# Dear Fellow Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/real-estate-reit-mortgage/NYSE_KREF_2019/NYSE_KREF_2019.mmd` · pages 3-9_

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Dear Fellow Shareholders

## CHRIS LEE & MATT SALEM

In the fall of 2019, KKR Real Estate Finance Trust Inc. ("KREF" or the "Company") began our sixth year of operations. We are proud of the business we have created and are excited about our future. A number of factors have contributed to KREF becoming a leading provider of loans on transitional properties including our team, our relationship driven approach and our process which is tailored for certainty of execution and problem solving. Since inception, we have originated over $8.2 billion of loans with no delinquencies, impairments or losses. In 2019, we again successfully executed on our strategy of lending on institutional-quality real estate to experienced sponsors in the most liquid markets. We had another record origination year; increased the size of our defensive portfolio; diversified and strengthened our liability structure; and provided our shareholders with an attractive risk adjusted return. We are thankful for your partnership and are pleased to share some details of our 2019 accomplishments with you.

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## SUCCESSFULLY EXECUTING ON STRATEGY WITH STRONG GROWTH

We increased loan originations by 14% in 2019 to a record \(3.1 billion, resulting in an outstanding funded portfolio of \)5.1 billion as of year-end. Our 23% year-over-year portfolio growth and strong origination pace in 2019 was driven by our direct relationships with some of the largest owners and operators of real estate. Additionally, our focused effort on lending on larger, institutional-quality properties allowed us to increase our average loan size by 20% to \(173 million. Our record origination volume demonstrates our strong brand awareness, expansion of our client base, and our reputation as a responsive lending partner to our existing client base. Approximately 35% of our 2019 origination volume came from repeat clients. In order to better meet the needs of our clients, we have grown our dedicated real estate credit team to 24 people from 13 at the time of our IPO.

As a public company and an affiliate of a leading global investment firm, we have access to differentiated financing which creates a pricing and structural advantage over many of our competitors. By leveraging the full KKR platform, including KKR Capital Markets LLC, we were able to grow our overall financing capacity by \(1.2 billion to \)5.5 billion. Importantly, we have improved the structure of our liabilities and increased the percentage of our outstanding secured financing that is non-mark-to-market to 72% as of December 31, 2019. This growth included a $900 million attractively priced, non-mark-to-market term lending agreement and the increase of our corporate revolver to $250 million. The further diversification of our funding sources, especially those that provide non-mark-to-market financing, lowers the risk profile of our liabilities while allowing us to deliver cost-effective financing solutions to our borrowers.

## THOUGHTFULLY CONSTRUCTED DEFENSIVE PORTFOLIO WITH FOCUS ON CAPITAL PRESERVATION

Given our belief that we are in the later stages of the current real estate cycle, we continued our conservative investment strategy and primarily concentrated on the light-transitional segment of the large-loan market. Our portfolio is primarily comprised of properties where the underlying business plan has a shorter-term timeline to completion and are located in the most liquid U.S. real estate markets. In addition, we have targeted the highest quality sponsors who have the financial wherewithal and expertise to implement their strategy through various economic cycles. Despite a competitive lending environment, we have been able to secure attractive investment opportunities consistent with the same risk and return parameters since going public. Our two largest property-type exposures are multifamily and office which represent 84% of the portfolio, collectively, and 90% of 2019 originations. Hotels, the most cyclical real estate asset class represented 4% of the portfolio. Our portfolio is 100% performing and the credit quality of our assets remains strong with an average loan-to-value and risk-rating of 66% and 2.9, respectively.

99.9% of our portfolio is invested in LIBOR-based, floating rate loans. While the yield curve experienced a significant downward shift in 2019, our investment team strategically positioned the portfolio to protect all-in-yields on our originations by incorporating LIBOR floors on all loans. Our 2019 originations had a weighted average LIBOR floor of 2.2% and were all "in-the-money," at year-end. Conversely, almost none of our liabilities have a LIBOR floor which allows our net interest income to benefit from the current rate environment.

## INTEGRATED KKR REAL ESTATE PLATFORM

The Company benefits from KKR's significant and growing real estate platform. KKR's global real estate assets under management ("AUM") have increased from \(4.8 billion as of December 31, 2016 to \)9.6 billion as of December 31, 2019. In addition, the US based Real Estate team continues to scale with 50 professionals as of December 31, 2019 as compared to 28 as of December 31, 2016. KKR controls approximately $8 billion of real estate and owns the controlling classes of $30 billion of securities in the United States. This integrated real estate platform, including a shared investment committee across credit and equity strategies, and KKR's "one firm" culture provides KREF with an advantage

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at sourcing, evaluating, structuring and managing our investments. Our extensive portfolio across real estate equity and credit gives us a differentiated view of real estate fundamentals and values across a broad range of markets and business plans. We have a coordinated view of where we see the best opportunities and investment themes and can proactively pursue opportunities with the best risk-adjusted returns while avoiding opportunities where we see a weaker outlook. Additionally, our broader business provides us with enhanced connectivity to many real estate owners, brokers and the financial institutions. We believe that as KKR's broader real estate business continues to scale, it will drive further differentiation for the Company that should translate into incremental value for shareholders.

## SHARE LIQUIDITY

We have been focused on ways to improve KREF's daily trading volume in order to attract the broadest array of shareholders. Our October 2019 inclusion in the S&P 600 has increased both share demand and trading volume. As of year-end, more than 20% of our shares were held by index investors compared to 10% at the end of 2018. We are committed to a disciplined growth strategy, while taking advantage of opportunities to accretively grow our equity base when they present themselves.

## LOOKING AHEAD

We believe the future for KREF is bright. Real estate values have benefited from increased allocations to the asset class from both institutional and individual investors. Real estate fundamentals for most asset classes have remained stable. The market continues to offer us opportunities to invest at attractive risk-adjusted returns where we can align incentives with our borrowers and negotiate attractive loan terms and covenants. We are encouraged by our pipeline and the opportunity to continue making attractive investments and scale our investment portfolio throughout the remainder of 2020.

We are proud of our business and the quality of our team. On behalf of the management team, the Board of Directors and the entire real estate business at KKR, thank you for your support. We look forward to seeing many of you in 2020.

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Chris Lee
Executive Officer and
Director Nominee
Matt Salem
Chief Executive Officer