BLACKSTONE MORTGAGE TRUST, INC. Q4 FY2024 earnings call

Key Points

• Fourth quarter marked a positive inflection point with $1.1 billion of impaired loans resolved, bringing performing loan percentage to 93%. Book value was within 1% of 3Q levels.
• Robust repayments of $1.6 billion in the quarter, $5.2 billion for the year, and $1.6 billion year-to-date, with liquidity at a record $1.9 billion.
• Completed largest corporate debt transaction of $1.1 billion, reduced debt to equity to 3.5 times. Entering 2025 with $2 billion of pipeline closed or in closing.
• Credit performance troughed, with values showing four straight quarters of improvement. Real estate credit offers attractive relative value.
• Resolved ten impaired loans in the quarter, generating $32 million of book value. REO assets have upside potential with experienced asset management.
• Blackstone Mortgage Trust has a robust global pipeline in sectors like multifamily, industrial, self-storage, and international markets with attractive relative value.
• New net lease strategy identified, producing stable cash flows with potential for value appreciation, scalable with a trillions-sized total addressable market.

For the fourth quarter, GAAP net income was $0.21 per share, distributable earnings were negative $1.25 per share, and distributable earnings prior to charge-offs were $0.44 per share. A dividend of $0.47 per share was paid for the fourth quarter. Book value ended the quarter within 1% of 3Q levels. The performing loan percentage improved to 93% after resolving $1.1 billion or 49% of impaired loans. Portfolio performance was driven by $1.1 billion of impaired loan resolution, with realized prices at an 8% premium to aggregate carrying value. REO portfolio stood at $588 million across seven investments, generating $1.6 million of distributable earnings in the fourth quarter.

• Earnings expected to grow as resolutions and new investments progress. Portfolio balance to stabilize in Q1 and grow later.
• Ongoing stock buyback with $90 million left on authorization, expecting to continue if stock remains attractive.
• Net lease strategy is scalable with a large total addressable market, bringing new investment opportunities and diversifying capital deployment.

Q: Stephen Laws asked about the earnings bridge and resolution, specifically how earnings power of the portfolio will ramp as we move forward.

A: Katie Keenan stated that they think in terms of $0.44 in the fourth quarter, and the most impactful drivers are resolutions and reinvestments, with expectations of being in the trough now and coming through it in the second quarter.

Q: Steve Delaney asked about realized losses on resolutions and the buyback. Katie Keenan mentioned the stock is seen as attractive with $90 million left on the buyback authorization and actively deploying into real estate credit opportunities.

Q: Tom Catherwood asked about portfolio originations and the net lease strategy. Katie Keenan said the net lease strategy is granular, diversified, and complementary to the earnings profile, with a thoughtful approach and high-quality platform.

Q: Doug Harter asked about spreads on new loans and leverage. Austin Pena said levered spreads are around 900-1000 basis points over, and Katie Keenan mentioned the target leverage range is three to four times, currently at 3.5 times and expecting portfolio growth within that range.

Q: Jade Rahmani asked about rates and net lease timing. Katie Keenan said no material impact on repayments from rate uptick, and the net lease strategy is being ramped up with a thoughtful approach, guided by investment opportunities.

Q: Harsh Hemnani asked about office exposure and leverage with the net lease strategy. Katie Keenan and Austin Pena said office exposure will come down as they are selective on new office opportunities, and the net lease strategy is lower leverage than core lending, positive for overall leverage profile.

Q: Don Fandetti asked about international markets. Katie Keenan said there are attractive relative value opportunities in international markets, with stronger platform differentiation for sourcing deals outside the U.S.

Q: Richard Shane asked about repayments and pipeline funding. Katharine Keenan said repayments are at par, and the $2 billion pipeline is largely funded at closing with a mix of refis, acquisitions, and some construction activity which is less active today.