Blackstone Says Third-Quarter Profit Rose 3% on Performance Fees

Blackstone Group LP (BX), the world’s biggest manager of alternative assets such as private equity and real estate, said third-quarter profit rose 3 percent as the carrying value of its holdings gained.

Economic net income, a measure of earnings excluding some costs tied to the firm’s 2007 initial public offering, increased to $640.2 million, or 56 cents a share, from $621.8 million, or 55 cents, a year earlier, New York-based Blackstone said today in a statement. Analysts on average expected 56 cents a share, according to 15 estimates in a Bloomberg survey.

Blackstone, under Chief Executive Officer Stephen Schwarzman and President Tony James, led a push by private-equity firms to expand their businesses beyond traditional leveraged buyouts, which can produce lumpy earnings. The company is chasing deals in Europe, where buyers can find more distressed assets such as real estate threatened with foreclosure and property developers burdened with debt. The firm’s credit unit finished raising $5 billion during the quarter to provide financing to companies in distress.

“We are most optimistic on Blackstone’s monetization activity in the next one to two years,” Credit Suisse Group AG analysts led by Howard Chen said in an Oct. 14 note to clients. “Sizable deals” such as the $1.8 billion sale of Vanguard Health Systems Inc. and “marquee IPOs” such as Hilton Worldwide Holdings Inc. and Brixmor Property Group Inc. (BRX) will drive returns, the analysts said.

Net Income

Blackstone reported results before the opening of trading in New York. Its shares closed at $27.02 yesterday, having surged 73 percent this year. The stock is still below the $31 price at which Blackstone sold shares to the public in 2007.

The company’s economic net income, or ENI, differs from U.S. generally accepted accounting principles. Under those standards, known as GAAP, Blackstone had net income of $171.2 million, compared with $128.8 million a year earlier.

Blackstone is seen as a bellwether for the buyout industry given its size and reach across markets. KKR & Co. (KKR), the New York-based firm run by cousins Henry Kravis and George Roberts, is set to report results on Oct. 24. Carlyle Group LP (CG), the Washington-based firm that manages 118 funds and 81 funds-of-funds, is scheduled to report next month.

Private-equity firms pool money from investors including pension plans and endowments with a mandate to buy companies within about five to six years, overhaul then sell them, and return the funds with a profit after about 10 years. The firms, which use debt to finance the deals and amplify returns, typically charge an annual management fee equal to 1.5 percent to 2 percent of committed funds and keep 20 percent of profit from investments as a carried interest.

Deals Decline

Worldwide, the value of private-equity deals announced in the third quarter fell 33 percent to $69 billion from a year ago, according to data compiled by Bloomberg. The number of deals fell 6.6 percent to 1,393, the data show.

Blackstone’s biggest diversification move has been the growth of its real estate business, which oversees $69 billion in assets. The group has raised about $2 billion for its fourth European property fund, which is targeting 5 billion euros ($6.8 billion), and is seeking $4 billion for its initial pool dedicated to real estate purchases in Asia.

The firm last month filed to take Hilton public in an offering that could value the world’s largest hotel chain at about $30 billion. Blackstone bought McLean, Virginia-based Hilton in 2007 for $26 billion. It has put about $6 billion of equity into the investment, the most money from its funds in a single deal in the firm’s 28-year history.

Blackstone oversaw $248.1 billion in assets as of Sept. 30, up from $229.6 billion at the end of the second quarter.

To contact the reporter on this story: Devin Banerjee in New York at dbanerjee2@bloomberg.net

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

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