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.
Our business 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
Marylandcorporation 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.
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. 54 -------------------------------------------------------------------------------- Table of Contents Key Financial Measures and Indicators
As a real estate finance company, we believe that the primary financial measures and indicators of our business are earnings per share, declared dividends, 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, September 30, 2022 June 30, 2022 Net income attributable to common stockholders $ (48,421)
$ 19,394Weighted-average number of shares of common stock outstanding Basic 69,382,730 68,549,049 Diluted 69,382,730 68,549,049 Net income per share, basic $ (0.70) $ 0.28 Net income per share, diluted $ (0.70) $ 0.28 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 generally 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) if, in our determination, it is nearly certain that all amounts due under a loan will not be collected. 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 55 -------------------------------------------------------------------------------- Table of Contents 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 with the weighted average diluted shares used for distributable income:
Three Months Ended, September 30, 2022 June 30, 2022 Diluted weighted average common shares outstanding, 69,382,730 68,549,049
Less: Dilutive shares under assumed conversion of the - - Convertible Notes (ASU 2020-06) Less: Anti-dilutive restricted stock units - - Diluted weighted average common shares outstanding, 69,382,730 68,549,049 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
$62,500or 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) issued equity instruments that provide for fixed distributions or other debt features and (ii ) the unrealized provision for (the 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, September 30, 2022 June 30, 2022 Net Income (Loss) Attributable to Common Stockholders $ (48,421)
$ 19,394Adjustments Non-cash equity compensation expense 2,175 2,040 Unrealized (gains) or losses, net(A) (79) (190) Provision for credit losses, net 80,604 11,798 Non-cash convertible notes discount amortization 91 90 Distributable Earnings $ 34,370 $ 33,132Weighted average number of shares of common stock outstanding Basic 69,382,730 68,549,049 Adjusted Diluted Shares Outstanding(B) 69,382,730 68,549,049 Distributable Earnings per Diluted Weighted Average $ 0.50 $ 0.48 Share(C) (A) Includes ($0.1) millionand ($0.2) millionof unrealized mark-to-market adjustment to our RECOP I's underlying CMBS investments for the three months ended September 30, 2022and June 30, 2022, respectively.
(B) See reconciliation of GAAP weighted average diluted shares to adjusted weighted average diluted shares used for distributable income above.
56 -------------------------------------------------------------------------------- Table of Contents 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):
September 30, 2022 December 31, 2021
Series A Preferred Shares (Preferred Liquidation of
(327,750) (172,500) Common stockholders' equity $
Common shares issued and outstanding at the end of the period
69,338,283 61,370,732 Book value per share of common stock $ 18.28 $ 19.37 Book value as of
September 30, 2022included the impact of an estimated CECL credit loss allowance of $114.9 million, or ( $1.66) per common share. See Note 2 - Summary of Significant Accounting Policies, to our condensed consolidated financial statements included in this Form 10-Q for detailed discussion of allowance for credit losses. 57 -------------------------------------------------------------------------------- Table of Contents Our Portfolio We have established a $7,726.3 millionportfolio of diversified investments, consisting primarily of senior and mezzanine commercial real estate loans as of September 30, 2022. During the nine months ended September 30, 2022, we collected 100.0% of interest payments due on our loan portfolio. As of September 30, 2022, the average risk rating of our loan portfolio was 3.1, weighted by total loan exposure. As of September 30, 2022, approximately 5% of our loans, based on total loan exposure, was risk-rated 5. As of September 30, 2022, the average loan commitment in our portfolio was $123.8 millionand multifamily and industrial loans comprised 56% of our loan portfolio, while hospitality loans comprised 5% of the portfolio.
In addition to our loan portfolio, since
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
September 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 September 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 September 30, 2022: [[Image Removed: kref-20220930_g2.jpg]]
The charts above are based on the total principal amount outstanding for our commercial real estate loans.
(A) Excludes: (i) one REO retail asset on a defaulted loan with net carrying value of
$79.7 millionas of September 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 millionthat was fully written off. 58 -------------------------------------------------------------------------------- Table of Contents (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. (D) "Other" property types include: 3% Condo (Residential), 3% Student Housing, and <1% Single Family Rental. (E) Excludes (i) risk-rated 5 loans and (ii) one real estate corporate loan to a multifamily operator with an outstanding principal amount of $40.0 million, representing 0.5% of our commercial real estate loans as of September 30, 2022. (F) 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 lending activity (in thousands of dollars):
Three Months Ended September 30, December 31, 2022 June 30, 2022 March 31, 2022 2021 Loan originations
$ 457,685 $ 1,034,191 $ 843,624 $ 1,804,897Loan fundings(A) $ 224,724
(387,264) (444,313) (282,282) (679,749) Net fundings (162,540) 632,819 461,910 1,001,141 PIK interest 470 479 464 418 Write-off - - - (32,905) Transfer to REO - - - (77,516) Total activity
$ (162,070) $ 633,298 $ 462,374 $ 891,138
(A) Includes initial funding for new loans and additional funding made under existing loans.
The following table details the overall statistics of our loan portfolio in
Total Loan Exposure(A) Balance Sheet Total Loan Floating Rate Portfolio Portfolio Loans Fixed Rate Loans Number of loans 76 75 75 - Principal balance
$ 7,357,481 $ 7,610,841 $ 7,610,841$ - Amortized cost $ 7,306,565 $ 7,565,426 $ 7,565,426$ - Unfunded loan commitments(B) $ 1,649,112 $ 1,649,112 $ 1,649,112$ - Weighted-average cash coupon(C) 6.5 % +3.3 % +3.3 % n.a. Weighted-average all-in yield(C) 6.8 % +3.6 % +3.6 % n.a. Weighted-average maximum maturity 3.4 3.4 3.4 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 millionthat 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 September 30, 2022, 64.1% and 35.9% of floating rate loans by loan exposure were indexed to one-month USD LIBOR and Term SOFR, respectively. In addition to cash coupon, all-in yield includes the amortization of deferred origination fees, loan origination costs and purchase discounts.
(D) Maximum maturity assumes that all extension options are exercised by the borrower; however, our loans can be repaid before this date. Of the
(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 risk-rated 5 loans and one real estate corporate loan to a multifamily operator with an outstanding principal of
$40.0 millionas of September 30, 2022. 59
-------------------------------------------------------------------------------- Table of Contents The table below sets forth additional information relating to our portfolio as of
September 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 Loan Arlington, VAMultifamily 9/30/2021 $ 381.0 $ 381.0 $ 355.0$ 72.4 + 3.2% 4.0 $ 319,793/ unit 69 % 3 2 Senior Loan Boston, MALife Science 8/3/2022312.5 312.5 44.9 3.7 + 4.2 4.9 $ 649/ SF 56 3 3 Senior Loan Bellevue, WAOffice 9/13/2021520.8 260.4 93.0 28.3 + 3.6 4.5 $ 855/ SF 63 3 4 Senior Loan Los Angeles, CAMultifamily 2/19/2021260.0 260.0 250.0 38.3 + 3.6 3.4 $ 466,400/ unit 68 3 5 Senior Loan Various Industrial 4/28/2022504.5 252.3 252.3 49.0 + 2.7 4.6 $ 98/ SF 64 3 6 Senior Loan Mountain View, CAOffice 7/14/2021362.8 250.0 192.2 48.0 + 3.3 3.9 $ 626/ SF 73 4 7 Senior Loan Bronx, NYIndustrial 8/27/2021381.2 228.7 137.5 36.0 + 4.1 3.9 $ 277/ SF 52 3 8 Senior Loan Various Multifamily 5/31/2019216.5 216.5 216.5 39.2 + 4.0 1.7 $ 202,336/ unit 74 3 9 Senior Loan(K) Various Industrial 6/30/2021425.0 212.5 47.0 45.4 + 5.5 3.8 $ 163/ SF 67 3 10 Senior Loan New York, NYCondo (Residential) 12/20/2018211.2 211.2 200.1 60.9 + 3.6 1.3 $ 1,388/ SF 69 3 11 Senior Loan Minneapolis, MNOffice 11/13/2017194.4 194.4 194.4 33.2 + 3.8 0.2 $ 179/ SF n.a. 5 12 Senior Loan Various Industrial 6/15/2022375.5 187.8 137.5 30.4 + 2.9 4.8 $ 99/ SF 50 3 13 Senior Loan Washington, D.C.Office 11/9/2021187.7 187.7 154.8 41.3 + 3.3 4.2 $ 434/ SF 55 3 14 Senior Loan Boston, MAOffice 2/4/2021375.0 187.5 187.5 37.4 + 3.3 3.4 $ 506/ SF 71 3 15 Senior Loan The Woodlands, TXHospitality 9/15/2021183.3 183.3 170.9 30.4 + 4.2 4.0 $ 187,957/ key 64 3 16 Senior Loan Philadelphia, PAOffice 4/11/2019182.6 182.6 157.3 25.4 + 2.6 1.6 $ 220/ SF n.a. 5 17 Senior Loan Washington, D.C.Office 12/20/2019175.5 175.5 144.2 37.6 + 3.4 2.3 $ 706/ SF 58 4 18 Senior Loan West Palm Beach, FLMultifamily 12/29/2021171.5 171.5 169.8 25.7 + 2.7 4.3 $ 209,072/ unit 73 3 19 Senior Loan Boston, MALife Science 4/27/2021332.3 166.2 135.9 25.3 + 3.6 3.6 $ 564/ SF 66 3 20 Senior Loan Philadelphia, PAOffice 6/19/2018161.0 161.0 161.0 160.2 + 3.5 0.8 $ 165/ SF 71 4 21 Senior Loan Oakland, CAOffice 10/23/2020509.9 159.7 129.1 20.3 + 4.3 3.1 $ 397/ SF 65 3 22 Senior Loan Plano, TXOffice 2/6/2020153.7 153.7 145.3 22.3 + 2.7 2.4 $ 201/ SF 63 3 23 Senior Loan Chicago, ILOffice 7/15/2019150.0 150.0 117.6 20.3 + 3.3 1.9 $ 113/ SF 57 3 24 Senior Loan Redwood City, CALife Science 9/30/2022580.7 145.2 - (1.5) + 4.5 5.0 $ 1,206/ SF 53 3 25 Senior Loan Seattle, WALife Science 10/1/2021188.0 140.3 103.8 25.2 + 3.1 4.0 $ 662/ SF 69 3 26 Senior Loan Dallas, TXOffice 12/10/2021138.0 138.0 135.8 25.2 + 3.7 4.2 $ 432/ SF 68 3 27 Senior Loan Boston, MAMultifamily 3/29/2019137.0 137.0 137.0 30.8 + 2.7 1.5 $ 351,282/ unit 59 3 28 Senior Loan Arlington, VAMultifamily 1/20/2022135.3 135.3 130.9 31.7 + 2.9 4.4 $ 436,300/ unit 65 3 29 Senior Loan Fontana, CAIndustrial 5/11/2021132.0 132.0 72.6 43.5 + 4.7 3.7 $ 113/ SF 64 3 30 Senior Loan Fort Lauderdale, FLHospitality 11/9/2018130.0 130.0 130.0 24.3 + 3.4 1.2 $ 375,723/ key 66 3 31 Senior Loan San Carlos, CALife Science 2/1/2022195.9 125.0 84.9 24.0 + 3.6 4.4 $ 580/ SF 68 3 32 Senior Loan Irving, TXMultifamily 4/22/2021117.6 117.6 112.2 17.3 + 3.3 3.6 $ 123,586/ unit 70 3 33 Senior Loan Cambridge, MALife Science 12/22/2021401.3 115.7 61.5 16.7 + 3.9 4.3 $ 1,072/ SF 51 3 34 Senior Loan Pittsburgh, PA Student Housing 6/8/2021112.5 112.5 112.5 17.0 + 2.9 3.7 $ 155,602/ unit 74 3 35 Senior Loan Las Vegas, NVMultifamily 12/28/2021106.3 106.3 102.0 19.8 + 2.7 4.3 $ 193,182/ unit 61 3 36 Senior Loan Doral, FLMultifamily 12/10/2021212.0 106.0 106.0 21.0 + 2.8 4.2 $ 335,975/ unit 77 3 37 Senior Loan San Diego, CAMultifamily 10/20/2021103.5 103.5 103.5 18.5 + 2.8 4.1 $ 448,052/ unit 71 3 60
Table of Contents Committed Current Total Whole Principal Principal Max Remaining Term Loan Per SF / Unit / Investment(A) Location Property Type Investment Date Loan(B) Amount(B) Amount Net Equity(C) Coupon(D)(E) (Years)(D)(F) Key(G) LTV(D)(H) Risk Rating 38 Senior Loan
Orlando, FLMultifamily 12/14/2021102.4 102.4 88.9 21.5 + 3.0 4.3 $ 234,565/ unit 74 3 39 Senior Loan West Hollywood, CAMultifamily 1/26/2022102.0 102.0 102.0 15.3 + 3.0 4.4 $ 2,756,757/ unit 65 3 40 Senior Loan Boston, MAIndustrial 6/28/2022285.5 100.0 98.5 97.7 + 3.0 4.8 $ 197/ SF 52 3 41 Senior Loan Washington, D.C.Office 1/13/2022228.5 100.0 58.5 10.0 + 3.2 5.4 $ 214/ SF 55 3 42 Senior Loan Phoenix, AZIndustrial 1/13/2022195.3 100.0 33.3 22.1 + 4.0 4.4 $ 57/ SF 57 3 43 Senior Loan Brisbane, CALife Science 7/22/202195.0 95.0 90.8 22.3 + 3.1 3.9 $ 784/ SF 71 3 44 Senior Loan State College, PA Student Housing 10/15/201993.4 93.4 91.5 23.5 + 2.7 2.1 $ 76,614/ SF 64 2 45 Senior Loan Brandon, FLMultifamily 1/13/202290.3 90.3 63.9 10.6 + 3.1 4.4 $ 194,363/ unit 75 3 46 Senior Loan Dallas, TXMultifamily 12/23/202190.0 90.0 77.5 15.0 + 2.8 4.3 $ 238,488/ unit 67 3 47 Senior Loan Miami, FLMultifamily 10/14/202189.5 89.5 89.5 17.2 + 2.9 4.1 $ 304,422/ unit 76 3 48 Senior Loan Dallas, TXOffice 1/22/202187.0 87.0 87.0 21.2 + 3.3 3.4 $ 288/ SF 65 3 49 Senior Loan Charlotte, NCMultifamily 12/14/202186.8 86.8 76.0 10.9 + 3.0 4.3 $ 206,522/ unit 74 3 50 Senior Loan San Antonio, TXMultifamily 6/1/2022246.5 86.3 80.3 79.9 + 2.8 4.7 $ 88,134/ unit 68 3 51 Senior Loan Scottsdale, AZMultifamily 5/9/2022169.0 84.5 84.5 12.8 + 2.9 4.7 $ 457,995/ unit 64 3 52 Senior Loan Raleigh, NCMultifamily 4/27/202282.9 82.9 77.3 15.5 + 3.0 4.6 $ 241,488/ unit 68 3 53 Senior Loan Hollywood, FLMultifamily 12/20/202181.0 81.0 81.0 14.8 + 3.0 4.3 $ 327,935/ unit 74 3 54 Senior Loan Seattle, WAOffice 3/20/201880.7 80.7 80.7 13.2 + 4.1 0.5 $ 468/ SF 56 3 55 Senior Loan Phoenix, AZSingle Family Rental 4/22/202172.1 72.1 32.6 15.4 + 4.8 3.6 $ 157,092/ unit 50 3 56 Senior Loan Arlington, VAMultifamily 10/23/2020141.8 70.9 70.9 11.7 + 3.8 3.0 $ 393,858/ unit 73 3 57 Senior Loan Denver, COMultifamily 9/14/202170.3 70.3 69.6 11.4 + 2.7 4.0 $ 287,596/ unit 78 3 58 Senior Loan Washington, D.C.Multifamily 12/4/202069.0 69.0 66.4 10.6 + 3.5 3.2 $ 265,617/ unit 63 3 59 Senior Loan Dallas, TXMultifamily 8/18/202168.2 68.2 68.2 9.9 + 3.9 3.9 $ 189,444/ unit 70 3 60 Senior Loan Manassas Park, VAMultifamily 2/25/202268.0 68.0 68.0 13.2 + 2.7 4.4 $ 223,684/ unit 73 3 61 Senior Loan Plano, TXMultifamily 3/31/202267.8 67.8 65.0 17.9 + 2.8 4.5 $ 244,451/ unit 75 3 62 Senior Loan Nashville, TNHospitality 12/9/202166.0 66.0 64.7 10.3 + 3.6 4.3 $ 281,237/ key 68 3 63 Senior Loan Atlanta, GAMultifamily 12/10/202161.5 61.5 57.3 15.3 + 3.0 4.3 $ 189,893/ unit 67 3 64 Senior Loan Durham, NCMultifamily 12/15/202160.0 60.0 52.2 10.4 + 3.0 4.3 $ 151,263/ unit 67 3 65 Senior Loan San Antonio, TXMultifamily 4/20/202257.6 57.6 55.8 10.6 + 2.7 4.6 $ 163,277/ unit 79 3 66 Senior Loan Sharon, MAMultifamily 12/1/202156.9 56.9 56.9 8.3 + 2.8 4.2 $ 296,484/ unit 70 3 67 Senior Loan Queens, NYIndustrial 2/22/202255.3 55.3 52.4 13.3 + 4.0 1.4 $ 85/ SF 68 3 68 Senior Loan Reno, NVIndustrial 4/28/2022140.4 50.5 50.5 11.1 + 2.7 4.6 $ 117/ SF 74 3 69 Senior Loan Carrollton, TXMultifamily 4/1/202248.5 48.5 44.9 13.0 + 2.9 4.5 $ 140,288/ unit 74 3 70 Senior Loan Dallas, TXMultifamily 4/1/202243.9 43.9 39.5 10.4 + 2.9 4.5 $ 110,895/ unit 73 3 71 Senior Loan Georgetown, TXMultifamily 12/16/202141.8 41.8 41.8 10.1 + 3.4 4.3 $ 199,048/ unit 68 3 72 Senior Loan San Diego, CAMultifamily 4/29/2022203.0 40.0 38.9 6.5 + 2.6 4.6 $ 446,056/ unit 63 3 73 Senior Loan(L) New York, NYCondo (Residential) 8/4/201720.1 20.1 20.1 20.1 + 4.2 0.6 $ 942/ SF 73 3 74 Senior Loan Denver, COIndustrial 12/11/202015.4 15.4 7.3 3.1 + 3.8 3.3 $ 47/ SF 61 3 Total/Weighted Average $ 13,051.6 $ 9,245.8 $ 7,570.9 $ 1,900.8+ 3.3% 3.4 67 % 3.1 Senior Loans Unlevered 61
Table of Contents 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 Non-Senior Loans 1 Corporate n.a. Multifamily
12/11/2020100.0 40.0 40.0 39.6 + 12.0 3.2 n.a. n.a. 3 Total/Weighted Average $ 100.0 $ 40.0 $ 40.0$ 39.6 + 12.0% 3.2 n.a. 3.0
Non-Senior Loans Unlevered CMBS B-Pieces 1 RECOP I(I) Various Various
2/13/2017n.a. 40.0 35.7 35.7 4.8 6.7 n.a. 58
n / A
$ 40.0 $ 35.7$ 35.7 4.8% 6.7 58 % CMBS B-Pieces Unlevered Real Estate Owned 1 Real Estate Asset Portland, ORRetail 12/16/2021n.a. n.a. 79.7 79.7 n.a. n.a. n.a. n.a.
n.a. Total/Weighted Average
$ 79.7$ 79.7 Real Estate Owned Grand Total / Weighted $ 9,325.8 $ 7,726.3 $ 2,055.86.5% 3.5 67 % 3.1 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 millionthat was fully written off. For Senior Loan 14, 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 millionin 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 September 30, 2022, at an interest rate of L+7.9%. For Senior Loan 21, 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 millionin senior notes were syndicated to third party lenders. Post syndication, we retained a mezzanine loan with a commitment of $25.0 million, of which $20.2 millionwas funded as of September 30, 2022, at an interest rate of L+12.9%.
(B) Total Whole Loan represents the total commitment of the entire original loan. The principal amount committed includes the equity interests of KKR affiliates 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 base 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. Non-Senior Loan 1 and risk-rated 5 loans are excluded from the weighted average LTV. (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 of
September 30, 2022, 64.1% and 35.9% of floating rate loans by principal amount were indexed to one-month LIBOR and Term SOFR, respectively.
(F) Maximum remaining term (years) assumes all extension options are exercised, if any.
(G) Loan Per SF / Unit / Key is based on the current principal amount divided by the current SF / Unit / Key. For Senior Loans 2, 3, 7, 9, 24, 29, 33, 42, 55, 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
For Senior Loans 10 and 73, the LTV is based on the current principal amount divided by the estimated gross redemption value adjusted net of cost of sales.
For Senior Loans 2, 3, 7, 9, 24, 29, 33, 42, 55 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 includes Senior Mortgages and Investments of similar credit quality, including Junior Participations in our Originating Senior Loans for which we have syndicated the Senior Participations and retained the Junior Participations for our portfolio and excludes the participations vertical lending.
(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 of September 30, 2022, there were eight underlying senior loans in the facility with a commitment of $98.4 millionand outstanding principal of $47.0 million. (L) For Senior Loan 73, Loan per SF of $942is 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 $2,061based on allocating the full amount of the loan to only the residential units. 62 -------------------------------------------------------------------------------- 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 have a strong asset management relationship with our borrowers and have used 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 2-Low Risk 3-Medium Risk
4-High risk/potential for loss: A loan that presents a risk of realizing a loss on the principal.
5-Impairment/Probable Loss: A loan that has a very high risk of realizing a capital loss or has otherwise suffered a capital loss.
September 30, 2022, the average risk rating of our loan portfolio was 3.1, weighted by total loan exposure, as compared to 2.9 as of December 31, 2021. September 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 $ 243,5523.6 % 2 1 91,287 91,476 1.2 3 410,293 411,424 6.2 3 69 6,367,631 6,670,183 87.6 54 5,268,590 5,627,927 84.3 4 3 496,219 497,466 6.6 4 394,301 394,336 5.9 5 3 351,428 351,716 4.6 1 - - - Total loan receivable 76 $ 7,306,565 $ 7,610,841100.0 % 63 $ 6,316,733 $ 6,677,239100.0 % Allowance for credit losses (110,798) (22,244) Loan receivable, net $ 7,195,767 $ 6,294,48963
(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
$258.9 millionand $318.6 millionof such non-consolidated senior interests as of September 30, 2022and December 31, 2021, respectively. As of September 30, 2022, we had one risk-rated 4 senior loan secured by office properties located in Philadelphia, PAthat was past its current maturity date of September 2022. The maximum maturity date of this senior loan, assuming all extension options are exercised, is July 2023. The loan had an amortized cost of $161.8 millionand was not pledged to any secured financing facility as of September 30, 2022. The borrower paid its October monthly interest payment subsequent to quarter end.
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 Loan Agreements, Secured Loan Obligations, Secured Term Loan, Warehouse, Asset Specific Financing, Senior Interest non-consolidated (collectively “non-marked-to-market sources of funding”) and the main takeover agreements.
Our Non-Mark-to-Market Financing Sources, which accounted for 76% of our total secured financing (excluding our corporate revolver) as of
September 30, 2022, are not subject to credit or capital markets mark-to-market provisions. The remaining 24% of our secured borrowings, which is primarily comprised of three master repurchase agreements, are only subject to credit marks.
We continue to expand and diversify our funding sources, particularly those that provide non-mark-to-market funding, thereby reducing our exposure to market volatility.
The following table summarizes our portfolio funding (in thousands of dollars):
Portfolio Financing Outstanding Principal Balance Non-/Mark-to-Market September 30, 2022 December 31, 2021 Master repurchase agreements Mark-to-Credit
$ 1,423,355 $ 1,554,808Collateralized loan obligations Non-Mark-to-Market 1,942,750 1,095,250 Term lending agreements Non-Mark-to-Market 1,342,628 1,117,627 Term loan financing Non-Mark-to-Market 584,033 870,458 Secured term loan Non-Mark-to-Market 347,375 350,000 Asset specific financing Non-Mark-to-Market 138,165 60,000 Warehouse facility Non-Mark-to-Market - - Non-consolidated senior interests Non-Mark-to-Market 258,861 318,634 Total portfolio financing $ 6,037,167 $ 5,366,777Financing Agreements
The following table details our funding arrangements (in thousands of dollars):
Table of Contents September 30, 2022 Maximum Collateral Borrowings Facility Size(A) Assets(B) Potential(C) Outstanding Available Master Repurchase Agreements Wells Fargo
$ 1,000,000 $ 978,669 $ 734,002 $ 715,981 $ 18,021Morgan Stanley 600,000 790,539 590,520 583,716 6,804 Goldman Sachs 240,000 287,517 206,214 123,658 82,556 Term Loan Facility 1,000,000 719,961 584,033 584,033 - Term Lending Agreements KREF Lending V 567,115 686,622 540,406 539,050 1,356 KREF Lending IX 1,000,000 813,181 654,000 642,438 11,562 KREF Lending XII 350,000 217,395 163,698 161,140 2,558 Warehouse Facility HSBC 500,000 - - - - Asset Specific Financing BMO Facility 300,000 - - - - KREF Lending XI 100,000 125,000 100,000 100,000 - KREF Lending XIII 265,625 44,900 38,165 38,165 - Revolver 610,000 - 610,000 - 610,000 $ 6,532,740 $ 4,663,784 $ 4,221,038 $ 3,488,181 $ 732,857
(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 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 takeover 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 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
September 30, 2022and December 31, 2021, the weighted average haircut under our repurchase agreements was 30.8% and 30.3%, respectively (or 25.5% and 25.9%, respectively, if we had borrowed the 65 -------------------------------------------------------------------------------- Table of Contents 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 in
April 2018with third party lenders for an initial borrowing capacity of $200.0 millionthat was increased to $1.0 billionin October 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): September 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 10 $ 719,961 $ 716,517 $ 688,843+ 3.4% n.a. February 2026 Financing provided n.a. 584,033 583,681 583,681 + 1.8% n.a. February 2026
(A) Collateral loan assets are indexed to one-month LIBOR and/or forward SOFR. In addition to the cash coupon, the yield/cost ratio includes the amortization of origination/deferred 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 In
June 2019, we entered into a Master Repurchase and Securities Contract Agreement ("KREF Lending V Facility") with Morgan Stanley Mortgage Capital Holdings LLC("Administrative Agent"), as administrative agent on behalf of Morgan Stanley Bank, N.A.("Initial Buyer"), which provides non-mark-to-market financing. In June 2022, the current stated maturity was extended to June 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 of September 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. In July 2021, we entered into a $500.0 million Master Repurchase and SecuritiesContract Agreement with a financial institution ("KREF Lending IX Facility"). In March 2022, we increased the borrowing capacity to $750.0 million. In August 2022, we further increased the borrowing capacity to $1,000.0 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. In June 2022, we entered into a $350.0 millionMaster 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.
March 2020, we entered into a $500.0 millionLoan and Security Agreement with HSBC Bank USA, National Association("HSBC Facility"). The facility, which matures in March 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. 66 -------------------------------------------------------------------------------- Table of Contents Asset Specific Financing In August 2018, we entered into a $200.0 millionloan financing facility with BMO Harris Bank(the "BMO Facility"). In May 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.
Revolving credit agreement
March 2022, we upsized our corporate revolving credit facility ("Revolver"), administered by Morgan Stanley Senior Funding, Inc., to $520.0 millionand extended the maturity date to March 2027. In April 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.
Secured Loan Obligations
August 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, in February 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. The following table outlines the CLO collateral assets and respective borrowing (dollars in thousands): September 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) 19 $ 1,300,000 $ 1,300,000 $ 1,281,618+ 3.3% January 2026 Financing provided 1 1,095,250 1,091,258 1,091,258 L + 1.7% February 2039 KREF 2022-FL3 Collateral assets(C) 15 1,000,000 1,000,000 995,326 + 3.0% September 2026 Financing provided 1 847,500 842,398 842,398 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 of September 30, 2022, 83.9% and 16.1% 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 30.2% of the principal of our commercial real estate loans as of September 30, 2022. As of September 30, 2022, 100% of our loans financed through the CLOs are floating rate loans. (D)Including $79.0 millioncash held in the CLOs as of September 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 67 -------------------------------------------------------------------------------- Table of Contents 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 first-tier holdings
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): September 30, 2022 Principal Wtd. Avg. Non-Consolidated Senior Interests Count Balance Carrying Value Wtd. Avg. Yield/Cost Guarantee Term Total loan 2
$ 316,566n.a. L + 3.7% n.a. December 2025 Senior participation 2 258,861 n.a. L + 2.4% n.a. December 2025 Interests retained 57,706 L + 9.6% January 2026
Guaranteed term loan
September 2020, we entered into a $300.0 millionsecured term loan at a price of 97.5%. The secured term loan is partially amortizing, with an amount equal to 1.0% per annum of the principal balance due in quarterly installments. In November 2021, we completed a repricing of a $297.8 millionexisting secured term loan and a $52.2 millionadd-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. The secured term loan matures on September 1, 2027and 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. In May 2018, we issued $143.75 millionof 6.125% Convertible Notes due on May 15, 2023. The Convertible Notes bear interest at a rate of 6.125% per year, payable semi-annually in arrears on May 15and November 15of each year, beginning on November 15, 2018. The Convertible Notes mature on May 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. 68 -------------------------------------------------------------------------------- Table of Contents Borrowing Activities
The following tables provide additional information regarding our borrowings (in thousands of dollars):
Nine month period ended
Outstanding Principal as of Average Daily Amount Maximum Amount Weighted Average September 30, 2022 Outstanding(A) Outstanding Daily Interest Rate Master Repurchase Agreements Wells Fargo $ 715,981 $ 716,227
$ 980,5932.4 % Morgan Stanley 583,716 514,787 583,716 3.0 Goldman Sachs 123,658 127,517 192,305 3.2 Term Loan Facility 584,033 775,801 918,959 2.6 Term Lending Agreements KREF Lending V 539,050 587,020 617,627 2.9 KREF Lending IX 642,438 510,983 642,438 2.9 KREF Lending XII 161,140 154,736 161,140 3.5 Asset Specific Financing BMO Facility - 2,637 60,000 1.8 KREF Lending XI 100,000 97,328 100,000 4.3 KREF Lending XIII 38,165 38,165 38,165 5.5 Revolver - 55,458 395,000 2.7 Total/Weighted Average $ 3,488,1812.9 % (A) Represents the average for the period the facility was outstanding. Average Daily Amount Outstanding(A) Three Months Ended September 30, 2022 June 30, 2022 Master Repurchase Agreements Wells Fargo $ 702,403 $ 671,211Morgan Stanley 571,198 500,877 Goldman Sachs 123,658 105,799 Term Loan Facility 616,291 812,104 Term Lending Facility KREF Lending V 553,304 598,508 KREF Lending IX 642,438 492,795 KREF Lending XII 161,140 81,085 Asset Specific Financing BMO Facility - - KREF Lending XI 98,058 96,278 KREF Lending XIII 38,165 - Revolver - 147,253
(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 and
KKR Real Estate Finance Holdings L.P.(our "Operating Partnership") or up to approximately $1,353.4 million, depending on the agreement; •a cash liquidity covenant (the greater of $10.0 millionor 5.0% of our recourse indebtedness); •a total indebtedness covenant (83.3% of our Total Assets, as defined in the applicable financing agreements); 69
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 millionand a maximum total debt to total assets ratio of 83.3% (the "Leverage Covenant").
Guarantees-In connection with our financing arrangements including; master repurchase agreements, our term lending agreements, and our asset specific financing, our
Operating Partnershiphas entered into a limited guarantee in favor of each lender, under which our Operating Partnershipguarantees 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 of our wholly-owned Guarantor Subsidiaries.
Real estate ownership and joint venture
In 2015, we originated a
$177.0 millionsenior loan secured by a retail property in Portland, Oregon. The loan had a risk rating of 5 and was placed on a non-accrual status in October 2020, with an amortized cost and carrying value of $109.6 millionand $69.3 million, respectively, as of September 30, 2021. In December 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 millionin other net assets of the REO. As a result, we recognized an $8.2 millionbenefit from the reversal of the allowance for credit losses for GAAP, and a $32.1 millionrealized 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 of September 30, 2022, the joint venture held REO assets with a net carrying value of $69.8 million. We have priority of distributions up to $70.5 millionbefore the JV Partner can participate in the economics of the joint venture. 70 -------------------------------------------------------------------------------- Table of Contents Results of Operations
Three months completed
The following table summarizes the changes in our results of operations for the three months ended
September 30, 2022and June 30, 2022(dollars in thousands, except per share data): Three Months Ended, Increase (Decrease) September 30, 2022 June 30, 2022 Dollars Percentage Net Interest Income Interest income $ 114,627 $ 90,603 $ 24,02426.5 % Interest expense 67,311 44,733 22,578 50.5 Total net interest income 47,316 45,870 1,446 3.2 Other Income Revenue from real estate owned operations 2,092 1,833 259 14.1 Income (loss) from equity method investments 914 1,035 (121) (11.7) Other income 840 1,237 (397) (32.1) Total other income (loss) 3,846 4,105 (259) (6.3) Operating Expenses General and administrative 4,286 4,308 (22) (0.5) Provision for (reversal of ) credit losses, net 80,604 11,798 68,806 583.2 Management fee to affiliate 6,589 6,506 83 1.3 Expenses from real estate owned operations 2,598 2,368 230 9.7 Total operating expenses 94,077 24,980 69,097 276.6 Income (Loss) Before Income Taxes, Noncontrolling Interests, Preferred Dividends and Participating Securities'Share in Earnings (42,915) 24,995 (67,910) (271.7) Income tax expense - - - - Net Income (Loss) (42,915) 24,995 (67,910) (271.7) Noncontrolling interests in (income) loss of consolidated joint venture 161 66 95 143.9 Net Income (Loss) Attributable to KKR Real Estate Finance Trust Inc.and Subsidiaries (42,754) 25,061 (67,815) (270.6) Preferred stock dividends 5,326 5,326 - - Participating securities' share in earnings 341 341 - - Net Income (Loss) Attributable to Common Stockholders $ (48,421) $ 19,394 $ (67,815)(349.7) % Net Income (Loss) Per Share of Common Stock Basic $ (0.70) $ 0.28 $ (0.98)(350.0) % Diluted $ (0.70) $ 0.28 $ (0.98)(350.0) % Weighted Average Number of Shares of Common Stock Outstanding Basic 69,382,730 68,549,049 833,681 1.2 % Diluted 69,382,730 68,549,049 833,681 1.2 % Dividends Declared per Share of Common Stock $ 0.43 $ 0.43 $ - - % 71
-------------------------------------------------------------------------------- Table of Contents Net Interest Income Net interest income increased by
$1.4 millionduring the three months ended September 30, 2022, compared to the three months ended June 30, 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 $101.4 millionquarter-over-quarter increase in our weighted average loan principal, as a result of continuing capital deployment from loan repayments. Interest expense increased accordingly due to an increase in market rates and an $87.6 millionquarter-over-quarter increase in our weighted average portfolio financing. In addition, interest income included $1.5 millionin prepayment penalty income in connection with loan repayments during the three month ended September 30, 2022, as compared to $4.0 millionduring the prior quarter. We recognized $7.0 millionand $5.9 millionof deferred loan fees and origination discounts accreted into interest income during the three months ended September 30, 2022and June 30, 2022, respectively. We recorded $6.5 millionof deferred financing costs amortization into interest expense during the three months ended September 30, 2022, as compared to $5.8 millionduring the prior quarter.
Total other income decreased by
$0.3 millionduring the three months ended September 30, 2022, as compared to the prior quarter. This decrease was primarily due to a $0.4 millionone-time gain from local tax credit received during the three months ended June 30, 2022. Other income further decreased due to a $0.1 milliondecrease in unrealized mark-to-market gain on our RECOP I's underlying CMBS investments, which was partially offset by a $0.3 millionincrease in REO operating revenue.
Total operating expenses increased by
$69.1 millionduring the three months ended September 30, 2022, as compared to the prior quarter. This increase was primarily due to (i) a net increase of $68.8 millionin the provision for credit losses and (ii) a $0.2 millionincrease in REO operating expenses. 72 -------------------------------------------------------------------------------- Table of Contents Nine months ended September 30, 2022Compared to Nine months ended September 30, 2021The following table summarizes the changes in our results of operations for the nine months ended September 30, 2022and 2021 (dollars in thousands, except per share data): Nine Months Ended September 30, Increase (Decrease) 2022 2021 Dollars Percentage Net Interest Income Interest income $ 278,460 $ 207,235 $ 71,22534.4 % Interest expense 144,503 84,173 60,330 71.7 Total net interest income 133,957 123,062 10,895 8.9 Other Income Revenue from real estate owned operations 6,554 - 6,554 100.0 Income (loss) from equity method investments 3,835 4,508 (673) (14.9) Other income 3,992 296 3,696 1,248.6 Total other income (loss) 14,381 4,804 9,577 199.4 Operating Expenses General and administrative 13,040 10,852 2,188 20.2 Provision for (reversal of ) credit losses, net 91,184 (982) 92,166 9,385.5 Management fee to affiliate 19,102 14,089 5,013 35.6 Incentive compensation to affiliate - 6,810 (6,810) (100.0) Expenses from real estate owned operations 7,520 - 7,520 100.0 Total operating expenses 130,846 30,769 100,077 325.3 Income (Loss) Before Income Taxes, Noncontrolling Interests, Preferred Dividends, Redemption Value Adjustment and Participating Securities'Share in Earnings 17,492 97,097 (79,605) (82.0) Income tax expense - 257 (257) (100.0) Net Income (Loss) 17,492 96,840 (79,348) (81.9) Noncontrolling interests in (income) loss of consolidated joint venture 283 - 283 100.0 Net Income (Loss) Attributable to KKR Real Estate Finance Trust Inc.and Subsidiaries 17,775 96,840 (79,065) (81.6) Preferred stock dividends and redemption value adjustment 15,978 6,403 9,575 149.5 Participating securities' share in earnings 1,028 - 1,028 100.0 Net Income (Loss) Attributable to Common Stockholders $ 769 $ 90,437 $ (89,668)(99.1) % Net Income (Loss) Per Share of Common Stock Basic $ 0.01 $ 1.63 $ (1.62)(99.4) % Diluted $ 0.01 $ 1.62 $ (1.61)(99.4) % Weighted Average Number of Shares of Common Stock Outstanding Basic 67,029,140 55,629,810 11,399,330 20.5 % Diluted 67,029,140 55,883,197 11,145,943 19.9 % Dividends Declared per Share of Common Stock $ 1.29 $ 1.29$ - - % 73
-------------------------------------------------------------------------------- Table of Contents Net Interest Income Net interest income increased by
$10.9 million, during the nine months ended September 30, 2022, as compared to the corresponding period in the prior year. 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 an increase in the weighted average principal of our loan portfolio of $1,798.9 millionfor the nine months ended September 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 $1,537.0 millionfor the nine months ended September 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 $18.9 millionof deferred loan fees and origination discounts accreted into interest income during the nine months ended September 30, 2022, as compared to $20.1 millionduring the prior year period. We recorded $17.1 millionof deferred financing costs amortization into interest expense during the nine months ended September 30, 2022, as compared to $10.5 millionduring the prior year period.
Total other income increased by
$9.6 millionduring the nine months ended September 30, 2022, as compared to the prior year period. This increase was primarily due to a $6.6 millionincrease in REO operating revenue and $1.3 millionof profit sharing income in connection with the repayment of an industrial senior loan. This increase was partially offset by a $0.7 milliondecrease in unrealized mark-to-market gain from our RECOP I's underlying CMBS investments as compared to the prior year period.
Total operating expenses increased by
$100.1 millionduring the nine months ended September 30, 2022, as compared to the prior year period. This increase was primarily due to a (i) net increase of $92.2 millionin the provision for credit losses, (ii) $7.5 millionincrease in REO operating expenses and (iii) $5.0 millionincrease in management fees resulting from our preferred and common stock issuances. This increase was partially offset by a $6.8 milliondecrease in incentive fee, as compared to the prior year period.
The following table provides additional information regarding total operating expenses (in thousands of dollars):
Three Months Ended September 30, December 31, September 30, 2022 June 30, 2022 March 31, 2022 2021 2021 Operating expenses
$ 2,111 $ 2,268$ 2,320 $ 1,970 $ 1,632Stock-based compensation 2,175 2,040 2,126 1,413 2,027 Total general and administrative expenses 4,286 4,308 4,446 3,383 3,659 Provision for (reversal of) credit losses, net 80,604 11,798 (1,218) (3,077) 1,165 Management fee to affiliate 6,589 6,506 6,007 5,289 4,964 Incentive compensation to affiliate - - - 3,463 2,215 Expenses from real estate owned operations 2,598 2,368 2,554 - - Total operating expenses $ 94,077 $ 24,980 $ 11,789 $ 9,058 $ 12,003COVID-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. Moreover, the increase in remote working arrangements in response to the pandemic may contribute to a decline in commercial real estate values and reduce demand for commercial real estate compared to pre-pandemic levels, which may adversely impact certain of our borrowers and may persist even as the pandemic continues to subside. 74
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 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 Reservehas 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 Reserveto address inflation may adversely impact real state asset values and 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. 75 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources
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 76% of our total secured financing (excluding our corporate Revolver) as of
September 30, 2022, are not subject to credit or capital markets mark-to-market provisions. The remaining 24% 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 $183.3 millionof cash on our consolidated balance sheet, $610.0 millionof available capacity on our corporate revolver, $122.9 millionof available borrowings under our financing arrangements based on existing collateral and cash flows from operations. In addition, we had $369.5 millionof unencumbered senior loans that can be financed, as of September 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 of September 30, 2022, we held $36.9 millionof interests in such entities, which does not include a remaining commitment of $4.3 millionto 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 the SEC. 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. In January 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 millionand $53.7 million, respectively.
(1) Consisting of Term Loan Financing, Term Loan Agreements, Secured Loan Obligations, Secured Term Loan, Warehouse, Asset Specific Financing and unconsolidated first-tier holdings.
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 millionof 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 three and nine months ended September 30, 2022, we issued and sold 271,641 and 340,458 shares of common stock under the ATM, generating net proceeds totaling $5.3 millionand $6.7 million, respectively. As of September 30, 2022, $93.2 millionremained 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 ratio and total leverage ratio
The following table presents our debt-to-equity ratio and total leverage ratio: September 30, 2022 December 31, 2021 Debt-to-equity ratio(A) 1.9x 2.3x Total leverage ratio(B) 3.6x 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 contracts, secured term loans, convertible notes and secured loan obligations less cash by (ii) total equity, in each case , at the end of the period.
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): September 30, 2022 December 31, 2021 Cash and cash equivalents $ 183,341 $ 271,487 Available borrowings under revolving credit agreements 610,000 200,000 Available borrowings under master repurchase agreements 107,381 51,601 Available borrowings under term lending agreements 15,476 5,826 Available borrowings under asset specific financing - - $ 916,198 $ 528,914 We also had
$369.5 millionand $235.3 millionof unencumbered senior loans that can be pledged to financing facilities subject to lender approval, as of September 30, 2022and 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.
© Edgar Online, source