Blackstone Inc. — Q1 2021 Form 10-Q
Business context and reporting period. Blackstone is a global alternative asset manager operating across Real Estate, Private Equity, Hedge Fund Solutions, and Credit & Insurance. This unaudited report covers the three months ended March 31, 2021, compared with the same period in 2020. Results reflect a sharp recovery in investment valuations from the market disruption of early 2020; GAAP results include substantial unrealized investment gains and losses.
Financial performance and liquidity
- Revenue: $5.30 billion, versus a loss of $3.08 billion in revenue in Q1 2020. Management and advisory fees, net, rose 26% to $1.18 billion. Total investment income was $3.99 billion, compared with a $4.20 billion investment loss a year earlier, including $2.46 billion in unrealized performance allocations.
- Profit and per-share results: Net income attributable to Blackstone was $1.75 billion, versus a $1.07 billion loss. Diluted EPS was $2.46, versus a $1.58 loss. Effective tax rate was 0.0%; the company reported a small tax benefit despite being a cash taxpayer.
- Non-GAAP earnings: Distributable Earnings were $1.19 billion versus $557 million; Segment Distributable Earnings were $1.29 billion versus $584 million. Fee Related Earnings were $741 million versus $468 million. These measures exclude or adjust for items including unrealized activity and are not GAAP measures.
- Segments: Segment Distributable Earnings increased across all four segments: Real Estate $541 million (+102%); Private Equity $475 million (+160%); Hedge Fund Solutions $157 million (+107%); and Credit & Insurance $117 million (+100%).
- Assets under management: Total AUM reached $648.8 billion, up 5% from year-end 2020; fee-earning AUM was $481.2 billion, up 3%. Net inflows and market appreciation were partly offset by realizations and outflows.
- Cash flow: Operating cash flow was $2.30 billion, compared with $999 million. Investing cash outflow was $21 million and financing cash outflow was $1.36 billion, including $1.26 billion of dividends and distributions. Cash and cash held by funds increased by $907 million during the quarter.
- Debt and liquidity: Loans payable were $5.57 billion at March 31, down from $5.64 billion at year-end. Blackstone reported $2.86 billion of cash and cash equivalents and $1.73 billion in corporate treasury investments. Its $2.25 billion revolving credit facility was undrawn. Consolidated cash includes amounts held by funds that are not available for general corporate use.
- Distributions and repurchases: The filing reports a $0.96 per-share dividend declared for the quarter; management also states that $0.82 per share was paid with respect to Q1. No shares were repurchased during the quarter. $307.2 million remained available under the repurchase authorization at March 31.
Material changes versus the prior comparable period
- The swing from a substantial GAAP loss to profit was primarily driven by investment valuation recovery: 2021 included unrealized investment gains, while Q1 2020 included large unrealized losses. The comparison is therefore not a straightforward measure of recurring operating growth.
- Fee-related and realized earnings improved, supported by higher management fees, stronger realizations, and performance revenues. Fee-earning AUM rose from $469.4 billion at year-end 2020, while total AUM rose from $618.6 billion.
- Blackstone sold part of its interest in Pát ria following its January 2021 IPO, recognized a gain, and ceased equity-method accounting for the retained interest after losing significant influence.
- Effective February 26, 2021, Blackstone renamed Class A common stock as common stock and reclassified its former Class B and Class C shares as Series I and Series II preferred stock, respectively; the filing says the shares retained their prior rights and powers.
Outlook, commentary, risks and unusual items
- Management described a gradual, uneven global recovery, with improving U.S. activity supported by vaccine progress and fiscal and monetary stimulus. The filing gives no specific company-level earnings or AUM guidance.
- COVID-19 may continue to affect portfolio companies and investment performance, particularly in hospitality, retail, travel, leisure and events, and selected urban real estate. Management also cited uneven regional recovery, inflation, wage and input-cost pressure, energy-sector weakness, market downturns, redemptions, borrower stress, and regulatory or policy changes as risks.
- Performance allocations depend on investment valuations and fund hurdles; unrealized gains may reverse, and realized carry may be subject to clawback. Recorded clawback obligations were $81 million. In an extreme scenario in which all carry-fund investments were worthless, potential clawback was estimated at $4.3 billion after tax, including $3.9 billion potentially attributable to Blackstone Holdings if personnel failed to meet their obligations; management characterized this scenario as remote.
- Blackstone reported $4.1 billion of investment commitments. It also disclosed $881 million of expected tax receivable agreement payments over 15 years, assuming sufficient taxable income and no material tax-law changes. The filing identifies litigation related to Kentucky Retirement Systems investments and related Kentucky Attorney General actions; management said it considers the claims without merit and intends to defend them.
- Fair values for certain private investments rely on unobservable inputs and significant judgment. The company noted that COVID-related economic uncertainty affected valuation judgments. Management reported no material change in market risk since year-end 2020 and concluded disclosure controls were effective.
- After quarter-end, on May 6, 2021, the board authorized a new $1.0 billion share repurchase program replacing the prior authorization. This is a subsequent event, not a Q1 repurchase.
Important facts for investors to verify
- How much of reported profit and the improvement in GAAP results came from unrealized investment gains, and how those valuations are determined.
- Whether growth in fee-earning AUM, management fees and Fee Related Earnings is sustained, and how realizations and fundraising net outflows evolve.
- The reconciliation and cash-generation implications of Distributable Earnings versus GAAP net income, including the basis for the dividend.
- Liquidity available to the corporate parent after excluding fund-held cash, and the pace and funding of the $4.1 billion of investment commitments.
- Potential exposure from clawbacks, tax receivable agreements, guarantees and the Kentucky litigation, including any developments after the filing date.