KKR has launched a new non-traded REIT: KKR Real Estate Select Trust, Inc. The REIT filed an initial registration statement on May 28, 2020, and the SEC declared the revised version effective on May 18, 2021. In this article we examine the key features of KKR’s new non-traded REIT.
KKR Real Estate Select Trust Investment Strategy
KKR Real Estate Select Trust’s vestment objective is to provide attractive current income and its secondary objective is to provide long term capital appreciation. The REIT has a broad investment thesis targeting single-tenant net lease properties, preferred equity investments and private real estate debt in the United States, as well as developed markets in Asia and Europe. The prospectus highlights several trends that it believes will be favorable to the REIT’s investment strategy. In particular, it plans to focus on opportunities in population centers that have favorable demographic, technological and preference changes accelerating urbanization.
According to the prospectus, KKR Real Estate Select Trust is raising $2 billion, and offering four different share classes. The perpetual life REIT will price NAV and accept subscriptions daily. Class S shares will have an up front sales load of 3.0%, and a dealer manager fee of 0.5%. Class D, Class U, and Class I shares have no up front selling costs. However Class S and Class U both pay ongoing distribution fees of 0.60%, and shareholder servicing fees of 0.25%, while Class D shares pay shareholder servicing fees of 0.25% Class I shares have no distribution or servicing fees. The REIT will charge a base management fee of 1.25%, and a performance incentive fee of 12.5% of portfolio operating income.
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KKR Select Real Estate Select Trust is relatively unique in that it is both a non-traded REIT, and a Tender Offer Fund. Real Estate Investment Trust, or “REIT” refers to its tax status. As a REIT, it is subject to a range of requirements, especially around distributing income to investors. As a tender offer fund, it is subject to disclosure requirements of the 1940 act. Broadstone Real Estate Access Fund, a closed end interval fund, is another example of a fund using this combination of regulatory structures.
Founded in 1976 KKR was one of the pioneers in private equity and alternative investments. Today it operates globally, with 20 offices, and 1600 employees. As of December 31, 2020, KKR had approximately $252 billion in assets under management. Since 2004, KKR’s AUM has grown twice as fast as the broader alternative investment industry. Private equity remains the dominant strategy in KKR’s portfolio, accounting for 68% of total AUM. In recent years they have been expanding their real estate capabilities. KKR Real Estate has around 90 employees dedicated to real estate, with AUM of approximately $28 billion Additionally KKR has been expanding its focus on retail investors, with the launch of various non-traded BDC and Interval Fund products. This is KKR’s first non-traded REIT.