Kennedy-Wilson Holdings, Inc. Aktie

Good day, and welcome to the Kennedy-Wilson Third Quarter 2025 Earnings Conference Call and webcast. [Operator Instructions] Please note, this event is being recorded. I would now like to hand the conference over to Daven Bhavsar, Head of Investor Relations. Please go ahead.

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 third quarter 2025 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 the number of risks, uncertainties and other factors indicated in reports and filings with the Securities and Exchange Commission. As you may have seen in our Form 8-K that we filed on Tuesday, the Board of Directors of the company have received a proposal letter from a consortium consisting of Bill McMorrow, our Chairman and CEO; and Fairfax Financial Holdings Limited about a potential take-private transaction. The Board has formed a special committee to evaluate the proposal and its options. The company does not plan to provide any updates on an ongoing basis until there is a definitive transaction to announce or the process has been terminated.

We will not be taking any questions with respect to this potential transaction or any related matters on today's call. I would now like to turn the call over to Bill McMorrow.

Thanks, Daven. We reported our results for the third quarter of 2025 yesterday, which reflects the progress we achieved on expanding our investment management platform while executing on our noncore asset sale plan. Starting with our quarterly highlights. We saw improvement across several of our key financial metrics in the quarter, including adjusted EBITDA and adjusted net income compared to Q3 of last year. Driving our results was the growth in our investment management business with assets under management growing to $31 billion in Q3, which reflects an increase of 11% year-over-year. Fee-bearing capital grew to $9.7 billion, an increase of 10% from a year ago. Fee-bearing capital has now grown by approximately 20% per year over the last 4 years.

Growth in our fee business this quarter was driven by capital deployment, supported by improving liquidity across the commercial real estate market. We deployed or committed approximately $900 million in Q3, driving total capital deployment to $3.5 billion year-to-date through September. Capital deployment in the quarter was largely focused toward rental housing-related credit and equity investments. On the credit side, we originated another $600 million in new rental housing construction loans, driving total originations to $2.6 billion for the year. Our share of these loans is 2.5%. Since July of 2023, our credit team has surpassed $6 billion of new loan originations, while also successfully realizing over $2 billion of repayments from loans purchased as part of the PacWestern Bank loan portfolio transaction. On the credit side, our comingled U.S. fund acquired 3 multifamily communities and an industrial property for a combined total of $173 million.

In Europe, our investment activity remains centered around expanding our U.K. single-family rental platform with CPPIB. There remains a meaningful housing supply-demand imbalance driven by population growth as well as the cost of purchasing a new home. In Q3, we added $62 million in new investments, which brings our total portfolio to 1,300 homes. Since launching in Q4 of last year, the platform has demonstrated good momentum, reaching approximately $585 million of committed capital relative to the initial $1.3 billion purchase target. In our co-investment portfolio, we recapitalized 2 existing U.S. multifamily joint ventures, reducing our ownership from 51% to 10%. We also sold a smaller wholly owned multifamily asset built in 1988 located in suburban Salt Lake City. Our Q3 sale and recap activity generated approximately $200 million of cash to KW, $130 million of additional fee-bearing capital and $30 million of realized gains. Year-to-date, we have generated $470 million of cash from our asset sales to KW and exceeded our target of $400 million for the year.

We have achieved real progress on our initiatives over the last 2 years to grow our investment management business. In 2023, we added the credit team from regional bank, growing that platform from $4 billion to $10 billion in AUM today. In 2024, we launched our U.K. single-family rental platform, as I mentioned, targeting $1.3 billion in asset purchases where we are approximately $0.50 committed against that target. And in September, we announced our pending acquisition of Toll Brothers Apartment Living platform, including its in-house development team. The transaction will include a minority interest in 18 apartment communities and student housing properties, $3 billion of assets that Kennedy-Wilson will manage on behalf of Toll Brothers and a development pipeline, which would total approximately $3.6 billion in new development projects. This combination will create immediate scale for our investment management platform.

First, the acquisition will immediately add $5 billion to assets under management and includes a portfolio of 21,000 existing and planned units. On a pro forma basis, our total AUM is expected to increase to $36 billion, of which over 70% will be attributable to rental housing. Our national rental housing platform would grow to over 90,000 units, inclusive of the units we currently own, we are financing or have in the development pipeline. Turning to the markets in general. We continue to see improvement in both the cost of capital and availability of capital with lower borrowing costs and spreads supportive of higher transaction levels. Rental fundamentals remain strong as the structural undersupply of housing across all our markets remains a long-term tailwind and renting continues to be significantly more affordable than buying. With that, I'd like to turn the call over to Justin Enbody, our CFO.

Thanks, Bill. I'll begin with a review of our Q3 financial results and then discuss the balance sheet. GAAP EPS for the first quarter totaled a loss of $0.15 per share compared to a loss of $0.56 per share in Q3 of last year. Adjusted EBITDA totaled $125 million in Q3 and was up almost double from $66 million in Q3 of last year. For the year, adjusted EBITDA has increased 6% to $371 million. Q3 baseline EBITDA was steady at $101 million, resulting in trailing 12-month baseline EBITDA of $425 million. Our results reflect further growth in investment management fees, which increased by 8% in the quarter and an impressive 23% year-to-date. We also saw improving results from our unconsolidated investments with increases to both our share of revenues, carried interest and gains on sale, all resulting in a $55 million increase in income from unconsolidated investments compared to Q3 in 2024.

Now turning to our balance sheet. In October, we paid off the last tranche of our KWE unsecured bonds totaling $352 million. This payoff completes the repayment of 2 legacy bond issuances dating back to 2015 and greatly simplifies our capital -- debt capital structure going forward. The payoff was funded in part from cash generated from our recap transactions, asset sales as well as our line of credit, which we will look to reduce in the next few quarters from additional sales of noncore assets. Our debt -- our total debt is 96% fixed or hedged with a weighted average maturity of 4.5 years and a weighted average effective interest rate of 4.7%. We also have $255 million of consolidated unrestricted cash. With that, I'll now hand it over to Matt Windisch for a portfolio update.

Thanks, Justin. Our portfolio of stabilized real estate investments generates estimated annual NOI of $434 million to KW with 70% positioned in our 2 key conviction sectors, rental housing and industrial. In the rental housing sector, there remains a long-term undersupply of housing and homeownership remains unaffordable. After record supply last year, future new supply is decreasing. Demand remains strong across our portfolio with occupancy ending the quarter at over 94%. U.S. same-store NOI grew by 2.4% for our market rate portfolio. Revenues were up 1.3% and expenses were down due to favorable property taxes in certain markets and reduced insurance costs. Leasing spreads totaled 1.4% in Q3 with renewal spreads increasing by 3.4% and new leasing spreads declining by 1%. At quarter end, our loss to lease totaled 3.3%.

I'd like to highlight a few regional stats. The strongest growth came from our Pacific Northwest portfolio, where NOIs grew by 3%. This region benefited from return to office mandates with limited new supply being delivered. The Mountain West, our largest region, saw a 2.6% NOI growth. In particular, our assets in Idaho benefited from higher occupancy, lower bad debt and lower real estate taxes, resulting in 6.8% NOI growth. In Southern California, our lower density suburban portfolio generated 2% revenue and NOI growth with same-store occupancy at 96%, while our smallest region, Northern California, saw NOIs fall by 1.5%. Our vintage housing affordable portfolio surpassed 11,000 units in the quarter.

Same-store NOI was flat in Q3 as rental increases were offset by higher expenses incurred in the quarter. We remain on track to stabilize another 2,000 units, which are currently in lease-up or development. We are also actively evaluating new opportunities to further expand our affordable portfolio platform. In Ireland, same-property occupancy grew by 1.7%, primarily at our newly completed assets, resulting in revenue growth and NOI growth of 6%. Moving over to our office portfolio. 76% of our stabilized office portfolio is in Europe, where same-property NOI decreased by 6% and was impacted by a 5% decline in occupancy. However, our asset management teams have quickly signed agreements for lease for a bulk of the vacated space. Our European stabilized office portfolio ended the quarter with 91% occupancy.

In closing, we saw continued growth in our investment management business in Q3, while at the same time, monetizing noncore assets. Finally, we look forward to closing the pending transaction with Toll Brothers in Q4. With that, operator, we can open it up to Q&A.

[Operator Instructions] And your first question today will come from Anthony Paolone with JPMorgan.

I was wondering if you can talk about just where cap rates are for multifamily in your various markets. We saw some of the deals you did in the quarter, I think, [ were 5.4%, ] but just maybe generally, kind of where do those sit? And then also as it relates to Toll Brothers, if we think about the development platform there for multifamily, like where would you develop? And like what would the spread be versus like market cap rates?

Tony, it's Matt. So in terms of cap rates we're seeing in the market, it really depends on a number of factors, including age of the assets and the submarket you're in and what's happening around supply. So we've seen things trade in the high 4s. We've seen things trade in the high 5s. It's really kind of a broad range depending on those factors, but they seem to be holding relatively steady over the past couple of quarters at those levels. And in terms of the Toll Brothers portfolio and kind of the future pipeline, we continue to like the markets they've historically built in. So it will be some of the West Coast markets we currently own and operate as well as some East Coast markets where we've historically just been a lender. And we think, generally speaking, again, depending on markets and a number of factors that we can generally build the spreads of somewhere between 125 and 175 basis points on new developments relative to market cap rates. That's kind of the target in terms of how we'd be looking to capitalize these deals.

Okay. And then I get the sensitivity around the go-private proposal, but maybe I missed this. Did -- was it outlined who on the Board is on like comprises the committee that will kind of go through this and make the decisions?

Yes, Tony, it's Matt. So we -- again, we can't talk about anything related to the offer that was made a couple of days ago. But that was not outlined in the offer, who the special committee may be.

And your next question today will come from Jana Galan with Bank of America.

Congrats on a really nice quarter. I was curious if there was any impact thus far from the government shutdown on the affordable multifamily portfolio?

Yes. I mean we haven't seen anything there. We did see a bit of weakness in terms of NOI in the quarter, as we pointed out, but that was more expense driven, not really related to anything from the government shutdown or any subsidies that would be passed on to the tenants. So no, we have not to date seen any impact from that yet.

And congrats on the impressive growth in the investment management platform. Just wondering if you can maybe talk to kind of fundraising right now globally and where you guys think you're taking market share?

Yes. That's a good question. I think it's evident and at least from what I read that the capital raising, particularly in the private equity firms is there's challenges associated with it. I think what we have seen is that really the discretionary funds have become somewhat less prevalent unless you're one of the really big capital raisers. And generally speaking, people want to do their capital deployment through separate accounts. I think the -- in our case, we've had great -- we've had good success in really several geographies, but particularly in Asia, where we've been for 30 years and here in the United States and Canada and parts of Europe. But we continue to see our capital deployment increasing, but we think that we've got the capability to raise capital to support all of that.

[Operator Instructions] And your next question today will come from Tayo Okusanya with Deutsche Bank.

In regards to the buyout offer, while I know the company can't make any comments specifically, I don't know if it's possible for Bill to make any comments about why or his rationale for making the offer.

Yes. Tayo, it's Matt. Again, I'm sorry, we just -- we can't comment on anything beyond what we said on the call earlier about the offer that was made.

Fair enough. No worries. Next question, just around origination volume in the -- from the loan business. Again, granted 2Q was kind of a record, but in 3Q, there is a slowdown. Just kind of curious, is that seasonality? Is that more competition? Just kind of curious what was happening there.

Yes. Good question. Yes. So we -- historically, Q3 has been a bit slower and if you kind of look at the prior year as well. So Q3 tends to be a [ little lower ] on the origination volumes kind of coming out of the summer. And so certainly, there's heightened competition. I think we talked about that on the last call, and we've seen some spreads coming in over the past year. But we're still very active in the space and have a strong pipeline, and we expect to continue to originate out of that business.

Okay. That's helpful. And if we could go international just for a minute, the SFR platform, again, some additional acquisitions there. Just kind of talk a little bit about how that's coming along, how that's growing, what the ultimate economics of that business will be?

Mike, do you want to touch on that?

Yes, I'll pick that one up. Obviously, we're a year into the venture now. We signed the venture with CPPIB in October last year, I believe. And so we've had really good growth over that period. We're really pleased with the number of houses we've committed to. We're up and running with our leasing. We've got almost 200 houses actually physically built and leased now. And we're -- including the acquisitions that we reported today, we're up to, I think it's about 1,300 homes. We've got a great pipeline ahead of us and a good appetite for doing more. I think by the year-end in Q4, we're expecting several more acquisitions to complete. We still see a good pipeline coming out of the housebuilders in the U.K. who are seeing this as a way to deliver additional stock. And we have strong support from CPPIB to grow the platform. So I would expect you'll see more acquisitions in Q4, and we look forward to continue to grow into 2026 as well. I think we've got some good ways to go on this.

Okay. That's helpful. And then you kind of still stay international. Just quick thoughts on U.K. office. Again, the occupancy decline, just kind of talk a little bit about was that just an actual lease move-out? Or was it an actual termination? And if you also kind of talk about lease-up at Coopers Crossing as well.

Yes. In terms of U.K., we've had a couple of lease move-outs that effectively we've been backfilling, but the backfills haven't kicked in yet. There are a number of cases where we've actually signed agreements for lease that haven't completed. So I would expect that occupancy to go back up over the course of the next couple of quarters. In fact, we've got committed deals that are going to send that occupancy back up again. And beyond that, we have a good pipeline of leasing. So I don't see a structural problem in our office leasing. It's really a timing issue around the time taken to bring these buildings back into circulation after a couple of lease breaks. But actually, we're re-leasing at better rents in most cases. And the demand has actually proved decent to the positive side. So I think on the U.K. office occupancy, I would expect that to tick back up over the next few quarters.

In terms of Coopers Cross, we have a good pipeline. We are under offer to a really interesting tenant who's looking to take some space. Hopefully, we can get that deal done in the next quarter, and we've got a good pipeline of interest. It's clearly taken a little bit longer than we'd like, but that market is coming back to life now, and we see a better pipeline than we've seen in quite a while.

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

Thank you, everybody, for joining the call today. Much appreciated. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Kennedy-Wilson Second Quarter 2025 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.

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 2025 earnings release, which will be 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.

Thank you, Deven, and thank you, everyone, for joining the call today. We're pleased to report solid results for the second quarter of 2025, which exceeded our business plan and reflect the continuing strengthening in our operations and in the overall real estate investment market. We deployed our committed $1.7 billion of new capital in Q2, driving total capital deployment to $2.6 billion for the first half of 2025. We remain on track this year to exceed the $4.3 billion we deployed in 2024.

Improving transaction levels within the commercial real estate space allowed us to successfully execute on over $600 million in noncore asset sales generating $250 million in cash proceeds to KW, exceeding the $200 million target we set on our last call. We utilized $170 million to reduce our unsecured line of credit and allocated the remaining capital to new investments. We continue to see strong activity across our markets with clear evidence of sustained long-term demand for both rental housing and real estate credit solutions.

On today's call, I'll review our portfolio and the progress we've made in -- also our 2025 strategic initiatives and, in particular, our asset sales and unsecured debt reductions. Assets under management grew to a record $30 billion and has increased by 70% since the beginning of 2021. At the 100% ownership level, our stabilized investments generate $1.6 billion of revenue and $1.3 billion stabilized NOI. KW holds a 37% weighted average ownership interest in these assets. With the remaining 63% matters on behalf of partners generating the income for our platform.

Rental housing, our core focus represents 65% of our assets under management, comprised of approximately 70,000 units that we either have an ownership interest in or our financing and our credit platform. We expect this sector to grow to over 80% of our AUM over the next 2 years. In the second quarter, capital deployment was focused on rental housing, equity and credit. We originated another $1.3 billion in new rental housing construction loans, which was our second largest quarter in originations to date.

Since arriving to KW, our credit team is closing in on surpassing $6 billion in new loans, which are focused -- all focused on the development of high-quality, market-ready multifamily or student housing communities across the U.S. We also expanded our U.S. multifamily platform, acquiring 4 communities that significant discounts to replacement cost, totaling 1,200 units for $387 million. These new investments were completed through our investment management platform which included adding 2 new Japanese-based institutions to our growing group of high-quality institutional partners.

In Europe, we continue to build up our single-family rental platform with CPPIB, one of Canada's largest pension funds. In Q2, we added $100 million in new sites, which brings our total portfolio to 13 sites totaling 1,200 planned homes. We are under offer on new sites totaling over $200 million with an additional 500 homes, which if closed, would take our venture to 1,700 homes within 12 months of formation.

Capital deployment for the first half of the year was 96% directed toward the rental housing sector, with 74% into the construction loan originations and 22% into equity ownership of the Western United States and U.K. single-family rental investments. The higher levels of capital deployment have driven our investment management platform to record levels.

Fee-bearing capital reached a record $9.2 billion. Our investment management fees grew by 39% in Q2 to a quarterly record of $36 million. Our fees for the first half of 2025 have increased by 30% year-over-year and have already reached the levels we generated in all of 2023. Where our fees were $62 million.

Over the past 15 years, we have expanded our network of strategic partners across North America, Asia, the Middle East and Europe. These long-standing well-capitalized partners remain highly engaged in deploying capital alongside KW, both in equity and in credit, which gives us strong momentum for continued growth in our fee-related earnings. We also made solid progress on our noncore asset sale program in the quarter. Our dispositions included the sale of 3 European office assets, the sale of an older Northern California multifamily asset built in 1988, and the reduction in our ownership interest in our only hotel asset.

We generated $275 million of cash from asset sales for the year, which keeps us on track to hit our goal of $400 million by year-end. The proceeds in the second half of the year will be used to further reduce our unsecured debt, including the final tranche of our KWE bonds that will be repaid in full in October as we announced yesterday. With the total $350 million KWE repayment, we will have fully retired the original $650 million principal amount of the 2025 bonds. We also plan to continue recycling capital into higher return investment opportunities in our investment management platform.

Turning to the market. Real estate fundamentals continue to strengthen in Q2, and we believe there remains compelling risk-adjusted opportunities in the rental housing sector. A persistent housing shortage across all our markets, coupled with affordability challenges in the single-family sector continues to feel sustained rental demand. In the U.S. apartment sector, the bulk of new supply that began delivering in 2023 has largely delivered and is being absorbed. With new starts falling sharply, the supply pipeline is thinning, setting the stage for strong rental growth going forward.

With a portfolio of 40,000 apartment units, we are well positioned to capitalize on these favorable supply-demand dynamics over the next few years. We're confident that as we grow our NAV and scale, in our diversified investment management business, the value creating will increasingly be recognized in our share price. We are entering the second half of the year with an existing portfolio that is well positioned with a strong pipeline of activity centered around our strategic initiatives. Increasing free cash flow by growing our NOI and recurring fees, harvesting realized gains from our asset sales and increasing our fee income.

With our own capital and the support of the major global strategic partners. I remain very optimistic that in the remainder of 2025, we will see a record level of new capital deployment and benefit from KW's team's experience to make sound investment decisions together with our partners.

With that, I'd like to turn the call over to Justin Enbody.

Thanks, Bill. I'll begin with a review of our Q2 financial results and then discuss the balance sheet. GAAP EPS for the quarter totaled a loss of $0.05 per share compared to a loss of $0.43 per share in Q2 of last year. Baseline EBITDA for Q2 came in at $117 million, a 12% increase year-over-year. This brings our trailing 12-month baseline EBITDA to $425 million. Adjusted EBITDA totaled $147 million and was up significantly from $79 million in Q2 of last year.

As Bill mentioned, our asset sale activity picked up significantly in the quarter. Our consolidated asset dispositions in Q2 result $55 million of gains on sale. Our co-investment portfolio, which now totals $13 billion in assets held at fair value, is 75% comprised of rental housing and industrial investments that we own with partners. KW's ownership in this portfolio is approximately 32%. During the quarter, this portfolio saw minor net changes in value with modest increases in real estate values offset by costs related to financing activities.

Turning to our balance sheet. In Q2, we made solid progress on reducing our unsecured debt through the payoff of $170 million on our line of credit, which stood at $100 million as of the end of the quarter. Our largest upcoming maturity is our KWE unsecured bonds to EUR 300 million, which we announced we will be paying off by October 3. Our total debt is 98% fixed or hedged with a weighted average maturity of 4.6 years and a weighted average effective interest rate of 4.7%. We also have $113 million of consolidated unrestricted cash and $450 million of undrawn availability on our $550 million credit facility.

Finally, we began utilizing our share repurchase plan in Q2, repurchasing approximately 400,000 shares at an average price of $6.21. We have $100 million remaining on our $500 million share repurchase plan. And with that, I'd now like to hand the call over to Matt Windisch for a portfolio update.

Thanks, Justin. Our stabilized real estate portfolio generates estimated annual NOI of $468 million to KW, it was 70% related to rental housing or industrial. This is up from just 58% just 3 years ago. We anticipate that these 2 sectors will continue to grow as we look to expand within these 2 asset classes while also disposing of noncore assets.

Turning to our largest sector, multifamily, which represents 64% of our NOI. In Q2, we saw sustained apartment demand and strong retention, our diversified apartment portfolio, which was 94% occupied as of quarter end. In total, U.S. same-store NOI grew by 3.3% for our market rate portfolio, which was driven by blend leasing spreads accelerating from 1.4% in Q1 to 2.1% in Q2. Renewal spreads totaled approximately 3.5% and spreads on new leases improved to 75 basis points, the highest level in 2 years. At quarter end, our loss to lease totaled 4.2%.

I'd like to highlight a few regional stats. Starting with our Pacific Northwest portfolio. Once again, we saw the strongest NOI growth across the portfolio, totaling 5.6%. The Seattle area continues to benefit from return to office mandates from companies like Amazon and Starbucks. We also saw favorable real estate tax savings in the quarter. The Mountain West has begun to turn the corner on supply that is being absorbed. Our largest state in the region is Idaho, which saw an impressive 7.2% NOI growth, benefiting from higher rents, lower real estate taxes and lower insurance costs.

We believe the rest of this region is set up well over the next few years as supply decrease and the region continues to benefit from offering a high-quality outdoor lifestyle that is much more affordable than higher-cost states.

In Southern California, our low-density mostly suburban portfolio generated 5% NOI growth and benefited from occupancy growth, rental growth and lower bad debt. And finally, in our smaller Northern California portfolio, results were largely flat as higher rents were offset by higher delinquency. At the end of the quarter, we sold a 90% stake in our largest asset in the region, which will come out of the same-store NOI in Q3. That sale generated $40 million of cash to KW.

Our vintage housing affordable portfolio, which utilizes low income housing tax credits, solid same-property NOI growth of 5%. These results were driven as a result of rising area median incomes. We have another 1,900 units under development and lease-up, which will require -- capital from KW and are expected to add $10 million of NOI. We are on track to reach 13,000 stabilized units while actively evaluating opportunities to further expand our affordable portfolio.

In Ireland, same-property NOI in our apartment portfolio was up 2.4% driven by occupancy growth. We stabilized our final remaining Irish lease up apartment assets, the Cornerstone in Q2, which increased total stabilized units to over 3,500. The other key headline was the Irish government's proposed measures related to existing rent control that is expiring at the end of the year. Starting in Q1 of next year, we expect that units that are leased to new tenants will likely be able to be brought to market rents. The implementation of this change is still subject to government approval, which is expected later this year.

Moving over to our office portfolio. We sold 2 Irish office assets in the quarter at attractive cap rates to core buyers who have started to return to the office market. We sold these 2 fully leased properties, [ Kildair Street ] and [ Hanover Key ] in separate transactions for a combined total of $155 million, reflecting a weighted average buyer cap rate. These are both best-in-class assets that we built are comprehensively redeveloped and subsequently fully leased to prime tenants. Seeing these assets successfully traded to core buyers marks completion of our business plan and serves as strong validation of the high-quality assets that we've developed.

We also completed the sale of our largest remaining asset in Italy, Combined, these sales generated $70 million of cash to KW. Roughly 75% of our stabilized office portfolio is in Europe, where same-property NOI declined by 3% in the quarter and was impacted by a decline in occupancy at 2 U.K. assets. In both cases, we have now agreed to lease the space significantly higher rents, which will positively impact our future results. Our overall European results pro-forma for these leases would have resulted in a 2.7% NOI increase.

Turning to our Investment Management business. Q2 saw $36 million in fee revenue while fee-bearing capital grew to a record $9.2 billion. Additionally, there's another $5.2 billion in future debt fundings that will impact our fee-bearing capital base over the next couple of years. Our credit portfolio continues to generate strong returns on invested capital, benefiting from favorable spreads and a deep pipeline of high-quality opportunities. Since acquiring the $4.1 billion construction loan portfolio 2 years ago, of which KW bought a 5% stake. As of June 30, $1.8 billion of the loans have successfully been repaid, which has generated a deal-level IRR of 27% to KW, including fees.

We are also making strong progress in our U.K. single-family rental platform, which we launched in Q4, and which now totals 1,200 planned homes. The initial homes delivered from developers have begun lease-up with encouraging progress achieving our planned rents. We continue to look for opportunities to expand this portfolio and have been having active conversations with both new and repeat counterparties, which will seek to the platform beyond 2,000 units.

In closing, we made significant progress on advancing our key initiatives in Q2, including monetizing noncore assets, reducing our unsecured debt and streamlining our portfolio. Additionally, we've taken meaningful steps to position our capital-light investment management platform for long-term growth.

So with that, we'll open it up to Q&A.

[Operator Instructions] Our first question will come from Anthony Paolone with JPMorgan.

Great. My first question, actually, we'll start with the SFR business in the U.K. I think we have some familiarity with it in the U.S. and where it is in the evolution here. But maybe can you talk a bit more about where it is in the U.K. and whether it's purely a build to rent strategy or if there's existing rental homes that could also be purchased. And also maybe a little bit about the returns that you see and why it's so attractive?

Mike, do you want to go ahead with that?

Sure. Thanks, Bill. I'll take that one. the single-family rental housing business is really in its early days in the U.K. This market has been growing significantly in the past few years, but the levels of penetration -- way, way would -- what you would expect in the U.K. -- in the U.S., something like 1/10 of the market penetration that you see in the U.S. market. So it's really early days. Are there a handful of parties creating this institutional model of ownership, which we think will become an established part of the U.K. rental housing market over the next few years.

It really is a build-to-rent scale at the moment or at least that's what we're doing in our strategy with CPPIB and to get to where we are targeting. We're looking at buying from house builders a discount, we're trying to buy maybe 100 units in each lot and trying to create the single-family rental communities on existing mass plan -- a bringing forward -- we think there's a huge pipeline. We think this is really scalable, and we think we can generate great returns for our partner and for ourselves.

In terms of the returns, we're targeting we're probably looking at, let's say, mid-teens at the asset level and then with the fees that we're going to generate on top of that, that's going to push it in terms of the asset management for you probably push it into the 20s. And then hopefully, we're going to be returning significant promotes on top of that, which will send our returns up even higher over the course of our business plan.

So this is something that's got a lot of focus on the European team. As Bill and Matt said, we're pushing towards hopefully being in about 2,000 homes by the end of this year, potentially further. And this significant -- capital by CPPIB is going to take us up to 4,000 homes. So we think then we're really 1 of the most meaningful players in the U.K. market, and we think there could be further growth to go beyond that. So we're excited about the prospects of the returns that this segment of the business can be generating over the short, medium and long term.

Okay. That's a great overview. Just my second one just relates more broadly, Bill, you've been pretty clear about just the towards residential and moving the company in that direction. And that's been the case both on your equity and debt investments. But on the debt side, as that business probably gets a bit more competitive, do you think that moves to other property types and beyond development? Or how are you thinking about the debt platform, maybe for Matt.

Yes. Thanks, Tony. Good question. So look, we've continued to focus on residential construction lending. And I think our track record in terms of deployment and success on the realizations would demonstrate that we're best-in-class in that space. So we are going to continue to have that be the primary focus for what we do. I think I may have alluded to this on previous calls, but we -- I think we have an opportunity to expand our lending capabilities within the residential sector to cover bridge lending and potentially some permanent lending solutions over the short to medium term. And so we do see the opportunity to expand in that space.

We did announce partnership with Tokyo a couple of quarters ago, where we're going to focus as well, primarily on residential testing within preferred equity and mezz solutions. That being said, I think there are -- we have the expertise and knowledge of other product types and a team that we brought over from Pacific Western Bank a couple of years ago, historically has been a lender to other sectors, including hospitality and industrial. So I think over time, depending on where we are in the capital structure, we certainly have the capabilities and the knowledge to deploy capital outside of housing within the credit space. I do think that housing will continue to remain the vast majority of what we do going forward, though.

Okay. And just last one for me. Just you've been pretty active in selling noncore assets and producing cash back to KW. Just any order of magnitude of what might be planned for the balance of the year?

Well, Tony, what I said in my remarks is that we had laid out $400 million at the beginning of the year was our goal, and we've done $275 million so far. And we're well on track now to do the last $125 million, and we may exceed that by some amount. But for sure, we'll finish the year at over $400 million.

Our next question will come from [ Jana Galan ] with Bank of America.

So on your plan to further increase the multifamily exposure. Can you get into a little detail of your preferences between affordable versus market rate in U.S. versus Europe? And kind of what -- maybe where the cap rate is most attractive right now?

Sure. This is Matt. So I'll answer that. Look, we're interested in expanding our exposure to that sector. through both our credit business as well as the equity business. We've certainly been more active geographically in the U.S., although depending on some changes in policy in Ireland, there could be an additional attraction to Irish assets going forward. But I would say, look, our credit business for the past year or so has been the majority of the capital deployment within the residential space. that did start to shift a bit in Q2. You saw that we bought 4 apartment communities in the quarter, and there's several more that we're looking at here in the second half of the year for investment management platforms. So it all depends on the opportunity set who the seller is what the circumstances are, but we're actively pursuing residential opportunities across GRPs and across the capital stack.

Yes, Matt, if I could add on a little bit to that. I mean one of the metrics that I mentioned that we really focus on is the total number of units that we either have an ownership interest in or that were financing and we're now up to 70,000 units. We either have an ownership interest in 40,000 or we're financing 30,000.

And so as I mentioned, the shift in our total portfolio, where we're at 65% now to going to 80% will mean that some of the other asset classes, particularly office will decrease. But over the next, I'd say, 3 to 4 years, we hope to move that 70,000 up to somewhere between 90,000 to 100,000 units, depending on what the opportunities are.

And then maybe just Justin, curious on the EUR 300 million loan repayment in October 3. Is that just when there's no longer prepayment penalty? Or I'm just curious around the timing.

So the timing for correct. There's no prepayment penalty as well as just building the cash position to pay it down effectively. So we're in a great spot, and we're looking forward to put that behind us.

[Operator Instructions] Our next question will come from Omotayo Okusanya with Deutsche Bank.

In terms of the credit business, again, everywhere you turn, there seems to be a new kind of private credit platform. Just curious how competition is picking up there and how that may potentially be impacting pricing in any way to perform if at all?

Yes. Good question, Tayo. I'd say you're correct. There's obviously a lot of private credit capital out there. I think what's unique about our platform and what we've been doing in the past couple of years and, in particular, the last couple of quarters, as we have been -- as we mentioned, we're focused really on residential construction lending within multifamily and student housing sectors. We don't use any back leverage currently in our portfolio. So a lot of the private credit vehicles that have been raised are utilizing a lot of back leverage and they're generally looking to do nonconstruction lending.

So we're not seeing a ton of impact within our specific area right now where we're seeing a lot of private credit solutions coming in competing. That being said, the banks have definitely become more active in the market. So we are seeing a bit more competition there. And I'd say if you look over the past year or so, spreads would probably come in between 30 and 50 basis points on construction lending, but we still think it's a pretty attractive space and we're continuing to deploy capital there at really attractive risk-adjusted return for ourselves and for our capital partners.

Well, the only other thing, Tayo, that I would add to what Matt just said is that we're making -- we're not doing any unsecured financing. We're doing all secured financing at generally 55% to 65% loans to cost with some of the best names in the country. And so even though the private credit market has grown substantially in these other asset classes, everything that we're doing is real estate secured financing. And the combination of our equity ownership business and the debt business gives us an incredible base of information across the entire country and relationships.

When you look at our credit business, many of the ones that we're doing are multiple borrowers that we've had multiple loans to. And as I think Matt pointed out in his remarks, over 50 -- close to 50% of the loans that we bought in the Pac Western portfolio here a couple of years ago have already been paid off.

Got you. That's helpful. Second question, again, great success on the asset sales side. I know your #1 goal is to use proceeds to kind of to pay down debt and delever. But just curious, again, as you kind of take a look at the stock sterling at a very large discount to NAV, how you think about stock buyback as part of your overall capital allocation decisions?

Yes. Well, we started in a small way in the second quarter. And I think you're making the right point. These are all just capital allocation decisions. We have $100 million left in the existing buyback program. And the -- once we get past the bond payoff, which is slightly over $300 million, then we'll be making decisions about where we want to deploy capital. But clearly, one of the opportunities that we have, we see a big opportunity in our own stock.

Got you. That's helpful. And then one for Justin. Again, as we start to think 2025, just kind of talk to us a little bit about kind of 2026 debt maturities and swap maturities and how you start thinking through addressing those?

Yes, I mean, I think similar to what we've done this year. As we will continue to dispose of noncore assets to free up capital to allow us to handle some of our debt maturities. In some instances, whether secured maturities, we're going to obviously go to the market and refinance them. But we'll continue to execute on our plan of noncore asset sales to delever.

I would just add to that, that a handful of the larger maturities are on assets that we have in our disposition plans either for this year or next year. And so we feel very good about the prospects for refinancing the loans we have. And the average rate on what we're maturing is it's close to 6%. So it's actually well above our average borrowing cost. And so the incremental cost to refinance is we don't expect to be significantly higher. In fact, we think it will be close to in line with the current rates we're paying.

So you're not expecting a lot of earnings dilution as a result of that?

Correct.

With no further questions, this will conclude our question-and-answer session. I would like to turn the conference back over to Bill McMorrow for any closing remarks.

Thank you, everybody, for joining the call. And as always, we're always available to answer any other questions that might come up. So thank you. Have a great day.

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