Blackstone Mortgage Trust, Inc. Class A Stock

Good day, and welcome to the Blackstone Mortgage Trust Second Quarter 2026 Investor Call. Today's call is being recorded. [Operator Instructions]

At this time, I'd like to turn the call over to Tim Hayes, Vice President, Shareholder Relations. Please go ahead.

Good morning, and welcome everyone to Blackstone Mortgage Trust's Second Quarter 2026 Earnings Conference Call. I'm joined today by Tim Johnson, Chief Executive Officer; Austin Pena, President; and Marcin Urbaszek, Chief Financial Officer. This morning, we filed our 10-Q and issued a press release and the 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 may not be suitable for all parties, 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 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 second quarter, we reported a GAAP net loss of $0.48 per share, while distributable earnings were $0.31 per share, and distributable earnings prior to realized gains and losses were $0.48 per share. A few weeks ago, we paid a dividend of $0.47 per share with respect to the second quarter. With that, I'll now turn the call over to Tim.

Thanks, Tim. BXMT's second quarter results reflect continued execution of our goal of driving portfolio turnover and reallocating our capital into high-conviction investment themes. We received $1.2 billion of repayments in the second quarter, nearly all of which were seasoned loans originated before 2023. We reinvested our capital into $1.4 billion of new investments concentrated in sectors with strong underlying fundamentals such as residential, industrial, and net lease.

Over the past year, these sectors have accounted for approximately 80% of our total portfolio deployment, and we've leveraged our global platform to source investments offering highly compelling relative value. Investment activity this quarter includes our entry into the single-family homebuilder finance sector. This is an area where there has been significant pullback from the banking system, and our platform positions us well to gain market share amidst a fragmented competitive landscape. We see a large-scale growth opportunity with a total addressable market of $200 billion.

Investments in this sector help to further diversify BXMT's portfolio with granular, well-structured loans, delivering some of the most attractive risk-adjusted returns we see today, with mid- to high-teens levered yields. This strategy is reflective of our intentional approach to invest in high-conviction sectors, increase the granularity and diversity of our portfolio, and leverage our franchise to capture the best value opportunities across global markets.

Another component of our portfolio turnover strategy is working our way through our legacy investments. On that front, we continued to make progress, resolving an impaired multifamily loan and completing a modification of our largest watchlist loan, contributing to a 23% reduction in our overall watchlist from last quarter. We are also taking advantage of current market liquidity to strategically sell certain assets. This week, we expect to launch a sales process for one of our largest assets, a 686-key Hyatt hotel in San Francisco, capitalizing on the sharp fundamental recovery and increasing investor demand in that market.

We recently initiated sales processes for over $1 billion of loans, mostly office. We are disciplined, strategic sellers and expect only to transact at levels that we deem attractive. At the right price, we believe reallocating this capital into our highest-conviction investment themes is in the best long-term interest of our shareholders. Turning to portfolio performance, the overall trends we see are consistent with prior quarters, with the exception being that we're seeing higher rates impact some of our legacy watchlist assets.

We saw the pillars of the real estate recovery beginning to emerge in 2024, and they remain in place today. CMBS issuance is tracking a near 20-year high, new supply is down approximately 60% to 90% across major asset classes, and values have steadily improved for 10 consecutive quarters. These market tailwinds have supported strong performance in the vast majority of our portfolio, driving approximately $13 billion of repayments over the period and bringing back capital that we've reinvested into new investments that reflect today's fundamental backdrop. As a result, we've reduced our total office exposure from 36% of our portfolio to just 21% today, significantly enhancing the composition of our $20 billion portfolio.

Recently, we've observed increased pressure on a subset of our portfolio, approximately $1 billion of watchlist loans, or about 5% of our total investments. These loans are predominantly secured by office assets with lower in-place cash flow and where fundamentals have lagged the broader real estate market, making them more sensitive to changes in the rate environment. These loans are on our watchlist precisely for these reasons, but have been performing and supported by our institutional borrowers who have invested nearly $800 million of subordinate capital into these assets since the end of 2023.

These borrowers have been playing through a challenging environment with the expectation that a recovery in fundamentals and lower rates were on the horizon. But given headwinds in these specific sectors and markets, performance has taken longer to recover, and rates, of course, have remained elevated, with the 10-year up more than 60 basis points since early March. This dynamic was at play this quarter as we took 3 new impairments on loans where borrowers had previously been supporting them. As we engage with borrowers on this $1 billion subset of loans as they approach upcoming maturities or other decision points, some may be similarly less willing to invest subordinate capital than they have been in the past.

We think addressing these watchlist assets is critical to driving BXMT's long-term performance. Importantly, we believe the profile of these assets is different from what we see in the rest of our office portfolio. All of our other office watchlist loans have been modified or restructured with significant new equity invested at a basis that reflects today's environment. And we've seen recent leasing momentum across these assets further supporting performance. And for our other performing office loans with risk rating 3 or better, nearly half are currently in the market for refinancing, while the remainder have strong in-place cash flow with an average debt yield of 10%.

As we execute these strategies to accelerate portfolio turnover and address our watchlists, we may see some impact on book value and earnings, which, as always, we will take into account, along with other factors such as interest rates and the investment environment, as we discuss our dividend with the Board. We expect these initiatives to produce tangible near-term results. Between increased repayment activity and our proactive asset management approach, we see a path to reducing our exposure to both office loans and to legacy pre-2023 loans by 40% or more by year-end.

And our new investments are laying the groundwork for a more diversified, granular BXMT, as evidenced by our average investment size declining from over $130 million just a few years ago to approximately $20 million today. This is our path forward. Address the tail of our portfolio and complete the transition to a more diversified business. We believe this best positions us to deliver strong, long-term performance for our shareholders, and we are well on our way. I will now turn it over to Austin to discuss our investments and portfolio in greater detail.

Thanks, Tim. In the second quarter, BXMT closed $1.4 billion of investments across multiple strategies, underscoring the breadth and diversification of our global real estate credit platform. We originated $1.1 billion of loans with an average LTV of 61%, mostly secured by residential and industrial. 80% of our lending was in the U.S., and the remainder was in Europe and secured by well-leased, diversified portfolios. We continue to grow our net lease strategy, where we acquired over $135 million of properties at share. Our portfolio now stands at $661 million.

When we entered the net lease sector, we were faced with a choice: buy an existing platform to scale quickly, but likely at premium pricing, or build from scratch, invest time and resources to hire an experienced, dedicated team to thoughtfully assemble a portfolio underwritten with the benefit of the unique data and insights from the Blackstone platform. We chose the latter, allowing BXMT to capture that aggregation premium for our investors. This curated, high-quality portfolio adds granularity and duration with long-term, steadily increasing cash flows that serve as a natural complement to our floating-rate lending strategy. And while just 3% of our portfolio today, we see continued growth ahead, with over $150 million of acquisitions closed or in closing so far in July.

As Tim mentioned earlier, we continue to evolve and diversify our investment strategies. We entered the homebuilder finance sector, acquiring approximately $130 million of loans at share in a newly established joint venture. Like net lease, homebuilder finance loans are geographically diverse and granular. The initial portfolio consisted of 36 loans across 10 states with an average loan commitment of just $12 million. Our joint venture with the largest private lender in the sector positions BXMT to grow our footprint in this attractive area over time.

With a healthy real estate capital markets backdrop, we are seeing active pipeline activity across our origination channels, as well as robust repayments in our floating-rate loan portfolio. This is a good setup to execute our various strategic initiatives and accelerate turnover of our portfolio. As Tim mentioned, we collected $1.2 billion of repayments in the quarter, effectively all originated prior to 2023. And in July, we've collected another $1.4 billion of similar vintage. This includes a EUR 450 million paydown on our Dublin mixed-use loan, our largest position as of last quarter. This loan now represents just 25% of our initial commitment and generates a double-digit debt yield.

Our loan portfolio ended the quarter at $17 billion across 133 loans, with the majority in multifamily and industrial sectors. The portfolio was 97% performing at quarter end, down slightly from 98% last quarter, reflecting impairments of 3 loans, 2 traditional office assets, and 1 mixed-use asset with a sizable office component, and the resolution of a Dallas multifamily loan, which we foreclosed on in June. Our most significant impairment in the quarter was a $345 million Chicago office loan originated in 2018. We downgraded this loan to our watchlist in 2022, reflecting well-known challenges in the Chicago office market following the COVID-19 pandemic.

While this asset has secured over 500,000 square feet of leasing over the last 2.5 years, and the borrower had been supportive, investing incremental equity to fund leasing costs, the combination of elevated interest rates and continued headwinds in the Chicago market ultimately put more pressure on the borrower, who defaulted on the loan in June. Our asset management team acted quickly, and subsequent to quarter end, we substantially agreed terms on a restructure with the borrower who intends to commit significant new capital at a reset basis in exchange for additional term and a reduction of our loan balance, which is reflected in our CECL reserves as of quarter end. Following this modification, the asset will be well capitalized to reach stabilization with a 7-year average remaining lease term and minimal near-term rollover.

Our watchlist today sits at $2 billion, down from $2.5 billion last quarter. This reflects an upgrade of our largest watchlist loan after completing a credit-enhancing modification that we mentioned on last quarter's call. In exchange for a term extension and slightly reduced economics, the borrower invested significant new equity, putting this loan on stable footing for the long term. We added 3 loans to our watchlist this quarter: a Denver office loan and a hotel loan in Hawaii, both originated prior to 2023, and a multifamily loan in Australia, secured by a high-quality, new-build asset in Melbourne, a strong market with less than 2% vacancy.

Our owned real estate portfolio consisted of 14 assets with $1.4 billion of carrying value at quarter end. As Tim mentioned, we expect to launch the sale of our Hyatt hotel in San Francisco, our second-largest owned asset, and several others that we are evaluating to bring to market this year as we remain highly focused on reducing this portion of our portfolio and reinvesting that capital accretively into target investments. With a deeply experienced team of 170 real estate debt professionals and the resources of the broader Blackstone real estate platform, we are well positioned to execute our various strategic initiatives with a relentless focus on maximizing outcomes and delivering for our investors. With that, I will turn things over to Marcin.

Thank you, Austin, and good morning, everyone. In the second quarter, BXMT reported a GAAP net loss of $0.48 per share and distributable earnings, or DE, of $0.31 per share. DE included $29 million of realized losses primarily related to the resolution of an impaired Dallas multifamily loan following the foreclosure of the collateral property. We now hold the asset on the balance sheet as owned real estate at a significant discount to prior ownership's basis. DE prior to realized gains and losses was $0.48 per share, which covered our $0.47 per share dividend, but was down a penny from the prior quarter.

DE, prior to realized gains and losses, benefited from continued growth in our unconsolidated joint ventures as we actively deployed capital across our net lease and single-family homebuilder finance businesses. Altogether, we had $322 million of capital invested in our joint venture investments at quarter end, up from $244 million in Q1, and recognized a little over $9 million of DE this quarter from these diversified strategies. We also recognized higher seasonal net revenues generated by our New York hotel, which contributed to $15 million of NOI we earned from our owned real estate assets this quarter, up about $1 million from Q1. Looking ahead to Q3, we expect DE will be impacted by the new loan impairments recognized in the quarter and the timing of several large repayments collected in July.

Book value ended the second quarter at $19.31 per share, down 4% from Q1, primarily due to an $0.80 per share increase in CECL reserves and $0.12 per share of depreciation and amortization related to our owned real estate assets. In total, book value includes $2.43 per share of total CECL reserves, of which $1.13 per share is the general reserve and $1.30 per share are the asset-specific reserves. The majority of the net increase in the CECL reserve this quarter was related to the impairment of a large Chicago office loan Austin discussed earlier, which we believe is appropriately reserved for. The modest decline in our Q2 general reserve reflects risk rating movements this quarter, including a smaller balance of watchlist loans.

Returning to BXMT's capitalization, we entered the quarter with $1.2 billion of liquidity. Our Q2 debt-to-equity ratio increased to 3.9x from 3.7x in Q1, mainly due to the timing of repayments and the increase in CECL. We remained active across the capital markets. In May, we issued $450 million of senior secured notes, which largely pre-funded our corporate debt maturity set to occur in the first quarter of 2027. The offering was met with strong investor demand and priced at the tightest new issue spread we've ever achieved across our corporate debt complex. Upon repayment of the 2027 notes, we will have nearly 5 years of weighted average remaining term on our corporate debt and no maturities until 2029.

Working closely with our sophisticated capital markets team, we continue to drive lower financing costs and are now regularly borrowing at or near our historical all-time tights. We also closed on a new non-mark-to-market lending facility with a major bank in the U.K. Our ability to source unique and attractive investments for our portfolio, combined with our broad access to various and attractively priced sources of capital, remain some of our key competitive advantages. Our balance sheet continues to be very well positioned with total non-mark-to-market borrowings now representing about 88% of total debt and with no capital markets mark-to-market provisions throughout our capital structure.

Thank you again for joining us today, and I will now ask the operator to open the call to questions.

[Operator Instructions] We will take our first question from Tom Catherwood with BTIG.

Maybe either Tim or Austin, I just want to square up the commentary on CECL reserves and the potential sale of a billion or a billion-plus in loans. So it sounds like CECL reserves were, especially the specific ones, were primarily on the 3 assets downgraded into the 4-rated bucket. But when you think of the billion in loans that's out there, from a marketing standpoint, is that marked to where you're getting bids at right now? What's the process for maybe adjusting that going forward and the potential for additional reserves as you get towards the sale?

Yes, thanks, Tom. This is Tim. I'd say that process is still pretty early on in terms of the loan sales. So we're going to review what we get. And as we noted in the prepared remarks, that is, you know, kind of an optional sale. We're looking to take advantage of what we think is a reasonably liquid market to sell loans. And so there are not reserves against those billion dollars of loans today. And as we evaluate what we receive in terms of bids, we'll walk through that next quarter after we have more information.

Perfect. And then as a follow-up, obviously, that's an optional sale, but there are other sales you have teed up. You mentioned the sale of the Hyatt hotel in San Francisco. When you think of this goal of kind of being a more diversified platform, what are your capital allocation priorities for the proceeds from these sales as they come in? Do you primarily put them into loans, or could you look to accelerate net lease investments or invest kind of elsewhere in a variety of different strategies? What are your thoughts on those priorities?

Yes, it's a great question. And it really is about that rotation into the strategies that we have the most conviction and we think have the best relative value today. And as we highlighted in the prepared remarks, net lease, homebuilder finance, as well as our traditional lending businesses all provide compelling opportunities. So we're going to take that capital back in, and we'll evaluate, you know, each and every option we have in the market to determine where the best relative value is. But we highlighted some of those areas, and you've seen it in our recent investment activity where we're putting that capital. It's really concentrated in the sectors where we see the best underlying fundamentals and where we think we can develop a relevant value in terms of our returns.

Great, great. Thanks for the answers.

Thank you. We'll take our next question from Jade Rahmani with KBW.

So the $1 billion of watchlist loans that are, you said, at the margin impacted by higher rates, are those risk-rated 4 loans?

Yes, Jade, this is Austin. Those are on our watchlist, which, yes, have a risk rating of 4.

Okay. And those are primarily office?

Yes. That would be, yes.

Okay. My main question is if you're starting to see pressure in multifamily loan performance, you know, how do you think sponsors are thinking about the outlook today? I think that multifamily, you know, rent growth here, the negative rent growth in Sunbelt is a little bit better than it had been, but still negative. So are investors seeing the light at the end of the tunnel on supply for 2027 and looking to hold through this period of high rates? Or are they more worried about rates where they are and ability to cover debt service and kind of value recovery, you know, just what are your views on multifamily credit risk?

Yes, I think we continue to see broadly really good liquidity in multifamily, both within our portfolio and more broadly in the markets. And I think a good thing to highlight would be that we've received about $5 billion of repayments of multifamily loans originated in '21 and '22. And there have been repayments recently, and we're expecting repayments in the near term that are pre-'22 vintage multifamily. I think that the diversity of capital sources in that space is a real valuable thing for refinancing activity. You've got a broad base of investor appetite for multifamily loans. And as you noted, we are seeing fundamentals generally improve in multifamily. Net absorption nationally in the first half was the strongest in 5 years, so we are seeing positive trends there.

And I'd say in our portfolio, we continue to see good fundamentals and good liquidity and repayment activity.

Thank you very much. If I could squeeze one more in and just be on special situations and M&A. We've seen a pickup in the real estate space, whether it be equity REITs, but then even in the commercial mortgage REIT space, one company selling its portfolio and liquidating and another announcing strategic alternatives. Do you expect to participate in M&A, and do you think this could be a source of attractive opportunities?

Sure, Jade, it's Tim again. I'd say, first, we're always going to evaluate opportunities to maximize shareholder value, and we see what's going on in the markets. I think we are pursuing some attractive things today, like we've talked about with portfolio turnover, looking to sell a loan portfolio to deal with some of that redeployment of capital. I really think when we look at things like M&A, we kind of look at it as a build versus a buy concept. And we've generally chosen build, in terms of our net lease strategy and our homebuilder strategy. And we think we offer a really compelling investment opportunity to the market broadly. Given our $78 billion overall real estate debt platform, we can create some very compelling opportunities that are very difficult to access. We think we have a platform that can deliver something that's really valuable to shareholders. And we're going to continue on that path, but we'll always evaluate opportunities as they arise.

Thank you. We will take our next question from Harsh Hemnani with Green Street.

As we sort of think through the decision to sell a portion of the office loan portfolio, could you maybe talk through the thinking behind that? So I guess on the one hand, it makes sense the office market is not great, even though fundamentals are starting to improve. So I guess on the one side, the fundamentals are starting to improve and there could be, if you wait for a little bit, recovery might be higher. And on the flip side of that, you've talked about this when entering the bank loan portfolio joint ventures, there's certain accruing and earning assets that may fit better in a REIT wrapper in the public market. And it's sort of fair to expect that some of these office loans may be non-accruing and a drag on distributable earnings in the short term. So I guess, how do you address the question as to this decision was made more from a perspective of long-term shareholder value creation than from it being an exercise in near-term earnings management? How do you address investor concerns around that, and how were you thinking of that internally?

Thanks, Harsh. I'd say, this is Tim. I'd say, first of all, the loan sale process is early stage and underway. And as we noted, you know, we're under no obligation to sell, and we may look at selling some, all, or none of it. So, there are many options here. I think it's really about rotating our portfolio more than sort of something driven by a near-term earnings impact. It's really about rotating our portfolio into the sectors where we see the best fundamentals, the best risk-adjusted return, and the best relative value. And, you know, what's underpinning it is that, as I noted before, we're very active in the loan trading market, and you noted it as well, both as a, you know, really more as a buyer than a seller, but we see good liquidity in that space.

So if we can take advantage of an opportunity to rotate out of office into other sectors, we think that is going to be, you know, the best outcome for long-term value for our shareholders. But of course, we're going to look at price, and it's going to work for us and make sense relative to, you know, the risk of those underlying loans themselves.

Got it. That's helpful. And then maybe in terms of the balance sheet, total leverage has picked up a little bit in the high fours if you include the CLOs. And as you've sort of diversified all the new ventures, the net lease portfolios, the bank loan portfolios that show up as equity interests on the balance sheet have their own leverage added onto it. How are you thinking about leverage at this point, if and when there are any office asset sales? Does part of it get used to delever the balance sheet, or are you fairly comfortable with leverage levels where they are?

Thanks, Harsh. It's Marcin. Thank you for joining us. Thanks for your question. Look, I think, as I mentioned in my prepared remarks, the leverage was a little elevated at the end of the quarter. It's largely driven by the timing of some repayments and obviously some reserves. It's been within our 3x to 4x that we've already arranged. Even though the repayment, we did a lot of amendments earlier, you know, they take a bit, but I think our overall leverage strategy is not shifting or changing at the moment, the cost and structure of leverage. So we intend to be in that 3x to 4x debt-to-equity range going forward. But again, quarter to quarter, there will be some variability depending on the timing of closing of repayments and originations and things like that.

Thank you. We'll take our next question from Rick Shane with JPMorgan.

One quick cleanup question, and I just apologize, I forget. Policies diverge across the industry. Do you guys realize losses when you put REO and mark it down, or do you wait until you actually complete the sale for the realization event?

Hey, Rick, it's Marcin. We realize the loss when we take over, when we foreclose or consolidate the asset. That happened in this quarter with that Denver multifamily loan. And then obviously, as we own real estate, we are required to assess them for any potential impairments every quarter, a robust process, but that initial charge-off happens when you take ownership.

Got it. So assuming, for example, the San Francisco hotel is sold close to your carrying value, no further realized losses associated with that?

As we look at what the net proceeds are vis-a-vis where we carry it, and then if there needs to be an adjustment, there is one. Correct.

Got it. Okay, great. Thank you. Look, you know, Marcin, you alluded to the fact that there's going to be some drag versus distributable ex-losses in the third quarter. Can you help us think about where that run rate is versus the $0.48 that you guys reported in the second?

Look, I think it's hard given all the moving pieces right now, and it's still early in the quarter. Obviously, given some of the impairments we took in Q2 and the pretty substantial repayment volume that we had this quarter, we do expect some impact to the third quarter. But again, it'll take us probably a couple quarters to be fully deployed with the money that we're getting back. So it's hard to say exactly where we're going to be right now on our run rate, given there's a lot of things moving around at the moment.

Got it. Okay. And that actually leads to my final question, which is how should we think about that in the context of dividend and dividend policy? If, for example, do you guys, how far forward do you look in setting that policy? If we are in a situation over the next, for example, two to three quarters where there is a shortfall, does it make sense to recalibrate the dividend that quickly? Or are you looking at a sort of more optimistic dividend run rate once you're fully redeployed? Because again, you're sort of saying, hey, look, DPS is going to come down. There was a comment about reevaluating dividend. And again, I think that's sort of a generic comment that you do that every quarter. But I think everybody really needs to know the interplay between the drag on earnings and the dividend policy in the near term.

Yes, thanks, Rick. It's Tim. I'd say, you know, conceptually, the dividend is really focused around long-term earnings power of the business, and that's how we've always looked at it. Marcin noted there's some short-term impacts, and there are a number of moving pieces. Obviously, as Marcin said, we had impairments in the second quarter, and, you know, given the initiatives that we're undertaking to drive portfolio turnover, as we noted in the prepared remarks, it's possible we see impacts from that. So there's a number of moving pieces that we'll have to evaluate with the Board. And it's too early to kind of tell what that's going to look like right now. But what we're going to evaluate really is the long-term earnings power of the business, and that's what we evaluate when we look at the dividend.

Got it. Okay. Thank you guys very much. Appreciate it.

Thank you. We will take our final question from [ Marissa Lobo ] with UBS.

You mentioned that nearly half of your performing office loans were 3-rated or better, and they're currently in the refi market. And with the 10-year up, what are you seeing in terms of lender appetite for these processes, and what's the contingency if they don't close by year-end?

Yes, thanks, Marissa. It's Austin. You know, I think as we noted, obviously, you know, rates are moving around. But what we've seen very recently, as we noted earlier, is, you know, a really liquid debt market. We've gotten a lot of repayments, you know, a lot in the second quarter, another, you know, nearly $1.4 billion so far in July. And so, you know, you see an active CMBS market, as Tim mentioned earlier. So we really see, you know, pretty active capital markets out there and strong demand from lenders to finance good assets. And, you know, as Tim mentioned, and as you alluded to, you know, that includes a lot of different sectors, including a lot of our office loans.

And so, you know, today we continue to see a lot of activity in the refinance market and the capital markets. And nothing's really changed, I would say, you know, sitting here today.

Okay, thank you. And then just shifting to the portfolio rotation, you cited a $200 billion TAM in homebuilder finance. So what is the realistic allocation for BXMT in the sector over the next year? And how does the credit profile of these loans compare to your transitional lending book?

Yes, thanks. This is Austin. You know, we're really excited about this new opportunity and this sector. You know, we really see a few things that make this what we think a really attractive and compelling opportunity. The first is, you know, the overall sector of housing in the U.S. is undersupplied, and that creates a good fundamental setup. Secondly, there's been a pretty big pullback in lending to the space, particularly with regional banks that have historically been big lenders to this sector. And then finally, as Tim mentioned earlier, this is a sector where it's really hard to access these investments without a platform. And in terms of the underlying loans, they're very granular, they're very geographically diverse. So you really need a national footprint and a presence in this space to access these investments.

And for those reasons, what we're seeing in the space is really an interesting and pretty compelling yield opportunity. In terms of the underlying loans themselves, they're really well-structured, typically characterized, you know, very good recourse to corporate entities and in many cases individuals. They're often on cross portfolios, and so from an underlying credit perspective, we really like the credit, and of course the return also, you know, we think is attractive. The last thing I would say is, you know, we've partnered with the largest private lender to the space. They have a really great product suite that they can offer to this market. And so we think that really sets us up well to grow in this space. And we're just getting started, but we think we have a really good foundation.

Thank you. With no additional questions in queue, I will turn the call back over to Tim Hayes for any additional or closing remarks.

Yes, thank you, Katie. And to everyone on today's call, please reach out with any questions.

Goodbye. Thank you. That will conclude today's call. We appreciate your participation.

Good day, and welcome to the Blackstone Mortgage Trust First Quarter 2026 Investor Call. Today's conference is being recorded. [Operator Instructions].

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 First Quarter 2026 Earnings Conference Call. I'm joined today by Tim Johnson, Chief Executive Officer; Austin Pena, President; and Marcin Urbaszek, Chief Financial Officer.

This morning, we filed our 10-Q and issued a press release with the 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 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 audiocast 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 $0.04 per share, while distributable earnings were $0.21 per share and distributable earnings prior to realized gains and losses were $0.49 per share. A few weeks ago, we paid a dividend of $0.47 per share with respect to the first quarter. With that, I'll now turn the call over to Tim.

Thanks, Tim. BXMT's first quarter results clearly demonstrate the breadth of our platform and our ability to execute on both sides of the balance sheet amidst an ongoing real estate recovery. Our key competitive advantages drove distributable earnings prior to realized gains and losses of $0.49 per share, marking our third consecutive quarter of dividend coverage. We leveraged our scale and proprietary sourcing channels to capture attractive investments across a range of sectors, markets and strategies, with a focus on several of our highest conviction themes such as diversified industrial portfolios and essential use net lease properties.

We also closed our first data center loan this quarter and invested in a diversified portfolio of low leverage loans originated by a leading U.K. bank, investments offering compelling relative value, which Austin will detail further in his remarks.

Real estate fundamentals continue to recover, benefiting from steadily increasing values and the sharp decline in new supply across all major property types. The public equity markets recognize this, with REITs significantly outperforming the S&P 500 year-to-date. And despite recent global volatility driven by the conflict in the Middle East, real estate equity and debt markets have remained resilient. U.S. CMBS issuance is up nearly 15% from this time last year and on pace for yet another post-GFC record and spreads hit 15 basis points tighter compared to the beginning of the year.

In Europe, we've observed a slightly larger impact with a slowdown in CMBS new issue activity and spreads modestly wider. However, real estate lending markets in the region remain open and active. Just a few weeks ago, we were fully repaid on a GBP 177 million U.K. student housing loan that was refinanced by a bank syndicate and we are aware of several other large recently awarded deals in the market. Importantly, we've observed no change in the fundamental performance across our U.K. and Europe portfolio.

Today, BXMT is in an advantageous position. We have a well-invested portfolio generating strong in-place current income, allowing us to maximize return on new capital deployment. Leveraging our scaled platform of over 170 real estate debt professionals, we cast a wide net across the global real estate credit markets, both in terms of sourcing new opportunities and also driving strong capital markets execution, setting up diversified investments to generate highly compelling risk-adjusted returns.

To that end, our investments this quarter generated levered returns of 900 basis points over base rates, in line with our investment activity over the past year. We also accretively refinanced $700 million of corporate debt issued $1.3 billion of securitized debt and added a new non-mark-to-market credit facility to our 16 counterparty complex, all further demonstrating the strength and creativity of our dedicated capital markets team.

Moving to the portfolio. We continue to be pleased with performance. We received over $600 million of repayments with more than half in U.S. office. We resolved on impaired hospitality loan via foreclosure and we executed on the sale of a multifamily property, the first from our owned real estate portfolio to be capitalized on the supportive capital markets backdrop.

While there is more work to do, including the eventual disposition of the remainder of our owned real estate portfolio, the trend in our business is now crystal clear. Resolutions and redeployment are driving earnings that cover our dividend and offer investors an attractive current yield of approximately 9.5%. These initiatives are supported by a compelling real estate credit backdrop with loans secured by hard assets property value is still early in their recovery and spreads still wide relative to other credit alternatives. With this setup, BXMT continues to be exceptionally well positioned with unique insights from our Blackstone real estate platform guiding our strategy and delivering strong results for our investors.

I'll now turn it over to Austin to discuss our investments and portfolio in more detail.

Thanks, Tim. Our investment portfolio ended the quarter at just under $20 billion, consistent with year-end as the funding of new investments largely offset repayments collected in the quarter. Our loan portfolio comprises approximately 87% of our investments with our fixed rate and longer duration strategies like net lease and bank loan portfolios, representing 6% and our owned real estate accounting for the remainder. The broad capabilities of our platform were on full display in the first quarter as we closed $540 million of new investments across various geographies and strategies.

Q1 investments included $275 million of loan originations with a weighted average LTV of 68%. The GBP 50 million investment in the U.K. bank loan portfolio that Tim mentioned earlier, and $197 million of net lease acquisitions at BXMT share, our most active quarter in net lease to date. Our loan originations were largely concentrated in residential and industrial, sectors with strong underlying fundamentals, where we continue to orient our investment strategy. Of note, we financed several of our Q1 originations through the syndication market on a nonrecourse non-mark-to-market basis, reflecting the sold positions, which are not included on our balance sheet, gross loan originations were over $800 million in the quarter. And our forward pipeline remains strong with over $1 billion closed during closing so far in the second quarter.

As Tim mentioned, we closed our first data center loan in BXMT, financing a stabilized asset in Northern Virginia. 100% leased to an investment-grade hyperscale tenant and owned by an experienced sponsor. Leveraging our scale and capital markets capabilities, we originated a fixed rate whole loan and syndicated the senior mortgage, generating a mezzanine loan with a 14% all-in yield and 4.5 years of call protection. With $150 billion of data center assets owned and under development, Blackstone is the largest financial investor in data centers globally. As a result, BXMT sits in an extraordinary position to identify and underwrite investments in this space.

With the AI megatrend driving unprecedented demand for compute and supporting critical infrastructure, we see more opportunities in this sector on the horizon. We also made a GBP 50 million investment in a portfolio of granular high cash flowing U.K. bank loans. The loans are backed by over 3,000 properties, primarily in the residential and industrial sectors with a weighted average LTV below 50%.

Like the portfolios we acquired from U.S. banks last year, this investment adds diversification and duration with an underwritten term of over 5 years. The investment was sourced leveraging Blackstone's strong relationship with the bank, yet another example of our access to differentiated investments across the world.

Our loan portfolio ended the quarter at $16.4 billion across 130 loans with more than 50% in multifamily and industrial and was 98% performing. We upgraded 4 loans this quarter. Additionally, post quarter end, the largest loan in our watch list, our Spanish residential NPL loan was modified, significantly enhancing our credit position. The modification includes a spread reduction and maturity extension in exchange for meaningful additional commitment and credit support from the borrower.

As a reminder, this loan has repaid by more than EUR 550 million since origination, including another EUR 20 million last quarter as the borrower sells the underlying collateral. The loan remains performing, paying interest current, and we expect it to continue to pay down over time.

We also added 2 office loans to our watch list and impaired 2 loans this quarter, booking modest additional reserves. Both were previously on our watch list. One was our only studio loan, a sector that has faced significant headwinds. Of note, this loan represents less than 1% of our portfolio and is secured by a 25-acre campus centrally located in Los Angeles, across the street from one of the most productive retail assets in the country, providing significant optionality and redevelopment potential.

The other loan is secured by a portfolio of 1980s vintage multifamily properties located in Dallas originated in 2022. Older vintage properties in Sunbelt markets like this, have been impacted by a combination of elevated new supply and weaker demand, a different profile than the vast majority of our multifamily portfolio, which continues to attract strong demand and demonstrate steady performance.

Across our 46 multifamily loans, we have just 6 with a similar profile, just 2% of our portfolio. One is on our watch list and the rest are all Risk Rated 3 and carry in-place debt yields north of 6%. We continue to make good progress on our own real estate as we leverage our platform to maximize values over time. As we've said in the past, we are not a forced seller. With our strong balance sheet, liquidity and earnings supporting our dividend, we can be patient. We make hold versus sell decisions like we do across our real estate business, using our data, insights and asset class expertise to underwrite go-forward returns compared to where we can reinvest.

This quarter, we saw several positive developments. We sold 1 multifamily asset in Texas in line with our carrying value. We hit a key milestone on our Mountain View office asset, where we received local approvals to redevelop the site into for-sale residential, bringing us one step closer to unlocking significant value potential. And our fully renovated Hyatt Hotel in San Francisco continued to see improving performance as Q1 EBITDA more than doubled year-over-year.

Finally, turning to net lease. Our portfolio continues to scale, reaching $516 million at share at quarter end, up from $66 million this time last year and with another $120 million in closing. Our dedicated team has assembled a high-quality portfolio, acquiring 260 assets at an average price of $2 million at a discount to replacement cost. The portfolio generates 3x rent coverage with 2% annual rent escalators and lease terms extending over 15 years on average. We believe our net lease strategy continues to provide compelling relative value in today's investment environment, naturally complementing our floating rate lending strategy with long duration, contractually increasing cash flow driving strong current returns.

Overall, BXMT continues to demonstrate positive momentum, capturing diversified investments to drive strong earnings power and dividend coverage, underpinned by an investment strategy designed to deliver strong long-term performance for our investors.

And with that, I will pass it over to Marcin to unpack our financial results.

Thank you, Austin, and good morning, everyone. In the first quarter, BXMT reported GAAP net loss of $0.04 per share and distributable earnings or DE of $0.21 per share. DE included $46 million of realized losses related to the resolution of an impaired San Francisco hotel loan. We foreclosed on the property and now hold it on the balance sheet as owned real estate with our basis representing an approximate 70% discount relative to the prior owner's cost basis.

DE prior to realized gains and losses was $0.49 per share, covering our dividend for the third consecutive quarter. The $0.02 decline in this metric from the prior quarter was largely due to lower net operating income from owned real estate, reflecting the outsized seasonal benefit from hospitality properties recognized in the fourth quarter results which we discussed on our last earnings call. It is worth noting that we slightly amended our DE prior charge-offs metrics this quarter to DE prior to realized gains and losses. This amendment reflects the evolving composition of our portfolio, though the spirit of the metric remains unchanged, which is to provide investors with a measure that we believe represents the ongoing earnings power of our business.

Our owned real estate portfolio generated $14 million of NOI this quarter and included a $3 million tax refund on one of our properties. Excluding this benefit, this represents an annualized asset yield on carrying value of approximately 3.5%, which we estimate is 250 to 300 basis points below yields we are achieving on new originations today. While some asset sales will take longer than others, rotating this capital provides further support to BXMT's earnings power over time.

Book value ended the first quarter at $20.20 per share down modestly by 2.7% from the prior period, primarily due to a $0.33 per share increase in CECL reserves and $0.13 per share of depreciation and amortization or D&A related to our owned real estate assets. In total, book value includes $0.57 per share of accumulated D&A and $1.80 per share of total CECL reserves of which $1.30 per share is attributable to the general reserve.

Turning to BXMT's capitalization. Our balance sheet remains in excellent shape. We ended the quarter with $1 billion of liquidity. Our Q1 debt-to-equity ratio decreased to 3.7x from 3.9x in Q4 and remains squarely within our target range. We were very active in the capital markets this quarter, taking advantage of robust liquidity and investor demand. We started by repricing approximately $700 million of our corporate term loan in early January, reducing our financing spread by 50 basis points. As a result of our proactive approach over the past few quarters, we ended Q1 with 4 years of weighted average remaining term on our corporate debt with no maturities until 2027.

Later in January, we issued our second reinvesting CLO, a $1 billion transaction, largely collateralized by new vintage investments. Reflecting this issuance and the addition of the new lending facility Tim mentioned earlier, total nonmark-to-market borrowings now represent about 86% of total debt. and we continue to have no capital markets mark-to-market provisions throughout our capital structure.

In March, we closed our inaugural asset-backed securitization in our net lease joint venture. The transaction was met with exceptional investor demand and was several times oversubscribed driving an accretive execution and resulting in highly compelling structure and terms.

And lastly, as Austin mentioned earlier, we also executed several senior loan syndications with attractive terms, underscoring our broad access to various sources of capital, which we believe is one of our key competitive advantages in the market. The benefits of our leading global real estate platform are driving results on both sides of our balance sheet and help position BXMT to deliver attractive risk-adjusted returns to our investors over time.

Thank you again for joining us today, and I will now ask the operator to open the call to questions.

[Operator Instructions]. We will take our first question from Tom Catherwood with BTIG.

Austin, maybe starting with you, I know loan originations can be lumpy quarter-to-quarter. But was Q1 activity impacted primarily by the timing of closings? Or was it just with more activity pushed into the second quarter? Or was there something else driving the relatively slower pace in the first quarter?

Yes. Thanks, Tom. Yes, I think there is always a little bit, as you said, of changes quarter-to-quarter in terms of origination volatility and a bit of seasonality that can impact those quarter-to-quarter numbers. As I mentioned earlier in my prepared remarks, when you look at our investment activity this quarter, there was a good amount of mezzanine loans or loans that we financed through the syndication market, which is not included in the roughly $0.5 billion that we mentioned in our reporting. And so when you gross up for those syndicated interests, the quarter was a pretty regular quarter in terms of overall lending activity.

And as I also mentioned, we have a very good pipeline, over $1 billion for the second quarter. So I wouldn't read too much into the overall activity this quarter. I think it was a pretty regular quarter in terms of what we typically see and we continue to have a really good opportunity set that we're looking at.

Got it. And very fair point on the syndications, I had not taken that into account. And then maybe turning over to the net lease side of the business, so which has now become a not insignificant part of the portfolio. Kind of 2 questions there, pipeline-wise, you mentioned $125 million in closing. How large -- what's the target that you have internally for that over the near term? And then the second part to it is, this is a competitive sector. It seems like everyone is out chasing net lease deals, be they other alternative asset managers or the REITs. What is it about this platform that's allowed it to do $500 million or I guess that's only your share. So north of probably $700 million of acquisitions in the past year alone.

Yes, thanks. It's a really good question. And as you noted, and as we noted earlier, we had a really active quarter in net lease this quarter, about $200 million of investments at our share and we've assembled what we think is a really great portfolio over the last year or so since we started this business. We do intend to grow this part of our balance sheet and our portfolio to about 3% of the overall portfolio today. And obviously, we look at risk-adjusted returns when we're looking at these investments relative to other things that we can do in terms of allocating our capital, but we would be very happy if this could become at least 10% of our portfolio over time.

In terms of what we see in the marketplace today, as you say, there are a lot of players, but we think we have an excellent team. We have a dedicated team of experienced individuals led by someone who has been in this space for 30 or so years, they are finding, we think, really attractive investments. It is a granular investment profile, as I mentioned, about $2 million per property. So it really takes a lot of experience and relationships to identify investments. And when you look at the portfolio that we've assembled, as I mentioned earlier, over 15 years of duration, 2% rent escalators over 3x coverage. We really like that profile. We think it really complements our floating rate lending business, adding duration, adding an upward sloping set of cash flows that we think really provides a very nice complement to the other side of our business.

We'll take our next question from Rick Shane with JPMorgan.

Look, you have 2 loans on your -- in your top 10 that are maturing this year. New York multiuse in Chicago office. One is rated 3, one is rated 4. Can you just talk a little bit about your strategy on those maturities and what we should expect?

Yes. Thanks, Rick. I can take that. I'd say we take a very active approach across our portfolio. We're obviously in conversations with our borrowers about their plans in terms of capital markets execution, really all the time. We go through every loan, every quarter. In terms of those specific deals without getting into specifics, we have dialogue with our borrowers around what their plans might be and I think we'll take a very proactive approach to the extent that their plans are evolving, we will be quite active on that approach.

Okay. I understand you need to be a little bit circumspect on that -- I get it. Second thing is you work through resolutions within the portfolio, and it sounds like you're going to be pretty aggressive there. What should we think about as the sort of ambient CECL reserve rate, general reserve for new originations, so we can sort of think about over time what the convergence back to general reserves would be.

Rick, it's Marcin. Thanks for joining us. Look, I think our general reserve right now, obviously, there's a lot of factors that go into it. It's somewhere around 100 to 120 basis points. Obviously, that's driven by, like I said, the age of the portfolio, historical loss rates and things like that. So we don't see that changing dramatically. Obviously, as we work through the resolutions and the realized losses become a little bit of a smaller factor over time that might decline. But again, in the near term, we don't see that changing dramatically.

We'll take our next question from Chris Muller with Citizens Capital Markets.

I'm hopping around calls this morning, so I apologize if I missed any of this. But I wanted to ask about the bank loan portfolio acquisitions. I guess what is driving these? Are the banks approaching you guys to reduce their CRE exposure? And do you expect more of this over 2026?

Sure. Thanks, Chris. This is Tim. I'd say it's a bit multi-dimensional. It can depend on the situation, the bank loan portfolio. This quarter was a little bit different in its structure as an SRT structure versus an outright acquisition. So in some cases, it's a capital relief transaction. In some cases, it's driven by M&A activity which we would say is probably the main driver between -- in terms of the portfolio loan sale activity. That's banks in the United States, predominantly going through M&A, a lot of it kind of the fallout from what happened in the regional banking industry in 2023. And that M&A activity tends to accelerate loan sale activity.

So I'd say that's the biggest driver, but it does come from a few different dimensions. And I'd say from a sourcing standpoint, this is one of the main areas we spend our time on, both within our real estate debt business and broadly at the firm is working with financial institutions to help deliver them solutions across not just real estate, but the entirety of their credit portfolio. So it's a very, I'd say, diversified ecosystem of sourcing and really built on the banking relationships we have at the firm over a really long time.

Got it. That's very helpful. And then I guess just a high-level one. The 10-year keeps creeping higher. It's at 4.38% right now. How is that impacting borrower sentiment that you guys are seeing?

Yes, I'd say in terms of borrower sentiment, the good news is that even though the tenure has moved up really as a result of the Mid East conflict and energy prices, the capital markets continue to be very, very active. CMBS issuance this year is up 15% on top of a year last year that was a post-GFC high. So we continue to see borrowers coming to the market. And I think that it might put a little bit of a potential slowdown on sales of real estate. That would be something that you might keep an eye on. But in terms of the credit markets, year-to-date CMBS spreads are actually 15 basis points tighter and so there's good credit availability and good capital availability. So borrowers are able to refinance their debt today and are doing so quite actively.

We'll take our next question from Jade Rahmani with KBW.

Can you give any further color on what drove the $55 million CECL provision perhaps you could parse out how much ballpark related to the studio downgrade and what the outlook is there?

Sure, Jade. It's Marcin. Out of the $55 million, I would say about 20% of that was general -- general reserve and then the rest was on the specific. We don't want to get specific on particular assets. But I think if you look at what was added to the specific pool quarter-over-quarter vis-a-vis the impairments we had. These reserves are obviously a little bit smaller in terms of what we've seen in the past.

Obviously, one of the assets is a multifamily. The other one, like you said, is a studio loan. So again, but I don't want to get into particular loans and specifics, but the reserves this quarter were pretty modest.

Thanks, Marcin. It's Austin here. I would also add, Jade, as we mentioned, obviously, you commented a bit on the nature of the loans in my prepared remarks. I think both of these loans were a little bit idiosyncratic in terms of our portfolio. As I mentioned, it's our only studio loan, the multifamily loan had an older vintage asset in a market that's been a bit more impacted by elevated supply, which is quite different from sort of the rest of the portfolio. So I think that's really what's driving things here. So I just wanted to add that additional commentary.

On the REO portfolio, can you give any updated thoughts as to time line for resolution. Would you expect to resolve 40%, 50% this year? Or should we think about a more extended time line than that?

Yes, thanks, Jade, obviously, that's a moving -- that's something we look at and we're very focused on exiting those REO assets over time. But as I said earlier in my remarks, we are not going to be a fore seller. We're not going to -- we're going to take a patient approach in terms of a long-term goal of maximizing value for investors. As I said earlier, we had a number of positive developments in terms of a few assets that have been making good progress towards getting to that place in terms of our ultimate exit plans. I mentioned the hotel in San Francisco that's seen good performance, positive elements on the Mountain View office asset. That obviously helps with moving towards that goal.

I really wouldn't give a specific time line because I think we're going to be patient, as I said. But obviously, we're focused on exiting that over time because, as Marcin mentioned earlier, we do think that these assets are -- while generating cash flow today, rotating that capital over time will unlock additional earnings power for the business.

We'll take our next question from Harsh Hemnani with Green Street.

I guess, in terms of the SRT transaction, could you provide some details on where the underlying collateral of this loan portfolio is based geography wise?

Yes. Thanks, Harsh. This is Austin. I mentioned a few things in my prepared remarks. As I mentioned, it's a very granular portfolio. It is with a leading U.K. bank. So it's a U.K. focused portfolio, largely diversified across a lot of top markets in that area.

What we really like about all of these bank loan transactions that we've completed, including this one, is the fact that these are low leverage, high cash flowing loans with a lot of diversification. And they're originated by banks and they're priced accordingly and they allow us -- these transactions allow us to invest in real estate credit that is at a lower risk tranche than we would typically see in terms of our direct originations, but still generate really attractive returns. And so if you look at the return that we think we're getting here, we think it represents a very compelling risk-adjusted return and a premium to where similar risk tranches would be available in sort of other credit alternatives.

Got it. That's helpful. And then understanding that you can't touch on any specific deal. But maybe more generally, when you're underwriting stabilized data center assets, is it probably fair to assume that the spread on the whole loan may not be adequate to meet your return hurdles? And if we see more data center deals, it would be more similar to what we've seen this quarter where maybe you're retaining a subordinated position in the loan?

Yes. I would say, obviously, we're very excited and about the first data center loan that we're making. We think the space overall is going to grow. We do see a lot of opportunities and the capital needs across the data center sector, we do think it's going to mean, we're going to see more opportunities over time. I think we're going to be very thoughtful about where the opportunities work for us, both from a credit perspective as well as a return perspective. I think the deal you saw us do this quarter reflects our creativity and how to access that market and generate returns that we believe are really quite compelling and certainly meet our return requirements.

I think as we look forward, because of the capital needs of the space, we think that there's going to be a growing demand for capital from groups like us. To date, a lot of the activity in the market has been done by the bank market or in other forms of the public markets, but the capital needs, we think, are going to mean there's going to be more things that fit our profile.

Got it. That's helpful. Maybe 1 last 1 for me. I might have missed this, but of course, there's about $1 billion that's closed or in closing post quarter end. Could you maybe share how that breaks down between net lease bank loans and internally originated loans?

I would say it's pretty diversified, Harsh. We continue to see good opportunities, as I mentioned, $120 million that's in our net lease pipeline right now, not sure all of that $120 million will close in the second quarter. That's a little bit timing dependent. But we really -- when we look at our pipeline, it's still quite diversified across profile. And look, quarter-to-quarter, the composition of the investments are going to change. I think what our team is really focused on is really finding the best opportunities out there.

We'll take our last question from Don Fandetti with Wells Fargo.

Can you just talk a little bit about what you're seeing in the office market. It looks like you added 2 office loans to the watch list, but also getting repaid as well. So maybe just kind of give us your thoughts.

Yes, I'd say it's relatively consistent with what it's been in prior quarters. As you noted, we had a little bit of movement in our portfolio in terms of risk ratings related to office, but I think relatively small in total. And I'd say that broadly, leasing activity market by market, of course, but broadly, leasing activity is picking up and liquidity in the capital markets, debt capital availability, et cetera, continues to be generally on a positive trend. So I'd say the fundamentals although still quite challenged relative to what they've been historically are improving and the capital markets activity continues to be solid and improving as well.

Thank you. That will conclude our question-and-answer session. At this time, I'd like to turn the call back over to Tim Hayes for any additional or closing remarks.

Yes. Thank you, Katy, and to everyone joining today's call. Please reach out with any questions.

Good day, and welcome to the Blackstone Mortgage Trust Fourth Quarter and Full Year 2025 Investor Call. Today's call is being recorded. [Operator Instructions]

At this time, I'd like to turn the call 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 2025 Earnings Conference Call. I'm joined today by Tim Johnson, Chief Executive Officer; Tony Marone, Blackstone's Global Head of Real Estate Finance; Austin Pena, President; and Marcin Urbaszek, incoming Chief Financial Officer.

This morning, we filed our 10-K and issued a press release, 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 discussions 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. Audiocast is copyrighted material of Blackstone Mortgage Trust and may not be duplicated without our consent.

For the fourth quarter, we reported GAAP net income of $0.24 per share, while distributable earnings were negative $2.07 per share and distributable earnings prior to charge-offs were $0.51 per share. A few weeks ago, we paid a dividend of $0.47 per share with respect to the fourth quarter.

With that, I will now turn the call over to Tim.

Thank you, Tim. BXMT reported strong fourth quarter results further building upon the positive momentum in earnings power and credit performance achieved throughout 2025. We reported $0.51 per share of distributable earnings prior to charge-offs in the fourth quarter, an increase of over 20% from Q1 and covering our dividend for the second consecutive quarter.

Our loan portfolio is now 99% performing, reflecting strong progress on loan resolutions in the quarter, and we've actively rotated our portfolio, concentrating new investment in our highest conviction themes. We closed approximately $7 billion of investments in 2025, nearly 85% of which were in multifamily and industrial loans, our growing net lease strategy and 2 bank loan portfolios we acquired at discounts.

We've strategically broadened BXMT's scope to target these complementary investment channels, supporting capital deployment over the past year and reinforcing earnings power with greater diversification and duration.

Turning to markets. The real estate credit market today is highly liquid and underpinned by solid real estate fundamentals with new construction still sharply lower from precycle levels and value steadily increasing.

CMBS issuance accelerated in 2025 to its highest level since the GFC, up 40% year-over-year and demonstrating a significant increase in debt capital availability as performance in the sector has improved. As a result, we've seen the deal dam start to break, with more enthusiasm from investors to transact. We see this in our loan origination business where new loan requests in January were up 50% from the prior year.

Within this backdrop, the breadth and expertise of our global real estate debt platform with over 170 professionals is a differentiator, providing BXMT access to a proprietary pipeline of diverse investments across the U.S., Europe and Australia.

In 2025, our global platform closed over $20 billion of private loan originations and acquisitions and traded more than $15 billion of real estate securities. The robust data and insights gained from our private and publicly traded market activity guides our investment decisions and positions us well to source attractive opportunities across various markets. With such a wide funnel and a well-invested portfolio, we can pick and choose our spots and lean in where we see compelling relative value.

Our activity also informs our balance sheet and capital market strategy, where BXMT has capitalized, executing over $5 billion of corporate and securitized debt transactions in the past 12 months, including $2.8 billion of corporate term loan repricings and extensions which reduced our weighted average borrowing spread by nearly 90 basis points over the -- year-over-year. These transactions extended the duration of our liabilities, drove funding costs lower and further diversified and strengthened our capital structure.

Market tailwinds are also supporting performance within our portfolio, with no new impaired loans or watch list additions in the fourth quarter. And we expect to see opportunities to selectively exit our owned real estate properties, further supporting earnings as we more efficiently redeploy capital into our core investments.

We will remain patient and disciplined with our approach and focused on maximizing long-term shareholder value. While we delivered an attractive 21% total return for shareholders in 2025, we see a strong case for additional upside in the stock. BXMT shares still trade below book value. Our current dividend yield of 9.5% implies a 540 basis point spread to the 10-year treasury. That's approximately 40% above our tightest level, which was achieved when rates were much lower. In contrast, spreads in liquid real estate credit and the broader credit markets have tightened, with BBB CMBS spreads and high-yield bond spreads within 10% to 20% of their all-time types. This valuation gap is wide and emphasizes the highly compelling relative value proposition of BXMT stock today.

We believe the credit trends in our portfolio and earnings power of the business should warrant further retracement to historical levels, a view we've expressed with another $60 million of share repurchases this quarter and approximately $140 million since establishing our program in July of 2024.

Before turning it over to Austin to discuss our fourth quarter investments and portfolio in more detail, I want to thank Tony Marone, who will be stepping down as CFO of BXMT to focus on other responsibilities within Blackstone. Tony has been instrumental in BXMT's growth since inception, joining us through the Capital Trust acquisition in 2012. I'm grateful for his service to the company and our shareholders and wish him all the best. I'd also like to congratulate Marcin Urbaszek, who will be stepping into the role of CFO, completing the transition, started when he joined the company in 2024.

With that, Austin, over to you.

Thanks, Tim. Starting with our investment activity. We closed $1.5 billion of investments in the fourth quarter. including $1.4 billion of new loan originations and approximately $100 million of net lease acquisitions at share.

Consistent with our approach in recent quarters, our 4Q loan originations were 100% secured by multifamily and industrial assets, about 80% of which were diversified portfolios. This included a $419 million loan on a 94% leased 11 asset portfolio of high-quality industrial properties located across the U.S. and owned by a top tier sponsor.

By leveraging the scale and sector expertise of our platform, our team was able to quickly underwrite this loan and provide certainty of execution, capturing an investment, which we believe provides attractive relative value. We like lending on portfolios like this. They diversify BXMT's credit exposure across multiple markets and tenants, limiting the impact of idiosyncratic risks via cross collateralization.

In addition to our new origination activity, we continue to be successful in harvesting opportunities from within our existing portfolio, proactively working with sponsors to retain high-quality investments that were likely candidates to refinance. Given our position as the existing lender, we were able to modify terms and extend duration, while maintaining attractive economics relative to new deals in the market today.

Our investment portfolio stands at $20 billion, up from $19.5 billion last quarter and includes our $18 billion loan portfolio, $1.3 billion of owned real estate and over $900 million of investments at share held in our bank loan portfolio and net lease joint ventures. Today, the net lease assets and acquired bank loans now represent 5% of our portfolio, up from 0 at the beginning of 2025. These strategies, which generate fixed or contractually increasing cash flow streams over time naturally complement our floating rate lending strategy and provide strong relative value in today's investment environment.

Our loan portfolio ended the year at 99% performing. We resolved $575 million of impaired loans during the quarter, reducing our impaired loan balance to just under $90 million, most of which relates to a loan secured by a San Francisco hotel, which we expect to take ownership of in the first quarter.

We upgraded 6 loans in Q4, including one impaired office loan and one watch list office loan, both demonstrating leasing progress and cash flow growth. As Tim mentioned, we did not impair or downgrade any new loans to the watch list this quarter and one of our watch list loans repaid in full. We continue to apply a rigorous approach to managing our remaining watch list loans, of which nearly half have been restructured or modified with significant recent equity commitments with several others in various stages of negotiation.

Our loan portfolio is now 50% multifamily and industrial, while office exposure continues to decline, down approximately 50% since year-end 2021. And so far in Q1, we've collected over $300 million of additional office repayments, further reducing our exposure and driving turnover in the portfolio.

Nearly half of our loans are located in international markets, with almost 40% in Europe, where over the past year, we originated approximately $2 billion of loans backed by industrial portfolios. These investments have a weighted average LTV of 68%, strong in-place cash flows and provide compelling relative value with loan spreads nearly 100 basis points wide of comparable quality U.S. transactions. And similar to the U.S. European industrial markets are benefiting from limited new supply and e-commerce tailwinds driving demand, resulting in positive net absorption and just mid-single-digit vacancy rates in our core markets.

We continue to leverage the extensive resources of the Blackstone real estate platform to manage our owned real estate and execute business plans to best position them for an eventual exit. Importantly, we carry these assets at a 50% discount to values at the time of loan origination, and half are located in New York and the San Francisco Bay Area markets where we see broadly improving fundamentals and investor demand.

We currently have one multifamily property in Texas under contract to sell with several other assets well positioned for potential sale this year. Meanwhile, our net lease portfolio continues to scale, ending the year at over $300 million at share with another $200 million in closing.

Our strategy remains focused on essential used retail with attractive credit characteristics. The portfolio our team has constructed to date generates over 3x rent coverage with 2% built-in annual rent escalators and lease terms extending over 15 years on average. And importantly, we continue to acquire these assets at discounts to replacement cost.

In 2025, we acquired 2 portfolios of granular, low-leverage performing loans from regional banks at discounts to par. Today, these portfolios represent approximately $600 million of principal balance at BXMT share. And our thesis is playing out as expected, with strong credit performance and improving real estate fundamentals and capital markets driving $80 million of repayments since acquisition, enhancing returns for BXMT as loans purchased at discounts repay at par.

We expect a ripe environment for bank consolidation to bring additional opportunities like this to market. Our platform is an established leader in the space, having acquired $23 billion of loan portfolios from banks since December 2023, positioning us well for future transactions as a reliable and trusted counterparty.

Overall, we are pleased with the strong investment in asset management results our company achieved in 2025 and our team is excited about the opportunities we see ahead in the coming year.

And with that, I will pass it over to Tony to unpack our financial results.

Thank you, Austin, and good morning, everyone. Starting with our fourth quarter results. BXMT reported GAAP net income of $0.24 per share and distributable earnings or DE of negative $2.07 per share. DE included $434 million of reserve charge-offs, largely related to the resolution of 5 impaired loans as well as the write-off of 3 subordinated loans, which collectively drove performance of our loan portfolio to its highest level in 3 years. These subordinated loans were previously impaired, effectively carried 0 and as part of our regular quarterly assessment were deemed unrecoverable in the fourth quarter.

Excluding these items, DE prior to charge-offs was $0.51 per share, up $0.03 from the prior quarter and $0.09 from the first quarter of the year. And for the second consecutive quarter, DE prior to charge-offs covered our quarterly dividend of $0.47 per share as we continue to drive earnings power through loan resolutions, capital deployment and accretive corporate debt refinancings and stock buybacks.

Notably, DE benefited from $18 million of NOI from owned real estate in Q4, up from $6 million in the prior quarter as we recognized a full quarter impact from properties taken onto the balance sheet in Q3.

Our hotels represent 1/3 of our owned real estate portfolio, which ended the quarter at $1.3 billion across 12 properties. We anticipate cash flows from owned real estate to decline in 1Q, which typically experiences seasonal softening relative to other calendar quarters. However, we expect the portfolio to consistently generate positive DE and provide further balance to earnings and dividend coverage over time as we eventually exit these assets and repatriate capital into new investments at target returns.

We also recognized $21 million of depreciation and amortization, or D&A, related to our owned real estate in the fourth quarter, which is included in GAAP earnings, but excluded from DE. Accumulated D&A is also reflected in our book value, which ended the year at $20.75 per share. In total, book value includes $0.47 per share of accumulated D&A and $1.76 per share of total CECL reserves, of which $1.24 is attributable to the general reserve and $0.52 to asset-specific reserves.

Our total CECL reserve declined nearly 60% quarter-over-quarter as a result of the reserve charge-offs I mentioned earlier. And importantly, these charge-offs had a de minimis impact on book value, executed largely in line with carrying values. Looking back over the course of 2025, book value benefited from a net $33 million CECL recovery from resolutions executed above carrying values. This, alongside stock buybacks added $0.30 per share to book value this year.

Earnings from our unconsolidated joint ventures also continued to grow, generating $7 million of DE in 4Q versus $3 million in the prior quarter. This was driven by income and repayments in our bank loan portfolios, which accelerate their unamortized purchase discount and the continued growth in our net lease portfolio, Austin mentioned earlier. As a reminder, our balance sheet reflects our $217 million net equity investment in the net lease and bank loan portfolio joint ventures. But as also noted, on a gross basis, our share of the investments in these strategies totaled $940 million and are a growing component of our increasingly diverse investment portfolio.

Turning to BXMT's capitalization. Our balance sheet remains in excellent shape. We ended the year with $1 billion of liquidity, debt to equity within our target range and weighted average corporate debt maturities of 4.3 years with no maturities until 2027. As Tim mentioned, we've been active in securitized debt markets, positioning our balance sheet for further resilience. We priced a $1 billion CLO in January or 6 CLO transaction and completed our non-euro European CMBS issuance in December, which adds yet another tool to our toolkit and demonstrates the constant innovation of our financing strategies by our capital markets team.

We ended the year with 15 bank counterparties, providing $19 billion of total borrowing capacity. We had one new counterparty in 2025 and another just recently in February. And given our strong track record as a borrower and the deep relationships with these lenders across Blackstone, we have successfully added or converted nearly $6 billion of credit facilities to a non-mark-to-market construct, driving total non-mark-to-market borrowings from 67% at the beginning of the year to nearly 85% today.

As my tenure as CFO comes to an end, I can confidently say that all aspects of BXMT's business are in great shape, and the company is on strong footing to capitalize on opportunities as real estate and capital markets continue to recover. I'm thrilled for Marcin to take the CFO role at an exciting time for the company and look forward to watching him and the rest of the team continue delivering strong results for BXMT shareholders.

I will now ask the operator to open the call to questions.

[Operator Instructions] We will take our first question from Doug Harter with UBS.

Obviously, you've been kind of showing your support for the stock through share repurchase. And I'm sure you saw what the actions of one of your competitors earlier this month. Just thoughts on other ways you might look to kind of validate or support the value of the loans in the portfolio.

Thanks, Doug. This is Tim. I think that we certainly take a look at all opportunities to maximize shareholder value in the market. And I think we feel really good about the direction of the stock to date given the performance in 2025 and where we stand, we still have a discount to book value to make up, but a relatively modest one. So we'll continue to look at all options during the quarter, as you mentioned, a really good tool and the toolkit was definitely in stock buybacks, and we analyze everything that we have in terms of optionality in the markets, but we feel really good about where we stand today.

We'll take our next question from Jade Rahmani with KBW.

Could you provide your views on the REO portfolio? Do you see upside in key assets? And can you also discuss the New York office REO that took place in December 2025 based on the disclosure? It looks like an attractive basis. So I wanted to get your thoughts there.

Yes, Jade, it's Austin. I would say with respect to REO, I think the way we look at that, as we've discussed before, it's really a go-forward return analysis in terms of our decision-making there. And these are really investment decisions that we think are really well informed due to the really unique data and information that we have access to. I think specifically, we are seeing some improved fundamentals and investor demand in places like New York. With respect to that asset, as you mentioned, it is an asset in New York that we hold at a very low basis, a significant discount to the value when the loan was originated and we are seeing improvement in markets like that.

And so as we think about sort of the potential to exit these assets over time, as I mentioned in my earlier remarks, we do think several assets are well positioned to look to exit over the course of the year. We'll be very thoughtful and strategic about that. We are selling one asset in Texas. We're also seeing positive trends in San Francisco. And so as we go through the rest of the year, I think we'll start to look at those sale opportunities as the market opportunities sort of present themselves.

And just a follow-up on the New York REO, could you give any color as to origination vintage current percent occupancy rate and also dollar amount of CapEx you anticipate spending on the asset?

Yes. This was a loan that we originated for COVID. As I mentioned, we hold it at a very significant discount to the prior value at origination. The asset is pretty well leased today. There's been strong leasing demand. And to the extent further leasing were to appear where to materialize I think we'd look at that and analyze that whether that would be accretive for us to invest the capital to capture those leasing opportunities. That's really how we look at all investment in our REO assets. I'd say to the extent you look at our prior disclosures, this loan was impaired, and we had a significant reserve against it.

And so when we think about the go-forward opportunity in terms of exiting the asset, I think that we do see the opportunity to capture additional upside potentially on that asset and others over time.

We'll take our next question from Chris Muller with Citizens Capital Markets.

Congrats on a really solid progress on loan markouts in the quarter. I see in the 10-K that you guys made a $75 million investment in the Blackstone BREDS fund. Can you just talk about the type of investments that will go into that fund? And if there's any overlap on what you guys are already doing?

Yes. This is Austin. I can take that. As you mentioned, we did make an investment in a new Blackstone-managed real estate credit fund that fund will be focused on high-quality core plus real estate in the U.S. and Canada. We really think it's a great example of -- investors due to our scale of our platform and our affiliation with the Blackstone Real Estate Credit business. I should note that BXMT pays no fees for this fund commitment. The investments will be sourced and underwritten and managed by our team. Ultimately, we do think that adding some exposure to this profile investment to BXMT is a good risk-adjusted return. And so adding investments in a diversified way with this type of profile, we think is quite attractive for BXMT.

Got it. And that's a good segue into my follow-up. So I guess you guys have made some small relative to your size investments over the last year or so, agency multifamily lending JV, the net lease, the BREDS investment and then the bank loan JV. So I guess my question would be is, what do you guys expect BXMT to look like over the coming years? And I guess, how does the bridge business fit into that? Is it going to stay the primary focus? Or will those other businesses kind of grow over time?

Yes. I think, as you noted, I think we -- you have seen an intentional effort for us to diversify the portfolio. I don't think we're going to be -- we're going to always be a large lender in a sort of our core lending strategy that isn't going away. But when you look at the profile of the investments that we've been making adding net lease, adding the granular bank loan portfolios, these other ways to sort of further diversify the earnings composition and profile of the investments that we have within the company that is definitely intentional. And so over time, we would expect to continue to sort of pursue that strategy. In any way -- if there's any way for us to really just diversify our credit exposures and risks and generate the risk-adjusted returns that we believe are compelling for the company, we're going to continue to pursue that.

We'll take our next question from Gabe Poggi with Raymond James.

You guys provided some detail on the new origination front as it pertains to industrial. Can you put any color around what you guys are doing in multifamily?

And then a second question I'll just give it to you now is how are you thinking about total leverage, you're at almost 3.9x right now? How do you think about that going forward?

Yes. It's Austin. Thanks, Gabe. I'll take the first part of that question, and then I'll pass it over to Marcin for the second point. I think in terms of multifamily, we really like the opportunity we see in multifamily today. With respect to the performance that we've seen in our portfolio, our multifamily is 100% performing. And when we think about the opportunity set in that space, we really just like the setup for multifamily and rental housing in general. It's structurally undersupplied. New construction starts are down 60% from peak and it's a really highly liquid and granular asset class. And so that's why you see us lending in that space.

I think that, again, when you look at the performance in our portfolio, I think that's been demonstrated. And so that's the profile, I'd say, and the reason we're active in that area. Maybe, Marcin, if you want to handle the second part of that.

Yes, happy to. Look, I think our leverage -- we think of it -- in terms of where it is within our targets, as Tony mentioned, it is within our target where we are. It's a function also of what type of leverage we have, as Tony mentioned, a lot of our financing is not mark-to-market. We have been active in addressing different maturities within our corporate debt profile as well as reducing costs on both the asset financing and corporate financing. So it's a function of investment opportunities where the balance sheet is, what's available to us from a financing perspective in the market. So we're very thoughtful about it. But again, it's within our targets, and we will maintain where it is.

We'll take our next question from Rick Shane with JPMorgan.

Tony, thank you for all your help over the years, and Marcin congratulations on the new gig. Most of my questions have been asked and answered at this point. But as we sort of look forward to 2026, it feels like the expectation is, given where you are on leverage, and unless there is additional equity capital available, at some point portfolio will be roughly flat in size, maybe modest growth. I'm curious sort of the time line as you resolve loans and redeploy capital potentially from REO resolutions, what you think the path back to normalized ROE might look like?

Yes, Rick, it's Austin. I can take that. As Marcin mentioned, the portfolio is -- we think we're pretty well invested. And I do think that there's -- we have capacity, we have liquidity of $1 billion today, but we think that's actually a good position to be in. We have a very broad pipeline. There's a lot of opportunities. But given the position we're in, we can be pretty selective across that pipeline.

In terms of the REO time line and sort of exiting those assets, as I mentioned earlier, I think some of those assets are pretty well positioned for us to look at exiting over the course of this year. Some others may take longer. But we do think that those loans or those assets are earning -- generating a below-target ROE. And so as we exit those positions and redeploy that capital and our target returns, that should be supportive of earnings over time.

Got it. Okay. That's helpful. And then just one other question. As you continue to -- or as you've substantially exited your non-accruing assets and assets with specific reserves and starting to deploy a little bit more capital, what should we think about as an initial general reserve on new loans, sort of ballpark range so we can start to sort of dial in what our overall reserves will look like?

Yes. I think if you just look at the general reserve today, I think that's a pretty good proxy for where we see the reserve for the vast majority of the portfolio as being appropriate. And so as we grow the portfolio or shrink the portfolio, I think that's a pretty good place to look.

We'll take our next question from John Nikodemus with BTIG.

Obviously, we were encouraged to see the significant headway made on your impaired loan balance during the quarter. Was that more a matter of strategy and timing on your team's end or for the specific assets? Or was there a notable shift in the broader market as a whole that made these resolutions more achievable?

Thanks, John. This is Tim. I'd say it's reflective of a couple of things. One, just the strength of our asset management team and their ability to work through challenges pretty swiftly. We have a large-scale team. It's one of the benefits of our platform. That's certainly part of it. I think market liquidity does help as well. Just there's more transparency in the market in terms of valuations today that makes decision-making a little quicker for both owners and lenders to figure out which direction to go in. And I think that, that just is reflective of a stabilized real estate market where we sit today with valuations steadily stable and increasing, that's just a better backdrop for quicker resolutions in general.

Great. Really helpful. And then the other one for me, your loan portfolio mix now sits at half collateralized by multifamily or industrial properties. Obviously, these are high-conviction sectors for BXMT, but what are you thinking for the target allocation for your portfolio between those 2 asset classes going forward?

Thanks, John. This is Austin. I would say, first and foremost, our top priority in terms of capital allocation is really finding the right investments with the best risk-adjusted returns. That allocation will obviously depend on where we see those opportunities over time. And as we said earlier, we're very focused on diversifying our portfolio across sectors and geographies. You see that in the sector selection. You see it in the geographic concentration of the company. And you've seen us further diversify into things like the net lease and the bank loan portfolios that we've acquired.

You've also seen us allocate capital towards buying back stock. As Tim mentioned, $140 million since inception of that program where we thought that offered a compelling risk-adjusted return. And so ultimately, what really matters to us is performance. So really just trying to set up our company to deliver for investors over the long term.

We'll take our final question from Harsh Hemnani with Green Street.

So you mentioned the transaction market in the U.S. is becoming more transparent, more liquid does that sort of start to pivot some of the deal volume that's been more levered towards Europe over the last years. Does that start to shift a little bit more to the U.S.? And then maybe how do you pay the pros and cons between a more liquid transaction market more visibility into values but also somewhat lower spreads that are available today versus a year ago?

Yes, it's a great question. I think you're right. You are seeing more liquidity in the U.S. You certainly have seen that in 2025 in our CMBS market in early in 2026 with much more liquidity. I think that's overall a positive for the business. It just means there's more velocity to the portfolio, and you see that in the loan repayment activity, and you see that in loan repayments of loans that have been pre-rate hike cycle and pre-COVID repaying. So I think that generally is helpful. We're in, I'd say, a liquid but more normalized market today, which is a good operating environment for us. And as we said, at the beginning, having the scale of our platform, the different styles of investment capabilities we have, the global reach, we can really look across the full set of opportunities and pick and choose what we want to do. Austin referenced it before, we're pretty well invested today. So we have the luxury of looking for the best value out there in the market. So even though spreads have tightened back leverage has tightened as well. So that's offset a bunch of that spread tightening. But the opportunity set today still feels compelling and deal activity is increasing. So that's a pretty good setup for us overall.

Got it. And then maybe on -- you mentioned backlog has tightened as well. And it feels like the CLO market has opened up. Of course, you guys issued a CLO in January. How are you sort of weighing the cost of capital between CLOs and bank facilities today? And how should we expect that financing mix to shift over the course of the year?

Yes. Harsh, it's Austin. I can take that. I think what you saw us really do over the course of 2025 was really a broad approach across all the different capital markets that we're active in, in a very proactive one. As we mentioned earlier, we accessed about $5 billion of transaction across turb loan, CLO markets. And as we think about the CLO market versus where we can finance our assets on facilities, it's obviously price is important. Structure is also important. And really, our goal is to build a well-structured, well-diversified balance sheet and really have a healthy mix across all those markets, so that we can be nimble when the market opportunities present ourselves.

As we mentioned earlier, we reduced our corporate term loan borrowing spread by about 90 basis points over the course of the year. That's very significant. And as we -- and we've been adding more credit facility counterparties, 15 different counterparties today, which really allows us to drive down the cost of that capital. And so when we think about having all these different options available to us, we think that ultimately benefits the company. And so I think you'll continue to see really a mix of activity across all those different channels.

That will conclude our question-and-answer session. At this time, I'd like to turn the call back over to Tim Hayes for any additional or closing remarks.

Thanks, Katie, and to everyone joining today's call. Please reach out with any questions.

Goodbye.

Good day, and welcome to the Blackstone Mortgage Trust Third Quarter 2025 Investor Call. Today's call is being recorded. [Operator Instructions]

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 2025 Earnings Conference Call.

I'm joined today by Katie Keenan, Chief Executive Officer; Tim Johnson, Chair of BXMT's Board and Global Head of Breads; Tony Marone, Chief Financial Officer; Austin Pena, Executive Vice President of Investments; and Marcin Urbaszek, Deputy Chief Financial Officer. 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 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 third quarter, we reported GAAP net income of $0.37 per share and distributable earnings of $0.24 per share. Distributable earnings prior to charge-offs were $0.48 per share. A few weeks ago, we paid a dividend of $0.47 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 it over to Katie.

Thanks, Tim.

BXMT's strong third quarter results underscore the continued forward momentum across all aspects of our business, including earnings power, credit, investment activity and balance sheet optimization. We reported distributable earnings prior to charge-offs of $0.48 per share, covering the $0.47 dividend and continuing this year's positive trajectory. Book value was essentially flat, reflecting a stable credit backdrop with no new impaired loans.

We continued our robust investment activity, looking across channels, originations, portfolio acquisitions and net lease and across geographies to find compelling relative value. And we continue to drive a more attractive cost of capital to enhance our competitiveness, improving terms on both corporate and asset level financing to reflect the strong positioning and track record of our business through this period.

BXMT's 3Q performance also reflects our ability to capitalize on the continuing recovery in market conditions. Real estate fundamentals remain strong with demand stable or improving and new supply constrained. Liquidity and transaction activity are increasing with SASB CMBS on track for a record issuance year. This dynamic continues to generate robust repayment levels in our pre-rate hike portfolio, $1.6 billion this quarter and affords us a strong investment pipeline with $1.7 billion of total originations closed or in closing post quarter end, building on the $1 billion of investment activity in 3Q.

While spreads have normalized as liquidity has returned to the market, the diversity and reach of our platform's vast sourcing engine are crucial differentiating factors. And with a market-leading capital markets team, we've continued to drive down our cost of borrowing. These advantages on both sides of our business allow BXMT to produce compelling returns on both an absolute and relative basis.

I'll turn it over to Austin to speak in more detail about our investments, portfolio and balance sheet. Before I do, I'd like to spend a minute on BXMT's opportune positioning today. Our portfolio is turning over, unlocking earnings from more challenged legacy deals and steadily increasing the proportion of our capital invested in high-quality current vintage assets. Our balance sheet is in fantastic shape, and we remain at the forefront of both structural and cost of capital innovation. And all of this has translated to healthy earnings generation supporting our dividend.

The forward trajectory of our business is embedded in this quarter's results, though BXMT's stock price has yet to catch up. Notwithstanding the tremendous progress we have made in the last several years, our stock today trades within 10% of the lows through this period and continues to provide a highly attractive 10.4% dividend yield. This disconnect has created the opportunity for us to repurchase over $100 million of stock so far this year at a meaningful discount to book value.

As my tenure as CEO comes to a close, I could not be more excited about the momentum of this business and our highly capable leadership team. I'd also like to express my deep gratitude to the analyst and investor community for your support and attention to BXMT over the years. Congratulations to Tim and Austin on their new roles.

And Austin, over to you.

Thanks, Katie.

BXMT's strong third quarter investment activity demonstrates the distinct advantages of our platform's differentiated scale and sourcing capabilities as we closed $1 billion of total investments across loan originations, net lease assets and a performing bank loan portfolio that we acquired at a discount. Our loan originations remain concentrated in our highest conviction sectors with 75% in multifamily and diversified industrial portfolios and over 60% in international markets, where we are capturing excess spread relative to comparable deals in the U.S.

We continue to achieve attractive net interest margins, setting up investments to achieve a levered spread of more than 9% over base rates or low teens all-in returns. And importantly, credit characteristics remain very attractive with strong cash flow profiles, light value-add business plans and an average LTV of 67%. Investments this quarter include a 90% leased diversified U.K. industrial portfolio and a well-amenitized stabilized multifamily property near Miami.

We also steadily grew our net lease portfolio, investing another $90 million across 60 properties in the third quarter, bringing the total portfolio to $222 million at BXMT's share. Importantly, we've maintained a rigorous approach to credit, acquiring assets within durable industries and generating strong EBITDAR coverage, nearly 3x on average and at significant discounts to replacement cost.

With another $100 million in our closing pipeline, we continue to expand our presence in the net lease sector. To that end, this quarter, BXMT acquired a 50% interest in a $600 million portfolio of granular loans secured by fully occupied net lease retail assets with a low weighted average origination LTV of 52% and an in-place debt yield over 12%. We were uniquely positioned to evaluate this portfolio, leveraging our experienced net lease and loan portfolio acquisition teams to underwrite and execute this transaction.

Acquiring high-quality performing loans at discounts from banks remains one of our top investment themes across our platform. These transactions have a high barrier to entry, requiring bespoke sourcing capabilities, the capacity to underwrite granular portfolios quickly and accurately and the operational wherewithal to onboard and manage hundreds of loans seamlessly. But here at Blackstone, we have invested in building market-leading capabilities to execute, leveraging the scale of our team and our data. And the prize is quite compelling, high credit quality loans with convexity and duration in thematic sectors and with outsized risk-adjusted returns.

And with bank M&A accelerating, we see more opportunities like this on the horizon. In total, we expect to close over $7 billion of new investments this year across originations, loan acquisitions and our net lease strategy, diversifying our portfolio and enhancing credit composition through deliberate rotation into the sectors and markets best positioned in the current environment.

Turning to the portfolio. Market tailwinds are driving increasing investor demand for assets, large and small and supporting positive credit outcomes. We collected $1.6 billion of total repayments in the third quarter, including 4 loans greater than $200 million, 2 secured by Texas multifamily assets and 2 abroad, a European hotel portfolio and a London office building. We had no new impaired loans this quarter. We resolved 2 previously impaired loans at a premium to aggregate carrying values, and we upgraded 8 loans, including 6 office loans, removing 2 from our watch list. Our loan portfolio is now 96% performing, and our impaired loan balance continues to decline, now at 71% below last year's peak. We expect to complete additional resolutions next quarter with 1 impaired office asset sold last week and others in advanced stages.

The real estate recovery, while uneven, is extending to some of the most acutely impacted markets and sectors. In San Francisco, fundamentals are improving, driven by the growth of AI. Multifamily rents are up 10%, office demand is growing and convention hotel bookings are up 60%. Investors are taking note with acquisition volumes picking up across sectors. Altogether, 25% of our REO portfolio today is in the Bay Area, including our largest asset, a fully renovated hotel held at nearly 60% below the prior owner's basis and more than 70% below replacement cost. San Francisco has long been amongst the most cyclical markets in the country. And today, we are positioned to capitalize on the upswing.

Amid a strong capital markets backdrop, BXMT has taken advantage, refinancing and extending over $2 billion of corporate debt in the last 12 months. Debt markets have been resilient through recent market volatility with spreads still sitting within 20 basis points of all-time tights. And we continue to see strong demand from our bank lenders, providing opportunities to introduce new facilities, further optimize our financing structures and reduce our marginal secured funding costs. We borrowed over 15 basis points tighter in the third quarter compared to the prior quarter, improving our cost of capital and advancing our overarching goal to generate an attractive, stable stream of current income for our investors.

And with that, I will pass it over to Tony to unpack our financial results.

Thank you, Austin, and good morning, everyone.

In the third quarter, BXMT reported GAAP net income of $0.37 per share and distributable earnings or DE of $0.24 per share. DE prior to charge-offs, which excludes realized losses related to 2 loan resolutions, was $0.48 per share, an increase of $0.03 from the prior quarter and $0.01 above our $0.47 quarterly dividend. DE benefited from BXMT's continued execution on key initiatives with investment activity, loan resolutions and accretive capital markets executions all contributing to this quarter's strong results. We also recognized $0.02 of default interest from a multifamily loan that repaid in full. Looking forward, we expect our earnings will continue to benefit from capital redeployment and resolutions of impaired loans, including the 2 that closed on the last day of the quarter as we unlock the earnings potential of that capital. For reference, we collected $0.06 of interest from impaired loans this quarter, which were excluded from earnings under cost recovery accounting.

We ended the quarter with book value of $20.99 per share, which was largely stable quarter-over-quarter, reflecting strong credit performance, loan resolutions executed above carrying values and accretive share repurchases. When considering the $0.47 dividend, BXMT provided an 8% annualized economic return to stockholders this quarter. BXMT repurchased $16 million of common stock in Q3 at an average share price of $18.69, a significant discount to book value. And so far in Q4, we've accelerated buybacks through recent market volatility, repurchasing another $61 million of stock at even lower levels. In total, we have repurchased nearly $140 million of shares since establishing our program in 2024. And just last week, received Board approval to replenish our $150 million buyback capacity.

Our book value at 9/30 includes $712 million, $0.14 -- excuse me, $4.16 per share of CECL reserves, which declined from $755 million, $4.39 per share in the prior quarter as we crystallized $42 million of specific CECL reserves in connection with 2 impaired loan resolutions. As Katie mentioned earlier, these resolutions were executed at a premium to aggregate carrying values, contributing to an $11 million net reversal in our specific CECL reserve and offsetting the modest $10 million increase in our general reserve.

Turning to our balance sheet. BXMT remains well positioned to address today's attractive investment environment with debt to equity down to 3.5x, strong liquidity of $1.3 billion and over $7 billion of available financing capacity as of quarter end. And in October, we closed a new $250 million non-mark-to-market credit facility with an international bank who recently established their CRE loan warehousing business targeted Blackstone as one of their first and largest relationships. Another example of our strong position in the market and ability to drive differentiated results for stockholders.

We continue to take advantage of the supportive capital markets backdrop to further optimize our cost of capital as we repriced $400 million of corporate term loan during the quarter, reducing spread by 100 basis points and upsizing the deal by $50 million, reflecting strong demand from institutional investors. And just last week, we collapsed BXMT's 2020 FL-3 CLO, which we replaced with balance sheet financing at a lower spread. CLO market remains robust with new issuance nearly tripling last year's total and tracking its strongest year since 2022. We have been a consistent issuer in this market, completing our fifth transaction earlier this year, and we are well positioned to take advantage of the supportive market backdrop.

Before opening the call to Q&A, I will turn it over to BXMT's Chairman and incoming CEO, Tim Johnson, for a few closing remarks.

Thanks, Tony.

First and foremost, I'd like to thank Katie for her dedicated service to BXMT, the Board and our shareholders. Katie leaves BXMT in a tremendous spot with a global portfolio that's delivering for our investors and a team that's poised to capture this exciting investment environment. I've had the pleasure of working alongside Katie throughout her Blackstone tenure, and I'm extremely grateful for all of the hard work, strategic insight and strong execution she's brought with her each and every day. She's been an inspiring partner and leader and will leave a lasting impression on our business. While we'll no doubt miss Katie, we wish her well in her next chapter and are confident the team will step up in her place.

Personally, I'm excited to have been appointed CEO of BXMT and to work closely with Austin to continue to build on the momentum our business has today. Austin and I are fortunate to have the strength of the Blackstone franchise behind us, our dedicated team of over 160 real estate credit professionals and the critically important connectivity with our global real estate team. This has always been the backbone of BXMT's investment process. I'm looking forward to working more with all of you along the way.

And with that, I'll now ask the operator to open the call to questions.

[Operator Instructions] We'll take our first question from Catherwood with BTIG.

Katie, just first off, congratulations and best of luck in your new role. It's been an absolute pleasure having you in this position. And then second, just wanted to follow up, Katie, on your prepared remarks, where you mentioned a recovery in transaction activity and return of liquidity to the CRE markets. Kind of 2 items around that. First off, can you provide a little bit more color on exactly where you're seeing that? Is that U.S. and Europe? Or is it just pockets that you're seeing that recovery? And then second, if that recovery in transactions is more here in the U.S., which is what it seems like to us, could we see a larger portion of your origination activity pivot back to U.S. loans instead of more Europe loans, which you've been doing so far this year?

Thanks, Tom. This is Tim. I'll take that. I'd say liquidity certainly has returned to markets, I would say, both in the U.S. and in Europe. As you pointed out, a bit stronger on a relative basis in the U.S. and mainly driven by a more established CMBS market here in the United States, as Katie referenced, tracking toward an all-time high in terms of liquidity. So I would say it's a little bit further ahead, as you'd expect in the U.S. versus Europe, but both places are continuing to see capital markets open up and be pretty strong.

In terms of the U.S. versus Europe on an ongoing basis, what we love is being able to have a platform that can look across all of the regions and establish a view on relative value at any moment in time. So that does shift over time. And I think that the U.S. continues to be the biggest market for us, just a larger transaction market overall. So I think you'll continue to see this be the largest share of our investment activity over a long period of time. But we certainly look at both and play relative value across both.

Appreciate that, Tim. And the second one for me, maybe Austin, in terms of the REO portfolio, can -- first off, can you remind us of the potential earnings uplift as that capital comes back over time? And second, do you need to set aside incremental capital for the New York City hotel that you took on balance sheet during the quarter? Or is that one in pretty good shape already?

Yes. Thanks for the question. I would say, generally, we haven't given specific numbers in terms of the potential earnings uplift. But obviously, the REO assets are not generating our target returns, and we certainly see the opportunity to, as we turn over the portfolio, exit these REO assets over time to drive additional earnings power as we do that.

Specifically with regards to sort of CapEx and conditions, I would say, firstly, we have a tremendous amount of insight into kind of the needs across these assets. And we really don't feel that there's a significant component of CapEx needed. To the extent it is needed, we certainly have the capability to do that with over $1.3 billion of liquidity. But I'd say the condition of these assets across the board is pretty good, and we feel comfortable with our position today.

We'll take our next question from Harsh Hemnani with Green Street.

Maybe one on how you're thinking about originating new loans versus buying back into the capital structure. Is there a particular premium or discount to book at which you're thinking that buybacks are perhaps more accretive than new originations? And it sounds like 4Q is stepping up on the origination front, but also on the buyback front. So I'm just trying to understand the relative value math there.

Yes. I'd say we continue to look at both in terms of every day, just like we do across loans in the U.S. and Europe, we look at opportunities of where to invest capital, including share buybacks, which, of course, we've been quite active in. So that's -- I'd say that's a pretty dynamic analysis. But we've captured the -- we've taken advantage of the opportunity to buy back when the stock has traded at levels that we think are quite attractive and provide a very high return on investment. So I think that's how we look at it. We continue to look at it dynamically over time.

Got it. And then maybe one on the makeup of the investment portfolio this quarter. It seems like roughly 2/3 of originations this quarter were in sort of the traditional floating rate loan portfolio and roughly 1/3 is in net lease and bank loan portfolio acquisitions. Should we be thinking about these fixed rate loans as sort of being a lever for you to be able to reduce your floating rate exposure ahead of what most are expecting to -- they're expecting to see lower floating rates in the future?

Yes, Harsh, this is Austin. I can take that. I think you're correct in that we really are looking across different channels to deploy our capital right now. One of the things we like about net lease in these bank portfolios is that they do add some duration and create a natural hedge to our sort of traditional floating rate business. The bank portfolios, in particular, as we noted earlier, we're buying those at a discount to par. And that provides some upside convexity to the extent those loans repay more quickly than we underwrite. And we like that as well from a risk-adjusted return basis. And so I think you'll continue to see us look across different types of investments across these channels to really think about the best relative value and really sort of diversify the composition of our earnings.

We will take our next question from Jade Rahmani with KBW.

Each earnings season brings its own unique developments, and it seems to me that this earnings season so far has been characterized by AI dominance, but also some pockets of weakness in the economy, whether it be in the consumer and jobs or discrete credit items in the financial space and the C&I lending and also a couple of CRE items. So the commercial mortgage REIT sector also seems to have been caught in this downdraft. And my main question is whether you've seen any spillover effects into the CRE market as yet? And if you're doing anything differently, perhaps more defensively to prepare for any weakness that may unfold.

Thanks, Jade. I'd say we're not seeing it in real estate credit. We are in an environment with real estate credit where we've gone through a pretty significant downturn, and now we're quite clearly in recovery mode in terms of coming out of that downturn. So I would say the real estate credit market has been somewhat uniquely tested already and has experienced its challenges, not to say that there might not be other challenges around the corner, but it definitely is more battle tested, I'd say, overall. And so that translates through to what we see on the new origination side of things in terms of credit quality. Generically, you're going to have a more tighter lending market coming out of a cycle like we've been through where credit standards are higher. And so we're not seeing that type of deterioration that's been referenced elsewhere. We're seeing much like what you're seeing in the BXMT portfolio itself, improved credit overall.

And in terms of the pace of 3Q investments and originations, notwithstanding the bank loan JV, which I believe would have higher ROEs than the traditional business. Was there anything that drove a more muted pace of originations perhaps it was on the liability management side, putting in place the new repo line, the tighter spreads on the term loan as well as calling the CLO? Was that in preparation of stronger originations and maybe weighed on volume in the quarter?

Yes, Jade, this is Austin. We obviously made $1 billion of total investments this quarter, which we think is a good amount. I would say that we have $1.7 billion in closing as well. So our pipeline of opportunities remains really robust. So I'd say we're actively investing in the environment. I would say there might have been a modest impact seasonally with some of the volatility we saw sort of in the spring around some of the tariffs, which may have impacted certain timings of transactions overall. But over -- but really across our channels, we really see a lot of interesting opportunities both in Europe and the United States. So we feel good about the level of the transaction activity going forward.

We'll take our next question from Doug Harter with UBS.

Sort of touching on that last point, how do you see the pace of kind of net deployment in the portfolio in the coming quarters? And how do you think about what is the right level of leverage that you guys are targeting?

I'd say I'll take the first. In terms of deployment, I think it's a pretty good indication of what you saw this past quarter where we're having a healthy amount of repayment activity and then turning that directly into new investment activity. So I think we're at a place where we feel pretty good about being kind of at a run rate in terms of repayments and deployment overall. So I think that would remain consistent.

And on the leverage side, like how are you thinking about what is the right level of leverage to run this business at this part of the cycle?

Yes, Doug, on leverage, obviously, we're at 3.5x today, which is right in the middle of the range that we target. And so I think we've always been sort of in that mid-3s over the last quite period. So we certainly have liquidity and capacity to sort of go up a little bit from there. And again, we're seeing good opportunities. So we feel very comfortable with the balance sheet today and where we are from that perspective.

We'll take our next question from Rick Shane with JPMorgan.

I apologize, like everybody, we're bouncing around between calls. So if this has been covered, I apologize. Look, when we look at the implied dividend yield as a function of book, it's about 9%. You guys aren't clear yet. When you think about the path to covering that dividend, which is obviously not only your goal, but your indication by maintaining that dividend, can you walk us through sort of what the different levers in terms of higher yields, reducing nonaccruals, reducing REO, what you think are sort of rank those opportunities, please, and perhaps give us some sense of what the contribution of each is?

Yes. Thanks, Rick. I'd say, obviously, it was good to cover the dividend this quarter in terms of distributable earnings ex charge-offs at $0.48 relative to $0.47 dividend. As Tony noted, a couple of onetime small items in there, but pretty close to the dividend ex those. And as you said and as we've said for a while, we set the dividend with a long-term view in mind. And where we really still have earnings left to unlock is in the REO and the impaired loan portfolio, where we can turn those assets into higher returning investments. We're not particularly focused on quarter-to-quarter results as there's always a little bit of variability in terms of the ins and outs of fundings and things like that. But we continue to have confidence that we've set the dividend level at a long-term sustainable position.

Got it. Okay. And is there -- when you think about, for example, funding cost rate outlook, obviously, you're modestly asset sensitive, but there's so much opportunity in terms of recycling capital. I'm assuming that you guys are even in a sharply lower short-term rate environment, confident that you can continue to achieve those hurdle rates given the scale.

Yes. I would say that's right. I think the opportunity to redeploy the capital within the REO portfolio and the impaired loan portfolio is a really strong offset to a lower rate environment.

I would also add we only lose [ about 150 basis points ] of rate move. So it's not as drastic as you might be thinking.

We will take our last question from Don Fandetti with Wells Fargo.

Can you talk a bit more about what you're seeing in office market fundamentals? I mean I think you had 6 upgrades. And I guess at this point, is it possible that you'll end up being a bit over reserved in your office book?

Yes. Thanks, Don. This is Austin. I definitely would say we are seeing stability and improvement across office. I think you see that, as you noted, in the movements in terms of our upgrades this quarter, 6 office loans upgraded, 2 of them were removed from our watch list. That's really driven by leasing that we're seeing at these assets. And so I definitely think we're starting to see more broad-based green shoots, liquidity coming back into the market. As I noted earlier, we sold one of our impaired office assets post quarter end. So continue to see more transaction activity, more capital coming off the sidelines for the sector.

I'd say in terms of reserves, we obviously go through those every quarter. We feel like our reserve levels are appropriate. We feel good about where we set those. It's obviously a detailed asset-by-asset analysis that we do. And so we feel good about where those are.

Okay. And then on a follow-up, I mean, you've had another quarter here where there was fairly steady credit migration. How are you thinking about like movement to 4 from 3 in the near term? Do you feel like you're in a steady state?

I'd say the direction of travel for credit is clearly positive in the portfolio with the no new impairments. So I'd say we -- the direction is quite clear. Obviously, we're continuing to work through things. But in terms of credit migration, we feel like we've basically resolving 70% of our impaired loans at this point and a good line of sight to a significant amount more. We feel really good about the overall path here in terms of credit performance.

That will conclude our question-and-answer session. At this time, I'd like to turn the call back over to Tim Hayes for any additional or closing remarks.

Thank you, Katie, and to everyone joining today's call. Please reach out with any questions.