Kennedy Wilson(KW) - 2019 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements of Kennedy-Wilson Holdings, Inc. as of September 30, 2019, and for the three and nine-month periods then ended Consolidated Balance Sheets Total assets decreased to $6,935.8 million from $7,381.8 million at year-end 2018, primarily due to reduced real estate assets Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $385.8 | $488.0 | | Real estate, net | $5,075.4 | $5,702.5 | | Unconsolidated investments | $1,110.2 | $859.9 | | Total Assets | $6,935.8 | $7,381.8 | | Liabilities | | | | Mortgage debt | $2,644.7 | $2,950.3 | | KW unsecured debt | $1,280.7 | $1,202.0 | | KWE unsecured bonds | $1,207.6 | $1,260.5 | | Total Liabilities | $5,660.1 | $5,950.6 | | Total Equity | $1,275.7 | $1,431.2 | Consolidated Statements of Operations For the nine months ended September 30, 2019, total revenues decreased to $427.4 million, resulting in lower net income attributable to common shareholders Statement of Operations Highlights (in millions, except per share data) | Metric | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $143.0 | $185.8 | $427.4 | $593.7 | | Gain on sale of real estate, net | $6.3 | $39.4 | $252.4 | $304.2 | | Net Income | $19.4 | $12.9 | $162.2 | $179.2 | | Net Income Attributable to KWH | $20.7 | $12.1 | $66.2 | $119.3 | | Diluted EPS | $0.15 | $0.09 | $0.47 | $0.83 | | Dividends declared per share | $0.21 | $0.19 | $0.63 | $0.57 | Consolidated Statements of Comprehensive Income For the nine months ended September 30, 2019, total comprehensive income attributable to common shareholders decreased to $71.1 million from $103.0 million Comprehensive Income Highlights (in millions) | Metric | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $19.4 | $12.9 | $162.2 | $179.2 | | Other Comprehensive (Loss) Income | $(8.3) | $(7.6) | $13.9 | $(11.2) | | Comprehensive Income | $11.1 | $5.3 | $176.1 | $168.0 | | Comprehensive Income Attributable to KWH | $13.4 | $5.4 | $71.1 | $103.0 | Consolidated Statements of Cash Flows Net cash used in operating activities was $39.5 million for the nine months ended September 30, 2019, leading to a $102.2 million net decrease in cash Cash Flow Summary (in millions) | Activity | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(39.5) | $91.8 | | Net cash provided by investing activities | $106.0 | $512.6 | | Net cash used in financing activities | $(179.2) | $(520.8) | | Net change in cash and cash equivalents | $(102.2) | $68.1 | - During the nine months ended September 30, 2019, the Company deconsolidated interests in several Dublin properties, recorded as a non-cash investing activity, increasing unconsolidated investments by $125.5 million[48] Notes to Consolidated Financial Statements The notes provide detailed explanations of accounting policies and breakdowns of financial statement line items, including lease accounting and real estate activities - Effective January 1, 2019, the Company adopted the new lease standard ASU 2016-02 (Topic 842), recognizing a right-of-use asset and corresponding lease liability of $13.6 million[74][77] - During the nine months ended September 30, 2019, the company recognized a net gain on sale of real estate of $252.3 million, largely from the deconsolidation of Dublin properties into a joint venture with AXA, resulting in a gain of $205.6 million[89][90][92] - As of September 30, 2019, the company had unfulfilled capital commitments of $39.8 million to three unconsolidated joint ventures, primarily closed-end funds[110] - In October 2019, the Company announced a $300 million perpetual preferred equity investment from Eldridge Industries at a 5.75% annual dividend rate and an initial conversion price of $25.00 per share[231] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's real estate investment business model, financial results, liquidity, and capital resources, including key performance metrics and development pipeline Overview and Business Segments Kennedy Wilson operates as a global real estate investment company with two core segments: KW Investments and KW Investment Management and Real Estate Services (IMRES) - The company's primary business involves owning, operating, and investing in multifamily and office properties across the Western U.S., U.K., and Ireland[234] - The company operates through two symbiotic business segments: KW Investments (capital investment) and KW Investment Management and Real Estate Services (IMRES) (fee-generating services)[237][238] - As of September 30, 2019, the company holds investments in 28,173 multifamily units and 192 commercial properties totaling over 20.8 million square feet[241][245] - The IMRES segment manages approximately $16.2 billion of Assets under Management (AUM) and has $2.5 billion in fee-bearing capital[259][261] Financial Results Comparison GAAP net income and Adjusted EBITDA showed mixed results for Q3 and the nine-month period, with same-property NOI demonstrating positive performance Q3 Financial Comparison (in millions) | Metric | Q3 2019 | Q3 2018 | | :--- | :--- | :--- | | GAAP Net Income to KWH | $20.7 | $12.1 | | Adjusted EBITDA | $142.5 | $141.9 | Nine-Month Financial Comparison (in millions) | Metric | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | | GAAP Net Income to KWH | $66.2 | $119.3 | | Adjusted EBITDA | $450.0 | $535.0 | - Same-property performance for Q3 2019 was strong, with multifamily NOI increasing 6.5% and commercial NOI increasing 4.8% year-over-year[278] - Adjusted Fees for Q3 2019 increased to $27.5 million from $20.0 million in Q3 2018, driven by higher performance fees[285] Liquidity and Capital Resources The company maintains liquidity through consolidated cash and credit lines, manages a significant development pipeline, and has an active share repurchase plan - As of September 30, 2019, the company had $385.8 million in consolidated cash and $425.0 million available under its lines of credit[347] - The company has a development pipeline with an estimated total cost of $1.1 billion, of which $812.0 million remains to be funded, with $406 million expected to be funded by the company's own cash[352][357] - The company has 12 unstabilized assets requiring an estimated $85.3 million in costs to complete stabilization[359][360] - A $250 million share repurchase plan is in effect, with $67.9 million remaining available for repurchases as of September 30, 2019[363] Certain Non-GAAP Measures and Reconciliations This section provides reconciliations of non-GAAP financial measures, including Adjusted EBITDA and Adjusted Net Income, to their most directly comparable GAAP measures Reconciliation of Net Income to Adjusted EBITDA (in millions) | Period | Net Income | Adjusted EBITDA | | :--- | :--- | :--- | | Q3 2019 | $19.4 | $142.5 | | Q3 2018 | $12.9 | $141.9 | | 9 Months 2019 | $162.2 | $450.0 | | 9 Months 2018 | $179.2 | $535.0 | Reconciliation of Net Income to Adjusted Net Income (in millions) | Period | Net Income | Adjusted Net Income | | :--- | :--- | :--- | | Q3 2019 | $19.4 | $73.9 | | Q3 2018 | $12.9 | $74.1 | | 9 Months 2019 | $162.2 | $232.8 | | 9 Months 2018 | $179.2 | $308.2 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate and foreign currency fluctuations, which are managed through debt structure and hedging strategies - As of September 30, 2019, 86% of the company's consolidated debt is fixed rate, mitigating exposure to interest rate volatility[404] - A hypothetical 100-basis point increase in interest rates would result in a $19.0 million increase in annual interest expense on current consolidated mortgages[407] - Approximately 47% of the company's investment account is in foreign currencies, with 93% of euro-denominated and 104% of GBP-denominated gross asset values hedged[412][413] - A 5% change in foreign exchange rates against the U.S. Dollar would change the company's net asset value by approximately $5.3 million to $5.4 million[416] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The principal executive and financial officers concluded that the company's disclosure controls and procedures are effective[417] - No material changes were made to the internal control over financial reporting during the quarter[418] PART II OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings in the ordinary course of business, none of which are considered material to its financial statements - The company is not currently involved in any material legal proceedings[421] Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018 were reported - No material changes from the risk factors disclosed in the 2018 Form 10-K were reported[422] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase activity, including shares repurchased during the quarter and remaining availability under the current plan Share Repurchase Activity (Q3 2019) | Month | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2019 | 85,304 | $21.49 | | August 2019 | — | $— | | September 2019 | — | $— | | Total | 85,304 | $21.49 | - As of September 30, 2019, $67.9 million remained available for repurchase under the company's $250 million stock repurchase program authorized in March 2018[423] Defaults Upon Senior Securities The company reported no defaults upon its senior securities during the period Exhibits This section lists the exhibits filed with the report, including certifications from the Chief Executive Officer and Chief Financial Officer