Blackstone Mortgage Trust (BXMT) Third-Quarter 2026 Investor Call - BLACKSTONE MORTGAGE TRUST INC

Financial Performance:

• Reported a GAAP net loss of $1.95 per share, driven by a $1.59 per share increase in credit loss (CECL) reserves.
• Distributable earnings (DE) were $0.38 per share; DE excluding realized gains/losses was $0.42 per share (down $0.06 QoQ).
• Book value ended Q3 at $17.06 per share, a 12% decline from Q2, primarily due to impairments and valuation adjustments.
• Recorded $800 million in loan impairments, mostly legacy office and one hotel loan, with $62 million of specific reserves transferred from prior periods.
• Owned real estate portfolio carrying value stands at $1.5 billion across 15 assets, contributing $19 million in NOI (including $6 million tax benefit).
• Debt-to-equity ratio remained stable at 3.9x; liquidity at $1.3 billion.

Guidance and Future Outlook:

• Declared a Q4 dividend of $0.30 per share, payable January 15, 2027; management expects to cover this dividend in Q4 and for full-year 2027 despite near-term earnings pressure.
• Aim to exceed the 40% year-end reduction target for office and legacy loans; $2.3 billion in repayments collected YTD (90% from legacy loans).
• Expect portfolio turnover to continue, with leverage likely trending toward the middle of the target range due to modest portfolio runoff in coming quarters.
• Long-term goal is to maintain a sustainable dividend and generate attractive risk-adjusted returns through diversified capital allocation.

Business Segments and Product Lines:

• Portfolio reduced to $17 billion; 50% now comprises post-2023 originations (ratings 1-3), up from <33% earlier in the year.
• 14% of portfolio is impaired/REO, with carrying values ~30% below prior loan basis (implying ~55% collateral value decline).
• Watchlist balance dropped 56% QoQ to its lowest level since pre-COVID.
• Invested $500 million in Q3, including $300M new loans (multifamily/industrial) and $150M in net lease and homebuilder finance.
• Net lease, homebuilder, and bank loan investments now represent ~10% of the portfolio, up from zero last year; average investment size reduced to $18M (from >$130M previously).
• Legacy office ($2B rated 3+), multifamily ($1.4B rated 3+), and hospitality ($1.3B rated 3+) segments remain strong, with high liquidity and debt yields of 12%, 6.6%, and >9% respectively.

Market and Competitive Landscape:

• 10-year Treasury yields up 80bps YTD; however, CMBS issuance is on track for post-GFC records, and spreads remain ~40% below 2023 peaks.
• REIT same-store NOI growth reached a three-year high; total REIT return ~12% YTD.
• Office market showing signs of recovery with positive net absorption for five consecutive quarters and ~75% decline in new supply from peak.
• Multifamily sector seeing resilient demand and rent growth turnaround despite rate headwinds.
• Stock trading at a discount of ~$1 billion to book value, offering an 11% current yield.

Risks and Challenges:

• Elevated interest rates continue to pressure valuations, specifically on legacy pre-2023 office and multifamily loans.
• Secular challenges in the office sector remain a primary driver of impairments, though most are now reflected in book value.
• Borrower unwillingness to inject additional equity into distressed assets led to recent loan impairments.
• Near-term earnings pressure expected due to a smaller portfolio size, non-accrual assets, and lower-yielding owned real estate.

Management Commentary and Tone:

• Management expressed confidence in the repositioned portfolio, emphasizing the drastic reduction in risk exposure and watchlist status.
• Tone was defensive yet optimistic regarding liquidity and the "reset" of the dividend to ensure sustainability across rate environments.
• Highlighted the strategic shift toward diversification (homebuilder, net lease) and smaller deal sizes to increase portfolio granularity.
• Stated that book value reflects the secular challenges of the office market and that future upside lies in the performing remainder of the portfolio.

Analyst Questions and Answers:

• Resolution Strategy: Confirmed that while loan sales offer liquidity, moving through REO (Real Estate Owned) is often the ultimate path to achieving highest returns on impaired assets.
• Dividend & Capital Allocation: Reiterated that the reduced dividend allows flexibility for share buybacks ($36M repurchased in Q3, $110M capacity remaining) and new investments.
• Multifamily Outlook: Borrowers are optimistic due to declining rent concessions and supply drops; legacy multifamily loans show strong debt yields with minimal below-6% exposure.
• Homebuilder Finance: Viewed as a structural long-term opportunity despite short-term rate headwinds; borrowers are experienced developers with <65% LTV and cross-collateralization.
• CECL Drivers: Increased reserves were driven by asset-specific impairments rather than the general reserve, which actually decreased due to a smaller loan pool and lower watchlist volume.
• Origination Volumes: Cited both market volatility and a strategic focus on selectivity/diversification as reasons for modest origination activity, though the pipeline remains robust.

Other Key Points:

• Sold nearly $1 billion of loans at a weighted average price of $0.93 on the dollar, including $500M of legacy office and $200M of legacy multifamily.
• $64 million valuation adjustment applied to loans transferred to held-for-sale, with sales closing in October.
• Equity invested in unconsolidated joint ventures reached $371 million (up 70% YTD), contributing >$12M to distributable earnings.
• Corporate debt maturities in Q1 2027 are pre-funded; weighted average term remaining is ~4 years with no maturities until 2029.
• Non-market-to-market borrowings now constitute 89% of total debt, enhancing funding stability.