Fortress Reports Fourth Quarter & Year End 2012 Results
Fortress Reports Fourth Quarter & Year End 2012 Results
Announces Dividend of $0.06 per Share
- Announced 20% increase in base quarterly dividend to $0.06 per dividend paying share, effective for the fourth quarter of 2012 and full year 2013
- Repurchased 51.3 million dividend paying shares at a price of $3.50 per share, representing approximately 10% of dividend-paying shares outstanding
- Assets under management ("AUM") of $53.4 billion as of December 31, 2012, an increase of 4% from the third quarter of 2012 and 22% from the fourth quarter of 2011
- GAAP net income of $222 million and $219 million for the fourth quarter and year ended December 31, 2012, respectively; GAAP book value per share of $2.60 as of December 31, 2012
- Pre-tax distributable earnings ("DE") of $107 million and $278 million for the fourth quarter and year ended December 31, 2012, respectively, compared to pre-tax DE of $50 million and $242 million for the fourth quarter and year ended December 31, 2011, respectively
- Pre-tax DE per dividend paying share of $0.20 and $0.52 for the fourth quarter and year ended December 31, 2012, respectively, compared to pre-tax DE per dividend paying share of $0.09 and $0.46 for the fourth quarter and year ended December 31, 2011, respectively
- Net cash and investments of $2.48 per dividend paying share as of December 31, 2012, up from $2.17 per dividend paying share as of December 31, 2011
- $649 million of embedded unrecognized incentive income across our funds and options in our permanent capital vehicles as of December 31, 2012
- Uncalled capital, or "dry powder," of $6.2 billion as of December 31, 2012, including approximately $5.0 billion in newer vintage funds available for general investment purposes
- Subsequent to year end, entered into a new $150 million revolving credit facility maturing in February 2016
- Raised $1.5 billion of capital across alternatives businesses in the fourth quarter, bringing total alternative capital raised in 2012 to $6.7 billion
- Recorded $0.2 billion of net client outflows for Logan Circle in the fourth quarter, bringing total net client inflows in 2012 to $5.7 billion
- Delivered strong investment performance across all businesses:
- Net fourth quarter 2012 returns of 4.2% in the Drawbridge Special Opportunities Fund LP, 6.0% in the Fortress Macro Funds and 9.5% in the Fortress Asia Macro Funds; net full year 2012 returns of 17.9%, 17.8% and 21.2%, respectively
- Private Equity fund valuations increased 3.9% during the quarter, and 25.4% in 2012
- Net annualized inception-to-date IRRs through year end for the Credit Opportunities Fund and Credit Opportunities Fund II of 26.9% and 18.5%, respectively
- 13 of 15 Logan Circle strategies outperformed respective benchmarks in the fourth quarter and 14 of 15 strategies outperformed respective benchmarks in 2012
- Subsequent to year end, raised $764 million of permanent equity capital for Newcastle Investment Corp.
"We set and achieved aggressive objectives for 2012, and broad-based momentum built into the close of the year and carried into 2013," said Randal Nardone, interim Chief Executive Officer. "Our fourth quarter distributable earnings were the highest we have recorded in two years, and we believe only begin to reflect the potential of our company. Investment performance, the most important driver of our success, was outstanding across all of our businesses in 2012, and early 2013 returns in our main Liquid Markets funds have built further on 2012 results. Our strong performance has contributed to robust capital raising, with commitments from new and existing investors totaling $6.7 billion for 2012, and over $1.6 billion in the first two months of 2013. We are pleased with our performance to date and optimistic about our prospects looking ahead."
"We announced today a 20% increase in our base quarterly dividend, to $0.06 per dividend paying share. This increase reflects visibility into higher management fees in the near-term, driven by the substantial amount of capital raised over the past 14 months, and expectations for increases in AUM going forward. This action supplements a $179 million, or $0.36 per dividend paying share, investment made in the fourth quarter to repurchase nearly 10% of outstanding shares at a substantial discount. We believe that these actions will generate significant value for our current investors in 2013 and beyond."
SUMMARY FINANCIAL RESULTS
Fortress's business model is highly diversified, and management believes that this positions the company to capitalize on opportunities for investing, capital formation and harvesting profits that can occur at different points in any cycle for our individual businesses. Fortress's business model generates stable and predictable management fees, which is a function of the majority of alternative assets under management residing in long-term investment structures. Fortress's alternatives businesses also generate variable incentive income based on performance, and this incentive income can contribute meaningfully to financial results. Balance sheet investments represent a third component of Fortress's business model, and the company has built substantial value in these investments, which are made in Fortress funds alongside the funds' limited partners.
The table below summarizes Fortress's operating results for the fourth quarter and year ended December 31, 2012. The consolidated GAAP statement of operations and balance sheet are presented at the end of this press release.
|4Q||3Q||4Q||% Change||FY||% Change|
|(in millions, except per share amount)|
|Net income (loss)||$||222||$||7||$||(234||)||N/M||N/M||$||219||$||(1,117||)||N/M|
|Net income (loss) attributable to Class A Shareholders||$||102||$||1||$||(91||)||N/M||N/M||$||78||$||(432||)||N/M|
|Per diluted share||$||0.24||$||(0.04||)||$||(0.49||)||N/M||N/M||$||0.27||$||(2.36||)||N/M|
|Weighted average Class A shares outstanding, diluted||525||520||496||525||493|
|Distributable Earnings (non-GAAP)|
|Fund management DE||$||105||$||63||$||53||67%||98%||$||277||$||253||9%|
|Per dividend paying share/unit||$||0.20||$||0.12||$||0.09||69%||124%||$||0.52||$||0.46||13%|
|Weighted average dividend paying shares and units outstanding||530||537||531||533||528|
|Assets Under Management|
Total Assets Under Management
CONSOLIDATED GAAP RESULTS
Fortress recorded GAAP net income of $222 million, or $0.24 per diluted share for the fourth quarter of 2012, compared with a GAAP net loss of $234 million, or $0.49 loss per diluted share, for the fourth quarter of 2011. Our diluted earnings 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 year-over-year improvement in Fortress's GAAP results was primarily driven by higher incentive income and the expiration of the Principals Agreement and related compensation expense, a non-economic amortization expense that had accounted for approximately $4.8 billion in compensation expense between the first quarter of 2007 and the fourth quarter of 2011. No amounts were ever paid, or equity issued, in connection with this agreement. This agreement expired at the end of 2011 and will no longer impact Fortress's financial results.
CONSOLIDATED SEGMENT RESULTS (NON-GAAP)
This section provides information about each of Fortress's businesses: (i) Credit, (ii) Private Equity, (iii) Liquid Hedge Funds, and (iv) Logan Circle.
Fortress uses "distributable earnings," or DE, as a primary metric to manage its businesses and gauge the company's performance, and it uses DE exclusively to report segment results. Consolidated segment results are non-GAAP information and are not presented as a substitute for Fortress's GAAP results. Fortress urges you to read "Non-GAAP Information" below.
|As of December 31, 2012|
|Hedge Funds||PE Funds|
|Assets Under Management1||$||53,430||$||10,611||$||3,660||$||5,060||$||5,665||$||7,749||$||20,685|
|Average Management Fee Rate2||1.2||%||1.5||%||1.7||%||2.0||%||1.4||%||0.2||%|
|Incentive Eligible NAV Above Incentive Income Threshold3||$||16,269||$||211||$||-||$||3,095||$||4,627||$||8,336||N/A|
|Undistributed Incentive Income: Unrecognized||$||649||$||11||$||29||$||6||$||94||$||509||N/A|
|Undistributed Incentive Income: Recognized||-||-||-||-||-||-||N/A|
|Undistributed Incentive Income4||$||649||$||11||$||29||$||6||$||94||$||509||N/A|
|Three Months Ended December 31, 2012|
|Hedge Funds||PE Funds|
|Third-Party Capital Raised||$||1,485||$||71||$||6||$||546||$||31||$||831||N/A|
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