Citi affirmed its buy rating on The Blackstone Group L.P. (NYSE:BX) as its analysts are enthused by its underlying business momentum and better realization prospects.

Blackstone

William R. Katz and team at Citi affirmed their buy rating after the recent investor meetings hosted by Citi Research at Boston.

Pegs 12-month target at $30

Citi analysts feel improving realization visibility should begin to translate into rising distributions for The Blackstone Group L.P. (NYSE:BX). The analysts feel this is the key consideration assigned by investors while conducting Citi’s proprietary survey.

New York-based global and diversified alternatives manager with over $230 billion in AUM as of June 30 would likely to witness pick-up in realization in both PE and RE businesses, as exit environment remains favorable, feel the Citi analysts. The analysts, however, anticipate the realizations to be led by RE followed by PE.

Citi analysts note with leveraged business model, enhanced capital raising outlook, providing comfort around the retail initiative, The Blackstone Group L.P. (NYSE:BX) offers potential to see $30 in 12 months.

Blackstone enhanced realized performance fees

William R. Katz and team at Citi feel The Blackstone Group L.P. (NYSE:BX)’s realized performance fees are just approaching pre-Global Financial Crisis levels, with pickup in momentum witnessed during YE11, YE12 and LTM.

Tracking the alternatives manager’s realized performance fees against FPAUM growth from 2003 until June 30, the analysts observe AUM are more diversified across products and asset class segments, and particularly more broadened in credit. This is evidenced from the following graph:

Realized performance fee for Blackstone

Citi analysts believe The Blackstone Group L.P. (NYSE:BX) is poised to deliver higher and more consistent distributions over the next several years, as their platform is nearly two times larger with $176 billion in FPAUM at June 30 as against $83 billion at YE 07. Based on their model, Citi analysts anticipate Blackstone could see ~$2 distribution per unit in 2014-15, resulting in an attractive 7 to 8 percent pro forma yield.

Real estate ‘sweetspot’

Citi analysts note The Blackstone Group L.P. (NYSE:BX) management is optimistic about their ability to dually put capital to work while monetizing their existing portfolio. Accordingly, the Citi analysts feel Blackstone is enjoying a Real Estate ‘sweetspot’ over the short to intermediate term. The alternative manager can benefit from exiting more seasoned investments at attractive multiples of invested capital besides putting ample amounts of capital to work.

Citi analysts particularly note The Blackstone Group L.P. (NYSE:BX) would derive considerable benefits through attractive investment backdrop through capital deployment. Some of the benefits that favor Blackstone include imbalances between supply and demand still favoring buyers, CMBS market not recovering fully with traditional players having downsized or exited the business.

With plenty of key positive takeaways from their recent investor meetings, Citi analysts pick The Blackstone Group L.P. (NYSE:BX) as their top Alternatives selection.