Blackstone Mortgage Trust, Inc.

Good day and welcome to the Blackstone Mortgage Trust second quarter 2023 conference call. Today's call is being recorded. All participants are in listen mode only. If you require operator assistance at any time, please press star zero. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Please limit your questions to one question and one follow-up question. At this time, I'd like to turn the conference over to Tim Hayes, Vice President, Shareholder Relations. Please go ahead, sir.

Good morning, and welcome, everyone, to Blackstone Mortgage Trust's second quarter 2023 conference call. I'm joined today by Mike Nash, Executive Chairman, Katie Keenan, Chief Executive Officer, Tony Marone, Chief Financial Officer, and Austin Pena, Executive Vice President of Investments. 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 subject to risks, uncertainties, and other factors 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 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 our 10-Q. This audio cast is copyrighted material of Blackstone Mortgage Trust and may not be duplicated without our consent. For the second quarter, we reported GAAP net income of 59 cents per share, while distributable earnings were 79 cents per share. A few weeks ago, we paid a dividend of 62 cents per share with respect to the second quarter. Please let me know if you have any questions following today's call. With that, I'll now turn things over to Katie.

Thanks, Tim. Since the onset of the rate hike cycle, BXMT has consistently delivered for our shareholders, with the strengths of our business moderating the impact of credit headwinds. This quarter's results again underscored our continued resilience. For the second quarter, we earned 79 cents of distributable earnings per share, up 18% year over year, and covering our dividend by 127%. We delivered this result while reducing leverage and growing liquidity to a record $1.8 billion. And our book value was stable as retained earnings offset our reserve bill. The enduring credit performance of the vast majority of our loan portfolio is a critical ingredient to this outcome. We've highlighted in the past the importance of our low LTV strategy, asset, borrower, and market selection, and thorough underwriting informed by the deep knowledge and experience of our platform. This put us in a strong starting point coming into this cycle. Today, we are directing our rigorous, forward-looking approach to actively managing our portfolio, executing on numerous deal-by-deal transactions with a focus on enhancing our credit position and reinforcing sponsor commitment, an outcome we achieve through paydowns, recourse, and additional sponsor cash equity. When sponsors step up to commit more dollars, we can give them more time to complete their business plans, and in certain cases, some economic relief to lighten the burden of carry. It's a win-win for these deals, reducing our credit exposure and maintaining our interest income at coupons well above our expectations at origination, while putting our borrowers in a more stable position. In the second quarter, our borrowers invested or agreed terms on over $700 million of incremental equity subordinate to our loans. We closed 10 transactions where we reduced our basis by 11% on average through paydowns or principal guarantees. We have deals to address over 80% of the four-rated office loans we had on our watch list at the start of the quarter, with paydowns or incremental equity on each, significantly reducing the risk of near-term credit deterioration and further protecting our investment position. These asset management wins are the latest examples of a proactive de-risking strategy we've pursued for over a year. Each deal requires a bespoke approach, something we are particularly well-positioned to do given our deep bench of 26 dedicated asset managers globally and the real-time data and observations we collect from across Blackstone's vast real estate footprint. Our portfolio also benefited this quarter from green shoots in the broader capital markets. We collected $1.5 billion of repayments, a strong indication of the refinanceability of our loans, as well as the liquidity of our underlying collateral assets in the market. These repayments reflected a healthy mix of sales and refis, and notably included over $350 million of office loans. We also took the opportunity to bring forward repayments by selling two loans essentially at par. We still have more to go on the credit cycle, and U.S. Commodity Office remains extremely challenged. Our office downgrades this quarter reflect these dynamics, but we have a diverse portfolio with nearly 200 loans, and watch-listed and impaired office remain a small portion, just 10%. I mentioned earlier the credit-enhancing modifications we've achieved on many of our previously forerated loans. On our five-rated loans, still just 4% of our portfolio, we are taking a tailored approach. This means near-term sales for some assets, which we are pursuing in several cases. But we have also set up our business with long-dated liabilities and plenty of liquidity to afford us the flexibility to reinvest and reposition assets where we feel it is most accretive, leveraging Blackstone's skills as a highly experienced real estate owner to maximize recovery over time. Away from office, we continue to see good performance across most other asset classes. This quarter, we upgraded eight loans, including two loans from four to three, as a result of both cash flow recovery and significant paydowns from our sponsors. On the multifamily side, which is 26% of our portfolio, we are benefiting from our selective approach to sponsors, assets, and submarkets. While we expect rent growth to decelerate in some markets, it remains positive, continuing to support cash flow in the underlying assets and the performance of our loans. Our U.S. traditional multi-assets are in locations with market rent growth 35% higher than the national average and new supply 22% lower than their respective markets as a whole. As a result, our multifamily loans, which average 66% LTV, have demonstrated NOI growth of over 25% on average since origination, with many value-add improvements still in process. In this quarter, we saw $317 million of multi-repayments through agency refis at valuations implying a 10-point decrease in our LTV from 2021 origination to today. Industrial remains robust. Essential retail is doing well. Hotels and resort and many urban locations, like New York City, are demonstrating sustained RevPars above 2019 levels, and capital markets are open. Just last week, a $363 million hotel loan, one of our largest, repaid with a SASB CNBS execution 40% higher than our loan basis, implying an LTV for our position of just 39%. This loan was watchlisted during COVID, as pandemic travel restrictions took a severe toll. But we work closely with our borrower to chart a path through a tough period, and in time, demand snaps back for this high-quality asset, paving the way for a refund. While real estate capital markets are thawing, they will likely move in fits and starts, and office liquidity remains scarce. Credit outcomes for more challenged assets will take time to play out, and we may see more pockets of deterioration along the way. But through over a year of this dynamic, BXMT has consistently generated outsized dividend coverage and protected book value, evidence of our business model at work. Over the past 12 months, we've retained nearly $120 million of distributable earnings in excess of very healthy dividends, bolstering our liquidity, reducing our leverage, and preserving our book value, even as we add reserves to reflect the market environment. With term matched asset financing and no capital markets marked to market, we've created a durable net interest margin on performing loans. And through active portfolio management, as well as natural turnover, we have maintained near record liquidity levels throughout this period, while at the same time preserving a low cost liability structure with no corporate debt maturities until 2026. Our positioning affords us valuable optionality to navigate this volatile environment. Liquidity is returning in pockets of the market at new normal levels of return, turning over balance sheets and advancing an orderly deleveraging cycle in many areas. The bar for new investment remains high, but the opportunity set is expanding. We're seeing increased loan requests and have evaluated multiple loan portfolio acquisitions over the past few months. With the scale of the Blackstone platform and our pool of dry powder, we are uniquely positioned to source deals and financing when we deem it attractive. But given our strong earnings and dividend coverage, we have no pressure to redeploy capital. Running our business with more liquidity and a more conservative balance sheet puts us in an advantageous position to manage a range of economic outcomes and maintain our war chest to capitalize on truly differentiated opportunities. We will continue to proactively manage our business for resilience as we progress through the cycle. prioritizing optionality, capital preservation, and our consistent attractive dividend to our investors. Thank you for joining us, and I will now turn the call over to Tony.