Fortress Reports Third Quarter 2016 Results and Announces Dividend of $0.09 per Share

Fortress Principals Enter Into New Five-Year Employment Agreements

New York, NY. November 3, 2016 - Fortress Investment Group LLC (NYSE: FIG) ("Fortress" or the "Company") today reported its third quarter 2016 financial results.

FINANCIAL SUMMARY
  • Fortress declared a cash dividend of $0.09 per dividend paying share for the third quarter 2016

  • Management Fee Paying Assets Under Management ("AUM") of $70.1 billion as of September 30, 2016, down slightly compared to the previous quarter and down 6% compared to September 30, 2015

  • GAAP net income of $58 million, or $0.07 per diluted Class A share, for the third quarter of 2016, compared to a GAAP net loss of $26 million, or $(0.07) per diluted Class A share, for the third quarter of 2015

  • GAAP net income of $16 million, or $0.02 per diluted Class A share, for the first nine months of 2016, compared to GAAP net income of $66 million, or $0.09 per diluted Class A share, for the first nine months of 2015

  • Pre-tax distributable earnings ("DE") of $90 million, or $0.23 per dividend paying share, for the third quarter of 2016, compared to pre-tax DE of $69 million, or $0.15 per dividend paying share, for the third quarter of 2015‌

  • Pre-tax DE of $255 million, or $0.64 per dividend paying share, for the first nine months of 2016, compared to pre-tax DE of $261 million, or $0.58 per dividend paying share, for the first nine months of 2015

  • Net cash and investments of $1.1 billion, or $2.75 per dividend paying share, as of September 30, 2016

  • $1.2 billion of gross embedded incentive income across funds and permanent capital vehicles as of September 30, 2016, that has not yet been recognized in DE

  • Total uncalled capital, or "dry powder," of $7.0 billion as of September 30, 2016, including $4.2 billion available for general investment purposes

  • Fortress's principals, Peter Briger, Wesley Edens and Randal Nardone, entered into new five-year employment agreements, effective as of January 1, 2017

    BUSINESS HIGHLIGHTS
  • Raised $833 million of capital across alternative investment businesses during the first nine months of 2016

  • Investment performance summary as of September 30, 2016:

    • Private Equity fund valuations increased 7.5% in the quarter

      Note: This release contains certain Non-GAAP financial measures. Fortress urges you to read the "Non-GAAP Information" section below and to review the exhibits in this release for reconciliations of these measures to the comparable GAAP measures.

    • Annualized inception-to-date net IRRs for Credit Opportunities Fund ("FCO"), FCO II and FCO III of 23.5%, 16.1% and 9.8%, respectively

    • Third quarter and year-to-date 2016 net returns of 2.7% and 6.2%, respectively, for the Drawbridge Special Opportunities Fund ("DBSO") LP

    • All 16 Logan Circle strategies outperformed respective benchmarks in the third quarter

"Fortress had a very solid third quarter, marked by substantial incentive income from our Credit funds, significant valuation gains in our Private Equity funds, and double-digit growth in the value of our balance sheet," said Fortress CEO Randal Nardone. "With high levels of activity across our businesses, continued growth in embedded value yet to be reflected in earnings, and ample dry powder to invest, we are very optimistic in our outlook for the full year and 2017."

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 September 30, 2016. The condensed consolidated GAAP statement of operations and balance sheet are presented on pages 12-13 of this press release.

(in millions, except per share amount)

GAAP

3Q 2Q 3Q % Cha nge YT D YT D % Cha nge

2016 2016 2015 QoQ YoY 2016 2015 YoY

Revenues

$ 261 $

232 $

264

13% (1)%

$ 725 $

799

(9)%

Expenses 225 238 224 (5)% 0% 670 811 (17)%

Other Income (loss) 30 (17) (62) N/A N/A (27) 95 N/A

Net income (loss) 58 (27) (26) N/A N/A 16 66 (76)% Net income (loss) attributable to Class A Shareholders 31 (14) (14) N/ A N/ A 8 24 (66)%

Per diluted share

$ 0.07 $ (0.07) $ (0.07) N/ A N/ A $ 0.02 $ 0.09 (78)%

Weighted average Class A shares outstanding, diluted 390 217 216 390 222

Distributable Earnings

Fund management DE

$ 88 $

98 $

67 (10)% 31%

$ 249 $

251

(1)%

Pre-tax DE 90 101 69 (11)% 30% 255 261 (2)%

Per dividend paying share/unit

$ 0.23 $ 0.26 $ 0.15 (12)% 53% $ 0.64 $ 0.58 10%

Weighted average dividend paying shares and units outstanding 394 394 454 396 453

Private Equity and Permanent Capital

$ 13,917

$ 13,284

$ 16,091

5%

(14)%

$ 13,917

$ 16,091

(14)%

Credit1

18,287

18,209

17,426

0%

5%

18,287

17,426

5%

Liquid Markets2

4,541

4,622

7,367

(2)%

(38)%

4,541

7,367

(38)%

Assets Under Management

Logan Circle 33,386 34,080 33,446 (2)% 0% 33,386 33,446 0%

Total Assets Under Management

$ 70,131

$ 70,195

$ 74,330

0% (6)%

$ 70,131

$ 74,330

(6)%

  1. The Assets Under Management presented for Credit includes $1,838 million of AUM related to co-managed funds as of 3Q 2016.

  2. The Assets Under Management presented for Liquid Markets includes $4,240 million of AUM related to the Affiliated Manager as of 3Q 2016.

    GAAP RESULTS

    Fortress recorded GAAP net income of $58 million, or $0.07 per diluted Class A share, for the third quarter of 2016, compared to a GAAP net loss of $26 million, or $(0.07) per diluted Class A share, for the third quarter of 2015. Our diluted earnings per share includes the income tax effects to net income (loss) attributable to Class A shareholders from the assumed conversion of Fortress Operating Group units to Class A shares in periods when the effect is dilutive.

    The year-over-year increase in Fortress's third quarter 2016 GAAP net income was primarily driven by a

    $92 million increase other income, partially offset by a $3 million decrease in revenues and a $1 million increase in expenses.

    Other income in the third quarter of 2016 totaled $30 million, up from a loss of $62 million in the third quarter of 2015. The year-over-year increase was principally related to a net increase in earnings from equity method investees, primarily with respect to our investments in the Private Equity Funds, Credit PE Funds and Credit Hedge Funds, and net increases in the fair value of options and common stock held in our Permanent Capital Vehicles.

    The $3 million decrease in revenues was primarily attributable to lower management fees and expense reimbursement, partially offset by an increase in other revenues. The decrease in management fees was primarily related to the closing of the Fortress Macro Funds and related managed accounts during the fourth quarter of 2015 and lower management fees from certain of our Private Equity Funds as a result of decreases in their average AUM. These decreases were partially offset by an increase from the Credit PE Funds as a result of an increase in average AUM, an increase related to permanent capital vehicle options granted to Fortress during the quarter and an increase related to the management of the JP Funds which began in the first quarter of 2016. The decrease in expense reimbursements was primarily related to a decrease in operating expenses eligible for reimbursement from our funds, primarily related to the closing of the Fortress Macro Funds and related managed accounts.

    The $1 million increase in expenses was primarily related to higher compensation and benefits and interest expense, partially offset by lower general, administrative and other expenses (including depreciation and amortization).

    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 Se pte mbe r 30, 2016 Priva te Equity Cre dit Funds

    Permanent

    Liquid Hedge

    Logan Circle

    (in millions) Tota l Funds Ca pita l Ve hicles He dge Funds PE Funds Funds Pa rtne rs

    Assets Under Management3

    $ 70,131

    $ 7,071

    $ 6,846

    $ 8,804

    $ 9,483

    $ 4,541

    $ 33,386

    Dry Powder

    $ 7,000

    $ 597

    $ -

    $ 333

    $ 6,070

    N/A

    N/A

    Average Management Fee Rate4

    1.2%

    1.5%

    2.0%

    1.3%

    1.2%

    0.2%

    Incentive Eligible NAV Above Incentive Income Threshold5

    $ 22,349

    $ 1,870

    $ 3,978

    $ 5,923

    $ 10,484

    $ -

    $ 94

    Undistributed Incentive Income: Unrecognized

    $ 1,193

    $ 210

    $ 26

    $ 61

    $ 894

    $ 2

    $ -

    Undistributed Incentive Income: Recognized

    65

    -

    -

    65

    -

    -

    -

    Undistributed Incentive Income6

    $ 1,258 $

    210 $

    26 $

    126 $

    894 $ 2 $ -

    Three Months Ended September 30, 2016 Private Equity Credit Funds

    Permanent

    Liquid Hedge

    Logan Circle

    (in millions) Tota l Funds Ca pita l Ve hicles He dge Funds PE Funds Funds Pa rtne rs

    Third-Party Capital Raised

    $ 399 $ - $

    279 $

    - $ 120 $

    - $ -

    Segment Revenues

    Incentive income

    113 - 10 44 59 - -

    Total

    249 21 38 83 91 1 15

    Segment Expenses

    Operating expenses

    (104) (8) (17) (25) (34) (7) (13)

    Profit sharing compensation expenses

    (50) - (5) (16) (29) - -

    Management fees

    $ 136 $

    21 $

    28 $

    39 $

    32 $

    1 $ 15

    Total

    (154)

    (8)

    (22)

    (41)

    (63)

    (7)

    (13)

    Earnings From Affiliated Manager

    3

    -

    -

    -

    -

    3

    -

    Principal Performance Payments

    (10)

    -

    (2)

    (8)

    -

    -

    -

    Fund Management DE

    $ 88

    $ 13

    $ 14

    $ 34

    $ 28

    $ (3)

    $ 2

    Net Investment Income7

    2

    -

    -

    2

    4

    (2)

    -

    Pre-tax Distributable Earnings

    $ 90

    $ 13

    $ 14

    $ 36

    $ 32

    $ (5)

    $ 2

  3. The Assets Under Management presented for the Credit Hedge Funds includes $1,838 million related to co-managed funds and $821 million related to the third party originated JP Funds and Value Recovery Funds. The Assets Under Management presented for the Liquid Hedge Funds includes $4,240 million related to the Affiliated Manager.

  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 the Affiliated Manager.

  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 the Affiliated Manager 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 MSR Opportunities Fund II A and Long Dated Value Fund I, whose capital was above the incentive income threshold as of September 30, 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. Undistributed Incentive Income - Recognized represents the results of the main fund investments for the Credit Hedge Funds including the

    impact of realized gains and losses and unrealized losses on sidepocket investments. Undistributed Incentive Income - Unrecognized represents the results of the Private Equity Funds, Credit PE Funds and Liquid and Credit Hedge Fund sidepocket and redeeming capital account (RCA) investments which have not been recognized in Distributable Earnings and will be recognized when realized. 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 the Affiliated Manager. Undistributed Incentive Income for Credit PE Funds includes $16 million of unrealized losses that would have reduced Distributable Earnings if Fortress had settled Japanese Yen foreign exchange derivative contracts used to economically hedge estimated future incentive income it had outstanding as of September 30, 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 September 30, 2016 closing price.

  7. Net Investment Income includes Unallocated Expenses of $2 million.

Fortress Investment Group LLC published this content on 03 November 2016 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 03 November 2016 11:54:03 UTC.

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