Blackstone Group (BX -0.43%) has been gobbling up real estate investment trusts (REITs) over the past year. The private-equity giant's latest deal will see it acquire Preferred Apartment Communities (APTS), an apartment REIT focused on fast-growing Sun Belt markets. Blackstone is paying $5.8 billion for the REIT as it continues to spend big to buy apartments across the South.
Here's a look at why Blackstone is pouring so much money into this theme.
Image source: Getty Images.
Paying a hefty price for more exposure to the Sun Belt region
Blackstone's non-traded REIT, BREIT, has agreed to acquire Preferred Apartment Communities for $25 a share, or $5.8 billion. That's a 39% premium to its stock price on Feb. 9, when news broke that the residential REIT was exploring its strategic options, including a potential sale. Meanwhile, it's a nearly 60% premium to the company's 90-day volume-weighted average price through that day.
BREIT is paying so much to buy Preferred Apartment Communities because it owns 44 high-quality multifamily communities with 12,000 units concentrated in the fast-growing Sun Belt markets of Atlanta; Orlando, Tampa, and Jacksonville, Florida; Charlotte, North Carolina; and Nashville, Tennessee. These cities are benefiting from strong jobs and population growth, driving demand for housing. That's pushing up rental rates for apartment owners.
In addition to that multifamily portfolio, Preferred Apartment Communities owns 54 grocery-anchored retail assets with 6 million square feet of space, primarily located in Atlanta, Orlando, Nashville, and Raleigh, North Carolina. Preferred Apartment Communities also has two remaining Sun Belt office properties and 10 mezzanine/preferred equity investments secured by recently built or under construction multifamily properties.
Blackstone commented that it's pleased to be able to acquire the company for its portfolio of high-quality apartments in the Sun Belt region that it plans to own for the long term. It also likes the additional exposure to the region via the grocery-anchored retail portfolio, which has proven resilient during the pandemic. These properties should continue to benefit by supplying necessity retail items to areas with growing populations.
Blackstone's megatrend shopping spree
Preferred Apartment Communities is the third apartment REIT Blackstone has agreed to acquire in recent months. BREIT agreed to buy fellow non-traded REIT Resource REIT for $3.7 billion in January. That's a 63% premium to that company's most recently published net asset value per share. Meanwhile, affiliates of Blackstone Group agreed to purchase Bluerock Residential Growth REIT for $3.6 billion in December, a whopping 124% premium to that apartment REIT's share price before reports surfaced it was exploring its strategic options.
Like Preferred Apartment Communities, these REITs owned a portfolio of multifamily communities in fast-growing Sun Belt cities. This means they're benefiting from above-average rent growth and property price appreciation.
But while Blackstone is paying a massive premium to acquire these REITs, it's not paying as high a price as it might seem. Bluerock and Preferred Apartments had traded at a significant discount to other multifamily REITs. That's partly because they used preferred equity to finance their expansion and made preferred equity investments to support multifamily developments. This strategy made them harder to value.
In addition to apartment REITs, Blackstone has been buying other REITs benefiting from long-term growth tailwinds. Last year, it bought data center REIT QTS Realty for $10 billion and industrial REIT WPT Industrial Real Estate Investment Trust for $3.1 billion. It paid a 24% premium for QTS and a 32.1% premium for WPT.
Like apartments in the Sun Belt region, data centers and warehouses are benefiting from strong growth tailwinds. Data proliferation is driving demand for more data infrastructure, while e-commerce and supply chain issues are propelling the warehouse sector. These tailwinds aren't likely to fade anytime soon, leading Blackstone to believe it can deliver attractive returns to its investors despite paying a big premium to acquire these REITs for their property portfolios.
Blackstone believes the Sun Belt's best days lie ahead
Blackstone continues to buy up apartments across the Sun Belt because it believes that the migration trend will continue to strengthen in the coming years. That should drive a continued rise in rents and property values, enabling the private-equity giant to generate attractive returns for its investors despite paying a high price to grow its portfolio. Blackstone's strong conviction in this theme is another reason why real estate investors should consider investing in apartments in the Sun Belt region.
