Blackstone Group LP (BX:US), the world’s largest manager of alternative assets such as private equity and real estate, said second-quarter profit more than tripled as holdings rose and its funds realized profits.
Economic net income, a measure of earnings excluding some costs tied to the firm’s 2007 initial public offering, increased to $703.2 million, or 62 cents a share, from $212.3 million, or 19 cents, a year earlier, New York-based Blackstone said today in a statement. Analysts had expected earnings of 51 cents a share, according to the average of 13 estimates (BX:US) in a Bloomberg survey.
Blackstone, led by Chief Executive Officer Stephen Schwarzman, is taking advantage of rising U.S. stock and real estate markets to realize profits, selling shares in three companies during the quarter -- General Growth Properties Inc., Nielsen Holdings NV and PBF Energy Inc. -- and taking three public, including SeaWorld Entertainment Inc. (SEAS:US) The firm today filed for an initial public offering of Brixmor Property Group Inc., the second-largest U.S. shopping-center landlord.
“Blackstone’s underlying fund performance exceeded our expectations in just about every segment,” Jason Weyeneth, an analyst at Sterne Agee & Leach Inc., said in an e-mail. In addition to cash earnings, “accrued performance fees on the balance sheet continued to grow.”
Blackstone rose (BX:US) 6.4 percent -- the most since Nov. 30, 2011 -- to $23.37 at the close of trading in New York. The shares have climbed 50 percent this year, compared with the 29 percent gain in the 20-member Standard & Poor’s index of asset managers and custody banks.
Blackstone’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 $211.1 million, or 36 cents a share, compared with a net loss of $75 million, or 14 cents, a year earlier.
Blackstone, which oversees $229.6 billion in assets, is seen as a bellwether for the buyout industry given its size and reach across markets. KKR & Co. (KKR:US), the New York-based firm run by cousins Henry Kravis and George Roberts, is scheduled to report results next week. Carlyle Group LP (CG:US), the Washington-based firm that manages 114 funds and 76 funds-of-funds, is due to report next month.
Blackstone has led a push to diversify beyond private equity, which produces volatile earnings, adding asset classes such as real estate, now its largest business with $63.9 billion under management. The unit is betting heavily on the recovery of the U.S. housing market, spending more than $5 billion since 2012 to buy 30,000 distressed homes. The firm has also set up B2R Finance LP to offer loans to other landlords, according to people familiar with the matter.
The Brixmor offering announced today may be the start of a wave of real estate sales by Blackstone, which also owns Hilton Worldwide Inc. and office properties from its $39 billion purchase of Equity Office Properties Trust in 2007. Tony James, Blackstone’s president, has said 2013 and 2014 will be big years for realizing profits on real estate investments.
“There will continue to be a growing series of real estate realizations as we go forth over the next 12 to 18 months,” James said today on a conference call with media.
The assets that form the core of Brixmor were acquired in a $9 billion acquisition of shopping centers from Australia’s Centro Properties Group in 2011. The portfolio being offered in the IPO is made up of 522 shopping centers, Brixmor said.
Blackstone’s real estate holdings gained 5.7 percent in the quarter, bringing their appreciation to 12 percent so far this year. The business’s performance fees more than doubled from a year earlier to $402.3 million.
“It continues on a roll,” James said of the property business, which is run by Jon Gray. The firm closed its second real estate debt fund this week with $3.5 billion, James said.
Blackstone is also building its property presence in Asia, closing on $1.5 billion last month for its first Asian real estate fund. The pool is targeting $4 billion, according to a letter sent to investors.
Blackstone said its private-equity portfolio gained 5.4 percent in the quarter and is up 13 percent so far this year. That compares with 5 percent second-quarter appreciation and a 14 percent year-to-date increase in Carlyle’s portfolio.
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.
In April, Blackstone agreed to acquire Credit Suisse Group AG’s secondaries business, which buys and sells stakes in private-equity funds, for an undisclosed amount. The unit, Strategic Partners, managed about $9 billion in assets at the time.
Both James and Schwarzman today fielded questions on conference calls about the risk that rising interest rates would pose to Blackstone’s businesses. James said the credit business won’t be affected because most of its assets have short maturities and floating rates, meaning they aren’t likely to lose value when rates rise.
“In real estate, it’s a bit more of a mixed blessing,” he said on the call with media. “Higher interest rates should be expected to move up cap rates, which could affect values. On the other hand, what’s driving up interest rates is stronger fundamentals -- it’s a better economy -- and that makes occupancies and rents go up faster.”
Markets, Schwarzman said on a later call with investors, “predictively overreacted initially to the Fed’s indication on when and how it might start tapering its bond-purchase program.”
Blackstone said it will pay stockholders a dividend (BX:US) of 23 cents a share on Aug. 5.
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