Kennedy Wilson was once seen as a sharp operator out to make quick money in Europe, but Mary Ricks says the firm is here for the long term. David Hatcher reports. Portraits by Tom Campbell
When LA-based Kennedy Wilson crossed the Atlantic in 2010, it promptly made a name for itself in Europe as a bargain hunter.
In a world still in the depths of recession, the group entered the European market as a private equity-style investor snapping up the best deals on this side of the pond.
The launch was the envy of many and Kennedy Wilson Europe Real Estate turned out to be the largest London-listed IPO this cycle when it raised £1bn in one fell swoop in February last year.
But now the market has recovered. Easy pickings are harder to come by and the firm is having to work harder to spot the right opportunities. What is more, as an evergreen listed company, it is more difficult to just sell up and sail off into the sunset.
Given this conundrum, how is the company, which has a £2.2bn portfolio, and its enigmatic chief executive, Mary Ricks, aiming to generate the ambitious returns that it targets?
The overarching plan will see the group invest in Italy, invest more in Spain and put money into markets that are less far through their recovery than the UK. That is not to say the UK is off the radar and the private rented sector is also in Ricks’s crosshairs. One way or another, she is determined to keep the company investing through the ups and down of the market.
Here Ricks reveals the strategy she hopes will help Kennedy Wilson to retain its European arm’s enviable status.
Opportunistic entrance
“We came over here at a very distressed time, in an opportunistic way, so it is easy for people to paint us with the same brush as private equity firms,” she says.
“I take it as a compliment that people look at us as savvy investors who buy off attractive metrics. But we have always been long-term real estate operators and we have no intention of packing up and going back to the US.”
That is not to say that the company will never look to take some money out of its ventures. As it has done with its Japanese operations, it may at some point reduce its stake in the listed company it manages, which currently stands at 17.8%.
Following the float, the listed company is the only vehicle Kennedy Wilson invests with in Europe.
“We don’t look at the business and say we are looking for an exit in three or four years’ time,” Ricks says. “We have been in Japan for more than 20 years and we are still there, but just this year we sold a 95% position in all of our assets there, took profits off the table, retained a 5% piece and kept our team in place to manage assets and look for new opportunities. It’s not really an exit. That’s how we look at things.”
For the time being, that is not an option the company has been exploring for Europe. In fact, it has been buying up more of its own stock over the past year, having taken an initial 12.5% during the IPO. The share price performance since the listing has been unremarkable considering market conditions, up by around 13.5%.
Ricks and Kennedy Wilson see the listed company as undervalued.
“We are focused on executing the business plan for our different assets and I think the share price will follow. We need people to understand who we are and what we are capable of doing,” she says.
Expertise in the UK
Kennedy Wilson manages more than 20,000 homes globally, many of which are located on the west coast of the US, and it is looking to apply its expertise to the UK market.
One business plan that Ricks is particularly excited about is the company’s Pioneer Point PRS scheme in Ilford, Essex. It gained control of the building in May by buying a loan for £68.5m secured against the asset, which comprises two buildings with 294 flats, all of which are privately rented.
“It’s completely unbroken. Not a single unit has been sold in the two towers, which is rare,” Ricks says.
“We will take title of the property, prove its income and then re-assess the PRS market dynamics. It will be of exceptional institutional quality and highly sought after.”
European expansion
Kennedy Wilson made its name in Europe by being one of the first investors to deploy large amounts of capital into the Irish market, initially buying €1.6bn (£1.2bn) of assets from the Bank of Ireland in 2011 and taking on staff from the bank.
After taking a bold approach at the market’s nadir, it is now in clover. Doing the same in Spain and Italy, although they are further behind in their recoveries than the UK and Ireland, is not as straightforward, given that broader, global macroeconomic conditions are now more positive. Competition is much larger and pricing is arguably not as attractive, particularly in Spain.
Kennedy Wilson is yet to deploy huge quantities of capital in Spain. In August it bought a portfolio of 16 Carrefour and Dia supermarkets from AEW Europe, but its holdings in the country still account for only 2% of its portfolio.
“In Spain we are seeing family offices that have been able to hold assets through the down cycle and now feel like it could be time to sell. Obviously Sareb [the Spanish public-sector bad bank] still has tens of billions to sell. I think we are close to where normal is in Spain in terms of pricing,” Ricks says.
“There was a time when the market was so fraught that people didn’t know where pricing was, and banks just shut up shop and said, ‘No, we are not organised enough internally. We haven’t got the resources to sell’. Those days are long gone.”
The company is yet to do its first deal in Italy but has been assessing opportunities, as have the likes of Cerberus, Orion and Blackstone, which have all been active in the market over the past year.
“I would say it’s like Spain in 2014. Transaction volumes are picking up. There is always going to be competition and prices have moved up a little but we are confident that we will find good opportunities there,” Ricks says.
The company now has nearly 90 employees, just over half of whom are in the UK, along with four in Spain and the remainder in Ireland. Its team includes Mike Pegler, head of asset management in UK and Spain, who joined the company from Blackstone at the start of August, and Fraser Kennedy, the company’s head of finance, who joined from Valad Europe in July.
“Our management team is local. We have only a few people from the US. Our focus in terms of hiring has been on asset management as we are expanding the portfolio all the time,” Ricks adds.
Once seen as a vulture looking for a quick buck, Ricks’s company has established a formidable team to invest through the cycle and will not be heading off into the sun anytime soon.
Kennedy Wilson Europe Real Estate – timeline
February 2014 Raises £1bn in largest London-listed real estate IPO since the downturn. Company seeded with £153m Artemis portfolio from SWIP and £70m Tiger portfolio from Glanmore.
May 2014 Buys Fordgate Jupiter loan portfolio secured against 40 office, industrial and retail assets previously controlled by Moises and Mendi Gertner.
May 2014 Acquires Irish Central Park and Opera portfolios for a total of €472m (£347m).
June 2014 Included in the FTSE 250; portfolio exceeds £1bn.
October 2014 Raises a further £350m.
December 2014 Buys the £503m Bridget portfolio from Aviva.
June 2015 Issues BBB rated £300m unsecured bond.
July 2015 Buys £211m South East offices portfolio from Apollo.
August 2015 Acquires 16 Spanish supermarkets from AEW Europe for €85.5m.
