Q2 2023 Kennedy-Wilson Holdings Inc Earnings Call
Good day.
Welcome to the Kennedy Wilson second quarter, 2023 earnings call and webcast.
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I would now like to turn the conference over to Devin Bhavsar Vice President of Investor Relations. Please go ahead Sir.
And good morning, this is Devin bhavsar and joining us today from Kennedy Wilson are Bill Mcmorrow, Chairman and CEO , Mary Ricks, President, Matt Windisch Executive Vice President adjusted and body CFO today's call will be webcast live and will be archived for replay the replay will be available by phone for one week and by webcast for three months. Please see the Investor Relations web.
For more information on this call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA and adjusted net income.
Can find a description of these items along with a reconciliation of the most directly comparable GAAP financial measure and our second quarter 2023 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 Mcmorrow.
Kevin Thank you and thank you everybody for joining our call.
Yesterday, we reported our Q2 results and I'm pleased with the continued progress we're making on our key growth initiatives.
During the quarter, we completed the largest single transaction in our company's history.
Driving our assets under management to a record 25 billion, which has grown by 39% since the end of 'twenty 'twenty.
Estimated annual NOI grew to $499 million in fee bearing capital grew by 32% in the quarter to $7 9 billion both at record levels for the company.
Fee bearing capital is now doubled from the beginning of 2021.
I'd like to start with a few highlights from the quarter and then Justin will discuss our financial results in greater detail.
As we discussed on our recent calls one of our core strengths has always been uncovering opportunities and finding unique ways to grow our company during periods of dislocation.
This has been a recurring theme throughout our history Kuri entering Japan in 1994, expanding outside of California, which began 20 years ago.
During the great recession, with our initial entry into Ireland, and the United Kingdom in 2011.
In Q2 as multiple regional banks began to lose deposits, we were able to acquire off market for very high quality construction loan portfolio totaling $4 $1 billion, which was purchased on a discounted basis from Pacific Western Bank.
This transaction was one of the first significant loan transactions in this cycle and what sourced underwritten and closed in a very short period of time.
Alongside the portfolio, we welcomed the highly experienced Pac west construction lending team of 40 people to kw.
In addition to these team members significantly enhancing our credit capabilities, adding construction expertise to our existing specialty as a bridge and mezzanine lending.
Matt Windisch will discuss this transaction in greater detail in just a moment.
We also made substantial progress across all of our developments are several of them are now reaching completion.
Our development and lease up portfolio is expected to produce $99 million in NOI to kw with the majority of stabilizing by the end of next year.
Also Mary Ricks, we'll also discuss these developments some work detail on just a moment.
Looking ahead, our key priorities are centered around growing our assets under management, our net operating income at our fees and three asset classes.
First will be to expand our global credit business.
There will be many opportunities on the credit side of the business stemming from the pressure on the global banking system to reduce their balance sheet sizes, and the pullback from non traditional lenders and mortgage rates.
Our expanded credit team of 50 people is ready to Iraq to any opportunities that may arise.
In the United States and in Europe , primarily in the United Kingdom and Ireland.
Secondly, we anticipate that our multifamily portfolio will continue to drive cash flow role.
Our largely suburban garden style U S communities continue to offer high quality lifestyle at an affordable price point.
With the additional cash flow expected from the 4800 units in our development and lease up pipeline.
Which will then grow our stabilized multifamily portfolio to over 37000 units versus less than 30000 units at the end of 2019.
And third.
We are focused on growing our cash flow and our 111, the outset 11 million square foot logistics portfolio.
In place rents are still significantly under market.
Paving our runway for future role.
Fundamentals remain strong within the logistics sector sector as we look to expand our platform with our partner over the next few years.
With that I'd like to turn the call over to our CFO , Justin and body to discuss our financial results.
Thanks, Bill I'd like to start by covering some of the key drivers of our Q2 financial results, which were a big improvement from last year.
Our consolidated revenue grew in the quarter by 8%.
From Q2 of last year, driven by higher levels of hotel revenue and loan income in our consolidated portfolio values were largely stable overall as we saw modest movements in the quarter.
Realized gains increased by $78 million in the quarter from our Q2 dispositions and finally other income increased by 21 million driven by the increases in the value of the company's interest rate hedging instruments in Q2.
These results produced GAAP EPS of <unk> 28 per share versus a loss of seven cents in Q2 of last year adjusted EBITDA totaled $195 million in Q2 versus $118 million in last year.
Adjusted net income totaled $86 million of approximately 62 cents per share versus $41 million last year.
Looking at our balance sheet and debt profile during the quarter, we strengthen our balance sheet through the issuance of 200 million of perpetual preferred equity at a fixed rate of 6% along with seven year warrants that have an initial strike price of $16 21.
Proceeds from the preferred stock were used in part to reduce our line of credit balance, which was paid down by approximately $100 million.
At quarter end, we had $387 million of consolidated cash and $149 million drawn on our $500 million line of credit.
We made the decision back in 2021 to increase our interest rate hedges to manage our exposure.
Rising interest rates as of June 30, we have hedges covering $2 3 billion of notional, which were valued at $92 million, our interest rate hedges to a weighted average maturity of one seven years and a weighted average strike of two 4% well below where index rates are today.
Our effective interest rate is four 3% today, which reflects a 60 basis point savings over a contract contractual rate due to the impact of our interest rate hedging strategy.
Overall, our debt is 99% fixed or hedged and has a weighted average maturity of five five years.
Our near term debt maturities are limited with only 2% of our debt maturing by year end.
With that I'd now like to turn the call over to Matt Windisch to discuss our multifamily portfolio.
Thanks, Justin our multifamily portfolio represents 53% of our global stabilized portfolio.
And producing $458 million of NOI of which our share is $262 million or approximately 57%.
Our portfolio totaled over 37000 units, including 4800 units in lease up or development. What's your expected to add 44 million in estimated annual NOI to kw.
We also have future projects that we are still evaluating that could add over 1000 units toward development pipeline if completed.
Globally same property revenue grew by 4% and NOI by approximately 3% in Q2.
In the U S blended leasing spreads totaled 5% in Q2 and our in place rents were 7% under market at the end of the quarter.
Looking at this regionally the strongest performance once again came out of our two.
Our two largest department regions, the mountain West and the Pacific Northwest.
Which generated same property NOI growth of seven and 6% respectively.
These two regions account for 74% of our U S market same property NOI.
In the mountain West our best results were from our portfolio in New Mexico and Nevada.
Each which saw same property NOI growth.
Of a robust 14%.
Our Nevada portfolio results were driven by increasing rents and same property occupancy growing by two 6%.
Our two largest mountain West States, Idaho, and Utah collectively saw rents and NOI.
Increased by 4%.
In the Pacific Northwest, our second largest region same property revenue.
And NOI grew by 6%.
While occupancy declined slightly we continue to capture the loss to lease which narrowed from 13% to 6%.
The Seattle region continues to see steady improvements in foot traffic from return to work mandates, which we believe will continue to positively impact winter demand.
In California, we continue to see the ending of eviction moratoriums and governmental rental assistance.
Our same property results due to higher delinquencies and operating expenses as well as lower occupancy.
Q2 of last year, we received a total of $1 3 million in rent relief payments versus $68000 in Q2 of this year.
Over the next few quarters, we anticipate making solid progress on recapturing units from non paying tenants.
Which will be favorable and will allow us to mark to market These units and improve our overall occupancy.
Excluding California U S market rate same store NOI would have been 6% versus the reported 2% figure.
We also made great progress on our renovation program completing another 440 units at an average cost of $12400, resulting in a 23% increase in rents.
We have over 5800 units that are remaining to be renovated in the U S with 80% of those units located in the mountain west or Pacific Northwest.
In Dublin apartment market fundamentals continue to be very robust.
Our portfolio was 98% occupied with waiting lists that many of our properties as we continue to see a critical under supply of housing.
We anticipate strong demand for our new developments as Bill mentioned, which will start delivering in Q3.
And at our vintage housing affordable portfolio, we saw very strong NOI growth of 7%.
Occupancy levels remained robust at an impressive 96, 5%.
Our assets experienced significant revenue growth of nine 3% supported by the rise in area median income.
Increases in operating expenses were primarily due to higher labor utility and insurance cost during the quarter.
We view most of these increases is temporary as we have now brought staffing back to appropriate levels and utility call have begun to level out.
Looking ahead, the completion of 'twenty 200 units in our development pipeline will grow our total vintage housing portfolio to almost 12000 units.
As we continue to explore new prospects, we are dedicated to seeking additional growth opportunities within this venture.
Now shifting our focus to our U S credit business.
In Q2, our GAAP business grew by an impressive 86% and currently totaled $6 $5 billion in loans, including $1 9 billion and future fundings.
This growth was driven by the $4 1 billion dollar discounted loan portfolio transaction with Pacific Western Bank.
This portfolio includes 65 loan.
Secured by high quality assets, 80% of which are backed by either multifamily student housing properties and.
And expands our footprint into new markets across the U S.
In a few short weeks, we were able to physically see and underwrite each asset.
And this as this acquisition demonstrated the strength of the entire kw team across our various business lines.
Their collective efforts commitment and collaboration played a pivotal role in quickly evaluating and successfully closing on this opportunity.
The addition of the Pacific Western team allows us a deeper bench skill set and regional knowledge across our credit investment team, where we think there will be plenty of opportunity in the near term.
That's traditional lenders pulled back and borrowers are in need of credit solutions. We believe kw was well positioned to continue growing this business.
We are already seeing a substantial pipeline of new opportunities that we are currently evaluating.
Our platform has additional capacity of approximately $2 billion, which we look to grow overtime.
So with that I'd like to turn the call over to our President Mary Ricks, who discuss our European credit business in further detail.
Thanks, Matt as Bill mentioned earlier in one of our strategic initiatives is to expand our credit business in Europe .
Our European track record of investing in real estate credit dates back to the great recession during which we are in an active investor.
Since our inception in Europe in 2011.
<unk> completed over $5 billion of debt investments and currently have over $200 million in European origination outstanding.
Similar to the U S. We anticipate there will be solid opportunities to either originate or acquire high quality loans, resulting in attractive risk adjusted returns for kw.
We have a large global investors our partner and look forward to growing the private credit space in Europe , and capitalizing on this opportunity in the coming quarters.
In total our investment management platform has an incremental $5 billion of commitments and future fundings, which we will look to deploy across all of our announced step and logistics platforms.
This will add significantly to our existing seven $9 billion of fee bearing capital, which grew by 32% in the quarter.
Turning to our industrial platform.
Blended metals remained strong within our global industrial portfolio, which totals 111 assets and 11 million square feet and is 99% occupied.
Approximately 75% of our stock is comprised of an institutional quality last mile logistic assets strategically positioned throughout the U K and continue to exhibit outstanding performance.
The uk's logistics sectors experiencing sustained growth primarily fueled by two key factors.
The rapid expansion of ecommerce and the growing emphasis on supply chain resiliency among occupiers.
These factors have led to a sustained and growing demand for last mile logistics properties across the U K.
Institutional investors and developers are keenly focused on capitalizing on this opportunity by investing in and expanding logistics infrastructure to meet the increasing demands of the dynamic market.
Throughout the quarter, we successfully completed leasing transactions covering an impressive total at 500000 square feet in the U K with an average lease term of five and a half years.
We have achieved a remarkable 54% increase in rental income.
Straining the strong demand for logistics spaces and inherent growth embedded within our portfolio.
Year to date, we have completed over $1 1 million square feet of leasing with incredible rental income growth of 52%.
These results highlight the continued success of our strategic approach and the growing appeal of our logistics properties in the U K market.
Our high quality portfolio in place rents.
Remain 26% under market setting us up with ample opportunity for future NOI growth.
We continue to have high conviction in the European logistics sector, arguing.
Our joint venture has over $1 billion in alien capacity and we have a number of opportunities that we are currently evaluating as we look to further expand our footprint.
U S industrial fundamentals remain robust with historically low average vacancy rates, creating a favorable environment for our portfolio.
We have a total of one 4 million square feet in five markets.
Since acquiring these assets, we have completed 530000 square feet of leasing and a 68, 6% average increase over in place rents and.
In 2023 alone we've achieved remarkable leasing success complaining transactions totaling 266000 square feet.
And then one of our industrial assets acquired last year, we have already achieved a 42% increase in rents illustrating the strong rent growth potential across our U S portfolio.
Building on this success, we have an active pipeline that aligns with our strategic vision. These acquisitions will further bolster our portfolio and enhance our tenant base supporting our long term growth strategy in the sector.
Turning to our office portfolio.
Our core portfolio was comprised of $3 8 million square feet of consolidated assets and is largely comprised of well located high quality suburban and low rise office building with leading tenant amenities and strong ESG credentials.
These core properties are in markets, such as Beverly Hills, London, and Dublin, they've been carefully selected to align with our investment strategy, ensuring they possess strong fundamentals and solid long term cash flow.
Additionally, approximately 62% of our total office portfolio is owned or co investment portfolio of which we have an approximate 20% ownership interest in <unk>.
Globally, we have completed 675000 square feet of office leasing this year.
Our overall office occupancy stands at 93, 2% as of June 30th.
For the first six months of the year, we completed two 6 million square feet of leasing across our global commercial portfolio, which is more than double what we completed the first half of 2022.
Moving on to our development and lease up portfolio.
As Bill mentioned earlier, we have achieved significant milestones across our global developments with approximately $1 billion in developments completing in the second half of the year.
On July 1st we welcomed our first guests at Kona village.
Rosewood resort comprised of 150 Standalone guest Hall is a crossover 80 acres on the Big Island of Hawaii.
This remarkable redevelopment is the first Hawaiian hotel to received the prestigious LEED.
The four golf certification solidifying solidifying its commitment to sustainability.
The early response has been incredibly encouraging.
Strong initial demand and positive feedback from guests.
Given the ongoing strength in travel demand, we anticipate the Kona village will soon established itself as one of the most extraordinary travel destinations globally.
In Dublin, we are on track to deliver over 750 apartment units in Q3.
In the U S. We expect to complete 172 units in Santa Rosa, California in Q4 and have started leasing the initial phases of our two mountain West development totaling 508 units.
In 'twenty 'twenty four we will complete our largest U S multifamily development in Camarillo, California totaling.
Totaling 310 market rate units.
170 affordable units.
Almost all of our developments that are currently under construction are expected to be completed by the end of next year.
In total our development and lease up portfolio is expected to produce and $99 million in annual NOI to kw and with that I'd like to pass it back to bill.
Thank you Mary.
Throughout our 35 year history of investing in real estate, we have established a long history.
Sound investment opportunities during periods like we find ourselves in today.
These transactions are often sourced off market through our extensive global network of relationships.
Fact in our history over 70% of our acquisitions have been completed through off market transactions with a significant portion of originating from financial institutions.
I believe that our outstanding investment team combined with long term relationships with large institutional capital partners puts us in a great position to take advantage of the opportunities in the current market conditions.
With that Devin I'd like to open it up to any questions.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset pressing the keys and to withdraw your question. Please press Star then two.
At this time, we will take our first question, which will come from Anthony Powell loan with Jpmorgan. Please go ahead.
Great. Thank you.
First question is with the Pac West deal with expanded your geographic footprint and in the U S a bit.
Can you talk about just the the plans there and whether you think that just expands the footprint for debt investments or do you see yourselves, making equity investments in our properties as well.
Matt you want take that.
Sure Yeah. Thanks, Toni for the question.
Look I think for now we're very comfortable.
Owning these these loans that are you know, 50% to 55% loan to cost primarily with apartment assets in student housing assets.
In these markets and we're going to take our time were going to study. These markets learn what we can from our team and from the assets.
That we own through the debt platform.
And you know time will tell I think I know when talking to our multifamily team. They have interest in some of these markets. They want to study these markets, but like I said, we're going to take our time.
And continue to evaluate I think if we do enter these markets the most likely.
Type of it would be multifamily.
<unk>.
But again, it's it'll be a learning process and will take time. So we're not in a huge rush to dive in.
Okay, and then Matt you mentioned 2 billion of capacity I think in the debt platform I just want to understand is that is that just from your partners or is it just what was that number I guess.
Correct. So we have 2 billion in commitments beyond them.
The future funding obligations, we have them on our loans. So in addition to the roughly 1 billion and a half some future funding on the Pac West portfolio, we have an additional 2 billion from existing partners.
I'm ready to make future investments beyond that you know, we we do have plans to expand that over time and grow that number but that's that's the existing commitment right now.
Okay, and then in terms of you know KWE.
Kw's capital you guys issued the prep and warrants as part of the Pac West deal for your piece of it.
If you do in fact get access to some of this pipeline it sounds like it's pretty big like how do you think about just funding the kw side of things on a go forward basis.
Well Tony This is bill yeah. Thank you for the question I mean, our plans are to to fund our portion of any existing growths in the credit business out of our own asset base and so we're you know we're looking out I think when you think about it and I think Matt what.
You know agree with us.
That over the next I'd say 18 months.
The majority of the opportunities to deploy capital, we're going to be in the credit space.
And most of the capital that's going to go into that is going to come from third party capital providers.
Okay, and then just last one if I could sneak in the on the development side are the expected yields are about 6% and can you maybe just put a little context around where you think that sits relative to our market cap rates. These days.
Yeah, I think that.
You know historically when we've underwritten these we always tend to exceed whatever underwriting cap rates we.
And some of the things that we've done in the Boise market had been very very good examples of that where we are.
Actually stabilized.
Uh huh.
Some of the development properties in the Sevens.
I mean, the great news I think on on Oh.
All of this in the two debt maturities that we have next year as we've got very very low.
Lauren.
To cost or loan to values.
And.
So we've got you know a lot of room in terms of refinancing.
Any of these.
Projects, but I think that are in the markets that we're in.
Which are mostly these suburban markets that too Matt Mary has mentioned.
You know, we're probably going to do better than the cap rates that you mentioned.
Okay. Thank you.
Yeah.
Yeah.
And our next question will come from corner peaks with Deutsche Bank. Please go ahead.
Hi, Thank you I guess.
Sticking on the development front, the NOI rent increased to $99 million. This quarter could you walk us through any updates to the 2023.
24, NOI coming online and then maybe on the office side provide an update on the Coopers Cross office development and the demand you're seeing there.
Yeah, I mean, I think Conor yeah. Thank you for the question.
The big developments that are coming along lines this quarter or are those three.
One is the range.
The second one is the rest of the AD Coopers cross cause that Coopers crosses I think most of you know it was.
A mixed use project with 400000 square feet of office.
And about 500.
Hartman units.
And then there's a smaller project in Dublin. That's in addition to an existing project, we have called SAB for large.
So the end and were.
And in all three of those were 50 50 partners with Axa.
Yeah.
So you know we would expect but they were were grand opening all three of those projects actually.
Our next week get into the mid part of August .
Uh huh.
And then the other two that are coming online that were already leasing up because theyre separate buildings at each project is one in.
Boise, Idaho called the dovetail.
Adjacent to an existing roughly 250 unit project, we already have.
And the other is in Bozeman, Montana project called Oxbow, which is about the same size.
My guess is that.
100% level.
The NOI that comes online. This is just it's a guess Justin but it's.
It's probably.
And the range of.
20 million ish plus or minus.
And then Mary as far as the Coopers Cross Marshall.
Yeah, I mean, I would say Coopers cross commercial which is the first smart building in Dublin.
You know highly monetized with the park and then the next used nature.
I went to multifamily units across from it.
We have actually very good demand in that building and.
And I would say in.
In Dublin, and the vacancy rate for class a LEED platinum building is only 2%. So it's a really tight market and historically just like happened at capital Dock, you really need to have the building done.
Before you can lease lease space, there that it's not a big a prelease market.
So we're feeling really confident in and very good about our pipeline and our demand there.
I think Mary you you you would also.
Agrees that.
Yeah.
The the users people were coming back to the office and in the Dublin market is actually a vibrant market right now.
And but they're gravitating to these newer.
Highly amount of ties highly technologically highly sustainable buildings.
And so it's not just you know new.
Tenants coming into the market as people that are have leases expiring that are on older buildings and in some cases in the Dublin market you might have buildings that are 50, 60 70 years old.
And so that that youre going to see a shift.
In these markets, particularly in adult one where people are coming out of these older buildings, but they want to go into buildings that are or more of monetise more technic logic.
Logically it fails.
That's a really really good point bill.
Right and I think our Kildare project is a great example of that where in legals with but two leases right now that.
That would take us to 96%, let at record rental levels and every single one of those tenants is it's coming from an older building, but bill you're spot on.
It was funny it sorry, Justin.
<unk>.
I toured the true to their street building in May with one of our tenants took oh.
Boogers two floors.
And in Europe , whats different in the United States as the tenant pays for all the tenant improvement work.
But it's all of the runs there there are real estate business was telling me.
Spaces.
Beautiful.
This is a first class building technology was an amenity was but he said that we felt we had the over improve the space in order to create an environment for people wanting to come back to work.
And so it's it's almost impossible to pulled out all.
The older vintage building.
Yes, it's Justin I would just add also we're now a handful of.
Office and large developments that we completed in that Dublin market and our reputation and track record will definitely benefit as we get into lease up on this week.
We've built some great assets that are tenants love.
And I think we will benefit from that momentum as well.
Got it. Thank you very much and I'm looking at looking into the hotel segment. It looks like annual NOI improved versus the first quarter driven by the Shelburne location in Dublin.
Could you provide us an update on what demand you're seeing there and what really drove this improved outlook.
Mary.
Sure and.
Yeah, it's the Shelburne continues to outperform the competitive set and really what the driver is there is the a D are setting the improvement in our average daily rate.
And we in the quarter our results outperformed the competitive set by 32%.
And what's been what we're we've been able to do is really through group bookings.
And if you sort of look forward into the next six months that the hotel is roughly 50% sold out through groups, which enables us to build but the leisure segment.
Which enables us to really push does a D ours, which which dropped straight down to the NOI to the bottom line.
We're excited about the next six months.
I think the shopper and will continue to outperform.
But I think too Mary it was a very very good example of that.
I would say the skill set of our people globally as to how you can add value to an asset.
And so you know we completed a 40 million dollar renovation plan and all of that hotel thoughtfully.
Rooms common areas, so long sole sourced and so.
In addition to it so it's probably the best location in all Gulfport sitting on St Stephen's Green, but.
But we also.
Did some tremendous value add work.
To enhance the guest experience, which allowed us to.
You know drive room rates and occupancy.
Mhm.
When you think about it the.
<unk>.
NOI on that hotel from the time, we bought it.
So the time to today has gone from 8 million to over $20 million in that period of time.
Thank you and maybe one last one here I think most of the remaining development costs are primarily self funded from cash on hand, and our noncore asset sales. So my question is.
What is the size of or maybe what remains within that non core portfolio.
Thanks.
You know what I would call her answer that in two ways I think one of the great things to think about now is that virtually all of our equity is funded.
Into the projects we're doing so when you look at the two that I mentioned in the mountain States.
Bozeman at Boise, all of our equity squander, the big one that we took.
Talk about in Camarillo, all while our equity is in there right now.
Santa Rosa all of our equity is up.
Sanford Lodge, we're down to you know.
Small amounts of equity that has to go in there both the Grange and Coopers cross or almost fully funded.
So it all and as you know in the existing vintage projects, they really don't require any equity.
And so the good news is is that is how it call it eight year journey.
Of completing construction and all the capital necessary to do this $3 billion pipeline.
It's almost fully funded now.
And so the the you're correct, we continue to eliminate noncore assets that we don't want to keep long term.
But the capital is doesn't really need to be reallocated now into these construction projects that we've been doing.
And that was in a way what I was alluding to with the credit business, where we really see.
Great growth opportunities here over the next 18 months and when you think about that business, we're typically a 2.5% to 5% investor in.
Yeah.
The total capital stock of these loans.
So that's really where our capital is gonna get redirected over the next 18 months from these noncore asset sales.
Thank you.
Again, if you have a question or a follow up you May Press Star then one to join the queue.
Our next question here will come from Josh <unk> with Bank of America. Please go ahead.
Yeah, Hey, guys. Appreciate the time understand the development pipeline and the NOI coming online, but maybe whats left to fund and in if there's anything left upon just what what are your plans to fund it with or how.
How will you plan to fund it.
Josh.
And a little bit what I was just saying the corners question. That's it's we're down to you know small amounts of money.
Uh huh.
You're probably talking in total.
$35 million to $40 million on all of these developments, but when you think about.
The magnitude of what we.
<unk> completed.
It'll be almost $3 billion and so we're we're down to the tail end. So I think that's the exciting part of the story is now 750 units. The vintage units the things that we are doing in the mountain states the things that we're doing here in Cali.
Fortinet in Santa Rosa and Cam real they're getting to a place now where we've funded our capital.
In many cases, where we can now start turning it into an income producing assets.
Okay, alright, thanks for clarifying that.
And then maybe just the the leverage in our balance sheet at a higher than a lot of.
Other names the concept just kind of curious how comfortable you are with that and then just maybe where it'll kind of drift here.
NOI from the development pipeline comes on more comes online.
Sorry, I am not sure I understood the question.
Oh, just wanted to ask about leverage.
I think it's elevated versus many peers just how comfortable are you with it today and then.
Whereas it's where do you expect it to kind of drift down to is the development comes online.
Well I think the comment just made in his presentation was really the thing you have to look out first of all.
We made a decision you know two or three years ago to really lock down these interest rates and so.
To think that our average interest rate with duration here now just slightly over 4% in the market that we're in today I think is really.
Remarkable achievement.
We paid down our unsecured line of credit by $100 million ore during the quarter.
And of course, our plan over time is to get that to zero.
The projects that we're finishing.
Because you're you're you're adding value typically those had 40% to 50%.
Loan to cost construction loans at all.
And so when they're finished at least.
The projects that we're finishing up you know really very low leverage on them.
Yes.
Well thanks for the time.
Yes.
And our next question will come from Alan Parsow with Elkhorn Partners. Please go ahead.
Oh, Hi, Bill how are you.
Good Alan how are you.
Good with regard to the team of people you've acquired from Pac West.
Or.
Are they going to be located.
At headquarters are in other locations.
It's a combination, but Matt you want to answer that.
Sure Yeah, Hi, Alan about a third of the the team is is gonna be located in our headquarters in L. A.
About a third of the team's gonna be in the eastern U S. So there's team there's a team in New York D. C to name a few.
<unk> and then.
Few other team members that are spread across our existing markets like Denver and Phoenix, So its a combination.
And I think it's also great now that we've got this local expertise in.
In these markets as we touched on and as Tony asked about it's going to give us some real insight.
And to digging deeper in understanding these markets more as potential places to deploy equity at some point in the future.
But I think the other thing I would add too is that the people here in Los as they've already moved him with us.
Uh huh.
Because of the way we run our company you know, what's a very flat organization with map.
And everybody has really been working hard to do is to to integrate all of these.
Pieces and information and people so we're sharing information.
And not only the markets we're already in with the markets that we might be thinking about coming out too.
Uh huh.
So the amount of information.
Because we can now.
We can play in any part of the real estate capital stack, whether it's a construction loan.
Term loan or mezz loan or on the equity side.
It gives us not only a great view window, what other people are doing but it gives us information.
Cost information cap rate information market information.
So if you just really can't underestimate the importance of.
Bringing these very seasoned people.
From a Pac west into our company, many of which we've known for decades and so I.
I think that was the other part of this transaction.
Was.
So meaningful to us is that if we knew the people.
For a long period of time. These are the people that originated at all the walls, we did all our own due diligence and to do this transaction we have.
Almost 100 people.
Internally and externally.
Are you waiting of real estate evaluating our construction divisions evaluating the construction of management contracts.
The legal parts of those and so it was a tremendous exercise to go through in a very very short period of time and I think there's gonna be others with a couple of long like this but.
I don't know for sure if I'm accurate in saying this I think we're the only ones. So far that have been able to do a transaction like this.
Now we have the.
Sirius with deploying a lot of people in the company and externally to do one so we're hopeful we'll see some more.
Okay great.
And this concludes our question and answer session I.
I'd like to turn the conference back over to Bill Mcmorrow for any closing remarks.
Well I would just say thank you again.
To everybody for joining the call and as I always say any follow up questions any of US are always available to talk to you. So thank you.
The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.