News Column

BLACKSTONE MORTGAGE TRUST, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

July 29, 2014

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, 2013 and elsewhere in this quarterly report on Form 10-Q.



Introduction

Blackstone Mortgage Trust is a real estate finance company that primarily originates and purchases senior loans collateralized by properties in the United States 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 NYSE under the symbol "BXMT." 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 our exemption from registration under the Investment Company Act of 1940, as amended, or the Investment Company Act. We are organized as a holding company and conduct our business primarily through our various subsidiaries. We operate our real estate finance business through a Loan Origination segment and a CT Legacy Portfolio segment. The Loan Origination segment includes our activities associated with the origination and acquisition of mortgage loans, the capitalization of our loan portfolio, and the costs associated with operating our business generally. The CT Legacy Portfolio segment includes the activities specifically related to our legacy investments which preceded the re-launch of our originations business in May 2013.



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 June 30, 2014 we recorded earnings per share of $0.70, declared a dividend of $0.48 per share, and reported $0.43 per share of Core Earnings. In addition, our book value per share as of June 30, 2014 was $25.51. 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 are not necessarily indicative of our current loan origination portfolio and operations.



Earnings Per Share

The following table sets forth the calculation of basic and diluted net income per share based on the weighted-average of our shares of class A common stock, restricted class A common stock, and deferred stock units outstanding ($ in thousands, except per share data): Three Months Ended June 30, 2014 March 31, 2014 Net income(1) $ 33,466 $ 13,065 Weighted-average shares outstanding, basic and diluted 47,977,813



37,967,365

Net income per share, basic and diluted $ 0.70 $ 0.34



(1) Represents net income attributable to Blackstone Mortgage Trust, Inc.

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The $0.36 per share increase in net income during the three months ended June 30, 2014 was due to (i) continued growth in our Loan Origination segment, (ii) promote revenue from our carried interest in CTOPI, and (iii) net gains on investments carried at fair value in the CT Legacy Portfolio. This was in part offset by an increase in the total number of shares outstanding as a result of our class A common stock offering in April 2014. The following table allocates our net income per share between our two reportable segments ($ in thousands, except per share data): Three Months Ended June 30, 2014 Loan Origination CT Legacy Portfolio Total Net income(1) $ 17,958 $ 15,508 $ 33,466 Weighted-average shares outstanding, basic and diluted 47,977,813 47,977,813 47,977,813 Net income per share, basic and diluted $ 0.38 $ 0.32 $ 0.70



(1) Represents net income attributable to Blackstone Mortgage Trust, Inc.

The following table compares our operating results for the three months ended June 30, 2014 and March 31, 2014 ($ in thousands, except per share data):

Q2 2014 Q1 2014 $ Change % Change Income from loans and other investments Interest and related income $ 42,466$ 33,656$ 8,810 26.2 % Less: Interest and related expenses 15,720 12,074 3,646 30.2 % Income from loans and other investments, net 26,746 21,582 5,164 23.9 % Other operating expenses 19,766 6,596 13,170 199.7 % Other income (loss) 31,457 (1,339 ) 32,796 N/M Income before income taxes 38,437 13,647 24,790 181.7 % Income tax (benefit) provision (2 ) 531 (533 ) N/M Net income 38,439 13,116 25,323 193.1 % Net income attributable to non-controlling interests (4,973 ) (51 ) (4,922 ) N/M Net income attributable to Blackstone Mortgage Trust, Inc. $ 33,466$ 13,065$ 20,401 156.2 % Dividends per share $ 0.48$ 0.48$ 0.00 0.0 %



Income from loans and other investments, net

Income from loans and other investments increased $5.2 million, or 23.9%, on a net basis during the three months ended June 30, 2014 compared to the three months ended March 31, 2014. The increase was primarily due to (i) earning a full quarter of interest on the loans originated during the three months ended March 31, 2014, and (ii) additional interest earned on the $1.0 billion of loans funded during the three months ended June 30, 2014. This was partially offset by additional interest expense incurred on our repurchase agreements and senior loan participations sold. Other operating expenses Other operating expenses are comprised of management fees paid to our Manager and general and administrative expenses. Other operating expenses increased by $13.2 million during the three months ended June 30, 2014 compared to the three months ended March 31, 2014 due to (i) $11.5 million of expenses related to the CT Legacy Portfolio segment incentive plans, primarily as a result of payments triggered by CTOPI promote distributions received, (ii) $1.0 million of additional management fees payable to our Manager, and (iii) a $548,000 increase in non-cash restricted stock amortization related to the accelerated vesting of certain awards under the plan.



Other income (loss)

During the three months ended June 30, 2014, we recognized (i) $24.3 million of promote revenue from our carried interest in CTOPI, and (ii) $7.2 million of net gains on investments carried at fair value in the CT Legacy Portfolio. 33



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During the three months ended March 31, 2014, we recognized $1.3 million of net losses on investments carried at fair value in the CT Legacy Portfolio.

Dividends Per Share

On June 13, 2014, we declared a dividend of $0.48 per share, or $23.3 million, which was paid on July 15, 2014 to common stockholders of record as of June 30, 2014. On March 14, 2014, we declared a dividend of $0.48 per share, or $18.9 million, which was paid on April 15, 2014 to class A common stockholders of record as of March 31, 2014. 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 below. Core Earnings Core Earnings is a non-GAAP measure, which we define as GAAP net income (loss), including realized losses not otherwise included in GAAP net income (loss), and excluding (i) net income (loss) attributable to our CT Legacy Portfolio segment, (ii) non-cash equity compensation expense, (iii) incentive management fees, (iv) depreciation and amortization, (v) unrealized gains (losses), and (vi) 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 origination portfolio and operations. We also use Core Earnings to calculate the incentive and base management fees due to our Manager under our management agreement and, as such, we believe that the disclosure of Core Earnings is useful to our investors. 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 cash flow from GAAP operating activities, 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 June 30, 2014 March 31, 2014 Net income(1) $ 33,466 $ 13,065 CT Legacy Portfolio segment net (income) loss (15,508 ) 970 Amortization of discount on convertible notes 397 391 Unrealized (gain) loss on foreign currency remeasurement (235 ) 32 Non-cash compensation expense 2,382 1,834 Core earnings $ 20,502 $ 16,292 Weighted-average shares outstanding, basic and diluted 47,977,813



37,967,365

Core earnings per share, basic and diluted $ 0.43 $

0.43



(1) Represents net income attributable to Blackstone Mortgage Trust, Inc.

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Book Value Per Share

The following table calculates our book value per share ($ in thousands, except per share data): June 30, 2014 March 31, 2014 Stockholders' equity $ 1,239,308$ 970,083 Shares Class A common stock 47,935,370 38,655,080 Restricted class A common stock 544,133 621,571 Stock units 108,391 106,188 48,587,894 39,382,839 Book value per share $ 25.51 $ 24.63 On a consolidated basis, our book value per share as of June 30, 2014 increased by $0.88 from March 31, 2014. The increase was due to the issuance of 9,200,000 shares of class A common stock in a public offering at a price to the underwriters of $27.72 per share, partially offset by the excess of dividends declared over GAAP net income during the quarter. The following table allocates book value per share between our two reportable segments ($ in thousands, except per share data): June 30, 2014 Loan Origination CT Legacy Portfolio Total Stockholders' equity $ 1,203,003 $ 36,305 $ 1,239,308 Shares Class A common stock 47,935,370 47,935,370 47,935,370 Restricted class A common stock 544,133 544,133 544,133 Stock units 108,391 108,391 108,391 48,587,894 48,587,894 48,587,894

Book value per share $ 24.76 $ 0.75 $ 25.51



II. Loan Origination Portfolio

The Loan Origination segment includes our activities associated with the origination and acquisition of mortgage loans, the capitalization of our loan portfolio, and the costs associated with operating our business generally. During the quarter ended June 30, 2014, our Loan Origination segment originated $1.1 billion of new loan commitments, funded $1.0 billion under new and existing loans, and generated interest income of $41.4 million. These loan originations were primarily financed by $541.9 million of proceeds from loans sales and principal collections, $254.8 million of net proceeds from the sale of our class A common stock, and $246.3 million of additional net borrowings under our repurchase facilities. We incurred interest expense of $15.5 million during the quarter, which resulted in $25.9 million of net interest income during the quarter.



Portfolio Overview

The following table details our loan originations activity during the quarter ended June 30, 2014 ($ in thousands):

Loans Loan Loan Originated Commitments(2) Fundings(3) Senior loans(1) 11 $ 1,097,542$ 1,000,694 Subordinate loans - - 48 Total 11 $ 1,097,542$ 1,000,742



(1) Includes senior mortgages and similar credit quality loans, including related

contiguous subordinate loans, note financings of senior mortgage loans, and

pari passu participations in senior mortgage loans.

(2) Includes new originations and additional commitments made under existing loan

agreements.

(3) Includes additional fundings of $36.9 million under existing loan

commitments.

As of June 30, 2014, the majority of loans in the Loan Origination segment were senior mortgage loans or investments that are not structured as mortgages, but have risk exposure substantially similar to senior mortgage loans. 35



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The following table details overall statistics for our loans receivable portfolio within the Loan Origination segment ($ in thousands):

June 30, 2014 Number of loans 48 Principal balance $ 3,514,032 Net book value $ 3,488,179 Weighted-average cash coupon (1) L+4.46 % Weighted-average all-in yield (1) L+5.02 % Weighted-average maximum maturity (years) (2) 4.1



(1) As of June 30, 2014, 83% of our loans are indexed to one-month LIBOR and 17%

are indexed to three-month LIBOR. In addition, 18% of our loans currently

earn interest based on LIBOR floors, with an average floor of 0.31%, as of

June 30, 2014. In addition to cash coupon, all-in yield includes the amortization of deferred origination fees, loan origination costs, and accrual of exit fees.



(2) Maximum maturity assumes all extension options are exercised, however our

loans may be repaid prior to such date. As of June 30, 2014, 89% of our loans

are subject to yield maintenance, lock-out provisions, or other prepayment

restrictions and 11% are open to repayment by the borrower.

The charts below detail the geographic distribution and types of properties securing these loans, as of June 30, 2014 (net book value, % of total):

[[Image Removed: LOGO]]



Refer to section V of this Management's Discussion and Analysis of Financial Condition and Results of Operations for details of our loan portfolio, on a loan-by-loan basis.

Asset Management and Performance

We actively manage the investments in our Loan Origination 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. 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" (less risk) to "8" (greater risk). Loans that pose a higher risk of non-performance and/or loss are placed on our watch list. Watch list loans are those with an internal risk rating of "4" or higher. As of June 30, 2014, all of the investments in the Loan Origination segment are performing as expected and the weighted-average risk rating of our loan portfolio was 2.8. As of December 31, 2013, the weighted-average risk rating of our loan portfolio was 2.8. 36



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Repurchase Facilities and Loan Participations

During the three months ended June 30, 2014, we entered into one revolving repurchase facility and one asset-specific repurchase agreement, providing an aggregate of $694.4 million of credit capacity.

The following table details our repurchase borrowings outstanding ($ in thousands): June 30, 2014 Dec. 31, 2013 Maximum Collateral Repurchase Borrowings(3) Borrowings Lender Facility Size(1) Assets(2) Potential Outstanding Available Outstanding Revolving Repurchase Facilities Bank of America $ 500,000 $ 517,280$ 406,653$ 387,653$ 19,000$ 271,320 Citibank 500,000 611,459 461,556 351,245 110,311 334,692 JP Morgan(4) 510,697 467,722 354,776 293,600 61,176 257,610 Wells Fargo 500,000 301,083 231,600 190,125 41,475 - Morgan Stanley(5) 425,875 169,804 135,765 135,765 - - MetLife 500,000 214,524 165,369 165,369 - - Subtotal 2,936,572 2,281,872 1,755,719 1,523,757 231,962 863,622 Asset-Specific Repurchase Agreements Wells Fargo(6) 148,110 155,184 120,485 120,485 - 245,731 Goldman Sachs 194,400 169,260 135,408 135,408 - - Total $ 3,279,082$ 2,606,316$ 2,011,612$ 1,779,650$ 231,962$ 1,109,353



(1) Maximum facility size represents the total amount of borrowings provided for

in each repurchase agreement, however these borrowings are only available to

us once sufficient collateral assets have been pledged under each facility.

(2) Represents the principal balance of the collateral assets.

(3) Potential borrowings represent 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 is composed of a $250.0 million facility

and a 153.0 million ($260.7 million) facility.

(5) The Morgan Stanley maximum facility size represents a 250.0 million ($425.9

million) facility.

(6) Represents an aggregate of two asset-specific repurchase agreements with

Wells Fargo.

As of June 30, 2014, we had aggregate borrowings of $1.5 billion outstanding under our revolving repurchase facilities, with a weighted-average cash coupon of LIBOR plus 1.95% per annum and a weighted-average all-in cost of credit, including associated fees and expenses, of LIBOR plus 2.19% per annum. As of June 30, 2014, outstanding borrowings under these facilities had a weighted-average maturity, excluding extension options and term-out provisions, of 2.3 years. As of June 30, 2014, we also had three asset-specific repurchase agreements outstanding with an aggregate book balance of $255.9 million, a cash coupon of 2.60%, and an all-in cost of 2.96%, as well as three loan participations sold outstanding with an aggregate book balance of $461.1 million, a cash coupon of LIBOR plus 2.99%, and an all-in cost of LIBOR plus 3.21%. Refer to Notes 6 and 7 to our consolidated financial statements for additional terms and details of our repurchase facilities and participations sold, including certain financial covenants.



Floating Rate Portfolio

Our Loan Origination portfolio as of June 30, 2014 was comprised of floating rate loans financed by floating rate secured debt, which results in a return on equity that is correlated to LIBOR. Generally, our business model is such that rising interest rates will increase our net income, while declining interest rates will decrease net income. For instance, all other things being equal, as of June 30, 2014, a 100 basis point increase in LIBOR would have increased our net income by $11.8 million per annum, or $0.25 per share. 37



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The following table details our Loan Origination segment's sensitivity to interest rates ($ in thousands):

June 30, 2014 Floating rate loans(1) $ 3,514,032 Floating rate debt(1)(2) (2,240,728 ) Net floating rate exposure $ 1,273,304 Net income impact from 100 bps increase in LIBOR(3) $ 11,806 Per share amount, basic and diluted $ 0.25



(1) Our floating rate loans and debt are indexed to LIBOR as of June 30, 2014.

(2) Includes borrowings under repurchase facilities and loan participations sold.

(3) Annualized net income includes the impact of LIBOR floors for our loan

receivable investments where such floors are paying relative to LIBOR of

0.16% as of June 30, 2014.

Convertible Notes

In November 2013, we issued $172.5 million aggregate principal amount 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 cash cost of the Convertible Notes is 5.87%.



Refer to Notes 2 and 6 to our consolidated financial statements for additional discussion of our Convertible Notes.

III. CT Legacy Portfolio

Our CT Legacy Portfolio consists of: (i) our interests in CT Legacy Partners; (ii) our carried interest in CTOPI, a private investment fund that was previously under our management and is now managed by an affiliate of our Manager; and (iii) our subordinate interests in CT CDO I, a consolidated securitization vehicle.

During the three months ended June 30, 2014, our CT Legacy Portfolio segment recorded net income of $15.5 million driven primarily by promote revenue from our carried interest in CTOPI and net unrealized gains on investments carried at fair value in CT Legacy Partners.



CT Legacy Partners

Portfolio Overview

Our investment in CT Legacy Partners represents our 52% equity interest in a vehicle we formed to own and finance certain assets that we retained in connection with a comprehensive debt restructuring in 2011. As of June 30, 2014, the CT Legacy Partners portfolio consisted of cash, loans, securities, and other assets.



The following table details the components of our gross investment in CT Legacy Partners included in our consolidated balance sheet, as well as our net investment in CT Legacy Partners after future payments under the management incentive awards plan as of June 30, 2014 ($ in thousands):

June 30, 2014 Restricted cash $ 11,392 Accrued interest receivable, prepaid expenses, and other assets



62,015

Accounts payable, accrued expenses and other liabilities (271 ) Non-controlling interests (42,717 ) $ 30,419 Management incentive awards plan, fully vested(1)



(4,295 )

Net investment in CT Legacy Partners $ 26,124



(1) Assumes full payment of the management incentive awards plan, as described

below, based on the hypothetical GAAP liquidation value of CT Legacy Partners

as of June 30, 2014. We periodically accrue a payable for the management

incentive awards plan based on the vesting schedule for the awards and

continued employment with an affiliate of our Manager of the award

recipients. As of June 30, 2014, our balance sheet includes $3.4 million in

accounts payable and accrued expenses for the management incentive awards

plan. Refer to Note 9 to our consolidated financial statements for further

details. 38



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CT Legacy Partners Background

CT Legacy Partners is a subsidiary that holds certain of our legacy assets and is beneficially owned 52% by us and 48% by other third-party investors. In addition to its common equity, CT Legacy Partners has also issued class B common shares, a subordinate class of equity which entitles its holders to receive approximately 25% of the dividends that would otherwise be payable to us on our equity interest in CT Legacy Partners. Further, CT Legacy Partners has issued class A preferred shares which entitle their holder, an affiliate of our Manager, to cumulative preferred distributions in an amount generally equal to the greater of (i) 2.5% of certain of CT Legacy Partners' assets, and (ii) $1.0 million per annum. Carried Interest in CTOPI CTOPI is a private equity real estate fund that we sponsored and formed in 2007. The fund invested $491.6 million in 39 transactions between 2007 and the end of its investment period in 2012. To date, $452.3 million of these investments have been realized and $39.3 million remain outstanding (carried at their estimated fair value of $64.2 million or 1.6x cost) as of June 30, 2014. In 2012, we transferred our management of CTOPI and sold our 4.6% co-investment to Blackstone. However, we retained our carried interest in CTOPI following the sale.



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. We own a net 55% of the carried interest of CTOPI's general partner; the remaining 45% is payable under previously issued incentive awards.

During the three months ended June 30, 2014, CTOPI returned all capital to its limited partners and made a $14.1 million promote distribution to us. In addition, the return of investor capital by CTOPI eliminated the remaining contingencies related to our recognition of $10.2 million of prior tax advance distributions, resulting in total promote revenue recognized of $24.3 million. As of June 30, 2014, we had been allocated $7.7 million of promote revenue from CTOPI based on a hypothetical liquidation of the fund at its net asset value, and after payment of the related incentive awards. We have elected to defer the recognition of income on our carried interest in CTOPI until cash is collected or appropriate contingencies have been eliminated. As a result, our net investment in the CTOPI carried interest had a book value of zero as of June 30, 2014.



Refer to Note 5 of our consolidated financial statements for additional discussion of the CTOPI incentive management fee awards to our former employees.

CT CDO I

As of June 30, 2014, our consolidated balance sheet included an aggregate $28.9 million of assets and $19.6 million of liabilities related to CT CDO I, a highly-levered securitization vehicle that we formed in 2004.

Specifically, we own the subordinate debt and equity positions of CT CDO I. As a result of consolidation, our subordinate debt and equity ownership interests in CT CDO I are not included on our balance sheet, which instead reflects both the assets held and debt issued by CT CDO I to third parties. Similarly, our operating results and cash flows include the gross amounts related to the assets and liabilities of CT CDO I, as opposed to our net economic interests in this entity. Our economic interest in the loans receivable assets held by CT CDO I, which is consolidated on our balance sheet, is restricted by the structural provisions of CT CDO I, and our recovery of these assets will be limited by its distribution provisions. The liabilities of CT CDO I, which are also consolidated on our balance sheet, are non-recourse to us, and can only be satisfied by proceeds from its collateral asset pool. We are not obligated to provide, nor have we provided, any financial support to CT CDO I. 39



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IV. Our Results of Operations and Liquidity

Results of Operations

The following table sets forth information regarding our consolidated results of operations and certain key operating metrics for the three months ended June 30, 2014 and 2013 ($ in thousands, except per share data): 2014 2013 $ % Income from loans and other investments Interest and related income $ 42,466$ 6,017$ 36,449 605.8 % Less: Interest and related expenses 15,720 1,306



14,414 N/M

Income from loans and other investments, net 26,746 4,711

22,035 467.7 % Other expenses Management fees 4,410 920 3,490 379.3 % General and administrative expenses 15,356 2,507



12,849 512.5 %

Total other expenses 19,766 3,427 16,339 476.8 % Income from equity investments in unconsolidated subsidiaries 24,294 - 24,294 100.0 % Impairments, provisions, and valuation adjustments 7,163 6,038



1,125 18.6 %

Income before provision for taxes 38,437 7,322 31,115 425.0 % Income tax (benefit) provision (2 ) 554



(556 ) N/M

Net income $ 38,439$ 6,768$ 31,671 468.0 % Net income attributable to non-controlling interests (4,973 ) (4,020 )



(953 ) 23.7 %

Net income attributable to Blackstone Mortgage Trust, Inc. $ 33,466$ 2,748



$ 30,718 N/M

Net income per share - basic and diluted $ 0.70$ 0.22$ 0.48 218.2 % Dividends per share $ 0.48 $ - $ 0.48 100.0 %



Income from loans and other investments, net

Income from loans and other investments, net was $26.7 million for the three months ended June 30, 2014, representing an increase of $22.0 million compared to the three months ended June 30, 2013. This increase is a result of the re-launch of our originations business in May 2013.



Other expenses

Other expenses include management fees paid to our Manager and general and administrative expenses. Other expenses increased by $16.3 million during the three months ended June 30, 2014 compared to the three months ended June 30, 2013 primarily due to (i) an increase of $11.1 million of compensation expenses associated with our CT Legacy Portfolio segment incentive plans, primarily as a result of payments triggered by CTOPI promote distributions received, (ii) an increase of $3.5 million of management fees payable to our Manager, primarily driven by an increase to our outstanding Equity balance, as defined in the management agreement, as a result of additional net proceeds received from the sale of shares of our class A common stock, and (iii) $2.3 million of non-cash restricted stock amortization related to shares awarded under our long-term incentive plans, which awards were issued during the three months ended December 31, 2013. This was offset by a $499,000 reduction of professional fees, operating costs, and other expenses which were incurred as a result of the re-launch of our business in May 2013.



Income from equity investments in unconsolidated subsidiaries

During the three months ended June 30, 2014, we recognized $24.3 million of promote revenue from CTOPI. No such income was recognized during the three months ended June 30, 2013.

Impairments, provisions, and valuation adjustments

During the three months ended June 30, 2014, we recognized $7.2 million of net unrealized gains on investments carried at fair value by CT Legacy Partners. During the three months ended June 30, 2013, we recognized (i) $4.0 million of net unrealized gains on investments held by CT Legacy Partners and (ii) a $2.0 million positive valuation adjustment on CT CDO I's loan classified as held-for-sale. 40



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Dividends per share

During the three months ended June 30, 2014, we declared a dividend of $0.48 per share, or $23.3 million, which was paid on July 15, 2014 to common stockholders of record as of June 30, 2014. We did not declare any dividends during the three months ended June 30, 2013. The following table sets forth information regarding our consolidated results of operations and certain key operating metrics for the six months ended June 30, 2014 and 2013 ($ in thousands, except per share data): 2014 2013 $ % Income from loans and other investments Interest and related income $ 76,122$ 7,473$ 68,649 918.6 % Less: Interest and related expenses 27,794 2,083



25,711 N/M

Income from loans and other investments, net 48,328 5,390

42,938 796.6 % Other expenses Management fees 7,807 983 6,824 694.2 % General and administrative expenses 18,554 4,482



14,072 314.0 %

Total other expenses 26,361 5,465 20,896 382.4 % Income from equity investments in unconsolidated subsidiaries 24,294 - 24,294 100.0 % Impairments, provisions, and valuation adjustments 5,824 5,838



(14 ) (0.2 )%

Income before provision for taxes 52,085 5,763 46,322 803.8 % Income tax provision 530 593 (63 ) (10.6 )% Net income $ 51,555$ 5,170$ 46,385 897.2 % Net income attributable to non-controlling interests (5,024 ) (5,537 )



513 (9.3 )%

Net income (loss) attributable to Blackstone Mortgage Trust, Inc. $ 46,531$ (367 )



$ 46,898 N/M

Net income (loss) per share - basic and diluted $ 1.08$ (0.05 )

$ 1.13 N/M Dividends per share $ 0.96 $ -



$ 0.96 100.0 %

Income from loans and other investments, net

Income from loans and other investments, net was $48.3 million for the six months ended June 30, 2014, representing an increase of $42.9 million compared to the six months ended June 30, 2013. This increase is a result of the re-launch of our originations business in May 2013.

Other expenses

Other expenses includes management fees paid to our Manager and general and administrative expenses. Other expenses increased by $20.9 million during the six months ended June 30, 2014 compared to the six months ended June 30, 2013 primarily due to (i) a $10.2 million increase in compensation expenses associated with our CT Legacy Portfolio segment incentive plans, primarily as a result of payments triggered by CTOPI promote distributions received, (ii) an increase of $6.8 million of management fees payable to our Manager, primarily driven by an increase to our outstanding Equity balance, as defined in the management agreement, as a result of additional net proceeds received from the sale of shares of our class A common stock, and (iii) $4.0 million of non-cash restricted stock amortization related to shares awarded under our long-term incentive plans, which awards were issued during the three months ended December 31, 2013. This was offset by a $190,000 reduction of professional fees, operating costs, and other expenses which were incurred in the prior year as a result of the re-launch of our business in May 2013.



Income from equity investments in unconsolidated subsidiaries

During the six months ended June 30, 2014, we recognized $24.3 million of promote revenue from CTOPI. No such income was recognized during the six months ended June 30, 2013.

Impairments, provisions, and valuation adjustments

During the six months ended June 30, 2014, we recognized $5.8 million of net unrealized gains on investments owned by CT Legacy Partners. During the six months ended June 30, 2013, we recognized (i) $4.0 million of net unrealized gains on investments held by CT Legacy Partners and (ii) a $1.8 million positive valuation adjustment on CT CDO I's loan classified as held-for-sale. 41



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Dividends per share

During the six months ended June 30, 2014, we declared dividends of $0.96 per share, or $42.1 million. We did not declare any dividends during the six months ended June 30, 2013.



Liquidity and Capital Resources

Capitalization

On January 14, 2014, we issued 9,775,000 shares of class A common stock in a public offering at a price to the underwriters of $26.25 per share. We generated net proceeds from the issuance of $256.1 million after underwriting discounts and other offering expenses. On April 7, 2014, we issued 9,200,000 shares of class A common stock in a public offering at a price to the underwriters of $27.72 per share. We generated net proceeds from the issuance of $254.8 million after underwriting discounts and other offering expenses. During the six months ended 2014, we entered into three revolving repurchase facilities and one asset-specific repurchase agreement, providing an additional $1.6 billion of credit capacity. As of June 30, 2014, we had aggregate borrowings of $1.5 billion outstanding under our revolving repurchase facilities with a weighted-average cash coupon of LIBOR plus 1.95% per annum, a weighted-average all-in cost of credit, including associated fees and expenses, of LIBOR plus 2.19% per annum, and a weighted-average initial maturity, excluding extension options and term-out provisions, of 2.3 years. We also had three asset-specific repurchase agreements outstanding with an aggregate book balance of $255.9 million, a cash coupon of 2.60%, and an all-in cost of 2.96%, as well as three loan participations sold outstanding with an aggregate book balance of $461.1 million, a cash coupon of LIBOR plus 2.99%, and an all-in cost of LIBOR plus 3.21%. As of June 30, 2014, we also had $172.5 million aggregate principal amount of convertible notes outstanding with a net book value of $160.7 million, which carry a cash coupon of LIBOR plus 5.25% and an all-in cost of 5.87%. These notes mature in December 2018. Sources of Liquidity Our primary sources of liquidity include cash and cash equivalents and available borrowings under our repurchase facilities, which are set forth in the following table ($ in thousands): June 30, 2014 December 31, 2013 Cash and cash equivalents $ 120,456 $ 52,342 Available borrowings under repurchase facilities 231,962 218,555 $ 352,418 $ 270,897



See Note 6 to our consolidated financial statements for additional terms and details of our repurchase facilities.

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 2013, we filed a shelf registration statement with the SEC that is effective for a term of three years and will expire in July 2016. 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. In addition, 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, and entered into equity distribution 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. Liquidity Needs



In addition to our ongoing loan origination activity, our primary liquidity needs include interest and principal payments under our $2.4 billion of outstanding repurchase obligations, convertible notes, and participation agreements, our $407.3 million of unfunded loan commitments, dividend distributions to our stockholders, and operating expenses.

We have no obligations to provide financial support to CT Legacy Partners, CTOPI, or CT CDO I, and all debt obligations of these entities, some of which are consolidated onto our financial statements, are non-recourse to us.

We are also required to pay our Manager a base management fee, an incentive fee, and reimbursements for certain expenses pursuant to our management agreement. Refer to Note 9 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. Our taxable income does not necessarily equal our net income as calculated in accordance with GAAP, or our Core Earnings as described above. 42



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