Good morning, and welcome to the Kennedy-Wilson Second Quarter 2020 Earnings Conference Call. [Operator Instructions]. 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 of 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 a reconciliation of the most directly comparable GAAP financial measure and our second quarter 2020 earnings release, which is posted on the Investor Relations section of our website. Statements made during this call may include forward-looking statements.

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

Thanks Daven and good morning everybody and thank you for joining us today. from all of us here at Kennedy-Wilson we hope everyone on this call and your families are doing well and remained healthy. I'm very grateful to report that everyone at KW has maintained good health. Our communication and execution has never been better.

As it was for all businesses globally the second quarter was a very unique one in the global real estate industry as a whole as investment volumes declined significantly due to the pandemic. Transactions fell 68% across all property types in Q2 according to the real estate capital analytics group.

At KW given our strong liquidity profile we were in a great position of being able to temporarily pause our asset sale program during Q2.

However, given the ultra low interest rate environment, the amount of capital sitting on the sidelines and the global search for yield we have seen transactional activity in our market start to pick up and we expect an active third and fourth quarter. I'd like to start by touching on the key highlights of the quarter.

In Q2 we saw strong rent collection and high occupancy across our multi-family and office portfolio which together comprises 81% of our estimated annual NOI. The continued growth in our investment management platform and the launch of a new $2 billion debt platform and the great progress we made on our development and lease up initiatives.

So turning to our financial results in Q2 we produced adjusted EBITDA of 73 million an adjusted net income of 12 million. For the year we have produced adjusted EBITDA of 185 million and adjusted net income of 57 million. Our results were primarily impacted by the slowing of the transactional volume which resulted in lower gains in the quarter.

Growing our investment management platform continues to be an important strategic focus for us. As global yields remain low we continue to see strong demand from our partners to invest in high quality real estate across all parts of the capital structure.

During the quarter we added $200 million to our fee-bearing capital representing growth of 6% from Q1 and 17% thus far in 2020. This is now up 94% since the beginning of 2018. For over 30 years we have invested in real estate through both equity and debt and across product types and geographies.

Our extensive track record built on long-term relationships allows us to take advantage of opportunities when market circumstances change. In May we announced a new $2 billion debt platform with Fairfax Financial. The platform will target first mortgage loans secured by high quality real estate in the western U.S., Ireland and the United Kingdom.

We closed our first two loans in this platform in Q3 totaling $90 million both of which related to recently completed high quality apartment communities in our core markets.

Our debt investment pipeline is extremely robust with $200 million in origination opportunities that we have signed term sheets on and many more deals that we are currently evaluating. Once closed this will take our home platform to approximately $700 million of deals closed in the last year.

The debt platform builds on our long track record of investing during periods of market dislocation. It is these types of environments that have been extremely beneficial to Kennedy-Wilson over the years and have played into the strengths of our management team. Since 2010 we've completed over $6 billion of debt investments.

Looking ahead we think it's very likely that we will see an increase the debt acquisition opportunities over the next 6 to 12 months especially as large global financial institutions begin to increase their loan loss provisions with over 125 billion reserves so far in 2020.

When you include this $2 billion debt platform our real estate platform with security benefit plus our multi-family joint venture in Ireland and our ongoing fundraising efforts in Europe we have another $2 billion of fee-bearing capital in our pipeline giving us visibility to meaningfully grow the $3.5 billion in fee-bearing capital over the next two years.

Now before we discuss rent collections and leasing I'd like to update you on our balance sheet and liquidity position. As I described in our last call we entered April armed with the most liquidity we've ever had in our history.

We continue to maintain a strong liquidity position with $788 million in cash and $300 million of availability on our line of credit at quarter end. Including the $580 million of cash available from our two discretionary funds we currently have a total of $4 billion in discretionary purchasing power.

We also have strategic partners that remain well-positioned with ample liquidity and a strong interest in partnering with Kennedy-Wilson. Our debt maturity profile remains very favorable in the short term with only $26 million maturing for the remainder of this year and $163 million maturing next year.

All of our remaining debt maturities through next year are non-recourse secured property level financings which we anticipate refinancing. So we maintain the strong financial position of having both ample liquidity and limited debt maturity through 2021.

Now I'd like to turn the call over to our President Mary Ricks to provide an update on where we stand on rent collections as well as our leasing activities in the quarter.

Mary?.

Thanks Bill. I'm pleased to report that the strong rent collections we reported for April remained consistent throughout the quarter. Our two largest asset classes globally are multi-family and office which together account for 86% of our Q2 billed rents.

We collected 97% of our rents across these two asset classes and attribute these strong collection figures to having an office tenant base and resident base that remains in a strong position to continue meeting their rent obligations. And so far July rent collections are in line with Q2.

Our multi-family portfolio stands at 30,000 units globally including 4,600 units in development or lease up. Approximately 88 % of our multi-family NOI comes from suburban assets many of which are low-density garden-style communities that we have significantly enhanced by adding a variety of amenities for our residents.

Our two largest regions the Pacific northwest and the Mountain states continue to perform well with same store revenues up 3% in Q2 driven by increasing occupancies. Across our global portfolio as of quarter end average rents totaled $1,665 and occupancy which remains stable during the quarter was at 94.5%.

I'm happy to report that global multifamily rent collections in Q2 totaled 98%. In our market rate portfolio the U.S. had rent collections of 98% and in Ireland we had rent collections of 99% and in our vintage housing senior and affordable apartment portfolio we saw rent collections of 99% in Q2.

These high collection rates remain consistent throughout the quarter. Turning to our global office portfolio at quarter end we had a healthy weighted average occupancy of 95% with a weighted average lease term of 7.4 years alongside strong defensive characteristics making the portfolio well-positioned in today's market.

73% of our global office NOI is generated from properties that are substantially single led or in low and mid-rise buildings meaning they benefit from mostly a single tenant controlling its own space which is better suited to meet COVID requirements.

Also almost half of our global office NOI comes from suburban assets including business parks and this means tenants can benefit from lower density space, less commute, more space control and move towards the hub and spoke model.

And rents that are at substantial discounts to the local CBD market while avoiding COVID-related logistical issues faced by high-rise buildings. We are seeing a growing interest in suburban and low to mid-rise office assets where our own portfolio already benefits from a strong base of credit worthy tenants.

Our top 20 global tenants such as Costco, Microsoft, KPMG, State Street, the bank of Ireland Indeed and the UK and Italian governments to name a few account for 63% of our office rent roll. And this has resulted in high office rent collections of 96% in Q2.

We're very proud of our tenant base and are well-positioned with long-term lease contracts with large credit worthy tenants as we saw continued high rent collection throughout the quarter.

Looking ahead I'd like to note that the majority of our European office tenants pay their rents quarterly in advance in July thus we've had a head start on our build Q3 office rents for our European tenants.

In total including all product types we collected 92% of our share of rents due in Q2 across our global portfolio and July looks to be on track with Q2. Finally I'm very happy to report that the Shelbourne hotel reopened for business on June 29th.

This iconic hotel is Dublin's largest five-star hotel and has over 240,000 square feet of space which allows for guests to practice social distancing easier than in some of the other hotels in the area. The Shelbourne had a strong start to the year prior to the pandemic and since reopening is outperforming its comp set for the month of July.

Performance was better than expected as it's successfully reorienting itself to domestic business while international travel remains paused for the time being.

Over 65% of our cancellations due to COVID have rebooked in Q4, 2020 or in 2021 and a record 19,000 room nights 20% of the total year forward booked for 2021; giving us a solid book of business going into the end of 2020 into 2021. Leasing activity across our commercial and multi-family portfolio continues to be robust.

Globally we had strong activity where we completed new leases, lease extensions and rent reviews across 900,000 square feet of commercial space in Q2 which brings our total to 1.5 million square feet of leasing in 2020. We currently have another 650,000 square feet of leasing in the pipeline.

This year-to-date leasing highlights the value of our commercial portfolio as well as the strength of our tenants during this challenging time. We are optimistic in closing out the pipeline in front of us in the second half of the year.

In our multi-family portfolio we have now rolled out new virtual leasing technology across all of our market rate communities. We have been pleased with how efficient this new technology has been which allows prospective tenants to tour units and the various amenity offerings and also sign leases through the paperless leasing capabilities.

In Q2 we completed 1,946 new leases in our U.S. multifamily portfolio a 7% increase from Q2 of 2019. 94% of these leases were completed virtually. In Dublin we have been active in implementing a similar virtual technology to facilitate socially distant leasing capabilities.

We now have virtual leasing in all of our Dublin apartments where we are seeing significant momentum in weekly viewings. And so the high adoption by new prospective tenants of this technology in all of our markets has allowed us to maintain strong occupancy in our multi-family portfolio.

Our existing multi-family and office portfolio has been resilient during this time. We are in a strong operational position to navigate the existing market dislocation and look forward to coming out of this period as a stronger company. With that I'd like to turn the call back over to Bill..

Thanks Mary. Now I'd like to update you on our development projects and leasing initiatives which are expected to be completed by 2024 and include 4,600 multi-family units, 2.8 million commercial square feet and one hotel property.

Virtually all of our major construction projects are 50/50 joint ventures with strategic partners and in total we have a 59% ownership interest in our development and leasing portfolio.

During the quarter we completed the final phase of Clancy Quay in Dublin delivering 266 units to the market and completing the largest multi-family community in the country. This completes an amazing seven-year journey with this investment which when we originally started had 423 phase 1 units and 8.5 acres of undeveloped land.

Phase 1 and 2 have operated very successfully and are currently 97% occupied. We've seen strong interest in the phase 3 units which is leasing up at a pace ahead of our plan and we have already leased 10% of the new units in the past month.

Also in Dublin we're currently on track to finish the construction next year on our two active office projects Hanover Quay and Kildare which total approximately 133,000 square feet. The three remaining Irish projects; the Grange, Cooper's Cross and Leisureplex are expected to complete in 2023 and early 2024. In the U.S.

we completed the first phase of 38 degrees North in Santa Rosa in Q2 and we expect to complete Rosewood in Boise, Idaho later this year. We expect to complete the Clara and River Point in Boise in 2021 and 2022 respectively and these projects in total will deliver another 552 marker rate units to our portfolio.

We also are making great progress on our vintage housing developments which we were able to complete utilizing minimal equity from KW. During the quarter we stabilized the 360 unit steamboat project in Reno bringing our portfolio to a total of 7,700 stabilized units with another 2,300 under development and lease up.

In total we're on track to grow the vintage platform to 10,000 stabilized units by the end of 2022 representing an increase of 82% since we acquired the portfolio in 2015. So I'm tremendously pleased with the progress in the quarter and how we continue to execute on all of our key initiatives.

Our highly liquid balance sheet combined with very low interest rates, the capital base of our partners and the strength of our season management team that has operated together for decades will enable us to continue growing our portfolio in our investment management business.

And finally, as I reflect back on the first half of this year I'm very grateful to the entire team at KW. Our board of directors and the partners that we work with oh boy, everyone has stepped up to the various challenges that we continue to face and while executing our business plan without missing a beat.

So with that Daven I would like to open it up for any questions..

We will now begin the question-and-answer session. [Operator Instructions] First question will come from Anthony Paolone of JPMorgan..

Thank you and good morning. My first question is as it relates to the transaction market.

Can you talk about where you're finding transactions given your volumes are lower, how you're going about finding things and what that opportunity set looks like?.

Yes. Anthony I mean I would answer that really in two parts. We were very fortunate to have really nothing in escrow coming into the pandemic and so we weren't faced with the situation of having to close things during this first part of the year.

When you have the obviously everybody on the call knows that you've got basically zero interest rates in Europe and Japan negative rates and you've got our tenure rate here in the United States at the lowest level I think it's ever been in history at least one day this week and so you've got a lot of capital sitting around the world and I would say that particularly in Europe there seems to be a stabilization of their economies and so we're seeing very-very active interest particularly in our assets in Europe that we've identified that we're going to try and sell here in the second half of the year.

The other part of what has happened in this very low interest rate environment is that the most favored asset class that we're seeing are the office buildings that Mary mentioned; these lower rise suburban office buildings leads to high quality tenants and multi-family assets that are in markets that in normal periods of time possessed the strength of growing jobs.

And so there were some major trends, there was a major transaction that closed in Seattle here just recently.

I think it's the largest multi-family deal that had ever been done in Seattle that was purchased by a Canadian investor and so as I said as part of my earlier comments you've got by other people's estimates you've got over $300 billion of real estate capital sitting on the sidelines trying to find a home and you add that to the, I hope, they'll pick out the insurance company business where they have a need as does every state and sovereign pension fund need to generate minimum returns and so and I think the other thing too that Mary you might comment on I think people are gravitating to the higher quality assets like the ones that we own.

They're willing to accept lower risk-adjusted returns to get higher quality more predictable income streams.

So I think that that's kind of the overview Mary what are you seeing?.

Yes. I mean it's been interesting in the markets that we're operating in if you think about for example in Ireland we've seen a significant amount of PRS deals multi-family deals trade in the quarter.

So about € 500 million of deals that were bid up above a guy price and again that just points to what Bill is really talking about which is an abundance of capital looking for very defensive well-performing asset classes.

And I think our whole portfolio whether it be our office portfolio that single led to good credit worthy tenants and/or our PRS portfolio that we own with a very large insurance company in Europe and our U.S. multi-family portfolio extremely-extremely defensive and I think very very attractive..

Anthony one other comment I would add on to Mary's comment we made a very conscious decision in the second quarter that we weren't going to pause on any of our construction activities unless it was mandated by that local governmental jurisdiction.

And so we have a lot of very high quality brand new construction coming online this year, next year and the following year and what we're also seeing on the leasing front Mary on those newer properties were getting very good traction right out of the gate.

The project in Santa Rosa which has only been open for releasing for probably a month now we're almost a third lease there and so you're seeing the consumer in addition to the real estate investors at least in the multi-family space you're seeing the consumers being highly interested in living in brand new projects..

Right. But it sounds like on the investment side you have a lot of capital at your disposal and it sounds like your debt program is going well and that pipeline is strong. Just wondering about just in terms of normal asset investments you all have been opportunistic investors historically.

What's most interesting for you right now whether it be a region or property type?.

We have several multi-family properties that we're evaluating right now in the western United States in the markets that we like but I think if you think back to really what happened during the credit crisis, there is always a time lag between when the we will call it this dislocation process starts and when you actually start seeing what I call the equity opportunities and it's further slowed down by the fact that you've got people borrowing at low interest rates.

So they can hang on longer. But I think what's been a truism throughout our time at Kennedy-Wilson is that when the banks start reserving like they have that eventually opportunities will show up but if you think back to coming out of the credit crisis which started in 08, the real opportunities didn't show up for a couple years.

It just takes time to work through the system and so what I was trying to point out in my comments is generally the first part of the cycle is that the debt purchases or the debt business is really what's the most attractive. It comes before there is real equity opportunities. Our kind of equity opportunities..

I might just add to that in terms of Europe where we're really seeing opportunities is from developer led trade.

So basically the need for liquidity where banks are really shut down and so that opportunity is either in our debt fund to be able to finance those developers and/or to be able to buy projects where there's a liquidity driven event and the same would hold true, I would say, for the retail funds in the UK that have been shut due to a lack of liquidity.

So when those open up we're in discussions with quite a few of those looking at portfolio transactions. Again just created by a need for liquidity within a retail fund, retail not retail product but retail as in who the investors are..

That's a good point Mary.

The last comment I'd make Tony is that over the years we've transacted in virtually every major market whether it's Japan or Europe or here in the United States on the western side of the United States and so we have a entire relationship I call it relationship tracking system that we've built over the years and relationships with a lot of people and so we're outreaching right now everywhere in our key markets and as I said before and maybe the big benefit that you have with Kennedy-Wilson is that you have a management team that's been together for long periods of time that has built these relationship with people and we're considered without kind of patting ourselves on the back we're considered a very-very reliable counterparty to purchase or to execute on the debt platform.

And so all of these things you just don't start them up at a time like this. You have to have them in place..

The last thing for me is just anecdotally all of the major banks were talking to the head of special assets for every major bank and all the U.S.

banks who are now forming very-very large teams of special assets teams to basically once they've provided for on their balance sheet as Bill described there will be an event of disposition and so as Bill has been talking about that these are times where KW really thrives. We're set up to do very well during these times of dislocation..

Okay. Thank you for that and then just two quicker ones on the multi-family business. One, you have a lot of exposure workforce housing and it's performed really well here.

Any thoughts on if there could be any diminution with stimulus burning off?.

Well Yes. I mean I would slightly correct you like workforce housing I think when you, you really have to look at the markets that we're in and one of the kind of hallmarks of Kennedy-Wilson has been to get into markets before I would call it the rest of the investor crowd shows up and so we've been in the Seattle market for 16 years.

We went to Salt Lake City I'd say probably eight or nine years ago before it was really a discovered market and the same thing is true with what we're doing in Boise, Idaho which is one of the fastest growing cities in the country and partly it was driven in, I'd say large part by the job creation and I don't need to go through the companies in Seattle but you've got these obviously very big tech companies in Seattle; Microsoft, Amazon and so on and so you've also got that same dynamic really going on in these smaller markets as younger people find that they want a higher quality of life and a more affordable cost basis and in many-many cases with a lower state income tax rate.

So if you look at, I'm not picking on the state of California but the 13.3% tax rate here for individuals is zero in the state of Washington and so we've had just extremely high rent collections in what we call the Mountain states and we're including Seattle in that but these are people that a lot of cases work in tech and tech related companies.

They're very high quality projects that they just possess the kind of characteristics that I just went through.

As far as the stimulus bill is concerned I mean who knows where that's going to all end up and so we'll just have to wait and see over here the next few days what kind of a compromise they end up with but as we sit here today we're not, we have no crystal ball but we're not sensing that there's going to be any material changes in our ability to collect rents in these great projects that we own..

Okay and then this last one on the multi-family just as it relates to Dublin can you comment on what's happened to market rental rates and multi-family pre-COVID to date..

Mary?.

I mean so far they've remained flat. I think it's been interesting to see Clancy Quay 3 as Bill described in his remarks.

We just opened it up about 30 days ago and actually we're seeing really double the demand that we had budgeted and so I think what you might see over the next couple of quarters is you might see some tenants moving home but I think the offset to that is tenants really trading up and wanting to, they are, a lot of people are working from home and so they're doing that.

They want to do that in a nice location in a building that's amenitized, that's professionally managed because when you think about the Irish PRS market remember it's a very nascent market that didn't even exist 10 years ago and so what KW and other institutional owners have really provided to the market as professional PRS or multi-family space.

So we think over the long term our portfolio will hold up very-very well. We haven't really seen any degradation in rental rates..

Okay. Great. Thanks for the time..

Thanks Tony..

Thanks Tony..

The next question will be from Derrick Johnston of Deutsche Bank..

Hi everybody. Good morning. It looks like you essentially paused the share repurchase program. Was this simply to prioritize liquidity and how would you describe the capital allocation priorities going forward and would you consider resuming buybacks? Yes..

Well it was a conscious decision going into the second quarter.

In addition to keeping our communication and everybody staying healthy the two parts of our key parts of our platform was that we wanted to maintain our liquidity and we wanted to continue the construction because we've learned with the construction a lot of companies paused on their construction in the second quarter.

We've learned with the construction over the years that if you can be completing your properties while everybody else is pausing then you're the first one it makes logical sense, you're the first one then to have leasable units or office space when you come out of it.

So I think that was the, when we have a big CapEx program going on so that was the real rationale behind the pausing on the share repurchase program..

Okay. Thank you.

That makes a lot of sense actually and how about the rationale for pulling the Shelbourne out of the same store pool for 2Q? I think it was in actually in 1Q maybe to remind me and with a reopen now will it be reflected in the 3Q same store pool or still remain outside?.

Matt I'd ask you to answer that..

Yes. Sure. We would intend to put it back in in Q3 and Q2 the hotel was shut. So I mean there was no revenue. So we didn't think it made any sense to include that in same store for the second quarter but it will be back now that it's reopened..

Okay. Great. And then lastly for me understanding the fee capital fund business is at a record 3.5 b.

How large would you be comfortable managing this part of the business obviously with your partners? What is the optimal assets under management levels that you envision going forward?.

Well I mean we have the infrastructure people-wise.

I'm repeating myself somewhat here but because we've had the same team of people together for long periods of time we have the ability to grow that platform significantly from where it is right now and as I said in my remarks assuming we can find good risk-adjusted investments we have the ability to take that up by a couple billion dollars with the same people that we already have at the company and a couple years ago basically that what I'm now calling 5.5 billion was almost zero.

So we have the bandwidth to, I don't want to give a projection beyond that but we have the bandwidth to take it beyond that..

And Bill if I can just add that so far as we've been growing the business we've been doing it without adding people. We're utilizing existing resources for example within the debt platform, we've repurposed some people within KW to focus on the debt platform and we haven't added any people as we've been growing the assets under management..

Excellent points. Thank you everybody..

Thanks..

[Operator Instructions] The next question will come from Sheila McGrath of Evercore..

Yes. Good morning.

I was wondering if you could give us additional insight or details on the debt investments so far for the new fund? And also if you could help us put into perspective how you view pricing of these opportunities and the risk profile in historic context? Is the opportunity here just because banks have retreated on construction financing?.

Matt you want to handle that..

Sure. Yes. Sheila so the initial opportunities we've seen over the past several months have been what we call more transitional opportunities where it's a finished building.

So there we haven't done any construction financing but a finished product in the case of the first couple loans both multi-family assets in markets that we have large ownership interests in multi-family already where the project have been completed, the construction loans coming due and the projects in lease up and so the properties weren't ready to take on a more traditional long-term loan from Fannie or Freddie or an insurance company and so we've been able to come in provide financing to help the owner get the property leased up and ultimately we assume we'd be taken out by a longer-term, lower interest rate lender.

And so the banks were somewhat active in this space.

Some of the debt funds have been active in this space historically but we do feel certainly over the past couple months there has been a bit of a gap in this type of financing and so we've been able to step in and provide that financing to very high quality properties and very high quality sponsors and so that's really what we're seeing so far.

And in terms of how we're structuring these things, obviously we're managing the assets and getting paid fees and allowing our partners to get solid returns as well on these investments..

Okay. Great and then..

Yes Sheila I would just one thing I would add to Matt's comment I mean we're kind of uniquely positioned because we're an asset owner in that asset class. We know where you should be from a basis perspective as a lender and we're also building in those markets.

So we know what construction costs are and so even though the people that run our multi-family business under Kurt Zach his great team we are utilizing them their equity investors but we're utilizing their skill sets and others in the company to make sure that we're carefully underwriting these things but we've got an awful lot of on-the-ground information as to what values are and should be..

Makes sense. Thanks Bill.

And just on the disposition front or realizations out of some of your funds, how do you how are you thinking about that for the balance of the year? I think it made sense to put a pause certainly during 2Q but just wondering what we should expect on that front?.

Well I don't want to give where we're at. I don't want to Sheila I don't mean to not answer you directly but give a forecast.

I can tell you that we have an active sale program going on I would call it really a limited number of larger assets right now and one in our fund is a multi-family, fund five is multi-family asset in Seattle that's in the market right now but we have others that are balance sheet assets that we're looking at and so I would say we're testing the market right now but we're testing it in a meaningful way to see where value, what people think.

It's our expectation though that over time I mean particularly when you get out of this current situation we're all in with the COVID that interest rates are going to stay low for a very extended period of time.

I don't know whether that's two years, three years, five years but it's going to be an extended period of time and as I've said many times on this call we had the advantage of we started in Japan in 1994 where we've watched them with zero now negative interest rates for that entire period of time to today.

So we think that there's going to be meaningful cap rate compression so long as these interest rates stay low..

Okay. Thanks Bill and then one last one. Any insights when Ireland might open up again to U.S.

visitors as I would imagine that would be important for the Shelbourne rebound? And also what is your outlook for the lease up at Clancy Quay? Do you think that it might be slower than typical given the pandemic?.

Mary?.

Hey Sheila. I think the government has done a great job in Ireland just containing the COVID situation with the way they've sort of closed down the country. They have a green list where there is 10 countries that are on it freely traveling into Ireland.

I think the government is looking at this situation every couple of weeks and you're right I think that the U.S. travelers and the UK travelers will be important for the Shelburne going forward.

Having said that we've seen a great demand for the Irish folks looking for a staycation and I'm really proud of the team at Shelburne who have opened up the hotel and done a great job since it's only been open for a month capturing almost 50% of market share.

So as the government looks at the green list we are hopeful that either at the end of next quarter or in Q4 we'll see an opening of the economy which will help the Shelburne for sure..

Okay and then just on Clancy Quay do you think that the lease up or any indications how interest level is so far? That's the project that just was completed I think..

Right..

Yes. It was just completed. That project is going extremely well. It's the third phase of that, what is the largest project in all of Ireland. We have been doing leases at double what we thought we'd be doing leases up per week.

So actually Bill even since we finished the script we talked about it being 10% led we're now with all the applications in we'll be at 15% led and again double where we thought we would be. So that just goes so yes. Great product..

Yes that's great..

Well priced, spacious product next to a very big park with on-site amenities, a dog park, a gym yes. It's a great asset. We're super proud of it..

Okay. Great. Thank you..

Thank you..

Thanks Sheila..

The next question is from James Feldman with Bank of America Merrill Lynch..

Great. Thank you. I just wanted to get your thoughts on like the earnings growth trajectory as you start putting more capital to work on opportunistic investment.

So it sounds like from the outset you can do more debt which I assume would be more immediately accretive and then as you transition more to equity maybe that fades some but just if we think about through cycles how does that tend to play out?.

I'm not sure I completely understand the question..

Well if your transition like if your early investment is going to be more in debt kind of higher yielding I assume and then you transition into equity which probably has more of a lease up component to it, just as and you had talked about how it takes years for this to play out and right now the banks are building their teams just how should we think about the kind of the cash flow impact over however long it takes to work through this kind of the initial stages of more debt investments to longer term more equity investments?.

Well I mean I'm not, I'll ask Matt to jump in here in a second. I mean we're not giving any, we've never had a mindset that we have to put capital to work. We have to find the right opportunities that produce the best risk adjusted returns.

We've never once that the company had started a year and said look we have to buy this amount or we have to lend this amount of money, we have teams of people that find the opportunities and then we evaluate them to see whether they make sense to do or not.

I would say that we have an expectation that over the next 12 months we're going to be able to deploy a good chunk of the Fairfax Kennedy-Wilson debt platform.

What I was trying to say about the financial institutions is that our guess is and it's nothing more than a guest that is there stepping up here in August and everybody working remotely and so on it will fall into next year before you start seeing equity investment opportunities and that doesn't necessarily mean that it's going to be something that requires a build-out.

We're not interested in, we have enough construction going on, we're not interested in buying more land to build on. So it's just it's too early to tell where the equity opportunities are going to come from. So our focus right now is to build out this the debt platform here over the next I would say 9 to 12 months.

But if opportunity show up I mean we're ready for them. I mean it's not, it's just a guess..

And what would you say typical yields are on the debt investments you're looking at?.

Yes. Matt..

It varies depending on the leverage, the risk profile, etc.

but we've been doing things in the neighborhood of 4% up to 8 % unlevered and then with our structuring depending on whether we take a subordinate position or with our fee structure we're generally getting double digit returns to KW when including the fees and our coupon and that's all unlevered..

Right and I think Matt to that that's a point that I know that if you look back on these earnings calls I've been talking about for a couple years. We've been able to get outsized returns in a lot of different cycles but when you've got interest rates at near zero you have to be mindful of the fact that you shouldn't go into some deal.

It might turn out that you get a 30% or 40% or 50% return whatever that might be but if you remember back to 2008 the prime interest rate that banks were lending money at it right at the beginning of the credit crisis was right around 8% and so obviously your return thoughts were different than they are today when you've got interest rates at zero..

Okay.

That's helpful and then shifting gears I know you've talked about a couple times in the Q&A but just you talked about interest in low and mid-rise alphas suburban; just bigger picture I mean what are you seeing from the tenant side? Have you seen tenants kind of change? How they're using space yet or what do they plan to do with that type of space that maybe they weren't thinking about using it before?.

Mary?.

Yes. I mean it's been interesting.

We've seen tenants some of the technology tenants have said yes go ahead and work from home but really as we talk to some of these folks like particularly we had a conversation with a very senior person in operations of Google they said yes I mean we've said that our people can work from home but really as a company we like to be collaborative.

We see the office space as one where we can all get together and it's way more efficient and so we haven't, we really haven't seen a huge change in our office users at this point but we think that our portfolio what we already own and what we're building is going to play very well to tenants that are looking perhaps not to go into a high-rise building in city centers, are looking to reduce commute times.

Sometimes people we've talked to a lot of financial institutions that are looking for the hub and spoke model where again our portfolio would play very well in that model and a lot of what we already own as I said on the call are occupied by single tenants and so they're able to control their own space and they can have it open, not open.

They can make whatever modifications they want to make but there's definitely a push towards making sure that there is a clean environment, filtration systems. We are seeing some of our tenants go from open plan to wanting to have more offices. And so we're definitely ahead of what we're doing.

I think when you think about our office developments we've changed our spec and our design a little bit in a very positive way, focused on contactless door-to-floor journeys, optimal indoor environmental quality, really focused on our ESG commitment which I think in today's world is more prevalent than ever which we're glad about..

Well I think Mary one thing I would say it's just a personal opinion remote working for most companies will not succeed over a long period of time.

You have to have people together in order to collaborate and to create your own culture, whatever culture that is you're trying to build at your company and there certainly is a period of time like we're in right now where people are being forced to work remotely for a whole variety of different reasons but if you think about it over a five-year period of time or ten year period of time at least in my opinion there will be very few companies that can successfully create their culture and collaborate with each other if their people are not together.

This was a whole human cry in 2000. Everybody was going to start working remotely. All the big account everybody was going to work remotely and it just it never came to pass because it's just as I've said I'm repeating myself you've got to have human beings together to create and to come up with ideas and to execute on your plan.

So I believe we're in, who knows when this is all going to be over this particular period but when it ends I think people will go back to working in an office environment but the office environment that they're going to want could be very different than what they've been in to or where in before COVID started..

Agree..

Okay. Thanks your help, your thoughts on that.

And then just last for me just thinking about both the lease up portfolio and the development pipeline, can you talk about the total pre-lease percentage for those two pipelines? And I mean are there certain assets here that you think we need to be out of the allowing of the people working from home and things opening up more before they can actually get leased up? How do we think about the timeline for some of these projects?.

Well I mean you can hear that the multi-family leasing is going extremely well and obviously in that business you're not doing any pre-leasing or you're waiting until you have a certificate of occupancy and then, we have both in Ireland and here in the United States we've got a very-very strong marketing team that puts together the marketing plans and the asset management plans for these assets.

So you just, you open and you start leasing and as Mary said we're already 15% on Clancy.

We're a third done on Santa Rosa each of those we've only been open for 30 days and so where you get into the pre-leasing is really on the office side and coming on stream on the near term of this or two what I would call mid-size office buildings in Dublin 10 Hanover Quay and Kildare Street which are both in the 60,000 – 70,000 square foot range and remember with Hanover Quay that's the completion of it really is the anchor on finishing all of capital dock.

Capital dock 340,000 square feet of office and the apartments and everything Hanover key sits right behind that and it's a very, very vibrant area.

I mean we will Mary start pre-leasing what would your guess be?.

I mean it's we're now really coming out of the ground there. So what we've seen in Dublin is you sort of need to be up with sticks and floors and it really rolling before tenants are making any pre-led kind of decisions. Those that you mentioned Bill Kildare and Hanover Quay those are 2022 completion dates.

So I would expect by sometime second half of next year we'd have some good visibility on leasing. I mean I would say if you just think about Dublin while we're on that subject.

When you think about what's completing in 2021 in Dublin there's 2 million square feet completing of which a million 400,000 square feet of that is pre-led; all the very big names Google, Salesforce, the Irish government, Amazon just announced a thousand new jobs in Dublin.

All those things obviously will continue to help our PRS portfolio but now we're really excited about everything we have coming out of the ground and I would expect to see some activity on a pre-led side towards the end of next year but we're still a ways away..

Yes. I think Mary is making a really good point.

I mean until you get if you think about it from a tenant's perspective they start looking kind of when they get a couple years towards the end of their own lease and so you've got to get within six months to nine months of having the property finished before you really get any active activity I mean a real deal that you can actually sign..

Okay. Thanks for your thoughts..

Thanks Jamie..

The next question will come from Alan Parsow of Elkhorn Partners..

Good morning. Bill you guys have been talking about the success you had in leasing up some of your new apartment projects both here in Dublin.

With regard to the Fairfax Kennedy-Wilson debt platform would you say you've seen that platform ramping up at a rate which exceeds what you anticipated originally or at the same rate or what?.

Well it's a good point Alan. I mean we I don't think Matt we close the actual documents and everything until the end of May..

That's right..

And so one of the things when you do something like this of course while we're working on getting the I'll call it the deal done Matt and his team were building in the infrastructure that people-wise and accounting-wise that you want to have before you start running but I would say it's come on stream faster than we anticipated and two, it's a bit of a word of mouth business you've got to get your name out there and make people understand that the window for business is open.

So but I would say in a very short period of time we've not only built in all the infrastructure that we want to build in inside the company but we've got a very-very good pipeline of opportunities in front of us right now..

Okay. Thank you. That's what I wanted to know..

And this concludes the question-and-answer session. I would like to turn the conference back over to William McMorrow for any closing remarks..

Well I'd say thank you all for having your an interest in our company and for listening today and I wish you all and your families good health and we'll talk in the next quarter. Thanks very much..

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