Kennedy-Wilson Holdings Inc (KW) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2011 Kennedy-Wilson Holdings, Incorporated conference call. My name is Erin, and I'll be your operator for today.

At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions)

I would now like to turn the presentation over to your host for today, Mr. Bill McMorrow, Chairman and Chief Executive Officer of Kennedy Wilson. Please proceed, sir.

Thank you, operator, and good morning, everybody. I'm going to begin, as we always do, by going through the release itself, and then we'll open it up to questions for everybody. And I'm going to give you some additional color as we go through here today, particularly on our balance sheet and the strength of our balance sheet today.

But, from the top of the list here, our EBITDA for the past 3 months was $17.5 million, and for the first 6 months of the year was $32.6 million, and that compares to $24.8 million and $30.6 million for the same period in 2010. And I might also add in there, I think as most of you know, that we've been in a mode of really not selling any assets through this period of time as we've been aggregating, and so that -- those numbers reflect virtually no investment gains from the sale of any assets that we own.

The second part of what I want to talk about here is really our balance sheet, and as I've said to everybody on any road show that I've been on, we're hyper-focused on maintaining a very strong balance sheet. At the end of the second quarter, we had $191 million of cash, and our total assets in the Company exceeded $700 million for the first time in our history.

The other thing that is somewhat masked in terms of our cash position is that we have about $100 million, plus or minus, of cash at the JV-end property level. We also have $100 million of cash unused at -- in Fund 3 and Fund 4. We have an unused line of credit of $75 million, and we have separate accounts that we can draw on where there's cash.

And so, if you just look at the direct cash that we control and you add up the $191 million, the $100 million at the JV property level and the $100 million of the unused cash at the fund level, plus our line of credit, the Company has available to it for investment purposes on our side of the transaction almost $500 million worth of cash, which is by far the highest level that we've ever had in the Company, and that's after executing on the purchase of almost $2.8 billion in new acquisitions since our acquisition cycle really started at the beginning of 2010.

Our investment account now sits, at the end of the quarter, at $459 million, which is an increase of almost $96 million since the end of the year. On a current basis, as of today, our investment account sits at $461 million. The balance sheet, which, as I said, we focus very carefully on, our debt-to-work ratio in the -- on the balance sheet is 0.8 to 1, and that's less than 1 to 1.

On the service side of our business, our assets under management at the end of the quarter increased to $10 billion. And if you look back to the beginning, as I said, of this acquisition cycle and use 2010, the beginning of 2010, as your starting day, we've increased our assets under management by almost 100% during that period of time.

The auction division sold $180 million worth of properties in the first half of the year in California, Washington, Oregon, Florida, Texas, and North Carolina.

In Europe, as we've announced, we've launched our platform in Europe with a closing at the end of the second quarter of the acquisition of the asset management division of the Bank of Ireland's private wealth management group. That acquisition came with $2.3 billion of assets under management, primarily located in Europe, although there are 2 assets here in the United States. There's 19 properties, so they're very large properties.

Also, in addition to that, the most important part of the acquisition is it came with 13 very talented people. And for those of you that have been involved in our Company since -- going back into the '90s when we started in Japan, what's critical in order to execute any kind of a plan where you're either disposing of assets on behalf of financial institutions or acquiring assets, you have to have people on the ground. We started in Japan in 1994 with just a guy and a secretary, and by the end of the decade we were up to almost 100 Japanese nationals in that Company, and then, off of that, took Kennedy-Wilson Japan public there in 2002. And so, this, in a certain respect, is just an instant replay of what we did in Asia in the '90s. And as everybody knows, the European banking system, in general, has an awful lot of assets that they're going to have to figure out a new home for over the next 5 years.

The second transaction that we were involved with, which actually closed at the end of July, was we were instrumental in assisting in the recapitalization of the Bank of Ireland. And inside of a 30-day period of time, from a variety of investors, we raised $1.5 billion of equity and got paid -- here in the third quarter we'll be getting paid what I would term a significant fee for acting as an advisor in that transaction.

If you look at the EBITDA metrics for the first 6 months of the year, we achieved an adjusted EBITDA of $32.6 million, which was a 6.5% increase over the same period of time in 2010. During the first 6 months, the investment segment achieved an EBITDA of $30.5 million, which is a 10% increase over the $27.7 million for the same period of 2010. On the service side, we had a slight decline from $3.4 million to $3.3 million.

Our acquisition platform, which we announced at the beginning of 2010 would aggregate roughly $6 billion over a 3-year period of time, continues to be on track. We have either closed or have under contract $738 million of real estate acquisitions. Our acquisitions since the beginning of 2010 have totaled $2.8 billion.

On the debt and capital market side, since November 2009 we've now raised close to $3.4 billion of either corporate capital or joint venture equity, which we've used in our investment platform. In April of 2011, we completed the successful sale of $250 million of senior notes that have an 8-year term.

Also, during the first 6 months of 2011 in our joint ventures or on consolidated assets, we completed $427 million of financing at the property level, both here in the United States and in Japan, and the weighted average interest rate of all of that was 3.14%.

As I've said on prior calls, particularly in our multifamily portfolio, what we've been doing is going out on a long-term basis on our financings. Here in the US, we've been doing anywhere from 7- to 10-year financings at fixed rates, and in Japan, as we announced here a week ago, we just closed the financing of $63 million for 5 years at 1.7% fixed for 5 years. And in Japan now, we have literally refinanced our entire portfolio there at an average interest rate of 2.3% fixed generally for a 5-year term.

If you look at the entire Company now and blend in the $250 million that we raised in April plus all the property level financings that we've done, our average interest rate is probably somewhere around 5.7%.

Also, in the second quarter we raised some additional common equity through the sale of 4.8 million shares, which added $51.4 million of cash to our balance sheet, which is inside that $191 million that I previously mentioned.

On the multifamily side of our business, that platform currently consists of 12,906 units inside of 78 apartment communities. The other point that I want to make about these 78 buildings is that we now have only 2 buildings, 2 buildings out of that entire portfolio, that are not financed on a long-term basis. We're in the process of financing those last 2 assets right now. They're both here in the US, here in Southern California. The total financings total roughly $80 million, these last 2, and to put that in perspective, at cost now our total multifamily portfolio is approximately $2.2 billion. So, we only have -- and that's roughly financed at $1.4 billion in total debt, so we've only got $80 million out of that $1.4 billion that's not financed on a long-term basis.

In terms of geographic location, 54% are located in California, 28% in the Pacific Northwest and 18% in Japan.

The portfolio continues to perform extremely well; we're at roughly 94% occupancy. The annualized operating income, net operating income, of that portfolio is $123 million. And particularly on the assets located in California and the Pacific Northwest, we're enjoying rent increases on any renewals. And we believe that over the next couple or 3 years, given what's happened on the declining ownership of homes in the those markets, that those rents are going to continue to show material increases.

The Company owns approximately 32% of the equity in that portfolio of multifamily assets, and in addition to that, on most of the assets, we have a promoted structure, which, in many cases, will take us up to around 40% of the ownership of the equity.

We -- although I mentioned that we've sold very few assets in the first half of the year, we did sell 1 apartment asset in Anaheim at a 4.8% cap rate. I would categorize that asset as really a B quality kind of asset in a B location. There continues to be cap rate compression in the multifamily acquisition side of the business. There was a significant trade that happened here in California here about a week ago, in Southern California, that was done at a 4.3% cap rate. There are apartment buildings, depending on the size and location, now that are trading below 4% cap rates here in California.

The other footnote that I would tell you is that the opportunities on the buy side for us are somewhat limited at this point because we are, obviously, not interested in buying apartment buildings that are yielding 4%.

So, having said that, all in all I think we had a very good first 6 months of the year. Our Company is, by far, in the best financial condition that we have been in. And as we continue to grow our assets under management, we are continuing to build our recurring fee income throughout the Company, and our service businesses and our investment platform are also adding to that recurring fee income.

So, with that overview, I'd be happy to open it up to any questions.

(Operator Instructions)

Jason Ursaner, CJS Securities.

Just first looking at the acquisitions year to date and the cash position, it looks like you're ready to find opportunities, but you also mentioned somewhat limited opportunities out there given pricing. So, how should we be thinking about the acquisitions in the second half, and are you unlikely to reach that $2 billion total even with a strong second half?

Yes, I mean, I want to really correct -- if I didn't communicate that clearly. What I -- I wasn't saying that there are not acquisition opportunities in other asset classes. As I think I mentioned on one of the calls, for example, we're in the process of closing almost $150 million worth of acquisitions of office buildings here in Southern California right now.

So, what I meant to say, Jason, if it wasn't clear, was that in the multifamily space only, where we own almost 13,000 units now, that there has been significant cap rate compression. And so, because of that cap rate compression, the returns that are available, the kind of returns that we want to achieve in our investing activity, that the metrics don't synch completely on the apartment side.

But, having said that, we're still looking at a number of apartment transactions right now and -- for example, in the first quarter, we've bought the largest multifamily asset transaction that's happened here for sure, here in the Western United States, 1,000-unit property that we bought in East Bay. And so, there will always -- I don't mean to paint it with a broad brush, but there will always be opportunities. But, what I'm trying to communicate to everybody is that we are being extremely selective in terms of the assets -- any asset class that we're acquiring to make sure that it still measures up to the return hurdles that we want to achieve.

And if you look back over the 20 years that all of us and I've been at this Company, we've always tended to invest at the -- with returns that are what I would call well above market returns. And so, longwinded, all I'm saying is that in the multifamily space, because the cap rates have compressed so much, I view that as having fewer opportunities, but we still have very high degree of confidence that the -- we will achieve the $2 billion in acquisitions for this year and that our plan that we set out for everybody at the beginning of 2010, which was to acquire $6 billion worth of assets over 3 years, will be achieved.

Okay, that's great --.

-- But, it might be in different asset classes other than the multifamily assets.

Sure. But, specifically, I guess, staying with multifamily, do you think some of the uncertainty in the markets could actually help potentially shake some assets loose, particularly in Europe? You mentioned assets that need to find a new home from banks where now you seemed to have built in some type of relationship.

Yes, well, it's a good point, and I -- as I was talking to everybody here at the Company this morning before I got on the call, as I said in '08, and I've consistently said it on every public road show or call that I've had, I really felt, having been -- this is the fourth cycle that I've been through personally, and I really felt that given the magnitude of kind of the global correction and deleveraging process that needed to take place that this cycle of opportunities was going to last longer than any of the other cycles, that it was going to last for anywhere from 5 to maybe as long as 7 years in terms of the buying opportunities for companies like us.

If you look at '91 and '92, in that downturn, that really corrected itself within a couple of years. So, I still feel very confident that there are going to be plenty of opportunities to deploy our capital at above average returns. The -- so, that's that.

And then, just, I guess, staying 1 more with the multifamily platform specifically, can you discuss a little more on your philosophy for managing the properties for NOI growth versus selling? And it obviously hinges on rental growth and cap rates holding, and you talked a little bit about what's driving rental growth in your core markets, but can you also talk about expectations for cap rates holding given the compression you've seen?

Yes, I mean, I think that there is a tremendous amount of capital, even at these cap rates, that has -- is available for multifamily investment.

And you have another factor coming into the market here besides the -- what I would call the public capital that's available, is that you've got significant amounts of what I call entrepreneurial capital that is capable of buying apartment assets up to $50 million to $75 million that's in private hands, individuals' hands. And with the interest rates and money market accounts and so on that banks are paying today, some of that is coming out of the system and going into -- even at a 4% return in apartments, that's basically fully sheltered because of the depreciation at the property level. And so, depending on tax rates and things like that, you've got somebody capable of earning a 5.5% to a 6% pre-tax return with rent growth happening. And there are many people that are saying on the west coast of the United States that over the next 3 years that you could see rent growth as much as 20% from where we're at today.

And so, our strategy right now is really to just manage the -- to asset manage the heck out of these properties, both on the revenue side and the expense side. And really, that's kind of what we're all about right now. We're adding selectively, we're buying 1 more apartment building right now up in the Portland area, but our real focus is growing that $123 million and align the apartment level up to, hopefully over the next 3 years, into $140 million to $145 million range. And we think that cap rates in the multifamily space will continue to be strong during that period of time.

As I've also said on a number of occasions, because of the timing of when we started buying these multi -- the first multifamily asset that we bought in this cycle we bought in 2008, and the cap rate that we paid at the time for that asset was slightly over 8% -- very high-quality asset in the Seattle market. And so, because of the timing of when we were able to buy the majority of our assets, we have a very meaningful gain at these current cap rates baked into both our share and our JV partners' share of the equity.

But, our plan is to -- through the balance of this year for sure, is to really not sell anything. We've got 1 small asset that we're in the process of selling right now, but -- 2, actually. But, in the main, our strategy is to hold these things through the end of this year for sure.

Okay. And then, just last question for me. Can you speak at all to how the Bank of Ireland real estate acquisition led to you participating in the recap and what, if any, fees the Company may be looking at for acting as an advisor on the deal?

Well, I think it's like anything in our business, it -- there's a philosophy that kind of every deal leads to another deal, and that's what happened. I made my first trip to Ireland in December of last year and had 25 meetings with a variety of banks, lawyers, accountants, and so on, and it became very clear to me that with the setting up of NAMA, which is their equivalent of the Resolution Trust Corporation, where they transferred EUR100 billion of assets out of the Irish banking system into this liquidation agency with almost 50% write-downs to original cost, that our experience has been in the financial system that once write-downs are taken that a liquidation process can start.

And so, as we looked around, we fortuitously found inside the Bank of Ireland their asset management group, which took us a little bit longer to close than we had anticipated, but we closed that at the end of the second quarter. And as part of that process, obviously, we got to be, I would say, friends with not only the senior people at the Bank of Ireland, but also with many of the senior government officials in the country.

And at the fundamental root of it, in our view anyway, Ireland has a healthy underlying economy. You've got almost 500 US multinational companies that have some form of operation in Ireland, you've got a favorable tax structure, you've got a meaningful export income, and so as we looked around in Europe this seemed to present opportunities for us.

The transaction that we were involved in recapping with -- in the middle of June, roughly, the Bank announced a EUR4.2 billion capital raise to strengthen their equity base. And as part of that capital raise, it included roughly EUR2 billion of rights -- a rights offering that was offered to the existing shareholders. And so, when you look at the recapitalization that we played a role in here, which was a raise of slightly over EUR1.1 billion, part of that was taken up by the shortfall in that rights offering and part of it was taken up by a sale of some of the stock from the government of Ireland to the individual investors in that group.

That -- the start of -- like anything in our world, the start of that transaction really came out of a meeting that I was having with the senior management of the Bank on the last day of the quarter when we closed our deal. I went to thank them for all the support that they had given us in buying that asset management business and the conversation just progressed into this. We were listening. We viewed it as an opportunity.

We were able to, then, kind of bring together a group of investors that both the Bank and the government, because the government -- just like here, the government in Ireland is playing a significant role in making these decisions for recapitalization of not only the banking system, but the country. And so, at the end of the day, there are only going to be really 2, what they call, pillar banks that are left in Ireland, this one that's now 15% owned by the government, slightly over 15%, and Allied Irish Bank, which is almost 100% owned by the government.

So, it was really -- it started out of that simple meeting, and then us, I think, having the sense to see that there was a transaction here that we were able to assist in putting together.

But, as far as the fee part of that, that'll show up here in the third quarter. I'm bound by certain agreements and so on, but I can tell you that it's certainly -- in my 22 years at the Company, this will be the largest individual fee that we've ever earned.

Will Marks, JMP Securities.

I wanted to first ask on -- you just mentioned -- you were referring, I believe, to the fee, that it's the largest in your history. You're talking about the fee to put the deal together, is that correct?

That's correct.

Okay. All right, moving on to some other things, the -- on the apartment portfolio, I'm just -- get a little nitpicky there. I want to compare the first quarter professionally to the second quarter. And your occupancy dropped from 96% to 94%, but your debt level looks like it dropped from $1.5 billion to $1.4 billion, and then the equity interest went up from 30% to 32%. So, if you could just go over that, please.

Yes, the -- okay, so, Will, don't hold me -- and Matt can follow up specifically with numbers, so I'm doing this a little bit from the seat of the pants here right now. But, the occupancy declines were --which were modest, were based almost entirely in Japan. And if you look at kind of what went on in Japan, really, from the end of the first quarter to the end of the second quarter, they were obviously dealing with lots of issues in Japan relating to that nuclear reactor and so on and so forth. And even though 75% of our properties in Tokyo -- are in Tokyo by dollar amount, we did have some decline from roughly -- it was 96%, Matt, I think, at the end of the second quarter, and it went down to 94%, and so that was really where most of the decrease was. But, as of the end of last week, our occupancies in Japan went back up to a little over 95%. So, that's really where most of the occupancy decline came from.

Now, as the debt reductions are concerned, we sold 1 property in the second quarter, and then we -- on 1 of the refinances that we did in Japan at the very, very end of the quarter, we put some more equity into that entity. And so, I think that most of the debt reduction can be explained by the sale of that 1 asset, which I think, Matt, was about $43 million in total size. And then, the -- well, I've called it recapitalization of a couple of -- not recapitalization, but the additional equity that went along with the refinances that we did.

Then, the last part of your question, the ownership interest from 30% to 32%, it just has to do with the equity that we've contributed to the various partnerships during the quarter.

And on the last piece, I'd really ask Matt to kind of go through that with you in more detail.

Okay. No, that's fine.

I -- on the overall apartment portfolio, did you give -- I don't have the press release in front of me. Did you give a cash --is there a meaningful cash position as well?

Yes, if you let me just grab 1 thing from my Board meeting here, it was a few days ago, the -- if you look at the -- what I'm calling now the balance sheet. We roll up the balance sheet of our multifamily portfolio on a global basis, and at the end of the second quarter, as I said, our assets -- our total assets at purchase price were $2.169 billion, so just, for rounding sake, say $2.2 billion. Inside that multifamily portfolio, we have about -- including escrows and reserves, we've got about -- I'm adding it up while I'm talking here. We've got 48 -- we've got almost $70 million of cash just inside that 1 platform.

And that's what I was trying to explain, really, at the beginning of the call, Will, about how confident and comfortable I am with everything that we're doing right now because after buying $2.8 billion of assets, we still have almost $400 million of discretionary cash that we have control over, excluding our line of credit of $75 million, so almost $500 million of cash.

And those of you that I've talked to on the road shows, I started here in 1988 with $50,000; that was the whole capital of the Company. And so, when you look at where we're at today, and if you look at our multifamily portfolio, 78 assets, and we only have 2 financings left to do, the cash we're sitting on, and I think to the point that Jason made that I didn't really address clearly is that there's certainly out of this whatever you want to call it that's going on in the world right now, whatever you want to call it, overreaction, reaction, there will be things that fall out of this. And just like we did in 2008, when I said to everybody this would really present the greatest opportunities we had seen in my career, I still believe that over the next 3 to 5 years, given the pressure on the financial system to continue to de-lever itself, for those companies that are well capitalized, like we are, with access to capital from our separate accounts, in addition to the capital that we control, you're going to have significant buying opportunities.

A couple of other things. One is -- I definitely appreciate the detail on the apartments helping us value that part of the investment portfolio, but on the rest, which is, I guess, roughly half, maybe a little less, is there any way -- I mean, we know that most of it was purchased in the last couple of years. Is there any other way we can think about the appreciation of that portfolio?

Well, I think what you should think about in the rest of the portfolio, if you --let's say, for example, let's go to the note part of our business. The real -- we've acquired about -- not quite a third of the acquisitions that we've done in this cycle have been debt secured by real estate. And what I can tell you is that in virtually every case the original underwriting that we did, both the profit and the return of the equity and the timing of the return of equity, we're running anywhere -- right around 10% ahead of those original forecasts.

If you look at the first big loan portfolio that we acquired in February of 2010 -- and I'll just -- I'll give you a couple of numbers. That had an unpaid principal balance of roughly $342 million. We bought that portfolio in a joint venture with Deutsche Bank for roughly $200 million. When I look at that -- we financed that with $130 million of debt from Deutsche Bank and then $70 million of equity. In the $70 million of equity, Kennedy Wilson put up roughly 15% of that equity. When I look at that now today, just 15 months later, the $130 million piece of debt on that portfolio has been paid down to $14 million, and by the end of the third quarter, it'll be completely -- it'll be at zero.

We -- as I said, we're running about 10% ahead of what our original forecast was on the collections, and so I think that the good news for the shareholders here is that the loan portfolios particularly that we've been buying have been performing ahead of our original underwriting and within the timeframes of what we originally forecasted.

What is -- what I like so much about the debt purchases that we've been able to do is that typically that cash gets returned to the investors inside of 24 to 30 months. And so, when you look at that -- in addition to the cash that we currently have on hand, we're anticipating roughly another $40 million to $45 million worth of cash coming in this year into the Company, partly from the final settlements on that first big loan portfolio that we acquired in February of 2010.

I would tell you also that all of the other individual note purchases that we've made, say, secured by a condo building or secured by an apartment building in one case in Northern California, they're all performing above our original underwriting.

A good example, too, was we acquired the debt in October -- November of last year on a very large condominium -- project built as a condominium in San Jose, which is one of the best apartment markets in the country. But, when you look at how we bought that, we bought the debt, and we ultimately ended up foreclosing out the equity. We own that asset now at basically 50% of replacement costs. We actually took title to that property in April. And I was looking at the numbers yesterday; out of the 213, 215 units, in 4 months now we've rented almost 100 units in that building at about 5% to 8% ahead of our original per-square-foot underwriting. And so, we'll have that very, very high quality 20-plus story high-rise building in downtown San Jose that we're probably not going to see built again for 10 to 15 years, we'll have that fully leased by the end of this year.

So, I think the other way to think about -- in a longwinded way, to think about the valuation of our investment account is to really kind of digest what I just said about our note portfolio acquisitions. But, I can tell you that when I look through, really, our entire investment account that there's nothing in there that I'm not very comfortable with or that we've got any issues with.

And I think I may have said to some of you -- like, for example, we bought a condominium project in downtown LA from one of the large banks here in Southern California that we closed on in the -- was it the end of the year, Matt? So, we bought that Santee core project at the end of the year, and it's in a little bit of a fringe area in downtown LA. We, in part, capitalized that with a $27 million acquisition loan. And now, as I sit here at the beginning of August, we -- through the sale of condominium units, we've actually paid off the entire loan.

So, the other thing, too, to remember about our balance sheet is that for the first time in, really, 22 years I've been at the Company, we own a fair number of assets in our Company that are completely unlevered; we don't have any debt on them. So, in addition to the cash that we have on our balance sheet, the lines of credit, the unused cash at the property level, we have, plus or minus, another $80 million to $90 million, maybe a little bit more, of unlevered owned assets that we own inside the Company.

So, I think by any measure, when you look at our investment account, our balance sheet and so on, I mean, I -- we just -- we're in an extremely strong position right now. And so, the key is to asset management the heck out of the investments that we already have, and then continue to pick our spots prudently on the redeployment of the cash that we have available to us.

Jonathan Feldman, Nomura Securities.

A couple of questions from my end. Can you give the EBITDA quarter-over-quarter comparison if you exclude the one-time items from last year's first quarter?

Jon, I'm happy to do that. I don't know if I can break it down for you here, again, just doing it from the seat of the pants, so to speak. But, I'm happy to have Matt do that with you, if you don't mind, Jonathan.

Well, do you think the numbers would have been essentially flat, off a couple million from a reduction in the services business? I mean, I'm just looking, maybe without exact quantification, to get a sense of the year-over-year comparison.

Hey, Jonathan, it's Matt. I'll take you through it offline, but, overall, if you take out the DPO gains from the first -- the second quarter of last year, we're significantly higher this year than last year on a quarter-by-quarter basis. But, I'll be happy to walk you through it.

Okay, that's helpful. We can take the detail offline.

And then, just was wondering if you could give any more color just in terms of what you're -- how you think the Bank of Ireland transaction sort of fits into sort of broader objectives you have in terms of sourcing real estate opportunities going forward?

Yes, I'm happy to, Jonathan. Yes, the -- as I said earlier, you really -- as a shareholder, what you have to think about here is that when we started here in 1988, we had 1 business, the auction business, with 11 people in it. And the thing that I learned, and I think we all learned, out of going to Japan in that cycle of the '90s where they were liquidating assets not only in Japan, but, as importantly, here in the United States, that building that platform, like we did there with the people on the ground, allowed us to make a significant amount of money, not only in Japan, but also here in the States because we were acting as a broker on assets that they were liquidating here in the States, but we were also buying things from them here in the States whenever they wanted to do off-market kinds of transactions.

And I got asked, I think it was last week, by somebody when I was talking to them -- what's really the secret sauce at Kennedy Wilson? And the secret sauce here is that you have to be able to access off-market transactions that are not widely marketed to other people because, in spite of what's going on in the world right now, there's significant amounts of private equity capital that are willing to compete on a bid kind of basis, which is historically not been how we've acquired our assets.

What was important to us in terms of the acquisition of the asset management company is that it came with a -- unlike Japan, where we lost money there for 4 years after we started that up because we really didn't have any income stream, the Bank of Ireland acquisition of that asset management group came with an income stream that supports the overhead of the entire group, plus makes a profit. And so, we were able to put in place a very talented team of people with, basically, no net cost to Kennedy Wilson here in the States. And so, now we have a team in place that can go look inside and talk to all the banks.

We've had -- for example, we've had our auction division people over to Europe talking with banks now. And so, just like we've done, we approached these banks with our service business, our auction business, our asset management business, and off of that we find things to buy. So, we've had our auction people over to visit with banks. We've had our debt -- Joan Kramer, who runs our debt purchasing business, has been over to Europe with -- along with Mary Ricks, visiting with various banks, educating the new 13 people in the Company how to go about looking for debt purchasing opportunities. Bob Hart, who runs our multifamily group, has been there educating people. And so, now we have a team in place that we can access the European banking system.

And as I said on a prior call, too, in addition to the things that the European banks have in Europe, they were significant lenders here in the United States. And so, you've got a very meaningful amount of US assets that were financed by a whole variety of European banks.

So, that was -- the whole thought process behind doing this was similar to what we did in Japan, but we got the added bonus here that we actually have an income stream in place that supports all of the overhead.

Got it. Okay, just 1 follow up on that point. Can you just -- I get it in terms of the actual asset management business, but just in terms of the recapitalization itself, can you just talk to how that separate transaction you think achieves the same objectives you spoke to above and beyond owning the investment management business?

Well, I think it takes our Company to a different level. I mean, you have to think about the really extraordinary chain of events that happened where we meet with the senior management, and then this whole thing gets put in place and, really, in 3 to 4 weeks -- and I'm using the word help, and I don't know if that's the right word or not, but where we assist in the raising of a $1.5 billion of equity for the banking system and the Bank of Ireland. And if you think about, then, that the people that we were able to jointly, I'll call it, assemble in that transaction where you have Fairfax Financial and you've got Fidelity and you've got Wilbur Ross and you've got Cap Re here, being associated and involved in that transaction opens up other doors for us, not only on the capital raising side, but just other opportunities that present themselves. So, I think it kind of fits right in the sweet spot.

And then, I think if you put it in the proper perspective of us making our first trip to Ireland in December of 2010, to think that we're here today with a team in place of people with an income stream associated with those people, and then a very meaningful fee being generated out of the recapitalization of a bank, in a 6-month period of time we've put our whole platform in place and made a significant profit to boot. So, it's just -- it's been a really -- I would call it a remarkable kind of chain of events that's happened for us.

Got it. One -- 2 last follow-up questions. I appreciate your time this morning. And those would be, one, can you just talk about the private capital raise that occurred during the quarter and just the motivations behind it, particularly given the large amount of capital that you cited you think is still available to you? And then, I guess, my second question would be just around as you look at the opportunity set going forward, I'm curious to what -- where you're focused, either by asset class or geography, and if the events of the last week in terms of the capital market selloff have changed your thoughts in terms of where those opportunities may lie. Thank you very much.

Sure, thanks. Well, several parts to that answer, but we have really -- and I'm not saying we're, like, clairvoyant, but we've viewed the world with a lot of volatility here. And the -- anytime -- but, we're, I think, more than paranoid about making sure that we have adequate amounts of capital and cash and not significant leverage inside the Company or any of our platforms or any of our asset classes.

And so, we had an opportunity -- we have, in my view -- and anybody can have their own judgment here, but we have a very strong shareholder base. We've got the management team here that owns a significant amount of the capital. You now have -- you have Fidelity and Royce and I can kind of go on and on down the list, Elkhorn and Partners, all long-term investors that have been with the Company a long period of time.

And so, whenever you're, in our view, able to add capital and cash to the Company in these kind of volatile times, you really should take advantage of that, and that's what we did here at the end of the second quarter. When you -- you're always -- as they all say, you're trying to protect your downside here, and so I'm conscious, very, very, very conscious about making sure that we've got a liquid balance sheet on top of our investment activities.

The second part of your question about where are the opportunities, I have believed for -- since the beginning of this whole cycle that we would achieve the $6 billion over the 3 years. There's opportunities here in the US. We're looking at some things in Japan, but I don't know that there are any real opportunities there right now. But, we see a tremendous amount of opportunities, really, out of the European banking system and European banks that have lent money here in the United States.

And so, I'm not sure I can break it down. I think you're going to see some debt purchases that we do here over the next 6 months that are similar to that first deal that we did in the first quarter of 2010. The banks still have a ways to go in terms of de-levering their balance sheets. So, it'll be across asset classes, really, and if you look at what we've done so far, we've made big inroads in the multifamily assets, we've made good inroads in the debt purchases, we've bought some condominium projects -- we have 1 smaller condominium project that we're buying here in Southern California that we're closing at the end of this month. So, it's -- our pipeline is in good shape right now, but it crosses really all asset classes.

And there are no further questions at this time. I would now like to turn the call over to Bill McMorrow for closing remarks.

Okay, thank you all again for taking the time, for supporting us, and if there are any other questions that anybody has on here, I'm happy to talk with anybody, as well as Matt Windisch, on any follow-up items that you might think about after the call. So, appreciate your time this morning.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.