SAN FRANCISCO, Feb. 28 /PRNewswire-FirstCall/ -- KKR Financial
Corp. (NYSE:KFN) ("KFN" or the "Company") today announced its
results for the fourth quarter and year ended December 31, 2005.
Highlights of KKR Financial Corp.'s performance include: *
Distribution of $0.40 per common share declared for the quarter
ended December 31, 2005. * Net income for the quarter ended
December 31, 2005 of $22.0 million, or $0.28 per diluted common
share. Net income for the year ended December 31, 2005 of $55.1
million, or $0.92 per diluted common share. * Net income adjusted
for share-based compensation for the quarter ended December 31,
2005 of $32.7 million, or $0.42 per diluted common share. Net
income adjusted for share-based compensation for the year ended
December 31, 2005 of $85.3 million or $1.42 per diluted common
share. * REIT taxable income for the quarter ended December 31,
2005 of $22.1 million, or $0.28 per diluted common share. REIT
taxable income for the year ended December 31, 2005 of $82.1
million or $1.37 per diluted common share. See attached Schedule II
for reconciliation of GAAP net income to REIT taxable income. *
Investment portfolio of $15.0 billion as of December 31, 2005, a
20.0% increase from $12.5 billion as of September 30, 2005 and a
552.2% increase from $2.3 billion as of December 31, 2004. *
Weighted average cost of investment portfolio, as a percentage of
par value, of 99.96% as of December 31, 2005, compared to 99.95% as
of September 30, 2005. * Closed KKR Financial CLO 2005-2, Ltd., the
Company's second $1 billion collateralized loan obligation
transaction, on November 3, 2005. * Completion of the first
issuance of secured liquidity notes by KKR Pacific Funding Trust,
the Company's first $5 billion asset-backed commercial paper
conduit that closed on September 30, 2005, with $2 billion
outstanding as of December 31, 2005. * Co-invested $52.5 million on
a pari passu basis with Kohlberg Kravis Roberts & Co. L.P. in
four separate private equity transactions during the fourth quarter
of 2005. KKR Financial Corp. ("KFN" or the "Company") reported net
income for the fourth quarter and year ended December 31, 2005 of
$22.0 million and $55.1 million, respectively, or $0.28 and $0.92
per diluted common share, respectively. Current quarter and annual
results compare with a net loss of $3.3 million and $6.7 million
for the quarter and year ended December 31, 2004, respectively, or
a loss of $0.08 and $0.17 per common share, respectively. Net
income includes share-based compensation expense for the quarter
and year ended December 31, 2005, totaling $10.7 million and $30.2
million, respectively, or $0.14 and $0.50 per diluted common share,
respectively. Additionally, fourth quarter results include a
provision for loan losses of $0.2 million and results for the year
ended December 31, 2005 include a provision for loan losses of $1.5
million and a lease abandonment charge of $0.8 million. 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 December 31, 2005
totaled $32.7 million, or $0.42 per diluted common share. Net
income adjusted for share-based compensation for the year ended
December 31, 2005 totaled $85.3 million or $1.42 per diluted common
share. REIT taxable income, a non-GAAP financial measurement, for
the fourth quarter and year ended December 31, 2005 totaled $22.1
million and $82.1 million, respectively, or $0.28 and $1.37 per
diluted common share, respectively. See attached Schedule II for
reconciliation of GAAP net income to REIT taxable income.
Investment Portfolio During the quarter ended December 31, 2005,
the Company's investment portfolio increased by 20.0% from $12.5
billion as of September 30, 2005 to $15.0 billion as of December
31, 2005. For the year ended December 31, 2005, the investment
portfolio increased by 552.2% from $2.3 billion as of December 31,
2004. As of December 31, 2005, the aggregate amortized cost of the
Company's investment portfolio exceeded the estimated fair value of
its investment portfolio by $54.1 million and, as of the same date,
the Company had unrealized gains totaling $45.6 million related to
its cash flow hedges, as defined under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. In comparison, 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 of December 31, 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 $6.7 million and
the weighted average amortized cost, as a percentage of aggregate
par value, of the investment portfolio was 99.96% as of December
31, 2005. Management has been able to maintain the aggregate
amortized cost value of the investment portfolio below aggregate
par value due to the Company's ability to make 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. Since the Company's formation, management has positioned
the Company so as not to be negatively impacted by an overall
higher interest rate environment or in a flatter, or inverted,
interest rate curve environment by investing in floating rate and
hybrid rate investments, which as of December 31, 2005, totaled
55.0% and 42.8% of the investment portfolio, respectively. Fixed
rate loans and securities total 1.9% of the Company's investment
portfolio as of December 31, 2005. Additionally, 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. The Company made $3.7
billion and $15.6 billion par amount of investments during the
fourth quarter and year ended December 31, 2005, respectively. For
the period from August 12, 2004 (Inception) through December 31,
2004, the Company made $2.3 billion 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) August 12, 2004 Quarter ended Year
ended (Inception) through December 31, 2005 December 31, 2005
December 31, 2004 Par Par Par Amount % Amount % Amount %
Securities: Residential ARM Securities $1,292,554 35.1% $2,918,325
18.7% $1,604,594 69.1% Residential Hybrid ARM Securities -- --
2,935,532 18.8 -- -- Corporate Debt Securities 159,000 4.3 557,820
3.6 24,500 1.1 Commercial Real Estate Debt Securities 23,356 0.6
85,671 0.6 12,000 0.5 Total 1,474,910 40.0 6,497,348 41.7 1,641,094
70.7 Loans: Residential ARM Loans 779,300 21.2 2,172,771 13.9
229,855 9.9 Residential Hybrid ARM Loans 830,072 22.6 4,547,632
29.2 -- -- Corporate Loans 444,475 12.1 1,870,849 12.0 400,774 17.3
Commercial Real Estate Loans 150,929 4.1 493,129 3.2 50,000 2.1
Total 2,204,776 60.0 9,084,381 58.3 680,629 29.3 Grand Total
$3,679,686 100.0% $15,581,729 100.0% $2,321,723 100.0% The table
above excludes purchases of $3.6 million and $28.3 million of
marketable equity securities during the quarter and year ended
December 31, 2005, respectively, and $31.2 million during the
period from August 12, 2004 (Inception) through December 31, 2004.
Purchases of $52.5 million of non- marketable equity securities are
also excluded from the table for the quarter and year ended
December 31, 2005. As set forth in the table above, for the year
ended December 31, 2005, the Company purchased $4.5 billion par
amount of Residential Hybrid ARM Loans. Under currently promulgated
GAAP, the Company is required to account for the $4.5 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 February 1, 2006, the Company's
Board of Directors declared a distribution of $0.40 per common
share for the quarter ended December 31, 2005, to stockholders of
record on February 15, 2006, and payable on February 28, 2006.
Because the distribution was declared subsequent to December 31,
2005, the aggregate distribution payable of $32.1 million is not
reflected in the Company's consolidated balance sheet as of
December 31, 2005. The Company's distribution for the fourth
quarter, that was declared on February 1, 2006, totaled $32.1
million. REIT taxable income, a non-GAAP financial measurement,
totaled $22.1 million for the fourth quarter and net income
adjusted for share-based compensation, a non-GAAP financial
measurement, totaled $32.7 million for the fourth quarter. The
Company's total distributions for 2005, including the distribution
for the fourth quarter declared on February 1, 2006, totaled $84.5
million, compared to REIT taxable income for 2005 of $82.1 million.
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 because it is a
measurement of cash flow generated from operations that is
available to make distributions to common stockholders. Book Value
The Company's book value per common share was $20.59 and $20.11 as
of December 31, 2005, and September 30, 2005, respectively,
exclusive of the distributions declared subsequent to the end of
the fourth and third quarter, respectively, of $0.40 and $0.32 per
common share. The Company's book value per common share, computed
on a pro forma basis inclusive of these subsequent distributions
was $20.19 and $19.79, respectively. KKR Financial CLO 2005-2, Ltd.
The Company closed KKR Financial CLO 2005-2, Ltd., the Company's
second $1 billion collateralized loan obligation transaction, on
November 3, 2005. The Company issued $695 million of Aaa/AAA-rated
senior secured notes at par with a coupon of 3-month LIBOR plus
.26% and $57 million of Aa2/AA-rated senior secured 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 During the fourth quarter, the
Company co-invested $52.5 million on a pari passu basis with one or
more private equity funds affiliated with Kohlberg Kravis Roberts
& Co. L.P. ("KKR") in four separate private equity
transactions. The Company's aggregate investment totaled $52.5
million, consisting of the following investments: * Accellent Inc.:
The Company invested $10.0 million in the acquisition of Accellent
Inc. ("Accellent") by KKR and Bain Capital LLC. Accellent is the
largest provider of fully integrated manufacturing and engineering
services to the medical device industry. * Avago Technologies: The
Company invested $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 formerly owned by Agilent Technologies, Inc. * Masonite
International Corporation: The Company invested $20.0 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 invested $10.0
million in the acquisition of Toys "R" Us, Inc. ("Toys "R" Us") 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/). Information for Investors: 10-K Filing,
Conference Call and Webcast As of today's date, the Company has not
filed its Form 10-K for the year ended December 31, 2005, with the
Securities and Exchange Commission (the "SEC"). The Company
encourages investors to carefully read the Company's Form 10-K
after it has been filed by the Company as it contains consolidated
financial statements and footnotes and Management's Discussion and
Analysis of Financial Condition and Results of Operations, in each
case for the year ended December 31, 2005. The Company is required
to file its Form 10-K for the year ended December 31, 2005, with
the SEC no later than March 31, 2006. The Company will host a
conference call and audio web cast to review its fourth quarter and
annual 2005 results on Wednesday, March 1, 2006, at 11:00 a.m. EST.
The conference call can be accessed by dialing 800-289-0743
(Domestic) or 913-981-5546 (International); a pass code is not
required. A replay will be available through March 15, 2006 by
dialing 888-203-1112 (Domestic) and 719-457-0820 (International) /
pass code 4719129. 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. About KKR Financial Corp. KKR Financial Corp. 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 SEC.
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) For the
period from Aug. 12, 2004 Three Months Three Months Year
(Inception) (amounts in thousands, Ended Ended Ended through except
per share amounts) Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2005 2004
2005 2004 Net investment income: Securities interest income $65,675
$2,715 $186,510 $2,715 Loan interest income 110,804 1,914 206,663
1,914 Dividend income 969 296 3,421 296 Other interest income 1,322
1,731 3,335 3,197 Total investment income 178,770 6,656 399,929
8,122 Interest expense (133,456) (975) (279,718) (975) Net
investment income before provision for loan losses 45,314 5,681
120,211 7,147 Provision for loan losses (200) -- (1,500) -- Net
investment income 45,114 5,681 118,711 7,147 Other income (loss):
Net realized and unrealized gain (loss) on derivatives and foreign
exchange 149 (570) 113 (570) Net realized gain on investments 1,236
75 4,117 75 Fee and other income 1,599 7 3,330 7 Total other income
(loss) 2,984 (488) 7,560 (488) Non-investment expenses: Related
party management compensation 17,721 7,421 50,791 11,222
Professional services 1,504 680 4,121 901 Loan servicing expense
3,144 -- 5,143 -- Insurance expense 267 216 975 335 Directors
expenses 352 242 1,071 341 General and administrative expenses
1,838 141 5,945 797 Total non-investment expenses 24,826 8,700
68,046 13,596 Income (loss) before income tax expense (benefit)
23,272 (3,507) 58,225 (6,937) Income tax expense (benefit) 1,263
(228) 3,144 (228) Net income (loss) $22,009 $(3,279) $55,081
$(6,709) Net income (loss) per common share: Basic $0.28 $(0.08)
$0.93 $(0.17) Diluted $0.28 $(0.08) $0.92 $(0.17) Weighted-average
number of common shares outstanding: Basic 77,675 39,796 58,998
39,796 Diluted 78,787 39,796 60,087 39,796 Distributions per common
share $0.32 $-- $0.97 $-- Schedule II KKR Financial Corp.
RECONCILIATION OF REPORTED GAAP NET INCOME (LOSS) TO TOTAL TAXABLE
INCOME AND REIT TAXABLE INCOME (LOSS) (UNAUDITED) For the Period
(in from thousands, Estimated Estimated Aug. 12, 2004 except per
For the For the For the (Inception) share Quarter Ended Quarter
Ended Year Ended through amounts) Dec. 31, 2005 Dec. 31, 2004 Dec.
31,2005 Dec. 31, 2004 Per Per Per Per Amount Share Amount Share
Amount Share Amount Share Reported net income (loss) $22,009 $0.28
$(3,279)$(0.08) $55,081 $0.92 $(6,709) $(0.17) Interest income and
expense 48 -- 11 -- 194 -- 11 -- Share- based compen- sation 10,738
0.14 4,236 0.11 30,007 0.50 (17,651) (0.43) Depre- ciation of
leasehold improve- ments and equipment 161 -- 72 -- 421 0.01 63 --
Lease abandon- ment expense -- -- -- -- 795 0.01 -- -- Provision
for loan losses 200 -- -- -- 1,500 0.02 -- -- Losses on sales of
assets to third parties (288) -- -- -- (571) (0.01) -- -- Gains on
sales of assets to affiliates 220 -- -- -- 5,687 0.09 -- --
Realized and unrealized derivative gains and (losses) (1,436)(0.02)
378 0.01 (1,895) (0.03) 378 0.01 Unrealized gains on foreign
currency translation(2,332)(0.03) -- -- -- -- -- -- Book/tax year
end difference adjustment for CLOs/ CDOs (8,168)(0.10) -- --
(8,168) (0.13) -- -- Other 3 -- 4 -- 8 -- 4 -- Income tax expense
(benefit) 1,263 0.02 (228) (0.01) 3,144 0.05 (228) (0.01) Total
taxable income (loss) (1) $22,418 $0.29 $1,194 $0.03 $86,203 $1.43
$(24,132) $(0.60) Undis- tributed taxable income of domestic
taxable REIT subsid- iary (296)(0.01) 193 -- (4,077) (0.06) 193 --
REIT taxable income (loss) (1) $22,122 $0.28 $1,387 $0.03 $82,126
$1.37 $(23,939) $(0.60) Weighted- average diluted common shares
out- standing during the period 78,787 -- 39,796 -- 60,087 --
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 of 1986. 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. CONSOLIDATED BALANCE SHEET
(UNAUDITED) (amounts in thousands, except share information) Dec.
31, Dec. 31, 2005 2004 Assets: Cash and cash equivalents $16,110
$7,219 Restricted cash and cash equivalents 80,223 1,321 Securities
available-for-sale, $5,910,399 and $1,484,222 pledged as collateral
as of December 31, 2005 and 2004, respectively 6,149,506 1,651,280
Loans, net of allowance of $1,500 and $0, as of December 31, 2005,
and December 31, 2004, respectively 8,846,341 682,757 Derivative
assets 58,898 223 Interest receivable 59,993 2,694 Principal
receivable 7,108 -- Non-marketable equity securities 52,500 --
Deferred tax asset -- 228 Other assets 19,861 1,618 Total assets
$15,290,540 $2,347,340 Liabilities: Repurchase agreements
$9,761,258 $1,558,274 Collateralized loan obligation senior secured
notes 1,500,000 -- Asset-backed secured liquidity notes 2,008,069
-- Secured revolving credit facility 54,000 -- Secured demand loan
40,511 27,875 Payable for securities purchases 196,315 -- Accounts
payable, accrued expenses and other liabilities 45,925 1,157
Accrued interest payable 21,415 771 Related party payable 3,673
1,765 Income tax liability 2,763 -- Derivative liabilities 1,465
750 Total liabilities 13,635,394 1,590,592 Stockholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized and
none issued and outstanding at December 31, 2005 and December 31,
2004 -- -- Common stock, $0.01 par value, 250,000,000 shares
authorized and 80,374,061 and 41,004,492 shares issued and
outstanding at December 31, 2005 and December 31, 2004,
respectively 804 410 Additional paid-in-capital 1,639,996 761,327
Accumulated other comprehensive income 18,344 1,720 Accumulated
deficit (3,998) (6,709) Total stockholders' equity 1,655,146
756,748 Total liabilities and stockholders' equity $15,290,540
$2,347,340 Schedule IV KKR Financial Corp. SUMMARY FINANCIAL DATA
(UNAUDITED) For the period from Aug. 12, Three Three 2004 (amounts
in thousands, Months Months Year (Inception) except per share
amounts) Ended Ended Ended through Dec. 31, Dec. 31, Dec. 31, Dec.
31, 2005 2004 2005 2004 Net Income (loss): $22,009 $(3,279) $55,081
$(6,709) Earnings (loss) per diluted common share $0.28 $(0.08)
$0.92 $(0.17) Net Income (loss) + Share-Based Compensation(1):
$32,747 $958 $85,327 $(483) Net income (loss), adjusted for
share-based compensation, per diluted common share $0.42 $0.02
$1.42 $(0.01) REIT Taxable Income (loss)(2): $22,122 $1,387 $82,126
$(23,939) REIT taxable income (loss) per diluted common share $0.28
$0.03 $1.37 $(0.60) Profitability Ratio Information(3): Return on
equity 5.3% N/A 4.5% N/A Return on assets 0.6% N/A 1.0% N/A
Efficiency ratio 13.7% N/A 16.7% N/A Share Information: Common
shares outstanding, period end 80,374 41,004 80,374 41,004 Basic
EPS common shares outstanding 77,675 39,796 58,998 39,796 Diluted
EPS common shares outstanding 78,787 39,796 60,087 39,796
Distributions per common share $0.32 $-- $0.97 $-- Investment
Portfolio Information (period end): Residential mortgage securities
$5,537,838 $1,582,711 $5,537,838 $1,582,711 Residential loans
6,428,822 233,120 6,428,822 233,120 Total residential 11,966,660
1,815,831 11,966,660 1,815,831 Corporate securities 481,754 24,900
481,754 24,900 Corporate loans 1,897,277 399,637 1,897,277 399,637
Total corporate 2,379,031 424,537 2,379,031 424,537 Commercial real
estate securities 82,912 12,007 82,912 12,007 Commercial real
estate loans 521,742 50,000 521,742 50,000 Total commercial real
estate 604,654 62,007 604,654 62,007 Marketable equity securities
47,002 31,662 47,002 31,662 Total investment portfolio 14,997,347
2,334,037 14,997,347 2,334,037 Balance Sheet Information (period
end): Investment portfolio $14,997,347 $2,334,037 $14,997,347
$2,334,037 Non-marketable equity securities 52,500 -- 52,500 --
Total assets 15,290,540 2,347,340 15,290,540 2,347,340 Total
borrowings 13,363,838 1,586,149 13,363,838 1,586,149 Total
liabilities 13,635,394 1,590,592 13,635,394 1,590,592 Stockholders'
equity 1,655,146 756,748 1,655,146 756,748 Book value per common
share 20.59 18.46 20.59 18.46 Leverage 8.1x 2.1x 8.1x 2.1x
Statement of Operations Information: Investment income $178,770
$6,656 $399,929 $8,122 Other income 2,984 (488) 7,560 (488) Total
income 181,754 6,168 407,489 7,634 Interest expense (133,456) (975)
(279,718) (975) Provision for loan losses (200) -- (1,500) --
Share-based compensation expense (10,738) (4,237) (30,246) (6,226)
Management fees (7,160) (3,300) (20,982) (5,112) Loan servicing
expense (3,144) -- (5,143) -- Other expenses (3,784) (1,163)
(11,675) (2,258) Total non-investment expenses (24,826) (8,700)
(68,046) (13,596) Income before income tax expense (benefit) 23,272
(3,507) 58,225 (6,937) Income tax expense (benefit) 1,263 (228)
3,144 (228) Net income (loss) 22,009 (3,279) 55,081 (6,709) (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 (loss) to total taxable income and REIT taxable income
(loss). (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 DECEMBER 31, 2005 (UNAUDITED) Portfolio
Mix % Estimated by (amounts in thousands) Carrying Amortized Fair
Fair (1)(2) Value Cost Value Value Floating Rate: Residential ARM
Loans $2,175,929 $2,175,929 $2,163,932 14.5% Residential ARM
Securities 3,375,434 3,369,763 3,375,434 22.6 Corporate Loans
1,872,277 1,872,277 1,886,372 12.6 Corporate Debt Securities
279,280 277,030 279,280 1.9 Commercial Real Estate Loans 486,096
486,096 485,775 3.3 Commercial Real Estate Debt Securities 63,032
63,168 63,032 0.4 Total Floating Rate 8,252,048 8,244,263 8,253,825
55.3 Hybrid Rate: Residential Hybrid ARM Loans 4,252,893 4,252,893
4,224,234 28.3 Residential Hybrid ARM Securities 2,162,404
2,197,020 2,162,404 14.5 Total Hybrid Rate 6,415,297 6,449,913
6,386,638 42.8 Fixed Rate: Corporate Loans 25,000 25,000 25,000 0.2
Corporate Debt Securities 202,474 202,748 202,474 1.4 Commercial
Real Estate Loans 35,646 35,646 35,657 0.2 Commercial Real Estate
Debt Securities 19,880 19,833 19,880 0.1 Total Fixed Rate 283,000
283,227 283,011 1.9 Total $14,950,345 $14,977,403 $14,923,474
100.0% (1) The schedule excludes (i) marketable equity securities
with a fair value of $47.0 million and amortized cost of $47.2
million, and (ii) non-marketable equity securities with a fair
value of $52.5 million and amortized cost of $52.5 million as of
December 31, 2005. As of December 31, 2005, the aggregate amortized
cost value of the Company's investment portfolio exceeded the
aggregate fair value of its portfolio by $54.1 million and, as of
the same date, the Company had unrealized gains totaling $45.6
million related to its cash flow hedges, as defined under SFAS No.
133. As of December 31, 2005, the aggregate net unamortized
purchase discount related to the Company's investment portfolio was
$6.7 million. (2) The schedule summarizes the carrying value,
amortized cost, and fair value of the Company's investment
portfolio as of December 31, 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 December 31, 2005 and are based on
dealer quotes and/or nationally recognized pricing services.
Schedule VI KKR Financial Corp. SECURITIES PORTFOLIO BY RATINGS AS
OF DECEMBER 31, 2005 (UNAUDITED) (amounts in thousands) Residential
Commercial Preferred Residential Hybrid Corporate Real and Rating
ARM ARM Debt Estate Common Total (1)(2) Securities Securities
Securities Securities Stock Securities Aaa/AAA $3,310,370
$2,134,333 $-- $-- $-- $5,444,703 Aa1/AA+ -- -- -- -- -- -- Aa2/AA
21,497 28,274 -- -- -- 49,771 Aa3/AA- -- -- -- -- -- -- A1/A+ -- --
-- -- -- -- A2/A 15,498 17,916 -- -- -- 33,414 A3/A- -- -- -- -- --
-- Baa1/BBB+ -- -- -- -- -- -- Baa2/BBB 10,998 6,372 41,537 12,000
-- 70,907 Baa3/BBB- -- 2,194 -- 26,491 -- 28,685 Ba1/BB+ -- --
73,370 20,000 -- 93,370 Ba2/BB 4,714 3,622 32,349 5,000 11,158
56,843 Ba3/BB- -- -- 45,000 -- -- 45,000 B1/B+ -- -- 25,418 --
24,040 49,458 B2/B 2,856 2,064 45,715 -- -- 50,635 B3/B- -- --
82,350 -- -- 82,350 Caa1/CCC+ -- -- 39,673 -- -- 39,673 Caa2/CCC --
-- 67,684 -- -- 67,684 Caa3/CCC- and lower -- -- -- 8,337 -- 8,337
NR 3,830 2,245 26,682 11,173 11,960 55,890 Total $3,369,763
$2,197,020 $479,778 $83,001 $47,158 $6,176,720 (1) Amounts are
amortized cost. (2) Schedule excludes $52.5 million of
non-marketable equity securities as of December 31, 2005. Schedule
VII KKR Financial Corp. LOAN PORTFOLIO BY RATINGS AS OF DECEMBER
31, 2005 (UNAUDITED) (amounts in thousands) Securitized Securitized
Residential Commercial Residential Hybrid Real Rating ARM ARM
Corporate Estate Total (1) Loans Loans Loans Loans Loans Aaa/AAA
$2,070,425 $4,068,999 $-- $-- 6,139,424 Aa1/AA+ -- 35,738 -- --
35,738 Aa2/AA 46,999 56,732 -- -- 103,731 Aa3/AA- -- -- -- -- --
A1/A+ 9,691 -- -- -- 9,691 A2/A 14,238 31,416 -- -- 45,654 A3/A- --
-- -- -- -- Baa1/BBB+ 5,823 -- -- -- 5,823 Baa2/BBB 8,286 19,105 --
-- 27,391 Baa3/BBB- -- 11,975 2,000 -- 13,975 Ba1/BB+ 5,472 --
24,643 -- 30,115 Ba2/BB 3,464 6,290 220,298 60,929 290,981 Ba3/BB-
-- -- 393,752 -- 393,752 B1/B+ -- -- 625,769 -- 625,769 B2/B 3,864
3,107 393,788 74,853 475,612 B3/B- -- -- 107,843 -- 107,843
Caa1/CCC+ -- -- 5,000 50,000 55,000 Caa2/CCC -- -- 16,410 -- 16,410
Caa3/CCC- and lower -- -- -- -- -- NR 7,667 19,531 107,774 335,960
470,932 Total $2,175,929 $4,252,893 $1,897,277 $521,742 $8,847,841
(1) Amounts are amortized cost. First Call Analyst: FCMN Contact:
laurie.poggi@kkr.com DATASOURCE: KKR Financial Corp. CONTACT:
investors, Laurie Poggi of KKR Financial LLC, +1-415-315-3718; or
media, Roanne Kulakoff or Joseph Kuo, both of Kekst and Company,
+1-212-521-4837, or +1-212-521-4863, for KKR Financial Corp. Web
site: http://www.kkrfinancial.com/
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