Q2 2020 Kennedy-Wilson Holdings Inc Earnings Call
[music].
Good morning, and welcome to the Kennedy Wilson second quarter 2020 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signally conference specialist by pressing the star key followed by zero.
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Please note. This event is being recorded I.
I'd now like to turn the conference over to Devon, FOPS, Our Vice President of Investor Relations. Please go ahead.
Thank you and good morning. This is Devon Bob's aren't joining us today or Bill Mcmorrow, Chairman and CEO Kennedy Wilson, Mary Mary Ricks, President Kennedy Wilson that when dish Executive Vice President Kennedy Wilson, and Justin Enbody, Chief Financial Officer. Kennedy Wilson today's call will be webcast slides will be archived replay replay will be available by phone.
For one week and by webcast for three months.
Please see the Investor relations website for more information.
On 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 second quarter 2020 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 in 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 Mcmorrow.
Thanks to Alvin and good morning, everybody.
Yeah. Thank you for joining us today.
From all Buzzard Kennedy Wilson, we hope everyone on this call and are families are doing well what have remained healthy.
I'm very grateful to report that everyone or Kws maintained good health and our communication and execution has never been better.
As it was for all businesses globally. The second quarter was a very unique one in the global real estate industry as a whole as investment volumes declined significantly due to the pandemic.
Transactions fell 68% across all property types in Q2, according to the real estate capital analytics group.
Kw, given our strong liquidity profile, we were in a great position of being able to temporarily pause or asset sale program during Q2.
However, given the ultra low interest rate environment, the amount of capital sitting on the sidelines.
And the global search for yield we have seen transactional activity in our markets start to pick up.
We expect an active third and fourth quarter.
I'd like to start by touching on the key highlights of the corridor.
Q2, we saw strong rent collection and high occupancy across our multifamily and office portfolio.
Which together comprises 81% of our estimated annual NOI.
The continued growth in our investment management platform and the launch of a new 2 billion dollar debt platform and the great progress we made on our development on lease up initiatives.
So turning to our financial results in Q2, we were produced adjusted EBITDA of 73 million.
Adjusted net income of 12 million.
For the year, we have produced adjusted EBITDA of 185 million.
Adjusted net income of 57 million.
Our results were primarily impacted by the slowing of the transactional volume, which resulted in lower gains in the quarter.
Growing our investment management platform continues to be an important strategic focus for us.
As global yields remain low we continue to see strong demand from our partners to invest in high quality real estate across all parts of the capital structure.
During the quarter, we added $200 million to our fee bearing capital representing growth of 6% from Q1, and 17%, thus far and 2020.
This is now up 94% since the beginning of 2018.
For over 30 years, we have invested in real estate through both equity and debt and across product types and geographies.
Our extensive track record built on long term relationships allows us to take advantage of opportunities when market circumstances change.
In may.
Yes, the new 2 billion dollar debt platform with Fairfax financial.
Platform will target first mortgage loans secured by high quality real estate and the Western U.S., Ireland and the United Kingdom.
We closed our first two loans in this platform in Q3 totaling $90 million.
Both of which related to recently completed high quality apartment communities in our core markets.
Our debt investment pipeline is extremely robust with $200 million, an origination opportunities that we have signed term sheets on.
And many more deals that we're currently evaluating.
Once closed this will take our loan platform to approximately $700 million of deals closed in the last year.
The debt platform builds on our long track record of investing during periods of market dislocation.
It is these types of environment that had been is extremely beneficial to Kennedy Wilson over the years and have played into the strengths of our management team.
Since 2010, we've completed over $6 billion of debt investments.
Looking ahead, we think it's very likely that we will see an increase the debt acquisition opportunities over the next six to 12 month.
Especially as large global financial institutions begin to increase their loan loss provisions with over 125 billion reserves. So far in 20 Twond.
When you include this 2 billion dollar debt platform.
Real estate platform with security benefit plus our multifamily joint venture in Ireland.
In our ongoing fundraising efforts in Europe, we have another $2 billion, a fee bearing capital and our pipeline, giving us visibility to meaningfully grow.
The $3.5 billion in fee bearing capital over the next two years.
Now before we discuss rent collections and leasing I'd like to update you on our balance sheet and liquidity position.
As I described in our last call. We entered April armed with the most liquidity, we've ever had and our history.
We continue to maintain a strong liquidity position was $788 million in cash.
And $300 million of availability on our line of credit at quarter end.
Including the $580 million of cash available from our two discretionary funds.
We currently have a total of $4 billion and discretionary purchasing power.
We also have strategic partners that remain well positioned with ample liquidity and a strong interest in partnering with Kennedy Wilson.
Our debt maturity profile remains very favorable in the short term with only $26 million return maturing for the remainder of this year.
And 163 million maturing next year.
All of our main remaining debt maturities through next year or non recourse secured property level financings, which we anticipate refinancing.
So we maintain the strong financial position of having both ample liquidity and limited debt maturities through 2021.
Now I'd like to turn the call through our President Mary Ricks to provide an update on where we stand on rent collections as well as our leasing activities in the quarter.
Mary.
Thanks Bill.
I'm pleased to report that the strong rent collections, we reported for April remained consistent throughout the quarter.
Our two largest asset classes globally, our multifamily and office, which together account for 80% of our Q2 build rent.
We collected 97% of our rents across these two asset classes.
And attribute these strong collection figures to having an office tenant base and resident base. It remains in a strong position to continue meeting their rent obligation.
And so far in July rent collections are in line with Q2.
Our multifamily portfolio stands at 30000 units globally, including 4600 units and development or at least that.
Approximately 88% of our multifamily analyzed comes from suburban assets.
Many of which are low density garden style community that we have significantly enhanced by adding a variety of amenities for our residents.
Our two largest region the Pacific Northwest and the mountain State continued to perform well with same store revenue is up 3% in Q2, driven by increasing occupancy.
Across our global portfolio as of quarter and average rents totaled $1665 and occupancy which remained stable during the quarter was at 94.5%.
I'm happy to report that global multifamily REIT collections in Q2 total 98%.
And our market rate portfolio, the U.S. had rent collections of 98% and in Ireland, We had rent collection of 99%.
And in our vintage housing senior and affordable apartment portfolio, we saw rent collections of 99% in Q2.
These high collection rates remain consistent throughout the quarter.
Turning to our global office portfolio at quarter end, we had a healthy weighted average occupancy of 95% with a weighted average lease term of 7.4 years alongside strong defensive characteristics, making the portfolio well positioned in today's market.
73% of our global office NOI is generated from properties that are substantially single, let or in low and mid rise buildings.
Meeting they benefit from mostly a single tenant controlling it sounds space, which is better suited to meet covina requirements.
Also almost half of our global office NOI comes from suburban assets, including business parks.
And this means tenants can benefit from lower density space left can mean more space control and move towards the hub and spoke model.
And rents that are at substantial discount to the local CBD market, while about while avoiding kobe related logistical issues faced by high rise buildings.
We are seeing a growing interest in suburban and low to mid rise office assets, where our own portfolio already benefits from a strong base as creditworthy tenants.
Our top 20 global tenants, such as Costco, Microsoft KPMG State Street, the bank of Ireland.
Indeed, and the UK and Italian governments to name a few account for 63% of our office rent roll.
And this has resulted in high office rent collections of 96% in Q2.
We're very proud of our tenant base and are well positioned with long term lease contracts.
Large creditworthy tenants as we saw continued high rent collection throughout the quarter.
Looking ahead I'd like to note that the majority of our European office tenants pay their rents quarterly in advance in July best We've had a head start on our build Q3 office rents for a European tenants.
In total, including all product types, we collected 92% of our share of rents due in Q2 across our global portfolio and July looks to be on track with Q2.
Finally, I'm very happy to report that the Shelburne hotel reopen for business on June 29.
This iconic hotel is Dublin largest five star hotel and has over 240000 square feet of space.
Which allows for guests to practice, social distancing easier than in some of the other hotels in the area.
The shell brand had a strong start to the year prior to the pandemic and since reopening is outperforming its concept for the month of July.
Performance was better than expected as it successfully reorienting itself to domestic business well international travel remains pause for the time being.
Over 65% of our cancellations due to covert have rebooked in Q4 2020 or in 2021.
And a record 19000 room nights.
20% of the total year forward, but for 2021, giving us a solid book of business going into the end of 2020 into 2021.
Leasing activity across our commercial and multifamily portfolio continues to be robust.
Globally, we had strong activity, where we completed new leases lease extension and rent reviews across 900000 square feet of commercial space in Q2.
Which brings our total to 1.5 million square feet of leasing in 2020.
We currently have another 650000 square feet of leasing in the pipeline.
This year to date leasing highlights the value of our commercial portfolio as well as the strength of our tenants during this challenging time.
We are optimistic in closing out the pipeline in front of us in the second half of the year.
And our multifamily portfolio, we have now rolled out new virtual leasing technology across all of our market rate communities.
We have been pleased with how efficient this new technology has been which allows prospective tenants to tour units and the various amenity offerings and also signed leases through the paperless leasing capabilities.
In Q2, we completed 1946, new leases in our U.S. multifamily portfolio, a 7% increase from Q2 of 2019.
94% of these leases are completed virtually.
In Dublin, we've been active in implementing a similar virtual technology to facilitate socially distant leasing <unk> capabilities.
We now have virtually thing and all of our Dublin apartments, or we are seeing significant momentum and weekly dealings.
And so the high adoption by new perspective tenants of this technology and all of our markets has allowed us to maintain strong occupancy in our multifamily portfolio.
Our existing multifamily and office portfolio has been resilient during this time.
We are in a strong operational position to navigate the existing market dislocation and look forward to coming out of this period as a stronger company.
With that I'd like to turn the call back over to Bill.
Thanks Mary.
I'd like to update you on our development projects and leasing initiatives, which are expected to be completed by 2024.
And include 4600 multifamily units 2.8 million commercial square feet and one hotel property.
Virtually all of our major construction projects or 50, 50 joint ventures with strategic partners and in total we have a 59% ownership interest in our development and leasing portfolio.
During the quarter, we completed the final phase of Clancy Quay in Dublin, delivering 266 units to the market and completing the largest multifamily community in the country.
This completes an amazing seven year journey with this investment.
Which one we originally started had 423 phase one units and eight and a half acres of undeveloped land.
Phase one and two of operated very successfully that are currently 97% occupied.
We've seen strong interest in the phase three units.
Which is leasing up at a pace ahead of our plan and we have already leased 10% of the new units in the past month.
Also in Dublin, we're currently on track to finish the construction next year on our two active office projects Hanover key and Kildair.
Which total approximately 133000 square feet.
The three remaining Irish projects, the Grange, Cooper's Cros and leisure products are expected to complete in 2023 in early 2024.
In the U.S., we completed the first phase of 38 degrees North and Santa Rosa in Q2.
And we expect to complete rosewood in Boise, Idaho later this year.
We expect to complete the Clearone River point in Boise, and 2021 and 2022, respectively.
And these projects and total will deliver another 552 marker rate units to our portfolio.
We also are making great progress on our vintage housing developments, which we were able to complete utilizing minimal equity from KBW.
During the quarter, we stabilize the 360 units steamboat project in Reno.
Bring our portfolio to a total of 7700 stabilize units with another 2300 under development on lease up.
In total we were on track to grow the vintage pot formed at 10000 stabilize units by the end of 2022.
Representing an increase of 82% since we acquired the portfolio in 2015.
So I'm tremendously pleased with the progress in the quarter and how we continue to execute on all of our key initiatives.
Are highly liquid balance sheet combined with very low interest rates.
The capital base of our partners and the strength of our seasoned management team that has operated together for decades will enable us to continue continue growing our portfolio and our investment management business.
And finally as I reflect back on the first half of this year.
I'm very grateful for through the entire team at KBW.
Our board of directors and the partners that we work with globally.
Every one of those stepped up to the various challenges that we continue to face.
And while executing our business plan without missing a beat.
So with that Devon, I'd like to open it up for any questions.
We will now begin the question and answer session.
Ask your question you May Press Star then one on your Touchtunes sounds.
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Withdraw your question. Please press Star then to at this time, we will pause momentarily to assemble our roster.
First question will come from Anthony Paolone of JP Morgan.
Thank you and good morning.
My first question is as it relates to the transaction market can you talk about where you're you're finding transactions given.
Volumes are lower how you're going about finding things and and what that opportunity set looks like <unk>.
Yeah, Hi, Tony I mean, I'd answer that really in a two part side, we were very fortunate to have really nothing in escrow coming into the pandemic.
And so we weren't faced with the situation as you know having to close things during.
This first part of the year.
You know when you have obviously everybody on the call knows that you've got.
Basically zero interest rates in Europe.
Japan negative rates and you've got art tenure rate here in the United States. The lowest level I think it's ever been in history was one day this week.
And so you've got a.
Lot of capital.
Sitting around the world and I would say that.
Particularly in Europe are there seems to be is stabilization of book.
There there are economies.
And so we're seeing that you know very very active interest for trickling in our assets in Europe that we've identified the we're going to try and sell here in the second half of the year.
The other part of what has happened in this very low interest rate environment is that they're the most favorite asset class that we're seeing.
Our the office buildings that Mary mentioned these lower rise suburban office building leased to high quality tenants.
And multifamily assets that are in markets that a normal periods of time possess the strength of growing jobs.
And so.
There were some major trends there was a major transaction that closed in Seattle here.
Just recently I think its largest deal that multifamily deal does it ever been done in Seattle that was purchased by a Canadian investor.
And so.
I said you know as part of my earlier comments you've got.
By other People's estimates, you've got over $300 billion of real estate capital sitting on the sidelines.
Trying to find a home.
And you you add that to the.
Oh I'll pick out the insurance.
Company business, where are you know they haven't need as does every.
No state and sovereign pension fund.
Need to generate minimum returns.
And so and I think the other thing to that Mary you might comment on I think people are gravitating.
Two.
Higher quality assets.
Like the ones that we own.
They're willing to accept you know lower risk adjusted returns to get higher quality more predictable income streams.
So I think that that's kind of the overview Mary what are you seeing.
Yeah, I mean, it's been interesting and the markets that we're operating in if you think about for example in Ireland, we've seen a significant amount of Prs steels multifamily deals trade in the quarter. So about 500 million euros of deals that were bid up above a guy price and.
And again, not just points to what builds really talking about which has been an abundance of capital you know looking for very defensive.
Forming asset classes.
And you know I think our whole portfolio, whether it be our office portfolio that single led to good creditworthy tenants and or our Perez portfolio that we own with very large insurance company in Europe, and our U.S. multifamily portfolio, it's extremely extremely defensive and I think you know very very attractive.
Yes.
You know Tony one other comment I would add on to marries.
Comment, we we made a very conscious decision in the second quarter that we weren't going to pause on any of our construction activities.
Unless it was mandated by the local governmental jurisdiction.
And so we we have a lot of very high quality brand new.
Instruction coming online this year next year in the following year.
And what we're also seeing on the leasing front Mary on those newer properties.
We're we're getting very.
Good traction right out of the gate.
Project in Santa Rosa.
Which has only been open for leasing for probably a month now.
We're almost a third lease there.
So you're seeing the consumer in addition to the real estate investors at least from the multifamily space you're seeing the consumers.
Being a highly interested in.
Living in brand new projects.
Right. It sounds like R&D investment side, you have a lot of capital at your disposal and it sounds like your debt program is going well in that pipeline is strong just wondering about just in terms of normal asset.
Investments you are been opportunistic investors historically, what's most interesting for you right now whether it be a region or property type.
We have a you know several multifamily properties that are.
We're evaluating right now in the Western United States.
In the markets that we like.
But I think if you think back to really what happened during the credit crisis.
There's always a time lag between when all the well call at this dislocation process starts.
And when you actually starts seeing.
What I called the equity opportunities.
And it's it's further.
Slowed down by the fact that you've got you know people borrowing as low interest rates. So they can hang on longer.
But I think what's been a truism throughout our time at Kennedy Wilson is that when the banks you know star reserving like they have.
That eventually opportunities will show up but if you think back to coming out of the credit crisis, which started in Oh wait.
The real opportunities.
Didn't show up for a couple of years. It just take takes time to work through the system and so.
Well, what I was trying to point out of my comments is generally the first.
Part of.
Of the cycle was that the debt.
Either purchases or the debt business.
Is really what's the most attractive it comes before.
There's real equity opportunities.
Our kind of equity opportunities.
Yeah, I might I might add to that in terms of Europe, where we're really seeing opportunities is from developer led trade. So so basically the need for liquid.
He is either in our debt sign to be able to finance, those developers and or to be able to buy projects, where there's and liquidity driven event.
And the same would hold true I would say for the retail funds and the UK that had been shot.
Due to lack of liquidity so when those open up we're in discussions with quite a few of those looking at portfolio.
Transactions again, just created by a need for.
Liquidity within a retail fund retail not retail product, but retail everything hitting investors are.
That's good point Mary I was the last comment I'd make going is that we we.
Over the years, you know Weve transacted genome.
Virtually every major market, whether its Japan or Europe or here in the United States on the western side of the United States.
And so we.
We have a tire relationship colored relationship tracking system that we've built over the years.
And relationships with a lot of people and so we're.
We're outreaching right now.
You know everywhere in our key markets and as I said before and maybe Didnt.
The big.
Benefits is you have with Kennedy Wilson is that you have a management team that spend together for long periods of times that is built these relationship with people and we're consider to a without come up patting ourselves on the back we're.
We're considered a very very reliable counterparty to purchase or to execute on the debt platform.
So all of these things you know you're just don't start them up at a time like this you have to help them in place.
Yeah.
Got you don't think that's the last thing for me. It's just anecdotally all of the major banks were talking to the head of special assets for every major bank and all the U.S. banks, who are now you know performing very very large team.
Have a special assets.
You know teams to basically once they provided for on their balance sheet as Bill described there won't be an event of disposition.
And so as Bill has been talking about you know that it needs are times, our kw really thrives, we're set up to do very well during these times the dislocation.
Okay. Thank you for that and then just two.
Quick ones on the multifamily business, one gigawatt of exposure workforce housing units performed really well here any thoughts on and if there could be any diminution with stimulus burning off <unk>.
Well, yeah, I mean, I'm I would slightly correct you like workforce housing I think when you you really have to look at the markets that we're in.
And.
One of the.
Kind of hallmarks of Kennedy Wilson has been to get into markets before.
I would call it the rest of the investor crowd shows up.
And so we've been in the Seattle market for 16 years.
We went to Salt Lake City.
Go before it was really discovered market.
And.
The same thing is true with what we're doing in Boise, Idaho, which is one of the fastest growing cities in the country.
And partly it was driven and I'd say large part by the job creation and I don't need to go through the company's in Seattle, but you've got these obviously very big.
Hi Tech companies in Seattle, Microsoft Amazon and so on.
And and so you've also got Oh that same dynamic really going on in these smaller market says as younger people.
Find that they want a higher quality of life it in a more affordable.
Cost basis and in many many cases with a lower state income tax rate.
So if you look at you know I'm not picking on the state of California, but the 13.3% tax rate here for individuals is zero in the state of Washington.
And so.
We've had.
You know just extremely high rent collections, and what we called a mountain states and we're including Seattle and out.
But these are or people that a lot of cases work and tech and tech related companies.
They're very high quality projects. They just you know possess the kind of the characteristics that I just went through.
As far as the stimulus bill is concerned them and who knows where that's going to all end up.
And so we'll just have to wait and see over here. The next two days.
You know what kind of a compromise they end up with.
But.
As we sit here today, we're not we have no crystal ball, but we're not.
Sensing that there's going to many material.
Changes in our ability to chrobak rents and these great projects that we all.
Okay, and then just last one on the multifamily just as it relates to Doblin I just comment on on what's happened to market rental rates in multifamily pre coded to date.
Mary.
I mean, so far they've remained flat I think it's been interesting to see Clancy Quay three is still described in his remarks.
And we just opening up a about 30 days ago.
And actually we've we're seeing really double a the demand that we had budgeted and so you know I think what you might see over the next couple of quarters is you might see some tenants moving home.
But I think you know the offset to that is tenants really trading up and wanting to you know they are a lot of people are working from home and so they're doing that they want to get out and then in a nice location in a building that amenitized. Its professionally managed because when you think about the Irish Prs market remember, it's a very.
Makes sense you know market.
It didn't even exist a.
10 years ago.
And so what kw and other institutional owners have really provided to the market is professional a pair asked her multifamily space. So we think over the long term our portfolio will hold up very very well, we haven't really seen.
Any degradation and rental rates.
Okay, great. Thanks for the time.
Thanks, Thanks, Tony.
The next question really from Derrick Johnson of Deutsche Bank.
<unk>.
Hi, everybody good morning, more it looks it looks like you essentially pause the share repurchase program, just simply to prioritize liquidity and how would you describe the capital allocation priorities going forward.
And would you consider resuming buybacks yeah.
Well it was a conscious decision you know going into the second quarter.
The.
In addition to.
Keeping our communication and everybody's staying healthy the two parts of our.
A key parts of our platform was that we wanted to maintain our liquidity.
And Ah we wanted to continue the construction because we've learned with the construction a lot of companies paused on their construction in the second quarter.
We've learned with the construction over the years that if you can be.
Completing your your.
Properties, well everybody else's pausing then you're the first one.
It makes logical sense, you're the first one than to have a leasable units or office.
Space when you.
Come out of it so.
So I think that was the you know when we have a big Capex program going on and so that would that was the the real rationale behind the.
Pausing on the share repurchase program.
Okay. Thank you that that makes a lot of times actually and and how about the rationale for pulling the shell born out of the same store pool for to Q I think it was in actually in first you maybe you could remind me and with the reopen now will it be reflected in threeq.
Same store pool are still remain I'm outside.
Matt I'd ask you to answer that one.
Sure Yeah, we would intend to put it back in and in Q3 in Q2.
The hotel was shot so I mean, there was no revenue. So we didn't they get made any sense to include that in.
In same store for the second quarter, but it will be back now that its reopened.
Okay, Great and then lastly from me no understanding the fee capital fund business is that a record 3.5 be how large would you be comfortable managing as part of the business obviously with your partners what is the optimal assets under management.
At levels that you envision going.
Going forward.
Well I mean, we have the infrastructure people wise a gun repeating myself somewhat here, but because we've had the same team of people together for long periods of time.
We we have the ability to grow that platform significantly from where it is right now.
And as I said in my remarks.
Assuming we couldn't find.
Good risk adjusted investment.
We have the ability to take that up by a couple billion dollars with the same.
People that we already have at the company.
And a couple of years ago, basically that what I'm now, calling five and a half billion was was almost zero.
So we we have the bandwidth to I don't want to give a projection the beyond that.
But we have the bandwidth to take a beyond that.
And Bill if I could just add that you know so far as we've been growing the business we've been doing it without adding people, we're utilizing existing resources.
For example, within the debt platform, we've re purpose some people within kw to focus on the debt platform and we haven't had any people as we've been growing the assets under management.
Excellent points. Thank you everybody.
Thanks.
Once again, if you have a question you can press Star then one.
The next question will come from Sheila Mcgrath of Evercore.
I guess good morning, I was wondering if you could give us additional insight or details on the debt investment so far for the New fund and also if you could help let's put it to perspective, how you'd be view pricing of these opportunities and the risk profile in historic context is the opportunity here just 'cause banks have re.
We treated on construction financing.
Matt you want to handle that.
Sure.
She loves so the the initial opportunities we've seen over the past several months have been.
Well, we call more transitional opportunities, where it's a finished building. So there we haven't done any construction financing.
But a finished product and in the case of the first couple of loans, both multifamily assets in markets that we have large ownership interest in.
In multifamily already.
Where the projects been completed the construction loans coming due and the projects in lease up.
And so are the properties weren't ready to take on a more traditional.
Long term loan from Fannie or Freddie or an insurance company.
And so we've been able to come and provide financing to help the owner get the property leased up and ultimately we assume we'd be taken out by a longer term a lower interest rate lender.
And so.
The banks were somewhat active in this space some of the debt funds have been active in this space historically.
But we do feel certainly over the past couple of months there has been.
A bit of a gap in this type of financing and so we've been able to step in and provide that financing to very high quality properties in very high quality sponsors.
And so that's really what we're seeing so far.
And you know in terms of of.
Our structuring these things obviously, we're managing the assets and getting paid fees and a allowing our partners to get a solid returns as well on these investments.
Okay, Great and then I would just won't stay I would add the mats comment I mean, we're we're kind of uniquely position because we're an asset owner in that those that asset class.
We know.
Where are you should be from basis perspective, as a lender.
ER and we're also building.
In those markets. So we we know what construction cost SAR.
And so even though the people that run our multifamily business under current Sac is great team.
We are we're utilizing them you there their equity investors, but we're utilizing their skill sets and others in the company to make sure that were carefully underwriting these things.
But we've got an awful lot of on the ground information.
This what values are and should be.
Makes sense, thanks, though and just on the disposition front I'm a realization that is somewhat you know your funds on how do you. How are you thinking about that for the balance of the year I think it made sense kind of pod certainly during two Q, but just wondering.
What we should expect on that front.
Well I don't want to you know given where we're out I don't want to you know.
And I don't mean to.
I would answer you directly but give up a forecast I can tell you that.
We have you know an active.
Sale program going on on I would call. It really a limited number of you know larger assets right now.
And.
One in our funded as a multifamily button five in our multifamily is a multifamily asset in Seattle that sit in the market right now.
But we have others that are balance sheet assets that were looking out.
And so we're we're I would say were.
We're testing the market right now, but we're testing it in a meaningful way to see where.
No were value. We're you know what people think.
It's.
Our expectation though.
That over time men, particularly when you get out of this.
The current situation, we're all in with the Colvin.
That.
Interest rates are gonna stay low for a very extended period of time I don't know whether that's two years three years five years, but it's going to be an extended period of time.
And as I've said many times on this call. We had the advantage of you know we started in Japan and 1994, we've watched them with zero now negative interest rates for that entire period of time to today.
So we think that there's going to be.
No.
Meaningful cap rate compression so long as these interest rates stay low.
Okay. Thanks, Bill and then one last one on any insights when Ireland might open up again U.S. visitors as I would imagine that would be important for the shelbourne rebound and also what is your outlook for there'll be step that Clancy Quay do you think that it might be.
Slower than typical given the pandemic.
Mary.
Hi, Sheila.
Yeah, I think the governments on a great job in Ireland, just you know containing that Kevin situation with the way they sort of close down the country. They they have they had a green must where there's 10 countries that are on it freely traveling into Ireland I.
I think the government is looking at the situation every couple of weeks.
And you're right I think that.
On the U.S. travelers and the UK travelers will be important for the Shelburne going forward, having said that we've seen a great demand for you know the Irish folks looking for Staycation and.
It's I'm really proud of the team at Cherry Hill that opened up the hotel and done a great jobs since it's only been up and for a month, you know capturing almost 50% of of market share. So.
So were you know as the government looks it at the Green last week, we are hopeful that.
Either at the end of next quarter in Q4, and we'll see an opening of the economy, which will help to shelter for sure.
Okay, and then just on Clancy Quay do you think that at least that or any indications how interesting.
So far that's the project that just completed I think contract yeah. If it was just completed that that project is going extremely well its a third phase of.
But what is the largest and project and all of Ireland.
We have been doing leases at double what we thought we'd be doing leases that per week.
So actually bill even since they finished the script Ah we talked about it being 10% lot. We're now with all the applications and we'll be at 15% but.
And again downhole, you know, where we thought we would be so not just guest count yeah, great product. That's great. Yeah, you know well priced spacious.
Ah product next to a very big Parkway onsite amenities that Doug Parker Jan.
Yeah, Great asset, we're super proud of it.
Okay, great. Thank you.
Thanks Shannon.
The next question is from Jamie Feldman with Bank of America Merrill Lynch.
Great. Thank you.
I just wanted to get your thoughts and like the earnings growth trajectory as you start putting more capital to work on opportunistic investment. So it sounds like you know from the outset, you can do more debt, which I assume would be.
More immediately accretive and then as you transition more to.
Equity maybe that fate, some but just you know we think about through cycles.
How does that tend to play out.
No I'm not sure I completely understand the question.
Well if your transition like if you're you're early investment is gonna be more in debt.
Higher yielding I assume.
And then you transition into equity, which probably has more of a lease up.
Component to it <unk> just in you had talked about how you know it takes years for this to play out in right now the banks are.
Building their teams just how should we think about the.
Kind of the cash flow intact over however, long it takes to work through this.
Kennedy initial stages in more debt investments to longer term more equity investments.
Well I mean I'm not.
Yes, Matt to jump in here in a second I'm in a we're not giving any.
We've never.
Had a mindset that we have to put capital to work we have to find the right opportunities that.
Produce.
The best risk adjusted returns.
We've never once that the company had oh.
Started a year and said look we have to buy this amount or we have to let this amount of money, it's where we have a teams of people that find the opportunities and then we evaluate them to see whether they make sense to do or not.
The you know I would say that.
You know we have an expectation that over the next 12 months, we're going to be able to deploy a good chunk of the Fairfax Kennedy Wilson debt platform.
What I was trying to say about the.
The financial.
Institutions is that.
You know our guesses and it's nothing more than I guess that is their staffing up here in August.
And the you know everybody working remotely so long that old it'll.
Fall into next year.
Before you start seeing equity investment opportunities and that doesn't necessarily mean that it's going to be.
Something that.
You know requires.
A build out.
We're not interested we have enough construction going on we're not interested in buying more land to build on.
So it's just it's too early to tell a you know where where are the equity opportunities are gonna come from so our focus right now.
Is who build out this the debt platform here over the next.
I would say nine to 12 months.
But it's it's opportunities show up I mean, we're ready for a minute stock.
It's it's just I guess [laughter].
And what would you say typical yields on the debt investments you're looking at.
Yeah, Matt.
[noise], it's it varies depending on the.
Doing things in the neighborhood of 4% up to 8% Unlevered and then with our.
Restructuring, depending on whether we take a subordinate position or with our fee structure, we're generally getting double digit returns.
Two kw when it when including the fees and our coupon and that's all Unlevered.
Right and I think Matt to that that's a point that I I know that if you look back on these earnings calls I've been talking about for a couple of years.
We've been able to get outsized returns in a lot of different cycles.
But when you've got interest rates it at near zero.
You have to be mindful of the fact that.
You know your get your returns you shouldn't go into some deal it might turn out.
Did you get a 30 or 40 or 50% return whatever that might be.
But.
You know if you remember back to 2008.
The prime interest rate that banks were lending money out of it right at the beginning of the credit crisis was right around 8%.
And so obviously your return.
Thoughts were were different than they are today, when you've got interest rates it's zero.
Okay. That's helpful.
And then shifting gears I am I know you've talked a couple times, but just you talked about interest in low and mid rise office suburban.
Just bigger picture I mean, what are you seeing from the tenant side.
Have you seen tenants kind of change how they're using space, yet or what are they plan to do with that type of space. It maybe they weren't thinking about using it before.
Mary.
Yeah, I mean, it's been interesting we we've seen tenants you know some of the technology tenants have said, yes go ahead and more work from home.
But really as we talk to some of these folks like particularly you know we had a conversation with a very senior person in operations at Google.
They said, yes, I mean, we've said that our people can work from home, but really as a company we like to be collaborative we see the office space as as one where we can all get together and weigh more efficient.
And so we haven't you know we really haven't seen.
And a huge change in our office users at this point, but we think that our portfolio, what we already own and what we're building is going to play very well add to tenants that are looking perhaps not to go into a high rise building and city centers.
Our looking to reduce can meet time.
Sometimes people, we've talked to a lot of financial institutions that are looking for you know the hub and spoke model, where again our portfolio would play very well.
In that model.
And a lot of what we already own it as I said on the call and are occupied by you know single Pat.
And so they're able to control their own space and they can have an open not open they can make whatever modifications they want to make.
But theres definitely.
You know a push toward.
You know, making sure that there's a clean environment filtration systems.
We've written we are seeing some of our tenants go from open plan to one wanting to have more offices.
And so you know where we're definitely ahead of what we're doing I think when you think about our office development, we've changed our spec and our design a little bit in a very positive way and focused on contact with door to floor journeys.
Optimal indoor environmental quality, you know really focused on our S.G. commitment, which I think in today's world is as you know more prevalent than ever which were glad about.
Well I think married to one thing I would say, it's just a personal opinion remote working for most companies will not succeed over a long period of time.
You have to have people together in order to collaborate and to create your own culture, whatever culture that is you're trying to build is your company.
And the there certainly is a period of time like we're in right now we're.
Where people are being forced to work remotely for a whole variety of different reasons.
But if you think about it over.
You know five year period of time or tenure period of time.
Leased in my opinion, they'll be you know very few companies.
That can successfully.
You know create their culture and collaborate with each other there people are not together.
Everybody was gonna start working remotely all the bigger cat everybody was going to work remotely.
And it just it never came to pass.
Because it's just a.
Said I'm repeating myself, you you've gotta have human beings together.
You will create.
And to come up with ideas and to execute on your plan. So.
I believe we're in a you know who knows when this is all going to be over.
This particular period, but but when it ends I think people will go back to working in an office environment, but the office environment that they're going to walk.
Could be very different than what they've been in <unk> or were in before.
Cobot started.
Green.
Okay. Thanks you.
Your thoughts on that and then just last for me just thinking about both the lease up portfolio and the development pipeline can you talk about the total pre lease percentage for those two pipelines and.
I mean are there certain assets here that you think we need to be out of that.
The locking up the.
People working from home and things opening up more before they can actually get leased up just how do we think about that timeline for some of these projects.
Well that I mean, you you can hear that the multifamily or leasing is going extremely well and obviously in that business, you're not doing any pre leasing or you're waiting until you have a.
So to go to walk of occupancy in the venue.
We have a very.
Both in Ireland and here in the United States, We've got a very very strong marketing.
Team that puts together the marketing plans in the asset management plans for these assets so.
You know you're just you opened then you start leasing it as Mary said you know we're already 15% on Clancy were a third done on Santa Rosa with each of those we've only been open for 30 days.
So where are you get into the.
The Preleasing is really on the.
On the office side.
And coming on stream on the near term of this or two.
What I would call was you know mid size office buildings in Dublin had or 10 Hanover key.
And Kildair Street, which are both in the 60 70000 square foot range.
And remember with Hanover key that that's the completion of.
It really is the anchor on finishing all of capital block.
Capital Dock.
340000 square feet of office, and the apartments and everything.
And over keys sits right behind that.
You know very very vibrant area I mean will.
Mary start.
Pre leasing.
What would your guess B.
And it's we're now you know really coming out of the ground. There. So what we've seen in Dublin as you sort of need to be you know uplift sticks and floors and and it really you know rolling before tenants are making any pre let kind of decisions knows that you mentioned they'll come there in Hanover, kato's or 2022.
To completion dates.
So I you know I would expect by sometime a second half of next year, we'd have some good visibility on on leasing I mean, I would say if you just think about doubling miller on not subject.
When you think about whats completing and 2021 in Dublin, There's 2 million square feet completing as much a million 400000 square feet of not its pre ladd.
All the very big names, Google sales force, a the Irish government, Amazon just announced a thousand new jobs in Dublin, all those things obviously, we'll continue to help our prf portfolio.
But now we're we're really excited about everything they have coming out of the ground and I would expect to see some activity on a pretty let side towards the end of next year, but we're still ways away.
Yeah, I thought your mate marries making really good point I mentioned until you get if you think about it from a tenants perspective, there you know they start looking kind of when they get a couple of years.
Towards the under their own lease and so are you know you've got to.
You've got to get within six months to nine months of having the property finished.
You know before you really get any active.
Activity.
I mean, a real deal that you can actually sign.
Mhm.
Okay. Thanks.
Thanks.
She will come from Alan parse out of Alcorn partners.
Good morning, Bill you guys have been talking about the success you had.
[laughter] in leasing up some of your new apartment projects both here in Dublin.
With regard to the Fairfax Kennedy Wilson that platform.
Would you say you've seen the platform ramping up.
At a rate.
Which exceeds what you anticipated originally for the same rate or what.
Well, it's it's good point out when I made we I don't think Matt we close the actual documents and everything and till the end of May.
That's right and so.
One other things when you when you do something like this of course, while we were working on getting the well call. It the deal done.
Matt and his team we're building in the infrastructure that you know people wise and accounting wise that you want to how before you start running.
But I I would say it's come on stream.
Faster than we anticipated.
And Ah two its a.
You know, it's it's a bit of a.
Word of mouth business you you've got a you know you get your name out there and then make people understand that you're you know.
Yeah the window for business is open so.
But I would say in a very short period of time.
We've not only built and all the infrastructure that we want to build in inside the company, but we've got a.
We've got a very.
Oh, very very good pipeline of opportunities in front of us right now.
Okay. Thank you that's what <unk>.
<unk>.
This concludes the question answer session.
I like to turn the conference back over to Bill Mcmorrow for any closing remarks.
Well I I'd say, thank thank you all for having your an interest in our company and the for listening today and I wish you all end your family's good health.
And we'll talk a in the next quarter, thanks very much.
Thank you. The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines have a great day.