BLACKSTONE MORTGAGE TRUST, INC. Q3 FY2024 earnings call

Katie Keenan's Statements - Third quarter saw the start of the rate cut cycle in the US with short rates coming down. Real estate market recovery with lower rates, normalized cost of capital, and increased transaction activity. $1.8 billion of pay-offs in 3Q, fourth highest repayment quarter ever. Year-to-date nearly $700 million in new originations. Over half of impaired assets have a clear resolution path. Performing loans repaid, satisfied tests, or extended with new equity. Rate cap renewals non-issue. Multi-family 99.5% performing. Repayments across various portfolios. ### Tony Marone's Statements - GAAP net loss of $0.32 per share, DE $0.39 per share, DE prior to charge-offs $0.49 per share. Strong pipeline of new investments and NPL resolutions. Near term resolutions expected to increase quarterly DE by $0.07 to $0.10 per share. CECL reserve increase due to downgraded office loans. Maintained strong liquidity of $1.5 billion, repurchased corporate debt and common stock, net future funding commitments down.

For the third quarter, Blackstone Mortgage Trust reported a GAAP net loss of $0.32 per share. Distributable earnings were $0.39 per share and distributable earnings prior to charge-offs were $0.49 per share. Year to date, nearly $700 million of new originations closed or in closing across favored sectors including multi-family, industrial, self storage, and resort hotels. The weighted average origination LTV of year-to-date loans closed or in closing is 60%, weighted average debt yield is over 9%, and deals set up to mid-teens ROIs at today’s base rates.

- Expect more activity from current investment environment with plenty of liquidity and fruitful origination environment. ### - Anticipated repayments next quarter to further increase excess liquidity. ### - Near term NPL resolutions expected to increase run rate quarterly DE by $0.07 to $0.10 per share once closed. ### - 4Q results expected to reflect temporary earnings drag from timing mismatch, but 2025 to see resolutions and redeployment boost earnings power.

- Credit outcomes can take time to play out, as seen with additional impaired office loans this quarter. ### - Subset of watch-listed office continues to be a focus for potential credit deterioration.

Q: Clarify if quarterly hits to book are behind us or if there could be migration to four- and five-rated loans driving negative book value hits?

A: Katie Keenan said the universe of potential challenges is shrinking, main focus on non-modified four-rated office loans which are down from a billion last quarter, and reserves on impaired loans are appropriate given negotiated resolutions.

Q: How are you thinking of deploying repayments, weighing new originations vs share buybacks?

A: Katie Keenan said they are strategic in allocating capital, see attractive new origination opportunities with 60% LTV, above 9 debt yield, and also look to be strategic in share buybacks where opportunity exists.

Q: Update on Spain and Australia deals?

A: Katie Keenan said the Spain deal continues to pay down in small increments, Europe has lower rates and clearer rate picture, Australia portfolio is on a positive trajectory and a high focus deal.

Q: Confidence in problem set being squarely focused on risk four- to five-rated bucket and no further migration from 3s to 4s?

A: Katie Keenan said they go through the portfolio with a fine tooth comb, momentum has shifted, U.S. office was primary issue but composition of threes has changed, and things are more likely to be positive surprises going forward.

Q: Rate backdrop impact on credit deterioration?

A: Katie Keenan said 30% of portfolio is outside US, Europe has clearer rate trajectory, and narrowing bid-ask spread drives transaction volume which is key.