(Save the date: RealShare Apartments comes to the Westin Bonaventure, Los Angeles, October 24.)

BEVERLY HILLS, CA-Despite a net loss of $3.4 million in the first quarter, executives at Kennedy-Wilson Holdings Inc. are pleased with the company’s financial outlook and consider it to be on track with expectations set out for the year, according to chairman and CEO William McMorrow, who spoke during the company’s recent earnings call.

“We had a very good first quarter, clearly in line with the expectations we set out for the year,” said McMorrow during the call. The company’s earnings before interest, taxes, depreciation and stock-based compensation expense (EBITDA) for the first quarter was $19.2 million compared to $15.1 million in the first quarter of 2011. McMorrow had said in an earlier statement that K-W has begun to realize gains on some assets acquired in 2010 and 2011, and that the company continues to see many opportunities to grow the recurring cash flow through reinvestment of the return of capital and gains achieved from sales.

McMorrow also said during the call that K-W’s investment account was approximately $567 million at the end of the first quarter, and he anticipates that it will be back up to $625 million by the end of June. The company’s cash position increased to $122.3 million at the end of first quarter, up from $115.9 million at year-end 2011. “That does not include roughly $19 million of cash generated in April from the sale of two apartment buildings,” McMorrow added during the call.

The company’s game plan for the year was to generate on a net basis to K-W between $100 million and $150 million of cash for the year 2012, and as of the end of April, it has generated roughly $50 million net cash, including the $19 million previously mentioned, he said.

“We are very mindful of what went on in 2008 in the capital markets,” McMorrow commented. “With that in mind, both at the corporate and at the property level, we’re using very modest amounts of leverage.”

While K-W admittedly did not close many acquisitions in the first quarter, the firm does have under contract $441 million of acquisitions that will close by mid-June, and McMorrow foresees its assets to be valued at $5.6 billion by that time. “We’re beginning to sell some assets we’ve acquired in 2009, 2010 and a little bit into 2011,” McMorrow said. Assets sold include an apartment building in North Hollywood, which generated a total gain of $16 million; marketable securities, which generated a gain of $2.9 million; a 213-unit residential building in Northern California and a 440-unit building in Portland, OR, which yielded roughly $15 million. K-W currently owns roughly 13,900 units.

EVP Matt Windisch spoke about dispositions next, stating that of the five assets sold during the first quarter, the company booked gains on sales of approximately $11 million. “We’ve now taken the proceeds of those sales, roughly $50 million, and invested or are under contract to invest in seven assets, which will have a combined EBIDTA for the company of $11.3 million,” Windisch said. That $11 million, in addition to $10 million of recurring EBIDTA to the company, adds up to $20.8 million of gains and recurring EBIDTA from those sales. Windisch said K-W has other assets with similar metrics slated to sell this year and reinvest with a very robust pipeline.

As GlobeSt.com previously reported, in April K-W sold two of its multifamily properties for a total of $154 million. At that time, net proceeds of $64 million were set to be distributed to the company and equity holders, including $18.5 million to Kennedy Wilson. The two properties include 360 Residences, a 213-unit luxury residential tower in San Jose, CA, and Arbor Creek Apartment Homes, a 440-unit community in Beaverton, OR. The properties were traded to separate buyers at an average cap rate of 4.5%.

In discussing financing, McMorrow said the company has done $1.7 billion of property-level financing, both on new acquisitions and on the refinancing of existing deals. “We’ve done almost a billion dollars of refinancing. The new financings we’ve done have been at an average interest rate of 4.1%, and the average maturity of those financings has been 4.1 years. We continue to look at the overall portfolio, and we continue to take advantage of these lower interest rates.” He added that K-W is now financing the interest rates on seven-year loans at around 3.55%, fixed for seven years, interest-only for two years, and then amortizing over a 25-year period of time.

McMorrow returned to discuss the firm’s international activities, saying that K-W started investing in the European market in earnest last year, with its final closing in December 2011 for a large portfolio of loans secured by assets in the U.K. The unpaid principal balance of that portfolio was $2.1 billion, and in the last 4.5 months, K-W has resolved $668 million of those loans, nearly a third of the entire pool. “The loan portfolio itself continues to operate very well,” McMorrow said. “We’re offering many opportunities in Europe that are in various stages of underwriting.” Other markets the firm has been actively investing in include Dublin, for an apartment building adjacent to Google headquarters, and in Japan, where its 50 apartment buildings continue to run at 95% occupancy—at one point during the first quarter reaching 97% occupancy.

Instant Insights /

Kennedy-Wilson Reports Net Loss During Q1

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