Kennedy-Wilson Holdings Inc . (NYSE:KW) has reported a strong start to 2024, announcing substantial growth in its first-quarter earnings call. The global real estate investment company highlighted a significant increase in fee-bearing capital, which reached a record $8.6 billion.
Investment management fees grew by a notable 94%, reflecting the company's strategic focus on expanding its investment management platforms. Kennedy-Wilson also reported progress in its non-core asset sales, which are on track to meet the target of generating between $550 million to $750 million in cash by the first quarter of 2025.
Key Takeaways
- Fee-bearing capital hit a high of $8.6 billion.
- Investment management fees surged by 94%.
- $360 million in non-core asset distributions completed.
- $236 million in cash and $106 million in gains generated from asset sales.
- Aiming for $550 million to $750 million in cash from non-core asset sales by Q1 2025.
- 800 new apartment units completed; 4,100 units in lease-up or construction.
- $1.1 billion in loan originations completed; $800 million in progress.
- $160 million in new real estate acquisitions and $450 million in dispositions.
- Consolidated revenues stood at $136 million; investment management revenue at $21 million.
- $542 million of consolidated cash on hand; $60 million paid down on line of credit.
- Total debt share 98% fixed or hedged at an effective interest rate of 4.5%.
- $385 million in stock repurchase completed.
- Multifamily portfolio estimated annual NOI at $273 million.
- Regional highlights include growth in the Mountain West, California, and Dublin.
Company Outlook
- Focused on growing investment management platforms in rental housing, credit, and logistics.
- Plans to generate cash through non-core asset sales and resizing of dividend rate.
- Intends to use cash for stock buybacks, debt reduction, and investment management growth.
- Expect to meet asset sale target by Q1 2025.
- Resized dividend to $0.12 per share with plans to cover it through asset sale proceeds and recurring revenue.
Bearish Highlights
- U.S. office portfolio represents only 6% of NOI.
- European office portfolio saw a modest 1% increase in same-property NOI.
Bullish Highlights
- Strong relationships with global institutions for capital raising.
- Completed all remaining developments in Dublin, now leasing 1,000 units with strong velocity.
- Industrial portfolio 98% occupied with a 51% increase in rents in Europe.
Misses
- No specific misses were reported during the earnings call.
Q&A Highlights
- McMorrow emphasized targeting well-capitalized sponsors for the lending business.
- No specific goals for deploying capital, focusing on finding the right opportunities.
- Windisch sees significant opportunities in the second half of the year, expecting to maintain or exceed a 25% compound growth rate in overall fees.
- Reduced dividends seen as a natural evolution of the business, not influenced by cash flow challenges.
Kennedy-Wilson's first-quarter performance demonstrates a robust growth trajectory, underpinned by strategic asset management and a focus on high-quality investments. With a strong foundation in fee-bearing capital and a clear plan for asset sales, the company is well-positioned to continue its expansion in key sectors such as multifamily, credit, and industrial real estate.
The company's leadership remains confident in the sustainability of its dividend and the potential for continued growth in the investment management business.
InvestingPro Insights
Kennedy-Wilson Holdings Inc. (KW) has indeed had a promising kickoff to the year, as reflected in its first-quarter earnings report. To provide additional context to the company's financial health and performance, let's delve into some key metrics and insights from InvestingPro.
InvestingPro Data:
- Kennedy-Wilson's market capitalization stands at $1.37 billion.
- The company's P/E ratio is negative at -4.95, indicating that it is not currently profitable.
- Despite a challenging environment, the company maintains a strong gross profit margin of 64.66%.
InvestingPro Tips:
- Analysts are optimistic about Kennedy-Wilson's sales growth in the current year, aligning with the company's own projections and strategic initiatives.
- The firm has a notable track record of paying dividends, having maintained dividend payments for 14 consecutive years, which is significant for income-focused investors.
These insights suggest that while Kennedy-Wilson is facing some profitability challenges, as indicated by a negative P/E ratio, it is still managing to generate a healthy gross profit margin. The anticipated sales growth and consistent dividend payments could be appealing to investors looking for potential growth coupled with income.
For those interested in a deeper dive into Kennedy-Wilson's financials and future prospects, InvestingPro offers additional tips. In fact, there are a total of 7 InvestingPro Tips available at https://www.investing.com/pro/KW, which can provide further guidance on investment decisions.
For readers looking to explore these insights in more detail, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro. This exclusive offer can help you stay ahead with real-time data and expert analysis to make informed investment choices.
Full transcript - Kennedy-Wilson Holdings Inc (KW) Q1 2024:
Operator: Good day, and welcome to the Kennedy-Wilson First Quarter of 2024 Earnings Call. Please note that today's event is being recorded. And all participants will be in a listen-only mode for the duration of the call. [Operator Instructions] And with that, I would like to now turn the call over to Daven Bhavsar. Please go ahead.
Daven Bhavsar: 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 phone for one week and by webcast for three 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 first quarter 2024 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. I would now like to turn the call over to our Chairman and CEO, Bill McMorrow.
William McMorrow: Daven, thank you. Good morning, everybody. Thank you for joining our call. Yesterday, we reported our results for the first quarter of 2024, which was highlighted by significant growth across our key financial metrics and positive momentum across all our business lines. Fee-bearing capital grew to a record $8.6 billion and investment management fees increased by 94% in Q1. We also successfully completed $360 million in non-core asset distributions. These sales enhanced our liquidity by generating $236 million of cash and led to gains of $106 million in the quarter. Since the end of Q3 2023, we have generated $320 million of cash to KW and we are more than halfway complete against the target announced in December 2023 of $550 million to $750 million of cash generation from non-core asset sales by the end of the first quarter of 2025. We've made great progress towards completing our development pipeline of $2.5 billion, including finishing two remaining projects in Dublin. We delivered over 800 new apartment units in the U.S. and Ireland in the quarter. And in total, we have 4,100 units either undergoing lease-up or completing construction, which upon stabilization will add meaningfully to our estimated annual NOI. Our assets under management at quarter end totaled $25 billion. Transaction activity has picked up significantly this year and in the first four months of the year, we completed $1.1 billion of loan originations with another $800 million in the process of closing, $160 million of new real estate acquisitions and $450 million of dispositions, resulting in $2.5 billion in gross investment activity. Proceeds from asset sales are being recycled into our investment management business and to pay down debt and repurchase securities. Turning to the future. We have built KW on the ability to adapt quickly in order to take advantage of changing market conditions and to invest in asset classes that create long-term value for the company. While we continue to see uncertainty across the globe because of high interest levels, interest rate levels, and geopolitical risks, we are making great progress on the following key initiatives and goals. First, we have shifted our business in a significant way to emphasize growth within our investment management platforms, allowing us to grow our fee-bearing capital and resulting fee income. Over the last five years, we have grown our fee-bearing capital and fees at the rate of 30% per annum, making it the fastest-growing part of our company. We expect to continue growing our fee income at the rate of 15% to 20% over the next several years. Our capital-light investment management platforms are allowing us to generate above-market returns on our invested capital. Our investment focus is around three key sectors. First is rental housing, where our portfolio now totals 60,000 units, including 22,000 units financed through our debt platform and 38,000 owned and various partnerships. There remains a structural shortage of rental housing globally then specifically in the U.S., the United Kingdom and Ireland, where we have built a long-term track record of acquiring institutionally managing and developing high-quality communities. Rental demand is being driven by the large differential between affordability of renting versus buying due in part to the interest rate environment. There's also been a significant decline in new construction starts in 2024, which, over time, will alleviate excess supply in virtually every growth market and enhance our ability to grow our net operating income. We also believe that starting in the second half of the year, we expect increasing levels of investment opportunities that will come from debt maturities and our owners who have high levels of leverage on their portfolios, many of which were acquired during the 2021 to 2022 period and financed with floating rate debt. Second, we look for continued expansion of our credit platform. Banks and non-bank lenders have largely exited the construction loan market for new development. Our focus here is on high-quality sponsors who are developing multifamily and student housing communities. We have a strong pipeline today of new potential origination opportunities that should give us ample opportunity to grow our portfolio further in 2024. As I mentioned earlier, we have either closed or in closing on loans totaling $1.9 billion, which would bring our total platform to over $8 billion. And third, we look to continue building on our existing 11 million square foot logistics platform. We're evaluating a number of new opportunities in our industrial pipeline in both the U.S. and in Europe. As to capital raise for our platforms, we have developed very strong relationships with large global institutions located in the U.S., Canada, Europe and across Asia. As part of our capital raising plan, we recently reopened our office in Japan, which is a market where we have been doing business dating back to 1994. We are continuing to see tremendous interest from our institutional partners to invest in existing high-quality multifamily properties, new construction of multifamily properties, industrial and credit where our investment teams continue to find off-market opportunities to deploy significant capital into new transactions, which, in turn, will grow our investment management business. The second initiative for us relates to our non-core asset sales plan. As I mentioned earlier, our asset sale plan expects to generate between $550 million and $750 million in cash proceeds. We have also resized our dividend rate to $0.12 a quarter, which will allow us to save $66 million annually on dividend payments. These two sources of cash will allow us to deploy capital into stock buybacks, debt reduction and capital to grow our investment management business. With that, I'd like to turn the call over to our CFO, Justin Enbody, to discuss our financial results.
Justin Enbody: Thanks, Bill. I'll start by reviewing our financial results and then discuss our balance sheet. Consolidated revenues grew by 3% to $136 million for the quarter. Investment Management revenue grew by 94% to $21 million in Q1 driven by origination fees from our debt business and higher levels of fee-bearing capital. Baseline EBITDA grew by 8% to $103 million. Additionally, in the quarter, across our co-investment portfolio, the values were largely stable in Q1. As Bill mentioned, we saw an increase in asset realization activity and sold a number of non-core wholly owned assets in Q1, which generated $236 million of cash and $106 million of net gain on sale. In total, we had GAAP net income of $0.19 per share. Adjusted EBITDA totaled $203 million and adjusted net income totaled $71 million, all increasing significantly from a year ago. Turning to our balance sheet and debt profile. At quarter end, we had $542 million of consolidated cash. We paid down our line of credit by $60 million in April. And today, we have $188 million drawn on our $500 million line of credit. Our share of total debt is 98% fixed or hedged with a weighted average maturity of 5.2 years. We continue to collect cash as a result of our interest rate hedging activities, which, as a reminder, is not reflected in our financial statements as an offset to our interest expense. In Q1, we collected $12 million of cash and over the last year, we've collected $45 million in cash from our interest rate hedging instruments. Our effective interest rate of 4.5% reflects a 60 basis point savings over our contractual rate due to our hedging strategy. After completing a number of successful refinances in Q1, our remaining 2024 debt maturities totaled $210 million, which are all non-recourse at the property level. For example, in Dublin, we refinanced the construction loan at one of our recently completed multifamily projects with permanent financing, where the rate improved from 8% to 4.5% on a 5-year term. We also began repurchasing stock in the quarter, totaling 1.1 million shares at an average price of $8.76. As a reminder, since 2018, we now have bought back $385 million in stock totaling 21 million shares. We have $115 million remaining on our $500 million share repurchase authorization. With that, I'd now like to turn the call over to our President, Matt Windisch, to discuss our investment portfolio.
Matthew Windisch: Thanks, Justin. Over the past several years, we've made a conscious effort to prudently shift our portfolio into higher quality assets in markets and product types that we believe will outperform over the long term. Today, our stabilized portfolio totals $464 million in estimated annual NOI with the majority of that NOI coming from multifamily properties, predominantly in the Western U.S. As an example of this shift over the past five years, retail has declined from 17% to a minor 4% today, while U.S. multifamily has grown from 39% to 52%. Roughly 3/4 of our NOI today is comprised of multifamily, credit or industrial assets, which continue to be our three main areas of focus. In total, our multifamily portfolio totals 38,000 units and has grown to approximately 60% of our stabilized portfolio, producing $273 million in estimated annual NOI to KW. Occupancy is strong at 94%. We have 4,100 units in our lease-up and development pipeline, which we expect to add $46 million to estimated annual NOI at stabilization. From an operating perspective, in the U.S. same-property revenue grew by 3%, operating expenses were up 5% and NOI was up 2.5% in our market rate apartment portfolio as we continue to see underlying fundamentals improve from year-end. Looking at our results sequentially, we are seeing stable to improving operating expenses, which we are hopeful will continue for the remainder of the year. Our U.S. market rate portfolio, which is 90% suburban, saw leasing spreads of 2% and ended the quarter with a loss to lease totaling 3.5%. We've seen momentum pick up in asking rents, which have increased by approximately 4% from year-end. We have also seen some very large trades in the market, highlighting the desire for the multifamily sector, which bodes well for overall transaction volumes going forward. Turning to our regional highlights, in our largest apartment region, in the Mountain West, we saw occupancies improved by 1%, leading to revenue and NOI growth of 2%. The strongest growth came out of our Nevada and New Mexico portfolio, which saw 10% and 7% NOI growth, respectively. Overall, we continue to believe in these Mountain West markets, which will continue to improve as the supply picture stabilizes. Our Mountain West portfolio's average rents are $1,600, and we believe these markets will continue to draw young workers seeking a lower cost, affordable lifestyle with recreational opportunities. In our California portfolio, we made great progress working through delinquencies and re-leasing units while also seeing lower levels of bad debt. This led to strong NOI growth of 4%. With our California assets currently having a loss to lease of 5%, the region is set up for further NOI growth as we work through the remaining delinquencies. Moving over to Dublin. Our stabilized portfolio there sits at 98% occupied. In Q1, we completed all of our remaining developments in Ireland, and we are now in process of leasing up approximately 1,000 units in Dublin, with strong leasing velocity and at rents ahead of business plan. We are over 50% leased as of today on these units and lease-up. We anticipate our newly built communities will continue to draw significant rent or interest due to the overall lack of high-quality rental housing, coupled with Ireland being one of the fastest-growing populations in the EU. With regards to our U.S. office portfolio, which at quarter end represents only 6% of our NOI, we successfully sold an office building in Issaquah, Washington to an owner occupier. In addition, we have seen a pickup in leasing activity so far this year. The majority of our office portfolio is located in Dublin and the U.K. where the overall leasing environment has also improved in 2024. In Q1, same-property NOI increased by 1% in our European office portfolio, driven by the completion of successful rent reviews and declining operating expenses in our Irish portfolio. Stabilized occupancy remains healthy at 94% with weighted average lease term of seven years to expiration and five years to break. Tenant interest in Dublin and the U.K. is highly focused on high-quality, amenity-rich properties with strong ESG credentials. For example, in Dublin, our nine property stabilized portfolio includes six assets that are fully leased. And at quarter end, we are working on a number of inquiries for our available space in the remaining three assets as we are seeing a significant uptick in tours. Fundamentals in our industrial portfolio remains strong, with our portfolio 98% occupied. In Europe, leasing completed in the quarter delivered a 51% increase in rents, In-place rents remain 31% below market, which allows for us to continue growing property NOI as leases mature. Looking ahead, we are very focused on our capital-light investment management platforms. which are currently centered around the investment themes of rental housing, credit and logistics. Importantly, these platforms are structured to utilize our existing team and generate attractive returns on invested capital. For example, in our credit platform in which we're a 2.5% investor going forward, we are able to generate attractive unlevered returns on invested capital of over 20%, including a combination of fees and interest income. Our debt team, which is vertically integrated from originations to servicing has capacity for significantly more AUM as we continue to see exceptional lending opportunities and look to deploy additional capital from our strategic partners. A significant source of our third-party capital has been from large institutional insurance companies, sovereign wealth funds and foreign investors. We are beginning to see an improving window for deployments. We saw an example of this in Q1 as we acquired two multifamily properties in the Pacific Northwest with Taseko, a new partner based in Japan. Between recent large portfolio deals, M&A activity and reduced spreads, we are optimistic that this strengthening in liquidity will improve our ability to deploy capital at scale and enable us to continue growing the AUM in our Investment Management business. So to summarize, we believe the combination of higher levels of recurring cash flow, lower leverage and the lease-up of our developments, along with recycling of cash from non-core assets into high-growth platforms, sets KW up well in the near term. So with that, operator, we can open it up for Q&A.
Operator: [Operator Instructions] At this time, we will take our first question, which will come from Anthony Paolone with JPMorgan.
Anthony Paolone: Yes, thank you. So my first question is, can you talk a bit about maybe expectations for additional asset sales over the next 12 months? And just any sense as to how much you might have in the market for sale now?
Matthew Windisch: Sure, Anthony. Tony, this is Matt. Yes. So as Bill mentioned, we had a target of $550 million to $750 million that we had announced in December that would take us through Q1 ‘25, and we're already halfway through that, and we're confident that we're going to hit that target. And so we've got several assets on the market now that we expect to sell and several more that are in the pipeline to sell. We're definitely seeing an improvement in liquidity, as we mentioned. The transaction volumes, certainly for us and for others in the market are stepping up here from where they were last year. And so we're confident we're going to hit that target.
Anthony Paolone: I mean is there any thought towards doing more, I think probably since you put the program in place last year, the stock has been under some pressure, you still have room on the buyback. And so just trying to understand just the propensity to maybe lean more into the buyback if that liquidity is there to sell some things that you don't necessarily want to keep longer term?
Matthew Windisch: Yes. Tony, I think that's certainly a possibility. Like I said, we're comfortable with the target. And if there's further opportunities to sell non-core assets and redeploy that into the areas we talked about, which would be our investment management business, paying down debt and buying securities, we're definitely focused on that.
Anthony Paolone: Right. And then, Matt, on the debt platform, the originations have been pretty strong that you guys have done far in excess of the repayments. And if we look out the next couple of years, is there a stretch of time though where the repayment schedule gets pretty heavy, and we have to kind of watch how to net that against what the origination picture looks like?
Matthew Windisch: Yes, it's a good question. And obviously, in the debt business, it's not -- these things are not permanent investments. And so you're successful when you get repaid. And so we're aware of that. I think given the level of originations that we're seeing and what we've done recently, we don't expect to hit that point anytime soon. But obviously, we need to continue to originate and find opportunities to grow the platform. With these construction loans, in particular, we're not -- as we originate, we don't necessarily deploy that capital right away because the equity tends to fund first. And so a lot of these newer originations, we haven't even deployed that capital into these loans yet. And so at the volumes we're doing now, certainly for the next 18 to 24 months, we feel like we can grow this business, and then we'll have to see where the opportunities are, but we're confident we'll find them.
Anthony Paolone: Okay. And then just last question on the debt and just maturities, perhaps over the next year or two, I guess two parts. One, just any thoughts in terms of source of funds for the maturities over the next couple of years and just how you're thinking about that? And then two, any equity gaps that you anticipate on the secured side where you need to fund something there?
Matthew Windisch: Yes. Tony, on the debt repayments, in particular, the unsecured debt, I mean our primary source of that is going to be these asset sales like we’ve talked about. And so we’re -- that’s one of the main reasons we’re focused on this asset sale program. In terms of the secured refinances, there are some that will be cash in and there’s some that will be cash out. And so we don’t see it certainly in the short term being a significant use of capital having to pay down loans on the secured side.
Operator: And our next question will come from Joshua Dennerlein with Bank of America.
Joshua Dennerlein: Just kind of curious on the rationale for capital allocation in 1Q. Cut the dividend, but you leaned into share repurchases. Just kind of how should we think about that on a go-forward basis?
Matthew Windisch: Yes, Josh. I mean, I think it's in line with what we said. I mean I think a combination of these asset sales as well as the resizing of the dividend, we'll -- those proceeds will be used for a combination of things. So it will be growing the investment management business where we can make 20% plus returns between the fees and the cash flow we're getting off the various investments. We did pay down the revolver in April. A lot of the asset sale proceeds we generated were very back ended in the quarter. It was really end of March. So we really didn't have a chance to redeploy a lot of that yet. And so -- and then we obviously were somewhat active on the stock buyback program in the quarter as well. So that will be the focus for us in Q2 as well.
Joshua Dennerlein: Right. And then maybe just a follow-up, just on the dividend resizing. Just like how did you come to that $0.12 per share for the latest dividend? Like how do you guys determine what's best for setting it on a go-forward basis?
Matthew Windisch: Yes. I mean we did a deep analysis into this. And we looked at, obviously, the sales we had in the quarter, in Q1. And then our portfolio, I’d say, is somewhat a period of transition where we’re selling assets and redeploying that into our various platforms. And so if you look at how we’ve grown the business over the past couple of years, especially the fees where we’re now up to almost $100 million annualized, and we’re growing that at over 25% over the past couple of years. And then if you look at the development and lease-up assets, which are on track and in many cases, performing ahead of business plan and will be stabilized here shortly. We looked at all of that, and we anticipate having ample recurring revenue to cover the current level of our dividend, while taking into account our plans to reduce leverage in the overall business. So we did a deep dive and came to this conclusion. I would say that we’re very comfortable with the sustainability of this dividend going forward.
Operator: Our next question will come from Conor Peaks with Deutsche Bank.
Conor Peaks: I guess staying on the development front here is quite an active quarter with over 800 units delivered. Could you speak to the leasing activity and tenant demand here? And maybe going forward, if you kind of talk about how you plan to use these developments and how they fit indicates of this vision as investment management becomes a larger part of the business?
William McMorrow: Well, I think as Matt said, we're seeing great leasing velocity at all of the assets here in the United States and in Dublin, and in the vintage platform. And I think a good example, we just finished a vintage -- it's a mixed-use project that we're calling Anacapa Canyon in Camarillo and we just finished a 310-unit market rate. We just opened it for leasing here just a couple of weeks ago, and we opened 170 unit vintage asset in that same development. And it's interesting because if you look at both of the buildings, you really -- you can't distinguish between what’s senior and affordable and really what's market rate. But the vintage asset is essentially 100% leased right now in the first three months. And so the thing you see in the senior and affordable business is that within two or three months of opening, they generally get to almost 100% occupancy with a waiting list. The only limiting factor is how fast you can move people in. The market rate deal there of almost 310 units in the first 1.5 months or 2. We've already leased about one-third of the units there. And we're seeing -- we don't count these properties in stabilization until they get to 80%, but we've got a number of buildings now that are in lease-up that are in the high 60s and low 70s. And so you're going to see them come into the stabilized platform here in the third and fourth quarter. I would also tell you that pretty much overall, the leasing rates that we're achieving in these construction projects brand new, are ahead of our original business plan. We have a lot of embedded gains in these new developments. That doesn't mean that I'm telling you that we're planning on selling any, but we've really been able to do a very good job of building on time and on budget, very, very high-quality new properties. And then the back side of it, too, is that the brand-new properties don't require capital on an annual basis like some of the older properties. And the one other thing that I would tell you that we've done, I think, an exceptionally good job of this year has been our capital budgeting across all of our assets. And when you think about uses of cash with the construction activity basically finished at this point and with the capital budgeting that we've done. So we're not allowing capital to be spent at any multifamily asset unless it's producing at least a 15% return on cost. But when you kind of add up all of these factors that Matt went through between the dividend saving us $66 million a year. Our CapEx budget and our development, our commitment to development is the lowest it's been in probably five years. So you're talking very, very meaningful amounts of money in the CapEx budget and the development costs. So you had this great shift. And I think as Matt pointed out, the last thing I would say is we're very, very focused on being capital-light in all of these platforms with a real focus on growing our fee income 15% to 20%, 25% a year.
Matthew Windisch: And Bill, I would just add to that. We have best-in-class construction teams, both here in the U.S. as well as in Europe and with a great track record. And so we're confident we can attract third-party capital, continue to build these really best-in-class properties but do it, as Bill said, in a more capital-light manner. So we're really excited about continuing to grow this business, just capitalizing it in a bit of a different way than we have historically.
William McMorrow: In the past, we've either been 100% owners of these assets like Anacapa Canyon where we've generally been 50% owners. But we think there's a real opportunity with the skill set that's been developed over the last 10 years in both of these markets, the United States and in Ireland to transition that business into acting more as a construction manager, where we have an investment in the asset, a meaningful investment, but not nearly at the levels that we've had before, where we're earning different fee streams than we have in the past.
Conor Peaks: Yes. And looking at the Investment Management business, maybe from a higher level, you've got the build-out team with the Pac-West deal, the right-sized dividend to reinvest and dry powder to put to use. And I think you've kind of partially answered this question. But how fast can this business grow? And if there's any goals or milestones you're targeting here?
William McMorrow: Well, I mean, look, I'll let Matt answer that. I mean we're in what I would call the perfect storm. The average size loan we're doing is approaching $80 million, and they're generally 55% loan to cost. So that requires a sponsor to have a lot of equity. And so the number of sponsors that can come up with that equity are the highest tier in the country, in the United States. They're really some of the best developers, very well capitalized. And the backside of it is what we alluded to earlier, that you've got less competition in that market today. I would say, and Matt might answer it slightly differently. We don't set goals in terms of deploying capital into a lending business. We look for the right opportunities with the right sponsor in an asset cloud, we're doing almost exclusively -- we are doing exclusively this year, multifamily and student housing pretty much. And so it just depends on whether you've got the right opportunities to deploy capital. But I've learned from my banking days, when you start setting targets for loan volume, that's not -- you don't get the best outcome.
Matthew Windisch: Yes, I would just add to that, that it's obviously going to be opportunity-driven, and we see significant opportunities in the second half of the year continuing. We've grown the overall fees at a clip of 25% compounded over the past five years, and we're confident we can keep that level or do better, assuming the opportunities exist, and we do think they exist.
William McMorrow: I would -- Matt, I don't mean to keep going on here, but the -- I would also add that -- obviously, I have a bias, but we have a best-in-class team. And in all of our platforms, reputationally, it takes a very, very long time to build credibility for the company and for your teams. And I think that the -- because of our reputation, across these types of asset classes over three decades, we just -- we have a very big opportunity right now to grow the Investment Management business in a very meaningful way.
Conor Peaks: And maybe if I could sneak one more in here on the reduced dividends, which allows for generally higher and better use of capital. But were there any cash flow challenges that factored into this decision?
William McMorrow: No. It was just -- it's a natural evolution of the business that we have. As we've gotten bigger, we have the ability to scale the business and I think any company in the real estate business upscale, and I don’t need to go through names, but there are obviously big public investment managers. They tend to be capital-light in terms of their investment, and we plan to scale our assets under management and our fee income at a pace where you are going to -- you want to have third-party capital providers.
Operator: And that will conclude our question-and-answer session. I'd like to turn the conference back over to Bill McMorrow for any closing remarks.
William McMorrow: Well, thank you, everybody, for joining us today. And as I will say, we’re always available for any follow-up questions you might have. So thank you very much.
Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.
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