Sterne Agee analyst Jason Weyeneth, rates The Blackstone Group L.P. (NYSE:BX) as a Buy as he provides an outlook on the 4Q13 earnings beat.
The Blackstone Group L.P. (NYSE:BX)’s 4Q13 results were ahead of expectations across key metrics. In addition to the solid 4Q beat, Blackstone’s outlook remains bright with accrued performance fees on the balance sheet growing, their largest private equity fund (BCP V) moving significantly closer to its hurdle, and the firm raising sizable amounts of new capital.
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Sizable ENI beat driven by strong investment performance
The Blackstone Group L.P. (NYSE:BX) reported ENI (economic net income) of $1.35, considerably ahead of our $0.90 estimate and the Street at $0.86. Upside reflected very strong portfolio performance during the quarter driven by strong public markets and IPO’s of 4 companies across private equity and real estate. In aggregate, Blackstone’s private equity portfolios increased by +11.5%, Real estate 13.1%, hedge fund solutions +3.5% (composite only), and credit +4-12% depending on the strategy.
Blackstone’s strong performance fee generation
The Blackstone Group L.P. (NYSE:BX) recorded $1.7 billion of total performance and incentive fees in 4Q reflecting $627 million realized (vs. our $507 million estimate) and $1.1 billion unrealized (vs. our $600 million estimate). On a segment basis, realized performance fees were stronger than anticipated in real estate (active selling individual properties) and hedge fund solutions. Importantly, despite the sizable realizations in the quarter strong performance drove increased accrued carry on the balance sheet. Total accrued carry on the balance sheet stood at $3.00 per unit at year-end, up 52% for the year despite active realizations (+0.55 per unit sequentially). The $631 million sequential increase (net of compensation) was driven by Blackstone’s largest real estate fund BREP VI where accrued carry increased by $407 million.
Distribution stronger than anticipated
The Blackstone Group L.P. (NYSE:BX) announced a $0.58 unitholder distribution for 4Q which was ahead of our $0.39 estimate and the consensus of $0.44. The upside was driven by stronger than anticipated realized performance fees, realized balance sheet investment income, and fee related earnings (partially offset by higher equity based compensation). The outlook for distributions remains strong given announced private equity and real estate transactions expected to close in 2014 as well as the substantial (and growing) accrued performance fees on the balance sheet.
Blackstone gains from Hilton’s IPO
Driven by the strength of public markets and gains from the Hilton Worldwide Holdings Inc (NYSE:HLT) initial public offering, The Blackstone Group L.P. (NYSE:BX)’s largest private equity fund cut in half the gains needed to begin accruing and realizing performance fees. At year-end the fund was marked at 1.5x cost and needed a gain of $1.6 billion on the remaining $18 billion of equity capital to cross the hurdle rate (down from $3.2 billion at 9/30).
Strong asset gathering continues
During the quarter The Blackstone Group L.P. (NYSE:BX) raised $17 billion of new capital from investors across its platform ($60 billion in 2013).