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New York: black Stone Inc. limited withdrawals from its $69 billion unlisted real estate income trust (REIT) followed an increase in redemption requests on Thursday, an unprecedented blow to a franchise it helped turn into an asset management behemoth.
Redemption restrictions came about because they reached a pre-set limit by Blackstone rather than a limit being set for that day. Nonetheless, he shrugged off investor concerns about the future of the REIT, which accounts for about 17% of Blackstone’s earnings. Blackstone shares fell 7.1% on the news.
Investors in the REIT have become concerned that Blackstone has been slow to adjust the vehicle’s valuation for the publicly traded REIT, which has taken a hit amid rising interest rates, said a source close to the fund. Rising interest rates weigh on real estate values because they make financing properties more expensive.
Blackstone has reported a 9.3% year-to-date return for its REIT, which contrasts with the publicly traded Dow Jones US Select REIT Total Return Index, which declined 22.19% over the same period.
That outperformance has some investors questioning how Blackstone comes up with its REIT’s valuation, said Alex Snyder, a portfolio manager at CenterSquare Investment Management LLC in Philadelphia.
“People are taking advantage of what Blackstone says is their Blackstone REIT shares,” Snyder said.
A Blackstone spokeswoman declined to comment on how Blackstone came up with its REIT’s valuation, but said its portfolio was focused in rental housing and logistics and relied on a long-term fixed-rate debt structure, making it Became flexible
“Our business is built on performance, not cash flow, and the performance is solid,” the spokesperson said.
REITs are marketed to wealthy individual investors. Two sources familiar with the matter said the move was driven by concerns about volatility in Asian markets. ChinaThe economic prospects and political stability of the U.S. contributed to the redemption. Most of the redeeming investors were from Asia and were in need of liquidity, he said.
Blackstone told investors in a letter that it would cap withdrawals from its REITs after it received redemption requests of more than 2% of its monthly net asset value and more than 5% of its quarterly net asset value in November. As a result, the REIT allowed investors to redeem $1.3 billion in November, which is equivalent to about 43% of investors’ repurchase requests.
Some analysts say that if Blackstone’s REIT is unable to regain the confidence of its investors, it runs the risk of getting stuck in a series of asset sales to meet redemptions. On Thursday, the firm said the REIT had agreed to sell its 49.9% interest in two Las Vegas casinos for $1.27 billion.
“The impact on Blackstone depends on whether the REIT is able to stabilize its net asset value over time, or is forced to enter an extended run-off scenario, with significant asset sales and ongoing Redemption backlog – too early to tell in our view,” analysts at BMO Capital Markets wrote in a note.
Blow to Blackstone’s plans
The REIT turmoil is a blow to two of Blackstone’s strategies that 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 looking at the success of its real estate empire, which by then had outpaced its private equity business. His success in property investing resulted in the promotion of its chairman, Jonathan Gray, and the succession of chief executive, Stephen Schwarzman.
REITs also represent a bid to win over high net-worth investors to private market products that they believe perform better than publicly traded ones.
Blackstone has been trying to diversify its investor base after decades of tapping institutional investors such as public pension funds, insurance firms and sovereign wealth funds for its products.
Credit Suisse analysts wrote in a note that they expect the REIT woes to weigh on Blackstone’s fee-related income and assets under management. “All of this will keep pressure on Blackstone’s premium valuations,” he wrote.
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