Kennedy-Wilson Holdings Inc (KW) 2015 Q1 法說會逐字稿

Welcome to the Q1 2015 Kennedy-Wilson Earnings Conference Call. My name is John and I will be your operator for today's call. (Operator Instructions). Please note that this conference is being recorded. I will now turn the call over to Christina Cha Vice President of Corporate of Communications at Kennedy-Wilson. Christina, 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, Execute Vice President of Kennedy-Wilson, and Justin Enbody, Chief Financial Officer of Kennedy-Wilson.

Today's calling 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 and 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. Good morning, everybody and thank you for joining the call. We're going to start with some of the key financial highlights for the quarter, then discuss our property operating performance and value-added initiatives and then touch on our are acquisition disposition and financing activity and conclude by discussing our current financial position and outlook.

Starting with our financial highlights our adjusted EBITDA for the quarter was $53.7 million compared to $69.2 million for the same period in 2014. Our adjusted EBITDA includes acquisition-related gains of $600,000, actually, for the first quarter and $43.9 million for the first quarter of 2015 and 2014 respectively. Excluding the acquisition-related gains in both periods our EBITDA was $53.1 million in 2015 and $25.3 million in 2014. Adjusted net income for the period was $30.5 million or $0.33 per basic share compared with $34.3 million or $0.39 per basic share for the same period in 2014, which includes acquisition-related gains of $0.01 per basic share and $0.50 per basic share for the respective quarters of 2015 and 2014.

Our adjusted net income is reduced by KW's share of depreciation and amortization which was $15.9 million in 2015 and $5.3 million in 2014 and as all of you know these are noncash charges. Our investment management and service segment produced adjusted fees of $27.1 million, which is up 49% from last year. During this same period our service EBITDA grew by 125% to $12.8 million.

Regarding our investment transaction summary we had total acquisitions including, within KW Europe, of $923 million in Q1 and an average cap rate of 7% and approximately $225 million of dispositions at an average cap rate of 4%. The trend of buying at 7% caps and selling at 4% caps will continue into the second quarter as we are under contract to buy interests in 5,485 unit vintage housing apartment portfolio on the West Coast for 7% cap rate. While at the same time we are under contract to sell our equity interest in over 2,410 unit Japanese multi-family portfolio at a 4% cap rate.

KW expects to receive over $100 million of cash from the Japanese sale while the vintage acquisition will take approximately $85 million of equity to close. Interestingly, the vintage portfolio has more than twice as many units, is here on the West Coast, has a larger NOI than our Japanese portfolio. Further, we have a larger ownership interest in the vintage portfolio equaling 62% versus an ownership interest of 41% in our Japanese portfolio. Moving on to the operating highlights we have added substantial recurring income to the Company in the past year. Not only from our acquisitions and the growth in our investment management and service businesses but also importantly by growing the income on our existing portfolio. Same property multi-family revenues were up 8% with NOI up 11% from last year on flat occupancy of 95%. The Western U.S. was a big driver with NOI up 13% period over period and in particular our investment from the bay area performed exceptionally well this quarter.

I would like to walk you through an example of our multi-family property called Merritt on 3rd. Merritt on 3rd is 178 unit multi-family property located in Oakland, California that we purchased in October 2012. Since the acquisition our Asset Management Team has accomplished significant value-add initiatives including extensive re-branding, the expansion and renovation of the leasing office, the upgrading of the fitness center and clubhouse, along with an ongoing superior unit renovation program. To-date we have spent approximately $3.5 million on these initiatives, which contributed to significant growth in the annualized NOI from $1.7 million at acquisition to $2.4 million in 2015. This represents over a 40% increase in NOI. Over the past year alone this property has experienced NOI growth of over 13%. In the multi-family business as a whole we have been experiencing acceleration in our NOI growth with same property NOI growing by 7% in 2013, 10% in 2014 and now 11% in Q1 2015.

Moving on to the commercial side of our business, same-store commercial revenues for the period grew 4% leading to NOI growth of 6% driven by an additional 125,000 square feet of absorption in the past year which grew occupancy by 2%. We are very focused on growing the recurring income of the Company through a variety of value-add and re-development initiatives within our existing portfolio, some of which are complete but many of just getting underway. In total we are working on projects at over 30 properties, most of which have meaningful existing income streams but we are were also purchased with excess land for which we attributed little or no cost basis. We are currently in titling or building over one million square feet of office and over 3,000 apartment units globally including 800 units that are currently under construction on land with little or no cost basis. We have an in-house team that is highly capable of working through complex entitlement and construction issues on these types of projects.

During the quarter KW invested $19.1 million into 17 properties under going value-added initiatives. A good example of one of these projects is a property called The Rock which is a very high-end retail residential and entertainment center located near Manchester in the United Kingdom. We and our 50-50 equity partner originally purchased the discounted loan secured by this property in 2012. That loan had an unpaid principal balance in excess of $500 million. We purchased that loan for $125 million and in 2013 we obtained title to the real estate.

At the time of the acquisition in addition to the existing retail portion of the property with tenants including Marks & Spencer and Debenhams, each with over 30 year lease terms, there was a second story facade sad that enclosed an incomplete residential component. We assigned no value, zero value, to this residential component at the time of acquisition. Since taking title we brought in a contractor to complete 233 high-quality residential units at a total cost of $17 million. Phase One which comprised 66 units was completed in 2014 and is now fully leased, 100% leased. Phase Two comprising 167 units was completed in April of this year and is currently being marketed for lease. Based on the 66 units leased to-date and once the remainder are fully leased we expect these units in total will generate approximately $2 million in NOI, representing over a 10% cap rate to our basis.

Moving on to our $1.1 billion in transactional activity in the first quarter on the buy-side we acquired $923 million of investments in Q1 at an average cap rate of 7.3%. Of the $923 million of acquisitions in the quarter $820 million were acquired by Kennedy-Wilson Europe. Our largest acquisition of the quarter was 180 property portfolio that Kennedy-Wilson Europe acquired from Aviva for a purchase price of over $700 million. The portfolio consists of approximately 3.5 million square feet of space, is currently 98% occupied and is expected to generate approximately $54 million of net income on an annualized basis. The portfolio is predominantly located in England with 54% weighted towards London and the southeast. We were able to acquire and secure this portfolio in part because of our willingness to take on long-term seller financed debt. As a result of this acquisition we now have in excess of 35 million square feet of real estate in our global investment portfolio.

In addition to the acquisitions closed in Q1, as previously-announced, KW and our equity partners have closed or are under contract to close an additional $625 million of assets which will be completed in Q2. The largest of these acquisitions is the previously mentioned vintage housing apartment portfolio. We were able to secure this multi-family portfolio through an existing relationship with no broker involved in the transaction. The portfolio has a going end cap rate of over 7%. In Q1 we entered into a contract to acquire a 62% interest in this 30 property portfolio which comprises 5,485 units. As I mentioned earlier, the purchase price for our share, the 62%, was approximately $86 million, which equates to a total portfolio value of $486 million because there's some existing debt that we're assuming as part of the transaction. The properties which are tax credit financed are located in our core multi-family markets in the Pacific Northwest and California. We are excited to complete this acquisition in the second quarter and have high hopes for the future of this business.

Since going public we have now closed or are under contract to close approximately $16 billion in total acquisitions and of this $16 billion three-quarters of which were purchased indirect negotiations through our global network of relationships that we have built up over the last 26 years. On the disposition side we are taking advantage of the global search for yield, we have an active pipeline of assets we're selling. In Q,1 as I previously mentioned, we sold $225 million of real estate at an average cap rate of 4% and we currently plan to sell in excess of $1 billion for the entire year which is about what we sold in 2014.

An example of the recent disposition is the sale of our Japanese multi-family portfolio, which we announced in April. We agreed to sell the multi-family unit holdings, totaling 2,410 units located throughout Japan, for $488 million which equates to an approximate 4% cap rate based on the current NOI of the portfolio. Kennedy-Wilson expects to receive pre-tax net proceeds of between $105 million and $110 million which represents a pre-tax cash profit of between $70 million to $75 million. Given our 20-year history in Japan and our belief in growing long-term businesses in the markets that we enter, we expect to reinvest approximately $7 million to retain a 5% equity interest in the portfolio alongside the buyer of these assets. In addition, we will enter into an asset management agreement with the purchaser to provide asset management services for an initial term of three years keeping our entire Japanese team intact.

Moving on to our financing activity for the quarter, for several years we have been taking advantage of this historically low interest rate environment through our access to the property financing market. In the first quarter, at the property level, we, together with our equity partners, completed $879 million in total financings. Our largest acquisition financing for the quarter was on the Aviva portfolio that I discussed earlier. The total loan at acquisition is approximately $525 million, which is broken into three tranches of debt with a weighted average maturity of five and a half years and a weighted average interest rate of 2.96%. The tranches include a three year floating rate piece at LIBOR plus 250, which allows for flex built on asset sales, a 5% fixed the rate piece at 2.9%, and an 8 year fixed rate piece at 2.91%.

During the quarter we, and our equity partners, refinanced $229 million of existing debt with $296 million of new debt. The new debt is all at fixed rates at an average coast of 2.9% with an average duration of 10.3 years. An example of one of these refinances is the Sandpiper project in Salt Lake City, which is a 366 unit apartment complex. We purchased this wholly-owned, we own this 100% in KW. We purchased this property for approximately $43.5 million in November 2012 at a 7.3% cap rate. At acquisition we assumed an existing $26.3 million first trust deed at 4.7% and a secured second trust deed of $5.3 million at 5.4%. Again, along the lines of our value-add strategy since acquisition we completed approximately $4 million in renovations, we have been able to grow rents by 11% and NOI by 17% in Q1. We were able to refinance these two loans and obtain a new tenure loan of $53.3 million at 3.2% fixed with interest only for five years. And if you do the math, we were able to cash out $17.6 million from this refinance while keeping our interest cost about the same as it was with the lower amount of debt.

Our refinancing activity is not solely confided to the US. In fact we are finding more attractive long-term fixed-rate debt in Europe. During the quarter was the refinancing of three multi-family properties located in Dublin, Ireland. These assets were originally acquired in 2012 and 2013 by KW and an equity partner. With the refinance we were able to obtain ten year interest only financing at a fixed-rate of 2.57%, which is between 100 and 125 basis points lower than what we would have been able to finance comparable properties at here in the United States. And also, as a frame of reference, these properties had previous debt on them, floating rate debt, at 3.84% with maturities occurring in 2017 and 2018. So to repeat myself we were able to put ten year financing on at 2.57%. Additionally, between KW and our 50-50 partner we are we believe able to cash out $30 million of equity from the refinancing of these apartment buildings in Dublin.

Finally, let's discuss our current liquidity, capital position and outlook. We find ourselves in the best financial position in our history with over $1.2 billion of liquidity even with the $16 billion of acquisitions either completed or under contract we find ourselves with $1.2 billion of liquidity between KW and our consolidated subsidiaries including $600 million of unused lines of credit. Additionally, between KW and KWE we have over $1.3 billion of unencumbered assets including KW's stock position of our ownership in KW Europe. In addition to our existing liquidity we expect to generate significant cash for the combined companies for the remainder of the year from a combination of cash flow and planned asset sales. We firmly believe that it is prudent to have ample liquidity in what has back a very volatile world with large interest rate currency and to be market swings.

While we remain cautious in a very competitive market we continue to find opportunities to invest in deals that are sourced through our global proprietary network. We will continue to maintain high levels of liquidity and have increased the pace of dispositions while remaining focused on value creation opportunities on existing assets. So, with that I would like to open it up to any questions that anyone has.

Thank you. We will now begin the question-and-answer session. (Operator Instructions). Our first question is from Jason Ursaner from CJS Securities.

Good morning. Congratulations on a strong start to the year.

Thank you.

I just want to focus on the equity recycle that you did in the quarter because I think for most investors this is what they kind of view as the secret sauce of the company and it's one of those things that, maybe, on the surface if real estate market was more efficient it wouldn't be possible. So just, at a high level when you look at the 920 of acquisitions at a 7% cap and the 225 sold at a 4% cap, how do you see Kennedy-Wilson continuing to generate and turnaround those types of opportunities and is it more geographic based or it's really just the proprietary nature of what you guys do on sourcing?

Well, you know, I would say first of all as I alluded to a little bit, Jason, we have been doing this for 26 years. I mean this isn't the first time we have been through this kind of activity and cycle although, obviously, the dollar amounts are larger at this point in time. So as I said, you know, really what we're doing globally we're trying to maintain very high levels of liquidity in the Company to take advantage of this global search for yield that people have right now to prune our portfolio either on assets that we don't think are of a quality that we want to keep them long-term or where there's a window of opportunity to dispose of a large portfolio like we did in Japan. But at the same time what we're doing is, as I hope I explained, we're growing our existing recurring NOI at our existing assets that we plan to keep long-term through these value enhancement strategies that I explained on The Rock, Merritt on 3rd and on Sandpiper.

So it's a balance, but at the root of it all it has to do, starting with, maintaining a very high level of liquidity, pruning our portfolio for things that we don't want to keep long-term or where we want to recycle equity into assets that have higher returns and so the vintage portfolio is a very, very good example of how we were able to take an opportunity that we sourced offer market, buy it at a cap rate that was above market for a variety of reasons, but use the equity, essentially, out of the sale of Japan to reinvest in that portfolio. So, kind of, if you looked out now over a three to, you know, five year period of time, we're going to continue to see the NOI on a recurring basis of these properties increasing.

Okay. And with VHH and Japan you should be controlled to a 1.5 billion of acquisitions and maybe close to 750 or so of divestiture through the first half. You know, I realize it was a pretty quick start to the year but just wondering how you're starting to think about the balance of the year in terms of activity maybe not in terms of a specific number but usually there's an acceleration into the second half as companies look to get some deals done so, just, would you expect to see that again this year and I guess it sounds like you plan to participate on both sides of that.

Yes. I mean if, as I say, if you think about it, in the last five years we have bought now almost $16 billion of assets at purchase price and remember when I talk about purchase price, those are deeply discounted prices just like the example I went through on The Rock. And so if you look at on average what's happened in the last five years, we have averaged close to $3 billion of acquisitions on an annualized basis. We don't look at any of that as being a bogey for each year. It just depends on what the market opportunities are that present themselves. We are off to a very fast start. It's hard to really annualize what we have done in the first half of the year, but what I am really trying to communicate is that we have virtually nothing out on our lines of credit, we have a tremendous level of cash in both of our companies, e also have a fund management business, although it's smaller, we have almost $300 million of cash sitting in that business right now.

And so we're in a position right now where we're pruning the portfolio and looking for opportunities but being very, very careful about where we're spending our money right now. Clearly here in the United States, you know, you have a market where on , you know, prices have creased significantly but we still see opportunities, as witnessed by the vintage deal, the bargain purchases, though, really today exist in Europe and we were fortunate to get our flag planted there in 2010 when nobody else wanted to go there. So we're going to continue to take advantage of these opportunities that we see in Europe.

Okay. That all sounds great. Thank you for taking my questions.

Our next question is from David Gold from Sidoti.

Hi. Good morning.

Hi David.

So a couple of questions. First by way of follow-up just, Bill, you noted that where you have seen the bargain purchases in the European side of things. Can you give a little additional color as to how you are thinking about the additional markets. You planted your flag in Spain, as well, in the last year or so but teen Ireland, UK and Continental Europe, probably, where do you see the best opportunities and where should we be expecting you to be more focused?

Yes. Thanks. I'm going to answer part of the that question, Mary, and then I am going let Mary, Mary Ricks is on the line with us and as you all know she's the Chief Financial Officer of our business in Europe, but if you look at the Company over the last 26 years we've always gone into markets that were out of favor and hopefully before other people got there and so Japan we went there in 1992, as I said, we got to Europe in 2010. We really ramped up the growth in our multi-family business, you know, kind of at the height of the great recession when we saw opportunities to buy things here in the western United States. And so Mary and I have been together as business partners now for all of that 25 years. We still continue to see opportunities, but, Mary, I would like you to kind of focus now on what you're seeing in Europe.

Sure. Yes. It was interesting because I just actually spent the last two days in Dublin and there's still a lot of opportunities in Ireland and I think one of the things that makes us unique is that we have a very large platform there all the way from acquisitions, asset management, construction management, accounting, so we're fully integrated therein Ireland and we, you know, I think we're a very local player that knows everything that's going on the operating side so all the fundamentals what's going on in the occupancy and in the office market in Dublin in particular where we're very active.

So there's quite a few opportunities there that we're at the beginning stages of underwriting and looking at. I think that will continue over the next 12 to 24 months. Still very active and looking hard at opportunities here in the UK, where we also have a large team, 35 people here on the ground in London, and like Bill talked about how we're sourcing opportunities really off-market. I think that's just about the sort of prominence and importance we put on relationships and working on those relationships with the most of the financial institutions. So we continue to do that and we see opportunities here in the UK. We also see opportunities and we're in the kind of final stages of underwriting some potential acquisitions in Spain and sort of beginning stages of looking at things in Italy. So it's sort of throughout those four jurisdictions where we have we've been talking about focused over the past 12 months. We've got a pipeline, really, in all of them.

Perfect. That's helpful. And then, Mary, also to a small extent there were some dispositions in KW E during the quarter and actually I guess some commentary in your release as to further property among disposals over the rest of 2015 and 2016 and I'm curious there given, obviously, the relatively short duration if you can give some additional color as to, and obviously the returns look like they have been terrific, but has that been by design or more opportunity stick?

I mean everything that we're buying we're, a lot of what we have bought have been in portfolios. So for example the Aviva transaction 180 assets so where there's going to be disposals out of that portfolio, we have underwritten literally every single asset on a lease-by-lease analysis.

Yes.

So we have got business plans for every single asset and as you pointed out in your question, we've owned asset for not, roughly just over 7 month on average so a lot of it is about getting our arms around everything and doing all the asset management kind of the low-hanging fruit and then understanding the time and specific submarkets to sell assets that somebody is willing to pay us kind of tomorrow's prices today and/or are we definitely selling and those will be situations that we have under written and so, yes, I mean I think I'm happy with what we have sold and we've got a pipeline of dispositions that we're planning for the second half.

Perfect. Thank you both.

Thank you, David.

Our next question is from Vincent Chao, a private investor. Please go ahead.

Hey. Good morning, everyone. Just a quick question, just sticking with the disposition theme here. Of the billion that you expect to sell I know we talked about the proceeds from Japan, but just curious what you think the net proceeds to KWH will be from those billion?

Yes. I mean our plan on these dispositions in terms of cash to KWH and this is just the range, okay? But we plan to generate cash of in excess of a couple hundred million dollars at KWH between now and the end of the year which includes cash generated productivity properties themselves and cash generated from the dispositions.

Okay. Thanks. And then just, as we think about the US markets where prices have elevated or are elevated in many markets, just curious which of your own submarkets you may feel it's a better time to be a seller than a buyer?

Well, I think that, you know, just to reamplify on the cash and we talked about KWH. I mean Mary is going through the same strategy at KWE and she's going to in that company generate significant cash between now and the end of the year, but in terms of the US, as I think all of you know, our business is confined in terms of the investment activity to the Western U.S. and our main markets in the Western U.S. are Seattle, The Bay area and here in Southern California. What I have said on prior calls is that the things that we're primarily selling here in the U.S. are either office buildings, here in the western United States, that have reached full occupancy and full value or in some cases multi-family assets where we're not the 100% owner.

We have some multi-family assets if you go back historically where we had partners in them and those partners want realizations an so sometimes we're selling those, but there's no rhyme or reason. We like all three of those markets. We have never been, when I say The Bay area, our focus has been really not downtown San Francisco, it's been the submarkets outside of San Francisco particularly the East Bay. We really like the Seattle multi-family market and after the vintage closing we'll own almost 10,000 units in the Seattle market, which as you all know is experiencing very, very good job growth. And there's no real secret to the multi-family business. The very strong NOI growth and everything that we're experiencing in many respects relates to those markets that are having great job growth. The Bay area and Seattle. But I would say, you know, one consistent theme on the disposition side is that to the extent we have office buildings that have reached what we think is full value we're selling those right now. Here in the US.

Okay. Yes. I guess I was more alluding to the East Bay. You have been there and that's been a great move for you guys and it seems like we are hearing more and more from others that, you know, about the strength of that markets and people are starting to move in and so just curious if at the margin it might be time to sell some assets there, but I guess the other question I had-.

And we are. I mean. we're under contract to sell one reasonably good sized asset in what I would call the East Bay, but many of the assets that we own in the East Bay we own at the 100% level and so those, several of those, like for example, we own a very large apartment complex in Alameda called Summer House and it's almost 700 units that over the years we spent over $20 million refurbishing that, you know, I'm trying to do this from memory, Matt, but when we first bought that portfolio, the NOI at that property, I'm sorry, that asset or the NOI at that property was right around $6 million when we first got it stabilized here about four or five years ago, the NOI at that property today is close to $10 million a year. And so those kind of assets that we own in the East Bay are long-term keepers that we just continue to asset manage and grow the NOI of.

Okay. Thanks for that. Maybe just going back to your commentary about the volatility of the markets today and some of the swings we have seen in rates globally, just curious if that has had any impact on transactional volumes in any of your markets? Just is there, is some of the movements we have seen recently in the ten year rates are they, is it causing people to sit on their hands at all and in Europe are you seeing the recent upswing in say the (inaudible), for instance, but just curious if that's having an impact on cap rate discussions and things like that.

It really isn't. I mean the rates haven't moved perceptibly, you know, the volatility it really only plays into how we look at our own business and the fact that we want to, as I said several times, maintain a high, while we're doing all of these acquisitions the $16 billion over five years I continue to remain convinced that we need to maintain a high degree of liquidity with as little short-term debt as we can possibly have, but it hasn't, there's, you know, you still have, when we first went to Ireland in 2010 the ten year bond in Ireland was 14.5%. And today the ten year bond in Ireland is sub 1% and so there won't be enough of an increase in these interest rates that's really going to slow people down from trying to find some type of yield everywhere, which is obviously what's causing this compression in cap rates as this global desire to find some kind of yield above these very, very low, not only deposit rates in the banks but, these ten year government bonds all over the world.

And, Vin, just to add on to one thing, (inaudible) this is Matt. If you look at how we're managing our balance sheet against some of these risks, if you look at the financing at the Company both at the corporate level and the property level we've got 85% of our debt either fixed or hedged against interest rate volatility and at the same time on the currency side of the business we do have about $600 million of currency exposure through our investment account and that's about 80% hedged against currency swings and so we're managing the balance sheet for this type of volatility.

Yes. I think Matt is making a really good point that even in spite of these very, very low floating rate opportunities to borrow on a short-term basis we have made the strategic decision that we're going to fix, as he pointed out, 85% of our interest rate exposure is either fixed or has a rate cap attached to it and except in a few isolated cases we have been willing to forego the extra 50 or 1100 basis points that you can get on these short-term loans to have longer-term debt at fixed rates and at the same time maintain a very, very high degree of liquidity in both KWE and Kennedy-Wilson.

Okay. Thanks. Thanks for the color.

Our next question is from David Ridley-Lane from Bank of America.

Sure. So investment level debt is now at a 4.2% blended interest rate down from 5.1% a year ago but the refinancings you did in the first quarter were even lower at 2.9%. So just wondering how much further do you think you can move that overall blended interest rate down in 2015?

Hard to project that one, David. I mean we don't have a lot of debt maturities at the property level in 2015 and 2016. Matt, we have-.

Our share of the total debt coming due in the next two years is under $200 million.

Right so.

Nothing on the corporate side for many, many years.

Right, we've re financed all the corporate debt. We are doing, in Europe, we have a couple of assets that we are refinancing right now at 100 basis points savings in interest rate and adding term to them, but basically here at KWH other than what we have already done we don't have a lot of debt maturities coming up over the next couple of years.

Got it. And then on a blended basis your ownership in US apartments is up to 46% now and as you mentioned you have been selling the ones where you're the minority holders, so are there opportunities within the portfolio to sort of crossover the 50%, gain control, consolidate the properties, sort of similar to what we saw last year here in 2015?

David, this is Matt. I think there is a potential for that and we, to the extent where there's opportunities to crease ownership in our existing portfolio on assets we know we may take advantage of that.

Right. And I think, you know, too, David, it obviously takes time to build up these percentage ownerships and as I have stated many times, you know, we started with $57,000 26 years ago and so when we first starred in business and really up until the last three or four years we always had a lot of partners where we owned smaller ownership interest in the deals that had promote structures and over the last three or four years we've continued to really change that strategy. We still have some partners but many, many fewer partners than we used to have and so obviously over time the ownership interest in every asset class that have increase the dramatically over the last couple of three years and Kennedy-Wilson Europe for example except for one extremely small asset out of a $3 billion portfolio we don't have any partners.

Got it. And then a few quick numbers questions. What were assets under management at quarter end and then the gains from the sale of the Japanese portfolio? I believe those will run flu JV income line on the P&L. Am I right on that?

Yes. So for the 81, it will be a little over $18 billion for the quarter and in terms of the Japanese sale it's actually a consolidated asset so it will run through a gain on sale on the income statement, not the JV line.

Got it. And so you would have on the revenue line you would have that $105 million or so?

I don't think it will be revenue. It will be a gain on sale.

Okay. Gain on sale.

Below the line.

Below the line. Got it. Alright. Thank you very much.

Our next question is from Vance Edelson from Morgan Stanley.

Good morning. Thanks for taking the questions. You mentioned the rise in prices in the US and the bargain prices in Europe so could you give us your insight on the recent trajectory of cap rates year to date? For example, where you're seeing the most cap rate compression around the world and are there any regions where cap rates are really moving in the other direction and meaningfully rising?

Yes, I mean, I don't think there's any specific region but, I mean, cap rates have compressed everywhere in the world as witnessed by these ten year bond rates, like the example I just went through in Ireland. And the enormous amount of liquidity that exists around the world today that is searching for some kind of yield. And so there's been cap rate compression in Japan, there's been cap rate compression in the United States and since 2010 there's obviously been cap rate compression in Europe. When we first, and that's why when I said earlier we're always trying to get into these markets early when they're out of favor but if you look at the markets that we're in the common characteristic is, is that some of the largest banks in the world exist in those markets and some of the largest insurance companies because that's really the source of our purchasing opportunities when these markets are out of favor. But it's just, it's a market today where, obviously, cap rate compression is happening globally and you have to stay disciplined in terms of the markets that you want to invest in, you can't be going outside of markets that you don't have your own infrastructure in and, I think, that's really been, as Mary pointed out, we have almost 80 people in Europe and it's a fully integrated business, asset management, entitlement, accounting, due diligence, and acquisitions.

And so, unlike peers that tend to have only an investment side, we have fully integrated, on the ground operations in every market that we invest in but that's why when you look at our company we don't go outside of markets that we don't have that kind of infrastructure in. And so, in a long winded way, I would say that the cap rate compression has been global and while we still continue to find opportunities through our own network, to buy off market transactions, were just, we want to be very, very careful in this environment and that's why I said early, when Jason asked me about the acquisitions for the year, we don't have any boggy in terms of what we want to acquire for any given year. The opportunity has to make sense to us or we're not going to buy, it's just that simple.

Okay, that's very helpful. And then, just given the recent sale in Japan could you just share with us what your long-term commitment is to Japan? You've been there for a while so should we assume it remains an important region for you and this is just a temporary lull in your presence there? Because it sound like in the near term, at least, you view Europe as the more fertile hunting ground for acquisitions.

Yes, as I said earlier, we've been in Japan since 1992 and so we've built up tremendous relationships in Japan that not only have an influence on our Japanese business but because the Japanese companies are so active here on the West Coast there's a spillover effect to places like California and Seattle and Hawaii, particularly. And, so, when we really got going in Japan we were the first US real estate company to ever go public there in 2002 and that takes a lot of work and, I think, one of the things in our thought process is we don't want to give up those relationships, so to speak, that we've built up now over this 20 plus year period of time. Plus we very much respect and admire the purchaser of these assets and so we think it's a great opportunity not only to develop a continuing relationship with them but to continue all of our relationships in Japan. And as I said earlier, one of the great parts about the transaction was that not only are we reinvesting a modest amount of money but we're going to asset manage everything under a three year contract. And so that's allowing us to keep our same team of people headed by Kevin [Thang], who has been with the Company for many years, that same team of people will stay in place and keep an eye on the market for us. And so, as I said earlier and Mary has said, keeping your same team in place on a global basis, even at a time where we're selling a large interest in Japan, it's a very, very important part of our long term strategy.

Okay, fair enough. And then, lastly for me, kind of related to an earlier question on interest rates but more along the lines of FX, could you provide some color on the role that foreign exchange swings are playing in your decision making? Beyond the obvious need to hedge does it change the relative appeal of operating in certain regions or does it have any other bearing on your thinking?

Yes, this is Matt. I'd say that generally, you know, were real estate investors and we try to take the foreign currency out of the equation and that's why we hedged the majority of our exposure. So it doesn't really play a big role in where we make our investment decisions because were hedging out the currency risk anyway.

Okay. Got it. Thanks guys.

And that was our final question. I'll turn the call back over to Bill McMorrow for closing comments.

All right, everybody. I know we went through a lot of information today, I hope it was helpful. As always were here to answer any questions post this call and we very much appreciate all your support. Thanks very much.

Thank you, ladies and gentlemen, that concludes today call. Thank you for participating. You may all disconnect at this time.