On Friday, BTIG resumed coverage on KKR Real Estate Financial Trust (NYSE:KREF), assigning a Buy rating and setting a price target of $11.50. The firm highlighted the company's strategy in addressing portfolio challenges and its potential for a 25.6% one-year forward total return, inclusive of KREF's current 10.1% dividend yield.
KKR Real Estate Financial Trust, a commercial mortgage REIT, is noted for its focus on originating large senior loans, often backed by institutional sponsors. The REIT is managed by KKR & Co., which has not been rated by BTIG. The analyst pointed out that within the commercial mortgage REIT sector, firms have adopted various strategies to manage their portfolios in the face of headwinds.
Following a recent dividend reduction from $0.43 per share to $0.25 per share, KREF is perceived to have taken a proactive stance in managing its non-performing loans by reevaluating its capital allocation strategy. This move is part of an effort to improve the handling of problematic loans and free up capital that is currently not yielding returns.
The company is also commended for its solid dividend coverage and strong liquidity position. Although KREF has been cautious in originating new loans, the analyst anticipates that the company will soon transition to a more offensive strategy.
The current share price, which is valued at 0.66 times book value, is considered attractive despite the expected near-term fluctuations in the market. The analyst's positive outlook is based on these strategic initiatives and the potential for value creation for shareholders.
In other recent news, KKR Real Estate Finance Trust (KREF) reported mixed financial results for the first quarter of 2024. The company disclosed a GAAP net loss of $8.7 million, in contrast to distributable earnings of $26.7 million. The book value per share declined by 2% quarter-over-quarter to $15.18, with the CECL allowance increasing to $3.54 per share.
Despite the loss, KREF remains optimistic about its future lending activities, particularly in the life science and multifamily sectors. In terms of recent developments, KREF has a robust pipeline of over $20 billion and anticipates resuming lending in the upcoming quarters. Analysts from the firm noted the company's debt-to-equity ratio at 2.1 and liquidity of over $600 million. It is also expected that repayments will surpass fundings in 2024, contributing to KREF's liquidity position.
InvestingPro Insights
As BTIG resumes coverage on KKR Real Estate Financial Trust (NYSE:KREF) with a positive outlook, InvestingPro data and tips provide additional context for investors considering the company's prospects. With a market capitalization of $690.37 million, KREF's strategy to address portfolio challenges is underscored by its significant dividend yield, currently at 10.04%. This supports BTIG's view of the potential for a strong one-year forward total return.
InvestingPro Tips reveal that while analysts have revised earnings downwards for the upcoming period and anticipate a sales decline in the current year, KREF's liquid assets still exceed its short-term obligations. This fact aligns with BTIG's commendation of the company's strong liquidity position. Additionally, the company's dividend is highlighted as significant, which is a key point for income-focused investors.
From a valuation perspective, KREF's price to book ratio stands at 0.65 as of the last twelve months, indicating that the stock may be undervalued, especially considering BTIG's assigned price target of $11.50. Moreover, the current share price of $9.96 is below the InvestingPro Fair Value estimate of $9.4, suggesting a potential for price appreciation.
It's worth noting that KREF has not been profitable over the last twelve months, which is a concern reflected in the negative P/E ratio of -21.61. However, the company's proactive stance in managing non-performing loans and reevaluating its capital allocation strategy could be pivotal in turning around its financial performance.
Investors who wish to delve deeper into KREF's financials and future outlook can find additional InvestingPro Tips at https://www.investing.com/pro/KREF. There are more tips available, which could provide further insights into KREF's operations and market position. For those interested in a comprehensive analysis, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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