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Why Commercial Real Estate?

Commercial real estate is a potential source of consistent income, with lower volatility* than publicly traded equities. With historically low correlations to both equities and bonds, commercial real estate may help create a more efficient portfolio.
*BREIT's per share NAV is based on the value of real estate assets it owns and is not subject to market pricing forces as are the shares of public equities. The value of BREIT's underlying investments may fluctuate and may be worth less than BREIT initially paid for them. BREIT shares are significantly less liquid than shares of publicly traded equities and are not immune to fluctuations.

Diversifying with commercial real estate may create a more efficient portfolio

Fixed Income $39 trillion total U.S. debt outstanding Real Estate $16 trillion U.S. commercial real estate market Equities $27 trillion total U.S. stock market capitalization Fixed Income $39 trillion total U.S. debt outstanding Real Estate $16 trillion U.S. commercial real estate market Equities $27 trillion total U.S. stock market capitalization
  • Potential income from
    tenant rents
  • Potential appreciation from
    increased property values
Yield-oriented
Capital appreciation-oriented

Market capitalizations as of December 31, 2016. Sources: The World Bank, Securities Industry and Financial Markets Association (SIFMA), Green Street Advisors. There is no assurance that real estate investments will achieve capital appreciation or provide regular, stable distributions..

Potential Portfolio Benefits

Based on historical analysis, the inclusion of commercial real estate in a traditional portfolio of stocks and bonds has added modestly to returns while reducing overall volatility.

Returns and Risk (1996-2016, annualized)

Return7.2%
Volatility9.5
Return7.6%
Volatility8.9
Source: Morningstar Direct, NCREIF. 20-year period ending December 31, 2016. Portfolios with and without commercial real estate are hypothetical and this is not a recommendation of how to allocate a portfolio. Returns and Volatility presented are on an annualized basis. Past performance does not guarantee future results. The indices presented represent investments that have material differences from an investment in a non-traded REIT, including those related to vehicle structure, investment objectives and restrictions, risks, fluctuation of principal, safety guarantees or insurance, fees and expenses, liquidity and tax treatment. Commercial real estate is represented by the NCREIF Open-End Diversified Core (ODCE) Index and reflects the returns of diversified, private core, open-end funds that invest in private real estate. NCREIF ODCE quotes returns including leverage and fund expenses, but excluding management and advisory fees. The term core typically reflects lower risk investment strategies, utilizing low leverage and generally represented by equity ownership positions in stable U.S. operating properties. Returns net of management and advisory fees would be materially lower. An investment in BREIT is different from the NCREIF ODCE, which is not an investable index. Equities are represented by the total return of the S&P 500 Index, including dividends (S&P 500 Index) and are subject to market risk. Fixed Income is represented by the Barclays US Aggregate Bond Index and are subject to credit risk. The S&P 500 Index and the Barclays US Aggregate Bond Index are meant to illustrate general market performance; it is not possible to invest directly in an index. BREIT shares are significantly less liquid than fixed income and equities. See Index Definitions below for further descriptions regarding each index.

A distinctive source of income

  • Income derived from commercial real estate has exceeded that from other asset classes.
  • 80% of total return comes from income.

A distinctive source of income

Historical Yield Comparison6

Average annual yield, 2007-2016
Past performance is no guarantee of future results.
As of December 31, 2016. Source: Morningstar Direct, NCREIF. Past performance does not guarantee future results. An investment in BREIT is not a direct investment in real estate, and has material differences from a direct investment in real estate, including those related to fees and expenses, liquidity and tax treatment. BREIT’s share price is subject to less volatility because its per share NAV is based on the value of real estate assets it owns and is not subject to market pricing forces as is the price of investment-grade bonds, equities or T-bills. Although BREIT’s share price is subject to less volatility, BREIT shares are significantly less liquid than these asset classes, and are not immune to fluctuations. NAV based real estate may exhibit less price volatility, commercial real estate is not traded on an exchange and will have less liquidity and price transparency. The value of commercial real estate may fluctuate and may be worth less than was initially paid for it. Commercial real estate is represented by the NCREIF Open-End Diversified Core (ODCE) Index, which is an equal weighted, time weighted index of open-end core real estate funds reported net of fees. The term core typically reflects lower risk investment strategies, utilizing low leverage and generally represented by equity ownership positions in stable U.S. operating properties. Funds are weighted equally, regardless of size. NCREIF ODCE represents the broad-based commercial real estate market, with its income returns based on net operating income after debt service; distributions from BREIT are not guaranteed and may be sourced from non-income items including, without limitation, the sale of assets, borrowings, return of capital or offering processed, and we have no limits on the amounts we may pay from such sources. While funds used in this benchmark have characteristics that differ from BREIT (including differing management fees and leverage), BREIT’s management feels that the NCREIF ODCE is an appropriate and accepted index for the purpose of evaluating the historic yields of direct real estate funds. Investors cannot invest in this index. Comparisons shown are for illustrative purposes only and do not represent specific investments. BREIT has the ability to utilize higher leverage than is allowed for the funds in the NCREIF ODCE, which could increase BREIT’s volatility relative to the index. Additionally, an investment in BREIT is subject to certain fees that are not contemplated in the NCREIF ODCE, which is not an investable index. Stocks are represented by the dividend yield of the S&P 500 Index. The S&P 500 Index is a widely used barometer of U.S. stock market performance; the key risk of the S&P 500 Index is the volatility that comes with exposure to the stock market. Investment-grade bonds are represented by bond yield to maturity of the Barclays US Aggregate Bond Index. Investment grade bonds provide broad exposure to U.S. investment grade bonds including government bonds. Increases in interest rates may cause the price of bonds to decrease. Corporate bonds are subject to credit risk. T-bills are represented by the BofAML 3 Month T-Bill Index and are subject to interest rate risk. Treasury Bills are guaranteed as to the timely payment of principal and interest. Indices are meant to illustrate general market performance; it is not possible to invest directly in an index. An investment in investment grade bonds and T-bills is generally considered to be a less risky investment than commercial real estate. See Index Definitions below for further descriptions regarding each index.

A Potential Inflation Hedge

A potential inflation hedge

Real Estate Income and Inflation7

Indexed, 1995=100

  • Commercial real estate income has increased over the past 20 years due to rising rents.
  • Growth in real estate income was driven by a number of factors, including market rent growth and rent escalation clauses.
  • Bonds generally have fixed coupons.
BREIT’s share price is subject to less volatility because its per share NAV is based on the value of real estate assets it owns and is not subject to market pricing forces as is the price of public equities. Although BREIT’s share price is subject to less volatility, the value of real estate may fluctuate and may be worth less than was initially paid for it. BREIT shares are significantly less liquid than public equities, and are not immune to fluctuations.

As of December 31, 2016. Source: Green Street Advisors, Bureau of Labor Statistics. Net operating income (NOI) growth represents the average NOI growth by year across the apartment, industrial, mall, office and strip retail sectors. The Consumer Price Index (CPI) measures changes in the prices paid by urban consumers for a representative basket of goods and services. Past performance is no guarantee of future results. NOI may not be correlated to or continue to keep pace with inflation.

FAVORABLE RETURNS, LOWER VOLATILITY

  • Commercial real estate has exhibited 88% less volatility than public equities. 1
  • The property value of commercial real estate may fluctuate.

Total returns with lower volatility

Cumulative historical returns8

Indexed, 2011=100

  1. Annualized standard deviation of the NCREIF ODCE relative to the S&P 500 Index for the 6 year period ending December 31, 2016.
  2. As of December 31, 2016. Source: Morningstar Direct, NCREIF. Past performance does not guarantee future results. An investment in BREIT is not a direct investment in real estate, and has material differences from a direct investment in real estate, including those related to fees and expenses, liquidity and tax treatment. BREIT’s share price is subject to less volatility because its per share NAV is based on the value of real estate assets it owns and is not subject to market pricing forces as is the price of public equities. Although BREIT’s share price is subject to less volatility, the value of real estate may fluctuate and may be worth less than was initially paid for it. BREIT shares are significantly less liquid than public equities, and are not immune to fluctuations. Commercial real estate is represented by the NCREIF ODCE and reflects the total returns of diversified, private core, open-end funds including leverage and fund expenses, but excluding management and advisory fees. The term core typically reflects lower risk investment strategies, utilizing low leverage and generally represented by equity ownership positions in stable U.S. operating properties. Funds are weighted equally, regardless of size. While funds used in this benchmark have characteristics that differ from BREIT (including differing management fees and leverage), BREIT’s management feels that the NCREIF ODCE is an appropriate and accepted index for the purpose of evaluating the total returns of direct real estate funds. Investors cannot invest in this index. Comparisons shown are for illustrative purposes only and do not represent specific investments. BREIT has the ability to utilize higher leverage than is allowed for the funds in the NCREIF ODCE, which could increase BREIT’s volatility relative to the Index. Additionally, an investment in BREIT is subject to certain fees that are not contemplated in the NCREIF ODCE. Public equities are represented by the S&P 500 Index. The S&P 500 Index is a widely used barometer of U.S. stock performance with broad sector representation, not just real estate; the key risk of the S&P 500 Index is the volatility that comes with exposure to the stock market. Commercial real estate values are based on appraisals, while public equities are based upon market prices.
2007200820092010201120122013201420152016
Best performing sector
Apartment
Retail
Retail
Apartment
Apartment
Retail
Retail
Industrial
Retail
Industrial
Return differential between best and worst sectors 915 bps523 bps946 bps925 bps366 bps335 bps518 bps313 bps329 bps760 bps
  1. There is no guarantee that BREIT will be diversified. Diversification by asset class or among real estate sectors does not necessarily protect against losses.
  2. Source: NCREIF Property Index, as of December 31, 2016. One basis point is equal to 1/100th of 1%.

Historically Stable Income

  • Consistent income from commercial real estate as demonstrated by NCREIF data.
  • For the last 20 years, quarterly income for commercial real estate has been between 1-2% 73% of the time and between 2-3% 28% of the time.

Quarterly Income Distributions Over Time9

1997-2016
Note: Past performance is no guarantee of future results. Performance data shown represents the performance of an index and not that of BREIT. There is no assurance we will pay distributions in any particular amount, if at all. Any distributions we make will be at the discretion of our board of directors. We may fund any distributions from sources other than cash flow from operations, including, without limitation, the sale of assets, borrowings, return of capital or offering proceeds (including from sales of our common stock or Operating Partnership units to the Special Limited Partner, an affiliate of Blackstone), and we have no limits on the amounts we may pay from such sources.

Source: NCREIF, 20 year period corresponding to January 1, 1996 to December 31, 2016. NCREIF ODCE quotes returns including leverage and fund expenses, but excluding management and advisory fees. Returns net of management and advisory fees would be materially lower. It is not possible to invest in an index.

Risk and return by asset class1

20 year annualized returns

1997-2016
  • Commercial real estate has historically generated attractive returns.
  • Commercial real estate has exhibited 88% less volatility than public equities.2
  1. As of December 31, 2016. Source: Morningstar Direct, NCREIF. Past performance does not guarantee future results. An investment in BREIT is not a direct investment in real estate, and has material differences from a direct investment in real estate, including those related to fees and expenses, liquidity and tax treatment. BREIT’s share price is subject to less volatility because its per share NAV is based on the value of real estate assets it owns and is not subject to market pricing forces as is the price of investment-grade bonds, equities or T-bills. Although BREIT’s share price is subject to less volatility, BREIT shares are significantly less liquid than these asset classes, and are not immune to fluctuations. NAV based real estate may exhibit less price volatility, commercial real estate is not traded on an exchange and will have less liquidity and price transparency. The value of commercial real estate may fluctuate and may be worth less than was initially paid for it. Commercial real estate is represented by the NCREIF Open-End Diversified Core (ODCE) Index, which is an equal weighted, time weighted index of open-end core real estate funds reported net of fees. The term core typically reflects lower risk investment strategies, utilizing low leverage and generally represented by equity ownership positions in stable U.S. operating properties. Funds are weighted equally, regardless of size. NCREIF ODCE represents the broad-based commercial real estate market, with its income returns based on net operating income after debt service; distributions from BREIT are not guaranteed and may be sourced from non-income items including, without limitation, the sale of assets, borrowings, return of capital or offering processed, and we have no limits on the amounts we may pay from such sources. While funds used in this benchmark have characteristics that differ from BREIT (including differing management fees and leverage), BREIT’s management feels that the NCREIF ODCE is an appropriate and accepted index for the purpose of evaluating the historic yields of direct real estate funds. Investors cannot invest in this index. Comparisons shown are for illustrative purposes only and do not represent specific investments. BREIT has the ability to utilize higher leverage than is allowed for the funds in the NCREIF ODCE, which could increase BREIT’s volatility relative to the index. Additionally, an investment in BREIT is subject to certain fees that are not contemplated in the NCREIF ODCE, which is not an investable index. Stocks are represented by the dividend yield of the S&P 500 Index. The S&P 500 Index is a widely used barometer of U.S. stock market performance; the key risk of the S&P 500 Index is the volatility that comes with exposure to the stock market. Investment-grade bonds are represented by bond yield to maturity of the Barclays US Aggregate Bond Index. Investment grade bonds provide broad exposure to U.S. investment grade bonds including government bonds. Increases in interest rates may cause the price of bonds to decrease. Corporate bonds are subject to credit risk. T-bills are represented by the BofAML 3 Month T-Bill Index and are subject to interest rate risk. Treasury Bills are guaranteed as to the timely payment of principal and interest. Indices are meant to illustrate general market performance; it is not possible to invest directly in an index. An investment in investment grade bonds and T-bills is generally considered to be a less risky investment than commercial real estate. See Index Definitions below for further descriptions regarding each index.
  2. BREIT’s share price is subject to less volatility because its per share NAV is based on the value of real estate assets it owns and is not subject to market pricing forces as is the price of investment-grade bonds, equities, public REITs or Treasuries. Although BREIT’s share price is subject to less volatility, BREIT shares are significantly less liquid than these asset classes, and are not immune to fluctuations.

An Inherent Diversifier

  • Commercial real estate historically has exhibited low or negative correlation to both equites and fixed income.

Commercial Real Estate Correlations10

20 years ending December 31, 2016
Morningstar Direct, NCREIF, 20 year period ending December 31, 2016. Commercial Real Estate represented by the NCREIF ODCE Index. Stocks are represented by the total return of the S&P 500 Index. The S&P 500 Index is a widely used barometer of U.S. stock market performance; the key risk of the S&P 500 Index is the volatility that comes with exposure to the stock market. Investment-grade bonds are represented by the total return of the Barclays US aggregate Bond Index. Investment grade bonds provide broad exposure to U.S. investment grade bonds including government bonds. Increases in interest rates may cause the price of bonds to decrease. Corporate bonds are subject to credit risk. Correlation measures how one investment performs in relation to another, with a coefficient of +1 being a perfect, positive correlation and a coefficient of -1 being a perfect, negative correlation. When two asset classes have a correlation of +1, they will both move up or down by the same amount in the same direction. Conversely, a correlation of -1 indicates that when one asset class moves up or down, the other moves in the opposite direction by the same amount. In general, asset classes with a correlation of less than 0.70 or greater than -0.70 are considered to have relatively low correlation.