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Kennedy Completes $8B Acquisition

Zacks Equity Research

Kennedy-Wilson Holdings, Inc. (KW) – an international real estate investment and services company – recently announced the acquisition of three Los Angeles-based office buildings. The total purchase price of the deal was $78.5 million, of which $6.5 million was paid toward equity investment.

With this transaction, the company has completed acquisitions worth $2.9 billion in 2012. Moreover, the company’s total acquisitions since 2010, including the 2012 figures, totaled $8.0 billion. Some of the latest remarkable acquisitions of the company include Marina View in Marina del Rey, Royal Beverly Glen in Los Angeles, The Academy Tower in North Hollywood, California and Tri Center in the San Fernando Valley.

The Los Angeles office market experienced consistent growth in 2012. In the third quarter of 2012, the Greater Los Angeles Basin office market recorded a second consecutive quarter of positive net absorption of 317,300 square feet. This facilitated a 20 basis points dip in vacancy rate over last quarter, bringing it to 18.1%. The Los Angeles office market experienced a 20% surge in new leasing activity to 4.8 million square feet.

The abovementioned factors justify Kennedy-Wilson’s decision to expand in Los Angeles through major office property acquisitions. Moreover, management remains upbeat considering the company’s presence in major submarkets of Los Angeles, which provides tremendous inbuilt tenant demand backed by the presence of technology, media, and entertainment industries in the area. The company expects that improving demand will increase the rental growth of the property going forward.

In addition, Kennedy-Wilson stated that it has paid off around two-third of the $2.1 billion UK loan pool. The company now has unpaid balance of around $0.8 billion. Kennedy Wilson owns a 12.5% interest in the loan pool as well as a potential promoted interest in the profits of the partnership.

In December 2011, Kennedy Wilson completed the largest European loan portfolio acquisition and negotiated the transaction directly with the Bank of Ireland. The portfolio consisted of over 170 underlying properties and majority of the loan portfolio assets were secured by high quality, London-based office, multifamily and retail properties.

In our point of view, the company’s ongoing acquisition activity adds quality to its portfolio, which will likely augur well for its earnings growth going forward. Moreover, the loan pay-off will reduce its debt balance and is expected to strengthen its balance sheet.

Kennedy Wilson is expected to release its fourth-quarter 2012 results on March 13, 2013. The Zacks Consensus Estimate for the fourth quarter is currently pegged at a loss of 7 cents per share.

Kennedy Wilson currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We also have a long-term ‘Neutral’ recommendation on the stock. One of its competitors, Jones Lang LaSalle Incorporated (JLL) also holds a Zacks #3 Rank.

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