Q1 2020 Earnings Call
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Good day, everyone and welcome to the books, so fast quarter Twentytwenty Investor call. My name is Debra and on your event Monica during the presentation. Your line is remain on this and I mean, if you require assistance with any time, he's Keystone theater, when you're fine on a coordinates we'll be happy to assist you you may also Keith.
I wanted to ask questions right. The cool I will keep those up accordingly for the question I'm not at the time.
I wanted to see a question.
I'll just advise you old at the conference is being recorded and now I'll hand over to Weston Tucker head of Investor Relations. Thank you Weston. Please go ahead.
Terrific. Thanks, Debra and good morning, and welcome to Blackstone's first quarter conference call, which were hosting remotely given the office closure still and in fact in New York City.
Joining todays call or Steve Schwarzman, Chairman and CEO, John Gray, President and Chief Operating Officer, Michael J., Chief Financial Officer.
Earlier. This morning, we issued a press release in slide presentation, which are available on our website, we expect to file our 10-Q report early next month.
I'd like to remind you that today's call may include forward looking statements, which are uncertain and outside of the firm's control I may differ from actual results materially.
You're not undertake any duty to update these statements.
A discussion of some of the risks that could affect results. Please see the risk factor section of our 10-K.
We'll also refer to non-GAAP measures and you'll find reconciliations in the press release on the shareholders page of our website.
Also note that nothing on this call constitutes an offer to sell or solicitation up an offer to purchase and interest in any Blackstone fund.
This audiocast is copyrighted material Blackstone it may not be duplicated without consent.
So a quick recap of our results we reported a GAAP net loss for the quarter up 2.6 billion.
Distributable earnings were 557 million or 46 cents per common share and we declared a dividend of 39 cents to be paid to holders of record as of May 4th.
With that I'll turn the call over to Steve.
Good morning, and thank you for joining our call.
Co with 19 pandemic has created a truly unprecedented set of challenges for the global economy markets and society at large.
The human cost of the crisis has been tragic and our deepest sympathies go out to those who gloss loved ones.
We'd also like to express our sincere gratitude all the frontline workers hospitals.
Yes.
Doctors and nurses fire police municipal workers and everyone else, putting their safety on the line to protect others.
I would like to convey support for everyone, who has been sheltering in place throughout the world.
And as experienced the dislocation.
Relative isolation, and it's real psychological costs and discomfort.
Economically for the first time in U.S. history, the country has voluntarily shut much if itself down.
Creating massive unemployment, which you saw what the numbers this morning continuing.
This resulted in some of the largest ever declines across almost all asset classes and drove market volatility to an all time high.
The government's quick action.
As of fiscal stimulus and support from the fed help stabilize markets.
Altogether stimulus programs could equate to 20% or more of U.S. GDP.
We'll be critically important in supporting the country as we navigate the path to recovery.
At Blackstone, we're hopeful that major advances in fact seen development and mass testing.
Could accelerate a return to work in normal life.
But we're also preparing for what may be along and gradual process.
Over the firm's 35 year history, we've successfully manage through multiple periods of severe dislocation and learned a lot in the process.
Most importantly.
We've seen how our business model has created the advantage of patients during times of crisis.
Within asset light model.
And third party capital typically under very long term contracts, we do not face the same pressures to sell is others do.
When values are low.
We saw this play out during the global financial crisis, when despite initially significant declines in asset values.
We were able to hold assets until things ultimately rebounded and normalized.
Our experience with Hilton worldwide, which we purchased in October 2007.
Ahead of the market crash and it is an excellent illustration.
At the worst point the financial crisis.
Our 6 billion dollar equity investment.
It was marked down to 31 cents on the dollar.
But the firm's staying power allowed us to focus on executing our operating plan.
When the world eventually recovered.
And generated 10 times that markdown value.
With $14 billion of profit for our investors, which may be the largest in private equity history.
Michael will tell you more about the recovery in values overall that we've experienced.
Although the current crisis is much more formidable than the global financial crisis.
Our firm's operating and financial position is much more formidable today.
As well.
We are exceptionally secure financially with over 4 billion of cash and liquid investments.
We recently completed the major fundraising initiatives, we discussed at our 2018 Investor day.
Driving fee, earning a 11.
Up 20%.
Year over year to record new levels.
And generating fee related earnings growth.
Of 25%.
We now have 152 billion of dry powder capital.
More than anyone in the industry.
Which uniquely positions us to invest during this period of historic dislocation.
Despite the headline GAAP numbers for the quarter, which were primarily driven by unrealized marks.
We generated $557 million distributable earnings for shareholder in the first quarter.
And 2.9 billion over the last 12 months.
While we were not immune to the market backdrop in terms of portfolio marks they are just that.
Unrealized marks.
They reflect to point in time valuation.
And not an estimate of the value, we ultimately expect to realize.
In real estate, our largest business, which produces over half of the firm's earnings our performance held up quite well.
Electing the superior sectors selection of the portfolio, which John Gray talked about on television this morning on CNBC.
In damn our institutional business largely did its job of protecting capital for investors.
Corporate private equity in credit returns were basically in line with the S&P 500, and high yield indices, respectively.
Our public Securities and Energy Holdings holdings negatively impacting both significantly.
Our publics have rebounded meaningfully.
As you might have expected since quarter end, although energy of course has remained depressed.
John and Michael will discuss our portfolio in more detail.
At Blackstone.
People have not missed a beat during this period.
All of our groups have been working incredibly hard from home.
We have a full team in place that is developing returned to work plans for our various offices.
But in the meantime.
Our technology team has done a remarkable job keeping us all connected despite the physical separation.
I've never been more proud of our people and the enormous dedication they are showing the serving our investors and shareholders.
I'm also incredibly proud of the important work, we're doing to support our communities and frontline workers.
We've mobilized the full resources of our firm and our portfolio companies to help in many many ways, including making an anchor 15 million dollar contribution.
The New York State first responders fund and other organization, serving first responders and vulnerable populations in New York City.
The donation of supplies and housing.
Medical workers.
Rent free donation of facilities.
Including our very large NDC conference center in Birmingham, and the UK to serve as a field hospital.
Similar to how the Javits center is being used in New York City.
Along with many many other initiatives.
I'll leave you with an image.
All of which were particularly proud of here at Blackstone.
One of our portfolio companies team health.
Which is providing staffing for emergency rooms during this crisis.
Captured and tweeted a wonderful picture.
Husband and wife nurse team.
Gingerly embracing.
Between treating covert affected patients.
This images.
Have gone viral and the Internet.
And I always amazed to see it featured on the NBC nightly news a few nights ago.
I think it embodies the spirit of courage and devotion is helping sustained all of us during these times.
Blackstone remains entirely committed.
Being a force for good.
In our society.
Together, we will face these and unprecedented challenges and emerge from this crisis stronger than ever.
With that I'll now turn things over to John.
Thank you Stephen good morning, everyone I'd like to reiterate eve sentiment on how proud I am a bar people in the dedication they've shown through this difficult period.
Our mission to serve our clients is most vital in times of greatest stress.
The pandemic has created the extraordinary challenges as much of the global economy has been shut down.
Who effectively navigate a crisis of this magnitude and investment from needs to essential qualities.
Staying power to ride out the storm and fire power to take advantage of opportunities.
Fortunately Blackstone has both.
First with respect to staying power our model based on long term committed capital from investors is designed for periods like this.
We can focus on doing what we need for companies in property without having to worry about being forced sellers.
We've also been disciplined with the capital structures of our underlying investment and their debt maturities.
Further our funds are designed with significant reserves, which allow us to support investment even in the most challenged sectors today energy hotel and location based entertainment two additional capital where we believe the risk return is appropriate.
As we've seen again and again through cycles strong companies in property to recover and flourish given time.
We've also been emphasizing deployment in faster growing sectors over the past several years, which you're showing great resiliency in this environment.
Themes include logistics life Sciences cloud migration in online content creation, all of which are holding up quite well and are expected to outperform.
In real estate logistics now represent over one third of our entire portfolio positioning us well the benefit from the powerful global growth in E Commerce.
In private equity in partnership with our new growth equity business. We recently completed the 3 billion dollar acquisition of Magic Labs. The parents of online dating App Bumble, which is showing tremendous revenue growth in March and April.
More volatile markets. Nevertheless, do mean that realizations will likely be muted for some time.
However, the from generated $3.6 billion of annual management fees over the last 12 months.
The shift towards perpetual capital and recurring fee related earnings should provide meaningful Dallas for continuing returns of capital to shareholders.
Moving from staying power to fire power over the past few years, we've raised nearly $250 billion.
Including three funds that were the largest of their kind ever raised.
Global real estate European real estate in corporate private equity.
In the first quarter, specifically gross inflows reached $27 billion, including 12 billion in the month of March after markets began their sharp decline a testament to the trust our limited partners placed in us.
We held the final closed for the European Real estate fund the last of our four key flagship funds, which reached in industry record $11 billion. We also raised nearly $5 billion for our second core private equity vehicle entirely in the last few weeks of March.
Nearly 3 billion for our fourth real estate debt fun and our new life Sciences Fund is closed on over $4 billion of it's $4.5 billion hard cap.
In real estate, the core plus the platform so significant inflows in the quarter for the institutional and B, we retailed vehicle and overall has grown to nearly $50 billion up 36% year on year.
After reporting greater than 100 billion of inflows for three consecutive years on last quarter's call. We said that inflows could approach $100 billion again this year.
Given the market turbulence, we expect fund raising to continue but not but now at a slower pace.
Longer term in a world of lower rates, we believe the secular shift to alternatives and Blackstone in particular will continue.
Investor desire for better return should be stronger than ever.
In the meantime, we have tremendous investment capacity across all of our businesses and our truly in a distinctive position to deploy 152 billion of dry powder.
These post crisis investment should lay the groundwork for attractive future realizations.
We're already seeing actionable opportunities apparent from the dislocation initially and structured credit and liquid markets.
Since the crisis began we bought a $11 billion, a public equities and liquid debt across the firm and are well positioned to do more.
We're also starting to see some rescue situation, although distress takes time to play out what we're looking for businesses that are cyclicality not secularly under pressure.
The opportunity to invest in them across various parts of the capital structure should be robust.
The breadth of our platform also creates highly unique deal flow last week, we announced the collaboration of up to $2 billion with biopharmaceutical platform El Nio them to help accelerate the advancement of our in AI therapies, including a highly promising cholesterol treatment.
This was a signature Blackstone deal and represented a partnership between our life Sciences team would you invested in a portfolio of royalties are credit group, which <unk>, which provided a senior secured term loan and other areas of the firm.
As we evaluate investments maintaining our discipline is imperative.
After remain clear eyed about the uncertainties that exist in the world and underwrite a slow recovery if things feel more quickly that is upside.
We're also being thoughtful about the changes that are likely to follow from this pandemic.
So much of our lives should revert to normal there will be broad reaching implications for areas such as E commerce remote learning streaming media cyber security and so on.
Technological disintermediation, which was the greatest aging of change before the current crisis is likely to further accelerate.
In closing well it would've been hard to imagine the severity of the circumstances. The world is facing today Blackstone remains the partner of choice for our investors to help them weathered the storm, our affirming built to not only survive extreme dislocations, but to ultimately thrive.
With that I'll turn things over to Michael.
Thanks, John and good morning, everyone.
I'll begin my remarks with a discussion of financial results and then we'll review the key drivers of investment performance.
Finished with the outlook and discussion or the from strong financial position.
Starting with results.
The durability and exceptional quality of the firm's UN financial profile is perhaps best illustrated by periods of dislocation.
The earning a U.M. grew 20% year over year to a record $423 billion Steve highlighted.
The vast majority of our AG win is under long term contracts with an average remaining contractual life of over 12 years.
Totally you win which reflects the full impact of market appreciation or depreciation.
Willbros, 5% year over year to $538 billion with $119 billion gross inflows over the last 12 months, despite $38 billion realizations.
Base management fees grew to a record $910 million up 20% year over year inline with the growth in FY <unk>.
You related earnings continued on the strong positive trajectory outlined previously up 25% year over year to $468 million.
If our re margin expanded 70 basis points in the quarter from the full year 2019 level and we would expect margins to remain largely stable in this environment.
We include all cash operating expenses and fee related compensation in our definition of up our rate there's nothing allocated against performance revenues.
Making it a highly transparent measure of the firm's based profitability.
The last 12 months, if our re rose to a record $1.9 billion were $1.57 per share up 27% year over year.
I will discuss the every outlook in a moment.
However, the learnings were $557 million for the quarter or 46 cents per share up 5% year over year and underpinned by the strong growth in F. Ari.
Yeah realizations declined year over year as the market environment, you did activity levels.
Turning to investment performance, even John both characterize the impact of the historically challenging market backdrop on our first quarter returns.
I will provide more context.
Real estate, the opportunistic Brett funds depreciated, 8.8% in the first quarter, while the core plus funds, including <unk> depreciated, 3.9%.
We've been talking for years about the firm's feed majdic targeted investing in real estate, which has resulted in a well positioned portfolio concentrated in sectors that have showed greater resilience to covert related headwinds.
Need approximately 80% of the portfolio is comprised of logistics.
Quality office and residential assets logistics being the most dominant theme.
For the firm's five largest invest.