Kennedy-Wilson Holdings Inc (KW) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the second quarter Kennedy-Wilson earnings conference call. My name is Dominique and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question and answer session toward the end of the conference. (Operator Instructions). As a reminder, this call is being recorded for replay purposes.

I would now like to turn the conference over to Christina Cha, Director of Corporate Communications. Please proceed, ma'am.

Thank you. Good morning, everyone. Joining us on today's call are Bill McMorrow, Chairman and CEO of Kennedy-Wilson; Matt Windisch, Executive Vice President; and Justin Enbody, Chief Financial Officer. I'd like to remind you that this call is being webcast live and will be archived for replay. The replay will be available by phone for one week and by webcast for one year. Please see the investor relations section of the Kennedy-Wilson website for more information.

Please note that statements made during this conference call may be 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 will now turn the call over to Bill McMorrow.

Thanks, Christina, and good morning, everybody. And as I usually do on these, we're going to segregate this call into really two parts. I'm going to go through the press release that hopefully you all have in front of you, and then the second part will be the question-and-answer period.

But I would characterize this last quarter and, really, the first six months of the year as a very productive period of time. But I think the results which we'll go through, hopefully will confirm what I believe, that we're really in the strongest position we've been in, in the last three years.

So when you look at the operating metrics for the quarter, our EBITDA was $18.8 million, which was an 8% increase over the prior period of 2011. But when you exclude the non-cash remeasurement gain that was in the 2011 numbers, our EBITDA increased by 69% during the quarter.

For the six months, our EBITDA was $38 million, a 17% increase over the prior year. But excluding that same re-measurement gain, our EBITDA was up 45% on a year-to-year basis.

The investment account was $626 million at the end of the second quarter, which was a 7% increase over year end, but I think the important thing that I pointed out in the last call that you need to remember is that we're recirculating cash, obviously, both in and out of that investment account. So during the first half of the year, we invested either cash or income earned on our investments, $160 million, but we got $116 million of cash distributions from those investments. And as we'll talk about a little bit later, many of the investments -- the first half of the year was characterized by really the second quarter being the dominant quarter for investments. But many of the investments that we did in the first half of the year, the closings occurred in May and June. So the benefits that you're going to see from the recurring EBITDA, which was significant, that you're going to see are really going to show up now in the third, fourth, and subsequent quarters.

Then, when you look at the operating metrics of our investment business, we achieved an EBITDA of $17 million, which was a 2% increase, but again, talking about the exclusion of the re-measurement gain, it was up 65% on a year-to-year basis.

On the acquisition side, during the first six months we closed $889.5 million of investments. We invested $107 million of our equity, and additionally, at the end of the second quarter we had $514 million of investments under contract that we're closing primarily here in the third quarter.

So when you think about where we started three years ago, I said at the beginning of 2010 that our goal was to close -- and I really felt it was a fresh goal at the time -- we were going to close $6 billion worth of acquisitions. And so what we've done, including what we have under contract, now 2.5 years later, is $6.5 billion.

Then when you look at the main components of what we call the hard asset portion of our investment account, he now own slightly over 14,000 apartment units and approximately 3.6 million square feet of commercial real estate, primarily office buildings.

The $889 million, to break that down a little bit further, $788 million -- so actually $789 million of that was income-producing assets of which 70% was located in the Western United States and 30% was located in Ireland. We bought six multi-family properties that totaled 1800 units and eight commercial office buildings -- commercial properties that totaled 1.6 million square feet. And inside those investments, we invested approximately $53 million of our equity.

Also included in that of note was the first-off apartment building that we bought in Dublin, Ireland, which you've seen on a prior press release, the so-called Gas Works Building, which we bought; it's adjacent to Google's headquarters in Dublin.

The other part of our investment account was what we call the loan or debt account. And we originated a little over $100 million of loans that we either purchased or originated. On the purchase side, the average discount we achieved was 14%. These loans were secured by 12 properties located in the western United States. The loans were purchased primarily from one financial institution here in the US. We invested a little over $54 million. But when you look at the income streams generated from those discounted loans, the average interest rate that we're achieving is slightly less than 11%, but we're also getting fees, both origination fees and exit fees on these loans. So that when you think about that, the unlevered returns on this loan portfolio are approaching 15%.

During the first six months of the year, we sold four multi-family properties for total gross proceeds of $243 million. The total gains were $32.6 million and our share of that was approximately $8 million.

On the debt financing side, as you all know, the debt markets have really been very favorable to our type of business. So what we've done in the first half of the year is $283 million worth of property-level financings at an average interest rate of slightly over 3%. And as I said on the last conference call, what we're doing on virtually all of our properties is we're going for longer-term financing. And so the average maturity is almost eight years. And then if you think about that for the prior six-month period of time, we did $731 million worth of financing at 3.5%, but the average maturity of that financing was 4.4 years. So not only have rates come down, but the term that we're doing these financings for we've almost doubled.

In Europe where we started really -- we closed the Bank of Ireland asset-management acquisition actually just a little over a year ago. And Europe has really turned into a homerun for the Company. The largest transaction that had been done in Europe in the last three to five years was our acquisition of what we call the Byron loan portfolio from the Bank of Ireland. We bought that; that had an unpaid principal balance of $2.1 billion that we've done in two closings. The final closing occurred in December of last year. And as of June 30, we've resolved almost $700 million of the loans that we've purchased, which is obviously, a third of the portfolio. And the resolutions on the portfolio that we bought for roughly $0.80 have averaged somewhere between $0.96 and $0.97.

The other two significant things that occurred in Europe during the first six months of the year was we announced a EUR250 million, or $325 million capital commitment from Fairfax Holdings, which followed on a $250 million commitment which we have since spent here in the United States and Japan. So the new Fairfax platform is for Europe only. The first investment that we did in that, as I mentioned earlier, was the so-called Gas Works Alliance property in Dublin that we purchased for $50 million. The building, I was there about three weeks ago; I'm really happy to report that the building, which was -- it's running almost 100% occupancy right now. And we been increasing rents on the renewals between 10% and 15%, depending on the location of the units in the building.

The second part of the capital raise in Europe that we announced was the $2.5 billion, and we call it a framework, but this is an institution that we've done quite a bit of business with. That platform was set up to buy performing and non-performing loans in the United Kingdom and Europe. We're closing our first transaction inside of that platform next week, the so-called [red phone] portfolio of loans that we are buying that are secured by assets in Ireland.

In Japan, where we have 50 apartment buildings, the current occupancy is 93%, but it is masked to a certain degree by one 86-unit building that was master leased to a large Japanese corporation. And in May, that came off of its master lease, and so we've been re-leasing the units in that building one by one. We've got about half of those units now either actually occupied or leased. But when you exclude that one building from the calculation, we're running almost 96% occupancy in Japan.

The other part of Japan that I've mentioned in previous calls is the cash generation. We've been able to refinance our entire Japanese debt on our properties, which was roughly $300 million. We've reduced our debt costs by about 40% with these refinances, and so that, combined with the already-strong cash flow, has allowed us to distribute a little over $51 million of cash out of that venture since September of 2010 which our share is $24 million.

And then I might add too that just parenthetically, we are still sitting on cash in that Japanese company. It's somewhere around $26 million after having distributed that $51.5 million.

In our service businesses, in large part because of what has happened on the acquisition side of our platform and the strength of our third-party business, we've been able to increase our leasing fees and commissions by 67%, during the three-month period of time, up from $7.6 million in the same period of 2011.

The last piece of what I'm going to talk about before I open it up to questions is what we've done on the corporate financing side. We've increased our revolving credit facility with US Bank, which is our lead bank, from $75 million to $100 million at the end of the quarter. We previously had a floor on the interest rate, but that floor no longer exists under the new document, which was extended now out for three more years. And our borrowing rate is 275 over LIBOR. We don't have anything outstanding on that line right now, but with LIBOR where it's at, our borrowing costs are somewhere right around 3% under that line of credit.

And then subsequent to the end of the quarter, as all of you know, we sold $8.6 million of -- 8.6 million shares of common stock with gross proceeds of $112 million, part of which was used to repay our line of credit. We had $40 million outstanding under our line of credit, which as I mentioned earlier is now at $0. And we are in a very liquid position today; we're sitting on roughly $150 million of cash in the Company, as I speak.

And then the last subsequent event of the quarter which we're very excited about is what is going on in Spain. And so we have -- in the last downcycle of 1990-1991, we were actually doing auctions all over the world. We did auctions in Australia, Portugal, the United Kingdom, obviously here in the United States. And we see in Europe a real opportunity for our auction business over the next three to five years. So we've signed up our first auction in Spain that will occur here early in the fourth quarter, and along with that we have opened an office in Madrid. There is a substantial amount of unsold condominium product in Spain, so we believe that this auction will lead to many more auctions in our future.

And so that is it on the review of the release itself. And I'd now like to open it up to any questions.

(Operator Instructions). Jason Ursaner, CJS Securities.

Just first, I wanted to start on the acquisitions. It was a very significant quarter, obviously, in terms of asset purchases relative to the start of the year. And it's clear you've incurred various costs to build up the infrastructure and staff of the European platform. You mentioned the flow-through of properties that should begin to come through in Q3 and Q4, so how much of a pickup should we expect to see on these additional investments as you reach a full run rate?

Yes, it's a good point. I should have mentioned that. And when you think about Europe now, we have 25 people in our business in Europe, including Mary Ricks, who has been my partner here for the past 20 years. She's now there full-time. And so when you look at the compensation part of our business, those 25 people that we now have in Europe didn't exist in our income statement for the first half of last year. So that's one point.

And I would also add, as I've said before, that what happened -- when we went to Japan in 1994, it was a very, I would say, similar set of circumstances to Europe. But it took us almost four years to ramp up the revenue side of our business in Japan. But we were hiring people. So we actually didn't make money in Japan for 3 or 4 years.

The opposite has happened in Europe. I mean, we're making very good money there, plus we have a really fantastic team of people now on the ground, which is allowing us to take this all to the next level.

When you think about the acquisitions though that we did, particularly in the second quarter, as I said, most of those closed in May and June. And so without giving any forecasts or anything, and excluding the $500 million that is under contract that we haven't already closed, we expect that the stuff that we close in the second quarter is going to produce almost $5 million a quarter, or $20 million a year of recurring future income.

Okay. And looking forward, with the additional assets under contract, is the platform pretty much set now for supporting additional growth, or do you need to keep adding headcount there?

No, we're really pretty well set there now. We had two senior people join our business really in the last two weeks there. One of them is in Dublin, and a lady by the name of Fiona DaSilva has joined our business in London. Those were two senior hires. And then one of the last pieces that we're doing is a Joan Kramer, who has been running our debt business here in the United States -- is actually moving to London in August. And so when you think about our team there now, except for maybe here and there an analytical person at the senior level, we're completely staffed.

And then I think the other thing to think about, too, is that like, for example -- this is public information, it's been in the press -- there are three big loan portfolios that we're in the process of trying to buy that total over a couple of billion of unpaid principal balance. They're in the United Kingdom and in Ireland. But the team that we have in place -- it was interesting; I just finished a stock roadshow and one of the funds that I had met is trying get an office opened up in Europe. But they don't even have it open yet. They are transferring two people -- they're still working on their permits, their visas, to allow them to work there. We've already got 25 people on the ground under Mary's leadership. And that's really what gives us the, what I would call for now, the competitive advantage that we've got the infrastructure in place. And the European banks are under no less pressure now to continue to right-size their balance sheet. So there's many, many opportunities that we're taking advantage of.

The last thing I will say, too, about what's in our pipeline to close here is we're now closing on our first office building in Dublin. We're buying that, closing actually next week too, along with this [print] loan portfolio. We're buying an office building, a so-called [Brooklawn] office building. We're buying that at a fully-let building, but to give you the metrics on that, the prior owner paid EUR46 million for that building and we're buying it for EUR15 million. And the going-in cap rate, and some of the leases are above market, for sure, but the leases have an average term now of 3.5 years left on them; we're buying it at a going-in cap rate of 14%. And the tenants that are in the building are all credit tenants. And that also is going in the Fairfax joint venture. We're going to own that office building 50/50. Proposing that at the start anyway, all cash in two weeks.

But there's many, many opportunities in Europe. And we're fully staffed, as I said, with the right team.

Okay. And on the monetization side, can you talk a little bit about the two properties you sold during the quarter? And in terms of -- as outsiders using them as a gauge for equity returns on the portfolio, how many of the other properties have a similar dynamic of either being previously mark-to-market or having a different promote structure?

Hey, Jason, it's Matt Windisch. So the two apartment buildings we sold were 360 residences in San Jose and Arbor Creek in Portland. And they are a little different than the majority of the portfolio, because Arbor Creek was held in a 50/50 joint venture, and in that particular instance we had no promote structure. And there's only a handful of deals that have that same structure within our 80-plus apartment communities that we still own.

And then 360, because the fact that it was a loan that we foreclosed on, we had to market it to market when we foreclosed on the property. And so because we had to mark it to market at that time we foreclosed, the gain in which you saw when we sold the property didn't actually take into account our cash basis and what we realized. In other words, we already took some of the profit in last year when we foreclosed. And then you only saw a small part of the profit come through when we actually sold the assets.

But I think, Matt, really the better gauge -- and look, I'm not saying that this is going to be true of everything in the portfolio, it's really when you think about Arbor Creek. Even though there was no promote structure in that, we bought that apartment building in Portland in June of 2010. And we put -- between us and our partners, 50/50, we put roughly $8 million of equity into that deal. When we sold that, closed that in April, including the distributions that we got during the ownership period, whenever that was, a year and three quarters, we got back $16 million. And so it was a double on our money. And when you time-weight it for IRR purposes now, I think our IRR was like 70%. Particularly when you think about our apartment portfolio without this anomaly of the fact that we bought (technical difficulty) 360, we obviously have very meaningful gains in our apartment portfolio based on what's happened with cap rates.

And so we're continuing to take advantage of that where it makes sense. And we've got two, maybe three other apartment buildings that we're going to sell here in the third and hopefully fourth quarter, one of which depending on what price we sell it for, has a higher multiple than even Arbor Creek. And so when you think about our investment account of course, there are going to be some that are two times or there are going to be some that are 1.5 and there is going to be one that we're selling right now that could be 3 or 4 times multiple.

But inside that apartment portfolio, I think the two things to remember are obviously, cap rates have compressed greatly, but the second part of it -- and I think Japan is very much a good example of it -- we're distributing cash out of these things every month. And then the second part of our strategy is that we're, because these interest rates have compressed so greatly, we're going out as long as we can on the financing and fixing our biggest costs, the interest costs. We are closing -- we're buying an apartment right now in Long Beach, and we're going to do 10-year financing on that fixed at 3.5%. So even a year and a half ago when we were doing 10-year financing at rates that I thought were super attractive, they were 100 basis points higher than they are today.

Okay. I appreciate all those details. I will let some others have a chance to ask questions. Thanks, Bill.

David Ridley-Lane, Bank of America Merrill Lynch.

Were there any one-time costs related to the equity offering that were in the second quarter's numbers or that will flow into through into third quarter's?

David, I don't think there were any costs associated with the equity offering that were in our second quarter numbers.

Sure. And what was assets under management at quarter end?

It was just slightly less than $12 billion.

And then based on what's under contract, where would that stand at the end of Q3?

Yes, it's going to be roughly -- just with the stuff we have under contract, that's going to be like $12.3 billion.

Okay, great.

I don't expect to -- there might be one, but I don't expect any sales to close here in the third quarter. We have one office building that we're selling that has gone non-refundable right now that will more than likely close in the fourth quarter. And then the other two apartment buildings that I mentioned, for sure, will be fourth quarter transactions. And then I think as most of you know, we're -- we have in the market right now, the sale of the Dillingham Ranch, which we own that 100%. And that is a more long-term marketing process, and whether that happens this year or next year, it's really uncertain. But we have three other assets that should get sold and closed this year, including this one off -- we have one office building that we bought last year here in LA that is non-refundable, and it's just going through a loan assumption process on the part of the buyer. It's a very qualified buyer, but that probably will take through the third quarter to get that completed.

And just one other thing to add, David, is on the AUM, one of the things that it takes to monitor is as we resolve these loan pools, that will have an impact on lowering AUM also. So as we get loan pool resolution, that could bring AUM down slightly, as well.

Got it. And that's a pretty good segue into my last question for you. What are some of the factors or some of the methods that you are using to help drive the faster-than-expected resolution of the -- figuratively, the acquired UK and Irish loan pool?

Well, I think what we liked so much about that loan portfolio when we bought it was that these were large balance loans that were essentially performing loans. And when you think about that portfolio, there were only 24 connection borrowers -- there were 170 properties, but there were only 24 connections with -- and if you include the swaps then, the actual unpaid principal balance was $2.2 billion. So these were very large balance loans. And I would say, generally speaking, these were very high quality borrowers. And then the last piece of this, of course, is that the average maturities that we bought were a little over two years. So that meant that some of the borrowers had maturities inside of that period of time.

It has proven to be the case that these very high-quality borrowers now knowing that we're not really a bank and we're not in the process -- really in the business of extending loans, they've looked for financing from other places. And there's still comments bit of what you read in the paper, a very good financing market, particularly in the United Kingdom, primarily from insurance companies that are healthy.

And then I think the last piece of it is that some of the borrowers, the London market continues to be one that's characterized by relatively low cap rates. And so some of the borrowers are continuing to take advantage -- just like we are, in our apartment business here, they are selling assets and paying us back.

So it's really been a combination of a whole lot of those factors, but it's like anything; when you start out, you have an expectation. In this particular case, I can tell you that the resolutions and the speed at which these resolutions has happened has really exceeded our expectation. We just got paid off not in the second quarter, but we got paid off at $1.00 in July on a pretty big loan. And I think this is a good example, Matt; it was one that we had programmed to pay us off I believe in the middle of 2013. And it has paid us off at $1.00 this year. And so it has many positives then when you think it all through, because the promote structure and so on that we have in that transaction is time-weighted in the sense that if you're doing it earlier and you're getting the same values earlier, your returns are higher.

So it's all proving to be so far, a really good transaction for the Company.

Great. Thank you.

Will Marks, JMP Securities.

I wanted to first ask, I missed the beginning, you may have discussed it, but the components of the commissions and management leasing fees was there anything extraordinary in that line during the quarter?

No.

Okay. And then how should we think about that than in terms of a run rate?

Well, I think the quarter you saw, the second quarter, was -- I'd say it was pretty typical in terms of a revenue line from both of those, that we did have a decent amount of acquisition activity. So I think you're looking at a pretty standard quarter in terms of revenue from the service business.

Obviously, as we grow the AUM over time, you'll see that move up with the AUM, but I think it was a pretty standard quarter on the revenue side.

I don't know, Will, if you were on the call at the time, just to reiterate, a lot of the acquisition activity took place either at the latter part of May, or actually at the end of June. And so as we said in the last conference call, what we've been able to do is recirculate our cash out of that investment account. And so if you think about 360, when we bought the debt, the building was empty. And so it took us four or five months to actually foreclose on the equity and own it, and it took us 10 months to lease it. So during the period of time that we owned that asset, there really wasn't any current income at all. And then we sold it.

But unlike that, what happened with the acquisitions that we did in the second quarter, we've been able to recirculate cash out of that investment account into acquisitions that are actually producing current return. So, as I said earlier, the things that we've closed in the second quarter you're going to see show up in subsequent quarters are producing right out of the gate almost $5 million of EBITDA per quarter.

Okay, that explains it. I wanted to switch directions and ask, one of the previous questions was discussing recent couple of asset sales, but you also referred to the $243 million of gross sales. And you gave the total gain and your share of the gain. I'm wondering, for that dispositions, is there a return on equity you want to cite?

Let's see. Well, I don't know the exact number.

Well, there's two things -- well, one is, there is the return on equity of our investment account, and then the second is part is what did we actually make on our money.

Right.

And so in terms of what we made in the investment account, I think if you look at the gross-up schedule, you can see those numbers, what we have in our supplemental. And I could walk you through that off-line. And then certainly the IRRs -- we typically don't disclose specific IRRs on individual transactions.

Okay, we can discuss off-line. The only other question I had was on Japan. Have you discussed an exit strategy? If there is one, what is your longer-term plan? I know you had to -- and actually maybe in the context of that, you could talk about what you did in the last cycle in Japan and how you exited it.

To refresh everybody's memory, we started there in 1994 with just a guy from the Mitsubishi Corporation and a secretary. And as I said, the big difference between what we did there and what we've been able to do in Europe is that we had to hire out of the banking system primarily, because people don't want to -- I'm not praising this the right way, but they ended up in these situations where they don't want to stay. So we had to hire a lot of people in Japan in advance of the revenue.

The opposite has happened in Europe. We're making very meaningful profits after bringing 25 people on board in the first half of the year, part of -- 15 of which came from the Bank of Ireland transaction.

But as we got going in Japan, so starting there in 1994, the first acquisition that we actually made in Japan was in 1998. We bought a building called the Kawasaki Tech Building. That ramped up significantly over the next four years in Japan, which allowed us to become the first US real estate company to go public in Japan there in 2002.

And when we went to Ireland and to Europe -- it was really basically with the same theme. We told everybody that, I'm not sure if it's the right choice of words, but we're not carpetbaggers. We're not here just waving a checkbook. We want to create a company that actually survives the correction, which is what happened to us in Japan. And I really believe that that's going to happen in Europe.

And I also think you have to think about Europe -- we're now into the -- August of 2007 was the beginning of our -- whatever you want to call it, meltdown correction or whatever you want to call it here in the United States. So we're now into the fifth year here in the United States. In Europe, we're really, in my view, kind of into the first year of what could be another five years of opportunities.

What we're going to do in Japan, we continue to talk to a lot of different people. We continue to have our eyes and ears open about possible ways to monetize that portfolio. But we're not in as big a hurry to do that in part because of the cash flow that's coming off of all of those properties.

And like it said earlier, including a distribution we got yesterday from Japan, we've now distributed close to $53 million of cash out of Japan since September of 2010. And so almost half of that is our cash. So while we look at all kinds of options and things like that, we're certainly not in any hurry.

And I think the other great thing is that the Company has been able to do is because our balance sheet is so strong right now and our cash flows from all the underlying assets are so strong, and our asset management fees and so on, we don't have any gun to our head to sell things.

When I first started here in 1998, and for a long period of time virtually every time we wanted to go onto the next thing we had to sell something to get the cash out of that to do it. So now we're in a very, very different slot. I don't want to say we're in the driver's seat, because that's not how I look at it, but we're in a much more -- much stronger position to pick and choose where we want to sell things. And I think -- I'm getting off of Japan, but that office building I mentioned we're selling here in LA right now, I can tell you that the first offer we got from the people that are buying it wasn't anywhere close to the final offer we took it and we just basically said, look at the price that you want to pay us; we're not interested in selling it. They wanted it badly, so they came back to a number that made more sense to us.

So that's the really nice spot that we're in right now that we can pick and choose, but at the same time we're getting significant cash flow from these things while we own them.

Okay, that makes sense, thank you.

Chris Mayer, Agora Financial.

I just had a couple of big picture questions. I know you have a lot of advantages over others who are trying to do the same thing you're doing in Europe, but I'm wondering if you could talk a little bit about what kind of competition you're seeing for deals there, and if that has impacted anything you're doing at all.

Yes, I think that, Chris, there are a lot of people that are thinking about and trying to get something started there. But to my knowledge, there is nobody that has built in really the kind of infrastructure that we have. Like as I've always said, at the root of it, we're real estate operators. And so by having that team of people, particularly when you're doing these loan portfolios, you have to get very granular. You have to look at every aspect. You can't be flying at 50,000 feet in front of the screen trying to figure out whether these things make sense or not. You actually have to look at the underlying real estate to come up with your valuations.

I would say that there are typically now are -- I would say five other companies that we routinely see on most transactions. But the other -- part of this is that the banks -- and it's been this true for all that time I've been doing this -- they don't necessarily always pick what might be the highest bidder, because when they are taking haircuts on these things and they are operating inside of quarterly and year-end constraints, they have to have certainty of flow. And so the capital that we've been able to put together in Europe, together with the fact that -- this isn't our first dance going through -- these purchase documents on these things can be very complex. And you can trip yourself up with the seller just by trying to overdo it on your purchase document.

So we've got -- in my view, we've got a real competitive advantage with the depth of the team that we've got there. I sat through about three or four weeks ago, a roll-up session with one of our capital partners on a portfolio that we're trying to buy right now, and there were almost 20 people in the room. But I can tell you, that I was -- obviously I'm biased, but I was pretty darn impressed by the level of detail and knowledge that our people had on these portfolios. And that is really what gives you the big competitive advantage when you are buying these small portfolios.

Thanks. I think that speaks to the strength of your Company.

The other question I had I was just wondering how you think about your capital needs for the rest of the year. Do you have a sense for that, or is it really opportunity-driven? I know you're in really good shape now with the secondary and all, but how do you think about it going forward?

Well, I think part of how we think about it too is that we frame what we're doing against what I consider to be this extreme volatility in the world, where one day the market can be up 200 basis points, the next day it's down 200. So we're trying to manage all of the growth with a very conservative balance sheet. And post this offering, our total debt to net worth is like 0.6 to 1.

And if you look at any of the peers in our space and really go and look at their balance sheets, they are highly leveraged. We are trying to do this in a way where we're not really leveraging ourselves. And I've said before that we're generally going to keep our total debt to worth ratios under one to one.

You're right that part of the capital raising has to do with what the opportunities might be. So we have to wait and really see what happens in Europe here over the next, really, month, because we've got three fairly large acquisitions that we're right in the middle of right now that may or may not happen.

But whatever -- we're not going -- the next capital raise is not going to be in the equity market. And so, we'll just have to see where we go from here.

All right. Thank you.

Richard Eckert, B. Riley & Company.

My questions have been answered. Thank you.

Hi, Rich.

David Ridley-Lane, Bank of America Merrill Lynch.

Sure, I just had a quick follow-up. So the pre-promote ownership went from 25% to 36% for your commercial assets? I'm just wondering what drove that.

Hey, David, it's Matt. So what happened there was there was -- we did a buyout of some partners in a joint venture that led to that. We were able to buy some partners out who had Dodd-Frank and other regulatory issues who had to sell.

And what we did in essence is we bought some partner loans that they had to the joint venture. And by buying those partner loans, we also acquired the equity. And so you'll see, as you mentioned, and this is all office buildings that's in this joint venture. So in essence, by buying those partner loans, we also increased our equity ownership in those assets. But you're not seeing any capital going into the commercial piece of the investment account because it all went into loan.

Got it. And then one more. Are you still looking at West Coast multi-family acquisition opportunities?

Yes, we are. But as we sit here right now, we only have one -- it's a smaller deal that is in escrow right now and -- down in Long Beach. We're doing that in a joint venture with another company that we've done other business with. And we're doing -- on that particular deal, we're doing a 90%/10% deal. We're only putting up 10% of the equity, and the whole deal side is $9 million of equity. So we're only putting $900,000 into that.

So we're continuing to look and keeping our eyes open, but obviously, it's more competitive on the buy side.

But having said that, we always seem to find opportunities. But as we sit here right now, that's the only deal that we have in escrow on the apartment side.

Got it. Thank you very much.

Thank you for your questions, ladies and gentlemen. I would now like to turn the conference back over to Bill McMorrow for closing remarks. Please proceed.

Okay, so thank you, everybody, for taking the time to listen. We appreciate all your support, and as I always say, if there's any other questions that you have for myself or Matt or Justin Enbody, we're always here to answer those. So thanks very much.

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