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

Explicit Guidance:

• Dividend: Declared a $0.30 per share dividend for Q4 2026, payable January 15, 2027; management expects to cover this dividend in Q4 2026 and full-year 2027 despite near-term earnings pressure.
• Earnings Outlook: Distributable earnings (DE) are expected to face pressure in Q4 and 2027 due to portfolio reduction, book value impacts from impairments, and lower-yielding owned real estate assets; management expects DE to sustain the reduced dividend in a range of rate and credit environments.
• Buyback Capacity: $110 million of remaining capacity under the current stock repurchase authorization; bought back $36 million in Q3 2026.
• Leverage Target: Management aims to maintain the debt-to-equity ratio in the "middle to middle of the range" (current 3.9x), anticipating modest portfolio runoff in the coming quarter or two.

Business-Segment Outlook:

• Portfolio Turnover: On track to meet or exceed the 40% year-end reduction target for office and legacy loans; portfolio size reduced with $2.3 billion in repayments (90% legacy) and nearly $1 billion in loan sales in Q3.
• Legacy Office: $500 million of legacy office loans ($1.2 billion pool remaining) tracking for refinancing in Q4; the remaining $1.2 billion portfolio has a weighted average in-place debt yield of 12% and is expected to benefit from broad market office recovery.
• Legacy Multifamily: Portfolio reduced to $1.4 billion (down ~50% from start of year); only $200 million of remaining loans have in-place debt yields below 6%; sector supported by highest net absorption since 2021.
• Legacy Hospitality: $1.3 billion in pre-2023 loans (rated 3 or better) with >9% average debt yield; anticipated positive seasonality expected to contribute to Q4 earnings.
• New Investment Vintages: 50% of portfolio now consists of post-2023 originations (risk ratings 1-3) and new strategies (net lease, homebuilder finance, bank loans); average investment size decreased to $18 million (from >$130 million previously).
• Watch List: Reduced by 56% quarter-over-quarter to its lowest level since before COVID; 99% of the remaining $57 million office watch list is already impaired/reserved.

Market and Competitive Outlook:

• Real Estate Fundamentals: Office market seeing net absorption for five straight quarters with new supply down 75% from peak; Multifamily demand resilient with supply down nearly 60% from peak; Hospitality supported by strong economic growth and limited new supply.
• Capital Markets: CMBS issuance tracking for a post-GFC record in 2026; spreads unchanged from start of year (approx. 40% lower than 2023 peak); liquidity described as "well-functioning" and "strong" despite elevated rates.
• Pricing/Valuation: Impaired loans and owned real estate assets carried at nearly 30% below prior loan basis, implying 55% collateral value decline; market pricing in significant downside, trading at a discount to book value.
• Share Structure: View share buybacks as an attractive capital allocation tool given the stock discount and repositioned portfolio.

Macro / Industry Outlook:

• Interest Rates: 10-year Treasury rates up 80 basis points YTD, briefly hitting a 25-year high; elevated rates viewed as a headwind for valuations but not currently preventing market liquidity.
• Economic Environment: Management anticipates the ability to sustain the dividend through a range of future credit and rate environments.
• FX/Regulation/Tariffs: No specific impacts mentioned in the transcript.

Strategic Initiatives:

• Portfolio Restructuring: Accelerating turnover to reduce exposure to pre-2023 legacy investments; proactively selling loans to harvest repayments and reduce watch lists.
• Asset Resolution: Focus on resolving impaired loans and owned real estate (REO); $1.5 billion owned REO portfolio with 15 assets, including a Chicago office loan currently in discussion for resolution.
• Diversification: Expanding into net lease, single-family homebuilder finance, and bank loan portfolios (now ~10% of portfolio); leveraging proprietary data for risk-adjusted returns.
• Capital Deployment: Intent to deploy capital into "attractive new investments," accretive debt, and share repurchases; no specific M&A timing announced.

Risks and Headwinds to Outlook:

• Rate Sensitivity: Continued elevated interest rates could pressure property values and borrower ability to service debt; legacy loans (pre-2023) remain sensitive to rate moves.
• Sector Specifics: Office sector faces secular challenges, though major impairment risks are largely reflected in current book value; remaining office loans show strong cash flows.
• Earnings Volatility: Near-term distributable earnings pressure expected from non-accrual assets, loan impairments, and lower-yielding owned real estate.
• Execution Risk: Risks associated with the timing and pricing of loan sales and REO resolutions; potential for further impairment if business plans lag or sponsor equity support is withdrawn.

Management Tone on the Future:

• Confidence Level: High confidence in the repositioned portfolio ("well-positioned," "strong fundamentals," "encouraging signs").
• Strategic Hedges: Emphasis on a "reset dividend" to preserve capital flexibility for buybacks and new investments; commitment to "long-term earnings power."
• Change vs. Prior Guidance: Shifted from identifying issues to a "heavy resolution stage" with significantly reduced watch lists and impaired portfolios; explicitly stated that secular office challenges are "substantially reflected" in current book value.
• Risk Management: Proactive stance demonstrated by selling loans at 93 cents on the dollar despite strong liquidity to reduce exposure.

Miscellaneous:

• Corporate Debt: Q1 2027 maturities largely pre-funded; repayment will extend weighted average remaining term to nearly four years with no maturities until 2029.
• JV Investments: Equity in unconsolidated joint ventures (net lease, homebuilder) up 70% YTD to $371 million; contributed >$12 million to DE in Q3.
• Accounting: Q3 book value decline driven by $800 million in loan impairments and $1.59/share increase in CECL reserves; $3.64/share of total CECL reserves included in book value.