Kennedy Wilson(KW)2024-08-08 18:57Financial Data and Key Metrics - Adjusted EBITDA for Q2 2024 totaled $79 million, with a year-to-date total of $283 million [12] - GAAP net loss for Q2 2024 was $0.43 per share, including $0.46 per share of non-cash items [12] - Investment Management revenue grew by 37% to $26 million in Q2, driven by $1 billion in new originations and higher fee-bearing capital [12] - Estimated annual NOI grew by 5% to $485 million, with AUM reaching $27 billion, a 16% annual growth rate [6] - Fee-bearing capital grew to a record $8.7 billion, with potential to grow to $15 billion [6] Business Line Performance - The credit platform deployed $1.7 billion in the first half of 2024, primarily for multifamily and student housing construction [4] - The multifamily portfolio stabilized five communities in Q2, adding $16 million to estimated annual NOI [5] - The industrial portfolio acquired two platforms totaling $180 million in Q2, with a strong pipeline of opportunities in the U.S. and U.K. [10] - The investment management business grew fee-bearing capital by 93% over the past three years to $8.7 billion [22] Market Performance - U.S. multifamily portfolio saw same-property occupancy growth of 1.9%, revenue growth of 3.6%, and NOI growth of 3% [16] - California portfolio delivered 5% NOI growth, with Northern California bad debt dropping to the lowest level in two years [17] - Dublin portfolio stabilized two multifamily projects, adding $10 million to estimated annual NOI [19] - European industrial portfolio achieved 98% occupancy, with a 44% increase in rents for leases completed in Q2 [21] Strategic Direction and Industry Competition - The company is focusing on growing its investment management platform, with a strong emphasis on rental housing, credit, and industrial assets [8][9][10] - The company is simplifying its balance sheet by disposing of non-core assets, with $330 million generated from asset sales year-to-date [11] - The company is expanding its credit platform, with a pipeline of $600 million to $700 million in signed deals [10] - The company is leveraging its global relationships, particularly in Japan, to raise capital and expand its investment management business [8][33] Management Commentary on Operating Environment and Future Outlook - Management highlighted improving liquidity in the U.S. apartment sector and beneficial shifts in interest rates, with the 10-year bond declining by 100 basis points [6][7] - The company expects lower interest rates to increase transaction volumes and provide opportunities for capital deployment [7] - Management expressed confidence in the multifamily market, citing a structural shortage of housing in the U.S., U.K., and Ireland [9] - The company anticipates flat to lower insurance premiums in the second half of 2024, following July renewals [16] Other Key Information - The company repurchased 600,000 shares in Q2, bringing the year-to-date total to 1.7 million shares [14] - The company closed its Spanish office after divesting its last wholly owned asset in Spain, generating $35 million in cash [11][12] - The company has $110 million remaining on its $500 million share repurchase authorization [14] Q&A Session Summary Question: Prospects for expanding the debt platform beyond construction lending - The company sees opportunities in construction lending but is also exploring longer-term debt solutions, including permanent and bridge lending [24] Question: Future of the development program - The company is shifting its development strategy to focus on construction management, with 5% to 10% equity stakes in new projects [25] Question: Progress on disposition goals - The company has a substantial pipeline of dispositions and expects to continue shifting its portfolio towards U.S. multifamily assets [26][27] Question: Rationale for including fair value adjustments in adjusted EBITDA - The company introduced baseline EBITDA as a more recurring operating metric, alongside adjusted EBITDA [29][30] Question: Rationale for reopening the Japan office - The company reopened its Japan office to strengthen capital-raising efforts, leveraging long-standing relationships with Japanese institutions [31][33] Question: Impact of declining interest rates on the credit platform - Lower interest rates are expected to increase construction starts and attract new entrants to the market, benefiting the company's credit platform [36][37] Question: Quantification of the Spanish property sale and cost savings - The sale of the Spanish property generated $35 million in cash, with negligible impact on Q3 earnings, and the closure of the Spanish office is expected to save $1 million to $1.5 million annually [41][42] Question: Capital raised from Japan - The company has raised $100 million from Japan for its discretionary fund business, with ongoing discussions with major Japanese companies [40]