S&P views KKR Real Estate negatively

S&P said it revised its outlook for KKR Real Estate Finance Trust Inc. to negative from stable and affirmed the issuer and senior secured debt ratings at BB-.

“The outlook revision reflects our expectation that challenging macroeconomic conditions will likely weigh on KREF's loan portfolio and that credit performance will likely deteriorate, leading to higher leverage. KREF's leverage increased to 5x as of Dec. 31, 2022, from 4.5x the prior year. As of year-end 2022, KREF's net loan portfolio increased by $1.1 billion to $7.4 billion, of which about 75% was originated over the past two years. In addition to rising leverage, the firm has some large loan exposures relative to equity, with the largest investment and top five investments making up 30% and 98%, respectively, of adjusted total equity (ATE),” S&P said in a press release.

The agency said it sees KREF’s leverage hovering above 5x over the next 12 months, which is its downside threshold.

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