Coming off its best year as a publicly listed alternative asset manager, Blackstone Group LP (BX) is set to continue the trend in 2013. Blackstone's private equity business made a strong comeback in 2012 on the back of higher fund valuations, rising 14.3 percent for the year. Blackstone will benefit from selling off part of its real estate holdings while continuing to invest in new acquisitions throughout 2013.
Blackstone, whose investments include The Weather Channel, Pinnacle Foods and SeaWorld Parks & Entertainment, reported on January 31, 2013, that economic net income ((ENI)), a metric of its profitability that takes into account the current market valuation of its portfolio, was $670 million, up 43% from a year ago.
ENI in its real estate division was down 2% to $246 million. Distributable earnings, which show cash available to pay dividends, jumped 177% to $493.8 million. Total assets under management were $210.2 billion as of the end of December 2012, up from $204.6 billion at the end of the third quarter.
Among Blackstone's exits from investments in 2012 was an initial public offering of U.S. refiner PBF Energy Inc., valuing Blackstone's investment at 4.7 times what it paid, and further share sales of Team Health Holdings Inc, which averaged a value of 3.9 times Blackstone's investment. Blackstone also sold its Sunwest senior living business in the fourth quarter, a $220 million investment, making 2.4 times its money in just two years.
In 2013, Blackstone will benefit from a lack of building and commercial real estate which offers an opportunity to sell for a good price even in an economy that is not very strong. Blackstone bought roughly $1.5 billion worth of residential houses in 2012. That's 10,000 homes, which averages about $1,000 a month. The average price is somewhere around $140,000 to $150,000 per house. Blackstone is fixing up these houses to rent. Then, in the coming years, Blackstone will sell off these houses at a higher price.
With cash on hand, more business acquisitions will be made in 2013 by Blackstone. The company just announced that it has taken a controlling stake in two Maldives-based seaplane operators for an undisclosed amount, as the private-equity giant looks to capitalize on the tourist destination's increasing popularity.
Together, the two airlines will operate 44 seaplanes and conduct more than 100,000 flights a year, making them the world's largest Twin Otter operator on land or sea. Maldivian Air Taxi and Trans Maldivian Airways connect resort islands with Hulhule International Airport. Both airlines are based on the Hulhule Airport Island in the Maldives and together employ more than 900 people.
In November 2012, Blackstone announced the completion of the acquisition of Vivint Inc, a security provider, which offers home automation and technology services. The acquisition worth more than $2 billion was made by BCP VI, L.P and comprised of Vivint, Vivint Solar and 2GIG Technologies.
Blackstone is an asset for yield-seeking investors as it is actively involved in capital deployment activities. Blackstone has declared a quarterly distribution of $0.42 per common unit to record holders of common units at the close of business on February 11, 2013. This distribution will be paid on February 19, 2013.
For 2013, Blackstone intends to increase its base quarterly distribution to $0.12 per unit, up 20% from $0.10 per unit. At its current stock price, Blackstone has a dividend yield of 2.6% for 2013, excluding any extra cash distributions. Analysts are projecting that Blackstone will dole out around $1.38 in distributions in 2014. This equates to a dividend yield of 7.3% based on the current stock price.
Any excess net cash available for distribution to common unitholders will also be distributed each quarter as earned. The move to accelerate distributions, rather than rely on a final quarterly "true-up" distribution, is designed to better align distributions with current distributable earnings.
First Call analysts' consensus is for Blackstone to produce earnings of $2.11 per share in 2013 and $2.63 in 2014. Based on a current stock price of $19, Blackstone is trading at 9 times forward earnings. Blackstone has a 12-month price target of $25. First Call has a buy recommendation with a 1.9 rating.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.