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KKR unveils real estate ambitions

Real estate, mezzanine debt and public equities are on the agenda for KKR, according to an investor presentation released in conjunction with the firm’s plans to go public.

Private equity firm Kohlberg Kravis Roberts is looking to expand its activities into real estate, mezzanine debt and public equities, just weeks after unveiling platforms for fixed-income and infrastructure asset management.

According to an investor presentation related to its plans to list shares on the New York Stock Exchange, KKR will also expands its activities to include real estate as well mezzanine and public equity. The firm announced it will continue to expand into Asia and add new geographies, including Latin America.

The firm does not specify further what its activities will include in these new businesses, other than to state that the new activities will “leverage” the KKR “brand.” 

Several of the largest private equity firms, including The Carlyle Group and The Blackstone Group, also have real estate investment arms. KKR has lagged many of its competitors in rolling out branded affiliates. Last week PrivateEquityRealEstate.com reported that Apollo Global Management was seeking to create a private equity real estate arm.

New York-based KKR recently made moves into the infrastructure sector, launching a $5 billion (€3.2 billion) infrastructure fundraising. That fund is targeting global opportunities in Europe, Asia and the US. KKR hired former Lazard banker George Bilicic as head of infrastructure.

KKR plans to acquire and de-list its Euronext-traded fund, KKR Private Equity Investors, and list the combined entity on the NYSE.

The firm, which first registered for a $1.25 billion IPO in July 2007, revealed the surprise agreement with KKR Private Equity Investors (KPE) Sunday evening, quashing persistent speculation it would abandon prior plans to go public given tougher market conditions and the falling share prices of fellow mega-firms The Blackstone Group and Fortress Investment Group.

KKR co-founders Henry Kravis and George Roberts pointed to the deal's merits in a statement: “Going forward, KPE unitholders will benefit by being owners in a diversified asset management business that generates regular distributions of cash earnings. For KKR, this transaction provides us with additional capital for our business,” Kravis and Roberts said.

“Moving forward with a public listing will allow KKR to do what we do best – grow companies around the world and produce solid returns for our investors from a larger platform and a deeper capital base.”

KKR will acquire all assets and liabilities of KPE, which earlier this year suffered a wave of fair-value write downs.

In connection with the deal, the firm will begin trading under the ticker KKR on the NYSE, post-transaction.

KPE investors will receive KKR equity interests, which post-transaction will account for 21 percent of the combined business’ equity, and the Euronext fund will be dissolved and de-listed.

KKR executives will hold the remaining 79 percent equity in the combined firm, which has an estimated vale of up to $18 billion.

The deal does not include any cash component or issuance of securities, nor will KKR executives sell any equity interests.

Subject to unitholder approval, the transaction is expected to complete in the fourth quarter 2008. The firm said it expects its assets under management as of 30 June to be about $60.8 billion, up from $53.2 billion on 31 December 2007.