KKR lifts payout and assets

By Megan Davies

NEW YORK (BestGrowthStock) – Private equity firm Kohlberg Kravis Roberts & Co (KKR.N: ) said on Wednesday it was raising its quarterly payout to shareholders, but earnings were lower than a year earlier as the growth in the value of its portfolio slowed.

KKR, one of the world’s biggest private equity firms, has investments in retailer Dollar General Corp (DG.N: ), hospital operator HCA and media company Nielsen. Co-founded by “buyout king” Henry Kravis and George Roberts, the firm listed on the New York Stock Exchange in July, finally joining rival Blackstone Group LP (BX.N: ), which listed in 2007.

KKR partner Scott Nuttall, who leads the company’s quarterly earnings calls, said on Wednesday that credit markets are now strong, allowing for the amount of debt in new deals to rise. Traditional private equity deals are structured as leveraged buyouts and rely on using significant debt.

But Nuttall said the initial public offering market remains uncertain, with many IPOs left on the shelf.

Private equity firms typically exit their investments through IPO or trade sale and KKR has some IPOs of portfolio companies waiting in the wings, such as Toys R Us and Nielsen, which have filed to go public but have yet to launch.

Exiting investments partly drives profit, which feeds through into distributions to shareholders.

KKR is paying a dividend to shareholders of 15 cents per unit, up from 8 cents in the previous quarter. Of that 15 cents, it said half was attributed to fee-related earnings and the remainder was profit on the sale of assets.

Nuttall said KKR’s private equity funds continuing to perform “would lead to meaningful increases in our distribution.”

PORTFOLIO VALUE

While the value of KKR’s investments increased during the quarter, the rate of growth slowed from a year earlier, when it rebounded from a low in the market early in 2009.

KKR’s private equity funds rose 6 percent during the quarter, faster than the 3.5 percent increase it marked in the second quarter of this year, but slower growth than the 18.5 percent increase this period last year.

Economic net income, a measure used by private equity firms to report earnings, was $317.3 million in the third quarter, compared with a pro forma figure of $822.7 million a year earlier.

That was well below the $511 million estimated by analysts at Sandler O’Neill. In a research note, Sandler O’Neill said this was due to lower-than-expected investment income as KKR seemingly marked its portfolio lower than peers.

Blackstone, KKR’s arch-rival and its closest publicly-traded peer, said a week ago that third-quarter economic net income rose to $339 million from $275 million a year earlier. The value of Blackstone’s private equity investments rose 6 percent over the previous quarter and its real estate funds rose 19 percent.

KKR said assets under management rose to $55.5 billion from $50.4 billion a year earlier and $54.4 billion as of June 30.

All KKR private equity funds except for European Fund II are valued above cost, the company’s data showed.

CHINA, INFRASTRUCTURE

KKR has raised more than $700 million so far for a China growth equity fund and expects that fund to reach $1 billion.

Infrastructure fundraising has picked up and it expects to raise about $500 million for an infrastructure fund before the year end, of which $245 million was raised in the third quarter.

KKR expects to start raising money in the next few quarters for its next private equity fund, which will focus on North America.

Investors have been anticipating a new KKR fund for more than a year, but do not expect it to be close to the size of the global $18 billion buyout fund it raised in 2006. It still has about $5 billion to invest from its previous fund, it said. Rival Blackstone is in the process of wrapping up the loose ends on raising its latest buyout fund, which it has said will be over $13.5 billion.

KKR shares were 12 cents lower at $12.53.

(Reporting by Megan Davies; editing by Lisa Von Ahn and Andre Grenon)

KKR lifts payout and assets