Fortress Reports First Quarter 2013 Results and Announces Dividend of $0.06 per Share

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Fortress Reports First Quarter 2013 Results and Announces Dividend of $0.06 per Share

NEW YORK--(BUSINESS WIRE)-- Fortress Investment Group LLC (NYS: FIG) today reported its first quarter 2013 financial results.

FINANCIAL SUMMARY

  • Fortress declares a distribution of $0.06 per dividend paying share for the first quarter of 2013
  • Assets under management ("AUM") of $55.6 billion as of March 31, 2013, an increase of 4% from the fourth quarter of 2012 and 20% from the first quarter of 2012
  • GAAP net income of $67 million for the first quarter of 2013; GAAP book value per share of $2.66 as of March 31, 2013
  • Pre-tax distributable earnings ("DE") of $100 million, or $0.20 per dividend paying share, for the first quarter of 2013, compared to pre-tax DE of $57 million, or $0.11 per dividend paying share, for the first quarter of 2012
  • Net cash and investments of $2.95 per dividend paying share as of March 31, 2013, up from $2.48 per dividend paying share as of December 31, 2012
  • $731 million of gross embedded incentive income across our funds as of March 31, 2013, that has not been recognized in DE
  • Total uncalled capital, or "dry powder," of $6.7 billion as of March 31, 2013, including approximately $5.3 billion available for general investment purposes

BUSINESS HIGHLIGHTS

  • Raised $1.7 billion of capital across alternatives businesses during the quarter
  • Recorded $1.2 billion of net client inflows for Logan Circle during the quarter
  • Delivered strong investment performance across all businesses:
    • Net first quarter 2013 returns of 4.0% in the Drawbridge Special Opportunities Fund LP, 3.8% in the Fortress Macro Funds and 2.8% in the Fortress Asia Macro Funds
    • Private Equity fund valuations increased 5.2% during the quarter
    • Net annualized inception-to-date IRRs through March 31, 2013 for the Credit Opportunities Fund and Credit Opportunities Fund II of 26.7% and 19.0%, respectively
    • All 15 Logan Circle strategies outperformed respective benchmarks in the first quarter and 14 of 15 strategies have outperformed respective benchmarks since inception

"Our first quarter results reflect continued broad-based strength across our company," said Randal Nardone, interim Chief Executive Officer. "Investment performance, the most fundamental driver of our long-term success, has been strong in each of our businesses, and has supported our success in both deepening existing investor relationships and attracting new investors to Fortress strategies. Six consecutive quarters with over $1 billion in new commitments to our alternatives strategies and substantial net inflows at Logan Circle have propelled our assets under management to an all-time high of nearly $56 billion. With the key drivers of our business—investment performance, capital raising and AUM growth—showing continued momentum going into the second quarter, we feel optimistic about our prospects for earnings growth and value creation 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 first quarter ended March 31, 2013. The consolidated GAAP statement of operations and balance sheet are presented at the end of this press release.

   1Q 4Q 1Q % Change 
 2013 2012 2012 QoQ YoY
(in millions, except per share amount)
GAAP
Net income (loss)$67$222$(24)-70%N/M
Net income (loss) attributable to Class A Shareholders$14$102$(30)-86%N/M 
Per diluted share$0.05$0.24$(0.16)-86%N/M 
Weighted average Class A shares outstanding, diluted496525516
 
Distributable Earnings
Fund management DE$97$105$56-8%73%
Pre-tax DE$100$107$57 -7%75%
Per dividend paying share/unit$0.20$0.20$0.11 

0

%

82

%
Weighted average dividend paying shares and units outstanding490530533
 
Assets Under Management
Private Equity$15,495$14,271$13,2399%17%
Credit$12,661$13,41412,269-6%3%
Liquid Markets$5,490$5,0604,8408%13%
Logan Circle$21,937$20,685 16,084 6%36%
Total Assets Under Management$55,583$53,430$46,432 4%20%
 

CONSOLIDATED GAAP RESULTS

Fortress recorded GAAP net income of $67 million, or $0.05 per diluted share for the first quarter of 2013, compared with a GAAP net loss of $24 million, or $0.16 loss per diluted share, for the first quarter of 2012. 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 GAAP management fees and GAAP incentive income, which resulted in a $73 million increase in GAAP revenues.

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 March 31, 2013
 Private Equity

Liquid Hedge

Credit Funds

Logan Circle

(in millions)TotalFundsCastles

Funds

Hedge Funds PE Funds

Partners

 
Assets Under Management1$55,583$11,126$4,369$5,490$5,620$7,041$21,937
Dry Powder$6,721$806N/AN/AN/A$5,915N/A
Average Management Fee Rate21.2%1.5%1.8%2.0%1.4%0.2%
 
Incentive Eligible NAV Above Incentive Income Threshold3$16,398$210$-$3,759$4,652$7,777N/A
 
Undistributed Incentive Income: Unrecognized$731$10$69$7$100$545N/A
Undistributed Incentive Income: Recognized 59  -  -  29  30  -  N/A 
Undistributed Incentive Income4$790 $10 $69 $36 $130 $545  N/A 
 
Three Months Ended March 31, 2013
Private Equity

Liquid Hedge

Credit Funds

Logan Circle

(in millions)TotalFundsCastles

Funds

Hedge Funds PE Funds

Partners

 
Third-Party Capital Raised$1,727$221$764$667$75$-N/A
 
Segment Revenues
Management fees$132$33$18$23$25$25$8
Incentive income 116  3  -  32  33  48  - 
Total24836185558738
Segment Expenses
Operating expenses(89)(13)(7)(18)(15)(27)(9)
Profit sharing compensation expenses (54) (1) -  (10) (18) (25) - 
Total (143) (14) (7) (28) (33) (52) (9)
 
Principal Performance Payments
(8)-(1)(2)(4)(1)-
       
Fund Management DE$97 $22 $10 $25 $21 $20 $(1)
 
Pre-tax Distributable Earnings$100 $22 $10 $25 $21 $20 $(1)
 

Pre-tax DE was $100 million in the first quarter of 2013, up from $57 million in the first quarter of 2012. The year-over-year increase was primarily due to higher incentive income and management fees earned from our funds, partially offset by higher compensation related expenses.

Management fees were $132 million in the first quarter of 2013, up from $118 million in the first quarter of 2012, primarily due to higher management fees from the Private Equity Funds and Castles, Credit Private Equity Funds, Liquid Hedge Funds, and Logan Circle, partial

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