Blackstone Mortgage Trust, Inc.

Good day and welcome to the Blackstone Mortgage Trust third quarter 2024 investor call. Today's conference is being recorded. At this time, all participants are in a listen-only mode. 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. At this time, I'd like to turn the conference over to Tim Hayes, Vice President, Shareholder Relations. Please go ahead.

Good morning and welcome, everyone, to Blackstone Mortgage Trust's third quarter 2024 earnings conference call. I am joined today by 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 a discussion of some of the risks that could affect results, please see the risk factor 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. Blackstone Mortgage Trust may not be duplicated without our consent. For the third quarter, we reported a gap net loss of 32 cents per share, while distributable earnings and distributable earnings prior to charge-offs were 39 cents and 49 cents per share, respectively. A few weeks ago, we paid a dividend of 47 cents per share with respect to the third 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. Third quarter brought the long-anticipated commencement of the rate cut cycle in the US. Across major developed markets, short rates are coming down, driven by cooling inflation. At the same time, economic indicators remain strong, supporting the prospect of a soft landing. For real estate, the combination of lower rates and a more benign outlook has created an inflection point in the cycle. Liquidity has returned to the market, normalizing costs of capital and bringing transaction activity off the sidelines. Real estate valuations have bottomed, with three consecutive quarters of increasing values. And with new supply down 40% to 75% across major sectors, longer-term tailwinds are in place. This recovery is driving strong forward momentum in BXMT's business, accelerating portfolio turnover through repayments, resolutions, and redeployments. With $1.8 billion of payoffs, 3Q was our fourth highest repayment quarter ever and double the average pace of the first half of this year. Capital coming back can be redeployed into today's attractive investment environment with a basis, credit lens, sector view, and spread profile all reset to current levels. With plenty of liquidity and a fruitful origination environment, we are squarely in new investment mode. Year-to-date, we have nearly $700 million of new originations closed or enclosing across favored sectors, including multifamily, industrial, self-storage, and resort hotels. And the environment today supports lending at a lower basis with stronger cash flow coverage and higher returns. Our largest enclosing deal is a case in point. This is a $450 million senior loan backed by a portfolio of stabilized self-storage assets. Elsewhere in Breds, we've participated in the capital structure of this investment before. It's always been a great portfolio, a credit to the solid real estate and skillful sponsorship. But in this vintage, wider market cap rates mean that our 62% LTV loan sets up to a debt yield 20% higher and a levered return nearly double the 2021 iteration, a factor of both wider spreads and higher base rates. This dynamic extends beyond one loan. The weighted average origination LTV of year-to-date loans closed or in closing is 60%. The weighted average debt yield is over 9%. And collectively, these deals set up to mid-teens ROIs at today's base rates, highly attractive relative value. These deals also exemplify our competitive edge in sourcing pipeline and driving differentiated investments. All are with repeat borrowers several many times over. All were sourced directly or in limited competition. and all have generated strong appetite from our financing relationships, with marginal pricing moving squarely into the mid to high 100 spread levels. We expect more activity from here. U.S. transaction volume is up 20%, the largest sequential increase since the fourth quarter of 2021. More deal activity has spurred greater demand for new loans, and our pipeline continues to expand. Our future deployment outlook is underpinned by the repayment dynamic of our existing loans. We have a relatively short duration portfolio. Our loans are typically five years in term, repaying after two to three. In periods like the last few years, loans stick around longer, with borrowers preferring to extend their hold periods and existing financing, notwithstanding strong performance from underlying collateral. But when capital markets reopen, there's a catch-up, which is what we're seeing now. The CMBS market, agencies, insurance companies, and debt funds are all active. and borrowers are refinancing into the next phase of their business plan. Going forward, we expect an accelerated repayment period for our 1 to 3 risk-rated loans, which today account for around $15 billion of the portfolio. As we look out over the next 12 months, we have $2.7 billion of total 1 to 3 risk-rated loans with scheduled final maturities, the largest of which is the spiral, a new build trophy New York City office building located in Hudson Yards and our top loan commitment. This asset is squarely a winner in today's office market, having leased up from 28% when we made the construction loan to over 90% today and attracting the premier tenants in the market, Pfizer, Debevoise, Alliance Bernstein, HSBC. While we would be delighted to keep this loan in our portfolio, it is definitively refinanceable and we expect it will repay in the coming quarters. The turning of the credit cycle and increased capital markets liquidity is rippling through our more challenged assets as well. While we completed just one resolution in 3Q, we were busy lining up a number of deals for the fourth quarter. Post-quarter end, we have completed or agreed terms to resolve over $600 million of our impaired assets and have clear visibility on the path to resolution of a further $500 million plus. Altogether, this means that in the coming quarters, we believe we can resolve over half of the $2.3 billion of impaired loans we carried at the end of Q3. These resolutions will come through a combination of full cash sales, AB note restructurings, and in limited cases, REO. We have two assets under hard contract for sale at prices above our reserve levels, including a $250 million office deal in New York City that drew a highly competitive bidding process and a final sale price equating to a high 4s in place and high 5s stabilized cap rate. We closed a recapitalization of an office deal earlier this month, bringing in substantial new equity commitments subordinate to our reset A-note basis and have several other large office restructurings in the queue. We plan to take two assets REO in 4Q, a hotel in San Francisco and an office in D.C., where we will pursue longer-term value recovery strategies. And while not included in the numbers I just quoted, we are in the market for sale or negotiating deals on several other resolution candidates, which may add to the total as we move into 2025. And finally, our specific CECL reserve, averaging 28% of impaired loan balances, continues to prove appropriate, with the resolutions closed or in closing to date expected to shake out at or above our carrying values. The progress we are making is a crucial step toward repositioning the portfolio for sustained performance and an indication of the broader credit trends we see in our portfolio today. Every single performing loan that reached maturity this quarter repaid, satisfied its performance test, or extended with over $400 million in new equity commitments or additional economics to be exempted. And this includes over $1 billion of office loans. Rate cap renewals are a non-issue. Multifamily is 99.5% performing, and lower short rates support stronger debt service coverage ratios going forward. We collected or agreed paydowns on three of our four wash-listed multiloans, with the fourth slated for repayment. We had over $650 million of repayments across large portfolios of hotels in Australia and Europe. And even in office, we've collected over $675 million in repayments thus far in the second half, bringing the year-to-date total to $1.4 billion through today. This includes full repayment of our $286 million loan on Colony Square in Atlanta and an €115 million paydown on our Irish office and industrial portfolio loan, the second in two years as we continue to support the build-out of highly accretive industrial collateral within the asset base while improving our credit position. While credit outcomes can take time to play out, as evidenced by two additional impaired office loans this quarter, we see the balance shifting from here, with resolutions outpacing impairments. Therefore, based on what we see today, this quarter's non-performing loan measure at 12% should be the peak, with improvement over time as we move forward. As resolutions crystallize, we will realize one-time losses through DE, but unlock the earnings potential of this capital. 4Q will be a rebuilding period, but looking forward to 2025, the combination of resolutions and redeployment should provide a tailwind to earnings power and coverage of our recess dividend. And we believe this transition period is more than priced in. The XMT today trades at 0.84 times post-CECL book value. The market is pricing in another $600 million plus of credit losses, beyond the billion dollars already reserved for in our book value. a punitive scenario based on what we see today. While a subset of our watch-listed office continues to be a focus for potential credit deterioration, we also see the emerging potential for market value recovery to translate through to our impaired assets, embedded optionality that shareholders today own for free. And our stock currently offers a 10% dividend yield, providing an attractive stream of current income that becomes increasingly valuable as global yields decline. More importantly, no firm is better positioned to capitalize on the current market opportunities than Blackstone. We have 150 real estate debt professionals around the world covering 600 plus borrowers with deep repeat customer relationships. Our scale and global footprint provide differentiated access to attractive investments, allowing us to pursue the best relative value across markets. Our deep capital markets expertise drives superior cost of capital, allowing us to take less credit risk to achieve attractive returns. And as the largest owner of commercial real estate globally, Blackstone's deep knowledge and experience underpins it all. The market has historically valued these advantages at a premium, rational given their translation to generating premium risk-adjusted returns. Today, we traded a steep discount. an attractive entry point as we capitalize on the cyclical real estate recovery and reignite our core investment business. Thank you, and with that, I'll turn the call over to Tony.