Fortress Reports Third Quarter 2012 Results and Announces Dividend of $0.05 per Share

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Fortress Reports Third Quarter 2012 Results and Announces Dividend of $0.05 per Share

NEW YORK--(BUSINESS WIRE)-- Fortress Investment Group LLC (NYS: FIG) today reported its third quarter 2012 financial results.

FINANCIAL SUMMARY

  • Fortress declares a distribution of $0.05 per dividend paying share for the third quarter of 2012
  • Assets under management ("AUM") increased to $51.5 billion as of September 30, 2012, an increase of 8% from the second quarter of 2012 and 18% from the third quarter of 2011; AUM does not include uncalled capital, or "dry powder," of $7.2 billion
  • GAAP net income of $7 million in the third quarter of 2012; GAAP book value per share of $2.22 as of September 30, 2012
  • Pre-tax distributable earnings of $64 million, or $0.12 per dividend paying share, in the third quarter of 2012; pre-tax distributable earnings of $171 million, or $0.32 per dividend paying share, for the nine months ended September 30, 2012
  • Net cash and investments of $2.37 per dividend paying share as of September 30, 2012, up from $2.12 per dividend paying share as of June 30, 2012
  • $651 million of embedded incentive income across the funds as of September 30, 2012, of which $543 million has not been recognized in DE
  • Subsequent to quarter end, paid in full $181 million of outstanding corporate debt

BUSINESS HIGHLIGHTS

  • Raised $1.2 billion of capital across alternatives businesses in the third quarter, bringing total capital raised year-to-date through September 30, 2012 to $5.2 billion
  • Recorded $2.0 billion of net client flows for Logan Circle during the quarter, bringing total net client flows year-to-date through September 30, 2012 to $5.9 billion
  • Delivered strong investment performance across all businesses:
    • Net third quarter 2012 returns of 5.1% in the Drawbridge Special Opportunities Fund, 2.9% in the Fortress Macro Funds and 3.6% in the Fortress Asia Macro Funds; net year-to-date 2012 returns of 13.1% in the Drawbridge Special Opportunities Fund, 11.1% in the Fortress Macro Funds and 10.7% in the Fortress Asia Macro Funds
    • Private Equity fund valuations increased 9.4% during the quarter, and 20.8% year-to-date through September 30, 2012
    • Net annualized inception-to-date IRRs through quarter end for the Credit Opportunities Fund and Credit Opportunities Fund II of 26.9% and 17.8%, respectively
    • All 15 Logan Circle strategies outperformed respective benchmarks in the three months ended September 30, 2012 and 14 of 15 strategies outperformed respective benchmarks in the nine months ended September 30, 2012
  • Subsequent to quarter end, completed the sale of our private equity portfolio company, RailAmerica, for $1.4 billion

"We had a strong third quarter, with very solid momentum carrying forward in every one of our businesses," said Randal Nardone, interim Chief Executive Officer. "We are solidly optimistic in our outlook. With no corporate debt, and substantial balance sheet value, we have never operated from a position of greater financial strength. New commitments of over $5 billion through the third quarter helped drive our assets under management to a record $51.5 billion. Most important, we continued to deliver strong performance for our investors in all Fortress businesses, and large-scale opportunities remain aligned with our greatest investment strengths."

SUMMARY FINANCIAL RESULTS

Fortress's business model is highly diversified, and management believes that this positions the company to capitalize on opportunities for investing, capital formation and harvesting profits that can occur at different points in any cycle for our individual businesses. Fortress's business model generates stable and predictable management fees, which is a function of the majority of alternative assets under management residing in long-term investment structures. Fortress's alternatives businesses also generate variable incentive income based on performance, and this incentive income can contribute meaningfully to financial results. Balance sheet investments represent a third component of Fortress's business model, and the company has built substantial value in these investments, which are made in Fortress funds alongside the funds' limited partners.

The table below summarizes Fortress's operating results for the three and nine months ended September 30, 2012. The consolidated GAAP statement of operations and balance sheet are presented at the end of this press release.

 3Q 2Q 3Q % Change YTD September % Change
201220122011QoQ YoY2012 2011YoY
(in millions, except per share amount)  
GAAP
Net income (loss)$7$14$(382)-53%N/M$(3)$(883)N/M
Net income (loss) attributable to Class A Shareholders$1 $5 $(142) -86% N/M $(24)$(340)N/M 
Per diluted share$(0.04)$(0.12)$(0.83) N/M  N/M $(0.13)$(1.88)N/M 
Weighted average Class A shares outstanding, diluted520516496517492

 

Distributable Earnings (non-GAAP)
Fund management DE$63$53$5119%24%$172$200-14%
Pre-tax DE$64 $50 $43  28% 49%$171 $192 -11%
Per dividend paying share/unit$0.12 $0.09 $0.08  27% 47%$0.32 $0.36 -12%
Weighted average dividend paying shares and units outstanding537533530534527
 
Assets Under Management
Private Equity$14,718$13,826$12,7086%16%$14,718$12,70816%
Credit11,75311,45211,8333%-1%11,75311,833-1%
Liquid Markets4,3784,3986,1650%-29%4,3786,165-29%
Logan Circle 20,626  18,112  12,913  14% 60% 20,626  12,913 60%
Total Assets Under Management$51,475 $47,788 $43,619  8% 18%$51,475 $43,619 18%
 

CONSOLIDATED GAAP RESULTS

Fortress recorded GAAP net income of $7 million, or a $0.04 loss per diluted share in the third quarter of 2012, compared with a GAAP net loss of $382 million, or $0.83 loss per diluted share, in the third quarter of 2011. Our diluted loss per share for all periods presented includes the income tax effects to net income (loss) attributable to Class A Shareholders from the assumed conversion of Fortress Operating Group Units and fully vested Restricted Partnership Units to Class A shares.

The primary driver of the year-over-year improvement in Fortress's GAAP results was the expiration of the Principals Agreement and related compensation expense, a non-economic amortization expense that had accounted for approximately $4.8 billion in compensation expenses between the first quarter of 2007 and the fourth quarter of 2011. No amounts were ever paid, or equity issued, in connection with this agreement. This agreement expired at the end of 2011 and will no longer impact Fortress's financial results.

CONSOLIDATED SEGMENT RESULTS (NON-GAAP)

This section provides information about each of Fortress's businesses: (i) Credit, (ii) Private Equity, (iii) Liquid Hedge Funds, and (iv) Logan Circle.

Fortress uses "distributable earnings," or DE, as a primary metric to manage its businesses and gauge the company's performance, and it uses DE exclusively to report segment results. Consolidated segment results are non-GAAP information and are not presented as a substitute for Fortress's GAAP results. Fortress urges you to read "Non-GAAP Information" below.

 As of September 30, 2012
 Private Equity 

Liquid Hedge

 Credit Funds 

Logan Circle

(in millions)TotalFunds Castles

Funds

Hedge Funds PE Funds

Partners

 
Assets Under Management1$51,475$11,113$3,605$4,378$5,663$6,090$20,626
Dry Powder$7,242$740N/AN/AN/A$6,502N/A
Average Management Fee Rate21.2%1.5%1.7%1.9%1.4%0.1%
 
Incentive Eligible NAV Above Incentive Income Threshold3$14,367$220$-$2,418$4,603$7,126N/A
 
Undistributed Incentive Income: Unrecognized$543$16$-$5$92$430N/A
Undistributed Incentive Income: Recognized 108  -  -  20  88  -  N/A 
Undistributed Incentive Income4$651 $16 $- $25 $180 $430  N/A 
 
 
Three Months Ended September 30, 2012
Private Equity

Liquid Hedge

Credit Funds

Logan Circle

(in millions)TotalFundsCastles

Funds

Hedge FundsPE Funds

Partners

 
Third-Party Capital Raised$1,183$591$177$167$100$148N/A
 
Segment Revenues
Management fees$116$30$15$19$24$21$7
Incentive income 65  1  -  11  36  17  - 
Total18131153060387
Segment Expenses
Operating expenses(82)(9)(8)(17)(15)(24)(9)
Profit sharing compensation expenses (31) -  -  (4) (19) (8) - 
Total (113) (9) (8) (21) (34) (32) (9 Read Full Story

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