KFN Kkr Financial Holdings Llc

KKR Financial Corp. Announces Second Quarter 2005 Results SAN FRANCISCO, Aug. 1 /PRNewswire-FirstCall/ -- KKR Financial Corp. (the "Company" or "KKR Financial") (NYSE:KFN) today announced its results for its fiscal year second quarter ended June 30, 2005. Highlights of the Company's performance during the period include: * The Company completed its initial public offering on June 29, 2005, generating net proceeds of $848.9 million. * Distribution of $0.40 per common share for the second quarter of 2005, a 60.0% increase over the distribution of $0.25 per common share for the first quarter 2005 which was the Company's first distribution. * Net income for the quarter ended June 30, 2005 of $8.5 million, or $0.21 per diluted common share, a 39.3% increase over net income for the quarter ended March 31, 2005 of $6.1 million, or $0.15 per diluted common share. Net income for the six month period ended June 30, 2005, of $14.6 million or $0.36 per diluted common share. The Company was formed in July 2004 and commenced operations in August 2004, accordingly, there are no comparable prior period 2004 operating results. * REIT taxable income, a non-GAAP financial measurement, for the quarter totaled $16.9 million, or $0.41 per diluted common share. REIT taxable income for the six month period ended June 30, 2005 totaled $32.2 million, or $0.79 per diluted common share. See attached schedule for reconciliation of GAAP net income to REIT taxable income. * Securities portfolio of $5.1 billion as of June 30, 2005, a 4.1% increase compared to $4.9 billion as of March 31, 2005, and a 200.0% increase compared to $1.7 billion as of December 31, 2004. * Loan portfolio of $2.0 billion as of June 30, 2005, a 53.8% increase compared to $1.3 billion as of March 31, 2005, and a 185.7% increase compared to $0.7 billion as of December 31, 2004. * Investment portfolio weighted average amortized cost value, as a percentage of par value, of 99.82% as of June 30, 2005, compared to 99.89% as of March 31, 2005. * Closed a $275 million secured credit facility, participants include J.P. Morgan Chase Bank, N.A., Citicorp North America, Inc., and Bank of America, N.A. * Completed the ramp-up of KKR Financial CLO 2005-1, Ltd., the Company's first $1 billion collateralized loan obligation transaction. KKR Financial Corp. reported second quarter results for the quarter ended June 30, 2005. KKR Financial Corp. (the "Company" or "KKR Financial") reported net income for the three month and six month periods ended June 30, 2005 of $8.5 million and $14.6 million, respectively, or $0.21 and $0.36 per diluted common share, respectively. REIT taxable income, a non-GAAP financial measurement, for the three month and six month periods ended June 30, 2005 totaled $16.9 million and $32.2 million, respectively, or $0.41 and $0.79 per diluted common share, respectively. See attached schedule for reconciliation of GAAP net income to REIT taxable income. The Company was formed in July 2004, and commenced operations in August 2004; accordingly, there are no comparable prior period 2004 operating results. We filed our Form 10-Q for the quarterly period ended June 30, 2005, with the Securities and Exchange Commission today, August 1, 2005. We encourage you to carefully read our Form 10-Q which contains the our condensed consolidated financial statements and footnotes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations. We will host a dial-in recorded message reviewing our second quarter 2005 results on Tuesday, August 2, 2005, at 10:00 a.m. EDT. The recorded message can be accessed by dialing 888-203-1112 (Domestic) or 719-457-0820 (International) and entering pass code 3673314. A replay of the recorded message will be available through Tuesday, August 16, 2005. A web cast of the recorded message will be available at http://www.kkrfinancial.com/. The web cast of the recorded call will be available through Tuesday, August 16, 2005, at 8:00 p.m. (EDT). Results of Operations We are pleased to report net income for the quarter ended June 30, 2005, of $8.5 million or $0.21 per diluted common share, a 39.3% increase over net income for the quarter ended March 31, 2005, of $6.1 million or $0.15 per diluted common share. Net income for the six month period ended June 30, 2005, totaled $14.6 million or $0.36 per diluted common share. Net income includes share-based compensation expense for the three and six month periods ended June 30, 2005, totaling $7.3 and $12.1 million, respectively, or $0.18 and $0.30 per diluted common share, respectively. REIT taxable income, a non-GAAP financial measurement, for the three and six month period ended June 30, 2005, totaled $16.9 million and $32.2 million respectively, or $0.41 and $0.79 per diluted common share, respectively. See attached schedule for reconciliation of GAAP net income to REIT taxable income. Investment Portfolio During the three month period ended June 30, 2005, our investment portfolio increased by 12.7% from $6.3 billion as of March 31, 2005 to $7.1 billion as of June 30, 2005. For the six month period ended June 30, 2005, our investment portfolio increased by 208.7% from $2.3 billion as of December 31, 2004. As of June 30, 2005, the aggregate estimated fair value of our investment portfolio exceeded the aggregate amortized cost of our portfolio by $5.4 million. As of June 30, 2005, the aggregate net unamortized purchase discount (i.e., aggregate purchase discounts exceed aggregate purchase premiums on our investment portfolio) related to our investment portfolio was $12.7 million and the weighted average amortized cost, as a percentage of aggregate par value, of our investment portfolio was 99.82% as of June 30, 2005, compared to 99.89% as of March 31, 2005. We have been able to successfully maintain the aggregate amortized cost value of our investment portfolio below aggregate par value due to our ability to purchase a substantial amount of our corporate and commercial real estate investments in primary market transactions at a cost of par. Commencing on the date we made our first investment, we have sought to position the Company so as to not be negatively impacted by an overall higher interest rate environment or in a flatter interest rate curve environment by investing in floating rate and hybrid rate investments which as of June 30, 2005, totaled 58.9% and 39.1% of our investment portfolio, respectively. Fixed rate loans and securities total 2.0% of our investment portfolio as of June 30, 2005. Equally important, our floating rate residential loans and residential adjustable rate mortgage ("ARM") securities reset monthly and substantially all of our floating rate corporate and commercial real estate loans and securities reset at least quarterly. We have also fixed our borrowings used to fund our hybrid ARM security investments using interest rate swaps and interest rate corridors which are accounted for as cash flow hedges under GAAP. We purchased $1.4 billion and $5.4 billion par amount of investments during the three and six month periods ended June 30, 2005, respectively. For the period from August 12, 2004 (Inception) through December 31, 2004, we purchased $2.3 billion par amount of investments. The table below summarizes our investment portfolio purchases for the periods indicated and includes the par amount, or face amount, of the securities and loans that were purchased. Investment Portfolio Purchases (Amounts in thousands) August 12, Three month Six month 2004 (Inception) period ended period ended through June 30, June 30, December 31, 2005 2005 2004 Par Par Par Amount % Amount % Amount % (Unaudited) Securities: Residential ARM Securities $73,423 5.3% $739,205 13.8% $1,604,594 69.1% Residential Hybrid ARM Securities 299,040 21.9 2,935,532 54.7 -- -- Corporate Debt Securities 106,500 7.8 218,505 4.1 24,500 1.1 Commercial Real Estate Debt Securities -- -- 10,000 0.2 12,000 0.5 Total Securities Principal Balance 478,963 35.0 3,903,242 72.8 1,641,094 70.7 Loans: Residential Mortgage Loans 189,781 13.9 436,501 8.1 229,855 9.9 Corporate Loans 592,150 43.3 916,701 17.1 400,774 17.3 Commercial Real Estate Loans 106,750 7.8 106,750 2.0 50,000 2.1 Total Loans Principal Balance 888,681 65.0 1,459,952 27.2 680,629 29.3 Grand Total Principal Balance $1,367,644 100.0% $5,363,194 100.0% $2,321,723 100.0% The table above excludes purchases of $8.8 million and $24.7 million of common and preferred stock during the three and six month periods ended June 30, 2005, respectively, and $31.2 million during the period from August 12, 2004 (Inception) through December 31, 2004. Capital On June 29, 2005, we completed our initial public offering of 37,500,000 shares of our common stock (the "IPO Shares"). We sold 37,471,250 shares (the "Company Shares") at a price to the public of $24.00 per share and selling stockholders sold 28,750 shares at a price to the public of $24.00 per share. The net proceeds to us from the sale of the Company Shares, after deducting the underwriting discount and estimated offering expenses, were approximately $848.9 million. Securitization Transactions On March 30, 2005, we closed KKR Financial CLO 2005-1, Ltd. ("CLO 2005-1"), a $1.0 billion collateralized loan obligation transaction that provides us with secured financing for investments consisting of corporate loans and certain other loans and securities. As of June 30, 2005, we had completed the ramp-up of CLO 2005-1 with $1.0 billion of funding and commitments. We are currently scheduled to price KKR Financial CLO 2005-2, Ltd. ("CLO 2005-2"), our second $1.0 billion collateralized loan obligation transaction, that will provide us with secured financing for investments consisting of corporate loans, certain other loans and securities, in September 2005 and we are scheduled to close CLO 2005-2 in October 2005. Secured Credit Facility During June 2005 we entered into a $275 million secured credit facility that matures on June 15, 2006, with affiliates of J.P. Morgan Securities Inc. and Citigroup Global Markets Inc. as agents, joint bookrunners, arrangers and lenders under that facility. Participants in the secured credit facility include J.P. Morgan Chase Bank, N.A., Citicorp North America, Inc., and Bank of America, N.A. The secured credit facility bears interest at either (i) an alternate base rate per annum equal to the greater of (a) the prime rate in effect on such day, and (b) the federal funds effective rate in effect on such day plus 1/2 of 1% or (ii) an interest rate per annum equal to the rate of 30- day LIBOR plus 1%. KKR Financial is a specialty finance company that invests in multiple asset classes and uses leverage to generate competitive leveraged risk- adjusted returns. The Company currently makes investments in the following asset classes: (i) residential mortgage loans and mortgage-backed securities; (ii) corporate loans and debt securities; (iii) commercial real estate loans and debt securities; (iv) asset-backed securities; and (v) equity securities. The Company also makes opportunistic investments in other asset classes from time to time. The Company was organized as a Maryland corporation on July 7, 2004, and commenced operations on August 12, 2004. The Company is structured as a real estate investment trust and KKR Financial Advisors LLC manages the Company pursuant to a management agreement. KKR Financial Corp. and KKR Financial Advisors LLC are affiliates of Kohlberg Kravis Roberts & Co. L.P. Statements in this press release which are not historical fact may be deemed forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although KKR Financial Corp. believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the Company can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from the Company's expectations include completion of pending investments, continued ability to originate new investments, the mix of originations and prepayment levels, the availability and cost of capital for future investments, competition within the specialty finance sector, economic conditions, credit loss experience, and other risks disclosed from time to time in the Company's filings with the Securities and Exchange Commission. KKR Financial Corp. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended, Six Months Ended June 30, June 30, March 31, 2005 2005 2005 % Change (in thousands, except per share amounts) Net investment income: Securities interest income $69,918 $46,048 $23,870 92.9% Loan interest income 31,360 20,739 10,621 95.3 Dividend income 1,467 933 534 74.7 Other interest income 1,197 943 254 271.3 Total investment income 103,942 68,663 35,279 94.6 Interest expense (68,730) (48,281) (20,449) 136.1 Net investment income 35,212 20,382 14,830 37.4 Other income (loss): Net realized and unrealized gain on derivatives 2,345 2,169 176 1,132.4 Net realized gain on investments 815 472 343 37.6 Other (loss) income (463) (782) 319 (345.1) Total other income (loss) 2,697 1,859 838 122.8 Non-investment expenses: Management compensation to related party 18,739 10,731 8,008 34.0 Professional services 1,185 788 397 98.5 Insurance expense 433 216 217 (0.5) Directors expenses 351 152 199 (23.6) General and administrative expenses 1,477 858 619 38.6 Total non-investment expenses 22,185 12,745 9,440 35.0 Income before income tax expense 15,724 9,496 6,228 52.5 Income tax expense 1,106 994 112 787.5 Net income $14,618 $8,502 $6,116 39.0% Net income per common share: Basic $0.37 $0.21 $0.15 37.6% Diluted $0.36 $0.21 $0.15 36.7% Weighted-average number of common shares outstanding: Basic 40,004 40,212 39,796 1.0% Diluted 40,689 40,994 40,301 1.7% Distributions per common share $0.65 $0.40 $0.25 60.0% KKR Financial Corp. RECONCILATION OF GAAP NET INCOME TO REIT TAXABLE INCOME (UNAUDITED) Estimated For the Estimated For Estimated For Period from the Three the Six August 12, 2004 Months Ended Months Ended (Inception) through June 30, 2005 June 30, 2005 December 31, 2004 (in thousands, except per share amounts) Per Per Per Amount Share Amount Share Amount Share Reported net income (loss) $8,502 $0.21 $14,618 $0.36 $(6,709) $(0.17) Interest income and expense (21) -- 89 -- -- -- Share-based compensation 7,334 0.18 12,080 0.30 (17,651) (0.44) Depreciation of fixed assets 57 -- 109 -- -- -- Gains (losses) on sales of assets to third parties (81) -- (81) -- -- -- Tax gains (losses) on inter-company sales and transfers 133 -- 4,386 0.11 -- -- Realized and unrealized derivative gains (losses) 119 -- (369) (0.01) 543 0.01 Unrealized losses (gains) on foreign currency translations 2,344 0.06 2,536 0.06 -- Income tax expense (benefit) 994 0.02 1,106 0.03 (228) -- Total taxable income (loss)(1) 19,381 0.47 34,474 0.85 (24,045) (0.60) Undistributed taxable income of domestic taxable REIT subsidiary (2,486) (0.06) (2,265) (0.06) -- -- REIT taxable income (loss)(1) $16,895 $0.41 $32,209 $0.79 $(24,045) $(0.60) Weighted-average diluted shares outstanding during the period 40,994 40,689 39,796 (1) Total taxable income and REIT taxable income are non-GAAP financial measurements and do not purport to be an alternative to net income (loss) determined in accordance with GAAP as a measure of operating performance or to cash flows from operating activities determined in accordance with GAAP as a measure of liquidity. Total taxable income is the aggregate amount of taxable income generated by us and by our domestic and foreign taxable REIT subsidiaries. REIT taxable income excludes the undistributed taxable income of our domestic taxable REIT subsidiary, which is not included in REIT taxable income until distributed to us. There is no requirement that our domestic taxable REIT subsidiary distribute its earnings to us. REIT taxable income, however, includes the taxable income of our foreign taxable REIT subsidiaries because we will generally be required to recognize and report their taxable income on a current basis. These non-GAAP financial measurements are important to us because we are structured as a REIT and the Internal Revenue Code requires that we pay substantially all of our taxable income in the form of distributions to our stockholders. The non-GAAP financial measurements of total taxable income and REIT taxable income are critical in the determination of the amount of the minimum distributions that we must pay to our stockholders so as to comply with the rules set forth in the Internal Revenue Code. Because not all companies use identical calculations, this presentation of total taxable income and REIT taxable income may not be comparable to other similarly titled measures prepared and reported by of other companies. KKR Financial Corp. CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (amounts in thousands) % Change June 30, 2005 from June 30, March 31, Dec. 31, March 31, Dec. 31, 2005 2005(1) 2004 2005 2004 Assets Cash and cash equivalents $14,435 $53,091 $7,219 (72.8)% 100.0% Restricted cash and cash equivalents 31,465 352,196 1,321 (91.1) 2,281.9 Securities available- for-sale 373,362 87,146 167,058 328.4 123.5 Securities available- for-sale, pledged as collateral 4,683,901 4,850,099 1,484,222 (3.4) 215.6 Loans held for investment 2,042,124 1,313,622 682,757 55.5 199.1 Derivative assets 9,899 25,423 223 (61.1) 4,339.0 Interest receivable 22,074 17,708 2,694 24.7 719.4 Principal receivable 421 511 -- (17.6) -- Deferred tax asset -- 116 228 (100.0) (100.0) Other assets 2,672 1,639 1,618 63.0 65.1 Total assets $7,180,353 $6,701,551 $2,347,340 7.1% 205.9% Liabilities and stockholders equity Liabilities Borrowings: Repurchase agreements $4,771,756 $5,246,059 $1,558,274 (9.0)% 206.2% CLO senior notes payable 696,448 666,021 -- 4.6 -- Demand loan 40,511 36,875 27,875 9.9 45.3 Total borrowings 5,508,715 5,948,955 1,586,149 (7.4) 247.3 Accounts payable, accrued expenses and other liabilities 46,989 877 1,157 5,257.9 3,961.3 Distribution payable 16,400 10,251 -- 60.0 -- Accrued interest payable 10,274 4,307 771 138.5 1,232.6 Payable to manager and related party liabilities 1,717 1,727 1,765 (0.6) (2.7) Income tax liability 878 -- -- -- -- Derivative liabilities 1,660 255 750 551.0 121.3 Total liabilities 5,586,633 5,966,372 1,590,592 (6.4) 251.2 Stockholders' equity Preferred stock -- -- -- -- -- Common stock 785 410 410 91.5 91.5 Additional paid-in- capital 1,635,721 781,741 779,740 109.2 109.8 Deferred compensation (13,780) (15,669) (18,413) (12.1) (25.2) Accumulated other comprehensive income (loss) (10,264) (20,459) 1,720 (49.8) (1,289.5) Accumulated deficit (18,742) (10,844) (6,709) 72.8 179.4 Total stockholders' equity 1,593,720 735,179 756,748 116.8 110.6 Total liabilities and stockholders' equity $7,180,353 $6,701,551 $2,347,340 7.1% 205.9% (1) The pro-forma consolidated balance sheet as of March 31, 2005 reflects the effect of the distribution declared made by the board of directors on April 5, 2005 of a $0.25 per share of common stock, which was paid on April 18, 2005 to stockholders of record as of April 5, 2005. KKR Financial Corp. SUMMARY FINANCIAL DATA (UNAUDITED) (amounts in thousands, except per share amounts) Six Months Three Months Ended, Ended June 30, June 30, March 31, 2005 2005 2005 % Change Net Income: $14,618 $8,502 $6,116 39.0% Diluted REIT earnings per common share 0.36 0.21 0.15 40.0 REIT Taxable Income:(1) $32,209 $16,895 $15,314 10.3% Diluted REIT taxable income per common share 0.79 0.41 0.38 7.9 Profitability Ratio Information:(2) Return on equity 3.9% 4.6% 3.3% 39.4% Return on assets 0.5% 0.5% 0.5% -- Efficiency ratio 20.8 18.1 26.1 (30.7) Share Information: Common shares outstanding 78,471 78,471 41,004 91.4 Basic EPS common shares outstanding 40,004 40,212 39,796 1.0 Diluted EPS common shares outstanding 40,689 40,994 40,301 1.7 Distributions per common share $0.65 $0.40 $0.25 60.0 Investment Portfolio Information:(3) Residential mortgage securities $4,767,392 $4,767,392 $4,744,421 0.5 Residential loans 649,036 649,036 478,049 35.8 Total residential 5,416,428 5,416,428 5,222,470 3.7 Corporate securities 209,708 209,708 118,974 76.3 Corporate loans 1,237,611 1,237,611 785,573 57.5 Total corporate 1,447,319 1,447,319 904,547 60.0 Commercial real estate securities 22,049 22,049 22,036 0.1 Commercial real estate loans 155,477 155,477 50,000 211.0 Total commercial real estate 177,526 177,526 72,036 146.4 Asset-backed securities 5,038 5,038 5,000 0.8 Preferred and common stocks 53,076 53,076 46,814 13.4 Total investment portfolio 7,099,386 7,099,386 6,250,867 13.6 Balance Sheet Information: Investment portfolio $7,099,387 $7,099,387 $6,250,867 13.6 Total assets 7,180,353 7,180,353 6,701,551 7.1 Total borrowings 5,508,715 5,508,715 5,948,955 (7.4) Total liabilities 5,586,633 5,586,633 5,966,372 (6.4) Stockholders' equity 1,593,720 1,593,720 735,179 116.8 Book value per common share 20.31 20.31 17.93 13.3 Leverage 3.5x 3.5x 8.1x (56.8) Statement of Operations Information: Investment income $103,942 $68,663 $35,279 94.6 Other income 2,697 1,859 838 122.1 Total income 106,639 70,522 36,117 95.3 Interest expense (68,730) (48,281) (20,449) 136.1 Share-based compensation expense (12,080) (7,334) (4,746) 54.5 Management fees (6,719) (3,383) (3,336) 1.4 Other expenses (3,386) (2,028) (1,358) 49.3 Total non-investment expenses (22,185) (12,745) (9,440) 35.0 Income before income tax expense 15,724 9,496 6,228 52.5 Income tax expense (1,106) (994) 112 787.5 Net income 14,618 8,502 6,116 39.0% (1) Non-GAAP financial measurement. See attached schedule for reconciliation of GAAP net income to REIT taxable income. (2) All ratios computed on an annualized basis. The efficiency ratio is defined as non-interest expense divided by total revenue. (3) Carrying value (fair value for securities available-for-sale and amortized cost for loans). KKR Financial Corp. INVESTMENT PORTFOLIO BY INTEREST RATE TYPE AS OF JUNE 30, 2005 (UNAUDITED) (amounts in thousands) Portfolio Mix % Carrying Amortized Estimated By Estimated Value Cost Fair Value Fair Value Floating Rate: Residential ARM Loans $649,036 $649,036 $651,619 9.2% Residential ARM Securities 2,004,120 2,001,241 2,004,120 28.4 Corporate Loans 1,237,611 1,237,611 1,246,534 17.7 Corporate Debt Securities 111,291 112,769 111,291 1.6 Commercial Real Estate Loans 120,000 120,000 120,275 1.7 Commercial Real Estate Debt Securities 22,049 22,000 22,049 0.3 Total Floating Rate 4,144,107 4,142,657 4,155,888 58.9 Hybrid Rate: Residential Hybrid ARM Securities 2,763,272 2,771,277 2,763,272 39.1 Total Hybrid Rate 2,763,272 2,771,277 2,763,272 39.1 Fixed Rate: Corporate Debt Securities 103,455 103,869 103,455 1.5 Commercial Real Estate Loans 35,477 35,477 35,819 0.5 Total Fixed Rate 138,932 139,346 139,274 2.0 Total(1) $7,046,311 $7,053,280 $7,058,434 100.0% (1) The table above excludes common and preferred stock with fair value of $53.1 million and an amortized cost of $52.8 million as of June 30, 2005. As of June 30, 2005, the aggregate fair value of our investment portfolio exceeded the aggregate amortized cost of our portfolio by $5.4 million. As of June 30, 2005, the aggregate net unamortized purchase discount related to our investment portfolio was $12.7 million. (2) The table above summarizes the carrying value, amortized cost, and fair value of our investment portfolio as of June 30, 2005, classified by interest rate type. Carrying value is the value that investments are recorded on our consolidated balance sheets and is fair value for securities and amortized cost for loans. Estimated fair set forth in the table below are as of June 30, 2005 and are based on dealer quotes and/or nationally recognized pricing services. KKR Financial Corp. INVESTMENT PORTFOLIO BY RATINGS AS OF JUNE 30, 2005(UNAUDITED) (amounts in thousands) SECURITIES Commercial Residential Residential Corporate Real Estate ARM Hybrid ARM Debt Debt Securities Securities Securities Securities Aaa/AAA $1,942,062 $2,707,903 $-- $-- Aa1/AA+ through Aa3/AA- 21,498 28,378 -- -- A1/A+ through A3/A- 15,499 17,970 -- -- Baa1/BBB+ through Baa3/BBB- 10,999 9,147 111,394 12,000 Ba1/BB+ through Ba3/BB- 4,628 3,603 5,000 10,000 B1/B+ through B3/B- 2,745 2,019 47,409 -- Caa1/CCC+ through Caa3/CCC- -- -- 23,033 -- Non-Rated 3,810 2,257 29,802 -- Total(1)(3) $2,001,241 $2,771,277 $216,638 $22,000 LOANS (amounts in thousands) Residential Commercial Mortgage Corporate Real Estate Loans(2) Loans Loans Aaa/AAA $-- $-- $-- Aa1/AA+ through Aa3/AA- -- -- -- A1/A+ through A3/A- -- -- -- Baa1/BBB+ through Baa3/BBB- -- -- -- Ba1/BB+ through Ba3/BB- -- 491,244 -- B1/B+ through B3/B- -- 657,077 -- Caa1/CCC+ through Caa3/CCC- -- 14,883 50,000 Non-Rated 649,036 74,407 105,477 Total(3) $649,036 $1,237,611 $155,477 (1) The table above excludes common and preferred stock with fair value of $53.1 million and an amortized cost of $52.8 million as of June 30, 2005. As of June 30, 2005, the aggregate fair value of our investment portfolio exceeded the aggregate amortized cost of our portfolio by $5.4 million. As of June 30, 2005, the aggregate net unamortized purchase discount related to our investment portfolio was $12.7 million. (2) When residential mortgage loans are securitized approximately 94% of the pool of residential mortgage loans is rated Aaa/AAA with the remaining 6% of the residential mortgage loan pool is tranched into securities rated from Aa1/AA+ through non-rated. (3) Amounts are amortized cost. Investor Contact Media Contact Laurie Poggi Roanne Kulakoff and Joseph Kuo KKR Financial LLC Kekst and Company 415-315-3718 212-521-4837 and 212-521-4863 DATASOURCE: KKR Financial Corp. CONTACT: investors, Laurie Poggi of KKR Financial LLC, +1-415-315-3718; or media, Roanne Kulakoff, +1-212-521-4837, or Joseph Kuo, +1-212-521-4863, both of Kekst and Company, for KKR Financial LLC Web site: http://www.kkrfinancial.com/

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