Kennedy Wilson(KW) - 2022 Q4 - Annual Report

PART I Business A global real estate investment company managing $23.0 billion in assets, primarily focused on multifamily and commercial properties in the Western U.S., UK, and Ireland Company Overview as of December 31, 2022 | Metric | Value | | :--- | :--- | | Real Estate Assets Under Management (AUM) | $23.0 billion | | Total Multifamily Units Managed | 37,781 | | Total Office Square Feet Managed | 11.7 million | | Total Industrial Square Feet Managed | 10.6 million | | Total Retail Square Feet Managed | 3.9 million | | Fee-Bearing Capital | $5.9 billion | - The company's portfolio is geographically concentrated, with 61% in the Western United States (primarily the Mountain West), 21% in Ireland, and 16% in the United Kingdom[16] - Kennedy Wilson operates through two primary business segments: the Consolidated Portfolio (assets owned and consolidated on the balance sheet) and the Co-Investment Portfolio (co-investments with partners, generating fees and performance allocations)[25][31] - The company has a global real estate debt platform with over $6 billion in capacity, targeting loans across the capital structure in the U.S., UK, and Europe[49][50] - As of December 31, 2022, 88% of the company's unconsolidated investments ($2.1 billion) were held at estimated fair value, utilizing discounted cash flow and direct capitalization approaches for valuation[57][58] Key Financial Metrics (2021 vs 2022) | Metric (in millions) | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $540.0 | $453.6 | 19.0% | | Net income to common shareholders | $64.8 | $313.2 | (79.3)% | | Adjusted EBITDA | $591.5 | $927.9 | (36.3)% | | Consolidated NOI | $294.2 | $255.8 | 15.0% | | JV NOI | $157.6 | $124.4 | 26.7% | Risk Factors The company faces significant risks from macroeconomic conditions, real estate industry trends, international operations, and its financial structure - The business is highly sensitive to general economic conditions, with rising interest rates and inflation negatively impacting real estate values, sales, and leasing[110][111] - Adverse credit market conditions and rising interest rates increase borrowing costs, with 24% of consolidated debt and 45% of unconsolidated mortgage debt being floating rate, exposing the company to interest rate fluctuations[115][116] - Significant operations in the UK and Ireland (41% of 2022 revenues) expose the company to foreign market risks, including currency fluctuations[127][128] - A substantial portion of the portfolio (25% of total assets) is recorded at fair value, which introduces volatility to earnings based on subjective assumptions[134][140] - The company has significant debt and related covenants, and in February 2023, S&P downgraded its credit rating to 'BB' from 'BB+' due to elevated leverage[114][177][180] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[211] Properties The company's consolidated portfolio includes 59 commercial properties and 35 multifamily properties, with 21% of commercial annualized base rent expiring in 2023 Consolidated Properties Summary (December 31, 2022) | Property Type | Region | of Assets | Sq. Ft. / Units | Occupancy/Leased % | | :--- | :--- | :--- | :--- | :--- | | Commercial | Western U.S. | 10 | 1.5M sq. ft. | 93% | | | Europe | 49 | 4.8M sq. ft. | 95% | | Total Commercial | | 59 | 6.3M sq. ft. | 95% | | Multifamily | Western U.S. | 35 | 10,513 units | 93% | Consolidated Commercial Lease Expiration Schedule | Year of Expiration | % of Total Annualized Base Rent | | :--- | :--- | | 2023 | 21% | | 2024 | 11% | | 2025 | 11% | | 2026 | 8% | | Thereafter | 49% | Legal Proceedings The company is not involved in any material legal proceedings arising from its ordinary course of business - The company states that it is not currently involved in any legal proceedings that it believes would be material to its business[218] Mine Safety Disclosures This item is not applicable to the company's operations - Not Applicable[219] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on the NYSE, it paid quarterly dividends of $0.24 per share in 2022, and actively repurchased shares while growing AUM by 7% - The company's common stock is traded on the New York Stock Exchange (NYSE) under the ticker symbol 'KW'[221] - Quarterly dividends of $0.24 per share were declared and paid throughout 2022, an increase from the $0.22 per share paid in the first three quarters of 2021[222] - During the year ended December 31, 2022, the company repurchased and retired 0.6 million shares of its common stock, with $144.8 million remaining available under the plan[227][299] Change in Assets Under Management (AUM) | Period | AUM (in billions) | Change | | :--- | :--- | :--- | | Dec 31, 2021 | $21.6 | - | | Dec 31, 2022 | $23.0 | +7% | Management's Discussion and Analysis of Financial Condition and Results of Operations Net income and Adjusted EBITDA declined in 2022 due to lower gains on sales, while same-property NOI grew and the company maintained solid liquidity Financial Highlights (2022 vs. 2021) | Metric (in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Net Income to Common Shareholders | $64.8 | $313.2 | | Adjusted EBITDA | $591.5 | $927.9 | - The decrease in net income and Adjusted EBITDA was primarily due to higher gains on sale of real estate and larger fair value gains on unconsolidated investments recognized in 2021[239][244] Same Property Performance (2022 vs. 2021) | Property Type | Metric | Change | | :--- | :--- | :--- | | Market Rate Multifamily | NOI | +11% | | | Revenue | +10% | | Affordable Multifamily | NOI | +6% | | | Revenue | +7% | | Office | NOI | +1% | | | Revenue | +1% | - The company has a significant development pipeline with an estimated $1.1 billion total capitalization for its share of projects, with an additional $379.0 million expected to be spent[290] - As of December 31, 2022, the company had $439.3 million of consolidated cash and $218.0 million of availability under its revolving credit facility[287] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate and foreign currency fluctuations, which are managed through fixed-rate debt, caps, and hedging - The company's main market risks are from changes in interest rates and foreign currency exchange rates[337] - As of December 31, 2022, 76% of consolidated debt is fixed rate, and a 100-basis point increase in interest rates would result in a $6.3 million increase in annual interest expense[338][341] - Approximately 37% of the company's investment account is in foreign currencies, with over 90% of its euro and GBP gross asset carrying value hedged as of year-end 2022[346] - A hypothetical 5% change in foreign exchange rates against the U.S. Dollar would impact the company's net asset value by approximately $22.6 million (increase) to $23.1 million (decrease)[349] Financial Statements and Supplementary Data This section contains the audited consolidated financial statements, with the critical audit matter being the fair value of certain unconsolidated investments Consolidated Balance Sheet Data (in millions) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | $8,271.8 | $7,876.5 | | Total Liabilities | $6,261.4 | $6,072.6 | | Total Equity | $2,010.4 | $1,803.9 | Consolidated Statement of Income Data (in millions) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Total Revenue | $540.0 | $453.6 | | Net Income | $101.9 | $336.4 | | Net Income Attributable to Common Shareholders | $64.8 | $313.2 | - The independent auditor, KPMG LLP, issued an unqualified opinion on the consolidated financial statements and on the effectiveness of the company's internal control over financial reporting[402][403] - The critical audit matter identified by the auditor was the evaluation of the fair value of certain unconsolidated investments and commingled funds, noting the high degree of subjectivity in valuation models[407][408] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[676] Controls and Procedures Management concluded that the company's disclosure controls, procedures, and internal controls over financial reporting were effective as of year-end 2022 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[678] - Based on an evaluation against the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2022[680] Other Information The company reports no other information for this item - None[683] PART III Directors, Executive Officers and Corporate Governance Information concerning directors, executive officers, and corporate governance is incorporated by reference from the company's 2023 proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2023 annual meeting[686] Executive Compensation Information concerning executive compensation is incorporated by reference from the company's 2023 proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2023 annual meeting[687] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information concerning security ownership is incorporated by reference from the company's 2023 proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2023 annual meeting[688] Certain Relationships and Related Transactions, and Director Independence Information concerning related party transactions and director independence is incorporated by reference from the company's 2023 proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2023 annual meeting[689] Principal Accounting Fees and Services Information concerning accounting fees and services is incorporated by reference from the company's 2023 proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2023 annual meeting[690] - The company's independent registered public accounting firm is KPMG LLP[690] PART IV Exhibits and Financial Statement Schedules This section lists the documents filed as part of the annual report, including financial statements, schedules, and all exhibits - This section contains the index of all financial statements, schedules, and exhibits filed with the Form 10-K[693]