Good day, and welcome to the Blackstone Mortgage Trust, First Quarter 2021 Investor Call hosted by Weston Tucker, Head of Share Holding Relations. My name is Jenny and I'm the event manager. [Operator Instructions.] I'd like to advise all parties this conference is being recorded. And now I'd like to hand over to Weston Tucker. Please go ahead.

Great! Thanks, Jenny. And good morning and welcome to Blackstone Mortgage Trust's first quarter conference call. I'm joined today by Steve Plavin, Chief Executive Officer; Katie Keenan, President; Tony Marone, Chief Financial Officer; and Doug Armer, Executive Vice President, Capital Markets. This morning we filed our 10-Q and issued a press release with a presentation of our results, which are available on our website and have been filed with the SEC. I’d like to remind everyone that today’s call may include forward-looking statements, which are uncertain and outside of the company’s control. Actual results may differ materially. For a discussion of some of the risks that could affect results, please see the Risk Factors section of our 10-K. We do not undertake any duty to update forward-looking statements. And we'll also refer to certain non-GAAP measures on the call, for reconciliations, you should refer to the press release and our 10-Q. This audiocast is copyrighted material of Blackstone Mortgage Trust and may not be duplicated without our consent. So a quick recap of our results. We reported GAAP net income per share at $0.54 for the fourth quarter, while distributable earnings were $0.59 per share. A few weeks ago we paid a dividend of $0.62 per share with respect to the fourth quarter. If you have any questions following today’s call, please let me know. And with that, I’ll now turn things over to Steve.

Thanks, Weston. The first quarter marked the reinvigoration of BXMT originations and the resumption of growth in our loan portfolio. Over the nearly eight years of BXMT activity, our business has shown remarkably consistent true trajectory in strategic direction. We source and execute on great investments with top sponsors. We innovate on both sides of the balance sheet. We manage liquidity and risk prudently and we create great returns for our shareholders. 2020 demonstrate the benefits of this approach with our strong credit and earnings performance to an unprecedented period. In 2021, as of -- within our business is again building. In Q1, we closed $1.7 billion of new originations backed by very high quality properties and strong growth factors in market. We improved both the cost and structure of our funding with multiple capital markets executions. And we grew the loan portfolio by nearly $700 million; a solid first step in deploying our substantial drive pattern. Our business has been consistently strong because of the fundamental advantages we realized from our management team being part of Blackstone. Blackstone's monumental scale across the real-estate universe provides unparalleled access to proprietary information that's extremely beneficial in our sourcing and underwriting. And the deep talent pool and experience within Blackstone has led to its great track record of investment performance and access to capital throughout the cycles. Today, the emerging transaction environment provides a fruitful backdrop for our business. Almost are coming off this pandemic sidelines and executing the new investment opportunities. And with more widespread vaccine distribution and growing consumer confidence, we expect to see increasing economic activity that will benefit commercial real-estate performance. The BXMT business drawing on the tremendous competitive advantages of the entire Blackstone platform remains well-positioned for growth in our performance. And with that, I'll turn it over to Katie to address our activities in this quarter in more detail.

Thanks, Steve. The transaction activity in the market expanding, we are seeing strong momentum in our business. Our investment has accelerated this quarter as we close nine new loans and grew our portfolio to a record $18.7 billion. Our substantial liquidity as well as the increasingly efficient financing available to us provides the runway from meaningful accretive portfolio growth within our existing capital base. And we are on our way with $2 billion of new loans closed or in closing including $600 million already closed so far in April. Even more importantly, our new investment opportunities are highly attractive from a credit perspective. This quarter, we saw robust activity and factors with strong talents like industrial, multi-family, life-sciences and growth market offers. We continue to capitalize on areas where Blackstone is the market leader reporting us excellent insight into deal analysis and the ability to build convection quicklier. Most of our loans this quarter supported new acquisitions and our ability to use this information advantage to provide speed and certainty is particularly important. And where our borrowers invested substantial new equity alongside our loans. $1.3 billion of our originations were with repeat sponsors where our long-term relationship continue to yield differentiated access to opportunities. And we also closed loans with six new borrowers this quarter indicative of our ever-growing client base. Remaining loans in growing standout markets like Austin, Texas, then on North Carolina and Miami, Florida, as well as solid core markets like Boston. And we saw the strategic benefit of our deep experience investing in Europe. We've a dominant position of the Blackstone platform especially in the context of a less liquid market environment has allowed us to consistently find attractive relative value opportunities over time. Our business in Europe yielded our largest deal of the quarter, a…

Thank you, Katie. And good morning, everyone. As Steve and Katie highlighted, this quarter's results take off 2021 with a resumption of more typical BXMT activity as we in the broader market continue to put the impacts of COVID-19 further behind us. This quarter we reported GAAP net income of $0.54 per share and distributable earnings of $0.59 per share in line with the fourth quarter last year despite continued low interest rates globally. Our book value per share of $26.35 was also in line with 4Q as there was only a minimal change in our CECL loan loss reserve which is one of the largest potential drivers of variability in our GAAP book value. We carried a $1.25 per share CECL reserve as of quarter end. So growth of this reserve, our book value would be $27.60. We are seeing the same level as we reported at 4Q 2019 before the impacts of COVID and the new CECL accounting standard. During the quarter, we originated 1.7% new loans driving our total portfolio to $18.7 billion. $1.3 billion of these loans closed in March and therefore had a needed contribution to our 1Q results. They position us well for incremental earnings going into the second quarter. Also we received nearly $800 million of repayments this quarter as overall transactions volume has resumed. However, we generated meaningfully less prepayment income in 1Q than typical pre-COVID quarter. This reflects the seasoning of our portfolio resulting from the lower volume of repayments and originations we closed last year. Credit quality was stable this quarter with only 2% of loans on non-accruals, 100% interest collection and as I noted earlier no material movement in our CECL reserves. Average origination LTV of 65% continues to be a source of strength and stability for us. As…

Okay. And your first question comes from the line of Timothy Hayes at BTIG. Calling your line, please go ahead.

Hey, good morning. Great! Good morning guys, and congrats on a very strong quarter. My first question, it sounds like you're gearing up for some nice origination growth, the pipeline seems very strong. I know repayments can be difficult to predict but as the credit environment improves, I imagine repayments will pick up as well. So just wondering if you can give us an idea of your expectations for portfolio growth given the pipeline you noted in and expectations for repayments over the coming quarters?

Thanks Tim and great to have you on the call. And I think as far as repayments to your point there are a bit unpredictable but what we're seeing consistently is that they are very well correlated with our origination activities. And so, we expect a similar trend as to what we've had historically pre-COVID and with the existing capital base we have, we think we have a lot of runway for portfolio growth. So a little hard to predict specifically but the correlation really should hold.

Got it, okay. And then on the pipeline, I think I saw what your weighted average portfolio yield I think actually picked up a bit this quarter making some of your peers note stress in terms of pressure on asset yield and seeing that come down with first quarter results. I'm just curious with your pipeline how all in coupons look relative to the portfolio average in if you expect you're able to achieve similar ROE that you were that you've been able to achieve or maybe even relative to pre-COVID levels given kind of a tapping on the financing side as well.

Yes. I think what we're seeing in the market is ROA's and ROE is pretty consistent on a spread basis from pre-COVID. Every quarter there's obviously a little bit of idiosyncrasy depending on which loan closed in which quarter. But we've had very consistent. And I think to your point, we are seeing some spread pressure in the market on the lending side but we're also a very significant beneficiary from that on the borrowing side. And we're always very focused on making sure that our capital sources are enabling us to continue accessing the loans that we want to lend on even as we see its spreads compressing in the market.

Got it, makes sense. And then just one more broad color for me. It's great to see stable credit trends in the portfolio, maybe if you could just touch on maybe New York City office exposure in general since you guys are pretty well-located there. And just wondering how maybe underlying rents and occupancies have trended in those assets underlying your loans in that market and to those and to office specifically. And just on the market in general, if you had any updated styles and how Class A office will perform and in a gateway cities like New York City and if there is any kind of range of valuation [haircuts] you're expecting broadly?

Yes, I think as far as generally in the market where we've been active, we're increasingly seeing corporations and CEOs comment on what we've seen for a while which is that interpersonal work is necessary for fostering culture and how development collaboration ingenuity -- these dynamics we think are particularly important in the industries that we're creating office demands even before COVID like life-science and content creations and where we've long been focused in terms of our lending activities. We like to learn on new quality office buildings, healthier and more flexible spaces, better amenities like sub markets these are the buildings that we saw hadn’t expanding in and where demand was seeing created pre-COVID and that trend is continuing. So while the overall office market will take time to recover and we think the work from home dynamic will have some impact on values and rents. The impact really will be uneven across office markets. We have to place the quality, we're already seeing that in different markets and we think our portfolio is in the right neighborhood. Yes, our office loan this quarter I think is a great example of the long-term office lending philosophy we've had in the portfolio, the brand new built office building East Austin, Texas, low-level acquisition loan to an A plus sponsor. And a market where we're seeing great fundamentals. So overall, we feel like we've made the right asset collection in our portfolio and we're seeing the type of assets we lend on being our performers.

Right, thanks. I'll hop back in the queue, thanks for the color Katie, I appreciate it.

Jenny?

And the next question comes from the line of Doug Harter from Credit Suisse. Please go ahead.

Good morning, Doug.

Good morning. You mentioned that income from prepayments was lower this quarter than pre-COVID quarters. Just wondering if you could size that and then just to help us understand kind of how that might look going forward given the seasoning you mentioned and maybe that will kind of draw crosses around when that might return to normal?

Hey Doug, it's Doug here. I'll take that one. Historically, if you look back over the last several years, we've had anywhere from $0.02 to $0.04 on a per share basis of prepayment income. I think on average as a matter of fact it's $0.04. It tends to be lumpy. So that's not a regular number per quarter but that's the average over the last several years. This quarter was significantly less than that, closer to $0.01. It's been around between nothing and $0.01 in recent quarters. And that's the function to your point of the seasoning and the portfolio. Decreased velocity in 2020 and then the resultant ageing of the portfolio, the prepayment income obviously is a function of the ageing of the loans. As the portfolio turns over, as originations and repayments resume and the portfolio turns over into the more typical demographics so to speak over the next several quarters. And we'll see that velocity resume and the potential for prepayment income resumed and that additional yield return to the portfolio.

Doug, just to make sure I understand. Doug, so you're saying that takes a couple of more quarters of originating and having normal repayments and then should probably get back to the $0.02 to $0.04 albeit lumpy range?

Yes. I don’t know whether we can put a specific number of quarters on it because it'll really depend on the blow by blow of the originations and repayments.

Sure.

But over the next period, as the portfolio turns over and the demographics return to a more normalized level, we'll see that happen. So it's as anyone guesses to whether it's two quarters or four quarters but it's some period of time in the intermediate term.

All right, that's very helpful. Thank you.

[Operator Instructions] And your next question comes from the line of Charlie Arestia, J.P. Morgan. Please go ahead.

Hi, good morning everybody. And thanks for taking the questions. Were there any loan modifications that were executed during the quarter, I'm assuming you've seen a deceleration in those requests but just curious to hear your thoughts on how those conversations are going?

Sure. So we're really back in the mode of where we were pre-COVID with respect to loan modifications where we affably go through our portfolio and looks for opportunities to proactively modify loans to keep the good credits that we like around very longer. So we're seeing in the portfolio, some restarted or expanded business plans. We're seeing assets progress in their business plans where we want to right size the rate of the loans, you get more call protections. That's really the center of the loan modifications we have going on right now. The COVID impact modifications really are we turn the page for the most part on this.

Okay, got it. Thanks, Katie. And then, if I could just get to sort of asset specific updates on in your larger [four] rated loans. First the $360 million Maui hotel, given those recent developments in vaccine progress and I'd say stronger performance in leisure hotels. I would be curious to hear how things are progressing on that asset. And then second, the $920 million mixed use in Spain. Again, looking at sort of the reopening trends domestically versus what you read about happening in Europe, I'm wondering if you can get an update there and if there's a possibility of any specific reserve built on either of those loans. I realize there is plenty of runway on the maturities there but given the size of those and the risk ratings and figure, I want to ask.

So on the Maui hotel, I think that what we've seen we're big believers in the post-COVID trauma recovery across Blackstone. We're obviously investing in that theme. Yes, the combination of pent up demand accumulated saving, vaccine adoption, travel restrictions listing, I think there is going to be a very powerful recovery particularly in the leisure resort segment of the market. And that asset is extremely well-positioned. It finished its renovation plan during COVID. Hawaii has extremely positive with long-term supply demand fundamentals. This is right on the beach in Maui. So we're seeing this hotel, we see a big beneficiary from the trends that we're expecting. The hotel has -- yes, we're seeing some pickup in occupancy. It'll take time especially with a place like Hawaii, obviously it's a long flight. But once people have a better perception of space here, we think the Hawaii market is really going to perform very well. On the other asset you mentioned in Spain, we are, I think the broader reopening is also a benefit to that portfolio. We're seeing collections pickup, it's still a business plan that we'll progress over time but no real material changes there.

Thanks, very much.

And your next question comes from the line of Jade Rahmani from KBW. Please go ahead.

Thank you, very much. I was wondering if perhaps Steve or Katie you could share your thoughts on if there's any roll back in 1031 exchanges, how you think it might impact the real-estate market?

Hey Jade, this is Steve. I think the 1031 exchange market will impact certain net leased assets other assets that tend to be frequently traded in that marketplace. I don’t think will have any real impacts on our business, I don’t see a vibrant 1031 market as being important for valuations to the kinds of assets, just to share our loans. There'll be a tax headwind for certain investors expect it to have any impact on our business.

Thank you, very much. And in terms of the nature of the originations, you mentioned multi-family as a bright spot. Just wondering if you're seeing any changes from the GSE's. Perhaps they've tightened spreads in order to manage some recent uptick in interest rates. But I'm wondering if they're less active and that presents an opportunity?

Yes Jade, it's a great question. I think we are seeing a little bit of that on the margin. The GSE's has been a bit less active generally in recent months. And so, on the margin we might be picking up some loans that might have been ready for GSE execution a little bit earlier. But by and large, the loans where we're making, they come from relationships, there's usually a little bit of a transitional element to them. So we're typically a lender leading up to a GSE execution. So not a huge impact but I think maybe a little bit on the margin.

Thanks, very much.

And your next question comes from Don Fandetti from Wells. Please go ahead.

Good morning, Don.

The dynamics -- hi, can you guys hear me?

Yes, we can hear you now.

Okay, great. I was wondering if you could talk about the competitive dynamic today in the U.S. and maybe also contrast that with Europe. And then just lastly, as you come out of COVID, are there any strategic changes or are you going to just kind of continue forward with the same strategy?

Sure. So I think as far as the competitive dynamic, I think what we're really seeing is pretty similar to pre-COVID. There's certainly other lenders out there but our advantage has continued to shine through. We've got great relationships with borrowers, obviously with our financing counterparties. We have the ability to ask and scale that many others can't meet. We have really differentiated access to information that allows us to move quickly and find the loans that we like. So we've always operated in a competitive environment. We've always been able to find a really large volume of attractive investment opportunities. Europe has also always been a little bit of less competitive. It's just a bit of a less liquid market environment. There are fewer lenders over there that has the type of information advantage and scale that we have as part of the Blackstone platform. So we really like the Europe opportunity and as always been a fruitful ground for finding investments. I think as far as the business model, our view of the last year was that it really was a validation of what we've always thought was a very strong strategy, lending to well capitalized sponsors, high quality real-estate that proves resilient. Having a very high integrity, match funded balance sheet; all of those things I think really drove our performance for our business in the last year. And we think that's the right place to be in.

Okay, thank you.

And the final question comes from Stephen Laws, Raymond James. Please go ahead.

Hi, good morning. A number of things have been covered. But can you touch on pick income, how much pick income was in the quarter and how does that change year-over-year and sequentially which I guess are somewhat fair cost to normal since there was less portfolio turnover in the last 12 months in typical?

Hey, it's Tony on the pick income question. Yes, we don’t have a specific number to disclose but what I would say is important is we only have 2% of the portfolio which is two loans on non-accrual. So and we're not differing interest generally across any of our loans. So predominantly the loans are all paying current, the receivables are all valid and we're not building up any sort of big receivables or back-ended tech that we're worried about collecting. So, it's all -- although I don’t have a number to share, I would say it's nothing that we need to be concerned about.

Thanks, Tony. As a follow-up, a lot of things covered on the origination and pipeline but just one more. It looks like new office origination in Q1, can you talk about where that is in your pipeline or you're less hesitant to do that given more uncertainties around that asset class looking out. If that's that’s all the case, how should we think about your portfolio mix and property type changing if we look say 12 or 24 months forward?

Sure. So we did have the one office origination in the quarter in Austin, Texas with one of our best sponsors. And really I think it is that loan is indicative of what we're interested in the market where we've been lending pre-COVID and where we expect to continue. So we're seeing great opportunities in newer quality office buildings with strong sponsors, the types of buildings that have the amenities and the quality that tenants want to be in and that employees wants to be in. Lot of activity in gross market office, in low basis office in core market. So we continue to think that we've made the right asset selection in the office space. And that there are good opportunities at the lender there. So I'm not sure I would think there'll be a significant change over time and we're just going to keep in hearing to our very disciplined approach to which office buildings we think will be the winners and making sure we're making low-leverage loans to the right sponsors in that market.

Right. So it sounds like it stays above 50%, then just kind of roughly. Great, thank you very much for your time.

Thank you.

Thank you. Now I'll turn the call back over to Weston Tucker.

Great. Thanks everyone for joining us this morning. And if you have any questions, please follow-up after the call.

Thank you. That concludes your conference call for the day, you may now disconnect. Thanks for joining. Enjoy the rest of your day and take care.