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In my August 27, 2021 Blackstone (BX) stock analysis, I disclose the purchase of 500 BX shares on August 19 @ ~$110/share within one of the 'Core' accounts in the FFJ Portfolio. I subsequently acquired another 100 shares @ ~$121.91/share on September 27 and disclosed this purchase in my FFJ Portfolio – September 2021 Report.
I now take this opportunity to review BX following the October 21 release of Q3 results.
Blackstone - Stock Analysis - Financials
Q3 2021 and YTD Results
I draw your attention to BX's Q3 2021 and YTD Earnings Results and the Supplemental Financial Data.
When I wrote my August 27 post, BX had reported AUM of $684B, Fee-Earning AUM of $498.9B, and Perpetual Capital AUM of $169.5B. We now see significant AUM growth even after Realizations of $21.8B in Q3!
BX continues to benefit from its large-scale thematic approach to deploying capital. Total inflows in Q3 were $46.7B and ~$148B over the last 12 months with ~50% perpetual capital. Perpetual AUM rose over 70% YoY to ~$200B and is up 3-fold since BX's 2018 Investor Day.
The Q3 2021 and YTD Earnings Results includes highlights for the Real Estate, Private Equity, Hedge Fund Solutions, and Credit & Insurance.
Q3 was BX's busiest ever with $37B invested and an additional $30B committed to pending deals. The largest deals were in rental housing, transportation, infrastructure, logistics, and sustainability-linked businesses.
On the realization front, BX remains very active with the highlight being the announced sale of the Cosmopolitan Hotel in Las Vegas at a gain of nearly 10 times the original cost. It purchased this hotel in 2014 for ~$1.7B from Deutsche Bank (DB); DB spent about $4B to build the Cosmopolitan, first as its lender and then as its owner after the project’s developer defaulted during the Financial Crisis. This sale represents one of the biggest losses on a single project that Las Vegas has ever seen.
DB's loss is BX's gain. BX's sale of the Cosmopolitan is the largest profit on a single asset investment in the history of BX's real estate business. This transaction is a testament to BX's successful buy it, fix it, sell it model, in which it transforms an asset and improves operations.
Outlook
On the Q3 Earnings Call with analysts, management indicates several drawdown funds are deploying capital faster than original expectations and are now over 50% committed. This includes:
- Global Private Equity;
- Global and European Real Estate;
- Growth Equity;
- Private Equity Energy;
- European Credit and Energy Credit; and
- Secondaries Real Estate.
The timing of successor funds will be a function of investment pace but with BX's growing menu of perpetual strategies, management has a positive outlook.
Blackrock - Stock Analysis - Credit Ratings
In early August, BX issued $2B of 7, 10, and 30-year notes at a weighted average, pretax costs of 2.2%. The average debt maturity now stands at 14 years with a 2.7% overall pre-tax cost on fixed-rate long-dated debt.
Even after raising this debt, BX's senior unsecured domestic long-term debt ratings remain strong; BX's credit rating is one of the two best ratings in the asset management industry.
- S&P Global: A+ with a stable outlook;
- Fitch: A+ with a stable outlook;
S&P Global's and Fitch's ratings are the top tier in the upper-medium-grade investment-grade tier. They define BX as having a STRONG capacity to meet its financial commitments. BX is, however, somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in higher-rated categories.
The deconsolidated Balance Sheet highlights at the end of Q3 are even more impressive than the Q2 highlights I included in my previous analysis.
Source: BX - Q3 2021 Earnings Presentation - October 21, 2021
Dividend and Dividend Yield
Many investors fixate on various dividend metrics when making investment decisions. BX is a good example of why I think this is short-sighted.
Although BX distributes a quarterly dividend, the dividend fluctuates quarterly because the amount declared is based on Distributable Earnings (DE).
DE is a good proxy for cash earnings because it only includes the cash-generating portion of the performance and investment-related revenues and compensation expenses. However, DE
includes some non-cash expenses such as equity compensation from annual employee grants as well as depreciation.
Source: BX - Q3 2021 Earnings Presentation - October 21, 2021
BX's excellent Q3 results have led to the highest quarterly dividend in the company's history as a publicly listed company. With the October 21st announcement of a $1.09 quarterly dividend to be distributed November 8, 2021, the most recent 4 quarterly dividend payments total $3.57. This yields ~2.7% based on the current ~$132.45 share price.
On July 16, 2019, BX’s board of directors authorized the repurchase of up to $1.0B of Class A common stock and Blackstone Holdings Partnership Units. The repurchase program may be changed, suspended or discontinued at any time and does not have a specified expiration date.
- During FY2018, BX repurchased 16.0 million shares of Blackstone Class A common stock at a total cost of $0.5415B.
- In FY2019, BX repurchased 12.8 million shares of Blackstone Class A common stock at a total cost of $0.5619B.
- During FY2020, BX repurchased 9.0 million shares of Blackstone Class A common stock at a total cost of $0.474B.
- In Q1 2021, BX reported the repurchase of 4.0 million common shares over the last 12 months.
- In Q2 2021, BX repurchased 3.2 million common shares and it has repurchased 5.2 million common shares over the last 12 months; the available authorization remaining was $0.758B on June 30, 2021.
- In Q3 2021, BX repurchased 2.9 million common shares and it has repurchased 6 million common shares over the last 12 months; the available authorization remaining was $0.403B on September 30, 2021.
Blackrock - Stock Analysis - Valuation
BX raises pools of funds from clients in the tens of billions of dollars. It then deploys these funds thus resulting in multiple billion-dollar acquisitions annually; the size of these acquisitions has grown significantly over the years.
BX uses its expertise to improve the performance of the companies in which it invests with the intent of monetizing these assets as part of its capital recycling programs. It is not, therefore, unusual to see wide swings in YoY GAAP results.
While diluted EPS and adjusted diluted EPS are metrics I typically use to value most of the companies I analyze, these metrics are not appropriate for BX.
More relevant metrics to measure BX's performance are:
- Distributable Earnings (DE)
- Fee-Related Earnings (FRE)
The definitions of various terms are found at the end of the Q3 2021 Earnings Presentation.
I do not try to estimate the following year's DE and FRE nor does BX provide guidance.
As in my previous post, I include DE and FRE results extracted from the Q4 and FYE 2017 - FY2020 and Q2 2021 Earnings Presentations for ease of comparison with Q3 2021 results.
Blackrock - Stock Analysis - Final Thoughts
Despite the run-up in BX's share price after my August and September purchases, I think BX will be a far more valuable company many years into the future. I, therefore, intend to periodically continue to acquire BX shares. The young investors I am helping build investment portfolios will also be acquiring shares as funds permit.
Stay safe. Stay focused.
I wish you much success on your journey to financial freedom!
Note: Please send any feedback, corrections, or questions to [email protected].
Disclosure: I am long BX.
Disclaimer: I do not know your circumstances and do not provide individualized advice or recommendations. I encourage you to make investment decisions by conducting your own research and due diligence. Consult your financial advisor about your specific situation.
I wrote this article myself and it expresses my own opinions. I do not receive compensation for it and have no business relationship with any company mentioned in this article.
