Blackstone Profit Tops Estimates as Real Estate Drives GainsBy
Firm posts biggest jump in assets in more than two years
Strength in private buyout holdings offsets public declines
Real estate continues to fuel gains for Blackstone Group LP, which reported a jump in third-quarter profit that exceeded all analysts’ estimates. The shares rose.
Economic net income, a measure of earnings that reflects both realized and unrealized investment gains, was $834.3 million, or 69 cents a share, compared with $687 million a year earlier, New York-based Blackstone said in a statement Thursday. Analysts were expecting 54 cents a share on average and 61 cents at most, according to 13 estimates compiled by Bloomberg.
Gains were widespread. Blackstone’s opportunistic real estate portfolio appreciated 5.5 percent during the three months ended Sept. 30, exceeding the 4 percent rise in the S&P 500 index of large U.S. companies. Drivers included the firm’s investments in Invitation Homes Inc. and Hilton Worldwide Holdings Inc. Blackstone’s credit funds also posted gains across performing and distressed debt strategies, as did the firm’s hedge funds.
Shares of Blackstone, led by Chief Executive Officer Steve Schwarzman, rose 1.2 percent to $33.89 as of 10:24 a.m. in New York as wider markets declined. The stock has gained 33 percent, including reinvested dividends, this year.
Blackstone’s private equity portfolio gained by 3.3 percent. Analysts, who rely on moves in public holdings to help predict firm profits, have little clarity on changes in value of private assets that haven’t been sold or taken public. Part of the upside surprise came from strength in Blackstone’s private buyout holdings, which more than offset a slide in the value of its public portfolio.
Publicly traded private equity firms must mark their holdings to the market each quarter, even though their typical strategy is to hold assets for years. That makes economic net income, which in part reflects these unrealized changes in value, merely a snapshot of assets that may have a long runway before being sold.
Real estate led the charge for Blackstone’s asset sales in the quarter. The unit, its biggest at $111 billion, sold $3.1 billion in holdings, including a U.K. office property and a portfolio of French hotels. The firm also continued trimming its stake in Hilton, selling shares it held in both its real estate and private equity funds.
Asset sales helped fuel $625.6 million of distributable earnings, which reflect profits on those disposals and fund management fees, compared with $593.5 million a year earlier. The metric is on track for its second-best year ever, President Tony James said on a call with media Thursday. Blackstone plans to draw from that pool to pay stockholders a dividend of 44 cents a share on Nov. 6.
Despite the disposals, Blackstone’s assets rose at the fastest pace in more than two years. Clients poured into various strategies including tactical opportunities, Asian real estate, hedge funds and distressed credit.
“Fundraising appears to be accelerating into year-end behind solid year-to-date performance,” Jefferies Group LLC analysts led by Dan Fannon said in a note to clients Thursday.
Schwarzman, 70, said in the statement that he expects Blackstone’s assets to continue rising in the fourth quarter. The firm is raising money for its new infrastructure fund, and it’s making a foray into early-stage growth investing, James said on the call, adding that Blackstone will share more information on the new initiatives in the future.
Overseeing $387.4 billion across private equity, real estate, credit and hedge funds as of Sept. 30, Blackstone is considered a bellwether for the alternative-asset industry. The firm added an additional $10 billion this week with the acquisition of energy investor Harvest Fund Advisors.
Peter Grauer, chairman of Bloomberg LP, the parent of Bloomberg News, is a non-executive director at Blackstone.
— With assistance by Brandon Kochkodin