Blackstone’s property fund reports its first annual shortfall ever

BREIT failed to generate enough cash to cover its dividend

Blackstone’s Jonathan Grey (Getty)
Blackstone’s Jonathan Grey (Getty)

Blackstone’s real estate investment trust may be back to fulfilling its redemption requests, but that doesn’t mean all is financially sound for the firm’s signature fund.

Last year, Blackstone Real Estate Income Trust failed to generate enough cash to cover its dividend, the Financial Times reported, citing a report released by the company. It marked the first annual shortfall in the fund’s brief history.

The REIT generated $2.7 billion in cash flow last year, largely from rent collections across its diverse portfolio. It paid out $2.8 billion in distributions, though. That could create long-term concerns for investors, who don’t like to see payouts exceed cash flows.

“I would always be cautious about any company that does not have its dividend covered,” Nate Koppikar, a partner at hedge fund Orso Partners, told FT. Orso has bet against Blackstone shares.

REITs often distribute 90 percent of income. When they distribute more than 100 percent, it could force them to take on more debt, issue new shares or offload assets. Property funds may also need to reduce payouts if they can’t cover dividends.

Last year, private property trusts managed by Starwood Capital and Brookfield also did not generate enough cash flow to meet distributions.

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Cash flow from operating activities — which excludes recurring property expenses — covered 95 percent of BREIT’s payout last year. Cash flow declined from operating activities due to property sales and the need to keep cash in liquid investments to meet redemption requests. Additionally, some of its investments in data centers aren’t generating rent yet.

“Any excess distributions are fully reflected in Breit’s reported net asset value, resulting in zero impact on total returns,” Blackstone said in a statement.

Total distributions for BREIT increased 3 percent because of an increase in outstanding shares.

Since its creation in 2017, BREIT’s cumulative cash flow from operations has covered 103 percent of its payout. In its lifetime, BREIT has generated an annualized total return of 10.5 percent, according to Blackstone.

Cash is not a concern for the $60 billion fund, as many investors choose to take their distributions in additional shares, rather than cash. Blackstone has told investors that there is more than $8 billion available in liquidity.

Holden Walter-Warner

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