10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2016

OR

 

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                      TO                     

Commission File Number: 001-14788

 

LOGO

Blackstone Mortgage Trust, Inc.

(Exact name of Registrant as specified in its charter)

 

Maryland   94-6181186

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

345 Park Avenue, 42nd Floor

New York, New York 10154

(Address of principal executive offices)(Zip Code)

(212) 655-0220

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

x

  

Accelerated filer

 

¨

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of the Registrant’s outstanding shares of class A common stock, par value $0.01 per share, as of October 18, 2016 was 93,913,194.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

PART I.  

FINANCIAL INFORMATION

  
ITEM 1.  

FINANCIAL STATEMENTS

     2   
 

Consolidated Financial Statements (Unaudited):

  
 

Consolidated Balance Sheets as of September  30, 2016 and December 31, 2015

     2   
 

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2016 and 2015

     3   
 

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2016 and 2015

     4   
 

Consolidated Statements of Changes in Equity for the Nine Months Ended September 30, 2016 and 2015

     5   
 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015

     6   
 

Notes to Consolidated Financial Statements

     7   
ITEM 2.  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     38   
ITEM 3.  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     58   
ITEM 4.  

CONTROLS AND PROCEDURES

     60   
PART II.  

OTHER INFORMATION

  
ITEM 1.  

LEGAL PROCEEDINGS

     61   
ITEM 1A.  

RISK FACTORS

     61   

ITEM 2.

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

    

61

  

ITEM 3.

 

DEFAULTS UPON SENIOR SECURITIES

     61   

ITEM 4.

 

MINE SAFETY DISCLOSURES

     61   

ITEM 5.

 

OTHER INFORMATION

     61   

ITEM 6.

 

EXHIBITS

     62   
SIGNATURES      63   


Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Blackstone Mortgage Trust, Inc.

Consolidated Balance Sheets (Unaudited)

(in thousands, except share data)

 

     September 30,     December 31,  
     2016     2015  

Assets

    

Cash and cash equivalents

   $ 94,061      $ 96,450   

Restricted cash

     877        9,556   

Loans receivable, net

     8,347,712        9,077,007   

Equity investments in unconsolidated subsidiaries

     1,678        9,441   

Other assets

     66,613        184,119   
  

 

 

   

 

 

 

Total Assets

   $ 8,510,941      $ 9,376,573   
  

 

 

   

 

 

 

Liabilities and Equity

    

Secured debt agreements

   $ 5,320,358      $ 6,116,105   

Loan participations sold

     409,654        497,032   

Convertible notes, net

     166,064        164,026   

Other liabilities

     110,067        93,679   
  

 

 

   

 

 

 

Total Liabilities

     6,006,143        6,870,842   
  

 

 

   

 

 

 

Commitments and contingencies

     —          —     

Equity

    

Class A common stock, $0.01 par value, 200,000,000 shares authorized, 93,912,936 and 93,702,326 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively

     939        937   

Additional paid-in capital

     3,084,948        3,070,200   

Accumulated other comprehensive loss

     (46,389     (32,758

Accumulated deficit

     (535,804     (545,791
  

 

 

   

 

 

 

Total Blackstone Mortgage Trust, Inc. stockholders’ equity

     2,503,694        2,492,588   

Non-controlling interests

     1,104        13,143   
  

 

 

   

 

 

 

Total Equity

     2,504,798        2,505,731   
  

 

 

   

 

 

 

Total Liabilities and Equity

   $     8,510,941      $     9,376,573   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

Blackstone Mortgage Trust, Inc.

Consolidated Statements of Operations (Unaudited)

(in thousands, except share and per share data)

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
     2016     2015     2016     2015  

Income from loans and other investments

        

Interest and related income

   $ 128,190      $ 138,361      $ 381,686      $ 282,249   

Less: Interest and related expenses

     45,373        51,329        139,819        106,125   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from loans and other investments, net

     82,817        87,032        241,867        176,124   

Other expenses

        

Management and incentive fees

     13,701        13,813        43,161        28,535   

General and administrative expenses

     7,414        5,295        20,990        28,655   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expenses

     21,115        19,108        64,151        57,190   

Gain (loss) on investments at fair value

     2,824        (82     13,413        22,108   

Income from equity investments in unconsolidated subsidiaries

     2,060        17        2,192        5,677   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     66,586        67,859        193,321        146,719   

Income tax provision

     194        81        281        431   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     66,392        67,778        193,040        146,288   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to non-controlling interests

     (1,598     (890     (8,119     (14,724

Net income attributable to Blackstone Mortgage Trust, Inc.

   $ 64,794      $ 66,888      $ 184,921      $ 131,564   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share of common stock basic and diluted

   $ 0.69      $ 0.72      $ 1.97      $ 1.69   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares of common stock outstanding basic and diluted

         94,071,537            93,357,960            94,067,923            77,752,247   
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends declared per share of common stock

   $ 0.62      $ 0.62      $ 1.86      $ 1.66   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

Blackstone Mortgage Trust, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)

(in thousands)

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
     2016     2015     2016     2015  

Net income

   $ 66,392      $ 67,778      $ 193,040      $ 146,288   

Other comprehensive loss

        

Unrealized loss on foreign currency remeasurement

     (10,128     (23,148     (25,472     (27,484

Unrealized gain on derivative financial instruments

     5,882        14,891        11,841        14,920   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     62,146        59,521        179,409        133,724   

Comprehensive income attributable to non-controlling interests

     (1,598     (890     (8,119     (14,724
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Blackstone Mortgage Trust, Inc.

   $     60,548      $     58,631      $     171,290      $     119,000   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

Blackstone Mortgage Trust, Inc.

Consolidated Statements of Changes in Equity (Unaudited)

(in thousands)

 

     Blackstone Mortgage Trust, Inc.              
     Class A      Additional      Accumulated Other                          
     Common      Paid-In      Comprehensive     Accumulated     Stockholders’     Non-controlling     Total  
     Stock      Capital      Loss     Deficit     Equity     Interests     Equity  

Balance at December 31, 2014

   $ 583       $ 2,027,404       $ (15,024   $ (547,592   $ 1,465,371      $ 35,515      $ 1,500,886   

Shares of class A common stock issued, net

     349         1,029,186         —          —          1,029,535        —          1,029,535   

Restricted class A common stock earned

     —           9,599         —          —          9,599        —          9,599   

Dividends reinvested

     —           192         —          (179     13        —          13   

Deferred directors’ compensation

     —           281         —          —          281        —          281   

Other comprehensive loss

     —           —           (12,564     —          (12,564     —          (12,564

Net income

     —           —           —          131,564        131,564        14,724        146,288   

Dividends declared on common stock

     —           —           —          (136,674     (136,674     —          (136,674

Distributions to non-controlling interests

     —           —           —          —          —          (37,202     (37,202
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2015

   $ 932       $ 3,066,662       $ (27,588   $ (552,881   $ 2,487,125      $ 13,037      $ 2,500,162   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2015

   $ 937       $ 3,070,200       $ (32,758   $ (545,791   $ 2,492,588      $ 13,143      $ 2,505,731   

Shares of class A common stock issued, net

     2         —           —          —          2        —          2   

Restricted class A common stock earned

     —           14,190         —          —          14,190        —          14,190   

Dividends reinvested

     —           276         —          (256     20        —          20   

Deferred directors’ compensation

     —           282         —          —          282        —          282   

Other comprehensive loss

     —           —           (13,631     —          (13,631     —          (13,631

Net income

     —           —           —          184,921        184,921        8,119        193,040   

Dividends declared on common stock

     —           —           —          (174,678     (174,678     —          (174,678

Distributions to non-controlling interests

     —           —           —          —          —          (20,158     (20,158
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2016

   $   939       $   3,084,948       $   (46,389)      $   (535,804)      $   2,503,694      $   1,104      $   2,504,798   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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Blackstone Mortgage Trust, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

     Nine Months Ended
September 30,
 
     2016     2015  

Cash flows from operating activities

    

Net income

   $ 193,040      $ 146,288   

Adjustments to reconcile net income to net cash provided by operating activities

    

Gain on investments at fair value

     (13,413     (22,108

Income from equity investments in unconsolidated subsidiaries

     (2,192     (5,677

Non-cash compensation expense

     16,517        14,470   

Distributions of income from unconsolidated subsidiaries

     8,167        5,007   

Amortization of deferred interest on loans

     (31,594     (25,489

Amortization of deferred financing costs and premiums/discount on debt obligations

     15,129        14,684   

Changes in assets and liabilities, net

    

Other assets

     8,315        (28,679

Other liabilities

     (6,405     6,114   
  

 

 

   

 

 

 

Net cash provided by operating activities

     187,564        104,610   
  

 

 

   

 

 

 

Cash flows from investing activities

    

Originations and fundings of loans receivable

     (2,300,636     (6,807,347

Principal collections and sale proceeds from loans receivable and other assets

     3,054,821        1,584,189   

Origination and exit fees received on loans receivable

     35,388        26,799   

Change in restricted cash

     8,678        2,528   
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     798,251        (5,193,831
  

 

 

   

 

 

 

Cash flows from financing activities

    

Borrowings under secured debt agreements

     2,225,895        6,560,426   

Repayments under secured debt agreements

     (2,988,217     (2,279,837

Proceeds from sales of loan participations

     54,441        256,000   

Repayment of loan participations

     (92,000     (238,164

Payment of deferred financing costs

     (12,564     (19,932

Receipts under derivative financial instruments

     31,668        15,653   

Payments under derivative financial instruments

     (14,266     (3,742

Distributions to non-controlling interests

     (20,158     (37,202

Net proceeds from issuance of class A common stock

     20        1,029,535   

Dividends paid on class A common stock

     (174,549     (109,178
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (989,730     5,173,559   
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (3,915     84,338   

Cash and cash equivalents at beginning of period

     96,450        51,810   

Effects of currency translation on cash and cash equivalents

     1,526        2,452   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 94,061      $ 138,600   
  

 

 

   

 

 

 

Supplemental disclosure of cash flows information

    

Payments of interest

   $ (123,564   $ (85,494
  

 

 

   

 

 

 

Payments of income taxes

   $ (131   $ (125
  

 

 

   

 

 

 

Supplemental disclosure of non-cash investing and financing activities

    

Dividends declared, not paid

   $ (58,388   $ (57,800
  

 

 

   

 

 

 

Participations sold, net

   $ 37,559      $ 17,836   
  

 

 

   

 

 

 

Loan principal payments held by servicer, net

   $ 9,515      $ 232,818   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

1. ORGANIZATION

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

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

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The consolidated financial statements, including the notes thereto, are unaudited and exclude some of the disclosures required in audited financial statements. Management believes it has made all necessary adjustments, consisting of only normal recurring items, so that the consolidated financial statements are presented fairly and that estimates made in preparing its consolidated financial statements are reasonable and prudent. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. The accompanying unaudited consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed with the Securities and Exchange Commission.

Basis of Presentation

The accompanying consolidated financial statements include, on a consolidated basis, our accounts, the accounts of our wholly-owned subsidiaries, majority-owned subsidiaries, and variable interest entities, or VIEs, of which we are the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. Certain of the assets and credit of our consolidated subsidiaries are not available to satisfy the debt or other obligations of us, our affiliates, or other entities.

One of our subsidiaries, CT Legacy Partners, LLC, or CT Legacy Partners, accounts for its operations in accordance with industry-specific GAAP accounting guidance for investment companies, pursuant to which it reports its investments at fair value. We have retained this accounting treatment in consolidation and, accordingly, report the loans and other investments of CT Legacy Partners at fair value on our consolidated balance sheets.

Certain reclassifications have been made in the presentation of the prior period consolidated statement of cash flows to conform to the current period presentation.

Principles of Consolidation

We consolidate all entities that we control through either majority ownership or voting rights. In addition, we consolidate all VIEs of which we are considered the primary beneficiary. VIEs are defined as entities in which equity investors (i) do not have the characteristics of a controlling financial interest and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The entity that consolidates a VIE is known as its primary beneficiary and is generally the entity with (i) the power to direct the activities that most significantly affect the VIE’s economic performance and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE.

As of both September 30, 2016 and December 31, 2015, we did not consolidate any VIEs.

 

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Table of Contents

Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may ultimately differ from those estimates.

Revenue Recognition

Interest income from our loans receivable portfolio is recognized over the life of each investment using the effective interest method and is recorded on the accrual basis. Recognition of fees, premiums, and discounts associated with these investments is deferred until the loan is advanced and is then recorded over the term of the loan as an adjustment to yield. Income accrual is generally suspended for loans at the earlier of the date at which payments become 90 days past due or when, in the opinion of our Manager, recovery of income and principal becomes doubtful. Income is then recorded on the basis of cash received until accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed. In addition, for loans we originate, the related origination expenses are deferred and recognized as a component of interest income, however expenses related to loans we acquire are included in general and administrative expenses as incurred.

Cash and Cash Equivalents

Cash and cash equivalents represent cash held in banks, cash on hand, and liquid investments with original maturities of three months or less. We may have bank balances in excess of federally insured amounts; however, we deposit our cash and cash equivalents with high credit-quality institutions to minimize credit risk exposure. We have not experienced, and do not expect, any losses on our cash or cash equivalents.

Restricted Cash

We classify the cash balances held by CT Legacy Partners as restricted because, while these cash balances are available for use by CT Legacy Partners for its operations, they cannot be used by us until our allocable share is distributed from CT Legacy Partners and cannot be commingled with any of our unrestricted cash balances.

Loans Receivable and Provision for Loan Losses

We originate and purchase commercial real estate debt and related instruments generally to be held as long-term investments at amortized cost. We are required to periodically evaluate each of these loans for possible impairment. Impairment is indicated when it is deemed probable that we will not be able to collect all amounts due to us pursuant to the contractual terms of the loan. If a loan is determined to be impaired, we write down the loan through a charge to the provision for loan losses. Impairment of these loans, which are collateral dependent, is measured by comparing the estimated fair value of the underlying collateral, less costs to sell, to the book value of the respective loan. These valuations require significant judgments, which include assumptions regarding capitalization rates, leasing, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, loan sponsorship, actions of other lenders, and other factors deemed necessary by our Manager. Actual losses, if any, could ultimately differ from these estimates.

Our Manager performs a quarterly review of our portfolio of loans. In conjunction with this review, our Manager assesses the risk factors of each loan, and assigns a risk rating based on a variety of factors, including, without limitation, loan-to-value ratio, or LTV, debt yield, property type, geographic and local market dynamics, physical condition, cash flow volatility, leasing and tenant profile, loan structure and exit plan, and project sponsorship. Based on a 5-point scale, our loans are rated “1” through “5,” from less risk to greater risk, which ratings are defined as follows:

 

  1 -   Very Low Risk
  2 -   Low Risk
  3 -   Medium Risk
  4 -   High Risk/Potential for Loss: A loan that has a risk of realizing a principal loss.
  5 -   Impaired/Loss Likely: A loan that has a very high risk of realizing a principal loss or has otherwise incurred a principal loss.

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

During the second quarter of 2015, we acquired a portfolio of loans from General Electric Capital Corporation and certain of its affiliates, or the GE portfolio, for a total purchase price of $4.7 billion. We allocated the aggregate purchase price between each loan based on its fair value relative to the overall portfolio, which allocation resulted in purchase discounts or premiums determined on an asset-by-asset basis. Each loan will accrete from its allocated purchase price to its expected collection value over the life of the loan, consistent with the other loans in our portfolio.

Equity Investments in Unconsolidated Subsidiaries

Our carried interest in CT Opportunity Partners I, LP, or CTOPI, is accounted for using the equity method. CTOPI’s assets and liabilities are not consolidated into our financial statements due to our determination that (i) it is not a VIE and (ii) the other investors in CTOPI have sufficient rights to preclude consolidation by us. As such, we report our allocable percentage of the net assets of CTOPI on our consolidated balance sheets. The recognition of income from CTOPI is generally deferred until cash is collected or appropriate contingencies have been eliminated.

Derivative Financial Instruments

We classify all derivative financial instruments as either other assets or other liabilities on our consolidated balance sheets at fair value.

On the date we enter into a derivative contract, we designate each contract as (i) a hedge of a net investment in a foreign operation, or net investment hedge, (ii) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability, or cash flow hedge, (iii) a hedge of a recognized asset or liability, or fair value hedge, or (iv) a derivative instrument not to be designated as a hedging derivative, or non-designated hedge. For all derivatives other than those designated as non-designated hedges, we formally document our hedge relationships and designation at the contract’s inception. This documentation includes the identification of the hedging instruments and the hedged items, its risk management objectives, strategy for undertaking the hedge transaction and our evaluation of the effectiveness of its hedged transaction.

On a quarterly basis, we also formally assess whether the derivative we designated in each hedging relationship is expected to be, and has been, highly effective in offsetting changes in the value or cash flows of the hedged items. If it is determined that a derivative is not highly effective at hedging the designated exposure, hedge accounting is discontinued. Changes in the fair value of the effective portion of our hedges are reflected in accumulated other comprehensive income (loss) on our consolidated financial statements. Changes in the fair value of the ineffective portion of our hedges are included in net income. Amounts are reclassified out of accumulated other comprehensive income (loss) and into net income when the hedged item is sold, substantially liquidated, or de-designated. To the extent a derivative does not qualify for hedge accounting and is deemed a non-designated hedge, the changes in its value are included in net income.

Repurchase Agreements

We record investments financed with repurchase agreements as separate assets and the related borrowings under any repurchase agreements are recorded as separate liabilities on our consolidated balance sheets. Interest income earned on the investments and interest expense incurred on the repurchase agreements are reported separately on our consolidated statements of operations.

Senior Loan Participations

In certain instances, we finance our loans through the non-recourse syndication of a senior loan interest to a third-party. Depending on the particular structure of the syndication, the senior loan interest may remain on our GAAP balance sheet or, in other cases, the sale will be recognized and the senior loan interest will no longer be included in our consolidated financial statements. When these sales are not recognized under GAAP we reflect the transaction by recording a loan participations sold liability on our consolidated balance sheet, however this gross presentation does not impact stockholders’ equity or net income. When the sales are recognized, our balance sheet only includes our remaining subordinate loan and not the non-consolidated senior interest we sold.

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

Convertible Notes

The “Debt with Conversion and Other Options” Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, requires the liability and equity components of convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement, to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The initial proceeds from the sale of convertible notes are allocated between a liability component and an equity component in a manner that reflects interest expense at the rate of similar nonconvertible debt that could have been issued at such time. The equity component represents the excess initial proceeds received over the fair value of the liability component of the notes as of the date of issuance. We measured the estimated fair value of the debt component of our convertible notes as of the issuance date based on our nonconvertible debt borrowing rate. The equity component of the convertible notes is reflected within additional paid-in capital on our consolidated balance sheet, and the resulting debt discount is amortized over the period during which the convertible notes are expected to be outstanding (through the maturity date) as additional non-cash interest expense. The additional non-cash interest expense attributable to the convertible notes will increase in subsequent periods through the maturity date as the notes accrete to their par value over the same period.

Deferred Financing Costs

The deferred financing costs that are included as a reduction in the net book value of the related liability on our consolidated balance sheets include issuance and other costs related to our debt obligations. These costs are amortized as interest expense using the effective interest method over the life of the related obligations.

Fair Value of Financial Instruments

The “Fair Value Measurements and Disclosures” Topic, or ASC 820, defines fair value, establishes a framework for measuring fair value, and requires certain disclosures about fair value measurements under GAAP. Specifically, this guidance defines fair value based on exit price, or the price that would be received upon the sale of an asset or the transfer of a liability in an orderly transaction between market participants at the measurement date.

ASC 820 also establishes a fair value hierarchy that prioritizes and ranks the level of market price observability used in measuring financial instruments. Market price observability is affected by a number of factors, including the type of financial instrument, the characteristics specific to the financial instrument, and the state of the marketplace, including the existence and transparency of transactions between market participants. Financial instruments with readily available quoted prices in active markets generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Financial instruments measured and reported at fair value are classified and disclosed based on the observability of inputs used in the determination, as follows:

 

   

Level 1: Generally includes only unadjusted quoted prices that are available in active markets for identical financial instruments as of the reporting date.

 

   

Level 2: Pricing inputs include quoted prices in active markets for similar instruments, quoted prices in less active or inactive markets for identical or similar instruments where multiple price quotes can be obtained, and other observable inputs, such as interest rates, yield curves, credit risks, and default rates.

 

   

Level 3: Pricing inputs are unobservable for the financial instruments and include situations where there is little, if any, market activity for the financial instrument. These inputs require significant judgment or estimation by management of third-parties when determining fair value and generally represent anything that does not meet the criteria of Levels 1 and 2.

The estimated value of each asset reported at fair value using Level 3 inputs is determined by an internal committee composed of members of senior management of our Manager, including our Chief Executive Officer, Chief Financial Officer, and other senior officers.

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

Certain of our other assets are reported at fair value either (i) on a recurring basis, as of each quarter-end, or (ii) on a nonrecurring basis, as a result of impairment or other events. Our assets that are recorded at fair value are discussed further in Note 14. We generally value our assets recorded at fair value by either (i) discounting expected cash flows based on assumptions regarding the collection of principal and interest and estimated market rates, or (ii) obtaining assessments from third-party dealers. For collateral-dependent loans that are identified as impaired, we measure impairment by comparing our Manager’s estimation of the fair value of the underlying collateral, less costs to sell, to the book value of the respective loan. These valuations may require significant judgments, which include assumptions regarding capitalization rates, leasing, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, loan sponsorship, actions of other lenders, and other factors deemed necessary by our Manager.

We are also required by GAAP to disclose fair value information about financial instruments, that are not otherwise reported at fair value in our consolidated balance sheet, to the extent it is practicable to estimate a fair value for those instruments. These disclosure requirements exclude certain financial instruments and all non-financial instruments.

The following methods and assumptions are used to estimate the fair value of each class of financial instruments, for which it is practicable to estimate that value:

 

   

Cash and cash equivalents: The carrying amount of cash and cash equivalents approximates fair value.

 

   

Restricted cash: The carrying amount of restricted cash approximates fair value.

 

   

Loans receivable, net: The fair values for these loans were estimated by our Manager based on discounted cash flow methodology taking into consideration factors, including capitalization rates, discount rates, leasing, occupancy rates, availability and cost of financing, exit plan, sponsorship, actions of other lenders, and indications of market value from other market participants.

 

   

Derivative financial instruments: The fair value of our foreign currency contracts and interest rates caps was valued using advice from a third-party derivative specialist, based on contractual cash flows and observable inputs comprising foreign currency rates and credit spreads.

 

   

Secured debt agreements: The fair values for these instruments were estimated based on the rate at which a similar credit facility would have currently priced.

 

   

Loan participations sold: The fair value of these instruments were estimated based on the value of the related loan receivable asset.

 

   

Convertible notes, net: The convertible notes are actively traded and their fair values were obtained using quoted market prices for these instruments.

Income Taxes

Our financial results generally do not reflect provisions for current or deferred income taxes on our REIT taxable income. We believe that we operate in a manner that will continue to allow us to be taxed as a REIT and, as a result, we generally do not expect to pay substantial corporate level taxes other than those payable by our taxable REIT subsidiaries. If we were to fail to meet these requirements, we may be subject to federal, state, and local income tax on current and past income, and penalties. Refer to Note 12 for additional information.

Stock-Based Compensation

Our stock-based compensation consists of awards issued to our Manager and certain of its employees that vest over the life of the awards as well as deferred stock units issued to certain members of our Board of Directors. Stock-based compensation expense is recognized for these awards in net income on a variable basis over the applicable vesting period of the awards, based on the value of our class A common stock. Refer to Note 13 for additional information.

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

Earnings per Share

Basic earnings per share, or Basic EPS, is computed in accordance with the two-class method and is based on the net earnings allocable to our class A common stock, including restricted class A common stock and deferred stock units, divided by the weighted-average number of shares of our class A common stock, including restricted class A common stock and deferred stock units outstanding during the period. Our restricted class A common stock is considered a participating security, as defined by GAAP, and has been included in our Basic EPS under the two-class method as these restricted shares have the same rights as our other shares of class A common stock, including participating in any gains or losses.

Diluted earnings per share, or Diluted EPS, is determined using the treasury stock method, and is based on the net earnings allocable to our class A common stock, including restricted class A common stock and deferred stock units, divided by the weighted-average number of shares of our class A common stock, including restricted class A common stock and deferred stock units. Refer to Note 10 for additional discussion of earnings per share.

Foreign Currency

In the normal course of business, we enter into transactions not denominated in United States, or U.S., dollars. Foreign exchange gains and losses arising on such transactions are recorded as a gain or loss in our consolidated statements of operations. In addition, we consolidate entities that have a non-U.S. dollar functional currency. Non-U.S. dollar denominated assets and liabilities are translated to U.S. dollars at the exchange rate prevailing at the reporting date and income, expenses, gains, and losses are translated at the average exchange rate over the applicable period. Cumulative translation adjustments arising from the translation of non-U.S. dollar denominated subsidiaries are recorded in other comprehensive income.

Underwriting Commissions and Offering Costs

Underwriting commissions and offering costs incurred in connection with common stock offerings are reflected as a reduction of additional paid-in capital. Costs incurred that are not directly associated with the completion of a common stock offering are expensed when incurred.

Recent Accounting Pronouncements

In August 2016, the FASB issued ASU 2016-15 “Statement of Cash Flows (Topic 230),” or ASU 2016-15. ASU 2016-15 is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The new guidance addresses the classification of various transactions including debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, distributions received from equity method investments, beneficial interests in securitization transactions, and others. We adopted ASU 2016-15 in the third quarter of 2016 and its adoption did not have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments (Topic 326),” or ASU 2016-13. ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 will replace the “incurred loss” model under existing guidance with an “expected loss” model for instruments measured at amortized cost, and require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 and is to be adopted through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. We are currently evaluating the impact ASU 2016-13 will have on our consolidated financial statements.

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting (Topic 718),” or ASU 2016-09. ASU 2016-09 requires all income tax effects of share-based payment awards to be recognized in the income statement relating to the period in which the awards vest or are settled. ASU 2016-09 also allows an employer to repurchase more of an employee’s shares for tax withholding purposes than is permitted under current guidance without triggering liability accounting. Finally, ASU 2016-09 allows a policy election to account for employee forfeitures as they occur. We adopted ASU 2016-09 in the second quarter of 2016 and its adoption did not have a material impact on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-05, “Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships,” or ASU 2016-05. ASU 2016-05 clarifies that the novation of a derivative contract in a hedge accounting relationship does not, in and of itself, require de-designation of that hedge accounting relationship. Hedge accounting relationships can continue as long as all of the other hedge accounting criteria are met, including the expectation that the hedge will be highly effective when the creditworthiness of the new counterparty to the derivative contract is considered. We adopted ASU 2016-05 in the third quarter of 2016 and its adoption did not have a material impact on our consolidated financial statements, however ASU 2016-05 may allow us to novate derivative contracts in the future without having to de-designate the hedge accounting relationship.

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” or ASU 2014-15. ASU 2014-15 introduces an explicit requirement for management to assess and provide certain disclosures if there is substantial doubt about an entity’s ability to continue as a going concern. ASU 2014-15 is effective for the annual period ending after December 15, 2016. We do not anticipate that the adoption of ASU 2014-15 will have a material impact on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” or ASU 2014-09. ASU 2014-09 broadly amends the accounting guidance for revenue recognition. ASU 2014-09 is effective for the first interim or annual period beginning after December 15, 2017, and is to be applied retrospectively. We do not anticipate that the adoption of ASU 2014-09 will have a material impact on our consolidated financial statements.

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

3. LOANS RECEIVABLE

The following table details overall statistics for our loans receivable portfolio ($ in thousands):

 

     September 30, 2016     December 31, 2015  

Number of loans

     106        125   

Principal balance

   $     8,381,679      $     9,108,361   

Net book value

   $ 8,347,712      $ 9,077,007   

Unfunded loan commitments(1)

   $ 929,030      $ 700,658   

Weighted-average cash coupon(2)

     4.85     4.84

Weighted-average all-in yield(2)

     5.22     5.18

Weighted-average maximum maturity (years)(3)

     3.2        3.1   

 

(1)

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

 
(2)

As of September 30, 2016, our floating rate loans were indexed to various benchmark rates, with 85% of floating rate loans indexed to USD LIBOR. In addition, $277.3 million of our floating rate loans earned interest based on floors that are above the applicable index, with an average floor of 1.13%, as of September 30, 2016. As of December 31, 2015, our floating rate loans were indexed to various benchmark rates, with 84% of floating rate loans indexed to USD LIBOR. In addition, $147.9 million of our floating rate loans earned interest based on floors that are above the applicable index, with an average floor of 1.80%, as of December 31, 2015. In addition to cash coupon, all-in yield includes the amortization of deferred origination fees, loan origination costs, purchase discounts, and accrual of both extension and exit fees. Cash coupon and all-in yield assume applicable floating benchmark rate for weighted-average calculation.

 
(3)

Maximum maturity assumes all extension options are exercised by the borrower, however our loans may be repaid prior to such date. As of September 30, 2016, 66% of our loans were subject to yield maintenance or other prepayment restrictions and 34% were open to repayment by the borrower without penalty. As of December 31, 2015, 64% of our loans were subject to yield maintenance or other prepayment restrictions and 36% were open to repayment by the borrower without penalty.

 

Activity relating to our loans receivable portfolio was as follows ($ in thousands):

 

     Principal
Balance
     Deferred Fees /
Other Items(1)
     Net Book
Value
 

December 31, 2015

   $     9,108,361       $     (31,354)       $     9,077,007   

Loan fundings

     2,300,636         —           2,300,636   

Loan repayments and sales

     (2,942,705      —           (2,942,705

Unrealized (loss) gain on foreign currency translation

     (84,613      1,181         (83,432

Deferred fees and other items(1)

     —           (35,388      (35,388

Amortization of fees and other items(1)

     —           31,594         31,594   
  

 

 

    

 

 

    

 

 

 

September 30, 2016

   $ 8,381,679       $ (33,967    $ 8,347,712   
  

 

 

    

 

 

    

 

 

 

 

(1)

Other items primarily consist of purchase discounts or premiums, exit fees, and deferred origination expenses.

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

The tables below detail the property type and geographic distribution of the properties securing the loans in our portfolio ($ in thousands):

 

September 30, 2016

 

Property Type

   Number of
Loans
     Net Book
Value
     Total Loan
Exposure(1)
     Percentage of
Portfolio
 

Office

     55       $ 4,540,394       $ 4,610,800         50

Hotel

     17         1,761,751         1,832,501         19   

Retail

     10         823,184         1,215,822         13   

Multifamily

     8         586,910         588,809         6   

Condominium

     2         85,436         315,816         3   

Manufactured housing

     9         297,726         297,847         3   

Other

     5         252,311         575,948         6   
  

 

 

    

 

 

    

 

 

    

 

 

 
     106       $ 8,347,712       $ 9,437,543         100
  

 

 

    

 

 

    

 

 

    

 

 

 

Geographic Location

   Number of
Loans
     Net Book
Value
     Total Loan
Exposure(1)
     Percentage of
Portfolio
 

United States

           

Northeast

     25       $ 2,449,223       $ 2,461,548         25

Southeast

     20         1,343,942         1,739,465         18   

West

     21         1,496,295         1,733,491         18   

Midwest

     6         618,939         621,012         7   

Southwest

     9         444,381         443,653         5   

Northwest

     4         245,934         293,039         3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     85         6,598,714         7,292,208         76   

International

           

United Kingdom

     9         930,677         1,276,234         14   

Canada

     8         477,466         474,182         5   

Germany

     1         218,855         271,922         3   

Spain

     1         68,572         69,198         1   

Netherlands

     2         53,428         53,799         1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     21         1,748,998         2,145,335         24   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     106       $ 8,347,712       $ 9,437,543         100
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

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

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

December 31, 2015

 

Property Type

   Number of
Loans
     Net Book
Value
     Total Loan
Exposure(1)
     Percentage of
Portfolio
 

Office

     55       $ 4,039,521       $ 4,085,007         41

Hotel

     20         1,903,544         1,986,113         20   

Manufactured housing

     18         1,361,572         1,359,132         13   

Retail

     9         684,944         1,031,405         10   

Multifamily

     11         580,112         582,545         6   

Condominium

     3         127,434         353,144         3   

Other

     9         379,880         750,780         7   
  

 

 

    

 

 

    

 

 

    

 

 

 
     125       $ 9,077,007       $ 10,148,126         100
  

 

 

    

 

 

    

 

 

    

 

 

 

Geographic Location

   Number of
Loans
     Net Book
Value
     Total Loan
Exposure(1)
     Percentage of
Portfolio
 

United States

           

Northeast

     25       $ 2,260,392       $ 2,272,163         22

Southeast

     27         1,836,766         2,185,609         21   

West

     22         1,125,238         1,356,301         13   

Southwest

     15         1,035,839         1,034,732         10   

Midwest

     5         616,964         617,774         6   

Northwest

     5         390,307         415,207         4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     99         7,265,506         7,881,786         76   

International

           

United Kingdom

     10         888,998         1,283,644         13   

Canada

     11         561,023         558,724         6   

Germany

     2         235,294         296,424         3   

Spain

     1         66,661         67,416         1   

Netherlands

     2         59,525         60,132         1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     26         1,811,501         2,266,340         24   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     125       $ 9,077,007       $ 10,148,126         100
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

In certain instances, we finance our loans through the non-recourse sale of a senior loan interest that is not included in our consolidated financial statements. See Note 2 for further discussion. Total loan exposure encompasses the entire loan we originated and financed, including $1.0 billion of such non-consolidated senior interests as of December 31, 2015.

Loan Risk Ratings

As further described in Note 2, our Manager evaluates our loan portfolio on a quarterly basis. In conjunction with our quarterly loan portfolio review, our Manager assesses the risk factors of each loan, and assigns a risk rating based on several factors. Factors considered in the assessment include, but are not limited to, risk of loss, current LTV, debt yield, collateral performance, structure, exit plan, and sponsorship. Loans are rated “1” (less risk) through “5” (greater risk), which ratings are defined in Note 2.

 

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

The following table allocates the principal balance and net book value of our loans receivable based on our internal risk ratings ($ in thousands):

 

September 30, 2016

    December 31, 2015  

Risk Rating

  Number of Loans   Net Book Value     Total Loan Exposure(1)     Risk Rating      Number of Loans    Net Book Value      Total Loan Exposure(1)  
1     10   $ 456,047      $ 456,905        1         12    $ 919,991       $ 925,443   
2     53     3,882,247        3,935,513        2         77      5,929,447         6,316,890   
3     43     4,009,418        5,045,125        3         35      2,114,531         2,792,510   
4   —       —          —          4           1      113,038         113,283   
5   —       —          —          5       —        —           —     
 

 

 

 

 

   

 

 

      

 

  

 

 

    

 

 

 
  106   $ 8,347,712      $ 9,437,543         125    $ 9,077,007       $ 10,148,126   
 

 

 

 

 

   

 

 

      

 

  

 

 

    

 

 

 

 

(1)

In certain instances, we finance our loans through the non-recourse sale of a senior loan interest that is not included in our consolidated financial statements. See Note 2 for further discussion. Total loan exposure encompasses the entire loan we originated and financed, including $1.1 billion and $1.0 billion of such non-consolidated senior interests as of September 30, 2016 and December 31, 2015, respectively.

The weighted-average risk rating of our total loan exposure was 2.5 and 2.2 as of September 30, 2016 and December 31, 2015, respectively. The increase in weighted-average portfolio risk rating was primarily driven by repayments of loans with lower risk ratings and origination of loans with a “3” risk rating, and not rating downgrades in the existing portfolio.

We did not have any impaired loans, nonaccrual loans, or loans in maturity default as of September 30, 2016 or December 31, 2015. During the third quarter of 2015, one of the loans in our portfolio experienced a maturity default as a result of not meeting certain loan covenants. The loan was subsequently modified to include, among other changes: a redetermination of asset release pricing; an additional contribution of capital by the borrower; and an extension of the maturity date to February 28, 2017. During the nine months ended September 30, 2016, three of the assets collateralizing the $113.3 million loan were sold and the loan was partially repaid by $102.6 million, resulting in a net book value of $10.2 million as of September 30, 2016. The loan’s risk rating was upgraded from “4” as of December 31, 2015 to a “2” as of September 30, 2016 as a result of the collateral asset sales and resulting loan repayments, and positive leasing activity at the remaining collateral assets. As of September 30, 2016 and December 31, 2015, the borrower was current with all terms of the loan and we expect to collect all contractual amounts due thereunder.

4. EQUITY INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES

As of September 30, 2016, our equity investments in unconsolidated subsidiaries consisted solely of our carried interest in CTOPI, a fund sponsored and managed by an affiliate of our Manager. Activity relating to our equity investments in unconsolidated subsidiaries was as follows ($ in thousands):

 

     CTOPI
Carried Interest
 

Total as of December 31, 2015

   $ 9,441   

Distributions

     (8,167

Income allocation(1)

     404   
  

 

 

 

Total as of September 30, 2016

   $ 1,678   
  

 

 

 

 

(1)

In instances where we have not received cash or all appropriate contingencies have not been eliminated, we have deferred the recognition of promote revenue allocated to us from CTOPI in respect of our carried interest in CTOPI, and recorded an offsetting liability as a component of other liabilities on our consolidated balance sheets.

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

Our carried interest in CTOPI entitles us to earn promote revenue in an amount equal to 17.7% of the fund’s profits, after a 9% preferred return and 100% return of capital to the CTOPI partners. As of September 30, 2016, we had been allocated $1.7 million of promote revenue from CTOPI based on a hypothetical liquidation of the fund at its net asset value. Accordingly, we have recognized this allocation as an equity investment in CTOPI on our consolidated balance sheets. Generally, we defer recognition of income from CTOPI until cash is received or earned, pending distribution, and appropriate contingencies have been eliminated. We recognized $2.2 million of promote income from CTOPI in respect of our carried interest and recorded such amounts as income in our consolidated statement of operations during the nine months ended September 30, 2016, compared to $5.7 million during the same period in 2015. This carried interest was either received in cash, or was earned and available in cash at CTOPI pending future distribution as of each respective balance sheet date.

CTOPI Incentive Management Fee Grants

In January 2011, we created a management compensation pool for employees equal to 45% of the CTOPI promote distributions received by us. Approximately 68% of the pool is two-thirds vested as of September 30, 2016, with the remainder contingent on continued employment with an affiliate of our Manager and upon our receipt of promote distributions from CTOPI. The remaining 32% of the pool is fully vested as a result of an acceleration event. During the nine months ended September 30, 2016, we recognized $1.1 million under the CTOPI incentive plan, compared to $2.6 million for the same period in 2015. Such amounts were recognized as a component of general and administrative expenses in our consolidated statement of operations.

5. OTHER ASSETS AND LIABILITIES

The following table details the components of our other assets ($ in thousands):

 

     September 30,      December 31,  
     2016      2015  

Loan portfolio payments held by servicer(1)

   $ 33,050       $ 122,666   

Accrued interest receivable

     31,323         37,161   

Real estate debt and equity investments, at fair value(2)

     1,441         14,220   

Prepaid expenses

     325         890   

Derivative assets

     268         8,657   

Prepaid taxes

     206         525   
  

 

 

    

 

 

 

Total

   $     66,613       $     184,119   
  

 

 

    

 

 

 

 

(1)

Represents loan principal and interest payments held by our third-party loan servicer as of the balance sheet date which were remitted to us during the subsequent remittance cycle.

(2)

Real estate debt and equity investments consists of assets held by CT Legacy Partners and are measured at fair value.

As of September 30, 2016, our other liabilities primarily included $58.2 million of accrued dividends payable, $22.8 million of secured debt repayments pending servicer remittance as of the balance sheet date, and $13.7 million of accrued management and incentive fees payable to our Manager. As of December 31, 2015, our other liabilities primarily included $58.1 million of accrued dividends payable and $14.4 million of accrued management and incentive fees payable to our Manager.

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

6. SECURED DEBT AGREEMENTS

Our secured debt agreements include revolving repurchase facilities, the GE portfolio acquisition facility, asset-specific financings, and a revolving credit agreement. The following table details our secured debt agreements ($ in thousands):

 

     Secured Debt Agreements  
     Borrowings Outstanding  
     September 30, 2016      December 31, 2015  

Revolving repurchase facilities

   $ 3,044,434       $ 2,495,805   

GE portfolio acquisition facility

     1,587,822         3,161,291   

Asset-specific financings

     653,652         474,655   

Revolving credit agreement

     50,000         —     
  

 

 

    

 

 

 

Total secured debt agreements

   $ 5,335,908       $ 6,131,751   
  

 

 

    

 

 

 

Deferred financing costs(1)

     (15,550      (15,646
  

 

 

    

 

 

 

Net book value of secured debt

   $ 5,320,358       $ 6,116,105   
  

 

 

    

 

 

 

 

(1)

Costs incurred in connection with our secured debt agreements are recorded on our consolidated balance sheet when incurred and recognized as a component of interest expense over the life of each related agreement.

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

Revolving Repurchase Facilities

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

 

     September 30, 2016  
     Maximum      Collateral      Repurchase Borrowings  

Lender

   Facility Size(1)      Assets(2)      Potential(3)      Outstanding      Available(3)  

Wells Fargo

   $ 2,000,000       $ 1,390,190       $ 1,085,153       $ 801,271       $ 283,882   

MetLife

     1,000,000         967,359         756,054         756,054           

Bank of America

     750,000         742,081         577,694         577,694           

JP Morgan(4)

     500,000         524,516         403,483         353,630         49,853   

Citibank

     500,000         623,857         481,572         252,175         229,397   

Morgan Stanley(5)

     324,200         254,803         200,665         200,665           

Société Générale(6)

     448,880         166,369         131,000         102,945         28,055   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2015  
     Maximum      Collateral      Repurchase Borrowings  

Lender

   Facility Size(1)      Assets(2)      Potential(3)      Outstanding      Available(3)  

Bank of America

   $ 750,000       $ 840,884       $ 665,861       $ 618,944       $ 46,917   

Wells Fargo

     1,000,000         879,155         687,200         562,382         124,818   

JP Morgan(4)

     524,547         589,752         464,723         382,042         82,681   

Citibank

     500,000         568,032         436,217         344,879         91,338   

MetLife

     750,000         593,273         462,849         324,587         138,262   

Morgan Stanley(5)

     370,400         273,280         212,050         209,038         3,012   

Société Générale(6)

     437,320         67,416         53,933         53,933           
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $     4,332,267       $     3,811,792       $     2,982,833       $     2,495,805       $     487,028   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

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

(2)

Represents the principal balance of the collateral assets.

(3)

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

(4)

As of September 30, 2016, the JP Morgan maximum facility size was composed of a general $500.0 million facility size, under which U.S. Dollars and British Pound Sterling borrowings are contemplated. As of December 31, 2015, the JP Morgan maximum facility was composed of general $250.0 million facility size plus a general £153.0 million ($226.7 million) facility size provided under a related agreement that contemplated U.S. Dollars and British Pound Sterling borrowings, and additional capacity of ₤32.3 million ($47.8 million) on the ₤153.0 million facility.

(5)

The Morgan Stanley maximum facility size represents a £250.0 million facility size that was translated to $324.2 million as of September 30, 2016, and $370.4 million as of December 31, 2015.

(6)

The Société Générale maximum facility size represents a €400.0 million facility size that was translated to $448.9 million as of September 30, 2016, and $437.3 million as of December 31, 2015.

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

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

The weighted-average outstanding balance of our revolving repurchase facilities was $2.5 billion for the nine months ended December 31, 2015. As of December 31, 2015, we had aggregated borrowings of $2.5 billion outstanding under our revolving repurchase facilities, with a weighted-average cash coupon of LIBOR plus 1.83% per annum, a weighted-average all-in cost of credit, including associated fees and expenses, of LIBOR plus 2.05% per annum, and a weighted-average advance rate of 78.8%. As of December 31, 2015, outstanding borrowings under these facilities had a weighted-average maturity, excluding extension options and term-out provisions, of 1.3 years.

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

The following table outlines the key terms of our revolving repurchase facilities as of September 30, 2016:

 

Lender

  

Currency

  

Rate(1)

   Guarantee(2)    Advance Rate(3)   

Margin Call(4)

  

Term/Maturity

Wells Fargo

   $    L+1.77%    25%    79.6%   

Collateral marks only

   Term matched(5)

MetLife

   $    L+1.84%    50%    78.8%   

Collateral marks only

   April 22, 2022(6)

Bank of America

   $    L+1.67%    50%    79.3%   

Collateral marks only

   May 21, 2021(7)

JP Morgan

   $ / £    L+1.84%    50%    78.8%   

Collateral marks only

   January 7, 2019

Citibank

   $    L+1.85%    25%    78.3%   

Collateral marks only

   Term matched(5)

Morgan Stanley

   £  / €    L+2.35%    25%    78.8%   

Collateral marks only

   March 1, 2019

Société Générale

   £  / €    L+1.71%    25%    80.0%   

Collateral marks only

   Term matched(5)

 

(1)

Represents weighted-average cash coupon based on borrowings outstanding. In instances where our borrowings are denominated in currencies other than the U.S. Dollar, interest accrues at a rate equivalent to a margin plus a base rate other than 1-month USD LIBOR, such as 3-month GBP LIBOR, 3-month EURIBOR, or 3-month CDOR.

(2)

Other than amounts guaranteed based on specific collateral asset types, borrowings under our revolving repurchase facilities are non-recourse to us.

(3)

Represents weighted-average advance rate based on the outstanding principal balance of the collateral assets pledged.

(4)

Margin call provisions under our revolving repurchase facilities do not permit valuation adjustments based on capital markets events, and are limited to collateral-specific credit marks.

(5)

These revolving repurchase facilities have various availability periods during which new advances can be made and which are generally subject to each lender’s discretion. Maturity dates for advances outstanding are tied to the term of each respective collateral asset.

(6)

Includes five one-year extension options which may be exercised at our sole discretion.

(7)

Includes two one-year extension options which may be exercised at our sole discretion.

GE Portfolio Acquisition Facility

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

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

Asset-Specific Borrowings

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

Sequential Pay Advance

The GE portfolio acquisition facility also included a sequential pay advance feature that provided for $237.2 million of borrowings, representing an additional 5% advance against each collateral asset pledged under the facility. As of September 30, 2016, the sequential pay advance borrowings under the GE portfolio acquisition facility had been fully repaid. As of December 31, 2015, we had outstanding sequential pay advance borrowings of $40.7 million. Borrowings under the sequential pay advance accrued interest at a rate equal to the sum of (i) 30-day LIBOR plus (ii) a margin of 3.10%. The sequential pay advance was denominated in U.S. Dollars and was repaid from collateral loan principal repayments, after repayment of the related asset-specific borrowing. The sequential pay advances each had a maturity date that was one year from the date of funding, and we had guaranteed 100% of outstanding borrowings of the sequential pay advance.

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

Asset-Specific Financings

The following table details statistics for our asset-specific financings ($ in thousands):

 

     September 30, 2016  

Lender

   Count      Principal
Balance
     Book
Value
     Wtd. Avg.
Yield/Cost(1)
     Guarantee(2)      Wtd. Avg.
Term
 

JP Morgan(3)

                 

Collateral assets

     1         $    280,415         $    278,963         L+3.88%         n/a         Jan. 2020   

Financing provided

     1         233,679         233,541         L+1.89%         $116,839         Jan. 2020   

Citibank(3)

                 

Collateral assets

     2         201,270         201,135         L+4.45%         n/a         Nov. 2020   

Financing provided

     2         158,652         158,605         L+2.48%         39,663         Nov. 2020   

Deutsche Bank

                 

Collateral assets

     1         180,740         178,107         L+5.17%         n/a         Aug. 2021   

Financing provided

     1         135,075         133,599         L+3.00%         67,538         Aug. 2021   

Bank of the Ozarks

                 

Collateral assets

     2         108,423         105,630         L+6.20%         n/a         Feb. 2020   

Financing provided

     2         81,907         80,603         L+3.59%         —           Feb. 2020   

Wells Fargo

                 

Collateral assets

     1         63,341         62,955         L+6.05%         n/a         Dec. 2019   

Financing provided

     1         44,339         44,067         L+3.20%         8,868         Dec. 2019   

Total

                 

Collateral assets

     7         $    834,189         $    826,790         L+4.76%         n/a      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Financing provided

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

(1)

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

(2)

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

(3)

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

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

     December 31, 2015  

Lender

   Count      Principal
Balance
     Book
Value
     Wtd. Avg.
Yield/Cost(1)
    Guarantee(2)      Wtd. Avg.
Term
 

Wells Fargo(3)

                

Collateral assets

     3       $ 319,897       $ 318,693         L+4.92     n/a         Jun. 2019   

Financing provided

     3         234,850         234,115         L+2.37   $ 42,627         Jun. 2019   

JP Morgan(3)

                

Collateral assets

     1         274,878         272,632         L+3.88     n/a         Jan. 2020   

Financing provided

     1         214,491         214,391         L+1.94     53,623         Jan. 2020   

Citibank(3)

                

Collateral assets

     1         36,749         36,514         L+4.42     n/a         Oct. 2018   

Financing provided

     1         25,314         25,293         L+2.08     6,329         Oct. 2018   

Total

                

Collateral assets

     5       $ 631,524       $ 627,839         L+4.44     n/a      
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

Financing provided

     5       $ 474,655       $ 473,799         L+2.16   $ 102,579      
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

(1)

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

(2)

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

(3)

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

The weighted-average outstanding balance of our asset-specific financings was $557.9 million for the nine months ended September 30, 2016 and $574.3 million for the nine months ended December 31, 2015.

Revolving Credit Agreement

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

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

Debt Covenants

Each of the guarantees related to our secured debt agreements contain the following uniform financial covenants: (i) our ratio of earnings before interest, taxes, depreciation, and amortization, or EBITDA, to fixed charges, as defined in the agreements, shall be not less than 1.4 to 1.0; (ii) our tangible net worth, as defined in the agreements, shall not be less than $1.9 billion as of each measurement date plus 75% of the net cash proceeds of future equity issuances subsequent to September 30, 2016; (iii) cash liquidity shall not be less than the greater of (x) $10.0 million or (y) 5% of our recourse indebtedness; and (iv) our indebtedness shall not exceed 83.33% of our total assets. As of September 30, 2016 and December 31, 2015, we were in compliance with these covenants.

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

7. LOAN PARTICIPATIONS SOLD

The financing of a loan by the non-recourse sale of a senior interest in the loan through a participation agreement generally does not qualify as a sale under GAAP. Therefore, in the instance of such sales, we present the whole loan as an asset and the loan participation sold as a liability on our consolidated balance sheet until the loan is repaid. The obligation to pay principal and interest on these liabilities is generally based on the performance of the related loan obligation. The gross presentation of loan participations sold does not impact stockholders’ equity or net income.

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

 

     September 30, 2016

Loan Participations Sold

   Count    Principal
Balance
     Book
Value
     Wtd. Avg.
Yield/Cost(1)
    Guarantee(2)      Wtd. Avg.
Term

Total loan

   2    $     495,912       $     492,133         L+4.51     n/a       Sep. 2019

Senior participation(3)(4)

   2      411,427         409,654         L+2.71   $     31,123       Sep. 2019
     December 31, 2015

Loan Participations Sold

   Count    Principal
Balance
     Book
Value
     Wtd. Avg.
Yield/Cost(1)
    Guarantee(2)      Wtd. Avg.
Term

Total loan

   3    $ 608,554       $ 604,321         L+4.15     n/a       Nov. 2018

Senior participation(3)(4)

   3      498,992         497,032         L+2.49   $ 35,558       Nov. 2018

 

(1)

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

(2)

Other than one instance where we entered into a related guarantee agreement for £24.0 million ($31.1 million as of September 30, 2016), our loan participations sold are non-recourse to us.

(3)

During the three and nine months ended September 30, 2016, we recorded $3.4 million and $10.7 million, respectively, of interest expense related to our loan participations sold, of which $3.2 million and $10.3 million was paid in cash. During the three and nine months ended September 30, 2015, we recorded $5.2 million and $14.4 million, respectively, of interest expense related to our loan participations sold, of which $4.5 million and $13.2 million was paid in cash.

(4)

The difference between principal balance and book value of loan participations sold is due to deferred financing costs of $1.8 million and $2.0 million as of September 30, 2016 and December 31, 2015, respectively.

8. CONVERTIBLE NOTES, NET

In November 2013, we issued $172.5 million of 5.25% convertible senior notes due on December 1, 2018, or Convertible Notes. The Convertible Notes’ issuance costs are amortized through interest expense over the life of the Convertible Notes using the effective interest method. Including this amortization, our all-in cost of the Convertible Notes is 5.87% per annum.

The Convertible Notes are convertible at the holders’ option into shares of our class A common stock, only under specific circumstances prior to the close of business on August 31, 2018, at the applicable conversion rate in effect on the conversion date. Thereafter, the Convertible Notes are convertible at the option of the holder at any time until the second scheduled trading day immediately preceding the maturity date. The Convertible Notes were not convertible as of September 30, 2016. The conversion rate was initially set to equal 34.8943 shares of class A common stock per $1,000 principal amount of Convertible Notes, which was equivalent to an initial conversion price of $28.66 per share of class A common stock, subject to adjustment upon the occurrence of certain events. As a result of exceeding the cumulative dividend threshold as defined in the Convertible Notes Supplemental Indenture, the conversion rate was adjusted on September 28, 2016 to 35.7236 shares of Class A common stock per $1,000 principal amount of Convertible Notes, which is equivalent to a conversion price of $27.99 per share of class A common stock. We may not redeem the Convertible Notes prior to maturity. The average share price of our Class A common stock of $28.95 during the three months ended September 30, 2016 was greater than the per share conversion price of the Convertible Notes. We have the intent and ability to settle the Convertible Notes in cash and, as a result, the Convertible Notes did not have any impact on our diluted earnings per share.

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

Upon issuance of the Convertible Notes, we recorded a $9.1 million discount based on the implied value of the conversion option and an assumed effective interest rate of 6.50%, as well as $4.1 million of initial issuance costs. Including the amortization of this discount and the issuance costs, our total cost of the Convertible Notes is 7.16% per annum. During the three months ended September 30, 2016, we incurred total interest on our convertible notes of $3.0 million, of which $2.3 million related to cash coupon and $691,000 related to the amortization of discount and certain issuance costs. During the nine months ended September 30, 2016, we incurred total interest on our convertible notes of $8.8 million, of which $6.8 million related to cash coupon and $2.0 million related to the amortization of discount and certain issuance costs. During the three months ended September 30, 2015, we incurred total interest on our convertible notes of $2.9 million, of which $2.3 million related to cash coupon and $649,000 related to the amortization of discount and certain issuance costs. During the nine months ended September 30, 2015, we incurred total interest on our convertible notes of $8.7 million, of which $6.8 million related to cash coupon and $1.9 million related to the amortization of discount and certain issuance costs.

As of September 30, 2016, the Convertible Notes were carried on our consolidated balance sheet at $166.1 million, net of an unamortized discount of $6.2 million and deferred financing costs of $231,000. As of December 31, 2015, the Convertible Notes were carried on our consolidated balance sheet at $164.0 million, net of an unamortized discount of $8.2 million and deferred financing costs of $305,000. Accrued interest payable for the Convertible Notes was $3.0 million and $755,000 as of September 30, 2016 and December 31, 2015, respectively. Refer to Note 2 for additional discussion of our accounting policies for the Convertible Notes.

9. DERIVATIVE FINANCIAL INSTRUMENTS

The sole objective of our use of derivative financial instruments is to minimize the risks and/or costs associated with our investments and/or financing transactions. These derivatives may or may not qualify as net investment, cash flow, or fair value hedges under the hedge accounting requirements of ASC 815 – “Derivatives and Hedging.” Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements and other identified risks. For more information on the accounting for designated and non-designated hedges, refer to Note 2.

The use of derivative financial instruments involves certain risks, including the risk that the counterparties to these contractual arrangements do not perform as agreed. To mitigate this risk, we only enter into derivative financial instruments with counterparties that have appropriate credit ratings and are major financial institutions with which we and our affiliates may also have other financial relationships. We do not anticipate that any of the counterparties will fail to meet their obligations.

Net Investment Hedges of Foreign Currency Risk

Certain of our international investments expose us to fluctuations in foreign interest rates and currency exchange rates. These fluctuations may impact the value of our cash receipts and payments in terms of our functional currency, the U.S. Dollar. We use foreign currency forward contracts to protect the value or fix the amount of certain investments or cash flows in terms of the U.S. Dollar.

The following table details our outstanding foreign exchange derivatives that were designated as net investment hedges of foreign currency risk (notional amount in thousands):

 

September 30, 2016

    

December 31, 2015

 

Foreign Currency

Derivatives

   Number of
Instruments
   Notional
Amount
    

Foreign Currency

Derivatives

   Number of
Instruments
   Notional
Amount
 

Sell CAD Forward

   1    C$     119,600      

Sell CAD Forward

   2    C$     154,900   

Sell GBP Forward

   1    £ 117,900      

Sell GBP Forward

   2    £ 90,400   

Sell EUR Forward

   1    44,900      

Sell EUR Forward

   1    49,000   

Cash Flow Hedges of Interest Rate Risk

Certain of our financing transactions expose us to a fixed versus floating rate mismatch between our assets and liabilities. We use derivative financial instruments, which include interest rate caps and swaps, and may also include interest rate options, floors, and other interest rate derivative contracts, to hedge interest rate risk associated with our borrowings where there is potential for an index mismatch.

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

The following tables detail our outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (notional amount in thousands):

 

September 30, 2016

Interest Rate Derivatives

  Number of
Instruments
  Notional
Amount
    Rate/
Strike
  Index   Wtd.-Avg.
Maturity (Years)

Interest Rate Swaps

    2   C$ 17,273      1.0%   CDOR   3.9

Interest Rate Caps

  25   $     1,086,261      2.0%   USD LIBOR   0.6

Interest Rate Caps

    6   C$ 439,320      2.0%   CDOR   0.6

Interest Rate Caps

    1   £ 15,142      2.0%   GBP LIBOR   0.6

December 31, 2015

Interest Rate Derivatives

  Number of
Instruments
  Notional
Amount
    Strike   Index   Wtd.-Avg.
Maturity (Years)

Interest Rate Caps

  26   $ 1,097,632      2%   USD LIBOR   1.3

Interest Rate Caps

    7   C$ 483,286      2%   CDOR   1.2

Interest Rate Caps

    1   152,710      2%   EURIBOR   1.0

Interest Rate Caps

    1   £ 15,142      2%   GBP LIBOR   1.3

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our floating rate debt. During the twelve months following September 30, 2016, we estimate that an additional $1.4 million will be reclassified from accumulated other comprehensive income as an increase to interest expense. Additionally, during the three and nine months ended September 30, 2016 and 2015, we did not record any hedge ineffectiveness in our consolidated statements of operations.

Non-designated Hedges

During the three and nine months ended September 30, 2016, we recorded unrealized losses of $528,000 and $2.2 million, respectively, related to non-designated hedges that were reported as a component of interest expense in our consolidated financial statements. We recorded losses of $748,000 and $759,000 during the three and nine months ended September 30, 2015, respectively.

The following table summarizes our non-designated hedges (notional amount in thousands):

 

September 30, 2016

   

December 31, 2015

 

Non-designated Hedges

  Number of
Instruments
  Notional
Amount
   

Non-designated Hedges

  Number of
Instruments
  Notional
Amount
 

Interest Rate Caps

  2   152,710     

Interest Rate Caps

  4   C$     67,303   

Interest Rate Caps

  3   C$     52,630     

Interest Rate Caps

  1   $ 13,387   

Buy GBP / Sell EUR

  1   12,857     

Buy GBP / Sell EUR Forward

  1   12,857   

Buy USD / Sell CAD

  1   C$ 7,000     

Buy GBP / Sell USD Forward

  1   £ 10,400   

Buy CAD / Sell USD

  1   C$ 7,000     

Buy USD / Sell GBP Forward

  1   £ 10,400   
     

Buy CAD / Sell USD Forward

  1   C$ 1,000   
     

Buy USD / Sell CAD Forward

  1   C$ 1,000   

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

Valuation of Derivative Instruments

The following table summarizes the fair value of our derivative financial instruments ($ in thousands):

 

     Fair Value of Derivatives in an Asset
Position(1) as of
     Fair Value of Derivatives in a Liability
Position(2) as of
 
     September 30, 2016      December 31, 2015      September 30, 2016      December 31, 2015  

Derivatives designated as hedging instruments:

           

Foreign exchange contracts

   $ 251       $ 7,999       $ 895       $ 511   

Interest rate derivatives

     —           238         25         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total derivatives designated as hedging instruments

   $ 251       $ 8,237       $ 920       $ 511   
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivatives not designated as hedging instruments:

           

Foreign exchange contracts

   $ 17       $ 419       $ 221       $ 937   

Interest rate derivatives

     —           1         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total derivatives not designated as hedging instruments

   $ 17       $ 420       $ 221       $ 937   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Derivatives

   $ 268       $ 8,657       $ 1,141       $ 1,448   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Included in other assets in our consolidated balance sheets.

(2)

Included in other liabilities in our consolidated balance sheets.

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

The following table presents the effect of our derivative financial instruments on our consolidated statements of operations ($ in thousands):

 

     Amount of Gain (Loss)
Recognized in
OCI on Derivatives
(Effective Portion)
    Location of
Gain (Loss)
Reclassified from

Accumulated
OCI into Income
(Effective Portion)
     Amount of
Loss Reclassified from
Accumulated OCI into
Income (Effective Portion)
 

Derivatives in Hedging Relationships

   Three Months
Ended
September 30, 2016
     Nine Months
Ended
September 30, 2016
       Three Months
Ended
September 30, 2016
    Nine Months
Ended
September 30, 2016
 

Net Investment

            

Foreign exchange contracts(1)

   $ 5,627       $ 11,748        Interest Expense       $ —        $ —     

Cash Flow Hedges

            

Interest rate derivatives

     14         (274     Interest Expense         (241     (367
  

 

 

    

 

 

      

 

 

   

 

 

 

Total

   $     5,641       $     11,474         $     (241   $     (367
  

 

 

    

 

 

      

 

 

   

 

 

 

 

(1)

During the three and nine months ended September 30, 2016, we received net cash settlements of $19.2 million and $17.4 million, respectively, on our foreign currency forward contracts, compared to receiving $10.8 million and $13.7 million during the same periods in 2015. Those amounts are included as a component of accumulated other comprehensive loss on our consolidated balance sheets.

Credit-Risk Related Contingent Features

We have entered into agreements with certain of our derivative counterparties that contain provisions where if we were to default on any of our indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, we may also be declared in default on our derivative obligations. In addition, certain of our agreements with our derivative counterparties require that we post collateral to secure net liability positions. As of September 30, 2016, we were in a net asset position of $48,000 with one of our derivative counterparties and a net liability position of $921,000 with another of our derivative counterparties. While we were in a net liability position with one counterparty as of September 30, 2016, we were not required to post collateral as our liability position was below the threshold defined in our agreement with this counterparty.

10. EQUITY

Stock and Stock Equivalents

Authorized Capital

As of September 30, 2016, we had the authority to issue up to 300,000,000 shares of stock, consisting of 200,000,000 shares of class A common stock and 100,000,000 shares of preferred stock. Subject to applicable NYSE listing requirements, our board of directors is authorized to cause us to issue additional shares of authorized stock without stockholder approval. In addition, to the extent not issued, currently authorized stock may be reclassified between class A common stock and preferred stock. We did not have any shares of preferred stock issued and outstanding as of September 30, 2016.

Class A Common Stock and Deferred Stock Units

Holders of shares of our class A common stock are entitled to vote on all matters submitted to a vote of stockholders and are entitled to receive such dividends as may be authorized by our board of directors and declared by us, in all cases subject to the rights of the holders of shares of outstanding preferred stock, if any.

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

We also issue restricted class A common stock under our stock-based incentive plans. Refer to Note 13 for additional discussion of these long-term incentive plans. In addition to our class A common stock, we also issue deferred stock units to certain members of our board of directors in lieu of cash compensation for services rendered. These deferred stock units are non-voting, but carry the right to receive dividends in the form of additional deferred stock units in an amount equivalent to the cash dividends paid to holders of shares of class A common stock.

The following table details the movement in our outstanding shares of class A common stock, including restricted class A common stock and deferred stock units:

 

     Nine Months Ended September 30,  

Common Stock Outstanding(1)

   2016      2015  

Beginning balance

     93,843,847         58,388,808   

Issuance of class A common stock

     812         34,780,443   

Issuance of restricted class A common stock, net

     209,798         162,531   

Issuance of deferred stock units

     20,850         16,288   
  

 

 

    

 

 

 

Ending balance

     94,075,307         93,348,070   
  

 

 

    

 

 

 

 

(1)

Deferred stock units held by members of our board of directors totaled 162,371 and 135,207 as of September 30, 2016 and 2015, respectively.

 

Dividend Reinvestment and Direct Stock Purchase Plan

On March 25, 2014, we adopted a dividend reinvestment and direct stock purchase plan, under which we registered and reserved for issuance, in the aggregate, 10,000,000 shares of class A common stock. Under the dividend reinvestment component of this plan, our class A common stockholders can designate all or a portion of their cash dividends to be reinvested in additional shares of class A common stock. The direct stock purchase component allows stockholders and new investors, subject to our approval, to purchase shares of class A common stock directly from us. During the three and nine months ended September 30, 2016, we issued 262 shares and 812 shares, respectively, of class A common stock under the dividend reinvestment component of the plan compared to 145 shares and 418 shares for the same periods in 2015. As of September 30, 2016, a total of 9,998,585 shares of class A common stock remained available for issuance under the dividend reinvestment and direct stock purchase plan.

At the Market Stock Offering Program

On May 9, 2014, we entered into equity distribution agreements, or ATM Agreements, pursuant to which we may sell, from time to time, up to an aggregate sales price of $200.0 million of our class A common stock. On July 29, 2016, in connection with filing a new universal shelf registration statement on Form S-3, we entered into amendments to each of the ATM Agreements. Sales of class A common stock made pursuant to the ATM Agreements may be made in negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended. Actual sales will depend on a variety of factors including market conditions, the trading price of our class A common stock, our capital needs, and our determination of the appropriate sources of funding to meet such needs. We did not sell any shares of our class A common stock under the ATM Agreements during the nine months ended September 30, 2016 and 2015. As of September 30, 2016, sales of our class A common stock with an aggregate sales price of $188.6 million remained available for issuance under the ATM Agreements.

Dividends

We generally intend to distribute substantially all of our taxable income, which does not necessarily equal net income as calculated in accordance with GAAP, to our stockholders each year to comply with the REIT provisions of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. Our dividend policy remains subject to revision at the discretion of our board of directors. All distributions will be made at the discretion of our board of directors and will depend upon our taxable income, our financial condition, our maintenance of REIT status, applicable law, and other factors as our board of directors deems relevant.

 

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Table of Contents

Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

On September 13, 2016, we declared a dividend of $0.62 per share, or $58.2 million, that was paid on October 14, 2016 to stockholders of record as of September 30, 2016. The following table details our dividend activity ($ in thousands, except per share data):

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2016      2015      2016      2015  

Dividends declared per share of common stock

   $ 0.62       $ 0.62       $ 1.86       $ 1.66   

Total dividends declared

   $ 58,226       $ 57,800       $ 174,678       $ 136,674   

Earnings Per Share

We calculate our basic and diluted earnings per share using the two-class method for all periods presented as the unvested shares of our restricted class A common stock qualify as participating securities, as defined by GAAP. These restricted shares have the same rights as our other shares of class A common stock, including participating in any dividends, and therefore have been included in our basic and diluted net income per share calculation. Our Convertible Notes are excluded from dilutive earnings per share as we have the intent and ability to settle these instruments in cash.

The following table sets forth the calculation of basic and diluted net income per share of class A common stock based on the weighted-average of both restricted and unrestricted class A common stock outstanding ($ in thousands, except per share data):

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2016      2015      2016      2015  

Net income(1)

   $ 64,794       $ 66,888       $ 184,921       $ 131,564   

Weighted-average shares outstanding, basic and diluted

     94,071,537         93,357,960         94,067,923         77,752,247   
  

 

 

    

 

 

    

 

 

    

 

 

 

Per share amount, basic and diluted

   $ 0.69       $ 0.72       $ 1.97       $ 1.69   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Represents net income attributable to Blackstone Mortgage Trust, Inc.

Other Balance Sheet Items

Accumulated Other Comprehensive Loss

As of September 30, 2016, total accumulated other comprehensive loss was $46.4 million, primarily representing (i) $83.3 million of cumulative unrealized currency translation adjustments on assets and liabilities denominated in foreign currencies and (ii) offsetting $36.9 million realized and unrealized gains related to changes in the fair value of derivative instruments. As of December 31, 2015, total accumulated other comprehensive loss was $32.8 million, primarily representing (i) $57.8 million of cumulative unrealized currency translation adjustment on assets and liabilities denominated in foreign currencies and (ii) an offsetting $25.0 million unrealized gain related to changes in the fair value of derivative instruments.

Non-Controlling Interests

The non-controlling interests included on our consolidated balance sheets represent the equity interests in CT Legacy Partners that are not owned by us. A portion of CT Legacy Partners’ consolidated equity and results of operations are allocated to these non-controlling interests based on their pro rata ownership of CT Legacy Partners. As of September 30, 2016, CT Legacy Partners’ total equity was $1.9 million, of which $786,000 was owned by Blackstone Mortgage Trust, and $1.1 million was allocated to non-controlling interests. As of December 31, 2015, CT Legacy Partners’ total equity was $22.5 million, of which $9.4 million was owned by Blackstone Mortgage Trust, and $13.1 million was allocated to non-controlling interests.

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

11. OTHER EXPENSES

Our other expenses consist of the management and incentive fees we pay to our Manager and our general and administrative expenses.

Management and Incentive Fees

Pursuant to our management agreement, our Manager earns a base management fee in an amount equal to 1.50% per annum multiplied by our outstanding equity balance, as defined in the management agreement. In addition, our Manager is entitled to an incentive fee in an amount equal to the product of (i) 20% and (ii) the excess of (a) our Core Earnings (as defined in our management agreement) for the previous 12-month period over (b) an amount equal to 7.00% per annum multiplied by our outstanding Equity, provided that our Core Earnings over the prior three-year period is greater than zero. Core Earnings, as defined in our management agreement, is generally equal to our net income (loss) prepared in accordance with GAAP, excluding (i) certain non-cash items (ii) the net income (loss) related to our legacy portfolio and (iii) incentive management fees.

During the three and nine months ended September 30, 2016, we incurred $9.5 million and $28.4 million, respectively, of management fees payable to our Manager, compared to $9.4 million and $22.9 million during the same periods in 2015. In addition, during the three and nine months ended September 30, 2016, we incurred $4.2 million and $14.8 million, respectively, of incentive fees payable to our Manager, compared to $4.5 million and $5.7 million during the same periods in 2015.

As of September 30, 2016 we had accrued management and incentive fees payable to our Manager of $13.7 million, compared to $14.4 million as of December 31, 2015.

General and Administrative Expenses

General and administrative expenses consisted of the following ($ in thousands):

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2016      2015      2016      2015  

Professional services

   $ 828       $ 898       $ 2,474       $ 2,375   

Operating and other costs

     305         671         1,695         1,783   

GE transaction costs

     —           370         —           9,583   
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     1,133         1,939         4,169         13,741   

Non-cash and CT Legacy Portfolio compensation expenses

           

Management incentive awards plan - CTOPI(1)

     938         8         1,106         2,605   

Management incentive awards plan - CT Legacy Partners(2)

     354         89         1,112         2,151   

Restricted class A common stock earned

     4,855         3,095         14,190         9,601   

Director stock-based compensation

     94         94         282         281   
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     6,241         3,286         16,690         14,638   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total BXMT expenses

     7,374         5,225         20,859         23,154   

Expenses of consolidated subsidiaries

     40         70         131         276   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total general and administrative expenses

   $ 7,414       $ 5,295       $ 20,990       $ 28,655   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Represents the portion of CTOPI promote revenue accrued under compensation awards. See Note 4 for further discussion.

(2)

Represents the accrual of amounts payable under the CT Legacy Partners management incentive awards during the period. See below for discussion of the CT Legacy Partners management incentive awards plan.

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

CT Legacy Partners Management Incentive Awards Plan

In conjunction with our March 2011 restructuring, we created an employee pool for up to 6.75% of the distributions paid to the common equity holders of CT Legacy Partners (subject to certain caps and priority distributions). Approximately 50% of the pool was 75% vested as of September 30, 2016, with the remainder contingent on continued employment with an affiliate of our Manager and our receipt of distributions from CT Legacy Partners. Of the remaining 50% of the pool, 27% is fully vested as a result of an acceleration event, and 23% vest only upon our receipt of distributions from CT Legacy Partners. We accrue a liability for the amounts due under these grants based on the value of CT Legacy Partners and the periodic vesting of the awards granted. Accrued payables for these awards were $114,000 as of September 30, 2016 and $1.3 million as of December 31, 2015.

12. INCOME TAXES

We elected to be taxed as a REIT, effective January 1, 2003, under the Internal Revenue Code for U.S. federal income tax purposes. We generally must distribute annually at least 90% of our net taxable income, subject to certain adjustments and excluding any net capital gain, in order for U.S. federal income tax not to apply to our earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our net taxable income, we will be subject to U.S. federal income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws.

Our qualification as a REIT also depends on our ability to meet various other requirements imposed by the Internal Revenue Code, which relate to organizational structure, diversity of stock ownership, and certain restrictions with regard to the nature of our assets and the sources of our income. Even if we qualify as a REIT, we may be subject to certain U.S. federal income and excise taxes and state and local taxes on our income and assets. If we fail to maintain our qualification as a REIT for any taxable year, we may be subject to material penalties as well as federal, state, and local income tax on our taxable income at regular corporate rates and we would not be able to qualify as a REIT for the subsequent four full taxable years. As of September 30, 2016 and December 31, 2015, we were in compliance with all REIT requirements.

During the three and nine months ended September 30, 2016, we recorded an income tax provision of $194,000 and an income tax provision of $281,000, respectively, primarily related to various state and local taxes. During the three and nine months ended September 30, 2015, we recorded an income tax provision of $81,000 and $431,000, respectively. We did not have any deferred tax assets or liabilities as of September 30, 2016 or December 31, 2015.

As a result of our issuance of 25,875,000 shares of class A common stock in May 2013, the availability of our net operating losses, or NOLs, and net capital losses, or NCLs, is generally limited to $2.0 million per annum by change of control provisions promulgated by the Internal Revenue Service with respect to the ownership of Blackstone Mortgage Trust. As of December 31, 2015, we had NOLs of $159.0 million and NCLs of $602,000 available to be carried forward and utilized in current or future periods. If we are unable to utilize our NOLs, they will expire in 2029. If we are unable to utilize our NCLs, they will expire in 2017.

As of September 30, 2016, tax years 2013 through 2015 remain subject to examination by taxing authorities.

13. STOCK-BASED INCENTIVE PLANS

We do not have any employees as we are externally managed by our Manager. However, as of September 30, 2016, our Manager, certain individuals employed by an affiliate of our Manager, and certain members of our board of directors were compensated, in part, through the issuance of stock-based instruments.

We had stock-based incentive awards outstanding under seven benefit plans as of September 30, 2016: (i) our amended and restated 1997 non-employee director stock plan, or 1997 Plan; (ii) our 2007 long-term incentive plan, or 2007 Plan; (iii) our 2011 long-term incentive plan, or 2011 Plan; (iv) our 2013 stock incentive plan, or 2013 Plan; (v) our 2013 manager incentive plan, or 2013 Manager Plan; (vi) our 2016 stock incentive plan, or 2016 Plan; and (vii) our 2016 manager incentive plan, or 2016 Manager Plan. We refer to our 1997 Plan, our 2007 Plan, our 2011 Plan, our 2013 Plan, and our 2013 Manager Plan, collectively, as our Expired Plans and we refer to our 2016 Plan and 2016 Manager Plan, collectively, as our Current Plans.

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

Our Expired Plans have expired and no new awards may be issued under them. Under our Current Plans, a maximum of 2,400,000 shares of our class A common stock may be issued to our Manager, our directors and officers, and certain employees of affiliates of our Manager. As of September 30, 2016, there were 2,389,910 shares available under the Current Plans.

The following table details the movement in our outstanding shares of restricted class A common stock and the weighted-average grant date fair value per share:

 

     Restricted Class A
Common Stock
     Weighted-Average
Grant Date Fair
Value Per Share
 

Balance as of December 31, 2015

     1,114,908       $ 27.64   

Granted

     245,225         26.51   

Vested

     (513,849      27.10   

Forfeited

     (35,427      27.49   
  

 

 

    

 

 

 

Balance as of September 30, 2016

     810,857       $ 27.64   
  

 

 

    

 

 

 

These shares generally vest in quarterly installments over a three-year period, pursuant to the terms of the respective award agreements and the terms of the Current Plans. The 810,857 shares of restricted class A common stock outstanding as of September 30, 2016 will vest as follows: 127,932 shares will vest in 2016; 446,781 shares will vest in 2017; and 236,144 shares will vest in 2018. As of September 30, 2016, total unrecognized compensation cost relating to nonvested share-based compensation arrangements was $23.9 million based on the September 30, 2016 closing price of our class A common stock of $29.45. This cost is expected to be recognized over a weighted average period of 1.0 years from September 30, 2016.

14. FAIR VALUES

Assets and Liabilities Measured at Fair Value

The following table summarizes our assets and liabilities measured at fair value on a recurring basis ($ in thousands):

 

     September 30, 2016      December 31, 2015  
     Level 1      Level 2      Level 3      Fair Value      Level 1      Level 2      Level 3      Fair Value  

Assets

                       

Derivatives

   $ —         $ 268       $ —         $ 268       $ —         $   8,657       $ —         $ 8,657   

Other assets(1)

   $ —         $ 241       $   1,200       $   1,441       $ —         $ 1,659       $   12,561       $   14,220   

Liabilities

                       

Derivatives

   $ —         $ 1,141       $ —         $ 1,141       $ —         $ 1,448       $       $ 1,448   

 

(1)

Other assets include loans, securities, equity investments, and other receivables measured at fair value.

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

The following table reconciles the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3 inputs ($ in thousands):

 

     Nine Months Ended September 30,  
     2016      2015  

January 1,

   $ 12,561       $ 47,507   

Proceeds from investment realizations

     (2,406      (57,039

Transfers out of level 3

     (20,745      —     

Adjustments to fair value included in earnings

     

Gain on investments at fair value

     11,790         22,228   
  

 

 

    

 

 

 

September 30,

   $ 1,200       $ 12,696   
  

 

 

    

 

 

 

During the second quarter of 2016, $20.7 million of collateralized debt obligations, or CDOs, were transferred out of Level 3 and into Level 1 as a result of a binding agreement to sell the underlying collateral assets of the CDO to an independent third-party. These investments were realized in the third quarter of 2016. Refer to Note 2 for further discussion regarding fair value measurement.

Fair Value of Financial Instruments

As discussed in Note 2, GAAP requires disclosure of fair value information about financial instruments, whether or not recognized in the statement of financial position, for which it is practicable to estimate that value. The following table details the carrying amount, face amount, and fair value of the financial instruments described in Note 2 ($ in thousands):

 

     September 30, 2016      December 31, 2015  
     Carrying      Face      Fair      Carrying      Face      Fair  
     Amount      Amount      Value      Amount      Amount      Value  

Financial assets

                 

Cash and cash equivalents

   $ 94,061       $ 94,061       $ 94,061       $ 96,450       $ 96,450       $ 96,450   

Restricted cash

     877         877         877         9,556         9,556         9,556   

Loans receivable, net

       8,347,712           8,381,679           8,392,677           9,077,007           9,108,361           9,121,732   

Financial liabilities

                 

Secured debt agreements

     5,320,358         5,335,908         5,335,908         6,116,105         6,131,751         6,131,751   

Loan participations sold

     409,654         411,427         411,427         497,032         498,992         498,992   

Convertible notes, net

     166,064         172,500         190,181         164,026         172,500         171,344   

Estimates of fair value for cash and cash equivalents, restricted cash and convertible notes are measured using observable, quoted market prices, or Level 1 inputs. All other fair value significant estimates are measured using unobservable inputs, or Level 3 inputs. See Note 2 for further discussion regarding fair value measurement of certain of our assets and liabilities.

15. TRANSACTIONS WITH RELATED PARTIES

We are managed by our Manager pursuant to a management agreement, the current term of which expires on December 19, 2016, and will be automatically renewed for a one-year term each anniversary thereafter unless earlier terminated.

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

As of September 30, 2016, our consolidated balance sheet included $13.7 million of accrued management and incentive fees payable to our Manager. During the three and nine months ended September 30, 2016, we paid $15.8 million and $43.8 million, respectively, of management and incentive fees to our Manager, compared to $8.1 million and $21.0 million during the same periods of 2015. In addition, during the three and nine months ended September 30, 2016, we reimbursed our Manager for $82,000 and $462,000, respectively, of expenses incurred on our behalf. During the nine months ended September 30, 2015, we reimbursed our Manager for $139,000 of expenses incurred on our behalf. We did not reimburse our Manager for any expenses incurred on our behalf during the three months ended September 30, 2015. As of September 30, 2016, our consolidated balance sheet includes $31,000 of preferred distributions payable by CT Legacy Partners to an affiliate of our Manager, compared to $83,000 as of December 31, 2015. During the three and nine months ended September 30, 2016, CT Legacy Partners made aggregate preferred distributions of $146,000 and $491,000, respectively, to such affiliate, compared to $216,000 and $1.1 million during the same periods of 2015.

As of September 30, 2016, our Manager held 391,871 shares of unvested restricted class A common stock, which had an aggregate grant date fair value of $10.9 million. We did not issue any shares of restricted class A common stock to our Manager during the nine months ended September 30, 2016. The shares of restricted class A common stock vest ratably in quarterly installments over three years from the date of issuance. During the three and nine months ended September 30, 2016, we recorded non-cash expense related to shares granted to our Manager of $2.5 million and $7.1 million, respectively, compared to $1.6 million and $4.9 million during the same periods of 2015. Refer to Note 13 for further discussion of our restricted class A common stock.

During the three months ended September 30, 2016, we originated a loan to a borrower who engaged an affiliate of our Manager to act as title insurance agent in connection with the transaction. The borrower paid the title insurance agent a fee of $196,000 for its services. We did not incur any expenses or receive any revenues as a result of this transaction.

On May 8, 2015, a joint venture of CT Legacy Partners, certain affiliates of our Manager, and other non-affiliated parties, which we refer to as the Three-Pack JV, sold a hotel portfolio it owned to an investment vehicle managed by an affiliate of our Manager. We consented to the sale of the hotel portfolio by the Three-Pack JV, which will result in the ultimate liquidation of the Three-Pack JV and distribution of net sale proceeds to CT Legacy Partners in respect of its investment therein. An aggregate of $40.1 million of net sales proceeds has been received to date by CT Legacy Partners, of which $2.4 million was received during the nine months ended September 30, 2016. As a result of the sale transaction, employees of our Manager, including certain of our executive officers, received incentive compensation payments totaling $2.7 million under the CT Legacy Partners Management Incentive Awards Plan, of which $2.5 million was paid during 2015, and the remaining $162,000 was paid during the nine months ended September 30, 2016. See Note 11 for further discussion of the CT Legacy Partners Management Incentive Awards Plan.

During the three and nine months ended September 30, 2016, we incurred $112,000 and $282,000, respectively, of expenses for various administrative and capital market data services to third-party service providers that are affiliates of our Manager, compared to $178,000 and $307,000 during the same periods of 2015.

16. COMMITMENTS AND CONTINGENCIES

Unfunded Commitments Under Loans Receivable

As of September 30, 2016, we had unfunded commitments of $929.0 million related to 58 loans receivable, which amounts will generally be funded to finance lease-related or capital expenditures by our borrowers. These future commitments will expire variously over the next three years.

 

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Blackstone Mortgage Trust, Inc.

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

Income Tax Audits of CTIMCO

The State of New York is currently examining the income tax returns for the years ended December 31, 2012 and 2011 of our former subsidiary, CT Investment Management Co., LLC, or CTIMCO. The examination is on-going, and no final adjustments have been made or agreed to. When we sold CTIMCO in December 2012, we provided certain indemnifications related to its operations, and any amounts determined to be owed by CTIMCO would ultimately be paid by us. As of September 30, 2016, there were no reserves recorded for the CTIMCO examination. The Internal Revenue Service, or IRS, separately examined the income tax return of CTIMCO for the year ended December 31, 2012. During the three months ended September 30, 2016, the IRS completed its examination with no adjustments.

Litigation

From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. As of September 30, 2016, we were not involved in any material legal proceedings.

Board of Directors’ Compensation

As of September 30, 2016, of the eight members of our board of directors, our five independent directors are entitled to annual compensation of $125,000 each. The other three board members, including our chairman and our chief executive officer, serve as directors with no compensation. As of September 30, 2016, the annual compensation for our directors was paid 40% in cash and 60% in the form of deferred stock units. In addition, the member of our board of directors that serves as the chairperson of the audit committee of our board of directors receives additional annual cash compensation of $12,000. Compensation to the board of directors is payable in four equal quarterly installments.

 

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

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

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

Introduction

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

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

I. Key Financial Measures and Indicators

 

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

Earnings Per Share and Dividends Declared

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

 

     Three Months Ended  
     September 30, 2016      June 30, 2016  

Net income (1)

   $ 64,794       $ 63,081   

Weighted-average shares outstanding, basic and diluted

       94,071,537         94,064,423   
  

 

 

    

 

 

 

Net income per share, basic and diluted

   $ 0.69       $ 0.67   
  

 

 

    

 

 

 

Dividends per share

   $ 0.62       $ 0.62   
  

 

 

    

 

 

 

 

(1)

Represents net income attributable to Blackstone Mortgage Trust, Inc.

 

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Core Earnings

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

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

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

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

 

     Three Months Ended  
     September 30, 2016      June 30, 2016  

Net income(1)

   $ 64,794       $ 63,081   

CT Legacy Portfolio net income

     (1,805      (3,825

Non-cash compensation expense

     4,949         4,836   

GE purchase discount accretion adjustment(2)

     (929      (1,247

Other items

     (65      278   
  

 

 

    

 

 

 

Core Earnings

   $ 66,944       $ 63,123   
  

 

 

    

 

 

 

Weighted-average shares outstanding, basic and diluted

       94,071,537           94,064,423   
  

 

 

    

 

 

 

Core Earnings per share, basic and diluted

   $ 0.71       $ 0.67   
  

 

 

    

 

 

 

 

(1)

Represents net income attributable to Blackstone Mortgage Trust.

(2)

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

Book Value Per Share

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

 

     September 30, 2016      June 30, 2016  

Stockholders’ equity

   $ 2,503,694       $ 2,496,417   

Shares

     

Class A common stock

       93,912,936           93,912,674   

Deferred stock units

     162,371         155,676   
  

 

 

    

 

 

 

Total outstanding

     94,075,307         94,068,350   
  

 

 

    

 

 

 

Book value per share

   $ 26.61       $ 26.54   
  

 

 

    

 

 

 

 

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II. Loan Portfolio

 

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

Portfolio Overview

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

 

     Three Months Ended      Nine Months Ended  
     September 30, 2016      September 30, 2016  

Loan originations(1)

   $   956,583       $   2,677,128   

Loan fundings(2)

   $   925,840       $   2,392,739   

Loan repayments and sales(3)

     (1,621,090      (2,962,904
  

 

 

    

 

 

 

Total net fundings

   $ (695,250    $ (570,165
  

 

 

    

 

 

 

 

(1)

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

(2)

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

(3)

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

 

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

 

           Total Loan Exposure(1)  
     Balance Sheet
Portfolio
    Total Loan
Portfolio
    Floating Rate
Loans
    Fixed Rate
Loans
 

Number of loans

     106        106        89        17   

Principal balance

   $     8,381,679      $     9,437,543      $     8,147,417      $     1,290,126   

Net book value

   $ 8,347,712      $ 9,398,383      $ 8,107,348      $ 1,291,035   

Unfunded loan commitments(2)

   $ 929,030      $ 1,061,572      $ 1,061,572      $   

Weighted-average cash coupon(3)

     4.85     4.66     L+4.03     5.07

Weighted-average all-in yield(3)

     5.22     5.09     L+4.44     5.62

Weighted-average maximum maturity (years)(4)

     3.2        3.3        3.3        3.5   

Loan to value (LTV)(5)

     61.0     60.5     59.8     64.5

 

(1)

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

 
(2)

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

 
(3)

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

 
(4)

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

 
(5)

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

 

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

 

LOGO

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

Asset Management

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

 

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

 

     September 30, 2016  

Risk
Rating

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

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

 

 

(1)

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

 

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

 

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Portfolio Financing

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

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

 

     Portfolio Financing  
     Outstanding Principal Balance  
     September 30, 2016      December 31, 2015  

Revolving repurchase facilities

   $ 3,044,434       $ 2,495,805   

GE portfolio acquisition facility

     1,587,822         3,161,291   

Asset-specific financings

     653,652         474,655   

Revolving credit agreement

     50,000         —     

Loan participations sold

     411,427         498,992   

Non-consolidated senior interests

     1,055,864         1,039,765   
  

 

 

    

 

 

 

Total portfolio financing

   $     6,803,199       $ 7,670,508   
  

 

 

    

 

 

 

Revolving Repurchase Facilities

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

 

     September 30, 2016  
     Maximum      Collateral      Repurchase Borrowings  

Lender

   Facility Size(1)      Assets(2)      Potential(3)      Outstanding      Available(3)  

Wells Fargo

   $ 2,000,000       $ 1,390,190       $ 1,085,153       $ 801,271       $ 283,882   

MetLife

     1,000,000         967,359         756,054         756,054         —     

Bank of America

     750,000         742,081         577,694         577,694         —     

JP Morgan(4)

     500,000         524,516         403,483         353,630         49,853   

Citibank

     500,000         623,857         481,572         252,175         229,397   

Morgan Stanley(5)

     324,200         254,803         200,665         200,665         —     

Société Générale(6)

     448,880         166,369         131,000         102,945         28,055   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

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

(2)

Represents the principal balance of the collateral assets.

(3)

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

(4)

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

(5)

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

(6)

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

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

 

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

GE Portfolio Acquisition Facility

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

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

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

 

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Asset-Specific Financings

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

 

     September 30, 2016  
            Principal      Book      Wtd. Avg.             Wtd. Avg.  

Lender

   Count      Balance      Value      Yield/Cost(1)     Guarantee(2)      Term  

JP Morgan(3)

                

Collateral assets

     1       $     280,415       $     278,963         L+3.88     n/a         Jan. 2020   

Financing provided

     1         233,679         233,541         L+1.89   $ 116,839         Jan. 2020   

Citibank(3)

                

Collateral assets

     2         201,270         201,135         L+4.45     n/a         Nov. 2020   

Financing provided

     2         158,652         158,605         L+2.48     39,663         Nov. 2020   

Deutsche Bank

                

Collateral assets

     1         180,740         178,107         L+5.17     n/a         Aug. 2021   

Financing provided

     1         135,075         133,599         L+3.00     67,538         Aug. 2021   

Bank of the Ozarks

                

Collateral assets

     2         108,423         105,630         L+6.20     n/a         Feb. 2020   

Financing provided

     2         81,907         80,603         L+3.59     —           Feb. 2020   

Wells Fargo

                

Collateral assets

     1         63,341         62,955         L+6.05     n/a         Dec. 2019   

Financing provided

     1         44,339         44,067         L+3.20     8,868         Dec. 2019   

Total

                

Collateral assets

     7       $     834,189       $     826,790         L+4.76     n/a      
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

Financing provided

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

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

(1)

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

(2)

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

(3)

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

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

 

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Revolving Credit Agreement

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

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

Loan Participations Sold

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

 

     September 30, 2016  
          Principal      Book      Wtd. Avg.            Wtd. Avg.  

Loan Participations Sold

   Count    Balance      Value      Yield/Cost(1)     Guarantee(2)      Term  

Total loan

   2    $   495,912       $ 492,133         L+4.51     n/a         Sep. 2019   

Senior participation(3)(4)

   2      411,427         409,654         L+2.71   $ 31,123         Sep. 2019   

 

(1)

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

(2)

Other than one instance where we entered into a related guarantee agreement for £24.0 million ($31.1 million as of September 30, 2016), our loan participations sold are non-recourse to us.

(3)

During the three and nine months ended September 30, 2016, we recorded $3.4 million and $10.7 million, respectively, of interest expense related to our loan participations sold, of which $3.2 million and $10.3 million was paid in cash.

(4)

The difference between principal balance and book value of loan participations sold is due to deferred financing costs of $1.8 million as of September 30, 2016.

Refer to Note 7 to our consolidated financial statements for additional details related to our loan participations sold.

 

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Non-Consolidated Senior Interests

In certain instances, we finance our loans through the non-recourse sale of a senior loan interest that is not included in our consolidated financial statements. These non-consolidated senior interests provide structural leverage for our net investments which are reflected in the form of mezzanine loans or other subordinate interests on our balance sheet and our results of operations. The following table details the subordinate interests retained on our balance sheet and the related non-consolidated senior interests as of September 30, 2016 ($ in thousands):

 

     September 30, 2016
          Principal      Book      Wtd. Avg.            Wtd. Avg.

Non-Consolidated Senior Interests

   Count    Balance      Value      Yield/Cost(1)     Guarantee      Term

Total loan

   4    $ 1,297,548         $  n/a         5.66     n/a       Apr. 2021

Senior participation

   4      1,055,864         n/a         4.02     n/a       Apr. 2021

 

(1)

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

Floating Rate Portfolio

Generally, our business model is such that rising interest rates will increase our net income, while declining interest rates will decrease net income. As of September 30, 2016, 86% of our loans by principal balance earned a floating rate of interest and were financed with liabilities that pay interest at floating rates, which resulted in an amount of net equity that is positively correlated to rising interest rates, subject to the impact of interest rate floors on certain of our floating rate loans. As of September 30, 2016, the remaining 14% of our loans by principal balance earned a fixed rate of interest, but are financed with liabilities that pay interest at floating rates, which resulted in a negative correlation to rising interest rates to the extent of our financing. In certain instances where we have financed fixed rate assets with floating rate liabilities, we have purchased interest rate swaps or caps to limit our exposure to increases in interest rates on such liabilities.

Our liabilities are generally currency and index-matched to each collateral asset, resulting in a net exposure to movements in benchmark rates that varies by currency silo based on the relative proportion of floating rate assets and liabilities. The following table details our loan portfolio’s net exposure to interest rates by currency as of September 30, 2016 ($/£/€/C$ in thousands):

 

     USD      GBP      EUR      CAD  

Floating rate loans(1)

   $ 7,015,870       £ 664,892       109,604       C$ 192,349   

Floating rate debt(1)(2)(3)

     (5,100,802      (528,979      (213,444      (489,223
  

 

 

    

 

 

    

 

 

    

 

 

 

Net floating rate exposure(4)

   $ 1,915,068       £ 135,913       (103,840    C$ (296,874
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Our floating rate loans and related liabilities are indexed to the various benchmark rates relevant in each case in terms of currency and payment frequency. Therefore the net exposure to each benchmark rate is in direct proportion to our net assets indexed to that rate.

 
(2)

Includes borrowings under secured debt agreements, loan participations sold, and non-consolidated senior interests.

 
(3)

Liabilities balance includes a C$17.3 million ($13.2 million as of September 30, 2016) interest rate swap used to hedge a portion of our fixed rate debt.

 
(4)

In addition, we have interest rate caps of $1.1 billion, £15.1 million, €152.7 million, and C$491.9 million to limit our exposure to increases in interest rates.

 

Convertible Notes

In November 2013, we issued $172.5 million of 5.25% convertible senior notes due on December 1, 2018, or the Convertible Notes. The Convertible Notes issuance costs, including underwriter discounts, are amortized through interest expense over the life of the Convertible Notes using the effective interest method. Including this amortization, our all-in cost of the Convertible Notes is 5.87%.

Refer to Notes 2 and 8 to our consolidated financial statements for additional discussion of our Convertible Notes.

 

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Debt-to-Equity Ratio and Total Leverage

The following table presents our debt-to-equity ratio and total leverage:

 

     September 30,      December 31,  
            2016              2015  

Debt-to-equity ratio(1)

     2.2x         2.5x   

Total leverage(2)

     2.7x         3.1x   

 

(1)

Represents (i) total debt outstanding, less cash to (ii) stockholders’ equity. Excludes structural leverage provided by loan participations sold and non-consolidated senior interests.

 
(2)

Represents (i) total debt outstanding, loan participations sold, and non-consolidated senior interests, less cash to (ii) stockholders’ equity.

 

CT Legacy Portfolio

As of September 30, 2016, our CT Legacy Portfolio consists of (i) our interests in CT Legacy Partners, LLC and (ii) our carried interest in CT Opportunity Partners I, LP, or CTOPI, a private investment fund that was previously under our management and is now managed by an affiliate of our Manager.

During the nine months ended September 30, 2016 we recognized (i) $13.4 million of gain on investments at fair value, (ii) $2.2 million of income from equity investments in unconsolidated subsidiaries, (iii) $2.3 million of general and administrative expenses, and (iv) $8.1 million of net income attributable to non-controlling interest related to our CT Legacy Portfolio. In addition, we received $22.2 million of distributions related to assets in the CT Legacy Portfolio.

 

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III. Our Results of Operations

 

Operating Results

The following table sets forth information regarding our consolidated results of operations and certain key operating metrics ($ in thousands, except per share data):

 

     Three Months Ended     2016 vs     Nine Months Ended     2016 vs  
     September 30,     2015     September 30,     2015  
     2016     2015     $     2016     2015     $  

Income from loans and other investments

            

Interest and related income

   $     128,190      $     138,361      $ (10,171   $     381,686      $     282,249      $     99,437   

Less: Interest and related expenses

     45,373        51,329        (5,956     139,819        106,125        33,694   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from loans and other investments, net

     82,817        87,032        (4,215     241,867        176,124        65,743   

Other expenses

            

Management and incentive fees

     13,701        13,813        (112     43,161        28,535        14,626   

General and administrative expenses

     7,414        5,295        2,119        20,990        28,655        (7,665
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expenses

     21,115        19,108        2,007        64,151        57,190        6,961   

Gain (loss) on investments at fair value

     2,824        (82     2,906        13,413        22,108        (8,695

Income from equity investments in unconsolidated subsidiaries

     2,060        17        2,043        2,192        5,677        (3,485
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     66,586        67,859        (1,273     193,321        146,719        46,602   

Income tax provision

     194        81        113        281        431        (150
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     66,392        67,778        (1,386     193,040        146,288        46,752   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to non-controlling interests

     (1,598     (890     (708     (8,119     (14,724     6,605   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Blackstone Mortgage Trust, Inc.

   $ 64,794      $ 66,888      $ (2,094   $ 184,921      $ 131,564      $ 53,357   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share - basic and diluted

   $ 0.69      $ 0.72      $ (0.03   $ 1.97      $ 1.69      $ 0.28   

Dividends declared per share

   $ 0.62      $ 0.62      $         0.00      $ 1.86      $ 1.66      $ 0.20   

Income from loans and other investments, net

Income from loans and other investments, net decreased $4.2 million during the three months ended September 30, 2016 as compared to the corresponding period in 2015. The decrease was primarily due to repayments of the loans in the GE portfolio, which closed during the second quarter of 2015. This was partially offset by the reduction of interest expense incurred on the GE portfolio acquisition facility.

Income from loans and other investments, net increased $65.7 million during the nine months ended September 30, 2016 as compared to the corresponding period in 2015. The increase was primarily due to the accretive effects of the GE portfolio acquisition and the resulting increase in the total size of our loan portfolio. This was partially offset by the additional interest expense incurred on the GE portfolio acquisition facility.

Other expenses

Other expenses are composed of management and incentive fees payable to our Manager and general and administrative expenses. Other expenses increased by $2.0 million during the three months ended September 30, 2016 compared to the corresponding period in 2015 due to (i) an increase of $1.8 million of additional non-cash restricted stock amortization related to shares awarded under our long-term incentive plans, and (ii) an increase of $1.2 million of compensation expenses associated with our CT Legacy Portfolio incentive plans. These were offset by (i) a decrease of $467,000 of general operating expenses, (ii) a decrease of $370,000 of transaction costs related the GE loan portfolio acquisition, and (iii) a decrease of $263,000 of incentive fees payable to our Manager.

 

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Other expenses increased by $7.0 million during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 due to (i) an increase of $9.1 million of incentive fees payable to our Manager, primarily as a result of Core Earnings (before any incentive fees) exceeding the performance hurdle, (ii) an increase of $5.5 million of management fees payable to our Manager, primarily as a result of additional net proceeds received from the sale of our class A common stock in 2015, and (iii) an increase of $4.6 million of additional non-cash restricted stock amortization related to shares awarded under our long-term incentive plans. These were offset by (i) a decrease of $9.6 million of transaction costs related the GE loan portfolio acquisition, (ii) a decrease of $2.5 million of compensation expenses associated with our CT Legacy Portfolio incentive plans and (iii) a decrease of $132,000 of additional general operating expenses.

Gain on investments at fair value

During the three months ended September 30, 2016, we recognized $2.8 million of net gains, primarily on investments held by CT Legacy Partners compared to $82,000 of net losses during the three months ended September 30, 2015.

During the nine months ended September 30, 2016, we recognized $13.4 million of net gains, primarily on investments held by CT Legacy Partners compared to $22.1 million during the nine months ended September 30, 2015.

Income from equity investments in unconsolidated subsidiaries

During the three months ended September 30, 2016, we recognized $2.1 million of promote income from CTOPI compared to $17,000 of promote income during the three months ended September 30, 2015.

During the nine months ended September 30, 2016, we recognized $2.2 million of promote income from CTOPI compared to $5.7 million of promote income during the nine months ended September 30, 2015.

Net income attributable to non-controlling interests

During the three months ended September 30, 2016, we recognized $1.6 million of net income attributable to non-controlling interests compared with $890,000 during the three months ended September 30, 2015. The non-controlling interests represent the portion of CT Legacy Partners net income that is not owned by us. The increase in income attributable to non-controlling interests is primarily a result of the increase of $2.9 million of gain on investments at fair value recognized by CT Legacy Partners during the three months ended September 30, 2016 compared to the three months ended September 30, 2015.

During the nine months ended September 30, 2016, we recognized $8.1 million of net income attributable to non-controlling interests compared with $14.7 million during the nine months ended September 30, 2015. The decrease in income attributable to non-controlling interests is primarily a result of the decrease of $8.7 million of gain on investments at fair value recognized by CT Legacy Partners during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015.

Dividends per share

During the three months ended September 30, 2016, we declared a dividend of $0.62 per share, or $58.2 million, which was paid on October 14, 2016 to common stockholders of record as of September 30, 2016. During the three months ended September 30, 2015, we declared a dividend of $0.62 per share, or $57.8 million.

During the nine months ended September 30, 2016, we declared aggregate dividends of $1.86 per share, or $174.7 million. During the nine months ended September 30, 2015, we declared aggregate dividends of $1.66 per share, or $136.7 million.

 

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IV. Liquidity and Capital Resources

 

Capitalization

We have capitalized our business to date through, among other things, the issuance and sale of shares of our class A common stock, borrowings under secured debt agreements, and the issuance and sale of Convertible Notes. As of September 30, 2016, we had 93,912,936 shares of our class A common stock outstanding representing $2.5 billion of stockholders’ equity, $5.3 billion of outstanding borrowings under secured debt agreements, and $172.5 million of Convertible Notes outstanding.

As of September 30, 2016, our secured debt agreements consisted of revolving repurchase facilities with an outstanding balance of $3.0 billion, the GE portfolio acquisition facility with an outstanding balance of $1.6 billion, and $653.7 million of asset-specific financings. We also finance our business through the sale of loan participations and non-consolidated senior interests. As of September 30, 2016 we had $411.4 million of loan participations sold and $1.1 billion of non-consolidated senior interests outstanding.

See Notes 6, 7, and 8 to our consolidated financial statements for additional details regarding our secured debt agreements, loan participations sold, and Convertible Notes.

Sources of Liquidity

Our primary sources of liquidity include cash and cash equivalents and available borrowings under our revolving repurchase facilities and revolving credit agreement, which are set forth in the following table ($ in thousands):

 

     September 30, 2016      December 31, 2015  

Cash and cash equivalents

   $ 94,061       $ 96,450   

Available borrowings under secured debt agreements

     666,187         504,778   
  

 

 

    

 

 

 
   $ 760,248       $ 601,228   
  

 

 

    

 

 

 

In addition to our current sources of liquidity, we have access to liquidity through public offerings of debt and equity securities. To facilitate such offerings, in July 2016, we filed a shelf registration statement with the Securities and Exchange Commission, or the SEC, that is effective for a term of three years and expires in July 2019. The amount of securities to be issued pursuant to this shelf registration statement was not specified when it was filed and there is no specific dollar limit on the amount of securities we may issue. The securities covered by this registration statement include: (i) class A common stock, (ii) preferred stock, (iii) debt securities, (iv) depositary shares representing preferred stock, (v) warrants, (vi) subscription rights, (vii) purchase contracts, and (viii) units consisting of one or more of such securities or any combination of these securities. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering.

We may also access liquidity through a dividend reinvestment plan and direct stock purchase plan, under which 9,998,585 shares of class A common stock were available for issuance as of September 30, 2016, and our at-the-market stock offering program, pursuant to which we may sell, from time to time, up to $188.6 million of additional shares of our class A common stock as of September 30, 2016. Refer to Note 10 to our consolidated financial statements for additional details.

Our existing loan portfolio also provides us with liquidity as loans are repaid or sold, in whole or in part, and the proceeds from such repayments become available for us to reinvest.

Liquidity Needs

In addition to our ongoing loan origination activity, our primary liquidity needs include interest and principal payments under our $5.3 billion of outstanding borrowings under secured debt agreements, our Convertible Notes, our unfunded loan commitments, dividend distributions to our stockholders, and operating expenses.

 

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Contractual Obligations and Commitments

Our contractual obligations and commitments as of September 30, 2016 were as follows ($ in thousands):

 

            Payment Timing  
     Total      Less Than      1 to 3      3 to 5      More Than  
     Obligation      1 Year      Years      Years      5 Years  

Unfunded loan commitments(1)

   $ 929,030       $ 286,526       $ 642,504       $ —         $ —     

Secured debt agreements(2)(3)

     5,556,575         2,201,189         3,101,853         253,533         —     

Convertible notes, net

     195,418         12,201         183,217         —           —     

Other liabilities(4)

     22,769         22,769         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total(5)

   $ 6,703,792       $ 2,522,685       $ 3,927,574       $ 253,533       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

The allocation of our unfunded loan commitments is based on the earlier of the commitment expiration date or the loan maturity date.

(2)

The allocation of our revolving repurchase facilities is based on the current maturity date of each individual borrowing under the facilities. Includes the related future interest payment obligations, which are estimated by assuming the amounts outstanding under our revolving repurchase facilities and the interest rates in effect as of September 30, 2016 will remain constant into the future; this is only an estimate, as actual amounts borrowed and rates will vary over time.

(3)

Assumes repayment date based on initial maturity of each instrument. Future interest payment obligations are determined using the relevant benchmark rates in effect as of September 30, 2016, as applicable.

(4)

Other liabilities consist of secured debt repayments pending servicer remittance as of the balance sheet date.

(5)

Total does not include $411.4 million of loan participations sold and $1.1 billion of non-consolidated senior interests as the satisfaction of these liabilities will not require cash outlays from us.

We are also required to settle our foreign currency forward contracts and interest rate swaps with our derivative counterparties upon maturity which, depending on foreign exchange and interest rate movements, may result in cash received from or due to the respective counterparty. The table above does not include these amounts as they are not fixed and determinable. Refer to Note 9 to our consolidated financial statement for details regarding our derivative contracts.

We are required to pay our Manager a base management fee, an incentive fee, and reimbursements for certain expenses pursuant to our Management Agreement. The table above does not include the amounts payable to our Manager under our Management Agreement as they are not fixed and determinable. Refer to Note 11 to our consolidated financial statements for additional terms and details of the fees payable under our Management Agreement.

As a REIT, we generally must distribute substantially all of our net taxable income to shareholders in the form of dividends to comply with the REIT provisions of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. Our taxable income does not necessarily equal our net income as calculated in accordance with GAAP, or our Core Earnings as described above.

Cash Flows

The following table provides a breakdown of the net change in our cash and cash equivalents ($ in thousands):

 

     Nine Months Ended September 30,  
     2016      2015  

Cash flows from operating activities

   $ 187,564       $ 104,610   

Cash flows from investing activities

     798,251         (5,193,831

Cash flows from financing activities

     (989,730          5,173,559   
  

 

 

    

 

 

 

Net (decrease) increase in cash and cash equivalents

   $ (3,915    $ 84,338   
  

 

 

    

 

 

 

 

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We experienced a net decrease in cash of $3.9 million for the nine months ended September 30, 2016, compared to a net increase of $84.3 million for the nine months ended September 30, 2015. During the nine months ended September 30, 2016, we originated and funded $2.3 billion of loans and repaid $3.0 billion under secured debt agreements. This decrease in cash was offset by $3.1 billion of principal collections and sales of loans receivable and $2.2 billion of borrowings under secured debt agreements.

Refer to Notes 6 and 7 to our consolidated financial statements for additional discussion of our secured debt obligations and participations sold. Refer to Note 3 to our consolidated financial statements for further discussion of our loan activity.

V. Other Items

 

Income Taxes

We elected to be taxed as a REIT, effective January 1, 2003, under the Internal Revenue Code for U.S. federal income tax purposes. We generally must distribute annually at least 90% of our net taxable income, subject to certain adjustments and excluding any net capital gain, in order for U.S. federal income tax not to apply to our earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our net taxable income, we will be subject to U.S. federal income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws.

Our qualification as a REIT also depends on our ability to meet various other requirements imposed by the Internal Revenue Code, which relate to organizational structure, diversity of stock ownership, and certain restrictions with regard to the nature of our assets and the sources of our income. Even if we qualify as a REIT, we may be subject to certain U.S. federal income and excise taxes and state and local taxes on our income and assets. If we fail to maintain our qualification as a REIT for any taxable year, we may be subject to material penalties as well as federal, state and local income tax on our taxable income at regular corporate rates and we would not be able to qualify as a REIT for the subsequent four full taxable years. As of September 30, 2016 and December 31, 2015, we were in compliance with all REIT requirements.

Refer to Note 12 to our consolidated financial statements for additional discussion of our income taxes.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires our Manager to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Actual results could differ from these estimates. There have been no material changes to our critical accounting policies described in our annual report on Form 10-K filed with the SEC on February 16, 2016.

Refer to Note 2 to our consolidated financial statements for the description of our significant accounting policies.

 

53


Table of Contents

VI. Loan Portfolio Details

 

The following table provides details of our loan portfolio, on a loan-by-loan basis, as of September 30, 2016 ($ in millions):

 

   

Loan Type(1)

 

Origination
Date(2)

  Total
Loan(3)
    Principal
Balance(3)
    Net Book
Value
    Cash
Coupon(4)
    All-in
Yield(4)
   

Maximum
Maturity(5)

 

                    Location                     

 

Property
Type

 

Loan Per
SQFT / Unit /Key

  LTV(2)    

Risk
Rating

1

  Senior loan(3)   8/6/2015     $       478.6        $     478.6        $      86.5        4.48%          5.92%      10/29/2022   Diversified - EUR   Other               n/a     71%      3

2

  Senior loan(3)   5/15/2015     590.0        470.0        79.2        L + 4.25%        L + 4.80%      5/15/2020   Miami   Retail   $       595 / sqft     36%      3

3

  Senior loan   5/22/2014     440.9        440.9        437.2        L + 4.20%        L + 4.48%      12/31/2019   Diversified - UK   Hotel   119,391 / key     59%      3

4

  Senior loan   5/1/2015     320.3        294.5        292.8        L + 3.45%        L + 3.83%      5/1/2020   New York   Office   374 / sqft     68%      3

5

  Senior loan(3)   6/30/2015     304.8        286.9        56.6        L + 4.75%        L + 5.16%      7/9/2020   San Francisco   Condo   908 / sqft     66%      3

6

  Senior loan   1/7/2015     315.0        280.4        279.0        L + 3.50%        L + 3.88%      1/9/2020   New York   Office   242 / sqft     53%      2

7

  Senior loan   6/4/2015     244.0        244.0        246.6        5.54% (6)      5.48% (6)    2/20/2019   Diversified - CAN   Hotel   31,972 / key     54%      2

8

  Senior loan   6/23/2015     223.5        210.9        210.1        L + 3.65%        L + 3.77%      10/1/2020   Washington DC   Office   237 / sqft     72%      2

9

  Senior loan   6/23/2015     207.3        207.3        207.2        5.38%        5.41%      1/18/2017   Diversified - GER   Retail   62 / sqft     53%      2

10

  Senior loan   8/19/2016     200.0        187.5        186.6        L + 3.64%        L + 4.10%      9/9/2021   New York   Office   558 / sqft     69%      3

11

  Senior loan   7/31/2014     215.0        186.4        186.3        L + 3.50%        L + 3.57%      8/9/2019   Chicago   Office   249 / sqft     65%      2

12

  Senior loan   8/3/2016     275.9        180.7        178.1        L + 4.66%        L + 5.17%      8/9/2021   New York   Office   249 / sqft     57%      3

13

  Senior loan   4/15/2016     200.0        176.6        175.0        L + 4.25%        L + 4.86%      5/9/2021   New York   Office   163 / sqft     40%      3

14

  Senior loan   8/17/2016     187.0        169.0        167.2        L + 3.75%        L + 4.13%      9/9/2021   San Francisco   Office   488 / sqft     65%      3

15

  Senior loan   2/25/2014     166.0        166.0        165.6        L + 4.60%        L + 5.13%      3/9/2019   Diversified - US   Hotel   87,231 / key     49%      2

16

  Senior loan   6/3/2016     160.0        160.0        160.0        L + 4.42%        L + 4.42%      6/9/2021   Los Angeles   Office   86 / sqft     41%      3

17

  Senior loan   3/8/2016     181.2        143.8        142.3        L + 3.55%        L + 3.90%      3/9/2021   Orange County   Office   181 / sqft     52%      3

18

  Senior loan   10/30/2013     140.0        140.0        139.6        L + 4.38%        L + 4.54%      9/9/2020   San Francisco   Hotel   215,716 / key     71%      2

19

  Senior loan   1/30/2014     133.5        133.2        132.7        L + 4.30%        L + 4.81%      12/1/2017   New York   Hotel   212,341 / key     38%      2

20

  Senior loan   12/9/2014     165.0        130.8        130.7        L + 3.80%        L + 4.13%      12/9/2019   Diversified - US   Office   74 / sqft     65%      2

21

  Senior loan   9/22/2015     122.0        122.0        121.9        L + 3.40%        L + 4.28%      11/9/2019   New York   Multi   243,513 / unit     74%      3

22

  Senior loan   6/23/2015     116.6        116.6        118.6        L + 3.30%        L + 3.23%      11/1/2016   Diversified - US   Other   287,898 / unit     57%      3

23

  Senior loan   8/28/2014     125.0        111.1        111.0        L + 4.35%        L + 4.50%      12/9/2018   New York   Office   116 / sqft     78%      3

24

  Senior loan   9/30/2013     113.5        105.7        105.7        L + 3.94%        L + 3.93%      9/30/2020   New York   Multi   131,811 / unit     67%      2

25

  Senior loan   2/18/2016     103.7        103.7        102.8        L + 3.75%        L + 4.41%      4/20/2019   London - UK   Office   870 / sqft     44%      3

26

  Senior loan   7/28/2016     116.5        101.1        100.0        L + 3.60%        L + 4.02%      8/9/2021   Atlanta   Office   160 / sqft     70%      3

27

  Senior loan   4/27/2016     100.8        100.8        100.0        L + 4.35%        L + 5.02%      5/9/2021   Chicago   Office   133 / sqft     74%      3

28

  Senior loan   2/20/2014     100.0        100.0        99.8        L + 4.40%        L + 4.94%      3/9/2019   Long Island   Office   146 / sqft     68%      2

29

  Senior loan   3/12/2015     101.2        100.0        99.5        L + 3.25%        L + 3.61%      3/11/2020   Orange County   Office   266 / sqft     66%      1

  30

  Senior loan   6/24/2015     100.0        100.0        99.6        L + 3.50%        L + 3.86%      12/1/2019   Virginia   Office   186 / sqft     43%      2

continued…

 

54


Table of Contents
   

Loan Type(1)

 

Origination
Date(2)

  Total
Loan(3)
    Principal
Balance(3)
    Net Book
Value
    Cash
Coupon(4)
    All-in
Yield(4)
   

Maximum
Maturity(5)

 

                    Location                     

 

Property
Type

 

Loan Per
SQFT / Unit /Key

  LTV(2)    

Risk
Rating

31

  Senior loan   6/24/2015              107.3                 98.7                 98.0        L + 4.25%        L + 4.67%      7/9/2020   Honolulu   Hotel   165,531 / key     67%      2

32

  Senior loan   3/4/2014     137.5        97.2        96.3        L + 4.00%        L + 5.78%      3/4/2018   London - UK   Office   581 / sqft     42%      3

33

  Senior loan   1/22/2016     128.5        94.7        93.8        L + 4.25%        L + 4.76%      2/9/2021   Los Angeles   Retail   247 / sqft     64%      3

34

  Senior loan   3/10/2016     104.0        90.5        89.6        L + 4.10%        L + 4.52%      4/9/2021   Chicago   Multi   591,326 /unit     63%      3

35

  Senior loan   6/23/2015     96.8        87.7        87.6        L + 3.40%        L + 3.51%      7/31/2019   Virginia   Office   142 / sqft     75%      3

36

  Senior loan   5/16/2014     86.8        86.8        86.6        L + 3.85%        L + 4.11%      6/9/2019   Miami   Office   187 / sqft     74%      3

37

  Senior loan   2/18/2015     89.9        84.3        84.1        L + 3.75%        L + 4.30%      3/9/2020   Diversified - CA   Office   174 / sqft     71%      2

38

  Senior loan   10/28/2014     85.0        82.1        81.8        L + 3.75%        L + 4.12%      11/9/2019   New York   Retail   1,534 / sqft     78%      2

39

  Senior loan   5/22/2014     93.7        81.8        81.6        L + 4.00%        L + 4.89%      6/15/2019   Orange County   Office   148 / sqft     67%      2

40

  Senior loan   6/23/2015     81.7        81.7        82.0        L + 3.65%        L + 3.63%      11/30/2018   Diversified - US   Hotel   69,086 / key     83%      2

41

  Senior loan   12/18/2015     79.4        79.4        79.1        L + 4.15%        L + 4.47%      1/9/2021   New York   Hotel   274,800 / key     67%      3

42

  Senior loan   7/11/2014     82.2        79.2        79.0        L + 3.65%        L + 4.03%      8/9/2019   Chicago   Office   150 / sqft     64%      2

43

  Senior loan   2/12/2016     100.0        77.0        76.5        L + 4.15%        L + 4.68%      3/9/2021   Long Island   Office   115 / sqft     65%      3

44

  Senior loan   6/23/2015     77.0        76.8        76.9        4.95% (6)      5.02% (6)    8/31/2020   Diversified - FL   MHC   22,236 / unit     69%      1

45

  Senior loan   6/4/2015     79.1        75.8        76.6        5.04% (6)      4.98% (6)    3/28/2019   Diversified - CAN   Retail   39 / sqft     74%      3

46

  Senior loan   7/23/2014     80.0        72.1        71.5        L + 5.00%        L + 5.86%      8/9/2019   Atlanta   Office   144 / sqft     43%      2

47

  Senior loan   5/1/2015     83.5        71.7        71.3        L + 3.95%        L + 4.20%      5/9/2020   Maryland   Hotel   183,829 / key     67%      2

48

  Senior loan   6/11/2015     70.3        70.3        70.2        L + 3.52%        L + 3.54%      11/30/2018   Dallas   Office   52 / sqft     50%      2

49

  Senior loan   9/8/2014     69.2        69.2        68.6        L + 4.00%        L + 4.44%      11/20/2019   Madrid - ES   Retail   128 / sqft     70%      2

50

  Senior loan   6/5/2014     63.5        63.5        63.4        L + 4.50%        L + 4.90%      6/5/2019   London - UK   Retail   2,693 / sqft     80%      2

51

  Senior loan   11/17/2014     70.5        63.3        63.0        L + 5.50%        L + 6.05%      12/9/2019   Diversified - CAN   Office   53 / sqft     53%      2

52

  Senior loan   3/11/2014     65.0        62.1        62.0        L + 4.50%        L + 5.00%      4/9/2019   New York   Multi   697,418 /unit     65%      3

53

  Senior loan   6/29/2016     75.4        62.0        61.3        L + 3.65%        L + 4.08%      7/9/2021   Fort Lauderdale   Office   240 / sqft     64%      3

54

  Senior loan(3)   9/3/2015     88.0        62.0        17.3        L + 5.50%        L + 6.29%      9/2/2019   Seattle   Office   213 / sqft     59%      2

55

  Senior loan   9/1/2016     61.5        61.5        60.9        L + 4.35%        L + 5.02%      9/1/2021   Atlanta   Multi   268,559 /unit     72%      3

56

  Senior loan   10/6/2014     67.0        61.0        60.7        L + 4.35%        L + 4.78%      10/9/2019   Long Island   Hotel   99,187 / key     65%      2

57

  Senior loan   1/13/2014     60.0        60.0        58.7        L + 3.45%        L + 4.89%      6/9/2020   New York   Office   284 / sqft     53%      2

58

  Senior loan   2/27/2015     73.7        55.8        55.5        L + 3.55%        L + 4.06%      2/26/2020   Chicago   Office   113 / sqft     64%      2

59

  Senior loan   6/4/2015     55.1        55.1        55.1        L + 3.25%        L + 3.30%      7/6/2017   Norwich - UK   Retail   164 / sqft     55%      1

  60

  Senior loan   3/4/2015     55.0        55.0        55.0        L + 4.70%        L + 4.76%      5/6/2017   Bellevue   Office   160 / sqft     48%      1

continued…

 

55


Table of Contents
   

Loan Type(1)

 

Origination
Date(2)

  Total
Loan(3)
    Principal
Balance(3)
    Net Book
Value
    Cash
Coupon(4)
    All-in
Yield(4)
   

Maximum
Maturity(5)

 

                    Location                     

 

Property
Type

 

Loan Per
SQFT / Unit /Key

  LTV(2)    

Risk
Rating

61

  Senior loan   5/20/2015     53.3        52.9        53.1        L + 3.50%        L + 3.53%      12/31/2018   Chicago   Office   134 / sqft     67%      3

62

  Senior loan   9/9/2014     56.0        50.4        50.3        L + 4.00%        L + 4.31%      9/9/2019   Ft. Lauderdale   Office   145 / sqft     71%      2

63

  Senior loan   4/1/2014     50.0        50.0        50.0        L + 4.20%        L + 4.73%      4/9/2019   Honolulu   Hotel   161,290 / key     69%      2

64

  Senior loan   5/20/2015     58.0        48.1        48.0        5.23% (6)      5.27% (6)    6/30/2019   Charlotte   Office   95 / sqft     71%      3

65

  Senior loan   7/2/2013     49.8        46.1        46.0        L + 4.25%        L + 4.53%      7/10/2018   Denver   Hotel   124,822 / key     69%      2

66

  Senior loan   9/22/2016     46.0        45.5        45.0        L + 4.25%        L + 4.90%      10/9/2019   New York   Office   456 / sqft     51%      3

67

  Senior loan   12/19/2014     44.0        44.0        43.9        L + 4.25%        L + 4.44%      1/9/2017   New York   Multi   511,628 / unit     50%      2

68

  Senior loan   9/26/2014     51.0        43.8        43.8        L + 4.00%        L + 4.05%      10/9/2019   Dallas   Office   99 / sqft     70%      2

69

  Senior loan   3/26/2014     43.3        42.9        42.8        L + 4.30%        L + 4.70%      4/9/2019   East Bay   Office   123 / sqft     71%      2

70

  Senior loan   11/19/2015     50.0        41.3        41.1        L + 4.00%        L + 4.56%      10/9/2018   New York   Office   1,059 / sqft     57%      3

71

  Senior loan   11/28/2013     60.9        40.8        40.4        L + 4.38%        L + 5.56%      1/20/2019   London - UK   Office   500 / sqft     49%      3

72

  Senior loan   6/11/2015     40.7        40.5        40.7        5.05% (6)      5.07% (6)    9/30/2020   Diversified - US   MHC   23,126 / unit     79%      2

73

  Senior loan   6/12/2014     39.9        39.9        39.9        L + 4.00%        L + 6.14%      6/30/2018   Los Angeles   Office   40 / sqft     44%      3

74

  Senior loan   8/8/2013     39.4        39.4        39.5        L + 4.25%        L + 4.73%      8/10/2018   Newport - RI   Hotel   153,418 / key     61%      1

75

  Senior loan   5/28/2015     38.0        38.0        37.6        L + 3.90%        L + 4.25%      6/30/2018   Houston   Hotel   97,938 / key     45%      2

76

  Senior loan   5/28/2015     40.2        37.6        37.6        L + 5.25%        L + 5.30%      3/5/2017   Atlanta   Office   108 / sqft     48%      2

77

  Senior loan   8/25/2015     43.8        36.8        36.6        L + 4.50%        L + 5.13%      9/9/2018   Los Angeles   Office   164 / sqft     46%      3

78

  Senior loan   6/26/2015     42.1        36.5        36.3        L + 3.75%        L + 4.36%      7/9/2020   San Diego   Office   166 / sqft     73%      2

79

  Senior loan   2/12/2016     225.0        36.4        34.1        L + 5.75%        L + 7.17%      2/11/2021   Seattle   Office   48 / sqft     48%      3

80

  Senior loan   6/11/2015     35.5        35.5        35.6        4.79% (6)      4.81% (6)    7/31/2019   Tampa   MHC   30,967 / unit     80%      3

81

  Senior loan   5/20/2015     38.5        34.9        34.8        4.66% (6)      4.90% (6)    1/31/2019   Los Angeles   Office   171 / sqft     59%      2

82

  Senior loan   6/11/2015     34.5        34.5        34.7        5.34%        5.36%      5/31/2020   Diversified - US   MHC   21,129 / unit     65%      2

83

  Senior loan   10/22/2015     33.7        33.7        33.5        L + 4.50%        L + 5.03%      10/22/2018   London - UK   Office   2,547 / sqft     64%      3

84

  Senior loan   5/20/2015     36.5        32.0        32.0        L + 3.60%        L + 3.60%