KENNEDY-WILSON HOLDINGS, INC. The following discussion and analysis of our financial condition and results of operations contains forward-looking statements within the meaning of the federal securities laws. See the discussion under the heading "Forward-looking Statements" elsewhere in this report. Unless specifically noted otherwise, as used throughout this Management's Discussion and Analysis section, "we," "our," "us," "the Company" or "Kennedy Wilson" refers toKennedy-Wilson Holdings, Inc. and its wholly-owned subsidiaries. "Equity partners" refers to third-party equity providers and non-wholly-owned subsidiaries that we consolidate in our financial statements underU.S. GAAP. Please refer to "Non-GAAP Measures and Certain Definitions" for definitions of certain terms used throughout this Management's Discussion and Analysis Section. Current Economic Conditions and Market Dynamics Ongoing macroeconomic conditions, such as, but not limited to, high inflation, central banks raising interest rates to curtail high inflation, currency fluctuations, the COVID-19 pandemic and the ongoing military conflict betweenRussia andUkraine and international sanctions againstRussia , continue to fuel recessionary fears and create volatility in our business results and operations. Any prolonged downturn in the financial markets or a recession, either globally or locally inthe United States or in other countries in which we conduct business, could impact us in a number of ways, including, but not limited to, variations in the level of our profitability, the cost of our borrowings, the availability of future borrowings, valuation of our real estate assets and obligations, fluctuations in currency translations due to volatility in foreign currency exchange rates, increasing the credit risks of our tenants, borrowers and counterparties and the impairment of our and our partners' ability to invest capital in real estate transactions. The financial condition, results of operations, liquidity and creditworthiness of our tenants may also be adversely impacted. As discussed further below, (i) recessionary fears and market volatility leading to certain companies recently announcing the reduction of staff; and (ii) certain large and influential tenants (including certain of our tenants) maintaining pandemic-driven hybrid work schedules may negatively impact the value of our office properties as well as impair our ability to lease properties on favorable terms and/or collect owed rents on a timely basis, or at all. In addition, the creditworthiness of our borrowers under our real estate debt platform may also be impaired and our ability to collect payments of principal and interest from such borrowers may be adversely impacted. Although the impact of these factors remains uncertain and fluid, we continue to evaluate the extent to which these factors may impact our business, financial condition and results of operations. Please also see Part I. Item 1A Risk Factors of our Annual Report on Form 10-K and Part II. Item 1A Risk Factors. Inflation and Interest Rates During the twelve months endedSeptember 2022 , the consumer price index inthe United States rose by approximately 8.2% compared to the twelve months endedSeptember 2021 . Similar statistics used and tracked in theUnited Kingdom and inEurope rose by approximately 10.1% and 9.9%, respectively. Substantial inflationary pressures could have a negative impact on certain real estate assets that we own and manage, including, without limitation, development projects that do not have guaranteed, or fixed price contracts and real estate assets with long-term leases that do not provide for short-term rent increases. However, we continue to seek opportunities for stronger relative growth, including multifamily assets with leases that have an initial term of 12 months or less, and continue to work to manage cost overrun risks for our development and redevelopment projects with detailed architectural plans, guaranteed, or fixed price contracts and close supervision by expert Company executives and personnel. Please also see Development and Redevelopment in the Liquidity and Capital Resources section for a more detailed discussion regarding our development initiatives. Rising costs could also, among other things, have an adverse impact on our floating rate mortgages (as discussed below) and general and administrative expenses, as these costs could increase at a higher rate than our rental and other revenue. Please also refer to "Inflation may adversely affect our financial condition and results of operations" in Part II. Item 1A Risk Factors. In an effort to curtail these inflationary pressures, central banks have significantly raised interest rates in 2022. TheFederal Reserve has raised its target range for the federal funds rate several times sinceMarch 2022 , as recently asNovember 2, 2022 , from 0% to 0.25% as ofDecember 31, 2021 , to 3.75% to 4.00% as ofNovember 2, 2022 . Recently, theEuropean Central Bank and theBank of England have also increased similar interest rates that they control in order to curtail similar inflationary pressures (at a similar pace as theFederal Reserve ). This has led to volatility and uncertainty in the credit markets and has generally slowed the level of real estate transactional activity. In addition to impacting our ability to complete real estate transactions on desired terms, or at all, increased interest rates; (i) negatively impact our ability to access additional financing for our capital needs, both on a corporate and property level, or refinance or extend our existing debt on favorable terms, or at all; and (ii) may impact the value of our properties, including the assets that we record on our financial statements at estimated fair value. Please see the section entitled "Fair Value Investments" below for details on the investments that we hold at estimated fair value and our valuation methodology. In order to manage the effect of increasing interest rates on our operations, we have maintained an interest rate management policy that seeks to minimize our overall cost of debt, while taking into consideration the earnings implications associated with the volatility of short-term interest rates. Pursuant to our policy, we manage our interest rate risk by entering into both fixed and 42 -------------------------------------------------------------------------------- Table of Contents variable rate debt arrangements, in addition to using interest rate swap contracts to swap some of our variable rate loans to fixed rate terms to achieve a desired mix of fixed and variable rate debt. As ofSeptember 30, 2022 , 78% of our consolidated level debt is fixed rate, 22% is floating rate with interest caps and 0% is floating rate without interest caps. As such, fluctuations in interest rates have impacted our floating rate debt (and floating rate debt with interest caps to a lesser extent) and have caused our consolidated interest expense and income from unconsolidated investments to increase. As discussed throughout this report, if there was a 100-basis point increase in our floating rate debt, we would have a$5.4 million increase in interest expense during 2022 on our current share of indebtedness. Please see Item 3. Quantitative and Qualitative Disclosures About Market Risk for more details. Please also see Part I. Item 1A Risk Factors of our Annual Report on Form 10-K and Part II. Item 1A Risk Factors. As discussed throughout this report, current rising interest rates, however, has led to the recording of fair value gains for unconsolidated investments held at fair value with respect to our fixed-rate mortgages secured by our properties during the nine months endedSeptember 30, 2022 . This is a result of us borrowing under such mortgages at substantially lower rates than the current market rates as a result of higher base rates and spreads in today's financing market. Fluctuations in Currency Exchange Rates The financial statements of our foreign subsidiaries are measured using the applicable local currency. Fluctuations in currency exchange rates create volatility in our reported results as we translate the balance sheets, operational results and cash flows of such subsidiaries intoU.S. Dollars for consolidated reporting purposes. To date, our foreign currency exposure has been limited to the British pound sterling, or GBP, and the euro. Recently, the GBP dropped to a record low of$1.07 against theU.S. Dollar inSeptember 2022 after theUnited Kingdom government announced a new economic plan that has since been abandoned. Although the GBP has rallied in recent weeks, it remains historically weak against theU.S. Dollar at$1.13 , as ofSeptember 30, 2022 , as compared to$1.33 as ofDecember 31, 2021 . Similarly, the euro hit a two-decade low of$0.99 against theU.S. Dollar inAugust 2022 and continued to trend down to a low of$0.96 onSeptember 27, 2022 . As ofSeptember 30, 2022 , the euro slightly improved to$0.98 against theU.S. Dollar, but it is still below its rate of$1.14 as ofDecember 31, 2021 . Approximately 37% of our investment account is invested through our foreign platforms in their local currencies. Investment level debt is generally incurred in local currencies and therefore we consider our equity investment as the appropriate exposure to evaluate for hedging purposes. Additionally, the costs to operate these businesses, such as compensation, overhead and interest expense are incurred in local currencies. We typically do not hedge future operations or cash flows of operations denominated in foreign currencies, which may have a significant impact on the results of our operations for both the Consolidated and Co-Invest segments. In order to manage the effect of these fluctuations, we generally hedge our book equity exposure to foreign currencies through currency forward contracts and options. As ofSeptember 30, 2022 , we have hedged 88% of the net asset carrying value of our euro denominated investments and 86% of the net asset carrying value of our GBP denominated investments. If there was a 5% increase or decrease in foreign exchange rates on the currencies we invest to theU.S. Dollar our net asset value would increase by$28.8 million or decrease by$30.8 million . If rates moved 10%, we would have an increase of$57.6 million and a decrease of$57.5 million . Please see Item 3. Quantitative and Qualitative Disclosures About Market Risk and Foreign Exchange - Results of Operations in the Results of Operations section below for more details. Please also see Part I. Item 1A Risk Factors of our Annual Report on Form 10-K and Part II. Item 1A Risk Factors. The COVID-19 Pandemic While no specific impact of the COVID-19 pandemic is significant to the overall financial results of the Company at this time, there still remains uncertainty around the pandemic, including its severity and duration and government responses. Although the impact of the COVID-19 pandemic on real estate remains fluid and uncertain, there is a notable trend among certain influential office tenants (including certain of our tenants) of maintaining pandemic-driven hybrid work schedules, remote workforces and/or reducing the overall size of their workforce in response to the macroeconomic conditions discussed above, therefore leading to a decrease in demand for office space and potentially influencing other office tenants to follow suit. Such trends may impact our prospective or current office tenants' ability or willingness to enter into, maintain or renew their leases for certain office spaces, which may have an adverse effect on our business, financial condition and results of operations.
The status of the COVID-19 pandemic and the information available to us may
change, potentially significantly, going forward and may not be indicative of
the actual impact of the COVID-19 pandemic on our business, cash flows,
financial condition and results of operations for the nine months ended
Year to Date Highlights
•For the nine months endedSeptember 30, 2022 , we had net income attributable toKennedy-Wilson Holdings, Inc. common shareholders of$42.2 million as compared to net income attributable toKennedy-Wilson Holdings, Inc. common shareholders of$275.7 million for the same period in 2021. For the nine months endedSeptember 30, 2022 we had Adjusted EBITDA of$444.4 million as compared to$740.5 million for the same period in 2021. The 43 -------------------------------------------------------------------------------- Table of Contents decreases in net income attributable toKennedy-Wilson Holdings, Inc. common shareholders and Adjusted EBITDA are due to higher gains on sale of real estate during the nine months endedSeptember 30, 2021 offset by higher fair value gains on interest rate derivatives during the nine months endedSeptember 30, 2022 . Specifically, onJune 25, 2021 , the Company and a global institutional investor partner launched a new joint venture with respect to core-plus multifamily properties located in theWestern United States (the "JV"). The JV commenced with the partner purchasing a 49% ownership stake in nine multifamily assets (2,809 units) previously wholly-owned by the Company and valued at approximately$800 million (the "MF seed portfolio"). The transaction led to the deconsolidation of the Company's retained 51% interest resulting in a gain on sale of real estate in accordance withU.S. GAAP of$332.0 million . The gain is due to the sale of the 49% interest to our partner and the recording of our retained 51% in unconsolidated investments at the fair value established by the transaction. The MF seed portfolio sale gain discussed above in the prior period was offset by a loss on extinguishment of debt associated with the 2024 Notes and KWE Bonds. There was no comparable activity in the current period. •We recorded fair value gains and unrealized promotes (aggregate of$73.0 million ) during the nine months endedSeptember 30, 2022 primarily due to fair value gains associated with fixed rate mortgages secured by our real estate assets related to having long term fixed rate debt that is at substantially lower rates than the current market rates as a result of higher base rates and spreads in today's financing market. We also had fair value gains associated with interest rate derivatives that we held on property level mortgages that have increased in value with rising interest rates. Such fair value gains have been offset by foreign exchange losses, net of any foreign currency derivatives on our European fair value investments due to the euro and the GBP weakening against theU.S. Dollar. Our real estate portfolio for the nine months endedSeptember 30, 2022 was relatively flat with increases in fair value on our affordable housing portfolio offset by fair value slight decreases on market rate assets as we have seen some evidence of cap rate expansion. Company Overview We own, operate and develop high-quality real estate across growing markets in theWestern United States , theUnited Kingdom andIreland with the objective of generating strong long-term risk-adjusted returns for our shareholders and partners. For the nine months endedSeptember 30, 2022 , our 228 employees managed a total of$21.9 billion of Real Estate Assets Under Management ("AUM"), which includes 37,571 multifamily units (including 4,771 units under lease up or in process of being developed), 11.8 million office square feet, 10.6 million industrial square feet and 4.2 million retail square feet (including 2.4 million square feet under lease up or in process of being developed), and$2.6 billion of development and residential and other. As ofSeptember 30, 2022 , the$19.2 billion of operating properties within our AUM produced total revenue of$1.1 billion (KW's share of which was$525.1 million ) for the nine months endedSeptember 30, 2022 compared to$17.3 billion of operating properties with total revenue of$843.7 million (KW's share of which was$412.9 million ) during the same period in 2021. Our global team, located in offices throughoutthe United States , theUnited Kingdom ,Ireland andSpain , also managed the consummation of$1.8 billion of gross acquisitions and$722.1 million of loan investments (KW's ownership interest of 52% and 5%, respectively) and$1.0 billion of gross dispositions and$334.0 million of loan repayments (KW's ownership interest of 39% and 9%) during the nine months endedSeptember 30, 2022 . Our global real estate portfolio is primarily comprised of multifamily communities (56%), commercial properties (40%) and hotel and other properties (4%) based upon our share of NOI. TheWestern United States represents 60% of our portfolio, with a focus on the Mountain West region, our largest global region which includes our investments inIdaho ,Utah ,Nevada ,Arizona , andNew Mexico . We also invest in thePacific Northwest , including the state ofWashington , and Northern andSouthern California . InEurope , our portfolio is focused in theUnited Kingdom (16%) andIreland (21%).
Our business is comprised of two segments.
First, our Consolidated Portfolio (as defined below) includes primarily
wholly-owned multifamily communities, office, retail and industrial properties,
and one hotel. Our ownership interests in such consolidated properties make up
our Consolidated Portfolio ("Consolidated Portfolio") business segment as
discussed in detail throughout this report.
In addition to investing our shareholder's capital, we invest capital on
behalf of our partners in real estate and real estate related assets through our
Co-investment Portfolio ("Co-investments Portfolio"). This fee-bearing capital
represents total third-party committed or invested capital that we manage in our
joint ventures and commingled funds that entitle us to earn fees, including
without limitation, asset management fees, construction management fees,
acquisition and disposition fees and/or promoted interest, if applicable. As of
September 30, 2022 , our fee-bearing capital was $5.6 billion and we recognized
$33.5 million in base investment management fees and $0.5 million of performance
allocations (allocated amounts to us on co-investments we managed based on the
cumulative performance of the underlying investment) during the nine months
ended September 30, 2022 . We generally invest our own capital alongside our
equity partners in these joint ventures and commingled funds that we manage.
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The table below details key metrics of the Consolidated and Co-Investments
portfolios as of
Consolidated Co-Investments
Multifamily units - market rate 11,682 14,586
Multifamily units - affordable - 11,303
Office feet square feet (millions) 4.8 7.0
Industrial square feet (millions) - 10.6 Retail square feet (millions) 2.7 1.5 Hotels 1 1 Real estate debt - 100% (billions) $ - $ 2.1 Real estate debt - KW share (millions) $ -$ 147.0 Revenues (millions)$ 357.6 $ 218.7 NOI (millions)$ 221.6 $ 118.2 AUM (billions) $ 8.8 $ 13.1 In our Co-investments Portfolio, 87% of our carrying value is accounted for at fair value. Our interests in such joint ventures, commingled funds, loans and the fees that we earn from such vehicles make up our Co-investments Portfolio segment as discussed in detail throughout this report. In addition to our income-producing real estate, we engage in development, redevelopment and value add initiatives through which we enhance cash flows or reposition assets to increase value. Our total share of development project costs with respect to these investments are estimated at$436.0 million over the next three years. These costs are generally financed by cash from our balance sheet, capital provided by partners (if applicable), cash flow from the investment and construction loans. Cost overrun risks are reduced by detailed architectural plans, guaranteed, or fixed price contracts and supervision by expert Company executives and personnel. When completed, the construction loans are generally replaced by long-term mortgage financing. See additional details in the section titled Development and Redevelopment below.
Investment Approach
The following is our investment approach:
•Identify countries and markets with an attractive investment landscape •Establish operating platforms in our target markets •Develop local intelligence and create and maintain long-lasting relationships, primarily with financial institutions and the brokerage community •Leverage relationships and local knowledge to drive proprietary investment opportunities with a focus on off-market transactions that we expect will result in above average cash flows and returns over the long term •Acquire high quality assets, either on our own or through investment management platform with strategic partners •Reposition assets to enhance cash flows post-acquisition •Disposing of non-core assets or assets that have completed their business plans and investing the proceeds from such sales into value-add capital expenditures, development and acquisitions with higher expected rent growth or recurring net operating income than assets sold •Explore development opportunities or acquire development assets that fit within our overall investment strategy •Continuously evaluate and selectively harvest asset and entity value through strategic realizations using both the public and private markets
During the last five years, occupancy, NOI, Adjusted EBITDA and fee-bearing capital of KW was as follows (at share):
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Three Months Ended September 30,
($ in millions, except fee bearing
capital and AUM which $ in billions) 2022 2021 2020 2019 2018
Consolidated NOI(1) $ 75.8 $ 64.6 $ 67.6 $ 75.2 $ 94.5
% change 17.3 % (4.4) % (10.1) % (20.4) % - %
JV NOI(1) $ 39.7 $ 34.6 $ 23.8 $ 19.8 $ 15.9
% change 14.7 % 45.4 % 20.2 % 24.5 % - %
Adjusted EBITDA(1) $ 165.9 $ 202.7 $ 76.3 $ 142.5 $ 141.9
% change (18.2) % 165.7 % (46.5) % 0.4 % - %
Fee-bearing capital $ 5.6 $ 4.8 $ 3.8 $ 2.5 $ 1.9
% change 16.7 % 26.3 % 52.0 % 31.6 % - %
AUM $ 21.9 $ 20.5 $ 19.7 $ 16.2 $ 16.0
% change 6.8 % 4.1 % 21.6 % 1.3 % - %
Nine Months Ended September 30,
($ in millions, except fee bearing
capital and AUM which $ in billions) 2022 2021 2020 2019 2018
Consolidated NOI(1) $ 221.6 $ 178.4 $ 201.3 $ 230.1 $ 283.9
% change 24.2 % (11.4) % (12.5) % (19.0) % - %
JV NOI(1) $ 118.2 $ 87.9 $ 76.5 $ 55.8 $ 42.7
% change 34.5 % 14.9 % 37.1 % 30.7 % - %
Adjusted EBITDA(1) $ 444.4 $ 740.5 $ 261.1 $ 450.0 $ 535.0
% change (40.0) % 183.6 % (42.0) % (15.9) % - %
Fee-bearing capital $ 5.6 $ 4.8 $ 3.8 $ 2.5 $ 1.9
% change 16.7 % 26.3 % 52.0 % 31.6 % - %
AUM $ 21.9 $ 20.5 $ 19.7 $ 16.2 $ 16.0
% change 6.8 % 4.1 % 21.6 % 1.3 % - %
(1) Please refer to "Certain Non-GAAP Measures and Reconciliations" for a
reconciliation of certain non-GAAP items to
Business Segments
Our operations are defined by two business segments: our Consolidated Portfolio and our Co-Investment Portfolio
•Our Consolidated Portfolio consists of the investments in real estate and real estate-related assets that we have made and consolidate on our balance sheet. We typically wholly-own the assets in our Consolidated Portfolio. •Our Co-Investment Portfolio consists of (i) the co-investments in real estate and real estate-related assets, including loans secured by real estate, that we have made through the commingled funds and joint ventures that we manage; (ii) fees (including, without limitation, asset management fees and construction management fees); and (iii) performance allocations that we earn on our fee bearing capital. We typically have a 5% to 50% ownership interest in the assets in our Co-investment Portfolio. We have a weighted average ownership in our Co-Investments Portfolio assets of 39% as ofSeptember 30, 2022 .
In addition to our two primary business segments, our Corporate segment includes, among other things, our corporate overhead and our auction group.
Consolidated Portfolio
Our Consolidated Portfolio is a permanent capital vehicle focused on maximizing property cash flow. These assets are primarily wholly-owned and tend to have longer hold periods and we target investments with accretive asset management opportunities. We typically focus on office and multifamily assets in theWestern United States and commercial assets in theUnited Kingdom andIreland within this segment.
The table below represents a summarized balance sheet of our Consolidated
Portfolio which is held at historical depreciated cost as of
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Table of Contents ($ in millions) September 30, 2022 December 31, 2021 Cash(1) $ 270.2 $ 362.3 Real estate 5,076.7 5,059.8 Accounts receivable and other assets 135.0 111.7 Total Assets $ 5,481.9 $ 5,533.8 Accounts payable 10.4 17.4 Accrued expenses 147.7 126.8 Mortgage debt 3,011.2 2,959.8 KWE bonds 536.4 622.8 Total Liabilities 3,705.7 3,726.8 Equity $ 1,776.2 $ 1,807.0
(1)Excludes
Co-Investments Portfolio
We utilize different platforms in the Co-investment Portfolio segment depending on the asset and risk return profiles.
The table below represents our share of the carrying value (primarily at fair value) of the balance sheet of our Co-Investment Portfolio as ofSeptember 30, 2022 andDecember 31, 2021 : ($ in millions) September 30, 2022 December 31, 2021 Cash $ 111.5 $ 103.7 Real estate 4,084.8 3,667.9 Loans 143.7 143.4 Accounts receivable and other assets 321.7
311.9
Total Assets $ 4,661.7 $
4,226.9
Accounts payable and accrued expenses 105.3 87.1 Mortgage debt 2,282.4 2,061.9 Total Liabilities 2,387.7 2,149.0 Equity $ 2,274.0 $ 2,077.9 Separate accounts We have several equity partners for whom we act as the general partner and receive investment management fees and performance allocations, including asset management, acquisition, disposition, financing, construction management, and other fees. In addition to acting as the asset manager and general partner of those joint ventures, we are also a co-investor in these properties. Our separate account platforms have defined investment parameters such as asset types, leverage and return profiles and expected hold periods. As ofSeptember 30, 2022 , our weighted average ownership interest in the various joint ventures that we manage was 44%.
Commingled funds
We currently have investments in three closed end funds that we manage and receive investment management fees. We focus on sourcing investors in theU.S. ,Europe andMiddle East and investments in theU.S. andEurope with respect to our commingled funds. Each of our funds have, among other things, defined investment guidelines, investment hold periods and target returns. Currently our twoU.S. based funds focus on value-add properties that have an expected hold period of 5 to 7 years. Our European fund focuses on value add commercial properties in theUnited Kingdom ,Ireland andSpain that also have expected hold periods of 5 to 7 years. As ofSeptember 30, 2022 , our weighted average ownership interest in the commingled funds that we manage was 13%. 47
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VHH
Through our
Investment Types
The following are the product types we invest in through our Consolidated Portfolio and Co-Investment Portfolio segments:
Multifamily
We pursue multifamily acquisition opportunities where we can unlock and enhance asset value through a myriad of strategies, including institutional management, asset renovation and rehabilitation, repositioning and creative recapitalization. We focus primarily on apartment communities in supply-constrained, infill markets.
Our global multifamily portfolio has 37,571 units as of
As ofSeptember 30, 2022 , we hold ownership interests in 148 assets that include 11,682 consolidated market rate multifamily apartment units, 14,586 market rate units within our Co-Investment Portfolio and 11,303 affordable units in our VHH platform. Our largestWestern United States multifamily regions are the Mountain West region (Idaho ,Utah ,Montana ,Colorado ,Arizona ,New Mexico andNevada ) and thePacific Northwest (primarily the greaterSeattle area andPortland, Oregon ). The remainder of theWestern United States portfolio is located in Northern andSouthern California . InIreland we focus onDublin city center and the suburbs of the city. Our asset management strategy entails installing strong property management teams to drive leasing activity and upkeep of the properties. We also add amenities designed to promote health and wellness, celebrate local and cultural events and enhance the lives of residents living in our communities. We also incorporate spaces for rest and socialization across our global multifamily portfolio, including clubhouses, fitness centers, business suites, outdoor play areas, pools and dog parks. Lastly, we utilize real-time market data and artificial intelligence based applications to ensure we are attaining current market rents.
Multifamily -
Through our VHH platform we also focus on affordable units based on income or age restrictions. With homes reserved for residents that make 50% to 60% of the area's median income, VHH provides an affordable long-term solution for qualifying working families and active senior citizens, coupled with modern amenities that are a hallmark of our traditional multifamily portfolio. Fundamental to our success is a shared commitment to delivering quality affordable homes and building communities that enrich residents' lives, including providing programs such as social support groups, after-school programs, transportation assistance, computer training, and wellness classes. VHH typically utilizes tax-exempt bond financing and the sale of federal tax credits to help finance its investments. We are entitled to 50% of the operating cash flows from the VHH partnership in addition to any investing distributions we receive from federal tax credits or refinancing activity at the property level. When we acquired our ownership interest in VHH in 2015, the portfolio consisted of 5,485 units. As ofSeptember 30, 2022 , the VHH portfolio includes 9,157 stabilized rental units with another 2,146 units currently under stabilization, development or undergoing entitlements in theWestern United States . We acquired our ownership interest in VHH in 2015 for approximately$80.0 million . As ofSeptember 30, 2022 we have contributed an additional$118.4 million into VHH and have received$260.1 million in cash distributions. VHH is an unconsolidated investment that we account for using the fair value option which had a carrying value of$241.4 million as ofSeptember 30, 2022 . Since our acquisition in 2015, we have recorded$235.7 million worth of fair value gains on our investment in VHH, including$75.6 million during the nine months endedSeptember 30, 2022 .
Commercial
Our investment approach for office acquisition criteria differs across our
various investment platforms. For our Consolidated Portfolio we look to invest
in large high-quality properties with high replacement costs. In our separate
account portfolios our partners have certain characteristics whether it be
location, financing (unencumbered properties) or hold period. The commingled
funds typically look for opportunities that have a value-add component
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that can benefit from our asset management expertise. After acquisition, the properties are generally repositioned to enhance market value.
Our industrial portfolio consists mainly of last mile distribution centers
located in the
Our retail portfolio has different characteristics based on the geographic markets where the properties are located. InEurope , we have a mixture of high street retail, suburban shopping centers and leisure assets which are mainly located in theUnited Kingdom as well asDublin andMadrid . In ourWestern United States retail portfolio, we invest in shopping centers that are generally grocery anchored. As ofSeptember 30, 2022 , we hold investments in 61 office properties totaling over 11.8 million square feet, 110 industrial properties totaling 10.6 million square feet and 52 retail properties totaling 4.2 million square feet predominately in theUnited Kingdom andIreland , with additional investments in thePacific Northwest ,Southern California ,Spain andItaly . Our Consolidated portfolio held over 4.8 million square feet of office space and 2.7 million square feet of retail space. Our Co-Investment portfolio has 7.0 million square feet of office space, 10.6 million square feet of industrial space and 1.5 million square feet of retail space.
Development and Redevelopment
We have a number of development, redevelopment and entitlement projects that are underway or in the planning stages. Unlike the residential projects that are held for sale and described in Residential and Other section below, these initiatives may ultimately result in income-producing assets. As ofSeptember 30, 2022 , we have 2,220 multifamily units, 0.4 million commercial rentable square feet and 150 hotel rooms we are actively developing. If these projects are brought to completion, our estimated share of the total capitalization of these projects would be approximately$1.1 billion (approximately 63% of which has already been funded), which we expect would be funded through our existing equity, third party equity, project sales, tax credit financing and secured debt financing. This represents total capital over the life of the projects and is not a representation of peak capital and it does not take into account any distributions over the course of the investment. We and our equity partners are under no obligation to complete these projects and may dispose of any such assets after adding value through the entitlement process. Please also see the section titled "Liquidity and Capital Resources - Development and redevelopment" section for additional detail on these investments.
Real Estate Debt
We have a global debt platform with multiple partners. InMarch 2022 , we announced the expansion of our global debt platform to over$6 billion . Our global debt platform, which includes partners across insurance and sovereign wealth funds, invests across the entire real estate debt capital structure inthe United States ,United Kingdom andEurope and targets loans secured by high-quality real estate located in such jurisdictions. In our role as asset manager, we earn customary fees for managing the platform. Currently, our global debt platform investments have been made without the use of any leverage and are invested through our Co-Investments Portfolio. As ofSeptember 30, 2022 , we held interests in 38 loans, 84% that have floating interest rates, located in theWestern U.S. and theUnited Kingdom , with an average interest rate of 8.9% per annum and an unpaid principal balance ("UPB") of$2.1 billion of real estate debt (of which our share was a UPB of$147.0 million ). Some of our loans contain additional funding commitments that will increase our loan balances if they are utilized. All of the loans in our global debt platform are performing in line with expectations and making payments as contractually agreed. Our current loan portfolio is focused on performing loans. However, if market conditions deteriorate, we expect more opportunities to arise in acquiring loan portfolios at a discount from their contractual balance due as a result of deteriorated credit quality of the borrower or market conditions. Such loans are underwritten by us based on the value of the underlying real estate collateral. Due to the discounted purchase price for such loans, we seek, and are generally able to, accomplish near term realization of the loan in a cash settlement or by obtaining title to the property. Accordingly, the credit quality of the borrower is not of substantial importance to our evaluation of the risk of recovery from such investments. Hotel We acquire hotels in certain opportunistic situations in which we are able to purchase at a discount to replacement cost. Both of the hotels in our current portfolio we originally acquired debt interests in the underlying properties and were able to utilize these debt positions to take ownership of the real estate. These properties are 49
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examples of how we are able to leverage different platforms within the Company to add value to properties and shareholders.
As ofSeptember 30, 2022 , we owned one consolidated operating hotel, the iconicShelbourne Hotel , which consists of 265 hotel rooms located inDublin, Ireland . Additionally, in our Co-investment Portfolio, we have a five-star Rosewood flaggedKona Village Resort development that will contain 150 rooms in Kona,Hawaii and is currently expected to open in 2023.
Residential and Other
In certain cases, we may pursue for-sale housing acquisition opportunities, including land for entitlements, finished lots, urban infill housing sites and partially finished and finished housing projects. On certain income-producing acquisitions, there are adjacent land parcels for which we may pursue entitlement activities or, in some cases, development or re-development opportunities.
This group also includes our investment in liquid non-real estate investments which include investment funds that hold marketable securities and private equity investments.
As ofSeptember 30, 2022 , we held 17 investments that are primarily comprised of 204 residential units/lots and 3,778 acres located inHawaii and theWestern United States and are primarily invested through our Co-investment Portfolio. As ofSeptember 30, 2022 , these investments had a gross asset value of$241.9 million . These investments are in various stages of completion, ranging from securing the proper entitlements on land positions to sales of units/lots.
Fair Value Investments
As ofSeptember 30, 2022 ,$2.0 billion or 93% of our investments in our Co-Investment Portfolio (25% of total assets) were held at estimated fair value. As ofSeptember 30, 2022 , there were cumulative fair value gains on investments held of$555.5 million , which comprises 28% of the$2.0 billion carrying value of fair value unconsolidated investments that are currently held. Our investment in VHH accounts for$235.7 million of the$555.5 million cumulative fair value gains. See discussion of VHH above for more detail. Fair value changes consist of changes in the underlying value of properties and associated mortgage debt as well as foreign currency fluctuations (net of any direct hedges) for non-dollar denominated investments. During the nine months endedSeptember 30, 2022 , we recognized$78.3 million and$0.5 million , respectively, of net fair value gains and performance allocations on co-investment portfolio investments. To determine these estimated fair market values, we use discounted cash flow models that estimate future cash flows (including terminal values) and discount those cash flows back to the current period. The accuracy of estimating fair value for investments cannot be determined with precision and cannot be substantiated by comparison to quoted prices in active markets and may not be realized in a current sale or immediate settlement of the asset or liability. Additionally, there are inherent uncertainties in any fair value measurement technique, and changes in the underlying assumptions used, including capitalization rates, discount rates, liquidity risks, and estimates of future cash flows could significantly affect the fair value measurement amounts. As such, below are ranges of the key metrics included in determining these estimated values. Estimated Rates Used for Capitalization Rates Discount Rates Multifamily Income approach - discounted cash flow 5.00% -7.00% 7.20% - 9.30% Income approach - direct capitalization 3.70% - 5.40% N/A Office Income approach - discounted cash flow 5.20% - 7.50% 7.50% - 9.30% Income approach - direct capitalization 3.90% - 7.90% N/A Industrial Income approach - discounted cash flow 4.80% - 6.30% 6.30% - 7.80% Income approach - direct capitalization 3.10% - 6.30% N/A Retail Income approach - discounted cash flow 6.50% 8.30% Hotel Income approach - discounted cash flow 6.00% 8.30% Residential Income approach - discounted cash flow 6.00% 8.30% 50
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In valuing indebtedness, we consider significant inputs such as the term of the debt, value of collateral, credit quality of investment entities and market interest rates and spreads as well as market loan-to-value ratios relative to the Company's debt instruments. The credit spreads used byKennedy Wilson for these types of investments range from 0.37% to 7.25%. There is no active secondary market for our development projects and no readily available market value given the uncertainty of the amount and timing of future cash flows. Accordingly, our determination of fair value of our development projects requires judgment and extensive use of estimates. Therefore, we typically use investment cost as the estimated fair value until future cash flows become more predictable. Additionally, the fair value of our development projects may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that we may ultimately realize. If we were required to liquidate an investment in a forced or liquidation sale, we could realize significantly less than the value at which we have recorded it. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized or incurred on these investments to be different than the unrealized gains or losses reflected in the currently assigned valuations.
Selected Financial Data
In order to help the user of the financial statements understand our company, we have included certain five-year selected financial data. The following table shows selected financial items for the three and nine months endedSeptember 30, 2022 dating back to 2018. Three Months Ended September 30, (Dollars in millions, except per share amounts) 2022 2021 2020 2019 2018 GAAP Revenues$ 139.6 $ 114.4 $ 115.5 $ 143.0 $ 217.8 Net income (loss) attributable toKennedy-Wilson Holdings, Inc. common shareholders 16.4 65.9 (25.1) 20.7 109.6 Basic income (loss) per share of common stock 0.12 0.48 (0.18) 0.15 0.77 Diluted income (loss) per share of common stock 0.12 0.47 (0.18) 0.15 0.77 Dividends declared per share of common stock 0.24 0.22 0.22 0.21 0.19 Non-GAAP(1) Adjusted EBITDA 165.9 202.7 76.3 142.5 141.9 Adjusted EBITDA percentage change (18) % 166 % (46) % - % - % Adjusted Net Income 68.7 111.9 27.3 73.9 74.1 Adjusted Net Income percentage change (39) % 310 % (63) % - % - %
(1) Please refer to "Certain Non-GAAP Measures and Reconciliations" for a
reconciliation of certain non-GAAP items to
Nine Months Ended September 30,
(Dollars in millions, except per share
amounts) 2022 2021 2020 2019 2018
GAAP
Revenues $ 400.4 $ 322.2 $ 345.9 $ 427.4 $ 407.9
Net income (loss) attributable to
Kennedy-Wilson Holdings, Inc. common
shareholders 42.2 275.7 (77.1) 66.2 107.2
Basic income (loss) per share of common
stock 0.31 1.98 (0.55) 0.47 0.74
Diluted income (loss) per share of common
stock 0.31 1.96 (0.55) 0.47 0.74
Dividends declared per share of common
stock 0.72 0.66 0.66 0.63 0.38
Non-GAAP(1)
Adjusted EBITDA 444.4 740.5 261.1 450.0 535.0
Adjusted EBITDA percentage change (40) % 184 % (42) % (16) % - %
Adjusted Net Income 195.5 423.5 84.1 232.8 308.2
Adjusted Net Income percentage change (54) % 404 % (64) % (24) % - %
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(1) Please refer to "Certain Non-GAAP Measures and Reconciliations" for a
reconciliation of certain non-GAAP items to
The following tables show selected financial items as of
September 30 ,
(in millions) 2022 2021 2020 2019 2018 Cash and cash equivalents$ 420.3 $ 524.8 $ 965.1 $ 573.9 $ 488.0 Total assets 8,084.5 7,876.5 7,329.0 7,304.5 7,381.8 Mortgage debt 3,011.2 2,959.8 2,589.8 2,641.0 2,950.3 KW unsecured debt 1,979.8 1,852.3 1,332.2 1,131.7 1,202.0 KWE unsecured bonds 536.4 622.8 1,172.5 1,274.2 1,260.5 Kennedy Wilson equity 1,926.4 1,777.6 1,644.5 1,678.7 1,246.7 Noncontrolling interests 16.8 26.3 28.2 40.5 184.5 Total equity 1,943.2 1,803.9 1,672.7 1,719.2 1,431.2 Common shares outstanding 137.1 138.0 141.4 142.3 143.2 The following table shows the historicalU.S. federal income tax treatment of Company's common stock dividend for the years endedDecember 31, 2021 through 2017: December 31, 2021 2020 2019 2018 2017 Taxable Dividend - % 27.14 % 10.53 % 23.43 % - % Non-Taxable Return of Capital 100.00 % 72.86 % 89.47 % 76.57 % 100.00 % Total 100.00 % 100.00 % 100.00 % 100.00 % 100.00 %
Real Estate Assets Under Management (AUM)
AUM generally refers to the properties and other assets with respect to which we provide (or participate in) oversight, investment management services and other advice, and which generally consist of real estate properties or loans, and investments in joint ventures. Our AUM is principally intended to reflect the extent of our presence in the real estate market, not the basis for determining our management fees. Our AUM consists of the total estimated fair value of the real estate properties and other real estate related assets either owned by third parties, wholly-owned by us or held by joint ventures and other entities in which our sponsored funds or investment vehicles and client accounts have invested. Committed (but unfunded) capital from investors in our sponsored funds is not included in our AUM. The estimated value of development properties is included at estimated completion cost.
The table below details the changes in the Company's AUM for the nine months
ended
(in millions)
September 30, 2022 IMRES AUM $ 21,569.2$ 3,014.7 $ (2,718.9) $ 21,865.0 AUM increased 1.4% to approximately$21.9 billion as ofSeptember 30, 2022 . The increase is due to acquisitions of multifamily assets in theWestern United States and industrial assets in theUnited Kingdom and loan originations in theWestern United States . These were offset by decreases from foreign exchange losses and dispositions of non-core assets.
Foreign Currency and Currency Derivative Instruments
Please refer to item 3. Quantitative and Qualitative Disclosures About Market Risk for our discussion regarding foreign currency and currency derivative instruments.
Kennedy Wilson Consolidated Financial Results: Three Months Ended
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Three Months Ended September 30, 2022
(Dollars in millions) Consolidated Co-Invest Corporate Total
Revenue
Rental $ 110.9 $ - $ - $ 110.9
Hotel 14.0 - - 14.0
Investment management fees - 11.2 - 11.2
Property services fees -
- 0.5 0.5
Loans and other - 3.0 - 3.0
Total revenue 124.9 14.2 0.5 139.6
Income (loss) from unconsolidated investments
Principal co-investments - 30.3 - 30.3
Performance allocations - (18.0) - (18.0)
Income from unconsolidated investments - 12.3 - 12.3
Gain on sale of real estate, net 37.0 - - 37.0
Expenses
Rental 38.6 - - 38.6
Hotel 8.6 - - 8.6
Compensation and related 11.8 8.8 5.9 26.5
Share-based compensation - - 7.3 7.3
Performance allocation compensation - (6.6) - (6.6)
General and administrative 4.2 3.1 1.9 9.2
Depreciation and amortization 46.1 - - 46.1
Total expenses 109.3 5.3 15.1 129.7
Interest expense (33.1) - (24.0) (57.1)
Loss on early extinguishment of debt (1.3) - - (1.3)
Other income 23.8 - 12.9 36.7
Provision for income taxes (12.2) - (1.7) (13.9)
Net income (loss) 29.8 21.2 (27.4) 23.6
Net income attributable to the noncontrolling
interests 0.7 - - 0.7
Preferred dividends - - (7.9) (7.9)
Net income (loss) attributable to
Kennedy-Wilson Holdings, Inc. common
shareholders 30.5 21.2 (35.3) 16.4
Add back (less):
Interest expense 33.1 - 24.0 57.1
Loss on early extinguishment of debt 1.3 - - 1.3
Kennedy Wilson's share of interest expense
included in unconsolidated investments - 16.6 - 16.6
Depreciation and amortization 46.1 - - 46.1
Kennedy Wilson's share of depreciation and
amortization included in unconsolidated
investments - 0.8 - 0.8
Provision for income taxes 12.2 - 1.7 13.9
Kennedy Wilson's share of taxes included in
unconsolidated investments - 1.9 - 1.9
Fees eliminated in consolidation (0.2) 0.2 - -
EBITDA adjustments attributable to
noncontrolling interests (3.4) - - (3.4)
Preferred dividends - - 7.9 7.9
Share-based compensation - - 7.3 7.3
Adjusted EBITDA(1) $ 119.6 $ 40.7 $ 5.6 $ 165.9 (1) See "Non-GAAP Measures and Certain Definitions" section for definitions and discussion of Adjusted EBITDA.
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Three Months Ended September 30, 2021
(Dollars in millions) Consolidated Co-Invest Corporate Total
Revenue
Rental $ 96.1 $ - $ - $ 96.1
Hotel 6.2 - - 6.2
Investment management fees - 9.2 - 9.2
Property services fees - - 0.5 0.5
Loans and other - 2.4 - 2.4
Total revenue 102.3 11.6 0.5 114.4
Income from unconsolidated investments
Principal co-investments - 96.8 - 96.8
Performance allocations - 46.3 - 46.3
Income from unconsolidated investments - 143.1 - 143.1
Gain on sale of real estate, net 15.0 - - 15.0
Expenses
Rental 32.4 - - 32.4
Hotel 3.7 - - 3.7
Compensation and related 12.8 10.5 7.1 30.4
Share-based compensation - - 6.9 6.9
Performance allocation compensation - 2.9 - 2.9
General and administrative 4.1 2.8 2.0 8.9
Depreciation expense 39.2 - - 39.2
Total expenses 92.2 16.2 16.0 124.4
Interest expense (27.8) - (17.5) (45.3)
Other (loss) income (0.4) - 0.7 0.3
Provision for income taxes (12.4) - (18.2) (30.6)
Net (loss) income (15.5) 138.5 (50.5) 72.5
Net income attributable to the noncontrolling
interests (2.3) - - (2.3)
Preferred dividends - - (4.3) (4.3)
Net (loss) income attributable to Kennedy-Wilson
Holdings, Inc. common shareholders (17.8) 138.5 (54.8) 65.9
Add back (less):
Interest expense 27.8 - 17.5 45.3
- 11.2 - 11.2
Depreciation and amortization 39.2 - - 39.2
Kennedy Wilson's share of depreciation and
amortization included in unconsolidated investments - 1.1 - 1.1
Provision for income taxes 12.4 - 18.2 30.6
Fees eliminated in consolidation 0.1 (0.1) - -
EBITDA adjustments attributable to noncontrolling
interests (1.8) - - (1.8)
Preferred dividends - - 4.3 4.3
Share-based compensation - - 6.9 6.9
Adjusted EBITDA(1) $ 59.9 $ 150.7 $ (7.9) $ 202.7 (1) See "Non-GAAP Measures and Certain Definitions" section for definitions and discussion of Adjusted EBITDA
Financial Highlights
GAAP net income to common shareholders was
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Adjusted EBITDA was
The decrease in GAAP net income to common shareholders and Adjusted EBITDA is primarily due to significantly lower fair value gains during the three months endedSeptember 30, 2022 as compared to the prior period as discussed below. The decrease in fair value gains was offset by higher fair value in other income associated with our interest rate derivative investments. Please see "Co-Investment Portfolio Segment" below for a discussion of the fair value gains during the current and prior periods.
Operational Highlights
Same store property highlights for the three months ended
•For our 14,590 same property multifamily units for the three months ended
•occupancy decreased slightly to 94.1% from 95.1%
•net operating income increased by 7.1%
•total revenues increased by 8.5%
•For 4.1 million square feet of same property office real estate for the three
months ended
•occupancy increased to 95.9% from 94.4%
•net operating income increased by 1.7%
•total revenues increased by 2.8%
•Investment Transactions
•acquired$371.7 million of real estate assets and$303.7 million of loans (our share of which was$145.6 million and$15.2 million , respectively) and sold$683.3 million of assets (our share of which was$234.0 million ). Real estate loans of$30.1 million (our share of which was$6.1 million ) were repaid.
Foreign Exchange - Results of Operations
A significant portion of our investments are located outside ofthe United States and denominated in foreign currencies. In order to reduce the impact of foreign currency exchange rates we hedge some of our exposure. However, we typically do not hedge future operations or cash flows and, therefore, changes in foreign currency rates will have an impact on our results of operations. We have included the table below to illustrate the impact these fluctuations have had on our revenues, net income and Adjusted EBITDA by applying the relevant exchange rates for the prior period. Please refer to the Currency Risk - Foreign Currencies section in Item 3 for a discussion of risks relating to foreign currency and our hedging strategy and the "Other Comprehensive Income" section below for a discussion of the balance sheet impact of foreign currency movements on our results of operations.
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