Kennedy Wilson Reports Third Quarter 2013 Earnings

Adjusted EBITDA increases 142% from same period of last year

Business Wire

BEVERLY HILLS, Calif.--(BUSINESS WIRE)--

Kennedy-Wilson Holdings, Inc. (KW), an international real estate investment and services company, today reported third quarter 2013 Adjusted EBITDA of $42.3 million, a 142% increase from $17.5 million for the same period in 2012. For the nine months ended September 30, 2013, Adjusted EBITDA was $111.3 million, a 101% increase from $55.5 million for the same period in 2012.

Adjusted Net Income for the third quarter 2013 was $14.4 million or $0.20 per basic share compared to Adjusted Net Income of $2.8 million for the same period in 2012, or $0.05 per basic share. U.S. GAAP net loss attributable to common shareholders for the third quarter 2013 was $4.1 million, or $0.06 per basic and diluted share, compared to a loss of $6.2 million, or $0.11 per basic and diluted share, for the same period in 2012.

"Kennedy Wilson and its equity partners acquired $1 billion of real estate investments this quarter and we raised approximately $120 million in equity further strengthening our balance sheet," said William McMorrow, chairman and CEO of Kennedy Wilson. "We continue to focus on sourcing attractive investment opportunities, improving the operating performance of our properties, and executing on select asset realizations."

Kennedy Wilson Recent Highlights

Investments business

Investment account

  • As of September 30, 2013, our gross investment account was $1.1 billion, compared to $908.9 million as of December 31, 2012. The net investment account was $1.0 billion as of September 30, 2013 compared to $837.6 million at December 31, 2012, after accumulated depreciation and amortization of $114.6 million and $71.3 million, respectively. The change in the net investment account was comprised of $387.1 million of cash contributed to and income earned on investments offset by $209.3 million of cash distributed from investments. During the nine months ended September 30, 2013, the Company and its equity partners received approximately $940 million in distributions from their investments.
  • As of September 30, 2013, the Company and its equity partners owned 22.9 million rentable square feet of real estate, including investments in 16,511 apartment units and 79 commercial properties. Additionally, as of September 30, 2013, the Company and its equity partners owned in excess of $1.6 billion in unpaid principal balance of loans secured by real estate.

Operating metrics

  • During the nine months ended September 30, 2013, our investments business achieved an EBITDA of $99.5 million, a 111% increase from $47.2 million for the same period in 2012.
  • During the nine months ended September 30, 2013, based on our investments in 11,755 same property multifamily units, rental revenues increased 5%, net operating income increased 7% and occupancy increased 1% at the property level from the same period in 2012. In addition, based on our investments in 2.8 million square feet of same property commercial real estate, rental revenues increased 15%, net operating income increased 18% and occupancy increased 4% at the property level from the same period in 2012.

Acquisition/disposition program

  • From January 1, 2010 through September 30, 2013, the Company and its equity partners acquired approximately $10.6 billion of real estate related investments (including unpaid principal balance of loan purchases). During the nine months ended September 30, 2013, the Company and its equity partners acquired $2.6 billion of real estate related investments, in which the Company invested $368.5 million of equity. Our investments were directed 71% to the United Kingdom and Ireland and 29% to the Western U.S.
  • During the fourth quarter of 2012, the Company and one of its equity partners acquired the mortgage on The Rock, a premier retail, residential and entertainment center in Manchester, United Kingdom. During the third quarter, the Company and its equity partner converted their mortgage note to a 100% equity ownership in the property resulting in a $28.8 million acquisition related gain. The Company's portion of the gain was $14.4 million and was recognized in equity in joint venture income.
  • During the nine months ended September 30, 2013, the Company and its equity partners sold a total of $177.4 million of real estate, which resulted in a gain of $41.3 million, of which our share was $13.2 million ($29.9 million of our equity invested) including nine commercial buildings, two multifamily properties and 52 condos.

Property level debt financing

  • As of September 30, 2013, the Company and its equity partners had approximately $3.2 billion of property level debt with a weighted average interest rate of 5.1% and a weighted average maturity of 6.1 years.
  • As of September 30, 2013 the Company and its equity partners property level debt was 54% at fixed interest rates, 31% floating with interest rate caps and 15% at floating interest rates.

Key investment updates

UK Loan Pool

  • Our book equity in this investment is $11.4 million; we own 12.5% before carried interest.
  • In December 2011, the Company and its equity partners acquired a loan pool secured by real estate located in the United Kingdom with an unpaid principal balance of $2.1 billion. As of September 30, 2013, the unpaid principal balance was $189.1 million due to loan resolutions of approximately $1.9 billion, representing approximately 91% of the pool. During the nine months ended September 30, 2013, the Company received $53.4 million in distributions related to resolutions.

Japan multifamily

  • Our book equity in this investment is $72.2 million; we own 40.9% before carried interest.
  • We maintained 96% occupancy in 50 apartment buildings as of September 30, 2013 with a total of 2,410 units.
  • Since Fairfax Financial became our partner in the Japanese multifamily portfolio in September 2010, we have distributed a total of $104.4 million, of which our share was $49.1 million.

Services business

  • Management and leasing fees and commissions increased by 52% to $54.0 million for the nine months ended September 30, 2013, from $35.5 million for the same period in 2012.
  • During the nine months ended September 30, 2013, our services business achieved an EBITDA of $22.6 million, a 102% increase from $11.2 million for the same period in 2012.

Corporate financing

  • In September 2013, the Company issued and sold 6.9 million shares of common stock primarily to institutional investors, resulting in gross proceeds of $127.7 million. A portion of the proceeds were used to pay off the outstanding balance on our line of credit.
  • In September 2013, the Company increased the availability on its line of credit to $140.0 million from $100.0 million and extended the line's maturity to October 1, 2016.

Subsequent events

  • In October 2013, Meyers Research, a wholly owned subsidiary, launched Zonda, a mobile application designed to provide market insight for the homebuilding industry by combining interactive tools and real-time data on approximately 300 metrics impacting housing.

Conference Call and Webcast Details

The Company will hold a live conference call and webcast to discuss results at 7:00 a.m. PT/ 10:00 a.m. ET on Wednesday, November 6.

The direct dial-in number for the conference call is (888) 895-5479 for U.S. callers and (847) 619-6250 for international callers. The confirmation number for the live call is 35911843.

A replay of the call will be available for one week beginning two hours after the live call and can be accessed by (888) 843-7419 for U.S. callers and (630) 652-3042 for international callers. The passcode for the replay is 35911843#.

The webcast will be available at: http://edge.media-server.com/m/p/68ekhgu8/lan/en. A replay of the webcast will be available two hours after the original webcast on the Company’s investor relations web site for one year.

About Kennedy Wilson

Founded in 1977, Kennedy Wilson is an international real estate investment and services company headquartered in Beverly Hills, CA with 24 offices in the U.S., U.K., Ireland, Spain and Japan. The Company offers a comprehensive array of real estate services including auction, conventional sales, property services, research and investment management. Through its fund management and separate account businesses, Kennedy Wilson is a strategic investor of real estate investments in the U.S., U.K., Ireland and Japan. 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 21 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," "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, 2012, 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.

Non-GAAP Financial Information

In addition to the results reported in accordance with U.S. generally accepted accounting principles (GAAP) included within this press release, Kennedy Wilson has provided certain information, which includes non-GAAP financial measures (Pro Forma Statements of Operations, Adjusted Net Income Attributable to Kennedy Wilson Common Shareholders, Basic Adjusted Net Income Attributable to Kennedy Wilson Common Shareholders Per Share, EBITDA and Adjusted EBITDA). Additionally, there are certain revenue and expense line items in our pro forma consolidated statements of operations or income that would otherwise be classified as discontinued operations on a GAAP statement. Such information is reconciled to its closest GAAP measure in accordance with the SEC rules and is included in the attached supplemental tables. Management believes that these non-GAAP financial measures are useful to both management and the Company'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.

Tables Follow

         
Kennedy-Wilson Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
 
September 30, 2013 December 31, 2012
Assets
Cash and cash equivalents $ 181,371,000 $ 120,855,000
Short term investments 10,000,000
Accounts receivable 6,051,000 3,647,000
Accounts receivable - related parties 31,433,000 22,393,000
Notes receivable 22,444,000 136,607,000
Notes receivable - related parties 5,785,000
Real estate, net of accumulated depreciation 518,047,000 289,449,000
Investments in joint ventures 742,221,000 543,193,000
Investments in loan pool participations 58,774,000 95,601,000
Other assets 51,103,000 38,079,000
Goodwill 23,965,000   23,965,000  
Total assets $ 1,641,194,000   $ 1,283,789,000  
 
Liabilities
Accounts payable $ 1,735,000 $ 1,762,000
Accrued expenses and other liabilities 37,220,000 29,417,000
Accrued salaries and benefits 20,081,000 24,981,000
Deferred tax liability 16,937,000 22,671,000
Mortgage loans and notes payable 340,366,000 236,538,000
Senior notes payable 409,196,000 409,640,000
Junior subordinated debentures 40,000,000   40,000,000  
Total liabilities 865,535,000   765,009,000  
Equity
Cumulative Preferred stock:
6.00% Series A, 100,000 shares
6.45% Series B, 32,550 shares
Common stock 8,000 6,000
Additional paid-in capital 792,449,000 512,835,000
Accumulated deficit (32,049,000 ) (5,910,000 )
Accumulated other comprehensive income 5,553,000 12,569,000
Shares held in treasury   (9,856,000 )
Total Kennedy-Wilson Holdings, Inc. stockholders’ equity 765,961,000 509,644,000
Noncontrolling interests 9,698,000   9,136,000  
Total equity 775,659,000   518,780,000  
Total liabilities and equity $ 1,641,194,000   $ 1,283,789,000  
 
         
Kennedy-Wilson Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
 
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2013   2012 2013   2012
Revenue
Management and leasing fees $ 4,462,000 $ 4,015,000 $ 13,925,000 $ 11,272,000
Management and leasing fees - related parties 10,649,000 6,320,000 27,962,000 18,036,000
Commissions 836,000 1,477,000 2,296,000 3,513,000
Commissions - related parties 5,025,000 668,000 9,865,000 2,652,000
Sale of real estate 1,546,000 1,275,000 10,060,000 1,275,000
Rental and other income 10,690,000   1,485,000   27,452,000   4,432,000  
Total revenue 33,208,000   15,240,000   91,560,000   41,180,000  
Operating expenses
Commission and marketing expenses 1,011,000 1,371,000 2,845,000 3,676,000
Compensation and related expenses 20,956,000 11,364,000 52,840,000 30,658,000
Cost of real estate sold 883,000 1,275,000 7,885,000 1,275,000
General and administrative 5,760,000 5,014,000 17,574,000 13,571,000
Depreciation and amortization 4,531,000 989,000 12,003,000 2,903,000
Rental operating expenses 4,167,000   847,000   11,852,000   2,638,000  
Total operating expenses 37,308,000 20,860,000 104,999,000 54,721,000
Equity in joint venture income 9,379,000 1,848,000 20,955,000 12,472,000
Interest income from loan pool participations and notes receivable 3,983,000   3,712,000   10,209,000   7,126,000  
Operating income (loss) 9,262,000 (60,000 ) 17,725,000 6,057,000
Non-operating income (expense)
Interest income 205,000 179,000 444,000 2,503,000
Acquisition-related gain 1,668,000 11,127,000
Acquisition-related expenses (510,000 )
Gain on sale of marketable securities 2,931,000
Interest expense (13,141,000 ) (6,755,000 ) (37,104,000 ) (19,979,000 )
Other   (6,000 )   (80,000 )

Loss from continuing operations before benefit from income taxes

(2,006,000 ) (6,642,000 ) (8,318,000 ) (8,568,000 )
(Provision for) benefit from income taxes (726,000 ) 2,500,000   1,446,000   5,121,000  

Loss from continuing operations

(2,732,000 ) (4,142,000 ) (6,872,000 ) (3,447,000 )
Discontinued Operations
(Loss) income from discontinued operations, net of income taxes (291,000 ) (294,000 ) 2,000
Gain (loss) from sale of real estate, net of income taxes 338,000     555,000   (212,000 )
Net loss (2,685,000 ) (4,142,000 ) (6,611,000 ) (3,657,000 )
Net loss (income) attributable to the noncontrolling interests 652,000   (64,000 ) 2,550,000   (2,990,000 )
Net loss attributable to Kennedy-Wilson Holdings, Inc. (2,033,000 ) (4,206,000 ) (4,061,000 ) (6,647,000 )
Preferred stock dividends and accretion of issuance costs (2,036,000 ) (2,036,000 ) (6,108,000 ) (6,108,000 )

Net loss attributable to Kennedy-Wilson Holdings, Inc. common shareholders

$ (4,069,000 ) $ (6,242,000 ) $ (10,169,000 ) $ (12,755,000 )
Basic and diluted earnings per share

Earnings (loss) per basic and diluted share - continuing operations

$ (0.06 ) $ (0.11 ) $ (0.15 ) $ (0.23 )
Earnings (loss) per basic and diluted share - discontinued        
Earnings (loss) per share - basic and diluted(a) $ (0.06 ) $ (0.11 ) $ (0.15 ) $ (0.24 )

Weighted average shares outstanding for basic and diluted

72,643,080

  58,043,357  

68,486,876

  53,551,708  
Dividends declared per common share $ 0.07   $ 0.05   $ 0.21   $ 0.15  
 

(a) EPS amounts may not add due to rounding

 
           
Kennedy-Wilson Holdings, Inc. and Subsidiaries
Adjusted Net Income Attributable to Kennedy Wilson Common Shareholders
(Unaudited)
 
Three Months Ended Nine Months Ended
September 30, September 30,
2013     2012 2013     2012

Net loss attributable to Kennedy-Wilson Holdings, Inc. common shareholders

$ (4,069,000 ) $ (6,242,000 ) $ (10,169,000 ) $ (12,755,000 )
Non-GAAP adjustments:
Add back:
Depreciation and amortization 4,531,000 989,000 12,003,000 2,903,000
Kennedy Wilson's share of depreciation and amortization included in investment in joint ventures 11,871,000 5,085,000 31,348,000 12,985,000
Stock-based compensation 2,035,000   2,922,000   5,466,000   5,000,000  

Adjusted Net Income Attributable to Kennedy-Wilson Holdings, Inc. Common Shareholders

$ 14,368,000   $ 2,754,000   $ 38,648,000   $ 8,133,000  
Basic weighted average number of common shares outstanding

72,643,080

  58,043,357  

68,486,876

  53,551,708  
Basic Adjusted Net Income Attributable to Kennedy-Wilson Holdings, Inc. Common Shareholders Per Share $ 0.20   $ 0.05   $ 0.56   $ 0.15  
 
           
Kennedy-Wilson Holdings, Inc. and Subsidiaries
EBITDA and Adjusted EBITDA
(Unaudited)
 
Three Months Ended Nine Months Ended
September 30, September 30,
2013     2012 2013     2012
Net loss $ (2,685,000 ) $ (4,142,000 ) $ (6,611,000 ) $ (3,657,000 )
Non-GAAP adjustments:
Add back:
Interest expense 13,141,000 6,755,000 37,104,000 19,979,000

Kennedy Wilson's share of interest expense included in investment in joint ventures and loan pool participations

12,688,000 8,364,000 33,405,000 23,364,000
Depreciation and amortization 4,531,000 989,000 12,003,000 2,903,000

Kennedy Wilson's share of depreciation and amortization included in investment in joint ventures

11,871,000 5,085,000 31,348,000 12,985,000

Provision for (benefit from) income taxes

726,000   (2,500,000 ) (1,446,000 ) (5,121,000 )
EBITDA 40,272,000 14,551,000 105,803,000 50,453,000
Stock-based compensation 2,035,000   2,922,000   5,466,000   5,000,000  
Adjusted EBITDA $ 42,307,000   $ 17,473,000   $ 111,269,000   $ 55,453,000  
 

Contact:
Kennedy Wilson
Christina Cha, 310-887-6294
Vice President of Corporate Communication
ccha@kennedywilson.com
www.kennedywilson.com
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