Blackstone Reports Phenomenal Growth In Second Quarter
By: Troy Kuhn
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The Blackstone Group L.P. (BX) reported record-breaking second-quarter earnings on Thursday, based on strong performance across all funds.

Economic net income (excluding costs related to the firm’s 2007 IPO) was $1.3 billion, or $1.15 per unit, up 89% year-over-year (YoY) while GAAP net income was $517 million, up 145% YoY. Blackstone’s distributable earnings were $771 million, up 128% YoY.

Blackstone declared a quarterly dividend of 55 cents per unit on Thursday, which will be paid on August 4, to unit holders.

Over the last year, value creation was $37 billion and inflows were $62 billion. Through this, the firm was able to increase its total assets under management (AUM) by 21% YoY to $279 billion even though $50 billion worth of capital was returned to investors last year.

Blackstone Group chairman and CEO Stephen Schwarzman said the group may have $100 billion of low-risk real estate, under management, in a decade. He also mentioned that Blackstone is aiming for a 10-12% return on core-plus assets, which consists of high quality and well leased properties (office buildings, apartment towers & shopping malls) that need little refurbishing to increase value.

Segment Highlights

Private equity contributed 48% - the highest share - in the economic net Income for this quarter. The second highest share was from the real estate segment, which contributed 36.2%.

Private equity fund value rose 8.4% quarter-over-quarter (QoQ) and 28% YoY, driven by a strong portfolio performance.

Realization activity was strong with $4.2 billion earned from acquisition deals with Hilton Worldwide Holding Inc. (HLT), PBF Energy Inc. (PBF) and Sea World Entertainment Inc. (SEAS), among others.

Hilton was acquired by Blackstone in 2007, for $26 billion and after restructuring its debt, Hilton was made public in 2013. The fund acquired Sea World Entertainment for $2.3 billion in 2009. In June 2014 Blackstone sold Hilton stock, raising $2 billion along with $518 million worth of Sea World stock. According to Schwarzman, Blackstone recorded a $12 billion gain on the Hilton Investment, which is the largest private equity gain in history.

Real estate fund value rose 6% QoQ and 28% YoY, owing to strong real estate fundamentals, which included rising rent and increasing occupancy rates across the portfolio. Realization activity in this segment reached a record $6.7 billion after selling off shares of Hilton and Brixmor Property Group Inc. (BRX).

The $5.4 billion acquisition of the Gates Corporation in April was the only leveraged buyout this quarter.

Blackstone stock was up 0.47% to $34.14 yesterday, which was 3.67% below its 52-week high. The stock has increased 46% in one year. The company has a forward P/B of 5.61 and a forward P/E of 9.48.

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