Blackstone Attracts Record Capital in the Real Estate Space

How's Blackstone Doing Amid Weak Operating Performance?

(Continued from Prior Part)

Real estate activity

For the December quarter, Blackstone (BX) reported a 50% fall in the real estate division’s total revenue from the corresponding quarter last year. It declined to $457 million from $915 million. The division’s opportunistic funds’ carrying value rose by 1.8% during the quarter. The operating fundamentals offset the decline in public investment values.

Its Core+ funds’ carrying value increased by 4.4% during the quarter. The division’s assets under management expanded by 9% over 1Q15, to $101 billion. In 2Q16, the performance is expected to be subdued amid stable markets.

Blackstone’s EPS (earnings per share) grew by 29% in the last fiscal year. Let’s compare this with the EPS growth for Blackstone’s peers:

• The Carlyle Group (CG): fell by 39.7%

• KKR (KKR): fell by 50.2%

• Apollo Global Management (APO): fell by 84.7%

The company also faces competition from traditional asset managers that form part of the iShares Dow Jones US Financial ETF (IYF).

Hotel portfolio

Just months after buying its portfolio of US luxury hotels in December, Blackstone is selling it to the Chinese owner of New York’s Waldorf Astoria for $6.5 billion. China’s Anbang Insurance Group is close to acquiring Strategic Hotels & Resorts. Blackstone is expected to turn at least $450 million in profits after taking the company private in December.

Realizations and returning capital

The real estate market attracted new investments on the back of an improving housing market. Blackstone raised $8.4 billion during the quarter. Of this, $5.2 billion was raised for the first closing of the fifth European opportunistic fund and $1.7 billion for the third mezzanine debt fund. Blackstone realized a total of $3.5 billion through both Blackstone’s public stake in Gecina and private sales. This included asset sales within the Equity Office Properties and Trizec office portfolios.

Blackstone expanded its investment activity during the quarter to take advantage of weaker market conditions and attractive valuations. It had $3.8 billion either invested or committed at the end of the quarter. These were deployed in the closing of the BioMed Realty Trust (BMR) acquisition, a publicly traded US life sciences office REIT.

In the next part of our series, we’ll see why Blackstone’s hedge funds performance is weak.

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - Has Blackstone Fallen Enough to Start Buying?

• Part 2 - How Did Blackstone’s Private Equity Portfolio Perform in 2Q16?

• Part 4 - Blackstone’s Hedge Fund Performance Weak on Macro Conditions