# Dear Fellow Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/real-estate-reit-mortgage/NYSE_KREF_2018/NYSE_KREF_2018.mmd` · pages 3-9_

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Dear Fellow Shareholders

# CHRIS LEE & MATT SALEM

2018 was a milestone year for KKR Real Estate Finance Trust Inc. ("KREF" or the "Company"). It marked our first full calendar year as a public company and our fourth full year of operations as KKR's first dedicated real estate credit strategy. During this time, we have established KREF as a leading provider of transitional commercial real estate loans. Our solutions-oriented and relationship driven approach, combined with our favorable cost of capital, has resonated with the borrowing community and allowed us to originate over $5 billion of loans since inception. In 2018, we had a record origination year; we built a defensive and diversified portfolio; we diversified our liabilities; and we provided our shareholders with an attractive risk adjusted return. We are thankful for your partnership and are pleased to share some of our 2018 accomplishments with you.

## GROWING, DEFENSIVELY POSITIONED PORTFOLIO

We increased loan originations by 84% in 2018 to a record $2.7 billion, resulting in an outstanding funded portfolio of $4.1 billion as of year-end. Our portfolio growth and strong origination pace in 2018 was driven by our direct relationships with owners and operators of real estate and our improved brand awareness. In this competitive market, we differentiated ourselves through non-economic variables like speed, certainty and creativity. We also developed a reputation in the market as a responsive partner to our sponsor clients through our thoughtful approach to the closing and subsequent asset management processes, which drove significant repeat lending opportunities across our business. Over half of our 2018 volume came from repeat sponsors.
Our focus has remained 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 concentrated primarily on the light-transitional segment of the large-loan market. Focusing here has allowed us to lend in situations where the underlying collateral is in liquid markets and owned by experienced and reputable sponsors. Our two largest property-type exposures are office and multifamily, representing a collective 86% of the portfolio. Further, we did not make any new retail or construction loans in 2018, demonstrating our more conservative bias. Our portfolio is 100% performing, and the credit quality of our assets remains excellent with an average loan-to-value and risk-weighting of 69% and 2.9, respectively.

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## DIFFERENTIATED LIABILITY STRUCTURE

At the beginning of 2018, we embarked on a strategic initiative to diversify our funding sources and focused on obtaining more non-mark-to-market financing sources. With the help of KKR Capital Markets, we have exceeded our expectations. We created a differentiated, attractively priced \(1.0 billion non-mark-to-market facility, another \)200 million non-mark-to-market facility and issued a \(1.0 billion collateralized loan obligation, one of the largest managed deals in the commercial real estate space in over a decade. These attractively priced and well-structured liabilities allow us to compete for the highest quality lending opportunities and increase the durability of our balance sheet. As of year-end, 60% of our outstanding borrowings were non-mark-to-market compared to 13% at year-end 2017. This is another example of our emphasis on safety and durability on both the right and left side of the balance sheet.

## THE "K" IN KREF

Our affiliation with KKR, one of the largest global asset managers, provides us with significant competitive advantages. First, KKR's 35% ownership stake in KREF gives us a significant alignment of interest. Second, KREF's affiliation with KKR has given us differentiated access to the equity and debt capital markets, providing us with an attractive cost of capital. This cost of capital has allowed us to originate more defensive credits while driving an attractive return on equity to our shareholders. Third, our adjacency to KKR's real estate private equity business and a market-leading real estate securities business, with combined $6.3 billion of assets under management, provides us significant access to meaningful market information and relationships that help drive better decision making across our business. Lastly, KKR's brand and culture allow us to attract some of the best talent in the market as we continue to invest in our team. We increased the number of investment professionals in KKR's Real Estate Credit business to 18 people today from 13 at the time of our IPO and recently added a head of credit asset management. We are extremely pleased with the quality of our team and believe we are well positioned to continue to grow our portfolio and risk manage it effectively as we scale the business.

## LOOKING AHEAD

We believe that the future for KREF is bright. Commercial real estate fundamentals in most markets and asset classes in the United States remain healthy with strong demand drivers. Capital flows into real estate have created a healthy equilibrium in the real estate capital markets. The market continues to offer us opportunities to invest at attractive risk adjusted returns where we can align incentives with our borrowers and dictate attractive loan terms and covenants.

We are encouraged by our forward pipeline and the opportunity to continue making attractive investments and scaling our investment portfolio throughout the remainder of 2019. We are committed to a disciplined growth strategy and intend to be good stewards of capital, while taking advantage of opportunities when we can accretively grow our equity base.

We are proud of our business and the 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 2019.

Sincerely,

![](images/4_0.jpg)

![](images/4_1.jpg)

Chris Lee
Co-Chief Executive Officer
and Co-President
Matt Salem
Co-Chief Executive Officer
and Co-President

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