Blackstone’s $103bn (€93.5bn) real estate business has boosted overall profits at the private equity giant as it contemplates ramping up sales of assets.
The New York firm released its second-quarter results showing that real estate is now its biggest activity, surpassing its traditional private equity business, which came in just shy of $100bn.
Economic net income for the real estate business surged 53% to $209.2m, enabling Blackstone to post an overall economic net income figure of 2% – a key metric by which private equity companies are measured – surprising analysts that had reportedly predicted a 9% decline.
Blackstone said the growth came from important sales and increases in property values in its portfolios.
Blackstone said its property group “sustained strong level of realisations” in the quarter, with $3.4bn in proceeds stemming from private asset sales in its Equity Office Property and Trizec office portfolios.
It also cited two secondary equity offerings relating to the company’s stake in the public equity of Brixmor Property Group, and its 66% interest in Tysan Holdings, a Hong Kong publicly listed real estate company.
With property asset values at or near historic highs in many markets, Blackstone sees the potential to exit investments. On a conference call, Blackstone president Hamilton James said “we expect to be in active disposition mode for the balance of this year.”
Major market events during the three-month period had little impact on Blackstone’s results. Blackstone CFO Michael Chae said Blackstone marked down the value of its UK office portfolio in the wake of Britain vote to leave the European Union, but with UK accounting for just 4% of the firm’s real estate assets under management the “overall financial impact on the firm was small”.
Blackstone CEO Stephen Schwarzman said he expects the UK Brexit to “create many investment opportunities over time”.
He said: “If you think the world stopped [after Brexit], you should keep thinking. Blackstone investors committed over $2bn in the last four weeks to new deals.
Several of those were in Europe, “including a stake in a Swedish residential business and office complex in Berlin”, he said – “but most importantly and recently, a logistics portfolio in the UK we bought from a property fund seeking liquidity.”
The company invested $1.6bn in the quarter, including the purchase of the US retail portfolio of RioCan, a Canadian public REIT, which comprised 49 shopping centres.
Blackstone raised $4.1bn during the period across its property platform, including $1.4bn for its fifth European opportunistic fund, $1.2bn for its third mezzanine debt fund and $1bn for its US core-plus funds.
The core-plus funds have been a successful new initiative for Blackstone with total assets under management in them reaching $12.9bn – an increase of more than 100% over Q2 2015.
The company said growth in its core-plus funds, which were launched two years ago, was a significant contributor to a 6% increase (to $66.7bn) in fee-earning property assets under management between Q2 2015 and Q2 2016.
