UPDATE 1-KKR's asset sales deliver record cash

Thu Feb 7, 2013 4:15pm EST

* Q4 after-tax ENI per adj unit 48 cents, Street view 23 cts

* North American Fund XI reaches $7.5 billion in capital

* KKR shares down 0.45 percent in late trading

By Greg Roumeliotis

NEW YORK, Feb 7 (Reuters) - KKR & Co LP said the fourth quarter of 2012 was its strongest yet as a publicly listed alternative asset manager, as exits from private equity investments delivered a record amount of cash for itself and its investors.

KKR's stock started trading on Thursday up close to 4 percent but gave up gains as investors focused on a drop in the firm's fee-related earnings and its reluctance to share more of the profits from its balance sheet rather than its funds.

"Fourth-quarter results were well ahead of our forecasts however you cut it ... While we remain neutral-rated on the shares, we are somewhat surprised by today's share price weakness on the back of very strong results," Credit Suisse analysts wrote in a note.

KKR shares were down 0.45 percent at $17.70 in late afternoon trading in New York.

Buoyant equity and debt markets have offered buyout firms an opportunity to exit some investments profitably and lifted the value of assets in their funds. Blackstone Group LP put in a strong showing with its earnings last week.

"Our private equity portfolio and our balance sheet both appreciated 24 percent in 2012, outperforming the S&P 500 and MSCI World indices by over 700 basis points," Henry Kravis and George Roberts, KKR's co-founders and co-chief executives, said in a statement on Thursday.

KKR said fourth-quarter economic net income, a measure of profitability that takes into account the mark-to-market valuation of its assets, came in at $347.7 million, compared with $285.5 million a year earlier.

This translates into after-tax fourth-quarter ENI of $0.48 per adjusted unit, more than double the 23 cents average in a Thomson Reuters poll of analysts.

Total distributable earnings, which are used to pay dividends, jumped from $146.5 million in the fourth quarter of 2011 to $546.3 million in the fourth quarter of 2012.

A handful of low-profile transactions drove the rise in earnings, delivering in aggregate more cash than KKR's $6.7 billion sale of a stake in pharmacy group Alliance Boots GmbH, which dominated the buyout firm's third-quarter earnings.

The cash-outs booked in the fourth quarter included the sale of shares in discount retailer Dollar General Corp, a sale of shares and a dividend payment at hospital operator HCA Holdings Inc, and the divestment of its remaining stakes in semiconductor company Avago Technologies and chemicals maker Rockwood Holdings Inc.

FUNDRAISING

KKR, whose investments include retailer Toys R Us Inc and Internet domain registration company Go Daddy Group Inc, said assets under management rose to $75.5 billion at the end of December from $66.3 billion at the end of September, thanks mainly to its acquisition of Prisma Capital Partners LP, a hedge fund-of-funds manager.

KKR reported progress in raising capital for two key funds that are seen as a test of its fundraising power - KKR Asia Fund II and North American Fund XI (NAXI).

NAXI had amassed $6 billion in investor commitments as of February 2012 and had since raised only an additional $200 million, KKR said in October. The fund has a target of $7 billion to $8 billion and was meant to wrap up fundraising by early 2013.

But on Thursday, KKR's head of global capital and asset management Scott Nuttall told analysts on a conference call that NAXI had reached $7.5 billion and that fundraising would be extended to the second half of 2013 as the firm was confident it could reach the top end of its target range.

KKR Asia Fund II, which launched in the beginning of 2012 with a target of $6 billion, now had documentation in hand for over $5 billion in commitments and expected to reach its target in the next 30 to 60 days, Nuttall said. Some 42 percent of the investors who participated so far were new to KKR, he added.

"It really helps when your funds are up 24-plus percent and you are giving back a lot of cash ... Frankly I think if you had asked me a quarter ago, I wouldn't have predicted we would be as far along as we are today," Nuttall said.

KKR also gave an update on its $17.6 billion 2006 buyout fund, which earns it no cash profits as long as some of the fund investments are marked below initial cost. The amount by which investments are marked below cost is called a netting hole.

The netting hole on the 2006 Fund's domestic partnerships has been cut to about $275 million, KKR said. The overseas partnership netting hole has been filled, allowing $6 billion of assets under management to pay cash profits to KKR, the firm added.

KKR announced a fourth-quarter distribution of 70 cents per common unit, its highest ever. While KKR shares its fund profits with investors, it will share profits from its own balance sheet just to make investors whole on tax they must pay on dividends.

The New York-based buyout firm said it had returned over $9 billion in 2012 to its private equity investors, the most in a year in its 36-year history.