Understanding the Terms of the Blackstone REIT Share Repurchase Plan
January 17, 2023 | James Sprow | Blue Vault
It is important for shareholders and journalists reporting on the recent share repurchase requests by shareholders in Blackstone Real Estate Income Trust to understand the terms and conditions of the repurchase plan. As the repurchase plans of virtually all of the currently active continuously offered nontraded REIT programs are very similar, shareholders in any of those 16 “NAV REITs” should certainly familiarize themselves with these terms and conditions.
Following are the terms and conditions of the Class T, S, D, I and C Share Repurchase Plan filed with the SEC by Blackstone Real Estate Income Trust, effective as of December 30, 2022.
“Repurchase Limitations
The Company may repurchase fewer shares than have been requested in any particular month to be repurchased under this Plan, or none at all, in its discretion at any time. In addition, the aggregate NAV of total repurchases of Class T, Class S, Class D, Class I and Class C shares (including repurchases at certain non-U.S. investor access funds primarily created to hold shares of the Company but excluding any Early Repurchase Deduction applicable to the repurchased shares) under this Plan will be limited to no more than 2% of the Company’s aggregate NAV per month (measured using the aggregate NAV as of the end of the immediately preceding month) and no more than 5% of the Company’s aggregate NAV per calendar quarter (measured using the average aggregate NAV as of the end of the immediately preceding three months).
In the event that the Company determines to repurchase some but not all of the shares submitted for repurchase during any month under this Plan, shares submitted for repurchase during such month will be repurchased on a pro rata basis after the Company has repurchased all shares for which repurchase has been requested due to death, disability or divorce. All unsatisfied repurchase requests must be resubmitted after the start of the next month or quarter, or upon the recommencement of this Plan, as applicable.
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. The Transaction Price for each month will be available on the Company’s website at www.breit.com and in prospectus supplements filed with the Securities and Exchange Commission.
Should repurchase requests, in the Company’s judgment, place an undue burden on the Company’s liquidity, adversely affect the Company’s 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 investments rather than repurchasing the Company’s shares is in the best interests of the Company as a whole, the Company may choose to repurchase fewer shares in any particular month than have been requested to be repurchased, or none at all. Further, the Company’s board of directors may make exceptions to, modify or suspend this Plan if, in its reasonable judgment, it deems such action to be in the best interest of the Company and its Stockholders. The Company’s board of directors cannot terminate this Plan absent a liquidity event which results in Stockholders receiving cash or securities listed on a national securities exchange or where otherwise required by law. Material modifications, including any amendment to the 2% monthly or 5% quarterly limitations on repurchases, to and suspensions of the Plan will be promptly disclosed to Stockholders in a prospectus supplement (or post-effective amendment if required by the Securities Act) or special or periodic report filed by us. Material modifications will also be disclosed on the Company’s website. In addition, the Company may determine to suspend this Plan due to regulatory changes, changes in law or if the Company becomes aware of undisclosed material information that it believes should be publicly disclosed before shares are repurchased. Once this Plan is suspended, the Company’s board of directors will be required to consider at least quarterly whether the continued suspension of the Plan is in the best interests of the Company and the Stockholders. The Company’s board of directors must affirmatively authorize the recommencement of this Plan if it is suspended before Stockholder requests will be considered again.
As described in the Company’s prospectus, shares held by the Adviser acquired as payment of the Adviser’s management fee will not be subject to this Plan, including with respect to any repurchase limits, the Early Repurchase Deduction or the calculation of NAV. In addition, any repurchases of shares in respect of distributions on the performance participation interest will not be subject to the Early Repurchase Deduction. Stockholders who are exchanging a class of the Company’s shares for an equivalent aggregate NAV of another class of the Company’s shares will not be subject to, and will not be treated as repurchases for the calculation of, the 2% monthly or 5% quarterly limitations on repurchases and will not be subject to the Early Repurchase Deduction.
Early Repurchase Deduction
There is no minimum holding period for shares of the Company’s common stock and Stockholders can request that the Company repurchase their shares at any time. However, subject to limited exceptions, shares that have not been outstanding for at least one year will be repurchased at 98% of the Transaction Price (an “Early Repurchase Deduction”) on the applicable Repurchase Date. The one-year holding period is measured as of the first calendar day immediately following the prospective Repurchase Date. Additionally, Stockholders who have received shares of the Company’s common stock in exchange for their Operating Partnership units may include the period of time such Stockholder held such Operating Partnership units for purposes of calculating the holding period for such shares of the Company’s common stock. This Early Repurchase Deduction will also generally apply to minimum account repurchases. The Early Repurchase Deduction will not apply to shares acquired through the Company’s distribution reinvestment plan.
The Company may, from time to time, waive the Early Repurchase Deduction in the following circumstances (subject to conditions described below):
· repurchases resulting from death, qualifying disability or divorce;
· in the event that a Stockholder’s shares are repurchased because such Stockholder has failed to maintain the $500 minimum account balance; or
· due to trade or operational error.
As set forth above, the Company may waive the Early Repurchase Deduction in respect of repurchase of shares resulting from the death, qualifying disability (as such term is defined in Section 72(m)(7) of the Code) or divorce of a Stockholder who is a natural person, including shares held by such Stockholder through a trust or an individual retirement account or other retirement or profit-sharing plan, after (i) in the case of death, receiving written notice from the estate of the Stockholder, the recipient of the shares through bequest or inheritance, or, in the case of a trust, the trustee of such trust, who shall have the sole ability to request repurchase on behalf of the trust, (ii) in the case of qualified disability, receiving written notice from such Stockholder, provided that the condition causing the qualifying disability was not pre-existing on the date that the Stockholder became a Stockholder or (iii) in the case of divorce, receiving written notice from the Stockholder of the divorce and the Stockholder’s instructions to effect a transfer of the shares (through the repurchase of the shares by the Company and the subsequent purchase by the Stockholder) to a different account held by the Stockholder (including trust or an individual retirement account or other retirement or profit-sharing plan). The Company must receive the written repurchase request within 12 months after the death of the Stockholder, the initial determination of the Stockholder’s disability or divorce in order for the requesting party to rely on any of the special treatment described above that may be afforded in the event of the death, disability or divorce of a Stockholder. In the case of death, such a written request must be accompanied by a certified copy of the official death certificate of the Stockholder. If spouses are joint registered holders of shares, the request to have the shares repurchased may be made if either of the registered holders dies or acquires a qualified disability. If the Stockholder is not a natural person, such as certain trusts or a partnership, corporation or other similar entity, the right to waiver of the Early Repurchase Deduction upon death, disability or divorce does not apply.
In addition, shares of the Company’s common stock are sold to certain feeder vehicles primarily created to hold the Company’s shares that in turn offer interests in such feeder vehicles to non-U.S. persons*. For such feeder vehicles and similar arrangements in certain markets, the Company will not apply the Early Repurchase Deduction to the feeder vehicles or underlying investors, often because of administrative or systems limitations. Further, the Company will not apply the Early Repurchase Deduction on repurchases of the Company’s common stock submitted by discretionary model portfolio management programs (and similar arrangements) as approved by the Company.”
While the liquidity offered to common shareholders via the share repurchase programs of the continuously offered nontraded REITs are an innovation that has made these programs attractive to investors wishing to diversify into alternative assets such as commercial real estate, it’s also important to recognize the limitations on liquidity inherent in such investments. With the recent downturn in the NAV’s of nontraded REITs after several years of continuously increasing NAVs, it is not surprising that some shareholders have sought to liquidate their holdings. There may be arbitrage strategies affecting the demand for repurchases as the listed REIT valuations have fallen drastically over the past year, making the NAVs of nontraded REITs appear relatively over-valued. However, the ability of the managers and boards of the continuously offered nontraded REITs to limit repurchases is important in maintaining their long-term investment strategies in alternative assets.
*This phrase implies that foreign investors such as those cited by Blackstone REIT’s management as the source of a significant portion of the REIT’s recent repurchase requests are not subject to the Early Purchase Deductions which other short-term investors may face.
Source: 8-K SEC filing by Blackstone REIT on January 6, 2023
