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Blackstone Real Estate Business: How Much Is It Worth?

Analysts at Morgan Stanley analyzed the potential monetization of Invitation Homes, the single-family rental (SFR) platform owned by The Blackstone Group.

Based on their analysis, Blackstone’s real estate business alone is worth $19 per share compared with the market estimate of $12 a share.

According to Morgan Stanley analyst Michael J. Cyprys and his colleagues, Blackstone could potentially monetize Invitation Homes (IH) to as much as $0.23 per share or 6% of cash earnings based on their proprietary analysis.

The analysts explored hypothetical exit paths and potential valuation of Invitation Homes in the context of the overall SFR industry. Cyprys and his team emphasized that their estimated valuation of real estate business of Blackstone was “supported by a bottom-up analysis of 24K homes, 53% of IH’s portfolio sourced from 1,000+ pp of securitization docs.”

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The analysts said, “We think wider liability spreads & lower leverage of IHSFR 2014-2 & IHSFR 2014-3 deals make them likely targets for pay down if IPO proceeds were not used to repay bank debt. We value IH’s portfolio at $9.6-$10.6b. Monetization could be worth 9-23c in cash EPS for BX (2-6% of firm cash earnings).

Jonathan Gray, head of real estate at Blackstone said that Invitation Homes’ IPO could happen over the next 12 months.

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Blackstone is focused on creating the best SFR platform

Blackstone created Investment Homes as a platform investment by purchasing 46K homes at distressed prices from 2011 to 2014. The private equity firm made improvements on the homes worth approximately $1 billion and achieved a 96% rental occupancy rate.

Cyprys and his fellow analysts noted that Investment Homes is the largest owner of single-family homes in the United States. They believed that Blackstone is almost done in building out its housing footprint. It is now focused on creating the best SFR platform with highly-efficient infrastructure.

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Blackstone remains as Morgan Stanley’s top picks

According to the analysts, the ability of Blackstone to spot long-tailed opportunities was highlighted by its real estate business. According to them, the “IH platform targets the shift in the US from homeownership to single-family rentals.”

Cyprys and his team also noted that Blackstone identified e-commerce opportunities in Europe and the United States and acquiring retail properties in China ahead of a rising consumer.

The analysts said Blackstone remains as one of their top picks in Alts citing the reason that it has a best-in-class product mix that drives higher and sustainable cash earnings. Its real estate business alone is worth $19 per share.

Cyprys and his fellow analysts have an Overweight rating for the shares of Blackstone. They increased their price target to $50 per share and increased their dividend estimates by 2% in 2015 and 8% in 2016.

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