© Reuters. FILE PHOTO: Signage is seen exterior The Blackstone Group headquarters in Manhattan, New York, U.S., November 12, 2021. REUTERS/Andrew Kelly
(Corrects a part of Snyder’s quote to reference to arbitrage in story from Dec 1)
By Chibuike Oguh and Herbert Lash
NEW YORK (Reuters) – Blackstone (NYSE:) Inc restricted withdrawals from its $69 billion unlisted actual property earnings belief (REIT) on Thursday after a surge in redemption requests, an unprecedented blow to a franchise that helped it flip into an asset administration behemoth.
The curbs got here as a result of redemptions hit pre-set limits, slightly than Blackstone setting the boundaries on the day. Nonetheless, they fueled investor issues about the way forward for the REIT, which makes up about 17% of Blackstone’s earnings. Blackstone shares ended down 7.1% on the information on Thursday. They have been down an additional 2% on Friday morning at $83.45.
Many buyers within the REIT are involved that Blackstone has been gradual to regulate the automobile’s valuation to that of publicly traded REITs which have taken successful amid rising rates of interest, a supply near the fund mentioned. Rising rates of interest weigh on actual property values as a result of they make financing properties costlier.
Blackstone has reported a 9.3% year-to-date return for its REIT, internet of charges, a distinction to the publicly traded Dow Jones U.S. Choose REIT Whole Return Index 22.19% decline over the identical interval.
Alex Snyder, a portfolio supervisor at CenterSquare Funding Administration LLC in Philadelphia, mentioned the arbitrage between the worth Blackstone has assigned to its actual property portfolio and the worth of publicly traded REITs caught the attention of buyers.
“Persons are taking income on the worth Blackstone says their REIT shares are at,” mentioned Snyder.
A Blackstone spokesperson declined to touch upon how the New York-based agency calculates the valuation of its REIT, however mentioned its portfolio was concentrated in rental housing and logistics within the southern and western United States which have brief period leases and rents outpacing inflation.
The spokesperson added that the REIT relied on a long-term fastened price debt construction, making it resilient.
“Our enterprise is constructed on efficiency, not fund flows, and efficiency is rock strong,” the spokesperson mentioned.
The REIT is marketed to rich particular person buyers. Two sources aware of the matter mentioned turmoil in Asian markets, fueled by issues about China’s financial prospects and political stability, contributed to the redemptions. Nearly all of buyers redeeming have been from Asia and wanted the liquidity, they mentioned.
Blackstone advised buyers in a letter it will curb withdrawals from its REIT after it obtained redemption requests in November higher than 2% of its month-to-month internet asset worth and 5% of its quarterly internet asset worth. Because of this, the REIT allowed buyers in November to redeem $1.3 billion, equal to roughly 43% of buyers’ repurchase requests.
Barclays (LON:) analysts downgraded their ranking of Blackstone’s inventory to “equal weight” from “chubby” and reduce their value goal to $90 from $98 on Friday. They and different analysts mentioned Blackstone’s REIT runs the danger of getting caught in a spiral of promoting property to satisfy redemptions if it can not regain the belief of its buyers. On Thursday, the agency mentioned the REIT had agreed to promote its 49.9% curiosity in two Las Vegas casinos for $1.27 billion.
“The affect on Blackstone relies on whether or not the REIT is ready to stabilize its internet asset worth over time, or is pressured to enter an prolonged run-off state of affairs, with vital asset gross sales and ongoing redemption backlog — too early to inform, in our view,” BMO Capital Markets analysts wrote in a observe.
BLOW TO BLACKSTONE’S PLANS
The REIT turmoil is a setback for 2 of Blackstone’s methods that helped it grow to be the world’s greatest various asset supervisor with $951 billion in property: actual property investing and attracting excessive net-worth people.
Blackstone launched the REIT in 2017, piggybacking off the success of its actual property empire, which had by then outgrown its non-public fairness enterprise. Its president Jonathan Grey was elevated and made successor to Chief Government Stephen Schwarzman because of his success in property investing.
The REIT additionally represented a bid to win over excessive net-worth buyers clamoring for personal market merchandise, which they imagine carry out higher than these which are publicly traded.
Blackstone has been looking for to diversify its investor base after tapping institutional buyers, resembling public pension funds, insurance coverage corporations and sovereign wealth funds, for its merchandise for many years.
Blackstone managed a complete of $236 billion of wealth held by people as of the tip of September, up 43% year-on-year.
Credit score Suisse analysts wrote in a observe that they anticipated the REIT’s woes to weigh on Blackstone’s fee-related earnings and property beneath administration. “These all will proceed put stress on Blackstone’s premium valuation,” they wrote.
On Blackstone’s third-quarter earnings name in October, Grey blamed REIT redemptions on market volatility, which he mentioned had pushed away particular person buyers from energetic fairness and stuck earnings funds.
He added that the REIT had ample money reserves to “climate just about any storm.” These money reserves totaled $2.7 billion as of the tip of October, in line with its prospectus. Blackstone additionally mentioned within the prospectus it had entry to $9.3 billion in “instant liquidity.”
“It is not a shock that you’d see a deceleration in flows from particular person buyers once you’ve had this type of market decline,” Grey mentioned.
(This Dec. 1 story has been corrected to repair a part of Snyder’s quote to reference to arbitrage)
