The Blackstone Group L.P. (NYSE:BX) 1Q13 results beat both on analyst ENI and distributable EPS estimates. ENI EPS of $0.55 beat $0.52 forecasts, though the bigger upside was on distributable EPS, coming in at $0.33 versus $0.24 estimates. That drove a better-than-expected distribution to shareholders of $0.30 per share.
Total revenue of $1.26bn exceeded forecasts by about $100mm. The driver of the beat was realized performance fees, coming in $143mm higher. Unrealized performance fees and investment income added a little as well, with a $56mm shortfall in fee-related revenue partially offsetting the performance upside. The fee-related revenue shortfall was driven mostly by lower advisory and transaction fees, two of the volatile line items in an otherwise fairly steady revenue-generating part of the business.
Realized performance fee upside appears to have come from the credit funds within the alternatives segment, as well as private equity. Capital flows were also strong, with both capital raising and distributions to fund holders exceeding analyst forecasts almost across the board.
Total expenses were $92mm higher than forecasts, driven by the stronger performance fees, though the increase in performance-fee related compensation versus the upside in performance fees represented a larger marginal payout than might have expected, but within the range of fluctuations seen in recent quarters.
Investment Performance Strong Across All Segments. Portfolio marks were ahead of expectations in all four of The Blackstone Group L.P. (NYSE:BX)’s investment segments with a 7.9% PE mark, 6.3% gain in BREP real estate funds, 4.4% composite return at BAAM, and 6-8% returns in the various credit strategies.
Mgmt Fees and Expenses – Management fees across the segments were generally in-line with forecasts. Comp was approx. $120M above forecast driving higher than anticipated operating expenses ($621M vs. $503.3M est) while the tax rate of 1.6% came in below 7% estimates Dry powder across the company’s three investment segments currently stands at $36B with total feeearning assets firm-wide at $171B.
Real Estate – Performance fees for the quarter were paced by $354M in the real estate segment ($70M realized vs. $283M unrealized). Fees were primarily a function of BREP V, VI, VII and BREP Europe II. Overall carrying value of the composite was up 6.3% for the quarter and 17.2% over the trailing 12-month period. The Blackstone Group L.P. (NYSE:BX) also had $930M in realizations in the period generating $72M in realized perf fees (compared to $9m this time last year).
Private Equity – Carrying value was up almost 8% in the quarter and over 18% in the trailing 12-month period. Activity has been up across the portfolio with six secondaries in the quarter at an average MOIC of 2.7x. Looking ahead, The Blackstone Group L.P. (NYSE:BX) has 3 additional portfolio companies with an S-1 on file for anticipated 2013 IPOs. Finally, BCP V moved within 9% of eligibility to start generating carry (compared to 12% at y/e).
HF Solutions – Returns for the underlying assets were 4.4% for the quarter and 10% for the trailing 12-month period. Importantly, the percent of assets above high water marks closed the quarter at 94% ($23.6B) compared to 78% ($18.6B) as of year end 2012. The segment has launched 6 new funds YTD and recorded $944M in April 1st subscriptions.