Good day, and welcome to the Kennedy-Wilson Second Quarter of 2024 Earnings Call. [Operator Instructions]. Please note that this event is being recorded. I would like to now turn the call over to Daven Bhavsar, Head of Investor Relations. Please go ahead.

Thank you, and good morning. Thank you for joining us today. Today's call will be webcast live and will be archived for replay. The replay will be available phone for one week and by webcast for three months. Please see the Investor Relations website for more information. With me today are William McMorrow, CEO; Matthew Windisch, President; Justin Enbody, CFO; and Mike Pegler, President of Europe. 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 2024 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 the 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, William McMorrow.

Thank you, Daven. Good morning, everybody. Thank you for joining our call. Yesterday, we reported our results in the second quarter and the first half of 2024, which highlighted improving operating fundamentals on our multifamily portfolio and solid progress on our key initiatives during what has been a challenging 24-month period of time for real estate, given that inflation rates were at a 40-year high and interest rates at a 22-year high. We saw continued momentum in Q2 within our investment management business and deployed $2 billion of new capital throughout the first half of the year. The deployment includes $1.7 billion through our credit platform, which fully related to the construction of new high quality market rate multifamily and student housing made to best in class sponsors and $300 million on multifamily and industrial acquisitions. We also continue to finish and stabilize our development and lease up portfolio and in the quarter, stabilized five multifamily communities, which added $16 million to our estimated annual NOI. We have only two remaining active market rate developments. In total, our development and lease up portfolio is expected to add $70 million in estimated annual NOI upon stabilization. With our developments largely finishing, our capital spend on development has dropped from averaging $150 million per year in 2022 and 2023 to only $10 million remaining to be spent in the second half of 2024. As a result of our Q2 activity, our estimated annual NOI grew by 5% to $485 million dollars AUM, Assets Under Management, grew to $27 billion and is annualizing at a 16% growth rate and fee bearing capital grew to a record $8.7 billion with the ability to grow to $15 billion including $2.9 billion of future fundings from previously originated and closed construction loans and the investment of…

Thanks, Bill. I'll start by reviewing our financial results and then discuss our balance sheet. Investment Management revenue grew by 37% to $26 million in Q2, driven by completing nearly $1 billion in new originations in our credit platform as well as higher levels of de-bearing capital. Baseline EBITDA grew by 5% to a $105 million. We saw minor changes in the values of our unconsolidated portfolio in the quarter and we saw overhead costs go down by 9% year-to-date. Additionally, post quarter end as Bill mentioned, we divested in the largest asset we held in Spain and with that we'll be closing our Spanish office. In summary, our GAAP net loss totaled $0.43 per share in Q2 which includes $0.46 per share of non-cash items including depreciation and amortization, fair value and share based compensation. Adjusted EBITDA totaled $79 million for Q2 and $283 million for the year. Now turning to our balance sheet and debt profile. At quarter end, we had $367 million of consolidated cash. We paid down our line of credit by $67 million in Q2 and today we have $172 million drawn on our $500 million line of credit. Our share of total debt is 98% fixed or hedged with a weighted average maturity of five years. We continue to collect cash as a result of our interest rate hedging activities, which is not reflected in our financial statements as an offset to interest expense. In Q2, we collected $11 million of cash bringing our year to date total to $23 million. Our effective interest rate 4.6% reflects a 50 basis point saving over our contractual rate as a result of our hedging strategy. Our remaining 2024 debt maturities total $181 million which are all non-recourse at the property level. In Q3, we refinanced the construction loan at one of our recently completed multifamily projects in Dublin where the effective rate improved from 6.2% to 4.5% fixed for five years. We also continue to repurchase stock in the quarter buying another 600,000 shares which brought our year-to-date total through July to 1.7 million shares or approximately 1.2% of our outstanding share count. We have $110 million remaining on our $500 million share repurchase authorization. With that, I'd now like to turn call over to our President, Matthew Windisch to discuss our investment portfolio.

Thanks, Justin. We continue to strengthen the quality of our portfolio as we work through disposing of non-core assets, while at the same time stabilizing brand new communities. Our stabilized portfolio totals $485 million in estimated annual NOI, which grew by 5% in the quarter. Over the last five years, our portfolio has continued to shift towards multifamily credit and industrial, which have increased from 50% to roughly 70% of our NOI. We have also sold down our retail office and hotel portfolios, which five years ago accounted for 50% of our portfolio versus approximately 30% today. In total, our 38,000-unit multifamily business has grown to 61% of our stabilized portfolio, producing $525 million of estimated annual NOI at the property level, of which KW share is $294 million. We have 2700 units in our lease up and development pipeline, which we expect to add $29 million to estimated annual NOI at stabilization. Our U.S. multifamily portfolio has benefited as a result of our asset management initiatives, where we are focused on driving operational efficiencies and enhancing our assets, as well as strong demand from an overall shortage of homes for sale and the high cost of homeownership. These drivers resulted in same property occupancy growth of 1.9%, revenue growth of 3.6% and NOI growth of approximately 3%. Overall, portfolio occupancy stood at 94%. On the expense side, rising insurance costs reduced our same store NOI results in Q2 by approximately 50 basis points. However, we expect that our insurance premiums will be flat to down in the second half of the year based on our July renewals. Our market rate apartment portfolio in the U.S. which is over 90% suburban, saw blended leasing spreads of 2.6%, similar to what we are seeing in July, and we ended the quarter…

Thank you. [Operator Instructions]. The first question comes from Anthony Paolone with J.P. Morgan. Please go ahead.

Okay, thanks and good morning. I guess, first question as it relates to the debt platform, it seems like the origination thus far has been mostly on the construction loan side or maybe all of it has been, if I recall, but just wondering what the prospects are for doing other types of maybe longer duration type debt deals or taking advantage of some of the repayments to be the vehicle that terms out some of that debt to add some just broader duration to that book?

Anthony, this is Matt. It's a great question. We see a great opportunity in the construction lending space within the residential sector, and so that's where our primary focus has been, but the team that we both bought and built within KW is a seasoned team of people with expertise not only in construction lending, but in permanent lending, bridge lending, you name it. So we definitely have increase the duration increase the duration on the portfolio and look at longer term solutions for our customers and we've got capital partners that are interested in doing that with us. So it's a good question. I think you'll see over the next several quarters an expansion of our business beyond just construction lending.

Okay. And then with regards to development, the program there seems to be winding down and it's simplifying the story overall for you guys. Do you think there are incremental starts in the horizon or do you think this is this kind of continues to wind down for a while here?

No, we're really looking at that business in a different way than we have in the past, where we were a sizable equity partner in all of these deals and so we have several new projects that we're looking at right now. We're taking both of our really experienced teams here in the United States and in Europe and for lack of a better word, really re purposing them into a construction management business, where similar to what we've been doing with the investment management platform, where we will be 5% to 10% investors in these properties that manage and run all the construction and earn the normal development fees that you would earn in developing any property. So we've been doing this now for 10 years. And we've developed a very, very outstanding team of people in both Europe and here in the United States and so we don't want to slow the development down where it makes sense. But what we do want to do is do it more in the format of an investment management platform where we're the construction manager.

Okay, thanks. And then just if I could ask one last one, it seems like you're making progress towards your disposition goals. Just wondering if you can put some brackets around what all you have in the market, if we should expect anything more sizable coming or any exits of other markets or property types or anything?

Yes. So you saw that we did sell our Spanish retail center in Q3, so that's obviously done, but we have a substantial pipeline of dispositions that were in various stages of selling. So it's in line with the plan that we announced late last year and we're confident we can still hit those numbers and for us in particular, you've seen the shift of the majority of the assets on the balance sheet being U.S. multifamily. So I think with this disposition program, you'll continue to see that shift continue.

Yes. I think, Tony, just to add to what Matt said, it's very, very clear that one of our core strengths is, whether it's in the credit business or the equity side, is the multifamily business where we now are involved in almost 60,000 units and so our view of the housing market is that there's going to be significant opportunities to continue to grow that business over time and so we have very clearly identified the other non-core assets that we want to get out of and I think to simplify the company in terms of geography, we're only focused on those three markets, the United States, the United Kingdom and Ireland and the other side of the equation is the capital that we're raising in various parts of the world and as we said earlier in the call, we're very, very focused on raising capital now out of Asia, Canada and Europe. And so and we're making really, really good progress in all of those markets.

Got it. Thank you.

The next question comes from Joshua Dennerlein with Bank of America. Please go ahead.

Hey, guys. Just wanted to explore just like what's the you guys include the fair value adjustment and adjusted EBITDA. I guess what's the rationale on that because I feel like it adds like a lot of noise to just like the overall earnings power of the company. So just why do you guys feel it's important to include that?

I mean, I think historically, as you mentioned, it's been a little bit volatile and we typically are including everything in that metric and that's why we introduced baseline EBITDA to be a more recurring operating metric for the users. So now you can choose which one you'd like to look at.

Okay. Sorry, I missed that. So that was new for this quarter, the baseline EBITDA?

I think second quarter or third quarter we've had it, but that was the genesis of it. So it's a good question and hopefully we're just giving you more information.

Okay. And then, you guys mentioned opening a Japan office. I guess, one, I guess what's the rationale behind that? and then can you help us reconcile that with like the cost cutting progress? It just seems like maybe that's a yeah, anyway. Thank you.

Yeah, that's a very good question. We started in Japan in 1994 with no employees and over a seven-year period of time, up to 2002, we actually became, if not the first, one of the first U.S. real estate companies to ever go public in Japan. That was Kennedy-Wilson Japan, which went public there. We sold almost all of our position in that company over the next couple of years after 2002, but that company continued to thrive and it's currently owned it's a private company owned by one of the large Japanese financial institutions. Outside of that business, we also owned almost 50 apartment units, mostly in Tokyo and Osaka that turned into a very, very successful investment and we sold that business in 2015 and as luck would have it, we used the proceeds out of that to buy our 50% interest in vintage housing here in the United States, which at the time, just as an aside, had 5000 units in it and now has 12,000 units in it, but we have always maintained very, very, very deep and strong relationships with many, many Japanese, large Japanese financial institutions and companies in Japan and we have one existing joint venture in the Bay Area with a major Japanese construction company and then you might remember that in the Q1 of this year, we closed our first multifamily equity investment with a very large Japanese development company in Vancouver, Washington. And so what this has all led to is kind of, I'd say, re-examination of all these deep relationships that we've built over the last 30 years and the Japanese institutions are very global in nature and it's obviously no surprise to anybody that Japan is faced with a declining population at this point in time. We'll see how that all goes, but it has always been the case with Japanese companies, irrespective of where the yen is at, they want to invest on a long-term basis outside of Japan and so we made a decision really earlier this year to, I'd say, intensify our capital raising efforts there, based on these long-term relationship, but to do that kind of business in Japan, you have to have a physical presence there and so we've opened reopened our office there. I would also add in this long winded answer that we've had several Japanese companies now that have come into our fund business -- discretionary fund business, including one large Japanese company that came into our fund business just a couple of weeks ago and so we've had real success raising capital there.

I think one thing I'd add to that is just the team that we have covering that region, we're already employed by the company. So there's no -- we didn't add employees or anything like that as part of this. So there's not a significant change in the G&A related to opening this office.

Good background. Thank you.

The next question comes from Tayo Okusanya with Deutsche Bank. Please go ahead.

Hello, can you hear me?

Yes, we got you. Hi, I can hear you.

Okay, good morning. I wanted to ask about the credit platform and how we think about the growth outlook for the business, just given again if rates are coming down going forward, do you think that results in more construction loans or people all of a sudden want to start borrowing or do you think about it as they become other sources of there'll be more attractive funding for potential developers and they kind of move towards a different product? Like just how do we kind of think of how the business evolves in a world that we have declining interest rate?

That's a good question. I mean, we've seen a significant slowdown in starts on apartment construction and so what's happened for us is we've had a combination of lower -- number of smaller number of people that are actually developing, but there's also a lot fewer financial institutions and lenders in the market. So the pie has shrunk dramatically from where it was three or four years ago, in terms of the overall size of the construction lending market. That being said, we've been able to capture a very sizable market share, just given that a lot of the traditional lenders are not currently active in the space. I think with the prospect of rates coming down, a couple of things could happen and our thesis really is that you will see more people start to build because the cost of building will be reduced because of lower interest costs and also the value of these assets once completed should go up and the takeout financing should be more attractive. So you should see a pickup in new starts for people building apartment buildings. At the same time, I think it's likely you'll see new entrants come into the market, given those factors. So our hope is that the market will continue to grow and we'll be able to maintain our strong market share. So I think it bodes well for us that the overall size of the opportunity will be larger and I think we've got a competitive cost of capital and a great team that has executed with these borrowers during times where others weren't there stepping up like we are.

Got you. Does it change profitability of the business because you're probably now going to be making loans at lower rates?

It's not a significant change for Kennedy-Wilson because we're putting up relatively small amount of capital into the loans themselves and we're earning fees based on the origination and asset management and servicing of the loan. So for Kennedy-Wilson, it won't be a significant change in the return.

Okay. That’s helpful. I guess that’s it for me. Thank you.

The next question comes from Alan Parsow with Elkhorn Partners. Please go ahead.

Hi guys. I have two quick follow-up questions. One is on Japan and that area and if there is a way for you to elaborate on the amount of funds you've been able to this point get into your fund development and different fund issues? And then two, if you could quantify your sale of the Spanish property and give us an idea of what you made lost or whatever on that property and how much you should save from closing eventually that Spain office?

Yeah. As far as Japan is concerned, Alan, I mean, we're in the, I'd say, early stages of raising capital, but we're having, I'd say, very meaningful discussions with, I'd say, a dozen Japanese major Japanese companies. The reference, if I didn't say the number, the reference I was making into our fund seven discretionary, we've had $100 million of capital come from Japan and so this is early stages and as you can see, we haven't intentionally in the last 12 months, we haven't deployed hardly any capital into the equity investment side of the business. We felt a very much better use of capital was to grow the credit business. The returns were just better, but with these rates coming down, it's clearly going to benefit the equity side of the business, both in terms of the valuation of our own assets, but also our ability to get positive leverage on acquisitions and that was really the reason over the last 12 months, we've really barely moved the dial in terms of acquisitions of new equity oriented investments. The overhead issue. We have been very, very, very good, I would say, over the last nine months of reassessing some of the overhead costs of the company, repurposing people, repurposing places where we had people, but where we could use them better in a different location and so I and we've got further, I'd say, another 5% to go in terms of that's already identified and has taken pretty much taken place in terms of our overhead, but Spain -- it represents a real cost savings for us. I would say it's kind of in the order of about $1 million to $1.5 million a year.

And the amount of profit or loss from the sale of the property?

Yes. Well, you get your profit in two ways. We had very attractive financing on that property from one of the Spanish banks and it was there was a significant excess cash flow from that property for probably the five or six or seven years that we owned. So the returns ended up being very good, but the most of the return really came from the distribution of cash over the time we held it.

Yes. So the third quarter impact from the sale itself is going to be negligible in terms of the gain.

Ok great. Thank you.

This concludes our question and answer session. I would like to turn the conference back over to William McMorrow, CEO, for any closing remarks. Please go ahead.

Well, thank you everybody for listening in today. We're very pleased with where we're at and as always, if there are any other questions that you've got, any of us are available to talk with you at any time. So thank you.

The conference has now concluded. [Operator Closing Remarks].