Blackstone Mortgage Trust, Inc.

Good day and welcome to the Blackstone Mortgage Trust fourth quarter and full year 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 would 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 fourth quarter and full year 2024 earnings conference call. I'm 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-K 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 10-K. This audio cast is copyrighted material of Blackstone Mortgage Trust and may not be duplicated without our consent. For the fourth quarter, we reported gap net income of 21 cents per share and distributable earnings of negative $1.25 per share. Distributable earnings prior to charge-offs were 44 cents per share. A few weeks ago, we paid a dividend of 47 cents 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.

Thanks, Tim. The fourth quarter marked a meaningful positive inflection point for BXMT. We resolved $1.1 billion, or 49%, of our impaired loans, proving out our view that credit performance troughed last quarter and bringing our performing loan percentage to 93% today. Book value ended the quarter within 1% of 3Q levels. the combined result of limited further credit migration and upside wins on impaired asset resolutions above our marks. Robust repayments continued, $1.6 billion in the quarter, bringing us to $5.2 billion for the year, including $2 billion of office. And we've seen another $1.6 billion year to date, bringing our liquidity to a record $1.9 billion today. Our capital markets access continues to prove exceptional. we completed the largest corporate debt transaction in our history, a $1.1 billion deal, which turned out our maturities and attracted robust demand at four times oversubscribed. At the same time, we reduced overall debt to equity to 3.5 times, our lowest level in 11 quarters. And with all the pillars in place, a healthy balance sheet, plenty of liquidity, a more normalized credit outlook, and most importantly, a historically attractive environment for real estate lending, we've turned our attention to offense. We enter 2025 poised for portfolio and earnings growth, with $2 billion of pipeline closed or in closing today. While not V-shaped, we are squarely amidst a real estate recovery. Values have shown four straight quarters of improvement. Through the end of last year and coming into the first quarter, we've seen a meaningful return of liquidity across real estate markets. Despite the uptick in long rates, a robust macroeconomic backdrop and strong fund flows have driven tightening risk premia across the credit space, reducing the cost of capital and creating a solid baseline for real estate capital markets. CMBS issuance, which eclipsed $100 billion last year, is off to a strong start in 2025, with $20 billion already closed and another $20 billion anticipated in the coming weeks, including the sixth office SASB deal this year. Transaction volumes were up 30% quarter over quarter, representing a 72% increase from the 1Q24 trough. Underpinning the recovery are solid real estate fundamentals, with demand bolstered by resilient economic activity and new supply roughly two-thirds lower than recent peak levels across core asset classes, a powerful long-term driver of performance. We believe real estate credit offers highly compelling relative value today. Reset values mean better credit, higher debt yields, and more cash flow coverage for our loans. Spreads, while compressing, remain attractive, especially relative to credit alternatives, which are pushing all-time tight. And with base rates elevated, all-in yields are high. Moreover, within BXMT, our returns are generated based on the difference between where we lend and where we borrow. Cost of capital for more stabilized senior risk is compressing most rapidly. And with market-leading access to a diversified base of bank lenders and securitized markets, we are uniquely positioned to capitalize on this dynamic and drive incrementally improving net interest margins. This backdrop offers a fruitful environment for new investment, which I'll cover shortly. But it also spells a meaningful uptick in repayments and resolutions, accelerating the turnover of our portfolio. Our 5.2 billion of repayments this year were 36% above last year's levels, and indeed represent our second highest repayment year ever. Notably, our office loans continue to repay roughly proportionately to our overall portfolio, and we have therefore reduced our office exposure by over $3 billion since the beginning of 2022 through repayments of 27 individual loans, and that's before 1.5 billion of office repayments so far this year. Our loan portfolio continues to show meaningful liquidity, powerful evidence of the resilient credit of the vast majority of our pre-rate hike portfolio, and the institutional demand for our high-quality collateral. This is now a cycle-tested business multiple times over. Through two years of difficult market conditions, our loans continued to repay, our liability structure proved durable, and we maintained near-record liquidity levels throughout. The stability of our balance sheet through this extended credit cycle also allowed for patience, affording us the flexibility to proactively manage challenged assets and resolve or monetize them now when markets are healthier, rather than fire selling at the illiquid depths of the cycle. Case in point, the sale of New York City and West LA office buildings this quarter through competitive institutional bidding processes, ultimately selling within 10% of our par balance on average. All in all, we resolved 10 impaired loans this quarter. We generated $32 million of book value as sale proceeds came in above our aggregate reserve levels. And on our REO assets, we see longer-term upside potential as we implement business plans in coordination with our highly experienced real estate asset management team. And despite rates moving at the end of the year, we've seen no slowdown in the pace of our resolutions. with several deals closing at year-end and an incremental $400 million of resolutions closed or enclosing in one queue. We believe credit performance troughed in the third quarter, and while it won't be linear, the direction of travel is clearly positive. More broadly, the substantial portfolio turnover underway will enable us over time to shift our asset base, with larger concentration in new investments originated at reset bases in today's attractive credit environment. Depending on the pace of repayments, we estimate that nearly 40% of our year-end portfolio could constitute 2025 origination. And we're off to a great start with a robust global pipeline. Our current $2 billion of closed and committed deals are concentrated in strong lending sectors like multifamily, industrial, and self-storage, with levered yields averaging more than 900 basis points over base rates and safe overall credit characteristics. And we are leveraging our sourcing capabilities to drive differentiated opportunities. In addition to nine deals in the U.S., our pipeline is over 60% Canada, Europe, the U.K., and Australia, markets which offer attractive relative value, including $100 million cash-flowing industrial portfolio in Europe and a $140 million multifamily loan in Australia, both around 100 basis points wide of comparable U.S. transaction pricing. The Blackstone Real Estate Debt Business is the largest alternative manager of real estate credit in the world, which positions BXMT to best capture the investment opportunity today. With over 150 real estate debt professionals, over 100 billion of historical originations, and relationships with over 500 borrowers driving 84% repeat business, our ability to access an attractive pipeline of new deals is exceptional. This is a platform that was uniquely positioned to originate the spiral, a flagship BXMT loan and the largest in our portfolio, which after seven years repaid earlier this month. This was a $1.3 billion senior construction loan originated in 2018 at 28% pre-lease and 50% loan to cost. Now 94% leased, the loan repaid through a banner SAMBS execution, which was five times oversubscribed, priced at the low 100 spread and yielded proceeds two times our basis, implying an exit LTV on our loan of 29%. While larger and somewhat lower leverage than our typical office loan, this loan shares many qualities with our overall origination philosophy. High-quality real estate that outperforms strong institutional sponsorship and moderate leverage. Liquidity has definitively returned for high-quality office, and with more than 75% of our one to three risk-rated office newer vintage, our portfolio should benefit. As we look ahead, we are leveraging the same Blackstone platform advantages and entrepreneurial DNA to look across the real estate credit universe and identify the best suited incremental strategic opportunities for our business. With interest rates remaining elevated, a positive outlook for the U.S. consumer, and essential needs-based retail showing resilient performance, we see a compelling setup today to build a credit-oriented diversified net lead strategy. This business produces stable, long-duration cash flows with the potential for value appreciation, elements which naturally complement BXMT's core floating rate lending business. We believe we can acquire assets at a significant discount to replacement costs, with 10- to 20-year leases and strong EBITDA coverage generated by established businesses. Over time, we expect to curate a diversified portfolio, generating compelling cash yields with duration. We have a differentiated approach, building our business from scratch through a dedicated platform established in partnership with our real estate equity colleagues and an experienced handpicked team. While this strategy will take time to ramp, it is meaningfully scalable, with a total addressable market in the trillions. And further, it brings the benefit of adding another attractive outlet for capital deployment, further expanding the scope of BXMT's new investment pipeline, and positioning the company to capture the best relative value across real estate credit markets. In closing, we are optimistic about the trajectory of the real estate cycle and our business. The composition of our portfolio will be enhanced through resolutions, repayments, and redeployment of capital into attractive new investment opportunities. These drivers have put BXMT on a clear path to rebuilding earnings power over the course of the year and beyond. The credit pressures are easing, and at the same time, we are building the potential for long-term value creation, including the net lease and agency strategies and the upside we now own in our REO. Assets where valuation resets have been reflected in book value, but we see the potential for upside through value add as the market recovers. The entry point for BXMT remains highly attractive. The S&P is near all-time highs, corporate bond spreads near all-time tights, and we continue to see retracement in valuations across the real estate market. Commercial mortgage rate dividend yield spreads to base rates are virtually the only liquid real estate credit product that has not tightened materially since the Fed's first rate cut in September. BXMT today trades at a 10% dividend yield and 87% of post-reserve book value, offering the opportunity to buy into a growing portfolio at a substantial discount and collect meaningful current income with valuation upside. And we're expressing this view actively with over $50 million of stock buybacks in the last three months. Before I close, I want to thank our team for their tremendous efforts this year, taking a tireless, unrelenting approach to maximizing outcomes on behalf of our investors. And today, those efforts put BXMT on excellent footing for growth into an attractive market. I also want to welcome Marcin Urbasic, who I think is well-known and highly regarded by many on this call, as he joins our growing BXMT team. Thank you, and with that, I will turn the call over to Tony.