Oct. 2013 3-14 Audits 8K


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________

FORM 8-K
_____________
CURRENT REPORT

Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):
November 1, 2013
_____________
KENNEDY-WILSON HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
_____________

                
Delaware
 
001-33824
 
26-0508760
 (State or other jurisdiction
 of Incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)

9701 Wilshire Blvd., Suite 700 Beverly Hills, California 90212
(Address of principal executive offices)(Zip Code)

(310) 887-6400
(Registrant’s telephone number, including area code)

N/A
(Former name or former address, if changed since last report)
_____________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2.):

o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 





This Current Report on Form 8-K is filed by Kennedy-Wilson Holdings, Inc., a Delaware corporation (the "Company"), in connection with the matters described herein. In accordance with Rule 3-14 and Article 11 of Regulation S-X, the Company hereby files the following financial statements and pro forma information relating to its acquisitions of 433 Buena Vista Avenue, a multifamily property located in Alameda, California ("Summerhouse"), 2260 Foothill Drive, a multifamily property located in Salt Lake City, Utah ("Foothill"), 5161 Lankershim Boulevard, a commercial property located in North Hollywood, California ("5161 Lankershim"), 1201 and 1235 Radio Road, a commercial property located in Redwood City, California ("Redwood Shores"), 655 Tennyson Road, a multifamily property located in Montelena, CA ("Mission Blvd") and 150 and 151 El Camino, commercial properties located in Beverly Hills, California ("El Camino").


1



ITEM 9.01    FINANCIAL STATEMENTS AND EXHIBITS
(a)
Financial statements of businesses acquired
 
 
 
 
 
 
 
 
Page
433 Buena Vista Avenue:
 
 
 
 
 
Independent Auditors' Report
 
 
 
 
Statements of Revenues and Certain Expenses for the Years Ended December 31, 2012 and 2011 and Eight Months Ended December 31, 2010
 
 
Notes to Statements of Revenues and Certain Expenses for the Year Ended December 31, 2012 and 2011 and Eight Months Ended December 31, 2010
2260 Foothill Drive
 
 
 
 
 
Independent Auditors' Report
 
 
 
 
Statements of Revenues and Certain Expenses for the Three Months Ended March 31, 2013 (Unaudited) and the Year Ended December 31, 2012
 
 
Notes to Statements of Revenues and Certain Expenses for the Three Months Ended March 31, 2013 (Unaudited) and the Year Ended December 31, 2012
5161 Lankershim Boulevard
 
 
 
 
 
Independent Auditors' Report
 
 
 
 
Statements of Revenues and Certain Expenses for the Six Months Ended June 30, 2013 (Unaudited) and the Year Ended December 31, 2012
 
 
Notes to Statements of Revenues and Certain Expenses for the Six Months Ended June 30, 2013 (Unaudited) and the Year Ended December 31, 2012
1201 and 1235 Radio Road
 
 
 
 
 
Independent Auditors' Report
 
 
 
 
Statements of Revenues and Certain Expenses for the Three Months Ended March 31, 2013 (Unaudited) and the Year Ended December 31, 2012
 
 
Notes to Statements of Revenues and Certain Expenses for the Three Months Ended March 31, 2013 (Unaudited) and the Year Ended December 31, 2012
655 Tennyson Road
 
 
 
 
 
Independent Auditors' Report
 
 
 
 
Statements of Revenues and Certain Expenses for the Three Months Ended March 31, 2013 (Unaudited) and the Year Ended December 31, 2012
 
 
Notes to Statements of Revenues and Certain Expenses for the Three Months Ended March 31, 2013 (Unaudited) and the Year Ended December 31, 2012
150 and 151 El Camino Road
 
 
 
 
 
Independent Auditors' Report
 
 
 
 
Combined Statements of Revenues and Certain Expenses for the Three Months Ended March 31, 2013 (Unaudited) and the Year Ended December 31, 2012
 
 
Notes to Combined Statements of Revenues and Certain Expenses for the Three Months Ended March 31, 2013 (Unaudited) and the Year Ended December 31, 2012
(b)
Pro forma financial information
 
 
 
Kennedy-Wilson Holdings, Inc.:
 
 
 
 
 
Kennedy-Wilson Holdings, Inc. and Subsidiaries Unaudited Pro Forma Financial Information    
 
 
Unaudited Pro Forma Balance Sheet as of June 30, 2013
 
 
Unaudited Pro Forma Consolidated Statement of Operations for the Six Months Ended June 30, 2013
 
 
Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 2012
(c)
Exhibits
 
 
 
 
 
23.1 Consent of KPMG LLP, dated November 1, 2013
 


2




Independent Auditors’ Report
The Board of Directors
Kennedy-Wilson Holdings, Inc.:
We have audited the accompanying Statement of Revenues and Certain Expenses of 433 Buena Vista (the Property) for the years ended December 31, 2012 and 2011, for the eight months ended December 31, 2010, and the related notes (the historical summaries) .
Management’s Responsibility for the Historical Summaries
Management is responsible for the presentation of these historical summaries in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the historical summaries that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on the historical summaries 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 summaries are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the historical summaries. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the historical summaries, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the historical summaries in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the historical summaries.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the historical summaries referred to above presents fairly, in all material respects, the revenues and certain expenses described in note 1 of the Property for the years ended December 31, 2012 and 2011, and for the eight months ended December 2010, in accordance with U.S. generally accepted accounting principles.
Emphasis of Matter
We draw attention to note 1 to the historical summaries, which describes that the accompanying historical summaries were prepared for the purpose of complying with the rules and regulations of Securities and Exchange Commission (for inclusion in the filing of Form 8-K of Kennedy-Wilson Holdings, Inc.) and are not intended to be a complete presentation of the Company’s revenues and expenses. Our opinion is not modified with respect to this matter.
/s/ KPMG LLP
Los Angeles, California
November 1, 2013




3




433 Buena Vista Avenue

Statements of Revenues and Certain Expenses
For the Year Ended December 31, 2012 and 2011 and Eight Months Ended December 31, 2010

 
Year Ended December 31, 2012
 
Year Ended December 31, 2011
 
Eight-Months Ended December 31, 2010
Revenues:
 
 
 
 
 
Rental income
$
9,656,000

 
$
9,043,000

 
$
5,993,000

Other income
927,000

 
819,000

 
523,000

Total revenues
10,583,000

 
9,862,000

 
6,516,000

Certain expenses:
 
 
 
 
 
Property operating and maintenance
2,129,000

 
2,264,000

 
1,440,000

Property taxes and insurance
1,354,000

 
1,422,000

 
997,000

Interest
3,104,000

 
3,094,000

 
627,000

Management fees
211,000

 
197,000

 
130,000

Total certain expenses
6,798,000

 
6,977,000

 
3,194,000

Revenues in excess of certain expenses
$
3,785,000

 
$
2,885,000

 
$
3,322,000


See accompanying notes to statements of revenues and certain expenses.




4




433 Buena Vista Avenue

Notes to Statements of Revenues and Certain Expenses
For the Year Ended December 31, 2012 and 2011 and Eight Months Ended December 31, 2010



(1)
Basis of Presentation

The accompanying statements of revenues and certain expenses relate to the operations of 433 Buena Vista Avenue ("the Property"). The Property is a 615 unit multifamily residential building located in Alameda, California. The Property was purchased on April 29, 2010 by KW Alameda, LLC. A wholly owned subsidiary of Kennedy-Wilson Holdings, Inc. (“KWH”) owned an equity interest in KW Alameda, LLC and on March 28, 2013, KWH acquired the interest of some of the existing partners thereby obtaining control of KW Alameda, LLC and assuming its assets and liabilities. Since KW Alameda, LLC was a related party to KWH, three years of financial statements are required to be provided. Since the related party acquired the Property in April 2010, only eight months of revenue and expenses have been presented for 2010.
 
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 years ended December 31, 2012 and 2011, and for the eight months ended December 31, 2010 due to exclusion of certain expenses, such as depreciation and amortization, 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.




5




433 Buena Vista Avenue

Notes to Statements of Revenues and Certain Expenses
For the Year Ended December 31, 2012 and 2011 and Eight Months Ended December 31, 2010

 

(3)
Minimum Future Lease Rentals

There are various lease agreements in place with tenants to lease space at the Property. As of December 31, 2012, the minimum future cash rents receivable under non-cancelable operating leases through December 31, 2014 are as follows:
2013
 
$
5,518,000

2014
 
19,000

 
 
$
5,537,000


(4)
Mortgage Loan Payable

The Property is encumbered by two mortgage loans. The first mortgage loan was entered into on October 20, 2010 with a principal balance of $70,407,000 as of March 31, 2013 and bears interest of 4.31% per annum. Payments of interest only were due through October 19, 2012. Beginning on October 20, 2012, the loan is payable in monthly interest and principal installments of $351,000 to maturity, November 1, 2020. The second mortgage loan was entered into on December 31, 2012 with a principal balance of $19,381,000 as of March 31, 2013 and bears interest of 4.64% per annum. The loan is payable in monthly interest and principal installments of $100,000 to maturity, November 1, 2020.
Included in interest expense for the eight months ended December 31, 2010, in the accompanying Statements of Revenue and Certain Expenses, is the interest expense from the loan entered into on October 20, 2010. Interest expense from the loan prior to October 20, 2010 is excluded from interest expense in the Statements of Revenue and Certain Expenses.
(5)
Related Party Transactions
KW Alameda, LLC has a management agreement with FPI Management, Inc. and KW Multifamily Management Group, Ltd, which is an affiliate of KWH. In accordance with the management agreement, KWH receives 1% of gross rental revenues as an asset managing fee for the Property.
For the years ended December 31, 2012 and 2011, and the eight months ended December 31, 2010, the Partnership incurred $106,000, $99,000 and $8,000, respectively, in asset management fees. These amounts are reflected as management fees in the statements of revenues and certain expenses.
(6)
Subsequent Events

The Company evaluated subsequent events through the date these financial statements were issued.




6




Independent Auditors’ Report
The Board of Directors
Kennedy-Wilson Holdings, Inc.:
We have audited the accompanying Statement of Revenues and Certain Expenses of 2260 Foothill Drive (the Property) for the year ended December 31, 2012 and the related notes (the historical summary).
Management’s Responsibility for the Historical Summary
Management is responsible for the presentation of the historical summary in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the historical summary that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
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 from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the historical summary. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the historical summaries, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the historical summary in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the historical summary.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
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, 2012, in accordance with U.S. generally accepted accounting principles.
Emphasis of Matter
We draw attention to note 1 to the historical summary, which describes that the accompanying historical summary was prepared for the purpose of complying with the rules and regulations of Securities and Exchange Commission (for inclusion in the filing of Form 8-K of Kennedy-Wilson Holdings, Inc.) and is not intended to be a complete presentation of the Property’s revenues and expenses. Our opinion is not modified with respect to this matter.
/s/ KPMG LLP
Los Angeles, California
November 1, 2013





7




2260 Foothill Drive

Statements of Revenues and Certain Expenses
Three-Months Ended March 31, 2013 (Unaudited) and the
Year Ended December 31, 2012

 
Three-Months Ended March 31, 2013 (unaudited)
 
Year Ended December 31, 2012
Revenues:
 
 
 
Rental income
$
862,000

 
$
4,747,000

Tenant recoveries and other income
193,000

 
785,000

Total revenues
1,055,000

 
5,532,000

Certain expenses:
 
 
 
Property operating and maintenance
286,000

 
1,166,000

Property taxes and insurance
120,000

 
436,000

Management fees
28,000

 
111,000

Total certain expenses
434,000

 
1,713,000

Revenues in excess of certain expenses
$
621,000

 
$
3,819,000


See accompanying notes to statements of revenues and certain expenses.


8




2260 Foothill Drive

Notes to Statements of Revenues and Certain Expenses
Three-Months Ended March 31, 2013 (Unaudited) and the
Year Ended December 31, 2012


(1)
Basis of Presentation

The accompanying statements of revenues and certain expenses relate to the operations of 2260 Foothill Drive ("the Property"). The Property is a 450 unit multifamily residential building located in Salt Lake City, Utah. The Property was purchased on April 30, 2013 by KW Foothill Place, LLC. Kennedy-Wilson Holdings, Inc. holds a 95.4% interest in KW Foothill Place, LLC. 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 three-months ended March 31, 2013 and the year ended December 31, 2012 due to exclusion of certain expenses, such as depreciation and amortization, 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 presented as other income and 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 three-months ended March 31, 2013 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.





9




2260 Foothill Drive

Notes to Statements of Revenues and Certain Expenses
Three-Months Ended March 31, 2013 (Unaudited) and the
Year Ended December 31, 2012


(3)
Minimum Future Lease Rentals
There are various lease agreements in place with tenants to lease space at the Property. As of March 31, 2013, the minimum future cash rents receivable under noncancelable operating leases through December 31, 2014 are as follows:
April 1, 2013 - December 31, 2013
 
$
2,381,000

2014
 
426,000

 
 
$
2,807,000


(4)
Subsequent Events

The Company evaluated subsequent events through the date these financial statements were issued.




10




Independent Auditors’ Report
The Board of Directors
Kennedy-Wilson Holdings, Inc.:
We have audited the accompanying Statement of Revenues and Certain Expenses of 5161 Lankershim Blvd. (the Property) for the year ended December 31, 2012 and the related notes (the historical summary).
Management’s Responsibility for the Historical Summary
Management is responsible for the presentation of this historical summary in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the historical summary that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
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 from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the historical summary. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the historical summaries, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the historical summary in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the historical summary.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
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, 2012, in accordance with U.S. generally accepted accounting principles.
Emphasis of Matter
We draw attention to note 1 to the historical summary, which describes that the accompanying historical summary was prepared for the purpose of complying with the rules and regulations of Securities and Exchange Commission (for inclusion in the filing of Form 8-K of Kennedy-Wilson Holdings, Inc.) and is not intended to be a complete presentation of the Property’s revenues and expenses. Our opinion is not modified with respect to this matter.
/s/ KPMG LLP
Los Angeles, California
November 1, 2013





11



5161 Lankershim Boulevard

Statements of Revenues and Certain Expenses
Six-Months Ended June 30, 2013 (Unaudited) and the
Year Ended December 31, 2012

 
Six-Months Ended June 30, 2013 (unaudited)
 
Year Ended December 31, 2012
Revenues:
 
 
 
Rental income
$
1,099,000

 
$
5,815,000

Parking income
131,000

 
787,000

Tenant recoveries and other income
6,000

 
65,000

Total revenues
1,236,000

 
6,667,000

Certain expenses:
 
 
 
Property operating and maintenance
345,000

 
1,478,000

Property taxes and insurance
366,000

 
703,000

Total certain expenses
711,000

 
2,181,000

Revenues in excess of certain expenses
$
525,000

 
$
4,486,000


See accompanying notes to statements of revenues and certain expenses.


12



5161 Lankershim Boulevard

Notes to Statements of Revenues and Certain Expenses
Six-Months Ended June 30, 2013 (Unaudited) and the
Year Ended December 31, 2012



(1)
Basis of Presentation

The accompanying statements of revenue and certain expenses relate to the operations of 5161 Lankershim Blvd (the “Property”). The Property is an office building totaling approximately 182,000 rentable square feet, located in North Hollywood, California. The property was purchased on August 26, 2013 by KW 5161 Lankershim, LLC. Kennedy-Wilson Holdings, Inc. (“KWH”) owns 52.5% direct and indirect interest in KW 5161 Lankershim, LLC.
The accompanying statements of revenues and certain expenses has been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and, accordingly, is not representative of the actual results of operations of the Properties for the six months ended June 30, 2013 and the year ended December 31, 2012 due to exclusion of certain expenses, which may not be comparable to the proposed future operations of the property:
Depreciation and amortization,
Management fees, and
Mortgage interest expense, as 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 real estate taxes, insurance, repairs and maintenance, and other operating expenses are recognized as revenue in the period the applicable expenses are incurred. The reimbursements are recognized and presented gross, since the Company 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 revenue and certain expenses during the reporting period to prepare statements of revenue 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 six-months ended June 30, 2013 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.


13



5161 Lankershim Boulevard

Notes to Statements of Revenues and Certain Expenses
Six-Months Ended June 30, 2013 (Unaudited) and the
Year Ended December 31, 2012


(3)
Minimum Future Lease Rentals

There are various lease agreements in place with tenants to lease space at the Property. As of June 30, 2013, the minimum future cash rents receivable under noncancelable operating leases in each of the next five years and thereafter are as follows:
July 1, 2013 to December 31, 2013
 
$
295,000

2014
 
1,402,000

2015
 
1,679,000

2016
 
1,885,000

2017
 
1,972,000

Thereafter
 
2,156,000

 
 
$
9,389,000

Leases generally require reimbursement of the tenant’s proportionate share of common area, real estate taxes and other operating expenses, which are excluded from the amounts above.
(4)
Rental Income
The Property was 100% occupied by one tenant until February 28, 2013. Since the tenant left three new tenants have signed leases occupying 59,000 square feet (32% of the Property). The decline in rental income for the six months ended is due to the decrease in occupancy at the Property.

(5)
Subsequent Events

The Company evaluated subsequent events through the date these financial statements were issued.

14



Independent Auditors’ Report
The Board of Directors
Kennedy-Wilson Holdings, Inc.:
We have audited the accompanying Statement of Revenues and Certain Expenses of 1201 and 1235 Radio Road (the Property) for the year ended December 31, 2012 and the related notes (the historical summary).  
Management’s Responsibility for the Historical Summary
Management is responsible for the presentation of this historical summary in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the historical summary that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
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 from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the historical summary. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the historical summaries, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the historical summary in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the historical summary.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
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, 2012, in accordance with U.S. generally accepted accounting principles.
Emphasis of Matter
We draw attention to note 1 to the historical summary, which describes that the accompanying historical summary was prepared for the purpose of complying with the rules and regulations of Securities and Exchange Commission (for inclusion in the filing of Form 8-K of Kennedy-Wilson Holdings, Inc.) and is not intended to be a complete presentation of the Property’s revenues and expenses. Our opinion is not modified with respect to this matter.
/s/ KPMG LLP
Los Angeles, California
November 1, 2013




15



1201 and 1235 Radio Road

Statements of Revenues and Certain Expenses
Three-Months Ended March 31, 2013 (Unaudited) and the
Year Ended December 31, 2012

 
Three-Months Ended March 31, 2013 (Unaudited)
 
Year Ended December 31, 2012
Revenues:
 
 
 
Rental income
$
147,000

 
$
455,000

Tenant recoveries and other income
3,000

 
6,000

Total revenues
150,000

 
461,000

Certain expenses:
 
 
 
Property operating and maintenance
73,000

 
358,000

Property taxes and insurance
39,000

 
152,000

Other
1,000

 
4,000

Total certain expenses
113,000

 
514,000

Revenues in excess/(deficit) of certain expenses
$
37,000

 
$
(53,000
)

See accompanying notes to statements of revenues and certain expenses.


16



1201 and 1235 Radio Road

Statements of Revenues and Certain Expenses
Three-Months Ended March 31, 2013 (Unaudited) and the
Year Ended December 31, 2012


(1)
Basis of Presentation

The accompanying statements of revenue and certain expenses relate to the operations of 1201 and 1235 Radio Road (the “Properties”). The Properties are office buildings totaling approximately 90,000 rentable square feet, located in Redwood City, California. The properties were purchased on April 30, 2013 by KW Redwood Shores, LLC. Kennedy-Wilson Holdings, Inc. owns 52.5% direct and indirect interest in KW Redwood Shores, LLC.
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 Properties for the three-months ended March 31, 2013 and the year ended December 31, 2012 due to exclusion of the following expenses, which may not be comparable to the proposed future operations of the properties:
Depreciation and amortization,
Management fees,
Federal and state income taxes, and
Mortgage interest expense since the Property will be refinanced at the time of the change in ownership.

Management is not aware of any material factors relating to the Properties other than those already described above that would cause the reported financial information not to be necessarily indicative of future operating results.
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 real estate taxes, insurance, repairs and maintenance, and other operating expenses are recognized as revenue in the period the applicable expenses are incurred. The reimbursements are recognized and presented gross, since the Company 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 revenue and certain expenses during the reporting period to prepare statements of revenue 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 three-months ended March 31, 2013 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.


17



1201 and 1235 Radio Road

Statements of Revenues and Certain Expenses
Three-Months Ended March 31, 2013 (Unaudited) and the
Year Ended December 31, 2012


(2)
Minimum Future Lease Rentals

There are various lease agreements in place with tenants to lease space at the Property. As of March 31, 2013, the minimum future cash rents receivable under noncancelable operating leases in each of the next five years and thereafter are as follows:
April 1, 2013 to December 31, 2013
 
$
1,036,000

2014
 
1,456,000

2015
 
1,500,000

2016
 
1,489,000

2017
 
1,340,000

Thereafter
 
2,934,000

 
 
$
9,755,000

Leases generally require reimbursement of the tenant’s proportionate share of common area, real estate taxes and other operating expenses, which are excluded from the amounts above.

(3)    Subsequent Events

The Company evaluated subsequent events through the date these financial statements were issued.


18




Independent Auditors’ Report
The Board of Directors
Kennedy-Wilson Holdings, Inc.:
We have audited the accompanying Statement of Revenues and Certain Expenses of 655 Tennyson Road (the Property) for the year ended December 31, 2012 and the related notes (the historical summary).
Management’s Responsibility for the Historical Summary
Management is responsible for the presentation of the historical summary in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the historical summary that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
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 from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the historical summary. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the historical summaries, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the historical summary in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the historical summary.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
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, 2012, in accordance with U.S. generally accepted accounting principles.
Emphasis of Matter
We draw attention to note 1 to the historical summary, which describes that the accompanying historical summary was prepared for the purpose of complying with the rules and regulations of Securities and Exchange Commission (for inclusion in the filing of Form 8-K of Kennedy-Wilson Holdings, Inc.) and is not intended to be a complete presentation of the Company’s revenues and expenses. Our opinion is not modified with respect to this matter.
/s/ KPMG LLP
Los Angeles, California
November 1, 2013




19



655 Tennyson Road

Statements of Revenues and Certain Expenses
Three-Months Ended March 31, 2013 (Unaudited) and the
Year Ended December 31, 2012

 
Three-Months Ended March 31, 2013 (Unaudited)
 
Year Ended December 31, 2012
Revenues:
 
 
 
Rental income
$
767,000

 
$
3,010,000

Tenant recoveries and other income
60,000

 
229,000

Total revenues
827,000

 
3,239,000

Certain expenses:
 
 
 
Property operating and maintenance
230,000

 
990,000

Property taxes and insurance
75,000

 
447,000

Management fees
24,000

 
92,000

Total certain expenses
329,000

 
1,529,000

Revenues in excess of certain expenses
$
498,000

 
$
1,710,000


See accompanying notes to statements of revenues and certain expenses.


20



655 Tennyson Road

Notes to Statements of Revenues and Certain Expenses
Three-Months Ended March 31, 2013 (Unaudited) and the
Year Ended December 31, 2012


(1)
Basis of Presentation

The accompanying statements of revenues and certain expenses relate to the operations of 655 Tennyson Road ("the Property"). The Property is a 188 unit multifamily residential building located in Montelena, CA. The Property was purchased on April 15, 2013 by KW Mission Blvd, LLC. Kennedy-Wilson Holdings, Inc. owns a 47.67% direct and indirect interest in KW Mission Blvd, LLC. 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 three-months ended March 31, 2013 and the year ended December 31, 2012 due to exclusion of certain expenses, such as depreciation and amortization, 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 three-months ended March 31, 2013 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.


21



655 Tennyson Road

Notes to Statements of Revenues and Certain Expenses
Three-Months Ended March 31, 2013 (Unaudited) and the
Year Ended December 31, 2012


(3)
Minimum Future Lease Rentals

There are various lease agreements in place with tenants to lease space at the Property. As of March 31, 2013, the minimum future cash rents receivable under noncancelable operating leases through December 31, 2014 are as follows:
April 1, 2013 - December 31, 2013
 
$
1,213,000

2014
 
134,000

 
 
$
1,347,000


(4)
Subsequent Events

The Company evaluated subsequent events through the date these financial statements were issued.



22





Independent Auditors’ Report
The Board of Directors
Kennedy-Wilson Holdings, Inc.:
We have audited the accompanying Combined Statement of Revenues and Certain Expenses of 150 and 151 El Camino Drive (the Properties) for the year ended December 31, 2012 and the related notes (the historical summary).
Management’s Responsibility for the Historical Summary
Management is responsible for the presentation of the historical summary in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the historical summary that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
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 from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the historical summary. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the historical summaries, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the historical summary in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the historical summary.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
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 Properties for the year ended December 31, 2012, in accordance with U.S. generally accepted accounting principles.
Emphasis of Matter
We draw attention to note 1 to the historical summary, which describes that the accompanying historical summary was prepared for the purpose of complying with the rules and regulations of Securities and Exchange Commission (for inclusion in the filing of Form 8-K of Kennedy-Wilson Holdings, Inc.) and is not intended to be a complete presentation of the Properties’ revenues and expenses. Our opinion is not modified with respect to this matter.
/s/ KPMG LLP
Los Angeles, California
November 1, 2013




23



150 and 151 El Camino

Combined Statements of Revenues and Certain Expenses
Three-Months Ended March 31, 2013 (Unaudited) and the
Year Ended December 31, 2012

 
Three-Months Ended March, 2013 (unaudited)
 
Year Ended December 31, 2012
Revenues:
 
 
 
Rental income
$
189,000

 
$
2,268,000

Tenant recoveries and other income
39,000

 
528,000

Parking income
94,000

 
538,000

Total revenues
322,000

 
3,334,000

Certain expenses:
 
 
 
Property operating and maintenance
206,000

 
715,000

Property taxes and insurance
144,000

 
626,000

Total certain expenses
350,000

 
1,341,000

Revenues in (deficit)/excess of certain expenses
$
(28,000
)
 
$
1,993,000


See accompanying notes to combined statements of revenues and certain expenses.


24



Notes to 150 and 151 El Camino

Notes to Combined Statements of Revenues and Certain Expenses
Three-Months Ended March, 2013 (Unaudited) and the
Year Ended December 31, 2012

(1)
Basis of Presentation

The accompanying combined statements of revenue and certain expenses relate to the operations of 150 and 151 El Camino Drive (the “Properties”). The Properties are office buildings totaling approximately 120,000 rentable square feet, located in Beverly Hills, California. Kennedy-Wilson Holdings, Inc. purchased the properties on June 27, 2013 and wholly owns 151 El Camino and owns a 50% equity interest in the entity that owns 150 El Camino. The historical summaries are presented on a combined basis, as the Properties were under the common control of a third-party prior to acquisition.
The accompanying combined statements of revenue and certain expenses have been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and, accordingly, is not representative of the actual results of operations of the Properties for the three-months ended March 31, 2013 and the year ended December 31, 2012 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,
Federal and state income taxes, and
Mortgage interest expense since the Properties will be refinanced at the time of the change in ownership

Management is not aware of any material factors relating to the Properties 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 three-months ended March 31, 2013 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.
(3)
Minimum Future Lease Rentals

There are no lease agreements in place with tenants to lease space at the Properties as of April 1, 2013. Rental income for the three-months ended March 31, 2013 and the year ended December 31, 2012 relates to a single tenant that vacated the Properties in April 2013.

25





Notes to 150 and 151 El Camino

Notes to Combined Statements of Revenues and Certain Expenses
Three-Months Ended March 31, 2013 (Unaudited) and the
Year Ended December 31, 2012

(4)
Subsequent Events

Future results on 151 El Camino may not be comparable to prior results as it will not be an operating property on a go-forward basis.

The Company evaluated subsequent events through the date these financial statements were issued.


26




KENNEDY-WILSON HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA FINANCIAL INFORMATION

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, 2012 and the Company's Form 10-Q for the quarterly period ended June 30, 2013, as filed with the Securities and Exchange Commission.

The unaudited pro forma consolidated balance sheet as of June 30, 2013 has been prepared to give effect to the acquisition of 5161 Lankershim which was acquired on August 26, 2013. The acquisition of Summerhouse, Foothill Place, Redwood Shores, Mission Blvd and El Camino is already reflected in our consolidated balance sheet as of June 30, 2013.

The following unaudited pro forma consolidated statement of operations of the Company for the year ended December 31, 2012 and the consolidated statement of operations of the Company for six months ended June 30, 2013 have been prepared to give effect to the acquisitions of Summerhouse, Foothill Place, 5161 Lankershim, Redwood Shores, Mission Blvd and El Camino. The pro forma consolidated statements of operations assume that each acquisition had occurred on January 1, 2012.

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 Summerhouse, Foothill Place, 5161 Lankershim, Redwood Shores, Mission Blvd and El Camino 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 Summerhouse, Foothill Place, 5161 Lankershim, Redwood Shores, Mission Blvd and El Camino occurred on January 1, 2012 or (2) an estimate of the results of our operations as of any future date or for any future period, as applicable.

27



KENNEDY-WILSON HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2013
 
Kennedy-Wilson Holdings, Inc. (a)
 
5161 Lankershim
 
Company Pro Forma
 
 
 
 
 
 
Assets
 
 
 
 
 
Cash and cash equivalents
$
139,651,000

 
$
(8,006,000
)
(b)
$
131,645,000

Accounts receivable
7,384,000

 

 
7,384,000

Accounts receivable — related parties
22,170,000

 

 
22,170,000

Notes receivable
12,840,000

 

 
12,840,000

Notes receivable — related parties
8,552,000

 

 
8,552,000

Real estate, net of accumulated depreciation
488,435,000

 

 
488,435,000

Investments in joint ventures
694,664,000

 
8,006,000

(b)
702,670,000

Investments in loan pool participations
68,719,000

 

 
68,719,000

Other assets
46,867,000

 

 
46,867,000

Goodwill
23,965,000

 

 
23,965,000

Total assets
$
1,513,247,000

 
$

 
$
1,513,247,000

 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
Liabilities
 
 
 
 
 
Accounts payable
$
2,051,000

 
$

 
$
2,051,000

Accrued expenses and other liabilities
37,788,000

 

 
37,788,000

Accrued salaries and benefits
11,349,000

 

 
11,349,000

Deferred tax liability
12,720,000

 

 
12,720,000

Senior notes payable
409,348,000

 

 
409,348,000

Mortgage loans payable
318,813,000

 

 
318,813,000

Borrowings under line of credit
30,000,000

 

 
30,000,000

Junior subordinated debentures
40,000,000

 

 
40,000,000

Total liabilities
862,069,000

 

 
862,069,000

 
 
 
 
 
 
Equity
 
 
 
 
 
Common stock
7,000

 

 
7,000

Additional paid-in capital
663,575,000

 

 
663,575,000

Retained earnings (accumulated deficit)
(22,283,000
)
 

 
(22,283,000
)
Accumulated other comprehensive income
361,000

 

 
361,000

Total Kennedy-Wilson Holdings, Inc. shareholders' equity
641,660,000

 

 
641,660,000

Noncontrolling interests
9,518,000

 
 
 
9,518,000

Total equity
651,178,000

 

 
651,178,000

Total liabilities and equity
$
1,513,247,000

 
$

 
$
1,513,247,000


See accompanying notes to unaudited pro forma consolidated balance sheet.

28



KENNEDY-WILSON HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2013


(a) Reflects the historical consolidated balance sheet as of June 30, 2013, which is included in Kennedy-Wilson Holdings, Inc.'s previously filed Quarterly Report on Form 10-Q for the quarter ended June 30, 2013.

(b) Pro forma effect of the Company's acquisition of 5161 Lankershim, which the Company has a direct and indirect ownership interest in totaling 52.5% and is accounted for under the equity method, assuming the acquisition of 5161 Lankershim had occured on June 30, 2013. The equity method investment in 5161 Lankershim was made on August 26, 2013.




29



KENNEDY-WILSON HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2013
 
Kennedy Wilson Holdings, Inc. (a)
 
Summerhouse
 
Foothill Place
 
5161 Lankershim
 
Redwood Shores
 
Mission Blvd
 
El Camino
 
Company Pro Forma
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Management and leasing fees
$
9,463,000

 
$

 
$

 
$

 
$

 
$

 
$

 
$
9,463,000

Management and leasing fees - related party
17,313,000

 

 

 

 

 

 

 
17,313,000

Commissions
1,460,000

 

 

 

 

 

 

 
1,460,000

Commissions - related party
4,840,000

 

 

 

 

 

 

 
4,840,000

Sale of real estate
8,514,000

 

 

 

 

 

 

 
8,514,000

Rental and other income
16,762,000

 
2,535,000

(b)
1,861,000

(f)

 

 

 

 
21,158,000

Total revenue
58,352,000

 
2,535,000

 
1,861,000

 

 

 

 

 
62,748,000

Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commission and marketing expenses
1,834,000

 

 

 

 

 

 

 
1,834,000

Compensation and related expenses
31,884,000

 

 

 

 

 

 

 
31,884,000

Cost of real estate sold
7,002,000

 

 

 

 

 

 

 
7,002,000

General and administrative
11,814,000

 

 

 

 

 

 

 
11,814,000

Depreciation and amortization
7,472,000

 
(45,000
)
(d)
178,000

(g)

 

 

 

 
7,605,000

Rental operating expenses
7,685,000

 
702,000

(b)
515,000

(f)

 

 

 
197,000

(m)
9,099,000

Total operating expenses
67,691,000

 
657,000

 
693,000

 

 

 

 
197,000

 
69,238,000

Equity in joint venture income
11,576,000

 
(45,000
)
(c)

 
(247,000
)
(i)

(j)
116,000

(k)
(228,000
)
(l)
11,172,000

Interest income from loan pool participations and notes receivable
6,226,000

 

 

 

 

 

 

 
6,226,000

Operating income
8,463,000

 
1,833,000

 
1,168,000

 
(247,000
)
 

 
116,000

 
(425,000
)
 
10,908,000

Non-operating income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
167,000

 

 

 

 

 

 

 
167,000

Interest income - related party
72,000

 

 

 

 

 

 

 
72,000

Acquisition-related gain
9,459,000

 

 

 

 

 

 

 
9,459,000

Acquisition-related expenses
(510,000
)
 

 

 

 

 

 

 
(510,000
)
Interest expense    
(23,963,000
)
 
(983,000
)
(e)
(583,000
)
(h)

 

 

 
(205,000
)
(n)
(25,734,000
)
(Loss) income from continuing operations before benefit from (provision for) income taxes
(6,312,000
)
 
850,000

 
585,000

 
(247,000
)
 

 
116,000

 
(630,000
)
 
(5,638,000
)
Benefit from (provision for) income taxes
2,172,000

 
(338,000
)
(o)
(233,000
)
(o)
98,000

(o)

(o)
(46,000
)
(o)
251,000

(o)
1,904,000

Net (loss) income from continuing operations
(4,140,000
)
 
512,000

 
352,000

 
(149,000
)
 

 
70,000

 
(379,000
)
 
(3,734,000
)
Basic and diluted loss per share from continuing operation attributable to Kennedy-Wilson Holdings, Inc. common shareholders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
$
(0.06
)
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(0.06
)
Weighted average number of common shares outstanding
66,432,823

 
 
 
 
 
 
 
 
 
 
 
 
 
66,432,823


See accompanying notes to unaudited pro forma consolidated statement of operation.

30



KENNEDY-WILSON HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2013


(a) Reflects our historical consolidated statement of operations for the six month period ended June 30, 2013, which is included in Kennedy-Wilson Holdings, Inc.'s previously filed Quarterly Report on Form 10-Q for the quarter ended June 30, 2013.

(b) The historical consolidated statement of operations for the six month period ended June 30, 2013 includes the operating results of Summerhouse from March 28, 2013, the date Kennedy-Wilson Holdings, Inc. obtained control, through June 30, 2013. As such, the pro forma operating results of Summerhouse are from January 1, 2013 through March 27, 2013 based on historical operations.

(c) The historical consolidated statement of operations for the six month period ended June 30, 2013 includes equity in joint venture income for Summerhouse from January 1, 2013 through March 27, 2013. As such, the equity in joint venture income in Summerhouse has been removed from the consolidated statement of operations for the period from January 1, 2013 through March 27, 2013, assuming the acquisition had occurred on January 1, 2012.

(d) The historical consolidated statement of operations for the six month period ended June 30, 2013 includes depreciation and amortization expense for Summerhouse from March 28, 2013, the date Kennedy-Wilson Holdings, Inc. obtained control, through June 30, 2013. Depreciation and amortization expense includes $196,000 of monthly amortization related to $1,175,000 of identifiable intangible assets. Pro forma depreciation and amortization expense assumes the acquisition occurred on January 1, 2012 and as such the identifiable intangible assets would have been fully amortized during the year ended December 31, 2012. Therefore, it has been removed from the consolidated statement of operations for the six months ended June 30, 2013. Depreciation expense on the purchase price of the building is recognized using the straight-line method and a 40-year life.

(e) The historical consolidated statement of operations for the six month period ended June 30, 2013 includes interest expense for Summerhouse from March 28, 2013, the date Kennedy-Wilson Holdings, Inc. obtained control, through June 30, 2013. As such, the pro forma interest expense for Summerhouse, is from January 1, 2013 through March 27, 2013 based on historical operations.

(f) The historical consolidated statement of operations for the six month period ended June 30, 2013 includes the operating results of Foothill Place from April 30, 2013, the date Kennedy-Wilson Holdings, Inc. acquired the property, through June 30, 2013. As such, the pro forma operating results of Foothill Place are from January 1, 2013 through April 29, 2013 based on historical operations of the previous owner.

(g) The historical consolidated statement of operations for the six month period ended June 30, 2013 includes depreciation and amortization expense for Foothill Place from April 30, 2013, the date Kennedy-Wilson Holdings, Inc. acquired the property, through June 30, 2013. Pro forma depreciation and amortization expense for Foothill Place are from January 1, 2013 through April 29, 2013, assuming the acquisition had occurred on January 1, 2012. Depreciation expense on the purchase price of the building is recognized using the straight-line method and a 40-year life. Amortization expense of lease intangible costs is recognized using the straight-line method over the life of the lease.

(h) Pro forma interest expense on a $49,680,000 mortgage financing fixed at 3.58% per annum related to the acquisition of Foothill Place, assuming the borrowing was outstanding as of January 1, 2012.

(i) Pro forma results of 5161 Lankershim, which the Company has direct and indirect ownership interests in totaling 52.5% and is accounted for under the equity method, assuming the acquisition of 5161 Lankershim had occurred on January 1, 2012. This equity pick up includes the effect of all expected costs such as depreciation and amortization, interest expense, and other expenses that are excluded in the statements of revenues and certain expenses of the Property.

(j) Pro forma results of Redwood Shores, which the Company has direct and indirect ownership interests in totaling 52.5% and is accounted for under the equity method, assuming the acquisition of Redwood Shores had occurred on January 1, 2012. This equity pick up includes the effect of all expected costs such as depreciation and amortization, interest expense, and other expenses that are excluded in the statements of revenues and certain expenses of the Property. Equity in joint venture income was break even as of June 30, 2013.


31




KENNEDY-WILSON HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2013

(k) Pro forma results of Mission Blvd., which the Company has direct and indirect ownership interests in totaling 47.67% and is accounted for under the equity method, assuming the acquisition of Mission Blvd. had occurred on January 1, 2012.
This equity pick up includes the effect of all expected costs such as depreciation and amortization, interest expense, and other expenses that are excluded in the statements of revenues and certain expenses of the Property.

(l) Pro forma results of 150 El Camino, which the Company has direct ownership interests in totaling 50% and is accounted for under the equity method, assuming the acquisition of 150 El Camino had occurred on January 1, 2012. This equity pick up includes the effect of all expected costs such as depreciation and amortization, interest expense, and other expenses that are excluded in the statements of revenues and certain expenses of the Property.

(m) The historical consolidated statement of operations for the six month period ended June 30, 2013 includes the operating results of 151 El Camino from June 27, 2013, the date Kennedy-Wilson Holdings, Inc. acquired the property, through June 30, 2013. As such, the pro forma results of 151 El Camino are from January 1, 2013 through June 26, 2013 based on historical operations of the previous owner.

(n) Pro forma interest expense on a $18,650,000 mortgage financing at LIBOR + 2.00% per annum (LIBOR rate of 0.1932% at June 30, 2013) related to the acquisition of 151 El Camino, assuming the borrowing was outstanding as of January 1, 2012.

(o) Combined U.S. federal statutory and State of California income tax rates of 39.8%.



32



KENNEDY-WILSON HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATION
FOR THE YEAR ENDED DECEMBER 31, 2012
 
Kennedy Wilson Holdings, Inc. (a)
 
Summerhouse
 
Foothill Place
 
5161 Lankershim
 
Redwood Shores
 
Mission Blvd
 
El Camino
 
Company Pro Forma
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Management and leasing fees
$
15,795,000

 
$

 
$

 
$

 
$

 
$

 
$

 
$
15,795,000

Management and leasing fees - related party
24,509,000

 

 

 

 

 

 

 
24,509,000

Commissions
5,023,000

 

 

 

 

 

 

 
5,023,000

Commissions - related party
7,932,000

 

 

 

 

 

 

 
7,932,000

Sale of real estate
2,271,000

 

 

 

 

 

 

 
2,271,000

Rental and other income
8,526,000

 
10,583,000

(b)
5,532,000

(b)

 

 

 

 
24,641,000

Total revenue
64,056,000

 
10,583,000

 
5,532,000

 

 

 

 

 
80,171,000

Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commission and marketing expenses
4,550,000

 

 

 

 

 

 

 
4,550,000

Compensation and related expenses
55,834,000

 

 

 

 

 

 

 
55,834,000

Cost of real estate sold
2,230,000

 

 

 

 

 

 

 
2,230,000

General and administrative
19,448,000

 

 

 

 

 

 

 
19,448,000

Depreciation and amortization
4,937,000

 
2,882,000

(c)
1,383,000

(c)

 

 

 

 
9,202,000

Rental operating expenses
4,496,000

 
3,694,000

(b)
1,713,000

(b)

 

 

 
540,000

(k)
10,443,000

Total operating expenses
91,495,000

 
6,576,000

 
3,096,000

 

 

 

 
540,000

 
101,707,000

Equity in joint venture income
21,527,000

 
(1,737,000
)
(d)

 
1,144,000

(g)
(479,000
)
(h)
5,000

(i)
783,500

(j)
21,243,500

Interest income from loan pool participations and notes receivable
9,256,000

 

 

 

 

 

 

 
9,256,000

Operating income (loss)
3,344,000

 
2,270,000

 
2,436,000

 
1,144,000

 
(479,000
)
 
5,000

 
243,500

 
8,963,500

Non-operating income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
133,000

 

 

 

 

 

 

 
133,000

Interest income - related party
2,805,000

 

 

 

 

 

 

 
2,805,000

Acquisition related gains
25,476,000

 

 

 

 

 

 

 
25,476,000

Gain on sale of marketable securities
4,353,000

 

 

 

 

 

 

 
4,353,000

Acquisition related expenses
(675,000
)
 

 

 

 

 

 

 
(675,000
)
Interest expense    
(28,595,000
)
 
(2,649,000
)
(e)
(1,779,000
)
(f)

 

 

 
(409,000
)
(l)
(33,432,000
)
Income (loss) from continuing operations before benefit from (provision for) income taxes
6,841,000

 
(379,000
)
 
657,000

 
1,144,000

 
(479,000
)
 
5,000

 
(165,500
)
 
7,623,500

Benefit from (provision for) income taxes
208,000

 
151,000

(m)
(261,000
)
(m)
(455,000
)
(m)
191,000

(m)
(2,000
)
(m)
66,000

(m)
(102,000
)
Income (loss) from continuing operations
7,049,000

 
(228,000
)
 
396,000

 
689,000

 
(288,000
)
 
3,000

 
(99,500
)
 
7,521,500

Basic and diluted loss per share from continuing operations attributable to Kennedy-Wilson Holdings, Inc. common shareholders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
$
0.13

 
 
 
 
 
 
 
 
 
 
 
 
 
$
0.14

Weighted average number of common shares outstanding
55,285,833

 
 
 
 
 
 
 
 
 
 
 
 
 
55,285,833


See accompanying notes to unaudited pro forma consolidated statement of operation.

33



KENNEDY-WILSON HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012


(a) Reflects our historical consolidated statement of operations for the year ended December 31, 2012, which is included in Kennedy-Wilson Holdings, Inc.'s previously filed Annual Report on Form 10-K for the year ended December 31, 2012.

(b) Pro forma operating results of Summerhouse and Foothill, assuming the acquisition had occurred on January 1, 2012, based on the historical operations of the previous owner.

(c) Pro forma depreciation and amortization expense for Summerhouse and Foothill, assuming the acquisitions had occurred on January 1, 2012. Depreciation expense on the purchase price of the building is recognized using the straight-line method and a 40-year life. Amortization expense of lease intangible costs is recognized using the straight-line method over the life of the lease.

(d) The historical consolidated statement of operations for the year ended December 31, 2012 includes equity in joint venture income for Summerhouse. As such, the equity in joint venture income in Summerhouse has been removed from the consolidated statement of operations for the year ended December 31, 2012, assuming the acquisition had occurred on January 1, 2012.

(e) Pro forma interest expense of Summerhouse, assuming the acquisition had occurred on January 1, 2012, based on the historical operations.

(f) Pro forma interest expense on a $49,680,000 mortgage financing fixed at 3.58% per annum related to the acquisition of Foothill Place, assuming the borrowing was outstanding as of January 1, 2012.

(g) Pro forma results of 5161 Lankershim, which the Company has direct and indirect ownership interests in totaling 52.5% and is accounted for under the equity method, assuming the acquisition of 5161 Lankershim had occurred on January 1, 2012. This equity pick up includes the effect of all expected costs such as depreciation and amortization, interest expense, and other expenses that are excluded in the statements of revenues and certain expenses of the Property.

(h) Pro forma results of Redwood Shores, which the Company has direct and indirect ownership interests in totaling 52.5% and is accounted for under the equity method, assuming the acquisition of Redwood Shores had occurred on January 1, 2012. This equity pick up includes the effect of all expected costs such as depreciation and amortization, interest expense, and other expenses that are excluded in the statements of revenues and certain expenses of the Property.

(i) Pro forma results of Mission Blvd., which the Company has direct and indirect ownership interests in totaling 47.67% and is accounted for under the equity method, assuming the acquisition of Mission Blvd. had occurred on January 1, 2012. This equity pick up includes the effect of all expected costs such as depreciation and amortization, interest expense, and other expenses that are excluded in the statements of revenues and certain expenses of the Property.

(j) Pro forma results of 150 El Camino, which the Company has direct ownership interests in totaling 50% and is accounted for under the equity method, assuming the acquisition of 150 El Camino had occurred on January 1, 2012. This equity pick up includes the effect of all expected costs such as depreciation and amortization, interest expense, and other expenses that are excluded in the statements of revenues and certain expenses of the Property.

(k) Pro forma results of 151 El Camino, assuming the acquisition had occurred on January 1, 2012, based on historical operations of the previous owner.

(l) Pro forma interest expense on a $18,650,000 mortgage financing at LIBOR + 2.00% per annum (LIBOR rate of 0.1932% at June 30, 2013) related to the acquisition of 151 El Camino, assuming the borrowing was outstanding as of January 1, 2012.

(m) Combined U.S. federal statutory and State of California income tax rates of 39.8%.


34




SIGNATURES
 
 
 
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
KENNEDY-WILSON HOLDINGS, INC.
 
 
 
By:    
/s/ JUSTIN ENBODY
 
Justin Enbody
 
 
 
 
Chief Financial Officer
 
 
 
 
 
 
 
 
Date: November 1, 2013
 
 
 


35