(EDGAR Online via COMTEX) — ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
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 under Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2018 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.
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 and loans. 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 March 31, 2019, we operated our business in five reportable segments: Multifamily, Industrial, Hotel, and Retail Properties, and real estate-related securities and loans. Multifamily includes various forms of rental housing including apartments, student housing and manufactured housing.
We qualify as a REIT under the Internal Revenue Code for U.S. federal income tax purposes and will generally 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 had registered with 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 our distribution reinvestment plan (the "Initial Offering"). We accepted aggregate gross offering proceeds of $4.9 billion during the period January 1, 2017 to January 1, 2019 and ceased offering shares of common stock under the Initial Offering on January 1, 2019. We have registered with the SEC a follow-on offering of up to $12.0 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 $10.0 billion in shares in our primary offering and up to $2.0 billion in shares pursuant to our distribution reinvestment plan, which we began using to offer shares of our common stock in January 2019 (the "Current Offering" and with the Initial Offering, the "Offering"). The share classes have different upfront selling commissions and ongoing stockholder servicing fees.
As of May 15, 2019, we had received net proceeds of $6.8 billion from the Offering and the sale of unregistered shares of our common stock. We have contributed the net proceeds 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 and loans as further described below under "- Portfolio". We intend to continue selling shares 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 and loans, other than those disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2018, our prospectus dated January 4, 2019 and filed with the SEC, as supplemented, and elsewhere in this quarterly report on Form 10-Q.
Q1 2019 Highlights
Raised $853.1 million of net proceeds during the three months ended March 31, 2019.
Declared monthly net distributions totaling $69.5 million for the three months ended March 31, 2019.
Inception through March 31, 2019 annualized total return, without upfront selling commissions, was 9.3% for Class S, 9.5% for Class T, 10.5% for Class D, and 10.2% for Class I shares. Inception to date annualized total return assuming full upfront selling commissions of 7.5% for Class S, 7.3% for Class T, and 9.5% for Class D shares.
Our 491 properties as of March 31, 2019 consisted of Multifamily (54% based on fair value), Industrial (34%), Hotel (11%), and Retail (1%) and our portfolio of real estate was concentrated in the following regions: South (40%), West (37%), East (15%), and Midwest (8%).
Investments in real estate-related securities and loans as of March 31, 2019 were diversified by credit rating – BB (45% based on fair value), BBB (24%), B (21%), Other (6%), A (3%), and AAA (1%) and collateral backing – Hospitality (58%), Office (27%), Multifamily (10%), Industrial (4%), and Retail (1%).
During the three months ended March 31, 2019, we acquired 15 multifamily, one industrial and one hotel property across four transactions with a total purchase price of $1.0 billion, inclusive of closing costs, consistent with our strategy of acquiring diversified, income producing, commercial real estate assets concentrated in high growth markets across the U.S.
During the three months ended March 31, 2019, we made 16 investments in real estate-related securities and loans with a total cost basis of $117.0 million consisting of commercial mortgage-backed securities ("CMBS"), corporate bonds and term loans of real estate-related companies and we held 118 positions as of March 31, 2019.
Closed a $350.0 million unsecured line of credit with a third party. The line of credit expires on February 22, 2022 and may be extended for up to one year. Interest under the line of credit is determined based on one-month U.S. dollar-denominated LIBOR plus 2.50%.
During the three months ended March 31, 2019, we closed or assumed an aggregate $476.5 million in property-level financing and obtained an additional $67.4 million of financings secured by our investments in real estate-related securities and loans.
Summary of Portfolio
The following charts further describe our portfolio composition in real properties based on fair value as of March 31, 2019:
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The following chart outlines the percentage of our investments in real properties and investments in real estate-related securities and loans based on fair value as of March 31, 2019:
The following map identifies the top 10 markets of our portfolio composition in real properties based on fair value as of March 31, 2019:
Investments in Real Estate
As of March 31, 2019, we had acquired 491 properties with a total purchase price of $11.9 billion, inclusive of closing costs. Our diversified portfolio of income producing assets primarily consists of Multifamily and Industrial properties, and to a lesser extent Hotel and Retail properties, located in growth markets across the U.S. The following table provides a summary of our portfolio as of March 31, 2019:
Average Effective Sq. Feet (in Annual Base Rent Gross Asset Percentage of Number of thousands)/ Occupancy Per Leased Square Value(4) Segment Segment Segment Properties Units/Keys(1) Rate(2) Foot/Units/Keys(3) ($ in thousands) Revenue Revenue Multifamily 136 43,211 units 94% $ 13,165 $ 6,759,387 $ 135,509 46% Industrial 326 50,827 sq. ft. 96% $ 4.97 4,163,958 81,518 27% Hotel 26 4,590 keys 80% $163/$130 1,384,037 76,993 26% Retail 3 494 sq. ft. 98% $ 18.94 138,807 3,071 1% Total 491 $ 12,446,189 $ 297,091 100%
(1) Multifamily includes other types of rental housing such as manufactured and student housing. Multifamily units include manufactured housing sites and student housing beds.
(2) The occupancy rate is as of March 31, 2019 for non-hotels. The occupancy rate for our hotel investments is the average occupancy rate for the twelve months ended March 31, 2019. Hotels owned less than twelve months are excluded from the average occupancy rate calculation.
(3) For multifamily properties, industrial properties, and retail properties, represents the annualized March 31, 2019 base rent per leased square foot or unit and excludes tenant recoveries, straight-line rent and above-market and below-market lease amortization. For hotel properties, represents Average Daily Rate ("ADR") and Revenue Per Available Room ("RevPAR"), respectively, for the twelve months ended March 31, 2019. Hotels owned less than twelve months are excluded from the ADR and RevPAR calculations.
(4) Based on fair value as of March 31, 2019.
Real Estate The following table provides information regarding our portfolio of real properties as of March 31, 2019: Number Sq. Feet (in of Ownership thousands)/ Occupancy Segment and Investment Properties Location Acquisition Date Interest(1) Units/Keys(2) Rate(3) Multifamily: Sonora Canyon Apartments 1 Mesa, AZ Feb. 2017 100% 388 units 95% TA Multifamily Portfolio 6 Various(4) Apr. 2017 100% 2,514 units 94% Emory Point 1 Atlanta, GA May 2017 100% 750 units 97% Nevada West Multifamily 3 Las Vegas, NV May 2017 100% 972 units 96% Mountain Gate & Trails Multifamily 2 Las Vegas, NV June 2017 100% 539 units 96% Elysian West Multifamily 1 Las Vegas, NV July 2017 100% 466 units 93% Harbor 5 Multifamily 5 Dallas, TX Aug. 2017 100% 1,192 units 94% Gilbert Multifamily 2 Gilbert, AZ Sept. 2017 90% 748 units 95% Domain & GreenVue Multifamily 2 Dallas, TX Sept. 2017 100% 803 units 94% ACG II Multifamily 4 Various(5) Sept. 2017 94% 932 units 93% Olympus Multifamily 3 Jacksonville, FL Nov. 2017 95% 1,032 units 93% Amberglen West Multifamily 1 Hillsboro, OR Nov. 2017 100% 396 units 95% Aston Multifamily Portfolio 20 Various(6) Nov. 2017 & Jan. 2018 90% 4,584 units 94% Talavera and Flamingo Multifamily 2 Las Vegas, NV Dec. 2017 100% 674 units 94% Walden Pond & Montair Multifamily Portfolio 2 Everett, WA & Thornton, CO Dec. 2017 95% 635 units 93% Signature at Kendall Multifamily 1 Miami, FL Dec. 2017 100% 546 units 93% The Boulevard 1 Phoenix, AZ April 2018 100% 294 units 94% Blue Hills Multifamily 1 Boston, MA May 2018 100% 472 units 92% Wave Multifamily Portfolio 6 Various(7) May 2018 100% 2,199 units 92% ACG III Multifamily 2 Gresham, OR & Turlock, CA May 2018 95% 475 units 93% Carroll Florida Multifamily 2 Jacksonville & Orlando, FL May 2018 100% 716 units 94% Solis at Flamingo 1 Las Vegas, NV June 2018 95% 524 units 93% Velaire at Aspera 1 Phoenix, AZ July 2018 100% 286 units 91% Coyote Multifamily Portfolio 6 Phoenix, AZ Aug. 2018 100% 1,751 units 95% Avanti Apartments 1 Las Vegas, NV Dec. 2018 100% 414 units 95% Gilbert Heritage Apartments 1 Phoenix, AZ Feb. 2019 90% 256 units 95% Roman Multifamily Portfolio 14 Various(8) Feb. 2019 100% 3,743 units 94% Highroads MH 3 Phoenix, AZ April 2018 99% 265 units 94% Evergreen Minari MH 2 Phoenix, AZ June 2018 99% 114 units 96% Southwest MH 14 Various(9) June 2018 99% 3,065 units 90% Hidden Springs MH 1 Desert Hot Springs, CA July 2018 99% 317 units 87% SVPAC MH 2 Phoenix, AZ July 2018 99% 233 units 96% Royal Vegas MH 1 Las Vegas, NV Oct. 2018 99% 176 units 73% Riverest MH 1 Tavares, FL Dec. 2018 99% 130 units 93% EdR Student Housing Portfolio 20 Various(10) Sept. 2018 95% 10,610 units 97% Total Multifamily 136 43,211 units Industrial: Stockton Industrial Park 1 Stockton, CA Feb. 2017 100% 878 sq. ft. 100% HS Industrial Portfolio 38 Various(11) Apr. 2017 100% 5,972 sq. ft. 96% Fairfield Industrial Portfolio 11 Fairfield, NJ Sept. 2017 100% 578 sq. ft. 100% Southeast Industrial Portfolio 5 Various(12) Nov. 2017 100% 1,927 sq. ft. 100% Kraft Chicago Industrial Portfolio 3 Aurora, IL Jan. 2018 100% 1,693 sq. ft. 100% Canyon Industrial Portfolio 146 Various(13) Mar. 2018 100% 21,719 sq. ft. 96% HP Cold Storage Industrial Portfolio 6 Various(14) May 2018 100% 2,252 sq. ft. 94% Meridian Industrial Portfolio 106 Various(15) Nov. 2018 99%(15) 14,011 sq. ft. 93% Stockton Distribution Center 1 Stockton, CA Dec. 2018 100% 987 sq. ft. 100% Summit Industrial Portfolio 8 Atlanta, GA Dec. 2018 100% 631 sq. ft. 98% 4500 Westport Drive 1 Harrisburg, PA Jan. 2019 100% 179 sq. ft. 100% Total Industrial 326 50,827 sq. ft.
Sq. Feet (in Number of Ownership thousands)/ Occupancy Segment and Investment Properties Location Acquisition Date Interest(1) Units/Keys(2) Rate(3) Hotel: Hyatt Place UC Davis 1 Davis, CA Jan. 2017 100% 127 keys 85% Hyatt Place San Jose Downtown 1 San Jose, CA June 2017 100% 236 keys 80% Florida Select-Service 4-Pack 4 Tampa & Orlando, FL July 2017 100% 469 keys 79% Hyatt House Downtown Atlanta 1 Atlanta, GA Aug. 2017 100% 150 keys 77% Boston/Worcester Select-Service 3-Pack 3 Boston & Worcester, MA Oct. 2017 100% 374 keys 81% Henderson Select-Service 2-Pack 2 Henderson, NV May 2018 100% 228 keys N/A Orlando Select-Service 2-Pack 2 Orlando, FL May 2018 100% 254 keys N/A Corporex Select Service Portfolio 5 Various(16) Aug. 2018 100% 601 keys N/A JW Marriott San Antonio Hill Country Resort 1 San Antonio, TX Aug. 2018 100% 1,002 keys N/A Hampton Inn & Suites Federal Way 1 Seattle, WA Oct. 2018 100% 142 keys N/A Staybridge Suites Reno 1 Reno, NV Nov. 2018 100% 94 keys N/A Salt Lake City Select Service 3 Pack 3 Salt Lake City, UT Nov. 2018 60% 461 keys N/A Courtyard Kona 1 Kailua-Kona, HI Mar. 2019 100% 452 keys N/A Total Hotel 26 4,590 keys Retail: Bakers Centre 1 Philadelphia, PA Mar. 2017 100% 237 sq. ft 99% Plaza Del Sol Retail 1 Burbank, CA Oct. 2017 100% 166 sq. ft. 100% Vista Center 1 Miami, FL Aug. 2018 100% 91 sq. ft. 92% Total Retail 3 494 sq. ft. Total Investments in Real Estate 491
(1) Certain of the joint venture agreements entered into by the Company provide the seller or the other partner a profits interest based on certain internal rate of return hurdles being achieved. Such investments are consolidated by us and any profits interest due to the other partner is reported within non-controlling interests.
(2) Multifamily includes other types of rental housing such as manufactured housing and student housing. Multifamily units include manufactured housing sites and student housing beds.
(3) The occupancy rate is as of March 31, 2019 for non-hotels. The occupancy rate for our hotel investments is the average occupancy rate for the twelve months ended March 31, 2019. The occupancy rate is excluded for hotels owned less than twelve months.
(4) The TA Multifamily Portfolio consists of a 32-floor property in downtown Orlando, FL (19% of units) and five garden style properties located in the suburbs of Palm Beach Gardens, FL (19%), Chicago, IL (19%), Orlando, FL (17%), Dallas, TX (14%), and Kansas City, KS (12%).
(5) The ACG II Multifamily Portfolio consists of four garden style properties in Gilbert, AZ (30% of units), Modesto, CA (25%), Olympia, WA (24%), and Flagstaff, AZ (21%).
(6) The Aston Multifamily Portfolio is located in four markets: Austin/San Antonio, TX (47% of units), Dallas/Fort Worth, TX (21%), Nashville, TN (18%), and Louisville, KY (14%).
(7) The Wave Multifamily Portfolio is located in five markets: Greater Seattle, WA (29% of units), Sacramento, CA (28%), Las Vegas, NV (22%), Spokane, WA (14%), and Portland, OR (7%).
(8) The Roman Multifamily Portfolio is primarily concentrated in Riverside, CA (18% of units), Denver, CO (13%), Tampa, FL (10%), Orlando, FL (9%), Charlotte, NC (9%), Portland, OR (8%), and Dallas, TX (8%).
(9) Southwest MH is located in three markets: Phoenix, AZ (86% of sites), San Diego, CA (11%), and Palm Desert, CA (3%).
(10) The EdR Student Housing Portfolio consists of 10,610 beds primarily concentrated at Penn State University (15% of beds), University of Arizona (10%), University of Virginia (8%), Arizona State University (8%) and Virginia Tech (8%).
(11) The HS Industrial Portfolio is located in six submarkets: Atlanta, GA (38% of sq. ft.), Chicago, IL (23%), Houston, TX (17%), Harrisburg, PA (10%), Dallas, TX (10%) and Orlando, FL (2%).
(12) The Southeast Industrial Portfolio is located in Jacksonville, FL (53% of sq. ft.), Atlanta, GA (26%), and Nashville, TN (21%).
(13) The Canyon Industrial Portfolio is primarily concentrated in Chicago, IL (19% of sq. ft.), Dallas, TX (15%), Indianapolis, IN (11%), Baltimore/Washington, D.C. (9%), and Columbus, OH (7%).
(14) The HP Cold Storage Industrial Portfolio is located in four markets:
(15) The Meridian Industrial Portfolio consists of 106 industrial properties primarily concentrated in Memphis, TN (23% of sq. ft.), Orlando, FL (19%), Jacksonville, FL (10%), Atlanta, GA (9%), Richmond, VA (7%), and Winston-Salem, NC (7%). We own a 99% joint venture interest in 74 of the properties and wholly own the other 32 properties.
(16) The Corporex Select Service Portfolio is located in five markets: Phoenix, AZ (24% of keys), Reno, NV (23%), Salt Lake City, UT (20%), Sonoma, CA (17%), and Tampa, FL (16%).
Subsequent to March 31, 2019, we acquired an aggregate of $1.6 billion of real estate, exclusive of closing costs, across 13 separate transactions.
Investments in Real Estate-Related Securities and Loans During the three months ended March 31, 2019, we invested $117.0 million in real estate-related securities and loans. The following table details our investments in real estate-related securities and loans as of March 31, 2019 ($ in thousands): March 31, 2019 Weighted Weighted Face . . .
May 15, 2019
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