Kennedy-Wilson Holdings Inc (KW) 2015 Q4 法說會逐字稿

Welcome to the Kennedy-Wilson fourth-quarter 2015 earnings conference call

(Operator Instructions)

Please note that this event is being recorded. I would now like to turn the conference over to Daven Bhavsar, Director of Investor Relations. Please, go ahead, sir.

Good morning, everybody. Welcome to Kennedy-Wilson's fourth quarter and full-year 2015 earnings conference call. This is Daven Bhavsar. Joining us today 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 three months. 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 reports and filings with the Securities and Exchange Commission. I would now like to turn the call over to our Chairman and CEO, Bill McMorrow.

Daven, thanks very much. Good morning, everybody. Thank you for joining us today. I'm very pleased to have reported the best fourth quarter and full-year results in our Company's history. I would like to start off by discussing our financial highlights, along with our increased dividend and stock repurchase program.

Next, I would like to review our liquidity profile and the strength of our balance sheet. Third, I'll review our strong recurring cash flow and solid operating performance at our properties. And fourth, I'll update you on our record year of investment transactions. And finally, I'll discuss our current market outlook before opening up to your questions.

So starting off with the financial highlights. We had the best fourth quarter in our Company's history from a revenue, adjusted EBITDA, net income and EPS perspective. For the quarter, adjusted EBITDA grew 115% to $122 million compared to $57 million for the same period in 2014.

Adjusted net income for the quarter was $68 million, the highest quarterly adjusted net income in our history, up from $5 million in the fourth quarter of 2014. Our full-year 2015 adjusted EBITDA was a record $371 million, a 17% increase from 2014. Adjusted net income for the year was also a record at $208 million, a 56% increase from last year.

Importantly, through a combination of increase in the NOI at our properties and growing our base fee income, the recurring cash flow of the Company has increased substantially over the last several years, with the biggest improvements showing in the last 12 months. In fact, in the last year alone, we've added over $100 million of recurring revenue to KW.

As a result of this strong growth in our cash flow, we have increased our quarterly dividend by 17% to $0.14 per quarter, or $0.56 on an annual basis. This is our fifth consecutive annual dividend increase, during which time our dividend has grown by 250%. Yesterday, we also announced an authorization to buy back up to $100 million of our own stock through a share repurchase program.

I would like now to review our liquidity position and balance sheet strengths. As we have been discussing on our conference calls for many quarters, we continue to live in an extremely volatile world. With that backdrop, for several years, we've been keeping our -- keeping high levels of liquidity at the holding company, while extending our debt maturities and growing the recurring cash flows across the business.

In addition, we sold a number of non-core investments in 2015, including our Japanese apartment business, several office buildings and a handful of US apartment buildings in which we had small ownership positions. With that being said, we have ended 2015 in the best financial position in our history. With $1.5 billion of liquidity between KW and our consolidated subsidiaries, including over $700 million of cash and $800 million of unused, unsecured lines of credit.

Just as important, we have no corporate debt maturities until 2024. Additionally, as announced earlier this week, we recently closed our fifth US value-add fund at $500 million, which, with modest leverage, allows for $1 billion of untapped buying power to be deployed solely in the US. As of today, between KW and KWE, we have approximately $2 billion of unencumbered assets, including KW stock position in KWE.

In addition to our existing liquidity, we expect to generate significant cash over the next 18 months through planned asset sales at both KW and KWE, which in the last two months of 2016 already, we have sold over $200 million worth of properties and more to come. These asset sales will enable us to recycle capital into our growth platforms and provide additional liquidity for new acquisitions and other opportunities.

Let's now discuss the performance of our property portfolio on a same-store basis. Our multifamily business continues its streak of impressive quarterly growth where we have now seen 10 consecutive quarters of 8% or higher NOI growth on a same-store property basis. For the quarter, our multifamily revenues were up 8% and our NOI was up 12%.

Our stabilized commercial portfolio for the quarter, revenues grew 2% leading to an NOI growth of 2%. Additionally, during the fourth quarter, our US commercial office business continued to make great progress in its leasing efforts.

For example, we had a credit tenant in one of our stabilized buildings here in Los Angeles whose lease was coming due during the year. They occupied 54,000 square feet in that building. To meet their expansion needs, we leveraged a nearby building, which we own with a partner, of 50%. The building was also 50% leased.

We resigned the tenant for 11 years for their existing 54,000 square feet and did an additional 84,000 square foot lease in the neighboring building; they're both right across the street from each other. All in all, the lease spanned two separate Kennedy-Wilson buildings with a gross lease value of those -- of that lease of over $70 million and absorbed nearly all of the vacancy in the 50% leased building.

Separately, we recently completed the full renovation of a 60,000 square foot building in the heart of Beverly Hills. This building was vacant at the end of Q3 of 2015. And by the end of the year, it was 52% leased. We expect that building to be fully leased by the end of this year.

It's important to note that as a new disclosure this quarter, we show our all store income-producing portfolio both as a whole and broken down by ownership. This portfolio, which includes our multifamily, commercial and hotel investments, excluding KWE, generates $350 million in NOI, up 13% from last year.

The biggest component of our income-producing portfolio is a 7,500 multifamily units which we own -- which we have an over 99% ownership interest in. That group of apartments generates $78 million in NOI annually. That part of our apartment portfolio has grown by 1,700 units and added $26 million of NOI from a year earlier. The majority of these units are located in our core Western US markets, including the Pacific Northwest, the Bay Area and Los Angeles.

Moving on to the transactional side of our business, in Q4, we and our partners completed $500 million of acquisitions and $700 million of dispositions for a total of $1.2 billion in investment transactions.

During 2015, we had another record year. We and our partners completed over $5 billion of investment transactions, including a record year of both acquisitions at $3.2 billion, 75% of which were sourced off-market at an average cap rate of 7%, and dispositions of $2.1 billion at an average exit cap rate of 5%. Additionally, during 2015, we and our partners, including KWE, completed $2.3 billion of financings at an average interest rate of 3.2% with an average maturity of seven years. Roughly 80% of these financings we completed in 2015 were fixed-rate loans.

To highlight some of the major transactions in the quarter, on the buy side, we had our first acquisition in Italy via KWE, which acquired a portfolio of nine office buildings, fully leased to the Italian government for a purchase price of $205 million. The unexpired lease term is seven years. The cap rate is 6.3%, which compares with seven-year Italian government bond rate, which today yields 1%.

On the disposition side of the quarter, we, along with our partners, sold four US multifamily properties, in which we had a small ownership position. These sales produced an IRR of 38% and an equity multiple of 2.7 times to KW over the life of the investments.

Now I would like to take a moment to discuss KWE, which is celebrating its two year -- underlying two-year anniversary since going public. During those two years, the Company has experienced outstanding results. Remember, too, to keep it in perspective. We started in Europe in 2011, primarily in Ireland and the United Kingdom.

This morning, KWE increased its full-year results -- it announced its full-year results for 2015. Some of the highlights include total NAV, net asset value, growth of 15% with a total portfolio value in KWE of $4.1 billion. Additionally, the run rate annual NOI in KWE's portfolio as of December stands at approximately GBP161 million, or about $240 million annually.

I'm exceedingly proud of what Mary and her team in Europe have been able to accomplish over the last two years, converting cash at the February 2014 IPO into an outstanding portfolio. Just as important, in 2011, we started with a team of 14 people in Europe. Today, we have almost 100 professionals in our business in Europe.

Earlier this morning, KWE also announced an increase in its dividend from GBP0.10 to GBP0.12 per quarter, which represents a 4.5% annual dividend yield based on yesterday's closing price. It's important to note that KWE's -- KW's $400 million investment in KWE represents our largest single investment. And in 2015, the total amount of fees and dividends received by KW from KWE totaled $79 million.

Throughout the Company, we continue to remain focused on growing our recurring income through a variety of value-added initiatives within our existing portfolio. We are making great progress on the initiatives. I would like to highlight a few projects, in particular, that are close to completion.

At Clancy Quay, a 423-unit multifamily project in Dublin, in which KW has a 50% ownership, we expect to deliver an additional 78 completed units during 2016, as we continue toward making progress to complete an additional 200 units on that property in the next 18 months.

Also in Ireland, through KWE, we are completing the construction on Block K Vantage at Central Park, which will deliver an additional 166 units and 15,000 square feet of commercial space this summer, in addition to the 276 units at Central Park, which are already completed.

Additionally, through KWE, we expect later this year to complete the redevelopment of the Baggot Street Office complex, which is 103,000 square foot office building in Dublin, that was vacant in 2014 and will be completed in the third quarter of this year. The entire building has been pre-let on a 25-year lease to the Bank of Ireland, with occupancy expected, as I said, in the third quarter. This was the largest lease done in Dublin in 2015.

Additionally, in our US multifamily business, we currently have over 750 units under construction in the Seattle area that we expect to complete in the next 18 months. I mention all of these examples just to let you know that we're bringing on-stream a large amount of recurring income through these value-add initiatives.

Looking into 2016, while there has been strong volatility in the global markets during the first two months, I'm proud of what we have been able to accomplish thus far this year. We've been able to, as I said earlier, close our $500 million US fund with premiere institutional investors, increase our quarterly dividend, and announce a $100 million share buyback program.

All of this is being done while we continue to maintain significant drive power to continue the growth of our business. Our portfolio of 500 properties, in which we have a significant ownership interest, is well-diversified geographically, including the western US, the United Kingdom, Ireland, Spain and Italy, and across all product types. More than ever, we are focused on making the best strategic capital decisions for the Company.

I feel that the combination of our outstanding team of people, our balance sheet strength and liquidity profile, combined with the global relationships and networks which we have built over the last 25 years in the US, Europe and Japan, position us for great growth and success in 2016.

With that, I would like to open it up to any questions.

Thank you. We will now begin the question-and-answer session.

(Operator Instructions)

The first question comes from Mitch Germain of JMP Securities.

Good morning. And congrats on the year.

Thanks Mitch.

I'm just curious about the sales strategy as we look into 2016, will it have similar characteristics to what happened in 2015?

Yes. Mary announced in Europe this morning that in her plans and KWE's plans, we plan to sell over the next 15 months, 12 to 15 months GBP200 million of assets. And we have identified a number of assets that we're planning on selling here in the United States this year.

And I think one of the things that really has been interesting about this market here for the last couple months is there's actually, in our opinion, quite a disconnect between what is happening in the public market and what is happening actually in the private sale market. And there continues to be a tremendous amount of liquidity both on the equity side and the debt providing side from the banks, primarily, and in the apartment world, obviously, the agencies.

And so there continues to be very big demand for hard assets, hard real estate assets. Because as everyone knows, if you look at Japan, there are negative interest rates. And if you look across the globe, interest rates are pretty much at all-time lows. So we continue to use these opportunities, I would say, to get out of some of the smaller ownership positions that we might have in partnerships.

So -- and what I would call some of the non-strategic core assets that are -- but it's allowing us to generate in addition to our recurring income significant cash to redeploy into not only higher yielding assets but to execute the growth plans of our business. So I think it's very important for everybody to understand that even with the dividend increases in both our companies, and with the announced buyback program, we still see growth opportunities that we're funding with internally generated capital.

Great. That's very helpful. If I look at the new joint venture, is it core? Value add? Is there any -- or is it just kind of open to any investments that you guys identify?

Well, we have a wide latitude in terms of what we can invest in. But as we also have been saying for two years, we did -- and I think, you know, when you look at the investments that, like I mentioned we sold in the US in the fourth quarter, that produced a 38%, I believe was the number, 38% IRR.

We also feel it's imprudent in the markets that we're in, with interest rates near zero to at least underwrite things to those -- it might turn out that we get those kind of returns but across all our platforms, we're trying -- we're in a, I would say, trying to produce as much income as we can but in a risk-off kind of position.

And so I would say the things that we're doing. We have many value-add initiatives, as I went through, we're adding value to properties that we already own. But I would say that our investment strategy now is, as it has been, is really a combination of value-add and core plus. But we're not trying to take any undue risk in the kind of market that we're in today.

Got you. Last for me. I know you've got, I think, it's around eight or so non-stable commercial properties. How should we think about those properties coming online into the operating pool?

Hey, Mitch, it's Matt. So we've -- as we mentioned, we have made some great progress and Bill was highlighting several of those assets that are unstabilized. Our leasing plans are to have these assets stabilized in the next 12 to 18 months and bring them into the operating pool. And we have made great strides, really, the last couple of quarters to that effect.

Excellent. Thank you.

I would say, too, Mitch, to add to that, we've had great, great success over the 25 years that Mary and I have been here at KW, buying empty office buildings in core markets, well located in high barrier to entry markets and then refurbishing them, just like we do the apartment buildings and leasing them.

So I would say that all of the office buildings have now basically the refurbishments have been completed and now we're just in the process of leasing them. And we're leasing them into a market where there's generally low vacancies.

Thanks.

And our next question comes from Vincent Chao of Deutsche Bank.

Good morning, everyone. I just wanted to go back to your comments about the financing markets. Obviously, you have access to bank debt and the agencies on the multifamily side. Just curious, given the disruption we're seeing in the CMBS markets if that's having any impact on the commercial side of the business and if it's opening up any opportunities at this point, either on the equity side or on the lending side?

Yes, I mean the CMBS market has not been a source of lending for us. It's, quite frankly, it's not a market that we particularly care for. So all of the financing that we basically have been -- not basically, we have been doing in the case of KWE, of course, Mary and her team did two public bond offerings in KWE last year. And KWE, I think as most of you know, is an investment BBB rated Company.

The last bond offering that Mary did in the -- was that the fourth quarter or third quarter, Mary? Fourth quarter. That was a 3.25% interest rate for 10 years fixed, unsecured. There's plentiful financing across the globe from the banking industry and the agencies, as I said, here in the United States. On one of our multifamily properties yesterday, we locked interest rates on a 17-year loan at 3.8% fixed for 17 years.

And so I don't really, honestly, pay much attention to what is going on in the CMBS market other than what opportunities it might spit out for us to buy something in an acquisition -- on the acquisition side. But I will tell you, that, as I have said now a couple of times, there's plenty of liquidity that is trying to not only lend us money but lend other people money in the real estate world today.

I think that was part of my question was, are you seeing some increased opportunities because of the disruption that you're seeing in that market? Is it translating into more commercial opportunities for you today?

It's too early to tell.

Too early. Okay.

This is only, really if you think about it, it's been going on for 60 days. And there's always a time lag between when these, what I'll call, inefficiencies start and when opportunities show up. And I'm not trying to say we're like clairvoyant, but we planned. If you look at what happened at the end of the year in our business, we've been planning for really 18 months to increase our liquidity, get rid of our non-core assets to see what was going to happen.

It turned out, as we all know what's happened here in the last couple months, but whether that -- we think there's still plenty of opportunities to invest. But whether that translates into big, big discounts in the market, I just -- it's too early to tell.

Got it. Got it. Maybe that answers my next question. But do you think now is still a time to be building up that liquidity in anticipation of potential disruption down the road? Or and maybe asked another way, if you think about 2016, do you think you're more apt to be a net seller or net acquirer or sort of neutral?

Well, I don't -- we don't ever go into any year with a target number in terms of what we want to buy. It all depends on whether there are opportunities out there. We more go into a year with target numbers in terms of what we might want to sell. Our strategy at this point, we have between KWE and KW, we have two apartment buildings that we're closing here, including one today, here in the US that total about $150 million, the two apartment buildings.

And Mary and KWE has a portfolio of properties in the United Kingdom and one office building in Dublin that we're focused on. The total of all of that is roughly $350 million. Beyond that, what we have decided is that we're going to really, really take a little bit of a pause here and see how this whole thing falls out. Because as I said earlier, you can't have a couple of months like this and then expect opportunities to show up right away.

And so the thing that we're very lucky about is that over a long, long period of time, 25 years-plus, we've built up all of these global relationships, primarily with financial institutions that we have transacted with. And when you think about how we acquire things, 75% to 80% of what we acquire, we acquire in off-market kinds of transactions.

So I do think that in Europe, and maybe, Mary, you can weigh in on this, that the banks this year will be under increasing -- I don't know if pressure is the right word, but they will be sellers this year. But both our Company -- Mary and I are really committed right now to kind of a wait-and-see attitude after this first group of acquisitions that I mentioned to you. But, Mary, can you comment on Europe?

Sure. I mean, I think it depends, we're clearly focused on four target markets. And in, I would say in Ireland, NAMA still EUR8 billion of assets. You're still seeing banks deleverage. So we're seeing opportunities there.

Spain, I think we will see a lot of opportunities in 2016. We're already seeing a lot of assets coming out of the banking system.

And then Italy, obviously, there's been a lot of announcements recently about the different reforms and the bad bank that is being formed, et cetera. So as well, I think, we will see opportunities coming out of Italy.

I think in the UK, we're always seeing one-off opportunities here and there. We just bought, not very long ago, from a German bank, a loan secured by roughly 300 PRS, or residential units, in London Zone 4 that we paid half of the UPB as the purchase price and then we just took title to that asset February 5.

So there's always one-off opportunities. And I think, especially with this dislocation, I think to what you alluded to earlier in your question, Vincent, I think we will see some more opportunities as the year progresses.

Okay. Thanks for that. And just one last one for me, just specifically on the Kona project. How many -- it's 400 units. What is the sell-out right now? How many have sold out?

Okay. So we have -- we're just touching $250 million in sales there. And we now have close to a 100 members in that property. There's about roughly, this is a rough number, but there's roughly 75 homes sold and under construction right now.

Okay. Thank you.

(Operator Instructions)

Our next question comes from David Ridley-Lane of Bank of America Merrill Lynch.

Sure. Congratulations on completing the capital raising for Kenny Wilson Fund V. Interested to hear your expectations around deploying the capital. I know that you're off to a fast start with about $130 million already deployed. And if you have sort of a typical, you know, LTV, loan to value, for funds like this?

Yes. I think, generally speaking, we're going to use pretty conservative leverage in that. Like with the apartment building we're closing in that fund today; it's in the state of Washington, the Seattle area, we're using 65% leverage. But I think generally in that fund, it's going to be somewhere between 50% and 60% kind of on average, which is why I said earlier with $500 million, we have roughly $1 billion worth of buying power using 50% leverage. And -- yes.

Got it. Okay. And I know this is a bit difficult to answer, but do you feel like the property level capital investments that you have made over the last year or so, the unit upgrades and amenities and so forth, do you think those are enough to continue the above market rent increases that you're -- that you've been getting in 2015 as you look forward into 2016?

Yes. I can tell you that and this is why I say there's a disconnect, really, going on between the public market and the private market. Not only on the sales side and the liquidity that is available for people to buy, but also really at the property level. And so I can tell you that during the first month of the year, our revenue and NOI at the multifamily property level here in the United States continued to grow at almost the same rate that I told you about in 2015.

And so we're not -- and I think Mary said on be her call this morning, we own a significant number of retail properties in KWE and Europe. And to be fair about it, the consumers seem to be spending more money. And when you think about the apartment business in the US, particularly the markets that we're in, it's being driven by this extremely strong job growth, not only in the Bay Area, particularly the East Bay and the Silicon Valley area, but this extraordinarily strong job growth in the Seattle market.

I would say, there's secondary markets in the Western United States. Salt Lake City, for example, where we have two of the largest apartment properties in Salt Lake City, they're all continuing to experience very strong job growth. And when you think about Dublin, where we own some major rental apartment properties, same story.

Ireland now is the fastest growing economy in all of Europe. And I also tell you to keep some perspective here, when we first started investing in Ireland, the Irish 10-year bond was at 14.4% in 2011. And the Irish bond today is sub1%. So the fundamentals in our business, whether it's the consumer in our markets or the job growth in our markets, continues to be very strong.

Got it. And then just one for me, if I may. I think everybody can calculate the holdco level of liquidity, cash on hand revolver, et cetera. But then when you get to the capital of the property level, based on your property level balance sheet, if I'm doing the math right, it's about a 45% -- excuse me, 55% loan to value today. Where do you think that could go to, especially as you're trimming some the non-core assets and so you're really upgrading what's in the property level balance sheet?

Well, I'm not sure I follow your --

Said differently, do you think -- said differently, do you think you would potentially look to increase leverage on your majority-owned properties during 2016?

No. I mean, we're -- and remember, too, those numbers are the loans to cost. And when you really look at the loans to actual value today, it's actually a much lower number than that. The -- but we don't have any plans at this point to increase the leverage across -- we look at it as a whole portfolio. And so we won't be increasing the leverage.

Got it. Thank you very much.

Thanks.

And our next question comes from David Gold of Sidoti.

Hi, good morning.

Hi.

Couple things stood out at me, but the thing that I find most interesting is that you're able to do 75% of the deals off market last year. And was curious if you can give some insight as to, A, if that's something that you guys can sustainably continue and, B, without giving away the secret, if you can give us a sense how that has worked out to be such a high percentage, which is terrific.

It really -- that's a great question. And it really relates to just how we have run the business for 25 years. Whenever we make a commitment to go into a market, we don't go into that market like we're just going to take advantage of that market. We go into that market to become part of that community and to build a long-term business there.

And, if you go back in time to when Mary and I started together, we had very, very small capital base. But every market we've gone into globally, we're there to stay generally. Now, having said that, we have always created long-term relationships with the financial institutions in those markets, both the banks and the insurance companies.

And I think we have a reputation in the industry, and particularly with the financial institutions, as a Company that executes in a way where we have executed on exactly -- we do what we say we're going to do. And so over the years, what that has allowed us to do is literally create long-term relationships with hundreds of financial institutions, major financial institutions around the world.

And so when they want to sell assets, they know that we can be a go-to Company that will live by our word and do what we say we're going to do. So there's nothing novel, really, about this 75% because that's really what we have been doing for 25 years. I would say that if you look back -- in the last five years now, at cost, including the things that we're closing this quarter, we purchased $17.5 billion of assets.

And of that, probably 75% of that has been sourced in an off-market transaction. And remember when I give you that number, that's at a re-marked cost number. In many, many cases, the asset that we bought the loan it was on, could have been almost double that amount. But when the banks are selling things and when the insurance companies are selling things, they want to buy from somebody that they think is a reliable buyer. And that has been the core strength and culture of our Company to build up these relationships everywhere that allows us to see these off-market transactions.

Got you. Got you. Perfect. All right. And then one other -- as you mentioned, 2015 was a year of selling off non-core assets and positions. Are there more assets that you view as non-core that you plan to divest this year?

Yes. I mean, as I said earlier, and Mary, you might comment a little bit on KWE, what your plans are for this year. But we have a plan that includes the disposition of some of the non-core assets. We're able to take that cash and redeploy it generally, in a lot of cases, into higher yielding opportunities.

But, Mary, do you want to comment a little bit on what you announced this morning?

Sure. Yes. So far we have sold GBP262 million of assets, and that's in 50 assets, and have done well. We've achieved a 23% return on cost on those sales, which is great. What we have sold to date and then I will talk a little bit about the GBP200 million that we have targeted.

But I think the interesting thing for me is what we've sold to date is 37 of those assets have been sub-GBP5 million. So really, for us, it's been about pruning the portfolio and really kind of focusing the entire portfolio now on our core assets which is office, retail, industrial and residential. And then just growing and improving the quality of the income of the portfolio.

So when I think about the GBP200 million that we've earmarked, it's really the same concept. It's all about the pruning, I would say, of the assets that we have earmarked, all but sort of two of those come out of the Gatsby portfolio which that was a portfolio that we bought from a large UK insurance company. And there's quite a lot of small retail assets in that.

And so -- and I think the good thing is when you think about the choppiness of the markets, at those levels, there's just so much liquidity for those assets. And we have bought them well and we have done whatever asset management work we're going to do, whether that's a rent review or what have you and then it's time to just move them off.

We've got the GBP200 million earmarked. That's a big focus for KWE this year, is the recycling of capital. We're going to continue to look at that as the markets allow and continue to recycle into other more sort of stock selection opportunities in those core target markets and sectors where there's asset management opportunities.

Perfect. Thank you both.

Thank you.

Thank you.

And our next question comes from Craig Bibb of CJS Securities.

Hi. Congratulations on a great year.

Thank you.

The multifamily sales in the Western US in Q4, does that -- would you view the 5.3% cap rate as indicative of where values are for those assets broadly or is there a wrinkle to that value?

Depends on where the location of those assets is. You can't -- it's like anything, Craig, you can't generalize. I mean, the real high quality infill assets today are actually in the apartment business are selling at lower cap rates than that. And so the suburban, I'll call them suburban apartment buildings, might sell around that cap rate number that you just mentioned.

And, Craig, this is Matt. Just to mention, that the 5.3% cap you're referring to includes dispositions beyond the apartments. The apartment cap rates were actually a bit below 5%. There's also a couple of office buildings included in that 5.3%.

So like a 4.9%, something like that.

Exactly, yes.

Okay. And then on the development side, Docklands is a big deal. You're building the basement now, I think you mentioned. What is the -- what are the milestones or the chronology to look for going forward this year there?

On that particular project?

Yes.

Mary, do you want to tackle that one?

Sure. So we're pretty excited about the Capital Dock project, obviously. I'm obviously biased but I think it's the best development site in Ireland. So right now we've got -- we're doing the basement work that we have contracted and we fit out.

And we're in the ground right now. And then we're doing pricing right now. Basically just working through, locking down as much as we can on the cost side of the development, working with a specific contractor and just trying to get that really nailed down. And then we're out to market talking to a variety of potential construction lenders on it.

And then at the same time, as all of that is going on, we're in market as well, talking to a variety of potential occupiers. There are quite a few large requirements out there right now in Dublin. And we're in discussions with quite a few potential tenants for the office side of the project.

Mary, I think there might be some people on the call that aren't familiar with that project. Do -- You have to describe the, like the whole -- the office building and so on. So we already own --

Yes. So this, I guess I could just take you back in time for a moment because it might be interesting history. So we bought -- actually we bought the debt so we employed our assets via loan strategy. And we bought the debt secured by State Street's headquarters in Ireland, an office building there that is fully let to them. And there were roughly 15 years -- actually, when we bought it, there were I think six or seven years remaining until break.

And then we went ahead with State Street and re-did their deal, re-geared it and then put 15 years' term certain on that lease. And then adjacent to that is a site that we ended up buying. And then we put that site together with, actually with NAMA.

So we have a joint venture with NAMA in that project. And then we went ahead -- our team went ahead and got planning permission and that was granted in October of 2015, just a few months ago, which was a phenomenal job. So what it is that we're going to do there is build 190 PRS, or apartment units, which will have, really honestly, the best views in all of Dublin.

There will be water views from three sides of the apartment building. And then we're also building commercial offices of roughly 350,000 square feet in several different buildings. So it will be a very top notch best-in-class development in the Docklands which is a hot area right now in Dublin.

Okay. Just you said you're looking both for tenants and asset buyers?

No, not asset buyers. No. We're looking for tenants and then we're talking to potential construction lenders.

Okay, that's it. Great. Thanks a lot.

You bet.

And ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Bill McMorrow for any closing remarks.

Well, thank -- I just want to thank everybody for all of your support over the year and over the years. We, obviously, in both of the Companies, had a fantastic 2015. And we're looking forward to a great 2016.

So thanks very much for your time this morning.

Ladies and gentlemen, the conference is now concluded. Thank you for attending today's presentation. You may now disconnect.