Kennedy-Wilson Holdings Inc.

Good day and welcome to the Kennedy Wilson Third Quarter 2025 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 the star key followed by 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 hand the conference over to Devin Bovsar, Head of Investor Relations. Please go ahead.

Thank you, and good morning. Thank you for joining us today. 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. 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 the reconciliation of the most directly comparable GAAP financial measure and our third quarter 2025 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 and reports and filings with the Securities and Exchange Commission. As you may have seen in our Form 8K that we filed on Tuesday, the Board of Directors of the company have received a proposal letter from a consortium consisting of Bill McMorrow, our Chairman and CEO, and Fairfax Financial Holdings Limited about a potential take private transaction. The Board has formed a special committee to evaluate the proposal and its options. The company does not plan to provide any updates on an ongoing basis until there is a definitive transaction to announce or the process has been terminated. We will not be taking any questions with respect to this potential transaction or any related matters on today's call. I would now like to turn the call over to Bill McMorrin.

Thanks, Kevin. We reported our results for the third quarter of 2025 yesterday, which reflects the progress we achieved on expanding our investment management platform while executing on our non-core asset sale plan. Starting with our quarterly highlights, we saw improvement across several of our key financial metrics in the quarter, including adjusted EBITDA and adjusted net income compared to Q3 of last year. Driving our results was the growth in our investment management business with assets under management growing to $31 billion in Q3, which reflects an increase of 11% year over year. Fee-bearing capital grew to $9.7 billion, an increase of 10% from a year ago. Fee-bearing capital has now grown by approximately 20% per year over the last four years. Growth in our fee business this quarter was driven by capital deployment, supported by improving liquidity across the commercial real estate market. We deployed or committed approximately $900 million in Q3, driving total capital deployment to $3.5 billion year-to-date through September. Capital employment in the quarter was largely focused toward rental housing-related credit and equity investments. On the credit side, we originated another $600 million in new rental housing construction loans, driving total originations to $2.6 billion for the year. Our share of these loans is 2.5%. Since July of 2023, our credit team has surpassed $6 billion in new loan originations, while also successfully realizing over $2 billion of repayments from loans purchased as part of the PAC Western Bank loan portfolio transaction. On the credit side, our commingled US fund acquired three multifamily communities and an industrial property for a combined total of 173 million. In Europe, our investment activity remains centered around expanding our UK single-family rental platform with CPPIB. There remains a meaningful housing supply demand imbalance driven by population growth, as well as the cost of purchasing a new home. In Q3, we added $62 million in new investments which brings our total portfolio to 1,300 homes. Since launching in Q4 of last year, the platform has demonstrated good momentum, reaching approximately $585 million of committed capital relative to the initial $1.3 billion purchase target. In our co-investment portfolio, we recapitalized two existing U.S. multifamily joint ventures, reducing our ownership from 51% to 10%. We also sold a smaller, wholly owned multifamily asset built in 1988, located in suburban Salt Lake City. Our Q3 sale and recap activity generated approximately $200 million of cash to KW, $130 million of additional fee-bearing capital, and $30 million of realized gains. Year-to-date, we have generated $470 million of cash from our asset sales to KW and exceeded our target of $400 million for the year. We have achieved real progress on our initiatives over the last two years to grow our investment management business. In 2023, we added the credit team from a regional bank growing that platform from $4 billion to $10 billion in AUM today. In 2024, we launched our UK single-family rental platform, as I mentioned, targeting $1.3 billion in asset purchases, where we are approximately $0.50 committed against that target. And in September, we announced our pending acquisition of Toll Brothers Apartment Living platforms, including its in-house development team. The transaction will include a minority interest in 18 apartment communities and student housing properties, $3 billion of assets that Kennedy Wilson will manage on behalf of Toll Brothers, and a development pipeline, which would total approximately $3.6 billion in new development projects. This combination will create immediate scale for our investment management platform. First, the acquisition will immediately add $5 billion to assets under management and includes a portfolio of 21,000 existing and planned units. On a pro forma basis, our total AUM is expected to increase to $36 billion of which over 70% will be attributable to rental housing. Our national rental housing platform would grow to over 90,000 units, inclusive of the units we currently own, we are financing, or have in the development pipeline. Turning to the markets in general, we continue to see improvement in both the cost of capital and the availability of capital. lower borrowing costs and spreads, supportive of higher transaction levels. Rental fundamentals remain strong, as the structural undersupply of housing across all our markets remains a long-term tailwind, and renting continues to be significantly more affordable than buying. With that, I'd like to turn the call over to Justin and Boddy, our CFO.

Thanks, Bill. I'll begin with the review of our Q3 financial results and then discuss the balance sheet. GAAP EPS for the first quarter totaled a loss of 15 cents per share compared to a loss of 56 cents per share in Q3 of last year. Adjusted EBITDA totaled $125 million in Q3 and was up almost double from $66 million in Q3 of last year. For the year, adjusted EBITDA has increased 6% to $371 million. Q3 baseline EBITDA was steady at $101 million, resulting in trailing 12-month baseline EBITDA of $425 million. Our results reflect further growth in investment management fees, which increased by 8% in the quarter and an impressive 23% year-to-date. We also saw improving results from our unconsolidated investments, with increases to both our share of revenues, carried interest, and gains on sale. all resulting in a $55 million increase in income from unconsolidated investments compared to Q3 in 2024. Now turning to our balance sheet. In October, we paid off the last tranche of our KWE unsecured bronze, totaling $352 million. This payoff completes the repayment of two legacy bond issuances dating back to 2015 and greatly simplifies our debt capital structure going forward. The payoff was funded in part from cash generated from our recap transactions, asset sales, as well as our line of credit, which we will look to reduce in the next few quarters from additional sales of non-core assets. Our total debt is 96% fixed or hedged with a weighted average maturity of 4.5 years and a weighted average effective interest rate of 4.7%. We also have $255 million of consolidated unrestricted cash. With that, I'll now hand it over to Matt Windisch for a portfolio update.

Thanks, Justin. Our portfolio of stabilized real estate investments generates estimated annual NOI of $434 million to KW, with 70% positioned in our two key conviction sectors, rental housing and industrial. In the rental housing sector, there remains a long-term undersupply of housing, and home ownership remains unaffordable. After record supply last year, future new supply is decreasing. Demand remains strong across our portfolio, with occupancy ending the quarter at over 94%. U.S. same-store NOI grew by 2.4% for our market rate portfolio, Revenues were up 1.3% and expenses were down due to favorable property taxes in certain markets and reduced insurance costs. Leasing spreads totaled 1.4% in Q3, with renewal spreads increasing by 3.4% and new leasing spreads declining by 1%. At quarter end, our loss to lease totaled 3.3%. I'd like to highlight a few regional stats. The strongest growth came from our Pacific Northwest portfolio, where NOIs grew by 3%. This region benefited from return to office mandates with limited new supply being delivered. The Mountain West, our largest region, saw 2.6% NOI growth. In particular, our assets in Idaho benefited from higher occupancy, lower bad debt, and lower real estate taxes, resulting in 6.8% NOI growth. In Southern California, our lower density suburban portfolio generated 2% revenue and NOI growth with same store occupancy at 96%, while our smallest region, Northern California, saw NOIs fall by 1.5%. Our vintage housing affordable portfolio surpassed 11,000 units in the quarter. Same store NOI was flat in Q3 as rental increases were offset by higher expenses incurred in the quarter. We remain on track to stabilize another 2,000 units, which are currently in lease-up or development. We are also actively evaluating new opportunities to further expand our affordable portfolio platform. In Ireland, same property occupancy grew by 1.7%, primarily at our newly completed assets, resulting in revenue growth and NOI growth of 6%. Moving over to our office portfolio, 76% of our stabilized office portfolio is in Europe, where same property NOI decreased by 6% and was impacted by a 5% decline in occupancy. However, our asset management teams have quickly signed agreements for lease for a bulk of the vacated space. Our European stabilized office portfolio ended the quarter with 91% occupancy. In closing, we saw continued growth in our investment management business in Q3, while at the same time monetizing non-core assets. Finally, we look forward to closing the pending transaction with Toll Brothers in Q4. With that, operator, we can open it up to Q&A.

Thank you. 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 and then two. And your first question today will come from Anthony Pallone with J.P. Morgan. Please go ahead.

Thanks. I was wondering if you can talk about just where cap rates are for multifamily in your various markets. We saw some of the deals you did in the quarter. I think we're 5-4, but just maybe generally kind of what Where do those sit? And then also, as it relates to Toll Brothers, if we think about the development platform there for multifamily, where would you develop and what would the spread be versus market cap rates?

Hey, Tony, it's Matt. So in terms of cap rates we're seeing in the market, it really depends on a number of factors, including age of the assets and the submarket you're in and what's happening around supply. So we've seen things trade, you know, in the high fours. We've seen things trade in the high fives. It's really kind of a broad range depending on those factors. But they seem to be, you know, holding relatively steady over the past couple quarters at those levels. And in terms of the Toll Brothers portfolio and kind of the future pipeline, you know, we continue to like the markets they've historically built in. So it'll be some of the West Coast markets we currently own and operate. as well as some East Coast markets where we've historically just been a lender. And we think, generally speaking, you know, again, depending on markets and a number of factors, that we can generally build the spreads of somewhere between 125 and 175 basis points on new developments relative to market cap rates. That's kind of the target in terms of how we'd be looking to capitalize these deals.

Okay. Thanks. And then I get the sensitivity around the go private proposal, but maybe I missed this. Was it outlined who on the board is on, like, comprises the committee that will kind of go through this and make the decisions?

Yeah, Tony, it's Matt. So, again, we can't talk about anything related to the offer that was made a couple days ago. But that was... not outlined in the offer, who the special committee may be.

Okay.

All right. Thanks.

And your next question today will come from Yana Galan with Bank of America. Please go ahead.

Thank you. And congrats on a really nice quarter. I was curious if there was any impact thus far from the government shutdown on the affordable multifamily portfolio.

Yeah, I mean, we haven't seen anything. We did see a bit of weakness in terms of NOI in the quarters we pointed out, but that was more expense-driven, not really related to anything from the government shutdown or any subsidies that would be passed on to the tenants. So, no, we have not to date seen any impact from that yet.

Thank you. And, you know, congrats on the impressive growth in the investment management platform. I was just wondering if you could maybe talk to kind of you know, fundraising right now globally and where you guys think you're taking market share?

Yeah, that's a good question. I think it's evident, and at least from what I read, that, you know, the capital raising, particularly in the private equity firms, there's challenges associated with it. I think what we have seen is that really the discretionary funds have become you know somewhat less prevalent uh you know unless you're one of the really big capital raisers and generally speaking people want to do their capital deployment through separate accounts i think the uh in our case you know we've had great we've had good success in in really really several geographies, but particularly in Asia where we've been for 30 years, and here in the United States and Canada and, you know, parts of Europe. But we continue to see our capital deployment increasing, but we think that we've got the capability to raise capital to support all of that.

Thank you.

Again, if you have a question, please press star and then one. And your next question today will come from Teo Okusanya with Deutsche Bank. Please go ahead.

Yes, good afternoon, everyone. In regards to the buyout offer, while I know the company can't make any comments specifically, I don't know if it's possible for Bill to make any comments about why or his rationale for making the offer.

Yeah, Teo, it's Matt again. I'm sorry, we can't comment on anything beyond what we said on the call earlier about the offer that was made.

Fair enough. All right. No worries. Next question, just around origination volume from the loan business. Again, granted 2Q was kind of a record, but in 3Q, you know, there is a slowdown, just kind of curious. Is that seasonality? Is that more competition? Just kind of curious what all was happening there.

Yeah, good question. Yeah, so we know historically Q3 has been a bit slower and if you kind of look at the prior year as well. So Q3 tends to be just a little lower on the origination volumes kind of coming out of the summer. And so there certainly there's heightened competition. I think we talked about that on the last call and we've seen some spreads spreads coming in over the past year. but we're still very active in the space and have a strong pipeline, and we expect to continue to originate out of that business.

Okay, that's helpful. If we could go into national just for a minute, the SFR platform, again, some additional acquisitions there. Just kind of talk a little bit about how that's coming along, how that's growing, what the ultimate economics of that business will be.

Mike, do you want to touch on that? Yeah, I'll pick that one up. Obviously, we're a year into the venture now. We signed the venture with CBPIB in October last year, I believe. And so we've had really good growth over that period. We're really pleased with the number of houses we've committed to. We're up and running with our leasing. We've got almost 200 houses actually physically built and leased now. And, you know, we're including the acquisitions that we reported today. We're up to, I think, it's about 1,300 times. We've got a great pipeline ahead of us and a good appetite for doing more. I think, you know, by the year end in Q4, we're expecting, you know, several more acquisitions to complete. We still see a good pipeline coming out of the house builders in the UK who are seeing this as a way to deliver additional stock. and we have strong support from CPPIB to grow the platform. So I would expect you'll see more acquisitions in Q4, and we look forward to continuing to grow it into 2026 as well. I think we've got some good way to go on this. Yeah, that's helpful.

And then just kind of still staying international, just quick thoughts on UK office. Again, the occupancy decline, just kind of talk to a little bit about was that just a, an actual lease move out, or was it an actual termination? And if you could also kind of talk about a lease up at Cooper's Crossing as well.

Yeah, in terms of UK, we've had a couple of lease move outs that effectively we've been backfilling, but the backfills haven't kicked in yet. There are a number of cases where we've actually signed agreements for lease that haven't completed. So I would expect that occupancy to go back up over the course of the next couple of quarters. In fact, we've got committed deals that are going to send that occupancy back up again. And beyond that, we have a good pipeline of leasing. So I don't see a structural problem in our office leasing. It's really a timing issue around the time taken to bring these buildings back into circulation after a couple of lease breaks. but actually we're releasing at better rents in most cases. And the demand has actually proved decent to the positive side. So I think on the UK office occupancy, I would expect that to tick back up over the next few quarters. In terms of Cooper's Cross, we have a good pipeline. We are under offer to a really interesting tenant who's looking to take... It takes some space. Hopefully we can get that deal done in the next quarter, and we've got a good pipeline of interest. It's clearly taken a little bit longer than we'd like, but that market is coming back to life now, and we see a better pipeline than we've seen in quite a while. Great. Thank you very much.

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

Thank you everybody for joining the call today. Much appreciated.

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