Blackstone Profit More Than Triples as Holdings Appreciate

Blackstone Group LP, 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 $0.62 a share, from $212.3 million, or $0.19, a year earlier, New York-based Blackstone said in a statement. Analysts had expected earnings of $0.51 a share, according to the average of 13 estimates 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. 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 email. In addition to cash earnings, “accrued performance fees on the balance sheet continued to grow.”

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 compared with a net loss of $75 million 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., the New York-based firm run by cousins Henry Kravis and George Roberts, is scheduled to report results next week. Carlyle Group LP, 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, the firm’s president, has said 2013 and 2014 are going to 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% in the quarter, bringing their appreciation to 12% 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 Blackstone’s property business. The firm closed its second real estate debt fund this week with $3.5 billion, he 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% in the quarter and is up 13% so far this year. That compares with 5% second-quarter appreciation and a 14% 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% to 2% of committed funds and keep 20% of profit from investments as a carried interest.

In April, Blackstone agreed to acquire Credit Suisse’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.