Good morning and welcome to the Kennedy-Wilson First Quarter 2018 Earnings Conference Call. [Operator Instructions]. Please also note today's event is being recorded. I would now like to turn the conference over to Daven Bhavsar, Director of Investor Relations. Please go ahead, sir.

Thank you. Good morning. 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 1 week and by webcast for 3 months. Please see the Investor Relations website Kennedy-Wilson 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 a reconciliation of the most directly comparable GAAP financial measure and our first quarter 2018 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.

Thanks, Daven, and good morning everyone. Thank you for joining us today. After a record-setting year in 2017 we've now reported our first full quarter results since closing the acquisition of KWE on October 20, 2017, and we are pleased to be off to a strong start in 2018. This morning I'll discuss our financial highlights for the quarter, the operating performance of our properties and our capital allocation during the quarter including our new $250 million share repurchase program. Next we'll focus on our near-term growth opportunities and discuss our market outlook before opening it up to questions. So starting off, adjusted EBITDA was up 59% to $123 million compared to $77 million during Q1 of 2017. Adjusted net income was up 48% to $63 million compared to $43 million in Q1 of last year. These increases were driven by the impact of the KWE acquisition along with strong NOI growth across our properties. We saw occupancies remain high throughout our portfolio with high renting occupancies both for our multifamily and commercial portfolio. For the quarter we were able to generate revenue growth of 3% and NOI growth of 4% across our same-property portfolio totaling over 20,000 multifamily units, 12.5 million square feet of commercial space and 5 hotels. Globally multifamily and office make up 72% of our portfolio with our multifamily concentrated in the Western U.S. and Ireland and our office mostly located in the U.K. and Ireland. In the Western U.S. we have an ownership interest in 23,000 apartment units including 2,000 that are under development and 5.8 million square feet of commercial properties. Turning to our U.S. apartment portfolio where our markets continue to see strong job growth and GDP growth for the quarter, our market rate multifamily portfolio posted revenue growth of 6% and NOI…

Thanks, Bill. Estimated annual NOI for the total European portfolio stood at $249 million at quarter end or roughly 54% of Kennedy-Wilson's total in-place estimated annual NOI. I'd like to highlight four areas for Europe. Number one, we're making great progress on our unstabilized assets and development projects. In the quarter we stabilized both The Chase and Clancy phase 2 and have a lot more to come. Number two, we're successfully growing NOI across our stabilized portfolio by capturing market ramps on lease transactions and we had some great wins in the quarter. Number three, our multifamily or PRS portfolio as we call it in Europe is poised for significant growth. From our existing stabilized portfolio where we continue to grow NOI through built-to-rent where we are developing new units and through further acquisitions. We announced on Monday that we closed on the acquisition of the Elysian in Cork Ireland adding a further 206 prime multifamily units to our portfolio. And lastly, we continue to generate attractive returns from our noncore sales program during the quarter and it has already contracted on further disposals which we expect to complete in Q2 and Q3 of this year. So first, looking at the assets we've stabilized in the quarter. At The Chase, our suburban Dublin office building we let the remaining space to a global tech tenant and at Clancy phase 2 at quarter end we were 90% occupied across the 163 units that we delivered in Q2 '17. That is now up over to 96%-let which is just fantastic. Together The Chase and Clancy phase 2 added $7 million to our estimated annual NOI. We've also made good leasing progress at Pioneer Point which we expect to stabilize this year. Capital Dock remains on track and we're fitting out both JP…

Thanks very much, Mary. So turning to our capital allocation for the quarter. We completed $468 million in investment transactions in Q1. As is typical in our business, the first quarter tends to be the slower period for investment activity. On the buy side we and our partners completed $299 million of acquisitions of which our share was $152 million. On the disposition side we sold $169 million of assets during the quarter which our share was $133 million. We are seeing a pickup in transactional activity as we have another $794 million of investment transactions including $570 million of dispositions either completed or under contract subsequent to quarter end and I will speak to all of these in just a moment. We also continue to invest our capital into our CapEx and development initiatives where we are able to generate attractive returns. During the quarter we invested $37 million of our cash into various value-add initiatives. We expect to spend another $200 million of cash in the next 18 months to invest in our development and unstabilized assets as well as other value-enhancing initiatives across our global portfolio. Another use of our capital has been to repurchase stock. On March 20th we announced the new $250 million buyback authorization and we completed half of this over the past 5 weeks. We're executing this buyback on a leverage-neutral basis using gains from asset sales that we expect to generate over the buyback period. Since the beginning of 2016 we have now returned $213 million back to the shareholders in the form of buybacks. Turning to the balance sheet, during the quarter we issued an additional $250 million of our fixed 5.875 senior notes using the proceeds to reduce the outstanding balance on our credit facility. We're able to simultaneously enter…

[Operator Instructions]. And today's first question comes from Mitch Germain of JMP Securities.

Bill, I know you just ended and mentioned some of the sales being some of the smaller assets in the U.K. It seems like though the most recent batch of sales has really been more dominated by multifamily. Are we expected to see a bit of a shift in the plan in the back part of the year?

So you mean as far as additional multifamily sales?

No, in terms of actually starting to get rid of some of those smaller U.K.-based assets.

We have, and, Mary, you might want to take that question.

Hey, Mitch. We continue to sell a lot of the U.K. assets. We bought quite a few assets in a portfolio transaction which was really like a wholesale to retail trade. So as we continue to execute our asset management plans we are disposing of those assets and that will continue.

But what I would add to that though, Mitch, is that we don't have any meaningful plans to sell additional multifamily assets in the United States here in the balance of this year. The main focus is to continue, as Mary just outlined, the sale of the smaller noncore assets. And what you'll see is when you come back this time next year is that we've pruned a great portion of the noncore assets and what we're left with is these very high quality assets in the key markets that we like to invest in.

Is there an ideal waiting by sector by geography that you think is most appropriate for the company?

I think we're kind of targeting a 50-50 balance between Europe, and when I say Europe, it's a broad sweep, but I'm talking primarily about the United Kingdom and Ireland, 50-50 between there and the markets that we like here in the U.S.

I know that you've got some assets in Italy for sale. It seems like Italy, Spain likelihood that you'll exit both of those markets.

Well, I don't know that I -- our business is always driven by what opportunities present themselves and it's very hard to predict what opportunities might come about. We have one sizable asset in Milan that is part of the asset sales that we are moving forward on. But other than that we don't really have any plans for the other assets at this point.

Last one from me. Historically I know that you used a lot of your, whether it be bank relationships or private relationships, to source deals, has anything changed with regards to the way that you're sourcing investments these days?

No, I mean obviously what our whole strategy has been over 30 years now just to find market opportunities or get in the markets before they become attractive to everybody else. And so I think when you look across the history of our company, as I've said before on these calls, I mean we went to Japan in 1994, we started investing in Seattle in 2006. We have a decent footprint now in Salt Lake City which is a very growing market and we brought our first assets there really before I would call it institutional quality companies, we're making investments there. And then when you think about Europe, of course, we went there during the credit crisis in 2010. But our focus is to remain in the markets that we have our teams on the ground because we have learned over the years that you have to have your own team of people in these markets in order to successfully find market opportunities and then also to execute the business plans that you're trying to implement post closing. So I think the other part of it too is that -- is we've grown in size. We see opportunities, people bring us opportunities that might not have existed 15 years ago in terms of just the growth of our company. I think the acquisition of 90 East last summer was a very good example of what I'm talking about there and there we were able to buy a class A 500,000 square foot office building that is leased to Costco and Microsoft, but it was essentially brought to us. And the other interesting part of that acquisition of course is that we were able to use the proceeds and gains from the sale of an apartment unit property that we owned in Seattle. All the cash for that deal came out of the sale of one multifamily asset, so we took $75 million dollars of equity and did a 50% loan on the 90 East property. And so now when you look at that in the afterlife that to our cost is yielding us on an unlevered basis almost 8.5%. So we always find opportunities and you just have to I think today be alert to the fact that things are very fully priced in a lot of different asset classes across the globe.

Mitch, one thing I will add to that is that I think what has not changed over the course of cycles and time in markets is we're always looking for assets that we can add value to, and so that whether it's building something on an excess piece of land next to something we own or taking a lease as in the Costco deal, Bill, where it was a short lease and we extended that immediately. So whatever the asset management angle is I would say that's really the focus for KW across our markets.

That's a really good point, Mary. I mean, for example in the Western U.S. right now we're buying two smaller sites that are adjacent to existing assets that we've had tremendous rent growth in in the Western U.S. and so we're buying -- it's not a big capital commitment, we're buying two sites and we're building on those to add to the existing units that we already have. And I think to Mary's point too what sometimes gets hidden in our process is that these garden-style apartments tend to be older, they could be 20, 25 years old. And so we bought two buildings in Salt Lake City in the first quarter this year that are first class locations but they need roughly $10 million of capital to amenitize leasing centers and do the unit turns and so on, but we always look at those opportunities as to not only what is our return on capital on that $10 million investment but what impact does that have on the entire return on capital for what we bought. And so our goal with everything is always to, could be wide variation but we're trying to add anywhere from a 100 to over time 300 basis points of return through value-add type of initiative.

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

So you're roughly halfway to your divestiture target of approximately $500 million. Given the fast start is the bias towards a higher amount, are you still tracking to that plan?

I think we are, I mean, thanks David for the question. We said at the beginning of the year that what you are going to -- last year we sold $1,700,000,000 of assets. And our plan for this year was actually to in dollar terms to sell less than that $1.7 billion, but as we've grown into higher ownership interests of the assets that we currently own, we plan to generate more cash for the company than we did last year. And so our target for this year was to sell somewhere between $1 billion to $1.2 billion of total assets but to generate more cash and that's exactly what's happening. So if you see the subsequent to quarter-end announcement that we made in our 8K here a couple weeks ago that portfolio of apartment buildings that we're selling, we had a big ownership interest in. And so we're getting a lot of cash out of it. And also I think I want to reemphasize -- and gains, and I want to reemphasize the point that while we're continuing and will continue to execute on the stock buyback program, we're doing it in a balance sheet-neutral way as it relates to our book net worth. So we're right on plan on our asset sales. We have very good visibility on the remainder of the asset sales for the balance of this year. And we have very, very good visibility on the assets that we are stabilizing and finishing. And I think too, Mary, sometimes you can talk about things like Capital Dock, but you -- everybody needs to remember that in totality that's the largest single-phase project really almost ever done in the country of Ireland. And so to finish on time what is almost $400 million of construction [indiscernible] land basis, to finish that on time and then before we're even finished with it to have sold one of the buildings on a forward-sale contract [indiscernible] JPMorgan and then to have fully let the other portions of the office buildings to Indeed, it's a huge accomplishment.

Okay. Great. And then I did want to ask about the capital raising and the third party capital that you plan to raise in this year.

Yes, yes.

So my question is, on balance is that -- now that you have different fund vehicles in the U.S. and Europe, on balance would you see that pretty evenly split between the U.S. and Europe or is there a bias in the investor appetite?

Yes, very good question. I think you're going to see it split about equally between the two places and I would say that we also have very good visibility on accomplishing that goal. But I think you'll see it split pretty equally between the two markets.

[Operator Instructions]. Today's next question comes from Craig Bibb of CJS Securities.

Bill, could you talk about the thought process behind the change in your management compensation plan announced last week and what your objectives are with that change?

Well, I think the thought process was clearly to make sure that our shareholders in addition to reemphasizing how we look at the valuation of the company, obviously we wouldn't be doing the stock buyback program if we didn't think that that was something that we are buying back stock that we felt was undervalued. And I think the same thing is true with the -- the management team I think as you all know is the -- is together is the largest single shareholder in the company and we want to make sure that everybody understands, whether it's through the stock buyback program or the dividends that we're paying or the compensation program that we're all completely aligned in terms of what our ultimate objective is, which is to create value in the market for all of us, and so that was the background on the thought process.

Mary, you're closing your first big multifamily purchase outside of Dublin, actually first, why is Cork attractive, what was the cap rate on that deal, is there value add there or extra land?

Yes, I mean, that asset is, I think it's safe to say it's the highest quality asset in terms of PRS in Cork. So it was built to be sold as individual apartments, they are very large units, it's a beautifully stacked asset, and it was an asset that really has been, we think that there's upside opportunities there in terms of amenetizing the asset as we do. And, Craig, you've seen a lot of that when you walk the Clancy project. So we'll do similar type of the amenities at Cork. And Cork is the second largest city, it's growing very fast, a lot of pharma companies, we have a lot of technology companies, great quality of life, great education system, and so we see it as a market, if we were going to go outside of Dublin, really Cork would have been the next market to focus on and we think that we've just bought the best asset in Cork. So we're pretty excited.

I mean, Mary, if I could add to that too, I think that when you look at our original move into Ireland, there's 700 U.S. companies that have their -- focused their operations, their European-based operations headquartered in Ireland and Cork has a very big number of those. There's over 150 tech companies and other pharma companies, as Mary mentioned, that are creating job growth. And as we've said on all of our calls, the common denominator in our investing activity used to be in areas or markets where there are high barriers to entry but where there also is a combination of job growth and a great education system because the great education systems have to produce the younger people that are going into these jobs. And as we've talked about on these calls in the past, the -- I am not sure I like the word, but as they're called, these millennials, under 35 years old, they have a strong bias today to renting as opposed to homeownership.

And Mary is that property fully occupied now or what's going to change now that you are on it?

I think there's a little more to go in terms of the lease-up. And then as I said, as we supply amenities and sort of upgrade the units we think that there is -- will be a commensurate increase in rental rates.

And Southern Europe, what was the cap rate on the deal?

I heard you ask that three times Craig.

Well, I never heard the answer, so I just keep asking.

No, that's something -- yes, that's something we're not going to discuss.

It's not because we don't want to, it's just that--

It's confidentiality, yes.

Under the terms of our purchase agreement, that's about it.

Yes.

So maybe you would want to discuss. But Leisureplex, I know you're waiting for approval, when do you think you'll get that approval and when would that kick off?

Yes, we're actually pretty close to I think lodging planning on that. We feel good about where we are with that. So hopefully we'll have some more progress for you to talk about next quarter.

Okay. And then I guess the last one, you have 3 properties that are on track to stabilize this year, Pioneer Point being a big one, could we get a quick update on the lease up there and the timing for when they would stabilize later in the year?

Sure, yes, Pioneer Point I would say will stabilize by the fourth quarter. The lease-up has been, we've gotten some good velocity, I would say, over the last 90 days. I don't know if you remember that situation, we bought that from a German bank, we bought a piece of debt and went through the process for title, one of the towers was completely vacant because the bank had just kept it vacant and so we had to go in and renovate that entire tower, if you will, and go through the units and really finish them off. And so we've been in lease-up mode on the one tower that was vacant. And at the same time the other tower that had a lot of corporate lets and a lot of short-term lets, we've been transitioning those units to what we call [indiscernible] what's known as just longer let, more traditional-styled PRS units. And so really both towers have been traditional -- have been going through a lease-up process. We're about 80% let, almost 80% let there and so we're feeling really good about our progress.

The other two properties, that will stabilize this year?

It was Clancy Quay.

Yes, [indiscernible] Northbank which we bought at the end of December we bought that from a receiver and the receiver had purposely kept 20 units vacant, and so that basically we're in lease-up there. We're also renovating those units. I just, when I was in Dublin couple weeks ago I walked one of the new-specked units and our team has just done a beautiful, beautiful job. And so not that we're also stabilizing. And then the last also -- yes, I think it was Clancy Quay which we've gone, as you know, we're on two, phase 2 we've gone now to 96% let. And then just to let you know, while we're on the subject, we've just broken ground on Clancy Quay phase 3, so we're really excited about that. That will be done in 2020.

And how many units will you have there in totality once you are done?

The whole project will have 850 units there.

There are no further questions this concludes our question-and-answer session. I'd like to turn the conference back over to Bill McMorrow for any closing remarks.

All right. Thank you as always for all your support and for listening in on the call today. Have a great day. Thanks.