Kennedy-Wilson Holdings

Transcription

1 N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A Equity Research June 16, 2015 Mark Palmer (212) Giuliano Bologna (212) Financials Kennedy-Wilson Holdings Initiating at Buy with a $32 PT; Inexpensive KW Offers Underappreciated Growth and European Upside We are initiating coverage of Kennedy-Wilson Holdings (KW) with a Buy rating and a price target of $32 based on our Net Asset Value (NAV) analysis. We believe that KW stock is inexpensive and offers investors a unique opportunity to benefit from company s expertise in investing in global real estate assets. KW $ month target $32.00 Upside 26.4% BUY 52 week range $ $28.09 Market Cap (m) $2,816 Price Performance Source: IDC We believe KW s ability to generate value for shareholders is underappreciated. Notably, in 2014 KW grew Adjusted EBITDA by 100% year-over-year to $318mm. Since 2009, KW has produced an adjusted EBITDA CAGR of 59%. We estimate that KW will generate FY15 adjusted EBITDA of $294.7mm. KW s assets are held on the company s balance sheet at cost and, as a result, the book value of these assets is not reflective of their market value. As of 1Q15, the KW s interest in its multifamily portfolio is held at an approximate cap rate of 6.6%, and its interest in its commercial portfolio is held an approximate cap rate of 6.2%. In contrast to REITs that are forced to return 90% of their income to investors through a dividend, KW has the ability to reinvest capital generated by their operating businesses and investments. On February 28, 2014 KW closed the IPO of Kennedy Wilson Europe Real Estate (LSE: KWE), an investment vehicle created to take advantage of investment opportunities in the European real estate market. KWE has invested $3.2bn to date in assets at an average yield of 7.1%. This structure provides KW with exposure to attractively priced European real estate assets. Valuation: Our price target of $32 per share for KW is based on our NAV analysis. Estimates 1Q14 A 2Q14 A 3Q14 A 4Q14 A FY14 A 1Q15 A 2Q15 E 3Q15 E 4Q15 E FY15 E FY16 E EBITDA (Adj.) Diluted EPS (Adj.) (0.02) (0.34) 0.15 (0.04) 0.33 (0.09) (0.08) Source: BTIG Research Estimates and Company Documents ($ in millions, except per share amount) Please Read: Important disclosures and analyst s certification appear in Appendix

2 KWE s management fee structure is highly beneficial to KW, which is entitled to receive a management fee based on the NAV of KWE plus a performance fee tied to the performance of KWE s investments above a certain threshold. This favorable structure is in contrast to traditional fee structures that are almost entirely based on asset performance in a given time period. As a full service real estate investment and services company, KW has unique advantages over other real estate investment firms. The company has been able to source attractive off-market acquisitions, invest in real estate assets and generate fee income through its services business. KW s current management team has been with the company since CEO William McMorrow has an exemplary track record of leading the company and producing significant returns for shareholders. Additionally, management s significant ownership of KW shares aligns its interests with those of shareholders. Senior management owns a combined 17.74% of the outstanding shares, with McMorrow owning 14,100,513 shares, or 12.49% of the outstanding shares. KW creates value through active portfolio management and repositioning of assets. The company also takes advantage of the capital markets to optimize their capital structures of their investment assets, resulting in significant net operating income (NOI) increases and the ability to take cash out of certain investments. As the manager of many investment vehicles in which it has coinvestors, KW is entitled to promoted interests. These interests can generate value for KW above their ownership interest in these funds if KW is able to generate returns above a stated threshold. In some cases, KW can acquire assets at a discounted price when they are owed promoted interests for their performance. Such acquisitions increase KW s ownership percentage in its managed portfolio. The company owns a 32% interest in its managed portfolio, and we believe it will increase its ownership in these funds over time. Investment Thesis and Analysis We believe KW offers investors an attractive risk/reward, and that the IPO of Kennedy-Wilson Europe should generate significant shareholder value over the next couple of years. Most notably, KWE will provide KW with an opportunity to take advantage of distortions in the European markets including situations in which financial institutions are forced to sell assets. These discounted purchases should generate significant returns for shareholders over the coming years as KW repositions these assets. KW screens poorly due to the complex nature of its investment partnerships and the fact that its inherent value is not fully reflected in its GAAP results. At 1Q15, KW s book value per share stood at $11.53 and, as a result, the company s shares appear expensive relative to book value. However, when 2

3 KW s assets are valued independently, the result is a significantly higher value than is represented on the company s GAAP balance sheet. KW generates value for shareholders by increasing assets under management (AUM) and creating value in its investment account. As an alternative asset manager, KW generates value for shareholders by growing AUM and generating returns in the company s investment account. Since 2009, KW s AUM and investment account have grown at a CAGR of 26% and 51%, respectively. KW s AUM has increased 9.7% since 1Q14 to $18.1bn, since 1Q14. The company s AUM trend is supported by KWE s rapid deployment of capital. In 1Q15, KWE deployed approximately $800mm of capital to acquire assets in Europe. Additionally, KW s AUM growth increases its fee income through management and performance fees paid for its services as investment and property manager. Many of KW s assets are held at cost and are therefore not reflective of their market value. NOI growth should continue to drive appreciation in KW s investment account. During 1Q15, KW s same-property NOI increased 11% for multifamily properties and 6% for commercial properties. The company s ability to invest in its current asset base provides it with organic growth. Unlike most asset managers, KW does not mark its book to market, and instead holds the majority of its assets at cost. As discussed above, same property NOI increased year over year. This type of performance should result in higher asset values for those assets even as they are still held at cost. 3

4 As of 1Q15, KW s multifamily portfolio was held in its investment account at $522.7mm at a cap rate of approximately 6.6%. KW s commercial portfolio at $533.4mm in 1Q15 at a cap rate of approximately 6.2%; on a blended basis, these assets are held at a 6.4% cap rate. The table below shows our estimate of the value of KW s investments in multifamily and commercial assets at various cap rates. At a 6.0% cap rate, the value of KW s portfolio is worth $528.8mm more than where it is currently marked on KW s balance sheet, a difference that equates to $4.75 of additional value per share. Additional Value Cap Rate Assumed Value Additional Value Per Share 5.5% $8,772.7 $1,259.9 $ % $8,616.1 $1,103.3 $ % $8,464.9 $952.1 $ % $8,319.0 $806.1 $ % $8,178.0 $665.1 $ % $8,041.7 $528.8 $ % $7,909.8 $397.0 $ % $7,782.3 $269.4 $ % $7,658.7 $145.9 $ % $7,539.1 $26.2 $ % $7,423.1 ($89.7) ($0.81) 6.6% $7,310.6 ($202.2) ($1.82) 6.7% $7,201.5 ($311.3) ($2.80) Source: BTIG Research and Company Documents KW also has investments in Residential, Hotel, Discounted Loan Purchases, Loan Originations and Other Assets. As of 1Q15, those assets had a combined book value in KW s investment account of $475.6mm. As is the case with all of KW s assets, these investments are held on the balance sheet at cost minus depreciation. On the loan side, most of the loans that KW purchases are based on the underlying value of the collateral, not the unpaid principal balance (UPB) of the loan. 4

5 The table below shows our estimate of the value of KW s investments in hotel, residential and loan assets. At 1.6X book value, KW s portfolio is worth $285.4mm more than where it is marked on KW s balance sheet, equating to $2.57 of additional value per share. Additional Value Multiple Assumed Value Additional Value Per Share 1.0X $475.6 $0.0 $ X $523.2 $47.6 $ X $570.7 $95.1 $ X $618.3 $142.7 $ X $665.8 $190.2 $ X $713.4 $237.8 $ X $761.0 $285.4 $ X $808.5 $332.9 $ X $856.1 $380.5 $ X $903.6 $428.0 $ X $951.2 $475.6 $4.28 Source: BTIG Research and Company Documents KW s local experience and knowledge in various countries generates significant opportunities unavailable to most non-local companies. A significant portion of KW s deal flow comes from off-market transactions that typically would only be available to local companies. KW has relationships with financial institutions in most of the markets in which it operates, and it sources a significant quantity of its assets from these institutions. One of KW s criteria for entering a market is the presence of an established banking and financial system. True to this criterion, KW has a footprint in the U.S., Japan and select European countries. KW is often able to acquire stressed or distressed real estate assets from financial institutions in these markets. These transactions are very attractive for KW insofar as it can use its fullservice platform to reposition the acquired assets and thereby enhance their value. Once repositioned, KW has the ability to hold these assets on its balance sheet for its benefit, or to sell them if they believe they can earn an attractive return by doing so. KW s global footprint provides it with the ability to deploy and redeploy capital to maximize returns. KW has the ability to shift capital by disposing of assets at attractive prices in one market and then acquiring assets with better relative value in another market. Coupled with KW s ability to invest and reposition assets, it has been able to buy high cap rate investments while selling ones with lower cap rates. 5

6 Since the IPO of KWE, the majority of KW s acquisitions have been focused in Europe, specifically in U.K., Ireland and Spain. In 1Q15, KWE closed $820mm of acquisitions versus $173mm for KW in the U.S. This is largely due to KW s belief that it will be able to generate significant returns by purchasing and repositioning assets in the European market. The shift in KW s investment focus to Europe should provide investors with significant returns that the company likely would not be able to generate in its core market on the West Coast. In 1Q15, the company sold $225mm of assets at a 4% average cap rate and acquired $920mm of assets at an average cap rate of 7%. Management plans to sell over $1bn of assets in This type of activity, in which the company sells assets at high valuations and purchases assets at lower valuations, is accretive to shareholder value. This approach is a significant positive for shareholders as the company typically generates large gains on the sales of these assets. A recent example of one of these portfolio manoeuvres began with KW s sale of its interest in a Japanese multi-family portfolio for $100mm that closed on June 1. This resulted in a cash profit of approximately $64mm. At about the same time, KW acquired an interest in Vintage Housing Holdings, LLC (VHH), a portfolio of multi-family properties on the West Coast, for $85mm. KW s interest in VHH will stand at 62% versus 41% for the Japanese portfolio, and the VHH portfolio has 5,485 units vs. 2,410 units for the Japanese portfolio. VHH will also produce a larger NOI than the Japanese portfolio. KW s full-service platform enables it to more efficiently source deals, generate fee income. KW s full-service platform provides investors with exposure to real estate investments as well as fees from the company s services business. This internal hedge is beneficial to KW as it grows its services platform and generates significant fee income growth to the benefit of investors in the capital-light business. An example of KW s generation of fee income arose from the previously noted sale of a Japanese investment. As part of the sale, KW will continue to service the assets which it sold for a fee that will be paid by the purchaser of these assets. Not only was the asset sale extremely profitable for KW, but it will also be able to leverage its platform to generate fees beyond the value it has have already created for shareholders. Additionally, KW will continue to maintain a team on the ground in Japan. This is important since they will be in a position to take advantage of any potential opportunities in the Japanese market as they arise. Unlike other competitors who don t have a team on the ground, KW has advantages with their experience, ability to move quickly and utilize their full suite of services to source profitable acquisitions for shareholders. 6

7 Valuation Our price target of $32 per share is based on our NAV analysis in the table below. We are valuing KW s multifamily investments at a 4.5% cap rate, its commercial investments at a 6.0% cap rate, its residential, hotel and loan book at 1.6X book value, and its services business at a 12X multiple we also back out the negative value from holding company debt. As part of this analysis, we are assuming that KW s interest in the multifamily and commercial portfolios will increase by 200bps, by YE16 due to the company s promoted interest in its investment funds. Our total estimated value for these assets is $31.72 per share. Multifamily Investments Holding Company 2016E Multifamily NOI $262.9 Holding company cash $195.0 Cap rate 4.5% Holding company debt -$702.4 Asset value $5,843.1 Holding company value -$507.4 Debt $2,181.5 KW interest 46.6% Value per share -$4.56 KW share of value $1,706.3 Services Business Value per share $15.34 Services income $64.8 Services multiple 12X Commercial Investments Addumed value $ E Commercial NOI $294.3 Cap rate 6.0% Value per share $6.99 Asset value $4,905.2 Debt $2,205.5 Total NAV per KW share $31.72 KW interest 29.3% KW share of value $791.0 Assumed diluted shares Value per share $7.11 Residential, Hotel & Other Investments KW Residential book value $180.7 KW Hotel loan book value $139.6 KW Discounted loan book value $106.4 KW Loan origination book value $ Total book value $475.6 Multiple 1.6X Assumed value $ Value per share $6.84 Risks to Our Valuation Global economic environment. As a global real estate investment and services company, KW is exposed to various markets and is exposed to fluctuations in numerous economies. It is particularly vulnerable to a global recession that could adversely impact the value of its investments around the world. 7

8 A continued recession in Europe. KW has recently shifted the majority of its capital investments to the European real estate market. As a result, it s vulnerable to disruptions in the European economies that could render some of its investments less profitable than originally expected, create losses on acquired assets, and make it difficult for the company to sell assets. Disruption in the capital markets. Both Kennedy Wilson and its investment partnerships rely on access to the capital markets to manage their capital and invest to reposition assets. If Kennedy Wilson was not able to access the capital markets, it would be unable to use leverage to generate the types of returns it has historically earned. Key-man risk. CEO William McMorrow and President and CEO of Kennedy- Wilson Europe Mary Ricks, are critical executives for KW. McMorrow and Ricks joined the company in 1988 and 1990, respectively. Under their leadership, KW has been able to generate significant shareholder value largely as a result of their relationships and experience. If either of them were to leave the company, KW s future results c0uld be adversely impacted. Ability to source profitable investment opportunities. KW s ability to generate positive returns on investment is dependent on its ability to source profitable investment to deploy capital. If KW is not able to source sufficient investment opportunities, its income may be adversely impacted. Company Overview Kennedy-Wilson Holdings (NYSE: KW) was founded in 1977 as an auction company and has operated for over 37 years as a real estate services company. As of YE14, KW had over 450 employees and had offices in the United States, the United Kingdom, Ireland, Jersey, Spain and Japan. Kennedy Wilson is an integrated global real estate investment and services company with $18.1bn of assets under management as of March 31. KW s business model is to identify countries and markets in which there are attractive investment opportunities. The company builds out operating platforms and services businesses in target markets, and develops relationships and local knowledge. KW acquires assets either on its own or with strategic partners utilizing the firm s capital to generate attractive returns on investment. In many cases, the company will invest in and reposition assets after acquisition to create value for shareholders and co-investors. In addition to its investments, KW also operates a real estate services business that manages over 68mm square feet managed for the company and third party clients. 8

9 The company composed of two separate business units, KW Investments and KW Services: KW Investments is an integrated investments platform that focuses on real estate investments. Investments are made using the company s assets or through commingled funds, joint ventures and separate accounts. As of March 31, the balance of KW s investment account was $1.6bn, or 32% of the company s $9.5bn portfolio. The asset classes in which KW Investments invests are the following: Multifamily KW owns interests in 20,721 multifamily apartment units across 105 properties primarily on the West Coast of the United States, Ireland and Japan. Commercial KW owns interests in 127 commercial properties with over 14mm square feet located in the U.S., U.K., Ireland and Japan. Loan Originations / Discounted Loan Purchases As of December 31, KW s discounted loan portfolio had current Unpaid Principal Balance (UPB) of $1.1bn. KW s loan origination portfolio had UPB of $48.6mm, with an average interest rate of 10.1%. Hotel, Residential and Other KW was invested over 4,200 acres, 177 residential units, 619 lots and 975 hotel rooms as of march 31. KW Services provides investment and property management services for the company s sponsored investments and third-party owners of real estate, real estate auction, sales and research services. The services business generates significant deal flow by leveraging the company s relationships. KW Services has assets under management that include over 68mm square feet of properties and other assets for the company and external clients in the U.S., Europe and Japan. In February 2014, KW closed its IPO of Kennedy Wilson Europe Real Estate plc (LSE: KWE) and closed a follow on offering, thereby raising a total of $2.2bn in gross proceeds. KWE is listed on the London Stock Exchange s main market and was the second largest real estate IPO in the U.K. ever. KWE is externally managed by one of KW s wholly owned subsidiaries, KWE Manager which is entitled to receive management and performance fees. KWE Manager receives a 1% annual management fee based on KWE s adjusted net asset value. The management fee is paid quarterly, and one quarter in arrears. This fee is paid 50% in cash and 50% in shares of KWE. In addition to the management fee, KWE manager is also entitled to receive a performance fee equal to 20% of the lesser of: (i) excess of the shareholder return for the relevant year over a 10% annual return rate. (ii) excess year-end adjusted net asset value per ordinary share over a high water mark. The performance fees are payable in stock only and vest in equal increments over a three-year period. 9

10 Since the end of 1Q15, KWE had made a couple important transactions: On May 14, KWE announced the acquisitions of Plaza Puerta Del Sol 9 in Madrid. The company closed the acquisition for a total consideration of 30mm. The property 24,700 square feet and is spread over six stories. KWE plans to invest approximately 10mm to refurbish the property. The acquisition is a prime example of the type of investments that KW makes, it acquired an asset out of receivership that is in need of capital investment in order to reposition it and thereby create value for KWE s shareholders. Additionally, KWE leased out Baggot Plaza to Bank of Ireland for 25 years. This is another example of a value added transaction that KW has achieved. In addition to this lease deal, KW is building an additional 37,700 square feet that are already fully leased out. As part of this transaction, KW repositioned an asset, found a large tenant and fully leased their expansion plan before beginning construction. Kennedy Wilson Management William J. McMorrow, Chairman and Chief Executive Officer. McMorrow joined the company in 1988 and has been Chairman and CEO of the company since. Prior to joining KW, McMorrow was the Executive Vice President and Chairman of the Credit Policy Committee at Imperial Bancorp, he has also held senior positions with multiple other financial services companies, including eight years as a Senior Vice President of Fidelity Bank. McMorrow serves on the board of directors of Kennedy Wilson Europe Real Estate plc (KWE). Justin Enbody, Chief Financial Officer. Enbody has served as Chief Financial Officer of KW since He joined the company as Controller in 2009 before becoming Chief Financial Officer. Prior to joining the company, Enbody was a senior consultant with RAFS Inc., an independent financial consulting company which he joined in Prior to RAFS, he was a senior associate with KPMG LLP. Mary L. Ricks, President and CEO of Kennedy Wilson Europe. Ricks joined KW in Before assuming her current role at KWE, she headed KW s commercial investment since Prior to joining the company, Ricks was a commercial broker at the Hanes Company. Matt Windisch, Executive Vice President. Windisch joined the company in 2006 and heads the company s U.S. note business and its real estate activities in Japan. In addition, Windisch leads the company s corporate transaction capital raising, strategic planning and acquisitions analysis activities. He is also responsible for maintaining KW s key investor and banking relationships. He also serves on the boards of the company s subsidiaries in Ireland and Japan. He serves as Co- Chairman of the company s Investment Committee. Prior to joining the company, Windisch was an associate at JP Morgan Chase. Kent Y. Mouton, Executive Vice President and General Counsel. Mouton joined KW in 2011 as General Counsel. Prior to this position, he served as a director of the company since 1995 and currently serves on the investment committee. Prior to 10

11 joining the company, Mouton was co-owner and managing partner of Kulik Gottesman, Mouton & Siegel LLP, a real estate, business and entertainment law firm in Los Angeles. In Ku Lee, Senior Vice President and Deputy General Counsel. Lee joined KW in 2013 as Deputy General Counsel and Secretary. He is in charge of all of the company s public company regulatory and corporate governance matters and currently serves as the Chief Compliance Officer of KW Investment Adviser, LLC. Prior to joining the company, Lee served as global corporate counsel at SK Telecom / SK Planet from 2011 to Prior to SK Telecom / SK Planet, he was a senior associate at Latham & Watkins LLP. 11

12 Income Statement Kennedy-Wilson - Operating Model Mar-13 Jun-13 Sep-13 Dec-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Dec-15 Dec-16 $ millions 1Q13A 2Q13A 3Q13A 4Q13A 2013A 1Q14A 2Q14A 3Q14A 4Q14A 2014A 1Q15A 2Q15E 3Q15E 4Q15E 2015E 2016E Total revenue Operating expenses General and administrative Depreciation and amortization Total Operating expenses Income from unconsolidated investments Operating income (2.6) (2.6) 15.3 (6.5) Gain on sale of real estate Acquisition-related gains Acquisition-related expenses - (0.5) - (1.1) (1.6) (4.0) (7.6) (5.3) (2.8) (19.7) (18.1) (18.1) - Interest expense (11.4) (12.5) (13.1) (14.6) (51.6) (15.8) (25.8) (29.7) (33.6) (104.9) (32.4) (32.9) (33.3) (33.9) (132.5) (139.5) Early extinguishment of corporate debt (25.8) (25.8) Other income (expense) (2.3) (1.9) (1.9) Income before provision for (benefit from) taxes (4.3) (1.8) (2.0) (28.9) (12.4) 61.7 (4.9) (5.0) Provision for (benefit from) taxes (0.8) (4.3) (2.9) (8.8) (25.4) (6.6) 8.4 (32.4) 8.1 (18.5) (7.4) (14.0) Net income (2.6) (1.3) (2.8) (3.0) (20.5) 90.1 (4.3) 43.2 (3.4) (3.5) Net income (loss) attributable to noncontrolling interests (22.9) (20.3) (37.4) (25.3) 2.8 (8.3) (68.2) 2.8 (4.5) (4.5) (4.5) (10.8) (18.4) Preferred stock dividend and accretion of issuance costs (2.0) (2.1) (2.0) (2.0) (8.1) (2.0) (2.1) (2.0) (2.0) (8.1) (2.0) (2.0) (0.5) (0.5) (5.0) (2.0) Net income (loss) attributable to KW shareholders (3.6) (2.5) (4.1) (4.3) (14.5) (2.2) (30.8) 13.8 (3.5) 36.7 (8.5) (8.5) Diluted EPS -$0.06 -$0.04 -$0.06 -$0.05 -$0.20 $0.12 $0.36 -$0.02 -$0.34 $0.15 -$0.04 $0.33 -$0.09 -$0.08 $0.15 $0.13 Common shares outstanding Diluted shares outstanding Net income (2.6) (1.3) (2.8) (3.0) (20.5) 90.1 (4.3) 43.2 (3.4) (3.5) Interest expense Early extinguishment of corporate debt KW's share of interest to unconsolidated investments Depreciation and amortization KW's share of D&A included in unconsolidated investments (Benefit from) provision for income taxes (1.7) (0.5) (8.4) 32.4 (8.1) 18.5 (1.5) (1.5) EBITDA Share based compensation EBITDA attributable to noncontrolling interests - (0.8) (0.6) (24.4) (25.8) (40.1) (41.6) (21.6) (35.1) (138.3) (25.4) (30.5) (30.8) (31.1) (117.8) (127.5) Adjusted EBITDA Source: BTIG Research Estimates and Company Documents Balance Sheet 12

13 Kennedy-Wilson - Balance Sheet Dec-12 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Dec-14 Mar-15 $ millions 2012A 2013A 1Q14A 2Q14A 3Q14A 4Q14A 2014A 1Q15A Cash and cash equivalents Cash held by consoliodated investments , Accountingreceivable Real estate and acquired in place lease values , , , , , ,776.4 Unconsolidated investments Loans Other assets Total assets 1, , , , , , , ,680.6 Accounts payable Senior notes payable Investment debt , , , , ,672.7 Line of credit Junior subordinated Total liabilities , , , , , ,617.4 Cummulative preferred Common stock Additional paid in capital ,182.5 Retained earnings (accumulated deficit) (5.9) (42.2) (39.9) (11.8) (22.6) (62.0) (62.0) (78.0) Accumulated other comprehensive income (loss) (13.2) (28.2) (28.2) (48.5) Shares held in treasury (9.8) Total KW shareholders' equity ,056.0 Noncontrilling interests , , , , , ,007.2 Total equity , , , , , ,063.2 Total liabilities and equity 1, , , , , , , ,680.6 Source: BTIG Research Estimates and Company Documents 13

14 Appendix: Analyst Certification and Other Important Disclosures Analyst Certification I, Mark Palmer, hereby certify that the views about the companies and securities discussed in this report are accurately expressed and that I have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report. I, Giuliano Bologna, hereby certify that the views about the companies and securities discussed in this report are accurately expressed and that I have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report. Regulatory Disclosures Analyst Stock Ratings Definitions BTIG LLC s ( BTIG ) ratings, effective May 10, 2010, are defined as follows: BUY A stock that is expected at initiation to produce a positive total return of 15% or greater over the 12 months following the initial recommendation. The BUY rating may be maintained following initiation as long as it is deemed appropriate, notwithstanding price fluctuations that would cause the target to fall outside of the 15% return. SELL A stock that is expected at initiation to produce a negative total return of 15% or greater over the next 12 months following the initial recommendation. The SELL rating may be maintained following initiation as long as it is deemed appropriate, notwithstanding price fluctuations that would cause the target to fall outside of the 15% return. NEUTRAL A stock that is not expected to appreciate or depreciate meaningfully over the next 12 months. NOT RATED A stock that is not rated but that is covered by BTIG. Distribution of Ratings and Investment Banking Clients BTIG must disclose in each research report the percentage of all securities rated by the member to which the member would assign a buy, neutral or sell rating. The said ratings are updated on a quarterly basis. BTIG must also disclose the percentage of subject companies within each of these three categories for whom the member has provided investment banking services within the previous twelve months. Below is the distribution of BTIG s research recommendations. BUY: 57% NEUTRAL: 39% SELL: 4% Stocks in coverage as of the end of the most recent calendar quarter (March 31, 2015):

15 The percentage of Investment banking services is calculated as of March 31, Distribution of investment Banking Relationships: BUY: 83% NEUTRAL: 17% SELL: 0% For purposes of FINRA ratings distribution rules, BTIG s stock ratings of Buy, Neutral and Sell fall into Buy, Hold and Sell categories, respectively. Company-Specific Regulatory Disclosures Kennedy Wilson Holdings (KW) Valuation Our price target of $32 per share for KW is based on our NAV analysis. Risks The primary risk to achieving our target price include a global recession, a prolonged european recession, access to the capital markets, key man risk and the ability to source profitable deals. Other Disclosures Additional Information Available Upon Request General Disclosures Research reports produced by BTIG LLC ( BTIG ) are published for and intended to be distributed solely to BTIG institutional and corporate clients. Recipients of BTIG reports will not be considered clients of BTIG solely because they may have received such BTIG report. The equity research analyst(s) responsible for the preparation of this report receives compensation based upon a variety of factors, including the quality and accuracy of research, internal/client feedback, and overall Firm revenues. BTIG reports are based on public information and BTIG considers the same to be reliable, comprehensive information, but makes no representation or warranty that the reports are accurate or complete. BTIG opinions and information provided in this report are as of the date of the report and may change without notice. This research report is not an offer to buy or sell or solicitation of an offer to buy or sell any security in any jurisdiction where such an offer or solicitation would be illegal. This research report was not drafted specifically for any particular individual or entity and is not a personal recommendation to participate in any particular trading strategy or transaction. Any recipient of this research report should obtain independent advice specific to their personal circumstances before undertaking any investment activity and must make their own independent evaluation of any securities or financial instruments. 15

16 Facts, views or opinions presented in this report have not been reviewed by, and may not reflect information known to, employees or other professionals in the BTIG Group (BTIG Group includes, but is not limited to, BTIG and its parents, subsidiaries and/or affiliates). BTIG Group employees, including Sales Representatives and Traders, may provide oral or written commentary or advice that may be inconsistent with the opinions and/or views expressed in this research report. BTIG Group employees and/or its affiliates not involved in the preparation of this research report may have investments in securities or derivatives of securities of companies mentioned in this report that are inconsistent with the views discussed in this report. Investors in securities products bear certain risks in conjunction with those investments. The value of, and income from, any investments may vary because of changes in interest rates or foreign exchange rates, securities prices or market indexes, operational or financial conditions of companies or other factors within or beyond the companies control. Recipient of the research reports should be aware that investments in equity securities may pose significant risks due to the inherent uncertainty associated with relying on forecasts of various factors that can affect the earnings, cash flow and overall valuation of a company. Any investment in equity securities should be undertaken only upon consideration of issues relating to the recipient s overall investment portfolio and objectives (such as diversification by asset class, industry or company) as well as time horizon and liquidity needs. Further, past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. There may be time limitations on the exercise of options or other rights in any securities transactions. The trademarks and service marks contained herein are the property of their respective owners. Third-party data providers make no warranties or representations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability of any damages of any kind relating to such data. The report or any portion hereof may not be reprinted, sold or redistributed without the written consent of BTIG. This report is intended only for use by the recipient. The recipient acknowledges that all research and analysis in this report are the property of BTIG and agrees to limit the use of all publications received from BTIG within his, or her or its, own company or organization. No rights are given for passing on, transmitting, re transmitting or reselling the information provided. Jurisdiction and Dissemination BTIG is a U.S. broker-dealer and member of FINRA and SIPC. BTIG Australia Limited ACN , member of ASIC and ASX; BTIG Hong Kong Limited, an Exchange Participant of SEHK and licensed and regulated by the SFC; BTIG Ltd, member of the LSE, authorized and regulated by the FSA; and BTIG Singapore Pte Ltd, registered and licensed with MAS; are all separate but affiliated entities of BTIG. Unless governing law permits otherwise, you must contact a BTIG entity in your home jurisdiction for further information, or if you want to use our services in effecting a transaction. Issues and approved for distribution in the UK and EEA by BTIG Ltd. to eligible counterparties and professional clients only. Issued and distributed in Australia to wholesale clients only by BTIG Australia Limited. In Singapore and Hong Kong, further information may be obtained from BTIG Singapore Pte Ltd and BTIG Hong Kong Limited, respectively. 16