Good day and welcome to the Kennedy-Wilson Second 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, Director of Investor Relations. Please go ahead.

Good morning and welcome to Kennedy-Wilson’s second 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. Good morning everybody and thank you for joining our call today. We're pleased to have reported another solid quarter results. In the second quarter, we continued our trend of delivering market leading same property results, while continuing to enhance our portfolio through our capital recycling program, which is focused on harvesting non-income producing investments, completing value-added initiatives within our existing portfolio and at the same time upgrading the overall quality of our assets. This morning I’ll discuss our financial highlights for the quarter, the operating performance of our properties and our investment activity before commenting on the proposed combination transaction between Kennedy-Wilson and Kennedy-Wilson Europe. So, starting off with the financial highlights for the second quarter, Kennedy-Wilson reported GAAP earnings of $0.08 per diluted share, compared to a loss of $0.02 per diluted share in Q2 of 2016. Adjusted EBITDA was up 39% to $102 million for the quarter, compared to $73 million during Q2 of 2016. Adjusted net income was up 18% or $8 million in the period to $51 million, compared to $43 million for Q2 of last year. For the quarter, our share of property level NOI grew by $5 million to $65 million, an increase of 8% from Q2 2016. This metric is now up almost 50% since the beginning of 2015. This growth has been driven by strong operational results in our properties, growing our ownership stake in our investments over time and the continuous improvement of our portfolio through selective capital recycling. At the end of the second quarter, we have an ownership interest in over 400 real estate investments globally. The largest component is our multi-family portfolio, which stands at over 25,000 units of which 1,500 are under construction. This portfolio, which produces $152 million of NOI on an annual basis…

[Operator Instructions] The first question comes from Craig Bibb of CJS Securities. Please go ahead.

Hi guys. You made a great progress in reducing the investment in non-income producing assets during the quarter. Excluding development activity in the non-stabilized properties, I think its $200 million of land and other non-income producing. Do you guys have a target for where that might be at the end of the year or at the end of next year?

Matt, do you?

Sure. Hi, Craig, so as you noted, we have substantially reduced the amount of non-income producing assets and unstabilized assets. Over the past year, we've gone in fact, some 27% of our overall investment portfolio down to 18%. We continue to see that number come down over time. There's no specific number we'd give you on that, but certainly it’s trending down and that's our plan. In particular some of these development assets such as Capital Dock come online that will further reduce that number and move into the income producing bucket.

Yeah, I was really focused on the land portion of it, so the 6% of NAV that’s land or residential?

Yeah, on those assets in many cases we're building on those and selling out and so we do see that coming down over time as well.

Okay. And so, you trade at a, you’ve sold a big piece of property in Orange County [indiscernible] on Dillingham Ranch or other pieces of land that would move that number down.

Well, specifically as it release of Dillingham Ranch we're still in a entitlement mode with that property. But I would say that generally speaking, every other piece of land that we own is entitled with some form of the business plan currently being executed. With the exception of really two properties, most of the construction activity that's going on all on the land is going to be completed by the end of 2019.

Kennedy-Wilson is spectacular through the opportunity. You guys – by far your best risk adjusted returns are the Vintage Housing projects. I realize 1,000 units is not particularly timid, but given the returns why not expanded the more markets and ramp that up even more?

Well, I think you are making a good point. I mean, I think that's clearly our plan over time, but you’ve got to make sure too as you’re doing those things that you've got the right infrastructure in place. Just as we’ve done here in Europe and Mary can comment on that, I mean when we started here our first real investing that we did in the hard assets really started it towards the tail-end of 2011 and into 2012. What Mary did with her team here of course then over that period of time since then was put in place a management team that was capable of executing on the construction management. Anytime, you're doing construction management, it's all hands on deck kind of exercise, especially on these larger scale properties. And what has been great about here in Europe is that we've been able to, I would call it, really test the capabilities of our team and so you've seen really three major projects in Europe come to completion; Baggot Plaza, what we call Block K, the Vantage apartment units and now Clancy Quay. So, when you add all that up that, I’m doing it in my head Mary, but that's roughly about in totality, about $250 million of construction including the base buildings or the land that we have. So, we have a very, very, very good team here in Europe that can execute on all of these types of things. And so all of them to this point, have really come in on time and on budget. So, switching gears to Vintage, as you know we own 62% of that company and the management team owns 38%, but that management team started that company, now 16 years, 17 years ago. So, all of the product that they had up to the time that we bought they built. So, now we’re clearly going to expand that business over of the next three to five years. It hits a very sweet spot in the market. When you see market rates on apartments going to the levels that they have over the last – particularly last five years, it creates a gap in the market for what I call or what they call affordable housing. Yet when you think about affordable housing it in the context of what we're doing its actually very high quality product. It just happens to qualify for –as affordable housing or for seniors above 55. So, the 1,000 units that you see is really just the beginning of what we plan to do in Vintage. I think over time, you'll see us pretty consistently with 1,500 to 2,000 units of a building in the pipeline in Vintage. Over time the goal of course is to get that portfolio up well above 10,000 units.

Okay. I'll get back in the queue.

[Operator Instructions] The next question is a follow-up from Craig Bibb of CJS Securities. Please go ahead.

So, Mary, since you are there and I’m told you’re probably in Europe. The Brexit vote now is a year ago, public real estate assets in the U.K. continue to trade at a discount for the private transactions. Can you talk about what you're seeing in terms of activity in the market and give us your thoughts on how the Brexit discount plays out from here?

Yeah, I mean, I don’t know if you saw KWE’s results at all this morning, but we continue on an operational basis, it's really hit the ball out of the park. We've obviously been continuing the momentum of leasing side. So, we’re seeing our occupiers continue to make decisions in terms of where they want to lease their space and make sure that people are in the right location for their businesses. I think the portfolio that we have is not only defensive and that we have a long votes [ph] we have very high occupancy. It's very versed. There's also big opportunities to really grow the portfolio, whether that’s in Dublin or whether that’s in Spain, in Madrid as a retail assets. So, I think as it relates to Brexit we haven't really seen the impact hit our portfolio and we also see there's a lot of liquidity in the market looking for I would say the assets that are non-core disposal program continues to we've been disposing of assets at 30% plus returns. So, there’s still lot of liquidity in the market. You also have a lot of foreign buyers in London because London is such diverse and unique city regardless of what happens with the financial jobs leaving the city or we haven't really seen that happen in big amounts. You've seen the take up from other industries since many of them have been announced in the last couple of months, especially the technology industry be immense. So, London continues to put up very big numbers in terms of the occupancy. We think it's a vibrant city and it's going to be for the long-term, so we feel really good about everything that we’re doing on the asset management side in the portfolio.

Yeah I think, Mary, there was a study that was published last week that was interesting to me that in the financial services industry here in United Kingdom and London particularly, there’s 560,000 jobs according to this study. The entity doing this study is now saying that in their estimate there's 17,000 at the high end that would leave London. So, you're obviously talking about 3% and I think what we have said all along and believe is that London and the United Kingdom is always going to be a market that is viewed very positively from an investment perspective, particularly foreign investors. You saw a transaction now about a week and a half ago, the sale of what they call the Walkie Talkie building here to a Hong Kong based company. But the size of the transaction was $1.7 billion. So, the property market here is sound. I think the other part there’s so many I spent good part of last week in Dublin. There are so many interesting other unintended consequences of what's going on with Brexit and so the application in Ireland, the university systems are very, very good. Then there is big universities, Trinity, University of Dublin itself one. Their applications are up 40% between 25% and 40% over the prior year because people that are applying to these universities that are coming from other parts of Europe, don't necessarily know what the outcome of passporting and all of that's going to be. So, if you see what's going on in Dublin today, now it is producing all of these younger people and just like happened here in London, really starting 15 years ago. All of the services now are starting to fill in behind that. The restaurant themes, all of the technology companies are expanding their businesses in Dublin. Yet it's still a market that has limited land. So, rents have obviously been going up and you know we have a – own really some of the highest quality assets in Dublin.

And take that pillars up 42% year-over-year in Dublin and which is really driven by TMT and financial services, so to the point that you're making. Dublin is a huge beneficiary of Brexit.

And I think without getting into politics, clearly this last vote, I think slowed some people down so to speak. I think it's going to take some time, but I think you have to instead of thinking about this in terms of headlines, really look at what's going on at the underlying property level and as Mary said we continue to do great lease transactions here in the United Kingdom. Then as luck would have it, there are some unintended benefits that are coming out of this for us in Dublin and not the JPMorgan's purchase of building 200 really, I'm not trying to say, that that was a direct result of Brexit. But the kinds of businesses that some of the banks are in particularly U.S. banks here they have to be able to trade in the EU market. So, there's just benefits that are coming out of this for us in terms of Ireland itself. BofA’s announced expansions in Ireland. Barclays I think have yesterday announced the same. So, the markets we’re in here are principal markets are really healthy and doing well. I think to marry because although it's not – its only 0.5% of our business here. I think Spain and Madrid particularly.

Yeah, no Madrid, it really feels a lot of energy, its growing economy. Consumer confidence is very, very high, spending is up, so yeah, all going in right direction.

Okay. So, actually what I was trying to get out with that, all of that was extremely helpful. But what I was trying to get at with Brexit as I believe transaction activities slowed after the vote and it's more or less normalized, they be wrong. Then, at Kennedy-Wilson U.S. shareholders are wondering if they’re going to be buying a Brexit discount along with the KWE. I assume that will just go away at some point, but I don't really have a scenario for when that normalizes.

I’m not getting, are you asking when does the Brexit discount, this thing apply to property companies go away, is that your question.

In effect, right, its already been a year, and you're not going to always have private transactions at higher values than the public companies trade because it will get arbed [ph] away and just Mary might have an idea on how that eventually settles out?

Well, I mean, that's a market driven dynamic. I mean, I can’t comment. I think there, clearly, I'm talking about [indiscernible] I mean, when they sold that building, I mean they felt that they’ve gotten a very attractive price for that. I think what tends to happen in our businesses, as you go through these periods of time, there tends to be a disconnect between what the public market is perceiving is going on and what's actually happening down at the property level. I think Craig two people, they tend to talk about Europe in its totality and we're not in Europe as totality. It would be no different than saying, as I’ve said many times, how is the housing market in the Southern California. I have to say you, well, which of the 50 sub markets you want me to talk about, if you want to talk about Beverly Hills, that's fantastic. Riverside County is not so great. So, you've got to get very granular when you talk about any of the markets that we’re in and not paint it with this big brush of Europe. 90% of our portfolio was really in two places. Then when you think about London itself, we only have two assets of any consequence in London. So --

I think, Craig, we’re going to continue to sell the non-core assets in the U.K. With the window being open and selling things above book that will continue to – we’ll opportunistically take advantage of liquidity in the market.

I mean, Mary, when we bought a number of these portfolios, they came with some smaller assets, plus good high quality bigger assets. So, in the last two years and numerically, you've sold how money smaller assets, over 100?

Smaller assets over 100.

Over 100 assets and so we're continuing to – that trend will continue as we wind-down some of these non-core smaller assets and there is an extremely liquid market for those assets and we’re taking advantage of it.

Can we veer to maybe the Capital Dock? 200 Capital Dock sold in the forward funding sale agreement, does that mean your pre-booking percentage of completion profit now or is it kind of lump sum at the end? How does that work?

Matt?

Yeah, hey, Craig. So, yeah, it’s being booked over time, so it will be recognized over the next 12 months or so. It’s not going to be all back-ended. So, we had a small amount this quarter and it'll continue for the next several quarters.

What is all the expected cash profit on the project, when you’re all done?

You mean, on the whole Capital Dock project?

No, on just 200 Capital Dock?

Yeah, I'm not sure that we're putting that number out there right now, Craig. But I will tell you that forgetting 200, that's gone, that's going to JPMorgan. But once the remainder of the project is finished and stabilized, leasing we've got two more office buildings to lease. Then the roughly 200 apartment units.

And which by the way on the office buildings, we have seriously think about, so that looks like extremely long.

We expect as the NOI on that project is going to be somewhere around the €20 million range.

Euros.

Which will equate to a stabilized cap rate of around 10%. That's the interesting, I went through and we have many, many assets in Ireland and Europe that are stabilizing at 9% and 10% cap rates. Unlike and I don't mean to belittle the garden style apartment buildings that we have in the U.S., these are very, very high quality buildings. So, when you think about Clancy Quay that would be analogous, the 423 units that are on the front of that property. Those would be New York quality, L.A. quality. 12, 15 storey buildings, first class construction. When you think about those 423 units, to the original loan amount that was on that property, we paid $0.5 on the dollar for that, very, very high quality, 423 unit portfolio. So, then when you're averaging it in with the other 400 plus units that you're building on the back of the property. You get to very high cap rates, stabilized much, much higher than you would have, if you have just gone out and bought a stabilized building.

Yeah, with really low cost land basis of in phase 2 and 3.

Yeah, and I think too, just to your point about construction. See the Clancy project, front 423 units new. But the ones that we’re building, some of them were refurbishments of – what they call the Clancy Barracks, which were 200 year old buildings that the British Army occupied during some of wars there were involved in the Republic. So, these stable buildings as they call them, where they have their horses, we've had a historical overseer onsite, while we've been restoring those buildings on the back. They’re all finished right now. But it's very tedious construction. So, but anyway my point is that that we have many assets throughout this portfolio that is they continue to get another year or another two years behind them. You're going to see them stabilize in these higher cap rate ranges.

And last one for Justin and Matt. You guys added the property level NOI reconciliation in the supplemental, which is helpful. Have you guys – after the transaction closes you're going to happily 100% owned property company. Would you consider a switch to the FFO, AFFOs type reporting or at that [ph]?

Yeah, Craig, I mean, we’re going to be looking at all that in conjunction with the transaction and certainly want to continue to improve the disclosure overtime as we have been doing.

Okay. Certainly, have been. Okay. Thank you.

Thanks, Craig.

Thank you.

And that concludes today’s question-and-answer session. I would now like to turn the conference back over to Bill McMorrow for any closing remarks.

All right, well thank you everybody for listening in today and as I always say, we’re always available for any questions that you think of once we get off the call. So, thanks again for your support and for listening in today.

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