KKR & Co. L.P. Announces Second Quarter 2013 Results

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KKR & Co. L.P. Announces Second Quarter 2013 Results

Realization activity drives record cash carry and $0.42 distribution per common unit


GAAP net income (loss) attributable to KKR & Co. L.P. was $15.1 million and $208.6 million for the quarter and six months ended June 30, 2013, respectively, down from $146.3 million and $336.7 million in the comparable periods of 2012.

Assets under management ("AUM") totaled $83.5 billion as of June 30, 2013, up from $78.3 billion as of March 31, 2013.

Fee related earnings ("FRE") were $98.2 million and $186.2 million for the quarter and six months ended June 30, 2013, respectively, up from $69.8 million and $143.1 million in the comparable periods of 2012.

Total distributable earnings were $403.8 million for the quarter ended June 30, 2013, down from $406.1 million for the quarter ended June 30, 2012. Total distributable earnings were $694.4 million for the six months ended June 30, 2013, up from $570.2 million in the comparable period of 2012.

Economic net income ("ENI") was $144.4 million and $792.2 million for the quarter and six months ended June 30, 2013, respectively, down from $546.1 million and $1,273.3 million in the comparable periods of 2012.

After-tax ENI was $0.18 and $1.06 per adjusted unit for the quarter and six months ended June 30, 2013, respectively, down from $0.74 and $1.73 per adjusted unit in the comparable periods of 2012.

Book value was $6.9 billion on a total reportable segment basis as of June 30, 2013 or $9.65 per adjusted unit.

KKR & Co. L.P. declares a second quarter distribution of $0.42 per common unit, which includes $0.23 per common unit of cash carry and $0.09 per common unit of net realized principal investment income.

NEW YORK--(BUSINESS WIRE)-- KKR & Co. L.P. (NYSE: KKR) today reported its second quarter 2013 results.

AUM and fee paying assets under management ("FPAUM") were $83.5 billion and $68.0 billion, respectively as of June 30, 2013, both up from March 31, 2013. The increases in both AUM and FPAUM were primarily attributable to new capital raised relating to the Asian Fund II. The increases were partially offset by distributions to fund limited partnersand to a lesser extent the impact of the Asian Fund entering its post-investment period.

For the quarter and six months ended June 30, 2013, FRE was $98.2 million and $186.2 million, respectively, up from $69.8 million and $143.1 million in the comparable periods of 2012. The increase in both comparable periods was primarily driven by new capital raised over the past twelve months and the acquisition of Prisma.

For the quarter and six months ended June 30, 2013, the carrying value of our private equity investment portfolio appreciated 0.9% and 6.6%, respectively. ENI was $144.4 million and $792.2 million for the quarter and six months ended June 30, 2013, respectively, down from $546.1 million and $1,273.3 million in the comparable periods of 2012.The decrease in both comparable periods was primarily due to lower investment income earned from our principal investments as well as a lower level of net carried interest earned from our private equity funds. While the fair value of our principal investments increased during the quarter and six months ended June 30, 2013, the level of appreciation was lower than in the comparable periods of 2012.

"Over the past year, organic fee-paying AUM inflows have exceeded $19 billion, supporting the continued growth of our Private Markets business as well as the scaling of our newer strategies in Public Markets," said Henry R. Kravis and George R. Roberts, Co-Chairmen and Co-Chief Executive Officers of KKR. "In addition, our realization activity in the second quarter drove the highest cash carry we've reported since going public, contributing to a quarterly distribution of $0.42 per unit."

 
Note: Certain financial measures, including FRE, ENI, after-tax ENI, ENI after taxes and equity-based charges, fee related EBITDA, book value, cash and short-term investments and adjusted units, are not presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). See Exhibits A and B for a reconciliation of such measures to financial results prepared in accordance with GAAP.

GAAP RESULTS

GAAP results for the quarter and six months ended June 30, 2013 included net income attributable to KKR & Co. L.P. of $15.1 million and $208.6 million, respectively, and net income attributable to KKR & Co. L.P. per common unit of $0.05 and $0.72, respectively, on a diluted basis. For the quarter and six months ended June 30, 2012, net income attributable to KKR & Co. L.P. was $146.3 million and $336.7 million, respectively, and net income attributable to KKR & Co. L.P. per common unit was $0.58 and $1.37, respectively, on a diluted basis. The decrease in both comparable periods was primarily due to a lower level of investment appreciation recorded in net gains (losses) from investment activities. The decrease in net gains (losses) from investment activities was partially offset by increases in fees primarily attributable to the acquisition of Prisma and higher transaction fees. The decrease in compensation and benefits expense was primarily attributable to lower carry pool allocations as a result of the recognition of lower carried interest during the quarter and six months ended June 30, 2013 compared to the comparable periods in 2012.

SEGMENT RESULTS

Private Markets

AUM was $54.5 billion as of June 30, 2013, an increase of $4.2 billion, or 8.3%, compared to AUM of $50.3 billion as of March 31, 2013. The increase was primarily attributable to new capital raised from the Asian Fund II and to a lesser extent appreciation in the fair value of our private equity portfolio. These increases were partially offset by distributions to the limited partners of our private equity funds arising from realizations and a reduction in AUM as a result of the Asian Fund entering its post-investment period.

FPAUM was $45.9 billion as of June 30, 2013, an increase of $4.7 billion, or 11.4%, compared to FPAUM of $41.2 billion as of March 31, 2013. The increase was primarily attributable to new capital raised from the Asian Fund II partially offset by distributions to the limited partners of our private equity funds arising from realizations and the reduction in the fee base of the Asian Fund as a result of the fund entering the post-investment period.

FRE was $42.6 million for the quarter ended June 30, 2013, an increase of $6.4 million, or 17.6%, compared to FRE of $36.2 million for the quarter ended June 30, 2012. FRE was $83.4 million for the six months ended June 30, 2013, an increase of $9.4 million, or 12.7%, compared to FRE of $74.0 million for the six months ended June 30, 2012. The increase in both comparable periods was primarily driven by higher management fees resulting from new capital raised and higher transaction fees. These increases were partially offset by higher compensation expense due to additional headcount.

ENI was $72.0 million for the quarter ended June 30, 2013, a decrease of $102.7 million, or 58.7%, compared to ENI of $174.7 million for the quarter ended June 30, 2012. ENI was $338.7 million for the six months ended June 30, 2013, a decrease of $101.4 million, or 23.0%, compared to ENI of $440.1 million for the six months ended June 30, 2012. The decrease in both comparable periods was primarily attributable to lower net carried interest resulting from a lower level of appreciation in our private equity portfolio, partially offset by the increase in FRE discussed above.

Public Markets

AUM was $29.0 billion as of June 30, 2013, an increase of $1.1 billion, or 3.9%, compared to AUM of $27.9 billion as of March 31, 2013. FPAUM was $22.0 billion as of June 30, 2013, an increase of $0.8 billion, or 3.7%, compared to FPAUM of $21.2 billion as of March 31, 2013. For both AUM and FPAUM, the increases were primarily attributable to net new capital raised and to a lesser extent appreciation in the net asset values of certain credit investment vehicles.

FRE was $34.4 million for the quarter ended June 30, 2013, an increase of $22.1 million compared to FRE of $12.3 million for the quarter ended June 30, 2012. FRE was $71.5 million for the six months ended June 30, 2013, an increase of $43.8 million compared to FRE of $27.7 million for the six months ended June 30, 2012. The increase in both comparable periods was principally attributable to (i) higher management fees related to new capital raised, (ii) the acquisition of Prisma and (iii) higher incentive fees earned.

ENI was $40.5 million for the three months ended June 30, 2013, an increase of $33.7 million compared to ENI of $6.8 million for the three months ended June 30, 2012. ENI was $89.6 million for the six months ended June 30, 2013, an increase of $58.9 million compared to ENI of $30.7 million for the six months ended June 30, 2012. The increase in both comparable periods was primarily driven by the increase in FRE discussed above and to a lesser extent higher net carried interest due to investment appreciation of certain carry-earning investment vehicles.

Capital Markets and Principal Activities

FRE was $21.2 million for the quarter ended June 30, 2013, which was the same as in the quarter ended June 30, 2012.

FRE was $31.3 million for the six months ended June 30, 2013, a decrease of $10.2 million, or 24.5%, compared to FRE of $41.5 million for the six months ended June 30, 2012. The decrease was primarily driven by a lower level of overall capital markets transaction activity.

ENI was $31.9 million for the quarter ended June 30, 2013, a decrease of $332.6 million compared to ENI of $364.5 million for the quarter ended June 30, 2012. ENI was $363.8 million for the six months ended June 30, 2013, a decrease of $438.8 million compared to ENI of $802.6 million for the six months ended June 30, 2012. The decrease in both comparative periods was primarily due to a lower level of investment income from our principal investments. While the fair value of our principal investments increased during the quarter and six months ended June 30, 2013, the level of appreciation was lower than in the comparable periods of 2012.

CAPITAL AND LIQUIDITY

As of June 30, 2013, KKR had $2.0 billion of cash and short-term investments on a total reportable segment basis and $1.0 billion of outstanding debt obligations. KKR's availability for borrowings was $750.0 million (reduced for an outstanding letter of credit), which does not include a $500.0 million revolving credit facility for use in its capital markets business that was undrawn as of June 30, 2013.

As of June 30, 2013, KKR's portion of total uncalled commitments to its investment funds was $786.6 million, consisting of the following (amounts in thousands):

   
Uncalled

Commitments

Private Markets

North America Fund XI$229,600
Real Estate Fund135,100
European Fund III125,100
Asian Fund II75,000
2006 Fund63,800
Infrastructure28,900
E2 Investors (Annex Fund)14,000
Asian Fund10,900
Natural Resources10,300
China Growth Fund6,500
Other 11,300
Total Private Markets Commitments 710,500
 

Public Markets

Direct Lending Vehicles30,100
Mezzanine Fund29,600
Special Situations Vehicles 16,400
Total Public Markets Commitments 76,100
 
Total Uncalled Commitments$786,600
 

DISTRIBUTION

A distribution of $0.42 per common unit has been declared, comprised of (i) $0.10 per common unit from after-tax FRE, (ii) $0.23 per common unit from realized cash carry, and (iii) $0.09 per common unit from net realized principal investment income. The distribution will be paid on August 20, 2013 to unitholders of record as of the close of business on August 5, 2013. Please refer to the distribution policy presented later in this release.

CONFERENCE CALL

A conference call to discuss KKR's financial results will be held on Friday, July 26, 2013 at 10:00 a.m. EDT. The conference call may be accessed by dialing (877) 303-2917 (U.S. callers) or +1 (253) 237-1135 (non-U.S. callers); a pass code is not required. Additionally, the conference call will be broadcast live over the Internet and may be accessed through the Public Investors section of KKR's website at http://ir.kkr.com/kkr_ir/kkr_events.cfm. A replay of the live broadcast will be available on KKR's website or by dialing (855) 859-2056 (U.S. callers) or +1 (404) 537-3406 (non-U.S. callers), pass code 14885175, beginning approximately two hours after the broadcast.

From time to time, KKR may use its website as a channel of distribution of material company information. Financial and other important information regarding KKR is routinely posted and accessible on the Investor Center for KKR & Co. L.P. at http://ir.kkr.com/kkr_ir/kkr_events.cfm. In addition, you may automatically receive email alerts and other information about KKR by enrolling your email address at the "Email Alerts" area of the Investor Center on the website.

ABOUT KKR

Founded in 1976 and led by Henry Kravis and George Roberts, KKR is a leading global investment firm with $83.5 billion in assets under management as of June 30, 2013. With offices around the world, KKR manages assets through a variety of investment funds and accounts covering multiple asset classes. KKR seeks to create value by bringing operational expertise to its portfolio companies and through active oversight and monitoring of its investments. KKR complements its investment expertise and strengthens interactions with fund investors through its client relationships and capital markets platform. KKR & Co. L.P. is publicly traded on the New York Stock Exchange (NYS: KKR) and "KKR", as used in this release, includes its subsidiaries, their managed investment funds and accounts, and/or their affiliated investment vehicles, as appropriate. For additional information, please visit KKR's website at www.kkr.com.

FORWARD-LOOKING STATEMENTS

This release contains certain forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. The forward-looking statements are based on KKR's beliefs, assumptions and expectations of its future performance, taking into account all information currently available to it. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to KKR or are within its control. If a change occurs, KKR's business, financial condition, liquidity and results of operations, including but not limited to AUM, FPAUM, FRE, total distributable earnings, ENI, after-tax ENI, ENI after taxes and equity-based charges, fee related EBITDA, committed dollars invested and syndicated capital, uncalled commitments, core interest expense, cash and short-term investments, net realized principal investment income and book value, may vary materially from those expressed in the forward-looking statements. The following factors, among others, could cause actual results to vary from the forward-looking statements: the general volatility of the capital markets; failure to realize the benefits of or changes in KKR's business strategies including the ability to realize the anticipated synergies from acquisitions or strategic partnerships such as Prisma or Nephila; availability, terms and deployment of capital; availability of qualified personnel and expense of recruiting and retaining such personnel; changes in the asset management industry, interest rates or the general economy; underperformance of KKR's investments and decreased ability to raise funds; and the degree and nature of KKR's competition. KKR does not undertake any obligation to update any forward-looking statements to reflect circumstances or events that occur after the date on which such statements were made except as required by law. In addition, KKR's business strategy is focused on the long term and financial results are subject to significant volatility. Additional information about factors affecting KKR is available in KKR & Co. L.P.'s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the SEC on February 22, 2013, and other filings with the SEC, which are available at www.sec.gov.

      
KKR
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (GAAP BASIS - UNAUDITED)
(Amounts in thousands, except common unit and per common unit amounts)
 
 
Quarter EndedSix Months Ended
June 30, 2013June 30, 2012June 30, 2013June 30, 2012
Revenues
Fees$166,376 $112,360 $317,616 $228,667 
 
Expenses
Compensation and Benefits200,602280,640531,723653,050
Occupancy and Related Charges13,87814,09528,39929,292
General, Administrative and Other 77,542  54,004  171,230  111,655 
Total Expenses 292,022  348,739  731,352  793,997 
 
Investment Income (Loss)
Net Gains (Losses) from Investment Activities98,5371,601,6882,368,3544,688,553
Dividend Income

 

209,48679,919248,955252,858
Interest Income128,02087,892237,389164,091
Interest Expense (24,614) (16,884) (47,637) (34,889)
Total Investment Income (Loss) 411,429  1,752,615  2,807,061  5,070,613 
 
Income (Loss) Before Taxes285,7831,516,2362,393,3254,505,283
 
Income Taxes 8,525  11,093  17,881  28,165 
 
Net Income (Loss)277,2581,505,1432,375,4444,477,118
 
Net Income (Loss) Attributable to
Redeemable Noncontrolling Interests(7,800)3,28516,8238,557
Net Income (Loss) Attributable to
Noncontrolling Interests269,9241,355,5972,150,0484,131,864
    
Net Income (Loss) Attributable to KKR & Co. L.P.$15,134 $146,261 $208,573 $336,697 
 
Distributions Declared per KKR & Co. L.P. Common Unit$0.42$0.13$0.69$0.28
 
Net Income (Loss) Attributable to KKR & Co. L.P. Per Common Unit
Basic$0.06$0.62$0.79$1.45
Diluted (a)$0.05$0.58$0.72$1.37
Weighted Average Common Units Outstanding
Basic271,983,811235,781,983264,555,267232,440,659
Diluted (a)298,078,764252,507,802290,104,942245,169,954
 
   
(a) KKR Holdings L.P. units have been excluded from the calculation of diluted earnings per common unit given that the exchange of these units would proportionally increase KKR & Co. L.P.'s interests in KKR's business and would have an anti-dilutive effect on earnings per common unit as a result of certain tax benefits KKR & Co. L.P. is assumed to receive upon the exchange.

       

KKR

STATEMENTS OF OPERATIONS AND OTHER SELECTED FINANCIAL INFORMATION
TOTAL REPORTABLE SEGMENTS (UNAUDITED)
(Amounts in thousands, except unit and per unit amounts)
 
Quarter EndedSix Months Ended
June 30, 2013March 31, 2013June 30, 2012June 30, 2013June 30, 2012
Fees
Management and incentive fees:
Management fees$164,176$152,963$129,626$317,139$258,269
Incentive fees 15,590  18,849  4,057  34,439  13,727 
Management and incentive fees 179,766  171,812  133,683  351,578  271,996 
 
Monitoring and transaction fees:
Monitoring fees28,90732,06827,78660,97553,608
Transaction fees62,78540,29943,706
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