Apollo Scores Record Q1 Profit on Asset Sales

(Reuters) – Apollo Global Management LLC reported a 72 percent increase in first-quarter profit, its best quarterly results as a publicly listed alternative asset manager, as it took advantage of favorable capital markets to exit investments.

Shares hit an all-time high in early trading.

A stock market rally and record-low interest rates in the debt markets have allowed private equity companies such as Apollo to lucratively unload investments and have buoyed the value of assets they still hold.

In the first quarter, Apollo booked profits from selling shares in chemical producer LyondellBasell Industries NV and cable operator Charter Communications Inc and saw the value of its private equity funds appreciate by 14 percent.

Economic net income (ENI) after taxes – a measure of profitability that takes into account the mark-to-market value of its funds – totaled $1.89 per share, compared with $1.10 in the first quarter of 2012. Analysts, on average, expected $1.24 per share, according to a Thomson Reuters poll.

Total ENI was $792.4 million for the first quarter of 2013, compared with $462 million for the same period in 2012.

Apollo shares were up 2.8 percent to $27.33 after hitting an all-time high of $28.12 on the New York Stock Exchange. They have rallied 53.1 percent since the start of the year till the end of trading on Friday, compared with a 13.2 percent rise in the S&P 500 Index.

Peers Blackstone Group LP and KKR & Co LP have also seen the value of their shares rise after reporting better than expected first-quarter earnings.

Cash from Apollo’s slice of the investment profits generated by its funds — so-called carried interest — came to $345.2 million, up 130 percent from the first quarter of 2012. Total carried interest, including investment profits accrued but not yet realized, jumped 79 percent to $1.1 billion.

“We note the strong unrealized carry generated this quarter helps visibility for future realized gain activity and dividends,” Wells Fargo analyst Christopher Harris wrote in a note.

ENI in Apollo’s asset management business was $66 million, compared with $35.1 million a year ago, driven by more revenue from advisory and transaction fees and an increase in fee-generating assets under management.

Apollo’s credit segment, which holds assets such as corporate bonds and collateralized loan obligations, reported ENI of $114.3 million versus $155.6 million a year earlier. Even though management fee revenue increased, the value of the credit portfolio appreciated less than a year ago.

ASSET SALES

Assets under management totaled $114.3 billion at the end of March, compared with $113 billion at the end of December. The firm returned $3.4 billion to its fund investors during the first quarter.

Apollo President Marc Spilker told analysts on a conference call that the firm’s latest flagship private equity fund, Apollo Investment Fund VIII, which is seeking $12 billion from investors, was approaching a so-called first close, securing some of the capital it is targeting.

In the first quarter, Apollo raised $1.2 billion of new capital through its credit and real estate fund offerings, including $280 million for the Apollo Tactical Income Fund, nearly $150 million for Apollo Commercial Real Estate Finance Inc, more than $170 million for Apollo Residential Mortgage Inc and $250 million for a real estate managed account, Spilker added.

Asset sales that took place in the second quarter and have not yet been booked include Reliance Steel & Aluminum Co’s $766 million acquisition of Metals USA Holdings Corp, secondary sales of shares in real estate services company Realogy Holdings Corp and plastic-packaging manufacturer Berry Plastics Group Inc, and the initial public offerings of chemicals maker Taminco Corp and payment processor Evertec Inc.

On Friday, jewelry and accessories retailer Claire’s Inc, which was taken private by Apollo for about $3.1 billion in 2007, filed with regulators to raise up to $100 million in an initial public offering.

Apollo declared a quarterly distribution of 57 cents per Class A share.

New York-based Apollo was founded in 1990 by Leon Black and former Drexel Burnham colleagues Joshua Harris and Marc Rowan, and went public in March 2011.

With a net worth estimated by Forbes at $4.3 billion as of March 2013, Black, 61, is a prolific art collector and was revealed last year as the mystery buyer who paid a record $120 million for Edvard Munch’s masterpiece “The Scream.” Black owns about 24 percent of Apollo.

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