Good morning and welcome to the Kennedy-Wilson Third Quarter 2015 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms. Christina Cha, please go ahead.

Thank you, good morning everyone. 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 one year. Please see the Investor Relations section of Kennedy-Wilson's Web site for more information. Statements made during this conference call may be 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'll now turn the call over to Bill McMorrow.

Thank you, Christina. And good morning everybody, and thank you for joining Kennedy-Wilson's third quarter 2015 earnings call. We're very pleased to have reported our best third quarter in the company's history. We've been able to add substantial recurring income over the past couple of years, and the results are becoming evident in our financial performance. First, I'd like to talk about our key third quarter and year-to-date financial highlights. Second, we'll review the key transactional activity for the quarter. Third, we'll update you on our property operations and performance. Fourth, we'll discuss some recent developments on a few of our key major redevelopment projects. And finally, we'll walk you through the company's financial position and our current market outlook before opening it up to your questions. So starting off with the financial highlights. This was the best third quarter in the company's history from a revenue, adjusted EBITDA, net income and EPS perspective. Our recurring income was up substantially from last year and we were also able to realize some investment gains in the period. For the quarter, adjusted EBITDA was $83 million, a 19% increase compared to $69 million for the same period in 2014. Adjusted net income for the quarter was $47 million or $0.44 per basic share compared to $30 million or $0.34 per basic share in 2014. Year-to-date, our 2015 adjusted EBITDA was $249 million, compared to a 2014 adjusted EBITDA of $261 million. In 2014, we had $50 million more in acquisition gains than we have had so far in 2015. Adjusted net income for the nine months was $141 million this year versus $129 million last year. Part of the improvement in adjusted net income is due to the elimination of over $20 million annually of corporate interest and preferred dividends, through a…

We will now begin the question and answer session. [Operator Instructions] The first question comes from Mitch Germain from JMP Securities.

Hi, Mitch.

Sorry, one moment. Okay, please go ahead, Mr. Germain.

Yes, sure. Given the cap rate on the 3Q sales, it seems like there was a bit of - probably some non-core possibly included in that. And I'm curious as is there a push to get some of those maybe legacy assets out while the pricing and liquidity is the way it is in the market today.

Hi, Mitch. It's Matt. Yes, I'd say that certainly is the case in Q3. There were some old partnerships that we unwound with assets that were clearly non-cohort to us. In the fourth quarter, we do have some disposition activity underway where we'd expect that cap rate to come in a bit on some of the fourth quarter dispositions. But you're accurate in the third quarter. there was a lot of non-core assets.

But I would say generally, Mitch, the things that we are selling are things that from a strategic standpoint we just feel we have a good market to be selling in, and don't really fit either our long-term perspective or where we're in partnerships where we're in a sense unwinding those partnerships.

Great. And just, Bill, strategically when you lease up some of those non-stabilized commercial properties at that point given the growth realization is the goal to possibly cull those as well or are they considered long-term holds for you guys?

There's a group of about five or six of them that we consider long-term holds, and those are the ones that I mentioned here at Beverly Hills and Marina del Ray and North Hollywood. There are - and, Matt, I'll be a little off on the number. There's probably another 15 office buildings that we own in various structures, mostly through our fund and investment business, and over time those as they are stabilized we'll sell those.

Great.

But I would also say, and Mary as I've said several times on this call there's a very, very big difference between the office business in Europe, particularly in the United Kingdom and Ireland, than there is in the United States, and it principally relates to the lease terms. And I think as most of you know, the leasing and tenanting of an office building takes a lot of capital. And here in the US generally speaking the lease terms are between 5 and 10 years. But most of them really fall into the five to seven year kind of term. But in Europe for example, I'd like Mary to talk about the Baggot Street Building in Dublin because I think that will give you a sense of what the difference is in Europe.

Sure. So in Europe the Baggot Street deal that we did being fully renovated by our team, is a 25 year lease to Bank of Ireland, and its term certain for 20 years. So a very long-term lease, and instead of a TI package we gave them some free rent upfront. And we did that deal at €47.50 annually, and that was a deal that we had underwritten at €27. So that just shows you the market is moving obviously really very quickly.

Right, and I think Mary's…

Is that total term…

But the biggest thing, Mitch, is really to recognize the difference in the lease terms in Europe versus here.

Yes.

And so unlike the multifamily business that once you've completed your CapEx on the leasing centers and the fitness centers and so on. Your CapEx at the multifamily assets is pretty minimal in relationship to the size of the assets. The office assets that you're always renegotiating leases in can take a lot of capital.

Maybe for Mary, is that term reflective of just the CBD or do you see that sort of term in the suburbs as well?

I mean, it depends on the asset quality and obviously on the asset itself. But I would say in general, like Bill was alluding to, in Europe across the board well specifically in Ireland and the UK, the lease lengths are very, very long. Maybe it's not a 25 year term in the suburbs, maybe it's more like a 10 to 15 year term. It depends, but it's much, much longer than the US.

Yes, I mean as I mentioned on that State Street Building that we own in Dublin, that's a 15-year lease. Mary and her team -- what was the term on that lease you did with Conoco, Mary?

That was 15 years as well in Aberdeen.

That was 15 years as well.

Great. Last for me, I know you've got this new co-mingled fund that you've just completed in the US. And I'm just curious about the pipeline of deal flow. Obviously, it's been a little bit slower outside of the vintage portfolio. So I'm just curious what type of opportunities you're seeing here on the West Coast?

Yes, I think because of our size now we continue to see a lot of deal flow, and the size of your company and obviously the number of people that you have looking for deals, that allows you to see a lot of deal flow. I would say that of course as I've said on many of these calls, there's a lot of liquidity in the US market. And so we're doing deals, but we're being very careful about the things that we're looking at. Having said that, I think that in that fund or in that business which has roughly $1 billion of capacity, I think we'll get most of that money invested over the next 18 months.

That's it for me. Thanks a lot. Good quarter.

Thank you.

The next question comes from Mr. Vincent Chao from Deutsche Bank. Please go ahead.

All right. Hey, good morning everyone. I just want to go back to the un-stabilized portfolio in the commercial side of things here, 41% occupied today. I was just curious how much of the vacant space has already either been leased and is awaiting commencement or is under LOI or in some form of negotiation?

Sure. Vincent this is Matt. So yes there's roughly 900,000 square feet in kind of the un-stabilized portfolio, and there is over 200,000 that's already spoken for that the leases haven't commenced yet. So there's a decent portion that we've already leased, and then there's a lot of leasing activity going on as well on top of that.

Got it. Okay.

Yes, and then they're signed leases for about 10% of that. Sorry, about, yes about 10% of that number that haven't commenced payment yet. So when you add it all up between the leases that are in I would say the tail end of negotiations and what we already have assigned, about a third of that is spoken for.

One third is okay. And then on the signed but not commenced, do you know what level of rent is -- what's the rent that's assigned to that or associated with that?

Sorry, what was the question? Well, it depends on the market that you're in, if you're looking at…

No, no. I just meant for the leases that are already signed.

I mean the building across, the building here in Beverly Hills that we own commands some of the highest rents in Los Angeles. And so the rents in that building tend to be on a gross basis around $65 a square foot annually. But I can't really kind of calculate it in my head, but I would say on average that you're probably looking at rents on that 900,000 square feet of somewhere around $3.50 to $4.25 on average per month.

Per month, okay. All right, thanks for that. So a lot of NOI in that portfolio so...

I think again that's really the point that I'm trying to make with all of these value add opportunities that we have going on right now. And I think you all could see from what I outlined in the call in a relatively short period of time, 2 years, we've added $450 million of revenue to our total enterprise. And so when you also think about the value add things that are currently producing no income right now. Where we have large ownership stakes in those, as we get down into I would say 2019. I'm not trying to forecast the future here, but 2018 to 2019 the CapEx initiatives on those programs will be done and they'll be producing income.

Okay. Thanks for that. I think that sort of gets into my next question which is you give some really good detail on the State Street development in terms of sort of timing and things like that. I was just curious for the Clancy Quay, I mean could you walk us through what sort of the timing of the completions look like there and maybe what's your stabilized yield expectations are for that project?

Yes, I'm going to let Mary. But I think by way of background when we acquired that property about two and a half years ago I believe, Mary, the 420 units that were mostly complete on the front of the building we now have basically no vacancy in, and we've raised rates. And Mary and her team implemented a capital expenditure program on those existing buildings where they put in a great new fitness center. They put in a fantastic business center and leasing office. And so it's become one of the places in Dublin that people really want to live in. On the back side of the property there was roughly another, is it eight acres Mary?

Yes. Exactly.

So eight acres, and so in phases now we're building out that eight acres. On the back side of that property, the first phase is what they call the barracks buildings. And these were actually buildings that were built 200 years ago and occupied by the Army. You can rehab them into very, very beautiful apartment units. And so we're in the process of doing that right now. So, Mary, do you want to kind of give an update on where we're at on that project?

Yes, I mean as Bill said we're well into the ground and working on phase 2, Clancy Phase 2, 166 units there. And we should be completed by I would say by this time next year, and it's just a phenomenal, really phenomenal development. And phase 2 will be able to benefit the residents there from the new clubhouse that we built, which I think that's sort of the theme that we're working through on the residential assets that we own in Ireland. Is really being best in class, and providing amenities to our residents so that they can have a fitness center and they can have a place to watch movies, and do parties, work at home, etcetera. So that we can maintain occupancy, and be able to push rents and charge a fair rent for the amenities and the quality that we provide to residents.

I mean, we really own, without here bragging, we own some of the best apartment, multifamily assets in all of Dublin. And Clancy is clearly at or near the top of that list. When it's all completed we're going to have almost 800 units there I would say very, very high quality property. And roughly and it depends on where rents grow and so on, but these multifamily assets in Dublin we're basically building out to roughly a 7% to 7.5% cap rate based on current rents.

7% to 7.5%, okay, thanks. And I know it's different by project, and it's going to change by year. But I'm just curious given the projects that are underway today, if we think about sort of annual capital expenditures. I mean do you have a sense of what you might be putting out from a CapEx perspective on these developments over the next couple of years?

Yes, here at KW I would say over the next three years the total commitment is somewhere between $75 million and $150 million.

That's KWH's share?

That's KWH's share.

Got it. Okay.

And some of these projects it depends on how we actually end up capitalizing these projects. Because you take a piece of land that has basically a zero cost basis. We get it entitled. And so once it becomes entitled it's a very, very valuable asset. That means you've created a lot of equity in that piece of land. And so then when you think about the total construction cost, you may or may not be able to actually finance that with a construction loan without having to put any more money in, because you're just using the equity that you've created out of the entitlement process. Capital Dock is a good example in a different way. I mean that is a very, very valuable piece of land right now that we have this 660,000 square feet approved. And how we capitalize that and finance that, that's something Mary and her team are really working on right now.

Got it. Thanks for that color. Maybe just one last question for me, Mary you mentioned the amenities and sort of I know that wasn't or hasn't been a big part of the story in Europe in general. And you guys have sort of led the way on that front. I'm just curious when you're thinking about new supply coming in, are they starting to figure this out as well, and you're seeing competition also adding amenities as you guys have done?

Well, I think the new supply -- we're not really seeing new supply of for rent housing in Dublin. Because really all that we own there and that we bought were meant to be sold as individual apartments. And I think as you know, we bought everything well below replacement cost. So we're not seeing a whole lot of new supply. I think our State Street asset, which we have planning for 204 units, will be kind of state of the art. And that will definitely have an amenity package that is best in class with water views from three sides of the asset. And it'll be an amazing project. But we're not seeing really a whole lot of new supply competition if you will.

Okay. Well, maybe just said another way, I mean, even if it's not new supply, are existing landlords starting to add amenities as you guys are as it sort of proves out that it's helping?

I mean I haven't seen that so much. I mean I think everyone's definitely putting money into their assets, and it's a pretty strong market right now. So I haven't seen quite the level that we're doing. And I think we brought that over from the US and it's done well for us in our multifamily portfolio in the United States. So I haven't really seen competitors doing what we're doing.

Okay. Great. Thank you.

The next question comes from Mr. David Ridley-Lane from Bank of America. Please go ahead.

Sure, so on the US multifamily piece of your investment account, I know you've made - it sounds like you made some non-core dispositions, continued to do upgrades. But I'm wondering how confident you feel in the prospects for kind of keeping this same pace of NOI growth over the next few years, particularly because it's been so strong for the past two years.

Yes, I mean, David, I would say of course a lot depends on what happens in the markets that you're in. And the two major markets that we're in the US are East Bay and Seattle. And so the city of San Francisco because of the tech business primarily and the financial industry to some extent continues to grow in a very, very limited space. And so that is causing people to look to other areas to live. If that phenomenon continues you're going to continue to have rent growth, because if you look at the properties we own in the East Bay, they're on irreplaceable pieces of land. The Bella Vista project that we own which is 1000 units is on 50 acres of land. And so the entitlement process in California, Alameda which is almost 700 units is probably on 25 acres to 30 acres of land. And your ability to find those kind of locations and to go through a very tough entitlement environment here in California makes these things very hard to replicate. And so if what I said continues in San Francisco then I would continue to think we're going to see rent growth in our apartment units in the East Bay. And the same thing holds true for Seattle. There are more Fortune 500 companies headquartered in Seattle than there are in Los Angeles. I know you all can think of the names offhand, but the Boeings and the Microsoft's and the Starbucks, and the Costco's, and Nordstrom. And you can kind of go on and on down the list. And so there's great job growth going on there and population growth, even though there's more land there, there's the same characteristics about the entitlement process. So our belief is that certainly over the near term, which I would say is 2016, we expect to continue to see rent growth in those markets.

Got it. And then last quarter you were expecting $300 to $500 million of dispositions in the second half, and you did nearly $500 million in the third quarter. I just wanted to get an update for what you've got in the pipeline for dispositions here in the fourth quarter.

Yes, we have about right around $300 million of dispositions that we're doing in the US in the fourth quarter. And obviously all of those are subject to a closing which hasn't happened yet.

Great.

In Europe, I would say that Mary's looking at some that were around $50 million. So between the two businesses it's probably something around $350 million, assuming everything that we currently have in the market and some of which is actually under contract right now with nonrefundable deposits actually closes.

Got it. And then as you've shifted to more direct real estate and now development projects, would you expect kind of the pace of dispositions to slow in 2016?

Yes, I don't know if I can really comment on that as this point in time. I mean it's something we'll look at here at the end of the year. We go into every year with a plan obviously for every asset. And there are some that have already been identified as things we're going to sell here in the first quarter. But I'd really rather not comment on those. I think as far as next year is concerned, we'll look at that kind of in December and figure out the things that we want to address. But this year I think that really the great point from our perspective, and I hope all shareholders’ perspective, is the tremendous building of recurring income in the company. And if the acquisitions that we're doing get completed we're going to have our highest year ever of acquisitions. And then you frame that against the liquidity metrics that I went through earlier. I think should make everybody feel very good about where the company is at. And we have a lot of undervalued assets in our company, and we'll make decisions on those as we see fit and the market kind of dictates to us.

Got it. And then last one for me, the first deal in Italy being an office deal is that kind of where you're seeing the most opportunities in Italy, and if you could perhaps speak to the pipeline there for acquisitions?

Mary?

Sure, I mean we've been looking in Italy for a while. We've probably been seriously looking for about a year. So this portfolio, the FIP portfolio, kind of checked all the boxes for us. And when you think about transaction volumes in Italy, so far it's been roughly €5 billion to date in 2015 which is equal to all of 2014, so volumes have really picked up there. But we're seeing opportunities in the retail space as well. So I'd say our focus right now in Italy has been retail and office. But this gives us really the perfect match of income, term, to a very good covenant and good yield with good asset management angles over the term.

Got it. Congratulations on the quarter.

Thanks.

The next question comes from Mr. David Gold from Sidoti. Please go ahead.

Hi, good morning.

Hi, David.

I'm just following up a little bit there, when you think about the opportunities that you're seeing particularly in Europe and Ireland given the progress, and then add to that perhaps Spain and Italy where it looks like you're presumably starting to put capital to work. Can you give us a sense for how you rank the opportunities or how you're thinking about capital allocations say between UK, Ireland, Spain, and Italy?

Mary?

We don't really look at it and say okay we're going to put X amount into Ireland or X amount into Italy or Spain. And I think that's actually one of the benefits of Kennedy-Wilson Europe is that allows us to maintain the pricing discipline so that we can invest across jurisdictions. And obviously we've highlighted the four that we're working in and active in. And we can also invest across the capital stack buying quite a lot of debt that we are converting into direct real estate or direct real estate. Sort of a long-winded answer is that we don't think of it that way. And it's really just with risk return analysis that we do on every single deal. But I guess the last bit of that I would say is that the bedrock of our portfolio, what we see as being really the UK and Ireland. So I don't think you're going to look down the road in three years from now and see 80% of our assets be in Italy and Spain.

Yes, I think, David, one other thing. In a couple days on our website we're going to put pinpoint dots on every property location that we own in the United States and Europe. I think these are kind of like a scatter map. And you'll see that we own now interests in over 425 properties. And they're big properties too. And so I think that in addition to the things I said that I think the shareholders should take great comfort in is that we've got a really great balance between geographies. We're not completely reliant on Seattle, we're not completely reliant on Los Angeles, we're not completely reliant on the East Bay, and the same is true for the portfolio that Mary and her team have put together in Europe. And so we've got a real broad diversity, but in very, very good markets. And the thing that has always worked for us over the years is to be in these, what I call, high barrier to entry markets where there's limited land like there is in the East Bay and San Francisco and here in Los Angeles and in certain areas. And the other thing that's happened over the last four or five years is that the quality of the assets inside that 425 properties has just gone up exponentially from where it was five years ago. And you'll see when you go on our website I think and look at some of these drone shots. I think it'll give you a very good sense of the quality of the assets that we own in that group of 425 properties.

Perfect. That's helpful. Thanks. And then one other, Bill, you gave some good guideposts on disposition, expectations for the fourth quarter. Can you give a similar look on range of what you might see for acquisitions, obviously a little harder?

Yes, we've announced some of them in Europe. And those total in dollar terms about $300 million. And here in the US it'll be something less than $100 million. So in totality it's going to be around $400 million assuming all of it closes here in the fourth quarter. So we're doing about the same level of acquisitions and dispositions when you combine those numbers that I had mentioned earlier on the disposition side.

Perfect, and then just one last if I can. The billion dollars in capacity that you'd mentioned, plans to use over the next 18 months in the US. Can you give a sense there for what type of asset focus you expect you'd have based on the opportunities that are in front of you?

It's always hard to say, as Mary said, but all I can tell you is that with the first group of assets that we now have bought into that investment management business. One was a large apartment complex in a suburb of Sacramento. And that property is almost - that was a $100 million deal, and a very, very large property in one of those high barrier to entry, big piece of land markets. We're about to close an office building acquisition here on the West Coast here in the next few days. And we bought a office building in Seattle, a smaller office building in the Seattle market. But it's hard to say, like Mary said, we look at where the opportunities come up. But clearly the main focus of that money will be in these key markets that we're in on the West Coast.

Perfect. Thank you all.

Thanks, David.

This concludes our question and answer session. I would like to turn the conference back over to Mr. Bill McMorrow for any closing remarks.

Okay. So thank you everybody for listening in today. And we very much appreciate all of the support. And we'll look forward to talking to you once the year end is completed. Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.