Blackstone REIT imposes limit on redemption requests as redemptions rise sharply

2 Dec 2022 , 03:24 PM

Blackstone Inc limited withdrawals from its $69 billion unlisted real estate income trust (REIT) on Thursday after a rise in redemption requests which is an unprecedented blow to a franchise that helped it turn into an asset management behemoth.

As the redemptions hit pre-set limits, rather than Blackstone setting the limits on the day, the curbs came. Nonetheless, they fueled investor concerns about the future of the REIT, which makes up about 17% of Blackstone’s earnings. Blackstone shares ended trading down 7.1% on the news.

A source close to the fund said that many investors in the REIT are concerned that Blackstone has been slow to adjust the vehicle’s valuation to that of publicly traded REITs that have taken a hit amid rising interest rates. Surging 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, net of fees, a contrast to the publicly traded Dow Jones U.S. Select REIT Total Return Index 22.19% decline over the same period.

That robust performance has some investors questioning how Blackstone comes up with the valuation of its REIT, said Alex Snyder, a portfolio manager at CenterSquare Investment Management LLC in Philadelphia.

“People are taking profits at the value Blackstone claiming their REIT shares are at,” said Snyder.

Blackstone told investors in a letter it would curb withdrawals from its REIT after it received redemption requests in November greater than 2% of its monthly net asset value and 5% of its quarterly net asset value. As a result, the REIT allowed investors in November to redeem $1.3 billion, equivalent to approximately 43% of investors’ repurchase requests.

Some experienced analysts said Blackstone’s REIT runs the risk of getting caught in a spiral of selling assets to meet redemptions if it cannot regain the trust of its investors. On Thursday, the firm said the REIT had agreed to sell its 49.9% interest in two Las Vegas casinos for $1.27 billion.

BMO Capital Markets analysts wrote in a note, “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 remarkable asset sales and ongoing redemption backlog – too early to tell, in our view.”

For feedback and suggestions, write to us at [e-mail]