is the world’s largest manager of alternative assets such as private equity and real estate. It is also a leader in one of the industry’s biggest initiatives—attracting retail investors.
By many measures, the company’s flagship retail product, Blackstone Real Estate Income Trust, is a success. Known as Breit, it has mushroomed in value to $116 billion since its inception in 2017 and become one of the largest buyers of real estate in the country.
Blackstone (ticker: BX) describes Breit as an “institutional-quality real estate platform that brings private real estate to income-focused investors.” Now one of the largest U.S. real estate investment trusts, Breit owns nearly 5,000 properties, mostly multifamily dwellings and warehouses, as well as the real estate assets of Las Vegas hotels/casinos including the Bellagio and MGM Grand.
Though not publicly traded, it’s sold by major brokerage firms and financial advisors, with a relatively low minimum investment of $2,500. In just five years, Breit has become a lucrative part of Blackstone’s industry-leading real estate franchise, generating $1.8 billion in fees last year and $1 billion in the first six months of 2022.
That rapid growth could have a downside. There has been concern recently about Breit’s outlook, including how it is valued and whether investor redemptions will increase from low levels. BofA Securities analyst Craig Siegenthaler estimated in July that net flows, or sales less redemptions, have essentially moved to “break-even” after inflows averaging $2 billion a month for the past 18 months.
In response to analysts’ questions about Breit on Blackstone’s earnings conference call in July, CEO Stephen Schwarzman said that Breit and other Blackstone offerings provide “enormous value” to investors, “who remember it and they appreciate the firm. That builds our brand. That helps us raise money.”
Recently, however, a cloudier outlook for Breit and other Blackstone retail products such as the Blackstone Private Credit Fund appears to be weighing on Blackstone stock, which at about $102, is down 30% from its November peak.
A Barron’s analysis of Breit suggests that investors should be cautious and instead consider publicly traded real estate investment trusts, or REITs, that look more attractive. Breit has gone up in price this year while public REITs have moved lower. Breit has relatively high fees, offers limited liquidity, and is more leveraged than comparable public companies.
|Company / Ticker||Total YTD||Return 52-Week||Since Breit Inception in 2017|
|Blackstone Real Estate Income Trust / BREIT||7.2%||24.5%||13.5%|
|Vanguard Real Estate / VNQ||-15.5||-6.1||6.7|
|Prologis / PLD||-22.2||2.8||20.4|
|Mid-America Apartment Communities / MAA||-20.6||-6.2||15.1|
|Camden Property Trust / CPT||-22.3||-6.6||12.5|
Note: Returns since 2017 are annualized. Breit returns are for the Class I shares and through June 30.
Sources: Bloomberg; company reports
Blackstone says Breit has appreciated this year because strong financial performance has more than offset the impact of higher interest rates. It says Breit has “delivered exceptional performance” for investors and is “exceptionally well positioned,” given its focus on apartments and warehouses.
Apartments are benefiting from double-digit rent increases, and warehouse demand has been strong. “These are the best fundamentals that I have seen in these two sectors in my entire career,” said Blackstone President Jonathan Gray on a recent webinar.
Breit’s fees are comparable to its private institutional real estate funds, and Blackstone says Breit’s leverage is modest relative to many private real estate funds.
One of Breit’s big selling points, a distribution yield of roughly 4%, is above the REIT average of about 3%. But the distribution isn’t fully earned based on a key REIT cash-flow measure. The distribution yields differ somewhat among its four share classes.
|Total Value Including Debt||$116 B|
|Net Asset Value||$68 B|
|2021 Net Income||-$805 M|
|2021 FAD||$1,290 M|
|2021 Blackstone Management and Incentive Fees||$1,824 M|
|Shares outstanding||4.6 billion|
FAD=funds available for distribution
Sources: Bloomberg; company reports
Breit differs from public REIT peers like
(AVB), which can be bought and sold on public markets. Breit is the only buyer of its shares, and caps monthly redemptions at 2% of the fund’s net asset value and quarterly redemptions at 5%.
Breit says its shares should be considered to have “limited liquidity and at times may be illiquid.” Breit has met all redemption requests since its inception. With inflows that have totaled about $35 billion in the 18 months ending on June 30, the fund has been on a buying spree. For instance,…
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