Most companies that own a portfolio of income-generating real estate chose to become a real estate investment trust (REIT) for tax purposes. That structure has benefits (they don't pay federal income taxes at the corporate level) and drawbacks (they must distribute 90% of their taxable earnings to shareholders, reducing their ability to retain earnings). While that trade-off is worth it for most commercial real estate investors, some companies find it too limiting.
Kennedy Wilson (NYSE: KW) is in that latter group. Here's a closer look at this unique real estate investment company.
Kennedy Wilson Holdings company profile
Kennedy Wilson is a global real estate investment company. It owns, operates, and invests directly in real estate as well as through its investment management platform. Overall, it has $18 billion under management across 322 assets, including 30,200 multifamily units and 21.7 million square feet of commercial real estate. Most of its properties are in the Western U.S., the U.K., and Ireland.
The bulk of Kennedy Wilson's income stems from its consolidated portfolio consisting primarily of wholly-owned real estate investments. As of the end of 2021's first quarter, Kennedy Wilson owned 9,109 multifamily units, 7.1 million square feet of commercial space, and one hotel. These assets generate $279.6 million of annual net operating income (NOI), 72% of the total.
The company also makes two types of coinvestments:
- ~50% owned: These consist primarily of 50/50 investments with partners and its Vintage Housing joint venture. This portfolio had 12,065 multifamily units and about 800,000 square feet of commercial space producing $78 million of annual NOI, 20% of the total.
- Minority-owned: The company also makes fund investments, loans, and other minority-owned investments. These coinvestments included stakes in 4,308 multifamily units, 11.5 million square feet of commercial space, one hotel, and 18 loan investments, which generated $31.1 million of annual NOI, 8% of the total.
Kennedy Wilson's coinvestments generate income from its ownership stakes in those properties. On top of that, they produce asset management fees and promote income. Overall, the company had $4.1 billion in fee-bearing capital under management.
In addition to those stabilized, income-generating properties, Kennedy Wilson had nearly $1.5 billion of assets in the lease-up phase and under development. These investments included office buildings, multifamily units, mixed-use space, a hotel, and retail properties.
Kennedy Wilson has a diversified real estate portfolio. It owns properties in the multifamily (48% of NOI), office (34%), and retail (13%) sectors as well as hotels, loans, and industrial investments (5% of NOI). These investments are in the Western U.S. (58% of NOI), U.K. (19%), Ireland (19%), and Italy and Spain (4%).
Kennedy Wilson Holdings news
The pandemic impacted Kennedy Wilson's global real estate platform in 2020. While its rental collection rate was solid at 96% for the year, it did experience lower receipts from retail tenants at 80% of what the company billed. In addition, the company experienced lower occupancy across its commercial portfolio as well as the pandemic-related impact on its hotel investments. Ultimately, these factors weighed on its earnings.
Despite those headwinds, the real estate company had several notable accomplishments last year. For instance, it grew its fee-bearing capital by 30% by securing several new partners -- including a $1 billion urban logistics platform in Europe via a joint venture with Singapore's sovereign wealth fund.
Kennedy Wilson also grew its debt platform to $788 million by completing $622 million of loan investments last year. Finally, the company recycled capital by cashing in on prior investments and reinvesting the proceeds into new opportunities.
Kennedy Wilson got 2021 off to a strong start, growing its adjusted EBITDA by 14% during the first quarter, driven by its investment management business expansion. The company increased its fee-bearing capital by another 5% to $4.1 billion during the period as it continued expanding its U.S. debt and European logistics platforms.
The real estate company also continued to enhance its portfolio. For example, it bought three existing apartment communities with 640 units as well as an opportunity zone development site entitled for 240 units in the Boise, Idaho, region for $143 million. Kennedy Wilson also purchased a 344-unit apartment community in Albuquerque, New Mexico, for $65 million.
In addition, the company acquired two Class A office buildings in London for a total of $318.2 million. Kennedy Wilson also launched a $1.5 billion multifamily platform with a global institutional investor, selling a 49% interest in nine formally wholly-owned properties in the Western U.S. at an $800 million valuation.
Kennedy Wilson Holdings stock price
Kennedy Wilson's global real estate investment strategy hasn't generated superior returns for its investors in recent years: