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

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

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


FINANCIAL SUMMARY

  • Fortress declares a cash dividend of $0.06 per dividend paying share for the second quarter of 2013

  • Management Fee Paying Assets Under Management ("AUM") of $54.6 billion as of June 30, 2013, a 2% decline from the first quarter of 2013 and a 14% increase from the second quarter of 2012

  • GAAP net loss of $2 million for the second quarter of 2013; GAAP book value per share of $2.53 as of June 30, 2013

  • Pre-tax distributable earnings ("DE") of $148 million, or $0.30 per dividend paying share, for the second quarter of 2013, compared to pre-tax DE of $50 million, or $0.09 per dividend paying share, for the second quarter of 2012

  • Net cash and investments of $2.88 per dividend paying share as of June 30, 2013, up from $2.40 per dividend paying share as of December 31, 2012

  • $754 million of gross embedded incentive income across funds as of June 30, 2013, that has not been recognized in DE

  • Total uncalled capital, or "dry powder," of $6.6 billion as of June 30, 2013, including approximately $5.3 billion available for general investment purposes

  • Subsequent to quarter end, paid in full $89 million of outstanding corporate debt

BUSINESS HIGHLIGHTS

  • Fortress's Board of Directors unanimously appointed Randal Nardone as Chief Executive Officer, following his service in this role in an interim capacity

  • Raised $1.2 billion of capital across alternative investment businesses during the quarter, bringing total third-party capital raised year-to-date through June 30, 2013 to $3.0 billion

  • Recorded $0.1 billion of net client inflows for Logan Circle during the quarter, bringing total net client inflows year-to-date through June 30, 2013 to $1.3 billion

  • Delivered strong investment performance across all businesses:

    • Net second quarter 2013 returns of 5.2% in the Drawbridge Special Opportunities Fund LP, 9.1% in the Fortress Macro Funds and 9.8% in the Fortress Asia Macro Funds; net first half 2013 returns of 9.4% in the Drawbridge Special Opportunities Fund LP, 13.2% in the Fortress Macro Funds and 12.9% in the Fortress Asia Macro Funds

    • Private Equity fund valuations increased 1.8% during the quarter and 6.9% year-to-date through June 30, 2013

    • Net annualized inception-to-date IRRs through June 30, 2013 for the Credit Opportunities Fund and Credit Opportunities Fund II of 26.2% and 18.7%, respectively

  • Subsequent to quarter end, held first and final close for Fortress MSR Opportunities Fund II at its cap of $1.1 billion

"We had an outstanding second quarter and first half of the year, founded on the strength of investment performance we delivered for our limited partners," said Randal Nardone, Chief Executive Officer. "Looking ahead, we see uniform strength in the leading indicators of future performance - investment returns, capital formation, new business initiatives and embedded value. We continue to see substantial upside for our limited partners and our shareholders. I look forward to serving as Fortress's Chief Executive Officer at this very exciting time for our company."

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 Fortress's alternative AUM residing in long-term investment structures. Fortress's alternative investment 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 second quarter ended June 30, 2013. The consolidated GAAP statement of operations and balance sheet are presented at the end of this press release.

2Q

1Q

2Q

% Change

1H

1H

% Change

2013

2013

2012

QoQ

YoY

2013

2012

YoY

(in millions, except per share amount)

GAAP

Net income (loss)

$

(2

)

$

67

$

14

N/M

N/M

$

65

$

(10

)

N/M

Net income (loss) attributable to Class A Shareholders

$

(2

)

$

14

$

5

N/M

N/M

$

12

$

(25

)

N/M

Per diluted share

$

(0.01

)

$

0.05

$

(0.12

)

N/M

N/M

$

0.04

$

(0.13

)

N/M

Weighted average Class A shares outstanding, diluted

237

496

516

498

516

Distributable Earnings

Fund management DE

$

144

$

97

$

53

48

%

172

%

$

241

$

109

121

%

Pre-tax DE

$

148

$

100

$

50

48

%

196

%

$

248

$

107

132

%

Per dividend paying share/unit

$

0.30

$

0.20

$

0.09

50

%

234

%

$

0.51

$

0.20

153

%

Weighted average dividend paying shares and units outstanding

492

490

533

491

533

Assets Under Management

Private Equity

$

14,284

$

15,495

$

13,826

(8

)%

3

%

$

14,284

$

13,826

3

%

Credit

$

12,468

$

12,661

$

11,452

(2

)%

9

%

12,468

11,452

9

%

Liquid Markets

$

6,461

$

5,490

$

4,398

18

%

47

%

6,461

4,398

47

%

Logan Circle

$

21,397

$

21,937

$

18,112

(2

)%

18

%

21,397

18,112

18

%

Total Assets Under Management

$

54,610

$

55,583

$

47,788

(2

)%

14

%

$

54,610

$

47,788

14

%

CONSOLIDATED GAAP RESULTS

Fortress recorded a GAAP net loss of $2 million, or $0.01 loss per diluted share, for the second quarter of 2013, compared to GAAP net income of $14 million, or $0.12 loss per diluted share, for the second 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 decline in Fortress's GAAP net income was primarily driven by higher compensation and benefits, which resulted in a $38 million increase in GAAP expenses, partially offset by higher 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 the 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 June 30, 2013

Private Equity

Liquid Hedge

Credit Funds

Logan Circle

(in millions)

Total

Funds

Castles

Funds

Hedge Funds

PE Funds

Partners

Assets Under Management1

$

54,610

$

11,068

$

3,216

$

6,461

$

5,760

$

6,708

$

21,397

Dry Powder

$

6,618

$

673

N/A

N/A

N/A

$

5,945

N/A

Average Management Fee Rate2

1.2

%

1.5

%

1.8

%

2.0

%

1.4

%

0.1

%

Incentive Eligible NAV Above Incentive Income Threshold3

$

17,767

$

576

N/A

$

4,740

$

4,765

$

7,686

N/A

Undistributed Incentive Income: Unrecognized

$

754

$

3

$

85

$

5

$

92

$

569

N/A

Undistributed Incentive Income: Recognized

192

-

-

116

76

-

N/A

Undistributed Incentive Income4

$

946

$

3

$

85

$

121

$

168

$

569

N/A

Three Months Ended June 30, 2013

Private Equity

Liquid Hedge

Credit Funds

Logan Circle

(in millions)

Total

Funds

Castles

Funds

Hedge Funds

PE Funds

Partners

Third-Party Capital Raised

$

1,226

$

-

$

333

$

726

$

167

$

-

$

-

Segment Revenues

Management fees

$

129

$

34

$

13

$

26

$

25

$

22

$

9

Incentive income

199

5

1

92

64

37

-

Total