Good morning and welcome to the Kennedy-Wilson Fourth Quarter 2015 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Daven Bhavsar, Director of Investor Relations. Please go ahead, sir.

Good morning, everybody and welcome to Kennedy-Wilson’s fourth quarter and full year 2015 earnings conference call. This is Daven Bhavsar and joining us today are Bill McMorrow, Chairman and CEO of Kennedy-Wilson; Mary Ricks, President and CEO of Kennedy-Wilson Europe, Matt Windisch, Executive Vice President of Kennedy-Wilson; and Justin Enbody, Chief Financial Officer of Kennedy-Wilson. Today's call is being webcast live and will be archived for replay. The replay will be available by phone for one week and by webcast for three months. Please see the Investor Relations section of Kennedy-Wilson's website for more information. 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 within the Securities and Exchange Commission. I'd now like to turn the call over to our Chairman and CEO, Bill McMorrow.

Daven, thanks very much and good morning, everybody. Thank you for joining us today. I’m very pleased to have reported the best fourth quarter and full year results in our company’s history. I’d like to start off by discussing our financial highlights, along with our increased divided and stock repurchase program. Next, I’d like to review our liquidity profile and the strength of our balance sheet. Third, I’ll review our strong recurring cash flow and solid operating performance at our properties and fourth, I’ll update you on a record year of investment transactions. And finally, I’ll discuss our current market outlook before opening up to your questions. So starting off with the financial highlights, we had the best fourth quarter in our company’s history from a revenue, adjusted EBITDA, net income and EPS perspective. For the quarter, adjusted EBITDA grew 115% to $122 million compared to $57 million for the same period in 2014. Adjusted net income for the quarter was $68 million, the highest quarterly adjusted net income in our history, up from $5 million in the fourth quarter of 2014. Our full year 2015 adjusted EBITDA was a record $371 million, a 17% increase from 2014. Adjusted net income for the year was also a record at $208 million, a 56% increase from last year. Importantly, through a combination of increase in NOI at our wired properties and growing our base fee income, the recurring cash flow of the Company has increased substantially over the over the last several years with the biggest improvement showing in the last 12 months. In fact, in the last year alone, we've added over $100 million of recurring revenue to KW. As a result of this strong growth in our cash flow, we have increased our quarterly dividend by 17% to $0.14…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Mitch Germain of JMP Securities. Please go ahead.

Good morning and congrats on the year. I'm just curious about the sales strategy, as we look into 2016 will it have similar characteristics to what happened in ‘15?

Yeah. Mary announced in Europe this morning that in her plans and KWE's plans we plan to sell over the next 15 months, 12 to 15 months GBP200 [ph] million of assets. And we have identified a number of assets that we’re planning on selling here in the United States this year. And I think one of the things that really has been interesting about this market here for the last couple of months is that there is actually in our opinion quite a disconnect between what’s happening in the public market and what’s happening actually in the private sale market. And there continues to be a tremendous amount of liquidity both on the equity side and debt providing side from the banks primarily and in the apartment world, obviously the agencies. And so there continues to be very big demand for hard assets, hard real estate assets because as everyone knows, if you look at Japan there are negative interest rates and if look across the globe, interest rates are pretty much at all-time lows. So, we continue to use these opportunities I would say to get out of some of the smaller ownership positions that we might have in partnerships. And what I would call some of the non-strategic core assets but it's allowing us to generate in addition we are recurring income significant cash to redeploy into not only higher yielding assets but to execute the growth plans of our business. And so I think it's very important for everybody to understand that even with the dividend increases in both our companies and the announced buyback program, we still see growth opportunities that we are funding with internally generated capital.

Great, it is very helpful. If I look at the new joint venture, is it core value add, is there any or is it just kind of open to any investments that you guys identify?

Well, we have a wide latitude in terms of what we can invest in but as we also have been saying for two years. And I think when you look at the investments I mentioned we sold in the US in the fourth quarter that produces 38%, I believe it’s the number 38% IRR. We also feel it's kind of improved in the markets that we are in with interest rates near 0 to at least underwrite things that those, it might turn out that we get those kind of returns but across all our platforms we’re trying – we’re in a, I would say trying to produce as much income as we can but in a risk off kind of position. And so, I would say that things that we are doing, we have many value-add initiatives as I went through or we’re adding value to properties that we already own. But I would say that our investment strategy now is and has been is really a combination of value-add and core plus but we’re not trying to take any undue risk in the kind of market that we’re in today.

Last from me, I know you got I think it's around eight or so non-stable commercial properties. How should we think about those properties coming online into the operating pool?

Hey Mitch, this is Matt. As we mentioned, we’ve made some great progress and Bill was highlighting several of those assets that are unstabilized, I mean our leasing plans are to have these assets stabilize in the next 12 to 18 months and bring them into the operating pool and we’ve made some great strides really the last couple of quarters to that effect.

Excellent. Thank you.

I would say too, just to add to that, we’ve had great, great success over the 25 years that Mary and I’ve been here at KW, buying empty office buildings in core markets well located in high barrier to entry markets and then refurbishing them just like we do the apartment buildings and leasing them. So I would say that all of the office buildings have now, basically the refurbishments have been completed and now we’re just in the process of leasing them and we’re leasing them into a market where there is generally low vacancies.

Thanks.

And our next question comes from Vincent Chao of Deutsche Bank. Please go ahead.

Hey, good morning, everyone. Just wanted to go back to your comments about the financing markets, obviously you have access to bank debt and the agencies on the multifamily side, just curious given the disruption we’re seeing in the CMBS markets, if that’s having any impact on the commercial side of the business and if it’s opening up any opportunities at this point, either on the equity side or on the lending side?

Yeah. I mean, the CMBS markets has not been a source of lending for us. Quite frankly, it’s not a market that we particularly care for. So, all the financing that we basically have been -- not basically, we’ve been doing, in the case of KWE of course, Mary and her team did two public bond offerings in KWE last year and KWE I think as most of you know, is an investment, BBB rated company. The last bond offering that Mary did in the -- is that the fourth quarter or third quarter, Mary? Fourth quarter, that that was a 3.25 interest rate for 10 years fixed unsecured. There is plentiful financing across the globe, from the banking industry and the agencies as I said here in the United States. On one of our multifamily properties yesterday, we locked interest rates on a 17-year loan at 3.8% fixed for 17 years. And so I don’t really honestly pay much attention to what’s going on in the CMBS market, other than what opportunities that might spit out for us to buy something in an acquisition, on the acquisition side. But I would tell you that as I’ve said now, a couple of times, there is plenty of liquidity that is trying to not only lend us money, but lend other people money in the real estate world today.

I think that was part of my question was are you seeing some increased opportunities because of the disruption you’re seeing in that market, is it translating into more commercial opportunities for you today?

It’s too early to tell. This is only really, if you think about it, it’s been going on for 60 days and there is always a time lag between when these, what I’ll call it, inefficiencies start and then when opportunities show up. And I’m not trying to say where I’m clairvoyant, but we planned, if you look at what happened at the end of the year in our business, we’ve been planning for really 18 months to increase our liquidity, get rid of our non-core assets to see what was going to happen. And it turned out of course that as we all know, what’s happened here over the last couple of months, but whether that, we think there is still plenty of opportunities to invest, but whether that translates into big, big discounts in the market, I just -- it’s too early to tell.

Got it. Maybe that answers my next question. But I mean, do you think now as still a time to be building up that liquidity in anticipation of potential disruption down the road, or maybe asking another way, if you think about 2016, do you think you’re more apt to be a net seller or a net acquirer or sort of neutral?

We don't ever go into any year with a target number in terms what we want to buy. It all depends on whether there are opportunities out there. We more go into a year with target numbers in terms of what we might want to sell. Our strategy at this point, we have between KWE and KW, we have two apartment buildings we were closing here including one today here in the US. They total about $150 million, the two apartment buildings. And Mary in KWE has a portfolio of properties in the United Kingdom and one office building in Dublin that we are focused on. The total of all of that’s roughly $350 million. Beyond that what we've decided is that we are going to really, really take a little bit of a pause here and see how this whole thing falls out, because as I said earlier, you can't have a couple of months like this and then expect opportunities to show up right away and so the thing that we're very lucky about is that over a long, long period of time, 25 plus years, we've built up all these global relationships primarily with financial institutions that we’ve transacted with. And when you think about how we acquire a thing, 75% to 80% of what we acquire, we acquire at off market kinds of transactions. So I do think that in Europe and maybe Mary you can weigh in on this that the banks this year will be under increasing pressure is the right word, but they will be sellers this years, but both Mary and I are really committed right now to kind of a wait-and-see attitude after this first group of acquisitions that I mentioned to you. But, Mary, can you comment out on Europe?

Sure. I mean, I think it depends and we are clearly focused on four target markets and I would say in Ireland, we still have EUR8 billion of assets. You still are seeing banks deleverage, so we're seeing opportunities there. Spain, I think we will see a lot of opportunities in '16. We are already seeing a lot of assets coming out of the banking system. And then Italy, obviously there has been a lot of announcements recently about the different reforms and the bad banks that’s being formed et cetera and so as well I think we will see opportunities coming out of Italy. I think in the UK, we're always seeing one-off opportunities here and there. We just thought not very long ago from a German bank a loan secured by roughly 300 PRFs of residential units in London Zone 4 that we paid sort of half of the EPB as the purchase price and then we just took title for that offset February 5. So there's always one-off opportunities and I think especially with this dislocation I think to what you alluded to earlier in your question, Vincent, I think we will see some more opportunities as the year progresses.

Okay, thanks for that. And just one last one from me just specifically on the project. How many of the 400 units, what’s the sell out right now? How many have sold out?

Okay, so we have – we are just touching $215 million in sales there. And we now have close to 100 members in that property. There is about roughly, I mean this rough number, but there is roughly 75 homes sold and under construction right now.

Okay, thank you.

Yes.

[Operator Instructions] Our next question comes from David Ridley-Lane of Bank of America Merrill Lynch. Please go ahead.

Sure. Congratulations on completing the capital raising for Kennedy-Wilson Fund 5. Interested to hear your expectations around deploying the capital. I know that you are off to a fast start with about $130 million already deployed and if you have sort of typical LTV, loan to value for funds like this?

Yes, I think, generally speaking, we are going to use pretty conservative leverage in that, like with the apartment building we are closing on that fund today, and it’s in the State of Washington, Seattle area, we are using 65% leverage. But I think generally in that fund, it’s going to be somewhere between 50% and 60% kind of on average, which is why I said earlier, with the $500 million, we have roughly $1 billion worth of buying power, using 50% leverage.

And I know this is a bit difficult to answer, but do you feel like the property level capital investments that you’ve made over the last year or so, the unit upgrades and amenities and so forth. Do you think like those are enough to continue the above market rent increases that you’ve been getting in ’15 as you look forward into ’16?

I can tell you that – and this is why I say there is a disconnect really going on between the public market and the private market, not only on the sales side and the liquidity that’s available for people to buy, but also really at the property level and so I can tell you that during the first month of the year, our revenue and NOI at the multifamily property level, here in the United States continue to grow at almost the same rate that I told you about in 2015. And so we’re not – and I think Mary said on here call this morning, we own a significant number of retail properties in KWE in Europe. And to be fair about it, the consumers seem to be spending more money and when you think about the apartment business in the US, particularly the markets we’re in, it’s being driven by this extremely strong job growth, not only in the Bay Area, particularly the East Bay and the Silicon Valley area, but this extraordinarily strong job growth in the Seattle market. And I would say, there are secondary markets in the Western United States, Salt Lake City, for example, where we have two of the largest apartment properties in Salt Lake City, they are all continuing to experience very strong job growth. And when you think about Dublin, where we own some major rental apartment properties, same story. Ireland now is the fastest-growing economy in all of Europe. And I’d also tell you that to give some perspective here when we first started investing in Ireland, the Irish 10-year bond was at 14.4% in 2011, and the Irish bond today is sub-1%. So the fundamentals in our business, whether it’s the consumer in our markets or the job growth in our markets, continues to be very strong.

Got it. And then just one more for me, if I may, I think everybody can calculate in the holdco level of liquidity, cash on hand, revolver, et cetera, but then when you get to the capital at the property level, based on your property level balance sheet, if I am doing the math right, it’s about 45% -- excuse me, 55% loan to value today. Where do you think that could go to, especially as you’re trimming some of the non-core assets and so you’re kind of really upgrading what’s in the property level balance sheet?

I am not sure, I am able to follow you.

Yes, said differently, do you think you would potentially look to increase leverage on your majority owned properties during 2016?

No. I mean, we are – and remember too those numbers are the loans to cost and when you really look at the loans to actual value today, it’s actually a much lower number than that. But we don’t have any plans at this point to increase the leverage across, we look at it as a whole portfolio and so we want the increase in the leverage.

And our next question comes from David Gold of Sidoti. Please go ahead.

Couple of things that doubted me, but the thing I find most interesting is that you're able to do 75% of the deals off market last year. And I was curious if you can give some insight as to A, if you think that’s something that you guys can sustainably continue and B, without giving away the secret, if you can give us a sense of how that’s worked out to be such a high percentage, it's terrific?

That's a great question. It really relates to just how we've grown the business for 25 years. Whenever we make a commitment to go into a market, we don't go into that market like we're just going to take advantage of that market; we go into that market to become part of that community and to build a long-term business there. And if you go back in time to when Mary and I started together, we had very, very small capital base but every market we’ve gone into globally, we’re there to stay generally. Now, having said that we have always created long-term relationships with the financial institutions in those markets both the banks and the insurance companies. And I think we have a reputation in the industry and particularly with the financial institutions as a company that executes in a way where we’ve executed on exactly, we do what we say we’re going to do. And so over the years what’s that allowed us to do is literally create long-term relationships with hundreds of financial institute - major financial institutions around the world. And so when they want to sell assets, they know that we can be a go-to company that will live by our word and do what we say we’re going to do. So, there is nothing novel really Mary about the 75% because that's really what we've been doing for 25 years. I would say that if you look back – in the last five years now, at cost including the things that we're closing this quarter, we purchased $17.5 billion of assets. And of that, probably 75% of that has been sourced in an off market transaction and remember when I give you that number that’s at a remarked cost number in many, many cases the asset that we bought alone that was on -- could have been almost double that amount. But, when the banks are selling things and when the insurance companies are selling things, they want to buy from somebody that they think is a reliable buyer. And that is been the core strength and culture of our company is to build up these relationships everywhere that allows us to see these off market transactions.

One other, as you mentioned ‘15 was a year of selling off non-core assets and positions. Are there more assets that you view as non-core that you plan to divest this year?

Yeah, I mean as I said earlier and Mary you might comment a little bit on KWE, what your plans are for this year but we have a plan that includes the disposition of some of the non-core assets but we’re able to take that cash and redeploy it generally in a lot of cases into higher yielding opportunities but Mary you want a comment a little bit on what you announced this morning?

Sure, yeah, so far we've sold GBP262 million of assets and that’s in 50 assets, and have done well, we’ve achieved 22% return on cost on those sales which is great. What we’ve sold to-date and then I'll talk a little bit about the GBP200 million that we’ve targeted. But I think the interesting thing for me is what we’ve sold to-date is 37 of those assets have been sub GBP5 million. So really, for us, it’s been about pruning the portfolio and really kind of focusing the entire portfolio now on our core assets, which is office retail, industrial and residential. And then just growing and improving the quality of the income of the portfolio. So when I think about this, the 200 that we’ve earmarked, it’s really the same concept, so it’s all about the pruning, I would say, of the assets that we earmarked all, but sort of two of those come out of the Gatsby Portfolio, which that was a portfolio that we bought from a large UK insurance company. And there is quite a lot of small retail assets in that and so -- and I think the good thing is when you think about the choppiness of the markets, I mean, at those levels, there is just so much liquidity for those assets and we bought them well and we’ve done whatever asset management work we’re going to do, whether that’s a rent review or what have you and then it’s time to just move them off. So yeah, we’ve got the 200 million earmarked and that’s the big focus for KWE this year is the recycling of capital and we’re going to continue to look for that as the markets allow and continue to recycle into other more sort of stock selection opportunities in those core target markets and sectors where there is asset management opportunities.

And our next question comes from Craig Bibb of CJS Securities. Please go ahead.

Hi, congratulations on a great year. The multifamily sales in the Western US in the Q4, would you view the 5.3 cap rate as indicative of where values are for those assets broadly or is there a wrinkle to that value?

It depends on where the location of those assets is. It’s like anything, Craig, you can’t generalize them in. The real high quality infill assets today are actually in the apartment business are selling at lower cap rates than that and so the suburban, I’ll call them the suburban apartment buildings might sell around that cap rate number that you just mentioned.

And Craig, this is Matt, just to mention that, the 5.3 cap that you’re referring to includes dispositions beyond the apartments, the apartment cap rates were actually a bit below 5%, there is also a couple of office buildings included in that 5.3.

So like 4.9 something like that.

Exactly, yeah.

Okay. And then on the development side, and Docklands is a big deal, and you’re building the basement now, I think you mentioned, what are the milestones or the chronology to look for going forward this year there?

On that particular project.

Yeah.

Yeah. Mary, do you want to tackle that one?

Sure. So we’re pretty excited about the Capital Dock project. I would say, I’m obviously biased, but I think it’s the best development site in Ireland and so right now, we’ve got, we’re doing the basement work that we’ve contracted and we fit out and we’re in the ground right now. And then, we’re doing pricing right now, basically just working through, locking down as much as we can on the cost side of the development, working with a specific contractor and just trying to get that really nailed down. And then we’re out to market talking to a variety of potential construction lenders on it and then at the same time, as all that’s going on, we’re in market as well talking to a variety of potential occupiers. And there are quite a few large requirements out there right now in Dublin and we’re in discussions with quite a few potential tenants for the office side of the project.

But, Mary, I think there might be some people on the call that aren’t familiar with that project. Do you have to describe like the whole the office building and so on? So we already own...

Yeah. So this, I mean I guess I could just take you back in time for a moment, it’s might be interesting history, so we bought, actually, we bought the debt, we employed our asset via loan strategy and we bought the debt secured by State Street’s headquarters in Ireland, an office building there that is fully let to them and they were roughly 15 years. Actually when we bought it, there were I think six or seven years remaining until break and then we went ahead with State Street and redid their deal and re-geared it. And then put 15 year certain on that lease. And then adjacent to that is a site that we ended up buying and then we put that site together with actually with NAMA, so we have a joint venture with NAMA in that project. And then we went ahead, our team went ahead and got planning permission and that was granted in October of 205 just a few months ago with just a phenomenal job. And so what it is that we are going to do there is build 190 PRFs or apartments units which will have really honestly the best views in all of Dublin. There will be water views from three sides of the apartment building and then we are also building commercial offices of roughly 350,000 square feet and several different buildings. So it will be a very topnotch kind of best-in-class development in the docklands which is the hot area right now in Dublin.

Okay. You said you are looking both for tenants and asset buyers.

No, not asset buyers. No, we are looking for tenants and we are talking to potential construction lenders.

Okay, great. Thanks a lot.

You bet.

And ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Bill McMorrow for any closing remarks.

Well, I just want to thank everybody for all of your support over the year and over the years. We obviously both of the companies had a fantastic 2015 and we are looking forward to a great 2016. So thanks very much for your time this morning.

Ladies and gentlemen, the conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.