UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2018

OR

FOR THE TRANSITION PERIOD FROM                  TO                 

Commission File Number: 000-55931

 

 

Blackstone Real Estate Income Trust, Inc.

(Exact name of Registrant as specified in its charter)

 

 

345 Park Avenue

New York, New York 10154

(Address of principal executive offices) (Zip Code)

(212) 583-5000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    Yes  ☒    No  ☐

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐    No  ☒

 

As of November 13, 2018, the issuer had the following shares outstanding: 264,325,644 shares of Class S common stock, 21,737,694 shares of Class T common stock, 28,458,057 shares of Class D common stock, and 101,121,737 shares of Class I common stock.

 

 

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TABLE OF CONTENTS

 

 

 

 

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PART I. FINANCIAL INFORMATION

Blackstone Real Estate Income Trust, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per share data)

 

 

See accompanying notes to condensed consolidated financial statements.

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Blackstone Real Estate Income Trust, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except share and per share data)

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

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Blackstone Real Estate Income Trust, Inc.

Condensed Consolidated Statements of Changes in Equity (Unaudited)

(in thousands)

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

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Blackstone Real Estate Income Trust, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

See accompanying notes to condensed consolidated financial statements.

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Blackstone Real Estate Income Trust, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization and Business Purpose

Blackstone Real Estate Income Trust, Inc. (“BREIT” or the “Company”) was formed on November 16, 2015 as a Maryland corporation and qualifies as a real estate investment trust (“REIT”) for U.S. federal income tax purposes commencing with the taxable year ended December 31, 2017. The Company invests primarily in stabilized income-oriented commercial real estate in the United States and, to a lesser extent, in real estate-related securities. The Company is the sole general partner of BREIT Operating Partnership, L.P., a Delaware limited partnership (“BREIT OP”). BREIT Special Limited Partner L.P. (the “Special Limited Partner”), a wholly-owned subsidiary of The Blackstone Group L.P. (together with its affiliates, “Blackstone”), owns a special limited partner interest in BREIT OP. Substantially all of the Company’s business is conducted through BREIT OP. The Company and BREIT OP are externally managed by BX REIT Advisors L.L.C. (the “Adviser”), an affiliate of Blackstone.

The Company has registered with the Securities and Exchange Commission (the “SEC”) an offering of up to $5.0 billion in shares of common stock, consisting of up to $4.0 billion in shares in its primary offering and up to $1.0 billion in shares pursuant to its distribution reinvestment plan (the “Offering”). The Company intends to sell any combination of four classes of shares of its common stock, with a dollar value up to the maximum aggregate amount of the Offering. The share classes have different upfront selling commissions, dealer manager fees and ongoing stockholder servicing fees. As of September 30, 2018, the Company had received net proceeds of $3.8 billion from selling an aggregate of 367,532,939 shares of the Company’s common stock (consisting of 238,809,136 Class S shares, 19,250,630 Class T shares, 24,293,198 Class D shares, and 85,179,975 Class I shares). The Company intends to continue selling shares on a monthly basis.

As of September 30, 2018, the Company owned 49 investments in real estate and had 93 positions in real estate-related securities. The Company currently operates in five reportable segments: Multifamily, Industrial, Hotel, and Retail Properties, and Real Estate-Related Securities. Multifamily includes various forms of rental housing including apartments, student housing and manufactured housing. Financial results by segment are reported in Note 13 — Segment Reporting.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The condensed consolidated financial statements, including the condensed notes thereto, are unaudited and exclude some of the disclosures required in audited financial statements. Management believes it has made all necessary adjustments, consisting of only normal recurring items, so that the condensed consolidated financial statements are presented fairly and that estimates made in preparing its condensed consolidated financial statements are reasonable and prudent. The accompanying unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed with the SEC.

Certain amounts in the Company’s prior period condensed consolidated financial statements have been reclassified to conform to the current period presentation. The Company has chosen to aggregate certain financial statement line items in the Company’s consolidated statements of operations and consolidated statements of cash flows. Such reclassifications had no effect on net loss or previously reported totals or subtotals in the consolidated statements of cash flows.

The accompanying condensed consolidated financial statements include the accounts of the Company, the Company’s subsidiaries and joint ventures in which the Company has a controlling interest. For consolidated joint ventures, the non-controlling partner’s share of the assets, liabilities and operations of the joint ventures is included in non-controlling interests as equity of the Company. The non-controlling partner’s interest is generally computed as the joint venture partner’s ownership percentage. All intercompany balances and transactions have been eliminated in consolidation.

The Company consolidates partially owned entities, in which it has a controlling financial interest. In determining whether the Company has a controlling financial interest in a partially owned entity and the requirement to consolidate the accounts of that entity, the Company considers whether the entity is a variable interest entity (“VIE”) and whether it is the primary beneficiary. The Company is the primary beneficiary of a VIE when it has (i) the power to direct the most significant activities impacting the economic performance of the VIE and (ii) the obligation to absorb losses or receive benefits significant to the VIE. BREIT OP and each of the Company’s joint ventures are considered to be a VIE. The Company consolidates these entities because it has the ability to direct the most significant activities of the entities such as purchases, dispositions, financings, budgets, and overall operating plans.

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As of September 30, 2018, the total assets and liabilities of the Company’s consolidated VIEs, excluding BREIT OP, were $2.7 billion and $1.9 billion, respectively, compared to $947.9 million and $645.5 million as of December 31, 2017. Such amounts are included on the Company’s Condensed Consolidated Balance Sheets.

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the balance sheet. Actual results could differ from those estimates.

Restricted Cash

As of September 30, 2018 and December 31, 2017, restricted cash primarily consists of $155.4 million and $107.6 million, respectively, of cash received for subscriptions prior to the date in which the subscriptions are effective, which is held in a bank account controlled by the Company’s transfer agent but in the name of the Company. Other restricted cash consists of amounts in escrow related to real estate taxes and insurance in connection with mortgages at certain of our properties.

Fair Value Measurement

Under normal market conditions, the fair value of an investment is the amount that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price). Additionally, there is a hierarchal framework that prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment and the state of the marketplace, including the existence and transparency of transactions between market participants. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Investments measured and reported at fair value are classified and disclosed in one of the following levels within the fair value hierarchy:

Level 1 — quoted prices are available in active markets for identical investments as of the measurement date. The Company does not adjust the quoted price for these investments.

Level 2 — quoted prices are available in markets that are not active or model inputs are based on inputs that are either directly or indirectly observable as of the measurement date.

Level 3 — pricing inputs are unobservable and include instances where there is minimal, if any, market activity for the investment. These inputs require significant judgment or estimation by management or third parties when determining fair value and generally represent anything that does not meet the criteria of Levels 1 and 2. Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had a ready market for these investments existed.

As of September 30, 2018 and December 31, 2017, the Company’s $2.0 billion and $915.7 million, respectively, of investments in real estate-related securities were classified as Level 2.

Valuation

The Company’s investments in real estate-related securities are reported at fair value. As of September 30, 2018, the Company’s investments in real estate-related securities consisted of commercial mortgage-backed securities (“CMBS”), which are mortgage-related fixed income securities and corporate debt of real estate-related companies (together with CMBS, “Real Estate-Related Securities”). The Company generally determines the fair value of its Real Estate-Related Securities by utilizing third-party pricing service providers and broker-dealer quotations on the basis of last available bid price. 

In determining the fair value of a particular investment, pricing service providers may use broker-dealer quotations, reported trades or valuation estimates from their internal pricing models to determine the reported price. The pricing service providers’ internal models for securities such as Real Estate-Related Securities generally consider the attributes applicable to a particular class of the security (e.g., credit rating, seniority), current market data, and estimated cash flows for each class and incorporate deal collateral performance such as prepayment speeds and default rates, as available.

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As of September 30, 2018, the fair value of the Company’s mortgage notes, term loans, and revolving credit facilities, repurchase agreements, and affiliate line of credit was approximately $25.2 million below carrying value. Fair value of the Company’s indebtedness is estimated by modeling the cash flows required by the Company’s debt agreements and discounting them back to the present value using the appropriate discount rate. Additionally, the Company considers current market rates and conditions by evaluating similar borrowing agreements with comparable loan-to-value ratios and credit profiles. The inputs used in determining the fair value of the Company’s indebtedness are considered Level 3.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 broadly amends the accounting guidance for revenue recognition. ASU 2014-09 is effective for the first interim or annual period beginning after December 15, 2017, and is to be applied retrospectively. The Company adopted ASU 2014-09 in the first quarter of 2018 and the pronouncement did not have a material impact on the Company’s condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases,” which will require organizations that lease assets to recognize the assets and liabilities for the rights and obligations created by those leases on their balance sheet. Additional disclosure regarding a company’s leasing activities will also be expanded under the new guidance. In July 2018, the FASB issued ASU 2018-11 which approved an amendment to the new Leases standard that allows a practical expedient for lessors from separating lease and non-lease components. For public entities, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and requires a modified retrospective transition. Under the new leasing standard, lessor accounting remains substantially the same as current GAAP. As such, the Company does not anticipate a material impact to its condensed consolidated financial statements from a lessor standpoint. The new lease standard will have a significant impact on lessee accounting. As such, the Company will be required to recognize a right of use asset on the Company’s consolidated balance sheet along with a lease liability equal to the present value of the remaining minimum lease payments for the Company’s ground leases. As of September 30, 2018, the undiscounted future minimum lease payments due under the Company’s long-term ground leases totaled $467.1 million. The Company is currently evaluating any further potential impact of this pronouncement on the Company’s condensed consolidated financial statements from a lessee standpoint.

3. Investments in Real Estate

Investments in real estate, net consisted of the following ($ in thousands):

 

During the nine months ended September 30, 2018, the Company acquired interests in 23 real estate investments, which were comprised of 155 industrial, 70 multifamily, 10 hotel and one retail property.

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The following table provides further details of the properties acquired during the nine months ended September 30, 2018 ($ in thousands):

 

 

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The following table summarizes the purchase price allocation for the properties acquired during the nine months ended September 30, 2018  ($ in thousands):

 

 

The weighted-average amortization periods for the acquired in-place lease intangibles, above-market lease intangibles, below-market lease intangibles and above-market ground lease intangibles of the properties acquired during the nine months ended September 30, 2018 were three, five, seven and 86 years, respectively.

4. Intangibles

The gross carrying amount and accumulated amortization of the Company’s intangible assets and liabilities consisted of the following ($ in thousands):  

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The estimated future amortization on the Company’s intangibles for each of the next five years and thereafter as of September 30, 2018 is as follows ($ in thousands):

 

5. Investments in Real Estate-Related Securities

The following tables detail the Company’s investments in Real Estate-Related Securities, which were exclusively CMBS with the exception of one corporate bond position ($ in thousands):

 

 

 

 

 

 

 

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The Company’s investments in Real Estate-Related Securities included CMBS collateralized by properties owned by Blackstone-advised investment vehicles and CMBS collateralized by loans originated or acquired by a Blackstone-advised investment vehicle. The following table details the Company’s affiliate CMBS positions ($ in thousands):

 

During the nine months ended September 30, 2018, the borrower paid off three of the Company’s CMBS with a total cost basis of $115.6 million collateralized by a property owned by a Blackstone-advised investment vehicle, which did not result in a gain or loss on the Company’s Condensed Consolidated Statement of Operations.

For additional information regarding the Company’s investments in affiliated CMBS, see Note 5 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. The terms and conditions of such affiliated CMBS held as of September 30, 2018 are consistent with the terms described in such Note.

During the three and nine months ended September 30, 2018, the Company recorded unrealized gains of $4.9 million and $8.8 million, respectively, and an unrealized loss of $0.6 million and an unrealized gain of $1.0 million during the three and nine months ended September 30, 2017, respectively, as a component of Income from Real Estate-Related Securities on the Company’s Condensed Consolidated Statements of Operations.

The Company did not sell any Real Estate-Related Securities during the three and nine months ended September 30, 2018 and 2017.

 

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6. Mortgage Notes, Term Loans, and Revolving Credit Facilities

The following table is a summary of the mortgage notes, term loans, and revolving credit facilities secured by the Company’s properties ($ in thousands):

 

The following table presents the future principal payments due under the Company’s mortgage notes, term loans, and revolving credit facilities as of September 30, 2018 ($ in thousands):

 

 

7. Repurchase Agreements

On June 29, 2018, the Company entered into a master repurchase agreement with Barclays Bank PLC (the “Barclays MRA”) providing the Company with financing secured by the Company’s investments in Real Estate-Related Securities. The Barclays MRA has a maximum facility size of $750.0 million and repurchase agreements under the Barclays MRA have longer dated maturity compared to our other counterparties. The initial maturity date of the repurchase agreements under the Barclays MRA is September 29, 2021. The terms of the Barclays MRA contain specific spread and advance rate provisions based on the rating of the underlying CMBS.

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Additionally, during the nine months ended September 30, 2018, the Company has entered into repurchase agreements with Morgan Stanley Bank, N.A. (the “MS MRA”) and HSBC Bank USA, National Association (the “HSBC MRA”). Previously, the Company entered into master repurchase agreements with Citigroup Global Markets Inc. (the “Citi MRA”), Royal Bank of Canada (the “RBC MRA”), and Bank of America Merrill Lynch (the “BAML MRA”) to provide the Company with additional financing capacity secured by the Company’s $2.0 billion of investments in Real Estate-Related Securities. The terms of the Citi MRA, RBC MRA, BAML MRA, MS MRA, and HSBC MRA provide the lenders the ability to determine the size and terms of the financing provided based upon the particular collateral pledged by the Company from time-to-time.  

The following tables are a summary of the Company’s repurchase agreements ($ in thousands):

 

 

 

 

 

8. Other Assets and Other Liabilities

The following table summarizes the components of other assets ($ in thousands):

 

 

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The following table summarizes the components of accounts payable, accrued expenses, and other liabilities ($ in thousands):

 

 

9. Equity and Redeemable Non-controlling Interest

Common Stock

The following table details the movement in the Company’s outstanding shares of common stock (in thousands):

 

Share Repurchase Plan

The Company has adopted a share repurchase plan whereby, subject to certain limitations, stockholders may request on a monthly basis that the Company repurchases all or any portion of their shares. Should repurchase requests, in the Company’s judgment, place an undue burden on its liquidity, adversely affect its operations or risk having an adverse impact on the Company as a whole, or should the Company otherwise determine that investing its liquid assets in real properties or other illiquid investments rather than repurchasing its shares is in the best interests of the Company as a whole, then the Company may choose to repurchase fewer shares than have been requested to be repurchased, or none at all. Further, the Company’s board of directors may modify, suspend or terminate the Company’s share repurchase plan if it deems such action to be in the Company’s best interest and the best interest of its stockholders. In the event that the Company determines to repurchase some but not all of the shares submitted for repurchase during any month, shares repurchased at the end of the month will be repurchased on a pro rata basis.

For the nine months ended September 30, 2018, the Company repurchased 2,853,188 shares of common stock representing a total of $30.6 million. The Company had no unfulfilled repurchase requests during the nine months ended September 30, 2018.

Distributions

The Company generally intends to distribute substantially all of its taxable income, which does not necessarily equal net income as calculated in accordance with GAAP, to its stockholders each year to comply with the REIT provisions of the Internal Revenue Code.

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The following table details the aggregate distributions declared for each applicable class of common stock for the nine months ended September 30, 2018 ($ in thousands, except share and per share data):

 

 

Redeemable Non-controlling Interest

During 2017, the Special Limited Partner earned a performance participation allocation in the amount of $17.0 million. On January 1, 2018, the Company issued 1.6 million Class I units in BREIT OP to the Special Limited Partner as payment for the 2017 performance participation allocation based on the Company’s Net Asset Value (“NAV”) at December 31, 2017. In June 2018, the Special Limited Partner redeemed 0.8 million Class I units in BREIT OP for $8.4 million based on the NAV of the Class I units at May 31, 2018. As of September 30, 2018, Blackstone and its employees, including the Company’s executive officers, continue to own an aggregate of $57.4 million worth of shares of the Company and Class I units of BREIT OP.

Because the Special Limited Partner has the ability to redeem its Class I units for Class I shares in the Company or cash, at the election of the Special Limited Partner, the Company has classified these Class I units as Redeemable Non-controlling Interest in mezzanine equity on the Company’s Condensed Consolidated Balance Sheets. The Redeemable Non-controlling Interest is recorded at the greater of the carrying amount, adjusted for their share of the allocation of income or loss and dividends, or the redemption value, which is equivalent to fair value, of such units at the end of each measurement period. As the redemption value was greater than the adjusted carrying value at September 30, 2018, the Company recorded an allocation adjustment of $1.8 million between Additional Paid-in Capital and Redeemable Non-controlling Interest.

Non-controlling Interests

The following table summarizes the components of non-controlling interests ($ in thousands):

On July 27, 2018, the Company entered into an Amended and Restated Limited Partnership Agreement (the “A&R OP Agreement”) for BREIT OP. The A&R OP Agreement amended the limited partnership agreement governing BREIT OP to provide for a new class of units (“Class B Units”) of BREIT OP, among other changes. Class B Units are available to certain suitable investors in private placements generally utilizing a “draw-down” structure. Class B Units are sold at their NAV per unit, which will equal the NAV per Class I unit of BREIT OP and will generally correspond to the NAV per share of the Company’s Class I shares.

Class B Units are subject to the same fees and expenses of Class I Units and do not have any preferential rights relative to the Company’s interest in BREIT OP, nor are they exchangeable for any shares of the Company’s common stock. Holders of the Class B Units have a right to redeem their units for cash in a manner similar to the ability of the Company’s stockholders to have their shares repurchased under the Company’s share repurchase plan. Class B Unit redemptions are subject to similar limitations as share repurchases under the Company’s share repurchase plan, namely the early repurchase deduction and caps on monthly and quarterly repurchases (calculated on an aggregate basis with shares of the Company’s common stock submitted for repurchase for the applicable period). The redemption rights of the Class B unitholders do not affect the terms of the Company’s share repurchase plan. Class B Units have the same limited voting rights as the other BREIT OP units and such rights do not affect the Company’s exclusive power, as general partner of BREIT OP, to manage and conduct the business of BREIT OP.

During the three months ended September 30, 2018, BREIT OP received $50.0 million in Class B Units subscriptions from a Blackstone-advised entity. As of September 30, 2018, there were 4,646,441 Class B Units outstanding. The total commitment made by the Blackstone-advised entity was $100.0 million and the remaining $50.0 million commitment was funded subsequent to September 30, 2018. Class B Units subscriptions are recorded as a component of Non-controlling Interests on the Company’s Condensed Consolidated Balance Sheets.

 

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10. Related Party Transactions

Management Fee and Performance Participation Allocation

The Adviser is entitled to an annual management fee equal to 1.25% of the Company’s NAV, payable monthly, as compensation for the services it provides to the Company. The management fee can be paid, at the Adviser’s election, in cash, shares of common stock, or BREIT OP units. The Adviser has elected to receive the management fee in shares of the Company’s common stock to date. During the three and nine months ended September 30, 2018, the Company incurred management fees of $11.8 million and $28.1 million, respectively. The Company issued 2,220,262 unregistered Class I shares to the Adviser as payment for such management fee and also had a payable of $4.3 million related to management fees as of September 30, 2018, which is included in Due to Affiliates on the Company’s Condensed Consolidated Balance Sheets. During October 2018, the Adviser was issued 393,894 unregistered Class I shares as payment for the $4.3 million management fee accrued as of September 30, 2018. The shares issued to the Adviser for payment of the management fee were issued at the applicable NAV per share at the end of each month for which the fee was earned. In accordance with the advisory agreement between the Company, BREIT OP and the Adviser, the Adviser waived management fees for the period January 1, 2017 to June 30, 2017, as such the management fee incurred for both the three and nine months ended September 30, 2017 was $3.7 million. During September 2018, the Company repurchased 700,298 Class I shares previously issued to the Adviser as payment for the Company’s management fee. The shares were repurchased at the then current transaction price resulting in a total repurchase of $7.6 million.

Additionally, the Special Limited Partner holds a performance participation interest in BREIT OP that entitles it to receive an allocation of BREIT OP’s total return to its capital account. During the three and nine months ended September 30, 2018, the Company recognized $12.4 million and $29.8 million, respectively, of Performance Participation Allocation Expense in the Company’s Condensed Consolidated Statements of Operations as the participation hurdle was achieved as of September 30, 2018. During the three and nine months ended September 30, 2017, the Company recognized $5.7 million and $11.0 million, respectively, of Performance Participation Allocation Expense as the participation hurdle was achieved as of September 30, 2017.

Due to Affiliates

The following table details the components of due to affiliates ($ in thousands):

 

Accrued affiliate service provider expenses

 

Beginning January 1, 2018, the Company engaged Gateway Industrial Properties L.L.C., a portfolio company owned by a Blackstone-advised fund, to provide the services that Equity Office Management, L.L.C. had previously provided to the Company’s industrial properties. Additionally, beginning April 1, 2018, the Company engaged Revantage Corporate Services, LLC, a portfolio company owned by a Blackstone-advised fund, to provide corporate support services (including, without limitation, accounting, legal, tax, treasury, as applicable), and transaction support services to certain of the Company’s investments directly.

 

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For further details on the Company’s relationships with its affiliated service providers, see Note 11 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. The following table details the amounts incurred for such providers during the three and nine months ended September 30, 2018 and 2017 ($ in thousands). Such amounts are included in the Company’s Condensed Consolidated Statements of Operations and Condensed Consolidated Balance Sheets, respectively.

 

During the three and nine months ended September 30, 2018, the Company has not paid or accrued any incentive fees to its affiliated service providers.

Other

During the three and nine months ended September 30, 2018, the Company paid Lexington National Land Services $3.1 million and $3.7 million, respectively, for title services related to 13 investments and such costs were capitalized to Investments in Real Estate or recorded as deferred financing costs which is a reduction to Mortgage Notes, Term Loans, and Revolving Credit Facilities on the Company’s Condensed Consolidated Balance Sheet. For additional information regarding this affiliate relationship, see Note 11 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

11. Commitments and Contingencies

As of September 30, 2018 and December 31, 2017, the Company was not subject to any material litigation nor is the Company aware of any material litigation threatened against it.

Three of the Company's investments in real estate include ground lease obligations with varying maturity dates through 2104. The Company recognizes ground rent expense on a straight-line basis as a component of Rental Property Operating or Hotel Operating expense on the Company's condensed consolidated statement of operations. The following table details the Company's ground lease payment obligations subsequent to September 30, 2018 ($ in thousands):

 

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12. Five Year Minimum Rental Payments

The following table presents the future minimum rents the Company expects to receive for its industrial and retail properties ($ in thousands). Leases at the Company’s multifamily investments are short term, generally 12 months or less, and are therefore not included.

 

 

13. Segment Reporting

The Company operates in five reportable segments: Multifamily properties, Industrial properties, Hotel properties, Retail properties, and Real Estate-Related Securities. The Company allocates resources and evaluates results based on the performance of each segment individually. The Company believes that Segment Net Operating Income is a key performance metric that captures the operating performance of each segment.

The following table sets forth the total assets by segment ($ in thousands):

 

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The following table sets forth the financial results by segment for the three months ended September 30, 2018 ($ in thousands):  

 

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The following table sets forth the financial results by segment for the three months ended September 30, 2017 ($ in thousands):  

 

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The following table sets forth the financial results by segment for the nine months ended September 30, 2018 ($ in thousands):  

 

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The following table sets forth the financial results by segment for the nine months ended September 30, 2017 ($ in thousands):  

 

 

 

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14. Subsequent Events

Acquisitions

Subsequent to September 30, 2018, the Company acquired an aggregate of $993.1 million of real estate, exclusive of closing costs, across three separate transactions.

Subsequent to September 30, 2018, the Company acquired an aggregate of $222.7 million of Real Estate-Related Securities.

Status of the Offering

As of November 13, 2018, the Company had sold an aggregate of 415,835,450 shares of its common stock (consisting of 266,113,175 Class S shares, 21,790,145 Class T shares, 28,572,626 Class D shares, and 99,359,504  Class I shares) in the Offering resulting in net proceeds of $4.3 billion to the Company as payment for such shares.

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References herein to “Blackstone Real Estate Income Trust,” “BREIT,” the “Company,” “we,” “us,” or “our” refer to Blackstone Real Estate Income Trust, Inc. and its subsidiaries unless the context specifically requires otherwise.

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto appearing elsewhere in this quarterly report on Form 10-Q.

Forward-Looking Statements

This Form 10-Q contains forward-looking statements about our business, operations and financial performance, including, in particular, statements about our plans, strategies and objectives. You can generally identify forward-looking statements by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue” or other similar words. These statements include our plans and objectives for future operations, including plans and objectives relating to future growth and availability of funds, and are based on current expectations that involve numerous risks, uncertainties and assumptions. Assumptions relating to these statements involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to accurately predict and many of which are beyond our control. Although we believe the assumptions underlying the forward-looking statements, and the forward-looking statements themselves, are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that these forward-looking statements will prove to be accurate and our actual results, performance and achievements may be materially different from that expressed or implied by these forward-looking statements as a result of various factors, including but not limited to those discussed in the Company’s Registration Statement on Form S-11 (File No. 333-213043), as amended, under Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2017, and elsewhere in this quarterly report on Form 10-Q. In light of the significant uncertainties inherent in these forward looking statements, the inclusion of this information should not be regarded as a representation by us or any other person that our objectives and plans, which we consider to be reasonable, will be achieved.

Overview

BREIT is a non-exchange traded, perpetual life real estate investment trust (“REIT”) that acquires primarily stabilized income-oriented commercial real estate in the United States and, to a lesser extent, real estate-related securities. We are externally managed by BX REIT Advisors L.L.C. (the “Adviser”), a subsidiary of The Blackstone Group L.P. (“Blackstone”). We are the sole general partner of BREIT Operating Partnership L.P. (“BREIT OP”), a Delaware limited partnership, and we own all or substantially all of our assets through BREIT OP. As of September 30, 2018, we operated our business in five reportable segments: Multifamily, Industrial, Hotel, and Retail Properties, and Real Estate-Related Securities. Multifamily includes various forms of rental housing including apartments, student housing and manufactured housing.

We qualified as a REIT under the Code for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2017. We generally will not be subject to U.S. federal income taxes on our taxable income to the extent we annually distribute all of our net taxable income to stockholders and maintain our qualification as a REIT.

We have registered with the Securities and Exchange Commission (the “SEC”) an offering of up to $5.0 billion in shares of common stock (in any combination of purchases of Class S, Class T, Class D and Class I shares of our common stock), consisting of up to $4.0 billion in shares in our primary offering and up to $1.0 billion in shares pursuant to its distribution reinvestment plan (the “Offering”). The share classes have different upfront selling commissions and ongoing stockholder servicing fees.

As of November 13, 2018, we had received net proceeds of $4.3 billion from selling an aggregate of 415,835,450 shares of our common stock (consisting of 266,113,175 Class S shares, 21,790,145 Class T shares, 28,572,626  Class D shares, and 99,359,504 Class I shares). We have contributed the net proceeds from the Offering to BREIT OP in exchange for a corresponding number of Class S, Class T, Class D, and Class I units. BREIT OP has primarily used the net proceeds to make investments in real estate and real estate-related securities as further described below under “— Portfolio”. We intend to continue selling shares in the Offering on a monthly basis.

We are not aware of any material trends or uncertainties, favorable or unfavorable, other than national economic conditions affecting real estate generally, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from acquiring properties or real estate-related securities, other than those disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2017, our prospectus dated May 1, 2018 and filed with the SEC, as supplemented, and elsewhere in this quarterly report on Form 10-Q.

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Q3 2018 Highlights

Operating Results:

Investments:

Financings:

 

 

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Portfolio

Summary of Portfolio

The following charts further describe our portfolio composition in real properties based on fair value as of September 30, 2018:

 

 

The following chart outlines the percentage of our investments in real properties and investments in Real Estate-Related Securities based on fair value as of September 30, 2018:

 

 

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Investments in Real Estate

As of September 30, 2018, we had acquired 351 properties with a total purchase price of $9.6 billion, inclusive of closing costs. Our diversified portfolio of income producing assets primarily consists of Multifamily and Industrial properties, and to a lesser extent Hotel and Retail properties, located in growth markets across the U.S. The following table provides a summary of our portfolio as of September 30, 2018:

 

 

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Acquisitions of Real Estate

During the nine months ended September 30, 2018, we invested $6.0 billion in real estate investments consisting of 183 wholly-owned properties and 53 properties through joint ventures. The following table provides further details of the properties acquired during the nine months ended September 30, 2018:

 

 

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Subsequent to September 30, 2018, the Company acquired an aggregate of $993.1 million of real estate, exclusive of closing costs, across three separate transactions.

Investments in Real Estate-Related Securities

During the nine months ended September 30, 2018, we invested $1.1 billion in Real Estate-Related Securities. The following table details our investments in Real Estate-Related Securities as of September 30, 2018 ($ in thousands):

 

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The following charts further describe the diversification of our Real Estate-Related Securities investments by credit rating and collateral type based on fair value as of September 30, 2018:

 

 

Subsequent to September 30, 2018, we purchased an aggregate of $222.7 million of Real Estate-Related Securities.

Lease Expirations

The following schedule details the expiring leases at our industrial and retail properties by annualized base rent and square footage as of September 30, 2018 ($ and square feet data in thousands). The table below excludes our multifamily properties as substantially all leases at such properties expire within 12 months.

 

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Affiliate Service Providers

For details regarding our affiliate service providers, see Note 10 to our condensed consolidated financial statements and Note 11 to our Annual Report on form 10-K for the year ended December 31, 2017.

Results of Operations

Due to the significant amount of acquisitions of real estate and Real Estate-Related Securities we have made since we commenced principal operations in January 2017, our results of operations for the three and nine months ended September 30, 2018 and 2017 are not comparable. However, certain properties in our portfolio were owned for both the three months ended September 30, 2018 and 2017 and are discussed further below.  

Same Property Results of Operations

We evaluate our consolidated results of operations on a same property basis, which allows us to analyze our property operating results excluding acquisitions during the periods under comparison. Properties in our portfolio are considered same property if they were owned for the full periods presented, otherwise they are considered non-same property. Newly acquired or recently developed properties that have not achieved stabilized occupancy are excluded from same property results and are considered non-same property. We do not consider our real estate-related securities segment to be same property.

For both the three months ended September 30, 2018 and 2017, our same property portfolio consisted of 13 multifamily, 39 industrial, two hotel, and one retail properties. We did not own any properties in our portfolio for the full nine months ended September 30, 2018 and 2017 and as such, same property comparisons are not presented for these periods.

Same property operating results are measured by calculating same property net operating income (“NOI”). Same property NOI is a supplemental non-GAAP disclosure of our operating results that we believe is meaningful as it enables management to evaluate the impact of occupancy, rents, leasing activity, and other controllable property operating results at our real estate properties. We define same property NOI as operating revenues less operating expenses, which exclude (i) depreciation and amortization, (ii) interest expense and other non-property related revenue and expenses items such as (a) general and administrative expenses, (b) management fee, (c) performance participation allocation, (d) interest income, and (e) income from Real Estate-Related Securities.

Our same property NOI may not be comparable to that of other REITs and should not be considered to be more relevant or accurate in evaluating our operating performance than the current GAAP methodology used in calculating net income (loss). The following table reconciles GAAP net loss attributable to BREIT stockholders to same property NOI for the three months ended September 30, 2018 and 2017 ($ in thousands):

 

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The following table details the components of same property NOI for the three months ended September 30, 2018 and 2017 ($ in thousands):

Same Property – Rental Revenue

Same property rental revenue increased $0.7 million for the three months ended September 30, 2018 compared to the corresponding period in 2017. The increase in rental revenue was primarily the result of an increase in occupancy of 3% at our multifamily properties.

Same Property – Hotel Revenue

Same property hotel revenue increased $0.7 million for the three months ended September 30, 2018, compared to the corresponding period in 2017. The increase in hotel revenue was primarily due to an increase in occupancy, ADR and RevPAR. Occupancy at the hotels increased from 85% to 88% period over period. ADR increased from $184 to $197 and RevPAR increased from $156 to $173 during the three months ended September 30, 2018 compared to the corresponding period in 2017.

Same Property – Hotel Operating Expenses

Same property hotel operating expenses increased $0.6 million during the three months ended September 30, 2018, compared to the corresponding period in 2017. The increase in hotel operating expenses for the three months ended September 30, 2018 was primarily a result of an increase in general operating expenses related to the increase in occupancy and RevPAR.

Other Operating Income and Expense Items

General and Administrative Expenses

During the three and nine months ended September 30, 2018, general and administrative expenses increased $1.3 million and $2.0 million, respectively, compared to the corresponding periods in 2017, primarily due to miscellaneous corporate level expenses related to the increased size of our portfolio. The increase was partially offset by $1.8 million of organization costs during the nine months ended September 30, 2017, which we did not incur in the same period of 2018.

Management Fee

During the three and nine months ended September 30, 2018, the management fee increased by $8.1 million and $24.4 million, respectively, compared to the corresponding periods in 2017. The increase was primarily due to the Adviser management fee waiver for the first six months of 2017 as well as the growth in our net asset value (“NAV”).

Performance Participation Allocation

During the three and nine months ended September 30, 2018, the unrealized performance participation allocation accrual increased $6.7 million and $18.8 million, respectively, compared to the corresponding periods in 2017. Both increases were the result of the increased NAV of BREIT and a higher total return than the corresponding period in 2017. Such amount was allocated to the Special Limited Partner.

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Depreciation and amortization

Depreciation and amortization increased significantly compared to the corresponding period in 2017. The increase was driven by the growth in our portfolio, which increased from 85 properties as of September 30, 2017 to 351 properties as of September 30, 2018.

Income from Real Estate-Related Securities

During the three and nine months ended September 30, 2018, income from Real Estate-Related Securities increased $24.6 million and $51.8 million, respectively, compared to the corresponding periods in 2017. Each increase was primarily due to the growth of our portfolio of investments in Real Estate-Related Securities which increased from 24 positions as of September 30, 2017 to 93 positions as of September 30, 2018.

Interest Expense

During the three and nine months ended September 30, 2018, interest expense increased $54.8 million and $130.5 million, respectively, compared to the corresponding periods in 2017. Each increase was primarily due to the growth in our portfolio of real estate and Real Estate-Related Securities and the related indebtedness of such investments.

Funds from Operations and Adjusted Funds from Operations

We believe funds from operations (“FFO”) is a meaningful supplemental non-GAAP operating metric. Our consolidated financial statements are presented under historical cost accounting which, among other things, requires depreciation of real estate investments to be calculated on a straight-line basis. As a result, our operating results imply that the value of our real estate investments will decrease evenly over a set time period. However, we believe that the value of real estate investments will fluctuate over time based on market conditions and as such, depreciation under historical cost accounting may be less informative. FFO is a standard REIT industry metric defined by the National Associational of Real Estate Investment Trusts (“NAREIT”).

FFO, as defined by NAREIT and presented below, is calculated as net income or loss (computed in accordance with accounting principles generally accepted in the United States (“GAAP”)), excluding gains or losses from sales of depreciable real property and impairment write-downs on depreciable real property, plus real estate-related depreciation and amortization, and similar adjustments for unconsolidated joint ventures.

The following table presents a reconciliation of FFO to net loss ($ in thousands):

 

We also believe that adjusted FFO (“AFFO”) is a meaningful supplemental non-GAAP disclosure of our operating results. AFFO further adjusts FFO in order for our operating results to reflect the specific characteristics of our business by adjusting for items we believe are not related to our core operations. Our adjustments to FFO to arrive at AFFO include straight-line rental income, amortization of above- and below-market lease intangibles, amortization of mortgage premium/discount, organization costs, unrealized gains or losses from changes in the fair value of financial instruments, amortization of stock awards, and performance participation allocation or other non-cash incentive compensation even if repurchased by us. AFFO is not defined by NAREIT and our calculation of AFFO may not be comparable to disclosures made by other REITs.

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The following table presents a reconciliation of FFO to AFFO ($ in thousands):

FFO and AFFO should not be considered to be more relevant or accurate than the GAAP methodology in calculating net income (loss) or in evaluating our operating performance. In addition, FFO and AFFO should not be considered as alternatives to net income (loss) as indications of our performance or as alternatives to cash flows from operating activities as indications of our liquidity, but rather should be reviewed in conjunction with these and other GAAP measurements. Further, FFO and AFFO are not intended to be used as liquidity measures indicative of cash flow available to fund our cash needs, including our ability to make distributions to our stockholders.

Net Asset Value

The purchase price per share for each class of our common stock will generally equal our prior month’s NAV per share, as determined monthly, plus applicable selling commissions and dealer manager fees. Our NAV for each class of shares is based on the net asset values of our investments (including Real Estate-Related Securities), the addition of any other assets (such as cash on hand) and the deduction of any liabilities, including the allocation/accrual of any performance participation, and any stockholder servicing fees applicable to such class of shares.

The following table provides a breakdown of the major components of our NAV ($ and shares in thousands, except per share data):

 

 

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The following table provides a breakdown of our total NAV and NAV per share by share class as of September 30, 2018 ($ and shares in thousands, except per share data):

 

Set forth below are the weighted averages of the key assumptions in the discounted cash flow methodology used in the September 30, 2018 valuations, based on property types.

 

These assumptions are determined by the Adviser and reviewed by our independent valuation advisor. A change in these assumptions would impact the calculation of the value of our property investments. For example, assuming all other factors remain unchanged, the changes listed below would result in the following effects on our investment values:

 

The following table reconciles stockholders’ equity per our condensed consolidated balance sheet to our NAV ($ in thousands):

 

The following details the adjustments to reconcile GAAP stockholders’ equity to our NAV:

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Distributions

We declared monthly distributions for each class of our common stock which are generally paid 20 days after month-end. Each class of our common stock received the same gross distribution per share, which was $0.4699 per share for the nine months ended September 30, 2018. The net distribution varies for each class based on the applicable stockholder servicing fee, which is deducted from the monthly distribution per share and paid directly to the applicable distributor. The table below details the net distribution for each of our share classes for the nine months ended September 30, 2018.  

 

The following tables summarize our distributions declared during the three and nine months ended September 30, 2018 and 2017 ($ in thousands).

 

 

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Liquidity and Capital Resources

Our primary needs for liquidity and capital resources are to fund our investments, make distributions to our stockholders, repurchase shares of our common stock pursuant to our share repurchase plan, pay our organization and offering costs (including reimbursement of organization and offering costs advanced by the Adviser), operating expenses, capital expenditures and to pay debt service on our outstanding indebtedness. We anticipate our operating expenses will include, among other things, the management fee we pay to the Adviser (to the extent the Adviser elects to receive the management fee in cash or requests that we repurchase shares previously issued to the Adviser for payment of the management fee), the performance participation allocation that BREIT OP pays to the Special Limited Partner, general corporate expenses, and fees and expenses related to managing our properties and other investments. We do not have any office or personnel expenses as we do not have any employees.

Our cash needs for acquisitions and other investments will be funded primarily from the sale of shares of our common stock and through the assumption or incurrence of debt. Through September 30, 2018, our distributions have been funded entirely from cash flows from operations.

As of September 30, 2018, our indebtedness included loans secured by our properties, master repurchase agreements with Royal Bank of Canada (the “RBC MRA”), Barclays Bank PLC (the “Barclays MRA”), Citigroup Global Markets Inc. (the “Citi MRA”), Bank of America Merrill Lynch (the “BAML MRA”), and Morgan Stanley Bank, N.A. (the “MS MRA”) secured by our investments in Real Estate-Related Securities, and an unsecured line of credit.

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The following table is a summary of our indebtedness ($ in thousands):

 

 

As of November 13, 2018, we had received net proceeds of $4.3 billion from selling an aggregate of 415,835,450 shares of our common stock (consisting of 266,113,175 Class S shares, 21,790,145 Class T shares, 28,572,626 Class D shares, and 99,359,504 Class I shares).

During the three months ended September 30, 2018, BREIT OP received $50.0 million in Class B Unit subscriptions from a Blackstone-advised entity. As of September 30, 2018, there were 4,646,441 Class B Units outstanding. The total commitment made by the Blackstone-advised entity was $100.0 million and the remaining $50.0 million commitment was funded subsequent to September 30, 2018. Refer to Note 9 to our condensed consolidated financial statements for further details on our Class B Units.

Other potential future sources of capital include secured or unsecured financings from banks or other lenders and proceeds from the sale of assets. If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures. We have not yet identified any sources for these types of financings.

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Cash Flows

The following table provides a breakdown of the net change in our cash and cash equivalents and restricted cash ($ in thousands):

 

Cash flows provided by operating activities increased $134.8 million during the nine months ended September 30, 2018 compared to the corresponding period in the 2017 due to increased cash flows from the operations of the investments in real estate and income on our investments in Real Estate-Related Securities.

Cash flows used in investing activities increased $4.0 billion during the nine months ended September 30, 2018 compared to the corresponding period in 2017 primarily due to an increase of $3.4 billion in the acquisition of real estate investments and $0.6 billion of Real Estate-Related Securities.

Cash flows provided by financing activities increased $3.8 billion during the nine months ended September 30, 2018 compared to the corresponding period in 2017 primarily due to a net increase of $3.1 billion in borrowings and an increase of $0.7 billion in proceeds from issuance of our common stock.

Critical Accounting Policies

The preparation of the financial statements in accordance with GAAP involves significant judgments and assumptions and requires estimates about matters that are inherently uncertain. These judgments will affect our reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our condensed consolidated financial statements. We consider our accounting policies over investments in real estate and lease intangibles, investments in Real Estate-Related Securities, and revenue recognition to be our critical accounting policies. See Note 2 to our Annual Report on Form 10-K for the year ended December 31, 2017 for further descriptions of such accounting policies.

Recent Accounting Pronouncements

See Note 2 — “Summary of Significant Accounting Policies” to our condensed consolidated financial statements in this quarterly report on Form 10-Q for a discussion concerning recent accounting pronouncements.

 Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Contractual Obligations

The following table aggregates our contractual obligations and commitments with payments due subsequent to September 30, 2018 ($ in thousands).

 

 

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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Indebtedness

We are exposed to interest rate risk with respect to our variable-rate indebtedness, whereas an increase in interest rates would directly result in higher interest expense costs. We seek to manage our exposure to interest rate risk by utilizing a mix of fixed and floating rate financings with staggered maturities and through interest rate protection agreements to fix or cap a portion of our variable rate debt. As of September 30, 2018, the outstanding principal balance of our variable rate indebtedness was $3.3 billion and consisted of mortgage notes, term loans, revolving credit facilities, and repurchase agreements.        

Certain of our mortgage notes, term loans, and revolving credit facilities are variable rate and indexed to one-month U.S. Dollar denominated LIBOR. For the three and nine months ended September 30, 2018, a 10% increase in one-month U.S. Dollar denominated LIBOR would have resulted in increased interest expense of $0.6 million and $1.1 million, respectively.

Our repurchase agreements are variable rate and indexed to one-month or three-month U.S. Dollar denominated LIBOR. For the three and nine months ended September 30, 2018, a 10% increase in the one-month, three-month or twelve-month U.S. Dollar denominated LIBOR rate would have resulted in increased interest expense of $0.4 million and $1.2 million, respectively.

Investments in real estate-related securities

As of September 30, 2018, we held $2.0 billion of Real Estate-Related Securities. Our investments in Real Estate-Related Securities investments are primarily floating-rate and indexed to one-month U.S. denominated LIBOR and as such, exposed to interest rate risk. Our net income will increase or decrease depending on interest rate movements. While we cannot predict factors which may or may not affect interest rates, for the three and nine months ended September 30, 2018, a 10% increase or decrease in the one-month U.S. denominated LIBOR rate would have resulted in an increase or decrease to income from real estate-related securities of $0.8 million and $2.5 million, respectively.

We may also be exposed to market risk with respect to our investments in Real Estate-Related Securities due to changes in the fair value of our investments. We seek to manage our exposure to market risk with respect to our investments in Real Estate-Related Securities by making investments in securities backed by different types of collateral and varying credit ratings. The fair value of our investments may fluctuate, thus the amount we will realize upon any sale of our investments in Real Estate-Related Securities is unknown. As of September 30, 2018, the fair value at which we may sell our investments in Real Estate-Related Securities is not known, but a 10% change in the fair value of our investments in Real Estate-Related Securities may result in an unrealized gain or loss of $202.9 million.

Evaluation of Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this quarterly report on Form 10-Q was made under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Based upon this evaluation, our CEO and CFO have concluded that as of the end of the period covered by this report our disclosure controls and procedures (a) were effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by SEC rules and forms and (b) included, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls over Financial Reporting

There have been no changes in our “internal control over financial reporting” (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by this quarterly report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. As of September 30, 2018, we were not involved in any material legal proceedings.

There have been no material changes to the risk factors previously disclosed under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017.

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Unregistered Sales of Equity Securities

Except as described below, during the three months ended September 30, 2018, we did not sell any equity securities that were not registered under the Securities Act. As described in Note 10 to our condensed consolidated financial statements, the Adviser is entitled to an annual management fee payable monthly in cash, shares of common stock, or BREIT OP Units, in each case at the Adviser's election. For the three months ended September 30, 2018, the Adviser elected to receive its management fee in Class I shares and we issued 700,298 unregistered Class I shares to the Adviser in satisfaction of the management fee for July through August 2018. Additionally, we issued 393,894 unregistered Class I shares to the Adviser in October 2018 in satisfaction of the September 2018 management fee.

The Special Limited Partner is also entitled to an annual performance participation allocation. As further described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, the 2017 performance participation allocation became payable on December 31, 2017 and in January 2018, the Company issued approximately 1.6 million Class I units in BREIT OP to the Special Limited Partner as payment for the 2017 performance participation allocation. Each Class I unit is exchangeable into one Class I share. Each issuance to the Adviser and the Special Limited Partner was made pursuant to Section 4(a)(2) of the Securities Act.

Use of Offering Proceeds

On August 31, 2016, the Registration Statement on Form S-11 (File No. 333-213043) for the Offering was declared effective under the Securities Act. Amendment No. 8 to our Registration Statement was declared effective under the Securities Act on May 1, 2018. The offering price for each class of our common stock is determined monthly and is made available on our website and in prospectus supplement filings.

As of September 30, 2018, we had received net proceeds of $3.8 billion from the Offering. The following table summarizes certain information about the Offering proceeds therefrom ($ in thousands except for share data):

 

We primarily used the net proceeds from the Offering toward the acquisition of $9.6 billion of real estate and $2.0 billion of Real Estate-Related Securities. In addition to the net proceeds from the Offering, we financed our acquisitions with $6.2 billion of financing secured by our investments in real estate, $1.5 billion of repurchase agreements, and borrowings on the line of credit from Blackstone Holdings Finance Co. L.L.C., an affiliate of Blackstone. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for additional details on our borrowings.

Share Repurchases 

Under our share repurchase plan, to the extent we choose to repurchase shares in any particular month, we will only repurchase shares as of the opening of the last calendar day of that month (each such date, a “Repurchase Date”). Repurchases will be made at the transaction price in effect on the Repurchase Date (which will generally be equal to our prior month’s NAV per share), except that shares that have not been outstanding for at least one year will be repurchased at 95% of the transaction price (an “Early Repurchase Deduction”) subject to certain limited exceptions. Settlements of share repurchases will be made within three business days of the Repurchase Date. The Early Repurchase Deduction will not apply to shares acquired through our distribution reinvestment plan.

The total amount of aggregate repurchases of Class S, Class T, Class D, Class I shares, and Class B Units is limited to no more than 2% of our aggregate NAV per month and no more than 5% of our aggregate NAV per calendar quarter.

Should repurchase requests, in our judgment, place an undue burden on our liquidity, adversely affect our operations or risk having an adverse impact on the company as a whole, or should we otherwise determine that investing our liquid assets in real properties or other illiquid investments rather than repurchasing our shares is in the best interests of the Company as a whole, then we may choose to repurchase fewer shares than have been requested to be repurchased, or none at all. Further, our board of directors may modify,

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suspend or terminate our share repurchase plan if it deems such action to be in our best interest and the best interest of our stockholders. In the event that we determine to repurchase some but not all of the shares submitted for repurchase during any month, shares repurchased at the end of the month will be repurchased on a pro rata basis.

If the transaction price for the applicable month is not made available by the tenth business day prior to the last business day of the month (or is changed after such date), then no repurchase requests will be accepted for such month and stockholders who wish to have their shares repurchased the following month must resubmit their repurchase requests.

During the nine months ended September 30, 2018, we repurchased shares of our common stock in the following amounts, which represented all of the share repurchase requests received for the same period.

 

 

Additionally, in June 2018, the Special Limited Partner redeemed 0.8 million Class I units in BREIT OP for $8.4 million based on the net asset value of the Class I units at May 31, 2018. The Special Limited Partner continues to hold 0.9 million Class I units in BREIT OP. The redemption of Class I units are not considered part of our share repurchase plan as described above.

 

None.

 

Not applicable.

Not applicable.

 

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*        Filed herewith

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

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