Blackstone Inc. quarterly report, Q3 FY2017

全文

Business Context and Reporting Period

The Blackstone Group L.P. filed this unaudited Form 10-Q for the quarter ended September 30, 2017. The partnership manages private equity, real estate, hedge fund solutions and credit businesses. Consolidated results include certain investment funds and CLOs; many related fund assets and liabilities are non-recourse to Blackstone and do not represent freely available corporate resources.

Financial Performance and Position

Unless stated otherwise, amounts below are in U.S. dollars.

  • Quarterly results: Revenue was $1.75 billion, up 22% year over year. Net income was $847 million, up 22%; net income attributable to Blackstone was $385 million, up 23%. Basic and diluted net income per common unit were $0.58 and $0.56, respectively.
  • Nine-month results: Revenue was $5.24 billion, up 47%; net income was $2.61 billion, up 77%; and net income attributable to Blackstone was $1.19 billion, up 77%. Basic and diluted net income per common unit were $1.79 and $1.76.
  • Revenue mix and costs: Nine-month performance fees increased 89% to $2.71 billion, management and advisory fees rose 11% to $2.01 billion, and investment income rose 115% to $514 million. Total expenses increased 29% to $2.72 billion, largely reflecting performance-fee compensation and new CLO fund expenses. The reported effective tax rate was 5.3% for the nine months.
  • Segment measures: Economic Income, a company-defined non-GAAP measure, was $857 million for the quarter, up 21%, and $2.59 billion for the nine months, up 58%. Fee Related Earnings were $307 million for the quarter and $909 million year to date; Distributable Earnings were $626 million and $2.6 billion, respectively.
  • Assets under management: Total AUM was $387.4 billion at September 30, up 6% from year-end 2016; fee-earning AUM was $285.7 billion, up 3%. Nine-month AUM growth reflected $25.3 billion of market appreciation, partly offset by $36.5 billion of realizations and $13.6 billion of outflows.
  • Cash flow and liquidity: Operating cash flow was negative $1.80 billion for the nine months, versus positive $662 million a year earlier, reflecting investment purchases and sales and working-capital movements. Cash and cash equivalents were $1.32 billion at quarter-end. Management also reported $3.7 billion in corporate treasury investments, $1.9 billion invested in Blackstone funds and other investments, and an undrawn $1.5 billion revolving credit facility.
  • Debt and capital: Consolidated loans payable were $12.58 billion, including $9.07 billion related to consolidated funds/CLOs; corporate senior notes had a carrying value of approximately $3.51 billion. Total liabilities were $18.30 billion. Blackstone declared distributions of $0.54 per common unit for the quarter; the filing reports $1.88 per unit declared for the nine months.

Material Changes Versus Prior Period

  • Quarterly performance fees rose 33%, led by real estate appreciation, although realized carried interest was lower than a year earlier. Year-to-date performance fees nearly doubled, with increases in real estate and private equity.
  • Quarterly management and advisory fees increased 14%, helped by the end of fee holidays for BCP VII and BREP Europe V. Nine-month growth in management fees was 11%.
  • Credit segment Economic Income fell 28% in the quarter and 10% year to date; management cited the prior-year recovery from earlier credit-market dislocation and weaker current-period investment income.
  • Loans payable increased $3.7 billion from year-end, primarily due to new CLO vehicles. Consolidated assets increased $5.4 billion, with fund consolidation contributing materially.
  • Operating cash flow shifted to a substantial outflow, while financing cash flow turned positive, supported by $3.85 billion of loan proceeds; distributions to unitholders were $2.31 billion year to date.

Outlook, Risks and Unusual Items

  • Management described the third-quarter backdrop as generally positive, citing global economic expansion, rising equity markets and stronger private-equity-backed M&A. It also noted low volatility, policy and geopolitical uncertainty, and the possibility that less accommodative monetary policy could constrain growth. No specific earnings or revenue guidance was provided.
  • Management said high asset prices and competition made private-equity deployment challenging; opportunistic U.S. real estate opportunities were increasingly difficult, while certain retail markets showed decelerating growth. Depressed energy prices, market volatility, investor withdrawals and deteriorating macro conditions could pressure results.
  • Performance-fee revenue and related compensation depend on fund performance and include unrealized fair-value estimates; such amounts can reverse. At September 30, net accrued performance fees were $3.61 billion, principally unrealized. A 10% decline in investment fair values was estimated to reduce net performance fees (after related compensation) by $1.34 billion and investment income by $184 million.
  • Valuation involves judgment: reported AUM excluding specified commitments was substantially Level III in private equity (73%), real estate (85%) and credit (55%). Fund liquidity can also be limited by redemption restrictions, gates and side pockets.
  • Recorded clawback obligations were $2.2 million. In a remote worst-case scenario in which all carry-fund investments were worthless, potential carried-interest clawback was estimated at $5.4 billion after tax, including up to $5.0 billion potentially attributable to Blackstone Holdings if personnel defaulted on their share.
  • Blackstone had $2.7 billion of its own investment commitments and $644.5 million of commitments by consolidated funds to investee funds. The filing describes tax-law changes, including proposed U.S. tax reform and carried-interest proposals, as uncertain and potentially adverse. Management reported no pending legal proceeding expected to materially affect the consolidated financial statements.
  • Subsequent events: Blackstone issued $300 million of 3.150% notes due 2027 and $300 million of 4.000% notes due 2047 after quarter-end, and completed its acquisition of Harvest Fund Advisors on October 16, 2017. It also paid for $259.7 million of tendered 2019 notes in October and redeemed the remaining 2019 notes on November 1.

Most Important Facts to Verify

  1. Separate Blackstone corporate liquidity and debt from consolidated fund and CLO balances, which are generally non-recourse and fund-restricted.
  2. Assess how much of reported earnings and accrued performance fees is realized cash versus unrealized, and how reversals or clawbacks could affect future distributions.
  3. Review the assumptions underlying Level III valuations and sensitivity to asset prices, foreign exchange, interest rates and credit spreads.
  4. Confirm the timing and amount of distributions: the filing reports $0.54 per unit declared for Q3, while its narrative separately describes a $0.44 per-unit payment with respect to Q3.
  5. Track the impact of the 2019-note refinancing, the Harvest acquisition, investment commitments, and potential tax-law changes on corporate liquidity and after-tax earnings.