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, 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 primarily 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 borrowing under our credit facilities, issuing CLOs or single-asset securitizations, and syndicating 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 of Blackstone Inc., orBlackstone , and are a real estate investment trust, or REIT, 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 we believe gives us the tools to expertly manage the assets in our portfolio and work with our borrowers throughout periods of economic stress and uncertainty. We conduct our operations as a 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 COVID-19 The novel coronavirus, or COVID-19 has significantly impacted the global economy since the beginning of 2020 and has, among other things, created disruption in global supply chains, impacted the job market and adversely impacted many industries, including industries related to the collateral underlying certain of our loans. During the nine months endedSeptember 30, 2021 , the global economy has, with certain setbacks, begun reopening and wider distribution of vaccines and easing of travel and other restrictions appear to be encouraging greater economic activity. Nonetheless, the recovery could remain uneven, particularly given uncertainty with respect to the distribution and acceptance of the vaccines and their effectiveness with respect to new variants of the virus. As a result, we are still unable to predict when normal economic activity and business operations will fully resume. 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. Countries around the world continue to grapple with the 51
--------------------------------------------------------------------------------
Table of Contents economic impacts of the COVID-19 pandemic and its aftereffects. Although a recovery is partially underway, it continues to be gradual, uneven and characterized by meaningful dispersion across sectors and regions, and could be hindered by persistent or resurgent infection rates and by related travel and other restrictions. The most recent round ofU.S. fiscal stimulus could provide meaningful support, along with continued accommodative monetary policy and wider distribution of vaccines. Issues with respect to the distribution and acceptance of vaccines or the spread of new variants of the virus could adversely impact the recovery. Overall, there remains significant uncertainty regarding the timing and duration of the economic recovery, which precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions. Reference Rate Reform LIBOR and certain other floating rate benchmark indices to which our floating rate loans and other loan agreements are tied, including, without limitation, the Euro Interbank Offered Rate, or EURIBOR, the Stockholm Interbank Offered Rate, or STIBOR, the Canadian Dollar Offered Rate, or CDOR, and the Australian Bank Bill Swap Reference Rate, or BBSY, or collectively, IBORs, are the subject of recent national, international and regulatory guidance and proposals for reform. OnMarch 5, 2021 , theFinancial Conduct Authority of the U.K ., orFCA , which has statutory powers to require panel banks to contribute to LIBOR where necessary, announced it would cease publication of certain IBORs, including one-week and two-month USD LIBOR and all tenors of GBP LIBOR, immediately afterDecember 31, 2021 and cease the publication of the remaining tenors of USD LIBOR immediately afterJune 30, 2023 . Additionally, theFederal Reserve Board ,Federal Deposit Insurance Corporation ,Office of the Comptroller of Currency , and other interagency regulatory bodies have advisedU.S. banks to stop entering into new USD LIBOR based contracts byDecember 31, 2021 . TheU.S. Federal Reserve , in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of largeU.S. financial institutions, has identified the Secured Overnight Financing Rate, or SOFR, a new index calculated using short-term repurchase agreements backed byTreasury securities, as its preferred alternative rate for USD LIBOR. In theU.K. , theBank of England's working group on Sterling risk free rates setMarch 31, 2021 as the target date under which GBP LIBOR may no longer be used as the reference rate for new loan products with maturities afterDecember 31, 2021 . Market participants have started to transition to the Sterling Overnight Index Average, or SONIA, in line with guidance from theU.K. regulators. As ofSeptember 30, 2021 , the floating benchmark rate for the financing provided on the 2020 FL3 and 2020 FL2 CLOs is the 30-day average compounded SOFR, plus a credit spread adjustment. Additionally, as ofSeptember 30, 2021 , daily compounded SONIA is utilized as the floating benchmark rate on five of our loans and two of our credit facilities. At this time, it is not possible to predict how markets will respond to SOFR, SONIA, or other alternative reference rates as the transition away from USD LIBOR and GBP LIBOR proceeds. Despite the LIBOR transition in other markets, benchmark rate methodologies inEurope ,Canada , andAustralia have been reformed and rates such as EURIBOR, STIBOR, CDOR, and BBSY may persist asInternational Organization of Securities Commissions , or IOSCO, compliant reference rates moving forward. However, multi-rate environments may persist in these markets as regulators and working groups have suggested market participants adopt alternative reference rates. Refer to "Part I. Item 1A. Risk Factors-Risks Related to Our Lending and Investment Activities-The expected discontinuation of currently used financial reference rates and use of alternative replacement reference rates may adversely affect net interest income related to our loans and investments or otherwise adversely affect our results of operations, cash flows and the market value of our investments." of our Annual Report on Form 10-K filed with theSEC onFebruary 10, 2021 . 52
--------------------------------------------------------------------------------
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, Distributable Earnings, and book value per share. For the three months endedSeptember 30, 2021 we recorded earnings per share of$0.56 , declared a dividend of$0.62 per share, and reported$0.63 per share of Distributable Earnings. In addition, our book value as ofSeptember 30, 2021 was$26.92 per share, which is net of a$0.86 cumulative CECL reserve. As further described below, Distributable Earnings is a measure that is not prepared in accordance with accounting principles generally accepted inthe United States of America , or GAAP, which helps us to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan portfolio and operations. In addition, Distributable Earnings is a performance metric we consider when declaring our dividends. Earnings Per Share and Dividends Declared The following table sets forth the calculation of basic and diluted net income per share and dividends declared per share ($ in thousands, except per share data): Three Months Ended September 30, 2021 June 30, 2021 Net income (1) $ 83,757$ 131,595 Weighted-average shares outstanding, basic and diluted 149,214,819 147,342,822 Net income per share, basic and diluted $ 0.56 $ 0.89 Dividends declared per share $ 0.62 $ 0.62 (1) Represents net income attributable toBlackstone Mortgage Trust . Distributable Earnings Distributable Earnings is a non-GAAP measure, which we define as GAAP net income (loss), including realized gains and losses not otherwise recognized in current period GAAP net income (loss), and excluding (i) non-cash equity compensation expense, (ii) depreciation and amortization, (iii) unrealized gains (losses), and (iv) certain non-cash items. Distributable 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. Distributable Earnings mirrors the terms of our management agreement between our Manager and us, or our Management Agreement, for purposes of calculating our incentive fee expense. During the nine months endedSeptember 30, 2021 , we recorded a$49.4 million decrease in the CECL reserve, which has been excluded from Distributable Earnings consistent with other unrealized gains (losses) pursuant to our existing policy for reporting Distributable Earnings. We expect to only recognize such potential credit losses in Distributable Earnings if and when such amounts are deemed nonrecoverable upon a realization event. This is generally at the time a loan is repaid, or in the case of foreclosure, when the underlying asset is sold, but non-recoverability may also be concluded if, in our determination, it is nearly certain that all amounts due will not be collected. The realized loss amount reflected in Distributable Earnings will equal the difference between the cash received, or expected to be received, and the book value of the asset, and is reflective of our economic experience as it relates to the ultimate realization of the loan. We believe that Distributable Earnings provides meaningful information to consider in addition to our net income (loss) and cash flow from operating activities determined in accordance with GAAP. We believe Distributable Earnings is a useful financial metric for existing and potential future holders of our class A common stock as historically, over time, Distributable Earnings has been a strong indicator of our dividends per share. As a REIT, we generally must distribute annually at least 90% of our net taxable income, subject to certain adjustments, and therefore we believe our dividends are one of the principal reasons stockholders may invest in our class A common stock. Refer to Note 13 to our consolidated financial statements for further discussion of our distribution requirements as a REIT. Further, Distributable Earnings 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, and is a performance metric we consider when declaring our dividends. 53
--------------------------------------------------------------------------------
Table of Contents Distributable 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 Distributable Earnings may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures, and accordingly, our reported Distributable Earnings may not be comparable to the Distributable Earnings reported by other companies. The following table provides a reconciliation of Distributable Earnings to GAAP net income ($ in thousands, except per share data): Three Months Ended September 30, 2021 June 30, 2021 Net income (1) $ 83,757$ 131,595 Increase (decrease) in current expected credit loss reserve 2,767 (50,906 )
Non-cash
compensation expense 8,080 8,020 Realized hedging and foreign currency (loss) income, net (2) (768 ) 744 Other items 116 194 Adjustments attributable to non-controlling interests, net (39 ) 248 Distributable Earnings $ 93,913$ 89,895 Weighted-average shares outstanding, basic and diluted 149,214,819 147,342,822 Distributable Earnings per share, basic and diluted $ 0.63 $ 0.61 (1) Represents net income attributable toBlackstone Mortgage Trust . (2) Represents realized gains and losses on the repatriation of unhedged foreign currency. These amounts are not included in GAAP net income, 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): September 30, 2021 June 30, 2021 Stockholders' equity $ 4,236,550$ 3,930,961 Shares Class A common stock 157,015,689 147,015,818 Deferred stock units 356,700 328,065 Total outstanding 157,372,389 147,343,883 Book value per share $ 26.92 $ 26.68 54
--------------------------------------------------------------------------------
Table of Contents II. Loan Portfolio During the quarter endedSeptember 30, 2021 , we originated or acquired$4.7 billion of loans. Loan fundings during the quarter totaled$3.9 billion , including$89.0 million of non-consolidated senior interests. Loan repayments and sales during the quarter totaled$886.2 million , including$213.4 million of loans held by our non-consolidated securitized debt obligations and our non-consolidated senior interests. We generated interest income of$200.1 million and incurred interest expense of$82.7 million during the quarter, which resulted in$117.4 million of net interest income during the three months endedSeptember 30, 2021 . Portfolio Overview The following table details our loan origination activity ($ in thousands): Three Months Ended Nine Months Ended September 30, 2021 September 30, 2021 Loan originations (1) $ 4,704,489 $ 8,604,600 Loan fundings (2) $ 3,902,460 $ 7,734,135 Loan repayments and sales (3) (886,180 ) (3,678,372 )
Total net (repayments) fundings $ 3,016,280 $ 4,055,763
(1) Includes new loan originations and additional commitments made under existing loans. (2) Loan fundings during the three and nine months endedSeptember 30, 2021 include$89.0 million and$284.6 million , respectively, of additional fundings under related non-consolidated senior interests. (3) Loan repayments and sales during the three and nine months endedSeptember 30, 2021 include$213.4 million and$327.3 million , respectively, of additional repayments or reduction of loan exposure of loans held by our non-consolidated securitized debt obligations and our non-consolidated senior interests. 55
--------------------------------------------------------------------------------
Table of Contents
The following table details overall statistics for our investment portfolio as
of
© Edgar Online, source