By Rebecca Ungarino
Blackstone stock is underperforming the private-equity firm's competitors this year as concerns over a high-profile real estate fund's performance, mixed with wider economic forces, eat into Wall Street's longer term optimism about the firm's private markets dominance.
Analysts have long been confident in Blackstone's position as the world's largest private-equity firm -- and biggest landlord. Investors also received welcome news recently as the firm showed it has improved the health of Blackstone Real Estate Income Trust, an enormous $59 billion real estate fund for retail investors.
Concerns about Breit, which isn't publicly traded, reached a fever pitch last year given problems in the commercial real estate market, resulting in a wave of redemption requests from shareholders, who were prorated according to the fund's rules.
Concerns about how Blackstone values its real estate holdings, particularly as the value of publicly traded REITs fell, have also been raised by Barron's, among others. The firm told the New York Times this week, referring to its net asset value: "We stand by our rigorous valuation process, which is virtually identical to the one we use for our open-ended, institutional vehicles and has been validated by $20 billion of assets sold at a premium to N.A.V. since 2022."
But those troubles linger for some investors, weighing on the stock relative to rivals. Not everyone is convinced they should.
"This real estate fear is the primary factor driving BX's poor absolute and relative stock price performance year to date," John Miller, a portfolio manager at Ariel Investments, said on Wednesday. His team holds positions in alternative asset managers Carlyle Group and KKR and held Blackstone from 2011 to 2020.
"It's as though investors fear that real estate, more specifically commercial real estate, is in worldwide secular decline," Miller said. "We disagree."
He said the firm's management team has navigated different market cycles well and his team would consider reinitiating a position in Blackstone stock at a lower valuation.
Shares of Blackstone fell 1.5% on Wednesday while the S&P 500 was slightly negative. The stock is down 8.5% so far this year as the wider market is up nearly 9% and shares in its largest competitors have risen: Apollo Global Management, KKR, Brookfield, and Carlyle Group have gained 21%, 19%, 13%, and 3%, respectively.
Meanwhile, a large BlackRock-managed exchange-traded fund that tracks private equity companies is up 11% this year. The picture over the past year is rosier: Blackstone's 47% rise in that time has outpaced the S&P 500's 25% increase, and in 2023 the stock returned 83% to shareholders on a total-return basis.
Slower first-quarter fund-raising after a strong fourth quarter and ongoing uncertainty around real estate performance is "tempering excitement" for growth opportunities in Blackstone's infrastructure and combined credit and insurance businesses, J.P. Morgan analyst Ken Worthington said in a note to clients in April. Those dynamics are prompting Worthington's team to keep a Neutral rating on the stock.
"While we continue to view Blackstone as one of if not the best real estate investors in the world, with many funds top quartile across a long history, swimming against a strong tide is challenging even for the most adept swimmers," the J.P. Morgan analysts wrote in the April 19 note.
Some investors are growing more positive on the Breit issue. "If you talk to longer term investors, generally they see a long-term track record there that is very strong," Bank of America analyst Craig Siegenthaler, who has a Buy rating on the stock, said on Wednesday.
A Blackstone spokesperson referred to executives' comments on the firm's first-quarter earnings call in April.
Breit has "successfully navigated a challenging two-year period for real estate markets. Its semiliquid structure has worked as designed, by providing liquidity while protecting performance," Jon Gray, Blackstone's president and chief operating, said on the firm's first-quarter earnings call last month. He noted the fund is no longer in proration and is seeing "encouraging signs in terms of new sales, while repurchase requests" were declining into April.
Breit had been hit with months of withdrawal requests as investors looked to pull their money in a challenging real estate market. That sentiment persists, keeping some analysts recommending that investors hold off on buying the stock in the near term.
"The broader macro continues to weigh on near-term results, and while we are fully confident these near-term cyclical headwinds will abate, we remain on the sidelines for now until we receive more clarity around the intermediate-term outlook for earnings," JMP Securities analyst Brian McKenna said in a note to clients last month.
Write to Rebecca Ungarino at rebecca.ungarino@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
May 08, 2024 15:54 ET (19:54 GMT)
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