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KKR shareholders feel squeeze as earnings, investment income tumble

The firm reports distributable earnings dropped 23% in 3Q, driven by a sharp decline in investment income.

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The lackluster private equity exit environment has apparently impacted KKR. And not in a way that will make shareholders happy.

Driven in large part by a shortage of income from realized investments, the New York-based buyout firm reported a 23% YoY drop in distributable earnings per share during its 3Q earnings release Tuesday. Specifically, the total decreased from 60 cents per share, or $496.7 million, in 3Q 2018, to 46 cents per share, or $388.8 million, in the most recent earnings period. A dividend of $0.125 per share will be paid out to Class A common stockholders November 26, and a dividend of $0.421875 per share of Series A preferred stock will be paid December 16.

Over the past year or so, distributable earnings have become one of a few key metrics used to evaluate private equity performance after publicly traded firms did away with economic net income, which supposedly measured the mark-to-market performance of investments. Distributable earnings represent the amount firms have on hand to pay shareholders. Last week, Blackstone reported an 8% drop in such earnings.

Though KKR’s distributable earnings exceeded expectations from analysts who had pegged the total at 42 cents per share, it still marked a disappointing performance in a year when the US stock market has hit all-time highs. However, those very conditions have reportedly made it difficult for PE firms to exit companies as corporate acquirers balk at high prices, according to PitchBook’s 3Q US PE Breakdown. KKR was no exception to the trend in 3Q, with its exit income dropping 29% YoY to $307.5 million.

The firm’s profits also dipped to $249.6 million, a 60% YoY drop, going from $1.17 per share in 3Q 2018 to 43 cents per share. And its total investment income dropped more than 70% to $218.8 million.

The struggles come after KKR’s capital markets business took a hit when Endeavor, a Hollywood talent agency and entertainment conglomerate, pulled its IPO the day before it was expected to debut last month. The company had hoped to sell 15 million shares at between $26 and $27 apiece, but ultimately bailed because of skepticism from investors and a shaky IPO environment. KKR’s capital markets business was the underwriter for the offering.

It wasn’t all bad news, however. The firm’s AUM jumped to $208.4 billion, marking a 7% YoY bump. And its fundraising bona fides remained strong, as it recently brought in more than $2 billion to make growth investments in the technology, media & telecom sector. In addition, management fees jumped 14% YoY, to roughly $314 million. And its stock went mostly unaffected by results, dipping just two-tenths of a percentage point Tuesday to settle at $28.64 per share.

Featured image via christophertdumond/iStock/Getty Images Plus

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    Written by Adam Lewis
    Adam Lewis was a financial writer covering private equity for PitchBook. He covered dealmaking, company and investor news for the PitchBook newsletter and blogs about the intersection of private equity and politics. A graduate of the WSU’s Edward R. Murrow College of Communication, Adam was previously a sportswriter covering the Mariners and Seahawks.
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