Kennedy-Wilson Holdings Inc (KW) 2018 Q3 法說會逐字稿

Good morning, and welcome to the Kennedy-Wilson Third Quarter 2018 Earnings Call and Webcast. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Daven Bhavsar, Director of Investor Relations. Please go ahead.

Thank you, and good morning. This is Daven Bhavsar, and joining us today are Bill McMorrow, Chairman and CEO of Kennedy-Wilson; Mary Ricks, President of Kennedy-Wilson; Matt Windisch, Executive Vice President of Kennedy-Wilson; and Justin Enbody, Chief Financial Officer of Kennedy-Wilson.

Today's call is being webcast live and will be archived for replay. The replay will be available by phone for 1 week and by webcast for 3 months. Please see the Investor Relations website for more information.

On this call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA and adjusted net income. You can find a description of these items along with a reconciliation of the most directly comparable GAAP financial measure in our third quarter 2018 earnings release, which is posted on the Investor Relations section of our website.

Statements made during this call may include 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.

Good morning, everybody, and thanks for joining us today. We're pleased to report a record third quarter results for Kennedy-Wilson, highlighted by our growth in property NOI, the continued strength in our same-property operating performance and continued progress on our property stabilization initiatives, which allowed us yesterday to announce an 11% increase in our dividend to $0.84 a share on an annual basis.

We also continue to make great progress on our third-party fee-bearing capital raising initiatives and the execution of our asset sale program.

Starting with our record financial results for the quarter, GAAP EPS was $0.09 per share, up from a loss of $0.08 a year ago. Adjusted EBITDA was $142 million compared to $76 million during Q3 of 2017.

The increase in adjusted EBITDA was driven by a $41 million increase in our share of property NOI, which has significantly increased since the acquisition of KWE, which we completed in the fourth quarter of last year.

We also had a $32 million increase in our share of net gains in promotes compared to the third quarter of 2017.

We have now produced $535 million of EBITDA year-to-date in 2018, more than double the $255 million we produced for the first 9 months of 2017.

Adjusted net income for the quarter was $74 million compared to $35 million in Q3 of 2017. For the year-to-date, adjusted net income totals $308 million compared to $125 million last year.

I would like to review the highlights of our property operating results for the quarter before discussing our key global growth initiatives for the company. Our total -- our portfolio today has an estimated annual NOI of $416 million, with $46 million coming -- 46% coming from the Western U.S. and 54% from Europe.

We had another solid quarter of property operations, with same-property revenue and NOI growth of 4% each across our global same-property portfolio consisting of more than 18,500 multi-family units, 12.5 million square feet of commercial properties and 4 hotels.

In particular, our market rate portfolio saw same-property revenues and NOI growth of 5% each and continues to benefit from being located across growing markets and from our asset management team's execution of our value-add strategy.

Within our U.S. multi-family portfolio, our Mountain States assets, which include our investments in Salt Lake City and Boise, Idaho had another standout quarter, with revenue and NOI growth of almost 9%. Both of these cities continue to benefit from strong underlying economic fundamentals.

In 2017, Idaho had the fastest-growing population in the country, with Utah ranking third. With low unemployment, relative affordability and a lack of housing options for the rapidly growing populations, the outlook for both states remains strong.

Rents at our Mountain States properties are 40% below the rents in our California portfolio, so the affordability in the region positions it well for future growth.

Our global commercial portfolio also had a good quarter, with 3% revenue growth and 2% NOI growth on a same-property basis. In total, our stabilized commercial portfolio sits at 95% leased.

In the U.S., our results were largely driven by strong asset management and leasing activity in our Southern California commercial portfolio, resulting in a 3% increase in occupancy, coupled with the burn off of free rent from Q3 of last year.

In Europe, our growth was also driven by significant asset management activity in the quarter, including 47 lease transactions across 1 million square feet, resulting in an increase of 7% over previously in-place rents.

Now I'd like to focus the remainder of the call on 3 key strategic global initiatives that we have discussed on prior calls and which continue to be a huge emphasis for us at Kennedy-Wilson: Number one, growing our NOI both organically and through completion of our development initiatives; number two, substantially growing our investment management business; and number three, continuing to implement our capital recycling and asset sale program.

So starting with number one, growing our property NOI as a key initiative for us, and we can accomplish this in a number of ways. First, we look at continuing growing the NOI of our existing portfolio organically through our value-add asset management program and leasing initiatives. In the U.S., we continue completing strategic CapEx projects, which are aimed at growing our in-place NOI. Few examples for the quarter include the completion of a brand-new leasing center at Equinox in Seattle and a new clubhouse, fitness center and tenant lounge at Edgewater in Boise, Idaho. We also renovated 324 multi-family units during the quarter, bringing our year-to-date total to 745 units.

We expect to renovate approximately 1,300 units next year at an average cost of $10,000 per renovated unit, which typically adds 20% to 30% returns on investment. In all, across the U.S. multi-family portfolio, we currently plan to spend $25 million on unit interior renovations and common area upgrades in 2019.

Similarly, in Europe, we have many ongoing asset management initiatives that look to grow our NOI. At Leavesden Park in the U.K., which was 75% vacant as of the quarter-end, I'm pleased to announce that we have just signed our largest U.K. leasing transaction to date, a 200,000 square foot lease to global online fashion retailer ASOS for a 15-year term certain, which will add $7 million to our estimated annual NOI in 2019. This is the largest leasing transaction in the southeast submarket since 2016, and it reflects the strong demand we are seeing across our U.K. office portfolio.

At the Shelbourne Hotel in Dublin, we have completed the room renovations that are currently -- and are currently upgrading the lobby as we look to further drive ADR growth. Our CapEx initiatives at the Shelbourne, which includes $27 million spent to date, with another $14 million remaining, continues to be well received at this asset, with NOI doubling from $9 million to $18 million since we acquired the property in 2014.

Also, our in-place U.K. and Irish office rents remain 14% below market on average, which presents an opportunity to capture further NOI growth in the upcoming rent reviews and as leases expire.

The second important way for us to add NOI is through completing our lease-up and development initiatives globally across $3 billion of gross assets at completion, which our share is $1.6 billion.

Our pipeline includes over 3,300 market rate and affordable multi-family units, 2.5 million square feet of commercial property and 150 hotel rooms at the Kona Village Resort. Based on current market conditions, we expect that these assets in total will add $100 million to our estimated annual NOI by the end of 2023, $26 million of which we expect to add by the end of next year alone.

In the U.S., we continue developing units through our Vintage Housing joint venture, where the demand for affordable and senior housing remains very strong. The portfolio today consists of 6,600 units, with another 2,000 units under development, and our goal is set to get this joint venture up to 10,000 units in the short term, with minimal equity from KW. As a side note, we own approximately 62% of that joint venture.

I would now like to hand the call over to Mary Ricks to discuss our European development initiatives, how our European development initiatives play such an important part in our growing property NOI. And I'd also like on this call to congratulate Mary on her very well-deserved promotion in August as President of Kennedy-Wilson. Mary and I have been partners here at Kennedy-Wilson for over 25 years, and she has played an incredibly important role in the success of our company.

So with that, I'd like to turn the call over to Mary.

Great. Thanks, Bill.

In Europe, we continue to make excellent progress in stabilizing assets and completing development projects. We added $8 million of estimated NOI in the quarter from leasing up the Northbank Apartments in Dublin and Pioneer Point apartments in London and stabilized 100,000 square foot office building at Capital Dock in Dublin, which is fully leased to Indeed for 20 years and is the first of 3 office buildings in Capital Dock to complete. We remain on track to complete the remainder of Capital Dock by the end of the year.

We materially de-risked the entire single-phase development by pre-leasing 2 of the 3 office buildings to Indeed and by selling the third office building to owner-occupier JP Morgan.

Great progress has also been made on leasing the 25,000 square feet of retail space, with the majority expected to open for business in the first half of 2019. These leases provide strong support to our upcoming leasing program for the 190 premium multi-family units, which will open towards the end of this year.

Similarly, we see our acquisition of CB3, which, when complete, will total approximately 450 multi-family units and 300,000 square feet of Class A office space as the next signature campus development for Dublin's thriving North Docks.

At Hanover Quay, which is adjacent to Capital Dock, we received planning approval for 68,000 square feet of new Class A office space in Q2 and are currently in the design process in anticipation of beginning construction in Q4 of this year.

Altogether, we're on target to deliver approximately $60 million out of our $100 million globally, an additional estimated NOI from European development and unstabilized assets by 2023, including $20 million by the end of next year.

Our second key global initiative is to significantly grow our investment management business through raising third-party capital.

One important part of our business continues to be our ability to raise third-party capital. And since 2010, we've raised $10 billion in third-party equity capital to support our investment platform. In the past 5 weeks alone, we've raised and invested approximately $300 million of new fee-bearing capital from 3 separate insurance companies.

I'd like to first discuss our capital raising progress, both in the U.S. and Europe, and then lay out our future targets. In total, we currently have $2 billion of fee-bearing capital, of which 40% is invested through our commingled discretionary funds and the remainder through our separate account business. These platforms include major institutional investors, such as insurance companies, family offices, public and private pensions and private equity clients located in North America, Europe, the Middle East and Asia.

In the U.S., we remain focused on raising capital for our discretionary fund and separate account business. With regards to our U.S. separate account business, in October, we closed our first investment in a new platform with a major insurance company as our partner. We acquired a core Class A office property in Denver, unlevered, for $86 million. We have a 5% economic interest in the property, and we'll manage the property while earning customary fees. We expect to find additional new opportunities for this new core platform over the next 12 months.

In Europe, you will recall, in Q2 we announced the completion of our 50-50 joint venture with AXA IM - Real Assets, focused on Irish multi-family. This has been an important focus for our European business over the last 12 months, with an established medium-term target of owning 5,000 units. Our portfolio currently stands at 4,000 units, of which almost 2,500 are existing fully operational units, with another estimated 1,500 units at various stages of development on existing owned sites.

Year-to-date, in Ireland, we have added 1,300 units to our total multi-family portfolio. We remain very excited by the fundamentals in the Irish multi-family market, and we and our partners continue pursuing an attractive pipeline of opportunities.

Some facts: According to PWC, Ireland is likely to be one of the fastest-growing economies in the Eurozone until at least 2024, with GDP growth for 2018 expected to be the highest in Europe once again. Unemployment has fallen to 5.1%, its lowest level since early 2008. And wage growth continues to rise, with an increase of over 3% expected for 2019.

We see favorable demographic trends in Ireland, with the country boasting the highest proportion of 25 to 44-year-olds in the EU. This access to talent is a significant driving factor for foreign direct investment in Ireland, which in turn drives demand in the multi-family market.

U.S. tech FDI continues to be particularly strong, driving over 40% of take-up in the Dublin office market year-to-date.

The overall population in Ireland continues to grow and is forecasted to increase by almost 45% by 2051, which equates to an additional 2 million people.

On the supply side, it's estimated that Ireland needs about 35,000 units built annually, which has not been met historically, and only 18,000 new units are forecast to be delivered this year. As a result, fundamentals for rental housing have never been stronger, and we aim to continue playing our part in delivering much needed new housing in Dublin. And we remain firmly on track to hit our near-term goal of growing our portfolio to 5,000 units.

Our joint venture with AXA is both a true endorsement of our outstanding team and the high-quality residential projects we're creating in Ireland as well as a significant step in growing our third-party European investment management platform.

At the end of the quarter, we acquired CB3, City Block 3, with both AXA and Cain International as our 50% joint venture partners. CB3 is a $500 million, when completed, 6-acre mixed-use development project. Our significant planning and development expertise alongside our experienced JV partners ensures we are well positioned to achieve similar success at CB3 as we've delivered at Capital Dock.

Earlier this week, we announced the acquisition through our platform with AXA of the Grange for $183 million in the growing Sandyford submarket of Dublin. So together, these 2 ventures have added over $300 million of fee-bearing capital to our investment management platform.

Looking ahead, our capital raising activity continues to strengthen across the board as we look to further scale this business. We are targeting to raise a minimum of $1 billion globally per year over the next few years in this business, and we are planning to do this without any meaningful changes in overhead, resulting in high-margin growth for our shareholders.

And with that, I'd like to turn the call back over to Bill.

Thanks, Mary.

So our third area of focus is our asset sale program and the recycling of capital.

In Q3, we continued to selectively sell assets where we have either completed our business plan or the asset doesn't fit long term for us strategically. We then redeploy that capital into higher-return opportunities.

During the quarter, we sold $321 million of assets, of which our share was $250 million. Europe accounted for 96% of our asset sales, including the largest sale in the quarter, which was an office building in Milan, which we sold for $81 million and a gain of $31 million. In total, our sales generated $159 million of cash to KW for the quarter. And year-to-date, we have generated $466 million of cash to KW.

In terms of reinvesting these proceeds, year-to-date we have allocated capital as follows: 31% was allocated to our stock repurchase plan, 19% to property-level CapEx and 50% to new acquisitions.

Our asset sale programs will continue to focus on selling smaller assets as well as noncore assets or assets where we have completed our value-add business plan. We expect to see an increase in transactional activity in what will be a very active fourth quarter.

As it relates to returning capital to our shareholders, so far in 2018, we have returned $269 million in the form of dividends and share repurchases, which equates to $1.88 per share. Year-to-date, we have purchased and retired 8.8 million shares at an average price of $17.92, with $103 million remaining on our share repurchase program as of the end of the quarter.

Additionally, as I mentioned yesterday, our Board of Directors declared a fourth quarter dividend of $0.21 per share, which is an 11% increase from the prior quarter. We have now increased our annual dividend substantially from $0.16 per share in 2011 to $0.84 today, which equates to a dividend yield of 4.4% based on our closing share price yesterday.

I'd also like to update you on 2 recent additions yesterday, actually, that we made to our Board of Directors. First, I'm pleased to announce that we have added Richie Boucher, who is the former group CEO of the Bank of Ireland Group. Richie is highly respected in the banking community and brings with him decades of experience in the European banking sector.

We have also added Trevor Bowen. Trevor was previously a Director and part owner of Principle Management Limited, an entertainment management company, and prior to that, a partner at KPMG Ireland for over a decade.

We have now added 4 great new Board members this year, and I believe our shareholders will benefit from their depth of global experience in capital markets, accounting and public company management.

So once again, I'm pleased with the results for the quarter and how our business is positioned today. We ended the quarter with ample dry powder, with $919 million of liquidity between cash and a $500 million undrawn revolver. We have a fantastic global team that has a clear vision on executing our 3 key strategic initiatives to continue growing both our business and generating attractive, risk-adjusted returns for our shareholders.

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

(Operator Instructions) And our first question will come from Mitch Germain with JMP Securities.

I'm curious about in Dublin or maybe just even in Ireland itself. My understanding is that the ownership of many of the multi-family properties is highly fragmented. A, am I correct by that assessment? And B, is there any larger portfolios that you could foresee maybe coming to the market down the road?

Mitch, it's Mary. Highly fragmented, I think, historically, Ireland was -- when we first bought in, in 2011, that was true because a lot of these buildings had been built to sell as individual apartments. And then when the market turned down, the banks and NAMA ended up with a lot of those buildings and -- actually, we bought a lot of those, but they hadn't been broken up. So they had not been fragmented.

There are a couple of players in the market that do own more highly fragmented buildings. But for us, we basically control really the assets that we buy. We want to make sure that we're controlling the common areas, the amenity space, et cetera. So in that market, I mean, you really need housing. As I said on the call in some of my remarks, it's so underserved that all the professional managed assets that are now in the market from various competitors and ourselves, I think, being the largest, if not one of the largest, it's really important to have that as an opportunity for those that live in Dublin.

And the pockets of capital that you're competing against, is it foreign, is it local, is it private equity or institutional? If you could maybe provide some perspective there.

Yes. No, it's a good question. The -- that market, that sector has really become an institutional sector, and it's very international now. And so we are competing with everyone, big names that you would all know, a lot of sovereigns because it's a great asset class.

I think our competitive edge is not only that we have the best team in Ireland, who've done a great job on everything that we've owned. We have been in this space for the longest period of time in Ireland. And our ability to plan, to design and to deliver via development very high-class, premium, multi-family product to the market is critical. We have all the relationships necessary to do that. We know what the market needs, what the demands are, where the price point should be. So our finger on the pulse of delivering developed projects, very high quality, I think, is second to none in Ireland, and we'll continue doing that.

And the last thing I'll say is, I think, the testament to all that I said is really the AXA joint venture, who -- the best institutional investor in Europe. They are great partners, and they chose to invest with Kennedy-Wilson. So we're really excited about the future growth in that business, and the team continues to do really, really well.

I think, too, Mary, you might add, I mean, the scale of our business, both the multi-family and the office business that we have in Ireland, it's hard to get complete statistics, Mitch, but we're clearly one of the top 2 -- 1, 2 or 3 owners across all asset classes in Ireland. And as Mary pointed out, it's become -- it wasn't at the beginning of our time there, but it has become a very institutionalized market. But because of our scale and, as Mary pointed out, the great team of people that we have there, we just have a great ability to execute in that market.

Great. I noticed, obviously, there was a sale of one of the properties that you have in Milan. I think you have about 800,000 square foot left in that market. You also have some in Spain. Was that both of those markets or maybe one or the other? Are those targets for additional sales down the road?

Yes. I mean, on Italy, we're working on a couple of sales right now. So that's definitely not really from day 1, the plan there was to buy those assets and trade them opportunistically, which is -- the Milan deal was a great deal for us. The team executed on a planning application, which added the value and then enabled us to sell that on to a developer. Obviously, we made great profit on that sale, and we're continuing to look to trade out. In the meantime, we're flipping very good income on those assets.

As it relates to Spain, we're in the midst of doing a fantastic job on our repositioning of LMG, which is our prime shopping center in North Madrid in a very affluent area. We have done about 50 lease transactions with regard to -- when you think about new leases as well as regears of our existing tenants, we've completely redone the whole -- and landscaped the whole garden area and opened up that space. We've brought a lot of restaurants to the center, which is an amenity not only for the housing owners in the area, but also for the business park office tenants. So that's going very, very well.

And then we have some high street retail that are all very well located and let to a couple of different tenants in Spain. And again, I mean, I think, opportunistically, as we execute a business plan or the market allows us to, we'll continue to trade in and out of those assets in Spain as well.

Got you. Bill, you've always been a good market timer, what you've done on the West Coast, Ireland. I'm curious though, many of those markets were very institutional, just kind of distressed when you were investing in them. I'm curious about markets like Boise, Reno, which never really had much of a real big institutional presence. Do you think that kind of getting in early maybe ahead of where the other institutional capital's getting in? Will they -- I guess, the point -- the question is, do they ever look at those markets? Or are you really kind of the only real player that's underwriting and buying in some of those markets today?

Yes, good question. See, what's really going on here on the West Coast when you look at California -- and look, California is always going to be a great state, with a population now of almost 40 million people. But you have to put it in context here with a tax rate now in California of 13.5%, and you've got housing affordability, if it's not at its all-time peak, it's very, very close to its all-time peak.

And so -- and you've got young people graduating from all of the major universities here in the state of California. And while they're finding jobs, it's not -- it's challenging to find jobs that can support the level of housing affordability here. And so what's happening in these other states on the West Coast where there is a very, very high quality of living standard -- and I'm talking about Salt Lake City, Boise, Seattle, and Seattle is a very good example, where we started there almost 15 years ago, so it was well before Seattle had been -- come on the map as being recognized by other people.

We started in Salt Lake City probably 5 years ago, 6 years ago, and there were really no, what I would call, institutional or institutionalized projects there. And so we have been able to clearly demonstrate that by doing what I call the KW-style asset management of putting in new leasing centers and renovating units and doing the common areas, the fitness centers and so on, that we have been able to drive rents to extremely attractive returns.

The -- Boise is a market that you can dominate -- you can be a dominant player with, say, 2,000 units, 2,500 units, which is kind of our bogey that we're headed toward. We have about 1,800 units that we either own or that are in the development pipeline. So we're getting up to where we -- the upper limit of where we think that size market is for us. But we have also started investing in the Reno market, which is benefiting. As you well know, Nevada has a 0 income tax rate, and jobs are getting created in the Reno market.

And then, the anchor to all of that really is what's going on in our Vintage Housing platform. And so there's no place in -- really in the world, but particularly on the West Coast that we know so well where there isn't a need for senior -- and that's anybody over 55 -- or affordable housing. And as I've said on other calls, the affordable housing is a giant misnomer. These are extremely high-quality properties. So we have -- when you look at where our construction is going on in the Vintage partnership, we have some very large projects that we're doing in Reno and in the Seattle market, and we'll be commencing a large one here in California shortly.

So you've got all these dynamics working in what I would call our favor. And the last thing I would say is that we've learned over the years that in order for any of these markets to sustain themselves, there has to be great university systems, because they have to be producing younger people that can go into the job market. And so if you look at Seattle, you look at Northern California, you look at Boise, you look at Dublin, all of those markets have that common characteristic where there are sizable and great university systems that are producing young people that the companies want to hire.

And not to keep going on here, but the last piece of this is the clear growth in the technology industry that is underpinning the job growth in a lot of these markets. And believe me, we study the large technology companies, their financial statements. We study their ability to continue to grow. And when you look at the top 15 technology companies in the world by market cap and then really study their balance sheets, these companies are extremely well capitalized. And so if you look, Mary, at Dublin, your growth in companies like Google, Facebook, Apple, Microsoft, Dell, you can kind of go on down the line.

And so the growth is coming from these -- the job growth is coming from these major well-capitalized companies that, in our opinion, have a very long runway of growth in front of them.

(Operator Instructions) Our next question is from Derek Johnston with Deutsche Bank.

How are you thinking through the best use of capital with the lighter share buybacks in 3Q? You guys have been active on the development and acquisition side as well as buybacks. But as I look ahead to 2019, how do you stack expected uses? And which do you anticipate to be more active than the others going forward?

Well, as always, these decisions are -- they're capital allocation decisions. And I think we've demonstrated a -- not pretty good, a very good track record of being good stewards of our shareholders' capital and our partners. And so these decisions always lie in not so much what you think is the best opportunity, but where you're allocating capital.

As Mary has pointed out and I have tried to point out, we have a very large CapEx at the existing properties and development initiative going forward. And so you've got to weigh all these factors in. And we start from the standpoint that there's a minimum level of cash that we want to keep and what are the -- where do we think are the places that we need to allocate capital.

This year alone, we have returned almost $300 million to the shareholders in the form of dividends or stock buybacks, and we've been doing stock buybacks forever since we've been at Kennedy-Wilson. So it's clearly something that's on our radar screen. It just depends on where we're at in terms of allocating capital to the various opportunities.

Great. And just getting back to Mitch and the multi-family platform in the U.S. with the recent focus on the Mountain States, how do you feel that will impact the growth trajectory of revenue and NOI?

So I'm going to let Matt Windisch answer that, Greg (sic) [Derek].

Thanks. So I would say, if you look at the past couple of years, as you mentioned, we have purposely shifted the portfolio a bit out of California where we've had some great success and produced great returns and shifted some of that capital towards the Mountain States, and it's been a couple of reasons.

Number one is affordability and the fact that the rents in those regions are 40% below our California portfolio. The second part is, these are underserved markets with growing populations and, we think, very vibrant economic growth in front of them. And as you can see from our results, in particular this quarter, the Mountain States areas had NOI growth of 9%, where the California markets were still very strong, but were in the low to mid-single digits.

So we think, going forward, as we continue to focus our efforts on those properties and continue to do our value-add in those Mountain States properties, which we bought relatively recently, we think we can continue to certainly outperform the market and have above-market rent growth, particularly in the Mountain States area. So we think the outlook is very, very strong in the next couple of years on the same property side, given the mix of the portfolio.

And Matt, one thing if I could add to that, too, Greg (sic) [Derek], there's -- we've learned over the years there's surprisingly little differential in rate -- borrowing rates, depending on these markets. And so we're buying a property now and -- 2 properties in Salt Lake City, 1 in our Fund and 1 that we're exchanging into in Salt Lake, and the borrowing rates there are roughly 4.25%, which -- for 10-year term loans, which is roughly the same that you would pay in the California market.

And I think the other important thing to remember is that the rate differentials that you see in Ireland, particularly, Mary, versus what we're borrowing at here in the United States. And so with the 10-year now here in the United States, say, touching 3.20%, Mary and her team just put in place a new loan on one of our apartment projects in Ireland that was a 7-year term, and we borrowed at 2.70% fixed for 10 years. And so...

IO, yes.

Interest-only for 7 years. And so we're able to borrow long term on extremely high-quality assets in Ireland at sub-3% -- we're able to borrow below the U.S. government borrowing rate here in the United States.

And so when you look at where we're allocating capital and how we're looking at these decisions, as you know, we really don't like to play the interest rate market. We like to lock in fixed-rate loans, but there's a very big differential today between borrowing rates in the United States and here in Europe, but there's really no rate differential at all between borrowing in Salt Lake City and borrowing here in California on apartment projects.

No, excellent point. And just lastly for me is, in light of the rising 10-year that you mentioned, what are your thoughts on cap rate trends in your U.S. markets?

We have very few new assets that we're interested in buying right now at cap rates, and there has to be an adjustment period, in our opinion, on the buy side. We haven't seen it yet, to be fair. And -- but you have to look at this 10-year rate, I think, in terms of historical standards. And even if the 10-year stabilizes somewhere between where it's at and 3.50%, it's almost 300 basis points below the 100-year average for the 10-year. And so even though I know everybody has got -- has been sensitized to this rate -- these recent rate increases, by any historical standard they are still well below and there's still great ability the way we do our business, there's great ability to make money for us and our shareholders with these rate levels at or near where they're at right now.

And just add to that too, our portfolio is, obviously, 50% Europe, 50% U.S. And so in Europe, as was mentioned earlier, the rate differential there is 200 basis points. And so -- really, half of our portfolio has seen some interest rate increases, the other half hasn't at all.

Yes. I think, Matt, you're making a really good point. I think the diversity -- the high-quality nature of our portfolio, but the diversity of it geographically, at least in our opinion, is a very, very solid way to spread risk for shareholders, so that we're not entirely reliant on any one geographic area to sustain long-term returns.

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

It's actually Michael Hagan dialing in for Craig here. And Mary, wanted to ask you a specific question. First of all, congrats on your recent promotion. But specifically, we certainly believe that Kennedy-Wilson is an attractive partner for an institutional capital, and this $2 billion that we're talking about of fee-bearing assets is a fantastic start. We're curious how much larger can your assets under management grow, call it, in the 3- to 5-year time range?

Well, thanks for your compliment. And we're focused on growing about $1 billion a year, is what we think is an achievable goal. And I think we're well on our way to doing that, not only with our discretionary funds. Obviously, we have our U.S. fund that we're going to be wrapping up, our latest funds. We're going to be launching what we call KW Europe Fund II, which is a discretionary fund where we've got some good preliminary interest there. And then, obviously, we have all these separate accounts, including this core bucket that we have with a large insurance company.

So yes, I think we're very, very focused there, and we don't feel like we need to scale the team. We've got a really high-quality team across the globe where we're operating. So I think we're well set up and well positioned with our people. And I think reputationally we're doing great, and Kennedy-Wilson is a name now that is known across different parts of the world. And I think it's interesting when you look at our most recent investors, obviously, AXA from France, we've had a lot of interest from the Middle East, we always have a big following in the U.S.

So as you kind of look how we're spreading our wings, if you will, around the globe, it's super encouraging. And I think for us, we need to just keep executing on all of our asset management, on our development plans and keep attracting institutional capital partners that we see the world in the same way. So we're really, really optimistic.

Excellent. And actually, the other questions we had were addressed already.

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

So everybody on the call and, obviously, those that are not, but as shareholders, we thank you for all your support. We've had a great year-to-date, and we look forward to talking to you next quarter. Thanks, again.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.