Document/ExhibitDescriptionPagesSize 1: 10-K/A Amendment to Annual Report HTML 934K
2: EX-23.2 Consent of Independent Registered Public HTML 8K
Accounting Firm
3: EX-23.3 Consent of Independent Registered Public HTML 9K
Accounting Firm
4: EX-31.1 Certification Pursuant to Rule 13A-14(A) HTML 13K
5: EX-31.2 Certification Pursuant to Rule 13A-14(A) HTML 13K
6: EX-32.1 Certification Pursuant to 18 U.S.C. Section 1350 HTML 11K
7: EX-32.2 Certification Pursuant to 18 U.S.C. Section 1350 HTML 11K
11: R1 Cover Page HTML 72K
12: R2 Audit Information HTML 14K
15: XML IDEA XML File -- Filing Summary XML 16K
13: XML XBRL Instance -- kw-20221231_htm XML 24K
14: EXCEL IDEA Workbook of Financial Reports XLSX 10K
9: EX-101.LAB XBRL Labels -- kw-20221231_lab XML 109K
10: EX-101.PRE XBRL Presentations -- kw-20221231_pre XML 53K
8: EX-101.SCH XBRL Schema -- kw-20221231 XSD 13K
16: JSON XBRL Instance as JSON Data -- MetaLinks 19± 27K
17: ZIP XBRL Zipped Folder -- 0001408100-23-000061-xbrl Zip 101K
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
iYes☒No ☐
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐iNo☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. iYes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). iYes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,”“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
iLarge
Accelerated Filer
☒
Accelerated Filer
☐
Non-accelerated Filer
☐
Smaller Reporting Company
i☐
Emerging
Growth Company
i☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes i☐ No ☒
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report i☒
Based
on the last sale at the close of business on June 30, 2022, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $i1,966,551,848.
The number of shares of common stock outstanding as of February
21, 2023 was i137,967,125.
iPart III
of this report incorporates certain information by reference from the registrant’s definitive proxy statement for the annual meeting of stockholders to be held on or around June 8, 2023, which proxy statement will be filed no later than 120 days after the close of the registrant’s fiscal year ended December 31, 2022.
EXPLANATORY NOTE
Kennedy-Wilson Holdings, Inc., a Delaware corporation (the “Company”), is filing this Amendment No. 1 (this “Amendment”) to its Annual Report on Form 10-K for the fiscal year ended December
31, 2022, which was originally filed with the Securities and Exchange Commission (the “SEC”) on February 22, 2023 (the “Original Report”), to amend Item 15 of the Original Report and include separate financial statements of KW-G Multifamily Venture 1, LLC and Vintage Housing Holdings, LLC as required pursuant to Rule 3-09 of Regulation S-X under the Securities Exchange Act of 1934.
Other than as set forth herein, this Amendment does not affect any other parts of, or exhibits to, the Original Report, and those unaffected parts or exhibits are not included in this Amendment. This Amendment continues to speak as of the date of the Original Report, and the Company has not updated the disclosure contained in this Amendment or the Original
Report to reflect events that have occurred since the filing of the Original Report. Accordingly, this Amendment should be read in conjunction with the Company's other filings with the SEC since the filing of the Original Report.
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents
are filed as part of this annual report:
(1) Financial Statements. The consolidated financial statements of the Company, as listed in Item 8 of the Original Report, are included in Item 8 of the Original Report
(2) Financial Statement Schedules. The financial statement schedules of the Company, as listed in Item 8 of the Original Report, are included in Item 8 of the Original Report.
(3) Exhibits. See the Exhibit List beginning of page 5 of this Amendment.
(b) Exhibits. The exhibits listed on the Exhibit
Index set forth below on page 6 are filed as part of, or are incorporated by reference into, this annual report on Form 10-K.
(c) Financial Statements Required by Rule 3-09 of Regulation S-X. The financial statements required by Rule 3-09 of Regulation S-X under the Securities Exchange Act of 1934, as amended, are filed as schedules to this report and are incorporated by reference into this Item 15.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 31st day of March 2023.
The following materials from Kennedy-Wilson
Holdings, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2022 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets (ii) the Consolidated Statements of Operations and Comprehensive (Loss) Income (iii) the Consolidated Statements of Equity (iv) the Consolidated Statements of Cash Flows (v) related notes to those financial statements and (vi) Schedule III - Real Estate and Accumulated Depreciation.
Filed with Original Report
__________
† Management Contract, Compensation Plan or Agreement.
(c) Financial Statement Schedules. Reference
is made to Item 15(a)(2) above.
Report on the Audit of the Consolidated Financial Statements
Opinion
We
have audited the consolidated financial statements of KW-G Multifamily Venture I, LLC and its subsidiaries (the Fund), which comprise the consolidated statements of assets, liabilities, and net assets, including the consolidated schedules of investments, as of December 31, 2022 and 2021, and the related consolidated statements of operations, changes in net assets, and cash flows for the year ended December 31, 2022 and the period from June 25, 2021 (Inception) through December 31, 2021, and the related notes to the consolidated financial statements.
In
our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the year ended December 31, 2022 and the period from June 25, 2021 (Inception) through December 31, 2021 in accordance with U.S. generally accepted accounting principles.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditors’
Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are required to be independent of the Fund and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In
preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Fund’s ability to continue as a going concern for one year after the date that the consolidated financial statements are issued.
Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements.
In performing an audit in accordance with GAAS, we:
•Exercise professional judgment and maintain professional skepticism throughout the audit.
•Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform
audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.
•Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control. Accordingly, no such opinion is expressed.
•Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements.
•Conclude whether, in our judgment, there are conditions or events, considered
in the aggregate, that raise substantial doubt about the Fund’s ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
KW-G Multifamily Venture 1, LLC (the “Company”) is a Delaware limited liability company formed on June 25, 2021 (Inception) between KW-G Multifamily Venture 1 Manager, LLC (“KW”) and KW-G Blocker, LLC (“G-Blocker”). The Company is owned 51% by KW and 49% by G-Blocker. The Company was formed for the purpose of acquiring, developing, owning, and
operating multifamily real estate assets located in the United States. The Company shall continue in full force and effect until June 25, 2031, or until dissolution prior thereto pursuant to the provisions of section 10.1 of the Company’s Limited Liability Company Agreement (the “Operating Agreement”).
In connection with the formation of the Company, KW and G-Blocker entered into a Membership Interest Purchase and Sale Agreement (the “MIPA”) on June 25, 2021. Under the MIPA, KW, the owner of a 100% interest in nine
multifamily properties (the “Properties”), sold a 49% interest in the Properties to G-Blocker in exchange for $166,455,593, including the assumption of debt. Immediately following the closing of the sale, KW and G-Blocker contributed their interests in the Properties into the Company and agreed to initial capital balances of $181,744,132 for KW's 51% ownership interest and $174,616,912 for G-Blocker's 49% ownership interest (the "Contribution Transaction"). The agreed upon value of the Properties was $800,000,000, and as part of the transaction the Company assumed $460,315,117 of debt that was secured by the Properties. The Properties and their locations are stated on the consolidated schedules of investments.
On
July 12, 2021, the Company established nine wholly-owned subsidiaries intended to be treated as real estate investment trusts (the “REITs’"). Simultaneously, the Company contributed each of the Properties into one of the REITs in exchange for 100% of the Common Units as defined by the Contribution Agreement of each of the REITs. In January 2022, the REITs admitted preferred members to meet the minimum number of investors required to quality as real estate investment trusts. The preferred members contributed $956,160 during 2022 and the ownership interests of these preferred members are reported as noncontrolling interests on the accompanying consolidated
financial statements.
(2) Summary of Significant Accounting Policies
(a) Basis of Accounting
The Company has determined that it has the attributes of an investment company. As a result of this determination, the Company has concluded that it is appropriate to record its real estate investments at fair value consistent with the measurement principles for investment companies under the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 946, Financial Services-Investment Companies.
These
consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") All references to authoritative accounting literature in the Company’s consolidated financial statements are referred in accordance with the FASB’s ASC.
(b) Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated.
(c) Use
of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(d) Cash and Cash Equivalents and Restricted Cash
The Company maintains its cash in federally insured banking institutions. The balances at these institutions, at times, exceed the federally insured limits and as a result there is a concentration of credit risk related to the
amounts in excess of the federally insured limits. No losses have been experienced related to these excess balances. The Company considers all highly liquid, short‑term investments with an original maturity of three months or less when purchased to be cash equivalents.
Restricted cash consists of reserves and holdbacks held by the lenders for the mortgage loans secured by the Properties.
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated statements of assets, liabilities, and net assets that sum to the total of the same such amounts shown in the consolidated statements of cash flows as of December 31, 2022 and 2021:
Total cash and cash equivalents and restricted cash shown in the consolidated statements of cash
flows
$
13,468,188
$
10,845,370
(e) Fair Value Measurements
The Company measures the fair value of its real estate and improvements and mortgage loans in accordance with ASC Topic 820, Fair Value Measurement. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date. Investments measured and reported at fair value
are classified and disclosed in one of the following three categories:
•Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that the Companies have the ability to access.
•Level 2 – Valuations based on quoted prices in less active, dealer or broker markets. Fair values are primarily obtained from third‑party pricing services for identical or comparable assets or liabilities.
•Level 3 – Valuations derived from other valuation methodologies, including pricing models, discounted cash flow models, and similar techniques, and not based on market, exchange, dealer, or broker‑traded transactions. Level 3 valuations incorporate certain assumptions and projections that are not
observable in the market and require significant judgment in determining the fair value assigned to such assets or liabilities.
The fair value of real estate and improvements is generally based on the direct capitalization approach, the Company applies a market derived capitalization rate to current and future income streams with appropriate adjustments for tenant vacancies or rent-free periods. These capitalization rates and future income streams are derived from comparable property and leasing transactions and are considered to be key inputs in the valuation. Other factors that are taken into consideration include tenancy details, planning, building and environmental factors that might affect the property. The valuation of real estate and improvements is considered within Level 3 in the fair value
hierarchy.
Changes in fair value of real estate and improvements are reflected as unrealized gains or losses in the consolidated statements of operations. Unrealized gains or losses are reclassified to realized gains or losses upon the receipt of sales proceeds or liquidation of real estate and improvements. In instances of partial realization on real estate and improvements, the cost basis is generally relieved or credited according to the ratio of cost to fair value, and partial realized gain or loss may be recognized.
The Company capitalizes all direct costs incurred related to the acquisition of and additions to real estate and improvements and those associated with the acquisition of tenants, such as leasing commissions
and tenant improvements. Capitalized costs included in the cost basis of real estate and improvements are the following costs: land, building, building improvements, tenant improvements, leasing commissions, direct acquisition costs, construction in progress, and furniture, fixtures and equipment. Ordinary repairs and maintenance are expensed as incurred.
No provision is made for depreciation on the cost of real estate projects; however, the effects of actual physical deterioration or obsolescence, if any, are taken into consideration in the application of the methods used in estimating fair value.
The Company elected the fair value option under ASC 825, Financial Instruments, to record notes payable at fair value on a recurring basis. Notes payable are recorded at fair value at each period end with changes in fair value being recorded to unrealized gain on notes payable on the accompanying consolidated statements of operations.
In
valuing notes payable, the Company considers significant inputs to be the term of the debt, value of collateral, market loan-to-value ratios, market interest rates and spreads, and credit quality of investment entities.The valuation of notes payable is considered within Level 2 in the fair value hierarchy.
Interest rate caps are stated at fair value, which are determined using a pricing model that incorporates market observable inputs for interest rate curves and unobservable inputs for credit spreads.The valuation of interest rate caps is considered within Level 2 in the fair value hierarchy.
(f) Tenant Receivable
Tenant
receivable are recorded at the contractual amount as determined by the underlying agreements and do not bear interest. The Company recognizes revenue to the extent that amounts are probable that substantially all rental income will be collected.
(g) Derivative Instruments and Hedging Activities
The Company records all derivative financial instruments on the consolidated statements of assets, liabilities and net assets at fair value as of the reporting date. The resulting changes in the derivatives’ fair values are included in earnings as a part of unrealized gain on interest rate cap on the consolidated statements of operations. The
Company’s objective in using interest rate derivatives are to add stability to interest expense, and manage its exposure to interest rate movements and, therefore, manage its cash outflows as they relate to the underlying debt instrument. The Company uses interest rate caps as part of its interest rate risk management strategy relating to its variable rate debt instruments.
(h) Income Taxes
The Company is not subject to federal or state income taxes. Income or loss is allocated to the members and included in their respective income tax returns. Under applicable federal and state income tax rules, limited liability companies are generally not subject to income taxes
and upon filing of their initial tax returns, the REITs elected to be taxed as real estate investment trusts under Section 856 through 860 of the Internal Revenue Code of 1986 (the “Code”). To qualify as real estate investment trusts, the REITs must distribute annually at least 90% of their adjusted taxable income, as defined in the Code, to its shareholders and satisfy certain other organizational and operating requirements. If the REITs fail to qualify as real estate investment trusts in any taxable year, they will be subject to federal income taxes on its taxable income at regular corporate rates and may not be able to qualify as real estate investment trusts for subsequent taxable years. The Company believes that the REITs have met all of the real estate investment trust distribution and technical requirements for the period from June
25, 2021 (Inception) through December 31, 2021 and the year ended December 31, 2022, and was not subject to any federal income taxes.
In accordance with ASC Topic 740, Income Taxes, the Company periodically evaluate its tax positions, including its status as pass‑through entities, to evaluate whether it is more likely than not that such positions would be sustained upon examination by a tax authority for all open tax years, as defined by the statute of limitations, based on their technical merits as of December 31, 2022. Based on the
Company’s evaluation, there are no uncertain tax positions or open examinations. Accordingly, no provision or liability for income taxes is included in the accompanying consolidated financial statements.
(i) Revenue Recognition
Revenues from tenants are recorded when due from tenants and are recognized monthly as they are earned, which generally approximates a straight-line basis. Apartment units are rented under short-term leases (generally, lease terms of nine to twelve months). Rent includes base rent and operating expense reimbursements.
(j) Expenses
Expenses include all costs incurred by the Company in connection
with the management, operation, maintenance, and repair of the real estate projects and are expensed as incurred.
In
March 2020, the FASB issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848), which provides optional expedients for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The ASU is effective as of March 12, 2020, through December 31, 2022. The Company
has begun to transition any contracts that reference LIBOR and expect to complete the process before LIBOR's use is discontinued. The adoption and transition to new reference rates will not have a material impact on the Company's net assets or statements of operations.
(3) Real Estate and Improvements, at Fair Value
The valuations of the Company’s real estate and improvements include estimates that utilize unobservable inputs that are significant to the overall valuation and are therefore categorized as Level 3 valuations. The following table summarizes the changes in real estate and improvements
during the years ended December 31, 2022 and 2021:
The
Properties held by the Company had capitalization rates ranging from 4.25% to 5.00% as of December 31, 2022 and capitalization rates ranging from 3.84% to 4.53% as of December 31, 2021.
The significant unobservable inputs used in the fair value measurement of the Companies’ real estate and improvements are the selection of capitalization rates. Significant increases (decreases) in these inputs in isolation would result in significantly lower (higher) fair value measurements, respectively.
(4) Derivatives
The Company
has used interest rate caps in order to reduce the effect of interest rate fluctuations or risk of certain real estate investment’s interest expense on variable rate debt. The Company is exposed to credit risk in the event of non-performance by the counterparty to this financial instrument. Management believes the risk of loss due to non-performance to be minimal.
The Company had an interest rate cap with a notional amount of $14,300,000 that was set to mature on July 1, 2024, and effectively caps LIBOR at 4.00%. The fair value of the interest rate cap was $15,963,000 as of December 31, 2021 and is included in prepaid
expenses and other assets on the accompanying consolidated statements of assets, liabilities, and net assets. During the year ended December 31, 2022, the Company sold the interest rate cap and received proceeds of $190,000.
(5) Members’ Equity
(a) Distributions
Distributions of net cash flow shall initially be made to the members based on the percentage of their contributed capital. The initial amount apportioned to the members shall be distributed as follows:
(i) First, to the members, on a pari passu basis, pro rata in accordance with their respective ownership interests, until the members have received cumulative distributions equal to the sum of their aggregate unreturned capital contributions and results in each member having achieved an internal rate of return equal to 7.5%.
(ii) Second,
to the members, on a pari passu basis, 85% to the members pro rata in accordance with their respective ownership interests and 15% to KW until the cumulative amount distributed results in each member having achieved an internal rate of return equal to 10%.
(iii) Third, to the members, on a pari passu basis, 80% to the members pro rata in accordance with their respective ownership interests and 20% to KW until the cumulative amount distributed results in each member having achieved an internal rate of return equal to 12%.
(iv) Fourth, to the members on a pari passu basis, 75% to the members pro rata in accordance with their respective ownership interests and 25% to KW.
(b) Income allocations
Net
income or losses are allocated to the members pro rata in proportion to their respective ownership interests. The potential incentive allocation recorded on the consolidated statements of changes in net assets represents KW’s allocation of such income, gains and losses, calculated as if all investments were sold and the Company was fully liquidated at fair value determined at the end of the reporting period. As of December 31, 2022, KW’s net assets account reflects such potential incentive allocation of $36,510,365.
(6) Notes Payable, at Fair Value
As of December 31, 2022 , notes payable, at fair value on the accompanying consolidated statements of assets, liabilities,
and net assets consist of the following:
As of December 31, 2021, notes payable, at fair value on the accompanying consolidated statements of assets, liabilities, and net assets consist of the following:
Property
Lender
Principal
Balance
Fair Value (Gain) Loss
Notes Payable, at Fair Value
Interest Rate
Maturity Date
Terms
Alpine
Fannie Mae
$
28,800,000
$
1,201,000
$
30,001,000
4.28
%
11/29/2028
IO,
PP
Apex
Fannie Mae
19,275,372
302,000
19,577,372
3.86
%
4/1/2026
PP
Arya
Freddie Mac
60,400,000
496,000
60,896,000
3.59
%
12/1/2026
PP
Bella
Sonoma
Fannie Mae
35,927,279
112,000
36,039,279
3.59
%
12/1/2025
PP
Foothill
Fannie Mae
84,000,000
(2,141,000)
81,859,000
3.04
%
7/1/2031
IO,
PP
Harrington Square
Fannie Mae
45,120,000
(1,150,000)
43,970,000
3.04
%
7/1/2031
IO, PP
Kirker Creek
Fannie Mae
73,810,430
485,000
74,295,430
3.78
%
7/1/2024
PP
Kirker
Creek
Fannie Mae
13,677,198
(139,000)
13,538,198
LIBOR + 2.8%
7/1/2024
PP
Townhouses at Lost Canyon
Fannie Mae
42,923,000
333,000
43,256,000
3.63
%
9/1/2026
IO,
PP
Whitewater Park
Fannie Mae
55,000,000
(1,402,000)
53,598,000
3.04
%
7/1/2031
IO, PP
Total
$
458,933,279
$
(1,903,000)
$
457,030,279
IO
= Interest only
PP = Prepayment penalty applicable
Future principal payments on the notes payable are as follows:
The Operating Agreement provides for KW to manage the assets of the Company. The Company will pay an annual asset management fee to KW equal to 0.6% per annum of Average Aggregate Actively Invested Capital as defined in the Operating Agreement.
The Company has also entered into various property management agreements (the “Property Management Agreements”) with KW Multi-Family Management Group, LLC (the “Property Manager”), an affiliate of KW, to manage the operations of the Properties. Under this arrangement, the Property Manager is paid a property management
fee ranging from 2.00% - 2.50% of Gross Revenue of the Property as defined by the Property Management Agreements and reimbursements for all costs and expenses incurred in the hiring of on-site employees.
Costs and expenses incurred related to such services for the year ended December 31, 2022 and the period from June 25, 2021 (Inception) through December 31, 2021, consist of the following:
Asset
management and property management fees are included on the accompanying consolidated statements of operations. As of December 31, 2022 and 2021, amounts payable to related parties totaled $534,542 and $534,542, respectively, and are included in accounts payable and accrued expenses on the accompanying consolidated statements of assets, liabilities, and net assets.
The IRR was computed based on quarterly compounding periods of the cash inflows (capital contributions), outflows (cash distributions), and the ending net assets as of the end of the year (residual value) of the Company’s capital account as of December 31, 2022.
Ratio to average G-Blocker's capital:
Net investment income
6.6
%
Total
expenses
23.2
%
Potential incentive allocation to KW
23.1
%
Total expenses and potential incentive allocation
46.3
%
(9) Subsequent Events
In preparing these consolidated financial statements, the Companies have evaluated subsequent events and transactions for potential recognition or disclosure through March 31, 2023, the date these consolidated financial statements were issued.
No events were identified that would require additional disclosure to the consolidated financial statements.
We have audited the consolidated financial statements of Vintage Housing Holdings, LLC and Subsidiaries, which comprise the consolidated balance sheet as of December 31, 2022, and the related consolidated statements of operations, members' deficit, and cash flows for the year then ended, and the related notes to the consolidated financial statements and financial statement schedule
III - real estate and accumulated depreciation, (collectively, the consolidated financial statements).
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Vintage Housing Holdings, LLC and Subsidiaries as of December 31, 2022, and the results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS).
Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Vintage Housing Holdings, LLC and Subsidiaries and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Emphasis of Matter
As discussed in Note 2 to the consolidated financial statements, in 2022, the Company adopted Financial Accounting Standards
Board (FASB) Accounting Standards Codification (ASC) 842, Leases. Our opinion is not modified with respect to this matter.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or
events, considered in the aggregate, that raise substantial doubt about Vintage Housing Holdings, LLC and Subsidiaries' ability to continue as a going concern for one year after the date that the consolidated financial statements are available to be issued.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always
detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements.
In performing an audit in accordance with GAAS, we:
•Exercise professional judgment and maintain professional skepticism throughout the audit.
•Identify and assess the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.
•Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Vintage Housing Holdings, LLC and Subsidiaries'
internal control. Accordingly, no such opinion is expressed.
•Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements.
•Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Vintage Housing Holdings, LLC and Subsidiaries' ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit,
significant audit findings, and certain internal control–related matters that we identified during the audit.
Other Matter
The accompanying consolidated balance sheet of Vintage Housing Holdings, LLC and Subsidiaries as of December 31, 2021, and the related consolidated statements of operations, members’ deficit, and cash flows for the years ended December 31, 2021 and 2020, and the related notes to the consolidated financial statements were not audited, reviewed, or compiled by us, and, accordingly, we do not express an opinion or any other form of assurance on them.
Vintage Housing Holdings, LLC (the “Company”) is a California limited liability company between KW-VHH Member, LLC (“KW”) and Sierra VHH Holdings, LLC (“Sierra”). The
Company was formed for the purpose of acquiring, developing, owning, and operating affordable multifamily real estate assets located in the Western United States. The Company typically utilizes tax-exempt bond financing and the sale of federal tax credits to help finance its investments. The term of the Company shall be perpetual unless the Company is dissolved, wound up and cancelled based on provisions in the operating agreement between KW and Sierra. KW and Sierra are obligated to commit additional capital only to the extent that both members agree to pursue additional investments.
In addition to the consolidated properties above, the Company
has ownership interests in 36 other properties but does not control and; therefore, treats its investment on the equity method of accounting.
(2) Summary of Significant Accounting Policies
The accompanying financial statements have been prepared on an accrual basis of accounting in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The following is a summary of the significant accounting policies of the Company:
(a) Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated.
(b) Cash and Cash Equivalents and Restricted Cash
The Company maintains its cash in federally insured banking institutions. The balances at these institutions, at times, exceed the federally insured limits and as a result there is a concentration of credit risk related to the amounts in excess of the federally insured limits. No losses have been experienced related to these excess balances. The Company considers all highly liquid, short‑term investments with an original maturity
of three months or less when purchased to be cash equivalents.
Restricted cash consists of reserves and holdbacks held by the lenders for the mortgage loans secured by the underlying properties and reserves associated with potential guarantees associated with operating deficits at properties.
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows as of December 31, 2022 and 2021:
Total cash and cash equivalents and restricted cash shown in the consolidated statements of cash flows
$
6,579,183
$
3,051,382
(c) Concentration of Risk
The Company’s investments are concentrated in affordable multifamily properties located in the Western United States with the majority located in
the state of Washington. Adverse conditions in the sector or geographic location would likely result in a material decline in the value of the Company’s investment.
(d) Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, and reported amounts of income and expenses. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Such estimates and assumptions are adjusted when facts and
circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods. The most significant estimates relate to allowance for depreciation and useful lives, deferred revenue, and contingencies.
(e) Accounts Receivable
Accounts receivable are recorded at the contractual amount as determined by the underlying agreements and do not bear interest. The Company recognizes revenue to the extent that amounts are probable that substantially all rental income will be collected. Tenant receivables are charged to bad debt expense when
they are determined to be uncollectible based upon a periodic review of the accounts by management. U.S. GAAP requires that the allowance method be used to recognize bad debts; however, the effect of using the direct write-off method is not materially different from the results that would have been obtained under the allowance method.
(f) Real Estate
Depreciation is provided for in amounts sufficient to relate the cost of the depreciable assets to operations over their estimated service lives using the straight-line method. Improvements are capitalized, while expenditures for maintenance and repairs are charged to expense as incurred. Estimated service lives are as follows:
•Building and improvements 40 years
•Land
improvements 15 years
•Furniture, fixtures and equipment 5 years
Amortization includes tax credit monitoring fees that are amortized on a straight-line basis over the 15 year compliance period.
Depreciation and amortization expense for the years end December 31, 2022, 2021 and 2020 was $5,788,704, $5,920,105 (unaudited) and $3,943,729 (unaudited), respectively.
(g) Impairment of long-lived assets
In accordance with ASC Subtopic 360-10, Property,
Plant and Equipment for long-lived assets, the Company's properties are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indications of impairment exist, the Company will evaluate the properties by comparing the carrying amount of the properties to the estimated future undiscounted cash flows of the property. If impairment exists, an impairment loss will be recognized based on the amount by which the carrying amount exceeds the fair value of the asset. For the years ended December 31, 2022, 2021 and 2020, there were no impairments recorded.
(h) Distributions from joint venture investments
The Company utilizes the nature of distributions approach and distributions are reported under operating cash flow unless the facts and circumstances of a specific distribution clearly indicate that it is a return of capital (e.g., a
liquidating dividend or distribution of the proceeds from unconsolidated investments' sale of assets), in which case it is reported as an investing
activity. This enables the Company to look to the nature and source of the distribution received and classify it appropriately between operating and investing activities on the statement of cash flows based upon the source.
(i) Note receivable
In accordance with Accounting Standard Codification Topic 835 of the ASC ("ASC 835"), the interest income generating activities of the Company are related to Secured Loans. The Company uses the effective interest method to recognize interest income on its secured loans transactions. The
Company maintains a security interest in 13 loans and records interest income over the terms of the secured loan receivable. Recognition of interest income is suspended, and the loan is placed on non-accrual status when management determines that collection of future interest income is not probable. The interest income accrual is resumed, and previously suspended interest income is recognized, when the loan becomes contractually current and/or collection doubts are resolved. Cash receipts on impaired loans are recorded first against the principal and then to any unrecognized interest income.
(j)Debt issuance costs
Debt issuance costs, net of accumulated amortization, are reported as a direct deduction from the face amount of the mortgage loan payable to which such costs relate. Amortization
of debt issuance costs i reported as a component of interest expense and computed using an imputed interest rate on the related loan.
(k) Income Taxes
The Company has elected to be treated as a pass-through entity for income tax purposes and, as such, is not subject to income taxes. Rather, all items of taxable income, deductions and tax credits are passed through to and are reported by its owners on their respective income tax returns. The Company's federal tax status as a pass-through entity is based on its legal status as a limited partnership. Accordingly, the Company is not required
to take any tax positions in order to qualify as a pass-through entity. The Company is required to file and does file tax returns with the Internal Revenue Service and other taxing authorities. Accordingly, these financial statements do not reflect a provision for income taxes and the Company has no other tax positions which must be considered for disclosure. Income tax returns filed by the Company are subject to examination by the Internal Revenue Service for a period of three years. While no income tax returns are currently being examined by the Internal Revenue Service, tax years since 2019 remain open.
(l) Revenue Recognition
Revenues
from tenants are recorded when due from tenants and are recognized monthly as they are earned, which generally approximates a straight-line basis. Apartment units are rented under short-term leases (generally, lease terms of nine to twelve months). Rent includes base rent and operating expense reimbursements. Rental payments received in advance are deferred until earned. All leases of the properties are operating leases.
(m) Expenses
Expenses include all costs incurred by the Company in connection with the management, operation, maintenance, and repair of the real estate projects and are expensed as incurred.
(n) Recent Accounting Pronouncements
In
March 2020, the FASB issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848), which provides optional expedients for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The ASU is effective as of March 12, 2020, through December 31, 2022. The Company
has begun to transition any contracts that reference LIBOR and expects to complete the process before LIBOR's use is discontinued.
The Company adopted Accounting Standards Update 2016-02 (as amended), Leases (Topic 842) on January 1, 2022 (“Adoption Date”). Due to the adoption of ASU 2016-02 the Company has recorded a right of use asset and a corresponding lease liability of $8,897,932, which is recorded as a component of other assets and accrued expenses, respectively, in the accompanying consolidated balance sheets.
The average remaining lease term is 37.9 years and weighted average discount rate is 1.87% as of December 31, 2022.
The following table summarizes the fixed, future minimum rental payments, excluding variable costs, which are discounted to calculate the right of use asset and related lease liability for its operating leases in which the Company is the lessee:
Additionally, the Company elected and applied the package of practical expedients permitting the Company to not reassess (i) the lease classification of existing leases; (ii) whether existing and expired contracts
are or contain leases; and (iii) initial direct costs for existing leases.
The Company accounted for its existing operating leases with residential tenants of the property as operating leases. Adopting Topic 842 in accounting for residential tenant leases did not result in adjustment to the financial statements.
Real estate, net of accumulated depreciation and amortization
$
154,225,771
$
143,206,348
The Company generally sells interests of consolidated properties
to tax credit investors. When a property is sold the Company issues a seller financed note to the buyer and records an offsetting liability resulting in the gain on sale being deferred. When the Company receives principal payments on the note receivables it recognizes a proportionate portion of the deferred gain. During the years ended December 31, 2022, 2021 and 2020the Company recognized gain on sale of $1,762,204, $2,582,124 (unaudited) and $2,306,488 (unaudited), respectively.
(4) Equity Method
Investments
The Company has ownership interests in properties where they do not control but still has significant influence that it accounts for as equity method investments. The combined summarized balance sheets and statement of operations of the operating entities in which the Company holds an interest as of December 31, 2022 and 2021 are as follows:
During 2021, Vintage at Bend, LP sold their real estate assets to a newly formed entity, Vintage at Bend2, LP. Vintage at Bend, LP was consolidated into VHH balances in 2020 and deconsolidated in 2021. Prior to consolidation in 2021, the investment in Vintage at Bend was adjusted for allocation of income of $6,151,259 (unaudited), distributions received of $4,952,253 (unaudited) and ultimately a write off of investment balance of $2,545,484 (unaudited) for the year ended December 31, 2021. VHH provided a note receivable of $650,000 to the buyer of the real estate, Vintage at Bend 2, LP, an affiliate, which resulted in deferred
gain on sale of the real estate.
(5) Notes receivable
The Company holds seller back note receivables on properties that the Company has sold to tax credit equity partners. When loans are issued they are non-cash with an offsetting amount to deferred revenue. Upon sale of the property with a seller loan, a portion of the gain is deferred. The Company recognizes interest income based on effective interest rate of loans. When the Company receives principal payments on notes receivable balances, it
recognizes gain on sale of real estate. The notes receivable balance below includes principal balances of the notes as well as an accrued and unpaid interest and consists of the following as of December 31, 2022 and 2021:
Principal payments on the mortgage payable and notes payable are as follows as of December 31, 2022:
Total
2023
$
63,424,778
2024
12,952,162
2025
24,945,701
2026
68,918,073
2027
991,031
Thereafter
44,364,494
Total
$
215,596,239
For
amounts maturing in 2023, the Company plans to refinance through new loans or pay off existing loans through tax credit equity proceeds from the syndication of underlying properties.
As of December 31, 2022 and 2021, the Company had accrued interest payable on mortgage and note payables of $526,897 and $512,607 (unaudited).
(7) Related Party Transactions
Fee revenues
The
Company in its capacity as general partner or managing member receives fees from tax credit investors in joint venture investments it has an interest in. The Company received fees of $3,801,153, $1,929,216 (unaudited) and $2,346,389 (unaudited) for the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022 and 2021, the Company had a receivable of $2,733,305 and $2,505,899 (unaudited) included within the accounts receivable balance on the consolidated balance sheet relating to fee revenue
Interest
income
The Company earns interest income associated with the seller notes that it receives from tax credit partners on the sale of consolidated real estate. See note 5 for more detail. During the years ended December 31, 2022, 2021 and 2020, the Company earned $1,131,624, $1,149,654 (unaudited) and $1,184,267 (unaudited).
Asset management fee
The partnership agreement for equity method investments provides for the payment of a cumulative asset management fee to an affiliate
of the investor limited partner commencing in the year of the closing date, as defined. During the years ended December 31, 2022, 2021 and 2020, the Company earned $3,424,488, $3,180,759 (unaudited), and $2,918,438 (unaudited), respectively.
The asset management fee, payable to Vintage Housing Asset Management, an affiliate, is comprised of regular asset management fee that is based off
of a base fee of $1.4 million annual fee that is increased or decreased by $250/unit for every unit acquired or sold by the Company. In addition, KW receives an oversight fee that consists of $700,000 original fee that is increased or decreased by $125/unit for every unit acquired or sold by the Company.
Partnership management fee
The partnership agreement for equity method investments provides for the payment of an annual fee and the partnership management fee accrues to the extent not paid out of operating cash flow in any fiscal year. During the years ended December 31, 2022, 2021
and 2020 $1,463,500, $1,389,192 (unaudited) and $874,057 (unaudited) of fees were incurred.
Due to affiliates
As of December 31, 2022the Company owes KW $2,340,000 and owes Vintage Housing Development $19,159,927 and $2,908,219 as of December 31, 2022 and 2021, respectively. The amounts due to affiliates are due on demand and are non-interest bearing.
(8) Commitments and Contingencies
Tax credits
The
Company's low-income housing tax credits will be contingent on its ability to maintain compliance with applicable sections of Section 42. Failure to maintain compliance with occupant eligibility, and/or unit gross rent or to correct noncompliance within a specified time period could result in recapture of previously taken tax credits plus interest. In addition, such potential noncompliance may require an adjustment to the contributed capital by the investor limited partner.
Operating deficit guaranty
The guarantees made by the Company represent a concentration of credit risk. If performance on the guarantee becomes probable and the liability can be reasonably estimated, the
Company would accrue a liability based on the facts and circumstances at that time. All of the guarantees made are with related party entities.
As of December 31, 2022, the Company has provided guarantees related to operating deficits ranging from $415,000 - $4.7 million (median $1.5 million) and are offset by reserves ranging from $192,000 - $1 million (median of $528k) and could expire anywhere from one year (if certain conditions are met) through the compliance period.
(9) Subsequent Events
In preparing these consolidated financial statements, the Companies have evaluated subsequent events and transactions for potential recognition or
disclosure through March 31, 2023, the date these consolidated financial statements were available to be issued. The Company has exercised extension options on some of its mortgage and note payable balances subsequent to year end. Dates and maturities have in Note 6 have been updated to reflect these elections. No other events were identified requiring disclosure to the financial statements.
