Kennedy-Wilson Holdings Inc

NYSE:KW

Earnings Call Transcript 2023-Q1

[Operator]

Good day, and welcome to the Kennedy-Wilson First Quarter 2023 Earnings Conference Call and Webcast. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Daven Bhavsar. Please go ahead.

[Daven Bhavsar, Investor Relations]

Thank you and good morning. This is Devan Bhavsar and joining us today from Kennedy-Wilson, Bill McMorrow, Chairman and CEO; Mary Ricks, President; Matt Windisch, Executive Vice President; and Justin Enbody, CFO. Today’s call will be webcast live and will be archived for replay. The replay will be available by phone for 1 week and by webcast for 3 months.

Please see the Investor Relations website for more information. On this call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA and adjusted net income. You can find a description of these items, along with the reconciliation of the most directly comparable GAAP financial measure and our first quarter 2023 earnings release, which is posted on the Investor Relations section of our website. Statements made during this call may include 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 would now like to turn the call over to our Chairman and CEO, Bill McMorrow.

[Bill McMorrow, Chairman and Chief Executive Officer]

Thanks, Daven and thank you everybody for joining the call. Yesterday, we reported our Q1 results and I am pleased with the performance of our global portfolio. The record levels of estimated annual NOI and fee-bearing capital that we achieved and the progress we have made on our $3 billion of new developments, many of which are nearing completion. Our assets under management totaled $23 billion, which has increased by $5 billion since the end of 2020. Starting in July and through year end, we will begin delivering almost 1,500 multifamily units in the U.S. and Dublin, the iconic 150-room Oceanfront Kona Village resort. And in Dublin, a mixed-use property comprised of 471 multifamily units and 2 office buildings totaling 400,000 square feet. In Dublin, both office and apartment leasing fundamentals remain very strong.

Our portfolio is concentrated in asset classes where we are seeing cash flow growth, including apartments, logistics, hospitality and our floating rate loan book. These sectors account for approximately two-thirds of our portfolio. Occupancy remains solid totaling 94% for our multifamily and office and 98% for our industrial portfolio. Global transaction market for real estate remained quiet in the quarter, primarily as a reaction to higher interest rates. In the U.S., transaction volumes dropped by an estimated 60%.

We remain patient on new investments with our capital deployment limited in Q1 to our debt origination platform, where we completed $113 million in new originations and additional fundings and towards finishing our construction projects where we deployed $60 million of capital in the quarter. In total, over the last 3 years, we have spent $500 million of capital on these long-term value-add construction developments.

The disposition front, we made further progress on our non-core asset sale program and completed $118 million of wholly owned asset sales from our consolidated portfolio, generating $82 million of cash to KW. Looking ahead, we remain very focused on executing several important strategic initiatives aimed at growing the recurring cash flow to KW. The first is the completion and leasing of several large development projects. The majority of our development pipeline will be completed by the middle of 2024.

In total, our development and lease-up portfolio is expected to generate $97 million of additional NOI to KW, 70% of which is expected to stabilize by the end of 2024. Another important initiative is to capitalize on the momentum in our investment management platform, which allows us to grow our recurring fee revenue in a capital-light manner. Our debt and logistics strategies were launched in 2020 and have seen rapid growth backed by very strong institutional strategic partners that are still very keen to continue deploying capital with KW. It’s going public in 2009, KW has now completed over $9 billion in debt investments. And since 2020, we have grown our global logistics portfolio to over $1.7 billion in assets. We have ample dry powder in both of these platforms as opportunities present themselves.

And third, our multifamily portfolio, which is our largest asset class, continues to see revenue and cash flow growth with meaningful new cash flow expected as we complete our 5,000 units under development in both the U.S. and Dublin. 90% of our U.S. apartment assets are suburban and offer a high-quality lifestyle at an affordable price point and are located in cities and states with lower costs. We believe rental demand will remain strong as the cost of homeownership remains high. And in the U.S. and Ireland, both places continue to face an undersupply of quality housing over the long term.

With that, I’d like to turn the call over to our CFO, Justin Enbody, to discuss our financial results.

[Justin Enbody, Chief Financial Officer]

Thanks, Bill. On a year-over-year basis, our consolidated revenue improved by 6% driven by higher levels of rental and hotel income. Looking across our entire portfolio, our share of property NOI, loan income, and base management fees increased by 4% to $127 million in Q1 or $508 million on an annualized basis. As Bill just mentioned, our Q1 results highlight our achievement of improving our recurring investment income, which has been and continues to be an important focus for us. This improvement, along with higher levels of realized gains on sale were offset by decreases in the level of non-cash unrealized fair value adjustments and performance allocations on a year-over-year basis. As such, GAAP EPS totaled a loss of $0.30 per share and adjusted EBITDA for the quarter totaled $91 million.

Turning to our balance sheet and debt profile, at quarter end, we had $349 million of consolidated cash and $249 million drawn on our $500 million line of credit. During the quarter, we paid down that line of credit by $34 million. We continue to execute on our strategy of minimizing our interest rate exposure, and we ended the quarter with 97% of our debt either fixed or hedged. As a reminder, we generally hedge using interest rate caps and these hedges have a weighted average maturity of 2 years. We also have a handle on our near-term debt maturities with less than 3% of our debt maturing this year. Overall, our debt has a weighted average maturity of 5.6 years and has an effective interest rate of 4.3% when taking into account the caps and swaps.

With that, I’d now like to turn the call over to Matt Windisch to discuss our multifamily and debt portfolio.

[Matt Windisch, Executive Vice President]

Thanks, Justin. As Bill mentioned, our multifamily portfolio is our largest sector, representing 54% of our global portfolio and $270 million of annual NOI to KW. Our portfolio totals over 32,000 stabilized units with another 5,000 units in lease-up or development that are expected to add $45 million in multifamily NOI to KW. Our ownership and our lease-up and development assets is approximately 60%. Our global market rate portfolio produced same-property revenue growth of 6% and NOI growth of 5% in Q1. In our largely suburban apartment communities in the Western U.S. leasing spreads increased by 5%, resulting in same-property revenue growth of 6.4% and NOI growth of 5.4%.

Operating expenses increased by 8.4%, primarily due to increased labor costs as we filled positions that were opened in Q1 of last year. However, compared to Q4 of 2022, our operating expenses have actually declined by 3% sequentially. At quarter end, our in-place rents were 7% below market. Looking at this regionally, the strongest performance came out of our top two apartment regions, the Mountain West and the Pacific Northwest, which generated same-property NOI growth of 9% and 10%, respectively. Leading the charge in the Mountain states were our assets in Utah, where same property NOI grew by an impressive 12% from Q1 of last year.

Our assets in Colorado saw NOI growth of 15% and in our smaller but growing portfolio in New Mexico, same property NOI grew by a robust 23% from Q1 of ‘22. We believe that our Mountain West portfolio is positioned to continue generating strong demand for rental housing, supported by a solid combination of lower cost of living, large growing university systems, steady job growth and low unemployment, large-cap companies such as Micron Technology and Boise and Texas Instruments in Utah are investing billions into the development of large chip facilities. We also continue to see expansion by local universities and health care facilities to keep up with some of the fastest population growth in the country. In the Pacific Northwest, our second largest region, occupancy has remained stable and same property revenue grew by 8%, resulting in NOI growth of 10%. We expect this region to benefit from increased demand from employees who return to work, such as Amazon, who started to have workers in person starting on May 1. We are already seeing signs of increased traffic at our properties in and around Seattle.

Finally, in our Northern and Southern California assets, similar to what we saw in Q3 and Q4 last year, the ending of the eviction moratoriums has resulted in higher bad debt and property level expenses, along with lower occupancy. Over the next few quarters, we will go through the process of recapturing units from nonpaying tenants and look forward to resetting these units to market rents as both of these regions in California have a loss to lease nearing 10%. Excluding our California multifamily assets, our U.S. same-property portfolio produced NOI growth of 9.2% quarter-over-quarter versus 5.4% when including California. We also made progress on our renovation program, completing another 330 units at an average cost of $12,000, which resulted in a 21% increase in rents. We have another 6,000 units that are remaining to be renovated in the U.S., with 75% of those units located in the Mountain West and Pacific Northwest regions, which positions us well for future portfolio growth. April leasing looks solid in the U.S. with blended leasing spreads of 5% across our market rate portfolio.

Turning to Dublin, where we have a 50% ownership in over 2,500 units, we continue to see the highest levels of occupancy at 99%. Demand for our institutionally managed high-quality rental apartments remains strong in Ireland. Similar to the U.S., there remains an undersupply of housing. We look forward to beginning to deliver our approximately 1,000 units under development in the third quarter. And finally, in our vintage housing affordable portfolio, which totals 9,200 stabilized units and another 2,400 under development, we continue to see strong demand with occupancy of 97% and same property NOI growth of 5% in the quarter. Post quarter end, we sold a wholly owned apartment community in Reno into our vintage portfolio. The sale generated $11 million of cash to KW. Separately, we expect Vintage to produce another $20 million of cash to KW in the short term, primarily driven by the sale of tax credits, resulting in robust quarterly distributions from this platform.

Turning to our Investment Management business, our fee-bearing capital ticked up to $6 billion in Q1. Our growth over the last few years has been driven primarily from our debt and logistics platforms. The launch of our debt investment strategy back in 2020 as very – has been very beneficial as the private credit asset class continues to generate attractive returns in the current lending environment. We’ve seen tightness in the banking sector and a pullback in lending from traditional providers of capital, which benefits our platform. Higher rates and spreads have resulted in solid unlevered risk-adjusted returns north of 20%, inclusive of our asset management fees. In Q1, we completed $113 million of new floating rate originations and fundings with an average spread of 390 basis points over SOFR and an LTV of 50%, resulting in growth of the platform by 5% to $2.8 billion. We have additional loan capacity of approximately $3 billion and look forward to growing this business as opportunities arise.

With that, I’d like to turn the call over to our President, Mary Ricks, to discuss our industrial platform.

[Mary Ricks, President]

Thanks, Matt. The rapid expansion of our global industrial portfolio has been a key driver of growth for our investment management platform. Our portfolio now totals 11 million square feet with over 80% of our stock, comprising institutional quality last mile assets located across the UK, where we continue to see solid fundamentals. Industrial vacancy rates in the UK remain very low at 2.7%, significantly below long-term averages. Occupier demand for quality assets remains strong as they seek to build supply chain resilience and achieve greater operational efficiency. On the supply side, higher financing and construction costs are slowing new developments, which we anticipate will support further growth in rents. These attractive fundamentals resulted in a solid quarter of leasing during which we completed lease transactions across 637,000 square feet with an average term of 7.6 years. These transactions delivered rental growth well ahead of our expectations with in-place rents growing by 50%. Even with our successful leasing in the quarter, our portfolio’s in-place rents remain 30% under market, providing us with a runway for future growth.

We have over $1 billion in capacity in our logistics joint venture and are actively looking for new opportunities to continue growing our portfolio in Europe as well as our logistics footprint in our U.S. markets. In total, our investment management platform has an incremental $3.4 billion of non-discretionary capital, which we are looking to deploy across all of our announced platforms. This will add significantly to our existing $6 billion of fee-bearing capital, which has doubled since the start of 2020.

Turning to our office portfolio. The majority of our stabilized office assets are owned through partnerships or funds within our co-investment portfolio. In total, our consolidated portfolio sits at 3.9 million square feet and is centered around well-located high-quality office buildings with leading tenant amenities and strong ESG credentials. As the polarization in the office market between Grade A stock and the rest accelerates, we are well positioned to continue attracting tenants who are relocating to the highest quality space. With that said, we’re pleased to report we have seen a pickup in leasing activity in 2023, and we completed 380,000 square feet of global office leasing through April with a weighted average term of 6.2 years. This is more than double the leasing activity we saw for the same period last year.

Approximately 70% of our office NOI comes from our European assets, predominantly the UK and Ireland. In the UK, the lack of Grade A supply and absence of speculative development activity across the country has a very different backdrop to previous downturns, supporting headline rents and encouraging occupiers to secure the best face while still available. In Dublin, location and sustainability remain pivotal themes behind Q1 deals with most space occupied in the core areas of Dublin City Center with good energy and sustainable credentials.

In Q1, we saw strong improvement in occupancy in the UK, and we completed successful rent reviews in Ireland, leading to an increase in our global same-store office NOI of 6%. Our European office portfolio has many resilient characteristics, which reduces our risk of exposure in today’s market, including strong occupancy of 95%, an 8-year weighted average lease term to maturity, landlord-friendly lease structures with 97% of our office leases in Europe, fully repairing and insuring or FRI leases, similar to a triple net lease in the U.S. A solid roster of high-quality credit tenants, which make up 90% of our European rental income, including State Street, KPMG and Fiserv to name a few, and stable in-place income, which we continue to grow through rent reviews and active asset management. For example, in Ireland, our best-in-class office portfolio is made up of nine properties with a weighted average lease term of 11 years to expiration and average occupancy of over 95%. We have an active leasing pipeline for our limited remaining space, which we look forward to executing over the remainder of the year.

Turning to our development and lease-up portfolio. As we’ve been discussing on our last few calls, we are nearing completion on many of our developments as well as making progress on our lease-up portfolio. Our development and lease-up portfolio is expected to add $97 million to our estimated annual NOI over the next several years. One of the projects we’re very excited about is the redevelopment of the iconic and historic Kona Village Resort situated on an unmatched location on the Kona Coast of the Big Island of Hawaii. KW has a 50% ownership interest in this reconstructed luxury resort, which totals 150 stand-alone guest Hales and suites and will be providing incredible guest amenities across 81 acres.

The property will also feature solid sustainability features such as generating and storing 100% of renewable energy on site and is targeting LEED certification. Travel demand has remained robust as we are seeing very strong forward bookings for the second half of the year. We look forward to welcoming our first guests in July. We are also making great progress at our 6-market rate and affordable multifamily developments in the U.S. and our three Dublin developments, all expected to complete construction later this year. In total, the developments and lease-up we expect to complete this year represents $64 million of estimated annual NOI to KW when stabilized, laying the foundation for strong future growth.

With that, I’d like to pass it back to Bill.

[Bill McMorrow, Chairman and Chief Executive Officer]

Thanks, Mary. Over our 3 decades of investing in real estate equity and debt, KW has a long history of uncovering opportunities in periods of economic uncertainty like we’re in today. We are prepared to react alongside our well-capitalized strategic partners to take advantage of any new opportunities, which generally are sourced through our global network of established relationships that enable us to find off-market negotiated transactions. We have a great team with extensive experience in acquiring, renovating, building and asset management, which will allow KW to continue growing in a sound manner. I’d like to thank our entire global team for their dedication and hard work.

And with that, Daven, I’d like to open it up to any questions.

[Operator]

[Operator Instructions] The first question today comes from Derek Johnston with Deutsche Bank. Please go ahead.

[Derek Johnston, Deutsche Bank]

Hi, good morning, out there. And thanks for taking the question. Really excited about the development portfolio that’s going to deliver and stabilize hopefully by year-end ‘24. And Mary did touch on the hotel in Hawaii. And I just had a question. I hear that there are bookings coming in. But how are the initial bookings tracking towards your underwriting initially? And then secondarily on this question, how is the labor situation, which tends to be difficult in Hawaii? How have you been able to staff the hotel in preparation for the grand opening.

[Justin Enbody, Chief Financial Officer]

Thanks, Eric. This is Justin. I’ll take that call for that question. So far, what we’re seeing, we have a meaningful amount of bookings ahead of the opening – and we’re seeing the ADRs far in excess of what our underwriting was. There is significant demand. This hotel, as you know how a lot of followers historically has been open for a very long time, and we’re seeing a lot of people who can’t wait to get back. So we’re very pleased with what we’ve seen so far in the future bookings. And as it relates to employment, obviously, as you know, on the island, it’s difficult. There is a limited supply of employees. But so far, we’ve staffed a meaningful amount of the property already. The team on site has done a great job. Rosewood has done a great job. So we’re excited to be open on July 1 and start welcoming our guests.

[Derek Johnston, Deutsche Bank]

Okay. Great, thank you. And then on the debt platform, it was nice to see it grow here in first quarter in a tough environment. I would assume your positioning is pretty favorable, giving banks are pulling back and even non-banks like private equity, they use repos, which obviously are part of the banking system. The secret sauce that you guys have clearly is your partners in mostly insurance companies. Have you seen any pullback or differences in their ability to underwrite deals that you bring to them as the success rate remained high and any insights you can give us on the debt platform strategic positioning would be helpful?

[Matt Windisch, Executive Vice President]

Yes. Happy to answer that, Derek. So you can hit the nail on the head there. I mean, we’re not relying on the banking system to utilize our debt platform. So we’re not using any repo financing. We’re using primarily insurance company and sovereign wealth money globally throughout our platform. And so we’re in a unique situation right now, although the transaction volumes are certainly down, so the kind of the overall pie for debt financings is smaller, we’ve been able to capture a bigger market share, just given our platform and the certainty of close. We’ve been able to attract very high-quality sponsors. We’ve been able to keep our pricing levels kind of in line with where they were last quarter. But we’ve also been able to bring down the loan to values across our most recent originations.

And so we feel very comfortable kind of where we are in the capital structure being at, like we said, 50% LTV last quarter on the originations. And there are certainly fewer players in the market, but we’re being very selective and how we deploy capital. That all being said, the demand from the institutional side to place money with the platform remains extremely robust with our existing partners and certainly, demand from others who we’ve gotten some incoming calls from people wanting to participate as well. So we feel very positive about the future growth prospects. The other thing I’d say is in terms of payoffs, they have been very limited because the availability of financing from other lenders is a bit more limited than it was historically. So the level of payoffs we expect this year are going to be relatively low as well.

[Derek Johnston, Deutsche Bank]

Very helpful, thanks, and understood. And I guess lastly for me, and then I’ll pass the mic. Could you talk about your office portfolio outperformance? What has contributed to clearly, it’s completely different than what we’ve seen from other public office REITs that are primarily based here in the U.S. If you can kind of just walk us through some of the competitive advantages that you secured in your portfolio and why it’s bucking the trend versus all other office REITs. Even though it’s a small piece of the pie and you’re basically a residential REIT, your office portfolio really surprised me this quarter.

[Mary Ricks, President]

Sure. I’m happy to answer that. I mean, I would start by saying in the UK and Ireland, it’s a completely different office market than in the U.S. And I think the UK in general has seen muted new supply, and that’s been over the last probably 8 years. Overall, the UK office markets are – have a vacancy of 8%. For example, Edinburgh has a vacancy rate of 2%. So, you are really seeing not a huge vacancy. And this has been going on now for many, many years and I would say unlike the U.S. CBD, some of which are struggling that the European markets really don’t have those factors. I would also say that tenants are paying up for best-in-class assets with ESG credentials. You really don’t have an overhang of space, which I just described. And so really, I think corporates are prioritizing their employees, the workplace and highly amenitized assets, which is really what characterizes our assets. So, when you think about our portfolio and if you think about the same-store, for example, our Buckingham Palace Road asset, which is our largest office asset in Victoria, which is the West End. The West End has low-single digit vacancy. So, there is really just no space to speak of and that’s not fully led a pharmaceutical. There are actually corporate and a security company, a gaming company, took the remainder of the space and then Embassy Gardens, which is in London, a pharmaceutical company took the remainder of that space. And that’s long wallet. If you turn to our Irish portfolio, we have nine office assets there, and we have a very long wallet over 11 years. And it’s just a solid office market there. And our assets, I would say are new, and they have ESG credentials. And as I have been talking about the amenities, which I think is really what the corporates are bringing people back to work, given all the amenities that our office assets are providing. So, I think we just have a different portfolio, and the market itself is quite different than in the U.S.

[Derek Johnston, Deutsche Bank]

Thanks for that. Thank you. That’s it for me.

[Mary Ricks, President]

Great.

[Operator]

The next question comes from Anthony Paolone with JPMorgan. Please go ahead.

[Anthony Paolone, JPMorgan]

Great. Thank you. I guess first question is around just share issuance in the quarter. You guys – it seems like you tapped the ATM. And just curious thoughts around that and desire to you need to do more, raise liquidity or however you were thinking about it.

[Matt Windisch, Executive Vice President]

Yes. Hey Tony, it’s Matt. So, our view on that is we thought it made sense to add a little bit of liquidity in Q1 just given the current environment and what we expect to be some pretty interesting opportunities that will present themselves over the short to medium-term. We were able to utilize significantly higher volumes in the stock as a result of the index inclusion that took place. So, that’s when we did the vast majority of the issuance under that program. I would say going forward, we have a number of options at our disposal to create additional liquidity. I think it’s worth noting, we are kind of past the peak of our development spend. Q1 was really the peak, and we now expect to have cash flow coming off those investments soon. So, I guess what I would say is we will continue to be very thoughtful towards any future use under this ATM program.

[Anthony Paolone, JPMorgan]

Okay. Thank you for that. And then just, as you mentioned, thinking about opportunities, you do have some developments in Ireland, you have done well there. What’s just the desire to own more there, just increase the scale of that platform versus, say, other parts of the world where you are operating?

[Mary Ricks, President]

Yes. I would say on the multifamily side, we definitely have a big appetite there. Our portfolio is operating at 99% occupancy, so really virtually no space. And we continue to see demand. I mean Irish unemployment is at a 22-year low. So, it’s sub-4%. It’s just – it’s a market that we like. And as I am sure, as you know, we have a very well-capitalized French insurance company as our partner, a great relationship with an incredible portfolio that we would like to grow. And you have seen us put quite a lot of capital into that portfolio and building our assets that we are adding to. A lot of that land that we have built on, we acquired during the last basically downturn with very low basis. So, we feel really good about our basis and our portfolio, and we would like to continue growing that.

[Anthony Paolone, JPMorgan]

Okay. Where would you put cap rates in Dublin or I guess in multifamily, particularly right now, I have a better sense for the U.S., but it’s hard to tell there.

[Mary Ricks, President]

Yes. I mean in Dublin, we have seen some recent trades in the low-4% cap rate range. It really just depends because there is a mixed bag of stock. You have some that’s older. And you can’t compare our portfolio to the older stock that’s trading. You also have some assets that have zero amenities. We have assets that have parks and gyms and dog parks and nurseries for kids and restaurants. And so, I would really – obviously, I am biased, but I would say that our portfolio is the best-in-class multifamily portfolio in Ireland, and that will just continue with the roughly 1,000 units that we are adding to that portfolio. So, if you think about our portfolio, there is really no comp long-winded answer, but I would say low-4% cap rate range.

[Anthony Paolone, JPMorgan]

Okay. That’s helpful. And then just I guess last one on the debt platform. I think most of what you have done with that thus far has either been you have originated or participated in originations. But is there an appetite to also just buy existing debt? And also just – and if so, just how you are thinking about that? And I ask probably in the context of I think, Bill, your historical strongs that you had for a long time, was just the relationships with banks and working through some of the issues they had, and here we are in this environment.

[Matt Windisch, Executive Vice President]

Yes. Tony, so actually a handful of the assets we have originated under the debt platform have been purchases and a number of those discounted. But you are correct, I mean if you look historically at where we have participated in the debt space, the majority of it has been heavy discounted, no purchases. So, we are very well equipped to handle that. We have, obviously, the teams that understand the assets and the teams that understand the debt. And so we think that will be a big opportunity that may be coming here in the next several quarters out of the banking system. So, we are monitoring everything. We are watching what’s happening and we are – we have got the capital ready to the extent those opportunities present themselves.

[Bill McMorrow, Chairman and Chief Executive Officer]

Yes. I think Tony too – this is Bill. The only thing I would add to that is that it was a very good point you made. As I think about it, over the years, we have probably transacted with over 100 different banks around the world. We are viewed as a very trustworthy counterparty. I mean I think I can remember Mary during the last – Great Recession, we probably transacted with 30 individual banks in Europe. And so this is something we have always really made sure we cultivated with these types of relationships because as I have said in my remarks, the most important thing to us is to try to find transactions that are directly negotiated with somebody that we are buying from. And so we will see how this all unfolds here over the next 12 months to 18 months. But that’s a very important part of our strengths, I would say. And I think as I have said a number of times, the other part of this is that the team of people here at Kennedy-Wilson are basically the same people that have been together for pretty much a couple of decades. And so those relationships are maintained. We have all worked through one recession in ‘08 and ‘09. And of course, we have all come through this period of 3 years where we work through any of the challenges that any of us have related to the pandemic. And so you have got a time testing group of people with all of these existing relationships. And I would say the last thing is that the biggest difference between ‘08 and ‘09 for us is that we have a very significant stable base of recurring cash flow and maybe just as important. In ‘08 and ‘09, there was a dearth of – there wasn’t capital available around the world at the beginning. And today, unlike them for us, we have big capital partners that we are already doing business with who in themselves are very well capitalized. And so as opportunities present themselves, all of these factors are going to play into what we do.

[Matt Windisch, Executive Vice President]

Great. Thank you for that.

[Operator]

[Operator Instructions] The next question comes from Josh Dennerlein with Bank of America. Please go ahead.

[Josh Dennerlein, Bank of America]

Yes. Good morning everyone. Thanks for the time. I just wanted to touch based on the Vintage Housing platform. It’s a pretty unique platform you guys have. Just kind of thoughts on your expectations of future growth within it?

[Matt Windisch, Executive Vice President]

Yes. So, Vintage, it’s definitely a unique platform, and we have owned – been an owner in the business now since 2015 and certainly has exceeded our expectations from when we made the investment. In terms of kind of growth and adding units to the platform, we have been building ground up using tax-exempt bond financing and tax credits primarily to fund those developments. And we have got a handful of those assets coming online here in the next year. And we continue to look for opportunities in that space to find new investments. Historically, we have been doing these more one-off, finding one investment and building it. We are always out there looking for other entities that may have more scale, but it’s a very fragmented industry. And so we have been able to grow at a very good pace, but certainly would be out there looking and always trying to find bigger opportunities. But for the time being, we are generally adding three to four new assets per year to the platform, which adds great recurring cash flow. And then in terms of just growth within the portfolio itself, like NOI growth, – it’s all tied to area medium income in terms of how you can grow the rents. And so with the inflation we have seen over the past couple of years in wages, we have been able to raise rents in that platform at a higher growth rate than we thought initially.

[Josh Dennerlein, Bank of America]

Appreciate that color. One thing that’s come up on – it came up on another earnings call on the broader housing starts and permits data. Was that there might have been an elevated level of affordable housing coming online through that. Is that something you guys are seeing? And does that impact your platform at all?

[Matt Windisch, Executive Vice President]

Yes. I mean in the markets we are in, we haven’t seen an oversupply of affordable housing. In fact, I mean we are running at 97% occupancy. Most of the assets we are building, we generally are 50% to 60% pre-leased before we even open. And there is a couple of instances where we actually have a wait list of people to get in. And so certainly, in the markets that we operate in, we haven’t seen any of that. In fact, in certain states, it’s becoming more challenging to get tax credits and bond allocations. And so if anything, there is certainly – if we are seeing more of an undersupply of affordable housing in our markets been an oversupply right now.

[Josh Dennerlein, Bank of America]

Thank you.

[Operator]

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

[Bill McMorrow, Chairman and Chief Executive Officer]

Well, listen, thank you everybody for taking the time to listen to our story today. And as I always say, we are always available offline that anybody has any follow-up questions as you think of. So, thank you very much, and have a great day.

[Operator]

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