UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2016
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission File Number: 001-14788
Blackstone Mortgage Trust, Inc.
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
345 Park Avenue, 42nd Floor
New York, New York 10154
(Address of principal executive offices)(Zip Code)
(212) 655-0220
(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
¨
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of the Registrant’s outstanding shares of class A common stock, par value $0.01 per share, as of April 19, 2016 was 93,912,674.
TABLE OF CONTENTS
FINANCIAL INFORMATION
FINANCIAL STATEMENTS
Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015
Consolidated Statements of Operations for the Three Months Ended March 31, 2016 and 2015
Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2016 and 2015
Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2016 and 2015
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015
Notes to Consolidated Financial Statements
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CONTROLS AND PROCEDURES
OTHER INFORMATION
LEGAL PROCEEDINGS
RISK FACTORS
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
DEFAULTS UPON SENIOR SECURITIES
MINE SAFETY DISCLOSURES
EXHIBITS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets (Unaudited)
(in thousands, except share data)
Assets
Cash and cash equivalents
Restricted cash
Loans receivable, net
Equity investments in unconsolidated subsidiaries
Other assets
Total Assets
Liabilities and Equity
Accounts payable, accrued expenses, and other liabilities
Secured debt agreements
Loan participations sold
Convertible notes, net
Total Liabilities
Commitments and contingencies
Equity
Class A common stock, $0.01 par value, 200,000,000 shares authorized, 93,912,409 and 93,702,326 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total Blackstone Mortgage Trust, Inc. stockholders’ equity
Non-controlling interests
Total Equity
Total Liabilities and Equity
See accompanying notes to consolidated financial statements.
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Consolidated Statements of Operations (Unaudited)
(in thousands, except share and per share data)
Income from loans and other investments
Interest and related income
Less: Interest and related expenses
Income from loans and other investments, net
Other expenses
Management and incentive fees
General and administrative expenses
Total other expenses
Gain on investments at fair value
Income from equity investments in unconsolidated subsidiaries
Income before income taxes
Income tax provision
Net income
Net income attributable to non-controlling interests
Net income attributable to Blackstone Mortgage Trust, Inc.
Net income per share of common stock basic and diluted
Weighted-average shares of common stock outstanding basic and diluted
Dividends declared per share of common stock
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Consolidated Statements of Comprehensive Income (Unaudited)
(in thousands)
Other comprehensive loss
Unrealized gain (loss) on foreign currency remeasurement
Unrealized (loss) gain on derivative financial instruments
Comprehensive income
Comprehensive income attributable to non-controlling interests
Comprehensive income attributable to Blackstone Mortgage Trust, Inc.
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Consolidated Statements of Changes in Equity (Unaudited)
Balance at December 31, 2014
Shares of class A common stock issued, net
Restricted class A common stock earned
Dividends reinvested
Deferred directors’ compensation
Dividends declared on common stock
Distributions to non-controlling interests
Balance at March 31, 2015
Balance at December 31, 2015
Balance at March 31, 2016
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Consolidated Statements of Cash Flows (Unaudited)
Cash flows from operating activities
Adjustments to reconcile net income to net cash provided by operating activities
Non-cash compensation expense
Distributions of income from unconsolidated subsidiaries
Amortization of deferred interest on loans
Amortization of deferred financing costs and premiums/discount on debt obligations
Changes in assets and liabilities, net
Net cash provided by operating activities
Cash flows from investing activities
Originations and fundings of loans receivable
Principal collections and proceeds from loans receivable and other assets
Origination and exit fees received on loans receivable
Decrease (increase) in restricted cash
Net cash used in investing activities
Cash flows from financing activities
Borrowings under secured debt agreements
Repayments under secured debt agreements
Proceeds from sales of loan participations
Repayment of loan participations
Payment of deferred financing costs
Receipts under derivative financial instruments
Net proceeds from issuance of class A common stock
Dividends paid on class A common stock
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effects of currency translation on cash and cash equivalents
Cash and cash equivalents at end of period
Supplemental disclosure of cash flows information
Payments of interest
Payments of income taxes
Supplemental disclosure of non-cash investing and financing activities
Dividends declared, not paid
Principal payments held by servicer
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(Unaudited)
1. ORGANIZATION
References herein to “Blackstone Mortgage Trust,” “Company,” “we,” “us” or “our” refer to Blackstone Mortgage Trust, Inc. and its subsidiaries unless the context specifically requires otherwise.
Blackstone Mortgage Trust is a real estate finance company that originates and purchases senior loans collateralized by properties in North America and Europe. We are externally managed by BXMT Advisors L.L.C., or our Manager, a subsidiary of The Blackstone Group L.P., or Blackstone, and are a real estate investment trust, or REIT, traded on the New York Stock Exchange, or NYSE, under the symbol “BXMT.” We are headquartered in New York City.
We conduct our operations as a REIT for U.S. federal income tax purposes. We generally will not be subject to U.S. federal income taxes on our taxable income to the extent that we annually distribute all of our net taxable income to stockholders and maintain our qualification as a REIT. We also operate our business in a manner that permits us to maintain our exclusion from registration under the Investment Company Act of 1940, as amended. We are organized as a holding company and conduct our business primarily through our various subsidiaries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The consolidated financial statements, including the notes thereto, are unaudited and exclude some of the disclosures required in audited financial statements. Management believes it has made all necessary adjustments, consisting of only normal recurring items, so that the consolidated financial statements are presented fairly and that estimates made in preparing its consolidated financial statements are reasonable and prudent. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. The accompanying unaudited consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed with the Securities and Exchange Commission.
Basis of Presentation
The accompanying consolidated financial statements include, on a consolidated basis, our accounts, the accounts of our wholly-owned subsidiaries, majority-owned subsidiaries, and variable interest entities, or VIEs, of which we are the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. Certain of the assets and credit of our consolidated subsidiaries are not available to satisfy the debt or other obligations of us, our affiliates, or other entities.
One of our subsidiaries, CT Legacy Partners, LLC, or CT Legacy Partners, accounts for its operations in accordance with industry-specific GAAP accounting guidance for investment companies, pursuant to which it reports its investments at fair value. We have retained this accounting treatment in consolidation and, accordingly, report the loans and other investments of CT Legacy Partners at fair value on our consolidated balance sheets.
Certain reclassifications have been made in the presentation of the prior period consolidated statement of cash flows to conform to the current period presentation.
Principles of Consolidation
We consolidate all entities that we control through either majority ownership or voting rights. In addition, we consolidate all VIEs of which we are considered the primary beneficiary. VIEs are defined as entities in which equity investors (i) do not have the characteristics of a controlling financial interest and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The entity that consolidates a VIE is known as its primary beneficiary and is generally the entity with (i) the power to direct the activities that most significantly affect the VIE’s economic performance and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE.
As of both March 31, 2016 and December 31, 2015, we did not consolidate any VIEs.
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Notes to Consolidated Financial Statements (continued)
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may ultimately differ from those estimates.
Revenue Recognition
Interest income from our loans receivable is recognized over the life of each investment using the effective interest method and is recorded on the accrual basis. Recognition of fees, premiums, and discounts associated with these investments is deferred until the loan is advanced and is then recorded over the term of the loan as an adjustment to yield. Income accrual is generally suspended for loans at the earlier of the date at which payments become 90 days past due or when, in the opinion of our Manager, recovery of income and principal becomes doubtful. Income is then recorded on the basis of cash received until accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed. In addition, for loans we originate, the related origination expenses are deferred and recognized as a component of interest income, however expenses related to loans we acquire are included in general and administrative expenses as incurred.
Cash and Cash Equivalents
Cash and cash equivalents represent cash held in banks, cash on hand, and liquid investments with original maturities of three months or less. We may have bank balances in excess of federally insured amounts; however, we deposit our cash and cash equivalents with high credit-quality institutions to minimize credit risk exposure. We have not experienced, and do not expect, any losses on our cash or cash equivalents.
Restricted Cash
We classify the cash balances held by CT Legacy Partners as restricted because, while these cash balances are available for use by CT Legacy Partners for its operations, they cannot be used by us until our allocable share is distributed from CT Legacy Partners and cannot be commingled with any of our unrestricted cash balances.
Loans Receivable and Provision for Loan Losses
We originate and purchase commercial real estate debt and related instruments generally to be held as long-term investments at amortized cost. We are required to periodically evaluate each of these loans for possible impairment. Impairment is indicated when it is deemed probable that we will not be able to collect all amounts due to us pursuant to the contractual terms of the loan. If a loan is determined to be impaired, we write down the loan through a charge to the provision for loan losses. Impairment of these loans, which are collateral dependent, is measured by comparing the estimated fair value of the underlying collateral, less costs to sell, to the book value of the respective loan. These valuations require significant judgments, which include assumptions regarding capitalization rates, leasing, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, loan sponsorship, actions of other lenders, and other factors deemed necessary by our Manager. Actual losses, if any, could ultimately differ from these estimates.
Our Manager performs a quarterly review of our portfolio of loans. In conjunction with this review, our Manager assesses the risk factors of each loan, and assigns a risk rating based on a variety of factors, including, without limitation, loan-to-value ratio, or LTV, debt yield, property type, geographic and local market dynamics, physical condition, cash flow volatility, leasing and tenant profile, loan structure and exit plan, and project sponsorship. Based on a 5-point scale, our loans are rated “1” through “5,” from less risk to greater risk, which ratings are defined as follows:
High Risk/Potential for Loss: A loan that has a risk of realizing a principal loss.
Impaired/Loss Likely: A loan that has a very high risk of realizing a principal loss or has otherwise incurred a principal loss.
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During the second quarter of 2015, we acquired a portfolio of loans from General Electric Capital Corporation and certain of its affiliates, or the GE portfolio, for a total purchase price of $4.7 billion. We allocated the aggregate purchase price between each loan based on its fair value relative to the overall portfolio, which allocation resulted in purchase discounts or premiums determined on an asset-by-asset basis. Each loan will accrete from its allocated purchase price to its expected collection value over the life of the loan, consistent with the other loans in our portfolio.
Equity Investments in Unconsolidated Subsidiaries
Our carried interest in CT Opportunity Partners I, LP, or CTOPI, is accounted for using the equity method. CTOPI’s assets and liabilities are not consolidated into our financial statements due to our determination that (i) it is not a VIE and (ii) the other investors in CTOPI have sufficient rights to preclude consolidation by us. As such, we report our allocable percentage of the net assets of CTOPI on our consolidated balance sheets. The recognition of income from CTOPI is generally deferred until cash is collected or appropriate contingencies have been eliminated.
Derivative Financial Instruments
We classify all derivative financial instruments as either other assets or other liabilities on our consolidated balance sheets at fair value.
On the date we enter into a derivative contract, we designate each contract as (i) a hedge of a net investment in a foreign operation, or net investment hedge, (ii) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability, or cash flow hedge, (iii) a hedge of a recognized asset or liability, or fair value hedge, or (iv) a derivative instrument not to be designated as a hedging derivative, or freestanding derivative. For all derivatives other than those designated as freestanding derivatives, we formally document our hedge relationships and designation at inception. This documentation includes the identification of the hedging instruments and the hedged items, its risk management objectives, strategy for undertaking the hedge transaction and our evaluation of the effectiveness of its hedged transaction.
On a quarterly basis, we also formally assess whether the derivative we designated in each hedging relationship is expected to be, and has been, highly effective in offsetting changes in the value or cash flows of the hedged items. If it is determined that a derivative is not highly effective at hedging the designated exposure, hedge accounting is discontinued. Changes in the fair value of the effective portion of our hedges are reflected in accumulated other comprehensive income (loss) on our consolidated financial statements. Changes in the fair value of the ineffective portion of our hedges are included in net income. Amounts are reclassified out of accumulated other comprehensive income (loss) and into net income when the hedged item is either sold or substantially liquidated. To the extent a derivative does not qualify for hedge accounting and is deemed a freestanding derivative, the changes in its value are included in net income.
Repurchase Agreements
We record investments financed with repurchase agreements as separate assets and the related borrowings under any repurchase agreements are recorded as separate liabilities on our consolidated balance sheets. Interest income earned on the investments and interest expense incurred on the repurchase agreements are reported separately on our consolidated statements of operations.
Loan Participations Sold
Loan participations sold represent senior interests in certain loans that we sold, however we present such loan participations sold as liabilities because these arrangements do not qualify as sales under GAAP. These participations are non-recourse and remain on our consolidated balance sheet until the loan is repaid. The gross presentation of loan participations sold does not impact stockholders’ equity or net income.
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Convertible Notes
The “Debt with Conversion and Other Options” Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, requires the liability and equity components of convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement, to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The initial proceeds from the sale of convertible notes are allocated between a liability component and an equity component in a manner that reflects interest expense at the rate of similar nonconvertible debt that could have been issued at such time. The equity component represents the excess initial proceeds received over the fair value of the liability component of the notes as of the date of issuance. We measured the estimated fair value of the debt component of our convertible notes as of the issuance date based on our nonconvertible debt borrowing rate. The equity component of the convertible notes is reflected within additional paid-in capital on our consolidated balance sheet, and the resulting debt discount is amortized over the period during which the convertible notes are expected to be outstanding (through the maturity date) as additional non-cash interest expense. The additional non-cash interest expense attributable to the convertible notes will increase in subsequent periods through the maturity date as the notes accrete to their par value over the same period.
Deferred Financing Costs
The deferred financing costs that are included as a reduction in the net book value of the related liability on our consolidated balance sheets include issuance and other costs related to our debt obligations. These costs are amortized as interest expense using the effective interest method over the life of the related obligations.
Fair Value of Financial Instruments
The “Fair Value Measurements and Disclosures” Topic, or ASC 820, defines fair value, establishes a framework for measuring fair value, and requires certain disclosures about fair value measurements under GAAP. Specifically, this guidance defines fair value based on exit price, or the price that would be received upon the sale of an asset or the transfer of a liability in an orderly transaction between market participants at the measurement date.
ASC 820 also establishes a fair value hierarchy that prioritizes and ranks the level of market price observability used in measuring financial instruments. Market price observability is affected by a number of factors, including the type of financial instrument, the characteristics specific to the financial instrument, and the state of the marketplace, including the existence and transparency of transactions between market participants. Financial instruments with readily available quoted prices in active markets generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Financial instruments measured and reported at fair value are classified and disclosed based on the observability of inputs used in the determination, as follows:
Level 1: Generally includes only unadjusted quoted prices that are available in active markets for identical financial instruments as of the reporting date.
Level 2: Pricing inputs include quoted prices in active markets for similar instruments, quoted prices in less active or inactive markets for identical or similar instruments where multiple price quotes can be obtained, and other observable inputs, such as interest rates, yield curves, credit risks, and default rates.
Level 3: Pricing inputs are unobservable for the financial instruments and include situations where there is little, if any, market activity for the financial instrument. These inputs require significant judgment or estimation by management of third parties when determining fair value and generally represent anything that does not meet the criteria of Levels 1 and 2.
The estimated value of each asset reported at fair value using Level 3 inputs is determined by an internal committee composed of members of senior management of our Manager, including our Chief Executive Officer, Chief Financial Officer, and other senior officers.
Certain of our other assets are reported at fair value either (i) on a recurring basis, as of each quarter-end, or (ii) on a nonrecurring basis, as a result of impairment or other events. Our assets that are recorded at fair value are discussed further in Note 14. We generally value our assets recorded at fair value by either (i) discounting expected cash flows based on assumptions regarding the collection of principal and interest and estimated market rates, or (ii) obtaining assessments from third-party dealers. For collateral-dependent loans that are identified as impaired, we measure impairment by comparing our Manager’s estimation of fair value of the underlying collateral, less costs to sell, to the book value of the respective loan. These valuations may require significant judgments, which include assumptions regarding capitalization rates, leasing, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, loan sponsorship, actions of other lenders, and other factors deemed necessary by our Manager.
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We are also required by GAAP to disclose fair value information about financial instruments, that are not otherwise reported at fair value in our consolidated balance sheet, to the extent it is practicable to estimate a fair value for those instruments. These disclosure requirements exclude certain financial instruments and all non-financial instruments.
The following methods and assumptions are used to estimate the fair value of each class of financial instruments, for which it is practicable to estimate that value:
Cash and cash equivalents: The carrying amount of cash on deposit and in money market funds approximates fair value.
Restricted cash: The carrying amount of restricted cash approximates fair value.
Loans receivable, net: The fair values for these loans were estimated by our Manager based on discounted cash flow methodology taking into consideration factors, including capitalization rates, discount rates, leasing, occupancy rates, availability and cost of financing, exit plan, sponsorship, actions of other lenders, and indications of market value from other market participants.
Derivative financial instruments: The fair value of our foreign currency contracts and interest rates caps was valued using advice from a third party derivative specialist, based on contractual cash flows and observable inputs comprising foreign currency rates and credit spreads.
Secured debt agreements: The fair values for these instruments were estimated based on the rate at which a similar credit facility would have currently priced.
Loan participations sold: The fair value of these instruments were estimated based on the value of the related loan receivable asset.
Convertible notes, net: The convertible notes are actively traded and their fair values were obtained using quoted market prices for these instruments.
Income Taxes
Our financial results generally do not reflect provisions for current or deferred income taxes on our REIT taxable income. We believe that we operate in a manner that will continue to allow us to be taxed as a REIT and, as a result, we generally do not expect to pay substantial corporate level taxes other than those payable by our taxable REIT subsidiaries. If we were to fail to meet these requirements, we may be subject to federal, state, and local income tax on current and past income, and penalties. Refer to Note 12 for additional information.
Stock-Based Compensation
Our stock-based compensation consists of awards issued to our Manager and certain of its employees that vest over the life of the awards as well as deferred stock units issued to certain members of our Board of Directors. Stock-based compensation expense is recognized for these awards in net income on a variable basis over the applicable vesting period of the awards, based on the value of our class A common stock. Refer to Note 13 for additional information.
Earnings per Share
Basic earnings per share, or Basic EPS, is computed in accordance with the two-class method and is based on the net earnings allocable to our class A common stock, including restricted class A common stock and deferred stock units, divided by the weighted-average number of shares of class A common stock, including restricted class A common stock and deferred stock units outstanding during the period. Our restricted class A common stock is considered a participating security, as defined by GAAP, and has been included in our Basic EPS under the two-class method as these restricted shares have the same rights as our other shares of class A common stock, including participating in any gains or losses.
Diluted earnings per share, or Diluted EPS, is determined using the treasury stock method, and is based on the net earnings allocable to our class A common stock, including restricted class A common stock and deferred stock units, divided by the weighted-average number of shares of class A common stock, including restricted class A common stock and deferred stock units. Refer to Note 10 for additional discussion of earnings per share.
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Foreign Currency
In the normal course of business, we enter into transactions not denominated in United States, or U.S., dollars. Foreign exchange gains and losses arising on such transactions are recorded as a gain or loss in our consolidated statements of operations. In addition, we consolidate entities that have a non-U.S. dollar functional currency. Non-U.S. dollar denominated assets and liabilities are translated to U.S. dollars at the exchange rate prevailing at the reporting date and income, expenses, gains, and losses are translated at the average exchange rate over the applicable period. Cumulative translation adjustments arising from the translation of non-U.S. dollar denominated subsidiaries are recorded in other comprehensive income.
Underwriting Commissions and Offering Costs
Underwriting commissions and offering costs incurred in connection with common stock offerings are reflected as a reduction of additional paid-in capital. Costs incurred that are not directly associated with the completion of a common stock offering are expensed when incurred.
Recent Accounting Pronouncements
In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting (Topic 718),” or ASU 2016-09. ASU 2016-09 requires all income tax effects of share-based payment awards to be recognized in the income statement when the awards vest or are settled. ASU 2016-09 also allows an employer to repurchase more of an employee’s shares for tax withholding purposes than is permitted under current guidance without triggering liability accounting. Finally, ASU 2016-09 allows a policy election to account for forfeitures as they occur. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. We do not anticipate that the adoption of ASU 2016-09 will have a material impact on our consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 2015-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” or ASU 2014-15. ASU 2014-15 introduces an explicit requirement for management to assess and provide certain disclosures if there is substantial doubt about an entity’s ability to continue as a going concern. ASU 2014-15 is effective for the annual period ending after December 15, 2016. We do not anticipate that the adoption of ASU 2014-15 will have a material impact on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” or ASU 2014-09. ASU 2014-09 broadly amends the accounting guidance for revenue recognition. ASU 2014-09 is effective for the first interim or annual period beginning after December 15, 2017, and is to be applied retrospectively. We do not anticipate that the adoption of ASU 2014-09 will have a material impact on our consolidated financial statements.
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3. LOANS RECEIVABLE
During the three months ended March 31, 2016, we originated $861.3 million of loans, and funded $586.1 million under new and existing loans.
The following table details overall statistics for our loans receivable portfolio as of March 31, 2016 ($ in thousands):
Number of loans
Principal balance
Net book value
Unfunded loan commitments(1)
Weighted-average cash coupon(2)
Weighted-average all-in yield(2)
Weighted-average maximum maturity (years)(3)
Unfunded commitments will primarily be funded to finance property improvements or lease-related expenditures by the borrowers. These future commitments will expire over the next four years.
As of March 31, 2016, our floating rate loans were indexed to various benchmark rates, with 83% of floating rate loans indexed to USD LIBOR. In addition, $146.9 million of our floating rate loans earned interest based on floors that are above the applicable index, with an average floor of 1.80%, as of March 31, 2016. In addition to cash coupon, all-in yield includes the amortization of deferred origination fees, loan origination costs, purchase discounts, and accrual of both extension and exit fees. Cash coupon and all-in yield for the total portfolio assume applicable floating benchmark rate for weighted-average calculation.
Maximum maturity assumes all extension options are exercised by the borrower, however our loans may be repaid prior to such date. As of March 31, 2016, 63% of our loans were subject to yield maintenance or other prepayment restrictions and 37% were open to repayment by the borrower without penalty.
The following table details overall statistics for our loans receivable portfolio as of December 31, 2015 ($ in thousands):
As of December 31, 2015, our floating rate loans were indexed to various benchmark rates, with 84% of floating rate loans indexed to USD LIBOR. In addition, $147.9 million of our floating rate loans earned interest based on floors that are above the applicable index, with an average floor of 1.80%, as of December 31, 2015. In addition to cash coupon, all-in yield includes the amortization of deferred origination fees, loan origination costs, purchase discounts, and accrual of both extension and exit fees. Cash coupon and all-in yield for the total portfolio assume applicable floating benchmark rate for weighted-average calculation.
Maximum maturity assumes all extension options are exercised by the borrower, however our loans may be repaid prior to such date. As of December 31, 2015, 64% of our loans were subject to yield maintenance or other prepayment restrictions and 36% were open to repayment by the borrower without penalty.
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Activity relating to our loans receivable portfolio was as follows ($ in thousands):
December 31, 2015
Loan originations and fundings
Loan repayments
Unrealized gain on foreign currency translation
Deferred fees and other items(1)
Amortization of fees and other items(1)
March 31, 2016
Other items primarily consist of purchase discounts or premiums, exit fees, and deferred origination expenses.
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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 ($ in thousands):
Asset Type
Senior loans(1)
Subordinate loans(2)
Property Type
Office
Hotel
Manufactured housing
Retail
Multifamily
Condominium
Other
Geographic Location
United States
Northeast
Southeast
West
Southwest
Midwest
Northwest
Subtotal
International
United Kingdom
Canada
Germany
Spain
Netherlands
Total
Includes senior mortgages and similar credit quality loans, including related contiguous subordinate loans, and pari passu participations in senior mortgage loans.
Includes mezzanine loans and subordinate interests in mortgages.
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Loan Risk Ratings
As further described in Note 2, our Manager evaluates our loan portfolio on a quarterly basis. In conjunction with our quarterly loan portfolio review, our Manager assesses the risk factors of each loan, and assigns a risk rating based on several factors. Factors considered in the assessment include, but are not limited to, risk of loss, current LTV, debt yield, collateral performance, structure, exit plan, and sponsorship. Loans are rated “1” (less risk) through “5” (greater risk), which ratings are defined in Note 2.
The following table allocates the principal balance and net book value of our loans receivable based on our internal risk ratings ($ in thousands):
Risk Rating
1
We did not have any impaired loans, nonaccrual loans, or loans in maturity default as of March 31, 2016 or December 31, 2015. During the third quarter of 2015, one of the loans in our portfolio experienced a maturity default as a result of not meeting certain loan covenants. During the fourth quarter of 2015 and the first quarter of 2016, the loan was modified to include, among other changes: a redetermination of asset release pricing; an additional borrower contribution of capital; and an extension of the maturity date to August 31, 2016. During the three months ended March 31, 2016, two of the assets collateralizing the $113.3 million loan were sold and the loan was partially repaid by $59.3 million, resulting in a net book value of $53.6 million as of March 31, 2016. As of March 31, 2016 and December 31, 2015, the borrower was current with all terms of the loan and we expect to collect all contractual amounts due thereunder.
4. EQUITY INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES
As of March 31, 2016, our equity investments in unconsolidated subsidiaries consisted solely of our carried interest in CTOPI, a fund sponsored and managed by an affiliate of our Manager. Activity relating to our equity investments in unconsolidated subsidiaries was as follows ($ in thousands):
Total as of December 31, 2015
Distributions
Income allocation(1)
Total as of March 31, 2016
In instances where we have not received cash or all appropriate contingencies have not been eliminated, we have deferred the recognition of promote revenue allocated to us from CTOPI in respect of our carried interest in CTOPI, and recorded an offsetting liability as a component of accounts payable, accrued expenses, and other liabilities on our consolidated balance sheets.
Our carried interest in CTOPI entitles us to earn promote revenue in an amount equal to 17.7% of the fund’s profits, after a 9% preferred return and 100% return of capital to the CTOPI partners. As of March 31, 2016, we had been allocated $2.8 million of promote revenue from CTOPI based on a hypothetical liquidation of the fund at its net asset value. Accordingly, we have recognized this allocation as an equity investment in CTOPI on our consolidated balance sheets. Generally, we defer recognition of income from CTOPI until cash is received or earned, pending distribution, and appropriate contingencies have been eliminated. We recognized $138,000 and $3.9 million of promote income from CTOPI in respect of our carried interest and recorded such amounts as income in our consolidated statement of operations during the three months ended March 31, 2016 and 2015, respectively. This carried interest was either received in cash, or was earned and available in cash at CTOPI pending future distribution as of each respective balance sheet date.
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CTOPI Incentive Management Fee Grants
In January 2011, we created a management compensation pool for employees equal to 45% of the CTOPI promote distributions received by us. Approximately 68% of the pool is two-thirds vested as of March 31, 2016, with the remainder contingent on continued employment with an affiliate of our Manager and upon our receipt of promote distributions from CTOPI. The remaining 32% of the pool is fully vested as a result of an acceleration event. During the three months ended March 31, 2016 and 2015, we recognized $170,000 and $1.8 million, respectively, under the CTOPI incentive plan, which amounts were recognized as a component of general and administrative expenses in our consolidated statement of operations.
5. OTHER ASSETS
The following table details the components of our other assets ($ in thousands):
Principal and interest payments held by servicer(1)
Accrued interest receivable
Real estate debt and equity investments, at fair value(2)
Prepaid expenses
Prepaid taxes
Represents loan principal and interest payments held by our third-party loan servicer as of the balance sheet date which were remitted to us during the subsequent remittance cycle.
Real estate debt and equity investments consists of assets held by CT Legacy Partners and are measured at fair value.
6. SECURED DEBT AGREEMENTS
Our secured debt agreements included revolving repurchase facilities, the GE portfolio acquisition facility, and asset-specific financings. The following table details our secured debt agreements ($ in thousands):
Revolving repurchase facilities
GE portfolio acquisition facility
Asset-specific financings
Total secured debt agreements
Deferred financing costs(1)
Net book value of secured debt
Costs incurred in connection with our secured debt agreements are recorded on our consolidated balance sheet when incurred and recognized as a component of interest expense over the life of each related agreement.
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Revolving Repurchase Facilities
The following table details our revolving repurchase facilities ($ in thousands):
Lender
Wells Fargo(4)
Bank of America
JP Morgan(5)
MetLife
Citibank(6)
Morgan Stanley(7)
Société Générale(8)
Maximum facility size represents the largest amount of borrowings available under a given facility once sufficient collateral assets have been approved by the lender and pledged by us.
Represents the principal balance of the collateral assets.
Potential borrowings represents the total amount we could draw under each facility based on collateral already approved and pledged. When undrawn, these amounts are immediately available to us at our sole discretion under the terms of each revolving credit facility.
As of both March 31, 2016 and December 31, 2015, the Wells Fargo maximum facility size was composed of a general $1.0 billion facility size and $172.0 million of additional capacity related solely to a specific asset with a repurchase date of July 30, 2016.
As of March 31, 2016, the JP Morgan maximum facility size was composed of a general $500.0 million facility size, under which U.S. Dollars and British Pound Sterling borrowings are contemplated, and $262.5 million of additional capacity related solely to a specific asset with a repurchase date of January 9, 2018. As of December 31, 2015, the JP Morgan maximum facility was composed of general $250.0 million facility size plus a general £153.0 million ($226.7 million) facility size provided under a related agreement that contemplated U.S. Dollars and British Pound Sterling borrowings and, $262.5 million of additional capacity related solely to a specific asset with a repurchase date of January 9, 2018, and additional capacity of £32.3 million ($47.8 million) on the £153.0 million facility.
As of both March 31, 2016 and December 31, 2015, the Citibank maximum facility size was composed of a general $500.0 million facility size and $37.5 million of additional capacity related solely to a specific asset with a repurchase date of October 9, 2017.
The Morgan Stanley maximum facility size represents a £250.0 million facility size which was translated to $359.5 million as of March 31, 2016, and $370.4 million as of December 31, 2015.
The Société Générale maximum facility size represents a €400.0 million facility size which was translated to $453.5 million as of March 31, 2016, and $437.3 million as of December 31, 2015.
The weighted-average outstanding balance of our revolving repurchase facilities was $3.1 billion for the three months ended March 31, 2016. As of March 31, 2016, we had aggregate borrowings of $3.3 billion outstanding under our revolving repurchase facilities, with a weighted-average cash coupon of LIBOR plus 1.83% per annum, a weighted-average all-in cost of credit, including associated fees and expenses, of LIBOR plus 2.03% per annum, and a weighted-average advance rate of 79.2%. As of March 31, 2016, outstanding borrowings under these facilities had a weighted-average maturity, excluding extension options and term-out provisions, of 1.3 years.
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The weighted-average outstanding balance of our revolving repurchase facilities was $2.8 billion for the three months ended December 31, 2015. As of December 31, 2015, we had aggregated borrowings of $2.9 billion outstanding under our revolving repurchase facilities, with a weighted-average cash coupon of LIBOR plus 1.82% per annum, a weighted-average all-in cost of credit, including associated fees and expenses, of LIBOR plus 2.04% per annum, and a weighted-average advance rate of 79.1%. As of December 31, 2015, outstanding borrowings under these facilities had a weighted-average maturity, excluding extension options and term-out provisions, of 1.4 years.
Borrowings under each facility are subject to the initial approval of eligible collateral loans by the lender and the maximum advance rate and pricing rate of individual advances are determined with reference to the attributes of the respective collateral loan.
During the three months ended March 31, 2016, we extended the maturity date of our $750.0 million revolving repurchase facility with Bank of America to May 21, 2021 (inclusive of two one-year extension options which may be exercised at our sole discretion).
The following table outlines the key terms of our revolving repurchase facilities as of March 31, 2016:
Wells Fargo
JP Morgan
Citibank
Morgan Stanley
Société Générale
Represents weighted-average cash coupon based on borrowings outstanding. In instances where our borrowings are denominated in currencies other than the U.S. Dollar, interest accrues at a rate equivalent to a margin plus a base rate other than 1-month USD LIBOR, such as 3-month GBP LIBOR, 3-month EURIBOR, or 3-month CDOR.
Other than amounts guaranteed based on specific collateral asset types, borrowings under our revolving repurchase facilities are non-recourse to us.
Represents weighted-average advance rate based on the outstanding principal balance of the collateral assets pledged.
Margin call provisions under our revolving repurchase facilities do not permit valuation adjustments based on capital markets events, and are limited to collateral-specific credit marks.
These revolving repurchase facilities have various availability periods during which new advances can be made and which are generally subject to each lender’s discretion. Maturity dates for advances outstanding are tied to the term of each respective collateral asset.
Includes two one-year extension options which may be exercised at our sole discretion.
Includes five one-year extension options which may be exercised at our sole discretion.
GE Portfolio Acquisition Facility
During the second quarter of 2015, concurrently with our acquisition of the GE portfolio, we entered into an agreement with Wells Fargo to provide us with secured financing for the acquired portfolio. As of March 31, 2016, this facility provided for $3.1 billion of financing, of which $2.9 billion was outstanding and an additional $133.9 million was available to finance future loan fundings. The GE portfolio acquisition facility is non-revolving and consists of a single master repurchase agreement providing for both (i) asset-specific borrowings for each collateral asset as well as (ii) a sequential pay advance feature.
Asset-Specific Borrowings
The asset-specific borrowings under the GE portfolio acquisition facility were advanced at a weighted-average rate of 80% of our purchase price of the collateral assets and will be repaid pro rata from collateral asset repayment proceeds. The asset-specific borrowings are currency matched to the collateral assets and accrue interest at a rate equal to the sum of (i) the applicable base rate plus (ii) a margin of 1.75%, which will increase to 1.80% and 1.85% in year four and year five, respectively. As of March 31, 2016, those borrowings were denominated in U.S. Dollars, Canadian Dollars, British Pounds Sterling, and Euros. The asset-specific borrowings are term matched to the underlying collateral assets with an outside maturity date of May 20, 2020, which may be extended pursuant to two one-year extension options. We guarantee obligations under the GE portfolio acquisition facility in an amount equal to the greater of (i) 25% of outstanding asset-specific borrowings, and (ii) $250.0 million. We had outstanding asset-specific borrowings of $2.9 billion and $3.1 billion under the GE portfolio acquisition facility as of March 31, 2016 and December 31, 2015, respectively.
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Sequential Pay Advance
The GE portfolio acquisition facility also included a sequential pay advance feature that provided for $237.2 million of borrowings, representing an additional 5% advance against each collateral asset pledged under the facility. As of March 31, 2016, the sequential pay advance borrowings under the GE portfolio acquisition facility had been fully repaid. As of December 31, 2015, we had outstanding sequential pay advance borrowings of $40.7 million. Borrowings under the sequential pay advance accrued interest at a rate equal to the sum of (i) 30-day LIBOR plus (ii) a margin of 3.10%. The sequential pay advance was denominated in U.S. Dollars and was repaid from collateral loan principal repayments, after repayment of the related asset-specific borrowing. The sequential pay advances each had a maturity date that was one year from the date of funding, and we had guaranteed 100% of outstanding borrowings of the sequential pay advance.
Asset-Specific Financings
During the three months ended March 31, 2016, we entered into two asset-specific financings providing an additional $232.4 million of credit capacity. The following table details statistics for our asset-specific financings ($ in thousands):
Principal balance(1)
Book value
Weighted-average cost / all-in yield(2)
With the exception of $13.2 million related to one asset-specific financing, we do not guarantee the obligations under these agreements.
These floating rate loans and related liabilities are indexed to the various benchmark rates relevant in each arrangement in terms of currency and payment frequency. Therefore the net exposure to each benchmark rate is in direct proportion to our net assets indexed to that rate. In addition to cash coupon, cost / all-in yield includes the amortization of deferred origination fees / financing costs.
The weighted-average outstanding balance of our asset-specific financings was $141.4 million for the three months ended March 31, 2016 and $224.8 million for the three months ended December 31, 2015.
Debt Covenants
Each of the guarantees related to our secured debt agreements contain the following uniform financial covenants: (i) our ratio of earnings before interest, taxes, depreciation, and amortization, or EBITDA, to fixed charges, as defined in the agreements, shall be not less than 1.40 to 1.0; (ii) our tangible net worth, as defined in the agreements, shall not be less than $1.9 billion as of each measurement date plus 75% of the net cash proceeds of future equity issuances subsequent to March 31, 2016; (iii) cash liquidity shall not be less than the greater of (x) $10.0 million or (y) 5% of our recourse indebtedness; and (iv) our indebtedness shall not exceed 83.33% of our total assets. As of March 31, 2016 and December 31, 2015, we were in compliance with these covenants.
Subsequent Events
On April 4, 2016, we entered into a $125.0 million full recourse revolving credit agreement with Barclays which is designed to finance first mortgage originations for up to six months as a bridge to term financing or syndication. Advances under the credit agreement are subject to availability under a specified borrowing base and accrue interest at a per annum pricing rate equal to the sum of (i) an applicable base rate or Eurodollar rate and (ii) an applicable margin, in each case, dependent on the applicable type of loan. The initial maturity date of the facility is April 4, 2018 and is subject to two one-year extension options, exercisable at our option.
On April 22, 2016, we increased the maximum facility size of our revolving repurchase facility with MetLife by $304.1 million to $1.0 billion and extended the maturity date (inclusive of five one-year extension options, exercisable at our option) to April 22, 2022.
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7. LOAN PARTICIPATIONS SOLD
The financing of a loan by the non-recourse sale of a senior interest in the loan through a participation agreement generally does not qualify as a sale under GAAP. Therefore, in the instance of such sales, we present the whole loan as an asset and the loan participation sold as a liability on our consolidated balance sheet until the loan is repaid. The obligation to pay principal and interest on these liabilities is solely based on the performance of the related loan obligation, except in one instance where we entered into a related guarantee agreement for £24.0 million which was translated to $34.5 million as of March 31, 2016. The gross presentation of loan participations sold does not impact stockholders’ equity or net income.
The following table details statistics for our loan participations sold ($ in thousands):
Principal balance(2)
Book value(2)
Weighted-average cash coupon(3)
Weighted-average cost / all-in yield(3)
During the three months ended March 31, 2016 and 2015, we recorded $3.6 million and $4.3 million, respectively, of interest expense related to our loan participations sold, of which $3.5 million and $4.0 million, respectively, was paid in cash.
The difference between principal balance and book value of loan participations sold is due to deferred financing costs of $1.8 million and $2.0 million as of March 31, 2016 and December 31, 2015, respectively.
Our floating rate loans and related liabilities were indexed to the various benchmark rates relevant in each arrangement in terms of currency and payment frequency. Therefore the net exposure to each benchmark rate is in direct proportion to our net assets indexed to that rate. In addition to cash coupon, cost / all-in yield includes the amortization of deferred origination fees / financing costs.
8. CONVERTIBLE NOTES, NET
In November 2013, we issued $172.5 million of 5.25% convertible senior notes due on December 1, 2018, or Convertible Notes. The Convertible Notes’ issuance costs are amortized through interest expense over the life of the Convertible Notes using the effective interest method. Including this amortization, our all-in cost of the Convertible Notes is 5.87% per annum.
The Convertible Notes are convertible at the holders’ option into shares of our class A common stock, only under specific circumstances, prior to the close of business on August 31, 2018, at the applicable conversion rate in effect on the conversion date. Thereafter, the Convertible Notes are convertible at the option of the holder at any time until the second scheduled trading day immediately preceding the maturity date. The Convertible Notes were not convertible as of March 31, 2016. The conversion rate was initially set to equal 34.8943 shares of class A common stock per $1,000 principal amount of Convertible Notes, which was equivalent to an initial conversion price of $28.66 per share of class A common stock, subject to adjustment upon the occurrence of certain events. In the fourth quarter of 2015, as a result of exceeding the cumulative dividend threshold as defined in the Convertible Notes Supplemental Indenture, the conversion rate was adjusted to 35.2653 shares of Class A common stock per $1,000 principal amount of Convertible Notes, which is equivalent to a conversion price of $28.36 per share of class A common stock. We may not redeem the Convertible Notes prior to maturity. As of March 31, 2016, the conversion option value was zero based on the price of our class A common stock of $26.86. In addition, we have the intent and ability to settle the Convertible Notes in cash. As a result, the Convertible Notes did not have any impact on our diluted earnings per share.
Upon issuance of the Convertible Notes, we recorded a $9.1 million discount based on the implied value of the conversion option and an assumed effective interest rate of 6.50%, as well as $4.1 million of initial issuance costs. Including the amortization of this discount and the issuance costs, our total cost of the Convertible Notes is 7.16% per annum. During the three months ended March 31, 2016, we incurred total interest on our convertible notes of $3.0 million, of which $2.3 million related to cash coupon and $670,000 related to the amortization of discount and certain issuance costs. During the three months ended March 31, 2015, we incurred total interest on our convertible notes of $2.9 million, of which $2.3 million related to cash coupon and $630,000 related to the amortization of discount and certain issuance costs.
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As of March 31, 2016, the Convertible Notes were carried on our consolidated balance sheet at $164.7 million, net of an unamortized discount of $7.5 million and deferred financing costs of $281,000. As of December 31, 2015, the Convertible Notes were carried on our consolidated balance sheet at $164.0 million, net of an unamortized discount of $8.2 million and deferred financing costs of $305,000. Accrued interest payable for the Convertible Notes was $3.0 million and $755,000 as of March 31, 2016 and December 31, 2015, respectively. Refer to Note 2 for additional discussion of our accounting policies for the Convertible Notes.
9. DERIVATIVE FINANCIAL INSTRUMENTS
Risk Management Objective of Using Derivatives
Certain of our international investments expose us to fluctuations in foreign interest rates and currency exchange rates. These fluctuations may impact the value of our cash receipts and payments in terms of our functional currency, the U.S. Dollar. We use derivative financial instruments to protect the value or fix the amount of certain investments or cash flows in terms of the U.S. Dollar.
Certain of our financing transactions expose us to a fixed versus floating rate mismatch between our assets and liabilities. We use derivative financial instruments, which include interest rate caps and swaps, and may also include interest rate options, floors, and other interest rate derivative contracts, to hedge interest rate risk associated with our borrowings where there is potential for an index mismatch.
The sole objective of our use of derivative financial instruments is to minimize the risks and/or costs associated with the situations described above. We do not intend to utilize derivatives for speculative or other purposes. The use of derivative financial instruments involves certain risks, including the risk that the counterparties to these contractual arrangements do not perform as agreed. To mitigate this risk, we only enter into derivative financial instruments with counterparties that have appropriate credit ratings and are major financial institutions with which we and our affiliates may also have other financial relationships. We do not anticipate that any of the counterparties will fail to meet their obligations.
Net Investment Hedges of Foreign Currency Risk
We have made investments in foreign currencies that expose us to fluctuations between the U.S. Dollar and the foreign currency of each such investment. Currently, we use derivative financial instruments to manage, or hedge, the variability in the carrying value of certain of our net investments in consolidated subsidiaries whose functional currencies are not the U.S. Dollar. For derivatives that are designated and qualify as a hedge of our net investment in a foreign currency, the gain or loss on such derivatives is reported in other comprehensive income as part of the cumulative translation adjustment to the extent it is effective. Any ineffective portion of a net investment hedge is recognized in our consolidated statements of operations. For derivatives that are not designated as hedging instruments, gains or losses are recognized in our consolidated statements of operations as incurred.
The following table details our outstanding foreign exchange derivatives that were designated as net investment hedges of foreign currency risk (notional amount in thousands):
Foreign Currency Derivatives
Sell CAD Forward
Sell GBP Forward
Sell EUR Forward
Cash Flow Hedges of Interest Rate Risk
Our objective in using interest rate derivatives is to add stability to interest expense and to manage our exposure to interest rate movements. In addition, we may be required by our lenders to enter into certain derivative contracts related to our credit facilities. To accomplish this objective, we primarily use interest rate caps and swaps. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts if interest rates rise above a certain level in exchange for an up-front premium. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
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The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged transaction affects net income. These derivatives were used to hedge the variable cash flows associated with floating rate debt. The ineffective portion of the change in fair value of such derivatives is recognized directly in net income. During the three months ended March 31, 2016 and 2015, we did not record any hedge ineffectiveness in our consolidated statements of operations.
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our floating rate debt. During the twelve months following March 31, 2016, we estimate that an additional $1.3 million will be reclassified from other accumulated comprehensive income as an increase to interest expense.
The following tables detail our outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (notional amount in thousands):
Interest Rate
Interest Rate Caps
Interest Rate Swap
Non-designated Hedges
Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements and other identified risks, but do not meet the strict hedge accounting requirements of ASC 815 – “Derivatives and Hedging.” Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in our consolidated statement of operations. During the three months ended March 31, 2016, we recorded losses of $976,000, related to non-designated hedges. We did not record any losses related to non-designated hedges during the three months ended March 31, 2015.
The following table summarizes our non-designated hedges (notional amount in thousands):
Buy GBP / Sell EUR Forward
Buy CAD / Sell USD Forward
Buy USD / Sell CAD Forward
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Valuation of Derivative Instruments
The following table summarizes the fair value of our derivative financial instruments ($ in thousands):
Derivatives designated as hedging instruments:
Foreign exchange contracts
Interest rate derivatives
Total derivatives designated as hedging instruments
Derivatives not designated as hedging instruments:
Total derivatives not designated as hedging instruments
Total Derivatives
Included in other assets in our consolidated balance sheets.
Included in accounts payable, accrued expenses, and other liabilities in our consolidated balance sheets.
The following table presents the effect of our derivative financial instruments on our consolidated statements of operations ($ in thousands):
Reclassified from
Accumulated
OCI into Income
Derivatives in Hedging Relationships
Foreign exchange contracts(1)
During the three months ended March 31, 2016 and 2015, we received net cash settlements of $8.2 million and $4.1 million, respectively, on our foreign currency forward contracts. Those amounts are included as a component of accumulated other comprehensive loss on our consolidated balance sheets.
Credit-Risk Related Contingent Features
We have entered into agreements with certain of our derivative counterparties that contain provisions where if we were to default on any of our indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, we may also be declared in default on our derivative obligations. In addition, certain of our agreements with our derivative counterparties require that we post collateral to secure net liability positions. As of March 31, 2016, we were in a net asset position of $135,000 with one of our derivative counterparties and a net liability position of $8.8 million with another of our derivative counterparties. While we were in a net liability position with one counterparty as of March 31, 2016, we were not required to post collateral as our liability position was below the threshold defined in our agreement with this counterparty.
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10. EQUITY
Stock and Stock Equivalents
Authorized Capital
As of March 31, 2016, we had the authority to issue up to 300,000,000 shares of stock, consisting of 200,000,000 shares of class A common stock and 100,000,000 shares of preferred stock. Subject to applicable NYSE listing requirements, our board of directors is authorized to cause us to issue additional shares of authorized stock without stockholder approval. In addition, to the extent not issued, currently authorized stock may be reclassified between class A common stock and preferred stock. We did not have any shares of preferred stock issued and outstanding as of March 31, 2016.
Class A Common Stock and Deferred Stock Units
Holders of shares of our class A common stock are entitled to vote on all matters submitted to a vote of stockholders and are entitled to receive such dividends as may be authorized by our board of directors and declared by us, in all cases subject to the rights of the holders of shares of outstanding preferred stock, if any.
We also issue restricted class A common stock under our stock-based incentive plans. Refer to Note 13 for additional discussion of these long-term incentive plans. In addition to our class A common stock, we also issue deferred stock units to certain members of our board of directors in lieu of cash compensation for services rendered. These deferred stock units are non-voting, but carry the right to receive dividends in the form of additional deferred stock units in an amount equivalent to the cash dividends paid to holders of shares of class A common stock.
The following table details the movement in our outstanding shares of class A common stock, including restricted class A common stock and deferred stock units:
Common Stock Outstanding(1)
Beginning balance
Issuance of class A common stock
Issuance of restricted class A common stock, net
Issuance of deferred stock units
Ending balance
Deferred stock units held by members of our board of directors totaled 148,843 and 124,333 as of March 31, 2016 and 2015, respectively.
Dividend Reinvestment and Direct Stock Purchase Plan
On March 25, 2014, we adopted a dividend reinvestment and direct stock purchase plan, under which we registered and reserved for issuance, in the aggregate, 10,000,000 shares of class A common stock. Under the dividend reinvestment component of this plan, our class A common stockholders can designate all or a portion of their cash dividends to be reinvested in additional shares of class A common stock. The direct stock purchase component allows stockholders and new investors, subject to our approval, to purchase shares of class A common stock directly from us. During the three months ended March 31, 2016 and 2015, we issued 285 shares and 139 shares, respectively, of class A common stock under the dividend reinvestment component of the plan. As of March 31, 2016, a total of 9,999,112 shares of class A common stock remain available for issuance under the dividend reinvestment and direct stock purchase plan.
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At the Market Stock Offering Program
On May 9, 2014, we entered into equity distribution agreements, or ATM Agreements, pursuant to which we may sell, from time to time, up to an aggregate sales price of $200.0 million of our class A common stock. Sales of class A common stock made pursuant to the ATM Agreements may be made in negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended. Actual sales will depend on a variety of factors including market conditions, the trading price of our class A common stock, our capital needs, and our determination of the appropriate sources of funding to meet such needs. We did not sell any shares of our class A common stock under the ATM Agreements during the three months ended March 31, 2016 and 2015. As of March 31, 2016, sales of our class A common stock with an aggregate sales price of $188.6 million remain available for issuance under the ATM Agreements.
Dividends
We generally intend to distribute substantially all of our taxable income, which does not necessarily equal net income as calculated in accordance with GAAP, to our stockholders each year to comply with the REIT provisions of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. Our dividend policy remains subject to revision at the discretion of our board of directors. All distributions will be made at the discretion of our board of directors and will depend upon our taxable income, our financial condition, our maintenance of REIT status, applicable law, and other factors as our board of directors deems relevant.
On March 15, 2016, we declared a dividend of $0.62 per share, or $58.2 million, which was paid on April 15, 2016, to stockholders of record as of March 31, 2016. The following table details our dividend activity ($ in thousands, except per share data):
Total dividends declared
Earnings Per Share
We calculate our basic and diluted earnings per share using the two-class method for all periods presented as the unvested shares of our restricted class A common stock qualify as participating securities, as defined by GAAP. These restricted shares have the same rights as our other shares of class A common stock, including participating in any dividends, and therefore have been included in our basic and diluted net income per share calculation. Our Convertible Notes are excluded from dilutive earnings per share as we have the intent and ability to settle these instruments in cash.
The following table sets forth the calculation of basic and diluted net income per share of class A common stock based on the weighted-average of both restricted and unrestricted class A common stock outstanding ($ in thousands, except per share data):
Net income(1)
Weighted-average shares outstanding, basic and diluted
Per share amount, basic and diluted
Represents net income attributable to Blackstone Mortgage Trust, Inc.
Other Balance Sheet Items
Accumulated Other Comprehensive Loss
As of March 31, 2016, total accumulated other comprehensive loss was $33.4 million, primarily representing (i) $51.8 million of cumulative currency translation adjustments on assets and liabilities denominated in foreign currencies and (ii) an offsetting $18.4 million gain related to changes in the fair value of derivative instruments. As of December 31, 2015, total accumulated other comprehensive loss was $32.8 million, primarily representing (i) $57.8 million of cumulative currency translation adjustment on assets and liabilities denominated in foreign currencies and (ii) an offsetting $25.0 million gain related to changes in the fair value of derivative instruments.
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Non-Controlling Interests
The non-controlling interests included on our consolidated balance sheets represent the equity interests in CT Legacy Partners that are not owned by us. A portion of CT Legacy Partners’ consolidated equity and results of operations are allocated to these non-controlling interests based on their pro rata ownership of CT Legacy Partners. As of March 31, 2016, CT Legacy Partners’ total equity was $11.0 million, of which $4.6 million was owned by Blackstone Mortgage Trust, and $6.4 million was allocated to non-controlling interests. As of December 31, 2015, CT Legacy Partners’ total equity was $22.5 million, of which $9.4 million was owned by Blackstone Mortgage Trust, and $13.1 million was allocated to non-controlling interests.
11. OTHER EXPENSES
Our other expenses consist of the management and incentive fees we pay to our Manager and our general and administrative expenses.
Management and Incentive Fees
Pursuant to our management agreement, our Manager earns a base management fee in an amount equal to 1.50% per annum multiplied by our outstanding equity balance, as defined in the management agreement. In addition, our Manager is entitled to an incentive fee in an amount equal to the product of (i) 20% and (ii) the excess of (a) our Core Earnings (as defined in our management agreement) for the previous 12-month period over (b) an amount equal to 7.00% per annum multiplied by our outstanding Equity, provided that our Core Earnings over the prior three-year period (or the period since the date of the first offering of our class A common stock following December 19, 2012, whichever is shorter) is greater than zero. Core Earnings, as defined in our management agreement, is generally equal to our net income (loss) prepared in accordance with GAAP, excluding (i) certain non-cash items (ii) the net income (loss) related to our legacy portfolio and (iii) incentive management fees.
During the three months ended March 31, 2016 and 2015, we incurred $9.5 million and $5.5 million, respectively, of management fees payable to our Manager. In addition, during the three months ended March 31, 2016 and 2015, we incurred $4.2 million and $1.2 million, respectively, of incentive fees payable to our Manager.
As of March 31, 2016 we had accrued management and incentive fees payable to our Manager of $13.7 million, compared to $14.4 million as of December 31, 2015.
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General and Administrative Expenses
General and administrative expenses consisted of the following ($ in thousands):
Professional services
Operating and other costs
Non-cash and CT Legacy Portfolio compensation expenses
Management incentive awards plan - CTOPI(1)
Management incentive awards plan - CT Legacy Partners(2)
Director stock-based compensation
Total BXMT expenses
Expenses of consolidated subsidiaries
Total general and administrative expenses
Represents the portion of CTOPI promote revenue accrued under compensation awards. See Note 4 for further discussion.
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.
CT Legacy Partners Management Incentive Awards Plan
In conjunction with our March 2011 restructuring, we created an employee pool for up to 6.75% of the distributions paid to the common equity holders of CT Legacy Partners (subject to certain caps and priority distributions). Approximately 50% of the pool was 75% vested as of March 31, 2016, with the remainder contingent on continued employment with an affiliate of our Manager and our receipt of distributions from CT Legacy Partners. Of the remaining 50% of the pool, 27% is fully vested as a result of an acceleration event, and 23% vest only upon our receipt of distributions from CT Legacy Partners. We accrue a liability for the amounts due under these grants based on the value of CT Legacy Partners and the periodic vesting of the awards granted. Accrued payables for these awards were $664,000 as of March 31, 2016 and $1.3 million as of December 31, 2015.
12. INCOME TAXES
We elected to be taxed as a REIT, effective January 1, 2003, under the Internal Revenue Code for U.S. federal income tax purposes. We generally must distribute annually at least 90% of our net taxable income, subject to certain adjustments and excluding any net capital gain, in order for U.S. federal income tax not to apply to our earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our net taxable income, we will be subject to U.S. federal income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws.
Our qualification as a REIT also depends on our ability to meet various other requirements imposed by the Internal Revenue Code, which relate to organizational structure, diversity of stock ownership, and certain restrictions with regard to the nature of our assets and the sources of our income. Even if we qualify as a REIT, we may be subject to certain U.S. federal income and excise taxes and state and local taxes on our income and assets. If we fail to maintain our qualification as a REIT for any taxable year, we may be subject to material penalties as well as federal, state, and local income tax on our taxable income at regular corporate rates and we would not be able to qualify as a REIT for the subsequent four full taxable years. As of March 31, 2016 and December 31, 2015, we were in compliance with all REIT requirements.
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During the three months ended March 31, 2016 and 2015, we recorded a current income tax provision of $241,000 and $245,000, respectively, primarily related to various state and local taxes. We did not have any deferred tax assets or liabilities as of March 31, 2016 or December 31, 2015.
As a result of our issuance of 25,875,000 shares of class A common stock in May 2013, the availability of our net operating losses, or NOLs, and net capital losses, or NCLs, is generally limited to $2.0 million per annum by change of control provisions promulgated by the Internal Revenue Service with respect to the ownership of Blackstone Mortgage Trust. As of December 31, 2015, we had estimated NOLs of $159.0 million and NCLs of $602,000 available to be carried forward and utilized in current or future periods. If we are unable to utilize our NOLs, they will expire in 2029. If we are unable to utilize our NCLs, they will expire in 2017.
As of March 31, 2016, tax years 2012 through 2015 remain subject to examination by taxing authorities.
13. STOCK-BASED INCENTIVE PLANS
We do not have any employees as we are externally managed by our Manager. However, as of March 31, 2016, our Manager, certain individuals employed by an affiliate of our Manager, and certain members of our board of directors were compensated, in part, through the issuance of stock-based instruments.
We had stock-based incentive awards outstanding under five benefit plans as of March 31, 2016: (i) our amended and restated 1997 non-employee director stock plan, or 1997 Plan; (ii) our 2007 long-term incentive plan, or 2007 Plan; (iii) our 2011 long-term incentive plan, or 2011 Plan; (iv) our 2013 stock incentive plan, or 2013 Plan; and (v) our 2013 manager incentive plan, or 2013 Manager Plan. We refer to our 1997 Plan, our 2007 Plan, and our 2011 Plan collectively as our Expired Plans and we refer to our 2013 Plan and 2013 Manager Plan collectively 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 March 31, 2016, there were 47,782 shares available under the Current Plans.
The following table details the movement in our outstanding shares of restricted class A common stock and the weighted-average grant date fair value per share:
Balance as of December 31, 2015
Granted
Vested
Forfeited
Balance as of March 31, 2016
These shares generally vest in quarterly installments over a three-year period, pursuant to the terms of the respective award agreements and the terms of the Current Plans. The 1,199,997 shares of restricted class A common stock outstanding as of March 31, 2016 will vest as follows: 517,076 shares will vest in 2016; 446,779 shares will vest in 2017; and 236,142 shares will vest in 2018. As of March 31, 2016, total unrecognized compensation cost relating to nonvested share-based compensation arrangements was $30.3 million. This cost is expected to be recognized over a weighted average period of 1.2 years from March 31, 2016.
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14. FAIR VALUES
Assets and Liabilities Measured at Fair Value
The following table summarizes our assets and liabilities measured at fair value on a recurring basis ($ in thousands):
Derivatives
Other assets(1)
Liabilities
Other assets include loans, securities, equity investments, and other receivables measured at fair value.
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):
January 1,
Proceeds from investment realizations
Adjustments to fair value included in earnings
March 31,
As of March 31, 2016, we had $10.2 million of assets measured using Level 3 inputs, which primarily consist of commercial mortgage backed securities that are valued using market quotes received from financial sources that transact in such securities.
Refer to Note 2 for further discussion regarding fair value measurement.
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As discussed in Note 2, GAAP requires disclosure of fair value information about financial instruments, whether or not recognized in the statement of financial position, for which it is practicable to estimate that value. The following table details the carrying amount, face amount, and fair value of the financial instruments described in Note 2 ($ in thousands):
Estimates of fair value for cash, cash equivalents and convertible notes are measured using observable, quoted market prices, or Level 1 inputs. All other fair value significant estimates are measured using unobservable inputs, or Level 3 inputs. See Note 2 for further discussion regarding fair value measurement of certain of our assets and liabilities.
15. TRANSACTIONS WITH RELATED PARTIES
We are managed by our Manager pursuant to a management agreement, the current term of which expires on December 19, 2016, and will be automatically renewed for a one-year term each anniversary thereafter unless earlier terminated.
As of March 31, 2016, our consolidated balance sheet included $13.7 million of accrued management and incentive fees payable to our Manager. During the three months ended March 31, 2016, we paid $14.4 million, of management and incentive fees to our Manager, compared to $6.3 million during the same period of 2015. In addition, during the three months ended March 31, 2016, we reimbursed our Manager for $320,000 of expenses incurred on our behalf compared to $139,000 during the same period of 2015. As of March 31, 2016, our consolidated balance sheet includes $44,000 of preferred distributions payable by CT Legacy Partners to an affiliate of our Manager, compared to $83,000 as of December 31, 2015. During the three months ended March 31, 2016, CT Legacy Partners made aggregate preferred distributions of $224,000 to such affiliate, compared to $452,000 during the same period of 2015.
During the years ended December 31, 2015, 2014, and 2013, we issued 334,758, 337,941, and 339,431 shares of restricted class A common stock to our Manager under the 2013 Manager Plan, which had a grant date fair value of $9.3 million, $9.4 million, and $8.5 million, respectively. We did not issue any shares of restricted class A common stock to our Manager during the three months ended March 31, 2016. The shares of restricted class A common stock vest ratably in quarterly installments over three years from the date of issuance. During the three months ended March 31, 2016 and 2015, we recorded non-cash expense related to these shares of $2.1 million and $1.4 million, respectively. Refer to Note 13 for further discussion of our restricted class A common stock.
On May 8, 2015, a joint venture of CT Legacy Partners, certain affiliates of our Manager, and other non-affiliated parties, which we refer to as the Three-Pack JV, sold a hotel portfolio it owned to an investment vehicle managed by an affiliate of our Manager. We consented to the sale of the hotel portfolio by the Three-Pack JV, which will result in the ultimate liquidation of the Three-Pack JV and distribution of net sale proceeds to CT Legacy Partners in respect of its investment therein. An aggregate of $40.1 million of net sales proceeds has been received to date by CT Legacy Partners, of which $2.4 million was received during the three months ended March 31, 2016. As a result of the sale transaction, employees of our Manager, including certain of our executive officers, received incentive compensation payments totaling $2.7 million under the CT Legacy Partners Management Incentive Awards Plan, of which $2.5 million was paid during 2015, and the remaining $162,000 was paid during the three months ended March 31, 2016. All of the income from the sale of the hotel portfolio and related compensation expense was recorded during 2015. See Note 11 for further discussion of the CT Legacy Partners Management Incentive Awards Plan.
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During the three months ended March 31, 2016 and 2015, we incurred $90,000 and $75,000, respectively, of expenses for various administrative and capital market data services to third-party service providers that are affiliates of our Manager.
16. COMMITMENTS AND CONTINGENCIES
Unfunded Commitments Under Loans Receivable
As of March 31, 2016, we had unfunded commitments of $965.1 million related to 71 loans receivable, which amounts will generally be funded to finance lease-related or capital expenditures by our borrowers. These future commitments will expire variously over the next four years.
Income Tax Audits of CTIMCO
The Internal Revenue Service and the State of New York are separately undergoing examinations of the income tax returns for the years ended December 31, 2012 and 2011 of our former subsidiary, CT Investment Management Co., LLC, or CTIMCO. The examinations are on-going, and no final adjustments have been made or agreed to as a result of these examinations. When we sold CTIMCO in December 2012, we provided certain indemnifications related to its operations, and any amounts determined to be owed by CTIMCO would ultimately be paid by us. As of March 31, 2016, there were no reserves recorded for the CTIMCO examinations.
Litigation
From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. As of March 31, 2016, we were not involved in any material legal proceedings.
Board of Directors’ Compensation
As of March 31, 2016, of the eight members of our board of directors, our five independent directors are entitled to annual compensation of $125,000 each. The other three board members, including our chairman and our chief executive officer, serve as directors with no compensation. As of March 31, 2016, the annual compensation for our directors was paid 40% in cash and 60% in the form of deferred stock units. In addition, the member of our board of directors that serves as the chairperson of the audit committee of our board of directors receives additional annual cash compensation of $12,000. Compensation to the board of directors is payable in four equal quarterly installments.
17. SUBSEQUENT EVENTS
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References herein to “Blackstone Mortgage Trust,” “Company,” “we,” “us,” or “our” refer to Blackstone Mortgage Trust, Inc. and its subsidiaries unless the context specifically requires otherwise.
The following discussion should be read in conjunction with the unaudited consolidated financial statements and notes thereto appearing elsewhere in this quarterly report on Form 10-Q. In addition to historical data, this discussion contains forward-looking statements about our business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those in this discussion as a result of various factors, including but not limited to those discussed in Item 1A. Risk Factors in our annual report on Form 10-K for the year ended December 31, 2015 and elsewhere in this quarterly report on Form 10-Q.
Introduction
We conduct our operations as a REIT for U.S. federal income tax purposes. We generally will not be subject to U.S. federal income taxes on our taxable income to the extent that we annually distribute all of our net taxable income to stockholders and maintain our qualification as a REIT. We also operate our business in a manner that permits us to maintain an exclusion from registration under the Investment Company Act of 1940, as amended. We are organized as a holding company and conduct our business primarily through our various subsidiaries.
I. Key Financial Measures and Indicators
As a real estate finance company, we believe the key financial measures and indicators for our business are earnings per share, dividends declared, Core Earnings, and book value per share. For the three months ended March 31, 2016 we recorded earnings per share of $0.61, declared a dividend of $0.62 per share, and reported $0.65 per share of Core Earnings. In addition, our book value per share as of March 31, 2016 was $26.53. As further described below, Core Earnings is a measure that is not prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. We use Core Earnings to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan activity and operations. Beginning with the third quarter of 2015, we have revised our definition of Core Earnings for reporting purposes to be net of incentive fees.
Earnings Per Share and Dividends Declared
The following table sets forth the calculation of basic and diluted net income per share and dividends per share ($ in thousands, except per share data):
Net income (1)
Net income per share, basic and diluted
Dividends per share
Core Earnings
Core Earnings is a non-GAAP measure, which we define as GAAP net income (loss), including realized gains and losses not otherwise included in GAAP net income (loss), and excluding (i) net income (loss) attributable to our CT Legacy Portfolio, (ii) non-cash equity compensation expense, (iii) depreciation and amortization, (iv) unrealized gains (losses), and (v) certain non-cash items. Core Earnings may also be adjusted from time to time to exclude one-time events pursuant to changes in GAAP and certain other non-cash charges as determined by our Manager, subject to approval by a majority of our independent directors.
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We believe that Core Earnings provides meaningful information to consider in addition to our net income and cash flow from operating activities determined in accordance with GAAP. This adjusted measure helps us to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan portfolio and operations. Although, according to our management agreement, we calculate the incentive and base management fees due to our Manager using Core Earnings before incentive fees expense, we report Core Earnings after incentive fee expense, as we believe this is a more meaningful presentation of the economic performance of our class A common stock.
Core Earnings does not represent net income or cash generated from operating activities and should not be considered as an alternative to GAAP net income, or an indication of our GAAP cash flows from operations, a measure of our liquidity, or an indication of funds available for our cash needs. In addition, our methodology for calculating Core Earnings may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures, and accordingly, our reported Core Earnings may not be comparable to the Core Earnings reported by other companies.
The following table provides a reconciliation of Core Earnings to GAAP net income ($ in thousands, except per share data):
CT Legacy Portfolio net loss (income)
GE purchase discount accretion adjustment(2)
Other items
Core Earnings per share, basic and diluted
Represents net income attributable to Blackstone Mortgage Trust.
Adjustment in respect of the deferral in Core Earnings of the accretion of a total $9.1 million of purchase discount attributable to a certain pool of GE portfolio loans pending the repayment of those loans.
Book Value Per Share
The following table calculates our book value per share ($ in thousands, except per share data):
Stockholders’ equity
Shares
Class A common stock
Deferred stock units
Total outstanding
Book value per share
II. Loan Portfolio
During the quarter ended March 31, 2016, we originated $861.3 million of loans. Loan fundings during the quarter totaled $619.1 million, including $33.0 million of non-consolidated senior interests. We generated interest income of $123.0 million and incurred interest expense of $45.4 million during the quarter, which resulted in $77.6 million of net interest income during the three months ended March 31, 2016.
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Portfolio Overview
The following table details our loan origination activity ($ in thousands):
Senior loans(3)
Subordinate loans(4)
Non-consolidated senior interests(4)
Includes new originations and additional commitments made under existing borrowings.
Loan fundings during the three months ended March 31, 2016 include $73.2 million of additional fundings under existing loans as of December 31, 2015, and loan fundings during the three months ended December 31, 2015 include $70.2 million of additional fundings under existing loans as of September 30, 2015.
In certain instances, we finance our loans through the non-recourse sale of a senior loan interest that is not included in our consolidated financial statements. These subordinate loan originations are therefore presented net of the related non-consolidated senior interests. See “Non-Consolidated Senior Interests” below.
As of March 31, 2016, the majority of our loans were senior mortgages and similar credit quality loans. The following table details overall statistics for our loan portfolio ($ in thousands):
Weighted-average cash coupon(2)(3)
Weighted-average all-in yield(2)(3)
Weighted-average maximum maturity (years)(4)
Loan to value (LTV)(5)
As of March 31, 2016, our floating rate loans were indexed to various benchmark rates, with 83% of floating rate loans indexed to USD LIBOR. In addition, $146.9 million of our floating rate loans earned interest based on floors that are above the applicable index, with an average floor of 1.80%, as of March 31, 2016. In addition to cash coupon, all-in yield includes the amortization of deferred origination fees, loan origination costs, and accrual of both extension and exit fees. Coupon and all-in yield for the total portfolio assume applicable floating benchmark rate for weighted-average calculation.
Weighted average coupon and all-in yield include subordinate loans, which are not comparable to other loans as they are reported net of related non-consolidated senior interests. Excluding subordinate loans, total weighted average coupon was 4.63% and total weighted average yield was 4.98%.
Based on LTV as of the dates loans were originated or acquired by us.
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As December 31, 2015, our floating rate loans were indexed to various benchmark rates, with 84% of floating rate loans indexed to USD LIBOR. In addition, $147.9 million of our floating rate loans earned interest based on floors that are above the applicable index, with an average floor of 1.80%, as of December 31, 2015. In addition to cash coupon, all-in yield includes the amortization of deferred origination fees, loan origination costs, and accrual of both extension and exit fees. Coupon and all-in yield for the total portfolio assume applicable floating benchmark rate for weighted-average calculation.
Weighted average coupon and all-in yield include subordinate loans, which are not comparable to other loans as they are reported net of related non-consolidated senior interests. Excluding subordinate loans, total weighted average coupon was 4.65% and total weighted average yield was 4.98%.
The charts below detail the geographic distribution and types of properties securing these loans, as of March 31, 2016 ($ in millions):
Refer to section VI of this Item 2 for details of our loan portfolio, on a loan-by-loan basis.
Asset Management
We actively manage the investments in our loan portfolio and exercise the rights afforded to us as a lender, including collateral level budget approvals, lease approvals, loan covenant enforcement, escrow/reserve management/collection, collateral release approvals and other rights that we may negotiate.
As discussed in Note 2 to our consolidated financial statements, our Manager performs a quarterly review of our loan portfolio, assesses the performance of each loan, and assigns it a risk rating between “1” and “5,” from less risk to greater risk. As of March 31, 2016, the weighted-average risk rating of our loan portfolio was 2.2.
Secured Debt Agreements
Our secured debt agreements included revolving repurchase facilities, the GE portfolio acquisition facility, and asset-specific financings.
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The following table details our secured debt agreements ($ in thousands):
The Wells Fargo maximum facility size is composed of a general $1.0 billion facility size and $172.0 million of additional capacity related solely to a specific asset with a repurchase date of July 30, 2016.
The JP Morgan maximum facility size is composed of a general $500.0 million facility size, under which U.S. Dollars and British Pound Sterling borrowings are contemplated, and $262.5 million of additional capacity related solely to a specific asset with a repurchase date of January 9, 2018.
The Citibank maximum facility size was composed of a general $500.0 million facility size and $37.5 million of additional capacity related solely to a specific asset with a repurchase date of October 9, 2017.
The Morgan Stanley maximum facility size represents a £250.0 million facility size which was translated to $359.5 million as of March 31, 2016.
The Société Générale maximum facility size represents a €400.0 million facility size which was translated to $453.5 million as of March 31, 2016.
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During the second quarter of 2015, concurrently with our acquisition of a portfolio of loans from General Electric Capital Corporation and certain of its affiliates, or the GE portfolio, we entered into an agreement with Wells Fargo to provide us with secured financing for the acquired portfolio. As of March 31, 2016, this facility provided for $3.1 billion of financing, of which $2.9 billion was outstanding and an additional $133.9 million was available to finance future loan fundings. The GE portfolio acquisition facility is non-revolving and consists of a single master repurchase agreement providing for both (i) asset-specific borrowings for each collateral asset as well as (ii) a sequential pay advance feature.
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Refer to Note 6 to our consolidated financial statements for additional terms and details of our secured debt agreements, including certain financial covenants.
Our floating rate loans and related liabilities are indexed to the various benchmark rates relevant in each arrangement in terms of currency and payment frequency. Therefore the net exposure to each benchmark rate is in direct proportion to our net assets indexed to that rate. In addition to cash coupon, cost / all-in yield includes the amortization of deferred origination fees / financing costs.
Refer to Note 7 to our consolidated financial statements for additional details related to our loan participations sold.
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Non-Consolidated Senior Interests
In certain instances, we finance our loans through the non-recourse sale of a senior loan interest that is not included in our consolidated financial statements. These non-consolidated senior interests provide structural leverage for our net investments which are reflected in the form of mezzanine loans or other subordinate interests on our balance sheet and our results of operations. Fundings under these non-consolidated senior interests totaled $33.0 million during the three months ended March 31, 2016. The following table details the subordinate interests retained on our balance sheet and the related non-consolidated senior interests as of March 31, 2016 ($ in thousands):
Weighted-average cash coupon(1)
Weighted-average all-in yield(1)
In addition to cash coupon, all-in yield includes the amortization of deferred origination fees, loan origination costs, and accrual of both extension and exit fees. Coupon and all-in yield for the total portfolio assume applicable floating benchmark rate for weighted-average calculation.
The following table details the subordinate interests retained on our balance sheet and the related non-consolidated senior interests as of December 31, 2015 ($ in thousands):
Weighted-average cash coupon
In addition to cash coupon, all-in yield includes the amortization of deferred origination fees, loan origination costs, and accrual of both extension and exit fees. Coupon and all-in yield for the portfolio assume applicable floating benchmark rate for weighted-average calculation.
Floating Rate Portfolio
Generally, our business model is such that rising interest rates will increase our net income, while declining interest rates will decrease net income. As of March 31, 2016, 79% of our loans by principal balance earned a floating rate of interest and were financed with liabilities that pay interest at floating rates, which resulted in an amount of net equity that is positively correlated to rising interest rates, subject to the impact of interest rate floors on certain of our floating rate loans. As of March 31, 2016, the remaining 21% of our loans by principal balance earned a fixed rate of interest, but are financed with liabilities that pay interest at floating rates, which resulted in a negative correlation to rising interest rates to the extent of our financing. In certain instances where we have financed fixed rate assets with floating rate liabilities, we have purchased interest rate caps to limit our exposure to increases in interest rates on such liabilities.
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Our liabilities are generally currency and index-matched to each collateral asset, resulting in a net exposure to movements in benchmark rates that varies by currency silo based on the relative proportion of floating rate assets and liabilities. The following table details our loan portfolio’s net exposure to interest rates by currency as of March 31, 2016 ($/£/€/C$ in thousands):
Floating rate loans(1)
Floating rate debt(1)(2)(3)
Net floating rate exposure(4)
Our floating rate loans and related liabilities are indexed to the various benchmark rates relevant in each case in terms of currency and payment frequency. Therefore the net exposure to each benchmark rate is in direct proportion to our net assets indexed to that rate.
Includes borrowings under secured debt agreements and loan participations sold.
Liabilities balance includes a C$14.7 million ($11.3 million as of March 31, 2016) interest rate swap used to hedge a portion of our fixed rate debt.
In addition, we have interest rate caps of $1.1 billion, £15.1 million, €152.7 million, and C$483.3 million to limit our exposure to increases in interest rates.
In November 2013, we issued $172.5 million of 5.25% convertible senior notes due on December 1, 2018, or the Convertible Notes. The Convertible Notes issuance costs, including underwriter discounts, are amortized through interest expense over the life of the Convertible Notes using the effective interest method. Including this amortization, our all-in cost of the Convertible Notes is 5.87%.
Refer to Notes 2 and 8 to our consolidated financial statements for additional discussion of our Convertible Notes.
CT Legacy Portfolio
As of March 31, 2016, our CT Legacy Portfolio consists of: (i) our interests in CT Legacy Partners, LLC and (ii) our carried interest in CT Opportunity Partners I, LP, or CTOPI, a private investment fund that was previously under our management and is now managed by an affiliate of our Manager.
During the three months ended March 31, 2016 we recognized (i) $66,000 of gain on investments at fair value, (ii) $138,000 of income from equity investments in unconsolidated subsidiaries, (iii) $349,000 of general and administrative expenses, and (iv) $152,000 of net income attributable to non-controlling interest related to our CT Legacy Portfolio. In addition, we received $11.6 million of distributions related to assets in the CT Legacy Portfolio.
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III. Our Results of Operations
Operating Results
The following table sets forth information regarding our consolidated results of operations and certain key operating metrics ($ in thousands, except per share data):
Net income per share - basic and diluted
Dividends declared per share
Income from loans and other investments, net increased $38.4 million during the three months ended March 31, 2016 compared to the corresponding period in 2015. The increase was primarily due to the increase in the principal balance of our loan portfolio, which increased by $4.4 billion as of March 31, 2016 compared with March 31, 2015. This was partially offset by additional interest expense incurred on our secured debt agreements, the principal balance of which increased by $3.7 billion as of March 31, 2016 compared with March 31, 2015.
Other expenses are comprised of management and incentive fees payable to our Manager and general and administrative expenses. Other expenses increased by $6.1 million during the three months ended March 31, 2016 compared to the corresponding period in 2015 due to (i) an increase of $4.0 million of management fees payable to our Manager, primarily as a result of additional net proceeds received from the sale of our class A common stock in 2015, (ii) an increase of $3.0 million of incentive fees payable to our Manager, primarily as a result of incremental Core Earnings (before any incentive fees) exceeding the performance hurdle, (iii) $1.4 million of additional non-cash restricted stock amortization related to shares awarded under our long-term incentive plans, and (iv) $302,000 of additional general operating expenses. These were partially offset by a decrease of $2.6 million of compensation expenses associated with our CT Legacy Portfolio incentive plans.
During three months ended March 31, 2016, we recognized $66,000 of net gains on investments held by CT Legacy Partners compared to $17.5 million during the three months ended March 31, 2015.
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During the three months ended March 31, 2016, we recognized $138,000 of promote income from CTOPI. compared to $3.9 million during the three months ended March 31, 2015.
During the three months ended March 31, 2016, we recognized $152,000 of net income attributable to non-controlling interests compared with $10.7 million during the three months ended March 31, 2015. The non-controlling interests represent the portion of CT Legacy Partners net income that is not owned by us. The decrease in income attributable to non-controlling interests is primarily a result of the decrease of $17.4 million of unrealized gain on investments at fair value recognized by CT Legacy Partners during the three months ended March 31, 2016 compared to the three months ended March 31, 2015.
During the three months ended March 31, 2016, we declared a dividend of $0.62 per share, or $58.2 million, which was paid on April 15, 2016 to common stockholders of record as of March 31, 2016. During the three months ended March 31, 2015, we declared a dividend of $0.52 per share, or $30.4 million.
IV. Liquidity and Capital Resources
Capitalization
We have capitalized our business to date through, among other things, the issuance and sale of shares of our class A common stock, borrowings under secured debt agreements, and the issuance and sale of Convertible Notes. As of March 31, 2016, we had 93,912,409 shares of our class A common stock outstanding representing $2.5 billion of stockholders’ equity, $6.3 billion of outstanding borrowings under secured debt agreements, and $172.5 million of Convertible Notes outstanding.
As of March 31, 2016, our secured debt agreements consisted of revolving repurchase facilities with an outstanding balance of $3.3 billion, the GE portfolio acquisition facility with an outstanding balance of $2.9 billion, and $157.0 million of asset-specific financings. We also finance our business through the sale of loan participations and non-consolidated senior interests. As of March 31, 2016 we had $478.7 million of loan participations sold and $1.1 billion of non-consolidated senior interests outstanding.
See Notes 6, 7, and 8 to our consolidated financial statements for additional details regarding our secured debt agreements, loan participations sold, and Convertible Notes.
Sources of Liquidity
Our primary sources of liquidity include cash and cash equivalents and available borrowings under our repurchase facilities, which are set forth in the following table ($ in thousands):
Available borrowings under revolving repurchase facilities
In addition to our current sources of liquidity, we have access to liquidity through public offerings of debt and equity securities. To facilitate such offerings, in July 2013, we filed a shelf registration statement with the Securities and Exchange Commission, or the SEC, that is effective for a term of three years and will expire in July 2016. The amount of securities to be issued pursuant to this shelf registration statement was not specified when it was filed and there is no specific dollar limit on the amount of securities we may issue. The securities covered by this registration statement include: (i) class A common stock, (ii) preferred stock, (iii) debt securities, (iv) depositary shares representing preferred stock, (v) warrants, (vi) subscription rights, (vii) purchase contracts, and (viii) units consisting of one or more of such securities or any combination of these securities. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering.
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We may also access liquidity through a dividend reinvestment plan and direct stock purchase plan, under which we registered and reserved for issuance, in the aggregate, 10,000,000 shares of class A common stock, and our at-the-market stock offering program, pursuant to which we may sell, from time to time, up to an aggregate of $200.0 million of our class A common stock. Refer to Note 10 to our consolidated financial statements for additional details.
Our existing loan portfolio also provides us with liquidity as loans are repaid or sold, in whole or in part, and the proceeds from such repayments become available for us to reinvest.
Liquidity Needs
In addition to our ongoing loan origination activity, our primary liquidity needs include interest and principal payments under our $6.3 billion of outstanding borrowings under secured debt agreements, our Convertible Notes, our $965.1 million of unfunded loan commitments, dividend distributions to our stockholders, and operating expenses.
Contractual Obligations and Commitments
Our contractual obligations and commitments as of March 31, 2016 were as follows ($ in thousands):
Secured debt agreements(2)(3)
Loan participations sold(3)(4)
The allocation of our unfunded loan commitments is based on the earlier of the commitment expiration date or the loan maturity date.
The allocation of our revolving repurchase facilities is based on the current maturity date of each individual borrowing under the facilities. Includes the related future interest payment obligations, which are estimated by assuming the amounts outstanding under our revolving repurchase facilities and the interest rates in effect as of March 31, 2016 will remain constant into the future; this is only an estimate, as actual amounts borrowed and rates will vary over time.
Assumes repayment date based on initial maturity of each instrument. Future interest payment obligations are determined using the relevant benchmark rates in effect as of March 31, 2016, as applicable.
Loan participations sold represent senior interests in certain loans that we sold, but do not qualify as sales under GAAP. These participations are non-recourse and the obligation to pay principal and interest on these liabilities is solely based on the performance of the related loan obligation, except in one instance where we entered into a related guarantee agreement for £24.0 million ($34.5 million as of March 31, 2016).
We are also required to settle our foreign currency forward contracts and interest rate swaps with our derivative counterparties upon maturity which, depending on foreign exchange and interest rate movements, may result in cash received from or due to the respective counterparty. The table above does not include these amounts as they are not fixed and determinable. Refer to Note 9 to our consolidated financial statement for details regarding our derivative contracts.
We are required to pay our Manager a base management fee, an incentive fee, and reimbursements for certain expenses pursuant to our Management Agreement. The table above does not include the amounts payable to our Manager under our Management Agreement as they are not fixed and determinable. Refer to Note 11 to our consolidated financial statements for additional terms and details of the fees payable under our Management Agreement.
As a REIT, we generally must distribute substantially all of our net taxable income to shareholders in the form of dividends to comply with the REIT provisions of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. Our taxable income does not necessarily equal our net income as calculated in accordance with GAAP, or our Core Earnings as described above.
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Cash Flows
The following table provides a breakdown of the net change in our cash and cash equivalents ($ in thousands):
We experienced a net increase in cash of $11.5 million for the three months ended March 31, 2016, compared to a net decrease of $33.0 million for the three months ended March 31, 2015. During the three months ended March 31, 2016, we borrowed a net $163.4 million under our secured debt agreements and received $420.5 million of proceeds from loan principal collections and proceeds from the sale of loans receivable and other assets. We used the proceeds from our debt and equity financing activities to purchase and originate $586.1 million of new loans during the three months ended March 31, 2016.
Refer to Notes 6 and 7 to our consolidated financial statements for additional discussion of our secured debt obligations and participations sold. Refer to Note 3 to our consolidated financial statements for further discussion of our loan activity.
V. Other Items
Our qualification as a REIT also depends on our ability to meet various other requirements imposed by the Internal Revenue Code, which relate to organizational structure, diversity of stock ownership, and certain restrictions with regard to the nature of our assets and the sources of our income. Even if we qualify as a REIT, we may be subject to certain U.S. federal income and excise taxes and state and local taxes on our income and assets. If we fail to maintain our qualification as a REIT for any taxable year, we may be subject to material penalties as well as federal, state and local income tax on our taxable income at regular corporate rates and we would not be able to qualify as a REIT for the subsequent four full taxable years. As of March 31, 2016 and December 31, 2015, we were in compliance with all REIT requirements.
Refer to Note 12 to our consolidated financial statements for additional discussion of our income taxes.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires our Manager to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Actual results could differ from these estimates. There have been no material changes to our Critical Accounting Policies described in our annual report on Form 10-K filed with the SEC on February 16, 2016.
Refer to Note 2 to our consolidated financial statements for the description of our Significant Accounting Policies.
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VI. Loan Portfolio Details
The following table provides details of our loan portfolio, on a loan-by-loan basis, as of March 31, 2016 ($ in millions):
Loan Type(1)
OriginationDate(2)
MaximumMaturity(4)
Location
PropertyType
Loan PerSQFT / Unit / Key
RiskRating
continued…
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47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
Senior loans include senior mortgages and similar credit quality loans, including related contiguous subordinate loans and pari passu participations in senior mortgage loans.
Date loan was originated or acquired by us, and the LTV as of such date.
As of March 31, 2016, our floating rate loans were indexed to various benchmark rates, with 83% of floating rate loans indexed to USD LIBOR. In addition, $146.9 million of our floating rate loans earned interest based on floors that are above the applicable index, with an average floor of 1.80%, as of March 31, 2016. In addition to cash coupon, all-in yield includes the amortization of deferred origination fees, loan origination costs, and accrual of both extension and exit fees.
Maximum maturity assumes all extension options are exercised, however our loans may be repaid prior to such date.
In certain instances, we finance our loans through the non-recourse sale of a senior loan interest that is not included in our consolidated financial statements. These investments are therefore presented net of the related non-consolidated senior interests.
Loan consists of one or more floating and fixed rate tranches. Coupon and all-in yield assume applicable floating benchmark rate for weighted-average calculation.
Interest Rate Risk
Loan Portfolio Net Interest Income
The following table projects the impact on our interest income and expense for the twelve month period following March 31, 2016, assuming an immediate increase or decrease of both 25 and 50 basis points in the applicable interest rate benchmark by currency ($ in thousands):
Currency
USD(2)
GBP
EUR
CAD(3)
Loan Portfolio Value
As of March 31, 2016, 21% of our loans earned a fixed rate of interest and as such, the values of such loans are sensitive to changes in interest rates. We generally hold all of our loans to maturity and so do not expect to realize gains or losses on our fixed rate loan portfolio as a result of movements in market interest rates.
Risk of Non-Performance
In addition to the risks related to fluctuations in cash flows and asset values associated with movements in interest rates, there is also the risk of non-performance on floating rate assets. In the case of a significant increase in interest rates, the additional debt service payments due from our borrowers may strain the operating cash flows of the collateral real estate assets and, potentially, contribute to non-performance or, in severe cases, default. This risk is partially mitigated by various facts we consider during our underwriting process, which in certain cases include a requirement for our borrower to purchase an interest rate cap contract.
Credit Risks
Our loans and investments are also subject to credit risk. The performance and value of our loans and investments depend upon the sponsors’ ability to operate the properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due to us. To monitor this risk, our Manager’s asset management team reviews our investment portfolios and in certain instances is in regular contact with our borrowers, monitoring performance of the collateral and enforcing our rights as necessary.
In addition, we are exposed to the risks generally associated with the commercial real estate market, including variances in occupancy rates, capitalization rates, absorption rates, and other macroeconomic factors beyond our control. We seek to manage these risks through our underwriting and asset management processes.
Capital Market Risks
We are exposed to risks related to the equity capital markets, and our related ability to raise capital through the issuance of our class A common stock or other equity instruments. We are also exposed to risks related to the debt capital markets, and our related ability to finance our business through borrowings under credit facilities or other debt instruments. As a REIT, we are required to distribute a significant portion of our taxable income annually, which constrains our ability to accumulate operating cash flow and therefore requires us to utilize debt or equity capital to finance our business. We seek to mitigate these risks by monitoring the debt and equity capital markets to inform our decisions on the amount, timing, and terms of capital we raise.
Counterparty Risk
The nature of our business requires us to hold our cash and cash equivalents and obtain financing from various financial institutions. This exposes us to the risk that these financial institutions may not fulfill their obligations to us under these various contractual arrangements. We mitigate this exposure by depositing our cash and cash equivalents and entering into financing agreements with high credit-quality institutions.
The nature of our loans and investments also exposes us to the risk that our counterparties do not make required interest and principal payments on scheduled due dates. We seek to manage this risk through a comprehensive credit analysis prior to making an investment and active monitoring of the asset portfolios that serve as our collateral.
Currency Risk
Our loans and investments that are denominated in a foreign currency are also subject to risks related to fluctuations in currency rates. We mitigate this exposure by matching the currency of our foreign currency assets to the currency of the borrowings that finance those assets. As a result, we substantially reduce our exposure to changes in portfolio value related to changes in foreign currency rates. In certain circumstances, we may also enter into foreign currency derivative contracts to further mitigate this exposure.
The following table outlines our assets and liabilities that are denominated in a foreign currency (£/€/C$ in thousands):
Foreign currency assets
Foreign currency liabilities
Foreign currency contracts - notional
Net exposure to exchange rate fluctuations
We estimate that a 10% appreciation of the United States Dollar relative to the British Pound Sterling and the Euro would result in a decline in our net assets in U.S. Dollar terms of $28.0 million and $14.5 million, respectively, as of March 31, 2016. Substantially all of our net asset exposure to the Canadian Dollar has been hedged with foreign currency forward contracts.
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this quarterly report on Form 10-Q was made under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by SEC rules and forms and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls over Financial Reporting
There have been no changes in our “internal control over financial reporting” (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by this quarterly report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
There have been no material changes to the risk factors previously disclosed under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015.
None.
Not applicable.
Section 13(r) Disclosure
Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, or ITRA, which added Section 13(r) of the Exchange Act, we hereby incorporate by reference herein Exhibit 99.1 of this report, which includes disclosures publicly filed by Travelport Worldwide Limited and Hilton Worldwide Holdings Inc., each of which may be considered an affiliate of Blackstone and therefore our affiliate.
ITEM 6. EXHIBITS
Joinder Termination Agreement, dated as of March 25, 2016, among Parlex 1 Finance, LLC, Parlex 3 Finance, LLC and Bank of America, N.A.
Amendment No. 4 to Master Repurchase Agreement, dated as of March 25, 2016, between Parlex 1 Finance, LLC Bank of America, N.A.
Amended and Restated Master Repurchase Agreement, dated as of January 29, 2016, among Parlex 4 UK Finco, LLC, Parlex 4 Finance, LLC and JPMorgan Chase Bank, National Association
Acknowledgment of Guarantor, dated as of January 29, 2016, made by Blackstone Mortgage Trust, Inc. in favor of JPMorgan Chase Bank, National Association
Amendment No. 4 to Amended and Restated Master Repurchase and Securities Contract, dated as of March 11, 2016 between Parlex 5 Finco, LLC and Wells Fargo Bank, National Association
Certification of Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BLACKSTONE MORTGAGE TRUST, INC.
April 26, 2016
/s/ Stephen D. Plavin
Date
Stephen D. Plavin
Chief Executive Officer
(Principal Executive Officer)
/s/ Anthony F. Marone, Jr.
Anthony F. Marone, Jr.
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)