Blackstone's BREIT Struggles Ahead Of Earnings As Performance Fees Fall Short

Benzinga · 10/16 16:51

Traders and investors are watching Blackstone Inc‘s (NYSE:BX) third-quarter earnings report, which was confirmed for Thursday’s pre-market session.

On the radar of investors, Blackstone Real Estate Income Trust (BREIT) reported modest gains in September but remains well below the performance threshold needed to generate third-quarter fees, raising concerns from JPMorgan analysts in a recent note ahead of the company’s upcoming earnings report.

What To Know: BREIT posted modest gains in September, reporting a performance of +13 basis points (bps), following a +11bps increase in August. This marked BREIT’s second consecutive month of positive returns after a challenging July, which saw a decline of -19bps.

Despite these recent improvements, BREIT's year-to-date (YTD) performance for 2024 stands at +241bps, still well below the threshold required to trigger performance fees for the third quarter.

For Blackstone to collect performance fees from BREIT, the fund typically needs to meet an annual performance threshold of +5.0%, which is split evenly across the four quarters. However, this year, BREIT faced an even steeper hurdle, due to a negative carryover of 50bps from 2023 and overbookings from late 2022.

Per a recent note, analysts at JPMorgan had estimated that BREIT would need an exceptionally strong September performance of +204bps or more to secure performance fees for the third quarter. With September’s actual performance falling significantly short of that target, it is now confirmed that BREIT will not achieve the necessary performance threshold for the third-quarter.

What Else: In light of this, JPMorgan has adjusted its projections for Blackstone's real estate segment’s fee-related performance revenues (FRPR) for the third quarter, reducing the estimate from $25 million to $10 million. This downward revision reflects the challenges BREIT faces in meeting its required performance metrics.

Looking ahead, JPMorgan estimates that BREIT will need to deliver a robust +316bps performance over the next three months to trigger performance fees for the fourth quarter. Achieving this is seen as a significant challenge, given that BREIT has not recorded such a strong performance over a three-month period since 2022.

JPMorgan’s analysts have already factored in this challenging outlook for the fourth-quarter, projecting $50 million in FRPR for Blackstone’s real estate segment, which includes potential contributions from other permanent capital vehicles beyond BREIT.

Blackstone's real estate arm remains under pressure to deliver stronger performance, as its ability to generate performance fees plays a crucial role in its overall revenue, particularly in a challenging macroeconomic environment.

Is BX A Good Stock To Buy?

An investor can make a few decisions when deciding whether a stock is a good buy. In addition to valuation metrics and price action which you can find on Benzinga's quote pages – like Blackstone‘s page for example – there are factors like whether or not a company pays a dividend or buys a large portion of its stock each quarter.

These are known as capital allocation programs. Blackstone does pay a dividend, which yields 2.13% per year. Feel free to search Benzinga's dividend calendar for the next company that is due to pay a dividend and determine what kind of yield you can earn for holding a share of the company.

For example, if you're looking to earn an annualized return of 12.73%, you'll need to buy a share of Dynex Cap by the Oct. 25. Once done, you can expect to receive a nominal payout of $0.13 on Nov.

Buyback programs are obviously different and highly variable. A company can approve a buyback program and purchase shares as it sees fit over the course of time in which the buyback was authorized. Looking through the latest news on Blackstone will often yield whether or not the company has approved a buyback program recently. Buyback programs usually serve as a support for share prices, serving as a backstop for demand.

According to data from Benzinga Pro, BX has a 52-week high of $161.25 and a 52-week low of $88.59.

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