Blackstone Earnings to Drop in Wake of Market Slump

Q4 results may offer update on a key real estate fund that's limited redemptions

Stephen A. Schwarzman, Blackstone CEO

John Moore / Getty Images

Key Takeaways

  • Blackstone is expected to post fourth-quarter distributable earnings of 95 cents per share early on Jan. 26.
  • That would be down 44% year-over-year amid market declines that have slowed asset sales by the company's funds.
  • The fund manager's flagship real estate fund has limited investor redemptions, as have several real estate funds managed by rival firms.
  • JPMorgan analysts upgraded Blackstone shares, which rose 20% in 2023, to outperform on Jan. 24.

Private equity and real estate fund giant Blackstone (BX) will probably say earnings slid in the fourth quarter earnings Thursday morning on slower asset sales from its funds amid rocky markets.

Distributable income, profit that can be paid out to shareholders as dividends, is expected to total $0.95 per share, based on analyst estimates compiled by Visible Alpha. This would represent a 44% year-over-year drop, even as Blackstone's assets under management (AUM) rose by an estimated 9% in 2022 to $964 billion. AUM includes the net asset value of funds Blackstone manages as well as client capital commitments, among other categories.

Blackstone Key Stats
  Estimate for
Q4 FY 2022
Q4 FY 2021 Q4 FY 2020
Distributable Earnings Per Share ($) 0.95 1.71 1.13
Distributable Earnings ($M) 1,253.3 2,273.3 1,464.4
Assets Under Management ($B) 964.2 880.9 618.6

Source: Visible Alpha

Fund inflows and any updates bolstering investor confidence in Blackstone's real estate investments will be especially important after the firm recently limited redemptions from the Blackstone Real Estate Income Trust (BREIT), a flagship fund increasingly marketed to retail investors.

The rush for BREIT exits amid a real estate slump, at odds with the fund's increased net asset value, led Blackstone to offer preferential terms to secure a $4 billion BREIT investment from the University of California system.

Investor concerns that private-market valuations don't fully reflect declines in market prices of the underlying assets haven't disappeared. Last week, the KKR Real Estate Select Trust Fund, managed by Blackstone rival KKR (KKR), also disclosed it was limiting redemptions, in what Credit Suisse analysts called a sign of "broadening contagion." Other real estate funds are also facing a redemptions wave.

Funds investing in illiquid assets often have "gate provisions"—rules limiting redemptions so that the fund manager isn't forced to sell to the detriment of the remaining investors.

Blackstone say 80% of its real estate exposure is outside the hard-hit office sector, primarily in apartments and warehouses. It's also touting BREIT's superior performance, including a gain of about 8% last year. BREIT accounts for about 7% of Blackstone's AUM, the result of the firm's growing focus on attracting retail investors. Real estate funds accounted for 60% of Blackstone's distributable earnings in the third quarter.

Blackstone's push into retail investing and its real estate franchise are intact despite the BREIT headlines, said JPMorgan analysts Tuesday in a note upgrading Blackstone stock to outperform from neutral with a $105 price target.

"While the economic outlook remains uncertain, we see Blackstone as particularly well positioned for a 'soft landing,'" the analysts said. Inflows into Blackstone funds that haven't yet been deployed will boost the company's fee-related earnings in the coming years, according to JPMorgan. Such earnings are particularly valued because they exclude performance fees dependent on markets.

Blackstone shares fell 21% over the past year, compared with a drop of almost 7% for the S&P 500 Financial Sector Index. Blackstone has paid variable dividends amounting to 4.5% of its year-ago share price over that time, compared with the 1.8% dividend yield for the index last year. The company's variable dividends are based on its distributable earnings, though Blackstone doesn't necessarily pay out all its distributable earnings in dividends. The stock is up almost 20% in 2023.

BX Share Price vs. S&P 500 Financial Sector Index, Past Year

Blackstone Share Price vs. S&P 500 Financial Sector Index, Past Year
Source: TradingView.
Article Sources
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  1. Blackstone. "Form 10-Q for Quarterly Period Ended Sept. 30, 2022," Page 3.

  2. Financial Times. "KKR Real Estate Fund Curbs Redemptions in Echo of Blackstone Move."

  3. Bloomberg. "Investors Seek to Pull $20 Billion From Core Real Estate Funds."

  4. Private Equity News. "Blackstone CEO Schwarzman Defends Real Estate Fund."

  5. Blackstone. "Blackstone Third Quarter 2022 Earnings Press Release and Presentation," Page 8.

  6. Barron's. "Blackstone Stock Gets a J.P. Morgan Upgrade as BREIT Attracts Inflows."

  7. Blackstone. "Form 10-Q for Quarterly Period Ended Sept. 30, 2022," Page 72.

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