Introduction

Blackstone Mortgage Trust is a real estate finance company that originates 
senior loans collateralized by commercial real estate in North America, Europe, 
and Australia. Our investment objective is to preserve and protect shareholder 
capital while producing attractive risk-adjusted returns primarily through 
dividends generated from current income from our loan portfolio. 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.

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 March 31, 2019 
we recorded earnings per share of $0.62, 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 March 31, 2019 was $27.32. 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.

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 the management agreement between our 
Manager and us, or our Management Agreement, we calculate the incentive and 
base management fees due to our Manager using Core Earnings before our 
incentive fee 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.


Revolving Credit Agreement

We have a $250.0 million full recourse secured revolving credit agreement with 
Barclays that is designed to finance first mortgage originations for up to nine 
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 maturity date of 
the facility is April 4, 2020.

During the three months ended March 31, 2019, the weighted-average outstanding 
borrowings under the revolving credit agreement was $43.8 million and we 
recorded interest expense of $969,000, including $268,000 of amortization of 
deferred fees and expenses. As of March 31, 2019, we had $43.8 million of 
borrowings outstanding under the agreement.

Loan Participations Sold

Our 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 fees/financing costs.

As of March 31, 2019, our loan participations sold was non-recourse to us.

During the three months ended March 31, 2019, we recorded $1.7 million of 
interest expense related to our loan participations sold.

The difference between principal balance and book value of loan participations 
sold is due to deferred financing costs of $93,000 as of March 31, 2019.


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 in our results of 
operations.the subordinate interests.

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.


Securitized Debt Obligations

In addition to cash coupon, all-in yield includes the amortization of deferred 
origination and extension fees, loan origination costs, purchase discounts, and 
accrual of exit fees. All-in yield for the total portfolio assume applicable 
floating benchmark rates for weighted-average calculation.

Loan term represents weighted-average final maturity, assuming all extension 
options are exercised by the borrower. Repayments of securitized debt 
obligations are tied to timing of the related collateral loan asset repayments. 
The term of these obligations represents the rated final distribution date of 
the securitizations.

The collateral assets for the 2017 Single Asset Securitization include the 
total loan amount, of which we securitized $500.0 million.

During the three months ended March 31, 2019, we recorded $13.5 million of 
interest expense related to our securitized debt obligations.


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 
March 31, 2019, 96% of our loans 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. As of March 31, 2019, the remaining 4% of 
our loans by total loan 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 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 March 31, 2019 ($/£/€/A$/C$ in thousands):

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.

Balance includes two interest rate swaps totaling C$17.3 million ($13.0 million 
as of March 31, 2019) that are used to hedge a portion of our fixed rate debt.

In addition, we have interest rate caps of $178.4 million and C$21.7 million 
($16.3 million as of March 31, 2019) to limit our exposure to increases in 
interest rates.


Convertible Notes

Income from loans and other investments, net

Income from loans and other investments, net increased $20.6 million during the 
three months ended March 31, 2019 compared to the corresponding period in 2018. 
The increase was primarily due to (i) an increase in LIBOR and (ii) an increase 
in the weighted-average principal balance of our loan portfolio, which 
increased by $4.4 billion during the three months ended March 31, 2019, as 
compared to the corresponding period in 2018. This was offset by the increase 
in the weighted-average principal balance of our outstanding financing 
arrangements, which increased by $4.0 billion during the three months ended 
March 31, 2019, as compared to the corresponding period in 2018.

Other expenses

Other expenses are composed of management and incentive fees payable to our 
Manager and general and administrative expenses. Other expenses increased by 
$4.9 million during the three months ended March 31, 2019 compared to the 
corresponding period in 2018 due to (i) an increase of $2.3 million of 
incentive fees payable to our Manager as a result of an increase in Core 
Earnings, (ii) an increase of $2.0 million of management fees payable to our 
Manager, primarily as a result of net proceeds received from the sale of our 
class A common stock during 2018, and (iii) $792,000 of additional non-cash 
restricted stock amortization related to shares awarded under our long-term 
incentive plans. These were partially offset by a decrease of $186,000 of 
general operating expenses.

Net income attributable to non-controlling interests

During the three months ended March 31, 2019 and 2018, we recorded $302,000 and 
$158,000, respectively, of net income attributable to non-controlling interests 
related to our Multifamily Joint Venture.

Dividends per share

During the three months ended March 31, 2019, we declared a dividend of $0.62 
per share, or $77.9 million, which was paid on April 15, 2019 to common 
stockholders of record as of March 29, 2019. During the three months ended 
March 31, 2018, we declared a dividend of $0.62 per share, or $67.1 million.

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 
March 31, 2019, we had 125,666,550 shares of our class A common stock 
outstanding representing $3.5 billion of stockholders’ equity, $9.2 billion of 
outstanding borrowings under secured debt agreements, and $622.5 million of 
Convertible Notes outstanding.

As of March 31, 2019, our secured debt agreements consisted of secured credit 
facilities with an outstanding balance of $9.1 billion and $97.7 million of 
asset-specific financings. We also finance our business through the sale of 
loan participations and non-consolidated senior interests. As of March 31, 2019 
we had $107.3 million of loan participations sold and $449.5 million of 
non-consolidated senior interests outstanding. In addition, as of March 31, 
2019, our consolidated balance sheet included $1.3 billion of securitized debt 
obligations related to our CLO and our 2017 Single Asset Securitization.

Debt-to-Equity Ratio and Total Leverage Ratio

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 9,994,957 shares of class A common stock were 
available for issuance as of March 31, 2019, and our at-the-market stock 
offering program, pursuant to which we may sell, from time to time, up to 
$363.8 million of additional shares of our class A common stock as of March 31, 
2019. 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 $9.2 billion of 
outstanding borrowings under secured debt agreements, our Convertible Notes, 
our unfunded loan commitments, dividend distributions to our stockholders, and 
operating expenses.

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

The allocation of repayments under our secured debt agreements for both 
principal and interest payments is based on the earlier of (i) the maturity 
date of each facility, or (ii) the maximum maturity date of the collateral 
loans, assuming all extension options are exercised by the borrower.

Total does not include $107.3 million of loan participations sold, $449.5 
million of non-consolidated senior interests, and $1.3 billion of securitized 
debt obligations, 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 statements 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 stockholders in the form of dividends to comply with the REIT 
provisions of 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

We experienced a net decrease in cash, cash equivalents, and restricted cash of 
$26.2 million for the three months ended March 31, 2019, compared to a net 
decrease of $37.2 million for the three months ended March 31, 2018. During the 
three months ended March 31, 2019, we (i) received $463.5 million of proceeds 
from loan principal repayments, (ii) borrowed a net $237.8 million under our 
secured debt agreements, and (iii) received $65.4 million of net proceeds from 
the issuance of class A common stock. We used the proceeds from our loan 
repayments and debt and equity financing activities to fund $799.3 million of 
new loans during the three months ended March 31, 2019.

Refer to Note 3 to our consolidated financial statements for further discussion 
of our loan activity. Refer to Notes 5 and 10 to our consolidated financial 
statements for additional discussion of our secured debt agreements and equity.

Other Items

Income Taxes

We have elected to be taxed as a REIT 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 March 31, 
2019 and December 31, 2018, we were in compliance with all REIT requirements.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Interest Rate Risk

Loan Portfolio Net Interest Income

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 
March 31, 2019, 96% of our loans 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. As of March 31, 2019, the remaining 4% of 
our loans by total loan 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 swaps or caps to 
limit our exposure to increases in interest rates on such liabilities.

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. Increases (decreases) in 
interest income and expense are presented net of incentive fees. Refer to Note 
11 to our consolidated financial statements for additional details of our 
incentive fee calculation.

Liabilities balance includes two interest rate swaps totaling C$17.3 million 
($13.0 million as of March 31, 2019) that are used to hedge a portion of our 
fixed rate debt.

Loan Portfolio Value

As of March 31, 2019, 4% of our loans by total loan exposure earned a fixed 
rate of interest and as such, the values of such loans are sensitive to changes 
in interest rates. We generally hold all of our loans to maturity and so do not 
expect to realize gains or losses on our fixed rate loan portfolio as a result 
of movements in market interest rates.

Risk of Non-Performance

In addition to the risks related to fluctuations in cash flows and asset values 
associated with movements in interest rates, there is also the risk of 
non-performance on floating rate assets. In the case of a significant increase 
in interest rates, the additional debt service payments due from our borrowers 
may strain the operating cash flows of the collateral real estate assets and, 
potentially, contribute to non-performance or, in severe cases, default. This 
risk is partially mitigated by various facts we consider during our 
underwriting process, which in certain cases include a requirement for our 
borrower to purchase an interest rate cap contract.

Credit Risks

Our loans and investments are also subject to credit risk. The performance and 
value of our loans and investments depend upon the sponsors’ ability to operate 
the properties that serve as our collateral so that they produce cash flows 
adequate to pay interest and principal due to us. To monitor this risk, our 
Manager’s asset management team reviews our investment portfolios and in 
certain instances is in regular contact with our borrowers, monitoring 
performance of the collateral and enforcing our rights as necessary.

In addition, we are exposed to the risks generally associated with the 
commercial real estate market, including variances in occupancy rates, 
capitalization rates, absorption rates, and other macroeconomic factors beyond 
our control. We seek to manage these risks through our underwriting and asset 
management processes.

Capital Market Risks

We are exposed to risks related to the equity capital markets, and our related 
ability to raise capital through the issuance of our class A common stock or 
other equity instruments. We are also exposed to risks related to the debt 
capital markets, and our related ability to finance our business through 
borrowings under credit facilities or other debt instruments. As a REIT, we are 
required to distribute a significant portion of our taxable income annually, 
which constrains our ability to accumulate operating cash flow and therefore 
requires us to utilize debt or equity capital to finance our business. We seek 
to mitigate these risks by monitoring the debt and equity capital markets to 
inform our decisions on the amount, timing, and terms of capital we raise.

Counterparty Risk

The nature of our business requires us to hold our cash and cash equivalents 
and obtain financing from various financial institutions. This exposes us to 
the risk that these financial institutions may not fulfill their obligations to 
us under these various contractual arrangements. We mitigate this exposure by 
depositing our cash and cash equivalents and entering into financing agreements 
with high credit-quality institutions.

The nature of our loans and investments also exposes us to the risk that our 
counterparties do not make required interest and principal payments on 
scheduled due dates. We seek to manage this risk through a comprehensive credit 
analysis prior to making an investment and active monitoring of the asset 
portfolios that serve as our collateral.

Currency Risk

Our loans and investments that are denominated in a foreign currency are also 
subject to risks related to fluctuations in currency rates. We mitigate this 
exposure by matching the currency of our foreign currency assets to

the currency of the borrowings that finance those assets. As a result, we 
substantially reduce our exposure to changes in portfolio value related to 
changes in foreign currency rates. In certain circumstances, we may also enter 
into foreign currency derivative contracts to further mitigate this exposure.

We estimate that a 10% appreciation of the United States dollar relative to the 
British Pound Sterling and the Euro would result in a decline in our net assets 
in U.S. dollar terms of $46.4 million and $28.9 million, respectively, as of 
March 31, 2019. Substantially all of our net asset exposure to the Canadian and 
Australian dollar has been hedged with foreign currency forward contracts.