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, 2019, as well as in Part II. Item 1A. Risk
Factors in our quarterly report on Form
10-Q
for the fiscal period ended March 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 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 by BXMT Advisors L.L.C., or our
Manager, a subsidiary of The Blackstone Group Inc., or Blackstone, and are
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 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 in New York City and conduct our operations as a real
estate investment trust, or 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
As of September 30, 2020, there is an ongoing global outbreak of a novel
coronavirus, or
COVID-19,
which has spread to over 200 countries and territories, including the United
States, has spread to every state in the United States, and is continuing to
spread. The World Health Organization has designated
COVID-19
as a pandemic, and numerous countries, including the 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 many countries have reacted by instituting, or strongly
encouraging, quarantines and restrictions on travel, closing financial markets
and/or restricting trading, limiting operations of
non-essential
offices, retail centers, hotels, and other businesses, and taking other
restrictive measures designed to help slow the spread of
COVID-19.
Businesses are also implementing similar precautionary measures. Such measures,
as well as the general uncertainty surrounding the dangers and impact of
COVID-19,
are creating disruption in global supply chains, increasing rates of
unemployment and adversely impacting many industries, including the collateral
underlying certain of our loans.

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Moreover, with the continued spread of
COVID-19,
governments and businesses are likely to take increasingly aggressive measures
to help slow its spread. For this reason, among others, as
COVID-19
continues to spread, the potential impacts, including a global, regional, or
other economic recession, are increasingly uncertain and difficult to assess.
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
preclude 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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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 ended September 30,
2020 we recorded earnings per share of $0.61, declared a dividend of $0.62 per
share, and reported $0.63 per share of Core Earnings. In addition, our book
value per share as of September 30, 2020 was $26.51. As further described below,
Core Earnings is a measure that is not prepared in accordance with accounting
principles generally accepted in the United States of America, or GAAP. We use
Core Earnings to evaluate our performance excluding the effects of certain
transactions and GAAP adjustments that we believe are not necessarily indicative
of our current loan activity and operations.
Earnings Per Share and Dividends Declared
The following table sets forth the calculation of basic and diluted net income
per share and dividends declared per share ($ in thousands, except per share
data):

                                                              Three Months Ended
                                                 September 30, 2020             June 30, 2020
Net income
(1)                                             $             89,860           $        17,544
Weighted-average shares outstanding,
basic and diluted                                        146,484,651

138,299,418



Net income per share, basic and diluted         $               0.61           $          0.13

Dividends declared per share                    $               0.62           $          0.62




  (1) Represents net income attributable to Blackstone 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 nine months ended September 30, 2020, we
recorded a $173.5 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.

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Table of Contents The following table provides a reconciliation of Core Earnings to GAAP net income ($ in thousands, except per share data):



                                                                                     Three Months Ended
                                                                       September 30, 2020               June 30, 2020
Net income
(1)                                                                   $             89,860             $        17,544
(Decrease) increase in current expected credit loss reserve                         (6,055 )                    56,819

Non-cash


compensation expense                                                                 8,649                       8,652
Realized hedging and foreign currency (loss) income, net
(2)                                                                                     (7 )                     1,810
Other items                                                                           (240 )                       210
Adjustments attributable to
non-controlling
interests, net                                                                         143                         139

Core Earnings                                                         $             92,350             $        85,174

Weighted-average shares outstanding, basic and diluted                         146,484,651                 138,299,418

Core Earnings per share, basic and diluted                            $               0.63             $          0.62

(1) Represents net income attributable to Blackstone Mortgage Trust. (2) Represents realized (losses) gains 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, 2020       June 30, 2020
Stockholders' equity   $          3,883,364     $     3,874,763
Shares
Class A common stock            146,197,290         146,196,662
Deferred stock units                293,856             281,143

Total outstanding               146,491,146         146,477,805

Book value per share   $              26.51     $         26.45




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II. Loan Portfolio

Loan fundings during the quarter totaled $342.1 million, including $93.6 million
of
non-consolidated
senior interests. Loan repayments and sales during the quarter totaled
$483.8 million, including $135.0 million of
non-consolidated
senior interests. We generated interest income of $193.9 million and incurred
interest expense of $79.0 million during the quarter, which resulted in
$115.0 million of net interest income during the three months ended
September 30, 2020.
Portfolio Overview
The following table details our loan origination activity ($ in thousands):

                                  Three Months Ended        Nine Months Ended
                                  September 30, 2020       September 30, 2020
Loan originations
(1)                               $            33,141      $         1,345,080
Loan fundings
(2)                               $           342,067      $         1,659,650
Loan repayments and sales
(3)                                          (483,827 )             (1,436,897 )

Total net (repayments) fundings $ (141,760 ) $ 222,753






(1)   Includes new loan originations and additional commitments made under
      existing loans.
(2)   Loan fundings during the three and nine months ended September 30, 2020
      include $93.6 million and $170.5 million, respectively, of additional
      fundings under related
      non-consolidated
      senior interests.
(3)   Loan repayments and sales during the three months ended September 30, 2020
      include $135.0 million of additional repayments or reduction of loan
      exposure under related
      non-consolidated
      senior interests.



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The following table details overall statistics for our investment portfolio as
of September 30, 2020 ($ in thousands):

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