Increases Base Quarterly Dividend to $0.09
per Share and Announces Special Cash Dividend of $0.11 per
Share
Fortress Investment Group LLC (NYSE:FIG) (“Fortress” or the
“Company”) today reported its first quarter 2016 financial
results.
FINANCIAL SUMMARY
- Fortress declared a cash dividend of
$0.20 per dividend paying share, comprised of a first quarter 2016
base quarterly dividend of $0.09 per dividend paying share and a
special cash dividend of $0.11 per dividend paying share
- Announced 13% increase in base
quarterly dividend to $0.09 per dividend paying share, effective
for the first quarter of 2016
- Management Fee Paying Assets Under
Management (“AUM”) of $70.6 billion as of March 31, 2016, flat
compared to the previous quarter and an increase of 1% compared to
March 31, 2015
- GAAP net loss of $16 million, or a
$0.04 loss per diluted Class A share, for the first quarter of
2016, compared to GAAP net income of $87 million, or $0.15 per
diluted Class A share, for the first quarter of 2015
- Pre-tax distributable earnings (“DE”)
of $64 million, or $0.16 per dividend paying share, for the first
quarter of 2016, compared to pre-tax DE of $55 million, or $0.12
per dividend paying share, for the first quarter of 2015
- Net cash and investments of $0.9
billion, or $2.39 per dividend paying share, as of March 31,
2016
- $1.0 billion of gross embedded
incentive income across funds and permanent capital vehicles as of
March 31, 2016, that has not yet been recognized in DE
- Total uncalled capital, or “dry
powder,” of $7.3 billion as of March 31, 2016, including $4.4
billion available for general investment purposes
- In March 2016, completed a modified
“Dutch auction” self-tender offer and purchased 4.8 million Class A
shares at a purchase price of $4.75 per share, or an aggregate
purchase price of $23 million
BUSINESS HIGHLIGHTS
- Raised $348 million of capital across
alternative investment businesses during the quarter and $4.0
billion in the last twelve months
- Investment performance summary as of
March 31, 2016:
- Annualized inception-to-date net IRRs
for Credit Opportunities Fund (“FCO”), FCO II and FCO III of 23.8%,
16.4% and 9.9%, respectively
- First quarter 2016 net returns of 0.6%
for the Drawbridge Special Opportunities Fund (“DBSO”) LP, 1.5% for
the Fortress Convex Asia Fund Ltd and 1.8% for the Fortress
Centaurus Global Fund Ltd.
- 12 of 16 Logan Circle strategies
outperformed respective benchmarks in the first quarter
“We delivered solid performance for the quarter, including
year-over-year increases in AUM, revenues and distributable
earnings,” said Fortress CEO Randal Nardone. “We were pleased to
announce a $0.11 special cash dividend in addition to a 13%
increase in our base quarterly dividend to $0.09 per share. With
substantial embedded value and strong levels of activity across our
businesses, we are very optimistic in our outlook for the full
year.”
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 three months ended March 31,
2016. The consolidated GAAP statement of operations and balance
sheet are presented on pages 13-14 of this press release.
1Q
4Q 1Q % Change 2016 2015 2015 QoQ
YoY (in millions, except per share amount)
GAAP
Revenues $ 232 $ 415 $ 227 (44 )% 2 % Expenses 207 242 329 (14 )%
(37 )% Other Income (loss) (40 ) (18 ) 208 N/A N/A Net income
(loss) (16 ) 116 87 N/A N/A Net income (loss) attributable to Class
A Shareholders (9 ) 54 35 N/A N/A Per
diluted share $ (0.04 ) $ 0.20 $ 0.15 N/A N/A Weighted
average Class A shares outstanding, diluted 221 425 222
Distributable Earnings Fund management DE $ 63 $ 113 $ 51
(44 )% 24 % Pre-tax DE 64 130 55
(51 )% 16 % Per dividend paying share/unit $ 0.16 $ 0.30
$ 0.12 (47 )% 33 % Weighted average dividend paying shares
and units outstanding 398 430 450
Assets Under
Management Private Equity and Permanent Capital $ 13,952 $
15,807 $ 14,801 (12 )% (6 )% Credit1 18,689 18,107 13,834 3 % 35 %
Liquid Markets2 5,195 5,409 7,838 (4 )% (34 )% Logan Circle
32,801 31,178 33,416 5 % (2 )% Total
Assets Under Management $ 70,637 $ 70,501 $ 69,889 0
% 1 %
____________________________________
1 The Assets Under Management presented for Credit includes $2,589
million of AUM related to co-managed funds as of 1Q 2016. 2 The
Assets Under Management presented for Liquid Markets includes
$4,469 million of AUM related to Fortress's affiliated manager
platform ("Affiliated Managers") as of 1Q 2016.
CONSOLIDATED GAAP RESULTS
Fortress recorded a GAAP net loss of $16 million, or a $0.04
loss per diluted Class A share, for the first quarter of 2016,
compared to GAAP net income of $87 million, or $0.15 per diluted
Class A share, for the first quarter of 2015. 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 decrease in Fortress’s first quarter 2016
GAAP net income was primarily driven by a $248 million decrease in
other income, partially offset by a $122 million decrease in
expenses and a $5 million increase in revenues. The decrease in
other income was primarily related to the transfer of our interest
in Graticule Asset Management (“Graticule”). In January 2015, the
Fortress Asia Macro Funds and related managed accounts transitioned
to Graticule, an autonomous asset management business on Fortress’s
affiliated manager platform (“Affiliated Managers”). Fortress
recorded the results of this transaction at fair value, which for
the first quarter of 2015 resulted in a non-cash gain of $134
million recorded in other income and a non-cash expense of $101
million recorded in expenses related to the portion of Fortress's
interest that was transferred to a former senior employee.
Excluding the effects of the Graticule transfer described above,
other income and expenses for the first quarter of 2016 declined
$113 million and $21 million, respectively, compared to the first
quarter of 2015.
The $113 million decline in other income was primarily related
to a net decrease in earnings from equity method investees,
primarily with respect to our investments in our PE funds and
Liquid hedge funds, net losses in the fair value of derivatives,
primarily related to Japanese Yen foreign exchange contracts, and
net decreases in the fair value of options and common stock in our
publicly traded permanent capital vehicles and publicly traded
private equity portfolio companies.
The $21 million decline in expenses was primarily related to
lower compensation and benefits expense and lower general,
administrative and other expense, partially offset by higher
interest expense.
The $5 million increase in revenues was primarily related to
higher incentive income, partially offset by lower management fees
and expense reimbursements.
CONSOLIDATED SEGMENT RESULTS (NON-GAAP)
This section provides information about each of Fortress’s
businesses: (i) Credit Hedge Funds and Credit PE Funds, (ii)
Private Equity Funds and Permanent Capital Vehicles, (iii) Liquid
Hedge Funds, and (iv) Logan Circle. Fortress uses DE as the primary
metric to manage its businesses and gauge the Company’s
performance, and it uses DE exclusively to report segment results.
All DE figures are presented on a pre-tax basis. 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, 2016 Private
Equity Credit Funds
Permanent
Liquid Hedge Logan Circle (in millions)
Total Funds
Capital Vehicles
Hedge Funds PE Funds Funds Partners
Assets Under Management3 $ 70,637 $ 7,179 $
6,773 $ 9,336 $ 9,353 $ 5,195 $ 32,801
Dry Powder $ 7,286 $
607 $ - $ 309 $ 6,370 N/A N/A
Average Management Fee
Rate4
1.2%
1.5%
2.0%
1.3%
1.1%
0.2%
Incentive Eligible NAV Above Incentive Income
Threshold5 $ 21,133 $ 853 $ 4,735 $ 4,382 $ 11,020 $ 143
$ - Undistributed Incentive Income: Unrecognized $ 1,022 $
22 $ 20 $ 61 $ 916 $ 3 $ - Undistributed Incentive Income:
Recognized 8 - 1 6
- 1 $ -
Undistributed
Incentive Income6 $ 1,030 $ 22 $ 21
$ 67 $ 916 $ 4 $ -
Three
Months Ended March 31, 2016 Private Equity Credit
Funds
(in millions)
Permanent
Liquid Hedge Logan Circle Total Funds
Capital Vehicles
Hedge Funds PE Funds Funds
Partners Third-Party Capital Raised $ 348 $ -
$ - $ 272 $ 13 $ 63 $ -
Segment Revenues Management
fees $ 141 $ 26 $ 27 $ 37 $ 31 $ 6 $ 14 Incentive income 64
- 2 7 53
2 -
Total
205 26 29 44 84 8 14
Segment Expenses Operating expenses
(109 ) (10 ) (19 ) (26 ) (32 ) (9 ) (13 ) Profit sharing
compensation expenses (31 ) - (1 )
(3 ) (26 ) (1 ) - Total (140 )
(10 ) (20 ) (29 ) (58 ) (10 ) (13 )
Earnings From
Affiliated Managers 1 - - - - 1 -
Principal
Performance Payments (3 ) - (1 ) (1 ) (1 ) - -
Fund Management DE $ 63
$ 16 $ 8 $ 14 $ 25 $ (1 ) $ 1
Net Investment Income7 1 (2 ) 1 - 3 3 -
Pre-tax Distributable
Earnings $ 64 $ 14 $ 9 $ 14 $ 28
$ 2 $ 1
____________________________________
3 The Assets Under Management presented
for the Credit Hedge Funds includes $2,589 million related to
co-managed funds and $815 million related to the third party
originated JP Funds and Value Recovery Funds. The Assets Under
Management presented for the Liquid Hedge Funds includes $4,469
million related to Affiliated Managers.
4 The Average Management Fee Rate
presented for the Credit Hedge Funds excludes the co-managed funds
and third-party originated JP Funds and Value Recovery Funds (see
footnote 3 above). The Average Management Fee Rate presented for
the Liquid Hedge Funds excludes Affiliated Managers.
5 The Incentive Eligible NAV Above
Incentive Income Threshold presented for Credit Hedge Funds
excludes co-managed funds, certain third party originated funds and
sidepocket investments and for Liquid Hedge Funds, excludes
Affiliated Managers and sidepocket investments. The Incentive
Eligible NAV Above Incentive Income Threshold presented for Private
Equity Funds and Credit PE Funds (except for a certain FCO Managed
Account in its investment period and a portion of LDVF I and FCO
IV, whose capital was above the incentive income threshold as of
March 31, 2016), represents total fund NAV. The Incentive Eligible
NAV Above Incentive Income Threshold presented for the Permanent
Capital Vehicles represents the equity basis that is used to
calculate incentive income.
6 The Undistributed Incentive Income
presented for the Credit Hedge Funds excludes co-managed funds and
certain third party originated funds and for Liquid Hedge Funds,
excludes Affiliated Managers. Undistributed Incentive Income
includes the impact of sidepocket investments on Credit and Liquid
Hedge Funds. Undistributed Incentive Income for Private Equity
Funds, Credit PE Funds and Liquid and Credit Hedge Fund sidepocket
and redeeming capital account (RCA) investments has not been
recognized in Distributable Earnings and will be recognized when
realized; Undistributed Incentive Income for the main Hedge Fund
investments was recognized in Distributable Earnings when earned.
Undistributed Incentive Income for Credit PE Funds includes $7
million of incentive income that would have been recorded in
Distributable Earnings if Fortress had settled Japanese Yen foreign
exchange derivative contracts it had outstanding as of March 31,
2016. Undistributed Incentive Income for Permanent Capital Vehicles
includes incentive income that would have been recorded in
Distributable Earnings if Fortress had (i) exercised all of its
in-the-money options it holds in the Permanent Capital Vehicles and
sold all of the resulting shares and (ii) sold all of its Permanent
Capital Vehicle common shares which it received as incentive
income, based on their March 31, 2016 closing price.
7 Net Investment Income includes
Unallocated Losses of $1 million and Unallocated Expenses of $3
million.
Pre-tax DE was $64 million in the first quarter of 2016, up from
$55 million in the first quarter of 2015, primarily due to higher
incentive income and management fees and lower operating expenses,
partially offset by lower earnings from affiliated managers and net
investment income.
Management fees were $141 million in the first quarter of 2016,
up from $139 million in the first quarter of 2015. The increase was
primarily due to higher management fees from the Permanent Capital
Vehicles, Credit Hedge Funds, Credit PE Funds and Logan Circle,
partially offset by lower management fees from the Liquid Hedge
Funds and Private Equity Funds.
Incentive income in the first quarter of 2016 totaled $64
million, up from $51 million in the first quarter of 2015. The
year-over-year increase was primarily due to higher incentive
income from the Credit PE Funds, partially offset by lower
incentive income from the Credit Hedge Funds.
Earnings from Affiliated Managers totaled $1 million in the
first quarter of 2016, down from $9 million in the first quarter of
2015.
Additionally, Fortress had over $1.0 billion in gross
undistributed, unrecognized incentive income based on investment
valuations as of March 31, 2016. This includes $1.0 billion from
our funds and $20 million from options and common shares in our
permanent capital vehicles.
The Company’s segment revenues and distributable earnings
will fluctuate materially depending upon the performance of its
funds and the realization events within its Private Equity
businesses, as well as other factors. Accordingly, the
revenues and distributable earnings in any particular period should
not be expected to be indicative of future results.
ASSETS UNDER MANAGEMENT
As of March 31, 2016, AUM totaled $70.6 billion, up slightly
from $70.5 billion as of December 31, 2015. Notably, approximately
86% of alternative AUM was in funds with long-term investment
structures as of March 31, 2016.
During the quarter, Fortress’s AUM increased due to (i) $0.7
billion of capital acquisitions related to the third party
originated JP Funds, (ii) $0.5 billion of net market-driven
valuation gains, (iii) a $0.3 billion increase in invested capital,
(iv) $0.3 billion of capital raised that was directly added to AUM
and (v) $0.3 billion of net client inflows for Logan Circle. These
increases to AUM were partially offset by (i) a $0.7 billion
reduction in AUM related to Fund III and Fund III Coinvestment
passing their contractual maturity date, (ii) $0.6 billion of
capital distributions to investors, (iii) $0.3 billion of Hedge
Fund redemptions, (iv) a $0.3 billion decline in the AUM of
Affiliated Managers and co-managed funds, and (v) $0.1 billion in
distributions to investors in redeeming capital accounts.
As of March 31, 2016, the Credit Funds and Private Equity Funds
had $6.7 billion and $0.6 billion of uncalled capital,
respectively, that will become AUM if called. Uncalled capital or
dry powder – capital committed to the funds but not invested and
generating management fees – includes $2.9 billion that is only
available for follow-on investments, management fees and other fund
expenses.
BUSINESS SEGMENT RESULTS
Below is a discussion of first quarter 2016 segment results and
business highlights.
Credit:
- Credit AUM up 35% year-over-year to
record $18.7 billion
- FCO, FCO II, FCO III, FJOF and FJOF
II (Yen) recorded annualized inception-to-date net IRRs of 23.8%,
16.4%, 9.9%, 34.4% and 28.2%, respectively, through March 31,
2016
- Recorded $60 million of gross
incentive income in the quarter and $342 million of gross incentive
income over the last twelve months
- Appointed investment manager of
certain third party originated funds (the “JP Funds”)
(See supplemental data on pages 19-20 for more detail on Credit
results)
The Credit business, which includes our Credit PE Funds and
Credit Hedge Funds, generated pre-tax DE of $42 million in the
first quarter of 2016, up from $29 million in the first quarter of
2015. The year-over-year increase in DE was primarily driven by
higher incentive income and management fees, partially offset by
higher operating and profit sharing expenses.
The Credit PE Funds generated pre-tax DE of $28 million in the
quarter, up from $7 million in the first quarter of 2015, as gross
incentive income more than doubled year-over-year to $53 million.
Over the last twelve months, the Credit PE Funds recognized $273
million of gross incentive income, while gross unrecognized Credit
PE incentive income increased $68 million year-over-year to a
record high of $916 million as of March 31, 2016.
The Credit Hedge Funds generated pre-tax DE of $14 million for
the quarter, down from $22 million in the first quarter of 2015,
primarily due to lower incentive income. Fortress’s flagship credit
hedge fund, DBSO LP, had net returns of 0.6% for the quarter and
4.3% for the last twelve months ended March 31, 2016.
In March 2016, Fortress was appointed investment manager of the
third party originated JP Funds, as part of the Credit Hedge Fund
segment. The JP Funds focus primarily on investing in secondary LP
interests and had $735 million of AUM as of March 31, 2016. The
Credit Hedge Funds also raised $272 million of new capital in the
quarter.
Private Equity and Permanent Capital Vehicles:
- Permanent Capital Vehicle AUM up 47%
year-over-year to $6.8 billion
- Record $4.7 billion of Permanent
Capital Vehicle Incentive Eligible NAV Above Incentive Income
Thresholds at quarter end
- Substantial PE investment value
remaining to harvest in funds and on balance sheet
(See supplemental data on pages 17-18 for more detail on Private
Equity results)
The Private Equity business recorded pre-tax DE of $23 million
in the first quarter of 2016, including $14 million for the Private
Equity Funds and $9 million for the Permanent Capital Vehicles, up
from $19 million in the first quarter of 2015. The year-over-year
increase was primarily driven by higher management fees for the
Permanent Capital Vehicles and lower operating expenses for the
Private Equity Funds, partially offset by lower management fees for
the Private Equity Funds.
Private Equity Fund valuations declined 8% in the first quarter,
primarily due to changes in the value of OneMain Holdings, Inc.
(NYSE: OMF) and Nationstar Mortgage Holdings Inc. (NYSE: NSM),
partially offset by appreciation of certain private portfolio
company investments.
At quarter end, New Residential Investment Corp. (NYSE: NRZ),
New Senior Investment Group Inc. (NYSE: SNR), New Media Investment
Group Inc. (NYSE: NEWM) and Eurocastle Investment Limited (Euronext
Amsterdam: ECT) were at or above their respective incentive income
thresholds and eligible to earn incentive income.
Liquid Hedge Funds:
- Raised $63 million of capital in the
quarter, and $310 million over the last twelve months
- All Fortress Liquid Hedge Funds
generated positive net returns in the first quarter
(See supplemental data on page 21 for more detail on Liquid
Hedge Funds results)
The Liquid Hedge Funds recorded pre-tax DE of $2 million in the
first quarter of 2016, down from $9 million in the first quarter of
2015, primarily due to lower management fees and earnings from
Affiliated Managers, partially offset by lower expenses.
First quarter 2016 net returns for the Fortress Convex Asia
Funds and Fortress Centaurus Global Funds were 1.5% and 1.8%,
respectively. Net returns year-to-date through April 29, 2016 for
the Fortress Convex Asia Funds and Fortress Centaurus Global Funds
were 1.4% and 2.1%, respectively.*
The Liquid Hedge Funds had $5.2 billion of AUM at quarter end,
including $4.5 billion related to Affiliated Managers. As of March
31, 2016, the Liquid Hedge Funds had $39 million of outstanding
redemption notices that will be paid in the second quarter of
2016.
____________________________________
* The net returns for the Fortress Convex
Asia Funds reflect returns for the Fortress Convex Asia Funds and
Fortress Convex Asia PF Funds collectively. The calculation of net
returns for the Fortress Convex Asia PF Funds reflect all expenses,
including management fees, accrued incentive allocation (if any),
and other expenses over the fund’s Trading Level. “Trading Level”
is defined as the product of the fund’s NAV multiplied by the
Funding Factor. The “Funding Factor” is 2x for Fortress Convex Asia
Fund PF Ltd and Fortress Convex Asia Fund PF LP.
Logan Circle:
- In the first quarter, all 16 Logan
Circle strategies generated positive net returns and 12 of 16
strategies outperformed their respective benchmarks
- Strong investment performance drove
$1.4 billion of market-driven valuation gains in the
quarter
(See supplemental data on page 22 for more detail on Logan
Circle results)
Logan Circle, our traditional asset management business,
recorded pre-tax DE of $1 million for the first quarter of 2016, up
from a pre-tax DE loss of $1 million for the first quarter of
2015.
Logan Circle ended the quarter with $32.8 billion in AUM, up 5%
compared to the previous quarter, primarily due to $1.4 billion of
market-driven valuation gains and $261 million of net client
inflows.
For the quarter ended March 31, 2016, 12 of 16 Logan Circle
fixed income strategies outperformed their respective benchmarks.
Since inception, 15 of 16 Logan Circle fixed income strategies have
outperformed their respective benchmarks and seven were ranked in
the top quartile of performance for their competitor universe.
LIQUIDITY & CAPITAL
As of March 31, 2016, Fortress had cash and cash equivalents of
$226 million and debt obligations of $261 million.
As of March 31, 2016, Fortress had $1.0 billion of investments
in Fortress funds and options in publicly traded permanent capital
vehicles and a total of $149 million in outstanding commitments to
its funds. In addition, the NAV of Fortress’s investments in its
own funds exceeded its segment cost basis by $461 million at
quarter end, representing net unrealized gains that have not yet
been recognized for segment reporting purposes.
In March 2016, Fortress completed a modified "Dutch auction"
self-tender offer and purchased 4,798,863 of its Class A shares at
a purchase price of $4.75 per share, or an aggregate purchase price
of $23 million. All of these Class A shares were canceled and cease
to be outstanding.
In January 2016, Fortress entered into a new $275 million
unsecured revolving credit facility (including a $15 million letter
of credit subfacility) under which, approximately $167 million was
available to be drawn as of March 31, 2016.
DIVIDEND
Fortress’s Board of Directors declared a cash dividend of $0.20
per dividend paying share, comprised of a first quarter 2016 base
quarterly dividend of $0.09 per dividend paying share and a special
cash dividend of $0.11 per dividend paying share. The dividend is
payable on May 20, 2016 to Class A shareholders of record as of the
close of business on May 17, 2016.
Fortress announced an increase in its base quarterly dividend,
effective for the first quarter of 2016, to $0.09 per dividend
paying share, up 13% from $0.08 per dividend paying share.
The declaration and payment of any dividends are at the sole
discretion of the Board of Directors, which may decide to change
its dividend policy at any time. Please see below for information
on the U.S. federal income tax implications of the dividend.
NON-GAAP INFORMATION
DE is a primary metric used by management to measure Fortress’s
operating performance. Consistent with GAAP, DE is the sole
measure that management uses to manage, and thus report on,
Fortress’s segments, namely: Private Equity, Permanent Capital
Vehicles, Credit Hedge Funds, Credit PE Funds, Liquid Hedge Funds
and Logan Circle. DE differs from GAAP net income in a number
of material ways. For a detailed description of the calculation of
pre-tax DE and fund management DE, see Exhibit 3 to this release
and note 10 to the financial statements included in the Company’s
most recent quarterly report on Form 10-Q.
Fortress aggregates its segment results to report consolidated
segment results, as shown in the table under “Summary Financial
Results” and in the “Total” column of the table under “Consolidated
Segment Results (Non-GAAP).” The consolidated segment results are
non-GAAP financial information. Management believes that
consolidated segment results provide a meaningful basis for
comparison among present and future periods. However, consolidated
segment results should not be considered a substitute for
Fortress’s consolidated GAAP results. The exhibits to this release
contain reconciliations of the components of Fortress’s
consolidated segment results to the comparable GAAP measures, and
Fortress urges you to review these exhibits. Fortress also uses
weighted average dividend paying shares and units outstanding (used
to calculate pre-tax DE per dividend paying share) and net cash and
investments. The exhibits to this release contain reconciliations
of these measures to the comparable GAAP measures, and Fortress
urges you to review these exhibits.
CONFERENCE CALL
Management will host a conference call today, Thursday, May 5th
at 9:00 A.M. Eastern Time. A copy of the earnings release is posted
to the Investor Relations section of Fortress’s website,
www.fortress.com. The conference call may be accessed by dialing
1-877-694-6694 (from within the U.S.) or 1-970-315-0985 (from
outside of the U.S.) ten minutes prior to the scheduled start of
the call; please reference “Fortress First Quarter Earnings Call.”
A simultaneous webcast of the conference call will be available to
the public on a listen-only basis at www.fortress.com. Please allow
extra time prior to the call to visit the site and download the
necessary software required to listen to the internet broadcast. A
telephonic replay of the conference call will also be available by
dialing 1-855-859-2056 (from within the U.S.) or 1-404-537-3406
(from outside of the U.S.); please reference access code
“87345292.”
ABOUT FORTRESS
Fortress Investment Group LLC (NYSE: FIG) is a leading, highly
diversified global investment management firm with $70.6 billion in
assets under management as of March 31, 2016. Fortress applies its
deep experience and specialized expertise across a range of
investment strategies - private equity, credit, liquid hedge funds
and traditional asset management - on behalf of over 1,750
institutional clients and private investors worldwide. For more
information regarding Fortress Investment Group LLC or to be added
to its e-mail distribution list, please visit www.fortress.com.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this press release may constitute
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995, including statements
regarding Fortress’s sources of management fees, incentive income
and investment income (loss), estimated fund performance and the
amount and source of expected capital commitments. These
statements are not historical facts, but instead represent only the
Company’s beliefs regarding future events, many of which, by their
nature, are inherently uncertain and outside of the Company’s
control. It is possible that the sources and amounts of management
fees, incentive income and investment income, the amount and source
of expected capital commitments for any new fund or redemption
amounts may differ, possibly materially, from these
forward-looking statements. Such differences or other changes to
forward-looking statements could cause the Company’s actual results
to differ materially from the results expressed or implied by these
forward-looking statements. For a discussion of some of the risks
and important factors that could affect such forward-looking
statements, see the sections entitled “Risk Factors” and
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in the Company’s Quarterly Report on
Form 10-Q, which is, or will be, available on the Company’s website
(www.fortress.com). In addition, new risks and uncertainties emerge
from time to time, and it is not possible for the Company to
predict or assess the impact of every factor that may cause its
actual results to differ from those contained in any
forward-looking statements. Accordingly, you should not place undue
reliance on any forward-looking statements contained in this press
release. The Company can give no assurance that the expectations of
any forward-looking statement will be obtained. Such
forward-looking statements speak only as of the date of this press
release. The Company expressly disclaims any obligation to release
publicly any updates or revisions to any forward-looking statements
contained herein to reflect any change in the Company’s
expectations with regard thereto or any change in events,
conditions or circumstances on which any statement is based.
U.S. FEDERAL INCOME TAX IMPLICATIONS OF DIVIDEND
This announcement is intended to be a qualified notice as
provided in the Internal Revenue Code (the “Code”) and the
Regulations thereunder. For U.S. federal income tax purposes, the
dividend declared in May 2016 will be treated as a partnership
distribution. The per share distribution components are as
follows:
U.S. Long Term Capital Gain (1)
$0.0000 Non-U.S. Long Term Capital Gain $0.0000 U.S.
Portfolio Interest Income (2) $0.0500 U.S. Dividend Income (3)
$0.0000 Income Not from U.S. Sources (4) $0.0400 Return of Capital
$0.1100 Distribution Per Share $0.2000 (1) U.S. Long Term
Capital Gain realized on the sale of a United States Real Property
Holding Corporation. As a result, the gain from the sale will be
treated as income that is effectively connected with a U.S. trade
or business. (2) Eligible for the U.S. portfolio interest exemption
for any holder not considered a 10-Percent shareholder under
§871(h)(3)(B) of the Code. (3) This income is subject to
withholding under §1441 of the Code. (4) This income is not subject
to withholding under §1441 or §1446 of the Code.
Fortress Investment Group LLC
Consolidated Statements of Operations
(Unaudited)
(dollars in thousands, except share
data)
Three Months Ended March 31, 2016
2015 Revenues Management fees:
affiliates $ 127,390 $ 127,707 Management fees: non-affiliates
13,419 15,291 Incentive income: affiliates 31,778 24,223 Incentive
income: non-affiliates 451 - Expense reimbursements: affiliates
55,291 54,565 Expense reimbursements: non-affiliates 1,157 3,248
Other revenues 2,131 1,655
Total
Revenues 231,617 226,689
Expenses Compensation and benefits 164,205 178,888 General,
administrative and other 33,126 42,981 Depreciation and
amortization 6,266 5,331 Interest expense 3,037 839 Transfer of
interest in Graticule - 101,000
Total Expenses 206,634 329,039
Other Income (Loss) Gains (losses) (16,673 ) 31,561
Tax receivable agreement liability adjustment (2,699 ) - Earnings
(losses) from equity method investees (20,780 ) 41,708 Gain on
transfer of Graticule - 134,400
Total Other Income (Loss) (40,152 ) 207,669
Income (Loss) Before Income Taxes (15,169 )
105,319 Income tax benefit (expense) (783 ) (18,399 )
Net Income (Loss) $ (15,952 ) $ 86,920
Allocation
of Net Income (Loss) Principals' and Others' Interests in
Income (Loss) of Consolidated Subsidiaries (7,426 ) 52,223
Redeemable Non-Controlling Interests in Income (Loss) of
Consolidated Subsidiaries - (16 ) Net Income (Loss) Attributable to
Class A Shareholders (8,526 ) 34,713 $ (15,952
) $ 86,920
Earnings (Loss) Per
Class A Share
Net income (loss) per Class A share, basic $ (0.04 ) $ 0.15
Net income (loss) per Class A share, diluted $ (0.04 ) $ 0.15
Weighted average number of Class A shares outstanding, basic
220,847,407 215,785,776 Weighted
average number of Class A shares outstanding, diluted
220,847,407 221,535,189
Fortress Investment Group LLC
Consolidated Balance Sheets
(dollars in thousands)
March 31, 2016
(Unaudited)
December 31, 2015 Assets Cash and cash equivalents $
225,553 $ 339,842 Due from affiliates 216,646 273,811 Investments
977,996 1,055,789 Investments in options 27,932 30,427 Deferred tax
asset, net 418,773 427,102 Other assets 141,389
148,310
Total Assets $ 2,008,289 $
2,275,281
Liabilities and Equity
Liabilities Accrued compensation and benefits $ 116,015 $
318,750 Due to affiliates 370,061 365,218 Deferred incentive income
290,744 332,329 Debt obligations payable 260,677 230,677 Other
liabilities 116,885 86,503
Total
Liabilities $ 1,154,382 $ 1,333,477
Commitments and Contingencies Redeemable
Non-controlling Interests - -
Equity Class A
shares, no par value, 1,000,000,000 shares authorized, 216,384,655
and 216,790,409 shares issued and outstanding at March 31, 2016 and
December 31, 2015, respectively - - Class B shares, no par value,
750,000,000 shares authorized, 169,514,478 shares issued and
outstanding at March 31, 2016 and December 31, 2015 - - Paid-in
capital 1,971,125 1,988,707 Retained earnings (accumulated deficit)
(1,436,796 ) (1,415,113 ) Accumulated other comprehensive income
(loss) (2,995 ) (2,909 ) Total Fortress
shareholders' equity 531,334 570,685 Principals' and others'
interests in equity of consolidated subsidiaries 322,573
371,119
Total Equity 853,907
941,804 $ 2,008,289 $ 2,275,281
Fortress Investment Group LLC
Exhibit 1-a
Supplemental Data for the Three Months
Ended March 31, 2016 and 2015
Three Months Ended March 31, 2016
Private Equity Credit Funds
Permanent Capital Liquid Hedge (in
millions)
Total Funds Vehicles Hedge
Funds PE Funds Funds Logan Circle
Assets Under Management AUM - January 1, 2016 $
70,501 $ 8,991 $ 6,816 $ 8,799 $ 9,308 $ 5,409 $ 31,178 Capital
raised 344 - - 268 13 63 - Equity raised (Permanent Capital
Vehicles) - - - - - - - Increase in invested capital 332 10 - 66
256 - - Capital acquisitions 682 - - 682 - - - Redemptions (269 ) -
- (36 ) - (233 ) - RCA distributions8 (124 ) - - (124 ) - - -
Return of capital distributions (582 ) (254 ) (35 ) - (274 ) (19 )
- Adjustment for capital reset (650 ) (650 ) - - - - - Crystallized
Incentive Income (53 ) - - (53 ) - - - Equity buyback (42 ) - (42 )
- - - - Change in AUM of Affiliated Managers and co-managed funds
(291 ) - - (264 ) - (27 ) - Net Client Flows 261 - - - - - 261
Income (loss) and foreign exchange 528 (918 )
34 (2 ) 50 2
1,362
AUM - Ending Balance $ 70,637 $ 7,179 $
6,773 $ 9,336 $ 9,353 $ 5,195 $ 32,801
Third-Party
Capital Raised $ 348 $ - $ - $ 272
$ 13 $ 63 $ -
Segment Revenues
Management fees $ 141 $ 26 $ 27 $ 37 $ 31 $ 6 $ 14 Incentive income
64 - 2 7
53 2 - Total 205 26 29 44
84 8 14
Segment Expenses Operating expenses (109 )
(10 ) (19 ) (26 ) (32 ) (9 ) (13 ) Profit sharing compensation
expenses (31 ) - (1 ) (3 )
(26 ) (1 ) - Total (140 ) (10 ) (20 )
(29 ) (58 ) (10 ) (13 )
Earnings From Affiliated
Managers 1 - - - - 1 -
Fund Management DE (before Principal Performance
Payments) 66 16 9
15 26 (1 ) 1
Principal Performance Payments (3 ) - (1 ) (1 ) (1 ) - -
Fund Management
DE 63 16 8 14
25 (1 ) 1
Investment Income 5 (2 ) 1 - 3 3 - Unallocated Investment Income (1
) - - - - - - Unallocated Expenses (3 ) - - - - - -
Pre-tax Distributable
Earnings $ 64 $ 14 $ 9 $ 14 $ 28
$ 2 $ 1
Pre-tax Distributable Earnings per
Dividend Paying Share $ 0.16
Three Months
Ended March 31, 2015 Private Equity
Credit Funds
Permanent Capital
Liquid Hedge (in millions)
Total Funds
Vehicles
Hedge Funds PE Funds Funds Logan Circle
Assets Under Management AUM - January 1, 2015 $
67,531 $ 9,366 $ 4,567 $ 6,173 $ 6,955 $ 8,128 $ 32,342 Capital
raised 495 - - 175 234 86 - Equity raised (Permanent Capital
Vehicles) 150 - 150 - - - - Increase in invested capital 718 61 60
15 582 - - Redemptions (785 ) - - (52 ) - (733 ) - RCA
distributions8 (66 ) - - (66 ) - - - Return of capital
distributions (524 ) (95 ) (99 ) - (288 ) (42 ) - Crystallized
Incentive Income (95 ) - - (95 ) - - - Change in AUM of Affiliated
Managers and co-managed funds 494 - - - - 494 - Net Client Flows
589 - - - - - 589 Income (loss) and foreign exchange 1,382
847 (56 ) 121 80
(95 ) 485
AUM - Ending Balance $
69,889 $ 10,179 $ 4,622 $ 6,271 $ 7,563 $ 7,838 $ 33,416
Third-Party Capital Raised $ 5,360 $ - $ 150
$ 175 $ 4,949 $ 86 $ -
Segment Revenues Management fees $ 139 $ 29 $ 19 $ 30 $ 27 $
21 $ 13 Incentive income 51 - 3
23 24 1 -
Total 190 29 22 53 51 22 13
Segment Expenses
Operating expenses (115 ) (14 ) (18 ) (18 ) (30 ) (21 ) (14 )
Profit sharing compensation expenses (30 ) -
- (12 ) (14 ) (4 ) -
Total (145 ) (14 ) (18 ) (30 ) (44 ) (25 ) (14 )
Earnings From Affiliated Managers 9 - - - - 9 -
Fund Management DE
(before Principal Performance Payments) 54
15 4 23 7 6
(1 ) Principal Performance Payments (3 ) - -
(2 ) (1 ) - -
Fund Management DE 51 15
4 21 6 6 (1
) Investment Income 5 - - 1 1 3 - Unallocated Investment
Income - - - - - - - Unallocated Expenses (1 ) - - - - - -
Pre-tax Distributable
Earnings $ 55 $ 15 $ 4 $ 22 $ 7
$ 9 $ (1 )
Pre-tax Distributable Earnings per
Dividend Paying Share $ 0.12
____________________________________
8 Represents distributions from (i) assets
held by redeeming capital accounts in the Drawbridge Special
Opportunities Funds, and (ii) the Value Recovery Funds.
Fortress Investment Group LLC
Exhibit 2-a
Assets Under Management and Fund
Management DE
(dollars in millions)
Three Months Ended
Three Months
March 31, June 30, September 30, December
31, Full Year Ended March 31, Fortress
2015 2015 2015 2015 2015
2016 Assets Under Management Private Equity Funds $
10,179 $ 9,587 $ 9,195 $ 8,991 $ 8,991 $ 7,179 Permanent Capital
Vehicles 4,622 6,948 6,896 6,816 6,816 6,773 Credit Hedge Funds9
6,271 6,244 9,070 8,799 8,799 9,336 Credit Private Equity Funds
7,563 8,247 8,356 9,308 9,308 9,353 Liquid Hedge Funds10 7,838
7,377 7,367 5,409 5,409 5,195 Logan Circle 33,416
33,564 33,446 31,178
31,178 32,801
AUM - Ending
Balance $ 69,889 $ 71,967 $ 74,330 $
70,501 $ 70,501 $ 70,637
Third-Party
Capital Raised $ 5,360 $ 3,213 $ 204 $ 215
$ 8,992 $ 348
Segment Revenues
Management fees $ 139 $ 144 $ 151 $ 148 $ 582 $ 141 Incentive
income 51 183 70
132 436 64
Total
190 327 221 280 1,018 205
Segment Expenses Operating
expenses (115 ) (121 ) (112 ) (105 ) (453 ) (109 ) Profit sharing
compensation expenses (30 ) (54 ) (37 )
(47 ) (168 ) (31 ) Total (145 ) (175 ) (149 ) (152 )
(621 ) (140 )
Earnings From Affiliated Managers 9 (1
) 2 (1 ) 9 1
Fund
Management DE (before Principal Performance Payments) 54
151 74 127
406 66 Principal Performance Payments
(3 ) (18 ) (7 ) (14 ) (42 ) (3 )
Fund Management DE $ 51 $ 133 $ 67
$ 113 $ 364 $ 63 Net Investment
Income 4 4 2 17 27 1
Pre-tax Distributable Earnings $ 55 $ 137 $ 69
$ 130 $ 391 $ 64
____________________________________
9 The Assets Under Management presented for the Credit Hedge Funds
includes $2,589 million related to co-managed funds as of 1Q 2016.
10 The Assets Under Management presented for the Liquid Hedge Funds
includes $4,469 million related to Affiliated Managers as of 1Q
2016.
Fortress Investment Group LLC
Exhibit 2-b
Assets Under
Management and Fund Management DE
(dollars in millions)
Three Months Ended
Three Months
March 31, June 30, September 30, December
31, Full Year Ended March 31, Private Equity
Funds 2015 2015 2015 2015
2015 2016 Assets Under Management Main
Funds11 $ 7,726 $ 7,128 $ 6,874 $ 6,530 $ 6,530 $ 4,907
Coinvestment Funds12 1,994 1,902 1,785 1,729 1,729 1,552 MSR
Opportunities Funds13 336 417 388 360 360 333 Italian NPL
Opportunities Fund 19 20 20 225 225 231 Fortress Equity Partners
104 120 128 147
147 156
AUM - Ending
Balance $ 10,179 $ 9,587 $ 9,195 $ 8,991
$ 8,991 $ 7,179
Third-Party Capital
Raised $ - $ - $ - $ - $ - $
-
Segment Revenues Management fees $ 29 $ 29 $
29 $ 29 $ 116 $ 26 Incentive income - -
- - - -
Total 29 29 29 29 116 26
Segment Expenses Operating
expenses (14 ) (15 ) (13 ) (3 ) (45 ) (10 ) Profit sharing
compensation expenses - - -
1 1 - Total (14 )
(15 ) (13 ) (2 ) (44 ) (10 )
Fund Management DE (before Principal Performance
Payments) 15 14 16
27 72 16 Principal
Performance Payments - - - - - -
Fund Management DE $ 15 $ 14 $ 16
$ 27 $ 72 $ 16 Net Investment
Income - - - - - (2 )
Pre-tax Distributable Earnings $ 15 $ 14 $ 16
$ 27 $ 72 $ 14
____________________________________
11 Combined AUM for Fund III, Fund IV and Fund V. Fund III passed
its contractual maturity date in 1Q 2016 and is in the process of
an orderly wind down.
12 Combined AUM for Fund III Coinvestment,
Fund IV Coinvestment, Fund V Coinvestment, FICO, FHIF and FECI.
Fund III Coinvestment passed its contractual maturity date in 1Q
2016 and is in the process of an orderly wind down.
13 Combined AUM for MSR Opportunities Fund I A, MSR Opportunities
Fund I B, MSR Opportunities Fund II A, MSR Opportunities Fund II B
and MSR Opportunities Fund MA I.
Fortress Investment Group LLC
Exhibit 2-c
Assets Under Management and Fund Management DE
(dollars in millions)
Three Months Ended
Three Months March 31, June 30,
September 30, December 31, Full Year Ended
March 31, Permanent Capital Vehicles 2015
2015 2015 2015 2015 2016
Assets Under Management Newcastle Investment Corp. $ 680 $
680 $ 680 $ 680 $ 680 $ 680 New Residential Investment Corp. 1,367
2,725 2,689 2,689 2,689 2,689 Eurocastle Investment Limited 432 626
605 567 567 608 New Media Investment Group Inc. 637 637 637 637 637
637 New Senior Investment Group Inc. 813 1,089 1,089 1,076 1,076
1,024 Fortress Transportation and Infrastructure Investors LLC14
693 1,191 1,196
1,167 1,167 1,135
AUM -
Ending Balance $ 4,622 $ 6,948 $ 6,896 $
6,816 $ 6,816 $ 6,773
Third-Party
Capital Raised $ 150 $ 2,291 $ - $ -
$ 2,441 $ -
Segment Revenues
Management fees $ 19 $ 23 $ 27 $ 27 $ 96 $ 27 Incentive income
3 74 (1 ) 30
106 2 Total 22 97 26 57 202 29
Segment Expenses Operating expenses (18 ) (16 ) (16 ) (19 )
(69 ) (19 ) Profit sharing compensation expenses -
(9 ) 1 (3 ) (11 ) (1 )
Total (18 ) (25 ) (15 ) (22 ) (80 ) (20 )
Fund Management DE (before Principal
Performance Payments) 4 72
11 35 122 9
Principal Performance Payments - (11 ) (3 ) (5 ) (19 ) (1 )
Fund Management DE $ 4
$ 61 $ 8 $ 30 $ 103 $ 8
Net Investment Income - 1 - 1 2 1
Pre-tax Distributable Earnings $ 4
$ 62 $ 8 $ 31 $ 105 $ 9
____________________________________
14 All of the capital of Worldwide Transportation and
Infrastructure Investors ("WWTAI"), a private fund formerly managed
by Fortress, was contributed to FTAI which completed its initial
public offering in 2Q 2015.
Fortress Investment Group LLC
Exhibit 2-d
Assets Under Management and Fund
Management DE
(dollars in millions)
Three Months Ended
Three Months March 31, June 30,
September 30, December 31, Full Year Ended
March 31, Credit Hedge Funds 2015 2015
2015 2015 2015 2016 Assets
Under Management Drawbridge Special Opportunities Funds15 $
6,023 $ 6,021 $ 5,808 $ 5,756 $ 5,756 $ 5,816 Third Party
Originated Funds16 189 156 150 102 102 815 Japan Income Fund 59 67
94 88 88 116 Co-Managed Funds17 - -
3,018 2,853 2,853
2,589
AUM - Ending Balance $ 6,271 $ 6,244
$ 9,070 $ 8,799 $ 8,799 $ 9,336
Third-Party Capital Raised $ 175 $ 79 $
- $ 21 $ 275 $ 272
Segment
Revenues Management fees $ 30 $ 29 $ 37 $ 38 $ 134 $ 37
Incentive income 23 50 1
11 85 7 Total 53 79 38 49
219 44
Segment Expenses Operating expenses (18 ) (19
) (21 ) (27 ) (85 ) (26 ) Profit sharing compensation expenses
(12 ) (18 ) (1 ) (5 ) (36 )
(3 ) Total (30 ) (37 ) (22 ) (32 ) (121 ) (29 )
Fund Management DE (before
Principal Performance Payments) 23 42
16 17 98 15
Principal Performance Payments (2 ) (6 ) (3 ) (4 )
(15 ) (1 )
Fund
Management DE $ 21 $ 36 $ 13 $ 13 $
83 $ 14 Net Investment Income 1 - - 1 2 -
Pre-tax Distributable
Earnings $ 22 $ 36 $ 13 $ 14 $ 85
$ 14
Net
Returns18
Drawbridge Special Opportunities Fund LP 2.2 % 2.3 % 0.3 % 0.9 %
5.8 % 0.6 % Drawbridge Special Opportunities Fund Ltd 1.1 % 0.4 %
(0.8 %) 0.0 % 0.6 %
(1.3
%)
____________________________________
15 Combined AUM for Drawbridge Special Opportunities Fund LP,
Drawbridge Special Opportunities Fund Ltd, Drawbridge Special
Opportunities Fund managed accounts, Worden Fund LP and Worden Fund
II LP. Worden Fund II LP was closed in 1Q 2016.
16 Combined AUM for the third party
originated JP Funds and third party originated Value Recovery
Funds. Fortress began managing the JP Funds in March 2016.
17 Combined AUM for the Mount Kellett
investment funds and related accounts. In 3Q 2015, Fortress became
co-manager of the Mount Kellett Funds.
18 The performance data contained herein
reflects returns for a "new issue eligible," single investor class
as of the close of business on the last day of the relevant period.
Net returns reflect performance data after taking into account
management fees borne by the Fund and incentive allocations. The
returns for the Drawbridge Special Opportunities Funds reflect the
performance of each fund excluding special investments and the
performance of the redeeming capital accounts which relate to
December 31, 2009, December 31, 2010, December 31, 2011, December
31, 2012, December 31, 2013, December 31, 2014 and December 31,
2015 redemptions.
Fortress Investment Group LLC
Exhibit 2-e
Assets Under Management and Fund
Management DE
(dollars in millions)
Three Months Ended
Three Months March 31, June 30,
September 30, December 31, Full Year Ended
March 31, Credit Private Equity Funds 2015
2015 2015 2015 2015 2016
Assets Under Management Long Dated Value Funds19 $ 352 $ 315
$ 315 $ 315 $ 315 $ 292 Real Assets Funds 52 40 41 24 24 50
Fortress Credit Opportunities Funds20 6,029 6,802 6,796 6,848 6,848
6,894 Japan Opportunity Funds21 1,130 1,090
1,204 2,120 2,120
2,117
AUM - Ending Balance $ 7,563 $
8,247 $ 8,356 $ 9,308 $ 9,308 $ 9,353
Third-Party Capital Raised $ 4,949 $
672 $ 156 $ 166 $ 5,943 $ 13
Segment Revenues Management fees $ 27 $ 30 $ 29 $ 32
$ 118 $ 31 Incentive income 24 60
70 90 244 53
Total 51 90 99 122 362 84
Segment Expenses
Operating expenses (30 ) (30 ) (29 ) (26 ) (115 ) (32 ) Profit
sharing compensation expenses (14 ) (30 ) (36
) (41 ) (121 ) (26 ) Total (44 ) (60 ) (65 )
(67 ) (236 ) (58 )
Fund Management DE (before Principal Performance Payments)
7 30 34 55
126 26 Principal Performance
Payments (1 ) (1 ) (1 ) (5 ) (8 ) (1 )
Fund Management DE $ 6 $ 29 $ 33
$ 50 $ 118 $ 25 Net Investment
Income 1 3 5 12 21 3
Pre-tax Distributable Earnings $ 7 $ 32 $ 38
$ 62 $ 139 $ 28
____________________________________
19 Combined AUM for Long Dated Value Fund I, Long Dated Value Fund
II, Long Dated Value Fund III and LDVF Patent Fund. 20 Combined AUM
for Credit Opportunities Fund, Credit Opportunities Fund II, Credit
Opportunities Fund III, Credit Opportunities Fund IV, FCO Managed
Accounts, Global Opportunities Funds, Life Settlements Fund, Life
Settlements Fund MA, SIP managed account, Real Estate Opportunities
Fund, Real Estate Opportunities Fund II and Real Estate
Opportunities REOC Fund. 21 Combined AUM for Japan Opportunity
Fund, Japan Opportunity Fund II (Dollar), Japan Opportunity Fund II
(Yen), Japan Opportunity Fund III (Dollar) and Japan Opportunity
Fund III (Yen).
Fortress Investment Group LLC
Exhibit 2-f
Assets Under Management and Fund
Management DE
(dollars in millions)
Three Months Ended
Three Months
March 31, June 30, September 30, December
31, Full Year Ended March 31, Liquid Hedge
Funds 2015 2015 2015 2015
2015 2016 Assets Under Management
Fortress Macro Funds22 $ 2,779 $ 2,326 $ 1,791 N/A N/A N/A
Drawbridge Global Macro Funds23 227 210 193 101 101 116 Fortress
Convex Asia Funds24 226 220 208 134 134 176 Fortress Centaurus
Global Funds25 64 191 222 204 204 206 Fortress Partners Funds26 541
534 497 474 474 228 Affiliated Managers27 4,001
3,896 4,456 4,496
4,496 4,469
AUM - Ending Balance $
7,838 $ 7,377 $ 7,367 $ 5,409 $ 5,409
$ 5,195
Third-Party Capital Raised $ 86
$ 171 $ 48 $ 28 $ 333 $ 63
Segment Revenues Management fees $ 21 $ 19 $
16 $ 8 $ 64 $ 6 Incentive income 1 (1 )
- 1 1 2 Total 22
18 16 9 65 8
Segment Expenses Operating expenses (21
) (27 ) (20 ) (16 ) (84 ) (9 ) Profit sharing compensation expenses
(4 ) 3 (1 ) 1 (1 )
(1 ) Total (25 ) (24 ) (21 ) (15 ) (85 ) (10 )
Earnings From Affiliated Managers 9 (1 ) 2 (1 ) 9 1
Fund Management DE (before
Principal Performance Payments) 6 (7 )
(3 ) (7 ) (11 ) (1 ) Principal
Performance Payments - - - - - -
Fund Management DE $ 6 $ (7 ) $ (3 ) $ (7 ) $
(11 ) $ (1 ) Net Investment Income 3 1 (1 ) 5 8 3
Pre-tax Distributable
Earnings $ 9 $ (6 ) $ (4 ) $ (2 ) $ (3 ) $ 2
Net
Returns28
Fortress Macro Fund Ltd (4.7 %) (6.3 %) (7.8 %) (0.0 %) (17.6 %)
N/A Drawbridge Global Macro Fund Ltd (4.9 %) (6.5 %) (8.0 %) 0.0 %
(18.2 %) N/A Fortress Convex Asia Fund Ltd (0.6 %) (0.7 %) 3.3 %
(4.6 %) (2.8 %) 1.5 % Fortress Centaurus Global Fund Ltd 3.9 % (4.1
%) (3.0 %) 5.0 % 1.4 % 1.8 % Fortress Partners Fund LP29 1.2 % (1.2
%) (4.9 %) (0.1 %) (5.0 %) N/A Fortress Partners Offshore Fund LP29
0.3 % (2.5 %) (3.4 %) 0.5 % (5.1 %) N/A
____________________________________
22 Combined AUM for Fortress Macro Onshore Fund LP, Fortress Macro
Fund Ltd, Fortress Macro MA1, Fortress Redwood Fund Ltd and
Fortress Macro managed accounts. In 4Q 2015, Fortress closed the
Fortress Macro Funds and related managed accounts. 23 Combined AUM
for Drawbridge Global Macro Fund LP and Drawbridge Global Macro
Intermediate Fund LP. 24 Combined AUM for Fortress Convex Asia Fund
LP, Fortress Convex Asia Fund Ltd, Fortress Convex Asia Fund PF LP
and Fortress Convex Asia Fund PF Ltd. 25 Combined AUM for Fortress
Centaurus Global Fund LP and Fortress Centaurus Global Fund Ltd. 26
Combined AUM for Fortress Partners Fund LP and Fortress Partners
Offshore Fund LP. 27 In 1Q 2015, the Fortress Asia Macro Funds and
related managed accounts transitioned to Graticule Asset Management
on Fortress's affiliated manager platform. 28 The performance data
contained herein reflects returns for a "new issue eligible,"
single investor class as of the close of business on the last day
of the relevant period. Net returns reflect performance data after
taking into account management fees borne by the Fund and incentive
allocations. 29 The returns for the Fortress Partners Funds include
gains and losses from Special Investments. Investors' specific
performance may vary dependent upon their ownership in one or more
Special Investments.
Fortress Investment Group LLC
Exhibit 2-g
Assets Under Management and Fund
Management DE
(dollars in millions)
Three Months Ended
Three Months March 31, June
30, September 30, December 31, Full Year
Ended March 31, Logan Circle 2015 2015
2015 2015 2015 2016 Assets
Under Management AUM - Ending Balance $ 33,416 $
33,564 $ 33,446 $ 31,178 $ 31,178 $
32,801
Net Client Flows $ 589 $ 1,056
$ 101 $ (1,867 ) $ (121 ) $ 261
Segment Revenues Management fees $ 13 $ 14 $ 13 $ 14 $ 54 $
14 Incentive income - - -
- - - Total 13 14 13 14
54 14
Segment Expenses Operating expenses (14 ) (14 )
(13 ) (14 ) (55 ) (13 ) Profit sharing compensation expenses
- - - - -
- Total (14 ) (14 ) (13 ) (14 ) (55 ) (13 )
Fund Management DE
$ (1 ) $ - $ - $ - $ (1 ) $ 1
Net Investment Income - - - (1 ) (1 ) -
Pre-tax Distributable Earnings $ (1 ) $ -
$ - $ (1 ) $ (2 ) $ 1
Fortress Investment Group LLC
Exhibit 3
Reconciliation of GAAP Net Income
(Loss) to Pre-tax Distributable Earnings and Fund Management
DE,
Reconciliation of GAAP Revenues to
Segment Revenues and Reconciliation of GAAP Expenses to Segment
Expenses
(dollars in millions)
Three Months Ended
Three Months March 31, June 30,
September 30, December 31, Full Year Ended
March 31, 2015 2015 2015 2015
2015 2016
GAAP Net Income (Loss) $ 87
$ 5 $ (26 ) $
116 $ 182 $ (16
) Principals' and Others' Interests in (Income) Loss of
Consolidated Subsidiaries (52 ) (2 ) 12 (62 ) (104 ) 7 Redeemable
non-controlling interests in Income (Loss) - -
- - - -
GAAP Net Income (Loss) Attributable to Class A
Shareholders $ 35 $ 3
$ (14 ) $ 54 $
78 $ (9 ) Private Equity
incentive income 3 19 21 (16 ) 27 23 Hedge Fund, PCV and Logan
Circle incentive income 23 23 1 (47 ) - 8 Incentive income received
related to exercise of options - 57 - 1 58 - Reserve for clawback -
- - - - - Distributions of earnings from equity method investees 4
9 5 17 35 3 Losses (earnings) from equity method investees (27 ) 33
23 17 46 24 Losses (gains) on options (32 ) 9 27 2 6 2 Losses
(gains) on other Investments (1 ) (5 ) 14 (1 ) 7 15 Impairment of
investments (3 ) - (1 ) (2 ) (6 ) (2 ) Adjust income from the
receipt of options (4 ) (21 ) - - (25 ) - Gain on transfer of
Graticule (134 ) - - - (134 ) - Amortization of intangible assets
and impairment of goodwill - - - 1 1 1 Employee, Principal and
director compensation 20 6 2 5 33 3 Adjust non-controlling
interests related to Fortress Operating Group units 52 1 (12 ) 62
103 (8 ) Tax receivable agreement liability reduction - 8 - (2 ) 6
3 Adjust income taxes and other tax related items 18 (5 ) 3 39 55 1
Adjust transfer of interest in Graticule 101 -
- - 101 -
Pre-tax Distributable Earnings $ 55
$ 137 $ 69
$ 130 $ 391 $
64 Investment Loss (income) (5 ) (4 ) (3 ) (19 ) (31
) (4 ) Interest Expense 1 - 1
2 4 3
Fund
Management DE $ 51 $ 133
$ 67 $ 113
$ 364 $ 63
GAAP Revenues $
227 $ 308 $ 264
$ 415 $ 1,214
$ 232 Adjust management fees (1 ) 1 - - - 1
Adjust incentive income 27 100 22 (59 ) 90 31 Adjust income from
the receipt of options (4 ) (21 ) - - (25 ) - Other revenues
(59 ) (61 ) (65 ) (76 ) (261 )
(59 )
Segment Revenues $ 190 $
327 $ 221 $ 280
$ 1,018 $ 205
GAAP Expenses
$ 329 $ 258 $
224 $ 242 $ 1,053
$ 207 Adjust interest expense (1 ) - (1
) (2 ) (4 ) (3 ) Adjust employee, Principal and director
compensation (18 ) (2 ) (1 ) (5 ) (26 ) (2 ) Adjust amortization of
intangible assets and impairment of goodwill - - - (1 ) (1 ) (1 )
Adjust expense reimbursements from affiliates and non-affiliates
(59 ) (61 ) (64 ) (68 ) (252 ) (57 ) Adjust Principal Performance
Payments (5 ) (20 ) (9 ) (14 ) (48 ) (4 ) Adjust transfer of
interest in Graticule (101 ) - -
- (101 ) -
Segment
Expenses $ 145 $ 175
$ 149 $ 152 $
621 $ 140
‘‘Distributable earnings’’ is Fortress’s supplemental measure of
operating performance used by management in analyzing segment and
overall results. It reflects the value created which management
considers available for distribution during any period. As compared
to generally accepted accounting principles (‘‘GAAP’’) net income,
distributable earnings excludes the effects of unrealized gains (or
losses) on illiquid investments, reflects contingent revenue which
has been received as income to the extent it is not expected to be
reversed, and disregards expenses which do not require an outlay of
assets, whether currently or on an accrued basis. Distributable
earnings is reflected on an unconsolidated and pre-tax basis, and,
therefore, the interests in consolidated subsidiaries related to
Fortress Operating Group units (held by the principals) and income
tax expense are added back in its calculation. Distributable
earnings is not a measure of cash generated by operations which is
available for distribution nor should it be considered in isolation
or as an alternative to cash flow or net income in accordance with
GAAP and it is not necessarily indicative of liquidity or cash
available to fund the Company’s operations. For a complete
discussion of distributable earnings and its reconciliation to
GAAP, as well as an explanation of the calculation of distributable
earnings impairment, see note 10 to the financial statements
included in the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2016.
Fortress’s management uses distributable earnings:
- in its determination of periodic
distributions to equity holders;
- in making operating decisions and
assessing the performance of each of the Company’s core
businesses;
- for planning purposes, including the
preparation of annual operating budgets; and
- as a valuation measure in strategic
analyses in connection with the performance of its funds and the
performance of its employees.
Growing distributable earnings is a key component to the
Company’s business strategy and distributable earnings is the
supplemental measure used by management to evaluate the economic
profitability of each of the Company’s businesses and total
operations. Therefore, Fortress believes that it provides useful
information to investors in evaluating its operating performance.
Fortress’s definition of distributable earnings is not based on any
definition contained in its amended and restated operating
agreement.
“Fund management DE” is equal to pre-tax distributable earnings
excluding our direct investment-related results. Fund management DE
is comprised of “Pre-tax Distributable Earnings” excluding
“Investment Loss (Income)” and “Interest Expense.” Fund management
DE and its components are used by management to analyze and measure
the performance of our investment management business on a
stand-alone basis. Fortress defines segment operating margin to be
equal to fund management DE divided by segment revenues. The
Company believes that it is useful to provide investors with the
opportunity to review our investment management business using the
same metrics. Fund management DE and its components are subject to
the same limitations as pre-tax distributable earnings, as
described above.
Fortress Investment Group LLC
Exhibit 4
Reconciliation of Weighted Average
Class A Shares Outstanding (Used for Basic EPS) to Weighted Average
Dividend Paying Shares and Units Outstanding (Used for
DEPS)
Three Months Ended March 31, 2016
2015
Weighted Average Class A Shares
Outstanding (Used for Basic EPS)
220,847,407 215,785,776
Weighted average fully vested restricted Class A share units
with dividend equivalent rights (1,676,531 ) (7,231,768 ) Weighted
average restricted Class A shares (769,429 ) (840,658 )
Weighted Average Class A Shares
Outstanding
218,401,447 207,713,350
Weighted average restricted Class A shares30 769,429 840,658
Weighted average fully vested restricted Class A share units which
are entitled to dividend equivalent payments 1,676,531 7,231,768
Weighted average unvested restricted Class A share units which are
entitled to dividend equivalent payments 7,817,892 8,347,402
Weighted average Fortress Operating Group units 169,514,478
226,331,513
Weighted Average Class A Shares
Outstanding (Used for DEPS)
398,179,777 450,464,691
Weighted average vested and unvested restricted Class A share units
which are not entitled to dividend equivalent payments
8,755,877 11,703,251
Weighted Average Fully Diluted Shares
and Units Outstanding (Used for Diluted DEPS)
406,935,654 462,167,942
“Dividend paying shares and units” represents the number of
shares and units outstanding at the end of the period which were
entitled to receive dividends or related distributions. The Company
believes it is useful for investors in computing the aggregate
amount of cash required to make a current per share distribution of
a given amount per share. It excludes certain potentially dilutive
equity instruments, primarily non-dividend paying restricted Class
A share units, and, therefore, is limited in its usefulness in
computing per share amounts. Accordingly, dividend paying shares
and units should be considered only as a supplement and not an
alternative to GAAP basic and diluted shares outstanding. The
Company’s calculation of dividend paying shares and units may be
different from the calculation used by other companies and,
therefore, comparability may be limited.
____________________________________
30 Includes both fully vested and unvested restricted Class A
shares.
Fortress Investment Group LLC
Exhibit 5
Reconciliation of GAAP Book Value Per
Share to Net Cash and Investments Per Share
(dollars and shares in
thousands)
As of March 31, 2016
As of December 31, 2015 GAAP Net
Cash and GAAP
Net Cash and
Book Value Investments Book Value
Investments
Cash and Cash equivalents $ 225,553 $ 225,553 $ 339,842 $ 339,842
Investments 977,996 977,996 1,055,789 1,055,789 Investments in
options31 27,932 - 30,427 - Due from Affiliates 216,646 - 273,811 -
Deferred Tax Asset, net 418,773 - 427,102 - Other Assets
141,389 - 148,310 -
Total Assets
2,008,289 1,203,549 2,275,281 1,395,631
Debt Obligations Payable $ 260,677 $ 260,677 $ 230,677 $ 230,677
Accrued Compensation and Benefits 116,015 - 318,750 - Due to
Affiliates 370,061 - 365,218 - Deferred Incentive Income 290,744 -
332,329 - Other Liabilities 116,885 - 86,503
-
Total Liabilities 1,154,382 260,677
1,333,477 230,677
Net $ 853,907 $ 942,872 $ 941,804 $ 1,164,954
Dividend Paying
Dividend Paying
Shares Shares and Units Shares
Shares and Units
Outstanding Outstanding Outstanding
Outstanding
Class A Shares 215,614 215,614 216,061 216,061 Restricted Class A
Shares 771 771 729 729 Fortress Operating Group Units 169,514
169,514 169,515 169,515 Fully Vested Class A Shares - Dividend
Paying - 303 - 1,361 Unvested Class A Shares - Dividend Paying
- 8,064 - 9,175
Shares
Outstanding 385,899 394,266 386,305
396,841
Per Share $
2.21 $ 2.39 $ 2.44 $
2.94
Net cash and investments represents cash and cash equivalents
plus investments less debt outstanding. The Company believes that
net cash and investments is a useful supplemental measure because
it provides investors with information regarding the Company’s net
investment assets. Net cash and investments excludes certain assets
(investments in options, due from affiliates, deferred tax asset,
other assets) and liabilities (due to affiliates, accrued
compensation and benefits, deferred incentive income and other
liabilities) and its utility as a measure of financial position is
limited. Accordingly, net cash and investments should be considered
only as a supplement and not an alternative to GAAP book value as a
measure of the Company’s financial position. The Company’s
calculation of net cash and investments may be different from the
calculation used by other companies and, therefore, comparability
may be limited.
____________________________________
31 The intrinsic value of options in equity method investees
totaled $17 million at quarter end and is included in our
undistributed, unrecognized incentive income. This value represents
incentive income that would have been recorded in Distributable
Earnings if Fortress had exercised all of its in-the-money options
it holds in the Permanent Capital Vehicles and sold all of the
resulting shares at their March 31, 2016 closing price and differs
from the fair value derived from option pricing models included in
the table above.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160505005750/en/
Investor & Media Relations:Fortress Investment
GroupGordon E. Runté, +1-212-798-6082grunte@fortress.com
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