Blackstone’s Profit Rises 2% on Real Estate Sales, Credit

  • With markets reaching highs, firm in ’active disposition mode’
  • Rebound in energy drove gains for credit group GSO Capital

Blackstone Group LP, the world’s largest manager of alternative assets, said second-quarter profit rose 2 percent as it earned more from real estate sales and its credit portfolio gained.

Economic net income, a measure of earnings that reflects both realized and unrealized investment gains, increased to $520 million, or 44 cents a share, from $508 million, or 43 cents, a year earlier, New York-based Blackstone said in a statement Thursday. Analysts had expected earnings of 39 cents a share, the average of 15 estimates compiled by Bloomberg.

Blackstone mined a string of mostly small gains during a period when U.S. equity markets rose despite a late-June swoon. Its real estate and private equity realizations totaled $7.2 billion for the quarter, driven by sales of office property investments and private equity secondaries, or stakes in other buyout firms’ funds. Blackstone also reduced expenses 7 percent from a year earlier, and costs are down by a quarter this year from the same period in 2015.

The firm had “stable but not out-sized earnings,” President Tony James said on a conference call with media Thursday. “Realizations for the quarter remained strong. We expect to be in active disposition mode for the balance of this year.”

Shares of Blackstone rose 3.4 percent to $26.72 at 10:41 a.m. in New York. The stock was down 12 percent this year through Wednesday.

Private Equity

The firm, led by Chief Executive Officer Steve Schwarzman, said its private equity portfolio appreciated 2.5 percent in the quarter, compared with 3.5 percent in the same period last year. Firms mark the value of the investments they hold -- a key determinant of economic net income -- in line with the market. The S&P 500 index of large U.S. companies was up 1.9 percent in the quarter.

Blackstone’s biggest stake, in hotel chain Hilton Worldwide Holdings Inc., now valued at about $10.9 billion, was little-changed in the quarter. The firm unloaded $200 million to $400 million slugs of stock in at least six companies, including Performance Food Group Co., drug products maker Catalent Inc. and Scout24 AG, a German digital advertising company.

Proceeds from Blackstone’s largest public stock sale last quarter, of about $1 billion in Brixmor Property Group Inc. shares, in part paid off a margin loan Blackstone took in 2015 to reap a faster payback on its investment in the company. The firm also sold parts of its Equity Office Properties Trust portfolio and a stake in Hong Kong-based real estate company Tysan Holdings Ltd.

“Blackstone’s scale and scope give it the advantage of reaping mid-sized gains across a wide variety of investments instead of relying on a few big, make-it-or-break-it deals,” Erik Gordon, a professor at the University of Michigan’s Ross School of Business, said Thursday.

Distributable earnings, which reflect cash gains on asset sales, were $503 million, compared with $1 billion a year earlier. Blackstone said it will pay stockholders a dividend of 36 cents a share on Aug. 8.

Credit Gains

A rebound in some of the firm’s energy investments drove a 9.7 percent return in its performing credit portfolio and a 7.3 percent gain in distressed credit. The credit group, GSO Capital Partners, invested $1.7 billion in the quarter, mostly in Europe and energy producers.

“We still think there will be a ton of opportunity in the energy area,” James said of Blackstone’s private equity and credit teams. “It’s an industry that needs a lot of capital and a lot of the players are still pretty fully leveraged.”

Blackstone, whose executives have said deal values are generally too high, had a quiet quarter for acquisitions. Its deals included the $1.9 billion purchase of 49 shopping centers from RioCan Real Estate Investment Trust.

With $356 billion under management -- twice as much as its next largest competitor -- Blackstone is viewed as a bellwether for the alternative-asset industry given its size and reach across markets. KKR & Co. and Carlyle Group LP are scheduled to report results next week.

Peter Grauer, chairman of Bloomberg LP, the parent of Bloomberg News, is a non-executive director at Blackstone.

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