KKR Financial has filed a registration statement for a proposed US$835m IPO of its real estate investment trust. The REIT has acquired more than US$6bn in assets since it raised US$780m in a private placement last August.
The preliminary prospectus contemplates a maximum offering price of US$10.50, which would value the company at 1.15-times book value and is slightly above the US$10 price tag charged in the August private round.
KKR’s filing comes a year after plans for a business development corporation (BDC) that would invest in the debt and equity of public companies. That move was abandoned after investors reacted against valuations for a number of proposed BDCs.
Apollo was the only private equity firm that successfully closed a BDC. Private equity firms had viewed BDCs as a way to access permanent capital without having to return to market every five years for a new fund.
KKR is an experienced real estate investor, but most of KKR Financial’s investment has been in adjustable-rate residential mortgages, an asset class that dedicated REIT buyers tend to shy away from because of the inherent complexities. Mortgage REITs are required to invest 75% of their assets directly in mortgages.
This will put pressure on the banks to sell to retail and yield-oriented institutional investors. Citigroup is the only bank within the underwriting syndicate that has a significant retail presence. Rounding out the underwriting syndicate are Bear Stearns, CSFB, Lehman Brothers, JP Morgan and FBR. While KKR Financial is not obligated to undertake a public offering, it must register the shares for sale within 270 days of the private round.