Apollo Global Management LLC (APO:US), the private-equity firm run by Leon Black, said fourth-quarter profit more than doubled as the firm’s funds reaped gains after exiting investments.
Economic net income after taxes, a measure of earnings excluding some compensation costs tied to Apollo’s 2011 initial public offering, rose to $655.8 million, or $1.69 a share, from $302 million, or 80 cents, a year earlier, New York-based Apollo said today in a statement. Profit beat the 93 cents-a-share average of 10 analyst estimates (APO:US) in a Bloomberg survey, sending shares higher.
A 13 percent gain in global stocks last year and a rebounding U.S. real estate market have lifted the value of fund holdings, boosting fees for managing them. Among Apollo’s biggest holdings, brokerage owner Realogy Holdings Corp. (RLGY:US) rose 55 percent during the fourth quarter and Metals USA Holdings Corp. (MUSA:US) increased 31 percent. Black has also taken advantage of strong performance by chemical maker LyondellBasell Industries NV (LYB:US) to sell down Apollo’s stake.
“Results were significantly better than expected across both the management and incentive businesses,” said Steven Fu, a San Francisco-based analyst at JMP Securities LLC. “Robust realization activity during the quarter led to a record distribution.”
Apollo rose (APO:US) 2.4 percent to close at $22.69 in New York trading. The shares have gained 31 percent this year, the most among alternative-asset managers traded in the U.S.
Apollo’s economic net income differs from U.S. generally accepted accounting principles. Profit under those standards, known as GAAP, was $171.5 million, or $1.12 a share, compared with $10.9 million, or 5 cents, a year ago.
The company reaped profits by selling down its stakes in LyondellBasell and cable provider Charter Communications Inc. (CHTR:US), as well as collecting a special dividend from LyondellBasell. Apollo on Oct. 11 agreed to sell Smart & Final Inc. to Ares Management LLC in a $975 million deal that will return 2.8 times Apollo’s initial equity investment, a person familiar with the matter said at the time.
Private-equity firms pool money from investors including pension plans and endowments with a mandate to buy companies within about five to six years, then sell them and return the funds with a profit after about 10 years. The firms, which use debt to finance the deals and amplify returns, typically charge an annual management fee equal to 1.5 percent to 2 percent of committed funds and keep 20 percent of profit from investments.
Apollo’s assets under management rose to $113.4 billion from $109.7 billion at the end of the third quarter. The firm, like competitors Blackstone Group LP (BX:US) and KKR & Co. (KKR:US), has sought investment opportunities outside of traditional leveraged buyouts to attract more capital and reduce reliance on volatile private-equity earnings.
Apollo said the value of its private-equity holdings rose 9 percent during the quarter, compared with 7 percent for Blackstone and 4 percent for KKR. Blackstone and KKR, both based in New York, reported fourth-quarter profits that beat analysts’ estimates as the value of their buyout portfolios rose.
Apollo during the fourth quarter agreed to buy the education business of McGraw-Hill Cos. for $2.5 billion as the unit suffered from competition by digital-education products and a decline in college, career and professional school enrollments. The firm also agreed to buy the U.S. life and annuity business of Aviva Plc, the U.K.’s second-biggest insurer by market value, for $1.8 billion.
Worldwide, the value of private-equity deals announced in the fourth quarter fell 3 percent from a year earlier to $88 billion, according to data compiled by Bloomberg.
Apollo said it will pay a dividend of $1.05 per common share on Feb. 28.
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