Good day and welcome to the Kennedy-Wilson Fourth Quarter 2018 Earnings Call and Webcast. Today’s conference is being recorded. After today’s presentation there will be an opportunity to ask question. [Operator Instructions] I would now like to turn the conference over to Mr. Daven Bhavsar, Vice-President of Investor Relations. Please go ahead.

Thank you and good morning. This is Daven Bhavsar and joining us today are Bill McMorrow, Chairman and CEO of Kennedy-Wilson; Mary Ricks, President of Kennedy-Wilson; 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 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 a reconciliation of the most directly comparable GAAP financial measure and our fourth quarter 2018 [ph] 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.

Daven thanks. Good morning everybody and thank you for joining us today. We are pleased to report another solid quarter capping off a record year of financial results for Kennedy-Wilson. I'd like to start by reviewing our financial and property operating results and then focus on our key growth initiatives including growing our property NOI as well as our third party fee bearing capital before opening it up to questions. So starting with the financial results. For the quarter, GAAP EPS was $0.21 per share compared with $0.69 a year ago. For the year, GAAP EPS totaled a record $1.04, a 25% increase from $0.83 for 2017. For the year, we produced a record annual adjusted EBITDA of $713 million, which is 56% higher than the $456 million we produced in 2017. Adjusted net income totaled a record $397 million in 2018 compared to $243 million last year, an increase of 63%. Turning to our portfolio, as of year-end, our stabilized assets had an estimated annual NOI of $407 million with 48% coming from the Western U.S. and 52% from Europe primarily in Ireland and the United Kingdom. We had another solid quarter of property operations with same property revenue growing by 4% and NOI growing by 7% across our global same property portfolio. For the year, our same property revenue in NOI grew by 5%. Our market rate multi-family portfolio saw robust growth in the quarter, and same property revenue is up 5% and NOI growth of 6%. These results continued to compare favorably against other public real estate companies, who produced an average 2.5% NOI growth for the quarter. Our multi-family portfolio continues to benefit from being located in growing markets and from the successful execution of our value add strategy by our asset management teams. In particular,…

Great. Thanks Bill. In Europe, we continue to make excellent progress in stabilizing assets and completing development projects. During the quarter, we stabilized the final portion of the Capital Dock office space. We have now successfully completed construction on time at this project, which represents one of the largest developments in Ireland. Two of the office buildings are now fully occupied by Indeed for 20 years and the final building is occupied by JPMorgan who bought the building from us in 2017 and took occupancy in the quarter. Currently we're in the midst of leasing up the 190 premium multifamily units and making great progress on leasing the 26,000 square feet of retail space, which we expect to open for business this summer. Once fully occupied, we expect the asset to stabilize at an 8% yield on cost. Separately, we are pleased to announce that we have started construction at Hanover Quay, our 69,000 square feet office asset adjacent to Capital Dock. In Q3, we will start construction at Kildare Street, which is our 64,000 square feet office project next to the Shelbourne Hotel. We remain on track to complete both of these assets by 2021. In the U.K. we completed the largest lease transaction in the Southeast submarket last quarter at our Leavesden Park asset with the 200,000 square feet lease to global online fashion retailer ASOS for 15-year term certain, which will add 7 million to our estimated annual NOI in the second half of this year. This asset will stabilize at an 8% cap rate to KW. Altogether, Europe is on target to deliver approximately $65 million out of our $100 million globally of additional estimated NOI by 2023 including $24 million by the end of 2020. We are typically seeing stabilized yields on cost of 6%…

Thanks, Mary. The third area of focus is our asset sale program and the recycling of capital. During the quarter, we sold $313 million of assets, of which our share was $264 million. Europe accounted for 86% of our asset sales, including the largest sale in the quarter, a two-office building project in Dublin totaling 82,000 square feet, which we sold to Google. In total, our share of the gains from the sale of real estate for the quarter was $88 million. In the quarter, our asset sales generated $169 million of cash to KW, and year-to-date have generated $634 million of cash to KW. We allocated our investment capital in 2018 as follows; 27% went to our stock repurchase plan; 22% to property level CapEx, and 51% to new acquisitions. In 2018, we also returned a record $290 million of capital back to our shareholders in the form of KW dividends and share repurchases, which equates to approximately $2 per share. Since our initial dividend in 2011, we've increased our dividend per share by 425% to $0.84 per share. Since the beginning of 2016 we have repurchased a total of 14 million shares at an average price of $18.41 for a total of $255 million in repurchases. Lastly, we divested of our Meyers Research business in the fourth quarter. Originally acquired back in 2012 we grew that division from 12 employees to nearly 150 employees. In 2018, Meyers contributed $15 million to our revenues against operating expenses of $17 million. During our ownership, Meyers Research launched Zonda, its flagship platform that provides housing market insights backed by real-time data. As a result of the sale of Meyers, we recorded a gain of $40 million in Q4. Also due to the sale, Kennedy-Wilson started 2019 with our lowest payroll --…

We will now begin the question and answer session. [Operator Instructions] At this time we will pause momentarily to assemble our roster. We'll take our first question from Mitch Germain with JMP Group.

Good morning. I know in London, we see that the Mayor is pushing for some rent controls on the multifamily side. Is that going to have any implications on your business there or the way that you structure your strategy?

Hi, Mitch. We actually just own one asset in London on the multifamily side till Pioneer Point. We bought that. It was actually a piece of debt that we bought from the lender, took title, did our whole amenity and refurbed the units. And now we're in the high 90s in terms of let. So, no, I don't expect that to have any real impact on that particular asset. And I mean I think multifamily is the sector in London that is now up and coming. There's a lot of capital that's gone into the sector very much like Dublin obviously where we own quite a lot of projects there. But in both those places is the multifamily market is completely under supplied. And so we're pretty excited about our projects in Dublin that we're doing with AXA and our 50/50 JV. But in London now it's not going to impact us at this point.

Could there be any implication of some sort of drafting from other regions adopting similar protocol?

You mean globally?

Or like in Ireland, maybe then pursuing something similar to that or you think it just some specific case to the UK?

I think generally I mean for example here in California and in Los Angeles there is rent control, but when you think about the apartment business you generally have 50% to 60% turnover in your units every year. And so like for example here in Los Angeles you're allowed once those units turn over to bring those units that have turned over to market. So, while there is rent control, it doesn't tend to have a big impact because of the amount of turnover that you have every year.

Got you. And then last one from me. Seems like a fairly similar level of sales this year. Obviously a lot of it will be depending on how much your share of certain assets are? But what is the target of the assets that the profile and the assets that are going to be sold?

Well, like I said in the in the script, we continue to sell these noncore assets that when we bought the two portfolios from the financial institutions that came with a large number of assets and so we're continuing to work through those. And then some of the assets that we don't want to keep necessarily long term, but have reached their full value in our opinion. And we have a sense that there is a tremendous amount of global capital that is coming into the real estate business today. And so we believe that this year of 2019 will be another year of really excellent sales opportunities. And so we want to continue to avail ourselves of this good market. Generally speaking, you've got interest rates even though they've crept up somewhat. You've got the tenure here still historical lows and in the two big markets rent in Europe. You've got tenure rates at historic lows. So we think there's a very very good market for selling. And like I said we plan to generate to us net cash of somewhere between $400 million to $500 million for the year.

Thank you.

We’ll take our next question from Anthony Paolone with JPMorgan.

Thank you and good morning. I'll. I'll start where we're Mitch just left off then the in the fourth quarter you were net sellers and used some of the excess cash to pay down debt. So as you think about the $400 million to $500 million in 2019. Does that end up reducing leverage overall or do you think that just gets redeployed at similar type of average levels and stays pretty constant?

Yes. I mean, the first thing I would talk about, Mitch, is that we -- still we have, from the KWE acquisition which closed in October 2017, we had a $200 million four-year term loan, and we paid that down from $200 million to $75 million. So that's an unsecured term loan that we plan to pay off this year. We also have some other asset level debt paydowns that we plan to do in Europe this year. So I don't think -- you're not going to see leverage points in the company increasing. We only -- and when you think about this year too as far as debt maturities, we really only have two debt maturities in the entire company. One is on the Capital Dock project that Mary spoke about, and that loan is roughly $100 million, $125 million. We're already in the process of refinancing that now and we expect to close that in the next 30 to 45 days. And then we have one other loan of similar size that matures in December that we're also in the process of taking care of now. So, we don't really have any debt maturities to speak of at all this year. And I think also too, as we talk about the debt side, the other important point to remember is that our average debt costs are running us right around 4% and we have average maturities left of just slightly under six years. And when you think about our debt too, we've always along the way elected to, generally speaking, not be floating rate debt users. And so 90 plus percent of our debt is either fixed or hedged, and the only place that we generally are using floating rate debt is in our discretionary fund management platform where the lives of those assets, as far as us keeping them generally, is somewhere around three or four years, and we want the flexibility in those situations to be able to sell those assets without any prepayment penalty.

Okay. If I could shift over to the core, the apartment same store growth was very strong in 2018, and it sounds like you'll continue to have unit renovation and things like that that generate strong returns. Just curious if you think that level of core growth is sustainable into 2019 or if that moderates, how much you think is set to come from kind of the work you're doing at the asset level versus what you need to happen in the market in general?

Matt, you want to.

Sure. Yes. So I think our goal on these things is to always outperform the market and to find both locations and assets where we think we can add value over time and to go into markets when they are a bit undiscovered from an institutional capital perspective, get in there, and try to grow rents by adding value to the assets. And so we're continuing to turn units, as you mentioned, in these markets and we're trying to find markets where they're relatively affordable and where there is an ability to grow rents over time. But to answer your question, our goal is to really continue to outperform the market by a couple of hundred basis points, and so assuming the market growth remains roughly 2%, we're hoping we can get it, be it 4% revenue growth.

I would say too, to add on to Matt's comments, with the -- we've had a 30-year history of finding markets before other people get there. And so we have -- if you think about Seattle, we started in Seattle almost 15 years ago, and so we're a big player in the Seattle market. And when we went to Salt Lake City, now probably five or six years ago, there really weren't institutional players in that market. And so we tend to try and get into these markets just like we've done in those two that I mentioned, the East Bay of San Francisco, what we've done in Ireland. We get into these markets before they're really on everybody's radar screen, and that allows us to build our infrastructure and our management teams and to get decent-sized positions in those markets before everybody else piles in.

And then just last question on Dublin with that being a large piece of the future development pipeline and the economy there doing very well, is cost inflation a factor as you're trying to get development returns to work out? How do you think about it as a risk as you place deals into the pipeline there?

I'll let Mary answer that, but before -- I think the one thing that we have discovered in Ireland is, you can actually be very precise on your timing and your budgeting in terms of building there. So you have real good cost certainty when you start the projects there, but Mary, I will turn this to you.

Yes. I mean, just to add to that, there have been escalating construction costs obviously with all the buildings that's going on, but our live projects now, we have fixed-price contracts with our contractors. We also have, I guess, a proprietary sort of template that provides the contractor with a high degree of early design certainty. So that allows us to mitigate the risk of cost overruns. And then I guess the last point I would make is, the fact that we have been such big builders in Dublin, we have very deep relationships with all the subs and the contractors. So it's really helpful in terms of keeping our costs down.

And Mary too, the other thing I would add to that is that both -- in Europe, based in Dublin and here in the United States, we have our own construction management teams. And so between those two jurisdictions, we probably have close to 25 people that are in those groups. And so like a lot of what we've done at KW over the years is really manage internally all these processes, whether it's asset management or the construction management. And that really allows us to keep very, very, very good control of costs and deadlines.

Okay. Thank you.

[Operator Instructions] We'll take our next question from Tom Hennessy with Deutsche Bank.

Good morning. I just wanted to follow up on the international side and really just on the TI side. I know it's not a big deal over in Europe, but could you classify how free rent has been trending, I mean, maybe perhaps versus the US markets?

Yes. He is asking about free rent in Europe.

Free rent. Yes. Go ahead.

Yes. I mean, I think, look, the take-up in London and in Dublin have exceeded 10-year averages significantly. So I think when you look at our leasing that we've done, the 195 leases in the UK, we did 140 leases, which resulted in $40 million of rent. So our team was very, very active on the leasing side. You're also seeing vaults that are very long. So the terms of the leases to first break were eight and a half years on all the deals that we did. So I would say on the deals that we've done, we haven't seen a whole lot of additional free rent than what's the average in the market. And London's held up very, very well despite what's going on with the Brexit noise. So thus far, we haven't seen a whole lot of softening. And just to remind you, in terms of our UK office portfolio, we have no financial institution exposure. We've got long vaults and what we've seen is really our tenants wanting to lock down their space and have certainty in their occupancy costs. And so our asset management team has done an unbelievable job from the time the sort of referendum was announced to today in going and being proactive with our tenants and making deals in terms of regears on our vacant space, cleaning up that vacant space and getting that relet. And so we're doing deals in the UK, for example, at well ahead of passing rents, 14% ahead of passing rents. So we're feeling really good about our portfolio and thus far fundamentally no issues.

And too, Mary, to add to your comments, I mean, if you think about the Indeed lease, that's a 20-year lease and the ASOS lease was 15. And so what we've said on these calls for years, I think, is that you get very attractive lease terms in Europe. And when I say Europe, we're really focused in the United Kingdom and Ireland, and here in the United States, generally speaking, your lease terms are somewhere between five to 10 years and so -- and more skewed in recent years to five to seven years. And so that in part is what makes the office market extremely attractive in those two markets that we're in. And the other part of it too that -- we're seeing is that it had -- like the growth in Ireland really, it has very, very, very little to do with what's going on with Brexit. You've got these major financial institutions like JP Morgan seeing the benefits of being in these markets because of the highly educated population in Ireland where you can basically go from grade school to the university for very minimal cost as compared to here in the United States. So it's a very, very attractive market for office leasing.

That's actually great color. And then just a follow-up too. I mean, on the whole Brexit impact, is there an impact on demand or whatnot? I mean, have you seen any changes of attitude from existing tenants, new or existing tenants? I know you mentioned that you don't have financial institutions, but...

No. I mean, we haven't. Again, I think they're just looking for certainty in things that they can control, so occupancy costs being one of those big things for them. So we've just been really proactive. As I said, the team has done a great job.

Well, and to the contrary, Mary, I mean, we've been actually doing leases well above the previous rents. The occupancies are high. And I think that's the other misnomer that, there was an article I think in the Wall Street Journal here a week or so ago that there's roughly 500,000 financial services jobs in the United Kingdom, and at the beginning of the whole Brexit discussion a couple of years ago, there was -- everybody was very concerned that you're going to see like a meltdown in that sector as far as employment, but it hasn't proven to be the case at all. And when you look at really developed capital markets around the world, the United Kingdom, Brexit or no Brexit or whatever ends up happening, which nobody can forecast at this point, is still going to be one of the places in the world where people are willing and want to invest their capital.

Absolutely. And shown by the record investment volumes last year of $64 billion.

Great. Thank you.

We will take our next question from Craig Bibb with CJS Securities.

Good morning. It's actually Mike Hagan on Craig's behalf and thank you for the color both on the Ireland demographics, but also like the cost control side of it. I guess, our question would be, what do you think is possible in terms of cap rate spreads there and also what would cap rates spreads be potentially including promotes?

Yes. I mean, the really attractive part about Kennedy-Wilson, if you're looking at it from -- like I am saying, from my point of view, is that we have the ability to play -- in the Western United States, in Ireland, and in the United Kingdom, you've got different debt costs starting, that's the starting point, and so in the United States, the tenure of 265, 270; in Ireland, the tenure of less than 100 basis points. And so you're seeing the ability to -- a good loan here in the United States for 10 years today is somewhere between 4%, 4.5% depending on the asset and where it's located. And in Ireland, for example, we're working on a pretty long-term piece of debt financing that's going to end up being around 2%. And so, as we said in the script, you've got several of these assets that are stabilizing between 7% and 8% cap rates and so your spreads there are very, very high, and we can make those decisions about where we want to allocate capital, and like I said, we have the luxury of being in markets that have strong job growth and strong university systems, which is the key to really all of the real estate investing that happens around the globe because you've got to have job growth and population growth to sustain occupancies and rents.

Excellent. Very much appreciated. And then I guess also another question about the pretty attractive financing and returns. Can you just provide a little more color on the Vintage Housing developments that you discussed?

Matt?

Sure. Yes. So I think as a starting point, our thesis is that there is just a lack of affordable and senior housing on the West Coast and there's obviously a need for that type of housing. And so in this venture, we have, with our partners and Vintage Housing, we're able to provide high quality senior and affordable housing, primarily in the Seattle market, is our largest market, as well as Reno and here in California as well. And through the tax credit program, we're able to either buy existing properties or build new properties for little to no equity from us and our partner, utilizing tax exempt bond financing and tax credits to do so. And so we have several thousand units that are in the pipeline that we expect to finish in the next couple of years that will produce not only some upfront fees to us, but also recurring cash flow over the long term. And so that's an area that we want to continue to focus on and try to grow smartly over the next few years with a goal of getting up to 10,000 units in the next year or two with 9,000 that are already either built or in the pipeline.

Excellent. Thank you. And if you could just allow me one more here, should we expect to kind of continue sales of multifamily in Northern California and the reinvesting in those three kind of areas that you were talking about, also favorable demographics with the Boises and the Salt Lake Cities you see?

Yes. I don't think -- we don't have anything specific of size in the Bay Area that we're focused on selling this year. We have sold down the Bay Area portfolio a bit, but we're very pleased with the assets we have specifically in the Bay Area, but there are a couple of multifamily assets that we do have planned for sale that we would look to redeploy into what we would view as higher return opportunities.

Okay. Thanks. Thank you all.

Thank you.

As there are no further questions at this time, I would like to turn the conference back to Bill McMorrow, CEO, for any closing remarks.

Okay. As I said, everyone, thank you for being on this call and thank you. We always appreciate the continued support of what we're trying to do here at KW. So thanks very much.

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