Blackstone Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; comparisons are with Q1 2019 unless otherwise noted. Blackstone is a global alternative asset manager with Real Estate, Private Equity, Hedge Fund Solutions, and Credit & Insurance segments. Unless stated otherwise, financial figures below are in U.S. dollars.
Financial and operating performance
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| GAAP total revenue | $(3.076) billion | $2.025 billion |
| Management and advisory fees, net | $934.8 million | $809.7 million, up 15% |
| GAAP net income (loss) attributable to Blackstone Inc. | $(1.066) billion; $(1.58) per share | $481.3 million; $0.71 per share |
| Operating cash flow | $999.5 million | $130.5 million |
| Fee Related Earnings, total segments | $467.9 million | $374.5 million |
| Segment Distributable Earnings | $584.1 million | $561.9 million |
| Total assets under management | $538.0 billion | $571.1 billion at Dec. 31, 2019; down 6% in the quarter |
| Fee-earning assets under management | $423.1 billion | $408.1 billion at Dec. 31, 2019; up 4% in the quarter |
- The GAAP loss primarily reflected $4.196 billion of investment losses, including $3.453 billion of unrealized performance-allocation losses and $959.4 million of unrealized principal-investment losses. The sharp reversal from Q1 2019 gains reflected COVID-19 market disruption and energy-market dislocation. Lower associated performance compensation partly offset the investment losses.
- Fee Related Earnings increased year over year, while realized performance revenues declined. Segment Distributable Earnings rose about 4%; it is a non-GAAP segment measure, not GAAP net income.
- Segment Distributable Earnings by segment: Real Estate $267.5 million, Private Equity $182.6 million, Hedge Fund Solutions $75.7 million, and Credit & Insurance $58.3 million. Year-over-year, Real Estate increased 47%; Private Equity declined 24%; Hedge Fund Solutions declined 4%; and Credit & Insurance declined 2%.
- Net accrued performance revenues fell to $2.187 billion from $3.837 billion a year earlier. This amount was principally unrealized and is not equivalent to current-period earnings or cash.
Balance sheet, debt, and liquidity
- At March 31, 2020, cash and cash equivalents were $2.068 billion; total assets were $26.946 billion; total liabilities were $15.368 billion; and total equity was $11.506 billion. Total assets were down from $32.586 billion at year-end 2019, primarily reflecting investment-value declines.
- Loans payable were $10.393 billion, including $5.818 billion of consolidated CLO borrowings. CLO assets and liabilities are fund obligations, are collateralized by fund assets, and have no recourse to Blackstone’s general credit. Blackstone’s own senior notes had $4.575 billion carrying value and $4.655 billion principal amount.
- Blackstone reported $1.653 billion of corporate treasury investments and an undrawn $1.6 billion committed revolving credit facility; it reported no revolver borrowings at quarter-end. Management said liquidity had not been materially affected to date and that available sources were expected to cover working-capital needs.
- Cash from operating activities was $999.5 million; investing cash outflow was $12.4 million; and financing cash outflow was $1.118 billion. Financing uses included $780.8 million of dividends and distributions and $268.7 million for share settlement and repurchases. Cash and fund-held cash together ended at $2.386 billion.
Material changes, outlook, and risks
- Market activity reduced total AUM by $47.1 billion in the quarter, partly offset by $27.3 billion of inflows. Fee-earning AUM gained $50.8 billion of inflows, more than offset by market depreciation, realizations, and outflows. Private Equity inflows included capital entering new investment periods.
- Management described severe economic and market disruption from COVID-19 and the oil-supply shock. The filing highlights risks to valuations, portfolio-company liquidity and debt service, rent collection, credit-market liquidity, fund realizations, and fundraising. Management expected fundraising to continue at a slower pace and realization opportunities to be limited at least over the next year; no numerical earnings or AUM guidance was provided.
- Management cited particular exposure in hospitality, retail, leisure, energy, and industrials. It noted that energy investments represented 13% of both the Private Equity and Credit & Insurance segments’ portfolios, while upstream energy represented 3% of each; on an aggregate Blackstone basis, the respective shares were 7% and less than 2%.
- Clawback liabilities were $295.0 million, up from $126.9 million at year-end, driven by lower unrealized fund values. A hypothetical total write-off of carry-fund investments would create $3.8 billion of potential clawback, which management characterized as remote. Separately, Blackstone had $3.4 billion of investment commitments.
- Blackstone stated an intention to pay quarterly dividends of approximately 85% of its share of Distributable Earnings, subject to board discretion and other needs. It paid $0.39 per Class A share with respect to Q1. The board-authorized $1.0 billion repurchase program had $527.7 million remaining at March 31; 5.0 million shares were repurchased in the quarter for $253.5 million.
- Other disclosed matters include a Kentucky derivative lawsuit, which Blackstone said it would vigorously defend and which it considered without merit; the filing stated no pending legal proceeding was expected to have a material impact on consolidated financial statements. Management reported effective disclosure controls and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- How much of the reported loss and AUM decline reflects unrealized marks, and how those valuations evolve as market conditions change.
- Whether fee-earning AUM growth converts into recurring fee revenue despite slower fundraising, fee holidays, redemptions, and delayed deployment.
- The pace of investment realizations and performance-fee recovery, including the effect of fund hurdles and potential clawbacks.
- Liquidity and debt exposures, distinguishing Blackstone’s own obligations from non-recourse consolidated fund and CLO liabilities; also monitor the $3.4 billion of investment commitments.
- Dividend capacity and repurchase activity relative to Distributable Earnings, cash needs, tax payments, and any future clawback obligations.