Blackstone Profit Triples on Gains in Value of Buyout, Property Holdings

Blackstone Group LP (BX), the world’s largest private-equity company, said second-quarter profit more than tripled on gains in the value of its buyout and real estate investments.

Profit, excluding some costs tied to the firm’s initial public offering, increased to $703 million, or 63 cents a share, from $205 million, or 18 cents, a year earlier, New York-based Blackstone said today. That beat the 33-cent average estimate of 10 analysts in a Bloomberg survey. Earnings were helped by an accounting measure requiring Blackstone to recognize a larger share of profit in its real estate business.

Rising global markets have helped Blackstone, led by Chairman Stephen Schwarzman, distribute profits to investors by selling some of the companies it owns and taking others public. The firm has raised about $16.1 billion for a new leveraged- buyout fund and is seeking about $10 billion to make real estate deals.

“The real estate segment continues to benefit from improving fundamentals,” Daniel Fannon, an analyst at Jefferies & Co. in San Francisco, said in a note to clients.

Blackstone gained 80 cents, or 4.9 percent to $17.06 at 1:20 p.m. in New York Stock Exchange composite trading. The stock has gained 20 percent this year. Blackstone still trades at just above half its 2007 IPO price of $31 a share.

Performance fees in real estate increased to $450.3 million from $37.4 million a year earlier, helped by the accounting provision. That drove profit in real estate to $453.5 million from $121.4 million during the period, Blackstone said.

‘Catch-Up’ Provisions

“A material portion of the increase in revenues was due to the impact of the ‘catch-up’ provisions of the real estate funds’ profit allocations,” Blackstone said in the statement. The provisions “specify that once a fund’s preferred return hurdle has been reached, Blackstone is entitled to a disproportionately greater share of the profits until it effectively reaches its full share of performance fees.”

The value of Blackstone’s real estate holdings gained 6.7 percent in the quarter. Private-equity investments on the whole increased by 9 percent.

During the second quarter, Blackstone-backed companies including Kosmos Energy Ltd. went public and the firm announced that it would sell its stake in Universal Orlando for about $1 billion.

Schwarzman told investors today on a conference call that most of Blackstone’s efforts in real estate are aimed at bankruptcies, recapitalizations and debt purchases.

Advising Dodgers

Schwarzman, who founded Blackstone in 1985 with Peter G. Peterson, has expanded the firm’s non-LBO businesses such as fund-of-hedge funds and publicly traded debt vehicles. The firm’s restructuring unit, part of the advisory business, was hired this month to advise the Los Angeles Dodgers baseball team during its bankruptcy.

Fee-earning assets under management rose 27 percent to $129 billion. Blackstone’s hedge-fund business accounted for the largest portion of investments on that basis, with $37.2 billion, 29 percent more than a year earlier.

Private-equity fee-earning assets rose 42 percent to $35.8 billion as Blackstone invested its latest buyout fund. Real estate assets increased by 17 percent to $27.9 billion.

Blackstone President Tony James told reporters on a conference call that it’s “difficult to find value” in many private-equity deals as prices remain high and credit is cheap. He said the firm is focusing in the U.S. on energy deals and is raising a fund for investments in that industry.

To contact the reporter on this story: Jason Kelly in New York at jkelly14@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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