Blackstone Profit Falls 9.2% as Rising Rates Hit Real Estate Funds
Blackstone's third-quarter distributable earnings fell 9.2% to $1.7 billion as higher bond yields hurt real estate values and slowed deals.
Blackstone, the world’s largest alternative asset manager, said on Thursday, Oct. 22, that its third-quarter distributable earnings fell 9.2% from a year earlier to about $1.7 billion, or $1.32 a share. The firm blamed a sharp global rise in bond yields that pushed down the value of its opportunistic real estate funds and slowed the pace of asset sales. The per-share result still came in ahead of Wall Street forecasts, and the stock rose in early trading.
What happened
Distributable earnings, the measure of cash profit available to pay shareholders that Blackstone and other private-markets firms focus on, totaled $1.7 billion in the quarter, according to the company’s earnings release filed with the Securities and Exchange Commission. Commercial Observer, citing the results, put the figure at $1.72 billion and reported that the per-share decline was steeper, at about 13%.
Analysts’ estimates varied by source. Commercial Observer said analysts had expected $1.26 a share, while Investing.com put the consensus at $1.29. Both figures were below the $1.32 Blackstone reported. Revenue was weaker: Investing.com reported $3.06 billion, short of the roughly $3.35 billion analysts had forecast.
Other headline figures from the release for the quarter ended Sept. 30:
- GAAP net income of $1.3 billion, with $662 million attributable to Blackstone Inc.
- Fee-related earnings, the steadier profit from management fees, of $1.6 billion, or $1.26 a share.
- Inflows of $63.3 billion, with more than half going to the credit and insurance business.
- Record assets under management of $1.37 trillion, up 10% from a year earlier.
- Realizations, or proceeds from selling investments, of $33.1 billion.
The board declared a quarterly dividend of $1.12 a share, payable Nov. 9 to holders of record on Nov. 2. Blackstone shares rose 3.4% to $113.34 in premarket trading from a previous close of $109.57, Investing.com reported.
Rates weigh on real estate
Stephen Schwarzman, Blackstone’s chairman and chief executive, pointed to what he called a historic increase in bond yields globally, including U.S. Treasury yields reaching their highest levels in decades, according to Commercial Observer and Investing.com. Commercial Observer reported that he said the higher cost of capital had weighed on investor sentiment and deal activity.
Real estate was the weakest segment. Its distributable earnings fell 10% to $554 million, and Blackstone’s opportunistic real estate funds lost 3.2% of their value in the quarter, the only major strategy to decline. Jon Gray, Blackstone’s president and chief operating officer, said the firm raised the capitalization rates it uses to value its properties in response to higher base rates. A higher cap rate means a lower estimated property value. Core-plus real estate funds, which hold steadier income-producing assets, still gained 1.6%.
Gray also cautioned that older real estate equity and debt could face renewed pressure from higher rates, especially in slower-growing property sectors, Commercial Observer reported. He argued Blackstone was better placed because of its focus on areas such as data centers and logistics, which the outlet said make up 54% of the firm’s global real estate holdings.
Private equity and credit
Private equity distributable earnings fell 7% to $813 million, even though fee-related earnings in the unit climbed 26%, according to the release. The Wall Street Journal reported that proceeds from asset sales in the private-equity business dropped 49%, a sign of how higher financing costs are making exits harder. Infrastructure funds were a bright spot, appreciating 6.4% in the quarter and 28.9% over the past 12 months.
The credit and insurance business, which has drawn scrutiny amid investor worries about private lending, posted a 4% rise in distributable earnings to $433 million. Addressing fears of a downturn in private credit, Gray said that “none of that has come to pass,” according to a transcript of the earnings call published by Investing.com. Blackstone’s private credit strategies returned 2.6% gross in the quarter.
What comes next
Michael Chae, Blackstone’s vice chairman and chief financial officer, told analysts the firm anticipates “a significant step-up in net realizations in the fourth quarter” and expects base management fees to return to double-digit annual growth, according to the Investing.com transcript. Gray said he expected a strong fourth quarter and 2027, pointing to rising leasing activity in the firm’s warehouse portfolio.
The outlook depends heavily on the direction of interest rates. The results arrived on a turbulent day for markets, as a global bond selloff and higher oil prices unsettled investors. Blackstone has $228.9 billion of dry powder, or capital committed by investors but not yet invested, and $7.3 billion in net accrued performance revenues that it can collect as investments are sold, according to the release.
