Over the first half of 2016, Kennedy Wilson European Real Estate’s adjusted NAV rose by 5.1% to 1233.8p. Adjusted earnings per share were up 17% to 26.8p. The first half dividend is 24p – they are paying quarterly dividends of 12p.
The GBP3,063.2 million property portfolio comprises 268 directly owned assets with a total area in excess 12.1 million sq ft (excluding loans, hotels and development assets). This consists of a direct real estate and hotel portfolio of GBP2,981.4 million and a further two loan portfolios secured by 10 assets, with a value of GBP81.9 million.
On occasion, they have been buying properties by first acquiring loans secured against these properties and then securing ownership of the underlying assets. They took direct title of Pioneer Point (294 PRS units) on 5 February. This, combined with the disposal of the underlying collateral of Avon in Q1-16, has resulted in loans now comprising 2.7% of the portfolio. They say that, where opportunities exist, they will continue to use this strategy through primary and secondary trades.
They made acquisitions of GBP172.8 million across six assets, and disposals over the period of GBP165.5 million over 30 assets. This has allowed them to improve liquidity, which stood at GBP609 million at the end of the period. Shortly after the period-end, they completed their GBP300 million non-core disposal programme totalling GBP315.3 million. They say, disposals completed post the EU referendum continue to be executed at attractive pricing in excess of their 15% target return. Total disposals to date have been completed at c. 5% ahead of book value, at a return on cost of 25.6% and at a spread between entry yield on cost and exit yield of c. 240bps.
Like-for-like annualised net operating income was down 1.2% in the period, primarily driven by lease rollover in the UK portfolio and a reduction in hotel income as both the Fairmont and Portmarnock are not fully operational as they are completing their refurbishment programmes.
On Brexit, they point out that ssets held in Ireland, Spain and Italy account for 42% of the portfolio. Within the portfolio tThere is a low level of voids, with occupancy at a high 94.6% and a tenant base which is extremely diverse with over 560 tenants. In particular, there is no exposure to City of London or Canary Wharf assets and financial services tenants account for a small percentage of net operating income and are not based in Central London. There are currently no significant development project exposures.
With regards to funding, they have an investment grade credit rating, a live EMTN programme and have access to a diverse source of financing options. There exists significant cash and undrawn line liquidity (GBP609 million at 30 June 2016). They have good LTV covenant headroom. The UK portfolio values would have to fall 52% for the Group bond LTV covenant to be breached (or a greater than 30% fall across the whole portfolio). They say foreign exchange volatility, as has been proved during the first half of 2016, is mitigated by natural matching in Euro denominated borrowings or derivative instruments which significantly mute the impact on NAV.
KWE : Kennedy Wilson European NAV up 5%