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Blackstone Real Estate to Continue Strong Performance in 2016

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Blackstone real estate

Blackstone (BX) has been very strong in the real estate investment space over the years mainly due to the liquidity strength that drives its negotiation and helps it command a premium due to a strong network. The company’s performance fees are expected to remain stable to positive for 2H16.

Blackstone reported a 35% rise in the real estate division’s total revenue from the corresponding quarter last year. It rose to $441 million from $326 million. The division’s opportunistic funds’ carrying value rose 2.2% during the quarter due to gains in private investment values, partially offset by reductions in value for London office holdings. Core funds’ carrying value was up 2.1% during the quarter. The division’s assets under management expanded 13% over 2Q15 to $103 billion.

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

  • The Carlyle Group (CG) fell 39.7%.
  • KKR (KKR) fell 50.2%.
  • Apollo Global Management (APO) fell 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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Strong exits

The real estate market attracted new investments on the back of an improving housing market. Blackstone raised $4.1 billion during the quarter. Of this total, $1.4 billion was for the fifth European opportunistic fund, $1.2 billion was for the third mezzanine debt fund, and $1.0 billion was for US core+ funds. Blackstone realized a total of $3.4 billion, driven by private asset sales in the Equity Office Property and Trizec office portfolios, two secondary equity offerings of the Brixmor public stake, and the sale of a 66% interest in Tysan Holdings, a Hong Kong publicly listed real estate company.

Blackstone expanded its investment activity during the quarter to take advantage of weaker market conditions and attractive valuations. It had $1.6 billion either invested or committed at the end of the quarter. These were deployed in the US retail portfolio of RioCan, a Canadian public REIT.

In the next part of our series, we’ll see why Blackstone’s hedge fund performance is weak.

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