Which REIT Will Blackstone Buy Out Next?

seekingalpha07-04

Blackstone is aggressively going after REITs.They are priced at their lowest valuations in a decade.I think that the next buyout target could be First Industrial. Here's why. cagkansayin Ever since ...

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Here's why.   cagkansayin Ever since ...</p>\n\n<a href=\"https://seekingalpha.com/article/4702058-which-reit-will-blackstone-buy-out-next\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Which REIT Will Blackstone Buy Out Next?</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nWhich REIT Will Blackstone Buy Out Next?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-07-04 19:45 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4702058-which-reit-will-blackstone-buy-out-next><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Blackstone is aggressively going after REITs.They are priced at their lowest valuations in a decade.I think that the next buyout target could be First Industrial. Here's why.   cagkansayin Ever since ...</p>\n\n<a href=\"https://seekingalpha.com/article/4702058-which-reit-will-blackstone-buy-out-next\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"CFA.SI","symbol_name":"NikkoAM-STC Asia REIT","start_time":0,"source_url":"https://seekingalpha.com/article/4702058-which-reit-will-blackstone-buy-out-next","article_id":"2448844447","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1389510306/image_1389510306.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2448844447","pubTimestamp":1720093500,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Blackstone is aggressively going after REITs.They are priced at their lowest valuations in a decade.I think that the next buyout target could be First Industrial. 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Here's why.   cagkansayin Ever since Blackstone Inc. (BX) bought out Apartment Income REIT (AIRC), I have been looking for the next potential buyout target. We have now profited from their two last buyouts, and I would be happy to make it three. Blackstone is aggressively going after undervalued REITs (VNQ) because they think that the window of opportunity is closing, and therefore, I anticipate that further buyouts are likely in the coming quarters. But picking potential buyout targets is tricky. In the case of Blackstone, the most likely target would need to: Own either residential or industrial real estate, since that's what they are mostly focusing on. It would need to be larger than $3 billion in size for it to move the needle for them. But it shouldn't be much larger than $10 billion due to their own liquidity limitations. There needs to be levers to pull for Blackstone to create additional value. And the valuations, of course, must be discounted. With that in mind, the potential buyout targets are actually quite limited for Blackstone. Lately, they have bought lots of residential real estate, and this has left me thinking that an industrial REIT could be next.   First Industrial Realty Trust But then, they recently sold a $1 billion portfolio of warehouses to Rexford Industrial Realty (REXR), which would seem to suggest that they are not interested in industrial real estate right now, or at the very least, not in SoCal industrial real estate. This may be the case, but not necessarily. As always, there are unique circumstances that need to be considered. Blackstone's own REIT owned an interest in these assets, and it had to raise cash to meet its redemption requests. At a 4.7% cap rate, these were likely some of the best assets to sell to limit the near-term dilution in their FFO per share. Moreover, just a few days ago, Blackstone acquired a small industrial portfolio in Phoenix, suggesting that they are not attempting to exit the sector. Therefore, after buying $13+ billion worth of residential real estate in its last two buyouts, I think they are likely to target an industrial REIT next, especially since it recently sold off and became more heavily discounted. First Industrial (FR) stands out here because of three key reasons:  (1) Historically low valuation (2) Significant value-add potential (3) Ideal size and leverage.  (1) Historically low valuation Over the past few years, the entire REIT market has been in a bear market. This is well-known. It has affected all companies, including even those that have kept producing strong results. FR, as an example, is down 31% since the beginning of 2022, but it has grown its FFO per share by 24% since then. As a result, it is even cheaper than it may first seem when looking at a chart. Its FFO multiple has been cut in half as the market failed to recognize any of its recent growth:   YCharts Interestingly, some of its peers like STAG Industrial (STAG) dropped less and that's despite growing at a much slower pace recently, and as a result, their valuation multiples have narrowed significantly. I was already thinking that FR was getting more attractive than STAG in early 2024, but then Prologis (PLD) announced poor results and this caused FR to drop ~10% even as STAG remained fairly steady, causing their valuations to converge even closer:   YCharts Historically, FR has typically traded at a ~10x higher valuation multiple than STAG because it owns far better assets, enjoys faster growth prospects, has a stronger balance sheet, and owns a much bigger land bank for future development projects. FR focuses on infill locations of supply constrained Tier 1 markets, whereas STAG is mostly focused on Tier 2 markets with lower barriers to entry. But today, their valuation spread is minimal. STAG is priced at 15x FFO and FR trades at 17.5x FFO:   TIKR I think that STAG should trade a bit higher, but FR should trade a lot higher. 17.5x may not seem particularly low to some of you, but it is important to consider here that its leases are deeply below market and the REIT also owns a massive land bank, which today isn't producing any cash flow yet. If you adjusted for that, then its multiple based on normalized forward rents would be far lower. The implied cap rate of the stock is today in the low 6s, but by the time most of its leases have been rolled over in four years, it would be in the high 8s if its share price remains at today's level. In comparison, Blackstone sold the industrial portfolio to REXR at a 4.7% cap rate based on today's rents and a 5.6% cap rate based on stabilized rents. This means that they could take this capital and use it to now acquire a REIT like FR and earn a large positive spread since the public market is undervaluing these assets. STAG also enjoys a loss-to-lease, but it is not nearly as significant as that of FR and, importantly, it does not own nearly as much land nor does it have the same development capabilities. Therefore, it has now become less opportunistic when compared to FR. We estimate that FR is priced at a 30% discount to its net asset value compared to just 15% for STAG, and I would add that FR's NAV is also likely to grow at a much faster pace over time. (2) Significant value-add potential Blackstone does not want just a low valuation. It also wants some meat on the bone to create additional value for its investors. To give you an example, in the case of Tricon, their rents were below market and their G&A was so high that they could increase cash flow by simply integrating the portfolio into their platform. In the case of FR, the value-add potential is even bigger, and it could be realized fairly rapidly. Its leases should roll over with a 40-50% average positive spread, pushing its cash flow to a lot higher levels in the years ahead. Last year, its cash rent increases were 58% - a record high for the company - and so far this year, they have been about 40%, still strong, despite the increased level of supply hitting the market. Then moreover, they own over 1,000 acres of land in mostly supply constrained markets and historically, the REIT has been able to earn a 7% yield on its development projects, resulting in significant value creation for its shareholders.   First Industrial Realty Trust This is precisely the type of stuff that Blackstone likes. Buy an asset at a discounted price and then make further refinements to it to grow its value even further. Suddenly, what seemed like a good deal at first may turn into a great deal once that value creation is considered. FR fits the bill here with its huge loss-to-lease and massive land bank, which are both underappreciated by the market. (3) Ideal size and leverage FR has a $6B market cap, a low 25% LTV, and no debt maturities until 20216. This is the ideal size for Blackstone. It moves the needle, but it is not too big either. It is roughly the same size as Apartment Income REIT (AIRC), which was their last buyout. The low leverage is also an advantage as they could then bump this up closer to 50% and use this additional cash proceeds to complete the development pipeline, unlocking substantial value for its investors. Public REITs tend to operate with very conservative levels of leverage, but private equity players like Blackstone are typically willing to take more risk and operate at closer to 50% LTVs. Closing Note Please note that our investment thesis is not reliant on Blackstone buying it out. It is a possibility, but we expect the company to deliver strong returns in the coming years whether it gets bought out or not. We think that FR became deeply undervalued because its stock dropped with the rest of the REIT market, even as it kept growing at a very rapid pace. The poor market sentiment for REITs caused this growth to go unnoticed and as a result, its valuation multiple was cut in half. Moreover, it appears to us that its massive loss-to-lease and the value of the land bank are overlooked here because these are not today reflected in their headline figures, but a few years from now, they will be. In any case, it is hard for me to imagine FR going much lower from here, given that it already trades at a very low valuation for a REIT with such rapid growth prospects and low leverage. The dividend yield is not particularly high at 3.2% but note that it is growing rapidly. In the last quarter, it was hiked by 15%, the fastest dividend growth rate in the REIT world today.   First Industrial Realty Trust  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.27.0","shortVersion":"4.27.0","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2448844447"}