
PART I Business Kennedy Wilson is a global real estate investment company focused on multifamily and office properties, operating through investment and fee-generating segments - The company's primary focus is on owning, operating, and investing in multifamily and office properties located in the Western United States, United Kingdom, and Ireland13 - Kennedy Wilson's business is structured into two core, symbiotic units: KW Investments (capital investment) and KW Investment Management and Real Estate Services (IMRES, fee-generating services)1819 Company Portfolio Snapshot (as of Dec 31, 2018) | Metric | Value | | :--- | :--- | | Total Portfolio Book Value | ~$11.3 billion | | Global Property Square Footage | ~53 million sq. ft. | | Multifamily Rental Units | 28,613 units | | Commercial Property Square Footage | 18.9 million sq. ft. | | Average Company Ownership Interest | ~63% | Five-Year Financial Performance Highlights (2014-2018) | Metric (in millions, except per share) | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $773.5 | $801.8 | $690.4 | $583.8 | $384.9 | | Net Income to Common Shareholders | $150.0 | $100.5 | $2.8 | $71.1 | $13.8 | | Adjusted EBITDA | $712.7 | $455.7 | $349.9 | $371.2 | $317.8 | | Dividends Declared per Share | $0.78 | $0.70 | $0.56 | $0.48 | $0.36 | | Total Assets | $7,357.1 | $7,724.8 | $7,656.6 | $7,595.6 | $6,297.6 | Business Segments The company operates through KW Investments for direct real estate and IMRES for fee-generating investment management and services - The KW Investments segment invests the company's capital in real estate assets, either wholly-owned or with equity partners, with an average ownership interest of approximately 63% as of December 31, 201820 - The IMRES segment manages approximately $16 billion of Assets Under Management (AUM) and includes investment management, property services, brokerage, and auction/sales businesses3736 - As of December 31, 2018, the company manages a total of $2.2 billion in fee-bearing capital through its investment management platform40 - In December 2018, the company sold its research business, Meyers Research LLC, for $48.0 million, recognizing a gain of $40.4 million, and reinvested $15.0 million for an 11% stake in a new partnership47 Industry Overview and Key Investment Markets Key real estate markets in the Western U.S., UK, Ireland, and Spain demonstrated strong demand and economic resilience across multifamily and office sectors - Western U.S.: The market saw strong demand for multifamily housing, particularly suburban workforce housing, and moderate growth in the office sector fueled by tech companies5455 - United Kingdom: Despite Brexit uncertainty, the UK economy remained resilient with near-record low unemployment. London's office market fundamentals are strong, though the retail sector is under pressure596162 - Ireland: As Europe's best-performing economy for the fifth straight year, Ireland saw significant investment volume in 2018, with office and multifamily transactions representing nearly one-third of the total64 - Spain: The retail sector continues to improve, driven by economic growth, decreased unemployment, and strong tourism, leading to positive foot traffic and institutional demand6970 Risk Factors The company faces various business, company-specific, and stock ownership risks, including economic sensitivity, foreign operations, and capital market reliance Risks Related to Our Business Business risks include sensitivity to economic conditions, real estate cyclicality, credit market volatility, and foreign operation risks, especially Brexit - The business is highly sensitive to general economic conditions and real estate market cyclicality, which can harm asset values, sales, and leasing activities94 - Significant operations in the UK and Ireland (sourcing 57% of 2018 revenues) expose the business to foreign market risks, including political instability, currency fluctuations, and regulatory changes102 - The UK's withdrawal from the European Union (Brexit) creates significant uncertainty that could negatively affect global economic conditions, financial markets, and the UK real estate market, where 31% of the company's consolidated investment account is located105106107 - The company faces risks from its real estate development and redevelopment strategies, including potential delays, cost overruns, and failure to achieve sufficient occupancy or sales levels100 Risks Related to Our Company Company-specific risks include reliance on capital markets, loss of key personnel, foreign currency fluctuations, significant debt obligations, and tax law impacts - The company depends on capital markets to fund growth, and an inability to raise additional debt and equity could impede future prospects138 - The loss of key personnel, particularly the CEO, could materially harm operations and relationships with lenders, partners, and clients139 - Significant debt obligations impose operating and financial restrictions, including covenants for maximum leverage and fixed charge coverage ratios, which could limit the pursuit of business opportunities147149 - The ability to use significant net operating loss carryforwards ($60.7 million federal, $71.9 million California, $224.8 million foreign) may be limited by ownership changes under tax laws152 Risks Related to Ownership of Our Common Stock Stock ownership risks include significant influence by directors and officers, potential dilution, stock price volatility, and anti-takeover provisions - As of December 31, 2018, directors, executive officers, and their affiliates owned approximately 14% of the common stock, giving them significant influence over stockholder matters158 - The company's staggered board and other anti-takeover provisions may entrench management and discourage takeover attempts that could be in the best interests of stockholders161 - The company's dividend policy is subject to change at the discretion of the board of directors, and there is no assurance that the current dividend level will be maintained164 Properties The company's consolidated portfolio includes 10.3 million sq. ft. commercial and 10,404 multifamily units, mainly in the Western U.S. and Europe Consolidated Properties by Region (as of Dec 31, 2018) | Property Type | Region | Sq. Feet / Units | Occupancy/Leased % | KW Ownership % | of Assets | | :--- | :--- | :--- | :--- | :--- | :--- | | Commercial | Western U.S. | 1.9M sq. ft. | 96% | 84% | 15 | | | Europe | 8.4M sq. ft. | 97% | 94% | 138 | | Total Commercial | | 10.3M sq. ft. | 97% | 92% | 153 | | Multifamily | Western U.S. | 9,642 units | 94% | 99% | 30 | | | Europe | 762 units | 97% | 100% | 3 | | Total Multifamily | | 10,404 units | 94% | 99% | 33 | Commercial Lease Expiration Schedule (as of Dec 31, 2018) | Year of Expiration | Rentable Square Feet (M) | Annualized Base Rent (M) | % of Total Rent | | :--- | :--- | :--- | :--- | | 2019 | 1.4 | $26.4 | 12% | | 2020 | 1.0 | $15.6 | 7% | | 2021 | 0.6 | $21.9 | 10% | | 2022 | 1.4 | $28.2 | 13% | | 2023 | 1.1 | $23.0 | 11% | | Thereafter | 4.4 | $80.5 | 36% | Legal Proceedings The company is involved in routine legal proceedings arising from ordinary business, none of which are currently considered material - The company is involved in routine legal proceedings arising from the ordinary course of business, none of which are expected to be material173 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NYSE, with $0.78 per share dividends paid and an active $250 million share repurchase program in 2018 - In 2018, the company declared and paid total dividends of $0.78 per share177 - On March 20, 2018, the board authorized a new share repurchase program for up to $250 million of common stock181 - During the year ended December 31, 2018, the company repurchased and retired 9.7 million shares of its common stock at a weighted average price of $17.94 per share182 Selected Financial Data This section summarizes five-year historical financial data (2014-2018), highlighting revenue growth, increased net income, and strong Adjusted EBITDA Selected Historical Financial Data (2014-2018) | (In millions, except per share amounts) | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $773.5 | $801.8 | $690.4 | $583.8 | $384.9 | | Net income to common shareholders | $150.0 | $100.5 | $2.8 | $71.1 | $13.8 | | Adjusted EBITDA | $712.7 | $455.7 | $349.9 | $371.2 | $317.8 | | Total assets | $7,357.1 | $7,724.8 | $7,656.6 | $7,595.6 | $6,297.6 | | Total equity | $1,431.2 | $1,577.5 | $2,343.1 | $2,865.1 | $3,043.9 | - Investment Management and Real Estate Services Assets under Management (IMRES AUM) increased by 4% from $15.7 billion at year-end 2017 to $16.3 billion at year-end 2018, driven by new acquisitions and value appreciation189 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 2018 financial condition and operations, highlighting increased net income and Adjusted EBITDA, robust liquidity, and a significant development pipeline Results of Operations In 2018, GAAP net income increased to $150.0 million and Adjusted EBITDA rose 56% to $712.7 million, driven by real estate and business sales Financial Results Comparison (2018 vs. 2017) | Metric (in millions) | 2018 | 2017 | Change | | :--- | :--- | :--- | :--- | | GAAP Net Income to Common Shareholders | $150.0 | $100.5 | +49.3% | | Adjusted EBITDA | $712.7 | $455.7 | +56.4% | | Total Revenue | $773.5 | $801.8 | -3.5% | | Gain on sale of real estate, net | $371.8 | $226.7 | +64.0% | | Gain on sale of business | $40.4 | $0.0 | N/A | - Adjusted Fees remained flat year-over-year at $86.3 million in 2018 compared to $86.6 million in 2017. A significant increase in performance fees ($36.6 million vs $8.7 million) was offset by a decrease in base management fees, primarily because the company no longer receives fees from KWE after its full acquisition242244245 - For 2017 vs. 2016, Adjusted EBITDA increased 30% to $455.7 million, driven by higher realized gains on investments and an increased ownership stake in KWE269 Liquidity and Capital Resources The company maintains strong liquidity with $988.0 million available, a $1.1 billion development pipeline, and positive cash flow from operations - As of December 31, 2018, the company had potential liquidity of approximately $988.0 million, consisting of $488.0 million in cash and $500.0 million available under its lines of credit310 - The company has a development and redevelopment pipeline with an estimated total cost for its share of $1.1 billion. As of year-end 2018, $321.0 million had been incurred, with an estimated $730 million remaining to complete the projects312 Cash Flow Summary (2016-2018) | (In millions) | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $93.1 | $73.0 | $102.9 | | Net cash provided by (used in) investing activities | $593.1 | $(70.2) | $(286.7) | | Net cash (used in) provided by financing activities | $(528.8) | $(565.3) | $419.8 | - As of December 31, 2018, the company has unfulfilled capital commitments totaling $99.3 million to its unconsolidated investments323 Indebtedness and Related Covenants Total borrowings were $5.5 billion as of year-end 2018, comprising mortgage debt, senior unsecured notes, and KWE bonds, all in compliance with covenants Contractual Cash Obligations (as of Dec 31, 2018) | (In millions) | Total | Less than 1 year | 1 - 3 years | 4 - 5 years | After 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Total borrowings | $5,458.8 | $266.2 | $1,280.0 | $1,720.8 | $2,191.8 | | Operating leases | $6.9 | $2.2 | $4.0 | $0.6 | $0.1 | | Ground leases | $106.8 | $1.2 | $3.5 | $2.3 | $99.8 | | Total | $5,572.5 | $269.6 | $1,287.5 | $1,723.7 | $2,291.7 | - The company has $1.15 billion in aggregate principal of 5.875% Senior Notes due 2024342 - The company's $700 million credit facility includes a $500 million revolving line of credit and a $200 million term loan. As of year-end 2018, the revolver was fully available and $75.0 million was outstanding on the term loan349350 Quantitative and Qualitative Disclosures About Market Risk Primary market risks are interest rate and foreign currency fluctuations, with 84% fixed-rate debt and significant foreign investment account hedging - As of December 31, 2018, 84% of the company's consolidated debt is fixed rate, mitigating exposure to interest rate volatility365 - A hypothetical 100-basis point increase in interest rates would lead to a $5.5 million increase in annual interest expense on current consolidated mortgages366 - Approximately 49% of the company's investment account is invested in foreign currencies. The company hedges its book equity exposure, with 92% of euro and 100% of GBP gross asset carrying value hedged as of year-end 2018371 - A 5% adverse movement in foreign exchange rates against the U.S. Dollar would decrease the company's net asset value by approximately $13.3 million374 Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2018, including balance sheets, income statements, cash flows, and detailed notes Consolidated Financial Statements The consolidated financial statements show $7.36 billion in total assets, $773.5 million in revenue, and $150.0 million net income for 2018 Consolidated Balance Sheet Summary (as of Dec 31, 2018) | (In millions) | Amount | | :--- | :--- | | Total Assets | $7,357.1 | | Cash and cash equivalents | $488.0 | | Real estate, net | $5,702.5 | | Unconsolidated investments | $859.9 | | Total Liabilities | $5,925.9 | | Mortgage debt | $2,950.3 | | KW unsecured debt | $1,202.0 | | KWE unsecured bonds | $1,260.5 | | Total Equity | $1,431.2 | Consolidated Statement of Income Summary (Year Ended Dec 31, 2018) | (In millions, except per share data) | Amount | | :--- | :--- | | Total Revenue | $773.5 | | Rental | $514.6 | | Hotel | $155.7 | | Total Expenses | $766.4 | | Gain on sale of real estate, net | $371.8 | | Net Income | $212.1 | | Net income attributable to common shareholders | $150.0 | | Diluted Earnings per share | $1.04 | Notes to Consolidated Financial Statements Notes detail accounting policies, 2018 acquisitions, unconsolidated investments, and specifics on mortgage debt and unsecured bonds - The company adopted ASC 606 (Revenue from Contracts with Customers) on January 1, 2018. The adoption resulted in performance fees being reclassified from revenue to 'Income from unconsolidated investments' on a retrospective basis436441 - During 2018, the company acquired consolidated properties with a total purchase price allocation of $354.2 million, primarily in multifamily and commercial assets in the Western U.S. and Ireland502 - The company's investment in unconsolidated joint ventures increased from $519.3 million in 2017 to $859.9 million in 2018, primarily due to the formation of the AXA joint venture for Irish multifamily assets520523 - As of December 31, 2018, the company had $2.95 billion in mortgage debt with a weighted average interest rate of 3.40%569572 Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2018, with an unqualified audit opinion - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2018704 - Based on an evaluation using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2018706 PART III Directors, Executive Compensation, and Corporate Governance Information for Items 10-14, including directors, executive compensation, and corporate governance, is incorporated by reference from the forthcoming proxy statement - Information regarding Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, and Principal Accounting Fees is incorporated by reference from the company's forthcoming definitive proxy statement712713714 PART IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the annual report, including corporate governance documents and certifications - This section contains the index of all financial statements, schedules, and exhibits filed with the annual report, including consents and certifications719720