I have bought a another small taste of commercial mREIT KKR Real Estate Finance (KREF) 6.50% perpetual preferred (KREF-A)–I held a small position already. Current yield on the security is just under 7%. Shares are trading in the $23.38 area and have a 1st call date of 4/16/2026.
KREF is externally managed by global asset manager KKR which also owns 14% of the company. KKR manages almost $500 billion in real estate assets
Generally mREITs are not in my wheel house, but I find commercial mREITs to be relatively straightforward (compared to residential mREITs).
KREF is a large commercial mortgage lender with assets of $7.9 billion as of 6/30/2022–with total equity of about $1.7 billion. About 94% of their loans are senior notes which are floating rate based on either Libor or SOFR.
One factor that drove me to choose to buy this position is that about 51% of their loans are for residential loans—multi family, student housing and single family properties. The more multi family the better–with current strong rents and an outlook for housing shortages as far as the eye can see these loans should perform relatively well.
KREF did book a $12 million provision for loan losses last quarter, which bit into income, but a provision of $12 million on $7.9 billion in assets is just a ’rounding error’–not a concern at this point.
The latest quarterly earnings on SEC form 10-Q can been seen here.
The companies most recent investor presentation can be seen here. This is a very informative slide show.
Tim, if you like this, take a look at FBRT-E
*Higher coupon
*Lower price
*Similar loan composition, I think their exposure to multifamily is even higher
Tim, did you notice the loan loss provision trend: has it increased or decreased relative to assets?
Bur–it was higher than a year ago–but relative to assets hardly anything. They do have 1 REO on the books around $75 million which is an operating property (1% of assets) and they are losing a few million a year on that–hope they can offload this one soon.