References herein to "Blackstone Mortgage Trust," "Company," "we," "us," or
"our" refer to Blackstone 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 ended December 31, 2020 and elsewhere in this quarterly report on
Form
10-Q.
Introduction
Blackstone Mortgage Trust is a real estate finance company that originates
senior loans collateralized by commercial real estate in North America, Europe,
and Australia. 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 by BXMT Advisors L.L.C., or our
Manager, a subsidiary of Blackstone Inc., or Blackstone, and are a real estate
investment trust, or REIT, traded on the New 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 of Blackstone'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 the Blackstone 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 for U.S. federal income tax purposes. We
generally will not be subject to U.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 ended September 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
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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 of U.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. On March 5, 2021, the Financial Conduct Authority of the U.K., or FCA,
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 after December 31, 2021 and
cease the publication of the remaining tenors of USD LIBOR immediately after
June 30, 2023. Additionally, the Federal Reserve Board, Federal Deposit
Insurance Corporation, Office of the Comptroller of Currency, and other
interagency regulatory bodies have advised U.S. banks to stop entering into new
USD LIBOR based contracts by December 31, 2021.
The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates
Committee, a steering committee comprised of large U.S. financial institutions,
has identified the Secured Overnight Financing Rate, or SOFR, a new index
calculated using short-term repurchase agreements backed by Treasury securities,
as its preferred alternative rate for USD LIBOR. In the U.K., the Bank of
England's working group on Sterling risk free rates set March 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 after December 31, 2021. Market
participants have started to transition to the Sterling Overnight Index Average,
or SONIA, in line with guidance from the U.K. regulators. As of September 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 of
September 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 in Europe, Canada, and Australia have been reformed
and rates such as EURIBOR, STIBOR, CDOR, and BBSY may persist as International
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 the SEC on February 10, 2021.

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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 ended
September 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 of September 30, 2021 was $26.92 per share, which is
net of a $0.86 cumulative CECL reserve.
As further described below, Distributable Earnings is a measure that is not
prepared in accordance with accounting principles generally accepted in the
United States of America, or GAAP, which helps us to evaluate our performance
excluding the effects of certain transactions and GAAP adjustments that we
believe are not necessarily indicative of our current loan portfolio and
operations. In addition, Distributable Earnings is a performance metric we
consider when declaring our dividends.
Earnings Per Share and Dividends Declared
The following table sets forth the calculation of basic and diluted net income
per share and dividends declared per share ($ 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 to Blackstone 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 ended September 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.

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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 to Blackstone 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




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II. Loan Portfolio

During the quarter ended September 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
$117.4 million of net interest income during the three months ended
September 30, 2021.
Portfolio Overview
The following table details our loan origination activity ($ 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 ended
              September 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
              ended September 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.



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Table of Contents The following table details overall statistics for our investment portfolio as of September 30, 2021 ($ in thousands):

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