Kennedy Wilson (NYSE: KW), a global real estate investment company, has reported a strong financial performance for the third quarter of 2024, with significant growth in assets under management (AUM) and net operating income (NOI). The company's strategic focus on rental housing has been a key driver of its success, with a notable expansion in the United Kingdom (TADAWUL:4280) through a partnership with the Canadian Pension Plan Investment Board (CPPIB).
Key Takeaways
- Kennedy Wilson's AUM increased to $28 billion.
- The estimated annual NOI reached $492 million.
- Investment management fees rose by 51% to $69 million year-to-date.
- Fee-bearing capital surged by 132% over the past four years.
- The company completed $2.1 billion in new loan originations in 2024.
- Asset disposals in Q3 resulted in $63 million in cash from $234 million in sales.
- A new single-family rental housing platform was launched in the UK.
- The multifamily portfolio maintained a 94% occupancy rate.
- Central banks have begun a rate-cutting cycle, improving liquidity for high-quality real estate assets.
- The investment management business is projected to achieve $100 million in fees in 2024.
Company Outlook
- Kennedy Wilson aims to expand its investment management business further.
- The company plans to continue selling non-core assets.
- There is a focus on exploring new opportunities in rental housing across different markets.
- Kennedy Wilson is committed to maintaining a strong balance sheet, with 96% of its debt fixed or hedged.
Bearish Highlights
- No specific bearish highlights were mentioned in the call summary.
Bullish Highlights
- The company's strategic focus on rental housing is yielding positive results.
- The launch of a new rental housing platform in the UK addresses the significant undersupply in the market.
- Positive market trends, such as reduced rates and improved liquidity, are seen as supportive for Kennedy Wilson's business.
Misses
- The summary did not report any misses in the company's financial performance for Q3 2024.
Q&A Highlights
- Matt Windisch, President of Kennedy Wilson, expressed that the company has made significant progress despite challenging times, viewing such periods as opportunities.
- CEO Bill McMorrow highlighted the improving liquidity and favorable borrowing conditions as supportive trends for the global business.
- Mike Pegler, President of Europe, discussed the long-term undersupply of rental housing in the UK, underscoring the potential for Kennedy Wilson's new platform to meet the mismatch between demand and supply.
Kennedy Wilson's strong Q3 2024 performance reflects the company's effective strategy and adaptability in a dynamic market environment. With a solid foundation in rental housing and a proactive approach to market opportunities, the company is well-positioned to maintain its growth trajectory in the coming periods.
Full transcript - Kennedy-Wilson Holdings Inc (NYSE:KW) Q3 2024:
Conference Operator: Hello and welcome to the Kennedy Wilson Third Quarter 2024 Conference Call and Webcast. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. As a reminder, this conference is being recorded. I would now like to hand the call to Daven Bhavsar, Head of Investor Relations.
Please go ahead.
Daven Bhavsar, Head of Investor Relations, Kennedy Wilson: Good morning and thank you for joining us today. Today's call will be webcast live and will be archived for replay. The replay will be available for phone for 1 week and by webcast for 3 months. Please see the Investor Relations website for more information. With me today are Bill McMorrow, CEO Matt Windisch, President Justin Embody, CFO and Mike Pegler, President of Europe.
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 and our Q3 2024 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 the 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.
Bill McMorrow, Chairman and CEO, Kennedy Wilson: Devin, thank you, and thank you everybody for joining the call today. Yesterday, we reported our results for the Q3, which highlighted improving operating fundamentals in our multifamily portfolio, continued growth of our Investment Management business and further progress on our non core asset sale program. Looking at our key portfolio metrics, AUM, assets under management, has grown to $28,000,000,000 versus $25,000,000,000 at Twelvethirty Onetwenty 3. Estimated annual NOI has grown to 492,000,000 dollars and fee bearing capital grew to a record $8,800,000,000 Rental housing continues to be our major focus with our portfolio today comprised of 60,000 multifamily or student housing units that we either have an ownership interest in or are financing through our credit platform. Starting in 2014, we embarked on a $3,000,000,000 ground up development program, largely focused on multifamily communities.
Since then, we have completed 9,000 units, including approximately 3,000 market rate units and 6,000 affordable housing units through our Vintage Housing Venture. Since 2020, we have invested a total of approximately $500,000,000 of equity capital across our developments. Generally in these developments, we are fifty-fifty partners with an institutional partner. Today, we are in the final stages of completing that development program with only $3,000,000 of KW equity remaining to be spent. We've stabilized 2 additional multifamily properties in Q3 adding $12,000,000 to estimated annual NOI.
For the year, we have added $29,000,000 to estimated annual NOI from stabilizing approximately 2,000 multifamily units and we currently expect an incremental $60,000,000 from the stabilization of assets undergoing lease up. The expansion of our investment management business remains a key focus for us. Year to date in 2024, investment management fees have grown by 51% to $69,000,000 Fee bearing capital has grown by 132 percent over the last 4 years. And for the first time in our history, our fees are on track to hit approximately $100,000,000 in 2024 compared to $25,000,000 generated in 2019. Matt will discuss this topic in more detail, but our Q3 growth was driven by the solid momentum we continue to see from our credit business.
We have completed $2,100,000,000 in new loan originations in 2024 with a strong pipeline of over $1,200,000,000 of new loan origination opportunities we are in the process of closing. Another important focus for us has been the generation of cash through the completion of selling non core assets. In Q3, we disposed of another $234,000,000 of assets, including our final wholly owned asset in Spain. We generated $63,000,000 of cash from our Q3 sales, bringing our year to date total cash to KW to $375,000,000 In Q4, we have an additional planned asset sales that are expected to generate in excess of $150,000,000 of cash to KW and which puts us on track to achieve the $550,000,000 to $750,000,000 target we laid out last year. Now I'd like to spend a moment and highlight 2 important recent strategic announcements we made this past quarter end.
In October, we announced the launch of a new platform in the United Kingdom focused on the single family rental housing market. We are partnering with the Canadian Pension Plan Investment Board or CPPIB, one of the world's largest global investors with approximately $500,000,000 of assets under management. In the last decade, the U. K. Population growth was more than double the number of homes built.
At the same time, there was a growing demand for high quality rental homes in the United Kingdom, similar to what we have seen in the U. S. By leveraging our residential experience in the U. K, Ireland and the U. S.
Combined with partnering with CPPIB, we saw an opportunity to create a new platform at scale to address the structural undersupply of housing. The platform is initially targeting 1,000,000,000 Sterling in asset purchases, and we're pleased to report that we closed our first two projects and have a meaningful pipeline of new opportunities. Yesterday, we also announced a €175,000,000 redemption of our KWE bonds, which mature in November of next year. The redemption represents almost 40% of the remaining outstanding balance and will be funded using proceeds from completed and planned asset sales. As a reminder, this issuance was originally €550,000,000 €75,000,000 of which was retired in 2022.
This redemption will help us lower our overall unsecured leverage as the KW bonds represent our only unsecured maturity until 2028. Now turning to market conditions, we've seen an improvement in the overall real estate investment sentiment. As in Q3, we saw long awaited beginning of the rate cutting cycle by central banks. Additionally, as Justin will describe in just a moment, debt capital markets have improved and liquidity remains robust today for high quality real estate assets. The combination of improving liquidity, lower short term rates and borrowing spreads are supportive for our global business and a trend we expect to strengthen over the next year.
Across our business, we have seen continued momentum in capital deployment. Through Q3, we have deployed a total of $2,400,000,000 in 2024, primarily into our investment management platform, including $2,100,000,000 of new loan originations through our credit platform and $350,000,000 of equity purchases of rental housing and industrial acquisitions. Looking ahead with the lack of high quality and affordable housing affecting all our markets, we continue to seek both equity and credit opportunities in the rental housing space. Our direct real estate investments include our ownership as I mentioned in 39,000 market rate and affordable rental housing communities, which ended the quarter with a strong occupancy of 94% and generate property level NOI of over $500,000,000 We also have capacity for an additional 4,000 units through our newly formed U. K.
Single family platform. Our credit platform allows us to generate solid returns on invested capital. In a short period of time, we've become one of the U. S. Largest lenders for the development of rental housing communities across the country.
Since joining us in July of last year, our construction lending team has completed $2,300,000,000 in new loan originations, all related to either multifamily or student housing development. Our credit platform today totals $8,000,000,000 in total commitments, including $850,000,000 in student housing loans, with developments near universities such as University of California at Berkeley, University of Michigan and Texas A and M to name a few. We have a strong origination pipeline, as I mentioned, of over $1,000,000,000 in new loans, which we expect to close prior to year end. Our business today remains in a great position with different engines of growth and a stable with a base of stable well capitalized institutional partners as we see positive growing tailwinds for the real estate sector, including rates normalizing and liquidity continuing to improve. With that, I'd like to turn the call over to our CFO, Justin Embody to discuss our financial results.
Justin Embody, CFO, Kennedy Wilson: Thanks, Bill. I'll start by reviewing our financial results and then discuss our balance sheet. As Bill mentioned, our progress on our key initiatives continue to drive our results. Investment Management revenue grew by 39% to $22,000,000 in Q3, driven by completing another $422,000,000 in new debt originations and overall higher levels of fee bearing capital. Baseline EBITDA totaled $102,000,000 in Q3 and has increased by 4% year to date to $309,000,000 despite being a net seller of assets.
Our unconsolidated portfolio, which includes approximately $5,000,000,000 in gross assets at share, saw minor changes in valuation. In total, adjusted EBITDA doubled in the quarter to $66,000,000 and has increased by 9% to $349,000,000 for the year. Turning to our balance sheet and debt profile. During Q3, we were able to strengthen our liquidity position by successfully renewing our revolving liability credit, which now has a fully extended maturity in September of 2028. Total (EPA:TTEF) capacity was increased by 10% to $550,000,000 with $177,000,000 drawn at quarter end.
Our share of total debt is 96 percent fixed or hedged with a weighted average maturity of 4.8 years and a weighted average interest rate of 4.6%. Our interest rate hedging continues to generate cash to KW, which is also not reflected as an offset to our interest expense. In Q3, we collected $10,000,000 of cash, bringing our year to date total to $33,000,000 in cash received by the company. At quarter end, our effective interest rate of 4.6 percent reflected 37 basis points of savings over our contractual rate as a result of our hedging strategy. Looking at our debt maturities, so far in 2024, we have refinanced $700,000,000 of property level debt with total pay downs of only $7,000,000 and the cost of debt changing by only 16 basis points.
Looking out to next year, roughly half of our maturities are represented by our KWE bonds maturing in November. As Bill mentioned, the redemption announced yesterday will satisfy almost 40% of this maturity, which again was funded using cash proceeds from our previously announced asset sale program as well as existing liquidity. Outside of the KWE bonds, 25% of our maturities next year relate to our multifamily portfolio, primarily secured by our high quality assets in Dublin, where debt capital availability remains strong. We are already underway at addressing this maturity and have received over 25 proposals, which speaks to the quality of this portfolio. All in costs are expected to be in the low 4s.
And with that, I'd now like to turn the call over to our President, Matt Windisch to discuss our investment portfolio.
Matt Windisch, President, Kennedy Wilson: Thanks, Justin. Estimated annual NOI for our stabilized portfolio grew in Q3 to 492,000,000 dollars Our portfolio continues to simplify and strengthen as we recycle capital and replace older non core assets with newly stabilized multifamily communities. Today, 70% of our stabilized portfolio is comprised of investments in our high conviction sectors of multifamily, industrial and credit. As mentioned earlier, rental housing continues to be a thematic focus and in the quarter, our 39,000 unit multifamily business has grown to 62% of our stabilized portfolio. Our share of multifamily NOI is $305,000,000 which has increased by over 60% over the last 5 years.
We have 2,400 units in our lease up and development pipeline, primarily through our Vintage Housing Venture, which we expect to add $19,000,000 to estimated annual NOI at stabilization. We continue to see strong demand for apartments across our portfolio in Q3 as healthy levels of traffic and leasing volume combined with the high cost of homeownership drove occupancy. These drivers resulted in same property occupancy growth of approximately 1%, revenue growth of 3.3% and NOI growth of 3%. Overall portfolio occupancy was healthy at 94%. Turning to our regional highlights.
In the U. S, although 2024 represented a 40 year high of apartment delivery, new starts have fallen sharply and the near term outlook shows significantly less new supply, a major positive for our market rate portfolio, which is over 90% suburban. In Q3, we saw blended leasing spreads of 2% and ended the quarter with a loss to lease totaling 3%. In our California portfolio, we saw a strong recovery from the eviction and delinquency challenges that we faced a year ago. Same property occupancy in Northern California grew by 3%, driving NOI growth of 6%.
Southern California NOI grew at 3%, supported by lower levels of bad debt and growing occupancy. In the Pacific Northwest, we've seen recent return to office mandates that we believe will positively impact our portfolio in and around Seattle. Occupancy grew in Q3 by 1.4%, resulting in revenue growth of 3% and NOI growth of approximately 2%. In the Mountain West region, we saw occupancy improve by 2% leading to revenue growth of 2% and NOI growth of 2.4%. The strongest growth came from our portfolio in New Mexico, Nevada and Arizona, all of which contain assets which are finishing our value add business plan.
Nevada and Arizona saw NOI growth of 10% 14%, respectively. Our portfolio in Utah, Idaho and Colorado have been impacted by elevated levels of supply. However, the outlook remains favorable as the worst of the supply pressures are now behind us. In our Vintage Housing Affordable portfolio, rental growth rates were in line with the changes in area median income, resulting in NOI growth of 6.5%. Moving over to Dublin.
Demand for apartments remains healthy. The overwhelming majority of apartments in Dublin are non institutionally owned and there remains a large structural shortage of new housing. We have stabilized a total of 7 58 units thus far with one additional property currently on track to complete lease up in early 2025. Our portfolio is 95% occupied and we anticipate our amenity rich professionally managed communities to continue drawing tenant demand due to the lack of new supply. With regards to our office portfolio, approximately 80% of our stabilized office NOI is derived from our portfolio in Europe, which saw same property revenue and NOI growth of 2%.
Occupancy for our stabilized portfolio in Europe remains healthy at 93% with a weighted average lease term of 7.3 years to expiration and 4.8 years to break. Fundamentals for our office portfolio in Europe are much different than some trends seen throughout the U. S. For example, in Dublin, our 9 stabilized properties are almost full, with less than 5% availability at quarter end. We have seen additional tenant demand in Q4 as our high quality, sustainable properties continue to benefit from a flight to quality.
Similarly, in the U. K, we've seen an uptick in leasing activity with several transactions currently under offer totaling 160,000 square feet. Our industrial portfolio, which totals 12,000,000 square feet continues to see strong demand. In the U. S, our portfolio is 99% occupied and in Europe, we've completed 300,000 square feet of leasing, which delivered a 44% increase in rent.
In place rents in Europe remain 34% below market, which allows us to continue enhancing value as leases mature. We look to continue adding to our global portfolio, where we believe the continued long term rise of e commerce and supply chain resilience will drive demand. Switching gears now to our Investment Management business. As we've talked about on previous calls, we look to continue simplifying our balance sheet through non core asset sales and a focus on growing new platforms through our Investment Management business. That business grew to a record $8,800,000,000 in fee bearing capital at the end of the quarter with an incremental $6,000,000,000 from future funding and the deployment of our non discretionary capital.
Our new U. K. Single family rental housing platform is a great example of our focus as it allows us to generate attractive returns on equity in a capital light manner, while adding another high quality institutional investor to our roster, while also growing one of our high conviction areas in the rental housing space. Investment management fees totaled $85,000,000 over the past 12 months. Our $8,000,000,000 credit platform has been a large driver of our Investment Management business growth over the last few years, today accounting for 55% of our fee bearing capital.
As private credit markets continue to expand rapidly and with the potential for higher transaction volume, we continue to look for ways to grow our credit solutions. In short, the combination of several well capitalized institutional partners coupled with more real estate liquidity and improved short term borrowing costs provides for an ideal setup for our Investment Management business. In closing, we have made great progress navigating a challenging period of time over the past few years. However, we always approach these periods as opportunities. And I believe the improvements we have made as a company in the last few years sets us up for solid growth in 2025 and beyond.
So with that, we can open up to Q and A, please.
Conference Operator: Thank you. We will now begin the question and answer session. Today's first question comes from Anthony Paolone with JPMorgan. Please go ahead.
Anthony Paolone, Analyst, JPMorgan: Great. Thank you. My first question relates to the brackets you put around fee revenue for next year about $120,000,000 Can you talk about maybe what we need to see in terms of originations or just other capital being raised to kind of hit that number? Because it looks like you're going to finish this year with probably over $3,000,000,000 worth of debt originations. And just curious like what that picture has to look like next year to get to that level of fee revenue?
Matt Windisch, President, Kennedy Wilson: Yes. Good question, Tony. Yes. So as I mentioned, we've got $6,000,000,000 of capital that's not included in our fee bearing capital that relates to future funding commitments as well as commitments from partners such as CPPIB in our various platforms. And so based on the pipeline we're seeing both in the credit business and the equity business, we feel like just deploying the capital we've raised alone is going to allow us to continue to grow the investment management business at a very good clip.
And so as we mentioned in the remarks, we think we're going to end up at close to $100,000,000 in fees for this year. So based on the growth rates we've seen over the past couple of years and our plans, we feel comfortable continuing to grow that business at a good pace.
Anthony Paolone, Analyst, JPMorgan: So is there any sort of like large like cliff of maturities that you'll be getting back where you have to you may have a higher bar of originations next year? Is that still pushed out a bit such that just keeping the clip you're at will get you there?
Matt Windisch, President, Kennedy Wilson: I think keeping the clip we're at will get us there. I think there's certainly we can increase either the debt originations or continue to grow the investment management business through these equity platforms, we can certainly outperform the numbers you laid out there. But just kind of doing it at the same pace we did this year would get us there for sure.
Anthony Paolone, Analyst, JPMorgan: Okay. That's helpful. And then second one, just on the new SFR strategy. Can you maybe give us a little more detail around what cash yields look like for U. K.
Single family? Maybe like are there experienced operators over there to kind of help you with the platform and running these assets? And just any more color around the economics there?
Mike Pegler, President of Europe, Kennedy Wilson: Okay. Thanks, Tony. I'll take that. Mike Pegler here, President of the European Business. I mean, firstly, I just want to say how excited I am about finding a great partner such as CPPIB with which to scale this business.
As Bill and Matt said, rental housing has always been a key part of Kennedy Wilson's story, a key part of our portfolio and a key part of our expertise. And really to find an opportunity to scale this business in the U. K. Is something we've been looking at for a while. And like I said, we think we've got a great partner to scale here.
They've committed $500,000,000 of equity to this venture as an initial commitment. We're going to be investing that on a ninety-ten split. So we'll be co investing alongside them. So with leverage, we expect to deploy in excess of $1,000,000,000 as part of this initial commitment. We've got a great pipeline for deploying that, and we're confident we're going to have a really productive year in putting this to work next year.
I think fundamentally, not enough houses have been being built in the U. K. For a period extending over years, if not decades, plus various other changes in the private landlord market such that there was a real under a mismatch between demand and supply for rental housing in the U. K. So we think the conditions are really well set for rental growth.
In terms of those initial cash yields, we're projecting that we're going to be leasing up these houses. We are buying brand new from large U. K. House builders primarily in cohesive blocks on the edge of key cities, mainly in the south of England. We're projecting we're going to yield initially something between high fives pushing towards 6%.
And with rental growth, we'd be expecting to stabilize north of 6% yields.
Anthony Paolone, Analyst, JPMorgan: Okay. And who will operate them? And do you think the $1,000,000,000 is enough to have scale and be efficient in that business?
Mike Pegler, President of Europe, Kennedy Wilson: Yes. We've got a great team that we've put together with a lot of residential expertise across the Kennedy Wilson business. We're clearly leveraging off the expertise that we've got in other markets. We've got a very significant portfolio in the U. S.
And in Ireland, and we're going to be taking the lessons we've learned to the U. K. Market. Really proud of the team who've put this venture together and who are going to be managing it. In terms of, let's say, proxy management, rate collection, that type of thing, we're going to outsource that.
We've got a best in class team there, and we'll evaluate how that works as the platform grows. We think this first $1,000,000,000 does give
Matt Windisch, President, Kennedy Wilson: us a 1st mover advantage. There are
Mike Pegler, President of Europe, Kennedy Wilson: not a lot of people doing this in the U. K. Market. We think that is a credible platform of scale. But we think there could be the opportunity to go beyond that.
And our existing partner has expressed an interest to do that if the opportunity unlocks in the way that we expect it to. And we think this could be an opportunity to build an even bigger platform over time.
Anthony Paolone, Analyst, JPMorgan: Okay. Thank you.
Conference Operator: Thank you. Seeing no further questions, I would like to turn the call back to Bill McMorrow for any closing remarks.
Bill McMorrow, Chairman and CEO, Kennedy Wilson: Well, thank you everybody for joining us. And as I always say, we're always available anytime to answer any questions that might come to mind. So thank you very much.
Conference Operator: Thank you. The conference has now concluded. Thank you for your participation. You may now disconnect.
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