Blackstone Third-Quarter Profit Rises on LBOs, Property

Blackstone Group LP said third-quarter profit increased 18 percent as the world’s largest alternative-asset manager collected profits from its biggest buyout fund and sold real estate holdings. The shares slid as the earnings missed analysts’ expectations.

Economic net income, a measure of earnings that reflects both realized and unrealized gains, rose to $758.4 million, or 66 cents a share, from $640.2 million, or 56 cents, a year earlier, New York-based Blackstone said in a statement today. Analysts had expected earnings of 71 cents a share, according to the average of 15 estimates in a Bloomberg survey.

Failing to meet analysts’ expectations “was driven by a combination of lower-than-forecast performance fees in the traditional private-equity segment as well as a higher-than-anticipated tax rate,” Jefferies Group LLC analyst Dan Fannon said today. “Underlying fundamentals including fundraising, realization activity, investment activity and portfolio performance all remain strong.”

Blackstone, which under Chief Executive Officer Steve Schwarzman has been the most successful leveraged-buyout firm to diversify beyond corporate takeovers and into businesses such as property and hedge funds, last week decided to spin off its advisory units in an effort to reduce conflicts of interest with its fund management groups. The firm, which is marketing its seventh global LBO fund, is benefiting from the $21.7 billion buyout pool it raised from 2005 to 2007, which in the second quarter crossed a return threshold that’s allowing Blackstone to collect performance fees at an accelerated rate.

Shares Slide

Blackstone fell 5.5 percent to $27.45 at 9:37 a.m. in New York, extending its decline this year to 13 percent. The stock more than doubled in 2013 as the firm prepared holdings such as Hilton Worldwide Holdings Inc. and SeaWorld Entertainment Inc. for profitable exits.

The firm said its buyout portfolio appreciated 3.7 percent in the third quarter, outpacing the 0.6 percent advance in the Standard & Poor’s 500 Index of large U.S. companies. The gain compared with a 3 percent increase in the buyout holdings at Carlyle Group LP, which releases fund performance earlier than its full earnings.

Blackstone’s real estate funds sold shares of hotel operator Extended Stay America Inc. in the third quarter and completed a sale of five Boston office properties to a venture led by Oxford Properties Group Inc. for more than $2 billion. The private-equity group sold shares of oil and gas producer Kosmos Energy Ltd. and packaged-foods distributor Pinnacle Foods Inc. Blackstone also took public travel-booking platform Travelport Worldwide Ltd. and health-care products maker Catalent Inc.

Buyout Bellwether

Blackstone’s economic net income, or ENI, differs from U.S. generally accepted accounting principles. Under those standards, known as GAAP, the company had net income of $250.5 million, compared with $171.2 million a year earlier.

Blackstone is seen as a bellwether for the buyout industry given its size and reach across markets. KKR & Co., the New York-based firm run by cousins Henry Kravis and George Roberts, is set to report third-quarter results next week, followed by Washington-based Carlyle on Oct. 29.

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 and then sell them. The funds are returned with a profit to investors in the cycle, which lasts about 10 years. The firms, which use debt to finance the deals and amplify returns, typically charge an annual management fee equal to 1 percent to 2 percent of committed funds and keep 20 percent of profit from investments as a carried interest.

Record Assets

Blackstone raised $13.1 billion during the quarter, helping boost assets under management to an industry record $284.4 billion from $278.9 billion at the end of the second quarter. The firm said it will pay stockholders a dividend of 44 cents a share on Nov. 3.

Worldwide, the value of private-equity buyouts announced in the third quarter rose 12 percent to $26.4 billion from the same period last year, according to data compiled by Bloomberg. The number of deals rose 8 percent to 215 in the same period, the data show.

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