UNCONSOLIDATED INVESTMENTS

Kennedy Wilson has a number of joint venture interests, generally ranging from 5% to 50%, that were formed to acquire, manage, develop, service and/or sell real estate and invest in loan pools and discounted loan portfolios. Kennedy Wilson 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 Kennedy Wilson's investments in joint ventures by investment type and geographic location as of June 30, 2018:



(Dollars in millions)	Multifamily		Commercial		Funds		Residential and Other		Total
Western U.S.	$	184.7	$	39.9	$	108.5	$	184.1	$	517.2
Ireland	89.6		—		—		—		89.6
United Kingdom	—		6.9		—		—		6.9
Total	$	274.3	$	46.8	$	108.5	$	184.1	$	613.7

The following table details the Company's unconsolidated investments by investment type and geographic location as of December 31, 2017:



(Dollars in millions)	Multifamily		Commercial		Funds		Residential and Other		Total
Western U.S.	$	199.7	$	42.1	$	85.3	$	179.8	$	506.9
United Kingdom	—		9.9		—		—		9.9
Japan	2.5		—		—		—		2.5
Total	$	202.2	$	52.0	$	85.3	$	179.8	$	519.3

During the six months ended June 30, 2018, multifamily investments increased due to the new joint venture with AXA described in Note 4 which was offset by the sales of a multifamily property and a multifamily development site in the Western United States. Commercial investments decreased due to the sale of an office property. Fund investments increased due to contributions to Funds V and VI and performance-based carried interest allocations which were partially offset by asset sales. Residential and other investments increased due to capital expenditures on active developments which was offset by condominium unit and lot sales.

Vintage Housing Holdings ("VHH")

The Company owns noncontrolling interests in VHH, a joint venture that holds interests in over 43 partnerships that own multifamily properties via a low-income housing tax credit ("LIHTC") structure in the Western United States. The Company accounts for its investment under the equity method as it does not control the investment. As of June 30, 2018 and December 31, 2017, the carrying value in VHH was $101.0 million and $114.8 million, respectively.

The partnerships generate cash flow through their interests in entities owning multifamily housing that is predominantly structured with LIHTCs. The Company has elected the fair value option on its unconsolidated investment in VHH. The total equity income recognized was $3.9 million and $15.7 million during the three and six months ended June 30, 2018, respectively, and $1.5 million and $15.6 million, respectively, during three and six months ended June 30, 2017 and was comprised of fair value gains and operating distributions recognized through equity income. Fair value gains recognized through equity income were $2.3 million and $12.1 million for the three and six months ended June 30, 2018 and $12.4 million during the six months ended June 30, 2017. There were no fair value gains recognized during the three months ended June 30, 2017. Fair value gains are primarily generated from resyndications in which VHH dissolves an existing partnership and recapitalizes into a new partnership with tax exempt bonds and tax credits which are sold to a new tax credit partner and, in many cases, yields cash back to VHH. Upon resyndication, VHH retains a GP interest in the partnership and receives various future streams of cash flows including; development fees, asset management fees, other GP management fees and distributions from operations. Since the investment is accounted for under the fair value option, operating distributions are recorded as equity income. See Note 6 for additional details. Operating distributions recognized through equity income were $1.6 million and $3.6 million for the three and six months ended June 30, 2018, respectively, and $1.5 million and $3.2 million for the three and six months ended June 30, 2017, respectively.

Performance fees

Effective January 1, 2018, Kennedy Wilson adopted ASC Topic 606 and implemented a change in accounting principle related to performance allocations (commonly referred to as “performance fees”). In connection with the adoption and change in accounting principle, the Company now accounts for performance allocations under the GAAP guidance for equity method investments, presents performance allocations as a component of income from unconsolidated investments, and would present certain incentive fee arrangements, to the extent that the Company has them, separately in its results of operations. All prior periods have been conformed for these changes.

The impact of adoption was a reclassification of $32.9 million from other assets to unconsolidated investments on the consolidated balance sheet as of December 31, 2017. During the three and six months ended June 30, 2018, there was $6.9 million and $17.2 million, respectively, of performance fee allocations recorded as a component of income from unconsolidated investments. During the three and six months ended June 30, 2017, there was $(2.6) million and $3.9 million, respectively, of performance fee allocations which were previously presented as a component of investment management, property services and research fees and have been reclassified to income from unconsolidated investments in the current year presentation.

Contributions to Joint Ventures

During the six months ended June 30, 2018, Kennedy Wilson contributed $125.6 million to joint ventures, of which $89.8 million was related to the AXA Joint Venture and $12.5 million was related to Kennedy Wilson Real Estate Fund VI, LP with the balance to fund the Company's share of development projects, capital expenditures and working capital needs.

Distributions from Joint Ventures

During the six months ended June 30, 2018, Kennedy Wilson received $67.3 million in operating and investing distributions from its joint ventures. Operating distributions resulted from operating cash flow generated by the joint venture investments. Investing distributions resulted from the refinancing of property level debt and asset sales.

The following table details cash distributions by investment type and geographic location for the six months ended June 30, 2018:



	Multifamily				Commercial				Funds				Residential and Other				Total
(Dollars in millions)	Operating		Investing		Operating		Investing		Operating		Investing		Operating		Investing		Operating		Investing
Western U.S.	$	16.3	$	26.8	$	0.8	$	2.3	$	7.3	$	7.8	$	0.2	$	3.5	$	24.6	$	40.4
Japan	0.1		2.2		—		—		—		—		—		—		0.1		2.2
Total	$	16.4	$	29.0	$	0.8	$	2.3	$	7.3	$	7.8	$	0.2	$	3.5	$	24.7	$	42.6

Investing distributions resulted primarily from recapitalizations and the sale of multifamily and commercial properties in the Western United States. Operating distributions resulted from sales distributions in excess of invested basis and operating cash flow generated by the joint venture investments.

Consolidation Considerations

The Company determines 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 FASB ASC Topic 810. The Company accounts for joint ventures where it is deemed that the Company does not have control through the equity method of accounting while entities the Company controls are consolidated in Kennedy Wilson's financial statements.

Capital Commitments

As of June 30, 2018, Kennedy Wilson had unfulfilled capital commitments totaling $45.3 million to four of its joint ventures, primarily a closed-end fund managed by Kennedy Wilson, under the respective operating agreements. The Company may be called upon to contribute additional capital to joint ventures in satisfaction of such capital commitment obligations.