Bridge Investment Group: 8% yield and high growth potential (BRDG) | Jobs Vox

Real estate private equity firm Bridge Investment GroupNYSE:BRDG) shares are down nearly 50% year-to-date and have lost nearly 16% since Nov. 30, a day before Blackstone ( BX ) announced it was paying redemptions on it. Popular non-traded REIT (BREIT). While Bridge has a meaningful component of retail investor funds, unlike BREIT, it does not offer monthly/quarterly liquidity. Instead, the capital was closed for several years (discussed below).

Following a dramatic selloff, I find Bridge shares a very attractive trade at 12x current pre-tax earnings, a steep discount for large private equity firms. In addition, the company has ample future growth opportunities (discussed below) and the stock offers a generous 8% dividend yield.

Background/Overview

In the year Founded in 2009, real estate private equity firm Bridge Investment Group went public in July 2021 at $16 per share. As shown above, the company focuses primarily on multifamily and workforce/affordable housing (subsidized apartments) and offers both debt and equity strategies. In total, the company manages approximately $44 billion in assets (including debt on its assets) and pays just under $17 billion in assets under management.

As shown above, Bridge has outperformed investors in its multifamily and workforce strategies, with several of its multifamily strategies ranking in the fourth quarter of competing funds. Bridge’s success has helped the company attract significant revenue (shown below) and increase fees for services under management from $10.2 billion by the end of 2020 to $17 billion.

Growth in assets under management has led to a doubling of recurring management fees. Unlike non-traded REITs that can be issued in volatile markets, 76% of bridge capital has been locked up for 5+ years.

Additionally, unlike mutual fund managers, whose fees tend to decline with equity markets, bridge fees are capital-based, ensuring a steady stream of recurring management fees for years to come. Recurring management fees are calculated as a fixed percentage of committed capital – unlike the fees managers earn for publicly traded stocks, which can vary based on share price, bridge fees are based on the amount invested.

Growth opportunities

In addition to its core multifamily and workforce housing funds, Bridge has launched new financing strategies, including:

• Logistics/Industrial Real Estate
• Net leased real estate
• Single family homes real estate
• Solar/energy infrastructure
• Venture – Fund to invest in real estate technology

The company has also sought to expand its distribution capabilities, most recently with a tie-up with KB Asset Management, which it believes could exceed $1 billion in new assets under management.

Bridge also benefits from having a large amount of dry powder that can be accidentally spread. As the commercial real estate market has ceased to be a transactional market, it has become a buyer’s market for those with capital, as management recently discussed.

Deploying capital in a buyer’s market should help Bridge maintain its strong investment performance record and continue to attract new assets (and generate fees). As an asset class, U.S. commercial real estate is huge, so there’s no limit to Bridge’s growth potential. As long as Bridge is able, I expect the company should continue to grow assets paying 8-12 percent under management.

Price

Bridge’s report is a bit tricky – here’s a slide show of fee-related earnings over the past 9 quarters:

As you can see, fee-related income has shown good growth as transaction income (fees associated with the purchase/sale of properties in the fund) has declined with the broader transactional multi-family market. Most of Bridge’s income is related to recurring management fees based on fixed capital.

Annualizing the fee-related income earned in 3Q, subtracting taxes (24% rate, assuming a more conservative rate than the current rate) and dividing by 121 million shares (assuming full conversion) brings me to $1.04 per share in after-tax earnings. . At $12.60 per share, this implies that Bridge trades at just 12x after-tax. After tax carryovers (subject to performance fees) another $1-2 is given to shareholders. Subtracting these means that Bridge trades at 11x earnings.

While 2023 could be a tough fundraising year for Bridges due to strong appetite for new real estate private equity investments, in the long term Bridges will continue its growth trajectory (along with the industry). I predict 0 new properties in 2023 and 10% property growth in 2024 and 2025 (this is down from the 20% recorded in 2019-22) with $1.25+ revenues in 2025 related to tax payments. An 18x multiple (a 2020 % to Blackstone Bridge’s best comp) and adding in $1.50 in after-tax accrued performance fees (but no credit for subsequent performance fees) brings me to a total of $24 per share, or 90% upside.

Accidents

1. While Bridge has a very stable income profile based on fixed assets and fees, it is classified as an alternative asset manager. Alternatively asset manager shares are variable, with a cyclical performance fee component.

2. Founded in 2009, Bridge has a limited history and information about the company is less than established firms such as Apollo, KKR and Blackstone.

Conclusion

At its current 12x pre-tax earnings, Bridge shares are cheap because I think it’s a sustainable and growing cash flow stream. Looking back a few years, I see potential for the stock to double as investors collect 8% dividends along the way.