KKR Real Estate Finance Trust gets decent offering in Debut IPO
Kohl Kravis Roberts is a real estate company that deals in the financials of real estate. Back in 2014, the firm branched out into the KKR Real Estate Finance Trust. KKR Real Estate Finance Trust just helped KKR to extend its portfolio into the real estate credit investment market.
The KKR Real Estate Finance Trust (NYSE: KREF) is a New York-based lender in the real estate market. In New York, it’s just one in a long line of lenders. So here’s how it works. KKR Real Estate buys up senior mortgage loans, preferred equity shares, mezzanine loans and Commercial Mortgage Banking Securities B-Pieces. The finance trust then invests any funds it gets in the commercial real estate market. By doing that, KKR Finance Trust is able to do two things. One, it keeps investors’ capital safe. And as a second upside, the firm rakes in a few monies for its shareholders as dividends.
KKR Real Estate Finance Trust hoped to raise an approximate $200 million from its initial offering. On d-day, the trust sold off 10 million of its Class A shares at a reasonable price of $20.50 per share, within the proposed range of $20.50 to $21.50. The company ended up raising $210 million from the first day of trading, with a +8% rise in share value by the end of business day on Thursday. With the overallotment option of 1.5 million shares for its underwriters, KKR Real Estate Finance Trust could end up with an approximated market capitalization of $1.1 billion post-IPO.
The joint managers for the IPO deal included the trust’s parent company KKR, Morgan Stanley, Goldman Sachs, JP Morgan, well Fargo Securities and Keefe Bruyette Woods & Co.
By all means, the KREF public debut was successful. The company managed to raise the amount it was asking for even without the underwriters exercising their rights in the deal. There are several reasons for the finance trusts’ success of the firm in the public trading market. One of them is the company’s financial standing. In the twelve months that ended December 31st, 2016 KKR Finance Trust brought in just over $41 million in revenue. Also, unlike other REITs which average a price/sales ratio of under 10x, KREF’s P/S index was 27.36x at the time of the IPO. You could say that the comapny wa s afew lifetimes ahead of its competitors even pre-IPO.
The fact that KKR backed the real estate creditor also played a part in the issuance. When the finance trust was formed in 2014, KKR capitalized it by $400 million. Additional investments brought in $438 million. The KREF invested $483 million of this capital base and expanded its portfolio into 22 investments. That in turn turned up an $840 million return base. The returns earned the company an endorsement from KKR in this IPO. The endorsement sealed the deal as far as some investors are concerned.
Similarly, KKR has a reputation as a fair lender. The firm’s excellent customer relationships have provided them with an eager borrowing market. Meanwhile, the healthy relationships the company has with financiers made it possible for the enterprise to have a $1 billion line of credit, thereby assuring shareholders of receiving dividends even through rough financial periods. Good networking pays off.