Blackstone Group (NYSE: BX) is at it again. The private equity behemoth is making another real estate acquisition, continuing a multibillion-dollar shopping spree. This time it's purchasing a Canadian real estate investment trust (REIT) focused on industrial real estate.
Here's a closer look at the deal and what it means for real estate investors.
Digging into Blackstone's latest real estate deal
Blackstone Real Estate Income Trust (BREIT), Blackstone's non-traded REIT, has agreed to acquire all the outstanding units of WPT Industrial Real Estate Investment Trust (TSX: WIR.UN). The all-cash deal values the Canadian REIT at $3.1 billion. BREIT is paying $22 per unit, which is a 17.1% premium to that company's closing price on the last day of trading and a 32.1% premium to its net asset value (NAV) per unit.
While a Canadian company, WPT Industrial focuses on owning logistics properties in the U.S. The company's portfolio currently consists of 110 properties across 20 U.S. states with 37.5 million square feet of space. The REIT has leased 97.8% of its space to high-quality tenants, led by FedEx, at 13.5% of its annualized base rent (ABR).
Why this deal matters to real estate investors
BREIT has been an active acquirer this year. The REIT partnered with other Blackstone entities to purchase data center REIT QTS Realty (NYSE: QTS) in a $10 billion deal. Meanwhile, BREIT made a $6 billion bet on the single-family rental (SFR) market by agreeing to acquire Home Partners of America. In addition, it made several other smaller deals, primarily buying portfolios of industrial real estate and multifamily properties across the Sun Belt region.
What's worth noting is that Blackstone isn't buying real estate across these asset classes because it has money to burn. Instead, the company is making targeted thematic investments.
For example, in commenting on the QTS deal, Tyler Henritze, head of acquisitions Americas for Blackstone Real Estate, stated: "We are focused on investing in assets that are benefiting from strong, secular tailwinds, such as the rapid digitalization of data."
Another property class benefiting from strong, secular tailwinds is industrial real estate, particularly warehouses. In commenting on the WPT Industrial deal, David Levine, a senior managing director at Blackstone, stated: "Logistics remains one of our highest conviction themes as the sector continues to benefit from strong tailwinds driven by e-commerce." As such, Levine noted that Blackstone is "looking forward to expanding our logistics presence across key U.S. markets with the acquisition of this high-quality portfolio that WPT has built."
Industrial real estate had already made up a large portion of BREIT's diversified portfolio. As of the end of June, 36% of the REIT's $50.3 billion of assets was industrial real estate, second only to its investments in multifamily properties at 41%.
Blackstone is making logistics real estate an outsized portion of its portfolio because of the upside it sees ahead for the sector. Logistics properties are benefitting from blistering demand, which has vacancy rates at all-time lows, contributing to record rent growth. Those trends aren't likely to fade anytime soon since the U.S. needs a lot more warehouse space while it's getting increasingly more challenging to build new capacity.
Another reason to consider investing in industrial real estate
Blackstone is one of the savviest real estate investors around. So, when it says industrial real estate is one of its highest conviction themes these days, investors should take notice. It believes this sector will create a lot of value for its investors in the coming years, even after factoring in the considerable premium it's paying to acquire WPT Industrial. That says a lot about the sector's upside. It’s also another reference point for investors, giving them another reason to look for opportunities to participate in this megatrend.