Blackstone beats estimates, shares up

NEW YORK Wed May 6, 2009 11:06pm IST

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NEW YORK (Reuters) - Private equity firm Blackstone Group LP (BX.N) reported a quarterly loss Wednesday and said capital available to clinch buyout deals was still scarce, but shares jumped as it topped Wall Street forecasts and paid a full quarterly distribution.

Blackstone's chief operating officer, Tony James, said on a conference call the company should be able to make a full distribution of $1.20 per share this year, absent any big surprises. It is paying out 30 cents for the first quarter.

"The world is an uncertain place right now," James said. "We believe that we'll have the fee-related earnings ... to make the dividend for the full $1.20. But we're also pretty pessimistic about the world."

James said the company wrote down the value of its private equity portfolio by 3 percent in the quarter, and wrote down the value of its real estate portfolio by 19 percent. That was markedly less than the writedowns it made the prior quarter.

Private equity firms are obliged to value their companies as if they were to sell them today.

However, the firm said it expects more than two-thirds of its portfolio companies this year to generate earnings of either above or within 5 percent of 2008's levels.

James said while there is no clarity on when the economy might stabilize, Blackstone has a large amount of cash on its balance sheet which would "enable us to come through almost any recession scenario."

"In a protracted down-cycle, Blackstone is in the enviable position of being one of the few solid shelters in the storm," James said.

Blackstone reported a first-quarter loss of $93 million before income taxes, noncash charges for vesting equity-based compensation, and amortization of intangible assets -- a measure it calls "economic net income" (ENI). That compared with a loss of $94 million a year earlier.

On an after-tax basis, its ENI loss was 7 cents a share, compared with a loss of 6 cents a year earlier. Analysts polled by Reuters expected, on average, a loss of 10 cents per share.

Blackstone prefers to focus on ENI because of the big payouts associated with its more than $4 billion initial public offering in June 2007.

James said Blackstone has about $27 billion of "dry powder," meaning capital available to invest.

He expects Blackstone to deploy about the same amount of private equity capital this year as the $3.4 billion it spent in 2008. Blackstone said the number of opportunities it is screening is on the rise as more companies are trying to shed assets.

It also expects to be active in credit investments, deploying around $3 billion to $5 billion, James said. But Blackstone is staying on the sidelines in real estate until markets bottom out or the debt markets "crack a little bit more".

Blackstone's chief executive, Stephen Schwarzman, said the firm expected the real estate market to bottom some time later this year and that he sees the most attractive opportunities in senior real estate debt.

LEVERAGE SCARCE

Blackstone's ability to do deals has been hurt by the financial crisis and shutdown of the credit markets.

James said capital for buyouts is still scarce but that Blackstone could obtain debt for deals if the transactions were modest in scale.

He also said the firm, which bought its hedge fund business GSO Capital in 2008, sees longer-term opportunities to make acquisitions itself and sees consolidation in the alternative asset management industry.

"I think we're in the fortunate position of having achieved critical mass in our businesses, and we have a strong balance sheet and a public currency so we're uniquely positioned to be a consolidator in the business," James said.

James said while there were not many opportunities to exit deals, the firm is selling its investment in Stiefel Laboratories Inc for 1.4 times the cost of the investment, or 40 percent above what it paid two years ago. GlaxoSmithKline (GSK.L) said in April it would buy Stiefel for $3.6 billion.

James said that Blackstone did not pitch to be one of the PPIP providers -- referring to the U.S. government's public-private effort to dispose of toxic assets. Firms such as fixed-income managements have sought to be among the managers for the public-private effort.

Blackstone shares were up $1.75 or 14.4 percent at $13.91 on the New York Stock Exchange on Wednesday afternoon, after rising as much as 17 percent earlier in the session. The shares have doubled this year but are still down significantly from their June 2007 initial public offering price of $31.

(Reporting by Megan Davies; editing by John Wallace and Matthew Lewis)

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