Recent price fluctuations make this global real estate stock attractive, although investors should consider it part of their speculative portfolio.
Kennedy Wilson Europe Real Estate Plc (KWERF)
from Global Investing
The venerable US real estate investment and services firm Kennedy-Wilson Holdings (KW) just over a year ago spun off its European investment operations into a new London listed entity, Kennedy Wilson Europe Real Estate Plc (KWE.L), and KWERF on the pink sheets. The IPO raised £1 billion of equity, the 2nd largest London real estate IPO ever.
The new share is what to buy, benefiting from some existing holdings parent KW made earlier in Britain, Ireland, Jersey, and Spain, and also from external management by KW’s services arm. KW services manages real estate for outside owners and has experience in arms-length dealings.
The new KWE group was set up in Jersey, a tax haven, to generate cash-flow and capital gains for its shareholders, including KW. Its first acquisition occurred almost immediately, of 14 properties around Britain.
KWE’s most recent huge bold deal was buying a mixed-use real estate portfolio of 180 UK properties from the property finance sub of Aviva plc, a major British insurer, in a transaction totaling £503 million ($758 million). More than half the properties acquired are in England, predominantly in London and the southeast, the hottest UK markets, mostly (62%) in retail, food, and convenience stores. The rest consists of leisure, industrial, office, and hotel sites.
There followed a purchase at a £61.5 million for a portfolio of hotels with a gross yield on cost of 9.3% and includes 7 Park Inn hotels in England (Northampton, Lakeside, Telford, Bedford, Harlow, Birmingham West, and Nottingham) and one in Wales (Cardiff. The hotels are leased to Rezidor Hotel Group until 2030. Rezidor is a Nasdaq OMX Stockholm exchange-listed hotel firm, majority owned by Carlson which owns Park Inn and Radisson hotel brands, and retains another dozen UK Park Inns and 155 globally.
Since its February 2014 listing, KWE bought a total of £1.9 billion ($2.9 billion) in properties which collectively generate ~£130 million ($196 million) of net rental income, according to the secondary offering. To end-2014, according to the parent KW annual report, KWE acquired 82 direct real estate assets with ~6.6 million square feet and 5 loan portfolios. This total of $2.4 billion in purchases KWE currently expects to produce $141 million of annualized net operating income.
Bloomberg estimates that the current price of KWERF is 12.5x earnings and the forward p/e ratio a delicious 10.9x. This is a speculative stock in part because it is a start-up, in part because we lack a full year report. It was downgraded to hold from buy by Deutsche Bank which cut the price to a tempting level. There are 135 million shares out of which 114 million float in London and on the pinks.
You can buy KWE in London in 1500 share lots, costing GBX 1103 (UK pence) today. That comes to nearly $25,000, so I prefer to buy the pink sheet share in the USA, where KWERF trades around $16 or so, about 107% of book value.
Vivian Lewis, Global Investing, www.global-investing.com, 212-758-9480, March 20, 2015