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BXMT > SEC Filings for BXMT > Form 10-Q on 25-Oct-2016All Recent SEC Filings

Show all filings for BLACKSTONE MORTGAGE TRUST, INC.

Form 10-Q for BLACKSTONE MORTGAGE TRUST, INC.


25-Oct-2016

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

References herein to "Blackstone Mortgage Trust," "Company," "we," "us," or "our" refer to Blackstone Mortgage Trust, Inc. and its subsidiaries unless the context specifically requires otherwise.

The following discussion should be read in conjunction with the unaudited consolidated financial statements and notes thereto appearing elsewhere in this quarterly report on Form 10-Q. In addition to historical data, this discussion contains forward-looking statements about our business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those in this discussion as a result of various factors, including but not limited to those discussed in Item 1A. Risk Factors in our annual report on Form 10-K for the year ended December 31, 2015, Item 1A of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016, and elsewhere in this quarterly report on Form 10-Q.

Introduction

Blackstone Mortgage Trust is a real estate finance company that originates and purchases senior loans collateralized by properties in North America and Europe. We are externally managed by BXMT Advisors L.L.C., or our Manager, a subsidiary of The Blackstone Group L.P., or Blackstone, and are a real estate investment trust, or REIT, traded on the New York Stock Exchange, or NYSE, under the symbol "BXMT." We are headquartered in New York City.

We conduct our operations as a REIT for U.S. federal income tax purposes. We generally will not be subject to U.S. federal income taxes on our taxable income to the extent that we annually distribute all of our net taxable income to stockholders and maintain our qualification as a REIT. We also operate our business in a manner that permits us to maintain an exclusion from registration under the Investment Company Act of 1940, as amended. We are organized as a holding company and conduct our business primarily through our various subsidiaries.

I. Key Financial Measures and Indicators

As a real estate finance company, we believe the key financial measures and indicators for our business are earnings per share, dividends declared, Core Earnings, and book value per share. For the three months ended September 30, 2016 we recorded earnings per share of $0.69, declared a dividend of $0.62 per share, and reported $0.71 per share of Core Earnings. In addition, our book value per share as of September 30, 2016 was $26.61. As further described below, Core Earnings is a measure that is not prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. We use Core Earnings to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan activity and operations.

Earnings Per Share and Dividends Declared

The following table sets forth the calculation of basic and diluted net income
per share and dividends per share ($ in thousands, except per share data):



                                                               Three Months Ended
                                                   September 30, 2016            June 30, 2016
Net income (1)                                    $             64,794          $        63,081
Weighted-average shares outstanding, basic
and diluted                                                 94,071,537               94,064,423

Net income per share, basic and diluted           $               0.69          $          0.67

Dividends per share                               $               0.62          $          0.62

(1) Represents net income attributable to Blackstone Mortgage Trust, Inc.


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Core Earnings

Core Earnings is a non-GAAP measure, which we define as GAAP net income (loss), including realized gains and losses not otherwise included in GAAP net income
(loss), and excluding (i) net income (loss) attributable to our CT Legacy Portfolio, (ii) non-cash equity compensation expense, (iii) depreciation and amortization, (iv) unrealized gains (losses), and (v) certain non-cash items. Core Earnings may also be adjusted from time to time to exclude one-time events pursuant to changes in GAAP and certain other non-cash charges as determined by our Manager, subject to approval by a majority of our independent directors.

We believe that Core Earnings provides meaningful information to consider in addition to our net income and cash flow from operating activities determined in accordance with GAAP. This adjusted measure helps us to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan portfolio and operations. Although, according to our management agreement, we calculate the incentive and base management fees due to our Manager using Core Earnings before incentive fees expense, we report Core Earnings after incentive fee expense, as we believe this is a more meaningful presentation of the economic performance of our class A common stock.

Core Earnings does not represent net income or cash generated from operating activities and should not be considered as an alternative to GAAP net income, or an indication of our GAAP cash flows from operations, a measure of our liquidity, or an indication of funds available for our cash needs. In addition, our methodology for calculating Core Earnings may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures, and accordingly, our reported Core Earnings may not be comparable to the Core Earnings reported by other companies.

The following table provides a reconciliation of Core Earnings to GAAP net income ($ in thousands, except per share data):

                                                             Three Months Ended
                                                 September 30, 2016            June 30, 2016
Net income(1)                                   $             64,794           $       63,081
CT Legacy Portfolio net income                                (1,805 )                 (3,825 )
Non-cash compensation expense                                  4,949                    4,836
GE purchase discount accretion
adjustment(2)                                                   (929 )                 (1,247 )
Other items                                                      (65 )                    278

Core Earnings                                   $             66,944           $       63,123

Weighted-average shares outstanding,
basic and diluted                                         94,071,537               94,064,423

Core Earnings per share, basic and
diluted                                         $               0.71           $         0.67

(1) Represents net income attributable to Blackstone Mortgage Trust.

(2) Adjustment in respect of the deferral in Core Earnings of the accretion of a total $9.1 million of purchase discount attributable to a certain pool of GE portfolio loans pending the repayment of those loans.

Book Value Per Share

The following table calculates our book value per share ($ in thousands, except
per share data):



                                    September 30, 2016      June 30, 2016
            Stockholders' equity   $          2,503,694     $    2,496,417
            Shares
            Class A common stock             93,912,936         93,912,674
            Deferred stock units                162,371            155,676

            Total outstanding                94,075,307         94,068,350

            Book value per share   $              26.61     $        26.54


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II. Loan Portfolio

During the quarter ended September 30, 2016, we originated $956.6 million of loans. Loan fundings during the quarter totaled $925.8 million, including $27.1 million of non-consolidated senior interests. Loan repayments and sales during the quarter totaled $1.6 billion, which included the repayment of an aggregate $865.1 million from four related loans to a single sponsor, contributing to decreases in the manufactured housing and fixed rate loan components of our overall portfolio. We generated interest income of $128.2 million and incurred interest expense of $45.4 million during the quarter, which resulted in $82.8 million of net interest income during the three months ended September 30, 2016.

Portfolio Overview

The following table details our loan origination activity ($ in thousands):



                                    Three Months Ended        Nine Months Ended
                                    September 30, 2016       September 30, 2016
    Loan originations(1)           $            956,583      $         2,677,128
    Loan fundings(2)               $            925,840      $         2,392,739
    Loan repayments and sales(3)             (1,621,090 )             (2,962,904 )

    Total net fundings             $           (695,250 )    $          (570,165 )

(1) Includes new loan originations and additional commitments made under existing loans.

(2) Loan fundings during the three months ended September 30, 2016 include $27.1 million of additional fundings under related non-consolidated senior interests, and loan fundings during the nine months ended September 30, 2016 include $92.1 million of additional fundings under related non-consolidated senior interests.

(3) Loan repayments and sales during the three and nine months ended September 30, 2016 include $20.2 million of additional repayments under related non-consolidated senior interests.


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The following table details overall statistics for our loan portfolio as of September 30, 2016 ($ in thousands):

                                                                     Total Loan Exposure(1)
                                Balance Sheet         Total Loan         Floating Rate         Fixed Rate
                                  Portfolio            Portfolio             Loans                Loans
Number of loans                            106                 106                   89                  17
Principal balance               $    8,381,679       $   9,437,543       $    8,147,417       $   1,290,126
Net book value                  $    8,347,712       $   9,398,383       $    8,107,348       $   1,291,035
Unfunded loan commitments(2)    $      929,030       $   1,061,572       $    1,061,572       $           -
Weighted-average cash
coupon(3)                                 4.85 %              4.66 %             L+4.03 %              5.07 %
Weighted-average all-in
yield(3)                                  5.22 %              5.09 %             L+4.44 %              5.62 %
Weighted-average maximum
maturity (years)(4)                        3.2                 3.3                  3.3                 3.5
Loan to value (LTV)(5)                    61.0 %              60.5 %               59.8 %              64.5 %

(1) In certain instances, we finance our loans through the non-recourse sale of a senior loan interest that is not included in our consolidated financial statements. Total loan exposure encompasses the entire loan we originated and financed, including $1.1 billion of such non-consolidated senior interests.

(2) Unfunded commitments will primarily be funded to finance property improvements or lease-related expenditures by the borrowers. These future commitments will be funded over the term of each loan, subject in certain cases to an expiration date.

(3) As of September 30, 2016, our floating rate loans were indexed to various benchmark rates, with 86% of floating rate loans indexed to USD LIBOR based on total loan exposure. In addition, $277.3 million of our floating rate loans earned interest based on floors that are above the applicable index, with an average floor of 1.13%, as of September 30, 2016. In addition to cash coupon, all-in yield includes the amortization of deferred origination fees, loan origination costs, and accrual of both extension and exit fees. Coupon and all-in yield for the total portfolio assume applicable floating benchmark rate for weighted-average calculation.

(4) Maximum maturity assumes all extension options are exercised by the borrower, however our loans may be repaid prior to such date. As of September 30, 2016, 70% of our loans were subject to yield maintenance or other prepayment restrictions and 30% were open to repayment by the borrower without penalty, based on total loan exposure.

(5) Based on LTV as of the dates loans were originated or acquired by us.

The charts below detail the geographic distribution and types of properties securing these loans, as of September 30, 2016:

[[Image Removed: LOGO]]

Refer to section VI of this Item 2 for details of our loan portfolio, on a loan-by-loan basis.

Asset Management

We actively manage the investments in our loan portfolio and exercise the rights afforded to us as a lender, including collateral level budget approvals, lease approvals, loan covenant enforcement, escrow/reserve management/collection, collateral release approvals and other rights that we may negotiate.


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As discussed in Note 2 to our consolidated financial statements, our Manager performs a quarterly review of our loan portfolio, assesses the performance of each loan, and assigns it a risk rating between "1" and "5," from less risk to greater risk. The following table allocates the principal balance and total loan exposure balances based on our internal risk ratings ($ in thousands):

                                        September 30, 2016
                    Risk     Number        Net Book        Total Loan
                   Rating   of Loans         Value        Exposure(1)
                     1             10     $   456,047     $    456,905
                     2             53       3,882,247        3,935,513
                     3             43       4,009,418        5,045,125
                     4             -               -                -
                     5             -               -                -

                                  106     $ 8,347,712     $  9,437,543

(1) In certain instances, we finance our loans through the non-recourse sale of a senior loan interest that is not included in our consolidated financial statements. See Note 2 to our consolidated financial statements for further discussion. Total loan exposure encompasses the entire loan we originated and financed, including $1.1 billion of such non-consolidated senior interests as of September 30, 2016.

The weighted-average risk rating of our total loan exposure was 2.5 and 2.3 as of September 30, 2016 and June 30, 2016, respectively. The increase in weighted-average risk rating was primarily driven by repayments of loans with lower risk ratings, and not rating downgrades in the existing portfolio.


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Portfolio Financing

Our portfolio financing arrangements include revolving repurchase facilities, the GE portfolio acquisition facility, asset-specific financings, a revolving credit agreement, loan participations sold, and non-consolidated senior interests.

The following table details our portfolio financing ($ in thousands):

                                                   Portfolio Financing
                                              Outstanding Principal Balance
                                       September 30, 2016        December 31, 2015
  Revolving repurchase facilities     $          3,044,434      $         2,495,805
  GE portfolio acquisition facility              1,587,822                3,161,291
  Asset-specific financings                        653,652                  474,655
  Revolving credit agreement                        50,000                       -
  Loan participations sold                         411,427                  498,992
  Non-consolidated senior interests              1,055,864                1,039,765

  Total portfolio financing           $          6,803,199      $         7,670,508

Revolving Repurchase Facilities

The following table details our revolving repurchase facilities ($ in
thousands):



                                                                     September 30, 2016
                                      Maximum            Collateral                     Repurchase Borrowings
Lender                            Facility Size(1)        Assets(2)       Potential(3)       Outstanding       Available(3)
Wells Fargo                      $        2,000,000     $   1,390,190     $   1,085,153     $     801,271     $      283,882
MetLife                                   1,000,000           967,359           756,054           756,054                 -
Bank of America                             750,000           742,081           577,694           577,694                 -
JP Morgan(4)                                500,000           524,516           403,483           353,630             49,853
Citibank                                    500,000           623,857           481,572           252,175            229,397
Morgan Stanley(5)                           324,200           254,803           200,665           200,665                 -
Société Générale(6)                         448,880           166,369           131,000           102,945             28,055

                                 $        5,523,080     $   4,669,175     $   3,635,621     $   3,044,434     $      591,187

(1) Maximum facility size represents the largest amount of borrowings available under a given facility once sufficient collateral assets have been approved by the lender and pledged by us.

(2) Represents the principal balance of the collateral assets.

(3) Potential borrowings represents the total amount we could draw under each facility based on collateral already approved and pledged. When undrawn, these amounts are immediately available to us at our sole discretion under the terms of each revolving credit facility.

(4) The JP Morgan maximum facility size was composed of a general $500.0 million facility size, under which U.S. Dollars and British Pound Sterling borrowings are contemplated.

(5) The Morgan Stanley maximum facility size represents a £250.0 million facility size that was translated to $324.2 million as of September 30, 2016.

(6) The Société Générale maximum facility size represents a €400.0 million facility size that was translated to $448.9 million as of September 30, 2016.

The weighted-average outstanding balance of our revolving repurchase facilities was $2.9 billion for the nine months ended September 30, 2016. As of September 30, 2016, we had aggregate borrowings of $3.0 billion outstanding under our revolving repurchase facilities, with a weighted-average cash coupon of LIBOR plus 1.82% per annum, a weighted-average all-in cost of credit, including associated fees and expenses, of LIBOR plus 2.01% per annum, and a weighted-average advance rate of 79.1%. As of September 30, 2016, outstanding borrowings under these facilities had a weighted-average maturity, excluding extension options and term-out provisions, of 1.4 years.


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Borrowings under each facility are subject to the initial approval of eligible collateral loans by the lender and the maximum advance rate and pricing rate of individual advances are determined with reference to the attributes of the respective collateral loan.

GE Portfolio Acquisition Facility

During the second quarter of 2015, concurrently with our acquisition of the GE portfolio, we entered into an agreement with Wells Fargo to provide us with secured financing for the acquired portfolio. During the second quarter of 2016, we increased the facility size by $125.0 million. As of September 30, 2016, this facility provided for $1.8 billion of financing, of which $1.6 billion was outstanding and an additional $200.5 million was available to finance future loan fundings in the GE portfolio. The GE portfolio acquisition facility is non-revolving and consists of a single master repurchase agreement providing for both (i) asset-specific borrowings for each collateral asset as well as (ii) a sequential pay advance feature.

The asset-specific borrowings under the GE portfolio acquisition facility were advanced at a weighted-average rate of 80% of our purchase price of the collateral assets and will be repaid pro rata from collateral asset repayment proceeds. The asset-specific borrowings are currency matched to the collateral assets and accrue interest at a rate equal to the sum of (i) the applicable base rate plus (ii) a margin of 1.75%, which will increase to 1.80% and 1.85% in year four and year five, respectively. As of September 30, 2016, those borrowings were denominated in U.S. Dollars, Canadian Dollars, British Pounds Sterling, and Euros. The asset-specific borrowings are term matched to the underlying collateral assets with an outside maturity date of May 20, 2020, which may be extended pursuant to two one-year extension options. We guarantee obligations under the GE portfolio acquisition facility in an amount equal to the greater of
(i) 25% of outstanding asset-specific borrowings, and (ii) $250.0 million. We had outstanding asset-specific borrowings of $1.6 billion and $3.1 billion under the GE portfolio acquisition facility as of September 30, 2016 and December 31, 2015, respectively.

As of September 30, 2016, the sequential pay advance borrowings under the GE portfolio acquisition facility had been fully repaid.


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Asset-Specific Financings

During the nine months ended September 30, 2016, we entered into four
asset-specific financings providing an additional $512.9 million of credit
capacity. The following table details statistics for our asset-specific
financings ($ in thousands):



                                                                         September 30, 2016
                                                Principal         Book           Wtd. Avg.                              Wtd. Avg.
Lender                              Count        Balance          Value         Yield/Cost(1)        Guarantee(2)         Term
JP Morgan(3)
Collateral assets                       1      $   280,415     $   278,963              L+3.88 %               n/a       Jan. 2020
Financing provided                      1          233,679         233,541              L+1.89 %    $      116,839       Jan. 2020
Citibank(3)
Collateral assets                       2          201,270         201,135              L+4.45 %               n/a       Nov. 2020
Financing provided                      2          158,652         158,605              L+2.48 %            39,663       Nov. 2020
Deutsche Bank
Collateral assets                       1          180,740         178,107              L+5.17 %               n/a       Aug. 2021
Financing provided                      1          135,075         133,599              L+3.00 %            67,538       Aug. 2021
Bank of the Ozarks
Collateral assets                       2          108,423         105,630              L+6.20 %               n/a       Feb. 2020
Financing provided                      2           81,907          80,603              L+3.59 %                -        Feb. 2020
Wells Fargo
Collateral assets                       1           63,341          62,955              L+6.05 %               n/a       Dec. 2019
Financing provided                      1           44,339          44,067              L+3.20 %             8,868       Dec. 2019
Total
Collateral assets                       7      $   834,189     $   826,790              L+4.76 %               n/a

Financing provided                      7      $   653,652     $   650,415              L+2.57 %    $      232,908

(1) These floating rate loans and related liabilities are indexed to the various benchmark rates relevant in each arrangement in terms of currency and payment frequency. Therefore the net exposure to each benchmark rate is in direct proportion to our net assets indexed to that rate. In addition to cash coupon, yield/cost includes the amortization of deferred origination fees / financing costs.

(2) Other than amounts guaranteed on an asset-by-asset basis, borrowings under our asset-specific financings are non-recourse to us.

(3) Borrowings under these asset specific financings are cross collateralized with the related revolving repurchase facility with the same lender.

Refer to Note 6 to our consolidated financial statements for additional terms and details of our secured debt agreements, including certain financial covenants.


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Revolving Credit Agreement

During the second quarter of 2016, we entered into a $125.0 million full recourse secured revolving credit agreement with Barclays that is designed to finance first mortgage originations for up to six months as a bridge to term financing or syndication. Advances under the agreement are subject to availability under a specified borrowing base and accrue interest at a per annum pricing rate equal to the sum of (i) an applicable base rate or Eurodollar rate and (ii) an applicable margin, in each case, dependent on the applicable type of loan collateral. The initial maturity date of the facility is April 4, 2018 and is subject to two one-year extension options, exercisable at our option.

During the three months ended September 30, 2016, the weighted-average outstanding borrowings under the revolving credit agreement were $24.5 million, and we recorded interest expense of $421,000, including $127,000 of amortization of deferred fees and expenses. During the nine months ended September 30, 2016, the weighted-average outstanding borrowings under the revolving credit agreement were $29.7 million and we recorded interest expense of $915,000, including $248,000 of amortization of deferred fees and expenses. As of September 30, 2016 we had $50.0 million outstanding borrowings under the agreement.

Loan Participations Sold

The following table details statistics for our loan participations sold ($ in
thousands):



                                                                             September 30, 2016
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