Stanger Reiterates BREIT Overweight Rating, Cites Return of $23B to Shareholders

Investment banking firm Robert A. Stanger & Co., Inc. has issued an updated research report on Blackstone Real Estate Income Trust Inc., or BREIT, reiterating its rating at overweight. With $144 billion in total asset value, BREIT is the largest net asset value real estate investment trust, with a diversified real estate portfolio concentrated 85% in residential, industrial, and data center properties.

BREIT recently reported that its investment in QTS Data Centers represented 9.3% of its real estate value. BREIT, together with other Blackstone affiliates, took QTS private in 2021 at a $10 billion valuation. According to past reporting by Alts Wire, BREIT’s stated outperformance has enabled its deployment of capital across various sectors, including QTS’s more than $22 billion data center development pipeline. Since BREIT’s acquisition, QTS has tripled in size.

“At a 30x adjusted [earnings before interest, taxes, depreciation, and amortization] multiple, the QTS acquisition did not exactly look cheap. Fast forward to 2024, and BREIT’s 33.5% share of QTS is now worth over 10% more than the entire original purchase price,” said David J. Inauen, head of research at Stanger.

QTS has positioned itself well to benefit from forecasted data center demand, boasting a $60 billion land bank on top of its $22 billion, 100% pre-let current development pipeline, all of which is at attractive development spreads,” said Inauen.

BREIT’s largest real estate allocations are to residential and industrial properties, and 70% of the portfolio is reportedly targeted in Sunbelt markets. Each of those two segments were 94% occupied as of June 30, 2024.

In early August, BREIT along with other Blackstone (NYSE: BX) entities, entered an agreement to sell a portfolio of 11 apartment properties to Equity Residential (NYSE: EQR) for approximately $964 million. In April, BREIT sold a student-housing portfolio consisting of 19 purpose-built properties to global investment firm KKR for $1.64 billion. BREIT acquired the portfolio for $1.2 billion in 2018 in a joint venture with Greystar Real Estate Partners LLC.

“BREIT’s industrial properties have a short 3.8-year weighted average lease term and are reported to have 28% embedded rent growth potential based on current market rents, with 42% rent growth being reported on recently signed leases. That is a recipe for strong [net operating income] growth, and over the next five years we expect significant rent increases on about two-thirds of the industrial portfolio as leases roll,” said Inauen.

“BREIT’s residential properties are dealing with absorption of new supply in Sunbelt markets, but we expect pressure on market-rate residential rents to be temporary, with a resumption to high rent growth levels in 2026,” Inauen added.

Following a series of interest rate hikes, BREIT began prorating repurchase requests in Q4 2022 due to the capacity limits of its share purchase plan being exceeded. Proration lasted over a year, but since February 2024, BREIT has satisfied all redemption requests. Since Q4 2022, BREIT has returned nearly $23 billion in capital to shareholders.

“To put that in perspective, the amount of capital BREIT has returned to shareholders since proration began is greater than the combined NAV of the next five largest NAV REITs,” stated Inauen. “That is a very tall order, especially given the illiquid nature of real estate, yet BREIT never once curtailed the designed capacity limits of its repurchase place – quite the contrary actually, as in certain months the board gave special approval to exceed those capacity limits.”

Robert A. Stanger & Co., Inc., founded in 1978, is an investment banking firm specializing in providing investment banking, financial advisory, fairness opinion and asset and securities valuation services to partnerships, real estate investment trusts, and real estate advisory and management companies in support of strategic planning and execution, capital formation and financings, mergers, acquisitions, reorganizations, and consolidations.

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