KREF; defaults by borrowers in paying debt service on

outstanding indebtedness; the adequacy of collateral securing KREF’s investments and declines in the fair value of KREF’s investments; adverse developments in

the availability of desirable investment opportunities whether they are due to competition, regulation or otherwise; difficulty in successfully managing KREF’s

growth, including integrating new assets into KREF’s existing systems; the cost of operating KREF’s platform, including, but not limited to, the cost of operating a

real estate investment platform and the cost of operating as a publicly traded company; the availability of qualified personnel and KREF’s relationship with KKR

Real Estate Finance Manager LLC; KKR controls KREF and its interests may conflict with those of KREF’s stockholders in the future; KREF’s qualification as a REIT

for U.S. federal income tax purposes and KREF’s exclusion from registration under the Investment Company Act of 1940; authoritative GAAP or policy changes

from such standard-setting bodies such as the Financial Accounting Standards Board, the Securities and Exchange Commission (the “SEC”), the Internal Revenue

Service, the New York Stock Exchange and other authorities that KREF is subject to, as well as their counterparts in any foreign jurisdictions where KREF might

do business; and other risks and uncertainties, including those described under the section entitled "Risk Factors" in KREF’s prospectus dated May 4, 2017, filed

with the SEC on May 8, 2017, as such factors may be updated from time to time in KREF’s filings with the SEC, which are accessible on the SEC’s website at

www.sec.gov. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in this

presentation. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements and information

included in this presentation and in KREF’s filings with the SEC.

All forward looking statements in this presentation speak only as of November 27, 2017. KREF undertakes no obligation to publicly update or review any forward-

looking statements, whether as a result of new information, future developments or otherwise, except as required by law.

All financial information in this presentation is as of September 30, 2017 unless otherwise indicated.

This presentation also includes non-GAAP financial measures, including Core Earnings, Core Earnings per Weighted Average Share, Net Core Earnings and Net

Core Earnings per Weighted Average Share. Such non-GAAP financial measures should be considered only as supplemental to, and not as superior to, financial

measures prepared in accordance with U.S. GAAP. Please refer to the Appendix of this presentation for a reconciliation of the non-GAAP financial measures

included in this presentation to the most directly comparable financial measures prepared in accordance with U.S. GAAP.

Overview of KKR Real Estate Finance Trust (KREF)

3

68 68 70

217 217 218

180 180 182

142 142 145

51 51 53

83 40 79

230 203 227

205 151 200

179 98 172

62 30 59

Align Footnote with bottom of this box

$1.8B portfolio, 100% performing

Direct origination platform

Focused on larger, senior floating-rate loans

Three-year operating history; IPO in May 2017

KREF is a publicly traded externally managed REIT that focuses on originating senior commercial mortgage loans

Fully integrated within KKR Real Estate

15 dedicated investment professionals

KKR Platform

4

KKR Attributes KKR Real Estate Attributes

• KREF is externally managed by KKR Real Estate Finance Manager LLC, a subsidiary of KKR (NYSE: KKR, Market

Capitalization: $16.5B(1)), a leading global investment firm with an over 40-year history and a diverse mix of investments

across multiple asset classes, including private equity, real estate, energy, growth equity, infrastructure, credit and, through

strategic manager partnerships, hedge funds

68 68 70

217 217 218

180 180 182

142 142 145

51 51 53

83 40 79

230 203 227

205 151 200

179 98 172

62 30 59

(1) Based on KKR Adjusted Units, representing the fully diluted common unit count using the if-converted method, as of September 30, 2017 and the closing price of KKR Common Units on November 21, 2017.


Over $5 billion of capital invested or committed

spanning KKR Real Estate credit and equity

strategies

Offices in 7 cities in 5 countries

50+ dedicated investment and asset management

professionals

~$1 billion of KKR balance sheet capital

committed across KKR Real Estate strategies

$153 billion in AUM and an over 40-year

investment track record

Offices in 20 cities in 16 countries

370+ investment professionals across private and

public markets

~$11 billion of balance sheet capital invested in or

committed to KKR strategies

Integration with KKR Differentiates KREF in the Marketplace

5

• KREF further differentiates itself by seeking opportunities where it has sourcing, underwriting and execution

advantages through KKR’s brand, industry knowledge, relationships and deep bench of investment professionals

Best-in-class financing creates attractive risk-adjusted returns

Deep network of direct relationships to source high-quality investments

Differentiated credit assessment capabilities

Solutions provider for complex business plans offering speed and certainty

(1) Senior Advisors, Industry Advisors and KKR Advisors are engaged as consultants and are not employees of KKR.

KKR Real Estate Credit Investment Team

6

Member &

Global Head of

Real Estate

Chairman of KREF

Board

• Joined KKR in 2011

• Formerly a Partner at

Eton Park and

Goldman Sachs

• Over 25 years of

industry experience

Ralph Rosenberg Todd Fisher

Member & Chief

Administrative

Officer

KREF Board Member


• Oversees the finance,

legal, IT, HR, risk,

office operations and

public affairs functions

at KKR


industry experience

Jamie Weinstein

Member & Global

Co-Head of Special

Situations


• Formerly a Director at

Tishman Speyer

Properties


industry experience

Chris Lee

Member &

Co-Head of Real

Estate Credit

Co-CEO & Co-

President KREF


• Formerly a Principal at

Apollo Global

Management


industry experience

Matt Salem

Director &

Co-Head of Real

Estate Credit

Co-CEO & Co-

President KREF


• Formerly a Managing

Director at Rialto

Capital Management


industry experience

68 68 70

217 217 218

180 180 182

142 142 145

51 51 53

83 40 79

230 203 227

205 151 200

179 98 172

62 30 59

• Diversity of Manager’s Investment Committee creates a thorough vetting process that enables KREF to evaluate

potential transactions through multiple lenses

Patrick Mattson

Director of

Real Estate

Credit

Chief Operating

Officer KREF


• Formerly a Managing

Director at Rialto

Capital Management


industry experience


• 12 additional real estate credit investment professionals with extensive backgrounds investing in commercial real

estate debt, equity and CMBS

Manager Investment Committee

KREF Management Team

KREF Directors

Record Value Added Real Estate Dry Powder ($B)(1) Significant Recovery in Transaction Volume

Historical Commercial Real Estate Transaction Volume ($B)(2)

New Lending Landscape Regulatory Changes

Operating U.S. Commercial Banks(3) New regulations have increased capital and risk

retention requirements

• Basel III established more stringent bank capital requirements

and has created opportunities for non-bank capital providers in:

• Senior loans

• Subordinate debt

• CMBS

• Dodd-Frank has further restricted banks' ability to compete

• Enhanced disclosure and risk retention requirements

Large Addressable Market Fueled by Favorable Regulatory

Backdrop

7

68 68 70

217 217 218

180 180 182

142 142 145

51 51 53

83 40 79

230 203 227

205 151 200

179 98 172

62 30 59


(1) Preqin Real Estate Online, Q3 2017 data pack. (2) Real Capital Analytics, December 2016. Based on independent reports of properties and portfolios $2.5 million and greater. Prior to 2005, RCA primarily captured sales

valued at $5.0 million and above. (3) Federal Reserve Bank of St. Louis, November 2017

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

0

100

200

300

400

500

600Individual Portfolio Entity

$0

$10

$20

$30

$40

$50

$60

$70

Targeted KREF Strike Zone

8

Primarily Larger, Floating-Rate Senior Loans

Institutional Sponsors

Major Markets

High-Quality Real Estate

• KREF focuses on a targeted asset class comprised of floating-rate senior loans collateralized by high-quality commercial real estate:

Loan Size $50 - $250 million

Collateral Primarily Transitional CRE Properties

Sponsorship Well-Established and Experienced Sponsors

Geographies Top 30 U.S. Markets

Property Type

Office, Multifamily, Retail, Industrial,

Hospitality, and Other Commercial

Property Types

Loan-to-Value Typically 80% or Less

Maturity 2 – 3 years with Extension Options

Representative

Pricing L + 3.00%+

Fees Typically 1.00% Upfront Fee Plus Extension

Fees

Representative Terms on Newly-Originated

Senior Loans Key Attributes of KREF’s Investments

Key Investment Decision-Making Factors

9

68 68 70

217 217 218

180 180 182

142 142 145

51 51 53

83 40 79

230 203 227

205 151 200

179 98 172

62 30 59

Key Decision Making Factors

• Discount to replacement cost

• Borrower basis at a discount to competitive owners in the market

• Attractive stabilized debt yield relative to historic capitalization rates

• Ability to own asset through cycles at loan basis

Attractive Basis

• Supportable collateral cash flow

• Realistic and achievable business plan

• Incentive alignment

• Achievable take-out upon stabilization

• Ability to manage through credible downside scenario

Business Plan Underwriting

• Institutional-quality, experienced sponsors with a proven track record and strong capitalization

• Existing relationships with KKR Real Estate and the KKR organization as a whole

• Experienced operators for the property type, market and business plan

Sponsorship

• High barrier-to-entry markets

• Infill locations

• Favorable market dynamics

• Liquid markets with historically robust capital flows

Market Dynamics

Disciplined Evaluation of Potential Investments


Note: The above highlights key decision making factors in the Manager’s evaluation of investment opportunities, although not every investment will satisfy all of these criteria.

Rigorous Investment Screening and Selection

10

• For the nine months ended September 30, 2017, KREF has screened $14.8 billion of financing opportunities and originated $1.2 billion of senior loans

Deals Screened: $14.8B(1)

Total Underwritten: $6.9B(1)

Total Quoted: $5.1B(1)

Total Closed(2): $1.2B

Rigorous Screening The “KKR Edge” Multidisciplinary Review

(1) For the nine month period ending September 30, 2017, values represent approximations. (2) Total Closed represents nine months ended September 30, 2017.

Large opportunity set funneled through rigorous screening and approval process

Recent Loan Originations

11

• For the nine months ended September 30, 2017, originations of $1.2 billion of floating-rate senior loans

• Outstanding total loan portfolio of $1.8 billion as of September 30, 2017, up 115% from 2016 year end

• Subsequent to quarter end, originated a $150 million floating-rate senior loan, bringing YTD originations to $1.3

billion and total loan portfolio size to $1.9 billion

Loan Portfolio Growth(2)

$840.8

$1,079.4

$1,264.5

$1,811.6

4Q'16 1Q'17 2Q'17 3Q'17

+115%

(1) See Appendix for definition. (2) Includes non-consolidated senior interests.

($ in Millions)

Summary of 3Q17 Originations

• New loans originated 5

• Committed to new loans $629MM

• Senior loans 100%

• Floating-rate loans 100%

• Weighted average LTV 69%

• Weighted average coupon

L + 4.1%

• Weighted average underwritten IRR(1) 11.7%

Recent Operating Performance

12

• 3Q 2017 Net Income attributable to common stockholders increased to $17.3 million, up 23% QoQ; Net Core

Earnings(1) increased to $16.5 million, up 26% QoQ

• Paid 3Q dividend of $0.37 per share on October 12, 2017, equating to a 7.2% annualized dividend yield(3)

(1) See Appendix for definition and reconciliation to financial results prepared in accordance with GAAP. (2) Represents Net Income attributable to common stockholders. (3) Based on KREF closing price as of November 21, 2017.

Net Income(2) and Net Core Earnings(1) Growth

$14.1

$17.3

$13.0

$16.5

2Q'17 3Q'17

Net Income Net Core Earnings

($ in Millions)

Net Income: +23% Net Core Earnings: +26%

Dividends

$13.4

$19.9

2Q'17 3Q'17

($ in Millions, except per share data)

Per share: Annualized dividend yield(3):

$0.25

N/A

$0.37

7.2%

Diversified Portfolio with Strong Fundamentals

13

• $1.8 billion portfolio comprised of 31 investments as of September 30, 2017

• Portfolio weighted average LTV of 67%(1)

Investment Type(2)

Property Type(3)

Interest Rate Type

Geography(3)

Note: The charts above are based on total assets. Total assets reflect (i) the current principal amount of our senior and mezzanine loans and (ii) the cost basis of our CMBS B-Pieces, net of VIE liabilities. In accordance with GAAP, we carry our CMBS B-Pieces at fair value, which we valued above our cost basis as of September 30, 2017. (1) LTV is generally based on the initial loan amount divided by the as-is appraised value as of the date the loan was originated. See page 25 for additional details. (2) Senior loans include senior mortgages and similar credit quality loans, including related contiguous junior participations in senior loans where KREF has financed a loan with

structural leverage through the non-recourse sale of a corresponding first mortgage. (3) Excludes CMBS.

Senior Loans

90%

CMBS

6%

Mezz

4%

Floating

92%

Fixed

8%

NY

32%

CA

15% GA

11%

CO

9%

Other

33% Office

38%

Multifamily

23%

Retail

15%

Condo (Residential)

13%

Industrial/Flex

8%

Hospitality

3%

$206

$320

$678

$501

$78

$29

0% -

60%

60% -

65%

65% -

70%

70% -

75%

75% -

80%

80% -

85%

$75

$1,607

$17

1 2 3 4 5

Portfolio Credit Quality Remains Strong

14

• KREF’s loan portfolio is 100% performing, with no defaulted or impaired loans

• The securities portfolio is performing as expected

Loan-to-Value(1,2) Risk Rating Distribution(2,4)

Loan Count

0 0 3 1 22

Weighted Average Risk Rating(3): 3.0

Weighted Average LTV(3): 67%

(1) LTV is generally based on the initial loan amount divided by the as-is appraised value as of the date the loan was originated. See page 25 for additional details. (2) Includes non-consolidated senior interests. (3) Weighted average is weighted by current principal amount for our senior and mezzanine loans and by net equity for our CMBS B-Pieces. (4) Excludes fixed-rate mezzanine loans and CMBS.

($ in Millions) ($ in Millions)

Illustrative Implementation of Senior Loan Leverage

15

Sponsor Equity

30%

Facility Advance

75% of Original

Senior Loan

KREF Senior Loan

Exposure

(Partial Recourse)

Levered Senior Loan

Direct Leverage

Sponsor Equity

30%

Original Senior Loan

70% LTV

Bifurcated Financing Strategy to Optimize Risk-Adjusted Returns

Sponsor Equity

30%

Syndication of Senior

Interest to Third Party

Lender

KREF Senior Loan Exposure(1)

(Junior Participation, Non-Recourse)

Levered Senior Loan

Structural Leverage

Original Senior

Loan

(1) Senior loans include senior mortgages and similar credit quality loans, including related contiguous junior participations in senior loans where KREF has financed a loan with structural leverage through the non-recourse sale of a corresponding first mortgage.

Maximum Capacity Outstanding Face

Amount Weighted Average

Coupon

Term Credit Facilities $1,750 $762 L+2.07%

Corporate Revolving Facility $75 -- --

Total Secured Debt $1,825 $762

Senior Loan Interests(2) $62 $62 L+2.00%

Total Leverage $1,887 $824

Access to Efficient Capital Drives Financing Strategy

16

• Total financing capacity of $1.8 billion with $1.1 billion of undrawn capacity as of September 30, 2017

• Subsequent to quarter end:

• Upsized Goldman Sachs term credit facility by $150 million and extended maturity to 2022 on a fully-extended basis

• Upsized Morgan Stanley term credit facility by $100 million(1) and extended maturity to 2022

• Terminated JPMorgan term credit facility

($ in Millions)

Summary of Outstanding Financing

Debt-to-Equity Ratio of 0.6x(3)

(1) Subject to customary conditions, KREF is permitted to request the facility be further increased by an additional $150 million. (2) Includes loans financed through non-recourse sale of a senior interest that is not included in our consolidated financial statements. (3) Represents (i) total outstanding face amount of secured debt agreements less cash to (ii) total stockholders’ equity. (4) Represents (i) total outstanding face amount of secured debt agreements and non-consolidated senior interests less cash to (ii) total stockholders’ equity.

Total Leverage Ratio of 0.7x(4)

Interest Rate Sensitivity Provides a Benefit in a Rising Rate

Environment

17

• Current LIBOR levels influence asset yield and

therefore ROE

• Business economics benefit from scale by

spreading G&A expenses

• Asset mix impacts expected returns and risk

• Higher leverage increases business profitability

during favorable economic cycles

68 68 70

217 217 218

180 180 182

142 142 145

51 51 53

83 40 79

230 203 227

205 151 200

179 98 172

62 30 59


• KREF benefits in a rising rate environment

• 92% of the portfolio is indexed to one-month USD LIBOR

• A 50 basis point increase in one-month USD LIBOR would increase net interest income by $2.9 million or $0.05 per share

over the next 12 months(1)

Net Interest Income Sensitivity to LIBOR Increases(1)

($ in Millions)

$2.9

$5.8

$8.7

$11.6

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

0.50% 1.00% 1.50% 2.00%

Change in LIBOR

(1) As of September 30, 2017, assumes loans are drawn up to maximum approved advance rate based on current principal amount; per share amount assumes 53,685,440 shares outstanding.

Case Studies

18

68 68 70

217 217 218

180 180 182

142 142 145

51 51 53

83 40 79

230 203 227

205 151 200

179 98 172

62 30 59

(1) LTV is based on the initial loan amount divided by the as-is appraised value as of the date the loan was originated.


New Jersey Multifamily

Loan Type Floating-Rate Senior Loan

Loan Size $150 million

Location North Bergen, NJ

Collateral 320 unit Class A apartment building

Loan Purpose Acquisition

LTV(1) 57%

Investment Date October 2017

“KKR Edge” • Direct sponsor relationship • Market expertise

Acquisition of a newly-constructed class-A multifamily rental property in a residential market with positive macro

trends

Rendering

Honolulu Multifamily



Location Honolulu, HI

Collateral 270 unit Class A apartment building

Loan Purpose Refinance

LTV(1) 66%

Investment Date August 2017

“KKR Edge”

• Strong relationship with sponsor • Market expertise

Refinance of a newly-constructed class-A multifamily rental property in a high barrier desirable market

New York City Residential Condo



Location New York, NY

Collateral 30 luxury condominium units


LTV(1) 69%


“KKR Edge” • Direct sponsor relationship; repeat borrower

• Sector expertise

Case Studies

19

68 68 70

217 217 218

180 180 182

142 142 145

51 51 53

83 40 79

230 203 227

205 151 200

179 98 172

62 30 59

(1) LTV is based on the initial loan amount divided by the as-is appraised value as of the date the loan was originated. New York City Residential Condo LTV is based on the

total loan amount of $239.2 million divided by the appraised net sell-out value of $345.4 million.


Remaining inventory in a newly-constructed luxury residential condominium in Manhattan

Rendering

Atlanta Office



Location Atlanta, GA

Collateral 821k SF Class B+ office


LTV(1) 66%


“KKR Edge” • Strong relationship with sponsor • Market expertise • Capital markets expertise

Acquisition of office buildings in an institutional, liquid office market

Queens Industrial



Location Queens, NY

Collateral Two adjacent, Class B, 616k SF industrial buildings


LTV(1) 72%

Investment Date July 2017

“KKR Edge” • Direct sponsor relationship; repeat borrower

• Market expertise

Case Studies

20

68 68 70

217 217 218

180 180 182

142 142 145

51 51 53

83 40 79

230 203 227

205 151 200

179 98 172

62 30 59

(1) LTV is based on the initial loan amount divided by the as-is appraised value as of the date the loan was originated. Denver Multifamily LTV calculated based on $81.0 million

senior loan amount at closing divided by the as-is appraised value of $111.4 million.


Value-enhancing repositioning of two well located industrial buildings

Denver Multifamily



Location Denver, CO

Collateral 274 unit Class A luxury apartment building


LTV(1) 73%


“KKR Edge” • Strong relationship with sponsor • Market expertise • Capital markets expertise

Refinance of a class-A multifamily rental property in a dense, infill location with strong demographics

Rendering

Key Investment Highlights

21

Established and growing business with strong operating and execution track record

68 68 70

217 217 218

180 180 182

142 142 145

51 51 53

83 40 79

230 203 227

205 151 200

179 98 172

62 30 59


Differentiated platform and origination capabilities

Focused investment strategy with proven scale and access to capital

Disciplined underwriting and risk management

Well positioned for rising short-term interest rates

Large and compelling market opportunity

Appendix

22

68 68 70

217 217 218

180 180 182

142 142 145

51 51 53

83 40 79

230 203 227

205 151 200

179 98 172

62 30 59


KKR Real Estate Finance Trust Management Team & Investment

Committee

23

Chris Lee: Chris joined KKR in 2012. He is a Member of KKR, serves as Co-Head of KKR Real Estate Credit and is responsible for KKR’s real estate capital

markets activities. Mr. Lee sits on KKR’s Real Estate Credit Investment Committee, sits on KKR’s Global Conflicts Committee and chairs KKR’s Real Estate

Valuation Committee. Prior to joining KKR, he spent three years at Apollo Global Management on its Global Real Estate team where he focused on real

estate acquisitions. Before joining Apollo in 2009, Mr. Lee was a Vice President at Goldman Sachs Real Estate Principal Investment Area (“REPIA”). During

his five years at REPIA, he was responsible for the sourcing, evaluation, and execution of over $1 billion of real estate equity investments in North America.

Prior to working at REPIA, Mr. Lee spent two years as an analyst in Goldman Sachs’ Real Estate Investment Banking group. He is a former trustee of St.

Mark’s School of Texas in Dallas and currently serves as a member of the Board of Directors of Sponsors for Educational Opportunity (“SEO’) in New York.

Mr. Lee is a member of the Urban Land Institute, CRE Finance Council and the Real Estate Capita Policy Advisory Committee for the Real Estate Roundtable.

He received a B.A. in Economics from Emory University and an M.B.A from Harvard Business School.

Matt Salem: Matt joined KKR in 2015 and is Co-Head of KKR Real Estate Credit and is a member of the Real Estate Investment Committee. Prior to joining

KKR, Mr. Salem was a Managing Director and member of the Investment Committee at Rialto Capital Management where he was responsible for credit

investing including mezzanine loans, preferred equity and CMBS B-Pieces. Prior to joining Rialto in 2012, Mr. Salem was a Managing Director and Head of

CMBS trading at Goldman Sachs. In his five years in the Mortgage Department at Goldman, he had various responsibilities including management of the

CMBS desk, trading credit CMBS and secondary market trading of performing and sub-performing CRE whole loans. Before joining Goldman Sachs in 2006,

Mr. Salem was a Vice President at Morgan Stanley where he worked on the issuance and distribution of CMBS. Prior to joining Morgan Stanley, he worked

for Citigroup Alternative Investments where he invested in mezzanine loans, CMBS B-Pieces and other high yield CRE debt instruments on behalf of the

Travelers Insurance Companies. He began his career in 1996 at Midland Loan Services in Kansas City. Matt graduated from Bates College in 1996 with a BA

in Economics. He is on the Board of Governors of the Commercial Real Estate Finance Council and recently served as Chair of the B-Piece Buyer Forum.

Patrick Mattson: Patrick joined KKR in 2015. He is a Director in the Real Estate group and sits on KKR’s Real Estate Credit Investment Committee. Prior to

joining KKR, Mr. Mattson was a Managing Director at Rialto Capital Management where he was responsible for building and managing the firm’s mezzanine

lending platform. Mr. Mattson was a member of the firm’s Investment Committee and involved in the acquisition and structuring of over 20 CMBS B-Piece

transactions. Preceding Rialto, Mr. Mattson was an Executive Director at Morgan Stanley. During his nine years at the firm, he held various positions within

the commercial real estate groups, most recently on the Securitized Products Group trading desk. In that role, Mr. Mattson was responsible for the

distribution of B-Piece Securities as well as the pricing and syndication of large loans and new issue CMBS conduit transactions. Prior to Morgan Stanley, Mr.

Mattson was a Senior Manager at Deloitte & Touche and managed the firm’s domestic and international CMBS cash flow modelling practice. Mr. Mattson

received a B.A. from the University of Virginia in 1995 and is a CFA Charterholder.

William Miller: William Miller has served as Chief Financial Officer and Treasurer of KREF and of our Manager since October 2015 and March 2016,

respectively. Mr. Miller joined KKR in 2015 as a Principal on the Real Estate team and is a member of KKR’s Real Estate Valuation Committee. Prior to

joining KKR, he was a Senior Vice President of Fortress Investment Group LLC and controller of New Residential Investment Corp. from September 2013 to

August 2015, where he was primarily responsible for implementing the financial and operational strategies of New Residential. Mr. Miller also held various

other positions with Fortress from January 2009 to September 2013, primarily focused on accounting and reporting. Prior to joining Fortress, Mr. Miller

worked in the transaction services group at PricewaterhouseCoopers LLP from August 2005 to January 2009, focused on domestic and international equity

and debt offerings. Mr. Miller holds two undergraduate degrees from The Ohio State University and is a certified public accountant.

KKR Real Estate Finance Trust Management Team & Investment

Committee

24

Ralph Rosenberg: Ralph joined KKR in 2011 and is a Member of the Firm and the Global Head of Real Estate. Before joining KKR, Ralph was a partner

at Eton Park through the end of 2010, holding a seat on the firm’s Operating, Commitment, Risk, and Valuation Committees. Ralph was responsible for

the firm’s CRE related investing in securities, whole loans and real property and historically was also involved in the firm’s private lending efforts,

performing and distressed credit investments and asset-backed financings. Prior to joining Eton Park in 2008, Ralph was the founder and Managing

Partner of R6 Capital Management, an investment business focused on CRE, asset-based and corporate credit situations. Prior to founding R6 Capital,

Ralph spent seventeen years at Goldman Sachs. He was the Co-founder and Co-Head of the Goldman Sachs Global Special Situations Group from 2004

to 2006. In this capacity, he had joint responsibility for the investment, risk management and asset management of Goldman’s multi-billion dollar fixed

income proprietary investment business. A core component of this platform was investing in CRE securities and whole loans. Prior to 2004, Ralph was

the Co-Chief Operating Officer of the Goldman Sachs Real Estate Principal Investment Area, which invests the Whitehall Street Real Estate

Partnerships. He oversaw the investment and management of over $50B of real estate transactions worldwide. Ralph co-founded both the Archon

Group, which provided Whitehall with property and loan level diligence, asset management and servicing expertise world-wide, and Archon Capital, one

of the leading providers of mezzanine financing to the real estate community. Ralph joined Goldman Sachs in 1986 and then returned to Goldman

Sachs in 1990 after attending business school. He became a Partner and Managing Director in 1998.

Ralph is a member of the Brown University Corporation and serves in several leadership positions on behalf of the University. He is also a Trustee of The

Masters School in Dobbs Ferry, New York, an Honorary Trustee of the Francis W. Parker School in Chicago and a former member of the Stanford

Graduate School of Business Trust. Ralph graduated from Brown University in 1986, magna cum laude, with a BA in American History. He received an

MBA from the Stanford Graduate School of Business in 1990.

Todd Fisher: Todd A. Fisher is a Partner and the Chief Administrative Officer at KKR, a global investment firm. He is responsible globally for all

business operations functions (finance, legal, IT, HR, risk, office operations, public affairs), as well as coordinating across the firm on strategy, risk

management and control infrastructure. He also oversees the firm’s Real Estate investment business. He chairs KKR’s Management Committee and Risk

Committee and sits on the firm’s Real Estate Investment and Portfolio Committees. He was a founding member of KKR’s European private equity

business and lived in London from 1999 to 2010. Prior to joining KKR in 1993, Mr. Fisher worked for Goldman, Sachs & Co. in New York and for Drexel

Burnham Lambert in Los Angeles. Mr. Fisher graduated from Brown University with a B.A. in Biology and received an M.A. in International Affairs and

Latin American studies from Johns Hopkins University School of Advanced International Studies (SAIS) and an M.B.A. in Finance from the Wharton

School at the University of Pennsylvania. He is currently a Trustee of Brown University, Vice-Chairman of the Board of Advisors for SAIS, and a member

of the United States Holocaust Memorial, the Advisory Board of the Clinton Health Access Initiative and the Council on Foreign Relations.

Jamie Weinstein(1): Jamie joined KKR in 2005 and is the Co-Head of Special Situations investing, which includes the firm's global activities in public

and private distressed and structured principal investments. He is also a member of the Credit Portfolio Management Committee. Previously, he was a

portfolio manager with responsibility across KKR’s credit strategies. He also has extensive experience as a research analyst managing the financial

services, healthcare and commercial real estate sectors. Prior to joining KKR, Mr. Weinstein was with Tishman Speyer Properties as Director of

Acquisitions for Northern California and The Boston Consulting Group as a strategy consultant. He received a B.S.E. degree cum laude in Civil

Engineering and Operations Research from Princeton University and a M.B.A. from the Stanford University Graduate School of Business, where he was

an Arjay Miller Scholar. Mr. Weinstein serves as a Trustee of the Contemporary Jewish Museum in San Francisco and is actively involved in the Jewish

Community Federation of San Francisco on its Endowment Investment Committee and Capital Planning Committee.

(1) Investment Committee member only. Not a KKR real estate credit investment professional.

Portfolio Details

25

(1) 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.

(2) Net equity reflects (i) the amortized cost basis of our loans, net of borrowings and a 5% noncontrolling interest in the entity that holds certain of our mezzanine loans; (ii) the cost basis of our CMBS B-Pieces, net of VIE liabilities; and (iii) the cost basis of our investment in RECOP.

(3) Represents Committed Principal Amount less Current Principal Amount on Senior Loans with the exception of Loan #10, for which the future funding commitment is held by the syndicated senior participation; there is no future funding on mezzanine loans or CMBS with the exception of $32 million of remaining commitment to RECOP.

(4) Weighted averages are weighted by current principal amount for senior loans and mezzanine loans; weighted averages are weighted by net equity for CMBS B-Pieces; weighted average coupon calculation includes one-month USD LIBOR for floating-rate Mezzanine Loans.

(5) L = one-month USD LIBOR rate; spot one-month USD LIBOR rate of 1.23% included in mezzanine loan and portfolio-wide averages represented as fixed rates. (6) Max remaining term (years) assumes all extension options are exercised, if applicable. (7) For senior and mezzanine loans, loan-to-value ratio ("LTV") is based on the initial loan amount divided by the as-is appraised value as of the date the loan was originated; for Senior Loan 1, LTV is

based on the total loan amount of $239.2 million divided by the appraised net sell-out value of $345.4 million; for Mezzanine Loan 1, LTV is based on the total loan amount divided by the as-is appraised value at March 17, 2017; for CMBS B-Pieces, LTV is based on the weighted average LTV of the underlying loan pool at issuance.

(8) Represents Current Principal Amount of Senior Loans and Mezzanine Loans and Net Equity Amount for CMBS.

# Investment Location Property Type Investment

Date

Committed Principal Amount

Current Principal Amount

Net Equity(2)

Future Funding(3) Coupon(4)(5)

Max Remaining

Term (Yrs)(4)(6) LTV(4)(7)

Senior Loans(1)

1 Senior Loan Manhattan, NY Condo (Residential) 8/4/2017 $239.2 $225.1 $223.7 $0.0 L + 4.8% 2.8 69%

2 Senior Loan Portland, OR Retail 10/26/2015 177.0 119.8 43.7 57.2 L + 5.5% 3.1 61%

3 Senior Loan San Diego, CA Office 9/9/2016 168.0 144.4 40.6 23.6 L + 4.2% 4.0 71%

4 Senior Loan Irvine, CA Office 4/11/2017 162.1 130.0 32.3 32.1 L + 3.9% 4.6 62%

5 Senior Loan Brooklyn, NY Retail 9/27/2016 138.6 119.6 37.5 19.0 L + 5.0% 4.0 59%

6 Senior Loan Brooklyn, NY Office 3/30/2017 132.3 98.8 24.8 33.5 L + 4.4% 4.5 68%

7 Senior Loan Atlanta, GA Office 8/15/2017 119.0 95.3 94.7 23.7 L + 3.0% 4.9 66%

8 Senior Loan Honolulu, HI Multifamily 8/23/2017 105.0 100.0 89.2 5.0 L + 4.0% 4.9 66%

9 Senior Loan Crystal City, VA Office 9/14/2016 103.5 78.1 23.6 25.4 L + 4.5% 4.0 59%

10 Senior Loan Denver, CO Multifamily 2/28/2017 85.9 77.8 15.6 0.0 L + 3.8% 4.4 75%

11 Senior Loan Denver, CO Multifamily 8/4/2017 81.0 81.0 70.4 0.0 L + 4.0% 4.8 73%

12 Senior Loan Austin, TX Multifamily 2/15/2017 79.2 59.9 15.0 19.3 L + 4.2% 4.4 71%

13 Senior Loan Queens, NY Industrial 7/21/2017 75.1 61.3 14.8 13.8 L + 3.7% 4.8 72%

14 Senior Loan New York, NY Multifamily 10/7/2016 74.5 66.2 17.0 8.3 L + 4.4% 4.1 68%

15 Senior Loan Atlanta, GA Industrial 12/17/2015 73.0 67.5 18.1 5.5 L + 4.0% 3.3 73%

16 Senior Loan Atlanta, GA Office 5/12/2017 61.9 43.8 11.7 18.1 L + 4.0% 4.7 71%

17 Senior Loan Nashville, TN Office 5/19/2016 55.0 52.8 13.3 2.2 L + 4.3% 3.7 70%

Total / Weighted Average $1,930.3 $1,621.4 $786.0 $286.7 L + 4.3% 4.1 67%

Mezzanine Loans

1 Mezzanine Loan Clearwater, FL Hospitality 1/22/2015 35.0 35.0 33.3 - L + 9.8% 2.4 73%

2 Mezzanine Loan Chicago, IL Retail 6/23/2015 16.5 16.5 16.4 - L + 9.2% 2.8 82%

3 - 8 Fixed Rate Mezzanine Loans Various Various Various 26.2 26.2 24.9 - 10.6% 7.6 77%

Total / Weighted Average $77.7 $77.7 $74.6 - 10.8% 4.2 76%

CMBS

Total / Weighted Average $349.2 $317.2 $112.5 $32.0 4.2% 8.2 65%

Portfolio Total / Weighted Average $2,357.2 $2,016.3 $973.1 $318.7 5.7% 4.3 67%

3Q17 Outstanding Portfolio(8) $1,811.6

($ in millions)

26

Consolidated Balance Sheet (in thousands - except share and per share data)

September 30, 2017 December 31, 2016

Assets

Cash and cash equivalents $ 89,976 $ 96,189

Restricted cash and cash equivalents 600 157

Commercial mortgage loans, held-for-investment, net 1,543,851 674,596

Commercial mortgage loans, held-for-sale, net 81,550 26,230

Preferred interest in joint venture, held-to-maturity - 36,445

Equity method investments in unconsolidated subsidiaries, at fair value 8,328 -

Accrued interest receivable 6,930 2,974

Other assets 2,894 2,728

Commercial mortgage loans held in variable interest entities, at fair value 5,429,874 5,426,084

Total Assets $ 7,164,003 $ 6,265,403

Liabilities and Equity

Liabilities

Secured financing agreements, net $ 755,987 $ 439,144

Accounts payable, accrued expenses and other liabilities 3,014 2,297

Dividends Payable 19,992 -

Accrued interest payable 1,108 593

Due to affiliates 4,036 1,728

Variable interest entity liabilities, at fair value 5,313,914 5,313,574

Total Liabilities 6,098,051 5,757,336

Commitments and Contingencies

Temporary Equity

Redeemable noncontrolling interests in equity of consolidated joint venture 3,053 3,030

Redeemable preferred stock 949 -

Permanent Equity

Preferred stock, 50,000,000 authorized (1 share with par value of $0.01 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively, and 125 shares with stated value of $1,000.00 issued and outstanding as of December 31, 2016) - 125

Common stock, 300,000,000 authorized (53,685,440 and 24,158,392 shares with par value of $0.01 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) 537 242

Additional paid-in capital 1,052,826 479,417

Retained earnings 9,110 17,914

Treasury stock: 26,398 shares held at cost as of September 30, 2017 (523) -

Total KKR Real Estate Finance Trust Inc. stockholders’ equity 1,061,950 497,698

Noncontrolling interests in equity of consolidated joint venture - 7,339

Total Permanent Equity 1,061,950 505,037

Total Liabilities and Equity $ 7,164,003 $ 6,265,403

27

Consolidated Statement of Operations

(in thousands - except share and per share data) For the Three Months Ended For the Nine Months Ended

Sept 30, 2017 Sept 30, 2016 Sept 30, 2017 Sept 30, 2016

Net Interest Income

Interest income $ 24,408 $ 7,896 $ 54,760 $ 20,884

Interest expense 5,414 1,627 12,592 3,976

Total net interest income 18,994 6,269 42,168 16,908

Other Income

Change in net assets related to consolidated variable interest entities 4,025 6,220 12,810 9,960

Income from equity method investments in unconsolidated subsidiaries 115 - 461 —

Other income 177 64 616 143

Total other income 4,317 6,284 13,887 10,103

Operating Expenses

General and administrative 1,339 548 3,254 1,748

Management fees to affiliate 3,989 1,621 9,513 4,088

Incentive compensation to affiliate - - -

365

Total operating expenses 5,328 2,169 12,767 6,201

Income Before Income Taxes, Noncontrolling Interests and Preferred Dividends 17,983 10,384 43,288

20,810

Income tax expense 120 71 388

214

Net Income 17,863 10,313 42,900 20,596

Redeemable Noncontrolling Interests in Income of Consolidated Joint Venture 54 87 134

248

Noncontrolling Interests in Income of Consolidated Joint Venture 377 210 801

601

Net Income Attributable to KKR Real Estate Finance Trust Inc. and Subsidiaries 17,432 10,016 41,965

19,747

Preferred Stock Dividends 93 4 181

12

Net Income Attributable to Common Stockholders $ 17,339 $ 10,012 $ 41,784 $ 19,735

Net Income Per Share of Common Stock, Basic and Diluted $ 0.32 $ 0.48 $ 0.98 $ 1.12

Weighted Average Number of Shares of Common Stock Outstanding, Basic 53,696,967 20,810,322 42,501,356 17,668,177

Weighted Average Number of Shares of Common Stock Outstanding, Diluted 53,697,041 20,810,322 42,501,530 17,668,177

Dividends Declared per Share of Common Stock $ 0.37 $ 0.26 $ 1.25 $ 0.95

Reconciliation of GAAP Net Income to Core Earnings and Net

Core Earnings

28


therefore ROE






68 68 70

217 217 218

180 180 182

142 142 145

51 51 53

83 40 79

230 203 227

205 151 200

179 98 172

62 30 59

3Q17 2Q17 ($ in millions, except share and per share data)

Net Income Attributable to Common Stockholders $17.3 $14.1

Adjustments

Non-cash equity compensation expense - -

Incentive compensation to affiliate - -

Depreciation and amortization - -

Unrealized (gains) or losses (0.9) (1.1)

Core Earnings(1) $16.5 $13.0

Less: Incentive compensation to affiliate - -

Net Core Earnings(1) $16.5 $13.0

(1) See Appendix page 29 for definitions. Excludes $1.3 million and $1.3 million of original issue discount on CMBS B-pieces accreted as a component of taxable income during 3Q17 and 2Q17, respectively.

Key Definitions

29


therefore ROE






68 68 70

217 217 218

180 180 182

142 142 145

51 51 53

83 40 79

230 203 227

205 151 200

179 98 172

62 30 59

• "Core Earnings" and “Net Core Earnings”: Used by the Company to evaluate the Company's performance excluding the effects of certain

transactions and GAAP adjustments the Company believes are not necessarily indicative of the current loan activity and operations. Core Earnings and

Net Core Earnings are measures that are not prepared in accordance with GAAP. The Company defines Core Earnings as net income (loss) attributable

to stockholders or, without duplication, owners of the Company's subsidiaries, computed in accordance with GAAP, including realized losses not

otherwise included in GAAP net income (loss) and excluding (i) non-cash equity compensation expense, (ii) the incentive compensation payable to the

Company's Manager, (iii) depreciation and amortization, (iv) any unrealized gains or losses or other similar non-cash items that are included in net

income for the applicable reporting period, regardless of whether such items are included in other comprehensive income or loss, or in net income, and

(v) one-time events pursuant to changes in GAAP and certain material non-cash income or expense items after discussions between the Company's

Manager and board of directors (and after approval by a majority of the independent directors). The exclusion of depreciation and amortization from

the calculation of Core Earnings only applies to debt investments related to real estate to the extent the Company forecloses upon the property or

properties underlying such debt investments. Net Core Earnings is Core Earnings less incentive compensation payable to the Company’s Manager.

The Company believes providing Core Earnings and Net Core Earnings on a supplemental basis to net income as determined in accordance with GAAP is

helpful to stockholders in assessing the overall performance of the Company's business. Core Earnings and Net Core Earnings should not be considered

as substitutes for GAAP net income. The Company's methodology for calculating Core Earnings and Net Core Earnings may differ from the

methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, the Company's Core

Earnings and Net Core Earnings may not be comparable to similar measures presented by other REITs.

• “IRR”: IRR is the annualized effective compounded return rate that accounts for the time-value of money and represents the rate of return on an

investment over a holding period expressed as a percentage of the investment. It is the discount rate that makes the net present value of all cash

outflows (the costs of investment) equal to the net present value of cash inflows (returns on investment). It is derived from the negative and positive

cash flows resulting from or produced by each transaction (or for a transaction involving more than one investment, cash flows resulting from or

produced by each of the investments), whether positive, such as investment returns, or negative, such as transaction expenses or other costs of

investment, taking into account the dates on which such cash flows occurred or are expected to occur, and compounding interest accordingly. The

weighted average underwritten IRR for the investments shown reflects the returns underwritten by KKR Real Estate Finance Manager LLC, the

Company’s external manager, taking into account certain assumptions around leverage up to no more than the maximum approved advance rate, and

calculated on a weighted average basis assuming no dispositions, early prepayments or defaults but assuming that extension options are exercised and

that the cost of borrowings remains constant over the remaining term. With respect to certain loans included in the weighted average underwritten IRR

shown, the calculation assumes certain estimates with respect to the timing and magnitude of the initial and future fundings for the total loan

commitment and associated loan repayments, and assumes no defaults. With respect to certain loans included in the weighted average underwritten

IRR shown, the calculation assumes the one-month spot USD LIBOR as of the date the loan was originated. There can be no assurance that the actual

weighted average IRRs will equal the weighted average underwritten IRRs shown.

KKR Real Estate Finance Trust Inc./media/Files/K/KKR/reports-and...KKR Real Estate Finance Trust...

Documents

Transcript of KKR Real Estate Finance Trust Inc./media/Files/K/KKR/reports-and...KKR Real Estate Finance Trust...