Stealing From Blackstone (BX): Q3 2021 Earnings


On October 21, 2021, Blackstone (BX) reported earnings. 

As always, I read over every one of their earnings reports and call transcripts with a great deal of interest. 

Why?

Because this firm manages three-quarters of a trillion dollars and owns businesses and real estate all over the world…

They influence the global business climate with their words and cash… and paying attention to exactly what they are doing with all that cash is important as investors.

Also, knowing what industries and assets they are buying (or, intend to buy) can point us towards potential profit opportunities.

That said, here are all my observations upon studying their latest (Q3 2021) earnings call…

1. Real Estate is starting to drive growth and returns

Blackstone’s real estate assets grew to $230 billion by the end of September, from $184.5 billion a year ago. They sold $7 billion worth of property, but that included the $5.6 billion sale of the Cosmopolitan Hotel in Las Vegas, the largest gain on a single real estate deal Blackstone has ever experienced.

Blackstone’s Core Real Estate Fund returned 7.6% in the quarter, and Blackstone’s Opportunistic Real Estate Fund increased by an eye-popping 16.2% over the same period.

The firm continued to pour money into single-family rental homes, investing $6.6 billion into the market in the last year. There is a massive demand for single-family rentals as millennials, in particular, want a house for their family without having to give up the career mobility that comes with renting.

Americans also continue to rent as they wait for more “first time buyer” inventory to be built over the coming years.

This trend makes me want to be a buyer of stocks like DR Horton (DHR) and Meritage Homes (MHR) when we get a meaningful pullback in the broader markets (Yes, at some point, that really will happen).

Both focus more on the lower end of the single-family home markets.

2. CEO Steve Schwarzman told us exactly where he sees long-term value

One of the reasons I love tracking the Private Equity earnings reports and conference calls is that some of the greatest investors on the planet with spectacular historical long-term returns will tell you exactly where they see value and opportunity.

This quarter’s call was no exception…

CEO Steve Schwarzman told us straight up that when it comes to real estate, they like the fast-growing logistics, rental housing, and life sciences office sectors of the markets. Investors can replicate this idea with publicly traded Real Estate Investment Trusts (REITs).

Their credit business favors floating rate investments that will do well in an inflationary environment that produces higher interest rates. Investors can replicate this with floating rate closed-end funds and business development companies (BDCs) that use a lot of floating rate debt.

3. Blackstone wasn’t afraid to sell

While Blackstone was very active in the quarter, buying assets in sectors they think have the potential for huge returns, they also were not shy about ringing the cash register and selling companies and assets they thought had reached full value. 

They took advantage of rising markets to sell over $21 billion of assets during the three months.

4. Investing in Infrastructure

Blackstone’s President and COO, Jonathan Gray, also talked about their investments in infrastructure, saying:

“We just made this large investment in data centers. We really like digital infrastructure. We’ve done a big investment in a fiber-to-the-home business based in the Southeast U.S. We have some really attractive transportation businesses around ports and roads and airports.”

We can find heavily discounted closed-end funds that allow us to enjoy the same types of high cash flow from infrastructure that Blackstone is finding for its investors right now.

For example, Cushing NextGen Infrastructure Income (SZC) broadened its investment strategy in 2020 away from pure-play carbon-based energy infrastructure and is adding next-generation renewable infrastructure as well. Cushing NextGen will also invest in digital infrastructure assets like data centers and cell phone towers.

The fund is trading at a discount of more than 17% from the value of all the securities and cash it owns right now and yields over 5%. So, I suggest adding this to your radar as well.

Show Me The Money

At the end of the day, this is what I call the Jerry McGuire Model of Research.

“Show me the money.”

Combined publicly-traded Private Equity companies like Blackstone control trillions of dollars in assets. They earn returns that 99% of all retail traders and hedge fund managers can only dream of earning. They have done it for decades now, so it is not a short-term phenomenon.

Over the next month, we will see more Private Equity earnings reports – so stay tuned for more.

Between now and the 15th of November, we will also start to see a few 13f Filings trickle in, allowing us to see which public assets the Private Equity industry has been buying with greater detail.

Best,
Tim Melvin