Blackstone Real Estate Income Trust's requests for shareholder redemptions hit their limit for the ninth straight month, but that amount is shrinking. Now the real estate investment trust is looking to invest in more data centers to take advantage of the growth in artificial intelligence.
The REIT, with a $115 billion portfolio as of June 30, talked in an update to shareholders this week about the redemption demand slowing as better days are ahead for the U.S. economy: namely taming inflation and a slowdown in rising interest rates that can let firms look at investing.
Blackstone REIT said it has paid out $9.4 billion to redeeming shareholders since November. In July it received $3.7 billion in such requests, 30% less than the peak in January, a low for 2023, and the third consecutive month of declining activity. The REIT caps what it will return to shareholders at one time, a standard practice in the nontraded REIT sector, and has reached it monthly since late last year. In July it was only able to redeem 34% of the requests.
The redemptions come as Blackstone REIT's real estate portfolio has shrunk by $3.3 billion since September. Last week it agreed to sell Simply Self Storage to Public Storage for $2.2 billion at a time when it's handing funds back to investors.
While it's selling some holdings, the unit of New York private equity giant Blackstone Group, billed as the world’s largest commercial property owner, recently reached $1 trillion in assets under management and is turning its attention to a different property type: data centers.
In its shareholder letter, Blackstone REIT said it has been watching the rapid rise of artificial intelligence technology for the past 10 months and is ready to take a deeper plunge into data center real estate. It plans to work with Blackstone Group-controlled data center firm QTS Realty Trust.
'AI Arms Race'
“Large technology companies are in the midst of an AI arms race which we believe will be a once-in-a-generation engine for future growth in data centers and is driving tremendous demand on the ground,” the REIT said. “We are capitalizing on this through our ownership of QTS, one of the fastest-growing data center companies.”
Just like e-commerce drove demand for industrial warehouses, cloud computing, content creation and the artificial intelligence revolution has led to an increase of nearly 50 times the data consumption over the past decade, according to the REIT.
Since its acquisition of QTS in 2021 for $10 billion, Blackstone has tripled QTS’ size and expects to double that again over the next few years through a strong development pipeline.
With the rise of AI tool ChatGPT, Blackstone's “data center business saw a steep function increase in demand, with our leasing pipeline more than doubling since last year,” the letter said.
QTS “has signed $8.5 billion of new development deals pre-leased to major global technology companies who are racing to expand their AI capabilities,” Nadeem Meghji, head of real estate in the Americas for Blackstone, said Tuesday in an investor call. “The vast majority of this — $7.5 billion of the $8.5 billion — has been signed just in the last six months. We're seeing record tenant demand as customers seek ever larger deployments in ever shorter timeframes. We think this is going to continue to be an important driver of BREIT’s outperformance.”
Looking ahead, Blackstone REIT said it remains confident its portfolio of primarily industrial and residential rental properties will deliver strong performance while it diversifies.