Blackstone Offers New Data on Preliminary Deal Profits

The news broke earlier this week. Blackstone released two preliminary profit measures on existing deals running from the beginning of the quarter through Tuesday. According to Bloomberg, it’s the first time the company released them.

When companies offer information they have never previously given, it’s time to pay attention. In this case, the two measures are preliminary versions of realized performance revenue and realized principal investment income, both aspects of profits from selling deals.

“The preliminary estimate regarding realization activity for the period from July 1, 2024 to September 24, 2024 disclosed above is not intended to predict or represent total Realized Performance Revenues, total Realized Principal Investment Income or total Segment Revenues for the quarter ending September 30, 2024, and results for the full quarter may differ materially,” Blackstone explained in its statement.

The preliminary realized performance revenue would be off 24.5% year-over-year and the realized principal investment income would be down 18.9%.

“The preliminary estimate does not include the results or impact of any other sources of income, including fee income, or expenses, and Blackstone may realize further gains or losses relating to total Realized Performance Revenues and total Realized Principal Investment Income for the full quarter,” the company added. And that is always true. There are always fee-related earnings included in Blackstone’s earnings announcements. Expenses could be smaller than expected, increasing income, or even larger than expected, decreasing it.

Blackstone’s stock price before the news was about $157 a share. A couple of days later it hovered at $153, a loss of 2.5%. That might seem like a big reaction, but it’s the market’s way of signaling that it is concerned and could get more so when the final numbers come out.

It also is a likely reaction to more than this one year-over-year drop. The realized performance revenue figures have been sliding for four years now. Here are the third quarter comparisons by year: 2021, $1,497,477,000; 2022, $469,009,000; 2023, $ 337,940,000; and the preliminary estimate in Q3 of 2024, $255,000,000. That’s a year-over-year drop of 68.7% in 2022; 27.9% in 2023; and the preliminary 24.5% in 2024.

Realized principal investment income figures have also been dropping. Again, these are Q3 comparisons by year: 2021, $151,010,000; 2022, 139,765,000; 2023, $55,500,000; and the preliminary figure for 2024, $45,000,000. The year-to-year decreases are 2022, 7.4%; 2023, 60.3%; and for 2004, the preliminary figure is 18.9%.

“On the realization side, that should benefit over time from this improving transaction environment,” Blackstone Chief Financial Officer Michael Chae said at the Barclays Annual Global Financial Services Conference on September 11, 2024. “I think we’re definitely like a coiled spring in this area. However, as we said in the last earnings call, the backdrop is not yet robust as it relates to scale dispositions again, as we said in July, we expect a near-term lag between markets improving and pickup and realizations. That’s typical at this point in the cycle, pretty calm about that and this remains our expectation for the third quarter. But at the same time, we see 2025 as potentially much more robust.”

This isn’t the first news of Blackstone experiencing weaknesses in deals. In June, the company put a $1.275 billion bond on hold. According to someone familiar with the situation, it was an opportunistic refinancing deal that Blackstone would ultimately undertake only if the pricing were attractive, and it was not, the source told GlobeSt.

A sale of two of the largest San Francisco hotels, which were turned back to the lender, was postponed until 2025 by a court.

There is a bigger picture as well, as noted by Bloomberg. Namely, Blackstone’s numbers reaffirm broader concerns across Wall Street that real estate firms will struggle to capture high-octane returns from deal exits in the coming months.