Global investment firm KKR has taken steps to bolster shareholder confidence in its $1.2 billion net asset value private real estate investment trust in the face of declining commercial property values, echoing steps taken by Blackstone last year.
KKR Real Estate Select Trust and some other REITS have been grappling with a two-year downturn in asset value due to rising interest rates and a subsequent pullback in investor capital. In a filing with the Securities and Exchange Commission, KREST has disclosed a shareholder priority plan to enhance investor returns.
The plan calls for KKR affiliates to pledge to cancel up to 7.7 million of their KREST shares if the net asset value per share falls below $27 by June 1, 2027. That would support a $27 per share valuation and, while it wouldn't raise the net asset value, raise the per-share value by cutting the number of outstanding shares. If the cancellation is insufficient, non-KKR affiliate shareholders would get a preferred priority return over KKR affiliates.
The efforts of New York-based KKR to boost investor returns echo a similar move by Blackstone Real Estate Income Trust when investors began to flee. In January 2023, the Regents of the University of California acquired $4 billion of Blackstone REIT's Class I common shares, its largest existing share class.
As part of the deal, Blackstone Group contributed $1 billion of its current holdings in Blackstone REIT to support, but not guarantee, a minimum annualized net return for the university over a six-year holding period.
KKR's plan is similar but broader. It buffers all non-KKR shareholders against near-term share price declines while retaining the upside, or the potential increase in value, from a real estate recovery.
New Capital
Under the plan, KKR affiliates injected $50 million of new capital into KREST through new share purchases.
"The KREST shareholder priority plan and additional investment reflect our strong conviction in KREST and our belief that this is a good time to be investing in the real estate market," KKR said in an email to CoStar News.
It added that "this commitment allows KKR to make an attractive opportunistic investment, while enabling all KREST shareholders to look beyond near-term volatility and remain invested for the upside of a potential real estate recovery."
KKR expressed confidence in a real estate rebound in a letter to KREST shareholders posted on the REIT's website. The company noted that real estate appears to be entering a new investment cycle, a period that has historically led to strong returns for investors.
This announcement comes “following a historically large correction to real estate valuations that has created more attractively priced investment opportunities," David Inauen, head of research at the investment banking firm Robert A. Stanger & Co., said in a statement.
He added that "KKR is sending a clear message that it would rather be putting capital to work in real estate instead of cashing out investments, and it is putting its money where its mouth is, to the benefit of KREST's shareholders."