Ares Management Corp Quarterly Report for Q1 Ended Mar 31, 2017

Summary

Ares Management, L.P. reported a net loss of $156.3 million for the first quarter of 2017, a significant increase from the prior year's net loss of $13.6 million. This widened loss was largely driven by a substantial transaction support expense of $275.2 million related to Ares Capital Corporation's (ARCC) acquisition of American Capital, Ltd. (ACAS), which was partially offset by increased management and performance fees. Despite the GAAP net loss, the company's operational performance, as measured by Fee Related Earnings (FRE) and Economic Net Income (ENI), showed positive growth year-over-year, reflecting the underlying strength of its asset management business. Total Assets under Management (AUM) increased to $99.8 billion, driven by growth across all segments, particularly the Credit Group. The company also demonstrated solid growth in Fee Paying AUM (FPAUM), which rose to $69.2 billion, indicating an increasing base for future management fees. Financially, Ares Management benefited from increased management fees across its segments, especially the Credit Group, driven by ARCC's acquisition. Performance fees also rebounded significantly compared to the prior year, which had a substantial performance fee reversal. However, the company's debt obligations increased substantially to $488.2 million, primarily due to new term loans. Liquidity remains adequate, with $104.0 million in cash and cash equivalents and available credit facilities. Investors should note the significant impact of the ACAS transaction on the current quarter's results and focus on the underlying segment performance and AUM growth for a clearer picture of the company's ongoing operational health.

Key Highlights

• 1Reported a net loss of $156.3 million for Q1 2017, a significant increase from $13.6 million in Q1 2016, largely due to a $275.2 million transaction support expense for the ARCC-ACAS merger.
• 2Total revenues increased by 78% to $241.7 million, driven by a 9% rise in management fees ($172.0 million) and a significant rebound in performance fees to $55.2 million from a negative $29.9 million in the prior year.
• 3Fee Related Earnings (FRE) increased by 20% to $46.7 million, indicating improved operational profitability.
• 4Economic Net Income (ENI) saw a substantial increase of 214% to $75.9 million, demonstrating strong underlying business performance.
• 5Total Assets Under Management (AUM) grew to $99.8 billion as of March 31, 2017, up from $93.5 billion at the end of 2016, with the Credit Group showing notable growth.
• 6Fee Paying Assets Under Management (FPAUM) increased by 18% to $69.2 billion, providing a growing base for future management fees.
• 7Debt obligations increased significantly by approximately 60% to $488.2 million, primarily due to new term loans and increased borrowings under the credit facility.

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