KKR stock drops after Q1 KREST redemption requests exceed limit

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KKR (NYSE:KKR) stock has dropped 5.4% in Thursday afternoon trading after KKR Real Estate Select Trust (KREST) disclosed that it saw requests for redemptions exceed its quarterly limit of 5% of net asset value.

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With tighter financial conditions triggered by the Federal Reserves rate hikes, investors are seeking liquidity. Last month, increased redemption requests at non-publicly traded REITs Blackstone (BX) Real Estate Investment Trust and Starwood Real Estate Income Trust motivated the Securities and Exchange Commission to investigate the impact on the market and circumstances of the events.

For its first quarter ended Jan. 13, 2023, KREST received repurchase requests for almost 4.20M of the fund’s shares. Since that amount totaled more than 5% of NAV, the fund accepted 2.60M shares, representing a prorated amount of 62% of each shareholder’s Q1 2023 tender request, the fund said in a filing.

The filing is a problem for KKR (KKR) as it “suggests widening redemptions contagion,” Credit Suisse analyst Bill Katz wrote in a note to clients. Further, it “somewhat debunks the notion that KKR might be a natural beneficiary of BX’s BREIT net redemptions, he said.

It’s also problematic for the firm’s peers as it “represents yet another fund limiting ultimate redemptions, which we think hurts aggregate appetite, particularly as more liquid Fixed Income alternatives offer similar yield.”  In addition, it likely “keeps a chill on gross sales broadly” and may “keep alive regulatory scrutiny.”

Katz had cut Blackstone (BX) to Underperform in November, citing BREIT fund redemption requests as one of the reasons for the downgrade.

Now read: Blackstone: A $1 Trillion ‘Fortress’ With A Very ‘Wide Moat’

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