UPDATE 3-Blackstone's earnings soar as it exits investments

Thu Apr 18, 2013 3:51pm EDT

* Q1 ENI 55 cents per share vs Street view of 54 cents per
share
    * Q1 distributable earnings up 134 percent y/y to $379 mln
    * Assets under management a record $218 bln as of the end of
March
    * Shares down 2.2 percent


    By Greg Roumeliotis
    April 18 (Reuters) - Blackstone Group LP, the world's
largest alternative asset manager, reported a 28 percent rise in
first-quarter profit on Thursday as its real estate, private
equity, credit and hedge fund units successfully sold assets.
    Blackstone sold some $6 billion worth of assets in the
quarter as buoyant financing markets and a rise in asset values
offered an attractive window of opportunity to exit investments,
many of which are held for several years.
    "Strong markets have opened up opportunities for us to
harvest attractive gains for our limited partners and increase
distributions to our public unit holders," Blackstone President
Tony James told reporters on a conference call.
    Among Blackstone's first-quarter asset sales in private
equity was an initial public offering of Pinnacle Foods 
as well as secondary share sales at TRW Automotive Holdings Corp
, Team Health Holdings Inc, Danish phone company
TDC A/S, Kosmos Energy Ltd, BankUnited Inc
 and television ratings company Nielsen Holdings NV
.
    Blackstone reported economic net income (ENI), a measure of
profitability that takes into account the fair-market value of
its portfolio, of $628.3 million, up from $491.2 million a year
earlier. This translates into 55 cents per share, a penny above
the average forecast of analysts polled by Thomson Reuters. 
    Blackstone shares were down 2.2 percent to $19.99 when the
S&P 500 Index was down 0.6 percent. Blackstone shares had
rallied 31 percent from the start of the year till the end of
trading on Wednesday. 
    "We believe higher expected realizations in 2013/2014 versus
2011/2012 should drive distributions and the stock price
higher," BMO Capital Markets analysts wrote in a note.
    The rise in ENI was due to cash generated from selling
assets rather than fees Blackstone charged investors to manage
their money. Distributable earnings - actual cash available to
pay dividends - jumped 134 percent to $379 million.
    Fee-related earnings, comprising primarily fees paid by
investors to participate in Blackstone's funds, were down 6
percent to $137.7 million as Blackstone did not benefit from
one-off items in its funds it saw in the first quarter of 2012.
    Real estate, which makes up more than half of Blackstone's
earnings, reported ENI of $352.9 million, up 32 percent. Private
equity was up 15 percent to $103.2 million, corporate credit was
up 13 percent to $98.5 million, while its hedge fund-of-funds
business was up 41 percent to $93.9 million.
    Blackstone's financial advisory business, which offers M&A,
restructuring and fundraising services to clients has struggled
to become a major contributor to the firm's earnings, cut its
losses by 3 percent to $10.2 million.  
    
    SIRLOIN
    Blackstone's real estate portfolio appreciated 6.3 percent
in the first quarter while its private equity portfolio
appreciated 7.9 percent.
    Total assets under management were a record $218 billion as
of the end of March, up 15 percent from a year earlier.
Fee-paying assets under management were up 9 percent at $171
billion.
    Blackstone, whose investments also include SeaWorld
Entertainment Inc, which is about to go public, said it
had $35.8 billion as available capital for investments as of the
end of March. Blackstone invested just $325 million last quarter
in private equity, compared to $4.4 billion during the last
twelve months.
    Blackstone co-founder and Chief Executive Stephen Schwarzman
told analysts on a conference call that Blackstone, which is
currently a bidder for computer maker Dell Inc, missed
some big deals in the last quarters, including Life Technologies
Corp.
    "We had a slow investment rate for the current quarter, but
I don't look at life in terms of quarters. And we missed one or
two large situations where we would have ended up just putting
$1 billion or more in just one transaction, and then these
numbers would have looked different," Schwarzman said. 
    Blackstone launched its first dedicated Asian real estate
fund earlier this year and is expected to cross the $1 billion
fundraising mark in the second quarter, Schwarzman said. It has
also raised $2 billion towards a $3 billion property debt fund,
he added.
    Blackstone also said its second rescue lending fund had
amassed $3.3 billion and was expected to raise $5 billion by
June, while its tactical opportunities business, which has a
mandate to invest across asset classes, had raised $2.6 billion.
    Earlier this month, Blackstone launched the first-ever
actively managed exchange traded fund focused on senior bank
loans. Schwarzman said on the call that he did not eat red meat
and so had nothing to do with that fund's name, SIRLOIN
. 
    Blackstone declared a quarterly distribution of 30 cents per
common unit, up 200 percent year-over-year.
    Blackstone was founded by Schwarzman and Peter Peterson in
1985. It completed an initial public offering in 2007.
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