Kennedy Wilson Reports Q4 and Full Year 2022 Results

Kennedy-Wilson Holdings, Inc. (NYSE: KW), a leading global real estate investment company with $23 billion in AUM that owns, operates, and invests in real estate both on its own and through its investment management platform, today reported the following results for the fourth quarter and full year of 2022:

“In 2022 we successfully executed on our key initiatives including delivering double-digit growth of both Estimated Annual NOI and Fee-Bearing Capital,” said William McMorrow, Chairman and CEO of Kennedy Wilson. “Our 2022 operating results were highlighted with solid growth of 11% in our multifamily same property NOI. Looking ahead, we remain focused on growing our recurring cash flow in 2023 through the delivery of several key development projects, organic NOI growth, and the continued expansion of our investment management platform.”

Financial Results

• Q4-22 Adjusted EBITDA of $147 million (vs. $187 million in Q4-21) Driven By Higher Recurring Investment Income Offset By Lower Gains:
  • KW's share of property NOI, loan income and fees totaled $128 million, an increase of $2 million from Q4-21.
  • KW's share of gains from the sale of real estate, changes in fair values and performance allocation totaled $74 million, a decrease of $37 million from Q4-21:
    • Realized gains from asset sales totaled $53 million in Q4-22, a $60 million increase from Q4-21
    • Increases in fair value and net performance allocation totaled $21 million (vs. $118 million in Q4-21)
  • Other loss totaled $10 million in Q4-22 (vs. a loss of $1 million in Q4-21) and primarily related to the decrease in value of the Company's interest rate hedging derivative contracts during Q4-22.
  • Compensation and related expenses decreased by $6 million or 17% from Q4-21
• FY-22 Adjusted EBITDA of $592 million (vs. $928 million in FY-21) Driven By Higher Recurring Investment Income Offset By Lower Gains:
  • KW's share of property NOI, loan income and fees totaled $510 million in FY-22, an increase of $76 million or 18% from FY-21.
  • KW's share of gains and net performance allocations totaled $212 million, a decrease of $473 million in FY-22:
    • Realized gains from asset sales totaled $125 million in FY-22, a $279 million decrease from FY-21
    • Increases in fair value and accrued performance allocation totaled $88 million (vs. $282 million in FY-21)
  • Other income totaled $36 million in 2022 (vs. a loss of $5 million in 2021). The other income in 2022 primarily related to the increase in value of the Company's interest rate hedging derivative contracts.
  • Compensation and related expenses decreased by $23 million or 17% from FY-21

Operating Performance

• 13% Growth in Estimated Annual NOI to $491 million from Q4-21, 4% Growth from Q3-22:

• 10% Growth of Multifamily NOI in Q4 Drives Strong Same Property Performance¹ :

• Development and Lease-up Portfolio To Add $96 Million of Estimated Annual NOI:
  • The development and lease-up portfolio is expected to add $96 million of Estimated Annual NOI. The Company expects to fund its share of remaining development costs primarily with cash from non-core asset sales and proceeds from property-level refinancing.
  • The Company's development and lease-up portfolio totals approximately $3 billion, in which KW's average ownership is 58% and includes 4,994 multifamily units, 2.2 million commercial square feet, and one hotel.

Investment Management

• 18% Growth in Fee-Bearing Capital in 2022; 5% Growth in Q4-22:
  • Fee-Bearing Capital grew to $5.9 billion as of YE-22, an 18% increase from YE-21 and a 5% increase from Q3-22. The Company has approximately $3.5 billion in additional non-discretionary Fee-Bearing Capital with certain strategic partners that is available for investment. The growth in 2022 was primarily driven by KW's real estate debt and EU logistics platforms.
  • 36% Growth in Debt Platform in 2022; 10% Growth in Q4-22: In Q4, completed loan investments totaling $240 million while loan repayments totaled $62 million, resulting in 10% growth from Q3-22. The Company has a 6% ownership in its debt platform, which totals $2.7 billion of outstanding loans (including $322 million of future funding commitments) and $2.2 billion of Fee-Bearing Capital as of Q4-22.
  • 40% Growth of EU Logistics Platform in 2022; AUM totals $1.2 billion:
    • Acquired 35 assets totaling 2.4 million square feet for $501 million in 2022
    • The Company has a 20% ownership in its European logistics platform, which totals $1.2 billion of assets and $402 million of Fee-Bearing Capital as of Q4-22
    • Including investments made through its commingled fund, Kennedy Wilson's European logistics portfolio totals $1.5 billion across 9.6 million commercial square feet

Investment Activity

• $243 million in Gross New Investments in Q4 ($13 million at share):
  • Co-Investment Portfolio: Completed $240 million in loan originations, in which the Company had a 5% ownership interest. The originations added $228 million in Fee-Bearing Capital
• $326 million of Gross Dispositions and Loan Repayments in Q4 ($109 million at share):
  • Consolidated Portfolio: $127 million of Wholly-Owned Dispositions in Q4:
    • U.S. Multifamily: Sold a 49% interest in one previously wholly-owned multifamily community totaling 208 units in Santa Maria, CA for a gross valuation of $98 million ($48 million at KW's share). KW retained a 51% ownership interest in this community. The sale generated a gain on sale of $57 million and Fee-Bearing Capital of $31 million.
      • European Retail: Sold 12 European retail assets totaling 120,000 square feet for $29 million.
  • Co-Investment Portfolio: Sold $187 million of real estate investments from its various commingled funds, totaling 333,000 commercial square feet, and received debt repayments of $62 million. KW's average ownership interest in these assets was 13%.

Balance Sheet and Liquidity

• Cash and Line of Credit Availability: As of December 31, 2022, Kennedy Wilson had cash and cash equivalents of $439 million⁽¹⁾ and $218 million of capacity on its $500 million revolving credit facility.
• Discounted Debt Extinguishments: During the fourth quarter of 2022, The Company repurchased €75 million of its KWE unsecured notes due 2025 via a tender offer at a price of 82% of the nominal amount. The Company also repaid a £53 million mortgage secured by a retail asset in the U.K. (in which KW had a 50% ownership interest) for £40 million. These discounted debt extinguishments resulted in a $30 million gain on early extinguishment of debt, of which KW's share (net of non-controlling interest) was $22 million.
• Debt Profile: Kennedy Wilson's share of debt had a weighted average effective interest rate of 4.2% per annum and a weighted-average maturity of 5.6 years as of December 31, 2022. As of February 21, 2023, approximately 97% of the Company's debt is either fixed or hedged with interest rate hedges. As of December 31, 2022, approximately 93% of the Company's debt was either fixed or hedged with interest rate hedges.
• Interest Rate Hedging Strategy: The Company hedges its floating rate exposure through the usage of interest rate caps and swaps. The Company's interest rate hedges have a weighted-average maturity of 2.1 years as of December 31, 2022.
• Foreign Currency Hedging Strategy: Kennedy Wilson hedges its exposure to foreign currency fluctuations by borrowing in the currency in which it invests and using foreign currency hedging instruments. As of December 31, 2022, the Company has hedged approximately 91% of the carrying value of its foreign currency investments, using local currency debt and hedging instruments with a weighted-average term of 2.7 years.
• Dividend Taxability: The Company's 2022 dividend distributions were characterized as 62.19% non-taxable return of capital and 37.81% ordinary dividends. Please refer to kennedywilson.com for further information.

Footnotes

Conference Call and Webcast Details

Kennedy Wilson will hold a live conference call and webcast to discuss results at 9:00 a.m. PT/ 12:00 p.m. ET on Wednesday, February 22. The direct dial-in number for the conference call is (844) 340-4761 for U.S. callers and (412) 717-9616 for international callers.

A replay of the call will be available for one week beginning one hour after the live call and can be accessed by (877) 344-7529 for U.S. callers and (412) 317-0088 for international callers. The passcode for the replay is 4194796.

The webcast will be available at: https://event.choruscall.com/mediaframe/webcast.html?webcastid=op0kWdPD. A replay of the webcast will be available one hour after the original webcast on the Company’s investor relations web site for three months.

About Kennedy Wilson

Kennedy Wilson (NYSE:KW) is a leading global real estate investment company. We own, operate, and invest in real estate both on our own and through our investment management platform. We focus on multifamily and office properties located in the Western U.S., UK, and Ireland. For further information on Kennedy Wilson, please visit www.kennedywilson.com.

Forward-Looking Statements

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, and Section 21E of the Securities Exchange Act of 1934, as amended. 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 operating results. Disclosures that use words such as "believe," "anticipate," "estimate," "intend," "may," "could," "plan," "expect," "project" or the negative of these, as well as similar expressions, are intended to identify forward-looking statements. These 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. These risks and uncertainties may include the factors and the risks and uncertainties described elsewhere in this report and other filings with the Securities and Exchange Commission (the "SEC"), including the Item 1A. "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2021, and Item 1A. "Risk Factors" section of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 as amended by our subsequent filings with the SEC. 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 our filings with the SEC. Except as required under the federal securities laws and the rules and regulations of 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.

Common Definitions

• “KWH,” "KW," “Kennedy Wilson,” the "Company," "we," "our," or "us" refers to Kennedy-Wilson Holdings, Inc. and its wholly-owned subsidiaries.

• “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 unconsolidated investments, provision for income taxes, our share of taxes included in unconsolidated investments, share-based compensation expense for the Company and EBITDA attributable to noncontrolling interests.
  
  
  
  Please also see the reconciliation to GAAP in the Company’s supplemental financial information included in this release and also available at www.kennedywilson.com. 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 acquisition-related gains) 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 Fees” refers to Kennedy Wilson’s gross investment management and property services fees adjusted to include Kennedy Wilson's share of fees eliminated in consolidation, and performance fees included in unconsolidated investments. Our management uses Adjusted fees to analyze our investment management business because the measure removes required eliminations under GAAP for properties in which the Company provides services but also has an ownership interest. These eliminations understate the economic value of the investment management and property services fees and makes the Company comparable to other real estate companies that provide investment management but do not have an ownership interest in the properties they manage. Our management believes that adjusting GAAP fees to reflect these amounts eliminated in consolidation presents a more holistic measure of the scope of our investment management and real estate services business.

• “Adjusted Net Income” represents net income (loss) before depreciation and amortization, our share of depreciation and amortization included in unconsolidated investments, share-based compensation, preferred dividends and net income attributable to the noncontrolling interests, before depreciation and amortization and preferred dividends. Please also see the reconciliation to GAAP in the Company’s supplemental financial information included in this release and also available at www.kennedywilson.com.

• “Annual Return on Loans” is a metric that applies to our real estate debt business that represents the sum of annual interest income, transaction fees and the payback of principal for discounted loan purchases, amortized over the life of the loans and divided by the principal balances of the loans.

• “Cap rate” represents the net operating income of an investment for the year preceding its acquisition or disposition, as applicable, divided by the purchase or sale price, as applicable. Cap rates set forth in this presentation only includes data from income-producing properties. We calculate cap rates based on information that is supplied to us during the acquisition diligence process. This information is not audited or reviewed by independent accountants and may be presented in a manner that is different from similar information included in our financial statements prepared in accordance with GAAP. In addition, cap rates represent historical performance and are not a guarantee of future NOI. Properties for which a cap rate is provided may not continue to perform at that cap rate.

• “Equity partners” refers to non-wholly-owned subsidiaries that we consolidate in our financial statements under U.S. GAAP and third-party equity providers.

• “Estimated Annual NOI” refers to our consolidated NOI (comprised of rental revenues, hotel revenues, rental (expenses), hotel (expenses) and loans and other), as adjusted to the property-level NOI, at our share, as further adjusted by assets acquired and disposed (net), lease-up and development portfolio, hotel operations, assets owned and occupied by us, amortization of above/below market leases (net), straight-line and free rent (net) and non-recurring income/expense, FX, and other on an estimated annualized basis. It is a property-level non-GAAP measure representing the estimated annual net operating income from each property as of the date shown, inclusive of rent abatements (if applicable). The calculation excludes depreciation and amortization expense, and does not capture the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures, tenant improvements, and leasing commissions necessary to maintain the operating performance of our properties. For assets wholly-owned and fully occupied by KW, the Company provides an estimated NOI for valuation purposes of $4.1 million, which includes an assumption for applicable market rents. Any of the enumerated items above could have a material effect on the performance of our properties. Also, where specifically noted, for properties purchased in 2022, the NOI represents estimated Year 1 NOI from our original underwriting. Estimated year 1 NOI for properties purchased in 2022 may not be indicative of the actual results for those properties. Estimated annual NOI is not an indicator of the actual annual net operating income that the Company will or expects to realize in any period. Please also see the definition of "Net operating income" below. Please also see the reconciliation to GAAP in the Company’s supplemental financial information included in this release and also available at www.kennedywilson.com.

• “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.

• “Gross Asset Value” refers to the gross carrying value of assets, before debt, depreciation and amortization, and net of noncontrolling interests.

• “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. Please also see the reconciliation to GAAP in the Company’s supplemental financial information included in this release and also available at www.kennedywilson.com.

• “Noncontrolling interests” represents the portion of equity ownership in a consolidated subsidiary not attributable to Kennedy Wilson.

• “Performance allocations” relates 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.

• “Performance allocation compensation” - the compensation committee of the Company’s board of directors approved and reserved 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.

• “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 from ordinary course operations of the underlying investment, gains on sale, fair value gains and losses.

• “Pro-Rata” represents Kennedy Wilson's share calculated by using our proportionate economic ownership of each asset in our portfolio. Please also refer to the pro-rata financial data in our supplemental financial information.

• “Property NOI” or “Property-level NOI” is a non-GAAP measure calculated by deducting the Company's Pro-Rata share of rental and hotel property expenses from the Company's Pro-Rata rental and hotel revenues. Please also see the reconciliation to GAAP in the Company’s supplemental financial information included in this release and also available at www.kennedywilson.com.

• “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.

• “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.

Note about Non-GAAP and certain other financial information included in this presentation

In addition to the results reported in accordance with U.S. generally accepted accounting principles ("GAAP") included within this presentation, Kennedy Wilson has provided certain information, which includes non-GAAP financial measures (including Adjusted EBITDA, Adjusted Net Income, Net Operating Income, and Adjusted Fees, as defined above). Such information is reconciled to its closest GAAP measure in accordance with the rules of the SEC, and such reconciliations are included within this presentation. These measures may contain cash and non-cash acquisition-related gains and expenses and gains and losses from the sale of real-estate related investments. Consolidated non-GAAP measures discussed throughout this report contain income or losses attributable to non-controlling interests. Management believes that these non-GAAP financial measures are useful to both management and Kennedy Wilson's shareholders in their analysis of the business and operating performance of the Company. Management also uses this information for operational planning and decision-making purposes. Non-GAAP financial measures are not and should not be considered a substitute for any GAAP measures. Additionally, non-GAAP financial measures as presented by Kennedy Wilson may not be comparable to similarly titled measures reported by other companies. Annualized figures used throughout this release and supplemental financial information, and our estimated annual net operating income metrics, are not an indicator of the actual net operating income that the Company will or expects to realize in any period.

KW-IR

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