Kennedy-Wilson Holdings Inc

NYSE:KW

Earnings Call Analysis

Kennedy Wilson Q2: Portfolio Shifts and Growth Initiatives

Kennedy Wilson reported a strong Q2 2024 with a 37% growth in investment management revenue and a 5% increase in baseline EBITDA, which reached $105 million. They highlighted a strategic focus on multifamily, credit, and industrial assets, now making up 70% of their portfolio, up from 50% five years ago. The company stabilized several key projects and continued asset sales, generating $330 million in cash. Future growth is expected in their credit platform and new logistics acquisitions. Estimated annual NOI grew by 5% to $485 million, with significant contributions from stabilized multifamily projects.

Growth Amidst Challenges

In a challenging environment marked by high inflation and interest rates, Kennedy-Wilson has demonstrated resilience and growth. The company reported a 37% increase in Investment Management revenue, reaching $26 million in Q2, driven by nearly $1 billion in new originations through their credit platform. This reflects the strength in their multifamily investment strategies, generating about $485 million in estimated annual Net Operating Income (NOI) — a growth of 5% compared to the previous quarter.

Strategic Balance Sheet Management

Kennedy-Wilson has been focusing on optimizing their balance sheet. With $367 million in consolidated cash and a significant reduction in debt, the company paid down their line of credit by $67 million during Q2. Notably, 98% of their total debt is fixed or hedged, providing stability against fluctuating interest rates. They successfully refinanced a construction loan in Dublin, reducing the effective interest rate from 6.2% to 4.5% fixed for five years, significantly improving their debt profile.

Continued Focus on Core Assets

The company's strategy involves aggressive divestiture of non-core assets while bolstering their dominant position in multifamily housing and logistics. Recently, they completed a strong disposition strategy, generating $330 million from asset sales so far this year, including a key $35 million sale of their last asset in Spain. This focus indicates a strengthening balance sheet, promoting further investment opportunities. The proceeds will primarily reduce unsecured debt and support future co-investment strategies.

Strong Investment Management Pipeline

Kennedy-Wilson's investment management segment continues to show promise, boasting a robust pipeline of $600 million to $700 million in deals currently under negotiation. Their credit platform continued to provide solid returns, completing $1.9 billion in construction originations since acquiring a $4.1 billion loan portfolio from PacWest Bank. The growth in assets under management has been impressive, clocking in at $27 billion with a projected annual growth rate of 16%.

Favorable Market Conditions Ahead

The company anticipates more favorable conditions with interest rates poised to decline. This scenario could lead to an uptick in new construction starts, bolstering the company’s market positioning. The U.S. housing market remains strong, particularly in multifamily sub-segments, despite reduced supply starts. With adequate capital deployment strategies in place, Kennedy-Wilson is well-positioned to take advantage of upcoming market opportunities.

Forward Guidance and Strategic Vision

Moving forward, Kennedy-Wilson is focused on integrating their investment management business to capture growing demand from institutional investors across the U.S., Canada, and Europe. The company is experiencing a transformation with a strong emphasis on operational efficiencies in their ongoing projects, which should enhance future returns. While they anticipate a slight decline in their construction activity, they plan to pivot towards managing construction as experts, keeping equity investments to a focused range of 5% to 10%.

Conclusion

In summary, Kennedy-Wilson is navigating a complex real estate landscape with significant growth in investment management revenue, a strategic overhaul of their asset portfolio, and improved financial health. With a solid pipeline, reduced overheads, and a focus on core operations, they are well-equipped for sustainable long-term growth. Investors should observe how the company capitalizes on forthcoming market changes and manages its long-term capital strategies.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and welcome to the Kennedy-Wilson Second Quarter 2024 Earnings Call and Webcast. [Operator Instructions] Please note, this event is being recorded.



I would now like to turn the conference over to Daven Bhavsar, Head of Investor Relations. Please go ahead.

[Daven Bhavsar, executive]

Thank you, and good morning. Thank you for joining us today. 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.



With me today are Bill McMorrow, CEO; Matt Windisch, President; Justin Enbody, CFO; and Mike Pegler, President of Europe.



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 second quarter 2024 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.

[William J. McMorrow, executive]

Thank you, Daven. Good morning, everybody, and thank you for joining our call. Yesterday, we reported our results in the second quarter and the first half of 2024, which highlighted improving operating fundamentals in our multifamily portfolio and solid progress on our key initiatives during what has been a challenging 24-month period of time for real estate given inflation rates were -- given that inflation rates were at a 40-year high and interest rates at a 22-year high.



We saw continued momentum in Q2 within our investment management business and deployed $2 billion of new capital throughout the first half of the year. The deployment includes $1.7 billion through our credit platform which fully related to the construction of new high-quality market-rate multifamily student housing made to best-in-class sponsors and $300 million on multifamily and industrial acquisitions. We also continue to finish and stabilize our development and lease-up portfolio and in the quarter, stabilized 5 multifamily communities, which added $16 million to our estimated annual NOI. We have only 2 remaining active market-rate developments.



In total, our development and lease-up portfolio is expected to add $70 million in estimated annual NOI upon stabilization. With our developments largely finishing, our capital spend on development has dropped from averaging $150 million per year in '22 and '23 to only $10 million remaining to be spent in the second half of '24. As a result of our Q2 activity, our estimated annual NOI grew by 5% to $485 million. AUM, assets under management grew to $27 billion and is annualizing at a 16% growth rate and fee-bearing capital grew to a record $8.7 billion with the ability to grow to $15 billion, including $2.9 billion of future fundings from previously originated and closed construction loans and the investment of nondiscretionary capital that is available to invest.



Turning to market conditions. We have seen improving liquidity throughout the year, including several large portfolio transactions within the U.S. apartment sector, which were recently completed or announced, highlighting the strong institutional demand for high-quality multifamily assets. While interest rates have been a headwind for real estate over the last few years, we've begun to see significant beneficial shifts. In the U.S., the 10-year bond, as most of you know, has declined by 100 basis points and touching 5% in October 2023. In Europe, the Bank of England cut rates last week for the first time in 4 years, and the tenure bond in Ireland today sits at 2.7% versus I might add, it was close to 16% when we first went there in 2010.



Further anticipated decreases in the rates by the Fed also provide a supportive backdrop for our valuations and increases of our portfolio. Lower cost of capital and lower base rates should help increase transaction volumes and increase our ability to find opportunities to deploy capital and to realize additional cash monetizations. This bodes well for our business, where we have created a unique platform that can scale through investing in both real estate equity and debt. I'm excited about our current positioning and the numerous opportunities we have to expand our assets under management with a focus on the following areas: First, growing our investment management platform. Our track record spans over 3 decades in which we have navigated many different cycles and at the same time, grown our relationship network, which expands from the U.S. to Canada, Europe, and across Asia to include some of the largest sovereign wealth funds, insurance companies and other large institutional investors around the world.



This includes our partners in Japan, where we recently reopened our office and our history dates back when we established Kennedy Wilson Japan back in 1994. We continue to see a strong desire from our partners to invest with KW in real estate debt and equity in the U.S., United Kingdom, and Ireland. I'm very confident in our ability to continue raising further third-party capital to grow our investment management business. We're currently focused on 3 key products. First is rental housing for our portfolio of approximately 60,000 units includes 22,000 units being financed through our construction loan platform and over 38,000 multifamily units in which we have an approximate 56% ownership interest. Rental fundamentals remain very healthy as there remains a shortage of housing throughout the U.S., U.K., and Ireland. In the U.S., multifamily demand for a largely suburban portfolio has remained strong.



While supply starts have dropped significantly. We also have a very successful track record of investing in and building high-quality rental housing in Dublin in the U.K., and we continue to evaluate opportunities in those regions. Second, we look to continue growing our credit platform, where we are generating solid risk-adjusted returns for our shareholders. Q2 marked the 1-year anniversary of our acquisition of a $4.1 billion construction loan portfolio from Pac West Bank. Since then, the PacWest construction lending team that joined KW has integrated seamlessly within our KW culture while completing $1.9 billion of multifamily and student housing construction originations with very high-quality institutional sponsors.



We have a strong pipeline of $600 million to $700 million that is signed up and is currently in the process of closing, which will take our closings to $2.7 billion since the acquisition. And third, we look to continue building on our existing 12 million square feet of logistics. We acquired 2 industrial platforms in the quarter, totaling $180 million, 1 in the U.S. and 1 in the United Kingdom, and we are evaluating several new opportunities in our pipeline in both regions.



Our second key initiative relates to our asset sale plan. In July, we sold a retail center in Spain, which was our last wholly-owned asset in the country, and generated $35 million of cash to KW. This brings our year-to-date total through the end of July to $330 million of cash generated from asset sales of noncore assets and loan repayments. We have a strong disposition pipeline for the second half of the year with proceeds to be used to reducing our unsecured debt and for future co-investment opportunities. I want to thank our entire organization for their hard work as we have continued working on one team across all geographies and business lines, which has set up a firm foundation for the next phase of growth at Kennedy-Wilson.



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

[Justin Enbody, executive]

Thanks, Bill. I'll start by reviewing our financial results and then discuss our balance sheet. Investment Management revenue grew by 37% to $26 million in Q2, driven by completing nearly $1 billion in new originations in our credit platform as well as higher levels of fee-bearing capital. Baseline EBITDA grew by 5% to $105 million. We saw minor changes in the values of our unconsolidated portfolio in the quarter, and we saw overhead costs go down by 9% year-to-date. Additionally, post-quarter end, as Bill mentioned, we divested in the largest asset we held in Spain, and with that, we'll be closing our Spanish office. In summary, our GAAP net loss totaled $0.43 per share in Q2, which includes $0.46 per share of non-cash items, including depreciation and amortization, fair value and share-based compensation.



Adjusted EBITDA totaled $79 million for Q2 and $283 million for the year.



Now turning to our balance sheet and debt profile. At quarter end, we had $367 million of consolidated cash. We paid down our line of credit by $67 million in Q2. And today, we have $172 million drawn on our $500 million line of credit. Our share of total debt is 98% fixed or hedged with a weighted average maturity of 5 years. We continue to collect cash as a result of our interest rate hedging activities, which is not reflected in our financial statements as an offset to interest expense. In Q2, we collected $11 million of cash, bringing our year-to-date total to $23 million.



Our effective interest rate of 4.6% reflects a 50 basis point saving over our contractual rate as a result of our hedging strategy. Our remaining 2024 debt maturities totaled $181 million, which are all nonrecourse at the property level. And in Q3, we refinanced the construction loan at one of our recently completed multifamily projects in Dublin, where the effective rate improved from 6.2% to 4.5% fixed for 5 years. We also continued to repurchase stock in the quarter, buying another 600,000 shares, which brought our year-to-date total through July to 1.7 million shares or approximately 1.2% of our outstanding share count.



We have $110 million remaining on our $500 million share repurchase authorization. With that, I'd now like to turn the call over to our President, Matt Windisch, to discuss our investment portfolio.

[Matthew Windisch, executive]

Thanks, Justin. We continue to strengthen the quality of our portfolio as we work through disposing of noncore assets while at the same time stabilizing brand-new communities. Our stabilized portfolio totals $485 million in estimated annual NOI, which grew by 5% in the quarter. Over the last 5 years, our portfolio has continued to shift towards multifamily credit and industrial, which have increased from 50% to roughly 70% of our NOI. We have also sold down our retail office and hotel portfolios, which 5 years ago accounted for 50% of our portfolio versus approximately 30% today. In total, our 38,000-unit multifamily business has grown to 61% of our stabilized portfolio, producing $525 million of estimated annual NOI at the property level, of which KW's share is $294 million.



We have 2,700 units in our lease-up and development pipeline, which we expect to add $29 million to estimated annual NOI at stabilization. Our U.S. multifamily portfolio has benefited as a result of our asset management initiatives, where we are focused on driving operational efficiencies and enhancing our assets as well as strong demand from an overall shortage of homes for sale and the high cost of homeownership. These drivers resulted in same-property occupancy growth of 1.9%, revenue growth of 3.6%, and NOI growth of approximately 3%. Overall, portfolio occupancy stood at 94%.



On the expense side, rising insurance costs reduced our same-store NOI results in Q2 by approximately 50 basis points. However, we expect that our insurance premiums will be flat to down in the second half of the year based on our July renewals. Our market-rate apartment portfolio in the U.S., which is over 90% suburban, saw blended leasing spreads of 2.6%, similar to what we are seeing in July, and we ended the quarter with a loss to lease totaling 4%.



Turning to our regional highlights. In our California portfolio, we continue to make great progress working through delinquencies and re-leasing units. In Q2, we saw occupancy increases, lower bad debt, and stable operating expenses, leading to NOI growth of 5% across our California portfolio. In Northern California, bad debt dropped to the lowest level in 2 years. The Pacific Northwest also delivered an impressive 4% NOI growth as occupancy grew by 1.4%, while our value-add initiatives in this region continue to positively impact our results.



In the Mountain West region, we saw occupancy improved by 2%, leading to revenue growth of 3% and NOI growth of 1%. Our portfolio here is well-diversified across 6 states. Nevada and New Mexico were the strongest in our portfolio, with 9% and 6% NOI growth, respectively. Our Arizona properties produced NOI growth of 6%. And in Utah, we saw NOI growth of 3%. In Idaho, we have seen supply impact our rental growth, although we anticipate much less new supply coming online in the years ahead. We continue to have conviction in these markets where our portfolio offers an attractive, lower-cost alternative to higher rent units and higher tax, more densely populated cities.



Our Mountain West portfolio's average rents are roughly $1,600 per month, and we believe these markets are set up for solid growth as supply pressures subside. Moving over to Dublin, our portfolio there remains in strong demand. In Q2, we stabilized 2 multifamily projects in Dublin, Coopers Cross Residential and the Grange, which totaled 758 units. These 2 properties added approximately $10 million to estimated annual NOI. We have a further 232 units undergoing lease-up at Cornerstone, which we anticipate stabilizing in early 2025. Renter fundamentals remain healthy in Ireland as labor market conditions are tight, and there remains a large structural shortage of housing.



With regards to our global office portfolio, we saw improving occupancies and lower operating costs lead to 6.5% NOI growth. It is worth noting that U.S. office represents only 6% of our stabilized portfolio, where we have completed approximately 0.5 million square feet of leasing in 2024 with an average term of almost 6 years. The majority of our office portfolio is located in Dublin and in the U.K., where the overall leasing market environment has improved in 2024. In Q2, same property NOI increased by 2.2% in our European office portfolio, driven by slight increases in occupancy and lower operating expenses. Stabilized occupancy in Europe remains healthy at 94% with a weighted average lease term of 7 years to exploration and 5 years to break. In Dublin, our 9 stabilized properties have less than 5% vacancy, with 5 of the properties 100% leased. We continue to see a flight to quality, which we believe will benefit our portfolio.



Fundamentals in our industrial portfolio remain very strong with our portfolio 98% occupied. In Europe, leasing completed in the quarter delivered a 44% increase in rents. Demand from our existing tenants to remain in our properties remains strong, with tenants regularly engaging in early discussions ahead of their lease expiration. In-place rents in Europe remain 19% below market, which allows for us to continue enhancing value as leases mature.



Switching gears to our Investment Management business. As we continue to simplify our balance sheet through non-core asset sales, investment management growth is an important focus as it allows us to generate attractive returns in a capital-light manner. We have successfully grown our fee-bearing capital by 93% over the past 3 years to a record $8.7 billion. A large portion of our investment management growth has been driven by our credit business, which includes $5.1 billion in outstanding loans and $2.9 billion in future fundings.



Our capital-raising efforts span across the globe, with the majority of our capital coming from large institutional insurance companies, sovereign wealth funds, and pensions. Combining these important relationships with an improving interest rate backdrop should strengthen liquidity and improve our ability to deploy capital at scale.



In summary, we are emerging from a challenging period of time as a much stronger company positioned for growth. We greatly increased the strength of our lending capabilities in the last year. We continue to finish and stabilize our developments while recycling capital from our noncore asset sales, strengthening our overall portfolio. And most importantly, we have a well-seasoned and invigorated team on the field, which looks forward to growing the business over the years ahead. So with that, we can open it up to Q&A.

[Operator]

[Operator Instructions] The first question comes from Anthony Paolone with JPMorgan.

[Anthony Paolone, analyst]

Okay. I guess the first question as it relates to the debt platform. It seems like the origination thus far has been mostly on the construction loan side or maybe all of it has been, if I recall. But just wondering what the prospects are for doing other types of maybe longer duration type debt deals or taking advantage of some of the repayments to be the vehicle that terms out some of that debt to add some just broader duration to that book?

[Matthew Windisch, executive]

Tony, this is Matt. It's a great question. We see a great opportunity in the construction lending space within the residential sector. And so that's where our primary focus has been. But the team that we both bought and built within KW is a seasoned team of people with expertise, not only in construction lending but in permanent lending, bridge lending, you name it. So we definitely have the capabilities and expertise to expand beyond our current capabilities in the construction lending space. And so we are looking at those opportunities of how we increase the duration on the portfolio and look at longer-term solutions for our customers. And we've got capital partners that are interested in doing that with us. So it's a good question. I think you'll see over the next several quarters an expansion of our business beyond just construction lending.

[Anthony Paolone, analyst]

Okay. And then with regards to development, the program there seems to be winding down, and it's simplifying the story overall for you guys. Do you think there are incremental starts in the horizon? Or do you think this kind of continues to wind down for a while here?

[Matthew Windisch, executive]

No. We're really looking at that business in a different way than we have in the past where we were a sizable equity partner in all of these deals. And so we have several new projects that we're looking at right now, but where we're taking both of our really experienced teams here in the United States and in Europe, and for lack of a better word, really repurposing them into a construction management business, where similar to what we've been doing with the investment management platform, where we will be 5% to 10% investors in these properties, but manage and run all the construction and earn the normal development fees that you would earn in developing any property.



So we have a -- we've been doing this now for 10 years, and we've developed a very, very outstanding team of people in both Europe and here in the United States. And so we don't want to slow the development down where it makes sense. But what we do want to do is do it more in the format of an investment management platform or were the construction manager.

[Anthony Paolone, analyst]

Okay. And then just if I could ask one last one. It seems like you're making progress towards your disposition goals. Just wondering if you can put some brackets around what all you have in the market, if we should expect anything more sizable coming, or any exits of other markets or property types or anything?

[Matthew Windisch, executive]

Yes. So you saw that we did sell our Spanish retail center in Q3, so that's obviously done. But we have a substantial pipeline of dispositions that were in various stages of selling. So it's in line with the plan that we announced late last year, and we're confident we can still hit those numbers. And for us, in particular, you've seen the shift of the majority of the assets on the balance sheet being U.S. multifamily. So I think with this disposition program, you'll continue to see that shift continue.

[Michael Pegler, executive]

Yes. I think, Tony, just to add to what Matt said, it's very, very clear that one of our core strengths is whether it's in the credit business or the equity side is the multifamily business, where we now are involved in almost 60,000 units. And so our view of the housing market is that there's going to be significant opportunities to continue to grow that business over time. And so we have very clearly identified the other noncore assets that we want to get out of. And I think to simplify the company in terms of geography, we're only focused on those 3 markets, the United States, the United Kingdom, and Ireland. And the other side of the equation is the capital that we're raising in various parts of the world. And as we said earlier in the call, we're very, very focused on raising capital now out of Asia, Canada, and Europe. And we're making really, really good progress in all of those markets.

[Operator]

The next question comes from Josh Dennerlein with Bank of America.

[Joshua Dennerlein, analyst]

I just wanted to explore just like what's the -- you guys include the fair value adjustment and adjusted EBITDA. I guess what's the rationale on that? Because I feel like it adds a lot of noise to just the overall earnings power of the company. So just why do you guys feel it's important to include that?

[Operator]

I mean I think historically, as you mentioned, it's been a little bit volatile. We typically are including everything in that metric, and that's why we introduced baseline EBITDA to be a more recurring operating metric for the users. So now you can choose which one you'd like to look at.

[Joshua Dennerlein, analyst]

Okay. Sorry, I missed that. So that was new for this quarter, the baseline EBITDA, and that's just--

[Matthew Windisch, executive]

I think second or third quarter, we've had it. But that was the genesis of it. So it's a good question, and hopefully, we're just giving you more information.

[Joshua Dennerlein, analyst]

Okay. And then you guys mentioned opening a Japan office. One, I guess, what's the rationale behind that? And then can you help us reconcile that with like the cost-cutting progress? It just seems like maybe that's--

[Matthew Windisch, executive]

That's a very good question. We started in Japan in 1994 with no employees. And over a 7-year period of time up to 2002, we actually became, if not the first, one of the first U.S. real estate companies to ever go public in Japan. That was Kennedy-Wilson Japan, which went public there. We sold almost all of our positions in that company over the next couple of years after 2002. But that company continued to thrive, and it's currently -- it's a private company owned by one of the large Japanese financial institutions. Outside of that business, we also owned almost 50 apartment units, mostly in Tokyo and Osaka that turned into a very, very successful investment, and we sold that business in 2015.



And as luck would have it, we use the proceeds out of that to buy our 50% interest in Vintage Housing here in the United States, which at the time, just as an aside, had 5,000 units in agent now has 12,000 units in, but we have always maintained very, very, very deep and strong relationships with many, many Japanese -- large Japanese financial institutions and companies in Japan. And we have one existing joint venture in the Bay Area with a major Japanese construction company. And then you might remember that in the first quarter of this year, we closed our first multifamily equity investment with a very large Japanese development company in Vancouver, Washington.



And so what this has all led to is kind of, I'd say, are examination of all these deep relationships that we've built over the last 30 years. And the Japanese institutions are very global in nature. And it's obviously no surprise to anybody that Japan is faced with a declining population at this point in time. We'll see how that all goes. But it has always been the case with Japanese companies irrespective of where the yen is out, they want to invest on a long-term basis outside of Japan. And so we made a decision really earlier this year or 2, I'd say, to intensify our capital raising efforts there based on these long-term relationships. But to do that kind of business in Japan, you have to have a physical presence there. And so we've reopened our office there. I would also add in this long-winded answer that we've had several Japanese companies now that have come into our fund business, discretionary fund business, including one large Japanese company that came into our fund business just a couple of weeks ago. And so we've had real success raising capital there.

[Michael Pegler, executive]

I think one thing I'd add to that is just the team that we have covering that region. We're already employed by the company. So there's no -- we didn't add employees or anything like that as part of this. So there's not a significant change in the G&A related to opening this office.

[Operator]

[Operator Instructions] The next question comes from Omotayo Okusanya with Deutsche Bank.

[Omotayo Okusanya, analyst]

I wanted to ask about the credit platform and how you think about the growth outlook for the business, just given again, if rates are coming down going forward, do you think that result in kind of more construction loans as people all of a sudden want to start borrowing? Or do we kind of think about it as there being some other sources of maybe more attractive funding for potential developers and they kind of move towards a different product? Like just how do you kind of think of how the business evolves in a world where we have declining interest rate?

[William J. McMorrow, executive]

That's a good question. I mean we've seen a significant slowdown in starts on apartment construction. And so what's happened for us is we've had a combination of lower number of people -- a smaller number of people that are actually developing, but there's also a lot fewer financial institutions and lenders in the market. So the pie has shrunk dramatically from where it was 3 or 4 years ago in terms of the overall size of the construction lending market. That being said, we've been able to capture a very sizable market share, just given that a lot of the traditional lenders are not currently active in the space. I think with the prospect of rates coming down, a couple of things could happen. And our thesis really is that you will see more people start to build because the cost of building will be reduced because of lower interest costs and also the value of these assets once completed, should go up and the takeout financing should be more attractive. So you should see a pickup in new starts for people building apartment buildings.



At the same time, I think it's likely you'll see new entrants come into the market given those factors. So our hope is that the market will continue to grow, and we'll be able to maintain our strong market share. So I think it bodes well for us that the overall size of the opportunity will be larger. And I think we've got a competitive cost of capital and a great team that has executed with these borrowers during times where others weren't there stepping up like we are.

[Omotayo Okusanya, analyst]

Does it change profitability of the business because you're probably now doing making loans at lower rate?

[William J. McMorrow, executive]

It's not a significant change for Kennedy Wilson because we're putting up a relatively small amount of capital into the loans themselves, and we're earning fees based on the origination and asset management and servicing of the loan. So for Kennedy-Wilson, it won't be a significant change in the return.

[Operator]

The next question comes from Alan Parsow with Alcon Partners.

[Alan Parsow, analyst]

I have 2 quick follow-up questions. One is on Japan and that area. And if you could -- if there is a way for you to elaborate on the amount of funds you've been able to, to this point, get into your fund development and different fund issues? And then two, if you could quantify your sale of the Spanish property and give us an idea of what you made lost or whatever on that property and how much you should say from closing eventually that Spain office?

[William J. McMorrow, executive]

Yes. As far as Japan is concerned, Alan, I mean, we're in the, I'd say, early stages of raising capital, but we're having, I'd say, very meaningful discussions with, I'd say, a dozen major Japanese companies. The reference, if I didn't say the number, the reference I was making into our Fund VI discretionary, we've had $100 million of capital come from Japan. And so this is early stages. And as you can see, we haven't -- intentionally in the last 12 months, we haven't deployed hardly any capital into the equity investment side of the business. We felt the very much better use of capital was to grow the credit business. The returns were just better. But with these rates coming down, it's clearly going to benefit the equity side of the business, both in terms of the valuation of our own assets, but also our ability to get positive leverage on acquisitions. And that was really the reason over the last 12 months, we've really barely moved the dial in terms of acquisitions of new equity-oriented investments.



The overhead issue. We have been very, very, very good, I would say, over the last 9 months of reassessing some of the overhead costs of the company, repurposing people, repurposing places where we had people, but where we could use them better in a different location. And so we've got further, I'd say, another 5% to go in terms of -that's already identified and has taken -- pretty much taken place in terms of our overhead. But Spain, it represents real cost savings for us. I would say it's kind of in the order of about $1 million to $1.5 million a year.

[Alan Parsow, analyst]

And the amount of profit or loss from the sale of the property?

[William J. McMorrow, executive]

Yes. Well, you get your profit in 2 ways. We had very attractive financing on that property from one of the Spanish banks. And there was a significant excess cash flow from that property for probably the 5 or 6 or 7 years that we owned it. So the returns ended up being very good, but most of the return really came from the distribution of cash over the time we held it.

[Matthew Windisch, executive]

Yes. So the third quarter impact from the sale itself is going to be negligible in terms of the gain.

[Operator]

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

[William J. McMorrow, executive]

Well, thank you, everybody, for listening in today. We're very pleased with where we're at. And as always, if there are any other questions that you've got, any of us are available to talk with you at any time. So thank you.

[Operator]

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