10-Q

	UNITED STATES
	SECURITIES AND EXCHANGE COMMISSION
	Washington, D.C. 20549
	FORM 10-Q
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2018
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ________________ to ________________
	Commission File Number: 001-38082
	KKR Real Estate Finance Trust Inc.
	(Exact name of registrant as specified in its charter)
	Maryland	47-2009094
	(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
	9 West 57th Street, Suite 4200 New York, NY	10019
	(Address of principal executive offices)	(Zip Code)
	(212) 750-8300
	(Registrant’s telephone number, including area code)
	Not Applicable
	(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x Yes    ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    x Yes    ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer    ¨    Accelerated filer    ¨

Non-accelerated filer    x    Smaller reporting company    ¨

Emerging growth company    x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨ Yes    x No

The number of shares of the registrant's common stock, par value $0.01 per share, outstanding as of November 5, 2018 was 58,022,176.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q ("Form 10-Q") contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as "outlook," "believe," "expect," "potential," "continue," "may," "should," "seek," "approximately," "predict," "intend," "will," "plan," "estimate," "anticipate," the negative version of these words, other comparable words or other statements that do not relate strictly to historical or factual matters. By their nature, forward-looking statements speak only as of the date they are made, are not statements of historical fact or guarantees of future performance and are subject to risks, uncertainties, assumptions or changes in circumstances that are difficult to predict or quantify. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.

There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements contained in this Form 10-Q. Such risks, uncertainties and other important factors include, among others, the risks, uncertainties and factors set forth under Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed with the Securities and Exchange Commission on February 28, 2018 (the "Form 10-K"). Such risks and uncertainties include, but are not limited to, the following:

• the general political, economic and competitive conditions in the United States and in any foreign jurisdictions in which we invest; 

• the level and volatility of prevailing interest rates and credit spreads; 

• adverse changes in the real estate and real estate capital markets; 

• general volatility of the securities markets in which we participate; 

• changes in our business, investment strategies or target assets; 

• difficulty in obtaining financing or raising capital; 

• adverse legislative or regulatory developments;

• reductions in the yield on our investments and increases in the cost of our financing; 

• acts of God such as hurricanes, earthquakes and other natural disasters, acts of war and/or terrorism and other events that may cause unanticipated and uninsured performance declines and/or losses to us or the owners and operators of the real estate securing our investments; 

• deterioration in the performance of properties securing our investments that may cause deterioration in the performance of our investments and, potentially, principal losses to us; 

• defaults by borrowers in paying debt service on outstanding indebtedness; 

• the adequacy of collateral securing our investments and declines in the fair value of our investments; 

• adverse developments in the availability of desirable investment opportunities whether they are due to competition, regulation or otherwise; 

• difficulty in successfully managing our growth, including integrating new assets into our existing systems; 

• the cost of operating our platform, including, but not limited to, the cost of operating a real estate investment platform and the cost of operating as a publicly traded company; 

• the availability of qualified personnel and our relationship with our Manager;

• subsidiaries of KKR & Co. Inc. control us and KKR's interests may conflict with those of our stockholders in the future; 

• our qualification as a real estate investment trust ("REIT") for U.S. federal income tax purposes and our exclusion from registration under the Investment Company Act of 1940, as amended (the "Investment Company Act"); and

• authoritative accounting principles generally accepted in the United States of America ("GAAP") or policy changes from such standard-setting bodies such as the Financial Accounting Standards Board (the "FASB"), the Securities and Exchange Commission (the "SEC"), the Internal Revenue Service (the "IRS"), the New York Stock Exchange (the "NYSE") and other authorities that we are subject to, as well as their counterparts in any foreign jurisdictions where we might do business.

There may be other factors that may cause our actual results to differ materially from the forward-looking statements, including factors set forth under Part I, Item 1A. "Risk Factors" in the Form 10-K and Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q as such factors may be updated from time to time in our other periodic filings with the SEC, which are accessible on the SEC's website at www.sec.gov and on the investor relations section of our website at www.kkrreit.com. You should evaluate all forward-looking statements made in this Form 10-Q in the context of these risks and uncertainties.

We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. All forward-looking statements in this Form 10-Q apply only as of the date made and are expressly qualified in their entirety by the cautionary statements included in this Form 10-Q and in other filings we make with the SEC. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances, except as required by law.

Except where the context requires otherwise, the terms "Company," "we," "us," "our" and "KREF" refer to KKR Real Estate Finance Trust Inc., a Maryland corporation, and its subsidiaries; "Manager" refers to KKR Real Estate Finance Manager LLC, a Delaware limited liability company, our external manager; and "KKR" refers to KKR & Co. Inc., a Delaware corporation, and its subsidiaries.

KKR REAL ESTATE FINANCE TRUST INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2018

INDEX

	PAGE
Part I — Financial Information	1
Item 1. Condensed Consolidated Financial Statements (Unaudited)	1
Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2018 and December 31, 2017	1
Condensed Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended September 30, 2018 and 2017	2
Condensed Consolidated Statements of Changes in Equity (Unaudited) for the Nine Months Ended September 30, 2018 and 2017	3
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2018 and 2017	4
Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Note 1. Business and Organization	6
Note 2. Summary of Significant Accounting Policies	6
Note 3. Commercial Mortgage Loans	16
Note 4. Debt Obligations	18
Note 5. Convertible Notes, Net	22
Note 6. Loan Participations Sold	23
Note 7. Variable Interest Entities	24
Note 8. Equity	26
Note 9. Stock-based Compensation	29
Note 10. Commitments and Contingencies	31
Note 11. Related Party Transactions	32
Note 12. Fair Value of Financial Instruments	34
Note 13. Income Taxes	37
Note 14. Subsequent Events	38
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
Overview	39
Key Financial Measures and Indicators	40
Our Portfolio	42
Results of Operations	49
Liquidity and Capital Resources	51
Contractual Obligations and Commitments	56
Subsequent Events	56
Off-Balance Sheet Arrangements	56
Critical Accounting Policies	58
Recent Accounting Pronouncements	58
Item 3. Quantitative and Qualitative Disclosures about Market Risk	59
Item 4. Controls and Procedures	61
Part II — Other Information	62
Item 1. Legal Proceedings	62
Item 1A. Risk Factors	62
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	62
Item 3. Defaults Upon Senior Securities	63
Item 4. Mine Safety Disclosures	63
Item 5. Other Information	63
Item 6. Exhibits	64
Signatures	65

PART I — FINANCIAL INFORMATION

ITEM I. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

KKR Real Estate Finance Trust Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(Amounts in thousands, except share and per share data)

	September 30, 2018			December 31,  2017(A)
Assets
Cash and cash equivalents	$	192,771		$	103,120
Restricted cash	—			400
Commercial mortgage loans, held-for-investment, net	3,261,878			1,888,510
Equity method investments, at fair value	24,745			14,390
Accrued interest receivable	12,395			8,423
Other assets	20,046			7,239
Commercial mortgage loans held in variable interest entities, at fair value	1,100,089			5,372,811
Total Assets	$	4,611,924		$	7,394,893
Liabilities and Equity
Liabilities
Secured financing agreements, net	$	2,115,954		$	964,800
Convertible notes, net	137,339			—
Loan participations sold, net	83,442			81,472
Accounts payable, accrued expenses and other liabilities	2,236			2,465
Dividends payable	25,235			19,981
Accrued interest payable	6,376			1,623
Due to affiliates	7,700			4,442
Variable interest entity liabilities, at fair value	1,086,939			5,256,926
Total Liabilities	3,465,221			6,331,709
Commitments and Contingencies (Note 10)
Temporary Equity
Redeemable noncontrolling interests in equity of consolidated joint venture	—			3,090
Redeemable preferred stock	402			949
Permanent Equity
Preferred stock, 50,000,000 authorized (1 share with par value of $0.01 issued and outstanding as of September 30, 2018 and December 31, 2017)	—			—
Common stock, 300,000,000 authorized (58,022,590 and 53,685,440 shares with par value of $0.01 issued and outstanding as of September 30, 2018 and December 31, 2017, respectively)	580			537
Additional paid-in capital	1,154,113			1,052,851
Retained earnings	5,763			6,280
Repurchased stock, 723,507 and 26,398 shares repurchased as of September 30, 2018 and December 31, 2017, respectively	(14,155		)	(523		)
Total KKR Real Estate Finance Trust Inc. stockholders’ equity	1,146,301			1,059,145
Total Permanent Equity	1,146,301			1,059,145
Total Liabilities and Equity	$	4,611,924		$	7,394,893

(A) Derived from the audited consolidated financial statements as of December 31, 2017.

See Notes to Condensed Consolidated Financial Statements.

1

KKR Real Estate Finance Trust Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

(Amounts in thousands, except share and per share data)

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2018		2017		2018		2017
Net Interest Income
Interest income	$	51,895	$	24,408	$	123,952	$	54,760
Interest expense	23,337		5,414		52,825		12,592
Total net interest income	28,558		18,994		71,127		42,168
Other Income
Realized gain on sale of investments	—		—		13,000		—
Change in net assets related to consolidated variable interest entities	379		4,025		2,460		12,810
Income from equity method investments	747		115		2,084		461
Other income	476		177		1,239		616
Total other income (loss)	1,602		4,317		18,783		13,887
Operating Expenses
General and administrative	1,653		1,339		6,002		3,254
Management fees to affiliate	4,164		3,989		12,016		9,513
Incentive compensation to affiliate	3,286		—		3,286		—
Total operating expenses	9,103		5,328		21,304		12,767
Income (Loss) Before Income Taxes, Noncontrolling Interests and Preferred Dividends	21,057		17,983		68,606		43,288
Income tax expense (benefit)	85		120		227		388
Net Income (Loss)	20,972		17,863		68,379		42,900
Redeemable Noncontrolling Interests in Income (Loss) of Consolidated Joint Venture	—		54		63		134
Noncontrolling Interests in Income (Loss) of Consolidated Joint Venture	—		377		—		801
Net Income (Loss) Attributable to KKR Real Estate Finance Trust Inc. and Subsidiaries	20,972		17,432		68,316		41,965
Preferred Stock Dividends and Redemption Value Adjustment	151		93		395		181
Net Income (Loss) Attributable to Common Stockholders	$	20,821	$	17,339	$	67,921	$	41,784
Net Income (Loss) Per Share of Common Stock
Basic	$	0.37	$	0.32	$	1.26	$	0.98
Diluted	$	0.37	$	0.32	$	1.25	$	0.98
Weighted Average Number of Shares of Common Stock Outstanding
Basic	55,903,126		53,696,967		54,111,272		42,501,356
Diluted	55,921,655		53,697,041		54,132,331		42,501,530
Dividends Declared per Share of Common Stock	$	0.43	$	0.37	$	1.26	$	1.25

See Notes to Condensed Consolidated Financial Statements.

2

KKR Real Estate Finance Trust Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Equity

For the Nine Months Ended September 30, 2018 and 2017

(Amounts in thousands, except share data)

	Permanent Equity																												Temporary Equity
	KKR Real Estate Finance Trust Inc.
	Preferred Stock					Common Stock
	Shares		Stated Value			Shares		Par Value			Additional Paid-In Capital			Retained Earnings			Repurchased Stock			Total KKR Real Estate Finance Trust Inc. Stockholders' Equity			Noncontrolling Interests in Equity of Consolidated Joint Venture			Total Permanent Equity			Redeemable Noncontrolling Interests in Equity of Consolidated Joint Venture			Redeemable Preferred Stock
Balance at December 31, 2016	126		$	125		24,158,392		$	242		$	479,417		$	17,914		$	—		$	497,698		$	7,339		$	505,037		$	3,030		$	—
Issuance of stock	—		—			29,553,446		295			580,011			—			—			580,306			—			580,306			—			949
Repurchase of common stock	—		—			(26,398	)	—			—			—			(523		)	(523		)	—			(523		)	—			—
Redemption of preferred stock	(125	)	(125		)	—		—			—			—			—			(125		)	—			(125		)	—			—
Offering costs	—		—			—		—			(6,642		)	—			—			(6,642		)	—			(6,642		)	—			—
Preferred dividends declared	—		—			—		—			—			(6		)	—			(6		)	—			(6		)	—			(175		)
Common dividends declared	—		—			—		—			—			(50,588		)	—			(50,588		)	—			(50,588		)	—			—
Capital contributions	—		—			—		—			—			—			—			—			(8,140		)	(8,140		)	(111		)	—
Stock-based compensation	—		—			—		—			40			—			—			40			—			40			—			—
Net income (loss)	—		—			—		—			—			41,790			—			41,790			801			42,591			134			175
Balance at September 30, 2017	1		$	—		53,685,440		$	537		$	1,052,826		$	9,110		$	(523	)	$	1,061,950		$	—		$	1,061,950		$	3,053		$	949
Balance at December 31, 2017	1		$	—		53,685,440		$	537		$	1,052,851		$	6,280		$	(523	)	$	1,059,145		$	—		$	1,059,145		$	3,090		$	949
Issuance of stock	—		—			5,000,000		50			99,450			—			—			99,500			—			99,500			—			—
Repurchase of common stock	—		—			(697,109	)	(7		)	—			—			(13,632		)	(13,639		)	—			(13,639		)	—			—
Offering costs	—		—			—		—			(1,174		)	—			—			(1,174		)	—			(1,174		)	—			—
Equity component of convertible notes	—		—			—		—			1,800			—			—			1,800			—			1,800			—			—
Preferred dividends declared	—		—			—		—			—			—			—			—			—			—			—			(395		)
Adjustment of redeemable preferred stock to redemption value	—		—			—		—			—			547			—			547			—			547			—			(547		)
Common dividends declared	—		—			—		—			—			(68,985		)	—			(68,985		)	—			(68,985		)	—			—
Capital distributions and redemptions	—		—			—		—			—			—			—			—			—			—			(3,153		)	—
Stock-based compensation	—		—			34,259		*			1,186			—			—			1,186			—			1,186			—			—
Net income (loss)	—		—			—		—			—			67,921			—			67,921			—			67,921			63			395
Balance at September 30, 2018	1		$	—		58,022,590		$	580		$	1,154,113		$	5,763		$	(14,155	)	$	1,146,301		$	—		$	1,146,301		$	—		$	402

* Rounds to zero.

See Notes to Condensed Consolidated Financial Statements.

3

KKR Real Estate Finance Trust Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Amounts in thousands)

	For the Nine Months Ended September 30,
	2018			2017
Cash Flows From Operating Activities
Net income (loss)	$	68,379		$	42,900
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Amortization of deferred debt issuance costs and discounts	4,338			1,731
Accretion of net deferred loan fees and discounts	(7,206		)	(2,301		)
Interest paid-in-kind	—			(864		)
Change in noncash net assets of consolidated variable interest entities	2,144			(3,453		)
(Gain) on sale of investment securities	(13,000		)	—
(Income) from equity method investments	(2,084		)	(461		)
Stock-based compensation expense	1,190			40
Origination and purchase of commercial loans, held-for-sale	—			(91,475		)
Proceeds from sale of commercial loans, held-for-sale	—			10,000
Changes in operating assets and liabilities:
Accrued interest receivable, net	(3,130		)	(3,956		)
Other assets	(580		)	2,421
Due to affiliates	1,758			2,308
Accounts payable, accrued expenses and other liabilities	867			(1,330		)
Accrued interest payable	4,753			515
Net cash provided by (used in) operating activities	57,429			(43,925		)
Cash Flows From Investing Activities
Proceeds from sales of commercial mortgage-backed securities	112,747			—
Proceeds from sale of commercial mortgage loans	—			60,991
Proceeds from principal repayments of commercial mortgage loans, held-for-investment	318,996			18,568
Proceeds from principal repayments of preferred interest in joint venture, held-to-maturity	—			37,310
Origination of commercial mortgage loans, held-for-investment	(1,695,188		)	(920,358		)
Investment in commercial mortgage-backed securities, equity method investee	(9,770		)	(27,588		)
Proceeds from commercial mortgage-backed securities, equity method investee	1,157			19,588
Net cash provided by (used in) investing activities	(1,272,058		)	(811,489		)

See Notes to Condensed Consolidated Financial Statements.

4

KKR Real Estate Finance Trust Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Amounts in thousands)

	For the Nine Months Ended September 30,
	2018			2017
Cash Flows From Financing Activities
Proceeds from borrowings under secured financing agreements	1,607,725			776,447
Net proceeds from issuance of convertible notes	139,438			—
Proceeds from issuances of common stock	99,500			581,255
Redemption of preferred stock	—			(125		)
Payments of common stock dividends	(63,898		)	(30,715		)
Payments of preferred stock dividends	(227		)	(63		)
Principal repayments on borrowings under secured financing agreements	(451,026		)	(460,432		)
Payments of debt issuance costs	(9,702		)	(3,051		)
Payments of stock issuance costs	(1,137		)	(4,898		)
Payments of redeemable noncontrolling interest distributions and redemptions	(3,153		)	(111		)
Payments of noncontrolling interest distributions	—			(8,140		)
Payments to reacquire common stock	(13,640		)	(523		)
Net cash provided by (used in) financing activities	1,303,880			849,644
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash	89,251			(5,770		)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period	103,520			96,346
Cash, Cash Equivalents, and Restricted Cash at End of Period	$	192,771		$	90,576
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest	$	41,161		$	10,116
Cash paid during the period for income taxes	754			252
Supplemental Schedule of Non-Cash Investing and Financing Activities
Dividend declared, not yet paid	$	25,235		$	19,992
Loan Principal Payments Held by Servicer	16,500			—
Loan Participations Sold, Net (Note 6)	1,886			—
Funding of commercial loans, held for investment	(1,886		)	—

See Notes to Condensed Consolidated Financial Statements.

5

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

Note 1. Business and Organization

KKR Real Estate Finance Trust Inc. (together with its consolidated subsidiaries, referred to throughout this report as the "Company", "KREF", "we", "us" and "our") is a Maryland corporation that was formed and commenced operations on October 2, 2014 as a mortgage "real estate investment trust" ("REIT") that focuses primarily on originating and acquiring senior loans secured by commercial real estate assets.

KREF has elected and intends to maintain its qualification to be taxed as a REIT under the requirements of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), for U.S. federal income tax purposes. As such, KREF will generally not be subject to U.S. federal income tax on that portion of its income that it distributes to stockholders if it distributes at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gains. See Note 13 regarding taxes applicable to KREF.

KREF is externally managed by KKR Real Estate Finance Manager LLC ("Manager"), an indirect subsidiary of KKR & Co. Inc. (together with its subsidiaries, "KKR"), through a management agreement ("Management Agreement") pursuant to which the Manager provides a management team and other professionals who are responsible for implementing KREF’s business strategy, subject to the supervision of KREF’s board of directors. For its services, the Manager is entitled to management fees and incentive compensation, both defined in, and in accordance with the terms of, the Management Agreement (Note 11).

As of September 30, 2018, KKR beneficially owned 23,758,616 shares of KREF's common stock, of which 3,758,616 shares were held by KKR on behalf of a third-party investor.

As of September 30, 2018, KREF's principal business activities related to the origination and purchase of credit investments related to commercial real estate. Management assesses performance of KREF's current portfolio of leveraged and unleveraged commercial mortgage loans and commercial mortgage-backed securities ("CMBS") as a whole and makes operating decisions accordingly. As a result, management presents KREF's operations within a single reporting segment.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation — The accompanying unaudited condensed consolidated financial statements and related notes of KREF are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and instructions to Form 10-Q. The condensed consolidated financial statements, including these notes, are unaudited and exclude some of the disclosures required in annual financial statements. Accordingly, certain information and footnote disclosures normally included in the consolidated financial statements have been condensed or omitted. The condensed consolidated financial statements include the accounts of KREF and its consolidated subsidiaries, and all intercompany transactions and balances have been eliminated. In the opinion of management, all adjustments considered necessary for a fair presentation of KREF’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These condensed consolidated financial statements should be read in conjunction with KREF’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed with the Securities and Exchange Commission on February 28, 2018 (the "Form 10-K").

Consolidation — KREF consolidates those entities for which (i) it controls significant operating, financial and investing decisions of the entity or (ii) management determines that KREF is the primary beneficiary of entities deemed to be variable interest entities ("VIEs").

Variable Interest Entities — VIEs are defined as entities in which equity investors do not have an interest with the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated only by its primary beneficiary, which is defined as the party that has the power to direct the activities of the VIE that most significantly impact its economic performance and that has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could be potentially significant to the VIE (Note 7).

6

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

To assess whether KREF has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, KREF considers all the facts and circumstances, including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes, first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power to direct those activities. To assess whether KREF has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE, KREF considers all of its economic interests and applies judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE.

CMBS — KREF consolidates those trusts that issue beneficial ownership interests in mortgage loans secured by commercial real estate (commonly known as CMBS) when KREF holds a variable interest in, and management considers KREF to be the primary beneficiary of, those trusts. Management believes the performance of the assets that underlie CMBS issuances most significantly impacts the economic performance of the trust, and the primary beneficiary is generally the entity that conducts activities that most significantly impact the performance of the underlying assets. In particular, the most subordinate tranches of CMBS expose the holder to the greater variability of economic performance when compared to more senior tranches since the subordinate tranches absorb a disproportionately higher amount of the credit risk related to the underlying assets. Generally, a trust designates the most junior subordinate tranche outstanding as the controlling class, which entitles the holder of the controlling class to unilaterally appoint and remove the special servicer for the trust. The special servicer is responsible for the servicing and administration of delinquent and nonperforming loans as well as real estate owned ("REO") properties held as collateral delivered on foreclosed loans. While the special servicer cannot prevent losses, its services to the trust are designed to mitigate credit losses to holders of the CMBS.

For the trusts that KREF consolidates, KREF holds non-investment grade rated and unrated tranches that represent the most subordinated tranches of the CMBS issued by those trusts, which include the controlling class. As the holder of the most subordinate tranche, KREF is in a first loss position and has the right to receive benefits. As the holder of the controlling class, KREF has the ability to unilaterally appoint and remove the special servicer for the trust. In these cases, management considers KREF to be the primary beneficiary and consolidates the CMBS trusts.

For VIEs in which management determines KREF is the primary beneficiary, all of the underlying assets, liabilities and equity of the trusts are recorded on KREF's books, and the initial investment, along with any associated unrealized holding gains and losses, are eliminated in consolidation. Similarly, the interest income earned from these trusts is eliminated in consolidation.

Management elected the fair value option for KREF's initial and subsequent recognition of the assets and liabilities of KREF's consolidated CMBS VIEs in order to provide users of the financial statements with better information regarding the effects of credit risk and other market factors on the CMBS beneficially held by KREF's stockholders. Since the changes in fair value include the interest income and interest expense associated with these CMBS VIEs, management does not consider the separate presentation of the components of fair value changes to be relevant. Management has elected to present these items in aggregate as "Other Income — Change in net assets related to consolidated variable interest entities" in the accompanying Condensed Consolidated Statements of Income; the residual difference between the fair value of the trusts' assets and liabilities represents KREF's beneficial interest in the CMBS VIEs.

Management separately presents the assets and liabilities of KREF's consolidated VIEs as individual line items on KREF's Condensed Consolidated Balance Sheets for entities in which the VIEs assets can only be used to settle the VIE’s obligations. The liabilities of KREF's consolidated VIEs consist solely of obligations to the CMBS holders of the consolidated trusts, excluding CMBS held by KREF as such interests are eliminated in consolidation, and the interest accrued thereon, presented as "Liabilities — Variable interest entity liabilities, at fair value." The assets of KREF's consolidated VIEs consist principally of commercial mortgage loans and the interest accrued thereon, and are likewise presented as a single line item entitled "Assets — Commercial mortgage loans held in variable interest entities, at fair value."

Assets of a CMBS trust, as a whole, can only be used to settle the obligations of the consolidated CMBS VIE. The assets of KREF's CMBS VIEs are not individually accessible by, and obligations of the CMBS VIEs are not recourse to, the bondholders.

7

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

REO assets generally represent a small percentage of the overall asset pool of a CMBS trust. In a new issue CMBS trust there are no REO assets, and no REO existed in KREF's consolidated VIE assets as of September 30, 2018. KREF derives the fair value of its Level 3 CMBS VIE assets from its Level 3 CMBS VIE liabilities, which management considers to possess more observable market value data than the CMBS VIE assets. See "— Fair Value — Valuation of Consolidated VIEs" for additional discussion regarding management's valuation of consolidated CMBS VIEs.

Commercial Mezzanine Loan Joint Venture - KREF consolidated a joint venture that held a portion of KREF's investments in commercial mezzanine loans (“Mezzanine JV”), and in which a third-party owned a 5.0% redeemable noncontrolling interest ("Mezzanine JV Redeemable Noncontrolling Interest”) (Note 7 ). Management determined the joint venture to be a VIE as the owners of the redeemable noncontrolling interest did not have substantive participating or kick-out rights. KREF owned 95.0% of the equity interests in the joint venture and participated in the profits and losses. Management considered KREF to be the primary beneficiary of the joint venture as KREF held decision-making power over the activities that most significantly impact the economic performance of the joint venture. In June 2018, KREF acquired the 5.0% Mezzanine JV Redeemable Noncontrolling Interest for its carrying value of $1.3 million.

Noncontrolling Interests — Noncontrolling interests represent the ownership interests in certain consolidated subsidiaries held by entities or persons other than KREF. Those noncontrolling interests that allow the holder to redeem before liquidation or termination of the entity that issued those interests are considered redeemable noncontrolling interests.

The redeemable noncontrolling interests issued by subsidiaries of KREF are subject to certain restrictions and require KREF to transfer assets or issue equity to satisfy the redemption. As KREF does not control the circumstances under which the noncontrolling interests may redeem their interests, management considers these redeemable noncontrolling interests as temporary equity, presented as "Temporary Equity — Redeemable noncontrolling interests in equity of consolidated joint venture" in the accompanying Condensed Consolidated Balance Sheets and their share of "Net Income (Loss)" as "Redeemable Noncontrolling Interests in Income (Loss) of Consolidated Joint Venture" in the Condensed Consolidated Statements of Income. KREF recorded the redeemable noncontrolling interests at fair value upon issuance by subsidiaries of KREF, and adjusts the carrying value of such interests to equal their respective redemption values at each subsequent reporting period date if KREF determines the noncontrolling interests are redeemable or probable to become redeemable.

As noted above, in June 2018, KREF acquired the 5.0% Mezzanine JV Redeemable Noncontrolling Interest for its carrying value of $1.3 million.

KREF determined that the Special Non-Voting Preferred Stock (“SNVPS”) became redeemable during the second quarter of 2018; accordingly, KREF adjusted the carrying value of the SNVPS to its redemption value of $0.4 million as of the balance sheet date.

Equity method investments, at fair value— Investments are accounted for under the equity method when KREF has significant influence over the operations of an investee, but KREF does not consolidate that investment. Equity method investments, for which management has not elected a fair value option, are initially recorded at cost and subsequently adjusted for KREF's share of net income or loss and cash contributions and distributions each period.

Management determined that KREF's investment in the Manager is an interest in a VIE as KREF did not have substantive participating or kick-out rights. KREF does not have the power to direct activities and the obligation to absorb losses of the Manager that could be significant to the Manager. KREF accounts for its investment in the Manager using the equity method since KREF is not the primary beneficiary of the Manager (Note 7).

Management determined that its investment in an aggregator vehicle alongside KKR Real Estate Credit Opportunity Partners L.P. ("RECOP") is an interest in a VIE, however KREF is not the primary beneficiary and does not have substantive participating or kick-out rights. Management elected the fair value option for KREF's investment in RECOP. KREF records its share of net asset value in RECOP as “Equity method investments, at fair value” in its Condensed Consolidated Balance Sheets and its share of unrealized gains or losses in "Income from equity method investments" in its Condensed Consolidated Statements of Income (Note 7).

Use of Estimates — The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of

8

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

revenue and expenses during the reporting period. Management makes subjective estimates to project cash flows KREF expects to receive on its investments in loans and securities as well as the related market discount rates, which significantly impacts the interest income, impairments, allowance for loan loss and fair values recorded or disclosed. Actual results could differ from those estimates.

Fair Value — GAAP requires the categorization of the fair value of financial instruments into three broad levels that form a hierarchy based on the transparency of inputs to the valuation.

Level 1 -    Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 -    Inputs are other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability.

Level 3 -    Inputs are unobservable for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

KREF follows this hierarchy for its financial instruments. The classifications are based on the lowest level of input that is significant to the fair value measurement.

Estimates of fair value for cash and cash equivalents, restricted cash, and convertible notes are measured using observable, quoted market prices, or Level 1 inputs.

Valuation Process — The Manager reviews the valuation of Level 3 financial instruments as part of KKR's quarterly process. As of September 30, 2018, KKR’s valuation process for Level 3 measurements, as described below, subjected valuations to the review and oversight of various committees. KKR has a global valuation committee assisted by the asset class-specific valuation committees, including a real estate valuation committee that reviews and approves all preliminary Level 3 valuations for real estate assets, including the financial instruments held by KREF. The global valuation committee is responsible for coordinating and implementing KKR’s valuation process to ensure consistency in the application of valuation principles across portfolio investments and between periods. All Level 3 valuations are also subject to approval by the global valuation committee.

Valuation of Consolidated VIEs — Management categorizes the financial assets and liabilities of the CMBS trusts that KREF consolidates as Level 3 assets and liabilities in the fair value hierarchy and has elected the fair value option for financial assets and liabilities of each CMBS trust. Management has adopted the measurement alternative included in Accounting Standards Update ("ASU") No. 2014-13, Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity ("ASU 2014-13"). Pursuant to ASU 2014-13, management measures both the financial assets and financial liabilities of the CMBS trusts consolidated by KREF using the fair value of the financial liabilities, which management considers more observable than the fair value of the financial assets. As a result, KREF presents the CMBS issued by the consolidated trust, but not beneficially owned by KREF's stockholders, as financial liabilities in KREF's condensed consolidated financial statements, measured at their estimated fair value; KREF measures the financial assets as the total estimated fair value of the CMBS issued by the consolidated trust, regardless of whether such CMBS represent interests beneficially owned by KREF's stockholders. Under the measurement alternative prescribed by ASU 2014-13, KREF's "Net Income (Loss)" reflects the economic interests in the consolidated CMBS beneficially owned by KREF's stockholders, presented as "Change in net assets related to consolidated variable interest entities" in the Condensed Consolidated Statements of Income, which includes applicable (i) changes in the fair value of CMBS beneficially owned by KREF, (ii) interest and servicing fees earned from the CMBS trust and (iii) other residual returns or losses of the CMBS trust, if any (Note 7).

Management categorizes the commercial mezzanine loans held by separate joint ventures, VIEs consolidated by KREF as primary beneficiary, as Level 3 assets in the fair value hierarchy as such assets are illiquid, structured instruments that are specific to the properties and their corresponding operating performance (Note 12).

Other Valuation Matters — For Level 3 financial assets originated, or otherwise acquired, and financial liabilities assumed during the calendar month immediately preceding a quarter end that were conducted in an orderly transaction with an unrelated party, management generally believes that the transaction price provides the most observable indication of fair value given the illiquid nature of these financial instruments, unless management is aware of any circumstances that may cause a material

9

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

change in the fair value through the remainder of the reporting period. For instance, significant changes to the underlying property or its planned operations may cause material changes in the fair value of commercial mortgage loans acquired, or originated, by KREF.

KREF’s determination of fair value is based upon the best information available for a given circumstance and may incorporate assumptions that are management’s best estimates after consideration of a variety of internal and external factors. When an independent valuation firm expresses an opinion on the fair value of a financial instrument in the form of a range, management selects a value within the range provided by the independent valuation firm, generally the midpoint, to assess the reasonableness of management’s estimated fair value for that financial instrument.

See Note 12 for additional information regarding the valuation of KREF's financial assets and liabilities.

Sales of Financial Assets and Financing Agreements — KREF will, from time to time, sell loans, securities and other assets as well as finance assets in the form of secured borrowings. In each case, management evaluates whether the transaction constitutes a sale through legal isolation of the transferred financial asset from KREF, the ability of the transferee to pledge or exchange the transferred asset without constraint and the transfer of control of the transferred asset. For transfers that constitute sales, KREF (i) recognizes the financial assets it retains and liabilities it has incurred, if any, (ii) derecognizes the financial assets it has sold, and derecognizes liabilities when extinguished and (iii) recognizes a realized gain, or loss, based upon the excess, or deficient, proceeds received over the carrying value of the transferred asset. KREF does not recognize a gain, or loss, on interests retained, if any, where management elected the fair value option prior to sale.

Balance Sheet Measurement

Cash, Cash Equivalents and Restricted Cash and Cash Equivalents — KREF considers cash equivalents as highly liquid short-term investments with maturities of 90 days or less when purchased. Substantially all amounts on deposit with major financial institutions exceed insured limits.

KREF must also maintain sufficient cash and cash equivalents to satisfy liquidity covenants related to its secured financing agreements. However, such amounts are not restricted from use in KREF's current operations, and KREF does not present these cash and cash equivalents as restricted. As of September 30, 2018 and December 31, 2017, KREF was required to maintain unrestricted cash and cash equivalents of at least $19.3 million and $12.1 million, respectively, to satisfy its liquidity covenants (Note 4).

Commercial Mortgage Loans Held‑For‑Investment and Provision for Loan Losses — KREF recognizes its investments in commercial mortgage loans based on management's intent, and KREF's ability, to hold those investments through their contractual maturity. Management classifies those loans that management does not intend to sell in the foreseeable future, and KREF is able to hold until maturity, as held-for-investment. Loans that are held‑for‑investment are carried at their aggregate outstanding face amount, net of applicable (i) unamortized origination or acquisition premiums and discounts, (ii) unamortized deferred nonrefundable fees and other direct loan origination costs, (iii) allowance for loan losses and (iv) charge-offs or write-downs of impaired loans. If a loan is determined to be impaired, management writes down the loan through a charge to the provision for loan losses. See "—Expense Recognition — Loan Impairment— Commercial Mortgage Loans, Held-For-Investment" for additional discussion regarding management’s determination for loan losses. KREF applies the interest method to amortize origination or acquisition premiums and discounts and deferred nonrefundable fees or other direct loan origination costs, or on a straight line basis when it approximates the interest method. Loans for which management elects the fair value option at the time of origination, or acquisition, are carried at fair value on a recurring basis (Note 3).

Commercial Mortgage Loans Held‑For‑Sale — Loans that KREF originates, or acquires, which KREF is unable to hold, or management intends to sell or otherwise dispose of, in the foreseeable future are classified as held‑for‑sale and are carried at the lower of amortized cost or fair value.

Secured Financing Agreements — KREF's secured financing agreements, including Term Loan Financings, are treated as collateralized financing transactions and consist of floating rate, uncommitted repurchase facilities and Term Loan Financing arrangements carried at their contractual amounts, net of unamortized debt issuance costs (Note 4).

10

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

Convertible Notes, Net — KREF accounts for its convertible debt with a cash conversion feature in accordance with ASC 470-20 “Debt with Conversion and Other Options” which requires the liability and equity components of convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement, to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The initial proceeds from the sale of convertible notes are allocated between a liability component and an equity component in a manner that reflects interest expense at the rate of similar nonconvertible debt that could have been issued at such time. The equity component represents the excess initial proceeds received over the fair value of the liability component of the notes as of the date of issuance. KREF measured the estimated fair value of the debt component of the convertible notes due May 15, 2023 (“Convertible Notes”) as of the issuance date based on KREF’s nonconvertible debt borrowing rate. The equity component of the Convertible Notes is reflected within additional paid-in capital on our condensed consolidated balance sheet, and the resulting debt discount is amortized over the period during which such Convertible Notes are expected to be outstanding (through the maturity date) as additional non-cash interest expense using the interest method, or on a straight line basis when it approximates the interest method. The additional non-cash interest expense attributable to such convertible notes will increase in subsequent periods through the maturity date as the notes accrete to their par value over the same period (Note 5).

Loan Participations Sold, Net — In connection with its investments in senior loans, KREF finances certain investments through the syndication of non-recourse, or limited-recourse, loan participation to unaffiliated third parties. KREF’s 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 KREF’s 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, KREF derecognizes the participation in the senior loan that KREF sold and continue to carry the retained portion of the loan as an investment. While KREF does not generally expect to recognize a material gain or loss on these sales, KREF would realize a gain or loss in an amount equal to the difference between the net proceeds received from the third party purchaser and its carrying value of the loan participation that KREF sold at time of sale. Furthermore, KREF recognizes interest income only on the portion of the senior loan that it retains as a result of the sale.

To the extent that GAAP does not recognize a sale resulting from the syndication, KREF does not derecognize the participation in the senior loan that it sold. Instead, KREF recognizes 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. KREF continues 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 (Note 6).

Other Assets and Accounts Payable, Accrued Expenses and Other Liabilities — As of September 30, 2018, other assets included a $16.5 million loan principal payment receivable from a third-party servicer and $2.4 million of deferred debt issuance costs related to credit facilities, net of $0.8 million accumulated amortization. As of December 31, 2017, other assets included a $4.6 million loan principal payment receivable from a third-party servicer and $2.1 million of deferred debt issuance costs related to credit facilities, net of $0.5 million accumulated amortization.

Special Non-Voting Preferred Stock ("SNVPS") — Equity instruments that are redeemable for cash or other assets are classified as temporary equity if the instrument is redeemable, at the option of the holder, at a fixed or determinable price on a fixed or determinable date or upon the occurrence of an event that is not solely within the control of the issuer. Redeemable equity instruments are initially carried at the fair value of the equity instrument at the issuance date, which is subsequently adjusted at each balance sheet date if the instrument is currently redeemable or probable of becoming redeemable. The fair value of the instrument is adjusted to reflect the instrument’s redemption amount at each balance sheet date if KREF determines the SNVPS is redeemable or it is probable that the SNVPS will become redeemable. KREF accounted for the SNVPS as redeemable preferred stock since a third party holds a redemption option, exercisable after May 5, 2018, and such redemption is not solely within KREF’s control. Accordingly, the Company adjusted the carrying value of the SNVPS to its redemption value of $0.4 million as of September 30, 2018. KREF presents the SNVPS as “Temporary Equity — Redeemable preferred stock” in the accompanying Condensed Consolidated Balance Sheets (Note 8).

Income Recognition

Interest Income — Loans where management expects to collect all contractually required principal and interest payments are considered performing loans. KREF accrues interest income on performing loans based on the outstanding principal amount

11

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

and contractual terms of the loan. Interest income also includes origination fees and direct loan origination costs for loans that KREF originates, but where management did not elect the fair value option, as a yield adjustment using the interest method over the loan term, or on a straight line basis when it approximates the interest method. KREF expenses origination fees and direct loan origination costs for loans acquired, but not originated, by KREF as well as loans for which management elected the fair value option, as incurred.

Realized Gain (Loss) on Sale of Investments — KREF recognizes the excess, or deficiency, of net proceeds received, less the net carrying value of such investments, as realized gains or losses, respectively. KREF reverses cumulative, unrealized gains or losses previously reported in its Condensed Consolidated Statements of Income with respect to the investment sold at the time of sale.

Expense Recognition

Loan Impairment — KREF holds commercial mortgage loans for both investment and sale, which management periodically evaluates for impairment.

Commercial Mortgage Loans, Held-For-Investment — For each loan in KREF's portfolio, management performs a quarterly evaluation of impairment indicators of loans classified as held‑for‑investment using applicable loan, property, market and sponsor information obtained from borrowers, loan servicers and local market participants. Such indicators may include the net present value of the underlying collateral, property operating cash flows, the sponsor’s financial wherewithal and competency in managing the property, macroeconomic trends, and property submarket-specific economic factors. The evaluation of these indicators of impairment requires significant judgment by management to determine whether failure to collect contractual amounts is probable.

If management deems that it is probable that KREF will be unable to collect all amounts owed according to the contractual terms of a loan, impairment of that loan is indicated. If management considers a loan to be impaired, management establishes an allowance for loan losses, through a valuation provision in earnings, which reduces the carrying value of the loan to the present value of expected future cash flows discounted at the loan’s contractual effective rate or the fair value of the collateral, if repayment is expected solely from the collateral. Significant judgment is required in determining impairment and in estimating the resulting loss allowance, and actual losses, if any, could materially differ from those estimates.

Management considers loans to be past due when a monthly payment is due and unpaid for 60 days or more. Loans are placed on nonaccrual status and considered non-performing when full payment of principal and interest is in doubt, which generally occurs when principal or interest is 120 days or more past due unless the loan is both well secured and in the process of collection. Management may return a loan to accrual status when repayment of principal and interest is reasonably assured under the terms of the restructured loan. As of September 30, 2018, KREF did not hold any loans that management placed on nonaccrual status or otherwise considered past due.

In addition to reviewing commercial mortgage loans held-for-investment for impairment, the Manager evaluates KREF's commercial mortgage loans to determine if an allowance for loan loss should be established. In conjunction with this review, the Manager assesses the risk factors of each loan, and assigns a risk rating based on a variety of factors, including, without limitation, 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 loan-to-value ratios, debt service coverage ratios, loan structure, real estate and credit market dynamics, and risk of default or principal loss. Based on a five-point scale, KREF's 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 loan-to-value ratio (<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 loan-to-value ratio (65%-70%). Operating trends are favorable, and the underlying loan can be

12

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

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 loan-to-value ratio (<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 loan-to-value ratio (>80%), and the loan covenants are unlikely to fully mitigate some risks. Interest payments may come from an interest reserve or sponsor equity.

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 loan-to-value ratio (>90%), and default may be imminent.

Commercial Mortgage Loans, Held-For-Sale — For commercial mortgage loans held-for-sale, KREF applies the lower of cost or fair value accounting and may be required, from time to time, to record a nonrecurring fair value adjustment.

Interest Expense — Management expenses contractual interest due in accordance with KREF's financing agreements as incurred.

Deferred Debt Issuance Costs — Management capitalizes and amortizes deferred debt facility costs incurred when entering repurchase agreements on a straight-line basis over the expected term of the facility and incremental costs incurred when KREF draws on those facilities using the interest method over the expected term of the draw, or on a straight line basis when it approximates the interest method. KREF presents such expensed amounts, as well as deferred amounts written off, as additional interest expense in its Condensed Consolidated Statements of Income.

General and Administrative Expenses — Management expenses general and administrative costs, including legal, diligence and audit fees; information technology costs; insurance premiums; and other costs as incurred.

Management and Incentive Compensation to Affiliate — Management expenses compensation earned by the Manager on a quarterly basis in accordance with the Management Agreement (Note 11).

Income Taxes — Certain activities of KREF are conducted through joint ventures formed as limited liability companies, taxed as partnerships, and consolidated by KREF. Some of these joint ventures are subject to state and local income taxes (Note 13).

As of September 30, 2018 and December 31, 2017, KREF did not have any material deferred tax assets or liabilities arising from future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities in accordance with GAAP and their respective tax bases.

KREF recognizes tax benefits for uncertain tax positions only if it is more likely than not that the position is sustainable based on its technical merits. Interest and penalties on uncertain tax positions are included as a component of the provision for income taxes in KREF's Condensed Consolidated Statements of Income. As of September 30, 2018, KREF did not have any material uncertain tax positions.

13

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

Stock-Based Compensation

KREF's stock-based compensation consists of awards issued to employees of the Manager or its affiliates that vest over the life of the awards, as well as restricted stock units issued to certain members of KREF's board of directors. The Company early adopted ASU No. 2018-07, Improvement to Nonemployee Share-based Payment Accounting upon its issuance in June 2018. Accordingly, the Company recognizes the compensation cost of stock-based awards to employees of the Manager or its affiliates on a straight-line basis over the awards’ term at their grant date fair value.

Upon the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718), KREF elected to account for forfeitures as they occur. Refer to Note 9 for additional information.

Earnings per Share

Diluted earnings per share, or Diluted EPS, is determined using the treasury stock method, and is based on the net earnings attributable to common stockholders, including restricted stock units, divided by the weighted-average number of shares of common stock, including restricted stock units. Refer to Note 8 for additional discussion of earnings per share.

KREF presents basic and diluted earnings per share ("EPS"). Basic EPS, or Net Income (Loss) Per Share of Common Stock, Basic, is calculated by dividing Net Income (Loss) Attributable to Common Stockholders by the Basic Weighted Average Number of Shares of Common Stock Outstanding, for the period.

Diluted EPS, or Net Income (Loss) Per Share of Common Stock, Diluted, is calculated by starting with Basic EPS and adding the weighted average dilutive shares issuable from restricted stock units, computed using the treasury stock method, to the weighted average common shares outstanding in the denominator.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, Revenues from Contracts with Customers (Topic 606). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In adopting ASU 2014-09, entities have the option of using either a full retrospective or a modified approach to adopt the guidance in the ASU. KREF has adopted the modified approach. The adoption of this ASU beginning in the first quarter of 2018 did not have a material impact on the Company's condensed consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities. The standard: (i) requires that certain equity investments be measured at fair value, and modifies the assessment of impairment for certain other equity investments, (ii) changes certain disclosure requirements related to the fair value of financial instruments measured at amortized cost, (iii) changes certain disclosure requirements related to liabilities measured at fair value, (iv) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and (v) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. An entity should apply ASU No. 2016-01 by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The adoption of ASU No. 2016-01 beginning in the first quarter of 2018 did not have a material impact on the Company's condensed consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses. The standard amends the existing credit loss model to reflect a reporting entity's current estimate of all expected credit losses and requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at a net amount expected to be collected through deduction of an allowance for credit losses from the amortized cost basis of the financial asset(s). ASU No. 2016-13 is effective for KREF in the first quarter of 2020. Early adoption is permitted beginning in the first quarter of 2019. While KREF is currently evaluating the impact that ASU 2016-13 will have on KREF's condensed consolidated financial statements, we expect that the adoption will result in an increased amount of provisions for potential loan losses as well as the recognition of such

14

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

provisions earlier in the credit cycle. KREF currently does not have any provision for loan losses recorded on the condensed consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting. The standard aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees, with certain exceptions. Under the guidance, the measurement of equity-classified nonemployee awards will be fixed at the grant date. ASU No. 2018-07 is effective for public companies in the first quarter of 2019 with early adoption permitted. KREF early adopted this ASU upon its issuance to simplify its accounting for share-based payments to employees of the Manager or its affiliates. The adoption of this ASU did not have a material impact on the Company's condensed consolidated financial statements.

15

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

Note 3. Commercial Mortgage Loans

The following table summarizes KREF's investments in commercial mortgage loans as of September 30, 2018 and December 31, 2017:

						Weighted Average
Loan Type	Outstanding Face Amount		Carrying Value		Loan Count	Floating Rate Loan %(A)		Coupon(A)		Life (Years)(B)
September 30, 2018
Loans held-for-investment
Senior loans(C)	$	3,226,649	$	3,206,484	27	100.0	%	5.8	%	3.8
Mezzanine loans(D)	55,535		55,394		8	52.8		11.8		4.3
	$	3,282,184	$	3,261,878	35	99.2	%	5.9	%	3.9
December 31, 2017
Loans held-for-investment
Senior loans(C)	$	1,794,963	$	1,782,054	18	100.0	%	5.8	%	3.7
Mezzanine loans(D)	106,730		106,456		10	75.4		11.3		3.7
	$	1,901,693	$	1,888,510	28	98.6	%	6.1	%	3.7

(A) Average weighted by outstanding face amount of loan. Weighted average coupon assumes applicable one-month LIBOR rates of 2.26% and 1.56% as of September 30, 2018 and December 31, 2017, respectively.

(B) The weighted average life of each loan is based on the expected timing of the receipt of contractual cash flows assuming all extension options are exercised by the borrower.

(C) Senior loans may include accommodation mezzanine loans in connection with the senior mortgage financing. Includes loan participations sold with a face amount of $83.9 million and $82.0 million, and a carrying value of $83.5 million and $81.5 million as of September 30, 2018 and December 31, 2017, respectively.

(D) In June 2018, KREF acquired the 5.0% redeemable noncontrolling interest in the Mezzanine JV that held six commercial mezzanine loans, held-for-investment, with a $26.2 million outstanding face amount and carrying value as of September 30, 2018. The Mezzanine JV held seven commercial mezzanine loans, held-for-investment, with a $61.2 million outstanding face amount and carrying value as of December 31, 2017.

Activity — For the nine months ended September 30, 2018, the loan portfolio activity was as follows:

	Held-for-Investment			Held-for-Sale		Total
Balance at December 31, 2017	$	1,888,510		$	—	$	1,888,510
Purchases and originations, net(A)	1,697,074			—		1,697,074
Proceeds from principal repayments	(330,939		)	—		(330,939		)
Accretion of loan discount and other amortization, net(B)	7,233			—		7,233
Balance at September 30, 2018	$	3,261,878		$	—	$	3,261,878

(A) Net of applicable premiums, discounts and deferred loan origination costs.

(B) Includes accretion of applicable discounts and deferred loan origination costs.

As of September 30, 2018 and December 31, 2017, there was $20.3 million and $13.2 million, respectively, of unamortized deferred loan fees and discounts included in commercial mortgage loans, held-for-investment, net on the Condensed Consolidated Balance Sheets.

16

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

Loan Risk Ratings — As further described in Note 2, our Manager evaluates KREF's commercial mortgage loan portfolio on a quarterly basis. In conjunction with the quarterly commercial mortgage loan portfolio review, KREF's Manager assesses the risk factors of each loan, and assigns a risk rating based on a variety of factors. Loans are rated “1” (very low risk) through “5” Impaired/Loss Likely), which ratings are defined in Note 2. The following table allocates the principal balance and net book value of the loan portfolio based on KREF's internal risk ratings:

September 30, 2018						December 31, 2017
Risk Rating	Number of Loans	Net Book Value		Total Loan Exposure(A)		Risk Rating	Number of Loans	Net Book Value		Total Loan Exposure(A)
1	—	$	—	$	—	1	—	$	—	$	—
2	8	446,525		448,821		2	4	155,092		156,123
3	27	2,815,353		2,899,972		3	23	1,717,000		1,792,022
4	—	—		—		4	1	16,418		16,500
5	—	—		—		5	—	—		—
	35	$	3,261,878	$	3,348,793		28	$	1,888,510	$	1,964,645

(A) In certain instances, we finance our loans through the non-recourse sale of a senior interest that is not included in our consolidated financial statements. Total loan exposure includes the entire loan we originated and financed, including $66.6 million and $63.0 million of such non-consolidated interests as of September 30, 2018 and December 31, 2017, respectively.

As of September 30, 2018, the average risk rating of KREF's portfolio was 2.9 (Average Risk), weighted by investment carrying value, with 100.0% of commercial mortgage loans held-for-investment, rated 3 (Average Risk) or better by KREF's Manager as compared to 2.9 (Average Risk) as of December 31, 2017.

Concentration of Credit Risk — The following tables present the geographies and property types of collateral underlying KREF's commercial mortgage loans as a percentage of the loans' carrying values, net of noncontrolling interests:

	September 30, 2018		December 31, 2017			September 30, 2018		December 31, 2017
Geography					Collateral Property Type
New York	25.4	%	29.3	%	Office	53.0	%	41.7	%
Georgia	13.3		11.0		Multifamily	33.3		24.7
Washington	10.2		—		Condo (Residential)	5.6		10.8
California	9.2		14.9		Industrial	4.0		6.8
Minnesota	6.8		7.0		Retail	3.9		13.8
Florida	5.9		2.2		Hospitality	0.2		2.2
Massachusetts	5.9		—		Total	100.0	%	100.0	%
New Jersey	4.4		7.1
Pennsylvania	4.3		—
Oregon	3.7		6.3
Hawaii	3.1		5.3
Colorado	2.9		5.1
Washington D.C.	2.8		4.2
Tennessee	1.6		2.8
Other U.S.	0.5		4.8
Total	100.0	%	100.0	%

17

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

Note 4. Debt Obligations

The following table summarizes KREF's secured master repurchase agreements and other consolidated debt obligations in place as of September 30, 2018 and December 31, 2017:

	September 30, 2018																			December 31, 2017
	Facility												Collateral							Facility
										Weighted Average(B)
	Month Issued	Outstanding Face Amount		Carrying Value(A)			Maximum Facility Size		Final Stated Maturity	Funding Cost		Life (Years)	Outstanding Face Amount		Amortized Cost Basis		Carrying Value		Weighted Average Life (Years)(C)	Carrying Value(A)
Master Repurchase Agreements(D)
Wells Fargo(E)	Oct 2015	$	791,297	$	787,487		$	1,000,000	Apr 2022	4.4	%	1.8	$	1,096,789	$	1,090,273	$	1,090,273	3.9	$	482,146
Morgan Stanley(F)	Dec 2016	483,558		482,064			600,000		Dec 2021	4.6		1.5	709,123		705,658		705,658		3.2	421,904
Goldman Sachs(G)	Sep 2016	268,709		268,709			400,000		Oct 2020	4.4		1.4	362,191		359,960		359,960		4.3	60,750
Asset Specific Financing
BMO Facility(H)	Aug 2018	—		(316		)	200,000		n.a	0.2		0.0	—		—		—		0.0	—
Revolving Credit Agreement
Barclays(I)	May 2017	—		—			75,000		May 2020	1.1		0.0	n.a.		n.a.		n.a.		n.a.	—
		1,543,564		1,537,944			2,275,000			4.4	%	1.6	2,168,103		2,155,891		2,155,891			964,800
VIE Liabilities
CMBS(J)	Various	1,095,731		1,086,939			n.a.		May 2048 to Feb 2049	4.4	%	6.3	1,130,672		n.a.		1,100,089		6.3	5,256,926
		1,095,731		1,086,939			n.a.			4.4		6.3								5,256,926
Total / Weighted Average		$	2,639,295	$	2,624,883		$	2,275,000		4.4	%	3.6								$	6,221,726

(A) Net of $5.6 million and $4.5 million unamortized debt issuance costs as of September 30, 2018 and December 31, 2017, respectively.

(B) Average weighted by the outstanding face amount of borrowings.

(C) Average based on the fully extended loan maturity, weighted by the outstanding face amount of the collateral.

(D) Borrowings under these repurchase agreements are collateralized by senior loans, held-for-investment, and bear interest equal to the sum of (i) a floating rate index, equal to one-month LIBOR, subject to certain floors of not less than zero, or an index approximating LIBOR, and (ii) a margin, based on the collateral. As of September 30, 2018 and December 31, 2017, the percentage of the outstanding face amount of the collateral sold and not borrowed under these repurchase agreements, or average "haircut" weighted by outstanding face amount of collateral, was 28.8% and 32.9%, respectively (or 25.6% and 27.3%, respectively, if KREF had borrowed the maximum amount approved by its repurchase agreement counterparties as of such dates).

(E) The current stated maturity of the facility is April 2020, which does not reflect two, twelve-month facility term extensions available to KREF, which is contingent upon certain covenants and thresholds. In September 2018, KREF and Wells Fargo Bank, National Association ("Wells Fargo") amended the master repurchase agreement to increase the maximum facility size from $750.0 million to $1,000.0 million. As of September 30, 2018, the collateral-based margin was between 1.50% and 2.15%.

(F) In November 2017, KREF and Morgan Stanley Bank, N.A. ("Morgan Stanley") amended and restated the master repurchase agreement to extend the facility maturity date and to increase the maximum facility size from $500.0 million to $600.0 million and, subject to customary conditions, permits KREF to request the facility be further increased to $750.0 million. The current stated maturity of the facility is December 2020, which does not reflect one, twelve-month facility term extension available to KREF, which is contingent upon certain covenants and thresholds and, even if such covenants and thresholds are satisfied, is at the sole discretion of Morgan Stanley. As of September 30, 2018, the collateral-based margin was between 2.00% and 2.45%.

(G) In July 2018, KREF and Goldman Sachs Bank USA ("Goldman Sachs") amended the November 2017 restated master purchase agreement to modify certain terms and provisions. The amended and restated facility includes a $350.0 million term facility with a maturity date of October 2020 and a $50.0 million swingline facility with a revolving period of one year, and a three-year term on a per-asset basis as those assets are pledged to the facility. As of September 30, 2018, the carrying value excluded $1.5 million unamortized debt issuance costs presented as " — Other assets" in KREF's Condensed Consolidated Balance Sheets. As of September 30, 2018, the collateral-based margin was between 1.70% and 2.00%.

(H) In August 2018, KREF entered into a $200.0 million loan financing facility with BMO Harris Bank ("BMO Facility") with a third party lender. The facility provides asset-based financing on a non-mark to market basis with matched-term up to five years with partial recourse to KREF. There were no amounts outstanding on this facility as of September 30, 2018.

(I) In May 2017, KREF entered into a $75.0 million corporate secured revolving credit facility administered by Barclays Bank PLC ("Barclays "). The current stated maturity of the facility is May 2019, which does not reflect one, twelve-month facility term extension available to KREF at the discretion of Barclays. Borrowings under the facility bear interest at a per annum rate equal to the sum of (i) a floating rate index and (ii) a fixed margin. Amounts borrowed under this facility are 100% recourse to KREF. As of September 30, 2018, the carrying value excluded $0.8 million unamortized debt issuance costs presented as " — Other assets" in KREF's Condensed Consolidated Balance Sheets.

(J) Facility amounts represent consolidated CMBS trust(s) that are not beneficially owned by KREF's stockholders. The facility and collateral carrying amounts included $3.8 million accrued interest payable and $4.0 million accrued interest receivable as of September 30, 2018. As of December 31, 2017, the facility and collateral carrying amounts included $18.7 million accrued interest payable and $19.7 million accrued interest receivable. The final stated maturity date represents the rated final distribution date of CMBS issued by trusts that KREF consolidates, but that are not beneficially owned by KREF's stockholders. Refer to Note 7 for additional discussion of KREF's VIE assets and liabilities.

The preceding table excludes loan participations sold (Note 6).

18

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

As of September 30, 2018 and December 31, 2017, KREF had outstanding repurchase agreements where the amount at risk with any individual counterparty, or group of related counterparties, exceeded 10.0% of KREF’s stockholders' equity. The amount at risk under repurchase agreements is the net counterparty exposure, defined as the excess of the carrying amount (or market value, if higher than the carrying amount) of the assets sold under agreement to repurchase, including accrued interest plus any cash or other assets on deposit to secure the repurchase obligation, over the amount of the repurchase liability, adjusted for accrued interest. The following table summarizes certain characteristics of KREF's repurchase agreements where the amount at risk with any individual counterparty, or group of related counterparties, exceeded 10.0% of KREF’s stockholders' equity as of September 30, 2018 and December 31, 2017:

	Outstanding Face Amount		Net Counterparty Exposure		Percent of Stockholders' Equity		Weighted Average Life (Years)(A)
September 30, 2018
Wells Fargo	$	791,297	$	304,871	26.6	%	1.8
Morgan Stanley	483,558		224,557		19.6		1.5
Total / Weighted Average	$	1,274,855	$	529,428	46.2	%	1.7
December 31, 2017
Wells Fargo	$	485,250	$	203,303	19.2	%	1.6
Morgan Stanley	423,347		251,463		23.7		2.0
Total / Weighted Average	$	908,597	$	454,766	42.9	%	1.8

(A) Average weighted by the outstanding face amount of borrowings under the secured financing agreement.

Debt obligations included in the tables above are obligations of KREF’s consolidated subsidiaries, which own the related collateral, and such collateral is generally not available to other creditors of KREF. In particular, holders of CMBS, including KREF, are unable to directly own the mortgages, properties or other collateral held by the issuing trusts that KREF present as "Assets — Commercial mortgage loans held in variable interest entities, at fair value" in its Condensed Consolidated Balance Sheets.

While KREF is generally not required to post margin under repurchase agreement terms for changes in general capital market conditions such as changes in credit spreads or interest rates, KREF may be required to post margin for changes in conditions specific to loans that serve as collateral for those repurchase agreements. Such changes may include declines in the appraised value of property that secures a loan or a negative change in the borrower's ability or willingness to repay a loan. To the extent that KREF is required to post margin, KREF's liquidity could be significantly impacted. Both KREF and its lenders work cooperatively to monitor the performance of the properties and operations related to KREF's loan investments to mitigate investment-specific credit risks. Additionally, KREF incorporates terms in the loans it originates to further mitigate risks related to loan nonperformance.

19

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

Term Loan Financing

In April 2018, KREF, through its consolidated subsidiaries, entered into a term loan financing agreement (“Term Loan Facility”) with third party lenders for an initial borrowing capacity of $200.0 million that was subsequently increased to $600.0 million as of September 30, 2018. The facility provides asset-based financing on a non-mark to market basis with matched term up to five years and is non-recourse to KREF. Borrowings under the facility are collateralized by senior loans, held-for-investment, and bear interest equal to one-month LIBOR plus a margin. As of September 30, 2018, the weighted average margin and interest rate on the facility were 1.4% and 3.7%, respectively. The following table summarizes our borrowings under the Term Loan Facility:

	September 30, 2018
Term Loan Facility	Count	Outstanding Face Amount		Carrying Value		Wtd. Avg. Yield/Cost(A)	Guarantee(B)	Wtd. Avg. Term(C)
Collateral assets	6	$	717,500	$	711,982	L + 3.0%	n.a.	May 2023
Financing provided	n.a	582,483		578,010		L + 1.7%	n.a.	May 2023

(A) Floating rate loans and related liabilities are indexed to one-month LIBOR. KREF's net interest rate exposure is in direct proportion to its interest in the net assets indexed to that rate. 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 KREF.

(C) The weighted-average term is determined using the maximum maturity date of the corresponding loans, assuming all extension options are exercised by the borrower.

Activity — For the nine months ended September 30, 2018, the activity related to the carrying value of KREF’s secured financing agreements, term loan financing and other consolidated debt obligations were as follows:

	Secured Financing Agreements, Net(A)			Variable Interest Entity Liabilities, at Fair Value			Total
Balance as of December 31, 2017	$	964,800		$	5,256,926		$	6,221,726
Principal borrowings	1,607,725			—			1,607,725
Principal repayments/ sales/ deconsolidation	(451,026		)	(4,062,624		)	(4,513,650		)
Deferred debt issuance costs	(8,562		)	—			(8,562		)
Amortization of deferred debt issuance costs	3,017			—			3,017
Fair value adjustment	—			(92,499		)	(92,499		)
Other(B)	—			(14,864		)	(14,864		)
Balance as of September 30, 2018	$	2,115,954		$	1,086,939		$	3,202,893

(A)    Includes Term Loan Financing Facility and Asset Specific Financing Facility.

(B)    Amounts principally consist of changes in accrued interest payable and cost adjustments.

Maturities — KREF’s secured financing agreements, term loan financing and other consolidated debt obligations in place as of September 30, 2018 had current contractual maturities as follows:

Year	Nonrecourse(A)		Recourse(B)		Total
2018	$	2,779	$	—	$	2,779
2019	13,098		505,432		518,530
2020	179,359		985,632		1,164,991
2021	484,634		—		484,634
2022	18,565		52,500		71,065
Thereafter	979,779		—		979,779
	$	1,678,214	$	1,543,564	$	3,221,778

(A) Amounts related to consolidated CMBS VIE liabilities that represent securities not beneficially owned by KREF's stockholders.

(B) Amounts borrowed subject to a maximum 25.0% recourse limit.

20

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

Covenants — KREF is required to comply with customary loan covenants and event of default provisions related to its secured financing agreements, including, but not limited to, negative covenants relating to restrictions on operations with respect to KREF’s status as a REIT, and financial covenants. Such financial covenants include 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 cash proceeds of any equity issuances made and any capital contributions received by KREF and certain subsidiaries or $800.0 million dependent upon the facility); a cash liquidity covenant (the greater of $10.0 million or 5.0% of KREF's recourse indebtedness); a total indebtedness covenant (75.0% of KREF's total assets, net of VIE liabilities); a maximum debt-to-equity ratio (3.5 to 1.0); and a minimum fixed charge coverage ratio (1.5 to 1.0). As of September 30, 2018 and December 31, 2017, KREF was in compliance with its financial loan covenants.

21

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

Note 5. Convertible Notes, Net

In May 2018, the Company issued $143.75 million of 6.125% convertible senior 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 15 and November 15 of each year, beginning on November 15, 2018. The Convertible Notes mature on May 15, 2023, unless earlier repurchased or converted. The Convertible Notes’ issuance costs of $5.1 million are amortized through interest expense over the life of the Convertible Notes.

The initial conversion rate for the Convertible Notes is 43.9386 shares of KREF’s common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $22.76 per share of KREF’s common stock, which represents a 10% conversion premium over the last reported sale price of $20.69 per share of KREF’s common stock on The New York Stock Exchange on May 15, 2018. The conversion rate is subject to adjustment under certain circumstances. In addition, upon a make-whole fundamental change as defined within the indenture governing the Convertible Notes, the Company will, under certain circumstances, increase the applicable conversion rate for a holder that elects to convert its Notes in connection with such make-whole fundamental change. Prior to February 15, 2023, the Notes will be convertible only upon satisfaction of certain conditions and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. KREF will satisfy any conversion elections by paying or delivering, as the case may be, cash, shares of KREF’s common stock or a combination of cash and shares of KREF’s common stock, at its election. KREF has the intent and ability to settle the Convertible Notes in cash and, as a result, the Convertible Notes did not have an impact on our diluted earnings per share.

Upon the issuance of the Convertible Notes, the Company recorded a $1.8 million discount based on the implied value of the conversion option and an assumed effective interest rate of 6.50%, as well as $5.1 million of initial issuance costs, inclusive of the $0.8 million paid to an affiliate of KREF (Note 11) . Inclusive of the amortization of this discount and the issuance costs, KREF’s total cost of the May 2018 Convertible Notes issuance is 6.92% per annum.

The following table details our interest expense related to the Convertible Notes:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Cash coupon	$	2,201	$	—	$	3,253	$	—
Discount and issuance cost amortization	349		—		512		—
Total interest expense	$	2,550	—		$	3,765	—

The following table details the net book value of our Convertible Notes on our Condensed Consolidated Balance Sheets:

	September 30, 2018			December 31, 2017
Face value	$	143,750		$	—
Deferred financing costs	(4,745		)	—
Unamortized discount	(1,666		)	—
Net book value	$	137,339		$	—

Accrued interest payable for the Convertible Notes was $3.3 million and $0.0 million as of September 30, 2018 and December 31, 2017, respectively. Refer to Note 2 for additional discussion of our accounting policies for the Convertible Notes.

22

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

Note 6. Loan Participations Sold

KREF finances certain investments through the syndication of a non-recourse, or limited-recourse, loan participation to unaffiliated third parties. The following table summarizes the loan participation sold liabilities that KREF recognized since the corresponding syndications of the participations in the senior loans were not treated as sales:

	September 30, 2018
Loan Participations Sold	Count	Principal Balance		Carrying Value		Yield/Cost(A)	Guarantee(B)	Term
Total loan	1	$	97,440	$	97,024	L + 3.0%	n.a.	September 2022
Senior participation(C)	1	83,886		83,442		L + 1.8%	n.a.	September 2022

(A) Floating rate loans and related liabilities are indexed to one-month LIBOR. KREF's net interest rate exposure is in direct proportion to its interest in the net assets of the senior loan.

(B) As of September 30, 2018, the loan participation sold was subject to partial recourse of $10.0 million, which amount may be reduced to zero upon achievement of certain property performance metrics.

(C) During the nine months ended September 30, 2018, KREF recorded $2.3 million of interest income and $2.4 million of interest expense related to the loan participation KREF sold, but continue to consolidate under GAAP.

23

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

Note 7. Variable Interest Entities

CMBS — KREF's stockholders beneficially owned CMBS with an unpaid principal balance and fair value of $34.9 million and $13.0 million, respectively, as of September 30, 2018. KREF's stockholders beneficially owned CMBS with an unpaid principal balance and fair value of $309.2 million and $114.9 million, respectively, as of December 31, 2017.

In April 2018, KREF sold its controlling beneficial interest in four of the five CMBS trusts held for $112.7 million for a gain of $13.0 million during the nine months ended September 30, 2018, which is included in "Other Income — Realized gain on sale of investments" in the accompanying Condensed Consolidated Statements of Income. The initial cost basis of the CMBS trusts sold was $94.4 million and the fair value as of December 31, 2017 was $99.7 million.

KREF was required to consolidate each of the CMBS trusts acquired from the date of acquisition through the date of sale since KREF retained the controlling class and management determined KREF was the primary beneficiary of those trusts. Further, management irrevocably elected the fair value option for each of the trusts and carries the fair values of the trust's(s') assets and liabilities at fair value in its Condensed Consolidated Balance Sheets; recognizes changes in the trust's(s') net assets, including fair value adjustments and net interest earned, in its Condensed Consolidated Statements of Income; and records cash interest received from the trusts, net of cash interest paid to CMBS not beneficially owned by KREF, as operating cash flows.

The following table presents the KREF recognized Trust's(s') Assets and Liabilities:

	September 30, 2018		December 31, 2017
Trusts' Assets
Commercial mortgage loans held in variable interest entities, at fair value(A)	$	1,100,089	$	5,372,811
Accrued interest receivable	4,015		19,740
Trusts' Liabilities
Variable interest entity liabilities, at fair value(B)	1,086,939		5,256,926
Accrued interest payable	3,828		18,661

(A) Includes accrued interest receivable.

(B) Includes accrued interest payable.

The following table presents "Other Income — Change in net assets related to consolidated variable interest entities":

	Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018			2017
Net interest earned	$	584		$	3,138	$	4,604		$	9,357
Unrealized gain (loss)	(205		)	887		(2,144		)	3,453
Change in net assets related to consolidated variable interest entities	$	379		$	4,025	$	2,460		$	12,810

See Note 12 for additional information regarding the valuation of financial assets and liabilities held by KREF's consolidated VIEs.

24

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

Concentration of Credit Risk — The following tables present the geographies and property types of collateral underlying the CMBS trusts consolidated by KREF, as a percentage of the collateral unpaid principal balance and weighted by the fair value of the CMBS tranches beneficially owned by KREF's stockholders:

	September 30, 2018		December 31, 2017			September 30, 2018		December 31, 2017
Geography					Collateral Property Type
California	33.3	%	23.2	%	Retail	28.4	%	25.2	%
Texas	11.1		12.7		Office	27.4		26.4
New York	8.3		9.1		Hospitality	13.0		15.0
Missouri	5.3		4.6		Multifamily	9.9		10.6
Pennsylvania	5.2		4.5		Industrial/ Flex	9.6		9.6
Florida	4.2		5.5		Self Storage	5.9		3.0
Massachusetts*	3.6		1.7		Mixed Use	3.8		6.9
Illinois	2.7		7.1		Mobile Home	1.8		2.7
Georgia	2.6		2.9		Other	0.2		0.6
New Hampshire*	2.4		1.0			100.0	%	100.0	%
Delaware*	2.0		1.3
Virginia*	1.7		1.2
Other U.S.	17.6		25.2
Total	100.0	%	100.0	%

* Presented within Other U.S. as of December 31, 2017

Commercial Mezzanine Loan Joint Venture — KREF held a 95.0% interest, and was the primary beneficiary of, a joint venture consolidated as a VIE that invested in commercial mezzanine loans (Note 3). Management considered KREF to be the primary beneficiary of the joint venture as KREF held decision-making power over the activities that most significantly impact the economic performance of the joint venture. In June 2018, KREF acquired the Mezzanine JV Redeemable Noncontrolling Interest for its carrying value of $1.3 million. As of September 30, 2018, the joint venture is no longer a VIE.

Equity method investments, at fair value — KREF holds two investments in entities that it records using the equity method.

As of September 30, 2018, KREF held a 3.5% interest in RECOP, an unconsolidated VIE of which KREF is not the primary beneficiary. The aggregator vehicle in which KREF invests is controlled and advised by affiliates of the Manager. RECOP intends to primarily acquire junior tranches of CMBS newly issued by third parties but may also make purchases on the secondary market. KREF will not pay any fees to RECOP, but KREF bears its pro rata share of RECOP's expenses. KREF reported its share of the net asset value of RECOP in its Condensed Consolidated Balance Sheets, presented as “Equity method investments, at fair value” and its share of net income, presented as “Income from equity method investments” in the Condensed Consolidated Statement of Income.

As of September 30, 2018, the non-voting limited liability company interests issued by the Manager, a VIE, and held by a Taxable REIT Subsidiary ("TRS") of KREF for the benefit of the holder of the SNVPS represented 4.7% of the Manager’s outstanding limited liability company interests (Note 8). KREF reported its allocable percentage of the assets and liabilities of the Manager in its Condensed Consolidated Balance Sheets, presented as “Equity method investments, at fair value” and its share of net income, presented as “Income from equity method investments” in the Condensed Consolidated Statement of Income.

25

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

Note 8. Equity

Authorized Capital — On October 2, 2014, KREF's board of directors authorized KREF to issue up to 350,000,000 shares of stock, at $0.01 par value per share, consisting of 300,000,000 shares of common stock and 50,000,000 shares of preferred stock, subject to certain restrictions on transfer and ownership of shares. Restrictions placed on the transfer and ownership of shares relate to KREF's REIT qualification requirements.

Common Stock — As further described below, since December 2015, KREF issued the following shares of common stock:

Pricing Date	Shares Issued	Net Proceeds
As of December 31, 2015	13,636,416	$	272,728
February 2016	2,000,000	40,000
May 2016	3,000,138	57,130
June 2016(A)	21,838	—
August 2016	5,500,000	109,875
As of December 31, 2016	24,158,392	479,733
February 2017	7,386,208	147,662
April 2017	10,379,738	207,595
May 2017- Initial Public Offering	11,787,500	219,356
As of December 31, 2017	53,711,838	1,054,346
August 2018	5,000,000	98,326
As of September 30, 2018	58,711,838	$	1,152,672

(A) KREF did not receive any proceeds with respect to 21,838 shares of common stock issued to certain current and former employees of, and non-employee consultants to, KKR and third-party investors in the private placement completed in March 2016, in accordance with KREF's Stockholders Agreement dated as of March 29, 2016.

In March 2016, KREF obtained $277.4 million of capital commitments in connection with the completion of a private placement priced at $20.00 per share. Of these capital commitments, $190.1 million consisted of approximately $178.4 million from third parties and approximately $11.8 million from certain current and former employees of, and non-employee consultants to, KKR. KKR committed a total of $400.0 million and third parties committed a total of $248.0 million subsequent to the private placement completion. In connection with the completion of the private placement, KREF formed an advisory board consisting of certain third-party investors. The advisory board possessed certain protective approval rights over KREF's activities outside its ordinary course of business, including certain business combinations and equity issuances. The advisory board dissolved upon KREF's public listing on May 5, 2017.

In February 2017 and April 2017, KREF called a portion of capital from investors in the private placements closed during the year ended December 31, 2016 and issued 7,386,208 and 10,379,738 common shares, at $20.00 per share, for net proceeds of $147.7 million and $207.6 million, respectively.

In connection with the capital commitments described above, third-party investors and certain current and former employees of, and non-employee consultants to, KKR were allocated non-voting limited liability company interests of the Manager. For each $100.0 million shares of KREF’s common stock acquired by investors through the private placement, the investors were allocated non-voting limited liability company interests, representing 6.67% of the Manager’s then-outstanding total limited liability company interests. Each investor was allocated its pro rata share of the non-voting limited liability company interests of the Manager based on the investor’s shares of KREF’s common stock.

In May 2017, KREF completed its initial public offering of 11,787,500 shares of its common stock at a price to the public of $20.50 per share, which included 1,537,500 shares of common stock issued in connection with the underwriters' exercise in full of their option to purchase additional shares. The value of KREF's common stock prior to its listing on the New York Stock Exchange was based upon its equity value using a combination of net asset value (market) and discounted cash flow (income) approaches.

In August 2018, KREF completed an underwritten public offering of 5,000,000 shares of its common stock at $19.90 per share, less applicable transaction costs, resulting in $98.3 million in net proceeds.

26

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

As of September 30, 2018, KKR beneficially owned 23,758,616 shares of KREF's common stock, of which 3,758,616 shares were held by KKR on behalf of a third-party investor (Note 1).

During the nine months ended September 30, 2018, 34,259 shares of common stock were issued related to the vesting of restricted stock units. Upon any payment of shares as a result of restricted stock unit vesting, the related tax withholding obligation will generally be satisfied by the Company, reducing the number of shares to be delivered by a number of shares necessary to satisfy the related applicable tax withholding obligation. Refer to Note 9 for further detail.

Share Repurchase Program — KREF adopted a program to repurchase in the open market up to $100.0 million in shares of KREF's common stock over the 12 month period commencing in June 2017. Of this amount, a total of $50.0 million was covered by a pre-set trading plan meeting the requirements of Rule 10b5-1 under the Exchange Act (the "10b5-1 Plan"), which provided for repurchases of KREF's common stock when the market price per share of common stock was below book value per share (calculated in accordance with GAAP), with the remaining $50.0 million available at any time during the repurchase period. This program expired on June 12, 2018. In May 2018, KREF's board of directors approved a new share repurchase program, effective following the expiration of the above-described share repurchase program. The new share repurchase program permits KREF to repurchase up to $100.0 million of KREF's common stock during the period from June 13, 2018 through June 30, 2019. Of this total authorized amount, $50.0 million will be covered by a pre-set trading plan meeting the requirements of Rule 10b5-1 under the Exchange Act and provide for repurchases of our common stock when the market price per share of our common stock is below book value per share (calculated in accordance with GAAP as of the end of the most recent quarterly period for which financial statements are available), and the remaining $50.0 million may be used for repurchases in the open market, pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act, in privately negotiated transactions or otherwise. During the nine months ended September 30, 2018, KREF repurchased 697,109 shares of common stock under the 10b5-1 Plans at an average price per share of $19.54 for a total of $13.6 million. As of September 30, 2018, $49.3 million remained available for repurchases under this 10b5-1 Plan.

Of the 58,711,838 common shares KREF issued, there were 58,022,590 common shares outstanding as of September 30, 2018, net of 723,507 common shares repurchased and the delivery of 34,259 shares of common stock in connection with vested restricted stock units.

Dividends — During the nine months ended September 30, 2018, KREF's board of directors declared the following dividends on shares of its common stock and special voting preferred stock:

			Amount
Declaration Date	Record Date	Payment Date	Per Share		Total
March 12, 2018	March 29, 2018	April 13, 2018	$	0.40	$	21,230
May 7, 2018	June 29, 2018	July 13, 2018	0.43		22,804
September 11, 2018	September 28, 2018	October 12, 2018	0.43		24,951
					$	68,985

Preferred Stock — On January 23, 2015, KREF issued 125 shares of Series A cumulative, non-voting preferred stock with a par value of $0.01 per share and a stated value of $1,000.00 per share ("Series A Preferred Stock") that were senior to common stock. Holders of Series A Preferred Stock were entitled to cumulative distributions of 12.5% of the stated value per annum, payable semi-annually in arrears on or before June 30 and December 31 of each year, but were unable to convert Series A Preferred Stock into common stock or vote on matters brought to KREF's stockholders. In May 2017, KREF redeemed all 125 issued and outstanding shares of Series A Preferred Stock for $0.1 million, representing the sum of $1,000.00 per share and all accrued and unpaid dividends.

Special Voting Preferred Stock — In March 2016, KREF issued one share of special voting preferred stock to KKR Fund Holdings L.P. ("KKR Fund Holdings") for $20.00 per share, which KKR Fund Holdings transferred to its subsidiary, KKR REFT Asset Holdings LLC. The holder of the special voting preferred stock has special voting rights related to the election of members to KREF's board of directors until KKR and its affiliates cease to own at least 25.0% of KREF's issued and outstanding common stock. As of September 30, 2018, KKR and its affiliates beneficially owned 23,758,616 shares of KREF's common stock representing 41% of KREF’s issued and outstanding common stock.

27

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

Special Non-Voting Preferred Stock — In connection with KREF's existing investors’ subscription for shares of KREF's common stock in the private placements prior to the initial public offering of KREF's equity on May 5, 2017, those investors were also allocated a class of non-voting limited liability company interest in the Manager ("Non-Voting Manager Units"). In February 2017, KREF issued an investor one share of SNVPS, at $0.01 per share, in lieu of that investor receiving Non-Voting Manager Units to facilitate compliance by the investor with regulatory requirements applicable to it. The corresponding Non-Voting Manager Units are held by a TRS of KREF. All distributions received by that subsidiary from these Non-Voting Manager Units are passed through to the investor as preferred distributions on its SNVPS, less applicable taxes and withholdings. Except for the Non-Voting Manager Units, an indirect subsidiary of KKR owns and controls the limited liability company interests of the Manager.

Dividends on the SNVPS are payable quarterly, and will accrue whether or not KREF has earnings, there are assets legally available for the payment of those dividends or those dividends have been declared. Any dividend payment made on the SNVPS shall first be credited against the earliest accumulated but unpaid dividend due with respect to the SNVPS. Upon redemption of the SNVPS or liquidation of KREF, the holder of the SNVPS is entitled to payment of $0.01 per share, together with any accumulated but unpaid preferred distributions, including respective call or put amounts (as defined), before any holder of junior security interests, which includes KREF's common stock. As KREF does not control the circumstances under which the holder of the SNVPS  may redeem its interests, management considers the SNVPS as temporary equity (Note 2).

KREF will redeem the SNVPS at the option of the holder. Upon redemption, KREF will pay a price in cash equal to $0.01 per share of the SNVPS, together with any accumulated but unpaid preferred distributions, including respective call or put amounts (as defined), and the SNVPS will be canceled automatically and cease to be outstanding.

Earnings per Share — The following table illustrates the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2018 and 2017:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Numerator
Net income (loss) attributable to common stockholders	$	20,821	$	17,339	$	67,921	$	41,784
Denominator
Basic weighted average common shares outstanding	55,903,126		53,696,967		54,111,272		42,501,356
Dilutive restricted stock units	18,529		74		21,059		174
Diluted weighted average common shares outstanding	55,921,655		53,697,041		54,132,331		42,501,530
Net income (loss) attributable to common stockholders, per:
Basic common share	$	0.37	$	0.32	$	1.26	$	0.98
Diluted common share	$	0.37	$	0.32	$	1.25	$	0.98

28

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

Note 9. Stock-based Compensation

KREF is externally managed by the Manager and does not currently have any employees. However, as of September 30, 2018, the Manager, certain individuals employed by the Manager and affiliates of the Manager, and certain members of KREF's board of directors were compensated, in part, through the issuance of stock-based awards.

As of September 30, 2018, KREF had restricted stock unit (“RSU”) awards outstanding under the KKR Real Estate Finance Trust Inc. 2016 Omnibus Incentive Plan that was adopted on February 12, 2016 and amended and restated on November 17, 2016 (the "Incentive Plan") to certain members of KREF’s board of directors and employees of the Manager or its affiliates, none of whom are KREF employees. RSUs awarded to employees of the Manager or its affiliates, generally vest over three consecutive one-year periods and awards to certain members of KREF's board of directors vest over a one-year period, pursuant to the terms of the respective award agreements and the terms of the Incentive Plan. RSU awards are not entitled to dividends until KREF issues shares of its common stock, which are issuable on a one-to-one basis upon the RSU award vesting.

The following table summarizes the activity in KREF’s outstanding RSUs and the weighted-average grant date fair value per RSU:

	Restricted Stock Units		Weighted Average Grant Date Fair Value Per RSU(A)
Unvested as of December 31, 2017	154,878		$	18.61
Granted	11,878		20.70
Vested	(54,037	)	20.47
Forfeited/ cancelled	(2,740	)	20.47
Unvested as of September 30, 2018	109,979		$	20.49

(A) The grant-date fair value is based upon the last sale price of KREF’s common stock at the date of grant.

These RSUs began to vest on April 1, 2018 for certain individuals employed by the Manager and affiliates of the Manager and each year thereafter. RSUs awarded to KREF’s board of directors generally vest annually.

KREF expects the unvested RSUs outstanding to vest during the following years:

Year	Restricted Stock Units
2018	—
2019	60,927
2020	49,052
Total	109,979

Upon adoption of ASU No. 2018-07 in June 2018, KREF recognizes the compensation cost of RSUs awarded to employees of the Manager, or one or more of its affiliates, on a straight-line basis over the awards’ term at their grant date fair value, consistent with the RSUs awarded to certain members of KREF's board of directors.

During the three and nine months ended September 30, 2018, KREF recognized $0.3 million and $1.6 million, respectively, of stock-based compensation expense included in “General and administrative” expense in the Condensed Consolidated Statements of Income. During the three and nine months ended September 30, 2017, KREF recognized $0.0 million and $0.0 million, respectively, of stock-based compensation expense. As of September 30, 2018, there was $1.7 million of total unrecognized stock-based compensation expense related to unvested share-based compensation arrangements based on the closing price of our common stock of $20.47 on June 21, 2018, the date of the adoption of ASU No. 2018-07. This cost is expected to be recognized over a weighted average period of 2 years.

29

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

During the nine months ended September 30, 2018, KREF delivered 34,259 shares of common stock for 54,037 vested RSUs. Upon any payment of shares as a result of restricted stock unit vesting, the related tax withholding obligation will generally be satisfied by KREF, reducing the number of shares to be delivered by a number of shares necessary to satisfy the related applicable tax withholding obligation. The amount, results in a cash payment related to this tax liability and a corresponding adjustment to additional paid in capital on the Condensed Consolidated Statement of Changes in Stockholders' Equity. The adjustment was $0.4 million for the nine months ended September 30, 2018, and is included as a reduction of capital related to the Company's equity incentive plan in the Condensed Consolidated Statement of Changes in Stockholders' Equity.

Refer to Note 11 for additional information regarding the Incentive Plan.

30

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

Note 10. Commitments and Contingencies

As of September 30, 2018, KREF was subject to the following commitments and contingencies:

Litigation — From time to time, KREF may be involved in various claims and legal actions arising in the ordinary course of business. KREF establishes an accrued liability for legal proceedings only when those matters present loss contingencies that are both probable and reasonably estimable.

As of September 30, 2018, KREF was not involved in any material legal proceedings regarding claims or legal actions against KREF.

Indemnifications — In the normal course of business, KREF enters into contracts that contain a variety of representations and warranties that provide general indemnifications and other indemnities relating to contractual performance. In addition, certain of KREF’s subsidiaries have provided certain indemnities relating to environmental and other matters and has provided nonrecourse carve-out guarantees for fraud, willful misconduct and other customary wrongful acts, each in connection with the financing of certain real estate investments that KREF has made. KREF’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against KREF that have not yet occurred. However, KREF expects the risk of material loss to be low.

Capital Commitments — As of September 30, 2018, KREF had future funding requirements of $369.9 million related to its investments in commercial mortgage loans. These future funding commitments primarily relate to construction projects, capital improvements, tenant improvements and leasing commissions. Generally, funding commitments are subject to certain conditions that must be met, such as customary construction draw certifications, minimum credit metrics or executions of new leases before advances are made to the borrower.

In January 2017, KREF committed $40.0 million to invest in an aggregator vehicle alongside RECOP. As of September 30, 2018, KREF had a remaining commitment of $16.2 million to RECOP.

31

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

Note 11. Related Party Transactions

Management Agreement — The Management Agreement between KREF and the Manager is a three-year agreement that provides for automatic one-year renewal periods starting October 8, 2017, subject to certain termination and nonrenewal rights, which in the case of KREF are exercisable by a two-thirds vote by the independent directors of KREF's board of directors. If the independent directors of KREF's board of directors declines to renew the Management Agreement other than for cause, KREF is required to pay the Manager a termination fee equal to three times the total 24-month trailing average annual management fee and incentive compensation earned by the Manager through the most recently completed calendar quarter.

Pursuant to the Management Agreement, the Manager, as agent to KREF and under the supervision of KREF's board of directors, manages the investments, subject to investment guidelines approved by KREF's board of directors; financing activities; and day-to-day business and affairs of KREF and its subsidiaries.

For its services to KREF, the 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 adjusted earnings over (b) 7.0% of the trailing 12-month weighted average adjusted equity (“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 months lag. During the three and nine months ended September 30, 2018, KREF incurred 3.3 million of incentive fees payable to the Manager, of which $2.4 million was attributed to the gain recognized as a result of the April 2018 CMBS sale (Note 7).

Adjusted equity generally represents the proceeds received by KREF and its subsidiaries from equity issuances, without duplication and net of offering costs, and adjusted earnings, reduced by distributions, equity repurchases, and incentive compensation paid. Adjusted earnings generally represents the net income, or loss, attributable to equity interests in KREF and its subsidiaries, without duplication, as well as realized losses not otherwise included in such net income, or loss, excluding non-cash equity compensation expense, incentive compensation, depreciation and amortization and unrealized gains or losses, from and after the effective date to the end of the most recently completed calendar quarter. KREF's board of directors, after majority approval by independent directors, may also exclude one-time events pursuant to changes in GAAP and certain material non-cash income or expense items from adjusted earnings. For purposes of calculating incentive compensation, both adjusted equity and adjusted earnings exclude the effects of equity issued by KREF and its subsidiaries that provides for fixed distributions or other debt characteristics.

KREF is also required to reimburse the Manager or its affiliates for documented costs and expenses incurred by it and its affiliates on behalf of KREF except those specifically required to be borne by the Manager under the Management Agreement. The Manager is responsible for, and KREF does not reimburse the Manager or its affiliates for, the expenses related to investment personnel of the Manager and its affiliates who provide services to KREF. However, KREF does reimburse the Manager for KREF's allocable share of compensation paid to certain of the Manager’s non-investment personnel, based on the percentage of time devoted by such personnel to KREF's affairs.

Incentive Plan — KREF's compensation committee or board of directors may administer the Incentive Plan, which provides for awards of stock options; stock appreciation rights; restricted stock; RSUs; limited partnership interests of KKR Real Estate Finance Holdings L.P. (the "Operating Partnership"), a wholly owned subsidiary of KREF, that are directly or indirectly convertible into or exchangeable or redeemable for shares of KREF's common stock pursuant to the limited partnership agreement of the Operating Partnership (“OP Interests”); awards payable by (i) delivery of KREF's common stock or other equity interests, or (ii) reference to the value of KREF's common stock or other equity interests, including OP Interests; cash-based awards; or performance compensation awards.

No more than 7.5% of the issued and outstanding shares of common stock on a fully diluted basis, assuming the exercise of all outstanding stock options granted under the Incentive Plan and the conversion of all warrants and convertible securities into shares of common stock, or a total of 4,403,387 shares of common stock, will be available for awards under the Incentive Plan. In addition, (i) the maximum number of shares of common stock subject to awards granted during a single fiscal year to any non-employee director (as defined in the Incentive Plan), taken together with any cash fees paid to such non-employee director during the fiscal year, may not exceed $1.0 million and (ii) the maximum amount that can be paid to any participant for a single fiscal year during a performance period (or with respect to each single fiscal year if a performance period extends beyond a single fiscal year) pursuant to a performance compensation award denominated in cash will be $10.0 million.

32

KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

No awards may be granted under the Incentive Plan on and after February 12, 2026. The Incentive Plan will continue to apply to awards granted prior to such date. During the nine months ended ended September 30, 2018, KREF granted 11,878 RSUs to newly appointed directors of KREF's board. During the year ended December 31, 2017, KREF granted 154,878 RSUs. As of September 30, 2018, 4,259,149 shares of common stock remained available for awards under the Incentive Plan.

Due to Affiliates — The following table contains the amounts presented in KREF's Condensed Consolidated Balance Sheets that it owes to affiliates:

	September 30,		December 31,
	2018		2017
Management fees	$	4,164	$	3,748
Incentive compensation	3,286		—
Expense reimbursements and other	250		694
	$	7,700	$	4,442

Affiliates Expenses — The following table contains the amounts included in KREF's Condensed Consolidated Statements of Income that arose from transactions with the Manager:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Management fees	$	4,164	$	3,989	$	12,016	$	9,513
Incentive compensation	3,286		—		3,286		—
Expense reimbursements and other(A)	37		366		767		931
	$	7,487	$	4,355	$	16,069	$	10,444

(A) KREF presents these amounts in "Operating Expenses — General and administrative" in its Condensed Consolidated Statements of Income. Affiliate expense reimbursements presented in the table above exclude the out-of-pocket costs paid by the Manager to parties unaffiliated with the Manager on behalf of KREF, and for which KREF reimburses the Manager in cash. For the three and nine months ended September 30, 2018, these cash reimbursements were $0.3 million and $2.5 million, respectively. For the three and nine months ended September 30, 2017, these cash reimbursements were $0.9 million and $1.1 million, respectively.

In connection with the Term Loan Facility (Note 4), KREF is obligated to pay KKR Capital Markets ("KCM"), an affiliate of the Manager, a structuring fee equal to 0.75% of the respective committed loan advances, as defined. During the nine months ended September 30, 2018, KREF incurred $4.5 million structuring fee in connection with the facility. Such amount was capitalized as deferred financing cost and amortized to interest expense over the life of the facility.

In connection with the BMO Facility, and in consideration for structuring and sourcing this arrangement, KREF will pay KCM, a structuring fee equal to 0.35% of the respective committed loan advances under the agreement.

During the nine months ended September 30, 2018, KREF paid KCM $0.8 million in commissions in connection with the issuance of the Convertible Notes. Such amount is included in the $5.1 million Convertible Notes’ issuance cost and is amortized to interest expense over the life of the Convertible Notes.

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KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

Note 12. Fair Value of Financial Instruments

The carrying values and fair values of KREF’s financial assets and liabilities recorded at fair value on a recurring basis, as well as other financial instruments not carried at fair value, as of September 30, 2018 were as follows:

					Fair Value
	Principal Balance(A)		Carrying Value(B)		Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents	$	192,771	$	192,771	$	192,771	$	—	$	—	$	192,771
Commercial mortgage loans, held-for-investment, net(C)	3,282,184		3,261,878		—		—		3,266,234		3,266,234
Equity method investments, at fair value	24,745		24,745		—		—		24,745		24,745
Commercial mortgage loans held in variable interest entities, at fair value	1,130,672		1,100,089		—		—		1,100,089		1,100,089
	$	4,630,372	$	4,579,483	$	192,771	$	—	$	4,391,068	$	4,583,839
Liabilities
Secured financing agreements, net	$	2,126,047	$	2,115,954	$	—	$	—	$	2,126,047	$	2,126,047
Convertible notes, net	143,750		137,339		146,208		—		—		146,208
Loan participations sold, net	83,886		83,442		—		—		83,257		83,257
Variable interest entity liabilities, at fair value	1,095,731		1,086,939		—		—		1,086,939		1,086,939
	$	3,449,414	$	3,423,674	$	146,208	$	—	$	3,296,243	$	3,442,451

(A) The principal balance of commercial mortgage loans excludes premiums and unamortized discounts.

(B) The carrying value of commercial mortgage loans is presented net of $20.3 million unamortized origination discounts and deferred nonrefundable fees. The carrying value of secured financing agreements is presented net of $10.1 million unamortized debt issuance costs.

(C) Includes senior loans for which KREF sold a loan participation that was not treated as a sale under GAAP, with a carrying value of $83.4 million and a fair value of $83.3 million as of September 30, 2018.

The carrying values and fair values of KREF’s financial assets recorded at fair value on a recurring basis, as well as other financial instruments for which fair value is disclosed, as of December 31, 2017 were as follows:

					Fair Value
	Principal Balance(A)		Carrying Value(B)		Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents	$	103,120	$	103,120	$	103,120	$	—	$	—	$	103,120
Restricted cash	400		400		400		—		—		400
Commercial mortgage loans, held-for-investment, net(C)	1,901,693		1,888,510		—		—		1,894,870		1,894,870
Equity method investments, at fair value	14,390		14,390		—		—		14,390		14,390
Commercial mortgage loans held in variable interest entities, at fair value	5,305,976		5,372,811		—		—		5,372,811		5,372,811
	$	7,325,579	$	7,379,231	$	103,520	$	—	$	7,282,071	$	7,385,591
Liabilities
Secured financing agreements, net	$	969,347	$	964,800	$	—	$	—	$	969,347	$	969,347
Loan participations sold, net	82,000		81,472		—		—		81,836		81,836
Variable interest entity liabilities, at fair value	4,996,817		5,256,926		—		—		5,256,926		5,256,926
	$	6,048,164	$	6,303,198	$	—	$	—	$	6,308,109	$	6,308,109

(A) The principal balance of commercial mortgage loans excludes premiums and discounts.

(B) The carrying value of commercial mortgage loans is presented net of $13.2 million origination discounts and deferred nonrefundable fees. The carrying value of secured financing agreements is presented net of $4.5 million unamortized debt issuance costs.

(C) Includes senior loans for which KREF sold a loan participation that was not treated as a sale under GAAP, with a carrying value of $81.5 million and a fair value of $81.8 million as of December 31, 2017.

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KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

KREF reported the following financial assets and liabilities at fair value on a recurring basis using Level 3 inputs as of September 30, 2018.

	Assets			Liabilities
	Commercial Mortgage Loans Held in Variable Interest Entities, at Fair Value			Variable Interest Entity Liabilities, at Fair Value			Net
Balance as of December 31, 2017	$	5,372,811		$	5,256,926		$	115,885
Gains (losses) included in net income
Realized gain (loss)	13,000			—			13,000
Unrealized gain (loss) included in change in net assets related to consolidated variable interest entities	(94,643		)	(92,499		)	(2,144		)
Purchases and sales/repayments
Purchases	—			—			—
Sales/Repayments/Deconsolidation	(4,175,371		)	(4,062,624		)	(112,747		)
Other(A)	(15,708		)	(14,864		)	(844		)
Balance as of September 30, 2018	$	1,100,089		$	1,086,939		$	13,150

(A) Amounts principally consist of changes in accrued interest.

The following table contains the Level 3 inputs used to value assets and liabilities on a recurring and nonrecurring basis or where KREF discloses fair value as of September 30, 2018:

	Fair Value		Valuation Methodologies	Unobservable Inputs(A)	Weighted Average(B)	Range
Assets(C)
Commercial mortgage loans, held-for-investment, net	$	3,266,234	Discounted cash flow	Loan-to-value ratio	67.8%	49.4% - 80.3%
				Discount rate	6.7%	2.6% - 13.9%
Commercial mortgage loans held in variable interest entities, at fair value(D)	1,100,089		Discounted cash flow	Yield	8.3%	2.4% - 37.1%
	$	4,366,323
Liabilities
Secured financing agreements, net	$	2,126,047	Market comparable	Credit spread	1.8%	1.4% - 2.5%
Loan participations sold, net	83,257		Discounted cash flow	Loan-to-value ratio	52.9%	52.9% - 52.9%
				Discount rate	3.6%	2.6% - 4.6%
Variable interest entity liabilities, at fair value	1,086,939		Discounted cash flow	Yield	6.4%	2.4% - 16.5%
	$	3,296,243

(A) An increase (decrease) in the valuation input results in a decrease (increase) in value.

(B) Represents the average of the input value, weighted by the unpaid principal balance of the financial instrument.

(C) KREF carries a $24.4 million investment in an aggregator vehicle alongside RECOP (Note 7) at its pro rata share of the aggregator's net asset value, which management believes approximates fair value.

(D) Management measures the fair value of "Commercial mortgage loans held in variable interest entities, at fair value" using the fair value of the CMBS trust liabilities. The Level 3 inputs presented in the table above reflect the inputs used to value the CMBS trust liabilities, including the CMBS beneficially owned by KREF stockholders eliminated in consolidation of the CMBS trusts.

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KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

Valuation Methodologies

Commercial Mortgage Loans and Participation Sold - Management generally considers KREF's commercial mortgage loans Level 3 assets in the fair value hierarchy as such assets are illiquid, structured investments that are specific to the property and its operating performance. These loans are valued using a discounted cash flow model using discount rates derived from observable market data applied to the capital structure of the respective sponsor and estimated property value. On a quarterly basis, management engages an independent valuation firm to express an opinion on the fair value of each loan categorized as a Level 3 asset in the form of a range. Management selects a value within the range provided by the independent valuation firm to assess the reasonableness of the fair value as determined by management. In the event that management's estimate of fair value differs from the opinion of fair value provided by the independent valuation firm, KREF ultimately relies solely upon the valuation prepared by the investment personnel of the Manager.

Commercial Mortgage-Backed Securities — As of September 30, 2018, management categorized CMBS investments as Level 3 assets and liabilities in the fair value hierarchy and obtained prices from an independent valuation firm, which uses a discounted cash flow model, to value each CMBS. The key input is the expected yield of each CMBS using both observable and unobservable factors, which may include recently offered or completed trades and published yields of similar securities, security-specific characteristics (e.g. securities ratings issued by nationally recognized statistical rating organizations, credit support by other subordinate securities issued by the CMBS and coupon type) and other characteristics. Management performs quarterly reviews of the inputs received from the independent valuation firm based on consideration given to a number of observable market data points including, but not limited to, trading activity in the marketplace of like-kind securities, benchmark security evaluations and bid list results from various sources. If prices received from the independent valuation firm are inconsistent with values determined in connection with management's independent review, management makes inquiries to the independent valuation firm about the prices received and related methods. In the event management determines the price obtained from an independent valuation firm to be unreliable or an inadequate representation of the fair value of the CMBS (based on consideration given to the observable market data points detailed above), management then compiles evidence independently and presents the independent valuation firm with such evidence supporting a different value. As a result, the independent valuation firm may revise their price accordingly. However, if management continues to disagree with the price from the independent valuation firm, in light of evidence presented that management compiled independently and believes to be compelling, management considers the quotation unreliable or an inadequate representation of the fair value of the CMBS.

In the event that the quotation from the independent valuation firm is not available or determined to be unreliable or an inadequate representation of the fair value of the CMBS (based on the procedures detailed above), valuations are prepared using inputs based on non-binding broker quotes obtained from independent, well-known, major financial brokers that are CMBS market makers. In validating any non-binding broker quote used in this circumstance, management compares the non-binding quote to the observable market data points at such time and used to validate prices received from the independent valuation firm in addition to understanding the valuation methodologies used by the market makers. These market participants utilize a similar methodology as the independent valuation firm to value each CMBS, with the key input of expected yield determined independently based on both observable and unobservable factors (as described above). To avoid reliance on any single broker-dealer, management receives a minimum of two non-binding quotes, of which the average is used.

The fair values of the CMBS not beneficially owned by KREF stockholders neither impact the net assets of KREF nor the net income attributable to KREF's stockholders.

Secured Financing Agreements — Management considers KREF's repurchase facilities Level 3 liabilities in the fair value hierarchy as such liabilities represent borrowings on illiquid collateral with terms specific to each borrower. Given the short-to-moderate term of the floating rate facilities, management generally expects the fair value of KREF's repurchase facilities to approximate their outstanding principal balances. On a quarterly basis, management engages an independent valuation firm to express an opinion on the fair value of KREF's repurchase facilities. The independent valuation firm employs a market-based methodology to compare the pricing of KREF's financing agreements with other similar financing agreements entered into by other mortgage REIT and recent financing transactions.

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KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets not measured at fair value on an ongoing basis but subject to fair value adjustments only in certain circumstances, such as when there is evidence of impairment, are measured at fair value on a nonrecurring basis. For commercial mortgage loans held-for-sale, KREF applies the lower of cost or fair value accounting and may be required, from time to time, to record a nonrecurring fair value adjustment. For commercial mortgage loans held-for-investment and preferred interest in joint venture held-to-maturity, KREF applies the amortized cost method of accounting, but may be required, from time to time, to record a nonrecurring fair value adjustment in the form of a valuation provision or impairment. KREF did not report any significant financial assets or liabilities at fair value on a nonrecurring basis as of September 30, 2018 or December 31, 2017.

Assets and Liabilities for Which Fair Value is Only Disclosed

KREF does not carry its secured financing agreements at fair value as management did not elect the fair value option for these liabilities. As of September 30, 2018, the fair value of KREF's floating rate repurchase facilities approximated the outstanding principal balance.

Note 13. Income Taxes

KREF has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with its taxable year ended December 31, 2014. A REIT is generally not subject to U.S. federal and state income tax on that portion of its income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gains. A REIT will also be subject to a nondeductible excise tax to the extent certain percentages of its taxable income are not distributed within specified dates. KREF expects to distribute 100% of its net taxable income for the foreseeable future, while retaining sufficient capital to support its ongoing needs.

KREF consolidates subsidiaries that incur U.S. federal, state and local income taxes, based on the tax jurisdiction in which each subsidiary operates. During each of the nine months ended September 30, 2018 and 2017, KREF recorded a current income tax provision of $0.2 million and $0.4 million, respectively, related to operations of its taxable REIT subsidiaries and various other state and local taxes. There were no deferred tax assets or liabilities as of September 30, 2018 and December 31, 2017.

As of September 30, 2018, tax years 2014 through 2017 remain subject to examination by taxing authorities.

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KKR Real Estate Finance Trust Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in tables in thousands, except per share amounts)

Note 14. Subsequent Events

The following events occurred subsequent to September 30, 2018:

Investing Activities

KREF originated the following senior loan subsequent to September 30, 2018:

Description/ Location	Property Type	Month Originated	Maximum Face Amount		Initial Face Amount Funded		Interest Rate(A)	Maturity Date(B)	LTV
Senior Loan, Queens, NY	Multifamily	October 2018	$	45,000	$	42,000	L + 2.8%	November 2023	70%
Senior Loan, Philadelphia, NY	Multifamily	October 2018	$	77,000	$	77,000	L + 2.7	November 2023	73%
Total/Weighted Average			$	122,000	$	119,000	L + 2.7%		72%

(A) Floating rate based on one-month USD LIBOR.

(B) Maturity date assumes all extension options are exercised, if applicable.

Funding of Previously Closed Loans

KREF funded approximately $19.2 million for previously closed loans subsequent to September 30, 2018.

Loan Repayments

In October 2018, KREF received approximately $8.4 million from loan repayments.

Financing Activities

In October 2018, increased borrowing capacity on the Term Loan Facility, which provides financing on a matched-term, non-mark to market and non-recourse basis by $400.0 million to $1.0 billion. In November 2018, KREF borrowed $65.5 million under the Term Loan Facility.

In October 2018, KREF borrowed $55.0 million under the BMO Facility.

In October and November 2018, KREF net borrowed $15.5 million under its master repurchase facilities.

Corporate Activities

Dividends

In October 2018, KREF paid $25.0 million in dividends on its common and special voting preferred stock, or $0.43 per share, with respect to the third quarter of 2018, to stockholders of record on September 28, 2018.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q, and the Form 10-K, including the audited consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained therein. The historical condensed consolidated financial data discussed 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 “Cautionary Note Regarding Forward-Looking Statements" in this Form 10-Q and under "Part I, Item 1A. and "Risk Factors" in the Form 10-K. 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 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 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 the junior-most bonds ("CMBS B-Pieces") of 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 of 1940. 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, a subsidiary of KKR. KKR is a leading global investment firm with a 40-year history of leadership, innovation, and investment excellence and has committed $400.0 million in equity capital to us. 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 11 to our condensed consolidated financial statements included in this Form 10-Q.

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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, Core Earnings, Net Core Earnings and book value per share.

Earnings Per Share and Dividends Declared

The following table sets forth the calculation of basic and diluted net income per share and dividends declared per share (amounts in thousands, except share and per share data):

	Three Months Ended
	September 30, 2018		June 30, 2018
Net income(A)	$	20,821	$	23,483
Weighted-average number of shares of common stock outstanding
Basic	55,903,126		53,064,585
Diluted	55,921,655		53,069,866
Net income per share, basic	$	0.37	$	0.44
Net income per share, diluted	$	0.37	$	0.44
Dividends declared per share(B)	$	0.43	$	0.43

(A) Represents net income attributable to common stockholders.

(B) During the three months ended September 30, 2018, we declared a dividend of $0.43 per share of common stock paid on October 12, 2018 to stockholders of record on September 28, 2018 related to income generated during the three months ended September 30, 2018. During the three months ended June 30, 2018, we declared a dividend of $0.43 per share of common stock paid on July 13, 2018 to stockholders of record on June 29, 2018 related to income generated during the three months ended June 30, 2018.

Core Earnings and Net Core Earnings

We use Core Earnings and Net Core Earnings to evaluate our performance excluding the effects of certain transactions and GAAP adjustments we believe are not necessarily indicative of our current loan activity and operations. Core Earnings and Net Core Earnings are measures that are not prepared in accordance with GAAP. We define Core 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) the incentive compensation payable to our Manager, (iii) depreciation and amortization, (iv) 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 (v) one-time events pursuant to changes in GAAP and certain material non-cash income or expense items after discussions between our Manager and our board of directors (and subject to the approval by a majority of our independent directors). The exclusion of depreciation and amortization from the calculation of Core Earnings only applies to debt investments related to real estate to the extent we foreclose upon the property or properties underlying such debt investments. Net Core Earnings is Core Earnings less incentive compensation payable to our Manager.

We believe providing Core Earnings and Net Core Earnings on a supplemental basis to our net income as determined in accordance with GAAP is helpful to stockholders in assessing the overall performance of our business. Core Earnings and Net Core Earnings should not be considered as a substitute for GAAP net income. We caution readers that our methodology for calculating Core Earnings and Net Core Earnings may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, our Core Earnings and Net Core Earnings may not be comparable to similar measures presented by other REITs.

We also use Core Earnings to determine the management and incentive fees 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 Core Earnings over (b) 7.0% of the trailing 12-month weighted average adjusted equity (“Hurdle Rate”), less incentive compensation KREF already paid to the Manager with respect to the first three calendar quarter of such trailing 12-month period. The quarterly incentive compensation is calculated and paid in arrears with a three month lag. During the third quarter of 2018, the Company incurred $3.3 million of incentive fees payable to the Manager, of which $2.4 million, or $0.04 per share, was related to the gain

40

recognized as a result of the April 2018 CMBS sale, see Note 7 to our condensed consolidated financial statements included in this Form 10-Q.

The following tables provide a reconciliation of GAAP net income attributable to common stockholders to Core Earnings and Net Core Earnings (amounts in thousands, except share and per share data):

	Three Months Ended
	September 30, 2018		June 30, 2018
Net Income (Loss) Attributable to Common Stockholders	$	20,821	$	23,483
Adjustments
Non-cash equity compensation expense	295		273
Incentive compensation to affiliate	3,286		—
Depreciation and amortization	—		—
Unrealized (gains) or losses	205		1,822
Non-cash convertible notes discount amortization	91		42
Reversal of previously unrealized gain now realized(A)	—		11,900
Core Earnings(B)	24,698		37,520
Incentive compensation to affiliate	3,286		—
Net Core Earnings	$	21,412	$	37,520
Weighted average number of shares of common stock outstanding
Basic	55,903,126		53,064,585
Diluted	55,921,655		53,069,866
Core Earnings per Diluted Weighted Average Share	$	0.44	$	0.71
Net Core Earnings per Diluted Weighted Average Share	$	0.38	$	0.71

(A) Includes $5.5 million and $6.4 million of unrealized gains related to the first quarter of 2018 and to prior periods, respectively, that were realized during the three months ended June 30, 2018.

(B) Excludes $0.2 million and $0.2 million, or $0.00 and $0.00 per diluted weighted average share outstanding, of net original issue discount on CMBS B-Pieces accreted as a component of taxable income during the three months ended September 30, 2018 and June 30, 2018, respectively.

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, 2018		December 31, 2017
KKR Real Estate Finance Trust Inc. stockholders' equity	$	1,146,301	$	1,059,145
Shares of common stock issued and outstanding at period end	58,022,590		53,685,440
Book value per share of common stock	$	19.76	$	19.73

During the fourth quarter of 2018, the Company expects to recognize a $2.3 million increase to the redemption value of our Special Non-Voting Preferred Stock, which became redeemable in the second quarter,  from $0.4 million to $2.7 million. This increase is related to the increase in our Manager’s third quarter earnings primarily due to the recognition of $3.3 million of incentive fees, of which $2.4 million was related to the second quarter CMBS sale. In accordance with GAAP, the non-cash redemption value adjustment will reduce our fourth quarter Net Income Attributable to Common Stockholders and will be added back to Core Earnings. Accordingly, the non-cash adjustment will reduce our fourth quarter book value per share. We expect the redemption value to normalize in the first half of 2019.

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Our Portfolio

We have established a portfolio of diversified investments, consisting of performing senior loans, mezzanine loans and CMBS B-Pieces, which had a value of $3,382.6 million as of September 30, 2018. Loan fundings during the quarter totaled $698.0 million and repayments totaled $281.4 million. We generated interest income of $51.9 million and incurred interest expense of $23.3 million during the third quarter, which resulted in $28.6 million of net interest income during the three months ended September 30, 2018.

As we continue to scale our portfolio, we expect that our originations will continue to be heavily weighted toward floating-rate loans. As of September 30, 2018, 98% 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 term financing facilities, with a secondary focus on originated floating-rate loans for which we syndicate a senior position and retain a subordinated interest for our portfolio. As a result, we expect that the percentage of our target portfolio comprised of CMBS B-Pieces will decrease over time and the percentage of floating-rate investments, including senior loans, will increase over time. As of September 30, 2018, our portfolio had experienced no impairments and did not contain any legacy assets that were originated prior to October 2014. As of September 30, 2018, all of our investments were located in the United States. The following charts illustrate the diversification of our portfolio, based on type of investment, interest rate, underlying property type and geographic location, as of September 30, 2018:

The charts above are based on total assets. Total assets reflect (i) the principal amount of our senior and mezzanine loans; and (ii) the cost basis of our CMBS B-Pieces, net of VIE liabilities. In accordance with GAAP, we carry our CMBS B-Piece investments at fair value. In April 2018, we sold our controlling beneficial interest in four of our five CMBS trusts for net proceeds of $112.7 million. During the three and nine months ended September 30, 2018, we had a $0.2 million and $2.1 million unrealized loss on the remaining CMBS investment, respectively.

(A)    Excludes CMBS B-Pieces. Our CMBS B-Piece portfolio diversification is as follows and is inclusive of our $23.8 million investment in RECOP: 

• Property Type: Office (28.3%), Retail (24.2%) Hospitality (15.0%), and Other (32.5%). As of September 30, 2018, no other individual property type comprised more than 10% of our total CMBS B‑Piece portfolio.

• Geography: California (25.3%), New York (13.0%), Texas (8.8%), and Other (52.9%). As of September 30, 2018, no other individual geography comprised more than 5% of our total CMBS B‑Piece portfolio.

• Vintage: 2015 (23.7%), 2016 (11.6%), and 2017 (64.7%).

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The following table details our quarterly loan activity (dollars in thousands):

	Three Months Ended
	September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2017
Loan originations(A)	$	680,500		$	728,713		$	411,425		$	331,800
Loan fundings(B)	$	698,047		$	590,441		$	421,056		$	285,291
Loan repayments(C)	(281,436		)	(14,503		)	(35,000		)	(19,598		)
Net fundings	416,611			575,938			386,056			265,693
Loan participations sold	—			—			—			(81,472		)
Total activity	$	416,611		$	575,938		$	386,056		$	184,221

(A) Includes new loan originations and additional funding commitments made under existing loans.

(B) Excludes fundings on loan participations sold.

(C) Includes 100.0% of the proceeds from the repayment of of the mezzanine loans held within our commercial mezzanine loan joint venture during the three months ended March 31, 2018.

The following table details overall statistics for our loan portfolio as of September 30, 2018 (dollars in thousands):

				Total Loan Exposure(A)
	Balance Sheet Portfolio			Total Loan Portfolio			Floating Rate Loans			Fixed Rate Loans
Number of loans	35			35			29			6
Principal balance	$	3,282,184		$	3,348,793		$	3,322,563		$	26,230
Carrying value	$	3,261,878		$	3,328,486		$	3,302,256		$	26,230
Unfunded loan commitments(B)	$	369,877		$	369,877		$	369,877		$	—
Weighted-average cash coupon(C)	5.9		%	5.9		%	L + 3.6		%	10.6		%
Weighted-average all-in yield(C)	6.4		%	6.4		%	L + 4.0		%	11.4		%
Weighted-average maximum maturity (years)(D)	3.9			3.9			3.8			5.3
LTV(E)	68		%	68		%	68		%	77		%

(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, including $66.6 million of such non-consolidated interests that are not included within our balance sheet portfolio.

(B) Unfunded commitments will primarily be funded to finance property improvements 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, 2018, 100.0% of floating rate loans by principal balance are indexed to one-month USD LIBOR. In addition to cash coupon, all-in yield includes the amortization of deferred origination fees, loan origination costs and purchase discounts. Cash coupon and all-in yield for the total portfolio assume applicable floating benchmark rates as of September 30, 2018. L = one-month USD LIBOR rate; spot rate of 2.26% included in portfolio-wide averages represented as fixed rates.

(D) Maximum maturity assumes all extension options are exercised by the borrower; however, our loans may be repaid prior to such date. As of September 30, 2018, based on total loan exposure, 80.3% of our loans were subject to yield maintenance or other prepayment restrictions and 19.7% were open to repayment by the borrower without penalty.

(E) Based on LTV as of the dates loans were originated or acquired by us.

43

The table below sets forth additional information relating to our portfolio as of September 30, 2018 (dollars in millions):

	Investment(A)	Investment Date	Committed Principal Amount		Current Principal Amount		Net Equity(B)		Location	Property Type	Coupon(C)(D)	Max Remaining Term (Years)(C)(E)	LTV(C)(F)
	Senior Loans(G)
1	Senior Loan	5/9/2018	$	350.0	$	232.8	$	128.8	Queens, NY	Office	L + 3.3%	4.7	71	%
2	Senior Loan	7/31/2018	341.0		332.6		81.3		Atlanta, GA / Tampa, FL	Multifamily	L + 3.2	4.9	75
3	Senior Loan	8/4/2017	239.2		181.6		71.9		New York, NY	Condo (Residential)	L + 4.8	1.8	62
4	Senior Loan	5/23/2018	213.7		195.4		31.2		Boston, MA	Office	L + 2.4	4.7	69
5	Senior Loan	11/13/2017	181.8		151.3		39.2		Minneapolis, MN	Office	L + 3.8	4.2	75
6	Senior Loan	9/13/2018	172.0		162.1		38.8		Seattle, WA	Office	L + 3.7	5.0	65
7	Senior Loan	9/9/2016	168.0		157.5		41.9		San Diego, CA	Office	L + 4.2	3.0	71
8	Senior Loan	6/19/2018	165.0		140.9		25.8		Philadelphia, PA	Office	L + 2.5	4.8	71
9	Senior Loan	4/11/2017	162.1		138.9		41.2		Irvine, CA	Office	L + 3.9	3.6	62
10	Senior Loan	10/26/2015	155.0		123.0		47.3		Portland, OR	Retail	L + 5.5	2.1	61
11	Senior Loan	10/23/2017	150.0		143.6		37.9		North Bergen, NJ	Multifamily	L + 4.3	4.1	57
12	Senior Loan	3/30/2017	132.3		113.4		39.7		Brooklyn, NY	Office	L + 4.4	3.5	68
13	Senior Loan	8/15/2017	119.0		97.4		13.5		Atlanta, GA	Office	L + 3.0	3.9	66
14	Senior Loan	8/23/2017	105.0		100.0		24.5		Honolulu, HI	Multifamily	L + 4.0	3.9	66
15	Senior Loan	9/14/2016	103.5		90.1		23.0		Crystal City, VA	Office	L + 4.5	3.0	59
16	Senior Loan	9/7/2018	93.0		93.0		92.5		Seattle, WA	Multifamily	L + 2.6	4.9	79
17	Senior Loan	3/8/2018	89.0		87.1		12.8		Westbury, NY	Multifamily	L + 3.1	4.5	69
18	Senior Loan	3/29/2018	86.0		86.0		12.4		New York, NY	Multifamily	L + 2.6	4.5	48
19	Senior Loan	2/28/2017	85.9		82.4		15.7		Denver, CO	Multifamily	L + 3.8	3.4	75
20	Senior Loan	8/4/2017	81.0		81.0		19.8		Denver, CO	Multifamily	L + 4.0	3.8	73
21	Senior Loan	3/20/2018	80.7		80.7		20.9		Seattle, WA	Office	L + 3.5	4.5	65
22	Senior Loan	3/28/2018	80.0		70.7		12.8		Orlando, FL	Multifamily	L + 2.8	4.5	70
23	Senior Loan	1/16/2018	75.5		70.3		17.4		St Paul, MN	Office	L + 3.6	4.4	73
24	Senior Loan	7/21/2017	75.1		61.9		15.6		Queens, NY	Industrial	L + 3.7	3.8	72
25	Senior Loan	10/7/2016	74.5		72.8		23.8		New York, NY	Multifamily	L + 4.4	3.1	68
26	Senior Loan	7/24/2018	74.5		68.8		68.3		Atlanta, GA	Industrial	L + 2.7	4.9	74
27	Senior Loan	5/12/2017	61.9		53.8		14.1		Atlanta, GA	Office	L + 4.0	3.7	71
28	Senior Loan	5/19/2016	55.0		53.5		14.1		Nashville, TN	Office	L + 4.3	3.3	70
	Total/Weighted Average Senior Loans Unlevered		$	3,769.7	$	3,322.6	$	1,026.1			L + 3.6%	4.0	68	%
	Mezzanine Loans
1-6	Other Mezzanine Loans	Various	26.2		26.2		26.2		Various	Various	10.6	6.6	77
	Total/Weighted Average Mezzanine Loans Unlevered		$	26.2	$	26.2	$	26.2			10.6%	6.6	77	%
	CMBS B-Pieces
1	CMBS B-Piece	2/10/2016	$	—	$	—	$	6.9	Various	Various	1.4%	7.3	64	%
2	CMBS B-Piece	5/21/2015	34.9		34.9		3.1		Various	Various	3.0	6.6	65
3	RECOP(H)	2/13/2017	40.0		23.8		23.8		Various	Various	4.5	9.4	58
	Total/Weighted Average CMBS B-Pieces Unlevered		$	74.9	$	58.7	$	33.8			3.7%	8.9	60	%

* Numbers presented may not foot due to rounding.

(A) Our total portfolio represents the current principal amount on senior and mezzanine loans and the net equity of our CMBS B-Piece investments.

(B) Net equity reflects (i) the amortized cost basis of our loans, net of borrowings; (ii) the cost basis of our CMBS B-Pieces, net of VIE liabilities; and (iii) the cost basis of our investment in RECOP.

(C) Weighted average is weighted by current principal amount for our senior and mezzanine loans and by net equity for our CMBS B-Pieces. Weighted average coupon calculation includes one-month USD LIBOR for floating-rate mezzanine loans. 

(D) L = one-month USD LIBOR rate; spot rate of 2.26% included in portfolio-wide averages represented as fixed rates.

(E) Max remaining term (years) assumes all extension options are exercised, if applicable. 

(F) For our senior and mezzanine loans, the LTV is based on the initial loan amount divided by the as-is appraised value as of the date the loan was originated. For Senior Loan 3, LTV is based on the current principal amount divided by the adjusted appraised gross sellout value net of sales cost. For our CMBS B-Pieces, LTV is based on the weighted average LTV of the underlying loan pool at issuance.

(G) 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. 

(H) Represents our investment in an aggregator vehicle alongside RECOP that invests in CMBS. Committed principal represents our total commitment to the aggregator vehicle whereas current principal represents the current funded amount.

44

Portfolio Surveillance and Credit Quality

Senior and Mezzanine Loans

Our Manager actively manages our portfolio and assesses the risk of any loan impairment 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.

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.

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.

45

(dollars in thousands)	September 30, 2018
Risk Rating	Number of Loans	Net Book Value		Total Loan Exposure(A)
1	—	$	—	$	—
2	8	446,525		448,821
3	27	2,815,353		2,899,972
4	—	—		—
5	—	—		—
	35	$	3,261,878	$	3,348,793

(dollars in thousands)	June 30, 2018
Risk Rating	Number of Loans	Net Book Value		Total Loan Exposure(A)
1	—	$	—	$	—
2	7	388,758		390,938
3	27	2,439,510		2,520,789
4	1	16,434		16,500
5	—	—		—
	35	$	2,844,702	$	2,928,227

(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, including $66.6 million and $64.5 million of such non-consolidated interests as of June 30, 2018 and September 30, 2018, respectively.

As of September 30, 2018, the average risk rating of KREF's portfolio was 2.9 (Average Risk), weighted by investment carrying value, with 100.0% of commercial mortgage loans held-for-investment, rated 3 (Average Risk) or better by our Manager as compared to 2.9 (Average Risk) as of June 30, 2018 and December 31, 2017. As of September 30, 2018, June 30, 2018 and December 31, 2017, no investments were rated 5 (Impaired/Loss Likely).

CMBS B-Piece Investments

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.

In addition to monthly surveillance, our Manager is involved in major decision approval requests by borrowers relating to the loans that collateralize our CMBS B-Piece investments. Our Manager engages a third-party special servicer to administer each request, which in turn presents each request to our Manager for review and approval. This process helps our Manager anticipate potential loan issues and proactively formulate responses as it relates to each loan approval request. As part of this process, our Manager receives updated financial information, rent rolls and performance metrics for each loan, which allows our Manager to regularly assess the performance of our loan collateral. In addition to monitoring loans that collateralize our CMBS B-Piece investments, our Manager also actively monitors watch list loans, loans that have been transferred into special servicing, and loan defaults in the CMBS B-Piece market generally, which helps our Manager anticipate potential market- and/or asset-specific issues that may affect our portfolio.

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.

As of September 30, 2018, one underlying loan representing 1.88% of one of the CMBS pools was delinquent greater than 60 days.

46

Portfolio Financing

Our portfolio financing arrangements include repurchase facilities, term loan financing, revolving credit facility, loan participation sold and non-consolidated senior interests.

Secured Financing Agreements

The following table details our secured financing agreements (dollars in thousands):

	September 30, 2018
	Maximum		Collateral		Secured Financing Borrowings
Lender	Facility Size(A)		Assets(B)		Potential(C)		Outstanding		Available
Wells Fargo	$	1,000,000	$	1,096,789	$	822,591	$	791,297	$	31,294
Morgan Stanley(D)	600,000		709,123		513,685		483,558		30,127
Goldman Sachs	400,000		362,191		276,457		268,709		7,748
BMO Facility	200,000		—		—		—		—
Barclays	75,000		n.a.		75,000		—		75,000
Term Loan Facility	600,000		717,500		595,839		582,483		13,356
	$	2,875,000	$	2,885,603	$	2,283,572	$	2,126,047	$	157,525

(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.

(D) The maximum facility size can be further increased to $750.0 million upon our request and subject to customary conditions.

Term Loan Financing

In connection with our efforts to diversify our financing sources, we entered into a term loan financing agreement in April 2018 with third party lenders for an initial borrowing capacity of $200.0 million that was increased to $600.0 million as of September 30, 2018 (“Term Loan Facility”). The facility provides us with asset-based financing on a non-mark to market basis with matched term up to five years and is non-recourse to the Company. Borrowings under the facility are collateralized by senior loans, held-for-investment, and bear interest equal to one-month LIBOR plus a margin. As of September 30, 2018, the weighted average margin and interest rate on the facility were 1.4% and 3.7%, respectively. The following table summarizes our borrowings under the Term Loan Facility (dollars in thousands):

	September 30, 2018
Term Loan Facility	Count	Outstanding Face Amount		Carrying Value		Wtd. Avg. Yield/Cost(A)	Guarantee(B)	Wtd. Avg. Term(C)
Collateral assets	6	$	717,500	$	711,982	L + 3.0%	n.a.	May 2023
Financing provided	n.a.	582,483		578,010		L + 1.7%	n.a.	May 2023

(A) Floating rate loans and related liabilities are indexed to one-month LIBOR. The Company's net interest rate exposure is in direct proportion to its interest in     the net assets indexed to that rate. 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 the Company.

(C) The weighted-average term is determined using the maximum maturity date of the corresponding loans, assuming all extension options are exercised by the borrower.

47

Loan Participations Sold

The following table details our loan participations sold (dollars in thousands):

	September 30, 2018
Loan Participations Sold	Count	Principal Balance		Carrying Value		Yield/Cost(A)	Guarantee(B)	Term
Total loan	1	$	97,440	$	97,024	L + 3.0%	n.a.	September 2022
Senior participation(C)	1	83,886		83,442		L + 1.8%	n.a.	September 2022

(A) Our floating rate loans and related liabilities were indexed to one-month LIBOR. Our net interest rate exposure is in direct proportion to our net assets.

(B) As of September 30, 2018, our loan participation sold was subject to partial recourse of $10.0 million, which amount may be reduced to zero upon achievement of certain property performance metrics.

(C) During the nine months ended September 30, 2018, we recorded $2.3 million of interest income and $2.4 million of interest expense related to the loan participation we sold, but continue to consolidate under GAAP.

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 for our net investments, which are 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 as of September 30, 2018 (dollars in thousands):

	September 30, 2018
Non-Consolidated Senior Interests	Count	Principal Balance		Carrying Value	Yield/Cost(A)	Guarantee	Term
Total loan	1	$	82,359	n.a.	L + 3.8%	n.a.	March 2022
Senior participation	1	66,609		n.a.	L + 2.1%	n.a.	March 2022

(A) Our floating rate loans and related liabilities were indexed to one-month LIBOR. Our net interest rate exposure is in direct proportion to our net assets.

48

Results of Operations

The following table summarizes the changes in our the results of operations for the three and nine months ended September 30, 2018 to the three and nine months ended September 30, 2017 (dollars in thousands):

	For the Three Months Ended September 30,				Increase (Decrease)					For the Nine Months Ended September 30,				Increase (Decrease)
	2018		2017		Dollars			Percentage		2018		2017		Dollars			Percentage
Net Interest Income
Interest income	$	51,895	$	24,408	$	27,487		112.6	%	$	123,952	$	54,760	$	69,192		126.4	%
Interest expense	23,337		5,414		17,923			331.0		52,825		12,592		40,233			319.5
Total net interest income	28,558		18,994		9,564			50.4		71,127		42,168		28,959			68.7
Other Income
Realized gain on sale of investments	—		—		—			—		13,000		—		13,000			100.0
Change in net assets related to consolidated variable interest entities	379		4,025		(3,646		)	(90.6	)	2,460		12,810		(10,350		)	(80.8	)
Income from equity method investments	747		115		632			549.6		2,084		461		1,623			352.1
Other income	476		177		299			168.9		1,239		616		623			101.1
Total other income (loss)	1,602		4,317		(2,715		)	(62.9	)	18,783		13,887		4,896			35.3
Operating Expenses
General and administrative	1,653		1,339		314			23.5		6,002		3,254		2,748			84.4
Management fees to affiliate	4,164		3,989		175			4.4		12,016		9,513		2,503			26.3
Incentive compensation to affiliate	3,286		—		3,286			100.0		3,286		—		3,286			100.0
Total operating expenses	9,103		5,328		3,775			70.9		21,304		12,767		8,537			66.9
Income (Loss) Before Income Taxes, Noncontrolling Interests and Preferred Dividends	21,057		17,983		3,074			17.1		68,606		43,288		25,318			58.5
Income tax expense (benefit)	85		120		(35		)	(29.2	)	227		388		(161		)	(41.5	)
Net Income (Loss)	20,972		17,863		3,109			17.4		68,379		42,900		25,479			59.4
Redeemable Noncontrolling Interests in Income (Loss) of Consolidated Joint Venture	—		54		(54		)	(100.0	)	63		134		(71		)	(53.0	)
Noncontrolling Interests in Income (Loss) of Consolidated Joint Venture	—		377		(377		)	(100.0	)	—		801		(801		)	(100.0	)
Net Income (Loss) Attributable to KKR Real Estate Finance Trust Inc. and Subsidiaries	20,972		17,432		3,540			20.3		68,316		41,965		26,351			62.8
Preferred Stock Dividends and Redemption Value Adjustment	151		93		58			62.4		395		181		214			118.2
Net Income (Loss) Attributable to Common Stockholders	$	20,821	$	17,339	$	3,482		20.1	%	$	67,921	$	41,784	$	26,137		62.6	%

Net Interest Income

Net interest income increased $9.6 million and $29.0 million during the three and nine months ended September 30, 2018, respectively, compared to the corresponding periods in 2017, primarily due to increased interest income in connection with additional capital deployed in investments as we continued to scale our portfolio. This increase was partially offset by increased interest expense resulting from interest on amounts outstanding under our financing facilities used to finance investments in commercial loans. Interest income includes $4.0 million and $1.0 million of net deferred loan fees and origination discounts accreted during the three months ended September 30, 2018 and 2017, respectively, and $7.2 million and $2.3 million during the nine months ended September 30, 2018 and 2017, respectively.

Other Income

Total other income decreased $2.7 million during the three months ended September 30, 2018, compared to the three months ended September 30, 2017, primarily due to a $2.6 million decrease in net interest earned on CMBS B-Pieces, which is included in net assets related to consolidated VIEs, during the three months ended September 30, 2018, compared to the same period in 2017 as a result of the April 2018 sale of CMBS B-Pieces, partially offset by a $0.2 million unrealized loss on our investments in CMBS B- Pieces during the three months ended September 30, 2018, as compared to a $0.9 million unrealized gain during the corresponding period in 2017. Income from equity method investments increased $0.6 million during the three months ended September 30, 2018, as compared to the same period during 2017 due to an increase in income from our equity method investments as we continued to fund the existing commitment to RECOP during 2018.

49

Total other income increased $4.9 million during the nine months ended September 30, 2018, compared to the corresponding period in 2017, primarily due to a $13.0 million realized gain from the sale of CMBS B-Pieces in April 2018. This realized gain was partially offset by a $2.1 million unrealized loss on our investments in CMBS B-Pieces for the nine months ended September 30, 2018, as compared to a $3.5 million unrealized gain during the corresponding 2017 period. Additionally, net interest earned on CMBS B-Pieces, which is included in net assets related to consolidated VIEs, decreased $4.8 million during the nine months ended September 30, 2018, as a result of the April 2018 sale of CMBS B- Pieces. Other income also increased during the nine months ended September 30, 2018, as compared to the same period during 2017, due to an increase in income from equity investments as we continued to contribute additional capital to RECOP during 2018.

Operating Expenses

Total operating expenses increased $3.8 million and $8.5 million during the three and nine months ended September 30, 2018, respectively, compared to the corresponding periods in 2017. This increase was primarily due to $3.3 million of incentive compensation recorded during the three and nine months ended September 30, 2018, compared to the corresponding periods in 2017 wherein the Company did not generate incentive fees. Additionally, management fees increased $0.2 million and $2.5 million during the three and nine months ended September 30, 2018, respectively, resulting from an increase in our equity base as we continue to scale our portfolio.

General and administrative expenses increased $0.3 million and $2.7 million during the three and nine months ended September 30, 2018, respectively, compared to the corresponding periods in 2017. The increase in general and administrative expenses was primarily attributed to an increase in non-cash stock-based compensation expense of $0.3 million and $1.6 million during the three and nine months ended September 30, 2018, respectively, compared to the corresponding periods in 2017 and increased operating expenses as we continue to scale our business.

The following tables provide additional information regarding total operating expenses (dollars in thousands):

	Three Months Ended
	September 30, 2018		June 30, 2018		March 31, 2018		December 31, 2017		September 30, 2017
Professional services	$	666	$	959	$	713	$	838	$	635
Operating and other costs	692		454		932		819		679
Stock-based compensation	295		273		1,018		25		25
Total general and administrative expenses	1,653		1,686		2,663		1,682		1,339
Management fees to affiliate	4,164		3,913		3,939		3,979		3,989
Incentive compensation to affiliate	3,286		—		—		—		—
Total operating expenses	$	9,103	$	5,599	$	6,602	$	5,661	$	5,328

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Liquidity and Capital Resources

Overview

Our primary liquidity needs include: our ongoing commitments to repay the principal of 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, which includes making payments to our Manager in accordance with the management agreement; and satisfying other general business needs.

Our primary sources of liquidity and capital sources from our inception through September 30, 2018 have been derived from: $1,159.2 million in net proceeds from equity issuances; $2,126.0 million in net advances from our repurchase facilities; $152.4 million in proceeds from syndicated financing; $138.7 million in net proceeds from issuance of convertible notes; and cash flows from operations. We may seek additional sources of liquidity from repurchase facilities, syndicated financing, other borrowings (including borrowings not related to a specific investment) and future offerings of equity and debt securities. In addition, we may apply our existing cash and cash equivalents and cash flows from operations to any liquidity needs. As of September 30, 2018, our cash and cash equivalents were $192.8 million.

See Notes 4, 5, 6, and 8 to our condensed consolidated financial statements for additional details regarding our secured financing agreements, convertible notes, loan participation sold and stock issuances.

Debt-to-Equity Ratio and Total Leverage Ratio

The following table presents our debt-to-equity ratio and total leverage ratio:

	September 30, 2018	December 31, 2017
Debt-to-equity ratio(A)	1.3x	0.8x
Total leverage ratio(B)	1.9x	1.0x

(A) Represents (i) total outstanding secured debt agreements (excluding non-recourse term loan facility) and convertible notes, less cash to (ii) total stockholders’ equity, in each case, at period end.

(B) Represents (i) total outstanding secured debt agreements, convertible notes, loan participations sold, non-consolidated senior interests, less cash to (ii) total stockholders’ 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. Amounts available under these sources as of the date presented are summarized in the following table (dollars in thousands):

	September 30, 2018		December 31, 2017
Cash and cash equivalents	$	192,771	$	103,120
Available borrowings under master repurchase agreements	69,169		65,555
Available borrowings under asset specific financing	—		—
Available borrowings under revolving credit agreements	75,000		75,000
Available borrowings under term loan financing	13,356		—
Loan principal payments receivable, net(A)	16,500		4,557
	$	366,796	$	248,232

(A) Represents loan principal paid by the borrower to our third-party servicer, but not yet received by us as of September 30, 2018 and December 31, 2017. We generally receive these loan principal repayments from our third-party servicer in the following month's remittance, net of amounts we repay under our financing agreements.

In addition to our primary sources of liquidity, we have access to further liquidity through 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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Consolidated Debt Obligations

Our consolidated debt obligations are detailed in Note 4 to our condensed consolidated financial statements.

Master Repurchase Agreements

Currently, our primary source of financing is our master repurchase facilities, which we use 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 face value of the mortgage to us in exchange for a secured interest in the mortgage.

Repurchase agreements effectively allow us to borrow against loans, participations and securities that we own in an amount generally equal to (i) the market value of such loans, participations and/or securities multiplied by (ii) the applicable advance rate. Under these agreements, we sell our loans, participations and securities to a counterparty and agree to repurchase the same loans and securities 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, participations and securities 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" features. "Credit mark" provisions in repurchase facilities are designed to keep the lenders' credit exposure constant as a percentage of the underlying collateral value of the assets pledged as security to them. If the 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, 2018 and December 31, 2017, the weighted average haircut under our repurchase agreements was 28.8% and 32.9%, respectively (or 25.6% and 27.3%, 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.

Revolving Credit Agreement

We may also use our secured revolving credit facility as a source of financing, which is designed to provide short term liquidity to purchase loans or other eligible assets, pay operating expenses, and borrow amounts for general corporate purposes. Any amounts borrowed are full recourse to us. Borrowings under the facility bear interest at a per annum rate equal to the sum of (i) a floating rate index and (ii) a fixed margin.

Convertible Notes

We may issue convertible debt to take advantage of favorable market conditions. In May 2018, we issued $143.75 million of 6.125% Convertible Notes due on May 15, 2023. The Notes bear interest at a rate of 6.125% per year, payable semi-annually in arrears on May 15 and November 15 of 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 5 to our condensed consolidated financial statements for additional discussion of our Convertible Notes.

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Term Loan Financing

We also use Term Loan Financing arrangements that provide asset-based, non-recourse financing on a non-mark to market basis with matched term to diversify our financing sources and reduce our exposure to market volatility. In April 2018, we entered into a term loan financing agreement with third party lenders for an initial borrowing capacity of $200.0 million that was subsequently increased to $600.0 million as of September 30, 2018 (“Term Loan Facility”). The facility provides us with asset-based financing on a non-mark to market basis with matched term up to five years and is non-recourse to the Company. Borrowings under the facility are collateralized by senior loans, held-for-investment, and bear interest equal to one-month LIBOR plus a margin. As of September 30, 2018, the weighted average margin and interest rate on the facility were 1.4% and 3.7%, respectively.

Asset Specific Financing

In August 2018, KREF entered into a $200.0 million loan financing facility with BMO Harris Bank (“BMO Facility”). The facility provides asset-based financing on a non-mark to market basis with matched-term up to five years with partial recourse to KREF. There were no amounts outstanding on this facility as of September 30, 2018. In connection with this facility, and in consideration for structuring and sourcing this arrangement, KREF will pay KCM, an affiliate of the Manager, a structuring fee equal to 0.35% of the respective committed loan advances under the agreement.

Borrowing Activities

The following tables provide additional information regarding our borrowings (dollars in thousands):

			Nine Months Ended
			September 30, 2018
	Outstanding Face Amount at September 30, 2018		Average Daily Amount Outstanding(A)		Maximum Amount Outstanding		Weighted Average Daily Interest Rate
Wells Fargo	$	791,297	$	580,989	$	791,297	3.8	%
Morgan Stanley	483,558		458,469		564,525		4.1
Goldman Sachs	268,709		155,103		268,709		4.0
BMO Facility	—		—		—		—
Barclays	—		—		—		—
Term Loan Facility	582,483		446,662		582,483		3.5
Total/Weighted Average	$	2,126,047	$	1,474,338			3.9	%

(A)     Represents the average for the period the debt was outstanding.

	Average Daily Amount Outstanding(A)
	Three Months Ended
	September 30, 2018		June 30, 2018		March 31, 2018
Wells Fargo	$	639,568	$	599,425	$	502,467
Morgan Stanley	429,275		498,467		447,869
Goldman Sachs	235,135		160,091		68,250
BMO Facility	—		—		—
Barclays	—		—		—
Term Loan Facility	550,307		325,961		—

(A)     Represents the average for the period the debt was outstanding.

Covenants—Each of our repurchase facilities contains customary terms and conditions for repurchase facilities of this type, 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 $800.0 million dependent upon the facility)); 

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• a cash liquidity covenant (the greater of $10.0 million or 5.0% of our recourse indebtedness);

• a total indebtedness covenant (75.0% of our total assets, net of VIE liabilities);

• a maximum debt-to-equity ratio covenant (3.5 to 1.0); and

• a minimum fixed charge coverage ratio covenant (1.5 to 1.0).

As of September 30, 2018, we were in compliance with the covenants of our repurchase facilities.

Guarantees—In connection with each master repurchase agreement, our Operating Partnership has entered into a limited guarantee in favor of each lender, under which our Operating Partnership guarantees the obligations of the borrower under the respective master repurchase 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 the Company. With respect to our secured revolving credit facility, the amounts borrowed are full recourse to us.

CMBS-related Liabilities

In connection with our investments in CMBS B-Pieces, we consolidate the trust entities, called VIEs, that hold the pools of senior loans underlying the CMBS because we are considered the primary beneficiary of such entities. As a result of this consolidation, our financial statements include the liabilities of these VIEs. However, these liabilities are not recourse to us, and our risk of loss is limited to the value of our investment in the related CMBS B-Piece. See Note 7 to the condensed consolidated financial statements for a summary of these liabilities as of September 30, 2018.

Loan Participations Sold

In connection with our investments in senior loans, we finance certain investments through the syndication of a non-recourse, or limited-recourse, loan participation to an unaffiliated third party. 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 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 as a result of 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 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.

Cash Flows

The following table sets forth changes in cash and cash equivalents for the nine months ended September 30, 2018 and 2017 (dollars in thousands):

	For The Nine Months Ended September 30,
	2018			2017			Increase (Decrease)
Cash Flows From Operating Activities	$	57,429		$	(43,925	)	$	101,354
Cash Flows From Investing Activities	(1,272,058		)	(811,489		)	(460,569		)
Cash Flows From Financing Activities	1,303,880			849,644			454,236
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash	$	89,251		$	(5,770	)	$	95,021

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Cash Flows from Operating Activities

Our cash flows from operating activities were primarily driven by our net interest income, which is driven by the income generated by our investments less financing costs. The following table sets forth interest received by, and paid for, our investments for the nine months ended September 30, 2018 and 2017 (dollars in thousands):

	For the Nine Months Ended September 30,
	2018		2017
Interest Received:
Senior and mezzanine loans	$	108,314	$	44,324
CMBS B-Pieces	5,456		9,356
Preferred equity interest	—		1,986
	113,770		55,666
Interest Paid:
Borrowings secured by senior loans	41,161		10,116
Net interest collections	$	72,609	$	45,550

Our net interest collections were partially offset by cash used to pay management fees, as follows (dollars in thousands):

	For the Nine Months Ended September 30,
	2018		2017		Increase (Decrease)
Management Fees to affiliate	$	11,609	$	7,332	$	4,277
Net decrease in cash and cash equivalents	$	11,609	$	7,332	$	4,277

Cash Flows from Investing Activities

Our cash flows from investing activities were primarily driven by cash outflows to fund new loan originations and our commitments under existing loan investments. During the nine months ended September 30, 2018, we funded $1,695.2 million of senior loans and received $319.0 million of principal repayments on certain loans. We also made a net investment in CMBS, held through an equity method investee, of $8.6 million. During April 2018, we sold four of our five CMBS trusts for net proceeds of $112.7 million.  During the nine months ended September 30, 2017, we funded or purchased $920.4 million of senior and mezzanine loans, received $61.0 million from the sale of a commercial mortgage loan and received $55.9 million of principal repayments on certain mezzanine loans, and our preferred equity interests. We also made a net investment in CMBS, held through an equity method investee, of $8.0 million.

Cash Flows from Financing Activities

Our cash flows from financing activities were primarily driven by proceeds from borrowings under repurchase agreements and other financing arrangements of $1,607.7 million during the nine months ended September 30, 2018. Additionally, we completed our convertible debt offering and common stock offering which resulted in net proceeds of $139.4 million and $98.4 million, respectively, during the nine months ended September 30, 2018. These inflows were partially offset by principal repayments of $451.0 million on borrowings under secured financing agreements and payments of $64.1 million in dividends during the nine months ended September 30, 2018. Our cash flows from financing activities during the nine months ended September 30, 2017 were primarily driven by the issuance of our common stock for net proceeds of $576.4 million and $776.4 million proceeds from borrowing under our repurchase agreements. These inflows were partially offset by $460.4 million of principal repayments on borrowings under secured financing agreements.

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Contractual Obligations and Commitments

The following table presents our contractual obligations and commitments (including interest payments) as of September 30, 2018 (dollars in thousands):

	Total		Less than 1 year		1 to 3 years		3 to 5 years		Thereafter
Recourse Obligations:
Master Repurchase Facilities(A):
Wells Fargo	$	885,618	$	31,412	$	854,206	$	—	$	—
Morgan Stanley	546,253		20,879		525,374		—		—
Goldman Sachs	301,334		10,865		290,469		—		—
Asset Specific Financing
BMO Facility	—		—		—		—		—
Revolving Credit Agreement(B):
Barclays	—		—		—		—		—
Total secured financing agreements	1,733,205		63,156		1,670,049		—		—
Convertible Notes	178,993		8,805		17,633		152,555		—
Future funding obligations(C)	369,877		192,336		177,541		—		—
RECOP commitment(D)	16,230		16,230		—		—		—
Total recourse obligations	2,298,305		280,527		1,865,223		152,555		—
Non-Recourse Obligations:
Term Loan Financing	645,028		20,829		624,199		—		—
CMBS(E)	1,377,833		57,720		169,811		121,257		1,029,045
Total	$	4,321,166	$	359,076	$	2,659,233	$	273,812	$	1,029,045

(A) The allocation of repurchase facilities is based on the current maturity date of each individual borrowing under the facilities. The amounts include the related future interest payment obligations, which are estimated by assuming the amounts outstanding under our repurchase facilities and the interest rates in effect as of September 30, 2018 will remain constant into the future. This is only an estimate, as actual amounts borrowed and rates may vary over time. Amounts borrowed are subject to a maximum 25.0% recourse limit.

(B) Any amounts borrowed are 100.0% recourse to us.

(C) We have future funding obligations related to our investments in senior loans. These future funding obligations primarily relate to construction projects, capital improvements, tenant improvements and leasing commissions. Generally, funding obligations are subject to certain conditions that must be met, such as customary construction draw certifications, minimum debt service coverage ratios, minimal debt yield tests, or executions of new leases before advances are made to the borrower. As such, the allocation of our future funding obligations is based on the earlier of the expected funding or commitment expiration date.

(D) Amounts committed to invest in an aggregator vehicle alongside RECOP, which has a two year investment period ending February 2019.

(E) Amounts relate to VIE liabilities that represent securities not beneficially owned by our stockholders.

We are required to pay our Manager a base management fee, an incentive fee and reimbursements for certain expenses pursuant to our management agreement. The table above does not include the amounts payable to our Manager under our management agreement as they are not fixed and determinable. See Note 11 to our condensed consolidated financial statements included in this Form 10-Q for additional terms and details of the fees payable under our management agreement.

As a REIT, we generally must distribute substantially all of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains, to stockholders in the form of dividends to comply with the REIT provisions of the Code. Our taxable income does not necessarily equal our net income as calculated in accordance with GAAP, or our Core Earnings as described above under " — Key Financial Measures and Indicators — Core Earnings and Net Core Earnings."

Subsequent Events

Our subsequent events are detailed in Note 14 to our condensed consolidated financial statements.

Off-Balance Sheet Arrangements

As described in Note 7 to our 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 VIEs is limited to the carrying value of our investment

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in the entity and any unfunded capital commitments. As of September 30, 2018, we held $24.7 million of interests in such entities, which does not include a remaining commitment of $16.2 million to RECOP that we are required to fund when called.

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Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires our Manager to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Actual results could differ from these estimates. There have been no material changes to our Critical Accounting Policies described in our annual report on Form 10-K filed with the SEC on February 28, 2018.

Refer to Note 2 to our consolidated financial statements for the description of our significant accounting policies.

Recent Accounting Pronouncements

For a discussion of recently issued accounting pronouncements, see Note 2 to our condensed consolidated financial statements included in this Form 10-Q.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We seek to manage our risks related to the credit quality of our assets, interest rates, liquidity, prepayment rates and market value, while at the same time seeking to provide an opportunity to stockholders to realize attractive risk-adjusted returns. While risks are inherent in any business enterprise, we seek to quantify and justify risks in light of available returns and to maintain capital levels consistent with the risks we undertake.

Credit Risk

Our investments are subject to credit risk, including the risk of default. The performance and value of our investments depend upon the sponsors' ability to operate the properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due to us. To monitor this risk, our Manager reviews our investment portfolio and is in regular contact with the sponsors, monitoring performance of the collateral and enforcing our rights as necessary.

Credit Yield Risk

Credit yields measure the return demanded on financial instruments by the lending market based on their risk of default. Increasing supply of credit-sensitive financial instruments and reduced demand will generally cause the market to require a higher yield on such financial instruments, resulting in a lower price for the financial instruments we hold.

As of September 30, 2018, a 100 basis point increase in credit yields would decrease our net book value by approximately $0.5 million, and a 100 basis point decrease in credit yields would increase our net book value by approximately $0.5 million, based on the investments we held on that date.

Interest Rate Risk

Generally, the composition of our investments is such that rising interest rates will increase our net income, while declining interest rates will decrease net income. As of September 30, 2018, 98.2% of our investments by total assets earned a floating rate of interest. The remaining 1.8% of our investments earned a fixed rate of interest. If interest rates were to decline, the value of these fixed-rate investments may increase and if interest rates were to increase, the value of these fixed-rate investments may fall; however, the interest income generated by these investments would not be affected by market interest rates. The interest rates we pay under our current repurchase agreements are floating rate. Accordingly, our interest expense will generally increase as interest rates increase and decrease as interest rates decrease.

As of September 30, 2018, a 50 basis point increase in short-term interest rates, based on a shift in the yield curve, would increase our cash flows by approximately $3.8 million during the 2018 fiscal year, whereas a 50 basis point decrease in short-term interest rates would decrease our cash flows by approximately $3.8 million during the 2018 fiscal year, based on the net floating-rate exposure of the investments we held on that date.

Prepayment Risk

Prepayment risk is the risk that principal will be repaid at an earlier date than anticipated, potentially causing the return on certain investments to be less than expected. As we receive prepayments of principal on our assets, any premiums paid on such assets are amortized against interest income. In general, an increase in prepayment rates accelerates the amortization of purchase premiums, thereby reducing the interest income earned on the assets. Conversely, discounts on such assets are accreted into interest income. In general, an increase in prepayment rates accelerates the accretion of purchase discounts, thereby increasing the interest income earned on the assets. Additionally, we may not be able to reinvest the principal repaid at the same or higher yield of the original investment.

Financing Risk

We finance our target assets with borrowed funds under our repurchase facilities and by syndicating senior participations in our originated senior loans. Over time, as market conditions change, we may use other forms of leverage in addition to these methods of financing. Weakness or volatility in the financial markets, the commercial real estate and mortgage markets or the economy generally could adversely affect one or more of our lenders or potential lenders and could cause one or more of our lenders or potential lenders to be unwilling or unable to provide us with financing, or to decrease the amount of our available financing through a market to market, or to increase the costs of that financing.

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Real Estate Risk

The market values of commercial mortgage assets are subject to volatility and may be adversely affected by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; and retroactive changes to building or similar codes. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loans, which could also cause us to suffer losses.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that the information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Co-Chief Executive Officers and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired controls.

Our management, with the participation of our Co-Chief Executive Officers and the Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2018. Based upon that evaluation, our Co-Chief Executive Officers and Chief Financial Officer concluded that, as of September 30, 2018, the design and operation of our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Changes in Internal Controls over Financial Reporting

No changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act) occurred during the quarter ended September 30, 2018 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The section entitled “Litigation ” appearing in Note 10 of our condensed consolidated financial statements included in this Form 10-Q is incorporated herein by reference.

ITEM 1A. RISK FACTORS

For a discussion of our potential risks and uncertainties, see the information under Part I, Item 1A. “Risk Factors” in the Form 10-K. There have been no material changes to our principal risks that we believe are material to our business, results of operations, and financial condition from the risk factors previously disclosed in the Form 10-K, which is accessible on the SEC’s website at www.sec.gov.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

In May 2018, our board of directors approved a new share repurchase program, effective June 12, 2018. The new share repurchase program permits us to repurchase of up to $100.0 million of our common stock during the period from June 13, 2018 through June 30, 2019. Of this total authorized amount, $50.0 million is covered by a pre-set trading plan meeting the requirements of Rule 10b5-1 under the Exchange Act and provides for repurchases of our common stock when the market price per share of our common stock is below book value per share (calculated in accordance with GAAP as of the end of the most recent quarterly period for which financial statements are available), and the remaining $50.0 million may be used for repurchases in the open market, pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act, in privately negotiated transactions or otherwise. As of September 30, 2018, $49.3 million remained available for repurchases under this 10b5-1 plan.

The following table sets forth information regarding purchases of shares of our common stock by us or on our behalf during the three months ended September 30, 2018:

Period Beginning	Period Ending	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced program	Amounts paid for shares purchased as part of publicly announced program		Approximate dollar value of shares that may yet be purchased under the program
July 1, 2018	July 31, 2018	9,300	$	19.78	723,507	$	184,000	$	99,311,000
August 1, 2018	August 31, 2018	—	—		723,507	—		99,311,000
September 1, 2018	September 30, 2018	—	—		723,507	—		99,311,000
Total/Average		9,300	$	19.78		$	184,000

62

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

The Company expects to hold its 2019 Annual Meeting of Stockholders on or around April 26, 2019 (the “2019 Annual Meeting”). Because the date of the 2019 Annual Meeting is more than 30 days before the anniversary date of the Company’s 2018 Annual Meeting, in accordance with Rule 14a-5(f) under the Exchange Act, the Company is informing stockholders of this change.

For stockholders who wish to present a proposal to be considered for inclusion in our proxy statement to be delivered in connection with the 2019 Annual Meeting, pursuant to Rule 14a-8 under the Exchange Act, the proposal must be delivered to our Secretary at the Company’s principal executive offices prior to the close of business on December 6, 2018, which we have determined to be a reasonable time before we expect to begin to print and mail our proxy materials for the 2019 Annual Meeting. Such stockholder proposals must otherwise comply with the requirements of Rule 14a-8 of the Exchange Act.     

Additionally, under the Company’s Amended and Restated Bylaws, any stockholder proposal submitted for consideration at the 2019 Annual Meeting but not submitted for inclusion in our Proxy Statement for our 2019 Annual Meeting pursuant to Rule 14a-8 under the Exchange Act, including stockholder nominations for candidates for election as directors, must be delivered to the Secretary at the principal executive offices of the Company not earlier than November 27, 2018, nor later than 5:00 p.m., Eastern Time, on December 27, 2018.

63

ITEM 6. EXHIBITS

Exhibit Number		Exhibit Description
	31.1	Certificate of Christen E.J. Lee, Co-President and Co-Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certificate of Matthew A. Salem, Co-President and Co-Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.3	Certificate of Mostafa Nagaty, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certificate of Christen E.J. Lee, Co-President and Co-Chief Executive Officer, pursuant to Section 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
	32.2	Certificate of Matthew A. Salem, Co-President and Co-Chief Executive Officer, pursuant to Section 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
	32.3	Certificate of Mostafa Nagaty, Chief Financial Officer, pursuant to Section 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
	101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
	101.SCH	XBRL Taxonomy Extension Schema Document.
	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
	101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

_______________________

Certain agreements and other documents filed as exhibits to this Form 10-Q contain representations and warranties that the parties thereto made to each other. These representations and warranties have been made solely for the benefit of the other parties to such agreements and may have been qualified by certain information that has been disclosed to the other parties to such agreements and other documents and that may not be reflected in such agreements and other documents. In addition, these representations and warranties may be intended as a way of allocating risks among parties if the statements contained therein prove to be incorrect, rather than as actual statements of fact. Accordingly, there can be no reliance on any such representations and warranties as characterizations of the actual state of facts. Moreover, information concerning the subject matter of any such representations and warranties may have changed since the date of such agreements and other documents.

64

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		KKR REAL ESTATE FINANCE TRUST INC.
Date:	November 5, 2018	By:	/s/ Christen E.J. Lee
			Name:    Christen E.J. Lee
			Title:    Co-Chief Executive Officer and Co-President
			(Co-Principal Executive Officer)
Date:	November 5, 2018	By:	/s/ Matthew A. Salem
			Name:    Matthew A. Salem
			Title:    Co-Chief Executive Officer and Co-President
			(Co-Principal Executive Officer)
Date:	November 5, 2018	By:	/s/ Mostafa Nagaty
			Name:    Mostafa Nagaty
			Title:    Chief Financial Officer and Treasurer
			(Principal Financial and Accounting Officer)

65

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Christen E.J. Lee, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018 of KKR Real Estate Finance Trust Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. [Intentionally omitted];

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/s/ Christen E.J. Lee
	Christen E.J. Lee
	Co-President and Co-Chief Executive Officer
	(Co-Principal Executive Officer)
	November 5, 2018

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Matthew A. Salem, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018 of KKR Real Estate Finance Trust Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. [Intentionally omitted];

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/s/ Matthew A. Salem
	Matthew A. Salem
	Co-President and Co-Chief Executive Officer
	(Co-Principal Executive Officer)
	November 5, 2018

EX-31.3

Exhibit 31.3

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Mostafa Nagaty, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018 of KKR Real Estate Finance Trust Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. [Intentionally omitted];

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/s/ Mostafa Nagaty
	Mostafa Nagaty
	Chief Financial Officer
	(Principal Financial Officer)
	November 5, 2018

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY

ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of KKR Real Estate Finance Trust Inc. (the “Company”) for the quarterly period ended September 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christen E.J. Lee, Co-Chief Executive Officer and Co-President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Christen E.J. Lee
	Christen E.J. Lee
	Co-President and Co-Chief Executive Officer
	(Co-Principal Executive Officer)

November 5, 2018

A signed original of this certification required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY

ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of KKR Real Estate Finance Trust Inc. (the “Company”) for the quarterly period ended September 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Matthew A. Salem, Co-Chief Executive Officer and Co-President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Matthew A. Salem
	Matthew A. Salem
	Co-President and Co-Chief Executive Officer
	(Co-Principal Executive Officer)

November 5, 2018

A signed original of this certification required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

EX-32.3

Exhibit 32.3

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY

ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of KKR Real Estate Finance Trust Inc. (the “Company”) for the quarterly period ended September 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mostafa Nagaty, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Mostafa Nagaty
	Mostafa Nagaty
	Chief Financial Officer
	(Principal Financial Officer)

November 5, 2018

A signed original of this certification required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2018	Nov. 05, 2018
Document and Entity Information [Abstract]
Entity Registrant Name	KKR Real Estate Finance Trust Inc.
Entity Central Index Key	0001631596
Document Type	10-Q
Document Period End Date	Sep. 30, 2018
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	No
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		58,022,276
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
Entity Small Business	false

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017	[1]
Assets
Cash and cash equivalents	$ 192,771	$ 103,120
Restricted cash	0	400
Commercial mortgage loans, held-for-investment, net	3,261,878	1,888,510
Equity method investments, at fair value	24,745	14,390
Accrued interest receivable	12,395	8,423
Other assets	20,046	7,239
Commercial mortgage loans held in variable interest entities, at fair value	1,100,089	5,372,811
Total Assets	4,611,924	7,394,893
Liabilities
Secured financing agreements, net	2,115,954	964,800
Convertible notes, net	137,339	0
Loan participations sold, net	83,442	81,472
Accounts payable, accrued expenses and other liabilities	2,236	2,465
Dividends payable	25,235	19,981
Accrued interest payable	6,376	1,623
Due to affiliates	7,700	4,442
Variable interest entity liabilities, at fair value	1,086,939	5,256,926
Total Liabilities	3,465,221	6,331,709
Commitments and Contingencies (Note 10)
Temporary Equity
Redeemable noncontrolling interests in equity of consolidated joint venture and redeemable preferred stock	402
Permanent Equity
Preferred stock, 50,000,000 authorized (1 share with par value of $0.01 issued and outstanding as of September 30, 2018 and December 31, 2017)	0	0
Common stock, 300,000,000 authorized (58,022,590 and 53,685,440 shares with par value of $0.01 issued and outstanding as of September 30, 2018 and December 31, 2017, respectively)	580	537
Additional paid-in capital	1,154,113	1,052,851
Retained earnings	5,763	6,280
Repurchased stock, 723,507 and 26,398 shares repurchased as of September 30, 2018 and December 31, 2017, respectively	(14,155)	(523)
Total KKR Real Estate Finance Trust Inc. stockholders’ equity	1,146,301	1,059,145
Total Permanent Equity	1,146,301	1,059,145
Total Liabilities and Equity	4,611,924	7,394,893
Consolidated Joint Venture One
Temporary Equity
Redeemable noncontrolling interests in equity of consolidated joint venture and redeemable preferred stock	0	3,090
Consolidated Joint Venture Two
Temporary Equity
Redeemable noncontrolling interests in equity of consolidated joint venture and redeemable preferred stock	$ 402	$ 949

[1] Derived from the audited consolidated financial statements as of December 31, 2017.

XML

Condensed Consolidated Balance Sheets (Unaudited) Parenthetical - $ / shares	Sep. 30, 2018	Dec. 31, 2017
Statement of Financial Position [Abstract]
Preferred stock authorized (shares)	50,000,000	50,000,000
Preferred stock par or stated value (usd per share)	$ 0.01	$ 0.01
Preferred stock issued (shares)	1	1
Preferred stock outstanding (shares)	1	1
Common stock authorized (shares)	300,000,000	300,000,000
Common stock par value (usd per share)	$ 0.01	$ 0.01
Common stock issued (shares)	58,022,590	53,685,440
Common stock outstanding (shares)	58,022,590	53,685,440
Treasury stock, held (shares)	723,507	26,398

XML

Condensed Consolidated Statements of Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Net Interest Income
Interest income	$ 51,895	$ 24,408	$ 123,952	$ 54,760
Interest expense	23,337	5,414	52,825	12,592
Total net interest income	28,558	18,994	71,127	42,168
Other Income
Realized gain on sale of investments	0	0	13,000	0
Change in net assets related to consolidated variable interest entities	379	4,025	2,460	12,810
Income from equity method investments	747	115	2,084	461
Other income	476	177	1,239	616
Total other income (loss)	1,602	4,317	18,783	13,887
Operating Expenses
General and administrative	1,653	1,339	6,002	3,254
Incentive compensation to affiliate	3,286	0	3,286	0
Total operating expenses	9,103	5,328	21,304	12,767
Income (Loss) Before Income Taxes, Noncontrolling Interests and Preferred Dividends	21,057	17,983	68,606	43,288
Income tax expense (benefit)	85	120	227	388
Net Income (Loss)	20,972	17,863	68,379	42,900
Redeemable Noncontrolling Interests in Income (Loss) of Consolidated Joint Venture	0	54	63	134
Noncontrolling Interests in Income (Loss) of Consolidated Joint Venture	0	377	0	801
Net Income (Loss) Attributable to KKR Real Estate Finance Trust Inc. and Subsidiaries	20,972	17,432	68,316	41,965
Preferred Stock Dividends and Redemption Value Adjustment	151	93	395	181
Net Income (Loss) Attributable to Common Stockholders	$ 20,821	$ 17,339	$ 67,921	$ 41,784
Net Income (Loss) Per Share of Common Stock
Net Income (Loss) Per Share of Common Stock, Basic (usd per share)	$ 0.37	$ 0.32	$ 1.26	$ 0.98
Net Income (Loss) Per Share of Common Stock, Diluted (usd per share)	$ 0.37	$ 0.32	$ 1.25	$ 0.98
Weighted Average Number of Shares of Common Stock Outstanding
Weighted Average Number of Shares of Common Stock Outstanding, Basic (shares)	55,903,126	53,696,967	54,111,272	42,501,356
Weighted Average Number of Shares of Common Stock Outstanding, Diluted (shares)	55,921,655	53,697,041	54,132,331	42,501,530
Dividend Declared per Share of Common Stock (usd per share)	$ 0.43	$ 0.37	$ 1.26	$ 1.25
Asset Management
Operating Expenses
Management fees to affiliate	$ 4,164	$ 3,989	$ 12,016	$ 9,513

XML

Condensed Consolidated Statements of Changes In Equity - USD ($) $ in Thousands		Total		Consolidated Joint Venture One	Consolidated Joint Venture Two	Preferred Stock	Common Stock	Additional Paid-In Capital	Retained Earnings	Repurchased Stock	Total KKR Real Estate Finance Trust Inc. Stockholders' Equity	Noncontrolling Interests in Equity of Consolidated Joint Venture
Preferred stock, ending balance (shares) at Dec. 31, 2016						126
Common stock, ending balance (shares) at Dec. 31, 2016							24,158,392
Ending balance at Dec. 31, 2016		$ 505,037				$ 125	$ 242	$ 479,417	$ 17,914	$ 0	$ 497,698	$ 7,339
Ending balance at Dec. 31, 2016				$ 3,030	$ 0
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of stock (shares)							29,553,446
Issuance of stock		580,306			949		$ 295	580,011			580,306
Redemption of preferred stock (shares)						(125)
Redemption of preferred stock		(125)				$ (125)					(125)
Repurchase of common stock (shares)							(26,398)
Repurchase of common stock		(523)								(523)	(523)
Offering costs		(6,642)						(6,642)			(6,642)
Preferred dividends declared		(6)			(175)				(6)		(6)
Common dividends declared		(50,588)							(50,588)		(50,588)
Capital contributions		(8,140)		(111)								(8,140)
Stock-based compensation								40
Net income (loss)		42,591		134	175				41,790		41,790	801
Preferred stock, ending balance (shares) at Sep. 30, 2017						1
Common stock, ending balance (shares) at Sep. 30, 2017							53,685,440
Ending balance at Sep. 30, 2017		1,061,950				$ 0	$ 537	1,052,826	9,110	(523)	1,061,950	0
Ending balance at Sep. 30, 2017				3,053	949
Preferred stock, beginning balance (shares) at Dec. 31, 2016						126
Common stock, beginning balance (shares) at Dec. 31, 2016							24,158,392
Beginning balance at Dec. 31, 2016		$ 505,037				$ 125	$ 242	479,417	17,914	0	497,698	7,339
Preferred stock, ending balance (shares) at Dec. 31, 2017		1				1
Common stock, ending balance (shares) at Dec. 31, 2017		53,685,440					53,685,440
Ending balance at Dec. 31, 2017		$ 1,059,145	[1]			$ 0	$ 537	1,052,851	6,280	(523)	1,059,145	0
Beginning balance at Dec. 31, 2016				3,030	0
Ending balance at Dec. 31, 2017	[1]			3,090	949
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of stock (shares)							5,000,000
Issuance of stock		99,500					$ 50	99,450			99,500
Repurchase of common stock (shares)							(697,109)
Repurchase of common stock		(13,639)					$ (7)			(13,632)	(13,639)
Offering costs		(1,174)						(1,174)			(1,174)
Preferred dividends declared					(395)
Adjustment of redeemable preferred stock to redemption value		547			(547)				547		547
Common dividends declared		(68,985)							(68,985)		(68,985)
Equity component of convertible notes		1,800						1,800			1,800
Stock-based compensation, shares							34,259
Stock-based compensation		1,186						1,186			1,186
Net income (loss)		$ 67,921		63	395				67,921		67,921
Preferred stock, ending balance (shares) at Sep. 30, 2018		1				1
Common stock, ending balance (shares) at Sep. 30, 2018		58,022,590					58,022,590
Ending balance at Sep. 30, 2018		$ 1,146,301				$ 0	$ 580	$ 1,154,113	$ 5,763	$ (14,155)	$ 1,146,301	$ 0
Increase (Decrease) in Temporary Equity [Roll Forward]
Capital distributions and redemptions		(400)		(3,153)
Ending balance at Sep. 30, 2018		$ 402		$ 0	$ 402

[1] Derived from the audited consolidated financial statements as of December 31, 2017.

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Cash Flows From Operating Activities
Net income (loss)	$ 68,379	$ 42,900
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Amortization of deferred debt issuance costs and discounts	4,338	1,731
Accretion of net deferred loan fees and discounts	(7,206)	(2,301)
Interest paid-in-kind	0	(864)
Change in noncash net assets of consolidated variable interest entities	2,144	(3,453)
(Gain) on sale of investment securities	(13,000)	0
(Income) from equity method investments	(2,084)	(461)
Stock-based compensation expense	1,190	40
Origination and purchase of commercial loans, held-for-sale	0	(91,475)
Proceeds from sale of commercial mortgage loans	0	10,000
Changes in operating assets and liabilities:
Accrued interest receivable, net	(3,130)	(3,956)
Other assets	(580)	2,421
Due to affiliates	1,758	2,308
Accounts payable, accrued expenses and other liabilities	867	(1,330)
Accrued interest payable	4,753	515
Net cash provided by (used in) operating activities	57,429	(43,925)
Cash Flows From Investing Activities
Proceeds from sales of commercial mortgage-backed securities	112,747	0
Proceeds from sale of commercial mortgage loans	0	60,991
Proceeds from principal repayments of commercial mortgage loans, held-for-investment	318,996	18,568
Proceeds from principal repayments of preferred interest in joint venture, held-to-maturity	0	37,310
Origination of commercial mortgage loans, held-for-investment	(1,695,188)	(920,358)
Investment in commercial mortgage-backed securities, equity method investee	(9,770)	(27,588)
Proceeds from commercial mortgage-backed securities, equity method investee	1,157	19,588
Net cash provided by (used in) investing activities	(1,272,058)	(811,489)
Cash Flows From Financing Activities
Proceeds from borrowings under secured financing agreements	1,607,725	776,447
Net proceeds from issuance of convertible notes	139,438	0
Proceeds from issuances of common stock	99,500	581,255
Redemption of preferred stock	0	(125)
Payments of common stock dividends	(63,898)	(30,715)
Payments of preferred stock dividends	(227)	(63)
Payments of debt issuance costs	(9,702)	(3,051)
Principal repayments on borrowings under secured financing agreements	(451,026)	(460,432)
Payments of stock issuance costs	(1,137)	(4,898)
Payments to reacquire common stock	(13,640)	(523)
Net cash provided by (used in) financing activities	1,303,880	849,644
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash	89,251	(5,770)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period	103,520	96,346
Cash, Cash Equivalents, and Restricted Cash at End of Period	192,771	90,576
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest	41,161	10,116
Cash paid during the period for income taxes	754	252
Supplemental Schedule of Non-Cash Investing and Financing Activities
Dividend declared, not yet paid	25,235	19,992
Loan Principal Payments Held by Servicer	16,500	0
Loan Participations Sold, Net (Note 6)	1,886	0
Funding of commercial loans, held for investment	(1,886)	0
Redeemable Noncontrolling Interest
Cash Flows From Financing Activities
Payments of noncontrolling interest distributions	(3,153)	(111)
Nonredeemable Noncontrolling Interest
Cash Flows From Financing Activities
Payments of noncontrolling interest distributions	$ 0	$ (8,140)

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Business and Organization

9 Months Ended

Sep. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Business and Organization

KKR Real Estate Finance Trust Inc. (together with its consolidated subsidiaries, referred to throughout this report as the "Company", "KREF", "we", "us" and "our") is a Maryland corporation that was formed and commenced operations on October 2, 2014 as a mortgage "real estate investment trust" ("REIT") that focuses primarily on originating and acquiring senior loans secured by commercial real estate assets.

KREF has elected and intends to maintain its qualification to be taxed as a REIT under the requirements of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), for U.S. federal income tax purposes. As such, KREF will generally not be subject to U.S. federal income tax on that portion of its income that it distributes to stockholders if it distributes at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gains. See Note 13 regarding taxes applicable to KREF.

KREF is externally managed by KKR Real Estate Finance Manager LLC ("Manager"), an indirect subsidiary of KKR & Co. Inc. (together with its subsidiaries, "KKR"), through a management agreement ("Management Agreement") pursuant to which the Manager provides a management team and other professionals who are responsible for implementing KREF’s business strategy, subject to the supervision of KREF’s board of directors. For its services, the Manager is entitled to management fees and incentive compensation, both defined in, and in accordance with the terms of, the Management Agreement (Note 11).

As of September 30, 2018, KKR beneficially owned 23,758,616 shares of KREF's common stock, of which 3,758,616 shares were held by KKR on behalf of a third-party investor.

As of September 30, 2018, KREF's principal business activities related to the origination and purchase of credit investments related to commercial real estate. Management assesses performance of KREF's current portfolio of leveraged and unleveraged commercial mortgage loans and commercial mortgage-backed securities ("CMBS") as a whole and makes operating decisions accordingly. As a result, management presents KREF's operations within a single reporting segment.

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Basis of Presentation — The accompanying unaudited condensed consolidated financial statements and related notes of KREF are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and instructions to Form 10-Q. The condensed consolidated financial statements, including these notes, are unaudited and exclude some of the disclosures required in annual financial statements. Accordingly, certain information and footnote disclosures normally included in the consolidated financial statements have been condensed or omitted. The condensed consolidated financial statements include the accounts of KREF and its consolidated subsidiaries, and all intercompany transactions and balances have been eliminated. In the opinion of management, all adjustments considered necessary for a fair presentation of KREF’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These condensed consolidated financial statements should be read in conjunction with KREF’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed with the Securities and Exchange Commission on February 28, 2018 (the "Form 10-K").Consolidation — KREF consolidates those entities for which (i) it controls significant operating, financial and investing decisions of the entity or (ii) management determines that KREF is the primary beneficiary of entities deemed to be variable interest entities ("VIEs").

Variable Interest Entities — VIEs are defined as entities in which equity investors do not have an interest with the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated only by its primary beneficiary, which is defined as the party that has the power to direct the activities of the VIE that most significantly impact its economic performance and that has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could be potentially significant to the VIE (Note 7).

To assess whether KREF has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, KREF considers all the facts and circumstances, including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes, first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power to direct those activities. To assess whether KREF has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE, KREF considers all of its economic interests and applies judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE.

CMBS — KREF consolidates those trusts that issue beneficial ownership interests in mortgage loans secured by commercial real estate (commonly known as CMBS) when KREF holds a variable interest in, and management considers KREF to be the primary beneficiary of, those trusts. Management believes the performance of the assets that underlie CMBS issuances most significantly impacts the economic performance of the trust, and the primary beneficiary is generally the entity that conducts activities that most significantly impact the performance of the underlying assets. In particular, the most subordinate tranches of CMBS expose the holder to the greater variability of economic performance when compared to more senior tranches since the subordinate tranches absorb a disproportionately higher amount of the credit risk related to the underlying assets. Generally, a trust designates the most junior subordinate tranche outstanding as the controlling class, which entitles the holder of the controlling class to unilaterally appoint and remove the special servicer for the trust. The special servicer is responsible for the servicing and administration of delinquent and nonperforming loans as well as real estate owned ("REO") properties held as collateral delivered on foreclosed loans. While the special servicer cannot prevent losses, its services to the trust are designed to mitigate credit losses to holders of the CMBS.

For the trusts that KREF consolidates, KREF holds non-investment grade rated and unrated tranches that represent the most subordinated tranches of the CMBS issued by those trusts, which include the controlling class. As the holder of the most subordinate tranche, KREF is in a first loss position and has the right to receive benefits. As the holder of the controlling class, KREF has the ability to unilaterally appoint and remove the special servicer for the trust. In these cases, management considers KREF to be the primary beneficiary and consolidates the CMBS trusts.

For VIEs in which management determines KREF is the primary beneficiary, all of the underlying assets, liabilities and equity of the trusts are recorded on KREF's books, and the initial investment, along with any associated unrealized holding gains and losses, are eliminated in consolidation. Similarly, the interest income earned from these trusts is eliminated in consolidation.

Management elected the fair value option for KREF's initial and subsequent recognition of the assets and liabilities of KREF's consolidated CMBS VIEs in order to provide users of the financial statements with better information regarding the effects of credit risk and other market factors on the CMBS beneficially held by KREF's stockholders. Since the changes in fair value include the interest income and interest expense associated with these CMBS VIEs, management does not consider the separate presentation of the components of fair value changes to be relevant. Management has elected to present these items in aggregate as "Other Income — Change in net assets related to consolidated variable interest entities" in the accompanying Condensed Consolidated Statements of Income; the residual difference between the fair value of the trusts' assets and liabilities represents KREF's beneficial interest in the CMBS VIEs.

Management separately presents the assets and liabilities of KREF's consolidated VIEs as individual line items on KREF's Condensed Consolidated Balance Sheets for entities in which the VIEs assets can only be used to settle the VIE’s obligations. The liabilities of KREF's consolidated VIEs consist solely of obligations to the CMBS holders of the consolidated trusts, excluding CMBS held by KREF as such interests are eliminated in consolidation, and the interest accrued thereon, presented as "Liabilities — Variable interest entity liabilities, at fair value." The assets of KREF's consolidated VIEs consist principally of commercial mortgage loans and the interest accrued thereon, and are likewise presented as a single line item entitled "Assets — Commercial mortgage loans held in variable interest entities, at fair value."

Assets of a CMBS trust, as a whole, can only be used to settle the obligations of the consolidated CMBS VIE. The assets of KREF's CMBS VIEs are not individually accessible by, and obligations of the CMBS VIEs are not recourse to, the bondholders.

REO assets generally represent a small percentage of the overall asset pool of a CMBS trust. In a new issue CMBS trust there are no REO assets, and no REO existed in KREF's consolidated VIE assets as of September 30, 2018. KREF derives the fair value of its Level 3 CMBS VIE assets from its Level 3 CMBS VIE liabilities, which management considers to possess more observable market value data than the CMBS VIE assets. See "— Fair Value — Valuation of Consolidated VIEs" for additional discussion regarding management's valuation of consolidated CMBS VIEs.

Commercial Mezzanine Loan Joint Venture - KREF consolidated a joint venture that held a portion of KREF's investments in commercial mezzanine loans (“Mezzanine JV”), and in which a third-party owned a 5.0% redeemable noncontrolling interest ("Mezzanine JV Redeemable Noncontrolling Interest”) (Note 7 ). Management determined the joint venture to be a VIE as the owners of the redeemable noncontrolling interest did not have substantive participating or kick-out rights. KREF owned 95.0% of the equity interests in the joint venture and participated in the profits and losses. Management considered KREF to be the primary beneficiary of the joint venture as KREF held decision-making power over the activities that most significantly impact the economic performance of the joint venture. In June 2018, KREF acquired the 5.0% Mezzanine JV Redeemable Noncontrolling Interest for its carrying value of $1.3 million.

Noncontrolling Interests — Noncontrolling interests represent the ownership interests in certain consolidated subsidiaries held by entities or persons other than KREF. Those noncontrolling interests that allow the holder to redeem before liquidation or termination of the entity that issued those interests are considered redeemable noncontrolling interests.

The redeemable noncontrolling interests issued by subsidiaries of KREF are subject to certain restrictions and require KREF to transfer assets or issue equity to satisfy the redemption. As KREF does not control the circumstances under which the noncontrolling interests may redeem their interests, management considers these redeemable noncontrolling interests as temporary equity, presented as "Temporary Equity — Redeemable noncontrolling interests in equity of consolidated joint venture" in the accompanying Condensed Consolidated Balance Sheets and their share of "Net Income (Loss)" as "Redeemable Noncontrolling Interests in Income (Loss) of Consolidated Joint Venture" in the Condensed Consolidated Statements of Income. KREF recorded the redeemable noncontrolling interests at fair value upon issuance by subsidiaries of KREF, and adjusts the carrying value of such interests to equal their respective redemption values at each subsequent reporting period date if KREF determines the noncontrolling interests are redeemable or probable to become redeemable.

As noted above, in June 2018, KREF acquired the 5.0% Mezzanine JV Redeemable Noncontrolling Interest for its carrying value of $1.3 million.

KREF determined that the Special Non-Voting Preferred Stock (“SNVPS”) became redeemable during the second quarter of 2018; accordingly, KREF adjusted the carrying value of the SNVPS to its redemption value of $0.4 million as of the balance sheet date.

Equity method investments, at fair value— Investments are accounted for under the equity method when KREF has significant influence over the operations of an investee, but KREF does not consolidate that investment. Equity method investments, for which management has not elected a fair value option, are initially recorded at cost and subsequently adjusted for KREF's share of net income or loss and cash contributions and distributions each period.

Management determined that KREF's investment in the Manager is an interest in a VIE as KREF did not have substantive participating or kick-out rights. KREF does not have the power to direct activities and the obligation to absorb losses of the Manager that could be significant to the Manager. KREF accounts for its investment in the Manager using the equity method since KREF is not the primary beneficiary of the Manager (Note 7).

Management determined that its investment in an aggregator vehicle alongside KKR Real Estate Credit Opportunity Partners L.P. ("RECOP") is an interest in a VIE, however KREF is not the primary beneficiary and does not have substantive participating or kick-out rights. Management elected the fair value option for KREF's investment in RECOP. KREF records its share of net asset value in RECOP as “Equity method investments, at fair value” in its Condensed Consolidated Balance Sheets and its share of unrealized gains or losses in "Income from equity method investments" in its Condensed Consolidated Statements of Income (Note 7).

Use of Estimates — The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of

revenue and expenses during the reporting period. Management makes subjective estimates to project cash flows KREF expects to receive on its investments in loans and securities as well as the related market discount rates, which significantly impacts the interest income, impairments, allowance for loan loss and fair values recorded or disclosed. Actual results could differ from those estimates.

Fair Value — GAAP requires the categorization of the fair value of financial instruments into three broad levels that form a hierarchy based on the transparency of inputs to the valuation.

Level 1 -    Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 -    Inputs are other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability.

Level 3 -    Inputs are unobservable for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

KREF follows this hierarchy for its financial instruments. The classifications are based on the lowest level of input that is significant to the fair value measurement.

Estimates of fair value for cash and cash equivalents, restricted cash, and convertible notes are measured using observable, quoted market prices, or Level 1 inputs.

Valuation Process — The Manager reviews the valuation of Level 3 financial instruments as part of KKR's quarterly process. As of September 30, 2018, KKR’s valuation process for Level 3 measurements, as described below, subjected valuations to the review and oversight of various committees. KKR has a global valuation committee assisted by the asset class-specific valuation committees, including a real estate valuation committee that reviews and approves all preliminary Level 3 valuations for real estate assets, including the financial instruments held by KREF. The global valuation committee is responsible for coordinating and implementing KKR’s valuation process to ensure consistency in the application of valuation principles across portfolio investments and between periods. All Level 3 valuations are also subject to approval by the global valuation committee.

Valuation of Consolidated VIEs — Management categorizes the financial assets and liabilities of the CMBS trusts that KREF consolidates as Level 3 assets and liabilities in the fair value hierarchy and has elected the fair value option for financial assets and liabilities of each CMBS trust. Management has adopted the measurement alternative included in Accounting Standards Update ("ASU") No. 2014-13, Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity ("ASU 2014-13"). Pursuant to ASU 2014-13, management measures both the financial assets and financial liabilities of the CMBS trusts consolidated by KREF using the fair value of the financial liabilities, which management considers more observable than the fair value of the financial assets. As a result, KREF presents the CMBS issued by the consolidated trust, but not beneficially owned by KREF's stockholders, as financial liabilities in KREF's condensed consolidated financial statements, measured at their estimated fair value; KREF measures the financial assets as the total estimated fair value of the CMBS issued by the consolidated trust, regardless of whether such CMBS represent interests beneficially owned by KREF's stockholders. Under the measurement alternative prescribed by ASU 2014-13, KREF's "Net Income (Loss)" reflects the economic interests in the consolidated CMBS beneficially owned by KREF's stockholders, presented as "Change in net assets related to consolidated variable interest entities" in the Condensed Consolidated Statements of Income, which includes applicable (i) changes in the fair value of CMBS beneficially owned by KREF, (ii) interest and servicing fees earned from the CMBS trust and (iii) other residual returns or losses of the CMBS trust, if any (Note 7).

Management categorizes the commercial mezzanine loans held by separate joint ventures, VIEs consolidated by KREF as primary beneficiary, as Level 3 assets in the fair value hierarchy as such assets are illiquid, structured instruments that are specific to the properties and their corresponding operating performance (Note 12).

Other Valuation Matters — For Level 3 financial assets originated, or otherwise acquired, and financial liabilities assumed during the calendar month immediately preceding a quarter end that were conducted in an orderly transaction with an unrelated party, management generally believes that the transaction price provides the most observable indication of fair value given the illiquid nature of these financial instruments, unless management is aware of any circumstances that may cause a material

change in the fair value through the remainder of the reporting period. For instance, significant changes to the underlying property or its planned operations may cause material changes in the fair value of commercial mortgage loans acquired, or originated, by KREF.

KREF’s determination of fair value is based upon the best information available for a given circumstance and may incorporate assumptions that are management’s best estimates after consideration of a variety of internal and external factors. When an independent valuation firm expresses an opinion on the fair value of a financial instrument in the form of a range, management selects a value within the range provided by the independent valuation firm, generally the midpoint, to assess the reasonableness of management’s estimated fair value for that financial instrument.

See Note 12 for additional information regarding the valuation of KREF's financial assets and liabilities.

Sales of Financial Assets and Financing Agreements — KREF will, from time to time, sell loans, securities and other assets as well as finance assets in the form of secured borrowings. In each case, management evaluates whether the transaction constitutes a sale through legal isolation of the transferred financial asset from KREF, the ability of the transferee to pledge or exchange the transferred asset without constraint and the transfer of control of the transferred asset. For transfers that constitute sales, KREF (i) recognizes the financial assets it retains and liabilities it has incurred, if any, (ii) derecognizes the financial assets it has sold, and derecognizes liabilities when extinguished and (iii) recognizes a realized gain, or loss, based upon the excess, or deficient, proceeds received over the carrying value of the transferred asset. KREF does not recognize a gain, or loss, on interests retained, if any, where management elected the fair value option prior to sale.

Balance Sheet Measurement

Cash, Cash Equivalents and Restricted Cash and Cash Equivalents — KREF considers cash equivalents as highly liquid short-term investments with maturities of 90 days or less when purchased. Substantially all amounts on deposit with major financial institutions exceed insured limits.

KREF must also maintain sufficient cash and cash equivalents to satisfy liquidity covenants related to its secured financing agreements. However, such amounts are not restricted from use in KREF's current operations, and KREF does not present these cash and cash equivalents as restricted. As of September 30, 2018 and December 31, 2017, KREF was required to maintain unrestricted cash and cash equivalents of at least $19.3 million and $12.1 million, respectively, to satisfy its liquidity covenants (Note 4).

Commercial Mortgage Loans Held‑For‑Investment and Provision for Loan Losses — KREF recognizes its investments in commercial mortgage loans based on management's intent, and KREF's ability, to hold those investments through their contractual maturity. Management classifies those loans that management does not intend to sell in the foreseeable future, and KREF is able to hold until maturity, as held-for-investment. Loans that are held‑for‑investment are carried at their aggregate outstanding face amount, net of applicable (i) unamortized origination or acquisition premiums and discounts, (ii) unamortized deferred nonrefundable fees and other direct loan origination costs, (iii) allowance for loan losses and (iv) charge-offs or write-downs of impaired loans. If a loan is determined to be impaired, management writes down the loan through a charge to the provision for loan losses. See "—Expense Recognition — Loan Impairment— Commercial Mortgage Loans, Held-For-Investment" for additional discussion regarding management’s determination for loan losses. KREF applies the interest method to amortize origination or acquisition premiums and discounts and deferred nonrefundable fees or other direct loan origination costs, or on a straight line basis when it approximates the interest method. Loans for which management elects the fair value option at the time of origination, or acquisition, are carried at fair value on a recurring basis (Note 3).

Commercial Mortgage Loans Held‑For‑Sale — Loans that KREF originates, or acquires, which KREF is unable to hold, or management intends to sell or otherwise dispose of, in the foreseeable future are classified as held‑for‑sale and are carried at the lower of amortized cost or fair value.

Secured Financing Agreements — KREF's secured financing agreements, including Term Loan Financings, are treated as collateralized financing transactions and consist of floating rate, uncommitted repurchase facilities and Term Loan Financing arrangements carried at their contractual amounts, net of unamortized debt issuance costs (Note 4).

Convertible Notes, Net — KREF accounts for its convertible debt with a cash conversion feature in accordance with ASC 470-20 “Debt with Conversion and Other Options” which requires the liability and equity components of convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement, to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The initial proceeds from the sale of convertible notes are allocated between a liability component and an equity component in a manner that reflects interest expense at the rate of similar nonconvertible debt that could have been issued at such time. The equity component represents the excess initial proceeds received over the fair value of the liability component of the notes as of the date of issuance. KREF measured the estimated fair value of the debt component of the convertible notes due May 15, 2023 (“Convertible Notes”) as of the issuance date based on KREF’s nonconvertible debt borrowing rate. The equity component of the Convertible Notes is reflected within additional paid-in capital on our condensed consolidated balance sheet, and the resulting debt discount is amortized over the period during which such Convertible Notes are expected to be outstanding (through the maturity date) as additional non-cash interest expense using the interest method, or on a straight line basis when it approximates the interest method. The additional non-cash interest expense attributable to such convertible notes will increase in subsequent periods through the maturity date as the notes accrete to their par value over the same period (Note 5).

Loan Participations Sold, Net — In connection with its investments in senior loans, KREF finances certain investments through the syndication of non-recourse, or limited-recourse, loan participation to unaffiliated third parties. KREF’s 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 KREF’s 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, KREF derecognizes the participation in the senior loan that KREF sold and continue to carry the retained portion of the loan as an investment. While KREF does not generally expect to recognize a material gain or loss on these sales, KREF would realize a gain or loss in an amount equal to the difference between the net proceeds received from the third party purchaser and its carrying value of the loan participation that KREF sold at time of sale. Furthermore, KREF recognizes interest income only on the portion of the senior loan that it retains as a result of the sale.

To the extent that GAAP does not recognize a sale resulting from the syndication, KREF does not derecognize the participation in the senior loan that it sold. Instead, KREF recognizes 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. KREF continues 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 (Note 6).

Other Assets and Accounts Payable, Accrued Expenses and Other Liabilities — As of September 30, 2018, other assets included a $16.5 million loan principal payment receivable from a third-party servicer and $2.4 million of deferred debt issuance costs related to credit facilities, net of $0.8 million accumulated amortization. As of December 31, 2017, other assets included a $4.6 million loan principal payment receivable from a third-party servicer and $2.1 million of deferred debt issuance costs related to credit facilities, net of $0.5 million accumulated amortization.

Special Non-Voting Preferred Stock ("SNVPS") — Equity instruments that are redeemable for cash or other assets are classified as temporary equity if the instrument is redeemable, at the option of the holder, at a fixed or determinable price on a fixed or determinable date or upon the occurrence of an event that is not solely within the control of the issuer. Redeemable equity instruments are initially carried at the fair value of the equity instrument at the issuance date, which is subsequently adjusted at each balance sheet date if the instrument is currently redeemable or probable of becoming redeemable. The fair value of the instrument is adjusted to reflect the instrument’s redemption amount at each balance sheet date if KREF determines the SNVPS is redeemable or it is probable that the SNVPS will become redeemable. KREF accounted for the SNVPS as redeemable preferred stock since a third party holds a redemption option, exercisable after May 5, 2018, and such redemption is not solely within KREF’s control. Accordingly, the Company adjusted the carrying value of the SNVPS to its redemption value of $0.4 million as of September 30, 2018. KREF presents the SNVPS as “Temporary Equity — Redeemable preferred stock” in the accompanying Condensed Consolidated Balance Sheets (Note 8).

Income Recognition

Interest Income — Loans where management expects to collect all contractually required principal and interest payments are considered performing loans. KREF accrues interest income on performing loans based on the outstanding principal amount

and contractual terms of the loan. Interest income also includes origination fees and direct loan origination costs for loans that KREF originates, but where management did not elect the fair value option, as a yield adjustment using the interest method over the loan term, or on a straight line basis when it approximates the interest method. KREF expenses origination fees and direct loan origination costs for loans acquired, but not originated, by KREF as well as loans for which management elected the fair value option, as incurred.

Realized Gain (Loss) on Sale of Investments — KREF recognizes the excess, or deficiency, of net proceeds received, less the net carrying value of such investments, as realized gains or losses, respectively. KREF reverses cumulative, unrealized gains or losses previously reported in its Condensed Consolidated Statements of Income with respect to the investment sold at the time of sale.

Expense Recognition

Loan Impairment — KREF holds commercial mortgage loans for both investment and sale, which management periodically evaluates for impairment.

Commercial Mortgage Loans, Held-For-Investment — For each loan in KREF's portfolio, management performs a quarterly evaluation of impairment indicators of loans classified as held‑for‑investment using applicable loan, property, market and sponsor information obtained from borrowers, loan servicers and local market participants. Such indicators may include the net present value of the underlying collateral, property operating cash flows, the sponsor’s financial wherewithal and competency in managing the property, macroeconomic trends, and property submarket-specific economic factors. The evaluation of these indicators of impairment requires significant judgment by management to determine whether failure to collect contractual amounts is probable.

If management deems that it is probable that KREF will be unable to collect all amounts owed according to the contractual terms of a loan, impairment of that loan is indicated. If management considers a loan to be impaired, management establishes an allowance for loan losses, through a valuation provision in earnings, which reduces the carrying value of the loan to the present value of expected future cash flows discounted at the loan’s contractual effective rate or the fair value of the collateral, if repayment is expected solely from the collateral. Significant judgment is required in determining impairment and in estimating the resulting loss allowance, and actual losses, if any, could materially differ from those estimates.

Management considers loans to be past due when a monthly payment is due and unpaid for 60 days or more. Loans are placed on nonaccrual status and considered non-performing when full payment of principal and interest is in doubt, which generally occurs when principal or interest is 120 days or more past due unless the loan is both well secured and in the process of collection. Management may return a loan to accrual status when repayment of principal and interest is reasonably assured under the terms of the restructured loan. As of September 30, 2018, KREF did not hold any loans that management placed on nonaccrual status or otherwise considered past due.

In addition to reviewing commercial mortgage loans held-for-investment for impairment, the Manager evaluates KREF's commercial mortgage loans to determine if an allowance for loan loss should be established. In conjunction with this review, the Manager assesses the risk factors of each loan, and assigns a risk rating based on a variety of factors, including, without limitation, 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 loan-to-value ratios, debt service coverage ratios, loan structure, real estate and credit market dynamics, and risk of default or principal loss. Based on a five-point scale, KREF's 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 loan-to-value ratio (<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 loan-to-value ratio (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 loan-to-value ratio (<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 loan-to-value ratio (>80%), and the loan covenants are unlikely to fully mitigate some risks. Interest payments may come from an interest reserve or sponsor equity.

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 loan-to-value ratio (>90%), and default may be imminent.

Commercial Mortgage Loans, Held-For-Sale — For commercial mortgage loans held-for-sale, KREF applies the lower of cost or fair value accounting and may be required, from time to time, to record a nonrecurring fair value adjustment.

Interest Expense — Management expenses contractual interest due in accordance with KREF's financing agreements as incurred.

Deferred Debt Issuance Costs — Management capitalizes and amortizes deferred debt facility costs incurred when entering repurchase agreements on a straight-line basis over the expected term of the facility and incremental costs incurred when KREF draws on those facilities using the interest method over the expected term of the draw, or on a straight line basis when it approximates the interest method. KREF presents such expensed amounts, as well as deferred amounts written off, as additional interest expense in its Condensed Consolidated Statements of Income.

General and Administrative Expenses — Management expenses general and administrative costs, including legal, diligence and audit fees; information technology costs; insurance premiums; and other costs as incurred.

Management and Incentive Compensation to Affiliate — Management expenses compensation earned by the Manager on a quarterly basis in accordance with the Management Agreement (Note 11).

Income Taxes — Certain activities of KREF are conducted through joint ventures formed as limited liability companies, taxed as partnerships, and consolidated by KREF. Some of these joint ventures are subject to state and local income taxes (Note 13).

As of September 30, 2018 and December 31, 2017, KREF did not have any material deferred tax assets or liabilities arising from future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities in accordance with GAAP and their respective tax bases.

KREF recognizes tax benefits for uncertain tax positions only if it is more likely than not that the position is sustainable based on its technical merits. Interest and penalties on uncertain tax positions are included as a component of the provision for income taxes in KREF's Condensed Consolidated Statements of Income. As of September 30, 2018, KREF did not have any material uncertain tax positions.

Stock-Based Compensation

KREF's stock-based compensation consists of awards issued to employees of the Manager or its affiliates that vest over the life of the awards, as well as restricted stock units issued to certain members of KREF's board of directors. The Company early adopted ASU No. 2018-07, Improvement to Nonemployee Share-based Payment Accounting upon its issuance in June 2018. Accordingly, the Company recognizes the compensation cost of stock-based awards to employees of the Manager or its affiliates on a straight-line basis over the awards’ term at their grant date fair value.

Upon the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718), KREF elected to account for forfeitures as they occur. Refer to Note 9 for additional information.

Earnings per Share

Diluted earnings per share, or Diluted EPS, is determined using the treasury stock method, and is based on the net earnings attributable to common stockholders, including restricted stock units, divided by the weighted-average number of shares of common stock, including restricted stock units. Refer to Note 8 for additional discussion of earnings per share.

KREF presents basic and diluted earnings per share ("EPS"). Basic EPS, or Net Income (Loss) Per Share of Common Stock, Basic, is calculated by dividing Net Income (Loss) Attributable to Common Stockholders by the Basic Weighted Average Number of Shares of Common Stock Outstanding, for the period.

Diluted EPS, or Net Income (Loss) Per Share of Common Stock, Diluted, is calculated by starting with Basic EPS and adding the weighted average dilutive shares issuable from restricted stock units, computed using the treasury stock method, to the weighted average common shares outstanding in the denominator.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, Revenues from Contracts with Customers (Topic 606). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In adopting ASU 2014-09, entities have the option of using either a full retrospective or a modified approach to adopt the guidance in the ASU. KREF has adopted the modified approach. The adoption of this ASU beginning in the first quarter of 2018 did not have a material impact on the Company's condensed consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities. The standard: (i) requires that certain equity investments be measured at fair value, and modifies the assessment of impairment for certain other equity investments, (ii) changes certain disclosure requirements related to the fair value of financial instruments measured at amortized cost, (iii) changes certain disclosure requirements related to liabilities measured at fair value, (iv) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and (v) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. An entity should apply ASU No. 2016-01 by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The adoption of ASU No. 2016-01 beginning in the first quarter of 2018 did not have a material impact on the Company's condensed consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses. The standard amends the existing credit loss model to reflect a reporting entity's current estimate of all expected credit losses and requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at a net amount expected to be collected through deduction of an allowance for credit losses from the amortized cost basis of the financial asset(s). ASU No. 2016-13 is effective for KREF in the first quarter of 2020. Early adoption is permitted beginning in the first quarter of 2019. While KREF is currently evaluating the impact that ASU 2016-13 will have on KREF's condensed consolidated financial statements, we expect that the adoption will result in an increased amount of provisions for potential loan losses as well as the recognition of such

provisions earlier in the credit cycle. KREF currently does not have any provision for loan losses recorded on the condensed consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting. The standard aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees, with certain exceptions. Under the guidance, the measurement of equity-classified nonemployee awards will be fixed at the grant date. ASU No. 2018-07 is effective for public companies in the first quarter of 2019 with early adoption permitted. KREF early adopted this ASU upon its issuance to simplify its accounting for share-based payments to employees of the Manager or its affiliates. The adoption of this ASU did not have a material impact on the Company's condensed consolidated financial statements.

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Commercial Mortgage Loans

9 Months Ended

Sep. 30, 2018

SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Abstract]

Commercial Mortgage Loans

Commercial Mortgage Loans

The following table summarizes KREF's investments in commercial mortgage loans as of September 30, 2018 and December 31, 2017:

						Weighted Average
Loan Type	Outstanding Face Amount		Carrying Value		Loan Count	Floating Rate Loan %(A)		Coupon(A)		Life (Years)(B)
September 30, 2018
Loans held-for-investment
Senior loans(C)	$	3,226,649	$	3,206,484	27	100.0	%	5.8	%	3.8
Mezzanine loans(D)	55,535		55,394		8	52.8		11.8		4.3
	$	3,282,184	$	3,261,878	35	99.2	%	5.9	%	3.9
December 31, 2017
Loans held-for-investment
Senior loans(C)	$	1,794,963	$	1,782,054	18	100.0	%	5.8	%	3.7
Mezzanine loans(D)	106,730		106,456		10	75.4		11.3		3.7
	$	1,901,693	$	1,888,510	28	98.6	%	6.1	%	3.7

(A) Average weighted by outstanding face amount of loan. Weighted average coupon assumes applicable one-month LIBOR rates of 2.26% and 1.56% as of September 30, 2018 and December 31, 2017, respectively.

(B) The weighted average life of each loan is based on the expected timing of the receipt of contractual cash flows assuming all extension options are exercised by the borrower.

(C) Senior loans may include accommodation mezzanine loans in connection with the senior mortgage financing. Includes loan participations sold with a face amount of $83.9 million and $82.0 million, and a carrying value of $83.5 million and $81.5 million as of September 30, 2018 and December 31, 2017, respectively.

(D) In June 2018, KREF acquired the 5.0% redeemable noncontrolling interest in the Mezzanine JV that held six commercial mezzanine loans, held-for-investment, with a $26.2 million outstanding face amount and carrying value as of September 30, 2018. The Mezzanine JV held seven commercial mezzanine loans, held-for-investment, with a $61.2 million outstanding face amount and carrying value as of December 31, 2017.

Activity — For the nine months ended September 30, 2018, the loan portfolio activity was as follows:

	Held-for-Investment			Held-for-Sale		Total
Balance at December 31, 2017	$	1,888,510		$	—	$	1,888,510
Purchases and originations, net(A)	1,697,074			—		1,697,074
Proceeds from principal repayments	(330,939		)	—		(330,939		)
Accretion of loan discount and other amortization, net(B)	7,233			—		7,233
Balance at September 30, 2018	$	3,261,878		$	—	$	3,261,878

(A) Net of applicable premiums, discounts and deferred loan origination costs.

(B) Includes accretion of applicable discounts and deferred loan origination costs.

As of September 30, 2018 and December 31, 2017, there was $20.3 million and $13.2 million, respectively, of unamortized deferred loan fees and discounts included in commercial mortgage loans, held-for-investment, net on the Condensed Consolidated Balance Sheets.

Loan Risk Ratings — As further described in Note 2, our Manager evaluates KREF's commercial mortgage loan portfolio on a quarterly basis. In conjunction with the quarterly commercial mortgage loan portfolio review, KREF's Manager assesses the risk factors of each loan, and assigns a risk rating based on a variety of factors. Loans are rated “1” (very low risk) through “5” Impaired/Loss Likely), which ratings are defined in Note 2. The following table allocates the principal balance and net book value of the loan portfolio based on KREF's internal risk ratings:

September 30, 2018						December 31, 2017
Risk Rating	Number of Loans	Net Book Value		Total Loan Exposure(A)		Risk Rating	Number of Loans	Net Book Value		Total Loan Exposure(A)
1	—	$	—	$	—	1	—	$	—	$	—
2	8	446,525		448,821		2	4	155,092		156,123
3	27	2,815,353		2,899,972		3	23	1,717,000		1,792,022
4	—	—		—		4	1	16,418		16,500
5	—	—		—		5	—	—		—
	35	$	3,261,878	$	3,348,793		28	$	1,888,510	$	1,964,645

(A) In certain instances, we finance our loans through the non-recourse sale of a senior interest that is not included in our consolidated financial statements. Total loan exposure includes the entire loan we originated and financed, including $66.6 million and $63.0 million of such non-consolidated interests as of September 30, 2018 and December 31, 2017, respectively.

As of September 30, 2018, the average risk rating of KREF's portfolio was 2.9 (Average Risk), weighted by investment carrying value, with 100.0% of commercial mortgage loans held-for-investment, rated 3 (Average Risk) or better by KREF's Manager as compared to 2.9 (Average Risk) as of December 31, 2017.

Concentration of Credit Risk — The following tables present the geographies and property types of collateral underlying KREF's commercial mortgage loans as a percentage of the loans' carrying values, net of noncontrolling interests:

	September 30, 2018		December 31, 2017			September 30, 2018		December 31, 2017
Geography					Collateral Property Type
New York	25.4	%	29.3	%	Office	53.0	%	41.7	%
Georgia	13.3		11.0		Multifamily	33.3		24.7
Washington	10.2		—		Condo (Residential)	5.6		10.8
California	9.2		14.9		Industrial	4.0		6.8
Minnesota	6.8		7.0		Retail	3.9		13.8
Florida	5.9		2.2		Hospitality	0.2		2.2
Massachusetts	5.9		—		Total	100.0	%	100.0	%
New Jersey	4.4		7.1
Pennsylvania	4.3		—
Oregon	3.7		6.3
Hawaii	3.1		5.3
Colorado	2.9		5.1
Washington D.C.	2.8		4.2
Tennessee	1.6		2.8
Other U.S.	0.5		4.8
Total	100.0	%	100.0	%

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Debt Obligations

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Debt Obligations

Debt Obligations

The following table summarizes KREF's secured master repurchase agreements and other consolidated debt obligations in place as of September 30, 2018 and December 31, 2017:

	September 30, 2018																			December 31, 2017
	Facility												Collateral							Facility
										Weighted Average(B)
	Month Issued	Outstanding Face Amount		Carrying Value(A)			Maximum Facility Size		Final Stated Maturity	Funding Cost		Life (Years)	Outstanding Face Amount		Amortized Cost Basis		Carrying Value		Weighted Average Life (Years)(C)	Carrying Value(A)
Master Repurchase Agreements(D)
Wells Fargo(E)	Oct 2015	$	791,297	$	787,487		$	1,000,000	Apr 2022	4.4	%	1.8	$	1,096,789	$	1,090,273	$	1,090,273	3.9	$	482,146
Morgan Stanley(F)	Dec 2016	483,558		482,064			600,000		Dec 2021	4.6		1.5	709,123		705,658		705,658		3.2	421,904
Goldman Sachs(G)	Sep 2016	268,709		268,709			400,000		Oct 2020	4.4		1.4	362,191		359,960		359,960		4.3	60,750
Asset Specific Financing
BMO Facility(H)	Aug 2018	—		(316		)	200,000		n.a	0.2		0.0	—		—		—		0.0	—
Revolving Credit Agreement
Barclays(I)	May 2017	—		—			75,000		May 2020	1.1		0.0	n.a.		n.a.		n.a.		n.a.	—
		1,543,564		1,537,944			2,275,000			4.4	%	1.6	2,168,103		2,155,891		2,155,891			964,800
VIE Liabilities
CMBS(J)	Various	1,095,731		1,086,939			n.a.		May 2048 to Feb 2049	4.4	%	6.3	1,130,672		n.a.		1,100,089		6.3	5,256,926
		1,095,731		1,086,939			n.a.			4.4		6.3								5,256,926
Total / Weighted Average		$	2,639,295	$	2,624,883		$	2,275,000		4.4	%	3.6								$	6,221,726

(A) Net of $5.6 million and $4.5 million unamortized debt issuance costs as of September 30, 2018 and December 31, 2017, respectively.

(B) Average weighted by the outstanding face amount of borrowings.

(C) Average based on the fully extended loan maturity, weighted by the outstanding face amount of the collateral.

(D) Borrowings under these repurchase agreements are collateralized by senior loans, held-for-investment, and bear interest equal to the sum of (i) a floating rate index, equal to one-month LIBOR, subject to certain floors of not less than zero, or an index approximating LIBOR, and (ii) a margin, based on the collateral. As of September 30, 2018 and December 31, 2017, the percentage of the outstanding face amount of the collateral sold and not borrowed under these repurchase agreements, or average "haircut" weighted by outstanding face amount of collateral, was 28.8% and 32.9%, respectively (or 25.6% and 27.3%, respectively, if KREF had borrowed the maximum amount approved by its repurchase agreement counterparties as of such dates).

(E) The current stated maturity of the facility is April 2020, which does not reflect two, twelve-month facility term extensions available to KREF, which is contingent upon certain covenants and thresholds. In September 2018, KREF and Wells Fargo Bank, National Association ("Wells Fargo") amended the master repurchase agreement to increase the maximum facility size from $750.0 million to $1,000.0 million. As of September 30, 2018, the collateral-based margin was between 1.50% and 2.15%.

(F) In November 2017, KREF and Morgan Stanley Bank, N.A. ("Morgan Stanley") amended and restated the master repurchase agreement to extend the facility maturity date and to increase the maximum facility size from $500.0 million to $600.0 million and, subject to customary conditions, permits KREF to request the facility be further increased to $750.0 million. The current stated maturity of the facility is December 2020, which does not reflect one, twelve-month facility term extension available to KREF, which is contingent upon certain covenants and thresholds and, even if such covenants and thresholds are satisfied, is at the sole discretion of Morgan Stanley. As of September 30, 2018, the collateral-based margin was between 2.00% and 2.45%.

(G) In July 2018, KREF and Goldman Sachs Bank USA ("Goldman Sachs") amended the November 2017 restated master purchase agreement to modify certain terms and provisions. The amended and restated facility includes a $350.0 million term facility with a maturity date of October 2020 and a $50.0 million swingline facility with a revolving period of one year, and a three-year term on a per-asset basis as those assets are pledged to the facility. As of September 30, 2018, the carrying value excluded $1.5 million unamortized debt issuance costs presented as " — Other assets" in KREF's Condensed Consolidated Balance Sheets. As of September 30, 2018, the collateral-based margin was between 1.70% and 2.00%.

(H) In August 2018, KREF entered into a $200.0 million loan financing facility with BMO Harris Bank ("BMO Facility") with a third party lender. The facility provides asset-based financing on a non-mark to market basis with matched-term up to five years with partial recourse to KREF. There were no amounts outstanding on this facility as of September 30, 2018.

(I) In May 2017, KREF entered into a $75.0 million corporate secured revolving credit facility administered by Barclays Bank PLC ("Barclays "). The current stated maturity of the facility is May 2019, which does not reflect one, twelve-month facility term extension available to KREF at the discretion of Barclays. Borrowings under the facility bear interest at a per annum rate equal to the sum of (i) a floating rate index and (ii) a fixed margin. Amounts borrowed under this facility are 100% recourse to KREF. As of September 30, 2018, the carrying value excluded $0.8 million unamortized debt issuance costs presented as " — Other assets" in KREF's Condensed Consolidated Balance Sheets.

(J) Facility amounts represent consolidated CMBS trust(s) that are not beneficially owned by KREF's stockholders. The facility and collateral carrying amounts included $3.8 million accrued interest payable and $4.0 million accrued interest receivable as of September 30, 2018. As of December 31, 2017, the facility and collateral carrying amounts included $18.7 million accrued interest payable and $19.7 million accrued interest receivable. The final stated maturity date represents the rated final distribution date of CMBS issued by trusts that KREF consolidates, but that are not beneficially owned by KREF's stockholders. Refer to Note 7 for additional discussion of KREF's VIE assets and liabilities.

The preceding table excludes loan participations sold (Note 6).

As of September 30, 2018 and December 31, 2017, KREF had outstanding repurchase agreements where the amount at risk with any individual counterparty, or group of related counterparties, exceeded 10.0% of KREF’s stockholders' equity. The amount at risk under repurchase agreements is the net counterparty exposure, defined as the excess of the carrying amount (or market value, if higher than the carrying amount) of the assets sold under agreement to repurchase, including accrued interest plus any cash or other assets on deposit to secure the repurchase obligation, over the amount of the repurchase liability, adjusted for accrued interest. The following table summarizes certain characteristics of KREF's repurchase agreements where the amount at risk with any individual counterparty, or group of related counterparties, exceeded 10.0% of KREF’s stockholders' equity as of September 30, 2018 and December 31, 2017:

	Outstanding Face Amount		Net Counterparty Exposure		Percent of Stockholders' Equity		Weighted Average Life (Years)(A)
September 30, 2018
Wells Fargo	$	791,297	$	304,871	26.6	%	1.8
Morgan Stanley	483,558		224,557		19.6		1.5
Total / Weighted Average	$	1,274,855	$	529,428	46.2	%	1.7
December 31, 2017
Wells Fargo	$	485,250	$	203,303	19.2	%	1.6
Morgan Stanley	423,347		251,463		23.7		2.0
Total / Weighted Average	$	908,597	$	454,766	42.9	%	1.8

(A) Average weighted by the outstanding face amount of borrowings under the secured financing agreement.

Debt obligations included in the tables above are obligations of KREF’s consolidated subsidiaries, which own the related collateral, and such collateral is generally not available to other creditors of KREF. In particular, holders of CMBS, including KREF, are unable to directly own the mortgages, properties or other collateral held by the issuing trusts that KREF present as "Assets — Commercial mortgage loans held in variable interest entities, at fair value" in its Condensed Consolidated Balance Sheets.

While KREF is generally not required to post margin under repurchase agreement terms for changes in general capital market conditions such as changes in credit spreads or interest rates, KREF may be required to post margin for changes in conditions specific to loans that serve as collateral for those repurchase agreements. Such changes may include declines in the appraised value of property that secures a loan or a negative change in the borrower's ability or willingness to repay a loan. To the extent that KREF is required to post margin, KREF's liquidity could be significantly impacted. Both KREF and its lenders work cooperatively to monitor the performance of the properties and operations related to KREF's loan investments to mitigate investment-specific credit risks. Additionally, KREF incorporates terms in the loans it originates to further mitigate risks related to loan nonperformance.

Term Loan Financing

In April 2018, KREF, through its consolidated subsidiaries, entered into a term loan financing agreement (“Term Loan Facility”) with third party lenders for an initial borrowing capacity of $200.0 million that was subsequently increased to $600.0 million as of September 30, 2018. The facility provides asset-based financing on a non-mark to market basis with matched term up to five years and is non-recourse to KREF. Borrowings under the facility are collateralized by senior loans, held-for-investment, and bear interest equal to one-month LIBOR plus a margin. As of September 30, 2018, the weighted average margin and interest rate on the facility were 1.4% and 3.7%, respectively. The following table summarizes our borrowings under the Term Loan Facility:

	September 30, 2018
Term Loan Facility	Count	Outstanding Face Amount		Carrying Value		Wtd. Avg. Yield/Cost(A)	Guarantee(B)	Wtd. Avg. Term(C)
Collateral assets	6	$	717,500	$	711,982	L + 3.0%	n.a.	May 2023
Financing provided	n.a	582,483		578,010		L + 1.7%	n.a.	May 2023

(A) Floating rate loans and related liabilities are indexed to one-month LIBOR. KREF's net interest rate exposure is in direct proportion to its interest in the net assets indexed to that rate. 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 KREF.

(C) The weighted-average term is determined using the maximum maturity date of the corresponding loans, assuming all extension options are exercised by the borrower.

Activity — For the nine months ended September 30, 2018, the activity related to the carrying value of KREF’s secured financing agreements, term loan financing and other consolidated debt obligations were as follows:

	Secured Financing Agreements, Net(A)			Variable Interest Entity Liabilities, at Fair Value			Total
Balance as of December 31, 2017	$	964,800		$	5,256,926		$	6,221,726
Principal borrowings	1,607,725			—			1,607,725
Principal repayments/ sales/ deconsolidation	(451,026		)	(4,062,624		)	(4,513,650		)
Deferred debt issuance costs	(8,562		)	—			(8,562		)
Amortization of deferred debt issuance costs	3,017			—			3,017
Fair value adjustment	—			(92,499		)	(92,499		)
Other(B)	—			(14,864		)	(14,864		)
Balance as of September 30, 2018	$	2,115,954		$	1,086,939		$	3,202,893

(A)    Includes Term Loan Financing Facility and Asset Specific Financing Facility.

(B)    Amounts principally consist of changes in accrued interest payable and cost adjustments.

Maturities — KREF’s secured financing agreements, term loan financing and other consolidated debt obligations in place as of September 30, 2018 had current contractual maturities as follows:

Year	Nonrecourse(A)		Recourse(B)		Total
2018	$	2,779	$	—	$	2,779
2019	13,098		505,432		518,530
2020	179,359		985,632		1,164,991
2021	484,634		—		484,634
2022	18,565		52,500		71,065
Thereafter	979,779		—		979,779
	$	1,678,214	$	1,543,564	$	3,221,778

(A) Amounts related to consolidated CMBS VIE liabilities that represent securities not beneficially owned by KREF's stockholders.

(B) Amounts borrowed subject to a maximum 25.0% recourse limit.

Covenants — KREF is required to comply with customary loan covenants and event of default provisions related to its secured financing agreements, including, but not limited to, negative covenants relating to restrictions on operations with respect to KREF’s status as a REIT, and financial covenants. Such financial covenants include 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 cash proceeds of any equity issuances made and any capital contributions received by KREF and certain subsidiaries or $800.0 million dependent upon the facility); a cash liquidity covenant (the greater of $10.0 million or 5.0% of KREF's recourse indebtedness); a total indebtedness covenant (75.0% of KREF's total assets, net of VIE liabilities); a maximum debt-to-equity ratio (3.5 to 1.0); and a minimum fixed charge coverage ratio (1.5 to 1.0). As of September 30, 2018 and December 31, 2017, KREF was in compliance with its financial loan covenants.

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Convertible Notes, Net

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Convertible Notes, Net

Convertible Notes, Net

In May 2018, the Company issued $143.75 million of 6.125% convertible senior 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 15 and November 15 of each year, beginning on November 15, 2018. The Convertible Notes mature on May 15, 2023, unless earlier repurchased or converted. The Convertible Notes’ issuance costs of $5.1 million are amortized through interest expense over the life of the Convertible Notes.

The initial conversion rate for the Convertible Notes is 43.9386 shares of KREF’s common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $22.76 per share of KREF’s common stock, which represents a 10% conversion premium over the last reported sale price of $20.69 per share of KREF’s common stock on The New York Stock Exchange on May 15, 2018. The conversion rate is subject to adjustment under certain circumstances. In addition, upon a make-whole fundamental change as defined within the indenture governing the Convertible Notes, the Company will, under certain circumstances, increase the applicable conversion rate for a holder that elects to convert its Notes in connection with such make-whole fundamental change. Prior to February 15, 2023, the Notes will be convertible only upon satisfaction of certain conditions and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. KREF will satisfy any conversion elections by paying or delivering, as the case may be, cash, shares of KREF’s common stock or a combination of cash and shares of KREF’s common stock, at its election. KREF has the intent and ability to settle the Convertible Notes in cash and, as a result, the Convertible Notes did not have an impact on our diluted earnings per share.

Upon the issuance of the Convertible Notes, the Company recorded a $1.8 million discount based on the implied value of the conversion option and an assumed effective interest rate of 6.50%, as well as $5.1 million of initial issuance costs, inclusive of the $0.8 million paid to an affiliate of KREF (Note 11) . Inclusive of the amortization of this discount and the issuance costs, KREF’s total cost of the May 2018 Convertible Notes issuance is 6.92% per annum.

The following table details our interest expense related to the Convertible Notes:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Cash coupon	$	2,201	$	—	$	3,253	$	—
Discount and issuance cost amortization	349		—		512		—
Total interest expense	$	2,550	—		$	3,765	—

The following table details the net book value of our Convertible Notes on our Condensed Consolidated Balance Sheets:

	September 30, 2018			December 31, 2017
Face value	$	143,750		$	—
Deferred financing costs	(4,745		)	—
Unamortized discount	(1,666		)	—
Net book value	$	137,339		$	—

Accrued interest payable for the Convertible Notes was $3.3 million and $0.0 million as of September 30, 2018 and December 31, 2017, respectively. Refer to Note 2 for additional discussion of our accounting policies for the Convertible Notes.

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Loan Participations Sold

9 Months Ended

Sep. 30, 2018

SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Abstract]

Loan Participations Sold

Note 6. Loan Participations Sold

KREF finances certain investments through the syndication of a non-recourse, or limited-recourse, loan participation to unaffiliated third parties. The following table summarizes the loan participation sold liabilities that KREF recognized since the corresponding syndications of the participations in the senior loans were not treated as sales:

	September 30, 2018
Loan Participations Sold	Count	Principal Balance		Carrying Value		Yield/Cost(A)	Guarantee(B)	Term
Total loan	1	$	97,440	$	97,024	L + 3.0%	n.a.	September 2022
Senior participation(C)	1	83,886		83,442		L + 1.8%	n.a.	September 2022

(A) Floating rate loans and related liabilities are indexed to one-month LIBOR. KREF's net interest rate exposure is in direct proportion to its interest in the net assets of the senior loan.

(B) As of September 30, 2018, the loan participation sold was subject to partial recourse of $10.0 million, which amount may be reduced to zero upon achievement of certain property performance metrics.

(C)

During the nine months ended September 30, 2018, KREF recorded $2.3 million of interest income and $2.4 million of interest expense related to the loan participation KREF sold, but continue to consolidate under GAAP.

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Variable Interest Entities

9 Months Ended

Sep. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Variable Interest Entities

CMBS — KREF's stockholders beneficially owned CMBS with an unpaid principal balance and fair value of $34.9 million and $13.0 million, respectively, as of September 30, 2018. KREF's stockholders beneficially owned CMBS with an unpaid principal balance and fair value of $309.2 million and $114.9 million, respectively, as of December 31, 2017.

In April 2018, KREF sold its controlling beneficial interest in four of the five CMBS trusts held for $112.7 million for a gain of $13.0 million during the nine months ended September 30, 2018, which is included in "Other Income — Realized gain on sale of investments" in the accompanying Condensed Consolidated Statements of Income. The initial cost basis of the CMBS trusts sold was $94.4 million and the fair value as of December 31, 2017 was $99.7 million.

KREF was required to consolidate each of the CMBS trusts acquired from the date of acquisition through the date of sale since KREF retained the controlling class and management determined KREF was the primary beneficiary of those trusts. Further, management irrevocably elected the fair value option for each of the trusts and carries the fair values of the trust's(s') assets and liabilities at fair value in its Condensed Consolidated Balance Sheets; recognizes changes in the trust's(s') net assets, including fair value adjustments and net interest earned, in its Condensed Consolidated Statements of Income; and records cash interest received from the trusts, net of cash interest paid to CMBS not beneficially owned by KREF, as operating cash flows.

The following table presents the KREF recognized Trust's(s') Assets and Liabilities:

	September 30, 2018		December 31, 2017
Trusts' Assets
Commercial mortgage loans held in variable interest entities, at fair value(A)	$	1,100,089	$	5,372,811
Accrued interest receivable	4,015		19,740
Trusts' Liabilities
Variable interest entity liabilities, at fair value(B)	1,086,939		5,256,926
Accrued interest payable	3,828		18,661

(A) Includes accrued interest receivable.

(B) Includes accrued interest payable.

The following table presents "Other Income — Change in net assets related to consolidated variable interest entities":

	Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018			2017
Net interest earned	$	584		$	3,138	$	4,604		$	9,357
Unrealized gain (loss)	(205		)	887		(2,144		)	3,453
Change in net assets related to consolidated variable interest entities	$	379		$	4,025	$	2,460		$	12,810

See Note 12 for additional information regarding the valuation of financial assets and liabilities held by KREF's consolidated VIEs.

Concentration of Credit Risk — The following tables present the geographies and property types of collateral underlying the CMBS trusts consolidated by KREF, as a percentage of the collateral unpaid principal balance and weighted by the fair value of the CMBS tranches beneficially owned by KREF's stockholders:

	September 30, 2018		December 31, 2017			September 30, 2018		December 31, 2017
Geography					Collateral Property Type
California	33.3	%	23.2	%	Retail	28.4	%	25.2	%
Texas	11.1		12.7		Office	27.4		26.4
New York	8.3		9.1		Hospitality	13.0		15.0
Missouri	5.3		4.6		Multifamily	9.9		10.6
Pennsylvania	5.2		4.5		Industrial/ Flex	9.6		9.6
Florida	4.2		5.5		Self Storage	5.9		3.0
Massachusetts*	3.6		1.7		Mixed Use	3.8		6.9
Illinois	2.7		7.1		Mobile Home	1.8		2.7
Georgia	2.6		2.9		Other	0.2		0.6
New Hampshire*	2.4		1.0			100.0	%	100.0	%
Delaware*	2.0		1.3
Virginia*	1.7		1.2
Other U.S.	17.6		25.2
Total	100.0	%	100.0	%

* Presented within Other U.S. as of December 31, 2017

Commercial Mezzanine Loan Joint Venture — KREF held a 95.0% interest, and was the primary beneficiary of, a joint venture consolidated as a VIE that invested in commercial mezzanine loans (Note 3). Management considered KREF to be the primary beneficiary of the joint venture as KREF held decision-making power over the activities that most significantly impact the economic performance of the joint venture. In June 2018, KREF acquired the Mezzanine JV Redeemable Noncontrolling Interest for its carrying value of $1.3 million. As of September 30, 2018, the joint venture is no longer a VIE.

Equity method investments, at fair value — KREF holds two investments in entities that it records using the equity method.

As of September 30, 2018, KREF held a 3.5% interest in RECOP, an unconsolidated VIE of which KREF is not the primary beneficiary. The aggregator vehicle in which KREF invests is controlled and advised by affiliates of the Manager. RECOP intends to primarily acquire junior tranches of CMBS newly issued by third parties but may also make purchases on the secondary market. KREF will not pay any fees to RECOP, but KREF bears its pro rata share of RECOP's expenses. KREF reported its share of the net asset value of RECOP in its Condensed Consolidated Balance Sheets, presented as “Equity method investments, at fair value” and its share of net income, presented as “Income from equity method investments” in the Condensed Consolidated Statement of Income.

As of September 30, 2018, the non-voting limited liability company interests issued by the Manager, a VIE, and held by a Taxable REIT Subsidiary ("TRS") of KREF for the benefit of the holder of the SNVPS represented 4.7% of the Manager’s outstanding limited liability company interests (Note 8). KREF reported its allocable percentage of the assets and liabilities of the Manager in its Condensed Consolidated Balance Sheets, presented as “Equity method investments, at fair value” and its share of net income, presented as “Income from equity method investments” in the Condensed Consolidated Statement of Income.

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Equity

9 Months Ended

Sep. 30, 2018

Equity [Abstract]

Equity

Authorized Capital — On October 2, 2014, KREF's board of directors authorized KREF to issue up to 350,000,000 shares of stock, at $0.01 par value per share, consisting of 300,000,000 shares of common stock and 50,000,000 shares of preferred stock, subject to certain restrictions on transfer and ownership of shares. Restrictions placed on the transfer and ownership of shares relate to KREF's REIT qualification requirements.Common Stock — As further described below, since December 2015, KREF issued the following shares of common stock:

Pricing Date	Shares Issued	Net Proceeds
As of December 31, 2015	13,636,416	$	272,728
February 2016	2,000,000	40,000
May 2016	3,000,138	57,130
June 2016(A)	21,838	—
August 2016	5,500,000	109,875
As of December 31, 2016	24,158,392	479,733
February 2017	7,386,208	147,662
April 2017	10,379,738	207,595
May 2017- Initial Public Offering	11,787,500	219,356
As of December 31, 2017	53,711,838	1,054,346
August 2018	5,000,000	98,326
As of September 30, 2018	58,711,838	$	1,152,672

(A)

KREF did not receive any proceeds with respect to 21,838 shares of common stock issued to certain current and former employees of, and non-employee consultants to, KKR and third-party investors in the private placement completed in March 2016, in accordance with KREF's Stockholders Agreement dated as of March 29, 2016.In March 2016, KREF obtained $277.4 million of capital commitments in connection with the completion of a private placement priced at $20.00 per share. Of these capital commitments, $190.1 million consisted of approximately $178.4 million from third parties and approximately $11.8 million from certain current and former employees of, and non-employee consultants to, KKR. KKR committed a total of $400.0 million and third parties committed a total of $248.0 million subsequent to the private placement completion. In connection with the completion of the private placement, KREF formed an advisory board consisting of certain third-party investors. The advisory board possessed certain protective approval rights over KREF's activities outside its ordinary course of business, including certain business combinations and equity issuances. The advisory board dissolved upon KREF's public listing on May 5, 2017.

In February 2017 and April 2017, KREF called a portion of capital from investors in the private placements closed during the year ended December 31, 2016 and issued 7,386,208 and 10,379,738 common shares, at $20.00 per share, for net proceeds of $147.7 million and $207.6 million, respectively.

In connection with the capital commitments described above, third-party investors and certain current and former employees of, and non-employee consultants to, KKR were allocated non-voting limited liability company interests of the Manager. For each $100.0 million shares of KREF’s common stock acquired by investors through the private placement, the investors were allocated non-voting limited liability company interests, representing 6.67% of the Manager’s then-outstanding total limited liability company interests. Each investor was allocated its pro rata share of the non-voting limited liability company interests of the Manager based on the investor’s shares of KREF’s common stock.

In May 2017, KREF completed its initial public offering of 11,787,500 shares of its common stock at a price to the public of $20.50 per share, which included 1,537,500 shares of common stock issued in connection with the underwriters' exercise in full of their option to purchase additional shares. The value of KREF's common stock prior to its listing on the New York Stock Exchange was based upon its equity value using a combination of net asset value (market) and discounted cash flow (income) approaches.

In August 2018, KREF completed an underwritten public offering of 5,000,000 shares of its common stock at $19.90 per share, less applicable transaction costs, resulting in $98.3 million in net proceeds.

As of September 30, 2018, KKR beneficially owned 23,758,616 shares of KREF's common stock, of which 3,758,616 shares were held by KKR on behalf of a third-party investor (Note 1).

During the nine months ended September 30, 2018, 34,259 shares of common stock were issued related to the vesting of restricted stock units. Upon any payment of shares as a result of restricted stock unit vesting, the related tax withholding obligation will generally be satisfied by the Company, reducing the number of shares to be delivered by a number of shares necessary to satisfy the related applicable tax withholding obligation. Refer to Note 9 for further detail.

Share Repurchase Program — KREF adopted a program to repurchase in the open market up to $100.0 million in shares of KREF's common stock over the 12 month period commencing in June 2017. Of this amount, a total of $50.0 million was covered by a pre-set trading plan meeting the requirements of Rule 10b5-1 under the Exchange Act (the "10b5-1 Plan"), which provided for repurchases of KREF's common stock when the market price per share of common stock was below book value per share (calculated in accordance with GAAP), with the remaining $50.0 million available at any time during the repurchase period. This program expired on June 12, 2018. In May 2018, KREF's board of directors approved a new share repurchase program, effective following the expiration of the above-described share repurchase program. The new share repurchase program permits KREF to repurchase up to $100.0 million of KREF's common stock during the period from June 13, 2018 through June 30, 2019. Of this total authorized amount, $50.0 million will be covered by a pre-set trading plan meeting the requirements of Rule 10b5-1 under the Exchange Act and provide for repurchases of our common stock when the market price per share of our common stock is below book value per share (calculated in accordance with GAAP as of the end of the most recent quarterly period for which financial statements are available), and the remaining $50.0 million may be used for repurchases in the open market, pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act, in privately negotiated transactions or otherwise. During the nine months ended September 30, 2018, KREF repurchased 697,109 shares of common stock under the 10b5-1 Plans at an average price per share of $19.54 for a total of $13.6 million. As of September 30, 2018, $49.3 million remained available for repurchases under this 10b5-1 Plan.

Of the 58,711,838 common shares KREF issued, there were 58,022,590 common shares outstanding as of September 30, 2018, net of 723,507 common shares repurchased and the delivery of 34,259 shares of common stock in connection with vested restricted stock units.

Dividends — During the nine months ended September 30, 2018, KREF's board of directors declared the following dividends on shares of its common stock and special voting preferred stock:

			Amount
Declaration Date	Record Date	Payment Date	Per Share		Total
March 12, 2018	March 29, 2018	April 13, 2018	$	0.40	$	21,230
May 7, 2018	June 29, 2018	July 13, 2018	0.43		22,804
September 11, 2018	September 28, 2018	October 12, 2018	0.43		24,951
					$	68,985

Preferred Stock — On January 23, 2015, KREF issued 125 shares of Series A cumulative, non-voting preferred stock with a par value of $0.01 per share and a stated value of $1,000.00 per share ("Series A Preferred Stock") that were senior to common stock. Holders of Series A Preferred Stock were entitled to cumulative distributions of 12.5% of the stated value per annum, payable semi-annually in arrears on or before June 30 and December 31 of each year, but were unable to convert Series A Preferred Stock into common stock or vote on matters brought to KREF's stockholders. In May 2017, KREF redeemed all 125 issued and outstanding shares of Series A Preferred Stock for $0.1 million, representing the sum of $1,000.00 per share and all accrued and unpaid dividends.

Special Voting Preferred Stock — In March 2016, KREF issued one share of special voting preferred stock to KKR Fund Holdings L.P. ("KKR Fund Holdings") for $20.00 per share, which KKR Fund Holdings transferred to its subsidiary, KKR REFT Asset Holdings LLC. The holder of the special voting preferred stock has special voting rights related to the election of members to KREF's board of directors until KKR and its affiliates cease to own at least 25.0% of KREF's issued and outstanding common stock. As of September 30, 2018, KKR and its affiliates beneficially owned 23,758,616 shares of KREF's common stock representing 41% of KREF’s issued and outstanding common stock.

Special Non-Voting Preferred Stock — In connection with KREF's existing investors’ subscription for shares of KREF's common stock in the private placements prior to the initial public offering of KREF's equity on May 5, 2017, those investors were also allocated a class of non-voting limited liability company interest in the Manager ("Non-Voting Manager Units"). In February 2017, KREF issued an investor one share of SNVPS, at $0.01 per share, in lieu of that investor receiving Non-Voting Manager Units to facilitate compliance by the investor with regulatory requirements applicable to it. The corresponding Non-Voting Manager Units are held by a TRS of KREF. All distributions received by that subsidiary from these Non-Voting Manager Units are passed through to the investor as preferred distributions on its SNVPS, less applicable taxes and withholdings. Except for the Non-Voting Manager Units, an indirect subsidiary of KKR owns and controls the limited liability company interests of the Manager.

Dividends on the SNVPS are payable quarterly, and will accrue whether or not KREF has earnings, there are assets legally available for the payment of those dividends or those dividends have been declared. Any dividend payment made on the SNVPS shall first be credited against the earliest accumulated but unpaid dividend due with respect to the SNVPS. Upon redemption of the SNVPS or liquidation of KREF, the holder of the SNVPS is entitled to payment of $0.01 per share, together with any accumulated but unpaid preferred distributions, including respective call or put amounts (as defined), before any holder of junior security interests, which includes KREF's common stock. As KREF does not control the circumstances under which the holder of the SNVPS  may redeem its interests, management considers the SNVPS as temporary equity (Note 2).

KREF will redeem the SNVPS at the option of the holder. Upon redemption, KREF will pay a price in cash equal to $0.01 per share of the SNVPS, together with any accumulated but unpaid preferred distributions, including respective call or put amounts (as defined), and the SNVPS will be canceled automatically and cease to be outstanding.

Earnings per Share — The following table illustrates the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2018 and 2017:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Numerator
Net income (loss) attributable to common stockholders	$	20,821	$	17,339	$	67,921	$	41,784
Denominator
Basic weighted average common shares outstanding	55,903,126		53,696,967		54,111,272		42,501,356
Dilutive restricted stock units	18,529		74		21,059		174
Diluted weighted average common shares outstanding	55,921,655		53,697,041		54,132,331		42,501,530
Net income (loss) attributable to common stockholders, per:
Basic common share	$	0.37	$	0.32	$	1.26	$	0.98
Diluted common share	$	0.37	$	0.32	$	1.25	$	0.98

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Stock-based Compensation

9 Months Ended

Sep. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-based compensation

KREF is externally managed by the Manager and does not currently have any employees. However, as of September 30, 2018, the Manager, certain individuals employed by the Manager and affiliates of the Manager, and certain members of KREF's board of directors were compensated, in part, through the issuance of stock-based awards.

As of September 30, 2018, KREF had restricted stock unit (“RSU”) awards outstanding under the KKR Real Estate Finance Trust Inc. 2016 Omnibus Incentive Plan that was adopted on February 12, 2016 and amended and restated on November 17, 2016 (the "Incentive Plan") to certain members of KREF’s board of directors and employees of the Manager or its affiliates, none of whom are KREF employees. RSUs awarded to employees of the Manager or its affiliates, generally vest over three consecutive one-year periods and awards to certain members of KREF's board of directors vest over a one-year period, pursuant to the terms of the respective award agreements and the terms of the Incentive Plan. RSU awards are not entitled to dividends until KREF issues shares of its common stock, which are issuable on a one-to-one basis upon the RSU award vesting.

The following table summarizes the activity in KREF’s outstanding RSUs and the weighted-average grant date fair value per RSU:

	Restricted Stock Units		Weighted Average Grant Date Fair Value Per RSU(A)
Unvested as of December 31, 2017	154,878		$	18.61
Granted	11,878		20.70
Vested	(54,037	)	20.47
Forfeited/ cancelled	(2,740	)	20.47
Unvested as of September 30, 2018	109,979		$	20.49

(A) The grant-date fair value is based upon the last sale price of KREF’s common stock at the date of grant.

These RSUs began to vest on April 1, 2018 for certain individuals employed by the Manager and affiliates of the Manager and each year thereafter. RSUs awarded to KREF’s board of directors generally vest annually.

KREF expects the unvested RSUs outstanding to vest during the following years:

Year	Restricted Stock Units
2018	—
2019	60,927
2020	49,052
Total	109,979

Upon adoption of ASU No. 2018-07 in June 2018, KREF recognizes the compensation cost of RSUs awarded to employees of the Manager, or one or more of its affiliates, on a straight-line basis over the awards’ term at their grant date fair value, consistent with the RSUs awarded to certain members of KREF's board of directors.

During the three and nine months ended September 30, 2018, KREF recognized $0.3 million and $1.6 million, respectively, of stock-based compensation expense included in “General and administrative” expense in the Condensed Consolidated Statements of Income. During the three and nine months ended September 30, 2017, KREF recognized $0.0 million and $0.0 million, respectively, of stock-based compensation expense. As of September 30, 2018, there was $1.7 million of total unrecognized stock-based compensation expense related to unvested share-based compensation arrangements based on the closing price of our common stock of $20.47 on June 21, 2018, the date of the adoption of ASU No. 2018-07. This cost is expected to be recognized over a weighted average period of 2 years.

During the nine months ended September 30, 2018, KREF delivered 34,259 shares of common stock for 54,037 vested RSUs. Upon any payment of shares as a result of restricted stock unit vesting, the related tax withholding obligation will generally be satisfied by KREF, reducing the number of shares to be delivered by a number of shares necessary to satisfy the related applicable tax withholding obligation. The amount, results in a cash payment related to this tax liability and a corresponding adjustment to additional paid in capital on the Condensed Consolidated Statement of Changes in Stockholders' Equity. The adjustment was $0.4 million for the nine months ended September 30, 2018, and is included as a reduction of capital related to the Company's equity incentive plan in the Condensed Consolidated Statement of Changes in Stockholders' Equity.

Refer to Note 11 for additional information regarding the Incentive Plan.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2018

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

As of September 30, 2018, KREF was subject to the following commitments and contingencies:

Litigation — From time to time, KREF may be involved in various claims and legal actions arising in the ordinary course of business. KREF establishes an accrued liability for legal proceedings only when those matters present loss contingencies that are both probable and reasonably estimable.

As of September 30, 2018, KREF was not involved in any material legal proceedings regarding claims or legal actions against KREF.

Indemnifications — In the normal course of business, KREF enters into contracts that contain a variety of representations and warranties that provide general indemnifications and other indemnities relating to contractual performance. In addition, certain of KREF’s subsidiaries have provided certain indemnities relating to environmental and other matters and has provided nonrecourse carve-out guarantees for fraud, willful misconduct and other customary wrongful acts, each in connection with the financing of certain real estate investments that KREF has made. KREF’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against KREF that have not yet occurred. However, KREF expects the risk of material loss to be low.

Capital Commitments — As of September 30, 2018, KREF had future funding requirements of $369.9 million related to its investments in commercial mortgage loans. These future funding commitments primarily relate to construction projects, capital improvements, tenant improvements and leasing commissions. Generally, funding commitments are subject to certain conditions that must be met, such as customary construction draw certifications, minimum credit metrics or executions of new leases before advances are made to the borrower.

In January 2017, KREF committed $40.0 million to invest in an aggregator vehicle alongside RECOP. As of September 30, 2018, KREF had a remaining commitment of $16.2 million to RECOP.

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Related Party Transactions

9 Months Ended

Sep. 30, 2018

Related Party Transactions [Abstract]

Related Party Transactions

Management Agreement — The Management Agreement between KREF and the Manager is a three-year agreement that provides for automatic one-year renewal periods starting October 8, 2017, subject to certain termination and nonrenewal rights, which in the case of KREF are exercisable by a two-thirds vote by the independent directors of KREF's board of directors. If the independent directors of KREF's board of directors declines to renew the Management Agreement other than for cause, KREF is required to pay the Manager a termination fee equal to three times the total 24-month trailing average annual management fee and incentive compensation earned by the Manager through the most recently completed calendar quarter.

Pursuant to the Management Agreement, the Manager, as agent to KREF and under the supervision of KREF's board of directors, manages the investments, subject to investment guidelines approved by KREF's board of directors; financing activities; and day-to-day business and affairs of KREF and its subsidiaries.

For its services to KREF, the 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 adjusted earnings over (b) 7.0% of the trailing 12-month weighted average adjusted equity (“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 months lag. During the three and nine months ended September 30, 2018, KREF incurred 3.3 million of incentive fees payable to the Manager, of which $2.4 million was attributed to the gain recognized as a result of the April 2018 CMBS sale (Note 7).

Adjusted equity generally represents the proceeds received by KREF and its subsidiaries from equity issuances, without duplication and net of offering costs, and adjusted earnings, reduced by distributions, equity repurchases, and incentive compensation paid. Adjusted earnings generally represents the net income, or loss, attributable to equity interests in KREF and its subsidiaries, without duplication, as well as realized losses not otherwise included in such net income, or loss, excluding non-cash equity compensation expense, incentive compensation, depreciation and amortization and unrealized gains or losses, from and after the effective date to the end of the most recently completed calendar quarter. KREF's board of directors, after majority approval by independent directors, may also exclude one-time events pursuant to changes in GAAP and certain material non-cash income or expense items from adjusted earnings. For purposes of calculating incentive compensation, both adjusted equity and adjusted earnings exclude the effects of equity issued by KREF and its subsidiaries that provides for fixed distributions or other debt characteristics.

KREF is also required to reimburse the Manager or its affiliates for documented costs and expenses incurred by it and its affiliates on behalf of KREF except those specifically required to be borne by the Manager under the Management Agreement. The Manager is responsible for, and KREF does not reimburse the Manager or its affiliates for, the expenses related to investment personnel of the Manager and its affiliates who provide services to KREF. However, KREF does reimburse the Manager for KREF's allocable share of compensation paid to certain of the Manager’s non-investment personnel, based on the percentage of time devoted by such personnel to KREF's affairs.

Incentive Plan — KREF's compensation committee or board of directors may administer the Incentive Plan, which provides for awards of stock options; stock appreciation rights; restricted stock; RSUs; limited partnership interests of KKR Real Estate Finance Holdings L.P. (the "Operating Partnership"), a wholly owned subsidiary of KREF, that are directly or indirectly convertible into or exchangeable or redeemable for shares of KREF's common stock pursuant to the limited partnership agreement of the Operating Partnership (“OP Interests”); awards payable by (i) delivery of KREF's common stock or other equity interests, or (ii) reference to the value of KREF's common stock or other equity interests, including OP Interests; cash-based awards; or performance compensation awards.

No more than 7.5% of the issued and outstanding shares of common stock on a fully diluted basis, assuming the exercise of all outstanding stock options granted under the Incentive Plan and the conversion of all warrants and convertible securities into shares of common stock, or a total of 4,403,387 shares of common stock, will be available for awards under the Incentive Plan. In addition, (i) the maximum number of shares of common stock subject to awards granted during a single fiscal year to any non-employee director (as defined in the Incentive Plan), taken together with any cash fees paid to such non-employee director during the fiscal year, may not exceed $1.0 million and (ii) the maximum amount that can be paid to any participant for a single fiscal year during a performance period (or with respect to each single fiscal year if a performance period extends beyond a single fiscal year) pursuant to a performance compensation award denominated in cash will be $10.0 million.

No awards may be granted under the Incentive Plan on and after February 12, 2026. The Incentive Plan will continue to apply to awards granted prior to such date. During the nine months ended ended September 30, 2018, KREF granted 11,878 RSUs to newly appointed directors of KREF's board. During the year ended December 31, 2017, KREF granted 154,878 RSUs. As of September 30, 2018, 4,259,149 shares of common stock remained available for awards under the Incentive Plan.

Due to Affiliates — The following table contains the amounts presented in KREF's Condensed Consolidated Balance Sheets that it owes to affiliates:

	September 30,		December 31,
	2018		2017
Management fees	$	4,164	$	3,748
Incentive compensation	3,286		—
Expense reimbursements and other	250		694
	$	7,700	$	4,442

Affiliates Expenses — The following table contains the amounts included in KREF's Condensed Consolidated Statements of Income that arose from transactions with the Manager:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Management fees	$	4,164	$	3,989	$	12,016	$	9,513
Incentive compensation	3,286		—		3,286		—
Expense reimbursements and other(A)	37		366		767		931
	$	7,487	$	4,355	$	16,069	$	10,444

(A) KREF presents these amounts in "Operating Expenses — General and administrative" in its Condensed Consolidated Statements of Income. Affiliate expense reimbursements presented in the table above exclude the out-of-pocket costs paid by the Manager to parties unaffiliated with the Manager on behalf of KREF, and for which KREF reimburses the Manager in cash. For the three and nine months ended September 30, 2018, these cash reimbursements were $0.3 million and $2.5 million, respectively. For the three and nine months ended September 30, 2017, these cash reimbursements were $0.9 million and $1.1 million, respectively.

In connection with the Term Loan Facility (Note 4), KREF is obligated to pay KKR Capital Markets ("KCM"), an affiliate of the Manager, a structuring fee equal to 0.75% of the respective committed loan advances, as defined. During the nine months ended September 30, 2018, KREF incurred $4.5 million structuring fee in connection with the facility. Such amount was capitalized as deferred financing cost and amortized to interest expense over the life of the facility.

In connection with the BMO Facility, and in consideration for structuring and sourcing this arrangement, KREF will pay KCM, a structuring fee equal to 0.35% of the respective committed loan advances under the agreement.

During the nine months ended September 30, 2018, KREF paid KCM $0.8 million in commissions in connection with the issuance of the Convertible Notes. Such amount is included in the $5.1 million Convertible Notes’ issuance cost and is amortized to interest expense over the life of the Convertible Notes.

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Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2018

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

The carrying values and fair values of KREF’s financial assets and liabilities recorded at fair value on a recurring basis, as well as other financial instruments not carried at fair value, as of September 30, 2018 were as follows:

					Fair Value
	Principal Balance(A)		Carrying Value(B)		Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents	$	192,771	$	192,771	$	192,771	$	—	$	—	$	192,771
Commercial mortgage loans, held-for-investment, net(C)	3,282,184		3,261,878		—		—		3,266,234		3,266,234
Equity method investments, at fair value	24,745		24,745		—		—		24,745		24,745
Commercial mortgage loans held in variable interest entities, at fair value	1,130,672		1,100,089		—		—		1,100,089		1,100,089
	$	4,630,372	$	4,579,483	$	192,771	$	—	$	4,391,068	$	4,583,839
Liabilities
Secured financing agreements, net	$	2,126,047	$	2,115,954	$	—	$	—	$	2,126,047	$	2,126,047
Convertible notes, net	143,750		137,339		146,208		—		—		146,208
Loan participations sold, net	83,886		83,442		—		—		83,257		83,257
Variable interest entity liabilities, at fair value	1,095,731		1,086,939		—		—		1,086,939		1,086,939
	$	3,449,414	$	3,423,674	$	146,208	$	—	$	3,296,243	$	3,442,451

(A) The principal balance of commercial mortgage loans excludes premiums and unamortized discounts.

(B) The carrying value of commercial mortgage loans is presented net of $20.3 million unamortized origination discounts and deferred nonrefundable fees. The carrying value of secured financing agreements is presented net of $10.1 million unamortized debt issuance costs.

(C) Includes senior loans for which KREF sold a loan participation that was not treated as a sale under GAAP, with a carrying value of $83.4 million and a fair value of $83.3 million as of September 30, 2018.

The carrying values and fair values of KREF’s financial assets recorded at fair value on a recurring basis, as well as other financial instruments for which fair value is disclosed, as of December 31, 2017 were as follows:

					Fair Value
	Principal Balance(A)		Carrying Value(B)		Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents	$	103,120	$	103,120	$	103,120	$	—	$	—	$	103,120
Restricted cash	400		400		400		—		—		400
Commercial mortgage loans, held-for-investment, net(C)	1,901,693		1,888,510		—		—		1,894,870		1,894,870
Equity method investments, at fair value	14,390		14,390		—		—		14,390		14,390
Commercial mortgage loans held in variable interest entities, at fair value	5,305,976		5,372,811		—		—		5,372,811		5,372,811
	$	7,325,579	$	7,379,231	$	103,520	$	—	$	7,282,071	$	7,385,591
Liabilities
Secured financing agreements, net	$	969,347	$	964,800	$	—	$	—	$	969,347	$	969,347
Loan participations sold, net	82,000		81,472		—		—		81,836		81,836
Variable interest entity liabilities, at fair value	4,996,817		5,256,926		—		—		5,256,926		5,256,926
	$	6,048,164	$	6,303,198	$	—	$	—	$	6,308,109	$	6,308,109

(A) The principal balance of commercial mortgage loans excludes premiums and discounts.

(B) The carrying value of commercial mortgage loans is presented net of $13.2 million origination discounts and deferred nonrefundable fees. The carrying value of secured financing agreements is presented net of $4.5 million unamortized debt issuance costs.

(C) Includes senior loans for which KREF sold a loan participation that was not treated as a sale under GAAP, with a carrying value of $81.5 million and a fair value of $81.8 million as of December 31, 2017.

KREF reported the following financial assets and liabilities at fair value on a recurring basis using Level 3 inputs as of September 30, 2018.

	Assets			Liabilities
	Commercial Mortgage Loans Held in Variable Interest Entities, at Fair Value			Variable Interest Entity Liabilities, at Fair Value			Net
Balance as of December 31, 2017	$	5,372,811		$	5,256,926		$	115,885
Gains (losses) included in net income
Realized gain (loss)	13,000			—			13,000
Unrealized gain (loss) included in change in net assets related to consolidated variable interest entities	(94,643		)	(92,499		)	(2,144		)
Purchases and sales/repayments
Purchases	—			—			—
Sales/Repayments/Deconsolidation	(4,175,371		)	(4,062,624		)	(112,747		)
Other(A)	(15,708		)	(14,864		)	(844		)
Balance as of September 30, 2018	$	1,100,089		$	1,086,939		$	13,150

(A) Amounts principally consist of changes in accrued interest.

The following table contains the Level 3 inputs used to value assets and liabilities on a recurring and nonrecurring basis or where KREF discloses fair value as of September 30, 2018:

	Fair Value		Valuation Methodologies	Unobservable Inputs(A)	Weighted Average(B)	Range
Assets(C)
Commercial mortgage loans, held-for-investment, net	$	3,266,234	Discounted cash flow	Loan-to-value ratio	67.8%	49.4% - 80.3%
				Discount rate	6.7%	2.6% - 13.9%
Commercial mortgage loans held in variable interest entities, at fair value(D)	1,100,089		Discounted cash flow	Yield	8.3%	2.4% - 37.1%
	$	4,366,323
Liabilities
Secured financing agreements, net	$	2,126,047	Market comparable	Credit spread	1.8%	1.4% - 2.5%
Loan participations sold, net	83,257		Discounted cash flow	Loan-to-value ratio	52.9%	52.9% - 52.9%
				Discount rate	3.6%	2.6% - 4.6%
Variable interest entity liabilities, at fair value	1,086,939		Discounted cash flow	Yield	6.4%	2.4% - 16.5%
	$	3,296,243

(A) An increase (decrease) in the valuation input results in a decrease (increase) in value.

(B) Represents the average of the input value, weighted by the unpaid principal balance of the financial instrument.

(C) KREF carries a $24.4 million investment in an aggregator vehicle alongside RECOP (Note 7) at its pro rata share of the aggregator's net asset value, which management believes approximates fair value.

(D) Management measures the fair value of "Commercial mortgage loans held in variable interest entities, at fair value" using the fair value of the CMBS trust liabilities. The Level 3 inputs presented in the table above reflect the inputs used to value the CMBS trust liabilities, including the CMBS beneficially owned by KREF stockholders eliminated in consolidation of the CMBS trusts.

Valuation Methodologies

Commercial Mortgage Loans and Participation Sold - Management generally considers KREF's commercial mortgage loans Level 3 assets in the fair value hierarchy as such assets are illiquid, structured investments that are specific to the property and its operating performance. These loans are valued using a discounted cash flow model using discount rates derived from observable market data applied to the capital structure of the respective sponsor and estimated property value. On a quarterly basis, management engages an independent valuation firm to express an opinion on the fair value of each loan categorized as a Level 3 asset in the form of a range. Management selects a value within the range provided by the independent valuation firm to assess the reasonableness of the fair value as determined by management. In the event that management's estimate of fair value differs from the opinion of fair value provided by the independent valuation firm, KREF ultimately relies solely upon the valuation prepared by the investment personnel of the Manager.

Commercial Mortgage-Backed Securities — As of September 30, 2018, management categorized CMBS investments as Level 3 assets and liabilities in the fair value hierarchy and obtained prices from an independent valuation firm, which uses a discounted cash flow model, to value each CMBS. The key input is the expected yield of each CMBS using both observable and unobservable factors, which may include recently offered or completed trades and published yields of similar securities, security-specific characteristics (e.g. securities ratings issued by nationally recognized statistical rating organizations, credit support by other subordinate securities issued by the CMBS and coupon type) and other characteristics. Management performs quarterly reviews of the inputs received from the independent valuation firm based on consideration given to a number of observable market data points including, but not limited to, trading activity in the marketplace of like-kind securities, benchmark security evaluations and bid list results from various sources. If prices received from the independent valuation firm are inconsistent with values determined in connection with management's independent review, management makes inquiries to the independent valuation firm about the prices received and related methods. In the event management determines the price obtained from an independent valuation firm to be unreliable or an inadequate representation of the fair value of the CMBS (based on consideration given to the observable market data points detailed above), management then compiles evidence independently and presents the independent valuation firm with such evidence supporting a different value. As a result, the independent valuation firm may revise their price accordingly. However, if management continues to disagree with the price from the independent valuation firm, in light of evidence presented that management compiled independently and believes to be compelling, management considers the quotation unreliable or an inadequate representation of the fair value of the CMBS.

In the event that the quotation from the independent valuation firm is not available or determined to be unreliable or an inadequate representation of the fair value of the CMBS (based on the procedures detailed above), valuations are prepared using inputs based on non-binding broker quotes obtained from independent, well-known, major financial brokers that are CMBS market makers. In validating any non-binding broker quote used in this circumstance, management compares the non-binding quote to the observable market data points at such time and used to validate prices received from the independent valuation firm in addition to understanding the valuation methodologies used by the market makers. These market participants utilize a similar methodology as the independent valuation firm to value each CMBS, with the key input of expected yield determined independently based on both observable and unobservable factors (as described above). To avoid reliance on any single broker-dealer, management receives a minimum of two non-binding quotes, of which the average is used.

The fair values of the CMBS not beneficially owned by KREF stockholders neither impact the net assets of KREF nor the net income attributable to KREF's stockholders.

Secured Financing Agreements — Management considers KREF's repurchase facilities Level 3 liabilities in the fair value hierarchy as such liabilities represent borrowings on illiquid collateral with terms specific to each borrower. Given the short-to-moderate term of the floating rate facilities, management generally expects the fair value of KREF's repurchase facilities to approximate their outstanding principal balances. On a quarterly basis, management engages an independent valuation firm to express an opinion on the fair value of KREF's repurchase facilities. The independent valuation firm employs a market-based methodology to compare the pricing of KREF's financing agreements with other similar financing agreements entered into by other mortgage REIT and recent financing transactions.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets not measured at fair value on an ongoing basis but subject to fair value adjustments only in certain circumstances, such as when there is evidence of impairment, are measured at fair value on a nonrecurring basis. For commercial mortgage loans held-for-sale, KREF applies the lower of cost or fair value accounting and may be required, from time to time, to record a nonrecurring fair value adjustment. For commercial mortgage loans held-for-investment and preferred interest in joint venture held-to-maturity, KREF applies the amortized cost method of accounting, but may be required, from time to time, to record a nonrecurring fair value adjustment in the form of a valuation provision or impairment. KREF did not report any significant financial assets or liabilities at fair value on a nonrecurring basis as of September 30, 2018 or December 31, 2017.

Assets and Liabilities for Which Fair Value is Only Disclosed

KREF does not carry its secured financing agreements at fair value as management did not elect the fair value option for these liabilities. As of September 30, 2018, the fair value of KREF's floating rate repurchase facilities approximated the outstanding principal balance.

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Income Taxes

9 Months Ended

Sep. 30, 2018

Income Tax Disclosure [Abstract]

Income Taxes

KREF has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with its taxable year ended December 31, 2014. A REIT is generally not subject to U.S. federal and state income tax on that portion of its income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gains. A REIT will also be subject to a nondeductible excise tax to the extent certain percentages of its taxable income are not distributed within specified dates. KREF expects to distribute 100% of its net taxable income for the foreseeable future, while retaining sufficient capital to support its ongoing needs.

KREF consolidates subsidiaries that incur U.S. federal, state and local income taxes, based on the tax jurisdiction in which each subsidiary operates. During each of the nine months ended September 30, 2018 and 2017, KREF recorded a current income tax provision of $0.2 million and $0.4 million, respectively, related to operations of its taxable REIT subsidiaries and various other state and local taxes. There were no deferred tax assets or liabilities as of September 30, 2018 and December 31, 2017.

As of September 30, 2018, tax years 2014 through 2017 remain subject to examination by taxing authorities.

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Subsequent Events

9 Months Ended

Sep. 30, 2018

Subsequent Events [Abstract]

Subsequent Events

The following events occurred subsequent to September 30, 2018:

Investing Activities

KREF originated the following senior loan subsequent to September 30, 2018:

Description/ Location	Property Type	Month Originated	Maximum Face Amount		Initial Face Amount Funded		Interest Rate(A)	Maturity Date(B)	LTV
Senior Loan, Queens, NY	Multifamily	October 2018	$	45,000	$	42,000	L + 2.8%	November 2023	70%
Senior Loan, Philadelphia, NY	Multifamily	October 2018	$	77,000	$	77,000	L + 2.7	November 2023	73%
Total/Weighted Average			$	122,000	$	119,000	L + 2.7%		72%

(A) Floating rate based on one-month USD LIBOR.

(B) Maturity date assumes all extension options are exercised, if applicable.

Funding of Previously Closed Loans

KREF funded approximately $19.2 million for previously closed loans subsequent to September 30, 2018.

Loan Repayments

In October 2018, KREF received approximately $8.4 million from loan repayments.

Financing Activities

In October 2018, increased borrowing capacity on the Term Loan Facility, which provides financing on a matched-term, non-mark to market and non-recourse basis by $400.0 million to $1.0 billion. In November 2018, KREF borrowed $65.5 million under the Term Loan Facility.

In October 2018, KREF borrowed $55.0 million under the BMO Facility.

In October and November 2018, KREF net borrowed $15.5 million under its master repurchase facilities.

Corporate Activities

Dividends

In October 2018, KREF paid $25.0 million in dividends on its common and special voting preferred stock, or $0.43 per share, with respect to the third quarter of 2018, to stockholders of record on September 28, 2018.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation — The accompanying unaudited condensed consolidated financial statements and related notes of KREF are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and instructions to Form 10-Q. The condensed consolidated financial statements, including these notes, are unaudited and exclude some of the disclosures required in annual financial statements. Accordingly, certain information and footnote disclosures normally included in the consolidated financial statements have been condensed or omitted. The condensed consolidated financial statements include the accounts of KREF and its consolidated subsidiaries, and all intercompany transactions and balances have been eliminated. In the opinion of management, all adjustments considered necessary for a fair presentation of KREF’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These condensed consolidated financial statements should be read in conjunction with KREF’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed with the Securities and Exchange Commission on February 28, 2018 (the "Form 10-K").

Consolidation

Consolidation — KREF consolidates those entities for which (i) it controls significant operating, financial and investing decisions of the entity or (ii) management determines that KREF is the primary beneficiary of entities deemed to be variable interest entities ("VIEs").

Variable Interest Entities — VIEs are defined as entities in which equity investors do not have an interest with the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated only by its primary beneficiary, which is defined as the party that has the power to direct the activities of the VIE that most significantly impact its economic performance and that has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could be potentially significant to the VIE (Note 7).

To assess whether KREF has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, KREF considers all the facts and circumstances, including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes, first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power to direct those activities. To assess whether KREF has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE, KREF considers all of its economic interests and applies judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE.

CMBS — KREF consolidates those trusts that issue beneficial ownership interests in mortgage loans secured by commercial real estate (commonly known as CMBS) when KREF holds a variable interest in, and management considers KREF to be the primary beneficiary of, those trusts. Management believes the performance of the assets that underlie CMBS issuances most significantly impacts the economic performance of the trust, and the primary beneficiary is generally the entity that conducts activities that most significantly impact the performance of the underlying assets. In particular, the most subordinate tranches of CMBS expose the holder to the greater variability of economic performance when compared to more senior tranches since the subordinate tranches absorb a disproportionately higher amount of the credit risk related to the underlying assets. Generally, a trust designates the most junior subordinate tranche outstanding as the controlling class, which entitles the holder of the controlling class to unilaterally appoint and remove the special servicer for the trust. The special servicer is responsible for the servicing and administration of delinquent and nonperforming loans as well as real estate owned ("REO") properties held as collateral delivered on foreclosed loans. While the special servicer cannot prevent losses, its services to the trust are designed to mitigate credit losses to holders of the CMBS.

For the trusts that KREF consolidates, KREF holds non-investment grade rated and unrated tranches that represent the most subordinated tranches of the CMBS issued by those trusts, which include the controlling class. As the holder of the most subordinate tranche, KREF is in a first loss position and has the right to receive benefits. As the holder of the controlling class, KREF has the ability to unilaterally appoint and remove the special servicer for the trust. In these cases, management considers KREF to be the primary beneficiary and consolidates the CMBS trusts.

For VIEs in which management determines KREF is the primary beneficiary, all of the underlying assets, liabilities and equity of the trusts are recorded on KREF's books, and the initial investment, along with any associated unrealized holding gains and losses, are eliminated in consolidation. Similarly, the interest income earned from these trusts is eliminated in consolidation.

Management elected the fair value option for KREF's initial and subsequent recognition of the assets and liabilities of KREF's consolidated CMBS VIEs in order to provide users of the financial statements with better information regarding the effects of credit risk and other market factors on the CMBS beneficially held by KREF's stockholders. Since the changes in fair value include the interest income and interest expense associated with these CMBS VIEs, management does not consider the separate presentation of the components of fair value changes to be relevant. Management has elected to present these items in aggregate as "Other Income — Change in net assets related to consolidated variable interest entities" in the accompanying Condensed Consolidated Statements of Income; the residual difference between the fair value of the trusts' assets and liabilities represents KREF's beneficial interest in the CMBS VIEs.

Management separately presents the assets and liabilities of KREF's consolidated VIEs as individual line items on KREF's Condensed Consolidated Balance Sheets for entities in which the VIEs assets can only be used to settle the VIE’s obligations. The liabilities of KREF's consolidated VIEs consist solely of obligations to the CMBS holders of the consolidated trusts, excluding CMBS held by KREF as such interests are eliminated in consolidation, and the interest accrued thereon, presented as "Liabilities — Variable interest entity liabilities, at fair value." The assets of KREF's consolidated VIEs consist principally of commercial mortgage loans and the interest accrued thereon, and are likewise presented as a single line item entitled "Assets — Commercial mortgage loans held in variable interest entities, at fair value."

Assets of a CMBS trust, as a whole, can only be used to settle the obligations of the consolidated CMBS VIE. The assets of KREF's CMBS VIEs are not individually accessible by, and obligations of the CMBS VIEs are not recourse to, the bondholders.

REO assets generally represent a small percentage of the overall asset pool of a CMBS trust. In a new issue CMBS trust there are no REO assets, and no REO existed in KREF's consolidated VIE assets as of September 30, 2018. KREF derives the fair value of its Level 3 CMBS VIE assets from its Level 3 CMBS VIE liabilities, which management considers to possess more observable market value data than the CMBS VIE assets. See "— Fair Value — Valuation of Consolidated VIEs" for additional discussion regarding management's valuation of consolidated CMBS VIEs.

Commercial Mezzanine Loan Joint Venture - KREF consolidated a joint venture that held a portion of KREF's investments in commercial mezzanine loans (“Mezzanine JV”), and in which a third-party owned a 5.0% redeemable noncontrolling interest ("Mezzanine JV Redeemable Noncontrolling Interest”) (Note 7 ). Management determined the joint venture to be a VIE as the owners of the redeemable noncontrolling interest did not have substantive participating or kick-out rights. KREF owned 95.0% of the equity interests in the joint venture and participated in the profits and losses. Management considered KREF to be the primary beneficiary of the joint venture as KREF held decision-making power over the activities that most significantly impact the economic performance of the joint venture. In June 2018, KREF acquired the 5.0% Mezzanine JV Redeemable Noncontrolling Interest for its carrying value of $1.3 million.

Noncontrolling Interests — Noncontrolling interests represent the ownership interests in certain consolidated subsidiaries held by entities or persons other than KREF. Those noncontrolling interests that allow the holder to redeem before liquidation or termination of the entity that issued those interests are considered redeemable noncontrolling interests.

The redeemable noncontrolling interests issued by subsidiaries of KREF are subject to certain restrictions and require KREF to transfer assets or issue equity to satisfy the redemption. As KREF does not control the circumstances under which the noncontrolling interests may redeem their interests, management considers these redeemable noncontrolling interests as temporary equity, presented as "Temporary Equity — Redeemable noncontrolling interests in equity of consolidated joint venture" in the accompanying Condensed Consolidated Balance Sheets and their share of "Net Income (Loss)" as "Redeemable Noncontrolling Interests in Income (Loss) of Consolidated Joint Venture" in the Condensed Consolidated Statements of Income. KREF recorded the redeemable noncontrolling interests at fair value upon issuance by subsidiaries of KREF, and adjusts the carrying value of such interests to equal their respective redemption values at each subsequent reporting period date if KREF determines the noncontrolling interests are redeemable or probable to become redeemable.

As noted above, in June 2018, KREF acquired the 5.0% Mezzanine JV Redeemable Noncontrolling Interest for its carrying value of $1.3 million.

KREF determined that the Special Non-Voting Preferred Stock (“SNVPS”) became redeemable during the second quarter of 2018; accordingly, KREF adjusted the carrying value of the SNVPS to its redemption value of $0.4 million as of the balance sheet date.

Equity method investments, at fair value— Investments are accounted for under the equity method when KREF has significant influence over the operations of an investee, but KREF does not consolidate that investment. Equity method investments, for which management has not elected a fair value option, are initially recorded at cost and subsequently adjusted for KREF's share of net income or loss and cash contributions and distributions each period.

Management determined that KREF's investment in the Manager is an interest in a VIE as KREF did not have substantive participating or kick-out rights. KREF does not have the power to direct activities and the obligation to absorb losses of the Manager that could be significant to the Manager. KREF accounts for its investment in the Manager using the equity method since KREF is not the primary beneficiary of the Manager (Note 7).

Management determined that its investment in an aggregator vehicle alongside KKR Real Estate Credit Opportunity Partners L.P. ("RECOP") is an interest in a VIE, however KREF is not the primary beneficiary and does not have substantive participating or kick-out rights. Management elected the fair value option for KREF's investment in RECOP. KREF records its share of net asset value in RECOP as “Equity method investments, at fair value” in its Condensed Consolidated Balance Sheets and its share of unrealized gains or losses in "Income from equity method investments" in its Condensed Consolidated Statements of Income (Note 7).

Equity method investments, at fair value

Equity method investments, at fair value— Investments are accounted for under the equity method when KREF has significant influence over the operations of an investee, but KREF does not consolidate that investment. Equity method investments, for which management has not elected a fair value option, are initially recorded at cost and subsequently adjusted for KREF's share of net income or loss and cash contributions and distributions each period.

Management determined that KREF's investment in the Manager is an interest in a VIE as KREF did not have substantive participating or kick-out rights. KREF does not have the power to direct activities and the obligation to absorb losses of the Manager that could be significant to the Manager. KREF accounts for its investment in the Manager using the equity method since KREF is not the primary beneficiary of the Manager (Note 7).

Management determined that its investment in an aggregator vehicle alongside KKR Real Estate Credit Opportunity Partners L.P. ("RECOP") is an interest in a VIE, however KREF is not the primary beneficiary and does not have substantive participating or kick-out rights. Management elected the fair value option for KREF's investment in RECOP. KREF records its share of net asset value in RECOP as “Equity method investments, at fair value” in its Condensed Consolidated Balance Sheets and its share of unrealized gains or losses in "Income from equity method investments" in its Condensed Consolidated Statements of Income (Note 7).

Use of Estimates

Use of Estimates — The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Management makes subjective estimates to project cash flows KREF expects to receive on its investments in loans and securities as well as the related market discount rates, which significantly impacts the interest income, impairments, allowance for loan loss and fair values recorded or disclosed. Actual results could differ from those estimates.

Fair Value

Fair Value — GAAP requires the categorization of the fair value of financial instruments into three broad levels that form a hierarchy based on the transparency of inputs to the valuation.

Level 1 -    Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 -    Inputs are other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability.

Level 3 -    Inputs are unobservable for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

KREF follows this hierarchy for its financial instruments. The classifications are based on the lowest level of input that is significant to the fair value measurement.

Estimates of fair value for cash and cash equivalents, restricted cash, and convertible notes are measured using observable, quoted market prices, or Level 1 inputs.

Valuation Process — The Manager reviews the valuation of Level 3 financial instruments as part of KKR's quarterly process. As of September 30, 2018, KKR’s valuation process for Level 3 measurements, as described below, subjected valuations to the review and oversight of various committees. KKR has a global valuation committee assisted by the asset class-specific valuation committees, including a real estate valuation committee that reviews and approves all preliminary Level 3 valuations for real estate assets, including the financial instruments held by KREF. The global valuation committee is responsible for coordinating and implementing KKR’s valuation process to ensure consistency in the application of valuation principles across portfolio investments and between periods. All Level 3 valuations are also subject to approval by the global valuation committee.

Valuation of Consolidated VIEs — Management categorizes the financial assets and liabilities of the CMBS trusts that KREF consolidates as Level 3 assets and liabilities in the fair value hierarchy and has elected the fair value option for financial assets and liabilities of each CMBS trust. Management has adopted the measurement alternative included in Accounting Standards Update ("ASU") No. 2014-13, Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity ("ASU 2014-13"). Pursuant to ASU 2014-13, management measures both the financial assets and financial liabilities of the CMBS trusts consolidated by KREF using the fair value of the financial liabilities, which management considers more observable than the fair value of the financial assets. As a result, KREF presents the CMBS issued by the consolidated trust, but not beneficially owned by KREF's stockholders, as financial liabilities in KREF's condensed consolidated financial statements, measured at their estimated fair value; KREF measures the financial assets as the total estimated fair value of the CMBS issued by the consolidated trust, regardless of whether such CMBS represent interests beneficially owned by KREF's stockholders. Under the measurement alternative prescribed by ASU 2014-13, KREF's "Net Income (Loss)" reflects the economic interests in the consolidated CMBS beneficially owned by KREF's stockholders, presented as "Change in net assets related to consolidated variable interest entities" in the Condensed Consolidated Statements of Income, which includes applicable (i) changes in the fair value of CMBS beneficially owned by KREF, (ii) interest and servicing fees earned from the CMBS trust and (iii) other residual returns or losses of the CMBS trust, if any (Note 7).

Management categorizes the commercial mezzanine loans held by separate joint ventures, VIEs consolidated by KREF as primary beneficiary, as Level 3 assets in the fair value hierarchy as such assets are illiquid, structured instruments that are specific to the properties and their corresponding operating performance (Note 12).

Other Valuation Matters — For Level 3 financial assets originated, or otherwise acquired, and financial liabilities assumed during the calendar month immediately preceding a quarter end that were conducted in an orderly transaction with an unrelated party, management generally believes that the transaction price provides the most observable indication of fair value given the illiquid nature of these financial instruments, unless management is aware of any circumstances that may cause a material

change in the fair value through the remainder of the reporting period. For instance, significant changes to the underlying property or its planned operations may cause material changes in the fair value of commercial mortgage loans acquired, or originated, by KREF.

KREF’s determination of fair value is based upon the best information available for a given circumstance and may incorporate assumptions that are management’s best estimates after consideration of a variety of internal and external factors. When an independent valuation firm expresses an opinion on the fair value of a financial instrument in the form of a range, management selects a value within the range provided by the independent valuation firm, generally the midpoint, to assess the reasonableness of management’s estimated fair value for that financial instrument.

Valuation Methodologies

Commercial Mortgage Loans and Participation Sold - Management generally considers KREF's commercial mortgage loans Level 3 assets in the fair value hierarchy as such assets are illiquid, structured investments that are specific to the property and its operating performance. These loans are valued using a discounted cash flow model using discount rates derived from observable market data applied to the capital structure of the respective sponsor and estimated property value. On a quarterly basis, management engages an independent valuation firm to express an opinion on the fair value of each loan categorized as a Level 3 asset in the form of a range. Management selects a value within the range provided by the independent valuation firm to assess the reasonableness of the fair value as determined by management. In the event that management's estimate of fair value differs from the opinion of fair value provided by the independent valuation firm, KREF ultimately relies solely upon the valuation prepared by the investment personnel of the Manager.

Commercial Mortgage-Backed Securities — As of September 30, 2018, management categorized CMBS investments as Level 3 assets and liabilities in the fair value hierarchy and obtained prices from an independent valuation firm, which uses a discounted cash flow model, to value each CMBS. The key input is the expected yield of each CMBS using both observable and unobservable factors, which may include recently offered or completed trades and published yields of similar securities, security-specific characteristics (e.g. securities ratings issued by nationally recognized statistical rating organizations, credit support by other subordinate securities issued by the CMBS and coupon type) and other characteristics. Management performs quarterly reviews of the inputs received from the independent valuation firm based on consideration given to a number of observable market data points including, but not limited to, trading activity in the marketplace of like-kind securities, benchmark security evaluations and bid list results from various sources. If prices received from the independent valuation firm are inconsistent with values determined in connection with management's independent review, management makes inquiries to the independent valuation firm about the prices received and related methods. In the event management determines the price obtained from an independent valuation firm to be unreliable or an inadequate representation of the fair value of the CMBS (based on consideration given to the observable market data points detailed above), management then compiles evidence independently and presents the independent valuation firm with such evidence supporting a different value. As a result, the independent valuation firm may revise their price accordingly. However, if management continues to disagree with the price from the independent valuation firm, in light of evidence presented that management compiled independently and believes to be compelling, management considers the quotation unreliable or an inadequate representation of the fair value of the CMBS.

In the event that the quotation from the independent valuation firm is not available or determined to be unreliable or an inadequate representation of the fair value of the CMBS (based on the procedures detailed above), valuations are prepared using inputs based on non-binding broker quotes obtained from independent, well-known, major financial brokers that are CMBS market makers. In validating any non-binding broker quote used in this circumstance, management compares the non-binding quote to the observable market data points at such time and used to validate prices received from the independent valuation firm in addition to understanding the valuation methodologies used by the market makers. These market participants utilize a similar methodology as the independent valuation firm to value each CMBS, with the key input of expected yield determined independently based on both observable and unobservable factors (as described above). To avoid reliance on any single broker-dealer, management receives a minimum of two non-binding quotes, of which the average is used.

The fair values of the CMBS not beneficially owned by KREF stockholders neither impact the net assets of KREF nor the net income attributable to KREF's stockholders.

Secured Financing Agreements — Management considers KREF's repurchase facilities Level 3 liabilities in the fair value hierarchy as such liabilities represent borrowings on illiquid collateral with terms specific to each borrower. Given the short-to-moderate term of the floating rate facilities, management generally expects the fair value of KREF's repurchase facilities to approximate their outstanding principal balances. On a quarterly basis, management engages an independent valuation firm to express an opinion on the fair value of KREF's repurchase facilities. The independent valuation firm employs a market-based methodology to compare the pricing of KREF's financing agreements with other similar financing agreements entered into by other mortgage REIT and recent financing transactions.

Sale of Financial Assets and Financing Agreements

Sales of Financial Assets and Financing Agreements — KREF will, from time to time, sell loans, securities and other assets as well as finance assets in the form of secured borrowings. In each case, management evaluates whether the transaction constitutes a sale through legal isolation of the transferred financial asset from KREF, the ability of the transferee to pledge or exchange the transferred asset without constraint and the transfer of control of the transferred asset. For transfers that constitute sales, KREF (i) recognizes the financial assets it retains and liabilities it has incurred, if any, (ii) derecognizes the financial assets it has sold, and derecognizes liabilities when extinguished and (iii) recognizes a realized gain, or loss, based upon the excess, or deficient, proceeds received over the carrying value of the transferred asset. KREF does not recognize a gain, or loss, on interests retained, if any, where management elected the fair value option prior to sale.

Cash, Cash Equivalents and Restricted Cash and Cash Equivalents

Cash, Cash Equivalents and Restricted Cash and Cash Equivalents — KREF considers cash equivalents as highly liquid short-term investments with maturities of 90 days or less when purchased. Substantially all amounts on deposit with major financial institutions exceed insured limits.

Commercial Mortgage Loans Held-For-Investment and Provision for Loan Losses

Commercial Mortgage Loans Held‑For‑Investment and Provision for Loan Losses — KREF recognizes its investments in commercial mortgage loans based on management's intent, and KREF's ability, to hold those investments through their contractual maturity. Management classifies those loans that management does not intend to sell in the foreseeable future, and KREF is able to hold until maturity, as held-for-investment. Loans that are held‑for‑investment are carried at their aggregate outstanding face amount, net of applicable (i) unamortized origination or acquisition premiums and discounts, (ii) unamortized deferred nonrefundable fees and other direct loan origination costs, (iii) allowance for loan losses and (iv) charge-offs or write-downs of impaired loans. If a loan is determined to be impaired, management writes down the loan through a charge to the provision for loan losses. See "—Expense Recognition — Loan Impairment— Commercial Mortgage Loans, Held-For-Investment" for additional discussion regarding management’s determination for loan losses. KREF applies the interest method to amortize origination or acquisition premiums and discounts and deferred nonrefundable fees or other direct loan origination costs, or on a straight line basis when it approximates the interest method. Loans for which management elects the fair value option at the time of origination, or acquisition, are carried at fair value on a recurring basis (Note 3).

Commercial Mortgage Loans Held-For-Sale

Commercial Mortgage Loans Held‑For‑Sale — Loans that KREF originates, or acquires, which KREF is unable to hold, or management intends to sell or otherwise dispose of, in the foreseeable future are classified as held‑for‑sale and are carried at the lower of amortized cost or fair value. Commercial Mortgage Loans, Held-For-Sale — For commercial mortgage loans held-for-sale, KREF applies the lower of cost or fair value accounting and may be required, from time to time, to record a nonrecurring fair value adjustment.

Preferred Interest in Joint Venture Held-To-Maturity

Secured Financing Agreements — KREF's secured financing agreements, including Term Loan Financings, are treated as collateralized financing transactions and consist of floating rate, uncommitted repurchase facilities and Term Loan Financing arrangements carried at their contractual amounts, net of unamortized debt issuance costs (Note 4).

Convertible Notes, Net — KREF accounts for its convertible debt with a cash conversion feature in accordance with ASC 470-20 “Debt with Conversion and Other Options” which requires the liability and equity components of convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement, to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The initial proceeds from the sale of convertible notes are allocated between a liability component and an equity component in a manner that reflects interest expense at the rate of similar nonconvertible debt that could have been issued at such time. The equity component represents the excess initial proceeds received over the fair value of the liability component of the notes as of the date of issuance. KREF measured the estimated fair value of the debt component of the convertible notes due May 15, 2023 (“Convertible Notes”) as of the issuance date based on KREF’s nonconvertible debt borrowing rate. The equity component of the Convertible Notes is reflected within additional paid-in capital on our condensed consolidated balance sheet, and the resulting debt discount is amortized over the period during which such Convertible Notes are expected to be outstanding (through the maturity date) as additional non-cash interest expense using the interest method, or on a straight line basis when it approximates the interest method. The additional non-cash interest expense attributable to such convertible notes will increase in subsequent periods through the maturity date as the notes accrete to their par value over the same period (Note 5).

Loan Participations Sold, Net — In connection with its investments in senior loans, KREF finances certain investments through the syndication of non-recourse, or limited-recourse, loan participation to unaffiliated third parties. KREF’s 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 KREF’s 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, KREF derecognizes the participation in the senior loan that KREF sold and continue to carry the retained portion of the loan as an investment. While KREF does not generally expect to recognize a material gain or loss on these sales, KREF would realize a gain or loss in an amount equal to the difference between the net proceeds received from the third party purchaser and its carrying value of the loan participation that KREF sold at time of sale. Furthermore, KREF recognizes interest income only on the portion of the senior loan that it retains as a result of the sale.

To the extent that GAAP does not recognize a sale resulting from the syndication, KREF does not derecognize the participation in the senior loan that it sold. Instead, KREF recognizes 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. KREF continues 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 (Note 6).

Convertible Notes

Convertible Notes, Net — KREF accounts for its convertible debt with a cash conversion feature in accordance with ASC 470-20 “Debt with Conversion and Other Options” which requires the liability and equity components of convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement, to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The initial proceeds from the sale of convertible notes are allocated between a liability component and an equity component in a manner that reflects interest expense at the rate of similar nonconvertible debt that could have been issued at such time. The equity component represents the excess initial proceeds received over the fair value of the liability component of the notes as of the date of issuance. KREF measured the estimated fair value of the debt component of the convertible notes due May 15, 2023 (“Convertible Notes”) as of the issuance date based on KREF’s nonconvertible debt borrowing rate. The equity component of the Convertible Notes is reflected within additional paid-in capital on our condensed consolidated balance sheet, and the resulting debt discount is amortized over the period during which such Convertible Notes are expected to be outstanding (through the maturity date) as additional non-cash interest expense using the interest method, or on a straight line basis when it approximates the interest method. The additional non-cash interest expense attributable to such convertible notes will increase in subsequent periods through the maturity date as the notes accrete to their par value over the same period (Note 5).

Special Non-Voting Preferred Stock

Special Non-Voting Preferred Stock ("SNVPS") — Equity instruments that are redeemable for cash or other assets are classified as temporary equity if the instrument is redeemable, at the option of the holder, at a fixed or determinable price on a fixed or determinable date or upon the occurrence of an event that is not solely within the control of the issuer. Redeemable equity instruments are initially carried at the fair value of the equity instrument at the issuance date, which is subsequently adjusted at each balance sheet date if the instrument is currently redeemable or probable of becoming redeemable. The fair value of the instrument is adjusted to reflect the instrument’s redemption amount at each balance sheet date if KREF determines the SNVPS is redeemable or it is probable that the SNVPS will become redeemable. KREF accounted for the SNVPS as redeemable preferred stock since a third party holds a redemption option, exercisable after May 5, 2018, and such redemption is not solely within KREF’s control. Accordingly, the Company adjusted the carrying value of the SNVPS to its redemption value of $0.4 million as of September 30, 2018. KREF presents the SNVPS as “Temporary Equity — Redeemable preferred stock” in the accompanying Condensed Consolidated Balance Sheets (Note 8).

Income Recognition

Income Recognition

Interest Income — Loans where management expects to collect all contractually required principal and interest payments are considered performing loans. KREF accrues interest income on performing loans based on the outstanding principal amount

and contractual terms of the loan. Interest income also includes origination fees and direct loan origination costs for loans that KREF originates, but where management did not elect the fair value option, as a yield adjustment using the interest method over the loan term, or on a straight line basis when it approximates the interest method. KREF expenses origination fees and direct loan origination costs for loans acquired, but not originated, by KREF as well as loans for which management elected the fair value option, as incurred.

Realized Gain (Loss) on Sale of Investments — KREF recognizes the excess, or deficiency, of net proceeds received, less the net carrying value of such investments, as realized gains or losses, respectively. KREF reverses cumulative, unrealized gains or losses previously reported in its Condensed Consolidated Statements of Income with respect to the investment sold at the time of sale.

Loan Impairment

Loan Impairment — KREF holds commercial mortgage loans for both investment and sale, which management periodically evaluates for impairment.

Commercial Mortgage Loans, Held-For-Investment — For each loan in KREF's portfolio, management performs a quarterly evaluation of impairment indicators of loans classified as held‑for‑investment using applicable loan, property, market and sponsor information obtained from borrowers, loan servicers and local market participants. Such indicators may include the net present value of the underlying collateral, property operating cash flows, the sponsor’s financial wherewithal and competency in managing the property, macroeconomic trends, and property submarket-specific economic factors. The evaluation of these indicators of impairment requires significant judgment by management to determine whether failure to collect contractual amounts is probable.

If management deems that it is probable that KREF will be unable to collect all amounts owed according to the contractual terms of a loan, impairment of that loan is indicated. If management considers a loan to be impaired, management establishes an allowance for loan losses, through a valuation provision in earnings, which reduces the carrying value of the loan to the present value of expected future cash flows discounted at the loan’s contractual effective rate or the fair value of the collateral, if repayment is expected solely from the collateral. Significant judgment is required in determining impairment and in estimating the resulting loss allowance, and actual losses, if any, could materially differ from those estimates.

Management considers loans to be past due when a monthly payment is due and unpaid for 60 days or more. Loans are placed on nonaccrual status and considered non-performing when full payment of principal and interest is in doubt, which generally occurs when principal or interest is 120 days or more past due unless the loan is both well secured and in the process of collection. Management may return a loan to accrual status when repayment of principal and interest is reasonably assured under the terms of the restructured loan. As of September 30, 2018, KREF did not hold any loans that management placed on nonaccrual status or otherwise considered past due.

In addition to reviewing commercial mortgage loans held-for-investment for impairment, the Manager evaluates KREF's commercial mortgage loans to determine if an allowance for loan loss should be established. In conjunction with this review, the Manager assesses the risk factors of each loan, and assigns a risk rating based on a variety of factors, including, without limitation, 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 loan-to-value ratios, debt service coverage ratios, loan structure, real estate and credit market dynamics, and risk of default or principal loss. Based on a five-point scale, KREF's 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 loan-to-value ratio (<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 loan-to-value ratio (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 loan-to-value ratio (<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 loan-to-value ratio (>80%), and the loan covenants are unlikely to fully mitigate some risks. Interest payments may come from an interest reserve or sponsor equity.

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 loan-to-value ratio (>90%), and default may be imminent.

Interest Expense

Interest Expense — Management expenses contractual interest due in accordance with KREF's financing agreements as incurred.

Deferred Debt Issuance Costs

Deferred Debt Issuance Costs — Management capitalizes and amortizes deferred debt facility costs incurred when entering repurchase agreements on a straight-line basis over the expected term of the facility and incremental costs incurred when KREF draws on those facilities using the interest method over the expected term of the draw, or on a straight line basis when it approximates the interest method. KREF presents such expensed amounts, as well as deferred amounts written off, as additional interest expense in its Condensed Consolidated Statements of Income.

General and Administrative Expenses

General and Administrative Expenses — Management expenses general and administrative costs, including legal, diligence and audit fees; information technology costs; insurance premiums; and other costs as incurred.

Management and Incentive Compensation to Affiliate

Management and Incentive Compensation to Affiliate — Management expenses compensation earned by the Manager on a quarterly basis in accordance with the Management Agreement (Note 11).

Income Taxes

Income Taxes — Certain activities of KREF are conducted through joint ventures formed as limited liability companies, taxed as partnerships, and consolidated by KREF. Some of these joint ventures are subject to state and local income taxes (Note 13).

Share-based Compensation

Stock-Based Compensation

KREF's stock-based compensation consists of awards issued to employees of the Manager or its affiliates that vest over the life of the awards, as well as restricted stock units issued to certain members of KREF's board of directors. The Company early adopted ASU No. 2018-07, Improvement to Nonemployee Share-based Payment Accounting upon its issuance in June 2018. Accordingly, the Company recognizes the compensation cost of stock-based awards to employees of the Manager or its affiliates on a straight-line basis over the awards’ term at their grant date fair value.

Upon the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718), KREF elected to account for forfeitures as they occur. Refer to Note 9 for additional information.

Earnings per Share

Earnings per Share

Diluted earnings per share, or Diluted EPS, is determined using the treasury stock method, and is based on the net earnings attributable to common stockholders, including restricted stock units, divided by the weighted-average number of shares of common stock, including restricted stock units. Refer to Note 8 for additional discussion of earnings per share.

KREF presents basic and diluted earnings per share ("EPS"). Basic EPS, or Net Income (Loss) Per Share of Common Stock, Basic, is calculated by dividing Net Income (Loss) Attributable to Common Stockholders by the Basic Weighted Average Number of Shares of Common Stock Outstanding, for the period.

Diluted EPS, or Net Income (Loss) Per Share of Common Stock, Diluted, is calculated by starting with Basic EPS and adding the weighted average dilutive shares issuable from restricted stock units, computed using the treasury stock method, to the weighted average common shares outstanding in the denominator.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, Revenues from Contracts with Customers (Topic 606). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In adopting ASU 2014-09, entities have the option of using either a full retrospective or a modified approach to adopt the guidance in the ASU. KREF has adopted the modified approach. The adoption of this ASU beginning in the first quarter of 2018 did not have a material impact on the Company's condensed consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities. The standard: (i) requires that certain equity investments be measured at fair value, and modifies the assessment of impairment for certain other equity investments, (ii) changes certain disclosure requirements related to the fair value of financial instruments measured at amortized cost, (iii) changes certain disclosure requirements related to liabilities measured at fair value, (iv) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and (v) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. An entity should apply ASU No. 2016-01 by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The adoption of ASU No. 2016-01 beginning in the first quarter of 2018 did not have a material impact on the Company's condensed consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses. The standard amends the existing credit loss model to reflect a reporting entity's current estimate of all expected credit losses and requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at a net amount expected to be collected through deduction of an allowance for credit losses from the amortized cost basis of the financial asset(s). ASU No. 2016-13 is effective for KREF in the first quarter of 2020. Early adoption is permitted beginning in the first quarter of 2019. While KREF is currently evaluating the impact that ASU 2016-13 will have on KREF's condensed consolidated financial statements, we expect that the adoption will result in an increased amount of provisions for potential loan losses as well as the recognition of such

provisions earlier in the credit cycle. KREF currently does not have any provision for loan losses recorded on the condensed consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting. The standard aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees, with certain exceptions. Under the guidance, the measurement of equity-classified nonemployee awards will be fixed at the grant date. ASU No. 2018-07 is effective for public companies in the first quarter of 2019 with early adoption permitted. KREF early adopted this ASU upon its issuance to simplify its accounting for share-based payments to employees of the Manager or its affiliates. The adoption of this ASU did not have a material impact on the Company's condensed consolidated financial statements.

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Commercial Mortgage Loans (Tables)

9 Months Ended

Sep. 30, 2018

SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Abstract]

Summary and Activity of Loans Held-for-investment and Held-for-sale

For the nine months ended September 30, 2018, the loan portfolio activity was as follows:

	Held-for-Investment			Held-for-Sale		Total
Balance at December 31, 2017	$	1,888,510		$	—	$	1,888,510
Purchases and originations, net(A)	1,697,074			—		1,697,074
Proceeds from principal repayments	(330,939		)	—		(330,939		)
Accretion of loan discount and other amortization, net(B)	7,233			—		7,233
Balance at September 30, 2018	$	3,261,878		$	—	$	3,261,878

(A) Net of applicable premiums, discounts and deferred loan origination costs.

(B)

Includes accretion of applicable discounts and deferred loan origination costs.The following table allocates the principal balance and net book value of the loan portfolio based on KREF's internal risk ratings:

September 30, 2018						December 31, 2017
Risk Rating	Number of Loans	Net Book Value		Total Loan Exposure(A)		Risk Rating	Number of Loans	Net Book Value		Total Loan Exposure(A)
1	—	$	—	$	—	1	—	$	—	$	—
2	8	446,525		448,821		2	4	155,092		156,123
3	27	2,815,353		2,899,972		3	23	1,717,000		1,792,022
4	—	—		—		4	1	16,418		16,500
5	—	—		—		5	—	—		—
	35	$	3,261,878	$	3,348,793		28	$	1,888,510	$	1,964,645

(A)

In certain instances, we finance our loans through the non-recourse sale of a senior interest that is not included in our consolidated financial statements. Total loan exposure includes the entire loan we originated and financed, including $66.6 million and $63.0 million of such non-consolidated interests as of September 30, 2018 and December 31, 2017, respectively.The following table summarizes KREF's investments in commercial mortgage loans as of September 30, 2018 and December 31, 2017:

						Weighted Average
Loan Type	Outstanding Face Amount		Carrying Value		Loan Count	Floating Rate Loan %(A)		Coupon(A)		Life (Years)(B)
September 30, 2018
Loans held-for-investment
Senior loans(C)	$	3,226,649	$	3,206,484	27	100.0	%	5.8	%	3.8
Mezzanine loans(D)	55,535		55,394		8	52.8		11.8		4.3
	$	3,282,184	$	3,261,878	35	99.2	%	5.9	%	3.9
December 31, 2017
Loans held-for-investment
Senior loans(C)	$	1,794,963	$	1,782,054	18	100.0	%	5.8	%	3.7
Mezzanine loans(D)	106,730		106,456		10	75.4		11.3		3.7
	$	1,901,693	$	1,888,510	28	98.6	%	6.1	%	3.7

(A) Average weighted by outstanding face amount of loan. Weighted average coupon assumes applicable one-month LIBOR rates of 2.26% and 1.56% as of September 30, 2018 and December 31, 2017, respectively.

(B) The weighted average life of each loan is based on the expected timing of the receipt of contractual cash flows assuming all extension options are exercised by the borrower.

(C) Senior loans may include accommodation mezzanine loans in connection with the senior mortgage financing. Includes loan participations sold with a face amount of $83.9 million and $82.0 million, and a carrying value of $83.5 million and $81.5 million as of September 30, 2018 and December 31, 2017, respectively.

(D)

Concentration of Risk, by Risk Factor

The following tables present the geographies and property types of collateral underlying KREF's commercial mortgage loans as a percentage of the loans' carrying values, net of noncontrolling interests:

	September 30, 2018		December 31, 2017			September 30, 2018		December 31, 2017
Geography					Collateral Property Type
New York	25.4	%	29.3	%	Office	53.0	%	41.7	%
Georgia	13.3		11.0		Multifamily	33.3		24.7
Washington	10.2		—		Condo (Residential)	5.6		10.8
California	9.2		14.9		Industrial	4.0		6.8
Minnesota	6.8		7.0		Retail	3.9		13.8
Florida	5.9		2.2		Hospitality	0.2		2.2
Massachusetts	5.9		—		Total	100.0	%	100.0	%
New Jersey	4.4		7.1
Pennsylvania	4.3		—
Oregon	3.7		6.3
Hawaii	3.1		5.3
Colorado	2.9		5.1
Washington D.C.	2.8		4.2
Tennessee	1.6		2.8
Other U.S.	0.5		4.8
Total	100.0	%	100.0	%

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Debt Obligations (Tables)

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Schedule of Debt Instruments

The following table summarizes KREF's secured master repurchase agreements and other consolidated debt obligations in place as of September 30, 2018 and December 31, 2017:

	September 30, 2018																			December 31, 2017
	Facility												Collateral							Facility
										Weighted Average(B)
	Month Issued	Outstanding Face Amount		Carrying Value(A)			Maximum Facility Size		Final Stated Maturity	Funding Cost		Life (Years)	Outstanding Face Amount		Amortized Cost Basis		Carrying Value		Weighted Average Life (Years)(C)	Carrying Value(A)
Master Repurchase Agreements(D)
Wells Fargo(E)	Oct 2015	$	791,297	$	787,487		$	1,000,000	Apr 2022	4.4	%	1.8	$	1,096,789	$	1,090,273	$	1,090,273	3.9	$	482,146
Morgan Stanley(F)	Dec 2016	483,558		482,064			600,000		Dec 2021	4.6		1.5	709,123		705,658		705,658		3.2	421,904
Goldman Sachs(G)	Sep 2016	268,709		268,709			400,000		Oct 2020	4.4		1.4	362,191		359,960		359,960		4.3	60,750
Asset Specific Financing
BMO Facility(H)	Aug 2018	—		(316		)	200,000		n.a	0.2		0.0	—		—		—		0.0	—
Revolving Credit Agreement
Barclays(I)	May 2017	—		—			75,000		May 2020	1.1		0.0	n.a.		n.a.		n.a.		n.a.	—
		1,543,564		1,537,944			2,275,000			4.4	%	1.6	2,168,103		2,155,891		2,155,891			964,800
VIE Liabilities
CMBS(J)	Various	1,095,731		1,086,939			n.a.		May 2048 to Feb 2049	4.4	%	6.3	1,130,672		n.a.		1,100,089		6.3	5,256,926
		1,095,731		1,086,939			n.a.			4.4		6.3								5,256,926
Total / Weighted Average		$	2,639,295	$	2,624,883		$	2,275,000		4.4	%	3.6								$	6,221,726

(A) Net of $5.6 million and $4.5 million unamortized debt issuance costs as of September 30, 2018 and December 31, 2017, respectively.

(B) Average weighted by the outstanding face amount of borrowings.

(C) Average based on the fully extended loan maturity, weighted by the outstanding face amount of the collateral.

(D) Borrowings under these repurchase agreements are collateralized by senior loans, held-for-investment, and bear interest equal to the sum of (i) a floating rate index, equal to one-month LIBOR, subject to certain floors of not less than zero, or an index approximating LIBOR, and (ii) a margin, based on the collateral. As of September 30, 2018 and December 31, 2017, the percentage of the outstanding face amount of the collateral sold and not borrowed under these repurchase agreements, or average "haircut" weighted by outstanding face amount of collateral, was 28.8% and 32.9%, respectively (or 25.6% and 27.3%, respectively, if KREF had borrowed the maximum amount approved by its repurchase agreement counterparties as of such dates).

(E) The current stated maturity of the facility is April 2020, which does not reflect two, twelve-month facility term extensions available to KREF, which is contingent upon certain covenants and thresholds. In September 2018, KREF and Wells Fargo Bank, National Association ("Wells Fargo") amended the master repurchase agreement to increase the maximum facility size from $750.0 million to $1,000.0 million. As of September 30, 2018, the collateral-based margin was between 1.50% and 2.15%.

(F) In November 2017, KREF and Morgan Stanley Bank, N.A. ("Morgan Stanley") amended and restated the master repurchase agreement to extend the facility maturity date and to increase the maximum facility size from $500.0 million to $600.0 million and, subject to customary conditions, permits KREF to request the facility be further increased to $750.0 million. The current stated maturity of the facility is December 2020, which does not reflect one, twelve-month facility term extension available to KREF, which is contingent upon certain covenants and thresholds and, even if such covenants and thresholds are satisfied, is at the sole discretion of Morgan Stanley. As of September 30, 2018, the collateral-based margin was between 2.00% and 2.45%.

(G) In July 2018, KREF and Goldman Sachs Bank USA ("Goldman Sachs") amended the November 2017 restated master purchase agreement to modify certain terms and provisions. The amended and restated facility includes a $350.0 million term facility with a maturity date of October 2020 and a $50.0 million swingline facility with a revolving period of one year, and a three-year term on a per-asset basis as those assets are pledged to the facility. As of September 30, 2018, the carrying value excluded $1.5 million unamortized debt issuance costs presented as " — Other assets" in KREF's Condensed Consolidated Balance Sheets. As of September 30, 2018, the collateral-based margin was between 1.70% and 2.00%.

(H) In August 2018, KREF entered into a $200.0 million loan financing facility with BMO Harris Bank ("BMO Facility") with a third party lender. The facility provides asset-based financing on a non-mark to market basis with matched-term up to five years with partial recourse to KREF. There were no amounts outstanding on this facility as of September 30, 2018.

(I) In May 2017, KREF entered into a $75.0 million corporate secured revolving credit facility administered by Barclays Bank PLC ("Barclays "). The current stated maturity of the facility is May 2019, which does not reflect one, twelve-month facility term extension available to KREF at the discretion of Barclays. Borrowings under the facility bear interest at a per annum rate equal to the sum of (i) a floating rate index and (ii) a fixed margin. Amounts borrowed under this facility are 100% recourse to KREF. As of September 30, 2018, the carrying value excluded $0.8 million unamortized debt issuance costs presented as " — Other assets" in KREF's Condensed Consolidated Balance Sheets.

(J) Facility amounts represent consolidated CMBS trust(s) that are not beneficially owned by KREF's stockholders. The facility and collateral carrying amounts included $3.8 million accrued interest payable and $4.0 million accrued interest receivable as of September 30, 2018. As of December 31, 2017, the facility and collateral carrying amounts included $18.7 million accrued interest payable and $19.7 million accrued interest receivable. The final stated maturity date represents the rated final distribution date of CMBS issued by trusts that KREF consolidates, but that are not beneficially owned by KREF's stockholders. Refer to Note 7 for additional discussion of KREF's VIE assets and liabilities.

For the nine months ended September 30, 2018, the activity related to the carrying value of KREF’s secured financing agreements, term loan financing and other consolidated debt obligations were as follows:

	Secured Financing Agreements, Net(A)			Variable Interest Entity Liabilities, at Fair Value			Total
Balance as of December 31, 2017	$	964,800		$	5,256,926		$	6,221,726
Principal borrowings	1,607,725			—			1,607,725
Principal repayments/ sales/ deconsolidation	(451,026		)	(4,062,624		)	(4,513,650		)
Deferred debt issuance costs	(8,562		)	—			(8,562		)
Amortization of deferred debt issuance costs	3,017			—			3,017
Fair value adjustment	—			(92,499		)	(92,499		)
Other(B)	—			(14,864		)	(14,864		)
Balance as of September 30, 2018	$	2,115,954		$	1,086,939		$	3,202,893

(A)    Includes Term Loan Financing Facility and Asset Specific Financing Facility.

(B)    Amounts principally consist of changes in accrued interest payable and cost adjustments.The following table summarizes our borrowings under the Term Loan Facility:

	September 30, 2018
Term Loan Facility	Count	Outstanding Face Amount		Carrying Value		Wtd. Avg. Yield/Cost(A)	Guarantee(B)	Wtd. Avg. Term(C)
Collateral assets	6	$	717,500	$	711,982	L + 3.0%	n.a.	May 2023
Financing provided	n.a	582,483		578,010		L + 1.7%	n.a.	May 2023

(A) Floating rate loans and related liabilities are indexed to one-month LIBOR. KREF's net interest rate exposure is in direct proportion to its interest in the net assets indexed to that rate. 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 KREF.

(C)

The weighted-average term is determined using the maximum maturity date of the corresponding loans, assuming all extension options are exercised by the borrower.

Schedule of Repurchase Agreements

The following table summarizes certain characteristics of KREF's repurchase agreements where the amount at risk with any individual counterparty, or group of related counterparties, exceeded 10.0% of KREF’s stockholders' equity as of September 30, 2018 and December 31, 2017:

	Outstanding Face Amount		Net Counterparty Exposure		Percent of Stockholders' Equity		Weighted Average Life (Years)(A)
September 30, 2018
Wells Fargo	$	791,297	$	304,871	26.6	%	1.8
Morgan Stanley	483,558		224,557		19.6		1.5
Total / Weighted Average	$	1,274,855	$	529,428	46.2	%	1.7
December 31, 2017
Wells Fargo	$	485,250	$	203,303	19.2	%	1.6
Morgan Stanley	423,347		251,463		23.7		2.0
Total / Weighted Average	$	908,597	$	454,766	42.9	%	1.8

(A)

Average weighted by the outstanding face amount of borrowings under the secured financing agreement.

Schedule of Maturities of Debt Obligations

KREF’s secured financing agreements, term loan financing and other consolidated debt obligations in place as of September 30, 2018 had current contractual maturities as follows:

Year	Nonrecourse(A)		Recourse(B)		Total
2018	$	2,779	$	—	$	2,779
2019	13,098		505,432		518,530
2020	179,359		985,632		1,164,991
2021	484,634		—		484,634
2022	18,565		52,500		71,065
Thereafter	979,779		—		979,779
	$	1,678,214	$	1,543,564	$	3,221,778

(A) Amounts related to consolidated CMBS VIE liabilities that represent securities not beneficially owned by KREF's stockholders.

(B)

Amounts borrowed subject to a maximum 25.0% recourse limit.

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Convertible Notes, Net (Tables)

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Interest Expense, Debt

The following table details our interest expense related to the Convertible Notes:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Cash coupon	$	2,201	$	—	$	3,253	$	—
Discount and issuance cost amortization	349		—		512		—
Total interest expense	$	2,550	—		$	3,765	—

Convertible Notes

The following table details the net book value of our Convertible Notes on our Condensed Consolidated Balance Sheets:

	September 30, 2018			December 31, 2017
Face value	$	143,750		$	—
Deferred financing costs	(4,745		)	—
Unamortized discount	(1,666		)	—
Net book value	$	137,339		$	—

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Loan Participations Sold (Tables)

9 Months Ended

Sep. 30, 2018

SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Abstract]

Schedule of Participating Mortgage Loans

The following table summarizes the loan participation sold liabilities that KREF recognized since the corresponding syndications of the participations in the senior loans were not treated as sales:

	September 30, 2018
Loan Participations Sold	Count	Principal Balance		Carrying Value		Yield/Cost(A)	Guarantee(B)	Term
Total loan	1	$	97,440	$	97,024	L + 3.0%	n.a.	September 2022
Senior participation(C)	1	83,886		83,442		L + 1.8%	n.a.	September 2022

(A) Floating rate loans and related liabilities are indexed to one-month LIBOR. KREF's net interest rate exposure is in direct proportion to its interest in the net assets of the senior loan.

(B) As of September 30, 2018, the loan participation sold was subject to partial recourse of $10.0 million, which amount may be reduced to zero upon achievement of certain property performance metrics.

(C)

During the nine months ended September 30, 2018, KREF recorded $2.3 million of interest income and $2.4 million of interest expense related to the loan participation KREF sold, but continue to consolidate under GAAP.

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Variable Interest Entities (Tables)

9 Months Ended

Sep. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Schedule of Variable Interest Entities

The following table presents the KREF recognized Trust's(s') Assets and Liabilities:

	September 30, 2018		December 31, 2017
Trusts' Assets
Commercial mortgage loans held in variable interest entities, at fair value(A)	$	1,100,089	$	5,372,811
Accrued interest receivable	4,015		19,740
Trusts' Liabilities
Variable interest entity liabilities, at fair value(B)	1,086,939		5,256,926
Accrued interest payable	3,828		18,661

(A) Includes accrued interest receivable.

(B)

Includes accrued interest payable.The following tables present the geographies and property types of collateral underlying the CMBS trusts consolidated by KREF, as a percentage of the collateral unpaid principal balance and weighted by the fair value of the CMBS tranches beneficially owned by KREF's stockholders:

	September 30, 2018		December 31, 2017			September 30, 2018		December 31, 2017
Geography					Collateral Property Type
California	33.3	%	23.2	%	Retail	28.4	%	25.2	%
Texas	11.1		12.7		Office	27.4		26.4
New York	8.3		9.1		Hospitality	13.0		15.0
Missouri	5.3		4.6		Multifamily	9.9		10.6
Pennsylvania	5.2		4.5		Industrial/ Flex	9.6		9.6
Florida	4.2		5.5		Self Storage	5.9		3.0
Massachusetts*	3.6		1.7		Mixed Use	3.8		6.9
Illinois	2.7		7.1		Mobile Home	1.8		2.7
Georgia	2.6		2.9		Other	0.2		0.6
New Hampshire*	2.4		1.0			100.0	%	100.0	%
Delaware*	2.0		1.3
Virginia*	1.7		1.2
Other U.S.	17.6		25.2
Total	100.0	%	100.0	%

Change In Net Assets Related to Consolidated Variable Interest Entities

The following table presents "Other Income — Change in net assets related to consolidated variable interest entities":

	Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018			2017
Net interest earned	$	584		$	3,138	$	4,604		$	9,357
Unrealized gain (loss)	(205		)	887		(2,144		)	3,453
Change in net assets related to consolidated variable interest entities	$	379		$	4,025	$	2,460		$	12,810

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Equity (Tables)

9 Months Ended

Sep. 30, 2018

Equity [Abstract]

Schedule of Common Stock Issued

KREF issued the following shares of common stock:

Pricing Date	Shares Issued	Net Proceeds
As of December 31, 2015	13,636,416	$	272,728
February 2016	2,000,000	40,000
May 2016	3,000,138	57,130
June 2016(A)	21,838	—
August 2016	5,500,000	109,875
As of December 31, 2016	24,158,392	479,733
February 2017	7,386,208	147,662
April 2017	10,379,738	207,595
May 2017- Initial Public Offering	11,787,500	219,356
As of December 31, 2017	53,711,838	1,054,346
August 2018	5,000,000	98,326
As of September 30, 2018	58,711,838	$	1,152,672

(A)

KREF did not receive any proceeds with respect to 21,838 shares of common stock issued to certain current and former employees of, and non-employee consultants to, KKR and third-party investors in the private placement completed in March 2016, in accordance with KREF's Stockholders Agreement dated as of March 29, 2016.

Dividends Declared

During the nine months ended September 30, 2018, KREF's board of directors declared the following dividends on shares of its common stock and special voting preferred stock:

			Amount
Declaration Date	Record Date	Payment Date	Per Share		Total
March 12, 2018	March 29, 2018	April 13, 2018	$	0.40	$	21,230
May 7, 2018	June 29, 2018	July 13, 2018	0.43		22,804
September 11, 2018	September 28, 2018	October 12, 2018	0.43		24,951
					$	68,985

Schedule of Earnings Per Share, Basic and Diluted

The following table illustrates the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2018 and 2017:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Numerator
Net income (loss) attributable to common stockholders	$	20,821	$	17,339	$	67,921	$	41,784
Denominator
Basic weighted average common shares outstanding	55,903,126		53,696,967		54,111,272		42,501,356
Dilutive restricted stock units	18,529		74		21,059		174
Diluted weighted average common shares outstanding	55,921,655		53,697,041		54,132,331		42,501,530
Net income (loss) attributable to common stockholders, per:
Basic common share	$	0.37	$	0.32	$	1.26	$	0.98
Diluted common share	$	0.37	$	0.32	$	1.25	$	0.98

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Stock-based Compensation (Tables)

9 Months Ended

Sep. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Share-based Compensation, Restricted Stock and Restricted Stock Units Activity

The following table summarizes the activity in KREF’s outstanding RSUs and the weighted-average grant date fair value per RSU:

	Restricted Stock Units		Weighted Average Grant Date Fair Value Per RSU(A)
Unvested as of December 31, 2017	154,878		$	18.61
Granted	11,878		20.70
Vested	(54,037	)	20.47
Forfeited/ cancelled	(2,740	)	20.47
Unvested as of September 30, 2018	109,979		$	20.49

(A)

The grant-date fair value is based upon the last sale price of KREF’s common stock at the date of grant.

Schedule of Share-based Compensation Arrangement by Share-based Payment Award, Restricted Stock Units, Vested and Expected to Vest

KREF expects the unvested RSUs outstanding to vest during the following years:

Year	Restricted Stock Units
2018	—
2019	60,927
2020	49,052
Total	109,979

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Related Party Transactions (Tables)

9 Months Ended

Sep. 30, 2018

Related Party Transactions [Abstract]

Amounts Due to Affiliates

Due to Affiliates — The following table contains the amounts presented in KREF's Condensed Consolidated Balance Sheets that it owes to affiliates:

	September 30,		December 31,
	2018		2017
Management fees	$	4,164	$	3,748
Incentive compensation	3,286		—
Expense reimbursements and other	250		694
	$	7,700	$	4,442

Affiliates Expenses — The following table contains the amounts included in KREF's Condensed Consolidated Statements of Income that arose from transactions with the Manager:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Management fees	$	4,164	$	3,989	$	12,016	$	9,513
Incentive compensation	3,286		—		3,286		—
Expense reimbursements and other(A)	37		366		767		931
	$	7,487	$	4,355	$	16,069	$	10,444

(A)

KREF presents these amounts in "Operating Expenses — General and administrative" in its Condensed Consolidated Statements of Income. Affiliate expense reimbursements presented in the table above exclude the out-of-pocket costs paid by the Manager to parties unaffiliated with the Manager on behalf of KREF, and for which KREF reimburses the Manager in cash. For the three and nine months ended September 30, 2018, these cash reimbursements were $0.3 million and $2.5 million, respectively. For the three and nine months ended September 30, 2017, these cash reimbursements were $0.9 million and $1.1 million, respectively.

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Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2018

Fair Value Disclosures [Abstract]

Fair Value, by Balance Sheet Grouping

The carrying values and fair values of KREF’s financial assets and liabilities recorded at fair value on a recurring basis, as well as other financial instruments not carried at fair value, as of September 30, 2018 were as follows:

					Fair Value
	Principal Balance(A)		Carrying Value(B)		Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents	$	192,771	$	192,771	$	192,771	$	—	$	—	$	192,771
Commercial mortgage loans, held-for-investment, net(C)	3,282,184		3,261,878		—		—		3,266,234		3,266,234
Equity method investments, at fair value	24,745		24,745		—		—		24,745		24,745
Commercial mortgage loans held in variable interest entities, at fair value	1,130,672		1,100,089		—		—		1,100,089		1,100,089
	$	4,630,372	$	4,579,483	$	192,771	$	—	$	4,391,068	$	4,583,839
Liabilities
Secured financing agreements, net	$	2,126,047	$	2,115,954	$	—	$	—	$	2,126,047	$	2,126,047
Convertible notes, net	143,750		137,339		146,208		—		—		146,208
Loan participations sold, net	83,886		83,442		—		—		83,257		83,257
Variable interest entity liabilities, at fair value	1,095,731		1,086,939		—		—		1,086,939		1,086,939
	$	3,449,414	$	3,423,674	$	146,208	$	—	$	3,296,243	$	3,442,451

(A) The principal balance of commercial mortgage loans excludes premiums and unamortized discounts.

(B) The carrying value of commercial mortgage loans is presented net of $20.3 million unamortized origination discounts and deferred nonrefundable fees. The carrying value of secured financing agreements is presented net of $10.1 million unamortized debt issuance costs.

(C) Includes senior loans for which KREF sold a loan participation that was not treated as a sale under GAAP, with a carrying value of $83.4 million and a fair value of $83.3 million as of September 30, 2018.

The carrying values and fair values of KREF’s financial assets recorded at fair value on a recurring basis, as well as other financial instruments for which fair value is disclosed, as of December 31, 2017 were as follows:

					Fair Value
	Principal Balance(A)		Carrying Value(B)		Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents	$	103,120	$	103,120	$	103,120	$	—	$	—	$	103,120
Restricted cash	400		400		400		—		—		400
Commercial mortgage loans, held-for-investment, net(C)	1,901,693		1,888,510		—		—		1,894,870		1,894,870
Equity method investments, at fair value	14,390		14,390		—		—		14,390		14,390
Commercial mortgage loans held in variable interest entities, at fair value	5,305,976		5,372,811		—		—		5,372,811		5,372,811
	$	7,325,579	$	7,379,231	$	103,520	$	—	$	7,282,071	$	7,385,591
Liabilities
Secured financing agreements, net	$	969,347	$	964,800	$	—	$	—	$	969,347	$	969,347
Loan participations sold, net	82,000		81,472		—		—		81,836		81,836
Variable interest entity liabilities, at fair value	4,996,817		5,256,926		—		—		5,256,926		5,256,926
	$	6,048,164	$	6,303,198	$	—	$	—	$	6,308,109	$	6,308,109

(A) The principal balance of commercial mortgage loans excludes premiums and discounts.

(B) The carrying value of commercial mortgage loans is presented net of $13.2 million origination discounts and deferred nonrefundable fees. The carrying value of secured financing agreements is presented net of $4.5 million unamortized debt issuance costs.

(C) Includes senior loans for which KREF sold a loan participation that was not treated as a sale under GAAP, with a carrying value of $81.5 million and a fair value of $81.8 million as of December 31, 2017.

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation

KREF reported the following financial assets and liabilities at fair value on a recurring basis using Level 3 inputs as of September 30, 2018.

	Assets			Liabilities
	Commercial Mortgage Loans Held in Variable Interest Entities, at Fair Value			Variable Interest Entity Liabilities, at Fair Value			Net
Balance as of December 31, 2017	$	5,372,811		$	5,256,926		$	115,885
Gains (losses) included in net income
Realized gain (loss)	13,000			—			13,000
Unrealized gain (loss) included in change in net assets related to consolidated variable interest entities	(94,643		)	(92,499		)	(2,144		)
Purchases and sales/repayments
Purchases	—			—			—
Sales/Repayments/Deconsolidation	(4,175,371		)	(4,062,624		)	(112,747		)
Other(A)	(15,708		)	(14,864		)	(844		)
Balance as of September 30, 2018	$	1,100,089		$	1,086,939		$	13,150

(A) Amounts principally consist of changes in accrued interest.

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation

KREF reported the following financial assets and liabilities at fair value on a recurring basis using Level 3 inputs as of September 30, 2018.

	Assets			Liabilities
	Commercial Mortgage Loans Held in Variable Interest Entities, at Fair Value			Variable Interest Entity Liabilities, at Fair Value			Net
Balance as of December 31, 2017	$	5,372,811		$	5,256,926		$	115,885
Gains (losses) included in net income
Realized gain (loss)	13,000			—			13,000
Unrealized gain (loss) included in change in net assets related to consolidated variable interest entities	(94,643		)	(92,499		)	(2,144		)
Purchases and sales/repayments
Purchases	—			—			—
Sales/Repayments/Deconsolidation	(4,175,371		)	(4,062,624		)	(112,747		)
Other(A)	(15,708		)	(14,864		)	(844		)
Balance as of September 30, 2018	$	1,100,089		$	1,086,939		$	13,150

(A)

Amounts principally consist of changes in accrued interest.

Fair Value Inputs, Liabilities, Level 3 Inputs

The following table contains the Level 3 inputs used to value assets and liabilities on a recurring and nonrecurring basis or where KREF discloses fair value as of September 30, 2018:

	Fair Value		Valuation Methodologies	Unobservable Inputs(A)	Weighted Average(B)	Range
Assets(C)
Commercial mortgage loans, held-for-investment, net	$	3,266,234	Discounted cash flow	Loan-to-value ratio	67.8%	49.4% - 80.3%
				Discount rate	6.7%	2.6% - 13.9%
Commercial mortgage loans held in variable interest entities, at fair value(D)	1,100,089		Discounted cash flow	Yield	8.3%	2.4% - 37.1%
	$	4,366,323
Liabilities
Secured financing agreements, net	$	2,126,047	Market comparable	Credit spread	1.8%	1.4% - 2.5%
Loan participations sold, net	83,257		Discounted cash flow	Loan-to-value ratio	52.9%	52.9% - 52.9%
				Discount rate	3.6%	2.6% - 4.6%
Variable interest entity liabilities, at fair value	1,086,939		Discounted cash flow	Yield	6.4%	2.4% - 16.5%
	$	3,296,243

(A) An increase (decrease) in the valuation input results in a decrease (increase) in value.

(B) Represents the average of the input value, weighted by the unpaid principal balance of the financial instrument.

(C) KREF carries a $24.4 million investment in an aggregator vehicle alongside RECOP (Note 7) at its pro rata share of the aggregator's net asset value, which management believes approximates fair value.

(D)

Management measures the fair value of "Commercial mortgage loans held in variable interest entities, at fair value" using the fair value of the CMBS trust liabilities. The Level 3 inputs presented in the table above reflect the inputs used to value the CMBS trust liabilities, including the CMBS beneficially owned by KREF stockholders eliminated in consolidation of the CMBS trusts.

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Subsequent Events (Tables)

9 Months Ended

Sep. 30, 2018

Subsequent Events [Abstract]

Subsequent event investing activities

KREF originated the following senior loan subsequent to September 30, 2018:

Description/ Location	Property Type	Month Originated	Maximum Face Amount		Initial Face Amount Funded		Interest Rate(A)	Maturity Date(B)	LTV
Senior Loan, Queens, NY	Multifamily	October 2018	$	45,000	$	42,000	L + 2.8%	November 2023	70%
Senior Loan, Philadelphia, NY	Multifamily	October 2018	$	77,000	$	77,000	L + 2.7	November 2023	73%
Total/Weighted Average			$	122,000	$	119,000	L + 2.7%		72%

(A) Floating rate based on one-month USD LIBOR.

(B) Maturity date assumes all extension options are exercised, if applicable.

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Business and Organization (Details) - KKR	Sep. 30, 2018 shares
KREF
Related Party Transaction [Line Items]
Common stock (shares)	23,758,616
KKR Real Estate FInance Trust Inc. on Behalf of Third Party
Related Party Transaction [Line Items]
Common stock (shares)	3,758,616

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Summary of Significant Accounting Policies (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017		Sep. 30, 2017	Dec. 31, 2016
Related Party Transaction [Line Items]
Convertible notes, net	$ 137,339	$ 0	[1]
Restricted cash	0	400	[1]
Unrestricted cash and cash equivalents balance to satisfy liquidity covenants	19,300	12,100
Deferred debt issuance costs, net	16,500	4,600
Other assets	20,046	7,239	[1]
Deferred stock issuance costs	2,400	2,100
Redeemable preferred stock	$ 402
Consolidated Joint Venture One
Related Party Transaction [Line Items]
Noncontrolling interest ownership percentage by parent	95.00%
Redeemable preferred stock	$ 0	3,090	[1]	$ 3,053	$ 3,030
Consolidated Joint Venture One | Third-Parties
Related Party Transaction [Line Items]
Noncontrolling interest ownership percentage	5.00%
Consolidated Joint Venture Two
Related Party Transaction [Line Items]
Redeemable preferred stock	$ 402	949	[1]	$ 949	$ 0
Secured Financing Agreements
Related Party Transaction [Line Items]
Accumulated amortization	(800)	$ (500)
Redeemable Noncontrolling Interest
Related Party Transaction [Line Items]
Convertible notes, net	$ 1,300

[1] Derived from the audited consolidated financial statements as of December 31, 2017.

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Commercial Mortgage Loans - Loans Held-for-investment and Loans Held-for-sale (Details) $ in Thousands			9 Months Ended	12 Months Ended
	Sep. 30, 2018 USD ($) loan	Dec. 31, 2017 USD ($) loan	Sep. 30, 2018 USD ($) loan	Dec. 31, 2017 USD ($) loan
Investment Holdings [Line Items]
Carrying Value	$ 3,261,878	$ 1,888,510	$ 3,261,878	$ 1,888,510
Loans held-for-investment
Investment Holdings [Line Items]
Outstanding Face Amount	3,282,184	1,901,693	3,282,184	1,901,693
Carrying Value	$ 3,261,878	$ 1,888,510	3,261,878	1,888,510
Loan Count | loan	35	28
Floating Rate Loan	99.20%	98.60%
Coupon	5.90%	6.10%
Life (Years)	3 years 10 months 24 days	3 years 8 months 12 days
Loans held-for-investment | Senior loans
Investment Holdings [Line Items]
Outstanding Face Amount	$ 3,226,649	$ 1,794,963	3,226,649	1,794,963
Carrying Value	$ 3,206,484	$ 1,782,054	3,206,484	1,782,054
Loan Count | loan	27	18
Floating Rate Loan	100.00%	100.00%
Coupon	5.80%	5.80%
Life (Years)	3 years 9 months 18 days	3 years 8 months 12 days
Loans held-for-investment | Mezzanine loans
Investment Holdings [Line Items]
Outstanding Face Amount	$ 55,535	$ 106,730	55,535	106,730
Carrying Value	$ 55,394	$ 106,456	$ 55,394	$ 106,456
Loan Count | loan	8	10
Floating Rate Loan	52.80%	75.40%
Coupon	11.80%	11.30%
Life (Years)	4 years 3 months 18 days	3 years 8 months 12 days
Consolidated Joint Venture One | Redeemable Noncontrolling Interest
Investment Holdings [Line Items]
Noncontrolling interest ownership percentage	5.00%		5.00%
Consolidated Joint Venture One | Loans held-for-investment | Variable Interest Entity, Primary Beneficiary
Investment Holdings [Line Items]
Loan Count | loan			6	7
Consolidated Joint Venture One | Loans held-for-investment | Mezzanine loans | Variable Interest Entity, Primary Beneficiary
Investment Holdings [Line Items]
Outstanding Face Amount	$ 26,200	$ 61,200	$ 26,200	$ 61,200
Senior Participation Loan
Investment Holdings [Line Items]
Carrying Value	83,442	81,500	83,442	81,500
Senior Participation Loan | Loans held-for-investment | Senior loans
Investment Holdings [Line Items]
Outstanding Face Amount	83,900	82,000	83,900	82,000
Carrying Value	$ 83,500	$ 81,500	$ 83,500	$ 81,500
Minimum | LIBOR
Investment Holdings [Line Items]
Interest Rate	2.26%
Maximum | LIBOR
Investment Holdings [Line Items]
Interest Rate		1.56%

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Commercial Mortgage Loans - Activities Related to Carrying Value of Mortgage Loans (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2018 USD ($)
SEC Schedule, 12-29, Real Estate Companies, Investment in Movement in Mortgage Loans on Real Estate [Roll Forward]
Beginning balance	$ 1,888,510
Purchases and originations, net	1,697,074
Proceeds from principal repayments	(330,939)
Accretion of loan discount and other amortization, net	7,233
Ending balance	3,261,878
Loans held-for-investment
SEC Schedule, 12-29, Real Estate Companies, Investment in Movement in Mortgage Loans on Real Estate [Roll Forward]
Beginning balance	1,888,510
Purchases and originations, net	1,697,074
Proceeds from principal repayments	(330,939)
Accretion of loan discount and other amortization, net	7,233
Ending balance	3,261,878
Loans held-for-sale
SEC Schedule, 12-29, Real Estate Companies, Investment in Movement in Mortgage Loans on Real Estate [Roll Forward]
Beginning balance	0
Purchases and originations, net	0
Proceeds from principal repayments	0
Accretion of loan discount and other amortization, net	0
Ending balance	$ 0

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Commercial Mortgage Loans - Narrative (Details) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Investment Holdings [Line Items]
Unamortized origination discounts and deferred nonrefundable fees	$ 20.3	$ 13.2
Loans held-for-investment
Investment Holdings [Line Items]
Unamortized origination discounts and deferred nonrefundable fees	$ 20.3	$ 13.2
Loans held-for-investment | Credit Concentration Risk
Investment Holdings [Line Items]
Concentration of credit risk	100.00%

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Commercial Mortgage Loans - Loan Risk Ratings (Details) $ in Thousands	Sep. 30, 2018 USD ($) loan	Dec. 31, 2017 USD ($) loan
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Carrying Value	$ 3,261,878	$ 1,888,510
Mortgage Loans on Real Estate, Total Exposure	$ 66,600	$ 63,000
Commercial Mortgage Loan
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Number of loans | loan	35	28
Carrying Value	$ 3,261,878	$ 1,888,510
Mortgage Loans on Real Estate, Total Exposure	$ 3,348,793	$ 1,964,645
Commercial Mortgage Loan | 1
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Number of loans | loan	0	0
Carrying Value	$ 0	$ 0
Mortgage Loans on Real Estate, Total Exposure	$ 0	$ 0
Commercial Mortgage Loan | 2
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Number of loans | loan	8	4
Carrying Value	$ 446,525	$ 155,092
Mortgage Loans on Real Estate, Total Exposure	$ 448,821	$ 156,123
Commercial Mortgage Loan | 3
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Number of loans | loan	27	23
Carrying Value	$ 2,815,353	$ 1,717,000
Mortgage Loans on Real Estate, Total Exposure	$ 2,899,972	$ 1,792,022
Commercial Mortgage Loan | 4
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Number of loans | loan	0	1
Carrying Value	$ 0	$ 16,418
Mortgage Loans on Real Estate, Total Exposure	$ 0	$ 16,500
Commercial Mortgage Loan | 5
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Line Items]
Number of loans | loan	0	0
Carrying Value	$ 0	$ 0
Mortgage Loans on Real Estate, Total Exposure	$ 0	$ 0

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Commercial Mortgage Loans - Concentration of Credit Risk (Details) - Loans held-for-investment	9 Months Ended	12 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Geography
Concentration Risk [Line Items]
Concentration of credit risk	100.00%	100.00%
Geography | New York
Concentration Risk [Line Items]
Concentration of credit risk	25.40%	29.30%
Geography | Georgia
Concentration Risk [Line Items]
Concentration of credit risk	13.30%	11.00%
Geography | Washington
Concentration Risk [Line Items]
Concentration of credit risk	10.20%	0.00%
Geography | California
Concentration Risk [Line Items]
Concentration of credit risk	9.20%	14.90%
Geography | Minnesota
Concentration Risk [Line Items]
Concentration of credit risk	6.80%	7.00%
Geography | Florida
Concentration Risk [Line Items]
Concentration of credit risk	5.90%	2.20%
Geography | Massachusetts
Concentration Risk [Line Items]
Concentration of credit risk	5.90%	0.00%
Geography | New Jersey
Concentration Risk [Line Items]
Concentration of credit risk	4.40%	7.10%
Geography | Pennsylvania
Concentration Risk [Line Items]
Concentration of credit risk	4.30%	0.00%
Geography | Oregon
Concentration Risk [Line Items]
Concentration of credit risk	3.70%	6.30%
Geography | Hawaii
Concentration Risk [Line Items]
Concentration of credit risk	3.10%	5.30%
Geography | Colorado
Concentration Risk [Line Items]
Concentration of credit risk	2.90%	5.10%
Geography | Washington D.C.
Concentration Risk [Line Items]
Concentration of credit risk	2.80%	4.20%
Geography | Tennessee
Concentration Risk [Line Items]
Concentration of credit risk	1.60%	2.80%
Geography | Other U.S.
Concentration Risk [Line Items]
Concentration of credit risk	0.50%	4.80%
Collateral Property Type
Concentration Risk [Line Items]
Concentration of credit risk	100.00%	100.00%
Collateral Property Type | Office
Concentration Risk [Line Items]
Concentration of credit risk	53.00%	41.70%
Collateral Property Type | Multifamily
Concentration Risk [Line Items]
Concentration of credit risk	33.30%	24.70%
Collateral Property Type | Condo (Residential)
Concentration Risk [Line Items]
Concentration of credit risk	5.60%	10.80%
Collateral Property Type | Industrial
Concentration Risk [Line Items]
Concentration of credit risk	4.00%	6.80%
Collateral Property Type | Retail
Concentration Risk [Line Items]
Concentration of credit risk	3.90%	13.80%
Collateral Property Type | Hospitality
Concentration Risk [Line Items]
Concentration of credit risk	0.20%	2.20%

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Debt Obligations - Summary of Debt (Details)		1 Months Ended					9 Months Ended
	Apr. 16, 2018 trust	Dec. 31, 2017 USD ($) extension		Oct. 31, 2017 USD ($)	May 31, 2017 extension	Apr. 30, 2017 extension	Sep. 30, 2018 USD ($)	Sep. 02, 2018 USD ($)	Sep. 01, 2018 USD ($)	Aug. 31, 2018 USD ($)	Nov. 01, 2017 USD ($)	May 01, 2017 USD ($)
Debt Instrument [Line Items]
Outstanding Face Amount							$ 3,221,778,000
Carrying Value		$ 1,888,510,000					3,261,878,000
Unamortized debt issuance costs		$ 4,500,000					$ 5,600,000
Average haircut weighted by outstanding face amount of collateral		32.90%					28.80%
Average haircut weighted by outstanding face amount of collateral is maximum amount is borrowed		27.30%					25.60%
Deferred debt issuance costs, net		$ 4,600,000					$ 16,500,000
Accrued interest payable		1,623,000	[1]				6,376,000
Accrued interest receivable		8,423,000	[1]				12,395,000
Variable Interest Entity, Primary Beneficiary
Debt Instrument [Line Items]
Outstanding Face Amount							1,095,731,000
Carrying Value		5,256,926,000					$ 1,086,939,000
Weighted Average Funding Cost							4.40%
Weighted Average Life (Years)							6 years 3 months 18 days
Number of trusts | trust	5
Accrued interest payable		18,661,000					$ 3,828,000
Accrued interest receivable		19,740,000	[1]				4,015,000
Facility
Debt Instrument [Line Items]
Maximum Facility Size							400,000,000.0
CMBS
Debt Instrument [Line Items]
Carrying Value		5,256,926,000					1,086,939,000
CMBS | Variable Interest Entity, Primary Beneficiary
Debt Instrument [Line Items]
Outstanding Face Amount							1,095,731,000
Carrying Value		5,256,926,000					$ 1,086,939,000
Weighted Average Funding Cost							4.40%
Weighted Average Life (Years)							6 years 3 months 18 days
Outstanding Face Amount							$ 1,130,672,000
Carrying Value							$ 1,100,089,000
Weighted Average Life (Years)							6 years 3 months 18 days
Accrued interest payable		18,700,000					$ 3,800,000
Accrued interest receivable		19,700,000					4,000,000.0
Secured Financing Agreements | Facility
Debt Instrument [Line Items]
Carrying Value		964,800,000					2,115,954,000
Secured Financing Agreements | Wells Fargo | Facility
Debt Instrument [Line Items]
Outstanding Face Amount							791,297,000
Carrying Value		482,146,000					787,487,000
Maximum Facility Size							$ 1,000,000,000	$ 1,000,000,000.0
Weighted Average Funding Cost							4.40%
Weighted Average Life (Years)							1 year 9 months 18 days
Outstanding Face Amount							$ 1,096,789,000
Carrying Value							$ 1,090,273,000
Weighted Average Life (Years)							3 years 10 months 24 days
Number of extensions | extension						2
Extension term						12 months
Secured Financing Agreements | Wells Fargo | Facility | Minimum
Debt Instrument [Line Items]
Collateral based margin							1.50%
Secured Financing Agreements | Wells Fargo | Facility | Maximum
Debt Instrument [Line Items]
Collateral based margin							2.15%
Secured Financing Agreements | Morgan Stanley | Facility
Debt Instrument [Line Items]
Outstanding Face Amount							$ 483,558,000
Carrying Value		$ 421,904,000					482,064,000
Maximum Facility Size				$ 500,000,000.0			$ 600,000,000		$ 750,000,000.0		$ 600,000,000.0
Weighted Average Funding Cost							4.60%
Weighted Average Life (Years)							1 year 6 months
Outstanding Face Amount							$ 709,123,000
Carrying Value							$ 705,658,000
Weighted Average Life (Years)							3 years 2 months 12 days
Number of extensions | extension		1
Extension term		12 months
Additional borrowing capacity											750,000,000.0
Secured Financing Agreements | Morgan Stanley | Facility | Minimum
Debt Instrument [Line Items]
Collateral based margin							2.00%
Secured Financing Agreements | Morgan Stanley | Facility | Maximum
Debt Instrument [Line Items]
Collateral based margin							2.45%
Secured Financing Agreements | Goldman Sachs | Facility
Debt Instrument [Line Items]
Outstanding Face Amount							$ 268,709,000
Carrying Value		$ 60,750,000					268,709,000
Maximum Facility Size							$ 400,000,000
Weighted Average Funding Cost							4.40%
Weighted Average Life (Years)				3 years			1 year 4 months 24 days
Outstanding Face Amount							$ 362,191,000
Carrying Value							$ 359,960,000
Weighted Average Life (Years)							4 years 3 months 18 days
Deferred debt issuance costs, net							$ 1,500,000
Secured Financing Agreements | Goldman Sachs | Facility | Minimum
Debt Instrument [Line Items]
Collateral based margin							1.70%
Secured Financing Agreements | Goldman Sachs | Facility | Maximum
Debt Instrument [Line Items]
Collateral based margin							2.00%
Secured Financing Agreements | BMO Harris | Facility
Debt Instrument [Line Items]
Outstanding Face Amount							$ 0
Carrying Value		0					(316,000)
Maximum Facility Size							$ 200,000,000
Weighted Average Funding Cost							0.20%
Weighted Average Life (Years)							0 years
Outstanding Face Amount							$ 0
Carrying Value							$ 0
Weighted Average Life (Years)							0 days
Secured Financing Agreements | Barclays Bank PLC. | Facility
Debt Instrument [Line Items]
Outstanding Face Amount							$ 0
Carrying Value							0
Maximum Facility Size							$ 75,000,000					$ 75,000,000.0
Weighted Average Funding Cost							1.10%
Weighted Average Life (Years)							0 years
Number of extensions | extension					1
Extension term					12 months
Deferred debt issuance costs, net							$ 800,000
Loan Facility | Facility
Debt Instrument [Line Items]
Maximum Facility Size							0			$ 200,000,000.0
Term Facility | Goldman Sachs | Facility
Debt Instrument [Line Items]
Maximum Facility Size											350,000,000.0
Swingline Facility | Goldman Sachs | Facility
Debt Instrument [Line Items]
Maximum Facility Size											$ 50,000,000.0
Revolving Credit Facility | Goldman Sachs | Facility
Debt Instrument [Line Items]
Weighted Average Life (Years)				1 year
Total Debt
Debt Instrument [Line Items]
Outstanding Face Amount							2,639,295,000
Carrying Value		6,221,726,000					2,624,883,000
Maximum Facility Size							$ 2,275,000,000
Weighted Average Funding Cost							4.40%
Weighted Average Life (Years)							3 years 7 months 6 days
Total Debt | Secured Financing Agreements
Debt Instrument [Line Items]
Outstanding Face Amount							$ 2,168,103,000
Carrying Value							2,155,891,000
Total Debt | Secured Financing Agreements | Facility
Debt Instrument [Line Items]
Outstanding Face Amount							1,543,564,000
Carrying Value		$ 964,800,000					1,537,944,000
Maximum Facility Size							$ 2,275,000,000
Weighted Average Funding Cost							4.40%
Weighted Average Life (Years)							1 year 7 months 6 days

[1] Derived from the audited consolidated financial statements as of December 31, 2017.

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Debt Obligations - Repurchase Agreement (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Repurchase Agreement Counterparty [Line Items]
Outstanding Face Amount	$ 3,221,778
Wells Fargo
Repurchase Agreement Counterparty [Line Items]
Outstanding Face Amount		$ 485,250
Net Counterparty Exposure	$ 304,871	$ 203,303
Percent of Stockholders' Equity	26.60%	19.20%
Weighted Average Years to Maturity	1 year 9 months 18 days	1 year 7 months 6 days
Morgan Stanley
Repurchase Agreement Counterparty [Line Items]
Outstanding Face Amount		$ 423,347
Net Counterparty Exposure	$ 224,557	$ 251,463
Percent of Stockholders' Equity	19.60%	23.70%
Weighted Average Years to Maturity	1 year 6 months	2 years
Wells Fargo, National Association and Morgan Stanley, N.A.
Repurchase Agreement Counterparty [Line Items]
Outstanding Face Amount	$ 1,274,855	$ 908,597
Net Counterparty Exposure	$ 529,428	$ 454,766
Percent of Stockholders' Equity	46.20%	42.90%
Weighted Average Years to Maturity	1 year 8 months 12 days	1 year 9 months 18 days

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Debt Obligations - Term Loan Facility (Details) $ in Thousands		3 Months Ended
	Jun. 30, 2018	Sep. 30, 2018 USD ($) loan	Apr. 30, 2018 USD ($)
Debt Instrument [Line Items]
Weighted average interest rate		3.00%
Facility | Term Loan Facility I
Debt Instrument [Line Items]
Borrowing capacity		$ 600,000	$ 200,000
Term (in years)		5 years
Weighted average interest rate		1.40%
Debt instrument, interest rate, stated percentage		3.70%
Carrying value		$ 578,010
Number of collateralized loans | loan		6
Unpaid principal balance		$ 717,500
Debt instrument, face amount		582,483
Fair value		$ 711,982
Interest Rate	1.70%
Collateralized Securities | Facility | Term Loan Facility I
Debt Instrument [Line Items]
Interest Rate	3.00%

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Debt Obligations - Debt Activity (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Debt Instrument, Increase (Decrease), Net [Roll Forward]
Deferred debt issuance costs	$ (9,702)	$ (3,051)
Fair value adjustment	(92,499)
All Debt Instruments, Excluding Instruments Treated as Lines of Credit
Debt Instrument, Increase (Decrease), Net [Roll Forward]
Beginning balance	6,221,726
Principal borrowings	1,607,725
Principal repayments/ sales/ deconsolidation	(4,513,650)
Deferred debt issuance costs	(8,562)
Amortization of deferred debt issuance costs and premium/discount on debt obligations	3,017
Fair value adjustment	(92,499)
Other	(14,864)
Ending balance	3,202,893
Facility | Secured Financing Agreements
Debt Instrument, Increase (Decrease), Net [Roll Forward]
Beginning balance	964,800
Principal borrowings	1,607,725
Principal repayments/ sales/ deconsolidation	(451,026)
Deferred debt issuance costs	(8,562)
Amortization of deferred debt issuance costs and premium/discount on debt obligations	3,017
Fair value adjustment	0
Other	0
Ending balance	2,115,954
CMBS
Debt Instrument, Increase (Decrease), Net [Roll Forward]
Beginning balance	5,256,926
Principal borrowings	0
Principal repayments/ sales/ deconsolidation	(4,062,624)
Deferred debt issuance costs	0
Amortization of deferred debt issuance costs and premium/discount on debt obligations	0
Fair value adjustment	(92,499)
Other	(14,864)
Ending balance	$ 1,086,939

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Debt Obligations - Maturities (Details) $ in Thousands	Sep. 30, 2018 USD ($)
Debt Instrument [Line Items]
2018	$ 2,779
2019	518,530
2020	1,164,991
2021	484,634
2022	71,065
Thereafter	979,779
Total Long Term Debt	$ 3,221,778
Recourse limit	25.00%
Nonrecourse
Debt Instrument [Line Items]
2018	$ 2,779
2019	13,098
2020	179,359
2021	484,634
2022	18,565
Thereafter	979,779
Total Long Term Debt	1,678,214
Recourse
Debt Instrument [Line Items]
2018	0
2019	505,432
2020	985,632
2021	0
2022	52,500
Thereafter	0
Total Long Term Debt	$ 1,543,564

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Debt Obligations - Covenants (Details) $ in Millions	9 Months Ended
	Sep. 30, 2018 USD ($)
Debt Disclosure [Abstract]
Interest income to interest expense ratio	1.5
Percent of aggregate cash proceeds and any capital contributions	75.00%
Amount of aggregate cash proceeds and any capital contributions	$ 800.0
Cash liquidity covenant, percent of recourse indebtedness (greater of)	5.00%
Total indebtedness covenant, percent of total assets, net of VIE liabilities	75.00%
Debt to equity ratio, minimum	3.5
Fixed charge interest ratio, minimum	1.5

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Convertible Notes, Net - Narrative (Details) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	3 Months Ended		9 Months Ended
	May 31, 2018	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Debt Instrument [Line Items]
Outstanding Face Amount		$ 3,221,778		$ 3,221,778
Affiliate expenses		7,487	$ 4,355	16,069	$ 10,444
Amortization of debt discount				(7,206)	$ (2,301)
Accrued interest payable		6,376		6,376		$ 1,623	[1]
Convertible Debt
Debt Instrument [Line Items]
Affiliate expenses				4,500
Convertible Notes Payable
Debt Instrument [Line Items]
Debt issuance costs, gross		4,745		4,745		0
Convertible Notes Payable | Notes Due in 2023
Debt Instrument [Line Items]
Outstanding Face Amount	$ 143,750
Debt instrument, interest rate, stated percentage	6.125%
Debt issuance costs, gross	$ 5,100	$ 5,100		$ 5,100
Debt instrument, convertible, shares issued				43.9386
Debt Instrument, convertible, conversion price		$ 22.76		$ 22.76
Debt instrument, convertible, conversion premium				10.00%
Debt instrument, convertible, conversion price less premium		$ 20.69		$ 20.69
Amortization of debt discount	$ 1,800
Debt instrument, interest rate, effective percentage	6.50%	6.92%		6.92%
Accrued interest payable		$ 3,300		$ 3,300		$ 0
KKR Credit & Markets | Convertible Debt
Debt Instrument [Line Items]
Affiliate expenses				$ 800

[1] Derived from the audited consolidated financial statements as of December 31, 2017.

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Convertible Notes, Net - Interest Expense, Debt (Details) - Convertible Notes Payable - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Debt Instrument [Line Items]
Cash coupon	$ 2,201	$ 0	$ 3,253	$ 0
Discount and issuance cost amortization	349	0	512	0
Total interest expense	$ 2,550	$ 0	$ 3,765	$ 0

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Convertible Notes, Net - Convertible Notes, Net (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Debt Instrument [Line Items]
Convertible senior notes, net	$ 137,339	$ 0	[1]
Convertible Notes Payable
Debt Instrument [Line Items]
Debt instrument, face amount	143,750	0
Deferred financing costs	(4,745)	0
Unamortized discount	(1,666)	0
Convertible senior notes, net	$ 137,339	$ 0

[1] Derived from the audited consolidated financial statements as of December 31, 2017.

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Loan Participations Sold (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($) loan	Sep. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)
Participating Mortgage Loans [Line Items]
Carrying Value	$ 3,261,878		$ 3,261,878		$ 1,888,510
Weighted average interest rate	3.00%		3.00%
Interest income	$ 28,558	$ 18,994	$ 71,127	$ 42,168
Total loan
Participating Mortgage Loans [Line Items]
Number of loans sold | loan			1
Principal Balance	97,440		$ 97,440
Carrying Value	97,024		$ 97,024
Senior Participation Loan
Participating Mortgage Loans [Line Items]
Number of loans sold | loan			1
Principal Balance	83,886		$ 83,886
Carrying Value	$ 83,442		$ 83,442		$ 81,500
Weighted average interest rate	1.80%		1.80%
Partial recourse, amount	$ 10,000		$ 10,000
Interest income			2,300
Interest expense			$ 2,400

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Variable Interest Entities - Narrative (Details) $ in Thousands		1 Months Ended	3 Months Ended		9 Months Ended
	Apr. 16, 2018 USD ($) trust	Jun. 30, 2018 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($) investment	Sep. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)
Variable Interest Entity [Line Items]
Realized gain on sale of investments			$ 0	$ 0	$ 13,000	$ 0
Number of equity method investments | investment					2
Variable Interest Entity, Primary Beneficiary
Variable Interest Entity [Line Items]
Number of trusts sold | trust	4
Number of trusts | trust	5
Payments to acquire noncontrolling interest		$ 1,300
Variable Interest Entity, Primary Beneficiary | Consolidated Joint Venture One | Loans held-for-investment
Variable Interest Entity [Line Items]
Ownership percentage in VIE					95.00%
CMBS | Variable Interest Entity, Primary Beneficiary
Variable Interest Entity [Line Items]
Unpaid principal balance	$ 112,700		34,900		$ 34,900		$ 309,200
Fair value			$ 13,000		$ 13,000		114,900
Realized gain on sale of investments	$ 13,000
Face amount of sold investment							94,400
Fair value of sold investment							$ 99,700
RECOP | Variable Interest Entity, Not Primary Beneficiary
Variable Interest Entity [Line Items]
Ownership percentage in VIE					3.50%
KKR Manager | Variable Interest Entity, Not Primary Beneficiary
Variable Interest Entity [Line Items]
Ownership percentage in VIE					4.70%

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Variable Interest Entities - Recognized Trusts' Assets and Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Variable Interest Entity [Line Items]
Accrued interest receivable	$ 12,395	$ 8,423	[1]
Accrued interest payable	6,376	1,623	[1]
Variable Interest Entity, Primary Beneficiary
Variable Interest Entity [Line Items]
Commercial mortgage loans held in variable interest entities, at fair value	1,100,089	5,372,811	[1]
Accrued interest receivable	4,015	19,740	[1]
Variable interest entity liabilities, at fair value	1,086,939	5,256,926
Accrued interest payable	$ 3,828	$ 18,661

[1] Derived from the audited consolidated financial statements as of December 31, 2017.

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Variable Interest Entities - Change in Net Assets Related to Consolidated Variable Interest Entities (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Variable Interest Entity [Line Items]
Net interest earned	$ 28,558	$ 18,994	$ 71,127	$ 42,168
Change in net assets related to consolidated variable interest entities	379	4,025	2,460	12,810
Variable Interest Entity, Primary Beneficiary
Variable Interest Entity [Line Items]
Net interest earned	584	3,138	4,604	9,357
Unrealized gain (loss)	(205)	887	(2,144)	3,453
Change in net assets related to consolidated variable interest entities	$ 379	$ 4,025	$ 2,460	$ 12,810

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Variable Interest Entities - Concentration of Credit Risk (Details) - Variable Interest Entities, CMBS	9 Months Ended	12 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Geography
Concentration Risk [Line Items]
Concentration of credit risk	100.00%	100.00%
Geography | California
Concentration Risk [Line Items]
Concentration of credit risk	33.30%	23.20%
Geography | Texas
Concentration Risk [Line Items]
Concentration of credit risk	11.10%	12.70%
Geography | New York
Concentration Risk [Line Items]
Concentration of credit risk	8.30%	9.10%
Geography | Missouri
Concentration Risk [Line Items]
Concentration of credit risk	5.30%	4.60%
Geography | Pennsylvania
Concentration Risk [Line Items]
Concentration of credit risk	5.20%	4.50%
Geography | Florida
Concentration Risk [Line Items]
Concentration of credit risk	4.20%	5.50%
Geography | Massachusetts
Concentration Risk [Line Items]
Concentration of credit risk	3.60%	1.70%
Geography | Illinois
Concentration Risk [Line Items]
Concentration of credit risk	2.70%	7.10%
Geography | Georgia
Concentration Risk [Line Items]
Concentration of credit risk	2.60%	2.90%
Geography | New Hampshire
Concentration Risk [Line Items]
Concentration of credit risk	2.40%	1.00%
Geography | Delaware
Concentration Risk [Line Items]
Concentration of credit risk	2.00%	1.30%
Geography | Virginia
Concentration Risk [Line Items]
Concentration of credit risk	1.70%	1.20%
Geography | Other U.S.
Concentration Risk [Line Items]
Concentration of credit risk	17.60%	25.20%
Collateral Property Type
Concentration Risk [Line Items]
Concentration of credit risk	100.00%	100.00%
Collateral Property Type | Office
Concentration Risk [Line Items]
Concentration of credit risk	28.40%	25.20%
Collateral Property Type | Office
Concentration Risk [Line Items]
Concentration of credit risk	27.40%	26.40%
Collateral Property Type | Hospitality
Concentration Risk [Line Items]
Concentration of credit risk	13.00%	15.00%
Collateral Property Type | Multifamily
Concentration Risk [Line Items]
Concentration of credit risk	9.90%	10.60%
Collateral Property Type | Industrial
Concentration Risk [Line Items]
Concentration of credit risk	9.60%	9.60%
Collateral Property Type | Mixed Use
Concentration Risk [Line Items]
Concentration of credit risk	5.90%	3.00%
Collateral Property Type | Self Storage
Concentration Risk [Line Items]
Concentration of credit risk	3.80%	6.90%
Collateral Property Type | Mobile Home
Concentration Risk [Line Items]
Concentration of credit risk	1.80%	2.70%
Collateral Property Type | Other
Concentration Risk [Line Items]
Concentration of credit risk	0.20%	0.60%

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Equity - Schedule of Common Stock Issued (Details) - USD ($) $ / shares in Units, $ in Thousands	9 Months Ended			12 Months Ended
	Sep. 30, 2018		Sep. 30, 2017	Dec. 31, 2017		Dec. 31, 2016	Mar. 31, 2016
Common Stock Issuance [Roll Forward]
Beginning balance	$ 1,059,145	[1]	$ 505,037	$ 505,037
Beginning balance (shares)	53,685,440
Issuance of stock	$ 99,500		580,306
Ending balance	$ 1,146,301		$ 1,061,950	$ 1,059,145	[1]	$ 505,037
Ending balance (shares)	58,022,590			53,685,440
Common Stock, Net
Common Stock Issuance [Roll Forward]
Beginning balance (shares)	53,711,838		24,158,392	24,158,392		13,636,416
Ending balance (shares)	58,711,838			53,711,838		24,158,392
Common Stock Including Additional Paid in Capital & Offering Costs
Common Stock Issuance [Roll Forward]
Beginning balance	$ 1,054,346		$ 479,733	$ 479,733		$ 272,728
Ending balance	$ 1,152,672			$ 1,054,346		$ 479,733
Private Placement
Class of Stock [Line Items]
Share price (usd per share)							$ 20.00
February 2016 | Common Stock, Net
Common Stock Issuance [Roll Forward]
Issuance of stock (shares)						2,000,000
February 2016 | Common Stock Including Additional Paid in Capital & Offering Costs
Common Stock Issuance [Roll Forward]
Issuance of stock						$ 40,000
May 2016 | Common Stock, Net
Common Stock Issuance [Roll Forward]
Issuance of stock (shares)						3,000,138
May 2016 | Common Stock Including Additional Paid in Capital & Offering Costs
Common Stock Issuance [Roll Forward]
Issuance of stock						$ 57,130
June 2016 | Common Stock, Net
Common Stock Issuance [Roll Forward]
Issuance of stock (shares)						21,838
June 2016 | Common Stock Including Additional Paid in Capital & Offering Costs
Common Stock Issuance [Roll Forward]
Issuance of stock						$ 0
August 2016 | Common Stock, Net
Common Stock Issuance [Roll Forward]
Issuance of stock (shares)						5,500,000
August 2016 | Common Stock Including Additional Paid in Capital & Offering Costs
Common Stock Issuance [Roll Forward]
Issuance of stock						$ 109,875
February 2017 | Common Stock, Net
Common Stock Issuance [Roll Forward]
Issuance of stock (shares)				7,386,208
February 2017 | Common Stock Including Additional Paid in Capital & Offering Costs
Common Stock Issuance [Roll Forward]
Issuance of stock				$ 147,662
April 2017 | Common Stock, Net
Common Stock Issuance [Roll Forward]
Issuance of stock (shares)				10,379,738
April 2017 | Common Stock Including Additional Paid in Capital & Offering Costs
Common Stock Issuance [Roll Forward]
Issuance of stock				$ 207,595
May 2017- Initial Public Offering | Common Stock, Net
Common Stock Issuance [Roll Forward]
Issuance of stock (shares)				11,787,500
May 2017- Initial Public Offering | Common Stock Including Additional Paid in Capital & Offering Costs
Common Stock Issuance [Roll Forward]
Issuance of stock				$ 219,356
August 2018 | Common Stock, Net
Common Stock Issuance [Roll Forward]
Issuance of stock (shares)	5,000,000

[1] Derived from the audited consolidated financial statements as of December 31, 2017.

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Equity - Narrative (Details) - USD ($)		1 Months Ended					9 Months Ended
	Jan. 23, 2015	Aug. 31, 2018	May 31, 2017	Apr. 30, 2017	Feb. 28, 2017	Mar. 31, 2016	Sep. 30, 2018	Sep. 30, 2017	Jun. 13, 2018	Dec. 31, 2017	Dec. 31, 2016	Jun. 30, 2016	Dec. 31, 2015	Oct. 02, 2014
Subsidiary, Sale of Stock [Line Items]
Common stock and preferred stock, shares authorized														350,000,000
Common stock par value (usd per share)							$ 0.01			$ 0.01				$ 0.01
Common stock authorized (shares)							300,000,000			300,000,000				300,000,000
Preferred stock authorized (shares)							50,000,000			50,000,000				50,000,000
Value of stock acquired per transaction for LLC interest allocation						$ 100,000,000.0
Stock repurchase program, authorized amount (up to)							$ 100,000,000.0	$ 100,000,000.0
Stock repurchase program, remaining authorized repurchase amount							$ (49,300,000)	(50,000,000.0)	$ (50,000,000.0)
Treasury stock, shares, acquired							697,109
Treasury stock acquired, average cost per share (dollars per share)							$ 19.54
Treasury stock, value, acquired							$ 13,600,000
Common stock issued (shares)							58,022,590			53,685,440
Common stock outstanding (shares)							58,022,590			53,685,440
Treasury stock, held (shares)							723,507			26,398
Preferred stock par or stated value (usd per share)							$ 0.01			$ 0.01
Value of stock redeemed								$ 125,000
Common Stock
Subsidiary, Sale of Stock [Line Items]
Sale of stock, number of shares issued in transaction		5,000,000
Share price (usd per share)		$ 19.90
Shares issued related to vesting of RSUs							34,259
Stock-based compensation, shares							34,259
Cumulative Preferred Stock
Subsidiary, Sale of Stock [Line Items]
Issuance of stock (shares)	125
Preferred stock par or stated value (usd per share)	$ 1,000.00		$ 1,000.00
Dividend rate	12.50%
Stock redeemed (shares)			125
Value of stock redeemed			$ 100,000
Redeemable Preferred Stock
Subsidiary, Sale of Stock [Line Items]
Issuance of stock (shares)					1
Preferred stock par or stated value (usd per share)	$ 0.01
Preferred stock share price (usd per share)					$ 0.01
Liquidation preference (usd per share)							$ 0.01
Redemption price (usd per share)							$ 0.01
Voting Preferred Stock
Subsidiary, Sale of Stock [Line Items]
Preferred stock share price (usd per share)						$ 20.00
Ownership percentage to retain voting rights						25.00%
KKR Real Estate FInance Manager L.L.C
Subsidiary, Sale of Stock [Line Items]
Common stock, percent of limited liability company interest						6.67%
KREF | KKR
Subsidiary, Sale of Stock [Line Items]
Common stock (shares)							23,758,616
Issued and outstanding common stock owned, percentage							41.00%
KKR Real Estate FInance Trust Inc. on Behalf of Third Party | KKR
Subsidiary, Sale of Stock [Line Items]
Common stock (shares)							3,758,616
Private Placement
Subsidiary, Sale of Stock [Line Items]
Capital commitment						$ 277,400,000
Share price (usd per share)						$ 20.00
Common stock issued (shares)												21,838
Private Placement | Common Stock
Subsidiary, Sale of Stock [Line Items]
Sale of stock, number of shares issued in transaction				10,379,738	7,386,208
Share price (usd per share)					$ 20.00
Sale of stock, consideration received on transaction				$ 207,600,000	$ 147,700,000
Private Placement, Third-parties and Current and Former Employees of, and Consultants to, KKR
Subsidiary, Sale of Stock [Line Items]
Capital commitment						$ 190,100,000
Private Placement, Third-parties
Subsidiary, Sale of Stock [Line Items]
Capital commitment						178,400,000
Private Placement, Current and Former Employees of, and Consultants to, KKR
Subsidiary, Sale of Stock [Line Items]
Capital commitment						11,800,000
Private Placement. KKR Fund Holdings
Subsidiary, Sale of Stock [Line Items]
Capital commitment						400,000,000.0
Private Placement, Third-parties Subsequent to Private Placement Completion
Subsidiary, Sale of Stock [Line Items]
Capital commitment						$ 248,000,000.0
IPO | Common Stock
Subsidiary, Sale of Stock [Line Items]
Sale of stock, number of shares issued in transaction			11,787,500
Share price (usd per share)			$ 20.50
Over-Allotment Option | Common Stock
Subsidiary, Sale of Stock [Line Items]
Sale of stock, number of shares issued in transaction		98,300,000	1,537,500				98,326,000
Consolidated Joint Venture One | Third-Parties
Subsidiary, Sale of Stock [Line Items]
Noncontrolling interest ownership percentage							5.00%
Common Stock, Net
Subsidiary, Sale of Stock [Line Items]
Common stock issued (shares)							58,711,838			53,711,838	24,158,392		13,636,416

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Equity - Schedule of Dividends Declared (Details) - USD ($) $ / shares in Units, $ in Thousands				3 Months Ended		9 Months Ended
	Sep. 11, 2018	May 07, 2018	Mar. 12, 2018	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Equity [Abstract]
Dividend Declared per Share of Common Stock (usd per share)	$ 0.43	$ 0.43	$ 0.40	$ 0.43	$ 0.37	$ 1.26	$ 1.25
Dividends declared	$ 24,951	$ 22,804	$ 21,230			$ 68,985	$ 50,588

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Equity - Earnings per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Numerator
Net Income (Loss) Available to Common Stockholders, Basic	$ 20,821	$ 17,339	$ 67,921	$ 41,784
Denominator
Weighted Average Number of Shares of Common Stock Outstanding, Basic (shares)	55,903,126	53,696,967	54,111,272	42,501,356
Dilutive restricted stock units	18,529	74	21,059	174
Weighted Average Number of Shares of Common Stock Outstanding, Diluted (shares)	55,921,655	53,697,041	54,132,331	42,501,530
Net Income (Loss) Per Share of Common Stock
Net Income (Loss) Per Share of Common Stock, Basic (usd per share)	$ 0.37	$ 0.32	$ 1.26	$ 0.98
Net Income (Loss) Per Share of Common Stock, Diluted (usd per share)	$ 0.37	$ 0.32	$ 1.25	$ 0.98

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Stock-based Compensation - Narrative (Details) $ / shares in Units, $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($) period shares	Sep. 30, 2017 USD ($)	Jun. 21, 2018 $ / shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share price (in usd per share) | $ / shares					$ 20.47
Award requisite service period			2 years
Reduction of capital			$ 0.4
Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of consecutive vesting periods | period			3
Award vesting period			1 year
Shares delivered | shares			54,037
Common Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized stock based compensation expense	$ 1.7		$ 1.7
Shares delivered | shares			34,259
General and Administrative Expense
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense	$ 0.3	$ 0.0	$ 1.6	$ 0.0
Director | Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period			1 year

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Stock-based Compensation - Restricted Stock Unit Activity (Details) - Restricted Stock Units	9 Months Ended
	Sep. 30, 2018 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Unvested as of December 31, 2017 (in shares) | shares	154,878
Units granted (in shares) | shares	11,878
Units vested (in shares) | shares	(54,037)
Units Forfeited/ cancelled (in shares) | shares	(2,740)
Unvested as of September 30, 2018 (in shares) | shares	109,979
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract]
Unvested as of December 31, 2017, weighted average grant date fair value | $ / shares	$ 18.61
Units granted, weighted average grant date fair value | $ / shares	20.70
Units vested, weighted average grant date fair value | $ / shares	20.47
Units Forfeited/ cancelled, weighted average grant date fair value | $ / shares	20.47
Unvested as of September 30, 2018, weighted average grant date fair value | $ / shares	$ 20.49

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Stock-based Compensation - RSU Vesting (Details) - Restricted Stock Units - shares	Sep. 30, 2018	Dec. 31, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
2018	0
2019	60,927
2020	49,052
Total	109,979	154,878

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Commitments and Contingencies (Details) - USD ($) $ in Millions		1 Months Ended
	Sep. 30, 2018	Jan. 31, 2017
Future Funding Commitment Related to Commercial Mortgage Loan Investments
Long-term Purchase Commitment [Line Items]
Capital commitment	$ 369.9
Variable Interest Entity, Not Primary Beneficiary | Commitment to Invest in Aggregator Vehicle
Long-term Purchase Commitment [Line Items]
Capital commitment	$ 16.2	$ 40.0

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Related Party Transactions - Narrative (Details)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2018 USD ($) shares	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($) quarter shares	Sep. 30, 2017 USD ($)	Dec. 31, 2017 USD ($) shares
Related Party Transaction [Line Items]
Management fee (greater of)	$ 7,487,000	$ 4,355,000	$ 16,069,000	$ 10,444,000
Due to affiliates	7,700,000		7,700,000		$ 4,442,000
Due to affiliates	$ 7,700,000		$ 7,700,000		$ 4,442,000	[1]
Management Incentive Plan
Related Party Transaction [Line Items]
Percent of issued and outstanding shares of common stock available for awards (no more than)			7.50%
Number of shares available for awards (shares) | shares	4,403,387		4,403,387
Non-Employee Director | Management Incentive Plan
Related Party Transaction [Line Items]
Maximum number of shares subject to award grants together with cash fees paid			$ 1,000,000.0
Maximum amount that can be paid to any participant pursuant to a performance compensation award			$ 10,000,000.0
Management Agreement
Related Party Transaction [Line Items]
Management Agreement term			3 years
Period of automatic renewal under Management Agreement			1 year
Termination fee multiple under Management Agreement			3
Trailing average period applied to termination fee multiple under Management Agreement			24 months
Quarterly Management Fee
Related Party Transaction [Line Items]
Management fee (greater of)			$ 62,500
Management fee as a percent of weighted average adjusted equity (greater of)			0.375%
Quarterly Incentive Compensation
Related Party Transaction [Line Items]
Incentive compensation fee percent			20.00%
Period of adjusted earnings			12 months
Percent of trailing 12 month weighted average adjusted equity			7.00%
Period of weighted average adjusted equity			12 months
Number of quarters worth of compensation already paid | quarter			3
Restricted Stock Units
Related Party Transaction [Line Items]
Units granted (in shares) | shares			11,878
Restricted Stock Units | Management Incentive Plan
Related Party Transaction [Line Items]
Units granted (in shares) | shares			11,878		154,878
Common Stock | Management Incentive Plan
Related Party Transaction [Line Items]
Number of shares available for awards (shares) | shares	4,259,149		4,259,149
Convertible Debt
Related Party Transaction [Line Items]
Management fee (greater of)			$ 4,500,000
Convertible Debt | KKR Credit & Markets
Related Party Transaction [Line Items]
Management fee (greater of)			$ 800,000
Structuring fee, percent			0.75%
Amortization of deferred debt issuance costs and premium/discount on debt obligations			$ 5,100,000
Loan Facility
Related Party Transaction [Line Items]
Structuring fee, percent			0.35%
CMBS | Quarterly Management Fee
Related Party Transaction [Line Items]
Due to affiliates	$ 2,400,000		$ 2,400,000

[1] Derived from the audited consolidated financial statements as of December 31, 2017.

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Related Party Transactions - Expenses Incurred and Amounts Owed to Affiliates (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017	Dec. 31, 2016
Related Party Transaction [Line Items]
Due to affiliates	$ 7,700		$ 7,700		$ 4,442
Affiliate expenses	7,487	$ 4,355	16,069	$ 10,444
Management Fees
Related Party Transaction [Line Items]
Due to affiliates	4,164		4,164		3,748
Affiliate expenses	4,164	3,989	12,016	9,513
Incentive compensation
Related Party Transaction [Line Items]
Due to affiliates	3,286		3,286			$ 0
Affiliate expenses	3,286	0	3,286	0
Expense reimbursements and other
Related Party Transaction [Line Items]
Due to affiliates	250		250		$ 694
Affiliate expenses	37	366	767	931
Out-of-pocket costs reimbursed to KKR Manager
Related Party Transaction [Line Items]
Affiliate expenses	$ 300	$ 900	$ 2,500	$ 1,100

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Fair Value of Financial Instruments - Assets and Liabilities Recorded at Fair Value on Recurring Basis (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents	$ 192,771	$ 103,120	[1]
Restricted cash	0	400	[1]
Commercial mortgage loans, held-for-investment, net	3,261,878	1,888,510	[1]
Equity method investments, at fair value	24,745	14,390	[1]
Commercial mortgage loans held in variable interest entities, net	1,100,089	5,372,811	[1]
Assets	4,611,924	7,394,893	[1]
Secured financing agreements, gross	3,221,778
Secured financing agreements, net	2,115,954	964,800	[1]
Carrying Value	3,261,878	1,888,510
Convertible notes, net	137,339	0	[1]
Variable interest entity liabilities	1,086,939	5,256,926	[1]
Liabilities	3,465,221	6,331,709	[1]
Unamortized origination discounts and deferred nonrefundable fees	20,300	13,200
Unamortized debt issuance costs	5,600	4,500
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Commercial mortgage loans, held-for-investment, net, fair value	3,266,234
Equity method investments, at fair value	24,745	14,390
Commercial mortgage loans held in variable interest entities, at fair value	1,100,089
Variable interest entity liabilities, at fair value	1,086,939
Liabilities, fair value	3,296,243
Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents	192,771	103,120
Cash and cash equivalents, fair value	192,771	103,120
Restricted cash		400
Restricted cash and cash equivalents, fair value		400
Commercial mortgage loans, held-for-investment, gross	3,282,184	1,901,693
Commercial mortgage loans, held-for-investment, net	3,261,878	1,888,510
Commercial mortgage loans, held-for-investment, net, fair value	3,266,234	1,894,870
Equity method investments, at fair value	24,745	14,390
Commercial mortgage loans held in variable interest entities, gross	1,130,672	5,305,976
Commercial mortgage loans held in variable interest entities, net	1,100,089	5,372,811
Commercial mortgage loans held in variable interest entities, at fair value	1,100,089	5,372,811
Assets gross	4,630,372	7,325,579
Assets	4,579,483	7,379,231
Assets, fair value	4,583,839	7,385,591
Secured financing agreements, gross	2,126,047	969,347
Secured financing agreements, net		964,800
Secured financing agreements, net, fair value disclosure	2,126,047	969,347
Outstanding Face Amount		82,000
Participating sold, fair value	83,257	81,836
Convertible notes, net	137,339
Convertible notes, net, fair value	146,208
Variable interest entity liabilities, gross	1,095,731	4,996,817
Variable interest entity liabilities	1,086,939	5,256,926
Variable interest entity liabilities, at fair value	1,086,939	5,256,926
Liabilities gross	3,449,414	6,048,164
Liabilities	3,423,674	6,303,198
Liabilities, fair value	3,442,451	6,308,109
Fair Value, Measurements, Recurring | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents, fair value	192,771	103,120
Restricted cash and cash equivalents, fair value		400
Commercial mortgage loans, held-for-investment, net, fair value	0	0
Equity method investments, at fair value	0	0
Commercial mortgage loans held in variable interest entities, at fair value	0	0
Assets, fair value	192,771	103,520
Secured financing agreements, net, fair value disclosure	0	0
Participating sold, fair value	0	0
Convertible notes, net, fair value	146,208
Variable interest entity liabilities, at fair value	0	0
Liabilities, fair value	146,208	0
Fair Value, Measurements, Recurring | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents, fair value	0	0
Restricted cash and cash equivalents, fair value		0
Commercial mortgage loans, held-for-investment, net, fair value	0	0
Equity method investments, at fair value	0	0
Commercial mortgage loans held in variable interest entities, at fair value	0	0
Assets, fair value	0	0
Secured financing agreements, net, fair value disclosure	0	0
Participating sold, fair value	0	0
Convertible notes, net, fair value	0
Variable interest entity liabilities, at fair value	0	0
Liabilities, fair value	0	0
Fair Value, Measurements, Recurring | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents, fair value	0	0
Restricted cash and cash equivalents, fair value		0
Commercial mortgage loans, held-for-investment, net, fair value		1,894,870
Commercial mortgage loans held in variable interest entities, at fair value		5,372,811
Assets, fair value	4,391,068	7,282,071
Secured financing agreements, net, fair value disclosure		969,347
Participating sold, fair value	83,257	81,836
Convertible notes, net, fair value	0
Variable interest entity liabilities, at fair value	1,086,939	5,256,926
Liabilities, fair value	3,296,243	6,308,109
Senior Participation Loan
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Mortgage loans on real estate, fair value	83,300	81,800
Carrying Value	83,442	81,500
Senior Participation Loan | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Outstanding Face Amount	83,886
Carrying Value	83,442	$ 81,472
Convertible Debt | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt instrument, face amount	143,750
Commercial Mortgage Loan
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Unamortized debt issuance costs	$ 10,100

[1] Derived from the audited consolidated financial statements as of December 31, 2017.

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Fair Value of Financial Instruments - Unobservable Input Reconciliation (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2018 USD ($)
Liabilities
Realized gain (loss)	$ 0
Unrealized gain (loss) included in change in net assets related to consolidated variable interest entities	(92,499)
Fair Value, Assets (Liabilities), Net, Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning balance	115,885
Realized gain (loss)	13,000
Unrealized gain (loss) included in change in net assets related to consolidated variable interest entities	(2,144)
Purchases	0
Sales/Repayments/Deconsolidation	(112,747)
Other	(844)
Ending balance	13,150
Variable Interest Entity, Primary Beneficiary
Liabilities
Beginning balance	5,256,926
Purchases	0
Sales/Repayments/Deconsolidation	(4,062,624)
Other	(14,864)
Ending balance	1,086,939
Variable Interest Entity, Primary Beneficiary | Commercial Mortgage Loans Held in Variable Interest Entities, at Fair Value
Assets
Beginning balance	5,372,811
Realized gain (loss)	13,000
Unrealized gain (loss) included in change in net assets related to consolidated variable interest entities	(94,643)
Purchases	0
Sales/Repayments/Deconsolidation	(4,175,371)
Other	(15,708)
Ending balance	$ 1,100,089

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Fair Value of Financial Instruments - Unobservable Inputs (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2018 USD ($)	Dec. 31, 2017 USD ($)
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Equity method investments, at fair value	$ 24,745	$ 14,390	[1]
Level 3
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Commercial mortgage loans, held-for-investment, net	3,266,234
Equity method investments, at fair value	24,745	$ 14,390
Commercial mortgage loans held in variable interest entities, at fair value	1,100,089
Variable interest entity liabilities, at fair value	1,086,939
Liabilities	3,296,243
Level 3 | Discounted cash flow
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Commercial mortgage loans, held-for-investment, net	3,266,234
Equity method investments, at fair value	24,400
Commercial mortgage loans held in variable interest entities, at fair value	1,100,089
Assets	$ 4,366,323
Level 3 | Weighted Average | Discounted cash flow | Variable Interest Entities, Liabilities
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Yield	6.40%
Level 3 | Weighted Average | Discounted cash flow | Loans held-for-investment
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Loan-to-value ratio	67.80%
Level 3 | Weighted Average | Discounted cash flow | Variable Interest Entities, CMBS
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Yield	8.30%
Level 3 | Minimum | Discounted cash flow | Variable Interest Entities, Liabilities
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Yield	2.40%
Level 3 | Minimum | Discounted cash flow | Loans held-for-investment
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Loan-to-value ratio	49.40%
Level 3 | Minimum | Discounted cash flow | Variable Interest Entities, CMBS
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Yield	2.40%
Level 3 | Maximum | Discounted cash flow | Variable Interest Entities, Liabilities
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Yield	16.50%
Level 3 | Maximum | Discounted cash flow | Loans held-for-investment
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Loan-to-value ratio	80.30%
Level 3 | Maximum | Discounted cash flow | Variable Interest Entities, CMBS
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Yield	37.10%
Measurement Input, Discount Rate | Level 3 | Weighted Average | Discounted cash flow | Loans held-for-investment
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Discount rate	0.067
Measurement Input, Discount Rate | Level 3 | Minimum | Discounted cash flow | Loans held-for-investment
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Discount rate	0.026
Measurement Input, Discount Rate | Level 3 | Maximum | Discounted cash flow | Loans held-for-investment
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Discount rate	0.139
Measurement Input, Discount Rate | Loan Participations | Level 3 | Weighted Average | Market comparable | Long-term Debt
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Discount rate	0.036
Measurement Input, Discount Rate | Loan Participations | Level 3 | Minimum | Discounted cash flow
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Discount rate	0.026
Measurement Input, Discount Rate | Loan Participations | Level 3 | Maximum | Discounted cash flow
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Discount rate	0.046
Senior Participation Loan | Level 3
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Secured financing agreements, net	$ 83,257
Senior Participation Loan | Loan Participations | Level 3 | Weighted Average | Market comparable | Long-term Debt
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Loan-to-value ratio	52.90%
Senior Participation Loan | Loan Participations | Level 3 | Minimum | Discounted cash flow
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Loan-to-value ratio	52.90%
Senior Participation Loan | Loan Participations | Level 3 | Maximum | Discounted cash flow
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Loan-to-value ratio	52.90%
Secured Financing Agreements | Level 3 | Market comparable
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Secured financing agreements, net	$ 2,126,047
Secured Financing Agreements | Level 3 | Weighted Average | Market comparable | Long-term Debt
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Credit spread	1.80%
Secured Financing Agreements | Level 3 | Minimum | Market comparable | Long-term Debt
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Credit spread	1.40%
Secured Financing Agreements | Level 3 | Maximum | Market comparable | Long-term Debt
Fair Value Inputs, Assets, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Credit spread	2.50%

[1] Derived from the audited consolidated financial statements as of December 31, 2017.

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Income Taxes (Details) - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Income Tax Disclosure [Abstract]
Current state and local tax expense (benefit)	$ 200,000	$ 400,000
Deferred tax assets, net	0		$ 0
Deferred tax liabilities, net	$ 0		$ 0

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Subsequent Events - Schedule of Senior Notes (Details) - USD ($) $ in Thousands	1 Months Ended
	Oct. 31, 2018	Sep. 30, 2018	Dec. 31, 2017
Subsequent Event [Line Items]
Initial Face Amount Funded		$ 3,261,878	$ 1,888,510
Senior loans | Subsequent Event
Subsequent Event [Line Items]
Maximum Face Amount	$ 122,000,000
Initial Face Amount Funded	$ 119,000,000
LTV	72.00%
Senior loans | Subsequent Event | LIBOR
Subsequent Event [Line Items]
Interest Rate	2.70%
Senior Loan, Queens, New York | Senior loans | Subsequent Event
Subsequent Event [Line Items]
Maximum Face Amount	$ 45,000,000
Initial Face Amount Funded	$ 42,000,000
LTV	70.00%
Senior Loan, Queens, New York | Senior loans | Subsequent Event | LIBOR
Subsequent Event [Line Items]
Interest Rate	2.80%
Senior Loan, Philadelphia, New York | Senior loans | Subsequent Event
Subsequent Event [Line Items]
Maximum Face Amount	$ 77,000,000
Initial Face Amount Funded	$ 77,000,000
LTV	73.00%
Senior Loan, Philadelphia, New York | Senior loans | Subsequent Event | LIBOR
Subsequent Event [Line Items]
Interest Rate	2.70%

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Subsequent Events - Narrative (Details) - USD ($)		1 Months Ended		9 Months Ended
	Nov. 05, 2018	Nov. 05, 2018	Oct. 31, 2018	Sep. 30, 2018	Sep. 30, 2017	Oct. 01, 2018
Subsequent Event [Line Items]
Funding for loans				$ 1,695,188,000	$ 920,358,000
Proceeds from principal repayments of commercial mortgage loans, held-for-investment				318,996,000	$ 18,568,000
Subsequent Event
Subsequent Event [Line Items]
Proceeds from principal repayments of commercial mortgage loans, held-for-investment			$ 8,400,000
Dividend on common stock			$ 25,000,000.0
Dividend paid (usd per share)			$ 0.43
Morgan Stanley | Subsequent Event
Subsequent Event [Line Items]
Principal borrowings	$ 15,500,000
Senior loans | Subsequent Event
Subsequent Event [Line Items]
Funding for loans		$ 19,200,000
Term Loan Facility I | Subsequent Event
Subsequent Event [Line Items]
Principal borrowings	$ 65,500,000		$ 55,000,000.0
Facility
Subsequent Event [Line Items]
Borrowing capacity				$ 400,000,000.0
Facility | Subsequent Event
Subsequent Event [Line Items]
Borrowing capacity						$ 1,000,000,000.0