# Dear Fellow Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/real-estate-reit-mortgage/NYSE_KREF_2022/NYSE_KREF_2022.mmd` · pages 3-9_

---

Dear Fellow Shareholders

MATT SALEM

In May 2023, KKR Real Estate Finance Trust Inc. ("KREF" or the "Company") will celebrate its sixth anniversary as a public company and its ninth full year of operations as KKR's first dedicated real estate credit strategy. We have a relatively simple business model: we originate senior loans and attach moderate financing to our loan portfolio with the goal of generating strong risk adjusted returns with an attractive dividend. Throughout this period, KREF has remained consistent in its investment approach: we lend to high quality owners and operators on institutional quality real estate located in major markets. An output of this is larger loan balances and our portfolio's average is $123 million. At origination, the properties we lend on are typically in some period of transition and the sponsors are implementing business plans to create value and increase occupancy and cash flows. This can be as simple as a newly built multifamily property undergoing its initial lease-up or as complicated as ground-up construction. In either case, at origination, there is significant equity subordinate to our loans, as we have a weighted average loan-to-value ("LTV") ratio of 66%.

In 2022, we grew our portfolio from \(6.8 billion at the beginning of the year to \)7.9 billion as of year-end predominately through originations of loans backed by multifamily or industrial properties. The larger portfolio size is supported by KKR's Real Estate Credit team of over 60 investment professionals. Our team is excellent with strong credit acumen and deep client relationships. I'd put them up against anyone. But it's more than just our team. We benefit immensely both from our integration within KKR and KKR's global real estate equity platform. Our integration with KKR provides us with a differentiated view of real estate fundamentals, allows us deeper access to the financing markets, and importantly helps us attract best-in-class talent. Collaborating with our colleagues in real estate equity, we identify growth themes to invest in. The growth can be related to demographic trends, how companies use space, or how technology impacts consumer spending and typically manifests investing opportunities through property type or region selection. Two of the strongest growth areas in real estate are Multifamily and Industrial property types. Nearly 60% of our portfolio is allocated to these two segments. Multifamily properties continue to benefit from the shortage of available housing in the U.S. which has led to sustained rent growth, while Industrial properties continue to benefit from e-commerce and supply chain on-shoring.

Unfortunately, technology has impacted real estate demand in negative ways as well. The real estate market is entering a distress cycle in the office sector as COVID-19 has introduced new technology allowing more flexibility to work from home and leading some employers to reduce their office footprint. The uncertainty on the long-term demand for office space creates a secular headwind and has limited liquidity in this property type. While KREF is underweight office versus many of our lending peers, it still comprises 26% of our overall portfolio and how we navigate this distress cycle will be important to protecting shareholder value.

<--- Page Split --->

Of course there are macro trends in play as well with high levels of inflation and the Federal Reserve embarking on a nearly unprecedented increase in short term interest rates. Real estate values are declining in response to this higher cost of capital. We've yet to see the full impact of these rate hikes and I'm skeptical this can be orchestrated without repercussions to the health of the economy. Given this macro environment, we are managing the Company more conservatively and operating with higher levels of liquidity. On the positive side, KREF's loan portfolio is 100% floating rate. As the short term rates have moved to approximately 4.7% from close to 0% at the start of 2022, KREF's interest income has increased significantly.

## KREF's Integration with KKR Real Estate Platform
Drives Outcomes

In 2022, KKR's broader Real Estate Credit platform originated approximately \(10 billion across a number of investment vehicles spanning the risk-reward spectrum from transitional and value-add loans to fully-stabilized loans and includes both fixed and floating rate options. This product suite has made KKR one of just a few CRE lenders with the ability to serve as a "one stop" solution for borrowers. The macro environment has led to a pullback in bank lending which has created a "lender's market". In 2022, KREF originated loans in the low 60% range on an LTV basis, and today credit spreads are roughly 75-100bps wider than they were for the majority of 2021. These loans are more conservatively underwritten with structure and downside protection than in years past. Importantly, KREF is KKR's flagship senior transitional CRE lending strategy, and holds a "first priority" position within KKR Real Estate Credit's transitional opportunity set. This first priority position helped KREF generate \)2.7 billion in 2022 originations across 25 senior loans.

Our Real Estate Credit team has grown significantly since the beginning of 2020 to a dedicated team of over 60 at year-end, with 10 senior investment professionals responsible for serving our borrower clients – including a team in Europe. Our investment team's strong reputation as a thoughtful and responsive capital solutions provider throughout the entirety of the lending process has resonated with the borrowing community, driving significant repeat lending opportunities for KREF. One of our phrases here at KKR is "people do business with who they like and trust". I'm proud to state that over 70% of KREF's originations in 2022 were to repeat borrower clients where our approach has led to a "like and trust" relationship.

KKR's real estate platform collectively manages over \(64 billion of AUM as of December 31, 2022, and has grown by nearly 14x over the last 5 years. The broader Real Estate team, across real estate equity, debt and asset management, now totals over 160 professionals globally and KKR owns, or lends on, over \)200 billion of real estate assets as of December 31, 2022. In a dynamic CRE market, we are drawing on real time data and market intelligence from a large property portfolio on a daily basis, which informs our decisions as a lender. KKR's Real Estate Equity business owns and operates over 30,000 multifamily units and owns or manages approximately 90 million square feet in industrial properties. KKR's robust knowledge of property types across geographies gives us the foresight to both anticipate challenges as well as create opportunities for KREF and its shareholders.

## Defensive Portfolio with Distributable Earnings
Benefitting from Higher Interest Rate Environment

KREF originates large floating rate loans (the portfolio's average loan size is $123 million) secured by institutional real estate located in top markets and owned by the highest quality sponsors. Over 90% of our loans as of year-end were secured by properties located in the top 25 MSAs. In 2022, KREF originated $2.7 billion across 25 loans – nearly 70% of which was comprised of Multifamily and Industrial properties and another 22% was Life Sciences properties. These property segments have been characterized by high rent growth and low vacancy. KREF's office exposure is underweight relative to public peers and represents 26% of our loan portfolio, but this property type has the added uncertainty around long-term tenant demand given work-from-home preferences, which has put pressure on property valuations in the office sector.

Over 70% of KREF's originations in 2022 were to repeat borrower clients where our approach has led to a "like and trust" relationship.

<--- Page Split --->

In 2023, we expect to remain proactive in managing our investments in the office sector, and we have many tools at our disposal to optimize economic outcomes: namely our nearly $1 billion in corporate liquidity as of 2022 year-end and our deep expertise and know-how from an own and operate standpoint given our large real estate private equity business.

While the higher interest rate environment is causing a slowdown in real estate transaction volumes, our loan portfolio is 100% floating rate, and we are benefitting immensely from higher SOFR and LIBOR base rates, as our weighted average coupon on our loan portfolio has increased meaningfully from the beginning of 2022 to today. Higher interest rates should continue to serve as a tailwind for KREF's operating earnings in 2023 and beyond.

## Diversified Capital Base with Expansion of Non-Mark-to-Market Financing

An important differentiator for KREF is how we finance our senior loan portfolio. In 2022, with the support of the KKR Capital Markets team we added approximately \(2.5 billion in non-mark-to-market financing (two thirds of which has been done on a truly bespoke basis with financing providers such as foreign banks and insurance companies and away from public capital market sources, such as the CLO market). These resilient financing structures, coupled with our independence from public capital markets, buffers us during times of capital markets volatility.

Perhaps most notable on the capital markets front was the increase in borrowing capacity on KREF's Corporate Revolver, by \(275 million to \)610 million, and our extension of the maturity date through March 2027. We also closed on a \(350 million new term lending agreement, entered into three new asset-specific financing facilities totaling nearly \)500 million and increased the borrowing capacity on an existing $500 million term lending agreement to \(1.0 billion. Finally, we closed on a \)1.0 billion managed CRE CLO in early 2022, which features a two-year reinvestment period and is match-term, non-mark-to-market, and non-recourse. These accomplishments on our liability structure support our market-leading position in the commercial mortgage REIT space with 77% of our financing being fully non-mark-to-market, with the remainder of our financing only subject to credit marks.

We grew our permanent equity base by 15% to nearly \(1.6 billion in 2022, including approximately \)150 million of Series-A Perpetual Preferred Equity at a 6.50% fixed cost in January of 2022 and two public offerings over the course of the year, resulting in net primary proceeds of nearly $190 million. Importantly, KKR reached its target long-term hold position of 10.0 million KREF shares (representing 14.5% of KREF's shares outstanding) and we still have market-leading alignment between KKR and KREF.

Throughout the market volatility in the back half of 2022, KREF maintained a disciplined approach to buying back shares. In 2022, KREF repurchased 2.1 million shares for nearly $36 million. Since the Company's May 2017 IPO, KREF has repurchased nearly $100 million of stock. In February 2023, KREF's Board of Directors reauthorized a $100 million buyback program.

## Looking Ahead

We are well-positioned for the future on a number of fronts. On the asset side, we are built defensively – nearly half of our portfolio is in multifamily loans, and nearly 70% of our originations in 2022 were in the Multifamily and Industrial sectors. Our liability structure is best in class, with 77% of our liabilities being fully non-mark-to-market and diversified across a number of facilities.

KREF's resilient financing structures, coupled with our independence from public capital markets, buffers us during times of capital markets volatility.

<--- Page Split --->

Importantly, given the uncertain macroeconomic environment, KREF held record levels of liquidity of nearly $1 billion as of 2022 year-end. The higher interest rate environment has slowed down the pace of transactions and put pressure on property valuations; however, these uncertainties are also creating opportunities for KREF and it is an attractive time to be a senior commercial mortgage lender. Furthermore, KREF's Distributable Earnings from its 100% floating rate loan portfolio are benefitting from the higher interest rate environment.

We are proud of our performance 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 continued support. We look forward to seeing many of you in 2023.

Sincerely,

![](images/6_0.jpg)

Matt Salem

Chief Executive Officer

<--- Page Split --->

[This page intentionally left blank]