Daven Bhavsar – Director, Investor Relations Bill McMorrow – Chairman and Chief Executive Officer Mary Ricks – President and CEO, Kennedy-Wilson Europe Matt Windisch – Executive Vice President.

Craig Bibb - CJS Securities.

Good day and welcome to the Kennedy-Wilson Second Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be opportunity to ask questions. [Operator instructions] Please note this event is being recorded.

I would now like to turn the conference over to Daven Bhavsar, Director of Investor Relations. Please go ahead..

Good morning and welcome to Kennedy-Wilson’s second quarter 2017 earnings conference call.

This is Daven Bhavsar and joining us today are Bill McMorrow, Chairman and CEO of Kennedy-Wilson; Mary Ricks, President and CEO of Kennedy-Wilson Europe, Matt Windisch, Executive Vice President of Kennedy-Wilson and Justin Enbody, Chief Financial Officer of Kennedy-Wilson. Today’s call is being webcast live and will be archived for replay.

The replay will be available by phone for one week and by webcast for three months. Please see the Investor Relations section of Kennedy-Wilson's website for more information. On this call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA and adjusted net income.

You can find a description of these items, along with the reconciliation of the most directly comparable GAAP financial measures and our first quarter 2017 earnings release, which is posted on the Investor Relations section of our website. Statements made during this conference call may include forward-looking statements.

Actual results may materially differ from the forward-looking information discussed on this call due to a number of risks, uncertainties and other factors indicated in reports and filings with the Securities and Exchange Commission. I would now like to turn the call over to our Chairman and CEO, Bill McMorrow..

Thanks, Daven. Good morning everybody and thank you for joining our call today. We're pleased to have reported another solid quarter results.

In the second quarter, we continued our trend of delivering market leading same property results, while continuing to enhance our portfolio through our capital recycling program, which is focused on harvesting non-income producing investments, completing value-added initiatives within our existing portfolio and at the same time upgrading the overall quality of our assets.

This morning I’ll discuss our financial highlights for the quarter, the operating performance of our properties and our investment activity before commenting on the proposed combination transaction between Kennedy-Wilson and Kennedy-Wilson Europe.

So, starting off with the financial highlights for the second quarter, Kennedy-Wilson reported GAAP earnings of $0.08 per diluted share, compared to a loss of $0.02 per diluted share in Q2 of 2016. Adjusted EBITDA was up 39% to $102 million for the quarter, compared to $73 million during Q2 of 2016.

Adjusted net income was up 18% or $8 million in the period to $51 million, compared to $43 million for Q2 of last year. For the quarter, our share of property level NOI grew by $5 million to $65 million, an increase of 8% from Q2 2016. This metric is now up almost 50% since the beginning of 2015.

This growth has been driven by strong operational results in our properties, growing our ownership stake in our investments over time and the continuous improvement of our portfolio through selective capital recycling. At the end of the second quarter, we have an ownership interest in over 400 real estate investments globally.

The largest component is our multi-family portfolio, which stands at over 25,000 units of which 1,500 are under construction. This portfolio, which produces $152 million of NOI on an annual basis is concentrated in the coastal markets of the western U.S.

with the Pacific Northwest, Northern California and Southern California accounting for 83% of the portfolio on an NOI basis. Our largest market remains the state of Washington focused in and around the Seattle area where we have 10,000 units, which produce almost $55 million in annual NOI to KW.

For the quarter, our share of whole multifamily revenues and NOI increased by 6% on the same property basis. Once again, this outperformed many of our peers. Looking at the top public multifamily REITs, NOI growth average 4% on a same property basis during Q2 versus 6.1% for us. So, we're outperforming by over 50%.

Our outperformance can be attributed in part to our waiting in the state of Washington, which led all of our markets with same property NOI growth of 9.3% in the quarter. The state of Washington along with its largest city Seattle continues to thrive.

Amazon has nearly 8,000 job openings in Seattle and they continue to expand as seen through the most recent announcement regarding the acquisition of Whole Foods. Seattle also experienced the highest growth rate in median home prices in the country according to the latest Case-Shiller Index.

Seattle and its surrounding areas continue to benefit from strong population growth, a large diversified employer based and relative affordability compared to any many other large coastal cities. Additionally, the combination of high incomes and high home price growth creates an attractive rental market and bodes well for our apartment portfolio.

Our multifamily portfolio in the U.S. is mostly comprised with low density garden style communities, where we have added high quality, tenant amenities. Our properties are typically located in the suburban areas of major cities with rents they become a substantial discount to clock Class A, CBD apartments.

Our rents average around $1,700 per month compared to the rents of our peers, if you're 40% to 50% higher. Also, we now have $103 million of estimated annual NOI coming from 8,400 wholly-owned apartment units, which is up $16 million and 600 units from a year ago.

Meaning that almost 70% of our annual multifamily NOI is coming from a wholly-owned units. Looking at our commercial portfolio for the quarter, our stabilized portfolio was concentrated in the western U.S. and the U.K. which together account for 81% of our total commercial portfolio on an NOI basis.

For the quarter, occupancy revenue and NOI were flat on a same property basis from Q2 of last year. The same property pool currently excludes many commercial assets that we have either recently stabilized or acquired and thus the overall pool have become more meaningful as these high quality assets enter the same property analysis.

Turning to Europe, our portfolio there is concentrated in the U.K. and Ireland and includes assets acquired prior to the formation of KWE, along with our ownership stake in KWE itself, which stands at approximately 24% at the end of the quarter. Earlier this morning, KWE released its first half results.

During the second quarter, KWE completed 40 commercial lease transactions, at 5% above in-place rents, bringing its total year-to-date to 76 commercial leases across 1.1 million square feet at 13% percent above in-place rents. For the first half of 2017, KWE reported NOI of approximately $100 million.

As of June 30, KWEs portfolio includes 207 assets with occupancy of 94% and a weighted average lease term of seven years. The portfolio produces an estimated NOI of $208 million annually.

Turning to the KW balance sheet, we ended the quarter with $569 million of corporate cash and $125 million available on our revolver for a total of almost $700 million of liquidity at the KWE corporate level.

During the quarter, we drew $350 million on our revolver to satisfy the majority of our CAS [ph] obligation in relationship to the KW, KWE merge in accordance with the funds, certain requirement of the U.K. takeover code. We intend to reduce this amount substantially over the next few quarters, including through identified asset sales.

Besides our line of credit, we have no corporate debt maturities until 2024. In total, our debt has a weighted average interest rate of 4.2% per annum and a weighted average maturity of approximately six years with 63% of the debt fixed and 17% hedged against long-term interest rate increases.

On the investment side, investment activity picked up in the second quarter during which we and our partners completed over $1.3 billion of investment transactions, consisting of $434 million of acquisitions in which we had an average 45% ownership interest and $828 million of dispositions in which we had a 31% ownership interest.

Through, these transactions, we were able to capture 300 basis points of positive yield spread when comparing the cap rates of our buys at 8% and the cap rates of our sells at 5%, which at the same – while at the same time improving the quality of our assets.

For the year, we have now completed almost $1.7 billion of investment transactions with approximately $700 million of acquisitions of which our share was 41% and almost $1 billion of dispositions of which our share was 33%.

One of the key differentiators for Kennedy-Wilson has been having local investment teams and local relationships, which often lead to off-market investment opportunities. During the second quarter, our teams continued to find opportunities that would allow us to strategically recycle capital to improve the recurring NOI of the company.

In Q2, we sold Rock Creek Landing, a wholly-owned 576 unit multifamily property located in Kent, Washington for $109 million. We originally acquired the property in 2014 for $58 million, after which we executed our value-add asset management program, resulting in NOI growth of 56%.

We took the cash proceeds to almost $57 million from this sale and recycled them into $153 million off-market acquisition of 90 East, 593,000 square foot office campus in an affluent suburb of Seattle, Washington. This three building campus is fully leased to Microsoft and Costco with over 8% going in cap rate.

The impact of these two transactions are expected to result in a $7 million increase in NOI. We continue to sell our non-income producing assets during the quarter, which represented roughly 25% of our quarterly sales on a pro rata basis.

Non-income producing and unstabilized assets have now shrunk from 27% of our investment in Canada [ph] a year ago to 18% at the end of the second quarter, which is a trend we expect to continue as we strategically sell or convert these assets into income producing assets.

Turning to our development activities, many of these projects that we’re currently developing including Capital Dock in Clancy Quay are built on excess land, which we originally acquired with little or no cost basis. This land in most cases sits within or adjacent to income producing assets that we already own.

In our supplemental financial information that we released yesterday, we need to tell our largest developments in which we expect to spend $175 million to $200 million of KW cash on over the next two to three years. We're targeting annual 10% to 15% returns on our equity, once these assets are stabilized.

To go into two of the bigger assets at Capital Dock, which is one of the largest single phase developments to ever be carried out in Ireland, we continue to make great progress.

Once completed, this project will deliver approximately 690,000 total full gross square feet, including 345,000 square feet of office, 25,000 square feet retail and 190 multifamily units housed in a 23 storey high rise, which will be Dublin's tallest building once finished.

During the quarter, we sold one of the three office buildings under the development known as 200 Capital Dock to JPMorgan through a forward funding sale agreement. The building totals 130,000 square feet of Class A office with the ability to accommodate over 1,000 employees.

We will continue to develop this property along with the entire Capital Dock site, until its completion, which we expect will be by the end of the third quarter of 2018.

Additionally, the cash to be received from this sale together with the construction loan of €125 million that we secured in the second quarter will fund the majority of all remaining costs for the entire project. Also in Dublin, we completed phase two of Clancy Quay during the quarter.

This is an apartment community that we acquired back in 2013, which came with 423 new existing multifamily units and eight acres of predominantly undeveloped land, which we plan to develop over two phases.

The original 423 units we acquired are currently 97% leased and we are now just completing the phase two of 163 units and we've already leased 55% of those units. Phase three, which is still on design and spans three acres is expected to deliver another 250 units by 2020.

When completed Clancy Quay will total approximately 845 units and will be one of the largest multifamily properties in all of Ireland. In the U.S., we continue to build multifamily units through our Vintage Housing platform, which we acquired two years ago and its majority owned by Kennedy-Wilson.

This partnership was engaged in the development and management of affordable housing on the west coast with a focus on independent senior living.

We originally started with 5,500 units and today Vintage has over 1,000 units either in planning or under construction in Seattle and northern California, all which we expect to complete in the next 12 months.

Finally, during the quarter we announced the proposed combination between Kennedy-Wilson at Kennedy-Wilson Europe, including a revised offer that was announced on June, 13. We expected this combination will significantly improve our recurring cash flow and enhance our ability to generate attractive risk adjusted returns.

We remain on track to close this transaction in the fourth quarter subject to customary closing conditions, including the receipt of approval from both sets of shareholders. So, in conclusion, while it’s always difficult to predict what volatility may arise in the short term.

We now have many sources of growth, which will help Kennedy-Wilson over the long-term. We produced another great quarter of operational results and have consistently grown both our recurring cash flow and dividend over time.

We also have many value-add and development initiatives under way that will add additional recurring NOI over the next two years. Our portfolio remains well diversified and select markets that we think will perform well. We are in the midst of a merger that will enhance our cash flow streams and further our flexibility to allocate capital globally.

All this positions us well for sustained growth and to continue our track record of creating long-term value for our shareholders. So, with that background, I’d like to open it up to any questions..

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

Hi guys. You made a great progress in reducing the investment in non-income producing assets during the quarter. Excluding development activity in the non-stabilized properties, I think its $200 million of land and other non-income producing.

Do you guys have a target for where that might be at the end of the year or at the end of next year?.

Matt, do you?.

Sure. Hi, Craig, so as you noted, we have substantially reduced the amount of non-income producing assets and unstabilized assets. Over the past year, we've gone in fact, some 27% of our overall investment portfolio down to 18%. We continue to see that number come down over time.

There's no specific number we'd give you on that, but certainly it’s trending down and that's our plan. In particular some of these development assets such as Capital Dock come online that will further reduce that number and move into the income producing bucket..

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

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

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

Well, specifically as it release of Dillingham Ranch we're still in a entitlement mode with that property. But I would say that generally speaking, every other piece of land that we own is entitled with some form of the business plan currently being executed.

With the exception of really two properties, most of the construction activity that's going on all on the land is going to be completed by the end of 2019..

Kennedy-Wilson is spectacular through the opportunity. You guys – by far your best risk adjusted returns are the Vintage Housing projects.

I realize 1,000 units is not particularly timid, but given the returns why not expanded the more markets and ramp that up even more?.

Well, I think you are making a good point. I mean, I think that's clearly our plan over time, but you’ve got to make sure too as you’re doing those things that you've got the right infrastructure in place.

Just as we’ve done here in Europe and Mary can comment on that, I mean when we started here our first real investing that we did in the hard assets really started it towards the tail-end of 2011 and into 2012.

What Mary did with her team here of course then over that period of time since then was put in place a management team that was capable of executing on the construction management. Anytime, you're doing construction management, it's all hands on deck kind of exercise, especially on these larger scale properties.

And what has been great about here in Europe is that we've been able to, I would call it, really test the capabilities of our team and so you've seen really three major projects in Europe come to completion; Baggot Plaza, what we call Block K, the Vantage apartment units and now Clancy Quay.

So, when you add all that up that, I’m doing it in my head Mary, but that's roughly about in totality, about $250 million of construction including the base buildings or the land that we have. So, we have a very, very, very good team here in Europe that can execute on all of these types of things.

And so all of them to this point, have really come in on time and on budget. So, switching gears to Vintage, as you know we own 62% of that company and the management team owns 38%, but that management team started that company, now 16 years, 17 years ago. So, all of the product that they had up to the time that we bought they built.

So, now we’re clearly going to expand that business over of the next three to five years. It hits a very sweet spot in the market. When you see market rates on apartments going to the levels that they have over the last – particularly last five years, it creates a gap in the market for what I call or what they call affordable housing.

Yet when you think about affordable housing it in the context of what we're doing its actually very high quality product. It just happens to qualify for –as affordable housing or for seniors above 55. So, the 1,000 units that you see is really just the beginning of what we plan to do in Vintage.

I think over time, you'll see us pretty consistently with 1,500 to 2,000 units of a building in the pipeline in Vintage. Over time the goal of course is to get that portfolio up well above 10,000 units..

Okay. I'll get back in the queue..

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

So, Mary, since you are there and I’m told you’re probably in Europe. The Brexit vote now is a year ago, public real estate assets in the U.K. continue to trade at a discount for the private transactions.

Can you talk about what you're seeing in terms of activity in the market and give us your thoughts on how the Brexit discount plays out from here?.

Yeah, I mean, I don’t know if you saw KWE’s results at all this morning, but we continue on an operational basis, it's really hit the ball out of the park. We've obviously been continuing the momentum of leasing side.

So, we’re seeing our occupiers continue to make decisions in terms of where they want to lease their space and make sure that people are in the right location for their businesses. I think the portfolio that we have is not only defensive and that we have a long votes [ph] we have very high occupancy. It's very versed.

There's also big opportunities to really grow the portfolio, whether that’s in Dublin or whether that’s in Spain, in Madrid as a retail assets.

So, I think as it relates to Brexit we haven't really seen the impact hit our portfolio and we also see there's a lot of liquidity in the market looking for I would say the assets that are non-core disposal program continues to we've been disposing of assets at 30% plus returns. So, there’s still lot of liquidity in the market.

You also have a lot of foreign buyers in London because London is such diverse and unique city regardless of what happens with the financial jobs leaving the city or we haven't really seen that happen in big amounts.

You've seen the take up from other industries since many of them have been announced in the last couple of months, especially the technology industry be immense. So, London continues to put up very big numbers in terms of the occupancy.

We think it's a vibrant city and it's going to be for the long-term, so we feel really good about everything that we’re doing on the asset management side in the portfolio..

Yeah I think, Mary, there was a study that was published last week that was interesting to me that in the financial services industry here in United Kingdom and London particularly, there’s 560,000 jobs according to this study. The entity doing this study is now saying that in their estimate there's 17,000 at the high end that would leave London.

So, you're obviously talking about 3% and I think what we have said all along and believe is that London and the United Kingdom is always going to be a market that is viewed very positively from an investment perspective, particularly foreign investors.

You saw a transaction now about a week and a half ago, the sale of what they call the Walkie Talkie building here to a Hong Kong based company. But the size of the transaction was $1.7 billion. So, the property market here is sound. I think the other part there’s so many I spent good part of last week in Dublin.

There are so many interesting other unintended consequences of what's going on with Brexit and so the application in Ireland, the university systems are very, very good. Then there is big universities, Trinity, University of Dublin itself one.

Their applications are up 40% between 25% and 40% over the prior year because people that are applying to these universities that are coming from other parts of Europe, don't necessarily know what the outcome of passporting and all of that's going to be.

So, if you see what's going on in Dublin today, now it is producing all of these younger people and just like happened here in London, really starting 15 years ago. All of the services now are starting to fill in behind that. The restaurant themes, all of the technology companies are expanding their businesses in Dublin.

Yet it's still a market that has limited land. So, rents have obviously been going up and you know we have a – own really some of the highest quality assets in Dublin..

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

And I think without getting into politics, clearly this last vote, I think slowed some people down so to speak.

I think it's going to take some time, but I think you have to instead of thinking about this in terms of headlines, really look at what's going on at the underlying property level and as Mary said we continue to do great lease transactions here in the United Kingdom.

Then as luck would have it, there are some unintended benefits that are coming out of this for us in Dublin and not the JPMorgan's purchase of building 200 really, I'm not trying to say, that that was a direct result of Brexit. But the kinds of businesses that some of the banks are in particularly U.S.

banks here they have to be able to trade in the EU market. So, there's just benefits that are coming out of this for us in terms of Ireland itself. BofA’s announced expansions in Ireland. Barclays I think have yesterday announced the same. So, the markets we’re in here are principal markets are really healthy and doing well.

I think to marry because although it's not – its only 0.5% of our business here. I think Spain and Madrid particularly..

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

Okay. So, actually what I was trying to get out with that, all of that was extremely helpful. But what I was trying to get at with Brexit as I believe transaction activities slowed after the vote and it's more or less normalized, they be wrong. Then, at Kennedy-Wilson U.S.

shareholders are wondering if they’re going to be buying a Brexit discount along with the KWE. I assume that will just go away at some point, but I don't really have a scenario for when that normalizes..

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

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

Well, I mean, that's a market driven dynamic. I mean, I can’t comment. I think there, clearly, I'm talking about [indiscernible] I mean, when they sold that building, I mean they felt that they’ve gotten a very attractive price for that.

I think what tends to happen in our businesses, as you go through these periods of time, there tends to be a disconnect between what the public market is perceiving is going on and what's actually happening down at the property level. I think Craig two people, they tend to talk about Europe in its totality and we're not in Europe as totality.

It would be no different than saying, as I’ve said many times, how is the housing market in the Southern California. I have to say you, well, which of the 50 sub markets you want me to talk about, if you want to talk about Beverly Hills, that's fantastic. Riverside County is not so great.

So, you've got to get very granular when you talk about any of the markets that we’re in and not paint it with this big brush of Europe. 90% of our portfolio was really in two places. Then when you think about London itself, we only have two assets of any consequence in London. So --.

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

I mean, Mary, when we bought a number of these portfolios, they came with some smaller assets, plus good high quality bigger assets.

So, in the last two years and numerically, you've sold how money smaller assets, over 100?.

Smaller assets over 100..

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

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

Matt?.

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

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

You mean, on the whole Capital Dock project?.

No, on just 200 Capital Dock?.

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

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

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

Euros..

Which will equate to a stabilized cap rate of around 10%. That's the interesting, I went through and we have many, many assets in Ireland and Europe that are stabilizing at 9% and 10% cap rates. Unlike and I don't mean to belittle the garden style apartment buildings that we have in the U.S., these are very, very high quality buildings.

So, when you think about Clancy Quay that would be analogous, the 423 units that are on the front of that property. Those would be New York quality, L.A. quality. 12, 15 storey buildings, first class construction.

When you think about those 423 units, to the original loan amount that was on that property, we paid $0.5 on the dollar for that, very, very high quality, 423 unit portfolio. So, then when you're averaging it in with the other 400 plus units that you're building on the back of the property.

You get to very high cap rates, stabilized much, much higher than you would have, if you have just gone out and bought a stabilized building..

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

Yeah, and I think too, just to your point about construction. See the Clancy project, front 423 units new. But the ones that we’re building, some of them were refurbishments of – what they call the Clancy Barracks, which were 200 year old buildings that the British Army occupied during some of wars there were involved in the Republic.

So, these stable buildings as they call them, where they have their horses, we've had a historical overseer onsite, while we've been restoring those buildings on the back. They’re all finished right now. But it's very tedious construction.

So, but anyway my point is that that we have many assets throughout this portfolio that is they continue to get another year or another two years behind them. You're going to see them stabilize in these higher cap rate ranges..

And last one for Justin and Matt. You guys added the property level NOI reconciliation in the supplemental, which is helpful. Have you guys – after the transaction closes you're going to happily 100% owned property company.

Would you consider a switch to the FFO, AFFOs type reporting or at that [ph]?.

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

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

Thanks, Craig..

Thank you..

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

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

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