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Blackstone: Why the Subdued Real Estate Performance?

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Real estate activity

For the December quarter, Blackstone (BX) reported a 58% fall in the real estate division’s total revenue from the corresponding quarter last year, to $361 million from $865 million. The division’s opportunistic funds’ carrying value rose by 1.6% during the quarter. The operating fundamentals offset the decline in public investment values. Its Core+ funds’ carrying value expanded by 4.5% during the quarter. For the full year, opportunistic and Core+ funds rose by 9.7% and 19.1%, respectively. The division’s assets under management expanded by 16% over 4Q14, to $94 billion. In 1Q16, the performance is expected to be subdued amid stable markets.

Blackstone’s EPS (earnings per share) grew by 29% in the last fiscal year. Let’s compare this with the EPS growth for Blackstone’s peers:

  • The Carlyle Group (CG) fell by 39.7%
  • KKR (KKR) fell by 50.2%
  • Apollo Global Management (APO) fell by 84.7%

The company also faces competition from traditional asset managers that form part of the iShares Dow Jones US Financial ETF (IYF).

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Hotel portfolio

Just months after buying it in December, Blackstone is selling its portfolio of US luxury hotels to the Chinese owner of New York’s Waldorf Astoria for a consideration of $6.5 billion. China’s Anbang Insurance Group is close to acquiring Strategic Hotels & Resorts. Blackstone is expected to turn at least $450 million in profits after taking the company private in December.

Realizations and returning capital

The real estate market attracted new investments on the backdrop of an improving housing market. Blackstone raised $3.7 billion during the quarter. Out of this, $2.4 billion was raised for the Core+ real estate strategy. The company raised a total of $11 billion in two years after it launched its Core+ strategy. Despite public market dislocation, Blackstone realized a total of $4 billion in the real estate division in 4Q15. Over the past few years, the company returned $40 billion to its investors.

Blackstone expanded its investment activity during the quarter to take advantage of weaker market conditions and attractive valuations. It made a record level of investments. It had $7.8 billion either invested or committed at the end of the quarter. The aim of the investments was to capitalize on public market dislocation with four public-to-private transactions closed or committed in 2015.

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