Blackstone Mortgage Trust Q3 Earnings Call Highlights

Key Points

• Dividend cut: Blackstone Mortgage Trust reported a third-quarter GAAP loss of $1.95 per share and reduced its quarterly dividend to $0.30 per share from $0.47, aiming to preserve capital and align the payout with expected earnings.
• Legacy asset cleanup: The company sold nearly $1 billion of loans and collected $2.3 billion in repayments, reducing watchlist loans by nearly 60% as it accelerated the exit from pressured office and other legacy assets.
• Book-value pressure: Book value fell 12% to $17.06 per share, primarily due to higher CECL reserves and impairments on approximately $800 million of loans, though management said office-related challenges are substantially reflected in book value.

Blackstone Mortgage Trust NYSE: BXMT reported a third-quarter GAAP net loss of $1.95 per share, while distributable earnings totaled $0.38 per share and distributable earnings before realized gains and losses were $0.42 per share. The company also reduced its quarterly dividend to $0.30 per share for the fourth quarter, from the $0.47 per share paid for the third quarter.

The fourth-quarter dividend will be payable Jan. 15, 2027, to stockholders of record as of Dec. 31, 2026. Chief Executive Officer Tim Johnson said the revised payout is intended to preserve capital, support long-term earnings power and provide flexibility for new investments, debt reduction or share repurchases.

“We set it to a level that we expect to cover in the fourth quarter of this year and in 2027,” Johnson said, adding that the company believes the dividend can be sustained across a range of interest-rate and credit environments.

Legacy Loan Sales and Portfolio Turnover

Blackstone Mortgage Trust said it has accelerated portfolio turnover as higher interest rates have added pressure to certain investments originated before 2023. The company sold nearly $1 billion of loans since the prior quarter at a weighted-average price of $0.93 on the dollar relative to their carrying values at sale, according to management.

The sales included six legacy office loans totaling nearly $500 million and two legacy multifamily loans totaling approximately $200 million. Most of the sold loans had been on the company’s watchlist, contributing to a nearly 60% quarter-over-quarter reduction in watchlist loans, which management said reached their lowest level since 2019.

Including $250 million of loan sales completed during the quarter, the company collected $2.3 billion of repayments, its highest quarterly level since the fourth quarter of 2021. Nearly 90% of those repayments came from legacy loans. The company also received repayment of a $300 million legacy office loan in October that had been financed in the commercial mortgage-backed securities market.

Johnson said the company is on track to meet or potentially exceed its previously stated goal of reducing both office loans and legacy loans by 40% by year-end.

Reserves Drive Book-Value Decline

Book value ended the third quarter at $17.06 per share, down 12% from the second quarter. Chief Financial Officer Marcin Urbaszek said the decline primarily reflected a $1.59-per-share increase in CECL reserves, a $0.38-per-share valuation adjustment on loans moved to held for sale, a $0.22-per-share impairment of owned real estate, and $0.13 per share of depreciation and amortization.

The company recorded impairments on about $800 million of loans during the quarter, primarily involving legacy office loans and one hotel loan. Management had previously identified the loans among roughly $1 billion of watchlist assets facing slower business-plan progress and increased pressure from higher rates.

Johnson said the affected borrowers had in many cases previously injected significant equity, but were no longer willing to provide additional capital. Blackstone Mortgage Trust now has one $57 million office-sector watchlist loan that has not previously been impaired or reserved against, he said.

“We believe that the secular challenges in office that have caused the majority of BXMT’s impairments are substantially reflected in our book value,” Johnson said.

Total CECL reserves included $3.64 per share at quarter-end, consisting of $0.97 per share of general reserves and $2.67 per share of asset-specific reserves. Urbaszek said the increase in CECL was primarily driven by asset-specific reserves, while the general reserve declined as the portfolio became smaller and the watchlist was reduced.

Portfolio Composition and New Investments

At quarter-end, Blackstone Mortgage Trust held a $17 billion portfolio. About half consisted of post-2023 originations rated one through three, as well as recent investments in net lease, bank loan portfolio and homebuilder-finance strategies. That proportion rose from less than one-third at the start of the year.

Impaired loans and owned real estate represented 14% of the portfolio. Those assets had average carrying values nearly 30% below their previous loan basis, implying estimated collateral-value declines of approximately 55%, management said.

Another 5% of the portfolio consisted of watchlist loans, down 56% from the prior quarter. Roughly one-third, or $5.7 billion, consisted of legacy pre-2023 loans rated three or better, principally office, multifamily and hospitality assets.

• Legacy office loans rated three or better totaled $2 billion at quarter-end. About $340 million repaid in the fourth quarter to date, and another $500 million was in the market for refinancing.
• Legacy multifamily loans rated three or better totaled $1.4 billion, down nearly 50% from the beginning of the year after $1.1 billion of repayments.
• Legacy hospitality loans rated three or better totaled $1.3 billion and carried an average in-place debt yield above 9%.

The company closed approximately $500 million of new investments in the third quarter, including $300 million of newer-vintage multifamily and industrial loan originations and about $150 million across net lease and homebuilder-finance strategies. Net lease, homebuilder finance and bank loan portfolio investments accounted for nearly 10% of the portfolio, compared with no exposure at the beginning of last year.

President Austin Peña said the company intends to continue emphasizing diversification. Its average investment size across the portfolio has declined to $18 million from more than $130 million several years ago.

Liquidity, Leverage and Capital Allocation

Blackstone Mortgage Trust ended the quarter with $1.3 billion of liquidity and a debt-to-equity ratio of 3.9 times, unchanged from the prior quarter. Urbaszek said corporate debt maturities due in the first quarter of 2027 have been largely prefunded and are expected to be repaid using available liquidity.

Following repayment of the 2027 notes, the company expects to have nearly four years of weighted-average remaining maturity on its corporate debt and no maturities until 2029. Non-mark-to-market borrowings represented about 89% of total debt at quarter-end.

The company repurchased $36 million of stock during the third quarter and had $110 million remaining under its authorization. Johnson said buybacks remain an attractive use of capital, particularly given the company’s portfolio repositioning and its assessment that the market is assigning substantial additional downside to the shares relative to book value.

Looking ahead, management said earnings will face near-term pressure from the smaller loan portfolio, newly impaired loans and lower-yielding owned real estate assets. Urbaszek noted that the newly impaired loans generated more than $8.5 million of interest income during the third quarter before the impairments were recognized. Management expects positive hospitality seasonality to partially offset some of those headwinds in the fourth quarter.

About Blackstone Mortgage Trust (NYSE:BXMT)

Blackstone Mortgage Trust, Inc is a real estate investment trust that originates and manages senior loans secured by commercial properties. The company primarily provides floating-rate mortgage financing to owners and sponsors of institutional-quality real estate, earning income from interest and other fees associated with its lending activities.

Its loan portfolio has historically included properties across sectors such as office, multifamily, hotel, industrial, retail and life sciences.

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