In this brief post, I explain why Blackstone's (BX) headwinds make it a buy.
I last wrote about BX in this October 24 post at which time it had just released Q3 and YTD results. BX has been in the 'penalty box' of late and Blackstone Real Estate Income Trust Inc.'s (BREIT) challenges are likely to lead to BX remaining out of favour with the broad investment community over the short term. In my opinion, however, nothing changes my opinion about BX's ability to reward shareholders over the long term.
Blackstone Real Estate Income Trust Inc. (BREIT)
In 2017, BX created BREIT. Over the years, it has grown to become a ~$70B real estate fund behemoth. Its acquisition of logistics-related real estate, suburban homes and dorms and apartments has been fueled by ultra-low interest rates. While soaring borrowing costs and a cooling economy have rapidly changed the real estate landscape, BREIT has entered into more than $20B of swaps contracts YTD to counteract rising rates.
BREIT is a nontraded real estate investment trust but unlike many real estate investment trusts, shares do not trade on exchanges. This makes it difficult-to-value or to-trade. With wealthy individuals, family offices and financial advisors being increasingly cautious about tying up money in such assets, many have been reducing their exposure to BREIT; a good number of fund redemptions have come out of Asia.
Faced with withdrawal requests that have exceeded the 2% of the net asset value monthly limit and 5% of the quarterly threshold, BX/BREIT announced on December 1 that redemption requests will be limited.
BREIT was created with thresholds on how much money investors can take out to avoid forced selling. Such thresholds permit the Fund's Board to restrict withdrawals or raise withdrawal limits.
BX's Top Executives Bet Big on BREIT
BREIT, which targets retail investors, has been losing its lustre. However, Bloomberg reported in early November that President Jon Gray invested an additional $0.1B of his own money in BREIT since July. In addition, CEO Steve Schwarzman also increased his stake in BREIT.
Continuous Deal Flow
The recent news about restricting withdrawals from BREIT makes headlines. BX, however, continues to be managed to maximize long-term investor returns. On the Q3 2022 earnings call, Jon Gray disclosed that:
'our diverse range of growth engines drove total inflows of $45B in Q3 and a record $183B YTD in a period in which markets experienced some of the worst declines on record. With a record $182B of dry powder capital, we have the ability to take advantage of dislocations'.
On November 16, BX announced that private equity funds managed by BX signed definitive agreements with Satinder Singh Rekhi and other current promoters to purchase a majority stake in R Systems International Limited (R Systems). Under these definitive agreements, BX commits up to $0.359B to acquire a majority stake.
On December 1, BREIT and VICI Properties Inc. (VICI) announced jointly that they entered into a definitive agreement in which VICI, currently the owner of a 50.1% interest in the joint venture that owns MGM Grand Las Vegas and Mandalay Bay Resort, will acquire BREIT’s 49.9% interest in the joint venture for cash consideration of ~$1.27B and VICI’s assumption of BREIT’s pro-rata share of the existing property-level debt.
According to a person familiar with the matter who asked not to be identified citing private information, this deal values the properties at $5.5B and is expected to generate ~$0.73B in profit for BREIT shareholders.
Investors should invest in BX with a long-term investment horizon. The majority of BX's investments are illiquid. If you will need money within the short or medium term, BX is very likely not an appropriate investment.
In my opinion, BX's long-term outlook remains positive. In the short term, however, BX's headwinds will likely continue to generate disappointing results. This is exactly when investors should be investing in a company.
As explained in prior posts, BX is in an enviable position. It can complete transactions that are well beyond what most of its competitors can remotely consider. It has a team of astute investors and ~$182B of dry powder! I remain confident BX will capitalize on opportunities to generate double-digit long-term total investment returns.
Given my perspective on BX, I acquired an additional 100 BX shares @ ~$86/share on December 1 in a 'Core' account within the FFJ Portfolio. This increases my exposure to 1341 shares.
On a final note, I highly encourage you to listen to BX President Jon Gray discuss the case for alternatives in an inflationary environment.
I wish you much success on your journey to financial freedom!
Note: Please send any feedback, corrections, or questions to [email protected].
Disclosure: I am long BX.
Disclaimer: I do not know your circumstances and do not provide individualized advice or recommendations. I encourage you to make investment decisions by conducting your own research and due diligence. Consult your financial advisor about your specific situation.
I wrote this article myself and it expresses my own opinions. I do not receive compensation for it and have no business relationship with any company mentioned in this article.