Blackstone Holding On To Hilton, Not Worried About Rates

Co-founder Stephen Schwarzman and President Hamilton “Tony” James fielded questions from analysts on the firm’s second-quarter conference call about a jump interest rates in recent weeks following signals from the U.S. Federal Reserve it would start to taper off its quantitative easing program. After spiking in June, rates have started to stabilize and stocks prices have quickly recovered.

“Rising rates ought to be a very moderate type of phenomenon,” Schwarzman said. “It’s clearly being micromanaged by the Fed to not really hurt an economic recovery.”

James said limited partners will continue to look to alternative investments to boost their portfolios since the yield environment for bonds remains historically low.

The two executives played up the 17 percent EBITDA growth for Hilton Hotels in the first half of the year. Blackstone acquired the hotel chain  in 2007 in a deal valued at $26 billion. James said Blackstone’s “will have plenty of options” to exit Hilton, but added the firm is not in any rush. “When you can have that kind of EBITDA growth … you kind of want to let your winner run a little bit because you’re accreting value,” he said.

Overall, the market for initial public offerings remains open, with Blackstone filing an IPO for Brixmore Property Group Inc, the nation’s largest wholly owned portfolio of grocery-anchored community and neighborhood shopping centers. However, mergers and acquisitions overall remain slower than expected, partly because of uncertainty faced by corporations over gridlock in Washington as well as uneven economic growth in developing markets and no growth in Europe, James said. “I think M&A is going to stay restrained.”

Overall, Blackstone’s public shares rallied about 5 percent on July 19 after the firm said its second-quarter earnings more than tripled to $703 million, helped by the rising valuations of its funds. Its IPO for SeaWorld Entertainment Inc delivered a quarter-end valuation of 3.0x multiple of investment, the firm said.

Barclays analyst Roger Freeman said Blackstone’s economic net income figure of 62 cents per unit beat his estimate by 10 cents, while its distributable net income figure of 28 cents beat his forecast by 3 cents.

On the fundraising front, Blackstone’s first Asian real estate fund held its initial closing in June with $1.5 billion  of total commitments. Blackstone Mortgage Trust Inc raised $660 million in a secondary offering on May 22.

Blackstone’s second rescue lending fund totaled $5 billion in fundraising by the end of the quarter, hitting its fundraising limit. Its tactical opportunities investment vehicles raised $3 billion.

Blackstone’s dry powder — capital raised from investors available for deals — reached a record $38.5 billion at the end of the quarter. Of this, $15.6 billion was available for private equity and $11.9 billion for real estate.

Total assets under management reached a record $230 billion, up 21 percent over the year-ago period.

Sister news service Reuters contributed to this report.