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Blackstone Triples Revenues, Income, Attitude

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People used to say that the Blackstone Group was an investment bank pretending to be a private equity shop. Now they might start to wonder whether Blackstone is really a REIT. A REIT with an infinite credit line.
The world got a look for the first time at the quarterly earnings for Blackstone today. The firm said that net income more than tripled, with most of the gain coming from its real estate businesses. And much of that came from sales of properties it had acquired when it bought Equity Office Properties.
Net income rose to $774.4 million from $224.1 million for the same period last year. Revenue jumped to $975.3 million from $324.6 million, a 300% gain. But this number was short of analyst expectations, which had pegged revenues to come in at $991.54 million. But earnings per share after excluding various non-cash charges were 46 cents, which beat the expectation of 40 cents.
We’re terribly bored by the game of beating, hitting and missing expectations. The questions some are now raising is whether Blackstone can repeat this kind of killer performance. There are only so many EOP properties it can sell, and only so many EOPs it can buy to flip out there. And some think that tighter credit conditions might make it harder for Blackstone to see the kind of returns it has in recent years.
But it could have the opposite effect. As the M&A frenzy slows down due to tighter credit conditions and banks being less willing to help smaller firms with steroidal deal-boosters such as bridge equity contributions, Blackstone may find less competition in the buyout market and may concentrate on turning around and selling assets it has already picked up. At least in the short term, Blackstone probably has a mighty revenue stream it can rely on. And long-term, it may be able to find buying opportunities now that smaller players in the PE world are getting squeezed. Medium term? That's what accounting is for!
“Small funds that were bootstrapping themselves with bridge equity are gone,” Blackstone's Tony James said today. “The banks are making new loans but they’re being more selective and they’re leaning towards their biggest and best customers.”
In translation: we can still borrow because we pay those guys so much in fees they can't afford for us to stop making deals.
On the conference call to discuss earnings today, one name was notably absent: Blackstone co-founder Steve Schwarzman. So where was the man who put the black in Blackstone? Deal Journal’s Dana Cimilluca asks and answers the question.
“The Blackstone Group chief sat out the private-equity firm’s first conference call as a publicly traded company today (a day when it reported net income of $774 million for the second quarter, compared with $224 million a year earlier). Schwarzman, who is traveling in China, continues a self-imposed quiet period that followed the company’s initial public offering nearly two months ago,” Cimilluca writes.
So maybe this is Blackstone's long term plan. If times get tight, they'll just act like the US Treasury and rely on China for cash.
Blackstone warns of buy-out slowdown [Financial Times]
Where’s Steve Now? [Wall Street Journal]