Kennedy-Wilson Holdings (NYSE:KW) is a diversified real estate development company with over 35 years of investing experience and boasts $25B in AUM across its real estate equity and debt investment portfolio. The company has a history of being opportunistic and forward-looking in the markets that it participates in. KW is finishing up the last remnants of an aggressive development program that has greatly improved its NOI generation. The company owns high quality assets in good markets, and its investment management program offers a major platform for future growth. The stock has gotten clobbered this year along with many other real estate equities, but the carnage has gone too far, offering opportunity for long-term investors.
Management’s goal is to increase its cash flow in three key sectors, including global credit, where it welcomed 40 new employees from Pac West during Q3. In June, KW acquired $4.1B of construction loans from Pac West at a material discount, which was the largest single transaction in the company’s history. This was like a deal the company did in 2011, when it purchased a $2.2B loan portfolio secured by 23 assets in London, where KW ended up collecting 100% of the principal balances. In Q3, KW closed the final tranche of loans from Pac West for $212MM, along with an additional $252MM of fundings, and realized $376MMof repayments, which included $12MM of discounts. KW is one of the few active construction lenders in the U.S. market given the credit contraction in the banking sector, so the company is building its pipeline of new loans, including in the UK and Ireland where it believes it can find similarly attractive double-digit returns. The company can fund these loans using its asset management division funded by internal and third-party funds. The debt portfolio totals $6.5B in loan commitments, including future fundings, having doubled in size in 2023. KW’s investment in the debt business currently sits at $255MM in loans outstanding. In October, KW closed its first loan with a total loan size of $77MM and there are another six loans that they are expecting to close in the next few months. The platform has additional capacity to grow by approximately $2B based on the commitments already in place.
Secondly, the company is focused on growing its stabilized multifamily portfolio, where in Q3 KW acquired a minority position with a partner in a brand new 315-unit apartment community in suburban Seattle, which was its first multifamily acquisition in nearly 18 months. KW also stabilized two projects within its 12,000-unit Vintage portfolio and delivered 1,000 newly constructed units in the Dublin and Mountain West markets, with another 1,300 units expected to be delivered by the middle of 2024. The company’s U.S. portfolio is comprised garden-style communities, 90% of which are suburban. KW puts a big focus on improving the amenities and aesthetics, offering affordable luxury.
The company’s 33,000 stabilized units are 94% occupied, with another 4,000 units in development and lease up that are expected to add $40MM to $45MM in NOI to KW once completed and stabilized. KW’s Dublin, Ireland portfolio is 98% occupied. Multifamily represents 54% of the stabilized portfolio and produces $468MM on NOI, of which KW’s shares is $260MM. In Q3, globally, same-property multifamily revenue grew by 4% and NOI grew by 3%. In the U.S., renewal growth rates were 5% and blended leasing spreads were 2%. The strongest performance was in the Mountain West, which generated same-property NOI growth of 5%. New Mexico and Colorado really stood out with 14% and 9% growth, respectively. The Mountain West portfolio’s average rents are very reasonable at $1,600, which is one reason why the area is expected to see continued growth. California is facing some headwinds with the end of some government assistance programs and elevated delinquencies as a result, but that ultimately will work itself out after a few quarters. In Dublin, Ireland, robust demand for housing resulted in same-property NOI growth of 4.5%. In Q3, the company delivered nearly 800 units at is Grange and Coopers Cross developments, as well as adding units to its existing Stamford Lodge community, where leasing velocity has outperformed expectations. Management used the example at the Grange, where the building is half-leased within 10 weeks of completion, with average rents that are roughly 10% ahead of business plan.
Thirdly, the company is focused on growing its industrial assets under management, which currently totals nearly 11 million square feet, and where leasing trends are more attractive. The company added 183,000 square feet to its logistics portfolio in the quarter and there is a…