Kennedy-Wilson Holdings Inc (KW) 2010 Q4 法說會逐字稿

Good morning everyone and welcome to Kennedy-Wilson's Fourth Quarter and Full Year 2010 Earnings Conference Call. I would like to remind you that this call is being webcast live and will be archived and available for replay.

(Operator Instructions)

Today's presentation contains 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 Kennedy-Wilson's Chairman and CEO, Bill McMorrow.

Thank you very much and good morning everyone. I'm pleased to report to you that we had a very good year in 2010. And I'm going to really split this into two parts. One is what I would call the higher-level look at the business and then I'll get into some of the details that we've outlined in our press release that went out last night.

But what I would tell you is that we -- if you look back to the road show that we were on in 2009 we really executed on everything that we laid out, that we were going to do in the coming year of 2010. I think the main theme, if you condense it down, what we've said on the 2009 roadshow when we were going public was that we were going to continue to grow our book value and earnings through a, what I would call, a robust acquisition program and the growth of our service business.

You will remember that I laid out a three-year acquisition program of acquiring $6 billion worth of assets primarily in negotiated transactions. And we've made a very good dent in that in 2010. So when you look at our results for the year, our EBITDA was $58 million which was the best year that we've had in our history.

That was an increase of 58% over the prior year but more importantly, or as important, our book value grew by 74%, the $313 million from $179 million at year end, 12/31/2009.

Our investment account which is our share of the capital that is invested in our acquisition transactions grew from $212 million to $364 million or an increase of 72%. And when you think about our book value, what we're obviously trying to grow is not only our on-balance-sheet but our off-balance-sheet book value which are the gains that we'll realize on these investments in future years.

The other metric in terms of our balance sheet is our debt-to-worth ratio. Our total debt to net-book-net-worth, decreased from .7 times to .4 times and I think one of the main parts of our business plan is to really maintain modest leverage at the holding company level as we continue to grow the company. The other part of our plan in 2009 of course, in order to execute on our acquisition program is that we had to have significant capital at our disposal.

We raised, in 2009 and 2010, $221 million worth of equity for Kennedy-Wilson Holdings and over $1 billion of equity from our various capital partners. That allowed us, in 2010, to acquire slightly over $2 billion worth of real estate and debt. And I might add that in terms of the composition of the $2 billion roughly $1.3 billion of that were multi-family acquisitions and the balance, $650 million was the purchase of debt from regional banks, debt secured by real estate primarily located in California.

When you look at our multi-family platform we now currently own almost 12,000 apartment units and 78 apartment communities. The units are located 50% in California, 30% in the Pacific Northwest and 20% in Japan. I want to, as a footnote here, as it relates to Japan, obviously there is a -- this is a very tragic set of events that have happened in Japan over the last several days.

We have 50 properties in Japan it is early in the process right now but we sustained no damage at any of the properties. We have had no -- all of our people are fine all of our buildings are operating at 100% capacity right now, our occupancy in our Japanese portfolio is running roughly 96% and so we've been very lucky not to have any problems to date, with our buildings in Japan.

I might also just add as a footnote that we've been in Japan now since 1992. It's been a very important and meaningful part of our business and we are involved in several relief programs and we are contributing not only money from the company but also from personal perspective. We're working through the Japan American Society here in Southern California which is running a relief program. So with all of the news media and so on that is going on I wanted to make sure that everybody understood that all of our property in Japan are fine.

In our multi-family portfolio, including Japan, we are running currently at 96% occupancy on a trailing basis and the NOI on a trailing basis was $103 million on those properties. When you look at our share of the equity in those assets we own economically 32% of those assets, the equity portion of it, and in addition to that we have promote structures that will take it up above 32% depending on what the total returns are.

The -- in all of our markets we are supply constrained and as the level of homeownership continues to decrease the occupancy and concessions that we were historically doing say even a year and a half ago have now evaporated and we expect over the next three years, as many of the apartment REITS in our market are forecasting that we will have meaningful rent growth, we're seeing it really across the board now in all of our properties.

The last thing that I would mention as it relates to Japan, we also have a significant currency gain in that business as most of the capital that went into Japan went over there at 105 and today the yen is trading somewhere down around 82. The other part of our business plan last year was to take advantage particular in our multi-family business of the very low interest rates that existed. That as most of you know, the ten-year rates got down to historic lows last year. We were able to execute on almost $750 million of financing.

Much of that financing was done through the government agencies that supply financing through the multi-family industry. We did one large loan last year of roughly $72 million with Fannie at 4.3%, 4.31% for ten years. And most of the financing that we did on the apartment assets last year was with a minimum maturity of seven years, the longest maturities went out ten years. The interest rate ranges were from really that low of 4.31% and then we just recently, in fact last week, closed a financing on a seven-year financing at a little over 5%.

So what we're trying to do in the apartment business is as these rents grow continue to lock in on our largest expense which is our interest expense associated with these properties.

The service part of our business showed great growth last year and when you look at the split between our earnings in the investment account and our service business the EBITDA on our investment account was roughly $56 million before corporate overhead and -- versus $38 million in 2009. In our service business our EBITDA increased from $4 million in 2009 to $9 million in 2010. And I think it's a fair expectation that as we continue to grow our investment platform that you are going to see the level of income in our service business continue to increase.

Our assets under management, both our owned assets and our third party stood at approximately $7 billion at the end of the year. Our option business continues to perform well, in fact this should be the best year in our option business that we've had during this cycle. We did options on over 40 projects in 2010 spread across the United States, primarily California, the State of Washington, Oregon, Texas, Florida, North Carolina.

So with that overview I would like to open it up to any questions that anyone has.

(Operator Instructions). And your first question comes from the line of Jason Ursaner from CJS Securities. Please proceed.

Good morning everyone.

Hi Jason.

Bill, in terms of overall acquisition activity, you mentioned the roadshow in 2009 and laying out this three-year plan and you did over $2 billion in 2010. Can you talk about the difference in the current environment and whether you still see opportunities continuing at similar levels in 2011?

Yes, I think, Jason, as we said on the roadshow, this was really going to be a different type of acquisition profile. If you look back to 1991 and 1992, as I've said before, when 1,800 banks were closed in the US most of the acquisitions were generated out of the REO departments of the financial institutions. And even though that obviously is the main target that we looked for, what is driving the acquisition programs I think for us and most companies today, is debt maturities.

And as we said in 2009 when you really look at the debt maturities that are happening, the biggest slug of debt maturities start occurring in 2011, 2012, and 2013. And there have been a whole variety of estimates, but the on-balance-sheet maturities in the US banking system, those are loans secured by real estate, for the next three years totals somewhere around $1.5 trillion. And so we believe that we're going to be able to execute it at or above the same level that we did in 2009 driven by the significant debt maturities that are occurring this year.

Anybody that bought properties in 2006 and 2007 that did five-year or seven-year debt financing on them, they've got debt maturities coming up in '11, '12 and '13. And the numbers that I gave you really don't include the foreign banks that have lent money into the US real estate system.

So our pipeline of transactions that we're looking at this time this year is actually quite a bit higher than it was at this time last year.

I'm not saying that we're going to execute on all of these transactions, but we have almost $2.8 billion of deal flow in our pipeline in various stages of underwriting. You've seen in prior press releases here this year too that we've closed almost $213 million worth of acquisitions. Those were all multi-family acquisitions.

I would expect this year that the level of multi-family acquisitions would not be as high as it was in 2010. Our timing was really exceptionally on the multi-family acquisitions that we did last year. But there has been significant cap rate compression in the multi-family space over the last six months particularly.

So while you have to look a little harder there are still opportunities out there but I would expect that the level of multi-family acquisitions that we do this year is going to end up somewhere down around $500 million to $600 million as opposed to the $1.3 billion.

What that will be replaced by is the debt maturities that are now starting to occur in the office markets. And last year if you look at what we did in the office sector we only made one acquisition last year in the office sector, it was a small deal. It was roughly $15 million.

But I would expect you're going to see more office acquisitions in the key markets that we operate in primarily here in the Western US, in 2011 and 2012, supplemented by additional acquisitions of debt secured by real estate.

And as I said too, on previous calls, the debt that we've been buying I think is certain compared to the 90's is of a higher quality, the average sizes are bigger. The average size of the loans that we've acquired have been somewhere around $5 million, $5.5 million. And in many cases those loans come with no personal guarantees.

The loans that we acquired in the last cycle averaged somewhere around $500,000. So it's a better quality of both borrower and paper that we're seeing in the debt acquisition side of our business.

Okay, great. Thank you. Those were some great details. On the multi-family side in particular, you mentioned the portfolio having a trailing 12 months, NOI of $103 million, you talked about some of the indications for rental growth in the supply constrained markets. I guess for some of those like myself who are less familiar with real estate, what type of leverage can we expect at the NOI level in excess of a rental growth number relative to some rental growth numbers?

Yes, I mean when you look at the NOI maybe unlike some operating businesses and you talk about rental growth that's really at the top line. And so you're growing your gross revenues with really no material additions to operating expenses at the property level. And so -- and there's all kinds of forecasts out there and I'm not saying this is the forecast.

But many analysts have predicted over this year and the next couple of years that rental growth in these supply constrained markets could be as much as 15% to 20%. But that's at the gross revenue number line. And so when you look at the growth at the bottom line, it's actually greater than 20%.

So if you're using that 20% number it's not inconceivable that the NOI of $103 million could end up, over the next three years, in the range of -- I'm going to give you a wide range here, but somewhere between $130 million and $145 million or $150 million. And so that obviously has significant impact on the value of those properties if you have cap rates that stay constant at the levels that they're at today.

And cap rates -- the first apartment building that we bought in this cycle in the latter part of 2009, that apartment property we bought at a 8-percent-plus cap rate, very high quality property in a very good market in Seattle.

And those cap rates in that market have compressed down into the 5% to 5.5% range. So, depending on what metric you want to -- choose to value these apartment assets, us and all of our partners assuming the rental growth rate continue and assuming that the cap rates continue at the levels they're at, we've built up significant equity both on and off our balance sheet in that portfolio.

And in terms of thinking about potential disposition value down the road, how should we think about the range for promotes increasing the equivalent ownership for Kennedy-Wilson?

Well, it's -- that's obviously a time-driven sensitivity. The shorter timeframes are, then the greater your returns are, create a greater per [malt].

I would say generally speaking, unless there's a strategic reason, we're not in a big hurry right now to sell any of the apartment buildings because, as I just mentioned, if you've got the kind of rental growth rates that we think are going to happen, really the focus for us right now in that business is to just asset-manage the heck out of those properties both at the revenue line and the expense lines and wait for the right time to do the dispositions.

We are selling one property right now in Seattle, which is this property that I had mentioned to you that we acquired in 2009. The ownership of that asset sits in Fund III, our third fund, which we own 12% of that fund.

The cash flow out of that property has been so terrific the couple of years that our equity account in that asset is actually fairly close to zero. And so, there's going to be a meaningful gain in that asset, which will translate into a gain at the ink level this year.

But other than that and one other apartment asset, we don't have any plans in 2011 to dispose of any of the apartment buildings. It's premature in our view, given what's happening with the kind of underlying fundamentals in these markets.

Sure. And then just last on Japan you mentioned some of, I guess, the initial assessment. Could you may be run down where some of the properties are by value and I guess just any other details you really have on that?

Yes. I mean, Miriam -- Mary Ricks at Kennedy-Wilson is on the line with me. I'm going to ask her to jump in here. But, the vast majority of the properties by value are in Tokyo, which is roughly -- I'm not trying to play geography, but it's roughly 200 miles away from -- it'd be the equivalent here in California of kind of being halfway from San Francisco to LA.

But, Mary, do you have any more thoughts on that?

Yes, sure. The breakdown roughly is -- as Bill said, it's about 70% in Tokyo of our assets in terms of value and then 20% in Osaka, which is even further away from Sendai. We have a very, very small piece of a portfolio in Hokkaido, which is north from Sendai, and then we do have one asset, which the total value is $4 million in Sendai. It's totally fine. There are no issues. It's operating normally. The tenants haven't had to relocate, so we were very, very lucky.

Okay, great. That's very lucky. I think I'll jump back into queue and let some others have a chance to ask questions. Thanks.

(Operator Instructions). And your next question comes from the line of [Rishan Ratura] from JMP Securities. Please proceed.

Hi, good morning.

Hi, Rishan.

Hi. How are you?

Good, how are you?

Just following up on [210], thank you for that update. Just wanted to know, I guess if I'm calculating this correctly you mentioned roughly 20% of the 12,000 units are located in Japan. So, that would imply approximately 2,400 units. Is that right?

Correct. Yes. That's exactly correct.

And just in terms of those units and the 50 buildings that you have there --?

Yes?

What type of insurance coverage do you have for these type of events? And do you expect those premiums to go up if you do have coverage, and if you could talk a little bit about that?

Yes. I mean, I think it's a little -- I don't know what's going to happen as far as the increased insurance premiums in Japan. I have no idea what's going to happen there.

I would say that, without getting into the details of all the insurance, in general we have a very complex but big insurance program that covers all of our assets. And it's extremely technical; I'm not even sure I can explain it, based on earthquake zones and so on and so forth. But, suffice it to say that we've got big insurance coverage.

We have a national firm that handles all of our coverage. Offline, I'm happy to kind of have you go through that with Barry Schlesinger, who really is a -- the fellow here at KW that's in charge of our -- all of our insurance activities. But, it -- it's a complex -- as you might expect with as many properties as we own, it's a complex set of policies.

I would say that although we have not, fortunately, over the years -- I've been here for 22 years. We've had -- we've hardly had any claims on our insurance policies. The few claims that we've had on our insurance policies have all related to more fire damage than anything else.

Then, in the, occasions, where that's happened we've gotten 100% of the proceeds that we needed to rebuild the property. In fact, I -- in over 22 years I think the total claims that we've had against our policies for any damage has less than $5 million, and that's over $10 billion worth of assets.

And so, we -- you know, we've been very lucky and on the surface would appear to be very lucky right now. Our staff, and I'm not trying to play media expert here, but our sense in talking to our people is that with the exception of obviously the great concerns that are going on around that nuclear power plant and the issues related to that, that everything has started to settle down in Japan.

But obviously, there's some big, big issues that are going on related to that. So, we'll all just have to sit and wait and see what happens here over the next few days.

I mean, look, I'm not trying to be Pollyannaish about it at all. I've had a little -- and when I was in my 30s in the banking business I was a lender to General Public Utilities, and they had the meltdown at Three Mile Island, of course, here in the United States.

And a lot of the same concerns and rightful concerns went on during that period of time and, fortunately for everybody, we were able to get that all under control. But, how this is all going to turn out obviously nobody can predict at this point. But at the operational levels of our properties, everything is fine right now.

Okay. Thank you. And transitioning over to the multifamily space, in your press release you mentioned you acquired $215 million of multi properties -- multifamily properties so far this year.

Yes.

What portion of that is in your investment account? What portion of equity is attributable to --?

Well, none of that is in our 2010 investment account, so that'll all get added this year. And so, if you look at this year and you say that at the end of last year plus or minus our investment account was roughly $370 million, if we execute on our business plan for this year properly and we don't have really any significant dispositions that we're doing, I think at the end of this year you can expect that investment account to be up somewhere about $500 million.

And then, as I said earlier, one of the kind of concepts or precepts that we've always run the Company around was not only preserving that book value number but also growing that, what I'd call, off-balance sheet.

Historically in the dispositions that we've done over the years, we have -- we've returned 1.7 times our capital invested to our investors. And at the ink level, because of our promotes that number typically ends up being higher than that. And I'm not predicting what that will end up being, but it'll be a number that's above, well above, the book value that we'd carry on our books.

Okay. And, you know, we appreciate the new adjusted EBITDA calculation in terms of breaking out the different segments. The question I had related to that was if we're looking at the services business --?

Yes?

And if you were to spin off that business, just for argument's sake, how much of that corporate overhead could we attribute to services and investments? I know that may not be easy to do, but if you could -- if you could quantify, that would be great. If you could even qualify, that would be appreciated. You know, how would you kind of look at that, you know?

Well one -- the comment -- the one comment I would make to you -- and I think if you look at our 10-K for this year, what we are trying to do, and I think we did a much better job of it this year, is really to kind of simplify not only the description of our company, but hopefully give you more information in our reporting that we have done historically.

Matt, I -- I don't -- to answer that question --

In terms of the corporate overhead, it's really -- the debt overhead is really for the holding company until if we were to hypothetically spin off the service business, none of that would have to go with the service business.

But whoever acquired that business will, you know, either have that overhead themselves already or be able to run the business with no additional overhead. So it's a public company cost and things of that nature.

Then, sorry, my final -- my final question is related to warrants. If you could comment on, you know, the repurchase --

(inaudible - multiple speakers)

Of the year for 2010 --

(inaudible - multiple speakers)

In -- in that space.

Yes, I mean, we -- we started -- and I'm going to round these numbers, Sean. I won't be exactly correct. But, 2009, we have roughly 31,250,000 warrants outstanding. Through the merger, we bought back roughly half of that. We reduced that down to 16 million to 17 million warrants. Since then, since the beginning of 2010, we've reduced that warrant countdown to roughly 9.5 million.

So we haven't announced a program in the market that allows us -- what's the exact amount? Do you guys remember?

I think it allows -- we -- we bought back roughly 7 million warrants since the beginning of our buyback. We're authorized to go up to 12 million. So there's another 5 million that we can repurchase, depending on, you know, our cash situation and pricing and all of that without going back to the Board to seek additional authorizations.

Thank you. I'll give someone the opportunity to ask more questions.

Thanks.

Your next question comes from the line of Rob Walter from Atlas. Please --

Good morning. Thanks for all the additional disclosure in the 10-K. But going back to the promote question, while you're not -- while you don't plan on disposing any assets, there is this off balance sheet value that's not captured in your equity investment, as you noted.

Can you give us a better -- you know, it can be -- can you give us a range or some relative size that could help us get a better understanding of what that value might be, you know, at this point in time?

Then you can update us on a regular basis so we can get a better handle on, you know, discerning value here. My sense is there's a lot, and we can't -- it's not captured in the current valuation.

Well, I mean, the only thing I can do, [Robert], is really kind of coach you to what we've done historically. We've been doing this here now for 22 years. But it is laid out in the filings and everything.

Our returns have been at the way upper end of the tier for real estate investing companies over a 22-year period of time. As I said earlier, kind of what I was leading to was that, you know, typically -- and it's no forecast of the future; I won't underline that five times -- that typically we have returned twice what our -- what I call our general partner investment account has been two times or greater.

So on some of these assets, you're going to -- you're going to have that plus among others, you know, you might be -- but historically it's done, you know, somewhere around that range.

To our investors, we've typically returned 1.7 times. But to the GP side, which is us because of our promotes, we've earned better than that.

But I never really like to, you know, forecast future gains because it -- it's just -- it's problematic, depending on what the -- what's happening in the markets and so on.

Sure.

But one of the key things in terms of, you know, measuring anybody's investment success is, you know, what are you getting back on top of what you invested. You know, we're no different in that area.

You know, I -- it's no metric of the future. But like I was trying to say on this property we're selling in Seattle right now, we have almost no capital account in that because the cash flows that we've been distributing out of that have gone to reduce the capital account on that.

So the gain -- whatever gain it is we get on that asset, you know, whether that's $15 million or $20 million, that's all going to be profit on top of no equity invested.

Okay. You have, did you say, approximately $300 million in change of investments in the capital accounts?

$364 million.

$364 million roughly.

No, $370 million rounded; and last year --

That's all at book at what you put it in? That's not marked up?

That's at book.

Okay.

So, last year, we grew that investment account that you and I are talking about right now from $212 million to $364 million, which was, you know, our share -- well, let me back up just a second.

We bought slightly over $2 billion worth of real estate last year. At the property level, we financed that with approximately $1.3 billion of debt. So the equity that went into those deals was roughly $700 million.

Our share of that is the increase that we took from $212 million up to $364 million. So not only did we, you know, invest a significant amount of our own money last year, but we raised a significant amount of capital from third party investors to execute on this $2 billion acquisition program. But to answer your question directly, that the -- our investment account is roughly $370 million.

Just so I understand -- I think you said earlier. I just want to make sure I -- that you expect to make an additional $150 million, $200 million of equity investments for the Kennedy-Wilson account over the course of 2011.

That's correct. I --

Will you have to -- will you have to go raise -- will you raise additional equity from your investment partners that will co-invest in that? Or has that already been raised during this year as you went out and -- you know, you have additional fire power from your investment partners?

It's a combination of both of those things. I mean, we have been very fortunate to have very strong capital partners that have, you know, plenty of capacity and want to do more with us. I think, you know, on our road show in 2009, what seemed to be the recurring question for everybody was can the Company, you know, raise capital to do their investing activity.

What I told everybody on that road show was that, really, the bigger issue was we -- we've always had tremendous deal flow here. So the you know, the biggest issue in my mind was really to continue that level of deal flow.

I feel very confident that we could raise the capital that we needed to invest because it -- you know, what we did last year, I think, to put it in context -- and I don't have any way of having exact statistics -- but we were certainly one of the largest acquirers of real estate in the country last year, not just here on the West Coast, but in the US.

I think we've demonstrated the, you know, capacity to find equity to do our deals, both at the holding company level and at the partner level.

So, as I said earlier, at the end of this coming year, I expect our investment account to look somewhere around $500 million, plus or minus. That will be part of another couple billion dollars of acquisitions that we do this year with part of that coming from us and part of it coming in the form of equity, roughly the same $700 million from us and our partners in 2011.

Okay, great (inaudible).

That would put us at the end of 2011, having executed on two-thirds of the plan that we've laid out in 2009. We would have used roughly $1.5 billion of equity during that period of time, 2010, 2011, roughly equal amounts in both of those years.

Our pipeline, as I said earlier, that we're underwriting, evaluating, so on and so forth, you know, supports the same level of acquisitions that we plan to do for this year. We've already closed roughly $215 million in the first two months of this year.

Okay. I guess jumping to the service side of your business and looking at as you talked about your optimistic outlook for 2011, can you tighten -- can you help us understand how much the $9 million could grow?

I mean, I understand the -- the auction business is much lumpier. Your management business will grow in line with your -- I assume we can assume it'll grow in line at least with your asset -- your investment growth.

Yes, I mean, again, we don't -- I don't want to be forecasting, you know, earnings here. But, you know, it's obvious that if our investment platform continues to grow at the level that it's at that you're going to see meaningful increases in our service income just like we did in 2009 to 2010.

It feels like, you know, our auction business is going to have a very good year this year. I think that the -- unlike what happened in '91 and '92 where, because of this clearing mechanism that was set up, the Resolution Trust Corporation, really, the cleanup that happened in '90, '91 and '92 really was a very quick cleanup of the real estate problems in the US.

By '93, '94, it was all over. Then we went into, you know, what turned out to be almost a 15-year up cycle in real estate business. You know, it's our expectation, really, that because of how this cleanup is being handled, we've only had, I'm rounding, roughly, you know, 300 plus banks closed in this cycle versus the last one, that you're going to have a longer run here of -- of cleanup.

You know, I think it could last as much as another three to five years of -- of -- as we transition real estate from one ownership to another. I mean, you can read any -- I was looking at this commercial mortgage (inaudible) this morning, not meaning to as a plug for anybody, but you just look at the level of activity that's going on in the business right now with -- with sales and debts changing hands and debts being raised.

It's accelerated, you know, really greatly since the beginning of -- since the middle of -- well, the beginning of 2010. There's a lot more activity going on in the disposition side now than there was at the beginning of the last year.

You seem to be well positioned for it. A quick question; going back to your Seattle property --

Yes.

Was that on -- in the investment count at zero, given you basically had all the distributions back? Are there a lot of -- how many other properties are like that? Or, you know, is that an unusual situation?

It's a little bit of an anomaly. But it is in our investment account at zero. But, remember, in -- it's in a fund structure, Fund III that we own 12% of. We have obviously promotes on top of that.

But it is in our investment account at zero. But it's a little bit of an unusual situation because we had so much cash flow off the property. We had variable rate debt at the property level that was paying an interest rate of less than 2%.

So we had very strong cash flow at the property level, high occupancies, very low interest costs. That allowed us to really repatriate most of the capital, what was invested in that deal, back to the investors just through the normal cash flow of the property.

Interesting. Thanks.

Ladies and gentlemen, due to time constraint, we have time for one more question. Your next question is a follow-up from Jason Ursaner.

Hello. Thanks for taking the follow-up. In terms of the questions on the value of the multi-family, do you think some of the cap rate compression, based on trailing numbers, is due to visibility and anticipation for strong rental growth in an NOI growth environment?

Yes, I think, Jason, it's a very good point. I think it's driven by probably three key factors. Number one, we're in -- there's no -- virtually no new construction going on in any of our markets. So that's constraining supply.

As I mentioned earlier, people are less inclined to buy houses today than they were three years ago. So that's increasing the occupancy levels at the property. So that -- those two metrics are allowing everybody to increase their rents.

A year and a half or two years ago when, you know, we were at the, you know, what I would call the bottom of this market where rents were down 20%, 25%, you were concessioning at the property level, you were doing free rent to get and keep your tenants there.

All of that has gone away -- and -- across the board. It's not just us. You know, across the board, you're seeing rent increases on renewals and new leases.

So it's the supply constraint. It's the lower level of home ownership. Fortunately for us, you know, we have -- we're in well-located areas that -- and I think this is one thing that, you know, people really underestimate here.

I don't know, really, how it is in other parts of the country. But here on the West Coast, the entitlement process of getting new properties approved, even if there was construction financing, is extremely difficult in these, you know, what I call land-constrained areas, to get properties entitled. In some cases, it can take, you know, five years to seven years just to get an approval to build a property.

So, what our, you know, key -- there are many key metrics to it. But if you look at everything that we've bought in the last year, we bought it well below replacement cost. We've obviously condensed the time frame, and we've taken no entitlement risks associated with getting any of these properties approved.

You know, we've run a good high-quality level of property. So that's allowing us now to, you know, take advantage of, you know, what's the growth in the number of people that want to rent.

So that all, combined with debt financing being -- I'm using the word readily, but it is -- it's readily available now at the property level. The Fannie Mae government agencies the insurance companies to a lesser extent, the banks, but the insurance industry is now making financing available at the property level. The CMBS market is coming back somewhat.

So you've got -- you've got more liquidity, more renters, not -- no growth in capacity. So the cap rate compression is being driven by all of those things that will create the expectation that you're going to have a bigger bottom line over the next three years.

Ladies and gentlemen, this concludes the question-and-answer session. I would now like to hand the call back to Mr. Bill McMorrow for closing remarks.

Well I'd just like to thank everybody for participating and supporting us. As I said, I think we had a very good year this year. Hopefully, we'll be at the same place at the end of this year. So thanks very much for your support.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.