KKR Financial Holdings' CEO Discusses Q1 2012 Results - Earnings Call Transcript

KKR Financial Holdings LLC (KFR)

Q1 2012 Earnings Call

April 25, 2012 9:00 a.m. ET

Executives

Angela Yang – Investor Relations

William Sonneborn – Chief Executive Officer

Michael McFerran – Chief Financial Officer and Chief Operations Officer

Analysts

Gabe Poggi - FBR & Co.

Daniel Furtado - Jefferies

Michael Sarcone - Sandler O'Neill & Partners

Presentation

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Operator

Good day everyone and welcome to the KKR Financial Holdings LLC First Quarter 2012 Earnings Conference. As a reminder, today's presentation is being recorded. At this time I would like to turn the call over to Ms. Angela Yang. Please go ahead, ma'am.

Angela Yang

Thank you, operator, and good morning, everyone. I'm Angela Yang, part of Investor Relations for KKR Financial Holdings LLC. Joining me on the call today are Bill Sonneborn, our Chief Executive Officer, and Michael McFerran, our Chief Operating and Financial Officer.

This morning's call is being webcast on our website at www.kkr.com in the KKR Financial Holdings Investors Relations section. There will be a replay of the call available, as well.

Our financial results for the first quarter ended March 31, 2012, were issued today and as with prior quarters a supplemental information packet is available in the Investor Relations section of our website.

Before we get started, I would like to caution you that this conference call and webcast contain forward-looking statements that are based on the beliefs of the management team regarding the operations and the results of the operations of the Company, as well as general economic conditions.

These beliefs and the related forward-looking statements are subject to substantial risk and uncertainties, which are described in greater detail in the filings we have made with the Securities and Exchange Commission and our supplemental information package available on our website. These filings are available on the Securities and Exchange Commission's website at www.sec.gov.

KFN's actual results may vary materially from those expressed in the forward-looking statements. In addition, some of the discussions today will include references to non-GAAP financial measures. Information about these measures as well as their corresponding GAAP reconciliations can be found in the supplemental information packet available on our website.

The supplemental information packet on our website includes information that we will be referring to on our call today, and we encourage you to have this information available during the call.

With that, I will turn the call over to our CEO, Bill Sonneborn.

William Sonneborn

Thank you, Angela, and thanks to all of you for joining our call early this morning. We will begin today's call with a review of our first quarter highlights and then Mike will review our financial results in more detail. After that I will share with you our vision and our areas of focus as we look ahead.

Today we announce that our Board of Directors declared a $0.18 cash distribution on our common shares. This distribution is payable on May 22 to share holders of record as of May 8. In addition, we reported net income for the first quarter of $88 million, or $0.48 per diluted common share, which represents a 20% return on equity.

We reported book value per shares on March 31, 2012 of $9.81, an increase of $0.40, which represents an annualized increase of 17% from the $9.41 per share book value as of December 31, 2011. As our book value per share is based on the carrying value of our assets and our liabilities, it doesn’t necessarily reflect the fair value of our portfolio as our loans held for investment are carried at amortized cost less an allowance for loan losses.

In our natural resources, working interest and royalty holdings are carried at amortized cost under GAAP. For our debt and natural resource holdings are adjusted to estimated fair value and our book value per share is $10.67 or a $0.68 premium to the book value we reported this quarter.

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