Kennedy-Wilson Holdings Inc.

Good day, and welcome to the Kennedy Wilson Second Quarter 2022 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Devin Bovsar, Vice President of Investor Relations. Please go ahead, sir.

Thank you, and good morning, everyone. This is Devin Bovsar, and joining us today from Kennedy Wilson, or Bill McMorrow, Chairman and CEO, Mary Ricks, President, Matt Windisch, Executive Vice President, and Justin Enbody, Chief Financial Officer. Today's call will be webcast live and will be archived for replay. The replay will be available by phone for one week and by webcast for three months. please see the investor relations 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 the reconciliation of the most directly comparable GAAP financial measure and our second quarter 2022 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.

Bill McMorrow Thanks, and thank you, everybody, for joining us today. Yesterday, we reported our Q2 results and our businesses off to a very strong start for the first half of the year. In Q2, we saw a record same property revenue growth from our U.S. multifamily portfolio, as well as a strong performance from our recent multifamily and industrial investments. We generated adjusted EBITDA of $119 million in the quarter. For the year to date, we have generated $279 million in adjusted EBITDA, compared to $538 million for the first half of 2021. I'd like to point out that in Q2 of 2021, we had a $330 million gain related to selling a 49% interest in a portfolio of wholly owned multifamily assets. This sale served as the foundation of a new $1.5 billion US multifamily platform done in partnership with a global institutional investor. Our estimated annual NOI grew to $479 million, an increase of 10% in the current year, and a 19% increase from Q2 of 2021. Our assets under management total $23 billion and is comprised of over 38,000 multifamily units and 26 million commercial square feet. including $2.6 billion of gross development projects, which 62% is represented by new construction of approximately 4,700 multifamily units. KW has a 54% ownership interest in its development projects, the majority of which will complete construction by the end of 2024 and stabilize in the first half of 2025. In Q2, we completed $1.7 billion of investment transactions, including $1.2 billion in acquisitions and loan investments, bringing our year-to-date total of new investments to approximately $2 billion. Our key acquisitions in the quarter included adding three wholly-owned apartment communities totaling 1,100 units, which we added to our Mountain West portfolio. In the Mountain West, we have doubled our unit count in the last three years and currently own over 12,000 stabilized units with another 1,500 units in development. In our investment management business, we completed $444 million of new investments in our European logistics portfolio, which grew to $1.4 billion in total assets. We also completed approximately $176 million of new originations in our debt platform, which has total loan outstandings at quarter end of 2.2 billion. Both of these platforms continue to perform extremely well since their launch in 2020. I'd like to explain what we're seeing in our markets today. Interest rates globally have changed significantly since the end of Q1. As a company, we have always looked to minimize our interest rate risk and ended the quarter with 94% of our debt either fixed or hedged with an average interest rate of 3.8% and an average maturity of just under six years. Fundamentals across our multifamily debt and logistic portfolios, which are our core asset classes, remain very strong. The U.S. multifamily rents continue to outpace inflation as we look to execute our value-add strategy of amenity and unit interior upgrades. The strong momentum we saw in Q2 has continued into July. As a reminder, we acquired many of our high-quality assets through the execution of our capital recycling strategy. This greatly improved the quality of our overall asset portfolio. In the debt platform, we have a strong pipeline of origination opportunities and have closed $220 million of new loans thus far in Q4, Q3, sorry. The returns of this platform have improved as interest rates have gone up, given that 85% of our loans are floating rate. This platform has an average loan size of $65 million with high-quality institutional sponsors. In Dublin, job growth and the return to office has been positive for both tenant demand for our newly developed offices and renter demand for our best-in-class apartments. And in the U.K., we continue to see attractive opportunities for our rapidly growing logistics platform. Fundamentals remain strong in this sector, with the U.K. reaching a record low in vacancies in Q2, which should have a positive impact on our portfolio, where in-place rents are significantly below market. We'll expand on each of these in a moment, but I'd like to pass the call now over to our CFO, Justin Enbody, to highlight more Q2 financial highlights in more detail. Justin?

Thanks, Bill. Appreciate that. In Q2, our adjusted net income, which adds back non-cash expenses such as depreciation, totaled $41 million, or approximately $0.30 per share. and adjusted EBITDA totaled 118 million. For the first half of the year, we have generated GAAP EPS of 19 cents per share, adjusted net income of 127 million, or approximately 92 cents per share, and adjusted EBITDA of 279 million. As Bill mentioned, our comparative results were impacted by $330 million of gains recognized last year as a part of the launch of our $1.5 billion US multifamily platform. We continue to see further improvement in our recurring revenue. Our consolidated revenues grew by an impressive 9% from Q1 of this year and 26% on a year-over-year basis. Including unconsolidated investments, our share of recurring NOI, loan income, and fees increased by 33% to $130 million in the quarter from Q2 of last year. The growth in these results has been driven by strong same-property performance out of our multifamily portfolio, net new acquisitions, and the growth of our debt and logistics platform. To give you some context of the size and scale of our portfolio, at the 100% level, our stabilized portfolio is producing $1.5 billion of gross annual revenue, of which our share is approximately 50%. Turning to our balance sheet and debt profile, we continue to monitor the movements in interest rates and remain in a strong position with less than 7% of our share of debt maturing by the end of next year. Our strategy on new acquisitions has always been to minimize our interest rate exposure. As of the quarter end, to reiterate what Bill mentioned, 94% of our debt is either fixed or hedged against interest rate increases. Additionally, we have $711 million in liquidity which includes 461 million of consolidated cash and 250 million of availability on our line of credit. With that, I'd now like to turn the call over to Matt Windisch to discuss our multifamily portfolio.

Thanks, Justin. Our global multifamily portfolio, which now comprises 55% of our estimated annual NOI, continues to be an important area of growth for KW. Multifamily leasing conditions in the U.S. remain strong, Leasing spreads came in well ahead of inflation, with new leases increasing by 19% and renewals increasing by 13%. Occupancy remains strong at 94.5%. Same property revenue grew at a record pace in the U.S., increasing by 13% in the quarter. This resulted in U.S. same property NOI growth of 16% in Q2, which is our fourth consecutive quarter of double-digit NOI growth. The strongest performance came out of our Southern California assets were NOI increased by 27%. These results were driven by lower bad debt reserves and strong organic rent growth, with rents increasing 28% on new leases and 10% on renewals. We expect further strength out of our Southern California assets as we continue to capture the embedded 20% loss to lease. We also saw strong performance in our Mountain West region, which is our largest department region and where same property NOI grew at 15%. As Bill mentioned, we acquired three wholly owned Mountain West communities totaling 1,100 units for $418 million. These new investments located in Scottsdale, Albuquerque, and Las Vegas were acquired off market with significant value add potential. Our plan is to renovate over 65% of the units, as well as to capture the significant embedded loss to lease. This region continues to see positive migration trends, as the increasing cost of homeownership has driven demand for rental housing. Average rents in the Mountain West are $1,468 per month, which remains very affordable compared to other high-cost states. In our Pacific Northwest portfolio, leasing spreads total 20% on new leases, and 12% on renewals, as strong rent growth led to NOI increasing by 12%. Overall, our U.S. market rate portfolio has an average loss to lease of 14%, which to put into context, if fully captured, equates to an additional $27 million of NOI to KW over time. With over half our units yet to be renovated, we remain well positioned for continued growth. Almost all of our consolidated U.S. multifamily assets have property-level debt that is assumable, with an average rate of 3.55% and over six years to maturity. Property debt that can be assumed by a buyer at rates significantly below market is a unique feature of our multifamily portfolio. Our vintage, affordable, and senior portfolio also had a strong quarter. Rents, which are directly tied to the change in area median income, increased by 6%, and occupancy was solid at 97%. Our vintage portfolio stands to benefit from growing area median income in our markets, with the majority of the units located in the Pacific Northwest and the Mountain West. Since acquiring this portfolio in 2015, we have more than doubled the unit count to over 11,000 units, including over 2,000 units in development. In Dublin, same property occupancy improved by 6% to 98%, which resulted in same property NOI growth of 10.5%. We continue to see strong demand for our high-quality communities in Dublin. For example, Capital Dock is now 97% occupied, and Clancy Quay, the largest apartment community in Ireland, is 99% occupied. This strong demand bodes well for the approximately 1,000 units, which we will start delivering next year in Dublin. Turning to our investment management business, an important source of growth for KW has been our global debt platform, where we have been originating loans with high-quality sponsors. During the quarter, we completed $210 million in new fundings, offset by $322 million in repayments. Post-quarter end, we have completed another $220 million of net new loans, bringing our platform to $2.4 billion in loan investments, of which KW has a 7% interest. KW is earning attractive, unlevered, double-digit returns, including fees, from our credit platform, which stands to benefit as rates rise, given that 84% of our loans are floating rate. Backed with a strong pipeline of opportunities, we currently have additional capacity of over $3 billion to continue growing this business. With that, I'd like to turn the call over to our president, Mary Ricks.

Thanks, Matt. Another important engine of growth for KW's investment management business has been the growth of our global logistics platform, which saw exceptional growth in Q2 and post-quarter end, and now stands at 10.8 million square feet. In Europe, our platform was launched at the end of 2020 with 18 seed assets and is focused on acquiring attractive industrial and last mile logistics assets that are significantly under-rented. We completed an impressive 28 acquisitions, totaling $444 million in Q2, growing the platform to $1.4 billion across 76 assets. Our Q2 acquisitions added 1.9 million square feet, growing our premium portfolio to 6.5 million square feet in 18 months in Europe, with strong occupancy in excess of 97% and solid term certain of 6.8 years and 8.3 years to expiry, all notable achievements by the team. Logistics fundamentals remain strong in Europe, UK logistics vacancy hit a new low of under 2% as demand is outstripping supply, especially as companies look to mitigate further disruptions to their supply chain as they've experienced over the last few years. Rents in our industrial portfolio continue to rise, and thus far in the year we have completed 300,000 square feet of lease transactions, resulting in rents increasing by 24%, which is 11% ahead of our business plan. Including investments made through our fund and deals exchanged, we are on track to grow our European logistics platform to approximately $1.7 billion across 95 assets that make up 9.5 million square feet and generate $62 million of gross NOI. With low vacancy and in-place rents at 24% below market, we are in a strong position to continue delivering significant industrial rental growth and look forward to expanding this platform in the second half of the year. Our capital partners are committed to growing this platform along with us, and we continue to see attractive opportunities underpinned by strong underlying property and market fundamentals. Our investment management platform has over $4 billion of non-discretionary capital, which we look to deploy across all of our announced platforms. This will add significantly to our existing $5.3 billion of fee-bearing capital today. Turning to our office portfolio, 70% of our office NOI comes from our assets in Europe, primarily in the UK and Dublin, where our portfolio has a strong tenant profile and an attractive weighted average unexpired lease term of 7.6 years to expiration. As a reminder, the majority of leases in Europe are typically much longer term in nature compared to the U.S., and our leases are completed on a fully repairing and insuring basis, which is a triple net equivalent. We continue to see improved leasing velocity for our office assets in Europe, with recent leasing ahead of pre-COVID levels. For example, a year ago, we acquired Embassy Gardens in the U.K., which is our largest office acquisition in the past year and was 82% occupied at that time. And I'm happy to report that we have fully leased the remaining vacancy to a global pharmaceutical tenant with eight years of term certain at rents 21% ahead of average rents at acquisition. Across our European portfolio, we completed 33 commercial lease transactions in the quarter, resulting in $3.7 million of incremental income with a 6.5-year weighted average lease length. We have a solid pipeline with 50 lease transactions in legals, which if completed would result in approximately $5 million of incremental rental income. We are also seeing strong leasing demand for our newly constructed office assets in Dublin, which are being delivered with leading environmental wellness and intelligent building technologies, and achieving rents ahead of business plan. In Q1, we discussed fully leasing 10 Hanover Quay, which sits adjacent to Capital Dock, and that was on a 15-year lease. And in Q2, we have made great progress at our Kildare Street development in Dublin, which completed construction in the quarter. This unique 65,000 square foot office development has both LEED and WELL Gold accreditation. This property is already 51% occupied, growing to 80% including leases in legal and under offer at market leading rental rates. We are on track to have the building stabilize this year. This strong demand for newly built office assets with leading ESG credentials bodes well for our Coopers Cross development in Dublin which totals 395,000 commercial square feet and 471 multifamily units. We remain on track to complete Cooper's Cross next year as we look to deliver one of the most efficient and desirable mixed-use city center campuses in the market. In total, we expect to meaningfully grow our estimated annual NOI from our developments and lease-up portfolio. adding $98 million as we near completion on many of these projects. Approximately 85% of our development projects are expected to either finish lease up or complete construction by the end of next year. Our developments are being completed to a 6% to 7% development yield, which is a substantial spread to current market cap rates of core assets. And with that, I'd like to pass it back to Bill.

Thanks, Mary. Despite the many uncertainties that exist today, I remain extremely confident in the future of KW and our team's outstanding ability to continue executing our strategic initiatives aimed at growing our recurring cash flow. With over three decades of experience together, including investing through six economic cycles and a pandemic, a hallmark of Kennedy Wilson, has been creating value through periods of uncertainty. Between our balance sheet and the liquidity of our strategic partners, we remain on track to continue growing our business while also being very well positioned to take advantage of any dislocations that arise from the current environment. I'd like to thank the global KW team, our shareholders, partners, and our board for their support of Kennedy Wilson. Finally, I'd like to mention to everybody that on September 22nd of 2022, we'll be holding a property tour and investor day on our assets in Boise, Idaho. We would welcome any shareholders that would like to hear more about our Mountain West strategy and see firsthand our quality assets in Boise. We would very much like to have you all there. So with that, Devin, I'd like to open it up to any questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question will come from Sheila McGrath with Evercore ISI. Please go ahead.

Yes, good morning. I was wondering if you could comment in a little more detail on the industrial platform that's growing very quickly. Is that exclusively in the U.K., or which other countries are you targeting? And what kind of leverage are you using in that venture? And just comment on CAPRI.

Mary? Sure. Hi, Sheila. It is mostly focused on the UK, but we also have it within our platform with our very large capital partner, a new focus in Ireland and less so, but a little bit in Madrid, Spain. In Ireland, there's a serious opportunity for growth there because there's just not a lot of product. And I think given with Brexit, what's happened there is that companies want to have their goods in an EU location. So we've just been recently buying in Ireland well below replacement costs and Spain as well along the ring road in Madrid. And so we're very, very focused there. I would say the key with all the sort of tailwinds in the logistics sector is focused on rental growth. So it's really about growing our income. We're buying roughly at cap rates right around 4%. but are anticipating, as I said in my remarks, major rental growth. And we are capturing major rental growth. And one of the things that we're looking at is when we think about our rent reviews of our existing portfolio that are coming up in the next 18 months, our top 20 rent reviews, we are anticipating growth of 30% above passing. So we're just seeing really major growth opportunities in the you know, rental growth. And we're financing that really probably right around 2% with a margin of just also right around 1.5% to 175%, and we're buying either caps or we're swapping that. So really it's not negative leverage going in, but with the rental growth, then we're seeing positive cash flow streams.

Okay, thank you. And then just on the hotel performance for the Shelbourne, I still think there's probably upside since where the historic peak was. Can you tell us around where the NOI is tracking and where it was previous peak NOI?

I mean, tracking right now, so, yeah, sure. In July, Sheila, we had occupancy of almost 90%. So we also had a monthly record of our ADR that was right around 460 euros in the month of July. So NOI-wise, we're looking at roughly close to 2 million euros just for the month of July, which June was very similar. We've got a lot of bookings between now and the end of the year. We've got about 50% of the hotel pre-booked already. That's a really good book of business of which now we can build upon that. Another interesting, I think, fact is that about half of our guests that have stayed in Q1 and Q2 are U.S. guests. And in June, actually, there were 63% of the guests coming from the U.S. So I think that will continue as the dollar remains strong and the U.S. travelers are really back. So NOI-wise, we anticipate a significant growth of our NOI through the balance of the year. And at sort of pre-COVID, we were at roughly 15 million euros of NOI. So we anticipate that we can break through that over the next 12 months.

Okay, great. And then last question for me. Bill, maybe you could just comment on your view of you know, maybe doing some non-core asset sales and stock buyback? Just thoughts on a share buyback at this point.

Yeah. Well, Sheila, I think we've been very focused over the last two or three years on, I would call it the continued simplification of the company and the sale of non-core assets. We've made a lot of headway in 20 and 21 on these sales. We still have a reasonable pipeline of things that we're going to sell here over the next 18 months, but it's not at the same size level as what we did in 20 and 21. And the simple idea, so that everybody understands, is that we're obviously continuing to grow. our multifamily business, both in unit counts and in terms of recurring revenue and NOI that we're getting from new lease transactions. The other part of the business that we're very focused on growing, of course, is the investment management business, primarily through the industrial platform that Mary just went through and the debt platform that Matt has responsibility for. So I think if you think about particularly the investment management business, we have quite a bit of unused capacity from either commitments that we have or platforms that we've created. probably something on the order of $3 or $4 billion that we can add to our existing $5.3 billion of investment management capital that we're managing. I see great growth opportunities as we continue to recycle, as I said earlier, capital out of these non-core assets into either growing our investment management platform or into growing our multi-family business, either on our own balance sheet or in partnership with other people.

Okay, thank you.

As far as stock buyback is concerned, over the years, we've been active in the stock buyback program. I think we've spent almost $300 million since 2018. it obviously always gets weighed against what our other investment opportunities are. And so we don't really set out any strict rules about it. It just depends on what the opportunities are and where our liquidity sits. I would say that in general though, Sheila, we're very intent on building our liquidity even more so than we have right now between now and the end of the year. We have very, very few transactions in escrow right now, even though we've got a very active pipeline both in the debt business and the industrial business in terms of the use of KW's capital. We have a limited call on it. We only have one apartment building in albuquerque that we're building that we're buying and closing in august i would say that in general we're sitting tight with our cash just to see how things evolve here over the next three or four months okay thank you bill

Our next question will come from Anthony Pallone of JP Morgan. Please go ahead.

Thank you. So, Bill, just following up on the last comment, it sounds like you're being a little bit more careful in terms of the investments you're making. Like, how should we think about just fee-bearing capital over the balance of the year and whether that grows or pauses here?

Yeah. Well, I think, Tony, what we've Good question. What we've said to the market over the last few calls is that we really feel like we've got the ability to grow our recurring NOI on an annual basis somewhere between 10% and 15%. And as far as the fee-bearing capital and fees related to that, we feel like we have the capacity to grow that 15% to 20% a year. And I don't want to mislead you. As I said, you know, we've been through a lot of cycles in the three decades that Mary and I have been together at Kennedy Wilson. And a lot of our team has been with us for, you know, the better part of two decades. When you go into a period like this, you're in what I call a discovery period of time where you have your – You have everybody out there looking for new transactions, but you're just evaluating what you think is going to happen. And I think it's unclear. I think when you look at interest rates today, by any historical measure, they're still very, very attractive. So we just have to see what opportunities come out of this period of time. And I can't emphasize enough how important it's been that we've always had this strategy of what I call fixing our spread. And so the very, very valuable asset that we have, which is that all of our 94% of our debt is fixed. And so, but during this period of the last three or four years with these ultra-low interest rates, a lot of people have chosen to use high leverage with floating rate interest rates. And so we just have to see how that all plays out and whether that presents opportunities for us. I would say we're very much in a discovery and evaluation period of time right now in terms of new acquisitions.

Okay. And then with regards to the multifamily business, how are you thinking about what goes on to KW's balance sheet wholly owned versus into the strategic venture? You did a couple of wholly owned things in the quarter. It sounds like you got another one teed up. for August here. So I'm just wondering how you split it.

Yeah, well, good point. Yeah, the one in August we're doing on our balance sheet, but we're doing it out of the proceeds of a sale we're doing that's now non-refundable. And so we're in effect, we're exchanging into that new asset in Albuquerque out of an asset that we're selling. Matt, do you want to answer that question?

Yeah, sure. I mean, if you think about like our fund in the U.S., which is a value-add fund, which right now we're in between funds, but to the extent there's a fund up and running, if there's a shorter-term value-add opportunity, a multifamily deal would go in there. Otherwise, you know, to the extent it's a longer-term opportunity, that would tend to go into either our balance sheet or into a platform where we have a lot more equity invested.

Okay. And then this last question.

You know, the last thing, Matt, that I would add to that, I mean, we have significantly grown our unit counts over the last couple of years. And we've probably grown from 29,000 to this 38,000 units that we talked about. And then really when you think back over time, and I may be a little off on these numbers, we've probably sold over 15,000 units over the last 15 years. I would say that unless it's in a platform like Matt described, we're clearly less inclined to be sellers of these very high-quality multifamily assets because they're hard to replace. And then the other point I would make, Tony, is that the cap rates that we're stabilizing these newer assets that we're building at are way above market cap rates. And these were decisions that we made eight years ago to embark on these construction programs. For example, we're finishing an apartment project in Boise right now that's an add-on to some existing units that we own next door. But we're stabilizing that at close to a 7.5% cap rate, brand new. It's probably 200-plus basis points above what you would be buying at today. So this development pipeline that we started working on eight years ago that you're now seeing – Both multifamily assets and these two assets that Mary mentioned in Ireland, you know, they're kind of rolling off the assembly line now this year and next year. So you're going to see, you know, significant growth in our recurring NOI because of the completion of those projects.

Okay. Thanks. Just last one for me. On multifamily in Dublin, we've seen the occupancy rebound here. As you look ahead, is there an opportunity to see revenue growth accelerate from the rate side the way we've seen in the U.S. the last year or so, or are the dynamics there just going to be different?

Merrick. Hi, Tony. Yeah, I mean, I think market rents will continue to grow. And so for new product that we're rolling off the assembly line, to use Bill's phrase there, those market rents will just continue increasing. So I think on the development side, as we complete our very high-end developments of multifamily, those rents will go above business plan would be my guess because there's just really no new supply to speak of. And you can see by the fact that our portfolio is 98% lead. You know, that's just telling you you need more apartments in Dublin, especially given really how the economy is going and the growth in the FDI that continues to happen in Dublin. Our existing portfolio, there's rent control there, so, you know, there's going to be a limit to how you grow those rents. But, you know, definitely on – I mean, you could see what happens with the occupancies there. and the growth of our NOI. So I would say, you know, to summarize, our developments will provide very large increases to our NOI.

Okay, great. Thank you.

Again, if you have a question, please press star then 1. Our next question will come from Derek Johnston with Deutsche Bank. Please go ahead.

Hi, everybody. Thank you. Just on the debt platform, You know, what type of deals look interesting today? And obviously taking into consideration the macro, you know, the shift that we've even seen from first quarter to two quarter, you know, what's enticing there? And, you know, given the rise in rates, you know, what yields can you attract?

Good question.

Matt? Yeah, thanks, Derek. So I'd say the pipeline we have right now within our debt investment platform is, the biggest it's been really since we launched it a couple of years ago. I think a couple of reasons for that. One, um, some of the, the players that were there before who are using, um, repo financing and doing CLOs, um, just aren't able to access that capital the way they were previously are our platforms completely unlevered. So we're not relying on any back financing. So you've had, you know, certain players, uh, they just aren't as competitive. The banks have, um, stepped away a bit and so what we've been able to do now is really go after even higher quality assets higher quality sponsors and you know bringing our LTVs down slightly from where we were you know three to six months ago just given the rise in rates and so we what we found is some larger transactions that are that are quite interesting where we've been able to achieve better spreads than we were getting a couple quarters ago but at the same time we've been able to bring our LTV levels down And so it could be anything from, you know, a lease up apartment building. We just closed on one a couple of weeks ago. Well leased office buildings with high quality tenants and strong sponsorship that we've been doing generally around 50% LTV and larger portfolios of assets from, again, from high quality sponsors. So we're really seeing, I think, unique opportunities for us that have really come into our strike zone in terms of pricing where we can put out some capital into to great assets with great sponsors.

No, Matt, Matt, thank you very much. And then I just actually had like two quick housekeeping follow-ups. I think one is for Mary just on the EU logistics platform. And I'm sorry if I missed it, you know, other people do talk about it and you did talk about rents. Do you, do you kind of have a feel for the portfolio mark to market as it stands right now at, at the $1.7 billion level and probably certainly poised to grow? But what's the mark to market in your vision there?

We think that we would mark the market, like today's cap rate would be roughly 6%. But it's been interesting because we've been actually going, like I said, 11% above business plan on the 300,000 square feet of leases that we executed on. So while that was 24% above business, previous passing rent, it was still 11% above our business plan. So let's say we're buying something at a four. We think you market to market today at a six, but again, we're achieving 11% above that. So, you know, it's easy to see how you get up into the sixes and, and beyond with just the underlying fundamentals that are so strong in the sector.

And those sound, sound. So thank you. Keep it going. And, and last one, um, I, I think at some point the shell boring came out of the same store pool. And I just was wondering if it's back in the pool or if there are plans to add it back in the pool now that it looks like we've recovered and the hotel's performing.

Matt, I'll take the beginning of it. The reason it came out of the pool is it kept closing and then it would open and it would close and it would open. So we couldn't really depict a real story there. But, you know, now we're on track for an open hotel and record-breaking results. Matt, I don't know if you have anything else to add.

Yeah, I mean, it's the only consolidated hotel we have. So, in essence, you can see it on the face of the financials. But, you know, certainly we can talk offline if it's helpful. We can think about putting it back in the pool. But it's, you know, as I said, it's right on the face of the income statement.

Right. And I know the Hawaii asset is a couple of years away. But certainly looking forward to that as well. Thank you, guys. That's it for me. Thanks, Derek.

This concludes our question and answer session. I would like to turn the conference back over to Bill McMorrow, CEO, for any closing remarks.

Well, thank you, everybody, for joining us today. And as I always say to all of you, we appreciate your support, but also we're always available for any follow-up questions that you might think about. And we'll look forward to talking soon, and I hope to see – many of you in Boise, Idaho, on September 22nd. So thank you very much.

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