Blackstone Mortgage Trust : Transcript - Q1 2025

Published: 2025-06-26 00:42:05 ET BXMT

Published on 06/26/2025 at 00:42

I'd like to remind everyone that today's call may include forward-looking statements which are subject to risks, uncertainties and other factors outside of the company's control. Actual results may differ materially. For a discussion of some of the risks that could affect results, please see the Risk Factors

section of our most recent 10-K. We do not undertake any duty to update forward-looking statements.

We will also refer to certain non-GAAP measures on this call, and for reconciliations, you should refer to the press release and 10-Q. This audio-cast is copyrighted material of Blackstone Mortgage Trust and may not be duplicated without our consent.

For the first quarter, we reported a GAAP net loss of effectively zero and Distributable Earnings of $0.17 per share. Distributable Earnings prior to charge-offs were $0.42 per share. A few weeks ago, we paid a dividend of $0.47 per share with respect to the fourth quarter.

Please let me know if you have any questions following today's call. With that, I'll now turn things over to Katie.

continued progress across every aspect of our business, building on the momentum from last quarter. As outlined then, BXMT's forward trajectory is propelled by three key drivers: one - portfolio turnover through repayments and redeployment into high-quality new credit opportunities, two - resolution of impaired loans, and three - optimization of our balance sheet. All play a critical role in unlocking future earnings potential and further positioning BXMT for performance, and we took a proactive approach on each this quarter, putting the Company on very strong footing in the current environment.

Starting on the macro, while tariff policy has created greater uncertainty and a slowdown could weigh on the broader market over time, we believe that real estate is well-positioned to outperform. In contrast to other sectors, real estate already went through its cycle, with values resetting lower and many challenged deals addressed. We're still in the recovery phase, far from the pitfalls of overleverage or overbuilding

that preceded prior real estate downturns. Though tariffs may pressure goods prices, other key

components of inflation are coming down. And critically, real estate cash flows over time should benefit from diminished supply, which is already at historically low levels and likely to fall even further.

Real estate capital markets have functioned well through this period. Capital is broadly available, and

while spreads have widened marginally, overall cost of capital is still around 40% lower than peak. Many banks, insurance companies and investors are under-allocated to real estate, underpinning continued lending demand. The public markets, which react most quickly, have already started to digest, with spreads settling down and several CMBS, RMBS and CLO deals pricing into healthy demand in the last week. And on the private side, new financings continue to attract robust bidding pools, both on the direct lending and back-leverage side.

Notably, for well-positioned investors, volatility creates opportunity, and here at BXMT, we are

capitalizing. In a turbulent market, we provide certainty and can grow our share while benefiting from

incrementally better risk-adjusted return available as the market retrenches. And our large-scale, global origination footprint gives us a tremendous advantage in identifying the most compelling investment opportunities as the market evolves.

We took a big step forward in portfolio turnover in Q1 - the first of our key priorities - with $1.8 billion of repayments, including 86% in office, and $1.6 billion of new investments, our highest level of quarterly originations in more than 2 years. We have another $2.0 billion closed or in closing so far in Q2.

Our investment strategy in this environment has been clear - minimize credit risk while leveraging our platform and cost of capital advantages to generate target returns. And we are executing. Looking at the total $3.5 billion of 2025 activity, 90% is backed by multifamily properties or cross-collateralized industrial portfolios. These deals set up to an attractive levered return of 900 basis point over base rates on average, with well-protected credit profiles - 64% average LTV on today's reset values, benefitting from a combination of diversification, premier sponsorship and robust underlying fundamentals.

Our capital allocation strategy has translated to an improved credit composition on our overall asset base. Our portfolio is 95% performing today, up from 88% at the trough. U.S. office exposure, once nearly 40%, is down to just 21% today, while multifamily, industrial and self-storage are now nearly half. 2Q

closings will further this trend. We are well diversified geographically, with over 40% of our investments abroad. And while macro volatility may slow repayments some, we have consistently seen that our short-duration, high-quality assets show continued liquidity, even in markets far more dislocated than this one. Our repayments averaged over $750 million per quarter through the slowest period of the rate hike cycle.

We're harvesting differentiated opportunities from across our broad sourcing channels, in the U.S.,

Europe, Canada and Australia. And this quarter we also commenced our net lease investment strategy, acquiring 27 properties. The profile of these deals is highly attractive, concentrated in defensive

businesses in the essential-use and service retail sectors, with average 18-year lease terms, 2% rent

bumps, 3x in-place EBITDAR coverage, and 7% to 8% percent cap rates. Net lease is a naturally resilient sector in periods of volatility, and complementary with our broader lending business, creating another

cylinder for enhancing and diversifying our overall portfolio positioning.

Turning to our second key driver - resolution of impaired assets. We had another quarter of strong forward progress. With $400 million of resolutions this quarter, we've now addressed $1.5 billion of impaired assets in the last six months, at a premium to aggregate carrying value. This relentless approach to asset management has reduced our impaired loan balance by 58% from the peak and recaptured a

significant tailwind to earnings power. And over this period, resolutions have collectively contributed to a

$64 million reversal of our CECL reserve, providing incremental book value support and contributing to a positive economic shareholder return. Our impaired loan balance is now at its lowest level in seven quarters, and while we are mindful of potential macro-driven risks on the horizon, we also see

incremental resolutions ahead, including one that closed just this week and another under hard contract for sale.

Finally, turning to the further optimization of our balance sheet. We're in great shape today. We ended the quarter with $1.6 billion of liquidity and 3.4 times debt-to-equity, our lowest leverage level in three years. We have fourteen credit facility lenders, with market-leading structure and pricing earned via our strong track record as a borrower over time. Our robust balance sheet is a critical advantage in this environment, providing both staying power and fire power to propel investment activity and asset management

execution.

Over the past two quarters, we have moved nimbly and aggressively to execute on our capital markets priorities, terming out our corporate debt in November and closing a $1 billion reinvesting CLO in

March. With deep capital markets expertise and a talented dedicated team, we can act quickly when market conditions are favorable, a competitive advantage particularly in a world of quickly shifting

crosswinds. As a result, we benefit today from a well-structured balance sheet - which is nearly 70% non-mark-to-market - a laddered corporate debt structure with no material maturities until 2027, and substantial dry powder.

Our banks remain highly supportive of our new investment activity, continuing to quote and close deals constructively throughout the last month. Today, many of our largest banks are seeking to grow their lending books, having collected substantial repayments in the last several quarters. Credit facility

financing to large-scale platforms, like BXMT, is one of their best ways to rebuild exposure and earnings power efficiently and at optimal capital charges, with the confidence in the strong credit performance they've seen in this product through cycles. As a result, our house lenders are looking to grow, and new lenders are looking to enter the space, together yielding a strong competitive dynamic for our borrowing activity.

To conclude, BXMT has demonstrated the strength of its cycle-tested business model several times over in just the last five years. Today, BXMT's competitive advantages and balance sheet positioning once

again set us up well for a wide range of macro scenarios. Scale, insight, capitalization, portfolio, and quality of platform always drive value, but never more so than in periods of change. And here at

Blackstone, we have shown time and again the ability to outperform in volatility and emerge stronger. Thank you for your support, and with that will turn over to Tony.

As Katie outlined, BXMT continues to make significant progress on the key initiatives that we expect will drive the long-term earnings potential of our platform, as we move past near-term headwinds. I will

highlight two of these headwinds in the context of this quarter's results.

The first is the timing mismatch between when repayments are received and capital is subsequently

redeployed into new investments. In the first quarter, we collected $1.8 billion of repayments, which on average closed two weeks into the quarter, while $1.7 billion of loan fundings were closed an average of eight weeks into the quarter. As a result, our average portfolio balance was $1.0 billion lower than our

3/31 balance, which had a notable impact on DE in the quarter. With $2.0 billion of loans closed or in closing so far in the second quarter, we are firmly playing offense and expect the timing headwinds we faced this quarter will shift to tailwinds in 2Q, all else equal.

The second earnings headwind is the drag from the remaining capital invested in our non-earning assets.

We continue to demonstrate significant momentum with impaired loan resolutions, completing $1.5

billion over the past two quarters at a premium to our aggregate carrying values. Q1 resolutions of $406 million included one new cash-flowing REO asset and two loan restructurings, where we received nearly

$50 million of incremental cash equity from our borrowers, and have significantly reset the basis of our A-notes at well-protected levels. As we execute our resolution strategies, we expect to see immediate

positive impacts on earnings as we begin to recognize income from these previously non-earning assets, with even greater long-term upside potential as capital is redeployed into new investments at target

returns over time. Our impaired loans today represent $970 million, or 5% of the portfolio, and remain burdened by $0.07 of interest expense in Q1.

Expanding on credit, trends in our portfolio remained positive in Q1, with performance improving to 95% from 93% quarter over quarter, driven by limited new credit migration and continued execution of loan resolutions. We upgraded seven loans this quarter, including two risk-rated 4 office loans, where our credit position was enhanced by a large paydown in one, and continued business plan execution supporting property cash flows in the other. By contrast, we downgraded only three loans this quarter,

including one new impairment of an Atlanta office loan. We foreclosed on one previously impaired loan in Q1, bringing the acquisition date fair value of our REO portfolio to $691 million across 8 assets. Our REO assets stand at just 3% of our overall portfolio, and generated $7 million of DE in Q1, with further potential upside in the future.

Our CECL reserve ended the quarter at $754 million, or 3.9% of our portfolio - both stable vs 12/31. Our general reserve increased modestly by $33 million quarter-over-quarter due to strong new origination

activity, which was largely offset by the net decline in our asset-specific reserve. In addition, we continue to reduce our basis in impaired loans, with $19 million of cash interest received this quarter and applied as cost-recovery proceeds, reflecting the 76% of impaired loans that remain current on contractual interest payments.

Book value ended the quarter at $21.42 per share, which benefitted from accretive impaired loan resolutions and $32 million of common stock repurchased at a discount to book value - bringing total

repurchases to over $60 million since establishing our program in 2024. Considering the change in book value and our $0.47 per share dividend, BXMT delivered a positive economic return for the second consecutive quarter.

Turning to the balance sheet, we continue to maintain best-in-class liabilities, which we believe are particularly valuable in more turbulent market conditions. In a market environment where investors

naturally have concerns around rate volatility, capital markets volatility, and foreign currency volatility, we benefit from rate and duration matched financings, with no capital markets mark-to-market provisions, and a capital structure that is fully hedged against foreign exchange rates.

BXMT achieved several balance sheet milestones this quarter. We issued a $1.0 billion CLO - our fifth transaction, but the first with a 30-month reinvestment feature. We believe this feature will be particularly valuable as we continue to collect repayments of our existing loans and actively deploy capital in today's attractive environment. We closed the CLO in late March, locking in well-priced, non-recourse, non-mark-to-market financing and enhancing the optionality and diversity of our capital structure. With this new CLO, our debt-to-equity ratio declined to 3.4x, its lowest level in 3 years. Taken together with our

strong liquidity of $1.6 billion, BXMT has the flexibility to navigate volatility and capitalize on attractive investment opportunities across real estate credit markets globally.

Considering our Q1 results and position going forward, we believe BXMT is a compelling investment in this uncertain market environment with our strong balance sheet, ample dry powder, and an origination platform informed by the insights and experience of Blackstone's Global Real Estate business. This

dynamic has driven the outperformance of our stock year-to-date, which continues to offer attractive value with a trading price approximately 10% below book value and a 10% dividend yield.

Thank you for joining today's call. I will now ask the operator to open the call to questions.

the path on fours, what's the historical transition from four to five versus four to three? Because I think, four is the in-between zone, and they ultimately wind up in one bucket or the other.

capital in the door or to your question, a lot of fours have really just persisted as fours for a long time. I would say, in general, we're pretty conservative with our risk ratings. And as a result, we have fours that we've moved to that category in COVID and over time, and they've sort of continued performing,

continued ticking along. We don't see material upticks in performance and so we keep them as fours, but we also don't see material downticks in performance.

I'd say on the non-modified four rated office - that's around $500 million - it's down significantly from a year ago. It was a $1 billion, it was higher than that before. And that's really where we focus our attention, it's where we're focused on mods. We have mods ongoing and conversations on a couple of those deals

that should move them into the post-modification category. There's others that we'll see which way they go, but it's really a very diminishing universe of assets that I think are truly in that cusp zone.

but given the 30-month reinvestment period on the new CLO in favorable terms, that's going to allow you to really be forward leaning in terms of originations from here?

We also now have the reinvesting CLO. So, I think what it really gives us is optionality, which as you know, we love diversification. We love optionality in terms of how we finance our new originations. And I think, that having one more tool, one more avenue of optionality is always a good thing. But I say,

generally, we see very good liquidity, very good sort of capital markets access for various ways to finance the new originations that we're pursuing.

continues, but certainly looking at it today, we're very happy to have executed that transaction. And I think, it'll be a good one for our CLO investors as well.

ramping. Obviously, repayments in 1Q were boosted by the Spiral refinancing. When you look out over the next three quarters of 2025 and assuming repayments moderate, how much do you think you can grow your loan book from here?

capital markets liquidity, but I would tell you, again, as we sit today, the pace of repayments is continuing.

We've had $200 million so far this quarter. Nothing that we anticipated repaying has fallen out. We continue to have repayments tracking. So, I think in terms of the premise, if we think about whether things have changed materially, it doesn't feel that way today. That being said, I think that we're

underinvested today. As Tony mentioned, we have $2 billion in closing. We'll continue to look for great new investment opportunities. And I think, that in terms of growth, we're looking to grow the portfolio from here up towards that $20 billion number we talked about last quarter. And we'll obviously be very mindful around credit, as we mentioned in the script. That's our primary focus, obviously. But we're

seeing a lot of opportunities.

strategy has been consistent, as alluded to or as mentioned earlier. 90% of our activity is in profiles that we think are quite resilient - multifamily, crossed portfolios of industrial and storage - these are the types of investments that we wanted to do going back several months. And I think that still remains the case today. And if you look at our pipeline, that's also very similar in profile. So, I think our strategy remains consistent. I think in a more uncertain world, that strategy feels even better. But I don't think it's really

changed very much over the last few weeks.

seeing with respect to BXMT's own counterparties and its relationships? But then perhaps the broader, market. I suspect that BXMT's wherewithal has continued to demonstrate itself. But there could be some turbulence with other smaller, less well-capitalized lenders. So, if you could comment on any trends you're seeing, that would be helpful. Thank you.

throughout the last couple of years. I would tell you that, the dynamic that we've heard from banks around desire to generally grow their credit facility exposure because of how well it works from their capital

charge perspective because of how well it works in their overall business model, we have not seen any change in that either in word or in deed.

They're saying the same things and they're doing the same things in terms of quoting deals. We're out to the market constantly with our pipeline. We're constantly getting multiple quotes at competitive levels from different banks. We have new facilities sort of in closing where banks are looking to grow

relationships with us. And I think, it is all driven by certainly our performance and our track record, but also the broader trend towards this being a very high-quality product for the bank.

And I can't speak too much to other people's experiences. But I think that the large banks like this

business, they're looking to expand it. The sort of more medium-sized banks are curious about it and looking to get into it. And I think that's going to benefit the space. But I agree with you that sort of how that plays through will be across the spectrum, depending on the strength of the platform, the strength of the performance in the various platforms.

obviously resets most quickly, most correlated with overall economic activity.

Now, I think the good news for us is that our hospitality exposure has come down quite a lot. Our U.S. hospitality is only 6.5% of the portfolio as a whole. We've got a couple of big, crossed portfolios in

Europe that are doing very well. But I think that it's something that we're watching. You have transient, you have leisure versus business. You obviously have currency impacts. The weaker dollar could result in some change in - we've seen some negative trends in terms of international inbound travel in recent days - but you could also see the dollar having some impact of that over time. So, I think it's a little too soon to tell, but I agree that hospitality is one of the sectors that we're watching.

But I think on the multifamily side, the performance there has been very resilient. And the big story there was obviously the wave of supply that came in over the last year. That supply is really rolling over. And the first quarter, across the Sunbelt where a lot of the focus has been, we saw positive net absorption.

Obviously, new starts are way down, but deliveries are coming down. And so, I think multifamily is kind of moving in the right direction from that perspective. And we have a lot of conviction in investing in that asset class, obviously as you can see from our pipeline.

And then, I think on the industrial side, we continue to see that as relatively resilient. I mean, I think there's going to be some markets that are very oriented towards international trade, maybe on the West Coast. We have basically no exposure there that may see a bit of an impact. But there's also a balance in that, there's going to be probably more reshoring, more inventory building up. And I think, generally

again, the long-term tailwinds in terms of e-commerce and goods sort of sitting in warehouses versus sitting in stores, that really continues.

So, I think that you can see from how we're investing, how we're thinking about what sectors we're

interested in and where we see the risks and opportunities going forward. And it really comes down to, I think, what Austin said, we like multifamily, and we like diversification; we like resilience asset classes. Net lease certainly falls in that category. And that's sort of where our perspective sits today.

type of business plans that they're trying to look at, are they, I guess, less heavy transitional than 1Q?

plans, less transition or heavy transition. I think, it really is reflective of the challenges of already seeing those cost pressures. I think, that could potentially increase. And I think, as Katie said, we could expect to see supply come down even more. And so, it's really a continuation of that trend more than anything else.

able to invest at our target returns fundamentally in less transitional assets. I think, part of that is our view.

And I think, part of it is the fact that construction is really hard to pencil today. To your point, value-add business plans with a lot of construction-oriented aspect to it, also hard to pencil. That's been the case for a long time. And certainly, the tariffs are going to make that more so. But the broader impact, as Austin mentioned, and as I talked about in the call, is really just going to be even less new supply, which

fundamentally makes the value of existing assets that we lend on better.

repayment volumes haven't really been slowing down post-tariff announcement. Maybe, how have the spreads on new loans changed for you? And is it perhaps fair to say that you're looking at your financing costs at this time, given the reinvestment option in the CLOs that stay constant, but the spread on your new loans have been widening a little bit post-1Q?

financing and where we borrow. I think, that's obviously changed over the last few weeks. Spreads are probably out on the asset side 10 to 20 basis points, but similarly on the financing side. And so, they tend to be more pretty correlated. I think, the advantage of our platform, as Katie mentioned, having 14

different credit facility providers, having the advantage of having the reinvesting CLO, we have a lot of options on the financing side. And so, that really gives us an opportunity to, we think, capture some opportunities in this environment.

I think, being a stable and certain provider of capital to our borrowers is a really powerful tool in an

environment like this. And having diversified sources of capital and strong liquidity, I think that creates a lot of opportunities for us.

not capped - but is that likely to just sort of hang out in that level, maybe come down? And then, how are you feeling about credit internationally versus the U.S., just given all the tariff movements?

value over time. It's certainly something that others in the space are trying to do. We have the advantage of having been deeply present in Europe for over a decade. We have a fantastic team there, great borrower relationships. And I think, we've seen that, again, in periods of volatility and in periods of stability, the

ability to look around and find the most compelling investment opportunities anywhere in the world allows us to create a better portfolio from a risk-adjusted return perspective.

We feel very good about our European exposure. It's primarily crossed industrial portfolios. Some crossed hotel portfolios that I mentioned are doing well, some multifamily. The lending market in Europe tends to be quite stable, relatively low leverage. We are able to benefit from a cost of capital advantage in Europe

that allows us to create, I would say, better risk-adjusted returns. And the overall competitive dynamic in Europe is different than the U.S. The CMBS market is much less active. There are many fewer platforms like ours that can achieve the types of investments that we can. And therefore, we're able to create some excess return.

So we feel good about that portfolio. We also think it provides a nice balance in a period of uncertainty. And we've seen over the history of the business that it's always been around 35% to 40%. We have no particular cap. But I think, the relative size of the markets and the activity have sort of proved out over time that that's generally where it sits. I doubt it's going to change materially in either direction.

recent market volatility impacted new CLO issuance? And I guess, the meat of my question is, could we see another CLO from you guys at some point this year, if the market does accommodate?

couple that were privately placed earlier this week maybe.

So we will -- I think, the CLO market will settle out just as we're seeing the CMBS market settle out. There were a couple of conduit deals that came last week that priced quite well. And so, I think again, there's plenty of capital in that market. It needs to adjust to slightly wider spreads, as the overall lending market has. But those markets are outperforming relative to corporates and other parts of the credit

market. And I think, it's a testament to the desire for capital to come in. And yes, if the CLO market settles out and it looks like a good option for us, the origination volumes that we're creating are obviously very

conducive to potentially coming back to the CLO market later in the year. We like that as a potential capital source. And we'll certainly be monitoring it.

mean, we've certainly resolved a lot of them and sort of naturally as the universe shrinks each individual one, the timing has more impact. But as I mentioned on the call, we already have resolved another asset this week. We have one under hard contract for closing. We have a clear path for a couple of others. So we certainly see the continued trajectory, as positive in terms of resolving the existing impaired assets.

And that's a huge focus of our asset management team. So, we're optimistic. We're cracking through that as one of our highest priorities. And there will be some idiosyncrasies and timing, one quarter versus

another. But I think, we should continue to see the benefit of the resolution processes that we have in flight coming through.

And we think that the way we've ratcheted the risk profile in our general reserve as of 3/31, basically reflects the market. We'll see how things play through for the rest of the second quarter. And if that needs a slight notch up or if things move in a different direction, a slight notch nap, notch down. But I wouldn't expect any dramatic change, in the second quarter as a result of some of the things we've seen.

because we see the opportunity to implement a business plan and improve value over time.

And that's not necessarily an overnight thing. So, we're - it's 3% of the portfolio, or 3% of our overall

business, not a huge number. They're not necessarily assets that are going to require a lot of capex. In a lot of cases, it's more pursuing a business plan, change of use, something like that. And we're going to focus on driving return over time as opposed to sort of a quick thing.

That being said, they're all different. I mean, I think we have a couple that we might be able to exit pretty soon. I think, we have others that we may have for longer. But I think, the overarching theme is it's a

small part of the portfolio, there are actually a number of assets there that have pretty good cash flow and potential cash flow trajectory, we recognize that cash flow as it comes through in earnings. And I think, we're just focused on maximizing value over time for those assets, however, long that may take. And if we see an opportunity to exit at a good level, obviously we'll take it.

Disclaimer

Blackstone Mortgage Trust Inc. published this content on June 26, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on June 26, 2025 at 04:41 UTC.