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Kennedy-Wilson Holdings Inc. (NYSE:KW)

Q1 2014 Earnings Conference Call

May 8, 2014 10:00 AM ET

Executives

Christina Cha - VP, Corporate Communication

Bill McMorrow - CEO

Matt Windisch - EVP, Kennedy-Wilson

Mary Ricks - President and CEO, Kennedy-Wilson Europe

Analysts

Jason Ursaner - CJS Securities

David Ridley-Lane - Bank of America Merrill Lynch

Mitch Germain - JMP Securities

David Gold - Sidoti & Company

Andrew Berg - Post Advisory Group

Operator

Welcome to the First Quarter 2014 Kennedy-Wilson Earnings Conference Call. My name is Jennet and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Christina Cha, Vice President of Corporate Communication. Miss. Christina, Cha you may begin.

Christina Cha

Thank you. Good morning everyone. Joining us on today’s call are Bill McMorrow, Chairman and CEO of Kennedy-Wilson; Mary Ricks, President and CEO of Kennedy-Wilson, Europe; Matt Windisch, 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 one year. Please see the Investor Relations section of Kennedy-Wilson’s website for more information.

Statements made during this conference call may be forward-looking statements. Actual results may materially differ from forward-looking information discussed on this call due to a number of risks, uncertainties and other factors indicated in reports and filings with the Securities and Exchange Commission.

I will now turn the call over to Bill McMorrow.

Bill McMorrow

Thank you. Christina and good morning everyone. So I am going to walk through the press release and the earnings release and then we’ll open it up for questions. So as a starting point, yesterday we reported adjusted EBITDA to shareholder of $69.2 million for the quarter, which was 117% increase from $31.9 million in the prior year. Our adjusted net income was $34.3 million, $0.39 per basic share compared to $13.2 million or $0.21 per basic share in the same period of 2013. Our GAAP net income to common shareholders was $10.5 million or $0.12 per basic share and diluted share compared to a loss of $3.6 million or $0.06 per basic and diluted share in the same period in 2013.

As most of you are aware, we completed successful capital raise for Kennedy-Wilson Europe in February. We’ve raised $1.7 billion which we plan to deploy over the next 12 months. Turning to our balance sheet, our consolidated assets grew to $4.4 billion as of March 31st from $1.8 billion at yearend 2013. The increase is primarily related to the consolidation of KWE, Kennedy-Wilson Europe, and certain investments which were previously unconsolidated.

During the first quarter, as a result of amending existing operating agreements with one of our equity partners, the Company gained control of six separate unconsolidated investments that hold real estate-related investments located in the United Kingdom and Ireland. The Company has an approximate 50% interest in these investments. As a result of gaining control of these investments, the Company was required to consolidate the assets and liabilities at fair value and record an acquisition-related gain of $80.5 million of which $40.3 million was allocated to non-controlling equity partners.

In addition, in the first quarter shareholder equity increased $184.3 million or 24% to $952.6 million from $768.3 million at yearend. As of March 31, 2014, our investment account was $1.5 billion, compared to $1.2 billion as of yearend. This represents a 30% increase in one quarter. The change is comprised of approximately $378 million of cash contributed to and income earned on investments offset by $25.7 million of cash distributed from investments. The Company’s $1.5 billion investment account represents an approximate 34% increase in our $8.4 billion investment portfolio at book value. This portfolio is comprised of 27.9 million square feet of real estate, including 18,027 multifamily units, 114 commercial properties and 371 hotel rooms and 1.2 billion of loans secured by real estate.

One set of statistics that I wanted to go through with you was to compare both numbers that I just went in terms of square footage, number of apartment units et cetera to the, first quarter, end of the first quarter of last year. At the end of the first quarter of 2014, our total investment portfolio was $8.4 billion, same period last year $5.2 billion. That’s a $3.2 billion or 63% increase. Our investment account at March 31, 2014 was 1.544 billion versus $909 million for the same period of 2013. That represents $635 million increase or 70%. Our rentable square footage that I referred to earlier was $27.9 million at the end of the first quarter of 2014, was $17.5 million at the end of the first quarter of 2013. That’s a $10.4 million square increase or 59%. In our growing apartment business at the end of the first quarter we had 18,027 versus 14,764 units. That’s a 3,263 unit increase or 22%.

In our commercial property portfolio, it grew from 54 commercial properties at the end of first quarter 2013 to a 114 commercial properties at the end of first quarter 2014. That’s a 111% increase. The unpaid principle balance decreased as we expected from $1.7 billion at the end of the first quarter of 2013 to $1.2 billion. That’s a $500 million decrease. That was primarily due to a successful resolution of the so called Byrant portfolio in the United Kingdom that we purchased in 2011 that had an unpaid principal balance of approximately $2.1 billion. That entire loan portfolio has now completely resolved. As I said earlier our ownership interest in all those assets today represents a 34% ownership interest.

Turning our attention now to Kennedy Wilson Europe, in February 2014 as I previously mentioned, we closed the successful IPO, Kennedy-Wilson invested the $145.2 million of cash and contributed $58.3 million assets acquired by the company during the first quarter. So in totality we had an approximately $203 million investment in that $1.7 billion capital raise. The other interesting statistics is since our going public in 2009, November 2009, we’ve now raised over $8.5 billion of equity from third parties to support our investment platform.

Kennedy-Wilson’s investment in KWE represented approximately 12.2 % of KWE’s total share capital, making us at the closing the largest shareholder in KWE. We serve as the external manager of KWE in which capacity we’re entitled to receive certain management fees and performance fees.

Once fully invested, these fees include a 1% annual investment management fee based on the NAV of the Company and an incentive fee of 20% in excess of the 10% annual shareholder return. Since we closed the IPO in February, those fees had a negligible impact on our first quarter. Due to the terms of the investment management agreement under U.S. GAAP we’re required to consolidate the results of KWE in our financial statement.

Turning our attention now to the investment business, during the first three months ended March 31, 2014 our investment segment achieved an EBITDA of $69.7 million, a 143% increase from $28.7 million for the same period in 2013. During the three months ended March 31, 2014, based on the company and its equity partner’s investment in 14,596 same property multifamily units, total revenue increased 7%, net operating income increased 9% and the occupancy remained flat at 95% of the property level.

In addition, based on the company and its equity partners investment in 4.2 million square feet of same property commercial real estate, total revenues increased 6%, net operating income increased 2% and occupancy increased 3% to 85%.

In terms of the acquisition and disposition program, during the first quarter of 2014 the Company and its equity partners acquired $797.4 million of real estate related investments in which the Company invested $347.6 million of equity. These acquisitions include $368.6 million of real estate related investments acquired by KWE.

The other point I want to make at this point is that we have approximately 20 assets globally where we have value-add opportunities to our existing assets that we already own and so a couple of examples I want to take you through. And these value-add opportunities exist both in the U.S. and Europe.

For example The Rock, which is a 600,000 square foot Class A shopping center located near Manchester England, in addition to the existing retail which is 95% occupied we’re completing 233 apartment units. These apartment units were only partially finished by the previous owner and by way of description these apartment units stood on top of the existing retail structure. We attributed almost zero properties [ph] to these unit at the time of acquisition. We started in the first quarter 2014 a build out of these 233 units and we expect them to be completed within the year and fully rented within six months after that completion date.

Another example of our value-add opportunity is Clancy Quay, which is a Class A apartment community in Dublin, Ireland. When we acquired this asset which includes 420 units of which 270 were completed finished at the time with 120 days of the acquisition will be finished out the other 150 units and that entire 420 units property is now 95% occupied. But in addition to those units, there are 8.5 acres of additional land at Clancy Quay, some of which have existing buildings on we plan to rehab and overtime we expect to build out between 400 and 600 additional units at Clancy Quay, and as I mentioned at the beginning in addition to these two units we have roughly another 18 properties globally that have similar characteristics where we’re implementing value-add strategies.

The last point in terms of our investment account, in the first quarter of 2014, 82% of the acquisitions were in the United Kingdom and Ireland, and 18% were in the Western United States. In our service business, investment management properties service and research fees decreased by 3% at $13.2 million during the quarter ending March 31, 2014, our service segment EBITDA declined from 5.1 million to 4.1 million. And then lastly talking about corporate financing, Kennedy Wilson issued and sold 9.2 million shares of common stock, resulting in gross proceeds of $197.3 million during the quarter.

Additionally, Kennedy Wilson completed a public offering of $300 million aggregate principal amount of 5.875% senior notes due 2024 at a public offering price of 99.068%, resulting in gross proceeds of $297.2 million. The other point on the debt offering is a frame of reference as that rate 5.875% is a 300 basis point improvement and that piece of paper, which is a 10-year piece of paper versus the 8-year piece of paper we sold in April 2011. So 300 basis point reduction in cost of the Company on this last debt offering.

So with all of that information, I’d like to open it now to questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) And our first question comes from Jason Ursaner of CJS Securities. Please go ahead.

Jason Ursaner - CJS Securities

And just first to focus on the acquisition program and some of the opportunities out there, you’ve completed $800 million in the first quarter which seems like a very strong number. Are you willing to put out some type of range for a full-year program?

Bill McMorrow

Yes, before I answer that Jason, I’m not sure if we did at the beginning, here with me is Matt Windisch, Executive Vice President of Kennedy Wilson; and Justin Enbody our CFO; and then Mary Ricks who is also on the line with us. Mary of course, as you know is the CEO of our business in Europe.

I would answer by telling you that over the last four years now, we’re closing in on $12 billion of acquisitions at purchase price. We historically have not really put out a number here in terms of what we plan to do in the future but I can tell you, and I think if you go back to our calls from even a year and a half ago, at that time I’d indicated to everybody that I thought there would be a shift in geographically where we would be investing and so that has actually proved to be the case that now 70-80% of where we’re investing has been Europe. We have a very strong pipeline. I’ll leave it there, I don’t want to really put a number on it and I don’t want to annualize the $800 million we did in the first quarter. But if you kind of devise $12 billion over the last four year years, we generally have settled in a range of right around $3 billion of acquisitions each year.

Jason Ursaner - CJS Securities

Okay, maybe asking another, I think you’ve said publically that you’d like to have the European entity invested in the next one to two years or so. So far you’ve been buying properties here with equity, is that 12 to 24 months figure, would that be on a levered or an unlevered basis because that alone would kind of give you a $3 billion or so split between this year and next year, excluding any acquisitions at the holding company. Is that a fair way to think about it, at least for Europe?

Bill McMorrow

That is the correct way to think about it. So, when you think about Europe, although the two -- actually three assets, groups of assets that we purchased in KWE today are completely unlevered and we’re still sitting on $1.2 billion approximately of cash. Over time we will be putting debt into that entity, either at the property level or entity level which will equate to roughly 50% and so if you just deduct out a minimum cash position that you want to hold and use that 50% leverage, you get yourself to that number that you were just saying, which is something in excess of $3 billion of assets in that entity, based on the initial capital rate that we did.

Jason Ursaner - CJS Securities

Okay, and at a high level, obviously that’s what you’ll be looking to have but the market in Europe, I guess UK and Ireland specifically, are you seeing the region still be able to support that type of acquisition, environment and maybe Mary can answer, are there enough properties that are coming available, are yields still favorable, or that type of program is really feasible?

Bill McMorrow

I want Mary to answer that question but the scope of the, and there have been many, many third party, not our number but third party analyses of the situation in Europe and by any measure, they’re somewhere between $800 billion and $1 trillion of real estate related assets that are still in some form of a need to find another home. So with that number, Mary you want to comment on Jay’s question.

Mary Ricks

Sure, Bill. I would say that transaction volumes we’ve seen pick up in all our core markets that being the UK, Ireland and now we’re looking little bit into Spain. So the deleveraging process that started in full boil I’d say a year ago has really picked up, but our pipeline is actually more full than it’s ever been and we’re looking at various ways to invest, whether it be direct assets or buying debt, or buying d-notes or whatever ways we can invest in the capital fact, as long as it’s secured by real estate. So I would say there’s going to be a big window of delivering that continues over the next 12 to 36 months depending upon where, what location we’re talking about.

Jason Ursaner - CJS Securities

Okay and you mentioned outside of the UK and Ireland, that there is – you’ve had the benefit now of being able to evaluate Spain and Portugal from a service perspective for a short while now. Do you have any impression so far on whether you’d be more or less likely to deploy capital there and in general and then maybe more specifically into your hard assets or loans; would that be through the holding company or through KWE.

Mary Ricks

Everything we do is going to be -- KWE has priority access to every single acquisition that we do in Europe. So that would be KWE Europe and I would say, as you rightly pointed out, since we have been in ownership of the servicing platform in Spain since December of last year, we have studied the market and become more comfortable but we’re going to do things in a very, very careful way in Spain or Portugal. So we are looking at things. We do have a pipeline. We have several off-market deals that we’re looking at and we have a large transaction that we’re looking at now, as in right now, in those two markets, but we’re obviously going to be careful with our investment thesis there.

Jason Ursaner - CJS Securities

Okay and just last question from me. Bill on the debt side of things you mentioned the latest offering you did at the corporate level. Do you see any refinance opportunity on the previous corporate level and then on the asset side, I know you’ve done a really good job refinancing, but the property level that, is there still any opportunity there to either take equity out or get better rates?

Bill McMorrow

Yes, at the property level with biggest opportunity we have; we’ve bought some very quality assets in Europe over the last three years. And the biggest -- Europe in terms of the debt market is somewhat of an instant replay of what went on in the United States, where we had virtually no liquidity in 2008, ’09 and even in ’10. So in Europe there is tremendous liquidity, has now returned to the debt market in Europe and so what is happening in Europe is that the expense on financing are all coming down. Mary, when we first went there, our strategy was probably what?

Mary Ricks

450 to 500 over?

Bill McMorrow

Right and so most of that financing that Mary is talking about, we did on what I’ll call bridge loans, three to five years. So now that we’re getting stabilization in a number of these assets, like for example State Street, the office building there we got 15 year lease, with State Street. Mary and her team are looking at all kinds of opportunities to refinance some of that existing debt at lower interest rates. So I think Europe is a big opportunity for us and then of course here in United States we’re always keeping our eyes on opportunities where we have debt maturities. As we’ve said in many of the calls, we’re not taking big interest rate risk on our debt financings at the property level and even this year at the end of the first quarter still 82% of our debt at the property level is either got a fixed rate or a cap attached to it.

At the corporate level, this was a big achievement I think to bring down the cost of our corporate borrowing by 300 basis points, really in a relatively short period of time, that’s three years. And next April of course is kind of the first open opportunity to take a look at the original debt financing that we did. And so it’s something we have our eye on obviously and we’ll just have to see how the next nine to 12 months plays out. And then we’ll make a decision then whether it makes sense to -- what makes the most economic sense for the Company in terms of that bad debt piece.

Operator

And our next question comes from David Ridley-Lane of Bank of America Merrill Lynch. Please go ahead.

David Ridley-Lane - Bank of America Merrill Lynch

Sure, the consolidation of the six entities that happened at the start of the first quarter, what would the rental on hotel revenue have been in the first quarter?

Matt Windisch

Hey David, it’s Matt Windisch. So you can add on a quarterly basis an additional roughly $10 million of revenue and $3 million of operating expenses as a run rate to the first quarter rental income and rental operating expenses, which would account for the six properties that were consolidated towards the end of the quarter.

David Ridley-Lane - Bank of America Merrill Lynch

Got it. And then Kenney Wilson and its third party investors have divested about $0.75 billion in assets over the last two years. It’s been kind of run rate. Should we expect an uptick in divestitures in 2014?

Matt Windisch

David, it’s Matt again. Yes, in the first quarter we, as you may have seen we had 25 million roughly of distribution back KW, which is kind of below our norm and so we do have some disposition plans which we expect to hit in the middle to a later part of this year. And so we’d be on track to continue pruning assets out of the portfolio and reinvesting in sort of high octane investment.

David Ridley-Lane - Bank of America Merrill Lynch

Got it, and then Kenney Wilson Europe pretty much sets you up for -- in terms of capital for the European investment. Just wondering how much cash and liquidity is there available on -- for the Kennedy Wilson Holdings to make U.S. investments.

Bill McMorrow

Yes. I’m rounding here a little bit but at the end of the quarter we had approximately $250 million of cash, free cash at KW the Holding company. We have nothing out on our line of credit which is $140 million. We’re also in the process of taking a look at that, the financing to possibly increase it and as Matt alluded to, we’re always in a process now of pruning either lower yielding assets or lesser quality assets out of our existing portfolio and so we’ve got a number of dispositions that we’re doing here in the U.S. this year that are going to generate additional cash to allow us to invest.

But the other thing that I really want to reemphasize is that these 20 or so properties that we have, that have either additional land or value add opportunities. A nice portion of our capital is going to enhancing the value of those existing assets that we already own. So without buying anything new, we’ve got the ability to add apartment units, add square footage where it makes sense and increase the overall returns of those existing investments.

David Ridley-Lane - Bank of America Merrill Lynch

Got it. So the value add opportunity is pretty much in front of you. And one last question if I could. I know your update on your pipeline. I did want to get a sense of the Irish market, particularly for the outlook for loan sales and the competition that’s come up for them. And then also are you still finding attractive hard assets, particularly in the Dublin market? Thank you very much.

Bill McMorrow

Mary you want to answer that question?

Mary Ricks

Sure. I mean we -- the pipeline is still very, I’d say robust in Ireland. There is obviously competition but I think the thing that separates us out from our competitors is that we have 25 people in our Dublin office. So we have everything from a team of finance folks as well as the team of real estate folks. So which can buy, whether it be buying debt which is what we did it on the State Street deal, bought the debt closed it very quickly and then took title to the real estate, and then as soon as we took title to the real estate we went and negotiated a long-term lease with State Street as Bill said earlier in the call, a 15 year lease.

So that’s really a perfect example of the opportunities that continue to exist in Ireland, and that’s on the debt side. There are still quite a few opportunities to buy assets generally from receivers because those are banks that are selling assets. And we’ve transitioned with over 15 financial institutions, either buying debt and are buying assets - direct assets from receivers.

So Ireland, there’s still a lot of assets that will change hands, and we still like the market outlook quite a lot. When you look at a 10 year average that CBRE has given us, cap values per foot and yields were still well below 10 year averages in Ireland, specifically in Dublin. So we’re very bullish on the market and the pipeline that we have – I was just on a call before this going through a roll up on a deal that we’re looking at, that’s a bank driven liquidation -- debt secured by good efforts in Ireland. So very active and very excited and I think we set ourselves apart from our competition just by our operating platform that is really second to none in the Irish market.

Bill McMorrow

Mary I think one case study that would be worth going through is really the Central Park apartment transaction that you did in the first quarter. That’s a very recent transaction. We own some of the highest quality rental apartment buildings in Dublin but I think that’s a recent add, that’s a good case study for you to explain to people.

Mary Ricks

Sure. So we acquired in South County Dublin a project called Central Park and that actually was a property that had a commercial aspect to it as well as residential aspect to it. And it was actually being sold by NAMA, by a receiver appointed by NAMA. And so Green REIT had actually made the offer to NAMA and then later at that point they had come to us and said can you guys look at the residential for us, because that’s really right up our alley. Nobody’s got more residential units than Kennedy Wilson has in Dublin. So we acquired, it’s located in Sandyford which is a great location, 11 kilometers from Dublin City Center, very affluent catchment area. And actually this – it’s a great asset as well because the Luas stop, which is a public transportation, which a lot of people take in Dublin is literally there is a stop at the property.

So we acquired those 272 units and then there’s a podium that we can go ahead and build another 166 units next to the 272 units. And while this deal that will stabilize around 6.5% to 7% yield and there is great value add in terms of pumping rental rates up, at all the units once we complete the refurb on a unit by unit basis, which has driven to work for us in Dublin. So we’re just in the middle of doing that and there’s a great value add opportunity to great very high quality I would say if not the highest, one of the highest quality assets in all of Dublin and a great location.

Bill McMorrow

And we just closed that in the first quarter.

Operator

And our next question comes from Mitch Germain of JMP Securities. Please go ahead.

Mitch Germain - JMP Securities

Just a question on the asset sales. Obviously you have said at the beginning you’re going to queue up a couple of more. Any characteristics, I know you said you asked but is there certain asset class or location? I’d appreciate that.

Bill McMorrow

Yes. I think that we continue to want to grow the multifamily business and as you can see from that year-to-year comparison, we added almost 3,300 units in that one year period of time. We still very much like the multifamily business. We announced I think was last week, Matt that we bought the so called Apex Apartment property in the Seattle market. We have a number of situations that we’re continuing to evaluate in that Seattle market. And so what we’re doing in our multi-family business, if you go back to the beginning of time, we had partial ownership interest in some properties. So we’re selling some of those and reinvesting that capital in really what I’ll call more 100% owned assets. So like Apex we bought a 100% of that equity our self.

And where we see some other disposition opportunities really are some of our stabilized office properties. And so we are continuing to look at those assets, that particular asset class, of that asset class is a very capital intensive asset class in the sense that most leases on your office building United States -- different in Europe than the United States, most of these leases are five to seven year duration. And so all the time you’re re-doing leases and adding more capital to tenant improvements and leasing commissions and so on.

The opposite of that is really the multifamily portfolio that once you’ve got those assets stabilized and you’re doing just your unit terms, which tend to average like $7,000 to $10,000 a unit, the capital costs are not nearly as great. And so we continue to look at these office assets in the United States, particularly when they’re stabilized, there is opportunities for realizations. But as I said at the beginning of this, the asset class the two asset classes that we’ve had very good luck good. We’ve had good luck with all of them. Don’t misunderstand me. But in terms of your current returns and the demographics of the Western United States and the places where we own apartments still linked in Europe, there is very strong population growth here in the State of California now, we’re almost 40 million people. In the state of Washington there’s 7 million people and if you go back 20 years there is about half of that number in terms of the state of Washington.

The same thing is actually happening in Dublin at all places and you’ve also got this going against a framework where the renters between the age of 25 and 35 are not as inclined today to buy houses. And they’d rather have the flexibility of renting. So we want to continue grow our rental business in really all over the markets that we operate in and at the same time, as I said where we’re got these stabilized office buildings, with big capital requirements, every five to seven years we’re evaluating disposition opportunities in that part of our portfolio.

Mitch Germain - JMP Securities

And then with regards the bulking up the multi-family, is it lower capital costs and playing to the demographics, or is there something else like, for instance, maybe condo conversion plays on assets? What really is driving that?

Bill McMorrow

Well it’s really looking at -- where we’ve always made great money? Investing is where you are in high barrier to entry markets. And when I mean, that there’s limited land or in the case of California, where there’s also limited land in the core cities, there is also very high barriers to entry in terms entitlement opportunities. And so we like not only the demographics of Seattle, San Francisco, Los Angeles, Dublin, The United Kingdom. The demographics are all in favor of multifamily but they are also high barrier to entry markets in terms of competition.

So the other point that you made about these condo conversions is that almost all of the buildings, Mary that we bought in Dublin were actually built to condo specs but they were finished at the time where there was no for-sale market. So we have the opportunity if the market ever really got robust again on the for-sale housing side to actually convert some of those building to condos but they are very high -- they’re really very high quality condominium buildings that got finished at kind of the wrong time since we’ve now been able to rent successfully.

Operator

And our next question comes from David Gold of Sidoti. Please go ahead.

David Gold - Sidoti & Company

Good morning. Just following up on an earlier one, two areas of potential gains I would like to ask you to hit on. One is further consolidation of other assets throughout the year and then second, I know you’ve touched on the expectation that you’d be a bigger seller let's say than you were in the first quarter through the year. But if you can put some maybe guideposts around that or around what size gains we might see in the next few quarters.

Matt Windisch

David, its Matt. So to give you a sense, I think you’ve hit on two items that are possible which is potentially more consolidations in the future and also as Bill mentioned and I mentioned previously we are looking for an asset sales, both of which could potentially produce gain for us. We don’t want to get into specifics around that but I think those two items are both possibilities in the future.

David Gold - Sidoti & Company

Got you. Okay. And then another question, Matt when we look at the consolidation -- obviously it sounds -- not obviously, I’ll ask you two questions. One has there anything changed in the way that you are managing these assets now that you formally have control and two can you give a sense for what’s driving the consolidation? Is it simplification, maybe from management or accounting standpoint or are there other factors there?

Matt Windisch

It’s always kind of a factor -- ultimately it’s a business decision and at the level that we’re at now and we’ve successfully had over the past several years, particularly in the acquisition front -- we’re now in a position to control every asset that we purchase and that’s our plan going forward as every asset we purchase we would have control. And that means several things but ultimately it means we’re making the calls on the day-to-day decisions of every property we own. And so that’s the reason we’re doing it. And we think it’s in the best interest of the company to have that control. And what falls out of it is an accounting scenario which we think is also helpful which is you will begin to see the revenue and expenses from these properties that we control on a going forward basis which will make our interest statement and balance sheet I think more easier to follow and it will be better disclosure for all the shareholders. So that’s it’s ultimately a business decision but the accounting treatment we believe is also favorable.

David Gold - Sidoti & Company

Okay. Just following up on part one, any has anything ultimately or really changed on the specs that you brought on?

Matt Windisch

Yes absolutely. We now have control of those investments where before we had joint control. So there is a significant change in terms of the decisions we had to make on those properties.

David Gold - Sidoti & Company

Okay fair enough. Thank you both.

Operator

And our next question comes from Andrew Berg of Post Advisory Group. Please go ahead.

Andrew Berg - Post Advisory Group

A couple questions. I want to go back to liquidity first, just to confirm something. You said you got 250 cash on hand at the Holdco, plus 140 million of revolver availability. You show another -- roughly 1.2 billion of cash held by consolidated investments from 1.3. Is that all in KWE, and/or is there also additional cash at the partnership level that we’re not seeing here that give you additional firepower?

Matt Windisch

Yes, so the cash number -- this is Matt. The cash number you’re seeing, roughly the 1.3 billion, the majority of that is cash held by Kennedy-Wilson Europe. There is also some additional cash held by partners which we have a controlling interest and so but the majority of that is KWE cash.

Andrew Berg - Post Advisory Group

Thank you. And then any additional liquidity facilities that we’re not seeing away from the hotel, partnership level on KWE?

Matt Windisch

For the KWE we’re seeing all the cash but on our unconsolidated investments which totals about $620 million, there is cash at those investments as well which does not show up on our balance sheet.

Andrew Berg - Post Advisory Group

Can you quantify roughly what that is now?

Matt Windisch

It’s roughly $50 million. That’s not all our cash between us and our partners.

Andrew Berg - Post Advisory Group

Understood.

Bill McMorrow

But I think Andrew one other point there and it goes back to the plan I was trying to make that over the last four years we have raised $8.5 billion of equity from our partners and so we obviously have the capacity going forward, if we want to raise additional third party capital from partners that are very happy with the things that we’ve been doing with their money over the last four years.

Andrew Berg - Post Advisory Group

Yes, and I would say you guys have a high-class problem. Raising capital does not seem to be a problem for you. You've obviously done a good job deploying it. It was just a question of confirming exactly how much liquidity and where it is.

Bill McMorrow

Yeah, got it.

Andrew Berg - Post Advisory Group

With respect to the UK, the Kennedy assets, you had talked about the fees which are not currently reflected in the numbers, [indiscernible] 20% promoted by 10%. Just on the 1%, what does that translate into in terms of what we'd expect to see as fee income going forward?

Matt Windisch

So it’s roughly $17 million if you take the 1.7 billion of equity, at times 1%.

Bill McMorrow

And that doesn’t include of course then any return on our equity as we have invested in that entity.

Matt Windisch

In addition to the potential incentive.

Bill McMorrow

So there is three -- when you think about Europe and you think about Kennedy Wilson U.S. there is kind of three pockets of what are money making opportunities. There’s that base fee that Matt’s talking about and so return on $203 million and then there promote structure on our incentive fee.

Andrew Berg - Post Advisory Group

Right. I was just trying to focus on the one piece that was the -- what we knew it was the fee income. And obviously, we will see what happens with acquisitions. As you guys have shown, it provides a lot of upside.

Bill McMorrow

Right and that number Andrew in the first quarter was almost zero.

Andrew Berg - Post Advisory Group

That’s what I am trying to quantify. And then lastly, either for Bill or Mary, as you guys think about Spain and how you will move there, obviously you talked about having a preference for multifamily as shown in UK, Ireland and in the U.S. Is that the same focus as you go into Spain and Portugal potentially? Is multifamily where the first preference is, or would you be more inclined to do commercial there? And how big of a bite should we expect you guys to potentially make? I know you said you're looking at one large acquisition, large in terms of -- can we just put some numbers around what you are defining as large?

Bill McMorrow

Mary do you want to take that?

Mary Ricks

Sure, I would say Spain, there are quite few residential opportunities there and some of those we’re looking at are off market. I can’t really talk about that. And then in terms of the potential acquisition, it’s really two pools of loans secured by a variety of assets, office, retail, some industrial not quite -- a few residential assets but not so many in that industry pool. And it’s a potential acquisition at this point. But there are to your point, in terms of resi there are quite a few residential opportunities in Spain that we’re looking at.

Andrew Berg - Post Advisory Group

Okay, and the preference is to think more about residential than potentially commercial?

Mary Ricks

It depends, I think on the commercial side, we’ve looked at big cities Madrid, Barcelona type assets. So again to the comment that we’d be very careful with anything we do in Spain. We’d be looking at big city type acquisition and then of course residential which is really throughout all of Spain. So there is quite a lot of residential opportunities in Spain right now.

Operator

And we have no further questions at this time. I will now turn the call back to Bill McMorrow for closing remarks.

Bill McMorrow

So thanks everybody for listening in and as I always say on these calls Matt or Justin, Mary and I are available for any offline calls if anybody wants to make. So thanks again.

Operator

Thank you ladies and gentlemen, this concludes today’s conference. Thank you for participating. You many now disconnect.

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Source: Kennedy-Wilson Holdings' (KW) CEO Bill McMorrow on Q1 2014 Results - Earnings Call Transcript
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