Blackstone NAV REIT Performance Outshines Cash Flow Concerns
August 1, 2023 | Johnathan Rickman | Blue Vault
Despite indications that Blackstone’s nontraded real estate investment trust (NAV REIT) has struggled to deliver on redemptions, the diversified fund has shown “consistently better” total returns than its peers, proving its post-pandemic staying power, Blue Vault researchers say.
As more second-quarter data become available, we’re finding that Blackstone’s Real Estate Income Trust has outperformed or held steady against many of the other large NAV REITs it competes with, said Blue Vault Senior VP James Sprow on Blue Vault’s July 26 webinar, A Deeper Look at Blackstone.
Sprow said this is due to several factors, including:
· Limited office sector exposure
· A consistently positive risk-vs-return profile
· A 0.69% rise in NAV in Q2 2023 — the largest Q2 2023 rise in NAV among nontraded REITs
Looking at total returns year-to-date through June 2023, Blackstone didn’t place first, but its 1.3% results showed resiliency amid strong performance by newcomers J.P. Morgan, FS Credit, and Apollo Income Solutions.
He added that over the last 42 months, Blackstone’s NAV REIT had a much higher average monthly rate of return than both the S&P 500 and NAREIT All Equity REITs indexes — all while maintaining a monthly standard deviation of less than 2%. Over the same period, the S&P 500’s monthly standard deviation ran hot at almost 6%, Sprow noted. “All in all, a very good risk-vs-return tradeoff,” Sprow said of Blackstone’s industry-leading NAV REIT.
At the end of Q1 2023, the fund had total assets of $140.7 billion, reflecting almost 60% of the total nontraded REIT industry. Blackstone’s fund has raised a total of $75 billion in capital since its inception in mid-2016.
Redemptions and Cash Flow
The Blue Vault assessment comes amid fresh concerns that Blackstone’s Real Estate Income Trust (as with other NAV REITs) has been hobbled by outsized redemption requests and cash-flow issues. Blackstone’s Class I shares have faced most of those redemption requests. Sprow said Blackstone earlier hinted in its public statements that the requests have largely come from institutional investors in Asia.
Total redemptions in Q1 2023 came in at 4.86% of the weighted average shares outstanding. Blackstone has stated in recent months they have access to sufficient liquidity to meet as many requests as they can under their limits of 2% per month and 5% per quarter. In practice, that has meant dipping into real estate assets — including the recent sale of its storage business — and liquid securities to raise cash. Those redemptions have caused Blackstone’s aggregate NAV to drop, but not by too much, Sprow said.
Sprow also noted that participation in the Blackstone fund’s dividend reinvestment plan (DRIP) dropped 4% in the first quarter of the year, which he suggested might be a sign that existing investors in the fund are a little less eager to have their distributions reinvested in the common stock.
Blackstone also posted a Q1 AFFO payout ratio of 155%. “That means that they’re paying out 55% more than [what] they’re covering with their adjusted funds from operations,” said Sprow. “We’ll see later how [Blackstone’s] redemptions have trended in the last seven months … but they’re clearly not generating the type of cash flow we like to see with any REIT to cover their current rate of distributions,” he added.
“[Blackstone’s] historical distributions tend to be lower than the median for nontraded REITs, but overall, when we look at [Blackstone’s historical NAV] performance … the changes in NAV, which make up a good portion of the total return, are going to be impressive,” said Sprow.
The July 26 Blue Vault webinar also covered the Blackstone Private Credit Fund — a nontraded business development company — and the Blackstone Floating Rate Enhanced Income Fund, an interval fund. Blue Vault subscribers not only get access to a wealth of real-time performance data on these and other funds, but they can also access analytical reports and replays of our informative webinars. Join us today!
