Blackstone Group (BX 0.18%) is back in the headlines again this week with another multi-billion-dollar purchase of a real estate investment trust (REIT). This time it's buying PS Business Parks (PSB) for $7.6 billion. The deal will add a large-scale portfolio of business park, office, and industrial assets to Blackstone's burgeoning real estate portfolio.
With billions of dollars in dry powder across its real estate private equity funds and cash continuing to pour into its funds, Blackstone will likely continue its real estate shopping spree.
Digging into Blackstone's latest real estate deal
Blackstone has agreed to pay $187.50 per share in cash for PS Business Parks, a roughly 15% premium to its average share price over the last two months. The deal values the industrial REIT at $7.6 billion.
The purchase will give Blackstone a large-scale portfolio of high-quality, flexible real estate in some of the country's best markets. PS Business Parks currently owns 97 business parks with 28.1 million square feet of commercial space leased to about 5,100 tenants. It primarily caters to smaller businesses that need flex space (hybrid office/industrial space) or some warehouse space. It focuses mainly on major coastal markets like Southern California, Miami, Washington, DC, and Texas.
One interesting aspect of this deal is that it will provide an unexpected windfall to shareholders of Public Storage (PSA -0.26%). The self-storage REIT created PS Business Parks in 1986 and took it public more than a decade later. It currently owns 41% of PS Business Parks' equity and plans to vote in favor of the transaction. As a result, it will receive about $2.7 billion in cash when the deal closes. Public Storage expects to recognize a $2.3 billion after-tax gain, which it intends to distribute to its shareholders. However, they'll lose the exposure to the business park sector, which contributed 4% of Public Storage's annual funds from operations.
Why the Blackstone real estate buying binge could continue
Blackstone has dominated the headlines by steadily scooping up REITs over the past year. Last week, it reached a $12.8 billion deal to acquire student housing-focused residential REIT American Campus Communities. Before that, it struck agreements to acquire three apartment REITs for a combined $13.1 billion, an industrial REIT for $3.1 billion, and a data center REIT for $10 billion. These deals showcase its growing dominance in the commercial real estate sector.
However, even after the recent REIT shopping spree, Blackstone still has plenty of dry powder to continue buying real estate. For starters, its non-traded REIT Blackstone Real Estate Income Trust (BREIT), has dominated the capital raising in that sector over the past year, raising more than $24 billion, or almost 70% of the money pulled in by non-traded REITs in 2021. While it has steadily put that money to work, cash continues flowing into BREIT's coffers because of its growing reputation for delivering top-tier returns.
Overall, investors have handed Blackstone $83.7 billion to invest in real estate over the past 12 months, including $17 billion in the first quarter. It had only deployed about $47.2 billion by the end of the first quarter. In addition, it had commitments to deploy another $9.4 billion across its public U.S. REIT privatizations and a deal to buy an Australian casino operator. That left it with $36.3 billion of dry powder. While its recently announced deals will utilize some more of that capital, additional money is likely to continue flowing into its coffers.
That means Blackstone will undoubtedly continue making headline-grabbing deals. Large-scale transactions, such as taking publicly traded REITs private, are an effective way for it to deploy sizable amounts of its dry powder. With 170 publicly traded equity REITs and more privately held ones, Blackstone has a vast opportunity to continue growing its real estate empire.
A nearly insatiable appetite for REITs
Blackstone has earned a reputation for being one of the top real estate investors in the world. More investors are entrusting it with more of their capital, giving it the funds to acquire more real estate. It still has a lot of dry powder after its latest deal, suggesting its shopping REIT shopping spree could continue.