BX provides alternative asset management and financial advisory services worldwide. It operates in five segments: Private Equity, Real Estate, Hedge Fund Solutions, Credit Businesses and Financial Advisory. What's exciting to me about BX is its real estate acumen. It knows when to get out and when to get in.
Back in 2005 through 2007, when real estate prices were going nuts on the upside, Blackstone sold $60 billion worth of real estate assets at the top of the market. Now it's doing its utmost to buy back in, focusing primarily on income-producing residential rental properties.
In a recent conference call, the founder of BX said, "Over our 27-year history, we've generated net annualized returns on realized investments of 23% in private equity and 28% in our global real estate business, which dwarfs performance of virtually any other investment class."Recently, the company informed the investment world that it's purchased approximately $1.5 billion worth of houses in 2012 alone. It was classified as around 10,000 homes, which average about $1,000 a month in income. Do the math. That would mean around $10,000,000 per month in income on these properties alone.
BX's founder also clarified the ongoing strategy of buying at distressed pricing, fixing the houses up so they can be rented and someday selling when the real estate market becomes overvalued once again. BX has some peripheral ways of making money with real estate. Their founder said, "We have our GSO Group, for example, doing financing structures for homebuilders. We have our Tactical Operations Group buying nonperforming loans... We're looking at investing in mortgage-related securities, which we think have very significant upside." Blackstone reported that it has committed $17.6 billion to real estate since 2009. This would mean that BX is the biggest corporate investor in the world in the residential housing market. The chart below tells its five-year history when it comes to price-per-share and free cash flow. BX data by YCharts
Over the next couple of years I anticipate the free cash flow increasing significantly along with their earnings-per-share (EPS). It's notable that the stock is trading at seven times forward earnings (one-year) and that the company is able to pay a 2.7% dividend. Increasing EPS and operating cash flow will be essential to sustaining and growing the dividend.