KENNEDY-WILSON HOLDINGS, INC. The following discussion and analysis should be read in conjunction with the financial statements and related notes and the other financial information appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See the section titled "Forward-Looking Statements" for more information. Actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors, including those discussed in the section titled "Risk Factors" and 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 the subsidiaries that we consolidate in our financial statements underU.S. GAAP (other than wholly-owned subsidiaries) and third-party equity providers. Please refer to "Non-GAAP Measures and Certain Definitions" for definitions of certain terms used throughout this report.
Overview
Kennedy Wilson is a global real estate investment company. We own, operate and develop high-quality real estate across growing markets in theWestern United States , theUnited Kingdom andIreland with the objective of generating long-term risk adjusted returns for our shareholders and partners. As ofDecember 31, 2022 , we have 230 employees in 12 offices primarily located throughoutthe United States , theUnited Kingdom ,Ireland andSpain . As ofDecember 31, 2022 , our AUM stood at$23.0 billion . The real estate that we hold in our global portfolio consists primarily of multifamily apartments (57%) and commercial (39%) based on Consolidated NOI and JV NOI. Geographically, we focus on theWestern United States (61%), theUnited Kingdom (16%) andIreland ((21%). 2022 Highlights •For the year endedDecember 31, 2022 , we had net income attributable toKennedy-Wilson Holdings, Inc. common shareholders of$64.8 million as compared to net income attributable toKennedy-Wilson Holdings, Inc. common shareholders of$313.2 million for the same period in 2021. •For the year endedDecember 31, 2022 we had Adjusted EBITDA of$591.5 million as compared to$927.9 million for the same period in 2021. •The decreases in net income attributable toKennedy-Wilson Holdings, Inc. common shareholders and Adjusted EBITDA are due to higher gains on sale of real estate and higher fair value gains on unconsolidated investments during the year endedDecember 31, 2021 , offset by higher fair value gains on interest rate derivatives and gains on extinguishment of debt during the year endedDecember 31, 2022 . •We recorded fair value gains and unrealized promotes (aggregate of$93.5 million ) during the year endedDecember 31, 2022 , primarily due to fair value gains associated with fixed rate mortgages secured by our real estate assets, fair value gains associated with interest rate derivatives that we held on property level mortgages that have increased in value with rising interest rates and increases in fair value on our affordable housing portfolio VHH.
Results of Operations
The following tables summarize our results of operations by segment for the
years ended
Our results of operations for 2021 and 2020 compared to 2020 can be found under Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, which is incorporated by reference herein to our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , filed with theSEC onFebruary 25, 2022 , and is available on theSEC's website at www.sec.gov and our Investor Relations website at www.ir.kennedywilson.com. 35
--------------------------------------------------------------------------------
Table of Contents
Year Ended December 31, 2022
(Dollars in millions) Consolidated Co-Investments Corporate Total
Revenue
Rental $ 434.9 $ - $ - $ 434.9
Hotel 46.9 - - 46.9
Investment management fees - 44.8 - 44.8
Property services fees - - 1.7 1.7
Loans and other - 11.7 - 11.7
Total revenue 481.8 56.5 1.7 540.0
Income from unconsolidated investments
Principal co-investments - 199.5 - 199.5
Performance allocations - (21.1) - (21.1)
Income from unconsolidated investments - 178.4 - 178.4
Gain on sale of real estate, net 103.7 - - 103.7
Expenses
Rental 151.2 - - 151.2
Hotel 29.5 - - 29.5
Compensation and related 41.5 44.6 25.2 111.3
Share-based compensation - - 29.0 29.0
Performance allocation compensation - (4.3) - (4.3)
General and administrative 14.7 14.8 7.7 37.2
Depreciation and amortization 172.9 - - 172.9
Total expenses 409.8 55.1 61.9 526.8
Interest expense (128.2) - (92.6) (220.8)
Gain on early extinguishment of debt 27.5 - - 27.5
Other income 20.8 - 15.3 36.1
Provision for income taxes (21.0) - (15.2) (36.2)
Net income (loss) 74.8 179.8 (152.7) 101.9
Net income attributable to the noncontrolling
interests (8.2) - - (8.2)
Preferred dividends - - (28.9) (28.9)
Net income (loss) attributable to
Kennedy-Wilson Holdings, Inc. common
shareholders 66.6 179.8 (181.6) 64.8
Add back (less):
Interest expense 128.2 - 92.6 220.8
Gain on early extinguishment of debt (27.5) - - (27.5)
Kennedy Wilson's share of interest expense
included in unconsolidated investments - 60.2 - 60.2
Depreciation and amortization 172.9 - - 172.9
Kennedy Wilson's share of depreciation and
amortization included in unconsolidated
investments - 3.5 - 3.5
Provision for income taxes 21.0 - 15.2 36.2
Kennedy Wilson's share of taxes included in
unconsolidated investments - 2.7 - 2.7
Fees eliminated in consolidation (0.4) 0.4 - -
Share-based compensation - - 29.0 29.0
Preferred dividends - - 28.9 28.9
EBITDA adjustments attributable to
noncontrolling interests(1) - - - -
Adjusted EBITDA(1) $360.8 $246.6 $(15.9) $591.5 (1) See "Non-GAAP Measures and Certain Definitions" for definitions and discussion of Adjusted EBITDA.
36--------------------------------------------------------------------------------
Table of Contents
Year Ended December 31, 2021
(Dollars in millions) Consolidated Co-Investments Corporate Total
Revenue
Rental $ 390.5 $ - $ - $ 390.5
Hotel 17.1 - - 17.1
Investment management fees - 35.3 - 35.3
Property services fees - - 2.1 2.1
Loans and other - 8.6 - 8.6
Total revenue 407.6 43.9 2.1 453.6
Income from unconsolidated investments
Principal co-investments - 271.1 - 271.1
Performance allocations - 117.9 - 117.9
Income from unconsolidated investments - 389.0 - 389.0
Gain on sale of real estate, net 412.7 - - 412.7
Expenses
Rental 132.7 - - 132.7
Hotel 12.7 - - 12.7
Compensation and related 60.4 40.4 33.1 133.9
Share-based compensation - - 28.7 28.7
Performance allocation compensation - 42.0 - 42.0
General and administrative 18.5 8.5 6.3 33.3
Depreciation and amortization 166.3 - - 166.3
Total expenses 390.6 90.9 68.1 549.6
Interest expense (119.1) - (73.3) (192.4)
Loss on early extinguishment of debt (19.2) - (26.5) (45.7)
Other loss (4.7) - (0.3) (5.0)
Provision for income taxes (23.0) - (103.2) (126.2)
Net income (loss) 263.7 342.0 (269.3) 336.4
Net income attributable to the noncontrolling
interests (6.0) - - (6.0)
Preferred dividends - - (17.2) (17.2)
Net income (loss) attributable to
Kennedy-Wilson Holdings, Inc. common
shareholders 257.7 342.0 (286.5) 313.2
Add back (less):
Interest expense 119.1 - 73.3 192.4
Loss on early extinguishment of debt 19.2 - 26.5 45.7
Kennedy Wilson's share of interest expense
included in unconsolidated investments - 40.2 - 40.2
Depreciation and amortization 166.3 - - 166.3
Kennedy Wilson's share of depreciation and
amortization included in unconsolidated
investments - 5.3 - 5.3
Provision for income taxes 23.0 - 103.2 126.2
Fees eliminated in consolidation (0.5) 0.5 - -
Share-based compensation - - 28.7 28.7
Preferred dividends - - 17.2 17.2
EBITDA adjustments attributable to
noncontrolling interests(1) (7.3) - - (7.3)
Adjusted EBITDA(1) $ 577.5 $ 388.0 $ (37.6) $ 927.9 (1) See "Non-GAAP Measures and Certain Definitions" for definitions and discussion of Adjusted EBITDA.
37--------------------------------------------------------------------------------
Table of Contents
Kennedy Wilson Consolidated Financial Results: Year Ended
Financial Highlights
GAAP net income to common shareholders was
Adjusted EBITDA was$591.5 million for the year endedDecember 31, 2022 , a 36% decrease from$927.9 million for 2021. The decreases in GAAP net income to common shareholders and Adjusted EBITDA are due to lower gains on sale of real estate and fair value increases on our Co-Investment assets.
Operational Highlights
Same store property highlights for the year ended
•For our 12,917 same property market rate multifamily units for the year ended
•occupancy decreased 1% to 94%
•net operating income increased 11%
•total revenues increased 10%
•For our 8,017 same property affordable rate multifamily units for the year
ended
•occupancy remained flat at 97%
•net operating income increased 6%
•total revenues increased 7%
•For our 3.8 million square feet of same property office real estate for the
year ended
•occupancy remained flat at 95% from the same period in 2021
•net operating income increased 1%
•total revenues increased 1%
•Investment Transactions
•acquired$1.9 billion of assets (our share of which was$984.9 million ) and sold$1.3 billion of assets (our share of which was$518.0 million ) during the year endedDecember 31, 2022 . For the year endedDecember 31, 2021 , we acquired$2.9 billion of assets (our share of which was$1.4 billion ) and sold$1.5 billion of assets (our share of which was$811.9 million ). •originated$970.0 million of loans (our share of which was$49.5 million ) and had$412.8 million of loans that were repaid (our share of which was$35.5 million ) during the year endedDecember 31, 2022 . For the year endedDecember 31, 2021 , we originated$1.2 billion of loans (our share of which was$94.3 million ) and had$253.1 million of loans that were repaid (our share of which was$35.1 million ).
Foreign Exchange - Results of Operations
A significant portion of our investments are in foreign currencies. We typically
do not hedge future operations or cash flows so 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 section titled "Currency Risk -
Foreign Currencies" 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.
Year Ended December 31, 2022
Consolidated Co-Investment Total
Revenues $ (20.6) (4) % $ (1.1) - % $ (21.7) (4) %
Net Income (7.8) (12) % (6.0) (9) % (13.8) (21) %
Adjusted EBITDA (21.9) (4) % (8.2) (1) % (30.1) (5) %
38--------------------------------------------------------------------------------
Table of Contents
Year Ended December 31, 2021
Consolidated Co-Investment Total
Revenues $ 0.8 - % $ (0.4) - % $ 0.4 - %
Net Income (3.2) (1) % (15.6) (5) % (18.8) (6) %
Adjusted EBITDA (2.2) - % (16.2) (2) % (18.4) (2) %
Consolidated Portfolio Segment
Rental income was$434.9 million for the year endedDecember 31, 2022 as compared to$390.5 million for the same period in 2021. The$44.4 million increase is primarily due to the acquisition of office properties in theUnited Kingdom and multifamily properties in theWestern United States . Additionally, we had a$9.4 million reduction to rental income for the year endedDecember 31, 2022 , as we assessed the full collection of these rents as improbable, primarily driven by the impact of the COVID-19 pandemic. This reduction was offset by the cash collection of$7.5 million we received during the year endedDecember 31, 2022 on previously reserved receivables, which increased rental income. We had a$12.9 million reduction to rental income for the year endedDecember 31, 2021 , as we assessed the full collection of these rents as improbable, primarily driven by the impact of the COVID-19 pandemic. We received$11.7 million on previously reserved receivables during the year endedDecember 31, 2021 . The cash collections were primarily from governmental assistance programs for multifamily properties and collections of past due receivables at retail properties. Hotel income was$46.9 million for the year endedDecember 31, 2022 as compared to$17.1 million for 2021. The$29.8 million increase is due to improved operations of theShelbourne Hotel during the year endedDecember 31, 2022 , as COVID-19 related restrictions inIreland have eased. Gain on sale of real estate, net was$103.7 million for the year endedDecember 31, 2022 as compared to$412.7 million in the prior period. The gains recognized during the year endedDecember 31, 2022 related to the sale of non-core retail assets in theUnited Kingdom and theWestern United States and a multifamily property in theWestern United States . During the year endedDecember 31, 2022 , we also recorded a gain of$56.7 million in connection with the sale of a 49% interest in a previously wholly-owned multifamily asset to a strategic partner and the resulting deconsolidation of the investment from the Company's financial statements. For the year endedDecember 31, 2021 , gain on sale of real estate, net primarily related to the sale of a 49% interest in nine of our previously wholly-owned assets to a global institutional partner to commence our JV with such partner (the "MF seed portfolio") and resulting deconsolidation of the assets that made up the MF seed portfolio and the sale of Friars Bridge Court, an office building in theUnited Kingdom . Included in the gain on sale of real estate, net forDecember 31, 2022 is an impairment loss of$13.3 million on non-core retail and office properties in theUnited Kingdom that were being prepared for sale and have carrying values above anticipated sales prices. For the year endedDecember 31, 2021 , we recorded an impairment loss of$20.9 million on two retail properties in theUnited Kingdom and a residential property in theWestern United States . Rental expenses increased to$151.2 million for the year endedDecember 31, 2022 as compared to$132.7 million for the year endedDecember 31, 2021 . The increase was due to new acquisitions of office properties in theUnited Kingdom and multifamily properties in theWestern United States as discussed above. Hotel expenses increased to$29.5 million for the year endedDecember 31, 2022 as compared to$12.7 million for the year endedDecember 31, 2021 , and is due to an increased level of activity and operations at theShelbourne Hotel during 2022 as described above. Compensation and related expenses decreased to$41.5 million for the year endedDecember 31, 2022 as compared to$60.4 million for the year endedDecember 31, 2021 as a result of a more challenging global real estate environment with rising rates in addition to lower Adjusted EBITDA, for the year endedDecember 31, 2022 compared to the prior period which drove a lower discretionary bonus compensation accrual.
General and administrative expenses decreased to
Depreciation and amortization increased to
Interest expense was$128.2 million for the year endedDecember 31, 2022 as compared to$119.1 million for the year endedDecember 31, 2021 . The increase is due to higher mortgage loan balance in the current year primarily due to consolidated multifamily acquisitions and increases in rates on variable and new fixed rate loans. 39 -------------------------------------------------------------------------------- Table of Contents Gain on early extinguishment of debt was$27.5 million for the year endedDecember 31, 2022 as compared to a loss on early extinguishment of debt of$19.2 million in the same period in 2021. During the year endedDecember 31, 2022 we had gains associated with KWE's cash tender offer for up to €150 million in aggregate nominal amount of the KWE Notes, which resulted in acceptance of all of the €75.0 million (approximately$80.3 million based onDecember 31, 2022 rates) in aggregate nominal amount of KWE Notes validly tendered pursuant to the tender offer for a purchase price equal to 82% of the nominal amount of the KWE Notes, and a mortgage on a retail property in theUnited Kingdom . With respect to these instruments, we extinguished certain amounts at discounts to their carrying value resulting in gains on extinguishment. These gains were offset by prepayment penalties on mortgage loans that were refinanced during the year. In the year endedDecember 31, 2021 , we incurred a$16.3 million loss associated with the redemption of the KWE Bonds and the remaining balance was related to prepayment penalties on the refinancing of three multifamily property level mortgages. We also incurred a loss associated with the partial tender offer and subsequent redemption of the total balance of the 2024 Notes during the year endedDecember 31, 2021 as explained in the description of the "Corporate" segment below. Other income was$20.8 million for the year endedDecember 31, 2022 as compared to other loss of$4.7 million for the year endedDecember 31, 2021 . We had mark to market fair value gains of$24.0 million on the Company's undesignated interest rate caps and swap contracts held by KWE and consolidated multifamily properties in the year endedDecember 31, 2022 . Please also see Part I. Item 1. "Fair Value Investments" for additional details. We have entered into these undesignated contracts to hedge against rising interest rates. The gains from the interest rate contracts were offset by realized foreign currency exchange losses of$2.0 million . Other loss for the year endedDecember 31, 2021 was due to realized foreign currency exchange losses.
Co-Investment Portfolio Segment
Investment Management
On our Co-Investment Portfolio assets, we receive asset management fees for managing assets on behalf of our partners. During the year endedDecember 31, 2022 , fees recorded through revenues were$44.8 million as compared to$35.3 million for the same period in 2021. During the year endedDecember 31, 2022 , we had higher base management fees as a result of having more AUM in our Co-Investment Portfolio mainly from growth in our European industrial platform andWestern United States multifamily separate accounts. There was also an increase in AUM in our global real estate debt platform. Performance allocations are recorded as part of income from unconsolidated investments and discussed below. Loans and other income increased to$11.7 million for the year endedDecember 31, 2022 as compared to$8.6 million for the same period in 2021. These amounts represent interest income on our share of loans within our global real estate debt platform and the increase was due to the growth of the platform over the last year. Expenses decreased to$55.1 million for the year endedDecember 31, 2022 as compared to$90.9 million for the same period in 2021, primarily due to a$46.3 million decrease to performance allocation expense. Performance allocation expense is a percentage of accrued performance allocations which declined over the year endedDecember 31, 2022 due to lower fair values on separate accounts and commingled funds that have performance allocation sharing programs.
Co-Investment Operations
In addition to our management of investments in the Co-Investment Portfolio, we have ownership interests in the properties. The table below represents a breakout of the amounts within income from unconsolidated investments which represents our share of underlying property investments in the Co-Investment Portfolio assets and any performance allocations relating to our management of these properties for the year endedDecember 31, 2022 and the year endedDecember 31, 2021 : 40
--------------------------------------------------------------------------------
Table of Contents
Year Ended December 31,
2022 2021
Revenue
Rental $ 224.0 $ 177.6
Sale of real estate 52.0 39.5
Total revenue 276.0 217.1
Fair value/other adjustments 110.2 210.6
Gain (loss) on sale of real estate, net 4.9 (3.1)
Performance allocations (21.1) 117.9
Expenses
Rental 66.4 53.2
Cost of real estate sold 40.7 36.8
Depreciation and amortization 3.8 5.6
Total expenses 110.9 95.6
Interest expense (60.1) (40.0)
Other loss (17.9) (17.9)
Provision for income taxes (2.7) -
Income from unconsolidated investments $ 178.4 $ 389.0 The decrease in income from unconsolidated investments is primarily due to the following:
Valuations of our market rate multifamily assets globally and industrial assets in theUnited Kingdom were at historically high levels at the end of 2021 and into the first quarter of 2022, and we have started to see valuations pull back slightly with cap rate expansion, primarily as a result of increased borrowing rates, which led to fair value losses on real estate during the year endedDecember 31, 2022 . We also had fair value foreign exchange losses, net of any hedges on our foreign fair value investments as the euro and the GBP were at historically low levels against theU.S. Dollar. These fair value losses were offset by fair value increases on our affordable multifamily properties in our VHH platform due to increased NOI at the properties driven by rental increases and the stabilization of assets that recently completed development. Fair value losses on real estate were also offset by fair value gains on our fixed rate mortgages that are secured by certain properties. This was primarily related to our long term fixed rate debt having lower rates than the current market rates as a result of higher base rates and spreads in today's financing market driven by recent rate increases implemented by theFederal Reserve and theEuropean Central Bank ("ECB"). We also had fair value gains associated with interest rate derivatives held by properties on variable rate mortgages which have increased in value with rising interest rates. Our investment in VHH also had significant fair value gains for the year endedDecember 31, 2022 due to gains on its fixed rate property loans and increases in NOI at the properties due to rental increases. VHH does not have a performance allocation structure associated with the investment, and therefore, such gains did not contribute to performance allocations.
Please also see Part I. Item 1. "Fair Value Investments" for additional details.
During the year endedDecember 31, 2022 , we recorded a$21.1 million decrease in the accrual for performance allocations relating to our commingled funds and certain separate account investments due to declines in fair value of the applicable investments. During the year endedDecember 31, 2022 , we had realized performance fees of$6.8 million relating to the sale of two multifamily properties in theWestern United States , of which the Company paid$1.2 million of performance allocation compensation to employees for performance allocations that were realized during the period. Increases in rental income and rental expenses were a result of an increase in assets in the Co-Investment Portfolio due to new acquisitions and the deconsolidation of MF seed portfolio inJune 2021 . Interest expense increased in encumbered assets, primarily due to increasing interest rates in 2022 as well as higher loan balances due to recent acquisitions in the Co-Investment portfolio. The increase in sale of real estate and cost of real estate sold was due to higher sales of homes in our Kohanaiki residential community inHawaii during the year endedDecember 31, 2022 . During the year endedDecember 31, 2021 , we had fair value gains primarily from increases in NOI as a result of significant increases in market rents and cap rate compression in our market rate fair value multifamily assets in theWestern United States . The cap rate compression was supported by recent transactions entered into by the Company as well as third 41 -------------------------------------------------------------------------------- Table of Contents party transactional and market data. We also had fair value gains due to resyndications and cap rate compression in our VHH portfolio and fair value increases in our retained unconsolidated investment interest in the Zonda business fromMeyers Research after our sale of that business in 2018. There were higher gains from sales on homes at our Kohanaiki residential community inHawaii for the year endedDecember 31, 2021 due to an increased volume of sales. During the year endedDecember 31, 2021 , we had a$117.9 million increase in the accrual for performance fees relating to our commingled funds and a separate account investment. The increase in the accrual was due to higher fair values on market rate multifamily properties as discussed above andUK industrial assets in commingled funds and separate account investments that we manage. We had$9.6 million of realized performance fees collected during the year endedDecember 31, 2021 from a separate account that held office properties in theSeattle area that fully disposed of all its assets in the third quarter of 2021.
Corporate
Expenses for the year endedDecember 31, 2022 were$61.9 million as compared to$68.1 million for the year endedDecember 31, 2021 . The decrease in expenses is primarily due to lower discretionary bonus compensation expense. Interest expense was$92.6 million for the year endedDecember 31, 2022 as compared to$73.3 million for the same period in 2021. The increase was due to higher corporate debt balances for the year endedDecember 31, 2022 , primarily from higher balances on our revolving credit facility and higher average balance on our unsecured senior notes over the course of the year. The$26.5 million loss on the early extinguishment of debt for the year endedDecember 31, 2021 was due to the extinguishment of the 2024 Notes and resulting premium and write off of capitalized debt costs and debt discount with no comparable activity in the year endedDecember 31, 2022 . Other income increased to$15.3 million for the year endedDecember 31, 2022 as compared to other loss of$0.3 million for the same period in 2021. We had mark to market fair value gains on interest rate caps and swaps that the Company holds to hedge its variable rate interest rate exposure during the year endedDecember 31, 2022 . Our provision for income taxes was$36.2 million for the year endedDecember 31, 2022 as compared to$126.2 million for the year endedDecember 31, 2021 . The decrease in income tax expense was primarily attributable to a$324.4 million decrease in worldwide pre-tax book income in 2022 as compared to 2021. Our effective tax rate for the year endedDecember 31, 2022 was 26.2% as compared to an effective tax rate of 27.3% in 2021. Significant items impacting the tax provision include: tax charges associated with non-deductible executive compensation under Code Section 162(m) and non-deductible interest expense in theUnited Kingdom , and changes in our estimated state effective tax rate, offset by tax benefits from the partial release of the valuation allowance against our deferred tax assets associated with our excess tax basis inUK real estate assets and our excess tax basis in our investment in KWE. During the year endedDecember 31, 2022 , our net deferred tax asset (and associated valuation allowance) related to our excess tax basis in the legacyUK real estate assets increased due to unrealized foreign currency losses that is not currently deductible. In addition, the deferred tax asset (and associated valuation allowance) related to our investment in KWE decreased due to book gains but tax losses realized on the sale of real estate and from book fair value gains not recognized for tax. The effective tax rate for 2022 exceeded the statutory tax rate due to non-deductible executive compensation inthe United States and non-deductible interest expense in theUnited Kingdom . Preferred dividends were$28.9 million for the year endedDecember 31, 2022 as compared to$17.2 million for the year endedDecember 31, 2021 . The increase was due to the issuance of$300 million of our Series B cumulative perpetual preferred stock to affiliates of Fairfax Financial Holdings Limited (collectively, "Fairfax") during 2022.
Comprehensive Income
The two major components that drive the change in other comprehensive income are the changes in foreign currency rates and the gains or loss of any associated foreign currency hedges. Please refer to the section titled "Currency Risk - Foreign Currencies" in Item 3 for a discussion of our risks relating to foreign currency and our hedging strategy. Below is a table that details the activity for the years endedDecember 31, 2022 and 2021. 42
--------------------------------------------------------------------------------
Table of Contents
Year Ended December 31,
(Dollars in millions) 2022 2021
Net income attributable to
$
64.8
(68.7) (57.5)
Amounts reclassified out of accumulated other comprehensive loss during the period
(0.8) 2.2
Unrealized foreign currency derivative contract gain, net of noncontrolling interests and tax
23.4 56.2
Unrealized gain on interest rate swaps, net of tax 5.6 3.2
Comprehensive income attributable to
$
24.3
The main currencies that the Company has exposure to are the euro and pound
sterling. The table below represents the change in rates over the years ended
Year Ended December 31,
2022 2021
Euro (5.9) % (6.9) %
GBP (10.6) % (1.1) %
Comprehensive income, net of taxes and noncontrolling interests, for the year
ended December 31, 2022 and 2021 was $24.3 million and $317.3 million ,
respectively. The Company experienced net unrealized losses on foreign currency
through other comprehensive income for the period due to the EUR and GBP
weakening against the U.S. Dollar. Unrealized hedge gains were driven by hedges
that the Company has on its GBP-denominated investments. The Company also has
interest rate swap contracts to swap some of its variable rate loans to fixed
rate terms, which resulted in unrealized gains on interest rate swaps from the
reversal of prior losses as the contracts get closer to their maturity date.
Liquidity and Capital Resources
Our liquidity and capital resources requirements include acquisitions of real estate and real estate related assets, funding development projects, capital expenditures for consolidated real estate and unconsolidated investments, working capital needs, interest and principal payments on our debt and dividends to our common and preferred shareholders. We finance these activities with internally generated funds through general operations including rental income, asset sales, borrowings under our revolving line of credit, sales of equity (common and preferred) and debt securities and cash out refinancings to the extent they are available and fit within our overall portfolio leverage strategy. Our investments in real estate are typically financed with equity from our balance sheet, third party equity and mortgage loans secured by that real estate. These mortgage loans are generally nonrecourse in that, in the event of default, recourse will be limited to the mortgaged property serving as collateral, subject to limited customary exceptions. In some cases, we guarantee a portion of the loan related to a consolidated property or an unconsolidated investment, usually until some condition, such as completion of construction or leasing or certain net operating income criteria, has been met. We do not expect these guarantees to materially affect liquidity or capital resources. Please refer to the section titled "Off Balance Sheet Arrangements" for further information. Our short-term liquidity requirements primarily consist of operating expenses and other expenditures associated with our properties, dividend payments to our common and preferred shareholders, interest on our unsecured corporate debt, development, redevelopment and capital expenditures and, potentially, share repurchases and acquisitions. Our short-term liquidity requirements primarily consist of operating expenses and other expenditures associated with our properties, dividend payments to our common and preferred shareholders, interest on our unsecured corporate debt, development, redevelopment and capital expenditures and, potentially, share repurchases and acquisitions. We currently expect to meet our short-term liquidity requirements through our existing cash and cash equivalents plus capital generated from our investments, and sales of real estate as well as availability on our current revolving lines of credit. Our need to raise funds from time to time to meet our capital requirements will depend on many factors, including the success and pace of the implementation of our strategy for strategic and accretive growth where appropriate. Additionally, we may opportunistically seek to raise capital (equity or debt) when we believe market conditions are favorable and when consistent with our growth and financing strategies. We may also seek third party financing to the extent that we engage in additional strategic investments, including in order to raise capital necessary to execute potential development or redevelopment strategies or acquire real estate, note portfolios, or other real estate related companies or real estate related securities. Similarly, we may from time to time seek to refinance our existing indebtedness opportunistically in order to reduce our overall cost of debt capital or optimize the maturity schedule of our outstanding indebtedness, or for other strategic reasons. Also, inMay 2022 , we established an ATM Program pursuant to which we may issue and sell shares of the Company's common stock having an aggregate gross sales price of up to$200.0 million in amounts and at times as the Company determines from time to time. During the year endedDecember 31, 2022 , the Company did not issue any shares under our ATM Program. The Company has no obligation to sell any of such shares under 43 -------------------------------------------------------------------------------- Table of Contents its ATM Program. Actual sales will depend on a variety of factors to be determined by the Company from time to time, including, among others, market conditions, the trading price of its common stock, the Company's determination of the appropriate sources of funding for the Company, and potential uses of funding available. As ofDecember 31, 2022 , we and our consolidated subsidiaries had approximately$439.3 million ($278.7 million of which is in foreign currencies of GBP or EUR) of consolidated cash (as shown on our consolidated balance sheet), our share of cash held at unconsolidated Co-Investment Portfolio assets was$86.9 million and we had$218.0 million of availability under lines of credit. As ofDecember 31, 2022 , we have$21.4 million of restricted cash, which is included in cash and cash equivalents, that primarily relates to lender reserves associated with consolidated mortgages that we hold on properties. These reserves typically relate to interest, tax, insurance and future capital expenditures at the properties. Additionally, we are subject to withholding taxes to the extent we repatriate cash from certain of our foreign subsidiaries. Under the KWE Notes covenants, we have to maintain certain interest coverage and leverage ratios to remain in compliance (see "Indebtedness and Related Covenants" for more detail on KWE Notes). Due to these covenants, we evaluate the tax and covenant implications before we distribute cash, which could impact the availability of funds at the corporate level. As discussed throughout this report, ongoing macroeconomic conditions, such as, but not limited to, high inflation and central banks raising interest rates to curtail high inflation continue to fuel recessionary fears and create volatility in our business results and operations, including our ability to access the capital markets at desired terms or at all. Please also see the "Current Economic Conditions and Market Dynamics" above for additional details. In addition to such market conditions, Moody's Investors Service, Inc. andStandard & Poor's Ratings Services ("S&P"), a division of The McGraw-Hill Companies, Inc., rate our outstanding debt. These ratings are based on a variety of factors, including our current leverage and transactional activity. In October of 2022, S&P placed us on negative CreditWatch due to a slowdown in investment transaction activity leading to elevated leverage and inFebruary 2023 , S&P downgraded us to 'BB' from 'BB+' and maintained their negative CreditWatch. Additionally, S&P downgraded the KWE Notes to 'BB+' from 'BBB-' and the KWI Notes to 'BB-' from 'BB'. These ratings and downgrades thereof may impact our ability to access the debt market in the future at desired terms or at all. Please also see Part I. Item 1A. Risk Factors.
Development and Redevelopment
Kennedy Wilson has a number of market rate development, redevelopment and entitlement projects that are underway or are in the planning stages. These initiatives, if completed, will result in market-rate income producing assets. As ofDecember 31, 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 were brought to completion, the estimated share of the Company's total cost would be approximately$1.1 billion , which we expect would be funded through our existing equity, third-party equity, project sales and secured debt financing. As ofDecember 31, 2022 , we have incurred$797.0 million of costs to date and expect to spend an additional$379.0 million to develop to completion or complete the entitlement process on these projects. Of the$379.0 million of remaining costs to complete, we currently expect$133.0 million of it to be funded through cash from us over the life of the projects. This represents total capital over the life of the projects and is not a representation of peak equity and does not take into account any distributions over the course of the investment. When development projects are completed, they typically move into our unstabilized category as they undergo lease up post-completion. In addition to the market rate development and redevelopment projects described above, we have 2,369 affordable and/or age-restricted multifamily units within our VHH platform that we are currently developing or in the process of stabilizing. We expect to have no cash equity basis in these projects at completion due to the use of property level debt and proceeds from the sale of tax credits. If these projects are brought to completion, we expect to receive$34.3 million in cash from paid developer fees and proceeds from the sale of tax credits. The figures described in the two preceding paragraphs and in the table below are budgeted costs and are subject to change. There is no certainty that the Company will develop or redevelop any or all of these potential projects and the Company and its equity partners are under no obligation to complete these projects and may dispose of any such assets after adding value through the entitlement process. These are budgeted figures and are subject to change (increase or decrease) due to a number of factors (some of which are beyond our control), including, that these projects are being developed under construction management contracts with the general contractors and therefore we and our equity partners could be called upon to contribute additional capital in the event that actual costs exceed budgeted costs. The scope of these projects may also change. The estimated costs and amounts of cash to complete projects reflected in the table below represent management's current expectations and the total costs incurred to date include the land costs of these projects. 44
--------------------------------------------------------------------------------
Table of Contents
The table below describes the market rate development or redevelopment projects that the Company is undergoing or considering, and excludes the affordable and/or age-restricted multifamily units that it is developing in its VHH platform and its residential investments ($ in millions).
If Completed Current
Est. Completion KW Est. KW Costs KW Est. Costs to
Location Type Investment Status Date(1) Commercial Sq. Ft. MF Units / Hotel Rooms Total Cost(4) Incurred(4) Complete(2)
Nor Multifamily 38o North Phase II(5) Under Construction 2023 - 172 $ 73 $ 31 $ 42
California
Nor. California Multifamily 38o North Phase III(5) Under Construction 2023 - 30 13 1 12
Mountain West Multifamily Dovetail(5) Under Construction 2023 - 240 56 32 24
Mountain West Multifamily Oxbow Under Construction 2023 - 268 41 28 13
Ireland (3) Office Coopers Cross(6) Under Construction 2023 395,000 - 160 112 48
Ireland (3) Multifamily Coopers Cross(6) Under Construction 2023 - 471 131 115 16
Ireland (3) Multifamily Grange(6) Under Construction 2023 7,000 287 74 62 12
Hawaii Hotel Kona Village Resort (6) Under Construction 2023 - 150 352 305 47
Pacific Northwest Multifamily Two10 Under Construction 2023 - 210 60 20 40
Ireland (3) Mixed-Use The Cornerstone(5) Under Construction 2024 20,000 232 68 38 30
So. California Multifamily University Glen Phase II(5) Under Construction 2024 - 310 120 25 95
So. California Multifamily Gateway @ The Oaks In Planning TBD - TBD TBD 10 TBD
Pacific Northwest Multifamily Bend In Planning TBD - TBD TBD 18 TBD
Total 422,000 2,370 $ 1,148 $ 797 $ 379
(1) The actual completion date for projects is subject to several factors, many
of which are not within our control. Accordingly, the projects identified may
not be completed when expected, or at all.
(2) Figures shown in this column are an estimate of our remaining costs to
develop to completion or to complete the entitlement process, as applicable, as
of December 31, 2022 . Total remaining costs may be financed with third-party
cash contributions, proceeds from projected sales, and/or debt financing. We
expect to fund $133 million of our share of remaining costs to complete with
cash over the life of these projects. These figures are budgeted costs and are
subject to change. There is no guarantee that we will be able to secure the
project-level debt financing that is assumed in the figures above. If we are
unable to secure such financing, the amount of capital we will have to invest to
complete the projects above may significantly increase. Our cost to complete
differs from our share total capitalization as the latter includes costs that
have already been incurred to date while the former relates to future estimated
costs
(3) Estimated foreign exchange rates are €0.93 = $1 USD and £0.83 = $1 USD ,
related to NOI.
(4) Includes land costs.
(5) Included in Consolidated Portfolio Segment
(6) Included in Co-Investment Portfolio Segment
Unstabilized and Value Add Capital Expenditure Programs
We currently have six assets that comprise 0.8 million commercial square feet that are currently unstabilized and are undergoing various stages of lease-up, value-add or development. In order to stabilize these assets we project our share of costs to complete to be$26.9 million . The cost to complete this work and the time frame described is subject to many uncertainties that are beyond our control, and the actual costs may be significantly higher than the estimates shown below.
The table below describes assets that are currently unstabilized ($ in millions):
45--------------------------------------------------------------------------------
Table of Contents
KW Est. Costs to
Property Location Type KW Ownership # of Assets Commercial Sq. Ft. Leased % Complete(1)
Stockley Park United Kingdom(2) Office 100% 1 54,000 - $ -
The Oaks Southern California Office 100% 1 357,000 82 % 5.6
The Heights Building 4 United Kingdom(2) Office 51% 1 74,000 - -
Hamilton Landing H7 Northern California Office 100% 1 61,000 - 4.3
Various United Kingdom(2) Office 100% 2 281,000 34 17.0
Total Lease-Up 6 827,000 47 % $ 26.9
Note: The table above excludes minority-held investments and two wholly-owned
assets expected to sell, totaling 405 units and 0.8 million commercial sq. ft.
(1) Figures shown in this column are an estimate of KW's remaining costs to
develop to completion or to complete the entitlement process, as applicable, as
of December 31, 2022 . Total remaining costs may be financed with third-party
cash contributions, proceeds from projected sales, and/or debt financing. These
figures are budgeted costs and are subject to change. There is no guarantee that
the Company will be able to secure the project-level debt financing that is
assumed in the figures above. If the Company is unable to secure such
financing, the amount of capital that the Company will have to invest to
complete the projects above may significantly increase.
(2) Estimated foreign exchange rates are €0.93 = $1 USD and £0.83 = $1 USD ,
related to NOI.
In addition to our development, redevelopment and stabilization initiatives, we
regularly implement a value-add approach to our consolidated and unconsolidated
investments, which includes rehabbing properties and adding or updating property
amenities. The capital required to implement these value-add initiatives is
typically funded with capital calls, refinancing or supplemental financings at
the property level. We are not required to make these investments, but they are
a key driver in our ability to increase net operating income at our properties
post acquisition.
Other Items
On November 3, 2020 , the Company's board of directors authorized an expansion of
its existing $250 million share repurchase plan to $500 million . Repurchases
under the program may be made in the open market, in privately negotiated
transactions, through the net settlement of the Company's restricted stock
grants or otherwise, with the amount and timing of repurchases dependent on
market conditions and subject to the Company's discretion. The program does not
obligate the Company to repurchase any specific number of shares and, subject to
compliance with applicable laws, may be suspended or terminated at any time
without prior notice. As of December 31, 2022 , we had $144.8 million remaining
under the plan for stock repurchases. Please see the section titled "Purchases
of Equity Securities by the Company" in Part II of this annual report on Form
10-K for additional information.
The Company maintains a deferred compensation program for certain employees of
the Company (the "Deferred Compensation Program"). The named executive officers
of the Company are not participants of the Deferred Compensation Program. The
compensation committee of the Company's board of directors approves an amount
annually to be allocated to certain employees of the Company in the United
States and in Europe . The amount allocated to each employee vests ratably over a
three-year vesting period, subject to continued employment with the Company.
Prior to 2022, half of the allocated amount was tied specifically to the
performance and value of the Company's common stock at the time of each vesting
("Bonus Units"). Beginning in 2022, the entire amount allocated to each employee
consisted of Bonus Units. Under the Deferred Compensation Program, at the time
of each vesting, the employees receive an amount equal to either the dividend
yield of the Company's common stock or the actual amount of dividends paid on
the Company common stock (in the case of Bonus Units) during the immediately
preceding year on the amount that is subject to such vesting. During the years
ended December 31, 2022 and 2021 the Company recognized $9.2 million and $11.7
million , respectively, under the Deferred Cash Bonus Program.
The Company also maintains a performance allocation sharing program for certain
employees of the Company (the "Performance Allocation Sharing Program"). The
named executive officers of the Company are not participants of the Performance
Allocation Sharing Program. The compensation committee of the Company's board of
directors approved, reserved and authorized executive management to issue up to
thirty-five percent (35%) of any performance allocations earned by certain
commingled funds and separate account investments to be allocated to certain
non-NEO employees of the Company. Currently structures participating in the
Performance Allocation Sharing Program have allocated a range of 20% - 35% of
performance allocations to employees. Sixty percent of the award to each
employee vests ratably over four years and the remaining forty percent vest upon
the consummation of a liquidity event of the investment whereby the Company
actually receives cash performance allocations from its partner. The full
performance allocation earned by the Company will be recorded to income from
unconsolidated investments and the amount allocated to employees is recorded as
performance allocation compensation. During the years ended December 31, 2022
and 2021, the Company recognized $(4.3) million and $42.0 million , respectively,
related to this program.
46
--------------------------------------------------------------------------------
Table of Contents
The Company also recently implemented a global employee co-investment program
(the "Co-Investment Program"). The named executive officers are not participants
of the Co-Investment Program. Under the Co-Investment Program, certain employees
are provided the opportunity to invest alongside the Company in its investments
(in all future investments and certain recently acquired transactions). The
amount of funds that the employees, as a group, can invest in the Company's
investments is capped at 1.5% of the Company's equity. Participants in the
Co-Investment Program will make commitments to the program every year. Generally
(with limited exceptions), participants in the Co-Investment Program will invest
in every investment made by the Company (investments that such employee has an
active role in acquiring and managing) in the applicable year.
Cash Flows
The following table summarizes the cash provided by or used in our operating, investing and financing activities for the years endedDecember 31, 2022 and 2021: Year ended December 31, (Dollars in millions) 2022 2021
Net cash provided by (used in) operating activities $ 32.9
$ (30.3) Net cash used in investing activities (361.6) (1,038.0) Net cash provided by financing activities 264.2 632.0 Operating Our cash flows from operating activities are primarily dependent upon operations from consolidated properties, the operating distributions and fees from our Co-Investment Platform, general and administrative costs, compensation and interest expense payments. For the years endedDecember 31, 2022 and 2021, cash flows used by operations were$32.9 million and$30.3 million , respectively. The increase in cash used in operations was primarily due to higher interest expense for year endedDecember 31, 2021 from premiums and accrued interest paid associated with repayment of the 2024 Notes and the remaining outstanding portion of the KWE Bonds.
Investing
Our cash flows from investing activities are generally comprised of cash used to fund property acquisitions, investments in unconsolidated investments, capital expenditures, purchases of loans secured by real estate, as well as cash received from property sales and return of capital from our co-investments.
Year Ended
Net cash used in investing activities totaled$361.6 million for the year endedDecember 31, 2022 . During the year endedDecember 31, 2022 , we received$325.9 million primarily from the sale of non-core retail assets in theUnited Kingdom andWestern United States and a multifamily property in theWestern United States . We received$157.1 million in investing distributions from our co-investments primarily from the sale of assets within our comingled funds and financing distributions from multifamily properties inIreland . Our share of new loans issued as part of our global debt platform were$50.9 million , and we received$34.5 million of proceeds from repayments on loans previously issued. Additionally, we acquired$408.2 million of consolidated real estate assets, including an office building inScotland and four multifamily properties in the Mountain West. We spent$160.9 million on capital expenditures on consolidated assets, as well as continued investments in our development properties and value add on our operating properties. We also contributed$361.3 million to unconsolidated investments that were primarily used to fund our share of capital calls onKona Village and new acquisitions made within ourEuropean Industrial JV platform and commingled funds. The settlement of foreign currency derivatives generated$112.6 million of cash during the year endedDecember 31, 2022 , primarily due to settlement of interest rate and foreign currency derivatives that had appreciated in value. We spent$10.4 million in premiums on new derivative contracts entered into during the year endedDecember 31, 2022 .
Year Ended
Net cash used in investing activities totaled$1,038.0 million for the year endedDecember 31, 2021 . During the year endedDecember 31, 2021 , we received$486.4 million primarily from the sale of the MF seed portfolio and an office building in theUnited Kingdom . We received$82.8 million in investing distributions from our co-investments primarily from the sale of assets within our comingled funds, refinancing and resyndications with our VHH portfolio and a partial redemption of a hedge fund investment. Our share of new loans issued as part of our debt platform was$83.4 million and we received$58.1 million of proceeds from the sale of a portion of existing loans to equity partners and repayments on loans issued. Additionally, we acquired$1,131.8 million of consolidated real estate assets, including an office building inLondon , and multifamily properties 47
--------------------------------------------------------------------------------
Table of Contents
in thePacific Northwest and Mountain West regions. We spent$139.2 million on capital expenditures on consolidated assets, as well as continued investments in our development properties and value add on our operating properties. We also contributed$280.8 million to unconsolidated investments that were primarily used to fund our share of capital calls onKona Village and new acquisitions made within our European Industrial JV platform and commingled funds. The settlement of foreign currency derivatives was$30.1 million during the year endedDecember 31, 2021 , primarily due to the cross currency swap on the KWE Bonds. Financing
Our net cash related to financing activities is generally impacted by capital-raising activities net of dividends and distributions paid to common and preferred shareholders and noncontrolling interests as well as financing activities for consolidated real estate investments.
Year Ended
Net cash provided by financing activities totaled$264.2 million for the year endedDecember 31, 2022 . During the year endedDecember 31, 2022 , the Company received proceeds of$297.3 million from the issuance of its perpetual preferred stock and warrants to Fairfax. We drew$528.4 million on our revolving line of credit and repaid$325.0 million on our revolving line of credit during the year endedDecember 31, 2022 .Kennedy Wilson received proceeds of$401.3 million from mortgage loans to finance and refinance consolidated property acquisitions. These proceeds were offset by the repayment of$389.6 million of mortgage debt and$65.8 million on our KWE Notes. Additionally, we paid common dividends of$134.6 million and preferred dividends of$25.9 million , and we repurchased$31.2 million of our common stock under our share repurchase plan. Year EndedDecember 31, 2021 Net cash provided by financing activities totaled$632.0 million for the year endedDecember 31, 2021 . The Company received proceeds of$1,804.3 million from the issuance of the 2029 Notes, 2030 Notes and 2031 Notes and repaid$1,150.0 million of the 2024 Notes. We drew$314.3 million on our revolving line of credit and repaid$438.5 million on our revolving line of credit during the year endedDecember 31, 2021 . We incurred$35.6 million of debt issuance costs associated with the issuance of the 2029 Notes, 2030 Notes and 2031 Notes.Kennedy Wilson received proceeds of$1,144.9 million from mortgage loans to finance and refinance consolidated property acquisitions. These proceeds were offset by the repayment of$268.2 million of mortgage debt and$504.4 million on our KWE Bonds. During the year endedDecember 31, 2021 , we paid common dividends of$123.5 million and preferred dividends of$17.2 million , and we repurchased$83.2 million of our common stock under our share repurchase plan.
Contractual Obligations and Commercial Commitments
At
Payments due by period(9)
Less than
(Dollars in millions) Total 1 year 1 - 3 years 4 - 5 years After 5 years
Contractual obligations
Borrowings:(1)(4)
Mortgage debt(2) $ 3,034.9 $ 247.8 $ 1,119.5 $ 679.0 $ 988.6
Senior notes(3) 1,800.0 - - - 1,800.0
Credit facility 282.0 - 282.0 - -
KWE unsecured bonds(5) 508.4 - 508.4 - -
Total borrowings(4) 5,625.3 247.8 1,909.9 679.0 2,788.6
Operating leases 10.8 1.0 2.1 2.2 5.5
Ground leases(8) 29.5 0.2 0.5 0.5 28.3
Total contractual cash obligations(6)(7)
(1)See Notes 7-9 of our Notes to Consolidated Financial Statements. Figures do not include scheduled interest payments. Assuming each debt obligation is held until maturity, we estimate that we will make the following interest payments: Less than 1 year -$142.2 million ; 1-3 years -$351.6 million ; 4-5 years -$100.5 million ; After 5 years -$83.3 million . The interest payments on variable rate debt have been calculated at the interest rate in effect as ofDecember 31, 2022 . (2) Excludes$0.6 million net unamortized debt discount on mortgage debt. (3) Excludes$3.5 million unamortized debt premium on senior notes. (4) Excludes$40.3 million of unamortized loan fees. 48 -------------------------------------------------------------------------------- Table of Contents (5) Excludes$1.5 million net unamortized discount on KWE unsecured bonds. (6)Kennedy Wilson's share of contractual obligations, (excluding amounts that are attributable to noncontrolling interests), including debt, lines of credit, operating leases and ground leases, consisted of the following: Less than 1 year -$248.8 million ; 1-3 years -$1,910.2 million ; 4-5 years -$677.0 million ; After 5 years -$2,758.9 million . (7) Table above excludes$246.6 million unfulfilled capital commitments to our unconsolidated investments. (8) Ground leases on consolidated assets. Amounts are undiscounted and have leases that expire as far out as 2258. (9) Principal debt payments include the effect of extension options.
Indebtedness and Related Covenants
The following describes certain indebtedness and related covenants.
KWI Notes
OnFebruary 11, 2021 ,Kennedy-Wilson, Inc. , issued$500.0 million aggregate principal amount of 2029 Notes and$500.0 million aggregate principal amount of 2031 Notes (together with the 2029 Notes, the "initial notes"). OnMarch 15, 2021 ,Kennedy-Wilson, Inc. issued an additional$100 million aggregate principal of the 2029 Notes and an additional$100 million of the 2031 Notes. These additional notes were issued as "additional notes" under the indentures pursuant to whichKennedy Wilson previously issued 2029 Notes and the 2031 Notes. OnAugust 23, 2021 ,Kennedy-Wilson, Inc. issued$600.0 million aggregate principal amount of 2030 Notes (together with the 2029 Notes, the 2031 Notes and the additional notes, the "notes"). The notes are senior, unsecured obligations ofKennedy Wilson and are guaranteed byKennedy-Wilson Holdings, Inc. and certain subsidiaries ofKennedy Wilson . The notes accrue interest at a rate of 4.750% (in the case of the 2029 Notes), 4.750% (in the case of the 2030 Notes) and 5.000% (in the case of the 2031 Notes) per annum, payable semi-annually in arrears onMarch 1 andSeptember 1 of each year, beginning onSeptember 1, 2021 for the 2029 Notes and 2031 Notes andMarch 1, 2022 for the 2030 Notes. The notes will mature onMarch 1, 2029 (in the case of the 2029 Notes),February 1, 2030 (in case of 2030 Notes) andMarch 1, 2031 (in the case of the 2031 Notes), in each case unless earlier repurchased or redeemed. At any time prior toMarch 1, 2024 (in the case of the 2029 Notes),September 1, 2024 (in the case of the 2030 Notes) orMarch 1, 2026 (in the case of the 2031 notes),Kennedy Wilson may redeem the notes of the applicable series, in whole or in part, at a redemption price equal to 100% of their principal amount, plus an applicable "make-whole" premium and accrued and unpaid interest, if any, to the redemption date. At any time and from time to time on or afterMarch 1, 2024 (in the case of the 2029 Notes),September 1, 2024 (in the case of the 2030 Notes) orMarch 1, 2026 (in the case of the 2031 Notes),Kennedy Wilson may redeem the notes of the applicable series, in whole or in part, at specified redemption prices set forth in the indenture governing the notes of the applicable series, plus accrued and unpaid interest, if any, to the redemption date. In addition, prior toMarch 1, 2024 (for 2029 Notes and 2031 Notes) andSeptember 1, 2024 (for 2030 Notes),Kennedy Wilson may redeem up to 40% of the notes of either series from the proceeds of certain equity offerings. No sinking fund will be provided for the notes. Upon the occurrence of certain change of control or termination of trading events, holders of the notes may requireKennedy Wilson to repurchase their notes for cash equal to 101% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the applicable repurchase date. The total amount of the 2029 Notes, 2030 Notes and 2031 Notes included in the Company's consolidated balance sheets was$1.8 billion atDecember 31, 2022 .
KWE Notes
The KWE Notes were issued at a discount and have a carrying value of$507.1 million atDecember 31, 2022 and have an annual fixed coupon of 3.25% and mature in 2025. During the year endedDecember 31, 2022 , KWE launched a cash tender offer for up to €150 million in aggregate nominal amount of the KWE Notes and accepted all of the €75.0 million (approximately$80.3 million based onDecember 31, 2022 rates) in aggregate nominal amount of KWE Notes validly tendered pursuant to the tender offer for a purchase price equal to 82% of the nominal amount of the KWE Notes, which resulted in a gain on extinguishment of debt of$13.9 million .
Borrowings Under Line of Credit
OnMarch 25, 2020 ,Kennedy-Wilson, Inc. (the "Borrower"), a wholly-owned subsidiary ofKennedy-Wilson Holdings, Inc. (the "Company"), the Company, as a guarantor and certain subsidiaries of the Company (such subsidiaries, the "Subsidiary Guarantors") onMarch 25, 2020 entered into a$500 million revolving line of credit ("Second A&R Facility"). Loans under the Second A&R Facility bear interest at a rate equal to LIBOR plus between 1.75% and 2.50%, depending on the consolidated leverage ratio as of the applicable measurement date. The Second A&R Facility has a maturity date ofMarch 25, 2024 . Subject to certain conditions precedent and at the Borrower's option, the maturity date of the Second A&R Facility may be extended by one year. 49
--------------------------------------------------------------------------------
Table of Contents
The Company has
Debt Covenants The Second A&R Facility and the indentures governing the notes contain numerous restrictive covenants that, among other things, limit the Company and certain of its subsidiaries' ability to incur additional indebtedness, pay dividends or make distributions to stockholders, repurchase capital stock or debt, make investments, sell assets or subsidiary stock, create or permit liens, engage in transactions with affiliates, enter into sale/leaseback transactions, issue subsidiary equity and enter into consolidations or mergers. The Second A&R Facility has certain covenants as set forth in that certain Second Amended and Restated Credit Agreement, dated as ofMarch 25, 2020 (the "Credit Agreement"), that, among other things (including the limitations set forth in the preceding paragraph), requires the Company to maintain (i) a maximum consolidated leverage ratio (as defined in the Credit Agreement) of not greater than 65%, measured as of the last day of each fiscal quarter, (ii) a minimum fixed charge coverage ratio (as defined in the Credit Agreement) of not less than 1.70 to 1.00, measured as of the last day of each fiscal quarter for the period of four full fiscal quarters then ended, (iii) a minimum consolidated tangible net worth equal to or greater than the sum of$1,700,000,000 plus an amount equal to fifty percent (50%) of net equity proceeds received by the Company after the date of the most recent financial statements that are available as ofMarch 25, 2020 , measured as of the last day of each fiscal quarter, (iv) a maximum recourse leverage ratio (as defined in the Credit Agreement) of not greater than an amount equal to consolidated tangible net worth as of the measurement date multiplied by 1.5, measured as of the last day of each fiscal quarter, (v) a maximum secured recourse leverage ratio (as defined in the Credit Agreement) of not greater than an amount equal to 3.5% of consolidated total asset value (as defined in the Credit Agreement) and$299,000,000 , (vi) a maximum adjusted secured leverage ratio (as defined in the Credit Agreement) of not greater than 55%, measured as of the last day of each fiscal quarter, and (vii) liquidity (as defined in the Credit Agreement) of at least$75.0 million . As ofDecember 31, 2022 , the Company was in compliance with the foregoing financial covenants. The obligations of the Borrower pursuant to the Credit Agreement are guaranteed by the Company and certain wholly-owned subsidiaries of the Company. The indentures governing the notes limitKennedy-Wilson, Inc.'s ability to incur additional indebtedness if, on the date of such incurrence and after giving effect to the new indebtedness,Kennedy-Wilson, Inc.'s maximum balance sheet leverage ratio (as defined in the indenture) is greater than 1.50 to 1.00. This ratio is measured at the time of incurrence of additional indebtedness. The KWE Notes require KWE to maintain (i) consolidated net indebtedness (as defined in the trust deed for the notes) of no more than 60% of the total asset value; (ii) consolidated secured indebtedness (less cash and cash equivalents) of no more than 50% of total asset value; (iii) an interest coverage ratio of at least 1.5 to 1.0, and (iv) unencumbered assets of no less than 125% of the unsecured indebtedness (less cash & cash equivalents). The covenants associated with KWE Notes are not an obligation of KWH and these amounts are presented as a component of our investment debt as it is an unsecured obligation relating to an underlying investment of ours. As ofDecember 31, 2022 , the Company was in compliance with these covenants. In addition, loan agreements that govern the Company's property-level non-recourse financings that are secured by its properties may contain operational and financial covenants, including but not limited to, debt yield related covenants and debt service coverage ratio covenants and, with respect to mortgages secured by certain properties inEurope , loan-to-value ratio covenants. Property-level non-recourse financings with such loan-to-value covenants require that the underlying properties are valued on a periodic basis (at least annually). Subsequent to the year-endedDecember 31, 2022 , the Company resolved a breach of a loan-to-value covenant in a non-recourse loan agreement secured by retail and commercial assets in theUnited Kingdom . The Company promptly resolved such breach by paying down the mortgage by$9.1 million ,$7.6 million of which was held at the properties that serves as the collateral for the subject mortgage. The loan totals$165.8 million or 5.5% of our consolidated mortgage balance. As ofDecember 31, 2022 , the Company was in compliance with all property-level mortgages (other than discussed immediately above) and was current on all payments (principal and interest) with respect to the same. The failure by the Company to comply with such covenants and/or secure waivers from lenders could result in defaults under these instruments. In addition, if the Company defaults under a mortgage loan and/or such loan is accelerated by the lender, it may automatically be in default under any of its property and corporate unsecured loans that contain cross-default and/or cross-acceleration provisions. Please also see Part I. Item 1A Risk Factors.
Off-Balance Sheet Arrangements
Guarantees
We have provided guarantees associated with loans secured by consolidated assets. AtDecember 31, 2022 , the maximum potential amount of future payments (undiscounted) we could be required to make under the guarantees was approximately$142.9 million atDecember 31, 2022 . The guarantees expire through 2031 and our performance under the 50
--------------------------------------------------------------------------------
Table of Contents
guarantees would be required to the extent there is a shortfall in liquidation between the principal amount of the loan and the net sale proceeds of the applicable properties. If we were to become obligated to perform on these guarantees, it could have an adverse effect on our financial condition.
As ofDecember 31, 2022 , we have unfulfilled capital commitments totaling$246.6 million to our unconsolidated investments and$17.7 million to our loan portfolio. In addition to the unfunded capital commitments on its joint venture investments, the Company has$87.4 million of equity commitments relating on consolidated and unconsolidated development projects. As we identify investment opportunities in the future, we may be called upon to contribute additional capital to unconsolidated investments in satisfaction of our capital commitment obligations.
Non-Recourse Carve Out Guarantees
Most of our real estate properties within our equity partnerships are encumbered by traditional non-recourse debt obligations. In connection with most of these loans, however, we entered into certain "non-recourse carve out" guarantees, which provide for the loans to become partially or fully recourse against us if certain triggering events occur. Although these events are different for each guarantee, some of the common events include:
•the special purpose property-owning subsidiary's filing a voluntary petition for bankruptcy;
•the special purpose property-owning subsidiary's failure to maintain its status as a special purpose entity; and
•subject to certain conditions, the special purpose property-owning subsidiary's failure to obtain lender's written consent prior to any subordinate financing or other voluntary lien encumbering the associated property.
In the event that any of these triggering events occur and the loans become partially or fully recourse against us, our business, financial condition, results of operations and common stock price could be materially adversely affected.
In addition, other items that are customarily recourse to a non-recourse carve out guarantor include, but are not limited to, the payment of real property taxes, liens which are senior to the mortgage loan and outstanding security deposits.
Impact of Inflation and Changing Prices
However, as discussed throughout this report, high inflation impacted the global economy during the year endedDecember 31, 2022 and continues to impact the global economy. Our exposure to market risk from changing prices consists primarily of fluctuations in rental rates of commercial and multifamily properties, market interest rates on investment mortgages and debt obligations and real estate property values. Rental rate increases are dependent upon market conditions and the competitive environments in the respective locations of the properties. To the extent that we engage in development activities, we may have exposure to changing prices in materials or cost of labor. The revenues of the investment management operations with respect to rental properties are highly dependent upon the aggregate rents of the properties managed, which are affected by rental rates and building occupancy rates. Employee compensation is the principal cost element of investment management. We may be able to recoup all or a significant portion of any impact that we may suffer from rising costs through rental increases. To the extent that the rate of increase in expenses is greater than the rate of increase in rental rates, changing price will have an adverse impact on the Company. See also Inflation may adversely affect our financial condition and results of operations in Item 1A. Risk Factors for more detailed discussion on the impact of inflation on the Company.
© Edgar Online, source
