Investor concerns about Blackstone’s large retail real estate fund have weighed on its stock in recent months, and management’s comments last week don’t seem to help.
Blackstone reported beating earnings on Oct. 20, but the stock fell 4.2% after the report and rebounded on Oct. 21, rising 1.7% to close at $85.43. The stock is down more than 40% from its November 2021 peak of around $150.
Investors may have reacted to remarks made by President Jonathan Gray on a conference call about Blackstone Real Estate Income Trust, known as Bright, on October 20.
Gray said Bright, Blackstone’s $70 billion retail flagship product, could be redeemed. This means that the fund will pay more to investors redeeming shares than it will receive on new investments.
Breit and another retail product, the Blackstone Private Credit Fund, have been significant sources of growth in the company’s assets and fees. This makes the investment community sensitive to flow. Breit generated over $1 billion in fees for Blackstone in the first half of 2022, making him one of the company’s most profitable investment products.
Unlike publicly traded REITs such as Prologis and Equity Residential, Breit is not listed.
Blackstone executives answered several questions about Breit during the company’s earnings call on Oct. 20, with one analyst asking if it could be “redeemed in the coming months.” .
Mr Gray replied:
Breit enjoyed huge inflows in 2021 and early 2022, roughly doubling its size. The fund raised $4.2 billion in the third quarter, down from $6.6 billion in the second quarter, but Blackstone said its net flow numbers were based on inflows less redemptions. did not provide.
financial news sister title Barons In August, I wrote an article critical of Breit, arguing that retail investors should consider public REITs as an alternative.
While many public REITs are down 30% or more this year, Bright is posting a positive 9% profit through the end of September. Our article also cites Bright’s high fees and higher leverage than many public peers as negative factors.
In response, Blackstone noted Bright’s strong performance since its inception in 2017, exposure to two of the strongest categories in real estate (apartments and warehouses), and high liquidity levels. Breit has delivered a 13% annual return since its inception, four times his REIT benchmark.
Investor attention has focused on the gap between Breit’s performance and that of public REITs in recent months, as Breit’s net asset value continues to rise while the REIT sector continues to decline. The plunge in public REITs reflects investor concerns over a slowing economy, impact on rents and rising interest rates.
In a call, Mr. Gray cited Bright’s strong financial performance this year as warehouse and apartment rents have risen sharply. Bright’s earnings power this year more than offset the impact of rising interest rates on property valuations, he added.
Oppenheimer analyst Chris Kotowski said public REITs in the apartment and logistics sectors were also showing good financial results, but their shares were down 30%. Kotowski compared his Breit’s performance to public REITs and asked management on a conference call if “all of them suddenly look more attractive compared to your valuation.”
Gray said that the public market on which Bright’s pricing is based is more volatile than the private market, and that Bright has “adequate liquidity” and has responded to all redemption requests since its inception in 2017. He answered that he had answered.
In a client note dated October 21, JP Morgan analyst Ken Worthington wrote of Bright: Ex) This year’s return he increased by 8.5%. “
Morgan Stanley analyst Michael Cypris wrote that retail flows are slowing, as expected given the economic environment.
“However, we are confident that BX’s sales capabilities and brand will continue to position the company attractively for penetration into the $70 trillion retail TAM.”
Blackstone’s distributable earnings for the third quarter were $1.06 per share, down 17% from the year-ago quarter but above consensus expectations of 98 cents.
write destination Andrew Barry [email protected]
This article was published by Baronsa fellow Dow Jones Group brand