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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. ☐
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, 2021, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $i2,184,053,671.
The number of shares of common stock outstanding as of February 24, 2022 was i137,874,895.
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 9, 2022, which proxy statement will be filed no later than 120 days after the close of the registrant’s fiscal year ended December 31,
2021.
Statements
made by us in this report and in other reports and statements released by us that are not historical facts constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are necessarily estimates reflecting the judgment of our senior management based on our current estimates, expectations, forecasts and projections and include comments that express our current opinions about trends and factors that may impact future results. Disclosures that use words such as “believe,”"may,"“anticipate,”“estimate,”“intend,”“could,”“plan,”“expect,”“project” or the negative of these, as well as similar expressions, are intended to identify forward-looking statements.
Forward-looking
statements are not guarantees of future performance, rely on a number of assumptions concerning future events, many of which are outside of our control, and involve known and unknown risks and uncertainties that could cause our actual results, performance or achievement, or industry results, to differ materially from any future results, performance or achievements, expressed or implied by such forward-looking statements. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we do not guarantee that the transactions and events described will happen as described (or that they will happen at all). In addition, this report contains information and statistics regarding, among other things, the industry, markets, submarkets and sectors in which we operate. We obtained this information and these statistics from various third-party sources and our own internal estimates.
We believe that these sources and estimates are reliable but have not independently verified them and cannot guarantee their accuracy or completeness.
Any such forward-looking statements, whether made in this report or elsewhere, should be considered in the context of the various disclosures made by us about our businesses including, without limitation, the risk factors discussed in Part I, Item IA of this Report. Except as required under the federal securities laws and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”), we do not have any intention or obligation to update publicly any forward-looking statements, whether as a result of new information, future events, changes in assumptions, or otherwise. Please refer to "Non-GAAP Measures and Certain Definitions" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for definitions of
certain terms used throughout this report.
Kennedy Wilson is a global real estate investment company. We own, operate and develop real estate with the objective of maximizing earnings over the long run for ourselves and our equity partners.
We focus primarily on multifamily and office properties located in the Western United States, United Kingdom, and Ireland. As of December 31, 2021, we have 220 employees in 12 offices primarily located throughout the United States, the United Kingdom, Ireland and Spain. As of December 31, 2021, we had $21.6 billion in Real Estate Assets under Management" ("AUM"). The real estate that we hold in our global portfolio consists primarily of multifamily apartments (55%) and commercial properties (45%) based on Consolidated NOI and JV NOI. Geographically, we focus on the Western United States (60%), the United Kingdom (18%) and Ireland (19%).
Our investment activities in our Consolidated Portfolio (as defined below) involve ownership of multifamily units, office, retail and industrial
space and one hotel. Our ownership interests in such consolidated properties make up our Consolidated Portfolio ("Consolidated Portfolio") business segment as discussed in detail throughout this report.
In addition to investing our shareholder's capital, we invest capital on behalf of our partners in real estate and real estate related assets through our Co-investment Portfolio ("Co-investments Portfolio"). This fee-bearing capital represents total third-party committed or invested capital that we manage in our joint ventures and commingled funds that entitle us to earn fees, including without limitation, asset management fees, construction management fees, acquisition and disposition fees and/or promoted interest, if applicable. As of December 31, 2021, our fee-bearing capital was $5.0 billion and we recognized $35.3 million
in recurring investment management fees and $117.9 million of performance allocations (allocated amounts to us on co-investments we managed based on the cumulative performance of the underlying investment) during the year ended December 31, 2021. We generally invest our own capital alongside our equity partners in these joint ventures and commingled funds that we manage.
As of December 31, 2021, the following key metrics of our Consolidated and Co-investments Portfolio are as follows:
Consolidated
Co-Investments
Multifamily
units - market rate
10,460
14,180
Multifamily units - affordable
—
10,725
Office feet square feet (millions)
4.9
7.1
Retail and industrial square feet (millions)
3.4
8.5
Hotels
1
1
Real
estate debt - 100% (billions)
$
—
$
1.7
Real estate debt - KW Share (millions)
$
—
$
135.2
Revenues (millions)
$
407.6
$
217.1
NOI (millions)
$
255.8
$
124.4
AUM
(billions)
$
9.7
$
11.9
In our Co-investments Portfolio, 92% of our carrying value is accounted for at fair value. Our interests in such joint ventures and commingled funds and the fees that we earn from such vehicles make up our Co-investments Portfolio segment as discussed in detail throughout this report.
In addition to our income-producing real estate, we also engage in development, redevelopment and value add initiatives through which we enhance cash flows or reposition assets to increase value. Our total share of development project costs with respect to these investments
are estimated at $669.0 million over the next three years. These costs are generally financed by cash from our balance sheet, capital provided by partners (if applicable), cash flow from investment and construction loans. Cost overrun risks are reduced by detailed architectural plans, guaranteed price contracts and supervision by expert Company executives and personnel. When completed, the construction loans are generally replaced by long-term mortgage financing. See additional detail in the section titled Development and Redevelopment below.
•Identify countries and markets with an attractive investment landscape
•Establish operating platforms in our target markets
•Develop local intelligence and create long-lasting relationships, primarily with financial institutions
•Leverage relationships and local knowledge to drive proprietary investment opportunities with a focus on off-market transactions that we expect will result in above average cash flows and returns over the long term
•Acquire high quality assets, either on our own or with strategic partners
•Reposition
assets to enhance cash flows post-acquisition
•Explore development opportunities on underutilized portions of assets, or acquire development assets that fit within our overall investment strategy
•Continuously evaluate and selectively harvest asset and entity value through strategic realizations using both the public and private markets
The table below highlights some of the Company's key metrics over the past five years:
Year
Ended December 31,
($ in millions, except fee bearing capital which $ in billions)
2021
2020
2019
2018
2017
Revenue
$
453.6
$
450.9
$
569.7
$
773.5
$
801.8
Net
income to Kennedy-Wilson Holdings Inc. common shareholders
313.2
92.9
224.1
150.0
100.5
Basic income per share
2.26
0.66
1.60
1.04
0.83
Dividends
declared per share of common stock
0.90
0.88
0.85
0.78
0.70
Adjusted EBITDA(1)
927.9
608.0
728.1
712.7
455.7
%
change
52.6
%
(16.5)
%
2.2
%
56.4
%
—
%
Adjusted Net Income(2)
509.0
306.9
442.5
397.0
242.5
Adjusted
Net Income annual increase (decrease)
65.9
%
(31.3)
%
11.5
%
63.7
%
—
%
Multifamily Occupancy
95.4
%
95.2
%
94.4
%
94.7
%
93.8
%
%
change
0.2
%
0.8
%
(0.3)
%
1.0
%
—
%
Commercial Occupancy
94.3
%
93.4
%
93.3
%
94.2
%
94.2
%
%
change
1.0
%
0.1
%
(1.0)
%
—
%
—
%
Consolidated NOI(1)
255.8
262.3
305.2
368.3
242.0
%
change
(2.5)
%
(14.1)
%
(17.1)
%
52.2
%
—
%
JV NOI(1)
124.4
102.5
77.8
55.3
48.1
%
change
21.4
%
31.7
%
40.7
%
15.0
%
—
%
Fee-bearing capital
5.0
3.9
3.0
2.2
1.8
%
change
28.2
%
30.0
%
36.4
%
22.2
%
—
%
(1) Please refer to "Certain Non-GAAP Measures and Reconciliations" for a reconciliation of certain non-GAAP items to U.S. GAAP.
The
following table shows the historical U.S. federal income tax treatment of the Company’s common stock dividend for the years ended December 31, 2021 through 2017:
Our operations are defined by two business segments: our consolidated investment portfolio (the "Consolidated Portfolio") and our co-investment portfolio (the "Co-Investment Portfolio")
•Our Consolidated Portfolio consists of the investments in real estate and real estate-related assets that we have made and consolidate on our balance sheet. We typically wholly-own the assets in our Consolidated Portfolio.
•Our Co-Investment Portfolio consists of (i) the co-investments in real estate and real estate-related assets, including loans secured by real estate, that we have made through the commingled funds and joint ventures that we manage; (ii) fees (including, without limitation, asset management fees and construction management fees); and (iii) performance allocations
that we earn on our fee bearing capital. We typically have a 5% to 50% ownership interest in the assets in our Co-investment Portfolio. We have a weighted average ownership of 39% as of December 31, 2021.
In addition to our two primary business segments, our Corporate segment includes, among other things, our corporate overhead and, prior to the sale of the group in October 2020, our property services group.
ConsolidatedPortfolio
Our Consolidated Portfolio is a permanent capital vehicle focused on maximizing property cash flow. These assets are primarily wholly-owned and tend to have longer hold periods and we target investments with accretive asset management opportunities. We typically focus on office and multifamily assets in the
Western United States and commercial assets in the United Kingdom and Ireland within this segment.
The non-GAAP table below represents a summarized balance sheet of our Consolidated Portfolio which is held at historical depreciated cost as of December 31, 2021 and 2020. This table does not include amounts from our corporate segment such as corporate cash and the KWH Senior Notes.
We utilize different platforms in the Co-investment Portfolio segment depending on the asset and risk return profiles.
The table below represents the carrying value of our Co-Investment Portfolio balance sheet which is primarily at fair value, at our share of the underlying investments as of December 31, 2021 and December 31, 2020. The Co-Investment Portfolio consists of our unconsolidated investments as well as our loan purchases and originations.
We have several equity partners whereby we act as the general partner and receive investment management fees including acquisition, disposition, financing, construction management and other fees. We also can earn performance allocations if investments exceed certain return hurdles. In addition to acting as the asset manager and general partner of those joint ventures, we are also a co-investor in these investments. Our separate account platforms have defined investment parameters such as asset types, leverage and return profiles and expected hold periods. As of December 31, 2021, our weighted average ownership interest in the various joint ventures that we manage was 44%.
Commingled funds
We currently have three closed end funds that we manage and through which we receive
investment management fees and potentially performance allocations. We focus on sourcing investors in the U.S., Europe and Middle East and target investments in the U.S. and Europe with respect to our commingled funds. Each of our funds have, among other things, defined investment guidelines, investment hold periods and target returns. Currently our U.S. based funds focus on value-add properties that have an expected hold period of 5 to 7 years. Our European fund focuses on value add commercial properties in the United Kingdom, Ireland and Spain that also have expected hold
periods of 5 to 7 years. As of December 31,
2021, our weighted average ownership interest in the commingled funds that we manage was 12%.
VHH
Through our Vintage Housing Holdings ("VHH") partnership we acquire and develop income and age restricted properties. See a detailed discussion of this business in the Multifamily section below.
Investment Types
The following are the product types we invest in through our Consolidated Portfolio and Co-Investment Portfolio segments:
Multifamily
We pursue multifamily acquisition opportunities where we can unlock value through a myriad of strategies, including institutional management, asset rehabilitation, repositioning and recapitalization. We focus primarily on apartments in supply-constrained,
infill markets.
As of December 31, 2021, we held investments in 138 multifamily assets that include 10,460 consolidated multifamily apartment units and 14,180 units within our market rate Co-Investment Portfolio and 10,725 affordable units in our VHH platform. Our largest Western United States multifamily regions are the Mountain West region, which includes Utah, Idaho, Montana, Colorado, Arizona, New Mexico and Nevada and the Pacific Northwest, primarily the greater Seattle area and Portland, Oregon. The remainder of the Western United States portfolio is located in Northern and Southern California. In Ireland we focus on Dublin city center and the suburbs of the city.
Our asset management strategy is to install strong property management teams to drive leasing activity and upkeep of the properties. To complement this strategy,
we seek to add amenities designed to promote health and wellness, celebrate local and cultural events and enhance the lives of residents living in our communities. We also incorporate spaces for rest and socialization across our global multifamily portfolio, including clubhouses, fitness centers, business suites, outdoor play areas, pools and dog parks. Lastly, we utilize real-time market data and artificial intelligence based applications to ensure we are attaining current market rents.
Multifamily - Affordable Housing
Through our VHH platform we focus on affordable units based on income or age restrictions. With homes reserved for residents that make 50% to 60% of the area’s median income, VHH provides an affordable long-term solution for qualifying working families and active senior citizens, coupled with modern amenities that are a hallmark of our traditional multifamily portfolio. Fundamental
to our success is a shared commitment to delivering quality affordable homes and building communities that enrich residents’ lives, including providing programs such as social support groups, after-school programs, transportation assistance, computer training, and wellness classes.
VHH typically utilizes tax-exempt bond financing and the sale of federal tax credits to help finance its investments. We are entitled to 50% of the operating cash flows from the VHH partnership in addition to any investing distributions we receive from federal tax credits or refinancing activity at the property level.
When we acquired VHH in 2015, the portfolio consisted of 5,485 units. As of December 31, 2021, the VHH portfolio includes 8,595 stabilized rental units with another 2,130 units currently under stabilization, development or undergoing
entitlements in the Western United States. We acquired our ownership interest in VHH in 2015 for approximately $80.0 million. As of December 31, 2021 we have contributed an additional $101.2 million into VHH and have received $240.7 million in cash distributions. VHH is an unconsolidated investment that we account for using the fair value option which had a carrying value of $157.9 million as of December 31, 2021. We have recorded $160.1 million worth of fair value gains on our investment in VHH including $29.3 million during the year ended December 31, 2021.
Commercial
Our investment approach for office acquisitions differs across our various investment platforms. For our Consolidated Portfolio we look to invest in large
high quality properties with high replacement costs. In our separate account portfolios, our partners have certain characteristics that factor into our investment decision, including, without limitation, location, financing (unencumbered properties) or hold periods. In our commingled funds that we manage, we typically look for opportunities that have a value-add component that can benefit from our asset management expertise. We do not typically own high-rise buildings in city centers and we instead look to invest in mid-to-low rise buildings in areas adjacent to city centers and suburban markets. After acquisition, the properties are generally repositioned to enhance market value.
Our
industrial portfolio consists mainly of distribution centers located in the United Kingdom, Ireland, Spain and Mountain West regions.
Our retail portfolio has different characteristics based on the geographic markets wherein the properties are located. In Europe, we have a mixture of high street retail, suburban shopping centers and leisure assets which are mainly located in the United Kingdom as well as Dublin and Madrid. In our Western United States retail portfolio, we invest in shopping centers that are generally grocery anchored.
As of December 31, 2021, we hold investments in 66 office properties totaling over 12.0 million square feet and 124 retail and industrial properties totaling 11.9 million square feet predominately in the United Kingdom and Ireland with additional investments in the Pacific Northwest, Southern California,
Spain and Italy. Our Consolidated portfolio held over 4.9 million square feet of office space and 3.4 million square feet of retail and industrial space. Our Co-Investment portfolio has 7.1 million square feet of office space and 8.5 million square feet of retail and industrial space.
Development and redevelopment
We have a number of development, redevelopment and entitlement projects that are underway or in the planning stages. Unlike the residential projects that are held for sale and described in the Residential and Other section below, these initiatives may ultimately result in income-producing assets. As of December 31, 2021, we are actively developing 2,279 multifamily units, 0.5 million commercial rentable square feet and 150 hotel rooms. If these projects are brought
to completion, the Company’s estimated share of the total capitalization of these projects would be approximately $1.2 billion (approximately 46% of which has already been funded), which we expect would be funded through our existing equity, third party equity, project sales, tax credit financing and secured debt financing. This represents total capital over the life of the projects and is not a representation of peak capital and does not take into account any distributions over the course of the investment. We and our equity partners are under no obligation to complete these projects and may dispose of any such assets after adding value through the entitlement process. Please also see the section titled “Liquidity and Capital Resources - Development and redevelopment” in the Management’s Discussion and Analysis of Financial Condition
and Results of Operations for additional detail on these investments.
Real Estate Debt Investment
We have a global real estate debt investment platform with multiple partners. In July 2021, we announced the expansion of our debt platform to over $3 billion, including the launch of a new European partnership with a global institutional investor to target loans secured by high-quality real estate in the United Kingdom and Europe. Our global debt platform, which includes capital partners across insurance and sovereign wealth, targets loans, across the entire real estate debt capital structure, secured by high-quality real estate located in the United States, United Kingdom and Europe. In our role as asset manager, we earn customary fees under our platform. The current investments in these platforms have been made without the use of any leverage.
As
of December 31, 2021, we held interests in 30 loans with an average interest rate of 6.9% per annum and an unpaid principal balance ("UPB") of $1.7 billion (of which our share was a UPB of $135.2 million) located in the Western United States and the United Kingdom and are primarily invested through our Co-investment Portfolio. Some of our loans contain additional funding commitments that will increase our loan balances if they are utilized. All of the loans in our global debt platform are performing in line with expectations and making payments as contractually agreed. In addition to interest income (which includes origination, exit and extension fees), we also earn customary asset management fees from our partners for managing these loan investments.
Our current loan portfolio is focused on performing loans. However, if market conditions deteriorate, we expect more
opportunities to arise in acquiring loan portfolios at a discount to their contractual balance due as a result of deteriorated credit quality of the borrower. Such loans are underwritten by us based on the value of the underlying real estate collateral. Due to the discounted purchase price for such loans, we seek, and are generally able to, accomplish near term realization of the loan in a cash settlement or by obtaining title to the property. Accordingly, the credit quality of the borrower is not of substantial importance to our evaluation of the risk of recovery from such investments.
Hotel
We acquire hotels in certain opportunistic situations in which we are able to purchase at a discount to replacement cost or can implement our value-add investment approach. As of December 31, 2021, we owned one consolidated operating hotel
with 265 hotel rooms located in Dublin, Ireland. Additionally, in our Co-investment Portfolio, we have a five-star resort development that will consist of 150 rooms in Kona, Hawaii.
Residential and Other
In certain cases, we may pursue for-sale housing acquisition opportunities, including land for entitlements, finished lots, urban infill housing sites and partially finished and finished housing projects. On certain income-producing acquisitions,
there are adjacent land parcels for which we may pursue entitlement activities or, in some cases, development or re-development
opportunities.
This product type also includes our investment in liquid non-real estate investments which include investment funds that hold marketable securities and private equity investments.
As of December 31, 2021, we held 19 investments primarily comprised of 223 residential units/lots and 3,778 acres of land located in Hawaii and the Western United States. As of December 31, 2021, these investments had a Gross Asset Value of $276.7 million and the Company had a weighted average ownership in such of investments of 76%. These investments are in various stages of completion, ranging from securing the proper entitlements on land positions to sales of units/lots.
Fair
Value Investments
As of December 31, 2021, $1.8 billion or 92% of our investments in unconsolidated investments (23% of total assets) were held at estimated fair value. As of December 31, 2021, there were cumulative fair value gains of $588.3 million which comprises 33% of the $1.8 billion carrying value of fair value unconsolidated investments that are currently held. Our investment in VHH is our largest unconsolidated investment held at estimated fair value and was held at $157.9 million and $142.9 million as of December 31, 2021 and 2020, respectively. Fair value changes consist of changes in the underlying value of properties and associated mortgage debt as well as foreign
currency fluctuations (net of any hedges) for non-dollar denominated investments. During the year ended December 31, 2021, we recognized $331.4 million of fair value gains and performance allocations on unconsolidated investments.
In determining these estimated fair market values, we use discounted cash flow models that estimate future cash flows (including terminal values) and discount those cash flows back to the current period. The accuracy of estimating fair value for investments cannot be determined with precision and cannot be substantiated by comparison to quoted prices in active markets and may not be realized in a current sale or immediate settlement of the asset or liability. Additionally, there are inherent uncertainties in any fair value measurement technique, and changes in the underlying assumptions used,
including capitalization rates, discount rates, liquidity risks, and estimates of future cash flows could significantly affect the fair value measurement amounts. As such, below are ranges of the key metrics included in determining these estimated values.
Estimated Rates Used For
Terminal Capitalization Rates
Discount
Rates
Multifamily
3.70% — 5.25%
5.35% — 7.40%
Office
4.00% — 7.75%
5.10% — 9.25%
Industrial
3.50% —7.40%
4.40% — 8.40%
Retail
5.00%
— 7.00%
7.50% — 9.00%
Hotel
6.00%
8.25%
Residential
N/A
N/A
In valuing indebtedness, the Company considers significant inputs such as 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 credit spreads used by Kennedy Wilson for these types of investments range from 0.25% to 4.90%.
There is no active secondary market for our development projects and no readily available market value given the uncertainty of the amount and timing of future cash flows. Accordingly, our determination of fair value of our development projects requires judgment and extensive use of estimates. Therefore, we typically use investment cost as the estimated fair value until future cash flows become more predictable. Additionally, the fair value of our development projects may differ significantly from the values that would have been used had a market existed for such investments and may differ materially from the values that we may ultimately realize.
If we were required to liquidate an investment in a forced or liquidation sale, we could realize significantly less than the value at which we have recorded it. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized or incurred on these investments to be different than the unrealized gains or losses reflected in the currently assigned valuations.
Value Creation
Our differentiated and unique approach to investing is the cornerstone of how we create value for our shareholders. Our investment philosophy is based on three core fundamentals:
•Leverage our global footprint and complementary investment and investment management businesses to identify attractive investment markets across the world.
•Selectively invest in opportunities across many real estate product types with a goal of maximizing cash flow and risk-adjusted return on capital.
•Actively manage assets and finance our assets in a manner designed to generate stable, predictable and growing cash flows for shareholders and clients.
Kennedy Wilson is able to create value for its shareholders in the following ways:
•We are able to identify and acquire attractive real estate assets across many markets, in part due to the significant proprietary deal flow driven from an established global network of industry relationships, particularly with financial institutions. This can create value by allowing us to maintain and develop a large pipeline
of attractive opportunities.
•Our operating expertise allows us to focus on opportunistic investments where we believe we can increase the value of assets and cash flows and include transactions with distressed real estate owners or lenders seeking liquidity, or purchases of under-managed or under-leased assets, and repositioning opportunities.
•We have been able to create place-making areas in our investment locations where we are able to make multiple investments in a particular city either through direct investments or development initiatives that further drives interest in the area.
•Many times, these investments are acquired at a discount to replacement cost or recent comparative sales, thereby offering opportunities to achieve above average total returns. In
many cases, this may lead to significant additional returns, such as a carried interest (where we have partners), based on the performance of the assets.
•Our long-lasting and deep relationships with financial institutions allow us to refinance loans (generally after we implement our value-add initiatives) to reduce interest rates and/or increase borrowings due to property appreciation and thereby obtain cash flow to use for new investments.
•We have been able to attract third party capital due to our ability to generate above-market returns for our partners, diversity of geographic markets and investment product types as well as our flexibility in structuring deals through funds, separate accounts and equity partner arrangements.
•We understand that real estate
is cyclical. Our management team employs a multi-cyclical approach that has resulted in our AUM being globally diversified across many sectors of real estate while maintaining a healthy liquidity position and adequate access to capital.
Competitive Strengths
We have a unique platform from which to execute our investment and investment management strategy. The combination of an investment and investment management platform provides several competitive strengths when compared to other real estate buyers and asset managers operating stand-alone or investment-focused firms and may allow us to generate superior risk-adjusted returns. Our investment strategy focuses on investments that offer significant appreciation potential through intensive asset management, leasing, repositioning, redevelopment and the opportunistic use of capital. We differentiate ourselves
from other firms in the industry with our full service, investment-oriented structure.
Our competitive strengths include:
•Transaction experience: Our senior management team has an average of 25 years of real estate experience and has been working and investing together on average for over 10 years. Members of the senior management team have collectively acquired, developed and managed in excess of $30 billion of real estate investments in the United States, the United Kingdom, Ireland, Spain, Italy and Japan throughout various economic cycles, both at our Company and throughout their careers.
•Extensive relationship and sourcing network: We leverage our
relationships in order to source off-market deals. In addition, the senior management team and our acquisition team have transacted deals in nearly every major metropolitan market on the West Coast of the United States, as well as in the United Kingdom, Ireland, Spain, Italy and Japan. Their local presence and reputation in these markets have enabled them to cultivate key relationships with major holders of property inventory, in particularly financial institutions, throughout the real estate community.
•Structuring expertise and speed of execution: Prior acquisitions completed by us have taken a variety of forms, including direct property investments, joint ventures, exchanges involving stock or operating partnership units, participating loans and investments in performing and non-performing mortgages at various capital stack positions with the objective of long-term ownership.
We believe we have developed a reputation of being able to quickly execute, as well as originate and creatively structure acquisitions, dispositions and financing transactions.
•Strategic partnerships: Through our relationships and transaction experience we have been able to establish various strategic partnerships with a variety of different companies and institutions in which we are highly collaborative and aligned with our partners in the deals. Coupled with our ability to structure acquisitions in a variety of ways that fit the
needs of our strategic partners
we have been able to access various forms of capital due to our experience and versatility.
•Vertically integrated platform for operational enhancement: We have 220 employees in 12 offices throughout the United States, the United Kingdom, Ireland, Spain and Jersey. We have a hands-on approach to real estate investing and possess the local expertise in property and asset management, leasing, construction management, development and investment sales, which we believe enable us to invest successfully in selected submarkets.
•Calculated risk taking: We underwrite our investments based upon a thorough examination of property economics and a critical understanding of market dynamics and risk management strategies. We conduct an in-depth sensitivity analysis on each of our acquisitions. This
analysis applies various economic scenarios that include changes to rental rates, absorption periods, operating expenses, interest rates, exit values and holding periods. We use this analysis to develop our disciplined acquisition strategies.
•Management's alignment with shareholders: As of December 31, 2021, our directors and executive officers and their respective affiliates owned an aggregate of approximately 15% of the outstanding shares of our common stock. Due to management team's ownership interest in the Company its interests are in alignment with common shareholders of the Company and gives us an owner's mentality on the investments we own and manage.
The
real estate business is cyclical. Real estate cycles are generally impacted by many factors, including availability of equity and debt capital, borrowing cost, rent levels, and asset values. Our strategy has resulted in a strong track record of creating both asset and entity value for the benefit of our shareholders and partners over these various real estate cycles.
Industry Overview
Key Investment Markets
Western United States
In 2021, the U.S. economy experienced a broad economic recovery from the effects felt in 2020 due to the onset of the COVID-19 pandemic. GDP accelerated at a 6.9% annualized pace in the fourth quarter of 2021, and national unemployment improved to 3.9% from 6.7% at the beginning of the year. The real estate
transaction market in the U.S. recovered sharply, with transactions reaching a record annual total according to Real Capital Analytics. The US equity markets also experienced a very strong year, supported by stimulus packages, vaccine rollouts, and accommodative Fed policy.
The multifamily sector experienced a strong rebound in 2021, with occupancy and rent levels recovering to above pre-pandemic levels. The pandemic created new domestic migration patterns, which drove many renters to lower cost, more affordable suburban cities throughout the U.S. and outside of city centers. Suburban markets are expected to continue to perform strongly in 2022 due to a number of factors, including the continuing ability to work remotely and renters’ desire for more space. According to CBRE, investment volume in multifamily is expected to increase in 2022, supported by liquid multifamily debt markets
and an expected resurgence in foreign capital targeting multifamily assets. Kennedy Wilson's U.S. multifamily portfolio is largely comprised of garden style communities with approximately 88% of our portfolio located in suburban markets. In addition to our meaningful portfolio in the surrounding Seattle region, the Company has shifted its market-rate portfolio to the Mountain states, which now is the largest market-rate region by unit count and primarily consists of its assets in Utah, Idaho, and Nevada.
The outlook for office continued to be impacted by COVID variants and the ability for workers to return to the office in 2021. Office demand ended 2021 on a high note, with net absorption recorded in Q4 of 2021, its first month of positive net absorption since the onset of the pandemic. It is expected
that demand for office will continue to improve in 2022, supported by the creation of an estimated 1 million new office-using jobs. Hybrid working arrangements continues to an important factor for many occupiers, as many occupiers focus on energy-efficient workplaces that offer a variety of amenities, new desirable technology, and flexible configurations. Kennedy Wilson's U.S. office portfolio is primarily located in Southern California and the Greater Seattle market. The majority of the U.S. office is owned with partners through the Company’s co-investment segment.
Hawaii
The Hawaiian economy continued to rebound from the impacts of COVID-19. There were an estimated 6.8 million visitors to Hawaii in 2021, an increase of 153% from 2020. The luxury real estate market
in Hawaii grew at an unprecedented pace in 2021, with total sales and transactions seeing triple digit growth. The outlook for the continued recovery of the Hawaiian economy in 2022 remains positive, as pent-up travel demand is expected to bring almost 9 million visitors in 2022.
The U.K. economy showed increased recovery in 2021, despite the continued challenges of withdrawal from the European Union and impact of the COVID-19 global pandemic which resulted in a strict national lockdown during the first half of the year followed by easing of restrictions. The U.K.'s gross domestic
product ("GDP") surpassed its February 2020, pre-pandemic level for the first time in November 2021 by 0.7% and saw an annual rise of 7.3% for 2021. Positive signs can also be seen in the U.K. unemployment rate which decreased by 0.4 percentage points quarter-on-quarter to 4.1% as of quarter ended December 31, 2021, just 0.1 percentage points higher than pre-pandemic levels. The labor market has tightened following the end of the U.K. government's furlough program, with a record high of 1.2 million job vacancies in the three months ended December 2021 due to strong demand for labor and limited supply.
U.K. real estate investment volumes finished the year strong with £60 billion invested in 2021, 6% higher than the ten-year average. Foreign and domestic investment were evenly split for the year with domestic investment making up 51% of total
investment volume.
Central London office absorption was 9.1 million square feet for 2021, representing an increase of 63% when compared to 2020, though still below the 10-year average by 24%. The creative industries sector was the most active over 2021, accounting for 21% of absorption, followed by banking and finance at 19%. Investment volumes saw a strong end to the year with a total of £3.7 billion invested, across 53 transactions in the fourth quarter of 2021. Capital transactions for the full year totaled £10 billion, significantly higher than the 2020 total of £7.6 billion, with foreign investment making up 62% of the total capital invested.
Southeast office investment volumes reached £4.3 billion in 2021, a 26% increase on the five-year annual average of £3.42 billion. Vacancy of 6.8% at
the end of 2021 remains unchanged from the end of 2020 and still below the 10-year average of 7.0%, with new and grade A vacancies sitting at 4.5%.
The industrial and logistics sectors remained the strongest performers, with total investment volumes for 2021 reaching £10.4 billion, breaking the previously established record set in 2020. The occupier market reflected strong demand-supply dynamics with absorption totaling a record-high 55.1 million square feet in 2021, an increase in the long-term annual average by 86%. Whilst online retailers accounted for 35% of take-up third-party logistics, automotive, manufacturing and High Street retail companies all increased the amount of space taken in 2021, demonstrating a wider breadth of demand when compared to recent averages.
The U.K. retail sector saw positive momentum towards
recovery in 2021. Outside of restrictions, footfall continued to improve, with retail parks outperforming as a result of their differentiated convenience and purpose-driven tenant mix and yields for prime shopping centers remained stable at 7.75%.
Ireland
Ireland’s economy had the strongest GDP growth across the EU at 16.1% in 2021 and the Organisation for Economic Co-operation and Development is forecasting Ireland to have the highest GDP growth of any major European economy over the next two years.
As of December 31, 2021, Industrial Development Agency total Foreign Direct Investment ("FDI") employment stands at 275,384 with more than 29,000 new jobs created throughout 2021 which is the highest level of Irish
employment creation through FDI ever in a single year despite the continued impact of COVID-19.
Real estate investment volumes reached approximately €5.5 billion for 2021, almost doubling the 10-year average of €2.9 billion, a strong figure given the impact of COVID-19 and associated government restrictions during the first half of the year. Demonstrating Ireland’s position as an attractive global real estate market, 67% of investments were from institutional investors, and foreign investors accounted for 68% of the volume.
Dublin office absorption was more than 1.65 million square feet in 2021 with 85% occurring in the second half of the year demonstrating a renewed level of employer confidence in the future of physical offices. Prime headline city center rents remained stable at €57.50 per square foot but are expected
to increase over 2022 due to more deal activity.
The Irish multifamily sector remains the dominant investment sector accounting for 41% of all transactions in 2021. Due to a scarcity of core operational assets, forward funded deals accounted for most of the transactions in the market. Prime yields remain stable at 3.60%, as rent collection and occupancy remained strong. As a result of increasing investor interest, PRS yields are expected to be further tightened in 2022.
The retail investment sector is still recovering from the impact of the
pandemic, as transactional liquidity improves and more assets are trading. Additionally, online sales volume fell to 4% of total volume from a high of 16% in 2020, signaling a potential return to in-store retail shopping.
Despite the continued impact of the pandemic on the hospitality sector through the first half of 2021, the Irish hotel property market saw higher than expected volume of sales from a diverse group of buyers and transaction types with €383 million spent in 2021. Further improvement is expected with the sale of individual properties as well as some hotel portfolios in 2022. October was an important milestone in the Dublin hotel market as it was the first month in which occupancy surpassed 50% since the first quarter of 2020 and the rate is expected to rise in 2022 as international travel to Dublin is expected to strengthen.
Environmental,
Social and Governance (ESG)
Kennedy Wilson’s approach to ESG aligns with its business strategy to maximize the inherent value of our assets and by striving to deliver long-term social, environmental, and economic value across our portfolio and to our key stakeholders. We aim to integrate ESG factors into key business processes, underpinned by a measure, manage, and monitor approach framed by our four ESG pillars most relevant to our business: Optimizing Resources, Creating Great Places, Building Communities and Operating Responsibly. Details of this framework can be found on our corporate website(https://www.kennedywilson.com/corporate-responsibility)
(this website address is not intended to function as a hyperlink, and the information contained in, or accessible from, our website is not intended to be a part of this filing).
Our Global ESG Committee (“Committee”) oversees the Company’s ESG responsibilities and commitments, including Kennedy Wilson’s ambition to have a positive impact across its business, communities, and stakeholders. The Committee is responsible for formulating and implementing procedures, including setting appropriate global ESG priorities
that align across target markets. We focus on the following principles:
•Comply with relevant ESG related laws and regulations, material to our business
•Improve our measure, manage, and monitor programs relating to energy and carbon, water, and waste
•Deliver green buildings and programs emphasizing wellness and communities, through our development and asset management expertise and campus ownership of office and multifamily properties
•Integrate ESG factors into decision-making across the firm, including key investment processes and by ensuring appropriate resources are provided to deliver on our commitments
•Promote
equality, diversity and inclusion by providing healthy environments for our employees, stakeholders and building users
It is our intention to manage ESG factors, both opportunities and risks, at the corporate, fund, partnership and individual asset level, with the goal of integrating procedures across all stages of our investment process.
We have in place a robust governance framework. Our policies can be viewed on our corporate website(https://www.kennedywilson.com/corporate-responsibility)
(this website address is not intended to function as a hyperlink, and the information contained in, or accessible from, our website is not intended to be a part of this filing) and cover guidelines and rules regarding anti-discrimination, anti-harassment, non-retaliation, human trafficking and slavery, fraud prevention, data security and data privacy.
Human Capital Management
Company Overview and Values
We operate as a non-bureaucratic, teamwork-oriented, and nimble organization. We
promote an entrepreneurial culture, and at our core, we are powered by a team of focused, high-performance people who thrive on excellence in the workplace and a shared desire to make an impact.
Workplace Diversity
We strive to maintain a diverse corporate culture, celebrating and promoting equality across gender, socio-economic backgrounds, education, and ethnicity. This allows for better representation of different viewpoints, historical perspective and can bring fresh ideas to all levels of the Company. Women hold 27% of the board of director positions. In 2021, we launched the Kennedy Wilson Woman speaker series as a first step in a broader program to advance women in real estate and finance and deepen our industry’s talent pool.
Training
and Development
Kennedy Wilson would not exist without our most important asset: our people. We strive to maintain a culture that fosters collaboration and innovation, and we take great pride in building and maintaining a driven, results-oriented workforce.
Our talent development program includes access to formal and informal mentorships, tuition reimbursement, where we are supporting employees who are seeking advanced certificates in areas of specialty that pertain to their role at Kennedy Wilson, and "Lunch and Learn" sessions. These alongside our regular global senior
management calls continue to develop our managers to become more effective leaders. A dynamic internship and internal transfer program also helps promote personal development and improves leadership skills across all departments.
Through our annual summer internship program, we continue to find ways to better support our equality, diversity, and inclusion aspirations by building a diverse pipeline of talented individuals in the real estate industry with the intention to introduce our business to those who may not have considered a career in real estate.
Competition
We compete with a range of global, national and local real estate firms, individual investors and other corporations, both private and public. Our investment business competes with real estate investment partnerships, real estate investments trusts,
private equity firms and other investment companies and regional investors and developers. We believe that our relationships with the sellers and our ability to close an investment transaction in a short time period at competitive pricing provide us a competitive advantage.
Foreign Currency
Approximately 44% of our investment account is invested through our foreign platforms in their local currencies. Investment level debt is generally incurred in local currencies and we consider our equity investment as the appropriate exposure to evaluate for balance sheet hedging purposes. We typically do not hedge future operations or cash flows of operations in foreign exchanges rates which may have a significant impact on the results of our operations. In order to manage the effect of these fluctuations, we generally hedge our book equity exposure to foreign currencies through currency forward
contracts and options.
We wholly-own Kennedy Wilson Europe Real Estate Limited ("KWE") which is domiciled in the United Kingdom and has GBP as its functional currency. KWE has investments in assets that have functional currencies of GBP and euros. Kennedy-Wilson Holdings, Inc. does not have a direct interest in the euro denominated investments but has indirect ownership through its interest in KWE. We cannot directly hedge the foreign currency movements in these euro denominated assets but hedge foreign currency movements in euro assets at the KWE level through GBP/EUR hedging instruments. We then can hedge the USD/GBP foreign currency exposure through our direct interest in KWE.
Within KWE we have utilized three types of contracts
to hedge our GBP/EUR exposure: foreign forward currency contracts, a cross currency swap (until its settlement in September 2021) on the KWE Bonds (swapped GBP to EUR) and the KWE Euro Medium Term Notes ("KWE Notes"). The KWE Notes were issued in euros and held by KWE but we have elected to treat the foreign currency movements as a net investment hedge on our euro denominated investments in KWE. The foreign currency movements on these hedge items above are recorded to unrealized foreign currency derivative contract gains/losses within other comprehensive income for GBP/EUR movements. However, when we translate our investment in KWE from USD/GBP the foreign currency movements on these items go through unrealized foreign currency translation gains/losses within other comprehensive
income.
Please refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation for a discussion regarding foreign currency and currency derivative instruments.
Transaction-Based Results
A significant portion of our cash flow is tied to transaction activity which can affect an investor’s ability to compare our financial condition and results of operations on a quarter-by-quarter basis or to easily evaluate the breadth of our operation. Historically, this variability has caused our revenue, net income and cash flows to be tied to transaction activity, which is not necessarily concentrated in any one quarter.
Employees
As of December 31, 2021, we have 220 employees
in 12 offices throughout the United States, the United Kingdom, Ireland, Spain and Jersey. We believe that we have been able to attract and maintain high quality employees. There are no employees subject to collective bargaining agreements. In addition, we believe we have a good relationship with our employees.
Available Information
Information about us is available on our website (http://www.kennedywilson.com) (this website address is not intended to function as a hyperlink,
and the information contained in, or accessible from, our website is not intended to be a part of this filing). We make available on our website, free of charge, copies of our Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K, Proxy Statements on Schedule 14Aand amendments to those reports and other statements filed or furnished pursuant
to Section 13(a), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after filing or submitting such material electronically or otherwise furnishing it to the SEC. In addition, we have previously filed registration statements and other documents with the SEC. Any document we file is available at the SEC's internet address at http://www.sec.gov (this website address is not intended to function as a hyperlink, and the information contained in, or accessible from, the SEC's website is not intended to be a part of this filing).
Item 1A.Risk
Factors
Our results of operations and financial condition can be adversely affected by numerous risks. You should carefully consider the risk factors detailed below in conjunction with the other information contained in this report. If any of the following risks actually occur, our business, financial condition, operating results, cash flows and future prospects could be materially adversely affected. In addition to the effects of the COVID-19 pandemic and resulting global disruptions on our business and operations discussed in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in the risk factors below, additional or unforeseen effects from the COVID-19 pandemic and the global economic climate may give rise to or amplify many of the risks discussed below.
Risks
Related to Our Business
The success of our business is significantly related to general economic conditions and the real estate industry, and, accordingly, our business could be harmed by an economic slowdown and downturn in real estate asset values, property sales and leasing activities.
Our business is closely tied to general economic conditions in the real estate industry. As a result, our economic performance, the value of our real estate and our ability to implement our business strategies may be significantly and adversely affected by changes in national and local economic conditions. The condition of the real estate markets in which we operate is cyclical and depends on the condition of the economy in the United States, United Kingdom, Ireland, and to a lesser extent, Spain and Italy as a whole and to the
perceptions of investors of the overall economic outlook. Rising interest rates, declining employment levels, declining demand for real estate, declining real estate values, periods of general economic slowdown, or recession or the perception that any of these events may occur have negatively impacted the real estate market in the past and may in the future negatively impact our operating performance. The economic condition of each local market where we operate may depend on one or more key industries within that market, which, in turn, makes our business sensitive to the performance of those industries. We have only a limited ability to change our portfolio promptly in response to economic or other conditions. Certain significant expenditures, such as debt service costs, real estate taxes, and operating and maintenance costs, are generally not reduced when market conditions are poor. These factors impede us from responding quickly to changes in the performance of our
investments and could adversely impact our business, financial condition and results of operations. We have experienced in past years and expect in the future to be negatively impacted by, periods of economic slowdown or recession, increase in interest rates and corresponding declines in the demand for real estate and related services, within the markets in which we operate. Previous recessions and downturns in the real estate market have resulted in and may result in:
•a general decline in rents due to defaulting tenants or less favorable terms for renewed or new leases;
•a decline in actual and projected sale prices of our properties, resulting in lower returns on the properties in which we have invested;
•higher interest
rates, higher loan costs, less desirable loan terms and a reduction in the availability of mortgage loans, all of which could increase costs and limit our ability to acquire additional real estate assets; and
•a decrease in the availability of lines of credit and the capital markets and other sources of capital used to grow, operate and maintain our business.
If our business performance and profitability deteriorate, we could fail to comply with certain financial covenants in our unsecured bond and revolving credit facility, which would force us to seek an amendment with our lenders. We may be unable to obtain any necessary waivers or amendments on satisfactory terms, if at all, which could result in the principal and interest of the debt to become immediately due. Please also see “Our debt obligations impose significant
operating and financial restrictions, which may prevent us from pursuing certain business opportunities and taking certain actions.” In addition, in an extreme deterioration of our business, we could have insufficient liquidity to meet our debt service obligations when they come due in future years or maintain our common stock or preferred stock dividends.
Our business and those of our tenants may be adversely affected by epidemics, pandemics or other outbreaks.
Epidemics, pandemics or other
outbreaks of an illness, disease or virus (including COVID-19) that affect countries or regions in which our tenants or their parent companies, as applicable, operate or in which our properties or corporate offices are located, and actions taken to contain or prevent their further spread, may have a material and adverse impact on general commercial activity, the financial condition, results of operations, liquidity and creditworthiness of our tenants and our ability to lease properties on favorable terms and/or collect owed rents on a timely basis or at all. In addition, numerous state, local, federal and industry-initiated efforts may also affect our ability to collect rent and enforce remedies for the failure to pay rent, including eviction moratoriums. Epidemics, pandemics or other outbreaks of an illness, disease or virus could also cause the on-site employees of our tenants to avoid our properties, which could adversely affect our tenants’ ability to adequately
manage their businesses. Risks related to epidemics, pandemics or other outbreaks of an illness, disease or virus could also lead to the complete or partial closure of one or more of our tenants’ distribution centers, temporary or long-term disruption in our tenants’ supply chains from local and international suppliers and/or delays in the delivery of our tenants’ inventory. Such events could adversely impact our tenants’ sales and/or cause the temporary closure of our tenants’ businesses, which could severely disrupt their operations and the rental revenue we generate from our leases with them.
The profitability of our office and industrial/retail portfolio (which makes up 12.0 million square feet and 11.9 million square feet, respectively, of our total commercial portfolio) depends, in part, on the willingness and ability of customers to visit our tenants' businesses and demand for office space.
The risk, public perception of the risk and measures taken to limit the impact of epidemics, pandemics or other outbreaks of an illness, disease or virus, (including COVID-19), including social distancing and other restrictions, could adversely impact tenant’s sales and/or cause the temporary closure or slowdown of our tenants' businesses, and severely disrupt their operations and have a material adverse effect on our business, financial condition and results of operations, which may impact our ability to collect owed rents on a timely basis or at all. The short and long term impact of the COVID-19 pandemic on the use of office space is unknown as companies continue to consider the pandemic’s impact on their business and their demand for labor, while, at the same time, considering the space requirements associated with social distancing and the practical implications of pivoting to a work from home environment. A decrease in demand for office space from our current
or prospective tenants could adversely affect the profitability of our office and retail portfolio.
The profitability of our hotel properties (which consists of one consolidated hotel and one Co-Investment hotel that is undergoing development) depends, in part, on the willingness and ability of customers to visit these properties The risk, public perception of the risk and measures taken to limit the impact of epidemics, pandemics or other outbreaks of an illness, disease or virus, (including COVID-19), including social distancing measures and travel and other restrictions, could result in a sustained, significant drop in demand for our hotels. The interference with the operations of our hotel properties, including the Shelbourne Hotel in Dublin, resulted in significantly less levels of Net Operating Income from these properties in 2020 and 2021 compared to prior years.
It is not currently known when the operations at our hotel properties will return to normalized levels, if at all, once the effects of the pandemic subside. There can also be no guarantee that the demand for lodging, and consumer confidence in travel generally, will recover as quickly as other industries.
Moreover, as of December 31, 2021, we hold investments in 35,365 multifamily apartment units across 138 assets primarily located in the Western United States and Ireland. Our Western U.S. multifamily assets are primarily located in the Mountain West region of Utah, Idaho, Montana, Colorado, Arizona, New Mexico and Nevada and in the Pacific Northwest, mostly in suburbs of Seattle and Portland, Oregon. The rest of the Western U.S. portfolio is in Northern and Southern California. Epidemics, pandemics or other outbreaks of an illness, disease or virus
could cause our tenants to fail to make rent payments, limit our ability to increase rents or otherwise affect our leases with them and/or cause us to make rent concessions.
Additionally, we engage in development activities and, from time to time, acquire development assets to the extent attractive projects become available in various locations across the globe. In many cases, these development activities are significant and limit or entirely eliminate our ability to lease the related assets until the development is substantially completed. Epidemics, pandemics or other outbreaks of an illness may also delay our development activities and increase construction and carrying costs relating to development projects, among other things.
Through our debt platforms, we also pursue first-mortgage loans secured by high-quality real
estate in the Western U.S., Ireland and the U.K. and stabilized, income producing, high-quality real estate investment opportunities in the Western U.S. that may include the origination or acquisition of mezzanine loans, construction loans, preferred equity investments and other types of investments. Epidemics, pandemics or other health crisis, including the COVID-19 pandemic and measures to prevent its spread, could adversely affect the businesses and financial condition of our counterparties, including our equity partners, borrowers under our first-mortgage loans, construction loans and mezzanine loans, companies in which we and our equity partners have invested in, and general contractors and their subcontractors, and their ability to satisfy their obligations to borrowers of our construction loans and to complete transactions or projects with borrowers of our construction loans as intended. In addition, a significant number of retail tenants have been forced to temporarily
close or operate on a limited basis
as a result of the COVID-19 pandemic and related government actions, which has resulted in, and could continue to result in, delays in rent payments, rent concessions, early lease terminations or tenant bankruptcies, and which in turn could adversely affect our borrowers’ ability to service our loans or a company’s ability to pay us dividends on the preferred stock we hold in such company. All of the above listed risks could adversely affect our business, financial condition, liquidity, results of operations and prospects. See “Our real estate development and redevelopment strategies may not
be successful.” below.
Epidemics, pandemics or other outbreaks of illness, disease or virus (including COVID-19) has severely impacted global economic activity and caused significant volatility and negative pressure in the financial markets and the overall global economy. This slowdown could impact our ability to complete opportunistic and/or planned acquisitions or dispositions of property. Lower levels of transactional activity can also mean lower gains on sales that may have an impact on our financial condition and results of operations. Additionally, the financial impact of the COVID-19 pandemic could impact our future compliance with operational and financial debt covenants contained in the agreements that govern the Second A&R Facility, our 4.750% Senior Notes due 2029 (the "2029 Notes"), 4.750% Senior Notes due 2030 (the "2030 Notes"), and 5.000%
Senior Notes due 2031 (the "2031 Notes"), together with the 2029 Notes, 2030 Notes and the 2031 Notes, the "KWI Notes") and the KWE Notes and certain of our property-level non-recourse financings. Our failure to comply with such covenants could result in an event of default that, if not cured or waived, could result in a foreclosure on the underlying assets. In addition, certain of our debt instruments also contain cross-default and/or cross-acceleration provisions, including, but not limited to, the documents governing our KWI Notes and the KWE Notes. Please also see “We have in the past incurred and may continue in the future to incur significant amounts of debt and, to a lesser extent, preferred stock, to finance acquisitions, which could negatively affect our cash flows and subject our properties or other assets to the risk of foreclosure.”
Additionally,
the COVID-19 pandemic has caused, and could continue to cause, substantial disruption to our employees due to the implementation of restrictions by federal, state and local authorities to slow the spread of COVID-19, including self-isolation, travel limitations and business restrictions, among other things, which could result in significant disruptions to our business operations. Although most of our employees are able to work remotely, there can be no assurance that we will adequately mitigate the risks of business disruptions and interruptions due to cyber security and data accessibility or communications issues as a result of our employees working remotely, which could adversely impact our business operations. These effects, individually or in the aggregate, could adversely impact our business, financial condition, operating results and cash flows, and such adverse impacts may be material.
The
ultimate extent of the impact of any epidemic, pandemic or other outbreak of an illness, disease or virus on our business, financial condition, liquidity, results of operations and prospects will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemics, pandemics or other outbreaks of an illness, disease or virus and actions taken to contain or prevent their further spread, among others. These and other potential impacts of epidemics, pandemics or other outbreaks of an illness, disease or virus could therefore materially and adversely affect our business, financial condition, liquidity, results of operations and prospects.
Adverse developments in the credit markets and rising interest rates may harm our business, results of operations and financial condition.
The
credit markets may experience significant price volatility, dislocations and liquidity disruptions.These circumstances may materially impact liquidity in the financial markets, making terms for certain financings less attractive, and, in some cases, unavailable, even for companies that are otherwise qualified to obtain financing.Volatility and uncertainty in the credit markets, including increasing interest rates, may negatively impact our ability to access additional financing for our capital needs or refinance or extend our existing debt on favorable terms, if at all.A prolonged downturn in the financial markets may cause us to seek alternative sources of potentially less attractive financing and may require us to adjust our business plan.Disruptions in the credit markets
may also adversely affect our business of providing investment management services to our limited partners in our commingled funds and joint venture partners, which would lead to a decrease in the performance allocations we generate.
Additionally, our primary market risk exposure relates to fluctuations in market interest rates on investment mortgages and debt obligations, specifically short-term borrowings. To attempt to minimize our overall cost of debt, we have established an interest rate management policy to maintain a combination of variable and fixed rate debt and as of December 31, 2021, 79% of our consolidated debt was fixed rate, 12% was floating rate with interest caps and 9% was floating rate without interest caps and 51% of our unconsolidated mortgages was fixed rate, 27% was floating rate with interest caps and 22% was floating rate.
We also hold variable rate debt on some of our consolidated and unconsolidated properties that are subject to interest rate fluctuations and we have purchased interest rate caps to limit the amount that interest expense can increase with rate increases. However, if there was a 100-basis point increase, during 2021 we would have a $7.4 million increase in interest expense on our
current consolidated mortgages and a $6.5 million increase (at our share) in interest expense on our current unconsolidated mortgages. The weighted average strike price on caps and maturity of our variable rate mortgages is 1.91% and approximately 2.5 years, respectively, as of December
31, 2021.If the market interest rates increase, our cash flow and results of operations may be adversely affected and we may need to adjust our interest rate management policy, either or both of which may adversely affect our business, financial condition, liquidity and results of operations.
Inflation may adversely affect our financial condition and results of operations.
An increase in inflation could, among other things, have an adverse impact on our floating rate mortgages and general and administrative expenses, as these costs could increase at a rate higher than our rental and other revenue. During times where inflation is increasing at a greater rate than the increases in rent provided by our leases, our rent levels will not keep up with
the costs associated with rising inflation. Inflation could also have an adverse effect on consumer spending, which could impact our tenants’ revenues and, in turn, our percentage rents, where applicable. In addition, substantial inflationary pressures could have a negative impact on certain real estate assets, including, without limitation, development projects that do not have guaranteed, or fixed price contracts and real estate assets with long-term leases that do not provide for short-term rent increases. Although we continue to seek investments in markets where we see opportunities for stronger relative growth, including multifamily assets with leases that have an initial term of 12 months or less, and continue to work to manage cost overrun risks for our development and redevelopment projects with detailed architectural plans, guaranteed, or fixed price contracts
and close supervision by expert Company executives and personnel, if we are unable to execute our business strategy or if there is a substantial increase in inflation, such circumstances could adversely affect our financial condition, liquidity, results of operations and prospects.
We could lose part or all of our investments in real estate assets, which could have a material adverse effect on our financial condition and results of operations.
There is the inherent possibility in all of our real estate investments that we could lose all or part of our investment. Real estate investments are generally illiquid, which may affect our ability to change our portfolio in response to changes in economic and other conditions. Moreover, we may not be able to unilaterally decide the
timing of the disposition of an investment under certain joint venture arrangements, and as a result, we may not control when and whether any gain will be realized, or loss avoided. The value of our investments can also be diminished by:
•civil unrest, acts of war and terrorism, pandemics and acts of God, including earthquakes, hurricanes, volcanic eruptions and other natural disasters (which may result in uninsured or under insured losses);
•the impact of present or future legislation in the United States, United Kingdom, Ireland, and to a lesser extent, Spain and Italy (including, without limitation, rent-control legislation, environmental regulation, changes in laws concerning foreign investments, changes in tax rates, tariff regimes and changes in zoning laws) and the cost of compliance with
these types of legislation; and
•liabilities relating to claims, to the extent insurance is not available or is inadequate.
Our real estate development and redevelopment strategies may not be successful.
We acquire development assets to the extent attractive projects become available. When we engage in development activities, we are subject to risks associated with those activities that could adversely affect our financial condition, results of operations, cash flows and the market price of, our common stock, including, but not limited to:
•we may not be able to obtain, or may experience delays in obtaining, all necessary zoning, land-use, building, occupancy and other governmental
permits and authorizations;
•we may not be able to obtain financing for development projects, or obtain financing on favorable terms;
•construction costs of a project may exceed the original estimates or construction may not be concluded on schedule, making the project less profitable than originally estimated or not profitable at all (including the possibility of errors or omissions in the project's design, contract default, contractor or subcontractor default, performance bond surety default, the effects of local weather conditions, natural disasters and pandemics, the possibility of local or national strikes and the possibility of shortages in materials, building supplies or energy and fuel for equipment);
•tenants
which pre-lease space or contract with us for a build-to-suit project may default prior to occupying the project;
•upon completion of construction, we may not be able to obtain, or obtain on advantageous terms, permanent financing for activities that we financed through construction loans;
•we may not achieve sufficient occupancy levels, sales levels and/or obtain sufficient rents to ensure the profitability of a completed project; and
•development
projects in which we have invested may be abandoned and the related investment will be impaired.
Moreover, substantial renovation and development activities, regardless of their ultimate success, typically require a significant amount of management’s time and attention, diverting their attention from our other operations.
Furthermore, part of our investment strategy is to locate and acquire real estate assets that we believe are undervalued and to improve them to increase their resale value. Acquiring properties that are not yet fully developed or in need of substantial renovation or redevelopment entails several risks, particularly the risk that we overestimate the value of the property or that the cost or time to complete the renovation or redevelopment will exceed the budgeted amount. Any failure to complete a redevelopment project in
a timely manner and within budget or to sell or lease the project after completion could have a material adverse effect upon our business, results of operation and financial condition.
Our significant operations in the United Kingdom and Ireland and to a lesser extent, Spain and Italy expose our business to risks inherent in conducting business in foreign markets.
As of December 31, 2021, approximately 38% of our revenues were sourced from our foreign operations in the United Kingdom, Ireland, Spain and Italy, 90% of which was sourced from our operations in the United Kingdom and Ireland. Accordingly, our firm-wide results of operations depend significantly on our foreign operations. Conducting business abroad carries significant risks, including:
•restrictions
and problems relating to the repatriation of capital;
•global pandemics and the different impact of such pandemic on each country and different response to the same by governments
•difficulties and costs of staffing and managing international operations;
•the burden of complying with multiple and potentially conflicting laws;
•laws restricting foreign companies from conducting business;
•political instability and civil unrest;
•greater difficulty in perfecting our security interests, collecting accounts receivable, foreclosing on secured assets and protecting our
interests as a creditor in bankruptcies in certain geographic regions;
•potentially adverse tax consequences;
•share ownership restrictions on foreign operations; and
•tariff regimes of the countries in which we do business.
Poor performance of our commingled funds would cause a decline in our revenue and results of operations and could adversely affect our ability to raise capital for future funds.
When any of our commingled closed-end funds perform poorly, our investment record suffers. As a result, our management fees and performance allocations and our ability to raise additional capital from our partners may be adversely
affected. If a fund performs poorly, we will receive little or no performance allocations with regard to the fund and little income or possibly losses from our own principal investment in such fund. As the fair value of underlying investments varies between reporting periods, if we were to have negative performance in a period that causes the amount due to us to be less than the amount previously recognized, this could result in a negative adjustment to performance allocations to the general partner or asset manager. Our fund investors and potential fund investors continually assess our funds' performance independently and relative to market benchmarks and our competitors, and our ability to raise capital for existing and future funds depends on our funds' performance. Alternatively, in the face of poor fund performance, investors could demand lower fees or significant fee concessions for existing or future funds which would likewise decrease our revenue or decide
not to invest with us.
Our joint venture activities subject us to third-party risks, including risks that other participants may become bankrupt or take action contrary to our best interests.
We have used joint ventures for large real estate investments and developments. We plan to continue to acquire interests in additional joint ventures formed to own or develop real property or interests in real property. Although, we generally serve as the general partner or managing member of such joint venture, we have acquired and may acquire non-controlling interests in joint ventures, and we may, from time-to-time, also acquire interests as a passive investor without rights to actively participate in the management of the joint ventures. Investments in joint ventures involve additional risks, including the possibility that the other participants
may become bankrupt or have economic or other business interests or goals that are inconsistent with ours, that we will not have the right or power to direct the management and policies of the joint ventures and that other participants may take action contrary to our instructions or requests and against our policies and objectives. Should a participant in a material joint venture investment act contrary to our interests, our business, results of operations and financial
condition could significantly suffer. Moreover, we cannot be certain that we will continue to identify suitable joint venture partners and form new joint ventures in the future.
If
we are unable to identify, acquire and integrate suitable investment opportunities and acquisition targets, our future growth will be impeded.
Acquisitions and expansion have been, and will continue to be, a significant component of our growth strategy. While maintaining our existing business lines, we intend to continue to pursue a sustained growth strategy by increasing revenues from seeking selective investment and co-investment opportunities and pursuing strategic acquisitions. Our ability to manage our growth will require us to effectively integrate new acquisitions into our existing operations while managing development of principal properties. We expect that significant growth in several business lines occurring simultaneously will place substantial demands on our managerial, administrative, operational and financial resources. We may be unable to successfully manage all factors necessary
for a successful expansion of our business. Moreover, our strategy of growth depends on the existence of and our ability to identify attractive investment opportunities and synergistic acquisition targets. The unavailability of suitable investment opportunities and acquisition targets, or our inability to find or be successful in competing for them, may result in a decline in business, financial condition and results of operations.
We own real estate properties located in Hawaii, which subjects us to unique risks relating to, among other things, Hawaii’s economic dependence on fluctuating tourism, the isolated location of Hawaii and the potential for natural disasters.
We conduct operations and own properties in Hawaii. The gross asset value of our investments in Hawaii is $386.5 million and $326.1
million as of December 31, 2021 and 2020, respectively. The success of our investments in Hawaii depends on and is affected by general trends in Hawaii’s economy and real estate market. Hawaii’s economy largely depends on tourism, which is subject to fluctuation based on a number of factors that we do not control. In addition, Hawaii has historically been vulnerable to certain natural disaster risks, such as tsunamis, volcanoes, hurricanes and earthquakes, which could cause damage to properties owned by us or property values to decline in general.
Our three largest investments in Hawaii are a hotel development project on the Big Island and two residential assets (one located on the Big Island and the other located on the island of Oahu) as discussed in our description of our residential
and development and redevelopment investments in Item 1 - “Business” of this annual report on Form 10-K. Please also see the section titled "Industry Overview - Hawaii" in Item 1 of this annual report on form 10-K. In addition to the general risks with respect to development and redevelopment projects as discussed above, Hawaii’s remote and isolated location may create additional operational costs and expenses (general operating and development-related costs), which could have a material adverse impact on our financial results. If any or all of the factors discussed above were to occur and result in our inability or materially limit our ability to sell or lease our residential and commercial properties, a significant delay in or a significant increase costs to complete our development assets, it would likely have a material adverse effect on our business,
financial condition and results of operations.
Our real estate debt investment business operates in a highly competitive market for lending and investment opportunities through our debt platforms, including originating and investing in senior loans, mezzanine loans, B- and C-Notes and preferred equity, which may limit our ability to originate or acquire desirable loans and investments in our target assets and are subject to increased risks.
Our real estate debt investment business (“Debt Platform”) operates in a highly competitive market for lending and investment opportunities. A number of entities compete with us to make the types of loans and investments that we seek to make, including originating and investing in senior loans, mezzanine loans, B-and C-Notes and preferred equity. The profitability of our debt platform
depends, in large part, on our ability to originate or acquire target assets at attractive prices for ourselves and our partners. In addition, some of our competitors may have a lower cost of funds and access to funding sources that may not be available to us. Furthermore, competition for originations of, and investments in, our target assets may lead to the yield of such assets decreasing, which may further limit our ability to generate desired returns for ourselves and our partners. Also, as a result of this competition, desirable loans and investments in specific types of target assets may be limited in the future.
In addition to originating and acquiring senior loans, we also originate and invest in mezzanine loans, B-and C-Notes and preferred equity and these types of investments generally involve a higher degree of risk than long-term senior mortgage lending secured
by income-producing real property. For example, if a borrower defaults, there may not be sufficient funds remaining for a B-Note holder after payment to the A-Note holder. Similarly, if a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt and may become unsecured as a result of foreclosure by the senior lender. Further, preferred equity investments involve a
higher degree of risk than conventional debt financing due to a variety of factors, including their non-collateralized nature and subordinated ranking to other loans and liabilities
of the entity in which such preferred equity is held. As a result, we may not recover some or all of our investment. Significant losses related to our mezzanine loans, B-Notes or preferred equity interests would result in operating losses for us and our partners. In addition, in the event a borrower defaults on a loan, there is no guarantee or assurance that we will be able to successfully foreclose and take control of the underlying collateral (to the extent available).
Any distressed loans and loan portfolios that we may purchase, or investments that may become "sub-performing" or "non-performing" following our origination or acquisition thereof, may have a higher risk of default and delinquencies than newly originated loans, and, as a result, we may lose part or all of our investment in such loans and loan portfolios.
While
our loans and investments focus primarily on "performing" real estate-related interests, our loans and investments may also include making distressed investments from time to time (e.g., investments in defaulted, out-of-favor or distressed loans and debt securities) or may involve loans and loan portfolios in some cases that may be non-performing or sub-performing and may be in default at the time of purchase or may become "sub-performing" or "non-performing" following our origination or acquisition thereof. In general, the distressed loans and loan portfolios we may acquire are speculative investments and have a greater than normal risk of future defaults and delinquencies as compared to newly originated loans. Returns on loan investments depend on the borrower’s ability to make required payments or, in the event of default, our security interests and our ability to foreclose and liquidate whatever property that secures the loans and loan portfolios.
We may be unable to collect on a defaulted loan or foreclose on security successfully or in a timely fashion. There may also be instances when we are able to acquire title to an underlying property and sell it but not make a profit on its investment.
In addition, in the event of a decline in real estate values, the likelihood that we will incur losses on our loans in the event of default because the value of our collateral may be insufficient to cover our cost on the loan significantly increases.
Our reliance on third-parties to operate certain of our properties may harm our business.
We rely on third party property managers and hotel operators to manage the daily operations of our properties. These third parties are directly
responsible for the day-to-day operation of our properties with limited supervision by us, and they often have potentially significant decision-making authority with respect to those properties. Thus, the success of our business may depend in large part on the ability of our third-party property managers to manage the day-to-day operations, and any adversity experienced by our property managers could adversely impact the operation and profitability of our properties
These third parties may fail to manage our properties effectively or in accordance with their agreements with us, may be negligent in their performance and may engage in criminal or fraudulent activity. If any of these events occur, we could incur losses or face liabilities from the loss or injury to our property or to persons at our properties. In addition, disputes may arise between us and these third-party managers
and operators, and we may incur significant expenses to resolve those disputes or terminate the relevant agreement with these third parties and locate and engage competent and cost-effective service providers to operate and manage the relevant properties.
We are also parties to hotel management agreements under which unaffiliated third-party property managers manage our hotels. In addition, from time to time, disputes may arise between us and our third-party managers regarding their performance or compliance with the terms of the hotel management agreements, which in turn could adversely affect us, including damage to our relationships with such franchisers or we may be in breach of our franchise agreement. If we are unable to resolve such disputes through discussions and negotiations, we may choose to terminate our management agreement, litigate the dispute or submit the matter
to third party dispute resolution, the expense and outcome of which may harm our business, operating results or prospects.
Our leasing activities depend on various factors, including tenant occupancy and rental rates, which, if adversely affected, could cause our operating results to suffer.
Our business, financial condition and results of operations may be adversely affected if we fail to promptly find suitable tenants for substantial amounts of vacant space at our properties, if rental rates on new or renewal leases are significantly lower than expected, or if reserves for costs of re-leasing prove inadequate.
•our ability to provide adequate maintenance and obtain insurance and to pay increased operating expenses, which may not be passed through to tenants; and
•the availability of capital to periodically renovate, repair and maintain the properties, as well as for other operating expenses
Increasing scrutiny and changing expectations
from stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.
Companies across all industries are facing increasing scrutiny from stakeholders related to their environmental, social and governance (“ESG”) practices. Investor advocacy groups, certain institutional investors, investment funds and other influential investors are also increasingly focused on ESG practices and in recent years have placed increasing importance on the implications and social cost of their investments. Regardless of the industry, investors’ increased focus related to ESG and similar matters may hinder access to capital, as investors may decide to reallocate capital or to not commit capital as a result of their assessment of a company’s ESG practices. Companies which do not adapt to or comply with investor
or other stakeholder expectations and standards, which are evolving, or which are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, may suffer from reputational damage and the business, financial condition, and/or stock price of such a company could be materially and adversely affected.
We have adopted certain practices and policies to align our ESG approach with our business strategy by maximizing the inherent value of our assets and delivering long-term social, environmental and economic values across our portfolio. However, our stakeholders may look to us to implement more or different ESG procedures, standards or goals in order to continue engaging with us, to remain invested in us, or before they make further investments in us. Additionally, we may face reputational challenges in the
event our ESG procedures or standards do not meet the standards set by certain constituencies or such constituencies might not be satisfied with our efforts or the speed of adoption of ESG practices or polices. If we do not meet our stakeholders’ expectations or we are not effective in addressing social and environmental responsibility matters or achieving relevant sustainability goals, trust in our brand may suffer and our business and/or our ability to access capital could be harmed.
The occurrence of any of the foregoing could have a material adverse effect on our business and financial condition and expose us to market, operational and execution costs or risks.
Rent control or rent stabilization legislation and other regulatory restrictions may limit our ability to increase rents and pass through new or increased
operating costs to our tenants.
We presently expect to continue operating and acquiring properties in areas that have adopted laws and regulations imposing restrictions on the timing or amount of rent increases. The state of California has implemented a statewide rent control imitative that limits rental increases to 5% + the consumer price index (CPI). The state of Oregon has also implemented a statewide rent control program that caps annual increases to 7% + CPI with the city of Portland, Oregon limiting increases to 9.2%. In addition to the statewide rent control programs, various municipalities, including certain cities where our properties are located, have enacted rent control or rent stabilization legislation. Furthermore, enactment of similar regulations have been and are being considered in other jurisdictions where we hold investments. Although, we are able to increase rents
to market rates once a tenant vacates a rent-controlled or stabilized unit, increases in rental rates for renewing tenants are limited by such regulations.
Similarly, under current Irish law, for rent controlled properties we are restricted from increasing rents to market rates for renewing tenants or replacement tenants, and any rent increases in these circumstances are generally capped, save in certain limited circumstances. These laws and regulations can (i) limit our ability to charge market rents, increase rents, evict tenants or recover increases in our operating expenses, (ii) negatively impact our ability to attract higher-paying tenants, (iii) require us to expend money for reporting and compliance, and (iv) make it more difficult for us to dispose of properties in certain circumstances. Any failure to comply with these regulations could result in fines and/or other penalties.
We
may be subject to potential environmental liability.
Under various foreign, federal, state and local laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the cleanup of hazardous or toxic substances and may be liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs incurred by governmental entities or third parties in connection with the contamination. Such laws typically impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of the hazardous or toxic substances, even when the contaminants were associated with previous owners or operators. The costs of investigation, remediation or removal of hazardous or toxic substances may be substantial, and the presence of those substances, or the failure to properly remediate those substances,
may
adversely affect the owner’s or operator’s ability to sell or rent the affected property or to borrow using the property as collateral. The presence of contamination at a property can impair the value of the property even if the contamination is migrating onto the property from an adjoining property. Additionally, the owner of a site may be subject to claims by parties who have no relation to the property based on damages and costs resulting from environmental contamination emanating from the site. In connection with the direct or indirect ownership, operation, management and development of real properties, we may be considered an owner or operator
of those properties or as having arranged for the disposal or treatment of hazardous or toxic substances. Therefore, we may be potentially liable for removal or remediation costs.
Before consummating the acquisition of a particular piece of real property, it is our policy to retain independent environmental consultants to conduct an environmental review of the real property, including performing a Phase I environmental review. These assessments have included, among other things, a visual inspection of the real properties and the surrounding area and a review of relevant federal, state and historical documents. It is possible that the assessments we commission do not reveal all environmental liabilities or that there are material environmental liabilities of which we are currently unaware. Future laws, ordinances or regulations may impose material environmental liability and the current
environmental condition of our properties may be affected by tenants, by the condition of land or operations in the vicinity of those properties, or by unrelated third parties. Federal, state, local and foreign agencies or private plaintiffs may bring actions against us in the future, and those actions, if adversely resolved, may have a material adverse effect on our business, financial condition and results of operations.
We may incur significant costs complying with laws, regulations and covenants that are applicable to our properties and operations.
The properties in our portfolio and our operations are subject to various covenants and federal, state, local and foreign laws and regulatory requirements, including permitting and licensing requirements. Such laws and regulations, including municipal or local ordinances, zoning
restrictions and restrictive covenants imposed by community developers, may restrict our use of our properties and may require us to obtain approval from local officials or community standards organizations at any time with respect to our properties, including prior to acquiring a property or when undertaking renovations of any of our existing properties. Among other things, these restrictions may relate to fire and safety, seismic, asbestos-cleanup, hazardous material abatement requirements or accessibility of our properties, such as those required by the Americans with Disabilities Act. Existing laws and regulations may adversely affect us, the timing or cost of our future acquisitions or renovations may be uncertain, and additional regulations may be adopted that increase such delays or result in additional costs. Our failure to obtain required permits, licenses and zoning relief or to comply with applicable laws could, among other things, result in monetary fines,
private litigation and have a material adverse effect on our business, financial condition and results of operations.
Our property insurance coverage is limited, and any uninsured losses could cause us to lose part or all of our investment in our insured properties.
We carry commercial general liability coverage and umbrella coverage on all of our properties with limits of liability that we deem adequate and appropriate under the circumstances (certain policies subject to deductibles) to insure against liability claims and provide for the cost of legal defense. There are, however, certain types of extraordinary losses that either may be uninsurable or are not generally insured because it is not economically feasible to insure against those losses. Should any uninsured loss occur, we could lose our investment in, and anticipated
revenues from, a property, and these losses could have a material adverse effect on our operations. Currently, we also insure some of our properties for loss caused by earthquakes in levels we deem appropriate and, where we believe necessary, for loss caused by flood. The occurrence of an earthquake, flood or other natural disaster may materially and adversely affect our business, financial condition and results of operations.
Our business could be adversely affected by security breaches through cyber-attacks, cyber intrusions or otherwise.
We face risks associated with security breaches, whether through cyber-attacks or cyber intrusions over the internet, malware, computer viruses, attachments to e-mails, persons inside our organization or persons with access to systems inside our organization, and other significant disruptions
of our information technology networks and related systems. These risks include operational interruption, private data exposure and damage to our relationship with our customers, among others. A security breach involving our networks and related systems could disrupt our operations in numerous ways that could ultimately have an adverse effect on our financial condition and results of operations.
It is possible that our business, financial and other systems could be compromised, which might not be noticed for some period of time. Although we utilize various procedures and controls to mitigate our exposure to such risk, cybersecurity
attacks are evolving and unpredictable. The occurrence of such an attack could lead to financial losses and have a material adverse effect on our business, financial condition and results of operations.
If we are unable to raise additional debt and equity capital, our growth prospects may suffer.
We depend on the capital markets to grow our balance sheet along with third-party equity and debt financings to acquire properties through our investment business, which is a key driver of future growth. We currently intend to raise a significant amount of third-party equity and debt
to acquire assets in the ordinary course of our business. We depend on debt financing from a combination of financial institutions, the assumption of existing loans, government agencies and seller financing. We depend on equity financing from equity partners, which include public companies, pension funds, family offices, financial institutions, endowments, sovereign wealth and money managers. Our access to capital funding is uncertain. Our inability to raise additional capital on terms reasonably acceptable to us could jeopardize the future growth of our business.
The loss of one or more key personnel, particularly our CEO, could have a material adverse effect on our operations.
Our continued success depends to a significant degree on the efforts of our senior executives, particularly our chief executive officer, or CEO, who have each
been essential to our business. The departure of all or any of our executives for whatever reason or the inability of all or any of them to continue to serve in their present capacities or our inability to attract and retain other qualified personnel could have a material adverse effect upon our business, financial condition and results of operations. Our executives attract business opportunities and assist both in negotiations with lenders and potential joint venture partners and in the representation of large and institutional clients. If we lost their services, our relationships with lenders, joint venture partners and clients would diminish significantly.
As we continue to grow, our success will largely depend on our ability to attract and retain qualified personnel in all areas of business. We may be unable to continue to hire and retain a sufficient number of qualified personnel
to support or keep pace with our planned growth.
Some of our portfolio investments may be recorded at fair value, and, as a result, there will be uncertainty as to the value of these investments.
As of December 31, 2021, $1.8 billion, or approximately 92% of our unconsolidated investments and approximately 23% of our total assets, were recorded on our financial statements at estimated fair value. These include our investments in the commingled funds that we manage and unconsolidated investments in which we have elected the fair value option under U.S. generally accepted principles (U.S. GAAP). At the end of each reporting period, the fair value of these investments is recalculated, and any change from the fair value as of the end of the prior reporting
period is reflected in our consolidated statement of income as a gain or loss included in income (loss) from unconsolidated investments. Accordingly, fair value accounting could result in significant non-cash volatility in our financial position and our results of operation, which, in turn, could adversely affect the trading price of our common stock and other securities.
We utilize a mix of independent third party appraisals and discounted cash flows to estimate fair market value. The discounted cash flow models estimate future cash flows (including terminal values) and discount those cash flows back to the current period. Estimating fair values using any valuation methodology is inherently uncertain and involves a significant number of assumptions. Furthermore, any changes in the underlying assumptions for any reason, including capitalization rates, discount rates, liquidity risks, and estimates
of future cash flows or as a result of the impact to the global economy due to an epidemic, pandemic or other outbreak of an illness, disease or virus (including COVID-19), including capitalization rates, discount rates, liquidity risks, and estimates of future cash flows, could significantly affect the fair value estimates. For example, small changes in the inputs and assumptions that we use from period to period to estimate these fair values may result in large changes in the carrying value of these investments and could materially and adversely impact our reported earnings. Moreover, the estimated fair values used in preparing our financial statements may not represent amounts that could be realized in a current sale or an immediate settlement of the related asset or liability, nor would those estimated fair values necessarily reflect the returns we may actually realize.
Our revenues
and earnings may be materially and adversely affected by fluctuations in foreign currency exchange rates due to our international operations.
Our revenues from foreign operations have been primarily denominated in the local currency where the associated revenues were earned. Thus, we may experience significant fluctuations in revenues and earnings because of corresponding
fluctuations in foreign currency exchange rates. To date, our foreign currency exposure has been limited to the Pound Sterling and the Euro. Due to the constantly changing currency exposures to which we will be
subject and the volatility of currency exchange rates, we may experience currency losses in the future, and we cannot predict the effect of exchange rate fluctuations on future operating results. Our management uses currency hedging instruments from time to time, including foreign currency forward contracts, purchased currency options (where applicable) and foreign currency borrowings. The economic risks associated with these hedging instruments include unexpected fluctuations in foreign currency rates, which could lead to hedging losses or the requirement to post collateral, along with unexpected changes in our underlying net asset position. Our hedging activities may not be effective.
Our results are subject to significant volatility from quarter to quarter due to the varied timing and magnitude
of our strategic acquisitions and dispositions, the incurrence of any impairment losses and other transactions.
We have experienced a fluctuation in our financial performance from quarter to quarter due in part to the significance of revenues from the sales of real estate on overall performance. The timing of purchases and sales of our real estate investments has varied, and will continue to vary, widely from quarter to quarter due to variability in market opportunities, changes in interest rates, and the overall demand for multifamily and commercial real estate, among other things. While these factors have contributed to our increased operating income and earnings in past years, we may be unable to continue to perform well due to the significant variability in these factors.
Additionally, if our future undiscounted
net cash flow evaluation indicates that we are unable to recover the carrying value of a real estate investment, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property. These losses have a direct impact on our net income. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods.
We have in the past incurred and may continue in the future to incur significant amounts of debt and, to a lesser extent, preferred stock, to finance acquisitions, which could negatively affect our cash flows and subject our properties or other assets to the risk of foreclosure.
We have historically financed
new acquisitions with cash derived from secured and unsecured loans and lines of credit and, to a lesser extent, preferred stock. For instance, we typically purchase real property with loans secured by a mortgage on the property acquired. We anticipate continuing this trend. We do not have a policy limiting the amount of debt that we may incur. Accordingly, our management and board of directors have discretion to increase the amount of our outstanding debt at any time. We could become more highly leveraged, resulting in an increase in debt service costs that could adversely affect our results of operations and increase the risk of default on debt. We may incur additional debt from time to time to finance strategic acquisitions, investments, joint ventures or for other purposes, subject to the restrictions contained in the documents governing our indebtedness. If we are required to seek an amendment to our credit agreement, our debt service obligations may be substantially
increased.
Some of our debt bears interest at variable rates. As a result, we are subject to fluctuating interest rates that may impact, adversely or otherwise, results of operations and cash flows. We may be subject to risks normally associated with debt financing, including the risks that:
•a decrease in the availability of lines of credit and the public equity and debt markets and other sources of capital used to operate and maintain our business;
•cash flow may be insufficient to make required payments of principal and interest;
•existing indebtedness on our properties may not be refinanced and our leverage could increase our vulnerability to general economic
downturns and adverse competitive and industry conditions, placing us at a disadvantage compared to those of our competitors that are less leveraged;
•our debt service obligations could limit our flexibility in planning for, or reacting to, changes in our business and in the commercial real estate services industry;
•our failure to comply with the financial and other restrictive covenants in the documents governing our indebtedness could result in an event of default that, if not cured or waived, results in foreclosure on substantially all of our assets; and
•the terms of available new financing may not be as favorable as the terms of existing indebtedness.
If we are unable to satisfy the obligations owed to any lender with a lien on one of our properties, including the compliance with any operational or financial covenants, the lender could foreclose on the real property or other assets securing the loan and we would lose that property or asset. The loss of any property or asset to foreclosure could have a material adverse effect on our business, financial condition and results of operations. In addition, agreements governing certain of our financings contain cross-default and/or cross-acceleration provisions, including, without limitation, the indentures governing our 2029 Notes, 2030 Notes and 2031 Notes and the documents governing the Second A&R Facility and the KWE Notes. For example, the indenture
governing the 2029 Notes, 2030 Notes and 2031 Notes provide that recourse debt that is not paid within any applicable grace period after final maturity or is accelerated by the applicable lender because of a default and the total amount of such recourse debt unpaid or accelerated exceeds seventy-five million dollars, may constitute a default which could lead to the entire principal amount of the 2029 Notes, 2030 Notes and 2031 Notes to become immediately due and payable. The documents governing the Second A&R Facility and KWE Notes contain similar provisions.
From time to time, Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., rate our significant outstanding debt. These ratings and any downgrades thereof may impact our ability to borrow under any new agreements in the future, and could increase the interest rates of,
and require more onerous terms for, any future borrowings, and could also cause a decline in the market price of our common stock. Our earnings may not be sufficient to allow us to pay principal and interest on our debt and meet our other obligations. If we do not have sufficient earnings, we may be required to seek to refinance all or part of our existing debt, sell assets at terms that are not attractive, borrow more money or sell more securities, which we may be unable to do, and our stock price may be adversely affected.
Our debt obligations impose significant operating and financial restrictions, which may prevent us from pursuing certain business opportunities and taking certain actions.
Our existing debt obligations impose, and future debt obligations may impose, significant operating and financial restrictions
on us. These restrictions limit or prohibit, among other things, our ability to:
•incur additional indebtedness;
•repay indebtedness (including our 2029 Notes, 2030 Notes and 2031 Notes) prior to stated maturities;
•pay dividends on, redeem or repurchase our stock or make other distributions;
•make acquisitions or investments;
•create or incur liens;
•transfer or sell certain assets or merge or consolidate with or into other companies;
•enter into certain transactions
with affiliates; and
•restrict dividends, distributions or other payments from our subsidiaries.
Our unsecured revolving credit facility and the indentures governing our 2029 Notes, 2030 Notes and 2031 Notes, and the KWE Notes require us to maintain compliance with specified financial covenants, including maximum balance sheet leverage and fixed charge coverage ratios. In addition, loan agreements governing the mortgages that are secured by our properties may contain operational and financial covenants, including but not limited to, debt service coverage ratio covenants and, with respect to mortgages secured by certain properties in Europe, loan-to-value
ratio covenants. Mortgages with such loan-to-value covenants require that the underlying properties be valued on a periodic basis (at least annually) and as such, adverse market conditions (which are influenced by factors that are outside of the Company’s control) could result in a reduction in the fair value of the subject properties and a breach of the applicable covenant.
As of December 31, 2021, we received waivers on certain debt covenants in loan agreements governing a total of $71.9 million or 2% of our consolidated mortgage balance. These mortgages are secured by certain retail assets in the United Kingdom. All of these loans are non-recourse loans and the waivers are through the end of first quarter 2022 and typically cover interest cover and loan-to-value
covenants. We expect to be in compliance with these covenants subsequent to the fourth quarter of 2021, or will seek additional waivers and/or extensions as, and if needed. In the event we are required to seek such additional waivers and/or extensions, we are currently confident that we will be able to secure the same. We are current on all payments (principal and interest) for our consolidated mortgages including the loans discussed above. As of December 31, 2021, we were in compliance with or had received waivers on all financial mortgage debt and unsecured debt covenants. These covenants could adversely affect our ability to finance our future operations or capital needs and pursue available business opportunities. A breach of any of these covenants could result in a default in respect of the related indebtedness. If a default occurs, the relevant lenders could elect to declare the indebtedness, together with accrued
interest and other fees, to be immediately due and payable and proceed against any collateral securing that indebtedness. In addition, a default under one series of our indebtedness may also constitute a default under another series of our indebtedness.
We have guaranteed a number of loans in connection with various real estate investments, which may result in us being obligated to make certain payments.
We have provided recourse guarantees associated with loans secured by real estate. The maximum potential undiscounted amount of future payments that we
could be required to make under these guarantees was approximately $186.0 million at December 31, 2021. The guarantees expire through 2031, and our performance under the guarantees would be required to the extent there is a shortfall upon liquidation between the principal amount of the loan and the net sales proceeds of the property. If we were to become obligated to perform on these guarantees, our financial condition could suffer.
We are subject to certain “non-recourse carve out” guarantees that may be triggered in the future.
Most of our real estate properties 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 obtaining any subordinate financing or 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.
Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021 may adversely affect us.
The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, stopped publishing one week and 2-month U.S. Dollar LIBOR rates after 2021 with remaining U.S. Dollar LIBOR rates ceasing to be published on June 30, 2023. In the United States, the Alternative Reference Rates Committee (the “ARCC”) has confirmed that, in its opinion, the March 5, 2021 announcements by the IBA and the FCA on future
cessation and loss of representativeness of the LIBOR benchmarks constituted a “Benchmark Transition Event” with respect to all U.S. Dollar LIBOR settings under ARRC-recommended fallback language and has recommended the Secured Overnight Financing Rate (“SOFR”), plus a recommended spread adjustment as LIBOR’s replacement. SOFR is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities. At this time, however, no consensus exists as to what rate or rates may become accepted alternatives to LIBOR, and it is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR, or whether any additional reforms to LIBOR may be enacted in the United Kingdom, the United States or elsewhere. Any changes in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in LIBOR. If a published LIBOR rate is
unavailable prior to June 30, 2023, the interest rates on certain of the Company’s debt obligations could change. Any of these proposals or consequences could have a material adverse effect on our financing costs, and as a result, our financial condition and results of operations.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2021, we had approximately $89.7 million and $108.2 million of federal and California net operating loss carryforwards, respectively, as well as approximately $78.0 million of foreign tax credits, which
generally can be used to offset future taxable income or taxes, as applicable. However, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the "Code"), if a corporation undergoes an “ownership change," the corporation’s ability to use its pre-change net operating loss carryforwards and foreign tax credits to offset its post-change federal taxable income or taxes, as applicable, may be limited. Generally, a corporation experiences such an ownership change if the percentage of its stock owned by its “5-percent shareholders,” as defined in Section 382 of the Code, increases by more than 50 percentage points (by value) over a rolling three-year period. Based on our analysis, no ownership changes as defined under Section 382 have occurred which would result in limitations on the utilization of our domestic net operating loss and foreign tax credit carryovers. We may experience ownership change in the future as a result of
subsequent shifts in our stock ownership (some of which shifts are outside of our control). Similar provisions of state tax law may also apply. Federal net operating loss carryforwards generated after December 31, 2017 may be carried forward indefinitely, but they may only be used to offset 80% of taxable income in a given year. Of the $89.7 million of federal net operating loss carryforwards, $30.0 million was generated during 2017, and the remaining balance was generated after December 31, 2017.
As of December 31,
2021, we also had $205.7 million of foreign net operating loss carryforwards which could be subject to similar limitations in foreign jurisdictions based upon changes in equity ownership.
We may fail to comply with section 404 of the Sarbanes-Oxley Act of 2002.
We are subject to section 404 of The Sarbanes-Oxley Act of 2002 and the related rules of the SEC, which generally require our management and independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting. Although our management has concluded that our internal control over financial reporting was effective as of December 31, 2021 and our independent registered public accounting firm has issued an unqualified report as to the same, our management or our
independent registered public accounting firm may not be able to come to the same conclusion in future periods. During the course of the review and testing of our internal controls, we may identify deficiencies and weaknesses and be unable to remediate them before we must provide the required reports. If our management or our independent registered public accounting firm is unable to conclude on an ongoing basis that we have effective internal control over financial reporting, our operating results may suffer, investors may lose confidence in our reported financial information and the trading price of our stock may fall.
Risks Related to Ownership of Our Common Stock
Our directors and officers and their affiliates are significant stockholders, which makes it possible for them to have significant influence
over the outcome of all matters submitted to stockholders for approval and which influence may be in conflict with our interests and the interests of our other stockholders.
As of December 31, 2021, our directors and executive officers and their respective affiliates owned an aggregate of approximately 15% of the outstanding shares of our common stock. These stockholders will have significant influence over the outcome of all matters submitted for stockholder approval, including the election of our directors and other corporate actions. In addition, such influence by one or more of these stockholders could discourage others from attempting to purchase or take us over in a transaction that would be favorable to our other stockholders or reduce the market price offered for our common stock in such an event.
We
may issue additional equity securities, which may dilute your interest in us.
In order to expand our business, we may consider offering and issuing additional equity or equity-based securities. If we issue and sell additional shares of our common stock, or convertible securities, the ownership interests of our existing stockholders will be diluted to the extent they do not participate in the offering. The number of shares that we may issue for cash in non-public offerings without stockholder approval will be limited by the rules of the NYSE or other exchange on which our securities are listed. However, we may issue and sell shares of our common stock in public offerings, and there generally are exceptions that allow companies to issue a limited number of equity securities in private offerings without stockholder approval, which could dilute your ownership.
The
price of our common stock may be volatile.
The trading price of our common stock has historically been and may in the future continue to be volatile due to factors such as:
•changes in real estate prices;
•actual or anticipated fluctuations in our quarterly and annual results and those of our publicly held competitors;
•mergers and strategic alliances among any real estate companies;
•market conditions in the industry;
•changes in government regulation and taxes;
•shortfalls in our operating
results from levels forecasted by securities analysts;
•investor sentiment toward the stock of real estate companies in general;
•announcements concerning us or our competitors; and
•the general state of the securities markets.
Our common stock may be delisted, which could limit your ability to trade our common stock and subject us to additional trading restrictions.
Our common stock is listed on the NYSE, a national securities exchange. However, our common stock may not continue to be listed on the NYSE in the future. If the NYSE delists our common stock from trading on its exchange, we could face significant
material adverse consequences, including:
•a limited availability of market quotations for our common stock;
•a limited amount of news and analyst coverage for our company;
•a decreased ability for us to issue additional securities or obtain additional financing in the future; and
•limited liquidity for
our stockholders due to thin trading.
Our staggered board may entrench management and discourage unsolicited stockholder proposals that may be in the best interests of stockholders, and certain anti-takeover provisions in our organizational documents may discourage a change in control.
Our amended and restated certificate of incorporation provides for our board of directors to be divided into three classes, each of which generally serves for a term of three years with only one class of directors being elected in each year. As a result, at any annual meeting only a minority of the board of directors will be considered for election. Since this “staggered board” would prevent our stockholders from replacing
a majority of our board of directors at any annual meeting, it may entrench management and discourage unsolicited stockholder proposals that may be in the best interests of stockholders. Additionally, certain provisions of our amended and restated certificate of incorporation and our amended and restated bylaws may have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt that a stockholder might consider in its best interest, including those attempts that might result in the payment of a premium over the market price for the shares held by stockholders.
In addition, Section 203 of the Delaware General Corporation Law may, under certain circumstances, make it
more difficult for a person who would be an “interested stockholder” to effect a “business combination” with us for a three-year period. An “interested stockholder” generally is defined as any entity or person that beneficially owns 15% or more of our outstanding voting stock or any entity or person that is an affiliate or associate of such entity or person. A “business combination” generally is defined to include, among other transactions, mergers, consolidations and certain other transactions, including sales, leases or other dispositions of assets with an aggregate market value equal to 10% or more of the aggregate market value of the corporation.
These anti-takeover provisions could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many stockholders. As a result, stockholders
may be limited in their ability to obtain a premium for their shares.
We may change our dividend policy.
Future distributions will be declared and paid at the discretion of our board of directors and the amount and timing of distributions will depend upon cash generated by operating activities, our financial condition, capital requirements, restrictions in the agreements governing our indebtedness, the certificate of designations governing our outstanding preferred stock and such other factors as our board of directors deems relevant. Our board of directors may change our dividend policy at any time, and there can be no assurance as to the manner in which future dividends will be paid or that the current dividend level will be maintained in future periods.
Our
amended and restated bylaws designate the Court of Chancery within the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a different judicial forum for disputes with us.
Our amended and restated bylaws provide that unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by the law, be the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers, other
employees or our stockholders to us or our stockholders, (3) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws or to which the Delaware General Corporation Law confers jurisdiction on the Court of Chancery of the State of Delaware, or (4) any action asserting a claim governed by the internal affairs doctrine. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that the stockholder finds favorable for disputes with us or any of our directors, officers, other employees or other stockholders, which may discourage lawsuits against us and our directors, officers, other employees and other stockholders. Additionally,
this exclusive forum provision will not apply to claims that are vested in the exclusive or concurrent jurisdiction of a court or forum other than the Court of Chancery of the State of Delaware, or for which the Court of Chancery of the State of Delaware does not have subject matter jurisdiction. For instance, the provision would not preclude the filing of claims brought to enforce any
liability or duty created by the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, or the rules and regulations thereunder, in federal court.
Item 1B. Unresolved
Staff Comments
None
Item 2. Properties
The following table sets forth certain information regarding our consolidated properties at December 31, 2021:
Consolidated
Properties by Region(a)
Commercial(2)
Square Feet
Ending % Occupancy
Annualized Base Rent(1)
Annualized
Effective Rent(3)
KW
Ownership %
# of Assets
Western U.S.
1.9
89
%
$
49.1
$
48.4
91
%
13
Europe
5.1
93
128.2
118.5
95
67
Total
Commercial
7.0
92
%
$
177.3
$
166.9
94
%
80
Multifamily(4)
Units
Ending
% Leased
Annualized Base Rent(1)
Average Effective Rent(3)
KW Ownership %
# of Assets
Western U.S.
9,439
95
%
$
178.3
$
178.3
98
%
32
Total
Multifamily
9,439
95
%
$
178.3
$
178.3
98
%
32
(a) Dollars
and square footage in millions.
(1) Represents annualized cash base rent (excludes tenant reimbursements and other revenue).
(2) Excludes properties that are under development or undergoing lease up, which includes 14 properties totaling 1.2 million square feet.
(3) Annualized effective rent represents annualized base rent net of rental concessions and abatements.
(4) Excludes properties that are under development or undergoing lease up, which includes 5 properties totaling 1,021 units.
The following table sets forth a summary schedule of commercial lease expirations for leases in place as of December 31, 2021,
plus available space, in our consolidated commercial portfolio assuming non-exercise of renewal options and early termination rights (dollars in millions):
Year of Lease Expiration
Number of Leases Expiring
Rentable
Square Feet(1)
Annualized Base Rent(1)
Expiring Annualized Base Rent as a Percent of Total
2022
293
1.5
$
24.5
14
%
2023
103
1.1
28.0
16
%
2024
88
0.6
20.3
11
%
2025
57
0.6
20.0
11
%
2026
73
0.5
19.4
11
%
2027
50
0.4
10.5
6
%
2028
18
0.2
8.0
5
%
2029
32
0.4
19.2
11
%
2030
27
0.1
3.7
2
%
2031
30
0.4
12.1
7
%
Thereafter
56
1.0
11.6
6
%
Total
827
6.8
$
177.3
100
%
(1)
Dollars and square footage in millions.
Our corporate headquarters are located in Beverly Hills, California. We also have eleven other offices throughout the United States, one office in London, UK, one office in Dublin, Ireland, one office in Madrid, Spain, one office in Jersey and one office in Luxembourg. The Beverly Hills office operates as the main investment and asset management center for us in the United States, while the UK, Ireland, Jersey, Luxembourg and Spain offices are the main investment and asset management centers for our European operations. We own our corporate headquarters and our office in Dublin, Ireland and lease all of our remaining offices. In addition, we have on-site property management offices located within properties that we manage. The most significant terms of the leasing arrangements for our offices are the length of the lease
and the rent. Our leases have terms varying in duration. The rent payable under our office leases vary significantly from location to location as a result of differences in prevailing commercial real estate rates in different geographic locations. Our management believes that except as provided below, no single office lease is material to our business, results of operations or financial condition. In addition, our management believes there is adequate alternative office space available at acceptable rental rates to meet our needs, although adverse movements in rental rates in some markets may negatively affect our profits in those markets when we enter into new leases.
The following table sets forth certain information regarding our corporate headquarters and regional offices.
Location
Use
Approximate Square Footage
Lease Expiration
Beverly Hills, CA
Corporate Headquarters
60,000
N/A*
London,
England
Regional Office
8,147
3/3/2023
Dublin, Ireland
Regional Office
17,000
N/A*
*Building is owned by a wholly-owned subsidiary of the Company.
Item 3. Legal
Proceedings
We may be involved in various legal proceedings arising in the ordinary course of business, none of which we currently believe is material to our business. From time to time, our real estate management division is named in “slip and fall” type litigation relating to buildings we manage. Our standard management agreement contains an indemnity provision whereby the building owner agrees to indemnify us and defend our real estate management division against such claims. In such cases, we are defended by the building owner’s liability insurer.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Stock Price Information
Our common stock trades on the NYSE under the symbol “KW.”
Holders
As of February 18, 2022, we had approximately 86 holders of record of our common stock.
Dividends
We declared and paid
quarterly dividends of $0.22 per share for the first three quarters of 2021 and $0.24 per share for the fourth quarter of 2021. We declared and paid quarterly dividends of $0.22 per share each quarters of 2020.
Recent Sales of Unregistered Securities
None
Equity Compensation Plan Information
See Item 12—“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
Performance Graph
The graph below compares the cumulative total return of our common stock from December 31, 2016 through December 31, 2021, with the comparable cumulative return of companies comprising
the S&P 500 Index and the MSCI World Real Estate Index. The graph plots the growth in value of an initial investment of $100 in each of our common stock, the S&P 500 Index, and the MSCI World Real Estate Index for the five-year period ended December 31, 2021, and assumes reinvestment of all dividends, if any, paid on the securities. The stock price performance shown on the graph is not necessarily indicative of future price performance.
Kennedy
Wilson uses the MSCI World Real Estate Index, which includes international real estate companies as a comparable benchmark. The information under this caption, “Performance Graph,” is deemed not to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that such filing specifically states otherwise.
(1)On March 20, 2018, our board of directors authorized us to repurchase up to $250 million of our common shares, from time to time, subject to market conditions. On November 4, 2020, our board of directors authorized us to repurchase an additional $250 million of our common shares, from time to time, subject to market conditions.
During the year ended December 31, 2021, the Company repurchased and retired a total of 2.8 million shares of its common stock at a weighted average price of $22.20.
In addition to the repurchases of the
Company’s common stock made above, the Company also withheld shares with respect to the vesting of restricted stock that the Company made to its employees. Shares that vested during the year ended December 31, 2021 and 2020 were net-share settled such that the Company withheld shares with value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes and remitted the cash to the appropriate taxing authorities. During the year ended December 31, 2021 and 2020,
total payments for the employees’ tax obligations to the taxing authorities were $20.5 million (967,536 shares withheld) and $11.6 million (571,983 shares withheld), respectively.
Real Estate Assets Under Management (AUM)
AUMgenerally refers to the properties and other assets with respect to which we provide (or participate in) oversight, investment management services and other advice, and which generally consist of real estate properties or loans, and investments in joint ventures. Our AUM is principally intended to reflect the extent of our presence in the real estate market, not the basis for determining our management fees. Our AUM consists of the total estimated fair value of the real estate properties and other real estate related assets either owned by third parties, wholly-owned by us
or held by joint ventures and other entities in which our sponsored funds or investment vehicles and client accounts have invested. Committed (but unfunded) capital from investors in our sponsored funds is not included in our AUM. The estimated value of development properties is included at estimated completion cost.
AUM increased
23% to approximately $21.6 billion as of December 31, 2021. The increase is primarily due acquisitions and fair value increases on our Western U.S. multifamily properties and European industrial assets. These were offset by dispositions of non core retail assets and foreign exchange translation losses primarily on Euro denominated assets.
Foreign currency and currency derivative instruments
Please refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation for a discussion regarding foreign currency and currency derivative instruments.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 to Kennedy-Wilson Holdings, Inc. and its wholly-owned subsidiaries. “Equity partners” refers to the subsidiaries that we consolidate in our financial statements under U.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 real estate with the objective of maximizing earnings over the long run for ourselves and our equity partners. We focus primarily on multifamily and office properties located in the Western United States, United Kingdom, and Ireland. As of December 31, 2021, we have 220 employees in 12 offices primarily located throughout the United States, the United Kingdom, Ireland and Spain. As of December 31, 2021, our AUM stood at $21.6 billion. The real estate that we hold in our global portfolio consists primarily of multifamily apartments (55%) and commercial (45%) based on Consolidated NOI and JV NOI. Geographically, we focus on the Western United States (60%), the United Kingdom (18%) and Ireland (19%).
COVID-19 Impact and Business
Update
The following discussion is intended to provide shareholders with certain information regarding the Company's operations and the impact of the COVID-19 pandemic on our business and management’s efforts to respond to the same. The pandemic commenced during the first quarter of 2020 and the duration and magnitude of it still remain uncertain at this time. Unless otherwise specified, the statistical and other information regarding our portfolio and tenants are estimates based on information available to us as of February 16, 2022. As a result of the rapid development, fluidity and uncertainty surrounding this situation, we expect that such statistical and other information may change, potentially significantly, going forward and may not be indicative of
the actual impact of the COVID-19 pandemic on our business, operations, cash flows and financial condition for 2022 and future periods.
Health and Safety of our Employees and Tenants
Our primary objective during the COVID-19 pandemic has been to protect the health and safety of our employees as well as the tenants and service providers across our portfolio. We have reopened all of our offices across the globe. Prior to reopening any office, we strictly followed applicable laws in preparing and maintaining the space to be as safe as possible and providing an environment that encourages the following of social distancing guidelines, including, without limitation, adopting hybrid office and remote working schedules and staggering employees' schedules to ensure ample space is available between work spaces and occupied offices. We will continue to monitor and follow local laws and
guidance to assess our ability to keep our offices open across the globe. Our IT infrastructure and communications are robust and we are focused on maintaining business continuity, while doing our share to support each community where we do business. The daily operations of our business are not materially directly dependent on a supply chain or production chain that may be disrupted due to the pandemic.
Impact to the Global Economy and Jurisdictions We Invest in
As a result of the unprecedented measures taken across the globe, the disruption and impact of the COVID-19 pandemic to the global economy and financial markets has been significant. We continue to closely monitor changes in applicable laws and COVID-19 guidance provided by local, state and federal regulators, or their equivalents, in the jurisdictions in which we operate. Nearly all the markets in which we operate continue
to enforce some form of restriction and/or special procedures on the operations of businesses and international travel due to the COVID-19 pandemic. Although the United States, United Kingdom, Ireland and Spain have eased certain restrictions and have generally started to allow industries to open and operate, there are still measures and restrictions in place that may increase or decrease in response to the impact of the COVID-19 pandemic. Additionally, the continued and long-lasting economic impact of the COVID-19 pandemic may lead to some of our multifamily tenants having difficulty in making rental payments on time.
In addition, substantial inflationary pressures could have a negative impact on certain real estate assets, including, without limitation, development projects that do not have guaranteed, or fixed price contracts
and real estate assets with long-term leases that do not provide for short-term rent increases. However, we continue to seek investments in markets where we
see opportunities for stronger relative growth, including multifamily assets with leases that have an initial term of 12 months or less, and continue to work to manage cost overrun risks for our development and redevelopment projects with detailed architectural plans, guaranteed, or fixed price contracts and close supervision by expert Company executives and personnel. Please refer to Development
and Redevelopment in the Liquidity and Capital Resources section for a more detailed discussion regarding our development initiatives.
Liquidity
Kennedy Wilson has a strong financial and capital position to help withstand the potential near-term cash flow impact caused by the COVID-19 pandemic. As of December 31, 2021, we had $524.8 million ($327.3 million of which is in foreign currencies of GBP or EUR) of cash on our consolidated balance sheet and have $425.0 million available to draw on our unsecured revolving credit facility.
As of December 31, 2021, we have 6.1 weighted average years to maturity on our debt obligations. We have limited debt maturities over 2022, which
total $197.3 million which are secured by non-recourse property-level financings and represent only 2% of our total outstanding debt obligations. During the year ended December 31, 2021, we closed the following bond offerings: (i) $600 million aggregate principal amount of 4.750% senior notes due 2029 (the “2029 Notes”), (ii) $600 million aggregate principal amount of 4.750% senior notes due 2030 (the "2030 Notes") and (iii) $600 million aggregate principal amount of 5.000% senior notes due 2031 (the “2031 Notes,” and together with the 2029 Notes and 2030 Notes, the “Notes”). During the year ended December 31, 2021, we used the proceeds from these offerings, in addition to cash on hand, to fully redeem our existing 5.875% Senior Notes due 2024 (the "2024 Notes"), repay $438.5 million on our revolving line of credit and fully repay the
KWE Bonds due 2022 ("KWE Bonds"). As discussed in further detail in "Liquidity and Capital Resources", 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.
Investment portfolio and 2021 Rent Collections
Our investment portfolio is diverse both geographically and by product type. In the United States, our portfolio is focused in the western part of the country. In Europe, our portfolio is
primarily located in Dublin, Ireland and the United Kingdom.
As of February 16, 2022, we have collected a total of 97% of our share of rents for the year ended December 31, 2021 from our properties in our global investment portfolio. Such collection rates may not be indicative of collections in any future period. As of December 31, 2021, 87% of our share of the total rents that we collect are generated from our global multifamily and office properties. During the year ended December 31, 2021, we identified $14.3 million of receivables and other lease-related assets that are no longer probable of being collected. Accordingly, the Company
will account for these leases on a cash basis and recognize rental income to the extent the Company receives cash from the tenants. Of the $14.3 million identified, $12.9 million related to our Consolidated portfolio and was recorded as a reduction of rental income and $1.4 million related to our share of rental income on our Co-Investments portfolio investments and was recorded as a reduction of income from unconsolidated investments. We have, however, received $11.7 million in cash collections relating to previously uncollectible amounts during the year ended December 31, 2021, which we have recorded to rental income. Cash collections are from asset management teams working to collect outstanding receivables from tenants and the receipt of rental relief amounts from various government programs. We intend to continue to work with
our tenants and utilize programs available to us to make further cash collections on previously reserved receivables. In addition to the $11.7 million we have collected above we have submitted $2.3 million of claims to rental relief programs that have not yet been approved and have $0.4 million that have been approved for payment but not yet been received. We will record additional rental income when we receive cash from these claims.
Global Multifamily Property Portfolio Rents and Leasing Updates
As of February 16, 2022, we have collected a total of 98% of our share of rents for the year ended December 31, 2021 from our properties in our global multifamily property portfolio. We have benefited
from certain of our tenants participating in rent relief or assistance programs available pursuant to certain legislation passed in the United States and other jurisdictions where we hold multifamily assets. Our multifamily tenants typically pay through direct debit transactions, and tenants within our affordable unit portfolio generally receive some assistance from various government programs, which helps enhance our collection efforts. As the COVID-19 pandemic continues, however, some of our multifamily tenants may have difficulty in making rental payments on time, or at all.
Global Commercial Property Portfolio Rents and Leasing Update
As
of February 16, 2022, we have collected 99% of our share of rents for the year ended December 31, 2021 from properties in our global office property portfolio, 85% of year ended December 31, 2021 rents from the properties in our global retail property portfolio and 98% of rents from our global industrial property portfolio. As of December 31, 2021, 11% of the total rents that we collect are generated from our global retail portfolio, 30% are generated from our global office portfolio and 1% from our global industrial portfolio.
Global Development and Hotel Update
In our development and redevelopment portfolio we have experienced delays on isolated projects, but we currently do not
expect significant cost increases as we have guaranteed, or fixed-rate construction contracts on most of our projects that are currently under construction and for projects that are in early phases we have not had to halt activities because we are mainly in the pre-construction phase and are able to continue progress on projects. Ireland incurred two construction impact lockdowns, the first occurred during the second quarter of 2020 and lasted for six weeks the second lasted for the entirety of the first quarter of 2021, with phased reopening beginning on April 12, 2021. Construction activity was halted during these lockdowns. We expect that this will push out our timeline on development projects, which we were on site, by four to five months but we believe that any associated costs can be covered within our existing contingency
plans on the assumption that there are no further extended national lockdowns. We have 65,000 square feet of office space and 89 multifamily units that we currently expect construction to be completed by the end of 2022. We also have three properties consisting of 188,000 square feet of commercial space that are undergoing lease up that we currently expect will be stabilized by the end of 2022. Our VHH portfolio also has 1,147 units that we expect will finish construction or complete lease up by the end of 2022. Please refer to Development and Redevelopment in the Liquidity and Capital Resources section for a more detailed discussion regarding our development initiatives.
The hospitality industry continues to be significantly impacted due to various travel restrictions in response to the COVID-19 pandemic. We voluntarily closed the Shelbourne
Hotel on March 15, 2020 and reopened the hotel on June 29, 2020 when we were permitted to do so under applicable laws and guidelines. Subsequent to the reopening, Ireland experienced multiple lockdowns and was in lockdown for the majority of the first half of 2021. The Shelbourne continues to remain open but we expect continued limited activity at the property due to travel restrictions, as a result of the ongoing COVID-19 pandemic, among other factors. As restrictions have started to be lifted we have seen revenues at The Shelbourne Hotel for the year ended December 31, 2021 increase of 23% as compared to the year ended December 31, 2020 and Consolidated NOI is up due to increased revenues as well as a focus on controlling expenses in the current period.
The following tables summarize the our results of operations by segment for the years ended December 31, 2021 and 2020 and is intended to be helpful in understanding the year over year explanations following the tables.
Our results of operations for 2019 and 2020 compared to 2019 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 ended December 31, 2020, filed with the SEC on February 26, 2021,
and is available on the SEC’s website at www.sec.gov and our Investor Relations website at www.ir.kennedywilson.com.
Statement of Income Presentation
As the Co-Investment business has grown, the Company is updating the presentation of related items in the statements of income for all periods presented as this presentation reflects the prominence of this core part of our business and more closely represents
how management evaluates results during an accounting period. The income from unconsolidated investments caption has been expanded to show principal co-investments and performance allocations. Principal co-investments consists of unrealized and realized gains on our Co-Investments including any fair value adjustments as the Company’s share of net income and losses from Co-Investments. Performance allocations relate to special allocations to co-investments the Company manages based on the cumulative performance of the fund or investment and are subject to preferred return thresholds of its limited partners. These captions have been moved above expenses as the Co-Investments business is a significant part of the Company’s
business. As the Company has compensation expense and general and administrative expenses relating to the management of this business presenting these amounts before Expenses also provides a better understanding of the nature of those expenses. Based on the foregoing, we have concluded this change in presentation is justified by the circumstances thereby supporting presentation in a different position and in a different manner from our historical presentation.
The Company has reported significant gains on sale of real estate, net in each period presented. Previously, gains on sale of real estate were presented after expenses. These gains contribute to the
Company’s compensation and related expenses and accordingly presentation of this significant, recurring component that is directly correlated to expenses should, in management’s view, precede those expenses on the statements of income. Furthermore, the Company accounts for gains on sale of real estate under ASC Subtopic 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets and we have determined that the updated presentation complies with that standard.
GAAP net income to common shareholders was $313.2 million and $92.9 million for the years ended December 31, 2021 and 2020,
respectively.
Adjusted EBITDA was $927.9 million for the year ended December 31, 2021, a 51% increase from $608.0 million for 2020. The increase in GAAP net income to common shareholders and Adjusted EBITDA is due to higher gains on sale of real estate and fair value increases on our Co-Investment assets offset by losses on early extinguishment of debt during the year ended December 31, 2021 as compared to the prior period.
Operational Highlights
Same store property highlights for the year ended December 31, 2021 include:
•For our 12,770 same property multifamily units for the year ended December 31,
2021 as compared to the prior period:
◦occupancy increased 1% to 95%
◦net operating income increased 5%
◦total revenues increased 4%
•For our 4.1 million square feet of same property office real estate for the year ended December 31, 2021 as compared to the prior period:
◦occupancy remained flat at 95% from the same period in 2020
◦net operating income increased 6%
◦total revenues increased 6%
•Investment
Transactions
◦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 $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)
•Significant Transactions
•We recorded significant fair value gains and performance allocation accruals (aggregate of $331.4 million) in the current period primarily due to the increase in value of our United States multifamily portfolio and European industrial portfolio. We have recently observed material rental rate increases for new leases and renewals in our US multifamily
portfolio which has increased the NOI at the properties. We have also observed (both from recent transactions that we have entered into and third party transactional market data) significant cap rate compression of US multifamily assets and industrial assets in our markets which also contributed to the fair value gains that we recorded during the period.
•On June 25, 2021, the Company and a global institutional investor partner launched a new joint venture with respect to core-plus multifamily properties located in the Western United States (the “JV”). The JV commenced with the partner purchasing a 49% ownership stake in nine multifamily assets (2,809 units) previously wholly-owned by us and valued at approximately $800 million (the “MF seed portfolio”).
The sale of the 49% ownership interest in the seed portfolio to its partner generated cash to the Company of $167 million. We do not control the JV, which led to the deconsolidation of our retained 51% interest resulting in a gain on sale of real estate in accordance with U.S. GAAP of $332.0 million. The gain is due to the sale of the 49% interest to our partner and the recording of our retained 51% interest in the remaining unconsolidated investments at the fair value established by the transaction. We earn customary asset management fees from our equity partner and will treat our retained interest as a fair value unconsolidated investment going forward.
•During the year ended December 31, 2021, we also sold Friars Bridge Court a wholly-owned office property in the
United Kingdom for a gain on sale of real estate of $73.9 million.
•We issued $1.8 billion in new senior notes and retired previous outstanding senior notes and KWE Bonds and repaid $438.5 million on our revolving line of credit. These transactions extended the weighted average maturity of our debt to 6.1 years and lowered our weighted average interest expense to 3.5% from 4.1 years
and 3.7% at December 31, 2020. We recognized a loss of $42.8 million due to the extinguishment of the 2024 Notes and KWE Bonds during the year ended December 31,
2021.
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.
Rental
income was $390.5 million for the year ended December 31, 2021 as compared to $403.9 million for 2020. The $13.4 million decrease is primarily due to the deconsolidation of the MF seed portfolio in the second quarter 2021 which led to a $26.3 million decrease in rental income. We still own 51% of the MF seed portfolio but rental income amounts are now in principal co-investments within income from unconsolidated investments. We also had a $7.7 million write-off of lease related assets related to the termination of a lease at Friars Bridge Court prior to its sale as discussed above. These decreases were offset by multifamily acquisitions in the Mountain States and office acquisitions in the United Kingdom completed during the period. Additionally, we had a $12.9 million reduction to rental income for the year ended December 31, 2021 as we assessed the full collection
of these rents as improbable. In the previous year, we had a $13.5 million reduction to rental income relating to improbable rent collections. Both periods were driven by the impact of COVID-19 pandemic. The reduction was offset by the cash collection of $11.7 million we received during the year ended December 31, 2021 on previously reserved receivables which increased rental income with no comparable activity in the prior period. The cash collections were primarily from governmental assistance programs for multifamily properties and collections of past due receivables at retail properties. We had 11% growth in rental income for our same store properties in the fourth quarter 2021 and expect this trend to continue into 2022 as tenants trade out apartments as COVID-19 restrictions and concerns start to abate.
Hotel income was $17.1
million for the year ended December 31, 2021 as compared to $13.9 million for 2020. The $3.2 million increase is primarily due to improved operations of the Shelbourne Hotel during the year ended December 31, 2021 as Ireland COVID restrictions have eased.
Gain on sale of real estate, net was $412.7 million for the year ended December 31, 2021 as compared to $338.0 million in the prior period. The gains recognized during the year ended December 31, 2021 relates to the sale of a 49% interest in and resulting deconsolidation of the assets that made up the MF seed portfolio and the sale of Friars Bridge Court, an office building in the United Kingdom. For the year ended December
31, 2020, gains on sale of real estate, net primarily relate to the sale of certain consolidated UK industrial assets to the European Industrial JV, the Club Palisades multifamily property in the Western United States, Baggot Plaza in Dublin, Ireland, Pioneer Point a multifamily property in the United Kingdom and certain other non-core assets in Europe. Included in the gains on sale of real estate, net for December 31, 2021 is an impairment loss of $20.9 million on two retail properties in the United Kingdom and a residential property in the Western United States. For the year ended December 31, 2020 an impairment loss of $15.6 million on five retail properties in the United Kingdom and a residential property in the Western United States was recorded in gains on the sale of real estate, net.
Rental expenses decreased to
$132.7 million for the year ended December 31, 2021 as compared to $135.7 million for the year ended December 31, 2020. The decrease is due to the Company being a net seller of assets in the prior period which has led to a decrease in assets in the Consolidated portfolio and lower rental expenses.
Hotel expenses decreased to $12.7 million for the year ended December 31, 2021 as compared to $13.8 million for the year ended December 31, 2020 primarily due to a focus on controlling costs in the current period due to periods of limited operations at The Shelbourne Hotel.
Compensation expense increased to $60.4 million for the year ended December 31, 2021 as compared to $59.7 million for the year ended December 31, 2020 primarily due to higher discretionary compensation expense.
General and administrative expenses decreased to $18.5 million for year the ended December 31, 2021 as compared to $20.6 million for the year ended December 31, 2020 due to there being fewer transactions in the Consolidated portfolio, resulting in lower overhead costs.
Depreciation and amortization decreased by $13.3 million. The decrease is primarily due to the
Company being a net seller of consolidated assets in the prior year as discussed above. This decrease was offset by a $2.5 million increase relating to the write off of leasing commissions to depreciation expense from the termination of a lease with a tenant at Friars Bridge Court.
Interest expense was $192.4 million for the year ended December 31, 2021 as compared to $201.9 million for the year ended December 31, 2020. The decrease is due to the decrease in consolidated property level debt resulting from the sale of assets and the payoff of the KWE Bonds.
Loss on early extinguishment of debt was $19.2 million for the year ended December 31, 2021 as
compared to $9.3 million in the same period in 2020. We incurred a $16.3 million loss associated with the redemption of the KWE Bonds and the remainder related to prepayment penalties on the refinance 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 ended December 31, 2021 as explained in the description of the "Corporate" segment below. For the year ended December 31, 2020 we had loan prepayments on the sale of assets of $9.3 million.
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 ended December 31, 2021, fees recorded through revenues were $35.3 million as compared to $22.5 million for the same period in 2020. During the year ended December 31, 2021 we had higher base management fees as a result of having more assets under management in our Co-Investment portfolio mainly from bringing in additional investors into our Europe Fund, new assets under management in our Europe Industrial JV and MF seed portfolio separate accounts and additional assets under management 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 $8.6 million for the year ended December 31,
2021 as compared to $3.1 million for the same period in 2020. These amounts represent interest income on our share of loans within our global real estate debt platform and the increase is due to the growth of the platform over the last year.
Expenses increased to $90.9 million for the year ended December 31, 2021 as compared to $26.9 million primarily due to accrued performance allocation compensation to employees relating to an increase in performance allocations on Co-Investments and higher discretionary compensation expenses.
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 ended December 31, 2021 and the year ended December 31, 2020:
Our share of JV NOI (rental income net of rental operating expenses) increased in the current period due to new acquisitions as well as the sale of interests in previously consolidated properties into unconsolidated partnerships resulting in moving
the recognition of income from these assets from our Consolidated portfolio to our Co-Investment portfolio as described above. During the year ended December 31, 2020, we received a surrender premium, which is a breakage fee we received from a tenant in the United Kingdom related to the early extinguishment of its lease and we experienced an increase in NOI in our VHH portfolio. Increases in JV NOI were offset by an impairment loss recorded in the third quarter of 2020 included in the table above within loss on sale of real estate of $6.7 million relating to a property in a retail portfolio in the United Kingdom that was subsequently sold during 2020, we took an additional impairment loss of $4.2 million in the fourth quarter 2020 on this portfolio that brought the carrying value of this joint venture to zero.
During
the year ended December 31, 2021, we had higher fair values 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 the Western United States and industrial assets in Europe. The cap rate compression was supported by recent transactions entered into by the Company, appraisals, as well as third party transactional and market data. NOI increases and cap rate compression both led to the increase in fair values. 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 from Meyers Research after our sale of that business in 2018.
During the year ended December 31,
2020, we had fair value gains on VHH primarily relating to conversions of development projects to operating properties as construction work was completed and lease up of the properties commenced. We also had fair value gains associated with the completion of Clancy Quay Phase 3 which is currently undergoing lease up and net foreign exchange gains relating to the strengthening of the euro against the U.S. dollar on our euro denominated fair value investments.
During the year ended December 31, 2021, we recorded a net $117.9 million increase in the accrual for performance allocations relating to our commingled funds and separate account investments. The increase in the accrual is due to higher fair values on market rate multifamily properties as discussed above and European Industrial JV assets in commingled funds and separate account investments that we manage. We had
$9.6 million of realized promote collected during the year ended December 31, 2021 from a separate account that held office properties in the Seattle area that fully disposed of all its assets in the third quarter 2021. During the year ended December 31, 2020, we recorded a net $2.6 million increase in the accrual for performance allocations. This was mainly due to increased values in the AXA joint venture primarily due to the completion of Clancy Quay Phase 3 as further discussed above and a portfolio of office buildings we manage in the Seattle area. These increases were offset by reductions in accrued performance allocations associated Fund V and VI due to lack of transactional activity for the period.
Property services fees decreased to $2.1 million during the year ended December 31, 2021 as compared to $10.6 million for December 31, 2020, due to the sale of the Property Services group in October 2020. The Company still maintains its estate sales and marketing business which generates certain real estate related services activity.
Expenses for the year ended December 31, 2021 were approximately $68.1 million as compared to $71.8 million for the year ended December 31, 2020 the decrease
is due to lower general and administration expenses from the sale of the Property Services group in the prior period and lower share-based compensation expense in the current period. This amount includes any accrued amounts for grants made to our non-named executive officer employees under our Deferred Compensation Plan as discussed in this report.
Interest expense was $73.3 million for the year ended December 31, 2021 as compared to $69.5 million for the same period in 2020. The increase is due to higher corporate debt balances for the year ended December 31, 2021 primarily from the 2030 Notes issuance which a portion of was used to repay the KWE Notes. Interest expense associated with the KWE Notes was part of the Consolidated segment which had lower interest expense for the year ended December 31,
2021.
The $26.5 million loss on the early extinguishment of debt is 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 prior period.
Our provision for income taxes was $126.2 million for the year ended December 31, 2021 as compared to an income tax provision of $43.6 million for the year ended December 31, 2020. The increase in income tax expense is primarily attributable to a $311.1 million increase in worldwide pre-tax book income in 2021 as compared to the same period in the prior year. Our effective tax rate for December 31, 2021 was 27.3% as compared to an effective tax rate of 28.8% in 2020.The
effective tax rate for 2021 exceeds the statutory tax rate due to non-deductible executive compensation, certain foreign taxes which are not creditable in the United States, and disallowed interest deductions in the United Kingdom.The effective tax rate for 2020 exceeds the statutory tax rate due to non-deductible executive compensation, an increased in valuation allowances against deferred tax assets, and disallowed interest deductions in the United Kingdom.
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 ended December 31, 2021 and 2020.
Year Ended December 31,
(Dollars in millions)
2021
2020
Net income attributable to Kennedy-Wilson Holdings, Inc. common
shareholders
$
313.2
$
92.9
Unrealized foreign currency translation (loss) gain, net of noncontrolling interests and tax
(57.5)
65.8
Amounts reclassified out of accumulated other comprehensive loss during the period
2.2
0.8
Unrealized
foreign currency derivative contract gain (loss), net of noncontrolling interests and tax
56.2
(37.8)
Unrealized gain (loss) on interest rate swaps
3.2
(5.2)
Comprehensive income attributable to Kennedy-Wilson Holdings, Inc. common shareholders
$
317.3
$
116.5
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 year ended December 31, 2021 and 2020 as compared to the U.S. Dollar:
Comprehensive
income, net of taxes and noncontrolling interests, for the year ended December 31, 2021 and 2020 was $317.3 million and $116.5 million, respectively. The Company experienced net unrealized losses on foreign currency through other comprehensive income for the period due to EUR and GBP weakening against the U.S. Dollar. Unrealized hedge gains were driven by hedges that KWE holds on its euro denominated investments and 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.
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. 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. As of December 31, 2021, we and our consolidated subsidiaries had approximately $524.8 million ($327.3 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 $103.7 million and we had $425.0 million of availability under lines of credit. As of December 31, 2021, we have $24.2 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.
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. Please also see the section titled “COVID-19 Impact” above and 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 of December 31, 2021 we have 2,279 multifamily units, 0.5 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 $1.2 billion, which we expect would be funded through our existing equity, third party equity, project sales and secured debt financing. As of December 31, 2021, we have incurred $550.0 million of costs to date and expect to spend an additional $669.0 million to develop to completion or complete the entitlement process on these projects. Of the $669.0 million of remaining costs to complete
we currently expect $285.0 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 2,130 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 $24.6 million in cash from paid developer fees
and proceeds from the sale of tax credits.
The figures described in the two preceding paragraphs and in the table below are budgeted costs and are subject to change. There is no certainty that the Company will develop or redevelop any or all of these potential projects and the Company and its equity partners are under no obligation to complete these projects and may dispose of any such assets after adding value through the entitlement process. These are budgeted figures and are subject
to change (increase or decrease) due to a number of factors (some of which are beyond our control), including, that these projects are being developed under construction management contracts with the general contractors and therefore we and our equity partners could be called upon to contribute additional capital in the event that actual costs exceed budgeted costs. The scope of these projects may also change. The estimated costs and amounts of cash to complete projects reflected in the table below represent management's current expectations and the total costs incurred to date include the land costs of these projects.
The table below describes the market rate development or redevelopment projects that the Company is undergoing or considering, and
excludes the affordable and/or age-restricted multifamily units that it is developing in its VHH platform and its residential investments ($ in millions).
If Completed
Current
Location
Type
Investment
Status
Est.
Completion Date(1)
Commercial Sq. Ft.
MF Units / Hotel Rooms
KW Est. Total Cost(4)
KW Costs Incurred(4)
KW Est. Costs to Complete(2)
Ireland(3)
Office
Kildare(5)
Under
Construction
2022
65,000
—
$
63
$
53
$
10
Mountain West
Multifamily
RiverPointe(5)
Under Construction
2022
—
89
23
12
11
Nor California
Multifamily
38o
North Phase II(5)
Under Construction
2023
—
172
73
7
66
Mountain West
Multifamily
Dovetail(5)
Under Construction
2023
—
240
56
10
46
Mountain
West
Multifamily
Oxbow
Under Construction
2023
—
268
41
6
35
Ireland(3)
Office
Coopers Cross(6)
Under Construction
2023
395,000
—
168
77
91
Ireland(3)
Multifamily
Coopers
Cross(6)
Under Construction
2023
—
471
125
91
34
Ireland(3)
Multifamily
Grange(6)
Under Construction
2023
7,000
287
70
36
34
Hawaii
Hotel
Kona
Village Resort(6)
Under Construction
2023
—
150
342
210
132
Pacific Northwest
Multifamily
Two10
Under Construction
2023
—
210
60
7
53
Ireland(3)
Mixed-Use
The
Cornerstone (formerly "Leisureplex")(5)
Under Construction
2024
20,000
232
71
21
50
So. California
Multifamily
University Glen Phase II(5)
Planning Received
2024
—
310
109
2
107
Mountain
West
Multifamily
Bend
In Planning
TBD
—
TBD
TBD
18
TBD
Total
487,000
2,429
1,201
$
550
$
669
(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, 2021. Total remaining costs may be financed with third-party cash contributions, proceeds from projected sales, and/or debt financing. We expect to fund $285 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 €0.88 = $1 USD and £0.74 = $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 eight assets that
comprise 0.9 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 $44.1 million. The cost to complete this work and the time frame described is subject to many uncertainties that are beyond our control, and the actual costs may be significantly higher than the estimates shown below.
The table below describes assets that are currently unstabilized ($ in millions):
Property
Location
Type
KW
Ownership
# of Assets
Commercial Sq. Ft.
Leased %
KW Est. Costs to Complete(1)
2022
Hanover Quay
Ireland(2)
Office
60%
1
69,000
—
%
$
2.5
Stockley
Park
United Kingdom(2)
Office
100%
1
54,000
—
0.2
Maidenhead
United Kingdom(2)
Office
100%
1
65,000
—
0.1
2022
Subtotal
3
188,000
—
%
2.8
2023
The Oaks
Southern California
Office
100%
1
357,000
59
%
10.9
136
El Camino
Southern California
Office
100%
1
30,000
—
8.9
Hamilton Landing H7
Northern California
Office
100%
1
61,000
—
5.8
Various
United
Kingdom(2)
Office
100%
2
281,000
34
15.7
2023 Subtotal
5
729,000
42
%
41.3
Total
Lease-Up
8
917,000
33
%
$
44.1
Note: The table above excludes minority-interest investments and four wholly-owned assets expected to sell, totaling 333 units, 1.4 million commercial sq. ft., and KW Gross Asset Value of $131.9 million.
(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, 2021. 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 €0.88 = $1 USD and £0.74 = $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 March 20, 2018, our Board
of Directors approved the repurchase of up to $250 million of the Company’s common stock. 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, 2021, we had $176.0 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 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, 2021, 2020 and 2019the Company
recognized $11.7 million, $6.4 million and $3.6 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. Sixty percent of the award to each employee vest 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.
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 ended December 31, 2021, 2020 and 2019:
Year
ended December 31,
(Dollars in millions)
2021
2020
2019
Net cash used in operating activities
$
(30.3)
$
(12.6)
$
(19.5)
Net cash (used in) provided by investing activities
(1,038.0)
590.8
182.3
Net
cash provided by (used in) financing activities
632.0
(206.6)
(85.8)
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 ended December 31, 2021, 2020 and 2019, cash flows used by operations were $30.3 million,
$12.6 million and $19.5 million, respectively.
The increase in cash used in operations was primarily due to premiums paid on the early redemption of 2024 Notes and KWE Bonds, additional interest expense associated with higher corporate loan balances and a $19.0 million surrender premium we paid to terminate a lease at Friars Bridge Court in order to secure a new tenant for the building prior to its sale and the payment of discretionary bonuses. These were offset by higher operating distributions from our Co-Investment portfolio.
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.
Net cash used in investing activities totaled $1,038.0 million for the year ended December 31, 2021. We received $486.4 million primarily from the sale of the MF seed portfolio and Friars Bridge Court an office building in the United 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 were $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. During the current period we acquired $1,131.8 million of consolidated real estate assets including Embassy
Gardens an office building in London and multifamily properties in Pacific Northwest and Mountain West region. 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 on Kona Village and new acquisitions made within our European Industrial JV platform and commingled funds. The settlement of
Net cash provided by investing activities totaled $590.8 million for the year ended December 31, 2020. During the year ended December 31, 2020, we spent $70.1 million on acquisitions of consolidated real estate and $194.1 million on capital expenditures on consolidated assets, as well as continued investments in our development properties and value add properties. We received $827.8 million from the sale of industrial assets in the United Kingdom to the European Industrial JV, Baggot Plaza in Dublin, Club Palisades, a multifamily property in the Western United States, and non-core assets in Europe. Issuance of new loan investments were
$88.6 million during the year ended December 31, 2020. We had $34.1 million of collections on loans primarily from the sale of a loan in Dublin secured by a multifamily property. We received $177.5 million in investing distributions from our co-investments primarily from the sale of an additional 30% interest of three multifamily properties to AXA as part of our separate account platform. We also contributed $111.6 million to unconsolidated investments that were primarily used to fund our share of capital calls on our commingled funds and investments undergoing development. The settlement of foreign currency derivatives netted $15.5 million during the year ended December 31, 2020.
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.
Net cash provided by financing activities totaled $632.0 million for the year ended December 31, 2021. The Company received proceeds of $1,804.3 million from the issuance of 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 ended December 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 ended December 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.
Net cash used in financing activities totaled $206.6 million for the year ended December 31, 2020. We received proceeds of $296.4 million from mortgage loans
to finance property acquisitions and to refinance existing investments, which were offset by the repayment of $487.1 million of investment debt mainly driven by repayment of mortgages on sold consolidated properties. During the year ended December 31, 2020, we borrowed $200.0 million on our credit facility. Distributions of $18.9 million were paid to noncontrolling interest holders primarily as a result of asset sales and cash received from financings. During the year ended December 31, 2020, we paid $126.1 million of dividends to our common stockholders and $13.6 million of dividends to our preferred shareholders. We also returned $57.4 million to shareholders through share repurchases as part of our share repurchase plan discussed above.
Contractual Obligations and Commercial Commitments
At December 31, 2021, Kennedy Wilson's contractual cash obligations, including debt, lines of credit, operating leases and ground leases included the following:
Payments
due by period
(Dollars in millions)
Total
Less than 1 year
1 - 3 years
4 - 5 years
After 5 years
Contractual obligations
Borrowings:(1)(4)
Mortgage
debt(2)
$
2,974.9
$
17.4
$
1,371.0
$
725.9
$
860.6
Senior notes(3)
1,800.0
—
—
—
1,800.0
Credit
facility
75.0
—
75.0
—
—
KWE unsecured bonds(5)
626.2
—
626.2
—
—
Total
borrowings(4)
5,476.1
17.4
2,072.2
725.9
2,660.6
Operating leases
2.3
1.3
0.9
0.1
—
Ground
leases(8)
33.2
0.3
0.5
0.5
31.9
Total contractual cash obligations(6)(7)
$
5,511.6
$
19.0
$
2,073.6
$
726.5
$
2,692.5
(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 - $113.6 million; 1-3 years - $287.0 million; 4-5 years - $83.9 million; After 5 years - $67.2 million. The interest payments on variable rate debt have been calculated at the interest rate in effect as of December 31, 2021.
(2)Excludes $2.5 million net unamortized debt premium on mortgage debt.
(3)Excludes $3.9 million unamortized debt discount on senior notes.
(4)Excludes $45.8 million of unamortized loan fees.
(5) Excludes $2.1 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 - $18.2 million; 1-3 years - $2,024.2 million; 4-5 years - $722.2 million; After 5 years - $2,655.2 million.
(7) Table above excludes $113.7 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.
Indebtedness and Related Covenants
The following describes certain indebtedness and related covenants.
Senior Notes Payable
On February 11, 2021, Kennedy-Wilson, Inc., issued $500.0 million aggregate principal amount of 4.750% senior notes due 2029 (the “2029 notes”) and $500.0 million aggregate principal amount of 5.000% senior notes due 2031 (the “2031 notes” and, together with the 2029 notes, the “initial notes”). On March
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 which Kennedy Wilson previously issued 2029 notes and the 2031 notes. On August 23, 2021, Kennedy-Wilson, Inc. issued $600.0 million aggregate principal amount of 4.750% senior notes due 2030 (the "2030 notes" and, together with the 2029 notes, the 2031 notes and the additional notes, the "notes"). The notes are senior, unsecured obligations of Kennedy Wilson and are guaranteed by Kennedy-Wilson Holdings, Inc. and certain subsidiaries of Kennedy 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 on March 1 and September 1 of each year, beginning on September 1, 2021 for the 2029 notes and 2031 notes and March 1, 2022 for the 2030 notes. The notes will mature on March 1, 2029 (in the case of the 2029 notes), February 1, 2030 (in case of 2030 notes) and March 1, 2031 (in the case of the 2031 notes), in each case unless earlier repurchased or redeemed. At any time prior to March 1, 2024 (in the case of the 2029 notes), September
1, 2024 (in the case of the 2030 notes) or March 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 after March 1, 2024 (in the case of the 2029 notes), September 1, 2024 (in the case of the 2030 notes) or March 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 to March 1, 2024 (for 2029 notes and 2031 notes) and September 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 require Kennedy 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 at December 31, 2021.
KWE Senior Notes Payable
KWE has $625.4 million (based on December 31, 2021 rates) (€550 million) (the "KWE Notes"). The KWE Notes were issued at a discount and have a carrying value of $624.1 million, have an annual fixed coupon of 3.25%, and mature in 2025.
Borrowings Under Line of Credit
Kennedy-Wilson, Inc. (the “Borrower”), a wholly-owned subsidiary of Kennedy-Wilson Holdings,
Inc. (the “Company”), KWH and certain subsidiaries of the Company (the “Subsidiary Guarantors”) on March 25, 2020 extended its existing $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 of March 25, 2024. Subject to certain conditions precedent and at Kennedy-Wilson, Inc.’s (the "Borrower") option, the maturity date of the Second A&R Facility may be extended by one year.
The
Company has $75.0 million outstanding on the A&R Facility on December 31, 2021 with $425.0 million available to be drawn under the revolving credit facility.
Debt Covenants
The Second A&R Facility and the indentures governing the notes contain numerous restrictive covenants that, among other things, limit Kennedy Wilson's 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 requires Kennedy Wilson to maintain a minimum consolidated tangible net worth and a specified amount of cash and cash equivalents.
The Second A&R Facility has certain covenants as defined within its Second Amended and Restated Credit Agreement, dated as of March 25, 2020 (the "Credit Agreement") that, among other things, limit the Company and certain of its subsidiaries’ ability to incur additional indebtedness, repurchase capital stock or debt, 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 Credit Agreement 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 of the March 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 of December 31, 2021, the Company was in compliance with these 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 limit Kennedy-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 of December 31, 2021, 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 in Europe, 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). 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. As of December 31, 2021, the Company received waivers on certain debt covenants on a loan agreement governing a total of $71.9 million or 2% of our consolidated mortgage balance. The
mortgage is secured by a retail shopping center in the United Kingdom. The loan is non-recourse to the Company and the waiver is through February 28, 2022 and covers interest coverage and loan-to-value covenants. The Company expects to be in compliance with these covenants subsequent to December 31, 2021, or will seek additional waivers and/or extensions as, and if needed. In the event the Company is required to seek such additional waivers and/or extensions, the Company is currently confident that it will be able to secure the
same. The Company is current on all payments (principal and interest) for its property-level mortgages including the loans discussed above.
As of December 31, 2021, the Company was in compliance with or had received waivers on property-level mortgages on all covenant calculations after taking into consideration the waivers discussed above.
Off-Balance Sheet Arrangements
Guarantees
We have provided guarantees associated with
loans secured by consolidated assets. At December 31, 2021, the maximum potential amount of future payments (undiscounted) we could be required to make under the guarantees was approximately $186.0 million at December 31, 2021. The guarantees expire through 2031 and our performance under the 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 of December 31, 2021, we have unfulfilled capital commitments totaling $113.7 million to our unconsolidated investments and $21.6 million to our loan portfolio. In addition to the unfunded capital
commitments on its joint venture investments, the Company has $140.3 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
Inflation has not had a significant impact on the results of operations of our company in recent years.
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.
Qualitative and Quantitative Disclosures about Market Risk
Our
primary market risk exposure relates to changes in interest rates in connection with our short-term borrowings, some of which bear interest at variable rates based on the lender’s base rate, prime rate, EURIBOR, GBP LIBOR, or LIBOR plus an applicable borrowing margin. These borrowings do not give rise to a significant interest rate risk because they have short maturities. However, the amount of income or loss we recognize for unconsolidated joint ventures or consolidated interest expense from property level debt may be impacted by changes in interest rates. Our exposure to market risk also consists of foreign currency exchange rate fluctuations related to our international operations.
Interest Rate Risk
We have established an interest rate management policy, which attempts to minimize our overall cost of debt while taking into consideration the earnings implications associated
with the volatility of short-term interest rates. As part of this policy, we have elected to maintain a combination of variable and fixed rate debt. As of December 31, 2021, 79% of our consolidated debt is fixed rate, 12% is floating rate with interest caps and 9% is floating rate without interest caps.
We hold variable rate debt on some of our consolidated properties that are subject to interest rate fluctuations. In order to mitigate some of the risk associated with increasing interest rates we have purchased interest rate caps that limit the amount that interest expense can increase with rate increases. However, some of our debt is uncapped and the mortgages that do have interest caps are subject to increased interest expense until rates hit the level of caps that have been purchased. If there was a 100-basis point increase or decrease, we would have a $7.4 million increase
in interest expense or negligible interest expense savings during 2021 on our current consolidated mortgages. The weighted average strike price on caps and maturity of Kennedy Wilson’s variable rate mortgages is 1.65% and approximately 2.2 years, respectively, as of December 31, 2021.
The table below represents contractual balances of our financial instruments at the expected maturity dates as well as the fair value as of December 31, 2021. The weighted average interest rate for the various assets and liabilities presented are actual as of December 31, 2021. We closely monitor the fluctuation in interest rates, and if rates were to increase significantly, we believe that we would be able to either hedge the change in the interest rate or refinance the loans with fixed interest
rate debt. All instruments included in this analysis are non-trading.
The financial statements of Kennedy Wilson's subsidiaries located outside the United States are measured using the local currency as this is their functional currency. The assets and liabilities of these subsidiaries are translated at the rates of exchange at the balance
sheet date and income and expenses are translated at the average monthly rate. The foreign currencies include the euro and the British pound sterling. Cumulative translation adjustments, to the extent not included in cumulative net income, are included in the consolidated statement of equity as a component of accumulated other comprehensive income. Currency translation gains and losses and currency derivative gains and losses will remain in other comprehensive income unless and until the Company substantially liquidates underlying investments.
Approximately 44% of our investment account is invested through our foreign platforms in their local currencies. Investment level debt is generally incurred in local currencies and therefore we consider our equity investment as the appropriate exposure to evaluate for hedging purposes. Additionally,
the costs to operate these businesses, such as compensation, overhead and interest expense are incurred in local currencies. We typically do not hedge future operations or cash flows of operations denominated in foreign currencies, which may have a significant impact on the results of our operations for both the Consolidated and Co-Invest segments. In order to manage the effect of these fluctuations, we generally hedge our book equity exposure to foreign currencies through currency forward contracts and options. As of December 31, 2021 we have hedged 89% of the gross asset carrying value of our euro denominated investments and 87% of the gross asset carrying value of our GBP denominated investments.
Our investment management businesses typically do not require much capital, so foreign
currency translation and derivative activity primarily relates to the investments segment as that has greater balance sheet exposure to foreign currency fluctuations.
If there was a 5% increase or decrease in foreign exchange rates on the currencies we invest to the U.S. Dollar our net asset value would increase by $26.1 million or decrease by $26.3 million. If rates moved 10% we would have an increase of $52.0 million and a decrease of $52.6 million.
Financial Measures and Descriptions.
Rental - rental income is comprised of rental revenue earned by our consolidated real estate investments.
Hotel - hotel
income is comprised of hotel revenue earned by our consolidated hotels.
Investment Management Fees - Investment management fees are primarily comprised of base asset management fees, and acquisition fees generated by our investment management division. Fees earned from consolidated investments are eliminated in consolidation with the amount relating to our equity partners being recognized through income attributable to noncontrolling interests.
Property Services - Property services fees are primarily comprised of property management fees, leasing fees and sales commissions generated by our property services division until its sale in the fourth quarter of 2020. Fees earned from consolidated investments are eliminated in consolidation with the amount relating to our equity partners being recognized through income attributable to noncontrolling
interests.
Loans and other income - Interest income earned on consolidated loans
Income from unconsolidated investments - principal co-investments - Income from unconsolidated investments - principal co-investments consists of the Company’s share of income or loss earned on investments in which the Company can exercise significant influence but does not have control. Income from unconsolidated investments includes income or loss from ordinary course operations of the underlying investment, gains or losses, on sale, fair value gains and losses
Income from unconsolidated investments - performance allocations - Performance
allocations relate to allocations to the general partner, special limited partner or asset manager of Kennedy Wilson's co-investments it manages based on the cumulative performance of the fund and are subject to preferred return thresholds of the limited partners.
Gain on sale of real estate, net - Gain on sale of real estate, net relates to the amount received over the carrying value of assets sold that met the definition of a business under U.S. GAAP.
Rental - rental expenses consists of the expenses of our consolidated real estate investments, including items such as property taxes, insurance, maintenance and repairs, utilities, supplies, salaries and management fees.
Hotel - hotel expenses consists of expenses of our consolidated hotel investments, including
items such as property taxes, insurance, maintenance and repairs, utilities, supplies, salaries and management fees.
Compensation and related - employee compensation, comprising of salary, bonus, employer payroll taxes and benefits paid on behalf of employees
Share-based compensation - compensation associated with the grants of share-based awards.
Performance allocation compensation - compensation associated with up to thirty-five percent (35%) of any performance allocation earned by certain commingled
funds and separate account investments to be allocated to certain non-NEO employees of the Company.
General and administrative - general and administrative expenses represent administrative costs necessary to run Kennedy Wilson's businesses and include items such as occupancy and equipment expenses, professional fees, public company costs, travel and related expenses, and communications and information services.
Depreciation and amortization - depreciation and amortization is comprised of depreciation expense which is recognized ratably over the useful life of an asset and amortization expense which primarily consist of the amortization of assets allocated to the value of in-place leases upon acquisition of a consolidated real estate asset.
Interest
expense - Interest expense represents interest costs associated with our senior notes payable, revolving credit facility, mortgages on our consolidated real estate, and unsecured debt held by KWE.
Other income (loss) - Other income (loss) includes the realized foreign currency exchange income or loss relating to the settlement of foreign transactions during the year which arise due to changes in currency exchange rates, realized gains or losses related to the settlement of derivative instruments, the gain or loss on the sale of marketable securities, interest income on bank deposits, commission expenses on property services and transaction related expenses related to unsuccessful deals.
Income taxes - The Company’s services
business operates globally as corporate entities subject to federal, state, and local income taxes and the investment business operates through various partnership structures to acquire wholly-owned or jointly-owned investments in multifamily, commercial, residential and development properties. The Company’s distributive share of income from its partnership investments will be subject to federal, state, and local taxes and the related tax provision attributable to the Company’s share of the income tax is reflected in the consolidated financial statements.
Noncontrolling Interests - Noncontrolling interests represents income or loss attributable to equity partners for their ownership in investments which the
Company controls. Income or loss is attributed to noncontrolling interest partners based on their respective ownership interest in an investment.
Accumulated other comprehensive income - Accumulated other comprehensive income represents the Company's share of foreign currency movement on translating Kennedy Wilson's foreign subsidiaries from their functional currency into the Company's reporting currency. These amounts are offset by Kennedy Wilson's effective portion of currency related hedge instruments.
Non-GAAP Measures and Certain Definitions
“KWH,”"KW,"“Kennedy Wilson,” the "Company,""we,""our," or "us" refers to Kennedy-Wilson Holdings, Inc. and its wholly-owned subsidiaries. The consolidated financial statements of the Company include the results of the Company's consolidated subsidiaries.
“KWE” refers to Kennedy Wilson Europe Real Estate Limited.
“Adjusted EBITDA” represents net income before interest expense, loss on early extinguishment of debt, our share of interest expense included in unconsolidated investments,
depreciation and amortization, our share of depreciation and amortization included in investments in unconsolidated investments, provision for (benefit from) income taxes, our share of taxes include in unconsolidated investments, share-based compensation and EBITDA attributable to noncontrolling interests. Please also see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP measures” for a reconciliation of Adjusted EBITDA to net income as reported under GAAP. Our management uses Adjusted EBITDA to analyze our business because it adjusts net income for items we believe do not accurately reflect the nature of our business going forward or that relate to non-cash compensation expense or noncontrolling interests. Such items may vary for different companies for reasons unrelated to overall operating performance. Additionally, we believe Adjusted EBITDA is useful to investors to assist them in getting a more accurate picture
of our results from operations. However, Adjusted EBITDA is not a recognized measurement under GAAP and when analyzing our operating performance, readers should use Adjusted EBITDA in addition to, and not as an alternative for, net income as determined in accordance with GAAP. Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Furthermore, Adjusted EBITDA is not intended to be a measure of free cash flow for our management’s discretionary use, as it does not remove all non-cash items (such as non-cash acquisition-related gains or expenses) or consider certain cash requirements such as tax and debt service payments. The amount shown for Adjusted EBITDA also differs from the amount calculated under similarly titled definitions in our debt instruments, which are further adjusted to reflect certain other cash and non-cash charges and are used to determine compliance
with financial covenants and our ability to engage in certain activities, such as incurring additional debt and making certain restricted payments.
“Adjusted Net Income” represents net income before depreciation and amortization, our share of depreciation and amortization included in unconsolidated investments, share-based compensation, net income attributable to noncontrolling
interests, before depreciation and amortization, preferred dividends and accretion of preferred stock issuance costs and one-time tax remeasurement. Please also see "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Certain Non-GAAP Measures and Reconciliations" for a reconciliation of Adjusted Net Income to net income as reported under GAAP.
“Consolidated Portfolio NOI” refers to the NOI that is generated from the properties that we have an ownership interest in and are held in our Consolidated Properties business segment. Please also see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Certain Non-GAAP Measures and Reconciliations” for a reconciliation of Consolidated Portfolio NOI to net income as reported under GAAP.
"Equity partners" refers to non-wholly-owned subsidiaries that we consolidate in our financial statements under U.S. GAAP and third-party equity providers.
"Fee
Bearing Capital"represents total third-party committed or invested capital that we manage in our joint-ventures and commingled funds that entitle us to earn fees, including without limitation, asset management fees, construction management fees, acquisition and disposition fees and/or performance allocations, if applicable.
"Gross Asset Value” refers to the gross carrying value of assets, before debt, depreciation and amortization, and net of noncontrolling interests.
"Real Estate Assets under Management" ("AUM") generally refers to the properties and other assets with respect to which we provide (or participate in) oversight, investment management services and other advice, and which generally consist of real estate properties or loans, and investments in joint
ventures. Our AUM is principally intended to reflect the extent of our presence in the real estate market, not the basis for determining our management fees. Our AUM consists of the total estimated fair value of the real estate properties and other real estate related assets either owned by third parties, wholly-owned by us or held by joint ventures and other entities in which our sponsored funds or investment vehicles and client accounts have invested. Committed (but unfunded) capital from investors in our sponsored funds is not included in our AUM. The estimated value of development properties is included at estimated completion cost.
“Co-Investment Portfolio NOI” refers to the NOI that is generated from the properties that we have an ownership interest in and are held in our Co-investment Properties business segment. Please also see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations - Certain Non-GAAP Measures and Reconciliations” for a reconciliation of Co-Investment Portfolio NOI to net income as reported under GAAP.
"Net operating income" or " NOI” is a non-GAAP measure representing the income produced by a property calculated by deducting certain property expenses from property revenues. Our management uses net operating income to assess and compare the performance of our properties and to estimate their fair value. Net operating income does not include the effects of depreciation or amortization or gains or losses from the sale of properties because the effects of those items do not necessarily represent the actual change in the value of our properties resulting from our value-add initiatives or changing market conditions. Our management believes that net operating income reflects the core revenues and costs of operating our properties and
is better suited to evaluate trends in occupancy and lease rates.
"Noncontrolling interests" represents the portion of equity ownership in a consolidated subsidiary not attributable to Kennedy Wilson.
“Same property” refers to properties in which Kennedy Wilson has an ownership interest during the entire span of both periods being compared. The same property information presented throughout this report is shown on a cash basis and excludes non-recurring expenses. This analysis excludes properties that are either under development or undergoing lease up as part of our asset management strategy.
We use certain non-GAAP measures to analyze our business, including Adjusted EBITDA and Adjusted Net Income. We use these metrics for evaluating the success of our
company and believe that they enhance the understanding of our operating results. A reconciliation of net income to Adjusted EBITDA and Adjusted Net Income is presented below:
The same property analysis reflects, and is weighted by, Kennedy Wilson's ownership in each underlying property. Previously, the Company had presented this analysis without adjusting for Kennedy Wilson's ownership interest.
The table below is a reconciliation of Non-GAAP measures included within the Company's same property analysis, to their most comparable GAAP measures.
(1) Represents rental revenue and rental expenses and hotel revenue and hotel expenses attributable to non-controlling interests.
(2) Represents the
Company’s share of unconsolidated investment rental revenues and rental expenses, as applicable, which are within the applicable same property population.
(3) Represents properties excluded from the same property population that were purchased or sold during the applicable period.
(4) Represents properties excluded from the same property population that were not stabilized during the applicable periods.
(5) Represents other properties excluded from the same property population that were not classified as either a commercial or multifamily property within the Company’s portfolio. Also includes immaterial adjustments for foreign exchange rates, changes in ownership percentages,
and certain non-recurring income and expenses.
Critical Accounting Policies
A critical accounting policy is one that involves an estimate or assumption that is subjective and requires judgment on the part of management about the effect of a matter that is inherently uncertain and is material to an entity’s financial condition and results of operations. Estimates are prepared using management’s best judgment, after considering past and current
economic conditions and expectations for the future. Changes in estimates could affect our financial
position and specific items in our results of operations that are used by stockholders, potential investors, industry analysts and lenders in their evaluation of our performance. Of the significant accounting policies discussed in Note 2 to the Consolidated Financial Statements, those presented below have been identified by us as meeting the criteria to be considered critical accounting policies. Refer to Note 2 for more information on these critical accounting policies.
Performance Allocations
Performance allocations or carried interest are allocated to the general partner, special limited partner or asset manager of Kennedy Wilson's real estate funds and fair value option unconsolidated investments based on the cumulative performance of the fund and are subject to preferred return thresholds of the
limited partners and participants. At the end of each reporting period, Kennedy Wilson calculates the performance allocation that would be due as if the fair value of the underlying investments were realized as of such date, irrespective of whether such amounts have been realized. As the fair value of underlying investments varies between reporting periods, it is necessary to make adjustments to amounts recorded as performance allocations to reflect either (a) positive performance resulting in an increase in the performance allocations to the general partner or asset manager or (b) negative performance that would cause the amount due to Kennedy Wilson to be less than the amount previously recognized, resulting in a negative adjustment to performance allocations to the general partner or asset manager.
Real Estate Acquisitions
The purchase price of acquired properties is recorded
to land, buildings and building improvements and intangible lease value (value of above-market and below-market leases, acquired in-place lease values, and tenant relationships, if any). The ownership of the other interest holders in consolidated subsidiaries is reflected as noncontrolling interests. Real estate is recorded based on cumulative costs incurred and allocated based on relative fair value.
The valuations of real estate are based on management estimates of the real estate assets using income and market approaches. The indebtedness securing the real estate is valued, in part, based on third party valuations and management estimates also using an income approach.
The indebtedness securing the real estate are valued, in part, based on third party valuations and management estimates
also using an income approach. The use of different assumptions to value the acquired properties and intangible assets and assumed liabilities could affect the future revenues and expenses we recognize over the estimated remaining useful life or lease term.
Fair Value Investments
Kennedy Wilson records its investments in certain commingled funds it manages and sponsors (the "Funds") that are investment companies under the Investment Companies ASC Subtopic 946-10, based upon the net assets that would be allocated to its interests in the Funds assuming the Funds were to liquidate their investments at fair value as of the reporting date. Thus, the Funds reflect their investments at fair value, with unrealized gains and losses resulting from changes in fair value reflected in their earnings. Kennedy Wilson has retained the specialized accounting for the Funds as discussed in
ASC Subtopic 323-10 in recording its equity in joint venture income from the Funds.
Additionally, Kennedy Wilson elected the fair value option for 47 investments in unconsolidated investment entities. Due to the nature of these investments, Kennedy Wilson elected to record these investments at fair value in order to report the value in the underlying investments in the results of our current operations.
The use of different assumptions to fair value these investments could have material impact on the consolidated statements of income.
Recently Issued Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements.
Item 7A. Quantitative
and Qualitative Disclosures about Market Risk
The information contained in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is incorporated by reference into Item 7A.
Report of Independent
Registered Public Accounting Firm
To the Shareholders and Board of Directors
Kennedy-Wilson Holdings, Inc.:
Opinion on the ConsolidatedFinancial Statements
We have audited the accompanying consolidated balance sheets of Kennedy-Wilson Holdings, Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three‑year
period ended December 31, 2021, and the related notes and financial statement schedule III – Real Estate and Accumulated Depreciation (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards
of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 25, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess
the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material
to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of the fair value of certain unconsolidated investments and commingled funds
As discussed in Notes 2 and 5 to the consolidated financial statements, the Company elected to record certain unconsolidated investments using the fair value option to more accurately reflect the timing of the value created in the underlying
investments and report those changes in current operations. Additionally, the Company records its investments in its managed commingled funds (the “Funds”) based upon the net assets that would be allocated to its interests in the Funds, assuming the Funds were to liquidate their investments at fair value as of the reporting date. As of December 31, 2021, these investments had a fair value of $1,794.8 million.
We identified the evaluation of the fair value of certain unconsolidated investments and commingled funds as a critical audit matter. A high degree of subjectivity was required in applying and evaluating results from procedures over the respective discounted cash flow models used to calculate the fair value of the underlying real estate investments. Specifically,
the respective discounted cash flow models were sensitive to changes in certain key assumptions, including discount and terminal capitalization rates, which have a significant effect on the determination of fair value of these investments.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s fair value process for unconsolidated investments and commingled funds, including controls related
to the development of the discount rate and terminal capitalization rate assumptions. For a selection of the Company’s investments, we involved valuation professionals with specialized skills and knowledge who assisted in comparing the discount rate and terminal capitalization rate used by the Company to independently developed ranges using market information obtained from third-party real estate publications or to rates observed in similar investments in the current period.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Kennedy-Wilson Holdings, Inc.:
Opinion on Internal Control Over Financial Reporting
We
have audited Kennedy-Wilson Holdings, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes and financial statement schedule III – Real Estate and Accumulated Depreciation (collectively, the consolidated financial statements), and our report dated February 25,
2022 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Accounts
receivable, net (including $i14.2 and $i12.6 of related party)
i36.1
i47.9
Real
estate and acquired in place lease values (net of accumulated depreciation and amortization of $i838.1 and $i815.0)
i5,059.8
i4,720.5
Unconsolidated
investments (including $i1,794.8 and $i1,136.5
at fair value)
i1,947.6
i1,289.3
Other
assets
i177.9
i199.1
Loan purchases and originations
i130.3
i107.1
Total
assets(1)
$
i7,876.5
$
i7,329.0
Liabilities
Accounts
payable
$
i18.6
$
i30.1
Accrued
expenses and other liabilities
i619.1
i531.7
Mortgage
debt
i2,959.8
i2,589.8
KW
unsecured debt
i1,852.3
i1,332.2
KWE
unsecured bonds
i622.8
i1,172.5
Total
liabilities(1)
i6,072.6
i5,656.3
Equity
Series
A cumulative preferred stock, $ii0.0001/
par value, $ii1,000/
per share liquidation preference, ii1,000,000/
shares authorized, ii300,000/
shares outstanding as of December 31, 2021 and December 31, 2020
i295.2
i295.2
Common
Stock, $ii0.0001/ par value, ii200,000,000/
authorized, ii137,955,479/ and ii141,365,323/
shares issued outstanding as of December 31, 2021 and December 31, 2020
i—
i—
Additional
paid-in capital
i1,679.6
i1,725.2
Retained
earnings
i192.4
i17.7
Accumulated
other comprehensive loss
(i389.6)
(i393.6)
Total
Kennedy-Wilson Holdings, Inc. shareholders’ equity
i1,777.6
i1,644.5
Noncontrolling
interests
i26.3
i28.2
Total equity
i1,803.9
i1,672.7
Total
liabilities and equity
$
i7,876.5
$
i7,329.0
(1)
The assets and liabilities as of December 31, 2021 include $i189.6 million (including cash held by consolidated investments of $i11.5 million and real estate and acquired
in place lease values, net of accumulated depreciation and amortization of $i152.8 million) and $i129.2 million (including investment debt of $i103.3
million), respectively, from consolidated variable interest entities ("VIEs"). The assets and liabilities as of December 31, 2020 include $i166.0 million (including cash held by consolidated investments of $i9.1
million and real estate and acquired in place lease values, net of accumulated depreciation and amortization of $i150.0 million) and $i107.7 million (including investment debt of $i97.5
million), respectively, from VIEs. These assets can only be used to settle obligations of the consolidated VIEs, and the liabilities do not have recourse to the Company.
See accompanying notes to consolidated financial statements.
Adjustments
to reconcile net income to net cash used in operating activities:
Gain on sale of real estate, net
(i412.7)
(i338.0)
(i434.3)
Depreciation
and amortization
i166.3
i179.6
i187.6
Above/below
and straight-line rent amortization
i6.8
(i10.2)
(i4.6)
Uncollectible
lease income
i12.9
i13.5
i—
Provision
for deferred income taxes
i112.2
i27.2
i26.7
Amortization
of loan fees
i16.2
i0.8
i9.3
Amortization
of discount and accretion of premium on senior notes payable
i2.4
i8.5
i1.6
Unrealized
net gain on derivatives
(i4.6)
(i5.4)
(i5.9)
Income
from unconsolidated investments
(i389.0)
(i81.0)
(i179.7)
Accretion
of interest income on loans
(i0.5)
(i0.9)
(i0.1)
Stock
compensation expense
i28.7
i32.3
i30.2
Deferred
compensation
i56.3
i6.4
i3.8
Operating
distributions from unconsolidated investments
i82.2
i59.7
i74.1
Operating
distributions from loans
i—
i0.7
i—
Change
in assets and liabilities:
Accounts receivable
(i0.5)
(i9.0)
i1.0
Other
assets
(i18.8)
i—
(i25.8)
Accrued
expenses and other liabilities
(i24.6)
(i4.6)
(i24.5)
Net
cash used in operating activities
(i30.3)
(i12.6)
(i19.5)
Cash
flows from investing activities:
Issuance of loans
(i83.4)
(i88.6)
(i2.7)
Proceeds
from collection of loans
i58.1
i34.1
i0.6
Net
proceeds from sale of consolidated real estate
i486.4
i827.8
i701.0
Purchases
of consolidated real estate
(i1,131.8)
(i70.1)
(i210.9)
Capital
expenditures to real estate
(i139.2)
(i194.1)
(i191.1)
Investment
in marketable securities
i—
(i12.1)
i—
Proceeds
from sale of marketable securities
i—
i10.2
i—
Investing
distributions from unconsolidated investments
i82.8
i177.5
i115.0
Contributions
to unconsolidated investments
(i280.8)
(i111.6)
(i266.0)
Proceeds
from settlement of foreign currency derivative contracts
(i30.1)
i15.5
i33.4
Additions
to development project asset
i—
i—
(i1.2)
Proceeds
from sale of development project asset
i—
i2.2
i4.2
Net
cash (used in) provided by investing activities
(i1,038.0)
i590.8
i182.3
Cash
flow from financing activities:
Borrowings under senior notes payable
i1,804.3
i—
i—
Repayment
of senior notes payable
(i1,150.0)
i—
i—
Borrowings
under line of credit/term loan
i314.3
i200.0
i125.0
Repayment
of line of credit/term loan
(i438.5)
i—
(i200.0)
Borrowings
under mortgage debt
i1,144.9
i296.4
i488.6
Repayment
of mortgage debt
(i268.2)
(i487.1)
(i391.4)
Repayment
of KWE Bonds
(i504.4)
i—
i—
Payment
of loan fees
(i35.6)
(i5.6)
(i4.8)
Repurchase
of common stock
(i83.2)
(i57.4)
(i20.7)
Issuance
of preferred stock
i—
i—
i295.2
Common
stock dividends paid
(i123.5)
(i126.1)
(i114.9)
Preferred
stock dividends paid
(i17.2)
(i13.6)
(i2.6)
Borrowings
(repayment) of shareholder loans to noncontrolling interests
i—
i1.2
(i11.2)
Contributions
from noncontrolling interests
i7.8
i4.5
i15.0
Distributions
to noncontrolling interests
(i18.7)
(i18.9)
(i264.0)
Net
cash provided by (used in) financing activities
i632.0
(i206.6)
(i85.8)
Effect
of currency exchange rate changes on cash and cash equivalents
(i4.0)
i19.6
i8.9
Net
change in cash and cash equivalents
(i440.3)
i391.2
i85.9
Cash
and cash equivalents, beginning of year
i965.1
i573.9
i488.0
Cash
and cash equivalents, end of year
$
i524.8
$
i965.1
$
i573.9
See
accompanying notes to consolidated financial statements.
Kennedy-Wilson Holdings, Inc.
Consolidated Statements of Cash Flows (continued)
(Dollars in millions)
Supplemental cash flow information:
Year
ended December 31,
(Dollars in millions)
2021
2020
2019
Cash paid for:
Interest(1)(2)
$
i183.7
$
i209.7
$
i211.1
Income
taxes
i16.5
i12.6
i20.6
(1)
$i4.1 million, $i4.3 million, and $i3.5
million attributable to non-controlling interests for the years ended December 31, 2021, 2020, and 2019.
(2) Excludes $i3.2 million, $i3.4
million, and $i3.8 million of capitalized interest during the for the years ended December 31, 2021, 2020 and 2018.
As of December 31, 2021, 2020, and 2019 we have $i24.2
million, $i101.7 million, and $i54.5 million, respectively, 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 as
well as escrow deposits associated with acquisitions and dispositions. These reserves typically relate to interest, tax, insurance and future capital expenditures at the properties.
Supplemental disclosure of non-cash investing and financing activities:
The noncontrolling i51% interest that the Company retained in the MF seed portfolio (see gain on sale of real estate
in footnote 3 for further description of the transaction) was treated as a non-cash activity with the remaining share of real estate, mortgage loan and other balance sheet items being removed from the consolidated balance sheet resulting in an increase of $i178.8 million to unconsolidated investments.
During the year ended December 31, 2020, the
Company deconsolidated its interest in KW Real Estate II ("KW Europe Fund II") that were previously consolidated in the Company's financial statements due to additional investors coming into the fund and the Company no longer controlling it. The portion of the Company's share of real estate, mortgage loan and other balance sheet items were removed from the consolidated balance sheet. These items along with an increase of $i7.8 million
to unconsolidated investments for the Company's retained share of the fund were all recorded as non-cash activities.
During the year ended December 31, 2020, the Company sold its interest in a development project in the Western United States to its equity partner. The Company received cash, a loan receivable and ithree
parcels of land valued at $i16.5 million that the Company now wholly owns. The parcels of land were treated as a non-cash increase to the real estate balance.
Due to the adoption of ASU 2016-02 on January 1, 2019, the Company recorded
a right of use asset and a corresponding lease liability of $ii13.6/
million, which was recorded as a component of other assets and accrued expenses, respectively, in the accompanying consolidated balance sheets.
During the year ended December 31, 2019, the Company deconsolidated its interests in the State Street office building, Capital Dock office buildings and Capital Dock residential tower in Dublin, Ireland that were previously consolidated in the Company’s financial statements due to the Company bringing in another equity partner and no longer controlling the properties. The portion of the
Company's share of real estate, mortgage loan and other balance sheet items were removed from the consolidated balance sheet. These items along with an increase of $i125.5 million to unconsolidated investments for the Company's retained interest in the properties were all recorded as non-cash activity.
During the year ended December
31, 2019, the Company sold a i20% interest across ithree
assets in Dublin, Ireland comprising i468 multifamily units into the joint venture with AXA that were previously wholly owned by the Company. As the Company no longer controlled the assets, it deconsolidated these investments that were previously consolidated in the Company's financial statements. The portion of the
Company's share of real estate, mortgage loan and other balance sheet items were removed from the consolidated balance sheet. The Company has approximately $i23 million as part of cash flows received from investing activity relating to the i20%
interest it sold. The remaining i80% of these items along with an increase of $i92.2 million to unconsolidated investments were
all recorded as non-cash activity. The Company subsequently sold an additional i30% interest in these assets during the year ended December 31, 2020. As the assets were already deconsolidated the sale of this additional interest was treated as a cash activity and reduced the Company's unconsolidated investments balance.
Kennedy-Wilson
Holdings, Inc. (“KWH,” NYSE: KW), a Delaware corporation and its wholly owned and consolidated subsidiaries (collectively the "Company" or "Kennedy Wilson"), is a global real estate investment company. The Company owns, operates, and invests in real estate both on its own and through its investment management platform. The Company focuses on multifamily and office properties in the Western United States, United Kingdom and Ireland.
NOTE 2—iBASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
i
BASIS OF PRESENTATION — The consolidated financial statements include the accounts of Kennedy Wilson and voting interest entities which it controls. All intercompany balances and transactions have been eliminated in consolidation. In addition, Kennedy Wilson evaluates its relationships with other entities to identify whether they are variable interest entities ("VIE") as defined by Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Subtopic 810,
Consolidation and to assess whether it is the primary beneficiary of such entities. In determining whether Kennedy Wilson is the primary beneficiary of a VIE, qualitative and quantitative factors are considered, including, but not limited to: the amount and characteristics of Kennedy Wilson's investment; the obligation or likelihood for Kennedy Wilson to provide financial support; Kennedy Wilson's ability to control or significantly influence key decisions for the VIE; and the similarity with and significance to the business activities of Kennedy Wilson.
The Company determines the appropriate accounting method with respect to all investments that are not VIEs based on the control-based framework (controlled entities are consolidated) provided by the consolidation guidance in ASC Subtopic 810. The
Company accounts for joint ventures where it is deemed that the Company does not have control through the equity method of accounting while joint ventures that the Company controls are consolidated in Kennedy Wilson's financial statements.
Statement of Income Presentation
As the Co-Investment business has grown, the Company is updating the presentation of related items in the statements of income for all periods presented as this presentation reflects the prominence of this core part of our business and more closely represents how management evaluates results during an accounting
period. The income from unconsolidated investments caption has been expanded to show principal co-investments and performance allocations. Principal co-investments consists of unrealized and realized gains on the Company's Co-Investments including any fair value adjustments and the Company’s share of net income and losses from Co-Investments. Performance allocations relate to special allocations to co-investments the Company manages based on the cumulative performance of the fund or investment and are subject to preferred return thresholds of its limited partners. These captions have been moved above expenses as the Co-Investments business is a significant part of the
Company’s business. As the Company has compensation expense and general and administrative expenses relating to the management of this business, presenting these amounts before Expenses also provides a better understanding of the nature of those expenses. Based on the foregoing, the Company has concluded this change in presentation is justified by the circumstances thereby supporting presentation in a different position and in a different manner from its historical presentation.
The Company has reported significant gains on sale of real estate, net in each period presented. Previously, gains on sale of real estate were
presented after expenses. These gains contribute to the Company’s compensation and related expenses and accordingly presentation of this significant, recurring component that is directly correlated to expenses should, in management’s view, precede those expenses on the statements of income. Furthermore, the Company accounts for gains on sale of real estate under ASC Subtopic 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets and we have determined that the updated presentation complies with that standard.
iUSE
OF ESTIMATES — The preparation of the accompanying consolidated financial statements in conformity with U.S. generally accepted accounting principles ("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, disclosure about contingent assets and liabilities, and reported amounts of revenues 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. Management adjusts such estimates and assumptions 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 will be reflected in the financial statements in future periods.
REVENUE RECOGNITION — Revenue consists of rental and hotel income, management fees, leasing
and commission fees, loan interest income and sales of real estate. ASC Topic 606, Revenue from Contracts with Customers, is a five step model to recognize revenue from customer contracts. The model identifies the contract, any separate performance obligations in the contract, determines the transaction price, allocates the transaction price and recognizes revenue when the performance obligations are satisfied. Management has concluded that, with the exception of performance allocations, the nature of the
Company's revenue streams is such that the requirements are generally satisfied at the time that the fee becomes receivable.
Rental income from operating leases is generally recognized on a straight-line basis over the terms of the leases in accordance with ASC Topic 842, Leases. Refer to section COVID-19 Lease Modification Accounting Relief below for the impact of rent deferrals and other lease concessions to lessees on the Company's rental income amounts.
Hotel income is earned when rooms are occupied or goods and services have been delivered or rendered.
Management fees are primarily comprised of investment management and property services fees. Investment management fees are earned from limited
partners of funds, co-investments, or separate accounts and are generally based on a fixed percentage of committed capital or net asset value. Property services fees are earned for managing the operations of real estate assets and are generally based on a fixed percentage of the revenues generated from the respective real estate assets. The Company sold its property services group ("Property Services") at the beginning of the fourth quarter 2020 with the sale of KWP (as further discussed in Note 10 - Related Party Transactions) and will have minimal property services fees going forward from its auction sales and marketing business. The Company provides investment management and property services on investments it also has an ownership interest in. Fees earned on consolidated properties are
eliminated in consolidation and fees on unconsolidated investments are eliminated for the portion that relate to the Company's ownership interest.
Commissions primarily consist of acquisition and disposition fees, auction and consulting fees and, prior to the sale of Property Services, also consisted of real estate sales commissions, and leasing commissions. Acquisition and disposition fees are earned for identifying and closing investments on behalf of investors and are based on a fixed percentage of the acquisition or disposition price, as applicable. Acquisition and disposition fees are recognized upon the successful completion of an acquisition or disposition after all required services have been performed. In the case of auction and real estate sales commissions, the revenue is generally recognized when escrow closes. In accordance
with the guidelines established for Reporting Revenue Gross as a Principal versus Net as an Agent in the ASC Topic 606, Kennedy Wilson records commission revenues and expenses on a gross basis. Of the criteria listed in ASC Topic 606, Kennedy Wilson is the primary obligor in the transaction, does not have inventory risk, performs all or part of the service, has credit risk, and has wide latitude in establishing the price of services rendered and discretion in selection of agents and determination of service specifications. Leasing fees that are payable upon tenant occupancy, payment of rent or other events beyond Kennedy Wilson's control are recognized upon the occurrence of such events.
Interest income from investments in performing loans which Kennedy Wilson originates or acquires are recognized at the stated interest rate plus any amortization of premiums/discounts or fees earned on the loans. Interest income from investments
in loans acquired at a discount are recognized using the effective interest method. When a loan or loans are acquired with deteriorated credit quality primarily for the rewards of collateral ownership, such loans are accounted for as loans until Kennedy Wilson is in possession of the collateral. However, accrual of income is not recorded during the conversion period under ASC Subtopic 310-30-25, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality. Income is recognized to the extent that cash is received from the loan.
Sales of real estate are recognized when title to the real property passes to the buyer and there is no continuing involvement in the real property. Under ASC Subtopic 610-20, the Company recognizes the entire gain attributed to contributions
of real estate properties to unconsolidated entities.
iREAL ESTATE ACQUISITIONS — The purchase price of acquired properties is recorded to land, buildings and building improvements and intangible lease value (value of above-market and below-market leases, acquired in-place lease values, and tenant relationships, if any). The ownership of the other interest holders in consolidated subsidiaries is reflected as noncontrolling interests. Real estate is recorded based
on cumulative costs incurred and allocated based on relative fair value.
The valuations of real estate are based on management estimates of the real estate assets using income and market approaches. The indebtedness securing the real estate is valued, in part, based on third party valuations and management estimates also using an income approach.
UNCONSOLIDATED INVESTMENTS — Kennedy Wilson has a number of joint venture interests that were formed to acquire, manage, and/or sell real estate. Investments in unconsolidated investments are accounted for under the equity method of accounting as Kennedy Wilson can exercise significant influence, but does not have the ability to control the unconsolidated investment. An investment in an unconsolidated investment is recorded at its initial investment and is increased or decreased by Kennedy
Wilson’s share of income or loss, plus additional contributions and less distributions. A decline in the value of an unconsolidated investment that is other than temporary is recognized when evidence indicates that such a decline has occurred in accordance with ASC Topic 323, Investments - Equity Method and Joint Ventures.
Kennedy Wilson elected the fair value option for i47 investments in unconsolidated investment entities ("FV Option" investments). Due to the nature of these investments, Kennedy
Wilson elected to record these investments at fair value in order to report the change in value in the underlying investments in the results of our current operations.
Additionally, Kennedy Wilson records its investments in certain commingled funds it manages and sponsors (the "Funds") that are investment companies under the ASC Topic 946, Financial Services - Investment Companies, based upon the net assets that would be allocated to its interests in the Funds assuming the Funds were to liquidate their investments at fair value as of the reporting date. Thus, the Funds reflect their investments at fair value, with unrealized gains and losses resulting from changes in fair value reflected in their earnings.
Performance allocations or carried interest are allocated to the general partner, special limited partner or asset manager
of Kennedy Wilson's real estate funds based on the cumulative performance of the fund and are subject to preferred return thresholds of the limited partners. At the end of each reporting period, Kennedy Wilson calculates the performance allocation that would be due as if the fair value of the underlying investments were realized as of such date, irrespective of whether such amounts have been realized. As the fair value of underlying investments varies between reporting periods, it is necessary to make adjustments to amounts recorded as performance allocation to reflect either (a) positive performance resulting in an increase in the performance allocation to the general partner or asset manager or (b) negative performance that would cause the amount due to Kennedy Wilson to be less than the amount previously recognized as income from unconsolidated investments, resulting in a negative adjustment to performance allocations to the general partner or asset manager. As of
December 31, 2021, the Company has $i169.7 million of accrued performance allocations recorded to unconsolidated investments that are subject to future adjustments based on the underlying performance of investments. During the year ended December 31, 2021, the Company collected $i9.6 million
of previously accrued performance allocations.
/
The Company has concluded that performance allocations to the Company, based on cumulative performance to-date, represent carried interests. For equity method investments, these allocations are included as a component of the income reported from the underlying equity method investee and for equity method investments where the fair value option has been elected, these allocations are included in the determination of fair value under ASC Topic 820, Fair Value Measurement.
Performance
allocation compensation is recognized in the same period that the related performance allocations are recognized and can be reversed during periods when there is a reversal of performance allocations that were previously recognized.
iFAIR VALUE MEASUREMENTS — Kennedy Wilson accounts for fair value measurements of financial assets and financial liabilities and for fair value measurements of non-financial items that are recognized or disclosed at fair value in the financial statements on a recurring basis under the provisions of ASC Topic 820. ASC
Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When estimating fair value in the absence of an orderly transaction between market participants, valuations of real estate are based on management estimates of the real estate assets using income and market approaches. The indebtedness securing the real estate and the investments in debt securities are valued, in part, based on third party valuations and management estimates also using an income approach. The use of different market assumptions or estimation methodologies may have a material impact on the estimated fair value amounts. See Note 5 for further discussion of the estimation uncertainty related to COVID-19.
iFAIR
VALUE OF FINANCIAL INSTRUMENTS — The estimated fair value of financial instruments is determined using available market information and appropriate valuation methodologies. Considerable judgment, is necessary, however, to interpret market data and develop the related estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments. The use of different market assumptions or estimation methodologies may have a material impact on the estimated fair value amounts.
iDISTRIBUTIONS FROM UNCONSOLIDATED 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 Kennedy Wilson 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.
iFOREIGN
CURRENCIES — The financial statements of Kennedy Wilson's subsidiaries located outside the United States are measured using the local currency as this is their functional currency. The assets and liabilities of these subsidiaries are translated at the rates of exchange at the balance sheet date, and income and expenses are translated at the average monthly rate. The foreign currencies include the euro and the British pound sterling. Cumulative translation adjustments, to the extent not included in cumulative net income, are included in the consolidated statement of equity as a component of accumulated other comprehensive income.
Investment level debt is generally incurred in local currencies. Fluctuations in foreign exchanges rates may
have a significant impact on the results of the Company's operations. In order to manage the effect of these fluctuations, the Company enters into hedging transactions, in the form of currency derivative contracts, that are designed to reduce its book equity exposure to foreign currencies. KWE has also entered into currency derivative contracts to manage its exposure to euro to British pound currency fluctuations. See Note 5 for a complete discussion on currency derivative contracts.
i
DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES — Kennedy Wilson has derivatives to reduce its exposure to foreign currencies. All derivative instruments are recognized as either assets or liabilities in the balance sheet at their respective fair values. For derivatives designated in hedging relationships, changes in fair value of cash flow hedges or net investment hedges are recognized in accumulated other comprehensive income, to the extent the derivative is effective at offsetting the changes in the item being hedged until the hedged item affects earnings.
Fluctuations in foreign exchanges rates may have a significant impact on the Company's results of operations. In order to manage the potential exposure from adverse changes in foreign exchange rates arising from the
Company’s net investments in foreign operations, the Company may enter into currency derivative contracts to hedge all or portions of the net investments in the Company’s non-U.S. dollar denominated foreign operations.
iGOODWILL — Goodwill results from
the difference between the purchase price and the fair value of net assets acquired based upon the purchase method of accounting for business combinations. In accordance with ASC Subtopic 350-20, Accounting for Intangibles - Goodwill and Other, goodwill is reviewed for impairment on an annual basis. The Company performs its annual review of impairment at year end and when a triggering event occurs between annual year end reviews. As a result of the evaluation performed as described above, Kennedy Wilson has determined that there was iiino//
impairment of goodwill as of December 31, 2021, 2020 and 2019.
iCASH AND CASH EQUIVALENTS — Cash and cash equivalents consist of cash and all highly liquid investments purchased with maturities of three months or less. Cash and cash equivalents are invested in institutions insured by government agencies. Certain accounts contain balances in excess of the insured limits. Kennedy Wilson's operations and financial position are affected by fluctuations
in currency exchange rates between the euro and British pound sterling against the U.S. Dollar. As of December 31, 2021, 2020, and 2019 we have $i24.2 million, $i101.7
million, and $i54.5 million, respectively, 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 as well as escrow deposits associated with acquisitions and dispositions. These reserves typically relate to interest, tax, insurance and future capital expenditures at the properties./
iLONG-LIVED
ASSETS — Kennedy Wilson reviews its long-lived assets (excluding goodwill) whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC Subtopic 360-10, Impairment of Property, Plant and Equipment. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized in gain on sale of real estate, net in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are presented separately in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities
of the assets to be disposed of are classified as held for sale and would be presented separately in the appropriate asset and liability sections of the balance sheet.
iACCOUNTS
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.
iCONCENTRATION OF CREDIT RISK — Financial instruments that subject Kennedy Wilson to credit risk consist primarily of accounts and notes receivable, cash equivalents and derivative instruments. Credit risk is generally diversified due to the large number
of entities composing Kennedy Wilson’s customer base and their geographic dispersion throughout the United States, the United Kingdom, Ireland, Spain and Italy. Kennedy Wilson performs ongoing credit evaluations of its customers and debtors.
iEARNINGS PER SHARE — Basic earnings per share is computed based upon the weighted average number of shares of common stock outstanding during the periods presented. Diluted earnings per share is computed based upon the weighted average number of shares of common stock and potentially dilutive securities outstanding during the periods presented. The dilutive
impact of potentially dilutive securities including convertible securities, and unvested stock which were outstanding during the period. Unvested stock are calculated by the “treasury stock” method and the convertible securities under the "if converted" method.
iCOMPREHENSIVE INCOME (LOSS) — Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). In the accompanying consolidated balance sheets, accumulated other comprehensive income consists of foreign currency translation adjustments
and unrealized gains (losses) on interest rate swaps and derivative instruments.
iREPURCHASE OF EQUITY INSTRUMENTS — Upon the decision to retire repurchased equity instruments, Kennedy Wilson records the retirement as a reduction to additional paid in capital for the amount that shares were initially issued at with the excess paid going to retained earnings.
iSHARE-BASED
PAYMENT ARRANGEMENTS — Kennedy Wilson accounts for its share-based payment arrangements under the provisions of ASC Subtopic 718-10, Compensation - Stock Compensation. Compensation cost for employee service received in exchange for an award of equity instruments is based on the grant-date fair value of the share-based award that is ultimately settled in equity of Kennedy Wilson. The cost of employee services is recognized over the period during which an employee provides service in exchange for the share-based payment award. Share-based payment arrangements with only services conditions that vest ratably over the requisite service period are recognized on the straight-line basis and performance awards that vest ratably are recognized on a tranche by tranche basis over the performance period.
i
INCOME
TAXES — Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In accordance with accounting for uncertainty in ASC Subtopic 740-10, Income Taxes, Kennedy Wilson recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax
positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
Kennedy Wilson records interest related to unrecognized tax benefits in interest expense and penalties in general and administrative expenses.
iNONCONTROLLING INTERESTS — Noncontrolling interests are reported within equity as a separate component of Kennedy Wilson's equity
in accordance with ASC Subtopic 810-10. Revenues, expenses, gains, losses, net income or loss, and other comprehensive income are reported in the Consolidated Statements of Income at the consolidated amounts and net income and comprehensive income attributable to noncontrolling interests are separately stated.
i
RECENT ACCOUNTING PRONOUNCEMENTS
COVID-19 LEASE MODIFICATION ACCOUNTING RELIEF—Due to the business disruptions and challenges severely affecting
the global economy caused by the COVID-19 pandemic, many lessors may be required to provide rent deferrals and other lease concessions to lessees. While the lease modification guidance in ASC Topic 842 addresses routine
changes to lease terms resulting from
negotiations between the lessee and the lessor, this guidance did not contemplate concessions being so rapidly executed to address the sudden liquidity constraints of some lessees arising from the COVID-19 pandemic and restrictions intended to prevent its spread.
In April 2020, the FASB staff issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing lease guidance, on a lease by lease basis the Company would have to determine, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within
the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows the Company, if certain criteria have been met, to bypass the lease by lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. The Company had no significant deterioration to its rental collections during the year ended December 31, 2021. The Company has received some requests for lease modifications and has granted some deferrals but the amount probable of collection over the
lease term generally has not changed so there has been minimal impact to rental revenues from lease modifications. The Company will continue to evaluate the extent of lease concessions granted to tenants as a result of the COVID-19 pandemic in future periods and the elections made by the Company at the time of entering into such concessions.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,which requires an entity to no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between
the carrying amount and the fair value of the reporting unit. The Company adopted this standard on January 1, 2020 and the adoption of this standard did not have a material impact on the Company's consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements in ASC Topic 820, including: the removal of valuation processes for Level 3 fair value measurements. The ASU also adds new requirements including (a) the changes in unrealized gains and losses for the period
included in other comprehensive income for recurring level 3 fair value measurements and (b) the range and weighted average of significant unobservable inputs used to develop level 3 fair value measurements. The Company adopted this standard on January 1, 2020 and the adoption of this standard did not have a material impact on the Company's consolidated financial statements.
In June 2016, the FASB updated ASC Topic 326, Financial Instruments - Credit Losses with ASU 2016-13, Measurement of Credit Losses on Financial Instruments. ASU 2016-13 enhances the methodology of measuring expected
credit losses to include the use of forward-looking information to better inform credit loss estimates. This ASU is effective for all entities for annual and interim periods in fiscal years beginning after December 15, 2019. In addition, in November 2018 the FASB issued ASU 2018-19, which clarifies that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with ASC Topic 842. The Company adopted this standard on January 1, 2020 and the adoption of this standard did not have a material impact on Kennedy Wilson's consolidated financial statements. During the course of 2020 the Company has launched a debt platform
originating and acquiring performing loans. As of December 31, 2021the Company has $i130.3 million of investments in loan originations and acquisitions. Since the Company has no history of having issues with loans being uncollectible and current loans are
performing and backed by credit worthy borrowers the Company does not expect significant credit losses but will monitor and evaluate loans in accordance with ASU 2016-13.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), which provides optional expedients and exceptions 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 was effective upon issuance on a prospective basis beginning January 1, 2020 and may be elected over time as reference rate reform activities occur. The Company adopted this standard on January 1, 2020 and the adoption of this standard did not have a material impact on the Company's consolidated financial statements. The Company will evaluate its debt and derivative contracts that may become eligible for modification relief and may apply the elections prospectively as needed.
The
FASB did not issue any other ASUs during the year ended December 31, 2021 that the Company expects to be applicable and have a material impact on the Company's financial position or results of operations.
iRECLASSIFICATIONS—Certain balances included in prior year's financial statements have been reclassified to conform to the current year's presentation.
NOTE 3—iREAL
ESTATE AND ACQUIRED IN PLACE LEASE VALUE
Real
estate and acquired in place lease values, net of accumulated depreciation and amortization
$
i5,059.8
$
i4,720.5
/
Real
property, including land, buildings, and building improvements, are included in real estate and are generally stated at cost. Buildings and building improvements are depreciated on the straight-line method over their estimated lives not to exceed i40 years. Acquired in-place lease values are recorded at their estimated fair value and depreciated over their respective weighted-average lease term which was i6.9
years at December 31, 2021.
Depreciation and amortization expense on buildings, building improvements and acquired in-place lease values for the years ended December 31, 2021, 2020 and 2019 was $i151.3 million, $i165.7
million and $i173.4 million, respectively.
Consolidated Acquisitions
The purchase of property is recorded to land, buildings, building improvements, and intangible lease value (including the value of above-market and below-market leases, acquired in-place lease values, and tenant relationships, if any) based on their respective estimated relative fair values. The purchase price generally approximates the fair value of the properties as acquisitions are generally transacted
with third-party willing sellers after arms-length negotiations.
i
During the year ended December 31, 2021, Kennedy Wilson acquired the following consolidated properties:
(Dollars
in millions)
Purchase Price Allocation at Acquisition(1)
Location
Description
Land
Building
Acquired in-place lease values(2)
Investment debt
KWH Shareholders' Equity
Western U.S.
iTen
multifamily properties
$
i166.1
$
i610.9
$
i2.3
$
i469.1
$
i310.2
United
Kingdom
iTwo commercial properties
i95.9
i231.3
i22.3
i—
i349.5
$
i262.0
$
i842.2
$
i24.6
$
i469.1
$
i659.7
(1)
Excludes net other assets.
(2)Above- and below-market leases are included in other assets and accrued expenses and other liabilities, respectively, on the accompanying consolidated balance sheets.
During the year ended December 31, 2020, Kennedy Wilson acquired the following consolidated properties:
(Dollars in millions)
Purchase Price Allocation at Acquisition(1)
Location
Description
Land
Building
Acquired
in-place lease values(2)
Investment debt
KWH Shareholders' Equity
Western U.S.
iOne multifamily property
$
i13.4
$
i53.6
$
i0.5
$
i38.7
$
i106.3
United
Kingdom
iOne industrial property
i—
i40.2
i—
i—
i40.2
Ireland
iOne
commercial property
i—
i1.3
i—
i—
i1.3
$
i13.4
$
i95.1
$
i0.5
$
i38.7
$
i147.8
(1)
Excludes net other assets.
(2)Above- and below-market leases are included in other assets and accrued expenses and other liabilities, respectively, on the accompanying consolidated balance sheets.
Gains on Sale of Real Estate, Net
During the years ended December 31, 2021, 2020 and 2019, Kennedy Wilson recognized the following net gains on sale of real estate. Included in the net gains for December 31, 2021 is an impairment loss of $i20.9
million on itwo retail properties in the United Kingdom and an additional impairment on a residential property in the Western United States. Included in the net gains for December 31, 2020 is an $i15.6 million
impairment loss on ifive retail properties in the United Kingdom and a residential property in the Western United States. During the year ended December 31, 2019 there were ino
impairments on consolidated properties.
(Dollars in millions)
Gain on sale of real estate
Year ended December 31,
Description
Consolidated(1)
NCI
Net of NCI
2021
Primarily
due to the sale of a i49% equity interest in inine multifamily properties in Western United States that were previously wholly-owned and controlled by the
Company and the sale of a wholly-owned office property in the United Kingdom
$
i433.6
$
i—
$
i433.6
2020
i20
industrial properties (including the deconsolidation of previously consolidated real estate as discussed below), i19 retail properties, ithree office properties and ione
multifamily property in United Kingdom, itwo multifamily properties and itwo office properties in Ireland, ione
retail property in Spain, and ione multifamily property in Western United States
$
i353.6
$
i—
i353.6
2019
i11
commercial properties and ione hotel in the United Kingdom, ione hotel in Ireland, i10
Spanish retail properties, ifive retail properties, ione hotel, and ione
multifamily property in the Western United States, and the deconsolidation of previously consolidated real estate as discussed below
i434.9
i116.7
i318.2
(1)
Includes sale of real estate and cost of real estate sold, which are presented net in the table above.
Deconsolidation of Previously Consolidated Real Estate
Under ASC Subtopic 610-20, due to certain transactions resulting in the deconsolidation of the Company's interest in investments previously consolidated in the Company's financial statements, the Company recognized (i) $i332.0 million
through gain on sale of real estate, net during the year ended December 31, 2021, (ii) a gain of $i126.3 million through gain on sale of real estate, net, during the year ended December 31, 2020, and (iii) a gain of $i317.8
million through gain on sale of real estate, net, of which the Company's share, net of noncontrolling interest, was $i212.4 million during the year ended December 31, 2019.
Due to the sale and deconsolidation of the assets that make up the MF seed portfolio, the Company recognized a $i332.0 million
gain on sale of real estate asset and generated $i166.4 million of cash proceeds for the Company. The gain is due to the sale of the i49%
interest to the Company's partner and the recording of the Company's retained i51% interest in unconsolidated investments at the fair value established by the transaction. The MF seed portfolio and subsequent investments within the separate account are accounted for at fair value as the Company has elected to account for
this investment under the fair value adoption.
On December 18, 2020, the Company and a sovereign wealth fund entered into a joint
venture agreement targeting urban logistics properties in the UK, with the potential to expand into Ireland and Spain ("European Industrial JV"). The European Industrial JV commenced with investing in an i80% ownership stake in i18
industrial assets located throughout the United Kingdom. The Company previously wholly-owned the assets and continues to hold an interest in these assets subsequent to their sale to the European Industrial JV through its retained i20% ownership interest in the joint venture. As the Company does not control the European Industrial JV, the assets are no longer consolidated and the European Industrial JV is accounted
for under the equity method. The Company elected the fair value option and going forward the investments are accounted for as fair value unconsolidated investments with operating activity included within income from unconsolidated investments. The Company recognized a $i126.3 million gain from the sale and deconsolidation.
During the second
quarter of 2019, AXA Investment Managers - Real Assets ("AXA") invested in a i50% ownership stake in the State Street office building, Capital Dock office buildings and Capital Dock residential tower in Dublin, Ireland that was previously held by the Company and different equity partners. These investments were previously consolidated in the Company’s consolidated financial statements. During
the fourth quarter of 2019, the Company sold i468 multifamily units across ithree assets
in Dublin, Ireland into the joint venture with AXA that were previously wholly owned by the Company. The Company recognized a gross gain of $i317.8 million in gain on sale of real estate and $i105.4 million
which was allocated to noncontrolling interests for a net gain of $i212.4 million.
Leases
The Company leases its operating properties to customers under agreements that are classified as operating leases. The total minimum lease payments provided for under the leases are recognized on a straight-line basis over the lease term. The majority of the
Company's rental expenses, including common area maintenance, real estate taxes and insurance, are recovered from the Company's tenants. The Company records amounts reimbursed by customers in the period that the applicable expenses are incurred, which is generally ratably throughout the term of the lease. The reimbursements are recognized in rental incomein the consolidated statements of operations as the Company is the primary obligor with respect to purchasing and selecting goods and services from third-party vendors and bearing the associated credit risk.
i
The
following table summarizes the minimum lease payments due from the Company's tenants on leases with lease periods greater than one year at December 31, 2021:
(Dollars in millions)
Minimum
Rental Revenues(1)
2022
$
i154.7
2023
i135.4
2024
i111.8
2025
i95.7
2026
i78.3
Thereafter
i239.0
Total
$
i814.9
(1)
These amounts do not reflect future rental revenues from the renewal or replacement of existing leases, rental increases that are not fixed and exclude reimbursements of rental expenses.
/
NOTE 4—iUNCONSOLIDATED
INVESTMENTS
Kennedy Wilson has a number of joint venture interests including commingled funds and separate accounts, generally ranging from i5% to i50%,
that were formed to acquire, manage, develop, service and/or sell real estate. Kennedy Wilson has significant influence over these entities, but not control. Accordingly, these investments are accounted for under the equity method.
Joint Venture and Fund Holdings
iThe following table details Kennedy Wilson's investments in joint ventures by investment type and geographic location as of December 31, 2021:
The
following table details the Kennedy Wilson's investments in joint ventures by investment type and geographic location as of December 31, 2020:
(Dollars in millions)
Multifamily
Commercial
Hotel
Funds
Residential
and Other
Total
Western U.S.
$
i226.2
$
i83.0
$
i86.3
$
i118.1
$
i180.8
$
i694.4
Ireland
i389.7
i129.7
i—
i3.7
i—
i523.1
United
Kingdom
i—
i56.4
i—
i15.4
i—
i71.8
Total
$
i615.9
$
i269.1
$
i86.3
$
i137.2
$
i180.8
$
i1,289.3
During
the year ended December 31, 2021, the change in unconsolidated investments primarily relates to $i280.8 million of cash contributions to unconsolidated investments, $i165.0
million of distributions from unconsolidated investments, $i178.8 million associated with the deconsolidation of the MF seed portfolio as discussed in Note 3, $i389.0
million of income from unconsolidated investments (including $i213.5 million of fair value gains), and a $i32.2 million
decrease related to other items which primarily related to foreign exchange movements.
As of December 31, 2021 and December 31, 2020, $i1,794.8 million and $i1,136.5
million of unconsolidated investments were accounted for at fair value. See Note 5 for more detail.
Contributions to Joint Ventures
During the year ended December 31, 2021, Kennedy Wilson contributed $i280.8 million to joint ventures, primarily to fund new acquisitions in the
Company's European Industrial JV separate account and capital calls with respect to the Kona Village hotel development.
Distributions from Joint Ventures
i
The following table details cash distributions by investment type and geographic location for the year ended December 31, 2021:
Multifamily
Commercial
Funds
Residential
and Other
Total
(Dollars in millions)
Operating
Investing
Operating
Investing
Operating
Investing
Operating
Investing
Operating
Investing
Western U.S.
$
i29.7
$
i22.5
$
i9.4
$
i9.6
$
i24.1
$
i5.3
$
i—
$
i22.1
$
i63.2
$
i59.5
Ireland
i5.7
i23.2
i10.0
i—
i—
i—
i—
i—
i15.7
i23.2
United
Kingdom
i—
i—
i3.3
i—
i—
i—
i—
i0.1
i3.3
i0.1
Total
$
i35.4
$
i45.7
$
i22.7
$
i9.6
$
i24.1
$
i5.3
$
i—
$
i22.2
$
i82.2
$
i82.8
/
Investing
distributions resulted primarily from the sales of ione multifamily property and itwo
office properties in Fund VI, refinancing and buyouts from limited partners in the VHH portfolio, and a partial redemption of a non-core hedge fund investment. Operating distributions resulted from operating cash flow generated by the joint venture investments that have been distributed to the Company.
Income from Unconsolidated Investments
iThe following
table presents income from unconsolidated investments recognized by Kennedy Wilson during the years ended December 31, 2021, 2020 and 2019:
Income from unconsolidated investments - operating performance
$
i60.7
$
i43.4
$
i35.5
Income
from unconsolidated investments - realized gains cost basis investments
i—
i—
i53.5
Income
from unconsolidated investments - unrealized and realized fair value gains
i213.5
i47.2
i64.7
Income
from unconsolidated investments - realized losses and impairment
(i3.1)
(i12.3)
(i10.3)
Principal
co-investments
i271.1
i78.3
i143.4
Income
from unconsolidated investments - performance allocation
i117.9
i2.7
i36.3
$
i389.0
$
i81.0
$
i179.7
Operating
performance is related to the ongoing performance from unconsolidated investments. Realized gains are related to completed asset sales. Fair value gains primarily relate to market rate multifamily investments in the Company's Western United States portfolio and was due to increases in NOI and cap rate compression. The cap rate compression was supported by recent transactions entered into by the Company, third-party appraisals, as well as third party transactional and market data. Additionally, the fair value of the Company's investment in Zonda (retained interest from the Meyers disposition in 2018) increased due to favorable operating activity We also saw fair value increases related to the
Company's European logistics portfolio, as a result of cap rate compression on industrial assets in the United Kingdom, resyndications at the Company's VHH partnership and exchange movements on Euro denominated unconsolidated investments carried at fair value. Income from performance allocations primarily relates to increase in the Company's unrealized performance allocations related to higher fair values on market rate multifamily properties and European Industrial assets as discussed above.
The Company evaluates on a quarterly basis the carrying value of its historical cost based investments and to the extent the carrying
value is in excess of its fair value, an impairment loss is recorded. Realized losses and impairment are related to asset sales on non-core retail assets in the United Kingdom during the year ended December 31, 2021 and 2020. During the year ended December 31, 2019 an impairment was recognized on a residential development project in the Western United States.
Vintage Housing Holdings ("VHH")
As of December 31, 2021 and 2020, the carrying value of the Company's investment in VHH was $i157.9
million and $i142.9 million, respectively. The total equity income recognized from the Company's investment in VHH was $i41.4 million,
$i22.8 million and $i50.0 million for the years ended December 31,
2021, 2020 and 2019. respectively. Distributions in the current period primarily relate to the refund of advances on two development projects in which VHH provides cash for the construction costs in advance, and other partners subsequently pay their share of the costs back to VHH. Fair value gains in the current period primarily relate to resyndications in which VHH dissolves an existing partnership and recapitalizes into a new partnership with tax exempt bonds and tax credits that are sold to a new tax credit partner and, in many cases, yields cash back to VHH. Upon resyndication, VHH retains a GP interest in the partnership and receives various future streams of cash flows including: development fees, asset management fees, other GP management fees and distributions from operations. Prior period fair value gains primarily relate to cap rate compression.
Changes
in Control
During the year ended December 31, 2020, the Company deconsolidated its investment KW Europe Fund II as the Company no longer held a controlling interest in it. As of December 31, 2021, the carrying value of the Company's investment in KW Europe Fund II was $i46.0 million.
Refer
to the description of the European Industrial JV above for a discussion of the change in control transaction that occurred during the year ended December 31, 2020. As of December 31, 2021, the carrying value of the Company's investment in the European Industrial JV was $i117.4 million.
Capital Commitments
As
of December 31, 2021, Kennedy Wilson had unfulfilled capital commitments totaling $i113.7 million to ieight
of its unconsolidated joint ventures, including $i39.0 million relating to ithree
closed-end funds managed by Kennedy Wilson, under
the respective operating agreements. In addition to the unfunded capital commitments, the Company has $i140.3 million
of equity commitments on various development projects. The Company may be called upon to contribute additional capital to joint ventures in satisfaction of such capital commitment obligations.
Summarized financial data
The MF seed portfolio had $i92.1 million of income from unconsolidated
investments which consisted of $i73.3 million of fair value gains, $i15.7 million of performance allocations
and $i3.2 million relating to the Company's ownership in the underlying operations of the properties in the portfolio. The income from the MF seed portfolio was significant component and as such the MF seed portfolio is considered a significant subsidiary for the year ended December 31, 2021. Summarized financial information is provided below. As the
investment was new during the year, only results for the current period are shown below. As these assets were previously consolidated by the Company amounts for prior periods are reflected as part of consolidation operations in the prior periods.
NOTE 5—iFAIR VALUE MEASUREMENTS AND THE FAIR VALUE OPTION
i
The
following table presents fair value measurements (including items that are required to be measured at fair value and items for which the fair value option has been elected) as of December 31, 2021:
The following table presents fair value measurements (including items that are required to be measured at fair value and items for which the fair value option has been elected) as of December 31, 2020:
Kennedy Wilson elected to use the FV Option for i47 unconsolidated investments to more accurately reflect the timing of the value created in the underlying investments and report those changes in current operations. Kennedy Wilson's investment balance in the FV Option investments was $i1,568.5
million and $i999.2 million at December 31, 2021 and 2020, respectively, which are included in unconsolidated investments in the accompanying balance sheets.
Additionally, Kennedy Wilson records its investments in its managed commingled funds (the "Funds") based upon the net assets that would be allocated to its interests in the Funds, assuming the Funds were to liquidate their investments at fair value as of the reporting
date. The Company’s investment balance in the Funds was $i226.3 million and $i137.3 million at December 31,
2021 and 2020, respectively, which is included in unconsolidated investments in the accompanying consolidated balance sheets.
In estimating fair value of real estate held by the Funds and the i47 FV Option investments, the Company considers significant unobservable inputs to be the capitalization and discount rates.
i
The
following table summarizes the Company's investments in unconsolidated investments held at fair value by type:
The
following table presents changes in Level 3 investments, investments in investment companies and investments in joint ventures that elected the fair value option, for the years ended December 31:
(Dollars in millions)
2021
2020
2019
Beginning
balance
$
i1,136.5
$
i1,099.3
$
i662.2
Unrealized
and realized gains, including performance allocations
i390.0
i109.8
i161.1
Unrealized
and realized losses
(i5.0)
(i13.5)
(i26.9)
Contributions
i273.8
i109.2
i191.2
Distributions
(i144.3)
(i189.7)
(i104.1)
Foreign
Exchange
(i28.4)
i24.5
(i3.4)
Other
i172.2
(i3.1)
i219.2
Ending
Balance
$
i1,794.8
$
i1,136.5
$
i1,099.3
/
The
Other balance for the year ended December 31, 2021 above includes $i178.8 million related to the deconsolidation of inine
multifamily assets in the MF seed portfolio during the period. For the year ended December 31, 2019 the Other balance includes $i125.5 million from the deconsolidation of State Street and Capital Dock and $i92.2
million from the deconsolidation of ithree assets in Dublin, Ireland comprising i468 multifamily units. As the increase in unconsolidated investments was
due to a non-cash movement the amounts are reflected in Other above. See notes to cash flow statement and note 3 for further discussion regarding the sale.
The change in unrealized gains and losses on Level 3 investments during 2021 and 2020 for investments still held as of December 31, 2021 and 2020 were gains of $i195.3
million and $i27.4 million, respectively. The change in unrealized and realized gains and losses are included in principal co-investments within income from unconsolidated investments in the accompanying consolidated statements of income.
In determining estimated fair market values, the Company utilizes discounted cash flow models that estimate future cash flows (including terminal values) and discount those cash flows back to the current period. The accuracy of estimating fair value for investments cannot be determined with precision and cannot be substantiated by comparison to quoted prices in active markets and may not be realized in a current sale or immediate
settlement of the asset or liability. Additionally, there are inherent uncertainties in any fair value measurement technique, and changes in the underlying assumptions used, including terminal capitalization rates, discount rates, liquidity risks, and estimates of future cash flows could significantly affect the fair value measurement amounts. iThe table below describes the range of inputs used as of December 31,
2021 for real estate assets:
Estimated Rates Used For
Terminal Capitalization Rates
Discount Rates
Multifamily
i3.70%
— i5.25%
i5.35% — i7.40%
Office
i4.00%
— i7.75%
i5.10% — i9.25%
Industrial
i3.50%
—i7.40%
i4.40% — i8.40%
Retail
i5.00%
— i7.00%
i7.50% — i9.00%
Hotel
i6.00%
i8.25%
Residential
N/A
N/A
In
valuing indebtedness, Kennedy Wilson 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 credit spreads used by Kennedy Wilson for these types of investments range from i0.25% to i4.90%.
There is no active secondary market for the Company's development projects and no readily available market value given the uncertainty of the amount and timing of future cash flows. Accordingly, its determination of fair value of its development projects requires judgment and extensive use of estimates. Therefore, the Company typically uses investment cost as the estimated fair value until future cash flows become more predictable. Additionally, the fair value of its development projects may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately
realize. If the Company were required to liquidate an investment in a forced or liquidation sale, it could realize significantly less than the value at which the Company have recorded it. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the currently assigned valuations.
The Company assessed the impact of the COVID-19 pandemic and its ongoing impact on the fair value of investments. Valuations of its assets that are reported at fair value and the markets in which they operate,
to date, have not been significantly impacted by the COVID-19 pandemic as there has been little disruption to projected cash flows or market driven inputs on the underlying properties as a result of COVID-19. As a result of the rapid development, fluidity and uncertainty surrounding this situation, the Company expects that information with respect to fair value measurement may change, potentially significantly, going forward and may not be indicative of the actual impact of the COVID-19 pandemic on its business, operations, cash flows and financial condition for the year ended December 31, 2021 and future periods.
Kennedy Wilson
uses foreign currency derivative contracts such as forward contracts and options to manage its foreign currency risk exposure against a portion of certain non-U.S. dollar denominated currency net investments. Foreign currency options are valued using a variant of the Black-Scholes model tailored for currency derivatives and the foreign currency forward contracts are valued based on the difference between the contract rate and the forward rate at maturity of the underlying currency applied to the notional value in the underlying currency discounted at a market rate for similar risks. Although the
Company has determined that the majority of the inputs used to value its currency derivative contracts fall within Level 2 of the fair value hierarchy, the counterparty risk adjustments associated with the currency derivative contracts utilize Level 3 inputs. However, as of December 31, 2021, Kennedy Wilson assessed the significance of the impact of the counterparty valuation adjustments on the overall valuation of its derivative positions and determined that the counterparty valuation adjustments are not significant to the overall valuation of its derivative. As a result, we have determined that our derivative valuation in its entirety be classified in Level 2 of the fair value hierarchy.
Changes
in fair value are recorded in other comprehensive income in the accompanying consolidated statements of comprehensive income as the portion of the currency forward and option contracts used to hedge currency exposure of its certain consolidated subsidiaries qualifies as a net investment hedge under ASC Topic 815, Derivatives and Hedging. On
investments in which the Company has elected the fair value option changes in fair value are recorded to income from unconsolidated investments to offset fair value changes of the currency in which foreign fair value investments are invested.
The fair value of the derivative instruments held as of December 31, 2021 and 2020 are reported in other assets for hedge assets and included in accrued expenses and other liabilities for hedge liabilities
on the accompanying consolidated balance sheet. See Note 14 for a complete discussion on other comprehensive income including currency forward and option contracts and foreign currency translations.
(1)Hedge is held by KWE on its wholly-owned subsidiaries.
(2)Relates to KWE's Euro Medium Term Note. See discussion in Note 9.
(3) Excludes deferred tax expense of $i2.9 million.
/
The
gains and (losses) recognized through other comprehensive income (loss) will remain in accumulated other comprehensive income (loss) until the underlying investments they were hedging are substantially liquidated by Kennedy Wilson.
Interest Rate Swaps
During the years ended December 31, 2021 and 2020, the Company entered into $ii138.4/
million notional of interest rate swaps on some variable rate property-level mortgage loans. During the year ended December 31, 2021 and 2020, the Company had additional interest rate expense relating to difference in variable rate and fixed interest rates of $i0.9 million and $i1.2 million. The
changes in fair value on these contracts was a gain of $i4.2 million and a loss of $i6.9 million
for the years ended December 31, 2021 and 2020 and are recorded to other comprehensive loss. During the year end December 31, 2021the Company sold interests in properties held in the MF seed portfolio that had mortgages with interest rate swaps. Due to the sale and deconsolidation of its interests, the Company recognized $i0.8
million to gain on sale of real estate for amounts that had previously been recognized to other comprehensive income. During the year ended December 31, 2020, a loss of $i0.7 million that had been recorded to other comprehensive income was reclassified to the income statement and reduced the gain on sale of real estate associated with the property due to the sale of a consolidated multifamily property
which had an interest rate swap designated on one of its variable rate mortgages
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable including related party receivables, accounts payable, accrued expenses and other liabilities approximate fair value due to their short-term maturities. The carrying value of loans (excluding related party loans as they are presumed not to be an arm’s length transaction) approximates fair value as the terms are similar to loans with similar characteristics available in the market.
Debt liabilities are accounted for at face value plus net unamortized debt premiums. Debt assumed in an asset acquisition, or business combination, is recorded at fair value on the date of acquisition. The fair value as of December 31, 2021 and 2020 for mortgages, KW unsecured debt, and KWE unsecured bonds were estimated to be approximately $i5.5
billion and $i4.9 billion, respectively, based on a comparison of the yield that would be required in a current transaction, taking into consideration the risk of the underlying collateral and the Company's credit risk to the current yield of a similar security, compared to their carrying value of $i5.4
billion and $i5.1 billion as of December 31, 2021 and 2020, respectively. The inputs used to value mortgages, KW unsecured debt, and KWE unsecured bonds are based on observable inputs for similar assets and quoted prices in markets that are not active and are therefore determined to be level 2 inputs.
Other,
net of accumulated amortization of $i— and $i2.1 at December 31, 2021 and 2020, respectively
i15.3
i19.0
Prepaid
expenses
i13.3
i11.8
Deferred
taxes, net
i12.6
i22.1
Right
of use asset, net
i10.0
i11.2
Above-market
leases, net of accumulated amortization of $i60.4 and $i58.3 at December 31, 2021 and 2020,
respectively
i8.4
i15.0
Leasing
commissions, net of accumulated amortization of $i9.7 and $i7.4 at December 31, 2021 and 2020,
respectively
i8.0
i10.2
Other
Assets
$
i177.9
$
i199.1
/
Depreciation
and amortization expense related to the above depreciable assets were $i14.5 million, $i13.6 million, and $i14.2
million for the years ended December 31, 2021, 2020 and 2019, respectively.
Right of use asset, net
The Company, as a lessee, has ithree office leases and
ithree ground leases, which qualify as operating leases, with remaining lease terms of i2 to i237
years. The payments associated with office space leases have been discounted using the Company's incremental borrowing rate which is based on collateralized interest rates in the market and risk profile of the associated lease. For ground leases the rate implicit in the lease was used to determine the right of use asset.
i
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 we are the lessee:
Rental expense was $i0.7 million, $i1.0
million, and $i1.4 million for the years ended December 31, 2021, 2020 and 2019, respectively, and is included in general and administrative expense in the accompanying consolidated statements of income.
NOTE 7—iMORTGAGE
DEBT
i
The following table details mortgage debt secured by Kennedy Wilson's consolidated properties as of December 31, 2021 and 2020:
(Dollars
in millions)
Carrying amount of mortgage debt as of December 31,(1)
Mortgage Debt by Product Type
Region
2021
2020
Multifamily(1)
Western U.S.
$
i1,493.1
$
i1,345.5
Commercial(1)
United
Kingdom
i683.8
i429.6
Commercial
Western U.S.
i351.0
i375.2
Commercial(1)
Ireland
i327.3
i320.5
Hotel
Ireland
i82.0
i88.0
Commercial
Spain
i40.4
i43.6
Mortgage
debt (excluding loan fees)(1)
i2,977.6
i2,602.4
Unamortized
loan fees
(i17.8)
(i12.6)
Total
Mortgage Debt
$
i2,959.8
$
i2,589.8
(1)The mortgage debt payable balances include unamortized debt premiums. Debt premiums represent the difference between the fair value of debt and the principal value of debt assumed in various acquisitions and are amortized into interest expense over the remaining term of the related debt in a manner that approximates the effective interest method. The net unamortized loan premium as of December 31, 2021 and 2020 was $i2.5
million and $i4.5 million, respectively.
/
The mortgage debt had a weighted average interest rate of i3.11%
and i3.31% per annum as of December 31, 2021 and 2020, respectively. As of December 31, 2021, i78%
of Kennedy Wilson's property level debt was fixed rate, i13% was floating rate with interest caps and i9% was floating rate without interest
caps, compared to i73% fixed rate, i13% floating rate with interest caps and i14% floating
rate without interest caps, as of December 31, 2020.
Mortgage Loan Transactions and Maturities
During the year ended December 31, 2021, ieight acquisitions were partially financed with mortgages, isix
existing mortgages were refinanced, and itwo existing investments that closed with all equity were subsequently partially financed with mortgage loans. See Note 4 for more detail on the acquisitions and the investment debt associated with them.
i
The
aggregate maturities of mortgage loans subsequent to December 31, 2021 are as follows:
(Dollars in millions)
Aggregate Maturities
2022(1)
$
i17.4
2023
i374.8
2024
i513.9
2025
i482.4
2026
i478.2
Thereafter
i1,108.4
i2,975.1
Unamortized
debt premium
i2.5
Unamortized loan fees
(i17.8)
Total
Mortgage Debt
$
i2,959.8
(1) The Company expects to repay the amounts maturing in the next twelve months with new mortgage loans, cash generated from operations, existing cash balances, proceeds from dispositions of real estate investments, or as necessary, with borrowings on
our A&R Facility.
As of December 31,
2021, the Company received waivers on certain debt covenants on a loan agreement governing a total of $i71.9 million or i2%
of our consolidated mortgage balance. The mortgage is secured by a retail shopping center in the United Kingdom. This loan is non-recourse to the Company and the waivers are through February 28, 2022 and typically cover interest coverage and loan-to-value covenants. The Company expects to be in compliance with these covenants subsequent to December 31, 2021, or will seek additional waivers and/or extensions as, and if needed. In the event the Company is required to seek such additional waivers and/or extensions, the Company is
currently confident that it will be able to obtain them. The Company is current on all payments (principal and interest) for its consolidated mortgages including the loans discussed above.
As of December 31, 2021, the Company was in compliance with or had received waivers on all financial mortgage debt covenants.
(1)The senior notes balances include unamortized debt premiums (discounts). Debt premiums (discounts) represent the difference between the fair value of debt and the principal value of debt assumed in various acquisitions and are amortized into interest expense over the remaining term of the related debt in a manner that approximates the effective interest method. The unamortized debt premium as of December 31, 2021 was $i3.9 million and a debt discount of $i3.1
million as of December 31, 2020.
/
Borrowings Under Credit Facilities
The Company, through a wholly-owned subsidiary, has a $i500
million unsecured revolving credit and term loan facility (the "Second A&R Facility"). Loans under the Second A&R Facility bear interest at a rate equal to LIBOR plus between i1.75% and i2.50%,
depending on the consolidated leverage ratio as of the applicable measurement date. The Second A&R Facility has a maturity date of March 25, 2024. Subject to certain conditions precedent and at Kennedy-Wilson, Inc.’s (the "Borrower") option, the maturity date of the Second A&R Facility may be extended by ione year.
The Second A&R Facility has certain covenants as defined within its Second Amended and Restated Credit Agreement, dated as of March 25, 2020 (the "Credit Agreement")
that, among other things, limit the Company and certain of its subsidiaries’ ability to incur additional indebtedness, repurchase capital stock or debt, 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 Credit Agreement requires the Company to maintain (i) a maximum consolidated leverage ratio (as defined in the Credit Agreement) of not greater than i65%,
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 i1.70 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 $i1,700,000,000
plus an amount equal to fifty percent (i50%) of net equity proceeds received by the Company after the date of the most recent financial statements that are available as of the March 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 i1.5,
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 i3.5% of consolidated total asset value (as defined in the Credit Agreement) and $i299,000,000,
(vi) a maximum adjusted secured leverage ratio (as defined in the Credit Agreement) of not greater than i55%, measured as of the last day of each fiscal quarter, and (vii) liquidity (as defined in the Credit Agreement) of at least $i75.0
million.
As of December 31, 2021, the Company had $i75.0 million
outstanding on the Second A&R Facility with $i425.0 million available to be drawn.
The average outstanding borrowings under credit facilities was $i72.3
million during the year ended December 31, 2021.
Senior Notes
On February 11, 2021, Kennedy-Wilson, Inc., as issuer, issued $i500.0 million aggregate principal amount of i4.750%
senior notes due 2029 (the “2029 notes”) and $i500.0 million aggregate principal amount of i5.000% senior notes due 2031 (the “2031 notes” and, together with the 2029 notes,
the “initial notes”). On March 15, 2021, Kennedy-Wilson, Inc. issued an additional $i100 million aggregate principal of the 2029 notes and an additional $i100 million
of the 2031 notes. These additional notes were issued as "additional notes" under the indentures pursuant to which Kennedy Wilson previously issued 2029 notes and the 2031 notes. On August 23, 2021, Kennedy-Wilson, Inc. issued $i600.0 million aggregate principal amount of i4.750%
senior notes due 2030 (the "2030 notes" and, together with the 2029 notes and the 2031 notes, the "notes"). The notes are senior, unsecured obligations of Kennedy Wilson and are guaranteed by Kennedy-Wilson Holdings, Inc. and certain subsidiaries of Kennedy Wilson.
The notes accrue interest at a rate of i4.750% (in the case of the 2029 notes), i4.750%
(in the case of the 2030 notes) and i5.000% (in the case of the 2031 notes) per annum, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2021 for the 2029 notes and 2031 notes and March 1, 2022 for the 2030 notes. The notes will mature on March 1, 2029 (in the case of the 2029 notes), February 1, 2030 (in case of 2030 notes) and
March 1, 2031 (in the case of the 2031 notes), in each case unless earlier repurchased or redeemed. At any time prior to March 1, 2024 (in the case of the 2029 notes), September 1, 2024 (in the case of the 2030 notes) or March 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 i100%
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 after March 1, 2024 (in the case of the 2029 notes), September 1, 2024 (in the case of the 2030 notes) or March 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 to March 1, 2024 (for 2029 notes and 2031 notes) and September
1, 2024 (for 2030 notes), Kennedy Wilson may redeem up to i40% 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 require Kennedy Wilson to repurchase their notes for cash equal to i101%
of the principal amount of the notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the applicable repurchase date.
As of December 31, 2020, Kennedy Wilson, Inc. had $i1.2 billion of i5.875%
Senior Notes due 2024 (the "2024 notes"). On January 27, 2021the Company announced a tender offer for up to $i1.0 billion aggregate principal amount of outstanding 2024 notes. On February 9, 2021, $i576.9 million
aggregate principal amount of the 2024 notes were tendered. As a result of the tender offer the Company recognized $i14.8 million of loss on early extinguishment of debt due to the tender premium and the proportionate write off of capitalized loan fees and debt discount associated with the bonds retired as part of the tender offer. On April 1, 2021the
Company redeemed the remaining $i573.1 million of the 2024 notes using cash on hand from the proceeds of the 2029 notes and 2031 notes. As a result of the redemption the Company recognized an additional $i11.7 million
of loss on early extinguishment of debt during the year ended December 31, 2021
The indenture governing the notes contain various restrictive covenants, including, among others, limitations on the Company's ability and the ability of certain of the Company's subsidiaries to incur or guarantee additional indebtedness, make restricted payments, pay dividends or make any other distributions from restricted subsidiaries, redeem or repurchase
capital stock, sell assets or subsidiary stocks, engage in transactions with affiliates, create or permit liens, enter into sale/leaseback transactions, and enter into consolidations or mergers. The indenture governing the notes limit the ability of Kennedy Wilson and its restricted subsidiaries to incur additional indebtedness if, on the date of such incurrence and after giving effect to the new indebtedness, the maximum balance sheet leverage ratio (as defined in the indenture) is greater than i1.50
to 1.00, subject to certain exceptions. As of December 31, 2021, the maximum balance sheet leverage ratio was i1.19 to 1.00. See Note 14 for the guarantor and non-guarantor financial statements.
The following table details the KWE unsecured bonds as of December 31, 2021 and 2020:
December 31,
(Dollars
in millions)
2021
2020
KWE Bonds
$
—
$
i504.7
KWE Euro
Medium Term Note Programme
i624.1
i669.7
KWE
Unsecured Bonds (excluding loan fees)(1)
i624.1
i1,174.4
Unamortized
loan fees
(i1.3)
(i1.9)
Total
KWE Unsecured Bonds
$
i622.8
$
i1,172.5
(1) The
KWE unsecured bonds balances include unamortized debt discounts. Debt discounts represent the difference between the fair value of debt at issuance and the principal value of debt and are amortized into interest expense over the remaining term of the related debt in a manner that approximates the effective interest method. The net unamortized loan discount as of December 31, 2021 and 2020 was $i2.1 million and $i2.8
million, respectively.
KWE had £i500 million of i3.95% fixed-rate senior unsecured bonds due 2022 (the "KWE Bonds") that had a carrying
value of $i504.7 million as of December 31, 2020. KWE effectively reduced the interest rate to i3.35% as a result of
entering into swap agreements to convert i50% of the proceeds into Euros. On April 26, 2021, KWE completed the redemption of £i150.0 million
in aggregate nominal amount of the KWE Bonds outstanding which resulted in a $i9.3 million loss on early extinguishment of debt due to a make whole premium paid as part of redemption and proportionate write off of loan fees. On October 11, 2021, KWE redeemed the remainder of the KWE Bonds and resulted in a $i7.1 million
loss on early extinguishment of debt due to a make whole premium paid as part of redemption and proportionate write off of loan fees. KWE also settled the swap arrangement discussed above on the KWE Bonds during the year ended December 31, 2021.
In addition, KWE issued senior unsecured notes for an aggregate principal amount of approximately $i625.4 million (based on December 31, 2021 rates) (€i550
million) (the "KWE Notes"). The KWE Notes were issued at a discount with an annual fixed coupon of i3.25%, and mature in 2025. As KWE invests proceeds from the KWE Notes to fund equity investments in new euro denominated assets, KWE designates the KWE Notes as net investment hedges under ASC Topic 815. Subsequent fluctuations in foreign currency rates that impact the carrying value of the KWE Notes are recorded to accumulated other comprehensive income. During the year ended December 31, 2021, Kennedy Wilson recognized a gain of $i40.3
million in accumulated other comprehensive income due to the weakening of the euro against the GBP during the period. The KWE Notes rank pari passu with the KWE Bonds, and are subject to the same restrictive covenants.
The trust deed that governs the bonds contain various restrictive covenants for KWE, including, among others, limitations on KWE’s and its material subsidiaries’ ability to provide certain negative pledges. The trust deed limits the ability of KWE and its subsidiaries to incur additional indebtedness if, on the date of such incurrence and after giving effect to the incurrence of the new indebtedness, (1) KWE’s consolidated net indebtedness (as defined in the trust deed) would exceed i60%
of KWE’s total assets (as calculated pursuant to the terms of the trust deed); and (2) KWE’s consolidated secured indebtedness (as defined in the trust deed) would exceed i50% of KWE’s total assets (as calculated pursuant to the terms of the trust deed). The trust deed also requires KWE, as of each reporting date, to maintain an interest coverage ratio (as defined in the trust deed) of at least i1.50
to 1.00 and have unencumbered assets of no less than i125% of its unsecured indebtedness (as defined in the trust deed).
As of December 31, 2021, KWE was in compliance with these financial covenants.
NOTE 10—iRELATED
PARTY TRANSACTIONS
Related party revenue is fees and other income received from investments in which we have an ownership interest, excluding amounts eliminated in consolidation discussed below. Kennedy Wilson earned related party fees of $i35.3 million, $i22.8
million and $i25.6 million for the periods ended December 31, 2021, 2020 and 2019, respectively.
The Company provides asset and property management and other property related services on properties in which it also has an ownership interest. Fees earned on consolidated properties are eliminated
in consolidation and fees on unconsolidated investments are eliminated for the portion that relate to the Company's ownership interest. During the years ended December 31, 2021, 2020 and 2019 fees of $i0.8 million, $i1.1
million and $i18.1 million were eliminated in consolidation.
On October 2, 2020, the Company completed the sale of Kennedy-Wilson Properties, Ltd. (“KWP”), a wholly-owned subsidiary of the Company operating in the third-party real estate
services industry, including, property management, commercial brokerage (leasing and sale), facilities management and lease administration, to an entity controlled by certain
members of KWP management (the “Purchaser”). As part of the transaction and in exchange
for an annual fee, the Company will provide certain services to KWP, including the use of certain office space and information technology related services, in addition to a license to use its trademark in connection with the operation of its business for a period of itwo years, with a itwo-year
extension option exercisable by the Purchaser subject to certain conditions being met. The Company also provided financing to the Purchaser in connection with its purchase of KWP as well as a ithree-year line of credit. As of the closing date, the Purchaser will employ the approximately i110
employees and i25 independent contractors previously employed by KWP.
NOTE 11—iINCOME
TAXES
i
The table below represents a geographical breakdown of book income (loss) before the provision for income taxes:
Year
ended December 31,
(Dollars in millions)
2021
2020
2019
Domestic
$
i447.6
$
(i37.0)
$
i249.5
Foreign
i14.9
i188.4
i113.0
Total
$
i462.5
$
i151.4
$
i362.5
/
i
The
U.S. and foreign components of provision for income taxes consisted of the following components. However, it is not reflective of the cash tax results of the Company.
Foreign
permanent differences, primarily non-deductible depreciation, amortization and interest expenses in the United Kingdom
i8.2
i2.0
i1.3
Effect
of foreign operations, net of foreign tax credit
i7.4
(i3.7)
(i16.8)
Noncontrolling
interests
(i2.6)
(i0.9)
(i22.2)
State
income taxes, net of federal benefit
i7.0
i2.9
i—
Other
i1.0
i4.2
(i3.4)
Provision
for income taxes
$
i126.2
$
i43.6
$
i41.4
/
i
Cumulative
tax effects of temporary differences are shown below at December 31, 2021 and 2020:
Year ended December 31,
(Dollars in millions)
2021
2020
Deferred
tax assets:
Foreign currency translation
$
i2.7
$
i3.7
Net
operating loss carryforward and credits
i172.4
i137.1
Investment
basis difference
i96.8
i91.2
Stock
option expense
i2.2
i3.0
Hedging
transactions
i7.8
i13.4
Lease
liability
i0.1
i0.1
Accrued
reserves
i11.1
i0.6
Total
deferred tax assets
i293.1
i249.1
Valuation
allowance
(i257.1)
(i204.4)
Net
deferred tax assets
i36.0
i44.7
Deferred
tax liabilities:
Investment basis and reserve differences
i285.4
i159.5
Depreciation
and amortization
i3.9
i20.0
Right
of use asset
i0.1
i0.1
Prepaid
expenses and other
i2.2
i2.8
Capitalized
interest
i1.3
i1.3
Total
deferred tax liabilities
i292.9
i183.7
Deferred
tax liability, net
$
(i256.9)
$
(i139.0)
/
In
December 2017, the Tax Cuts and Jobs Act (“the “TCJA”) was enacted and was effective January 1, 2018.The U.S. Treasury has issued various final and proposed regulatory packages supplementing the TCJA provisions since 2018.In January 2022, the Internal Revenue Service published new and final regulations for U.S. foreign tax credits that will be effective for future periods.The Company is currently assessing the impact of these regulations.
During 2019, the United Kingdom enacted a Finance Act, which introduced a new capital gain tax for non-UK resident investors who dispose of UK real estate. The
new capital gain tax law became effective on April 6, 2019. Beginning on this date, non-UK resident investors are subject to UK tax on gains arising from the direct and indirect dispositions of UK real estate
held
for investment purposes. Transitional provisions allowed for rebasing of UK real estate values to fair market value as of April 5, 2019 ("UK Basis Step-Up"). Accordingly, only gains arising from property value increases after April 5, 2019 are subject to tax. The step-up led to a higher tax basis relative to the carrying value of the UK real estate, thus resulting in a UK deferred tax asset of $i107.0 million. The realizability of this deferred tax asset is dependent on future
disposition of real estate at a fair market value in excess of appraised value as of April 5, 2019. Given uncertainties surrounding Brexit and its potential impact on future real estate values, the Company concluded that the U.K. deferred tax asset did not meet the more likely than not threshold of being realizable. Therefore, a full valuation allowance was recorded against the UK deferred tax asset. During fiscal 2021, the valuation allowance on the UK Basis Step-Up increased to $i134.0
million due to remeasuring the deferred tax asset from UK tax rate of 19% to the new enacted tax rate of 25%.The new tax rate of 25% becomes effective on April 1, 2023, which is when the Company expects the deferred tax asset and related valuation allowance to unwind.
During March 2018, Kennedy Wilson elected to treat KWE as a partnership for U.S. tax purposes retroactive to December 29, 2017. Due to unrealized foreign exchange losses not yet deductible for tax purposes and the consideration paid to acquire the non-controlling interests in KWE exceeding the book carrying value of the non-controlling interests in KWE, the
Company’s tax basis in KWE exceeded its book carrying value at December 29, 2017, and every period thereafter. Prior to the election to treat KWE as a partnership, KWE was taxed as a controlled foreign corporation. As a controlled foreign corporation, the Company was precluded from recognizing a deferred tax asset for its tax basis in excess of book carrying value for its investment in KWE as the excess tax basis from the investment was not expected to reverse in the foreseeable future. However, as a result of the conversion of KWE to a partnership for U.S. tax purposes, the Company was required to record a deferred tax asset for its investment in KWE. As of December 31, 2018, the
Company recorded a $i98.3 million deferred tax asset related to its excess tax basis over book carrying value for its investment in KWE. As a significant portion of the excess tax basis would only reverse upon a strengthening of foreign currencies or upon a disposition of KWE, the Company determined that a valuation allowance of $i98.3
million was required for the tax basis that was in excess of the Company’s carrying value for its investment in KWE as it did not meet the more likely than not recognition threshold. During the years ended December 31, 2020 and 2019, a portion of the excess tax basis over book basis in KWE reversed as a result of lower tax gains on sales of real estate. During year ended December 31, 2021, our excess tax basis over book basis in KWE increased due to book impairment losses that are not currently deductible for tax. As of December 31, 2021, Kennedy Wilson’s excess tax basis in KWE and the related valuation allowance is $i71.7
million and $i71.5 million, respectively.
As of December 31, 2021, Kennedy Wilson had federal, California and other state net operating losses of $i89.7
million, $i108.2 million, and $i14.3 million respectively. Of the $i89.7
million of federal net operating loss carryforwards, $i30.0 million was generated during 2017, and the remaining balance was generated after December 31, 2017. The post-2017 federal net operating losses do not expire. However, such losses are only eligible to offset 80% of taxable income in a given year. California net operating losses begin to expire in 2034. As of December 31, 2021, Kennedy Wilson had $i205.7
million of foreign net operating loss carryforwards, which have no expiration date. The Company has foreign tax credit carryforwards of $i78.0 million, of which $i0.5 million
begin to expire in 2023.
The Company's valuation allowance on deferred tax assets increased by $i52.7 million in 2021 and decreased by $i4.8
million in 2020. The increase in the valuation allowance during 2021 principally relates to remeasuring the UK Basis Step Up deferred tax asset from 19% to 25%. The decrease in the 2020 valuation allowance principally relates to a decrease in the deferred tax asset related to the KWE partnership as a result of lower tax gains on the sale of real estate in 2020.
During July 2019, the IRS initiated an income tax examination of the Company’s federal consolidated tax return for the period ended December 31, 2017.During 2021, the 2017 federal income tax examination was closed with no adjustments.In June 2021, the
Company received a notification of a general tax inquiry being conducted by the Spanish tax authorities for several of its Spanish entities for tax years 2016 and 2017.As a result of the Spanish tax inquiry, management has reassessed the Company’s prior Spanish tax filing positions and the need to accrue additional taxes. Based on this reassessment, the Company believes that no additional Spanish tax accruals are required.
Kennedy Wilson’s federal and state income tax returns remain open to examination for the years 2018 through 2020 and 2016 through 2020, respectively. However, due to the existence of prior year loss carryovers, the IRS may examine any tax years for which the carryovers are used
to offset future taxable income. Our foreign subsidiaries’ tax returns remain open to examination for the years 2017 through 2020. The Spanish loss carryovers may be subject to tax examination for a period of 10 years from the period in which such losses were generated.
NOTE 12—iCOMMITMENTS
AND CONTINGENCIES
CAPITAL COMMITMENTS—As of December 31, 2021 and 2020, the Company has unfunded capital commitments of $i113.7 million and $i97.4
million to its joint ventures under the respective operating agreements. In addition to the unfunded
capital commitments on its joint venture investments, the Company has $i140.3
million of equity commitments relating on consolidated and unconsolidated development projects. The Company may be called upon to contribute additional capital to joint ventures in satisfaction of the Company's capital commitment obligations.
LITIGATION—Kennedy Wilson is currently a defendant in certain routine litigation arising in the ordinary course of business. It is the opinion of management and legal counsel that the outcome of these actions will not have a material effect on the financial statements taken as a whole.
NOTE 13—iSTOCK
COMPENSATION AND OTHER RELATED PLANS
The Company maintains a shareholder-approved equity participation plan (the “Second Amended and Restated Plan”) under which shares of common stock are reserved for issuance pursuant to grants of restricted stock and other awards to officers, employees, non-employee directors and consultants. The Second Amended and Restated Plan also allows for share recycling on net settled restricted stock awards, restricted stock unit awards, performance unit awards and performance share awards. Named Executive Officers ("NEO") participate in the Second Amended and Restated Plan. During the years ended December 31, 2021, 2020 and 2019,
the compensation committee of the board of directors approved the total grant of i2.4 million shares of performance-based restricted stock units and i0.1 million
shares of performance-based restricted shares of Company common stock, i2.0 million of performance-based restricted shares and i1.9
million shares of performance-based restricted stock units of Company common stock or performance-based restricted stock units covering Company common stock, respectively, subject to vesting based on the Company’s total shareholder return (the “TSR restricted awards”), performance-based restricted shares of Company common stock or performance-based restricted stock units covering Company common stock subject to vesting based on the Company’s return on equity (the “ROE awards”), and time-based restricted shares of Company common stock or time-based restricted stock units covering Company common stock (the “time-based awards”) (collectively, the “awards”), under the Second Amended and Restated Plan. Up to i100%
of the TSR awards will be eligible to vest based on the Company's total shareholder return relative to the MSCI World Real Estate Index during a ithree-year performance period (subject to continued employment through the vesting date), with the actual number of shares subject to such TSR awards that vest and cease to be subject to restrictions with respect to the performance period determined by multiplying (i) the total number of shares
subject to the TSR award by (ii) the applicable vesting percentage (which is determined based on the level of the Company's relative total shareholder return attained during the performance period). Up to one-third of the ROE awards will be eligible to vest with respect to each Company fiscal year of the performance period (each, a “performance year”) to the extent that the Company satisfies the return on equity goals for such performance year (subject to continued employment through the vesting date). One-third of the time-based awards will vest on each of the first three anniversaries of the grant date, subject to continued employment through the vesting date. Stock-based compensation expense is based on the fair values on the date of grant for the ROE awards and
time-based awards. Certain ROE awards and time-based awards were granted with a three-year sale restriction period upon vesting. Due to the lack of marketability of these shares with the ithree-year sale restriction period upon vesting, a i12.5%
discount was applied to the grant price of these shares when computing stock compensation expense. The fair value of the TSR awards are estimated using a Monte Carlo simulation. As of December 31, 2021, there was $i29.2 million of unrecognized compensation cost for the Second Amended and Restated Plan related to unvested shares which will vest over the
next ithree years.
Upon vesting, the restricted stock granted to employees discussed directly above is net share-settled to cover the withholding tax. Shares that vested during the years ended December 31, 2021, 2020 and 2019
were net-share settled such that the Company withheld shares with values equivalent to the employees’ minimum statutory obligations for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total shares withheld during the years ended December 31, 2021, 2020 and 2019 were i967,536
shares, i571,983 shares, and i764,909
shares respectively, and were valued based on the Company’s closing stock price on the respective vesting dates. During the years ended December 31, 2021, 2020 and 2019, total payments for the employees’ tax obligations to the taxing authorities were $i20.5 million,
$i11.6 million, and $i16.4
million respectively. These figures are reflected as a financing activity on the accompanying consolidated statements of cash flows.
During the years ended December 31, 2021, 2020 and 2019, Kennedy Wilson recognized $i28.7 million, $i32.3
million, and $i30.2 million of compensation expense related to the vesting of restricted common stock and is included in compensation and related expense in the accompanying consolidated statements of income.
iThe
following table sets forth activity under the Amended and Restated Plan, the First Amended and Restated Plan, and the Second Amended and Restated Plan for the Company's fiscal years ending December 31, 2021, 2020 and 2019:
Non-NEO Deferred Compensation Program and Performance Allocation Sharing Program
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 ithree-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 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, 2021, 2020 and 2019the Company recognized $i11.8 million, $i6.4 million
and $i3.6 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 (i35%) of any performance allocation earned by certain commingled funds and separate account investments to be allocated to certain non-NEO employees of the
Company. isixty percent of the award to each employee vests ratably over ifour
years and the remaining iforty percent vests 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 expense. During the years ended December 31, 2021, 2020 and 2019the Company recognized $i42.0 million, $i0.2
million and $i0.1 million, respectively, of performance allocation compensation to employees.
NOTE 14—iEQUITY
Preferred
Stock
In October 2019, the Company announced the issuance of a $i300 million perpetual preferred equity investment in Kennedy Wilson by affiliates of Eldridge Industries (collectively, "Eldridge"). Under the terms of the agreement, Eldridge purchased $i300
million in convertible perpetual preferred stock carrying a i5.75% annual dividend rate, with an initial conversion price of $i25.00 per share, representing a premium of i15%
to the daily volume weighted average price per share of Kennedy Wilson’s common stock over the i20 trading days ending, and including, October 16, 2019. The preferred stock is callable by Kennedy Wilson on and after October 15, 2024. The convertible perpetual preferred stock is treated as permanent equity in accordance with ASC Topic 480, Distinguishing Liabilities from Equity.
Common Stock Repurchase
Program
On March 20, 2018, the Company announced that its board of directors authorized a $i250.0 million stock repurchase program. 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. On November
4, 2020, the Company's board of directors authorized an expansion of its existing $i250 million share repurchase plan to $i500 million.
During
the year ended December 31, 2021, Kennedy Wilson repurchased and retired i2,824,665 shares for $i62.7
million. During the year ended December 31, 2020, Kennedy Wilson repurchased and retired i2,826,644 shares for $i45.8
million under the previous stock repurchase program.
Dividend Distributions
i
Kennedy Wilson declared and paid the following cash dividends on its common stock:
(1)The difference between declared and paid is the amount accrued on the consolidated balance sheets.
/
Taxability of Dividends
Earnings and profits, which determine the taxability of distributions to stockholders, may differ from income reported for financial reporting purposes due to the differences for federal income tax purposes in the treatment of revenue recognition, compensation expense, derivative investments and the basis of depreciable assets and estimated useful lives used to compute depreciation.
The
Company's dividends related to its common stock will be classified for U.S. federal income tax purposes as follows:
Record Date
Payment Date
Distributions Per Share
Ordinary Dividends
Return of Capital
12/31/2020
1/7/2021
$
i0.2200
$
i—
$
i0.2200
3/31/2021
4/8/2021
i0.2200
i—
i0.2200
6/30/2021
7/8/2021
i0.2200
i—
i0.2200
9/30/2021
10/7/2021
i0.2200
i—
i0.2200
Totals
$
i0.8800
$
i—
$
i0.8800
Accumulated
Other Comprehensive Income (Loss)
i
The following table summarizes the changes in each component of accumulated other comprehensive loss ("AOCI"), net of taxes:
(1)Excludes $i358.4
million of inception to date accumulated other comprehensive losses associated with noncontrolling interest holders of KWE that the Company was required to record as part of the KWE Transaction in October 2017.
/
The local currencies for our interests in foreign operations include the euro and the British pound sterling. The related amounts on our balance sheets are translated into U.S. dollars at the exchange rates at the respective financial statement date, while amounts on our statements of income are translated at the average exchange rates during the respective period. Unrealized
losses on foreign currency translation is a result of the weakening of the euro and British pound sterling against the U.S. dollar during the year ended December 31, 2021.
In order to manage currency fluctuations, Kennedy Wilson entered into currency derivative contracts to manage its exposure to currency fluctuations between its
functional currency (U.S. dollar) and the functional currency (Euro and GBP) of certain of its wholly-owned and consolidated subsidiaries. See Note 5 for a more detailed discussion of Kennedy Wilson's currency derivative contracts.
NOTE 15—iEARNINGS
PER SHARE
Basic earnings per share is computed by dividing net income (loss) attributable to Kennedy-Wilson Holdings, Inc. common stockholders by the weighted average number of common shares outstanding. Diluted earnings per share is computed after adjusting the numerator and denominator of the basic earnings per share computation for the effects of all potentially dilutive common shares. The dilutive effect of non-vested stock issued under share‑based compensation plans is computed using the treasury stock method. The dilutive effect of the cumulative preferred stock is computed using the if‑converted method.
i
The
following is a summary of the elements used in calculating basic and diluted income per share for the years ended December 31, 2021, 2020 and 2019:
Year ended December 31,
(Dollars
in millions, except share amounts and per share data)
2021
2020
2019
Net income attributable to Kennedy-Wilson Holdings, Inc. common shareholders
$
i313.2
$
i92.9
$
i224.1
Weighted-average
shares outstanding for basic
i138,552,058
i139,741,411
i139,729,573
Income
per share - basic
$
i2.26
$
i0.66
$
i1.60
Weighted
average shares outstanding for diluted
i140,132,435
i140,347,365
i141,501,323
Income
per share - diluted
$
i2.24
$
i0.66
$
i1.58
/
There
was a total of i13,572,590, i13,236,896
and i13,133,785 during the years ended December 31, 2021, 2020 and 2019 potentially dilutive securities were not included in the diluted weighted average shares as they were anti-dilutive, respectively. Potentially anti-dilutive securities include preferred stock and unvested restricted stock grants.
NOTE
16—iSEGMENT INFORMATION
Segment Presentation
The Company evaluates its reportable segments in accordance with the guidance of ASC Topic 280, Segment Reporting. Kennedy Wilson historically presented Investments and Services as its itwo
main operating segments. As the Company has expanded on its separate account and commingled fund platforms, it determined that the segment presentation detailed below is more indicative of how the business is being run and evaluated by the chief operating decision makers. Unconsolidated investments that had historically been part of the Investments segment and are now included in the Co-Investment Portfolio segment. The Investment Management and Property Services businesses were historically included in the Services segment. The Investment Management business is now presented in the Co-Investment Portfolio segment. This combines the equity the Company invests as well as the fees it earns from its partners on co-investments into one segment to provide a better understanding and evaluation of the total
performance of these investments by the Company's chief decision makers. As the Company has grown its Consolidated Portfolio and Co-Investment Portfolio, the Property Services has had a less significant impact on the Company's results and thus Property Services is now presented in Corporate. With the sale of KWP in the fourth quarter of 2020, the Property Services is no longer part of the Company's results.
Segments
The
Company's operations are defined by itwo business segments: its Consolidated investment portfolio (the "Consolidated Portfolio") and its Co-Investment Portfolio:
•Consolidated Portfolio consists of the investments that the Company has made in real estate and real estate-related assets and consolidates on its balance sheet. The
Company typically wholly-owns the assets in its Consolidated Portfolio.
•Co-Investment Portfolio consists of (i) the co-investments that the Company has
made in real estate and real estate-related assets, including loans secured by real estate, through the commingled funds and joint ventures that it manages; and (ii) the fees (including, without limitation, asset management fees and construction management fees); and (iii) performance allocations that it earns on its fee bearing capital. The Company typically owns a i5% to i50%
ownership interest in the assets in its Co-investment Portfolio.
In addition to the Company's itwo primary business segments the Company's Corporate segment includes, among other things, corporate overhead and Property Services for all periods prior to its sale in the fourth quarter 2020.
Consolidated
Portfolio
Consolidated Portfolio is a permanent capital vehicle focused on maximizing property cash flow. These assets are primarily wholly-owned and tend to have longer hold periods and the Company targets investments with accretive asset management opportunities. The Company typically focuses on office and multifamily assets in the Western United States and commercial assets in the United Kingdom and Ireland within this segment.
Co-Investment Portfolio
Co-investment Portfolio segment consists of investments the
Company makes with partners in which it receives (i) the fees (including, without limitation, asset management fees and construction management fees); (ii) performance allocations that it earns on its fee bearing capital; and (iii) and its ownership interest in the underlying operations of its co-investments. The Company utilizes different platforms in the Co-investment Portfolio segment depending on the asset and risk return profiles.
No single third-party client accounted for 10% or more of Kennedy Wilson's revenue during any period presented in these financial statements.
The revenue shown in the table below is allocated based upon the region in which services are performed.
Year
Ended December 31,
(Dollars in millions)
2021
2020
2019
United States
$
i278.1
$
i277.3
$
i274.8
Europe
i175.5
i176.7
i294.0
Total
revenue
$
i453.6
$
i454.0
$
i568.8
/
NOTE
17—iGUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS
The following consolidating financial information and condensed consolidating financial information includes:
(1) Condensed consolidating balance sheets as of December 31, 2021 and 2020, respectively; consolidating statements of income for the years ended December 31, 2021, 2020
and 2019, respectively; of (a) Kennedy-Wilson Holdings, Inc. on an unconsolidated basis as the parent (and guarantor), (b) Kennedy-Wilson, Inc., as the subsidiary issuer, (c) the guarantor subsidiaries, (d) the non-guarantor subsidiaries and (e) Kennedy-Wilson Holdings, Inc. on a consolidated basis; and
(2) Elimination entries necessary to consolidate Kennedy-Wilson Holdings, Inc., as the parent guarantor, with Kennedy-Wilson, Inc. and its guarantor and non-guarantor subsidiaries
Kennedy Wilson owns 100% of all of the guarantor subsidiaries,
and, as a result, in accordance with Rule 3-10(d) of Regulation S-X promulgated by the SEC, no separate financial statements are required for these subsidiaries as of December 31, 2021 or 2020 and for the years ended December 31, 2021, 2020 or 2019.
Subsequent to December 31,
2021, the Company has drawn an additional $i175.0 million on its revolving line of credit. The Company has $i250.0 million
still available to draw on its revolving line of credit.
On February 23, 2022, the Company announced that it entered into an agreement for a $i300 million preferred investment in Kennedy Wilson by affiliates of Fairfax Financial Holdings (collectively, "Fairfax"). Under the terms of the agreement,
Fairfax is purchasing $i300 million in perpetual preferred stock carrying a i4.75% annual dividend rate and is callable by Kennedy Wilson at any time. Additionally, Fairfax acquired i7-year
warrants for approximately i13.0 million common shares with an initial strike price of $i23.00
per share, based on Kennedy Wilson’s closing price on February 9, 2022 and representing a premium of i2% to the daily volume weighted average price per share of Kennedy Wilson’s common stock over the past i20
trading days. The Company expects to use the proceeds to pay off in full its line of credit balance and to fund its development pipeline.
(1)The tax basis of all the properties in aggregate totaled $i4,720.5 million.
(2) Excludes acquired in place lease values.
(3) For assets that were consolidated the date acquired represents when the asset was presented as real estate not when initially acquired by Kennedy Wilson.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and procedures
Disclosure controls and procedures and changes in internal
control over financial reporting during the latest quarter
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to management, including principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures
can only provide reasonable assurance of achieving their control objectives.
Our management carried out an evaluation, under the supervision of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation our disclosure controls and procedures as of December 31, 2021. Based upon that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of December 31, 2021.
Management’s Report on Internal Control over Financial Reporting
Our management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining
adequate internal control over financial reporting, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act.
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2021.
KPMG LLP, the independent registered public accounting firm that audited the Company's 2021 consolidated financial statements included in this annual report
on Form 10-K, has issued a report on the Company's internal control over financial reporting, which is included in this report.
Changes in Internal Control over Financial Reporting
There were no changes during our last fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C.Disclosure Regarding Foreign
Jurisdictions that Prevent Inspections
Item 10. Directors, Executive Officers and Corporate Governance
The information called for by this item is incorporated
by reference from our definitive proxy statement for our 2022 annual meeting, to be filed with the SEC within 120 days after the end of our fiscal year.
Item 11. Executive Compensation
The information called for by this item is incorporated by reference from our definitive proxy statement for our 2022 annual meeting, to be filed with the SEC within 120 days after the end of our fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The information called for by this item is incorporated by reference from our definitive proxy statement for our 2022 annual meeting, to be filed with the SEC within 120 days after the end of our fiscal year.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information called for by this item is incorporated by reference from our definitive proxy statement for our 2022 annual meeting, to be filed with the SEC within 120 days after the end of our fiscal year.
Item 14. Principal
Accounting Fees and Services
Our independent registered public accounting firm is iKPMG LLP, iLos Angeles, CA, Auditor Firm ID: i185
The
information called for by this item is incorporated by reference from our definitive proxy statement for our 2022 annual meeting, to be filed with the SEC within 120 days after the end of our fiscal year.
Item 15. Exhibits
and Financial Statement Schedules
(a) The following documents are filed as part of this annual report:
(1)Financial Statements. See the accompanying Index to Consolidated Financial Statements, which appears on page 59 of the annual report. The Report of Independent Registered Public Accounting Firm, the Consolidated Financial Statements and the Notes to Consolidated Financial Statements listed in the Index to Consolidated Financial Statements, which appear beginning on page 60 of this report, are incorporated by reference into this Item 15.
(2)Financial Statement Schedules. Schedule III is listed in the Index to Consolidated Financial Statements, which appear beginning on page 109 of this report,
are incorporated by reference into this Item 15. All other Financial Statement Schedules have been omitted because the information required to be set forth therein is either not applicable or is included in the Consolidated Financial Statements or the notes thereto.
(3)Exhibits. See Item 15(b) below.
(b) Exhibits. The exhibits listed on the Exhibit Index set forth below on page 116 are filed as part of, or are incorporated by reference into, this annual report on Form 10-K.
The following materials from Kennedy-Wilson Holdings, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2021 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.
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 25th day of February 2022.
KENNEDY-WILSON HOLDINGS, INC.,
a
Delaware corporation
By:
/s/ WILLIAM J. MCMORROW
William J. McMorrow
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints William J. McMorrow and Justin Enbody, and each of them, his/her attorneys-in-fact,
each with the power of substitution, for him/her in any and all capacities, to sign any amendments to this annual report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Name
Title
Date
/S/ WILLIAM
J. MCMORROW
William J. McMorrow
Chief Executive Officer (principal executive officer) and Chairman
