Good day and welcome to the Kennedy-Wilson First Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be opportunity to ask questions. [Operator instructions] Please note this event is being recorded. I would now like to turn the conference over to Daven Bhavsar. Please go ahead.

Good morning and welcome to Kennedy-Wilson’s first quarter 2017 earnings conference call. This is Daven Bhavsar and joining us today 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 three months. Please see the Investor Relations section of Kennedy-Wilson's 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 measures and our first quarter 2017 earnings release, which is posted on the Investor Relations section of our website. Statements made during this conference call may include forward-looking statements. Actual results may materially differ from the 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.

Thanks, Daven and good morning, everybody and thank you for joining us today. We're pleased to have reported another solid quarter of results, which has gotten us off to a good start in 2017. As you'll see in Q1, we were able to generate additional recurring cash flow through strong property level operating performance driven by market-leading same property results. Also, we further increased cash flow through our capital recycling program, which is focused on harvesting non-income producing assets, adding value to our existing portfolio and upgrading the overall quality of our assets. This morning, I'll discuss our financial highlights for the quarter, the operating performance of the properties and our investment activity before commenting on the proposed combination transaction with Kennedy-Wilson Europe that we recently announced. Starting off with the financial highlights for the first quarter, adjusted EBITDA was up 8% to $77 million compared to $72 million during Q1 of 2016. Similarly, adjusted net income was up 11% in the period to $43 million compared to $38 million into Q1 of last year. For the quarter, our share of property level NOI grew by $6 million to $63 million an increase of 10% from Q1 2016. Lower levels of dispositions in the quarter resulted in a decrease in our share of gains by $4 million. On the heels of a relatively light first quarter of transactional activity, we expect to have some significant activity in the second quarter, which we'll discuss later in more detail. Looking at our investment portfolio, at the end of the first quarter, we had an ownership interest in over 400 real estate investments globally, including almost 28,000 apartment units of which 1800 are under construction. For the quarter, our share of total multifamily revenues and NOI increased by more than 7% on a…

We'll now begin the question-and-answer session. [Operator instructions] Our first question comes from Craig Bibb of CJS Securities. Please go ahead.

You guys made more progress on filling non-income producing assets during the quarter and even in Q2 also, is there a target for where you want non-income producing as a percent of the portfolio?

We necessarily have a target Craig, but I think that you'll see over time that it's going to trend down into the 10% to 15% range.

Okay. And that would include non-stabilized properties?

Craig, that's right. So, I think as Bill was mentioning, we would expect that the properties there producing recurring cash flow would continue to make up a greater and greater proportion of the overall portfolio.

Right and I think to Matt's thing I would add is that you have to remember but what is happening is that the vast majority of the things that we have under construction are going to be finished this year and into next year and so you'll see the cash flows as I said in my presentation, the cash flows from those as they continue to stabilize and it takes generally I would say particularly on the apartment buildings it takes about six to nine months after you finish completion of the project itself to get into a stabilized occupancy that's in the 90 plus percent range.

And then it looks like you highlighted out in Q2 you had bought some office properties, an office property and you've been trending away from office also, is that -- are these one-offs or has it changed?

I think we found, we had a unique opportunity, we were selling several assets including one that I can't comment on right now, because it's still in negotiation that is producing significant gains. What we're able to do is on a tax-deferred basis exchange those into other assets. And so, we found really what I would call a unique opportunity in the Seattle market that's occupied by two Fortune 500 companies fully leased is producing significantly more income, more NOI than the properties that we're selling. So, I would it say more of a unique opportunity that came along.

Okay. And then last one, in the quarter I realize Q1 was light for transactions for Kennedy-Wilson and light for the industry overall and your transactions are going to close readily between quarters? The negative spread in the quarter was because of the tax-deferred driven -- tax deferral transactions or what created that? Are you going to realize that's not a huge number of transactions?

Craig, so you're talking about the cap rate spread. So, I think if you look at the quality of the assets that we bought during the quarter versus the quality of the assets that we sold that that's what's leading to that differentiation, but as you mentioned it's a very small number of both acquisitions and dispositions. So, I don't think this is telling of what it's going to look like the full-year.

I think to Matt's point, I think a good example of that in par was the sale which occurred last year was the sale of the office building -- I am sorry, the apartment building we sold in San Jose and we traded that along with our 50-50 partner the LeFrak family. We traded that into a brand new building that sits directly across the street from the corporate headquarters for Amazon and the 12 million square feet of office space that they're currently building on that campus and the addition of this also happening adjacent to their campuses is both Google and Facebook are taking up big quantities of square footage for their own use. And so we took what I would call not even a CBD but more of a suburban San Jose asset traded it into brand-new asset at the radius and I think the other thing always as I've said on these calls to remember about the Seattle market is that along with the job growth, the rents there have not increased although they’ve increased at the pace that they have say for example here in Los Angeles, we're in LA now it is not unlikely that a consumer could be paying 40% to 50% of their income for their monthly apartment rents and that same metric for example in the radius they're paying roughly 20% to 25% of their income. So, the idea here is where we can to take gains from some of these older properties and put them into high quality well located properties that we think over time, over long term have upside in terms of the rents.

All right. Thank you very much.

[Operator instructions] The next question comes from Mitch Germain of JMP Securities. Please go ahead.

Good morning. So, I know there's a bunch of development opportunities that you got in your supplement and I'm curious I know that there are others that exist in your portfolio if you can maybe provide some perspective on maybe what the next generation of development will look like?

Well I think Mitch as we said in the supplement if you look at the major projects that we're doing, we have slightly over $1.5 billion of construction going on right now and we have a pipeline of probably another $300 million of construction that we're evaluating doing right now. So that's really the universal, but I would say we're in a bit of a peak period right now because as I've said earlier in the call, a lot of this is going to get finished in '17 and '18 and so we're not making really any forecast of what we're going to do as far as future development. We just have to see what kind of market conditions exist. The one for example Clancy Quay that we own in Dublin, which is owned in KWH and that's a 50-50 partnership, when we bought that, we bought the existing 420 units that are very, very high quality for very big discount to original cost and with that came roughly six or seven acres behind the property these are all Barrick's buildings and obviously land that was available for us to build, when we bought that asset all the units in the 420, the structures were finished but the units weren’t finished. And we took that to roughly a 95% occupancy and so then as we were evaluating the market there, there's a real housing shortage in Dublin. We decided to go ahead and get planning permission to build out the second phase and so now that we've built out -- almost built out by this summer, we'll will have finished the second phase. We're evaluating now, we're in planning and we're evaluating the idea of holding out the remaining acreage there, which will give us another 250 units, but we're not committed to building those 250 units until we get Phase 2 stabilized and we see what market conditions are like. So, we've got a few of those locations like that where we're going -- is I think everybody knows the entitlement processes particularly here in the United States are extremely lengthy and so you got to go ahead with your excess land and get things entitled and then at the time, you finish the entitlement process, you obviously have to make an evaluation as to whether you want to make the additional capital commitment to build out that project.

Great, that's helpful and then last one for me, I know you guys have a couple of retail investments. Obviously, the sector has been experiencing a significant amount of scrutiny of late. I'm curious if it's something that you're monitoring in terms of maybe from a capital deployment perspective, maybe tipping your toes in the water a little deeper. I am just curious in terms of how much you're paying attention to that space and what your appetite might be to do that?

Well we're keeping an eye on it for sure, but you have to remember that most of the retail that we own here in the United States is grocery anchored really smaller assets, generally averaging $20 million, $25 million in size. We own some bigger retail properties in Ireland particularly through KWE where we're actually seeing very good leasing activity. The very, very big box retail I'm not sure that that's necessarily our cup of tea, but we're keeping an eye on it as we do every asset class to see where there might be value opportunities, but we don't have any specific plans to make any meaningful investments in these what I call this big box retail properties here in the United States.

That's it for me, thank you.

Thank you.

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

So, thank you again everybody for listening in on the call and as always, we appreciate the long-term support that we receive from all of you, thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.