NEW YORK, Dec 1 (Reuters) – (This Dec. 1 story corrected part of Snyder’s quote to refer to arbitration)
Blackstone Inc (BX.N) On Thursday, withdrawal demands from its $69 billion unlisted real estate income trust (REIT) surged, an unprecedented blow to an owner that has helped it become an asset management behemoth.
The restrictions came as redemptions reached pre-set limits, rather than Blackstone setting limits on the day. Still, they fueled investor concern about the future of the REIT, which accounts for about 17% of Blackstone’s revenue. Blackstone shares ended down 7.1% on Thursday’s news. Friday morning was down another 2% to $83.45.
Many investors in the REIT have expressed concern that Blackstone’s valuation of the vehicle has been slow to adjust to that of publicly traded REITs, which has been hurt by rising interest rates, according to a source close to the fund. Rising interest rates weigh on real estate values because they make financing properties more expensive.
Blackstone reported a 9.3% year-to-date return for its REIT, which contrasted with the publicly traded Dow Jones US Select REIT Total Return Index. (.DWRFT) 22.19% decline during the same period.
Alex Snyder, a portfolio manager at CenterSquare Investment Management LLC in Philadelphia, said the neutrality between the value Blackstone assigns to its real estate portfolio and that of publicly traded REITs has caught the eye of investors.
“People are profiting from the value that Blackstone says their REIT shares have,” Snyder said.
A Blackstone spokeswoman declined to comment on how the New York-based firm calculates its REIT’s valuation, but said its portfolio focuses on rental housing and logistics in the southern and western U.S., which are short-term leases and rented out above inflation.
The spokesperson added that the REIT relies on a long-term fixed rate debt structure.
“Our business is built on performance, not cash flows, and performance has been solid,” the spokesperson said.
REITs are marketed to wealthy individual investors. Turmoil in Asian markets fueled by concerns about China’s economic prospects and political stability contributed to the recoveries, two sources familiar with the matter said. Most of the bailout investors are from Asia and need liquidity, they said.
Blackstone told investors in a letter that it was limiting withdrawals from its REIT after receiving redemption requests of more than 2% of its monthly net asset value and 5% of its quarterly net asset value in November. As a result, the REIT allowed investors in November to redeem $1.3 billion, equal to approximately 43% of investors’ repurchase requests.
Analysts at Barclays downgraded Blackstone’s stock from “overweight” to “equal weight” on Friday, down from $98 to $90. They and other analysts said Blackstone’s REIT risks getting stuck in a spiral of selling assets to meet redemptions if it can’t restore the confidence of its investors. On Thursday, the company said the REIT agreed to sell its 49.9% interest in two Las Vegas casinos for $1.27 billion.
“The impact on Blackstone will depend on whether the REIT is able to stabilize its net asset value over time, or is forced to enter an extended run-off situation with significant asset sales and an ongoing redemption backlog — too soon, in our view,” BMO Capital Markets analysts said in a note. They wrote in the note.
Blackstone’s plans for Ft
The REIT mess is a setback for Blackstone’s two strategies that have helped it become the world’s largest alternative asset manager with $951 billion in assets: investing in real estate and attracting high-net-worth individuals.
Blackstone launched the REIT in 2017, riding on the success of its real estate empire, which outgrew its private equity business. His success in property investing has resulted in its chairman Jonathan Gray being promoted and named to succeed chief executive Stephen Schwarzman.
The REIT represented an effort to win over high-net-worth investors clamoring for private-market products that they believed would perform better than publicly traded ones.
Blackstone is seeking to diversify its investor base after decades of tapping institutional investors such as public pension funds, insurance companies and sovereign wealth funds for its products.
Blackstone managed a total of $236 billion in wealth held by individuals at the end of September, up 43% year over year.
Credit Suisse analysts in a note expected the REIT’s woes to weigh on Blackstone’s fee-related revenues and assets under management. “All of this will continue to put pressure on Blackstone’s premium valuation,” they wrote.
In Blackstone’s third-quarter earnings call in October, Gray blamed the REIT recovery on market volatility.
He said the REIT has plenty of cash reserves to “weather any storm.” These cash reserves stood at $2.7 billion at the end of October, according to its prospectus. Blackstone also said in the prospectus that it has access to $9.3 billion in “immediate liquidity.”
“When you have this kind of market decline it’s not surprising that you see less inflows from individual investors,” Gray said.
Reporting by Sibuk Oku and Herb Lash in New York Editing by Rosalpa O’Brien and Sam Holmes
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