Q3 2019 Earnings Call
Good day and welcome to the Kennedy Wilson third quarter 2019 earnings call and webcast. Today's conference is being recorded after today's presentation, there will be an opportunity to ask questions.
Last question to me Press Star then one on your telephone keypad to withdraw your question. Please press Star then too.
I'd like to turn the conference over to Vice President of Investor Relations Mr. Daven Bhavsar. Please go ahead.
Thank you and good morning. This is daven bhavsar and joining us today or Bill Mcmorrow, Chairman and CEO Kennedy Wilson, Mary Ricks, President Kennedy Wilson, Matt Windisch Executive Vice President Kennedy Wilson, and Justin Enbody, Chief Financial Officer. Kennedy Wilson today's call is being webcast slides and will be archived replay the replay will be available by phone for.
One week by webcast for three months, please see the Investor relations website for more information.
This call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA and adjusted net income you can find a description of these items along with a reconciliation of the most directly comparable GAAP financial measure and our third quarter 2009 earnings release, which is posted on the Investor Relations section of our website.
Statements made during this call may include forward looking statements actual results may materially differ from forward looking information discussed on this call due to a number of risks uncertainties and other factors indicated in reports and filings with the Securities and Exchange Commission.
I would now like to turn the call over to our chairman and CEO Bill.
Thanks, gentlemen, good morning, everybody and thanks for joining us today.
We're pleased to report another solid quarter of results highlighted by continued strong same property results.
Please turn of approximately 775 million an investment transactions.
The further growth where investment management business.
We're off to an active start in the fourth quarter, including a 300 million to our preferred equity investment from Eldridge industries long side. It increased separate account platform of 1.5 billion analysis.
This morning, we'll discuss our financial in property operating results for the quarter and then update you on their progress we've made on our key strategic initiatives as well as review our key highlights as we celebrate our 10 year anniversary since going public in November 2009.
So starting with our results for the quarter GAAP bps was 15 cents per share from nine cents in Q3 of 2018.
Adjusted EBITDA was 143 million on this quarter compared to 142 million Q3 of 2008 team.
Both GAAP bps at adjusted Dps represent a record third quarter for Kennedy Wilson.
Adjusted net income totaled 74 million in the quarter.
Compared to Q3 of 2008 Jane.
Our same property portfolio continues to perform very well with same property revenues of 4% and why up 5%.
Our apartment portfolio continues to drive our same property results.
Q3, we saw robust growth in our same property multifamily platform portfolio in the Pacific Northwest Mountain States, Southern California, Dublin, Ireland, which all saw and why grow by 7% or more.
Our largest investment region, the Pacific Northwest and in particular, the greater Seattle area continues to perform well.
The occupancy is increasing by 1% same property NOI office, 7.1% in Q3.
The east side of Seattle in particular continues to see significant growth.
According to CPR rate, there's approximately 18 million square feet of office under development in the greater Seattle area.
Which 80% is pre leased.
Putting almost 11 million square feet on the east side.
As the primary Kennedy Wilson investment markets.
Amazon, which recently surpassed 50000 employees in the broader Seattle region.
Currently has over 10000 full time job openings and is adding over 5 million square feet. So its existing 12 million square the footprint the Seattle Bellevue region.
Facebook also continues to grow with over over 5000 employees in the region space for 2000 more.
There are now more than 130 companies from around the world set of set up engineering outposts throughout the Seattle market.
And so we remain very optimistic that significant new jobs continue to fuel the growth of this market.
Our second largest region in our portfolio is the mountain States, which includes Salt Lake Boise in Reno.
Which saw same store property revenues increased by 6% and Hawaii increased by 7% on the quarter.
Our thesis here remains intact strong population and job growth coupled with affordable cost of living in a much desired outdoor recreational lifestyle is drawing residents from expense of coastal cities like San Francisco.
Plus Washington, and the mountain States, both benefit from significantly will stay lower state income taxes than California.
The greater Salt Lake area continues to grow at a robust pace across the board and Utah's economy continues to be one of the best performing in the country.
In September the unemployment rate fell to 2.7%.
Lois in 12 years and job growth totaled 3%.
More than doubled the national average.
Utah ranks number two for job growth and number one for private sector job growth in the country.
There is almost 3.8 million square feet of office under construction that is expected to be delivered by year end 2020, 156% of which is pre leased.
Average rents at our mountain States apartment stand at 1100, $73, which represents lowest monthly rate in our global portfolio.
The us we're confident that there's further upside both from the positive economic activity in this region as well as completion of our value added initiatives.
Finally.
In Ireland or growing multifamily portfolio continues to perform well.
Occupancy has increased by 1.6% to 98%.
Which resulted in quarterly NOI growth of 7%.
Our high quality rental product.
Unique amenity package continues to draw demand for rental housing from both local and international residents that are relocating from other parts of Europe and the us.
Large U.S. technology companies, such as Google Facebook Salesforce and Microsoft.
We're all looking to expand their presence in Dublin.
As well as growth from medical technology pharma financial services and IC companies.
The market continues to perform very well and Mary will provide some color just have all been.
Turning to our stabilized commercial portfolio, where our various office investment platforms through which we added a net three assets globally totaling 1.7 million square feet.
Same property revenue.
More commercial assets was up 4% and an ally up 5%.
Are you asked portfolio saw robust and Hawaii growth of 21% as a result of the burn off of free rent from Q3 of last year.
Additionally, Mary will highlight in a moment the strong leasing momentum in the UK post quarter albums.
Now I'd like to review, our three strategic key strategic global initiatives that we believe will be the drivers of our growth in the future.
Number one.
Growing our property NOI over the next three years number two growing our investment management in the business through raising additional fee bearing capital.
And number three.
Executing our capital recycling in asset sale program, where we are producing outsized returns on our investments and recycling capital into other strategic opportunities.
So starting with number one.
The U.S., we continue to focus on completing strategic value add capex projects, which are aimed at growing around why organically.
Total our U.S. multifamily team completed another 268 multifamily unit renovations in the quarter.
Bringing our year to date told to approximately 650 with an average return on cost of 22%.
We currently have over 1000 units, we'd like to renovate finish renovating by end of next year, which continue to drive around ROI organically.
We also continue to make great progress our development in leasing initiatives, which includes 4300 market rate at affordable multifamily units 3 million square feet of commercial properties, One hotel development.
We expect all of our current construction to be stabilized by the end of 2023.
Based on current market conditions, we expect these assets stood at approximately $110 million annualized NOI.
40% of which is expected to be delivered in the next two years.
Globally, we expect to invest approximately $200 million of cash by the end of next year across both our Capex and development initiatives.
In the U.S., we have over 2000 units under development through our vintage housing joint venture, which is engaged in the management and development of senior and affordable housing.
We expect to stabilize almost 600 units in the fourth quarter. Another 1500 by the end of 2021.
These projects was 6 million estimated annualized NOI.
We remain on track to grow this joint venture to 10000 units over the next three years minimal cash required from KBW.
Yes.
53% of our current development pipeline as adult one.
Where we were able to build at cap rates that are 2% higher than where we could buy some warehouse us.
Additionally, the permanent financing market in Ireland allows borrowing rates that are wanting to have 2% lower than those in the United States.
With that I'd like to handle the call and the call over to Mary Ricks to discuss greater details.
Thanks, Phil.
Q3 was a solid leasing quarter in Europe across the UK, Ireland, and saying the European portfolio generates $205 million or 51% of Kws level estimated annual NOI.
Our stabilized occupancy remained strong with the commercial portfolio at 96% and our apartment portfolio at 98% occupied at the end of Q3.
We have good visibility on growing our annualized through a combination of positive leasing and asset management momentum in process and expected to deliver in Q4.
Longer term, our strong development pipeline is expected to add $67 million of 110 million.
Oh I expected to be delivered by 2023 from our global development and and stabilized portfolio.
Focusing on what we've delivered in the quarter leasing transactions have been key we've completed 40 lease transactions across 333000 square feet.
Up an impressive 12% over previous rent.
And adding term certain of over seven years.
New leases have been the main driver followed by renewals and rent review activity.
This adds to the fantastic work the asset management team delivered the first half of the year, bringing our year to date totaled 212 lease transaction, which have added incremental income of over $5 million.
Q3 had a strong activity in our UK industrial portfolio.
At a Ryan business Park, a 203000 square foot industrial asset in Ipswich, we significantly increased rents by expanding an existing regional logistics tenant ended the adjoining space now leasing the entire property from us the new lease grows the rental income by almost 30% and is on.
19 near term certain.
And our industrial asset in Swindon, we delivered 30% rent review increase and still have tenures term certain on the lease.
This is our first five year rent review as part of a successful asset management story, where yield on cost is now 16%.
Now turning to UK office towers business car, which is a 289000 square foot campus in Manchester, We signed a new tenure lease with St peer group at 24 pounds per foot, 33% increase in rent from the previous tenant.
The occupancy at towers remains high at 96% illustrating the unique offering as a business park, which continues to benefit from Blue chip UK and international industry leaders.
Our asset management program has delivered solid rental growth across this asset at 15% since acquisition.
The UK investment market had 13 billion in Q3 of 2019, just showing it strength, which is the strongest quarter of the year healthy occupier dynamics in Central London Office continued in Q3 with absorption increasing 11% to three point.
4 million square feet.
Anything above the tenure quarterly average.
Tenant demand in the victorious sub market continues to be strong with vacancy at only 3.2%.
The lowest of any London suburb other than Southbank, Submarket, which has a vacancy of 2.2% and where friars Bridge court asset is located.
Our leasing momentum has continued into October and we're expecting a very strong Q4 for the UK.
111, Buckingham Palace Road, our largest central lending you pay office asset, which is located in Victoria. We have recently completed a lease renewal with telegraph and shop direct ensuring over 11 years to expiring on 93000 square feet of space. We're also in discussion to lease out the remaining vein.
It's based on the fourth floor at attractive rents and upon completion 111, PPR will be 100% occupied.
The office demand in Ireland continues to be strong as seen in good shape.
Our 173000 square foot Prime suburban South Dublin office asset.
Our thesis of Prime self Dublin office is trading at an excessive discount on both rents and value to prime Devlin continues to play out.
We thought to chase for 30% vacancy at an average rent of 19 pounds, sorry euros per foot back in 2016.
Owning a redesign of the reception area and a relaunch of the building weve leased the majority of the vacant space sizzle, bringing the average building rents 23 euros or fad.
The billing is a 100% occupied and rents continue to rise.
In Q3, we completed a significant renewal and rent review at about 30 euros per foot.
Increasing the average rent per square foot in the building to 26 euros or 37% rents in acquisition.
And creating good evidence for further rent increases in 2020.
Also post quarter end, we sold the Port Marinac Hotel and golf links for 40 49 million Euro a luxury resort hotel and 18 hole Championship Golf course after acquiring this unsigned hotel in 2014, we comprehensively refurbish the 134 guests.
And improving the golf offering, adding an award winning spa and fully upgrading to conferencing and bank funding facilities.
During our ownership the 80, our increased by 93%.
Occupancy of 75% of sale all contributing to a 74 increase percent increase in Hawaii, and helping us achieve significant return on investment at this asset.
Now looking at the main contributors to and Hawaii growth from near term developments it to 2021.
Ed Clancy Quay phase three totaling 266 units, making Clancy Quay the largest residential project in Ireland was 865 units once complete we're making great progress and are on track to be on time and budget on budget to bring this development to the market by the end of.
Q2 2020.
At 10, Hanover key our unique 69000 square foot industrial office conversion, which is directly adjacent to our capital stock campus. The demolition work is completed and construction started in the quarter.
We're expecting to reach practical completion and early 2021 and I have seen good early leasing interest.
And at our 20 Kildair Street, 60000, 64000 square foot office development near St. Siemens Green and the Shelburne demolition work is almost complete and we're set to begin construction by the end of this year.
Both Chan Hanover key end 20, Kildair have started marketing to potential tenants with very good leasing prospects.
We have also submitted our planning applications for leisure plans are mixed use resi and commercial assets.
Phase one of the Grange, which includes 287 ready unit.
And the 390000 square foot commercial component of who prescribed.
Additionally in August we secured full planning for 458 units for the residential component of Coopers craft.
Thus, we continue to make great progress across our European development.
Our second key global initiative is growing or investment management and fee business.
In the U.S. and Europe , we continue to raise fee bearing capital both through our discretionary commingled funds and our separate account businesses.
We had a productive quarter with our fee bearing capital growing to $2.5 billion at quarter end up 15% in 2019.
Most quarter end, we announced an upsizing of our platform the security benefit to 1.5 billion of assets, which when completed completely invested we expect will total in excess of 400 million a fee bearing capital.
This capital is being deployed in a manner, where kw is able to grow its recurring fee stream and ultimately generate mid teen Levered returns levered yields on our investment.
In addition, we currently have another 400 million of new global fee bearing capital in our pipeline and are expecting to further grow our investment management business in the fourth quarter.
And with that I'd like to turn the call back over to Phil.
Thanks very much married.
So turning to our capital recycling and asset sale program.
We saw meaningful pickup in activity during the quarter on the acquisition front, we completed $562 million of new investments, which are sure was 15%.
Year to date, we have completed 990 million of acquisitions of which are sure is 20%.
The largest acquisition in the quarter was sunset North of 464000 square foot office campus in Bellevue, Washington.
We acquired from $227 million.
This was the first asset we purchased in our new joint venture platform with security benefit.
That is chartered targeting high quality investment opportunities in the western new wells.
In Q3, we also sold 211 million of assets, which are sure was 57%.
We expect to recycle a significant portion of the cast proceeds from these sales into a tax deferred tenthirty want exchange.
Hi quality office campus in Marine County, San Francisco suburb.
This purchase which is expected to close this afternoon generate almost $8 million event on why the kw versus the 5 million of annual rental why produced by the two apartment assets that we sold in Q3.
Year to date.
We have sold $873 million of assets, which are sure was 39%.
Looking ahead, we expect to very active Q4 to close out the year.
We are currently under contract to over 1.1 billion, an investment transactions, including almost 700 million of acquisitions.
Which we expect to own approximately 46%.
455 million of dispositions, which we own 23%.
Additionally, we have a number of other dispositions that we are currently that we currently have all markets as well several other acquisitions that we are evaluating.
Turning to the capital markets as I mentioned post quarter end, we announced a 300 million dollar investment by Eldridge.
Industries, which came in the form of a convertible preferred stock.
We intend to use these proceeds to pay off for a line of credit and term loan unfold as well as to fund our development pipeline.
The transaction helps to further strengthen our balance sheet through de leveraging and providing us more liquidity as we head into 2020.
Finally, we are in the midst of reaching a historical Myers milestone heard Kennedy Wilson.
Next month, we celebrate our 10th year as a public company.
And I'd like to take a moment quick moment to pause and reflect on the progress we've made.
Since going public 10 years ago, I'm pleased with how we've been able to substantially grow all parts of our business.
We've completed three $4 billion of gross investment transactions during that period.
Including $12 billion of dispositions.
Assets bought and sold in the last decade of generated a weighted average gross higher or 26% to Kennedy Wilson.
Our analyzed has grown from 55 million to 400 million, which has supported our dividend growth of 375%.
Back in 2009, we had an ownership interest in about 10000 multifamily units and today, we're closing out on 30000 units globally.
The market cap has grown from 300 million to approximately 3.6 billion after including the Eldridge transaction.
Our adjusted EBITDA.
Has grown from 37 million to approximately 660 million on a trailing 12 month basis.
2009, we had no presence in Europe now we have approximately 100 employees, primarily in Dublin, London, and a very high quality European portfolio generating over $200 million, an annual and a lot.
I'd like to take a moment to thank all of our kw team members for their hard work and helping us achieve these fantastic results.
We're proud of reaching these historic milestones and are grateful to our global team continues to work together to help build a one of a con global real estate company.
I'd also like to take a moment to thank.
Our shareholders and our other Meg made major capital providers.
Who without this we would never have achieved these results. So as we head into what will be a very active fourth quarter.
I'm pleased with the way our businesses position today.
We're very optimistic for continued growth prospects and 2020.
So with that I'd like to open it up to any questions.
Thank you and we will now begin the question answer session to ask your question you May Press Star then one on your Touchtone phone.
Using speakerphone, please pick up your handset before pressing the keys to withdraw your question. Please press Star then too and it is time, we'll pause momentarily to assemble roster.
[noise].
All right in our first question comes from Ntone point with JP Morgan. Please go ahead Sir.
Okay. Thank you my first question relates to the deal activity that's picking up.
For the fourth quarter that you mentioned is it just a matter of timing or are you seeing something different out there that Ah that's changed in the market or areas that you like better for some reason or another.
It's really just as time a function of timing Tony.
And I think I.
Set in the last quarterly call to.
This year.
It varies from year to year, but this year, particularly a lot of the activity that to.
We had really underway in the second quarter was really back weighted to the fourth quarter in terms of closing.
So it's just it's the timing issue.
But I would say that the basic markets that were operating in the Marriott I just went through all.
Extremely so right now.
Okay, and you talked about the strength in some of the mountain states or earlier in your commentary or there's still opportunities to do do deals there or is that getting tougher given the relatively smaller size or there's markets and some of which seem to have been discovered by other institutional capital at this point.
Yeah I mean.
It's over the 30 plus years at Merian I've been together here, we always tend to find opportunities because of our sourcing capability.
And I think the one thing I should've mentioned in the.
Script was the.
In Boise for example, we have now.
Almost.
1500 units under construction.
And so.
It's the same dynamic, though there that it is in Ireland, we're able to build those properties to cap rates as are considerably higher than what we could actually fly out.
But we will always find opportunities.
Sit on prior calls thanks.
In the markets that we're in today.
Globally, you you have to look harder.
Finder opportunities.
And you want.
Oh, you have to put everything under but not to do you didnt before but it has to be under very very.
Great scrutiny, given what's happened with cap rates.
Okay.
And then maybe question for Mary can you talk a bit more about what you're seeing on the ground in the UK.
Activity level seem to have picked up a bit is it and Todd.
[noise] decision makers grew a little bit more comfortable moving forward with decisions or what do you think is happening there.
I mean, we've seen actually from.
Just after the referendum vote in June 16.
We've seen occupiers continue to make make decisions there and is this sort of.
Concern of.
Every bank, leaving the city and things like that in London, we touches hasn't materialized.
I mean, you have seen a lot of banks have other.
EMEA headquarters, which Ireland has been the beneficiary of that obviously they've won I think 86 announcements of Ah that's companies seating to to sort of having another headquarter if you will.
But decision makers in London with companies they continue to.
I want to be in London, the global city people want to lift there.
London, just remains really really strong and we've seen it actually pick up a little bit in in Q3 in terms of investment volumes I still have a mass amount of capital looking to invest.
In and around the UK said, we feel good about the long term process.
Area too I mean, you might correctly here, but.
There are 550000 financial services jobs in the United Kingdom.
And at the beginning of Brexit there was this.
Hysteria.
It's going to shrinks about it radically.
The last time by law, but job relocation or dislocation was less than 10000 people.
So what always tends to happen in these circumstances.
There tends to be somewhat of an overreaction to.
What I call headline news.
But the fundamental factors that you've got 65 million people living in the United Kingdom.
And.
It continues to be one of major financial Sawlogs in the world.
As I said tool Mary on the prior call. When you think about the freedom of capital flows.
Phil.
Is one of those places in the world, where everybody feels very comfortable investing capital because there's a complete freedom.
Okay.
Great.
Right.
Last question for me if I look in your triple amount on page 24, the schedule on stabilized assets.
You expect $35.8 million event or why any sense as to how much of that is it's basically done it's been pretty lean.
At this point.
[noise] [noise] Tony on the.
Matt So.
Answer that question.
Yeah, there's there's roughly 50% of that as lease and we're just waiting for the tenants take occupancy the balance of it will require additional leasing activity.
Okay. Thank you.
Thank you. Our next question comes from Mitch Germain with James.
Please go ahead Sir.
Good morning.
I know you've got a commingled fund and now you've got security benefit.
Balance sheets.
How do you.
[noise] berries.
Well pocket.
Yes.
[noise] payments.
You know, it's it's pretty clear because these different platforms than our commingled funds that theres a different returns parameter for each of those.
And just in terms of timing of holding the assets.
So it becomes actually really really clear how that's in a house when an asset comes in the door and there's an opportunity where that should go.
Besides timing is there.
The risk element that's included in terms of.
She is willing to invest.
I mean, yeah, our funds have a limit on for example, what what kind of development risk. They can take so theres certain limitation in certain guidelines as to the investment guidelines.
So I would say yes.
On the schedule seemed like Oh.
They should be so.
Yeah.
Anything that we should know about there.
[noise] Mitch its mouth is nothing.
Specifically, if that's an issue it's just timing we thought some stuff we're going to get done in Q4 of 19 and it looks like is going to be Q1 of 2020.
So so nothing beyond just a couple of months delay in getting things stabilize and completed.
Let me.
[noise] investment.
Sure.
Forward.
And you know kind of what your thoughts around.
Bringing them.
Into the fold as a.
Well I would say first of all were very.
[noise] say honored to have them as a major shareholder.
You know once they convert.
And I think it.
It really is a testament to the platform. When you think about some of our major shareholders like Eldridge and Fairfax, which are.
I would call both value investors.
And.
So.
It's I've always felt that if you can have a shareholder size like that where you actually are aligned in terms of that things are doing on investing side.
Just like we did with Fairfax and what I think back to the beginning of time Fairfax. The first transaction, we did with them was in 2011.
2010, and so we did have a 100 plus million dollar convertible.
With them and alongside that they gave was $250 million in a separate account.
That investment grew to almost 13 million shares of stock, which today I guess are valued at close to $300 million, but the separate accounts that we have with.
Drew over time to almost $2 billion.
So when you can have that kind of alignment where you've got a long term shareholder.
That also is willing to invest capital along side you that is helping you earn returns both on fees.
On the investment returns.
You have perfect alignment.
That's how we've looked at fielders transaction.
Thank you.
Thank you and as a reminder, if you have a question. Please press Star then one.
Now go to Sheila Mcgrath with Evercore. Please go ahead.
I guess good morning on the security benefit life transaction, just wondered what types of assets that venture will target and bigger picture are you seeing life companies or I guess, that's an annuity company generally looking to target more capital to commercial real estate, given where bond yields.
All right now.
Yes, I would imagine both answered this question Sheila good morning the.
We've said in prior calls that it I don't know that its coincidental or not but when you think about our biggest platforms right now in our separate accounts with Axa Europe that marries team put together that is very large platform with Fairfax with.
With no security benefit.
And some of the lending activity that we previously announced with Metlife. They all have the theres a common thread in its common thread for I guess, all investors globally, but particularly the insurance companies.
They have a need to generate you.
So it's been a great.
Source of capital for Us and we started kind of down this road about a year ago wasn't more than 15 months ago.
So.
It's going to.
Really really great outcome for the company that to create these relationships with in terms of what we're going to be doing with the security benefit I would like them out to address that thanks, Phil. So obviously, we bought sunset north in Q3, so thats a high quality suburban office asset.
With a good yield going in core plus type property and we're evaluating several other acquisitions with them now, including a multifamily portfolio that we have under contract and so I think primarily it'll be office and multifamily in the western U.S., but with with flexibility to do other product types of.
Makes sense from a return on risk perspective.
Okay, Great and then just.
On that fee bearing capital.
Theme.
Right, what's your outlook for adding additional capital to the platform and you did decrease DNA exiting the research business is there a point at which you think that the fee streams from the third party capital business will cover a meaningful amount of corporate DNA.
Yeah very good question no.
I mean, as we said in the body of the scrip when you're out up those numbers, we hope and it's no guarantee but we hope to close the year around 3 billion.
Of fee bearing capital, which should be up no by 35% from the beginning of the year.
It's becoming a more meaningful part of our income stream and you're correct what would what two of our goals. This year on the expense side was basically reduce our GE and I.
And obviously reduce our personnel costs as we health.
Oh.
So both of those have had been very positive I would also say that.
We don't expect to add.
Any significant overhead and you're talking.
Minimal amounts of personnel needs.
So you're not going to see really either of those categories grow as we continue to grow or our fee bearing capital base.
Okay and last question Bill you mentioned in acquisition and Marine County, with 8 billion of analyze what kind of cap rate was that and what kinda asset and how do in place rents compared to market.
Yeah, it's sub.
And I both answer that question, but I think when you think about this strategy as we've talked about on prior calls we've been trying to upgrade the quality of our income streams by that I mean younger assets newer assets ads in many cases at higher cap rates.
So this was one where we sold two older apartment buildings that were both Boeing and joint ventures 50 50.
But the age of those assets was probably around 30 35 years.
Page.
We sold them at significant profits.
We took all of those gains put it into an exchange account bought what's called Hamilton landing that.
Hopefully is going to cause of south or no.
We sold those that had an animal why of around $5 million at a cap rate of say, 4.5% when you're fully loaded taxes for up to 5%.
Bought habits and landing at a cap rate of 7%.
We expect that cap rate to actually grow up into the seven and a half a percent range over time.
The answer the last part of it I mean at Hamilton lending is a business park.
House.
As seven separate buildings.
How's both I would call mid size tenants, but it has some very high quality tenants and it too.
Fortune 500 companies are facing this business park.
So it's a and it's.
To Matt its a.
It's one of those irreplaceable pieces of.
Land.
That you could never did entitled Today, you could replicate this asset. So there is very very high barriers to entry.
Whereas the two apartment houses so we sold as a super almost 35 years old.
Probably not as high quality in terms of barrier to entry.
Just the last thing I'd add is from a rent perspective, if you look at kind of the value proposition here as you've got a property where the rents are 50% below rents in San Francisco and provide a really great campus environment for tenants on it's right on the Bay. So we're very excited about closing this acquisition later today.
Okay, great. Thank you.
Thank you and are kind of question will come from a time Hennessy with Deutsche Bank. Please go ahead Sir.
Good morning.
So my first question I guess in lieu of the continued strong growth on multifamily I mean, both from the revenue side in line.
But I mean, the hot topic I guess this quarter on West Coast residential has been the new California rent control could you perhaps quantify the impact on next year's airline is generally how you're viewing.
Sure.
Yeah. So.
Give you a sense of background, California apartments represent just a little over 10% of the NOI or the company. So it's meaningful but obviously a minority of the overall in Hawaii.
We already have 40% of those apartments that are undergoing some form of rent control and have been for many years.
But if you look at this particular.
Bill that was passed its really that's a cpis plus 5% maximum increase so for US we expected to have a very minimal impact on our portfolio.
Additionally, I'm vacancy decontrol was still kept in place and if you look at our portfolio. We generally turn our units 40% to 50% of year. So to the extent were only able to raise rents a certain amount once the tenant leaves we can move those rents back to market. So all in all.
We expect a very minimal impact on our portfolio next year.
Okay, Great. That's really helpful. A and then I guess over to the UK I mean between the continued Brexit chatter and and I guess, the we worked for maybe difficult to distinguish between the two but I.
I mean generally did you notice any change in leasing impact or any tone from potential tenants. After that we weren't fallout and then generally on share space how much of the total portfolio would you be comfortable leasing up and does that view differ between the U.S. and UK.
Oh, I mean, we haven't seen any fall out in the UK in terms of what's going on with work.
So we're not seeing that there's any impact I mean, I think we work has done very well in London, that's one of their sort of.
That's profitable best performing locations with a lot of enterprise type tenants.
So we don't see any issue there and I don't think could we see a difference is all in the U.S. markets that we're in so we're not not really thing any issues there.
Right and I think married to when you think about the all the Brexit noise is now going on now for three years. He did 112 leases. So far this year, yeah, and Q4 is going to be a record in the UK actually right.
Theres a lot more to come in so I think the.
What gets buried in all of these headlines Tom is that the.
London still continues to be one of the top investment markets in the world for new investment.
And that the leasing activity and I think it was married pointed out to the leases that.
Her team has been doing are actually significantly above what prior rents work.
And so.
The Brexit takes a lot of headlines, but the reality is that at the property level all of our properties are performing extremely well.
Okay, great. Thanks.
Thanks.
Thank you and this concludes our question and answer session I would like to turn the conference back over to Bill.
So a thanks, everybody for listening and as I said in my remarks, we appreciate Everybodys support a number of looking forward to a great calls out of 29 team.
Thank you.
The conference has now concluded thank you for attending today's presentation.