Blackstone Inc. — Q3 2023 Form 10-Q
Period: Quarter and nine months ended September 30, 2023. Unaudited results; financial statement amounts below are in U.S. dollars. Blackstone is a global alternative asset manager with Real Estate, Private Equity, Credit & Insurance, and Hedge Fund Solutions segments. GAAP results include investment valuation changes and consolidated fund activity, which can make reported revenue and earnings volatile.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| GAAP revenue | $2.54B | $1.06B | $6.74B | $6.81B |
| Income before taxes | $1.12B | $97.9M | $2.80B | $2.86B |
| Net income attributable to Blackstone Inc. | $552.0M | $2.3M | $1.24B | $1.19B |
| Diluted earnings per share | $0.73 | $0.00 as presented | $1.64 | $1.61 |
| Segment Distributable Earnings (non-GAAP) | $1.38B | $1.58B | $4.16B | $6.02B |
| Distributable Earnings (non-GAAP) | $1.21B | $1.37B | $3.67B | $5.30B |
| Fee Related Earnings (non-GAAP) | $1.12B | $1.18B | $3.31B | $3.35B |
Revenue and earnings drivers: Q3 GAAP revenue rose 140% year over year largely because investment income improved substantially from the prior-year quarter’s unrealized losses. Nine-month revenue was down 1%; management fees increased 8%, but realized investment income and foreign-exchange-related other revenue were lower. The filing does not present a single comparable operating-margin measure; the non-GAAP earnings measures exclude or adjust for items including unrealized activity and fund consolidation.
Cash flow: Net cash provided by operating activities was $3.16B for the first nine months, down from $5.62B. Investing activities used $198M. Financing activities used $4.34B, including $3.23B of dividends and distributions. Cash and cash equivalents were $2.97B at September 30, versus $4.25B at year-end 2022; cash including cash held by funds was $3.11B.
Debt and liquidity: Reported loans payable were $12.11B, including $10.52B of Blackstone operating borrowings and $1.59B of consolidated fund borrowings. The company reported $3.0B of cash, $763.5M of corporate treasury investments, and $3.7B of liquid investments included in other investments; its $4.135B revolving credit facility was undrawn. Consolidated fund assets and liabilities generally are restricted to those funds and are nonrecourse to Blackstone’s general credit. Operating borrowings decreased from $10.90B at December 31, 2022, mainly following repayment at maturity of a $400M senior note.
Assets under management: Total AUM was $1.007T at September 30, up 3% year over year and 3% from year-end 2022. Fee-earning AUM was $734.5B, up 4% year over year and 2% from year-end. Net accrued performance revenues, net of accrued performance compensation, were $6.44B, down from $7.06B a year earlier.
Material changes versus prior periods
- Q3 GAAP investment income was $554M, versus a $922M loss a year earlier, reflecting improved unrealized valuations. Nine-month investment income fell 28% to $894M, as lower realized gains offset improved unrealized results.
- Q3 Segment Distributable Earnings declined 13%; nine-month Segment Distributable Earnings declined 31%. The largest nine-month weakness was Real Estate, where segment earnings fell 54% to $1.73B, mainly on lower realized performance revenues and BREIT-related fee performance.
- Private Equity Segment Distributable Earnings rose 9% for the nine months to $1.33B; Credit & Insurance rose 12% to $842M. Hedge Fund Solutions declined 3% to $254M.
- Interest expense increased 49% for the nine months to $323M, primarily due to higher borrowings. Compensation and benefits declined 4% overall, mainly because lower performance-allocation compensation offset higher employee compensation.
- Cash distributions to stockholders and unitholders were lower than in the prior-year period. Declared dividends were $2.52 per share for the nine-month period, versus $4.04; the company paid a $0.80-per-share dividend with respect to Q3.
Outlook, commentary, risks and unusual items
- Market outlook: Management described market activity as historically depressed and said sustained high rates, economic uncertainty, and geopolitical risks could keep conditions challenging. It expects lower realizations to continue for a period, weighing on performance-related earnings, while noting that realizations may reaccelerate as markets stabilize. The filing gives no numerical earnings or revenue guidance.
- Real estate: Higher rates and constrained financing have pressured valuations and realizations. Management highlighted persistent weakness in traditional U.S. office, which it said represented less than 2% of the net asset value of its global opportunistic and Core+ real estate portfolios. BREIT continued to have net outflows in Q3, although repurchase requests in September and October were materially below their January peak.
- Credit: Floating-rate exposure supported results and management cited potential deployment opportunities as banks and other lenders pull back. It also cautioned that higher financing costs could weaken borrowers and increase defaults; market dislocation could impair the ability to sell credit assets promptly or at attractive prices.
- Private equity and hedge funds: Management cited muted realizations and challenging fundraising, including for its flagship corporate private equity fund. Hedge Fund Solutions may face outflows if prolonged weak performance or low market volatility changes investor allocations.
- Commitments and contingencies: Blackstone reported $4.8B of operating-entity investment commitments. The recorded potential clawback liability was $222M; a hypothetical total-loss scenario could expose Blackstone Holdings to $5.9B if personnel default, which management considers remote. A strategic venture with UC Investments included a non-guaranteed 11.25% target annualized net return supported by pledged Blackstone BREIT holdings; the recognized liability was $260M and pledged assets had a fair value of $1.2B.
- Other items: The company expects a corporate alternative minimum tax liability for 2023 but reported no meaningful CAMT impact in the nine-month tax provision. It is cooperating with an SEC inquiry concerning retention of certain electronic business communications. KRS-related litigation remains ongoing; Blackstone said it believes the claims are without merit and intends to defend them. Management reported no pending legal proceeding expected to have a material impact on the condensed consolidated financial statements.
Most important facts for investors to verify
- Whether realized exits and performance revenues recover, particularly in Real Estate, and how BREIT net flows and repurchase requests develop.
- How much of AUM growth translates into fee revenue, and the distinction between Total AUM and fee-earning AUM.
- The composition and liquidity of the reported $3.7B of liquid investments and the availability of corporate cash after commitments, distributions, and debt service.
- The scale and timing of fund commitments, tax receivable agreement payments, and potential clawback obligations; distinguish fund-level nonrecourse debt from operating-company debt.
- Progress and potential financial effects of the SEC communications inquiry, KRS-related litigation, and the 2023 corporate alternative minimum tax.