Kennedy Wilson, Euro-Affiliate to Combine Into $8.2B Entity

By Scott Baltic, Contributing Editor

William McMorrow, chairman & CEO of Kennedy Wilson

Global real estate investment company Kennedy-Wilson Holdings Inc. (KW) and London-based Kennedy Wilson Europe Real Estate Plc (KWE), which invests in direct real estate and real estate loans in Europe, have agreed on the terms of an all-share transaction that will result in KWE becoming a wholly owned subsidiary of KW. The combined company is expected to have an enterprise value of $8.2 billion and a market cap of about $4 billion.

Kennedy Wilson Europe was established in 2011 when Kennedy Wilson acquired Bank of Ireland Real Estate Investment Management. In 2014 Kennedy Wilson launched the £1 billion ($1.7 billion) IPO of Kennedy Wilson Europe Real Estate Plc, the second-largest real estate IPO in the history of the London Stock Exchange.

Since its IPO, KWE has been managed by KW’s leadership team, so that, on the closing of the transaction, “there will be no change to leadership or systems, which will enable a seamless integration and should minimize integration risk and disruption to the business,” according to the announcement. Further, KW’s board and management will own approximately 13 percent of the shares in the combined company.

“The enterprise will benefit from greater scale and improved liquidity, which will enhance our ability to generate attractive risk-adjusted returns for our shareholders,” William McMorrow, chairman & CEO of KW, said in a prepared statement. He added that the transaction will significantly improve the company’s recurring cash flow profile and that KW intends to increase its first quarterly dividend by about 12 percent, on completing the transaction.

Each KWE shareholder will receive 0.667 new KW shares for each KWE share. Based on the $22.5 closing price of KW shares on April 21, implied value per share of KWE represents a premium of about 20 percent. Based on pro forma ownership, existing KW shareholders will own approximately 64 percent of KW and former KWE shareholders will own the remaining approximately 36 percent.

The transaction will reportedly create a global portfolio of more than 400 properties with an enhanced geographic mix and broad diversification across real estate sectors, and may result in greater access to capital and an expanded set of acquisition and development opportunities. The combined company will have pro forma leverage of about 51 percent net debt to enterprise value and about $1.4 billion of pro forma liquidity.

The transaction is expected to close during the third quarter of 2017, subject to customary closing conditions including KW and KWE shareholder approval.

Kennedy Wilson declined to provide additional information requested by Commercial Property Executive.

BTIG commented on the transaction that “While KW management pointed to KWE’s robust liquidity and recurring cash flow as reasons for the deal, we also believe they likely viewed KWE as misunderstood and unfairly valued by the market given the uncertainty caused by Brexit and the political and economic climate in Europe.”

BTIG’s note added that the combined company’s substantial pro forma liquidity, along with a lack of debt maturities within the next seven years, “means it should be perceived as more resilient” in the face of possible market disruptions.