Blackstone Group L.P. (now Blackstone Inc.): FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013; filed February 28, 2014. The filing is for The Blackstone Group L.P. and reports five businesses: Private Equity, Real Estate, Hedge Fund Solutions, Credit, and Financial Advisory. The company’s GAAP statements consolidate certain funds, so consolidated assets, liabilities, revenue, and net income include substantial amounts attributable to fund investors and other non-controlling interests.
Financial performance and liquidity
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Total revenue | $6.613 billion | $4.019 billion |
| Total expenses | $3.867 billion | $3.261 billion |
| Income before taxes | $3.149 billion | $1.015 billion |
| Consolidated net income | $2.893 billion | $830 million |
| Net income attributable to Blackstone Group L.P. | $1.171 billion | $219 million |
| Basic / diluted earnings per common unit | $2.00 / $1.98 | $0.41 / $0.41 |
| Net cash from operating activities | $3.548 billion | $583 million |
| Total assets / total liabilities at year-end | $29.679 billion / $15.301 billion | $28.932 billion / $17.717 billion |
- Revenue composition: Management and advisory fees, net, were $2.194 billion; performance fees were $3.544 billion, including $2.158 billion of unrealized carried interest; investment income was $800 million.
- Liquidity and debt: Year-end cash was $832 million. Blackstone also reported $1.2 billion in Treasury Cash Management Strategies, $114 million in liquid Blackstone funds, $2.5 billion in illiquid Blackstone funds, and $202 million in other investments. Corporate senior notes had approximately $1.635 billion in principal outstanding; the $1.1 billion revolving facility was effectively undrawn, with the filing’s debt table showing $717,000 outstanding and a $0.7 million letter of credit. Management described the firm as having no net debt.
- Debt presentation: Consolidated loans payable were $10.467 billion, but $8.802 billion related to consolidated funds, principally CLOs, whose liabilities are generally nonrecourse to Blackstone. Do not treat consolidated fund borrowings as corporate debt.
- Operating measures: Total assets under management reached $265.8 billion, up 26%; fee-earning AUM was $198.0 billion, up 18%. Management reported Fee Related Earnings of $745.5 million and Distributable Earnings of $1.9 billion; these are non-GAAP measures.
Fourth-quarter results and changes versus prior periods
Fourth-quarter 2013 revenue was $2.709 billion, compared with $1.217 billion in fourth-quarter 2012; net income attributable to Blackstone was $621 million versus $106 million, and basic earnings per unit were $1.05 versus $0.19. The annual increase in revenue was 65%, led by higher performance fees and investment income amid stronger markets, increased realizations, and portfolio appreciation. Annual realizations rose to nearly $30 billion from $13 billion in 2012. Results also reflected substantial unrealized performance-fee accruals, which are not equivalent to cash received.
- Real Estate performance fees rose $1.3 billion, primarily reflecting valuation gains in BREP funds, including gains associated with Hilton, Extended Stay, Brixmor, Equity Office, and Invitation Homes.
- Private Equity performance fees increased $470 million; management cited strong results in BCP IV, BEP, and BCP VI.
- Expenses rose 19%, mainly from higher performance-fee compensation, partly offset by lower general and administrative expenses.
- Fee-earning AUM growth reflected $48.2 billion of inflows and $6.2 billion of market appreciation, partly offset by $16.9 billion of realizations and $7.4 billion of outflows.
Outlook, commentary, risks, and unusual items
- Management described 2013 markets as constructive, with improving developed-market conditions, stronger equity and credit markets, and increased IPO and debt issuance. Blackstone invested or committed $19.6 billion during the year; nearly half of deployed capital was outside North America.
- The company does not provide quarterly or annual earnings guidance, citing the variability and uncertain timing of carried interest, incentive fees, realizations, and advisory transactions.
- In August 2013, Blackstone completed the acquisition of Strategic Partners Fund Solutions, adding $9.4 billion to AUM. It also reported a record investment pace and more than $50 billion of gross organic capital inflows.
- Key risks include market and valuation volatility; dependence on realizations and fundraising; leverage at portfolio companies and funds; redemptions and investor capital calls; fee pressure and competition; regulatory and tax changes; conflicts of interest; and potential clawback obligations.
- Blackstone paid $89.7 million in cash clawbacks in 2013 related to BCOM. Remaining recorded clawback obligations were $4.3 million at year-end. Net accrued performance fees were $3.4 billion, a figure subject to investment performance and realization risk.
- The pending private-equity antitrust suit remained unresolved. A separate IPO-related class action settled for $85 million, covered by insurance, and was closed in December 2013. Management said no pending proceeding was expected to have a material impact on the consolidated financial statements, while acknowledging that outcomes are uncertain.
- The $1.235 billion year-end liability to certain non-controlling interest holders under tax receivable agreements is tied to tax benefits and future payments. The filing estimated approximately $1.2 billion of expected payments over 15 years, subject to assumptions and future exchanges.
Most important facts for investors to verify
- How much of reported performance-fee revenue and earnings came from unrealized valuations versus realized cash proceeds, and how sensitive are those valuations to market assumptions?
- What corporate liquidity is actually available after excluding cash and assets held by funds, and how do capital commitments, distributions, and tax-receivable payments affect it?
- How much consolidated debt is fund-level and nonrecourse, versus debt for which Blackstone itself is responsible?
- Whether fundraising, redemptions, investment performance, and fee-earning AUM remain strong after the unusually favorable 2013 markets.
- The status and potential exposure of the antitrust litigation, clawback obligations, regulatory matters, and tax-receivable agreements.
- Distribution figures differ by presentation: the filing reports $1.34 per common unit paid in respect of FY 2013, while declared distributions for calendar 2013 totaled $1.18 because the fourth-quarter $0.58 distribution was declared and paid in February 2014.