N-Q 1 d922312dnq.htm BLACKSTONE REAL ESTATE INCOME FUND II BlackStone Real Estate Income Fund II

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-Q

 

 

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED

MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number 811-22907

 

 

Blackstone Real Estate Income Fund II

Exact Name of Registrant as Specified in Charter

 

 

345 Park Avenue

42nd Floor

New York, NY 10154

Address of Principal Executive Offices

Registrant’s telephone number, including area code: (212) 583-5000

 

 

Judy Turchin, Esq.

c/o Blackstone Real Estate Income Advisors L.L.C.

345 Park Avenue

42nd Floor

New York, NY 10154

Name and Address of Agent for Service

 

 

With a Copy to:

Sarah E. Cogan, Esq.

Michael W. Wolitzer, Esq.

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, NY 10017

 

 

Date of fiscal year end: December 31, 2015

Date of reporting period: March 31, 2015

 

 

 

Item 1. The Consolidated Schedule of Investments.

The Consolidated Schedule of Investments is attached herewith.

Blackstone Real Estate Income Fund II

Schedule of Investments (Unaudited)

March 31, 2015

 

      Value  

Blackstone Real Estate Income Master Fund (“Master Fund”) — 107.3%
(COST $112,589,932)

    $     116,553,297   
  

 

 

  

Other Assets, less Liabilities — (7.3)%

      (7,897,227 ) 
  

 

 

  

Total Net Assets — 100.0%

    $ 108,656,070   
  

 

 

  

 

See Notes to Schedule of Investments.

 

1

Blackstone Real Estate Income Fund II

Notes to Schedule of Investments (Unaudited)

March 31, 2015

 

1. Organization

Blackstone Real Estate Income Fund II (the “Fund”), a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), is a continuously offered non-diversified, closed-end management investment company. The Fund’s investment objective is to seek long-term total return, with an emphasis on current income, by primarily investing in a broad range of real estate-related debt investments. The Fund pursues its investment objective by investing substantially all of its assets in Blackstone Real Estate Income Master Fund (the “Master Fund”), a Delaware statutory trust registered under the 1940 Act as a closed-end management investment company with the same investment objective and substantially the same investment policies as the Fund.

The investment manager of the Master Fund and the Fund is Blackstone Real Estate Income Advisors L.L.C. (the “Investment Manager”), a registered investment advisor under the Investment Advisers Act of 1940, as amended. The Board of Trustees (the “Board” and each member a “Trustee”) of the Master Fund and the Fund supervises the conduct of the Master Fund’s and the Fund’s affairs and, pursuant to their investment management agreements, has engaged the Investment Manager to manage the Master Fund’s and the Fund’s day-to-day investment activities and operations.

The Master Fund’s Schedule of Investments, which is attached hereto, is an integral part of this Schedule of Investments and should be read in conjunction with the Fund’s Schedule of Investments. At March 31, 2015, the Fund held a 19.2% ownership interest in the Master Fund.

2. Basis of Presentation

The Fund is an investment company that applies the accounting and reporting guidance issued in Topic 946 by U.S. Financial Accounting Standards Board.

The Fund’s Schedule of Investments is prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and is stated in U.S. dollars.

3. Investment in Master Fund

The Fund’s investment in the Master Fund is recorded at fair value and is based upon the Fund’s percentage ownership of the net assets of the Master Fund. The performance of the Fund is directly affected by the performance of the Master Fund. See Note 3 to the Master Fund’s Notes to Schedule of Investments for the determination of fair value of the Master Fund’s investments.

 

2

Blackstone Real Estate Income Master Fund

Schedule of Investments (Unaudited)

March 31, 2015

 

     Principal
Amount		        Value  

LONG-TERM INVESTMENTS — 136.7%

        

COMMERCIAL MORTGAGE-BACKED SECURITIES — 101.7%

        

American Homes 4 Rent, Series 2014-SFR1, Class E, 2.75%, 06/17/31 (a),(b),(c)

    $ 3,794,144         $ 3,701,525   

American Homes 4 Rent, Series 2014-SFR2, Class E, 6.23%, 10/17/36 (a),(c),(d)

      12,573,000           13,527,222   

American Homes 4 Rent, Series 2014-SFR3, Class E, 6.42%, 12/17/36 (a),(d)

      12,222,000           13,306,287   

American Homes 4 Rent, Series 2015-SFR1, Class E, 5.64%, 04/17/52 (a),(d)

      10,071,000           10,369,725   

Banc of America Merrill Lynch, Series 2014-FL1, Class E, 2.15%, 12/15/31 (a),(b),(d)

      9,361,000           8,387,141   

Banc of America Merrill Lynch, Series 2014-FRR5, Class A714,
0.00%, 01/27/47 (a),(c),(e)

      14,843,755           11,087,754   

Banc of America Merrill Lynch, Series 2015-ASHF, Class F, 5.17%, 01/15/28 (a),(b),(d)

      8,915,000           8,946,612   

Banc of America Merrill Lynch,

        

Series 2014-INLD, Class E, 3.51%, 12/15/29 (a),(b),(c),(d)

      21,112,000           20,647,753   

Series 2014-INLD, Class F, 2.70%, 12/15/29 (a),(b),(c),(d)

      45,859,000           42,140,688   

BHMS Mortgage Trust,

        

Series 2014-ATLS, Class BFX, 4.24%, 07/05/33 (a),(c),(d)

      10,102,000           10,411,276   

Series 2014-ATLS, Class EFL, 4.17%, 07/05/33 (a),(b),(d)

      10,000,000           9,997,276   

Carefree Portfolio Trust, Series 2014-CARE, Class F, 2.76%, 11/15/19 (a),(b),(c)

      13,538,000           12,457,126   

Citigroup Commercial Mortgage Trust, Series 2012-GC8, Class E,
4.88%, 09/10/45 (a),(b),(d)

      6,296,926           5,902,607   

Citigroup Commercial Mortgage Trust, Series 2013-375 P, Class E,
3.52%, 05/10/35 (a),(b),(d)

      12,790,613           12,001,366   

Colony American Homes, Series 2014-1A, Class E, 3.05%, 05/17/31 (a),(b),(d)

      26,348,841           25,949,366   

Colony American Homes, Series 2014-2A, Class E, 3.38%, 07/17/31 (a),(b),(d)

      17,238,100           17,187,868   

Commercial Mortgage Trust, Series 2013-CR8, Class E, 3.97%, 06/10/46 (a),(b),(c),(d)

      10,522,000           8,701,308   

Commercial Mortgage Trust, Series 2014-CR17, Class E, 4.80%, 05/10/47 (a),(b),(c)

      8,387,000           7,530,910   

Commercial Mortgage Trust,

        

Series 2014-FL5, Class KH1, 3.82%, 08/15/31 (a),(b),(d)

      16,445,000           15,470,066   

Series 2014-FL5, Class KH2, 4.67%, 08/15/31 (a),(b),(d)

      10,598,000           9,902,836   

Commercial Mortgage Trust, Series 2014-KYO, Class F, 3.68%, 06/11/27 (a),(b),(d)

      7,450,000           7,425,521   

Commercial Mortgage Trust, Series 2014-UBS5, Class D, 3.50%, 09/10/47 (a),(c)

      2,006,000           1,696,405   

Commercial Mortgage Trust, Series 2012-CR5, Class F, 4.34%, 12/10/45 (a),(b),(c)

      12,489,160           11,166,955   

Credit Suisse Mortgage Trust, Series 2014-USA, Class E, 4.37%, 09/15/37 (c),(d)

      13,012,000           12,403,469   

Credit Suisse Mortgage Trust, Series 2015-TOWN, Class E, 4.33%, 03/15/17 (a),(b),(c)

      25,502,000           25,515,516   

Cress Ltd.,

        

Series 2008, Class B, 1.48%, 12/21/42 (a),(b)

      20,411,074           18,165,856   

Series 2008, Class C, 1.33%, 12/21/42 (b)

      7,500,000           5,250,000   

Series 2008, Class D, 1.48%, 12/21/42 (a),(b)

      4,219,000           1,898,550   

Series 2008, Class E, 1.73%, 12/21/42 (b)

      5,156,000           1,289,000   

Series 2008, Class F, 1.00%, 12/21/42 (b)

      19,637,476           1,965,711   

Equity Mortgage Trust,

        

Series 2014-INNS, Class E, 3.63%, 05/08/31 (a),(b),(d)

      10,000,000           9,954,582   

Series 2014-INNS, Class F, 4.08%, 05/08/31 (a),(b),(c),(d)

      24,443,000           24,219,535   

GAHR Commercial Mortgage Trust,

        

Series 2015-NRF, Class EFX, 3.38%, 12/15/19 (a),(b),(d)

      23,844,000           22,585,559   

Series 2015-NRF, Class FFX, 3.38%, 12/15/19 (a),(b),(c)

      4,087,000           3,820,128   

GCCFC Commercial Mortgage Trust, Series 2007-GG9, Class AJ,
5.51%, 03/10/39 (b),(c)

      25,363,714           24,178,683   

GS Mortgage Securities Trust, Series 2012-GCJ9, Class E, 4.85%, 11/10/45 (a),(b),(c)

      10,250,422           9,407,462   

GS Mortgage Securities Trust, Series 2014-GSFL, Class E, 6.12%, 07/15/31 (a),(b),(c),(d)

      19,516,000           19,732,023   

JP Morgan Chase Commercial Mortgage Trust, Series 2013-LC11, Class E,
3.25%, 04/15/46 (a),(b),(c)

      4,728,280           3,729,107   

JP Morgan Chase Commercial Mortgage Trust, Series 2014-FL6, Class D,
4.42%, 11/15/31 (a),(b),(d)

      16,375,000           15,828,188   

JP Morgan Chase Commercial Mortgage Trust, Series 2014-INN, Class E,
3.78%, 06/15/29 (a),(b),(d)

      16,535,000           16,516,342   

LB-UBS Commercial Mortgage Trust, Series 2006-C7, Class AJ, 5.41%, 11/15/38 (c),(d)

      14,912,310           14,326,177   

Morgan Stanley Bank of America Merrill Lynch Trust, Series 2012-C5, Class G,
4.50%, 08/15/45 (a),(d)

      12,300,651           11,171,086   

Morgan Stanley Bank of America Merrill Lynch Trust, Series 2013-C10, Class F,
4.08%, 07/15/46 (a),(b),(c)

      10,598,802           9,216,933   

Morgan Stanley Bank of America Merrill Lynch Trust, Series 2013-C12, Class E,
4.77%, 10/15/46 (a),(b),(d)

      6,233,532           5,683,079   

Morgan Stanley Bank of America Merrill Lynch Trust, Series 2013-C7, Class F,
4.30%, 02/15/46 (a),(b),(d)

      10,844,953           9,422,214   

Morgan Stanley Bank of America Merrill Lynch Trust,

        

Series 2013-C9, Class E, 4.16%, 05/15/46 (a),(b),(c)

      5,516,000           4,842,701   

Series 2013-C9, Class F, 4.16%, 05/15/46 (b),(c)

      8,644,588           7,360,143   

 

See Notes to Schedule of Investments.

 

3

Blackstone Real Estate Income Master Fund

Schedule of Investments (Continued) (Unaudited)

March 31, 2015

 

      Principal
Amount		        Value  

Morgan Stanley Bank of America Merrill Lynch Trust, Series 2014-C15, Class E,
4.90%, 04/15/47 (a),(b),(c)

    $ 4,000,000         $ 3,666,678   

Wachovia Bank Commercial Mortgage Trust,

        

Series 2006-C27, Class AJ,
5.83%, 07/15/45 (b),(c),(d)

      18,211,837           18,568,689   

Series 2006-C27, Class B,
5.87%, 07/15/45 (b),(c)

      8,015,000           6,642,030   

Wachovia Bank Commercial Mortgage Trust, Series 2006-C29, Class AJ,
5.37%, 11/15/48 (b),(d)

      22,785,682           23,142,863   
       

 

 

  

TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES
(COST $596,461,071)

           618,417,897   
       

 

 

  

INTEREST ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES — 1.6%

        

Commercial Mortgage Trust, Series 2013-LC6, Class XC, 0.79%, 01/10/46 (a),(b),(c)

      92,323,222           4,795,268   

JPMBB Commercial Mortgage Securities Trust, Series 2014-C19, Class XC,
0.85%, 04/15/47 (a), (b),(c)

      28,065,772           1,682,406   

JP Morgan Chase Commercial Mortgage Trust, Series 2013-C16, Class XC,
1.26%, 12/15/46 (a),(b), (c)

      36,883,521           3,079,110   
       

 

 

  

TOTAL INTEREST ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES
(COST $9,465,920)

           9,556,784   
       

 

 

  

BANK LOAN — 2.8%

        

Four Seasons Holdings, Inc., 6.25%, 12/27/20 (b)

      17,028,000           17,113,140   
       

 

 

  

TOTAL BANK LOAN
(COST $17,068,101)

           17,113,140   
       

 

 

  

MEZZANINE DEBT — 26.9%

        

BHMS Mortgage Trust, Series 2014-MZ, Class M, 7.89%, 07/05/33 (a),(b),(c)

      20,204,000           20,342,173   

Carefree Portfolio Trust, Series 2014-CMZA, Class MZA, 6.15%, 11/15/19 (a),(b),(c)

      24,624,000           24,645,768   

Equity Mortgage Trust, Series 2014-INMZ, Class M, 4.93%, 05/08/31 (a),(b),(c)

      16,207,241           16,202,800   

StorageMart Mezzanine Loan, 8.23%, 04/30/15 (a)

      102,500,000           102,500,000   
       

 

 

  

TOTAL MEZZANINE DEBT
(COST $163,535,241)

           163,690,741   
       

 

 

  
      Shares        Value  

COMMON STOCK — 3.7%

        

REITS-Mortgage — 3.7%

        

Apollo Commercial Real Estate Finance, Inc. (c)

      1,309,297           22,493,722   
       

 

 

  

TOTAL COMMON STOCK
(COST $21,791,033)

           22,493,722   
       

 

 

  

TOTAL LONG-TERM INVESTMENTS
(COST $808,321,366)

           831,272,284   
       

 

 

  
      Principal
Amount		        Value  

SHORT-TERM INVESTMENTS — 29.9%

        

MUTUAL FUND-MONEY MARKET— 16.5%

        

JP Morgan Prime Money Market

    $ 100,005,099           100,005,099   
       

 

 

  

TOTAL MUTUAL FUND-MONEY MARKET
(COST $100,005,099)

           100,005,099   
       

 

 

  

REPURCHASE AGREEMENTS — 13.4%

        

Bank of America Merrill Lynch:

        

Dated 03/16/15, with a maturity date of 06/16/15, an interest rate of 0.08%, collateralized by USD 10,000,000 U.S. Treasury Notes 2.25%, due 11/15/24 and a market value, including accrued interest of $10,082,289.

      10,081,953           10,081,953   

Dated 03/16/15, with a maturity date of 06/16/15, an interest rate of 0.08%, collateralized by USD 50,000,000 U.S. Treasury Notes 2.25%, due 11/15/24 and a market value, including accrued interest of $50,411,446.

      50,409,765           50,409,765   

Dated 03/17/15, with a maturity date of 06/16/15, an interest rate of 0.10%, collateralized by USD 20,000,000 U.S. Treasury Notes 2.25%, due 11/15/24 and a market value, including accrued interest of $21,040,009.

      21,039,191           21,039,191   
       

 

 

  

TOTAL REPURCHASE AGREEMENTS
(COST $81,530,909)

           81,530,909   
       

 

 

  

TOTAL SHORT-TERM INVESTMENTS
(COST $181,536,008)

           181,536,008   
       

 

 

  

 

See Notes to Schedule of Investments.

 

4

Blackstone Real Estate Income Master Fund

Schedule of Investments (Continued) (Unaudited)

March 31, 2015

 

      Principal
Amount		        Value  

TOTAL INVESTMENTS IN SECURITIES — 166.6%
(COST $989,857,374) (f)

         $  1,012,808,292   
       

 

 

  

SECURITIES SOLD SHORT — (17.6)%

        

U.S. TREASURY NOTES — (17.6)%

        

U.S. Treasury Notes, 1.38%, 03/31/20

      25,000,000           (25,006,830 ) 

U.S. Treasury Notes, 2.25%, 11/15/24

      80,000,000           (82,275,000 ) 
       

 

 

  

TOTAL U.S. TREASURY NOTES
(PROCEEDS $105,524,278)

           (107,281,830 ) 
       

 

 

  

TOTAL SECURITIES SOLD SHORT
(PROCEEDS $105,524,278)

           (107,281,830 ) 
       

 

 

  

Other Assets and Liabilities — (49.0)% (g)

           (297,618,119 ) 
       

 

 

  

Net Assets — 100.0%    

         $     607,908,343   
       

 

 

  

Footnote Legend:

  (a) Security is exempt from registration pursuant to Rule 144A under the Securities Act of 1933, as amended. Security may only be sold to qualified institutional buyers unless registered under the Securities Act of 1933, as amended, or otherwise exempt from registration.
  (b) Variable/floating interest rate security. Rate presented is as of March 31, 2015.
  (c) All or a portion of this security is pledged as collateral for derivative financial instruments.
  (d) All or a portion of this security has been pledged as collateral in connection with reverse repurchase agreements.
  (e) Non-interest bearing bond.
  (f) The cost for federal income tax purposes was $989,857,374. At March 31, 2015, net unrealized appreciation for all securities based on tax cost was $22,950,918. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $23,735,198 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $784,280.
  (g) Assets, other than investments in securities, less liabilities other than securities sold short.

 

Abbreviation Legend:

  REITS -  

Real Estate Investment Trusts

Reverse Repurchase Agreements Outstanding at March 31, 2015

 

Counterparty

   Interest
Rate		   Trade
Date		     Maturity
Date		     Face
Value		     Face Value
Including
Accrued
Interest		  

Bank of America Merrill Lynch

   1.67%     03/25/15        04/24/15      $ 8,999,000      $ 9,001,922   

Bank of America Merrill Lynch

   1.67%     01/14/15        04/14/15        9,198,000        9,230,855   

Bank of America Merrill Lynch

   1.68%     03/16/15        04/16/15        6,790,000        6,795,070   

Bank of America Merrill Lynch

   1.68%     03/31/15        04/30/15        5,361,000        5,361,250   

Bank of America Merrill Lynch

   1.68%     03/16/15        04/16/15        5,824,000        5,828,349   

Bank of America Merrill Lynch

   1.68%     03/31/15        04/30/15        5,027,000        5,027,235   

Bank of America Merrill Lynch

   1.77%     03/18/15        06/18/15        3,514,000        3,516,419   

Bank of America Merrill Lynch

   1.77%     03/18/15        06/18/15        3,404,000        3,406,343   

Bank of America Merrill Lynch

   1.86%     02/19/15        05/19/15        7,194,000        7,209,239   

Bank of America Merrill Lynch

   1.86%     02/19/15        05/19/15        11,825,000        11,850,049   

Bank of America Merrill Lynch

   1.86%     02/19/15        05/19/15        17,738,000        17,775,575   

Bank of America Merrill Lynch

   1.86%     02/19/15        05/19/15        5,486,000        5,497,621   

Bank of America Merrill Lynch

   1.86%     02/19/15        05/19/15        10,890,000        10,913,069   

Bank of America Merrill Lynch

   1.86%     02/19/15        05/19/15        8,507,000        8,525,021   

Bank of America Merrill Lynch

   1.86%     02/19/15        05/19/15        2,107,000        2,111,463   

Bank of America Merrill Lynch

   1.86%     02/26/15        05/26/15        8,381,000        8,395,723   

Bank of America Merrill Lynch

   1.86%     02/19/15        05/19/15        5,940,000        5,952,583   

Bank of America Merrill Lynch

   1.86%     02/19/15        05/19/15        4,108,000        4,116,702   

Bank of America Merrill Lynch

   1.86%     02/26/15        05/26/15        7,215,000        7,227,674   

Bank of America Merrill Lynch

   1.86%     02/19/15        05/19/15        10,845,000        10,867,973   

Bank of America Merrill Lynch

   1.87%     03/25/15        06/25/15        7,742,000        7,744,815   

RBC Capital Markets, LLC

   1.27%     03/19/15        06/19/15        8,255,000        8,258,784   

RBC Capital Markets, LLC

   1.51%     02/17/15        05/18/15        12,404,000        12,426,329   

RBC Capital Markets, LLC

   1.52%     03/19/15        06/19/15        18,599,000        18,609,204   

RBC Capital Markets, LLC

   1.61%     02/13/15        05/12/15        13,108,000        13,135,520   

RBC Capital Markets, LLC

   1.76%     03/09/15        06/09/15        11,538,000        11,551,000   

RBC Capital Markets, LLC

   1.76%     03/23/15        06/23/15        10,046,000        10,050,432   

RBC Capital Markets, LLC

   1.77%     03/25/15        06/25/15        15,851,000        15,856,505   

RBC Capital Markets, LLC

   1.86%     03/09/15        06/09/15        6,908,000        6,916,225   

RBC Capital Markets, LLC

   1.86%     03/23/15        06/23/15        14,626,000        14,632,818   

RBC Capital Markets, LLC

   1.88%     02/17/15        08/17/15        13,262,000        13,291,819   
       

 

 

  

Total Reverse Repurchase Agreements Outstanding

         $ 280,692,000      $ 281,083,586   
       

 

 

  

 

See Notes to Schedule of Investments.

 

5

Blackstone Real Estate Income Master Fund

Schedule of Investments (Continued) (Unaudited)

March 31, 2015

 

OTC Credit Default Swaps on Index (Sell Protection) — Outstanding at March 31, 2015

 

Reference

Obligation

   Rating     Master
Fund
Fixed
Deal
(Pay)
Rate		    

Maturity
Date

   Counterparty   Notional
Amount(1)		     Market
Value		     Upfront
Premium
Paid
(Received)		     Unrealized
Appreciation
(Depreciation)		  

CMBX.NA.BB.6

     BB        5.00%     

05/25/63

   Citibank, N.A.     103,326,210  USD      $     1,632,783      $ 801,643      $ 831,140   

CMBX.NA.BB.6

     BB        5.00%     

05/25/63

   Morgan Stanley &
Co. LLC		     5,532,220  USD        87,421        35,503        51,918   

CMBX.NA.BB.6

     BB        5.00%     

05/25/63

   Goldman Sachs & Co.     30,646,000  USD        484,275        81,983        402,292   

CMBX.NA.BB.7

     BB        5.00%     

01/25/47

   Citibank, N.A.     7,399,410  USD        (41,102)            (234,934)        193,832   

CMBX.NA.BB.7

     BB        5.00%     

01/25/47

   Morgan Stanley &
Co. LLC		     5,000,000  USD        (27,773)        (9,739)        (18,034)   

CMBX.NA.BBB.7

     BBB        3.00%     

01/25/47

   Citibank, N.A.     4,425,510  USD        (33,542)        (139,592)        106,050   
           

 

 

  

Total OTC Credit Default Swaps on Index (Sell Protection)

  

   $     2,102,062      $ 534,864      $     1,567,198   
           

 

 

  

 

(1) The maximum potential amount the Master Fund could be required to pay as a seller of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

Centrally Cleared Credit Default Swaps on Index (Buy Protection) — Outstanding at March 31, 2015

 

Reference

Obligation

   Rating     Master
Fund
Fixed
Deal
(Pay)
Rate		    

Maturity
Date

   Counterparty   Notional
Amount		     Market
Value		     Upfront
Premium
Paid
(Received)		     Unrealized
Appreciation
(Depreciation)		  

CDX North America High Yield index

     BB        (5.00)%     

06/21/18

   Citibank, N.A.     29,100,000  USD      $ (2,504,019)      $ (2,252,340)      $ (251,679)   

CDX North America High Yield index

     BB        (5.00)%     

06/21/18

   Citibank, N.A.     31,040,000  USD        (2,719,191)        (2,476,047)        (243,144)   
           

 

 

  

Total Centrally Cleared Credit Default Swaps on Index (Buy Protection)

  

   $     (5,223,210)      $     (4,728,387)      $     (494,823)   
           

 

 

  

OTC Total Return Swap — Outstanding at March 31, 2015

 

Reference

Instrument

  

Termination
Date

    

Counterparty

  

Notional

Amount

  

Unrealized
Appreciation
(Depreciation)

  

Buys

        

CITI Loan Funding LLC

     03/11/16      Citibank, N.A.  

8,278,000  USD

   $ 4,129   
       

 

 

  

Total OTC Total Return Swap Outstanding

     $     4,129   
       

 

 

  

Centrally Cleared Interest Rate Swap — Outstanding at March 31, 2015

 

Master Fund

Pays/

Receives

Floating

Rate

  

Floating

Rate

Index

  

Fixed
Rate

    

Maturity
Date

    

Counterparty

  

Notional

Amount

    

Market

Value

    

Upfront
Premium
Paid
(Received)

    

Unrealized
Appreciation
(Depreciation)

  

Receives

  

Three-Month Libor

     2.03%        05/20/21      Citibank, N.A.     100,000,000  USD      $     (2,011,403 )    $ —      $     (2,011,403 ) 
           

 

 

  

Total Centrally Cleared Interest Rate Swap Outstanding

  

   $ (2,011,403 )    $     —      $ (2,011,403 ) 
           

 

 

  

 

 

See Notes to Schedule of Investments.

 

6

Blackstone Real Estate Income Master Fund

Notes to Schedule of Investments (Unaudited)

March 31, 2015

 

1. Organization

Blackstone Real Estate Income Master Fund (the ‘‘Master Fund’’), a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), is a non-diversified, closed-end management investment company. Blackstone Real Estate Income Fund (“Feeder Fund I”) and Blackstone Real Estate Income Fund II (“Feeder Fund II” and together with Feeder Fund I, the “Feeder Funds”) invest substantially all of their assets in the Master Fund. The Master Fund’s investment objective is to seek long-term total return, with an emphasis on current income, by primarily investing in a broad range of real estate-related debt investments.

The investment manager of the Master Fund and Feeder Funds is Blackstone Real Estate Income Advisors L.L.C. (“the Investment Manager”), a registered investment advisor under the Investment Advisers Act of 1940, as amended. The Board of Trustees (the “Board” and each member a “Trustee”) of the Master Fund and Feeder Funds supervises the conduct of the Master Fund’s and Feeder Funds’ affairs and, pursuant to their investment management agreements, has engaged the Investment Manager to manage the Master Fund’s and Feeder Funds’ day-to-day investment activities and operations.

2. Basis of Presentation

The Master Fund is an investment company that applies the accounting and reporting guidance issued in Topic 946 by the U.S. Financial Accounting Standard Board.

The Master Fund’s Schedule of Investments is prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and is stated in U.S. dollars.

3. Fair Value Hierarchy

Current fair value guidance defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The hierarchy established under the fair value guidance gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for investments categorized in Level 3. The inputs or methodology used for valuing an investment are not necessarily an indication of the risk associated with investing in those securities.

Investments measured and reported at fair value are classified and disclosed in one of the following levels within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement:

 

  Ÿ  

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

 

  Ÿ  

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.

 

  Ÿ  

Level 3 – pricing inputs are unobservable and include instances where there is minimal, if any, market activity for the investment. Inputs reflect the best estimate of what market participants would use in determining fair value of investments as of the measurement date.

Changes in valuation techniques may result in transfers in or out of an investment’s assigned level within the fair value hierarchy. In addition, in periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition, as well as changes related to liquidity of investments, could cause a security to be reclassified between Level 1, Level 2, or Level 3.

 

7

Blackstone Real Estate Income Master Fund

Notes to Schedule of Investments (Continued) (Unaudited)

March 31, 2015

 

The following is a summary categorization, as of March 31, 2015, of the Master Fund’s investments based on the level of inputs utilized in determining the value of such investments:

 

Asset Description:   Level 1     Level 2     Level 3     Total  

Investments in Securities:

        

Commercial Mortgage-Backed Securities

   $ —      $ 589,848,780      $ 28,569,117      $ 618,417,897   

Interest Only Commercial Mortgage-

Backed Securities

     —        9,556,784        —        9,556,784   

Bank Loan

     —        17,113,140        —        17,113,140   

Mezzanine Debt

     —        61,190,741        102,500,000        163,690,741   

Common Stock

     22,493,722        —        —        22,493,722   

Mutual Fund-Money Market

     100,005,099        —        —        100,005,099   

Repurchase Agreements

     —        81,530,909        —        81,530,909   

Credit Default Swap Contracts

     —        2,204,479        —        2,204,479   

Total Return Swap Contract

     —        4,129 1       —        4,129 1  

Total Investments in Securities and Swap Contracts:

   $       122,498,821      $       761,448,962      $       131,069,117      $       1,015,016,900   

Cash

     27,034,205        —        —        27,034,205   

Restricted cash segregated with counterparties

     29,192,382        —        —        29,192,382   

Total Assets

   $ 178,725,408      $ 761,448,962      $ 131,069,117      $ 1,071,243,487   

 

  
Liability Description:   Level 1     Level 2     Level 3     Total  

Securities Sold Short

   $ —      $ 107,281,830      $ —      $ 107,281,830   

Reverse Repurchase Agreements

     —        281,083,586        —        281,083,586   

Credit Default Swap Contracts

     —        5,325,627        —        5,325,627   

Interest Rate Swap Contract

     —        2,011,403        —        2,011,403   

Total Liabilities

   $ —      $ 395,702,446      $ —      $ 395,702,446   

 

  

 

1 

Represents unrealized appreciation (depreciation).

There were no transfers between Level 1 and Level 2 during the period ended March 31, 2015.

The changes in investments measured at fair value for which the Master Fund used Level 3 inputs to determine fair value are as follows:

 

Asset Description:   Commercial
Mortgage-
Backed
Securities		     Corporate
Bonds & Notes		     Total  

Balance as of January 1, 2015

   $ 47,005,068      $ —      $ 47,005,068   

Transfers In

     —        —        —   

Transfers Out

     —        —        —   

Purchases

     —        102,500,000        102,500,000   

Sales

     (23,362,550 )      —        (23,362,550 ) 

Net realized gain (loss)

     1,287,808        —        1,287,808   

Amortization Premium/Discount

     52,225        —        52,225   

Net change in unrealized appreciation

     3,586,566        —        3,586,566   
 

 

 

    

 

 

    

 

 

  

Balance as of March 31, 2015

   $ 28,569,117      $ 102,500,000      $ 131,069,117   
 

 

 

    

 

 

    

 

 

  

Net change in unrealized appreciation related to investments still held as of March 31, 2015

   $ 3,514,969      $ —      $ 3,514,969   
 

 

 

    

 

 

    

 

 

  

Investments that are categorized as Level 3 were valued utilizing third party pricing information without adjustment. Such valuations are based on unobservable inputs. A significant change in third party information could result in a significantly lower or higher value in such Level 3 investments.

 

8

Item 2. Controls and Procedures.

 

(a) The Registrant’s Principal Executive Officer and Principal Financial Officer have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (17 CFR 270.30a-3(c))) were effective as of a date within 90 days prior to the filing date of this report (the “Evaluation Date”), based on their evaluation of the effectiveness of the Registrant’s disclosure controls and procedures as required by Rule 30a-3(b) under the Investment Company Act of 1940 (17 CFR 270.30a-3(b)) and Rule 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934 (17 CFR 240.13a-15(b) or 240.15d-15(b)), as of the Evaluation Date.

 

(b) There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940 (17 CFR 270.30a-3(d))) that occurred during the Registrant’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

Item 3. Exhibits.

Certification of Principal Executive Officer and Principal Financial Officer of the Registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is attached hereto as Exhibit 99.302CERT.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Blackstone Real Estate Income Fund II

 

By:  

/s/ Michael Nash

  Michael Nash (Principal Executive Officer)                        
  Chairman, Chief Executive Officer and President

May 20, 2015

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By:  

/s/ Michael Nash

  Michael Nash (Principal Executive Officer)                        
  Chairman, Chief Executive Officer and President

May 20, 2015

 

By:  

/s/ Garrett Goldberg

  Garrett Goldberg
  (Principal Financial and Accounting Officer)                        
  Chief Financial Officer and Treasurer

May 20, 2015