Blackstone Beats In Q2 On Real Estate

Real-estate investments propelled Blackstone Group LP to strong profits in the second quarter, but the giant private equity firm warned that deals in general were becoming expensive, sister news service Reuters reported. Private equity firms have seen the value of their portfolios recover as stock markets have risen, and Blackstone said the improvement in valuation and increased fee income boosted earnings.

“The star performer in the quarter was real estate,” Blackstone’s president, Tony James, told reporters on a conference call. “Purchasing assets from distressed sellers has been the dominant focus of our real estate activities over the last year.”

Blackstone has $7.4 billion of dry powder in real estate and $17 billion in private equity. It has also started raising a new real estate fund that it previously said would be around $10 billion. “Fund-raising in real estate continues to go well with our flagship global fund receiving a strong reception,” James said.

James added that Blackstone has finished fund-raising for its latest private equity fund, BCP VI, with more than $16 billion raised.

Finding places to invest that private equity capital, however, has proven to be tricky. While Blackstone has been finding opportunities, such as its acquisition of German outdoor clothing brand Jack Wolfskin, in general it is “difficult to find value,” James said, adding that prices are high due to an abundant availability of credit.

“The plain vanilla auction (of big companies) is pretty expensive, but we continue to look at a lot of things and have come close to a couple of big things in … the U.S.,” said James. He said Blackstone has potential deals in the pipeline that it is pursuing.

The Jack Wolfskin deal is about €700 million ($994 million), according to a source close to the transaction. Still, Blackstone said it was paying less than the average multiple paid in the industry for buyout deals. It said it is searching for proprietary deals, as opposed to auctions.

Blackstone’s second-quarter economic net income was $703 million, up from $205 million a year earlier. Adjusted ENI was 63 cents per share, up from 18 cents a year earlier and above analysts’ average forecast of 33 cents, according to Thomson Reuters I/B/E/S.

The value of its private equity funds rose 9 percent in the second quarter while its real estate funds rose 6.7 percent. Its private equity funds are now valued at 1.5x their original cost, while real estate is valued at 1.4x original investment.

James said that real estate had a disproportionate impact on performance fees this quarter because Blackstone is in a “catch-up period” in its two largest real estate funds.

(Megan Davies is a correspondent for Reuters in New York.)