KKR Financial Holdings LLC

KKR Financial Holdings LLC Announces Second Quarter 2012 Financial Results and a Quarterly Distribution of $0.21 per Common Share

SAN FRANCISCO, July 26, 2012 /PRNewswire/ -- KKR Financial Holdings LLC (NYSE: KFN) ("KFN" or the "Company") today announced its results for the second quarter ended June 30, 2012.

Second Quarter 2012 Highlights

  • Net income for the second quarter ended June 30, 2012 totaled $71.2 million, or $0.39 per diluted common share.
  • Declared a quarterly cash distribution of $0.21 per common share for the second quarter of 2012.
  • Book value per common share of $9.79 as of June 30, 2012 as compared to book value per common share of $9.81 as of March 31, 2012.

For the three and six months ended June 30, 2012, KFN reported net income of $71.2 million, or $0.39 per diluted common share, and $159.3 million, or $0.87 per diluted common share, respectively. Comparatively, for the three and six months ended June 30, 2011, KFN reported net income of $107.5 million, or $0.59 per diluted common share, and $201.3 million, or $1.10 per diluted common share, respectively.

KFN's second quarter 2012 results included net investment income of $85.6 million, other income of $19.5 million and non-investment expenses of $33.6 million. Comparatively, KFN's second quarter 2011 results reflected net investment income of $88.7 million, other income of $62.6 million and non-investment expenses of $36.4 million. Net investment income decreased $3.1 million from the second quarter ended June 30, 2011 to 2012 primarily due to a $9.7 million increase in interest expense, partially offset by a $4.9 million increase in interest income generated from our corporate loan portfolio. Other income decreased $43.1 million from the second quarter ended June 30, 2011 to 2012 largely due to a $40.2 million decrease in net realized and unrealized gains on investments primarily as the result of a partial sale of one of our largest debt security holdings in the second quarter of 2011. 

Portfolio Activity

Natural Resources Strategy

During the second quarter of 2012, the Company completed the following transactions: (i) closed the acquisition of working interests in oil and gas properties located in North Texas for approximately $69.6 million, of which $30.2 million was financed through the Company's non-recourse natural resources credit facility; (ii) funded $29.8 million of the previously announced $90 million commitment to a partnership with Chesapeake Energy Corporation to invest in mineral interests and overriding royalty interests in key oil and gas basins in the United States and (iii) completed the acquisition of additional oil and gas working interests in acreage located in North Texas for approximately $14.8 million.

Commercial Real Estate Strategy

During the second quarter of 2012, the Company invested $36.8 million in Yorktown Center, a major shopping and entertainment center in the Chicago area, through its commercial real estate strategy. 

Book Value

Book value per share decreased to $9.79 as of June 30, 2012 from $9.81 as of March 31, 2012. The decrease in book value per share from March 31, 2012 was primarily driven by (i) an increase in the Company's accumulated other comprehensive loss, a component of shareholders' equity, of $0.24 per share partially as a result of declines in value of certain interest rate swaps designated as cash flow hedges and (ii) the Company's distribution to shareholders for the first quarter 2012 of $0.18 per common share, partially offset by (iii) the Company's earnings for the second quarter of $0.40 per basic common share.

Distributions

On July 26, 2012, the Company's board of directors declared a cash distribution of $0.21 per common share. The distribution is payable on August 23, 2012 to common shareholders of record as of the close of business on August 9, 2012.

Information for Investors: Conference Call and Webcast

The Company will host a conference call and audio webcast to review its results for the second quarter ended June 30, 2012 on July 26, 2012, at 2:00 p.m. PT (5:00 p.m. ET). The conference call may be accessed by dialing (888) 801-6507 (domestic) or +1 (913) 312-0963 (international); a pass code is not required. A telephonic replay of the call will be available through August 9, 2012 by dialing (888) 203-1112 (domestic) and +1 (719) 457-0820 (international), pass code 4076832. Supplemental materials that will be discussed during the call and the live audio webcast will be available in the Investor Relations section of the Company's website at http://ir.kkr.com/kfn_ir/kfn_events.cfm. An audio replay of the webcast will be archived in the Investor Relations section of the Company's website at http://ir.kkr.com/kfn_ir/kfn_events.cfm.

From time to time the Company may use its website as a channel of distribution of material company information. Financial and other important information regarding the Company is routinely posted on and accessible at the Investor Relations section for KFN at www.kkr.com. In addition, you may automatically receive email alerts and other information about the Company by enrolling your email by visiting the "Email Alerts" area in KFN's Investor Relations section.

About KKR Financial Holdings LLC

KKR Financial Holdings LLC is a specialty finance company with expertise in a range of asset classes. KFN's core business strategy is to leverage the proprietary resources of its manager with the objective of generating both current income and capital appreciation. KFN executes its core business strategy through its majority-owned subsidiaries. KFN is externally managed by KKR Financial Advisors LLC, a wholly-owned subsidiary of KKR Asset Management LLC, which is a wholly-owned subsidiary of Kohlberg Kravis Roberts & Co. L.P.  Additional information regarding KFN is available at http://www.kkr.com.

"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements with regards to commitments to deploy capital. These forward-looking statements are based on information available to the Company as of the date of this press release and actual results may differ. These forward-looking statements involve known and unknown risks, uncertainties and other factors beyond the Company's control. Any forward-looking statements speak only as of the date of this press release and the Company expressly disclaims any obligation to update or revise any of them to reflect actual results, any changes in expectations or any change in events. If the Company does update one or more forward-looking statements, no inference should be drawn that it will make additional updates with respect to those or other forward-looking statements. For additional information concerning risks, uncertainties and other factors that may cause actual results to differ from those anticipated in the forward-looking statements, and risks to the Company's business in general, please refer to the Company's SEC filings, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed with the SEC on February 28, 2012 and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, filed with the SEC on May 9, 2012.

Schedule I

KKR Financial Holdings LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Amounts in thousands, except per share information)

For the 

three

months 

ended

June 30, 

2012

For the 

three

months 

ended

June 30, 

2011

For the 

six

months 

ended

June 30, 

2012

For the 

six

months 

ended

June 30, 

2011

Net investment income:







Loan interest income


$ 107,602

$ 102,656

$ 211,696

$ 212,301

Securities interest income


20,813

22,073

43,389

44,629

Other investment income


12,135

11,114

23,399

14,243

Total investment income


140,550

135,843

278,484

271,173

Interest expense


42,655

32,978

83,370

65,099

Interest expense to affiliates


12,318

14,142

25,177

26,238

Provision for loan losses


—

—

46,498

11,661

Net investment income


85,577

88,723

123,439

168,175

Other income:







Net realized and unrealized gain on investments


18,382

58,541

81,970

97,725

Net realized and unrealized (loss) gain on derivatives and foreign exchange

(3,630)

1,241

5,519

7,308

Net realized and unrealized gain (loss) on residential mortgage-backed securities, at estimated fair value


3,016

609

6,063

(129)

Net loss on restructuring and extinguishment of debt


—

—

(445)

—

Other income


1,701

2,187

5,293

4,110

Total other income


19,469

62,578

98,400

109,014

Non-investment expenses:







Related party management compensation


12,804

24,315

30,917

45,516

General, administrative and directors expenses


19,526

10,367

32,330

18,538

Professional services


1,308

1,691

3,204

3,123

Total non-investment expenses


33,638

36,373

66,451

67,177

Income before income tax expense (benefit)

71,408

114,928

155,388

210,012

Income tax expense (benefit)

203

7,424

(3,865)

8,741

Net income

$  71,205

$ 107,504

$ 159,253

$ 201,271







Net income per common share:







Basic


$      0.40

$      0.60

$      0.89

$      1.13

Diluted

$      0.39

$      0.59

$      0.87

$      1.10







Weighted-average number of common shares outstanding:







Basic


177,809

177,674

177,792

177,376

Diluted


181,642

182,393

181,944

181,844





Schedule II

KKR Financial Holdings LLC

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Amounts in thousands, except share information)

June 30,

2012

December 31,

2011

Assets



Cash and cash equivalents


$   473,789

$   392,154

Restricted cash and cash equivalents


414,814

399,620

Securities


813,777

922,603

Corporate loans, net (includes $183,934 and $317,332 loans held for sale as of June 30, 2012 and December 31, 2011, respectively)


5,945,230

6,443,399

Equity investments, at estimated fair value ($16,418 and $12,222 pledged as collateral as of June 30, 2012 and December 31, 2011, respectively)


157,677

189,845

Derivative assets


32,319

28,463

Interest and principal receivable


38,223

62,124

Other assets


483,808

209,020

Total assets


$ 8,359,637

$ 8,647,228

Liabilities



Collateralized loan obligation secured debt


$ 5,063,406

$ 5,540,037

Collateralized loan obligation junior secured notes to affiliates


322,348

365,848

Credit facilities


100,000

38,300

Convertible senior notes


277,408

299,830

Senior notes


362,132

250,676

Junior subordinated notes


283,517

283,517

Accounts payable, accrued expenses and other liabilities


44,097

24,680

Accrued interest payable


25,043

25,536

Accrued interest payable to affiliates


6,921

6,561

Related party payable


7,967

11,078

Derivative liabilities


120,072

125,333

Total liabilities


6,612,911

6,971,396

Shareholders' Equity



Preferred shares, no par value, 50,000,000 shares authorized and none issued and outstanding at June 30, 2012 and December 31, 2011


-

-

Common shares, no par value, 500,000,000 shares authorized, and 178,393,521 and 178,145,482 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively


-

-

Paid-in-capital


2,760,628

2,759,478

Accumulated other comprehensive loss


(46,633)

(35,619)

Accumulated deficit


(967,269)

(1,048,027)

    Total shareholders' equity


1,746,726

1,675,832

Total liabilities and shareholders' equity


$ 8,359,637

$ 8,647,228

Investor Relations Contact:
Pam Testani
415-315-6597
investor-relations@kkr.com             

Media Contact:
Kristi Huller
212-750-8300
media@kkr.com

SOURCE KKR Financial Holdings LLC

News Provided by Acquire Media