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 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. rose 55 percent during the fourth quarter and Metals USA Holdings Corp. increased 31 percent. Black has also taken advantage of strong performance by chemical maker LyondellBasell Industries NV 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 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., 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 and KKR & Co., 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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