Kennedy-Wilson Holdings Inc (KW) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2012 Kennedy-Wilson earnings conference call. My name is Darcell and I will be your operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions).

I would now like to turn the conference over to your host for today, Ms. Christina Cha, Vice President of Corporate Communication. Please proceed.

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 of Kennedy-Wilson; and Justin Enbody, Chief Financial Officer of Kennedy-Wilson. Today's 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 our website for more information.

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.

Good morning, everyone. Pleased to have you on the call. And what I'm going to do today is take you through the -- what I call the body of the earnings release. And as I've said on previous calls, what we've been doing in the supplement is continuing to add additional information, so that you can analyze the Company in a better fashion. So this year-end, as you'll see when you have time to look through everything, we've added a significant amount of additional information, particularly at the property level.

So, to begin the call, I will tell you we had an excellent year 2012. Our EBITDA for the fourth quarter of 2012 was approximately $45 million, which represented a 51% increase from the same period of 2011. For the full year, our EBITDA was $100.3 million, which was a 41% increase over the $71.2 million for the same period of 2011. We also announced yesterday that we were increasing our dividend by 40% to $0.28 per common share on an annual basis.

When you look at the investment business, as of December 31, 2012, our investment account increased by 42% to $828 million from $583 million, approximately, at December 31, 2011. The change was comprised of $469.6 million of cash contributed to new investments, offset by approximately $224 million of cash that was distributed from investments. When you think about the operating metrics of our investment business during the year end of December 31, 2012, our investment business achieved an adjusted EBITDA of $88.5 million, which was a 68% increase from approximately $53 million in the same period of 2011.

During the year of 2012, based on 9000 same-property, multifamily units rental revenue units, the net operating income increased by 3.6% and 5.9%, respectively. In addition, based on 2.2 million square feet of same-property commercial real estate -- rental revenues, net operating income and occupancy increased by 9.9%, 13.2% and 5.1%, respectively. From January 2010, which was really, basically, the beginning of the major investment cycle that we embarked on, Kennedy-Wilson and its partners have acquired approximately $8 billion of real estate-related investments.

During 2012, the Company and its equity partners invested $2.9 billion into real estate-related investments. This includes $1.4 billion of real estate and $1.5 billion of loans secured by real estate, in which we invested $206.1 million and $196.2 million, respectively. Also on the disposition side in 2012, the Company and its equity partners sold six multifamily properties for a total of $251.7 million, which resulted in total gains of approximately $34 million, of which our share was a little over $10 million in 2012.

As I stated on earlier conference calls, we continued to lengthen out the maturities of our debt at the property level, and 2012 was no exception. We did $928.7 million of property-level financings and refinancings at an average rate of 3.8%, with an average maturity of 6 years. And that compares to what we did in 2011, where we did $1.6 billion of property financings and refinancings at an average rate of 4.2%, with a weighted average maturity of 3.3 years. So you can see from that comparison, not only were we able to lower the interest rates on average from 4.2% to 3.8%, but we've also doubled, almost, the maturity dates.

The UK loan portfolio that we bought in October of 2011 -- we invested a little over $60 million of equity and we own 12.5% of that BOI REIM loan pool As of December 31, 2012, the unpaid principal balance was $765 million. Due to loan resolutions of approximately $1.3 billion, which occurred in 2012, which was almost 64% of the total loan pool. The total debt incurred at the venture level at the time of the purchase of these loans was $323.4 million, with a maturity date of October 2014. And as a result of the loan resolutions, the venture level debt was paid down by $297.6 million to $25 million at the end of the year. And that $25 million will be at $0 by the end of the second quarter of this year.

At KW Residential, which is our Japanese entity, our current equity is slightly over $102 million, and we own approximately 41% of that entity before carried interests. The Japan buildings continued to perform very well at 96.4% occupancy. And then, the real important thing to see here is that since we acquired -- Fairfax came into that transaction in September of 2010, we've distributed a total of $56.5 million of cash flow from the properties, which our share was $26.4 million.

In the service business, our management and leasing fees decreased by 7% to $53.3 million for the year ended December 31, 2012, from $57.1 million during the same period of 2011. Also during 2012, our service business EBITDA was $20.2 million, which was a 22% decrease from the prior year. But, remember, in both of those examples, during the prior year, we had over $20 million worth of fees from the BOI REIM loan portfolio acquisition and the Bank of Ireland stock transaction.

During 2012, we did approximately $270 million of external capital raising, exclusive of the capital that we raised for the investments in the vehicles. This was money that we raised for Kennedy-Wilson, which was comprised of $112 million from equity offerings and $155 million of senior notes, which also included $55 million of our first 30-year financing that we did in the fourth quarter.

In terms of subsequent events to year-end, we have either acquired or have entered into contracts to acquire approximately $1.2 billion of real estate investments, both here and in Europe. And then the last thing I would mention on the subsequent events is that in December -- as I also mentioned on prior calls -- we have hedged our yen position, both for Fairfax and Kennedy-Wilson, in our Japanese investment activity. And with the weakening of the yen in the fourth quarter, and continuing into the first quarter of this year, we actually unwound and re-hedged. But we cashed out almost $24 million of cash to the joint venture, of which our share was approximately $10.6 million.

So, with that overview, I'd like to open it up to any questions that anybody might have.

(Operator Instructions). Jason Ursaner, CJS Securities.

Good morning. First, I have a couple of specific questions on the existing properties in the investment portfolio. In the multifamily class, all your properties continued to perform very strongly. And at a 5 cap, it would look like you were generating a pre-promote equity multiplier somewhere in the 1.4, 1.5 range on trailing NOI. So just looking out, could you maybe provide an update on expectations for continued NOI growth? Any concerns you have regarding cap-rate decompression in your market? And then, lastly, how you continue to think about the trade-off between managing growth there for higher exit prices down the road versus more near term divestitures.

I'm going to answer part of it, and then I'm going to ask Matt to answer part of it. But remember, from our investment philosophy, that we like to invest in high barrier-to-entry markets. And so when you look at the multifamily markets that we have the majority of our assets in, it's Seattle, San Francisco, Los Angeles, Tokyo. We have acquired two apartment buildings in Dublin in 2012, which, by the way, are both running at 100% occupancy. And we've been increasing rents in those two Dublin assets on the order of 10% to 15% on all of our renewals; and in Tokyo, where I've mentioned earlier, that our occupancies are running 96%.

But I would say, Jason, that if the fundamentals in all of our markets are -- continue to be really excellent, and I would guess this year that our rent growth will be -- depending on which market you're in -- somewhere between 5% and 8%, depending on what the market is.

We continue to look at our apartment portfolio, where we have now have almost 15,000 units; and where we -- we selectively are weeding out, I would say, some of the lower-quality properties that we might have. We also, this year, are doing roughly $35 million worth of CapEx at a whole variety of properties, which includes not only common area upgrades but also unit upgrades. And we are, for the first year, we are actually seeing in most of our markets significant rent increases from what I call unit upgrades, where we are spending $5000 to $7000 a unit.

And then the last part of it is that even though the 10-year rates have moved somewhat, the financing for the multifamily assets continues to be very attractive, at sub-4%. We had several loans last year that were in the 3.40% to 3.70% range, all-in. And as I said earlier in the call, on those assets that we're keeping longer-term, we are going out as far as we can on the maturity schedule. And we're foregoing some current income in the sense that we are not doing floating-rate financing on the majority of the properties.

We could probably be doing floating-rate financing at plus or minus 100 basis points inside those numbers that I just gave you. But we're trying to be very mindful of the fact that we've got some very, very attractive long-term rates that we're taking advantage of right now.

So, Matt, do you have any anything to add to that?

Yes, I would say, Jason, in terms of the rental rate increases, what's interesting -- what we found in our portfolio is that it really, in the fourth quarter of 2012, is where we saw a lot of acceleration. So if you look on a year-over-year basis, our rents grew about 4%. But if you look quarter-over-quarter, looking at the fourth quarter of 2012 versus 2011, we saw 6% rental growth rate. That's on occupancy that's basically flat.

And so we're really starting to see an acceleration in the fourth quarter that has continued into the first quarter of this year.

I'd also say, in terms of weighing the holding versus selling, it's interesting because on two of our assets now, we've been able to actually monetize part of our profit without actually selling the assets through refinancing on a long-term basis and pulling a significant amount of our equity out. So we're finding ways to monetize some of our investments without actually selling them.

Okay. That's great. And in the real estate secured loans class, specifically on the $2.1 billion UK loan pool, you mentioned in your prepared remarks the pace at which it's getting resolved through pre-payments, that it's faster than originally anticipated. So, my question is, is the accretion you've been accruing to date on the P&L -- how much promote has been included in that? And how should we think about the total accretion in relation to the actual return you are now generating, versus the actual cash inflow you'd expect to collect over the next year or so, that could be used to fund the dividend and other acquisition opportunities?

I'm going to let Matt answer that question, Justin. But I think the bigger picture is that when we bought that portfolio, we had put it into a 3-year business plan in our mind. And what we've been able to do and what we see happening right now, we think that there is a reasonable probability that we're going to be able to complete a 3-year business plan this year. And that clearly has some impact, in terms of the question you just asked.

Yes, so, Jason, currently, as you can see on the 10-K, we still have the accretion model set up on a 3-year business plan. We have not adjusted that. Even though we have resolved two-thirds of the pool, it's still over a 3-year plan. If it turns out that we're able to resolve things faster than expected going forward, that 3-year plan could potentially change. And if it takes longer, it would expand out. So that still isn't a 3-year plan.

And in terms of that promote, the accretion line does not include any promote in terms of the accretion of the loan pool. That's being treated separately as a fee.

Okay. Appreciate all the details. I'll let others have a chance to ask some questions. Thanks.

David Ridley-Lane, Merrill Lynch.

Maybe a quick numbers question -- with the new debt in place, what's your expectation for the quarterly run rate for interest expense?

I'm doing this real rough, David, but you can think about in terms of total -- the total corporate debt is roughly $450 million.

We're just doing the math here.

Yes, we are just doing the math here.

Are you saying on an annual basis?

Yes, or an annual basis, either one.

It's roughly $34 million.

Yes.

Excluding mortgage debt; this is just corporate unsecured.

Right. So it's $450 million times the average interest rate.

Okay. And then the 50% sale of the UK shopping center that you completed after fourth-quarter results -- so this asset is no longer being consolidated. What was the rough amount of rental that income you received from that asset in the fourth quarter?

None.

It was none. We closed that right at the end of the year. And then we had a partner come into the venture right after year-end. So there was no income on it at all.

Perfect. Okay. And then as a result of the consolidation of KW Property Fund II, that's going to boost your reported revenue in 2013, but it's going to lower your reported JV income. I'm just wondering what the right run rate is for rental income from that consolidation.

David, we have to get back to you on the rental income number. But the equity and JV income actually will not really -- it won't have an impact on that, because those properties are running basically breakeven after depreciation.

Okay, so it doesn't necessarily lower JV income, but some amount of rental income will come onto your P&L.

We can follow up with you on that.

Okay. And then last quarter, you were actively marketing three of the West Coast apartment complexes and one West Coast office building. Can we get an update on what you are currently marketing now?

Yes, I'm not sure exactly which ones you're referring to right now. But we sold one of them in the fourth quarter, a Northern California property. And one of the other properties fell into the bucket of what Matt was referring to. We were able to -- I don't know if I can explain this exactly correctly. We were able to resize the existing financing on the property -- I can't remember whether it was with Freddie or Fannie --and we took all of our equity, including our partners' equity, out of the property at a very favorable interest rate on a long-term what they call supplemental financing.

And so it's a big asset in Northern California. It's over 600 units. We decided not to sell that because we were able to take out 100% of our equity through a refinance. And so we still own it. And it's producing well in excess of about a 12% cash-on-cash return after the new financing. So that's what Matt was alluding to a little bit.

What we are doing in some of the cases, David -- like we've got two more apartments that we own in a 50-50 joint venture; one is in Seattle and one is in San Jose. And without -- we've had such strong rental growth in both of those properties, we are adding supplemental loans to both of those properties. And we're taking out $10 million of equity returned to us. Then the other thing I think that I've tried to stress -- when you look at the unwinding of that hedge, and a large part of the distributions that we make every year, none of that goes to earnings.

Like on that hedge that we unwound, that we took $11 million roughly into KW -- that all just went to reduce basis in our investment. And so, particularly on the apartment buildings where there this is this attractive long-term supplemental financing out there, we're electing -- and, in some cases -- and like I said earlier, on the lower-quality stuff, we're continuing to think about selling that. But some of it we're actually just keeping and taking our equity out with low leveraged financing.

And on these variables Bill is giving on that Northern California asset, where we had refinanced, what's interesting is that actually shows up on our investment account at 0, basically; because we pulled all of our money out. And so you won't even really -- it's not even on our (inaudible).

And we have a meaningful -- if you were to go sell it, we have a very meaningful gain in that asset, but it's on our books for $0 now.

As well as continuing to produce operating distributions on a monthly basis.

Right.

Okay, great. And then one last bigger-picture question. PwC has forecast out that they believe there will be EUR15 billion in European commercial real estate loan sales in 2013, up from about EUR12.5 billion in 2012. Does that fit with your own expectations, that you'll see more commercial real estate loan activity this year than last year? Thank you.

Obviously, this is nothing more than a judgment or forecast, but I think the number will actually be larger than the number you just said for 2013. And our radar, or instincts, or whatever you want to call it, is that there will be some significant transactions that happen in Europe this year. And I think that the European banks, particularly, are anxious to try and get as much behind them this year as they possibly can. So I think that PwC number could end up being on the low end of what happens in Europe.

All right. Thank you very much.

Will Marks, JMP Securities.

Thank you. Actually, my first question, based on something you just said about the 0 equity in that asset, brings up -- a follow-up would be, if you have $828 million of equity, is that an anomaly? Are there a bunch of assets like that?

Well, I don't know anomaly, but there are -- because of the way we handle the majority of our accounting, where we are -- like I went through that example in Japan. We are continuing to reduce our book basis through these distributions that we're getting every year, and obviously the depreciation also. So our assets are carried, generally speaking, at depreciated costs. So the longer you hold these assets, the more your book value in these assets is being reduced. And, therefore, if you go to sell these things -- and assuming the market is still there, and all that sort of thing -- the larger the gains should be.

Fair enough.

I would just add to that that typically, because of depreciation and the way GAAP accounting works, we are picking up losses out of joint ventures because of depreciation. So that's reducing book basis. And then you are getting operating distributions that are decreasing book basis. So we would have a handful of assets that have a 0 cost basis in our joint ventures, but we still own the assets.

Right. Okay, that's helpful, thank you. A few other questions. You gave, I believe -- you talked about the asset sales in 2012. And I can't remember if you gave a return number. But can you either repeat that and let me know if return on equity, if it includes the promote or not?

Hey, Will, it's Matt. Yes, so on those asset sales, those were shorter-term holds. But they were 50% return on equity, and it does include the promote. But I would say those are anomalies because some of them were a very short hold period. So that was the returns on those, 50%.

Okay. All right. And then on your P&L, you had a little less than $20 million of G&A, it looks like, in 2012. Do you feel like that's a decent run rate, the $19.4 million?

Yes, it's really interesting, when you look at our headcount at the end of the year, we were at about 300 -- at the corporate level, we are at 340 people. But if you look at what we've always tried to do at the Company, we're not only -- and I don't mean this the way it sounds, but we are deploying capital, human capital. And so the vast majority of the increase in the headcount really relates to what we've been doing in Europe.

And as I had said on prior calls, we learned from going to Japan that you really have to build your own infrastructure there. You are not like a private equity firm that might go to Europe with a checkbook and two or three people. And so, today, when you think about Europe, we've grown our headcount from 15 people -- we have almost 40 people in Europe, primarily in the United Kingdom and Ireland. And the other part of this, and it's the same thing that happened to us when we went to Japan in the 1990s, the quality of the people that we've been able to attract to our Company in Europe -- it's just really fantastic people. And so any growth that you see in headcount this year will primarily be related to what we're doing in Europe.

Okay, thanks. And in terms of use of proceeds, is Europe 75% of it, do you think?

Yes. I think that in our plans for the year, like I always say, we are not compelled to invest. But we have a big pipeline right now, and when you look at what we are -- we have in our pipeline right now -- roughly, Matt, 80% of what we have in our pipeline relates to Europe. And while we'll continue to see -- because you still do have debt maturities coming in this year in the United States on the West Coast, where the LTVs are at 100 or higher, you will still continue to see opportunities like we did when we bought that Ritz-Carlton in December. But our guess is -- and it's nothing more than a guess -- that this year, roughly 75% or 80% of the investment opportunities for our capital are going to be in Europe.

And if you look at where we are today, Will, it's about -- right now the investment accounting is about one-quarter Europe. Even with all the activity we've done, we still have a significant investment in the US and Japan. And so as Bill was mentioning, we would expect to see that European concentration [shake] out this year.

Okay, thanks. And related to that, my last question -- I may have missed this, I don't recall you giving details on this $1.2 billion since December 31, it's under contract. Can you expand on that?

Sure. Yes, so, to give you a sense of what's included in that, as Bill mentioned, it's roughly 80% euro. And it's comprised of 1.6 million rentable square feet of real estate. Included in that is a commercial property and 725 apartment units. And it's roughly $725 million of UPB of loans secured by real estate that are all in Europe. And then also 301 residential lofts. So that's what we've got under side contract right now.

Okay, so the debt portion is $725 million. The rest would be equity investments?

That's correct.

All right. That's all for me. Thanks, guys.

David Gold, Sidoti.

Hi. Good morning. Just a quick strategic question. Presumably, over the last few months, and certainly the fourth quarter, you've been a lot more successful, and obviously a lot busier at putting capital to work. I'd be curious about two things. One, when you think about the reasons for the success, is it more a function at this point of the environment, particularly in Europe, where folks are delevering? Or is it more a function of you've spent the last couple of years expanding KW's positioning, and offices, and moving into Ireland and whatnot, so the opportunities are -- so that you are better positioned to see those opportunities? That's question one, and then I have a follow-up.

Yes, I think -- first of all, David, those are excellent points. And I think it's a combination of both of those things. But I think the best case study is when you think about what we've been able to do in Europe. We went to Dublin in November of 2010. And at the time, it looked like Ireland was in deep trouble. And I think a lot of people there felt that there was -- if there was going to be a recovery, it was going to be extremely protracted.

But, because of -- like I keep referring to Japan -- but because of what we've always done, where we have gone into markets that are out of favor -- and when we saw the equivalent of the resolution trust was set up in Ireland, it gave us -- then we looked at the fundamental, underlying economy there -- we had the conviction that that was the time to really lay the groundwork. But when you go into a country or an area like that, where you've never done business before, it takes a while to create not only reputational -- a good reputation, but it takes time to get yourself in front of the right financial institutions.

And as I think most of you know, the vast majority, over 25 the years I've been here, of opportunities that we've seen come out of the financial institutions, when there's a situation like you've got in Europe. So now if you roll it forward here to 2013, we clearly -- I would say that there are four or five of us that have really been able to develop our position in Europe reputationally where we've executed in a big way.

So, now, as you go forward, the banking system and the banks that are there look to you as kind of a leader in that market. And that's what we've been able to do. I don't need to go through all the fundamental changes that have happened in Ireland. But I was noticing this morning that -- see, when we first went to Ireland, the country -- the debt rate was over 14%. And I saw today where they are going to sell roughly $15 billion of debt at -- I'm assuming it's going to come in at sub-5% range.

So you have to get into these markets early, like we did, and then develop your reputation. And then, what always tends to happen -- the last part of your question -- is that as financial institutions get to the end of the year -- whether that's a third quarter; or, in our case last year, the fourth quarter, they really start to focus on, well, what exactly were my goals there for the year in terms of getting either REO nonperforming assets on our books? And so it just happened that last year in the fourth quarter we saw a lot of attractive transactions. And that has continued into this year. So the acquisitions this year I think are going to be more evenly spread out than they were last year.

Okay. And then part two on the question, or a natural follow-up -- so you were certainly prescient when it came to Ireland. When you think about the world over the next 12 or 24 months, are there spots, either geographically speaking or asset-class-wise, where you would like to have more exposure?

Well, as I alluded to a little bit, David, I think the focus of our investing activity is really the Western United States, and then the UK and Ireland. And we still think that for 2013 that when you think about Europe, it is mainly going to be in those two markets. I said on a previous call that we have opened an office in Spain -- Madrid. But to date, we haven't deployed any capital there. It's been an auction vehicle, where we are auctioning properties for financial institutions.

And what we've always tried to do in these markets that we go into -- and that's how we got into Japan in the first place. It started with our auction business. And that allows us to get not only an income stream going, but it allows us to get intelligence on the ground to really understand what's really going on in the market, where we are marketing properties for third parties where we are getting paid a fee. But when you think about our investing this year, you can really confine it to -- mostly, as it sits right now -- in Europe, to the United Kingdom and Ireland.

Perfect, perfect. That's helpful. Thank you.

(Operator Instructions). Ian Corydon, B. Riley & Company.

Thank you. A lot of my questions have been answered. But first on the balance sheet, understanding that some of the proceeds from the offering will be used to pay down the revolver. Given that deals in the pipeline, when do you expect to be drawing down the revolver again?

We can't talk about -- specifically on that question, we can't talk about offering. But we use the revolver from time to time to finance our acquisitions, and we expect to continue to utilize it throughout the year and into the future.

Okay. And then can we assume on the occupancy rates on the apartment buildings in your acquisition pipeline, are those quite high, similar to your existing portfolio? Or are those properties where you are going to need to work to increase occupancy?

Yes, generally speaking on the apartment projects we've been buying, and continue to have in the pipeline, they are not stabilized in terms of occupancy. But there are value-added components where we may put some capital in to try to improve the units or the common areas, and try to get the rents higher. But generally speaking, the apartment buildings we're buying are running in the 90%-plus occupancy. There are a couple -- there is one last year we bought that was at 88%. We've got it up to 97% now. But that's pretty much the lowest we've done in terms of occupancy, is in the high 80s, of anything recent.

Got it. Thank you.

Eric Miller, Advisory Research.

Congratulations, guys; certainly a really great 2012. As we've discussed -- as you've discussed here about the shifting of focus more and more over to Europe, it seems -- just a cursory observation is some of your deals in Europe, you guys are taking a higher percentage of the transactions, whether it be on the discounted loans or the direct investments. Is that a function of you guys are being an early mover, and seeing some great opportunities? Or is that a function of maybe that your historical partners might change a bit, as you do more European investments, as compared to US?

Yes. I think, Eric, it's that combination of things. Number one, we felt that these were really great opportunities. And they have actually, in hindsight, turned out to be that way. And they were of a size, too, where we could digest these with one other partner. But I would say -- we just went nonrefundable on an off-market set of loan purchases from one of the UK banks on Monday. And we're doing that in a 90/10 structure. That deal will close this quarter, and we're getting paid a GBP1 million acquisition fee as part of that transaction.

So, it just depends on the situation. And I can't speak for our partners, but generally speaking, our partners have done very, very well on everything that we've invested in in Europe. And so we've got happy partners.

The other part of what's happened to the Company from, say, 10 years or so ago, is that we've shrunk the number of external partners that we tend to work with. But the partners that we have today all have bigger financial capacity than, say, the 25 that we worked with 10 years ago.

And so what you'll see happen this year, and I think into the future, is that we have a universe of six or seven partners in Europe that we're working with, but they all have big financial capacity. So, it just depends on the transaction. The two apartment buildings that we bought in Dublin, one was a EUR27 million purchase, and the other was a EUR40 million purchases, and we did those 50-50 with Fairfax Financial.

But the other thing I should mention, too, is that that debt markets in Europe for property-level financing have improved significantly in the last six months. And when we first started our acquisition activity there in 2011, there was no debt market at all. Today, really starting in June last year, there is plentiful financing for these loan purchases. And there is a growing level of financing that's available at the property level on a conservative debt-to-cost basis.

And so, both of those apartment buildings that we did in Dublin, we closed those all-cash. But subsequent to closing those all-cash, we were able to put two -- independent of each other -- two very attractive financings on -- one with an Irish bank, and one with a UK bank. And so, just as happened here really starting in 2010, the banks are gravitating to the more high-quality sponsors like a Kennedy-Wilson. And so there's debt now available in these markets that we like to operate in.

Okay, great. And just one follow-on. Bill, you mentioned that you went to Ireland in 2010 when not many people were venturesome in that area. Now that others see the success that you guys have been having over there, what are you seeing on pricing on some of the new discounted loan pools that you -- or the direct real estate investments that you guys are looking at in Europe? Is the pricing narrowing significantly?

As I may have said earlier, the supply -- if you go back to the question that was asked about the PwC study of EUR15 billion for this year -- and I think it's actually going to be higher than that. There is still a lot of supply. And if you look at Europe in its totality, and I've seen all kinds of different studies, but one of the accounting firms has estimated that there is still $1 trillion of assets that have to be shed out of the entire European banking system, the vast majority of which is related to real estate. And so there is still a lot of supply. There is clearly more capital there than there was even a year ago. But prices are, I would say, still rational. But we also believe that this is the year that you really have to try and get many things done that make sense to do. And the United States is really a perfect case study of how quickly these markets can turn.

And if you look at the things that we bought, obviously, at the beginning of 2009 and 2010 and into 2011, then you look at the pricing today, here in the States -- you look at New York City residential, that market has gone through the roof. And if you look at San Francisco condominium projects, their price now is 20% above the peak than it was in 2007. And so these markets tend to change very, very quickly. And that's why we believe that 2013 is the year where you really have to try and get done whatever you're going to get done; because 2014 could be kind of a year where things have turned.

Okay. Great. Thank you.

There are no further questions at this time. I will now turn the call over to Mr. Bill McMorrow for final comments.

Well, thank you all very much for listening in. And, as always, we appreciate all the support you have given us. Thanks very much.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.