What changed in this filing

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Item 1. Business

2023-02-08 compared with 2022-02-09 · 38 added, 66 removed, 151 unchanged (41% of the section changed)

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We are not in the business of buying or trading securities, and the only securities we own are the retained interests from our securitization financing transactions, which we have not financed.

We are externally managed by BXMT Advisors L.L.C., or our Manager, a subsidiary of Blackstone Inc., or Blackstone, and are a real estate investment trust, or REIT, traded on the New York Stock Exchange, or NYSE, under the symbol “BXMT.” Our principal executive offices are located at 345 Park Avenue, 24th Floor, New York, New York 10154.

We are externally managed by BXMT Advisors L.L.C., or our Manager, a subsidiary of Blackstone Inc., or Blackstone, and are a REIT, traded on the New York Stock Exchange, or NYSE, under the symbol “BXMT.” Our principal executive offices are located at 345 Park Avenue, 24th Floor, New York, New York 10154.

We were incorporated in Maryland in 1998, when we reorganized from a California common law business trust into a Maryland corporation.

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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, or the Investment Company Act.

We also operate our business in a manner that permits us to maintain an exclusion from registration under the Investment Company Act.

We are organized as a holding company and conduct our business primarily through our various subsidiaries.

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Michael Nash, the global chairman of BREDS, serves as the executive chairman of our board of directors and is a member of our Manager’s investment committee.

In addition, Jonathan Pollack, the global head of Structured Finance, which includes BREDS, serves as one of our directors and is also a member of our Manager’s investment committee.

In addition, Jonathan Pollack, the global head of Structured Finance, which includes BREDS, and Tim Johnson, global head of BREDS, each serve as members of our Manager’s investment committee and Mr.

Pollack also serves as one of our directors.

As of December 31, 2022, 136 dedicated BREDS professionals, including 31 investment professionals based in London and Australia, managed $58.8 billion of investor capital.

Our chief executive officer, chief financial officer, and other executive officers are senior Blackstone real estate professionals.

Our chief executive officer, chief financial officer, and other officers are senior Blackstone real estate professionals.

None of our Manager, our executive officers, or other personnel supplied to us by our Manager is obligated to dedicate any specific amount of time to our business.

Our Manager is subject to the supervision and oversight of our board of directors and has only such functions and authority as our board of directors delegates to it.

Pursuant to a management agreement between our Manager and us, or our Management Agreement, our Manager is entitled to receive a

base management fee, an incentive fee, and expense reimbursements.

Our Manager is subject to the supervision and oversight of our board of directors

and has only such functions and authority as our board of directors delegates to it.

Pursuant to a management agreement between our Manager and us, or our Management Agreement, our Manager is entitled to receive a base management fee, an incentive fee, and expense reimbursements.

See Notes 14 and 19 to our consolidated financial statements and the information disclosed pursuant to Item 13 “Certain Relationships and Related Transactions, and Director Independence” in our definitive proxy statement with respect to our 2023 annual meeting of shareholders, which is incorporated by reference into this Annual Report on Form 10-K, for more detail on the terms of the Management Agreement.

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These investments may be in the form of whole loans, pari passu participations within mortgage loans, or other similar structures.

Although originating senior, floating rate mortgage loans is our primary area of focus, we also originate and acquire fixed rate loans and subordinate loans, including subordinate mortgage interests and mezzanine loans.

Although originating senior, floating rate mortgage loans is our primary area of focus, we may also originate and acquire fixed rate loans and subordinate loans, including subordinate mortgage interests and mezzanine loans.

This focused lending strategy is designed to generate attractive current income while protecting investors’ capital.

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The following table details overall statistics for our investment portfolio as of December 31, 2022 ($ in thousands):

Total Investment Exposure

Balance Sheet

Portfolio (1)

Exposure (1)(2)

Investments (3)

Total Investment

Portfolio Loan

Number of investments 203 203

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Weighted-average maximum maturity (years) (4)

3.4 3.4 3.4 3.4

Origination loan to value (LTV) (5)

64.9 % 64.8 % 42.6 % 64.4 %

(1) Excludes investment exposure to the $79.2 million subordinate position we own in the $379.3 million 2018 Single Asset Securitization.

Refer to Notes 4 and 17 to our consolidated financial statements for further discussion of the 2018 Single Asset Securitization.

(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 $1.6 billion of such non-consolidated senior interests that are not included in our balance sheet portfolio.

(3) Includes investment exposure to the $379.3 million 2018 Single Asset Securitization.

We do not consolidate the 2018 Single Asset Securitization on our consolidated financial statements, and instead reflect our $79.2 million subordinate position as a component of other assets on our consolidated balance sheet.

Refer to Notes 4 and 17 to our consolidated financial statements for further discussion of the 2018 Single Asset Securitization.

(2) Unfunded commitments will primarily be funded to finance our borrowers’ construction or development of real estate-related assets, capital improvements of existing assets, or lease-related expenditures.

These commitments will generally be funded over the term of each loan, subject in certain cases to an expiration date.

(5) The weighted-average cash coupon and all-in yield are expressed as a spread over the relevant floating benchmark rates, which include USD LIBOR, SOFR, GBP LIBOR, SONIA, EURIBOR, and other indices as applicable to each investment.

As of December 31, 2021, 98% of our investments by total investment exposure earned a floating rate of interest, primarily indexed to USD LIBOR.

The other 2% of our investments earned a fixed rate of interest, which we reflect as a spread over the relevant floating benchmark rates, as of December 31, 2021, for purposes of the weighted-averages.

(3) The weighted-average cash coupon and all-in yield are expressed as a spread over the relevant floating benchmark rates, which include USD LIBOR, SOFR, SONIA, EURIBOR, and other indices as applicable to each investment.

As of December 31, 2022, substantially all of our loans by total loan exposure earned a floating rate of interest, primarily indexed to USD LIBOR and SOFR.

In addition to cash coupon, all-in yield includes the amortization of deferred origination and extension fees, loan origination costs, and purchase discounts, as well as the accrual of exit fees.

Excludes a loan accounted for under the cost-recovery method.

Excludes loans accounted for under the cost-recovery method.

(4) Maximum maturity assumes all extension options are exercised by the borrower, however our loans and other investments may be repaid prior to such date.

As of December 31, 2021, 56% of our loans and other investments by total investment exposure were subject to yield maintenance or other prepayment restrictions and 44% were open to repayment by the borrower without penalty.

(7) Based on LTV as of the dates loans and other investments were originated or acquired by us.

As of December 31, 2022, 53% of our loans by total loan exposure were subject to yield maintenance or other prepayment restrictions and 47% were open to repayment by the borrower without penalty.

(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 our investment portfolio, as of December 31, 2022:

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In addition to our current mix of financing sources, we also may access additional forms of financings including resecuritizations and public and private, secured and unsecured debt issuances by us or our subsidiaries.

During the year ended December 31, 2021, we (i) issued an aggregate 20.4 million shares of our class A common stock, providing aggregate net proceeds of $638.0 million, (ii) issued $400.0 million of 3.75% senior secured notes due 2027, and (iii) increased the borrowings on our senior term loan facilities by an aggregate $300.0 million.

Additionally, during the year ended December 31, 2021, we (i) entered into two new secured credit facilities providing an aggregate $2.5 billion of credit capacity, (ii) increased the size of four existing secured credit facilities providing an aggregate $1.2 billion of additional credit capacity, and (iii) closed a $1.0 billion CLO securitization.

During the year ended December 31, 2022, we (i) borrowed an additional $825.0 million under our term loan facilities with an interest rate of SOFR plus 3.50% and maturity in 2029, (ii) issued $300.0 million aggregate principal amount of 5.50% convertible senior notes due 2027, and (iii) issued 2.3 million shares of our class A common stock, providing aggregate net proceeds of $70.7 million.

Additionally, during the year ended December 31, 2022, we (i) entered into two new secured credit facilities providing an aggregate $2.2 billion of credit capacity and (ii) increased the size of six existing secured credit facilities providing an aggregate $1.4 billion of additional credit capacity.

The following table details our outstanding portfolio financing arrangements as of December 31, 2022 ($ in thousands):

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Total portfolio financing $ 19,048,250

(1) Includes our consolidated securitized debt obligations of $2.9 billion and our non-consolidated securitized debt obligations of $300.1 million.

The non-consolidated securitized debt obligation represents the senior non-consolidated investment exposure to the 2018 Single Asset Securitization.

We own the related subordinate position, which is classified as a held-to-maturity debt security on our balance sheet.

Refer to Notes 4 and 17 to our consolidated financial statements for details of the 2018 Single Asset Securitization.

(2) Includes our consolidated asset-specific debt of $400.7 million and our non-consolidated senior interests of $1.5 billion.

The 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 in our results of operations.

The amount of leverage we employ for particular assets will depend upon our Manager’s assessment of the credit, liquidity, price volatility, and other risks of those assets and the related financing counterparties, the availability of particular types of financing at the time, and the financial covenants under our credit facilities.

(1) Includes our asset-specific debt of $950.3 million, our loan participations sold of $224.7 million, and our non-consolidated senior interests of $1.6 billion, each as of December 31, 2022.

The loan participations sold and non-consolidated senior interests are non-debt financings that provide structural leverage for our whole loan investments.

The amount of leverage we employ for particular assets will depend upon our assessment of the credit, liquidity, price volatility, and other risks of those assets and the related financing structure, the availability of particular types of financing at the time, and the financial covenants under our credit facilities.

Our decision to use leverage to finance our assets will be at the discretion of our Manager and will not be subject to the approval of our stockholders.

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We will also seek to limit the risks associated with recourse borrowing.

Subject to maintaining our qualification as a REIT, from time to time, we engage in hedging transactions that seek to mitigate the effects of fluctuations in interest rates or currencies on our cash flows.

These hedging transactions could take a variety of forms, including interest rate or currency swaps or cap agreements, options, futures contracts, forward rate or currency agreements or similar financial instruments.

From time to time, we engage in hedging transactions that seek to mitigate the effects of fluctuations in currencies or interest rates on our cash flows.

These hedging transactions could take a variety of forms, including swaps or cap agreements, options, futures contracts, forward rate or currency agreements, or similar financial instruments.

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 December 31, 2021, 98% of our investments by total investment exposure 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 December 31, 2021, the remaining 2% of our investments by total investment exposure 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 caps to limit our exposure to increases in interest rates on such liabilities.

LIBOR and certain other floating rate benchmark indices to which our floating rate loans and other loan agreements are tied, including, without limitation, the Euro Interbank Offered Rate, or EURIBOR, the Stockholm Interbank Offered Rate, or STIBOR, the Australian Bank Bill Swap Reference Rate, or BBSY, the Canadian Dollar Offered Rate, or CDOR, and the Swiss Average Rate Overnight, or SARON, or collectively, IBORs, are the subject of recent national, international and regulatory guidance and proposals for reform.

As of December 31, 2021, the ICE Benchmark Association, or IBA, ceased publication of all non-USD LIBOR and previously announced its intention to cease publication of remaining U.S.

dollar LIBOR settings immediately after June 30, 2023.

Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S.

financial institutions, has identified the Secured Overnight Financing Rate, or SOFR, a new index calculated using short-term repurchase agreements backed by Treasury securities, as its preferred alternative rate for USD LIBOR.

Market participants have started to transition to the Sterling Overnight Index Average, or SONIA, in line with guidance

from the U.K.

As of December 31, 2021, one-month SOFR is utilized as the floating benchmark rate on 16 of our loans, the financing provided on the 2020 FL3 and 2020 FL2 CLOs, plus a credit spread adjustment, and one of our credit facilities.

Additionally, as of December 31, 2021, daily compounded SONIA is utilized as the floating benchmark rate on nine of our loans and five of our credit facilities.

At this time, it is not possible to predict how markets will respond to SOFR, SONIA, or other alternative reference rates as the transition away from USD LIBOR and GBP LIBOR proceeds.

Despite the LIBOR transition in other markets, benchmark rate methodologies in Europe, Australia, Canada, and Switzerland have been reformed and rates such as EURIBOR, STIBOR, BBSY, CDOR, and SARON may persist as International Organization of Securities Commissions, or IOSCO, compliant reference rates moving forward.

However, multi-rate environments may persist in these markets as regulators and working groups have suggested market participants adopt alternative reference rates.

As of December 31, 2022, substantially all of our investments by total loan exposure 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.

Refer to “Part I.

Risk Factors—Risks Related to Our Lending and Investment Activities—The recent and expected discontinuation of currently used financial reference rates and use of alternative replacement reference rates may adversely affect net interest income related to our loans and investments or otherwise adversely affect our results of operations, cash flows and the market value of our investments.” of this Annual Report on Form 10-K.

Risk Factors—Risks Related to Our Lending and Investment Activities—The transition away from reference rates and the use of alternative replacement reference rates may adversely affect net interest income related to our loans and investments or otherwise adversely affect our results of operations, cash flows and the market value of our investments." of this Annual Report on Form 10-K.

Investment Guidelines

Our board of directors has approved the following investment guidelines:

• our Manager shall seek to invest our capital in a broad range of investments in, or relating to, public and/or private debt, non-controlling equity, loans and/or other interests (including “mezzanine” interests and/or options or derivatives related thereto) relating to real estate assets (including pools thereof), real estate companies, and/or real estate-related holdings;

• prior to the deployment of capital into investments, our Manager may cause our capital to be invested in any short-term investments in money market funds, bank accounts, overnight repurchase agreements with primary federal reserve bank dealers collateralized by direct U.S.

government obligations and other instruments or investments reasonably determined by our Manager to be of high quality;

• not more than 25% of our equity, as defined in the Management Agreement with our Manager, will be invested in any individual investment without the approval of a majority of the investment risk management committee of our board of directors (it being understood, however, that for purposes of the foregoing concentration limit, in the case of any investment that is comprised (whether through a structured investment vehicle or other arrangement) of securities, instruments or assets of multiple portfolio issuers, such investment for purposes of the foregoing limitation shall be deemed to be multiple investments in such underlying securities, instruments and assets and not such particular vehicle, product or other arrangement in which they are aggregated);

• we shall seek to invest our capital in a broad range of investments in, or relating to, public and/or private debt, non-controlling equity, loans and/or other interests (including “mezzanine” interests and/or options or derivatives related thereto) relating to real estate assets (including pools thereof), real estate companies, and/or real estate-related holdings;

• prior to the deployment of capital into investments, we may cause our capital to be invested in any short-term investments in money market funds, bank accounts, overnight repurchase agreements with primary federal reserve bank dealers collateralized by direct U.S.

government obligations and other instruments or investments reasonably determined to be of high quality;

• not more than 25% of our equity, as defined in the Management Agreement, will be invested in any individual investment without the approval of a majority of the investment risk management committee of our board of directors (it being understood, however, that for purposes of the foregoing concentration limit, in the case of any investment that is comprised (whether through a structured investment vehicle or other arrangement) of securities,

instruments or assets of multiple portfolio issuers, such investment for purposes of the foregoing limitation shall be deemed to be multiple investments in such underlying securities, instruments and assets and not such particular vehicle, product or other arrangement in which they are aggregated);

• any investment in excess of $350.0 million shall require the approval of a majority of the investment risk management committee of our board of directors;

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Many of our competitors are not subject to the operating constraints associated with REIT compliance or maintenance of an exclusion from regulation under the Investment Company Act.

We could face increased competition from banks due to future legislative developments, such as amendments to key provisions of the Dodd-Frank Act, including provisions setting forth capital and risk retention

requirements.

In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of loans and investments and offer more attractive pricing or other terms and establish more relationships than us.

Furthermore, competition for originations of and investments in assets we target may lead to decreasing yields, which may further limit our ability to generate targeted returns.

In the face of this competition, we have access to our Manager’s and Blackstone’s professionals and their industry expertise and relationships, which we believe provide us with a competitive advantage and help us assess risks and determine appropriate pricing for potential investments.

In the face of this competition, we have access to Blackstone’s professionals and their industry expertise and relationships, which we believe provide us with a competitive advantage and help us assess risks and determine appropriate pricing for potential investments.

We believe these relationships will enable us to compete more effectively for attractive investment opportunities.

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Our executive officers serve as officers of our Manager, and are employed by an affiliate of our Manager.

See “—Our Manager.”

See “Item 1—Our Manager.”

Government Regulation

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We are also required to comply with certain provisions of the Equal Credit Opportunity Act that are applicable to commercial loans.

We intend to conduct our business so that neither we nor any of our subsidiaries are required to register as an investment company under the Investment Company Act.

We intend to continue to conduct our business so that neither we nor any of our subsidiaries are required to register as an investment company under the Investment Company Act.

In our judgment, existing statutes and regulations have not had a material adverse effect on our business.

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While we expect that additional new regulations in these areas will be adopted and existing ones may change in the future, it is not possible at this time to forecast the exact nature of any future legislation, regulations, judicial decisions, orders or interpretations, nor their impact upon our future business, financial condition, or results of operations or prospects.

For more information on government regulation, refer to “Part I – Item 1A.

Risk Factors – Risks Related to Our Company.”

Taxation of the Company

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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.

federal income tax not to apply to our earnings.

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.

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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.

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The information on our website is not a part of, nor is it incorporated by reference into this report.

Through our website, we make available, free of charge, our annual proxy statement, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish them to, the Securities and Exchange Commission, or the SEC.

Through our website, we make available, free of charge, our annual proxy statement, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish them to, the Securities and Exchange Commission, or the SEC.

The SEC maintains a website that contains these reports at www.sec.gov .

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business