* Q1 aftertax ENI 88 cents/adjusted unit vs view 82 cents
* Assets under management rise to record $78.3 billion
* Shares jump as much as 7 percent
By Greg Roumeliotis
NEW YORK, April 25 Private equity firm KKR & Co
LP said on Thursday it will share 40 percent of profits
from its own investments with shareholders and reported
quarterly earnings that beat expectations, sending its shares to
an all-time high.
KKR shares jumped as much as 7 percent to a record $21.59,
and were trading up 4.9 percent at $21.17 in afternoon trading,
as investors welcomed clarity on how much of KKR's profits from
principal investments would go to them. While the payout won't
be substantially higher than before, it will be more frequent
Uncertainty over the dividend policy had caused KKR shares
to close down on Feb. 7, the day it posted 2012 fourth-quarter
earnings and announced its highest-ever dividend.
"From a valuation standpoint, KKR is trading ...
meaningfully below peers, as well as the traditional asset
managers. Moreover, our model calls for distributions per unit
to reach $1.24 this year, implying a 6 percent-plus yield,"
Sandler O'Neill + Partners analyst Michael Kim wrote in a note.
New York-based KKR's cash profits nearly doubled as it took
advantage of strong markets to sell shares in companies and sell
some assets outright. But using an alternative asset management
industry metric, its earnings fell.
First-quarter economic net income (ENI), a measure of
profitability that takes into account the mark-to-market
valuation of assets, dropped to $647.7 million from $727.2
million a year earlier.
This translated into aftertax ENI of 88 cents per adjusted
share, topping the average analyst estimate of 82 cents,
according to a Thomson Reuters poll.
KKR's private equity fund portfolio appreciated 5.9 percent
in the quarter versus a 9 percent rise a year ago. The value of
KKR's principal investments also grew at a slower pace.
Blackstone Group LP, the world's largest alternative
asset manager, reported a 28 percent rise in first-quarter ENI
last week as its real estate, private equity, credit and hedge
fund units successfully sold assets and appreciated in value.
In the first quarter, KKR sold shares in discount retailer
Dollar General Corp at 5.5 times its investors' money,
hospital operator HCA Holdings Inc at 3.2 times its
investors' money and Jazz Pharmaceuticals Plc at four
times its investors' money.
It also agreed to sell its 51 percent stake in music rights
management company BMG to Bertelsmann AG, Europe's
largest media company, and Japanese recruitment services firm
Intelligence Holdings Ltd to peer Temp Holdings Co Ltd.
Total distributable earnings, used to pay dividends, jumped
to $290.6 million in the first quarter from $164.1 million a
year earlier. Just over half of the rise was due to profits from
KKR's own investments rather than management and performance
fees it got from funds.
Fee-related earnings, mostly reflecting fees it charges to
investors and portfolio companies that are not based on KKR's
performance, rose to $88 million from $73.4 million a year ago.
Realized performance fees from KKR's funds resulted in income of
$52.9 million, up from $44.9 million a year ago.
KKR's principal investments made a significant difference.
They yielded income of $153.2 million, versus $52.6 million a
Huge by industry standards, the size of KKR's balance sheet
is the legacy of the firm's merger in 2009 with KKR Private
Equity Investors, a fund vehicle whose listing KKR transferred
to New York from Amsterdam in 2010.
KKR said it would now strive to distribute 40 percent of its
balance sheet income as a dividend every quarter.
Previously, about 35 percent to 37 percent of the annual
balance sheet gains had been paid out to shareholders in one
installment in the fourth quarter. This was to cover their tax
liabilities on those dividends.
The 2013 first-quarter dividend is 27 cents per share.
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 has now been filled. This
means KKR can now receive performance fees from all of its
private equity funds with the exception of its European Fund II,
its European annex fund, and its China Growth Fund, KKR said.
KKR, which has investments in retailer Toys R Us Inc and
Internet domain registration company Go Daddy Group Inc, said
assets under management rose to $78.3 billion at the end of
March from $75.5 billion at the end of December. Besides private
equity, the assets include credit investments, hedge funds, and
KKR also gave an update on its efforts to set up a real
estate fund. It has so far committed over $650 million in ten
property transactions, with about half of that money coming from
"I think that we'll club together a group of investors, drop
some of those investments down into the fund to seed ... but
it's very early days on that," Scott Nuttall, KKR's global head
of capital and asset management, told analysts on a conference
The firm was founded in 1976 by Henry Kravis, George Roberts
and Jerome Kohlberg. It gained widespread recognition through
its $25 billion leveraged buyout of RJR Nabisco in 1988, a
battle that was immortalized in the bestseller, "Barbarians at