Long admired for its knowledge of real estate, Kohlberg, Kravis, Roberts & Co. (KKR), which is part of the team buying Toys ‘R’ Us, is now letting investors cash in on that expertise. In mid-April, the private equity group filed with the Securities and Exchange Commission to conduct an initial public offering worth $835 million for its REIT, KKR Financial Corp.
KKR Financial was created in June 2004. It then issued a private offering of about 79.59 million shares raising $780 million. KKR Financial Corp. registered those shares with the SEC to allow them to be sold into the public market.
KKR, which manages the REIT out of Maryland, refused to comment on the deal.
“Obviously it is a great exit strategy for them,” says Bernard Haddigan, a managing director for Marcus & Millichap Real Estate Investment Brokerage Co. “By registering and taking this investment group public, they basically have capital to return to their investors and yields for them to collect.”
So far, KKR Financial has invested $6.3 billion in four classes: residential mortgage loans and mortgage-backed securities, corporate loans and debt securities, commercial real estate loans and debt securities, and asset-backed securities. Residential mortgage securities have been the company's largest asset class representing about 34.6 percent of its investments. It wasn't clear how much of that is retail.
“It [the IPO] means one of two things,” says Joe French, a senior investment adviser at Sperry Van Ness. “It is a way of getting their cash back or they believe the mortgage market is going to default. If you are hiding a lot of mortgages and there will be a default, it will allow them to get some of that cash back.”
Creating additional liquidity by going public also will give the REIT greater purchasing power in the mortgage markets, says French.
The company will list its shares on the New York Stock Exchange as “KFN.”
While the new REIT will concentrate more on the real estate debt market, parent company KKR is no stranger to retailing. Over the past 30 years, KKR has invested in Safeway, Stop and Shop, Fred Meyer, Randall's Food Markets, AutoZone and Shoppers Drug Mart. Recently, the company bought Toys ‘R’ Us for about $8.8 billion, including $1.8 billion in debt, through a partnership of Vornado Realty Trust and Bain Capital.
KKR is the majority shareholder in Retail Traffic's parent company Primedia.