Kennedy-Wilson Holdings, Inc. (KW) Q2 2012 Earnings Report, Transcript and Summary

Good day ladies and gentlemen and welcome to the Second Quarter Kennedy Wilson Earnings Conference Call. My name is Dominique and I will be your operator for today. [Operator Instructions] We will conduct a question and answering session towards the end of the conference. [Operator Instructions] As a reminder this call is being recorded for replay purposes. I would now like to turn the conference over to Christina Cha, Director of Corporate Communications. Please proceed Ma’am.

Thank you. Good morning everyone. Joining us on today’s call are Bill McMorrow, Chairman and CEO of Kennedy Wilson, Matt Windisch, Executive Vice President and Justin Enbody, Chief Financial Officer. I would like to remind you that this call is being webcast live and will be archived for replay. The replay will be available by for one week by webcast for one year. Please view the Investor Relations section of the Kennedy Wilson website for more information. Please note that statements made during this conference call may be forward-looking statement. 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 will now turn the call over to Bill McMorrow.

Thanks Christina and good morning everybody. And as I usually do on these we’re going to segregate this call into really two parts. I’m going to go through the press release to hopefully all have in front of you. And then the second part will be the question and answer period. But I would characterize this last quarter and really the first six months of the year as a very productive period of time and but I think the results which I’ll go through hopefully will confirm what I believe that we’re really in the strongest position we’ve been in the last three years. So when you look at the operating metrics for the quarter, our EBITDA was $18.8 million which was an 8% increase over the prior period of 2011. But when you exclude the non-cash re-measurement gain that was in the 2011 numbers our EBITDA increased by 69% during the quarter. For the six months, our EBITDA was $38 million, a 17% increase over the prior year. But excluding that same re-measurement gain our EBITDA was up 45% on a year-to-year basis. The investment account was $626 million at the end of the second quarter, which was a 7% increase over year end. But I think the important thing that I pointed out in the last call that you need to remember is that we’re re-circulating cash obviously both in and out of that investment account. So during the first half of the year, we invested either cash or income earned on our investments are $160 million, we got a $116 million of cash distributions from those investment. And as we talk about a little bit later many of the investments -- the first half of the year was characterized by really the second quarter being the dominant quarter for investments, but many of the investments that we did in the first half of the year closings occurred in May and June and so the benefits that you’re going to see from the recurring EBITDA, which was significant, that you’re going to you’re really going to show up now in the third, fourth and subsequent quarters. Then when you look at the operating metrics of our investment business we achieved an EBITDA of $17 million which was a 2% increase but again talking about the exclusion of the re-measurement gain, it was up 65% on a year-over-year basis. On the acquisition side, during the first six months we closed $889.5 million of investments, invested $107 million of our equity and additionally at the end of the second quarter we had $514 million of investments under contract that we’re closing primarily here in the third quarter. So, when you think about where we started three years ago, I said it at the beginning of 2010 that our goal was to close. And I really felt it was a fresh goal at the time. We were going to close $6 billion worth of acquisition and so what we’ve done including what we have under contract now two and a half years later is $6.5 billion. And then when you look at the main components of what we call the hard asset portion of our investment account we now on slightly over 14,000 apartment units and approximately 3.6 million square feet of commercial real estate, primarily office buildings. The $889 million, break that down a little bit further. $788 million, so actually $789 million, of that was income-producing assets of which 70% was located in the Western United States and 30% was located in Ireland. We bought six multifamily properties of totaled 1800 units and eight commercial office building, commercial properties totaling 1.6 million square feet. Inside those investments we invested approximately $53 million of our equity, also included in that and though it was the first half of apartment building that we bought in Dublin, Ireland, which you have seen on a prior press release and so-called Gasworks’ building, which we bought is adjacent to Google’s headquarters in Dublin. The other part of our investment account was the -- what we call the loan or debt account and we originated a little over a $100 million of loans that we have purchased or originated on the purchase side, the average discount that we achieved was 14%. These loans are secured by 12 properties located in the Western United States. These loans were purchased primarily from one financial institution here in the U.S. We invested a little over $54 million, but when you look at the income streams generated from those discounted loans the average interest rate that we’re achieving is slightly less from the 11%, but we’re also getting fees, both origination fees and exit fees on these loans. So that when you think about that the unlevered returns on this loan portfolio are approaching 15%. During the first six months of the year, four multifamily properties for total gross proceeds of $243 million the total gains was $32.6 million and our share of that was approximately $8 million. On the debt financing side, as you all know the debt markets have really been very favorable to our type of business, so what we’ve done in the first half of the year is $283 million of the property level financings at an average interest rate of slightly over 3%. And as I’ve said on the last conference call, what we’re doing on virtually all of our properties is we’re going for longer term financing and so the average maturity is almost eight years. And then if you think about that for the prior six month period of time, we did $731 million for the financing at 3.5% but the average maturity of that financing was 4.4 years. So not only have rates come down, but the term that we’re doing these financings were almost doubled. In Europe, where we started really -- we closed the Bank of Ireland asset management acquisition actually just a little over a year ago. And Europe has really turned into a homerun for the company. The largest transaction that had been done in Europe in the last three to five years was our acquisition of what we call the fire and loan portfolio from the Bank of Ireland. We bought that that has an unpaid principal balance of $2.1 billion. It was done in two closing, the final closing occurred in December of last year. And as of June 30, we’ve resolved almost $700 million of the loans that we purchased, which is obviously a third of the portfolio and the resolutions on the portfolio that we bought to roughly $0.80 is averaged somewhere between $0.96 and $0.97. The other two significant things that occurred in Europe during the first six months of the year was we announced the €250 million or $325 million capital commitment from Fairfax Holdings, which followed on a $250 million of commitment, which we have spent here in the United States and Japan. So the new Fairfax platform is for Europe only. The first investment that we did in that, as I mentioned earlier was the so-called Gasworks Alliance property in Dublin that we purchased for $50 million. The building -- I was there about three weeks ago, and I’m really happy to report that the building which is -- is running almost 100% occupancy right now. And we’ve been increasing rents on the renewal between 10% and 15% depending on the location of the units in the building. The second part of the capital raised in Europe that we announced was the $2.5 billion in dollars and we call it a framework, but this is an institution that we’ve done a quite a bit of business worth than that platform was set up to buy performing and non-performing loans in the United Kingdom and Europe. We’re closing our first transaction inside of that platform, next week so-called [indiscernible] portfolio of loans that we’re buying that are secured by assets in Ireland. But in Japan where we have 50 apartment buildings the current occupancy is 93%. But it’s masked to a certain degree by one 86-unit buildings that was master leased to a large Japanese corporation. And then they -- that came well of its master lease and so we’ve been releasing the units in that building one by one. We’ve got about half of those units now either actually occupied or leased. But when you exclude that one building from the calculation we’re running almost 96% occupancy in Japan. But the other part of Japan that I had mentioned in previous calls is the cash generation. We’ve been able to refinance our entire Japanese debt on our properties, which is roughly $300 million. So we’ve reduced our debt cost by about 40% with these refinances and so that combined with the already strong cash flow has allowed us to distribute a little over $51 million worth of cash out of that ventures since September 2010, which our share that $24 million. And then I might add too that are just aesthetically we are still sitting on cash in that Japanese company, it’s somewhere around $26 million after having distributed about $51.5 million. In our service businesses in large part, because of what has happened on the acquisition side of our platform and the strength of our third-party business. We’ve been able to increase our leasing fees and commissions by 67% during the three month period of time up from $7.6 million in the same period of 2011. The last piece of what I’m going to talk about before I open it up to questions as what we’ve done on the corporate financing side. We’ve increased our revolving credit facility with U.S Bank, which is our lead bank from $75 million to $100 million at the end of the quarter. We previously had a floor on the interest rate but that floor no longer exists under the new document, which was extended now offer three more years in our following rate is 275 over LIBOR. We don’t have anything outstanding on that line right now, but with LIBOR works out our borrowing costs or some more right around 3% under that line of credit. And then subsequent to the end of the quarter and all you know we sold $8.6 million of -- 8.6 million shares of common stock with gross proceeds of $112 million, part of which was used to repay our line of credit. We had $40 million outstanding under our line of credit, which is, I mentioned earlier, is now at zero and we are in a very liquid position today, we’re sitting on roughly a $150 million of cash in the company, as I speak. And then the last subsequent event of the quarter, which we’re very excited about is what is going on in Spain. And so we have -- in the last down cycle of ’90-‘91, we were actually doing auctions all over the world. We did auctions in Australia, Portugal, the United Kingdom obviously here in the United States. And we see in Europe a real opportunity for our auction business over the next three to five years. So, we’ve signed up our first auction in Spain that will occur here early in the fourth quarter and along with that, we’ve opened an office in Madrid the -- there is a substantial amount of unsold condominium product in Spain. So, we believe that this auction will lead to many more auctions in the future. And so that’s it on the review of the release itself and I’d now like to open it up to any questions.

[Operator Instructions] Your first question comes from the line of Jason Ursaner from CJS Securities.

Just first I want to start on the acquisition, it is a very significant quarter obviously in terms of asset purchase relative to the start of the year and it’s clear you’ve incurred various costs to build up the infrastructure and staff for the European platform, you mentioned the flow through of properties which should begin to come through in Q3 and Q4, so how much of a pickup should we expect to see on these additional investments as you reach a full run rate?

Yes, it’s a good point. I should have mentioned that, when you think about Europe now, we have 25 people in our business in Europe, including Mary Ricks she’s been my partner here for the past 20 years, she is now their full time and so when you look at the compensation part of our business those 25 people that we now have in Europe didn’t existed our income statement for the first half of last year. So that’s one point. And I would also add, as I’ve said before, that when we went to Japan in 1994 it was very, I would say similar set of circumstances to Europe, but took us almost four years to ramp up the revenue side of our business in Japan, but we were a hiring people and so we actually didn’t make money in Japan for three or four years. The opposite has happened in Europe and they are making very good money there plus we have a really fantastic team of people now on the ground which is allowing us to take this all to the next level. When you think about the acquisitions though that we did particularly in the second quarters I said most of those closed in May and June. And so without giving any forecasts or any package and excluding the $500 it’s under contract that we’re having already closed. We expect the stuff that we closed from the 2nd quarter is going to produce almost $5 million a quarter or $20 million a year of current future income.

Okay. And looking forward I mean with the additional assets under contract, is the platform pretty much set now for supporting additional growth or do you need to keep adding head count there?

No, we’re really pretty well set there now. We had two senior people join our business really in the last two weeks there. One of them is in Dublin and a lady by the name of Fiona da Silva has joined our business in London. Those were few senior hires and then the one of the last piece is that we’re doing with Joan Kramer who has been running our debt business here in the United States was actually moving to London in August. And so when you think about our team there now, except for maybe here and there an analytical person at the senior level we’re completely staffed. And then I think the other thing to think about two was that like for example and this is public information that’s been in the press. There are three big loan portfolios that we are in the process of trying to buy that all over a $2 billion of unpaid principal balance. They are in the United Kingdom and in Ireland. But the team that we have in place, who’s interesting I just finished a Stock Road Show with them and one of the funds that I met, is finally getting an office opened in Europe. But they hadn’t -- they did not even haven’t opened yet they are transferring two people there was -- they are still working on their permits, their leases a while we have already got 25 people on the ground with -- under Mary’s leadership and that’s really what gives us the, what I would call for now the competitive advantage that we have got the infrastructure in place. And the European banks are under no less pressure now to continue to right size their balance sheet. So, there is many, many opportunities that we are taking advantage of. The last thing I would say to about what’s in our pipeline to close here. We are now closing our first office building and that one we are buying that closing actually next week too along with this print loan portfolio. We are buying an office building called Brookline office building. We are buying that and it’s a fully leased building. But to give you kind of metrics on that, the prior owner paid €46 million for that building and we are buying it for €15 million. And the going in cap rate and some of the leases are above market for sure. But the leases have an average term now 3.5 years left on them, we’re buying with a going in cap rate of 14% and the tenants that are into the building are all credit tenants and that also is going in the Fairfax joint venture. We’re now going to own that office building 50-50. Now we’re closing that at the start, all cash in two weeks. But there is many, many opportunities in Europe and we’re fully staffed as I’ve said was the right team.

Okay. And on the monetization side, can you talk a little bit about the two properties you sold during the quarter and in terms of -- as outsiders using them as a gauge for equity returns on the portfolio, how many of the other properties have a similar dynamic of either being previously mark-to-market or having a different promote structure?

Okay. If that window show two apartment buildings we sold over 360 residences in San Jose and Harbor Creek in Portland and they are a little different than the majority of the portfolio because Harbor Creek was held in a 50-50 joint venture and in that particular instance, we had no promote structure and there is only a handful of deals but have a same structure within our 80 plus apartment communities we still own. And then 360 because of the fact that it was the loan that we foreclosed on we had to market-to-market when we foreclosed on the property and so because we had to market-to-market at the time we foreclosed, the gain in which you saw them was sold the property you didn’t actually take into account our cash basis and what we realized. In other words, you we already took some of the profit in last year when we foreclosed and then you only saw a small part of the profit come through when we actually sold the asset.

But I think Matt really the better gauge and look I’m not saying that this is going to be true for everything in the portfolio. It’s really when you think about Harbor Creek. Even though there was no promote structure in that. We bought that apartment building in Portland in June of 2010 and we put, between us and our partners 50/50, we put roughly $8 million of equity into that deal. When we sold that, we closed that in April including the distributions that we got during the ownership period of whatever that was for year and three quarters we got back $68 million. And so, it was a double on our money and when you time weighted for IRR purposes Matt I think, our IRR was like 70%. Particularly when you think about our department portfolio without this anomaly of the fact we bought the debt on 360. We obviously have very meaningful gains on our apartment portfolio based on what’s happened to the cap rates. And so, we are continuing to take advantage of that where it makes sense. And we have got two maybe three other apartment buildings that we are going to sell here in the third and hopefully fourth quarter one of which depending on what price we sell it for, -- higher multiples than Harbor Creek. And so -- but when you think about our investment account first there is going to be some that are two times are some that are one and a half and there is going to be one that we’re selling right now that could be three or four times multiple. But inside that apartment portfolio I think the two things to remember are obviously cap rates are compressed greatly but the second part of that then I think Japan is the very much a good example of it, we’re distributing cash out of these things every month. And then the second part of our strategy is that we’re -- because these interest rates are compressed so greatly we’re going out as long as we can on the financing and fixing in our biggest cost, the interest cost. We’re closing and providing an apartment building right now in Long Beach and we’re going to 10 year financing on that fixed at 3.5%, so even year and a half ago when we were doing 10 year financing of high power super attractive they were in -- they were 100 basis point higher than they’re today.

And next question comes from the line of David Ridley-Lane of BofA Merrill Lynch.

Were there any one time cost related to the equity offering that were in the second quarter’s numbers would that -- will flow through into third quarters?

Not David I don’t think there are any costs associated with the equity offering that were in our second quarter numbers.

Sure. Okay. And what was asset under management at quarter end?

It was just slightly less than $12 billion.

And then based on what’s under contract, where would that stand at the end of Q3?

Yes it’s going to be roughly just what the stuff we have under contract it’s going to be like $12.3 billion.

This is Matt. I don’t, I don’t expect it to, there might be one, but I don’t expect any sales to close here in the third quarter. We have one office building that we are selling that’s gone nonrefundable right now that will more than likely close in the fourth quarter. And then the other two apartment buildings that I have mentioned for sure will be fourth quarter transactions. And then I think as most of you know, we’re -- we have in the market right now the sale of the Billingham Ranch which we -- we are not a 100% and that -- those are -- that is a more long-term marketing process because that happens this year or next year, it’s really uncertain. But we have three other assets that should get sold and closed this year including this one -- the one office building that we bought last year here in LA that is non-refundable, I was just going through a loan assumption process on the part of the buyer. It’s a very qualified buyer, but that that probably will take through the third quarter to get back complete it.

And then just one other thing to add David is on the AUM, one other things that takes the monitor as we resolve these loan pools that will have an impact on lowering AUM also. So as we get loan pool revolution if that could bring the AUM down slightly as well.

Got it. And then that’s a pretty good segue into, so my last question for you. What are some of the factors or some of that method that you are using to help drive that faster than expected resolution of the previously acquired UK and Irish loan pool?

Well, I think the -- what we liked so much about that loan portfolio when we bought it was that these were large balance loans that were an essentially performing loans. And when you think about that portfolio, the -- there were only 24 connection borrowers. There were 170 properties, but there are only 24 connections with and if you include the swaps and the actual unpaid principal balance was $2.2 billion. And so these were very large balance loans. And I would say generally speaking, these were very high quality borrowers. And then the last piece of this of course is that the average maturities that we bought were a little over two years. So that meant, but some of the borrowers had maturities inside of that period of time. It’s proven to be the case, but these very high quality borrowers now knowing that we are not really a bank and we are not in the process, really in the business of extending loans, they’ve looked for financing from other places. And there is still, in spite of what you read in the paper, very good financing market particularly in the United Kingdom, primarily from insurance companies that are healthy. And then I think the last piece of it is that some of the borrowers -- the London market continues to be one that’s characterized by relatively low cap rates, so some of the borrowers are continuing to take advantage, just like we are. In our apartment business here, they are selling off that and paying us back. So, it’s really been a combination of a whole lot of those factors. But it’s like anything when you start out you have an expectation, in this particular case, I can tell you that the resolutions and the speed at which these resolutions has happened has really exceeded our expectation. We just got paid off, not in the second quarter, but we just got paid off at a $1.00 in July on a pretty big loan. And I think this is a good example and that was one that we had programmed to pay us off, I believe in the middle of 2013 and has paid us off at a $1.00 this year. And so, it has many positives than when you think at all true because the promote structure and so on that we have in that transaction is time-weighted in the sense that if you’re doing it earlier and you’re getting the same values earlier your returns are higher. So, it’s all proving to be so far a really good transaction for the company.

Your next question comes from the line of Will Marks with JMP Securities.

I wanted to first ask and just the beginning you may have discussed it, but the components of the commissions and management in leasing fees line, was there anything extraordinary in that line during the quarter?

No.

Okay. And how should we think about that then in terms of a run rate?

Well I think the quarter you saw the second quarter was that’s pretty typical in terms of the revenue line for both of those, but we did have a decent amount of acquisition activity. So, I think you’re looking at a pretty standard quarter in terms of revenue from the service business. Obviously as we grow at AUM overtime you’ll see that move up with the AUM, but I think it was a pretty standard quarter on the revenue side.

I don’t know Will if you were on the call at the time just to reiterate a lot of the acquisition activity took place during the latter part of May or actually at the end of June. And so as we said in the last conference call what we’ve been able to do is re-circulate our cash out of that investment account, so like if you think about 360 when we bought this debt, the building was empty and so we -- it took us four or five months to actually foreclose on the equity and own it and then it took us 10 months to lease it and so during the period of time that we own that asset, there really wasn’t any current income at all and then we sold it. But unlike that what’s happened with the acquisitions that we did in the second quarter we have been able to re-circulate cash out of that investment account into acquisitions that are actually producing current returns. So as I said earlier, the things that we closed in the second quarter you are going to see show up in subsequent quarters are producing right out of the gate almost $5 million of EBITDA per quarter.

Okay that explains it. I want to switch directions and ask there -- one of the previous questions just discussing recent couple of asset sales but you also referred to the $243 million in gross sales and you will give the total gain and your share of the gain. I’m wondering for that -- for those dispositions is there a mature on equity you want aside?

See, well see, I don’t know the exact number.

Well there is a little -- there is two things. Well one is there is the return on equity of the -- of our investment account and then the second part is what do we actually make on our money. And so in terms of the, what we made in the investment account, I think, if you look at the growth of schedule you can see -- you can kind of see those numbers what we have in our supplemental and I can walk you through that off line. And then...

In terms of the IRR, we typically don’t disclose specific IRRs on individual transactions.

Okay. We can discuss off line. The only other question I had was on Japan, have you discussed an exit strategy, if there is one what is your longer term plan, I know you had and actually maybe in the context of that, you could talk about what you did in the last cycle in Japan and how you exited?

Yeah, I mean to refresh everybody’s memory, we started there in 1994 with just a guy from Mitsubishi Corporation and a secretary. And as I said the big difference between what we did there and what we’ve been able to do in Europe is that we had to hire out of the banking system primarily, because people don’t want to -- I’m not appraising it in the right way, but they end up in these situations that is they don’t want to pay. So, we had to hire a lot of people in Japan in advance of the revenue, the opposite has happened in Europe. We are making very meaningful profits after bringing 25 people on board in the first half of the year, part of the 15 of which came from the Bank of Ireland transactions. But, as we are going in Japan so, starting there in 1994, the first acquisition that we’ve actually made in Japan was in 1998, we bought a building called a Kawasaki Tech Building. That ramped up significantly over the next four years in Japan, which allowed us to become the first U.S company -- real estate company to go public in Japan there in 2002. And when we went to Ireland then to Europe, I mean it was really basically with the same theme, we told everybody that some better choice of words, but we’re not corporate bankers we are not here just waving a check book, we want to create a company that actually survive the correction, which is what happened to us in Japan and I really believe that’s going to happen in Europe. And I also think you have to think about Europe, we’re now into -- the August of 2007 was the beginning of our whatever you want to call top down correction or whatever you want to call here in the United States. So we’re now into the fifth year here in the United State. In Europe we’re really in my view kind of into the first year what could be another five years of opportunities. What we’re going to do in Japan, we continue to talk to a lot of different people of -- we continue to have kind of our eyes and ears open about possible ways to monetize that portfolio. But we’re not in as big a hurry to do that in part because of the cash flow is coming out of all of those properties. And like I said earlier, we’re -- including a distribution we got yesterday from Japan. We’ve now distributors mostly $53 million of cash out of Japan since the September 2010. And almost half of that is our cash so while we look at all kinds of options and things like that. We’re certainly not in any hurry and I think the other great thing the company has been able to do is because our balance sheet is so strong right now and our cash flows from all of the underlying assets is so strong and our asset management fees and so on. We don’t have any gun to our head to sell things. When I first started in 1988 for a long period of time virtually every time we wanted to go on to the next thing we had to sell something, we have to cash that out to do one. So now we’re in a very, very different spot, I don’t want to say we’re in the driver seat because that’s not how I look at it, but we’re in a much more -- much stronger position to pick and choose where we want to sell things. And I think I’m getting off of Japan, but that office building we’re selling here in LA right now, I can tell you that the first offer we got from the people were buying it wasn’t anywhere closer to final offer we took and we just basically said, look at the price that you want to pay us, we’re not interested in selling it. They wanted badly and so they came back with a number that made more sense to us. So that -- really nice spot we’re at right now is that we can -- we can pick and choose but at the same time we’re getting significant cash flow from all these things while we own them.

Your next question comes from the line of Chris Mayer with Agora Financials.

I have a couple of big picture questions, I know you have a lot of advantages over others who were trying to do the same thing you’re doing in Europe, but I’m wondering if you could talk a little bit about what kind of competition you’re seeing for deals there and if that’s impacted anything you’re doing at all?

Yes I think that Chris there are a lot of people that are thinking about it and trying to get something started there. But to my knowledge there is nobody has built in really the kind of infrastructure that we have that -- like as I’ve always said it’s a root of the real estate operators. And so by having that team of people particularly when you’re doing these loan portfolios you have to get very granular, you have to get very granular, you have look at it every aspect, you can’t be flying at 50,000 feet in front of the screen trying to figure out whether these things makes sense or not. You actually have to look at the underlying real estate to come up with your valuation. I would say that there are typically now are -- I would say five other companies that we kind of routinely see on most transactions, but the other part of this is that the banks had been this through for all the time they’d been doing this, they don’t necessarily always pick what might be the highest bidder, because when they’re taking haircuts on these things and they’re operating inside of quarterly and year-end strength they have to have certainty of flow. And so the capital we’ve been able to put together in Europe together with the fact that and then this isn’t our first half going through these purchase documents on these things can be very complex. And you can trip yourself up with the seller just by trying to overdo it on your purchase document. So, we’ve got in my view we’ve got a real competitive advantage with the depth of the team that we’ve got there. I sat through, about three or four weeks ago, a roll up session with one of our capital partners on a portfolio that we are trying to buy right now and there were almost 20 people in the room. But I can tell you that, I was obviously -- I’m biased, but I was pretty darn impressed by the level of detail and knowledge that our people had on these portfolios and that is really what gives you the big competitive advantage when you are buying these bulk portfolios.

You bet. I think that, I think that speaks to the strength of your company. The other question I had was just wondering how you think about your capital needs for the rest of the year do you have a sense for that or is it really opportunity driven. I mean, I know you are in really good shape now with the secondary but how do you think about it going forward?

Well I think part of how we think about it too was that we reframe what we are doing against the, what I considered to be the extreme volatility in the world. One day the market can be up 200 basis points likely it’s down 200 basis points and so we are trying to manage all of the growth with a very conservative balance sheet and post-this offering, our debt, our total debt to net worth is like 0.6:1. And if you look at any of the peers in our space and really go and look at their balance sheet, they are highly leveraged. We are trying to do this in a way where we are not really leveraging ourselves. And I have said before that we are generally going to keep our total debt to worth ratios under one-to-one. You are right that part of the capital raising have to what the opportunities might be. So, we have to wait really to see what happens in Europe here over the next, really, month because we’ve got three fairly large acquisitions we’re right in the middle of right now that may or may not happen. But, whatever we’re not going to the next capital raised is not going to be in the equity department so we’ll just have to see where we go from here.

Your next question comes from the line of Richard Eckert with B. Riley & Company.

My questions had been answered, thank you.

Your next question comes from the line of David Ridley-Lane with Bank of America Merrill Lynch.

I just had a quick follow-up. So that the pre-promote ownership went from 25% to 36% for your commercial assets, just wondering so if we drove that?

Hey David, it’s Matt. So what happened there is there was a, we did a buyout of some partners in a joint venture that led to that. We were able to buy some partners out here who had Dodd-Frank and other regulatory issues and had to sell. And what we did in essence is we bought some partner loans that they had to the joint venture and by buying those partners loans we also acquired the equity and so you’ll see as you mentioned it -- and this is all office buildings within in this joint venture. So in essence by buying those partners loans we also increased our equity ownership in those asset but you are not seeing any capital going into the commercial piece of the investment account because that all went into loan.

Got it. And then one more, are you still looking at West Coast multifamily acquisition opportunities?

We are, but as we sit here right now, we only have one deal, but it’s a smaller deal that’s in escrow right now down in Long Beach and we are doing it in a joint venture with another company that we have done other business with. And we are doing -- on that particular deal we are doing a 90/10 deal we are only -- we are only putting up 10% of the equity and the whole deal size is $9 million of equity. So, we are only putting $900,000 into that. So, we’re continuing to look and keeping our eyes open but obviously it’s more competitive on the -- on the buy side. But having said that we have always seem the buying opportunities but as we sit here right now that’s the only deal that we have in escrow on the apartment side.

Thank you for your questions. Ladies and gentlemen, I would now like to turn the conference back over to Bill McMorrow for closing remarks.

Okay. So, thank you everybody for taking the time to listen. We appreciate all your support. And as I always say, if there is any other questions that you have for myself or Matt or Justin Enbody, we are always here to answer those. So, thanks very much.

Ladies and gentlemen, we thank you for your participation in today’s conference. This concludes the presentation and you may now disconnect. Have a great day.