Item 3.Quantitative and Qualitative Disclosures About Market Risk
Our primary market risk exposure relates to: changes in interest rates in connection with our short-term borrowings and fluctuations in foreign currency exchange rates in connection with our foreign operations.
Interest Rate Risk
We have established an interest rate management policy, which attempts to minimize our overall cost of debt while taking into consideration the earnings implications associated with the volatility of short-term interest rates. As part of this policy, we have elected to maintain a combination of variable and fixed rate debt. As of June 30, 2025, 81% of our consolidated level debt is fixed rate, 18% is floating rate with interest caps and 1% is floating rate without interest caps. As such, fluctuations in interest
rates may impact our floating rate debt (and floating rate debt with interest caps to a lesser extent) and cause our consolidated interest expense and income from unconsolidated investments to fluctuate. Typically, these fluctuations do not give rise to a significant long-term interest rate risk because they have generally short maturities.
We hold variable rate debt on some of our consolidated and unconsolidated properties that are subject to interest rate fluctuations. These variable rates generally are based on the lender’s base rate, prime rate, EURIBOR, GBP LIBOR, SOFR, SONIA plus an applicable borrowing margin. Additionally, in order to mitigate some of the risk associated with increasing interest rates we have purchased interest rate caps and swaps. Our interest rate caps and swaps are typically undesignated as they are bought at the corporate level and changes in value are recorded to other income/loss. However we view the fair value movements associated with these interest rate derivatives in conjunction with our interest expense in order to limit the amount of financial statement impact that interest expense can increase with rate increases. However, even though we hold interest rate swaps and caps we are subject to increased interest expense until rates hit the level of caps that have been purchased. If there was a 100-basis point increase or decrease, we would have a $5.1 million increase in interest expense or $12.5 million of interest expense savings during 2025 on our current share of indebtedness. The weighted average strike price on caps and maturity of Kennedy Wilson’s variable rate mortgages is 3.16% and approximately 0.8 years, respectively, as of June 30, 2025.
The table below represents contractual balances of our consolidated financial instruments at the expected maturity dates as well as the fair value as of June 30, 2025. The weighted average interest rate for the various assets and liabilities presented are actual as of June 30, 2025. We closely monitor the fluctuation in interest rates, and if rates were to increase significantly, we believe that we would be able to either hedge the change in the interest rate or refinance the loans with fixed interest rate debt. All instruments included in this analysis are non-trading.
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| | | Principal Maturing in: | | Fair Value |
| (Dollars in millions) | | 2025 | | 2026 | | 2027 | | 2028 | | 2029 | | Thereafter | | Total | | As of June 30, 2025 |
| Interest rate sensitive assets | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 309.1 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 309.1 | | | $ | 309.1 | |
| Average interest rate | | 1.90 | % | | — | % | | — | % | | — | % | | — | % | | — | % | | 2.66 | % | | — | |
| Fixed rate receivables* | | — | | | 2.4 | | | 25.0 | | | 10.0 | | | 5.3 | | | 6.1 | | | 48.8 | | | 45.2 | |
| Average interest rate | | — | % | | 4.00 | % | | 3.99 | % | | 6.80 | % | | 6.00 | % | | 6.49 | % | | 5.10 | % | | — | |
| Variable rate receivables* | | 10.8 | | | 79.8 | | | 62.8 | | | 22.1 | | | 6.2 | | | 1.7 | | | 183.4 | | | 182.3 | |
| Average interest rate | | 10.27 | % | | 8.62 | % | | 7.95 | % | | 8.81 | % | | 10.94 | % | | 8.04 | % | | 8.59 | % | | — | |
| Total | | $ | 319.9 | | | $ | 82.2 | | | $ | 87.8 | | | $ | 32.1 | | | $ | 11.5 | | | $ | 7.8 | | | $ | 541.3 | | | $ | 536.6 | |
| Weighted average interest rate | | 2.18 | % | | 8.49 | % | | 6.83 | % | | 8.18 | % | | 8.65 | % | | 6.82 | % | | 4.45 | % | | |
| Interest rate sensitive liabilities | | | | | | | | | | | | | | | | |
| Variable rate borrowings | | $ | 28.0 | | | $ | 311.3 | | | $ | 251.1 | | | $ | 110.9 | | | $ | — | | | $ | 167.6 | | | $ | 868.9 | | | $ | 862.9 | |
| Average interest rate | | 6.15 | % | | 6.14 | % | | 6.34 | % | | 6.44 | % | | — | % | | 6.03 | % | | 6.22 | % | | — | |
| Fixed rate borrowings | | 413.0 | | | 106.5 | | | 102.0 | | | 336.6 | | | 1,407.4 | | | 1,419.2 | | | 3,784.7 | | | 3,547.2 | |
| Average interest rate | | 3.41 | % | | 5.64 | % | | 3.86 | % | | 4.68 | % | | 4.79 | % | | 4.45 | % | | 4.50 | % | | — | |
| Total | | $ | 441.0 | | | $ | 417.8 | | | $ | 353.1 | | | $ | 447.5 | | | $ | 1,407.4 | | | $ | 1,586.8 | | | $ | 4,653.6 | | | $ | 4,410.1 | |
| Weighted average interest rate | | 3.58 | % | | 6.01 | % | | 5.62 | % | | 5.12 | % | | 4.79 | % | | 4.62 | % | | 4.82 | % | | |
(*) Represents principal balance of interest rate receivables, excluding $2.0 million of unamortized discount and $20.3 million of loan loss reserves.
Currency Risk - Foreign Currencies
A significant portion of our business is located outside the United States. As such, we have foreign currency fluctuation risk with respect to those investments and business units. In certain instances, we utilize foreign currency hedging derivatives to mitigate the impact of this risk on our equity.
The financial statements of Kennedy Wilson's subsidiaries located outside the United States are measured using the local currency as this is their functional currency. The assets and liabilities of these subsidiaries are translated at the rates of exchange at the balance sheet date, and income and expenses are translated at the average monthly rate. The foreign currencies primarily include the euro and GBP. Cumulative translation adjustments, to the extent not included in cumulative net income, are included in the consolidated statement of equity as a component of accumulated other comprehensive income. Currency translation gains and losses and currency derivative gains and losses will remain in other comprehensive income unless and until the Company substantially liquidates the underlying investments.
Approximately 37% of our investment account is invested through our foreign platforms in their local currencies. Investment level debt is generally incurred in local currencies and therefore we consider our equity investment as the appropriate exposure to evaluate for hedging purposes. In order to manage the effect of these fluctuations, we generally hedge our book equity exposure to foreign currencies through currency forward contracts and options. As of June 30, 2025, we have hedged 96% of the net asset carrying value of our euro denominated investments and 86% of the net asset carrying value of our GBP denominated investments.
Our investment management businesses typically do not require much capital so foreign currency translation and derivative activity primarily relates to the investments segment as that has greater balance sheet exposure to foreign currency fluctuations.
We typically have not hedged the impact foreign currency fluctuations may have on our future operations or cash flows. The costs to operate these businesses, such as compensation, overhead and interest expense are incurred in local currencies. As we are not currently hedging our current operations there will be foreign currency impact on our results of operations for both the Consolidated and Co-Investment segments.
As of June 30, 2025, if there was a 5% increase or decrease in foreign exchange rates on the currencies we invest to the U.S. Dollar our net asset value would increase by $17.0 million or decrease by $17.4 million, respectively. If rates increase or decrease by 10% we would have an increase of $33.9 million and a decrease of $35.3 million, respectively.
