10-Q 1 breit-10q_20180630.htm 10-Q breit-10q_20180630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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)

 

 

 

 

Maryland

81-0696966

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post 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.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

 

 

 

Emerging growth company

 

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 August 14, 2018, the issuer had the following shares outstanding: 222,140,469 shares of Class S common stock, 17,344,262 shares of Class T common stock, 22,061,631 shares of Class D common stock, and 78,941,312 shares of Class I common stock.

 

 


TABLE OF CONTENTS

 

PART I.

FINANCIAL INFORMATION

1

 

 

 

ITEM 1.

FINANCIAL STATEMENTS

1

 

 

 

 

Condensed Consolidated Financial Statements (Unaudited):

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017 

1

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017

2

 

 

 

 

Condensed Consolidated Statement of Changes in Equity for the Six Months Ended June 30, 2018 and 2017

3

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017

4

 

 

 

 

Notes to Condensed Consolidated Financial Statements

5

 

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

21

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

36

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES

36

 

 

 

PART II.

OTHER INFORMATION

37

 

 

 

ITEM 1.

LEGAL PROCEEDINGS

37

 

 

 

ITEM 1A.

RISK FACTORS

37

 

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

38

 

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

39

 

 

 

ITEM 4.

MINE SAFETY DISCLOSURES

39

 

 

 

ITEM 5.

OTHER INFORMATION

39

 

 

 

ITEM 6.

EXHIBITS

40

 

 

 

SIGNATURES

41

 

 

 


 

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Blackstone Real Estate Income Trust, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per share data)

 

 

 

June 30, 2018

 

 

December 31, 2017

 

Assets

 

 

 

 

 

 

 

 

Investments in real estate, net

 

$

6,748,035

 

 

$

3,406,555

 

Investments in real estate-related securities

 

 

1,650,393

 

 

 

915,742

 

Cash and cash equivalents

 

 

56,456

 

 

 

31,166

 

Restricted cash

 

 

179,588

 

 

 

126,563

 

Other assets

 

 

299,508

 

 

 

145,282

 

Total assets

 

$

8,933,980

 

 

$

4,625,308

 

 

 

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

 

Mortgage notes, term loans, and revolving credit facilities, net

 

$

4,493,579

 

 

$

2,111,291

 

Repurchase agreements

 

 

1,102,240

 

 

 

682,848

 

Affiliate line of credit

 

 

 

 

 

5,374

 

Due to affiliates

 

 

199,016

 

 

 

133,071

 

Accounts payable, accrued expenses, and other liabilities

 

 

508,871

 

 

 

182,835

 

Total liabilities

 

 

6,303,706

 

 

 

3,115,419

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

Redeemable non-controlling interest

 

 

9,187

 

 

 

250

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value per share, 100,000,000 shares authorized; no shares issued

   and outstanding as of June 30, 2018 and December 31, 2017

 

 

 

 

 

 

Common stock — Class S shares, $0.01 par value per share, 500,000,000 shares authorized;

   198,618,151 and 130,085,145 shares issued and outstanding as of June 30, 2018 and

   December 31, 2017, respectively

 

 

1,986

 

 

 

1,301

 

Common stock — Class T shares, $0.01 par value per share, 500,000,000 shares authorized;

  14,857,931 and 5,624,614 shares issued and outstanding as of June 30, 2018 and

   December 31, 2017, respectively

 

 

149

 

 

 

56

 

Common stock — Class D shares, $0.01 par value per share, 500,000,000 shares authorized;

   16,827,076 and 3,955,114 shares issued and outstanding as of June 30, 2018 and

   December 31, 2017, respectively

 

 

168

 

 

 

40

 

Common stock — Class I shares, $0.01 par value per share, 500,000,000 shares authorized;

   66,715,121 and 30,719,160 shares issued and outstanding as of June 30, 2018 and

   December 31, 2017, respectively

 

 

667

 

 

 

307

 

Additional paid-in capital

 

 

2,884,242

 

 

 

1,616,720

 

Accumulated deficit and cumulative distributions

 

 

(297,090

)

 

 

(132,633

)

Total stockholders' equity

 

 

2,590,122

 

 

 

1,485,791

 

    Non-controlling interests

 

 

30,965

 

 

 

23,848

 

Total equity

 

 

2,621,087

 

 

 

1,509,639

 

Total liabilities and equity

 

$

8,933,980

 

 

$

4,625,308

 

 

See accompanying notes to condensed consolidated financial statements.

1


 

Blackstone Real Estate Income Trust, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental revenue

$

110,254

 

 

$

21,230

 

 

$

188,767

 

 

$

22,128

 

Tenant reimbursement income

 

15,560

 

 

 

2,206

 

 

 

24,608

 

 

 

2,273

 

Hotel revenue

 

21,196

 

 

 

3,748

 

 

 

39,017

 

 

 

5,174

 

Other revenue

 

5,216

 

 

 

1,155

 

 

 

9,518

 

 

 

1,208

 

Total revenues

 

152,226

 

 

 

28,339

 

 

 

261,910

 

 

 

30,783

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental property operating

 

51,452

 

 

 

9,389

 

 

 

90,070

 

 

 

9,694

 

Hotel operating

 

13,522

 

 

 

2,109

 

 

 

25,136

 

 

 

2,949

 

General and administrative

 

2,901

 

 

 

1,567

 

 

 

4,946

 

 

 

4,253

 

Management fee

 

9,281

 

 

 

 

 

 

16,250

 

 

 

 

Performance participation allocation

 

9,476

 

 

 

5,241

 

 

 

17,349

 

 

 

5,241

 

Depreciation and amortization

 

84,826

 

 

 

23,696

 

 

 

158,950

 

 

 

24,786

 

Total expenses

 

171,458

 

 

 

42,002

 

 

 

312,701

 

 

 

46,923

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from real estate-related securities

 

17,397

 

 

 

2,543

 

 

 

30,632

 

 

 

3,409

 

Interest income

 

121

 

 

 

117

 

 

 

198

 

 

 

382

 

Interest expense

 

(49,841

)

 

 

(5,541

)

 

 

(81,232

)

 

 

(5,547

)

Other income (expense)

 

(389

)

 

 

(157

)

 

 

(389

)

 

 

(72

)

Total other income (expense)

 

(32,712

)

 

 

(3,038

)

 

 

(50,791

)

 

 

(1,828

)

Net loss

$

(51,944

)

 

$

(16,701

)

 

$

(101,582

)

 

$

(17,968

)

Net loss attributable to non-controlling interests

$

1,462

 

 

$

 

 

$

3,552

 

 

$

 

Net loss attributable to BREIT stockholders

$

(50,482

)

 

$

(16,701

)

 

$

(98,030

)

 

$

(17,968

)

Net loss per share of common stock — basic and diluted

$

(0.19

)

 

$

(0.22

)

 

$

(0.41

)

 

$

(0.31

)

Weighted-average shares of common stock outstanding, basic and diluted

 

272,727,892

 

 

 

76,595,994

 

 

 

239,600,008

 

 

 

57,060,077

 

Gross distributions declared per share of common stock

$

0.16

 

 

$

0.13

 

 

$

0.31

 

 

$

0.17

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

2


 

Blackstone Real Estate Income Trust, Inc.

Condensed Consolidated Statement of Changes in Equity (Unaudited)

(in thousands)

 

 

 

 

Par Value

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Common

 

 

Common

 

 

Common

 

 

Additional

 

 

Deficit and

 

 

Total

 

 

Non-

 

 

 

 

 

 

 

Stock

 

 

Stock

 

 

Stock

 

 

Stock

 

 

Paid-in

 

 

Cumulative

 

 

Stockholders'

 

 

controlling

 

 

Total

 

 

 

Class S

 

 

Class T

 

 

Class D

 

 

Class I

 

 

Capital

 

 

Distributions

 

 

Equity

 

 

Interests

 

 

Equity

 

Balance at December 31, 2016

 

$

 

 

$

 

 

$

 

 

$

 

 

$

200

 

 

$

(115

)

 

$

85

 

 

$

 

 

$

85

 

Common stock issued

 

 

711

 

 

 

 

 

 

2

 

 

 

172

 

 

 

893,765

 

 

 

 

 

 

894,650

 

 

 

 

 

 

894,650

 

Distribution reinvestment

 

 

3

 

 

 

 

 

 

 

 

 

1

 

 

 

4,266

 

 

 

 

 

 

4,270

 

 

 

 

 

 

4,270

 

Offering costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(70,369

)

 

 

 

 

 

(70,369

)

 

 

 

 

 

(70,369

)

Amortization of restricted stock grant

 

 

 

 

 

 

 

 

 

 

 

 

 

 

52

 

 

 

 

 

 

52

 

 

 

 

 

 

52

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,968

)

 

 

(17,968

)

 

 

 

 

 

(17,968

)

Distributions declared on common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,270

)

 

 

(10,270

)

 

 

 

 

 

(10,270

)

Balance at June 30, 2017

 

$

714

 

 

$

 

 

$

2

 

 

$

173

 

 

$

827,914

 

 

$

(28,353

)

 

$

800,450

 

 

$

 

 

$

800,450

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

$

1,301

 

 

$

56

 

 

$

40

 

 

$

307

 

 

$

1,616,720

 

 

$

(132,633

)

 

$

1,485,791

 

 

$

23,848

 

 

$

1,509,639

 

Common stock issued

 

 

668

 

 

 

92

 

 

 

128

 

 

 

353

 

 

 

1,325,418

 

 

 

 

 

 

1,326,659

 

 

 

 

 

 

1,326,659

 

Offering costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(83,852

)

 

 

 

 

 

(83,852

)

 

 

 

 

 

(83,852

)

Distribution reinvestment

 

 

25

 

 

 

1

 

 

 

 

 

 

9

 

 

 

38,466

 

 

 

 

 

 

38,501

 

 

 

 

 

 

38,501

 

Common stock repurchased

 

 

(8

)

 

 

 

 

 

 

 

 

(2

)

 

 

(11,104

)

 

 

 

 

 

(11,114

)

 

 

 

 

 

(11,114

)

Amortization of restricted stock grants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50

 

 

 

 

 

 

50

 

 

 

 

 

 

50

 

Net loss ($622 allocated to redeemable non-controlling interest)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(98,030

)

 

 

(98,030

)

 

 

(2,930

)

 

 

(100,960

)

Distributions declared on common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(66,427

)

 

 

(66,427

)

 

 

 

 

 

(66,427

)

Contributions from non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,274

 

 

 

11,274

 

Distributions to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,227

)

 

 

(1,227

)

Allocation to redeemable non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,456

)

 

 

 

 

 

(1,456

)

 

 

 

 

 

(1,456

)

Balance at June 30, 2018

 

$

1,986

 

 

$

149

 

 

$

168

 

 

$

667

 

 

$

2,884,242

 

 

$

(297,090

)

 

$

2,590,122

 

 

$

30,965

 

 

$

2,621,087

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

3


 

Blackstone Real Estate Income Trust, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(101,582

)

 

$

(17,968

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Management fee

 

 

16,250

 

 

 

 

Performance participation allocation

 

 

17,349

 

 

 

 

Depreciation and amortization

 

 

158,950

 

 

 

24,786

 

Unrealized gain on changes in fair value of financial instruments

 

 

(3,848

)

 

 

(1,635

)

Other items

 

 

(519

)

 

 

(203

)

Change in assets and liabilities:

 

 

 

 

 

 

 

 

(Increase) / decrease in other assets

 

 

(24,186

)

 

 

(6,277

)

Increase / (decrease) in due to affiliates

 

 

(257

)

 

 

7,634

 

Increase / (decrease) in accounts payable, accrued expenses, and other liabilities

 

 

42,168

 

 

 

13,147

 

Net cash provided by operating activities

 

 

104,325

 

 

 

19,484

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Acquisitions of real estate

 

 

(3,372,075

)

 

 

(1,509,640

)

Capital improvements to real estate

 

 

(28,843

)

 

 

(461

)

Pre-acquisition costs

 

 

(615

)

 

 

(1,123

)

Purchase of real estate-related securities

 

 

(676,394

)

 

 

(300,040

)

Proceeds from settlement of real estate-related securities

 

 

115,619

 

 

 

16,596

 

Net cash used in investing activities

 

 

(3,962,308

)

 

 

(1,794,668

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

1,204,297

 

 

 

894,650

 

Offering costs paid

 

 

(19,208

)

 

 

(10,102

)

Subscriptions received in advance

 

 

137,896

 

 

 

88,657

 

Repurchase of common stock

 

 

(6,881

)

 

 

 

Redemption of redeemable non-controlling interest

 

 

(8,400

)

 

 

 

Borrowings from mortgage notes, term loans, and revolving credit facilities

 

 

3,141,053

 

 

 

723,304

 

Repayments from mortgage notes, term loans, and revolving credit facilities

 

 

(894,600

)

 

 

 

Borrowings under repurchase agreements

 

 

508,949

 

 

 

182,154

 

Settlement of repurchase agreements

 

 

(89,557

)

 

 

(12,571

)

Borrowings from affiliate line of credit

 

 

575,000

 

 

 

178,208

 

Repayments on affiliate line of credit

 

 

(580,250

)

 

 

(134,500

)

Payment of deferred financing costs

 

 

(19,847

)

 

 

(8,742

)

Contributions from non-controlling interests

 

 

11,274

 

 

 

 

Distributions to non-controlling interests

 

 

(1,652

)

 

 

 

Distributions

 

 

(21,776

)

 

 

(1,917

)

Net cash provided by financing activities

 

 

3,936,298

 

 

 

1,899,141

 

Net change in cash and cash equivalents and restricted cash

 

 

78,315

 

 

 

123,957

 

Cash and cash equivalents and restricted cash, beginning of period

 

 

157,729

 

 

 

200

 

Cash and cash equivalents and restricted cash, end of period

 

$

236,044

 

 

$

124,157

 

 

 

 

 

 

 

 

 

 

Reconciliation of cash and cash equivalents and restricted cash to the condensed consolidated balance sheets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

56,456

 

 

$

31,296

 

Restricted cash

 

 

179,588

 

 

 

92,861

 

Total cash and cash equivalents and restricted cash

 

$

236,044

 

 

$

124,157

 

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Assumption of mortgage notes in conjunction with acquisitions of real estate

 

$

151,220

 

 

$

 

Assumption of other liabilities in conjunction with acquisitions of real estate

 

$

36,625

 

 

$

10,459

 

Accrued capital expenditures and acquisition related costs

 

$

8,163

 

 

$

1,003

 

Accrued pre-acquisition costs

 

$

403

 

 

$

585

 

Accrued distributions

 

$

6,194

 

 

$

4,083

 

Accrued stockholder servicing fee due to affiliate

 

$

65,254

 

 

$

53,385

 

Accrued offering costs due to affiliate

 

$

 

 

$

6,882

 

Redeemable non-controlling interest issued as settlement of performance participation allocation

 

$

16,974

 

 

$

 

Allocation to redeemable non-controlling interest

 

$

1,456

 

 

$

 

Distribution reinvestment

 

$

38,503

 

 

$

4,270

 

Accrued common stock repurchases

 

$

4,233

 

 

$

 

Payable for real estate-related securities

 

$

170,028

 

 

$

6,647

 

See accompanying notes to condensed consolidated financial statements.

4


 

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 June 30, 2018, the Company had received net proceeds of $3.1 billion from selling an aggregate of 296,037,091 shares of the Company’s common stock (consisting of 199,474,239 Class S shares, 14,860,908 Class T shares, 16,828,257 Class D shares, and 64,873,687 Class I shares). The Company intends to continue selling shares on a monthly basis.

As of June 30, 2018, the Company owned 42 investments in real estate and had 74 positions in real estate-related debt 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 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 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 June 30, 2018, the total assets and liabilities of the Company’s consolidated VIEs, excluding BREIT OP, were $1.4 billion and $960.8 million, 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 June 30, 2018 and December 31, 2017, restricted cash primarily consists of $137.9 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 June 30, 2018 and December 31, 2017, the Company’s $1.7 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 June 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. Mortgage-related securities are usually issued as separate tranches, or classes, of securities within each deal. The Company generally determines the fair value of its CMBS 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 mortgage-related securities such as CMBS usually 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 June 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 $18.5 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 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 March 2018, the FASB 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. The Company is currently evaluating the potential impact of this pronouncement on the Company’s consolidated financial statements from both a lessor and lessee standpoint. Under the new leasing standard, lessor accounting remains substantially the same as current GAAP. 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 June 30, 2018, the undiscounted future minimum lease payments due under the Company’s long-term ground leases total $14.1 million.

3. Investments in Real Estate

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

 

 

 

June 30, 2018

 

 

December 31, 2017

 

Building and building improvements

 

$

5,383,773

 

 

$

2,815,348

 

Land and land improvements

 

 

1,396,214

 

 

 

574,253

 

Furniture, fixtures and equipment

 

 

97,343

 

 

 

64,080

 

Total

 

 

6,877,330

 

 

 

3,453,681

 

Accumulated depreciation

 

 

(129,295

)

 

 

(47,126

)

Investments in real estate, net

 

$

6,748,035

 

 

$

3,406,555

 

During the six months ended June 30, 2018, the Company acquired interests in 15 real estate investments, which were comprised of 155 industrial, 40 multifamily and four hotel properties.

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

 

Investment

 

Ownership

Interest(1)

 

 

Number of

Properties

 

 

Location

 

Segment

 

Acquisition

Date

 

Purchase

Price(2)

 

Aston Multifamily Portfolio(3)

 

90%

 

 

 

8

 

 

Various(4)

 

Multifamily

 

Jan. 2018

 

$

141,743

 

Kraft Chicago Industrial Portfolio

 

100%

 

 

 

3

 

 

Aurora, IL

 

Industrial

 

Jan. 2018

 

 

151,365

 

Canyon Industrial Portfolio(5)

 

100%

 

 

 

146

 

 

Various(5)

 

Industrial

 

Mar. 2018

 

 

1,837,213

 

The Boulevard

 

100%

 

 

 

1

 

 

Phoenix, AZ

 

Multifamily

 

April 2018

 

 

48,392

 

Highroads MH

 

99%

 

 

 

3

 

 

Phoenix, AZ

 

Multifamily

 

April 2018

 

 

18,637

 

Blue Hills Multifamily

 

100%

 

 

 

1

 

 

Boston, MA

 

Multifamily

 

May 2018

 

 

131,747

 

Wave Multifamily Portfolio

 

100%

 

 

 

6

 

 

Various(6)

 

Multifamily

 

May 2018

 

 

423,135

 

ACG III Multifamily

 

95%

 

 

 

2

 

 

Gresham, OR & Turlock, CA

 

Multifamily

 

May 2018

 

 

96,182

 

Carroll Florida Multifamily

 

100%

 

 

 

2

 

 

Jacksonville & Orlando, FL

 

Multifamily

 

May 2018

 

 

116,832

 

HP Cold Storage Industrial Portfolio

 

100%

 

 

 

6

 

 

Various(7)

 

Industrial

 

May 2018

 

 

253,082

 

Henderson Select-Service 2-Pack

 

100%