Notes to Consolidated Financial Statements
(unaudited)
Note 1. Organization
References herein to Blackstone Mortgage Trust, Company, we, us or our
refer to Blackstone Mortgage Trust, Inc. and its subsidiaries unless the context specifically requires otherwise.
We are a real estate
finance company that primarily originates and purchases senior mortgage loans collateralized by properties in the United States and Europe. We are externally managed by BXMT Advisors L.L.C., which we refer to as our Manager, a subsidiary of The
Blackstone Group L.P., or Blackstone, and are a real estate investment trust 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 real estate investment trust, or 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. Our business is organized
into two operating segments, the Loan Origination segment and the CT Legacy Portfolio segment.
On April 26, 2013, our board of directors
approved the change of our name from Capital Trust, Inc. to Blackstone Mortgage Trust, Inc., which we effected on May 6, 2013 concurrently with a one-for-ten reverse stock split of our class A common stock. Except where the context indicates
otherwise, all class A common stock numbers herein have been adjusted to give retroactive effect to the reverse stock split.
Note 2. Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States, or GAAP, for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The consolidated financial statements, including the notes, are unaudited and exclude some of the
disclosures required in audited financial statements. Management believes it has made all necessary adjustments (consisting of only normal recurring items) so that the consolidated financial statements are presented fairly and that estimates made in
preparing its consolidated financial statements are reasonable and prudent. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year.
The accompanying unaudited consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and the related managements discussion and analysis of financial condition and results of
operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the Securities and Exchange Commission.
Principles of Consolidation and Basis of Presentation
The accompanying financial
statements include, on a consolidated basis, our accounts, the accounts of our wholly-owned subsidiaries, and variable interest entities, or VIEs, in which we are the primary beneficiary. All significant intercompany balances and transactions have
been eliminated in consolidation. Certain of the assets and credit of our consolidated subsidiaries are not available to satisfy the debt or other obligations of us, our affiliates, or other entities.
VIEs are defined as entities in which equity investors (i) do not have the characteristics of a controlling financial interest, and/or (ii) do
not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The entity that consolidates a VIE is known as its primary beneficiary, and is generally the entity
with (i) the power to direct the activities that most significantly impact the VIEs economic performance, and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to
the VIE.
We have separately presented, following our consolidated balance sheet, the assets of consolidated VIEs that can only be used to
satisfy the obligations of those VIEs, and the liabilities of consolidated VIEs that are non-recourse to us. We have aggregated all of such assets and liabilities of consolidated VIEs in this presentation due to our determination that these entities
are substantively similar and therefore a further disaggregated presentation would not be more meaningful.
Our CT Legacy Partners, LLC, or CT
Legacy Partners, subsidiary accounts for its operations in accordance with industry-specific GAAP accounting guidance for investment companies, pursuant to which it reports its investments at fair value. We have retained this specialized accounting
in consolidation and, accordingly, report the loans and securities investments of CT Legacy Partners at fair value on our consolidated balance sheet.
- 8 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
As more fully described in Note 3, we sold our investment management business to Blackstone in December
2012. As a result, the income and expense items related to our investment management business have been reclassified to income from discontinued operations on our consolidated statements of operations.
Certain reclassifications have been made in the presentation of the prior period consolidated financial statements to conform to the June 30, 2013
presentation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may ultimately differ from those estimates.
Revenue Recognition
Interest income
from our loans receivable is recognized over the life of the investment using the effective interest method and is recorded on the accrual basis. Fees, premiums, discounts and direct costs associated with these investments are deferred until the
loan is advanced and are then recognized over the term of the loan as an adjustment to yield. Income accrual is generally suspended for loans at the earlier of the date at which payments become 90 days past due or when, in the opinion of our
Manager, recovery of income and principal becomes doubtful. Income is then recorded on the basis of cash received until accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed.
Cash and Cash Equivalents
Cash and cash
equivalents represents cash on hand, cash held in banks and liquid investments with original maturities of three months or less. We place our cash and cash equivalents with high credit quality institutions to minimize credit risk exposure. We may
have bank balances in excess of federally insured amounts. We have not experienced, and do not expect, any losses on our demand deposits, commercial paper or money market investments.
Restricted Cash
We classify the cash balances held by CT Legacy Partners as restricted
because, while these cash balances are available for use by CT Legacy Partners for operations, debt service, or other purposes, they cannot be used by us until our allocable share is distributed from CT Legacy Partners, and cannot be commingled with
any of our other, unrestricted cash balances.
Loans Receivable, Provision for Loan Losses, Loans Held-for-Sale and Related Allowance
We purchase and originate commercial real estate debt and related instruments generally to be held as long-term investments at amortized
cost. We are required to periodically evaluate each of these loans for possible impairment. Impairment is indicated when it is deemed probable that we will not be able to collect all amounts due according to the contractual terms of the loan. If a
loan is determined to be impaired, we write down the loan through a charge to the provision for loan losses. Impairment on these loans is measured by comparing the estimated fair value of the underlying collateral to the book value of the respective
loan. These valuations require significant judgments, which include assumptions regarding capitalization rates, leasing, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, loan sponsorship, actions of other
lenders and other factors deemed necessary by our Manager. Actual losses, if any, could ultimately differ from these estimates.
Our Manager
performs a quarterly review of our portfolio of loans. In conjunction with this review, our Manager assesses the performance of each loan, and assigns a risk rating based on several factors including risk of loss, loan-to-value ratio, or LTV,
collateral performance, structure, exit plan, and sponsorship.
Loans are rated one through eight, which ratings are defined as follows:
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1 -
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Low Risk:
A loan that is expected to perform through maturity, with relatively lower LTV, higher in-place debt yield, and stable projected cash flow.
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2 -
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Average Risk:
A loan that is expected to perform through maturity, with medium LTV, average in-place debt yield, and stable projected cash flow.
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3 -
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Acceptable Risk:
A loan that is expected to perform through maturity, with relatively higher LTV, acceptable in-place debt yield, and some uncertainty (due to lease rollover
or other factors) in projected cash flow.
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- 9 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
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4 -
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Higher Risk:
A loan that is expected to perform through maturity, but has exhibited a material deterioration in cash flow and/or other credit factors. If negative trends
continue, default could occur.
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5 -
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Low Probability of Default/Loss:
A loan with one or more identified weakness that we expect to have a 15% probability of default or principal loss.
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6 -
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Medium Probability of Default/Loss:
A loan with one or more identified weakness that we expect to have a 33% probability of default or principal loss.
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7 -
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High Probability of Default/Loss:
A loan with one or more identified weakness that we expect to have a 67% or higher probability of default or principal loss.
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8 -
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In Default:
A loan which is in contractual default and/or which has a very high likelihood of principal loss.
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In certain cases, we may classify loans as held-for-sale based upon the specific facts and circumstances of particular
loans, including known or expected transactions. Loans held-for-sale are carried at the lower of their amortized cost basis and fair value less cost to sell. A reduction in the fair value of loans held-for-sale is recorded as a charge to our
consolidated statement of operations as a valuation allowance on loans held-for-sale.
Equity Investments in Unconsolidated Subsidiaries
Our carried interest in CT Opportunity Partners I, LP, or CTOPI is accounted for using the equity method. CTOPIs assets and
liabilities are not consolidated into our financial statements due to our determination that (i) it is not a VIE and (ii) the investors have sufficient rights to preclude consolidation by us. As such, we report our allocable percentage of
the net assets of CTOPI on our consolidated balance sheet. We have deferred the recognition of income from CTOPI until cash is collected or appropriate contingencies have been eliminated and, therefore do not recognize any income from equity
investments in unconsolidated subsidiaries.
Deferred Financing Costs
The deferred financing costs that are included in prepaid expenses and other assets on our consolidated balance sheets include issuance costs related to our debt obligations, and are amortized using the
effective interest method, or a method that approximates the effective interest method, over the life of the related obligations.
Repurchase Obligations
We record
investments financed with repurchase obligations as separate assets and the related borrowings under any repurchase agreements recorded as separate liabilities on our consolidated balance sheets. Interest income earned on the investments and
interest expense incurred on the repurchase obligations are reported separately on our consolidated statements of operations.
Interest
Rate Derivative Financial Instruments
In the normal course of business, we use interest rate derivative financial instruments to manage,
or hedge, cash flow variability caused by interest rate fluctuations. Specifically, we may use interest rate swaps to convert floating rate liabilities that are financing fixed rate assets into fixed rate liabilities. The differential to be paid or
received on these agreements is recognized on the accrual basis as an adjustment to the interest expense related to the attendant liability. In cases where interest rate swap agreements are terminated early, any gain or loss is generally amortized
over the remaining life of the hedged item. These swap agreements must be effective in reducing the variability of cash flows of the hedged items in order to qualify for the aforementioned hedge accounting treatment. Changes in the fair value of
effective cash flow hedges are reflected on our consolidated financial statements through accumulated other comprehensive income (loss) and do not affect our net income (loss). To the extent a derivative does not qualify for hedge accounting, and is
deemed a non-hedge derivative, the changes in its fair value are included in net income (loss).
Fair Value of Financial Instruments
The Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards
Codification, or the Codification, defines fair value, establishes a framework for measuring fair value, and requires certain disclosures about fair value measurements under GAAP. Specifically, this guidance defines fair value based on exit price,
or the price that would be received upon the sale of an asset or the transfer of a liability in an orderly transaction between market participants at the measurement date.
The Fair Value Measurement and Disclosures Topic of the Codification also establishes a fair value hierarchy that prioritizes and ranks the level of market price observability used in
measuring financial instruments. Market price observability is affected by a number of factors, including the type of financial instrument, the characteristics specific to the financial instrument, and the state of the marketplace, including the
existence and transparency of
- 10 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
transactions between market participants. Financial instruments with readily available quoted prices in active markets generally will have a higher degree of market price observability and a
lesser degree of judgment used in measuring fair value.
Financial instruments measured and reported at fair value are classified and
disclosed based on the observability of inputs used in the determination, as follows:
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Level 1 - Generally includes only unadjusted quoted prices that are available in active markets for identical financial instruments as of the reporting
date.
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Level 2 - Pricing inputs include quoted prices in active markets for similar instruments, quoted prices in less active or inactive markets for
identical or similar instruments where multiple price quotes can be obtained, and other observable inputs such as interest rates, yield curves, credit risks, and default rates.
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Level 3 - Pricing inputs are unobservable for the financial instruments and include situations where there is little, if any, market activity for the
financial instrument. These inputs require significant judgment or estimation by management of third parties when determining fair value and generally represent anything which does not meet the criteria of Levels 1 and 2.
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Each type of asset recorded at fair value using Level 3 inputs are determined by an internal committee comprised of members
of senior management of our Manager, including our chief executive officer, chief financial officer, and other senior officers.
Certain of
our assets and liabilities are measured at fair value either (i) on a recurring basis, as of each quarter-end, or (ii) on a nonrecurring basis, as a result of impairment or other events. Our assets and liabilities that are measured at fair
value are discussed further in Note 17. Generally, loans held-for-sale, loans receivable, and securities are measured at fair value on a recurring basis, while impaired loans are measured at fair value on a nonrecurring basis.
The following valuation techniques were used to estimate the fair value of each type of asset and liability which was recorded at fair value as of
June 30, 2013 and December 31, 2012:
Loans held-for-sale:
Loans held-for-sale are valued based on expected
net proceeds from a sale of the asset.
Loans receivable, at fair value:
Loans receivable are generally valued by
discounting expected cash flows using internal cash flow models and estimated market rates. Expected cash flows of each loan are based on our Managers assumptions regarding the collection of principal and interest from the respective
borrowers.
Other assets, at fair value:
CT Legacy Partners other assets are generally valued by a combination of
(i) obtaining assessments from third-party dealers and (ii) in cases where such assessments are unavailable or deemed not to be indicative of fair value, discounting expected cash flows using internal cash flow models and estimated market
discount rates. In the case of internal models, expected cash flows of each security are based on assumptions regarding the collection of principal and interest on the underlying loans and securities.
Impaired loans
: The loans identified for impairment are collateral dependent loans. Impairment on these loans is measured by
comparing our Managers estimation of fair value of the underlying collateral less costs to sell, to the book value of the respective loan. These valuations require significant judgments, which include assumptions regarding capitalization
rates, leasing, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, loan sponsorship, actions of other lenders and other factors deemed necessary by our Manager.
Investment in CT Legacy Asset:
We arrived at the fair value of our Investment in CT Legacy Asset by discounting the net cash flows
expected to be distributed to its equity holders after the repayment of the repurchase facility. To determine the net cash flows of CT Legacy Asset, our Manager estimated the timing and recovery amount for each of its assets, and then applied the
proceeds to first satisfy the related repurchase facility.
We are also required by GAAP to disclose fair value information about financial
instruments, whether or not recognized in the statement of financial position, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are estimated using present value or other
valuation techniques. Those techniques are significantly affected by the assumptions used, including the estimated market discount rate and the estimated future cash flows. In that regard, the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized in an immediate settlement of the instrument. Rather, these fair values reflect the amounts that our Manager believes are realizable in an orderly transaction among willing
parties. These disclosure requirements exclude certain financial instruments and all non-financial instruments.
- 11 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
The following methods and assumptions were used to estimate the fair value of each class of financial
instruments, excluding those described above that are carried at fair value, for which it is practicable to estimate that value:
Cash and cash equivalents:
The carrying amount of cash on deposit and in money market funds approximates fair value.
Restricted cash:
The carrying amount of restricted cash approximates fair value.
Loans receivable, net:
Other than impaired loans, these assets are recorded at their amortized cost and not at fair value. The fair
values for these instruments are estimated by our Manager taking into consideration factors including capitalization rates, leasing, occupancy rates, availability and cost of financing, exit plan, sponsorship, actions of other lenders and
indications of market value from other market participants.
S
ecured notes:
These notes are recorded at their aggregate
principal balance and not at fair value. The fair value was estimated based on the rate at which a similar instrument would be priced today.
Repurchase obligations:
These facilities were recorded at their aggregate principal balance and not at fair value. The fair value was estimated based on the rate at which a similar credit facility
would be priced today.
Securitized debt obligations:
These obligations are recorded at the face value of outstanding
obligations to third-parties and not at fair value. The fair values for these instruments have been estimated by obtaining assessments from third-party dealers.
Income Taxes
Our financial results generally do not reflect provisions for current or
deferred income taxes on our REIT taxable income. We believe that we operate in a manner that will continue to allow us to be taxed as a REIT and, as a result, we generally do not expect to pay substantial corporate level taxes other than those
payable by our taxable REIT subsidiaries. Many of these requirements, however, are highly technical and complex. If we were to fail to meet these requirements, we may be subject to federal, state and local income tax on current and past income, and
penalties. See Note 15 for additional information.
Accounting for Stock-Based Compensation
Stock-based compensation expense is recognized in net income using a fair value measurement method, which we determine with the assistance of a
third-party appraisal firm. Compensation expense for the time vesting of stock-based compensation grants is recognized on the accelerated attribution method and compensation expense for performance vesting of stock-based compensation grants is
recognized on a straight line basis.
The fair value of the performance vesting restricted class A common stock is measured on the grant date
using a Monte Carlo simulation to estimate the probability of the market vesting conditions being satisfied. The Monte Carlo simulation is run approximately 100,000 times. For each simulation, the payoff is calculated at the settlement date, and is
then discounted to the grant date at a risk-free interest rate. The average of the values over all simulations is the expected value of the restricted class A common stock on the grant date. The valuation is performed in a risk-neutral framework, so
no assumption is made with respect to an equity risk premium. Significant assumptions used in the valuation include an expected term and stock price volatility, an estimated risk-free interest rate and an estimated dividend growth rate.
Comprehensive Income
The primary
component of comprehensive income other than net income is the unrealized gains and losses on derivative financial instruments.
Earnings
per Share of Common Stock
Basic earnings per share, or EPS, is computed based on the net earnings allocable to common stock and stock
units, divided by the weighted average number of shares of common stock and stock units outstanding during the period. Diluted EPS is determined using the treasury stock method, and is based on the net earnings allocable to common stock and stock
units, divided by the weighted average number of shares of common stock, stock units and potentially dilutive common stock options and warrants. On April 26, 2013, our board of directors approved a one-for-ten reverse stock split of our class A
common stock which we effected on May 6, 2013. Our earnings per share disclosures have been retroactively adjusted to reflect the reverse stock split.
We have separately determined EPS and diluted EPS for income (loss) from continuing operations and for net income (loss) allocable to common stockholders. See Note 12 for additional discussion of earnings
per share.
- 12 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
Recent Accounting Pronouncements
In January 2013, the FASB issued Accounting Standards Update 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures About Offsetting Assets and Liabilities, or ASU 2013-01.
ASU 2013-01 was developed to clarify which instruments and transactions are subject to the offsetting disclosure requirements set forth by Accounting Standards Update 2011-11 Balance Sheet (Topic 210): Disclosures about Offsetting Assets and
Liabilities. ASU 2013-01 is effective for the first interim or annual period beginning on or after January 1, 2013, and should be applied retrospectively for all comparative periods presented. The adoption of ASU 2013-01 did not have a
material impact on our consolidated financial statements.
In February 2013, the FASB issued Accounting Standards Update 2013-02,
Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, or ASU 2013-02. ASU 2013-02 implements the previously deferred requirement to disclose reclassification adjustments into
and out of accumulated other comprehensive income in either a note or on the face of the financial statements. ASU 2013-02 is effective for the first interim or annual period beginning after December 15, 2012, and should be applied
prospectively. As we no longer have a balance of accumulated other comprehensive income, the adoption of ASU 2013-02 did not have a material impact on our consolidated financial statements.
In June 2013, the FASB issued Accounting Standards Update 2013-08, Financial Services-Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements, or
ASU 2013-08. ASU 2013-08 amends the criteria for qualification as an investment company under Topic 946 of the FASB Accounting Standards Codification, or Topic 946, and requires additional disclosure by investment companies. ASU 2013-08 is effective
for the first interim or annual period beginning after December 15, 2013, and should be applied prospectively. We currently consolidate CT Legacy Partners, which accounts for its operations as an investment company under Topic 946. We do not
expect the adoption of ASU 2013-08 to impact CT Legacy Partners status as an investment company. Further, because ASU 2013-08 specifically excludes REITs from its scope, it will not otherwise impact our consolidated financial statements.
Note 3. Corporate Transactions
Blackstone Loan Warehouse Joint Venture
On May 13, 2013, we entered into a joint venture, 42-16 Partners, LLC, or 42-16 Partners, with an affiliate of our Manager to originate and warehouse loans prior to the completion of our class A
common stock offering on May 29, 2013. 42-16 Partners was controlled by us and owned 16.7% by us and 83.3% by an affiliate of our Manager, and originated one senior mortgage loan on May 21, 2013. On May 30, 2013, we ended this
relationship with the affiliate of our Manager and purchased 100% of the equity interests in 42-16 Partners held by the affiliate of our Manager using proceeds from the sale of our class A common stock and, as a result, 42-16 Partners became a 100%
owned and consolidated subsidiary.
CT Legacy Partners Merger
To maintain its tax efficiency, on March 20, 2013, CT Legacy REIT Mezz Borrower, Inc., or CT Legacy REIT, was merged with and into CT Legacy Partners, LLC, or CT Legacy Partners, and whereby CT
Legacy Partners was the surviving entity, effective as of March 22, 2013. We refer to this transaction as the Merger. As a result of the Merger, all outstanding shares of class A-1 common stock, class A-2 common stock, class B common stock, and
class A preferred stock of CT Legacy REIT were converted into limited liability company shares, or LLC Shares, in CT Legacy Partners. These LLC Shares have economic and voting rights equivalent to the corresponding shares of stock of CT Legacy REIT.
In addition, all outstanding shares of class B preferred stock of CT Legacy REIT were redeemed on March 21, 2013 for an aggregate $147,000, which amount is comprised of the shares par value, liquidation preference, and accrued dividends
thereon.
As a result of the Merger, we have consolidated CT Legacy Partners as of March 20, 2013 and, therefore, the remaining legacy
assets and liabilities from our comprehensive debt restructuring on March 31, 2011, which we refer to as our March 2011 Restructuring. See Note 8 and Note 12 for further discussion of CT Legacy Partners.
- 13 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
Sale of Investment Management Platform
On December 19, 2012, pursuant to a purchase and sale agreement, dated as of September 27, 2012, or Purchase Agreement, by and between us and Blackstone, we completed the disposition of our
investment management and special servicing business for a purchase price of $21.4 million. The sale included our equity interests in CT Investment Management Co., LLC, or CTIMCO, our related private investment fund co-investments, and 100% of the
outstanding class A preferred stock of CT Legacy REIT. We refer the entire transaction as our Investment Management Business Sale. Pursuant to the terms of the Purchase Agreement, on December 19, 2012, we entered into a management agreement
with our Manager, which was amended and restated as of March 26, 2013, pursuant to which we are now managed by our Manager pursuant to the terms and conditions of the management agreement. In addition, Blackstone received the right to designate
two members of our board of directors, and exercised that right by designating an employee and one of its senior advisors to replace two former members of our board of directors who resigned effective December 19, 2012. As a result of the
Investment Management Business Sale, the income and expense items related to our investment management business have been reclassified to income from discontinued operations on our consolidated statements of operations. See Note 14 for a further
discussion of discontinued operations.
On December 19, 2012, we also closed our sale to Blackstone of 500,000 shares of our class A
common stock for a purchase price of $10.0 million.
In connection with the consummation of the Investment Management Business Sale and the
closing of our sale of 500,000 shares of class A common stock to Blackstone, we paid a $20.00 per share special cash dividend on December 20, 2012 to holders of record of our class A common stock at the close of business on November 12,
2012.
The assets we retained following our Investment Management Business Sale consisted primarily of: (i) cash and cash equivalents,
(ii) our interests in CT Legacy Partners, a vehicle we formed to own and finance certain legacy assets that we retained in connection with a comprehensive debt restructuring in 2011, (iii) 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 (iv) our subordinated interests in certain collateral debt obligations, or CT CDOs.
CT CDO Deconsolidation
On
December 19, 2012, as a result of the Investment Management Business Sale, we are no longer the collateral manager for certain collateralized debt obligations, or CT CDOs, nor the special servicer on their collateral assets. Due to the
externalization of these management functions, and our lack of material economic interest in the residual equity we own in CT CDOs II and IV, we ceased to be the primary beneficiary of these entities and, therefore, discontinued the consolidation of
CT CDOs II and IV, which we refer to as the CT CDO Deconsolidation. We recognized a gain of $53.9 million on the deconsolidation of CT CDOs II and IV, which was due primarily to the reversal of charges to shareholders equity resulting from
losses previously recorded in excess of our economic interests in these non-recourse securitization vehicles.
Note 4. Cash and Cash Equivalents, Including Restricted Cash
As discussed in Note 2, we place our cash and cash equivalents, including restricted cash, with high credit quality institutions to
minimize credit risk exposure. The following table outlines details of our cash and cash equivalents, including restricted cash balances as of June 30, 2013 and December 31, 2012.
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Balance as of
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Asset Type
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Depository
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Credit Rating
(1)
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June 30, 2013
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December 31, 2012
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Cash
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Bank of America
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A-1
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$
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59,746
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$
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15,423
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Restricted Cash
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Bank of America
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A-1
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21,972
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14,246
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Total
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$
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81,718
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$
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29,669
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(1)
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Represents the short-term credit rating for the Bank of America, N.A. legal entity as issued by Standard & Poors as of May 16, 2013.
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- 14 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
Note 5. Loans Receivable
As of June 30, 2013, our consolidated balance sheet includes $753.1 million of loans receivable related to our Loan Originations
segment and $77.0 million of loans receivable owned by CT CDO I, a consolidated securitization vehicle included in our CT Legacy Portfolio segment. See Note 19 for further discussion of our operating segments.
Activity relating to our loans receivable for the six months ended June 30, 2013 was as follows ($ in thousands):
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Gross Book
Value
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Provision for
Loan Losses
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Net Book
Value
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December 31, 2012
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$
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164,180
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($
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22,680
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)
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$
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141,500
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Loan originations
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756,638
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756,638
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Deferred origination fees and expenses
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(3,776
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)
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(3,776
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Amortization of deferred fees and expenses
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239
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|
239
|
|
Loan satisfactions
|
|
|
(62,500
|
)
|
|
|
|
|
|
|
(62,500
|
)
|
Partial loan repayments
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification to loans held-for-sale
|
|
|
(6,601
|
)
|
|
|
4,601
|
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
$
|
848,180
|
|
|
($
|
18,079
|
)
|
|
$
|
830,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2013, we had unfunded commitments of $8.6 million related to one senior mortgage loan, which amounts
will only be funded to finance lease-related or capital expenditures by the borrower until the commitment terminates in June 2016.
The
following table details overall statistics for our loans receivable portfolio as of June 30, 2013 and December 31, 2012 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
December 31, 2012
|
|
Number of loans
|
|
|
13
|
|
|
|
7
|
|
Principal balance
|
|
$
|
851,716
|
|
|
$
|
164,180
|
|
Net book value
|
|
$
|
830,101
|
|
|
$
|
141,500
|
|
|
|
|
Wtd. Avg. cash coupon
(1)
|
|
|
L+4.38
|
%
|
|
|
L+2.51
|
%
|
|
|
|
Wtd. Avg. all-in yield
(1)
|
|
|
L+5.27
|
%
|
|
|
L+4.53
|
%
|
|
|
|
Wtd. Avg. maximum maturity (years)
(2)
|
|
|
3.7
|
|
|
|
0.7
|
|
(1)
|
All loans are floating rate loans indexed to LIBOR as of both June 30, 2013 and December 31, 2012. LIBOR was 0.19% and 0.21% as of June 30, 2013 and
December 31, 2012, respectively; however, certain of our loans receivable earn interest based on a minimum LIBOR ranging from 0.20% to 1.00%. Amounts exclude all non-performing loans.
|
(2)
|
Maximum maturity date assumes all extension options are exercised.
|
- 15 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
The tables below detail the types of loans in our loan portfolio, as well as the property type and
geographic distribution of the properties securing these loans, as of June 30, 2013 and December 31, 2012 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
December 31, 2012
|
|
Asset Type
|
|
Net Book
Value
|
|
|
Percentage
|
|
|
Net Book
Value
|
|
|
Percentage
|
|
Senior mortgages
(1)
|
|
$
|
753,101
|
|
|
|
91
|
%
|
|
$
|
62,500
|
|
|
|
44
|
%
|
Subordinate interests in mortgages
|
|
|
77,000
|
|
|
|
9
|
|
|
|
79,000
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
830,101
|
|
|
|
100
|
%
|
|
$
|
141,500
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Type
|
|
Net Book
Value
|
|
|
Percentage
|
|
|
Net Book
Value
|
|
|
Percentage
|
|
Office
|
|
$
|
413,648
|
|
|
|
49
|
%
|
|
$
|
111,500
|
|
|
|
79
|
%
|
Hotel
|
|
|
162,885
|
|
|
|
20
|
|
|
|
30,000
|
|
|
|
21
|
|
Multifamily
|
|
|
189,557
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
64,011
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
830,101
|
|
|
|
100
|
%
|
|
$
|
141,500
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Location
|
|
Net Book
Value
|
|
|
Percentage
|
|
|
Net Book
Value
|
|
|
Percentage
|
|
West
|
|
$
|
454,091
|
|
|
|
54
|
%
|
|
$
|
92,500
|
|
|
|
65
|
%
|
Northeast
|
|
|
227,034
|
|
|
|
27
|
|
|
|
27,000
|
|
|
|
19
|
|
Southeast
|
|
|
93,000
|
|
|
|
12
|
|
|
|
12,404
|
|
|
|
9
|
|
Midwest
|
|
|
48,380
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
Southwest
|
|
|
7,596
|
|
|
|
1
|
|
|
|
9,596
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
830,101
|
|
|
|
100
|
%
|
|
$
|
141,500
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Senior mortgages include two pari passu participations in mortgages with a combined book value of $91.1 million as of June 30, 2013.
|
Loan risk ratings
Quarterly, our
Manager evaluates our loan portfolio as described in Note 2. In conjunction with our quarterly loan portfolio review, our Manager assesses the performance of each loan, and assigns a risk rating based on several factors including risk of loss,
current LTV, collateral performance, structure, exit plan, and sponsorship. Loans are rated one (less risk) through eight (greater risk), which ratings are defined in Note 2.
The following table allocates the net book value and principal balance of our loans receivable based on our internal risk ratings as of June 30, 2013 and December 31, 2012 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Receivable as of June 30, 2013
|
|
|
Loans Receivable as of December 31, 2012
|
|
Risk Rating
|
|
Number
of Loans
|
|
|
Principal
Balance
|
|
|
Net
Book Value
|
|
|
Number
of Loans
|
|
|
Principal
Balance
|
|
|
Net
Book Value
|
|
1- 3
|
|
|
9
|
|
|
$
|
776,637
|
|
|
$
|
773,101
|
|
|
|
2
|
|
|
$
|
47,000
|
|
|
$
|
47,000
|
|
4 - 5
|
|
|
2
|
|
|
|
57,000
|
|
|
|
57,000
|
|
|
|
2
|
|
|
|
92,500
|
|
|
|
92,500
|
|
6 - 8
|
|
|
2
|
|
|
|
18,079
|
|
|
|
|
|
|
|
3
|
|
|
|
24,680
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
13
|
|
|
$
|
851,716
|
|
|
$
|
830,101
|
|
|
|
7
|
|
|
$
|
164,180
|
|
|
$
|
141,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 16 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
In making this risk assessment, one of the primary factors we consider is how senior or junior each loan
is relative to other debt obligations of the borrower. The following tables further allocate our loans receivable by both loan type and our internal risk ratings as of June 30, 2013 and December 31, 2012 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Mortgage Loans
(1)
|
|
|
|
as of June 30, 2013
|
|
|
as of December 31, 2012
|
|
Risk Rating
|
|
Number
of
Loans
|
|
|
Principal
Balance
|
|
|
Net
Book
Value
|
|
|
Number
of Loans
|
|
|
Principal
Balance
|
|
|
Net
Book
Value
|
|
1 - 3
|
|
|
8
|
|
|
$
|
756,638
|
|
|
$
|
753,101
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
4 - 5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
62,500
|
|
|
|
62,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8
|
|
|
$
|
756,638
|
|
|
$
|
753,101
|
|
|
|
1
|
|
|
$
|
62,500
|
|
|
$
|
62,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Senior mortgage loans include two pari passu participations with an aggregate principal balance and net book value of $91.1 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinate Interests in Mortgages
|
|
|
|
as of June 30, 2013
|
|
|
as of December 31, 2012
|
|
Risk Rating
|
|
Number
of Loans
|
|
|
Principal
Balance
|
|
|
Net
Book
Value
|
|
|
Number
of Loans
|
|
|
Principal
Balance
|
|
|
Net
Book
Value
|
|
1 - 3
|
|
|
1
|
|
|
$
|
20,000
|
|
|
$
|
20,000
|
|
|
|
2
|
|
|
$
|
47,000
|
|
|
$
|
47,000
|
|
4 - 5
|
|
|
2
|
|
|
|
57,000
|
|
|
|
57,000
|
|
|
|
1
|
|
|
|
30,000
|
|
|
|
30,000
|
|
6 - 8
|
|
|
2
|
|
|
|
18,079
|
|
|
|
|
|
|
|
3
|
|
|
|
24,680
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5
|
|
|
$
|
95,079
|
|
|
$
|
77,000
|
|
|
|
6
|
|
|
$
|
101,680
|
|
|
$
|
79,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan impairments
We do not have any loan impairments in our Loan Origination segment. As of June 30, 2013, CT CDO I, which is in our CT Legacy Portfolio segment, had one impaired subordinate interest in a mortgage
loan with a gross book value of $7.5 million that is current in its interest payments and one impaired subordinate interest in a mortgage loan with a gross book value of $10.6 million that is delinquent on its contractual payments. We have taken
100% loan loss reserve on each of these loans.
As of December 31, 2012, consolidated securitization vehicles in our CT Legacy Portfolio
segment had one impaired subordinate interest in a mortgage loan with a gross book value of $7.5 million that was current in its interest payments and two impaired subordinate interest in a mortgage loans with a combined gross book value of $17.2
million that was delinquent on their contractual payments. We had an aggregate 92% loan loss reserve on these loans resulting in a net book value of $2.0 million.
Generally, we have recorded loan loss reserves for all loans which are in maturity default, or otherwise have past-due principal payments. We do not have any loans in maturity default or with past-due
principal payments in our Loan Origination segment. As of June 30, 2013, CT CDO I, which is in our CT Legacy Portfolio segment, had one loan with a net book value of $27.0 million which was in maturity default but had no reserve recorded. We
expect to collect all principal and interest due under this loan.
There was no income recorded on impaired loans during the six months ended
June 30, 2013. We recorded $290,000 of income on impaired subordinate interests in mortgage loans with an average net book value of $3.3 million during the six months ended June 30, 2012. Substantially all income recorded on impaired loans
during the period was received in cash.
Nonaccrual loans
We do not have any nonaccrual loans in our Loan Origination segment. Consolidated securitization vehicles in our CT Legacy Portfolio segment had subordinate interests in mortgages on nonaccrual status
with an aggregate principal balance of $18.1 million and an aggregate net book value of zero as of June 30, 2013. Consolidated securitization vehicles in our CT Legacy Portfolio segment had subordinate interests in mortgages on nonaccrual
status with an aggregate principal balance of $24.7 million and an aggregate net book value of $2.0 million as of December 31, 2012. In accordance with our revenue recognition policies discussed in Note 2, we do not accrue interest on loans
which are 90 days past due or, in the opinion of our Manager, are otherwise uncollectable. Accordingly, we do not have any material interest receivable accrued on nonperforming loans as of June 30, 2013 or December 31, 2012.
- 17 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
Note 6. Loans Held-For-Sale
Activity relating to our loans held-for-sale for the six months ended June 30, 2013 was as follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Book
Value
|
|
|
Valuation
Allowance
|
|
|
Net Book
Value
|
|
|
|
|
|
December 31, 2012
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
Reclassification from loans receivable
|
|
|
6,601
|
|
|
|
(4,601
|
)
|
|
|
2,000
|
|
Valuation allowance on loans held-for-sale
|
|
|
|
|
|
|
1,800
|
|
|
|
1,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
$
|
6,601
|
|
|
($
|
2,801
|
)
|
|
$
|
3,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the first quarter of 2013, we reclassified a $6.6 million subordinate mortgage loan and its related $4.6 million
reserve for loan losses to loans held-for-sale. During the six months ended June 30, 2013, we recorded a $1.8 million valuation adjustment to reflect this loan at its approximate fair value as of June 30, 2013.
Note 7. Loans Receivable, At Fair Value
We record CT Legacy Partners loans receivable investments at fair value, which are determined using internal financial
model-based estimations. The CT Legacy Partners loans receivable portfolio included eleven loans with an aggregate principal balance of $220.7 million, which were reported at their aggregate fair value of $117.5 million as of June 30, 2013. As
of December 31, 2012, there were no loans receivables at fair value because we accounted for CT Legacy Partners as a non-consolidated subsidiary. Refer to Note 3 and Note 8 for additional discussion of CT Legacy Partners. See Note 17 for
further discussion of fair value and Note 19 for an allocation of our loans receivable between our operating segments.
The following table
details overall statistics for CT Legacy Partners loans receivable, which is held at fair value as of June 30, 2013 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Receivable, at Fair Value
|
|
|
|
Floating Rate
|
|
|
Fixed Rate
|
|
|
Total
|
|
Number of loans
|
|
|
8
|
|
|
|
3
|
|
|
|
11
|
|
Net Book Value
|
|
$
|
94
|
|
|
$
|
24
|
|
|
$
|
118
|
|
Wtd. Avg. cash coupon
(1)
|
|
|
L+3.90
|
%
|
|
|
8.14
|
%
|
|
|
4.74
|
%
|
Wtd. Avg. all-in yield
(1)
|
|
|
L+4.64
|
%
|
|
|
8.12
|
%
|
|
|
5.34
|
%
|
Wtd. Avg. maximum maturity (years)
(2)
|
|
|
0.6
|
|
|
|
1.4
|
|
|
|
0.8
|
|
(1)
|
Floating rate loans are indexed to LIBOR as of June 30, 2013. LIBOR was 0.19% as of June 30, 2013; however, certain of our loans receivable earn interest
based on a minimum LIBOR of 2.0%. Amounts exclude all non-performing loans.
|
(2)
|
Maximum maturity date assumes all extension options are exercised.
|
- 18 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
The tables below detail the types of loans in CT Legacy Partners loan portfolio, as well as the
property type and geographic distribution of the properties securing these loans, as of June 30, 2013 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
Asset Type
|
|
Net Book
Value
|
|
|
Percentage
|
|
Subordinate interests in mortgages
|
|
$
|
49,695
|
|
|
|
42
|
%
|
Mezzanine loans
|
|
|
41,043
|
|
|
|
35
|
|
Senior mortgages
|
|
|
26,811
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
117,549
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Type
|
|
Net Book
Value
|
|
|
Percentage
|
|
Hotel
|
|
$
|
51,761
|
|
|
|
44
|
%
|
Office
|
|
|
41,682
|
|
|
|
35
|
|
Other
|
|
|
24,106
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
117,549
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Location
|
|
Net Book
Value
|
|
|
Percentage
|
|
Northeast
|
|
$
|
41,682
|
|
|
|
35
|
%
|
Northwest
|
|
|
24,106
|
|
|
|
21
|
|
West
|
|
|
14,302
|
|
|
|
12
|
|
Southeast
|
|
|
11,869
|
|
|
|
10
|
|
International
|
|
|
25,590
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
117,549
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans
In accordance with our revenue recognition policies discussed in Note 2, we do not accrue interest on loans which are 90 days past due or, in the opinion of our Manager, are otherwise uncollectable. We do
not have any material interest receivable accrued on nonperforming loans as of June 30, 2013.
The following table details our loans
receivable which are on nonaccrual status as of June 30, 2013 ($ in thousands):
|
|
|
|
|
|
|
|
|
Non-Accrual Loans Receivable as of June 30,
2013
|
|
Asset Type
|
|
Principal
Balance
|
|
|
Net
Book
Value
|
|
Senior Mortgage Loans
|
|
$
|
|
|
|
$
|
|
|
Subordinate Interests in Mortgages
|
|
|
43,448
|
|
|
|
|
|
Mezzanine & Other Loans
|
|
|
69,146
|
|
|
|
11,869
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
112,594
|
|
|
$
|
11,869
|
|
|
|
|
|
|
|
|
|
|
Note 8. Investment in CT Legacy Asset, at Fair Value
As a result of the merger effective on March 22, 2013, we began consolidating CT Legacy Partners and its subsidiary, CT Legacy
Asset, LLC or CT Legacy Asset. Previously, we accounted for CT Legacy Asset on a non-consolidated basis, and as of December 31, 2012, our consolidated balance sheet included a net investment in CT Legacy Asset of $132.0 million. We have elected
the fair value option of accounting for CT Legacy REITs investment in CT Legacy Asset due to our determination that the fair value of the investment in CT Legacy Asset, as a net liquidating portfolio of assets, is more meaningful and
indicative of our interests in CT Legacy Asset than equity method accounting. Following its consolidation, the loans receivable and repurchase obligations of CT Legacy Partners, as well as its other assets and liabilities, are included in our
consolidated balance sheet. See Note 3 for additional discussion of the consolidation of CT Legacy Partners and Note 7 and Note 10 for further discussion of CT Legacy Partners loan receivables and repurchase obligation, respectively.
- 19 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
CT Legacy Partners
CT Legacy Partners holds a portion of our legacy portfolio, which we had previously transferred to CT Legacy REIT (the predecessor of CT Legacy Partners) in connection with our March 2011 Restructuring.
CT Legacy Partners is beneficially owned 52% by us and 48% by our former lenders. In addition, CT Legacy Partners has 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, after aggregate cash distributions of $50.0 million have been paid to all other classes of common equity. Further, CT Legacy Partners has issued class A
preferred shares which entitle its holder 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) $1.0 million per annum.
Our equity interest in CT Legacy Partners is comprised of 4,393,750 class A-1 common shares, 775,000 class A-2 common shares, and 118,651 class B common
shares. The outstanding common shares of CT Legacy Partners are comprised of 4.4 million class A-1 common shares, 5.6 million class A-2 common shares, and 1.5 million class B common shares. The equity interests of other members of CT
Legacy Partners are reflected as non-controlling interests on our consolidated balance sheet. As of June 30, 2013, CT Legacy Partners had not made any distribution payments to its common equity holders.
Note 9. Equity Investments in Unconsolidated Subsidiaries
As of June 30, 2013, our equity investments in unconsolidated subsidiaries consisted solely of our carried interest in CTOPI, a
fund sponsored and managed by CTIMCO. Historically, this balance has also included our co-investments in investment management vehicles that were sponsored and managed by CTIMCO. As described in Note 3, we sold two such co-investments to an
affiliate of Blackstone in December 2012 in conjunction with our Investment Management Business Sale; however, we retained 100% of our carried interest in CTOPI.
Activity relating to our equity investments in unconsolidated subsidiaries for the six months ended June 30, 2013 was as follows ($ in thousands):
|
|
|
|
|
|
|
CTOPI
Carried Interest
(1)
|
|
Total as of December 31, 2012
|
|
$
|
13,306
|
|
Incentive income allocation
(2)
|
|
|
9,934
|
|
|
|
|
|
|
Total as of June 30, 2013
|
|
$
|
23,240
|
|
|
|
|
|
|
(1)
|
The allocation of carried interest from CTOPI is net of a $1.4 million advance distribution of incentive compensation to satisfy our 2012 income tax obligation related
to the allocation of taxable income in respect of our carried interest in CTOPI.
|
(2)
|
We have deferred the recognition of incentive income allocated to us from CTOPI in respect of our carried interest in CTOPI, and recorded an offsetting liability as a
component of accounts payable and other liabilities on our consolidated balance sheet.
|
Our carried interest in CTOPI entitles
us to earn incentive compensation in an amount equal to 17.7% of the funds profits, after a 9% preferred return and 100% return of capital to the CTOPI partners. As of June 30, 2013, we had been allocated $24.6 million of incentive
compensation from CTOPI based on a hypothetical liquidation of the fund at its net asset value.
Accordingly, we have recognized this
allocation as an equity investment in CTOPI on our consolidated balance sheet; however, we have deferred the recognition of income until cash is collected or appropriate contingencies have been eliminated.
The CTOPI partnership agreement provides for advance distributions in respect of our incentive compensation to allow us to pay any income taxes owed on
phantom taxable income allocated to us from the partnership. We refer to these distributions as CTOPI Tax Advances. During 2012, we received one such CTOPI Tax Advance of $1.4 million. In the event the performance of CTOPI does not ultimately result
in a sufficient allocation of incentive compensation to us, we would be required to return these CTOPI Tax Advances to the fund. As of June 30, 2013, our maximum exposure to loss from CTOPI was $1.4 million, the amount of CTOPI Tax Advances we
have received from CTOPI.
- 20 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
CTOPI Incentive Management Fee Grants
In January 2011, we created a management compensation pool for employees equal to 45% of the CTOPI incentive management fee received by us. As of June 30, 2013, we had granted 96% of the pool to our
former employees, and the remainder remained unallocated. If any awards remain unallocated at the time incentive management fees are received by us, any amounts otherwise payable to the unallocated awards will be distributed pro-rata to the plan
participants then employed by an affiliate of our Manager.
Approximately 96% of these grants have the following vesting schedule, which is
contingent on continued employment with an affiliate of our Manager: (i) one-third on the date of grant; (ii) one-third on September 13, 2012; and (iii) the remainder vests upon our receipt of incentive management fees from
CTOPI. The remaining 4% of these grants vest solely upon our receipt of incentive management fees from CTOPI or the disposition of certain investments owned by CTOPI.
Note 10. Debt Obligations
Secured Notes
In
conjunction with our March 2011 Restructuring and the corresponding satisfaction of our senior credit facility and junior subordinated notes, certain wholly-owned subsidiaries of ours issued secured notes to these former creditors, which secured
notes are non-recourse to us. The secured notes had an aggregate initial face value of $7.8 million and are secured by 93.5% of our equity interests in the class A-1 and class A-2 common shares of CT Legacy Partners, which represents 48.3% of the
total outstanding class A-1 and class A-2 common shares of CT Legacy Partners. The secured notes mature on March 31, 2016 and bear interest at a rate of 8.2% per annum, which interest may be deferred until maturity. All distributions we
receive from our equity interests in the common shares of CT Legacy Partners which serve as collateral under the secured notes must be used to pay, or prepay, interest and principal due thereunder, and only after the notes full satisfaction
will we receive any cash flow from the common equity interests in CT Legacy Partners that serve as collateral for the notes. Any prepayment, or partial prepayment, of the secured notes will incur a prepayment premium resulting in a total payment of
principal and interest under the secured notes of $11.1 million.
We had secured notes outstanding with an accreted book value of $8.8 million
and $8.5 million as of June 30, 2013 and December 31, 2012, respectively.
Repurchase Obligations
During the second quarter of 2013, we entered into $1.0 billion of master repurchase agreements with four counterparties. As of June 30, 2013, we had
aggregate borrowings of $165.2 million outstanding under these facilities, with a weighted-average cash coupon, excluding associated fees and expenses, of LIBOR plus 1.98% per annum and a weighted-average initial maturity, excluding extension
options and term-out provisions, of 2.5 years. The following table details the repurchase obligations outstanding as of June 30, 2013 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral Assets
|
|
|
Repurchase Balances
|
|
Repurchase Lender
|
|
Facility
Size
|
|
|
Principal
Balance
|
|
|
Net Book
Value
|
|
|
Maximum
Borrowings
|
|
|
Current
Borrowings
|
|
|
Available
Borrowings
(1)
|
|
Bank of America
|
|
$
|
250,000
|
|
|
$
|
126,300
|
|
|
$
|
125,557
|
|
|
$
|
101,040
|
|
|
$
|
46,400
|
|
|
$
|
54,640
|
|
Wells Fargo
|
|
|
250,000
|
|
|
|
300,000
|
|
|
|
298,533
|
|
|
|
250,000
|
|
|
|
|
|
|
|
250,000
|
|
Citibank
|
|
|
250,000
|
|
|
|
156,438
|
|
|
|
156,039
|
|
|
|
118,839
|
|
|
|
118,839
|
|
|
|
|
|
JP Morgan
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,000,000
|
|
|
$
|
582,738
|
|
|
$
|
580,129
|
|
|
$
|
469,879
|
|
|
$
|
165,239
|
|
|
$
|
304,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Available borrowings is based on assets pledged as collateral under credit facilities as of June 30, 2013. There were two loans with an aggregate principal balance
of $173.8 million as of June 30, 2013 that were not pledged under repurchase agreements, and therefore are available to be pledged as collateral in the future.
|
On May 21, 2013, we entered into a $250.0 million master repurchase agreement with Bank of America. Advances under the repurchase agreement accrue interest at a per annum pricing rate equal to LIBOR
plus a margin of between 1.75% and 3.25% depending on the attributes of the collateral loans. The initial maturity date of the facility is May 21, 2016, subject to two one-year extension options, each of which may be exercised by us.
Obligations under this repurchase agreement are not recourse to us, except that we guarantee 50% of the advances related to senior collateral and 100% of the advances related to mezzanine and junior mortgage collateral.
- 21 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
On June 7, 2013, we entered into a $250.0 million, asset specific, repurchase agreement with Wells
Fargo. Advances under the repurchase agreement accrue interest at a per annum pricing rate equal to LIBOR plus a margin of 2.50%. The initial maturity date of the facility is June 7, 2016, which may be extended pursuant to (i) two one-year
extension options, each of which may be exercised by us, and (ii) an additional one-year extension option, contingent upon notice regarding the failure of the collateral mortgage loan to be repaid at its final maturity. We do not guarantee the
obligations under this repurchase agreement.
On June 12, 2013, we entered into a $250.0 million master repurchase agreement with
Citibank. Advances under the repurchase agreement accrue interest at a per annum pricing rate equal to LIBOR plus a margin of between 2.00% and 2.25% depending on the attributes of the collateral loans. The initial facility expiration date is
June 12, 2016, which may be extended annually by us. If upon the initial facility expiration date, Citibank does not extend the facility availability period, in its sole discretion, then no new advances may be drawn and all collateral interest
and principal proceeds would be required to repay existing advances, subject to certain provisions for REIT income distribution requirements. In either case, individual advances mature upon the maturity date of the respective collateral maturity
dates. We guarantee 25% of the advances under this facility. Otherwise, obligations under this repurchase agreement are not recourse to us.
On June 28, 2013, we entered into a $250.0 million master repurchase agreement with JP Morgan. Advances under the repurchase agreement accrue
interest at a per annum pricing rate equal to LIBOR plus a margin of between 2.00% and 3.25% depending on the attributes of the collateral loans. The repurchase agreement specifies a one-year availability period, during which new advances can be
made and which availability period is renewable at the discretion of JP Morgan. Maturity dates for individual advances are tied to their respective collateral loan maturity dates subject to annual renewal at our discretion. In the event that the
availability period is not renewed, it is followed by a two year stabilization period and then a term out period, during which all collateral interest and principal proceeds would be required to repay existing advances,
subject to certain provisions for REIT income distribution requirements. Obligations under this repurchase agreement are not recourse to us, except that we guarantee 25% of the advances related to senior mortgage collateral and 100% of the advances
related to mezzanine and junior mortgage collateral.
Each of the guarantees related to our master repurchase agreements contain the following
uniform financial covenants: (i) our ratio of EBITDA to fixed charges shall be not less than 1.40 to 1.0; (ii) our tangible net worth shall not be less than $525.0 million plus 75% of the net cash proceeds of future equity issuances;
(iii) cash liquidity shall not be less than the greater of (x) $10.0 million or (y) 5% of our recourse indebtedness; and (iv) our indebtedness shall not exceed 80% of our total assets. As of June 30, 2013, we were in
compliance with all applicable covenants.
The weighted average outstanding repurchase obligation balance for the three months ended
June 30, 2013 was $28.3 million.
Repurchase Obligations - CT Legacy Partners
As of March 31, 2013, CT Legacy Partners was party to a repurchase facility with JP Morgan with an outstanding balance of $20.2 million. On
June 5, 2013, CT Legacy Partners repaid the outstanding balance and terminated the repurchase facility. CT Legacy Partners has no outstanding debt obligations as of June 30, 2013.
- 22 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
Securitized Debt Obligations
The balances of each of our consolidated securitization vehicles outstanding securitized debt obligations, their respective coupons and all-in effective costs, including the amortization of fees and
expenses, were as follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30,
2013
|
|
|
December 31,
2012
|
|
|
|
|
June
30,
2013
|
|
Non-Recourse Securitized Debt Obligations
|
|
Principal
Balance
|
|
|
Book
Value
|
|
|
Book
Value
|
|
|
|
|
Coupon
(1)
|
|
|
All-In
Cost
(1)
|
|
|
Maturity
Date
(2)
|
|
CT CDO I
|
|
$
|
74,472
|
|
|
$
|
74,472
|
|
|
$
|
91,131
|
|
|
|
|
|
1.79
|
%
|
|
|
1.79
|
%
|
|
|
July 2039
|
|
GSMS 2006-FL8A
|
|
|
|
|
|
|
|
|
|
|
48,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total/Weighted Average
|
|
$
|
74,472
|
|
|
$
|
74,472
|
|
|
$
|
139,184
|
|
|
|
|
|
1.79
|
%
|
|
|
1.79
|
%
|
|
|
July 2039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents a weighted average for the facility, assuming LIBOR of 0.19% at June 30, 2013 for floating rate debt obligations.
|
(2)
|
Maturity date represent the contractual maturity of the securitization trust. Repayment of securitized debt is a function of collateral cash flows which are disbursed
in accordance with the contractual provisions of each trust, and is generally expected to occur prior to the maturity date above.
|
As of June 30, 2013, loans receivable with an aggregate book value of $80.8 million served as collateral for the non-recourse debt and equity
securities issued by our consolidated securitizations vehicles. As of December 31, 2012, loans receivable with an aggregate book value of $141.5 million served as collateral for the securities issued by these same vehicles.
Our consolidated securitization vehicle, CT CDO I, is subject to interest coverage and overcollateralization tests which, when breached, provide for
hyper-amortization of the senior notes by a redirection of cash flow that would otherwise have been paid to the subordinate classes, some of which are owned by us. Furthermore, CT CDO I provides for the re-classification of interest proceeds from
impaired collateral as principal proceeds, which also serve to hyper-amortize the senior notes sold. As a result of collateral asset impairments and the related breaches of these interest coverage and overcollateralization tests, we currently do not
receive any cash payments from CT CDO I.
Note 11. Derivative Financial Instruments
We may, in the normal course of business, enter into interest rate derivative financial instruments to manage, or hedge, cash flow
variability caused by interest rate fluctuations. As of, and during the six months ended, June 30, 2013, we were not party to any such derivative financial instruments. However, our consolidated subsidiary, CT Legacy Partners, was party to five
interest rate swaps which it terminated in June 2013. A gain of $136,000 resulting from the termination is included as a component of interest expense on our consolidated statements of operations for the six months ended June 30, 2013. CT
Legacy Partners is no longer party to any derivative financial instruments as of June 30, 2013.
Note 12. Stockholders Equity
Balance Sheet Data
Stockholders Equity increased $639.2 million during the first six months of 2013 to $712.7 million. This increase was primarily driven by the
issuance of additional shares of class A common stock. See below for further discussion on the share issuance.
- 23 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
Accumulated Other Comprehensive Loss
We did not have any accumulated other comprehensive income or loss as of December 31, 2012 or June 30, 2013. The following table details the primary components of accumulated other comprehensive
loss as of June 30, 2012, and significant activity for the six months ended June 30, 2012 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss
|
|
Mark-to-Market
on Interest Rate
Hedges
|
|
|
Deferred Gains
on
Settled
Hedges
|
|
|
Other-than-
Temporary
Impairments
|
|
|
Unrealized
Gains on
Securities
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
Total as of December 31, 2011
|
|
($
|
27,423
|
)
|
|
$
|
56
|
|
|
($
|
16,578
|
)
|
|
$
|
3,361
|
|
|
|
|
($
|
40,584
|
)
|
|
|
|
|
|
|
|
Unrealized gain on derivative financial instruments
|
|
|
3,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,749
|
|
Ineffective portion of cash flow hedges
(1)
|
|
|
2,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,481
|
|
Amortization of net unrealized gains on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(765
|
)
|
|
|
|
|
(765
|
)
|
Amortization of net deferred gains on settlement of swaps
|
|
|
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(56
|
)
|
Other-than-temporary impairments of securities
(2)
|
|
|
|
|
|
|
|
|
|
|
203
|
|
|
|
|
|
|
|
|
|
203
|
|
Deconsolidation of CT Legacy Assets
(3)
|
|
|
|
|
|
|
|
|
|
|
3,879
|
|
|
|
(2,586
|
)
|
|
|
|
|
1,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as of June 30, 2012
|
|
($
|
21,193
|
)
|
|
$
|
|
|
|
($
|
12,496
|
)
|
|
$
|
10
|
|
|
|
|
($
|
33,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation to non-controlling interest
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss as of June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($
|
33,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
As a result of the deconsolidation of CT Legacy Assets in the first quarter of 2012, the balance of accumulated other comprehensive income related to cash flow hedges
of CT Legacy Assets was reclassified to interest expense.
|
(2)
|
Represents other-than-temporary impairments of securities in excess of credit losses, including amortization of prior other-than-temporary impairments of $391,000.
|
(3)
|
As further described in Note 1 above, we deconsolidated CT Legacy Assets in the first quarter of 2012. As a result, the balances of accumulated other comprehensive
income related to CT Legacy Assets, including those allocable to non-controlling interests are no longer included in our consolidated financial statements.
|
Non-controlling Interests
The non-controlling interests included on our consolidated
balance sheet represent the equity interests in CT Legacy Partners that are not owned by us, as described in Note 8. CT Legacy Partners outstanding common stock includes class A-1 common shares, class A-2 common shares, and subordinate class B
common shares. A portion of CT Legacy Partners consolidated equity and results of operations are allocated to these non-controlling interests based on their pro-rata ownership of CT Legacy Partners.
- 24 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
The following table details the components of non-controlling interests as of June 30, 2013 ($ in
thousands):
|
|
|
|
|
Non-controlling Interests in CT Legacy Partners as of June 30, 2013
|
|
|
|
Gross investment in CT Legacy Partners:
|
|
|
|
|
Restricted cash
|
|
$
|
21,972
|
|
Loans receivable, at fair value
|
|
|
117,549
|
|
Accrued interest receivable, prepaid expenses, and other assets
|
|
|
21,948
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
(485
|
)
|
|
|
|
|
|
|
|
$
|
160,984
|
|
|
|
|
|
|
Equity interests owned by Blackstone Mortgage Trust, Inc.
|
|
|
(72,006
|
)
|
|
|
|
|
|
Non-controlling interests in CT Legacy Partners
|
|
$
|
88,978
|
|
|
|
|
|
|
Share and Share Equivalents
Authorized Capital
We have the authority to issue up to 200,000,000 shares of stock,
consisting of 100,000,000 shares of class A common stock and 100,000,000 shares of preferred stock. Subject to applicable NYSE listing requirements, our board of directors is authorized to cause us to issue additional shares of authorized stock
without stockholder approval. In addition, to the extent not issued, currently authorized stock may be reclassified between class A common stock and preferred stock.
Reverse Stock Split
On April 26, 2013, our board of directors approved a one-for-ten
reverse stock split of our class A common stock which we effected on May 6, 2013. As a result of the reverse stock split, the number of outstanding shares of our class A common stock was reduced to 2,926,651. In addition, there was a
reclassification of $263,000 from the par value of our class A common stock to additional paid-in capital to reflect the impact of the reverse stock split.
Class A Common Stock and Deferred Stock Units
Holders of shares of class A
common stock are entitled to vote on all matters submitted to a vote of stockholders, subject to the voting rights of any outstanding shares of preferred stock. Holders of record of shares of class A common stock on the record date fixed by our
board of directors are entitled to receive such dividends as may be authorized by our board of directors and declared by us, subject to the rights of the holders of any shares of outstanding preferred stock. On May 29, 2013, we issued
25,875,000 shares of class A common stock at a public offering price of $25.50 per share. We generated net proceeds from the issuance of $633.8 million after underwriting discounts and other offering expenses. A total of 28,894,475 shares of class A
common stock and stock units were issued and outstanding as of June 30, 2013.
In addition to our class A common stock, we also issue
deferred stock units to certain members of our board of directors in lieu of cash compensation for services rendered. These deferred stock units are non-voting, but carry the right to receive dividends in the form of additional deferred stock units
in an amount equivalent to the cash dividends paid to holders of shares of class A common stock.
- 25 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
The following table details the movement in our outstanding shares of class A common stock, restricted
class A common stock, and deferred stock units for the six months ended June 30, 2013 and June 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Common Stock Outstanding
(1)(2)(3)
|
|
2013
|
|
|
2012
|
|
Beginning balance
|
|
|
3,016,407
|
|
|
|
2,277,344
|
|
Issuance of class A common stock
|
|
|
25,875,000
|
|
|
|
|
|
Transactions related to stock-based incentive plans
|
|
|
|
|
|
|
|
|
Issuance of restricted class A common stock, net
|
|
|
|
|
|
|
36,400
|
|
Issuance of deferred stock units
|
|
|
3,068
|
|
|
|
3,578
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
28,894,475
|
|
|
|
2,317,322
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes shares of our class A common stock, restricted class A common stock, and deferred stock units.
|
(2)
|
Total class A common stock includes deferred stock units held by members of our board of directors of 93,000, and 66,000 as of June 30, 2013 and 2012,
respectively.
|
(3)
|
Share amounts have been retroactively updated to reflect the one-for-ten reverse stock split which we effected as of May 6, 2013. See above for further discussion.
|
Preferred Stock
We have not issued any shares of preferred stock since we repurchased all of our previously issued and outstanding preferred stock in 2001.
Dividends
We generally intend to
distribute each year substantially all of our taxable income (which does not necessarily equal net income as calculated in accordance with GAAP) to our stockholders to comply with the REIT provisions of the Internal Revenue Code of 1986, as amended,
or the Internal Revenue Code.
Our dividend policy remains subject to revision at the discretion of our board of directors. All distributions
will be made at the discretion of our board of directors and will depend upon our taxable income, our financial condition, our maintenance of REIT status, applicable law, and other factors as our board of directors deems relevant.
No dividends were declared during the six months ended June 30, 2013 or 2012.
Earnings Per Share
The following table sets forth the calculation of basic and diluted net
income per share of class A common stock based on the weighted average of both restricted and unrestricted class A common stock outstanding, for the three and six months ended June 30, 2013 and 2012 ($ in thousands, except share and per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) per Share of Common Stock
(1)
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Net income (loss)
|
|
$
|
2,748
|
|
|
$
|
2,283
|
|
|
($
|
367
|
)
|
|
$
|
68,836
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
12,401,274
|
|
|
|
2,289,352
|
|
|
|
7,734,774
|
|
|
|
2,286,582
|
|
Warrants and options outstanding for the purchase of class A common stock
|
|
|
|
|
|
|
153,334
|
|
|
|
|
|
|
|
148,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, diluted
|
|
|
12,401,274
|
|
|
|
2,442,686
|
|
|
|
7,734,774
|
|
|
|
2,435,339
|
|
|
|
|
|
|
Per share amount, basic
|
|
$
|
0.22
|
|
|
$
|
1.00
|
|
|
($
|
0.05
|
)
|
|
$
|
30.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share amount, diluted
|
|
$
|
0.22
|
|
|
$
|
0.93
|
|
|
($
|
0.05
|
)
|
|
$
|
28.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Share and per share amounts have been retroactively updated to reflect the one-for-ten reverse stock split which we effected as of May 6, 2013. See above for
further discussion.
|
Refer to Note 19 for a breakdown of our results of operations for each of our operating segments.
- 26 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
The following table sets forth the calculation of basic and diluted income from continuing operations
per share of class A common stock based on the weighted average of both restricted and unrestricted class A common stock outstanding, for the three and six months ended June 30, 2013 and 2012 ($ in thousands, except share and per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations per Share of Common Stock
(1)
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Income from continuing operations
|
|
$
|
6,768
|
|
|
$
|
3,692
|
|
|
$
|
5,170
|
|
|
$
|
144,887
|
|
Net income attributable to non-controlling interests
|
|
|
(4,020
|
)
|
|
|
(1,068
|
)
|
|
|
(5,537
|
)
|
|
|
(75,137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to Blackstone Mortgage Trust, Inc.
|
|
$
|
2,748
|
|
|
$
|
2,624
|
|
|
($
|
367
|
)
|
|
$
|
69,750
|
|
Weighted average shares outstanding
|
|
|
12,401,274
|
|
|
|
2,289,352
|
|
|
|
7,734,774
|
|
|
|
2,286,582
|
|
Warrants and options outstanding for the purchase of class A common stock
|
|
|
|
|
|
|
153,334
|
|
|
|
|
|
|
|
148,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, diluted
|
|
|
12,401,274
|
|
|
|
2,442,686
|
|
|
|
7,734,774
|
|
|
|
2,435,339
|
|
Per share amount, basic
|
|
$
|
0.22
|
|
|
$
|
1.15
|
|
|
($
|
0.05
|
)
|
|
$
|
30.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share amount, diluted
|
|
$
|
0.22
|
|
|
$
|
1.08
|
|
|
($
|
0.05
|
)
|
|
$
|
28.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Share and per share amounts have been retroactively updated to reflect the one-for-ten reverse stock split which we effected as of May 6, 2013. See above for
further discussion.
|
Refer to Note 19 for a breakdown of our results of operations for each of our operating segments.
Note 13. General and Administrative Expenses
General and administrative expenses for the six months ended June 30, 2013 and 2012 consisted of the following ($ in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
General and Administrative Expenses
|
|
2013
|
|
|
2012
|
|
Management fees to affiliates
|
|
$
|
983
|
|
|
$
|
|
|
Professional services
|
|
|
1,267
|
|
|
|
802
|
|
Operating and other costs
|
|
|
975
|
|
|
|
954
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
3,225
|
|
|
|
1,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation expenses
|
|
|
|
|
|
|
|
|
Management incentive awards plan - CT Legacy Partners
(1)
|
|
|
1,511
|
|
|
|
181
|
|
Director stock-based compensation
|
|
|
75
|
|
|
|
112
|
|
Employee stock-based compensation
|
|
|
|
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1,586
|
|
|
|
503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses of consolidated securitization vehicles
|
|
|
654
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,465
|
|
|
$
|
2,323
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents the accrual of amounts payable under the CT Legacy Partners management incentive awards during the period. See below for discussion of the CT Legacy Partners
management incentive awards plan.
|
As a result of our Investment Management Business Sale, the operating expenses related to our
investment management business have been reclassified to income (loss) from discontinued operations on our consolidated statements of operations. See Note 3 for further discussion of the Investment Management Business Sale.
In conjunction with the Investment Management Business Sale, we entered into a new management agreement with our Manager, which was amended and restated
as of March 26, 2013, pursuant to which our Manager earns a base management fee in an amount equal to the greater of (a) $250,000 per annum and (b) 1.50% per annum multiplied by our outstanding Equity balance, as defined in the
management agreement with our Manager. In addition, our Manager is entitled to an incentive fee in an amount equal to the product of (a) 20% and (b) the excess of (i) our Core Earnings (as defined in the management agreement) for the
previous 12-month period (or the period since January 1, 2013, whichever is shorter) over (ii) an amount equal to 7.00% per annum multiplied by our outstanding Equity, provided that our Core Earnings over the prior three-year period
(or the period since the date of the first
- 27 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
offering of our class A common stock following December 19, 2012, whichever is shorter) is greater than zero. Core Earnings is generally equal to our net income (loss) prepared in accordance
with GAAP, excluding (i) certain non-cash items and (ii) the net income (loss) related to our legacy portfolio.
During the six
months ended June 30, 2013, we incurred $982,500 of management fees payable to our Manager, which are included in general and administrative expenses. We did not incur any incentive fees payable to our Manager during the six months ended
June 30, 2013.
CT Legacy Partners Management Incentive Awards Plan
In conjunction with our March 2011 Restructuring, we created an employee pool for up to 6.75% of the distributions paid to the common equity holders of CT Legacy Partners (subject to certain caps and
priority distributions). As of June 30, 2013, incentive awards for 92% of the pool were granted to our former employees, and the remainder remains unallocated. If any awards remain unallocated at the time distributions are paid, any amounts
otherwise payable to the unallocated awards will be distributed pro-rata to the plan participants then employed by an affiliate of our Manager.
Approximately 82% of these grants have the following vesting schedule, which is contingent on continued employment with an affiliate of our Manager:
(i) 25% vests on the date of grant, (ii) 25% vests in March 2013, (iii) 25% vests in March 2014, and (iv) the remainder vests upon our receipt of distributions from CT Legacy Partners. The remaining 18% of these grants vest upon
our receipt of distributions from CT Legacy Partners.
We accrue a liability for the amounts due under these grants based on the value of CT
Legacy Partners and the periodic vesting of the awards granted. Accrued payables for these awards were $6.8 million and $5.3 million as of June 30, 2013 and December 31, 2012, respectively.
Note 14. Discontinued Operations
As more fully described in Note 3, we sold our investment management business, CTIMCO, to an affiliate of Blackstone in December 2012.
As a result, the income and expense items related to our investment management business have been reclassified to loss from discontinued operations on our consolidated statement of operations.
The following table provides additional information on the components of discontinued operations for the six months ended June 30, 2013 and 2012 ($
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
Discontinued Operations
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
Servicing fees
|
|
$
|
|
|
|
$
|
1,365
|
|
|
$
|
|
|
|
$
|
3,385
|
|
Management fees from affiliates
|
|
|
|
|
|
|
1,610
|
|
|
|
|
|
|
|
3,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
2,975
|
|
|
|
|
|
|
|
6,580
|
|
General and administrative expenses
|
|
|
|
|
|
|
3,173
|
|
|
|
|
|
|
|
6,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations before income taxes
|
|
|
|
|
|
|
(199
|
)
|
|
|
|
|
|
|
(149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
|
|
|
|
(143
|
)
|
|
|
|
|
|
|
(766
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
$
|
|
|
|
($
|
341
|
)
|
|
$
|
|
|
|
($
|
914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 28 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
Note 15. Income Taxes
We made an election to be taxed as a REIT, effective January 1, 2003, under the Internal Revenue Code for U.S. federal income tax
purposes. We generally must distribute annually at least 90% of our net taxable income, subject to certain adjustments and excluding any net capital gain, in order for U.S. federal income tax not to apply to our earnings that we distribute. To the
extent that we satisfy this distribution requirement, but distribute less than 100% of our net taxable income, we will be subject to U.S. federal income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible
excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws.
Our qualification as a REIT also depends on our ability to meet various other requirements imposed by the Internal Revenue Code, which relate to organizational structure, diversity of stock ownership and
certain restrictions with regard to the nature of our assets and the sources of our income. Even if we qualify as a REIT, we may be subject to certain U.S. federal income and excise taxes and state and local taxes on our income and assets. If we
fail to maintain our qualification as a REIT for any taxable year, we may be subject to material penalties as well as federal, state and local income tax on our taxable income at regular corporate rates and we would not be able to qualify as a REIT
for the subsequent four full taxable years. As of June 30, 2013 and December 31, 2012, we were in compliance with all REIT requirements.
During the six months ended June 30, 2013, we recorded a current income tax provision of $593,000. Of the total current income tax provision, $554,000 was due to activities of taxable REIT
subsidiaries. As a result of our sale of CTIMCO we no longer have any deferred tax assets or liabilities as of December 31, 2012.
As a
result of our issuance of 25,875,000 shares of class A common stock in May 2013, the availability of our net operating losses, or NOLs, and net capital losses, or NCLs, is significantly limited by change of control provisions promulgated by the
Internal Revenue Service with respect to the ownership of Blackstone Mortgage Trust, Inc. As of December 31, 2012, we had net operating losses, or NOLs, of $161.5 million and net capital losses, or NCLs, of $121.4 million available to be
carried forward and utilized in current or future periods. If we are unable to utilize our NOLs, they will expire in 2029. If we are unable to utilize our NCLs, $2.0 million will expire in 2013, $87.4 million will expire in 2014, $31.4 million will
expire in 2015, and $618,000 will expire in 2017.
As of June 30, 2013, tax years 2009 through 2012 remain subject to examination by
taxing authorities.
Note 16. Stock-Based Incentive Plans
We do not have any employees following the consummation of the Investment Management Business Sale on December 19, 2012, as
described in Note 1. However, as of June 30, 2013, our Manager, certain individuals employed by an affiliate of our Manager, and certain members of our board of directors are compensated, in part, through the issuance of stock-based
instruments. In addition, certain of our former employees continue to participate in the CTOPI incentive management fee grants and the CT Legacy Partners management incentive awards plan.
We had stock-based incentive awards outstanding under four benefit plans as of June 30, 2013: (i) our amended and restated 1997 non-employee director stock plan, or 1997 Plan, (ii) our 2007
long-term incentive plan, or 2007 Plan, (iii) our 2011 long-term incentive plan, or 2011 Plan, and (iv) our 2013 stock incentive plan, or 2013 Plan. No awards have been granted under our 2013 manager incentive plan, or 2013 Manager Plan,
as of June 30, 2013. We refer to our 1997 Plan, our 2007 Plan, and our 2011 Plan as our Expired Plans and we refer to our 2013 Plan and 2013 Manager Plan as our Current Plans.
Our Expired Plans have expired and no new awards may be issued under them. Under our Current Plans, a maximum of 2,160,106 shares of our class A common stock may be issued to our Manager, our directors
and officers, and certain employees of affiliates of our Manager. As of June 30, 2013, there were 2,158,646 shares available under the Current Plans.
Awards outstanding under these plans as of June 30, 2013 was comprised entirely of 93,000 deferred stock units granted to certain members of our board of directors in lieu of cash compensation for
services and in lieu of dividends earned on previously granted stock units. Awards outstanding under Expired Plans have been adjusted to reflect the one-for-ten reverse stock split which we effected as of May 6, 2013. See Note 12 for further
discussion of our reverse stock split.
See Notes 9 and 13 for additional discussion of the CTOPI incentive management fee grants and the CT
Legacy Partners management incentive awards plan, respectively.
- 29 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
Note 17. Fair Values
Assets Recorded at Fair Value
The following table summarizes our assets that are recorded at fair value as of June 30, 2013 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Total
Fair Value
at
June 30, 2013
|
|
|
Quoted Prices
in
Active
Markets
(Level 1)
|
|
|
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Measured on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held-for-sale, net
|
|
$
|
3,800
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,800
|
|
Loans receivable, at fair value
|
|
$
|
117,549
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
117,549
|
|
Securities, at fair value
(1)
|
|
$
|
15,461
|
|
|
$
|
|
|
|
$
|
1,925
|
|
|
$
|
13,536
|
|
|
|
|
|
|
Measured on a non-recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans receivable
(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
(1)
|
Other assets, at fair value include securities and other assets carried at fair value.
|
(2)
|
All impaired loans receivable have a 100% loan loss reserve and are held by consolidated securitization vehicles as of June 30, 2013.
|
The following table summarizes our assets that are recorded at fair value as of December 31, 2012 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Total
Fair Value
at
December 31, 2012
|
|
|
Quoted Prices
in
Active
Markets
(Level 1)
|
|
|
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
Measured on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in CT Legacy Asset
|
|
$
|
132,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
132,000
|
|
|
|
|
|
|
Measured on a non-recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans receivable
(1)
|
|
$
|
2,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,000
|
|
(1)
|
Impaired loans receivable have a 92% loan loss reserve and are held by consolidated securitization vehicles as of December 31, 2013.
|
The following table reconciles the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3 inputs ($ in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
Held-for-Sale, net
|
|
|
Loans Receivable,
at fair
value
|
|
|
Other assets,
at
fair value
(1)
|
|
|
Investment in
CT
Legacy Assets
|
|
December 31, 2012
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
132,000
|
|
Consolidation of CT Legacy Partners
|
|
|
|
|
|
|
150,332
|
|
|
|
15,761
|
|
|
|
(132,000
|
)
|
Transfer from loans receivable, net
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal paydowns
|
|
|
|
|
|
|
(36,930
|
)
|
|
|
(349
|
)
|
|
|
|
|
Deferred interest
|
|
|
|
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to fair value included in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance on loans held-for-sale
|
|
|
1,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on investments at fair value
|
|
|
|
|
|
|
3,951
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
$
|
3,800
|
|
|
$
|
117,549
|
|
|
$
|
15,461
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Other assets include securities and other assets carried at fair value.
|
The following describes the key assumptions used in arriving at the fair value of each type of asset that was recorded at fair value as of June 30, 2013 and December 31, 2012. There were no
liabilities recorded at fair value as of June 30, 2013 or December 31, 2012. See Note 2 for further discussion regarding fair value measurement.
Loans held-for-sale -
Loans held-for-sale are valued based on expected net proceeds from a sale of the asset.
- 30 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
Loans receivable, at fair value
-
The following table lists the range of
key assumptions for each type of loans receivable as of June 30, 2013 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumption Ranges for Significant
|
|
|
|
|
Book Value
|
|
|
|
Unobservable Inputs (Level 3)
(1)
|
|
|
|
|
Sensitivity to a
|
|
|
|
|
|
Recovery
|
|
|
|
|
100bps Discount
|
|
Collateral Type
|
|
Discount Rate
|
|
Percentage
(2)
|
|
Book Value
|
|
|
Rate Increase
|
|
Hotel
|
|
8% -12%
|
|
84%- 100%
|
|
$
|
51.7
|
|
|
|
(0.3%
|
)
|
Mixed Use / Other
|
|
10%
|
|
100%
|
|
|
24.1
|
|
|
|
(0.1%
|
)
|
Office
|
|
7%- 20%
|
|
69%- 100%
|
|
|
41.7
|
|
|
|
0.05
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
117.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes loans for which there is no expectation of future cash flows.
|
(2)
|
Represents the proportion of the principal expected to be collected relative to the loan balance as of June 30, 2013.
|
Other assets, at fair value
- Other assets include securities and other assets carried at fair value. As of June 30, 2013, all
other assets were valued by obtaining assessments from third-party dealers.
Impaired loans receivable -
Our impaired
loans receivables, which are held by our consolidated securitization vehicles, include two subordinate interests in mortgage loans with an aggregate principal balance of $18.1 million. These hotel loans are in maturity default as of June 30,
2013. The range of key assumptions used for arriving at the fair value of these loans included capitalization rates between 9% and 15% and assumed occupancy rates between 75% and 83%.
Investment in CT Legacy Asset
- We elected the fair value option of accounting for CT Legacy REITs investment in CT Legacy
Asset, at December 31, 2012. We arrived at the fair value of our Investment in CT Legacy Asset by discounting the net cash flows expected to be distributed to its equity holders after the repayment of the repurchase facility. The key
assumptions for significant unobservable inputs were: (i) a discount rate of 15% and (ii) loss severities applied to the underlying assets.
Fair Value of Financial Instruments
As discussed in Note 2, GAAP requires disclosure of
fair value information about financial instruments, whether or not recognized in the statement of financial position, for which it is practicable to estimate that value. The following table details the carrying amount, face amount, and approximate
fair value of the financial instruments described in Note 2. All fair value estimates, except for cash and cash equivalents, are measured using significant unobservable inputs, or Level 3 inputs, as further described above. ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
December 31, 2012
|
|
|
|
Carrying
Amount
|
|
|
Face
Amount
|
|
|
Fair
Value
|
|
|
Carrying
Amount
|
|
|
Face
Amount
|
|
|
Fair
Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
59,746
|
|
|
$
|
59,746
|
|
|
$
|
59,746
|
|
|
$
|
15,423
|
|
|
$
|
15,423
|
|
|
$
|
15,423
|
|
Restricted cash
|
|
|
21,972
|
|
|
|
21,972
|
|
|
|
21,972
|
|
|
|
14,246
|
|
|
|
14,246
|
|
|
|
14,246
|
|
Loans receivable, net
|
|
|
830,101
|
|
|
|
851,716
|
|
|
|
827,152
|
|
|
|
141,500
|
|
|
|
164,180
|
|
|
|
133,682
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured notes
|
|
|
8,848
|
|
|
|
8,848
|
|
|
|
7,827
|
|
|
|
8,497
|
|
|
|
8,497
|
|
|
|
7,374
|
|
Repurchase obligations
|
|
|
165,239
|
|
|
|
165,239
|
|
|
|
165,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitized debt obligations
|
|
|
74,472
|
|
|
|
74,472
|
|
|
|
51,454
|
|
|
|
139,184
|
|
|
|
139,184
|
|
|
|
89,880
|
|
- 31 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
Note 18. Transactions with Related Parties
Transactions Related to Our Manager
As further described in Note 3, in December 2012 we concluded multiple, related transactions with Blackstone and its affiliates, including: (i) the Investment Management Business Sale, (ii) the
sale of 500,000 shares of our class A common stock for $20.00 per share, and (iii) the execution of a new external management agreement with our Manager. In addition, Blackstone received the right to designate two members of our board of
directors, and exercised that right by designating an employee and one of its senior advisors to replace two former members of our board of directors who resigned effective December 19, 2012.
On March 26, 2013, we amended the external management agreement with our Manager to, among other things, amend our investment guidelines to permit
the investment risk management committee of our board of directors, which consists of only independent directors, to approve any proposed investment by our Manager.
As of June 30, 2013, our consolidated balance sheet included $920,000 of accrued management fees payable to our Manager. During the six months ended June 30, 2013, we paid $71,000 of management
fees to our Manager. In addition, as of June 30, 2013, our consolidated balance sheet includes $382,000 of preferred distributions payable by CT Legacy Partners to an affiliate of our Manager. During the six months ended June 30, 2013, CT
Legacy Partners made aggregate preferred distributions of $2.3 million to an affiliate of our Manager.
During the six months ended
June 30, 2013, our consolidated securitization vehicles paid $651,000 of special servicing fees to CTIMCO, which is an affiliate of our Manager.
There may be conflicts between us and our Manager with respect to certain of the investments in the CT Legacy Partners and CTOPI portfolios where an affiliate of our Manager holds a related
investment that is senior, junior, or
pari passu
to the investments held by these portfolios.
The management agreement with
our Manager excludes from the management fee calculation our interests in CT Legacy Partners, CTOPI, and our CT CDOs, which may result in further conflicts between the economic interests of us and our Manager. Certain of our former employees are now
employed by an affiliate of our Manager. See Note 13 for further discussion of the management agreement with our Manager.
On May 13,
2013, we entered into a joint venture, 42-16 Partners, with an affiliate of our Manager to originate and warehouse loans prior to the completion of our class A common stock offering on May 29, 2013. 42-16 Partners was owned 16.7% by us and
83.3% by an affiliate of our Manager, and originated one senior mortgage loan on May 21, 2013. On May 30, 2013, we ended this relationship with the affiliate of our Manager and purchased 100% of the equity interests in 42-16 Partners held
by the affiliate our Manager using proceeds from the sale of our class A common stock and, as a result, 42-16 Partners became a 100% owned and consolidated subsidiary. We recorded a $193,000 charge to non-controlling interest as a result of the
purchase of these equity interests at their fair value, rather than GAAP book value.
An affiliate of our Manager purchased 1,960,784 shares
of our class A common stock as part of our stock offering on May 22, 2013. These shares were purchased for $25.50 each, the same price offered to non-affiliated purchasers. This affiliate owned class A common stock representing 8.5% of
outstanding class A common stock and stock units as of July 25, 2013.
Other Related Party Transactions
In conjunction with the Investment Management Business Sale, we entered into a letter agreement with W.R. Berkley Corporation, or WRBC, pursuant to which
we agreed not to undertake any offering of our class A common stock, or other equity securities, in an aggregate amount greater than $30.0 million without prior approval of a majority of the independent members of our board of directors. This
approval was obtained in conjunction with our May 2013 offering of Class A common stock, and no further approval requirement remains. WRBC beneficially owned class A common stock representing approximately 1.3% of our outstanding class A
common stock and stock units as of July 25, 2013, and a member of our board of directors is an employee of WRBC.
Note 19. Segment Reporting
We operate our real estate finance business through a Loan Origination segment and a CT Legacy Portfolio segment. The Loan Origination
segment includes our activities associated with the origination and acquisition of mortgage loans, the capitalization of our loan portfolio, and the costs associated with operating our business generally. The CT Legacy Portfolio segment includes our
activities specifically related to CT Legacy Partners, CT
- 32 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
CDO I, and our equity investment in CTOPI. Our Manager identifies, makes operating decisions, and assesses the performance of each of our business segments based on financial and operating data
and metrics generated from our internal information systems.
Our Loan Origination business commenced during 2013. Accordingly, no comparable
segment data exists for 2012 or any other prior period, and we have therefore not retrospectively restated our previously reported information.
The following table presents our results of operations for each segment for the three months ended June 30, 2013 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
Origination
|
|
|
CT Legacy
Portfolio
|
|
|
Total
|
|
Income from loans and other investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and related income
|
|
$
|
1,908
|
|
|
$
|
4,109
|
|
|
$
|
6,017
|
|
Less: Interest and related expenses
|
|
|
168
|
|
|
|
1,138
|
|
|
|
1,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from loans and other investments, net
|
|
|
1,740
|
|
|
|
2,971
|
|
|
|
4,711
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
2,153
|
|
|
|
1,274
|
|
|
|
3,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
2,153
|
|
|
|
1,274
|
|
|
|
3,427
|
|
|
|
|
|
Valuation allowance on loans held-for-sale
|
|
|
|
|
|
|
2,000
|
|
|
|
2,000
|
|
Unrealized gain on investments at fair value
|
|
|
|
|
|
|
4,000
|
|
|
|
4,000
|
|
Gain on extinguishment of debt
|
|
|
|
|
|
|
38
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(413
|
)
|
|
|
7,735
|
|
|
|
7,322
|
|
Income tax provision
|
|
|
2
|
|
|
|
552
|
|
|
|
554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
($
|
415
|
)
|
|
$
|
7,183
|
|
|
$
|
6,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to non-controlling interests
|
|
|
|
|
|
|
(4,020
|
)
|
|
|
(4,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Blackstone Mortgage Trust, Inc.
|
|
($
|
415
|
)
|
|
$
|
3,163
|
|
|
$
|
2,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All consolidated revenues for the three months ended June 30, 2013 were generated from external domestic sources.
There were no transactions between our operating segments during the six months ended June 30, 2013.
- 33 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
The following table presents the key components of our results of operations for each segment for the
six months ended June 30, 2013 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
|
|
|
Legacy
|
|
|
|
|
|
|
Origination
|
|
|
Portfolio
|
|
|
Total
|
|
Income from loans and other investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and related income
|
|
$
|
1,908
|
|
|
$
|
5,565
|
|
|
$
|
7,473
|
|
Less: Interest and related expenses
|
|
|
168
|
|
|
|
1,915
|
|
|
|
2,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from loans and other investments, net
|
|
|
1,740
|
|
|
|
3,650
|
|
|
|
5,390
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
2,883
|
|
|
|
2,582
|
|
|
|
5,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
2,883
|
|
|
|
2,582
|
|
|
|
5,465
|
|
|
|
|
|
Valuation allowance on loans held-for-sale
|
|
|
|
|
|
|
1,800
|
|
|
|
1,800
|
|
Unrealized gain on investments at fair value
|
|
|
|
|
|
|
4,000
|
|
|
|
4,000
|
|
Gain on extinguishment of debt
|
|
|
|
|
|
|
38
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(1,143
|
)
|
|
|
6,906
|
|
|
|
5,763
|
|
Income tax provision
|
|
|
40
|
|
|
|
553
|
|
|
|
593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
($
|
1,183
|
)
|
|
$
|
6,353
|
|
|
$
|
5,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to non-controlling interests
|
|
|
|
|
|
|
(5,537
|
)
|
|
|
(5,537
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Blackstone Mortgage Trust, Inc.
|
|
($
|
1,183
|
)
|
|
$
|
816
|
|
|
($
|
367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All consolidated revenues for the six months ended June 30, 2013 were generated from external domestic sources.
There were no transactions between our operating segments during the six months ended June 30, 2013.
- 34 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
The following table presents our consolidated statement of financial condition for each segment as of
June 30, 2013 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
Origination
|
|
|
Legacy
Portfolio
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
59,746
|
|
|
$
|
|
|
|
$
|
59,746
|
|
Restricted cash
|
|
|
|
|
|
|
21,972
|
|
|
|
21,972
|
|
Loans receivable, net
|
|
|
753,101
|
|
|
|
77,000
|
|
|
|
830,101
|
|
Loans held-for-sale, net
|
|
|
|
|
|
|
3,800
|
|
|
|
3,800
|
|
Loans receivable, at fair value
|
|
|
|
|
|
|
117,549
|
|
|
|
117,549
|
|
Equity investments in unconsolidated subsidiaries
|
|
|
|
|
|
|
23,240
|
|
|
|
23,240
|
|
Accrued interest receivable, prepaid expenses, and other assets
|
|
|
5,912
|
|
|
|
24,785
|
|
|
|
30,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
818,759
|
|
|
$
|
268,346
|
|
|
$
|
1,087,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities & Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other liabilities
|
|
$
|
4,827
|
|
|
$
|
32,052
|
|
|
$
|
36,879
|
|
Secured notes
|
|
|
|
|
|
|
8,848
|
|
|
|
8,848
|
|
Repurchase obligations
|
|
|
165,239
|
|
|
|
|
|
|
|
165,239
|
|
Securitized debt obligations
|
|
|
|
|
|
|
74,472
|
|
|
|
74,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
170,066
|
|
|
|
115,372
|
|
|
|
285,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Blackstone Mortgage Trust, Inc. stockholders equity
|
|
|
648,693
|
|
|
|
63,996
|
|
|
|
712,689
|
|
Non-controlling interests
|
|
|
|
|
|
|
88,978
|
|
|
|
88,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
648,693
|
|
|
|
152,974
|
|
|
|
801,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
818,759
|
|
|
$
|
268,346
|
|
|
$
|
1,087,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 20. Subsequent Events
Subsequent to quarter-end, we originated an additional five loans with total commitments of $289.1 million, of which an aggregate
$233.3 million was funded at closing, and we borrowed $254.0 million under existing repurchase facilities.
Also subsequent to quarter-end, we
closed two additional asset-specific repurchase agreements with Wells Fargo, which provide an aggregate $91.8 million of credit. Borrowings under these agreements are not recourse to us, and are term-matched to their collateral assets.
On July 26, 2013, we amended our master repurchase agreement with Citibank to provide for a second $250.0 million tranche of potential
advances. The second tranche is subject to a one year availability period, during which new financing transactions can be initiated. All other terms, including the maturity dates, for the second tranche advances are the same as
the original $250 million tranche.
Also on July 26, 2013, we filed an S-3 universal shelf registration statement with the SEC, which permits
us to periodically offer various debt and equity securities to the public. Any offerings of common stock or securities convertible into common stock remain subject to the 180-day lock-up agreement we executed in conjunction with our May 2013
offering of class A common stock.
- 35 -