around the world - valuewalk.com · \爀屲this isn’t all bad in that crisis creates ......

$: AROUND THE WORLD - valuewalk.com · \爀屲This isn’t all bad in that crisis creates ... \爀屲It’s been a long waiting對 game, ... identifying and capitalizing on shark-infested$
AROUNDTHE

WORLD

WITH KENNEDY WILSON

2

DISC

LOSU

RES

DISCLAIMER

The analyses and conclusions of Broyhill Asset Management, LLC (“BAM") contained in this presentation are based on publiclyavailable information. BAM recognizes that there may be confidential information in the possession of the companies discussed inthe presentation that could lead these companies to disagree with BAM’s conclusions. This presentation and the informationcontained herein is not a recommendation or solicitation to buy or sell any securities.

The analyses provided may include certain statements, estimates and projections prepared with respect to, among other things, thehistorical and anticipated operating performance of the companies, access to capital markets and the values of assets and liabilities.Such statements, estimates, and projections reflect various assumptions by BAM concerning anticipated results that are inherentlysubject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrativepurposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates orprojections or with respect to any other materials herein. Actual results may vary materially from the estimates and projected resultscontained herein. Accordingly, no party should purchase or sell securities on the basis of the information contained in thispresentation. BAM expressly disclaims liability on account of any party’s reliance on the information contained herein with respect toany such purchases or sales.

Accounts managed by BAM and its affiliates have invested in the equity of Kennedy-Wilson Holdings, Inc (KW). It is possible thatthere will be developments in the future that cause BAM to change its position regarding the companies discussed in thispresentation. BAM may buy, sell, cover or otherwise change the form of its investment regarding such companies for any reason.BAM hereby disclaims any duty to provide any updates or changes to the analyses contained here including, without limitation, themanner or type of any BAM investment.

3

AG

EN

DA

Forever Blowing Bubbles

Kennedy Wilson Does Europe

Net Asset Value

Introduction

Appendix

INTRO

5

OU

RH

ISTORY

We are a boutique investment firm, established as afamily office and guided by a strict value orientation.Our family office foundation provides the security of astable capital base.

We invest alongside our clients as partners in ourprocess. As a result, we do not feel the constant pressureto gather assets, which ultimately results in poor short-term decisions.

Capital preservation is first and foremost our overridingpriority. We seek to provide consistent returns with alow probability of loss, through concentrated, long-termholdings.

We do not follow the crowd, but instead remainindependent in our decision-making. We are willing toaccept short-term underperformance in exchange forlong-term success.

Presenter

Presentation Notes

We are a boutique investment firm, established as a family office and guided by a strict value orientation.

6

STRIVE

FOR

BA

LAN

CE

If I could say one thing to your investors, it's try to achieve balance.

- Ray Dalio, Davos World Economic Forum

Presenter

Presentation Notes

We strive for balance in all that we do. Balance means being careful not to put all your weight on one side of the boat in terms of portfolio construction. A balanced approach to investment management also expands our circle of competence. I’ll explain what I mean in a minute.

7

PE

RFORM

AN

CE

HISTO

RYGROWTH OF $10,000 INVESTED IN BROYHILL HIGH QUALITY COMPOSITE

Presenter

Presentation Notes

At Broyhill, we recently opened up our equity strategy to outside investors. I’ve managed this strategy in house as a component of our overall portfolio since joining the team in 2005. This is a concentrated portfolio of predominantly high quality businesses complimented by various special situations and event-driven opportunities. We don’t like losing money. Generally speaking, we should trail the markets during strong rallies and protect capital during difficult times. The combination of which should generate superior long term returns. Note that we got the first part wrong over the past twelve months, as we’ve managed to keep up with equity markets despite a very heavy cash drag over this period.

8

CA

SHISK

ING

Cash is like oxygen. You don’t notice it 99% of the time, but if it’s absent it’s the only thing you notice.

Presenter

Presentation Notes

A single sentence on why we hold cash.

9

TH

EV

ALU

EO

FE

XTE

RNA

LM

AN

AG

ERS

Our external investments with like-minded, long-term investors complement our internal capabilities, expand our investable universe, and deepen our understanding of financial

markets. Simply put, External Managers, expand our circle of competence.

Presenter

Presentation Notes

We are somewhat unique in the industry in that we are positioned to generate independent research-driven investment ideas while also functioning as a “family endowment” if you will. While most of you in the audience today are pure stock pickers, we think there is value in our approach, which applies the same rigor to stock selection as manager due diligence. As a small office in the foothills of the Blue Ridge mountains, our long-term investment partners compliment our in-house resources and allow us to “plug-in” when necessary. But most of the time, we are happy operating outside of the fray, away from Wall Street’s groupthink where we are better able to tune out the noise, sit in a quiet room and think.

http://www.viewfromtheblueridge.com/2012/10/28/the-value-of-external-managers/

BLOWINGBUBBLES

11

FO

REV

ER

BLO

WIN

GB

UBBLE

SCONNECTING THE DOTS BETWEEN “THE KING OF COOL” & “THE MAESTRO”

I'm forever blowing bubblesPretty bubbles in the air

They fly so high, nearly reach the skyThen like my dreams they fade and die

Fortune's always hidingI've looked everywhere

I'm forever blowing bubblesPretty bubbles in the air

Source: “I’m Forever Blowing Bubbles”

Presenter

Presentation Notes

"I'm Forever Blowing Bubbles" was a popular American song by John Kellette which debuted in 1918. More than a half century later, in 1973, Dean Martin released Sittin’ on Top of the World, featuring Dino’s own version of Forever Blowing Bubbles.

12

Source: BIS, The Asset Price Bubble in Japan

A B

RIEF

HISTO

RYO

FC

RISISFIRST STOP – JAPANESE BUBBLE

THIRD STOP – IRELAND’S BOOM

SECOND STOP – US RECOVERY

NEXT STOP – SPANISH CASTLES

Presenter

Presentation Notes

Our extensive research on the subject has yet to uncover the link between Dean Martin, The King of Cool, and Alan Greenspan, The Maestro, but the Rat Pack’s influence on the Federal Reserve is irrefutable. Consequently, bubbles have become an increasingly common feature of the economic landscape over the past three decades. We think these four charts make this point abundantly clear. Ain’t that a kick in the head?

13

SWIM

MIN

GL

ESSO

NS

The best swimming in the financial markets is when panic breaks loose. By

that time, the damage has been done and those with the courage to dive in head first will find it extremely rewarding.

The increasing number and magnitude of crises begs the question of whether central

bank policies are fanning the flames of destabilizing speculation.

Source: “MarketWatch”

Presenter

Presentation Notes

The increasing number and magnitude of crises begs the question of whether central bank policies are fanning the flames of speculation. This isn’t all bad in that crisis creates opportunity. And as we see it, the best swimming in the financial markets is when panic breaks loose.

14

SETTIN

GTH

ESTA

GE

Presenter

Presentation Notes

In 2009, we published our first letter on the European sovereign debt crisis. Since then, we have been waiting Oceanside, for the right opportunity to dive in and pick up distressed deals from forced sellers in the region. It’s been a long waiting game, while the banks provision more and more each quarter, until they can afford to sell loans at discounted levels. As a result, the disorderly liquidation we’ve been waiting for has been more like a slow drip.

15

NPL O

PPORTU

NITY

EUROPEAN BANKING SNAPSHOT

Source: E&Y

Presenter

Presentation Notes

Europe represents the biggest NPL opportunity worldwide. We estimate the market is about €3.5 trillion of total non-core assets, including over €1 trillion of NPLs. Based on these numbers, activity has been very moderate to date. But there are signs that it is picking up rapidly.

16

FLO

CK

ING

TOE

URO

PEA RECORD YEAR FOR NON CORE LOANS

Source: PwC

Presenter

Presentation Notes

The ECB’s asset quality review and stress tests should act as an important catalyst for future sales. European lenders are expected to sell loans with €80bn of combined face value this year, after disposing of about €60bn last year. MS estimates that Europe’s banks need to sell or refinance €700 billion of NPLs to meet capital requirements and deleverage their balance sheets. In other words, we are five years into the crisis, but the investment opportunity is just beginning.

KWDOES

EUROPE

Presenter

Presentation Notes

Which brings us to the opportunity we’d like to discuss today.

18

A T

ALE

NTE

DSW

IMM

ER

We’d like to introduce you to a very talented swimmer we recently discovered while surveying the investment landscape for sharks.

Kennedy Wilson went public in 2009 and remains underfollowed and misunderstood despite management’s investment success.

Management has a demonstrated nose for value and a proven track record of identifying and capitalizing on shark-infested waters.

Previous investments have systematically exploited the historical cycle of boom and bust.

WHO IS KENNEDY WILSON?

Presenter

Presentation Notes

19

TH

ISSH

OU

LDSO

UN

DF

AM

ILIAR

INVESTING IN OUR CIRCLE OF COMPETENCE

We generally think that asset management is a terrific business.

There’s a natural growth in global demand for financial assets and while thebarriers to entry are fairly low, the barriers to success are fairly high.

Brand, distribution and long-term performance make a big difference.

That results in established companies for the most part generating high margins,high returns on capital and excellent free cash flow.

- Mario Gabelli

A SUSTAINABLE COMPETITIVE ADVANTAGE

Truly durable competitive advantages arise from the intersection of supply anddemand, from the linkages of economies of scale with customer captivity.

Competitive advantages based on economies of scale are in a class by themselves.They tend to be far longer lived than the other types and therefore more valuable.The best course is to establish dominance in a local market and then expandoutward from it. Economies of scale, especially in local markets, are the key tocreating sustainable competitive advantages.

The appropriate strategy is to identify niche markets, understanding that not allniches are equally attractive. Ideally, it will also be readily extendable at theedges. The key is to “think local.”

- Bruce Greenwald and Judd Kahn, “Competition Demystified”

STICKY ASSETS GENERATE DURABLE RETURNS

Those who seek to succeed as long-term investors need time, capital, and fortitude.

Time is important because gaps between fundamentals and expectations are notalways closed quickly.

A stable base of investment capital is also crucial because great investment ideasaren’t worth anything if you have no money to invest.

Investors with a stable and countercyclical base of capital stand at a hugeadvantage to those who work with fleet-footed capital.

– Michael Mauboussin

SECULAR TAILWINDS

Alternative assets make up a small portion of global investable assets but areoutgrowing traditional assets for a number of reasons that we believe are likely tocontinue for some time. With interest rates at generational lows and public marketvolatility near generational highs, investors are diversifying away from conventionalasset classes with subpar returns.

The favorable return attributes of alternative assets are increasingly important asmany liability-matched funds face significant shortfalls. This problem isexacerbated by high rates of expected returns on pension assets - a hurdle that isincreasingly difficult to reach in today’s low return environment.

One way to achieve this return, however, is by committing assets for extendedperiods of time to managers with proven track records.

- Me

Source: Broyhill Asset Management, Solid as an Oak

http://www.scribd.com/doc/114396964/Solid-As-An-OAK

20

BU

SINE

SSO

VE

RVIE

W

KENNEDY WILSON SERVICES KENNEDY WILSON INVESTMENTS

Presenter

Presentation Notes

Founded in 1977, Kennedy Wilson KW has grown from a small auction business into a vertically integrated real estate operating company headquartered in Beverly Hills under the leadership of William McMorrow. McMorrow paid $1,000,000 for KW in 1988, which has a market capitalization in excess of $2 billion today. The value of his initial investment is now worth $300 million, based upon the chairman’s 15% ownership stake. Insiders, in aggregate, own nearly 20% of the company. Kennedy Wilson’s operations are comprised of two complimentary business segments, which together, create off-market sourcing opportunities and deal-flow from various financial institutions: KW Services provides real estate services to property owners and lenders, with a focus on financial institutions. This operating segment has five main lines of business - investment management, property services, research, brokerage, and auction and conventional sales – which generate revenue through recurring fees and commissions. Since inception, KW has sold more than $10 billion of real estate and currently manages 69 million square feet of commercial property and 20,000 multi-family units in the U.S., Europe and Japan. Importantly, KW Services provides management with market insight and creates opportunities for investment. KW Investments includes fund management and advisory services for portfolio investments, property acquisitions and note purchases. Since 1999, the company has invested in 371 deals, deploying $16.4 billion of capital. While early investments were often wholly owned, recent growth has been driven by investments in joint ventures, whereas KW is typically the general partner. KW Investments has generated an internal rate of return of approximately 40% and a 1.6x equity multiple before promoted interests on 97 realized investments between 1999 and 2012. While past performance was enough to get our attention, it was a recent addition to the Kennedy Wilson family that really sparked our interest. More on this in a moment.

21

KW

’SC

OM

PETITIV

EA

DV

AN

TAG

EA PROVEN MODEL FOR CAPITAL ALLOCATION

Source: Company Filings

Presenter

Presentation Notes

By housing the service business and the investment platform under one roof KW gains significant competitive advantages over other real estate buyers operating stand-alone firms. The services business effectively gets the investment business in the door while providing ongoing market intelligence which is leveraged to allocate the company’s capital. These relationships provide the company with access to deal flow, which in turn, generates highly attractive returns for KW shareholders. This arrangement provides exceptional returns on capital as the company benefits from gains on the original investment as well as a promoted interest in the profits beyond its ownership interest. Let’s take a look at the company’s track record in a few key markets.

22

EX

CE

PTION

AL

RE

TURN

SO

NC

APITA

LRECENT EXITS DEMONSTRATE POTENTIAL FOR VALUE CREATION

Date Acquired

Purchase Price

($ millions)

Partners Equity

($ millions)

KW Equity

($ millions)Property Name

Sales Proceeds

KW Gains

KW Multiplier

Oct-08 $88.5 $27.8 $3.2(3) Saybrook Pointe, 324-unit apartment building, San Jose, California

$140.8 $2.2 1.7x

Jun-09 $33.5 $5.8 $5.9(3) The Mercury, LA condominiums $52.2 $9.4 2.6x

Sep-09 $210.4 $54.7 $17.5(3) Four multifamily properties in Western US $243.0 $7.9 1.5x

Dec-09 $218.0 $32.2 $44.3(3) 6 multifamily properties in Western US $251.7 $19.5 1.4x

Jun-10 $56.0(1) 9.6(2) $6.4NoHo, 180 unit apartment building; 11,000 sq. ft retail space; increased NOI from $2.3 to $3.1 million

$74.0 $7.2 2.1x

(3) Assume 1.85x Leverage where information is unavailable

(1) Calculated using 4.1% cap rate at sale and $2.1 million of NOI before acquisition(2) Assume 40% participation in partnerships based on company f ilings

Source: Company Filings, Broyhill Asset Management Estimates

“Major corrections create new opportunities that, if seized, can transform companies to even greater heights.”

- Bill McMorrow, 2009 Letter to Shareholders

Presenter

Presentation Notes

We know few investors with the courage, the liquidity and the temperament to trust their instincts and dive in head first when everyone around was yelling Shark! Bill McMorrow was one. In 2009, KW pounded the pavement to take advantage of a generational buying opportunity in US real estate. In addition to $925 million in outside capital raised to purchase distressed real estate through separate accounts and funds, management formed a relationship with Fairfax Financial in May of 2010 which resulted in a $100 million convertible preferred equity placement, making Prem Watsa the company’s largest outside shareholder. Judging by the examples shown here, which we compiled from multiple sources, it looks like that capital was put to good use.

23

TH

EK

EN

NE

DY

WILSO

NT

OU

CH

VIA VERDE THE ARTISAN

Source: ShowMeTheRent Source: The Artisan Apt Homes

Presenter

Presentation Notes

Let’s take a closer look at a “typical” KW deal. In June 2012, KW purchased Via Verde, a 277-unit apartment complex in Huntington Beach, CA for $65.7 million. The company financed the deal with a $47.8 million ten-year loan on the property from Freddie Mac at 3.6% fixed. Not too shabby. The pictures on the left of this slide were taken from a listing on ShowMeTheRent a few months after KW’s purchase. The pictures on the right illustrate what the complex looks like today after $3.5MM of planned improvements. These units now rent from $1500 to $2400 per month. There are 15 units available which implies 95% occupancy. Even assuming average normalized rents of $1800 gets us to $5.7MM in gross income for an 8.2% yield. We are seeing high quality multifamily assets trading at sub 5% today. Even assuming a 5.5% cap rate on Via Verde would put the valuation north of $100MM. That’s a 1.8x over two years on KW’s total equity investment of $69MM.

24

GO

OD

CO

MPA

NY

FAIRFAX ANNUAL LETTER EXCERPTS

We continued to purchase commercial real estate investments with Bill McMorrow and his team at Kennedy Wilson. We purchased, 50/50 with Kennedy Wilson, perhaps the finest office building in Dublin, built in 2009 and 100% leased to State Street Bank for 25 years, for one-third of its construction cost with an unleveraged yield of approximately 8.5%. We also own, with Kennedy Wilson, some of the finest apartment buildings in Dublin with similar return characteristics. Rest assured we return Bill’s calls very promptly!

As I mentioned to you last year, one such call from Bill in 2011 led to our investment (along with W.L. Ross, Fidelity and Capital Research) in Bank of Ireland – the first significant investment in Ireland by foreign investors since the financial market collapse. Only one year later, Ireland and its economy have made significant strides towards recovery. The Bank of Ireland has been one of our most successful investments1

We continued to invest with Bill McMorrow from Kennedy Wilson in 2013. We invested in the Clancy Quay apartments and some well-leased office buildings in Dublin and we also invested in a U.K. loan pool. We have invested a net cumulative $305 million in real estate deals with Kennedy Wilson in California, Japan, the U.K. and Ireland – deals at significant discounts to replacement costs and with excellent unlevered cash on cash returns, in which Kennedy Wilson is the managing partner and an investor. Also, we continue to own a fully diluted 10.9% interest in Kennedy Wilson.2

1Fairfax 2012 Annual Letter2Fairfax 2013 Annual Letter

Presenter

Presentation Notes

Private institutional investors we’ve spoken with have confirmed that their experience with KW Investments in the US has been similar. On average, our research points to average returns pre-promote of 1.6x to 1.8x on US investments. But this section isn’t titled “KW Does Europe” for nothing. So let’s talk about Europe. After scooping up distressed assets in the wake of the US housing crisis, KW made their first trip to Dublin in 2010, amidst a highly distressed European banking system, and subsequently purchased the Bank of Ireland’s real estate investment management division, with £1.3 billion of real estate assets under management at the time of acquisition. One year later, KW raised $1.5 billion to recapitalize the Bank of Ireland and purchased $2.2 billion of performing real estate secured loans for $1.8 billion. Bill had some good company. Here’s what Prem had to say in his 2012 and 2013 Annual Letters:

25

DE

ALSSO

URC

ED

FROM

AD

OZ

EN

INSTITU

TION

SKW HISTORY IN EUROPE

Source: Company Filings

Presenter

Presentation Notes

Kennedy Wilson’s European track record, since first acquiring the Bank of Ireland’s real estate investment platform, is illustrated here through year-end. In aggregate, management has sourced deals from nearly a dozen different financial institutions across Europe.

26

WA

ITF

OR

IT

Presenter

Presentation Notes

In February of this year, KW did something special. They raised 1 billion pounds in the IPO of KWE. KWE is a closed-end fund which trades in London. It is a permanent capital base generating fees of 1% & 20% for the manager, KW. KW committed two property portfolios for an initial 12.5% interest in the fund. Other cornerstone investors included FFH, Soros, Moore, etc. so we are in good company here. KW has recently purchased another million shares of KWE on the open market taking their ownership interest to 13.5%.

27

ATTRA

CTIV

EA

SSETS

AC

ROSS

THE

UK

& IRE

LAN

DKWE ACQUISITIONS SINCE IPO EXCEED £1 BILLION


Presenter

Presentation Notes

28

NA

MA

ACCELERATING DEBT REDUCTION…

NAMA acquired EUR 74 billion of loans as part of a major Irish asset relief scheme and subsequent recapitalization program.

The agency has set a debt reduction target of 25% by 2013, 80% by 2017 and 100% by 2019.

Expect activity to heat up between now and then as illustrated below.

DRIVING INCREASED TRANSACTION ACTIVITY

Source: National Asset Management Agency 2013 Annual Report

Presenter

Presentation Notes

I’d like to spend a few minutes talking about catalysts on the horizon before getting into what it’s worth. NAMA, Ireland’s bad bank was created in 2009 when it acquired EUR74 billion of bad debt from bankrupt Irish banks. Since then, these loans have sat at NAMA as the Irish property market continued to fall through last year. Essentially, there were no buyers in the market. At least until KW showed up. From 2010, when KW first entered Ireland until last year, KW represented nearly 40% of all transaction activity in the market! Rising activity and rising prices since last year, have opened up a window of opportunity for NAMA to deleverage it’s balance sheet. As noted here, the agency expects to pay down 80% of its debt in the next few years. How do they do this? By selling distressed assets. So while competition has increased for Irish assets since KW’s initial entry, we expect new supply from NAMA, Danske, Lloyds, etc. to meet the increased demand.

29

TH

EL

UC

KO

FTH

EIRISH

DUBLIN PRIME LONG-TERM YIELDS

ANNUAL CHANGE IN PRIME DUBLIN OFFICE RENT

Source: Lisney Research

Presenter

Presentation Notes

Importantly, the fundamentals for Dublin real estate look better than ever. Cap rates have come down but relative to local interest rates, we think these spreads remain very attractive. Particularly when one considers the supply/demand dynamics. Commercial property prices and rents fell 60-70% during the crisis. Both have rebounded in the past year but we are coming off a very low base. There has not been a single crane on the Dublin sky line since 2006-2007. Construction has completely dried up. There is no new supply. At the same time, demand for prime real estate is soaring. Take a look at the prior periods of rent growth in Dublin which followed previous declines. After such a dramatic fall, we think last year’s move was just the beginning.

30

UPSID

EIN

SEC

ON

DA

RYM

ARK

ETS

UK YIELDS & INTEREST RATES

PRIME PROPERTY PERFORMANCE PRIME INVESTMENT YIELDS

Source: Cushman & Wakefield

Presenter

Presentation Notes

The UK is a bit of a different story, where prime assets are now trading past prior peak levels in London. Consequently, yields are falling, but there is still opportunity in secondary markets outside of London which have not participated in the recent rally. KWE’s Tiger Portfolio, recently purchased at a yield of 13.7% is a good example of the upside potential in these markets as more investors seek value outside of London.

31

“PO

PULA

R” GRO

WTH

INM

AD

RID

On December 27, 2013, Banco Popular, SA sold the real-estate management business unit and some of the Bank’s debt related to the property sector to a newly incorporated company, with a majority shareholding by Värde Partners, Inc. and Kennedy Wilson. The sale includes the transfer of all resources required to independently carry out the real-estate management business. This business had been carried out by the group with the objective of maximizing the sale price of property assets and maximizing the recovery of debt related to the real estate sector. This will allow the Bank to benefit from its partner’s broad management experience with these types of assets with the objective of attaining the maximum yield from the management of this business.

Investments in Europe have been sourced directly through extensive relationships with financial institutions in theUK and Ireland. Going forward, we expect that KW’s team in Madrid will provide a long runway for futuregrowth. In line with KW’s time tested business model, management dusted off the Irish playbook and launchedits operations in Spain in 2012 through the real estate auction business followed by a major strategic acquisitionlast year. Here’s the summary from Banco Popular’s Annual Report:

On December 27, 2013, Banco Popular, SA sold the real-estate management business unit and some of the Bank’s debt related tothe property sector to a newly incorporated company, with a majority shareholding by Värde Partners, Inc. and Kennedy Wilson. Thesale includes the transfer of all resources required to independently carry out the real-estate management business. This business hadbeen carried out by the group with the objective of maximizing the sale price of property assets and maximizing the recovery of debtrelated to the real estate sector. This will allow the Bank to benefit from its partner’s broad management experience with these types ofassets with the objective of attaining the maximum yield from the management of this business.

Presenter

Presentation Notes

While the current portfolio is largely comprised of assets in Ireland and the UK, KW has already laid the groundwork for the next stop on its world tour. Pulling a page out of its Irish playbook, KW purchased the real estate asset management division of Banco Popular providing the company with boots on the ground in Spain. Again, this is a key piece of the KW strategy and a significant advantage relative to other operators in the region that lack the network of KW.

32

SARE

B

Presenter

Presentation Notes

While KW has yet to announce a deal in Spain, the writing is on the wall for a pick up in activity in the period ahead. The Spanish move a bit slower than the Irish, but eventually figured it out. Spain’s Bad Bank, Sareb, received 50 billion euros of assets in two phases which were just completed last year. Spain’s “bad bank” has revealed an ambitious new timetable for the liquidation of its €50bn portfolio, saying it plans to sell about half of all properties under its control – in the next five years.

NETASSETVALUE

34

A R

ATIO

NA

LA

PPROA

CH

MODERN SECURITY ANALYSIS

“It seems very hard to try to beat the market consistentlyby trying to beat the market. Rather it seems to us a morerational approach is to be value conscious rather thanoutlook conscious.”

- Martin J. Whitman, Modern Security Analysis

35

$0

$5

$10

$15

$20

$25

$30

$35

$11

$32$7

$4

$5

$5

$0

$5

$10

$15

$20

$25

$30

$35

Net LTInvestments

STInvestments

KWServices

KWEMgmt Fees

IncentiveFees

UpsidePotential

NET ASSET VALUE & UPSIDE POTENTIAL


Valued at 1.4x-1.6x Book

Value Net of Debt and

Non-controlling Interests

Cash & Receivables

14x–18xNOI

14x–18xNOI

Assuming Fully

Invested Assets

4x-8x Incentive

Fee-Related Earnings Assuming

1.6x Multiple Over 3 Year

Holding Period

WH

AT’S

ITW

ORTH?

36

SUPE

RM

ARIO

KW TOTAL NET INVESTMENT ACCOUNT


Presenter

Presentation Notes

Investing in the common stocks of well-financed companies selling at discounts from readily attainable NAV’s offers investors a comfortable margin of safety. And by restricting such investments to companies able to grow those NAVs over time, our margin of safety expands even further. On our numbers, KW would seem to fit the bill. And assuming 10% annual growth in NAV over the next few years, the probability of losing money over a proper time horizon seems minimal. Particularly, with Super Mario on our side.

APPENDICES

38

UPSID

EIN

RE

NT

GRO

WTH

& C

AP

RA

TES

KWE SENSITIVITY ANALYSIS

Annual Rent Growth

£ 1.8 0% 2% 4% 6% 8% 10% 12% 14%

9.00% 0.63 0.74 0.87 1.00 1.13 1.28 1.43 1.59

Exi

t Cap

Rat

e

8.50% 0.72 0.85 0.98 1.11 1.26 1.41 1.57 1.74

8.00% 0.83 0.96 1.10 1.25 1.40 1.56 1.73 1.91

7.50% 0.95 1.09 1.24 1.40 1.56 1.73 1.91 2.10

7.00% 1.09 1.24 1.40 1.57 1.74 1.93 2.12 2.32

6.50% 1.25 1.41 1.58 1.76 1.95 2.15 2.36 2.58

6.00% 1.44 1.61 1.80 2.00 2.20 2.42 2.64 2.88

5.50% 1.66 1.85 2.05 2.27 2.49 2.73 2.97 3.23

5.00% 1.93 2.14 2.36 2.59 2.84 3.10 3.37 3.65


39

TIG

ER

PO

RTFOLIO

OVERVIEW

40

ARTE

MISP

ORTFO

LIOOVERVIEW

41

OPE

RAP

ORTFO

LIOOVERVIEW

42

CE

NTRA

LP

ARK

PO

RTFOLIO

OVERVIEW

43

PO

RTMA

RNO

CK

HO

TEL

& G

OLF

LIN

KS

OVERVIEW

44

LIFFE

YT

RUST

BU

ILDIN

GOVERVIEW

45

FO

RDG

ATE

JUPITE

ROVERVIEW

46

AV

ON

LO

AN

PO

RTFOLIO

OVERVIEW

47

DISC

LAIM

ER

DISCLAIMER

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

This material has been prepared solely for the purposes of illustration and discussion. “Broyhill Asset Management” is the marketing name forthe investment management business conducted by Broyhill Asset Management, LLC. and its affiliates. Broyhill Asset Management, LLC is anSEC Registered Investment Advisor.

Under no circumstances should the information contained herein be used or considered as an offer to sell, or solicitation of an offer to buy anysecurity. Any security offering is subject to certain investor eligibility criteria as detailed in the applicable offering documents. The informationcontained herein is confidential and may not be reproduced or circulated in whole or in part. The information is in summary form forconvenience of presentation, it is not complete and should not be relied upon as such.

Any information, data, statement, opinions, or projections made herein may contain certain forward looking statements, projections, andinformation that are based on the beliefs of Broyhill Asset Management as well as assumptions made by, and information currently available to,Broyhill Asset Management. Such statements reflect the view of Broyhill Asset Management with respect to future events and are subject tocertain risks, uncertainties and assumptions (including, but not limited to, changes in general economic and business conditions, interest rate andsecurities market fluctuations, competition from within and without the investment industry, new products and services in the investmentindustry, changes in customer profiles, and changes in laws and regulations applicable to Broyhill Asset Management). Should one or more ofthese other risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from thosedescribed herein.

All information, including performance information, has been prepared in good faith; there are no representations or warranty expressed orimplied, as to the accuracy or completeness, of the information, and nothing herein shall be relied upon as a promise or representation as to thepast or future performance. This material may include information that is based, in part or in full, on hypothetical assumptions, models, and/orother analysis (which may not necessarily be described herein). No representations or warranty are made as to the reasonableness of any suchassumptions, models, or analysis. The information set forth herein was gathered from various sources which are believed, but not guaranteed, tobe reliable. Unless stated otherwise, any opinions expressed herein are current as of the date hereof and are subject to change at any time.Accordingly, neither Broyhill Asset Management nor its principals or affiliates make any representations as to the timeliness of any information inthis presentation.

Broyhill Asset Management

Christopher R. Pavese, CFA

[email protected]

http://eepurl.com/q6pVL

http://eepurl.com/q6pVL

around the world - valuewalk.com · \爀屲this isn’t all bad in that crisis creates ......

Documents