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(Bloomberg) — KKR & Co. put $50 million of fresh capital into one of its major property trusts and agreed to a plan to support its valuation as the money manager looks to weather the ongoing turmoil in commercial real estate.
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The New York-based firm used its balance sheet on June 4 to purchase shares in its KKR Real Estate Select Trust at a price of $25.56, for a total cost of about $50 million, KKR said in a filing.
Separately, the firm pledged to cancel up to 7.7 million of shares it owns in the real estate investment trust if the value of the trust is below $27 per share on June 1, 2027. KKR said it would contribute any shares required to get the net asset value of the REIT to that level, and that all shareholders will benefit from the move, according to the filing.
“We have confidence in KREST and the likelihood of a real estate recovery, which allows us to offer these benefits to shareholders,” the firm said in a June 4 letter.
Property owners across the globe have been hit by the pain surrounding commercial real estate, ensnaring KKR’s peers including Blackstone Inc. and Starwood Capital Group. Starwood said last month it would lower the amount of money shareholders could pull from Starwood Real Estate Income Trust.
“The KREST Shareholder Priority Plan and additional investment reflects our strong conviction in KREST and our belief that this is a good time to be investing in the real estate market,” a KKR spokesperson said in a statement. “This commitment allows KKR to make an attractive opportunistic investment, while enabling all KREST shareholders to look beyond the near-term volatility and remain invested for the upside of a potential real estate recovery.”
KKR’s move will help give the REIT more liquidity and financing capacity, according to Kevin Gannon, chairman and chief executive officer of investment bank Robert A. Stanger & Co.
“This is a smart and bold move to offer enhanced downside protection for returns that has the potential to reignite fundraising at KREST,” Gannon said.
Redemption requests at KREST during the second quarter exceeded the quarterly limit of 5% of net asset value, with the firm fulfilling about 48% of each shareholder’s request during the period, according to a filing.
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KKR said it was not changing its quarterly redemption limit of 5%, according to the shareholder letter.
“History tells us these early stages of recovery after a dislocation can be some of the most attractive moments for real estate investment,” according to the letter from KREST’s chair, CEO and chief investment officer.
–With assistance from John Gittelsohn.
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