Blackstone Mortgage Trust, Inc.

Hi, good day and welcome to the Blackstone Mortgage Trust second quarter 2021 investor call. My name is Deborah and I'm your event manager. At this time, all lines are in listen-only mode. If you do need any assistance at any time, you can key star zero and a coordinator will be happy to assist you. If you wish to queue for a question, please simply key star one and we'll advise you when you can ask any questions. I would like to advise all parties the call is being recorded. And now I'd like to hand on to Weston Tucker, Head of Shareholder Relations. Weston, thank you. Go ahead.

Great. Thanks, Debra. And good morning, everyone. And welcome to Blackstone Mortgage Trust's second quarter conference call. I'm joined today by Mike Nash, Executive Chairman, Katie Keenan, Chief Executive Officer, Jonathan Pollack, Global Head of Blackstone Real Estate Debt Strategies, Tony Marone, Chief Financial Officer, and Doug Armour, Executive Vice President, Capital Markets. This morning, we filed our 10-Q and issued a press release with a presentation of our results, which are available on our website and have been filed with the SEC. I'd like to remind everyone that today's call may include forward-looking statements which are uncertain and outside of the company's control. Actual results may differ materially. For discussion of some of the risks that could affect results, please see the risk factor section of our 10-K. We do not undertake any duty to update these 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 our 10-Q. This audio cast is copyrighted material of Blackstone Mortgage Trust and may not be duplicated without our consent. So a quick recap of our results. We reported GAAP net income per share of 89 cents for the second quarter, while distributable earnings were 61 cents per share. A few weeks ago, we paid a dividend of 62 cents per share with respect to the second quarter. If you have any questions following today's call, please let me know. And with that, I'll now turn things over to Katie.

Thanks, Weston. I'd like to start the call today by thanking Steve Flavin for his exceptional leadership of BXMT. Steve ran the company as CEO from its re-IPO in 2013, driving eight years of outstanding performance, growth, and returns for investors, 11.1% annualized over his tenure. The premier position BXMT has maintained through its history is a testament to his vision and expertise, and we are thrilled that he will be taking his talents over to London to manage our best-in-class European real estate debt business through its next phase of expansion. I'd also like to express my gratitude to Steve on a personal basis for his collaboration with me over the years, as well as his partnership in ensuring a seamless transition to the next phase of leadership for BXMT. Thank you again, Steve. Turning to our second quarter results, as the economic reopening continues to take hold, BXMT hit its stride with strong activity across all aspects of the business. We had one of our most productive new origination quarters ever, with 2.2 billion of loans across 21 transactions, driving both portfolio and earnings growth in the period. We ended June at a record portfolio size of 19.2 billion, reflecting positive net investment of nearly $1 billion so far this year and our fourth consecutive quarter of portfolio growth. We continue to enjoy superior access to attractive sources of financing across asset level and corporate debt markets, sustaining our low cost of capital. And the recovery of economic activity drove ongoing business plan progress on our collateral assets, supporting continued credit performance and a partial release of our CECL reserves. Our business is generating a 9% yield from a portfolio of performing low leverage first mortgage loans. And we have generated this yield consistently in the seven years prior to the pandemic, during COVID, and now into the next phase of growth. Our yield is stable, but the relative value we offer has become even more compelling over time as rates, spreads, and returns for comparable products have compressed across the market. And our credit strategy has shown its mettle. carrying through the COVID cycle with near perfect performance. The company today is exceptionally well positioned with strong tailwinds for continued growth. Our investment activity this quarter, and indeed the first half of the year, is a result of our unique vantage point in the commercial real estate space. The scale of the Blackstone real estate debt and equity businesses with over $200 billion of investor capital under management means we are transacting in the market every day, Across our platform, Blackstone invested nearly $5 billion of equity in the second quarter alone. The breadth of the Blackstone real estate portfolio, over 1 billion square feet of assets, allows us access to extensive performance data on a real-time basis. We therefore have the benefit of tremendous information to develop insights and identify trends before others can, allowing us to invest with confidence in an evolving market environment. These dynamics drove attractive lending activity across sectors and markets this quarter. As a significant player in the multifamily space, we observed the strength in asset performance through COVID, and more recently, a steep acceleration in top line growth, with leasing spreads in June across the top 40 markets hitting an impressive 9.7%. We responded by acting with conviction on multifamily lending opportunities, leading to eight new loans in the space, including our largest loan this quarter, a $264 million financing on a portfolio of Sunbelt Garden Apartments. And like many of our best loans, this transaction emanated from a deep relationship between Blackstone and our borrower, putting us in pole position to structure an attractive financing package for a high-quality portfolio. In the office sector, transaction flow is rebounding, with the reemergence of leasing activity in many markets creating an inflection point for fundamentals. In major cities, new tenant requirements reached 81% of 2019 levels, and new leasing reached 35 million square feet in the second quarter, still below pre-COVID, but the highest level since the onset of the pandemic. Our focus remains on well-positioned, high-quality buildings with excellent sponsorship, and in many cases, strong in-place cash flow. Most of our office loans this quarter were for new acquisitions, with sponsors including Related, LaSalle, PIMCO, and Angelo Gordon investing very substantial new cash equity alongside our debt. We saw the opportunity to lend on strong cash-flowing assets in growth markets, with office loans in Atlanta, Nashville, and Austin, all at 7% to 8% in-place debt yields with upside from there. And we continue to leverage our deep experience in the Boston Life Sciences market, where Blackstone owns over 6 million square feet, to create outstanding lab office lending opportunities, closing our second large deal of the year in that sector. Overall, we are seeing a meaningful increase in compelling lending opportunities for our business. Rents and leasing are ticking up in our target markets. Leisure travel spending is outpacing pre-COVID levels. The lingering impact of last year's volatility, combined with cost inflation, should keep a lid on new supply. Low rates and the global search for yield create a favorable dynamic for cap rates. And while we're mindful of the residual effects of COVID and the Delta variant, we think the potential impact will be felt in the slope of the recovery, not its end point. Today, we have over $3.5 billion of new loans closed or in closing post-quarter end. In addition to the sectors which drove our first half activity, we are seeing increasing lending opportunities in Europe as those markets normalize. And we are identifying attractive relative value in the hotel sector, well-priced loans at cyclically low leverage points. The positive fundamentals driving our new lending activities are also manifest in the performance of our existing collateral. We saw over 1 million square feet of leasing in our office and industrial assets, 12 points of occupancy pickup in our multifamily properties, and rev par above 2019 levels at many of our resort hotels. We upgraded 15 loans, reflecting their improving performance, and saw a partial reduction of our CECL reserve in the quarter, driving an increase in book value. And we continue to see repayments in the portfolio, a healthy part of our business as collateral assets progress in their business plan to stabilization. The growth in new business activity this quarter gave us the opportunity to develop creative, efficient financing options on the right side of our balance sheet as well. Our ability to capitalize on the competitive market environment drove pricing to attractive levels on both our credit facility executions and our CLO. And we completed an upsize and repricing of a tranche of our term loan, driving significant interest savings going forward. While spreads remain competitive in our target zone of high quality credits, the scale and sophistication of our borrowing activities allow us to consistently maintain stable ROIs as we build our origination pipeline. Looking forward, the positive outlook for our business continues. We have a strong pipeline of opportunities to execute our strategy of low leverage floating rate lending to top quality sponsors on institutional assets. Continued portfolio growth should enhance the earnings power of our business. Our portfolio credit quality is strong and the assets most affected by COVID are regaining their footing as the economy strengthens. While an earlier than expected rate move could create a short-term headwind, over time our business benefits from higher rates as more of our portfolio comprises newer floating rate originations. And we maintain our focus on generating stable, durable current income for our shareholders. which we have successfully delivered through the pandemic and its aftermath, as well as for the many years before. And with that, I'll now hand the call to Tony.