Kennedy-Wilson Holdings, Inc. (NYSE: KW), a leading global real estate investment company with $25 billion in AUM that owns, operates, and invests in real estate both on its own and through its investment management platform, today reported results for Q2-2023:
“In Q2 we achieved significant growth in our investment management business and made considerable progress at all of our developments, including completing Kona Village in Hawaii and advancing our Dublin apartment developments that are set to deliver over 750 units in Q3,” said William McMorrow, Chairman and CEO of Kennedy Wilson. “Our off-market transaction with Pacific Western Bank marked an important milestone in the growth of our investment management business, demonstrating our strength in identifying opportunities during periods of dislocation. With the addition of the experienced construction lending team from Pacific Western Bank, we are excited to expand our real estate debt business, further enhancing our ability to pursue equity and debt opportunities across all parts of the real estate capital structure and positioning ourselves for substantial future growth.”
Financial Results
Q2 | YTD | ||||||||||||
(Amounts in millions, except per share data) | 2023 | 2022 | 2023 | 2022 | |||||||||
GAAP Results | |||||||||||||
GAAP Net Income (Loss) to Common Shareholders | $ | 39.0 | ($ | 9.0 | ) | ($ | 1.8 | ) | $ | 25.8 | |||
Per Diluted Share | 0.28 | (0.07 | ) | (0.01 | ) | 0.19 | |||||||
Non-GAAP Results | |||||||||||||
Adjusted EBITDA | $ | 195.1 | $ | 118.4 | $ | 286.0 | $ | 278.5 | |||||
Adjusted Net Income | 86.0 | 41.4 | 91.3 | 126.8 | |||||||||
- Adjusted EBITDA Increases by 65% to $195 million (vs. $118 million in Q2-22):
- KW's share of recurring property NOI, loan income and fees totaled $131 million in Q2-23 (vs. $130 million in Q2-22)
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KW's share of gains from the sale of real estate, changes in fair values and performance allocation totaled $71 million in Q2-23 (vs $24 million in Q2-22) and includes the following:
- Realized gains on sale from real estate, net totaled $94 million in Q2-23 (vs $16 million from Q2-22)
- Unrealized losses in fair value and net accrued performance allocation totaled a net loss of $23 million in Q2-23 (vs. a net gain of $8 million in Q2-22).
- Other income totaled $24 million in Q2-23 (vs $4 million in Q2-22) and primarily related to the change in the value of the Company's interest rate hedging derivative contracts during the quarter.
- $4.1 Billion Loan Acquisition from Pacific Western Bank: The Company and certain controlled affiliates of its partner, Fairfax Financial Holdings Limited (collectively "Fairfax"), acquired 65 construction loans, including four loans acquired in July, totaling $4.1 billion in loan commitments from Pacific Western Bank ("PacWest") (collectively, the "Loan Portfolio"). The Company's investment in the Loan Portfolio was 5%, and the acquisition increased the Company's Fee-Bearing Capital by $1.9 billion in Q2-23. The PacWest employees that originated and managed the loan portfolio joined Kennedy Wilson in Q3.
- The Loan Portfolio was acquired for $2.1 billion, including $2.3 billion in outstanding principal balance and $1.8 billion in future funding obligations
- The Loan Portfolio has an 8.5% weighted average interest rate, a 1.7 year weighted average maturity, and is secured by approximately 80% multifamily and student-housing properties.
- The Company received an arrangement fee of $8 million ($7.3 million recognized in Q2-23) in connection with this transaction.
- Record Levels of Estimated Annual NOI and Fee-Bearing Capital:
Est. Annual NOI To KW ($ in millions) | Fee-Bearing Capital ($ in billions) | ||||||
As of Q2-22 | $ | 479 | $ | 5.3 | |||
As of Q4-22 | $ | 491 | $ | 5.9 | |||
As of Q1-23 | $ | 496 | $ | 6.0 | |||
Gross acquisitions and loan investments | 11 | 2.0 | |||||
Gross dispositions and loan repayments | (10 | ) | — | ||||
Assets stabilized/unstabilized | 1 | — | |||||
Operations | (2 | ) | — | ||||
FX and other(1) | 3 | (0.1 | ) | ||||
Total as of Q2-23 | $ | 499 | $ | 7.9 | |||
(1) See further discussion of foreign currency hedging strategy below | |||||||
- Multifamily Same Property Performance(1) :
Q2 - 2023 vs. Q2- 2022 | YTD - 2023 vs. YTD - 2022 | |||||||||||||
Occupancy | Revenue | Expenses | NOI | Occupancy | Revenue | Expenses | NOI | |||||||
Multifamily - Market Rate | (1.1)% | 2.9% | 5.3% | 1.8% | (0.9)% | 4.5% | 6.8% | 3.4% | ||||||
Multifamily - Affordable | (0.2)% | 9.3% | 14.7% | 6.9% | (0.8)% | 8.7% | 16.0% | 5.4% | ||||||
Total | (0.9)% | 3.9% | 6.7% | 2.6% | (0.9)% | 5.1% | 8.2% | 3.7% | ||||||
(1) Excludes minority-held investments and assets under going development or lease-up | ||||||||||||||
- U.S. Multifamily - Market Rate:
- Mountain West and Pacific Northwest: The Company's Mountain West and Pacific Northwest portfolio, which represents 74% of its U.S. market-rate same-property portfolio, generated same-property revenue growth of 5.6% and NOI growth of 6.3% in Q2-23 (vs. Q2-22).
- California: Same Property results in California continue to be impacted by higher delinquencies related to the expiration of governmental rental assistance programs. The Company received $1.3 million and $2.1 million in Q2-22 and YTD-22, respectively, in rental assistance payments. This compares to $68,000 and $135,000 in Q2-23 and YTD-23, respectively.
- Office Same Property Performance(1):
Q2-2023 vs. Q2-2022 | YTD - 2023 vs. YTD - 2022 | |||||||||||||
Occupancy | Revenue | Expenses | NOI | Occupancy | Revenue | Expenses | NOI | |||||||
Office | 1.2% | (0.9)% | 7.5% | (2.2)% | 1.3% | 1.8% | 0.2% | 2.1% | ||||||
(1) Excludes minority-held investments and assets under going development or lease-up | ||||||||||||||
- Development and Lease-Up Portfolio Update:
- In Q2-23, the Company completed construction of the 82-acre Kona Village resort, which opened on July 1, 2023. The Company also stabilized the 180-unit Springview by Vintage community and has started leasing at initial phases of its Dovetail and Oxbow Mountain West apartment communities, which are expected to total 508 units at completion.
- The development and lease-up portfolio is expected to add $99 million of Estimated Annual NOI, $69 million of which is expected to stabilize by YE-24.
- The Company expects to fund its share of remaining development costs primarily with cash from non-core asset sales and proceeds from property-level financing.
Investment Activity
- $2.0 billion in Gross New Investments ($99 million at share):
- Co-Investment Acquisitions: In addition to the Loan Portfolio acquisition from PacWest Bank discussed above, the Company completed$106 million in loan originations (KW share 2.5%).
- $392 million in Gross Dispositions and Loan Repayments ($205 million at share):
- Consolidated Portfolio:
- Multifamily Dispositions: Sold a 49% interest in two previously wholly-owned market-rate multifamily properties totaling 790 units for a gross valuation of $228 million ($112 million at share) into an existing joint-venture platform managed by the Company. The properties are located in Las Vegas, Nevada, and Auburn, Washington. The Company also sold a previously wholly-owned 293-unit multifamily property in Reno, Nevada into its Vintage Housing joint-venture for a gross valuation of $49 million.
- Further Progress On Non-Core Asset Sales: Sold four UK retail assets and one office asset in Italy for $16 million.
- Co-Investment Dispositions: Sold $54 million in industrial and other assets from its funds and joint-ventures. KW's average ownership interest in these assets was 29%. The Company also had loan repayments totaling $155 million (KW share 6%).
- Consolidated Portfolio:
Investment Management
- 32% Quarterly Growth in Fee-Bearing Capital to $7.9 billion: Record quarterly growth in Fee-Bearing Capital with approximately $3.3 billion in additional non-discretionary capital with certain strategic partners that is currently available for investment:
- 86% Growth in Debt Investment Platform: The Company's debt investment platform grew to $6.5 billion driven by the Loan Portfolio acquisition from PacWest (as discussed above), resulting in 86% growth from Q1-23. The Company has a 6% weighted average ownership in this platform, which totals $6.5 billion of outstanding loans (including $1.9 billion of future funding commitments) and $4.3 billion of Fee-Bearing Capital at quarter-end.
Balance Sheet and Liquidity
- Cash and Line of Credit Availability: As of June 30, 2023, Kennedy Wilson had a total of $387 million(1) in cash and cash equivalents and $149 million drawn on its $500 million revolving credit facility. In Q2-23, the Company paid down its line of credit by $99 million.
- Debt Profile: Kennedy Wilson's share of debt had a weighted average effective interest rate of 4.3% per annum and a weighted average maturity of 5.5 years as of June 30, 2023. Approximately 99% of the Company's debt is 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 1.7 years.
- 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 June 30, 2023, the Company has hedged approximately 92% of the carrying value of its foreign currency investments, using local currency debt and hedging instruments with a weighted average term of 2.4 years.
- Preferred Stock and Warrants: As previously announced, the Company received a $200 million investment from affiliates of Fairfax. Under the terms of the investment, Fairfax purchased $200 million in cumulative perpetual preferred stock carrying a fixed 6.00% annual dividend rate and is callable by Kennedy Wilson at any time. Additionally, Fairfax acquired 7-year warrants for approximately 12.3 million common shares with an initial strike price of $16.21 per share.
Footnotes
(1) | Represents consolidated cash and includes $53 million of restricted cash, which is included in cash and cash equivalents and 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 in the Company's quarterly report). 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. The Company's share of cash, including unconsolidated joint-ventures, totals $494 million. |
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 Thursday, August 3. 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 1027682.
The webcast will be available at: https://event.choruscall.com/mediaframe/webcast.html?webcastid=ovP6xzdV. 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, Financial) is a leading global real estate investment company. We own, operate, and invest in real estate through our balance sheet and through our investment management platform across the Western United States, United Kingdom, and Ireland. We primarily focus on multifamily and office properties as well as industrial and debt investments in our investment management business. For further information on Kennedy Wilson, please visit www.kennedywilson.com.
Kennedy-Wilson Holdings, Inc. Consolidated Balance Sheets (Unaudited) (Dollars in millions) | ||||||||
June 30,
| December 31,
| |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 387.0 | $ | 439.3 | ||||
Accounts receivable | 40.0 | 40.8 | ||||||
Real estate and acquired in place lease values (net of accumulated depreciation and amortization of $927.5 and $882.2) | 4,982.0 | 5,188.1 | ||||||
Unconsolidated investments (including $2,174.7 and $2,093.7 at fair value) | 2,320.9 | 2,238.1 | ||||||
Other assets | 219.9 | 216.1 | ||||||
Loan purchases and originations | 244.1 | 149.4 | ||||||
Total assets | $ | 8,193.9 | $ | 8,271.8 | ||||
Liabilities | ||||||||
Accounts payable | $ | 16.2 | $ | 16.2 | ||||
Accrued expenses and other liabilities (including $303.4 and $303.7 of deferred tax liabilities) | 642.4 | 658.2 | ||||||
Mortgage debt | 2,887.0 | 3,018.0 | ||||||
KW unsecured debt | 1,931.3 | 2,062.6 | ||||||
KWE unsecured bonds | 516.4 | 506.4 | ||||||
Total liabilities | 5,993.3 | 6,261.4 | ||||||
Equity | ||||||||
Cumulative perpetual preferred stock | 790.5 | 592.5 | ||||||
Common stock | — | — | ||||||
Additional paid-in capital | 1,710.5 | 1,679.5 | ||||||
Retained earnings | 53.4 | 122.1 | ||||||
Accumulated other comprehensive loss | (400.0 | ) | (430.1 | ) | ||||
Total Kennedy-Wilson Holdings, Inc. shareholders’ equity | 2,154.4 | 1,964.0 | ||||||
Noncontrolling interests | 46.2 | 46.4 | ||||||
Total equity | 2,200.6 | 2,010.4 | ||||||
Total liabilities and equity | $ | 8,193.9 | $ | 8,271.8 | ||||
Kennedy-Wilson Holdings, Inc. Consolidated Statements of Operations (Unaudited) |
