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KKR Real Estate Select Trust Reports Negative Total Return in Excess of 6% in 2023

KKR Real Estate Select Trust Reports Negative Total Return in Excess of 6% in 2023. Alternative investments, annual report, KKR Real Estate Select Trust, real estate investment trust, REIT, net total return

In an end-of-2023 annual report and letter to stockholders, KKR Real Estate Select Trust Inc., a ’40 Act closed-end fund that qualifies for tax treatment as a real estate investment trust, highlighted its 5.78% net distribution rate (for Class I shares) during a year in which real estate performed poorly, as reflected in the fund’s delivery of a -6.25% net total return for the year. Since its inception in 2021, the fund has provided annualized net total returns ranging from 8.9% (Class I shares) to -7.08% (Class S shares).

Noting the “changes in the cost of capital in today’s higher interest rate environment, contributing to a broad repricing in real estate equity,” the KKR fund stressed that its stabilized real estate, prime single tenant, and real estate credit strategies ensured a well-balanced portfolio that muted the impact of material cap rate changes in 2023 and provided investors with access to tax-advantage income.

As previously reported by The DI Wire, global investment firm KKR launched the registered closed-end fund in May 2021 with a primary investment objective to provide attractive current income and a secondary objective of long-term capital appreciation. The then-$2 billion offering, comprised of four classes of common stock – Class I, Class U, Class D, and Class S shares — is open to all investors.

The KKR REIT maintained what it referred to as a “robust and multifaceted liquidity position, representing 32% of net asset value as of Dec. 31, 2023,” and said it would be able to provide a level of liquidity of up to 5% NAV through quarterly repurchases.

Looking forward to 2024, the KKR fund identified its portfolio construction as being well-positioned for the current environment, including the fact that the fund has “no near-term loan maturities and 100% of asset-level financing is fixed or hedged with an average effective interest rate of 3.9%.”

“We believe our size, at $1.3 billion of NAV, and flexible strategy across real estate credit and real estate equity as well as global markets, will be advantageous. … Real estate equity opportunities are becoming more attractive as sellers start to meet the market and rates stabilize. We expect to be selective and targeted in our deployment, focusing on our highest conviction sectors and markets that we believe have strong fundamentals and favorable growth outlooks,” stated Ralph Rosenberg, chairman of the board; Billy Butcher, chief executive officer and president; and Julia Butler, chief investment officer.

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