BX Notes:
Lehman 8/6/07 initiation report
Concerns of potential increase in taxes and deteriorating financial environment
Lehman is assuming 23% IRR on invested capital across private equity and real estate versus history of 31% IRR and 40% for respective categories
Lehman modeling 50% expectation of higher taxes – do elections in ’08 have a significant effect on the shares?
Strategic advantages:
Diversification of investment products
Brand Recognition
Attractive long-term track record
Access to investment banks for attractive treatment on deals
International presence (especially recent alignment with China)
Permanent capital base – not as affected by redemptions
Market concentrating on tax issue and declining private equity dynamics
The public offering was for only 14% of shares with China owning an additional 9%
2007 expected revenue mix:
Real Estate 38% - 200b AUM
Office buildings in major urban areas and hotels
Raised 8 funds since ’91 totaling 19b
Annualized returns of 29%
Private equity 33% - 33b AUM
Raised 6 funds raised 6 funds since ’87 - $32b of capital
Annualized return of 23%
Alternatviees 14% - $35.3b AUM
Funds of hedge funds, Mezzanine funds, Sr. Debt, Proprietary hedge funds, closed end funds
Financial advisory 14%
M&A Advisory services, Fund placement services
Used internally for principal transactions but 75% of corporate advisory revenue has come from 3rd party clients
Net gains on principal investments likely 9% of company revenue
Largest expense item is compensation for 770 employees
Lehman believes alternative asset management industry will continue to grow with BX and FIG as beneficiaries
20 of the 35b in hedge fund strategy is in Fund of Funds structure – opportunity to grow proprietary fund area
Operates primarily in N. America and Western Europe – significant opportunity to expand internationally.
Investment by China should open doors to participate in China investments not available to other investors
Was awarded mandate to advise China development Bank on acquisition of stake in Barclays/ABN
$3b in IPO proceeds… 1.3b to repay debt, remainder likely to be invested across own funds
Additional capital allows flexibility to make acquisitions even if financing alternatives are unattractive
Trend should be less leverage on LBO purchases which is likely to drive prices down on LBO targets creating better entry prices for BX
Company uses Economic Net Income (ENI) as a measure that includes both realized and unrealized gains for a better picture of company value
Lehman forecasting distributable EPS of $1.25 in 2007 (up from 0.88 pro forma in 2006), and $1.64 in 2008
Public asset manager group trades at 20.2x 2007 EPS
Valuation: Earnings are more volatile than traditional asset managers so that implies a discount, but earnings should grow more quickly due to flexibility of investment strategies and firms participation investing in own programs
8/14 reports (LEH and WACH)
Q2 distributable earnings $0.63 – higher incentive fees and proprietary gains across all segments
Financing environment for private equity difficult – strong target pipeline and more attractive valuations for purchases
Management speaking of $0.30 minimum quarterly dividend – likely to have special dividend in Q4
Hedge funds: expects 7 new funds for additional $15-20b by end of 2008
Have broadly generated good returns this year.
2007-11-12 – EPS release
Total revenue $526.7m versus 461.5m last year
Private Equity Rev 227.3 vs 159.6m
Real Estate Rev 109.1m vs 196.1m
Alternative Asset Management – Rev 124.9m versus 66.5m
Financial Advisory Rvenue 84.3m vs 52.6m
The lack of liquidity in the financing markets has had a dampening effect on initiating new large sized corporate private equity transactions
BX’s marketable alternatives and advisory businesses continue to grow and are not dependant on access to the lending markets
Private equity strength driven by rise in performance fees.
Appreciation from underlying funds was higher
Real estate is challenged by sub-prime concerns bleeding into equity valuations for corporate properties – but no evidence credit issues are impacting underlying fundamentals – Oct 24th closed on purchase of Hilton
Alternative asset management – higher AUM levels – investment performance was favorable
Financial advisory revenues strong on fund capital placement business offsetting weak M&A Activity.
2007-11-13 – LEH report
Long-term potential gains – expect quarterly earnings to be volatile.
Reported distributable EPS @ 0.29 and economic EPS @ 0.21
Believe company is being conservative when marketing private equity and real estate holdings
AUM for alternative asset management as well as investor appetite for alternatives remains healthy
Lower incentive fees due to conservative pricing of illiquid assets
As expected, management announced first dividend of $0.30
Deal activity picking up from depressed Q3 and international opportunities remain abundant
Wachovia report 11/13
While management fees likely to remain intact, investments likely to fetch lower multiples which could drag down incentive fees
Citigroup 11/14/07
Plenty of dry capital to take advantage of distress ($20b)
All proprietary hedge funds and fund of funds have positive performance YTD
Best positioned alternative asset manager to attract new capital inflows
Press Release 12/10/07
- Blackstone higher on rumors it is in the middle of putting together a consortium to make an offer for RTP.
- The group is said to include a Chinese sovereign wealth fund
- RTP already has an offer from BHP
Jefferies Report 7/22/08
- Believes credit illiquidity will outweigh attractive investment opportunities
- Limited available debt financing will result in slowdown in deal activity and smaller transaction size
- Expect downward mark-to-market adjustments in PE and Real estate portfolios
- Marketable Alternative Asset Management (MAAM) should be strongest segment – recent acquisition of GSO capital
- BX must take minority positions instead of outright purchases so they lose the control factor
- Fundraising (investment capital) should be relatively successful as investors understand the merit of alternative investments and Blackstone’s strong name brand gives credibility
- Blackstone has not completed a buyout transaction since August of 2007
- Alternative investment index (BX, FIG, GLG, OZM) is down 45% over 12 months versus 24% for traditional asset managers
- Jefferies expecting fee paying assets to increase 30% in 2008 and 9.3% in 2009.
- BX has a better shot at securing debt financing than peers which should give them an advantage in raising investment capital
- While current purchases are likely made at attractive levels, existing positions were made when cash-flow was stable and debt levels were inconsequential.
Morgan Stanley Report 7/25/08
- Expect PE Segments will recognize reversals in performance fees and investment income
- Continues to raise significant capital across asset management divisions – attractive investment opportunities
- Some of IP Proceeds were invested in the Marketable Alternative Asset Management (MAAM) side which should be generating strong returns given average FOHF is up 2.1%
- Market appears to be extrapolating current ewakness in financial markets into the distant future
- BX should remain a major beneficiary of secular rise in institutional allocations to alternative investments.
WSJ Report 11/5/08
- In 5 years blackstone must refinance the debt used to buy Hilton hotels
- Company reports third quarter earnings Thursday (6th)
- BX paid 13x 2008 expected cashflow – Starwood hotels currently trades at 7 times
- S&P recently threatened to cut Starwood debt to junk
- Hilton has outperformed and LBO was structured so no covenants in place to threaten debt into default
- 60,000 rooms have been added to hilton since July 2007 BX announcement
- Still risk that cash flow may not be sufficient to service the $20b in debt
- When JPM took over BSC, Fed assumed $30b of BSC illiquid assets likely including $4 billion of hilton’s financing package
Q4 EPS Report 2/27/09
- Adverse economic conditions, lower revenue, loss for Q4 and FY 2008
- 2008 Fee related earnings $428 mil – up 11%
o Financial Advisory Revenue 411 mil
o Fee earning AUM $91 bil – up 9% from YE 2007
o Real-estate funds, Fund of Hedge Funds, Credit oriented funds net inflows during 2008
- 504 Mil available cash – exceeds all outstanding borrowings
- No dividend to shareholders for Q4
- Economic net loss $827.1 mil for Q4 – was loss of $509.3m in Q3 and Q4’07 was gain of $128.2 mil
Barclays report 2009/03/02
- Friday (2/27) shares up 26%
- Positive long-term investing environment
- BX has dry powder of $25 bil (13 bil Private Equity, 12 bil Real estate)
- Believe $1.20 distribution per unit relatively secure for 2009
- Private equity portfolio should remain relatively health (counter-cyclical investments)
- Believe BX conservatively marking down portfolio
- Company has $2.14 per share in cash & investments – estimate $0.68 in cash, 0.26 in liquid investments & 1.20 in illiquid investments
- Believe BAAM (Blackstone Alternative Asset Management) outperformed peers – down 19% in 2008
- EPS estimate of $0.35 for 2009 and $0.70 for 2010