Kennedy-Wilson Holdings, Inc. (KW) Q2 2021 Earnings Report, Transcript and Summary

Good day, everyone and welcome to the Kennedy-Wilson Second Quarter 2021 Earnings Conference Call and Webcast. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to 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, Kennedy-Wilson; and Justin Enbody, Chief Financial Officer of Kennedy-Wilson. Today’s call will be 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 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 measure and our second quarter 2021 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’d 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. I am pleased to report on our record quarterly results, the best in our history, and the significant progress we made on our long-term growth initiatives, growing our recurring property net operating income and growing our fee-bearing capital and recurring fee income, which together will lead to increasing the net asset value per share of Kennedy-Wilson. We had a tremendous quarter, completing a total of $1.7 billion of investment transactions, which is the highest level of transactions we’ve completed since the onset of the pandemic. For the first half of the year, we allocated $573 million of our own KW capital, with 79% going to new investments, 18% to CapEx and 3% to share repurchases. Looking ahead, we have a great pipeline of new opportunities, a strong capital base and well-capitalized institutional partners that will accelerate further progress on our long-term growth initiatives. So starting with our financial results in Q2, we had a GAAP EPS per diluted share of $1.53 compared to a loss of $0.30 in Q2 of last year. Adjusted net income in Q2 grew to $265 million from $12 million last year. And finally, adjusted EBITDA in Q2 grew to $410 million from $73 million in 2020. Our core investment markets continue to grow. In the U.S., particularly in the Mountain States, where we are uniquely positioned, rent growth remains strong given the employment growth, relative affordability and the strong migration trends these markets are experiencing. We have seen the values of multifamily assets continue to appreciate, which is very positive for the net asset value of Kennedy-Wilson. In our European markets, we are seeing the reopening of the United Kingdom and the Irish economy take hold, which we expect to have a positive impact on our assets both in terms of occupancy and rent growth. In Q2, we continue to see global liquidity and transaction volumes increase, supported by very healthy capital markets and low interest rates. We took advantage of market conditions and made great progress on our key growth initiatives as we locked in new property financings and refinancings at very favorable interest rates. In the U.S., we are seeing the lowest 10-year fixed rate in the history of our multifamily business at sub 3%. And in Europe, our borrowing rates are ranging from 2% to 2.5%. Our acquisitions in the quarter added $28 million of estimated annual NOI. In the U.S., our focus remains on growing our multifamily presence in the Mountain States region, where we continue to see strong fundamental growth. We acquired 3 new communities in Boise and 1 new asset in Albuquerque, which together added 984 units and $9 million of estimated annual NOI. We also have 2 new opportunity zone development projects with a partner that we acquired, 1 in Boise and 1 in Bozeman, Montana, which will add another 500 units and over $5 million of NOI to our Mountain States portfolio once completed in 2023. We have created substantial scale in the Mountain State regions, which now total over 11,000 units including units under development and remains our largest region for multifamily. In Europe, we acquired two office properties, the 100% owned Embassy Gardens in London and the capital building in Bracknell in the United Kingdom, which we have a 51% ownership interest. These two assets totaled $325 million at purchase price and added $14 million of estimated annual NOI to KW. And finally, we made great progress on the 2 new platforms which we launched in mid-2020, our global debt platform and our European logistics business, which together completed $350 million of transactions in the quarter. We also announced in the quarter the formation of a $1.5 billion U.S. core plus multifamily joint venture with a large global institutional investor. We seeded this platform with an $800 million portfolio of 9 previously 100% owned assets. We sold a 49% interest in this portfolio, and we will continue to have a 51% interest going forward. The transaction resulted in cash proceeds to Kennedy-Wilson of $254 million, a gain on sale of $330 million as well as an increase to fee-bearing capital to $175 million. Over the next several quarters, we will look to buy an additional $700 million of core plus multifamily in this platform. Additionally, we will look to redeploy the cash proceeds that I mentioned from the aforementioned sale into approximately $400 million of 100% owned multifamily assets. We continue to make progress on our lease-up initiatives, and we stabilized 3 additional properties in the quarter: Clancy Quay Phase 3; The Clara in Boise, Idaho; and Seatac by Vintage, which totals 600 units and added $6 million of estimated annual NOI to KW. The result of our Q2 activity was a net increase to our estimated annual NOI of $14 million, which now totals $403 million. We also increased our fee-bearing capital by 10% in the quarter to $4.5 billion. Turning to the balance sheet, in Q2, we completed the refinance of $1.15 billion of unsecured debt due in 2024, extending the maturities to 2029 and 2031 while lowering the annual interest expense by $10 million. In addition, we completed the partial redemption of our KWE bonds due in 2022, further lowering our interest expense. We now have paid down $386 million of the KWE 2022 sterling bonds that have a remaining balance of $300 million due in June 2022. We had minimal share buyback activity in Q2 largely due to being in a blackout period for the majority of the quarter. Since March of 2018, we have bought back and retired 14.6 million shares or approximately 10% for outstanding shares. We look forward to resuming our buyback in the second half of the year. I’d now like to turn the call over to Mary Ricks, the President of Kenny Wilson to discuss our operational performance. Mary?

Great Thanks, Bill. The performance across our largely suburban multifamily and office portfolio, which accounts for 82% of our estimated annual NOI, was strong with high occupancy of 96% for our multifamily and 94% for office assets. And in our fast growing industrial portfolio, occupancy was at 100% as of quarter end. Our multifamily portfolio is uniquely positioned and outperforming many of our peers who, on average, saw declines across both revenue and NOI. Our strongest-performing region, the Mountain States, saw same-property revenues grow by 9% and NOI by 13%. Cities such as Boise and Salt Lake City continued to post impressive rent growth driven by in-migration and affordability with average rents at just over $1,300 per month. The Pacific Northwest and Northern and Southern California continue to be impacted by pandemic-related moratoriums, which limit rental increases on renewals, leading to an embedded loss to lease. Looking ahead, we are very optimistic on the recovery of these regions as the moratoriums for rent increases are set to expire in Q3. We are seeing positive NOI growth in all of our U.S. regions since Q1, including strong leasing spreads on new leases completed in Q2, which averaged 20% across our U.S. portfolio, and asking rents that have now increased above pre-pandemic levels in all of our U.S. markets. In Dublin, during the second quarter, we stabilized the final phase of Clancy Quay, Ireland’s largest apartment community. This final phase was 91% occupied at quarter end. Today, that’s 94% and expected to increase to 99% once leases already signed move in. It’s been an amazing 8-year journey with this community. We originally acquired Clancy in 2013, which at the time had only 423 units and 8 acres of undeveloped land. Since then, we have more than doubled the unit count to 877 units and also adding market-leading resident amenities while at the same time ensuring preservation and undertaking sensitive conservation of the old army barracks. The National Housing Agency in Ireland has estimated that 90,000 extra apartments will be needed in Dublin over the next 20 years to meet existing demand and projected population growth of 25%. Currently, apartment completions of 2,000 to almost 3,000 units per year are well short of the 4,500 units needed, adding to our conviction that fundamentals in Ireland continue to be attractive as we have in excess of 1,000 units in our development pipeline. Turning to our global office portfolio, approximately 90% of the NOI comes from low and mid-rise properties, and 73% of our office NOI is generated from buildings that are either occupied predominantly by a single tenant or are located in an office park. And it is in these suburban locations where we are seeing the most demand in terms of leasing activity. We completed 560,000 square feet of leasing in Q2, a 75% increase from Q1 with a WALT of 5 years. This brings our year-to-date total to 880,000 square feet with a WALT of 8 years. Looking ahead, we have a robust pipeline of leasing opportunities with 1 million square feet, either in legals or in negotiation, which we are focused on closing in the second half of the year. Our strategy for office acquisitions is to focus on well-capitalized tenants in fast-growing sectors, including life sciences, media and technology. As Bill referenced earlier, we had two significant office acquisitions in the UK. First is Embassy Gardens, a 156,000 square foot wholly owned office property that added over $12 million of estimated annual NOI. We acquired this property using proceeds from the sale of Friars Bridge Court, which sold in Q1 at a 3.5% cap rate. Embassy Gardens is located in the fast-growing Battersea submarket of London and is located directly next to the new U.S. Embassy. We anticipate the area to benefit from the tech clustering impact from the arrival of Apple in 2022, which is establishing its new 500,000 square foot UK headquarters at Battersea Power Station neighboring our assets. The trend witnessed in similar London regeneration zones has been a dramatic increase – has seen a dramatic increase in absorption and prime rents following the arrival of major tech occupiers such as Google into King’s Cross and Amazon into Shoreditch, which push rents by 35% to 45%. We also acquired the Capital Building, a Grade A suburban office campus totaling 173,000 square feet for $66 million. We have a 51% ownership in this property, which was acquired at over a 7% cap rate. This asset is 97% occupied with the majority of the tenants focused on high-growth industries, particularly large cap tech tenants. The asset is well located in Bracknell in the Thames Valley, which is the second largest technology hub outside of London and home to 40,000 technology jobs. The Capital Building’s close proximity to affluent towns and a significantly undermarket rents make this an exciting investment for us. In addition to our core multifamily and office investments, we have focused on the expansion and introduction of new strategies such as our logistics joint venture in Europe and our fast-growing global credit platform that Matt will talk about later in this call. We leveraged our deep and enduring relationships with both large global institutions and insurance companies, allowing us to significantly expand our ability to deploy capital globally, which meaningfully enhances our ability to scale our investment management business and generate attractive returns for KW shareholders. Our $1 billion European logistics joint venture continues its strong progress. We completed another $83 million of investments in Q2, bringing the total platform to $573 million 6 months from inception. We expect our UK portfolio to grow to $1 billion as we close new investments and have a robust pipeline of further deals and expect this platform to grow in other key markets, including Ireland and Spain. On the back of this success, we are accumulating smaller box, multi-tenant, last-mile logistics properties through our fund business in the U.S. as consumer habits continue to migrate towards online shopping and shorter delivery window times with proximity to employment basis, Urban West Coast and Mountain State metro centers and access to freeway arteries reaching a huge part of the population within 24 hours has become increasingly important. We are in various stages of acquiring 11 assets totaling over 400,000 square feet in this space and a pipeline of another 500,000 square feet as we make investments out of Fund VI. Now, I would like to turn the call over to Matt Windisch to discuss our global debt platform.

Thanks, Mary. In Q2, we completed another $265 million of loan investments in the U.S. This brings our debt platform to $1.2 billion in loans outstanding, representing 25% growth in the quarter. KW’s investment in its debt platform is currently $120 million or 10%. And we are earning approximately 12% unlevered annual returns on our investments, including interest and management fees. We have also been able to attract strong institutional sponsors with high-quality assets to our debt business with an average loan size of roughly $60 million. And considering that we are largely using existing KW investment professionals to operate this platform, the result is a high-margin, attractive net risk-adjusted return for our shareholders. We also recently announced the expansion of our debt platform with a new $700 million commitment from a global institutional investor targeting loans secured by real estate in the UK and Europe. This brings our total debt platform commitments to over $3 billion. With this most recent commitment, we now have the flexibility to invest across every aspect of the debt capital stack in the U.S. and Europe. Post quarter end, on a global basis, we’ve closed $250 million of new loans. And with a robust pipeline, we should be at $1.8 billion by the end of Q3. We expect to see continued strong growth in our global debt business, which should be a big contributor to the further growth of our investment management business. We also wanted to take an opportunity to update everyone on the progress we have made within our affordable housing portfolio. We acquired a majority interest in Vintage Housing in 2015 driven by our thesis that there is a significant undersupply of senior and affordable housing in the markets that we own and operate. Through our investment and in partnership with the principals of Vintage Housing, we’ve been able to double the size of the portfolio to over 10,000 units over the past 6 years, supplying high-quality affordable housing to over 25,000 people in the Western U.S. In particular, our recent focus has been on building new properties in the state of Washington and the state of Nevada. Our portfolio, which, on average, is only 13 years old, it’s currently over 97% occupied and produces strong, stable cash flow to KW. In fact, since our original investment in 2015, we have recouped all of our equity and continue to earn significant recurring cash flow on a monthly basis. We still believe there is a sizable opportunity to grow this asset class, and we’re not alone in our thinking as more institutional investors have begun entering the affordable housing market recently. With that, I’d like to pass it back to Bill.

Alright. Thanks, Matt. Now I’d like to outline our thoughts on capital allocation and growth for the long-term. First, we continue to make progress on our development and lease-up portfolio. We have $2.5 billion of construction underway. In total, including lease-up assets, we have 4,300 multifamily units, 2.4 million square feet of commercial and one hotel that, once completed, is expected to grow our estimated annual NOI by approximately $100 million over the next 3 to 4 years. Our development pipeline is building to a 6% to 7.5% yield on cost and will generate substantial value creation when valued at market cap rates which are significantly lower than our projected stabilized yields. We are nearing completion for several projects in 2022 and remain on track to complete the remainder of our construction on time and on budget in 2023 and 2024. Second, as I mentioned, we are focused on recycling the proceeds generated from recent asset sales into new 100% owned multifamily assets in the Western U.S. Finally, our newly announced debt and equity platforms continue their growth, especially our global debt platform and our logistics platform in Europe. In total, we have approximately $5 billion of new investment capacity across all our existing platforms. We have a clear path to grow our recurring NOI at the rate of 10% to 15% per year over the next 3 years driven by strong organic NOI growth, new acquisitions and the completion of our construction. We also plan to grow our fee-bearing capital and resulting fees by 15% to 20% per year over the next 3 years. The combination of these factors should lead to significant growth in the net asset value per share over time. And so to summarize, I’m pleased with the growth we have seen in the first half of the year but, more importantly, the foundation we have set for continued long-term growth of KW. We now have the ability to invest across all parts of the capital structure and capitalize on both debt and equity opportunities in the U.S. and in Europe. We have $900 million of liquidity at the KW level and several strategic partners with which we have a well-established long-term relationships. And each of these partners is extremely well capitalized. I’d like to end by thanking our incredible Kennedy-Wilson team of people, our shareholders and our co-investment partners for their continued support of Kennedy-Wilson especially over the last 18 months as we all adapted to the many challenges brought on by the pandemic. So with that, Daven, I’d like to open it up to any questions.

[Operator Instructions] And our first question today will come from Anthony Paolone with JPMorgan. Please go ahead.

Thanks. Hi everybody. My first question relates to the buyback you expressed should you increase shares as we go into the second half of the year. Anyway to put some brackets around order of magnitude and just how you think about the stock and NAV discount that might exist today?

Yes. Well, we – originally, back – as I said, Tony, back in 2018, we approved a $250 million share buyback program that we exhausted through the purchase of the 14 million plus shares that I mentioned. And so last year and, I believe, in the fourth quarter, we approved a new $250 million share buyback. But we were a bit hamstrung in the first half of the year for the reason that I mentioned before in terms of utilizing that. I would answer by saying that we view the stock to be a very compelling buy now. And as I said in my remarks, we plan to resume that buyback program now that we will be in an open window starting next week.

Okay. And then second question, as it relates to the multifamily JV platform that you put together, what’s the range of markets that you’re looking at for that? I think, obviously, you made the contribution of assets into it, but just what are the other markets you’re focused on with that platform?

Yes. I mean we’re – as I think we’ve expressed, I mean we’re very focused on the Western United States. And of course, we have a big multifamily business in Ireland. And I would say that the quality of the assets over the last several years that we own has improved significantly. And I don’t think there is any mystery. We’ve been first movers in some of these states and cities that here before were really not trafficked in by institutional investors. So we still believe very, very strongly in markets like Albuquerque, Salt Lake City. You saw us going into Bozeman. We’re probably the largest property multifamily owner now in Boise, Idaho. But there is still plenty of bandwidth we did our first acquisition in Arizona in the first half of the year. And so I would say any of these smaller to medium-sized markets in the Western United States and then I think the same thing we find true here in the state of California, it’s really the infill urban markets that have had the most difficulty over the last 18 months. But we own assets, for example, in the middle part of the state of California and Santa Maria, we own several properties there, and they performed exceptionally well. We just finished construction on the first phase of a multifamily project of 120 units in Santa Rosa. And we bought the adjacent land there. In about a month, we’re about to start construction on 200 units on that adjacent piece of land. And so we will end up with 300 units there. Similarly, in a suburban location here in Southern California in Camarillo, we bought 400 units about 3 or 4 years ago. It’s an extremely good result over the last 3 years. And so we’re about to embark on a major project on adjacent land there, 20 acres plus that we’re going to build about 700 to 800 units of both senior and affordable end market rate units on. So the focus is really these – for lack of a better way to put it, these smaller cities throughout the Western United States. And there is still plenty of room to take market share in those markets. And even when you look at the state of Arizona, I mean that’s the state with the population now of almost 7 million people. And so even though I characterize them as smaller markets, these are large states. And then I think the one that I left out, of course, is Nevada, by accident really, but we’re in the process of buying a property right now in Reno. We’re in the process of buying another asset in Sacramento. So, all of these cities up and down the West Coast, West of the Rockies, including Denver and Colorado Springs, and suburban Denver, all have – in our opinion, have great growth prospects.

Okay. And then just my last one, the softness in the U.S. office portfolio, what was kind of behind that?

Mary, do you want to take that?

Yes. Tony, really two assets, and a lot of it has to do with tenants sort of using moratoriums to not pay rent. So it’s really in two of our assets, the Marina View, which is in Marina del Rey, where a couple of large tenants and one being a residential real estate brokerage house, which they are probably more profitable in these last two quarters than they have ever been. So again, the moratorium makes it really difficult to enforce lease terms there. But we actually have seen a really big pickup in demand in the Marina del Rey market. So I think once the moratoriums subside, we will be able to do what we would normally do in a normal market, and things will change there. And then Hamilton Landing, which is in Marin, which is a really unique beautiful property on a very big piece of land, we had one of our big tenants, probably the nicest space at Hamilton Landing, we did a deferral agreement with them. They are a big architecture firm, and they just have struggled to sort of pay on time. But again, just like at Marina View, we actually have 300,000 square feet of a leasing pipeline at Hamilton Landing. So I think some of this is pandemic – not some but all of it is pandemic related, but I’m super encouraged by the pipeline of leasing. So I would expect that to wane over the next couple of quarters and leasing volumes to pick up.

Okay, great. Thanks for the time.

Thanks, Anthony.

And our next question will come from Sheila McGrath with Evercore ISI. Please go ahead.

Yes. Good morning. I was wondering if you could talk about your thought process on the new multifamily joint venture and seeding it with some previously wholly owned high-quality assets. Is this to this structure going to help you grow your U.S. multi-platform more quickly as cap rates have compressed? Just why sell those assets now?

Yes. I’m going to start here, and then I’ll let Mary jump in here. But to give it some context, this is the fourth venture of some scale that we’ve done with this particular investor. And so, it’s part of an overall relationship, Sheila, that we have both in the United Kingdom in terms of the industrial platform and the debt platform. And they are an investor in one of our funds. And so this is a very large Asian sovereign wealth fund that has tremendous bandwidth to invest on a global basis. And so the multifamily piece that we did in the United States was to give us access to what I would call more core capital. And so as these cap rates have compressed, it gives us the ability to play in these markets in the lower return kind of threshold. But it’s all part of an overall strategy that we have with this particular investor. And Mary, I don’t know if there is anything you want to add to that.

No. I mean I think that’s exactly right. And I mean the one thing, I guess, Sheila, that I would add is that this is a core plus mandate, so it really gives us capital with this group sort of cross spectrum of returns. And as Bill said, a major Asian sovereign wealth fund that we’ve had a very, very long-standing relationship with, that we’re talking to them about additional platforms. So I think we’re poised for acceleration, as you’ve seen in this quarter in the near-term here with the same investor.

Okay.

I think, Sheila, to that the last thing I would add is when you think about the comments that Mary made and Matt made and myself, that really for the first time in our history, we’ve got the ability – when you think about Kennedy-Wilson 10, 12 years ago, we were basically just able to do value-add, higher return kind of investing. This is now allowing us to particularly grow our investment management business by being able, as Matt said, to play in every part of the capital stack and in every return threshold. And so when you think about our capabilities right now, we’re not only on the equity side, we’re on the debt side, but we can play up and down the return threshold, whether it’s value add – high value add or whether it’s core plus, like Mary just outlined.

Okay. That’s helpful. And then on – Bill, you did a good job highlighting the opportunity to grow with the development pipeline of $2.5 billion. I was just wondering if you could help us understand the embedded growth opportunity in NOI returning to pre-pandemic levels. It looks like there is more upside in occupancy from Ireland multifamily, which is around 92% now; and also on the hotel in Dublin, the Shelbourne. If you could just help us understand that?

Yes. So I’m going to let Mary answer the – Sheila, the part about Dublin. But I think when you think about investing over the long-term, and you think about the construction that we have going on, you have to – everybody needs to recognize this was a decision that we made 7 years ago. And so you’re creating value all along the way when you’re doing construction from the time you buy the property to the time you get it entitled, to getting a financed, to getting it built and then, of course, stabilizing when it shows up in your NOI. But as Mary outlined with the Clancy build-out, we started with 423 units there, but now we have 900 units on the same property. And the total NOI on Clancy now is approaching roughly $20 million. But if you go back 7 years ago, it was a fraction of that. And so the thing you have to remember with – and in hindsight – and hindsight it’s a very beautiful thing, in hindsight, our decision to handle construction the way we have has turned out to be a fantastic decision, because now it’s starting to all roll off the assembly line. And so like Clancy, like Clara, like the assets that Vintage is building in their platform, they are now all sequentially starting to roll off. And as I said in my earlier remarks, the majority of our construction is going to get finished in 2022 through 2024. So, the decisions that we made 7 years ago are now really coming to an end. But as I also said earlier, I think we have also learned that buying existing properties like we did University Glen and Camarillo, where you then can end up with additional land next door that you can build on after you have actually proven out the market by seeing what those first 400 units have achieved, it’s turned out to just be – I don’t want to say brilliant, but it’s turned out to be a very, very good strategy. To get a little bit more granular as it relates to Ireland, Mary, can you address the question that Sheila had?

Sure. Yes. So Sheila, it’s interesting because, as you probably remember, we had done all the refurbishment work, really did a major room renovation, a lobby renovation, added two bars and restaurants and did a huge job at the Shelbourne just before the pandemic. So, our expectation of NOI in the 2020 when we started the year in 2020 was $19.5 million, the NOI for the Shelbourne. So today, we are using $9 million. So really, there is $10 million of NOI upside when things return to normal. And things are actually picking up. Ireland’s reopened and so we think that we are going to see a really nice increase in our NOI. But sort of when things are normalized, you have got $10 million there at Shelbourne. Capital Dock, we are making great progress to stabilize that asset, which is obviously also in Dublin. That will drop $4.5 million to the bottom line. And then all of our other Irish developments, multifamily and office that we will be finishing between early 2022 and 2024 will add another $36 million. So all told, in Ireland, we have about $50 million of additional NOI to play for, that we are making really good progress and feel super optimistic about.

Okay, great. One more quick question, the Mountain States in the quarter were on fire with NOI up, I think, over 12%. What does the rate growth look like or is this more occupancy driven?

Matt, you want to answer that one?

Sheila, yes, so it’s – the occupancies have gone up slightly, but it’s primarily rate driven as well as we continued throughout the last 18 months doing value add in the Mountain States portfolio, where some of the other properties in LA, Northern California, Seattle, we paused some of the value-add programs during the pandemic. So, that’s – it’s a combination of just market rent growth as well as the value add we continued to do over the past 1.5 years.

A thing I could add to that, Sheila too, I mean, Mindy Crandall, who runs our asset management group, has been doing this now for 14 years. And the management of multifamily properties at the asset level is actually way more sophisticated than you might think. And there is a tremendous amount of technology that is involved in setting rates using YieldStar and other management techniques. And so, one of the very big keys to our success over all these years has been to basically keep the same team of people on the ground in these various markets and so I think you will see, as we buy assets, and generally, I have learned it takes a couple of years from the time we buy a finished asset to actually implement all of the value-add strategies that Mindy and her team are so good at. But generally, every asset that we have ended up buying over time in the multifamily space, you end up seeing real improvement in the NOI and in some cases, the occupancy through actually just more sophisticated management techniques.

Okay. Thank you.

[Operator Instructions] Our next question will come from Jamie Feldman with Bank of America/Merrill Lynch.

Thank you and good morning. I just wanted to dig a little deeper into your comments on office tenant demand. You had mentioned life science, tech and media. Can you just talk about – more about where exactly you are seeing that, what types of tenant sizes and how long do you think it will take before those types of tenants really get more active and sign some leases and actually move in?

Mary, do you want to take that?

Sure. I mean we are actually seeing it across our portfolio. As I mentioned, most of our portfolio is suburban assets, and that’s really in the UK, so in the Southeast of London. As I mentioned, the Bracknell building is a great example with – in terms of technology tenants. Really, almost all the leases that we have done in the quarter and in our pipeline are either tech related or there is a life science, very big tenant that we are talking to on Hamilton Landing. So, it’s – I mean it kind of makes sense because the – really the drive and the growth of the economies today are coming from those kind of tenants. But what we are really seeing is the demand for kind of low-rise space where we can provide amenities and tenants can sort of spread out. So, we are really seeing – I think, we are expecting density rates in offices will reduce to facilitate social distancing. And overall, I think tenants are balancing sort of lower employee density in workplace settings alongside staff working from home. But we think that, really, these two approaches will really be offsetting and result in stable space requirements. So across the board, whether it would be in Ditton in the UK or the Heights, where we are talking to a very large Japanese technology company for 40,000 square feet, that’s a business park in the UK in Weybourne which is a wealthy residential suburb of London or whether it would be the Oaks, which we are trying to stabilize and that’s in Southern California. Ember Technologies was a deal that we just did with the tech company who loved the open floor plan. It sits on a very large piece of land. We are providing amenity space there. So, that theme really, whether it’s in the UK, whether it’s in Southern California or across our portfolio, really a balance, so suburban, low-rise, tenants controlling their own front door. Watlow Technologies is in Silicon Valley research and design. It’s an asset that we own in our fund, Fund VI. We just did a big deal with them, 40,000 square feet. So, it’s kind of across – really across the board, what we are seeing.

Okay. That’s helpful. And you had mentioned life science. Any appetite for your next fund to be life science related or how much you think you could grow that platform potentially…?

Yes. I mean we actually just acquired – sure, we just acquired a really nice asset Vasona Med-Tech Park, which is in Campbell, California, in the Silicon Valley and that’s in Fund VI. So, we bought that for $147 million. Really just to sort of our appetite in terms of the life science or the medical, it’s on 16.5 acres. Kaiser is the largest tenant there. They have been in the park for 23 years. So, they have a very specialty space. And then there is another tenant there that is in that same sort of life science mode doing a lot of research. So, there are very specialized tenant improvements there. There is clean room that they just have to have. So, that staff can’t work from home, you have to have space there. They are actually growing in the park. So, that’s a deal that we like a lot. The existing cash-on-cash return on that asset is 14%. And we think there is really big upside in terms of the rental rates as well. So, we are pretty excited about that. So, our focus right now in Fund VI, where we have invested about $600 million of the $775 million of the equity that we have raised has been on these types of assets, either med-tech, life science kind of tenants. We are also doing, as I mentioned in my remarks, an industrial aggregation strategy that we have been really successful in the UK doing. We are also focused on doing that in Ireland and in Spain. But because that’s been so successful and because in the markets that were embedded in, the Mountain States, the Western markets that we have all talked about, and there is so much growth there that we really like this industrial small box strategy. So lately, what we have been buying in the fund is that aggregation strategy. And then we have bought recently a couple of assets, multifamily assets, one in Reno and one in Sacramento that we have under contract. So, pretty fired up about what we are buying in Fund VI.

Okay. And then just with the med-tech or the life science, I mean, do you feel like in terms of the skill set required to manage those assets, you need to hire people or change your platform or is this stuff pretty much kind of run like a normal building that you otherwise own?

Yes. I mean we have people on our team that have our real estate veterans for 20 years, 30 years, that have been doing it so long, have had experience in the asset class. So, I think that whether it’s the team in the U.S. or in the UK and Ireland, we have got the experience across the board and really fortunate to have the great teams that we have.

Okay. And as it looks like, I mean, hopefully, we are coming out of the pandemic or slowly but getting there, I mean as you put your opportunistic hats on, I mean, do you think this – over the next six months to nine months or so, this is the moment to really get aggressive on some stuff that’s more beaten up or do you think it will just be kind of more of the same, paying for quality in markets you think will have better growth?

I think it’s more of the latter, Tony – I mean, Jamie. The – we are all witnessing ultra-low interest rates here. And so that can cover up any problems really for some period of time that anybody might have. But I would say too, to add on to Mary’s comments, the other ancillary benefit of our debt business that Matt and Fiona D’Silva runs in Europe is that we are collecting a lot of information off of the debt business and our – we are playing in both the debt side of the business and the equity side of the business, gives us so many data points in terms of what’s going on real time in all of our markets that we are concentrated in. And so I would say that generally speaking, we are not – other than the obvious whatever might have happened in the retail space, we are not really seeing any distress. And particularly, we are doing some hotel financing here in the Western United States to high – very strong sponsors, but the drive to kind of luxury plus hotels are actually doing extremely well again. So, on the near-term horizon, I wouldn’t say that we see any real distress in the market.

Okay. And then finally for me, are your investors, partners, are there any other property types where they are maybe pushing you to look that maybe you are not in yet?

I can’t think of any that we are really not in. I mean the – I don’t think pushing is really what I would – I don’t mean to split words with you, but I just think we have got the platforms built out with major institutional partners, including our own. And as I said in my earlier remarks, a number of these partners are people we have been doing business with for a really long period of time. And they trust our judgment as to what asset class and what direction we are going in. But I mean we touch just about every property type now. So, now for us, it’s all about, as I said at the beginning of my remarks, building up our recurring net operating income, our recurring fees from our investment management business, which we think has great scale ability attached to it. And really, when you think about that investment management business, it really didn’t exist in any size or even 2.5 years, 3 years ago. So on a very, very short period of time, we have really been able to grow that business. And I think the – particularly the debt business that Matt, Fiona and others have responsibility for that has great ability to scale. And you heard in Matt’s remarks that the average-sized loan we are doing is $60 million, but it’s with really, really high-quality sponsors. And as everybody on this call knows, everybody in the world is looking for some form of yield. So, I think the investment management business and particularly the debt piece of our investment management business has great ability to scale over the next 3 years to 4 years.

Okay, great. Thanks for the thoughts.

And this will conclude our question-and-answer session. I would like to turn the conference back over to Bill McMorrow for any closing remarks.

Well, listen, thank you everybody. And as I have said at the – we have all come through a period of time here over the last 18 months. And for our company and, fortunately, in a very, very – in the best shape we have ever been in. And so I thank you all for your support and your interest in the company and look forward to talking to you either individually or on our next call. So, thank you again.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines at this time.