Blackstone backed out of hotels in the nick of time.
“It wasn’t because we anticipated the pandemic,” said president Jonathan Gray on the firm’s Q2 earnings call Thursday. Rather, the investment giant saw greater promise in the rental housing, life sciences and industrial buildings it picked up in the past year — investments that helped it nearly double its distributable earnings year-over-year.
Now, the firm is betting on recovery, with plans to pull hospitality, which currently comprises about 7 percent of its real estate portfolio, back into the mix.
“I think that number will go up,” Gray said. “We do think people will return to travel — individual and leisure travel first and over time corporate and group travel, so it’s a sector we like.”
That plan is already being put into action. In March, Blackstone struck a $6 billion deal to acquire the economy hotel fleet Extended Stay America as part of a joint venture with Starwood Capital.
Overall, real estate investments proved to be the workhorse behind Blackstone’s jump in second-quarter profits
Net income for the quarter more than doubled, from $568 million a year ago to $1.3 billion this year. On a year-to-date basis, cash returned to shareholders grew by 105 percent compared to the same period last year, with real estate accounting for nearly half of total returns. Revenue also more than doubled year over year, hitting $5.3 billion in the second quarter, compared to $2.5 billion in the same period last year.
“The largest single-engine of perpetual capital and fee-related earnings for the firm is our real estate core+ business,” Gray said.
The firm’s core-plus strategy targets long-term investments in the residential, office and life sciences space, encompassing Blackstone’s private real estate investment trust BREIT.
Over the past year, BREIT has added west coast warehouses, Silicon Valley offices and mobile-homes in Florida for a combined $1.8 billion. Those types of investments helped drive a record $5.8 billion in BREIT inflows in the second quarter. As of July 1, the firm has recorded another $2.6 billion from BREIT not included in the second-quarter report.
Logistics real estate, at 40 percent of the firm’s portfolio, drove second-quarter gains, alongside suburban multifamily, life sciences offices and U.S. hospitality, said chief financial officer Michael Chae.
Blackstone has also made a big splash in the growing market for single-family rentals, committing
$6 billion in June to acquire Home Partners of America.
This month, the firm purchased $5.1 billion in affordable housing through a deal with AIG.