Kennedy-Wilson Holdings Inc (KW) 2014 Q1 法說會逐字稿

Welcome to the first-quarter 2014 Kennedy Wilson earnings conference call. My name is Jeanette and I will be your operator for today's call. (Operator Instructions). Please note this conference is being recorded.

I will now turn the call over to Christina Cha, Vice President of Corporate Communication. Ms. Cha, you may begin.

Thank you. Good morning, everyone. Joining us on today's call are Bill McMorrow, Chairman and CEO of Kennedy Wilson; Mary Ricks, President and CEO of Kennedy Wilson Europe; 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 Kennedy Wilson's 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 our reports and filings with the Securities and Exchange Commission.

I will now turn the call over to Bill McMorrow.

Thank you, Christina. Good morning everyone. So I am going to walk through the press release and the earnings. And then we will open it up for questions.

So as a starting point, yesterday we recorded adjusted EBITDA to shareholders of $69.2 million for the quarter which was 117% increase from $31.9 million in the prior year.

Our adjusted net income was $34.3 million, $0.39 per basic share compared to $13.2 million or $0.21 per basic share in the same period of 2013. Our GAAP net income to common shareholders was $10.5 million, $0.12 per basic share and diluted share compared to a loss of $3.6 million or $0.09 per basic share and diluted share in the same period of 2013.

As most of you are aware, we completed the successful capital raise for Kennedy Wilson Europe in February. We raised $1.7 billion which we plan to deploy over the next 12 months.

Turning to our balance sheet, our consolidated assets grew to $4.4 billion as of March 31 from $1.8 billion at year-end 2013. The increase is primarily related to the consolidation of KWE, Kennedy Wilson Europe, and certain investments which we previously unconsolidated.

During the first quarter as a result of amending existing operating agreements with one of our equity partners, the Company gained control of six separate unconsolidated investments that hold real estate related investment located in the United Kingdom and Ireland. The Company has an approximately 50% interest in these investments. As a result of gaining control of these investments, the Company was required to consolidate the assets and liabilities at fair value and record an acquisition related gain of $80.5 million which $40.3 million was allocated to non-controlling equity partners.

In addition in the first quarter, shareholder equity increased $184.3 million or 24% to $952.6 million from $768.3 million at year-end.

As of March 31, 2014, our investment account was $1.5 billion compared to $1.2 billion as of year-end. This represents a 30% increase in one quarter. The change is comprised of approximately $378 million of cash contributed to and income earned on investments offset by $25.7 million of cash distributed from investments.

The Company's $1.5 billion investment account represents an approximate 34% increase in our $8.4 billion investment portfolio at book value. This portfolio is comprised of 27.9 square feet of real estate including 18,027 multifamily units, 114 commercial properties, 371 hotel rooms and $1.2 billion of loans secured by real estate.

One set of statistics that I wanted to go through with you was to compare those numbers that I just went through in terms of square footage, number of apartment units etc. through the first quarter, end the first quarter of last year. At the end of the first quarter of 2014, our total investment portfolio was $8.4 billion; same period last year, $5.2 billion. That is a $3.2 billion or 63% increase. Our investment account at 3-31, 2014 was $1.544 billion versus $909 million for the same period in 2013. That represents a $635 million increase or 70%.

Our rentable square footage that I referred to earlier was 27.9 million at the end of the first quarter of 2014. It was 17.5 million at the end of the first quarter of 2013. That is a 10.4 million of square foot increase or 59%.

In our growing apartment business, at the end of the first quarter we had 18,027 units versus 14,764 units. That is a 3,263 unit increase or 22%. In our commercial property portfolio, it grew from 54 commercial properties at the end of first quarter 2013 to 114 commercial properties at the end of first quarter 2014. That is 111% increase.

The unpaid principal balance decreased as we expected from $1.7 billion at the end of the first quarter of 2013 to $1.2 billion. That is a $500 million decrease. That was primarily due to the successful resolution of the so-called Byron portfolio in the United Kingdom that we purchased in 2011 that had an unpaid principal balance of approximately $2.1 billion. That entire loan portfolio has now been completely resolved.

As I said earlier, our ownership interest in all those assets today represents 34% ownership interest.

Turning our attention now to Kennedy Wilson Europe. In February 2014, as I previously mentioned, we closed the successful IPO. Kennedy Wilson invested $145.2 million of cash and contributed $58.3 million of assets acquired by the Company during the first quarter. So in totality, we had approximately $203 million investment in that $1.7 billion capital raise.

The other interesting statistics is since our going public in 2009, November 2009, we have now raised over $8.5 billion of equity from third parties to support our investment platform.

Kennedy Wilson's investment in KWE represented approximately 12.2% of KWE's total share capital making us at the closing the largest shareholder in KWE.

We service the external manager of KWE in which capacity we are entitled to receive certain management fees and performance fees. Once fully invested, these fees include a 1% annual investment management fee based on the NAV as a company and an incentive fee of 20% in excess of a 10% annual shareholder return. Since we closed the IPO in February, those fees had a negligible impact on our first quarter.

Due to the terms of the investment management agreement under US GAAP, we are required to consolidate the results of KWE in our financial statement.

Turning our attention now to the investment business. During the first three months ended March 31, 2014, our investment segment achieved an EBITDA of $69.7 million, 143% increase from $28.7 million for the same period in 2013.

During the three months ended March 31, 2014, based on the Company and its equity partners� investment in 14,596 same property multifamily units, total revenue increased 7%, net operating income increased 9%, and the occupancy remained flat at 95% at the property level.

In addition, based on the Company and its equity's partner's investment in 4.2 million square feet of same property commercial real estate, total revenues increased 6%, net operating income increased 2%, and occupancy increased 3% to 85%.

In terms of the acquisition and disposition program, during the first quarter of 2014, the Company and its equity partners acquired $797.4 million real estate related investments in which the Company invested $347.6 million of equity. These acquisitions include $368.6 million of real estate related investments acquired by KWE.

The other point I want to make at this point is that we have approximately 20 assets globally where we have value add opportunities to our existing assets that we already own. And so a couple of examples I want to take you through and these, the value add opportunities exist both in the US and Europe.

For example, the Rock, which is a 600,000 square foot Class A shopping center located near Manchester, England, in addition to the existing retail which is 95% occupied, we are completing 233 apartment units. These apartment units were only partially finished by the previous owner. And by way of description, these apartment units sit on top of the existing retail structure.

We attributed almost zero dollars to these units at the time of acquisition. We started in the first quarter 2014 the buildout of these 233 units and we expect them to be completed within the year and fully rented within six months after that completion date.

Another example of our value add opportunities is Clancy Quay, which is a Class A apartment community in Dublin, Ireland. When we acquired this asset which includes 420 units which 270 were completely finished at the time, within 120 days of the acquisition when will be finished out the other 150 units and that entire 420 unit property is now 95% occupied. But in addition to those units, there are 8.5 acres of additional land at Clancy Quay, some of which have existing buildings on that we plan to rehab. And over time, we expect to build out between 400 and 600 additional units at Clancy Quay.

And as I mentioned at the beginning, in addition to these two units, we have roughly another 18 properties globally that have similar characteristics where we are implementing value add strategies.

The last point in terms of our investment account, in the first quarter of 2014, 82% of the acquisitions were in the United Kingdom and Ireland and 18% were in the Western United States. In our service business, investment management property services and research fees decreased by 3% to $13.2 million. During the quarter ending March 31, 2014, our service segment EBITDA declined from $5.1 million to $4.1 million.

And then lastly talking about corporate financing, Kennedy Wilson issued and sold 9.2 million shares of common stock resulting in gross proceeds of $197.3 million during the quarter.

Additionally, Kennedy Wilson completed a public offering of $300 million aggregate principal amount of 5.875% Senior Notes due 2024 at a public offering price of 99.068% resulting in gross proceeds of $297.2 million.

The other point on the debt offering as a frame of reference to that rate, 5.875%, is a 300 basis point improvement. And that piece of paper which is a ten-year piece of paper versus the eight-year piece of paper we sold in April 2011. So a 300 basis point reduction in costs to the Company on this last debt offering.

So with all of that information, I would like to open it now to questions.

(Operator Instructions). Jason Ursaner, CJS Securities.

Good morning, Bill. Congratulations on a great start to the year.

Thank you.

Just first focus on the acquisition program and some of the opportunities out there. You completed $800 million in the first quarter which seems like a very strong number. Are you willing to put out some type of range for a full-year program?

Before I answer that, Jason, and I'm not sure if we did this at the beginning, here with me is Matt Windisch, Executive Vice President of Kennedy Wilson, and Justin Enbody, our CFO. And then Mary Ricks is also on the line with us. Mary of course as you all know is the CEO of our business in Europe.

You know I would answer by telling you that over the last four years now, we are closing in on $12 billion of acquisitions at purchase price. We historically have not really put out a number here in terms of what we plan to do in the future but I can tell you -- and I think as we go back to our calls from even a year and a half ago, at that time I indicated to everybody that I thought there would be a shift in geographically where we would be investing. And so that has actually proved to be the case that now 70% to 80% of where we are investing has been Europe.

We have a very strong pipeline. I will leave it there. I don't want to really put a number on it and I don't want to kind of annualize the $800 million we did in the first quarter but it kind of divides the $12 billion over the last four years, we generally have settled in a range of right around $3 billion of acquisitions each year.

Okay, maybe asking another way. I think you've said publicly that you would like to have the European entity invested in the next one or two years or so. So far you've been buying properties there with equity. Is that 12 to 24 month's figure, would that be on a levered or an unlevered basis because that alone would kind of give you a $3 billion so split between this year and next year excluding any acquisitions at the holding company. Is that a fair way to think about it at least for Europe?

That is the correct way to think about it. So, when you think about Europe, although the two, actually three assets, groups of assets that we purchased in KWE today are completely unlevered and we are still sitting on $1.2 billion approximately of cash, over time we will be putting debt into that entity or the property level or entity level which would equate to roughly 50%.

And so if you just deduct out a minimum cash position that you want to hold and use that 50% leverage, you get yourself to that number that you were just saying which is something in excess of $3 billion of assets in that entity based on the initial capital raise that we did.

Okay. And at a high level obviously that is what you'd be looking to add but the market in Europe I guess UK and Ireland, specifically, are you seeing that region still be able to support that type of acquisition environment? And maybe Mary can answer. Are there enough properties that are becoming available? Are yields still favorable where that type of program is really feasible?

I want Mary to answer that question but the scope of the -- and there has been many, many third-party, not our number, but third-party analysis of the situation in Europe and by any measure you know they are somewhere between $800 billion and $1 trillion of real estate related assets that are still in some form of a need to find another home.

So with that number, Mary, you want to comment on Jason's question?

Sure Bill. I would say that the transaction volumes we've seen pick up in all of our core markets and that being the UK, Ireland and now we are looking a little bit in Spain. So the deleveraging process that started really in full blow I'd say a year ago has really picked up. So our pipeline is actually more full than it has ever been. And we are looking various ways to invest whether it be direct assets or buying debt or buying B notes or whatever ways we can invest in the capital stack that as long as it is secured by real estate.

So I would say there is going to be a big window of deleveraging that continues over the next 12 to 36 months depending upon where -- what location we are talking about.

Okay. And you mentioned outside of the UK and Ireland, is there -- you've had the benefit now of being able to evaluate Spain and Portugal from a service perspective for a short while now. Do you have any impression so far on whether you more or are less likely to deploy capital there in general and then maybe more specifically into either hard assets or loans? I mean would that be through the holding company or through KWE?

No, I mean everything we do is going to be -- KWE has priority access to every single acquisition that we do in Europe. So that would be through KWE Europe. And I would say as you rightly pointed out, since we have been in ownership of the servicing platform in Spain since December of last year, we have studied the market and become more comfortable but we are going to do things in a very, very carefully way in Spain or Portugal.

So we are looking at things. We do have a pipeline. We have several off market deals that we're looking at and we have a large transaction that we're looking at now as in right now in those two markets. We are obviously going to be careful with our investment thesis there.

Okay. And just last question for me. Bill, on the debt side of things you mentioned the latest offering you did at the corporate level. Do you see any refinance opportunity on the previous corporate level debt? And then on the asset side, I know you have done a really good job refinancing but the property level debt, is there still any opportunity there to either take equity out or get better rates?

Yes, at the property level, the biggest opportunity we have -- we bought some very quality assets in Europe over the last three years. And the biggest -- Europe in terms of the debt market is somewhat of an instant replay of what went on in the United States where we had virtually no liquidity in 2008 and 2009 and even into 2010. So in Europe, you know there is tremendous liquidity is now returned to the debt market in Europe. And so what is happening in Europe is that the spreads on financing are all coming down.

Mary, when we first went there, our spreads were probably what?

450 to 500 over.

Right. And so most of that financing that Mary is talking about we did on what I will call bridge loans, you know three- to five-year. So now that we are getting stabilization in a number of these assets, like for example State Street, the office building there, we've got a 15 year lease with State Street. Mary and her team are looking at all kinds of opportunities to refinance some of that existing debt at lower interest rates.

So I think Europe is a big opportunity for us. And then of course here in United States, we are always keeping our eyes on opportunities where we have debt maturities because we have said in many of the calls, we are not taking big interest rate risk on our debt financings at the property level. And even here at the end of the first quarter, still 82% of our debt at the property level has either got a fixed rate or a cap attached to it.

At the corporate level, this was a big achievement I think to bring down the cost of our corporate borrowing by 300 basis points really in a relatively short period of time, that is three years. And next April, of course, is kind of the first open opportunity to take a look at the original debt financing that we did.

And so it is something we have our eye on obviously and we will just have to see how the next nine to 12 months plays out. And then we will make a decision then whether it makes sense to -- what makes the most economic sense for the Company in terms of that debt piece.

Okay, great. Appreciate all the commentary and congratulations again on a great start to the year.

Thanks, Jason.

David Ridley-Lane, Bank of America Merrill Lynch.

Sure. If the consolidation of the six entities had happened at the start of the first quarter, what would the rental and hotel revenue have been in the first quarter?

David, it is Matt Windisch. You can add on a quarterly basis an additional roughly $10 million of revenue and $3 million of operating expenses as a run rate to the first quarter rental income and rental operating expenses, which would account for the six properties that were consolidated towards the end of the quarter.

Got it. Then Kennedy Wilson and its third-party investors have divested about a $0.25 billion in assets over the last two years. It has been the run rate. Should we expect an uptick in divestitures in 2014?

David, it is Matt again. Yes, in the first quarter we -- as you may have seen, we had $25 million roughly of distributions back to KW, which is kind of below our norm. And so we do have some dispositions planned which we expect to hit in the middle to the latter part of this year.

And so we would be on track to continue pruning assets out of the portfolio and reinvesting into higher octane investments.

Got it. Then Kennedy Wilson Europe pretty much sets you up for -- in terms of capital for the European investments. Just wondering how much cash and liquidity is there available for the Kennedy Wilson Holdings to make US investments.

And I am rounding here a little bit, but at the end of the quarter we had approximately $250 million in cash, free cash at KW, the holding company. We have nothing out on our line of credit, which is $140 million. We are also in the process of taking a look at that, the financing to possibly increase it.

And as Matt alluded to, we are always in a process now of pruning either lower yielding assets or lesser quality assets out of our existing portfolio. And so we have got a number of dispositions that we are doing here in the US this year that are going to generate additional cash to allow us to invest.

But the other thing that I really want to reemphasize is that these 20 or so properties that we have that have either additional land or value-add opportunities, a nice portion of our capital is going to go to enhancing the value of those existing assets that we already own. So without buying anything new we have got the ability to add apartment units, add square footage where it makes sense, and increase the overall returns of those existing investments.

Got it, so the value-add opportunity is very much in front of you.

One last question, if I could. I know you're very upbeat on your pipeline. I did want to get a sense of the Irish market, particularly sort of the outlook for loan sales and the competition that has come up for them. Then also are you still finding attractive hard assets, particularly in the Dublin market? Thank you very much.

Mary, you want to answer that question?

Sure, sure. I mean we -- the pipeline is still very, I would say, robust in Ireland. I mean there is obviously competition, but I think the thing that separates us out from our competitors is that we have 25 people in our Dublin office. So we have everything from a team of finance folks as well as a team of real estate folks.

We can buy -- whether it be buying debt, which is what we did on the State Street deal, bought the debt, closed it very quickly, and then took title to the real estate. Then as soon as we took title to the real estate we went and negotiated a long-term lease with State Street. As Bill said early on the call, a 15-year lease.

So that is really a perfect example of the opportunities that continue to exist in Ireland and that is on the debt side.

There are still quite a few opportunities to buy assets generally from receivers because those are banks that are selling assets. We have transacted with over 15 financial institutions, either buying debt and/or buying direct assets from receivers. So Ireland, there is still a lot assets that will change hands and we still like the market outlook quite a lot.

When you look at a 10-year average that [Seberry] has given us, cap values per foot and yields, we are still well below 10-year averages in Ireland, specifically in Dublin. So we are very bullish on the market and the pipeline that we have -- I was just on a call before this going through a roll up on a deal that we are looking at that is a bank-driven liquidation of debt secured by good assets in Ireland.

So very active and very excited. I think we set ourselves apart from our competition just by our operating platform that is really second to none in the Irish market.

Mary, I think one case study that would be worth going through is really the Central Park apartment transaction that you did in the first quarter. I mean that is a very recent transaction, but we own some of the highest quality rental apartment buildings in Dublin. I think since that is a recent add, it's a good case study for you to explain to people.

Sure. We acquired really in south County Dublin, a project called Central Park, and that actually was a property that had a commercial aspect to it as well as a residential aspect to it. It was actually being sold by NAMA -- by a receiver appointed by NAMA.

Green REIT had actually made the offer to NAMA and then later at that point they had come to us and said can you guys look at the residential for us, because that is really right up our alley. Nobody has bought more residential units than Kennedy Wilson has in Dublin.

So we acquired -- it is located in Sandyford which is a great location, about 11 kilometers from Dublin City Center, very affluent catchment area. And actually this is -- it's a great asset as well because the Luas stop, which is public transportation which a lot of people take in Dublin, is -- literally there is a stop at the property.

So we acquired -- there is 272 units and there is a podium that we can go ahead and build another 166 units next to the 272 units. And bought this at a deal that will stabilize around 6.5% to 7% yield. There is great value-add in terms of pumping rental rates up at all the units once we complete a little bit of the refurb on a unit-by-unit basis, which has proven to work for us in Dublin.

We are just in the middle of doing that and there is a great value-add opportunity to great --- very, very high quality I would say. If not the highest, one of the highest quality assets in all of Dublin and a great location.

Right, and we just closed that in the first quarter.

Mitch Germain, JMP Securities.

Hi, good morning. Just a question on the asset sales. Obviously, you have said you're going to queue up a couple more. Any characteristics -- I know you said US, but is there a certain asset class or location? I would appreciate that.

I think that we continue to want to grow the multifamily business. And as you can see from that year-to-year comparison, we added almost 3300 units in that one year period of time. We still very much like the multifamily business. We announced, I think it was last week, Matt, that we bought the so-called Apex apartment property in the Seattle market. We have a number of situations that we are continuing to evaluate in that Seattle market.

So what we are doing in our multifamily business, if you go back to the beginning of time, we had some partial ownership interest in some properties. So we are selling some of those and reinvesting that capital in really what I would call more 100% owned assets. So like Apex, we bought 100% of that equity ourselves.

Where we see some other disposition opportunities really are in some of our stabilized office properties. So we are continuing to look at that particular asset class. Of that asset class, it was a very capital-intensive asset class in the sense that most leases are on your office buildings in the United States. It is different in Europe, but in the United States, most of these leases are a 5 to 7-year duration.

So all the time you are redoing leases and adding more capital to tenant improvements and leasing commissions and so on. The opposite of that is really the multifamily portfolio that once you have got those assets stabilized and you are doing just your unit turns, which tend to average like $7,000 to $10,000 a unit, the capital costs are not nearly as great. So we continue to look at these office assets in the United States. Particularly when they are stabilized, there is opportunities for realizations.

But as I said at the beginning of this, the asset class -- the two asset classes that we've had very good luck with -- we have had good luck with all of them, don't misunderstand me. But in terms of your current returns and the demographics of the Western United States and the places where we own apartment buildings in Europe, there is very strong population growth.

Here in the State of California now, we are almost 40 million people. In the State of Washington, there is 7 million people. And if you go back 20 years, there is about half of that number in terms of the State of Washington.

The same thing is actually happening in Dublin, of all places. And you've also got this going against a framework where the renters between the age of 25 and 35 are not as inclined today to buy houses. They would rather have the flexibility of renting. So we want to continue to grow our rental business in really all of the markets that we operate in.

And at the same time, as I said where we have got these stabilized office buildings with big capital requirements every 5 to 7 years, we are evaluating disposition opportunities in that part of our portfolio.

Great, that is helpful. And then with regards to the bulking out the multifamily, is it lower capital costs and playing to the demographics, or is there something else like, for instance, maybe condo conversion plays on assets? What really is driving that?

Well, it is really looking at the -- where we have always made great money investing is where you're in higher barrier to entry markets. And when I mean that, there is limited land or in the case of California where there is also limited land in the core cities, there is also very high barriers to entry in terms of entitlement opportunities.

So we like not only the demographics of Seattle, San Francisco, Los Angeles, Dublin, the United Kingdom; the demographics are all in favor of multifamily. But they are also high barrier to entry markets in terms of competition.

The other point that you made about the condo conversions is that almost all of the buildings, Mary, that we bought in Dublin were actually built to condo specs, but they were finished at a time where there was no for-sale market.

Right.

So we have the opportunity if the market ever really got robust again on the for-sale housing side to actually convert some of those buildings to condos?

Yes.

But they are very high -- they are really very high quality condominium buildings that got finished at kind of the wrong time that we have now been able to rent successfully.

Yes, exactly right.

Thanks.

David Gold, Sidoti.

Good morning. Just following up on an earlier one. Two areas of potential gains I would like to ask you to hit on. One is further consolidation of other assets throughout the year.

Then second, I know you touched on the expectation that you would be a bigger seller, let's say, than you were in the first quarter through the year. But if you can put some maybe guideposts around that or around what size gains we might see in the next few quarters.

Hey David, it is Matt. So to give you a sense, I think you have hit on two items that are possible which is potentially more consolidations in the future, and also as Bill mentioned and I mentioned previously, we are looking at some asset sales, both of which could potentially produce gains for us. We don't want to get into specifics around that, but I think those two items are both possibilities in the future.

Got you, okay. And then another question. Matt, when we look at the consolidation, I mean it obviously sounds -- not obviously, I will ask you two questions. One, has anything changed in the way that you are managing these assets now that you quote/unquote formally have control?

And two, can you give a sense for what is driving the consolidation? Is it simplification maybe from a management or accounting standpoint, or are there other factors there?

Yes, I would say it is always kind of the factor. Ultimately, it is a business decision. And at the level that we are at now and the success we have had over the past several years, particularly on the acquisition front, we are now in a position to control every asset that we purchase. And that is our plan going forward is every asset we purchase, we would have control.

Now that means several things, but ultimately it means we are making the calls on the day-to-day decisions on every property we own. And so that is the reason we are doing it, and we think it is in the best interest of the Company to have that control. And what falls out of it is an accounting scenario which we think is also helpful, which is you will begin to see the revenues and expenses from these properties that we control on a going-forward basis which will make both our income statement and balance sheet I think more easier to follow and it will be better disclosure for all the shareholders. So that is -- ultimately, it is a business decision, but the accounting treatment we believe is also favorable.

Okay. Just following up on part one, has anything ultimately or really changed on the six that you brought on?

Yes, absolutely. I mean we now have control of those investments, where before we had joint control. So there is a significant change in terms of the decisions we get to make on those properties.

Okay. Fair enough. Thank you both.

Andrew Berg, Post Advisory Group.

Hey, guys, a couple questions. Want to go back to liquidity first, just to confirm something. You said you got $250 million of cash on hand at the Holdco, plus $140 million of revolver availability. You show roughly $1.2 billion of cash held by consolidated investments from $1.3 billion.

Is that all in KWE, and/or is there also additional cash at the partnership level that we are not seeing here that give you additional firepower?

So the cash number -- this is Matt. The cash number you are seeing, roughly the $1.3 billion, the majority of that is cash held by Kennedy Wilson Europe. There is also some additional cash held by partnerships in which we have a controlling interest, but the majority of that is KWE cash.

Okay. And then any additional liquidity facilities that we are not seeing away from the Holdco, either at the partnership level or in KWE?

So the KWE, you're seeing all the cash. But on our unconsolidated investments which totaled about $620 million, there is cash at those investments as well, which does not show up on our balance sheet.

Can you quantify roughly what that is, Matt?

It is roughly $50 million. That is not all our cash; that is between us and our partner.

Understood.

Right, but I think, Andrew, one other point there and it goes back to the point I made -- I was trying to make it -- that over the last four years we have raised $8.5 billion of equity from our partners. So we obviously have the capacity going forward, if we want to, to raise additional third-party capital from partners that are very happy with the things that we have been doing with their money over the last four years.

Yes, and I would say you guys have a high-class problem. Raising capital does not seem to be a problem for you, and you've obviously done a good job deploying it. It was just a question of confirming exactly how much liquidity and where it is.

Yes, got it.

With respect to the UK, the Kennedy assets, you had talked about the fees which are not currently reflected in the numbers. I think you said it's 1% plus the 20% promoted by 10%.

Right.

Just on the 1%, what does that translate into in terms of what we'd expect to see this fee income going forward?

So what this roughly $17 million, if you take the $1.7 billion of equity times 1%.

Okay.

And that doesn't include, of course, then any return on our $200 million worth of equity that we have invested in that entity.

Right.

In addition to the potential incentive fee (multiple speaker).

Right. So there is three -- when you think about Europe and you think about Kennedy Wilson US, there is kind of three pockets of what I will call money-making opportunities. It's that base fee that Matt is talking about, it is a return on our $203 million, and then there is the promote structure on our incentive fee.

Right. I was just trying to focus on the one piece that was the -- what we knew was the fee income. And obviously, we will see what happens with acquisitions. As you guys have shown, that provides a lot of upside.

Right, and that number, Andrew, in the first quarter was almost zero.

Right. That is why I was trying to quantify it.

And then lastly, either for Bill or Mary, as you guys think about Spain and how you may move there, obviously you talked about having a preference for multifamily as shown in UK, Ireland and in the US. Is that the same focus as you go into Spain and Portugal potentially?

Is multifamily where the first preference is, or would you be more inclined to do commercial there? And how big of bite should we expect you guys to potentially make? I know you said you're looking at one large acquisition. Large in terms of -- can we just put some numbers around what you are defining as large?

Mary, do you want to take that?

Sure. I would say Spain, there are quite a few residential opportunities there. And some of those we are looking at are off market, I can't really talk about that. And then in terms of the potential acquisition, it is really two pools of loans secured by a variety of assets -- office, retail, some industrial, not quite -- a few residential assets, but not so many in those two pools. And that is just a potential -- it is a potential acquisition at this point.

But there are, to your point in terms of resi, there are quite a few residential opportunities in Spain that we're looking at.

Okay, and the preference is to think more about residential than potentially commercial?

You know, it depends. I mean, I think on the commercial side we'd look at big cities -- Madrid, Barcelona type assets. So again, to the comment that we'd be very careful with anything we do in Spain, we'd be looking at big city type acquisitions. And then, of course, residential which is really throughout all of Spain. There is quite a lot of residential opportunities in Spain right now.

Right. Okay, thank you very much. Appreciate it, guys.

Thanks, Andrew.

Thank you.

We have no further questions at this time. I will now turn the call back to Bill McMorrow for closing remarks.

All right. So thanks, everybody, for listening in. And as I always say on these calls, Matt or Justin or Mary and I are available for any offline calls that anybody wants to make. So thanks again.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.