KKR REAL ESTATE FINANCE TRUST INC. 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 liquid 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 15 to our condensed consolidated financial statements included in this Form 10-Q. 52 -------------------------------------------------------------------------------- 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,
June 30, 2022 March 31, 2022
Net income attributable to common stockholders $ 19,394 $ 29,796
Weighted-average number of shares of common stock
outstanding
Basic 68,549,049 63,086,452
Diluted 68,549,049 69,402,626
Net income per share, basic $ 0.28 $ 0.47
Net income per share, diluted $ 0.28 $ 0.46
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 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) with respect to any amount due under any
loan, when such amount is determined to be non-collectible.
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,
June 30, 2022 March 31, 2022
Diluted weighted average common shares outstanding, 68,549,049 69,402,626
GAAP
Less: Dilutive shares under assumed conversion of the - (6,316,174) Convertible Notes (ASU 2020-06) Less: Anti-dilutive restricted stock units - - Diluted weighted average common shares outstanding, 68,549,049 63,086,452 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 a 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) 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,
June 30, 2022 March 31, 2022
Net Income (Loss) Attributable to Common Stockholders $ 19,394 $ 29,796
Adjustments
Non-cash equity compensation expense 2,040 2,126
Unrealized (gains) or losses(A) (190) (1,032)
Provision for (reversal of) credit losses, net 11,798 (1,218)
Non-cash convertible notes discount amortization 90 89
Distributable Earnings $ 33,132 $ 29,761
Weighted average number of shares of common stock
outstanding
Basic 68,549,049 63,086,452
Adjusted Diluted Shares Outstanding(B) 68,549,049 63,086,452
Distributable Earnings per Diluted Weighted Average $ 0.48 $ 0.47
Share(C)
(A) Includes ($0.2) million and ($1.0) million of unrealized mark-to-market
adjustment to our RECOP I's underlying CMBS investments for the three months
ended June 30, 2022 and March 31, 2022 , respectively.
(B) 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):
June 30, 2022 December 31, 2021
(327,750) (172,500)
Common stockholders' equity $
1,348,575
69,654,532 61,370,732
Book value per share of common stock $ 19.36 $ 19.37
Book value as of
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Our Portfolio
We have established a $7,887.8 million portfolio of diversified investments,
consisting primarily of performing senior and mezzanine commercial real estate
loans as of June 30, 2022 .
Our loan portfolio is 100.0% performing as of June 30, 2022 . During the six
months ended June 30, 2022 , we collected 100.0% of interest payments due on our
loan portfolio. As of June 30, 2022 , the average risk rating of our loan
portfolio was 3.0 (Average Risk), weighted by total loan exposure. As of
June 30, 2022 , 96.0% of our loans, based on total loan exposure, was risk-rated
3 or better. As of June 30, 2022 , the average loan commitment in our portfolio
was $121.3 million and multifamily and office loans comprised 73% of our loan
portfolio, while hospitality loans comprised 5% of the portfolio.
In addition to our loan portfolio, as of June 30, 2022 , 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 $79.2 million , comprised of the fair value of
the acquired retail property and the capitalized transaction and redevelopment
costs, as of June 30, 2022 . This property is held for investment and reflected
on our condensed consolidated balance sheets.
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 of June 30, 2022 , 100.0% 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 of
June 30, 2022 , all of our investments were located in the 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 of June 30, 2022 :
[[Image Removed: kref-20220630_g2.jpg]]
The charts above are based on total outstanding principal amount of our commercial real estate loans.
(A) Excludes: (i) one REO retail asset on a defaulted loan with net carrying value of$79.2 million as ofJune 30, 2022 , (ii) CMBS B-Piece investments held through RECOP I, an equity method investment and (iii) one impaired mezzanine loan with an outstanding principal of$5.5 million that was fully written off. (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. 56
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(D) Excludes one real estate corporate loan to a multifamily operator with an outstanding principal amount of$42.0 million , representing 0.5% of our commercial real estate loans as ofJune 30, 2022 . (E) LTV is generally based on the initial loan amount divided by the as-is appraised value as of the date the loan was originated or by the current principal amount as of the date of the most recent as-is appraised value. The following table details our quarterly loan activity (dollars in thousands): Three Months Ended December 31, September 30, June 30, 2022 March 31, 2022 2021 2021 Loan originations$ 1,034,191 $ 843,624 $ 1,804,897 $ 1,536,993 Loan fundings(A)$ 1,077,132
(444,313) (282,282) (679,749) (934,899)
Net fundings 632,819 461,910 1,001,141 208,070
PIK interest 479 464 418 373
Write-off - - (32,905) -
Transfer to REO - - (77,516) -
Total activity $ 633,298 $ 462,374 $ 891,138 $ 208,443 (A) Includes initial funding of new loans and additional fundings made under existing loans.
The following table details overall statistics for our loan portfolio as of
Total Loan Exposure(A)
Balance Sheet Total Loan Floating Rate
Portfolio Portfolio Loans Fixed Rate Loans
Number of loans 77 76 76 -
Principal balance $ 7,525,911 $ 7,772,911 $ 7,772,911 $ -
Amortized cost $ 7,473,101 $ 7,725,600 $ 7,725,600 $ -
Unfunded loan commitments(B) $ 1,412,237 $ 1,412,237 $ 1,412,237 $ -
Weighted-average cash coupon(C) 5.1 % + 3.3 % + 3.3 % n.a.
Weighted-average all-in yield(C) 5.5 % + 3.6 % + 3.6 % n.a.
Weighted-average maximum maturity 3.6 3.6 3.6 n.a.
(years)(D)
LTV(E) 67 % 67 % 67 % n.a.
(A) 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 and excludes one impaired mezzanine loan with an outstanding
principal of $5.5 million that was fully written off.
(B) 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.
(C) As of
(D) Maximum maturity assumes all extension options are exercised by the borrower; however, our loans may be repaid prior to such date. As ofJune 30, 2022 , based on total loan exposure, 69.8% of our loans were subject to yield maintenance or other prepayment restrictions and 30.2% were open to repayment by the borrower without penalty. (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 one real estate corporate loan to a multifamily operator with an outstanding principal of$42.0 million as ofJune 30, 2022 . 57
-------------------------------------------------------------------------------- Table of Contents The table below sets forth additional information relating to our portfolio as ofJune 30, 2022 (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(J) 1 Senior LoanArlington, VA Multifamily9/30/2021 $ 381.0 $ 381.0 $ 353.9 $ 71.2 + 3.2% 4.3$ 318,784 / unit 69 % 3 2 Senior LoanBellevue, WA Office9/13/2021 520.8 260.4 75.4 19.7 + 3.6 4.8$ 855 / SF 63 3 3 Senior LoanLos Angeles, CA Multifamily2/19/2021 260.0 260.0 250.0 38.1 + 3.6 3.7$ 466,400 / unit 68 3 4 Senior Loan Various Industrial4/28/2022 504.5 252.3 252.3 48.7 + 2.7 4.9$ 98 / SF 64 3 5 Senior LoanMountain View, CA Office7/14/2021 362.8 250.0 189.3 47.5 + 3.3 4.1$ 616 / SF 73 3 6 Senior LoanNew York, NY Condo (Residential)12/20/2018 234.5 234.5 218.1 62.6 + 3.6 1.5$ 1,362 / SF 69 3 7 Senior LoanBronx, NY Industrial8/27/2021 381.2 228.7 124.8 26.9 + 4.1 4.2$ 277 / SF 52 3 8 Senior Loan Various Multifamily5/31/2019 216.5 216.5 216.3 39.0 + 4.0 1.9$ 202,104 / unit 74 3 9 Senior Loan(K) Various Industrial6/30/2021 425.0 212.5 30.2 28.5 + 5.5 4.0$ 163 / SF 67 3 10 Senior LoanMinneapolis, MN Office11/13/2017 194.4 194.4 194.4 33.1 + 3.8 0.4$ 179 / SF 77 2 11 Senior Loan Various Industrial6/15/2022 375.5 187.8 132.6 25.3 + 2.9 5.0$ 95 / SF 50 3 12 Senior LoanWashington, D.C. Office11/9/2021 187.7 187.7 145.1 38.5 + 3.3 4.4$ 417 / SF 55 3 13 Senior LoanBoston, MA Office2/4/2021 375.0 187.5 187.5 37.4 + 3.3 3.6$ 506 / SF 71 3 14 Senior LoanThe Woodlands, TX Hospitality9/15/2021 183.3 183.3 169.3 31.0 + 4.2 4.3$ 186,198 / key 64 3 15 Senior LoanPhiladelphia, PA Office4/11/2019 182.6 182.6 157.0 25.0 + 2.6 1.9$ 220 / SF 68 4 16 Senior LoanWashington, D.C. Office12/20/2019 175.5 175.5 134.6 36.8 + 3.4 2.5$ 659 / SF 58 3 17 Senior LoanWest Palm Beach, FL Multifamily12/29/2021 171.5 171.5 169.6 25.3 + 2.7 4.5$ 208,857 / unit 73 3 18 Senior LoanChicago, IL Office7/15/2019 170.0 170.0 137.6 40.5 + 3.3 2.1$ 132 / SF 57 3 19 Senior LoanBoston, MA Life Science4/27/2021 332.3 166.2 130.7 22.5 + 3.6 3.9$ 543 / SF 66 3 20 Senior LoanNew York, NY Multifamily12/5/2018 163.0 163.0 148.5 22.9 + 4.0 1.4$ 558,300 / unit 77 3 21 Senior LoanPhiladelphia, PA Office6/19/2018 161.0 161.0 161.0 161.4 + 3.5 1.0$ 165 / SF 71 4 22 Senior LoanOakland, CA Office10/23/2020 509.9 159.7 121.5 19.1 + 4.3 3.4$ 373 / SF 65 3 23 Senior LoanPlano, TX Office2/6/2020 153.7 153.7 135.7 21.4 + 2.7 2.6$ 188 / SF 63 2 24 Senior LoanSeattle, WA Life Science10/1/2021 188.0 140.3 96.2 25.3 + 3.1 4.3$ 614 / SF 69 3 25 Senior LoanDallas, TX Office12/10/2021 138.0 138.0 135.8 25.1 + 3.6 4.4$ 432 / SF 68 3 26 Senior LoanBoston, MA Multifamily3/29/2019 137.0 137.0 137.0 30.7 + 2.7 1.8$ 351,282 / unit 59 3 27 Senior LoanArlington, VA Multifamily1/20/2022 135.3 135.3 130.9 31.6 + 2.9 4.6$ 436,300 / unit 65 3 28 Senior LoanFort Lauderdale, FL Hospitality11/9/2018 130.0 130.0 130.0 24.2 + 3.4 1.4$ 375,723 / key 66 3 29 Senior LoanSan Carlos, CA Life Science2/1/2022 195.9 125.0 82.0 21.1 + 3.6 4.6$ 560 / SF 68 3 30 Senior LoanFontana, CA Industrial5/11/2021 119.9 119.9 57.0 28.0 + 4.6 3.9$ 102 / SF 64 3 31 Senior LoanIrving, TX Multifamily4/22/2021 117.6 117.6 112.0 19.1 + 3.3 3.9$ 123,317 / unit 70 3 32 Senior LoanCambridge, MA Life Science12/22/2021 401.3 115.7 57.1 14.8 + 3.9 4.5$ 1,072 / SF 51 3 33 Senior LoanPittsburgh, PA Student Housing 6/8/2021 112.5 112.5 112.5 17.0 + 2.9 3.9$ 155,602 / unit 74 3 34 Senior LoanLas Vegas, NV Multifamily12/28/2021 106.3 106.3 102.0 19.8 + 2.7 4.5$ 193,182 / unit 61 3 35 Senior LoanDoral, FL Multifamily12/10/2021 212.0 106.0 106.0 20.9 + 2.8 4.4$ 335,975 / unit 77 3 36 Senior LoanSan Diego, CA Multifamily10/20/2021 103.5 103.5 103.5 18.4 + 2.8 4.4$ 448,052 / unit 71 3 37 Senior LoanOrlando, FL Multifamily12/14/2021 102.4 102.4 88.9 21.4 + 3.0 4.5$ 234,565 / unit 74 3 58
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Committed
Principal Max Remaining Term Loan Per SF /
Investment(A) Location Property Type Investment Date Total Whole Loan(B) Amount(B) Current Principal Amount Net Equity(C) Coupon(D)(E) (Years)(D)(F) Unit / Key(G) LTV(D)(H) Risk Rating
38 Senior Loan West Hollywood, CA Multifamily 1/26/2022 102.0 102.0 102.0 15.2 + 3.0 4.6 $ 2,756,757 / 65 3
unit
39 Senior Loan Boston, MA Industrial 6/28/2022 285.5 100.0 98.2 97.4 + 3.0 5.0 $ 196 / SF 52 3
40 Senior Loan Washington, D.C. Office 1/13/2022 228.5 100.0 57.7 9.2 + 3.2 5.6 $ 211 / SF 55 3
41 Senior Loan Phoenix, AZ Industrial 1/13/2022 195.3 100.0 14.2 2.9 + 4.0 4.6 $ 57 / SF 57 3
42 Senior Loan Brisbane, CA Life Science 7/22/2021 95.0 95.0 88.4 19.9 + 3.0 4.1 $ 763 / SF 71 3
43 Senior Loan State College, PA Student Housing 10/15/2019 93.4 93.4 89.1 23.1 + 2.7 2.4 $ 74,659 / unit 64 3
44 Senior Loan Brandon, FL Multifamily 1/13/2022 90.3 90.3 63.4 9.9 + 3.1 4.6 $ 192,590 / unit 75 3
45 Senior Loan Dallas, TX Multifamily 12/23/2021 90.0 90.0 77.5 14.9 + 2.8 4.5 $ 238,488 / unit 67 3
46 Senior Loan Miami, FL Multifamily 10/14/2021 89.5 89.5 89.5 17.1 + 2.8 4.4 $ 304,422 / unit 76 3
47 Senior Loan Denver, CO Multifamily 6/24/2021 88.5 88.5 88.5 15.4 + 3.0 4.0 $ 295,000 / unit 77 3
48 Senior Loan Dallas, TX Office 1/22/2021 87.0 87.0 87.0 21.2 + 3.3 3.6 $ 288 / SF 65 3
49 Senior Loan Charlotte, NC Multifamily 12/14/2021 86.8 86.8 76.0 10.9 + 3.0 4.5 $ 206,522 / unit 74 3
50 Senior Loan San Antonio, TX Multifamily 6/1/2022 246.5 86.3 80.3 79.9 + 2.8 4.9 $ 88,134 / unit 68 3
51 Senior Loan New York, NY Multifamily 3/29/2018 86.0 86.0 86.0 13.3 + 4.0 0.8 $ 462,366 / unit 63 2
52 Senior Loan Scottsdale, AZ Multifamily 5/9/2022 169.0 84.5 84.5 12.7 + 2.9 4.9 $ 457,995 / unit 64 3
53 Senior Loan Raleigh, NC Multifamily 4/27/2022 82.9 82.9 76.5 14.7 + 3.0 4.9 $ 239,063 / unit 68 3
54 Senior Loan Hollywood, FL Multifamily 12/20/2021 81.0 81.0 81.0 14.7 + 3.0 4.5 $ 327,935 / unit 74 3
55 Senior Loan Seattle, WA Office 3/20/2018 80.7 80.7 80.7 46.9 + 4.1 0.8 $ 468 / SF 56 3
56 Senior Loan Phoenix, AZ Single Family Rental 4/22/2021 72.1 72.1 27.2 9.8 + 4.8 3.9 $ 157,092 / unit 50 3
57 Senior Loan Arlington, VA Multifamily 10/23/2020 141.8 70.9 70.9 11.6 + 3.8 3.3 $ 393,858 / unit 73 3
58 Senior Loan Denver, CO Multifamily 9/14/2021 70.3 70.3 69.3 11.0 + 2.7 4.3 $ 286,157 / unit 78 3
59 Senior Loan Washington, D.C. Multifamily 12/4/2020 69.0 69.0 66.4 10.5 + 3.5 3.4 $ 265,617 / unit 63 3
60 Senior Loan Dallas, TX Multifamily 8/18/2021 68.2 68.2 68.2 9.8 + 3.8 4.2 $ 189,444 / unit 70 3
61 Senior Loan Manassas Park, VA Multifamily 2/25/2022 68.0 68.0 68.0 13.1 + 2.7 4.7 $ 223,684 / unit 73 3
62 Senior Loan Plano, TX Multifamily 3/31/2022 67.8 67.8 64.2 17.0 + 2.8 4.8 $ 241,165 / unit 75 3
63 Senior Loan Nashville, TN Hospitality 12/9/2021 66.0 66.0 64.3 9.8 + 3.6 4.5 $ 279,498 / key 68 3
64 Senior Loan Atlanta, GA Multifamily 12/10/2021 61.5 61.5 56.7 14.6 + 2.9 4.5 $ 187,771 / unit 67 3
65 Senior Loan Durham, NC Multifamily 12/15/2021 60.0 60.0 51.0 9.1 + 2.9 4.5 $ 147,758 / unit 67 3
66 Senior Loan San Antonio, TX Multifamily 4/20/2022 57.6 57.6 55.2 9.9 + 2.7 4.9 $ 161,404 / unit 79 3
67 Senior Loan Sharon, MA Multifamily 12/1/2021 56.9 56.9 56.9 8.3 + 2.8 4.4 $ 296,484 / unit 70 3
68 Senior Loan Queens, NY Industrial 2/22/2022 55.3 55.3 52.0 12.8 + 4.0 1.7 $ 84 / SF 68 3
69 Senior Loan Reno, NV Industrial 4/28/2022 140.4 50.5 50.5 11.0 + 2.7 4.9 $ 117 / SF 74 3
70 Senior Loan Carrollton, TX Multifamily 4/1/2022 48.5 48.5 43.4 11.6 + 2.9 4.8 $ 135,778 / unit 74 3
71 Senior Loan Dallas, TX Multifamily 4/1/2022 43.9 43.9 38.3 9.2 + 2.9 4.8 $ 107,607 / unit 73 3
72 Senior Loan Georgetown, TX Multifamily 12/16/2021 41.8 41.8 41.8 10.1 + 3.3 4.5 $ 199,048 / unit 68 3
73 Senior Loan San Diego, CA Multifamily 4/29/2022 203.0 40.0 38.5 6.1 + 2.6 4.9 $ 441,379 / unit 63 3
74 Senior Loan Denver, CO Industrial 12/11/2020 28.8 28.8 16.2 5.6 + 3.8 3.5 $ 58 / SF 61 3
75 Senior Loan(L) New York, NY Condo (Residential) 8/4/2017 25.2 25.2 25.2 25.2 + 4.2 0.3 $ 1,120 / SF 73 3
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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
Total/Weighted Average $ 12,545.6 $ 9,175.3 $ 7,730.9 $ 1,905.3 + 3.3% 3.6 67 % 3.0
Senior Loans Unlevered
Non-Senior Loans
1 Corporate n.a. Multifamily 12/11/2020 105.0 42.0 42.0 41.6 + 12.0 3.5 n.a. n.a. 3
Total/Weighted Average $ 105.0 $ 42.0 $ 42.0 $ 41.6 + 12.0% 3.5 n.a. 3.0
Non-Senior Loans Unlevered
CMBS B-Pieces
1 RECOP I(I) Various Various 2/13/2017 n.a. 40.0 35.7 35.7 4.8 6.9 n.a. 58 n.a.
Total/Weighted Average $ 40.0 $ 35.7 $ 35.7 4.8% 6.9 58 %
CMBS B-Pieces Unlevered
Real Estate Owned
1 Real Estate Asset Portland, OR Retail 12/16/2021 n.a. n.a. 79.2 79.2 n.a. n.a. n.a. n.a. n.a.
Total/Weighted Average $ 79.2 $ 79.2
Real Estate Owned
Grand Total / Weighted $ 9,257.3 $ 7,887.8 $ 2,061.7 5.1% 3.6 67 % 3.0
Average
* Numbers presented may not foot due to rounding.
(A) Our total portfolio represents the current principal amount on senior,
mezzanine and corporate 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 13, 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 of June 30, 2022 , at an interest rate of L+7.9%.
For Senior Loan 22, 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 $19.0 million was funded as of June 30, 2022 , 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, mezzanine and corporate loans and by net equity for our RECOP I CMBS B-Pieces. (E) Coupon expressed as spread over the relevant floating benchmark rates, which include one-month LIBOR and Term SOFR, as applicable to each loan. As ofJune 30, 2022 , 73.7% and 26.3% of floating rate loans by principal amount were indexed to one-month LIBOR and Term SOFR, 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, 7, 9, 30, 32, 41, 56, and 74, 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 one fully funded corporate loan to a multifamily operator with an outstanding principal amount of$42.0 million .
For Senior Loan 6, LTV is based on the initial loan amount divided by the appraised bulk sale value assuming a condo-conversion and no renovation.
For Senior Loan 75, LTV is based on the current principal amount divided by the adjusted appraised gross sellout value net of sales cost.
For Senior Loans 2, 7, 9, 30, 32, 41, 56 and 74, 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) 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.
(J) 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.
(K) For Senior Loan 9, the total whole loan facility is$425.0 million , co-originated and co-funded by us and a KKR affiliate. Our interest was 50% of the facility or$212.5 million . The facility is comprised of individual cross-collateralized whole loans. As ofJune 30, 2022 , there were seven underlying senior loans in the facility with a commitment of$83.0 million and outstanding principal of$30.2 million . (L) For Senior Loan 75, Loan per SF of$1,120 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$1,987 based on allocating the full amount of the loan to only the residential units. 60 -------------------------------------------------------------------------------- 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 on a quarterly basis. 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-The underlying property performance has surpassed underwritten
expectations, and the sponsor's business plan is generally complete. The
property demonstrates stabilized occupancy and/or rental rates resulting in
strong current cash flow and/or a very low LTV (<65%). At the level of
performance, it is very likely that the underlying loan can be refinanced easily
in the period's prevailing capital market conditions.
2-Low Risk-The underlying property performance has matched or exceeded
underwritten expectations, and the sponsor's business plan may be ahead of
schedule or has achieved some or many of the major milestones from a risk
mitigation perspective. The property has achieved improving occupancy at market
rents, resulting in sufficient current cash flow and/or a low LTV (65%-70%).
Operating trends are favorable, and the underlying loan can be refinanced in
today's prevailing capital market conditions. The sponsor/manager is well
capitalized or has demonstrated a history of success in owning or operating
similar real estate.
3-Average Risk-The underlying property performance is in-line with underwritten
expectations, or the sponsor may be in the early stages of executing its
business plan. Current cash flow supports debt service payments, or there is an
ample interest reserve or loan structure in place to provide the sponsor time to
execute the value-improvement plan. The property exhibits a moderate LTV (<75%).
Loan structure appropriately mitigates additional risks. The sponsor/manager has
a stable credit history and experience owning or operating similar real estate.
4-High Risk/Potential for Loss-A loan that has a risk of realizing a principal
loss. The underlying property performance is behind underwritten expectations,
or the sponsor is behind schedule in executing its business plan. The underlying
market fundamentals may have deteriorated, comparable property valuations may be
declining or property occupancy has been volatile, resulting in current cash
flow that may not support debt service payments. The loan exhibits a high LTV
(>80%), and the loan covenants are unlikely to fully mitigate some risks.
Interest payments may come from an interest reserve or sponsor equity.
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5-Impaired/Loss Likely-A loan that has a very high risk of realizing a principal
loss or has otherwise incurred a principal loss. The underlying property
performance is significantly behind underwritten expectations, the sponsor has
failed to execute its business plan and/or the sponsor has missed interest
payments. The market fundamentals have deteriorated, or property performance has
unexpectedly declined or valuations for comparable properties have declined
meaningfully since loan origination. Current cash flow does not support debt
service payments. With the current capital structure, the sponsor might not be
incentivized to protect its equity without a restructuring of the loan. The loan
exhibits a very high LTV (>90%), and default may be imminent.
As of
June 30, 2022 December 31, 2021
Total Loan Total Loan Total Loan Total Loan
Risk Rating Number of Loans Carrying Value Exposure(A) Exposure % Number of Loans Carrying Value Exposure(A) Exposure %
1 - $ - $ - - % 1 $ 243,549 $ 243,552 3.6 %
2 3 415,670 416,146 5.4 3 410,293 411,424 6.2
3 71 6,739,319 7,038,720 90.6 54 5,268,590 5,627,927 84.3
4 2 318,112 318,045 4.0 4 394,301 394,336 5.9
5 1 - - - 1 - - -
Total loan receivable 77 $ 7,473,101 $ 7,772,911 100.0 % 63 $ 6,316,733 $ 6,677,239 100.0 %
Allowance for credit losses (31,529) (22,244)
Loan receivable, net $ 7,441,572 $ 6,294,489
(A) 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 under GAAP. Total loan exposure includes the entire loan we
originated and financed, including $252.5 million and $318.6 million of such
non-consolidated senior interests as of June 30, 2022 and December 31, 2021 ,
respectively.
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.
Portfolio Financing
Our portfolio financing arrangements include term loan financing, term lending agreements, collateralized loan obligations, secured term loan, warehouse facility, asset specific financing, 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 77% of our total secured financing (excluding our corporate revolver) as ofJune 30, 2022 , are not subject to credit or capital markets mark-to-market provisions. The remaining 23% of our secured borrowings, which is primarily comprised of three master repurchase agreements, are only subject to credit marks. 62
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Table of Contents 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 portfolio financing (dollars in thousands):
Portfolio Financing Outstanding Principal
Balance
Non-/Mark-to-Market June 30, 2022 December 31, 2021
Master repurchase agreements Mark-to-Credit $ 1,387,158 $ 1,554,808
Collateralized loan obligations Non-Mark-to-Market 1,942,750 1,095,250
Term lending agreements Non-Mark-to-Market 1,358,817 1,117,627
Term loan financing Non-Mark-to-Market 741,640 870,458
Secured term loan Non-Mark-to-Market 348,250 350,000
Asset specific financing Non-Mark-to-Market 96,278 60,000
Warehouse facility Non-Mark-to-Market - -
Non-consolidated senior interests Non-Mark-to-Market 252,500 318,634
Total portfolio financing $ 6,127,393 $ 5,366,777
Financing Agreements
The following table details our financing agreements (dollars in thousands):
June 30, 2022
Maximum Collateral Borrowings
Facility Size(A) Assets(B) Potential(C) Outstanding Available
Master Repurchase
Agreements
Wells Fargo $ 1,000,000 $ 935,728 $ 701,796 $ 689,958 $ 11,838
Morgan Stanley 600,000 777,737 582,493 573,542 8,951
Goldman Sachs 240,000 219,026 157,124 123,658 33,466
Term Loan Facility 1,000,000 907,931 741,640 741,640 -
Term Lending Agreements
KREF Lending V 583,304 724,378 556,390 555,239 1,151
KREF Lending IX 750,000 803,846 646,497 642,438 4,059
KREF Lending XII 350,000 213,907 161,140 161,140 -
Warehouse Facility
HSBC 500,000 - - - -
Asset Specific Financing
BMO Facility 300,000 - - - -
KREF Lending XI 100,000 123,838 99,071 96,278 2,793
Revolver 610,000 - 610,000 - 610,000
$ 6,033,304 $ 4,706,391 $ 4,256,151 $ 3,583,893 $ 672,258 (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
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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 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 June 30, 2022 and December 31,
2021 , the weighted average haircut under our repurchase agreements was 28.2% and
30.3%, respectively (or 25.4% and 25.9%, 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 Financing
In connection with our efforts to diversify our financing sources, further expand our non-mark-to-market borrowing base and reduce our exposure to market volatility, we entered into a term loan financing agreement inApril 2018 with third party lenders for an initial borrowing capacity of$200.0 million that was increased to$1.0 billion inOctober 2018 ("Term Loan Facility"). The facility provides us with asset-based financing on a non-mark-to-market basis with match-term up to five years and is non-recourse to us. Borrowings under the facility are collateralized by senior loans, held-for-investment. The following table summarizes our borrowings under the Term Loan Facility (dollars in thousands): June 30, 2022 Outstanding Term Loan Facility Count Principal Amortized Cost Carrying Value Wtd. Avg. Yield/Cost(A) Guarantee(B) Wtd. Avg. Term(C) Collateral assets 13$ 907,931 $ 903,544 $ 893,694 + 3.5% n.a. October 2025 Financing provided n.a. 741,640 741,232 741,232 + 1.7% n.a. October 2025
(A) Collateral loan assets are indexed to one-month LIBOR and/or Term SOFR. In addition to cash coupon, yield/cost includes the amortization of deferred origination/financing costs.
(B) Financing under the Term Loan Facility is non-recourse to us.
(C) The weighted-average term is weighted by outstanding principal, using the maximum maturity date of the underlying loans assuming all extension options are exercised by the borrower. Term Lending Agreements 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 ofJune 30, 2022 , the Initial Buyer held 23.8% of the total commitment under the facility. Borrowings under the facility are collateralized by certain loans, held for investment, and bear interest equal to one-month LIBOR, plus a 1.9% margin. 64
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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 . 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
InMarch 2020 , we entered into a$500.0 million Loan and Security Agreement withHSBC Bank USA, National Association ("HSBC Facility"). The facility, which matures inMarch 2023 , provides warehouse financing on a non-mark-to-market basis with partial recourse to us. Borrowings under the facility are collateralized by certain loans, held for investment, and bear interest equal to one-month LIBOR, plus a margin.
Asset Specific Financing
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 asset-based financing on a non-mark-to-market basis with match-term up to five years with partial recourse to us.
In
Revolving Credit Agreement
InMarch 2022 , we upsized our corporate revolving credit facility ("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$610.0 million . We may use our Revolver as a source of financing, which is designed to provide short-term liquidity to originate or de-lever loans, pay operating expenses and borrow amounts for general corporate purposes. Borrowings under the Revolver bear interest at a per annum rate equal to the sum of (i) Term SOFR and (ii) a fixed margin. Our Revolver is secured by corporate level guarantees and includes net equity interests in the investment portfolio.
Collateralized Loan Obligations
InAugust 2021 , we financed a pool of loan participations from our existing loan portfolio through a managed collateralized loan obligation ("CLO" or "KREF 2021-FL2") and, inFebruary 2022 , we financed a pool of loan participations from our existing multifamily loan portfolio through a managed CLO ("KREF 2022-FL3"). The CLOs provide us with match-term financing on a non-mark-to-market and non-recourse basis. The CLOs have a two-year reinvestment feature that allows principal proceeds of the collateral assets to be reinvested in qualifying replacement assets, subject to the satisfaction of certain conditions set forth in the indentures. 65 -------------------------------------------------------------------------------- Table of Contents The following table outlines the CLO collateral assets and respective borrowing (dollars in thousands): June 30, 2022 Outstanding Count Principal Amortized Cost Carrying Value Wtd. Avg. Yield/Cost(A) Wtd. Avg. Term(B) KREF 2021-FL2 Collateral assets(C)(D) 21$ 1,300,000 $ 1,300,000 $ 1,293,709 + 3.3% December 2025 Financing provided 1 1,095,250 1,090,150 1,090,150 L + 1.7% February 2039 KREF 2022-FL3 Collateral assets(C) 16 1,000,000 1,000,000 996,846 + 3.0% September 2026 Financing provided 1 847,500 841,455 841,455 S + 2.1% February 2039 (A)Expressed as a spread over the relevant benchmark rates, which include one-month LIBOR and Term SOFR, as applicable to each loan. As ofMarch 31, 2022 , 91.1% and 8.9% 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 30.6% of the principal of our commercial real estate loans as ofJune 30, 2022 . As ofJune 30, 2022 , 100% of our loans financed through the CLOs are floating rate loans. (D)Including$0.5 million cash held in CLO as ofJune 30, 2022 .
Loan Participations Sold
In connection with our investments in CRE loans, we finance certain investments through the syndication of a non-recourse, or limited-recourse, loan participation to unaffiliated third parties. Our presentation of the senior loan and related financing involved in the syndication depends upon whether GAAP recognized the transaction as a sale, though such differences in presentation do not generally impact our net stockholders' equity or net income aside from timing differences in the recognition of certain transaction costs. To the extent that GAAP recognizes a sale resulting from the syndication, we derecognize the participation in the senior/whole loan that we sold and continue to carry the retained portion of the loan as an investment. While we do not generally expect to recognize a material gain or loss on these sales, we would realize a gain or loss in an amount equal to the difference between the net proceeds received from the third party purchaser and our carrying value of the loan participation we sold at time of sale. Furthermore, we recognize interest income only on the portion of the senior loan that we retain after the sale. To the extent that GAAP does not recognize a sale resulting from the syndication, we do not derecognize the participation in the senior/whole loan that we sold. Instead, we recognize a loan participation sold liability in an amount equal to the principal of the loan participation syndicated less any unamortized discounts or financing costs resulting from the syndication. We continue to recognize interest income on the entire senior loan, including the interest attributable to the loan participation sold, as well as interest expense on the loan participation sold liability.
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):
June 30, 2022
Principal Wtd. Avg.
Non-Consolidated Senior Interests Count Balance Carrying Value Wtd. Avg. Yield/Cost Guarantee Term
Total loan 2 $ 309,025 n.a. L + 3.7% n.a. January 2026
Senior participation 2 252,500 n.a. L + 2.3% n.a. December 2025
Interests retained 56,525 L + 9.6% January 2026
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Secured Term Loan
InSeptember 2020 , we entered into a$300.0 million secured term loan at a price of 97.5%, which bears interest at a per annum rate equal to LIBOR plus a 4.75% margin, subject to a 1.0% LIBOR floor, payable quarterly beginning inDecember 2020 . The secured term loan is partially amortizing, with an amount equal to 1.0% per annum of the principal balance due in quarterly installments startingMarch 31, 2021 . 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, which is an aggregate improvement of 1.75% over the 2020 secured term loan. 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):
Six Months Ended
Outstanding
Principal as of Average Daily Amount Maximum Amount Weighted Average
June 30, 2022 Outstanding(A) Outstanding Daily Interest Rate
Master Repurchase Agreements
Wells Fargo $ 689,958 $ 723,253 $ 980,593 1.9 %
Morgan Stanley 573,542 486,114 573,542 2.4
Goldman Sachs 123,658 129,479 192,313 2.6
Term Loan Facility 741,640 856,877 918,959 2.1
Term Lending Agreements
KREF Lending V 555,239 604,158 617,627 2.4
KREF Lending IX 642,438 444,166 642,438 2.2
KREF Lending XII 161,140 81,085 161,140 2.9
Asset Specific Financing
BMO Facility - 3,978 60,000 1.8
KREF Lending XI 96,278 96,278 96,278 3.6
Revolver - 83,646 395,000 3.2
Total/Weighted Average $ 3,583,893 2.3 %
(A) Represents the average for the period the facility was outstanding.
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Average Daily Amount Outstanding(A)
Three Months Ended
June 30, 2022 March 31, 2022
Master Repurchase Agreements
Wells Fargo $ 671,211 $ 775,874
Morgan Stanley 500,877 471,188
Goldman Sachs 105,799 153,422
Term Loan Facility 812,104 902,148
Term Lending Facility
KREF Lending V 598,508 609,870
KREF Lending IX 492,795 394,996
KREF Lending XII 81,085 -
Asset Specific Financing
BMO Facility - 8,000
KREF Lending XI 96,278 -
Revolver 147,253 19,333
(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 andKKR Real Estate Finance Holdings L.P. (our "Operating Partnership") or up to approximately$1,349.4 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
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 non-accrual 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 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. As a result, we recognized an$8.2 million benefit 68 -------------------------------------------------------------------------------- Table of Contents from the reversal of the allowance for credit losses for GAAP, and a$32.1 million realized loss on loan write-off through distributable earnings (representing the difference between the carrying value of the foreclosed loan and the fair value of the REO's net assets). 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 ofJune 30, 2022 , the joint venture held REO assets with a net carrying value of$69.3 million . We have priority of distributions up to$69.5 million before the JV Partner can participate in the economics of the joint venture. 69 -------------------------------------------------------------------------------- Table of Contents Results of Operations
Three Months Ended
The following table summarizes the changes in our results of operations for the three months endedJune 30, 2022 andMarch 31, 2022 (dollars in thousands, except per share data): Three Months Ended, Increase (Decrease) June 30, 2022 March 31, 2022 Dollars Percentage Net Interest Income Interest income$ 90,603 $ 73,230 $ 17,373 23.7 % Interest expense 44,733 32,459 12,274 37.8 Total net interest income 45,870 40,771 5,099 12.5 Other Income Revenue from real estate owned operations 1,833 2,629 (796) (30.3) Income (loss) from equity method investments 1,035 1,886 (851) (45.1) Other income 1,237 1,915 (678) (35.4) Total other income (loss) 4,105 6,430 (2,325) (36.2) Operating Expenses General and administrative 4,308 4,446 (138) (3.1) Provision for (reversal of ) credit losses, net 11,798 (1,218) 13,016 1,068.6 Management fee to affiliate 6,506 6,007 499 8.3 Expenses from real estate owned operations 2,368 2,554 (186) (7.3) Total operating expenses 24,980 11,789 13,191 111.9 Income (Loss) Before Income Taxes, Noncontrolling Interests, PreferredDividends and Participating Securities' Share in Earnings 24,995 35,412 (10,417) (29.4) Income tax expense - - - - Net Income (Loss) 24,995 35,412 (10,417) (29.4) Noncontrolling interests in (income) loss of consolidated joint venture 66 56 10 17.9 Net Income (Loss) Attributable toKKR Real Estate Finance Trust Inc. and Subsidiaries 25,061 35,468 (10,407) (29.3) Preferred stock dividends 5,326 5,326 - - Participating securities' share in earnings 341 346 (5) (1.4) Net Income (Loss) Attributable to Common Stockholders$ 19,394 $ 29,796 $ (10,402) (34.9) % Net Income (Loss) Per Share of Common Stock Basic $ 0.28 $ 0.47$ (0.19) (40.7) % Diluted $ 0.28 $ 0.46$ (0.18) (39.2) % Weighted Average Number of Shares of Common Stock Outstanding Basic 68,549,049 63,086,452 5,462,597 8.7 % Diluted 68,549,049 69,402,626 (853,577) (1.2) % Dividends Declared per Share of Common Stock $ 0.43 $ 0.43 $ - - % 70
-------------------------------------------------------------------------------- Table of Contents Net Interest Income Net interest income increased by$5.1 million during the three months endedJune 30, 2022 , compared to the three months endedMarch 31, 2022 . This increase was primarily due to an increase in the weighted-average index rates, including LIBOR and Term SOFR. Interest income further increased due to a$604.2 million quarter-over-quarter increase in our weighted average loan principal, as a result of continuing capital deployment from loan repayments and a common stock issuance. Interest expense increased accordingly due to a$445.2 million quarter-over-quarter increase in our weighted average portfolio financing. In addition, interest income included$4.0 million in prepayment penalty income in connection with loan repayments during the three month endedJune 30, 2022 . We recognized$5.9 million of deferred loan fees and origination discounts accreted into interest income during the three months endedJune 30, 2022 , consistent with those during the prior quarter. We recorded$5.8 million of deferred financing costs amortization into interest expense during the three months endedJune 30, 2022 , as compared to$4.8 million during the prior quarter.
Other Income
Total other income decreased by$2.3 million during the three months endedJune 30, 2022 , as compared to the prior quarter. This decrease was primarily due to a$0.9 million decrease in unrealized mark-to-market gain on our RECOP I's underlying CMBS investments and$0.8 million decrease in REO operating revenue. In addition, other income decreased due to$1.3 million of nonrecurring profit sharing income in connection with an industrial senior loan payoff in the prior quarter. Operating Expenses Total operating expenses increased by$13.2 million during the three months endedJune 30, 2022 , as compared to the prior quarter. This increase was primarily due to (i) a net increase of$13.0 million in the provision for credit losses and (ii) a$0.5 million increase in management fees resulting from our common stock issuance. 71 -------------------------------------------------------------------------------- Table of Contents Six Months EndedJune 30, 2022 Compared to Six Months EndedJune 30, 2021 The following table summarizes the changes in our results of operations for the six months endedJune 30, 2022 and 2021 (dollars in thousands, except per share data): Six Months Ended June 30, Increase (Decrease) 2022 2021 Dollars Percentage Net Interest Income Interest income$ 163,833 $ 131,915 $ 31,918 24.2 % Interest expense 77,192 54,341 22,851 42.1 Total net interest income 86,641 77,574 9,067 11.7 Other Income Revenue from real estate owned operations 4,462 - 4,462 100.0 Income (loss) from equity method investments 2,921 2,346 575 24.5 Other income 3,152 166 2,986 1,798.8 Total other income (loss) 10,535 2,512 8,023 319.4 Operating Expenses General and administrative 8,754 7,193 1,561 21.7 Provision for (reversal of ) credit losses, net 10,580 (2,147) 12,727 592.8 Management fee to affiliate 12,513 9,125 3,388 37.1 Incentive compensation to affiliate - 4,595 (4,595) (100.0) Expenses from real estate owned operations 4,922 - 4,922 100.0 Total operating expenses 36,769 18,766 18,003 95.9 Income (Loss) Before Income Taxes, Noncontrolling Interests, Preferred Dividends, Redemption Value Adjustment andParticipating Securities' Share in Earnings 60,407 61,320 (913) (1.5) Income tax expense - 151 (151) (100.0) Net Income (Loss) 60,407 61,169 (762) (1.2) Noncontrolling interests in (income) loss of consolidated joint venture 122 - 122 100.0 Net Income (Loss) Attributable toKKR Real Estate Finance Trust Inc. and Subsidiaries 60,529 61,169 (640) (1.0) Preferred stock dividends and redemption value adjustment 10,652 2,721 7,931 291.5 Participating securities' share in earnings 687 - 687 100.0 Net Income (Loss) Attributable to Common Stockholders$ 49,190 $ 58,448 $ (9,258) (15.8) % Net Income (Loss) Per Share of Common Stock Basic $ 0.75$ 1.05 $ (0.30) (28.6) % Diluted $ 0.74$ 1.05 $ (0.31) (29.5) % Weighted Average Number of Shares of Common Stock Outstanding Basic 65,832,841 55,625,911 10,206,930 18.3 % Diluted 72,149,015 55,819,110 16,329,905 29.3 % Dividends Declared per Share of Common Stock $ 0.86$ 0.86 $ - - % 72
-------------------------------------------------------------------------------- Table of Contents Net Interest Income Net interest income increased by$9.1 million , during the six months endedJune 30, 2022 , as compared to the corresponding period in the prior year. This increase was primarily due to an increase in the weighted average principal of our loan portfolio of$1,775.7 million for the six months endedJune 30, 2022 , as compared to the prior year period, as a result of continuing capital deployment from loan repayments and deployment of the proceeds from the preferred and common stock issuances. The increase in interest expense was primarily due to an increase in market rates and an increase in the weighted average principal balance of our financing facilities of$1,518.9 million for the six months endedJune 30, 2022 , as compared to the prior year period. The proceeds from our financing facilities were used to fund our loan originations and funding on previously closed loans. In addition, we recognized$12.0 million of deferred loan fees and origination discounts accreted into interest income during the six months endedJune 30, 2022 , as compared to$9.5 million during the prior year period. We recorded$10.6 million of deferred financing costs amortization into interest expense during the six months endedJune 30, 2022 , as compared to$6.6 million during the prior year period. Other Income Total other income increased by$8.0 million during the six months endedJune 30, 2022 , as compared to the prior year period. This increase was primarily due to a$4.5 million increase in REO operating revenue and$1.3 million of profit sharing income in connection with the repayment of an industrial senior loan. In addition, the unrealized mark-to-market gain on our RECOP I's underlying CMBS investments increased by$1.1 million compared to the prior year period. Operating Expenses Total operating expenses increased by$18.0 million during the six months endedJune 30, 2022 , as compared to the prior year period. This increase was primarily due to a (i) net increase of$12.7 million in the provision for credit losses, (ii)$4.9 million increase in REO operating expenses and (iii)$3.4 million increase in management fees resulting from our preferred and common stock issuances. This increase was partially offset by a$4.6 million decrease in incentive fee, as compared to the prior year period.
The following table provides additional information regarding total operating expenses (dollars in thousands):
Three Months Ended
December 31, September 30,
June 30, 2022 March 31, 2022 2021 2021 June 30, 2021
Operating expenses $ 2,268 $ 2,320 $ 1,970 $ 1,632 $ 1,694
Stock-based compensation 2,040 2,126 1,413 2,027 1,994
Total general and
administrative expenses 4,308 4,446 3,383 3,659 3,688
Provision for (reversal of)
credit losses, net 11,798 (1,218) (3,077) 1,165 (559)
Management fee to affiliate 6,506 6,007 5,289 4,964 4,835
Incentive compensation to
affiliate - - 3,463 2,215 2,403
Expenses from real estate
owned operations 2,368 2,554 - - -
Total operating expenses $ 24,980 $ 11,789 $ 9,058 $ 12,003 $ 10,367
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.
In 2021 and 2022, the global economy has, with certain setbacks, begun reopening
and wider distribution of vaccines will likely encourage greater economic
activity. Although we have observed signs of economic recovery and are generally
encouraged by the response of our borrowers, with the potential for new strains
of COVID-19 to emerge, governments and businesses may re-impose aggressive
measures to help slow its spread in the future, and for this reason, among
others, as the COVID-19 pandemic continues, the potential global impacts remain
uncertain and difficult to assess. In addition, the COVID-19 pandemic continues
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to disrupt global supply chains, has caused labor shortages and has added broad
inflationary pressures, 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. In response to such
inflationary pressures, the Federal Reserve has begun raising interest rates in
2022 and has indicated that it foresees further interest rate increases
throughout the year and into 2023 and 2024. Higher interest rates imposed by the
Federal Reserve to address inflation may increase our interest expenses, which
expenses 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. Further, declines in
economic conditions caused by the COVID-19 pandemic could negatively impact real
estate and real estate capital markets and result in lower occupancy, lower
rental rates and declining values in our portfolio, which could adversely impact
the value of our investments, making it more difficult for us to make
distributions or meet our financing obligations.
We believe any future impact of COVID-19 on our business, financial performance
and operating results will in part be significantly driven by a number of
factors that we are unable to predict or control, including, for example: the
severity and duration of the pandemic; the distribution and acceptance of
vaccines and their impact on the timing and speed of economic recovery; the
spread of new variants of the virus; the pandemic's impact on the U.S. and
global economies, including concerns regarding additional surges of the pandemic
or the expansion of the economic impact thereof as a result of certain
jurisdictions "re-opening" or otherwise lifting certain restrictions
prematurely; the availability of U.S. federal, state, local or non-U.S. funding
programs aimed at supporting the economy during the COVID-19 pandemic, including
uncertainties regarding the potential implementation of new or extended
programs; the timing, scope and effectiveness of additional governmental
responses to the pandemic; and the negative impact on our financing sources,
vendors and other business partners that may indirectly adversely affect us.
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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 and sale of convertible notes and our secured term loan. Our Non-Mark-to-Market Financing Sources, which accounted for 77% of our total secured financing (excluding our corporate Revolver) as ofJune 30, 2022 , are not subject to credit or capital markets mark-to-market provisions. The remaining 23% of our secured borrowings, 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$118.0 million of cash on our consolidated balance sheet,$610.0 million of available capacity on our corporate revolver,$62.3 million of available borrowings under our financing arrangements based on existing collateral and cash flows from operations. In addition, we had$416.0 million of unencumbered senior loans that can be financed, as ofJune 30, 2022 . Our corporate revolver and secured term loan are secured by corporate level guarantees and includes 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 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 10 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 ofJune 30, 2022 , we held$36.8 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. We are continuing to monitor the COVID-19 pandemic and its impact on our operating partners, financing sources, borrowers and their tenants, and the economy as a whole. While the availability of approved COVID-19 vaccines and their impact on the economy is encouraging, the distribution and acceptance of such vaccines and their effectiveness with respect to new variants of the virus remain unknown. Accordingly, the ultimate magnitude and duration of the COVID-19 pandemic, as well as its impact on our borrowers, lenders and the economy as a whole, remains uncertain and continues to evolve. To the extent that our operating partners, financing sources, borrower's and their tenants continue to be impacted by the COVID-19 pandemic, or by the other risks disclosed in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K, it would have a material adverse effect on our liquidity and capital resources. 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. InJanuary 2022 , we issued 6,210,000 shares of 6.50% Series A Preferred Stock under the Shelf, which included the exercise of the underwriters option to purchase additional shares of Series A Preferred Stock, and received net proceeds after underwriting discounts and commissions of$151.2 million . In March and June of 2022, we issued 6,494,155 and 2,750,000 shares of Common Stock under the Shelf, respectively, which included the partial exercise of the underwriters' option to purchase additional shares of Common Stock, and received net proceeds after underwriting discounts and commissions of$133.8 million and$53.7 million , respectively.
(1) Comprised of term loan financing, term lending agreements, collateralized loan obligations, secured term loan, warehouse facility, asset specific financing, and non-consolidated senior interests.
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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 six months ended June 30, 2022 , we issued and sold
68,817 shares of common stock under the ATM, generating net proceeds totaling
$1.4 million . As of June 30, 2022 , $98.6 million remained available for issuance
under the ATM.
See Notes 5, 6, 7, 8 and 11 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:
June 30, 2022 December 31, 2021
Debt-to-equity ratio(A) 1.9x 2.3x
Total leverage ratio(B) 3.5x 3.7x
(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):
June 30, 2022 December 31, 2021
Cash and cash equivalents $ 118,020 $ 271,487
Available borrowings under revolving credit
agreements 610,000 200,000
Available borrowings under master repurchase
agreements 54,255 51,601
Available borrowings under term lending agreements 5,210 5,826
Available borrowings under asset specific financing 2,793 -
$ 790,278 $ 528,914
We also had $416.0 million and $235.3 million of unencumbered senior loans that
can be pledged to financing facilities subject to lender approval, as of
June 30, 2022 and December 31, 2021 . 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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