BREIT Unpacks Q1 2024 Performance, Stands by Valuation Accuracy

Blackstone Real Estate Income Trust Inc., a publicly registered non-traded real estate investment trust, recently summarized its first quarter 2024 performance. It touted its strong start and positive performance, returning +1.8% (Class I) in the first quarter and continuing to “deliver consistent, compelling distributions for [its] investors.” Meanwhile, speculation over the valuation accuracy of Blackstone’s flagship real estate fund continues.

BREIT has delivered a +10.5% annualized net return for Class I shares since inception more than seven years ago, more than double the return of the publicly traded real estate investment trust index. While many rivals have fallen in value, the $59 billion BREIT continues to excel.

In the recent filing, BREIT identified its peer set as Ares Real Estate Income Trust, Brookfield Real Estate Income Trust, JLL Income Property Trust, Nuveen Global Cities REIT, and Starwood Real Estate Income Trust.

While many firms rely on third-party appraisers to determine the worth of its fund assets, Blackstone does it differently. It uses a third-party appraiser and external auditor but has final say on the appraised value. Wall Street insiders have questioned how much latitude firms should have in assets appraisal, but BREIT is open about its approach, which it says uses more recent data than many third-party appraisers have and, thus, is more accurate.

In terms of net operating outcome, BREIT reported an increase of 4% as compared to the same period in 2023.

BREIT also reminded the public that it isn’t an index and “it was built to offer individual investors access to Blackstone Real Estate’s time-tested, high conviction thematic approach focused on sectors and markets [it believes has] the highest growth potential.” BREIT recognized this strategy as the reason for its 700+ basis points of outperformance vs. non-listed REIT peers over the last year, driven in large part by BREIT’s outsized exposure to data centers and student housing. The two sectors contributed ~500 basis points to BREIT’s performance in the first quarter over this period, noting that where you invest real estate has a major impact on performance.

BREIT grew its exposure to data centers by 50% in the past year and said there will be a continual increase in demand for data centers as “large technology companies race to build out the digital infrastructure underpinning today’s economic growth engine – artificial intelligence and the cloud.”

Blackstone privatized QTS Data Centers in 2021; ever since, QTS has amassed an $18 billion-plus development pipeline that is 100% preleased to the world’s largest technology companies. According to the filing, QTS’ existing 2,300-acre land bank could support an additional $50 billion of data center development, which would generate more growth for BREIT and profit for BREIT investors.

BREIT identified other reasons for its portfolio success: having 25% concentration in industrial; diversified rental housing exposure, e.g., suburban apartments, student housing (BREIT sold 19 student housing assets to KKR for more than $1.6 billion in April 2024), affordable housing; and geographic selection, i.e., BREIT having approximately 70% of BREIT concentrated in the Sunbelt, where job and wage growth are higher than the rest of the country. The company also noted where it is has virtually no exposure – malls and office space – as well as challenged urban markets.

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