Blackstone Mortgage Trust Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 12, 2025

Key Takeaways

  • GAAP net income of $0.21 per share and distributable earnings of negative $1.25 per share in Q4, driven by $294 million of charge-offs, though distributable earnings prior to these charges were $0.44 per share.
  • Resolved $1.1 billion (49%) of impaired loans in Q4, boosting the performing loan ratio to 93% and keeping book value within 1% of prior quarter levels, indicating credit performance has troughed.
  • Collected $1.6 billion in Q4 loan repayments (totaling $5.2 billion in 2024) and ended the quarter with a record $1.9 billion in liquidity, while reducing debt/equity to 3.5x after a $1.1 billion corporate debt issuance that was four times oversubscribed.
  • Entered 2025 with a robust pipeline of over $2 billion in closed or near-closing loans—mainly multifamily, industrial and self-storage—offering levered spreads above 900 basis points and a balanced mix across U.S. and international markets.
  • Currently trades at a 10% dividend yield and 87% of post-reserve book value, and has repurchased over $50 million of stock at an average price of $17.91, reinforcing management’s view of an attractive entry point.
AI Generated. May Contain Errors.
Earnings Conference Call
Blackstone Mortgage Trust Q4 2024
00:00 / 00:00

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Operator

Good day and welcome to the Blackstone Mortgage Trust Fourth Quarter and Full-Year 2024 Investor Call. Today's conference is being recorded. At this time, all participants are in a listen-only mode. If you require operator assistance at any time, please press star zero. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. At this time, I'd like to turn the conference over to Tim Hayes, Vice President, Shareholder Relations. Please go ahead.

Tim Hayes
Tim Hayes
VP of Investor Relations at Blackstone Mortgage Trust

Good morning and welcome, everyone, to Blackstone Mortgage Trust Fourth Quarter and Full-Year 2024 Earnings Conference Call. I'm joined today by Katie Keenan, Chief Executive Officer, Tony Marone, Chief Financial Officer, and Austin Peña, Executive Vice President of Investments. This morning, we filed our 10-K 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 subject to risks, uncertainties, and other factors outside of the company's control. Actual results may differ materially. For discussion of some of the risks that could affect results, please see the Risk Factors section of our most recent 10-K. We do not undertake any duty to update forward-looking statements.

Tim Hayes
Tim Hayes
VP of Investor Relations at Blackstone Mortgage Trust

We will also refer to certain non-GAAP measures on this call, and for reconciliations, you should refer to the press release and 10-K. This audiocast is copyrighted material of Blackstone Mortgage Trust and may not be duplicated without our consent. For the fourth quarter, we reported GAAP net income of $0.21 per share and distributable earnings of -$1.25 per share. Distributable earnings prior to charge-offs were $0.44 per share. A few weeks ago, we paid a dividend of $0.47 per share with respect to the fourth quarter. Please let me know if you have any questions following today's call. With that, I'll now turn things over to Katie.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

Thanks, Tim. The fourth quarter marked a meaningful positive inflection point for BXMT. We resolved $1.1 billion, or 49%, of our impaired loans, proving out our view that credit performance troughed last quarter and bringing our performing loan percentage to 93% today. Book value ended the quarter within 1% of 3Q levels, the combined result of limited further credit migration and upside wins on impaired asset resolutions above our marks. Robust repayments continued, $1.6 billion in the quarter, bringing us to $5.2 billion for the year, including $2 billion of office. And we've seen another $1.6 billion year to date, bringing our liquidity to a record $1.9 billion today. Our capital markets access continues to prove exceptional. We completed the largest corporate debt transaction in our history, a $1.1 billion deal, which termed out our maturities and attracted robust demand at four times oversubscribed.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

At the same time, we reduced overall debt to equity to 3.5 times, our lowest level in 11 quarters, and with all the pillars in place, a healthy balance sheet, plenty of liquidity, a more normalized credit outlook, and most importantly, a historically attractive environment for real estate lending, we've turned our attention to offense. We enter 2025 poised for portfolio and earnings growth, with $2 billion of pipeline closed or in closing today. While not V-shaped, we are squarely amidst a real estate recovery. Values have shown four straight quarters of improvement. Through the end of last year and coming into the first quarter, we've seen a meaningful return of liquidity across real estate markets.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

Despite the uptick in long rates, a robust macroeconomic backdrop and strong fund flows have driven tightening risk premia across the credit space, reducing the cost of capital and creating a solid baseline for real estate capital markets. CMBS issuance, which eclipsed $100 billion last year, is off to a strong start in 2025, with $20 billion already closed and another $20 billion anticipated in the coming weeks, including the sixth office SASB deal this year. Transaction volumes were up 30% quarter-over-quarter, representing a 72% increase from the 1Q 2024 trough. Underpinning the recovery are solid real estate fundamentals, with demand bolstered by resilient economic activity and new supply roughly 2/3 lower than recent peak levels across core asset classes, a powerful long-term driver of performance. We believe real estate credit offers highly compelling relative value today.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

Reset values mean better credit, higher debt yields, and more cash flow coverage for our loans. Spreads, while compressing, remain attractive, especially relative to credit alternatives which are pushing all-time tight, and with base rates elevated, all-in yields are high. Moreover, within BXMT, our returns are generated based on the difference between where we lend and where we borrow. Cost of capital for more stabilized senior risk is compressing most rapidly, and with market-leading access to a diversified base of bank lenders and securitized markets, we are uniquely positioned to capitalize on this dynamic and drive incrementally improving net interest margins. This backdrop offers a fruitful environment for new investment, which I'll cover shortly, but it also spells a meaningful uptick in repayments and resolutions, accelerating the turnover of our portfolio.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

Our $5.2 billion of repayments this year were 36% above last year's levels and indeed represent our second highest repayment year ever. Notably, our office loans continue to repay roughly proportionately to our overall portfolio, and we have therefore reduced our office exposure by over $3 billion since the beginning of 2022 through repayments of 27 individual loans, and that's before $1.5 billion of office repayments so far this year. Our loan portfolio continues to show meaningful liquidity, powerful evidence of the resilient credit of the vast majority of our pre-rate hike portfolio, and the institutional demand for our high-quality collateral. This is now a cycle-tested business multiple times over. Through two years of difficult market conditions, our loans continued to repay, our liability structure proved durable, and we maintained near-record liquidity levels throughout.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

The stability of our balance sheet through this extended credit cycle also allowed for patience, affording us the flexibility to proactively manage challenged assets and resolve or monetize them now when markets are healthier, rather than fire-selling at the illiquid depths of the cycle. Case in point, the sale of New York City and West L.A. office buildings this quarter through competitive institutional bidding processes, ultimately selling within 10% of our par balance on average. All in all, we resolved 10 impaired loans this quarter. We generated $32 million of book value as sale proceeds came in above our aggregate reserve levels. On our REO assets, we see longer-term upside potential as we implement business plans in coordination with our highly experienced real estate asset management team.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

Despite rates moving at the end of the year, we've seen no slowdown in the pace of our resolutions, with several deals closing at year-end and an incremental $400 million of resolutions closed or in closing in 1Q. We believe credit performance troughed in the third quarter, and while it won't be linear, the direction of travel is clearly positive. More broadly, the substantial portfolio turnover underway will enable us over time to shift our asset base, with larger concentration in new investments originated at reset bases in today's attractive credit environment. Depending on the pace of repayments, we estimate that nearly 40% of our year-end portfolio could constitute 2025 origination. We're off to a great start with a robust global pipeline.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

Our current $2 billion of closed and committed deals are concentrated in strong lending sectors like multifamily, industrial, and self-storage, with levered yields averaging more than 900 basis points over base rates and safe overall credit characteristics, and we are leveraging our sourcing capabilities to drive differentiated opportunities. In addition to nine deals in the U.S., our pipeline is over 60% Canada, Europe, the U.K., and Australia, markets which offer attractive relative value, including a $100 million cash-flowing industrial portfolio in Europe and a $140 million multifamily loan in Australia, both around 100 basis points wide of comparable U.S. transaction pricing. The Blackstone Real Estate Debt business is the largest alternative manager of real estate credit in the world, which positions BXMT to best capture the investment opportunity today.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

With over 150 real estate debt professionals, over $100 billion of historical originations, and relationships with over 500 borrowers driving 84% repeat business, our ability to access an attractive pipeline of new deals is exceptional. This is a platform that was uniquely positioned to originate The Spiral, a flagship BXMT loan and the largest in our portfolio, which after seven years repaid earlier this month. This was a $1.3 billion senior construction loan originated in 2018 at 28% pre-leased and 50% loan to cost. Now 94% leased, the loan repaid through a banner CMBS execution, which was five times oversubscribed, priced at the low 100 spread, and yielded proceeds two times our basis, implying an exit LTV on our loan of 29%.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

While larger and somewhat lower leverage than our typical office loan, this loan shares many qualities with our overall origination philosophy: high-quality real estate that outperforms, strong institutional sponsorship, and moderate leverage. Liquidity has definitively returned for high-quality office, and with more than 75% of our 1-3 risk-rated office new or vintage, our portfolio should benefit. As we look ahead, we are leveraging the same Blackstone platform advantages and entrepreneurial DNA to look across the real estate credit universe and identify the best-suited incremental strategic opportunities for our business. With interest rates remaining elevated, a positive outlook for the U.S. consumer, and essential needs-based retail showing resilient performance, we see a compelling setup today to build a credit-oriented, diversified net lease strategy. This business produces stable, long-duration cash flows with the potential for value appreciation, elements which naturally complement BXMT's core floating-rate lending business.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

We believe we can acquire assets at a significant discount to replacement cost, with 10- to 20-year leases and strong EBITDA coverage generated by established businesses. Over time, we expect to curate a diversified portfolio, generating compelling cash yields with duration. We have a differentiated approach, building our business from scratch through a dedicated platform established in partnership with our real estate equity colleagues and an experienced handpicked team. While this strategy will take time to ramp, it is meaningfully scalable, with a total addressable market in the trillions. And further, it brings the benefit of adding another attractive outlet for capital deployment, further expanding the scope of BXMT's new investment pipeline and positioning the company to capture the best relative value across real estate credit markets. In closing, we are optimistic about the trajectory of the real estate cycle and our business.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

The composition of our portfolio will be enhanced through resolutions, repayments, and redeployment of capital into attractive new investment opportunities. These drivers have put BXMT on a clear path to rebuilding earnings power over the course of the year and beyond. The credit pressures are easing, and at the same time, we are building the potential for long-term value creation, including the net lease and agency strategies and the upside we now own in our REO. Assets where valuation resets have been reflected in book value, but we see the potential for upside through value add as the market recovers. The entry point for BXMT remains highly attractive. The S&P is near all-time highs, corporate bond spreads near all-time tights, and we continue to see retracement in valuations across the real estate market.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

Commercial mortgage REIT dividend yield spreads to base rates are virtually the only liquid real estate credit product that has not tightened materially since the Fed's first rate cut in September. BXMT today trades at a 10% dividend yield and 87% of post-reserve book value, offering the opportunity to buy into a growing portfolio at a substantial discount and collect meaningful current income with valuation upside, and we're expressing this view actively, with over $50 million of stock buybacks in the last three months. Before I close, I want to thank our team for their tremendous efforts this year, taking a tireless, unrelenting approach to maximizing outcomes on behalf of our investors, and today those efforts put BXMT on excellent footing for growth into an attractive market.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

I also want to welcome Marcin Urbaszek, who I think is well-known and highly regarded by many on this call, as he joins our growing BXMT team. Thank you, and with that, I will turn the call over to Tony.

Tony Marone
Tony Marone
CFO at Blackstone Mortgage Trust

Thank you, Katie, and good morning, everyone. I want to begin by also welcoming Marcin to the team, who brings significant mortgage REIT experience and deepens our finance team's bench as BXMT enters this next phase of the cycle. Turning to our fourth quarter results, BXMT reported GAAP net income of $0.21 per share and distributable earnings, or DE, of negative $1.25 per share. Notably, DE this quarter included $294 million, or $1.69 per share, of charge-offs related to impaired loan resolutions. These resolutions were achieved at levels above our aggregate carrying values, and we resolved more loans in 4Q than we anticipated on our call last quarter.

Tony Marone
Tony Marone
CFO at Blackstone Mortgage Trust

While these resolutions crystallized DE losses already reflected in our CECL reserves and book value, they more importantly are a leading indicator of our ability to recapture earnings from this capital going forward, which is a natural tailwind to dividend coverage. Although headline DE was negative, the long-term benefits from the substantial progress we have made in resolving our challenged assets far outweighs that short-term impact. With continued strong momentum in loan resolutions and a growing pipeline of new investments, we expect our earnings will grow and more closely align to their longer-term potential as we progress through 2025. Excluding the impact from CECL reserve charge-offs, fourth quarter DE was $0.44 per share, which notably included $0.02 per share related to startup costs incurred in connection with our new net lease strategy and the acceleration of deferred financing cost amortization resulting from the retirement of our 2026 Term Loan B.

Tony Marone
Tony Marone
CFO at Blackstone Mortgage Trust

We ended the quarter with book value of $21.87 per share, which benefited from a $32 million reversal of CECL reserves as we executed loan resolutions at an aggregate premium to our carrying values, and also from $18 million of common stock repurchased at an average share price of $17.91, nearly a $4 discount to our book value. All in, book value was down just 1% from the third quarter, reflecting the positive market trends driving strong credit performance broadly throughout our portfolio. Importantly, when factoring the $0.47 per share dividend paid during the quarter, we delivered a positive 1% economic return to our stockholders. Digging deeper into credit, portfolio performance improved to 93%, up 5% quarter-over-quarter, and the highest level since 4Q 2023. This improvement was primarily driven by $1.1 billion of impaired loan resolutions, which represents 49% of the total impaired loan balance as of 9/30.

Tony Marone
Tony Marone
CFO at Blackstone Mortgage Trust

These resolutions included four loan sales and DPOs, with realized prices at an 8% premium to our aggregate carrying value, an important benefit to our stockholders, and validation of the accuracy of our reserves. Upon exit, we immediately experienced an earnings benefit by repaying the related financings and reducing associated interest expense, and we expect to see further earnings uplift as we redeploy this capital into new investments. We also completed two loan restructurings, receiving $96 million of incremental subordinate capital from borrowers to significantly de-risk these positions and acquired four REO assets. All transactions where our basis has been reset to reflect the current environment. Our REO portfolio now stands at $588 million across seven investments and generated $1.6 million of DE in the fourth quarter, which excludes the impact of depreciation and amortization included in GAAP results.

Tony Marone
Tony Marone
CFO at Blackstone Mortgage Trust

Looking ahead, we expect the loan resolutions completed in the fourth quarter will have a positive earnings impact over time as capital is fully redeployed and rotated into new investments in today's attractive environment. And we see an additional near-term and long-term earnings tailwind through loan resolutions, with another $400 million closed or in closing so far this quarter, bringing aggregate results, excuse me, aggregate resolutions to over 2/3 of the three-quarter peak and continued progress on the remainder. For context, our 13 remaining impaired loans as of 12/31 were burdened by $0.10 per share of quarterly interest expense last quarter. Credit trends were stable this quarter, with five upgrades more than offsetting four downgrades. Included in upgrades was a four-risk-rated multifamily loan where the borrower committed new cash equity, purchased a new rate cap, and continues to execute their business plan.

Tony Marone
Tony Marone
CFO at Blackstone Mortgage Trust

In downgrades, we had just one new impairment, a leased U.K. office loan with long-term development potential where we have visibility into a near-term loan resolution. Overall, our CECL reserve ended the quarter at $746 million, down 27% quarter-over-quarter, reflecting the impaired loan resolutions and otherwise generally stable credit in our portfolio. We received $1.6 billion of repayments in 4Q, including a four-risk-rated multifamily loan and $5.2 billion of repayments throughout 2024, including $2 billion of office loans, a strong indication of performance and institutional liquidity for BXMT's loan collateral, notwithstanding challenging market conditions. So far in 2025, we have collected another $1.6 billion of repayments. In addition to our strong liquidity and nearly $7 billion of available financing capacity, this positions BXMT well to redeploy loan repayment proceeds and capitalize on our growing pipeline of new investment opportunities.

Tony Marone
Tony Marone
CFO at Blackstone Mortgage Trust

To that end, BXMT closed $186 million of loan originations in 4Q, largely concentrated in multifamily and industrial sectors, and has over $2 billion of loans closed or in closing so far in the first quarter of 2025. With capital deployment lagging repayments, we expect near-term portfolio contraction to modestly weigh on DE, so given the robust investment pipeline, we see our portfolio balance stabilizing in 1Q and then growing from there. In addition, the first four loans closed in our M&T multifamily agency lending partnership this quarter, generating fee income and creating book value through our participation in the underlying MSRs, all with virtually no incremental expense or capital outlay from BXMT. We continue to maintain a best-in-class balance sheet with well-structured, term-matched financings and no capital markets mark-to-market provisions.

Tony Marone
Tony Marone
CFO at Blackstone Mortgage Trust

We reduced debt to equity to 3.5 times from 3.8 times quarter-over-quarter, squarely within our target range of three to four times, while maintaining strong liquidity of $1.5 billion. Stability of our balance sheet, which has been borne out over the recent credit cycle, continues to be a critical differentiator that consistently affords BXMT the patience and optionality to maximize economic outcomes for our stockholders and is an asset that will support the next phase of growth for our business. We completed a $1.1 billion, excuse me, we completed a $1.1 billion corporate debt transaction in November, which added to liquidity and meaningfully extended the maturity profile of our corporate liabilities. The deal was met with strong institutional demand and emphasized BXMT's broad access to capital markets.

Tony Marone
Tony Marone
CFO at Blackstone Mortgage Trust

Along this line, we see additional opportunities to capitalize on tighter financing spreads and drive further enhancements to our capital structure across several markets, notably in CLOs, where we have been an opportunistic issuer in the past and today are building a strong pipeline of new investments that are a natural fit for that market. In closing, we are proud of our 2024 results and the proactive measures we have taken to resolve the majority of our challenged assets while maintaining a strong balance sheet and robust liquidity that position BXMT for growth in 2025. While earnings today reflect the natural near-term headwinds from portfolio turnover, the tailwinds of the market recovery, our growing investment pipeline, and our expansion into new diversified investments all combine to generate a positive forward trajectory for our business. Thank you for joining today's call.

Tony Marone
Tony Marone
CFO at Blackstone Mortgage Trust

I will now ask the operator to open the call to questions.

Operator

Thank you. As a reminder, please press star one to ask a question. We ask you to limit yourself to one question and one follow-up question to allow as many callers to join the queue as possible. We'll take our first question from Stephen Laws with Raymond James.

Stephen Laws
Stephen Laws
Managing Director at Raymond James

Hi, good morning. Congratulations. You guys got a lot done at the end of the year and year-to-date as well. Katie, I want to start with a few moving parts, and I think the comments towards the end of the prepared remarks about the loan portfolio balance stabilizing in Q1 and growing helps provide some color, but I'm curious to think about an earnings bridge into the beginning of the year when we think about earnings troughing.

Stephen Laws
Stephen Laws
Managing Director at Raymond James

You've had additional repayments, one new NPL at year-end, but you've also got the benefit of some financing on resolved non-accruals that goes away, as well as a couple of penny drags from some one-time expenses in Q4. So just trying to think about what is that ex-losses earnings power of the portfolio earlier this year, and how do we think about that ramping as we move forward?

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

Sure. So I think that the way we think about it, we had obviously $0.44 in the fourth quarter, $0.46 if you take out the amortization of costs on the refi and the startup costs. And then from there, the most impactful driver of earnings is resolutions, and we're executing. We have $1 billion over the course of the quarter, another $400 million in closing.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

The other key driver and impact in terms of ins and outs last quarter, this quarter, is repayments. We received a lot. It's a great sign for credit, and we're now reinvesting those proceeds with $2 billion closer in closing and growth capacity beyond that. So both resolutions and reinvestments obviously will take a quarter to see the full run rate impact. So I think we're in the trough now, and we'll come through it as we get into the second quarter.

Stephen Laws
Stephen Laws
Managing Director at Raymond James

Great. And that leads to my follow-up about the resolutions. I think you mentioned $400 million. As we think about the remaining $1.5 billion of five-rated loans, is the $400 million what you think about maybe as first-half resolution? Is that more first quarter?

Stephen Laws
Stephen Laws
Managing Director at Raymond James

Kind of, how do we think about the if we assume for now no new five-rated loans, how do we think about that existing balance of five-rated loans kind of unwinding over the year?

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

Yeah. So the $400 million is assets that we have very clear visibility into hopefully near-term closings. These things can always move around a bit, but those are deals that we're on the 10 or 15-yard line on. So I would hope that those would be first quarter, and hopefully we'll have more beyond that in the first half of the year at the risk of overpromising from my asset management team. But we're extremely focused on getting our impaired loan balance down as quickly as possible, and we're working on every single one of them. The $400 million is really just deals that we have effectively deals agreed and in closing.

Stephen Laws
Stephen Laws
Managing Director at Raymond James

Great.

Stephen Laws
Stephen Laws
Managing Director at Raymond James

Appreciate the comments this morning, Katie.

Operator

Thank you. We'll take our next question from Steve Delaney with Citizens JMP Securities.

Steven Delaney
Managing Director and Equity Research Analyst at Citizens JMP Securities

Thanks. Good morning, everyone, and hello again, Marcin, to throw my two cents in on that. So Katie, if we look at the realized losses, they ran, I think I calculated about 13% of UPB. So if we think about the $400 million or whatever else is in the fives. Plays out in, say, the first half of this year, is something in that magnitude, let's just call it round number, like 13%, is that a reasonable assumed loss on UPB when you resolve these remaining fives?

Tony Marone
Tony Marone
CFO at Blackstone Mortgage Trust

Yeah. What I would point you to, thanks for the question, is firstly, if you look at our CECL reserves, they tend to be kind of in the mid-20s, and we're resolving around that mark or slightly better.

Tony Marone
Tony Marone
CFO at Blackstone Mortgage Trust

I think the 13% we could take offline. I'm not sure exactly the math you're doing, but I would look to our CECL reserves on the fives, which have mostly been borne out to be accurate or a little bit conservative, and think about that as your assumption for where things would play out on future resolutions.

Steven Delaney
Managing Director and Equity Research Analyst at Citizens JMP Securities

Okay. Yeah. My math may have been off, and I will follow up on that just to be clear. I had like $140 million of realized losses on $1.1 billion, and I took $0.81 times 178.5 million shares. But I'll follow up on that one. Katie, just on the buybacks, certainly applaud that. Would you expect that if the stock remains, say, under 85% of book value, should we expect those to continue?

Steven Delaney
Managing Director and Equity Research Analyst at Citizens JMP Securities

And would the board do you think the Board would consider increasing it once the current authorization is expired or has been used up? Thank you.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

Sure. Thank you. So I think our view on the stock and the economic proposition on offer is clear. I covered that in my remarks, and we have $90 million left on our stock buyback authorization. We also have almost $2 billion of liquidity today, and we're looking to actively deploy into a bunch of different real estate credit investment opportunities. So I would certainly see the stock as very much on that list.

Steven Delaney
Managing Director and Equity Research Analyst at Citizens JMP Securities

Okay. Thanks for the comments.

Operator

Thank you. We'll take our next question from Tom Catherwood with BTIG.

Tom Catherwood
Tom Catherwood
Managing Director and REIT Analyst at BTIG

Thanks. And good morning, everybody. Katie, I want a clarification here. I think I heard you mention that 40% of the portfolio could be 2025 originations.

Tom Catherwood
Tom Catherwood
Managing Director and REIT Analyst at BTIG

If we do a quick back of the envelope and assume the same repayment level as 2024, that would imply something like $10 billion of originations in 2025. Are we thinking of this correctly?

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

I think that when we think about our repayment projections for this year, we had $5.2 billion last year, but I think we anticipate that this year will probably be higher than that. That's really a factor of what I mentioned, I think, on the last call. There's an element going on right now of a catch-up in our portfolio. We have a lot of loans that are performing well, that are in a place in their business plans where they can be repaid.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

And now that the capital markets have clearly normalized and a lot of liquidity has returned, we would expect a lot of that portfolio to turn over and then for us to then reinvest the proceeds. So I think that we would expect a higher repayment level this year and therefore a higher reinvestment level this year, sort of getting towards that 40% number.

Tom Catherwood
Tom Catherwood
Managing Director and REIT Analyst at BTIG

Got it. That's really helpful. Thank you on that. Understood. And then switching over to your comments on net lease investing. I know you mentioned total addressable market in the trillions, but this is also a sector with some of the most sophisticated investment platforms anywhere. How would BXMT's approach differentiate itself from that of the other major institutional players in the net lease sector?

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

Yeah. It's a great question.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

We think that there are obviously some very high-quality peers in the space, but it is also a very large market and an extremely granular market. And so when we think about building this platform, a little bit, I think, will go a long way, and we'll look to grow it over time. We're not in a place where we have a multi-billion-dollar portfolio where we need to be buying $1 billion a year or a quarter to show growth. So I think that we can be thoughtful, but also build up a portfolio that is granular, diversified, well-protected from a credit perspective, and additive, very complementary to the earnings profile of our overall business. And we're doing that with a thoughtful and, I think, well-conceived approach and a very high-quality, experienced platform.

Tom Catherwood
Tom Catherwood
Managing Director and REIT Analyst at BTIG

Got it. Appreciate the answers. Thanks, everyone.

Operator

Thank you.

Operator

We'll go next to Doug Harter with UBS.

Doug Harter
Doug Harter
Equity Research Analyst at UBS

Thanks. I was hoping you could talk about the types of spreads or IRRs you expect to get on the new loans that you'll be doing in 1Q and all of 2025.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

Sure. Austin, you want to take that one?

Austin Peña
Austin Peña
EVP of Investments at Blackstone Mortgage Trust

Yeah. Thanks. Thanks, Doug. Yeah. In terms of spreads, I think, as Katie alluded to, asset spreads have come in, but importantly, so have the spreads on the liability side. And so when you look at the levered spreads or the IRRs, as you referred to, they're really quite consistent with what we've seen historically, around 900 or 1,000 over. And importantly, when we look at the risk-adjusted returns today on the investments in our pipeline, we really see them as quite compelling, really given the credit profile of the deals in the pipeline.

Austin Peña
Austin Peña
EVP of Investments at Blackstone Mortgage Trust

Today, we're making loans at reset basis that reflect today's valuation environments. So we really feel very good about the risk-adjusted returns we are able to create right now.

Doug Harter
Doug Harter
Equity Research Analyst at UBS

I appreciate that. And then as you think about, as the portfolio regrows, how are you thinking about what type of leverage level you want to be running this business at kind of as things are, as the market is beginning to heal?

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

Yeah. Absolutely. So I think that the performance of our balance sheet and the stability and durability that we've seen over the last couple of years has really proven out that the strategy we've run for this business, making senior first mortgage loans at a reasonable leverage point and having a leverage level of sort of between three and four times, which has always been our target, has worked well.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

We were 3.5 times at the end of the year. We've gotten a lot of repayments since then. And so I think we're sort of squarely at the mid to kind of today, probably a little lower end of the range, and we feel good about the prospect of portfolio growth beyond within our target level.

Doug Harter
Doug Harter
Equity Research Analyst at UBS

Great. Thank you, Katie.

Operator

Thank you. We'll take our next question from Jade Rahmani with KBW.

Jade Rahmani
Jade Rahmani
Managing Director at KBW

Thank you very much. Just wondering, in terms of rates, has that created any new potential credit challenges just merely as a result of the rate volatility we've seen, or do you feel like you have your arms around the problem set at this point?

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

Yeah. I think it's certainly a question we think a lot about.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

I think that a couple of things we see. First of all, we haven't seen any material impact of the rate uptick on repayments. We obviously got pretty strong fourth quarter and then another significant amount of repayments so far in the first quarter. We monitor the capital markets, obviously, on a daily basis. We're actively investing in them. There has not been a meaningful change. And if anything, I think that the slight uptick in rates has driven more capital into the credit markets, which has created more liquidity for repayments, and that is a benefit in terms of the credit profile of our portfolio. So I think that we have 130, 150 loans. There's always a little bit of movement, and that's normal, and we should expect that.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

But the direction of travel is clearly positive, and I think that the liquidity that we see ongoing in the markets is going to continue to result in repayments and resolution.

Jade Rahmani
Jade Rahmani
Managing Director at KBW

Thank you very much. And then on the net lease strategy, is one component the eventual enabling of access to unsecured debt, as one of your peers definitely has done? And in addition, how quickly do you think that you can ramp up this strategy?

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

Yeah. So I think that access to different financing markets with the net lease strategy, whether it is the ABS market, other types of securitized markets, or a broader corporate debt strategy, is one of the reasons that we like that business in addition to just the fundamental yields that we're acquiring assets at and the credit profile that we can generate there.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

So certainly thinking about continuing to expand the diversification and flexibility of our balance sheet, which has always been a big strength of how we deliver sort of consistent returns over time. Whether that's unsecured or, as I said, ABS securitized markets, that's something that we'll be thinking about as we ramp this up.

Jade Rahmani
Jade Rahmani
Managing Director at KBW

And just the follow-up about timing to scale this.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

Yeah. I mean, look, we really like the opportunity today, as I mentioned, and we have put money into getting this platform up and going. We have a couple of deals that I think closed today or this week. So we're actively out there. But we're going to be guided by the investment opportunity, as we always have been.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

So I don't want to put a number on it because the key is just finding great deals that we like and building the portfolio allocation that we think is appropriate. We're going to do that with regard to thinking about the underwriting, cash flow, coverage, structure of the leases, performance of the underlying businesses, and be very thoughtful about building a durable and resilient and diversified portfolio with credits that we like. So we hope it ramps quickly, but this is also a build. This is a build. This isn't a buy. And so we want to do it the right way.

Jade Rahmani
Jade Rahmani
Managing Director at KBW

Thank you.

Operator

Thank you. As a reminder, star one, if you would like to ask a question, we'll go next to Harsh Hemnani with Green Street.

Harsh Hemnani
Harsh Hemnani
Senior Analyst of Debt Research at Green Street

Thank you.

Harsh Hemnani
Harsh Hemnani
Senior Analyst of Debt Research at Green Street

So you mentioned sort of the improving fundamental backdrop and the improving capital market liquidity for office, and it seems like about 4% of 2025 originations are in that sector. I want to ask, what's sort of the willingness to expand into office given an improving fundamental backdrop for high-quality office in 2025?

Austin Peña
Austin Peña
EVP of Investments at Blackstone Mortgage Trust

Yeah. Harsh Hemnani, Austin, I can take that one. I think we've been very consistent throughout this cycle about our belief in high-quality office, which really is outperforming. I think you're seeing that today in the capital markets, obviously, as Katie alluded to earlier. The bar for us is high for new investment in office, but as you noted, we are seeing opportunities to land on really high-quality, well-leased assets at very low basis. I think overall, office exposure for us continues to come down.

Austin Peña
Austin Peña
EVP of Investments at Blackstone Mortgage Trust

We don't really see it meaningfully growing from here, but we are going to pursue opportunities that we think make sense and generate attractive returns that we feel on high-quality assets.

Harsh Hemnani
Harsh Hemnani
Senior Analyst of Debt Research at Green Street

Got it. And then is there sort of a percentage of your portfolio that you would feel comfortable at in terms of office exposure?

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

I think it really comes down to the opportunities that we see. I mean, if we could do more deals like The Spiral, we absolutely would. I think that, though, as Austin mentioned, the aperture of the type of office opportunities and where we see our performance is quite narrow, and we're going to be extremely selective. So I think we would expect that exposure within our portfolio to come down over time because, obviously, we're getting a lot of repayments, and we're going to be very selective on the new stuff.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

So I think that's the general approach we're taking. We'll certainly see less office in the portfolio as we move forward here.

Harsh Hemnani
Harsh Hemnani
Senior Analyst of Debt Research at Green Street

Got it. That's helpful. Last one from me. Going back to leverage, I want to ask how you see the long-term leverage of this business changing with the addition of the net lease strategy, if it changes at all in your mind.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

Yeah. I think that, as I mentioned, I think in one of the other questions, we do see a lot of opportunities for securitized financing in that lease. That's obviously been a strategy, and it is fundamentally a business that is lower leverage than our core lending business because we're obviously buying assets as opposed to making 65% senior loans.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

So I think that it's positive in terms of our overall leverage profile going forward, and yet we think we can generate similar returns to our core strategy. That's one of the reasons we like it.

Harsh Hemnani
Harsh Hemnani
Senior Analyst of Debt Research at Green Street

Got it. Thank you.

Operator

Thank you. We'll take our next question from Don Fandetti with Wells Fargo.

Don Fandetti
Don Fandetti
Managing Director at Wells Fargo

Katie, can you talk a little bit about the international markets, how you're thinking about them? It looks like you're still active on originations and seeing pretty good returns, and then also on the credit perspective for international.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

Sure. Absolutely. So yes, as you mentioned, we definitely have seen positive relative value in international markets overall. And there's different markets, obviously. We're active in Australia, which is a very stable market. We're active in the U.K., in Europe, in Canada.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

I think that, obviously, the growth profile of the U.S. is the most positive that we see from a global perspective. I think that's clear. But at the same time, looking at high-quality, high-conviction sectors in these markets, industrial, multifamily, we see very stable trends. Supply, if anything, is even lower in a lot of these markets than it is in the U.S. And obviously, supply in the U.S. is coming down quite materially. Rates in Europe are coming down more quickly than in the U.S. And the competitive dynamic, really, it can't be overstated, is quite different outside of the U.S.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

And so our ability to drive low leverage, very strong credit profiles, attractive returns because there's not much of a CMBS market in these other areas, because our platform differentiation, competitive advantages that we have in terms of sourcing these deals is really, I would say, even stronger outside of the U.S. than it is here. We were able to generate, in our view, very high-quality credit opportunities, notwithstanding what I think we can all acknowledge is probably a slower growth profile outside of the U.S. today.

Don Fandetti
Don Fandetti
Managing Director at Wells Fargo

Thank you.

Operator

Thank you. We'll take our final question from Rick Shane with JPMorgan.

Rick Shane
Rick Shane
Head of Consumer and Specialty Finance at JPMorgan

Hey, everybody. Thanks for taking my question. And, Marcin, welcome. I just want to make sure. I know there was about $1.6 billion in repayments in the fourth quarter. Did I hear that it's $1.6 billion repayments quarter to date as well?

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

That's correct.

Rick Shane
Rick Shane
Head of Consumer and Specialty Finance at JPMorgan

Are those repayments at par, or are there going to be any discounted repayments there?

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

Those are all at par.

Rick Shane
Rick Shane
Head of Consumer and Specialty Finance at JPMorgan

Okay. Great. Next question is, you guys had talked about the $2 billion pipeline for the first quarter. How should we think about that translating into fundings as we move through the quarter? Is this a pipeline that is largely sort of funded at time of origination, or are there going to be substantial draws on this going forward?

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

Yeah. It's a good question. What we see is a good mix of sort of refis and acquisitions, which are generally funded at closing with maybe a little bit of construction. Construction activity has obviously come way down across the U.S. We like that opportunity today from a risk-return perspective, but there's just not a lot of deals there.

Katie Keenan
Katie Keenan
CEO at Blackstone Mortgage Trust

So as we think about the funding, I would expect that it's largely close to funded balance. But, of course, we're just going to continue pursuing all the opportunities that we like. And if we can find multifamily construction to do, we'd like to do it. But again, that segment of the market is not as active today as it's been historically, just given higher replacement costs and the overall downtick in new supply starts that we're seeing across sectors.

Rick Shane
Rick Shane
Head of Consumer and Specialty Finance at JPMorgan

Got it. Okay. That's helpful. And then last question. It looked like PIK income increased incrementally from the third quarter. I think the run rate would be about $3 million a quarter. Looks like it's ticked up to at least $7 million. Is that correct? And is that what we should assume as a run rate through 2025?

Rick Shane
Rick Shane
Head of Consumer and Specialty Finance at JPMorgan

Presumably, it will be diluted away, but from a dollar perspective, should we assume $7 million a quarter?

Tony Marone
Tony Marone
CFO at Blackstone Mortgage Trust

I don't know. Excuse me. I don't know that I would assume that is necessarily a run rate. I mean, the PIK income in our portfolio is generally pretty idiosyncratic and varies deal by deal. We don't have many deals that PIK, and where they do, they're usually for particular reasons within the structure of the loan. So I think that you're going to see that bounce around, in particular, as we have some of these legacy loans repay or resolutions of NPLs. So I would probably not assume a straight line there, and that's just going to be something that bounces around. In either case, not a material component of our earnings.

Rick Shane
Rick Shane
Head of Consumer and Specialty Finance at JPMorgan

Got it. Okay. Terrific. Thank you so much.

Operator

Thank you. That will conclude our question-and-answer session.

Operator

At this time, I'd like to turn the call back over to Tim Hayes for any additional or closing remarks.

Tim Hayes
Tim Hayes
VP of Investor Relations at Blackstone Mortgage Trust

Thank you, Katie, and to everyone for joining today's call. Please reach out with any questions.

Executives
    • Katie Keenan
      Katie Keenan
      CEO
    • Austin Peña
      Austin Peña
      EVP of Investments
    • Tony Marone
      Tony Marone
      CFO
    • Tim Hayes
      Tim Hayes
      VP of Investor Relations
Analysts
    • Rick Shane
      Head of Consumer and Specialty Finance at JPMorgan
    • Harsh Hemnani
      Senior Analyst of Debt Research at Green Street
    • Tom Catherwood
      Managing Director and REIT Analyst at BTIG
    • Stephen Laws
      Managing Director at Raymond James
    • Steven Delaney
      Managing Director and Equity Research Analyst at Citizens JMP Securities
    • Doug Harter
      Equity Research Analyst at UBS
    • Don Fandetti
      Managing Director at Wells Fargo
    • Jade Rahmani
      Managing Director at KBW
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