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| KW > SEC Filings for KW > Form 8-K on 14-Feb-2013 | All Recent SEC Filings |
14-Feb-2013
Financial Statements and Exhibits
Financial statements of businesses
(a) acquired
Page
950 Harrington Avenue:
Independent Auditors' Report 2
Statements of Revenues and Certain Expenses for the Nine Months
Ended September 30, 2012 (Unaudited) and the Year Ended December 31,
2011 3
Notes to Statements of Revenues and Certain Expenses for the Nine
Months Ended September 30, 2012 (Unaudited) and the Year Ended
December 31, 2011 4
1492 East Spring Lane:
Independent Auditors' Report 6
Statements of Revenues and Certain Expenses for the Nine Months
Ended September 30, 2012 (Unaudited) and the Year Ended December 31,
2011 7
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Kennedy-Wilson Holdings, Inc. and Subsidiaries Unaudited Pro Forma
Financial Information 10
Unaudited Pro Forma Balance Sheet as of September 30, 2012 11
Unaudited Pro Forma Consolidated Statement of Operations for the
Nine Months Ended September 30, 2012 13
Unaudited Pro Forma Consolidated Statement of Operations for the
Year Ended December 31, 2011 15
(c) Exhibits
23.1 Consent of KPMG LLP, dated February 14, 2013
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The Board of Directors
Kennedy-Wilson Holdings, Inc.:
We have audited the accompanying statement of revenues and certain expenses (Historical Summary) of 950 Harrington Avenue (the Property) for the year ended December 31, 2011. This Historical Summary is the responsibility of the Property's management. Our responsibility is to express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Property's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission as described in note 1. The presentation is not intended to be a complete presentation of the Property's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the revenues and certain expenses described in note 1 of the Property for the year ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Los Angeles, California
February 14, 2013
Statements of Revenues and Certain Expenses
Nine-Months Ended September 30, 2012 (Unaudited) and the
Year Ended December 31, 2011
Nine-Months Ended
September 30, 2012 Year Ended
(Unaudited) December 31, 2011
Revenues:
Rental income $ 1,689,000 $ 1,409,000
Other income 256,000 137,000
Total revenues 1,945,000 1,546,000
Certain expenses:
Property operating and maintenance 697,000 695,000
Property taxes and insurance 86,000 222,000
Total certain expenses 783,000 917,000
Revenues in excess of certain expenses $ 1,162,000 $ 629,000
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See accompanying notes to statements of revenues and certain expenses.
Notes to Statements of Revenues and Certain Expenses Nine-Months Ended September 30, 2012 (Unaudited) and the Year Ended December 31, 2011
(1) Basis of Presentation
The accompanying statements of revenues and certain expenses relate to the
operations of 950 Harrington Ave. ("the Property"). The Property is a 217 unit
multifamily residential building, located in Renton, Washington. The Property
was purchased on November 20, 2012 by KW Harrington, LLC a wholly owned
subsidiary of Kennedy-Wilson Holdings, Inc.
The accompanying statements of revenues and certain expenses have been prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission and, accordingly, are not representative of the actual
results of operations of the Property for the nine months ended September 30,
2012 and the year ended December 31, 2011 due to exclusion of the following
expenses, which may not be comparable to the proposed future operations of the
property:
• Depreciation and amortization,
• Management fees, and
• Mortgage interest expense since the Property was refinanced at the time of the change in ownership.
Management is not aware of any material factors relating to the Property other
than those already described above that would cause the reported financial
information not to be necessarily indicative of future operating results.
(2) Summary of Significant Accounting Policies
Revenue recognition
Rental revenue from tenants is recognized on a straight-line basis over the
lease term when collectability is reasonably assured and the tenant has taken
possession or controls the physical use of the leased asset.
Tenant recoveries related to the reimbursement of operating expenses (primarily
utilities) are recognized as revenue in the period the applicable expenses are
incurred. The reimbursements are recognized and presented gross, since the
Property is generally the primary obligor with respect to purchasing goods and
services from third-party suppliers, has discretion in selecting the supplier,
and bears the associated credit risk.
Use of Estimates
Management has made a number of estimates and assumptions relating to the
reporting and disclosure of revenues and certain expenses during the reporting
period to prepare the statements of revenues and certain expenses in conformity
with U.S. generally accepted accounting principles. Actual results could differ
from those estimates.
Unaudited Interim Statement
The statement of revenue and certain expenses for the nine-months ended September 30, 2012 is unaudited. In the opinion of management, the statement reflects all adjustments necessary for a fair presentation of the results of the interim period. All such adjustments are of a normal recurring nature.
Notes to Statements of Revenues and Certain Expenses Nine-Months Ended September 30, 2012 (Unaudited) and the Year Ended December 31, 2011
(3) Minimum Future Lease Rentals
There are various lease agreements in place with tenants to lease space at the
Property. As of September 30, 2012, the minimum future cash rents receivable
under noncancelable operating leases through December 31, 2013 are as follows:
October 1, 2012 - December 31, 2012 $ 598,000
2013 750,000
$ 1,348,000
(4) Property Taxes
The Property is participating in the City of Renton's Multi-Family Housing
Property Tax Exemption Program. The program allows the value of qualified new
housing construction to be exempt from a property tax for eight to twelve years
and the property was granted a ten year exemption. The property was issued its
final certificate of tax exemption on September 1, 2011 and it was made
effective in calendar year 2012.
(5) Subsequent Events
The Company evaluated subsequent events through the date these financial statements were issued.
The Board of Directors
Kennedy-Wilson Holdings, Inc.:
We have audited the accompanying statement of revenues and certain expenses (Historical Summary) of 1492 East Spring Lane (the Property) for the year ended December 31, 2011. This Historical Summary is the responsibility of the Property's management. Our responsibility is to express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Property's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission as described in note 1. The presentation is not intended to be a complete presentation of the Property's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the revenues and certain expenses described in note 1 of the Property for the year ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Los Angeles, California
February 14, 2013
1492 EAST SPRING LANE
Statements of Revenues and Certain Expenses
Nine-Months Ended September 30, 2012 (Unaudited) and the
Year Ended December 31, 2011
Nine-Months Ended
September 30, 2012 Year Ended
(Unaudited) December 31, 2011
Revenues:
Rental income $ 3,062,000 $ 3,825,000
Tenant recoveries and other income 437,000 444,000
Total revenues 3,499,000 4,269,000
Certain expenses:
Property operating and maintenance 708,000 939,000
Property taxes and insurance 218,000 290,000
Interest 1,167,000 1,310,000
Total certain expenses 2,093,000 2,539,000
Revenues in excess of certain expenses $ 1,406,000 $ 1,730,000
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See accompanying notes to statements of revenues and certain expenses.
Notes to Statements of Revenues and Certain Expenses Nine-Months Ended September 30, 2012 (Unaudited) and the Year Ended December 31, 2011
(1) Basis of Presentation
The accompanying statements of revenues and certain expenses relate to the
operations of 1492 East Spring Lane ("the Property"). The Property is a 366 unit
multifamily residential building located in Holladay, Utah. The Property was
purchased on November 27, 2012 by KW Sandpiper, LLC a wholly owned subsidiary of
Kennedy-Wilson Holdings, Inc.
The accompanying statements of revenues and certain expenses have been prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission and, accordingly, are not representative of the actual
results of operations of the Property for the nine months ended September 30,
2012 and the year ended December 31, 2011 due to exclusion of certain expenses,
such as depreciation and amortization and management fees, which may not be
comparable to the proposed future operations of the property.
Management is not aware of any material factors relating to the Property other
than those already described above that would cause the reported financial
information not to be necessarily indicative of future operating results.
(2) Summary of Significant Accounting Policies
Revenue recognition
Rental revenue from tenants is recognized on a straight-line basis over the
lease term when collectability is reasonably assured and the tenant has taken
possession or controls the physical use of the leased asset.
Tenant recoveries related to the reimbursement of operating expenses (primarily
utilities) are recognized as revenue in the period the applicable expenses are
incurred. The reimbursements are recognized and presented gross, since the
Property is generally the primary obligor with respect to purchasing goods and
services from third-party suppliers, has discretion in selecting the supplier,
and bears the associated credit risk.
Use of Estimates
Management has made a number of estimates and assumptions relating to the
reporting and disclosure of revenues and certain expenses during the reporting
period to prepare the statements of revenues and certain expenses in conformity
with U.S. generally accepted accounting principles. Actual results could differ
from those estimates.
Unaudited Interim Statement
The statement of revenue and certain expenses for the nine-months ended September 30, 2012 is unaudited. In the opinion of management, the statement reflects all adjustments necessary for a fair presentation of the results of the interim period. All such adjustments are of a normal recurring nature.
Notes to Statements of Revenues and Certain Expenses Nine-Months Ended September 30, 2012 (Unaudited) and the Year Ended December 31, 2011
(3) Minimum Future Lease Rentals
There are various lease agreements in place with tenants to lease space at the
Property. As of September 30, 2012, the minimum future cash rents receivable
under noncancelable operating leases through December 31, 2013 are as follows:
October 1, 2012 - December 31, 2012 $ 885,000
2013 1,105,000
$ 1,990,000
(4) Mortgage Loan Payable
The Property is encumbered by two mortgage loans. The first mortgage loan, with
the principal balance of $26,367,000 as of September 30, 2012 bears interest of
4.71% per annum. Payments of interest only were due through September 2012.
Beginning on October 1, 2012, the loan is payable in monthly interest and
principal installments of $137,000 to maturity, September 1, 2020. The second
mortgage loan, with the principal balance of $5,262,000 as of September 30, 2012
bears interest of 5.43% per annum and is payable in monthly interest and
principal installments of $30,000 to maturity, September 1, 2020.
(5) Subsequent Events
The Company evaluated subsequent events through the date these financial statements were issued.
This pro forma information should be read in conjunction with the consolidated financial statements of Kennedy-Wilson Holdings, Inc. and its subsidiaries (the "Company" or "our") included in the Company's Form 10-K for the fiscal year ended December 31, 2011 and the Company's Form 10-Q for the quarterly period ended September 30, 2012, as filed with the Securities and Exchange Commission.
The unaudited pro forma consolidated balance sheet as of September 30, 2012 has been prepared to give effect to the acquisitions of Harrington, which was acquired on November 20, 2012, and Sandpiper, which was acquired on November 27, 2012
The following unaudited pro forma consolidated statement of operations of the Company for the year ended December 31, 2011 and the consolidated statement of operations of the Company for nine months ended September 30, 2012 have been prepared to give effect to the acquisitions of Harrington and Sandpiper. The pro forma consolidated statements of operations assume that each acquisition had occurred on January 1, 2011.
These unaudited pro forma consolidated financial statements are presented for informational purposes only and should be read in conjunction with the historical financial statements of Harrington and Sandpiper and their related notes thereto included elsewhere in this filing. The adjustments to our pro forma consolidated financial statements are based on available information and assumptions that we consider reasonable. Our pro forma consolidated financial statements do not purport to represent (1) the results of our operations that would have actually occurred had the acquisition of Harrington and Sandpiper occurred on January 1, 2011 or (2) an estimate of the results of our operations as of any future date or for any future period, as applicable.
KENNEDY-WILSON HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2012
Kennedy-Wilson
Holdings, Inc. (a) Harrington Sandpiper Company Pro Forma
Assets
Cash and cash equivalents $ 126,804,000 $ (15,806,000 ) (b) $ (10,014,000 ) (c) $ 100,984,000
Accounts receivable 3,378,000 - - 3,378,000
Accounts receivable - related
parties 19,504,000 - - 19,504,000
Notes receivable 43,391,000 - - 43,391,000
Notes receivable - related
parties 40,101,000 - - 40,101,000
Real estate, net of accumulated
depreciation 111,517,000 43,857,000 (b) 43,150,000 (c) 198,524,000
Investments in joint ventures 380,563,000 - - 380,563,000
Investments in loan pool
participations 102,854,000 - - 102,854,000
Marketable securities 10,265,000 - - 10,265,000
Other assets 19,955,000 449,000 (b) 681,000 (c) 21,085,000
Goodwill 23,965,000 - - 23,965,000
Total assets $ 882,297,000 $ 28,500,000 $ 33,817,000 $ 944,614,000
Liabilities and equity
Liabilities
Accounts payable $ 1,306,000 $ - $ - $ 1,306,000
Accrued expenses and other
liabilities 29,129,000 - - 29,129,000
Accrued salaries and benefits 5,600,000 - - 5,600,000
Deferred tax liability 19,610,000 975,000 (b) - 20,585,000
Senior notes payable 249,425,000 - - 249,425,000
Mortgage loans payable 30,748,000 26,000,000 (b) 33,817,000 (c) 90,565,000
Junior subordinated debentures 40,000,000 - - 40,000,000
Total liabilities 375,818,000 26,975,000 33,817,000 436,610,000
Equity
Common stock 6,000 - - 6,000
Additional paid-in capital 514,586,000 - - 514,586,000
Retained earnings (accumulated
deficit) (11,583,000 ) 1,525,000 (b) - (10,058,000 )
Accumulated other comprehensive
income 11,786,000 - - 11,786,000
Common stock held in treasury,
at cost (9,856,000 ) - - (9,856,000 )
Total Kennedy-Wilson Holdings,
Inc. shareholders' equity 504,939,000 1,525,000 - 506,464,000
Noncontrolling interests 1,540,000 - - 1,540,000
Total equity 506,479,000 1,525,000 - 508,004,000
Total liabilities and equity $ 882,297,000 $ 28,500,000 $ 33,817,000 $ 944,614,000
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See accompanying notes to unaudited pro forma consolidated balance sheet.
(a) Reflects the historical consolidated balance sheet as of September 30, 2012, which is included in Kennedy-Wilson Holdings, Inc.'s previously filed Quarterly Report on Form 10-Q for the quarter ended September 30, 2012.
(b) Pro forma effect of the Company's acquisition of Harrington for $41.3 million, assuming the acquisition of Harrington had occurred on September 30, 2012. The acquisition, which closed on November 20, 2012, was funded from cash available and related mortgage financing. The net purchase price was allocated to real estate, for the tangible assets, and other assets, for identifiable intangibles, upon business combination based on their estimated fair values. The fair value was in excess of the purchase price and therefore resulted in a non recurring credit of approximately $1,525,000 net of $975,000 tax. Because this in a non recurring credit it has been excluded from the pro forma consolidated statement of operations.
(c) Pro forma effect of the Company's acquisition of Sandpiper for $43.5 million, assuming the acquisition of Sandpiper had occurred on September 30, 2012. The acquisition, which closed on November 27, 2012, was funded from cash available and the assumption of two existing loans totaling $31.6 million, with a fair value of $33.8 million. The net purchase price was allocated to real estate, for the tangible assets, and other assets, for identifiable intangibles, upon business combination based on their estimated fair values.
KENNEDY-WILSON HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012
Kennedy Wilson Harrington
Holdings, Inc. (a) Square Sandpiper Company Pro Forma
Revenue
Management and leasing fees $ 11,272,000 $ - $ - $ 11,272,000
Management and leasing fees -
related party 18,036,000 - - 18,036,000
Commissions 3,513,000 - - 3,513,000
Commissions - related party 2,652,000 - - 2,652,000
Sale of real estate 1,275,000 1,275,000
Rental and other income 4,432,000 1,945,000 (b) 3,499,000 (e) 9,876,000
Total revenue 41,180,000 1,945,000 3,499,000 46,624,000
Operating expenses
Commission and marketing
expenses 3,676,000 - - 3,676,000
Compensation and related
expenses 30,658,000 - - 30,658,000
Cost of real estate sold 1,275,000 1,275,000
General and administrative 13,571,000 - - 13,571,000
Depreciation and amortization 2,903,000 729,000 (c) 647,000 (c) 4,279,000
Rental operating expenses 2,638,000 960,000 (b) 926,000 (e) 4,524,000
Total operating expenses 54,721,000 1,689,000 1,573,000 57,983,000
Equity in joint venture income 12,472,000 - 12,472,000
Interest income from loan pool
participations and notes
receivable 7,126,000 - - 7,126,000
. . .
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