Blackstone Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; filed May 5, 2022. Blackstone is a global alternative asset manager with Real Estate, Private Equity, Hedge Fund Solutions, and Credit & Insurance segments. Financial statements are unaudited. Dollar amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| GAAP revenue | $5.13 billion | $5.30 billion; down 3% |
| Income before taxes | $2.98 billion | $3.37 billion; down 12% |
| Net income attributable to Blackstone Inc. | $1.22 billion | $1.75 billion; down 30% |
| Diluted EPS | $1.66 | $2.46 |
| Operating cash flow | $2.75 billion | $2.30 billion |
| Distributable Earnings (non-GAAP) | $1.94 billion | $1.19 billion; up 63% |
| Fee Related Earnings (non-GAAP) | $1.15 billion | $740.8 million; up 55% |
| Adjusted EBITDA (non-GAAP) | $2.17 billion | $1.33 billion |
GAAP revenue fell mainly because unrealized investment gains were lower year over year; higher realized performance allocations and management fees partly offset the decline. Unrealized performance allocations were $1.29 billion versus $2.46 billion, while realized performance allocations were $1.77 billion versus $534 million. Management and advisory fees rose 25% to $1.48 billion. GAAP expenses increased 7% to $2.20 billion. The effective tax rate increased to 16.2% from approximately zero, primarily reflecting the reduction of deferred-tax valuation allowances in 2021 and higher state tax provision.
Segment Distributable Earnings totaled $2.10 billion, up 63%. Real Estate contributed $1.27 billion (up 134%), Private Equity $496.5 million (up 5%), Hedge Fund Solutions $110.8 million (down 29%), and Credit & Insurance $223.0 million (up 91%). These are non-GAAP segment measures and are not equivalent to consolidated GAAP income.
- Assets under management: Total AUM was $915.5 billion at quarter-end, up $34.6 billion from December 31, 2021. Fee-Earning AUM was $677.9 billion, up $28.0 billion. Reported Total AUM inflows were $49.9 billion, offset by $23.2 billion of realizations and $10.0 billion of outflows; market activity added $18.0 billion.
- Balance sheet and liquidity: Total assets were $43.34 billion and total liabilities $21.10 billion at March 31. Cash and cash equivalents were $3.87 billion; including fund cash, cash totaled $3.98 billion. Blackstone also reported $916.5 million of corporate treasury investments and $1.1 billion of liquid investments within Other Investments. Its $2.25 billion revolving credit facility was undrawn.
- Debt: Loans payable were $8.94 billion carrying value; senior notes had $9.06 billion aggregate principal outstanding. In January, Blackstone issued $500 million of 2.55% notes due 2032 and $1.0 billion of 3.20% notes due 2052. Interest expense was $66.7 million, up from $45.0 million.
- Shareholder returns: Financing cash outflows included $1.96 billion of dividends and distributions. Blackstone reported a $1.32-per-share dividend paid with respect to Q1. Its $2.0 billion repurchase authorization had $1.5 billion remaining; no shares were repurchased during the quarter.
Material changes and management commentary
- Total GAAP revenue declined despite stronger fee income and realized performance revenue, as unrealized performance and principal investment income were materially lower than in the unusually strong prior-year quarter. Income attributable to Blackstone Inc. and EPS also declined.
- Distributable Earnings and Fee Related Earnings rose substantially, supported by realized performance revenue, fee growth, and the shift to quarterly crystallization of BREIT performance revenues. Management noted that this timing change affects the quarterly presentation; it does not change income before taxes.
- Management described Q1 as a period of continued economic growth but heightened uncertainty: inflation, rising interest rates, supply-chain disruption, wage and input-cost pressures, and Russia’s war in Ukraine. It warned that these forces could increase recession risk, pressure asset values and complicate realizations and fundraising.
- Management said real estate strategies were generally positioned in sectors with stronger relative cash-flow growth and shorter leases, but some long-lease and hospitality exposures remain vulnerable to inflation, rates, and expense increases. In private equity, some manufacturing and industrial companies face margin pressure. Credit management said most of its debt portfolio is floating-rate and/or short-duration, while acknowledging potential borrower stress and reduced deployment if rate increases coincide with weaker growth.
- The filing gives no specific company-wide earnings or AUM guidance. Management’s stated dividend intention is to distribute approximately 85% of Blackstone Inc.’s share of Distributable Earnings quarterly, subject to board discretion and other needs; the policy may change.
Risks, contingencies, and unusual items
- Blackstone reported $3.4 billion of its investment commitments at quarter-end. It also disclosed $3.45 billion of remaining commitments by operating entities to funds and other investments; commitments are generally due on demand, though many are expected to be called over time.
- Performance allocations are subject to clawback. The recorded potential repayment accrual was $90.9 million; $1.1 billion was held in segregated accounts for personnel clawback obligations. In a hypothetical scenario where all carry-fund investments became worthless, potential clawback was $5.4 billion after tax, including up to $5.2 billion potentially attributable to Blackstone Holdings if personnel defaulted; management characterized this scenario as remote.
- Tax receivable agreement obligations were $1.54 billion on the balance sheet. Assuming sufficient taxable income and no material tax-law changes, expected future payments were estimated at $1.5 billion over 15 years, before discounting.
- Blackstone disclosed ongoing Kentucky litigation relating to Kentucky Retirement Systems investments and related subscription agreements. Management said it did not expect current proceedings to materially affect the financial statements, while noting adverse outcomes could affect results in a particular period.
- Consolidated fund assets and liabilities are generally restricted to the funds and are not recourse to Blackstone’s general credit. A substantial portion of investment values and performance-related revenue depends on fair-value estimates, including Level III inputs.
- Management identified market and geopolitical conditions, inflation, interest rates, COVID-19 developments, valuation uncertainty, liquidity and redemption risks, and changes in fund performance as factors that could affect results. A 10% decline in investment fair values was estimated to reduce annualized management and advisory fees by $293.3 million.
Investor facts to verify
- Reconcile the decline in GAAP net income and EPS with growth in Distributable Earnings, including the effects of unrealized marks, realized carry, taxes, and non-controlling interests.
- Review the sustainability and composition of the $49.9 billion of AUM inflows, particularly perpetual-capital fundraising, and monitor subsequent outflows, realizations, and market valuation changes.
- Assess the sensitivity of accrued performance allocations and future realized carry to market movements, fund hurdles, and potential clawbacks.
- Confirm debt maturities, interest costs, facility availability, and the funding schedule for $3.4 billion of commitments alongside dividends and other cash needs.
- Monitor the Kentucky litigation, tax receivable agreement payments, macroeconomic exposures, and the valuation assumptions behind less liquid and Level III investments.