Blackstone Fourth-Quarter Profit Falls 70% on Volatility

  • Hilton, Kosmos stakes down more than 22% since September
  • Credit business deployed record amount amid low oil prices

Blackstone Group LP, the world’s largest manager of alternative assets, said fourth-quarter profit fell 70 percent as asset sales slowed and stakes in some companies it’s taken public declined.

Economic net income, a measure of earnings reflecting both realized and unrealized investment gains, slid to $435.7 million, or 37 cents a share, from $1.45 billion, or $1.25 a share, a year earlier, New York-based Blackstone said in a statement Thursday. Analysts had expected earnings of 44 cents a share, according to the average of 18 estimates in a Bloomberg survey.

The report came as a global stock plunge in January threatens to slam current-quarter earnings of Blackstone and other major private equity managers, from KKR & Co. and Carlyle Group LP to Apollo Global Management LLC. The firms mark the value of investments they hold -- a key determinant of economic net income, or ENI -- in line with the market.

“It’s really just noise,” Tony James, Blackstone’s president, said on a conference call with media Thursday. “We do not believe the markdowns represent permanent diminution of values, impairments or changes in what we ultimately expect to realize from our investments. We have no need to sell these assets until we think the time is right.”

Blackstone fell 1.9 percent to $25.12 at the close of trading in New York. The stock is down 14 percent in 2016 and 18 percent, including reinvested dividends, since Sept. 30.

Its single biggest public stake, in hotel chain Hilton Worldwide Holdings Inc., which Blackstone listed in 2013, has fared worse. A 25 percent decline since September has stripped $2.6 billion in value from Blackstone’s Hilton shares. Other big stock holdings, including in drug products maker Catalent Inc., retailer Michaels Cos. and oil explorer Kosmos Energy Ltd., have also tumbled.

Exit Gains

The firm said its private equity holdings appreciated 2.8 percent in the fourth quarter, compared with 4.2 percent a year ago. The Standard & Poor’s 500 index of large U.S. companies advanced 6.5 percent in the quarter.

At least three exits buttressed results in the quarter: a $2.5 billion cash sale of packager Avintiv Inc., a $1.7 billion disposal of security-services provider AlliedBarton Security Services LLC and a $1 billion sale of French clinic operator Vitalia. In addition, Blackstone and other buyout firms broke even on an $11.8 billion fourth-quarter sale of a company that had struggled, Freescale Semiconductor Ltd.

Distributable earnings, which reflect cash gains on those sales and others, were $878 million, down from $1.13 billion a year earlier. Blackstone said it will pay stockholders a dividend of 61 cents a share on Feb. 16.

Blackstone announced several acquisitions in the quarter, mostly in real estate, including an $8 billion buyout of BioMed Realty Trust Inc. The firm also joined with Canada’s Ivanhoe Cambridge Inc. to buy New York City’s giant residential complex Stuyvesant Town-Peter Cooper Village for $5.3 billion.

Credit Pain

Falling oil prices hurt Blackstone’s credit unit, GSO Capital Partners, which had an 87 percent decline in profit, the steepest among the firm’s businesses. GSO took advantage of falling credit values in energy and Europe, investing a record $2.6 billion during the quarter.

“Credit strategies were negatively impacted by energy pricing, choppy credit markets and technical pressure around year-end selling,” Dan Fannon, an analyst at Jefferies Group, said in a note to clients Thursday.

Across credit and private equity funds, Blackstone has $8.5 billion dedicated to new energy deals, James said on the media call. With the co-investment capabilities of its main buyout fund, the amount is almost $15 billion.

“We see considerably higher prices within several years,” James said of oil and gas.

With $336.4 billion in assets, Blackstone, led by Chief Executive Officer Steve Schwarzman, is seen as a bellwether for the buyout industry given its size and reach across markets. Apollo, the New York-based firm led by Leon Black, is set to report fourth-quarter results on Feb. 3, followed by Washington-based Carlyle on Feb. 10.

Peter Grauer, chairman of Bloomberg LP, the parent of Bloomberg News, is a member of Blackstone’s board of directors.

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