Good day, everyone. And welcome to the Blackstone Mortgage Trust's 3rd Quarter 2021 Investor Call hosted by Weston Tucker, head of shareholder relations. My name is Leslie and I'm the event manager. During the presentation, your lines will remain on listen-only. . . And now I would like to hand you over to your host for today Weston, please go ahead.

Great. Thanks, Leslie, and good morning and welcome to Blackstone Mortgage Trust's third quarter conference call. I'm joined today by Mike Nash, Executive Chairman, Katy Keenan, Chief Executive Officer, Jonathan Pollack, Global Head of Real Estate, Debt Strategies. 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 for 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 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 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 our 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 per share of $0.56, while distributable earnings were $0.63 per share. A few weeks ago, we paid a dividend of $0.62 per share with respect to the Third Quarter. If you have any questions following today's call, please let me know. And with that, I will now turn things over to .

Thanks Weston. In the first quarter of this year, we highlighted emerging portfolio growth as a leading indicator for earnings growth and we saw the momentum building in the pace of our origination. Today, it's clear that we have delivered. This quarter, we originated a record $4.7 billion of new loans, bringing us to 8.6 billion here today, solidly on pace with our long-term upward trajectory. Our strong investment activity drove 3.8 billion of net portfolio growth for the year thus far, taking our portfolio to a record $22 billion. And as our deployment has increased, the earnings power of our business is accelerating. We generated distributable earnings of $0.63 per share in the third quarter, more than covering our long-standing dividends. Our performance this year is reflective of the core advantages that continue to differentiate BXMT. Deep established relationships were the largest sponsors in the market mean that as they become more active, we have more opportunities to find our target investments. Low leverage first mortgage loans on institutional assets. It's a virtuous cycle. The more we participate in the market, the more sponsors experience the advantages of borrowing from BXMT. The more activity we see going forward, further growing our pipeline. We're landing in more markets across the U.S., Europe and Australia, and continually build upon our deep local knowledge and sponsor relationships within each region. And our scale and expertise allow us to be a single-source solution for top-tier global sponsors. Bringing the same creative, innovative, and knowledgeable approach that BXMT is known for are all over the world. This quarter, we closed three loans with Brookfield on assets in New York, Spain, and across Europe, three with Morgan Stanley across multiple U.S. markets and new transactions with Tishman Speyer, Schottenstein, Rock Point, and Northwest. All repeat…

Thank you, Katy, and good morning, everyone. This quarter's results illustrate the positive dynamics of our business in 2021 as BXMT deployed capital into new loans, driving increased earnings as our portfolio grows. Distributable earnings increased to $0.63 per share from $0.61 last quarter, exceeding our quarterly $0.62 dividend paid earlier this month. Growth in earnings this quarter is a direct result of the strong origination pace Katy highlighted earlier and does not reflect any material pre -payment income or non-recurring items. The tailwind from loans closed in the latter part of the third quarter will further support our near-term earnings trajectory. In the third quarter, we originated $4.7 billion of loans across 38 transactions, driving our total portfolio to a record $22 billion, an increase of 15% for the quarter. This portfolio growth has net of $886 million of repayments, reflecting a return to more typical market conditions as our borrowers complete their repositioning plans and either sell or refinance assets. These dynamics bring the proportion of our portfolio originated since 3Q 2020, the first quarter following the trough of the pandemic to 31% providing greater potential to earn prepayment income on these newer vintage loans in future quarters similar to our experience in 2019 and prior. Apart from our active origination pace, the third quarter reflected another period of stable credit metrics in our portfolio. We upgraded the risk rating on 10 loans with only one downgrade and no changes to our four rated watchlist loans. Overall, our weighted average risk rating of 2.8 declined from 2.9 last quarter, reflecting the continued fundamental strength of our portfolio. These rating upgrades, among other factors, contributed to a 4 basis point reduction in our general reserve to 27 basis points equal to $0.42 per share book value. We continue to…

Thank you. And thank you, everyone. Your question-and-answer session will now begin. . . If you could just ask a question plus a follow-up question if you have any further questions, you could just dial back in. Thank you. The first question comes from Tim Hayes from BTIG. You're live in the call Tim, please go ahead.

Hey, good morning, guys. Congrats on a nice quarter. First question here. Just about the all-in yields on the portfolio. You were at a very strong quarter from an origination standpoint, but only saw a modest degradation in the all-in yield. While also focusing on more defensive assets, multi-family Sunbelt, where I would expect competition is a little bit more intense than other parts of the market. So can you touch on -- and I think you did touch on it a little bit in terms of the power of the broader Blackstone platform and being able to be a consistent, efficient capital provider. But maybe if there's any more -- anything more to that, like how you're able to sustain these all-in yields. Are you focusing on heavier transitional assets now? Have we seen construction pick up a little bit or is that what you are getting a little bit of spread any comments around that would be helpful.

Sure, thanks Tim. I think your point is exactly right in that we've seen real consistency in the yields in our portfolio, including as we expand into multi-family stand off. And I think it really does get you exactly as you pointed out. The differentiation in terms of our origination efforts scale larger loans, deep relationships with our counter parties, the ability to provide speed and certainty and move quickly, leveraging all the information we have within our platform. That really allows us to continue finding what we see as compelling lending opportunities. I wouldn't read too much into any individual quarter, but I think if you look over time, including this quarter, the yields have really been very consistent as of our LTV s. And I think that just speaks to our ability to find the compelling lending opportunities that are a good fit for our portfolio.

Okay, got it. So it doesn't sound like any real change in strategy or at least more concentrated focus on different asset types that might get you a little bit more spread there.

No, I mean, to your point, if anything, 54% of our originations this quarter were multi-family so it really is very consistent theme.

Got it. And then just my follow-up there. I know you mentioned some comments about the forward pipeline. It sounds like obviously you have a lot of activity going on still in the fourth-quarter, and I know repayments are lumpy and not always easy to predict, but I would say broadly across the sector, we're seeing repayments pick up. This past quarter was certainly a step back from what you saw in the second quarter. But just curious what your outlook is for repayments in the near/intermediate term, if you think that you might see some elevated activity there and if that might be a source of prepayment income for you guys over the next couple quarters. Thanks.

Sure. Yeah. I do think we'll see a return to a normalized level of prepayments or repayments because it is all correlated with the activity in the capital markets. So I think that's certainly a possibility. The other thing to think about though is the pace of prepayments is really more correlated with where our portfolio was 2, 3 years ago versus the size of the portfolio today. So I think as you think about the relative origination versus repayment, it's important to think about that, but certainly the prospects for early prepayments, acceleration of income as our portfolio gets newer as the capital markets are reopening, we think that a return to more normalized levels that will make sense.

Got it. Thanks, Katy.

Thank you. Your next question comes from the line of Steven Louis from Raymond James. You're live in the call Steven, please go ahead.

All right. Thank you. Good morning. Katy, to follow-up, I guess, on the pipeline looks like for a couple of years we're running a portfolio of around a 125 loans, we're up over 150 now, none of the new originations seem to have made the top 15 table. Can you talk about that pipeline? Is it more loans and smaller loans than what we've historically seen? And does that move you really out of the top 5 MSAs? Can you talk about whether the pipeline continues to have larger software that's focuses Sunbelt obviously, and small loans and smaller in size?

It's a great question. I think the way I think about the activity and our pipeline, is we're still targeting the same types of loans we've always targeted, but we've also overlaid increased activity in multi-family and in some of the smaller growth market. I think you'll still see us pursuing those great large-scale opportunities. We have very strong sponsors, a lot of cash equity where we can differentiate in terms of scale. That's always been a great area of activity for us, and we really like that opportunity. But we're also overlaying more activity, particularly in multi-family, where the deals tend to be potentially a little bit smaller. I think our average multi-family side this quarter was around 100 million, so we're not talking about substantial difference in terms of our long-term average. But we are overlaying more activity in that multi-family space.

And then on the origination side, I appreciate the chart in the supplement that really shows a trailing 12 months annual origination number. And if you look back out COVID seems like 8 to 9 billion a year is a normalized run rate. Is that how we should think about growth from here? Is that number going to get bigger as you expand this focus? Can you talk about what we should think about as far as an annual origination expectation.

Yeah. I think we've seen over and over for the year shared growth in our business and across the Blackstone real estate platform create a virtuous cycle. And we're growing all over our business. We're increasingly sophisticated data, a larger market presence, and we've grown our origination team as well to address the pipeline that we're generating from that larger scale by over 40% in the last 2 years. So I think it's certainly possible that we'll continue to see the long-term trajectory, and we've really grown the portfolio every year in the history of the Company. So I think that long term trajectory is clear and we had expect to see it continue.

Great. Thanks for your time this morning.

Thank you. Your next question comes from Rick Shane from JPM. Please go ahead, Rick, you're live in the call.

Thanks, everybody for taking my questions this morning. I'm curious as we look forward, how to think about the floors, and one of the things that stands out is that, disproportionately, your non-U.S. dollar denominated loans have a much higher percentage of 0 floors or no floors on them. I'm curious if that is a timing issue as a function of when that portfolio was created, is it a function of local practice, or is there something embedded in your currency hedges to, basically a structurally provide effectively a floor that we're just not seeing in terms of the way things are disclosed?

Hey, Rick, it's Doug. I'll take that one. I think the answer is both actually in short. So the 0 floors in the European portfolio are really a function of where rates have been in Europe and also in the U.K. over the preceding several years when those loans were originated. Rates never increased on the continent in particular the way they did in the U.S. But you're onto something in referencing the hedging strategy. With the rolling forward contract strategy that we do, we essentially swap Eurobor or Sterling LIBOR for US dollar LIBOR. And so that provides a very substantial hedge to the floor income in our U.S. dollar portfolio because it essentially represents a non-floor component of our capital structure that is exposed to U.S. dollar LIBOR.

Got it. Okay. That actually makes a great deal of sense. It's really helpful just because -- in the context of things, the distribution seemed a little bit odd just trying to understand how to think about that going forward. Thank you.

Thank you. Your next question comes from Donald Fandetti from Wells Fargo. You're live in the call Don, please go ahead.

Hi. Good morning, Katy, could you talk a little bit about New York office and what your view is? And then also provide an update on how RevPAR and occupancy are trending in your hotel portfolio.

Sure, so I think our view on New York office remains very consistent with what we've been saying over the last year, which is that the out-performance from a leasing activity perspective, from a capital markets perspective, that we're seeing in the high-quality, newer vintage well - amenitized office buildings that we've always been focused on. That really continues. I think there has been a couple of great examples of that over the last couple of quarters. Obviously, Google's acquisition of the St. John's terminal being the most highly published one. But we're really seeing it across the market, whether it's Hudson Yards or New York Grand Central, the newer quality buildings continue to attract really great tenant demand. And we're seeing that in the numbers, tenant activity in the market, leasing activity, it's all bouncing back. And again, really concentrated in those high-quality buildings, we continue to see the bifurcation that we've identified. I think on the occupancy and RevPAR side, again, continued progress there. I mentioned in the call we're seeing really good coverage across our portfolio. Resorts continue to significantly outperform, select service has been very stable. The urban hotel side is going to take a little bit longer, but I do think the reopening of international travel in November will be a plus for that part of the market.

Thank you.

Thank you. Your next question comes from Jade Rahmani from KBW. You're live in the call Jade, please go ahead.

Thank you very much. Katy, I was wondering with the strong growth across the portfolio, could you just explain the portfolio management process? How frequent are asset level reviews and what information gets passed upstream to yourselves as well as other members of the management team?

Absolutely. I think our integrated, really sophisticated asset management process is one of the areas of secret source of our business. We've got a great asset management team. They all sit with us here on the same floor in the same building. We've worked with them a really long time and we go through every loan in the portfolio, every quarter, really looking at individual performance leasing occupancy, what's happening in the short-term, in the long term with our entire BXMT management team and then roll that up to the overall Brad's management team. So it's a very detailed, sophisticated process and it's also quite proactive. We use those reviews to look at which great loans are doing well that we can try and keep around longer, looking at call protection and thinking about how to maintain the high-quality portfolio. And also really using that to extend all the touch points we have with our borrowers. So we've got a strong relationship with our borrowers on the asset management side as we have on the origination side. And it really keeps the positive dynamics flowing in terms of seeing new lending opportunities.

Thank you. And a follow-up would be in today's environment, how do you make sure you're not lending into an overly frothy market based on current low interest rates above historical valuations and risks to the outlook based on what we're seeing in the supply chain, which I assume will eventually impact commercial real estate construction, as well as inflation in the system.

Sure. Well, I think, really it comes down to information. We own a $400 billion real estate portfolio across the Blackstone platform. We have 50 portfolio companies and they're always every day feeding information into every aspect of the investment process, Europe Blackstone, and I think having that access to information flow really keeps us up to the minute in terms of what we are seeing an individual asset classes and individual markets. So I think it really gives us a big advantage in terms of making sure we're making the right investments. Overlaying that obviously with the low LTV loans we're making strong sponsors, asset classes that we've seen stable performance over time. All of those areas, I think, help us really mitigate risk, even as the market is changing. I think on the supply chain and construction side, as a lender on existing assets or in the small case as we do construction where we have GMP is in completion guarantee, that really just means less new supply over time. Increasing replacement costs should translate through to increasing value for existing assets. I think as a lender on hard assets in potentially inflationary environment, that's really just going to translate to more value protection and credit support for our loan.

Okay. Thank you very much.

Thank you. Your next question comes from Steven Delaney from JMP Securities. Please go ahead, Steven, you're live in the call.

Good morning, everyone. Congrats on your strong results. Katy, as far as this velocity in the commercial real estate markets or this level of activity, how does that impact, in your mind, the expected average life of your new loans? I'm assuming that when you talked about your sponsors, it sounded like a lot of these loans are new acquisitions. So the business plans for your sponsors -- are you still seeing a historical 3 to 4 year average outlook? Just trying to get a sense for the life of these new originations. Thank you very much.

Yeah, that's a great question. I think that the life of our loans tends to be driven by the business plans of our sponsors. More so than what's going on in the capital markets. So it's really, most of our sponsors are employing a bio fixed at solid strategy, much like we have across the business here. And so the life of the loans really are driven by the fixed at part of the business plan. And I don't think that's really changed substantially. We've always had an array of different types of business plans in our portfolio, whether it's a straight lease up strategy, unit renovations, re-branding of an asset, whatever sort of type of transition. And we've always had a mix of light transition to a little bit more transitional. And I don't think the trend on that has changed substantially. So we did see obviously in a longation in the duration of the portfolio in COVID as the capital markets were quieter, I think there were assets that were ready to be sold just before COVID that obviously hung around a bit longer because of the capital markets. But I think that as the market returns to a more normalized level of what we'll see as a return to a more normalized duration similar to what we were seeing in 18 and 19.

Got it. Okay. Thanks. And obviously these heavy originations in 3Q and coming up in 4Q will likely -- the fresh loans likely extend the weighted average expected maturity I would assume. And then you -- just to close my follow-up quickly is the you made positive comment, with respect to RevPAR in the Hospitality Holdings, would you say that applies similarly to your loan 14 and in New York City.

Yes. I think we're seeing positive trends in hotel across the board. And what really differs is the pace or the slope of the recovery. So if you look at New York generally, I think the market occupancy was -- it could've been single-digits at 1.2 years ago and today it's more like.

Right.

-- 60%, 70%. So it's really moved a lot. There's still a lot more to go in a city like New York because the underlying international demand, the corporate demand, that's going to take time to recover. But I think the direction we're seeing across the hotel space is all upward. It's just a question of the slope.

Great. Thank you for the comments.

Thank you. And your final question comes from the line of Jade Rahmani from KBW. Please go ahead, Jade, you're live in the call.

Thank you very much. In terms of the repayment outlook, what do you think drove the modest level of repayments in third quarter despite the surge in volumes we're seeing across the sector? And do you expect that to increase going forward? I believe you earlier indicated that is the case.

I think it really goes back to when the loans were originated. And when you think about the pace of the repayments, the repayments happen when loans get through their business plans. When you think about the scale of the repayments we've had over the last 3 quarters, and obviously quarters are lumpy as we try and look at it over a little bit of a longer period, and compare that to the size of the portfolio 3 or 4 years ago, it's actually not really -- it's a pretty reasonable number when you think about the weighted average duration of loans. I think the differential you're seeing in new originations versus repayments, that's really a factor of the growth of the portfolio over time, and I think that's the primary driver. I think we're getting to a pretty normalized pace this year and you will see it continue to track the growth of the portfolio 2 or 3 years ago, which is really the corollary data points to look at.

Thanks. And lastly, a question I get a lot from investors and I know everyone asks you guys this all the time, which is about adding business lines. But from the perspective of liability management, do you think that it's an interesting prospect to add a different business line in order to allow BXMT to eventually be able to issue unsecured debt?

I'll start and Doug can add to it. I mean, I think we're always going to be driven first by what we think that that's investment opportunity is for our business. So we're not going to be driven by what we see on the liability side. We really start with, how do we make the best relative value investments and then we think about the best way to capitalize those investments.

I wouldn't add anything to that. It's all about the investments and then we best capitalize given the investment strategy.

Thank you very much.

Okay, thank you. And now I'd like to hand you back to Weston for closing remarks.

Well, thank you. Thanks, everyone for joining us today and look forward to following up after the call.

Thank you, Weston. And thank you for your

Good bye.

Thank you, everyone. That concludes your conference call for today. You may now disconnect. Thank you for joining and enjoy the rest of your day.