Q2 2026 Blackstone Mortgage Trust Inc Earnings Call

July 30, 2026

Speaker #2: Good day, and welcome to the Blackstone Mortgage Trust second quarter 2026 investor call. Today's call is being recorded. At this time, all participants are in a listen-only mode.

Speaker #2: If you require operator assistance at any time, please press star 0. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad.

Speaker #2: If you're 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 call over to Tim Hayes, Vice President, Shareholder Relations.

Speaker #2: Please go ahead.

Speaker #3: Good morning, and welcome, everyone, to Blackstone Mortgage Trust second quarter 2026 earnings conference call. I'm joined today by Tim Johnson, Chief Executive Marcin Orbasik, Chief Financial Officer.

we do not undertake any duty to update forward-looking statements. We will also refer to certain non-gaap measures on this call and for reconciliations, you should refer to the press release in 10 Q.

This audiocast is copyrighted material, Blackstone Mortgage Trust, and may not be duplicated without our consent.

For the second quarter, we reported a gap. Net loss of 48 cents per share, while Distributing earnings worth 31 cents per share and distributable, earnings prior to realize gains and losses were 48 cents per share. A few weeks ago, we paid a dividend of 47 cents per share with respect to the second quarter with that. I'll now turn the call over to Tim

Thanks Tim.

Bxmt second quarter results, reflect continued. Execution of our goal of driving portfolio, turnover and reallocating our Capital into high conviction investment teams.

We received 1.2 billion dollars of repayments in the second quarter nearly all of which were seasoned loans originated before 2023.

We reinvested our Capital into 1.4 billion of new Investments, concentrated in sectors with strong, underlying fundamentals. Such as residential industrial, and net lease.

Over the past year, these sectors have accounted for approximately 80% of our total portfolio deployment. And we've leveraged our global platform to source investments offering highly compelling relative value.

Our investment activity this quarter includes our entry into the single family home builder Finance sector.

This is an area where there has been significant pullback from the banking system and our platform positions as well to gain market. Share amidst a fragmented competitive landscape.

We see a large-scale growth opportunity with a total. Addressable Market of 200 billion dollars investments in this sector, help to further diversify. Bxm portfolio with granular. Well, structured loans, delivering some of the most attractive risk, adjusted returns. We see today, with mid to high teens lever deals,

This strategy is reflective of our intent—an intentional approach to invest in high-conviction sectors, increase the granularity and diversity of our portfolio, and leverage our franchise to capture the best relative value opportunities across global markets.

Another component of our portfolio, turnover strategy is working our way through our Legacy Investments on that front. We continue to make progress resolving an impaired multi family loan and completing a modification of our largest watch list loan contributing to a 23% reduction in our overall watch list from last quarter.

We are also taking advantage of the current market liquidity to strategically sell certain assets.

This week, we expect to launch a sales process for 1 of our largest assets, a 6008686 key, high at hotel, in San Francisco.

Capitalizing on the sharp fundamental recovery and increasing investor demand in that market.

And we recently initiated sales processes for over $1 billion of loans, mostly office. We are disciplined, strategic sellers and expect only to transact at levels that we deem attractive.

But at the right price, we believe reallocating this capital into our highest conviction investment themes is in the best long-term interests of our shareholders.

Returning to portfolio performance, the overall trends we see are consistent with prior quarters, with the exception being that we're seeing higher rates impact some of our legacy watch list assets.

We saw the pillars of the real estate recovery beginning to emerge in 2024 and they remain in place today.

Cmbs issuance is tracking a near 20-year High. New Supply is down approximately 60 to 90% across major asset classes and values have steadily improved for 10 consecutive quarters.

These Market Tailwinds, have supported strong performance, in the vast, majority of our portfolio driving approximately 13 billion dollars of repayments over the period and bringing back capital.

That we've reinvested into new Investments that reflect today's fundamental backdrop.

As a result, we've reduced our total office exposure from 36% of our portfolio to just 21% today, significantly enhancing the composition of our $20 billion portfolio.

Recently we've observed increased pressure on a subset of our portfolio, approximately 1 billion dollars of watch lists loans or about 5% of our total Investments.

Are predominantly secured by office assets with lower in-place cash flow, and where fundamentals have lagged the broader real estate market, making them more sensitive to changes in the rate environment.

These loans are on our watch list precisely for these reasons, but have been performing and supported by our institutional borrowers, who have invested nearly 800 million dollars of subordinate Capital into these assets since the end of 2023,

These borrowers have been playing through a challenge in environment with the expectation that a recovery in fundamentals and lower rates were on the horizon.

But given headwinds in these specific sectors and markets performance has taken longer to recover. And rates, of course have remained elevated with the 10-year up, more than 60 basis points since early March.

This Dynamic was at play this quarter as we took 3 new impairments on loans where borrowers had previously been supporting them.

As we engage with borrowers on this 1 billion dollar subset of loans, as they approached upcoming maturities or other decision points.

Some may be similarly less willing to invest, subordinate Capital than they have been in the past.

We think addressing these watch lists assets is critical to driving BX and T's long-term performance.

Importantly, we believe the profile of these assets is different from what we see in the rest of our office portfolio.

All of our other office watch lists loans have been modified or restructured with significant, new Equity invested at a basis that reflects today's environment.

And we've seen recent leasing momentum across these assets, further supporting performance.

and for our other performing office loans, with risk rating, 3 or better nearly half are currently in the market for refinancing while the remainder have strong in place, cash flow with an average debt yield of 10%

As we execute these strategies to accelerate portfolio turnover and address our watch lists, we may see some impact on book value and earnings, which, as always, we will take into account along with other factors such as interest rates and the investment environment as we discuss our dividend with the Board.

We expect these initiatives to produce tangible near-term results.

Between increased repayment activity and our proactive Asset Management. Approach, we see a path to reducing our exposure to both office loans, and to Legacy pre-2020 loans by 40% or more by year end.

And our new investments are laying the groundwork for a more diversified, granular BXMT, as evidenced by our average investment size declining from over $130 million just a few years ago to approximately $20 million today.

This is our path forward address the tale of our portfolio and complete the transition to a more Diversified business. We believe this best positions us to deliver strong, long-term performance for our shareholders and we are well on our way.

I'll now turn it over to Austin to discuss our investments in portfolio in Greater detail.

Thanks Tim.

In the second quarter, bxmt closed 1.4 billion dollars of Investments across multiple strategies under scoring the breadth and diversification of our Global real estate credit platform.

We originated 1.1 billion dollars of loans, with an average LTV of 61% mostly secured by residential and Industrial.

80% of our lending was in the US and the remainder was in Europe and secured by well least Diversified portfolios.

We continue to grow our net lease strategy where we acquired over 135 million of properties at share.

Our portfolio now stands at 661 million.

When we entered the net lease sector, we were faced with a choice by an existing platform to scale quickly, but likely at premium pricing.

Or build from scratch, invest time and resources to hire an experienced dedicated, team to thoughtfully assemble a portfolio underwritten with the benefit of the unique data and insights from the black storm platform.

We chose the latter, allowing BXMT to capture that aggregation premium for our investors.

Our curated high-quality portfolio, adds granularity and duration with long-term, steadily increasing cash flows that serve as a natural complement to our floating rate, lending strategy.

And while just 3% of our portfolio today, we see continued growth ahead with over $150 million of acquisitions closed or enclosing so far in July.

As Tim mentioned earlier, we continue to evolve and diversify our investment strategies. We entered the home builder Finance sector acquiring approximately 130 million dollars of loans at share in a newly established joint venture

Like net lease home builder Finance Loans are geographically diverse in granular. The initial portfolio, consisted of 36 loans across 10 states with an average loan commitment of just 12 million.

Sector positions bxmt to grow our footprint in this attractive area over time.

With a healthy real estate. Capital markets backdrop. We are seeing active pipeline activity across our origination channels as well as robust repayments in our floating rate loan portfolio.

This is a good setup to execute our various strategic initiatives and accelerate the turnover of our portfolio.

As Tim mentioned, we collected 1.2 billion dollars of repayments in the quarter effectively all originated prior to 2023.

And in July, we've collected another $1.4 billion of similar vintage.

This includes a 450 million euro pay down on our Dublin. Mixed use loan our largest position as of last quarter.

This loan now represents just 25% of our initial commitment and generates a double digit debt yield

our loan portfolio into the quarter at 17 billion across 133 loans, with the majority in multi, family and Industrial sectors.

Our portfolio is 97% performing at quarter end, down slightly from 98% last quarter, reflecting impairments of three loans—two traditional office assets and one mixed-use asset with a sizable office component.

and the resolution of a Dallas multi family loan, which we foreclosed on in June,

Our most significant impairment in the quarter was a $345 million Chicago office loan originated in 2018.

We downgraded this loan to our watch list in 2022, reflecting well-known challenges in the Chicago office Market. Following the co 19 pandemic.

While this asset has secured over 500,000 square feet of leasing over the last 2 and a half years. And the borrower has been supported investing. Incremental Equity to fund, leasing costs.

The combination of elevated interest rates and continued headwinds in the Chicago market ultimately put more pressure on the borrower, who defaulted on the loan in June.

Our asset management team acted quickly and subsequent to quarter end, we substantially agreed on terms for a restructure with the borrower, who intends to commit significant new capital at a reset basis, in exchange for additional terms and a reduction of our loan balance, which is reflected in our CEO reserves as of quarter end.

Following this modification, the asset will be well capitalized to reach stabilization with a 7-year average remaining lease term and minimal near-term rollover.

Our watch list today sits at $2 billion, down from $2.5 billion last quarter.

This reflects an upgrade of our largest watch list loan after completing a credit enhancing modification that we mentioned on last quarter's, call in exchange for a term extension and slightly reduced economics.

The borrower invested significant new Equity putting this loan on stable footing for the long term.

We added three loans to our watch list this quarter: a Denver office loan, and a hotel loan in Hawaii, both originated prior to 2023, and a multifamily loan in Australia, secured by a high-quality new-build asset in Melbourne—a strong market with less than 2% vacancy.

Our owned real estate portfolio, consisted of 14 assets with 1.4 billion dollars of carrying value at quarter end. As Tim mentioned, we expect to launch the sale of our Hyatt Hotel in San Francisco. Our second largest owned asset.

We have several others that we are evaluating to bring to market this year, as we remain highly focused on reducing this portion of our portfolio and reinvesting that capital, accurately, into target investments.

With a deeply experienced team of 170, real estate debt professionals and the resources of the broader Blackstone real estate platform. We are well positioned to execute our various strategic initiatives with a Relentless focus on maximizing outcomes and delivering for our investors.

With that, I will turn things over to Marcin.

Thank you, Allison. Good morning, everyone.

In the second quarter, BXMT reported a GAAP net loss of $0.48 per share and distributed earnings, or DE, of $0.31 per share.

de included 29 million of realized losses, primarily related to the resolution of an impaired Dallas multi family loan

following the Foreclosure of the collateral property.

We now hold the asset on the balance sheet as owned real estate at a significant discount to Prior ownership's basis.

De prior to realize gains and losses was 48 cents per share, which covered our 47% dividend.

But was down at Penny from the prior quarter.

De prior to realizing gains and losses benefited from continued growth in our unconsolidated joint ventures as we actively deployed Capital across our net lease and single family, home builder, Finance businesses.

Altogether, we had $322 million of capital invested in our joint venture investments at quarter end.

Up from 244 million. As in q1,

Recognize a little over 9 million dollars of De this quarter from these Diversified strategies.

We also recognize higher seasonal net revenues generated by our New York hotel.

Which contributed to 15 million of noi. We earned from our own real estate assets. This quarter

Up about 1 million from q1.

Looking ahead to Q3, we expect DE will be impacted by the new loan impairments recognized in the quarter and the timing of several large repayments collected in July.

Book value and the second quarter at 19.31 cents per share down, 4% from q1.

Primarily due to an 80 cent per share, increase in seasonal, reserves and 12 cents per share of depreciation and amortization related to our own real estate assets.

In total book value includes 2.43 cents per share of total Cecil Reserves.

Of which 1.113 cents per share. Is the general reserve and 1.30 cents per share are the assets specific Reserves.

The majority of the net increase in the CECL reserve this quarter was related to the impairment of a large Chicago office loan, as Austin discussed earlier, which we believe is appropriately reserved for.

The modest decline in our Q2 General Reserve reflects risk and rating movements this quarter, including a smaller balance of watch list loans.

Turning to BXMT's capitalization, we entered the quarter with $1.2 billion of liquidity.

our Q2 debt to equity ratio increased to 3.9 times from 3.7 times in q1,

Mainly due to the timing of repayments and the increase in Cecil.

We remain active across the capital markets in may we issued 450 million of senior secured notes, which largely pre-funded our corporate debt maturities set to occur in the first quarter of 2027.

The offering was met with strong investor demand and priced at the tightest. New issue spread with ever achieved across our corporate debt complex.

Upon repayment of the 2027 notes, we will have nearly 5 years of weighted average remaining term on our corporate debt and no maturities until 2029.

Working closely with our sophisticated capital markets team, we continue to drive lower financing costs.

And are now regularly borrowing at or near our historical all-time types.

We also closed on a new non-market. Tomarket lending facility with a major Bank in the UK.

Our ability to Source unique and attractive Investments. For our portfolio, combined, with our broad access to various and attractively priced sources of capital remains, some of our key competitive advantages.

Our balance sheet continues to be very well positioned.

With total non-market to market borrowings now representing about 88% of total debt and with no Capital markets marked to Market Provisions throughout our capital structure.

Thank you again for joining us today. And I will now ask the operator to open a call to questions.

Thank you. As a, reminder, please. Press star 1 to ask a question. We ask you to limit yourself to 1 question and 1 follow-up to allow as many callers to join the queue as possible.

We will take our first question from Tom Catherine with btig.

Thanks and good morning everybody. Um, maybe either Tim or or Austin, I just want to square up the commentary on Cesar reserves and the potential sale of a billion or a billion plus, in loans. So, it sounds like Cecil reserves were, especially the specific ones, where primarily on the 3s downgraded to the 5 rated bucket. But when you think of the billion in the loans that's out there from a marketing standpoint, is that marked to where, you know,

Where you're getting bids at right now, what's the process for? Maybe adjusting that going forward and the potential for additional reserves as you get towards the sale.

Yeah, thanks, Tom. This is Tim, I'd say um, that that process is still pretty early on in terms of the loan sales. So we're going to review uh, what we get. Uh, and as we noted in the prepared remarks that is, you know, kind of an optional sale, we're looking to take advantage of what we think, is a reasonably liquid Market, uh, to sell loans. Uh, and so, um, there are not reserves against those, uh, billion dollars of loans today. Uh, and as we, you know, evaluate what we receive in terms of bids, um, you know, we'll we'll uh, walk through that, you know, next quarter, after we have more information.

Mentioned the sale of the, the Hyatt Hotel in San Francisco. When you think of this goal of kind of being a more Diversified platform, what are your Capital allocation priorities for the proceeds from these sales. So this they come in, do you primarily put them into loans or could you look to accelerate net lease Investments or, or invest kind of Elsewhere and you know, in a variety of different strategies? What are your thoughts on those priorities?

Yeah, uh, it's a great question and it really is about that rotation, uh, into the strategies that we have the most conviction, and we think have the best relative value today. And as we highlighted, in the prepared remarks, uh, net lease home builder Finance as well as our traditional lending businesses are, uh, all provide compelling opportunities. So we're going to take that Capital back in and we'll evaluate, you know, each and every option we have in the market to to, to determine where the best relative value is. Um, but we we highlighted some of those areas and you've seen it in our recent investment activity. Where we're putting that Capital. It's really concentrated in the sectors where we see the best underlying fundamentals and where we think we can achieve develi.

Great great. Thanks, thanks for the answers.

Um, thank you very much. So the 1 billion of watch lists loans that are you said at the margin impacted by higher rates? Are those risk for rated loans?

Uh, yes, Jade. This is Austin. Those are, those are on our watch list, which? Yes, are risks. Have a risk rating of 4.

Okay. Um and those are primarily office.

Uh, yes, that—that would, yes.

Okay. Um my main question is if you're starting to see pressure in multifamily loan performance, um, you know, how do you think sponsors are thinking about the Outlook today? I think that multi-family

Uh rent growth was about flat this quarter year on year. Uh the negative rent growth in Sun Belt is a little bit better than it had been, but it's still negative. Um, so our investors seeing the light at the end of the tunnel on supply for 2027 and looking the hole through this period of high rates. Or are they more worried about rates where they are and ability to cover Debt Service and kind of value recovery? So uh you know just what are your views on multi, family, credit risk,

Yeah I think we we continue to see broadly uh really good liquidity uh in multi family both within our portfolio and more broadly in the markets. Uh and I think a a good thing to highlight would be that we've received about 5 billion dollars of repayments of multi, family loans, originated in 21 and 22. Uh and there are uh have been repayments recently and we're expecting repayments in the near term uh that are pre uh 22 vintage multi family. I think that the diversity of capital sources in that space is a real. Uh, you know, valuable uh, thing for refinancing activity, you've got a broad base of, uh, investor appetite for multi family loans. Uh, and as you noted, uh, we are seeing, uh, fundamentals, uh, generally improve in multi family. Uh, net absorption nationally in the first half, was the strongest in 5 years. So we are seeing, uh, positive Trends there. And I'd say, in our portfolio, we continue to see, uh, good fundamentals and good. Liquidity and repayment activity.

Um, thank you very much if I could squeeze 1 more in and just beyond special situations and m&a, you know, we've seen him pick up in the real estate space, whether it be Equity rates, but then, even in the commercial mortgage rates space, you know, 1 company uh selling its portfolio and liquidating and another announcing strategic Alternatives. Do you expect the participate in m&a? And do you think this could be a source of attractive, uh, opportunities?

Always, you know, evaluate opportunity as they arise.

Thank you.

We will take our next question from harsh himani, with Green Street.

Thank you uh as we sort of think through the decision to you know sell a portion of the office loan portfolio.

So I guess, on the one hand, the fundamentals are starting to improve, and there could be — if you wait a little bit, the recovery might be higher.

Uh, and on the flip side of that, you've talked about this when entering the bank loan portfolio, joint ventures. There's—

Certain accruing and earnings assets that may fit better in a read rapper uh in the public market. And it's it's sort of fair to expect that some of these office loans, may be known accruing and and a drag on distributable earnings in the short term. So I guess how do you address the question? As to this decision was made more from a perspective of long-term shareholder value creation uh than from it being an exercise in you know, near-term Earnings management. Uh,

How do you address sort of investor concerns from uh, around that? And how are you thinking of that internally?

Thanks harsh. I'd say this is Tim. Uh, I'd say, first of all, uh, the loan sale process is early stage and and an underway. And as we noted, uh, you know, we're under no obligation to sell and we may look at selling some all or none of it. So, there are many options here. Uh, I think it's really about rotating our portfolio. Uh, more than sort of something driven by a near-term earnings impact. Uh, it's really about rotating our portfolio into the sectors where we see, uh, the best fundamentals, the best risk adjusted return, and the best relative value. Uh, and you know what's underpinning? It is that, uh, as I noted before, you know, we're very active in the loan trading Market, uh, and you noted it as well both as a, you know, really more as a buyer than a seller but we see good liquidity in that space. So if we can take advantage of an opportunity, uh, to rotate, uh, out of office into other sectors, uh, we think that is going to be, uh, you know, the best outcome for long-term value for our shareholders. But of course, we're going to look at

Price, and it's going to work for us to make sense relative to, you know, the risk of those underlying loans themselves.

Got it. That has a, uh, and then, maybe in terms of the balance sheet, right? Uh, total leverage has picked up a little bit in the high fours, if you include the CLS, uh, and as you've sort of Diversified all, all the new Ventures, the net lease portfolio is the bank loan portfolios, uh, that show up as Equity interests on the balance sheet have their own leverage added on to it, I guess.

How are you thinking about leverage at this point? If and when there are any office asset sales,

does part of it, get used to de-lever the balance sheet, or are you fairly comfortable with leverage levels where they are?

Thanks harus. It's Marcin. Thank you for joining us and thanks for your question. Look, I think as I mentioned in my prepared remarks, The Leverage was a little elevated at the end of the quarter.

Speaker #2: it's down quite a bit. But I think our overall leverage strategy is not shifting or changing at the moment. It's obviously a function of the market conditions, balance sheet structure, cost and structure of leverage.

Speaker #2: So we intend to be in that cost and structure of leverage. So we intend to be in that three to four times debt to equity range going forward.

Speaker #2: But again, quarter to quarter, there will be some variability depending on the timing of closing of repayments and originations and things like that.

Speaker #6: Got it. Thank you.

Speaker #3: Thank you. We'll take our next question from Rick Shane with JP Morgan.

Speaker #5: Hey guys, thanks for taking my question. One quick cleanup question and I just apologize, I forget. Policies diverge across the industry. Do you guys realize losses when you put REO and market down or do you wait until you actually complete the sale for the realization event?

Speaker #2: Hey, Rick, it's Marcin. We sort of we realize the loss when we take over the when we foreclose or consolidate the asset. That happened in this quarter with that Denver multifamily loan.

Speaker #2: And then obviously, as we own real estate, we are required to assess them for any potential impairments every quarter, which we go through a robust process.

Speaker #2: But that initial charge up happens when you take ownership.

Speaker #5: Got it. So assuming, for example, the San Francisco hotel is sold close to your carrying value, no further realized losses associated with that.

Speaker #2: Yes, we look at what the net proceeds are vis-à-vis where we carry it and then if there needs to be an adjustment, there is one.

Speaker #2: Correct.

Speaker #5: Got it. Okay, great. Thank you. Look, Marcin, you alluded to the fact that there's going to be some drag versus distributable X losses in the third quarter.

Speaker #5: Can you help us think about where that run rate is versus the 48 cents that you guys reported in the second?

Speaker #2: Look, I think it's hard given all the moving pieces right now and it's still early in the quarter. Obviously, given some of the impairments we took in Q2 and the pretty substantial repayment volume that we had this quarter, we do expect some impact to the third quarter.

Speaker #2: But again, it'll take us probably a couple of quarters to be fully deployed with the money that we're getting back. So it's hard to say exactly where we're going to be right now on our run rate basis.

Speaker #2: There's a lot of things moving around at the moment.

Speaker #5: Got it. Okay. And that actually leads to my final question, which is how should we think about that in the context of dividend and dividend policy?

Speaker #5: If, for example, do you guys how far forward do you look in setting that policy if we are in a situation over the next for example, two to three quarters where there is a shortfall?

Speaker #5: Does it make sense to recalibrate the dividend that quickly or are you looking at a sort of more optimistic dividend run rate once you're fully redeployed?

Speaker #5: Because again, you're sort of saying, hey, look, DEPS is going to come down. There was a comment about reevaluating dividend. And again, I think that's sort of a generic comment that you do that every quarter.

Speaker #5: But I think everybody really needs to know the interplay between the drag on earnings and the dividend policy in the near term.

Speaker #2: Yeah, thanks, Rick. It's Tim. I'd say conceptually, the dividend is really focused around long-term earnings power of the business and that's how we've always looked at it.

Speaker #2: Marcin noted there's some short-term impacts and there are a number of moving pieces. Obviously, as Marcin said, we had impairments in the second quarter and given the initiatives that were undertaking, to drive portfolio turnover as we noted in the prepared remarks, it's possible we see impacts from that.

Speaker #2: So there's a number of moving pieces. That will have to evaluate with the board and it's too early to kind of tell what that's going to look like right now.

Speaker #2: But what we're going to evaluate really is the long-term earnings power of the business. And that's what we evaluate when we look at the dividend.

Speaker #5: Got it. Okay. Thank you guys very much. Appreciate it.

Speaker #3: Thank you. We will take our final question from Marissa Lobo with UBS.

Speaker #7: Good morning. Thanks for taking my question. You mentioned that nearly half of your performing office loans with three rated or better and they're currently in the refi market.

Speaker #7: And with the 10-year up, what are you seeing in terms of lender appetite for these processes and what's the contingency if they don't close by year-end?

Speaker #2: Yeah, thanks, Marissa. It's Austin. I think as we noted, obviously, rates are moving around. But what we've seen very recently as we noted earlier is a really liquid debt market.

Speaker #2: We've gotten a lot of repayments a lot in the second quarter. Another nearly one and a half billion dollars so far in July. And so you see an active CMBS market as Tim mentioned earlier.

Speaker #2: So we really see a pretty active capital markets out there. And strong demand. From lenders to finance good assets. And as Tim mentioned, and as you alluded to, that includes a lot of different sectors including a lot of our office loans.

Speaker #2: And so today we continue to see a lot of activity in the refinance market in the capital markets. And nothing's really changed, I would say, sitting here today.

Speaker #7: Okay. Thank you. And then just shifting to the portfolio rotation, you cited a $200 billion TAM in home builder finance. So what is the realistic allocation for BXMT in the sector over the next year?

Speaker #7: And how does a credit profile of these loans compare to your transitional lending book?

Speaker #2: Yeah, thanks. This is Austin. We're really excited about this new opportunity and this sector. We really see a few things that make this what we think a really attractive and compelling opportunity.

Speaker #2: The first is the overall sector of housing in the US is undersupplied. And that creates a good fundamental setup. Secondly, there's been a pretty big pullback in lending to the space, particularly with regional banks that have historically big lenders to this sector.

Speaker #2: And then finally, as Tim mentioned earlier, this is a sector where it's really hard to access these investments without a platform. And in terms of the underlying loans, they're very granular.

Speaker #2: They're very geographically diverse. So you really need space to access these investments. And for those reasons, what we're seeing in the space is really an interesting and pretty compelling yield opportunity.

And, you know, for those reasons, um, you know what we're seeing in the space is really an interesting and pretty compelling yield opportunity. Um, in terms of the underlying loans themselves, they're really well structured typically uh carry you know, very good uh recourse to corporate guarantee corporate entities in many cases individually.

Individuals, um, they're they're often on Cross portfolios. And so from an underlying credit perspective, we really like the credit. Um, and of course, the return. Also, you know, we think is attractive. Uh, the last thing I would say is, you know, we've partnered with the largest private lender to the space, they have a really great product Suite that they can offer to this Market. Uh, and so we think that really sets us up well to grow in this space and we're just getting started, but but we think we have a really good foundation.

Got it. Appreciate the answer.

Thank you with no additional questions in queue. I will turn the call back over to Tim Hayes for any additional or closing remarks.

Yeah, thank you Katie and to everyone on today's call, please reach out with any questions.

Goodbye. Thank you.

That will conclude today's call. We appreciate your participation.

Operator: Thank you for standing by. You're on hold for the Blackstone Mortgage Trust Q2 2026 investor call. At this time, we're gathering additional participants and should be underway shortly. We appreciate your patience and ask that you continue to hold. Good day, and welcome to the Blackstone Mortgage Trust Q2 2026 investor call. Today's call 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 0. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're 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 call over to Tim Hayes, Vice President, Shareholder Relations. Please go ahead.

Operator: Good day, and welcome to the Blackstone Mortgage Trust Q2 2026 Investor Call. Today's call 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're 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 call over to Tim Hayes, Vice President, Shareholder Relations. Please go ahead.

Tim Hayes: Good morning, and welcome everyone to Blackstone Mortgage Trust Q2 2026 earnings conference call. I'm joined today by Tim Johnson, Chief Executive Officer, Austin Peña, President, and Marcin Urbaszek, Chief Financial Officer. This morning, we filed our 10-Q and issued a press release in 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 a discussion of some of the risks that could affect results, please see the Risk Factor section of our most recent 10-K. We do not undertake any duty to update forward-looking statements. We will also refer to certain non-GAAP measures on this call, and for reconciliations, you should refer to the press release and 10-Q.

Tim Hayes: Good morning, and welcome everyone to Blackstone Mortgage Trust Q2 2026 Earnings conference call. I'm joined today by Tim Johnson, Chief Executive Officer, Austin Peña, President, and Marcin Urbaszek, Chief Financial Officer. This morning, we filed our 10-Q and issued a press release in 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 a discussion of some of the risks that could affect results, please see the Risk Factor section of our most recent 10-K.

Tim Hayes: We do not undertake any duty to update forward-looking statements. We will also refer to certain non-GAAP measures on this call, and for reconciliations, you should refer to the press release and 10-Q. This audiocast is copyrighted material of Blackstone Mortgage Trust and may not be duplicated without our consent. For the Q2, we reported a GAAP net loss of $0.48 per share, while distributable earnings were $0.31 per share, and distributable earnings prior to realized gains and losses were $0.48 per share. A few weeks ago, we paid a dividend of $0.47 per share with respect to the Q2. With that, I'll now turn the call over to Tim.

Tim Hayes: This audiocast is copyrighted material of Blackstone Mortgage Trust and may not be duplicated without our consent. For the Q2, we reported a GAAP net loss of $0.48 per share, while distributable earnings were $0.31 per share, and distributable earnings prior to realized gains and losses were $0.48 per share. A few weeks ago, we paid a dividend of $0.47 per share with respect to the Q2. With that, I'll now turn the call over to Tim.

Tim Johnson: Thanks, Tim. BXMT's Q2 results reflect continued execution of our goal of driving portfolio turnover and reallocating our capital into high-conviction investment themes. We received $1.2 billion of repayments in the Q2, nearly all of which were seasoned loans originated before 2023. We reinvested our capital into $1.4 billion of new investments concentrated in sectors with strong underlying fundamentals, such as residential, industrial, and net lease. Over the past year, these sectors have accounted for approximately 80% of our total portfolio deployment, and we've leveraged our global platform to source investments offering highly compelling relative value. Our investment activity this quarter includes our entry into the single-family home builder finance sector. This is an area where there has been significant pullback from the banking system, and our platform positions us well to gain market share amidst a fragmented competitive landscape.

Tim Johnson: This is an area where there has been significant pullback from the banking system, and our platform positions us well to gain market share amidst a fragmented competitive landscape. We see a large-scale growth opportunity with a total addressable market of $200 billion. Investments in this sector help to further diversify BXMT's portfolio with granular, well-structured loans, delivering some of the most attractive risk-adjusted returns we see today with mid to high teens levered yields. This strategy is reflective of our intentional approach to invest in high conviction sectors, increase the granularity and diversity of our portfolio, and leverage our franchise to capture the best relative value opportunities across global markets. Another component of our portfolio turnover strategy is working our way through our legacy investments.

Tim Johnson: We see a large-scale growth opportunity with a total addressable market of $200 billion. Investments in this sector help to further diversify BXMT's portfolio with granular, well-structured loans, delivering some of the most attractive risk-adjusted returns we see today with mid to high teens levered yields. This strategy is reflective of our intentional approach to invest in high conviction sectors, increase the granularity and diversity of our portfolio, and leverage our franchise to capture the best relative value opportunities across global markets. Another component of our portfolio turnover strategy is working our way through our legacy investments. On that front, we continued to make progress resolving an impaired multifamily loan and completing a modification of our largest watchlist loan, contributing to a 23% reduction in our overall watchlist from last quarter. We are also taking advantage of current market liquidity to strategically sell certain assets.

Tim Johnson: On that front, we continued to make progress resolving an impaired multifamily loan and completing a modification of our largest watchlist loan, contributing to a 23% reduction in our overall watchlist from last quarter. We are also taking advantage of current market liquidity to strategically sell certain assets. This week, we expect to launch a sales process for one of our largest assets, a 686-key Hyatt hotel in San Francisco, capitalizing on the sharp fundamental recovery and increasing investor demand in that market. We recently initiated sales processes for over $1 billion of loans, mostly office. We are disciplined, strategic sellers and expect only to transact at levels that we deem attractive. At the right price, we believe reallocating this capital into our highest conviction investment themes is in the best long-term interest of our shareholders.

Tim Johnson: This week, we expect to launch a sales process for one of our largest assets, a 686-key Hyatt hotel in San Francisco, capitalizing on the sharp fundamental recovery and increasing investor demand in that market. We recently initiated sales processes for over $1 billion of loans, mostly office. We are disciplined, strategic sellers and expect only to transact at levels that we deem attractive. At the right price, we believe reallocating this capital into our highest conviction investment themes is in the best long-term interest of our shareholders. Turning to portfolio performance, the overall trends we see are consistent with prior quarters, with the exception being that we're seeing higher rates impact some of our legacy watchlist assets. We saw the pillars of the real estate recovery beginning to emerge in 2024, and they remain in place today. CMBS issuance is tracking a near 20-year high.

Tim Johnson: Turning to portfolio performance, the overall trends we see are consistent with prior quarters, with the exception being that we're seeing higher rates impact some of our legacy watchlist assets. We saw the pillars of the real estate recovery beginning to emerge in 2024, and they remain in place today. CMBS issuance is tracking a near 20-year high. New supply is down approximately 60% to 90% across major asset classes, values have steadily improved for 10 consecutive quarters. These market tailwinds have supported strong performance in the vast majority of our portfolio, driving approximately $13 billion of repayments over the period, bringing back capital that we've reinvested into new investments that reflect today's fundamental backdrop.

Tim Johnson: New supply is down approximately 60% to 90% across major asset classes, values have steadily improved for 10 consecutive quarters. These market tailwinds have supported strong performance in the vast majority of our portfolio, driving approximately $13 billion of repayments over the period, bringing back capital that we've reinvested into new investments that reflect today's fundamental backdrop. As a result, we've reduced our total office exposure from 36% of our portfolio to just 21% today, significantly enhancing the composition of our $20 billion portfolio. Recently, we've observed increased pressure on a subset of our portfolio, approximately $1 billion of watchlist loans, or about 5% of our total investments. These loans are predominantly secured by office assets with lower in-place cash flow and where fundamentals have lagged the broader real estate market, making them more sensitive to changes in the rate environment.

Tim Johnson: As a result, we've reduced our total office exposure from 36% of our portfolio to just 21% today, significantly enhancing the composition of our $20 billion portfolio. Recently, we've observed increased pressure on a subset of our portfolio, approximately $1 billion of watchlist loans, or about 5% of our total investments. These loans are predominantly secured by office assets with lower in-place cash flow and where fundamentals have lagged the broader real estate market, making them more sensitive to changes in the rate environment.

Tim Johnson: These loans are on our watchlist precisely for these reasons, have been performing and supported by our institutional borrowers who have invested nearly $800 million of subordinate capital into these assets since the end of 2023. These borrowers have been playing through a challenging environment with the expectation that a recovery in fundamentals and lower rates were on the horizon. Given headwinds in these specific sectors and markets, performance has taken longer to recover, and rates, of course, have remained elevated with the tenure up more than 60 basis points since early March. This dynamic was at play this quarter as we took three new impairments on loans where borrowers had previously been supporting them.

Tim Johnson: As we engage with borrowers on this $1 billion subset of loans as they approach upcoming maturities or other decision points, some may be similarly less willing to invest subordinate capital than they have been in the past. We think addressing these watchlist assets is critical to driving BXMT's long-term performance. Importantly, we believe the profile of these assets is different from what we see in the rest of our office portfolio. All of our other office watchlist loans have been modified or restructured with significant new equity invested at a basis that reflects today's environment. We've seen recent leasing momentum across these assets further supporting performance. For our other performing office loans with risk rating 3 or better, nearly half are currently in the market for refinancing, while the remainder have strong in-place cash flow with an average debt yield of 10%.

Tim Johnson: For our other performing office loans with risk rating 3 or better, nearly half are currently in the market for refinancing, while the remainder have strong in-place cash flow with an average debt yield of 10%. As we execute these strategies to accelerate portfolio turnover and address our watchlist, we may see some impact on book value and earnings, which as always, we will take into account, along with other factors such as interest rates and the investment environment, as we discuss our dividend with the board. We expect these initiatives to produce tangible near-term results.

Tim Johnson: As we execute these strategies to accelerate portfolio turnover and address our watchlist, we may see some impact on book value and earnings, which as always, we will take into account, along with other factors such as interest rates and the investment environment, as we discuss our dividend with the board. We expect these initiatives to produce tangible near-term results. Between increased repayment activity and our proactive asset management approach, we see a path to reducing our exposure to both office loans and to legacy pre-2023 loans by 40% or more by year-end. Our new investments are laying the groundwork for a more diversified, granular BXMT, as evidenced by our average investment size declining from over $130 million just a few years ago to approximately $20 million today. This is our path forward, address the tail of our portfolio and complete the transition to a more diversified business.

Tim Johnson: Between increased repayment activity and our proactive asset management approach, we see a path to reducing our exposure to both office loans and to legacy pre-2023 loans by 40% or more by year-end. Our new investments are laying the groundwork for a more diversified, granular BXMT, as evidenced by our average investment size declining from over $130 million just a few years ago to approximately $20 million today. This is our path forward, address the tail of our portfolio and complete the transition to a more diversified business. We believe this best positions us to deliver strong long-term performance for our shareholders, and we are well on our way. I'll now turn it over to Austin to discuss our investments and portfolio in greater detail.

Tim Johnson: We believe this best positions us to deliver strong long-term performance for our shareholders, and we are well on our way. I'll now turn it over to Austin to discuss our investments and portfolio in greater detail.

Austin Peña: Thanks, Tim. In Q2, BXMT closed $1.4 billion of investments across multiple strategies, underscoring the breadth and diversification of our global real estate credit platform. We originated $1.1 billion of loans with an average LTV of 61%, mostly secured by residential and industrial. 80% of our lending was in the US, and the remainder was in Europe and secured by well-leased, diversified portfolios. We continue to grow our net lease strategy, where we acquired over $135 million of properties at share. Our portfolio now stands at $661 million. When we entered the net lease sector, we were faced with a choice: buy an existing platform to scale quickly, but likely at premium pricing, or build from scratch, invest time and resources to hire an experienced, dedicated team to thoughtfully assemble a portfolio underwritten with the benefit of the unique data and insights from the Blackstone platform.

Austin Peña: When we entered the net lease sector, we were faced with a choice: buy an existing platform to scale quickly, but likely at premium pricing, or build from scratch, invest time and resources to hire an experienced, dedicated team to thoughtfully assemble a portfolio underwritten with the benefit of the unique data and insights from the Blackstone platform. We chose the latter, allowing BXMT to capture that aggregation premium for our investors. Our curated high-quality portfolio adds granularity and duration with long-term, steadily increasing cash flows that serve as a natural complement to our floating rate lending strategy.

Austin Peña: We chose the latter, allowing BXMT to capture that aggregation premium for our investors. Our curated high-quality portfolio adds granularity and duration with long-term, steadily increasing cash flows that serve as a natural complement to our floating rate lending strategy. While just 3% of our portfolio today, we see continued growth ahead with over $150 million of acquisitions closed or in closing so far in July. As Tim mentioned earlier, we continue to evolve and diversify our investment strategies. We entered the home builder finance sector, acquiring approximately $130 million of loans at share in a newly established joint venture. Like net lease, home builder finance loans are geographically diverse and granular. The initial portfolio consisted of 36 loans across 10 states, with an average loan commitment of just $12 million.

Austin Peña: While just 3% of our portfolio today, we see continued growth ahead with over $150 million of acquisitions closed or in closing so far in July. As Tim mentioned earlier, we continue to evolve and diversify our investment strategies. We entered the home builder finance sector, acquiring approximately $130 million of loans at share in a newly established joint venture. Like net lease, home builder finance loans are geographically diverse and granular. The initial portfolio consisted of 36 loans across 10 states, with an average loan commitment of just $12 million.

Austin Peña: Our joint venture with the largest private lender in the sector positions BXMT to grow our footprint in this attractive area over time. With a healthy real estate capital markets backdrop, we are seeing active pipeline activity across our origination channels, as well as robust repayments in our floating rate loan portfolio. This is a good setup to execute our various strategic initiatives and accelerate turnover of our portfolio. As Tim mentioned, we collected $1.2 billion of repayments in the quarter, effectively all originated prior to 2023. In July, we've collected another $1.4 billion of similar vintage. This includes a €450 million pay down on our Dublin mixed-use loan, our largest position as of last quarter. This loan now represents just 25% of our initial commitment and generates a double-digit debt yield.

Austin Peña: Our loan portfolio ended the quarter at $17 billion across 133 loans, with the majority in multifamily and industrial sectors. Our portfolio was 97% performing at quarter end, down slightly from 98% last quarter, reflecting impairments of three loans, two traditional office assets, and one mixed-use asset with a sizable office component, and the resolution of a Dallas multifamily loan, which we foreclosed on in June. Our most significant impairment in the quarter was a $345 million Chicago office loan originated in 2018. We downgraded this loan to our watchlist in 2022, reflecting well-known challenges in the Chicago office market following the COVID-19 pandemic.

Austin Peña: While this asset has secured over 500,000 square feet of leasing over the last two and a half years, the borrower had been supportive, investing incremental equity to fund leasing costs, the combination of elevated interest rates and continued headwinds in the Chicago market ultimately put more pressure on the borrower, who defaulted on the loan in June. Our asset management team acted quickly, and subsequent to quarter end, we substantially agreed terms on a restructure with the borrower, who intends to commit significant new capital at a reset basis in exchange for additional term and a reduction of our loan balance, which is reflected in our CECL reserves as of quarter end. Following this modification, the asset will be well capitalized to reach stabilization with a seven-year average remaining lease term and minimal near-term rollover. Our watchlist today sits at $2 billion, down from $2.5 billion last quarter.

Austin Peña: Following this modification, the asset will be well capitalized to reach stabilization with a seven-year average remaining lease term and minimal near-term rollover. Our watchlist today sits at $2 billion, down from $2.5 billion last quarter. This reflects an upgrade of our largest watchlist loan after completing a credit-enhancing modification that we mentioned on last quarter's call. In exchange for a term extension and slightly reduced economics, the borrower invested significant new equity, putting this loan on stable footing for the long term.

Austin Peña: This reflects an upgrade of our largest watchlist loan after completing a credit-enhancing modification that we mentioned on last quarter's call. In exchange for a term extension and slightly reduced economics, the borrower invested significant new equity, putting this loan on stable footing for the long term. We added three loans to our watchlist this quarter, a Denver office loan and a hotel loan in Hawaii, both originated prior to 2023, and a multifamily loan in Australia secured by a high-quality new build asset in Melbourne, a strong market with less than 2% vacancy. Our owned real estate portfolio consisted of 14 assets with $1.4 billion of carrying value at quarter end. As Tim mentioned, we expect to launch the sale of our Hyatt Hotel in San Francisco, our second largest owned asset.

Austin Peña: We added three loans to our watchlist this quarter, a Denver office loan and a hotel loan in Hawaii, both originated prior to 2023, and a multifamily loan in Australia secured by a high-quality new build asset in Melbourne, a strong market with less than 2% vacancy. Our owned real estate portfolio consisted of 14 assets with $1.4 billion of carrying value at quarter end. As Tim mentioned, we expect to launch the sale of our Hyatt Hotel in San Francisco, our second largest owned asset. We have several others that we are evaluating to bring to market this year as we remain highly focused on reducing this portion of our portfolio and reinvesting that capital accretively into target investments.

Austin Peña: We have several others that we are evaluating to bring to market this year as we remain highly focused on reducing this portion of our portfolio and reinvesting that capital accretively into target investments. With a deeply experienced team of 170 real estate debt professionals and the resources of the broader Blackstone real estate platform, we are well positioned to execute our various strategic initiatives with a relentless focus on maximizing outcomes and delivering for our investors. With that, I will turn things over to Marcin.

Austin Peña: With a deeply experienced team of 170 real estate debt professionals and the resources of the broader Blackstone real estate platform, we are well positioned to execute our various strategic initiatives with a relentless focus on maximizing outcomes and delivering for our investors. With that, I will turn things over to Marcin.

Marcin Urbaszek: Thank you, Austin. Good morning, everyone. In Q2, BXMT reported a GAAP net loss of $0.48 per share and distributable earnings or DE of $0.31 per share. DE included $29 million of realized losses, primarily related to the resolution of an impaired Dallas multifamily loan following the foreclosure of the collateral property. We now hold the asset on the balance sheet as owned real estate at a significant discount to prior ownership's basis. DE, prior to realized gains and losses, was $0.48 per share, which covered our $0.47 per share dividend, but was down $0.01 from the prior quarter. DE, prior to realized gains and losses, benefited from continued growth in our unconsolidated joint ventures as we actively deployed capital across our net lease and single-family home builder finance businesses.

Marcin Urbaszek: Altogether, we had $322 million of capital invested in our joint venture investments at quarter end, up from $244 million as in Q1, and recognized a little over $9 million of DE this quarter from these diversified strategies. We also recognized higher seasonal net revenues generated by our New York hotel, which contributed to $15 million of NOI we earned from our owned real estate assets this quarter, up about $1 million from Q1. Looking ahead to Q3, we expect DE will be impacted by the new loan impairments recognized in the quarter and the timing of several large repayments collected in July. Book value ended Q2 at $19.31 per share, down 4% from Q1, primarily due to an $0.80 per share increase in CECL reserves and $0.12 per share of depreciation and amortization related to our owned real estate assets.

Marcin Urbaszek: Book value ended Q2 at $19.31 per share, down 4% from Q1, primarily due to an $0.80 per share increase in CECL reserves and $0.12 per share of depreciation and amortization related to our owned real estate assets. In total, book value includes $2.43 per share of total CECL reserves, of which $1.13 per share is the general reserve and $1.30 per share are the asset-specific reserves. The majority of the net increase in the CECL reserve this quarter was related to the impairment of a large Chicago office loan Austin discussed earlier, which we believe is appropriately reserved for. The modest decline in our Q2 general reserve reflects risk rating movements this quarter, including a smaller balance of watchlist loans.

Marcin Urbaszek: In total, book value includes $2.43 per share of total CECL reserves, of which $1.13 per share is the general reserve and $1.30 per share are the asset-specific reserves. The majority of the net increase in the CECL reserve this quarter was related to the impairment of a large Chicago office loan Austin discussed earlier, which we believe is appropriately reserved for. The modest decline in our Q2 general reserve reflects risk rating movements this quarter, including a smaller balance of watchlist loans. Turning to BXMT's capitalization, we ended the quarter with $1.2 billion of liquidity. Our Q2 debt-to-equity ratio increased to 3.9 times from 3.7 times in Q1, mainly due to the timing of repayments and the increase in CECL. We remain active across the capital markets.

Marcin Urbaszek: Turning to BXMT's capitalization, we ended the quarter with $1.2 billion of liquidity. Our Q2 debt-to-equity ratio increased to 3.9 times from 3.7 times in Q1, mainly due to the timing of repayments and the increase in CECL. We remain active across the capital markets. In May, we issued $450 million of senior secured notes, which largely pre-funded our corporate debt maturities set to occur in Q1 2027. The offering was met with strong investor demand and priced at the tightest new issue spread we've ever achieved across our corporate debt complex.

Marcin Urbaszek: In May, we issued $450 million of senior secured notes, which largely pre-funded our corporate debt maturities set to occur in Q1 2027. The offering was met with strong investor demand and priced at the tightest new issue spread we've ever achieved across our corporate debt complex. Upon repayment of the 2027 notes, we will have nearly five years of weighted average remaining term on our corporate debt and no maturities until 2029. Working closely with our sophisticated capital markets team, we continue to drive lower financing costs and are now regularly borrowing at or near our historical all-time highs. We also closed on a new non-mark-to-market lending facility with a major bank in the UK. Our ability to source unique and attractive investments for our portfolio, combined with our broad access to various and attractively priced sources of capital, remain some of our key competitive advantages.

Marcin Urbaszek: Upon repayment of the 2027 notes, we will have nearly five years of weighted average remaining term on our corporate debt and no maturities until 2029. Working closely with our sophisticated capital markets team, we continue to drive lower financing costs and are now regularly borrowing at or near our historical all-time highs. We also closed on a new non-mark-to-market lending facility with a major bank in the UK. Our ability to source unique and attractive investments for our portfolio, combined with our broad access to various and attractively priced sources of capital, remain some of our key competitive advantages.

Marcin Urbaszek: Our balance sheet continues to be very well-positioned, with total non-mark-to-market borrowings now representing about 88% of total debt and with no capital markets mark-to-market provisions throughout our capital structure. Thank you again for joining us today. I will now ask the operator to open the call to questions.

Operator: Thank you. As a reminder, please press *1 to ask a question. We ask you to limit yourself to one question and one follow-up to allow as many callers to join the queue as possible. We will take our first question from Thomas Catherwood with BTIG.

Thomas Catherwood: Thanks, and good morning, everybody. Maybe either Tim or Austin, I just want to square up the commentary on CECL reserves and the potential sale of $1 billion or $1 billion plus in loans. It sounds like CECL reserves, especially the specific ones, were primarily on the 3 assets downgraded to the 5-rated bucket. When you think of the $1 billion in loans that's out there, from a marketing standpoint, is that marked to where you're getting bids at right now? What's the process for maybe adjusting that going forward and the potential for additional reserves as you get towards the sale?

Tom Catherwood: Thanks, and good morning, everybody. Maybe either Tim or Austin, I just want to square up the commentary on CECL reserves and the potential sale of $1 billion or $1 billion plus in loans. It sounds like CECL reserves, especially the specific ones, were primarily on the 3 assets downgraded to the 5-rated bucket. When you think of the $1 billion in loans that's out there, from a marketing standpoint, is that marked to where you're getting bids at right now? What's the process for maybe adjusting that going forward and the potential for additional reserves as you get towards the sale?

Tim Johnson: Yeah. Thanks, Tom. This is Tim. I'd say that process is still pretty early on in terms of the loan sale. We're going to review what we get. As we noted in the prepared remarks, that is kind of an optional sale. We're looking to take advantage of what we think is a reasonably liquid market to sell loans. There are not reserves against those $1 billion of loans today. As we evaluate what we receive in terms of bids, we'll walk through that next quarter after we have more information.

Thomas Catherwood: Perfect. As a follow-up, obviously, that's an optional sale, but there are other sales you have teed up. You mentioned the sale of the Hyatt Hotel in San Francisco. When you think of this goal of kind of being a more diversified platform, what are your capital allocation priorities for the proceeds from these sales as they come in? Do you primarily put them into loans, or could you look to accelerate net lease investments or invest kind of elsewhere in a variety of different strategies? What are your thoughts on those priorities?

Tom Catherwood: Perfect. As a follow-up, obviously, that's an optional sale, but there are other sales you have teed up. You mentioned the sale of the Hyatt Hotel in San Francisco. When you think of this goal of kind of being a more diversified platform, what are your capital allocation priorities for the proceeds from these sales as they come in? Do you primarily put them into loans, or could you look to accelerate net lease investments or invest kind of elsewhere in a variety of different strategies? What are your thoughts on those priorities?

Tim Johnson: Yeah. It's a great question. It really is about that rotation into the strategies that we have the most conviction and we think have the best relative value today. As we highlighted in the prepared remarks, net lease, home builder finance, as well as our traditional lending businesses all provide compelling opportunities. We're going to take that capital back in, and we'll evaluate each and every option we have in the market to determine where the best relative value is. We highlighted some of those areas, and you've seen it in our recent investment activity where we're putting that capital. It's really concentrated in the sectors where we see the best underlying fundamentals and where we think we can continue to develop our value in terms of returns.

Thomas Catherwood: Great. Thanks for the answers.

Tom Catherwood: Great. Thanks for the answers.

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

Jade Rahmani: The $1 billion of watch list loans that are, you said at the margin impacted by higher rates. Are those risk 4-rated loans?

Jade Rahmani: Thank you very much. The $1 billion of watch list loans that are, you said at the margin impacted by higher rates. Are those risk 4-rated loans?

Austin Peña: Yes, Jade, this is Austin. Those are on our watch list, which yes, have a risk rating of 4.

Jade Rahmani: Okay. Those are primarily office?

Austin Peña: Yes. Yes.

Jade Rahmani: Okay. My main question is if you're starting to see pressure in multifamily loan performance. How do you think sponsors are thinking about the outlook today? I think that multifamily rent growth was about flat this quarter year on year. The negative rent growth in Sunbelt is a little bit better than it had been, but still negative. Are investors seeing the light at the end of the tunnel on supply for 2027 and looking to hold through this period of high rates, or are they more worried about rates where they are and ability to cover debt service and kind of value recovery? Just what are your views on multifamily credit risk?

Tim Johnson: Yeah, I think we continue to see broadly, really good liquidity in multifamily, both within our portfolio and more broadly in the markets. I think a good thing to highlight would be that we've received about $5 billion of repayments on multifamily loans originated in 2021 and 2022. There have been repayments recently, and we're expecting repayments in the near term that are pre-2022 vintage multifamily. I think that the diversity of capital sources in that space is a real valuable thing for refinancing activity. You've got a broad base of investor appetite for multifamily loans. As you noted, we are seeing fundamentals generally improve in multifamily. Net absorption nationally in H1 was the strongest in five years. We are seeing positive trends there. I'd say in our portfolio, we continue to see good fundamentals and good liquidity and repayment activity.

Tim Johnson: I'd say in our portfolio, we continue to see good fundamentals and good liquidity and repayment activity.

Jade Rahmani: Thank you very much. If I could squeeze one more in and it'd just be on special situations in M&A. We've seen a pickup in the real estate space, whether it be equity REITs, even in the commercial mortgage REIT space, one company selling its portfolio and liquidating and another announcing strategic alternatives. Do you expect to participate in M&A, and do you think this could be a source of attractive opportunities?

Tim Johnson: Sure, Jade, it's Tim again. I'd say first we're always going to evaluate opportunities to maximize shareholder value. We see what's going on in the markets. I think we are pursuing some attractive things today, like we've talked about with portfolio turnover, looking to sell a loan portfolio to do some of that redeployment of capital. I really think when we look at things like M&A, we kind of look at it as a build versus a buy concept. We've generally chosen build in terms of our net lease strategy and our home builder strategy. We think we offer a really compelling investment opportunity to the market broadly given our $78 billion overall real estate debt platform. We can create some very compelling opportunities that are very difficult to access. We think we have a platform that can deliver something that's really valuable to shareholders.

Tim Johnson: We think we have a platform that can deliver something that's really valuable to shareholders. We're going to continue on that path, but we'll always evaluate opportunity as they arise.

Tim Johnson: We're going to continue on that path, but we'll always evaluate opportunity as they arise.

Jade Rahmani: Thank you.

Operator: We will take our next question from Harsh Hemnani with Green Street.

Harsh Hemnani: Thank you. As we sort of think through the decision to sell a portion of the office loan portfolio, could you maybe talk through the thinking behind that? I guess on the one hand, it makes sense the office market is not great, even though fundamentals are starting to improve. I guess on the one side, like fundamentals are starting to improve, and there could be, if you wait for a little bit, recovery might be higher. On the flip side of that, you've talked about this when entering the bank loan portfolio, joint ventures, there's certain accruing and earning assets that may fit better in a REIT wrapper in the public market. It's sort of fair to expect that some of these office loans may be non-accruing and a drag on distributable earnings in the short term.

Harsh Hemnani: I guess, how do you address the question as to this decision was made more from a perspective of long-term shareholder value creation, than from it being an exercise in near-term earnings management? How do you address sort of investor concerns around that, and how were you thinking of that internally?

Tim Johnson: Thanks, Harsh. This is Tim. I'd say, first of all, the loan sale process is early stage and underway, as we noted, we're under no obligation to sell, and we may look at selling some, all or none of it. There are many options here. I think it's really about rotating our portfolio, more than sort of something driven by a near-term earnings impact. It's really about rotating our portfolio into the sectors where we see the best fundamentals, the best risk-adjusted return, and the best relative value. What's underpinning it is that as I noted before, we're very active in the loan trading market. You noted it as well, both as a really more as a buyer than a seller, but we see good liquidity in that space.

Tim Johnson: If we can take advantage of an opportunity to rotate out of office into other sectors, we think that is going to be the best outcome for long-term value for our shareholders. Of course, we're going to look at price, and it's got to work for us and make sense relative to the risk of those underlying loans themselves.

Harsh Hemnani: Got it. That's helpful. Then maybe in terms of the balance sheet, total leverage has ticked up a little bit in the high fours if you include the CLOs. As you've sort of diversified all the new ventures, the net lease portfolios, the bank loan portfolios that show up as equity interests on the balance sheet have their own leverage added onto it. I guess, how are you thinking about leverage at this point? If and when there are any office asset sales, does part of it get used to de-leverage the balance sheet or are you fairly comfortable with leverage levels where they are?

Marcin Urbaszek: Thanks, Harsh, it's Marcin. Thank you for joining us. Thanks for your question. Look, I think as I mentioned in my prepared remarks, the leverage was a little elevated at the end of the quarter largely driven by the timing of some repayments and obviously the lease reserves. It's really in the three to four times debt-to-equity range. Even though the repayment we did already realize a lot of them as mentioned earlier, it's taken the leverage down quite a bit in this quarter. I think our overall leverage strategy is not shifting or changing at the moment. It's obviously a function of the market conditions, balancing structure, cost and structure of leverage. We intend to be in that three to four times debt-to-equity range going forward.

Marcin Urbaszek: Again, quarter to quarter, there will be some variability depending on the timing of closing of repayments and originations and things like that.

Harsh Hemnani: Got it. Thank you.

Operator: Thank you. We'll take our next question from Rick Shane with J.P. Morgan.

Rick Shane: Hey, guys. Thanks for taking my question. One quick cleanup question, and I just apologize, I forget. Policies diverge across the industry. Do you guys realize losses when you put REO and mark it down or do you wait until you actually complete the sale for the realization event?

Marcin Urbaszek: Hey, Rick, it's Marcin. We realize the loss when we take over when we foreclose or consolidate the asset. That happened in this quarter with that Denver multifamily loan. Then obviously as we own real estate, we are required to assess them for any potential impairments every quarter which we go through a robust process. That initial charge-off happens when we take ownership.

Rick Shane: Got it. Assuming, for example, the San Francisco hotel is sold close to your carrying value, no further realized losses associated with that?

Marcin Urbaszek: Yes, we look at what the net proceeds are vis-à-vis where we carry it, and then if there needs to be an adjustment, there is one. Correct.

Rick Shane: Got it. Okay, great. Thank you. Look, Marcin, you alluded to the fact that there's going to be some drag versus distributable X losses in Q3. Can you help us think about where that run rate is versus the $0.48 that you guys reported in Q2?

Marcin Urbaszek: Look, I think it's hard given all the moving pieces right now, and it's still early in the quarter. Obviously given some of the impairments we took in Q2 and the pretty substantial repayment volume that we had this quarter. Again, it'll take us probably a couple Qs to be fully deployed with the money that we're getting back. It's hard to say exactly where we're going to be right now on a runway basis. There's a lot of things moving around at the moment.

Rick Shane: Got it. Okay. That actually leads to my final question, which is how should we think about that in the context of dividend and dividend policy? If, for example, how far forward do you look in setting that policy? If we are in a situation over the next, for example, two to three quarters where there is a shortfall, does it make sense to recalibrate the dividend that quickly? Or are you looking at a sort of more optimistic dividend run rate once you're fully redeployed? Because again, you're sort of saying, Hey, look, DPS is going to come down. There was a comment about reevaluating dividend. Again, I think that's sort of a generic comment that you do that every quarter. I think everybody really needs to know the interplay between the drag on earnings and the dividend policy in the near term.

Rick Shane: Again, I think that's sort of a generic comment that you do that every quarter. I think everybody really needs to know the interplay between the drag on earnings and the dividend policy in the near term.

Tim Johnson: Yeah. Thanks, Rick. It's Tim. I'd say conceptually the dividend is really focused around long-term earnings power of the business. That's how we've always looked at it. Marcin noted there's some short-term impacts. There are a number of moving pieces. Obviously, as Marcin said, we had impairments in Q2. Given the initiatives that we're undertaking to drive portfolio turnover, as we noted in the prepared remarks, it's possible we see impacts from that. There's a number of moving pieces that we'll have to evaluate with the board. It's too early to kind of tell what that's going to look like right now. What we're going to evaluate really is the long-term earnings power of the business. That's what we evaluate when we look at the dividend.

Rick Shane: Okay. Thank you guys very much. Appreciate it.

Operator: Thank you. We will take our final question from Marissa Lobo with UBS.

Marissa Lobo: Good morning. Thanks for taking my question. You mentioned that nearly half of your performing office loans were three-rated or better and they're currently in the refi market. With the tenure up, what are you seeing in terms of lender appetite for these processes? What's the contingency if they don't close by your end?

Austin Peña: Yeah, thanks, Marissa. It's Austin. I think as we noted, obviously rates are moving around. What we've seen very recently, as we noted earlier, is a really liquid debt market. We've gotten a lot of repayments, a lot in Q2. Another nearly $1.5 billion so far in July. You see an active CMBS market, as Tim mentioned earlier. We really see pretty active capital markets out there and strong demand from lenders to finance good assets. As Tim mentioned, and as you alluded to, that includes a lot of different sectors, including a lot of our office loans. Today we continue to see a lot of activity in the refinance market and the capital markets. Nothing's really changed, I would say, sitting here today.

Marissa Lobo: Okay. Thank you. Just shifting to the portfolio rotation. You cited a $200 billion TAM in home builder finance. What is the realistic allocation for BXMT in this sector over the next year? How does the credit profile of these loans compare to your transitional lending book?

Austin Peña: Yeah, thanks. This is Austin. We're really excited about this new opportunity and this sector. We really see a few things that make this what we think a really attractive and compelling opportunity. The first is the overall sector of housing in the US is undersupplied. That creates a good fundamental setup. Secondly, there's been a pretty big pullback in lending to the space, particularly with regional banks that have historically big lenders to this sector. Finally, as Tim mentioned earlier, this is a sector where it's really hard to access these investments without a platform. In terms of the underlying loans, they're very granular, they're very geographically diverse. You really need a national footprint and a presence in this space to access these investments. For those reasons, what we're seeing in the space is really an interesting and pretty compelling yield opportunity.

Austin Peña: For those reasons, what we're seeing in the space is really an interesting and pretty compelling yield opportunity. In terms of the underlying loans themselves, they're really well-structured. Typically carry very good recourse to corporate entities, in many cases, individuals. They're often on cross portfolios. So from an underlying credit perspective, we really like the credit. Of course, the return also we think is attractive. The last thing I would say is we've partnered with the largest private lender to the space. They have a really great product suite that they can offer to this market. So we think that really sets us up well to grow in this space. We're just getting started, but we think we have a really good foundation.

Austin Peña: In terms of the underlying loans themselves, they're really well-structured. Typically carry very good recourse to corporate entities, in many cases, individuals. They're often on cross portfolios. So from an underlying credit perspective, we really like the credit. Of course, the return also we think is attractive. The last thing I would say is we've partnered with the largest private lender to the space. They have a really great product suite that they can offer to this market. So we think that really sets us up well to grow in this space. We're just getting started, but we think we have a really good foundation.

Marissa Lobo: Got it. Appreciate the answers.

Operator: Thank you. With no additional questions in queue, I will turn the call back over to Tim Hayes for any additional or closing remarks.

Tim Hayes: Yeah. Thank you, Katie, to everyone on today's call. Please reach out with any questions.

Operator: Goodbye.

Operator: Thank you. That will conclude today's call. We appreciate your participation.

Q2 2026 Blackstone Mortgage Trust Inc Earnings Call

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