KREF - KREF.PR.A: A Solvency Play On This KKR Fund 8.7% Yield

2024-06-13 10:28:05 ET

Summary

• Commercial real estate has suffered in recent years due to rising interest rates.
• KKR Real Estate Finance Trust is a CRE REIT that lends money to commercial property owners.
• KREF's preferred shares offer an attractive yield of 8.7% and represent a bet on the company's ability to stay solvent.
• Preferred shares in a REIT structure do not have regulatory protection, making them a solvency play on the REIT and the assets in the portfolio.
• While KREF faces challenges, the company has taken steps to shore up its finances by cutting the common share dividend, and its strong sponsor, KKR, is a positive factor.

Thesis

Commercial real estate has been hit hard in the past two years by the rising rate environment. It is a mainstream media story now, with every day seeing headlines that retort another large loss on selling office buildings:

Outside the sensationalism embedded in such stories, one must understand that there are owners and lenders for those properties, stakeholders which see significant losses when such events occur....

For further details see: