Kennedy Wilson Europe Real Estate buys property portfolio for €472m

Kennedy Wilson Europe Real Estate the US venture capital firm has agreed to purchase a mixed property portfolio for €472m.

This is the groups first venture in Ireland since floating on the stock market earlier this year.

Founded in 1977, Kennedy Wilson is a vertically integrated global real estate investment and services company headquartered in Beverly Hills, CA, with 24 offices in the U.S., U.K., Ireland, Spain and Japan. The company, on its own or with partners, invests opportunistically in a variety of real estate related investments, including commercial, multifamily, loan purchases and originations, residential, and hotels. Background to and reasons for the Proposed Transactions

As identified in the prospectus relating to the Company dated 25 February 2014, the directors of the Company believe that there is a strong pipeline of real estate assets in Ireland, in particular with the presence of National Asset Management Agency which is expected to pursue a number of strategies, including the phased and orderly disposal of certain of its assets.

As such, and as set out in the prospectus, in February 2014 the Investment Manager had identified for acquisition by the Group residential assets with a commercial and development component in Dublin, Ireland, which it was actively pursuing. These assets included the Central Park Portfolio which had been acquired by a member of the KW Group with the aim of transferring such assets to the Company in due course. Due to timing and other constraints, it was not possible to transfer the Central Park Portfolio to the Group at the time of the Company’s initial public offering in February 2014, however the Independent Directors believe, having been advised by the Investment Manager, that the Central Park Acquisition provides a compelling investment opportunity for the Group.

The Opera Portfolio was acquired by a joint venture consisting of members of the KW Group, VF and certain other equity partners in July 2013. In early 2014, KW’s joint venture partners received an unsolicited offer from a third party to acquire its interest in the Opera Portfolio. After hearing of this offer and considering the investment opportunity, the Investment Manager was able to secure such acquisition on behalf of the Company. In the event that the Opera Acquisition is not approved by the Independent Shareholders on or before 17 June 2014, KW will acquire the interests held by its current joint venture partners on substantially similar terms. The Independent Directors believe, having been advised by the Investment Manager, that the Opera Acquisition provides a compelling investment opportunity for the Group.

Information on the Central Park Portfolio and the Opera Portfolio

Central Park Portfolio

The Central Park development is located in Sandyford, approximately 11km from Dublin city centre in an affluent catchment area of Dublin. The acquired properties comprise 281 residential units, 9 of which were sold prior to the acquisition, leaving 272 lettable residential units, 7 ground floor retail units with ground floor restaurant unit and 6 mezzanine level office units along with a mezzanine potential leisure unit. The residential units are a mix of 35 one bed, 185 two beds, 39 three beds and 13 penthouse apartments. Of the 272 apartments in total, 266 of the units are fully fitted out with 259 units let. Two penthouse units are completed to a shell and core standard and a further four units require fit out to enable occupation. Total commercial space extends to approximately 31,000 square feet. ‘Block K’ comprises a partially built development site with planning permission for 166 residential units and 14,800 square feet of ground floor commercial space. At basement levels there are 362 car parking spaces in total, with 17 allocated to the commercial element of the property.

The Central Park Portfolio is freehold property, let by way of individual residential tenancies producing a current gross rent of approximately EUR3.8 million per annum. The commercial element of approximately 31,000 square feet is currently 97.4 per cent (29,914 square feet) vacant, while the remainder of the commercial element is let by way of a 15 year lease which has approximately 9.45 years to expiry and a current annual gross rent of EUR23,000 per annum.

The Central Park Portfolio has been valued in accordance with the RICS Red Book by CBRE as at 1 May 2014 at, in aggregate, EUR82 million. The CBRE valuation report will be included in full in the Circular and, as at 9 May 2014, CBRE has confirmed to the Company that there has not been any material change in such valuation since 1 May 2014. CBRE completed its valuation on the real estate assets and such valuation did not take into account approximately EUR6.1 million of net current assets held by the entity that is being acquired by the Company.

The Central Park Portfolio is managed by a wholly owned and controlled subsidiary of KW, which will continue to manage KW Irish RE and its assets following completion of the Central Park Acquisition. No management fee is currently payable, nor following completion of the Central Park Acquisition will be payable, to such manager in connection with such services.

Opera Portfolio

The Opera Portfolio comprises 7 office and 6 retail properties, let to tenants including Bank of Ireland, KPMG, Tesco and Mark & Spencer, located across Dublin, with one property in Cork.

As at 1 May 2014, the Opera Portfolio consisted of approximately 670,000 square feet and had an annual gross rental income of approximately EUR24 million. The top five tenants account for approximately 66 per cent of the gross rental income. The lease contracts have a weighted unexpired lease term to expiry of 14.4 years. The portfolio has an occupancy rate of 98.9 per cent.

The Opera Portfolio has been valued in accordance with the RICS Red Book by CBRE as at 1 May 2014 at, in aggregate, EUR390 million. The CBRE valuation report will be included in full in the Circular and, as at 9 May 2014, CBRE has confirmed to the Company that there has not been any material change in such valuation since 1 May 2014. CBRE completed its valuation on the real estate assets and such valuation did not take into account approximately EUR1.4 million of net current assets held by the entity that is being acquired by the Company.

The Opera Portfolio is managed by a wholly owned and controlled subsidiary of KW, which will continue to manage Cavalli and its assets following completion of the Opera Acquisition. A fee is currently payable to the manager on a quarterly basis if certain thresholds are met. Following completion of the Opera Acquisition, the manager will continue to manage Cavalii and its assets however no fee shall be payable to such manager for such services.