UNCONSOLIDATED INVESTMENTS

KW Group has unconsolidated investments through real estate related joint ventures and loan pool participations. The following table details its investments in joint ventures and loan pool participations as of December 31, 2014 and December 31, 2013:



	December 31,		December 31,
(Dollars in millions)	2014		2013
Investments in joint ventures	$	435.8	$	751.4
Investments in loan pool participations	56.4		34.7
Total	$	492.2	$	786.1

KW Group has a number of joint venture interests, generally ranging from 5% to approximately 50% ownership, that were formed to acquire, manage, develop, and/or sell real estate and invest in discounted loan purchases and loan originations. KW Group has significant influence over these entities, but not control, and accordingly, these investments are accounted for under the equity method.

Joint Venture Holdings

The following table details KW Group's investments in joint ventures by investment type and geographic location as of December 31, 2014:



	Multifamily		Commercial		Loan		Residential and Hotel		Other		Total
(Dollars in millions)
Western U.S.	$	134.5	$	110.3	$	50.3	$	71.0	$	9.3	$	375.4
United Kingdom	—		31.5		—		—		—		31.5
Spain	—		—		—		—		28.9		28.9
Total	$	134.5	$	141.8	$	50.3	$	71.0	$	38.2	$	435.8

The following table details our investments in joint ventures by investment type and geographic location as of December 31, 2013:



	Multifamily		Commercial		Loan		Residential and Hotel		Other		Total
(Dollars in millions)
Western U.S.	$	133.3	$	160.3	$	50.3	$	48.7	$	8.0	$	400.6
Japan	68.8		—		—		—		—		68.8
United Kingdom	—		104.5		6.3		—		—		110.8
Ireland	48.2		96.1		—		—		—		144.3
Spain	—		—		—		—		26.9		26.9
Total	$	250.3	$	360.9	$	56.6	$	48.7	$	34.9	$	751.4

Loan Pool Participations

As of December 31, 2014 and 2013, the Company's investment in loan pool participations totaled $56.4 million and $34.7 million, respectively.

The following table represents the demographics of the Company's investment in the loan pools including the initial UPB and the UPB as of December 31, 2014.



(Dollars in millions)				Unpaid Principal Balance								Expected
		KW						KW Group		Investment		accretion over
Acquisition		Group				December 31,		initial equity		balance at		total estimated		Accreted
Date	Location	Ownership		Initial⁽¹⁾		2014⁽¹⁾		invested		December 31, 2014		collection period⁽¹⁾		to date⁽²⁾
February 2010 ⁽³⁾	Western U.S.	15.0	%	$	342.4	$	—	$	11.1	$	0.5	$	4.6	$	4.6
April 2012	Western U.S.	75.0	%	43.4		2.8		30.9		2.4		4.3		4.1
August 2012	Ireland	10.0	%	438.9		48.1		7.0		8.4		2.1		1.6
December 2012	United Kingdom	10.0	%	603.8		101.6		19.3		3.0		2.5		2.5
April 2013	United Kingdom	10.0	%	180.9		101.2		13.0		6.0		4.9		2.2
August 2013	United Kingdom	20.0	%	132.7		132.7		7.5		8.3		4.5		2.0
May 2014 ⁽⁴⁾	United Kingdom	33.3	%	101.2		100.6		30.3		27.8		2.6		1.1
				$	1,843.3	$	487.0	$	119.1	$	56.4	$	25.5	$	18.1

—————

⁽¹⁾ Estimated foreign exchange rate is £0.64 = $1 USD and €0.82 = $1 USD as of December 31, 2014.

⁽²⁾ Amounts accreted to date are translated at monthly average exchange rates over the life of the loan pool.

⁽³⁾ Equity invested represents guarantee claims against note holders in loan pool.

⁽⁴⁾ This loan portfolio was directly acquired and held by KWE. Kennedy Wilson owns approximately 14.9% of the total issued share capital of KWE as of December 31, 2014.

Investment Update - UK Loan Pool

In 2011, the Company, along with institutional partners, acquired a loan portfolio consisting of 58 performing loans (the “U.K. Loan Pool”). The Company, through a 50/50 joint venture with one of its partners, acquired a 25% participation interest in the pool for $440.9 million, of which $323.4 million was funded with debt that was fully repaid during 2013. As a result of the positive performance of the loan pool, all of the Company's initial equity contribution has been returned as of December 31, 2014. During the year ended December 31, 2013, the Company received $66.2 million in distributions related to resolutions in the UK Loan Pool and $23.2 million from its additional asset management fee arrangement. As a result of the substantial liquidation of the loan pool in 2013, Kennedy Wilson has recognized a $2.8 million loss in foreign currency translations in the accompanying consolidated statements of operations.

Income from Unconsolidated Investments

For the year ended December 31, 2014, 2013, and 2012 equity in joint venture income was $44.7 million, $29.8 million, and $21.5 million.

The increase in equity in joint venture income during 2014 compared to 2013 relates to the sale of the Company's 25% interest in a portfolio of commercial investments in Dublin, Ireland to KWE that resulted in a gain of $26.6 million on the Company's investment. This transaction was unanimously approved by the independent shareholders of KWE. There were no new European joint venture investments during 2014 so acquisition-related expenses were minimal compared to the prior period.

The increase in equity in joint venture income during 2013 compared to 2012 is primarily due to acquisition-related gains of $36.2 million on note conversions in European joint venture investments. See Note Conversion into Real Estate section below for a more detailed discussion. These gains were offset by acquisition-related expenses of $13.5 million relating to new joint ventures in the United Kingdom, Ireland and Spain which resulted in significant stamp duty taxes.

The following table presents the interest income and foreign currency gain and (loss) recognized by Kennedy Wilson during the years ended December 31, 2014, 2013 and 2012 in each of the loan pools that were outstanding:



	Year Ended December 31,
(Dollars in millions)	2014			2013			2012
Interest income recognized	$	9.5		$	11.9		$	6.4
Foreign currency translation (loss) gain	(4.7		)	(2.2		)	3.0
	$	4.8		$	9.7		$	9.4

Note Conversion into Real Estate within Unconsolidated Investments

During 2013, the Company and its equity partners converted three mortgage notes into real estate owned. As a result of the conversion, the joint ventures were required to consolidate the assets and liabilities at fair value under ASC 805 - Business Combinations. As the fair value of each of the assets was in excess of the basis of the previously held mortgage note, the Company recorded the following acquisition related gains:



(Amounts shown in millions)
Date	Description	Location	Total Joint Venture Acquisition Related Gain		The Company's Portion of Total Gain
Q2 2013	Class A Office building and Adjacent 3.5 acre site	Dublin, Ireland	$	30.1	$	15.0
Q3 2013	The Rock - a retail, residential, and entertainment center	Manchester, UK	32.3		16.2
Q4 2013	Class A Office Building	Glasgow, Scotland	10.1		5.0
Total			$	72.5	$	36.2

There was no comparable activity during 2014.

Changes in Control

On June 30, 2014, Kennedy Wilson and one of its equity partners amended existing operating agreements governing KWR which was previously accounted for using the equity method and is now consolidated. On March 31, 2014, Kennedy Wilson and one of its equity partners amended existing operating agreements governing investments for six investments in Europe which were accounted for using the equity method and are now consolidated.

On December 12, 2013, the Company and one of its equity partners amended the existing operating agreement governing its investments in the Ritz Carlton Hotel, Lake Tahoe which was accounted for on the equity method and is now consolidated. On September 30, 2013, the Company and one of its equity partners amended existing operating agreements governing investments in three retail centers in the Western United States which were accounted for on the equity method and is now consolidated.

See Note 4 for more discussion on the impact of consolidation. All of the above investments were accounted for and are presented as unconsolidated investments in the prior periods.

Contributions to Unconsolidated Investments

During the years ended December 31, 2014, 2013, and 2012, Kennedy Wilson made $142.6 million, $322.7 million, and $178.6 million, respectively, in contributions to new and existing joint venture investments.

See the table below for a breakdown of contributions to new joint venture investments for the years ended December 31, 2014, 2013 and 2012:



		Years Ended December 31,
(Dollars in millions)		2014			2013			2012
Investment Type	Region	No. of Properties	Initial Contribution		No. of Properties	Initial Contribution		No. of Properties	Initial Contribution
Commercial	Western U.S.	—	$	—	4	$	30.3	9	$	26.9
Commercial	United Kingdom	14	57.2		42	92.2		—	—
Commercial	Ireland	—	—		14	38.7		2	45.8
Multifamily	Western U.S.	2	4.7		2	9.1		5	22.9
Multifamily	Ireland	—	—		1	58.0		2	34.3
Residential	Western U.S.	3	18.3		3	10.0		2	19.6
Other	Spain	—	—		1	27.2		—	—
Total		19	$	80.2	67	$	265.5	20	$	149.5

In addition to the capital contributions above to new joint venture investments, the Company contributed $62.4 million, $57.2 million and $29.1 million to existing joint ventures to pay off external debt, fund our share of a development project and for working capital needs, during the years ended December 31, 2014, 2013, and 2012, respectively.

Distributions from Joint Ventures and Loan Pool Participations

The following table details cash distributions by investment type and geographic location for the year ended December 31, 2014:



	Multifamily				Commercial				Loan				Residential, Hotel and Other				Total
(Dollars in millions)	Operating		Investing		Operating		Investing		Operating		Investing		Operating		Investing		Operating		Investing
Western U.S.	$	9.4	$	3.2	$	21.1	$	45.9	$	0.3	$	2.5	$	10.8	$	5.1	$	41.6	$	56.7
Japan	1.7		—		—		—		—		—		—		—		1.7		—
United Kingdom	—		—		6.9		18.4		7.4		5.4		—		—		14.3		23.8
Ireland	—		—		31.2		30.3		—		—		—		—		31.2		30.3
Other	—		—		—				—		—		—		1.0		—		1.0
Total	$	11.1	$	3.2	$	59.2	$	94.6	$	7.7	$	7.9	$	10.8	$	6.1	$	88.8	$	111.8

Investing distributions resulted from the sale of the commercial portfolio in Dublin, Ireland above as well as commercial properties in the Western United States and United Kingdom and homes in residential development projects in the Western United States, the refinancing of property level debt and loan resolutions. Operating distributions resulted from operating cash flow generated by the joint venture and loan pool participant investments.

Variable Interest Entities

We determine the appropriate accounting method with respect to all investments that are not VIEs based on the control-based framework (controlled entities are consolidated) provided by the consolidations guidance in ASC Topic 810. The Company's determination considers specific factors cited under ASC 810-20 "Control of Partnerships and Similar Entities" which presumes that control is held by the general partner (and managing member equivalents in limited liability companies). Limited partners' substantive participation rights may overcome this presumption of control. The Company accounts for joint ventures it is deemed not to control using the equity method of accounting while controlled entities are consolidated.

Capital Commitments

As of December 31, 2014, the Company has unfulfilled capital commitments totaling $33.1 million to five of its joint ventures. The Company may be called upon to contribute additional capital to joint ventures in satisfaction of the Company's capital commitment obligations.

Guarantees

The Company has certain guarantees associated with loans secured by consolidated assets or assets held directly or in various joint ventures. As of December 31, 2014 the maximum potential amount of future payments (undiscounted) the Company could be required to make under the guarantees was approximately $54.9 million which is approximately 1% of the property level debt of KW Group and its unconsolidated investments. The guarantees expire through 2021, and the Company’s performance under the guarantees would be required to the extent there is a shortfall upon liquidation between the principal amount of the loan and the net sale proceeds from the property. Based upon the Company’s evaluation of guarantees under ASC Subtopic 460-10 "Estimated Fair Value of Guarantees," the estimated fair value of guarantees made as of December 31, 2014 and 2013 is immaterial.

Summarized financial data

Summarized financial data of the joint ventures is as follows:



	December 31, 2014						December 31, 2013
(Dollars in millions)	Greater than 20% ⁽¹⁾		Other		Total⁽³⁾		Greater than 20% ⁽¹⁾		Other		Total⁽³⁾
Balance sheets for equity method investments:
Assets
Cash and restricted cash	$	43.7	$	33.0	$	76.7	$	74.0	$	40.9	$	114.9
Real estate	770.9		2,390.2		3,161.1		1,996.8		2,438.8		4,435.6
Loan pool participation ⁽²⁾	—		—		—		4.0		—		4.0
Other	56.9		49.3		106.2		466.8		150.7		617.5
Total assets ⁽³⁾	$	871.5	$	2,472.5	$	3,344.0	$	2,541.6	$	2,630.4	$	5,172.0

Liabilities
Debt	$	376.8	$	1,523.2	$	1,900.0	$	1,263.6	$	1,714.1	$	2,977.7
Other	44.8		48.3		93.1		75.5		64.7		140.2
Total liabilities	421.6		1,571.5		1,993.1		1,339.1		1,778.8		3,117.9
Partners’ capital
Kennedy Wilson - investments in joint ventures	84.8		281.0		365.8		379.5		344.7		724.2
Other partners	365.1		620.0		985.1		818.6		506.9		1,325.5
Total partners' capital-investments in joint ventures	449.9		901.0		1,350.9		1,198.1		851.6		2,049.7
Kennedy Wilson - investments in loan pool participation ⁽²⁾	—		—		—		2.2		—		2.2
Other partners	—		—		—		2.2		—		2.2
Total partners' capital - investments in loan pool participation	—		—		—		4.4		—		4.4
Total liabilities and partners’ capital	$	871.5	$	2,472.5	$	3,344.0	$	2,541.6	$	2,630.4	$	5,172.0

Total investments in joint ventures are comprised of the following:



	December 31, 2014						December 31, 2013
(Dollars in millions)	Greater than 20% ⁽¹⁾		Other		Total⁽³⁾		Greater than 20% ⁽¹⁾		Other		Total⁽³⁾
Equity method	$	84.8	$	281.0	$	365.8	$	379.5	$	344.7	$	724.2
Fair value election investments	—		60.7		60.7		—		19.6		19.6
	84.8		341.7		426.5		379.5		364.3		743.8
Cost method	—		9.3		9.3		—		7.6		7.6
Total Investments in joint ventures	$	84.8	$	351.0	$	435.8	$	379.5	$	371.9	$	751.4

Loan pool participation ⁽²⁾	$	—	$	—	—		$	—	$	—	—

—————

⁽¹⁾ Equity in income from the joint venture or income from loan pool participation for the year ended December 31, 2013 or 2012 exceeded 20% of Kennedy Wilson's income from continuing operations before income taxes for the year ended December 31, 2013 or 2012. No individual investments in joint ventures or loan pool participation exceeded the income test for December 31, 2014 and amounts in current period greater than 20% are included as they exceed income threshold for the year ended December 31, 2013 or 2012. No individual investments in joint ventures or loan pool participation exceeds 20% of the total assets of Kennedy Wilson as of December 31, 2014 or 2013.

⁽²⁾ This loan pool has been included in the investment in joint ventures footnote greater than 20% column as this entity was determined to be a significant investment for purposes of S-X §210.3-09. The other investments in loan pool participation were excluded as they were determined to be not significant investments.

⁽³⁾ The balance sheets and income statements include all investments in joint ventures as well as an investment in a loan pool participation, which was determined to be significant investments for the purposes of S-X §210.3-09.

Equity in joint venture income for the years ended December 31:



(Dollars in millions)	2014			2013		2012
Net income allocation	$	46.5		$	28.8	$	13.7
Unrealized (loss) gain on fair value option	(1.8		)	1.0		7.8
Total equity in joint venture income	$	44.7		$	29.8	$	21.5
Participation income allocation	$	2.1		$	8.7	$	7.9



	Year Ended December 31, 2014							Year Ended December 31, 2013
(Dollars in millions)	Greater than 20% ⁽¹⁾		Other			Total⁽³⁾		Greater than 20% ⁽¹⁾			Other		Total⁽³⁾
Statements of income:
Revenues	$	385.1	$	539.5		$	924.6	$	229.6		$	427.5	$	657.1
Depreciation	52.1		60.2			112.3		58.1			57.9		116.0
Interest	22.2		79.8			102.0		42.3			86.8		129.1
Other expenses	254.9		380.8			635.7		83.6			271.7		355.3
Total expenses	329.2		520.8			850.0		184.0			416.4		600.4
Net income ⁽³⁾	$	55.9	$	18.7		$	74.6	$	45.6		$	11.1	$	56.7
Net income allocation:
Kennedy Wilson - investments in joint ventures	$	5.0	$	41.5		$	46.5	$	28.6		$	0.2	$	28.8
Kennedy Wilson - investments in loan pool participation ⁽²⁾	2.1		—			2.1		8.7			—		8.7
Other partners	34.1		(22.8		)	11.3		(4.3		)	10.9		6.6
Other partners - investments in loan pool participation⁽²⁾	14.7		—			14.7		12.6			—		12.6
Net income ⁽³⁾	$	55.9	$	18.7		$	74.6	$	45.6		$	11.1	$	56.7



	Year Ended December 31, 2012
(Dollars in millions)	Greater than 20% ⁽¹⁾			Other		Total⁽³⁾
Statements of income:
Revenues	$	38.2		$	532.5	$	570.7
Depreciation	(4.1		)	72.6		68.5
Interest	22.0			87.9		109.9
Other expenses	(0.7		)	337.6		336.9
Total expenses	17.2			498.1		515.3
Net income	$	21.0		$	34.4	$	55.4
Net income allocation:
Kennedy Wilson - investments in joint ventures	$	(3.3	)	$	17.0	$	13.7
Kennedy Wilson - investments in loan pool participation⁽²⁾	7.9			—		7.9
Other partners - investments in joint ventures	16.2			17.4		33.6
Other partners - investments in loan pool participation	0.2			—		0.2
Net income	$	21.0		$	34.4	$	55.4

—————

⁽¹⁾ See discussion above.

⁽²⁾ See discussion above.

⁽³⁾ See discussion above.