“We believe we are the best-positioned investor in the developed world, both in terms of our current portfolio, as well as our capacity to make very attractive new investments on behalf of our limited partners,” said Stephen Schwarzman, chairman and chief executive of The Blackstone Group, in an earnings call today.
Blackstone reported a net loss on income of $341.9 million, plummeting $681.2 million from the third quarter last year, when the firm had net income of $339 million. The steep decline was attributed primarily to market-driven declines in the carrying value of assets as of 30 September, but it was partially offset by an 18 percent increase in management and advisory fees during the third quarter.
The real estate segment also showed some pain, recording a loss in revenue of $15.2 million during the period, down from a profit of $257.8 million during the same period one year ago. Net income for real estate had a loss of $65.7 million during the third quarter, compared to net income of $148 million in the same period one year ago.
Those losses were largely the result of a reduction in performance fees and investment income of $189.8 million and $104.9 million, respectively. Performance fees and investment income fell as a result of volatility in the public markets, which affected public stock holdings and certain hospitality investments, as well as the negative impact of foreign exchange, according to Blackstone.
Offsetting these declines, however, was an increase in the value of the firm’s retail property portfolio, which was up 14 percent year-to-date. “Despite the challenged economic times, operating fundamentals remain healthy across all sectors,” Schwarzman said.
With Blackstone’s real estate assets continuing to show solid revenue and operating income growth, the carrying value of the properties, including co-investments, rose 0.1 percent in the third quarter. Real estate revenues for the first nine months of the year were $1.2 billion, nearly double the $618.4 million in revenues recorded for the same period in 2010. The firm’s two largest funds, Blackstone Real Estate Partners (BREP) V and VI, are valued at 1.4x and 1.3x cost, respectively, and both are accruing full carry at a time when other funds have suffered significant losses, Schwarzman noted.
In addition, Schwarzman pointed out that conditions remain favorable for new investments in real estate, expecting significant distress in the market, constrained supply of opportunistic capital and limited competition for new deals to continue for the next several years. “We have the largest pool of available capital in our asset class and can move quickly and with certainty to close a deal,” he said.
During the first nine months of 2011, Blackstone invested or committed $5.7 billion at attractive prices, relative to the historic values and replacement costs of the assets, Schwarzman said. Post-quarter’s end, the firm also made several sizable commitments totaling an additional $1.4 billion, bringing its total real estate investments for the year to $7.1 billion. “As a result, this will be one of the most active investment years for us since we started our real estate business 20 years ago,” he claimed.
Fee-earning assets under management rose to $30 billion in third quarter, from $24.3 billion during the third quarter of 2010, due in large part to Blackstone’s latest real estate fund, BREP VII, which had its first closing of $4 billion in August. Committed but uninvested capital, or dry powder, for real estate, including amounts related to BREP VII, was $10.1 billion as of 30 September. The amount of limited partner capital invested during the period was $1.7 billion, up from $689 million during third quarter last year. Blackstone’s real estate funds also had $264.9 million of limited partner capital committed to transactions that had not yet closed at the end of the third quarter.