BLACKSTONE MORTGAGE TRUST, INC. References herein to "Blackstone Mortgage Trust ," "Company," "we," "us," or "our" refer toBlackstone Mortgage Trust, Inc. and its subsidiaries unless the context specifically requires otherwise. The following discussion should be read in conjunction with the unaudited consolidated financial statements and notes thereto appearing elsewhere in this quarterly report on Form 10-Q. In addition to historical data, this discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect our current views with respect to, among other things, our business, operations and financial performance. You can identify these forward-looking statements by the use of words such as "intend," "goal," "estimate," "expect," "project," "projections," "plans," "seeks," "anticipates," "should," "could," "may," "designed to," "foreseeable future," "believe," "scheduled," and similar expressions. Such forward-looking statements are subject to various risks, uncertainties and assumptions. Our actual results or outcomes may differ materially from those in this discussion as a result of various factors, including but not limited to those discussed in Item 1A. Risk Factors in our annual report on Form 10-K for the year endedDecember 31, 2019 , as well as in Part II. Item 1A. Risk Factors in our quarterly report on Form 10-Q for the fiscal period endedMarch 31, 2020 and elsewhere in this quarterly report on Form 10-Q. IntroductionBlackstone Mortgage Trust is a real estate finance company that originates senior loans collateralized by commercial real estate inNorth America ,Europe , andAustralia . Our portfolio is composed of loans secured by high-quality, institutional assets in major markets, sponsored by experienced, well-capitalized real estate investment owners and operators. These senior loans are capitalized by accessing a variety of financing options, including our credit facilities, issuing CLOs or single-asset securitizations, and syndications of senior loan participations, depending on our view of the most prudent financing option available for each of our investments. We are not in the business of buying or trading securities, and the only securities we own are the retained interests from our securitization financing transactions, which we have not financed. We are externally managed byBXMT Advisors L.L.C. , or our Manager, a subsidiary ofThe Blackstone Group Inc. , orBlackstone , and are traded on theNew York Stock Exchange , or NYSE, under the symbol "BXMT." We benefit from the deep knowledge, experience and information advantages of our Manager, which is a part ofBlackstone's real estate platform.Blackstone Real Estate is one of the largest owners and operators of real estate in the world, with a proven track record of successfully navigating market cycles and emerging stronger through periods of volatility. The market-leading real estate expertise derived from the strength of theBlackstone platform deeply informs our credit and underwriting process, and gives us the tools to expertly asset manage our portfolio and work with our borrowers throughout periods of economic stress and uncertainty. We are headquartered inNew York City and conduct our operations as a real estate investment trust, or REIT, forU.S. federal income tax purposes. We generally will not be subject toU.S. federal income taxes on our taxable income to the extent that we annually distribute all of our net taxable income to stockholders and maintain our qualification as a REIT. We also operate our business in a manner that permits us to maintain an exclusion from registration under the Investment Company Act of 1940, as amended. We are organized as a holding company and conduct our business primarily through our various subsidiaries. Recent Developments During the first quarter of 2020, there was a global outbreak of a novel coronavirus, or COVID-19, which has spread to over 200 countries and territories, includingthe United States , has spread to every state inthe United States , and is continuing to spread. TheWorld Health Organization has designated COVID-19 as a pandemic, and numerous countries, includingthe United States , have declared national emergencies with respect to COVID-19.The United States and other countries have reacted to the COVID-19 outbreak with unprecedented government intervention, including interest rate cuts and economic stimulus. The global impact of the outbreak has been rapidly evolving, and as cases of COVID-19 have continued to be identified in additional countries, many countries have reacted by instituting quarantines and restrictions on travel, closing financial markets and/or restricting trading, and limiting operations of non-essential offices, retail centers, hotels, and other businesses. Such actions are creating disruption in global supply chains, increasing rates of unemployment and adversely impacting many industries, including industries in which the collateral underlying certain of our loans are involved. The outbreak could have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown. 47
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Table of Contents The outbreak of COVID-19 and its impact on the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our financial condition, results of operations, liquidity, and ability to pay distributions. We expect that these impacts are likely to continue to some extent as the outbreak persists and potentially even longer. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions, and, as a result, present material uncertainty and risk with respect to us and the performance of our investments. The full extent of the impact and effects of COVID-19 will depend on future developments, including, among other factors, the duration and spread of the outbreak, along with related travel advisories, quarantines and restrictions, the recovery time of the disrupted supply chains and industries, the impact of labor market interruptions, the impact of government interventions, and uncertainty with respect to the duration of the global economic slowdown. For additional discussion with respect to the potential impact of the COVID-19 pandemic on our liquidity and capital resources, see "Liquidity and Capital Resources" below.
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Table of Contents I. Key Financial Measures and Indicators As a real estate finance company, we believe the key financial measures and indicators for our business are earnings per share, dividends declared, Core Earnings, and book value per share. For the three months endedJune 30, 2020 we recorded earnings per share of$0.13 , declared a dividend of$0.62 per share, and reported$0.62 per share of Core Earnings. In addition, our book value per share as ofJune 30, 2020 was$26.45 . As further described below, Core Earnings is a measure that is not prepared in accordance with accounting principles generally accepted inthe United States of America , or GAAP. We use Core Earnings to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan activity and operations. Earnings Per Share and Dividends Declared The following table sets forth the calculation of basic and diluted net income (loss) per share and dividends declared per share ($ in thousands, except per share data): Three Months Ended June 30, 2020 March 31, 2020 Net income (loss) (1)$ 17,544 $ (53,350 ) Weighted-average shares outstanding, basic and diluted 138,299,418 135,619,264 Net income (loss) per share, basic and diluted $ 0.13 $ (0.39 ) Dividends declared per share $ 0.62 $ 0.62 (1) Represents net income (loss) attributable toBlackstone Mortgage Trust . Core Earnings Core Earnings is a non-GAAP measure, which we define as GAAP net income (loss), including realized gains and losses not otherwise included in GAAP net income (loss), and excluding (i) non-cash equity compensation expense, (ii) depreciation and amortization, (iii) unrealized gains (losses), (iv) net income (loss) attributable to our legacy portfolio, and (v) certain non-cash items. Core Earnings may also be adjusted from time to time to exclude one-time events pursuant to changes in GAAP and certain other non-cash charges as determined by our Manager, subject to approval by a majority of our independent directors. During the six months endedJune 30, 2020 , we recorded a$179.5 million increase in the current expected credit loss, or CECL, reserve, which has been excluded from Core Earnings consistent with other unrealized gains (losses) pursuant to our existing policy for reporting Core Earnings and the terms of the management agreement between our Manager and us. We believe that Core Earnings provides meaningful information to consider in addition to our net income (loss) and cash flow from operating activities determined in accordance with GAAP. This adjusted measure helps us to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan portfolio and operations. Although, according to the management agreement between our Manager and us, or our Management Agreement, we calculate the incentive and base management fees due to our Manager using Core Earnings before our incentive fee expense, we report Core Earnings after incentive fee expense, as we believe this is a more meaningful presentation of the economic performance of our class A common stock. Core Earnings does not represent net income (loss) or cash generated from operating activities and should not be considered as an alternative to GAAP net income (loss), or an indication of our GAAP cash flows from operations, a measure of our liquidity, or an indication of funds available for our cash needs. In addition, our methodology for calculating Core Earnings may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures, and accordingly, our reported Core Earnings may not be comparable to the Core Earnings reported by other companies. 49
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Table of Contents The following table provides a reconciliation of Core Earnings to GAAP net income (loss) ($ in thousands, except per share data):
Three Months Ended
June 30, 2020 March 31, 2020
Net income (loss)
(1) $ 17,544 $ (53,350 )
Increase in current expected credit loss
reserve 56,819 122,702
Non-cash compensation expense 8,652 8,678
Realized hedging and foreign currency
income, net
(2) 1,810 8,467
Other items 210 596
Adjustments attributable to
non-controlling interests, net 139 (561 )
Core Earnings $ 85,174 $ 86,532
Weighted-average shares outstanding, basic
and diluted 138,299,418 135,619,264
Core Earnings per share, basic and diluted $ 0.62 $ 0.64
(1) Represents net income (loss) attributable to
repatriation of unhedged foreign currency. For the three months ended
March 31, 2020 , primarily represents the forward points earned on our
foreign currency forward contracts, which reflect the interest rate
differentials between the applicable base rate for our foreign currency
investments and USD LIBOR. These forward contracts effectively convert the
rate exposure to USD LIBOR, resulting in additional interest income earned
in U.S. dollar terms. These amounts were not included in GAAP net income
(loss), but rather as a component of Other Comprehensive Income in our
consolidated financial statements.
Book Value Per Share
The following table calculates our book value per share ($ in thousands, except
per share data):
June 30, 2020 March 31, 2020
Stockholders' equity $ 3,874,763 $ 3,650,920
Shares
Class A common stock 146,196,662 135,355,320
Deferred stock units 281,143 268,049
Total outstanding 146,477,805 135,623,369
Book value per share $ 26.45 $ 26.92
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Table of Contents II. Loan Portfolio Loan fundings during the quarter totaled$317.2 million , including$47.9 million of non-consolidated senior interests. Loan repayments during the quarter totaled$385.7 million . We generated interest income of$192.0 million and incurred interest expense of$84.9 million during the quarter, which resulted in$107.1 million of net interest income during the three months endedJune 30, 2020 . Portfolio Overview The following table details our loan origination activity ($ in thousands): Three Months Ended Six Months Ended June 30, 2020 June 30, 2020 Loan originations (1) $ 12,000$ 1,311,939 Loan fundings (2) $ 317,239$ 1,317,583 Loan repayments (385,718 ) (953,069 ) Total net fundings $ (68,479 ) $ 364,514 (1) Includes new loan originations and additional commitments made under existing loans. (2) Loan fundings during the three and six months ended June 30, 2020 include$47.9 million and$76.9 million , respectively, of additional fundings under related non-consolidated senior interests. 51
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Table of Contents
The following table details overall statistics for our investment portfolio as
of
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