SAN FRANCISCO, Nov. 14 /PRNewswire-FirstCall/ -- KKR Financial
Corp. (NYSE:KFN) today announced its results for its fiscal year
third quarter ended September 30, 2005. Highlights of the Company's
performance during the period include: -- Distribution of $0.32 per
common share declared for the quarter ended September 30, 2005, to
stockholders of record on November 16, 2005, and payable on
November 30, 2005. -- Net income for the quarter ended September
30, 2005 of $18.5 million, or $0.24 per diluted common share, an
increase over net income for the quarter ended June 30, 2005 of
$8.5 million, or $0.21 per diluted common share. Net income for the
nine month period ended September 30, 2005 of $33.1 million or
$0.62 per diluted common share. -- Net income adjusted for
share-based compensation, a non-GAAP financial measurement,
consisting of GAAP net income plus GAAP share-based compensation
expense for the quarter ended September 30, 2005 of $25.9 million,
or $0.33 per diluted common share. Net income adjusted for
share-based compensation for the nine month period ended September
30, 2005 of $52.6 million or $0.98 per diluted common share. --
REIT taxable income, a non-GAAP financial measurement, for the
quarter ended September 30, 2005 of $26.8 million, or $0.34 per
diluted common share. REIT taxable income for the nine month period
ended September 30, 2005 of $58.8 million or $1.10 per diluted
common share. See attached Schedule II for reconciliation of GAAP
net income to REIT taxable income. -- Investment portfolio of $12.5
billion as of September 30, 2005, a 76.1% increase compared to $7.1
billion as of June 30, 2005. -- Investment portfolio weighted
average amortized cost, as a percentage of par value, of 99.95% as
of September 30, 2005, compared to 99.82% as of June 30, 2005. --
Closed and launched KKR Pacific Funding Trust, the Company's first
$5.0 billion asset-backed commercial paper facility, on September
30, 2005. -- Priced KKR Financial CLO 2005-2, Ltd., the Company's
second $1 billion collateralized loan obligation transaction on
October 6, 2005, and closed the transaction on November 3, 2005. --
On November 2, 2005, the independent Directors of the Company's
Board of Directors approved the Company's recommendation to
co-invest on a pari passu basis with Kohlberg Kravis Roberts &
Co. L.P. in three separate private equity transactions. The
Company's aggregate investment will total $42.5 million and the
investments are scheduled to close during the fourth quarter. KKR
Financial Corp. reported net income for the three month and nine
month periods ended September 30, 2005 of $18.5 million and $33.1
million, respectively, or $0.24 and $0.62 per diluted common share,
respectively. The results of operations for the quarter include a
provision for loan losses totaling $1.3 million and a lease
termination charge of $0.8 million. Current quarter results compare
with a net loss of $3.4 million or $0.09 for the period from
inception of the Company on August 12, 2004 through September 30,
2004, and represent an increase over net income for the quarter
ended June 30, 2005, of $8.5 million or $0.21 per diluted common
share. Net income includes share-based compensation expense for the
three and nine month periods ended September 30, 2005, totaling
$7.4 million and $19.5 million, respectively, or $0.09 and $0.36
per diluted common share, respectively. Net income adjusted for
share-based compensation, a non-GAAP financial measurement
consisting of GAAP net income plus GAAP share-based compensation
expense, for the quarter ended September 30, 2005 totaled $25.9
million, or $0.33 per diluted common share. Net income adjusted for
share-based compensation for the nine month period ended September
30, 2005 totaled $52.6 million or $0.98 per diluted common share.
REIT taxable income, a non-GAAP financial measurement, for the
three month and nine month periods ended September 30, 2005 totaled
$26.8 million and $58.8 million, respectively, or $0.34 and $1.10
per diluted common share, respectively. See attached Schedule II
for reconciliation of GAAP net income to REIT taxable income. For
the period from inception of the Company on August 12, 2004 through
September 30, 2004, the Company incurred a net loss of $3.4 million
or a loss of $0.09 per diluted common share and a REIT taxable loss
of $25.3 million or a loss of $0.64 per diluted common share. The
Company filed its Form 10-Q for the quarterly period ended
September 30, 2005, with the Securities and Exchange Commission
today, November 14, 2005. KKR Financial encourages investors to
carefully read the Company's Form 10-Q which contains condensed
consolidated financial statements and footnotes and Management's
Discussion and Analysis of Financial Condition and Results of
Operations. The Company will host a conference call and audio web
cast to review its third quarter 2005 results on Tuesday, November
15, 2005, at 11:00 a.m. EDT. The conference call can be accessed by
dialing 866-802-6730 (Domestic) or 913-643-4200 (International); a
pass code is not required. A replay will be available through
November 23, 2005 by dialing 888-203-1112 (Domestic) and
719-457-0820 (International) / pass code 3945107. A live web cast
of the call will be accessible on the Company's website, at
http://www.kkrfinancial.com/, via a link from the Investor
Relations section. A replay of the audio web cast will be archived
in the Investor Relations section of the Company's website.
Investment Portfolio During the three month period ended September
30, 2005, KKR Financial's investment portfolio increased by 76.1%
from $7.1 billion as of June 30, 2005 to $12.5 billion as of
September 30, 2005. For the nine month period ended September 30,
2005, the investment portfolio increased by 443.5% from $2.3
billion as of December 31, 2004. As of September 30, 2005, the
aggregate amortized cost of the Company's investment portfolio
exceeded the estimated fair value of its investment portfolio by
$61.8 million and, as of the same date, the Company had unrealized
gains totaling $23.9 million related to its cash flow hedges, as
defined under SFAS No. 133. As of September 30, 2005, the aggregate
net unamortized purchase discount (i.e., aggregate purchase
discounts exceed aggregate purchase premiums on the Company's
investment portfolio) related to the investment portfolio was $6.4
million and the weighted average amortized cost, as a percentage of
aggregate par value, of the investment portfolio was 99.95% as of
September 30, 2005, compared to 99.82% as of June 30, 2005.
Management has been able to successfully maintain the aggregate
amortized cost value of the investment portfolio below aggregate
par value due to the Company's ability to purchase a substantial
amount of its residential real estate, corporate, and commercial
real estate investments in primary market transactions at a cost of
par or below. Commencing on the date the Company made its first
investment, management has sought to position the Company so as not
to be negatively impacted by an overall higher interest rate
environment or in a flatter, or potentially inverted, interest rate
curve environment by investing in floating rate and hybrid rate
investments, which as of September 30, 2005, totaled 51.3% and
47.2% of the investment portfolio, respectively. Fixed rate loans
and securities total 1.5% of the Company's investment portfolio as
of September 30, 2005. Equally important, the Company's adjustable
rate residential loans and residential adjustable rate mortgage
("ARM") securities reset monthly and substantially all of its
floating rate corporate and commercial real estate loans and
securities reset at least quarterly. The Company has also fixed
borrowings used to fund hybrid ARM security investments using
interest rate swaps and interest rate corridors, which are
accounted for as cash flow hedges under GAAP. KKR Financial
purchased $6.5 billion and $11.9 billion par amount of investments
during the three and nine month periods ended September 30, 2005,
respectively. For the period from August 12, 2004 (Inception)
through September 30, 2004, the Company purchased $22.0 million par
amount of investments. The table below summarizes 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)
Three month Nine month August 12, 2004 period ended period ended
(Inception) through September 30, 2005 September 30, 2005 September
30, 2004 Par Amount % Par Amount % Par Amount % (Unaudited)
Securities: Residential ARM Securities $886,566 13.5% $1,625,771
13.7% $-- --% Residential Hybrid ARM Securities -- -- 2,935,532
24.7 -- -- Corporate Debt Securities 180,315 2.8 398,820 3.3 -- --
Commercial Real Estate Debt Securities 52,315 0.8 62,315 0.5 12,000
54.5 Total 1,119,196 17.1 5,022,438 42.2 12,000 54.5 Loans:
Residential ARM Loans 956,970 14.6 1,393,471 11.7 -- -- Residential
Hybrid ARM Loans 3,717,560 56.9 3,717,560 31.2 -- -- Corporate
Loans 509,673 7.8 1,426,374 12.0 10,000 45.5 Commercial Real Estate
Loans 235,450 3.6 342,200 2.9 -- -- Total 5,419,653 82.9 6,879,605
57.8 10,000 45.5 Grand Total $6,538,849 100.0% $11,902,043 100.0%
$22,000 100.0% The table above excludes purchases of $24.7 million
of common and preferred stock during the nine month period ended
September 30, 2005, and $0 during the period from August 12, 2004
(Inception) through September 30, 2004. There were no purchases of
common or preferred stock during the three-month period ended
September 30, 2005. As set forth in the table above, for the three
month period ended September 30, 2005, the Company purchased $3.7
billion par amount of Residential Hybrid ARM Loans. Under currently
promulgated GAAP, the Company is required to account for the $3.7
billion as loans, notwithstanding the fact that the Company
purchased the investment in the form of rated securities. Schedule
VII summarizes the ratings distribution of the Company's portfolio
of Residential Hybrid ARM loans. Distribution On November 2, 2005,
the Company's Board of Directors declared a distribution of $0.32
per common share for the quarter ended September 30, 2005, to
shareholders of record on November 16, 2005, and payable on
November 30, 2005. Because the distribution was declared subsequent
to September 30, 2005, the aggregate distribution amount of $25.7
million is not reflected in the Company's consolidated balance
sheet as of September 30, 2005. The Company's distribution for the
quarter, that was declared on November 2, 2005, totaled $25.7
million. REIT taxable income, a non-GAAP financial measurement,
totaled $26.8 million for the quarter and net income adjusted for
share-based compensation, a non-GAAP financial measurement, totaled
$25.9 million for the quarter. The non-GAAP financial measurements
of REIT taxable income and net income adjusted for share-based
compensation are important because the Company is structured as a
REIT and the Internal Revenue Code requires that the Company pay
substantially all of its taxable income in the form of
distributions to its stockholders. REIT taxable income is critical
in the determination of the amount of the minimum distributions
that the Company must pay to its stockholders so as to comply with
the rules set forth in the Internal Revenue Code. Net income
adjusted for share-based compensation is an important non-GAAP
measure as share-based compensation represents the largest non-cash
reconciling item between reported GAAP income and taxable income.
Accordingly, net income adjusted for share-based compensation is an
important measurement used by management to assess the amount of
cash available to distribute to stockholders. Book Value per Common
Share The Company's book value per common share was $20.11 as of
September 30, 2005, exclusive of the distribution declared on
November 2, 2005. The Company's book value was $19.79 per common
share computed on a pro forma basis as of September 30, 2005,
inclusive of the distribution declared on November 2, 2005,
compared to $20.31 per common share as of June 30, 2005, or a
decrease of 2.6%. Total common shares outstanding as of September
30, 2005, totaled 80,374,063 compared to 78,470,742 as of June 30,
2005, or an increase of 2.4%. The increase in common shares
outstanding during the quarter is a result of the grant of
restricted common stock by the Compensation Committee of the Board
of Directors during July 2005. KKR Pacific Funding Trust On
September 30, 2005, the Company closed and launched KKR Pacific
Funding Trust, the Company's first $5 billion asset-backed
commercial paper facility. This facility will provide the Company
with an alternative source of funding its residential real estate
securities and loans by issuing secured liquidity notes that are
rated A-1+, P-1, and F1+, by Standard and Poor's, Moody's Investors
Service, and Fitch, Inc. KKR Financial CLO 2005-2, Ltd. The Company
priced and closed KKR Financial CLO 2005-2, Ltd., the Company's
second $1 billion collateralized loan obligation transaction on
October 6, 2005, and November 3, 2005, respectively. The Company
issued $695 million of Aaa/AAA rated senior notes at par with a
coupon of 3-month LIBOR plus .26% and $57 million of A2/AA rated
senior notes at par with a coupon of 3-month LIBOR plus .43%. The
Company retained the following securities in the transaction: $64
million of Class C mezzanine notes rated A2/A, $64 million of Class
D mezzanine notes rated Baa2/BBB-, $30 million of Class E mezzanine
notes rated Ba2/BB-, $10 million of Class F mezzanine notes rated
B2/B-, and $98.5 million of non-rated subordinated notes. The
maturity date of the transaction is November 26, 2017. The Company
closed its first $1 billion collateralized loan obligation
transaction on March 30, 2005. Private Equity Co-Investments On
November 2, 2005, the independent Directors of the Company's Board
of Directors approved the Company's recommendation to co-invest on
a pari passu basis with Kohlberg Kravis Roberts & Co. L.P.
("KKR") in three separate private equity transactions. The
Company's aggregate investment will total $42.5 million and the
investments are scheduled to close during the fourth quarter. The
Company will be investing in the following transactions: -- Avago
Technologies: The Company will be investing $12.5 million in the
acquisition of Avago Technologies by KKR and Silver Lake Partners.
Avago Technologies is comprised of the worldwide operations of the
semiconductor products group of Agilent Technologies, Inc. --
Masonite International Corporation: The Company will be investing
$20 million in the acquisition of Masonite International
Corporation ("Masonite") by KKR. Masonite is the largest global
manufacturer of doors and door components. -- Toys "R" Us, Inc.:
The Company will be investing $10 million in the acquisition of
Toys "R" Us, Inc. ("Toys "R" Us"). Toys "R" Us is being acquired by
KKR, Bain Capital Partners LLC, and Vornado Realty Trust. Toys "R"
Us is a worldwide specialty retailer of toys, baby products and
children's apparel. Additional information regarding KKR and the
above referenced transactions is available at KKR's website,
http://www.kkr.com/. 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. 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
Schedule I KKR Financial Corp. CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (UNAUDITED) Nine Months Ended Three Months Ended, Sept.
30, Sept. 30, June 30, 2005 2005 2005 % Change (in thousands,
except per share amounts) Net investment income: Securities
interest income $120,835 $50,917 $46,048 10.6% Loan interest income
95,859 63,869 21,101 202.7 Dividend income 2,452 985 933 5.6 Other
interest income 2,013 816 943 (13.5) Total investment income
221,159 116,587 69,025 68.9 Interest expense (146,262) (77,532)
(48,281) 60.6 Net investment income before provision for loan
losses 74,897 39,055 20,744 88.3 Provision for loan losses (1,300)
(1,300) -- -- Net investment income 73,597 37,755 20,744 82.0 Other
income loss: Net realized and unrealized gain (loss) on derivatives
and foreign exchange (36) 13 (176) 107.4 Net realized gain on
investments 2,881 1,730 790 119.0 Fee and other income 1,731 136
1,245 (89.1) Total other income 4,576 1,879 1,859 1.1
Non-investment expenses: Management compensation to related party
33,070 14,331 10,731 33.5 Professional services 2,617 1,432 788
81.7 Loan servicing expense 1,999 1,369 362 278.2 Insurance expense
708 275 216 27.3 Directors expenses 719 368 152 142.1 General and
administrative expenses 4,107 2,630 858 206.5 Total non-investment
expenses 43,220 20,405 13,107 55.7 Income before income tax expense
34,953 19,229 9,496 102.5 Income tax expense 1,881 775 994 (22.0)
Net income $33,072 $18,454 $8,502 117.1% Net income per common
share: Basic $0.63 $0.24 $0.21 14.3% Diluted $0.62 $0.24 $0.21
14.3% Weighted-average number of common shares outstanding: Basic
52,681 77,486 40,212 92.7% Diluted 53,519 78,492 40,994 91.5%
Distributions per common share $0.65 -- $0.40 (100.0)% Schedule II
KKR Financial Corp. RECONCILIATION OF REPORTED GAAP NET INCOME
(LOSS) TO TOTAL TAXABLE INCOME AND REIT TAXABLE INCOME (LOSS)
(UNAUDITED) Estimated For the Estimated Estimated Period from For
the Three For the Nine August 12, 2004 Months Ended Months Ended
(Inception) through September 30, September 30, September 30, 2005
2005 2004 Per Per Per Amount Share Amount Share Amount Share (in
thousands, except per share amounts) Reported net income (loss)
$18,454 $0.24 $33,072 $0.62 $(3,430) $(0.09) Interest income and
expense 48 0.00 145 0.00 -- -- Share-based compensation 7,428 0.09
19,509 0.36 (21,888) (0.55) Depreciation of property and equipment
144 0.00 274 0.01 (7) (0.00) Lease abandonment expense 795 0.01 795
0.01 -- -- Provision for loan losses 1,300 0.02 1,300 0.02 -- --
Losses on sales of assets to third parties (126) (0.00) (674)
(0.01) -- -- Gains on sales of assets to affiliates 145 0.00 4,432
0.08 -- -- Realized and unrealized derivative losses (285) (0.01)
(459) (0.01) -- -- Realized losses (gains) on foreign currency
translations (203) (0.00) 2,332 0.05 -- -- Income tax expense 775
0.01 1,881 0.04 -- -- Total taxable income (loss)(1) 28,475 0.36
62,607 1.17 (25,325) (0.64) Undistributed taxable income of
domestic taxable REIT subsidiary (1,709) (0.02) (3,781) (0.07) --
-- REIT taxable income (loss)(1) $26,766 $0.34 $58,826 $1.10
$(25,325) $(0.64) Weighted-average diluted common shares
outstanding during the period 78,492 53,519 39,796 (1) Total
taxable income (loss) and REIT taxable income (loss) 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 the Company and by its domestic and foreign taxable REIT
subsidiaries. REIT taxable income (loss) excludes the undistributed
taxable income of the Company's domestic taxable REIT subsidiary,
which is not included in REIT taxable income (loss) until
distributed to the Company. There is no requirement that the
Company's domestic taxable REIT subsidiary distribute its earnings
to the Company. REIT taxable income (loss), however, includes the
taxable income of the Company's foreign taxable REIT subsidiaries
because the Company will generally be required to recognize and
report its taxable income on a current basis. These non-GAAP
financial measurements are important to the Company because the
Company is structured as a REIT and the Internal Revenue Code
requires that the Company pay substantially all of its taxable
income in the form of distributions to its 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 the Company must pay to its
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. Schedule III
KKR Financial Corp. CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED) % Change from September 30, 2005 (amounts in thousands)
Sept. 30, June 30, Dec. 31, June 30, Dec. 31, 2005 2005 2004 2005
2004 Assets: Cash and cash equivalents $62,078 $14,435 $7,219
330.1% 759.9% Restricted cash and cash equivalents 83,286 31,465
1,321 164.7 6,204.8 Securities available- for-sale 419,066 373,362
167,058 40.8 214.6 Securities available- for-sale, pledged as
collateral 4,877,621 4,683,901 1,484,222 1.9 221.5 Loans, net of
allowance of $1,300, $0, and $0, as of September 30, 2005, June 30,
2005, and December 31, 2004, respectively 7,221,803 2,042,124
682,757 253.6 957.7 Derivative assets 35,445 9,899 223 258.1
15,794.6 Interest receivable 46,118 22,074 2,694 108.9 1611.9
Principal receivable 284 421 -- (32.5) -- Deferred tax asset -- --
228 -- -- Other assets 22,306 2,672 1,618 734.8 1,278.6 Total
assets $12,768,007 $7,180,353 $2,347,340 77.8% 443.9% Liabilities:
Repurchase agreements $10,231,010 $4,771,756 $1,558,274 114.4%
556.6 CLO senior notes payable 773,000 696,448 -- 11.0 -- Demand
loan 40,511 40,511 27,875 -- 45.3 Accounts payable, accrued
expenses and other liabilities 75,640 46,989 1,157 61.0 6,437.6
Distribution payable -- 16,400 -- (100.0) -- Accrued interest
payable 25,097 10,274 771 144.3 3,155.1 Payable to manager and
related party liabilities 3,413 1,717 1,765 98.8 93.4 Income tax
liability 1,654 878 -- 88.4 -- Derivative liabilities 1,089 1,660
750 (34.4) 45.2 Total liabilities 11,151,414 5,586,633 1,590,592
99.6% 601.1% Stockholders' equity: Preferred stock, $0.01 par
value, 50,000,000 shares authorized and none issued and outstanding
at September 30, 2005, June 30, 2005, and December 31, 2004 -- --
-- -- -- Common stock, $0.01 par value, 250,000,000 shares
authorized and 80,374,063, 78,470,742, and 41,004,492 shares issued
and outstanding at September 30, 2005, June 30, 2005, and December
31, 2004, respectively 804 785 410 2.4 96.1 Additional paid-in-
capital 1,675,379 1,635,721 779,740 2.4 114.9 Deferred compensation
(46,120) (13,780) (18,413) 234.7 150.5 Accumulated other
comprehensive income (loss) (13,182) (10,264) 1,720 28.4 (866.4)
Accumulated deficit (288) (18,742) (6,709) (98.5) (95.7) Total
stockholders' equity 1,616,593 1,593,720 756,748 1.4% 113.6% Total
liabilities and stockholders' equity $12,768,007 $7,180,353
$2,347,340 77.8% 443.9% Schedule IV KKR Financial Corp. SUMMARY
FINANCIAL DATA (UNAUDITED) (amounts in Nine thousands, Months Ended
Three Months Ended, except per Sept. 30, Sept. 30, June 30, share
amounts) 2005 2005 2005 % Change Net Income: $33,072 $18,454 $8,502
117.1% Earnings per diluted common share $0.62 $0.24 $0.21 14.3 Net
income + Share-Based Compensation(1): $52,581 $25,882 $15,836 63.4
Net income, adjusted for share-based compensation, per diluted
common share $0.98 $0.33 $0.39 (15.4) REIT Taxable Income(2):
$58,826 $26,766 $16,895 58.4 REIT taxable income per diluted common
share $1.10 $0.34 $0.41 (17.1) Profitability Ratio Information(3):
Return on equity 4.2% 4.5% 4.6% (2.2) Return on assets 0.6% 0.7%
0.5% 40.0 Efficiency ratio 19.1% 17.2% 18.5% (7.0) Share
Information: Common shares outstanding 80,374 80,374 78,471 2.4
Basic EPS common shares outstanding 52,681 77,486 40,212 92.7
Diluted EPS common shares outstanding 53,519 78,492 40,994 91.5
Distributions per common share $0.65 $-- $0.40 (100.0) Investment
Portfolio Information: Residential mortgage securities $4,815,307
$4,815,307 $4,767,392 1.0 Residential loans 5,211,508 5,211,508
649,036 703.0 Total residential 10,026,815 10,026,815 5,416,428
85.1 Corporate securities 356,335 356,335 214,746 65.9 Corporate
loans 1,620,468 1,620,468 1,237,611 30.9 Total corporate 1,976,803
1,976,803 1,452,357 36.1 Commercial real estate securities 71,925
71,925 22,049 226.2 Commercial real estate loans 391,127 391,127
155,477 151.6 Total commercial real estate 463,052 463,052 177,526
160.8 Preferred and common stocks 53,120 53,120 53,076 0.1 Total
investment portfolio 12,519,790 12,519,790 7,099,387 76.4 Balance
Sheet Information: Investment portfolio $12,519,790 $12,519,790
$7,099,387 76.3 Total assets 12,768,007 12,768,007 7,180,353 77.8
Total borrowings 11,044,521 11,044,521 5,508,715 100.5 Total
liabilities 11,151,414 11,151,414 5,586,633 99.6 Stockholders'
equity 1,616,593 1,616,593 1,593,720 1.4 Book value per common
share 20.11 20.11 20.31 (1.0) Leverage 6.8x 6.8x 3.5x 94.3
Statement of Operations Information: Investment income $221,159
$116,587 $69,025 68.9 Other income 4,576 1,879 1,859 1.1 Total
income 225,735 118,466 70,884 67.1 Interest expense (146,262)
(77,532) (48,281) 60.6 Provision for loan losses (1,300) (1,300) --
-- Share-based compensation expense (19,509) (7,428) (7,334) 1.3
Management fees (13,822) (7,102) (3,383) 109.9 Loan servicing
expense (1,999) (1,369) (362) 278.9 Other expenses (7,890) (4,506)
(2,028) 122.2 Total non-investment expenses (43,220) (20,405)
(13,107) 55.7 Income before income tax expense 34,953 19,229 9,496
102.5 Income tax expense (1,881) (775) (994) (22.0) Net income
33,072 18,454 8,502 117.1% (1) Non-GAAP financial measurement
consisting of GAAP net income plus GAAP share-based compensation
expense. (2) Non-GAAP financial measurement. See attached Schedule
II for reconciliation of GAAP net income to total taxable income
and REIT taxable income. (3) All ratios computed on an annualized
basis. The efficiency ratio is defined as non-interest expense
divided by total revenue. Schedule V KKR Financial Corp. INVESTMENT
PORTFOLIO BY INTEREST RATE TYPE AS OF SEPTEMBER 30, 2005
(UNAUDITED) Portfolio Estimated Mix% Carrying Amortized Fair by
Fair Value Cost Value Value (amounts in thousands) Floating Rate
Residential ARM Loans $1,579,769 $1,579,769 $1,576,220 12.7%
Residential ARM Securities 2,532,718 2,529,423 2,532,718 20.3
Corporate Loans 1,595,468 1,595,468 1,611,569 13.0 Corporate Debt
Securities 250,853 252,282 250,853 2.0 Commercial Real Estate Loans
355,586 355,586 355,925 2.9 Commercial Real Estate Debt Securities
52,045 51,995 52,045 0.4 Total Floating Rate 6,366,439 6,364,523
6,379,330 51.3 Hybrid Rate: Residential Hybrid ARM Loans 3,631,739
3,631,739 3,593,785 28.9 Residential Hybrid ARM Securities
2,282,589 2,321,383 2,282,589 18.3 Total Hybrid Rate 5,914,328
5,953,122 5,876,374 47.2 Fixed Rate: Corporate Loans 25,000 25,000
25,000 0.2 Corporate Debt Securities 105,482 106,060 105,482 0.8
Commercial Real Estate Loans 35,541 35,541 35,890 0.3 Commercial
Real Estate Debt Securities 19,880 19,786 19,880 0.2 Total Fixed
Rate 185,903 186,387 186,252 1.5 Total $12,466,670 $12,504,032
$12,441,956 100.0% (1) The schedule excludes common and preferred
stock with a fair value of $53.1 million and an amortized cost of
$52.8 million as of September 30, 2005. As of September 30, 2005,
the aggregate amortized cost value of the Company's investment
portfolio exceeded the aggregate fair value of its portfolio by
$61.8 million and, as of the same date, the Company had unrealized
gains totaling $23.9 million related to its cash flow hedges, as
defined under SFAS No. 133. As of September 30, 2005, the aggregate
net unamortized purchase discount related to the Company's
investment portfolio was $6.4 million. (2) The schedule summarizes
the carrying value, amortized cost, and fair value of the Company's
investment portfolio as of September 30, 2005, classified by
interest rate type. Carrying value is the value that investments
are recorded on the Company's consolidated balance sheets and is
fair value for securities and amortized cost for loans. Estimated
fair values set forth in the schedule are as of September 30, 2005
and are based on dealer quotes and/or nationally recognized pricing
services. Schedule VI KKR Financial Corp. SECURITIES PORTFOLIO BY
RATINGS AS OF SEPTEMBER 30, 2005 (UNAUDITED) Commercial Preferred
Residential Residential Corporate Real and ARM Hybrid ARM Debt
Estate Common Total Securities Securities Securities Securities
Stock Securities (amounts in thousands) Aaa/AAA $2,470,157
$2,258,394 $-- $-- $-- $4,728,551 Aa1/AA+ -- -- -- -- -- -- Aa2/AA
21,497 28,327 -- -- -- 49,824 Aa3/AA- -- -- -- -- -- -- A1/A+ -- --
-- -- -- -- A2/A 15,498 17,944 -- -- -- 33,442 A3/A- -- -- -- -- --
-- Baa1/BBB+ -- -- -- -- -- -- Baa2/BBB 10,999 6,379 60,619 12,000
-- 89,997 Baa3/BBB- -- 2,434 24,833 26,488 -- 53,755 Ba1/BB+ -- --
55,261 20,000 -- 75,261 Ba2/BB 4,668 3,612 7,500 5,000 11,158
31,938 Ba3/BB- -- -- 45,000 -- -- 45,000 B1/B+ -- -- 30,720 --
24,040 54,760 B2/B 2,796 2,042 45,711 -- -- 50,549 B3/B- -- --
55,638 -- -- 55,638 Caa1/CCC+ -- -- 15,000 -- -- 15,000 Caa2/CCC --
-- 18,060 -- -- 18,060 Caa3/CCC- and lower -- -- -- 8,293 -- 8,293
NR 3,808 2,251 -- -- 17,628 23,687 Total (1) $2,529,423 $2,321,383
$358,342 $71,781 $52,826 $5,333,755 (1) Amounts are amortized cost.
Schedule VII KKR Financial Corp. LOAN PORTFOLIO BY RATINGS AS OF
SEPTEMBER 30, 2005 (UNAUDITED) Securitized Securitized Commercial
Residential Residential Unsecuritized Real ARM Hybrid ARM
Residential Corporate Estate Total Loans Loans ARM Loans Loans
Loans Loans (amounts in thousands) Aaa/AAA $1,146,795 $3,491,652
$-- $-- $-- $4,638,447 Aa1/AA+ -- 36,185 -- -- -- 36,185 Aa2/AA
27,216 43,924 -- -- -- 71,140 Aa3/AA- -- -- -- -- -- -- A1/A+ 9,878
-- -- -- -- 9,878 A2/A 2,409 24,393 -- -- -- 26,802 A3/A- -- -- --
-- -- -- Baa1/BBB+ 5,927 -- -- -- -- 5,927 Baa2/BBB 1,548 14,782 --
-- -- 16,330 Baa3/BBB- -- -- -- -- -- -- Ba1/BB+ 5,927 -- -- 24,663
-- 30,590 Ba2/BB 860 6,903 -- 226,235 -- 233,998 Ba3/BB- -- -- --
323,208 -- 323,208 B1/B+ -- -- -- 499,805 -- 499,805 B2/B 3,479
4,023 -- 301,920 -- 309,422 B3/B- -- -- -- 130,558 -- 130,558
Caa1/CCC+ -- -- -- 5,000 50,000 55,000 Caa2/CCC -- -- -- 16,138 --
16,138 Caa3/CCC- and lower -- -- -- -- -- -- NR 6,145 9,877
$369,585 92,941 341,127 819,675 Total (1) $1,210,184 $3,631,739
$369,585 $1,620,468 $391,127 $7,223,103 (1) Amounts are amortized
cost. DATASOURCE: KKR Financial LLC 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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