BLACKSTONE MORTGAGE TRUST, INC. Q3 FY2026 earnings call

• Interest Rate Environment & Market Conditions: The 10-year Treasury rose 80 basis points YTD, hitting a 25-year high. Despite this, CMBS issuance is on track for a post-GFC record, spreads are ~40% lower than their 2023 peak, and REIT sector total return is ~12% YTD.
• Portfolio Repositioning: Significant progress made in reducing exposure to legacy pre-2023 investments. Sold nearly $1 billion of loans at a weighted average price of 93 cents on the dollar, including six office and two multifamily legacy loans. Watch list reduced by ~60% QoQ to its lowest level since 2019.
• Impairments & Reserves: Impaired ~$800 million of loans (mostly legacy office and one hotel) due to slower business plan progress and unwillingness of sponsors to inject further capital. This impact is largely reflected in Q3 book value. Only one $57 million office loan remains on the watch list unimpaired.
• Liquidity & Repayments: Collected $2.3 billion in repayments (highest since Q4 2021), with ~90% from legacy loans. Nearly $4 billion of repayments collected in the legacy segment YTD.
• Dividend Policy: Board declared a $0.30/share dividend for Q4 2026 (down from $0.47 in Q3). Management expects to cover this dividend in Q4 2026 and full-year 2027, prioritizing capital preservation for future accretive investments and buybacks.
• Share Buybacks: Purchased $36 million of stock in Q3, with $110 million remaining under authorization. Viewed as an attractive allocation given the portfolio repositioning progress.
• New Investment Strategies: Increased diversification into net lease, homebuilder finance, and bank loan portfolios, now comprising ~10% of the portfolio (up from zero last year). Average investment size dropped to $18 million from >$130 million previously.

The transcript does not provide a breakdown of financial performance by specific product segments (e.g., Office, Multifamily) in terms of absolute revenue contribution percentages. However, it details the portfolio composition and earnings drivers:

• Overall Financials: Reported GAAP net loss of $1.95 per share. Distributable Earnings (DE) were $0.38 per share, with DE prior to realized gains/losses at $0.42 per share.
• Portfolio Composition: The $17 billion portfolio consists of approximately 50% post-2023 originations (rated 1-3), 14% impaired loans/owned real estate, 5% watch list, and ~33% ($5.7 billion) legacy pre-2023 loans (risk rating 3 or better).
• Owned Real Estate: Carrying value of $1.5 billion across 15 assets, contributing ~$19 million NOI (including a $6 million tax benefit).
• Joint Ventures: Equity invested stands at $371 million; JVs contributed over $12 million to DE in Q3.

• Dividend Sustainability: Management expects to cover the $0.30/share Q4 dividend and sustain it through full-year 2027, despite near-term earnings pressure from impaired loans and lower-yielding owned real estate.
• Portfolio Reduction Targets: On track to meet or exceed the target of reducing both office and legacy loan exposures by 40% by year-end 2026.
• Book Value Expectations: Acknowledges near-term pressure on earnings and book value due to impairments, but believes the secular challenges in office are substantially reflected in current valuations.
• Leverage: Debt-to-equity ratio remained stable at 3.9x. Leverage may modestly decline in coming quarters due to additional repayments and timing of loan sales closing.

• Legacy Loan Performance: Continued pressure on legacy pre-2023 loans, particularly office and hospitality, due to higher interest rates and slower-than-expected business plan execution. Borrowers have shown reluctance to inject additional equity.
• Real Estate Valuations: Elevated interest rates act as a headwind to real estate values, though strong fundamentals and collapsed new supply provide some tailwinds.
• Earnings Pressure: Near-term distributable earnings face downward pressure due to non-accrual status of impaired loans and lower yields on owned real estate assets.
• Market Volatility: While capital markets are functioning well, volatility in interest rates can impact transaction volumes and refinancing timelines.

Q: Tom Catherwood asked if the company has addressed all necessary sales/resolutions in Q3 and what the next steps are, specifically regarding the recovery math on held-for-sale loans vs. those sold. / A: Tim Johnson stated the portfolio is well-positioned with the watch list at pre-COVID lows and impairments marked down 30%, believing legacy office challenges are largely priced in. Marcin Urbaszek clarified that the '93 cents' recovery figure reflects the price relative to carrying value at sale time, combining $215M sold during the quarter and a $64M mark on eight loans moved to held-for-sale.