Why you shouldn’t own Blackstone’s BREIT fund
Do your clients own BREIT?
Because Blackstone said something that doesn’t make sense.
Right after stocks opened yesterday, CNBC’s David Faber said he seemed to figure out why Blackstone’s stock was tanking. It was BREIT. Faber pointed to:
Client redemption requests
And Blackstone limiting BREIT withdrawals
Here’s what Faber said:
“Blackstone, you may have seen the shares down as much as 8%. We've figured out the reason why, although, again want to provide more background to the extent, we can.
BREIT, we've talked about this product for quite some time. Remember, an incredibly successful product for the company. That has raised tens of billions. In fact, at one point raising as much as three billion a month, got to assets, well over what, $70 billion dollars. But they're starting to have redemptions.
And those redemptions now have exceeded what the company has said in the past, since its formation almost six years ago, was its allowed repurchases. They typically allow for repurchases up to two percent of net asset value in any month and five percent of net asset value in a calendar quarter.
And so we have learned this morning, is that BREIT repurchases equal to 2.7 percent of its net asset value in october about 1.8 billion dollars. And received approval to fill 100% of those repurchase requests, but has now received repurchase requests exceeding both the two percent of NAV monthly limit and the five percent of NAV quarterly limit.
And that is triggered proration for the remaining 2.3 percent of NAV allowed that people could withdraw for the quarter.
Um, Why is that important? Well because this has been an incredibly successful product for the company, creating a lot of fees. By the way, they have also on an NAV basis, cited still up for the year.” David Faber, CNBC
Now, look at what I read on breit.com- Our Conviction in BREIT: Top Investor Questions.
Blackstone made eight points, here’s the first part of number six:
6. How has BREIT delivered +9% YTD for investors when the publicly traded REITs are down 23% YTD?
We designed BREIT to track private real estate values, not the public real estate market.
But here’s what sounds off to me. BREIT is up 9% YTD vs. public REITs (23%) because BREIT tracks private real estate not public. That doesn’t make any sense.
I don’t specialize in REITs, and on some level in the REIT world, their explanation might be true. But I don’t buy it. Common sense says real estate is real estate.
This reminds me of the stuff you hear people say about energy stocks these days.
“Even if oil sells off, energy stocks’ free cash flow yields are attractive”
“Well, but the advantage is that neither one of those companies (CVX, XOM) is gonna determine their buyback on any kind of forward oil price outlook…they're in a position to buy back stock in almost any commodity environment.”
Your relative performance vs the broader market will suffer if you miss simple warning signs.
I spot them; I’m not afraid to point them out.
I’ve been spending years listening Wall Street professionals, and they do have value, but not if you take them at face value. You have to listen in a certain way; then you can think ahead of strategists, and position ahead of other portfolio managers.
Going forward, I don’t want you to look back and say I should have noticed that.
I wouldn’t own one dollar of BREIT.
It’s really odd that BREIT’s NAV is still cited up for the year.
I don’t trust people who say things that don’t make sense.
Best, Jim
