Kennedy Wilson Reports Fourth Quarter and Full Year 2012 Earnings

Kennedy Wilson Reports Fourth Quarter and Full Year 2012 Earnings

Adjusted EBITDA for FY 2012 grows by 41% to $100.3 million;
Company increases dividend by 40% to $0.07 per common share for first quarter 2013


BEVERLY HILLS, Calif.--(BUSINESS WIRE)-- Kennedy-Wilson Holdings, Inc. ("Kennedy Wilson," "we," "us," "our," or the "Company"), an international real estate investment and services company, today reported a fourth quarter 2012 net income attributable to common shareholders of $8.9 million (or $0.15 and $0.14 per basic and diluted share, respectively) compared to a net income attributable to common shareholders of $8.0 million (or $0.17 and $0.14 per basic and diluted share, respectively) for the same period in 2011. Net income attributable to common shareholders, adjusted for stock-based compensation expense, was $12.0 million (or $0.20 per basic share) compared to a net income of $9.3 million for the same period in 2011 (or $0.20 per basic share).

Full year 2012 net loss attributable to common shareholders was $3.9 million (or $0.07 per basic and diluted share) compared to a loss of $2.4 million (or $0.05 per basic and diluted share) for the same period in 2011. Net income attributable to common shareholders for the full year 2012, adjusted for stock-based compensation expense and common stock issuance discount treated as preferred dividend (for 2011), was $4.3 million (or $0.08 per basic share) compared to net income of $3.3 million (or $0.08 per basic share) for the same period in 2011.

The Company's earnings before interest, taxes, depreciation, and stock-based compensation expense ("Adjusted EBITDA") for the fourth quarter of 2012 was $44.9 million, a 51% increase from $29.7 million for the same period in 2011. The Company's Adjusted EBITDA for the full year ended December 31, 2012 was $100.3 million, a 41% increase from $71.2 million for the same period 2011.

"The company had a very active and successful fourth quarter with more than $1.3 billion of acquisitions in the U.S., United Kingdom and Ireland," said William McMorrow, chairman and CEO of Kennedy Wilson. "Our key operating metrics and recurring cash flow are improving each quarter, and we continue to see significant investment opportunities in our core markets."

The company also announced that it will pay a dividend of $0.07 per share, a 40% increase from the previous quarter, to common shareholders of record as of March 22, 2013 with a payment date of April 2, 2013. The quarterly payment equates to an annual dividend of $0.28 per common share.

Kennedy Wilson Recent Highlights

Investments business

Investment Account

  • As of December 31, 2012, our investment account (Kennedy Wilson's equity in real estate, joint ventures, loan investments and marketable securities, less mortgage debt) increased by 42% to $828.3 million from $582.8 million at December 31, 2011. This change was comprised of approximately $469.6 million (including $230.3 million during the fourth quarter) of cash contributed to, offset by income earned on investments and approximately $224.0 million (including $60.0 million during the fourth quarter) of cash distributed from investments.

  • As of December 31, 2012, the Company and its equity partners owned 16.1 million rentable square feet of real estate including 14,764 apartment units and 30 commercial properties. Additionally, as of December 31, 2012, the Company and its equity partners owned $2.2 billion in loans secured by real estate and over 3,300 acres of land.

Operating metrics

  • During the three months ended December 31, 2012, our investments business achieved an Adjusted EBITDA of $42.0 million, a 159% increase from $16.1 million for the same period in 2011.

  • During the year ended December 31, 2012, our investments business achieved an Adjusted EBITDA of $88.5 million, a 68% increase from $52.7 million for the same period in 2011.

  • During the year ended December 31, 2012, based on 9,015 same property multifamily units, rental revenues and net operating income increased by 3.6% and 5.9%, respectively, while percentage leased decreased by 0.2% from 2011. In addition, based on 2.2 million square feet of same property commercial real estate, rental revenues, net operating income and occupancy increased by 9.9%, 13.2% and 5.1%, respectively.

Acquisition/disposition program

  • From January 1, 2010 through December 31, 2012, the Company and its equity partners, acquired approximately $8.0 billion of real estate related investments (includes unpaid principal balance of loan purchases). During 2012, the Company and its equity partners acquired $2.9 billion of real estate related investments. This includes $1.4 billion of real estate and $1.5 billion of loans secured by real estate in which we invested $206.1 million and $196.2 million, respectively.

  • During the year ended December 31, 2012, the Company and its equity partners sold six multifamily properties (through property sales and sale of equity interest) located in the Western U.S. for a total of $251.7 million, which resulted in a total gain of $33.7 million, of which our share was $10.1 million ($20.7 million of our equity invested).

Property level debt financing

  • During the year ended December 31, 2012, the Company and its equity partners completed approximately $928.7 million of property financings and re-financings at an average interest rate of 3.8% and a weighted average maturity of 6.0 years.

  • During the year ended December 31, 2011, the Company and its equity partners completed approximately $1.6 billion of property financings and re-financings at an average interest rate of 4.2% and a weighted average maturity of 3.3 years.

Key Investment Updates

UK Loan Pool

  • Our current equity in this investment is $60.4 million; we own 12.5% before carried interest.

  • In December 2011, we and our 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 December 31, 2012, the unpaid principal balance was $765.8 million due to loan resolutions of approximately $1.3 billion, representing 64% of the pool. The total debt incurred at the venture level at the time of purchase of these loans was $323.4 million with a maturity date of October 2014. As a result of the loan resolutions, the venture level debt has been paid down by $297.6 million to $25.8 million as of December 31, 2012.

KW Residential, LLC

  • Our current equity in this investment is $102.7 million; we own 40.9% before carried interest.

  • Maintained 96.4% occupancy in 50 apartment buildings with over 2,400 units.

  • Since Fairfax Financial became our partner in the Japanese apartment portfolio in September 2010, we have distributed a total of $56.5 million, of which our share was $26.4 million.

Services business

  • Management and leasing fees and commissions decreased by 42% to $17.8 million for the three months ended December 31, 2012 from $30.8 million for the same period in 2011.

  • During the three months ended December 31, 2012, our services business achieved an EBITDA of $9.0 million, a 53% decrease from $19.2 million for the same period in 2011.

  • Management and leasing fees and commissions decreased by 7% to $53.3 million for the year ended December 31, 2012 from $57.1 million for the same period in 2011. Included in management and leasing fees and commissions for the year ended December 31, 2012 and 2011 are $4.4 million and $21.6 million, respectively, of acquisition fees related to the acquisition of the Bank of Ireland stock and the UK loan pool in 2011. Excluding the acquisition fees, the Company achieved a 38% increase in management and leasing fees and commissions for the year ended December 31, 2012 as compared to the same period in 2011.

  • During the year ended December 31, 2012, our services business achieved an EBITDA of $20.2 million, a 22% decrease from $25.7 million for the same period in 2011. Excluding the acquisition fees related to the acquisition of the Bank of Ireland stock and the UK loan pool in 2011 of $4.4 million and $21.6 million for the year ended December 31, 2012 and 2011, respectively, the Company achieved a 282% increase in its services EBITDA for the year ended December 31, 2012 as compared to the same period in 2011.

Corporate financing

  • In July 2012, the Company issued 8.6 million shares of common stock primarily to institutional investors, resulting in gross proceeds of $112.1 million, of which $40.0 million was used to pay off the outstanding balance on our line of credit.

  • During the three months ended December 31, 2012, the Company issued $155.0 million of senior notes.

Subsequent events

  • Subsequent to December 31, 2012, we have acquired or have entered into contracts to acquire approximately $1.2 billion of real estate related investments which include 1.6 million rentable square feet of real estate, comprised of 725 apartment units and one commercial property along with $727.6 million of loans secured by real estate and 301 residential lots. We expect the acquisitions to be joint venture investments.

  • Subsequent to December 31, 2012, KW Residential, LLC settled several Japanese yen related hedges resulting in cash proceeds of $23.7 million to the joint venture, of which our share was $10.6 million.

  • In December 2012, we invested $43.6 million of our equity and borrowed $79.3 million to acquire a loan secured by a shopping center in the United Kingdom. Additionally, in partnership with an institutional investor, we acquired a loan pool with an unpaid principal balance of $232.3 million, comprised of seven loans secured by 23 underlying properties in the United Kingdom. Our investment in the pool totaled $16.0 million. Subsequent to December 31, 2012, we sold 50% of our interest in both investments to an institutional investor. As a result of the sale, the loan secured by a shopping center will no longer be consolidated.

  • During March 2013, we drew $35 million on our unsecured credit facility.

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, March 13.

The direct dial-in number for the conference call is (800) 706-7745 for U.S. callers and (617) 614-3472 for international callers. The confirmation number for the live call is 14209752.

A replay of the call will be available for one week beginning two hours after the live call and can be accessed by (888) 286-8010 for U.S. callers and (617) 801-6888 for international callers. The passcode for the replay is 20403213.

The webcast will be available at: http://edge.media-server.com/m/p/rgvcnd5k/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 (the "Securities Act") and Section 21 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 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 these 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, 2011. 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 Loss Attributable to Kennedy Wilson Common Shareholders, Basic Adjusted Net Loss 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.

Kennedy-Wilson Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets

December 31,

2012

2011

Assets

Cash and cash equivalents

$

120,855,000

$

115,926,000

Short term investments

10,000,000

Accounts receivable

3,647,000

3,114,000

Accounts receivable—related parties

22,393,000

15,612,000

Notes receivable

136,607,000

7,938,000

Notes receivable—related parties

33,269,000

Real estate, net of accumulated depreciation

289,449,000

115,880,000

Investments in joint ventures

543,193,000

343,367,000

Investments in loan pool participations

95,601,000

89,951,000

Marketable securities

23,005,000

Other assets

38,079,000

20,749,000

Goodwill

23,965,000

23,965,000

Total assets

$

1,283,789,000

$

792,776,000

Liabilities

Accounts payable

$

1,762,000

$

1,798,000

Accrued expenses and other liabilities

29,417,000

24,262,000

Accrued salaries and benefits

24,981,000

14,578,000

Deferred tax liability

22,671,000

18,437,000

Mortgage loans and notes payable

236,538,000

30,748,000

Senior notes payable

409,640,000

249,385,000

Junior subordinated debentures

40,000,000

40,000,000

Total liabilities

765,009,000

379,208,000

Equity

Cumulative Preferred stock:

6.00% Series A, 100,000 shares

6.45% Series B, 32,550 shares

Common stock

6,000

5,000

Additional paid-in capital

512,835,000

407,335,000

Retained earnings (accumulated deficit)

(5,910,000

)

9,708,000

Accumulated other comprehensive income

12,569,000

5,035,000

Shares held in treasury

(9,856,000

)

(11,848,000

)

Total Kennedy-Wilson Holdings, Inc. stockholders' equity

509,644,000

410,235,000

Noncontrolling interests

9,136,000

3,333,000

Total equity

518,780,000

413,568,000

Total liabilities and equity

$

1,283,789,000

$

792,776,000

See accompanying notes to consolidated financial statements.

Kennedy-Wilson Holdings, Inc. and Subsidiaries

Consolidated Statements of Operations

For the Three Months Ended

For the Year Ended

December 31,

December 31,

2012

2011

2012

2011

Revenue

Management and leasing fees

$

10,996,000

$

9,308,000

$

40,304,000

$

27,116,000

Commissions

6,790,000

21,531,000

12,955,000

29,960,000

Sale of real estate

996,000

2,271,000

417,000

Rental and other income

4,094,000

1,781,000

8,526,000

5,140,000

Total revenue

22,876,000

32,620,000

64,056,000

62,633,000

Operating expenses

Commission and marketing expenses

874,000

950,000

4,550,000

3,965,000

Compensation and related expenses

25,176,000

16,567,000

55,834,000

41,129,000

Cost of real estate sold

955,000

2,230,000

397,000

General and administrative

5,797,000

5,273,000

19,448,000

14,455,000

Depreciation and amortization

2,034,000

970,000

4,937,000

2,798,000

Rental operating expenses

1,858,000

1,060,000

4,496,000

3,308,000

Total operating expenses

36,694,000

24,820,000

91,495,000

66,052,000

Equity in joint venture income

9,055,000

5,346,000

21,527,000

12,507,000

Interest income from loan pool participations and notes receivable

2,130,000

2,051,000

9,256,000

7,886,000

Operating (loss) income

(2,633,000

)

15,197,000

3,344,000

16,974,000

Non-operating income (expense)

Interest income

435,000

1,072,000

2,938,000

2,306,000

Acquisition related gain

25,476,000

25,476,000

6,348,000

Gain on sale of marketable securities

1,422,000

4,353,000

Acquisition-related expenses

(675,000

)

(675,000

)

Interest expense

(8,616,000

)

(6,634,000

)

(28,595,000

)

(20,507,000

)

Income from continuing operations before (provision for) benefit from income taxes

15,409,000

9,635,000

6,841,000

5,121,000

(Provision for) benefit from income taxes

(4,913,000

)

(148,000

)

208,000

2,014,000