UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018 |
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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 1-14788
Blackstone Mortgage Trust, Inc.
(Exact name of Registrant as specified in its charter)
Maryland | 94-6181186 | |
(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)
Registrants telephone number, including area code: (212) 655-0220
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Name of each exchange on which registered |
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Class A common stock, par value $0.01 per share | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act:
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the outstanding class A common stock held by non-affiliates of the registrant was approximately $3.3 billion as of June 30, 2018 (the last business day of the registrants most recently completed second fiscal quarter) based on the closing sale price on the New York Stock Exchange on that date.
As of February 5, 2019, there were 123,763,088 outstanding shares of class A common stock. The class A common stock is listed on the New York Stock Exchange (trading symbol BXMT).
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this annual report on Form 10-K incorporates information by reference from the registrants definitive proxy statement with respect to its 2019 annual meeting of stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of the registrants fiscal year.
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ITEM 1. |
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ITEM 1A. |
9 | |||||
ITEM 1B. |
59 | |||||
ITEM 2. |
59 | |||||
ITEM 3. |
59 | |||||
ITEM 4. |
59 | |||||
ITEM 5. |
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 60 | ||||
ITEM 6. |
61 | |||||
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 62 | ||||
ITEM 7A. |
86 | |||||
ITEM 8. |
88 | |||||
ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 88 | ||||
ITEM 9A. |
88 | |||||
ITEM 9B. |
89 | |||||
ITEM 10. |
90 | |||||
ITEM 11. |
90 | |||||
ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 90 | ||||
ITEM 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | 90 | ||||
ITEM 14. |
90 | |||||
ITEM 15. |
91 | |||||
ITEM 16. |
98 | |||||
99 | ||||||
F-1 |
ITEM 1. |
BUSINESS |
References herein to Blackstone Mortgage Trust, company, we, us, or our refer to Blackstone Mortgage Trust, Inc., a Maryland corporation, and its subsidiaries unless the context specifically requires otherwise.
Our Company
Blackstone Mortgage Trust is a real estate finance company that originates senior loans collateralized by commercial real estate in North America, Europe, and Australia. Our investment objective is to preserve and protect shareholder capital while producing attractive risk-adjusted returns primarily through dividends generated from current income from our loan portfolio. We are externally managed by BXMT Advisors L.L.C., or our Manager, a subsidiary of The Blackstone Group L.P., or Blackstone, and are a real estate investment trust, or REIT, traded on the New York Stock Exchange, or NYSE, under the symbol BXMT. Our principal executive offices are located at 345 Park Avenue, 42 nd Floor, New York, New York 10154. We were incorporated in Maryland in 1998, when we reorganized from a California common law business trust into a Maryland corporation.
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, or the Investment Company Act. We are organized as a holding company and conduct our business primarily through our various subsidiaries. We operate our business as one segment, which originates and acquires commercial mortgage loans and related investments.
Our Manager
We are externally managed and advised by our Manager, which is responsible for administering our business activities, day-to-day operations, and providing us the services of our executive management team, investment team, and appropriate support personnel.
Our Manager is a part of Blackstones alternative asset management business, which includes the management of investment vehicles focused on private equity, real estate, public debt and equity, non-investment grade credit, real assets, and secondary funds, all on a global basis. Through its different businesses, Blackstone had total assets under management of $472.2 billion as of December 31, 2018.
In connection with the performance of its duties, our Manager benefits from the resources, relationships, and expertise of the 479 professionals in Blackstones global real estate group, which is one of the largest real estate investment managers in the world with $136.2 billion of investor capital under management as of December 31, 2018. Kenneth Caplan and Kathleen McCarthy, who are the global co-heads of Blackstones real estate group, are members of our Managers investment committee.
Blackstone Real Estate Debt Strategies, or BREDS, was launched in 2008 within Blackstones global real estate group to pursue opportunities relating to debt and preferred equity investments globally, with a focus primarily on North America and Europe. Michael Nash, the global chairman of BREDS, serves as the executive chairman of our board of directors and is a member of our Managers investment committee. In addition, Jonathan Pollack, the global head of BREDS, serves as one of our directors and is also a member of our Managers investment committee. As of December 31, 2018, 104 dedicated BREDS professionals, including 14 investment professionals based in London and Australia, managed $17.5 billion of investor capital.
Our chief executive officer, chief financial officer, and other executive officers are senior Blackstone real estate professionals. None of our Manager, our executive officers, or other personnel supplied to us by our Manager is
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obligated to dedicate any specific amount of time to our business. Our Manager is subject to the supervision and oversight of our board of directors and has only such functions and authority as our board of directors delegates to it. Pursuant to a management agreement between our Manager and us, or our Management Agreement, our Manager is entitled to receive a base management fee, an incentive fee, and expense reimbursements. See Notes 12 and 17 to our consolidated financial statements and the information disclosed pursuant to Item 13 Certain Relationships and Related Transactions, and Director Independence in our definitive proxy statement with respect to our 2019 annual meeting of shareholders, which is incorporated by reference into this Annual Report on Form 10-K for more detail on the terms of the Management Agreement.
Our Investment Strategy
Our investment strategy is to originate loans and invest in debt and related instruments supported by institutional quality commercial real estate in attractive locations. Through our Manager, we draw on Blackstones extensive real estate debt investment platform and its established sourcing, underwriting, and structuring capabilities in order to execute our investment strategy. In addition, we have access to Blackstones extensive network and Blackstones substantial real estate and other investment holdings, which provide our Manager access to market data on a scale not available to many competitors.
We directly originate, co-originate, and acquire debt instruments in conjunction with acquisitions, refinancings, and recapitalizations of commercial real estate in North America, Europe, and Australia. In the case of loans we acquire, we focus on performing loans that are supported by well-capitalized properties and portfolios. We believe that the scale and flexibility of our capital, as well as our Managers and Blackstones relationships, enables us to target opportunities with strong sponsorship and invest in large loans or other debt that is collateralized by high-quality assets and portfolios.
As market conditions evolve over time, we expect to adapt as appropriate. We believe our current investment strategy will produce significant opportunities to make investments with attractive risk-return profiles. However, to capitalize on the investment opportunities that may be present at various other points of an economic cycle, we may expand or change our investment strategy by targeting assets such as subordinate mortgage loans, mezzanine loans, preferred equity, real estate securities and note financings.
We believe that the diversification of our investment portfolio, our ability to actively manage those investments, and the flexibility of our strategy positions us to generate attractive returns for our stockholders in a variety of market conditions over the long term.
Our Portfolio
Our business is currently focused on originating or acquiring senior, floating rate mortgage loans that are secured by a first priority mortgage on commercial real estate assets primarily in the office, hotel, and multifamily sectors in North America, Europe, and Australia. These investments may be in the form of whole loans, pari passu participations within mortgage loans, or other similar structures. Although originating senior, floating rate mortgage loans is our primary area of focus, we also originate and acquire fixed rate loans and subordinate loans, including subordinate mortgage interests and mezzanine loans. This focused lending strategy is designed to generate attractive current income while protecting investors capital.
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During the year ended December 31, 2018, we originated or acquired $10.7 billion of loans. Loan fundings during the year totaled $7.9 billion, with repayments of $3.6 billion, for net fundings of $4.3 billion. The following table details the overall statistics of our investment portfolio as of December 31, 2018 ($ in thousands):
Total Investment Exposure | ||||||||||||||||||
Balance Sheet
Portfolio (1) |
Loan
Exposure (1)(2) |
Other
Investments (3) |
Total Investment
Portfolio |
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Number of investments |
125 | 125 | 1 | 126 | ||||||||||||||
Principal balance |
$ | 14,293,970 | $ | 14,740,844 | $ | 1,035,000 | $ | 15,775,844 | ||||||||||
Net book value |
$ | 14,191,200 | $ | 14,191,200 | $ | 96,167 | $ | 14,287,367 | ||||||||||
Unfunded loan commitments (4) |
$ | 3,405,945 | $ | 3,475,928 | $ | | $ | 3,475,928 | ||||||||||
Weighted-average cash coupon (5) |
5.67 | % | 5.64 | % | L + 2.75 | % | 5.61 | % | ||||||||||
Weighted-average all-in yield (5) |
6.00 | % | 5.96 | % | L + 2.99 | % | 5.93 | % | ||||||||||
Weighted-average maximum maturity (years) (6) |
3.9 | 3.9 | 6.4 | 4.1 | ||||||||||||||
Loan to value (LTV) (7) |
63.6 | % | 63.8 | % | 42.6 | % | 62.4 | % |
(1) |
Excludes investment exposure to the $99.0 million subordinate risk retention interest we own in a $1.0 billion single asset securitization vehicle, or the 2018 Single Asset Securitization. Refer to Notes 5 and 16 to our consolidated financial statements for further discussion of the 2018 Single Asset Securitization. |
(2) |
In certain instances, we finance our loans through the non-recourse sale of a senior loan interest that is not included in our consolidated financial statements. Total loan exposure encompasses the entire loan we originated and financed, including $446.9 million of such non-consolidated senior interests that are not included in our balance sheet portfolio. |
(3) |
Includes investment exposure to the $1.0 billion 2018 Single Asset Securitization. We do not consolidate the 2018 Single Asset Securitization on our consolidated financial statements, and instead reflect our $99.0 million subordinate risk retention investment as a component of other assets on our consolidated balance sheet. Refer to Notes 5 and 16 to our consolidated financial statements for further discussion of the 2018 Single Asset Securitization. |
(4) |
Unfunded commitments will primarily be funded to finance our borrowers construction or development of real estate-related assets, capital improvements of existing assets, or lease-related expenditures. These commitments will generally be funded over the term of each loan, subject in certain cases to an expiration date. |
(5) |
As of December 31, 2018, 96% of our loans by total loan exposure earned a floating rate of interest, primarily indexed to USD LIBOR, and 4% earned a fixed rate of interest. Cash coupon and all-in yield assume applicable floating benchmark rates as of December 31, 2018 for weighted-average calculation. In addition to cash coupon, all-in yield includes the amortization of deferred origination and extension fees, loan origination costs, and purchase discounts, as well as the accrual of exit fees. |
(6) |
Maximum maturity assumes all extension options are exercised by the borrower, however our loans and other investments may be repaid prior to such date. As of December 31, 2018, 77% of our loans and other investments were subject to yield maintenance or other prepayment restrictions and 23% were open to repayment by the borrower without penalty. |
(7) |
Based on LTV as of the dates loans and other investments were originated or acquired by us. |
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The charts below detail the geographic distribution and types of properties securing our investment portfolio, as of December 31, 2018:
For additional information regarding our loan portfolio as of December 31, 2018, see Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations II. Loan Portfolio and VI. Loan Portfolio Details in this Annual Report on Form 10-K.
Financing Strategy
To maintain an adequate amount of available liquidity and execute our business plan, we look to a variety of sources. In addition to raising capital through public offerings of our equity and debt securities, our financing strategy includes credit facilities, asset-specific financings, the GE portfolio acquisition facility, a revolving credit agreement, loan participations sold, non-consolidated senior interests, and securitized debt obligations. In addition to our current mix of financing sources, we also expect to access additional forms of financings including resecuritizations and public and private, secured and unsecured debt issuances by us or our subsidiaries.
During the year ended December 31, 2018, we issued 14,566,743 aggregate shares of our class A common stock through an underwritten public offering and our at-the-market program, providing aggregate net proceeds of $476.4 million. Additionally, we issued $220.0 million aggregate principal amount of convertible notes with a coupon rate of 4.75% and an initial conversion price of $36.23.
During the year ended December 31, 2018, we added two new credit facilities, providing an aggregate additional $2.0 billion of credit capacity, and increased the maximum facility size of five of our existing credit facilities, providing an aggregate additional $2.3 billion of credit capacity.
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The following table details our outstanding financing arrangements as of December 31, 2018 ($ in thousands):
Portfolio Financing
Outstanding Principal Balance |
||||
December 31, 2018 | ||||
Credit facilities |
$ | 6,903,683 | ||
Asset-specific financings |
1,538,548 | |||
GE portfolio acquisition facility |
510,405 | |||
Revolving credit agreement |
43,845 | |||
Loan participations sold |
94,528 | |||
Non-consolidated senior interests (1) |
446,874 | |||
Securitized debt obligations |
1,292,120 | |||
|
|
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Total portfolio financing |
$ | 10,830,003 | ||
|
|
(1) |
These non-consolidated senior interests provide structural leverage for our net investments which are reflected in the form of mezzanine loans or other subordinate interests on our balance sheet and in our results of operations. |
The amount of leverage we employ for particular assets will depend upon our Managers assessment of the credit, liquidity, price volatility, and other risks of those assets and the related financing counterparties, the availability of particular types of financing at the time, and the financial covenants under our credit facilities. Our decision to use leverage to finance our assets will be at the discretion of our Manager and will not be subject to the approval of our stockholders. We currently expect that our leverage will not exceed, on a debt to equity basis, a ratio of 4-to-1. We will endeavor to match the terms, currency, and indices of our assets and liabilities, including in certain instances through the use of derivatives. We will also seek to limit the risks associated with recourse borrowing.
Subject to maintaining our qualification as a REIT, from time to time, we engage in hedging transactions that seek to mitigate the effects of fluctuations in interest rates or currencies on our cash flows. These hedging transactions could take a variety of forms, including interest rate or currency swaps or cap agreements, options, futures contracts, forward rate or currency agreements or similar financial instruments.
Floating Rate Portfolio
Generally, our business model is such that rising interest rates will increase our net income, while declining interest rates will decrease net income. As of December 31, 2018, 96% of our loans by total loan exposure earned a floating rate of interest and were financed with liabilities that pay interest at floating rates, which resulted in an amount of net equity that is positively correlated to rising interest rates, subject to the impact of interest rate floors on certain of our floating rate loans. As of December 31, 2018, the remaining 4% of our loans by total loan exposure earned a fixed rate of interest, but are financed with liabilities that pay interest at floating rates, which resulted in a negative correlation to rising interest rates to the extent of our financing. In certain instances where we have financed fixed rate assets with floating rate liabilities, we have purchased interest rate swaps or caps to limit our exposure to increases in interest rates on such liabilities.
Investment Guidelines
Our board of directors has approved the following investment guidelines:
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our Manager shall seek to invest our capital in a broad range of investments in, or relating to, public and/or private debt, non-controlling equity, loans and/or other interests (including mezzanine interests and/or options or derivatives related thereto) relating to real estate assets (including pools thereof), real estate companies, and/or real estate-related holdings; |
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prior to the deployment of capital into investments, our Manager may cause our capital to be invested in any short-term investments in money market funds, bank accounts, overnight repurchase agreements with primary federal reserve bank dealers collateralized by direct U.S. government obligations and other instruments or investments reasonable determined by our Manager to be of high quality; |
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not more than 25% of our equity, as defined in the Management Agreement with our Manager, will be invested in any individual investment without the approval of a majority of the investment risk management committee of our board of directors (it being understood, however, that for purposes of the foregoing concentration limit, in the case of any investment that is comprised (whether through a structured investment vehicle or other arrangement) of securities, instruments or assets of multiple portfolio issuers, such investment for purposes of the foregoing limitation shall be deemed to be multiple investments in such underlying securities, instruments and assets and not such particular vehicle, product or other arrangement in which they are aggregated); |
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any investment in excess of $300.0 million shall require the approval of a majority of the investment risk management committee of our board of directors; |
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no investment shall be made that would cause us to fail to qualify as a REIT under the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code; and |
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no investment shall be made that would cause us or any of our subsidiaries to be regulated as an investment company under the Investment Company Act. |
These investment guidelines may be amended, restated, modified, supplemented or waived upon the approval of a majority of our board of directors, which must include a majority of the independent directors, without the approval of our stockholders.
Competition
We are engaged in a competitive business. In our lending and investing activities, we compete for opportunities with a variety of institutional lenders and investors, including other REITs, specialty finance companies, public and private funds (including other funds managed by Blackstone and its affiliates), commercial and investment banks, commercial finance and insurance companies and other financial institutions. Several other REITs and other investment vehicles have raised significant amounts of capital, and may have investment objectives that overlap with ours, which may create additional competition for lending and investment opportunities. Some competitors may have a lower cost of funds and access to funding sources, such as the U.S. Government, that are not available to us. Many of our competitors are not subject to the operating constraints associated with REIT compliance or maintenance of an exclusion from regulation under the Investment Company Act. We could face increased competition from banks due to future legislative developments, such as amendments to key provisions of the Dodd-Frank Act, including provisions setting forth capital and risk retention requirements. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of loans and investments and offer more attractive pricing or other terms than we would. Furthermore, competition for originations of and investments in assets we target may lead to decreasing yields, which may further limit our ability to generate targeted returns.
In the face of this competition, we have access to our Managers and Blackstones professionals and their industry expertise and relationships, which we believe provide us with a competitive advantage and help us assess risks and determine appropriate pricing for potential investments. We believe these relationships will enable us to compete more effectively for attractive investment opportunities. However, we may not be able to achieve our business goals or expectations due to the competitive risks that we face. For additional information concerning these competitive risks, see Item 1A Risk FactorsRisks Related to Our Lending and Investment Activities.
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Employees
We do not have any employees. We are externally managed by our Manager pursuant to the Management Agreement. Our executive officers serve as officers of our Manager, and are employed by an affiliate of our Manager.
Government Regulation
Our operations in North America, Europe, and Australia are subject, in certain instances, to supervision and regulation by U.S. and other governmental authorities, and may be subject to various laws and judicial and administrative decisions imposing various requirements and restrictions, which, among other things: (i) regulate credit-granting activities; (ii) establish maximum interest rates, finance charges and other charges; (iii) require disclosures to customers; (iv) govern secured transactions; and (v) set collection, foreclosure, repossession and claims-handling procedures and other trade practices. We are also required to comply with certain provisions of the Equal Credit Opportunity Act that are applicable to commercial loans. We intend to conduct our business so that neither we nor any of our subsidiaries are required to register as an investment company under the Investment Company Act.
In our judgment, existing statutes and regulations have not had a material adverse effect on our business. In recent years, legislators in the United States and in other countries have said that greater regulation of financial services firms is needed, particularly in areas such as risk management, leverage, and disclosure. While we expect that additional new regulations in these areas will be adopted and existing ones may change in the future, it is not possible at this time to forecast the exact nature of any future legislation, regulations, judicial decisions, orders or interpretations, nor their impact upon our future business, financial condition, or results of operations or prospects.
Taxation of the Company
We have elected to be taxed as a REIT under the Internal Revenue Code for U.S. federal income tax purposes. We generally must distribute annually at least 90% of our net taxable income, subject to certain adjustments and excluding any net capital gain, in order for U.S. federal income tax not to apply to our earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our net taxable income, we will be subject to U.S. federal income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws.
Our qualification as a REIT also depends on our ability to meet various other requirements imposed by the Internal Revenue Code, which relate to organizational structure, diversity of stock ownership, and certain restrictions with regard to the nature of our assets and the sources of our income. Even if we qualify as a REIT, we may be subject to certain U.S. federal income and excise taxes and state and local taxes on our income and assets. If we fail to maintain our qualification as a REIT for any taxable year, we may be subject to material penalties as well as federal, state, and local income tax on our taxable income at regular corporate rates and we would not be able to qualify as a REIT for the subsequent four full taxable years.
Furthermore, we have one or more taxable REIT subsidiaries, or TRS, which are subject to federal, state, and local income tax on their net taxable income. See Item 1ARisk FactorsRisks Related to our REIT Status and Certain Other Tax Items for additional tax status information.
Taxation of REIT Dividends
Under the Tax Cuts and Jobs Act of 2017, REIT dividends (other than capital gain dividends) received by non-corporate taxpayers may be eligible for a 20% deduction. This deduction is only applicable to investors in
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BXMT that receive dividends and does not have any impact on us. Without further legislation, the deduction would sunset after 2025. Investors should consult their own tax advisors regarding the effect of this change on their effective tax rate with respect to REIT dividends.
Website Access to Reports
We maintain a website at www.blackstonemortgagetrust.com . We are providing the address to our website solely for the information of investors. The information on our website is not a part of, nor is it incorporated by reference into this report. Through our website, we make available, free of charge, our annual proxy statement, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish them to, the Securities and Exchange Commission, or the SEC. The SEC maintains a website that contains these reports at www.sec.gov .
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ITEM 1A. |
RISK FACTORS |
FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Exchange Act, which involve certain known and unknown risks and uncertainties. Forward-looking statements predict or describe our future operations, business plans, business and investment strategies and portfolio management and the performance of our investments. These forward-looking statements are generally identified by their use of such terms and phrases as intend, goal, estimate, expect, project, projections, plans, seeks, anticipates, should, could, may, designed to, foreseeable future, believe, scheduled and similar expressions. Our actual results or outcomes may differ materially from those anticipated. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. We assume no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Our actual results may differ significantly from any results expressed or implied by these forward-looking statements. Some, but not all, of the factors that might cause such a difference include, but are not limited to:
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the general political, economic, capital markets and competitive conditions in the United States and foreign jurisdictions where we invest; |
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the level and volatility of prevailing interest rates and credit spreads; |
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adverse changes in the real estate and real estate capital markets; |
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difficulty in obtaining financing or raising capital; |
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reductions in the yield on our investments and increases in the cost of our financing; |
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defaults by borrowers in paying debt service on outstanding indebtedness; |
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increased competition from entities engaged in mortgage lending and, or investing in our target assets; |
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adverse legislative or regulatory developments, including with respect to tax laws; |
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acts of God such as hurricanes, earthquakes and other natural disasters, acts of war and/or terrorism and other events that may cause unanticipated and uninsured performance declines and/or losses to us or the owners and operators of the real estate securing our investments; |
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deterioration in the performance of properties securing our investments that may cause deterioration in the performance of our investments and, potentially, principal losses to us; |
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adverse developments in the availability of desirable investment opportunities whether they are due to competition, regulation or otherwise; |
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difficulty in redeploying the proceeds from repayments of our existing investments; |
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difficulty in successfully managing our growth, including integrating new assets into our existing systems; |
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authoritative generally accepted accounting principles, or GAAP, or policy changes from such standard-setting bodies such as the Financial Accounting Standards Board, or FASB, the SEC, the Internal Revenue Service, or IRS, the New York Stock Exchange, or NYSE, and other authorities that we are subject to, as well as their counterparts in any foreign jurisdictions where we might do business; and |
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other factors, including those items discussed in the risk factors set forth below. |
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We caution you not to place undue reliance on these forward-looking statements. All written and oral forward-looking statements attributable to us
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or persons acting on our behalf are qualified in their entirety by these cautionary statements. Moreover, unless we are required by law to update these statements, we will not necessarily update or revise any forward-looking statements included or incorporated by reference in this Annual Report after the date hereof, either to conform them to actual results or to changes in our expectations.
Risks Related to Our Lending and Investment Activities
Our loans and investments expose us to risks associated with debt-oriented real estate investments generally.
We seek to invest primarily in debt instruments relating to real estate-related assets. As such, we are subject to, among other things, risk of defaults by borrowers in paying debt service on outstanding indebtedness and to other impairments of our loans and investments. Any deterioration of real estate fundamentals generally, and in North America, Europe and Australia in particular, could negatively impact our performance by making it more difficult for borrowers of our mortgage loans, or borrower entities, to satisfy their debt payment obligations, increasing the default risk applicable to borrower entities, and/or making it more difficult for us to generate attractive risk-adjusted returns. Changes in general economic conditions will affect the creditworthiness of borrower entities and/or the value of underlying real estate collateral relating to our investments and may include economic and/or market fluctuations, changes in environmental, zoning and other laws, casualty or condemnation losses, regulatory limitations on rents, decreases in property values, changes in the appeal of properties to tenants, changes in supply and demand, fluctuations in real estate fundamentals, the financial resources of borrower entities, energy supply shortages, various uninsured or uninsurable risks, natural disasters, political events, terrorism and acts of war, changes in government regulations, changes in real property tax rates and/or tax credits, changes in operating expenses, changes in interest rates, changes in inflation rates, changes in the availability of debt financing and/or mortgage funds which may render the sale or refinancing of properties difficult or impracticable, increased mortgage defaults, increases in borrowing rates, negative developments in the economy and/or adverse changes in real estate values generally and other factors that are beyond our control.
We cannot predict the degree to which economic conditions generally, and the conditions for real estate debt investing in particular, will improve or decline. Any declines in the performance of the U.S. and global economies or in the real estate debt markets could have a material adverse effect on our business, financial condition, and results of operations.
Commercial real estate-related investments that are secured, directly or indirectly, by real property are subject to delinquency, foreclosure and loss, which could result in losses to us.
Commercial real estate debt instruments (e.g., mortgages, mezzanine loans and preferred equity) that are secured by commercial property are subject to risks of delinquency and foreclosure and risks of loss that are greater than similar risks associated with loans made on the security of single-family residential property. The ability of a borrower to repay a loan secured by an income-producing property typically is dependent primarily upon the successful operation of the property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrowers ability to repay the loan may be impaired. Net operating income of an income-producing property can be affected by, among other things:
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tenant mix and tenant bankruptcies; |
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success of tenant businesses; |
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property management decisions, including with respect to capital improvements, particularly in older building structures; |
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property location and condition; |
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competition from other properties offering the same or similar services; |
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changes in laws that increase operating expenses or limit rents that may be charged; |
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any liabilities relating to environmental matters at the property; |
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changes in global, national, regional, or local economic conditions and/or specific industry segments; |
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declines in global, national, regional or local real estate values; |
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declines in global, national, regional or local rental or occupancy rates; |
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changes in interest rates, foreign exchange rates, and in the state of the credit and securitization markets and the debt and equity capital markets, including diminished availability or lack of debt financing for commercial real estate; |
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changes in real estate tax rates, tax credits and other operating expenses; |
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changes in governmental rules, regulations and fiscal policies, including income tax regulations and environmental legislation; |
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acts of God, terrorism, social unrest and civil disturbances, which may decrease the availability of or increase the cost of insurance or result in uninsured losses; and |
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adverse changes in zoning laws. |
In addition, we are exposed to the risk of judicial proceedings with our borrowers and entities we invest in, including bankruptcy or other litigation, as a strategy to avoid foreclosure or enforcement of other rights by us as a lender or investor. In the event that any of the properties or entities underlying or collateralizing our loans or investments experiences any of the foregoing events or occurrences, the value of, and return on, such investments could be reduced, which would adversely affect our results of operations and financial condition.
Fluctuations in interest rates and credit spreads could reduce our ability to generate income on our loans and other investments, which could lead to a significant decrease in our results of operations, cash flows and the market value of our investments.
Our primary interest rate exposures relate to the yield on our loans and other investments and the financing cost of our debt, as well as our interest rate swaps that we may utilize for hedging purposes. Changes in interest rates and credit spreads may affect our net income from loans and other investments, which is the difference between the interest and related income we earn on our interest-earning investments and the interest and related expense we incur in financing these investments. Interest rate and credit spread fluctuations resulting in our interest and related expense exceeding interest and related income would result in operating losses for us. Changes in the level of interest rates and credit spreads also may affect our ability to make loans or investments, the value of our loans and investments and our ability to realize gains from the disposition of assets. Increases in interest rates and credit spreads may also negatively affect demand for loans and could result in higher borrower default rates.
Our operating results depend, in part, on differences between the income earned on our investments, net of credit losses, and our financing costs. The yields we earn on our floating-rate assets and our borrowing costs tend to move in the same direction in response to changes in interest rates. However, one can rise or fall faster than the other, causing our net interest margin to expand or contract. In addition, we could experience reductions in the yield on our investments and an increase in the cost of our financing. Although we seek to match the terms of our liabilities to the expected lives of loans that we acquire or originate, circumstances may arise in which our liabilities are shorter in duration than our assets, resulting in their adjusting faster in response to changes in interest rates. For any period during which our investments are not match-funded, the income earned on such investments may respond more slowly to interest rate fluctuations than the cost of our borrowings. Consequently, changes in interest rates, particularly short-term interest rates, may immediately and significantly decrease our results of operations and cash flows and the market value of our investments. In addition, unless we enter into hedging or similar transactions with respect to the portion of our assets that we fund using our balance sheet, returns we achieve on such assets will generally increase as interest rates for those assets rise and decrease as interest rates for those assets decline.
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We operate in a competitive market for lending and investment opportunities which may intensify, and competition may limit our ability to originate or acquire desirable loans and investments or dispose of assets we target, and could also affect the yields of these assets and have a material adverse effect on our business, financial condition, and results of operation.
We operate in a competitive market for lending and investment opportunities, which may intensify. Our profitability depends, in large part, on our ability to originate or acquire our target assets on attractive terms. In originating or acquiring our target assets, we compete for opportunities with a variety of institutional lenders and investors, including other REITs, specialty finance companies, public and private funds (including funds managed by affiliates of Blackstone), commercial and investment banks, commercial finance and insurance companies and other financial institutions. Some of our competitors have raised, and may in the future raise, significant amounts of capital, and may have investment objectives that overlap with ours, which may create additional competition for lending and investment opportunities. Some competitors may have a lower cost of funds and access to funding sources that are not available to us, such as the U.S. Government. Many of our competitors are not subject to the operating constraints associated with REIT tax compliance or maintenance of an exclusion from regulation under the Investment Company Act. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of loans and investments, offer more attractive pricing or other terms and establish more relationships than us. Furthermore, competition for originations of and investments in our target assets may lead to decreasing yields, which may further limit our ability to generate desired returns. Also, as a result of this competition, desirable loans and investments in our target assets may be limited in the future and we may not be able to take advantage of attractive lending and investment opportunities from time to time, thereby limiting our ability to identify and originate or acquire loans or make investments that are consistent with our investment objectives. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations.
Prepayment rates may adversely affect our financial performance and the value of certain of our assets.
Our business is currently focused on originating floating-rate mortgage loans secured by commercial real estate assets. Generally, our mortgage loan borrowers may repay their loans prior to their stated maturities. In periods of declining interest rates and/or credit spreads, prepayment rates on loans generally increase. If general interest rates or credit spreads decline at the same time, the proceeds of such prepayments received during such periods may not be reinvested for some period of time or may be reinvested by us in assets yielding less than the yields on the assets that were prepaid.
Because our mortgage loans are generally not originated or acquired at a premium to par value, prepayment rates do not materially affect the value of such assets. However, the value of certain other assets may be affected by prepayment rates. For example, if we originate or acquire mortgage-related securities or a pool of mortgage securities in the future, we would anticipate that the underlying mortgages would prepay at a projected rate generating an expected yield. If we were to purchase such assets at a premium to par value, if borrowers prepay their loans faster than expected, the corresponding prepayments on any such mortgage-related securities would likely reduce the expected yield. Conversely, if we were to purchase such assets at a discount to par value, when borrowers prepay their loans slower than expected, the decrease in corresponding prepayments on the mortgage-related securities would likely reduce the expected yield.
Prepayment rates on loans may be affected by a number of factors including, but not limited to, the then-current level of interest rates and credit spreads, the availability of mortgage credit, the relative economic vitality of the area in which the related properties are located, the servicing of the loans, possible changes in tax laws, other opportunities for investment, and other economic, social, geographic, demographic and legal factors beyond our control. Consequently, such prepayment rates cannot be predicted with certainty and no strategy can completely insulate us from prepayment or other such risks.
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Difficulty in redeploying the proceeds from repayments of our existing loans and investments may cause our financial performance and returns to investors to suffer.
As our loans and investments are repaid, we will have to redeploy the proceeds we receive into new loans and investments, repay borrowings under our credit facilities, pay dividends to our stockholders or repurchase outstanding shares of our class A common stock. It is possible that we will fail to identify reinvestment options that would provide returns or a risk profile that is comparable to the asset that was repaid. If we fail to redeploy the proceeds we receive from repayment of a loan in equivalent or better alternatives, our financial performance and returns to investors could suffer.
If we are unable to successfully integrate new assets and manage our growth, our results of operations and financial condition may suffer.
We have in the past and may in the future significantly increase the size and/or change the mix of our portfolio of assets. We may be unable to successfully and efficiently integrate newly-acquired assets into our existing portfolio or otherwise effectively manage our assets or our growth effectively. In addition, increases in our portfolio of assets and/or changes in the mix of our assets may place significant demands on our Managers administrative, operational, asset management, financial and other resources. Any failure to manage increases in size effectively could adversely affect our results of operations and financial condition.
The lack of liquidity in certain of our assets may adversely affect our business.
The illiquidity of certain of our assets may make it difficult for us to sell such investments if the need or desire arises. Certain assets such as mortgages, B-Notes, mezzanine and other loans (including participations) and preferred equity, in particular, are relatively illiquid investments due to their short life, their potential unsuitability for securitization and the greater difficulty of recovery in the event of a borrowers default. In addition, certain of our investments may become less liquid after our investment as a result of periods of delinquencies or defaults or turbulent market conditions, which may make it more difficult for us to dispose of such assets at advantageous times or in a timely manner. Moreover, many of the loans and securities we invest in are not registered under the relevant securities laws, resulting in limitations or prohibitions against their transfer, sale, pledge or their disposition except in transactions that are exempt from registration requirements or are otherwise in accordance with such laws. As a result, many of our investments are illiquid, and if we are required to liquidate all or a portion of our portfolio quickly, for example as a result of margin calls, we may realize significantly less than the value at which we have previously recorded our investments. Further, we may face other restrictions on our ability to liquidate an investment to the extent that we or our Manager (and/or its affiliates) has or could be attributed as having material, non-public information regarding the borrower entity. As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited, which could adversely affect our results of operations and financial condition.
Any distressed loans or investments we make, or loans and investments that later become distressed, may subject us to losses and other risks relating to bankruptcy proceedings.
While our loans and investments focus primarily on performing real estate-related interests, our loans and investments may also include making distressed investments from time to time (e.g., investments in defaulted, out-of-favor or distressed loans and debt securities) or may involve investments that become sub-performing or non-performing following our acquisition thereof. Certain of our investments may include properties that are highly leveraged, with significant burdens on cash flow and, therefore, involve a high degree of financial risk. During an economic downturn or recession, loans or securities of financially or operationally troubled borrowers or issuers are more likely to go into default than loans or securities of other borrowers or issuers. Loans or securities of financially or operationally troubled issuers are less liquid and more volatile than loans or securities of borrowers or issuers not experiencing such difficulties. The market prices of such securities are subject to erratic and abrupt market movements and the spread between bid and ask prices may be greater than normally expected. Investment in the loans or securities of financially or operationally troubled borrowers or issuers involves a high degree of credit and market risk.
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In certain limited cases (e.g., in connection with a workout, restructuring and/or foreclosing proceedings involving one or more of our investments), the success of our investment strategy will depend, in part, on our ability to effectuate loan modifications and/or restructure and improve the operations of our borrower entities. The activity of identifying and implementing successful restructuring programs and operating improvements entails a high degree of uncertainty. There can be no assurance that we will be able to identify and implement successful restructuring programs and improvements with respect to any distressed loans or investments we may have from time to time.
These financial or operating difficulties may never be overcome and may cause borrower entities to become subject to bankruptcy or other similar administrative proceedings. There is a possibility that we may incur substantial or total losses on our investments and in certain circumstances, become subject to certain additional potential liabilities that may exceed the value of our original investment therein. For example, under certain circumstances, a lender that has inappropriately exercised control over the management and policies of a debtor may have its claims subordinated or disallowed or may be found liable for damages suffered by parties as a result of such actions. In any reorganization or liquidation proceeding relating to our investments, we may lose our entire investment, may be required to accept cash or securities with a value less than our original investment and/or may be required to accept different terms, including payment over an extended period of time. In addition, under certain circumstances, payments to us may be reclaimed if any such payment or distribution is later determined to have been a fraudulent conveyance, preferential payment, or similar transaction under applicable bankruptcy and insolvency laws. Furthermore, bankruptcy laws and similar laws applicable to administrative proceedings may delay our ability to realize value from collateral for loan positions held by us, may adversely affect the economic terms and priority of such loans through doctrines such as equitable subordination or may result in a restructuring of the debt through principles such as the cramdown provisions of the bankruptcy laws.
We may not have control over certain of our loans and investments.
Our ability to manage our portfolio of loans and investments may be limited by the form in which they are made. In certain situations, we may:
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acquire investments subject to rights of senior classes, special servicers or collateral managers under intercreditor, servicing agreements or securitization documents; |
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pledge our investments as collateral for financing arrangements; |
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acquire only a minority and/or a non-controlling participation in an underlying investment; |
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co-invest with others through partnerships, joint ventures or other entities, thereby acquiring non-controlling interests; or |
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rely on independent third party management or servicing with respect to the management of an asset. |
Therefore, we may not be able to exercise control over all aspects of our loans or investments. Such financial assets may involve risks not present in investments where senior creditors, junior creditors, servicers or third-party controlling investors are not involved. Our rights to control the process following a borrower default may be subject to the rights of senior or junior creditors or servicers whose interests may not be aligned with ours. A partner or co-venturer may have financial difficulties resulting in a negative impact on such asset, may have economic or business interests or goals that are inconsistent with ours, or may be in a position to take action contrary to our investment objectives. In addition, we will generally pay all or a portion of the expenses relating to our joint ventures and we may, in certain circumstances, be liable for the actions of our partners or co-venturers.
B-Notes, mezzanine loans, and other investments that are subordinated or otherwise junior in an issuers capital structure and that involve privately negotiated structures will expose us to greater risk of loss.
We may originate or acquire B-Notes, mezzanine loans and other investments (such as preferred equity) that are subordinated or otherwise junior in an issuers capital structure and that involve privately negotiated structures.
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To the extent we invest in subordinated debt or mezzanine tranches of an entitys capital structure, such investments and our remedies with respect thereto, including the ability to foreclose on any collateral securing such investments, will be subject to the rights of holders of more senior tranches in the issuers capital structure and, to the extent applicable, contractual intercreditor, co-lender and/or participation agreement provisions. Significant losses related to such loans or investments could adversely affect our results of operations and financial condition.
As the terms of such loans and investments are subject to contractual relationships among lenders, co-lending agents and others, they can vary significantly in their structural characteristics and other risks. For example, the rights of holders of B-Notes to control the process following a borrower default may vary from transaction to transaction.
Like B-Notes, mezzanine loans are by their nature structurally subordinated to more senior property-level financings. If a borrower defaults on our mezzanine loan or on debt senior to our loan, or if the borrower is in bankruptcy, our mezzanine loan will be satisfied only after the property-level debt and other senior debt is paid in full. As a result, a partial loss in the value of the underlying collateral can result in a total loss of the value of the mezzanine loan. In addition, even if we are able to foreclose on the underlying collateral following a default on a mezzanine loan, we would be substituted for the defaulting borrower and, to the extent income generated on the underlying property is insufficient to meet outstanding debt obligations on the property, may need to commit substantial additional capital and/or deliver a replacement guarantee by a credit worthy entity, which may include us, to stabilize the property and prevent additional defaults to lenders with existing liens on the property. In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal. Significant losses related to our B-Notes and mezzanine loans would result in operating losses for us and may limit our ability to make distributions to our stockholders.
Loans on properties in transition will involve a greater risk of loss than conventional mortgage loans.
We have in the past and may in the future invest in transitional loans to borrowers who are typically seeking relatively short-term capital to be used in an acquisition or rehabilitation of a property. The typical borrower in a transitional loan has usually identified an undervalued asset that has been under-managed and/or is located in a recovering market. If the market in which the asset is located fails to improve according to the borrowers projections, or if the borrower fails to improve the quality of the assets management and/or the value of the asset, the borrower may not receive a sufficient return on the asset to satisfy the transitional loan, and we bear the risk that we may not recover all or a portion of our investment.
In addition, borrowers usually use the proceeds of a conventional mortgage to repay a transitional loan. Transitional loans therefore are subject to the risk of a borrowers inability to obtain permanent financing to repay the transitional loan. In the event of any default under transitional loans that may be held by us, we bear the risk of loss of principal and non-payment of interest and fees to the extent of any deficiency between the value of the mortgage collateral and the principal amount and unpaid interest of the transitional loan. To the extent we suffer such losses with respect to these transitional loans, it could adversely affect our results of operations and financial condition.
Risks of cost overruns and noncompletion of renovations of properties in transition may result in significant losses.
The renovation, refurbishment or expansion of a property by a borrower involves risks of cost overruns and noncompletion. Estimates of the costs of improvements to bring an acquired property up to standards established for the market position intended for that property may prove inaccurate. Other risks may include rehabilitation costs exceeding original estimates, possibly making a project uneconomical, environmental risks, delays in legal and other approvals (e.g., for condominiums) and rehabilitation and subsequent leasing of the property not being
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completed on schedule. If such renovation is not completed in a timely manner, or if it costs more than expected, the borrower may experience a prolonged reduction of net operating income and may not be able to make payments on our investment on a timely basis or at all, which could result in significant losses.
There are increased risks involved with our construction lending activities.
Our construction lending activities, which include our investment in loans that fund the construction or development of real estate-related assets, may expose us to increased lending risks. Construction lending generally is considered to involve a higher degree of risk of non-payment and loss than other types of lending due to a variety of factors, including the difficulties in estimating construction costs and anticipating construction delays and, generally, the dependency on timely, successful completion and the lease-up and commencement of operations post-completion. In addition, since such loans generally entail greater risk than mortgage loans collateralized by income-producing property, we may need to increase our allowance for loan losses in the future to account for the likely increase in probable incurred credit losses associated with such loans. Further, as the lender under a construction loan, we may be obligated to fund all or a significant portion of the loan at one or more future dates. We may not have the funds available at such future date(s) to meet our funding obligations under the loan. In that event, we would likely be in breach of the loan unless we are able to raise the funds from alternative sources, which we may not be able to achieve on favorable terms or at all.
If a borrower fails to complete the construction of a project or experiences cost overruns, there could be adverse consequences associated with the loan, including a decline in the value of the property securing the loan, a borrower claim against us for failure to perform under the loan documents if we choose to stop funding, increased costs to the borrower that the borrower is unable to pay, a bankruptcy filing by the borrower, and abandonment by the borrower of the collateral for the loan.
Loans or investments involving international real estate-related assets are subject to special risks that we may not manage effectively, which could have a material adverse effect on our results of operations and financial condition and our ability to make distributions to our stockholders.
We invest a material portion of our capital in assets outside the United States and may increase the percentage of our investments outside the United States over time. Our investments in non-domestic real estate-related assets subject us to certain risks associated with international investments generally, including, among others:
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currency exchange matters, including fluctuations in currency exchange rates and costs associated with conversion of investment principal and income from one currency into another, which may have an adverse impact on the valuation of our assets or income, including for purposes of our REIT requirements; |
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less developed or efficient financial markets than in the United States, which may lead to potential price volatility and relative illiquidity; |
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the burdens of complying with international regulatory requirements and prohibitions that differ between jurisdictions; |
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changes in laws or clarifications to existing laws that could impact our tax treaty positions, which could adversely impact the returns on our investments; |
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a less developed legal or regulatory environment, differences in the legal and regulatory environment or enhanced legal and regulatory compliance; |
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political hostility to investments by foreign investors; |
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higher rates of inflation; |
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higher transaction costs; |
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greater difficulty enforcing contractual obligations; |
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fewer investor protections; |
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certain economic and political risks, including potential exchange control regulations and restrictions on our non-U.S. investments and repatriation of profits from investments or of capital invested, the risks of political, economic or social instability, the possibility of expropriation or confiscatory taxation and adverse economic and political developments; and |
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potentially adverse tax consequences. |
If any of the foregoing risks were to materialize, they could adversely affect our results of operations and financial condition and our ability to make distributions to our stockholders.
Concerns regarding the stability of the sovereign debt of certain European countries and other geopolitical issues and market perceptions concerning the instability of the Euro, the potential re-introduction of individual currencies within the Eurozone, or the potential dissolution of the Euro entirely, could adversely affect our business, results of operations and financial condition.
A portion of our investments consists of assets secured by European collateral. Concerns persist with respect to the sovereign debt situation of several countries, including Greece, Ireland, Italy, Spain and Portugal, which, together with the risk of contagion to other more financially stable countries, has also raised a number of uncertainties regarding the stability and overall standing of the European Monetary Union. Concern over such uncertainties has been exacerbated by other geopolitical issues that may affect the Eurozone, including the vote by the United Kingdom (U.K.) to exit the European Union (E.U.). Any further deterioration in the global or Eurozone economy could have a significant adverse effect on our activities and the value of any European collateral.
In addition, we currently hold assets and may acquire additional assets that are denominated in British Pounds Sterling and in Euros. Further deterioration in the Eurozone economy could have a material adverse effect on the value of our investment in such assets and amplify the currency risks faced by us.
If any country were to leave the Eurozone, or if the Eurozone were to break up entirely, the treatment of debt obligations previously denominated in Euros is uncertain. A number of issues would be raised, such as whether obligations that are expressed to be payable in Euros would be re-denominated into a new currency. The answer to this and other questions is uncertain and would depend on the way in which the break-up occurred and also on the nature of the transaction; the law governing it; which courts have jurisdiction in relation to it; the place of payment; and the place of incorporation of the payor. If we were to hold any investments in Euros at the time of any Eurozone exits or break-up, this uncertainty and potential re-denomination could have a material adverse effect on the value of our investments and the income from them.
The vote by the U.K. to exit the E.U. could adversely affect us.
In June 2016, voters in the U.K. approved a withdrawal of the U.K. from the E.U., commonly referred to as Brexit. In March 2017, the U.K. government initiated the exit process under Article 50 of the Treaty of the European Union, commencing a period of up to two years for the U.K. and the other E.U. member states to negotiate the terms of the withdrawal. Uncertainty over the terms of the U.K.s withdrawal from the E.U. could cause political and economic uncertainty in the U.K. and the rest of Europe, which could harm our business and financial results. In particular, Brexit caused significant volatility in global stock markets and currency exchange fluctuations. Consequently, our loans and investments denominated in British Pounds Sterling are subject to increased risks related to these currency rate fluctuations and our net assets in U.S. Dollar terms may decline. In addition, Brexit may also adversely affect commercial real estate fundamentals in the U.K. and E.U., including greater uncertainty for leasing prospects for properties with transitional loans, which could negatively impact the ability of our U.K and E.U.-based borrowers to satisfy their debt payment obligations to us, increasing default risk and/or making it more difficult for us to generate attractive risk-adjusted returns for our operations in the U.K.
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The long-term effects of Brexit are expected to depend on, among other things, any agreements the U.K. makes to retain access to E.U. markets either during a transitional period or more permanently. Brexit could adversely affect European or worldwide economic or market conditions and could contribute to instability in global financial and real estate markets. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which E.U. laws to replace or replicate. Until the terms and timing of the U.Ks exit from the E.U. become more clear, it is not possible to determine the impact that the U.K.s departure from the E.U. and/or any related matters may have on us; however, any of these effects of Brexit, and others we cannot anticipate, could adversely affect our business, business opportunities, results of operations, financial condition and cash flows. Likewise, similar actions taken by other European and other countries in which we operate could have a similar or even more profound impact.
Changes to, or the elimination of, LIBOR may adversely affect interest expense related to our loans and investments.
Regulators and law-enforcement agencies from a number of governments, including entities in the United States, Japan, Canada and the United Kingdom, have been conducting civil and criminal investigations into whether the banks that contributed to the British Bankers Association, or the BBA, in connection with the calculation of daily LIBOR may have underreported or otherwise manipulated or attempted to manipulate LIBOR. Several financial institutions have reached settlements with the U.S. Commodity Futures Trading Commission, the U.S. Department of Justice Fraud Section and the U.K. Financial Services Authority in connection with investigations by such authorities into submissions made by such financial institutions to the bodies that set LIBOR and other interbank offered rates. In such settlements, such financial institutions admitted to submitting rates to the BBA that were lower than the actual rates at which such financial institutions could borrow funds from other banks. Additional investigations remain ongoing with respect to other major banks and no assurance can be made that there will not be further admissions or findings of rate setting manipulation or that improper manipulation of LIBOR or other similar inter-bank lending rates will not occur in the future.
Based on a review conducted by the Financial Conduct Authority of the U.K., or the FCA, and a consultation conducted by the European Commission, proposals have been made for governance and institutional reform, regulation, technical changes and contingency planning. In particular: (a) new legislation has been enacted in the United Kingdom pursuant to which LIBOR submissions and administration are now regulated activities and manipulation of LIBOR has been brought within the scope of the market abuse regime; (b) legislation has been proposed which if implemented would, among other things, alter the manner in which LIBOR is determined, compel more banks to provide LIBOR submissions, and require these submissions to be based on actual transaction data; and (c) LIBOR rates for certain currencies and maturities are no longer published daily. In addition, pursuant to authorization from the FCA, ICE Benchmark Administration Limited (formerly NYSE Euronext Rate Administration Limited), or the IBA, took over the administration of LIBOR from the BBA on February 1, 2014. Any new administrator of LIBOR may make methodological changes to the way in which LIBOR is calculated or may alter, discontinue or suspend calculation or dissemination of LIBOR.
In a speech on July 27, 2017, Andrew Bailey, the Chief Executive of the FCA, announced the FCAs intention to cease sustaining LIBOR after 2021. The FCA has statutory powers to require panel banks to contribute to LIBOR where necessary. The FCA has decided not to ask, or to require, that panel banks continue to submit contributions to LIBOR beyond the end of 2021. The FCA has indicated that it expects that the current panel banks will voluntarily sustain LIBOR until the end of 2021. The FCAs intention is that after 2021, it will no longer be necessary for the FCA to ask, or to require, banks to submit contributions to LIBOR. The FCA does not intend to sustain LIBOR through using its influence or legal powers beyond that date. It is possible that the IBA and the panel banks could continue to produce LIBOR on the current basis after 2021, if they are willing and able to do so, but we cannot make assurances that LIBOR will survive in its current form, or at all. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S.-dollar LIBOR with the Secured Overnight Financing Rate, or SOFR, a new index calculated by short-term repurchase agreements, backed by Treasury
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securities. Although there have been a few issuances utilizing SOFR or the Sterling Over Night Index Average, an alternative reference rate that is based on transactions, it is unknown whether these alternative reference rates will attain market acceptance as replacements for LIBOR.
As of December 31, 2018, our loan portfolio included $12.4 billion of floating rate loans for which the interest rate was tied to LIBOR. Additionally, we had $9.1 billion of floating rate debt and interest rate caps with a notional amount of $204.2 million tied to LIBOR. Our loan agreements generally allow us to choose a new index based upon comparable information if the current index is no longer available. There is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement rate. As such, the potential effect of any such event on our cost of capital and net investment income cannot yet be determined and any changes to benchmark interest rates could increase our financing costs, which could impact our results of operations, cash flows and the market value of our investments. In addition, the elimination of LIBOR and/or changes to another index could result in mismatches with the interest rate of investments that we are financing. See Risks Related to Our Financing and HedgingOur use of leverage may create a mismatch with the duration and interest rate of investments that we are financing.
Transactions denominated in foreign currencies subject us to foreign currency risks.
We hold assets denominated in British Pounds Sterling, Euros, Canadian Dollars and Australian Dollars, and may acquire assets denominated in other foreign currencies, which exposes us to foreign currency risk. As a result, a change in foreign currency exchange rates may have an adverse impact on the valuation of our assets, as well as our income and cash flows. Any such changes in foreign currency exchange rates may impact the measurement of such assets or income for the purposes of our REIT tests and may affect the amounts available for payment of dividends on our class A common stock.
Our success depends on the availability of attractive investments and our Managers ability to identify, structure, consummate, leverage, manage and realize returns on our investments.
Our operating results are dependent upon the availability of, as well as our Managers ability to identify, structure, consummate, leverage, manage and realize returns on our investments. In general, the availability of favorable investment opportunities and, consequently, our returns, will be affected by the level and volatility of interest rates and credit spreads, conditions in the financial markets, general economic conditions, the demand for investment opportunities in our target assets and the supply of capital for such investment opportunities. We cannot assure you that our Manager will be successful in identifying and consummating investments that satisfy our rate of return objectives or that such investments, once made, will perform as anticipated.
Real estate valuation is inherently subjective and uncertain.
The valuation of real estate and therefore the valuation of any collateral underlying our loans is inherently subjective due to, among other factors, the individual nature of each property, its location, the expected future rental revenues from that particular property and the valuation methodology adopted. In addition, where we invest in construction loans, initial valuations will assume completion of the project. As a result, the valuations of the real estate assets against which we will make or acquire loans are subject to a large degree of uncertainty and are made on the basis of assumptions and methodologies that may not prove to be accurate, particularly in periods of volatility, low transaction flow or restricted debt availability in the commercial or residential real estate markets.
Our loans and investments may be concentrated in terms of geography, asset types, and sponsors.
We are not required to observe specific diversification criteria, except as may be set forth in the investment guidelines adopted by our board of directors. Therefore, our investments may be concentrated in certain property types that may be subject to higher risk of default or foreclosure, or secured by properties concentrated in a limited number of geographic locations.
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To the extent that our assets are concentrated in any one region or type of asset, downturns generally relating to such type of asset or region may result in defaults on a number of our investments within a short time period, which could adversely affect our results of operations and financial condition. In addition, because of asset concentrations, even modest changes in the value of the underlying real estate assets could have a significant impact on the value of our investment. As a result of any high levels of concentration, any adverse economic, political or other conditions that disproportionately affects those geographic areas or asset classes could have a magnified adverse effect on our results of operations and financial condition, and the value of our stockholders investments could vary more widely than if we invested in a more diverse portfolio of loans.
The due diligence process that our Manager undertakes in regard to investment opportunities may not reveal all facts that may be relevant in connection with an investment and if our Manager incorrectly evaluates the risks of our investments we may experience losses.
Before making investments for us, our Manager conducts due diligence that it deems reasonable and appropriate based on the facts and circumstances relevant to each potential investment. When conducting due diligence, our Manager may be required to evaluate important and complex business, financial, tax, accounting, environmental and legal issues. Outside consultants, legal advisors, accountants and investment banks may be involved in the due diligence process in varying degrees depending on the type of potential investment. Our Managers loss estimates may not prove accurate, as actual results may vary from estimates. If our Manager underestimates the asset-level losses relative to the price we pay for a particular investment, we may experience losses with respect to such investment.
Moreover, investment analyses and decisions by our Manager may frequently be required to be undertaken on an expedited basis to take advantage of investment opportunities. In such cases, the information available to our Manager at the time of making an investment decision may be limited, and they may not have access to detailed information regarding such investment. Therefore, we cannot assure you that our Manager will have knowledge of all circumstances that may adversely affect such investment.
Insurance on loans and real estate securities collateral may not cover all losses.
There are certain types of losses, generally of a catastrophic nature, such as earthquakes, floods, hurricanes, terrorism or acts of war, which may be uninsurable or not economically insurable. Inflation, changes in building codes and ordinances, environmental considerations and other factors also might result in insurance proceeds insufficient to repair or replace a property if it is damaged or destroyed. Under these circumstances, the insurance proceeds received with respect to a property relating to one of our investments might not be adequate to restore our economic position with respect to our investment. Any uninsured loss could result in the corresponding nonperformance of or loss on our investment related to such property.
The impact of any future terrorist attacks and the availability of affordable terrorism insurance expose us to certain risks.
Terrorist attacks, the anticipation of any such attacks, and the consequences of any military or other response by the United States and its allies may have an adverse impact on the U.S. financial markets and the economy in general. We cannot predict the severity of the effect that any such future events would have on the U.S. financial markets, the economy or our business. Any future terrorist attacks could adversely affect the credit quality of some of our loans and investments. Some of our loans and investments will be more susceptible to such adverse effects than others, particularly those secured by properties in major cities or properties that are prominent landmarks or public attractions. We may suffer losses as a result of the adverse impact of any future terrorist attacks and these losses may adversely impact our results of operations.
In addition, the enactment of the Terrorism Risk Insurance Act of 2002, or TRIA, and the subsequent enactment of the Terrorism Risk Insurance Program Reauthorization Act of 2015, which extended TRIA through the end of
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2020, requires insurers to make terrorism insurance available under their property and casualty insurance policies and provides federal compensation to insurers for insured losses. However, this legislation does not regulate the pricing of such insurance and there is no assurance that this legislation will be extended beyond 2020. The absence of affordable insurance coverage may adversely affect the general real estate lending market, lending volume and the markets overall liquidity and may reduce the number of suitable investment opportunities available to us and the pace at which we are able to make investments. If the properties that we invest in are unable to obtain affordable insurance coverage, the value of those investments could decline and in the event of an uninsured loss, we could lose all or a portion of our investment.
We may need to foreclose on certain of the loans we originate or acquire, which could result in losses that harm our results of operations and financial condition.
We may find it necessary or desirable to foreclose on certain of the loans we originate or acquire, and the foreclosure process may be lengthy and expensive. If we foreclose on an asset, we may take title to the property securing that asset, and if we do not or cannot sell the property, we would then come to own and operate it as real estate owned. Owning and operating real property involves risks that are different (and in many ways more significant) than the risks faced in owning an asset secured by that property. In addition, we may end up owning a property that we would not otherwise have decided to acquire directly at the price of our original investment or at all, and the liquidation proceeds upon sale of the underlying real estate may not be sufficient to recover our cost basis in the loan, resulting in a loss to us.
Whether or not we have participated in the negotiation of the terms of any such loans, we cannot assure you as to the adequacy of the protection of the terms of the applicable loan, including the validity or enforceability of the loan and the maintenance of the anticipated priority and perfection of the applicable security interests. Furthermore, claims may be asserted by lenders or borrowers that might interfere with enforcement of our rights. Borrowers may resist foreclosure actions by asserting numerous claims, counterclaims and defenses against us, including, without limitation, lender liability claims and defenses, even when the assertions may have no basis in fact, in an effort to prolong the foreclosure action and seek to force the lender into a modification of the loan or a favorable buy-out of the borrowers position in the loan. In some states, foreclosure actions can take several years or more to litigate. At any time prior to or during the foreclosure proceedings, the borrower may file for bankruptcy, which would have the effect of staying the foreclosure actions and further delaying the foreclosure process, and could potentially result in a reduction or discharge of a borrowers debt. Foreclosure may create a negative public perception of the related property, resulting in a diminution of its value. Even if we are successful in foreclosing on a loan, the liquidation proceeds upon sale of the underlying real estate may not be sufficient to recover our cost basis in the loan, resulting in a loss to us. Furthermore, any costs or delays involved in the foreclosure of the loan or a liquidation of the underlying property will further reduce the net sale proceeds and, therefore, increase any such losses to us.
The properties underlying our investments may be subject to unknown liabilities, including environmental liabilities, that could affect the value of these properties and as a result, our investments.
Collateral properties underlying our investments may be subject to unknown or unquantifiable liabilities that may adversely affect the value of our investments. Such defects or deficiencies may include title defects, title disputes, liens, servitudes or other encumbrances on the mortgaged properties. The discovery of such unknown defects, deficiencies and liabilities could affect the ability of our borrowers to make payments to us or could affect our ability to foreclose and sell the underlying properties, which could adversely affect our results of operations and financial condition.
Furthermore, to the extent we foreclose on properties with respect to which we have extended loans, we may be subject to environmental liabilities arising from such foreclosed properties. Under various U.S. federal, state and local laws, an owner or operator of real property may become liable for the costs of removal of certain hazardous substances released on its property. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of such hazardous substances.
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If we foreclose on any properties underlying our investments, the presence of hazardous substances on a property may adversely affect our ability to sell the property and we may incur substantial remediation costs, therefore the discovery of material environmental liabilities attached to such properties could adversely affect our results of operations and financial condition.
We may be subject to lender liability claims, and if we are held liable under such claims, we could be subject to losses.
In recent years, a number of judicial decisions have upheld the right of borrowers to sue lending institutions on the basis of various evolving legal theories, collectively termed lender liability. Generally, lender liability is founded on the premise that a lender has either violated a duty, whether implied or contractual, of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or stockholders. We cannot assure prospective investors that such claims will not arise or that we will not be subject to significant liability if a claim of this type did arise.
Our investments in CMBS, CLOs, CDOs and other similar structured finance investments, as well as those we structure, sponsor or arrange, pose additional risks, including the risks of the securitization process and the risk that the special servicer, CT Investment Management Co., LLC, or CTIMCO, a subsidiary of Blackstone, may take actions that could adversely affect our interests.
We have invested in, and may from time to time invest in, CMBS, CLOs, CDOs and other similar securities, which may be subordinated classes of securities in a structure of securities secured by a pool of mortgages or loans. Accordingly, such securities may be the first or among the first to bear the loss upon a restructuring or liquidation of the underlying collateral and the last to receive payment of interest and principal, with only a nominal amount of equity or other debt securities junior to such positions. The estimated fair values of such subordinated interests tend to be much more sensitive to adverse economic downturns and underlying borrower developments than more senior securities. A projection of an economic downturn, for example, could cause a decline in the price of lower credit quality CMBS, CLOs or CDOs because the ability of borrowers to make principal and interest payments on the mortgages or loans underlying such securities may be impaired.
Subordinate interests such as CMBS, CLOs, CDOs and similar structured finance investments generally are not actively traded and are relatively illiquid investments. Volatility in CMBS, CLO and CDO trading markets may cause the value of these investments to decline. In addition, if the underlying mortgage portfolio has been overvalued by the originator, or if the values subsequently decline and, as a result, less collateral value is available to satisfy interest and principal payments and any other fees in connection with the trust or other conduit arrangement for such securities, we may incur significant losses.
With respect to the CMBS, CLOs and CDOs in which we have invested and may invest in the future, control over the related underlying loans will be exercised through CTIMCO, or another special servicer or collateral manager designated by a directing certificateholder or a controlling class representative, or otherwise pursuant to the related securitization documents. We may acquire classes of CMBS, CLOs or CDOs, for which we may not have the right to appoint the directing certificateholder or otherwise direct the special servicing or collateral management. With respect to the management and servicing of those loans, the related special servicer or collateral manager may take actions that could adversely affect our interests. See Risks Related to Our Financing and HedgingWe have utilized and may utilize in the future non-recourse securitizations to finance our loans and investments, which may expose us to risks that could result in losses for a discussion of additional risks related to our securitization transactions .
Any credit ratings assigned to our investments will be subject to ongoing evaluations and revisions and we cannot assure you that those ratings will not be downgraded.
Some of our investments, including the notes issued in our securitization transactions for which we are required to retain a portion of the credit risk, may be rated by rating agencies. Any credit ratings on our investments are
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subject to ongoing evaluation by credit rating agencies, and we cannot assure you that any such ratings will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. If rating agencies assign a lower-than-expected rating or reduce or withdraw, or indicate that they may reduce or withdraw, their ratings of our investments in the future, the value and liquidity of our investments could significantly decline, which would adversely affect the value of our investment portfolio and could result in losses upon disposition or the failure of borrowers to satisfy their debt service obligations to us.
Investments in non-conforming and non-investment grade rated loans or securities involve increased risk of loss.
Many of our investments may not conform to conventional loan standards applied by traditional lenders and either will not be rated (as is typically the case for private loans) or will be rated as non-investment grade by the rating agencies. Private loans often are not rated by credit rating agencies. Non-investment grade ratings typically result from the overall leverage of the loans, the lack of a strong operating history for the properties underlying the loans, the borrowers credit history, the underlying properties cash flow or other factors. As a result, these investments should be expected to have a higher risk of default and loss than investment-grade rated assets. Any loss we incur may be significant and may adversely affect our results of operations and financial condition. There are no limits on the percentage of unrated or non-investment grade rated assets we may hold in our investment portfolio.
We may invest in derivative instruments, which would subject us to increased risk of loss.
Subject to maintaining our qualification as a REIT, we may invest in derivative instruments. A derivative instrument, especially one of a large notional size or referencing a less common underlying rate, index, instrument or asset, may not be liquid in all circumstances, so that in volatile markets we may not be able to close out a position without incurring a loss. The prices of derivative instruments, which commonly include swaps, futures, forwards and options, may be highly volatile and such instruments may subject us to significant losses. The value of such derivatives also depends upon the price of the underlying instrument or asset or the level of the reference market rate or index. Derivative instruments also are subject to the risk of non-performance by the relevant counterparty. In addition, actual or implied daily limits on price fluctuations and position limits on the exchanges or over-the-counter, or OTC, markets in which we may conduct our transactions in derivative instruments may prevent prompt liquidation of positions, subjecting us to the potential of greater losses. Derivative instruments that may be purchased or sold by us may include instruments that are purchased or sold OTC as bilateral transactions and not traded on an exchange. The risk of nonperformance by the obligor on such an OTC derivative instrument may be greater and the ease with which we can dispose of or enter into closing transactions with respect to such an instrument may be less than in the case of an exchange-traded instrument. In addition, significant disparities may exist between bid and asked prices for OTC derivative instruments. Such OTC derivatives are also subject to types and levels of investor protections or governmental regulation that may differ from exchange traded instruments.
In addition, we may invest in derivative instruments that are neither presently contemplated nor currently available, but which may be developed in the future, to the extent such opportunities are both consistent with our investment objectives and legally permissible. Any such investments may expose us to unique and presently indeterminate risks, the impact of which may not be capable of determination until such instruments are developed and/or we determine to make such an investment.
Provisions for loan losses are difficult to estimate.
Our provision for loan losses is evaluated on a quarterly basis. The determination of our provision for loan losses requires us to make certain estimates and judgments, which may be difficult to determine. Our estimates and judgments are based on a number of factors, including projected cash flow from the collateral securing our loans, debt structure, including the availability of reserves and recourse guarantees, likelihood of repayment in full at
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the maturity of a loan, potential for refinancing and expected market discount rates for varying property types, all of which remain uncertain and are subjective. Our estimates and judgments may not be correct and, therefore, our results of operations and financial condition could be severely impacted.
In addition, in June 2016, the FASB, issued Accounting Standards Update 2016-13, Financial Instruments-Credit Losses, Measurement of Credit Losses on Financial Instruments (Topic 326), which replaces the current incurred loss model for recognizing credit losses with an expected loss model referred to as the Current Expected Credit Loss model, or CECL. Under the CECL model, which will become effective for us for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, we will be required to present certain financial assets carried at amortized cost, such as loans held for investment, at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and updated quarterly thereafter. This differs significantly from the incurred loss model required under current GAAP, which delays recognition until it is probable a loss has been incurred. Accordingly, we expect that the adoption of the CECL model will materially affect how we determine our allowance for loan losses and could require us to significantly increase our allowance and recognize provisions for loan losses earlier in the lending cycle. Moreover, the CECL model may create more volatility in the level of our allowance for loan losses. If we are required to materially increase our level of allowance for loan losses for any reason, such increase could adversely affect our business, financial condition and results of operations.
Some of our portfolio investments may be recorded at fair value and, as a result, there will be uncertainty as to the value of these investments.
Some of our portfolio investments may be in the form of positions or securities that are not publicly traded, but are recorded at estimated fair value. The fair value of securities and other investments that are not publicly traded may not be readily determinable. We will value these investments quarterly at fair value, which may include unobservable inputs. Because such valuations are subjective, the fair value of certain of our assets may fluctuate over short periods of time and our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. Our results of operations and financial condition could be adversely affected if our determinations regarding the fair value of these investments were materially higher than the values that we ultimately realize upon their disposal.
Risks Related to Our Financing and Hedging
Our significant amount of debt may subject us to increased risk of loss and could adversely affect our results of operations and financial condition.
We currently have outstanding indebtedness and, subject to market conditions and availability, we may incur a significant amount of additional debt through repurchase agreements, bank credit facilities (including term loans and revolving facilities), warehouse facilities and structured financing arrangements, public and private debt issuances (including through securitizations) and derivative instruments, in addition to transaction or asset specific funding arrangements. We may also issue additional debt or equity securities to fund our growth. The percentage of leverage we employ will vary depending on our available capital, our ability to obtain and access financing arrangements with lenders, the type of asset we are funding, whether the financing is recourse or non-recourse, debt restrictions contained in those financing arrangements and the lenders and rating agencies estimate of the stability of our investment portfolios cash flow. We may significantly increase the amount of leverage we utilize at any time without approval of our board of directors. In addition, we may leverage individual assets at substantially higher levels. Incurring substantial debt could subject us to many risks that, if realized, would materially and adversely affect us, including the risk that:
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our cash flow from operations may be insufficient to make required payments of principal of and interest on our debt or we may fail to comply with covenants contained in our debt agreements, which |
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is likely to result in (a) acceleration of such debt (and any other debt containing a cross-default or cross-acceleration provision), which we then may be unable to repay from internal funds or to refinance on favorable terms, or at all, (b) our inability to borrow undrawn amounts under our financing arrangements, even if we are current in payments on borrowings under those arrangements, which would result in a decrease in our liquidity, and/or (c) the loss of some or all of our collateral assets to foreclosure or sale; |
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our debt may increase our vulnerability to adverse economic and industry conditions with no assurance that investment yields will increase in an amount sufficient to offset the higher financing costs; |
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we may be required to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for operations, future business opportunities, stockholder distributions or other purposes; and |
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we may not be able to refinance any debt that matures prior to the maturity (or realization) of an underlying investment it was used to finance on favorable terms or at all. |
There can be no assurance that a leveraging strategy will be successful, and such strategy may subject us to increased risk of loss and could adversely affect our results of operations and financial condition.
Our master repurchase agreements impose, and additional lending facilities may impose, restrictive covenants, which may restrict our flexibility to determine our operating policies and investment strategy.
We borrow funds under master repurchase agreements with various counterparties. The documents that govern these master repurchase agreements and the related guarantees contain, and additional lending facilities may contain, customary affirmative and negative covenants, including financial covenants applicable to us that may restrict our flexibility to determine our operating policies and investment strategy. In particular, these agreements may require us to maintain specified minimum levels of capacity under our credit facilities and cash. As a result, we may not be able to leverage our assets as fully as we would otherwise choose, which could reduce our return on assets. If we are unable to meet these collateral obligations, our financial condition and prospects could deteriorate significantly. In addition, lenders may require that our Manager or one or more of our Managers executives continue to serve in such capacity. If we fail to meet or satisfy any of these covenants, we would be in default under these agreements, and our lenders could elect to declare outstanding amounts due and payable, terminate their commitments, require the posting of additional collateral and enforce their interests against existing collateral. We may also be subject to cross-default and acceleration rights in our other debt arrangements. Further, this could also make it difficult for us to satisfy the distribution requirements necessary to maintain our qualification as a REIT for U.S. federal income tax purposes.
Our master repurchase agreements require, and bank credit facilities, repurchase agreements or other financing that we may use in the future to finance our assets may require, us to provide additional collateral or pay down debt.
Our master repurchase agreements with various counterparties, any bank credit facilities (including term loans and revolving facilities), and additional repurchase agreements or other financing we may enter into in the future, involve the risk that the market value of the assets pledged or sold by us to the provider of the financing may decline in value, in which case the lender or counterparty may require us to provide additional collateral or lead to margin calls that may require us to repay all or a portion of the funds advanced. We may not have the funds available to repay our debt at that time, which would likely result in defaults unless we are able to raise the funds from alternative sources, including by selling assets at a time when we might not otherwise choose to do so, which we may not be able to achieve on favorable terms or at all. Posting additional margin would reduce our cash available to make other, higher yielding investments, thereby decreasing our return on equity. If we cannot meet these requirements, the lender or counterparty could accelerate our indebtedness, increase the interest rate on advanced funds and terminate our ability to borrow funds from it, which could materially and adversely affect
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our financial condition and ability to implement our investment strategy. In the case of repurchase transactions, if the value of the underlying security has declined as of the end of that term, or if we default on our obligations under the repurchase agreement, we will likely incur a loss on our repurchase transactions.
Our use of leverage may create a mismatch with the duration and interest rate of the investments that we are financing.
We generally structure our leverage in order to minimize the difference between the term of our investments and the leverage we use to finance such investments. In the event that our leverage is for a shorter term than the financed investment, we may not be able to extend or find appropriate replacement leverage and that would have an adverse impact on our liquidity and our returns. In the event that our leverage is for a longer term than the financed investment, we may not be able to repay such leverage or replace the financed investment with an optimal substitute or at all, which will negatively impact our desired leveraged returns.
We also seek to structure our leverage such that we minimize the variability between the interest rate of our investments and the interest rate of our leverage financing floating rate investments with floating rate leverage and fixed rate investments with fixed rate leverage. If such a product is not available to us from our lenders on reasonable terms, we may use hedging instruments to effectively create such a match. For example, in the case of fixed rate investments, we may finance such investments with floating rate leverage, but effectively convert all or a portion of the attendant leverage to fixed rate using hedging strategies.
Our attempts to mitigate such risk are subject to factors outside of our control, such as the availability to us of favorable financing and hedging options, which is subject to a variety of factors, of which duration and term matching are only two. A duration mismatch may also occur when borrowers prepay their loans faster or slower than expected. The risks of a duration mismatch are also magnified by the potential for the extension of loans in order to maximize the likelihood and magnitude of their recovery value in the event the loans experience credit or performance challenges. Employment of this asset management practice would effectively extend the duration of our investments, while our hedges or liabilities may have set maturity dates.
Interest rate fluctuations could increase our financing costs, which could lead to a significant decrease in our results of operations, cash flows and the market value of our investments.
To the extent that our financing costs are determined by reference to floating rates, such as LIBOR (or any replacement rate) or a Treasury index, the amount of such costs will depend on the level and movement of interest rates. In a period of rising interest rates, our interest expense on floating rate debt would increase, while any additional interest income we earn on our floating rate investments may be subject to caps and may not compensate for such increase in interest expense. At the same time, the interest income we earn on our fixed rate investments would not change, the duration and weighted average life of our fixed rate investments would increase and the market value of our fixed rate investments would decrease. Similarly, in a period of declining interest rates, our interest income on floating rate investments would decrease, while any decrease in the interest we are charged on our floating rate debt may be subject to floors and may not compensate for such decrease in interest income and interest we are charged on our fixed rate debt would not change. Any such scenario could adversely affect our results of operations and financial condition.
Our loans and investments may be subject to fluctuations in interest rates that may not be adequately protected, or protected at all, by our hedging strategies.
Our assets include loans with either floating interest rates or fixed interest rates. Floating rate loans earn interest at rates that adjust from time to time (typically monthly) based upon an index (typically one-month LIBOR). These floating rate loans are insulated from changes in value specifically due to changes in interest rates; however, the coupons they earn fluctuate based upon interest rates (again, typically one-month LIBOR) and, in a declining and/or low interest rate environment, these loans will earn lower rates of interest and this will impact
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our operating performance. For more information about our risks related to changes to, or the elimination of, LIBOR, see Changes to, or the elimination of, LIBOR may adversely affect interest expense related to our loans and investments above. Fixed interest rate loans, however, do not have adjusting interest rates and the relative value of the fixed cash flows from these loans will decrease as prevailing interest rates rise or increase as prevailing interest rates fall, causing potentially significant changes in value. We may employ various hedging strategies to limit the effects of changes in interest rates (and in some cases credit spreads), including engaging in interest rate swaps, caps, floors and other interest rate derivative products. We believe that no strategy can completely insulate us from the risks associated with interest rate changes and there is a risk that such strategies may provide no protection at all and potentially compound the impact of changes in interest rates. Hedging transactions involve certain additional risks such as counterparty risk, leverage risk, the legal enforceability of hedging contracts, the early repayment of hedged transactions and the risk that unanticipated and significant changes in interest rates may cause a significant loss of basis in the contract and a change in current period expense. We cannot make assurances that we will be able to enter into hedging transactions or that such hedging transactions will adequately protect us against the foregoing risks.
Accounting for derivatives under GAAP may be complicated. Any failure by us to meet the requirements for applying hedge accounting in accordance with GAAP could adversely affect our earnings. In particular, derivatives are required to be highly effective in offsetting changes in the value or cash flows of the hedged items (and appropriately designated and/or documented as such). If it is determined that a derivative is not highly effective at hedging the designated exposure, hedge accounting is discontinued and the changes in fair value of the instrument are included in our reported net income.
Inability to access funding could have a material adverse effect on our results of operations, financial condition and business.
Our ability to fund our loans and investments may be impacted by our ability to secure bank credit facilities (including term loans and revolving facilities), warehouse facilities and structured financing arrangements, public and private debt issuances and derivative instruments, in addition to transaction or asset specific funding arrangements and additional repurchase agreements on acceptable terms. We may also rely on short-term financing that would be especially exposed to changes in availability. Our access to sources of financing will depend upon a number of factors, over which we have little or no control, including:
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general economic or market conditions; |
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the markets view of the quality of our assets; |
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the markets perception of our growth potential; |
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our current and potential future earnings and cash distributions; and |
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the market price of the shares of our class A common stock. |
We may need to periodically access the capital markets to raise cash to fund new loans and investments. Unfavorable economic or capital market conditions may increase our funding costs, limit our access to the capital markets or could result in a decision by our potential lenders not to extend credit. An inability to successfully access the capital markets could limit our ability to grow our business and fully execute our business strategy and could decrease our earnings and liquidity. In addition, any dislocation or weakness in the capital and credit markets could adversely affect our lenders and could cause one or more of our lenders to be unwilling or unable to provide us with financing or to increase the costs of that financing. In addition, as regulatory capital requirements imposed on our lenders are increased, they may be required to limit, or increase the cost of, financing they provide to us. In general, this could potentially increase our financing costs and reduce our liquidity or require us to sell assets at an inopportune time or price. We cannot make assurances that we will be able to obtain any additional financing on favorable terms or at all.
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Any warehouse facilities that we may obtain in the future may limit our ability to originate or acquire assets, and we may incur losses if the collateral is liquidated.
We may utilize, if available, warehouse facilities pursuant to which we would accumulate loans in anticipation of a securitization or other financing, which assets would be pledged as collateral for such facilities until the securitization or other transaction is consummated. In order to borrow funds to originate or acquire assets under any future warehouse facilities, we expect that our lenders thereunder would have the right to review the potential assets for which we are seeking financing. We may be unable to obtain the consent of a lender to originate or acquire assets that we believe would be beneficial to us and we may be unable to obtain alternate financing for such assets. In addition, no assurance can be given that a securitization or other financing would be consummated with respect to the assets being warehoused. If the securitization or other financing is not consummated, the lender could demand repayment of the facility, and in the event that we were unable to timely repay, could liquidate the warehoused collateral and we would then have to pay any amount by which the original purchase price of the collateral assets exceeds its sale price, subject to negotiated caps, if any, on our exposure. In addition, regardless of whether the securitization or other financing is consummated, if any of the warehoused collateral is sold before the completion, we would have to bear any resulting loss on the sale.
We have utilized and may utilize in the future non-recourse securitizations to finance our loans and investments, which may expose us to risks that could result in losses.
We have utilized and may utilize in the future, non-recourse securitizations of certain of our portfolio investments to generate cash for funding new loans and investments and other purposes. These transactions generally involve us creating a special-purpose vehicle, contributing a pool of our assets to the entity, and selling interests in the entity on a non-recourse basis to purchasers (whom we would expect to be willing to accept a lower interest rate to invest in investment-grade loan pools). We would expect to retain all or a portion of the equity and potentially other tranches in the securitized pool of loans or investments. In addition, we have retained in the past and may in the future retain a pari passu participation in the securitized pool of loans. Because of the interests we retain, in particular with respect to equity or similar tranches, actions taken by CTIMCO or any other entity that acts as special servicer may in the future conflict with our interests. See Risks Related to Our Lending and Investment ActivitiesOur investments in CMBS, CLOs, CDOs and other similar structured finance investments, as well as those we structure, sponsor or arrange, pose additional risks, including the risks of the securitization process and the risk that the special servicer, CT Investment Management Co., LLC, or CTIMCO, a subsidiary of Blackstone, may take actions that could adversely affect our interests.
Prior to any such financing, we may use short-term facilities to finance the acquisition of securities until a sufficient quantity of investments had been accumulated, at which time we would refinance these facilities through a securitization, such as a CMBS, or issuance of CLOs, or the private placement of loan participations or other long-term financing. As a result, we would be subject to the risk that we would not be able to acquire, during the period that our short-term facilities are available, a sufficient amount of eligible investments to maximize the efficiency of a CMBS, CLO or private placement issuance. We also would be subject to the risk that we would not be able to obtain short-term credit facilities or would not be able to renew any short-term credit facilities after they expire should we find it necessary to extend our short-term credit facilities to allow more time to seek and acquire the necessary eligible investments for a long-term financing. The inability to consummate securitizations of our portfolio to finance our loans and investments on a long-term basis could require us to seek other forms of potentially less attractive financing or to liquidate assets at an inopportune time or price, which could adversely affect our performance and our ability to grow our business. Moreover, conditions in the capital markets, including volatility and disruption in the capital and credit markets, may not permit a non-recourse securitization at any particular time or may make the issuance of any such securitization less attractive to us even when we do have sufficient eligible assets. We may also suffer losses if the value of the mortgage loans we acquire declines prior to securitization. Declines in the value of a mortgage loan can be due to, among other things, changes in interest rates and changes in the credit quality of the loan. In addition, we may suffer a loss due to the incurrence of transaction costs related to executing these transactions. To the extent that
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we incur a loss executing or participating in future securitizations for the reasons described above or for other reasons, it could materially and adversely impact our business and financial condition.
In addition, the securitization of our portfolio might magnify our exposure to losses because any equity interest we retain in the issuing entity would be subordinate to the notes issued to investors and we would, therefore, absorb all of the losses sustained with respect to a securitized pool of assets before the owners of the notes experience any losses. The inability to securitize our portfolio may hurt our performance and our ability to grow our business. At the same time, the securitization of our loans or investments might expose us to losses, as the residual loans or investments in which we do not sell interests will tend to be riskier and more likely to generate losses. Moreover, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or Dodd-Frank Act, contains a risk retention requirement for all asset-backed securities, which requires both public and private securitizers to retain not less than 5% of the credit risk of the assets collateralizing any asset-backed security issuance. Significant restrictions exist, and additional restrictions may be added in the future, regarding who may hold risk retention interests, the structure of the entities that hold risk retention interests and when and how such risk retention interests may be transferred. Therefore such risk retention interests will generally be illiquid. As a result of the risk retention requirements, we have and may in the future be required to purchase and retain certain interests in a securitization into which we sell mortgage loans and/or when we act as issuer, may be required to sell certain interests in a securitization at prices below levels that such interests have historically yielded and/or may be required to enter into certain arrangements related to risk retention that we have not historically been required to enter into. Accordingly, the risk retention rules may increase our potential liabilities and/or reduce our potential profits in connection with securitization of mortgage loans. It is likely, therefore, that these risk retention rules will increase the administrative and operational costs of asset securitizations.
We may be subject to losses arising from current and future guarantees of debt and contingent obligations of our subsidiaries or joint venture or co-investment partners.
We currently guarantee certain obligations of our subsidiaries under various arrangements that provide for significant aggregate borrowings and we may in the future guarantee the performance of additional subsidiaries obligations, including, but not limited to, additional repurchase agreements, derivative agreements and unsecured indebtedness. We also currently guarantee certain indebtedness incurred by our joint venture with Walker & Dunlop Inc. and in the future may agree to guarantee other indebtedness incurred by other joint venture or co-investment partners. Such guarantees may be on a joint and several basis with such joint venture or co-investment partner, in which case we may be liable in the event such partner defaults on its guarantee obligation. The non-performance of such obligations may cause losses to us in excess of the capital we initially may have invested or committed under such obligations and there is no assurance that we will have sufficient capital to cover any such losses.
We are subject to counterparty risk associated with our debt obligations.
Our counterparties for critical financial relationships may include both domestic and international financial institutions. These institutions could be severely impacted by credit market turmoil, changes in legislation, allegations of civil or criminal wrongdoing and may as a result experience financial or other pressures. In addition, if a lender or counterparty files for bankruptcy or becomes insolvent, our borrowings under financing agreements with them may become subject to bankruptcy or insolvency proceedings, thus depriving us, at least temporarily, of the benefit of these assets. Such an event could restrict our access to financing and increase our cost of capital. If any of our counterparties were to limit or cease operation, it could lead to financial losses for us.
Hedging may adversely affect our earnings, which could reduce our cash available for distribution to our stockholders.
Subject to maintaining our qualification as a REIT, we may pursue various hedging strategies to seek to reduce our exposure to adverse changes in interest rates and fluctuations in currencies. Our hedging activity will vary in scope based on the level and volatility of interest rates, exchange rates, the type of assets held and other changing
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market conditions. Interest rate and currency hedging may fail to protect or could adversely affect us because, among other things:
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interest rate, currency and/or credit hedging can be expensive and may result in us generating less net income; |
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available interest rate or currency hedges may not correspond directly with the interest rate or currency risk for which protection is sought; |
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due to a credit loss, prepayment or asset sale, the duration of the hedge may not match the duration of the related asset or liability; |
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the amount of income that a REIT may earn from hedging transactions (other than hedging transactions that satisfy certain requirements of the Internal Revenue Code or that are done through a taxable REIT subsidiary, or TRS) to offset interest rate losses is limited by U.S. federal income tax provisions governing REITs; |
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the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; |
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the hedging counterparty owing money in the hedging transaction may default on its obligation to pay; |
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we may fail to recalculate, readjust and execute hedges in an efficient manner; and |
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legal, tax and regulatory changes could occur and may adversely affect our ability to pursue our hedging strategies and/or increase the costs of implementing such strategies. |
Any hedging activity in which we engage may materially and adversely affect our results of operations and cash flows. Therefore, while we may enter into such transactions seeking to reduce risks, unanticipated changes in interest rates, credit spreads or currencies may result in poorer overall investment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions or liabilities being hedged may vary materially. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolio positions or liabilities being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and furthermore may expose us to risk of loss.
In addition, some hedging instruments involve additional risk because they are not traded on regulated exchanges, guaranteed by an exchange or its clearing house, or regulated by any U.S. or foreign governmental authorities. Consequently, we cannot make assurances that a liquid secondary market will exist for hedging instruments purchased or sold, and we may be required to maintain a position until exercise or expiration, which could result in significant losses. In addition, regulatory requirements with respect to derivatives, including eligibility of counterparties, reporting, recordkeeping, exchange of margin, financial responsibility or segregation of customer funds and positions are still under development and could impact our hedging transactions and how we and our counterparty must manage such transactions.
We are subject to counterparty risk associated with our hedging activities.
We are subject to credit risk with respect to the counterparties to derivative contracts (whether a clearing corporation in the case of exchange-traded instruments or another third party in the case of OTC instruments). If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial difficulties, we may experience significant delays in obtaining any recovery under the derivative contract in a dissolution, assignment for the benefit of creditors, liquidation, winding-up, bankruptcy, or other analogous proceeding. In the event of the insolvency of a counterparty to a derivative transaction, the derivative transaction would typically be terminated at its fair market value. If we are owed this fair market value in the termination of the derivative transaction and its claim is unsecured, we will be treated as a general creditor of such counterparty, and will not have any claim with respect to the underlying security. We may obtain only a limited recovery or may obtain no recovery in such circumstances. In addition, the business failure of a
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counterparty with whom we enter into a hedging transaction will most likely result in its default, which may result in the loss of potential future value and the loss of our hedge and force us to cover our commitments, if any, at the then current market price.
We may enter into hedging transactions that could expose us to contingent liabilities in the future.
Subject to maintaining our qualification as a REIT, part of our investment strategy may involve entering into hedging transactions that could require us to fund cash payments in certain circumstances (such as the early termination of the hedging instrument caused by an event of default or other early termination event, or the decision by a counterparty to request margin securities it is contractually owed under the terms of the hedging instrument). The amount due with respect to an early termination would generally be equal to the unrealized loss of such open transaction positions with the respective counterparty and could also include other fees and charges. These economic losses will be reflected in our results of operations, and our ability to fund these obligations will depend on the liquidity of our assets and access to capital at the time, and the need to fund these obligations could adversely affect our results of operations and financial condition.
We may fail to qualify for, or choose not to elect, hedge accounting treatment.
We generally account for derivative and hedging transactions in accordance with Topic 815 of the Financial Accounting Standards Boards Accounting Standard Codification, or Topic 815. Under these standards, we may fail to qualify for, or choose not to elect, hedge accounting treatment for a number of reasons, including if we fail to satisfy Topic 815 hedge documentation and hedge effectiveness assessment requirements or our instruments are not highly effective. If we fail to qualify for, or choose not to elect, hedge accounting treatment, our operating results may suffer because losses on the derivatives that we enter into may not be offset by a change in the fair value of the related hedged transaction or item.
If we enter into certain hedging transactions or otherwise invest in certain derivative instruments, failure to obtain and maintain an exemption from being regulated as a commodity pool operator could subject us to additional regulation and compliance requirements which could materially adversely affect our business and financial condition.
Rules under the Dodd-Frank Act establish a comprehensive regulatory framework for derivative contracts commonly referred to as swaps. Under this regulatory framework, mortgage real estate investment trusts, or mREITs, that trade in commodity interest positions (including swaps) are considered commodity pools and the operators of such mREITs would be considered commodity pool operators, or CPOs. Absent relief, a CPO must register with the U.S. Commodity Futures Trading Commission, or CFTC, and become a member of the National Futures Association, or NFA, which requires compliance with NFAs rules and renders such CPO subject to regulation by the CFTC, including with respect to disclosure, reporting, recordkeeping and business conduct. We may from time to time, directly or indirectly, invest in instruments that meet the definition of swap under the Dodd-Frank Act rules, which may subject us to oversight by the CFTC. Our board of directors has appointed our Manager to act as our CPO in the event we are deemed a commodity pool.
In the event that we invest in commodity interests, absent relief, our Manager would be required to register as a CPO. Our Manager is exempt from registration as a CPO with the CFTC pursuant to certain no-action letters for the CPO of a qualifying mortgage REIT (and in that regard, we intend to identify as a mortgage REIT for U.S. federal income tax purposes). In addition, our Manager may in the future claim a different exemption from registration as a CPO with the CFTC. Therefore, unlike a registered CPO, our Manager will not be required to provide prospective investors with a CFTC compliant disclosure document, nor will our Manager be required to provide investors with periodic account statements or certified annual reports that satisfy the requirements of CFTC rules applicable to registered CPOs, in connection with any offerings of shares.
As an alternative to an exemption from registration, our Manager may register as a CPO with the CFTC and avail itself of certain disclosure, reporting and record-keeping relief under CFTC Rule 4.7.
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The CFTC has substantial enforcement power with respect to violations of the laws over which it has jurisdiction, including anti-fraud and anti-manipulation provisions. Among other things, the CFTC may suspend or revoke the registration of a person who fails to comply, prohibit such a person from trading or doing business with registered entities, impose civil money penalties, require restitution and seek fines or imprisonment for criminal violations. Additionally, a private right of action exists against those who violate the laws over which the CFTC has jurisdiction or who willfully aid, abet, counsel, induce or procure a violation of those laws. In the event we fail to receive interpretive relief from the CFTC on this matter, are unable to claim an exemption from registration and fail to comply with the regulatory requirements of these new rules, we may be unable to use certain types of hedging instruments or we may be subject to significant fines, penalties and other civil or governmental actions or proceedings, any of which could adversely affect our results of operations and financial condition.
Risks Related to Our Relationship with Our Manager and its Affiliates
We depend on our Manager and its personnel for our success. We may not find a suitable replacement for our Manager if the Management Agreement is terminated, or if key personnel cease to be employed by our Manager or Blackstone or otherwise become unavailable to us.
We are externally managed and advised by our Manager, an affiliate of Blackstone. We currently have no employees and all of our officers are employees of Blackstone or its affiliates. We are completely reliant on our Manager, which has significant discretion as to the implementation of our investment and operating policies and strategies.
Our success depends to a significant extent upon the efforts, experience, diligence, skill, and network of business contacts of the officers and key personnel of our Manager and its affiliates. Our Manager is managed by senior professionals of Blackstone. These individuals evaluate, negotiate, execute and monitor our loans and investments and advise us regarding maintenance of our qualification as a REIT and exclusion from regulation under the Investment Company Act; therefore, our success depends on their skills and management expertise and continued service with our Manager and its affiliates. Furthermore, there is increasing competition among financial sponsors, investment banks and other real estate debt investors for hiring and retaining qualified investment professionals and there can be no assurance that such professionals will continue to be associated with us, our Manager or its affiliates or that any replacements will perform well.
In addition, we can offer no assurance that our Manager will remain our investment manager or that we will continue to have access to our Managers officers and key personnel. The current term of the Management Agreement extends to December 19, 2019 and may be renewed for additional one-year terms thereafter; provided, however, that our Manager may terminate the Management Agreement annually upon 180 days prior notice. If the Management Agreement is terminated and no suitable replacement is found to manage us, we may not be able to execute our business plan. Furthermore, we may incur certain costs in connection with a termination of the Management Agreement.
The personnel of our Manager, as our external manager, are not required to dedicate a specific portion of their time to the management of our business.
Neither our Manager nor any other Blackstone affiliate is obligated to dedicate any specific personnel exclusively to us, nor are they or their personnel obligated to dedicate any specific portion of their time to the management of our business. As a result, we cannot provide any assurances regarding the amount of time our Manager or its affiliates will dedicate to the management of our business and our Manager may have conflicts in allocating its time, resources and services among our business and any other investment vehicles and accounts our Manager (or its personnel) may manage. Each of our officers is also an employee of our Manager or another Blackstone affiliate, who has now or may be expected to have significant responsibilities for other investment vehicles currently managed by Blackstone and its affiliates. Consequently, we may not receive the level of
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support and assistance that we otherwise might receive if we were internally managed. Our Manager and its affiliates are not restricted from entering into other investment advisory relationships or from engaging in other business activities.
Our Manager manages our portfolio pursuant to very broad investment guidelines and is not required to seek the approval of our board of directors for each investment, financing, asset allocation or hedging decision made by it, which may result in our making riskier loans and investments and which could adversely affect our results of operations and financial condition.
Our Manager is authorized to follow very broad investment guidelines that provide it with broad discretion over investment, financing, asset allocation and hedging decisions. Our board of directors will periodically review our investment guidelines and our loan and investment portfolio but will not, and will not be required to, review and approve in advance all of our proposed loans and investments or the Managers financing, asset allocation or hedging decisions. In addition, in conducting periodic reviews, our directors may rely primarily on information provided to them by our Manager or its affiliates. Subject to maintaining our REIT qualification and our exclusion from regulation under the Investment Company Act, our Manager has significant latitude within the broad investment guidelines in determining the types of loans and investments it makes for us, and how such loans and investments are financing or hedged, which could result in investment returns that are substantially below expectations or that result in losses, which could adversely affect our results of operations and financial condition.
Our Managers fee structure may not create proper incentives or may induce our Manager and its affiliates to make certain loans or investments, including speculative investments, which increase the risk of our loan and investment portfolio.
We pay our Manager base management fees regardless of the performance of our portfolio. Our Managers entitlement to base management fees, which is not based upon performance metrics or goals, might reduce its incentive to devote its time and effort to seeking loans and investments that provide attractive risk-adjusted returns for our portfolio. Because the base management fees are also based in part on our outstanding equity, our Manager may also be incentivized to advance strategies that increase our equity, and there may be circumstances where increasing our equity will not optimize the returns for our stockholders. Consequently, we are required to pay our Manager base management fees in a particular period despite experiencing a net loss or a decline in the value of our portfolio during that period.
In addition, our Manager has the ability to earn incentive fees each quarter based on our earnings, which may create an incentive for our Manager to invest in assets with higher yield potential, which are generally riskier or more speculative, or sell an asset prematurely for a gain, in an effort to increase our short-term net income and thereby increase the incentive fees to which it is entitled. If our interests and those of our Manager are not aligned, the execution of our business plan and our results of operations could be adversely affected, which could adversely affect our results of operations and financial condition.
We may compete with existing and future private and public investment vehicles established and/or managed by Blackstone or its affiliates, which may present various conflicts of interest that restrict our ability to pursue certain investment opportunities or take other actions that are beneficial to our business and result in decisions that are not in the best interests of our stockholders.
We are subject to conflicts of interest arising out of our relationship with Blackstone, including our Manager and its affiliates. Three Blackstone employees serve on our board of directors, including Michael B. Nash, the executive chairman of our board of directors and chairman of Blackstone Real Estate Debt Strategies, or BREDS, Stephen D. Plavin, our chief executive officer and president, and Jonathan Pollack, the global head of BREDS. In addition, our chief financial officer and our other executive officers are also employees of Blackstone and/or one or more of its affiliates, and we are managed by our Manager, a Blackstone affiliate. There is no guarantee that the policies and procedures adopted by us, the terms and conditions of the Management Agreement or the
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policies and procedures adopted by our Manager, Blackstone and their affiliates, will enable us to identify, adequately address or mitigate these conflicts of interest. Some examples of conflicts of interest that may arise by virtue of our relationship with our Manager and Blackstone include:
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Broad and Wide-Ranging Activities . Our Manager, Blackstone and their affiliates engage in a broad spectrum of activities, including a broad range of activities relating to investments in the real estate industry, and have invested or committed billions of dollars in capital through various investment funds, managed accounts and other vehicles affiliated with Blackstone. In the ordinary course of their business activities, our Manager, Blackstone and their affiliates may engage in activities where the interests of certain divisions of Blackstone and its affiliates, including our Manager, or the interests of their clients may conflict with the interests of our stockholders. Certain of these divisions and entities affiliated with our Manager have or may have an investment strategy similar to our investment strategy and therefore may compete with us. In particular, BREDS invests in a broad range of real estate-related debt investments via numerous different investment funds, managed accounts and other vehicles. |
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Blackstones Policies and Procedures . Specified policies and procedures implemented by Blackstone and its affiliates, including our Manager, to mitigate potential conflicts of interest and address certain regulatory requirements and contractual restrictions may reduce the advantages across Blackstones and its affiliates various businesses that Blackstone expects to draw on for purposes of pursuing attractive investment opportunities. Because Blackstone has many different businesses, including the Blackstone Capital Markets Group, which Blackstone investment teams and portfolio entities may engage to advise on and to execute debt and equity financings, it is subject to a number of actual and potential conflicts of interest, greater regulatory oversight and more legal and contractual restrictions than that to which it would otherwise be subject if it had just one line of business. In addressing these conflicts and regulatory, legal and contractual requirements across its various businesses, Blackstone has implemented certain policies and procedures (e.g., information walls) that may reduce the positive firm-wide synergies Blackstone could otherwise expect to utilize for purposes of identifying and managing attractive investments. For example, Blackstone may come into possession of material non-public information with respect to companies that are clients of Blackstone or its affiliates, in which our Manager may be considering making an investment. As a consequence, that information, which could be of benefit to our Manager, might become restricted to those other businesses and otherwise be unavailable to our Manager, and could also restrict our Managers activities. Additionally, the terms of confidentiality or other agreements with or related to companies in which any investment vehicle of Blackstone has or has considered making an investment or which is otherwise a client of Blackstone and its affiliates may restrict or otherwise limit the ability of Blackstone or its affiliates, including our Manager, to engage in businesses or activities competitive with such companies. |
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Allocation of Investment Opportunities . Certain inherent conflicts of interest arise from the fact that Blackstone and its affiliates, including our Manager, will provide investment management and other services both to us and to any other person or entity, whether or not the investment objectives or guidelines of any such other person or entity are similar to ours, including, without limitation, the sponsoring, closing and/or managing of any investment funds, vehicles, REITs, accounts, products and/or other similar arrangements sponsored, advised, and/or managed by Blackstone or its affiliates, whether currently in existence or subsequently established (in each case, including any related successor funds, alternative vehicles, supplemental capital vehicles, surge funds, over-flow funds, co-investment vehicles, other entities formed in connection with Blackstone or its affiliates side-by-side or additional general partner investments with respect thereto, and portfolio companies/entities), which we refer to as the Blackstone Vehicles. The respective investment guidelines and programs of our business and the Blackstone Vehicles may or may not overlap, in whole or in part, and if there is any such overlap, investment opportunities will be allocated between us and the Blackstone Vehicles in a manner that may result in fewer investment opportunities being allocated to us than would have otherwise been the case in the absence of such Blackstone Vehicles. In particular, while our primary investment strategies differ from those of Blackstones latest flagship real estate debt fund, |
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Blackstone Real Estate Debt Strategies III L.P. and related separately managed accounts, or BREDS III, and Blackstone Real Estate Debt Strategies High-Grade L.P, or BREDS HG, in that we generally seek to invest primarily in senior mortgage loans and other similar interests, BREDS III generally seeks to invest primarily in junior mortgage debt and mezzanine debt and BREDS HG generally seeks to invest primarily in senior mezzanine debt, a significant portion of the capital of BREDS III and BREDS HG (and/or other BREDS funds) may nonetheless be invested in investments that would also be appropriate for us. The allocation methodology applied between us and one or more of the Blackstone Vehicles may result in us not participating (and/or not participating to the same extent) in certain investment opportunities in which we would have otherwise participated had the related allocations been determined without regard to such guidelines and/or based only on the circumstances of those particular investments. Our Manager, Blackstone or their affiliates may also give advice to the Blackstone Vehicles that may differ from advice given to us even though their investment objectives may be the same or similar to ours. |
As a result, we may invest in real estate-related debt investments alongside certain Blackstone Vehicles that are part of the BREDS program and other vehicles focusing on real estate-related debt investments, including, but not limited to, BREDS III and BREDS HG. To the extent any other Blackstone Vehicles otherwise have investment objectives or guidelines that overlap with ours, in whole or in part, investment opportunities that fall within such common objectives or guidelines will generally be allocated among one or more of us and such other Blackstone Vehicles on a basis that our Manager and applicable Blackstone affiliates determines to be fair and reasonable in its sole discretion, subject to (i) any applicable investment parameters, limitations and other contractual provisions applicable to us and such other Blackstone Vehicles, (ii) us and such other Blackstone Vehicles having available capital with respect thereto, and (iii) legal, tax, accounting, regulatory and other considerations deemed relevant by our Manager and its affiliates (including, without limitation, the relative risk-return profile of such investment and instrument type, the specific nature and terms of the investment, size and type of the investment, relative investment strategies and primary investment mandates, portfolio diversification concerns, the investment focus, guidelines, limitations, and strategy of each investment fund or vehicle, co-investment arrangements, the different liquidity positions and requirements in each fund or vehicle, underwritten leverage levels of a loan, portfolio concentration considerations, contractual obligations, other anticipated uses of capital, the source of the investment opportunity, credit ratings, the ability of a client, fund and/or vehicle to employ leverage, hedging, derivatives, syndication strategies or other similar strategies in connection with acquiring, holding or disposing of the particular investment opportunity, and any requirements or other terms of any existing leverage facilities, geographic focus, remaining investment period, the credit/default profile of an issuer, the extent of involvement of the respective teams of investment professionals dedicated to the Manager and other Blackstone Vehicles, the likelihood/immediacy of foreclosure or conversion to an equity or control opportunity, and other considerations deemed relevant in good faith in their sole discretion). In the case of an investment opportunity that our Manager and its affiliates determines should be allocated to us and BREDS III, our Manager and its affiliates may, in lieu of allocating among BREDS III and us as described above, allocate in a manner such that 50% of the amount of the investment opportunity is allocated to BREDS III, on the one hand, and to us, on the other hand, subject to variation on a case-by-case basis in circumstances where our Manager and its affiliates determine in good faith that doing so is appropriate or more equitable under the circumstances. There is no assurance, however, that any such conflicts arising out of the foregoing will be resolved in our favor. Our Manager is entitled to amend its investment objectives or guidelines at any time without prior notice or our consent.
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Investments in Different Levels or Classes of an Issuers Securities . We and the Blackstone Vehicles have made and in the future will likely make investments at different levels of an issuers or borrowers capital structure (e.g., an investment by a Blackstone Vehicle in an equity, debt or mezzanine interest with respect to the same portfolio entity in which we own a debt interest or vice versa) or otherwise in different classes of the same issuers securities. We may make investments that are senior or junior to, or have rights and interests different from or adverse to, the investments made by the Blackstone |
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Vehicles. Such investments may conflict with the interests of such Blackstone Vehicles in related investments, and the potential for any such conflicts of interests may be heightened in the event of a default or restructuring of any such investments. Actions may be taken for the Blackstone Vehicles that are adverse to us, including with respect to the timing and manner of sale and actions taken in circumstances of financial distress. In addition, in connection with such investments, Blackstone will generally seek to implement certain procedures to mitigate conflicts of interest which typically involve us maintaining a non-controlling interest in any such investment and a forbearance of rights, including certain non-economic rights, relating to the Blackstone Vehicles, such as where Blackstone may cause us to decline to exercise certain control- and/or foreclosure-related rights with respect to a portfolio entity (including following the vote of other third party lenders generally or otherwise recusing itself with respect to decisions), including with respect to defaults, foreclosures, workouts, restructurings and/or exit opportunities, subject to certain limitations. Our Management Agreement requires our Manager to keep our board of directors reasonably informed on a periodic basis in connection with the foregoing, including with respect to transactions that involve investments at different levels of an issuers or borrowers capital structure, as to which our Manager has agreed to provide our board of directors with quarterly updates. We currently hold mortgage and mezzanine loans and other investments in which Blackstone affiliates have interests in the collateral securing or backing such investments. While Blackstone will seek to resolve any conflicts in a fair and equitable manner with respect to conflicts resolution among the Blackstone Vehicles generally, such transactions are not required to be presented to our board of directors for approval, and there can be no assurance that any conflicts will be resolved in our favor. |
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Assignment and Sharing or Limitation of Rights . We may invest alongside other Blackstone Vehicles and in connection therewith may, for legal, tax, regulatory or other reasons which may be unrelated to us, share with or assign to such other Blackstone Vehicles certain of our rights, in whole or in part, or to limit our rights, including certain control- and/or foreclosure-related rights with respect to such shared investments and/or otherwise agree to implement certain procedures to mitigate conflicts of interest which typically involve maintaining a non-controlling interest in any such investment and a forbearance of our rights, including certain non-economic rights (including following the vote of other third party lenders generally or otherwise being recused with respect to certain decisions, including with respect to defaults, foreclosures, workouts, restructurings and/or exit opportunities), subject to certain limitations. While it is expected that our participation in connection with any such investments and transactions would be negotiated by third parties on market prices, such investments and transactions will give rise to potential or actual conflicts of interest. We cannot make assurances that any such conflict will be resolved in our favor. To the extent we hold an interest in a loan or security that is different (including with respect to their relative seniority) than those held by such other Blackstone Vehicles (and vice versa), our Manager and its affiliates may be presented and/or may have limited or no rights with respect to decisions when the interests of the funds/vehicles are in conflict. Such sharing or assignment of rights could make it more difficult for us to protect our interests and could give rise to a conflict (which may be exacerbated in the case of financial distress) and could result in another Blackstone Vehicle exercising such rights in a way adverse to us. |
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Providing Debt Financings in connection with Assets Owned by Other Blackstone Vehicles . We have, and in the future are likely to provide financing (1) as part of the bid or acquisition by a third party to acquire interests in (or otherwise make an investment in the underlying assets of) a portfolio entity owned by one or more Blackstone Vehicles or their affiliates of assets or interests (and/or portfolios thereof) owned by a third party), (2) with respect to one or more portfolio entities or borrowers in connection with a proposed acquisition or investment by one or more Blackstone Vehicles or affiliates relating to such portfolio entities and/or their underlying assets and/or (3) in other transactions or in the ordinary course, with respect to portfolio entities in which other Blackstone Vehicles and/or affiliates currently hold or propose to acquire an interest. This may include making commitments to provide financing at, prior to or around the time that any such purchaser commits to or makes such investments. While the terms and conditions of any such debt commitments and related arrangements will generally |
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be consistent with market terms, the involvement of us and/or such other Blackstone Vehicles or affiliates in such transactions may impact the market terms. For example, in the case of a loan extended to a portfolio entity by a financing syndicate in which we have agreed to participate on terms negotiated by a third party participant in the syndicate, it may have been necessary for the portfolio entity to offer better terms to lenders to fully subscribe the syndicate if we had not participated. In addition, any such transactions or arrangements may otherwise influence Blackstones decisions with respect to the management of us and/or such other Blackstone Vehicles and/or the relevant portfolio entity, which will give rise to potential or actual conflicts of interests and which may adversely impact us. |
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Pursuit of Differing Strategies . At times, the investment professionals employed by our Manager or its affiliates and other investment vehicles affiliated with our Manager and/or Blackstone may determine that an investment opportunity may be appropriate for only some of the accounts, clients, entities, funds and/or investment vehicles for which he or she exercises investment responsibility, or may decide that certain of the accounts, clients, entities, funds and/or investment vehicles should take differing positions with respect to a particular security. In these cases, the investment professionals may place separate transactions for one or more accounts, clients, entities, funds and/or investment vehicles which may affect the market price of the security or the execution of the transaction, or both, to the detriment or benefit of one or more other accounts, clients, entities, funds and/or investment vehicles. For example, an investment professional may determine that it would be in the interest of another account to sell a security that we hold long, potentially resulting in a decrease in the market value of the security held by us. |
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Variation in Financial and Other Benefits . A conflict of interest arises where the financial or other benefits available to our Manager or its affiliates differ among the accounts, clients, entities, funds and/or investment vehicles that it manages. If the amount or structure of the base management fee, incentive fee and/or our Managers or its affiliates compensation differs among accounts, clients, entities, funds and/or investment vehicles (such as where certain funds or accounts pay higher base management fees, incentive fees, performance-based management fees or other fees), our Manager might be motivated to help certain accounts, clients, entities, funds and/or investment vehicles over us. Similarly, the desire to maintain assets under management or to enhance our Managers performance record or to derive other rewards, financial or otherwise, could influence our Manager in affording preferential treatment to those accounts, clients, entities, funds and/or investment vehicles that could most significantly benefit our Manager or its affiliates. Our Manager may, for example, have an incentive to allocate favorable or limited opportunity investments or structure the timing of investments to favor such accounts, clients, entities, funds and/or investment vehicles over us. Additionally, our Manager might be motivated to favor accounts, clients, entities, funds and/or investment vehicles in which it has an ownership interest or in which Blackstone and/or its affiliates have ownership interests. Conversely, if an investment professional at our Manager or its affiliates does not personally hold an investment in the fund but holds investments in other Blackstone affiliated vehicles, such investment professionals conflicts of interest with respect to us may be more acute. |
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Underwriting, Advisory and Other Relationships . As part of its regular business, Blackstone provides a broad range of underwriting, investment banking, placement agent services and other services. In connection with selling investments by way of a public offering, a Blackstone broker-dealer may act as the managing underwriter or a member of the underwriting syndicate on a firm commitment basis and purchase securities on that basis. Blackstone may retain any commissions, remuneration, or other profits and receive compensation from such underwriting activities, which have the potential to create conflicts of interest. Blackstone may also participate in underwriting syndicates from time to time with respect to us or portfolio companies/entities of Blackstone Vehicles, or may otherwise be involved in the private placement of debt or equity securities issued by us or such portfolio companies/entities, or otherwise in arranging financings with respect thereto or advising on such transactions. Subject to applicable law, Blackstone may receive underwriting fees, placement commissions, or other |
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compensation with respect to such activities, which will not be shared with us or our stockholders. Where Blackstone serves as underwriter with respect to the securities of a portfolio company/entity, we or the applicable Blackstone Vehicle holding such securities may be subject to a lock-up period following the offering under applicable regulations during which time our ability to sell any securities that we continue to hold is restricted. This may prejudice our ability to dispose of such securities at an opportune time. |
In the regular course of its investment banking business, Blackstone represents potential purchasers, sellers and other involved parties, including corporations, financial buyers, management, shareholders and institutions, with respect to assets that are suitable for investment by us. In such case, Blackstones client would typically require Blackstone to act exclusively on its behalf, thereby precluding us from acquiring such assets. Blackstone is under no obligation to decline any such engagement to make the investment opportunity available to us.
Blackstone has long-term relationships with a significant number of corporations and their senior management. In determining whether to invest in a particular transaction on our behalf, our Manager may consider those relationships (subject to its obligations under the Management Agreement), which may result in certain transactions that our Manager will not undertake on our behalf in view of such relationships.
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Service Providers . Certain of our service providers, or their affiliates (including accountants, administrators, lenders, brokers, attorneys, consultants, title agents, property managers and investment banking or commercial banking firms) also provide goods or services to or have business, personal or other relationships with Blackstone. For example, Blackstone may hold equity or other investments in companies or businesses in the real estate related information technology and other industries that may provide products or services to or otherwise contract with us or other Blackstone Vehicles. In connection with any such investment, Blackstone or other Blackstone Vehicles (or their respective portfolio companies/entities) may make referrals or introductions to other portfolio companies/entities in an effort, in part, to increase the customer base of such companies or businesses, and therefore the value of the investment, or because such referrals or introductions may result in financial incentives (including additional equity ownership) and/or milestones benefitting the referring or introducing party that are tied or related to participation by portfolio companies/entities. We will not share in any fees, economics or equity accruing to Blackstone or such other Blackstone Vehicles as a result of these relationships. In addition, we may enter into agreements regarding group procurement (such as a group purchasing organization), benefits management, purchase of title and/or other insurance policies (which will from time to time be pooled and discounted due to scale) from a third party or a Blackstone affiliate, and other similar operational, administrative, or management related initiatives that result in commissions, discounts or similar payments to Blackstone or its affiliates (including personnel), including related to a portion of the savings achieved. Such service providers may be sources of investment opportunities or co-investors or commercial counterparties. Such relationships may influence our Manager in deciding whether to select such service provider. In certain circumstances, service providers, or their affiliates, may charge different rates (including below-market rates or at no cost) or have different arrangements for services provided to Blackstone or its affiliates as compared to services provided to us, which in certain circumstances may result in more favorable rates or arrangements than those payable by us. In addition, in instances where multiple Blackstone businesses may be exploring a potential individual investment, certain of these service providers may choose to be engaged by other Blackstone affiliates rather than us. |
In addition, certain advisors and service providers (including law firms) may temporarily provide their personnel to Blackstone, us or other funds advised by Blackstone or their portfolio companies pursuant to various arrangements including at cost or at no cost. While often we and such other Blackstone-advised funds and their portfolio companies are the beneficiaries of these types of arrangements, Blackstone is from time to time a beneficiary of these arrangements as well, including in circumstances where the advisor or service provider also provides services to us in the ordinary course. Such
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personnel may provide services in respect of multiple matters, including in respect of matters related to Blackstone, its affiliates and/or portfolio companies and any costs of such personnel may be allocated accordingly.
CTIMCO, a subsidiary of Blackstone, acts as special servicer in connection with our recent CLO transaction and may act as special servicer in future securitization financing transactions. CTIMCO, in its capacity as special servicer, may be required to enforce obligations or undertake certain other actions that may conflict with our interests.
Lexington National Land Services, or LNLS, is a Blackstone affiliate that acts as an agent for one or more underwriters in issuing title policies and providing support services in connection with investments by us, other Blackstone Vehicles and their portfolio entities, affiliates and related parties and third parties, including, from time to time, our borrowers. LNLS focuses on transactions in rate-regulated U.S. states where the cost of title insurance is non-negotiable. LNLS currently does not perform services in nonregulated U.S. states related to our or other Blackstone Vehicles investments unless (i) in the context of a portfolio transaction that includes properties in rate regulated states, (ii) as part of a syndicate of title insurance companies where the rate is negotiated by other insurers or their agents, (iii) when a third party is paying all or a material portion of the premium or (iv) when LNLS provides support services for compensation to the underwriter but does not negotiate the rate or issue the title policy to the insured. LNLS earns fees, which would have otherwise been paid to third parties, by providing title agency services and facilitating the placement of title insurance with underwriters and otherwise providing the support services described in (iv) above.
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Material, Non-Public Information . We, directly or through Blackstone, our Manager or certain of their respective affiliates may come into possession of material non-public information with respect to an issuer in which we have invested or may invest. Should this occur, our Manager may be restricted from buying or selling securities, derivatives or loans of the issuer on our behalf until such time as the information becomes public or is no longer deemed material. Disclosure of such information to the personnel responsible for management of our business may be on a need-to-know basis only, and we may not be free to act upon any such information. Therefore, we and/or our Manager may not have access to material non-public information in the possession of Blackstone which might be relevant to an investment decision to be made by our Manager on our behalf, and our Manager may initiate a transaction or purchase or sell an investment which, if such information had been known to it, may not have been undertaken. Due to these restrictions, our Manager may not be able to initiate a transaction on our behalf that it otherwise might have initiated and may not be able to purchase or sell an investment that it otherwise might have purchased or sold, which could negatively affect our operations. |
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Possible Future Activities . Our Manager and its affiliates may expand the range of services that they provide over time. Except as and to the extent expressly provided in the Management Agreement, our Manager and its affiliates will not be restricted in the scope of its business or in the performance of any such services (whether now offered or undertaken in the future) even if such activities could give rise to conflicts of interest, and whether or not such conflicts are described herein. Our Manager, Blackstone and their affiliates continue to develop relationships with a significant number of companies, financial sponsors and their senior managers, including relationships with clients who may hold or may have held investments similar to those intended to be made by us. These clients may themselves represent appropriate investment opportunities for us or may compete with us for investment opportunities. |
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Transactions with Blackstone Vehicles . From time to time, we may enter into purchase and sale transactions with Blackstone Vehicles. Such transactions will be conducted in accordance with, and subject to, the terms and conditions of the Management Agreement (including the requirement that sales to or acquisitions of investments from Blackstone, any Blackstone Vehicle or any of their affiliates be approved in advance by a majority of our independent directors) and our code of business conduct and ethics and applicable laws and regulations. |
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Loan Refinancings . We may from time to time seek to participate in investments relating to the refinancing of loans held by the Blackstone Vehicles (including the BREDS funds). While it is expected that our participation in connection with such refinancing transactions will be at arms length and on market/contract terms, such transactions may give rise to potential or actual conflicts of interest. |
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Other Affiliate Transactions . Our Manager may on our behalf acquire debt issued by a borrower in which a separate equity or another debt investment has been made by Blackstone or its other affiliates, including the BREDS funds. In connection with investments in which we participate alongside other Blackstone Vehicles (including the BREDS funds), we may from time to time share certain rights with such other Blackstone Vehicles relating to such investments for legal, tax, regulatory or other similar reasons, including, in certain instances, certain control-related rights with respect to jointly-held investments. When making any such investments, there may be conflicting interests. There can be no assurance that the return on our investment will be equivalent to or better than the returns obtained by Blackstone or its other affiliates. |
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Family Relationships . Certain personnel and other professionals of Blackstone have family members or relatives that are actively involved in the industries and sectors in which we invest and/or have business, personal, financial or other relationships with companies in the real estate industry, which gives rise to potential or actual conflicts of interest. For example, such family members or relatives might be officers, directors, personnel or owners of companies or assets which are actual or potential investments of us or our other counterparties. Moreover, in certain instances, we may transact with companies that are owned by such family members or relatives or in respect of which such family members or relatives have other involvement. In most such circumstances, we will not be precluded from undertaking any of these investment activities or transactions. To the extent Blackstone determines appropriate, it may put in place conflict mitigation strategies with respect to a particular circumstance, such as internal information barriers or recusal, disclosure or other steps determined appropriate by the Manager. |
Blackstone may enter into one or more strategic relationships in certain regions or with respect to certain types of investments that, although intended to provide greater opportunities for us, may require us to share such opportunities or otherwise limit the amount of an opportunity we can otherwise take.
Further conflicts could arise once we and Blackstone or its affiliates have made their respective investments. For example, if a company goes into bankruptcy or reorganization, becomes insolvent or otherwise experiences financial distress or is unable to meet its payment obligations or comply with covenants relating to securities held by us or by the Blackstone or its affiliates, Blackstone or its affiliates may have an interest that conflicts with our interests or Blackstone or its affiliates may have information regarding the company that we do not have access to. If additional financing is necessary as a result of financial or other difficulties, it may not be in our best interests to provide such additional financing. If Blackstone or its affiliates were to lose their respective investments as a result of such difficulties, the ability of our Manager to recommend actions in our best interests might be impaired.
Termination of the Management Agreement would be costly.
Termination of the Management Agreement without cause would be difficult and costly. Our independent directors review our Managers performance annually and the Management Agreement may be terminated each year upon the affirmative vote of at least two-thirds of our independent directors, based upon a determination that (i) our Managers performance is unsatisfactory and materially detrimental to us or (ii) the base management fee and incentive fee payable to our Manager are not fair (provided that in this instance, our Manager will be afforded the opportunity to renegotiate the management fee and incentive fees prior to termination). We are required to provide our Manager with 180 days prior notice of any such termination. Additionally, upon such a termination, or if we materially breach the Management Agreement and our Manager terminates the Management Agreement, the Management Agreement provides that we will pay our Manager a termination fee equal to three times the sum of the average annual base management fee and the average annual incentive fee
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earned during the 24-month period immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination. These provisions increase the cost to us of terminating the Management Agreement and adversely affect our ability to terminate our Manager without cause.
Our Manager maintains a contractual as opposed to a fiduciary relationship with us. Our Managers liability is limited under the Management Agreement and we have agreed to indemnify our Manager against certain liabilities.
Pursuant to the Management Agreement, our Manager does not assume any responsibility other than to render the services called for thereunder and is not responsible for any action of our board of directors in following or declining to follow its advice or recommendations. Our Manager maintains a contractual as opposed to a fiduciary relationship with us. Under the terms of the Management Agreement, our Manager and its affiliates and their respective directors, officers, employees and stockholders are not liable to us, our directors, our stockholders or any subsidiary of ours, or their directors, officers, employees or stockholders for any acts or omissions performed in accordance with and pursuant to the Management Agreement, except by reason of acts or omissions constituting bad faith, willful misconduct, gross negligence, or reckless disregard of their duties under the Management Agreement. We have agreed to indemnify our Manager and its affiliates and their respective directors, officers, employees and stockholders with respect to all expenses, losses, damages, liabilities, demands, charges and claims arising from acts or omissions of our Manager not constituting bad faith, willful misconduct, gross negligence, or reckless disregard of duties, performed or not performed in good faith in accordance with and pursuant to the Management Agreement. As a result, we could experience poor performance or losses for which our Manager would not be liable.
We do not own the Blackstone or BXMT name, but we may use it as part of our corporate name pursuant to a trademark license agreement with an affiliate of Blackstone. Use of the name by other parties or the termination of our trademark license agreement may harm our business.
We have entered into an amended and restated trademark license agreement, or Trademark License Agreement, with an affiliate of Blackstone pursuant to which it has granted us a fully paid-up, royalty-free, non-exclusive, non-transferable license to use the names Blackstone Mortgage Trust, Inc. and BXMT. Under this agreement, we have a right to use these names for so long as our Manager (or another affiliate of Blackstone TM L.L.C., or Licensor) serves as our Manager (or another managing entity) and our Manager remains an affiliate of the Licensor under the Trademark License Agreement. The Trademark License Agreement may also be earlier terminated by either party as a result of certain breaches or for convenience upon 90 days prior written notice; provided that upon notification of such termination by us, the Licensor may elect to effect termination of the Trademark License Agreement immediately at any time after 30 days from the date of such notification. The Licensor and its affiliates, such as Blackstone, will retain the right to continue using the Blackstone and BXMT names. We will further be unable to preclude the Licensor from licensing or transferring the ownership of the Blackstone or BXMT names to third parties, some of whom may compete with us. Consequently, we will be unable to prevent any damage to goodwill that may occur as a result of the activities of the Licensor, Blackstone or others. Furthermore, in the event that the Trademark License Agreement is terminated, we would be required to, among other things, change our name and NYSE ticker symbol. Any of these events could disrupt our recognition in the market place, damage any goodwill we may have generated and otherwise harm our business.
Risks Related to Our Company
Our investment strategy or guidelines, asset allocation and financing strategy may be changed without stockholder consent.
Our Manager is authorized to follow broad investment guidelines that have been approved by our board of directors. Those investment guidelines, as well as our financing strategy or hedging policies with respect to investments, originations, acquisitions, growth, operations, indebtedness, capitalization and distributions, may be
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changed at any time without the consent of our stockholders. This could result in an investment portfolio with a different risk profile. A change in our investment strategy may increase our exposure to interest rate risk, default risk and real estate market fluctuations. Furthermore, a change in our asset allocation could result in our making investments in asset categories different from those described in this report. These changes could adversely affect our results of operations and financial condition.
We must manage our portfolio so that we do not become an investment company that is subject to regulation under the Investment Company Act.
We conduct our operations so that we are not required to register as an investment company under the Investment Company Act. Under Section 3(a)(1)(C) of the Investment Company Act, a company is deemed to be an investment company if it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Investment securities exclude (A) U.S. government securities, (B) securities issued by employees securities companies and (C) securities issued by majority-owned subsidiaries which (i) are not investment companies and (ii) are not relying on the exception from the definition of investment company under Section 3(c)(1) or 3(c)(7) of the Investment Company Act. We conduct our operations so that we will not fall within the definition of investment company under Section 3(a)(1)(C) of the Investment Company Act, since less than 40% of our total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis will consist of investment securities.
To avoid the need to register as an investment company, the securities issued to us by any wholly owned or majority-owned subsidiaries that are excluded from the definition of investment company under Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act, together with any other investment securities we may own, may not have a value in excess of 40% of the value of our total assets on an unconsolidated basis. While we monitor our holdings to ensure ongoing compliance with this test, there can be no assurance that we will be able to avoid the need to register as an investment company. This test limits the types of businesses in which we may engage through our subsidiaries. In addition, the assets we and our subsidiaries may originate or acquire are limited by the provisions of the Investment Company Act and the rules and regulations promulgated under the Investment Company Act, which may adversely affect our business.
We hold our assets primarily through direct or indirect wholly owned or majority-owned subsidiaries, certain of which are excluded from the definition of investment company pursuant to Section 3(c)(5)(C) of the Investment Company Act, which provides an exclusion for companies engaged primarily in investment in mortgages and other liens on or interests in real estate. In order to qualify for this exclusion, such subsidiaries must maintain, on the basis of positions taken by the SECs Division of Investment Management, or the Division, in interpretive and no-action letters, a minimum of 55% of the value of their total assets in mortgage loans and other related assets that are considered mortgages and other liens on and interests in real estate, which we refer to as Qualifying Interests, and a minimum of 80% in Qualifying Interests and real estate-related assets. In the absence of SEC or Division guidance that supports the treatment of other investments as Qualifying Interests, we will treat those other investments appropriately as real estate-related assets or miscellaneous assets depending on the circumstances. With respect to our subsidiaries that maintain this exclusion or another exclusion or exception under the Investment Company Act (other than Section 3(c)(1) or Section 3(c)(7) thereof), our interests in these subsidiaries do not and will not constitute investment securities.
In August 2011, the SEC staff commenced an advance notice rulemaking initiative, indicating that it is reconsidering its interpretive policy under Section 3(c)(5)(C) and whether to advance rulemaking to define the basis for the exclusion. We cannot predict the outcome of this reconsideration or potential rulemaking initiative and its impact on our ability to rely on the exclusion. To the extent that the SEC or its staff provides more specific guidance regarding any of the matters bearing upon the requirements of Section 3(c)(5)(C) of the Investment Company Act, we may be required to adjust our strategy accordingly. Any additional guidance from the SEC or its staff could further inhibit our ability to pursue the strategies we have chosen.
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Because registration as an investment company would significantly affect our ability to engage in certain transactions or be structured in the manner we currently are, we intend to conduct our business so that we will continue to satisfy the requirements to avoid regulation as an investment company. If we do not meet these requirements, we could be forced to alter our investment portfolios by selling or otherwise disposing of a substantial portion of the assets that do not satisfy the applicable requirements or by acquiring a significant position in assets that are Qualifying Interests. In the past, when required due to the mix of assets in our balance sheet portfolio, and in connection with our reliance on the Section 3(c)(5)(C) exclusion, we have purchased agency residential mortgage-backed securities that represent the entire beneficial interests in the underlying pools of whole residential mortgage loans, which are treated as Qualifying Interests based on the Divisions positions. Such investments may not represent an optimum use of capital when compared to the available investments we and our subsidiaries target pursuant to our investment strategy and present additional risks to us. We continue to analyze our investments and may acquire other pools of whole loan residential mortgage-backed securities when and if required for compliance purposes. Altering our portfolio in this manner may have an adverse effect on our investments if we are forced to dispose of or acquire assets in an unfavorable market, and may adversely affect our stock price.
If it were established that we were an unregistered investment company, there would be a risk that we would be subject to monetary penalties and injunctive relief in an action brought by the SEC, that we would be unable to enforce contracts with third parties, that third parties could seek to obtain rescission of transactions undertaken during the period it was established that we were an unregistered investment company, and that we would be subject to limitations on corporate leverage that would have an adverse impact on our investment returns. In order to comply with provisions that allow us to avoid the consequences of registration under the Investment Company Act, we may need to forego otherwise attractive opportunities and limit the manner in which we conduct our operations. Therefore, compliance with the requirements of the Investment Company Act may hinder our ability to operate solely on the basis of maximizing profits.
Rapid changes in the values of our other real estate-related investments may make it more difficult for us to maintain our qualification as a REIT or exclusion from regulation under the Investment Company Act.
If the market value or income potential of real estate-related investments declines, we may need to increase our real estate investments and income and/or liquidate our non-qualifying assets in order to maintain our REIT qualification or exclusion from Investment Company Act regulation. If the decline in real estate asset values and/or income occurs quickly, this may be especially difficult to accomplish. This difficulty may be exacerbated by the illiquid nature of any non-qualifying assets that we may own. We may have to make investment decisions that we otherwise would not make absent the REIT qualification and Investment Company Act considerations.
Changes in laws or regulations governing our operations, changes in the interpretation thereof or newly enacted laws or regulations and any failure by us to comply with these laws or regulations, could require changes to certain of our business practices, negatively impact our operations, cash flow or financial condition, impose additional costs on us, subject us to increased competition or otherwise adversely affect our business.
The laws and regulations governing our operations, as well as their interpretation, may change from time to time, and new laws and regulations may be enacted. Accordingly, any change in these laws or regulations, changes in their interpretation, or newly enacted laws or regulations and any failure by us to comply with these laws or regulations, could require changes to certain of our business practices, negatively impact our operations, cash flow or financial condition, impose additional costs on us or otherwise adversely affect our business. Furthermore, if regulatory capital requirementswhether under the Dodd-Frank Act, Basel III (i.e., the framework for a comprehensive set of capital and liquidity standards for internationally active banking organizations, which was adopted in June 2011 by the Basel Committee on Banking Supervision, an international body comprised of senior representatives of bank supervisory authorities and central banks from 27 countries, including the United States) or other regulatory actionare imposed on private lenders that provide us with funds, or were to be imposed on us, they or we may be required to limit, or increase the cost of, financing they
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provide to us or that we provide to others. Among other things, this could potentially increase our financing costs, reduce our ability to originate or acquire loans and reduce our liquidity or require us to sell assets at an inopportune time or price.
Various laws and regulations currently exist that restrict the investment activities of banks and certain other financial institutions but do not apply to us, which we believe creates opportunities for us to participate in certain investments that are not available to these more regulated institutions. However, President Trump has promised that the current administration will seek to deregulate the financial industry, including by amending the Dodd-Frank Act, which may decrease the restrictions on banks and other financial institutions and allow them to compete with us for investment opportunities that were previously not available to them. For example, in 2018, President Trump signed into law a bill easing the regulation and oversight of certain banks under the Dodd-Frank Act.
Over the last several years, there also has been an increase in regulatory attention to the extension of credit outside of the traditional banking sector, raising the possibility that some portion of the non-bank financial sector will be subject to new regulation. While it cannot be known at this time whether any regulation will be implemented or what form it will take, increased regulation of non-bank credit extension could negatively impact our operations, cash flows or financial condition, impose additional costs on us, intensify the regulatory supervision of us or otherwise adversely affect our business.
In addition, the Iran Threat Reduction and Syria Human Rights Act of 2012, or ITRA, expands the scope of U.S. sanctions against Iran and Syria. In particular, Section 219 of the ITRA amended the Exchange Act to require companies subject to SEC reporting obligations under Section 13 of the Exchange Act to disclose in their periodic reports specified dealings or transactions involving Iran or other individuals and entities targeted by certain sanctions promulgated by the Office of Foreign Assets Control of the U.S. Department of the Treasury, or Treasury, engaged in by the reporting company or any of its affiliates during the period covered by the relevant periodic report. These companies are required to separately file with the SEC a notice that such activities have been disclosed in the relevant periodic reports, and the SEC is required to post this notice of disclosure on its website and send the report to the U.S. President and certain U.S. Congressional committees. The U.S. President thereafter is required to initiate an investigation and, within 180 days of initiating such an investigation with respect to certain disclosed activities, to determine whether sanctions should be imposed. Disclosure of such activity, even if such activity is not subject to sanctions under applicable law, and any sanctions actually imposed on us or our affiliates as a result of these activities, could harm our reputation and have a negative impact on our business.
State and foreign licensing requirements will cause us to incur expenses and our failure to be properly licensed may have a material adverse effect on us and our operations.
Non-bank companies are generally required to hold licenses in a number of U.S. states and foreign jurisdictions to conduct lending activities. These licensing statutes vary from jurisdiction to jurisdiction and prescribe or impose various recordkeeping requirements; restrictions on loan origination and servicing practices, including limits on finance charges and the type, amount and manner of charging fees; disclosure requirements; requirements that licensees submit to periodic examination; surety bond and minimum specified net worth requirements; periodic financial reporting requirements; notification requirements for changes in principal officers, stock ownership or corporate control; restrictions on advertising; and requirements that loan forms be submitted for review. Obtaining and maintaining licenses will cause us to incur expenses and failure to be properly licensed under such laws or otherwise may have a material adverse effect on us and our operations.
Actions of the U.S. government, including the U.S. Congress, Federal Reserve Board, Treasury and other governmental and regulatory bodies, to stabilize or reform the financial markets, or market response to those actions, may not achieve the intended effect and may adversely affect our business.
In July 2010, the Dodd-Frank Act was signed into law, which imposes significant investment restrictions and capital requirements on banking entities and other organizations that are significant to U.S. financial stability. For
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instance, the so-called Volcker Rule provisions of the Dodd-Frank Act impose significant restrictions on the proprietary trading activities of banking entities and on their ability to sponsor or invest in private equity and hedge funds. It also subjects nonbank financial companies that have been designated as systemically important by the Financial Stability Oversight Council to increased capital requirements and quantitative limits for engaging in such activities, as well as consolidated supervision by the Federal Reserve Board. The Dodd-Frank Act also seeks to reform the asset-backed securitization market (including the mortgage-backed securities market) by requiring the retention of a portion of the credit risk inherent in the pool of securitized assets and by imposing additional registration and disclosure requirements. In October 2014, five federal banking and housing agencies and the SEC issued final credit risk retention rules, which generally require sponsors of asset-backed securities to retain at least 5% of the credit risk relating to the assets that underlie such asset-backed securities. These rules, which generally became effective in December 2016 with respect to new securitization transactions backed by mortgage loans other than residential mortgage loans, could restrict credit availability and could negatively affect the terms and availability of credit to fund our investments. While the full impact of the Dodd-Frank Act cannot be fully assessed, the Dodd-Frank Acts extensive requirements may have a significant effect on the financial markets and may affect the availability or terms of financing from our lender counterparties and the availability or terms of mortgage-backed securities, which may, in turn, have an adverse effect on our business.
On December 16, 2015, the CFTC published a final rule governing margin requirements for uncleared swaps entered into by registered swap dealers and major swap participants who are not supervised by the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Farm Credit Administration and the Federal Housing Finance Agency (collectively, the Prudential Regulators), referred to as covered swap entities. The final rule generally requires covered swap entities, subject to certain thresholds and exemptions, to collect and post margin in respect of uncleared swap transactions with other covered swap entities and financial end-users. In particular, the final rule requires covered swap entities and financial end-users having material swaps exposure, defined as an average aggregate daily notional amount of uncleared swaps exceeding a certain specified amount, to collect and/or post (as applicable) a minimum amount of initial margin in respect of each uncleared swap; the specified amounts for material swaps exposure differ subject to a phase-in schedule until September 1, 2020, when the average aggregate daily notional amount will thenceforth be $8 billion as calculated from June, July and August of the previous calendar year. In addition, the final rule requires covered swap entities entering into uncleared swaps with other covered swap entities or financial-end users, regardless of swaps exposure, to post and/or collect (as applicable) variation margin in reflection of changes in the mark-to-market value of an uncleared swap since the swap was executed or the last time such margin was exchanged. The CFTC final rule is broadly consistent with a similar rule requiring the exchange of initial and variation margin adopted by the Prudential Regulators in October 2015, which apply to registered swap dealers, major swap participants, security-based swap dealers and major security-based swap participants that are supervised by one or more of the Prudential Regulators. These newly adopted rules on margin requirements for uncleared swaps could adversely affect our business, including our ability to enter such swaps or our available liquidity.
The current regulatory environment may be impacted by future legislative developments, such as amendments to key provisions of the Dodd-Frank Act, including provisions setting forth capital and risk retention requirements. On February 3, 2017, President Trump signed an executive order calling for the administration to review U.S. financial laws and regulations in order to determine their consistency with a set of core principles identified in the order. The full scope of President Trumps short-term legislative agenda is not yet fully known, but it may include certain deregulatory measures for the U.S. financial services industry, including changes to Financial Stability Oversight Council, the Volcker Rule and credit risk retention requirements, among other areas.
We depend on our Manager to develop appropriate systems and procedures to control operational risk.
Operational risks arising from mistakes made in the confirmation or settlement of transactions, from transactions not being properly booked, evaluated or accounted for or other similar disruption in our operations may cause us
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to suffer financial losses, the disruption of our business, liability to third parties, regulatory intervention or damage to our reputation. We depend on our Manager and its affiliates to develop the appropriate systems and procedures to control operational risk. We rely heavily on our financial, accounting and other data processing systems. The ability of our systems to accommodate transactions could also constrain our ability to properly manage our portfolio. Generally, our Manager will not be liable for losses incurred due to the occurrence of any such errors.
Operational risks, including the risk of cyberattacks, may disrupt our businesses, result in losses or limit our growth.
We rely heavily on our and Blackstones financial, accounting, treasury, communications and other data processing systems. Such systems may fail to operate properly or become disabled as a result of tampering or a breach of the network security systems or otherwise. In addition, such systems are from time to time subject to cyberattacks, which may continue to increase in sophistication and frequency in the future. Attacks on Blackstone and its affiliates and their portfolio companies and service providers systems could involve, and in some instances have in the past involved, attempts that are intended to obtain unauthorized access to our proprietary information or personal identifying information of our stockholders, destroy data or disable, degrade or sabotage our systems, including through the introduction of computer viruses and other malicious code.
Cybersecurity incidents and cyber-attacks have been occurring globally at a more frequent and severe level and will likely continue to increase in frequency in the future. Our information and technology systems as well as those of Blackstone, its portfolio entities and other related parties, such as service providers, may be vulnerable to damage or interruption from cyber security breaches, computer viruses or other malicious code, network failures, computer and telecommunication failures, infiltration by unauthorized persons and other security breaches, usage errors by their respective professionals or service providers, power, communications or other service outages and catastrophic events such as fires, tornadoes, floods, hurricanes and earthquakes. Cyberattacks and other security threats could originate from a wide variety of sources, including cyber criminals, nation state hackers, hacktivists and other outside parties. There has been an increase in the frequency and sophistication of the cyber and security threats Blackstone faces, with attacks ranging from those common to businesses generally to those that are more advanced and persistent, which may target Blackstone because Blackstone holds a significant amount of confidential and sensitive information about its and our investors, its portfolio companies and potential investments. As a result, we and Blackstone may face a heightened risk of a security breach or disruption with respect to this information. If successful, these types of attacks on our or Blackstones network or other systems could have a material adverse effect on our business and results of operations, due to, among other things, the loss of investor or proprietary data, interruptions or delays in the operation of our business and damage to our reputation. There can be no assurance that measures Blackstone takes to ensure the integrity of its systems will provide protection, especially because cyberattack techniques used change frequently or are not recognized until successful.
If unauthorized parties gain access to such information and technology systems, they may be able to steal, publish, delete or modify private and sensitive information, including nonpublic personal information related to shareholders (and their beneficial owners) and material nonpublic information. Although Blackstone has implemented, and its portfolio entities and service providers may implement, various measures to manage risks relating to these types of events, such systems could prove to be inadequate and, if compromised, could become inoperable for extended periods of time, cease to function properly or fail to adequately secure private information. Blackstone does not control the cyber security plans and systems put in place by third party service providers, and such third party service providers may have limited indemnification obligations to Blackstone, its portfolio entities and us, each of which could be negatively impacted as a result. Breaches such as those involving covertly introduced malware, impersonation of authorized users and industrial or other espionage may not be identified even with sophisticated prevention and detection systems, potentially resulting in further harm and preventing them from being addressed appropriately. The failure of these systems or of disaster recovery plans for any reason could cause significant interruptions in Blackstones, its affiliates, their portfolio entities or
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our operations and result in a failure to maintain the security, confidentiality or privacy of sensitive data, including personal information relating to shareholders, material nonpublic information and the intellectual property and trade secrets and other sensitive information in the possession of Blackstone and portfolio entities. We, Blackstone or a portfolio entity could be required to make a significant investment to remedy the effects of any such failures, harm to their reputations, legal claims that they and their respective affiliates may be subjected to, regulatory action or enforcement arising out of applicable privacy and other laws, adverse publicity and other events that may affect their business and financial performance.
In addition, Blackstone operates in businesses that are highly dependent on information systems and technology. The costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by other means. In addition, cybersecurity has become a top priority for regulators around the world. Many jurisdictions in which we and Blackstone operate have laws and regulations relating to data privacy, cybersecurity and protection of personal information, including the General Data Protection Regulation in the European Union that went into effect in May 2018. Some jurisdictions have also enacted laws requiring companies to notify individuals of data security breaches involving certain types of personal data. Breaches in security could potentially jeopardize our or Blackstones, its employees, or our investors or counterparties confidential and other information processed and stored in, and transmitted through, our or Blackstones computer systems and networks, or otherwise cause interruptions or malfunctions in our or Blackstones, its employees, or our investors, our counterparties or third parties operations, which could result in significant losses, increased costs, disruption of our business, liability to our investors and other counterparties, regulatory intervention or reputational damage. Furthermore, if we or Blackstone fail to comply with the relevant laws and regulations, it could result in regulatory investigations and penalties, which could lead to negative publicity and may cause our investors or Blackstones fund investors and clients to lose confidence in the effectiveness of our or Blackstones security measures.
Finally, we depend on our headquarters in New York City, where most of our Managers personnel are located, for the continued operation of our business. A disaster or a disruption in the infrastructure that supports our business, including a disruption involving electronic communications or other services used by us or third parties with whom we conduct business, or directly affecting our headquarters, could have a material adverse impact on our ability to continue to operate our business without interruption. Blackstones disaster recovery programs may not be sufficient to mitigate the harm that may result from such a disaster or disruption. In addition, insurance and other safeguards might only partially reimburse us for our losses, if at all.
Accounting rules for certain of our transactions are highly complex and involve significant judgment and assumptions. Changes in accounting interpretations or assumptions could impact our ability to timely prepare consolidated financial statements.
Accounting rules for transfers of financial assets, securitization transactions, consolidation of variable interest entities, loan loss reserves and other aspects of our operations are highly complex and involve significant judgment and assumptions. These complexities could lead to a delay in preparation of financial information and the delivery of this information to our stockholders. Changes in accounting interpretations or assumptions could impact our consolidated financial statements and our ability to timely prepare our consolidated financial statements. Our inability to timely prepare our consolidated financial statements in the future would likely have a significant adverse effect on our stock price.
Risks Related to our REIT Status and Certain Other Tax Items
If we do not maintain our qualification as a REIT, we will be subject to tax as a regular corporation and could face a substantial tax liability. Our taxable REIT subsidiaries are subject to income tax.
We expect to continue to operate so as to qualify as a REIT under the Internal Revenue Code. However, qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which only a limited number of judicial or administrative interpretations exist. Notwithstanding
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the availability of cure provisions in the Internal Revenue Code, we could fail to meet various compliance requirements, which could jeopardize our REIT status. Furthermore, new tax legislation, administrative guidance or court decisions, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to qualify as a REIT. If we fail to qualify as a REIT in any tax year, then:
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we would be taxed as a regular domestic corporation, which under current laws, among other things, means being unable to deduct distributions to stockholders in computing taxable income and being subject to federal income tax on our taxable income at regular corporate income tax rates; |
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any resulting tax liability could be substantial and could have a material adverse effect on our book value; |
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unless we were entitled to relief under applicable statutory provisions, we would be required to pay taxes, and therefore, our cash available for distribution to stockholders would be reduced for each of the years during which we did not qualify as a REIT and for which we had taxable income; and |
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we generally would not be eligible to requalify as a REIT for the subsequent four full taxable years. |
REITs, in certain circumstances, may incur tax liabilities that would reduce our cash available for distribution to our stockholders.
Even if we qualify and maintain our status as a REIT, we may become subject to U.S. federal income taxes and related state and local taxes. For example, net income from the sale of properties that are dealer properties sold by a REIT (a prohibited transaction under the Internal Revenue Code) will be subject to a 100% tax. We may not make sufficient distributions to avoid excise taxes applicable to REITs. Similarly, if we were to fail an income test (and did not lose our REIT status because such failure was due to reasonable cause and not willful neglect) we would be subject to tax on the income that does not meet the income test requirements. We also may decide to retain net capital gain we earn from the sale or other disposition of our investments and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability unless they file U.S. federal income tax returns and thereon seek a refund of such tax. We also may be subject to state and local taxes on our income or property, including franchise, payroll, mortgage recording and transfer taxes, either directly or at the level of the other companies through which we indirectly own our assets, such as our TRSs, which are subject to full U.S. federal, state, local and foreign corporate-level income taxes. Any taxes we pay directly or indirectly will reduce our cash available for distribution to our stockholders.
Complying with REIT requirements may cause us to forego otherwise attractive opportunities and limit our expansion opportunities.
In order to qualify as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, among other things, our sources of income, the nature of our investments in commercial real estate loans and related assets, the amounts we distribute to our stockholders and the ownership of our stock. We may also be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution. Therefore, compliance with REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.
Complying with REIT requirements may force us to liquidate or restructure otherwise attractive investments.
In order to qualify as a REIT, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets. The remainder of our investments in securities cannot include more than 10% of the outstanding voting securities of any one issuer or 10% of the total value of the outstanding securities (other than securities that qualify for the straight debt safe harbor) of any one issuer unless we and such issuer jointly elect for such issuer to be treated as a taxable REIT subsidiary under the Internal Revenue Code. Debt will generally meet the straight debt safe
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harbor if the debt is a written unconditional promise to pay on demand or on a specified date a certain sum of money, the debt is not convertible, directly or indirectly, into stock, and the interest rate and the interest payment dates of the debt are not contingent on the profits, the borrowers discretion or similar factors. The total value of all of our investments in taxable REIT subsidiaries cannot exceed 20% of the value of our total assets. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer other than a taxable REIT subsidiary. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of such calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate assets from our portfolio or not make otherwise attractive investments in order to maintain our qualification as a REIT. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.
Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
The REIT provisions of the Internal Revenue Code substantially limit our ability to hedge our liabilities. Any income from a properly and timely identified hedging transaction we enter into to manage risk of interest rate changes with respect to borrowings made or to be made to acquire or carry real estate assets does not constitute gross income for purposes of the 75% or 95% gross income tests that we must satisfy in order to maintain our qualification as a REIT. To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of both of these gross income tests. As a result of these rules, we intend to limit our use of advantageous hedging techniques or implement those hedges through a domestic TRS. This could increase the cost of our hedging activities because our TRS would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in our TRS will generally not provide any tax benefit, except for being carried forward against future taxable income in the TRS.
Complying with REIT requirements may force us to borrow to make distributions to stockholders.
From time to time, our taxable income may be greater than our cash flow available for distribution to stockholders. If we do not have other funds available in these situations, we may be unable to distribute substantially all of our taxable income as required by the REIT provisions of the Internal Revenue Code. Therefore, we could be required to borrow funds, sell a portion of our assets at disadvantageous prices or find another alternative. These options could increase our costs or reduce our equity.
Our charter does not permit any individual (including certain entities treated as individuals for this purpose) to own more than 9.9% of our class A common stock or of our capital stock, and attempts to acquire our class A common stock or any of our capital stock in excess of this 9.9% limit would not be effective without a prior exemption from those prohibitions by our board of directors.
For us to qualify as a REIT under the Internal Revenue Code, not more than 50% of the value of our outstanding stock may be owned, directly or indirectly, by five or fewer individuals (including certain entities treated as individuals for this purpose) during the last half of a taxable year. For the purpose of preserving our qualification as a REIT for federal income tax purposes, among other purposes, our charter prohibits beneficial or constructive ownership by any individual (including certain entities treated as individuals for this purpose) of more than a certain percentage, currently 9.9%, by value or number of shares, whichever is more restrictive, of the outstanding shares of our class A common stock or our capital stock, which we refer to as the Ownership Limit. The constructive ownership rules under the Internal Revenue Code and our charter are complex and may cause shares of the outstanding class A common stock owned by a group of related individuals or entities to be deemed to be constructively owned by one individual. As a result, the acquisition of less than 9.9% of our outstanding class A common stock or our capital stock by an individual or entity could cause an individual to constructively own in excess of 9.9% of our outstanding class A common stock or our capital stock, respectively, and thus violate the Ownership Limit. There can be no assurance that our board of directors, as permitted in the
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charter, will increase, or will not decrease, this Ownership Limit in the future. Any attempt to own or transfer shares of our class A common stock in excess of the Ownership Limit without the consent of our board of directors will result in either the shares being transferred by operation of our charter to a charitable trust, and the person who attempted to acquire such excess shares not having any rights in such excess shares, or in the transfer being void.
The Ownership Limit may have the effect of precluding a change in control of us by a third party, even if such change in control would be in the best interests of our stockholders or would result in receipt of a premium to the price of our class A common stock (and even if such change in control would not reasonably jeopardize our REIT status).
We may choose to make distributions in our own stock, in which case you may be required to pay income taxes without receiving any cash dividends.
In connection with our qualification as a REIT, we are required to annually distribute to our stockholders at least 90% of our REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. In order to satisfy this requirement, we may make distributions that are payable in cash and/or shares of our class A common stock at the election of each stockholder. As a publicly offered REIT, if at least 20% of the total dividend is available to be paid in cash and certain other requirements are satisfied, the IRS will treat the stock distribution as a dividend (to the extent applicable rules treat such distribution as being made out of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes). Taxable stockholders receiving such distributions will be required to include the full amount of such distributions as ordinary dividend income. As a result, U.S. stockholders may be required to pay income taxes with respect to such distributions in excess of the cash portion of the distribution received. Accordingly, U.S. stockholders receiving a distribution of our shares may be required to sell shares received in such distribution or may be required to sell other stock or assets owned by them, at a time that may be disadvantageous, in order to satisfy any tax imposed on such distribution. If a U.S. stockholder sells the stock that it receives as part of the distribution in order to pay this tax, the sales proceeds may be less than the amount it must include in income with respect to the distribution, depending on the market price of our stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such distribution, including in respect of all or a portion of such distribution that is payable in stock, by withholding or disposing of part of the shares included in such distribution and using the proceeds of such disposition to satisfy the withholding tax imposed. In addition, if a significant number of our stockholders determine to sell shares of our class A common stock in order to pay taxes owed on dividend income, such sale may put downward pressure on the market price of our class A common stock.
Although the IRS recently addressed some of the tax aspects of such a taxable cash/stock distribution in a 2017 Revenue Procedure, no assurance can be given that the IRS will not impose requirements in the future with respect to taxable cash/stock distributions, including on a retroactive basis, or assert that the requirements for such taxable cash/stock distributions have not been met.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
Currently, the maximum tax rate applicable to qualified dividend income payable to certain non-corporate U.S. stockholders is 20%. Dividends payable by REITs, however, generally are not eligible for the reduced rate. Although this does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular corporate qualified dividends could cause certain non-corporate investors to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our class A common stock.
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Under current law, as enacted in the Tax Cuts and Jobs Act of 2017, REIT dividends (other than capital gain dividends and qualified dividends) received by non-corporate taxpayers may be eligible for a 20% deduction. Prospective investors should consult their own tax advisors regarding the effect of this rule on their effective tax rate with respect to REIT dividends.
We are largely dependent on external sources of capital to finance our growth.
As with other REITs, but unlike corporations generally, our ability to finance our growth must largely be funded by external sources of capital because we generally will have to distribute to our stockholders 90% of our taxable income in order to qualify as a REIT, including taxable income where we do not receive corresponding cash. Our access to external capital will depend upon a number of factors, including general market conditions, the markets perception of our growth potential, our current and potential future earnings, cash distributions and the market price of our class A common stock.
We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability, reduce our operating flexibility and reduce the price of our class A common stock.
In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of U.S. federal income tax laws applicable to investments similar to an investment in shares of our class A common stock. Additional changes to the tax laws are likely to continue to occur, and we cannot make assurances that any such changes will not adversely affect the taxation of a stockholder. Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. Stockholders are urged to consult with their tax advisors with respect to the impact of recent legislation on investments in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares. Although REITs generally receive certain tax advantages compared to entities taxed as regular corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated for U.S. federal income tax purposes as a corporation. As a result, our charter provides our board of directors with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a regular corporation, without the vote of our stockholders. Our board of directors has duties to us and could only cause such changes in our tax treatment if it determines that such changes are in the best interest of our company. The impact of tax reform on your investment in us is uncertain. Prospective investors should consult their own tax advisors regarding changes in tax laws.
Our investments in certain debt instruments may cause us to recognize phantom income for U.S. federal income tax purposes even though no cash payments have been received on the debt instruments, and certain modifications of such debt by us could cause the modified debt to not qualify as a good REIT asset, thereby jeopardizing our REIT qualification.
Our taxable income may substantially exceed our net income as determined under GAAP, and differences in timing between the recognition of taxable income and the actual receipt of cash may occur. For example, we may acquire assets, including debt securities requiring us to accrue original issue discount, or OID, or recognize market discount income, that generate taxable income in excess of economic income or in advance of the corresponding cash flow from the assets referred to as phantom income. Moreover, under the Tax Cuts and Jobs Act of 2017, we are generally required to take account of certain amounts in taxable income no later than the time such amounts are reflected on certain financial statements. The application of this rule may require the accrual of taxable income with respect to our debt instruments, such as OID or market discount, earlier than would be the case under the general tax rules, causing our phantom income to increase. In addition, if a borrower with respect to a particular debt instrument encounters financial difficulty rendering it unable to pay stated interest as due, we may nonetheless be required to continue to recognize the unpaid interest as taxable income with the effect that we will recognize income but will not have a corresponding amount of cash available for distribution to our stockholders.
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As a result of the foregoing, we may generate less cash flow than taxable income in a particular year and find it difficult or impossible to meet the REIT distribution requirements in certain circumstances. In such circumstances, we may be required to (a) sell assets in adverse market conditions, (b) borrow on unfavorable terms, (c) distribute amounts that would otherwise be used for future acquisitions or used to repay debt, or (d) make a taxable distribution of our shares of class A common stock as part of a distribution in which stockholders may elect to receive shares of class A common stock or (subject to a limit measured as a percentage of the total distribution) cash, in order to comply with the REIT distribution requirements.
Moreover, we may acquire distressed loans or other distressed debt investments that require subsequent modification by agreement with the borrower. If the amendments to the outstanding debt are significant modifications under the applicable Treasury Regulations, the modified debt may be considered to have been reissued to us in a debt-for-debt taxable exchange with the borrower. In certain circumstances, this deemed reissuance may prevent a portion of the modified debt from qualifying as a good REIT asset if the underlying security has declined in value and would cause us to recognize income to the extent the principal amount of the modified debt exceeds our adjusted tax basis in the unmodified debt.
The taxable mortgage pool rules may increase the taxes that we or our stockholders may incur, and may limit the manner in which we effect future securitizations.
Securitizations could result in the creation of taxable mortgage pools for federal income tax purposes. As a REIT, so long as we own 100% of the equity interests in a taxable mortgage pool, we generally would not be adversely affected by the characterization of the securitization as a taxable mortgage pool. Certain categories of stockholders, however, such as foreign stockholders eligible for treaty or other benefits, stockholders with net operating losses, and certain tax-exempt stockholders that are subject to unrelated business income tax, could be subject to increased taxes on a portion of their dividend income from us that is attributable to the taxable mortgage pool. In addition, to the extent that our stock is owned by tax-exempt disqualified organizations, such as certain government-related entities and charitable remainder trusts that are not subject to tax on unrelated business income, we may incur a corporate level tax on a portion of our income from the taxable mortgage pool. In that case, we may reduce the amount of our distributions to any disqualified organization whose stock ownership gave rise to the tax. Moreover, we would be precluded from selling equity interests in these securitizations to outside investors, or selling any debt securities issued in connection with these securitizations that might be considered to be equity interests for tax purposes. These limitations may prevent us from using certain techniques to maximize our returns from securitization transactions.
The failure of a mezzanine loan to qualify as a real estate asset could adversely affect our ability to qualify as a REIT.
We may originate or acquire mezzanine loans, for which the IRS has provided a safe harbor but not rules of substantive law. Pursuant to the safe harbor, if a mezzanine loan meets certain requirements, it will be treated by the IRS as a real estate asset for purposes of the REIT asset tests, and interest derived from the mezzanine loan will be treated as qualifying mortgage interest for purposes of the REIT 75% income test. We may originate or acquire mezzanine loans that do not meet all of the requirements of this safe harbor. In the event we own a mezzanine loan that does not meet the safe harbor, the IRS could challenge such loans treatment as a real estate asset for purposes of the REIT asset and income tests and, if such a challenge were sustained, we could fail to qualify as a REIT.
The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to qualify as a REIT.
We have entered into financing arrangements that are structured as sale and repurchase agreements pursuant to which we would nominally sell certain of our assets to a counterparty and simultaneously enter into an agreement to repurchase these assets at a later date in exchange for a purchase price. Economically, these agreements are financings which are secured by the assets sold pursuant thereto. We believe that we would be treated for REIT
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asset and income test purposes as the owner of the assets that are the subject of any such sale and repurchase agreement notwithstanding that such agreements may transfer record ownership of the assets to the counterparty during the term of the agreement. It is possible, however, that the IRS could assert that we did not own the assets during the term of the sale and repurchase agreement, in which case we could fail to qualify as a REIT.
Liquidation of assets may jeopardize our REIT qualification.
To qualify as a REIT, we must comply with requirements regarding our assets and our sources of income. If we are compelled to liquidate our investments to repay obligations to our lenders, we may be unable to comply with these requirements, ultimately jeopardizing our qualification as a REIT, or we may be subject to a 100% tax on any resultant gain if we sell assets that are treated as dealer property or inventory.
Our ownership of and relationship with any TRS will be restricted, and a failure to comply with the restrictions would jeopardize our REIT status and may result in the application of a 100% excise tax.
A REIT may own up to 100% of the stock of one or more TRSs. A TRS may earn income that would not be qualifying income if earned directly by the parent REIT. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 20% of the value of a REITs assets may consist of stock or securities of one or more TRSs. The value of our interests in and, therefore, the amount of assets held in a TRS may also be restricted by our need to qualify for an exclusion from regulation as an investment company under the Investment Company Act. A TRS will pay federal, state and local income tax at regular corporate rates on any income that it earns. In addition, the TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. Further, recently enacted tax reform legislation imposes a disallowance of deductions for business interest expense (even if paid to third parties) in excess of the sum of a taxpayers business interest income and 30% of the adjusted taxable income of the business, which is its taxable income computed without regard to business interest income or expense, net operating losses or the pass-through income deduction (and for taxable years before 2022, excludes depreciation and amortization). The TRS rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arms-length basis.
Any domestic TRS we own will pay federal, state and local income tax on its taxable income, and its after-tax net income is available for distribution to us. Although we plan to monitor our investments in TRSs, there can be no assurance that we will be able to comply with the limitations discussed above or to avoid application of the 100% excise tax discussed above.
Risks Related to Our Class A Common Stock
The market price of our class A common stock may fluctuate significantly.
Our class A common stock is listed on the NYSE under the trading symbol BXMT. The capital and credit markets have on occasion experienced periods of extreme volatility and disruption. The market price and liquidity of the market for shares of our class A common stock may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. Some of the factors that could negatively affect the market price of our class A common stock include:
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our actual or projected operating results, financial condition, cash flows and liquidity, or changes in business strategy or prospects; |
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actual or perceived conflicts of interest with our Manager or other affiliates of Blackstone and individuals, including our executives; |
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equity issuances by us, or share resales by our stockholders, or the perception that such issuances or resales may occur; |
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loss of a major funding source; |
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actual or anticipated accounting problems; |
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publication of research reports about us or the real estate industry; |
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changes in market valuations of similar companies; |
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adverse market reaction to the level of leverage we employ; |
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additions to or departures of our Managers or Blackstones key personnel; |
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speculation in the press or investment community; |
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our failure to meet, or the lowering of, our earnings estimates or those of any securities analysts; |
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increases in market interest rates, which may lead investors to demand a higher distribution yield for our class A common stock, and would result in increased interest expenses on our debt; |
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a compression of the yield on our investments and an increase in the cost of our liabilities; |
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failure to maintain our REIT qualification or exclusion from Investment Company Act regulation; |
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price and volume fluctuations in the overall stock market from time to time; |
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general market and economic conditions, and trends including inflationary concerns, and the current state of the credit and capital markets; |
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significant volatility in the market price and trading volume of securities of publicly traded REITs or other companies in our sector, including us, which is not necessarily related to the operating performance of these companies; |
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changes in law, regulatory policies or tax guidelines, or interpretations thereof, particularly with respect to REITs; |
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changes in the value of our portfolio; |
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any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts; |
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operating performance of companies comparable to us; |
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short-selling pressure with respect to shares of our class A common stock or REITs generally; and |
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uncertainty surrounding the strength of the U.S. economy particularly in light of budget deficit concerns and other U.S. and international political and economic affairs. |
As noted above, market factors unrelated to our performance could also negatively impact the market price of our class A common stock. One of the factors that investors may consider in deciding whether to buy or sell our class A common stock is our distribution rate as a percentage of our stock price relative to market interest rates. If market interest rates increase, prospective investors may demand a higher distribution rate or seek alternative investments paying higher dividends or interest. As a result, interest rate fluctuations and conditions in the capital markets may affect the market value of our class A common stock.
Some provisions of our charter and bylaws and Maryland law may deter takeover attempts, which may limit the opportunity of our stockholders to sell their shares at a favorable price.
Some of the provisions of Maryland law and our charter and bylaws discussed below could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our stockholders by providing them with the opportunity to sell their shares at a premium to the then current market price.
Issuance of Stock Without Stockholder Approval . Our charter authorizes our board of directors, without stockholder approval, to authorize the issuance of up to 200,000,000 shares of class A common stock and up to
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100,000,000 shares of preferred stock. Our charter also authorizes our board of directors, without stockholder approval, to classify or reclassify any unissued shares of our class A common stock and preferred stock into other classes or series of stock and to amend our charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that are authorized by the charter to be issued. Preferred stock may be issued in one or more classes or series, the terms of which may be determined by our board of directors without further action by stockholders. Prior to issuance of any such class or series, our board of directors will set the terms of any such class or series, including the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption. The issuance of any preferred stock could materially adversely affect the rights of holders of our class A common stock and, therefore, could reduce the value of the class A common stock. In addition, specific rights granted to future holders of our preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The power of our board of directors to cause us to issue preferred stock could, in certain circumstances, make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change in control, thereby preserving the current stockholders control.
Advance Notice Bylaw . Our bylaws contain advance notice procedures for the introduction by a stockholder of new business and the nomination of directors by a stockholder. These provisions could, in certain circumstances, discourage proxy contests and make it more difficult for you and other stockholders to elect stockholder-nominated directors and to propose and, consequently, approve stockholder proposals opposed by management.
Maryland Takeover Statutes . We are subject to the Maryland Business Combination Act, which could delay or prevent an unsolicited takeover of us. The statute substantially restricts the power of third parties who acquire, or seek to acquire, control of us to complete mergers and other business combinations without the approval of our board of directors even if such transaction would be beneficial to stockholders. Business combinations between such a third party acquirer or its affiliate and us are prohibited for five years after the most recent date on which the acquirer becomes an interested stockholder. An interested stockholder is defined as any person who beneficially owns 10% or more of the voting power of our outstanding voting stock or an affiliate or associate of ours who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of our then outstanding stock. If our board of directors approved in advance the transaction that would otherwise give rise to the acquirer attaining such status, the acquirer would not become an interested stockholder and, as a result, it could enter into a business combination with us. Our board of directors may, however, provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by it. Even after the lapse of the five-year prohibition period, any business combination with an interested stockholder must be recommended by our board of directors and approved by the affirmative vote of at least:
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80% of the votes entitled to be cast by stockholders; and |
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two-thirds of the votes entitled to be cast by stockholders other than the interested stockholder and affiliates and associates thereof. |
The super-majority vote requirements do not apply if the transaction complies with a minimum price and form of consideration requirements prescribed by the statute.
The statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors prior to the time that an interested stockholder becomes an interested stockholder. Our board of directors has exempted any business combination involving a limited liability company indirectly controlled by a trust for the benefit of Samuel Zell, our former chairman of the board, and his family and approved in advance the issuance of shares to W.R. Berkley. In addition, our board of directors has exempted any business combination involving Huskies Acquisition, an affiliate of Blackstone, or its affiliates as of September 27, 2012 or Blackstone and its affiliates as of September 27, 2012; provided, however, that Huskies Acquisition or any of its affiliates as of September 27, 2012 and Blackstone and any of its affiliates as of September 27, 2012 may not enter into any business combination with us without the prior approval of at least a majority of the members of our board of directors who are not affiliates or associates of Huskies Acquisition or
55
Blackstone. As a result, these parties may enter into business combinations with us without compliance with the five-year prohibition or the super-majority vote requirements and the other provisions of the statute.
We are also subject to the Maryland Control Share Acquisition Act. With certain exceptions, the Maryland General Corporation Law provides that a holder of control shares of a Maryland corporation acquired in a control share acquisition has no voting rights with respect to those shares except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares owned by the acquiring person or by our officers or by our directors who are our employees.
Control shares are voting shares of stock which, if aggregated with all other shares of stock owned or entitled to be voted (except solely by virtue of a revocable proxy) by the acquirer, would entitle the acquirer to exercise voting power in electing directors within one of the specified ranges of voting power. Control shares do not include shares the acquirer is then entitled to vote as a result of having previously obtained stockholder approval or shares acquired directly from the corporation. A control share acquisition means the acquisition of issued and outstanding control shares subject to certain exceptions. A person who has made or proposes to make a control share acquisition, upon satisfaction of certain conditions, including an undertaking to pay expenses, may compel our board to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the control shares in question. If no request for a meeting is made, we may present the question at any stockholders meeting.
If voting rights are not approved at a stockholders meeting or if the acquiring person does not deliver the statement required by Maryland law, then, subject to certain conditions and limitations, we may redeem for fair value (determined without regard to the absence of voting rights) any or all of the control shares, except those for which voting rights have previously been approved. If voting rights for control shares are approved at a stockholders meeting and the acquirer may then vote a majority of the shares entitled to vote, then all other stockholders may exercise appraisal rights, unless our charter or bylaws provide otherwise, which they currently do not. The fair value of the shares for purposes of these appraisal rights may not be less than the highest price per share paid by the acquirer in the control share acquisition. The control share acquisition statute does not apply to shares acquired in a merger, consolidation or share exchange if we are a party to the transaction, nor does it apply to acquisitions approved or exempted by our charter or bylaws. Our bylaws contain a provision exempting the following persons from this statute: (i) a limited liability company indirectly controlled by a trust for the benefit of Samuel Zell and his family; (ii) W.R. Berkley Corporation and any of its controlled affiliates; and (iii) Huskies Acquisition, or any person or entity that was an affiliate of Huskies Acquisition as of September 27, 2012 or by Blackstone or any of its affiliates.
We are also eligible to elect to be subject to the Maryland Unsolicited Takeovers Act, which permits our board of directors, without stockholder approval, to, among other things and notwithstanding any provision in our charter or bylaws, elect on our behalf to classify the terms of directors and to increase the stockholder vote required to remove a director and to provide that each vacancy on our board may be filled only by a majority of the remaining directors even if the remaining directors do not constitute a quorum and each director elected to fill a vacancy shall serve for the remainder of the full term of the class of directors in which the vacancy occurred. Such an election may significantly restrict the ability of third parties to wage a proxy fight for control of our board of directors as a means of advancing a takeover offer. If an acquirer were discouraged from offering to acquire us, or prevented from successfully completing a hostile acquisition, you could lose the opportunity to sell your shares at a favorable price.
Our charter contains provisions that are designed to reduce or eliminate duties of Blackstone and our directors with respect to corporate opportunities and competitive activities.
Our charter contains provisions designed to reduce or eliminate duties of Blackstone and its affiliates (as such term is defined in the charter), and of our directors or any person our directors control to refrain from competing with us or to present to us business opportunities that otherwise may exist in the absence of such charter provisions. Under our charter, Blackstone and its affiliates and our directors or any person our directors control
56
will not be obligated to present to us opportunities unless those opportunities are expressly offered to such person in his or her capacity as a director or officer of Blackstone Mortgage Trust and those persons will be able to engage in competing activities without any restriction imposed as a result of Blackstones or its affiliates status as a stockholder or Blackstones affiliates status as officers or directors of Blackstone Mortgage Trust.
We have not established a minimum distribution payment level and we cannot assure you of our ability to pay distributions in the future.
We are generally required to distribute to our stockholders at least 90% of our REIT taxable income each year for us to qualify as a REIT under the Internal Revenue Code, which requirement we currently intend to satisfy through quarterly distributions of all or substantially all of our REIT taxable income in such year, subject to certain adjustments. Although we generally intend to distribute each year substantially all of our taxable income to holders of our class A common stock so as to comply with the REIT provisions of the Internal Revenue Code, we have not established a minimum distribution payment level and our ability to pay distributions may be adversely affected by a number of factors, including the risk factors described in this report. All distributions will be made at the discretion of our board of directors and will depend on our earnings, our financial condition, liquidity, debt covenants, maintenance of our REIT qualification, applicable law and such other factors as our board of directors may deem relevant from time to time. We believe that a change in any one of the following factors could adversely affect our results of operations and impair our ability to pay distributions to our stockholders:
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our ability to make profitable investments; |
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margin calls or other expenses that reduce our cash flow; |
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defaults in our asset portfolio or decreases in the value of our portfolio; and |
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the fact that anticipated operating expense levels may not prove accurate, as actual results may vary from estimates. |
As a result, no assurance can be given that the level of any distributions we make to our stockholders will achieve a market yield or increase or even be maintained over time, any of which could materially and adversely affect the market price of our class A common stock. We may use our net operating losses, to the extent available, carried forward to offset future REIT taxable income, and therefore reduce our dividend requirements. In addition, some of our distributions may include a return of capital, which would reduce the amount of capital available to operate our business.
In addition, distributions that we make to our stockholders will generally be taxable to our stockholders as ordinary income. However, a portion of our distributions may be designated by us as long-term capital gains to the extent that they are attributable to capital gain income recognized by us or may constitute a return of capital to the extent that they exceed our earnings and profits as determined for U.S. federal income tax purposes. A return of capital is not taxable, but has the effect of reducing the basis of a stockholders investment in our class A common stock.
Investing in our class A common stock may involve a high degree of risk.
The investments that we make in accordance with our investment objectives may result in a high amount of risk when compared to alternative investment options and volatility or loss of principal. Our investments may be highly speculative and aggressive, and therefore an investment in our class A common stock may not be suitable for someone with lower risk tolerance.
Future issuances of equity or debt securities, which may include securities that would rank senior to our class A common stock, may adversely affect the market price of the shares of our class A common stock.
The issuance of additional shares of our class A common stock, including in connection with the conversion of our outstanding 4.375% Convertible Senior Notes due 2022 and/or our outstanding 4.75% Convertible Senior
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Notes due 2023, through equity distribution agreements we have entered into pursuant to which we may sell, from time to time, up to an aggregate sales price of $500.0 million of our class A common stock or in connection with other future issuances of our class A common stock or shares of preferred stock or securities convertible or exchangeable into equity securities, may dilute the ownership interest of our existing holders of our class A common stock. If we decide to issue debt or equity securities which would rank senior to our class A common stock, it is likely that they will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Additionally, any convertible or exchangeable securities that we issue may have rights, preferences and privileges more favorable than those of our class A common stock and may result in dilution to owners of our class A common stock. We and, indirectly, our stockholders will bear the cost of issuing and servicing such securities. Because our decision to issue additional equity or debt securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future issuances. Also, we cannot predict the effect, if any, of future sales of our class A common stock, or the availability of shares for future sales, on the market price of our class A common stock. Sales of substantial amounts of class A common stock or the perception that such sales could occur may adversely affect the prevailing market price for the shares of our class A common stock. Therefore holders of our class A common stock will bear the risk of our future issuances reducing the market price of our class A common stock and diluting the value of their stock holdings in us.
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ITEM 1B. |
UNRESOLVED STAFF COMMENTS |
None.
ITEM 2. |
PROPERTIES |
Our principal executive and administrative offices are located in leased space at 345 Park Avenue, 42 nd Floor, New York, New York 10154. We do not own any real property. We consider these facilities to be suitable and adequate for the management and operations of our business.
ITEM 3. |
LEGAL PROCEEDINGS |
From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. As of December 31, 2018, we were not involved in any material legal proceedings.
ITEM 4. |
MINE SAFETY DISCLOSURES |
Not applicable.
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ITEM 5. |
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our class A common stock is listed for trading on the NYSE under the symbol BXMT. As of February 5, 2019 there were 253 holders of record of our class A common stock. This does not include the number of stockholders that hold shares in street name through banks or broker-dealers.
We generally intend to distribute each year substantially all of our taxable income (which does not necessarily equal net income as calculated in accordance with generally accepted accounting principles, or GAAP) to our stockholders so as to comply with the REIT provisions of the Internal Revenue Code. In addition, 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, among other things, our actual results of operations and liquidity. These results and our ability to pay distributions will be affected by various factors, including our taxable income, our financial condition, our maintenance of REIT status, applicable law, and other factors as our board of directors deems relevant.
Issuer Purchases of Equity Securities
We did not purchase any shares of our class A common stock during the three months ended December 31, 2018.
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ITEM 6. |
SELECTED FINANCIAL DATA |
The following selected consolidated historical financial data should be read in conjunction with the information set forth under Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and the related notes thereto that appear on pages F- 2 to F-45 of this report.
Years ended December 31, | ||||||||||||||||||||
(in thousands, except per share data) | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||
Operating Data: |
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Interest and related income |
$ | 756,109 | $ | 537,915 | $ | 497,974 | $ | 410,635 | $ | 184,766 | ||||||||||
Interest and related expense |
359,625 | 234,870 | 184,270 | 152,416 | 69,143 | |||||||||||||||
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Income from loans and other investments, net |
$ | 396,484 | $ | 303,045 | $ | 313,704 | $ | 258,219 | $ | 115,623 | ||||||||||
Net income |
$ | 285,813 | $ | 217,968 | $ | 246,440 | $ | 211,885 | $ | 100,494 | ||||||||||
Net income attributable to Blackstone Mortgage Trust, Inc. |
$ | 285,078 | $ | 217,631 | $ | 238,297 | $ | 196,829 | $ | 90,045 | ||||||||||
Per Share Data: |
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Net income from continuing operations per share of common stock |
||||||||||||||||||||
Basic and diluted |
$ | 2.50 | $ | 2.27 | $ | 2.53 | $ | 2.41 | $ | 1.86 | ||||||||||
Net income per share of common stock |
||||||||||||||||||||
Basic and diluted |
$ | 2.50 | $ | 2.27 | $ | 2.53 | $ | 2.41 | $ | 1.86 | ||||||||||
Dividends declared per share of common stock |
$ | 2.48 | $ | 2.48 | $ | 2.48 | $ | 2.28 | $ | 1.98 | ||||||||||
As of December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Balance Sheet Data: |
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Total assets |
$ | 14,467,375 | $ | 10,258,825 | $ | 8,812,615 | $ | 9,376,573 | $ | 4,572,713 | ||||||||||
Secured debt agreements, net |
8,974,756 | 5,273,855 | 5,716,354 | 6,116,105 | 2,353,279 | |||||||||||||||
Convertible notes, net |
609,911 | 563,911 | 166,762 | 164,026 | 161,455 | |||||||||||||||
Total liabilities |
11,092,768 | 7,341,419 | 6,319,012 | 6,870,842 | 3,071,827 | |||||||||||||||
Total equity |
3,374,607 | 2,917,406 | 2,493,603 | 2,505,731 | 1,500,886 |
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ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K. 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 Part, 1. Item 1A, Risk Factors in this Annual Report on Form 10-K.
Introduction
Blackstone Mortgage Trust is a real estate finance company that originates senior loans collateralized by commercial real estate in North America, Europe, and Australia. Our investment objective is to preserve and protect shareholder capital while producing attractive risk-adjusted returns primarily through dividends generated from current income from our loan portfolio. We are externally managed by BXMT Advisors L.L.C., or our Manager, a subsidiary of The Blackstone Group L.P., or Blackstone, and are a real estate investment trust, or REIT, traded on the New York Stock Exchange, or NYSE, under the symbol BXMT. We are headquartered in New York City.
We conduct our operations as a REIT for U.S. federal income tax purposes. We generally will not be subject to U.S. federal income taxes on our taxable income to the extent that we annually distribute all of our net taxable income to stockholders and maintain our qualification as a REIT. We also operate our business in a manner that permits us to maintain an exclusion from registration under the Investment Company Act of 1940, as amended. We are organized as a holding company and conduct our business primarily through our various subsidiaries.
2018 Highlights
Operating results:
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Net income of $285.1 million, or $2.50 per share and Core Earnings of $330.7 million, or $2.90 per share. |
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Declared aggregate dividends of $2.48 per share in 2018, resulting in an annualized dividend yield of 9.1% based on our December 31, 2018 book value of $27.20. |
Loan originations and acquisitions:
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Loan originations and acquisitions totaled $10.7 billion during 2018, with an average loan size of $200.7 million. |
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Portfolio of 126 investments as of December 31, 2018, with a weighted-average loan-to-value ratio (as of the dates such loans were originated or acquired by us) of 62.4% and weighted-average all-in yield of 5.93%. |
Capital markets activity:
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Issued an aggregate 14,566,743 shares of our class A common stock through an underwritten public offering and our at-the-market program, generating aggregate net proceeds of $476.4 million. |
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Issued $220.0 million aggregate principal amount of convertible notes with a coupon rate of 4.75% and an initial conversion price of $36.23. |
Portfolio financing:
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Financing capacity of $16.4 billion as of December 31, 2018, which includes credit facilities with 10 credit providers, as well as various asset-specific financings, securitized debt obligations, and senior loan interests, providing stable, non-capital markets based mark-to-market financings. |
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Contributed a $517.5 million loan to the $1.0 billion 2018 Single Asset Securitization and invested in the related $99.0 million subordinate risk retention position. |
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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 December 31, 2018, we recorded earnings per share of $0.61, declared a dividend of $0.62 per share, and reported $0.69 per share of Core Earnings. In addition, our book value per share as of December 31, 2018 was $27.20, an increase of $0.27 per share relative to December 31, 2017. For the year ended December 31, 2018, we recorded earnings per share of $2.50, declared aggregate dividends of $2.48 per share, and reported $2.90 per share of Core Earnings.
As further described below, Core Earnings is a measure that is not prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. We use Core Earnings to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan activity and operations.
Earnings Per Share and Dividends Declared
The following table sets forth the calculation of basic and diluted net income per share and dividends declared per share ($ in thousands, except per share data):
Three Months Ended
December 31, 2018 |
Year Ended
December 31, |
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2018 | 2017 | |||||||||||
Net income (1) |
$ | 73,643 | $ | 285,078 | $ | 217,631 | ||||||
Weighted-average shares outstanding, basic and diluted |
121,588,404 | 113,857,238 | 95,963,616 | |||||||||
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Net income per share, basic and diluted |
$ | 0.61 | $ | 2.50 | $ | 2.27 | ||||||
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Dividends declared per share |
$ | 0.62 | $ | 2.48 | $ | 2.48 | ||||||
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(1) |
Represents net income attributable to Blackstone Mortgage Trust, Inc. |
Core Earnings
Core Earnings is a non-GAAP measure, which we define as GAAP net income (loss), including realized gains and losses not otherwise included in GAAP net income (loss), and excluding (i) net income (loss) attributable to our CT Legacy Portfolio, (ii) non-cash equity compensation expense, (iii) depreciation and amortization, (iv) unrealized gains (losses), and (v) certain non-cash items. Core Earnings may also be adjusted from time to time to exclude one-time events pursuant to changes in GAAP and certain other non-cash charges as determined by our Manager, subject to approval by a majority of our independent directors.
We believe that Core Earnings provides meaningful information to consider in addition to our net income and cash flow from operating activities determined in accordance with GAAP. This adjusted measure helps us to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan portfolio and operations. Although, according to the management agreement between our Manager and us, or our Management Agreement, we calculate the incentive and base management fees due to our Manager using Core Earnings before our incentive fee expense, we report Core Earnings after incentive fee expense, as we believe this is a more meaningful presentation of the economic performance of our class A common stock.
Core Earnings does not represent net income or cash generated from operating activities and should not be considered as an alternative to GAAP net income, or an indication of our GAAP cash flows from operations, a measure of our liquidity, or an indication of funds available for our cash needs. In addition, our methodology for calculating Core Earnings may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures, and accordingly, our reported Core Earnings may not be comparable to the Core Earnings reported by other companies.
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The following table provides a reconciliation of Core Earnings to GAAP net income ($ in thousands, except per share data):
Three Months Ended
December 31, 2018 |
Year Ended December 31, | |||||||||||
2018 | 2017 | |||||||||||
Net income (1) |
$ | 73,643 | $ | 285,078 | $ | 217,631 | ||||||
Non-cash compensation expense |
7,666 | 28,154 | 24,031 | |||||||||
GE purchase discount accretion adjustment (2) |
| 8,706 | (1,035 | ) | ||||||||
Realized foreign currency gain, net (3) |
1,942 | 6,723 | 2,450 | |||||||||
Other items |
394 | 2,084 | 2,059 | |||||||||
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Core Earnings |
$ | 83,645 | $ | 330,745 | $ | 245,136 | ||||||
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Weighted-average shares outstanding, basic and diluted |
121,588,404 | 113,857,238 | 95,963,616 | |||||||||
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Core Earnings per share, basic and diluted |
$ | 0.69 | $ | 2.90 | $ | 2.55 | ||||||
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(1) |
Represents net income attributable to Blackstone Mortgage Trust. |
(2) |
Historically, we have deferred in Core Earnings the accretion of a purchase discount attributable to a certain pool of GE portfolio loans acquired in May 2015, until repayment in full of the remaining loans in the pool was substantially assured. During the year ended December 31, 2018, it was determined that repayment of the remaining loans in the deferral pool was substantially assured. As such, the $8.7 million of deferred purchase discount, which has been previously recognized in GAAP net income, was realized in Core Earnings during the year ended December 31, 2018. |
(3) |
Primarily represents the forward points earned on our foreign currency forward contracts, which reflect the interest rate differentials between the applicable base rate for our foreign currency investments and USD LIBOR. These forward contracts effectively convert the rate exposure to USD LIBOR, resulting in additional interest income earned in U.S. dollar terms. These amounts are not included in GAAP net income, but rather as a component of Other Comprehensive Income in our consolidated financial statements. |
Book Value Per Share
The following table calculates our book value per share ($ in thousands, except per share data):
December 31, 2018 | December 31, 2017 | |||||||
Stockholders equity |
$ | 3,364,124 | $ | 2,911,066 | ||||
Shares |
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Class A common stock |
123,435,738 | 107,883,860 | ||||||
Deferred stock units |
228,839 | 197,217 | ||||||
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Total outstanding |
123,664,577 | 108,081,077 | ||||||
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Book value per share |
$ | 27.20 | $ | 26.93 | ||||
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II. Loan Portfolio
During the year ended December 31, 2018, we originated or acquired $10.7 billion of loans. Loan fundings during the year totaled $7.9 billion, including $10.8 million of non-consolidated senior interests. Loan repayments during the year totaled $3.6 billion, including $526.4 million of non-consolidated senior interests. We generated interest income of $756.1 million and incurred interest expense of $359.6 million during the year, which resulted in $396.5 million of net interest income during the year ended December 31, 2018.
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Portfolio Overview
The following table details our loan origination activity ($ in thousands):
Three Months Ended
December 31, 2018 |
Year Ended
December 31, 2018 |
|||||||
Loan originations (1) |
$ | 3,500,066 | $ | 10,703,356 | ||||
Loan fundings (2) |
$ | 2,667,915 | $ | 7,900,822 | ||||
Loan repayments (3) |
(594,728 | ) | (3,561,741 | ) | ||||
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Total net fundings |
$ | 2,073,187 | $ | 4,339,081 | ||||
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(1) |
Includes new loan originations and additional commitments made under existing loans. |
(2) |
Loan fundings during the three months and year ended December 31, 2018 included $667,000 and $10.8 million, respectively, of additional fundings under related non-consolidated senior interests. |
(3) |
Loan repayments during the three months and year ended December 31, 2018 included $12.2 million and $526.4 million, respectively, of additional repayments or reduction of loan exposure under related non-consolidated senior interests. |
The following table details overall statistics for our investment portfolio as of December 31, 2018 ($ in thousands):
Total Investment Exposure | ||||||||||||||||||||
Balance Sheet
Portfolio (1) |
Loan
Exposure (1)(2) |
Other
Investments (3) |
Total Investment
Portfolio |
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Number of investments |
125 | 125 | 1 | 126 | ||||||||||||||||
Principal balance |
$ | 14,293,970 | $ | 14,740,844 | $ | 1,035,000 | $ | 15,775,844 | ||||||||||||
Net book value |
$ | 14,191,200 | $ | 14,191,200 | $ | 96,167 | $ | 14,287,367 | ||||||||||||
Unfunded loan commitments (4) |
$ | 3,405,945 | $ | 3,475,928 | $ | | $ | 3,475,928 | ||||||||||||
Weighted-average cash coupon (5) |
5.67 | % | 5.64 | % | L + 2.75 | % | 5.61 | % | ||||||||||||
Weighted-average all-in yield (5) |
6.00 | % | 5.96 | % | L + 2.99 | % | 5.93 | % | ||||||||||||
Weighted-average maximum maturity (years) (6) |
3.9 | 3.9 | 6.4 | 4.1 | ||||||||||||||||
Loan to value (LTV) (7) |
63.6 | % | 63.8 | % | 42.6 | % | 62.4 | % |
(1) |
Excludes investment exposure to the $99.0 million subordinate risk retention interest we own in the $1.0 billion 2018 Single Asset Securitization. Refer to Notes 5 and 16 to our consolidated financial statements for further discussion of the 2018 Single Asset Securitization. |
(2) |
In certain instances, we finance our loans through the non-recourse sale of a senior loan interest that is not included in our consolidated financial statements. Total loan exposure encompasses the entire loan we originated and financed, including $446.9 million of such non-consolidated senior interests that are not included in our balance sheet portfolio. |
(3) |
Includes investment exposure to the $1.0 billion 2018 Single Asset Securitization. We do not consolidate the 2018 Single Asset Securitization on our consolidated financial statements, and instead reflect our $99.0 million subordinate risk retention investment as a component of other assets on our consolidated balance sheet. Refer to Notes 5 and 16 to our consolidated financial statements for further discussion of the 2018 Single Asset Securitization. |
(4) |
Unfunded commitments will primarily be funded to finance our borrowers construction or development of real estate-related assets, capital improvements of existing assets, or lease-related expenditures. These commitments will generally be funded over the term of each loan, subject in certain cases to an expiration date. |
(5) |
As of December 31, 2018, 96% of our loans by total loan exposure earned a floating rate of interest, primarily indexed to USD LIBOR, and 4% earned a fixed rate of interest. Cash coupon and all-in yield assume applicable floating benchmark rates as of December 31, 2018 for weighted average calculation. In addition to cash coupon, all-in yield includes the amortization of deferred origination and extension fees, loan origination costs, and purchase discounts, as well as the accrual of exit fees. |
(6) |
Maximum maturity assumes all extension options are exercised by the borrower, however our loans and other investments may be repaid prior to such date. As of December 31, 2018, 77% of our loans and other investments were subject to yield maintenance or other prepayment restrictions and 23% were open to repayment by the borrower without penalty. |
(7) |
Based on LTV as of the dates loans and other investments were originated or acquired by us. |
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The charts below detail the geographic distribution and types of properties securing our investment portfolio, as of December 31, 2018:
Refer to section VI of this Item 7 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, 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. The following table allocates the principal balance and total loan exposure balances based on our internal risk ratings ($ in thousands):
December 31, 2018 | ||||||||||||
Risk Rating |
Number
of Loans |
Net
Book Value |
Total Loan
Exposure (1)(2) |
|||||||||
1 |
2 | $ | 181,366 | $ | 182,740 | |||||||
2 |
38 | 3,860,432 | 3,950,025 | |||||||||
3 |
85 | 10,149,402 | 10,608,079 | |||||||||
4 |
| | | |||||||||
5 |
| | | |||||||||
|
|
|
|
|
|
|||||||
125 | $ | 14,191,200 | $ | 14,740,844 | ||||||||
|
|
|
|
|
|
(1) |
In certain instances, we finance our loans through the non-recourse sale of a senior loan interest that is not included in our consolidated financial statements. See Note 2 to our consolidated financial statements for further discussion. Total loan exposure encompasses the entire loan we originated and financed, including $446.9 million of such non-consolidated senior interests as of December 31, 2018. |
(2) |
Excludes investment exposure to the $1.0 billion 2018 Single Asset Securitization. Refer to Notes 5 and 16 to our consolidated financial statements for details of the subordinated risk retention interest we own in the 2018 Single Asset Securitization. |
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The weighted-average risk rating of our total loan exposure was 2.7 as of both December 31, 2018 and 2017.
Multifamily Joint Venture
As of December 31, 2018, our Walker & Dunlop Multifamily Joint Venture held $334.6 million of loans, which are included in the loan disclosures above. Refer to Note 2 to our consolidated financial statements for additional discussion of our Multifamily Joint Venture.
Portfolio Financing
Our portfolio financing arrangements include credit facilities, asset-specific financings, the GE portfolio acquisition facility, a revolving credit agreement, loan participations sold, non-consolidated senior interests, and securitized debt obligations.
The following table details our portfolio financing ($ in thousands):
Portfolio Financing
Outstanding Principal Balance |
||||||||
December 31, 2018 | December 31, 2017 | |||||||
Credit facilities |
$ | 6,903,683 | $ | 4,068,249 | ||||
Asset-specific financings |
1,538,548 | 518,864 | ||||||
GE portfolio acquisition facility |
510,405 | 703,423 | ||||||
Revolving credit agreement |
43,845 | | ||||||
Loan participations sold |
94,528 | 80,706 | ||||||
Non-consolidated senior interests (1) |
446,874 | 985,382 | ||||||
Securitized debt obligations |
1,292,120 | 1,292,120 | ||||||
|
|
|
|
|||||
Total portfolio financing |
$ | 10,830,003 | $ | 7,648,744 | ||||
|
|
|
|
(1) |
These non-consolidated senior interests provide structural leverage for our net investments which are reflected in the form of mezzanine loans or other subordinate interests on our balance sheet and in our results of operations. |
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Credit Facilities
The following table details our credit facilities ($ in thousands):
December 31, 2018 | ||||||||||||||||||||
Maximum
Facility Size (1) |
Credit Borrowings |
Collateral
Assets (3) |
||||||||||||||||||
Lender |
Potential (2) | Outstanding | Available (2) | |||||||||||||||||
Wells Fargo |
$ | 3,000,000 | $ | 1,398,103 | $ | 1,311,749 | $ | 86,354 | $ | 1,853,770 | ||||||||||
Deutsche Bank |
1,100,000 | 934,631 | 934,631 | | 1,193,713 | |||||||||||||||
Barclays |
1,500,000 | 890,620 | 890,620 | | 1,113,275 | |||||||||||||||
Bank of America |
1,000,000 | 873,446 | 873,446 | | 1,090,117 | |||||||||||||||
MetLife |
704,325 | 675,329 | 675,329 | | 852,733 | |||||||||||||||
Citibank |
1,000,000 | 817,993 | 630,454 | 187,539 | 1,030,116 | |||||||||||||||
JP Morgan |
500,000 | 492,349 | 492,349 | | 626,897 | |||||||||||||||
Société Générale (4) |
688,020 | 321,182 | 321,182 | | 404,048 | |||||||||||||||
Morgan Stanley (5) |
637,700 | 341,241 | 276,721 | 64,520 | 457,496 | |||||||||||||||
Goldman Sachs |
450,000 | 230,140 | 230,140 | | 295,368 | |||||||||||||||
Goldman Sachs Multi. JV (6) |
250,000 | 170,060 | 170,060 | | 212,983 | |||||||||||||||
Bank of America Multi. JV (6) |
200,000 | 97,002 | 97,002 | | 121,636 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 11,030,045 | $ | 7,242,096 | $ | 6,903,683 | $ | 338,413 | $ | 9,252,152 | |||||||||||
|
|
|
|
|
|
|
|
|
|
(1) |
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. |
(2) |
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 credit facility. |
(3) |
Represents the principal balance of the collateral assets. |
(4) |
As of December 31, 2018, the Société Générale maximum facility size was 600.0 million, which translated to $688.0 million as of such date. |
(5) |
As of December 31, 2018, the Morgan Stanley maximum facility size was £500.0 million, which translated to $637.7 million as of such date. |
(6) |
These facilities finance the loan investments of our consolidated Multifamily Joint Venture. Refer to Note 2 to our consolidated financial statements for additional discussion of our Multifamily Joint Venture. |
The weighted-average outstanding balance of our credit facilities was $4.7 billion for the year ended December 31, 2018. As of December 31, 2018, we had aggregate borrowings of $6.9 billion outstanding under our credit facilities, with a weighted-average cash coupon of LIBOR plus 1.75% per annum, a weighted-average all-in cost of credit, including associated fees and expenses, of LIBOR plus 1.95% per annum, and a weighted-average advance rate of 79.3%. As of December 31, 2018, outstanding borrowings under these facilities had a weighted-average maturity, excluding extension options and term-out provisions, of 1.8 years.
Borrowings under each facility are subject to the initial approval of eligible collateral loans by the lender and the maximum advance rate and pricing rate of individual advances are determined with reference to the attributes of the respective collateral loan.
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Asset-Specific Financings
The following table details our asset-specific financings ($ in thousands):
December 31, 2018 | ||||||||||||||||||||||
Asset-Specific Financings |
Count |
Principal
Balance |
Book Value |
Wtd. Avg.
Yield/Cost (1) |
Guarantee (2) |
Wtd. Avg.
Term (3) |
||||||||||||||||
Collateral assets |
5 | $ | 1,923,404 | $ | 1,912,990 | L+3.49 | % | n/a | Sep. 2022 | |||||||||||||
Financing provided (4) |
5 | $ | 1,538,548 | $ | 1,532,306 | L+1.82 | % | $ | 1,172,572 | Sep. 2022 |
(1) |
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, yield/cost includes the amortization of deferred origination fees / financing costs. |
(2) |
Other than amounts guaranteed on an asset-by-asset basis, borrowings under our asset-specific financings are non-recourse to us. |
(3) |
The weighted-average term is determined based on the maximum maturity of the corresponding loans, assuming all extension options are exercised by the borrower. Each of our asset-specific financings are term-matched to the corresponding collateral loans. |
(4) |
Borrowings of $551.7 million under these asset specific financings are cross collateralized with related credit facilities with the same lenders. |
GE Portfolio Acquisition Facility
During the second quarter of 2015, concurrently with our acquisition of the GE portfolio, we entered into an agreement with Wells Fargo to provide us with secured financing for the acquired portfolio. The GE portfolio acquisition facility is non-revolving and consists of a single master repurchase agreement providing for asset-specific borrowings for each collateral asset. The following table details our asset-specific borrowings related to the GE portfolio acquisition ($ in thousands):
December 31, 2018 | ||||||||||||||||||||||
GE Portfolio Acquisition Facility |
Count |
Principal
Balance (1) |
Book Value |
Wtd. Avg.
Yield/Cost (2) |
Guarantee (3) |
Wtd. Avg.
Term (4) |
||||||||||||||||
Collateral assets |
11 | $ | 660,743 | $ | 662,521 | 6.32 | % | n/a | May 2021 | |||||||||||||
Financing provided (5) |
11 | $ | 510,405 | $ | 509,813 | L+1.79 | % | $ | 250,000 | May 2021 |
(1) |
As of December 31, 2018, this facility provided for $591.7 million of financing, of which $510.4 million was outstanding and an additional $81.3 million was available to finance future loan fundings in the GE portfolio. |
(2) |
In addition to cash coupon, yield/cost includes the amortization of deferred origination fees / financing costs. |
(3) |
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. |
(4) |
The weighted-average term is determined based on the maximum maturity of the corresponding loans, assuming all extension options are exercised by the borrower. Each of our asset-specific financings are term-matched to the corresponding collateral loans. |
(5) |
Borrowings under these financings are cross collateralized with the related credit facility with the same lender. |
Refer to Note 6 to our consolidated financial statements for additional terms and details of our secured debt agreements, including certain financial covenants.
Revolving Credit Agreement
We have a $250.0 million full recourse secured revolving credit agreement with Barclays that is designed to finance first mortgage originations for up to six months as a bridge to term financing or syndication. Advances under the agreement are subject to availability under a specified borrowing base and accrue interest at a per
69
annum pricing rate equal to the sum of (i) an applicable base rate or Eurodollar rate and (ii) an applicable margin, in each case, dependent on the applicable type of loan collateral. The maturity date of the facility is April 4, 2020.
During the year ended December 31, 2018, the weighted-average outstanding borrowings under the revolving credit agreement was $44.3 million and we recorded interest expense of $3.8 million, including $1.1 million of amortization of deferred fees and expenses. As of December 31, 2018, we had $43.8 million of borrowings outstanding under the agreement.
Loan Participations Sold
The following table details our loan participations sold ($ in thousands):
December 31, 2018 | ||||||||||||||||||||||
Loan Participations Sold |
Count |
Principal
Balance |
Book Value |
Yield/
Cost (1) |
Guarantee (2) | Term | ||||||||||||||||
Total loan |
1 | $ | 123,745 | $ | 122,669 | L+5.92 | % | n/a | Feb. 2022 | |||||||||||||
Senior participation (3)(4) |
1 | 94,528 | 94,418 | L+4.07 | % | n/a | Feb. 2022 |
(1) |
Our floating rate loans and related liabilities are indexed to the various benchmark rates relevant in each arrangement in terms of currency and payment frequency. Therefore the net exposure to each benchmark rate is in direct proportion to our net assets indexed to that rate. In addition to cash coupon, yield/cost includes the amortization of deferred fees / financing costs. |
(2) |
As of December 31, 2018, our loan participations sold was non-recourse to us. |
(3) |
During the year ended December 31, 2018, we recorded $16.6 million of interest expense related to our loan participations sold. |
(4) |
The difference between principal balance and book value of loan participations sold is due to deferred financing costs of $110,000 as of December 31, 2018. |
Refer to Note 7 to our consolidated financial statements for additional details of our loan participations sold.
Non-Consolidated Senior Interests
In certain instances, we finance our loans through the non-recourse sale of a senior loan interest that is not included in our consolidated financial statements. These non-consolidated senior interests provide structural leverage for our net investments, which are reflected in the form of mezzanine loans or other subordinate interests on our balance sheet and in our results of operations. The following table details the subordinate interests retained on our balance sheet and the related non-consolidated senior interests as of December 31, 2018 ($ in thousands):
December 31, 2018 | ||||||||||||||||||||||
Non-Consolidated Senior Interests |
Count |
Principal
Balance |
Book
Value |
Wtd. Avg.
Yield/Cost (1) |
Guarantee |
Wtd. Avg.
Term |
||||||||||||||||
Total loan |
3 | $ | 548,500 | n/a | 6.16 | % | n/a | Oct. 2022 | ||||||||||||||
Senior participation |
3 | 446,874 | n/a | 4.69 | % | n/a | Oct. 2022 |
(1) |
Our floating rate loans and related liabilities were indexed to the various benchmark rates relevant in each arrangement in terms of currency and payment frequency. Therefore the net exposure to each benchmark rate is in direct proportion to our net assets indexed to that rate. In addition to cash coupon, all-in yield/cost includes the amortization of deferred fees / financing costs. |
70
Securitized Debt Obligations
The following table details our securitized debt obligations ($ in thousands):
December 31, 2018 | ||||||||||||||||||||
Securitized Debt Obligations |
Count |
Principal
Balance |
Book Value |
Wtd. Avg.
Yield/Cost (1) |
Term (2) | |||||||||||||||
Collateralized Loan Obligation |
||||||||||||||||||||
Collateral assets |
26 | $ | 1,000,000 | $ | 1,000,000 | 6.25 | % | Apr. 2022 | ||||||||||||
Financing provided |
1 | 817,500 | 811,023 | L+1.74 | % | June 2035 | ||||||||||||||
2017 Single Asset Securitization |
||||||||||||||||||||
Collateral assets (3) |
1 | 682,297 | 678,770 | L+3.60 | % | June 2023 | ||||||||||||||
Financing provided |
1 | 474,620 | 474,448 | L+1.65 | % | June 2033 | ||||||||||||||
Total |
||||||||||||||||||||
Collateral assets |
27 | $ | 1,682,297 | $ | 1,678,770 | 6.19 | % | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Financing provided (4) |
2 | $ | 1,292,120 | $ | 1,285,471 | L+1.71 | % | |||||||||||||
|
|
|
|
|
|
|
|
(1) |
As of December 31, 2018, 98% of our loans financed by securitized debt obligations earned a floating rate of interest. In addition to cash coupon, all-in yield includes the amortization of deferred origination and extension fees, loan origination costs, purchase discounts, and accrual of exit fees. All-in yield for the total portfolio assume applicable floating benchmark rates for weighted-average calculation. |
(2) |
Loan term represents weighted-average final maturity, assuming all extension options are exercised by the borrower. Repayments of securitized debt obligations are tied to timing of the related collateral loan asset repayments. The term of these obligations represents the rated final distribution date of the securitizations. |
(3) |
The collateral assets for the single asset securitization vehicle created in 2017, or the 2017 Single Asset Securitization, include the total loan amount, of which we securitized $500.0 million. |
(4) |
During the year ended December 31, 2018, we recorded $48.8 million of interest expense related to our securitized debt obligations. |
Refer to Notes 8 and 16 to our consolidated financial statements for additional details of our securitized debt obligations.
Floating Rate Portfolio
Generally, our business model is such that rising interest rates will increase our net income, while declining interest rates will decrease net income. As of December 31, 2018, 96% of our loans by total loan exposure earned a floating rate of interest and were financed with liabilities that pay interest at floating rates, which resulted in an amount of net equity that is positively correlated to rising interest rates, subject to the impact of interest rate floors on certain of our floating rate loans. As of December 31, 2018, the remaining 4% of our loans by total loan exposure earned a fixed rate of interest, but are financed with liabilities that pay interest at floating rates, which resulted in a negative correlation to rising interest rates to the extent of our financing. In certain instances where we have financed fixed rate assets with floating rate liabilities, we have purchased interest rate swaps or caps to limit our exposure to increases in interest rates on such liabilities.
71
Our liabilities are generally currency and index-matched to each collateral asset, resulting in a net exposure to movements in benchmark rates that varies by currency silo based on the relative proportion of floating rate assets and liabilities. The following table details our loan portfolios net exposure to interest rates by currency as of December 31, 2018 ($/£//C$/A$ in thousands):
USD | GBP | EUR | CAD | AUD | ||||||||||||||||
Floating rate loans (1) |
$ | 11,702,058 | £ | 538,670 | | 1,055,095 | C$ | 268,033 | A$ | 443,883 | ||||||||||
Floating rate debt (1)(2)(3) |
(8,678,603 | ) | (319,690 | ) | (801,318 | ) | (263,701 | ) | (255,270 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net floating rate exposure (4) |
$ | 3,023,455 | £ | 218,980 | | 253,777 | C$ | 4,332 | A$ | 188,613 | ||||||||||
|
|
|
|
|
|
|
|
|
|
(1) |
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. |
(2) |
Includes borrowings under secured debt agreements, loan participations sold, non-consolidated senior interests, and securitized debt obligations. |
(3) |
Balance includes three interest rate swaps totaling C$90.5 million ($66.4 million as of December 31, 2018) that are used to hedge a portion of our fixed rate debt. |
(4) |
In addition, we have interest rate caps of $204.2 million and C$40.0 million ($29.3 million as of December 31, 2018) to limit our exposure to increases in interest rates. |
Convertible Notes
As of December 31, 2018, the following convertible senior notes, or Convertible Notes, were outstanding ($ in thousands):
Convertible Notes Issuance |
Face Value | Coupon Rate | All-in Cost (1) | Maturity | ||||||||||
May 2017 |
$ | 402,500 | 4.38 | % | 4.85 | % | May 5, 2022 | |||||||
March 2018 |
$ | 220,000 | 4.75 | % | 5.33 | % | March 15, 2023 |
(1) |
Includes issuance costs that are amortized through interest expense over the life of the Convertible Notes using the effective interest method. |
Refer to Notes 2 and 9 to our consolidated financial statements for additional discussion of our Convertible Notes.
72
III. Our Results of Operations
Operating Results
The following table sets forth information regarding our consolidated results of operations for the years ended December 31, 2018, 2017, and 2016 ($ in thousands, except per share data):
Year Ended
December 31, |
2018 vs
2017 |
Year Ended
December 31, |
2017 vs
2016 |
|||||||||||||||||||||
2018 | 2017 | $ | 2017 | 2016 | $ | |||||||||||||||||||
Income from loans and other investments |
||||||||||||||||||||||||
Interest and related income |
$ | 756,109 | $ | 537,915 | $ | 218,194 | $ | 537,915 | $ | 497,974 | $ | 39,941 | ||||||||||||
Less: Interest and related expenses |
359,625 | 234,870 | 124,755 | 234,870 | 184,270 | 50,600 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income from loans and other investments, net |
396,484 | 303,045 | 93,439 | 303,045 | 313,704 | (10,659 | ) | |||||||||||||||||
Other expenses |
||||||||||||||||||||||||
Management and incentive fees |
74,834 | 54,841 | 19,993 | 54,841 | 55,959 | (1,118 | ) | |||||||||||||||||
General and administrative expenses |
35,529 | 29,922 | 5,607 | 29,922 | 27,716 | 2,206 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total other expenses |
110,363 | 84,763 | 25,600 | 84,763 | 83,675 | 1,088 | ||||||||||||||||||
Gain on investments at fair value |
| | | | 13,420 | (13,420 | ) | |||||||||||||||||
Income from equity investment in unconsolidated subsidiary |
| | | | 3,187 | (3,187 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income before income taxes |
286,121 | 218,282 | 67,839 | 218,282 | 246,636 | (28,354 | ) | |||||||||||||||||
Income tax provision |
308 | 314 | (6 | ) | 314 | 196 | 118 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
285,813 | 217,968 | 67,845 | 217,968 | 246,440 | (28,472 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to
non-
|
(735 | ) | (337 | ) | (398 | ) | (337 | ) | (8,143 | ) | 7,806 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to Blackstone Mortgage Trust, Inc. |
$ | 285,078 | $ | 217,631 | $ | 67,447 | $ | 217,631 | $ | 238,297 | $ | (20,666 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income per share basic and diluted |
$ | 2.50 | $ | 2.27 | $ | 0.23 | $ | 2.27 | $ | 2.53 | $ | (0.26 | ) | |||||||||||
Dividends declared per share |
$ | 2.48 | $ | 2.48 | $ | | $ | 2.48 | $ | 2.48 | $ | |
Income from loans and other investments, net
Income from loans and other investments, net increased $93.4 million during the year ended December 31, 2018 compared to the year ended December 31, 2017. The increase was primarily due to (i) an increase in the weighted-average principal balance of our loan portfolio by $2.5 billion during the year ended December 31, 2018, compared to the year ended December 31, 2017, (ii) an increase in non-recurring prepayment fee income, and (iii) an increase in LIBOR during 2018. This was offset by the increase in the weighted-average principal balance of our outstanding financing arrangements, which increased by $2.0 billion during the year ended December 31, 2018, compared to the year ended December 31, 2017.
Income from loans and other investments, net decreased $10.7 million during the year ended December 31, 2017 compared to the year ended December 31, 2016. The decrease was primarily due to the decrease in non-recurring prepayment fee income and an increase in interest expense as a result of the convertible debt we issued in 2017.
Other expenses
Other expenses are composed of management and incentive fees payable to our Manager and general and administrative expenses. Other expenses increased by $25.6 million during the year ended December 31, 2018 compared to the year ended December 31, 2017 due to (i) an increase of $11.7 million of incentive fees payable to our Manager as a result of an increase in Core Earnings, (ii) an increase of $8.3 million of management fees payable to our Manager primarily as a result of net proceeds received from the sale of shares of our class A common stock during 2017 and 2018, (iii) $4.1 million of additional non-cash restricted stock amortization
73
related to shares awarded under our long-term incentive plans, and (iv) an increase of $1.5 million of general operating expenses.
Other expenses increased by $1.1 million during the year ended December 31, 2017 compared to the year ended December 31, 2016 due to (i) $4.5 million of additional non-cash restricted stock amortization related to shares awarded under our long-term incentive plans, (ii) an increase of $650,000 of management fees payable to our Manager, and (iii) an increase of $243,000 of general operating expenses. These were offset by (i) a decrease of $2.6 million of compensation expenses associated with our CT Legacy Portfolio incentive plans, and (ii) a decrease of $1.8 million of incentive fees payable to our Manager, primarily as a result of a decrease in Core Earnings.
Gain on investments at fair value
During the year ended December 31, 2016, we recognized $13.4 million of net gains on investments held by CT Legacy Partners. Our investment in CT Legacy Partners was substantially realized as of December 31, 2016.
Income from equity investment in unconsolidated subsidiary
During the year ended December 31, 2016, we recognized a $3.2 million gain related to our promote interest from CTOPI. The investment in CTOPI was fully realized as of December 31, 2016.
Net income attributable to non-controlling interests
During the years ended December 31, 2018 and 2017, our non-controlling interests related to our Multifamily Joint Venture. During the year ended December 31, 2016, our non-controlling interests related to CT Legacy Partners. In each case, the non-controlling interests represent the portion of the consolidated entitys net income that is not owned by us.
During the years ended December 31, 2018 and 2017, we recorded $735,000 and $337,000, respectively of net income attributable to non-controlling interests related to our Multifamily Joint Venture. During the year ended December 31, 2016, we recorded $8.1 million of net income attributable to non-controlling interests which related to the gain on investments at fair value recognized by CT Legacy Partners.
Dividends per share
During the year ended December 31, 2018, we declared aggregate dividends of $2.48 per share, or $286.9 million. During 2017, we declared aggregate dividends of $2.48 per share, or $243.3 million. During 2016, we declared aggregate dividends of $2.48 per share, or $233.3 million.
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The following table sets forth information regarding our consolidated results of operations for the three months ended December 31, 2018 and 2017 ($ in thousands, except per share data):
Three Months Ended
December 31, |
2018 vs
2017 |
|||||||||||
2018 | 2017 | $ | ||||||||||
Income from loans and other investments |
||||||||||||
Interest and related income |
$ | 206,098 | $ | 146,127 | $ | 59,971 | ||||||
Less: Interest and related expenses |
103,948 | 65,953 | 37,995 | |||||||||
|
|
|
|
|
|
|||||||
Income from loans and other investments, net |
102,150 | 80,174 | 21,976 | |||||||||
Other expenses |
||||||||||||
Management and incentive fees |
18,586 | 14,284 | 4,302 | |||||||||
General and administrative expenses |
9,632 | 7,702 | 1,930 | |||||||||
|
|
|
|
|
|
|||||||
Total other expenses |
28,218 | 21,986 | 6,232 | |||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
73,932 | 58,188 | 15,744 | |||||||||
Income tax provision |
36 | 48 | (12 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net income |
73,896 | 58,140 | 15,756 | |||||||||
|
|
|
|
|
|
|||||||
Net income attributable to non-controlling interests |
(253 | ) | (249 | ) | (4 | ) | ||||||
|
|
|
|
|
|
|||||||
Net income attributable to Blackstone Mortgage Trust, Inc. |
$ | 73,643 | $ | 57,891 | $ | 15,752 | ||||||
|
|
|
|
|
|
|||||||
Net income per share basic and diluted |
$ | 0.61 | $ | 0.59 | $ | 0.02 | ||||||
Dividends declared per share |
$ | 0.62 | $ | 0.62 | $ | |
Income from loans and other investments, net
Income from loans and other investments, net increased $22.0 million during the three months ended December 31, 2018 compared to the three months ended December 31, 2017. The increase was primarily due to (i) the increase in the weighted-average principal balance of our loan portfolio, which increased by $3.4 billion for the three months ended December 31, 2018, compared to the three months ended December 31, 2017, and (ii) an increase in LIBOR in 2018. This was offset by the increase in the weighted-average principal balance of our outstanding financing arrangements, which increased by $2.8 billion during the three months ended December 31, 2018, compared to the three months ended December 31, 2017.
Other expenses
Other expenses are composed of management and incentive fees payable to our Manager and general and administrative expenses. Other expenses increased by $6.2 million during the three months ended December 31, 2018 compared to the corresponding period in 2017 due to (i) an increase of $2.7 million of management fees payable to our Manager, (ii) an increase of $1.6 million of incentive fees payable to our Manager as a result of an increase in Core Earnings, (iii) $1.4 million of additional non-cash restricted stock amortization related to shares awarded under our long-term incentive plans, and (iv) an increase of $483,000 of general operating expenses.
Net income attributable to non-controlling interests
During the three months ended December 31, 2018 and 2017, we recorded $253,000 and $249,000 of net income attributable to non-controlling interests related to our Multifamily Joint Venture.
Dividends per share
During the three months ended December 31, 2018, we declared aggregate dividends of $0.62 per share, or $76.5 million. During the three months ended December 31, 2017, we declared aggregate dividends of $0.62 per share, or $66.9 million.
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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 December 31, 2018, we had 123,435,738 shares of our class A common stock outstanding representing $3.4 billion of stockholders equity, $9.0 billion of outstanding borrowings under secured debt agreements, and $622.5 million of Convertible Notes outstanding.
As of December 31, 2018, our secured debt agreements consisted of credit facilities with an outstanding balance of $6.9 billion, $1.5 billion of asset-specific financings, and the GE portfolio acquisition facility with an outstanding balance of $510.4 million. We also finance our business through the sale of loan participations and non-consolidated senior interests. As of December 31, 2018, we had $94.5 million of loan participations sold and $446.9 million of non-consolidated senior interests outstanding. In addition, as of December 31, 2018, our consolidated balance sheet included $1.3 billion of securitized debt obligations related to our collateralized loan obligation, or the CLO, and our single asset securitization vehicle, or the 2017 Single Asset Securitization.
See Notes 6, 7, 8 and 9 to our consolidated financial statements for additional details regarding our secured debt agreements, loan participations sold, securitized debt obligations, and Convertible Notes, respectively.
Debt-to-Equity Ratio and Total Leverage Ratio
The following table presents our debt-to-equity ratio and total leverage ratio:
December 31, 2018 | December 31, 2017 | |||
Debt-to-equity ratio (1) |
2.8x | 2.0x | ||
Total leverage ratio (2) |
3.7x | 2.8x |
(1) |
Represents (i) total outstanding secured debt agreements and convertible notes, less cash, to (ii) total equity, in each case at period end. |
(2) |
Represents (i) total outstanding secured debt agreements, convertible notes, loan participations sold, non-consolidated senior interests, and securitized debt obligations, less cash, to (ii) total equity, in each case at period end. |
Sources of Liquidity
Our primary sources of liquidity include cash and cash equivalents, available borrowings under our secured debt agreements, and net receivables from servicers related to loan repayments which are set forth in the following table ($ in thousands):
December 31, 2018 | December 31, 2017 | |||||||
Cash and cash equivalents |
$ | 105,662 | $ | 69,654 | ||||
Available borrowings under secured debt agreements |
359,618 | 595,848 | ||||||
Loan principal payments held by servicer, net (1) |
4,855 | 15,763 | ||||||
|
|
|
|
|||||
$ | 470,135 | $ | 681,265 | |||||
|
|
|
|
(1) |
Represents loan principal payments held by our third-party servicer as of the balance sheet date which were remitted to us during the subsequent remittance cycle, net of the related secured debt balance. |
In addition to our current sources of liquidity, we have access to liquidity through public offerings of debt and equity securities. To facilitate such offerings, in July 2016, we filed a shelf registration statement with the Securities and Exchange Commission, or the SEC, that is effective for a term of three years and expires in
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July 2019. The amount of securities to be issued pursuant to this shelf registration statement was not specified when it was filed and there is no specific dollar limit on the amount of securities we may issue. The securities covered by this registration statement include: (i) class A common stock; (ii) preferred stock; (iii) debt securities; (iv) depositary shares representing preferred stock; (v) warrants; (vi) subscription rights; (vii) purchase contracts; and (viii) units consisting of one or more of such securities or any combination of these securities. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering.
We may also access liquidity through a dividend reinvestment plan and direct stock purchase plan, under which 9,995,238 shares of class A common stock were available for issuance as of December 31, 2018, and our at-the- market stock offering program, pursuant to which we may sell, from time to time, up to $429.9 million of additional shares of our class A common stock as of December 31, 2018. Refer to Note 11 to our consolidated financial statements for additional details.
Our existing loan portfolio also provides us with liquidity as loans are repaid or sold, in whole or in part, and the proceeds from such repayments become available for us to reinvest.
Liquidity Needs
In addition to our ongoing loan origination activity, our primary liquidity needs include interest and principal payments under our $9.0 billion of outstanding borrowings under secured debt agreements, our Convertible Notes, our unfunded loan commitments, dividend distributions to our stockholders, and operating expenses.
Contractual Obligations and Commitments
Our contractual obligations and commitments as of December 31, 2018 were as follows ($ in thousands):
Total
Obligation |
Payment Timing | |||||||||||||||||||
Less Than
1 Year |
1 to 3
Years |
3 to 5
Years |
More Than
5 Years |
|||||||||||||||||
Unfunded loan commitments (1) |
$ | 3,405,945 | $ | 183,279 | $ | 1,451,644 | $ | 1,771,022 | $ | | ||||||||||
Principal repayments under secured debt agreements (2) |
8,996,481 | 265,141 | 3,127,661 | 5,206,541 | 397,138 | |||||||||||||||
Principal repayments of convertible notes (3) |
622,500 | | | 622,500 | | |||||||||||||||
Interest payments (2)(4) |
1,327,020 | 397,655 | 651,440 | 262,775 | 15,150 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total (5) |
$ | 14,351,946 | $ | 846,075 | $ | 5,230,745 | $ | 7,862,838 | $ | 412,288 | ||||||||||
|
|
|
|
|
|
|
|
|
|
(1) |
The allocation of our unfunded loan commitments is based on the earlier of the commitment expiration date or the loan maturity date. |
(2) |
The allocation of repayments under our secured debt agreements for both principal and interest payments is based on the earlier of (i) the maturity date of each facility, or (ii) the maximum maturity date of the collateral loans, assuming all extension options are exercised by the borrower. |
(3) |
Reflects the outstanding principal balance of convertible notes, excluding any potential conversion premium. Refer to Note 9 to our consolidated financial statements for further details on our convertible notes. |
(4) |
Represents interest payments on our secured debt agreements and convertible notes. Future interest payment obligations are estimated assuming the amounts outstanding and the interest rates in effect as of December 31, 2018 will remain constant into the future. This is only an estimate as actual amounts borrowed and interest rates will vary over time. |
(5) |
Total does not include $94.5 million of loan participations sold, $446.9 million of non-consolidated senior interests, and $1.3 billion of securitized debt obligations, as the satisfaction of these liabilities will not require cash outlays from us. |
77
We are also required to settle our foreign currency forward contracts and interest rate swaps with our derivative counterparties upon maturity which, depending on foreign exchange and interest rate movements, may result in cash received from or due to the respective counterparty. The table above does not include these amounts as they are not fixed and determinable. Refer to Note 10 to our consolidated financial statements for details regarding our derivative contracts.
We are required to pay our Manager a base management fee, an incentive fee, and reimbursements for certain expenses pursuant to our Management Agreement. The table above does not include the amounts payable to our Manager under our Management Agreement as they are not fixed and determinable. Refer to Note 12 to our consolidated financial statements for additional terms and details of the fees payable under our Management Agreement.
As a REIT, we generally must distribute substantially all of our net taxable income to stockholders in the form of dividends to comply with the REIT provisions of the Internal Revenue Code. Our taxable income does not necessarily equal our net income as calculated in accordance with GAAP, or our Core Earnings as described above.
Cash Flows
The following table provides a breakdown of the net change in our cash, cash equivalents, and restricted cash ($ in thousands):
For the years ended December 31, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
Cash flows provided by operating activities |
$ | 290,002 | $ | 227,461 | $ | 236,652 | ||||||
Cash flows (used in) provided by investing activities |
(4,251,659 | ) | (780,752 | ) | 434,087 | |||||||
Cash flows provided by (used in) financing activities |
3,957,708 | 574,742 | (699,597 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net (decrease) increase in cash, cash equivalents, and restricted cash |
$ | (3,949 | ) | $ | 21,451 | $ | (28,858 | ) | ||||
|
|
|
|
|
|
We experienced a net decrease in cash, cash equivalents, and restricted cash of $3.9 million for the year ended December 31, 2018, compared to a net increase of $21.5 million for the year ended December 31, 2017. During 2018, we (i) borrowed a net $3.8 billion under our secured debt agreements, (ii) collected $3.1 billion of proceeds from loan principal repayments, (iii) received $476.4 million of net proceeds from the issuance of class A common stock, (iv) received $416.1 million in net proceeds from the 2018 Single Asset Securitization, and (v) received $214.8 million of net proceeds from the issuance of convertible notes. We used the proceeds from our debt and equity financing activities to (i) fund $7.9 billion of new loans during 2018 and (ii) settle our November 2013 issuance of convertible notes for $219.2 million.
We experienced a net increase in cash, cash equivalents, and restricted cash of $21.5 million for the year ended December 31, 2017, compared to a net decrease of $28.9 million for the year ended December 31, 2016. During 2017, we (i) collected $2.8 billion of proceeds from loan principal repayments, (ii) received $817.5 million of proceeds from the issuance of collateralized loan obligations, (iii) received $394.6 million of net proceeds from the issuance of convertible notes, and (iv) received $391.6 million of net proceeds from the issuance of class A common stock. We used the proceeds from our loan repayments and financing activities to (i) fund $3.6 billion of new loans during 2017 and (ii) repay a net $471.9 million under secured debt agreements.
Refer to Note 3 to our consolidated financial statements for further discussion of our loan activity. Refer to Notes 6, 9, and 11 to our consolidated financial statements for additional discussion of our secured debt agreements, convertible notes, and equity.
78
V. Other Items
Income Taxes
We have elected to be taxed as a REIT under the Internal Revenue Code for U.S. federal income tax purposes. We generally must distribute annually at least 90% of our net taxable income, subject to certain adjustments and excluding any net capital gain, in order for U.S. federal income tax not to apply to our earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our net taxable income, we will be subject to U.S. federal income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws.
Our qualification as a REIT also depends on our ability to meet various other requirements imposed by the Internal Revenue Code, which relate to organizational structure, diversity of stock ownership, and certain restrictions with regard to the nature of our assets and the sources of our income. Even if we qualify as a REIT, we may be subject to certain U.S. federal income and excise taxes and state and local taxes on our income and assets. If we fail to maintain our qualification as a REIT for any taxable year, we may be subject to material penalties as well as federal, state and local income tax on our taxable income at regular corporate rates and we would not be able to qualify as a REIT for the subsequent four full taxable years. As of December 31, 2018 and 2017, we were in compliance with all REIT requirements.
Refer to Note 13 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. During 2018, our Manager reviewed and evaluated our critical accounting policies and believes them to be appropriate. The following is a summary of our significant accounting policies that we believe are the most affected by our Managers judgments, estimates, and assumptions:
Revenue Recognition
Interest income from our loans receivable portfolio and debt securities 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 and recorded over the term of the loan or debt security 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.
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
79
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:
1 - |
Very Low Risk |
2 - |
Low Risk |
3 - |
Medium Risk |
4 - |
High Risk/Potential for Loss: A loan that has a risk of realizing a principal loss. |
5 - |
Impaired/Loss Likely: A loan that has a very high risk of realizing a principal loss or has otherwise incurred a principal loss. |
Refer to Note 2 to our consolidated financial statements for the complete listing and description of our significant accounting policies.
80
VI. Loan Portfolio Details
The following table provides details of our loan portfolio, on a loan-by-loan basis, as of December 31, 2018 ($ in millions):
Loan Type (1) |
Origination
Date (2) |
Total
Loan (3)(4) |
Principal
Balance (3)(4) |
Net Book
Value |
Cash
Coupon (5) |
All-in
Yield (5) |
Maximum
Maturity (6) |
Location |
Property
Type |
Loan Per
SQFT / Unit / Key |
LTV (2) |
Risk
Rating |
||||||||||||||||||||||||||||||||
1 |
Senior loan |
3/22/2018 | $ | 1,131.3 | $ | 1,131.3 | $ | 1,124.2 | L + 3.15 | % | L + 3.40 | % | 3/15/2023 |
Diversified-Spain |
Spanish Assets | n/a | 71 | % | 3 | |||||||||||||||||||||||||
2 |
Senior loan |
5/11/2017 | 752.6 | 682.3 | 678.8 | L + 3.40 | % | L + 3.60 | % | 6/10/2023 |
Washington DC |
Office | $334 / sqft | 62 | % | 3 | ||||||||||||||||||||||||||||
3 |
Senior loan (3) |
8/6/2015 | 471.3 | 471.3 | 85.8 | 5.75 | % | 5.82 | % | 10/29/2022 |
Diversified-EUR |
Other | n/a | 71 | % | 3 | ||||||||||||||||||||||||||||
4 |
Senior loan |
5/1/2015 | 355.0 | 342.4 | 341.6 | L + 2.85 | % | L + 3.02 | % | 5/1/2023 |
New York |
Office | $434 / sqft | 68 | % | 2 | ||||||||||||||||||||||||||||
5 |
Senior loan |
2/13/2018 | 330.0 | 322.3 | 321.9 | L + 3.42 | % | L + 3.52 | % | 3/9/2023 |
New York |
Multi | $780,386 / unit | 62 | % | 3 | ||||||||||||||||||||||||||||
6 |
Senior loan |
1/7/2015 | 350.0 | 317.1 | 316.2 | L + 2.50 | % | L + 2.76 | % | 1/9/2021 |
New York |
Office | $272 / sqft | 53 | % | 2 | ||||||||||||||||||||||||||||
7 |
Senior loan |
10/23/2018 | 352.4 | 313.0 | 310.2 | L + 3.40 | % | L + 3.72 | % | 10/23/2021 |
New York |
Mixed-Use | $284 / sqft | 65 | % | 3 | ||||||||||||||||||||||||||||
8 |
Senior loan |
3/31/2017 | 339.3 | 286.2 | 283.4 | L + 3.50 | % | L + 3.88 | % | 8/9/2023 |
Maui |
Hotel | $377,099 / key | 61 | % | 3 | ||||||||||||||||||||||||||||
9 |
Senior loan |
11/30/2018 | 291.3 | 274.4 | 271.6 | L + 2.83 | % | L + 3.20 | % | 12/9/2023 |
New York |
Hotel | $224,555 / key | 73 | % | 3 | ||||||||||||||||||||||||||||
10 |
Senior loan |
11/30/2018 | 253.9 | 247.4 | 244.9 | L + 2.80 | % | L + 3.17 | % | 12/9/2023 |
San Francisco |
Hotel | $363,291 / key | 73 | % | 3 | ||||||||||||||||||||||||||||
11 |
Senior loan |
12/11/2018 | 310.0 | 241.2 | 238.1 | L + 2.55 | % | L + 2.96 | % | 12/9/2023 |
Chicago |
Office | $203 / sqft | 78 | % | 3 | ||||||||||||||||||||||||||||
12 |
Senior loan |
8/3/2016 | 275.9 | 233.1 | 232.8 | L + 4.66 | % | L + 5.29 | % | 8/9/2021 |
New York |
Office | $321 / sqft | 57 | % | 3 | ||||||||||||||||||||||||||||
13 |
Senior loan |
12/22/2017 | 225.0 | 225.0 | 223.5 | L + 2.80 | % | L + 3.16 | % | 1/9/2023 |
Chicago |
Multi | $326,087 / unit | 65 | % | 3 | ||||||||||||||||||||||||||||
14 |
Senior loan |
5/9/2018 | 219.0 | 219.0 | 217.5 | L + 3.00 | % | L + 3.24 | % | 5/9/2023 |
New York |
Industrial | $62 / sqft | 70 | % | 3 | ||||||||||||||||||||||||||||
15 |
Senior loan |
6/23/2015 | 220.0 | 213.2 | 213.1 | L + 3.65 | % | L + 3.78 | % | 5/8/2022 |
Washington DC |
Office | $239 / sqft | 72 | % | 2 | ||||||||||||||||||||||||||||
16 |
Senior loan |
4/15/2016 | 225.0 | 204.4 | 202.9 | L + 3.25 | % | L + 3.84 | % | 5/9/2023 |
New York |
Office | $190 / sqft | 40 | % | 3 | ||||||||||||||||||||||||||||
17 |
Senior loan |
6/4/2015 | 195.5 | 195.5 | 197.7 | L + 4.19 | % | L + 4.14 | % | 5/21/2021 |
Diversified-CAN |
Hotel | $41,279 / key | 54 | % | 2 | ||||||||||||||||||||||||||||
18 |
Senior loan |
6/4/2018 | 190.0 | 190.0 | 188.5 | L + 3.50 | % | L + 3.86 | % | 6/9/2024 |
New York |
Hotel | $313,015 / key | 52 | % | 3 | ||||||||||||||||||||||||||||
19 |
Senior loan |
4/9/2018 | 1,619.5 | 185.0 | 169.0 | L + 8.50 | % | L + 8.76 | % | 6/9/2025 |
New York |
Office | $572 / sqft | 48 | % | 2 | ||||||||||||||||||||||||||||
20 |
Senior loan |
12/22/2016 | 204.0 | 184.2 | 184.4 | L + 3.50 | % | L + 4.07 | % | 1/9/2022 |
New York |
Office | $259 / sqft | 64 | % | 3 | ||||||||||||||||||||||||||||
21 |
Senior loan |
4/12/2018 | 259.3 | 181.4 | 180.5 | L + 2.93 | % | L + 3.32 | % | 11/20/2022 |
New York |
Office | $34 / sqft | 58 | % | 2 | ||||||||||||||||||||||||||||
22 |
Senior loan |
3/8/2016 | 181.2 | 179.6 | 178.6 | L + 2.90 | % | L + 3.23 | % | 9/9/2023 |
Orange County |
Office | $226 / sqft | 52 | % | 3 | ||||||||||||||||||||||||||||
23 |
Senior loan |
4/3/2018 | 178.6 | 176.6 | 175.4 | L + 2.75 | % | L + 3.08 | % | 4/9/2024 |
Dallas |
Mixed-Use | $500 / sqft | 64 | % | 3 | ||||||||||||||||||||||||||||
24 |
Senior loan |
10/26/2016 | 176.0 | 176.0 | 175.4 | L + 3.10 | % | L + 3.46 | % | 12/9/2022 |
San Francisco |
Office | $189 / sqft | 72 | % | 2 | ||||||||||||||||||||||||||||
25 |
Senior loan |
11/30/2017 | 197.4 | 175.2 | 173.9 | L + 3.80 | % | L + 4.20 | % | 12/9/2022 |
San Jose |
Office | $290 / sqft | 64 | % | 1 | ||||||||||||||||||||||||||||
26 |
Senior loan |
5/16/2017 | 189.2 | 174.8 | 173.8 | L + 3.90 | % | L + 4.29 | % | 5/16/2021 |
Chicago |
Office | $131 / sqft | 59 | % | 3 | ||||||||||||||||||||||||||||
27 |
Senior loan |
8/31/2017 | 183.0 | 171.4 | 170.4 | L + 3.00 | % | L + 3.40 | % | 9/9/2022 |
Orange County |
Office | $203 / sqft | 64 | % | 3 | ||||||||||||||||||||||||||||
28 |
Senior loan |
11/23/2018 | 189.7 | 170.8 | 169.0 | L + 2.62 | % | L + 2.87 | % | 2/15/2024 |
Diversified-UK |
Office | $508 / sqft | 50 | % | 3 | ||||||||||||||||||||||||||||
29 |
Senior loan |
9/14/2018 | 177.7 | 170.0 | 168.5 | L + 3.50 | % | L + 3.85 | % | 9/14/2023 |
Canberra-AU |
Mixed-Use | $441 / sqft | 68 | % | 3 | ||||||||||||||||||||||||||||
30 | Senior loan | 10/23/2018 | 278.4 | 163.4 | 161.7 | L + 2.65 | % | L + 2.88 | % | 11/9/2024 |
Atlanta |
Office | $185 / sqft | 64 | % | 3 |
continued
81
Loan Type (1) |
Origination
Date (2) |
Total
Loan (3)(4) |
Principal
Balance (3)(4) |
Net Book
Value |
Cash
Coupon (5) |
All-in
Yield (5) |
Maximum
Maturity (6) |
Location |
Property
Type |
Loan Per
SQFT / Unit / Key |
LTV (2) |
Risk
Rating |
||||||||||||||||||||||||||||||||
31 | Senior loan | 9/26/2018 | 165.0 | 162.1 | 160.6 | L + 2.25 | % | L + 2.61 | % | 10/9/2025 |
Honolulu |
Multi | $311,770 / unit | 72 | % | 3 | ||||||||||||||||||||||||||||
32 | Senior loan | 9/4/2018 | 172.7 | 151.1 | 149.5 | L + 3.00 | % | L + 3.39 | % | 9/9/2023 |
Las Vegas |
Hotel | $182,930 / key | 70 | % | 3 | ||||||||||||||||||||||||||||
33 | Senior loan | 8/23/2017 | 165.0 | 141.2 | 140.2 | L + 3.25 | % | L + 3.64 | % | 10/9/2022 |
Los Angeles |
Office | $287 / sqft | 74 | % | 3 | ||||||||||||||||||||||||||||
34 | Senior loan | 10/5/2016 | 134.8 | 134.8 | 134.6 | L + 4.35 | % | L + 4.80 | % | 10/9/2021 |
Diversified-US |
Hotel | $68,301 / key | 61 | % | 2 | ||||||||||||||||||||||||||||
35 | Senior loan | 6/24/2015 | 135.0 | 134.3 | 133.9 | L + 3.50 | % | L + 3.72 | % | 4/9/2023 |
Honolulu |
Hotel | $225,285 / key | 67 | % | 2 | ||||||||||||||||||||||||||||
36 | Senior loan | 12/21/2017 | 182.5 | 133.6 | 132.3 | L + 3.25 | % | L + 3.68 | % | 1/9/2023 |
Atlanta |
Office | $100 / sqft | 51 | % | 2 | ||||||||||||||||||||||||||||
37 | Senior loan | 1/30/2014 | 133.4 | 133.4 | 132.0 | L + 4.30 | % | L + 5.83 | % | 6/3/2019 |
New York |
Hotel | $212,341 / key | 38 | % | 2 | ||||||||||||||||||||||||||||
38 | Senior loan | 6/29/2017 | 140.2 | 130.6 | 129.7 | L + 2.85 | % | L + 3.30 | % | 7/9/2022 |
Los Angeles |
Multi | $258,120 / unit | 68 | % | 2 | ||||||||||||||||||||||||||||
39 | Senior loan | 7/31/2018 | 194.5 | 129.9 | 128.1 | L + 3.50 | % | L + 3.96 | % | 8/9/2022 |
San Francisco |
Office | $335 / sqft | 50 | % | 2 | ||||||||||||||||||||||||||||
40 | Senior loan | 11/14/2017 | 128.5 | 128.5 | 127.7 | L + 3.80 | % | L + 4.16 | % | 12/9/2022 |
Los Angeles |
Hotel | $514,000 / key | 56 | % | 2 | ||||||||||||||||||||||||||||
41 | Senior loan | 11/2/2017 | 140.0 | 124.2 | 123.4 | L + 3.20 | % | L + 3.62 | % | 11/9/2022 |
Boston |
Industrial | $163 / sqft | 69 | % | 2 | ||||||||||||||||||||||||||||
42 | Senior loan | 1/26/2017 | 175.6 | 123.7 | 122.7 | L + 5.50 | % | L + 5.92 | % | 2/9/2022 |
Boston |
Office | $1,003 / sqft | 42 | % | 2 | ||||||||||||||||||||||||||||
43 | Senior loan | 4/30/2018 | 163.4 | 115.8 | 114.3 | L + 3.25 | % | L + 3.51 | % | 4/30/2023 |
London-UK |
Office | $521 / sqft | 60 | % | 3 | ||||||||||||||||||||||||||||
44 | Senior loan | 7/28/2016 | 119.0 | 115.3 | 115.0 | L + 3.60 | % | L + 3.92 | % | 8/9/2021 |
Atlanta |
Office | $182 / sqft | 70 | % | 3 | ||||||||||||||||||||||||||||
45 | Senior loan | 12/10/2018 | 138.0 | 114.1 | 112.7 | L + 2.95 | % | L + 3.31 | % | 12/3/2024 |
London-UK |
Office | $545 / sqft | 72 | % | 3 | ||||||||||||||||||||||||||||
46 | Senior loan | 12/14/2018 | 135.6 | 113.1 | 112.1 | L + 2.90 | % | L + 3.27 | % | 1/9/2024 |
Diversified-US |
Industrial | $45 / sqft | 57 | % | 3 | ||||||||||||||||||||||||||||
47 | Senior loan | 2/20/2014 | 110.0 | 110.0 | 110.0 | L + 3.95 | % | L + 4.16 | % | 3/9/2021 |
New York |
Office | $161 / sqft | 74 | % | 2 | ||||||||||||||||||||||||||||
48 | Senior loan | 5/11/2017 | 135.9 | 109.4 | 108.6 | L + 3.40 | % | L + 3.91 | % | 6/10/2023 |
Washington DC |
Office | $251 / sqft | 38 | % | 2 | ||||||||||||||||||||||||||||
49 | Senior loan | 10/17/2016 | 109.3 | 109.3 | 109.0 | L + 3.95 | % | L + 3.98 | % | 10/21/2021 |
Diversified-UK |
Self-Storage | $150 / sqft | 73 | % | 3 | ||||||||||||||||||||||||||||
50 | Senior loan | 7/20/2017 | 193.2 | 106.7 | 104.8 | L + 5.10 | % | L + 6.08 | % | 8/9/2022 |
San Francisco |
Office | $321 / sqft | 58 | % | 3 | ||||||||||||||||||||||||||||
51 | Senior loan | 2/27/2015 | 105.7 | 105.7 | 105.3 | L + 3.55 | % | L + 3.89 | % | 4/28/2022 |
Chicago |
Office | $216 / sqft | 65 | % | 2 | ||||||||||||||||||||||||||||
52 | Senior loan | 3/21/2018 | 113.2 | 104.5 | 103.8 | L + 3.10 | % | L + 3.36 | % | 3/21/2024 |
Jacksonville |
Office | $104 / sqft | 72 | % | 3 | ||||||||||||||||||||||||||||
53 | Senior loan | 3/13/2018 | 123.0 | 103.0 | 102.0 | L + 3.50 | % | L + 3.83 | % | 4/9/2025 |
Honolulu |
Hotel | $159,690 / key | 50 | % | 3 | ||||||||||||||||||||||||||||
54 | Senior loan | 12/21/2018 | 123.1 | 100.4 | 99.1 | L + 2.60 | % | L + 3.00 | % | 1/9/2024 |
Chicago |
Office | $196 / key | 72 | % | 3 | ||||||||||||||||||||||||||||
55 | Senior loan | 10/16/2018 | 113.7 | 100.1 | 99.2 | L + 3.25 | % | L + 3.57 | % | 11/9/2023 |
San Francisco |
Hotel | $218,183 / key | 72 | % | 3 | ||||||||||||||||||||||||||||
56 | Senior loan | 5/16/2014 | 100.0 | 98.4 | 98.3 | L + 3.85 | % | L + 4.18 | % | 4/9/2022 |
Miami |
Office | $212 / sqft | 67 | % | 3 | ||||||||||||||||||||||||||||
57 | Senior loan | 3/10/2016 | 106.7 | 98.4 | 97.8 | L + 2.60 | % | L + 2.94 | % | 12/9/2022 |
Chicago |
Multi | $531,892 / unit | 63 | % | 3 | ||||||||||||||||||||||||||||
58 | Senior loan | 11/30/2018 | 105.1 | 98.0 | 97.2 | L + 2.70 | % | L + 3.04 | % | 12/9/2023 |
Diversified-US |
Hotel | $74,924 / key | 57 | % | 3 | ||||||||||||||||||||||||||||
59 | Senior loan | 5/22/2014 | 97.5 | 97.5 | 97.4 | L + 3.75 | % | L + 3.92 | % | 6/15/2021 |
Orange County |
Office | $171 / sqft | 74 | % | 2 | ||||||||||||||||||||||||||||
60 | Senior loan | 12/20/2018 | 105.0 | 92.2 | 91.6 | L + 2.95 | % | L + 3.28 | % | 1/1/2022 |
Seattle |
Multi | $231,618 / unit | 65 | % | 3 |
continued
82
Loan Type (1) |
Origination
Date (2) |
Total
Loan (3)(4) |
Principal
Balance (3)(4) |
Net Book
Value |
Cash
Coupon (5) |
All-in
Yield (5) |
Maximum
Maturity (6) |
Location |
Property
Type |
Loan Per
SQFT / Unit / Key |
LTV (2) |
Risk
Rating |
||||||||||||||||||||||||||||||||
61 | Senior loan | 12/9/2014 | 104.5 | 91.1 | 90.9 | L + 3.65 | % | L + 3.80 | % | 12/9/2021 |
Diversified-US |
Office | $78 / sqft | 65 | % | 2 | ||||||||||||||||||||||||||||
62 | Senior loan | 6/1/2018 | 128.8 | 90.2 | 88.9 | L + 3.40 | % | L + 3.75 | % | 5/28/2023 |
London-UK |
Office | $611 / sqft | 70 | % | 3 | ||||||||||||||||||||||||||||
63 | Senior loan | 2/25/2014 | 89.5 | 89.5 | 89.4 | L + 4.01 | % | L + 4.44 | % | 3/9/2021 |
Diversified-US |
Hotel | $150,206 / key | 55 | % | 2 | ||||||||||||||||||||||||||||
64 | Senior loan | 2/18/2015 | 88.7 | 88.7 | 88.6 | L + 3.75 | % | L + 4.17 | % | 3/9/2020 |
Diversified-CA |
Office | $183 / sqft | 71 | % | 3 | ||||||||||||||||||||||||||||
65 | Senior loan (3) | 6/30/2015 | 79.3 | 76.3 | 15.1 | L + 4.75 | % | L + 5.77 | % | 8/15/2022 |
San Francisco |
Condo | $641 / sqft | 60 | % | 2 | ||||||||||||||||||||||||||||
66 | Senior loan | 2/9/2017 | 86.9 | 86.9 | 86.2 | L + 4.50 | % | L + 4.85 | % | 5/29/2023 |
London-UK |
Office | $847 / sqft | 69 | % | 3 | ||||||||||||||||||||||||||||
67 | Senior loan | 11/30/2018 | 151.1 | 85.4 | 84.3 | L + 2.55 | % | L + 2.82 | % | 12/9/2024 |
Washington DC |
Office | $267 / sqft | 60 | % | 3 | ||||||||||||||||||||||||||||
68 | Senior loan | 2/12/2016 | 100.0 | 84.6 | 84.5 | L + 4.15 | % | L + 4.46 | % | 3/9/2021 |
New York |
Office | $126 / sqft | 65 | % | 3 | ||||||||||||||||||||||||||||
69 | Senior loan | 4/12/2018 | 103.1 | 83.1 | 82.3 | L + 2.75 | % | L + 3.14 | % | 5/9/2023 |
San Francisco |
Office | $217 / sqft | 72 | % | 3 | ||||||||||||||||||||||||||||
70 | Senior loan | 9/20/2018 | 130.0 | 82.3 | 82.0 | L + 4.00 | % | L + 4.06 | % | 8/16/2023 |
Diversified-AU |
Other | $213 / sqft | 53 | % | 3 | ||||||||||||||||||||||||||||
71 | Senior loan | 5/1/2015 | 79.4 | 79.4 | 79.3 | L + 3.95 | % | L + 4.21 | % | 5/9/2020 |
Washington DC |
Hotel | $203,634 / key | 67 | % | 3 | ||||||||||||||||||||||||||||
72 | Senior loan | 3/31/2017 | 91.2 | 78.6 | 78.3 | L + 4.30 | % | L + 4.93 | % | 4/9/2022 |
New York |
Office | $386 / sqft | 64 | % | 3 | ||||||||||||||||||||||||||||
73 | Senior loan | 6/29/2016 | 83.4 | 74.1 | 73.9 | L + 2.80 | % | L + 3.28 | % | 7/9/2021 |
Miami |
Office | $286 / sqft | 64 | % | 2 | ||||||||||||||||||||||||||||
74 | Senior loan | 8/18/2017 | 71.0 | 71.0 | 70.6 | L + 4.10 | % | L + 4.46 | % | 8/18/2022 |
Brussels |
Office | $113 / sqft | 59 | % | 3 | ||||||||||||||||||||||||||||
75 | Senior loan | 7/26/2018 | 84.1 | 70.1 | 69.9 | L + 2.75 | % | L + 2.85 | % | 7/1/2024 |
Columbus |
Multi | $65,962 / unit | 69 | % | 3 | ||||||||||||||||||||||||||||
76 | Senior loan | 11/30/2016 | 79.0 | 66.6 | 66.4 | L + 3.95 | % | L + 4.39 | % | 12/9/2021 |
Chicago |
Retail | $1,317 / sqft | 54 | % | 3 | ||||||||||||||||||||||||||||
77 | Senior loan | 6/4/2015 | 69.8 | 66.6 | 67.4 | 5.09 | % (7) | 5.25 | % (7) | 3/28/2019 |
Diversified-CAN |
Retail | $39 / sqft | 74 | % | 3 | ||||||||||||||||||||||||||||
78 | Senior loan | 4/5/2018 | 85.3 | 65.9 | 65.3 | L + 3.10 | % | L + 3.51 | % | 4/9/2023 |
Diversified-US |
Industrial | $24 / sqft | 54 | % | 3 | ||||||||||||||||||||||||||||
79 | Senior loan | 10/17/2018 | 80.4 | 64.8 | 64.1 | L + 2.60 | % | L + 3.16 | % | 11/9/2023 |
San Francisco |
Office | $404 / sqft | 68 | % | 3 | ||||||||||||||||||||||||||||
80 | Senior loan | 5/9/2017 | 73.7 | 64.7 | 64.4 | L + 3.85 | % | L + 4.30 | % | 5/9/2022 |
New York |
Multi | $389,948 / unit | 67 | % | 3 | ||||||||||||||||||||||||||||
81 | Senior loan | 3/11/2014 | 65.0 | 62.8 | 62.7 | L + 4.50 | % | L + 4.77 | % | 4/9/2019 |
New York |
Multi | $705,469 / unit | 65 | % | 3 | ||||||||||||||||||||||||||||
82 | Senior loan | 6/29/2017 | 64.2 | 60.8 | 60.4 | L + 3.40 | % | L + 3.71 | % | 7/9/2023 |
New York |
Multi | $177,304 / unit | 69 | % | 3 | ||||||||||||||||||||||||||||
83 | Senior loan | 10/5/2018 | 60.6 | 60.6 | 60.0 | L + 5.50 | % | L + 5.65 | % | 10/5/2021 |
Sydney-AU |
Office | $644 / sqft | 78 | % | 3 | ||||||||||||||||||||||||||||
84 | Senior loan | 7/13/2017 | 86.3 | 60.0 | 59.5 | L + 3.75 | % | L + 4.18 | % | 8/9/2022 |
Honolulu |
Hotel | $192,926 / key | 66 | % | 3 | ||||||||||||||||||||||||||||
85 | Senior loan | 1/13/2014 | 60.0 | 60.0 | 59.9 | L + 3.45 | % | L + 3.71 | % | 6/9/2020 |
New York |
Office | $284 / sqft | 53 | % | 2 | ||||||||||||||||||||||||||||
86 | Senior loan | 10/6/2017 | 55.9 | 55.7 | 55.4 | L + 2.95 | % | L + 3.21 | % | 10/9/2022 |
Nashville |
Multi | $99,385 / unit | 74 | % | 3 | ||||||||||||||||||||||||||||
87 | Senior loan | 5/8/2017 | 80.0 | 54.5 | 53.7 | L + 3.75 | % | L + 4.74 | % | 5/8/2022 |
Washington DC |
Office | $373 / sqft | 73 | % | 3 | ||||||||||||||||||||||||||||
88 | Senior loan | 5/20/2015 | 53.7 | 53.7 | 53.7 | 5.47 | % (7) | 5.52 | % (7) | 6/30/2019 |
Charlotte |
Office | $106 / sqft | 71 | % | 3 | ||||||||||||||||||||||||||||
89 | Senior loan | 11/23/2016 | 55.4 | 51.9 | 51.7 | L + 3.50 | % | L + 3.80 | % | 12/9/2022 |
New York |
Multi | $216,432 / unit | 65 | % | 3 | ||||||||||||||||||||||||||||
90 | Senior loan | 11/1/2017 | 52.1 | 51.8 | 51.6 | L + 2.95 | % | L + 3.21 | % | 11/9/2022 |
Denver |
Multi | $154,127 / unit | 74 | % | 2 |
continued
83
Loan Type (1) |
Origination
Date (2) |
Total
Loan (3)(4) |
Principal
Balance (3)(4) |
Net Book
Value |
Cash
Coupon (5) |
All-in
Yield (5) |
Maximum
Maturity (6) |
Location |
Property
Type |
Loan Per
SQFT / Unit / Key |
LTV (2) |
Risk
Rating |
||||||||||||||||||||||||||||||||
91 | Senior loan | 12/27/2016 | 57.2 | 49.5 | 49.3 | L + 4.65 | % | L + 5.08 | % | 1/9/2022 |
New York |
Multi | $1,260,476 / unit | 64 | % | 3 | ||||||||||||||||||||||||||||
92 | Senior loan | 11/19/2015 | 48.7 | 46.0 | 45.9 | L + 4.00 | % | L + 4.50 | % | 10/9/2019 |
New York |
Office | $1,180 / sqft | 57 | % | 3 | ||||||||||||||||||||||||||||
93 | Senior loan | 5/28/2015 | 48.6 | 44.5 | 44.4 | L + 4.00 | % | L + 4.19 | % | 6/30/2020 |
Los Angeles |
Office | $50 / sqft | 53 | % | 2 | ||||||||||||||||||||||||||||
94 | Senior loan | 5/20/2015 | 45.0 | 44.0 | 43.9 | L + 3.00 | % | L + 3.08 | % | 11/1/2022 |
Los Angeles |
Office | $205 / sqft | 59 | % | 2 | ||||||||||||||||||||||||||||
95 | Senior loan | 9/25/2018 | 49.3 | 43.8 | 43.5 | L + 3.50 | % | L + 3.79 | % | 9/1/2023 |
Chicago |
Multi | $59,614 / unit | 70 | % | 3 | ||||||||||||||||||||||||||||
96 | Senior loan | 8/29/2017 | 51.2 | 43.5 | 43.2 | L + 3.10 | % | L + 3.52 | % | 10/9/2022 |
Southern California |
Industrial | $91 / sqft | 65 | % | 3 | ||||||||||||||||||||||||||||
97 | Senior loan | 5/24/2018 | 81.3 | 43.0 | 42.3 | L + 4.10 | % | L + 4.59 | % | 6/9/2023 |
Boston |
Office | $83 / sqft | 55 | % | 3 | ||||||||||||||||||||||||||||
98 | Senior loan | 10/6/2017 | 41.1 | 41.0 | 40.8 | L + 2.95 | % | L + 3.20 | % | 10/9/2022 |
Las Vegas |
Multi | $138,527 / unit | 77 | % | 2 | ||||||||||||||||||||||||||||
99 | Senior loan | 6/26/2015 | 42.1 | 40.2 | 40.1 | L + 3.75 | % | L + 4.14 | % | 7/9/2020 |
San Diego |
Office | $184 / sqft | 73 | % | 3 | ||||||||||||||||||||||||||||
100 | Senior loan | 11/30/2018 | 40.0 | 36.6 | 36.3 | L + 2.95 | % | L + 3.38 | % | 12/1/2023 |
Las Vegas |
Multi | $76,256 / unit | 70 | % | 3 | ||||||||||||||||||||||||||||
101 | Senior loan | 6/12/2014 | 33.8 | 33.8 | 33.6 | L + 4.00 | % | L + 4.23 | % | 6/30/2020 |
Los Angeles |
Office | $38 / sqft | 44 | % | 2 | ||||||||||||||||||||||||||||
102 | Senior loan | 1/30/2018 | 28.0 | 28.0 | 27.8 | L + 2.90 | % | L + 3.26 | % | 2/9/2023 |
Houston |
Multi | $135,266 / unit | 66 | % | 3 | ||||||||||||||||||||||||||||
103 | Senior loan | 3/1/2018 | 28.0 | 28.0 | 27.8 | L + 2.95 | % | L + 3.31 | % | 3/9/2023 |
Houston |
Multi | $102,564 / unit | 72 | % | 3 | ||||||||||||||||||||||||||||
104 | Senior loan | 11/16/2018 | 211.9 | 27.4 | 25.3 | L + 4.10 | % | L + 4.76 | % | 12/9/2023 |
Fort Lauderdale |
Mixed-Use | $72 / sqft | 59 | % | 3 | ||||||||||||||||||||||||||||
105 | Senior loan | 9/1/2017 | 32.3 | 26.9 | 26.7 | L + 4.15 | % | L + 4.57 | % | 9/9/2021 |
New York |
Condo | $288 / sqft | 64 | % | 3 | ||||||||||||||||||||||||||||
106 | Senior loan | 9/1/2016 | 26.2 | 26.2 | 26.3 | L + 4.20 | % | L + 4.74 | % | 9/1/2022 |
Atlanta |
Multi | $185,506 / unit | 72 | % | 2 | ||||||||||||||||||||||||||||
107 | Senior loan | 8/30/2018 | 28.7 | 25.6 | 25.5 | L + 3.00 | % | L + 3.42 | % | 9/1/2022 |
Boise |
Multi | $100,941 / unit | 73 | % | 3 | ||||||||||||||||||||||||||||
108 | Senior loan | 12/15/2017 | 22.5 | 22.5 | 22.3 | L + 3.25 | % | L + 4.31 | % | 12/9/2020 |
Diversified-US |
Hotel | $8,465 / key | 50 | % | 2 | ||||||||||||||||||||||||||||
109 | Senior loan | 12/21/2018 | 22.9 | 20.0 | 19.9 | L + 3.25 | % | L + 3.48 | % | 1/1/2024 |
Daytona Beach |
Multi | $74,627 / unit | 77 | % | 3 | ||||||||||||||||||||||||||||
110 | Senior loan | 6/4/2015 | 19.1 | 19.1 | 19.0 | 4.46 | % | 4.90 | % | 12/23/2021 |
Montreal-CAN |
Office | $52 / sqft | 45 | % | 2 | ||||||||||||||||||||||||||||
111 | Senior loan | 6/15/2018 | 22.0 | 18.5 | 18.5 | L + 3.35 | % | L + 3.43 | % | 7/1/2022 |
Phoenix |
Multi | $64,685 / unit | 78 | % | 3 | ||||||||||||||||||||||||||||
112 | Senior loan | 11/2/2017 | 17.9 | 16.5 | 16.5 | L + 3.90 | % | L + 4.01 | % | 11/1/2020 |
Phoenix |
Multi | $63,492 / unit | 59 | % | 2 | ||||||||||||||||||||||||||||
113 | Senior loan | 3/9/2018 | 17.8 | 16.5 | 16.5 | L + 3.75 | % | L + 3.77 | % | 4/1/2023 |
Los Angeles |
Multi | $127,257 / unit | 75 | % | 3 | ||||||||||||||||||||||||||||
114 | Senior loan | 6/4/2015 | 16.3 | 16.3 | 16.3 | 4.59 | % | 4.83 | % | 3/1/2019 |
Ontario-CAN |
Other | $47,926 / unit | 59 | % | 2 | ||||||||||||||||||||||||||||
115 | Senior loan | 6/4/2015 | 15.8 | 15.8 | 15.9 | 5.15 | % | 5.27 | % | 9/4/2020 |
Diversified-CAN |
Self-Storage | $3,436 / unit | 61 | % | 2 | ||||||||||||||||||||||||||||
116 | Senior loan | 10/31/2018 | 63.3 | 15.1 | 14.6 | L + 5.00 | % | L + 5.36 | % | 11/9/2023 |
New York |
Multi | $39,100 / unit | 57 | % | 3 | ||||||||||||||||||||||||||||
117 | Senior loan | 10/20/2017 | 17.2 | 14.0 | 13.9 | L + 4.25 | % | L + 4.35 | % | 11/1/2021 |
Houston |
Multi | $110,714 / unit | 56 | % | 3 | ||||||||||||||||||||||||||||
118 | Senior loan | 9/6/2017 | 13.3 | 13.3 | 13.3 | L + 4.50 | % | L + 4.54 | % | 4/1/2019 |
Austin |
Multi | $127,644 / unit | 67 | % | 3 | ||||||||||||||||||||||||||||
119 | Senior loan | 6/29/2018 | 11.6 | 11.6 | 11.6 | L + 2.95 | % | L + 3.32 | % | 7/1/2020 |
Washington DC |
Multi | $61,053 / unit | 60 | % | 2 | ||||||||||||||||||||||||||||
120 | Senior loan | 10/31/2018 | 59.3 | 10.7 | 10.3 | L + 5.00 | % | L + 5.53 | % | 11/9/2023 |
New York |
Condo | $45 / sqft | 64 | % | 3 |
continued
84
Loan Type (1) |
Origination
Date (2) |
Total
Loan (3)(4) |
Principal
Balance (3)(4) |
Net Book
Value |
Cash
Coupon (5) |
All-in
Yield (5) |
Maximum
Maturity (6) |
Location |
Property
Type |
Loan Per
SQFT / Unit / Key |
LTV (2) |
Risk
Rating |
||||||||||||||||||||||||||||||||
121 | Senior loan | 10/31/2018 | 10.0 | 10.0 | 10.0 | L + 3.35 | % | L + 3.58 | % | 11/1/2020 |
Boise |
Multi | $156,250 / unit | 74 | % | 2 | ||||||||||||||||||||||||||||
122 | Senior loan | 5/30/2018 | 10.1 | 8.7 | 8.7 | L + 3.90 | % | L + 3.98 | % | 6/1/2021 |
Phoenix |
Multi | $96,667 / unit | 74 | % | 3 | ||||||||||||||||||||||||||||
123 | Senior loan | 6/18/2014 | 7.5 | 7.5 | 7.5 | L + 4.00 | % | L + 4.50 | % | 7/20/2019 |
Diversified-NL |
Office | $43 / sqft | 69 | % | 1 | ||||||||||||||||||||||||||||
124 | Senior loan | 7/21/2017 | 7.3 | 7.3 | 7.3 | L + 5.00 | % | L + 5.02 | % | 7/1/2019 |
Phoenix |
Multi | $56,154 / unit | 78 | % | 3 | ||||||||||||||||||||||||||||
125 | Senior loan (3) | 9/22/2017 | 91.0 | 0.9 | (0.2 | ) | L + 5.25 | % | L + 6.48 | % | 10/9/2022 |
San Francisco |
Multi | $446,078 / unit | 46 | % | 3 | |||||||||||||||||||||||||||
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$ | 18,216.8 | $ | 14,740.8 | $ | 14,191.2 | 5.64 | % | 5.96 | % | 3.9 yrs | 64 | % | 2.7 | |||||||||||||||||||||||||||||||
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(1) |
Senior loans include senior mortgages and similar credit quality loans, including related contiguous subordinate loans and pari passu participations in senior mortgage loans. |
(2) |
Date loan was originated or acquired by us, and the LTV as of such date. Dates are not updated for subsequent loan modifications or upsizes. |
(3) |
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. As of December 31, 2018, three loans in our portfolio have been financed with an aggregate $446.9 million of non-consolidated senior interest, which are included in the table above. |
(4) |
Portfolio excludes our $99.0 million subordinate risk retention interest in the $1.0 billion 2018 Single Asset Securitization. Refer to Notes 5 and 16 to our consolidated financial statements for details of the 2018 Single Asset Securitization. |
(5) |
As of December 31, 2018, our floating rate loans were indexed to various benchmark rates, with 83% of floating rate loans by loan exposure indexed to USD LIBOR. In addition to cash coupon, all-in yield includes the amortization of deferred origination and extension fees, loan origination costs, and purchase discounts, as well as the accrual of exit fees. |
(6) |
Maximum maturity assumes all extension options are exercised, however our loans may be repaid prior to such date. |
(7) |
Loan consists of one or more floating and fixed rate tranches. Coupon and all-in yield assume applicable floating benchmark rates for weighted-average calculation. |
85
ITEM 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Interest Rate Risk
Loan Portfolio Net Interest Income
Generally, our business model is such that rising interest rates will increase our net income, while declining interest rates will decrease net income. As of December 31, 2018, 96% of our loans by total loan exposure earned a floating rate of interest and were financed with liabilities that pay interest at floating rates, which resulted in an amount of net equity that is positively correlated to rising interest rates, subject to the impact of interest rate floors on certain of our floating rate loans. As of December 31, 2018, the remaining 4% of our loans by total loan exposure earned a fixed rate of interest, but are financed with liabilities that pay interest at floating rates, which resulted in a negative correlation to rising interest rates to the extent of our financing. In certain instances where we have financed fixed rate assets with floating rate liabilities, we have purchased interest rate swaps or caps to limit our exposure to increases in interest rates on such liabilities.
The following table projects the impact on our interest income and expense, net of incentive fees, for the twelve-month period following December 31, 2018, assuming an immediate increase or decrease of both 25 and 50 basis points in the applicable interest rate benchmark by currency ($ in thousands):
Assets (Liabilities)
Sensitive to Changes |
Interest Rate Sensitivity as of December 31, 2018 | |||||||||||||||||||||||
Increase in Rates | Decrease in Rates | |||||||||||||||||||||||
Currency |
in Interest Rates (1)(2) | 25 Basis Points | 50 Basis Points | 25 Basis Points | 50 Basis Points | |||||||||||||||||||
USD |
$ | 11,702,058 | Income | $ | 23,281 | $ | 46,561 | $ | (22,988 | ) | $ | (44,702 | ) | |||||||||||
(8,678,603 | ) | Expense | (16,654 | ) | (33,480 | ) | 17,287 | 34,468 | ||||||||||||||||
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$ | 3,023,455 | Net interest | $ | 6,627 | $ | 13,081 | $ | (5,701 | ) | $ | (10,234 | ) | ||||||||||||
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GBP |
$ | 687,020 | Income | $ | 1,374 | $ | 2,748 | $ | (1,374 | ) | $ | (2,685 | ) | |||||||||||
(407,732 | ) | Expense | (815 | ) | (1,631 | ) | 815 | 1,631 | ||||||||||||||||
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$ | 279,288 | Net interest | $ | 559 | $ | 1,117 | $ | (559 | ) | $ | (1,054 | ) | ||||||||||||
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EUR |
$ | 1,209,877 | Income | $ | | $ | 1,360 | $ | | $ | | |||||||||||||
(918,871 | ) | Expense | | (1,013 | ) | | | |||||||||||||||||
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$ | 291,006 | Net interest | $ | | $ | 347 | $ | | $ | | ||||||||||||||
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CAD (3) |
$ | 196,548 | Income | $ | 393 | $ | 786 | $ | (393 | ) | $ | (786 | ) | |||||||||||
(193,372 | ) | Expense | (323 | ) | (683 | ) | 397 | 773 | ||||||||||||||||
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$ | 3,176 | Net interest | $ | 70 | $ | 103 | $ | 4 | $ | (13 | ) | |||||||||||||
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AUD |
$ | 312,893 | Income | $ | 626 | $ | 1,252 | $ | (626 | ) | $ | (1,252 | ) | |||||||||||
(179,940 | ) | Expense | (360 | ) | (720 | ) | 360 | 720 | ||||||||||||||||
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$ | 132,953 | Net interest | $ | 266 | $ | 532 | $ | (266 | ) | $ | (532 | ) | ||||||||||||
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Total net interest | $ | 7,522 | $ | 15,180 | $ | (6,522 | ) | $ | (11,833 | ) | ||||||||||||||
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(1) |
Our floating rate loans and related liabilities are indexed to the various benchmark rates relevant in each case in terms of currency and payment frequency. Therefore the net exposure to each benchmark rate is in direct proportion to our net assets indexed to that rate. Increases (decreases) in interest income and expense are presented net of incentive fees. Refer to Note 12 to our consolidated financial statements for additional details of our incentive fee calculation. |
(2) |
Includes borrowings under secured debt agreements, loan participations sold, non-consolidated senior interests, and securitized debt obligations. |
(3) |
Liabilities balance includes three interest rate swaps totaling C$90.5 million ($66.4 million as of December 31, 2018) that are used to hedge a portion of our fixed rate debt. |
86
Loan Portfolio Value
As of December 31, 2018, 4% of our loans by total loan exposure earned a fixed rate of interest and as such, the values of such loans are sensitive to changes in interest rates. We generally hold all of our loans to maturity and so do not expect to realize gains or losses on our fixed rate loan portfolio as a result of movements in market interest rates.
Risk of Non-Performance
In addition to the risks related to fluctuations in cash flows and asset values associated with movements in interest rates, there is also the risk of non-performance on floating rate assets. In the case of a significant increase in interest rates, the additional debt service payments due from our borrowers may strain the operating cash flows of the collateral real estate assets and, potentially, contribute to non-performance or, in severe cases, default. This risk is partially mitigated by various facts we consider during our underwriting process, which in certain cases include a requirement for our borrower to purchase an interest rate cap contract.
Credit Risks
Our loans and investments are also subject to credit risk. The performance and value of our loans and investments depend upon the sponsors ability to operate the properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due to us. To monitor this risk, our Managers 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
87
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$/A$ in thousands):
December 31, 2018 | ||||||||||||||||
Foreign currency assets (1) |
£ | 911,524 | | 1,064,476 | C$ | 435,484 | A$ | 449,533 | ||||||||
Foreign currency liabilities (1) |
(623,013 | ) | (797,560 | ) | (354,980 | ) | (256,796 | ) | ||||||||
Foreign currency contracts notional |
(192,300 | ) | (185,000 | ) | (70,600 | ) | (187,600 | ) | ||||||||
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Net exposure to exchange rate fluctuations |
£ | 96,211 | | 81,916 | C$ | 9,904 | A$ | 5,137 | ||||||||
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(1) |
Balances include non-consolidated senior interests of £302.0 million. |
December 31, 2017 | ||||||||||||
Foreign currency assets (1) |
£ | 652,211 | | 146,570 | C$ | 528,739 | ||||||
Foreign currency liabilities (1) |
(443,599 | ) | (66,682 | ) | (422,319 | ) | ||||||
Foreign currency contracts notional |
(112,700 | ) | | (95,100 | ) | |||||||
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Net exposure to exchange rate fluctuations |
£ | 95,912 | | 79,888 | C$ | 11,320 | ||||||
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(1) |
Balances include non-consolidated senior interests of £302.0 million |
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 $36.8 million and $30.6 million, respectively, as of December 31, 2018. Substantially all of our net asset exposure to the Canadian and Australian dollar has been hedged with foreign currency forward contracts.
ITEM 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The financial statements required by this item and the reports of the independent accountants thereon required by Item 14(a)(2) appear on pages F-2 to F-45. See accompanying Index to the Consolidated Financial Statements on page F-1. The supplementary financial data required by Item 302 of Regulation S-K appears in Note 19 to the consolidated financial statements.
ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
ITEM 9A. |
CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
The company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the companys reports under the Exchange Act is recorded, processed, and summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to the companys management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. An evaluation of
88
the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this annual report on Form 10-K 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 timely recorded, processed, summarized and reported 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
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a15(f) and 15d15(f) under the Exchange Act) that occurred during our most recent quarter, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Managements Report on Internal Control Over Financial Reporting
Management of Blackstone Mortgage Trust, Inc. and subsidiaries, or Blackstone Mortgage Trust, is responsible for establishing and maintaining adequate internal control over financial reporting. Blackstone Mortgage Trusts internal control over financial reporting is a process designed under the supervision of its Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of its consolidated financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America (generally accepted accounting principles).
Blackstone Mortgage Trusts internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of the company; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of the companys management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on its financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an assessment of the effectiveness of Blackstone Mortgage Trusts internal control over financial reporting as of December 31, 2018, based on the framework established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on this assessment, management has determined that Blackstone Mortgage Trusts internal control over financial reporting as of December 31, 2018, was effective.
Deloitte & Touche LLP, an independent registered public accounting firm, has audited Blackstone Mortgage Trusts financial statements included in this report on Form 10-K and issued its report on the effectiveness of Blackstone Mortgage Trusts internal control over financial reporting as of December 31, 2018, which is included herein.
ITEM 9B. |
OTHER INFORMATION |
None.
89
ITEM 10. |
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information required by this item is incorporated by reference to the companys definitive proxy statement to be filed not later than April 30, 2019 with the SEC pursuant to Regulation 14A under the Exchange Act.
ITEM 11. |
EXECUTIVE COMPENSATION |
The information required by this item is incorporated by reference to the companys definitive proxy statement to be filed not later than April 30, 2019 with the SEC pursuant to Regulation 14A under the Exchange Act.
ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Equity Compensation Plan Information
The following table summarizes information, as of December 31, 2018, relating to our equity compensation plans pursuant to which shares of our class A common stock or other equity securities may be granted from time to time:
Plan category |
(a)
Number of securities to be issued upon exercise of outstanding options, warrants, and rights |
(b)
Weighted-average exercise price of outstanding options, warrants, and rights |
(c)
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
|||||||||
Equity compensation plans approved by security holders (1) |
| $ | | 4,306,655 | ||||||||
Equity compensation plans not approved by security holders (2) |
| | | |||||||||
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|
|
|
|
|||||||
Total |
| $ | | 4,306,655 |
(1) |
The number of securities remaining for future issuances consists of an aggregate 4,306,655 shares issuable under our 2018 stock incentive plan and our 2018 manager incentive plan. Awards under the plans may include restricted stock, unrestricted stock, stock options, stock units, stock appreciation rights, performance shares, performance units, deferred share units, or other equity-based awards, as the board of directors may determine. |
(2) |
All of our equity compensation plans have been approved by security holders. |
The remaining information required by this item is incorporated by reference to the companys definitive proxy statement to be filed not later than April 30, 2019 with the SEC pursuant to Regulation 14A under the Exchange Act.
ITEM 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required by this item is incorporated by reference to the companys definitive proxy statement to be filed not later than April 30, 2019 with the SEC pursuant to Regulation 14A under the Exchange Act.
ITEM 14. |
PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information required by this item is incorporated by reference to the companys definitive proxy statement to be filed not later than April 30, 2019 with the SEC pursuant to Regulation 14A under the Exchange Act.
90
EXHIBIT INDEX
Exhibit Number |
Exhibit Description | |||
2.1 | ||||
3.1.a | ||||
3.1.b | ||||
3.1.c | ||||
3.1.d | ||||
3.1.e | ||||
3.1.f | ||||
3.1.g | ||||
3.2 | ||||
4.1 | ||||
4.2 | ||||
4.3 |
Form of 4.375% Convertible Senior Notes due 2022 (included as Exhibit A in Exhibit 4.2) |
|||
4.4 | ||||
4.5 |
Form of 4.75% Convertible Senior Notes due 2023 (included as Exhibit A in Exhibit 4.4) |
|||
10.1 | ||||
10.2 |
92
Exhibit Number |
Exhibit Description | |||
10.18 | + | |||
10.19 | +* |
Form of Restricted Stock Award of Blackstone Mortgage Trust, Inc. 2018 Stock Incentive Plan |
||
10.20 | + | |||
10.21 | +* |
Form of Restricted Stock Award of Blackstone Mortgage Trust, Inc. 2018 Manager Incentive Plan |
||
10.22 | + | |||
10.23 | ||||
10.24 | ||||
10.25 | ||||
10.26 | ||||
10.27 | ||||
10.28 | ||||
10.29 | ||||
10.30 | ||||
10.31 |
94
Exhibit Number |
Exhibit Description | |||
21.1 | * | |||
23.1 | * | |||
31.1 | * | |||
31.2 | * | |||
32.1 | * | |||
32.2 | * | |||
101.INS | ++ |
XBRL Instance Document |
||
101.SCH | ++ |
XBRL Taxonomy Extension Schema Document |
||
101.CAL | ++ |
XBRL Taxonomy Extension Calculation Linkbase Document |
||
101.LAB | ++ |
XBRL Taxonomy Extension Label Linkbase Document |
||
101.PRE | ++ |
XBRL Taxonomy Extension Presentation Linkbase Document |
||
101.DEF | ++ |
XBRL Taxonomy Extension Definition Linkbase Document |
* |
Filed herewith. |
+ |
This document has been identified as a management contract or compensatory plan or arrangement. |
++ |
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.
ITEM 16. |
FORM 10-K SUMMARY |
None.
98
Pursuant to the requirements of Section 13 or Section 15(d) 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. |
||||
February 12, 2019 |
By: |
/s/ Stephen D. Plavin |
||
Date |
Stephen D. Plavin Chief Executive Officer (Principal Executive Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
February 12, 2019 Date |
/s/ Michael B. Nash Michael B. Nash Executive Chairman of the Board of Directors |
|||
February 12, 2019 Date |
/s/ Stephen D. Plavin Stephen D. Plavin Chief Executive Officer and Director (Principal Executive Officer) |
|||
February 12, 2019 Date |
/s/ Anthony F. Marone, Jr. Anthony F. Marone, Jr. Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
|||
February 12, 2019 Date |
/s/ Leonard W. Cotton Leonard W. Cotton, Director |
|||
February 12, 2019 Date |
/s/ Thomas E. Dobrowksi Thomas E. Dobrowski, Director |
|||
February 12, 2019 Date |
/s/ Martin L. Edelman Martin L. Edelman, Director |
|||
February 12, 2019 Date |
/s/ Henry N. Nassau Henry N. Nassau, Director |
|||
February 12, 2019 Date |
/s/ Jonathan L. Pollack Jonathan L. Pollack, Director |
|||
February 12, 2019 Date |
/s/ Lynne B. Sagalyn Lynne B. Sagalyn, Director |
99
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Schedules other than those listed are omitted as they are not applicable or the required or equivalent information has been included in the consolidated financial statements or notes thereto.
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of
Blackstone Mortgage Trust, Inc.
New York, New York
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Blackstone Mortgage Trust, Inc. and subsidiaries (the Company) as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2018, and the related notes and the schedule listed in the Index at Item 15(a) (collectively referred to as the financial statements). We also have audited the Companys internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control Integrated Framework (2013) issued by COSO.
Basis for Opinions
The Companys management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Companys internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
F-2
accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
New York, New York
February 12, 2019
We have served as the Companys auditor since 2013
F-3
Blackstone Mortgage Trust, Inc.
(in thousands, except share data)
December 31,
2018 |
December 31,
2017 |
|||||||
Assets |
||||||||
Cash and cash equivalents |
$ | 105,662 | $ | 69,654 | ||||
Restricted cash |
| 32,864 | ||||||
Loans receivable, net |
14,191,200 | 10,056,732 | ||||||
Other assets |
170,513 | 99,575 | ||||||
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|
|
|
|||||
Total Assets |
$ | 14,467,375 | $ | 10,258,825 | ||||
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|
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Liabilities and Equity |
||||||||
Secured debt agreements, net |
$ | 8,974,756 | $ | 5,273,855 | ||||
Loan participations sold, net |
94,418 | 80,415 | ||||||
Securitized debt obligations, net |
1,285,471 | 1,282,412 | ||||||
Convertible notes, net |
609,911 | 563,911 | ||||||
Other liabilities |
128,212 | 140,826 | ||||||
|
|
|
|
|||||
Total Liabilities |
11,092,768 | 7,341,419 | ||||||
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|
|||||
Commitments and contingencies |
| | ||||||
Equity |
||||||||
Class A common stock, $0.01 par value, 200,000,000 shares authorized, 123,435,738 and 107,883,860 shares issued and outstanding as of December 31, 2018 and 2017, respectively |
1,234 | 1,079 | ||||||
Additional paid-in capital |
3,966,540 | 3,506,861 | ||||||
Accumulated other comprehensive loss |
(34,222 | ) | (29,706 | ) | ||||
Accumulated deficit |
(569,428 | ) | (567,168 | ) | ||||
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|
|
|
|||||
Total Blackstone Mortgage Trust, Inc. stockholders equity |
3,364,124 | 2,911,066 | ||||||
Non-controlling interests |
10,483 | 6,340 | ||||||
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|
|
|||||
Total Equity |
3,374,607 | 2,917,406 | ||||||
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|
|
|||||
Total Liabilities and Equity |
$ | 14,467,375 | $ | 10,258,825 | ||||
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|
Note: The consolidated balance sheets as of December 31, 2018 and December 31, 2017 include assets of consolidated variable interest entities, or VIEs, that can only be used to settle obligations of each respective VIE, and liabilities of consolidated VIEs for which creditors do not have recourse to Blackstone Mortgage Trust, Inc. As of both December 31, 2018 and December 31, 2017, assets of the consolidated VIEs totaled $1.5 billion and liabilities of the consolidated VIEs totaled $1.3 billion. Refer to Note 16 for additional discussion of the VIEs.
See accompanying notes to consolidated financial statements.
F-4
Blackstone Mortgage Trust, Inc.
Consolidated Statements of Operations
(in thousands, except share and per share data)
Year Ended December 31, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
Income from loans and other investments |
||||||||||||
Interest and related income |
$ | 756,109 | $ | 537,915 | $ | 497,974 | ||||||
Less: Interest and related expenses |
359,625 | 234,870 | 184,270 | |||||||||
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|
|
|
|
|
|||||||
Income from loans and other investments, net |
396,484 | 303,045 | 313,704 | |||||||||
Other expenses |
||||||||||||
Management and incentive fees |
74,834 | 54,841 | 55,959 | |||||||||
General and administrative expenses |
35,529 | 29,922 | 27,716 | |||||||||
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|
|
|
|
|||||||
Total other expenses |
110,363 | 84,763 | 83,675 | |||||||||
Gain on investments at fair value |
| | 13,420 | |||||||||
Income from equity investment in unconsolidated subsidiary |
| | 3,187 | |||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
286,121 | 218,282 | 246,636 | |||||||||
Income tax provision |
308 | 314 | 196 | |||||||||
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|
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|
|||||||
Net income |
285,813 | 217,968 | 246,440 | |||||||||
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Net income attributable to non-controlling interests |
(735 | ) | (337 | ) | (8,143 | ) | ||||||
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Net income attributable to Blackstone Mortgage Trust, Inc. |
$ | 285,078 | $ | 217,631 | $ | 238,297 | ||||||
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Net income per share of common stock basic and diluted |
$ | 2.50 | $ | 2.27 | $ | 2.53 | ||||||
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|||||||
Weighted-average shares of common stock outstanding, basic and diluted |
113,857,238 | 95,963,616 | 94,165,351 | |||||||||
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See accompanying notes to consolidated financial statements.
F-5
Blackstone Mortgage Trust, Inc.
Consolidated Statements of Comprehensive Income
(in thousands)
Year Ended December 31, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
Net income |
$ | 285,813 | $ | 217,968 | $ | 246,440 | ||||||
Other comprehensive income |
||||||||||||
Unrealized (loss) gain on foreign currency translation |
(44,317 | ) | 47,124 | (49,686 | ) | |||||||
Realized and unrealized gain (loss) on derivative financial instruments |
39,801 | (20,628 | ) | 26,242 | ||||||||
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|
|||||||
Other comprehensive (loss) income |
(4,516 | ) | 26,496 | (23,444 | ) | |||||||
|
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|
|
|
|||||||
Comprehensive income |
281,297 | 244,464 | 222,996 | |||||||||
Comprehensive income attributable to non-controlling interests |
(735 | ) | (337 | ) | (8,143 | ) | ||||||
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|
|||||||
Comprehensive income attributable to Blackstone Mortgage Trust, Inc. |
$ | 280,562 | $ | 244,127 | $ | 214,853 | ||||||
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|
|
|
See accompanying notes to consolidated financial statements.
F-6
Blackstone Mortgage Trust, Inc.
Consolidated Statements of Changes in Equity
(in thousands)
Blackstone Mortgage Trust, Inc. | ||||||||||||||||||||||||||||
Class A
Common Stock |
Additional Paid-
In Capital |
Accumulated Other
Comprehensive (Loss) Income |
Accumulated
Deficit |
Stockholders
Equity |
Non-Controlling
Interests |
Total
Equity |
||||||||||||||||||||||
Balance at December 31, 2015 |
$ | 937 | $ | 3,070,200 | $ | (32,758 | ) | $ | (545,791 | ) | $ | 2,492,588 | $ | 13,143 | $ | 2,505,731 | ||||||||||||
Shares of class A common stock issued, net |
8 | | | | 8 | | 8 | |||||||||||||||||||||
Restricted class A common stock earned |
| 19,045 | | | 19,045 | | 19,045 | |||||||||||||||||||||
Dividends reinvested |
| 377 | | (350 | ) | 27 | | 27 | ||||||||||||||||||||
Deferred directors compensation |
| 375 | | | 375 | | 375 | |||||||||||||||||||||
Other comprehensive loss |
| | (23,444 | ) | | (23,444 | ) | | (23,444 | ) | ||||||||||||||||||
Net income |
| | | 238,297 | 238,297 | 8,143 | 246,440 | |||||||||||||||||||||
Dividends declared on common stock, $2.48 per share |
| | | (233,293 | ) | (233,293 | ) | | (233,293 | ) | ||||||||||||||||||
Distributions to non-controlling interests |
| | | | | (21,286 | ) | (21,286 | ) | |||||||||||||||||||
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Balance at December 31, 2016 |
$ | 945 | $ | 3,089,997 | $ | (56,202 | ) | $ | (541,137 | ) | $ | 2,493,603 | $ | | $ | 2,493,603 | ||||||||||||
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|||||||||||||||
Shares of class A common stock issued, net |
134 | 391,434 | | | 391,568 | | 391,568 | |||||||||||||||||||||
Restricted class A common stock earned |
| 23,584 | | | 23,584 | | 23,584 | |||||||||||||||||||||
Issuance of convertible notes |
| 964 | | | 964 | | 964 | |||||||||||||||||||||
Dividends reinvested |
| 444 | | (400 | ) | 44 | | 44 | ||||||||||||||||||||
Deferred directors compensation |
| 438 | | | 438 | | 438 | |||||||||||||||||||||
Other comprehensive loss |
| | 26,496 | | 26,496 | | 26,496 | |||||||||||||||||||||
Net income |
| | | 217,631 | 217,631 | 337 | 217,968 | |||||||||||||||||||||
Dividends declared on common stock, $2.48 per share |
| | | (243,262 | ) | (243,262 | ) | | (243,262 | ) | ||||||||||||||||||
Contributions from non-controlling interests |
| | | | | 12,165 | 12,165 | |||||||||||||||||||||
Distributions to non-controlling interests |
| | | | | (6,162 | ) | (6,162 | ) | |||||||||||||||||||
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|||||||||||||||
Balance at December 31, 2017 |
$ | 1,079 | $ | 3,506,861 | $ | (29,706 | ) | $ | (567,168 | ) | $ | 2,911,066 | $ | 6,340 | $ | 2,917,406 | ||||||||||||
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Shares of class A common stock issued, net |
155 | 476,275 | | | 476,430 | | 476,430 | |||||||||||||||||||||
Restricted class A common stock earned |
| 27,644 | | | 27,644 | | 27,644 | |||||||||||||||||||||
Issuance of convertible notes |
| 1,462 | | | 1,462 | | 1,462 | |||||||||||||||||||||
Conversion of convertible notes |
| (46,720 | ) | | | (46,720 | ) | | (46,720 | ) | ||||||||||||||||||
Dividends reinvested |
| 518 | | (465 | ) | 53 | | 53 | ||||||||||||||||||||
Deferred directors compensation |
| 500 | | | 500 | | 500 | |||||||||||||||||||||
Other comprehensive income |
| | (4,516 | ) | | (4,516 | ) | | (4,516 | ) | ||||||||||||||||||
Net income |
| | | 285,078 | 285,078 | 735 | 285,813 | |||||||||||||||||||||
Dividends declared on common stock, $2.48 per share |
| | | (286,873 | ) | (286,873 | ) | | (286,873 | ) | ||||||||||||||||||
Contributions from non-controlling interests |
| | | | | 9,315 | 9,315 | |||||||||||||||||||||
Distributions to non-controlling interests |
| | | | | (5,907 | ) | (5,907 | ) | |||||||||||||||||||
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|||||||||||||||
Balance at December 31, 2018 |
$ | 1,234 | $ | 3,966,540 | $ | (34,222 | ) | $ | (569,428 | ) | $ | 3,364,124 | $ | 10,483 | $ | 3,374,607 | ||||||||||||
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See accompanying notes to consolidated financial statements
F-7
Blackstone Mortgage Trust, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
Cash flows from operating activities |
||||||||||||
Net income |
$ | 285,813 | $ | 217,968 | $ | 246,440 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities |
||||||||||||
Non-cash compensation expense |
28,154 | 24,031 | 21,899 | |||||||||
Amortization of deferred fees on loans and debt securities |
(47,093 | ) | (38,373 | ) | (40,345 | ) | ||||||
Amortization of deferred financing costs and premiums/ discount on debt obligations |
28,097 | 21,988 | 19,339 | |||||||||
Gain on investments at fair value |
| | (13,420 | ) | ||||||||
Income from equity investment in unconsolidated subsidiary |
| | (3,187 | ) | ||||||||
Distributions of income from unconsolidated subsidiary |
| | 9,977 | |||||||||
Changes in assets and liabilities, net |
||||||||||||
Other assets |
(23,352 | ) | (4,632 | ) | 6,069 | |||||||
Other liabilities |
18,383 | 6,479 | (10,120 | ) | ||||||||
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|||||||
Net cash provided by operating activities |
290,002 | 227,461 | 236,652 | |||||||||
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Cash flows from investing activities |
||||||||||||
Origination and fundings of loans receivable |
(7,890,051 | ) | (3,598,166 | ) | (3,151,882 | ) | ||||||
Principal collections and sales proceeds from loans receivable |
3,084,747 | 2,780,431 | 3,514,429 | |||||||||
Loan contributed to securitization |
512,002 | | | |||||||||
Investment in debt securities held-to-maturity |
(95,937 | ) | | | ||||||||
Origination and exit fees received on loans receivable |
104,408 | 55,441 | 44,697 | |||||||||
Receipts under derivative financial instruments |
47,527 | 6,453 | 41,573 | |||||||||
Payments under derivative financial instruments |
(18,475 | ) | (20,870 | ) | (14,730 | ) | ||||||
Return of collateral deposited under derivative agreements |
43,110 | 16,120 | | |||||||||
Collateral deposited under derivative agreements |
(38,990 | ) | (20,161 | ) | | |||||||
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|
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Net cash (used in) provided by investing activities |
(4,251,659 | ) | (780,752 | ) | 434,087 | |||||||
|
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|
|
|
continued
See accompanying notes to consolidated financial statements.
F-8
Blackstone Mortgage Trust, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
Cash flows from financing activities |
||||||||||||
Borrowings under secured debt agreements |
$ | 9,183,852 | $ | 4,306,301 | $ | 3,185,933 | ||||||
Repayments under secured debt agreements |
(5,413,070 | ) | (4,778,194 | ) | (3,534,803 | ) | ||||||
Proceeds from issuance of collateralized loan obligations |
| 817,500 | | |||||||||
Proceeds from sale of loan participations |
99,696 | 80,706 | 54,441 | |||||||||
Repayment of loan participations |
(85,875 | ) | (381,310 | ) | (136,000 | ) | ||||||
Payment of deferred financing costs |
(25,006 | ) | (27,465 | ) | (15,350 | ) | ||||||
Contributions from non-controlling interests |
9,315 | 12,165 | | |||||||||
Distributions to non-controlling interests |
(5,907 | ) | (6,162 | ) | (21,070 | ) | ||||||
Net proceeds from issuance of convertible notes |
214,775 | 394,632 | | |||||||||
Repayment of convertible notes |
(219,232 | ) | | | ||||||||
Net proceeds from issuance of class A common stock |
476,420 | 391,558 | 27 | |||||||||
Dividends paid on class A common stock |
(277,260 | ) | (234,989 | ) | (232,775 | ) | ||||||
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|
|||||||
Net cash provided by (used in) financing activities |
3,957,708 | 574,742 | (699,597 | ) | ||||||||
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|
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Net (decrease) increase in cash, cash equivalents, and restricted cash |
(3,949 | ) | 21,451 | (28,858 | ) | |||||||
Cash, cash equivalents, and restricted cash at beginning of year |
102,518 | 75,567 | 106,006 | |||||||||
Effects of currency translation on cash, cash equivalents, and restricted cash |
7,093 | 5,500 | (1,581 | ) | ||||||||
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Cash, cash equivalents, and restricted cash at end of year |
$ | 105,662 | $ | 102,518 | $ | 75,567 | ||||||
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Supplemental disclosure of cash flows information |
||||||||||||
Payments of interest |
$ | (318,919 | ) | $ | (206,966 | ) | $ | (164,905 | ) | |||
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Payments of income taxes |
$ | (554 | ) | $ | (296 | ) | $ | (286 | ) | |||
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Supplemental disclosure of non-cash investing and financing activities |
||||||||||||
Dividends declared, not paid |
$ | (76,530 | ) | $ | (66,888 | ) | $ | (58,615 | ) | |||
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Loan principal payments held by servicer, net |
$ | 4,855 | $ | 15,763 | $ | 670 | ||||||
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Consolidation of loans receivable of a VIE |
$ | | $ | 500,000 | $ | | ||||||
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Consolidation of securitized debt obligations of a VIE |
$ | | $ | (474,620 | ) | $ | | |||||
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See accompanying notes to consolidated financial statements.
F-9
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements
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 senior loans collateralized by commercial real estate in North America, Europe, and Australia. Our investment objective is to preserve and protect shareholder capital while producing attractive risk-adjusted returns primarily through dividends generated from current income from our loan portfolio. We are externally managed by BXMT Advisors L.L.C., or our Manager, a subsidiary of The Blackstone Group L.P., or Blackstone, and are a real estate investment trust, or REIT, traded on the New York Stock Exchange, or NYSE, under the symbol BXMT. Our principal executive offices are located at 345 Park Avenue, 42 nd Floor, New York, New York 10154. We were incorporated in Maryland in 1998, when we reorganized from a California common law business trust into a Maryland corporation.
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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, and 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.
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 VIEs economic performance and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE.
In the third quarter of 2018, we contributed a loan to a single asset securitization vehicle, or the 2018 Single Asset Securitization, which is a VIE, and invested in the related subordinate risk retention position. We are not the primary beneficiary of the VIE because we do not have the power to direct the activities that most significantly affect the VIEs economic performance and, therefore, do not consolidate the 2018 Single Asset Securitization on our balance sheet. We have classified the subordinate risk retention position as a held-to-maturity debt security that is included in other assets on our consolidated balance sheets. Refer to Note 16 for additional discussion of our VIEs.
F-10
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
In April 2017, we entered into a joint venture, or our Multifamily Joint Venture, with Walker & Dunlop Inc. to originate, hold, and finance multifamily bridge loans. Pursuant to the terms of the agreements governing the joint venture, Walker & Dunlop contributed 15% of the ventures equity capital and we contributed 85%. We consolidate the Multifamily Joint Venture as we have a controlling financial interest. The non-controlling interests included on our consolidated balance sheets represent the equity interests in our Multifamily Joint Venture that are owned by Walker & Dunlop. A portion of our Multifamily Joint Ventures consolidated equity and results of operations are allocated to these non-controlling interests based on Walker & Dunlops pro rata ownership of our Multifamily Joint Venture.
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 portfolio and debt securities 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 and recorded over the term of the loan or debt security 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, Cash Equivalents, and Restricted Cash
Cash and cash equivalents represent cash held in banks 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 represents cash held in a segregated bank account related to a letter of credit.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash in our consolidated balance sheets to the total amount shown in our consolidated statements of cash flows ($ in thousands):
December 31,
2018 |
December 31,
2017 |
|||||||
Cash and cash equivalents |
$ | 105,662 | $ | 69,654 | ||||
Restricted cash |
| 32,864 | ||||||
|
|
|
|
|||||
Total cash, cash equivalents, and restricted cash shown in our consolidated statements of cash flows |
$ | 105,662 | $ | 102,518 | ||||
|
|
|
|
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
F-11
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
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 it 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:
1 |
Very Low Risk |
2 |
Low Risk |
3 |
Medium Risk |
4 |
High Risk/Potential for Loss: A loan that has a risk of realizing a principal loss. |
5 |
Impaired/Loss Likely: A loan that has a very high risk of realizing a principal loss or has otherwise incurred a principal loss. |
Equity Investment in Unconsolidated Subsidiary
Our carried interest in CT Opportunity Partners I, LP, or CTOPI, was accounted for using the equity method. CTOPIs assets and liabilities were not consolidated into our financial statements due to our determination that (i) it was not a VIE and (ii) the other investors in CTOPI had sufficient rights to preclude consolidation by us. As such, we reported our allocable percentage of the net assets of CTOPI on our consolidated balance sheets. The investment was fully realized as of December 31, 2016 and we no longer have any equity investments in unconsolidated subsidiaries in our consolidated financial statements.
Debt Securities Held-to-Maturity
We classify our debt securities as held-to-maturity, as we have the intent and ability to hold these securities until maturity. We include our debt securities in other assets on our consolidated balance sheets at amortized cost.
If, based on current information and events, there is an adverse change in cash flows expected to be collected from the cash flows previously projected for one of our debt securities, an other-than-temporary impairment is deemed to have occurred. A change in expected cash flows is considered adverse if the present value of the revised cash flows (taking into consideration both the timing and amount of cash flows expected to be collected), discounted using the debt securitys current yield, is less than the present value of the previously estimated remaining cash flows. If an other-than-temporary impairment is considered to have occurred, the debt security is written down to fair value. The total other-than-temporary impairment is bifurcated into (i) the amount related to expected credit losses, and (ii) the amount related to fair value adjustments in excess of expected credit losses. The other-than-temporary impairment related to expected credit losses is calculated by comparing the amortized cost basis of the security to the present value of cash flows expected to be collected, discounted at the securitys current yield, and is recognized in earnings in the consolidated statement of operations. The remaining other-
F-12
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
than-temporary impairment that is not related to expected credit losses is recognized in other comprehensive income (loss). A portion of other-than-temporary impairments recognized through earnings is accreted back to the amortized cost basis of the security through interest income, while amounts recognized through other comprehensive income (loss) are amortized over the life of the security with no impact on earnings.
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 non-designated hedge. For all derivatives other than those designated as non-designated hedges, we formally document our hedge relationships and designation at the contracts 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 and the changes in fair value of the instrument are included in net income prospectively. Changes in the fair value of our derivative instruments that qualify as hedges are reported as a component of accumulated other comprehensive income (loss) on our consolidated financial statements. Deferred gains and losses are reclassified out of accumulated other comprehensive income (loss) and into net income in the same period or periods during which the hedged transaction affects earnings, and are presented in the same line item as the earnings effect of the hedged item. For cash flow hedges, this is typically when the periodic swap settlements are made, while for net investment hedges, this occurs when the hedged item is sold or substantially liquidated. To the extent a derivative does not qualify for hedge accounting and is deemed a non-designated hedge, the changes in its fair value are included in net income concurrently.
Secured Debt Agreements
Where applicable, 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.
Senior Loan Participations
In certain instances, we finance our loans through the non-recourse syndication of a senior loan interest to a third-party. Depending on the particular structure of the syndication, the senior loan interest may remain on our GAAP balance sheet or, in other cases, the sale will be recognized and the senior loan interest will no longer be included in our consolidated financial statements. When these sales are not recognized under GAAP we reflect the transaction by recording a loan participations sold liability on our consolidated balance sheet, however this gross presentation does not impact stockholders equity or net income. When the sales are recognized, our balance sheet only includes our remaining subordinate loan and not the non-consolidated senior interest we sold.
F-13
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
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 issuers 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 respective issuance dates based on our nonconvertible debt borrowing rate. The equity component of each series of our 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 such 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 such 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 of the FASB, 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. |
F-14
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
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 15. 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 Managers estimation of the 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.
We are also required by GAAP to disclose fair value information about financial instruments, which 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 and cash equivalents approximates fair value. |
|
Restricted cash: The carrying amount of restricted cash approximates fair value. |
|
Loans receivable, net: The fair values of these loans were estimated by our Manager based on a discounted cash flow methodology, taking into consideration various 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. |
|
Debt securities held-to-maturity: The fair value of these instruments was estimated by utilizing third-party pricing service providers. In determining the value of a particular investment, pricing service providers may use broker-dealer quotations, reported trades, or valuation estimates from their internal pricing models to determine the reported price. |
|
Derivative financial instruments: The fair value of our foreign currency and interest rate contracts was estimated 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, net: The fair value of these instruments was estimated based on the rate at which a similar credit facility would currently be priced. |
|
Loan participations sold, net: The fair value of these instruments was estimated based on the value of the related loan receivable asset. |
|
Securitized debt obligations, net: The fair value of these instruments was estimated by utilizing third-party pricing service providers. In determining the value of a particular investment, pricing service providers may use broker-dealer quotations, reported trades, or valuation estimates from their internal pricing models to determine the reported price. |
|
Convertible notes, net: Each series of the convertible notes is actively traded and their fair values were obtained using quoted market prices. |
F-15
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
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 13 for additional information.
Stock-Based Compensation
Our stock-based compensation consists of awards issued to our Manager and certain individuals employed by an affiliate of our Manager 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 14 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 our 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 our class A common stock, including restricted class A common stock and deferred stock units. Refer to Note 11 for additional discussion of earnings per share.
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 (loss).
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 June 2018, the FASB issued ASU 2018-07 Compensation Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, or ASU 2018-07. ASU 2018-07 expands the scope of Topic
F-16
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
718 to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance is intended to align the accounting for such payments to nonemployees with the existing requirements for share-based payments granted to employees. Upon adoption of ASU 2018-07, the cost of our long-term incentive plans will be a fixed amount determined based on the grant date fair value of shares granted, rather than the prior methodology that recognizes a variable cost based on the fair value of such shares as of their vesting dates. ASU 2018-07 is to be adopted through a cumulative-effect adjustment to retained earnings for outstanding share-based payments to nonemployees as of the beginning of the fiscal year in which the guidance is effective. We adopted ASU 2018-07 in the third quarter of 2018 and it did not have an impact on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13 Financial Instruments Credit Losses Measurement of Credit Losses on Financial Instruments (Topic 326), or ASU 2016-13. ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 will replace the incurred loss model under existing guidance with an expected loss model for instruments measured at amortized cost, and require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 and is to be adopted through a cumulative-effect adjustment to retained earnings as of January 1, 2020. While we are currently evaluating the impact ASU 2016-13 will have on our consolidated financial statements, we expect that the adoption will result in an increased amount of provisions for potential loan losses as well as the recognition of such provisions earlier in the lending cycle. We currently do not have any provision for loan losses in 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 adopted ASU 2014-09 in the first quarter of 2018 and it did not have a material impact on our consolidated financial statements.
3. LOANS RECEIVABLE, NET
The following table details overall statistics for our loans receivable portfolio ($ in thousands):
December 31,
2018 |
December 31,
2017 |
|||||||
Number of loans |
125 | 110 | ||||||
Principal balance |
$ | 14,293,970 | $ | 10,108,226 | ||||
Net book value |
$ | 14,191,200 | $ | 10,056,732 | ||||
Unfunded loan commitments (1) |
$ | 3,405,945 | $ | 1,573,107 | ||||
Weighted-average cash coupon (2) |
5.67 | % | 5.55 | % | ||||
Weighted-average all-in yield (2) |
6.00 | % | 5.95 | % | ||||
Weighted-average maximum maturity (years) (3) |
3.9 | 3.5 |
(1) |
Unfunded commitments will primarily be funded to finance our borrowers construction or development of real estate-related assets, capital improvements of existing assets, or lease-related expenditures. These commitments will generally be funded over the term of each loan, subject in certain cases to an expiration date. |
(2) |
As of December 31, 2018, 98% of our loans by principal balance earned a floating rate of interest, primarily indexed to USD LIBOR, and 2% earned a fixed rate of interest. As of December 31, 2017, 97% of our loans by principal balance earned a floating rate of interest, primarily indexed to USD LIBOR, and 3% earned a fixed rate of interest. Cash coupon and all-in yield assume applicable floating benchmark rates as of December 31, 2018 and December 31, 2017, respectively, for weighted-average calculation. In addition to cash coupon, all-in yield includes the amortization of deferred origination and extension fees, loan origination costs, and purchase discounts, as well as the accrual of exit fees. |
(3) |
Maximum maturity assumes all extension options are exercised by the borrower, however our loans may be repaid prior to such date. As of both December 31, 2018 and 2017, 75% of our loans by principal balance were subject to yield maintenance or other prepayment restrictions and 25% were open to repayment by the borrower without penalty. |
F-17
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
Activity relating to our loans receivable portfolio was as follows ($ in thousands):
Principal
Balance |
Deferred Fees /
Other Items (1) |
Net Book
Value |
||||||||||
December 31, 2016 |
$ | 8,727,218 | $ | (34,240 | ) | $ | 8,692,978 | |||||
Loan fundings |
4,072,786 | | 4,072,786 | |||||||||
Loan repayments |
(2,828,610 | ) | | (2,828,610 | ) | |||||||
Unrealized gain (loss) on foreign currency translation |
136,832 | (186 | ) | 136,646 | ||||||||
Deferred fees and other items |
| (55,441 | ) | (55,441 | ) | |||||||
Amortization of fees and other items |
| 38,373 | 38,373 | |||||||||
|
|
|
|
|
|
|||||||
December 31, 2017 |
$ | 10,108,226 | $ | (51,494 | ) | $ | 10,056,732 | |||||
|
|
|
|
|
|
|||||||
Loan fundings |
7,890,051 | | 7,890,051 | |||||||||
Loan repayments |
(3,035,383 | ) | | (3,035,383 | ) | |||||||
Loan contributed to securitization |
(517,500 | ) | 5,498 | (512,002 | ) | |||||||
Unrealized (loss) gain on foreign currency translation |
(151,424 | ) | 770 | (150,654 | ) | |||||||
Deferred fees and other items |
| (104,408 | ) | (104,408 | ) | |||||||
Amortization of fees and other items |
| 46,864 | 46,864 | |||||||||
|
|
|
|
|
|
|||||||
December 31, 2018 |
$ | 14,293,970 | $ | (102,770 | ) | $ | 14,191,200 | |||||
|
|
|
|
|
|
(1) |
Other items primarily consist of purchase discounts or premiums, exit fees, and deferred origination expenses. |
F-18
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
The tables below detail the property type and geographic distribution of the properties securing the loans in our portfolio ($ in thousands):
December 31, 2018 |
||||||||||||||||
Property Type |
Number of
Loans |
Net
Book Value |
Total Loan
Exposure (1)(2) |
Percentage of
Portfolio |
||||||||||||
Office |
55 | $ | 7,066,611 | $ | 7,125,991 | 49 | % | |||||||||
Hotel |
18 | 2,541,283 | 2,623,161 | 18 | ||||||||||||
Multifamily |
34 | 1,961,522 | 1,973,084 | 13 | ||||||||||||
Spanish Assets |
1 | 1,124,174 | 1,131,334 | 8 | ||||||||||||
Industrial |
5 | 609,261 | 613,774 | 4 | ||||||||||||
Retail |
4 | 348,961 | 350,112 | 2 | ||||||||||||
Self-Storage |
2 | 277,318 | 278,880 | 2 | ||||||||||||
Condominium |
3 | 92,557 | 154,766 | 1 | ||||||||||||
Other |
3 | 169,513 | 489,742 | 3 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
125 | $ | 14,191,200 | $ | 14,740,844 | 100 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Geographic Location |
Number of
Loans |
Net
Book Value |
Total Loan
Exposure (1)(2) |
Percentage of
Portfolio |
||||||||||||
United States |
||||||||||||||||
Northeast |
32 | $ | 4,322,114 | $ | 4,359,938 | 31 | % | |||||||||
West |
29 | 3,137,072 | 3,222,706 | 22 | ||||||||||||
Southeast |
19 | 2,258,033 | 2,271,664 | 15 | ||||||||||||
Midwest |
9 | 1,161,637 | 1,170,619 | 8 | ||||||||||||
Southwest |
13 | 478,665 | 481,745 | 3 | ||||||||||||
Northwest |
4 | 238,844 | 239,872 | 2 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Subtotal |
106 | 11,596,365 | 11,746,544 | 81 | ||||||||||||
International |
||||||||||||||||
Spain |
1 | 1,124,174 | 1,131,334 | 8 | ||||||||||||
United Kingdom |
7 | 754,299 | 1,094,663 | 7 | ||||||||||||
Canada |
5 | 316,268 | 313,229 | 2 | ||||||||||||
Australia |
3 | 310,372 | 312,893 | 2 | ||||||||||||
Belgium |
1 | 70,621 | 71,007 | | ||||||||||||
Germany |
1 | 11,585 | 63,637 | | ||||||||||||
Netherlands |
1 | 7,516 | 7,537 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Subtotal |
19 | 2,594,835 | 2,994,300 | 19 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
125 | $ | 14,191,200 | $ | 14,740,844 | 100 | % | |||||||||
|
|
|
|
|
|
|
|
(1) |
In certain instances, we finance our loans through the non-recourse sale of a senior loan interest that is not included in our consolidated financial statements. See Note 2 for further discussion. Total loan exposure encompasses the entire loan we originated and financed, including $446.9 million of such non-consolidated senior interests as of December 31, 2018. |
(2) |
Excludes investment exposure to the $1.0 billion 2018 Single Asset Securitization. See Note 5 for details of the subordinated risk retention interest we own in the 2018 Single Asset Securitization. |
F-19
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 2017 |
||||||||||||||||
Property Type |
Number of
Loans |
Net
Book Value |
Total Loan
Exposure (1) |
Percentage of
Portfolio |
||||||||||||
Office |
53 | $ | 5,773,972 | $ | 5,807,170 | 53 | % | |||||||||
Hotel |
15 | 1,830,568 | 1,905,497 | 17 | ||||||||||||
Multifamily |
25 | 1,220,423 | 1,228,959 | 11 | ||||||||||||
Retail |
6 | 487,473 | 940,980 | 8 | ||||||||||||
Condominium |
2 | 142,342 | 268,751 | 2 | ||||||||||||
Other |
9 | 601,954 | 942,251 | 9 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
110 | $ | 10,056,732 | $ | 11,093,608 | 100 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Geographic Location |
Number of
Loans |
Net
Book Value |
Total Loan
Exposure (1) |
Percentage of
Portfolio |
||||||||||||
United States |
||||||||||||||||
Northeast |
26 | $ | 2,857,948 | $ | 2,871,219 | 26 | % | |||||||||
West |
29 | 2,672,069 | 2,816,276 | 24 | ||||||||||||
Southeast |
17 | 2,007,202 | 2,470,992 | 22 | ||||||||||||
Midwest |
9 | 856,559 | 862,578 | 8 | ||||||||||||
Southwest |
10 | 380,204 | 380,120 | 3 | ||||||||||||
Northwest |
2 | 283,381 | 286,221 | 3 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Subtotal |
93 | 9,057,363 | 9,687,406 | 86 | ||||||||||||
International |
||||||||||||||||
United Kingdom |
6 | 440,317 | 794,789 | 7 | ||||||||||||
Canada |
7 | 415,893 | 412,343 | 4 | ||||||||||||
Belgium |
1 | 73,779 | 74,431 | 1 | ||||||||||||
Germany |
1 | 12,237 | 67,399 | 1 | ||||||||||||
Netherlands |
2 | 57,143 | 57,240 | 1 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Subtotal |
17 | 999,369 | 1,406,202 | 14 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
110 | $ | 10,056,732 | $ | 11,093,608 | 100 | % | |||||||||
|
|
|
|
|
|
|
|
(1) |
In certain instances, we finance our loans through the non-recourse sale of a senior loan interest that is not included in our consolidated financial statements. See Note 2 for further discussion. Total loan exposure encompasses the entire loan we originated and financed, including $985.4 million of such non-consolidated senior interests as of December 31, 2017. |
Loan Risk Ratings
As further described in Note 2, our Manager evaluates our loan portfolio on a quarterly basis. In conjunction with our quarterly loan portfolio review, our Manager assesses the risk factors of each loan, and assigns a risk rating based on several factors. Factors considered in the assessment include, but are not limited to, risk of loss, current LTV, debt yield, collateral performance, structure, exit plan, and sponsorship. Loans are rated 1 (less risk) through 5 (greater risk), which ratings are defined in Note 2.
F-20
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
The following table allocates the principal balance and net book value of our loans receivable based on our internal risk ratings ($ in thousands):
December 31, 2018 |
December 31, 2017 |
|||||||||||||||||||||||||
Risk
|
Number
of Loans |
Net
Book Value |
Total Loan
Exposure (1)(2) |
Risk
|
Number
of Loans |
Net
Book Value |
Total Loan
Exposure (1) |
|||||||||||||||||||
1 |
2 | $ | 181,366 | $ | 182,740 |
1 |
1 | $ | 31,842 | $ | 31,890 | |||||||||||||||
2 |
38 | 3,860,432 | 3,950,025 |
2 |
41 | 3,512,709 | 3,521,701 | |||||||||||||||||||
3 |
85 | 10,149,402 | 10,608,079 |
3 |
67 | 6,491,617 | 7,519,465 | |||||||||||||||||||
4 |
| | |
4 |
1 | 20,564 | 20,552 | |||||||||||||||||||
5 |
| | |
5 |
| | | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
125 | $ | 14,191,200 | $ | 14,740,844 | 110 | $ | 10,056,732 | $ | 11,093,608 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
In certain instances, we finance our loans through the non-recourse sale of a senior loan interest that is not included in our consolidated financial statements. See Note 2 for further discussion. Total loan exposure encompasses the entire loan we originated and financed, including $446.9 million and $985.4 million of such non-consolidated senior interests as of December 31, 2018 and December 31, 2017, respectively. |
(2) |
Excludes investment exposure to the $1.0 billion 2018 Single Asset Securitization. See Note 5 for details of the subordinated risk retention interest we own in the 2018 Single Asset Securitization. |
The weighted-average risk rating of our total loan exposure was 2.7 as of both December 31, 2018 and 2017. We had one loan with a risk rating of 4 in our portfolio as of December 31, 2017, which was repaid in full in April 2018.
We did not have any impaired loans, nonaccrual loans, or loans in maturity default as of December 31, 2018 or 2017.
Multifamily Joint Venture
As discussed in Note 2, we entered into a Multifamily Joint Venture in April 2017. As of December 31, 2018 and December 31, 2017, our Multifamily Joint Venture held $334.6 million and $182.2 million of loans, respectively, which are included in the loan disclosures above. Refer to Note 2 for additional discussion of our Multifamily Joint Venture.
4. EQUITY INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
Our equity investment in unconsolidated subsidiary consisted solely of our carried interest in CTOPI, a fund formerly sponsored and managed by an affiliate of our Manager. The investment was fully realized as of December 31, 2016 and we no longer have any investments in unconsolidated subsidiaries on our consolidated financial statements.
Our carried interest in CTOPI entitled us to earn promote revenue in an amount equal to 17.7% of the funds profits, after a 9% preferred return and 100% return of capital to the CTOPI partners. During the year ended December 31, 2016, we recognized $3.2 million of promote income from CTOPI in respect of our carried interest and recorded such amounts as income in our consolidated statement of operations.
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. During the year ended December 31, 2016, we recognized $1.6 million of
F-21
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
expenses under the CTOPI incentive plan. Such amounts were recognized as a component of general and administrative expenses in our consolidated statements of operations.
5. OTHER ASSETS AND LIABILITIES
The following table details the components of our other assets ($ in thousands):
December 31,
2018 |
December 31,
2017 |
|||||||
Debt securities held-to-maturity (1) |
$ | 96,167 | $ | | ||||
Accrued interest receivable |
56,679 | 38,573 | ||||||
Derivative assets |
9,916 | 1,214 | ||||||
Loan portfolio payments held by servicer (2) |
6,133 | 54,759 | ||||||
Prepaid expenses |
647 | 798 | ||||||
Prepaid taxes |
6 | 31 | ||||||
Collateral deposited under derivative agreements |
| 4,120 | ||||||
Other |
965 | 80 | ||||||
|
|
|
|
|||||
Total |
$ | 170,513 | $ | 99,575 | ||||
|
|
|
|
(1) |
Represents a $99.0 million subordinate risk retention interest in the $1.0 billion 2018 Single Asset Securitization, with a yield to full maturity of L+10.0% and a maximum maturity date of June 9, 2025, assuming all extension options are exercised by the borrower. Refer to Note 16 for additional discussion. |
(2) |
Represents loan principal and interest payments held by our third-party loan servicer as of the balance sheet date which were remitted to us during the subsequent remittance cycle. |
The following table details the components of our other liabilities ($ in thousands):
December 31,
2018 |
December 31,
2017 |
|||||||
Accrued dividends payable |
$ | 76,530 | $ | 66,888 | ||||
Accrued interest payable |
25,588 | 14,162 | ||||||
Accrued management and incentive fees payable |
18,586 | 14,284 | ||||||
Accounts payable and other liabilities |
4,583 | 2,125 | ||||||
Derivative liabilities |
2,925 | 4,911 | ||||||
Secured debt repayments pending servicer remittance (1) |
| 38,456 | ||||||
|
|
|
|
|||||
Total |
$ | 128,212 | $ | 140,826 | ||||
|
|
|
|
(1) |
Represents pending transfers from our third-party loan servicer that were remitted to our banking counterparties during the subsequent remittance cycle. |
F-22
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
6. SECURED DEBT AGREEMENTS, NET
Our secured debt agreements include credit facilities, asset-specific financings, the GE portfolio acquisition facility, and a revolving credit agreement. The following table details our secured debt agreements ($ in thousands):
Secured Debt Agreements
Borrowings Outstanding |
||||||||
December 31, 2018 | December 31, 2017 | |||||||
Credit facilities |
$ | 6,903,683 | $ | 4,068,249 | ||||
Asset-specific financings |
1,538,548 | 518,864 | ||||||
GE portfolio acquisition facility |
510,405 | 703,423 | ||||||
Revolving credit agreement |
43,845 | | ||||||
|
|
|
|
|||||
Total secured debt agreements |
$ | 8,996,481 | $ | 5,290,536 | ||||
|
|
|
|
|||||
Deferred financing costs (1) |
(21,725 | ) | (16,681 | ) | ||||
|
|
|
|
|||||
Net book value of secured debt |
$ | 8,974,756 | $ | 5,273,855 | ||||
|
|
|
|
(1) |
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. |
F-23
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
Credit Facilities
During the year ended December 31, 2018, we added two new credit facilities, providing an aggregate additional $2.0 billion of credit capacity, and increased the maximum facility size of five of our existing credit facilities, providing an aggregate additional $2.3 billion of credit capacity.
The following tables detail our credit facilities ($ in thousands):
December 31, 2018 | ||||||||||||||||||||||||
Lender |
Maximum
Facility Size (1) |
Credit Borrowings |
Collateral
Assets (3) |
|||||||||||||||||||||
Potential (2) | Outstanding | Available (2) | ||||||||||||||||||||||
Wells Fargo |
$ | 3,000,000 | $ | 1,398,103 | $ | 1,311,749 | $ | 86,354 | $ | 1,853,770 | ||||||||||||||
Deutsche Bank |
1,100,000 | 934,631 | 934,631 | | 1,193,713 | |||||||||||||||||||
Barclays |
1,500,000 | 890,620 | 890,620 | | 1,113,275 | |||||||||||||||||||
Bank of America |
1,000,000 | 873,446 | 873,446 | | 1,090,117 | |||||||||||||||||||
MetLife |
704,325 | 675,329 | 675,329 | | 852,733 | |||||||||||||||||||
Citibank (4) |
1,000,000 | 817,993 | 630,454 | 187,539 | 1,030,116 | |||||||||||||||||||
JP Morgan |
500,000 | 492,349 | 492,349 | | 626,897 | |||||||||||||||||||
Société Générale (5) |
688,020 | 321,182 | 321,182 | | 404,048 | |||||||||||||||||||
Morgan Stanley (6) |
637,700 | 341,241 | 276,721 | 64,520 | 457,496 | |||||||||||||||||||
Goldman Sachs |
450,000 | 230,140 | 230,140 | | 295,368 | |||||||||||||||||||
Goldman Sachs - Multi. JV (7) |
250,000 | 170,060 | 170,060 | | 212,983 | |||||||||||||||||||
Bank of America - Multi. JV (7) |
200,000 | 97,002 | 97,002 | | 121,636 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 11,030,045 | $ | 7,242,096 | $ | 6,903,683 | $ | 338,413 | $ | 9,252,152 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
December 31, 2017 | ||||||||||||||||||||||||
Maximum
Facility Size (1) |
Credit Borrowings |
Collateral
Assets (3) |
||||||||||||||||||||||
Lender |
Potential (2) | Outstanding | Available (2) | |||||||||||||||||||||
Wells Fargo |
$ | 2,000,000 | $ | 1,289,135 | $ | 1,170,801 | $ | 118,334 | $ | 1,680,325 | ||||||||||||||
MetLife |
1,000,000 | 807,164 | 807,164 | | 1,039,231 | |||||||||||||||||||
Bank of America |
750,000 | 573,542 | 573,542 | | 765,049 | |||||||||||||||||||
JP Morgan |
500,000 | 443,496 | 319,755 | 123,741 | 579,218 | |||||||||||||||||||
Société Générale (5) |
480,200 | 300,871 | 300,871 | | 373,181 | |||||||||||||||||||
Deutsche Bank |
500,000 | 295,743 | 295,743 | | 399,203 | |||||||||||||||||||
Citibank (4) |
800,125 | 354,354 | 240,881 | 113,473 | 455,433 | |||||||||||||||||||
Morgan Stanley (6) |
675,650 | 456,344 | 216,044 | 240,300 | 591,168 | |||||||||||||||||||
Bank of America - Multi. JV (7) |
200,000 | 85,560 | 85,560 | | 106,950 | |||||||||||||||||||
Goldman Sachs - Multi. JV (7) |
250,000 | 57,888 | 57,888 | | 75,225 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 7,155,975 | $ | 4,664,097 | $ | 4,068,249 | $ | 595,848 | $ | 6,064,983 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
(1) |
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. |
(2) |
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 credit facility. |
(3) |
Represents the principal balance of the collateral assets. |
(4) |
As of December 31, 2018 the Citibank facility was denominated in U.S. dollars. As of December 31, 2017, the maximum facility size was composed of a $500.0 million facility denominated in U.S. dollars plus a 250.0 million facility, which translated to $300.1 million as of such date. |
(5) |
As of December 31, 2018, the Société Générale maximum facility size was 600.0 million, which translated to $688.0 million. As of December 31, 2017 the maximum facility size was 400.0 million, which translated to $480.2 million. |
(6) |
As of December 31, 2018 and 2017, the Morgan Stanley maximum facility of £500.0 million was translated to $637.7 million and $675.7 million, respectively. |
(7) |
These facilities finance the loan investments of our consolidated Multifamily Joint Venture. Refer to Note 2 for additional discussion of our Multifamily Joint Venture. |
F-24
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
The weighted-average outstanding balance of our credit facilities was $4.7 billion for the year ended December 31, 2018. As of December 31, 2018, we had aggregate borrowings of $6.9 billion outstanding under our credit facilities, with a weighted-average cash coupon of LIBOR plus 1.75% per annum, a weighted-average all-in cost of credit, including associated fees and expenses, of LIBOR plus 1.95% per annum, and a weighted-average advance rate of 79.3%. As of December 31, 2018, outstanding borrowings under these facilities had a weighted-average maturity, excluding extension options and term-out provisions, of 1.8 years.
The weighted-average outstanding balance of our credit facilities was $4.1 billion for the year ended December 31, 2017. As of December 31, 2017, we had aggregated borrowings of $4.1 billion outstanding under our credit facilities, with a weighted-average cash coupon of LIBOR plus 1.90% per annum, a weighted-average all-in cost of credit, including associated fees and expenses, of LIBOR plus 2.12% per annum, and a weighted-average advance rate of 78.7%. As of December 31, 2017, outstanding borrowings under these facilities had a weighted-average maturity, excluding extension options and term-out provisions, of 1.5 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.
The following tables outline the key terms of our credit facilities as of December 31, 2018:
Lender |
Currency | Guarantee (1) | Margin Call (2) | Term/Maturity | ||||||||
Goldman Sachs - Multi. JV (3) |
$ | 25 | % | Collateral marks only | July 12, 2020 (4) | |||||||
JP Morgan |
$ / £ | 50 | % | Collateral marks only | January 7, 2021 | |||||||
Bank of America - Multi. JV (3) |
$ | 43 | % | Collateral marks only | July 19, 2021 (5) | |||||||
Deutsche Bank |
$ | 25 | % | Collateral marks only | August 9, 2021 (6) | |||||||
Morgan Stanley |
$ / £ / | 25 | % | Collateral marks only | March 1, 2022 | |||||||
Barclays |
$ | 25 | % | Collateral marks only | March 29, 2023 (7) | |||||||
MetLife |
$ | 50 | % | Collateral marks only | April 22, 2023 (8) | |||||||
Bank of America |
$ | 50 | % | Collateral marks only | May 21, 2023 (9) | |||||||
Goldman Sachs |
$ | 25 | % | Collateral marks only | October 22, 2023 (10) | |||||||
Citibank |
$ / £ / / A$ | 25 | % | Collateral marks only | Term matched (11) | |||||||
Société Générale |
$ / £ / | 25 | % | Collateral marks only | Term matched (11) | |||||||
Wells Fargo |
$ | 25 | % | Collateral marks only | Term matched (11) |
(1) |
Other than amounts guaranteed based on specific collateral asset types, borrowings under our credit facilities are non-recourse to us. |
(2) |
Margin call provisions under our credit facilities do not permit valuation adjustments based on capital markets events, and are limited to collateral-specific credit marks. |
(3) |
These facilities finance the loan investments of our consolidated Multifamily Joint Venture. Refer to Note 2 for additional discussion of our Multifamily Joint Venture. |
(4) |
Includes a one-year extension option which may be exercised at our sole discretion. |
(5) |
Includes two one-year extension options which may be exercised at our sole discretion. |
(6) |
Includes two one-year extension options which may be exercised at our sole discretion. |
(7) |
Includes four one-year extension options which may be exercised at our sole discretion. |
(8) |
Includes four one-year extension options which may be exercised at our sole discretion. |
(9) |
Includes two one-year extension options which may be exercised at our sole discretion. |
(10) |
Includes three one-year extension options which may be exercised at our sole discretion. |
(11) |
These credit facilities have various availability periods during which new advances can be made and which are generally subject to each lenders discretion. Maturity dates for advances outstanding are tied to the term of each respective collateral asset. |
F-25
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
Currency |
Potential
Borrowings |
Outstanding
Borrowings (1) |
Floating Rate Index | Spread (2) |
Advance
Rate (3) |
|||||||||
$ | $ | 6,591,590 | $ | 6,302,207 | 1-month USD LIBOR | 1.73% | 79.3% | |||||||
£ | £ | 319,690 | £ | 319,690 | 3-month GBP LIBOR | 1.90% | 79.2% | |||||||
A$ | A$ | 255,270 | A$ | 255,270 | 3-month BBSY | 1.90% | 78.0% | |||||||
| | 54,796 | | 12,038 | 3-month EURIBOR | 2.28% | 80.0% | |||||||
|
|
|
|
|
|
|||||||||
$ | 7,242,096 | $ | 6,903,683 | 1.75% | 79.3% |
(1) |
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 credit facility. |
(2) |
Represents weighted-average spread over the applicable floating rate index, based on borrowings outstanding. |
(3) |
Represents weighted-average advance rate based on the approved outstanding principal balance of the collateral assets pledged. |
Asset-Specific Financings
During the year ended December 31, 2018, we entered into an 800.0 million asset-specific financing secured by a 1.0 billion senior loan. The following tables detail our asset-specific financings ($ in thousands):
December 31, 2018 | ||||||||||||||||||||||
Asset-Specific Financings |
Count |
Principal
Balance |
Book
Value |
Wtd. Avg.
Yield/Cost (1) |
Guarantee (2) |
Wtd. Avg.
Term (3) |
||||||||||||||||
Collateral assets |
5 | $ | 1,923,404 | $ | 1,912,990 | L+3.49 | % | n/a | Sep. 2022 | |||||||||||||
Financing provided (4) |
5 | $ | 1,538,548 | $ | 1,532,306 | L+1.82 | % | $ | 1,172,572 | Sep. 2022 |
December 31, 2017 | ||||||||||||||||||||||
Asset-Specific Financings |
Count |
Principal
Balance |
Book
Value |
Wtd. Avg.
Yield/Cost (1) |
Guarantee (2) |
Wtd. Avg.
Term (3) |
||||||||||||||||
Collateral assets |
6 | $ | 682,259 | $ | 677,296 | L+4.76 | % | n/a | Dec. 2020 | |||||||||||||
Financing provided (4) |
6 | $ | 518,864 | $ | 517,088 | L+2.50 | % | $ | 162,475 | Dec. 2020 |
(1) |
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, yield/cost includes the amortization of deferred origination fees / financing costs. |
(2) |
Other than amounts guaranteed on an asset-by-asset basis, borrowings under our asset-specific financings are non-recourse to us. |
(3) |
The weighted-average term is determined based on the maximum maturity of the corresponding loans, assuming all extension options are exercised by the borrower. Each of our asset-specific financings are term-matched to the corresponding collateral loans. |
(4) |
As of December 31, 2018 and December 31, 2017, borrowings of $551.7 million and $394.8 million, respectively, under these asset specific financings are cross collateralized with related credit facilities with the same lenders. |
The weighted-average outstanding balance of our asset-specific financings was $1.3 billion for the year ended December 31, 2018 and $576.4 million for the year ended December 31, 2017.
F-26
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
GE Portfolio Acquisition Facility
During the second quarter of 2015, concurrently with our acquisition of the GE portfolio, we entered into an agreement with Wells Fargo to provide us with secured financing for the acquired portfolio. The GE portfolio acquisition facility is non-revolving and consists of a single master repurchase agreement providing for asset-specific borrowings for each collateral asset.
The following tables detail our asset-specific borrowings related to the GE portfolio acquisition ($ in thousands):
December 31, 2018 | ||||||||||||||||||||||||
GE Portfolio Acquisition Facility |
Count |
Principal
Balance (1) |
Book
Value |
Wtd. Avg.
Yield/Cost (2) |
Guarantee (3) |
Wtd. Avg.
Term (4) |
||||||||||||||||||
Collateral assets |
11 | $ | 660,743 | $ | 662,521 | 6.32 | % | n/a | May 2021 | |||||||||||||||
Financing provided (5) |
11 | $ | 510,405 | $ | 509,813 | L+1.79 | % | $ | 250,000 | May 2021 | ||||||||||||||
December 31, 2017 | ||||||||||||||||||||||||
GE Portfolio Acquisition Facility |
Count |
Principal
Balance (1) |
Book
Value |
Wtd. Avg.
Yield/Cost (2) |
Guarantee (3) |
Wtd. Avg.
Term (4) |
||||||||||||||||||
Collateral assets |
16 | $ | 906,707 | $ | 911,092 | 5.74 | % | n/a | Jul. 2020 | |||||||||||||||
Financing provided (5) |
16 | $ | 703,423 | $ | 702,337 | L+1.72 | % | $ | 250,000 | Jul. 2020 |
(1) |
As of December 31, 2018, this facility provided for $591.7 million of financing, of which $510.4 million was outstanding and an additional $81.3 million was available to finance future loan fundings in the GE portfolio. As of December 31, 2017, this facility provided for $816.3 million of financing, of which $703.4 million was outstanding and an additional $112.9 million was available to finance future loan fundings in the GE portfolio. |
(2) |
In addition to cash coupon, yield/cost includes the amortization of deferred origination fees / financing costs. |
(3) |
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. |
(4) |
The weighted-average term is determined based on the maximum maturity of the corresponding loans, assuming all extension options are exercised by the borrower. Each of our asset-specific financings are term-matched to the corresponding collateral loans. |
(5) |
Borrowings under these financings are cross collateralized with the related credit facility with the same lender. |
Revolving Credit Agreement
We have a $250.0 million full recourse secured revolving credit agreement with Barclays that is designed to finance first mortgage originations for up to six months as a bridge to term financing or syndication. Advances under the agreement are subject to availability under a specified borrowing base and accrue interest at a per annum pricing rate equal to the sum of (i) an applicable base rate or Eurodollar rate and (ii) an applicable margin, in each case, dependent on the applicable type of loan collateral. The maturity date of the facility is April 4, 2020.
During the year ended December 31, 2018, the weighted-average outstanding borrowings under the revolving credit agreement was $44.3 million and we recorded interest expense of $3.8 million, including $1.1 million of amortization of deferred fees and expenses. As of December 31, 2018, we had $43.8 million of borrowings outstanding under the agreement.
F-27
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
During the year ended December 31, 2017, the weighted-average outstanding borrowings under the revolving credit agreement was $30.7 million and we recorded interest expense of $3.0 million, including $829,000 of amortization of deferred fees and expenses. As of December 31, 2017, we had no outstanding borrowings under the agreement.
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 1.4 to 1.0; (ii) our tangible net worth, as defined in the agreements, shall not be less than $2.5 billion as of each measurement date plus 75% of the net cash proceeds of future equity issuances subsequent to December 31, 2018; (iii) cash liquidity shall not be less than the greater of (x) $10.0 million or (y) 5% of our recourse indebtedness; and (iv) our indebtedness shall not exceed 83.33% of our total assets. As of December 31, 2018 and December 31, 2017, we were in compliance with these covenants.
7. LOAN PARTICIPATIONS SOLD, NET
The financing of a loan by the non-recourse sale of a senior interest in the loan through a participation agreement generally does not qualify as a sale under GAAP. Therefore, in the instance of such sales, we present the whole loan as an asset and the loan participation sold as a liability on our consolidated balance sheet until the loan is repaid. The obligation to pay principal and interest on these liabilities is generally based on the performance of the related loan obligation. The gross presentation of loan participations sold does not impact stockholders equity or net income.
The following tables detail our loan participations sold ($ in thousands):
December 31, 2018 | ||||||||||||||||||||||
Loan Participations Sold |
Count |
Principal
Balance |
Book
Value |
Yield/Cost (1) | Guarantee (2) | Term | ||||||||||||||||
Total loan |
1 | $ | 123,745 | $ | 122,669 | L+5.92 | % | n/a | Feb. 2022 | |||||||||||||
Senior participation (3)(4) |
1 | 94,528 | 94,418 | L+4.07 | % | n/a | Feb. 2022 | |||||||||||||||
December 31, 2017 | ||||||||||||||||||||||
Loan Participations Sold |
Count |
Principal
Balance |
Book
Value |
Yield/Cost (1) | Guarantee (2) | Term | ||||||||||||||||
Total loan |
1 | $ | 141,119 | $ | 138,907 | L+5.94 | % | n/a | Feb. 2022 | |||||||||||||
Senior participation (3)(4) |
1 | 80,706 | 80,415 | L+4.14 | % | n/a | Feb. 2022 |
(1) |
Our floating rate loans and related liabilities are indexed to the various benchmark rates relevant in each arrangement in terms of currency and payment frequency. Therefore the net exposure to each benchmark rate is in direct proportion to our net assets indexed to that rate. In addition to cash coupon, yield/cost includes the amortization of deferred fees / financing costs. |
(2) |
As of December 31, 2018 and December 31, 2017, our loan participation sold was non-recourse to us. |
(3) |
During the years ended December 31, 2018 and 2017, we recorded $16.6 million and $10.1 million, respectively, of interest expense related to our loan participations sold. |
(4) |
The difference between principal balance and book value of loan participations sold is due to deferred financing costs of $110,000 and $291,000, as of December 31, 2018 and December 31, 2017, respectively. |
F-28
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
8. SECURITIZED DEBT OBLIGATIONS, NET
We have financed a pool of our loans through a collateralized loan obligation, or the CLO, and have also financed one of our loans through a single asset securitization vehicle, or the 2017 Single Asset Securitization. The CLO and the 2017 Single Asset Securitization have issued securitized debt obligations that are non-recourse to us. Both the CLO and the 2017 Single Asset Securitization are consolidated in our financial statements. Refer to Note 16 for further discussion of our CLO and 2017 Single Asset Securitization.
The following tables detail our securitized debt obligations ($ in thousands):
December 31, 2018 | ||||||||||||||||||||
Securitized Debt Obligations |
Count |
Principal
Balance |
Book Value |
Wtd. Avg.
Yield/Cost (1) |
Term (2) | |||||||||||||||
Collateralized Loan Obligation |
||||||||||||||||||||
Collateral assets |
26 | $ | 1,000,000 | $ | 1,000,000 | 6.25 | % | Apr. 2022 | ||||||||||||
Financing provided |
1 | 817,500 | 811,023 | L+1.74 | % | June 2035 | ||||||||||||||
2017 Single Asset Securitization |
||||||||||||||||||||
Collateral assets (3) |
1 | 682,297 | 678,770 | L+3.60 | % | June 2023 | ||||||||||||||
Financing provided |
1 | 474,620 | 474,448 | L+1.65 | % | June 2033 | ||||||||||||||
Total |
||||||||||||||||||||
Collateral assets |
27 | $ | 1,682,297 | $ | 1,678,770 | 6.19 | % | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Financing provided (4) |
2 | $ | 1,292,120 | $ | 1,285,471 | L+1.71 | % | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2017 | ||||||||||||||||||||
Securitized Debt Obligations |
Count |
Principal
Balance |
Book Value |
Wtd. Avg.
Yield/Cost (1) |
Term (2) | |||||||||||||||
Collateralized Loan Obligation |
||||||||||||||||||||
Collateral assets |
31 | $ | 1,000,000 | $ | 1,000,000 | 5.16 | % | Nov. 2021 | ||||||||||||
Financing provided |
1 | 817,500 | 808,084 | L+1.76 | % | June 2035 | ||||||||||||||
2017 Single Asset Securitization |
||||||||||||||||||||
Collateral assets (3) |
1 | 656,406 | 652,880 | L+3.60 | % | June 2023 | ||||||||||||||
Financing provided |
1 | 474,620 | 474,328 | L+1.94 | % | June 2033 | ||||||||||||||
Total |
||||||||||||||||||||
Collateral assets |
32 | $ | 1,656,406 | $ | 1,652,880 | 5.17 | % | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Financing provided (4) |
2 | $ | 1,292,120 | $ | 1,282,412 | L+1.83 | % | |||||||||||||
|
|
|
|
|
|
|
|
(1) |
As of December 31, 2018 and 2017, 98% of our loans financed by securitized debt obligations earned a floating rate of interest. In addition to cash coupon, all-in yield includes the amortization of deferred origination and extension fees, loan origination costs, purchase discounts, and accrual of exit fees. All-in yield for the total portfolio assume applicable floating benchmark rates for weighted-average calculation. |
(2) |
Loan term represents weighted-average final maturity, assuming all extension options are exercised by the borrower. Repayments of securitized debt obligations are tied to timing of the related collateral loan asset repayments. The term of these obligations represents the rated final distribution date of the securitizations. |
(3) |
The collateral assets for the 2017 Single Asset Securitization include the total loan amount, of which we securitized $500.0 million. |
(4) |
During the years ended December 31, 2018 and 2017, we recorded $48.8 million and $8.5 million, respectively, of interest expense related to our securitized debt obligations. |
F-29
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
9. CONVERTIBLE NOTES, NET
As of December 31, 2018, the following convertible senior notes, or Convertible Notes, were outstanding ($ in thousands):
Convertible Notes Issuance |
Face Value | Coupon Rate | All-in Cost (1) | Conversion Rate (2) | Maturity | |||||||||||||
May 2017 |
$ | 402,500 | 4.38 | % | 4.85 | % | 28.0324 | May 5, 2022 | ||||||||||
March 2018 |
$ | 220,000 | 4.75 | % | 5.33 | % | 27.6052 | March 15, 2023 |
(1) |
Includes issuance costs that are amortized through interest expense over the life of the Convertible Notes using the effective interest method. |
(2) |
Represents the shares of class A common stock per $1,000 principal amount of Convertible Notes, which is equivalent to a conversion price of $35.67 and $36.23 per share of class A common stock, respectively, for the May 2017 and March 2018 convertible notes. The cumulative dividend threshold as defined in the respective May 2017 and March 2018 convertible notes supplemental indentures have not been exceeded as of December 31, 2018. |
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 January 31, 2022 and December 14, 2022 for the May 2017 and March 2018 convertible notes, respectively, 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. We may not redeem the Convertible Notes prior to maturity. The last reported sale price of our class A common stock of $31.86 on December 31, 2018 was less than the per share conversion price of the May 2017 and March 2018 convertible notes. We have the intent and ability to settle each series of the Convertible Notes in cash and, as a result, the Convertible Notes did not have any impact on our diluted earnings per share. During the year ended December 31, 2018, we settled $172.5 million of our convertible notes from our November 2013 issuance. The convertible notes were settled entirely in cash for an aggregate $219.2 million, resulting in a $46.7 million charge to our additional paid-in capital.
Upon our issuance of the November 2013 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 November 2013 convertible notes issuance was 7.16% per annum. Our November 2013 convertible notes matured on December 1, 2018.
Upon our issuance of the May 2017 convertible notes, we recorded a $979,000 discount based on the implied value of the conversion option and an assumed effective interest rate of 4.57%, as well as $8.4 million of initial debt discount and issuance costs. Including the amortization of the discount and issuance costs, our total cost of the May 2017 convertible notes issuance is 4.91% per annum.
Upon our issuance of the March 2018 convertible notes, we recorded a $1.5 million discount based on the implied value of the conversion option and an assumed effective interest rate of 5.25%, as well as $5.2 million of initial debt discount and issuance costs. Including the amortization of the discount and issuance costs, our total cost of the March 2018 convertible notes issuance is 5.49% per annum.
F-30
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
The following table details the net book value of our Convertible Notes on our consolidated balance sheets ($ in thousands):
December 31,
2018 |
December 31,
2017 |
|||||||
Face value |
$ | 622,500 | $ | 575,000 | ||||
Unamortized discount |
(11,740 | ) | (10,279 | ) | ||||
Deferred financing costs |
(849 | ) | (810 | ) | ||||
|
|
|
|
|||||
Net book value |
$ | 609,911 | $ | 563,911 | ||||
|
|
|
|
The following table details our interest expense related to the Convertible Notes ($ in thousands):
Year Ended December 31, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
Cash coupon |
$ | 33,859 | $ | 19,259 | $ | 9,056 | ||||||
Discount and issuance cost amortization |
5,531 | 4,040 | 2,736 | |||||||||
|
|
|
|
|
|
|||||||
Total interest expense |
$ | 39,390 | $ | 23,299 | $ | 11,792 | ||||||
|
|
|
|
|
|
Accrued interest payable for the Convertible Notes was $6.0 million and $3.7 million as of December 31, 2018 and December 31, 2017, respectively. Refer to Note 2 for additional discussion of our accounting policies for the Convertible Notes.
10. DERIVATIVE FINANCIAL INSTRUMENTS
The sole objective of our use of derivative financial instruments is to minimize the risks and/or costs associated with our investments and/or financing transactions. These derivatives may or may not qualify as net investment, cash flow, or fair value hedges under the hedge accounting requirements of ASC 815 Derivatives and Hedging. Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements and other identified risks. For more information on the accounting for designated and non-designated hedges, refer to Note 2.
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.
Net Investment Hedges of Foreign Currency Risk
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 foreign currency forward contracts to protect the value or fix the amount of certain investments or cash flows in terms of the U.S. dollar.
F-31
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
The following table details our outstanding foreign exchange derivatives that were designated as net investment hedges of foreign currency risk (notional amount in thousands):
December 31, 2018 |
December 31, 2017 | |||||||||||||||||
Foreign Currency Derivatives |
Number of
|
Notional
Amount |
Foreign Currency
Derivatives |
Number of
Instruments |
Notional
Amount |
|||||||||||||
Sell GBP Forward |
3 | £ | 192,300 | Sell GBP Forward | 1 | £ | 112,700 | |||||||||||
Sell AUD Forward |
2 | A$ | 187,600 | Sell CAD Forward | 1 | C$ | 95,100 | |||||||||||
Sell EUR Forward |
1 | | 185,000 | |||||||||||||||
Sell CAD Forward |
1 | C$ | 70,600 |
Cash Flow Hedges of Interest Rate Risk
Certain of our transactions expose us to interest rate risks, which include 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.
The following tables detail our outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (notional amount in thousands):
December 31, 2018 |
||||||||||||||
Interest Rate Derivatives |
Number of
Instruments |
Notional
Amount |
Strike | Index |
Wtd.-Avg.
Maturity (Years) |
|||||||||
Interest Rate Swap |
3 | C$ | 90,472 | 1.0 | % | CDOR | 0.5 | |||||||
Interest Rate Caps |
9 | $ | 204,248 | 2.4 | % | USD LIBOR | 0.5 | |||||||
Interest Rate Caps |
2 | C$ | 39,998 | 2.5 | % | CDOR | 0.6 | |||||||
December 31, 2017 |
||||||||||||||
Interest Rate Derivatives |
Number of
Instruments |
Notional
Amount |
Strike | Index |
Wtd.-Avg.
Maturity (Years) |
|||||||||
Interest Rate Swaps |
4 | C$ | 108,094 | 1.0 | % | CDOR | 1.4 | |||||||
Interest Rate Caps |
9 | $ | 204,248 | 2.4 | % | USD LIBOR | 1.5 | |||||||
Interest Rate Caps |
3 | C$ | 23,370 | 2.0 | % | CDOR | 0.3 |
Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on our floating rate debt. During the twelve months following December 31, 2018, we estimate that an additional $267,000 will be reclassified from accumulated other comprehensive income (loss) as an increase to interest income.
Non-designated Hedges
During the year ended December 31, 2018 we recorded gains of $23,000 related to non-designated hedges that were reported as a component of interest expense in our consolidated financial statements. During the years ended December 31, 2017 and 2016, we recorded losses of $449,000 and $1.9 million, respectively, related to non-designated hedges that were reported as a component of interest expense in our consolidated financial statements.
F-32
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
The following tables summarize our non-designated hedges (notional amount in thousands):
December 31, 2018 |
||||||||
Non-designated Hedges |
Number of
Instruments |
Notional
Amount |
||||||
Buy AUD / Sell USD Forward |
1 | A$ | 55,000 | |||||
Buy USD / Sell AUD Forward |
1 | A$ | 55,000 | |||||
Buy GBP / Sell USD Forward |
1 | £ | 23,200 | |||||
Buy USD / Sell GBP Forward |
1 | £ | 23,200 | |||||
Buy GBP / Sell EUR Forward |
1 | | 12,857 | |||||
December 31, 2017 |
||||||||
Non-designated Hedges |
Number of
Instruments |
Notional
Amount |
||||||
Buy GBP / Sell EUR Forward |
1 | | 12,857 |
Valuation of Derivative Instruments
The following table summarizes the fair value of our derivative financial instruments ($ in thousands):
Fair Value of Derivatives in an Asset
Position (1) as of |
Fair Value of Derivatives in a Liability
Position (2) as of |
|||||||||||||||
December 31,
2018 |
December 31,
2017 |
December 31,
2018 |
December 31,
2017 |
|||||||||||||
Derivatives designated as hedging instruments: |
||||||||||||||||
Foreign exchange contracts |
$ | 8,210 | $ | | $ | 1,307 | $ | 4,872 | ||||||||
Interest rate derivatives |
590 | 1,214 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 8,800 | $ | 1,214 | $ | 1,307 | $ | 4,872 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Derivatives not designated as hedging instruments: |
||||||||||||||||
Foreign exchange contracts |
$ | 1,116 | $ | | $ | 1,618 | $ | 39 | ||||||||
Interest rate derivatives |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 1,116 | $ | | $ | 1,618 | $ | 39 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Derivatives |
$ | 9,916 | $ | 1,214 | $ | 2,925 | $ | 4,911 | ||||||||
|
|
|
|
|
|
|
|
(1) |
Included in other assets in our consolidated balance sheets. |
(2) |
Included in other liabilities in our consolidated balance sheets. |
F-33
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
The following table presents the effect of our derivative financial instruments on our consolidated statements of operations ($ in thousands):
Derivatives in Hedging Relationships |
Amount of (Loss)
Gain Recognized in OCI on Derivatives |
Location of
Gain (Loss) Reclassified from |
Amount of
Loss Reclassified from Accumulated OCI into Income |
|||||||||||||||||||||||||
Year Ended December 31, | Accumulated | Year Ended December 31, | ||||||||||||||||||||||||||
2018 | 2017 | 2016 | OCI into Income | 2018 | 2017 | 2016 | ||||||||||||||||||||||
Net Investment Hedges |
||||||||||||||||||||||||||||
Foreign exchange contracts (1) |
$ | 40,372 | $ | (22,216 | ) | $ | 25,355 | Interest Expense | $ | | $ | | $ | | ||||||||||||||
Cash Flow Hedges |
||||||||||||||||||||||||||||
Interest rate derivatives |
(8 | ) | 757 | 89 | Interest Expense | (2) | 563 | (831 | ) | (798 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
$ | 40,364 | $ | (21,459 | ) | $ | 25,444 | $ | 563 | $ | (831 | ) | $ | (798 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
During the year ended December 31, 2018, we received net cash settlements of $29.1 million on our foreign currency forward contracts. During the years ended December 31, 2017 and 2016, we paid net cash settlements of $14.2 million and received net cash settlements of $26.8 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. |
(2) |
During the year ended December 31, 2018, we recorded total interest and related expenses of $359.6 million, which included a $563,000 expense reduction related to income generated by our cash flow hedges. During the years ended December 31, 2017 and 2016, we recorded total interest and related expenses of $234.9 million and $184.3 million, respectively, which included interest expenses of $831,000 and $798,000, respectively, related to our cash flow hedges. |
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 December 31, 2018, we were in a net asset position with each such derivative counterparty and did not have any collateral posted under these derivative contracts. As of December 31, 2017, we were in a net asset position with one of our derivative counterparties and in a net liability position with our other derivative counterparty, and posted collateral of $4.1 million under these derivative contracts.
11. EQUITY
Stock and Stock Equivalents
Authorized Capital
As of December 31, 2018, we had the authority to issue up to 300,000,000 shares of stock, consisting of 200,000,000 shares of class A common stock and 100,000,000 shares of preferred stock. Subject to applicable NYSE listing requirements, our board of directors is authorized to cause us to issue additional shares of authorized stock without stockholder approval. In addition, to the extent not issued, currently authorized stock may be reclassified between class A common stock and preferred stock. We did not have any shares of preferred stock issued and outstanding as of December 31, 2018.
F-34
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
Class A Common Stock and Deferred Stock Units
Holders of shares of our class A common stock are entitled to vote on all matters submitted to a vote of stockholders and are entitled to receive such dividends as may be authorized by our board of directors and declared by us, in all cases subject to the rights of the holders of shares of outstanding preferred stock, if any.
The following table details our issuance of class A common stock during the years ended December 31, 2018, 2017, and 2016 ($ in thousands, except share and per share data):
Class A Common Stock Offerings | ||||||||||||
2018 (1) | 2017 | 2016 | ||||||||||
Shares issued |
14,566,743 | 12,420,000 | | |||||||||
Gross share issue price (2) |
$ | 33.16 | $ | 31.90 | $ | | ||||||
Net share issue price (3) |
$ | 32.76 | $ | 31.57 | $ | | ||||||
Net proceeds (4) |
$ | 476,420 | $ | 391,558 | $ | |
(1) |
Issuance includes 7.7 million shares issued under our at-the-market program, with a weighted average issue price of $33.66. |
(2) |
Represents gross price per share paid by the underwriters or sales agents, as applicable. |
(3) |
Represents net proceeds per share after underwriting or sales discounts and commissions. |
(4) |
Net proceeds represents proceeds received from the underwriters less applicable transaction costs. |
We also issue restricted class A common stock under our stock-based incentive plans. Refer to Note 14 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:
Year Ended December 31, | ||||||||||||
Common Stock Outstanding (1) |
2018 | 2017 | 2016 | |||||||||
Beginning balance |
108,081,077 | 94,709,290 | 93,843,847 | |||||||||
Issuance of class A common stock (2) |
14,568,431 | 12,421,401 | 1,070 | |||||||||
Issuance of restricted class A common stock, net |
983,447 | 922,196 | 836,867 | |||||||||
Issuance of deferred stock units |
31,622 | 28,190 | 27,506 | |||||||||
|
|
|
|
|
|
|||||||
Ending balance |
123,664,577 | 108,081,077 | 94,709,290 | |||||||||
|
|
|
|
|
|
(1) |
Includes deferred stock units held by members of our board of directors of 228,839, 197,217, and 169,027 as of December 31, 2018, 2017, and 2016, respectively. |
(2) |
Includes 1,688, 1,401, and 1,070 shares issued under our dividend reinvestment program during the years ended December 31, 2018, 2017, and 2016, respectively. |
F-35
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
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 years ended December 31, 2018, 2017, and 2016 we issued 1,688 shares, 1,401 shares, and 1,070 shares, respectively, of class A common stock under the dividend reinvestment component of the plan. As of December 31, 2018, a total of 9,995,238 shares of class A common stock remained available for issuance under the dividend reinvestment and direct stock purchase plan.
At the Market Stock Offering Program
On November 14, 2018, 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 $500.0 million of our class A common stock and we terminated our previous ATM Agreements, which we originally entered into on May 9, 2014. Sales of class A common stock made pursuant to our 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. During the year ended December 31, 2018, we issued and sold 7,666,743 shares of class A common stock under ATM Agreements, with net proceeds totaling $254.1 million. We did not sell any shares of our class A common stock under ATM Agreements during the years ended December 31, 2017 and 2016. As of December 31, 2018, sales of our class A common stock with an aggregate sales price of $429.9 million remained available for issuance under our 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. 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 December 13, 2018, we declared a dividend of $0.62 per share, or $76.5 million, that was paid on January 15, 2019, to stockholders of record as of December 31, 2018. The following table details our dividend activity ($ in thousands, except per share data):
Year Ended December 31, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
Dividends declared per share of common stock |
$ | 2.48 | $ | 2.48 | $ | 2.48 | ||||||
Percent taxable as ordinary dividends |
99.70 | % | 97.20 | % | 92.77 | % | ||||||
Percent taxable as capital gain dividends |
0.30 | % | 2.80 | % | 7.23 | % | ||||||
|
|
|
|
|
|
|||||||
100.0 | % | 100.0 | % | 100.0 | % |
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.
F-36
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
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):
Year Ended December 31, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
Net income (1) |
$ | 285,078 | $ | 217,631 | $ | 238,297 | ||||||
Weighted-average shares outstanding, basic and diluted |
113,857,238 | 95,963,616 | 94,165,351 | |||||||||
|
|
|
|
|
|
|||||||
Per share amount, basic and diluted |
$ | 2.50 | $ | 2.27 | $ | 2.53 | ||||||
|
|
|
|
|
|
(1) |
Represents net income attributable to Blackstone Mortgage Trust, Inc. |
Other Balance Sheet Items
Accumulated Other Comprehensive Loss
As of December 31, 2018, total accumulated other comprehensive loss was $34.2 million, primarily representing (i) $104.6 million of cumulative unrealized currency translation adjustments on assets and liabilities denominated in foreign currencies and (ii) an offsetting $70.4 million of net realized and unrealized gains related to changes in the fair value of derivative instruments. As of December 31, 2017, total accumulated other comprehensive loss was $29.7 million, primarily representing (i) $60.3 million of cumulative unrealized currency translation adjustments on assets and liabilities denominated in foreign currencies and (ii) an offsetting $30.6 million of net realized and unrealized gains related to changes in the fair value of derivative instruments.
Non-Controlling Interests
The non-controlling interests included on our consolidated balance sheets represent the equity interests in our Multifamily Joint Venture that are not owned by us. A portion of our Multifamily Joint Ventures consolidated equity and results of operations are allocated to these non-controlling interests based on their pro rata ownership of our Multifamily Joint Venture. As of December 31, 2018, our Multifamily Joint Ventures total equity was $69.9 million, of which $59.4 million was owned by us, and $10.5 million was allocated to non-controlling interests. As of December 31, 2017, our Multifamily Joint Ventures total equity was $42.3 million, of which $36.0 million was owned by us, and $6.3 million was allocated to non-controlling interests.
12. 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
F-37
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
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 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 years ended December 31, 2018, 2017, and 2016, we incurred management fees payable to our Manager of $47.0 million, $38.6 million, and $38.0 million, respectively. In addition, during the years ended December 31, 2018, 2017, and 2016, we incurred incentive fees payable to our Manager of $27.9 million, $16.2 million, and $18.0 million, respectively.
As of December 31, 2018 and 2017, we had accrued management and incentive fees payable to our Manager of $18.6 million and $14.3 million, respectively.
General and Administrative Expenses
General and administrative expenses consisted of the following ($ in thousands):
Year Ended December 31, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
Professional services (1) |
$ | 4,437 | $ | 3,812 | $ | 3,311 | ||||||
Operating and other costs (1) |
2,938 | 1,903 | 2,147 | |||||||||
|
|
|
|
|
|
|||||||
Subtotal |
7,375 | 5,715 | 5,458 | |||||||||
Non-cash and CT Legacy Portfolio compensation expenses |
||||||||||||
Management incentive awards plan - CTOPI (2) |
| | 1,568 | |||||||||
Management incentive awards plan - CT Legacy Partners (3) |
| | 1,094 | |||||||||
Restricted class A common stock earned |
27,654 | 23,593 | 19,052 | |||||||||
Director stock-based compensation |
500 | 438 | 375 | |||||||||
|
|
|
|
|
|
|||||||
Subtotal |
28,154 | 24,031 | 22,089 | |||||||||
|
|
|
|
|
|
|||||||
Total BXMT expenses |
35,529 | 29,746 | 27,547 | |||||||||
Other expenses |
| 176 | 169 | |||||||||
|
|
|
|
|
|
|||||||
Total general and administrative expenses |
$ | 35,529 | $ | 29,922 | $ | 27,716 | ||||||
|
|
|
|
|
|
(1) |
During the years ended December 31, 2018 and December 31, 2017, we recognized an aggregate $427,000 and $232,000, respectively, of expenses related to our Multifamily Joint Venture. |
(2) |
Represents the portion of CTOPI promote revenue recorded under compensation awards. See Note 4 for further discussion. |
(3) |
Represents the amounts recorded 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 our subsidiary, CT Legacy Partners (subject to certain caps and priority distributions). During the year ended December 31, 2016, we recognized $1.1 million of expenses under the CT Legacy Partners incentive plan. Our investment in CT Legacy Partners was substantially realized as of December 31, 2016.
F-38
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
13. INCOME TAXES
We have elected to be taxed as a REIT under the Internal Revenue Code for U.S. federal income tax purposes. We generally must distribute annually at least 90% of our net taxable income, subject to certain adjustments and excluding any net capital gain, in order for U.S. federal income tax not to apply to our earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our net taxable income, we will be subject to U.S. federal income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws.
Our qualification as a REIT also depends on our ability to meet various other requirements imposed by the Internal Revenue Code, which relate to organizational structure, diversity of stock ownership, and certain restrictions with regard to the nature of our assets and the sources of our income. Even if we qualify as a REIT, we may be subject to certain U.S. federal income and excise taxes and state and local taxes on our income and assets. If we fail to maintain our qualification as a REIT for any taxable year, we may be subject to material penalties as well as federal, state, and local income tax on our taxable income at regular corporate rates and we would not be able to qualify as a REIT for the subsequent four full taxable years. As of December 31, 2018 and 2017, we were in compliance with all REIT requirements.
Securitization transactions could result in the creation of taxable mortgage pools for federal income tax purposes. As a REIT, so long as we own 100% of the equity interests in a taxable mortgage pool, we generally would not be adversely affected by the characterization of the securitization as a taxable mortgage pool. Certain categories of stockholders, however, such as foreign stockholders eligible for treaty or other benefits, stockholders with net operating losses, and certain tax-exempt stockholders that are subject to unrelated business income tax, or UBTI, could be subject to increased taxes on a portion of their dividend income from us that is attributable to the taxable mortgage pool. We currently own no UBTI producing assets and we do not intend to purchase or generate assets that produce UBTI distributions in the future.
During the years ended December 31, 2018, 2017, and 2016, we recorded a current income tax provision of $308,000, $314,000, and $196,000, respectively, primarily related to activities of our taxable REIT subsidiaries and various state and local taxes. We did not have any deferred tax assets or liabilities as of December 31, 2018 or 2017.
Effective January 1, 2018, under legislation from the Tax Cuts and Jobs Act of 2017, the maximum U.S. federal corporate income tax rate was reduced from 35% to 21%. Accordingly, to the extent that the activities of our taxable REIT subsidiaries generate taxable income in future periods, they may be subject to lower U.S. federal income tax rates.
We have net operating losses, or NOLs, generated by our predecessor business that may be carried forward and utilized in current or future periods. As a result of our issuance of 25,875,000 shares of class A common stock in May 2013, the availability of our NOLs 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, 2018, we had estimated NOLs of $159.0 million that will expire in 2029, unless they are utilized by us prior to expiration.
As of December 31, 2018, tax years 2015 through 2018 remain subject to examination by taxing authorities.
F-39
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
14. STOCK-BASED INCENTIVE PLANS
We are externally managed by our Manager and do not currently have any employees. However, as of December 31, 2018, 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 nine benefit plans as of December 31, 2018. Seven of such benefit plans have expired and no new awards may be issued under them. Under our two current benefit plans, a maximum of 5,000,000 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 December 31, 2018, there were 4,306,655 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:
Restricted Class A
Common Stock |
Weighted-Average
Grant Date Fair Value Per Share |
|||||||
Balance as of December 31, 2016 |
1,309,995 | $ | 28.68 | |||||
Granted |
925,319 | 31.78 | ||||||
Vested |
(748,016 | ) | 28.69 | |||||
Forfeited |
(3,123 | ) | 27.37 | |||||
|
|
|
|
|||||
Balance as of December 31, 2017 |
1,484,175 | $ | 30.61 | |||||
|
|
|
|
|||||
Granted |
1,001,267 | 33.93 | ||||||
Vested |
(852,715 | ) | 30.10 | |||||
Forfeited |
(17,820 | ) | 30.44 | |||||
|
|
|
|
|||||
Balance as of December 31, 2018 |
1,614,907 | $ | 32.94 | |||||
|
|
|
|
These shares generally vest in installments over a three-year period, pursuant to the terms of the respective award agreements and the terms of the Current Plans. The 1,614,907 shares of restricted class A common stock outstanding as of December 31, 2018 will vest as follows: 843,678 shares will vest in 2019; 543,721 shares will vest in 2020; and 227,508 shares will vest in 2021. As of December 31, 2018, total unrecognized compensation cost relating to nonvested share-based compensation arrangements was $50.2 million based on the grant date fair value of shares granted, subsequent to our adoption of ASU 2018-07. The compensation cost of our share-based compensation arrangements for awards granted before our adoption of ASU 2018-07 is based on the closing price of our class A common stock of $31.43 on June 29, 2018, the last trading day prior to our adoption of ASU 2018-07. This cost is expected to be recognized over a weighted average period of 1.2 years from December 31, 2018. Refer to Note 2 for additional discussion on our adoption of ASU 2018-07.
F-40
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
15. FAIR VALUES
Assets and Liabilities Measured at Fair Value
The following table summarizes our assets and liabilities measured at fair value on a recurring basis ($ in thousands):
December 31, 2018 | December 31, 2017 | |||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Fair Value | Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||||||
Derivatives |
$ | | $ | 9,916 | $ | | $ | 9,916 | $ | | $ | 1,214 | $ | | $ | 1,214 | ||||||||||||||||
Liabilities |
||||||||||||||||||||||||||||||||
Derivatives |
$ | | $ | 2,925 | $ | | $ | 2,925 | $ | | $ | 4,911 | $ | | $ | 4,911 |
Refer to Note 2 for further discussion regarding fair value measurement.
Fair Value of Financial Instruments
As discussed in Note 2, GAAP requires disclosure of fair value information about financial instruments, whether or not recognized in the statement of financial position, for which it is practicable to estimate that value.
The following table details the book value, face amount, and fair value of the financial instruments described in Note 2 ($ in thousands):
December 31, 2018 | December 31, 2017 | |||||||||||||||||||||||
Book
Value |
Face
Amount |
Fair
Value |
Book
Value |
Face
Amount |
Fair
Value |
|||||||||||||||||||
Financial assets |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 105,662 | $ | 105,662 | $ | 105,662 | $ | 69,654 | $ | 69,654 | $ | 69,654 | ||||||||||||
Restricted cash |
| | | 32,864 | 32,864 | 32,864 | ||||||||||||||||||
Loans receivable, net |
14,191,200 | 14,293,970 | 14,294,836 | 10,056,732 | 10,108,226 | 10,112,331 | ||||||||||||||||||
Debt securities held-to-maturity (1) |
96,167 | 99,000 | 96,600 | | | | ||||||||||||||||||
Financial liabilities |
||||||||||||||||||||||||
Secured debt agreements, net |
8,974,756 | 8,996,481 | 8,996,481 | 5,273,855 | 5,290,536 | 5,290,536 | ||||||||||||||||||
Loan participations sold, net |
94,418 | 94,528 | 94,528 | 80,415 | 80,706 | 80,706 | ||||||||||||||||||
Securitized debt obligations, net |
1,285,471 | 1,292,120 | 1,283,086 | 1,282,412 | 1,292,120 | 1,292,589 | ||||||||||||||||||
Convertible notes, net |
609,911 | 622,500 | 605,348 | 563,911 | 575,000 | 610,201 |
(1) |
Included in other assets on our consolidated balance sheets. |
Estimates of fair value for cash and cash equivalents, restricted cash, and convertible notes are measured using observable, quoted market prices, or Level 1 inputs. Estimates of fair value for debt securities held-to-maturity and securitized debt obligations are measured using observable, quoted market prices, in inactive markets, or Level 2 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.
F-41
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
16. VARIABLE INTEREST ENTITIES
Consolidated Variable Interest Entities
We have financed a portion of our loans through the CLO and the 2017 Single Asset Securitization, both of which are VIEs. We are the primary beneficiary and consolidate the CLO and the 2017 Single Asset Securitization on our balance sheet as we (i) control the relevant interests of the CLO and the 2017 Single Asset Securitization that give us power to direct the activities that most significantly affect the CLO and the 2017 Single Asset Securitization, and (ii) have the right to receive benefits and obligation to absorb losses of the CLO and the 2017 Single Asset Securitization through the subordinate interests we own.
The following table details the assets and liabilities of our consolidated CLO and 2017 Single Asset Securitization VIEs ($ in thousands):
December 31, 2018 | December 31, 2017 | |||||||
Assets: |
||||||||
Loans receivable, net |
$ | 1,500,000 | $ | 1,500,000 | ||||
Other assets |
5,440 | 2,407 | ||||||
|
|
|
|
|||||
Total assets |
$ | 1,505,440 | $ | 1,502,407 | ||||
|
|
|
|
|||||
Liabilities: |
||||||||
Securitized debt obligations, net |
$ | 1,285,471 | $ | 1,282,412 | ||||
Other liabilities |
2,155 | 1,379 | ||||||
|
|
|
|
|||||
Total liabilities |
$ | 1,287,626 | $ | 1,283,791 | ||||
|
|
|
|
Assets held by these VIEs are restricted and can be used only to settle obligations of the VIEs, including the subordinate interests owned by us. The liabilities of these VIEs are non-recourse to us and can only be satisfied from the assets of the VIEs. The consolidation of these VIEs results in an increase in our gross assets, liabilities, interest income and interest expense, however it does not affect our stockholders equity or net income.
Non-Consolidated Variable Interest Entities
In the third quarter of 2018, we contributed a $517.5 million loan to the $1.0 billion 2018 Single Asset Securitization, which is a VIE, and invested in the related $99.0 million subordinate risk retention position. We are not the primary beneficiary of the VIE because we do not have the power to direct the activities that most significantly affect the VIEs economic performance and, therefore, do not consolidate the 2018 Single Asset Securitization on our balance sheet. We have classified the subordinate risk retention position as a held-to-maturity debt security that is included in other assets on our consolidated balance sheets. We are not obligated to provide, have not provided, and do not intend to provide, financial support to the 2018 Single Asset Securitization, and therefore, our maximum exposure to loss is limited to our book value of $96.2 million. Refer to Note 17 for further details of this transaction.
We are not obligated to provide, have not provided, and do not intend to provide financial support to these consolidated and non-consolidated VIEs.
17. TRANSACTIONS WITH RELATED PARTIES
We are managed by our Manager pursuant to the Management Agreement, the current term of which expires on December 19, 2019, and will be automatically renewed for a one-year term upon such date and each anniversary thereafter unless earlier terminated.
F-42
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
As of December 31, 2018 and 2017, our consolidated balance sheet included $18.6 million and $14.3 million of accrued management and incentive fees payable to our Manager, respectively. During the years ended December 31, 2018, 2017, and 2016, we paid management and incentive fees of $70.5 million, $53.4 million and $57.5 million, respectively, to our Manager. In addition, during the years ended December 31, 2018, 2017, and 2016, we reimbursed our Manager for expenses incurred on our behalf of $836,000, $621,000, and $462,000, respectively. During the year ended December 31, 2016, CT Legacy Partners made aggregate preferred distributions of $616,000 to an affiliate of our Manager. CT Legacy Partners did not make any preferred distributions during the years ended December 31, 2018 and December 31, 2017.
As of December 31, 2018, our Manager held 957,874 shares of unvested restricted class A common stock, which had an aggregate grant date fair value of $31.9 million, and vest in installments over three years from the date of issuance. During the years ended December 31, 2018, 2017, and 2016, we recorded non-cash expenses related to shares held by our Manager of $13.5 million, $11.7 million, and $9.6 million, respectively. Refer to Note 14 for further details on our restricted class A common stock.
An affiliate of our Manager is the special servicer of the CLO. This affiliate did not earn any special servicing fees related to the CLO during the years ended December 31, 2018 or 2017.
During the year ended December 31, 2018 and 2017, we originated nine loans and six loans, respectively, whereby each respective borrower engaged an affiliate of our Manager to act as title insurance agent in connection with each transaction. We did not incur any expenses or receive any revenues as a result of these transactions.
During the years ended December 31, 2018, 2017, and 2016, we incurred $450,000, $411,000, and $385,000, respectively, of expenses for various administrative, compliance, and capital market data services to third-party service providers that are affiliates of our Manager.
In the fourth quarter of 2018, we originated £148.7 million of a total £303.5 million senior loan to a borrower that is partially owned by Blackstone-advised investment vehicles. We will forgo all non-economic rights under the loan, including voting rights, so long as Blackstone-advised investment vehicles control the borrower. The senior loan terms were negotiated by a third-party without our involvement and our 49% interest in the senior loan was made on such market terms.
In March of 2018, we originated 1.0 billion of a total 7.3 billion senior term facility, or the Senior Term Facility, for the acquisition of a portfolio of Spanish real estate assets and a Spanish real estate management and loan servicing company by a joint venture between Banco Santander S.A. and certain Blackstone-advised investment vehicles. These investment vehicles own 51% of the joint venture, and we will forgo all non-economic rights under the Senior Term Facility, including voting rights, so long as Blackstone-advised investment vehicles control the joint venture. The Senior Term Facility was negotiated by the joint venture with third-party investment banks without our involvement, and our 14% interest in the Senior Term Facility was made on such market terms.
In the first quarter of 2018, we originated a $330.0 million senior loan, the proceeds of which were used by the borrower to repay an existing loan owned by a Blackstone-advised investment vehicle.
In the second quarter of 2018, we acquired from an unaffiliated third-party a 50% interest in a $1.0 billion senior loan to a borrower that is partially owned by a Blackstone-advised investment vehicle. In the third quarter of 2018, we contributed this loan to the 2018 Single Asset Securitization and invested in the related $99 million subordinate risk retention position. We will forgo all non-economic rights under the loan, including voting rights, so long as Blackstone-advised investment vehicles own the borrower above a certain threshold. Refer to Note 16 for further details on this transaction.
F-43
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
In July 2018, in a fully subscribed offering totaling $1.0 billion, certain Blackstone-advised investment vehicles purchased, in the aggregate, $116.1 million of securitized debt obligations issued by the 2018 Single Asset Securitization. In June 2017, in a fully subscribed offering totaling $474.6 million, certain Blackstone-advised investment vehicles purchased, in the aggregate, $72.9 million of securitized debt obligations issued by the 2017 Single Asset Securitization. These investments by the Blackstone-advised investment vehicles represented minority participations in any individual tranche and were purchased by the Blackstone-advised investment vehicles from third-party investment banks on market terms negotiated by the majority third-party investors.
In the fourth quarter of 2016, we originated a $79.0 million senior loan to a borrower to finance its purchase of a property that it acquired from an affiliate of our Manager. The purchase price of the property was fixed between the borrower and the affiliate of our Manager prior to us engaging in discussions with the borrower to act as its potential lender.
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 resulted 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 $41.3 million of net sales proceeds was paid to CT Legacy Partners, of which $3.6 million was received during 2016. As a result of the sale transaction, employees of our Manager, including certain of our executive officers, received incentive compensation payments totaling $2.8 million under the CT Legacy Partners Management Incentive Awards Plan, of which $244,000 was paid during 2016. See Note 12 for further discussion of the CT Legacy Partners Management Incentive Awards Plan.
18. COMMITMENTS AND CONTINGENCIES
Unfunded Commitments Under Loans Receivable
As of December 31, 2018, we had unfunded commitments of $3.4 billion related to 91 loans receivable, which amounts will generally be funded to finance our borrowers construction or development of real estate-related assets, capital improvements of existing assets, or lease-related expenditures. These commitments will generally be funded over the term of each loan, subject in certain cases to an expiration date.
Principal Debt Repayments
Our contractual principal debt repayments as of December 31, 2018 were as follows ($ in thousands):
Payment Timing | ||||||||||||||||||||
Total
Obligation |
Less Than
1 Year |
1 to
3 Years |
3 to
5 Years |
More Than
5 Years |
||||||||||||||||
Principal repayments under secured debt agreements (1) |
$ | 8,996,481 | $ | 265,141 | $ | 3,127,661 | $ | 5,206,541 | $ | 397,138 | ||||||||||
Principal repayments of convertible notes (2) |
622,500 | | | 622,500 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total (3) |
$ | 9,618,981 | $ | 265,141 | $ | 3,127,661 | $ | 5,829,041 | $ | 397,138 | ||||||||||
|
|
|
|
|
|
|
|
|
|
(1) |
The allocation of repayments under our secured debt agreements is based on the earlier of (i) the maturity date of each facility, or (ii) the maximum maturity date of the collateral loans, assuming all extension options are exercised by the borrower. |
(2) |
Reflects the outstanding principal balance of convertible notes, excluding any potential conversion premium. Refer to Note 9 for further details on our convertible notes. |
(3) |
As of December 31, 2018, the total does not include $94.5 million of loan participations sold, $446.9 million of non-consolidated senior interests, and $1.3 billion of securitized debt obligations, as the satisfaction of these liabilities will not require cash outlays from us. |
F-44
Blackstone Mortgage Trust, Inc.
Notes to Consolidated Financial Statements (continued)
Litigation
From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. As of December 31, 2018, we were not involved in any material legal proceedings.
Board of Directors Compensation
As of December 31, 2018, of the eight members of our board of directors, our five independent directors are entitled to annual compensation of $175,000 each, $75,000 of which will be paid in the form of cash and $100,000 in the form of deferred stock units. The other three board members, including our chairman and our chief executive officer, are not compensated by us for their service as directors. In addition, (i) the chair of our audit committee receives additional annual cash compensation of $20,000, (ii) the other members of our audit committee receive additional annual cash compensation of $10,000, and (iii) the chairs of each of our compensation and corporate governance committees receive additional annual cash compensation of $10,000.
19. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 2018 and 2017 ($ in thousands except per share data):
March 31 | June 30 | September 30 | December 31 | |||||||||||||
2018 |
||||||||||||||||
Income from loans and other investments, net |
$ | 85,436 | $ | 103,746 | $ | 105,152 | $ | 102,150 | ||||||||
Net income |
$ | 61,116 | $ | 72,507 | $ | 78,293 | $ | 73,896 | ||||||||
Net income attributable to |
||||||||||||||||
Blackstone Mortgage Trust, Inc. |
$ | 60,958 | $ | 72,312 | $ | 78,165 | $ | 73,643 | ||||||||
Net income per share of class A common stock: |
||||||||||||||||
Basic and diluted |
$ | 0.56 | $ | 0.66 | $ | 0.67 | $ | 0.61 | ||||||||
2017 |
||||||||||||||||
Income from loans and other investments, net |
$ | 71,843 | $ | 72,473 | $ | 78,555 | $ | 80,174 | ||||||||
Net income |
$ | 51,405 | $ | 50,613 | $ | 57,810 | $ | 58,140 | ||||||||
Net income attributable to |
||||||||||||||||
Blackstone Mortgage Trust, Inc. |
$ | 51,405 | $ | 50,613 | $ | 57,722 | $ | 57,891 | ||||||||
Net income per share of class A common stock: |
||||||||||||||||
Basic and diluted |
$ | 0.54 | $ | 0.53 | $ | 0.61 | $ | 0.59 |
Basic and diluted earnings per share are computed independently based on the weighted-average shares of common stock and stock units outstanding for each period. Accordingly, the sum of the quarterly earnings per share amounts may not agree to the total for the year.
F-45
Blackstone Mortgage Trust, Inc.
Schedule IV Mortgage Loans on Real Estate
As of December 31, 2018
(in thousands)
S-1
continued
Blackstone Mortgage Trust, Inc.
Schedule IV Mortgage Loans on Real Estate
As of December 31, 2018
(in thousands)
Type of Loan/Borrower |
Description / Location |
Interest Payment
Rates |
Maximum
Maturity Date (2) |
Periodic
Payment Terms (3) |
Prior
Liens (4) |
Face Amount
of Loans |
Carrying
Amount of Loans (5) |
|||||||||||||||||||
Subordinate Loans (6) |
||||||||||||||||||||||||||
Subordinate loans less than 3% of the carrying amount of total loans |
||||||||||||||||||||||||||
Subordinate loans | Various / Diversified | L+4.75% 5.25% | 2022 | I/O & P/I | 446,874 | 101,626 | 100,720 | |||||||||||||||||||
Fixed 5.75% | ||||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||
Total subordinate loans |
|
446,874 | 101,626 | 100,720 | ||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||
Total loans |
|
$ | 446,874 | $ | 14,293,970 | $ | 14,191,200 | |||||||||||||||||||
|
|
|
|
|
|
(1) |
Includes senior mortgages and similar credit quality loans, including related contiguous subordinate loans, and pari passu participations in senior mortgage loans. |
(2) |
Maximum maturity date assumes all extension options are exercised. |
(3) |
I/O = interest only, P/I = principal and interest. |
(4) |
Represents only third party liens. |
(5) |
The tax basis of the loans included above is $12.6 billion as of December 31, 2018. |
(6) |
Includes subordinate interests in mortgages and mezzanine loans. |
S-2
Blackstone Mortgage Trust, Inc.
Notes to Schedule IV
As of December 31, 2018
(in thousands)
1. |
Reconciliation of Mortgage Loans on Real Estate: |
The following table reconciles mortgage loans on real estate for the years ended:
2018 | 2017 | 2016 | ||||||||||
Balance at January 1, |
$ | 10,056,732 | $ | 8,692,978 | $ | 9,077,007 | ||||||
Additions during period: |
||||||||||||
Loan fundings |
7,890,051 | 4,072,786 | 3,151,882 | |||||||||
Amortization of deferred fees and expenses |
46,864 | 38,373 | 40,345 | |||||||||
Deductions during period: |
||||||||||||
Collections of principal |
(3,035,383 | ) | (2,828,610 | ) | (3,351,042 | ) | ||||||
Loan contributed to securitization |
(512,002 | ) | | | ||||||||
Unrealized (loss) gain on foreign currency translation |
(150,654 | ) | 136,646 | (156,937 | ) | |||||||
Deferred origination fees and expenses |
(104,408 | ) | (55,441 | ) | (44,697 | ) | ||||||
Loans sold |
| | (23,580 | ) | ||||||||
|
|
|
|
|
|
|||||||
Balance at December 31, |
$ | 14,191,200 | $ | 10,056,732 | $ | 8,692,978 | ||||||
|
|
|
|
|
|
S-3
Exhibit 10.19
BLACKSTONE MORTGAGE TRUST, INC.
2018 STOCK INCENTIVE PLAN
1. Purpose . The purpose of the Blackstone Mortgage Trust, Inc. 2018 Stock Incentive Plan is to provide a means through which the Company and its Affiliates may attract and retain key personnel, motivate outstanding performance and to provide a means whereby directors, officers, employees, consultants and advisors (and prospective directors, officers, employees, consultants and advisors) of the Company and its Affiliates, as well as employees of the Manager and its Affiliates who are providing services to the Company and its Affiliates, can acquire and maintain an equity interest in the Company, or be paid incentive compensation measured by reference to the value of Common Stock, thereby strengthening their commitment to the welfare of the Company and aligning their interests with those of the Companys stockholders.
2. Definitions . The following definitions shall be applicable throughout the Plan.
(a) Absolute Share Limit has the meaning given such term in Section 5(b) of the Plan.
(b) Affiliate means, with respect to any Person, (i) any other Person that directly or indirectly controls, is controlled by or is under common control with such Person and/or (ii) to the extent provided by the Committee, any person or entity in which such Person has a significant interest. The term control (including, with correlative meaning, the terms controlled by and under common control with), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting or other securities, by contract or otherwise.
(c) Award means, individually or collectively, any Incentive Stock Option, Nonqualified Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit and Other Stock-Based Award granted under the Plan.
(d) Award Agreement means the document or documents by which each Award is evidenced, which may be in written or electronic form.
(e) Board means the Board of Directors of the Company.
(f) Change in Control means:
(i) the acquisition (whether by purchase, merger, consolidation, combination or other similar transaction) by any Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50% (on a fully diluted basis) of either (A) the then outstanding shares of Common Stock, taking into account as outstanding for this purpose such Common Stock issuable upon the exercise of options or warrants, the conversion of convertible stock or debt, and the exercise of any similar right to acquire such Common Stock or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the Outstanding Company Voting Securities ); provided, however , that for purposes of
this Plan, the following acquisitions shall not constitute a Change in Control: (I) any acquisition by the Company or any Affiliate of the Company; (II) any acquisition by any employee benefit plan sponsored or maintained by the Company or any Affiliate of the Company; or (III) in respect of an Award held by a particular Participant, any acquisition by the Participant or any group of Persons including the Participant (or any entity controlled by the Participant or any group of Persons including the Participant);
(ii) during any period of 24 months, individuals who, at the beginning of such period, constitute the Board (the Incumbent Directors ) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; provided, however , that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-12 of Regulation 14A promulgated under the Exchange Act, with respect to directors or as a result of any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director;
(iii) the sale, transfer or other disposition of all or substantially all of the business or assets of the Company and its Subsidiaries to any Person that is not an Affiliate of the Company; or
(iv) the consummation of a reorganization, recapitalization, merger, consolidation, or other similar transaction involving the Company (a Business Combination ), unless immediately following such Business Combination 50% or more of the total voting power of the entity resulting from such Business Combination (or, if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership of sufficient voting securities eligible to elect a majority of the board of directors (or the analogous governing body) of such resulting entity), is held by the holders of the Outstanding Company Voting Securities immediately prior to such Business Combination.
(g) Code means the Internal Revenue Code of 1986, as amended, and any successor thereto. Reference in the Plan to any section of the Code shall be deemed to include any regulations or other interpretative guidance under such section, and any amendments or successor provisions to such section, regulations or guidance.
(h) Committee means a committee of the Board appointed by the Board to administer the Plan or, if no such committee has been appointed, the Board, or the Board to act in lieu of any such committee.
(i) Common Stock means the Class A Common Stock of the Company, par value $0.01 per share (and any stock or other securities into which such Common Stock may be converted or into which it may be exchanged).
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(j) Company means Blackstone Mortgage Trust, Inc., a Maryland corporation, and any successor thereto.
(k) Date of Grant means the date on which the granting of an Award is authorized, or such other date as may be specified in such authorization.
(l) Designated Foreign Subsidiaries means all Affiliates organized under the laws of any jurisdiction or country other than the United States of America that may be designated by the Board or the Committee from time to time.
(m) Disability means, unless in the case of a particular Award the applicable Award Agreement states otherwise, the Company or its Affiliates having cause to terminate a Participants employment or service on account of Disability, as defined in any then-existing employment, consulting or other similar agreement between the Participant and the Company or its Affiliates or, in the absence of such an employment, consulting or other similar agreement, a condition entitling the Participant to receive benefits under a long-term disability plan of the Company or its Affiliates, or, in the absence of such a plan, the complete and permanent inability of the Participant by reason of illness or accident to perform the duties of the occupation at which the Participant was employed or served when such disability commenced. Any determination of whether Disability exists in the absence of a long-term disability plan shall be made by the Committee in its sole and absolute discretion.
(n) Effective Date means April 18, 2018, the date on which the Plan was adopted by the Board, subject to obtaining the approval of the Companys stockholders, provided, however, that no fully vested and transferable shares of Common Stock may be issued pursuant to any Awards unless and until the Plan is approved by the Companys stockholders.
(o) Eligible Director means a person who is (i) a non-employee director within the meaning of Rule 16b-3 under the Exchange Act, with respect to actions intended to obtain an exemption from Section 16(b) of the Exchange Act and (ii) an independent director under the rules of the NYSE or any other securities exchange or inter-dealer quotation system on which the Common Stock is listed or quoted, or a person meeting any similar requirement under any successor rule or regulation.
(p) Eligible Person means (i) any individual employed by the Company or its Affiliates; provided, however , that no such employee covered by a collective bargaining agreement shall be an Eligible Person unless and to the extent that such eligibility is set forth in such collective bargaining agreement or in an agreement or instrument relating thereto; (ii) any non-officer director of the Company or its Affiliates; (iii) consultant or advisor to the Company or its Affiliates, including Manager Employees, who may be offered securities registrable pursuant to a registration statement on Form S-8 under the Securities Act; or (iv) any prospective employees, directors, officers, consultants or advisors who have accepted offers of employment or consultancy from the Company or its Affiliates (and would satisfy the provisions of clauses (i) through (iii) above once he or she begins employment with or providing services to the Company or its Affiliates), who, in the case of each of clauses (i) through (iv) above has entered into an Award Agreement or who has received written notification from the Committee or its designee that they have been selected to participate in the Plan.
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(q) Exchange Act means the Securities Exchange Act of 1934, as amended, and any successor thereto. Reference in the Plan to any section of (or rule promulgated under) the Exchange Act shall be deemed to include any rules, regulations or other interpretative guidance under such section or rule, and any amendments or successor provisions to such section, rules, regulations or guidance.
(r) Exercise Price has the meaning given such term in Section 7(b) of the Plan.
(s) Fair Market Value means, on a given date, (i) if the Common Stock is listed on a national securities exchange, the closing sales price of the Common Stock reported on the primary exchange on which the Common Stock is listed and traded on such date, or, if there are no such sales on that date, then on the last preceding date on which such sales were reported; (ii) if the Common Stock is not listed on any national securities exchange but is quoted in an inter-dealer quotation system on a last sale basis, the average between the closing bid price and ask price reported on such date, or, if there is no such sale on that date, then on the last preceding date on which a sale was reported; or (iii) if the Common Stock is not listed on a national securities exchange or quoted in an inter-dealer quotation system on a last sale basis, the amount determined by the Committee or the Board to be the fair market value of the Common Stock.
(t) GAAP has the meaning given such term in Section 7(d) of the Plan.
(u) Immediate Family Members has the meaning given such term in Section 13(b) of the Plan.
(v) Incentive Stock Option means an Option which is designated by the Committee as an incentive stock option as described in Section 422 of the Code and otherwise meets the requirements set forth in the Plan.
(w) Indemnifiable Person has the meaning given such term in Section 4(e) of the Plan.
(x) Management Agreement means that certain Management Agreement, dated as of March 26, 2013, by and between the Company and the Manager, as may be amended, restated, supplemented, replaced or otherwise modified from time to time, pursuant to which the Manager provides management services to the Company and its Subsidiaries.
(y) Manager means BXMT Advisors L.L.C., a Delaware limited liability company.
(z) Manager Employees means employees of the Manager or its Affiliates.
(aa) Manager Sale means:
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(i) the acquisition (whether by purchase, merger, consolidation, combination or other similar transaction) by any Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50% (on a fully diluted basis) of the Membership Interests ; provided, however , that for purposes of this Plan, the following acquisitions shall not constitute a Manager Sale: (I) any acquisition by the Manager or any Affiliate of the Manager; (II) any acquisition by any employee benefit plan sponsored or maintained by the Manager or any Affiliate of the Manager; or (III) in respect of an Award held by a particular Participant, any acquisition by the Participant or any group of Persons including the Participant (or any entity controlled by the Participant or any group of Persons including the Participant) (each of the entities in (I), (II) and (III) being referred to herein as an Affiliated Entity );
(ii) the sale, transfer or other disposition of all or substantially all of the business or assets of the Manager to any Person that is not an Affiliated Entity; or
(iii) the consummation of a reorganization, recapitalization, merger, consolidation, or other similar transaction involving the Manager (a Business Combination ), unless immediately following such Business Combination 50% or more of the total voting power of the entity resulting from such Business Combination is held by Blackstone Real Estate Special Situations Advisors L.L.C. or one or more of its Affiliates.
(bb) Manager Termination Event means the termination of the Management Agreement.
(cc) Membership Interests means the limited liability company interests of the Manager (and any interests, units or other securities into which such Membership Interests may be converted or into which they may be exchanged).
(dd) Nonqualified Stock Option means an Option which is not designated by the Committee as an Incentive Stock Option.
(ee) Non-Employee Director means a member of the Board who is not an employee nor officer of the Company or any Subsidiary or otherwise an Eligible Person under the Plan as a result of clause (iii) of the definition of Eligible Person.
(ff) NYSE means the New York Stock Exchange.
(gg) Option means an Award granted under Section 7 of the Plan.
(hh) Option Period has the meaning given such term in Section 7(c) of the Plan.
(ii) Other Stock-Based Award means an Award that is granted under Section 10 of the Plan.
(jj) Participant means an Eligible Person who has been selected by the Committee or the Board to participate in the Plan and to receive an Award pursuant to the Plan.
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(kk) Performance Criteria means specific levels of performance of the Company (and/or one or more of the Companys Affiliates, divisions or operational and/or business units, business segments, administrative departments, or any combination of the foregoing) or any Participant, which may be determined in accordance with GAAP or on a non-GAAP basis including, but not limited to, one or more of the following measures: (i) terms relative to a peer group or index; (ii) basic, diluted, or adjusted earnings per share; (iii) sales or revenue; (iv) earnings before interest, taxes, and other adjustments (in total or on a per share basis); (v) cash available for distribution; (vi) basic or adjusted net income; (vii) returns on equity, assets, capital, revenue or similar measure; (viii) level and growth of dividends; (ix) the price or increase in price of Common Stock; (x) total shareholder return; (xi) total assets; (xii) growth in assets, new originations of assets, or financing of assets; (xiii) equity market capitalization; (xiv) reduction or other quantifiable goal with respect to general and/or specific expenses; (xv) equity capital raised; (xvi) mergers, acquisitions, increase in enterprise value of Affiliates, subsidiaries, divisions or business units or sales of assets of Affiliates, Subsidiaries, divisions or business units or sales of assets; and (xvii) any combination of the foregoing. Any one or more of the Performance Criteria may be stated as a percentage of another Performance Criteria, or used on an absolute or relative basis to measure the performance of the Company and/or one or more Affiliates as a whole or any divisions or operational and/or business units, business segments, administrative departments of the Company and/or one or more Affiliates or any combination thereof, as the Committee may deem appropriate, or any of the above Performance Criteria may be compared to the performance of a selected group of comparison companies, or a published or special index that the Committee, in its sole discretion, deems appropriate, or as compared to various stock market indices.
(ll) Permitted Transferee has the meaning given such term in Section 13(b) of the Plan.
(mm) Person means any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act).
(nn) Plan means this Blackstone Mortgage Trust, Inc. 2018 Stock Incentive Plan, as it may be amended and restated from time to time.
(oo) Prior Plan Award means any award of equity-based compensation granted under the Prior Plans, which remains outstanding as of the Effective Date.
(pp) Prior Plans means the Blackstone Mortgage Trust, Inc. 2013 Stock Incentive Plan, the Blackstone Mortgage Trust, Inc. 2013 Manager Incentive Plan, the Blackstone Mortgage Trust, Inc. 2016 Stock Incentive Plan and the Blackstone Mortgage Trust, Inc. 2016 Manager Incentive Plan.
(qq) Qualifying Manager Termination means a (i) Manager Termination Event that occurs by action of the Company (other than as a result of the breach by the Manager of the Management Agreement), (ii) Manager Termination Event that occurs by action of the Manager as a result of the breach by the Company of the Management Agreement, or (iii) Manager Sale.
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(rr) Restricted Period means the period of time determined by the Committee during which an Award is subject to restrictions or, as applicable, the period of time within which performance is measured for purposes of determining whether an Award has been earned.
(ss) Restricted Stock means Common Stock, subject to certain specified restrictions (which may include, without limitation, a requirement that the Participant remain continuously employed or provide continuous services for a specified period of time), granted under Section 9 of the Plan.
(tt) Restricted Stock Unit means an unfunded and unsecured promise to deliver shares of Common Stock, cash, other securities or other property, subject to certain restrictions (which may include, without limitation, a requirement that the Participant remain continuously employed or provide continuous services for a specified period of time), granted under Section 9 of the Plan.
(uu) SAR Period has the meaning given such term in Section 8(c) of the Plan.
(vv) Securities Act means the Securities Act of 1933, as amended, and any successor thereto. Reference in the Plan to any section of (or rule promulgated under) the Securities Act shall be deemed to include any rules, regulations or other interpretative guidance under such section or rule, and any amendments or successor provisions to such section, rules, regulations or guidance.
(ww) Service Recipient means, with respect to a Participant holding a given Award, either the Company or an Affiliate of the Company by which the original recipient of such Award is, or following a Termination was most recently, principally employed or to which such original recipient provides, or following a Termination was most recently providing, services, as applicable.
(xx) Stock Appreciation Right or SAR means an Award granted under Section 8 of the Plan.
(yy) Strike Price has the meaning given such term in Section 8(b) of the Plan.
(zz) Subsidiary means, with respect to any specified Person:
(aaa) (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of such entitys voting securities (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders agreement that effectively transfers voting power) is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and
(bbb) (ii) any partnership (or any comparable foreign entity) (A) the sole general partner (or functional equivalent thereof) or the managing general partner of which is such Person or Subsidiary of such Person, or (B) the only general partners (or functional equivalents thereof) of which are that Person or one or more Subsidiaries of that Person (or any combination thereof).
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(ccc) Substitute Award has the meaning given such term in Section 5(e) of the Plan.
(ddd) Sub-Plans means any sub-plan to this Plan that has been adopted by the Board or the Committee for the purpose of permitting the offering of Awards to employees of certain Designated Foreign Subsidiaries or otherwise outside the United States of America, with each such sub-plan designed to comply with local laws applicable to offerings in such foreign jurisdictions. Although any Sub-Plan may be designated a separate and independent plan from the Plan in order to comply with applicable local laws, the Absolute Share Limit and the other limits specified in Section 5(b) shall apply in the aggregate to the Plan and any Sub-Plan adopted hereunder.
(eee) Termination means the termination of a Participants employment or service, as applicable, with the Service Recipient; provided, however, that with respect to any Participant who is an employee of the Manager or its Affiliates, such Participant shall instead be deemed to undergo a Termination hereunder upon a termination of such Participants employment with the Manager and its Affiliates.
3. Effective Date; Duration . The Plan shall be effective as of the Effective Date. The expiration date of the Plan, on and after which date no Awards may be granted hereunder, shall be the tenth (10 th ) anniversary of the Effective Date; provided, however , that such expiration shall not affect Awards then outstanding, and the terms and conditions of the Plan shall continue to apply to such Awards. No additional Awards may be granted under the Prior Plans on or following the Effective Date.
4. Administration .
(a) The Committee shall administer the Plan. To the extent required to comply with the provisions of Rule 16b-3 promulgated under the Exchange Act (if the Board is not acting as the Committee under the Plan) or the rules of the NYSE or any other securities exchange or inter-dealer quotation system on which the Common Stock is listed or quoted, it is intended that each member of the Committee shall, at the time such member takes any action with respect to an Award under the Plan that is intended to (i) qualify for the exemptions provided by Rule 16b-3 promulgated under the Exchange Act or (ii) be granted to the Chief Executive Officer of the Company, if so required, be an Eligible Director. However, the fact that a Committee member shall fail to qualify as an Eligible Director shall not invalidate any Award granted by the Committee that is otherwise validly granted under the Plan.
(b) Subject to the provisions of the Plan and applicable law, the Committee shall have the sole and plenary authority, in addition to other express powers and authorizations conferred on the Committee by the Plan or pursuant to the authorization of the Board, to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to a Participant; (iii) determine the number of shares of Common Stock to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to what extent, and
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under what circumstances Awards may be settled in, or exercised for, cash, shares of Common Stock, other securities, other Awards or other property, or canceled, forfeited, or suspended and the method or methods by which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi) determine whether, to what extent, and under what circumstances the delivery of cash, shares of Common Stock, other securities, other Awards or other property and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the Participant or of the Committee; (vii) interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in the Plan and any instrument or agreement relating to, or Award granted under, the Plan; (viii) establish, amend, suspend, or waive any rules and regulations and appoint such agents as the Committee shall deem appropriate for the proper administration of the Plan; (ix) adopt Sub-Plans; and (x) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan.
(c) Except to the extent prohibited by applicable law or the applicable rules and regulations of any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or traded, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any Person or Persons selected by it. Any such allocation or delegation may be revoked by the Committee at any time. Without limiting the generality of the foregoing, the Committee may delegate to one or more officers of the Company or any Subsidiary the authority to act on behalf of the Committee with respect to any matter, right, obligation, or election which is the responsibility of, or which is allocated to, the Committee herein, and which may be so delegated as a matter of law, except for grants of Awards to persons who are Non-Employee Directors or otherwise are subject to Section 16 of the Exchange Act.
(d) Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan, any Award or any Award Agreement shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all Persons, including, without limitation, the Company, any Affiliate of the Company, any Participant, any holder or beneficiary of any Award, and any stockholder of the Company.
(e) No member of the Board, the Committee or any employee or agent of the Company (each such Person, an Indemnifiable Person ) shall be liable for any action taken or omitted to be taken or any determination made with respect to the Plan or any Award hereunder (unless constituting fraud or a willful criminal act or omission). Each Indemnifiable Person shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense (including attorneys fees) that may be imposed upon or incurred by such Indemnifiable Person in connection with or resulting from any action, suit or proceeding to which such Indemnifiable Person may be a party or in which such Indemnifiable Person may be involved by reason of any action taken or omitted to be taken or determination made with respect to the Plan or any Award hereunder and against and from any and all amounts paid by such Indemnifiable Person with the Companys approval, in settlement thereof, or paid by such Indemnifiable Person in satisfaction of any judgment in any such action, suit or proceeding against such Indemnifiable Person, and the Company shall advance to such Indemnifiable
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Person any such expenses promptly upon written request (which request shall include an undertaking by the Indemnifiable Person to repay the amount of such advance if it shall ultimately be determined, as provided below, that the Indemnifiable Person is not entitled to be indemnified); provided , that the Company shall have the right, at its own expense, to assume and defend any such action, suit or proceeding and once the Company gives notice of its intent to assume the defense, the Company shall have sole control over such defense with counsel of the Companys choice. The foregoing right of indemnification shall not become available to an Indemnifiable Person to the extent that a final judgment or other final adjudication (in either case not subject to further appeal) binding upon such Indemnifiable Person determines that the acts, omissions or determinations of such Indemnifiable Person giving rise to the indemnification claim resulted from such Indemnifiable Persons fraud or willful criminal act or omission or that such right of indemnification is otherwise prohibited by law or by the Companys Charter or Bylaws. The foregoing right of indemnification shall not be exclusive of or otherwise supersede any other rights of indemnification to which such Indemnifiable Persons may be entitled under the Companys Charter or Bylaws, as a matter of law, under an individual indemnification agreement or contract or otherwise, or any other power that the Company may have to indemnify such Indemnifiable Persons or hold such Indemnifiable Persons harmless.
(f) Notwithstanding anything to the contrary contained in the Plan, the Board may, in its sole discretion, at any time and from time to time, grant Awards and administer the Plan with respect to such Awards. Any such actions by the Board shall be subject to the applicable rules of the NYSE or any other securities exchange or inter-dealer quotation system on which the Common Stock is listed or quoted. In any such case, the Board shall have all the authority granted to the Committee under the Plan.
5. Grant of Awards; Shares Subject to the Plan; Limitations .
(a) The Committee may, from time to time, grant Awards to one or more Eligible Persons. All Awards granted under the Plan shall vest and become exercisable in such manner and on such date or dates or upon such event or events as determined by the Committee, including, without limitation, attainment of Performance Criteria.
(b) Awards granted under the Plan shall be subject to the following limitations: (i) subject to Section 11 of the Plan, no more than 5,000,000 shares of Common Stock, less any shares of Common Stock issued or subject to awards granted under the Blackstone Mortgage Trust, Inc. 2018 Manager Incentive Plan (the Absolute Share Limit ) shall be available for Awards under the Plan; (ii) subject to Section 11 of the Plan, no more than the number of shares of Common Stock equal to the Absolute Share Limit may be issued in the aggregate pursuant to the exercise of Incentive Stock Options granted under the Plan; and (iii) the maximum number of shares of Common Stock subject to Awards granted during a single fiscal year to any Non-Employee Director, taken together with any cash fees paid to such Non-Employee Director during the fiscal year, shall not exceed $300,000 in total value (calculating the value of any such Awards based on the grant date fair value of such Awards for financial reporting purposes).
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(c) Other than with respect to Substitute Awards, to the extent that an Award or Prior Plan Award expires or is canceled, forfeited or terminated without delivery to the Participant of the full number of shares of Common Stock to which the Award or Prior Plan Award, as applicable, related, the undelivered shares will be returned to the Absolute Share Limit and will again be available for grant under the Plan. Shares of Common Stock shall be deemed to have been issued in settlement of Awards or Prior Plan Awards, as applicable, if the Fair Market Value equivalent of such shares is paid in cash; provided, however , that no shares shall be deemed to have been issued in settlement of a SAR that only provides for settlement in cash and settles only in cash; provided, further that in no event shall such shares increase the number of shares of Common Stock that may be delivered pursuant to Incentive Stock Options granted under the Plan. In no event shall (i) shares tendered or withheld on the exercise of Options or other Award or Prior Plan Award, as applicable, for the payment of the exercise or purchase price or withholding taxes, (ii) shares not issued upon the settlement of a SAR that settles in shares of Common Stock (or could settle in shares of Common Stock), or (iii) shares purchased on the open market with cash proceeds from the exercise of Options, again become available for other Awards under the Plan.
(d) Shares of Common Stock issued by the Company in settlement of Awards may be authorized and unissued shares, shares held in the treasury of the Company, shares purchased on the open market or by private purchase or a combination of the foregoing.
(e) Awards may, in the sole discretion of the Committee, be granted under the Plan in assumption of, or in substitution for, outstanding awards previously granted by an entity directly or indirectly acquired by the Company or with which the Company combines ( Substitute Awards ). Substitute Awards shall not be counted against the Absolute Share Limit; provided , that Substitute Awards issued in connection with the assumption of, or in substitution for, outstanding options intended to qualify as incentive stock options within the meaning of Section 422 of the Code shall be counted against the aggregate number of shares of Common Stock available for Awards of Incentive Stock Options under the Plan. Subject to applicable stock exchange requirements, available shares under a stockholder-approved plan of an entity directly or indirectly acquired by the Company or with which the Company combines (as appropriately adjusted to reflect the acquisition or combination transaction) may be used for Awards under the Plan and shall not reduce the number of shares of Common Stock available for issuance under the Plan.
6. Eligibility . Participation in the Plan shall be limited to Eligible Persons.
7. Options .
(a) General . Each Option granted under the Plan shall be evidenced by an Award Agreement, which agreement need not be the same for each Participant. Each Option so granted shall be subject to the conditions set forth in this Section 7, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. All Options granted under the Plan shall be Nonqualified Stock Options unless the applicable Award Agreement expressly states that the Option is intended to be an Incentive Stock Option. Incentive Stock Options shall be granted only to Eligible Persons who are employees of the Company and its Affiliates, and no Incentive Stock Option shall be granted to any Eligible Person who is ineligible to receive an Incentive Stock Option under the Code. No Option shall be treated as an Incentive Stock Option unless the Plan has been approved by the stockholders of the Company in a manner intended to comply with the stockholder approval requirements of
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Section 422(b)(1) of the Code, provided that any Option intended to be an Incentive Stock Option shall not fail to be effective solely on account of a failure to obtain such approval, but rather such Option shall be treated as a Nonqualified Stock Option unless and until such approval is obtained. In the case of an Incentive Stock Option, the terms and conditions of such grant shall be subject to and comply with such rules as may be prescribed by Section 422 of the Code. If for any reason an Option intended to be an Incentive Stock Option (or any portion thereof) shall not qualify as an Incentive Stock Option, then, to the extent of such nonqualification, such Option or portion thereof shall be regarded as a Nonqualified Stock Option appropriately granted under the Plan.
(b) Exercise Price . Except as otherwise provided by the Committee in the case of Substitute Awards, the exercise price ( Exercise Price ) per share of Common Stock for each Option shall not be less than 100% of the Fair Market Value of such share (determined as of the Date of Grant); provided, however , that in the case of an Incentive Stock Option granted to an employee who, at the time of the grant of such Option, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Affiliate of the Company, the Exercise Price per share shall be no less than 110% of the Fair Market Value per share on the Date of Grant.
(c) Vesting and Expiration . Options shall vest and become exercisable in such manner and on such date or dates or upon such event or events as determined by the Committee. Except as set forth in Sections 11, 13(i) and 13(j) hereto, the Committee shall not accelerate vesting of an Option. Options shall expire after such period, as may be determined by the Committee, not to exceed ten (10) years from the Date of Grant (the Option Period ); provided , that if the Option Period (other than in the case of an Incentive Stock Option) would expire at a time when trading in the shares of Common Stock is prohibited by the Companys insider trading policy (or Company-imposed blackout period), then the Option Period shall be automatically extended until the thirtieth (30 th ) day following the expiration of such prohibition. Notwithstanding the foregoing, in no event shall the Option Period exceed five (5) years from the Date of Grant in the case of an Incentive Stock Option granted to a Participant who on the Date of Grant owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Affiliate of the Company.
(d) Method of Exercise and Form of Payment . No shares of Common Stock shall be issued pursuant to any exercise of an Option until payment in full of the Exercise Price therefor is received by the Company and the Participant has paid to the Company an amount equal to any Federal, state, local and non-U.S. income, employment and any other applicable taxes required to be withheld. Options which have become exercisable may be exercised by delivery of written or electronic notice of exercise to the Company (or telephonic instructions to the extent provided by the Committee) in accordance with the terms of the Option accompanied by payment of the Exercise Price. The Exercise Price shall be payable: (i) in cash, check, cash equivalent and/or shares of Common Stock valued at the Fair Market Value at the time the Option is exercised (including, pursuant to procedures approved by the Committee, by means of attestation of ownership of a sufficient number of shares of Common Stock in lieu of actual delivery of such shares to the Company); provided , that such shares of Common Stock are not subject to any pledge or other security interest and have been held by the Participant for at least six (6) months (or such other period as established from time to time by the Committee in order
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to avoid adverse accounting treatment applying generally accepted accounting principles (GAAP)); or (ii) by such other method as the Committee may permit, in its sole discretion, including, without limitation (A) in other property having a fair market value on the date of exercise equal to the Exercise Price; (B) if there is a public market for the shares of Common Stock at such time, by means of a broker-assisted cashless exercise pursuant to which the Company is delivered (including telephonically to the extent permitted by the Committee) a copy of irrevocable instructions to a stockbroker to sell the shares of Common Stock otherwise issuable upon the exercise of the Option and to deliver promptly to the Company an amount equal to the Exercise Price; or (C) a net exercise procedure effected by withholding the minimum number of shares of Common Stock otherwise issuable in respect of an Option that are needed to pay the Exercise Price and all applicable required withholding taxes. Any fractional shares of Common Stock shall be settled in cash.
(e) Notification upon Disqualifying Disposition of an Incentive Stock Option . Each Participant awarded an Incentive Stock Option under the Plan shall notify the Company in writing immediately after the date the Participant makes a disqualifying disposition of any Common Stock acquired pursuant to the exercise of such Incentive Stock Option. A disqualifying disposition is any disposition (including, without limitation, any sale) of such Common Stock before the later of (i) the date that is two (2) years after the Date of Grant of the Incentive Stock Option, or (ii) the date that is one (1) year after the date of exercise of the Incentive Stock Option. The Company may, if determined by the Committee and in accordance with procedures established by the Committee, retain possession, as agent for the applicable Participant, of any Common Stock acquired pursuant to the exercise of an Incentive Stock Option until the end of the period described in the preceding sentence, subject to complying with any instructions from such Participant as to the sale of such Common Stock.
(f) Compliance With Laws, etc . Notwithstanding the foregoing, in no event shall a Participant be permitted to exercise an Option in a manner which the Committee determines would violate the Sarbanes-Oxley Act of 2002, as it may be amended from time to time, or any other applicable law or the applicable rules and regulations of the Securities and Exchange Commission or the applicable rules and regulations of any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or traded.
8. Stock Appreciation Rights .
(a) General . Each SAR granted under the Plan shall be evidenced by an Award Agreement. Each SAR so granted shall be subject to the conditions set forth in this Section 8, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. Any Option granted under the Plan may include tandem SARs. The Committee also may award SARs to Eligible Persons independent of any Option.
(b) Strike Price . Except as otherwise provided by the Committee in the case of Substitute Awards, the strike price ( Strike Price ) per share of Common Stock for each SAR shall not be less than 100% of the Fair Market Value of such share (determined as of the Date of Grant). Notwithstanding the foregoing, a SAR granted in tandem with (or in substitution for) an Option previously granted shall have a Strike Price equal to the Exercise Price of the corresponding Option.
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(c) Vesting and Expiration . A SAR granted in connection with an Option shall become exercisable and shall expire according to the same vesting schedule and expiration provisions as the corresponding Option. Solely in the case of a SAR that may be settled in Common Stock, a SAR granted independent of an Option:
(i) shall vest and become exercisable in such manner and on such date or dates or upon such event or events as determined by the Committee; and
(ii) shall expire in such manner and on such date or dates or upon such event or events as determined by the Committee and shall expire after such period, as may be determined by the Committee, not to exceed ten (10) years from the Date of Grant (the SAR Period ); provided that if the SAR Period would expire at a time when trading in the shares of Common Stock is prohibited by the Companys insider trading policy (or Company-imposed blackout period), then the SAR Period shall be automatically extended until the 30th day following the expiration of such prohibition.
Solely in the case of a SAR that may be settled in Common Stock, except as set forth in Sections 11, 13(i) and 13(j) hereto, the Committee shall not accelerate vesting of any such SAR.
(d) Method of Exercise . SARs which have become exercisable may be exercised by delivery of written or electronic notice of exercise to the Company in accordance with the terms of the Award, specifying the number of SARs to be exercised and the date on which such SARs were awarded.
(e) Payment . Upon the exercise of a SAR, the Company shall pay to the Participant an amount equal to the number of shares subject to the SAR that is being exercised multiplied by the excess, if any, of the Fair Market Value of one (1) share of Common Stock on the exercise date over the Strike Price, less an amount equal to any Federal, state, local and non-U.S. income, employment and any other applicable taxes required to be withheld. The Company shall pay such amount in cash, in shares of Common Stock valued at Fair Market Value, or any combination thereof, as determined by the Committee in its sole discretion. Any fractional shares of Common Stock shall be settled in cash.
(f) Substitution of SARs for Nonqualified Stock Options . The Committee shall have the power in its sole discretion to substitute, without the consent of the affected Participant or any holder or beneficiary of SARs, SARs settled in shares of Common Stock (or settled in shares or cash in the sole discretion of the Committee) for outstanding Nonqualified Stock Options, provided that (i) the substitution shall not otherwise result in a modification of the terms of any such Nonqualified Stock Option, (ii) the number of shares of Common Stock underlying the substituted SARs shall be the same as the number of shares of Common Stock underlying such Nonqualified Stock Options and (iii) the Strike Price of the substituted SARs shall be equal to the Exercise Price of such Nonqualified Stock Options; provided, however, that if, in the opinion of the Companys independent public auditors, the foregoing provision creates adverse accounting consequences for the Company, such provision shall be considered null and void.
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9. Restricted Stock and Restricted Stock Units .
(a) General . Each grant of Restricted Stock and Restricted Stock Units shall be evidenced by an Award Agreement. Each Restricted Stock and Restricted Stock Unit so granted shall be subject to the conditions set forth in this Section 9, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement.
(b) Stock Certificates and Book-Entry ; Escrow or Similar Arrangement . Upon the grant of Restricted Stock, the Committee shall cause a stock certificate registered in the name of the Participant to be issued or shall cause share(s) of Common Stock to be registered in the name of the Participant and held in book-entry form subject to the Companys directions and, if the Committee determines that the Restricted Stock shall be held by the Company or in escrow rather than issued to the Participant pending the release of the applicable restrictions, the Committee may require the Participant to additionally execute and deliver to the Company (i) an escrow agreement satisfactory to the Committee, if applicable; and (ii) the appropriate stock power (endorsed in blank) with respect to the Restricted Stock covered by such agreement. If a Participant shall fail to execute and deliver (in a manner permitted under Section 13(a) of the Plan or as otherwise determined by the Committee) an agreement evidencing an Award of Restricted Stock and, if applicable, an escrow agreement and blank stock power within the amount of time specified by the Committee, the Award shall be null and void. Subject to the restrictions set forth in this Section 9 and the applicable Award Agreement, a Participant generally shall have the rights and privileges of a stockholder as to shares of Restricted Stock, including, without limitation, the right to vote such Restricted Stock; provided , that if the lapsing of restrictions with respect to any grant of Restricted Stock is contingent on satisfaction of performance conditions (other than, or in addition to, the passage of time), any dividends payable on such shares of Restricted Stock shall be held by the Company and delivered (without interest) to the Participant within fifteen (15) days following the date on which the restrictions on such Restricted Stock lapse (and the right to any such accumulated dividends shall be forfeited upon the forfeiture of the Restricted Stock to which such dividends relate). To the extent shares of Restricted Stock are forfeited, any stock certificates issued to the Participant evidencing such shares shall be returned to the Company, and all rights of the Participant to such shares and as a stockholder with respect thereto shall terminate without further obligation on the part of the Company. A Participant shall have no rights or privileges as a stockholder as to Restricted Stock Units.
(c) Vesting . Restricted Stock and Restricted Stock Units shall vest, and any applicable Restricted Period shall lapse, in such manner and on such date or dates or upon such event or events as determined by the Committee. Except as set forth in Sections 11, 13(i) and 13(j) hereto, the Committee shall not accelerate vesting of Restricted Stock or Restricted Stock Units.
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(d) Issuance of Restricted Stock and Settlement of Restricted Stock Units .
(i) Upon the expiration of the Restricted Period with respect to any shares of Restricted Stock, the restrictions set forth in the applicable Award Agreement shall be of no further force or effect with respect to such shares, except as set forth in the applicable Award Agreement. If an escrow arrangement is used, upon such expiration, the Company shall issue to the Participant, or the Participants beneficiary, without charge, the stock certificate (or, if applicable, a notice evidencing a book-entry notation) evidencing the shares of Restricted Stock which have not then been forfeited and with respect to which the Restricted Period has expired (rounded down to the nearest full share). Dividends, if any, that may have been withheld by the Committee and attributable to any particular share of Restricted Stock shall be distributed to the Participant in cash or, in the sole discretion of the Committee, in shares of Common Stock having a Fair Market Value (on the date of distribution) equal to the amount of such dividends, upon the release of restrictions on such share and, if such share is forfeited, the Participant shall have no right to such dividends.
(ii) Unless otherwise provided by the Committee in an Award Agreement or otherwise, upon the expiration of the Restricted Period with respect to any outstanding Restricted Stock Units, the Company shall issue to the Participant or the Participants beneficiary, without charge, one (1) share of Common Stock (or other securities or other property, as applicable) for each such outstanding Restricted Stock Unit; provided, however , that the Committee may, in its sole discretion, elect to (A) pay cash or part cash and part shares of Common Stock in lieu of issuing only shares of Common Stock in respect of such Restricted Stock Units; or (B) defer the issuance of shares of Common Stock (or cash or part cash and part shares of Common Stock, as the case may be) beyond the expiration of the Restricted Period if such extension would not cause adverse tax consequences under Section 409A of the Code. If a cash payment is made in lieu of issuing shares of Common Stock in respect of such Restricted Stock Units, the amount of such payment shall be equal to the Fair Market Value per share of the Common Stock as of the date on which the Restricted Period lapsed with respect to such Restricted Stock Units. To the extent provided in an Award Agreement, the holder of outstanding Restricted Stock Units shall be entitled to be credited with dividend equivalent payments (upon the payment by the Company of dividends on shares of Common Stock) either in cash or, in the sole discretion of the Committee, in shares of Common Stock having a Fair Market Value equal to the amount of such dividends (and interest may, in the sole discretion of the Committee, be credited on the amount of cash dividend equivalents at a rate and subject to such terms as determined by the Committee), which accumulated dividend equivalents (and interest thereon, if applicable) shall be payable at the same time as the underlying Restricted Stock Units are settled following the date on which the Restricted Period lapses with respect to such Restricted Stock Units, and, if such Restricted Stock Units are forfeited, the Participant shall have no right to such dividend equivalent payments (or interest thereon, if applicable).
(e) Legends on Restricted Stock . Each certificate, if any, or book entry representing Restricted Stock awarded under the Plan, if any, shall bear a legend or book entry notation substantially in the form of the following, in addition to any other information the Company deems appropriate, until the lapse of all restrictions with respect to such shares of Common Stock:
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TRANSFER OF THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY IS RESTRICTED PURSUANT TO THE TERMS OF THE BLACKSTONE MORTGAGE TRUST, INC. 2018 STOCK INCENTIVE PLAN AND A RESTRICTED STOCK AWARD AGREEMENT, BETWEEN BLACKSTONE MORTGAGE TRUST, INC. AND PARTICIPANT. A COPY OF SUCH PLAN AND AWARD AGREEMENT IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF BLACKSTONE MORTGAGE TRUST, INC.
10. Other Stock-Based Awards . The Committee may issue unrestricted Common Stock, rights to receive grants of Awards at a future date, and other Awards denominated in or based upon Common Stock (including, without limitation, performance shares or performance units), under the Plan to Eligible Persons, alone or in tandem with other Awards, in such amounts and dependent on such conditions as the Committee shall from time to time in its sole discretion determine. Each Other Stock-Based Award granted under the Plan shall be evidenced by an Award Agreement. Each Other Stock-Based Award so granted shall be subject to such conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement or other form evidencing such Award, including, without limitation, those set forth in Section 13(a) of the Plan. Except as set forth in Sections 11, 13(i) and 13(j) hereto, the Committee shall not accelerate vesting.
11. Changes in Capital Structure and Similar Events . Notwithstanding any other provision in this Plan to the contrary, the following provisions shall apply to all Awards granted hereunder:
(a) General . In the event of (i) any dividend (other than regular cash dividends) or other distribution (whether in the form of cash, shares of Common Stock, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, split-off, spin-off, combination, repurchase or exchange of shares of Common Stock or other securities of the Company, issuance of warrants or other rights to acquire shares of Common Stock or other securities of the Company, or other similar corporate transaction or event that affects the shares of Common Stock (including, without limitation, a Change in Control); or (ii) unusual or nonrecurring events (including, without limitation, a Change in Control) affecting the Company, any Affiliate of the Company, or the financial statements of the Company or any Affiliate of the Company, or changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange or inter-dealer quotation system, accounting principles or law, such that in either case an adjustment is determined by the Committee in its sole discretion to be necessary or appropriate, then the Committee shall make any such proportionate substitution or adjustment, if any, as it deems equitable, including without limitation, adjusting any or all of (A) the Absolute Share Limit, or any other limit applicable under the Plan with respect to the number of Awards which may be granted hereunder; (B) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities or other property) which may be issued in respect of Awards or with respect to which Awards may be granted under the Plan (including, without limitation, adjusting any or all of the limitations under Section 5 of the Plan) or any Sub-Plan; and (C) the terms of any outstanding Award, including, without limitation, (I) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities or other property) subject to outstanding Awards or to which outstanding Awards relate; (II) the Exercise Price or Strike Price with respect to any Award; or (III) any applicable performance measures (including, without limitation, Performance Criteria);
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provided , that in the case of any equity restructuring (within the meaning of the Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor pronouncement thereto)), the Committee shall make an equitable or proportionate adjustment to outstanding Awards to reflect such equity restructuring. Any adjustment under this Section 11 shall be conclusive and binding for all purposes.
(b) Change in Control . Without limiting the foregoing, in connection with any Change in Control, the Committee may, in its sole discretion, provide for any one or more of the following:
(i) substitution or assumption of Awards, or to the extent the surviving entity (or Affiliate thereof) is unwilling to permit substitution or assumption of the Awards, full acceleration of the vesting of any time-vested Awards, and acceleration of any performance-vested Awards (based on actual performance through the date of such Change in Control and on a pro-rata basis); and/or
(ii) cancellation of any one or more outstanding Awards and payment to the holders of such Awards that are vested as of such cancellation (including, without limitation, any Awards that would vest as a result of the occurrence of such event but for such cancellation, including as provided in Section 11(b)(i) above), the value of such Awards, if any, as determined by the Committee (which value, if applicable, may be based upon the price per share of Common Stock received or to be received by other stockholders of the Company in such event), including, without limitation, in the case of an outstanding Option or SAR, a cash payment in an amount equal to the excess, if any, of the Fair Market Value (as of a date specified by the Committee) of the shares of Common Stock subject to such Option or SAR over the aggregate Exercise Price or Strike Price of such Option or SAR (it being understood that, in such event, any Option or SAR having a per share Exercise Price or Strike Price equal to, or in excess of, the Fair Market Value of a share of Common Stock subject thereto may be canceled and terminated without any payment or consideration therefor).
For purposes of clause (i) above, substitution of an Award may include conversion of the shares of Common Stock underlying such Award into shares of the buyer (or Affiliate thereof), or, subject to any limitations or reductions as may be necessary to comply with Section 409A of the Code, into cash, property or other securities having an equivalent value as the Award (as determined consistent with clause (ii) above), which conversion shall not affect any continued vesting requirements of the Award. For the avoidance of doubt, any such substitution of an Award shall not provide for the acceleration of any vesting requirements of the Award and no Awards shall vest solely as a result of such substitution. Payments to holders pursuant to clause (ii) above shall be made in cash or, in the sole discretion of the Committee, in the form of such other consideration necessary for a Participant to receive property, cash, or securities (or combination thereof) as such Participant would have been entitled to receive upon the occurrence of the transaction if the Participant had been, immediately prior to such transaction, the holder of the number of shares of Common Stock covered by the Award at such time (less any applicable Exercise Price or Strike Price).
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(c) No Automatic Acceleration . No Award Agreement shall provide for automatic acceleration of the vesting of any time-vested Awards or performance-vested Awards upon a Change in Control.
(d) Other Requirements . Prior to any payment or adjustment contemplated under this Section 11, the Committee may require a Participant to (i) represent and warrant as to the unencumbered title to the Participants Awards; (ii) bear such Participants pro rata share of any post-closing indemnity obligations, and be subject to the same post-closing purchase price adjustments, escrow terms, offset rights, holdback terms, and similar conditions as the other holders of Common Stock, subject to any limitations or reductions as may be necessary to comply with Section 409A of the Code; and (iii) deliver customary transfer documentation as reasonably determined by the Committee.
(e) Fractional Shares . Any adjustment provided under this Section 11 may provide for the elimination of any fractional share that might otherwise become subject to an Award.
12. Amendments and Termination .
(a) Amendment and Termination of the Plan . The Board may amend, alter, suspend, discontinue, or terminate the Plan or any portion thereof at any time; provided , that no such amendment, alteration, suspension, discontinuance or termination shall be made without stockholder approval if (i) such stockholder approval is necessary to comply with any regulatory requirement applicable to the Plan (including, without limitation, as necessary to comply with any rules or regulations of any securities exchange or inter-dealer quotation system on which the securities of the Company may be listed or quoted) or for changes in GAAP to new accounting standards; (ii) it would materially increase the number of securities which may be issued under the Plan (except for increases pursuant to Section 5 or 11 of the Plan); (iii) it would materially expand the category of Eligible Persons, extend the period during which new Awards may be granted under the Plan or change the method of determining the Exercise Price or Strike Price; or (iv) delete or limit the prohibition on repricing as provided in Section 12(c) below; provided, further , that any such amendment, alteration, suspension, discontinuance or termination that would materially and adversely affect the rights of any Participant or any holder or beneficiary of any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary. Notwithstanding the foregoing, no amendment shall be made to Section 12(c) of the Plan without stockholder approval.
(b) Amendment of Award Agreements . The Committee may, to the extent consistent with the Plan and the terms of any applicable Award Agreement, waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any Award theretofore granted or the associated Award Agreement, prospectively or retroactively (including after a Participants Termination); provided , that, other than pursuant to Section 11 or the terms of an Award Agreement, any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially and adversely affect the rights of any Participant with respect to any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant; provided, further , that, except as set forth in Sections 11, 13(i) and 13(j) hereto, the Committee shall not alter or amend any Award in a manner that would accelerate the vesting of such Award.
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(c) No Repricing . Notwithstanding anything in the Plan to the contrary, without stockholder approval, except as otherwise permitted under Section 11 of the Plan, (i) no amendment or modification of the Plan or any Award Agreement may reduce the Exercise Price of any Option or the Strike Price of any SAR or delete or limit the prohibition on repricing as provided by this Section 12(c); (ii) the Committee may not cancel any outstanding Option or SAR (including such Awards with an Exercise Price or Strike Price, as applicable, with a value above the current Fair Market Value of such Award) and replace it with a new Option or SAR (with a lower Exercise Price or Strike Price, as the case may be) or other Award or cash payment that is greater than the intrinsic value (if any) of the cancelled Option or SAR; and (iii) the Committee may not take any other action which is considered a repricing for purposes of the stockholder approval rules of any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or quoted.
13. General .
(a) Award Agreements . Each Award under the Plan shall be evidenced by an Award Agreement, which shall be delivered to the Participant to whom such Award was granted and shall specify the terms and conditions of the Award and any rules applicable thereto, including, without limitation, the effect on such Award of the death, Disability or Termination of a Participant, or of such other events as may be determined by the Committee. For purposes of the Plan, an Award Agreement may be in any such form (written or electronic) as determined by the Committee (including, without limitation, a Board or Committee resolution, an employment agreement, a notice, a certificate or a letter) evidencing the Award. The Committee need not require an Award Agreement to be signed by the Participant or a duly authorized representative of the Company.
(b) Nontransferability .
(i) Each Award shall be exercisable only by such Participant to whom such Award was granted during the Participants lifetime, or, if permissible under applicable law, by the Participants legal guardian or representative. No Award may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant (unless such transfer is specifically required pursuant to a domestic relations order or by applicable law) other than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or its Affiliates; provided , that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.
(ii) Notwithstanding the foregoing, the Committee may, in its sole discretion, permit Awards (other than Incentive Stock Options) to be transferred by a Participant, without consideration, subject to such rules as the Committee may adopt consistent with any applicable Award Agreement to preserve the purposes of the Plan, to: (A) any person who is a family member of the Participant, as such term is used in the instructions to
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Form S-8 under the Securities Act or any successor form of registration statement promulgated by the Securities and Exchange Commission (collectively, the Immediate Family Members ); (B) a trust solely for the benefit of the Participant and the Participants Immediate Family Members; (C) a partnership or limited liability company whose only partners or stockholders are the Participant and the Participants Immediate Family Members; or (D) a beneficiary to whom donations are eligible to be treated as charitable contributions for federal income tax purposes (each transferee described in clauses (A), (B), (C) and (D) above is hereinafter referred to as a Permitted Transferee ); provided , that the Participant gives the Committee advance written notice describing the terms and conditions of the proposed transfer and the Committee notifies the Participant in writing that such a transfer would comply with the requirements of the Plan. Notwithstanding the foregoing, no Awards may be transferred to a third-party financial institution.
(iii) The terms of any Award transferred in accordance with clause (ii) above shall apply to the Permitted Transferee and any reference in the Plan, or in any applicable Award Agreement, to a Participant shall be deemed to refer to the Permitted Transferee, except that (A) Permitted Transferees shall not be entitled to transfer any Award, other than by will or the laws of descent and distribution; (B) Permitted Transferees shall not be entitled to exercise any transferred Option unless there shall be in effect a registration statement on an appropriate form covering the shares of Common Stock to be acquired pursuant to the exercise of such Option if the Committee determines, consistent with any applicable Award Agreement, that such a registration statement is necessary or appropriate; (C) neither the Committee nor the Company shall be required to provide any notice to a Permitted Transferee, whether or not such notice is or would otherwise have been required to be given to the Participant under the Plan or otherwise; and (D) the consequences of a Participants Termination under the terms of the Plan and the applicable Award Agreement shall continue to be applied with respect to the Participant, including, without limitation, that an Option shall be exercisable by the Permitted Transferee only to the extent, and for the periods, specified in the Plan and the applicable Award Agreement.
(c) Dividends and Dividend Equivalents . The Committee may, in its sole discretion, provide a Participant as part of an Award with dividends, dividend equivalents, or similar payments in respect of Awards, payable in cash, shares of Common Stock, other securities, other Awards or other property, on a current or deferred basis, on such terms and conditions as may be determined by the Committee in its sole discretion, including, without limitation, payment directly to the Participant, withholding of such amounts by the Company subject to vesting of the Award or reinvestment in additional shares of Common Stock, Restricted Stock or other Awards; provided , that no dividends, dividend equivalents or other similar payments shall be payable in respect of outstanding (i) Options or SARs; or (ii) unearned Awards subject to performance conditions (other than, or in addition to, the passage of time) (although dividends, dividend equivalents or other similar payments may be accumulated in respect of unearned Awards and paid within fifteen (15) days after such Awards are earned and become payable or distributable).
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(d) Tax Withholding .
(i) As a condition to the grant of any Award, it shall be required that a Participant satisfy, when such taxes are otherwise due with respect to such Award, through a cash payment by the Participant, or in the discretion of the Committee, through deduction or withholding from any payment of any kind otherwise due to the Participant, or through such other arrangements as are satisfactory to the Committee, the amount of all federal, state, and local income and other applicable taxes of any kind required or permitted to be withheld in connection with such Award.
(ii) Without limiting the generality of clause (i) above, the Committee may (but is not obligated to), in its sole discretion, permit a Participant to satisfy, in whole or in part, the foregoing withholding liability by (A) the delivery of shares of Common Stock (which are not subject to any pledge or other security interest) that have been held by the Participant for at least six (6) months (or such other period as established from time to time by the Committee in order to avoid adverse accounting treatment applying GAAP) having a Fair Market Value equal to such withholding liability; or (B) having the Company withhold from the number of shares of Common Stock otherwise issuable or deliverable pursuant to the exercise or settlement of the Award a number of shares with a Fair Market Value equal to such withholding liability, provided that with respect to shares withheld pursuant to clause (B), the number of such shares may not have a Fair Market Value greater than the minimum required statutory withholding liability unless determined by the Committee not to result in adverse accounting consequences.
(e) Data Protection . By participating in the Plan or accepting any rights granted under it, each Participant consents to the collection and processing of personal data relating to the Participant so that the Company and its Affiliates can fulfill their obligations and exercise their rights under the Plan and generally administer and manage the Plan. This data will include, but may not be limited to, data about participation in the Plan and shares offered or received, purchased, or sold under the Plan from time to time and other appropriate financial and other data (such as the date on which the Awards were granted) about the Participant and the Participants participation in the Plan.
(f) No Claim to Awards; No Rights to Continued Employment; Waiver . No employee of the Company or its Affiliates, or other Person, shall have any claim or right to be granted an Award under the Plan or, having been selected for the grant of an Award, to be selected for a grant of any other Award. There is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards. The terms and conditions of Awards and the Committees determinations and interpretations with respect thereto need not be the same with respect to each Participant and may be made selectively among Participants, whether or not such Participants are similarly situated. Neither the Plan nor any action taken hereunder shall be construed as giving any Participant any right to be retained in the employ or service of the Company or its Affiliates, nor shall it be construed as giving any Participant any rights to continued service on the Board. The Company or any of its Affiliates may at any time dismiss a Participant from employment or discontinue any consulting relationship, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or any Award Agreement. By accepting an Award under the Plan, a Participant shall thereby be deemed to have waived any claim to continued exercise or vesting of an Award or to damages or severance entitlement related to non-continuation of the Award beyond the period provided under the Plan or any Award Agreement, except to the extent of any provision to the contrary in any written employment contract or other agreement between the Company and its Affiliates and the Participant, whether any such agreement is executed before, on or after the Date of Grant.
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(g) International Participants . With respect to Participants who reside or work outside of the United States of America, the Committee may, in its sole discretion, amend the terms of the Plan and create or amend Sub-Plans or amend outstanding Awards with respect to such Participants in order to conform such terms with the requirements of local law or to obtain more favorable tax or other treatment for a Participant the Company or its Affiliates.
(h) Designation and Change of Beneficiary . Each Participant may file with the Committee a written designation of one or more Persons as the beneficiary(ies) who shall be entitled to receive the amounts payable with respect to an Award, if any, due under the Plan upon the Participants death. A Participant may, from time to time, revoke or change the Participants beneficiary designation without the consent of any prior beneficiary by filing a new designation with the Committee. The last such designation received by the Committee shall be controlling; provided, however , that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Participants death, and in no event shall it be effective as of a date prior to such receipt. If no beneficiary designation is filed by a Participant, the beneficiary shall be deemed to be the Participants spouse or, if the Participant is unmarried at the time of death, the Participants estate.
(i) Termination of a Participant . In the event of a Participants Termination for any reason (other than due to death or Disability) prior to the time an Award has vested, (A) all vesting with respect to such Participants Award shall cease, and (B) the unvested portion of any outstanding Award shall be forfeited to the Company by the Participant for no consideration as of the date of such Termination; provided , that, notwithstanding anything contained in the Plan to the contrary, in connection with any Termination, other than for cause (as reasonably defined and determined by the Committee), or due to death or Disability, the Committee shall reasonably determine whether or not to permit a Participant to retain, vest or continue to vest in an Award notwithstanding such Participants Termination. Any such determination may be set forth in a Participants Award Agreement or made as an amendment to a Participants Award Agreement on or before such Termination. In the event of a Participants Termination due to death or Disability prior to the time an Award has vested, all such unvested Awards held by such Participant shall vest in full upon such death or Disability of the Participant. Except as otherwise provided in an Award Agreement, unless determined otherwise by the Committee at any point following such event: (i) neither a temporary absence from employment or service due to illness, vacation or leave of absence (including, without limitation, a call to active duty for military service through a Reserve or National Guard unit) nor a transfer from employment or service with one Service Recipient to employment or service with another Service Recipient (or vice-versa) shall be considered a Termination; and (ii) if a Participant undergoes a Termination, but such Participant continues to provide services to the Company and its Affiliates in a non-employee or non-officer capacity, such change in status shall not be considered a Termination for purposes of the Plan. Further, unless otherwise determined by the Committee, in the event that any Service Recipient ceases to be an Affiliate of the Company (by reason of sale, divestiture, spin-off or other similar transaction), unless a Participants employment or service is transferred to another entity that would constitute a Service Recipient immediately following such transaction, such Participant shall be deemed to have suffered a Termination hereunder as of the date of the consummation of such transaction.
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(j) Manager Termination Event . In the event of a Qualifying Manager Termination, and notwithstanding any provision of the Plan to the contrary, all outstanding unvested Awards held by Manager Employees shall vest in full as of such Qualifying Manager Termination. In the event of a Manager Termination Event (other than a Qualifying Manager Termination), including by action of the Manager (other than as a result of the breach by the Company of the Management Agreement) or by action of the Company as a result of the breach by the Manager of the Management Agreement, all vesting with respect to all outstanding unvested Awards held by Manager Employees shall cease, and all such outstanding unvested Awards shall be forfeited to the Company for no consideration as of the date of such Manager Termination Event; provided , that, notwithstanding anything contained in the Plan to the contrary, in connection with any Manager Termination Event, the Committee shall reasonably determine whether or not to permit a Manager Employee to retain, vest or continue to vest in an Award notwithstanding such Manager Termination Event. Any such determination may be set forth in a Manager Employees Award Agreement or made as an amendment to a Manager Employees Award Agreement on or before such Manager Termination Event.
(k) No Rights as a Stockholder . Except as otherwise specifically provided in the Plan or any Award Agreement, no Person shall be entitled to the privileges of ownership in respect of shares of Common Stock which are subject to Awards hereunder until such shares have been issued or delivered to such Person.
(l) Government and Other Regulations .
(i) The obligation of the Company to settle Awards in shares of Common Stock or other consideration shall be subject to all applicable laws, rules, and regulations, and to such approvals by governmental agencies as may be required. Notwithstanding any terms or conditions of any Award to the contrary, the Company shall be under no obligation to offer to sell or to sell, and shall be prohibited from offering to sell or selling, any shares of Common Stock pursuant to an Award unless such shares have been properly registered for sale pursuant to the Securities Act with the Securities and Exchange Commission or unless the Company has received an opinion of counsel (if the Company has requested such an opinion), satisfactory to the Company, that such shares may be offered or sold without such registration pursuant to an available exemption therefrom and the terms and conditions of such exemption have been fully complied with. The Company shall be under no obligation to register for sale under the Securities Act any of the shares of Common Stock to be offered or sold under the Plan. The Committee shall have the authority to provide that all shares of Common Stock or other securities of the Company or any Affiliate of the Company issued under the Plan shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan, the applicable Award Agreement, the Federal securities laws, or the rules, regulations and other requirements of the Securities and Exchange Commission, any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or quoted and any other applicable Federal, state, local or non-U.S. laws, rules, regulations and other requirements, and, without limiting the generality of
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Section 9 of the Plan, the Committee may cause a legend or legends to be put on certificates representing shares of Common Stock or other securities of the Company or any Affiliate of the Company issued under the Plan to make appropriate reference to such restrictions or may cause such Common Stock or other securities of the Company or any Affiliate of the Company issued under the Plan in book-entry form to be held subject to the Companys instructions or subject to appropriate stop-transfer orders. Notwithstanding any provision in the Plan to the contrary, the Committee reserves the right to add any additional terms or provisions to any Award granted under the Plan that the Committee, in its sole discretion, deems necessary or advisable in order that such Award complies with the legal requirements of any governmental entity to whose jurisdiction the Award is subject.
(ii) The Committee may cancel an Award or any portion thereof if it determines, in its sole discretion, that legal or contractual restrictions and/or blockage and/or other market considerations would make the Companys acquisition of shares of Common Stock from the public markets, the Companys issuance of Common Stock to the Participant, the Participants acquisition of Common Stock from the Company and/or the Participants sale of Common Stock to the public markets, illegal, impracticable or inadvisable. If the Committee determines to cancel all or any portion of an Award in accordance with the foregoing, the Company shall, subject to any limitations or reductions as may be necessary to comply with Section 409A of the Code, (A) pay to the Participant an amount equal to the excess of (I) the aggregate Fair Market Value of the shares of Common Stock subject to such Award or portion thereof canceled (determined as of the applicable exercise date, or the date that the shares would have been vested or issued, as applicable); over (II) the aggregate Exercise Price or Strike Price (in the case of an Option or SAR, respectively) or any amount payable as a condition of issuance of shares of Common Stock (in the case of any other Award). Such amount shall be delivered to the Participant as soon as practicable following the cancellation of such Award or portion thereof, or (B) in the case of Restricted Stock, Restricted Stock Units or Other Stock-Based Awards, provide the Participant with a cash payment or equity subject to deferred vesting and delivery consistent with the vesting restrictions applicable to such Restricted Stock, Restricted Stock Units or Other Stock-Based Awards, or the underlying shares in respect thereof.
(m) No Section 83(b) Elections Without Consent of the Committee . No election under Section 83(b) of the Code or under a similar provision of law may be made unless expressly permitted by the terms of the applicable Award Agreement or by action of the Committee in writing prior to the making of such election. If a Participant, in connection with the acquisition of shares of Common Stock under the Plan or otherwise, is expressly permitted to make such election and the Participant makes the election, the Participant shall notify the Company of such election within ten (10) days of filing notice of the election with the Internal Revenue Service or other governmental authority, in addition to any filing and notification required pursuant to Section 83(b) of the Code or other applicable provision.
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(n) Payments to Persons Other Than Participants . If the Committee shall find that any Person to whom any amount is payable under the Plan is unable to care for the Participants affairs because of illness or accident, or is a minor, or has died, then any payment due to such Person or the Participants estate (unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Committee so directs the Company, be paid to the Participants spouse, child, relative, an institution maintaining or having custody of such Person, or any other Person deemed by the Committee to be a proper recipient on behalf of such Person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee and the Company therefor.
(o) Nonexclusivity of the Plan . Neither the adoption of the Plan by the Board nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of equity-based awards otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases.
(p) No Trust or Fund Created . Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate of the Company, on the one hand, and a Participant or other Person, on the other hand. No provision of the Plan or any Award shall require the Company, for the purpose of satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company be obligated to maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Participants shall have no rights under the Plan other than as unsecured general creditors of the Company, except that insofar as they may have become entitled to payment of additional compensation by performance of services, they shall have the same rights as other service providers under general law.
(q) Reliance on Reports . Each member of the Committee and each member of the Board shall be fully justified in acting or failing to act, as the case may be, and shall not be liable for having so acted or failed to act in good faith, in reliance upon any information, opinion, report, or statement, including any financial statement or other financial data, prepared or presented by any officer or employee of the Company whom the Committee reasonably believes to be reliable and competent in the matters presented; a lawyer, certified public accountant, or other person, as to a matter which the Committee reasonably believes to be within the persons professional or expert competence; another committee of the Board on which a Committee member does not serve, as to matters within its designated authority, if the Committee reasonably believes such committee to merit confidence; and/or any other information furnished in connection with the Plan by any agent of the Company or the Committee or the Board, other than himself or herself.
(r) Relationship to Other Benefits . No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, profit sharing, group insurance or other benefit plan of the Company except as otherwise specifically provided in such other plan or as required by applicable law.
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(s) Governing Law . The Plan shall be governed by and construed in accordance with the internal laws of the State of Maryland applicable to contracts made and performed wholly within the State of Maryland, without giving effect to the conflict of laws provisions thereof.
(t) Severability . If any provision of the Plan or any Award or Award Agreement is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be construed or deemed stricken as to such jurisdiction, Person or Award and the remainder of the Plan and any such Award shall remain in full force and effect.
(u) Obligations Binding on Successors . The obligations of the Company under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company.
(v) Section 409A of the Code .
(i) Notwithstanding any provision of the Plan to the contrary, it is intended that the provisions of the Plan comply with Section 409A of the Code, and all provisions of the Plan shall be construed and interpreted in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A of the Code. Each Participant is solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on or in respect of such Participant in connection with the Plan or any other plan maintained by the Company (including any taxes and penalties under Section 409A of the Code), and neither the Company nor any Affiliate of the Company shall have any obligation to indemnify or otherwise hold such Participant (or any beneficiary) harmless from any or all of such taxes or penalties. With respect to any Award that is considered deferred compensation subject to Section 409A of the Code, references in the Plan to termination of employment (and substantially similar phrases) shall mean separation from service within the meaning of Section 409A of the Code. For purposes of Section 409A of the Code, each of the payments that may be made in respect of any Award granted under the Plan is designated as separate payments.
(ii) Notwithstanding anything in the Plan to the contrary, if a Participant is a specified employee within the meaning of Section 409A(a)(2)(B)(i) of the Code, no payments in respect of any Awards that are deferred compensation subject to Section 409A of the Code and which would otherwise be payable upon the Participants separation from service (as defined in Section 409A of the Code) shall be made to such Participant prior to the date that is six (6) months after the date of such Participants separation from service or, if earlier, the date of the Participants death. Following any applicable six (6) month delay, all such delayed payments will be paid in a single lump sum on the earliest date permitted under Section 409A of the Code that is also a business day.
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(iii) Unless otherwise provided by the Committee in an Award Agreement or otherwise, in the event that the timing of payments in respect of any Award (that would otherwise be considered deferred compensation subject to Section 409A of the Code) would be accelerated upon the occurrence of (A) a Change in Control, no such acceleration shall be permitted unless the event giving rise to the Change in Control satisfies the definition of a change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation pursuant to Section 409A of the Code and any Treasury Regulations promulgated thereunder; or (B) a Disability, no such acceleration shall be permitted unless the Disability also satisfies the definition of Disability pursuant to Section 409A of the Code and any Treasury Regulations promulgated thereunder.
(w) Clawback/ Forfeiture . Notwithstanding anything to the contrary contained herein, an Award agreement may provide that the Committee may in its sole discretion cancel such Award if the Participant has engaged in or engages in detrimental activity that is in conflict with or adverse to the interest of the Company or any Affiliate of the Company, including, without limitation, fraud or conduct contributing to any financial restatements or irregularities, as determined by the Committee in its sole discretion. The Committee may also provide in an Award Agreement that if the Participant otherwise has engaged in or engages in any activity referred to in the preceding sentence, all of the Participants outstanding awards will be cancelled and/or the Participant will forfeit any gain realized on the vesting or exercise of such Award, and must repay the gain to the Company. The Committee may also provide in an Award agreement that if the Participant receives any amount in excess of what the Participant should have received under the terms of the Award for any reason (including without limitation by reason of a financial restatement, mistake in calculations or other administrative error), then the Participant shall be required to repay any such excess amount to the Company. Without limiting the foregoing, all Awards shall be subject to reduction, cancellation, forfeiture or recoupment to the extent necessary to comply with applicable law.
(x) Expenses; Gender; Titles and Headings . The expenses of administering the Plan shall be borne by the Company and its Affiliates. Masculine pronouns and other words of masculine gender shall refer to both men and women. The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.
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Exhibit 10.21
BLACKSTONE MORTGAGE TRUST, INC.
2018 MANAGER INCENTIVE PLAN
1. Purpose . The purpose of the Blackstone Mortgage Trust, Inc. 2018 Manager Incentive Plan is to provide a means through which the Company and its Affiliates may attract and retain key personnel and to provide a means whereby the Manager and its Affiliates can acquire and maintain an equity interest in the Company, or be paid incentive compensation measured by reference to the value of Common Stock, thereby strengthening their commitment to the welfare of the Company and aligning their interests with those of the Companys stockholders.
2. Definitions . The following definitions shall be applicable throughout the Plan.
(a) Absolute Share Limit has the meaning given such term in Section 5(b) of the Plan.
(b) Affiliate means, with respect to any Person, (i) any other Person that directly or indirectly controls, is controlled by or is under common control with such Person and/or (ii) to the extent provided by the Committee, any person or entity in which such Person has a significant interest. The term control (including, with correlative meaning, the terms controlled by and under common control with), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting or other securities, by contract or otherwise.
(c) Award means, individually or collectively, any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit and Other Stock-Based Award granted under the Plan.
(d) Award Agreement means the document or documents by which each Award is evidenced, which may be in written or electronic form.
(e) Board means the Board of Directors of the Company.
(f) Change in Control means:
(i) the acquisition (whether by purchase, merger, consolidation, combination or other similar transaction) by any Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50% (on a fully diluted basis) of either (A) the then outstanding shares of Common Stock, taking into account as outstanding for this purpose such Common Stock issuable upon the exercise of options or warrants, the conversion of convertible stock or debt, and the exercise of any similar right to acquire such Common Stock or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the Outstanding Company Voting Securities ); provided, however , that for purposes of this Plan, the following acquisitions shall not constitute a Change in Control: (I) any acquisition by the Company or any Affiliate of the Company; (II) any acquisition by any employee benefit plan sponsored or maintained by the Company or any Affiliate of the Company; or (III) in respect of an Award held by a particular Participant, any acquisition by the Participant or any group of Persons including the Participant (or any entity controlled by the Participant or any group of Persons including the Participant);
(ii) during any period of 24 months, individuals who, at the beginning of such period, constitute the Board (the Incumbent Directors ) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; provided, however , that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-12 of Regulation 14A promulgated under the Exchange Act, with respect to directors or as a result of any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director;
(iii) the sale, transfer or other disposition of all or substantially all of the business or assets of the Company and its Subsidiaries to any Person that is not an Affiliate of the Company; or
(iv) the consummation of a reorganization, recapitalization, merger, consolidation, or other similar transaction involving the Company (a Business Combination ), unless immediately following such Business Combination 50% or more of the total voting power of the entity resulting from such Business Combination (or, if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership of sufficient voting securities eligible to elect a majority of the board of directors (or the analogous governing body) of such resulting entity), is held by the holders of the Outstanding Company Voting Securities immediately prior to such Business Combination.
(g) Code means the Internal Revenue Code of 1986, as amended, and any successor thereto. Reference in the Plan to any section of the Code shall be deemed to include any regulations or other interpretative guidance under such section, and any amendments or successor provisions to such section, regulations or guidance.
(h) Committee means a committee of the Board appointed by the Board to administer the Plan or, if no such committee has been appointed, the Board, or the Board to act in lieu of any such committee.
(i) Common Stock means the Class A Common Stock of the Company, par value $0.01 per share (and any stock or other securities into which such Common Stock may be converted or into which it may be exchanged).
(j) Company means Blackstone Mortgage Trust, Inc., a Maryland corporation, and any successor thereto.
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(k) Date of Grant means the date on which the granting of an Award is authorized, or such other date as may be specified in such authorization.
(l) Effective Date means April 18, 2018, the date on which the Plan was adopted by the Board, subject to obtaining the approval of the Companys stockholders, provided, however, that no fully vested and transferable shares of Common Stock may be issued pursuant to any Awards unless and until the Plan is approved by the Companys stockholders.
(m) Eligible Director means a person who is (i) a non-employee director within the meaning of Rule 16b-3 under the Exchange Act, with respect to actions intended to obtain an exemption from Section 16(b) of the Exchange Act and (ii) an independent director under the rules of the NYSE or any other securities exchange or inter-dealer quotation system on which the Common Stock is listed or quoted, or a person meeting any similar requirement under any successor rule or regulation.
(n) Eligible Person means the Manager or any of its Affiliates.
(o) Exchange Act means the Securities Exchange Act of 1934, as amended, and any successor thereto. Reference in the Plan to any section of (or rule promulgated under) the Exchange Act shall be deemed to include any rules, regulations or other interpretative guidance under such section or rule, and any amendments or successor provisions to such section, rules, regulations or guidance.
(p) Exercise Price has the meaning given such term in Section 7(b) of the Plan.
(q) Fair Market Value means, on a given date, (i) if the Common Stock is listed on a national securities exchange, the closing sales price of the Common Stock reported on the primary exchange on which the Common Stock is listed and traded on such date, or, if there are no such sales on that date, then on the last preceding date on which such sales were reported; (ii) if the Common Stock is not listed on any national securities exchange but is quoted in an inter-dealer quotation system on a last sale basis, the average between the closing bid price and ask price reported on such date, or, if there is no such sale on that date, then on the last preceding date on which a sale was reported; or (iii) if the Common Stock is not listed on a national securities exchange or quoted in an inter-dealer quotation system on a last sale basis, the amount determined by the Committee or the Board to be the fair market value of the Common Stock.
(r) GAAP has the meaning given such term in Section 7(d) of the Plan.
(s) Indemnifiable Person has the meaning given such term in Section 4(e) of the Plan.
(t) Management Agreement means that certain Management Agreement, dated as of March 26, 2013, by and between the Company and the Manager, as may be amended, restated, supplemented, replaced or otherwise modified from time to time, pursuant to which the Manager provides management services to the Company and its Subsidiaries.
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(u) Manager means BXMT Advisors L.L.C., a Delaware limited liability company.
(v) Manager Sale means:
(i) the acquisition (whether by purchase, merger, consolidation, combination or other similar transaction) by any Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50% (on a fully diluted basis) of the Membership Interests ; provided, however , that for purposes of this Plan, the following acquisitions shall not constitute a Manager Sale: (I) any acquisition by the Manager or any Affiliate of the Manager; (II) any acquisition by any employee benefit plan sponsored or maintained by the Manager or any Affiliate of the Manager; or (III) in respect of an Award held by a particular Participant, any acquisition by the Participant or any group of Persons including the Participant (or any entity controlled by the Participant or any group of Persons including the Participant) (each of the entities in (I), (II) and (III) being referred to herein as an Affiliated Entity );
(ii) the sale, transfer or other disposition of all or substantially all of the business or assets of the Manager to any Person that is not an Affiliated Entity; or
(iii) the consummation of a reorganization, recapitalization, merger, consolidation, or other similar transaction involving the Manager (a Business Combination ), unless immediately following such Business Combination 50% or more of the total voting power of the entity resulting from such Business Combination is held by Blackstone Real Estate Special Situations Advisors L.L.C. or one or more of its Affiliates.
(w) Membership Interests means the limited liability company interests of the Manager (and any interests, units or other securities into which such Membership Interests may be converted or into which they may be exchanged).
(x) NYSE means the New York Stock Exchange.
(y) Option means an Award granted under Section 7 of the Plan. Options granted under the Plan are not intended to qualify as incentive stock options within the meaning of Section 422 of the Code.
(z) Option Period has the meaning given such term in Section 7(c) of the Plan.
(aa) Other Stock-Based Award means an Award that is granted under Section 10 of the Plan.
(bb) Participant means an Eligible Person who has been selected by the Committee or the Board to participate in the Plan and to receive an Award pursuant to the Plan.
(cc) Person means any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act).
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(dd) Plan means this Blackstone Mortgage Trust, Inc. 2018 Manager Incentive Plan, as it may be amended and restated from time to time.
(ee) Prior Plans means the Blackstone Mortgage Trust, Inc. 2013 Stock Incentive Plan, the Blackstone Mortgage Trust, Inc. 2013 Manager Incentive Plan, the Blackstone Mortgage Trust, Inc. 2016 Stock Incentive Plan and the Blackstone Mortgage Trust, Inc. 2016 Manager Incentive Plan.
(ff) Qualifying Termination means a (i) Termination by action of the Company (other than as a result of the breach by the Manager of the Management Agreement), (ii) Termination by action of the Manager as a result of the breach by the Company of the Management Agreement, or (iii) Manager Sale.
(gg) Restricted Period means the period of time determined by the Committee during which an Award is subject to restrictions or, as applicable, the period of time within which performance is measured for purposes of determining whether an Award has been earned.
(hh) Restricted Stock means Common Stock, subject to certain specified restrictions (which may include, without limitation, a requirement that the Participant remain continuously employed or provide continuous services for a specified period of time), granted under Section 9 of the Plan.
(ii) Restricted Stock Unit means an unfunded and unsecured promise to deliver shares of Common Stock, cash, other securities or other property, subject to certain restrictions (which may include, without limitation, a requirement that the Participant remain continuously employed or provide continuous services for a specified period of time), granted under Section 9 of the Plan.
(jj) SAR Period has the meaning given such term in Section 8(c) of the Plan.
(kk) Securities Act means the Securities Act of 1933, as amended, and any successor thereto. Reference in the Plan to any section of (or rule promulgated under) the Securities Act shall be deemed to include any rules, regulations or other interpretative guidance under such section or rule, and any amendments or successor provisions to such section, rules, regulations or guidance.
(ll) Stock Appreciation Right or SAR means an Award granted under Section 8 of the Plan.
(mm) Strike Price has the meaning given such term in Section 8(b) of the Plan.
(nn) Subsidiary means, with respect to any specified Person:
(i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of such entitys voting securities (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders agreement that effectively transfers voting power) is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and
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(ii) any partnership (or any comparable foreign entity) (A) the sole general partner (or functional equivalent thereof) or the managing general partner of which is such Person or Subsidiary of such Person, or (B) the only general partners (or functional equivalents thereof) of which are that Person or one or more Subsidiaries of that Person (or any combination thereof).
(oo) Termination means the termination of the Managers services to the Company and its Affiliates under the Management Agreement.
3. Effective Date; Duration . The Plan shall be effective as of the Effective Date. The expiration date of the Plan, on and after which date no Awards may be granted hereunder, shall be the tenth (10 th ) anniversary of the Effective Date; provided, however , that such expiration shall not affect Awards then outstanding, and the terms and conditions of the Plan shall continue to apply to such Awards. No additional Awards may be granted under the Prior Plans on or following the Effective Date.
4. Administration .
(a) The Committee shall administer the Plan. To the extent required to comply with the provisions of Rule 16b-3 promulgated under the Exchange Act (if the Board is not acting as the Committee under the Plan) or the rules of the NYSE or any other securities exchange or inter-dealer quotation system on which the Common Stock is listed or quoted, it is intended that each member of the Committee shall, at the time such member takes any action with respect to an Award under the Plan that is intended to qualify for the exemptions provided by Rule 16b-3 promulgated under the Exchange Act be an Eligible Director. However, the fact that a Committee member shall fail to qualify as an Eligible Director shall not invalidate any Award granted by the Committee that is otherwise validly granted under the Plan.
(b) Subject to the provisions of the Plan and applicable law, the Committee shall have the sole and plenary authority, in addition to other express powers and authorizations conferred on the Committee by the Plan or pursuant to the authorization of the Board, to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to a Participant; (iii) determine the number of shares of Common Stock to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to what extent, and under what circumstances Awards may be settled in, or exercised for, cash, shares of Common Stock, other securities, other Awards or other property, or canceled, forfeited, or suspended and the method or methods by which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi) determine whether, to what extent, and under what circumstances the delivery of cash, shares of Common Stock, other securities, other Awards or other property and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the Participant or of the Committee; (vii) interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in the Plan and any instrument or agreement relating to, or Award granted under, the Plan; (viii) establish, amend, suspend, or waive any rules and regulations and appoint such agents as the Committee shall deem appropriate for the proper administration of the Plan; and (ix) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan.
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(c) Except to the extent prohibited by applicable law or the applicable rules and regulations of any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or traded, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any Person or Persons selected by it. Any such allocation or delegation may be revoked by the Committee at any time. Without limiting the generality of the foregoing, the Committee may delegate to one or more officers of the Company or any Subsidiary the authority to act on behalf of the Committee with respect to any matter, right, obligation, or election which is the responsibility of, or which is allocated to, the Committee herein, and which may be so delegated as a matter of law.
(d) Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan, any Award or any Award Agreement shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all Persons, including, without limitation, the Company, any Affiliate of the Company, any Participant, any holder or beneficiary of any Award, and any stockholder of the Company.
(e) No member of the Board, the Committee or any employee or agent of the Company (each such Person, an Indemnifiable Person ) shall be liable for any action taken or omitted to be taken or any determination made with respect to the Plan or any Award hereunder (unless constituting fraud or a willful criminal act or omission). Each Indemnifiable Person shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense (including attorneys fees) that may be imposed upon or incurred by such Indemnifiable Person in connection with or resulting from any action, suit or proceeding to which such Indemnifiable Person may be a party or in which such Indemnifiable Person may be involved by reason of any action taken or omitted to be taken or determination made with respect to the Plan or any Award hereunder and against and from any and all amounts paid by such Indemnifiable Person with the Companys approval, in settlement thereof, or paid by such Indemnifiable Person in satisfaction of any judgment in any such action, suit or proceeding against such Indemnifiable Person, and the Company shall advance to such Indemnifiable Person any such expenses promptly upon written request (which request shall include an undertaking by the Indemnifiable Person to repay the amount of such advance if it shall ultimately be determined, as provided below, that the Indemnifiable Person is not entitled to be indemnified); provided , that the Company shall have the right, at its own expense, to assume and defend any such action, suit or proceeding and once the Company gives notice of its intent to assume the defense, the Company shall have sole control over such defense with counsel of the Companys choice. The foregoing right of indemnification shall not become available to an Indemnifiable Person to the extent that a final judgment or other final adjudication (in either case not subject to further appeal) binding upon such Indemnifiable Person determines that the acts, omissions or determinations of such Indemnifiable Person giving rise to the indemnification claim resulted from such Indemnifiable Persons fraud or willful criminal act or
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omission or that such right of indemnification is otherwise prohibited by law or by the Companys Charter or Bylaws. The foregoing right of indemnification shall not be exclusive of or otherwise supersede any other rights of indemnification to which such Indemnifiable Persons may be entitled under the Companys Charter or Bylaws, as a matter of law, under an individual indemnification agreement or contract or otherwise, or any other power that the Company may have to indemnify such Indemnifiable Persons or hold such Indemnifiable Persons harmless.
(f) Notwithstanding anything to the contrary contained in the Plan, the Board may, in its sole discretion, at any time and from time to time, grant Awards and administer the Plan with respect to such Awards. Any such actions by the Board shall be subject to the applicable rules of the NYSE or any other securities exchange or inter-dealer quotation system on which the Common Stock is listed or quoted. In any such case, the Board shall have all the authority granted to the Committee under the Plan.
5. Grant of Awards; Shares Subject to the Plan; Limitations .
(a) The Committee may, from time to time, grant Awards to one or more Eligible Persons. All Awards granted under the Plan shall vest and become exercisable in such manner and on such date or dates or upon such event or events as determined by the Committee.
(b) Awards granted under the Plan shall be subject to the following limitations: (i) subject to Section 11 of the Plan, no more than 5,000,000 shares of Common Stock, less any shares of Common Stock issued or subject to awards granted under the Blackstone Mortgage Trust, Inc. 2018 Stock Incentive Plan (the Absolute Share Limit ) shall be available for Awards under the Plan and (ii) subject to Section 11 of the Plan, grants of Awards in respect of no more than 1,000,000 shares of Common Stock may be made to any individual Eligible Person during any single fiscal year of the Company.
(c) To the extent that an Award expires or is canceled, forfeited or terminated without delivery to the Participant of the full number of shares of Common Stock to which the Award related, the undelivered shares will be returned to the Absolute Share Limit and will again be available for grant under the Plan. Shares of Common Stock shall be deemed to have been issued in settlement of Awards if the Fair Market Value equivalent of such shares is paid in cash; provided, however , that no shares shall be deemed to have been issued in settlement of a SAR that only provides for settlement in cash and settles only in cash. In no event shall (i) shares tendered or withheld on the exercise of Options or other Award for the payment of the exercise or purchase price or withholding taxes, (ii) shares not issued upon the settlement of a SAR that settles in shares of Common Stock (or could settle in shares of Common Stock), or (iii) shares purchased on the open market with cash proceeds from the exercise of Options, again become available for other Awards under the Plan.
(d) Shares of Common Stock issued by the Company in settlement of Awards may be authorized and unissued shares, shares held in the treasury of the Company, shares purchased on the open market or by private purchase or a combination of the foregoing.
6. Eligibility . Participation in the Plan shall be limited to Eligible Persons.
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7. Options .
(a) General . Each Option granted under the Plan shall be evidenced by an Award Agreement, which agreement need not be the same for each Participant. Each Option so granted shall be subject to the conditions set forth in this Section 7, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement.
(b) Exercise Price . The exercise price ( Exercise Price ) per share of Common Stock for each Option shall not be less than 100% of the Fair Market Value of such share (determined as of the Date of Grant).
(c) Vesting and Expiration . Options shall vest and become exercisable in such manner and on such date or dates or upon such event or events as determined by the Committee. Except as set forth in Sections 11 and 13(g) hereto, the Committee shall not accelerate vesting of an Option. Options shall expire after such period, as may be determined by the Committee, not to exceed ten (10) years from the Date of Grant (the Option Period ); provided , that if the Option Period would expire at a time when trading in the shares of Common Stock is prohibited by the Companys insider trading policy (or Company-imposed blackout period), then the Option Period shall be automatically extended until the thirtieth (30 th ) day following the expiration of such prohibition.
(d) Method of Exercise and Form of Payment . No shares of Common Stock shall be issued pursuant to any exercise of an Option until payment in full of the Exercise Price therefor is received by the Company and the Participant has paid to the Company an amount equal to any Federal, state, local and non-U.S. income and any other applicable taxes required to be withheld. Options which have become exercisable may be exercised by delivery of written or electronic notice of exercise to the Company (or telephonic instructions to the extent provided by the Committee) in accordance with the terms of the Option accompanied by payment of the Exercise Price. The Exercise Price shall be payable: (i) in cash, check, cash equivalent and/or shares of Common Stock valued at the Fair Market Value at the time the Option is exercised (including, pursuant to procedures approved by the Committee, by means of attestation of ownership of a sufficient number of shares of Common Stock in lieu of actual delivery of such shares to the Company); provided , that such shares of Common Stock are not subject to any pledge or other security interest and have been held by the Participant for at least six (6) months (or such other period as established from time to time by the Committee in order to avoid adverse accounting treatment applying generally accepted accounting principles (GAAP)); or (ii) by such other method as the Committee may permit, in its sole discretion, including, without limitation (A) in other property having a fair market value on the date of exercise equal to the Exercise Price; (B) if there is a public market for the shares of Common Stock at such time, by means of a broker-assisted cashless exercise pursuant to which the Company is delivered (including telephonically to the extent permitted by the Committee) a copy of irrevocable instructions to a stockbroker to sell the shares of Common Stock otherwise issuable upon the exercise of the Option and to deliver promptly to the Company an amount equal to the Exercise Price; or (C) a net exercise procedure effected by withholding the minimum number of shares of Common Stock otherwise issuable in respect of an Option that are needed to pay the Exercise Price and all applicable required withholding taxes. Any fractional shares of Common Stock shall be settled in cash.
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(e) Compliance With Laws, etc . Notwithstanding the foregoing, in no event shall a Participant be permitted to exercise an Option in a manner which the Committee determines would violate the Sarbanes-Oxley Act of 2002, as it may be amended from time to time, or any other applicable law or the applicable rules and regulations of the Securities and Exchange Commission or the applicable rules and regulations of any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or traded.
8. Stock Appreciation Rights .
(a) General . Each SAR granted under the Plan shall be evidenced by an Award Agreement. Each SAR so granted shall be subject to the conditions set forth in this Section 8, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. Any Option granted under the Plan may include tandem SARs. The Committee also may award SARs to Eligible Persons independent of any Option.
(b) Strike Price . The strike price ( Strike Price ) per share of Common Stock for each SAR shall not be less than 100% of the Fair Market Value of such share (determined as of the Date of Grant). Notwithstanding the foregoing, a SAR granted in tandem with (or in substitution for) an Option previously granted shall have a Strike Price equal to the Exercise Price of the corresponding Option.
(c) Vesting and Expiration . A SAR granted in connection with an Option shall become exercisable and shall expire according to the same vesting schedule and expiration provisions as the corresponding Option. Solely in the case of a SAR that may be settled in Common Stock, a SAR granted independent of an Option:
(i) shall vest and become exercisable in such manner and on such date or dates or upon such event or events as determined by the Committee; and
(ii) shall expire in such manner and on such date or dates or upon such event or events as determined by the Committee and shall expire after such period, as may be determined by the Committee, not to exceed ten (10) years from the Date of Grant (the SAR Period ); provided that if the SAR Period would expire at a time when trading in the shares of Common Stock is prohibited by the Companys insider trading policy (or Company-imposed blackout period), then the SAR Period shall be automatically extended until the 30th day following the expiration of such prohibition.
Solely in the case of a SAR that may be settled in Common Stock, except as set forth in Sections 11 or 13(g) hereto, the Committee shall not accelerate vesting of any such SAR.
(d) Method of Exercise . SARs which have become exercisable may be exercised by delivery of written or electronic notice of exercise to the Company in accordance with the terms of the Award, specifying the number of SARs to be exercised and the date on which such SARs were awarded.
(e) Payment . Upon the exercise of a SAR, the Company shall pay to the Participant an amount equal to the number of shares subject to the SAR that is being exercised multiplied by the excess, if any, of the Fair Market Value of one (1) share of Common Stock on the
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exercise date over the Strike Price, less an amount equal to any Federal, state, local and non-U.S. income and any other applicable taxes required to be withheld. The Company shall pay such amount in cash, in shares of Common Stock valued at Fair Market Value, or any combination thereof, as determined by the Committee in its sole discretion. Any fractional shares of Common Stock shall be settled in cash.
(f) Substitution of SARs for Options . The Committee shall have the power in its sole discretion to substitute, without the consent of the affected Participant or any holder or beneficiary of SARs, SARs settled in shares of Common Stock (or settled in shares or cash in the sole discretion of the Committee) for outstanding Options, provided that (i) the substitution shall not otherwise result in a modification of the terms of any such Option, (ii) the number of shares of Common Stock underlying the substituted SARs shall be the same as the number of shares of Common Stock underlying such Options and (iii) the Strike Price of the substituted SARs shall be equal to the Exercise Price of such Options; provided, however, that if, in the opinion of the Companys independent public auditors, the foregoing provision creates adverse accounting consequences for the Company, such provision shall be considered null and void.
9. Restricted Stock and Restricted Stock Units .
(a) General . Each grant of Restricted Stock and Restricted Stock Units shall be evidenced by an Award Agreement. Each Restricted Stock and Restricted Stock Unit so granted shall be subject to the conditions set forth in this Section 9, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement.
(b) Stock Certificates and Book-Entry ; Escrow or Similar Arrangement . Upon the grant of Restricted Stock, the Committee shall cause a stock certificate registered in the name of the Participant to be issued or shall cause share(s) of Common Stock to be registered in the name of the Participant and held in book-entry form subject to the Companys directions and, if the Committee determines that the Restricted Stock shall be held by the Company or in escrow rather than issued to the Participant pending the release of the applicable restrictions, the Committee may require the Participant to additionally execute and deliver to the Company (i) an escrow agreement satisfactory to the Committee, if applicable; and (ii) the appropriate stock power (endorsed in blank) with respect to the Restricted Stock covered by such agreement. If a Participant shall fail to execute and deliver (in a manner permitted under Section 13(a) of the Plan or as otherwise determined by the Committee) an agreement evidencing an Award of Restricted Stock and, if applicable, an escrow agreement and blank stock power within the amount of time specified by the Committee, the Award shall be null and void. Subject to the restrictions set forth in this Section 9 and the applicable Award Agreement, a Participant generally shall have the rights and privileges of a stockholder as to shares of Restricted Stock, including, without limitation, the right to vote such Restricted Stock; provided , that if the lapsing of restrictions with respect to any grant of Restricted Stock is contingent on satisfaction of performance conditions (other than, or in addition to, the passage of time), any dividends payable on such shares of Restricted Stock shall be held by the Company and delivered (without interest) to the Participant within fifteen (15) days following the date on which the restrictions on such Restricted Stock lapse (and the right to any such accumulated dividends shall be forfeited upon the forfeiture of the Restricted Stock to which such dividends relate). To the extent shares of Restricted Stock are forfeited, any stock certificates issued to the Participant
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evidencing such shares shall be returned to the Company, and all rights of the Participant to such shares and as a stockholder with respect thereto shall terminate without further obligation on the part of the Company. A Participant shall have no rights or privileges as a stockholder as to Restricted Stock Units.
(c) Vesting . Restricted Stock and Restricted Stock Units shall vest, and any applicable Restricted Period shall lapse, in such manner and on such date or dates or upon such event or events as determined by the Committee. Except as set forth in Sections 11 or 13(g) hereto, the Committee shall not accelerate vesting of Restricted Stock or Restricted Stock Units.
(d) Issuance of Restricted Stock and Settlement of Restricted Stock Units .
(i) Upon the expiration of the Restricted Period with respect to any shares of Restricted Stock, the restrictions set forth in the applicable Award Agreement shall be of no further force or effect with respect to such shares, except as set forth in the applicable Award Agreement. If an escrow arrangement is used, upon such expiration, the Company shall issue to the Participant, or the Participants beneficiary, without charge, the stock certificate (or, if applicable, a notice evidencing a book-entry notation) evidencing the shares of Restricted Stock which have not then been forfeited and with respect to which the Restricted Period has expired (rounded down to the nearest full share). Dividends, if any, that may have been withheld by the Committee and attributable to any particular share of Restricted Stock shall be distributed to the Participant in cash or, in the sole discretion of the Committee, in shares of Common Stock having a Fair Market Value (on the date of distribution) equal to the amount of such dividends, upon the release of restrictions on such share and, if such share is forfeited, the Participant shall have no right to such dividends.
(ii) Unless otherwise provided by the Committee in an Award Agreement or otherwise, upon the expiration of the Restricted Period with respect to any outstanding Restricted Stock Units, the Company shall issue to the Participant or the Participants beneficiary, without charge, one (1) share of Common Stock (or other securities or other property, as applicable) for each such outstanding Restricted Stock Unit; provided, however , that the Committee may, in its sole discretion, elect to (A) pay cash or part cash and part shares of Common Stock in lieu of issuing only shares of Common Stock in respect of such Restricted Stock Units; or (B) defer the issuance of shares of Common Stock (or cash or part cash and part shares of Common Stock, as the case may be) beyond the expiration of the Restricted Period if such extension would not cause adverse tax consequences under Section 409A of the Code. If a cash payment is made in lieu of issuing shares of Common Stock in respect of such Restricted Stock Units, the amount of such payment shall be equal to the Fair Market Value per share of the Common Stock as of the date on which the Restricted Period lapsed with respect to such Restricted Stock Units. To the extent provided in an Award Agreement, the holder of outstanding Restricted Stock Units shall be entitled to be credited with dividend equivalent payments (upon the payment by the Company of dividends on shares of Common Stock) either in cash or, in the sole discretion of the Committee, in shares of Common Stock having a Fair Market Value equal to the amount of such dividends (and interest may, in the sole discretion of the Committee, be credited on the amount of cash dividend equivalents at a
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rate and subject to such terms as determined by the Committee), which accumulated dividend equivalents (and interest thereon, if applicable) shall be payable at the same time as the underlying Restricted Stock Units are settled following the date on which the Restricted Period lapses with respect to such Restricted Stock Units, and, if such Restricted Stock Units are forfeited, the Participant shall have no right to such dividend equivalent payments (or interest thereon, if applicable).
(e) Legends on Restricted Stock . Each certificate, if any, or book entry representing Restricted Stock awarded under the Plan, if any, shall bear a legend or book entry notation substantially in the form of the following, in addition to any other information the Company deems appropriate, until the lapse of all restrictions with respect to such shares of Common Stock:
TRANSFER OF THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY IS RESTRICTED PURSUANT TO THE TERMS OF THE BLACKSTONE MORTGAGE TRUST, INC. 2018 MANAGER INCENTIVE PLAN AND A RESTRICTED STOCK AWARD AGREEMENT, BETWEEN BLACKSTONE MORTGAGE TRUST, INC. AND PARTICIPANT. A COPY OF SUCH PLAN AND AWARD AGREEMENT IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF BLACKSTONE MORTGAGE TRUST, INC.
10. Other Stock-Based Awards . The Committee may issue unrestricted Common Stock, rights to receive grants of Awards at a future date, and other Awards denominated in or based upon Common Stock (including, without limitation, performance shares or performance units), under the Plan to Eligible Persons, alone or in tandem with other Awards, in such amounts and dependent on such conditions as the Committee shall from time to time in its sole discretion determine. Each Other Stock-Based Award granted under the Plan shall be evidenced by an Award Agreement. Each Other Stock-Based Award so granted shall be subject to such conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement or other form evidencing such Award, including, without limitation, those set forth in Section 13(a) of the Plan. Except as set forth in Sections 11 or 13(g) hereto, the Committee shall not accelerate vesting.
11. Changes in Capital Structure and Similar Events . Notwithstanding any other provision in this Plan to the contrary, the following provisions shall apply to all Awards granted hereunder:
(a) General . In the event of (i) any dividend (other than regular cash dividends) or other distribution (whether in the form of cash, shares of Common Stock, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, split-off, spin-off, combination, repurchase or exchange of shares of Common Stock or other securities of the Company, issuance of warrants or other rights to acquire shares of Common Stock or other securities of the Company, or other similar corporate transaction or event that affects the shares of Common Stock (including, without limitation, a Change in Control); or (ii) unusual or nonrecurring events (including, without limitation, a Change in Control) affecting the Company, any Affiliate of the Company, or the financial
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statements of the Company or any Affiliate of the Company, or changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange or inter-dealer quotation system, accounting principles or law, such that in either case an adjustment is determined by the Committee in its sole discretion to be necessary or appropriate, then the Committee shall make any such proportionate substitution or adjustment, if any, as it deems equitable, including without limitation, adjusting any or all of (A) the Absolute Share Limit, or any other limit applicable under the Plan with respect to the number of Awards which may be granted hereunder; (B) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities or other property) which may be issued in respect of Awards or with respect to which Awards may be granted under the Plan (including, without limitation, adjusting any or all of the limitations under Section 5 of the Plan) and (C) the terms of any outstanding Award, including, without limitation, (I) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities or other property) subject to outstanding Awards or to which outstanding Awards relate; (II) the Exercise Price or Strike Price with respect to any Award; or (III) any applicable performance measures; provided , that in the case of any equity restructuring (within the meaning of the Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor pronouncement thereto)), the Committee shall make an equitable or proportionate adjustment to outstanding Awards to reflect such equity restructuring. Any adjustment under this Section 11 shall be conclusive and binding for all purposes.
(b) Change in Control . Without limiting the foregoing, in connection with any Change in Control, the Committee may, in its sole discretion, provide for any one or more of the following:
(i) substitution or assumption of Awards, or to the extent the surviving entity (or Affiliate thereof) is unwilling to permit substitution or assumption of the Awards, full acceleration of the vesting of any time-vested Awards, and acceleration of any performance-vested Awards (based on actual performance through the date of such Change in Control and on a pro-rata basis); and/or
(ii) cancellation of any one or more outstanding Awards and payment to the holders of such Awards that are vested as of such cancellation (including, without limitation, any Awards that would vest as a result of the occurrence of such event but for such cancellation, including as provided in Section 11(b)(i) above), the value of such Awards, if any, as determined by the Committee (which value, if applicable, may be based upon the price per share of Common Stock received or to be received by other stockholders of the Company in such event), including, without limitation, in the case of an outstanding Option or SAR, a cash payment in an amount equal to the excess, if any, of the Fair Market Value (as of a date specified by the Committee) of the shares of Common Stock subject to such Option or SAR over the aggregate Exercise Price or Strike Price of such Option or SAR (it being understood that, in such event, any Option or SAR having a per share Exercise Price or Strike Price equal to, or in excess of, the Fair Market Value of a share of Common Stock subject thereto may be canceled and terminated without any payment or consideration therefor).
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For purposes of clause (i) above, substitution of an Award may include conversion of the shares of Common Stock underlying such Award into shares of the buyer (or Affiliate thereof), or, subject to any limitations or reductions as may be necessary to comply with Section 409A of the Code, into cash, property or other securities having an equivalent value as the Award (as determined consistent with clause (ii) above), which conversion shall not affect any continued vesting requirements of the Award. For the avoidance of doubt, any such substitution of an Award shall not provide for the acceleration of any vesting requirements of the Award and no Awards shall vest solely as a result of such substitution. Payments to holders pursuant to clause (ii) above shall be made in cash or, in the sole discretion of the Committee, in the form of such other consideration necessary for a Participant to receive property, cash, or securities (or combination thereof) as such Participant would have been entitled to receive upon the occurrence of the transaction if the Participant had been, immediately prior to such transaction, the holder of the number of shares of Common Stock covered by the Award at such time (less any applicable Exercise Price or Strike Price).
(c) No Automatic Acceleration on Change in Control . No Award Agreement shall provide for automatic acceleration of the vesting of any time-vested Awards or performance-vested Awards upon a Change in Control.
(d) Other Requirements . Prior to any payment or adjustment contemplated under this Section 11, the Committee may require a Participant to (i) represent and warrant as to the unencumbered title to the Participants Awards; (ii) bear such Participants pro rata share of any post-closing indemnity obligations, and be subject to the same post-closing purchase price adjustments, escrow terms, offset rights, holdback terms, and similar conditions as the other holders of Common Stock, subject to any limitations or reductions as may be necessary to comply with Section 409A of the Code; and (iii) deliver customary transfer documentation as reasonably determined by the Committee.
(e) Fractional Shares . Any adjustment provided under this Section 11 may provide for the elimination of any fractional share that might otherwise become subject to an Award.
12. Amendments and Termination .
(a) Amendment and Termination of the Plan . The Board may amend, alter, suspend, discontinue, or terminate the Plan or any portion thereof at any time; provided , that no such amendment, alteration, suspension, discontinuance or termination shall be made without stockholder approval if (i) such stockholder approval is necessary to comply with any regulatory requirement applicable to the Plan (including, without limitation, as necessary to comply with any rules or regulations of any securities exchange or inter-dealer quotation system on which the securities of the Company may be listed or quoted) or for changes in GAAP to new accounting standards; (ii) it would materially increase the number of securities which may be issued under the Plan (except for increases pursuant to Section 5 or 11 of the Plan); (iii) it would materially expand the category of Eligible Persons, extend the period during which new Awards may be granted under the Plan or change the method of determining the Exercise Price or Strike Price; or (iv) delete or limit the prohibition on repricing as provided in Section 12(c) below; provided, further , that any such amendment, alteration, suspension, discontinuance or termination that would materially and adversely affect the rights of any Participant or any holder or beneficiary of any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary. Notwithstanding the foregoing, no amendment shall be made to Section 12(c) of the Plan without stockholder approval.
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(b) Amendment of Award Agreements . The Committee may, to the extent consistent with the Plan and the terms of any applicable Award Agreement, waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any Award theretofore granted or the associated Award Agreement, prospectively or retroactively (including after a Termination); provided , that, other than pursuant to Section 11 or the terms of an Award Agreement, any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially and adversely affect the rights of any Participant with respect to any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant; provided, further , that, except as set forth in Sections 11 or 13(g) hereto, the Committee shall not alter or amend any Award in a manner that would accelerate the vesting of such Award.
(c) No Repricing . Notwithstanding anything in the Plan to the contrary, without stockholder approval, except as otherwise permitted under Section 11 of the Plan, (i) no amendment or modification of the Plan or any Award Agreement may reduce the Exercise Price of any Option or the Strike Price of any SAR or delete or limit the prohibition on repricing as provided by this Section 12(c); (ii) the Committee may not cancel any outstanding Option or SAR (including such Awards with an Exercise Price or Strike Price, as applicable, with a value above the current Fair Market Value of such Award) and replace it with a new Option or SAR (with a lower Exercise Price or Strike Price, as the case may be) or other Award or cash payment that is greater than the intrinsic value (if any) of the cancelled Option or SAR; and (iii) the Committee may not take any other action which is considered a repricing for purposes of the stockholder approval rules of any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or quoted.
13. General .
(a) Award Agreements . Each Award under the Plan shall be evidenced by an Award Agreement, which shall be delivered to the Participant to whom such Award was granted and shall specify the terms and conditions of the Award and any rules applicable thereto, including, without limitation, the effect on such Award upon a Termination, or of such other events as may be determined by the Committee. For purposes of the Plan, an Award Agreement may be in any such form (written or electronic) as determined by the Committee (including, without limitation, a Board or Committee resolution, a notice, a certificate or a letter) evidencing the Award. The Committee need not require an Award Agreement to be signed by the Participant or a duly authorized representative of the Company.
(b) Nontransferability .
(i) Each Award shall be exercisable only by such Participant to whom such Award was granted. No Award may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or its Affiliates.
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(ii) Notwithstanding the foregoing, the Committee may, in its sole discretion, permit Awards to be transferred by a Participant, without consideration, subject to such rules as the Committee may adopt consistent with any applicable Award Agreement to preserve the purposes of the Plan, to any other Eligible Person; provided, that no Awards may be transferred to a third-party financial institution.
(c) Dividends and Dividend Equivalents . The Committee may, in its sole discretion, provide a Participant as part of an Award with dividends, dividend equivalents, or similar payments in respect of Awards, payable in cash, shares of Common Stock, other securities, other Awards or other property, on a current or deferred basis, on such terms and conditions as may be determined by the Committee in its sole discretion, including, without limitation, payment directly to the Participant, withholding of such amounts by the Company subject to vesting of the Award or reinvestment in additional shares of Common Stock, Restricted Stock or other Awards; provided , that no dividends, dividend equivalents or other similar payments shall be payable in respect of outstanding (i) Options or SARs; or (ii) unearned Awards subject to performance conditions (other than, or in addition to, the passage of time) (although dividends, dividend equivalents or other similar payments may be accumulated in respect of unearned Awards and paid within fifteen (15) days after such Awards are earned and become payable or distributable).
(d) Tax Withholding .
(i) As a condition to the grant of any Award, it shall be required that a Participant satisfy, when such taxes are otherwise due with respect to such Award, through a cash payment by the Participant, or in the discretion of the Committee, through deduction or withholding from any payment of any kind otherwise due to the Participant, or through such other arrangements as are satisfactory to the Committee, the amount of all federal, state, and local income and other applicable taxes of any kind required or permitted to be withheld in connection with such Award.
(ii) Without limiting the generality of clause (i) above, the Committee may (but is not obligated to), in its sole discretion, permit a Participant to satisfy, in whole or in part, the foregoing withholding liability by (A) the delivery of shares of Common Stock (which are not subject to any pledge or other security interest) that have been held by the Participant for at least six (6) months (or such other period as established from time to time by the Committee in order to avoid adverse accounting treatment applying GAAP) having a Fair Market Value equal to such withholding liability; or (B) having the Company withhold from the number of shares of Common Stock otherwise issuable or deliverable pursuant to the exercise or settlement of the Award a number of shares with a Fair Market Value equal to such withholding liability, provided that with respect to shares withheld pursuant to clause (B), the number of such shares may not have a Fair Market Value greater than the minimum required statutory withholding liability unless determined by the Committee not to result in adverse accounting consequences.
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(e) Data Protection . By participating in the Plan or accepting any rights granted under it, each Participant consents to the collection and processing of data relating to the Participant so that the Company and its Affiliates can fulfill their obligations and exercise their rights under the Plan and generally administer and manage the Plan. This data will include, but may not be limited to, data about participation in the Plan and shares offered or received, purchased, or sold under the Plan from time to time and other appropriate financial and other data (such as the date on which the Awards were granted) about the Participant and the Participants participation in the Plan.
(f) No Claim to Awards; No Rights to Continued Service; Waiver . No Eligible Person shall have any claim or right to be granted an Award under the Plan or, having been selected for the grant of an Award, to be selected for a grant of any other Award. There is no obligation for uniformity of treatment of Participants or holders of Awards. The terms and conditions of Awards and the Committees determinations and interpretations with respect thereto need not be the same with respect to each Participant and may be made selectively among Participants, whether or not such Participants are similarly situated. Neither the Plan nor any action taken hereunder shall be construed as giving any Participant any right to be retained in the service of the Company or its Affiliates, nor shall it be construed as giving any Participant any rights to continued service on the Board.
(g) Termination . In the event of a Qualifying Termination, and notwithstanding any provision of the Plan to the contrary, all outstanding unvested Awards shall vest in full as of such Qualifying Termination. In the event of a Termination (other than a Qualifying Termination), including by action of the Manager (other than as a result of the breach by the Company of the Management Agreement) or by action of the Company as a result of the breach by the Manager of the Management Agreement, all vesting with respect to all outstanding unvested Awards shall cease, and all such outstanding unvested Awards shall be forfeited to the Company for no consideration as of the date of such Termination; provided , that, notwithstanding anything contained in the Plan to the contrary, in connection with any Termination, the Committee shall reasonably determine whether or not to permit a Participant to retain, vest or continue to vest in an Award notwithstanding such Termination.
(h) No Rights as a Stockholder . Except as otherwise specifically provided in the Plan or any Award Agreement, no Person shall be entitled to the privileges of ownership in respect of shares of Common Stock which are subject to Awards hereunder until such shares have been issued or delivered to such Person.
(i) Government and Other Regulations .
(i) The obligation of the Company to settle Awards in shares of Common Stock or other consideration shall be subject to all applicable laws, rules, and regulations, and to such approvals by governmental agencies as may be required. Notwithstanding any terms or conditions of any Award to the contrary, the Company shall be under no obligation to offer to sell or to sell, and shall be prohibited from offering to sell or selling, any shares of Common Stock pursuant to an Award unless such shares have been properly registered for sale pursuant to the Securities Act with the Securities and Exchange Commission or unless the Company has received an opinion of counsel (if the
18
Company has requested such an opinion), satisfactory to the Company, that such shares may be offered or sold without such registration pursuant to an available exemption therefrom and the terms and conditions of such exemption have been fully complied with. The Company shall be under no obligation to register for sale under the Securities Act any of the shares of Common Stock to be offered or sold under the Plan. The Committee shall have the authority to provide that all shares of Common Stock or other securities of the Company or any Affiliate of the Company issued under the Plan shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan, the applicable Award Agreement, the Federal securities laws, or the rules, regulations and other requirements of the Securities and Exchange Commission, any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or quoted and any other applicable Federal, state, local or non-U.S. laws, rules, regulations and other requirements, and, without limiting the generality of Section 9 of the Plan, the Committee may cause a legend or legends to be put on certificates representing shares of Common Stock or other securities of the Company or any Affiliate of the Company issued under the Plan to make appropriate reference to such restrictions or may cause such Common Stock or other securities of the Company or any Affiliate of the Company issued under the Plan in book-entry form to be held subject to the Companys instructions or subject to appropriate stop-transfer orders. Notwithstanding any provision in the Plan to the contrary, the Committee reserves the right to add any additional terms or provisions to any Award granted under the Plan that the Committee, in its sole discretion, deems necessary or advisable in order that such Award complies with the legal requirements of any governmental entity to whose jurisdiction the Award is subject.
(ii) The Committee may cancel an Award or any portion thereof if it determines, in its sole discretion, that legal or contractual restrictions and/or blockage and/or other market considerations would make the Companys acquisition of shares of Common Stock from the public markets, the Companys issuance of Common Stock to the Participant, the Participants acquisition of Common Stock from the Company and/or the Participants sale of Common Stock to the public markets, illegal, impracticable or inadvisable. If the Committee determines to cancel all or any portion of an Award in accordance with the foregoing, the Company shall, subject to any limitations or reductions as may be necessary to comply with Section 409A of the Code, (A) pay to the Participant an amount equal to the excess of (I) the aggregate Fair Market Value of the shares of Common Stock subject to such Award or portion thereof canceled (determined as of the applicable exercise date, or the date that the shares would have been vested or issued, as applicable); over (II) the aggregate Exercise Price or Strike Price (in the case of an Option or SAR, respectively) or any amount payable as a condition of issuance of shares of Common Stock (in the case of any other Award). Such amount shall be delivered to the Participant as soon as practicable following the cancellation of such Award or portion thereof, or (B) in the case of Restricted Stock, Restricted Stock Units or Other Stock-Based Awards, provide the Participant with a cash payment or equity subject to deferred vesting and delivery consistent with the vesting restrictions applicable to such Restricted Stock, Restricted Stock Units or Other Stock-Based Awards, or the underlying shares in respect thereof.
19
(j) Nonexclusivity of the Plan . Neither the adoption of the Plan by the Board nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of equity-based awards otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases.
(k) No Trust or Fund Created . Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate of the Company, on the one hand, and a Participant or other Person, on the other hand. No provision of the Plan or any Award shall require the Company, for the purpose of satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company be obligated to maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Participants shall have no rights under the Plan other than as unsecured general creditors of the Company, except that insofar as they may have become entitled to payment of additional compensation by performance of services, they shall have the same rights as other service providers under general law.
(l) Reliance on Reports . Each member of the Committee and each member of the Board shall be fully justified in acting or failing to act, as the case may be, and shall not be liable for having so acted or failed to act in good faith, in reliance upon any information, opinion, report, or statement, including any financial statement or other financial data, prepared or presented by any officer or employee of the Company whom the Committee reasonably believes to be reliable and competent in the matters presented; a lawyer, certified public accountant, or other person, as to a matter which the Committee reasonably believes to be within the persons professional or expert competence; another committee of the Board on which a Committee member does not serve, as to matters within its designated authority, if the Committee reasonably believes such committee to merit confidence; and/or any other information furnished in connection with the Plan by any agent of the Company or the Committee or the Board, other than himself or herself.
(m) Governing Law . The Plan shall be governed by and construed in accordance with the internal laws of the State of Maryland applicable to contracts made and performed wholly within the State of Maryland, without giving effect to the conflict of laws provisions thereof.
(n) Severability . If any provision of the Plan or any Award or Award Agreement is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be construed or deemed stricken as to such jurisdiction, Person or Award and the remainder of the Plan and any such Award shall remain in full force and effect.
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(o) Obligations Binding on Successors . The obligations of the Company under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company.
(p) Section 409A of the Code .
(i) Notwithstanding any provision of the Plan to the contrary, it is intended that the provisions of the Plan comply with Section 409A of the Code, and all provisions of the Plan shall be construed and interpreted in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A of the Code. Each Participant is solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on or in respect of such Participant in connection with the Plan or any other plan maintained by the Company (including any taxes and penalties under Section 409A of the Code), and neither the Company nor any Affiliate of the Company shall have any obligation to indemnify or otherwise hold such Participant (or any beneficiary) harmless from any or all of such taxes or penalties. With respect to any Award that is considered deferred compensation subject to Section 409A of the Code, references in the Plan to termination of employment (and substantially similar phrases) shall mean separation from service within the meaning of Section 409A of the Code. For purposes of Section 409A of the Code, each of the payments that may be made in respect of any Award granted under the Plan is designated as separate payments.
(ii) Notwithstanding anything in the Plan to the contrary, if a Participant is a specified employee within the meaning of Section 409A(a)(2)(B)(i) of the Code, no payments in respect of any Awards that are deferred compensation subject to Section 409A of the Code and which would otherwise be payable upon the Participants separation from service (as defined in Section 409A of the Code) shall be made to such Participant prior to the date that is six (6) months after the date of such Participants separation from service or, if earlier, the date of the Participants death. Following any applicable six (6) month delay, all such delayed payments will be paid in a single lump sum on the earliest date permitted under Section 409A of the Code that is also a business day.
(iii) Unless otherwise provided by the Committee in an Award Agreement or otherwise, in the event that the timing of payments in respect of any Award (that would otherwise be considered deferred compensation subject to Section 409A of the Code) would be accelerated upon the occurrence of a Change in Control, no such acceleration shall be permitted unless the event giving rise to the Change in Control satisfies the definition of a change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation pursuant to Section 409A of the Code and any Treasury Regulations promulgated thereunder.
(q) Clawback/ Forfeiture . Notwithstanding anything to the contrary contained herein, an Award agreement may provide that the Committee may in its sole discretion cancel such Award if the Participant has engaged in or engages in detrimental activity that is in conflict with or adverse to the interest of the Company or any Affiliate of the Company, including, without
21
limitation, fraud or conduct contributing to any financial restatements or irregularities, as determined by the Committee in its sole discretion. The Committee may also provide in an Award Agreement that if the Participant otherwise has engaged in or engages in any activity referred to in the preceding sentence, all of the Participants outstanding awards will be cancelled and/or the Participant will forfeit any gain realized on the vesting or exercise of such Award, and must repay the gain to the Company. The Committee may also provide in an Award agreement that if the Participant receives any amount in excess of what the Participant should have received under the terms of the Award for any reason (including without limitation by reason of a financial restatement, mistake in calculations or other administrative error), then the Participant shall be required to repay any such excess amount to the Company. Without limiting the foregoing, all Awards shall be subject to reduction, cancellation, forfeiture or recoupment to the extent necessary to comply with applicable law.
(r) Expenses; Gender; Titles and Headings . The expenses of administering the Plan shall be borne by the Company and its Affiliates. Masculine pronouns and other words of masculine gender shall refer to both men and women. The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.
* * *
22
Exhibit 10.36
THIRD AMENDED AND RESTATED
MASTER REPURCHASE AGREEMENT
Dated as of October 12, 2018
among
PARLEX 2 FINANCE, LLC,
PARLEX 2A FINCO, LLC,
PARLEX 2 UK FINCO, LLC,
PARLEX 2 EUR FINCO, LLC,
PARLEX 2 AU FINCO, LLC,
and any other Person when such Person joins as a Seller under
this Agreement from time to time
individually and/or collectively, as the context requires, as Seller,
and
CITIBANK, N.A.,
as Buyer
TABLE OF CONTENTS
Page | ||||||
1. |
APPLICABILITY |
1 | ||||
2. |
DEFINITIONS |
1 | ||||
3. |
INITIATION; CONFIRMATION; TERMINATION; FEES |
34 | ||||
4. |
MARGIN MAINTENANCE |
41 | ||||
5. |
INCOME PAYMENTS AND PRINCIPAL PAYMENTS |
46 | ||||
6. |
SECURITY INTEREST |
50 | ||||
7. |
PAYMENT, TRANSFER AND CUSTODY |
51 | ||||
8. |
SALE, TRANSFER, HYPOTHECATION OR PLEDGE OF PURCHASED LOANS |
56 | ||||
9. |
INTENTIONALLY OMITTED |
56 | ||||
10. |
REPRESENTATIONS |
56 | ||||
11. |
NEGATIVE COVENANTS OF SELLER |
61 | ||||
12. |
AFFIRMATIVE COVENANTS OF SELLER |
62 | ||||
13. |
SINGLE-PURPOSE ENTITY |
65 | ||||
14. |
EVENTS OF DEFAULT; REMEDIES |
67 | ||||
15. |
SINGLE AGREEMENT |
73 | ||||
16. |
RECORDING OF COMMUNICATIONS |
73 | ||||
17. |
NOTICES AND OTHER COMMUNICATIONS |
74 | ||||
18. |
ENTIRE AGREEMENT; SEVERABILITY |
74 | ||||
19. |
NON-ASSIGNABILITY |
74 | ||||
20. |
GOVERNING LAW |
76 | ||||
21. |
NO WAIVERS, ETC. |
76 | ||||
22. |
USE OF EMPLOYEE PLAN ASSETS |
76 | ||||
23. |
INTENT |
76 | ||||
24. |
DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS |
78 | ||||
25. |
CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL |
79 | ||||
26. |
NO RELIANCE |
80 | ||||
27. |
INDEMNITY |
80 | ||||
28. |
DUE DILIGENCE |
81 | ||||
29. |
SERVICING |
82 |
i
30. |
MISCELLANEOUS |
83 | ||||
31. |
TAXES |
84 | ||||
32. |
JOINT AND SEVERAL OBLIGATIONS |
87 |
ii
ANNEXES AND EXHIBITS
ANNEX I | Names and Addresses for Communications between Parties and Wire Instructions | |
SCHEDULE I | Prohibited Transferees | |
EXHIBIT I | Form of Confirmation | |
EXHIBIT II | Authorized Representatives of Seller | |
EXHIBIT III | Form of Custodial Delivery | |
EXHIBIT IV | Eligible Loan Due Diligence Checklist | |
EXHIBIT V-A | Form of Power of Attorney for U.S. Purchased Loans | |
EXHIBIT V-B | Form of Power of Attorney for Foreign Purchased Loans | |
EXHIBIT VI-I | Representations and Warranties Regarding Each Individual Purchased Loan Which Is Not a Foreign Purchased Loan (AU) or a Participation Interest in a Whole Loan | |
EXHIBIT VI-II | Representations and Warranties Regarding Each Individual Purchased Loan Which Is a Participation Interest in a Whole Loan | |
EXHIBIT VI-III | Representations and Warranties Regarding Each Individual Purchased Loan Which Is a Foreign Purchased Loan (AU) | |
EXHIBIT VII | Collateral Tape | |
EXHIBIT VIII | Form of Transaction Request | |
EXHIBIT IX | Form of Request for Margin Excess | |
EXHIBIT X | Form of Irrevocable Direction Letter | |
EXHIBIT XI | Form of Joinder Agreement | |
EXHIBIT XII | Form of Facility Asset Chart |
iii
THIRD AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT, dated as of October 12, 2018, by and among PARLEX 2 FINANCE, LLC, a Delaware limited liability company ( Parlex 2 ), PARLEX 2A FINCO, LLC, a Delaware limited liability company ( Parlex 2A ), PARLEX 2 UK FINCO, LLC, a Delaware limited liability company ( Parlex 2 UK ), PARLEX 2 EUR FINCO, LLC, a Delaware limited liability company ( Parlex 2 EUR ), PARLEX 2 AU FINCO, LLC, a Delaware limited liability company ( Parlex 2 AU , and together with Parlex 2, Parlex 2A, Parlex 2 UK, Parlex 2 AU and any other Person when such Person joins as a Seller hereunder from time to time, individually and/or collectively as the context may require, Seller ) and CITIBANK, N.A., a national banking association ( Buyer ).
1. |
APPLICABILITY |
From time to time during the Facility Availability Period, the parties hereto may enter into transactions in which Seller agrees to transfer to Buyer Purchased Loans against the transfer of funds by Buyer, with a simultaneous agreement by Buyer to transfer to Seller such Purchased Loans at a date certain, against the transfer of funds by Seller. Each such transaction shall be referred to herein as a Transaction and, unless otherwise agreed in writing, shall be governed by this Agreement, including any supplemental terms or conditions contained in any exhibits identified herein as applicable hereunder.
This Agreement amends, restates and replaces in its entirety that certain Second Amended and Restated Master Repurchase Agreement, dated as of March 31, 2017 (the Second Amendment and Restatement Date ), by and among Parlex 2, Parlex 2A, Parlex 2 UK, Parlex 2 EUR and Buyer, as amended by that certain First Amendment to Second Amended and Restated Master Repurchase Agreement, dated as of December 21, 2017, by and among Parlex 2, Parlex 2A, Parlex 2 UK, Parlex 2 EUR, Guarantor and Buyer, and as further amendment by that certain Second Amendment to Second Amended and Restated Master Repurchase Agreement, dated as of March 30, 2018, by and among Parlex 2, Parlex 2A, Parlex 2 UK, Parlex 2 EUR, Guarantor and Buyer (collectively, the Original Agreement ). Seller and Buyer acknowledge and agree that the Original Agreement shall be void and of no force or effect from and after the date hereof. All Transactions (as defined in the Original Agreement) outstanding under the Original Agreement as of the Third Amendment and Restatement Date shall be deemed to be Transactions (as defined in this Agreement) outstanding under this Agreement and all Confirmations (as defined in the Original Agreement) under the Original Agreement as of the Third Amendment and Restatement Date shall be deemed to be Confirmations under this Agreement (and, accordingly, in each case, subject to the terms and conditions hereof) and all references in any Transaction Document (including, without limitation, any and all Confirmations and assignment documentation executed pursuant to the Original Agreement) to the Agreement or any similar formulation intended to refer to the Original Agreement shall be deemed to be references to this Agreement.
2. |
DEFINITIONS |
Accelerated Repurchase Date shall have the meaning specified in Section 14(b)(i) of this Agreement.
Acceptable Attorney means (i) Ropes & Gray LLP, (ii) a firm of solicitors regulated by the Solicitors Regulation Authority (with respect to any Foreign Purchased Loan secured by Mortgaged Property located in England) reasonably acceptable to Buyer, (iii) Herbert Smith Freehills LLP, or (iv) any other attorney-at-law or law firm reasonably acceptable to Buyer, or notary (if required in the relevant jurisdiction) that has, in the case of each of (i) through (iv) herein, delivered at Sellers request an Attorneys Bailee Letter, as applicable.
Accepted Servicing Practices shall have the meaning given to such term in the Servicing Agreement (or, if not defined therein, shall mean with respect to any Purchased Loan, those mortgage servicing practices of prudent mortgage lending institutions which service whole mortgage loans (and senior interests in whole mortgage loans) in the jurisdiction where the related Mortgaged Property is located).
Account Security Agreement shall mean, with respect to a Foreign Purchased Loan, an agreement creating security over a bank account maintained by the related Mortgagor.
Act of Insolvency shall mean, with respect to any Person, (a) the filing of a decree or order for relief by a court having jurisdiction over such Person or any substantial part of its assets or property in an involuntary case under any applicable Insolvency Law now or hereafter in effect which (i) results in the entry of an order for relief or (ii) is not dismissed within 90 days, (b) the appointment by a court having jurisdiction over such Person or any substantial part of its assets or property, of a receiver, liquidator, assignee, custodian, trustee, sequestrator, administration or similar official for such Person or for any substantial part of its assets or property and such appointment shall remain unstayed and in effect for a period of 90 days, (c) an order by a court having jurisdiction over such Person or any substantial part of its assets or property ordering the winding up or liquidation of such Persons affairs, and such order shall remain unstayed and in effect for a period of 90 days, (d) the commencement by such Person of a voluntary case under any applicable Insolvency Law now or hereafter in effect, (e) the consent by such Person to the entry of an order for relief in an involuntary case under any Insolvency Law, (f) the consent by such Person to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for such Person or for any substantial part of its assets or property, (g) the making by such Person of any general assignment for the benefit of creditors, or (h) the admission in writing in connection with a legal proceeding of the inability of such Person to pay its debts generally as they become due.
Actual Knowledge shall mean, as of any date of determination, the then current actual knowledge of Stephen Plavin, Thomas C. Ruffing and Douglas Armer, without duty of further inquiry or investigation; provided , that if any such individual ceases to be an officer of or in the employ of Seller and/or Guarantor after the date of this Agreement in a capacity comparable to the capacity occupied as of the date of this Agreement, then Seller shall designate promptly another individual reasonably acceptable to Buyer for purposes of satisfying this definition.
Affiliate shall mean, when used with respect to any specified Person, any other Person directly or indirectly Controlling, Controlled by, or under common Control with, such Person.
AFSL shall have the meaning specified in Section 24(d) of this Agreement.
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Agreement shall mean this Third Amended and Restated Master Repurchase Agreement, dated as of the date first set forth above, by and among Parlex 2, Parlex 2A, Parlex 2 UK, Parlex 2 EUR, Parlex 2 AU and Citibank, N.A., as such agreement may be amended, modified, supplemented, and/or restated and in effect from time to time.
Alternative Rate shall have the meaning specified in the Fee Agreement.
Alternative Rate Transaction shall mean, with respect to any Pricing Rate Period, any Transaction with respect to which the Pricing Rate for such Pricing Rate Period is determined with reference to the Alternative Rate.
ANZVPS shall mean the Australia and New Zealand Valuation and Property Standards published by the Australian Property Institute and the Property Institute of New Zealand.
Applicable Currency means U.S. Dollars, Pounds Sterling, Euro, AU Dollars or such other currency permitted by Buyer, in its sole discretion, as applicable.
Applicable Spread shall mean, with respect to each Transaction:
(i) so long as no Event of Default shall have occurred and be continuing, the number of basis points (i.e., 1 basis point equals 0.01%) determined in accordance with the Pricing Matrix, and confirmed in the related Confirmation; or
(ii) after the occurrence and during the continuance of an Event of Default, the applicable incremental per annum rate described in clause (i) of this definition, as applicable, plus 400 basis points (4.00%).
It is understood and agreed that no improvement or decline in the LTV (Loan UPB) after the applicable Purchase Date for a Purchased Loan shall result in any adjustment to the Applicable Spread for such Purchased Loan.
Applicable Standard of Discretion shall mean: (a) at any time the Maximum LTV (Purchase Price) of a Purchased Loan is less than or equal to the LTV (Loan UPB) of such Purchased Loan as of the Purchase Date, Buyers commercially reasonable discretion, and (b) at any time the Maximum LTV (Purchase Price) of a Purchased Loan is greater than the LTV (Loan UPB) of such Purchased Loan as of the Purchase Date, Buyers sole discretion.
Appraisal shall mean an Appraisal Regime-compliant appraisal addressed to Buyer, Seller or Guarantor (or, in the case of a Purchased Loan (AU), the facility agent or the security trustee in respect of that Purchased Loan (AU)), and, where it is market practice in the jurisdiction where the relevant Mortgaged Property is located, the successors and assigns of the addressee (and, if not addressed to Buyer, containing reliance language acceptable to Buyer (acting reasonably and having regard to market practice for appraisals in the jurisdiction in which the relevant Mortgaged Property is located), which language shall be made available by Seller to and approved by Buyer prior to the applicable Purchase Date) and reasonably satisfactory to Buyer of the related Mortgaged Property from a third party appraiser.
3
Appraisal Regime shall mean: (a) with respect to U.S. Purchased Loans, FIRREA, and (b) with respect to Foreign Purchased Loans, RICS, ANZVPS or its equivalent in any applicable jurisdiction, as applicable.
ARD Loan shall mean any loan that provides that if the unamortized principal balance thereof is not repaid by a date certain set forth in the related loan documents, such loan will accrue additional interest at the rate specified in the related Mortgage Note and the related Mortgagor is required to apply certain excess monthly cash flow generated by the related Mortgaged Property to the repayment of the outstanding principal balance on such Mortgage Loan.
Assignment Documents in Blank shall mean, (a) for each Purchased Loan that is not a Participation Interest, the (i) allonge in blank (in the case of a U.S. Purchased Loan), (ii) Transfer Certificate duly executed by Seller or transferor (howsoever described) with the name of the transferee (howsoever described) and dated in blank (in the case of a Foreign Purchased Loan), (iii) omnibus assignment in blank, (iv) except in the case of each Purchased Loan that is a Senior Interest, Assignment of Mortgage in blank, (v) except in the case of each Purchased Loan that is a Senior Interest or a Foreign Purchased Loan (AU), assignment of Assignment of Leases in blank, and/or (vi) equivalent of each of the foregoing (except with respect to the Transfer Certificate referenced in clause (ii) herein, for which there shall be no equivalent) in the relevant non-U.S. jurisdiction and where so required by Buyer, duly executed by Seller with the name of the transferee or assignee (howsoever described) and dated in blank (in the case of a Foreign Purchased Loan) and (b) for each Purchased Loan that is a Participation Interest, (i) an endorsement in blank in respect of the related participation certificate and (ii) an assignment and assumption agreement in blank.
Assignment of Leases shall mean, with respect to any Mortgage (other than in the case of any Foreign Purchased Loan (AU)), an assignment of leases thereunder, notice of transfer or equivalent instrument in recordable form, sufficient under the laws of the jurisdiction wherein the Mortgaged Property is located to reflect the assignment of leases, subject to the terms, covenants and provisions of this Agreement.
Assignment of Mortgage shall mean, with respect to any Mortgage, an assignment of the mortgage, notice of transfer or equivalent instrument in recordable or registerable form, sufficient under the laws of the jurisdiction wherein the related Mortgaged Property is located to reflect the assignment and pledge of the Mortgage, subject to the terms, covenants and provisions of this Agreement.
Attorneys Bailee Letter shall mean a letter from an Acceptable Attorney, in form and substance reasonably acceptable to Buyer, wherein such Acceptable Attorney in possession of a Purchased Loan File (i) acknowledges receipt of such Purchased Loan File, (ii) confirms that such Acceptable Attorney is holding the same as bailee (in the case of U.S. Purchased Loans) or agent (in the case of Foreign Purchased Loans), of Buyer, or solicitor of Seller (in the case of Foreign Purchased Loans (AU)), as applicable, under such letter and (iii) agrees that such Acceptable Attorney shall deliver such Purchased Loan File to the Custodian by not later than the third (3 rd ) Business Day (or, in the case of a Foreign Purchased Loan (AU), the tenth (10 th ) Business Day) following the Purchase Date for the related Purchased Loan.
4
AU Dollar and A$ shall mean the lawful currency of the Commonwealth of Australia.
AU Reference Banks shall mean (i) the Commonwealth Bank of Australia, (ii) Westpac Banking Corporation, (iii) Australia and New Zealand Banking Group Limited, (iv) National Australia Bank Limited, and (v) such other Person as Buyer and Seller may agree.
Bankruptcy Code shall mean Title 11 of the United States Code (11 U.S.C. § 101, et seq. ), as amended, modified or replaced from time to time.
Basel II shall mean the International Convergence of Capital Measurement and Capital Standards, a Revised Framework published by the Basel Committee on Banking Supervision in June 2004 in the form existing on the date of this Agreement (but excluding any amendment arising out of Basel III).
Basel III shall mean:
(i) the agreements on capital requirements, a leverage ratio and liquidity standards contained in Basel III: A global regulatory framework for more resilient banks and banking systems, Basel III: International framework for liquidity risk measurement, standards and monitoring and Guidance for national authorities operating the countercyclical capital buffer published by the Basel Committee on Banking Supervision in December 2010, each as amended, supplemented or restated;
(ii) the rules for global systemically important banks contained in Global systemically important banks: assessment methodology and the additional loss absorbency requirement Rules text published by the Basel Committee on Banking Supervision in November 2011, as amended, supplemented or restated; and
(iii) any further guidance or standards published by the Basel Committee on Banking Supervision relating to Basel III.
BBSY Rate shall mean, with respect to any Pricing Rate Period related to any Foreign Purchased Loan (AU), the Australian Bank Bill Swap Reference Rate (bid) administered by ASX Benchmarks Pty Limited (or any other person which takes over administration of that rate) for a period equal in length to the relevant Pricing Rate Period displayed on the Thomson Reuters screen BBSY page (or such other page as may replace that page on that service, or the appropriate page of such other information service which publishes that rate from time to time in place of Thomson Reuters) as of 10.:30 a.m., Sydney time, on the related Pricing Rate Determination Date (the BBSY Screen Rate ).
If no BBSY Screen Rate is available for any Pricing Rate Period, and such Pricing Rate Period is longer than the minimum period for which a BBSY Screen Rate is displayed, the BBSY Rate for such Pricing Rate Period shall be the rate which results from interpolating on a linear basis between:
5
(i) the BBSY Screen Rate for the longest period (for which the BBSY Screen Rate is available) which is less than such Pricing Rate Period; and
(ii) the BBSY Screen Rate for the shortest period (for which the BBSY Screen Rate is available) which exceeds such Pricing Rate Period (the Interpolated BBSY Screen Rate ).
If no BBSY Screen Rate is available for any Pricing Rate Period and it is not possible to calculate an Interpolated BBSY Screen Rate for such Pricing Rate Period, Buyer shall request each of the AU Reference Banks quote the buying for bills of exchange accepted by a leading Australian bank for amounts of not less than the Repurchase Price of the applicable Transaction for a period equal to the relevant Pricing Rate Period, as of 10:30 a.m., Sydney time, on the related Pricing Rate Determination Date.
If at least one such offered quotation is provided, the BBSY Rate with respect to the relevant Pricing Rate Period shall be (i) where more than one offered quotation is provided by the AU Reference Banks, the arithmetic mean (rounded upwards to four decimal places) of all of such offered quotations or (ii) where only one offered quotation is provided by the AU Reference Banks, such offered quotation (rounded upwards to four decimal places).
If at or about noon, London time, on the related Pricing Rate Determination Date, no AU Reference Banks have provided quotations, then BBSY with respect to the relevant Pricing Rate Period shall be the rate determined by Buyer, as a percentage rate per annum, of the cost to Buyer of funding an amount not less than the Repurchase Price for the applicable Transaction in AU Dollars from whatever source it may reasonably select.
The BBSY Rate shall be determined by Buyer or its agent, which determination shall be conclusive absent manifest error. If the calculation of the BBSY Rate with respect to a Pricing Rate Period results in a BBSY Rate of less than zero (0), BBSY shall be deemed to be zero (0) for all purposes of this Agreement with respect to such Pricing Rate Period.
Blocked Account Agreement shall mean, individually or collectively, as the context may require, (i) that certain Deposit Account Control Agreement, dated as of June 12, 2013, among Buyer, Parlex 2, Servicer and the Depository, relating to the Cash Management Account established by Parlex 2, as the same may be amended, modified and/or restated from time to time, (ii) that certain Deposit Account Control Agreement, dated as of January 31, 2014, among Buyer, Parlex 2A, Servicer and the Depository, relating to the Cash Management Account established by Parlex 2A, as the same may be amended, modified and/or restated from time to time, (iii) that certain Deposit Account Control Agreement, dated as of the Second Amendment and Restatement Date, among Buyer, Parlex 2 UK, Servicer and the Depository, relating to the Cash Management Account established by Parlex 2 UK, as the same may be amended, modified and/or restated from time to time, (iv) that certain Deposit Account Control Agreement, dated as of the Second Amendment and Restatement Date, among Buyer, Parlex 2 EUR, Servicer and the Depository, relating to the Cash Management Account established by Parlex 2 EUR, as the same may be amended, modified and/or restated from time to time, (v) that certain Deposit Account Control Agreement, dated as of the Third Amendment and Restatement Date, among Buyer, Parlex 2 AU, Servicer and the Depository, relating to the Cash Management Account established
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by Parlex 2 AU, as the same may be amended, modified and/or restated from time to time, and (vi) each additional Deposit Account Control Agreement entered into among a new Seller admitted to this Agreement pursuant to a Joinder Agreement, Buyer, Servicer and the Depository and relating to a Cash Management Account established pursuant to this Agreement by such new Seller, as the same may be amended, modified and/or restated from time to time.
Business Day shall mean a day other than (i) a Saturday or Sunday, (ii) a day on which the New York Stock Exchange or Federal Reserve Bank of New York is authorized or obligated by law or executive order to be closed and (iii) a day on which commercial banks in the States of New York, Pennsylvania, Kansas or Minnesota or in London, England, Sydney, Australia, or, as it relates to a specific Foreign Purchased Loan, the relevant non-U.S. jurisdiction in which the Mortgaged Property securing the related Foreign Purchased Loan is located or the laws of which otherwise govern the Purchased Loan Documents relating to the subject Foreign Purchased Loan (or as otherwise designated in the Purchased Loan Documents relating to the subject Foreign Purchased Loan and stated in the related Confirmation) are authorized or obligated by law or executive order to be closed. When used with respect to a Pricing Rate Determination Date, Business Day shall mean any day other than a Saturday, a Sunday or a day on which banks in London, England are closed for interbank or foreign exchange transactions.
Buyer shall mean Citibank, N.A., or any successor or assign.
Capital Lease Obligations shall mean, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP.
Capital Stock shall mean any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent equity ownership interests in a Person which is not a corporation, including, without limitation, any and all member or other equivalent interests in any limited liability company, and any and all warrants or options to purchase any of the foregoing.
Cash Management Account shall mean, individually or collectively, as the context may require, with respect to each Seller, a segregated interest bearing account, in the name of such Seller for the benefit of Buyer, established at the Depository and subject to a Blocked Account Agreement.
Change of Control shall mean any of the following events shall have occurred without the prior approval of Buyer:
(i) Guarantor shall no longer own, directly or indirectly, 100% of the ownership interest in Seller and Control, directly or indirectly, Seller;
(ii) any merger, reorganization or consolidation of Guarantor where Guarantor is not the surviving entity; or
(iii) any conveyance, transfer, lease or disposal of all or substantially all assets of any Seller or Guarantor to any Person or entity other than an Affiliate of such entity.
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CLO shall mean the collateral loan obligation bond transaction issued pursuant to the CLO Indenture.
CLO Indenture shall mean that certain Indenture, dated as of December 21, 2017 by and among BXMT 2017-FL1, Ltd., as Issuer, BXMT 2017-FL1, LLC, as Co-Issuer, 42-16 CLO L SELL, LLC, as Advancing Agent and Wells Fargo Bank, National Association as Trustee and as Note Administrator, as the same may be amended, modified and/or restated from time to time.
CLO Participation A-1 shall have the meaning assigned to such term in each CLO Participation Agreement.
CLO Participation A-2 shall have the meaning assigned to such term in each CLO Participation Agreement.
CLO Participation Agreements shall mean, individually or collectively as the context requires, that certain (i) Participation Agreement and Future-Funding Indemnification Agreement, dated as of December 21, 2017, by and among 42-16 CLO L SELL, LLC, a Delaware corporation (the Mortgage Lender and the Initial CLO Participation A-1 Holder ), 42-16 CLO L SELL, LLC, a Delaware corporation (the Initial CLO Participation A-2 Holder ), Wells Fargo Bank, National Association (the CLO Participation Custodial Agent ) and Blackstone Mortgage Trust, Inc., a Maryland corporation (the Future Funding Indemnitor ) with respect to the Purchased Loan known as SunTrust Center, (ii) Participation Agreement and Future-Funding Indemnification Agreement, dated as of December 21, 2017, by and among Mortgage Lender, Initial CLO Participation A-1 Holder, Initial CLO Participation A-2 Holder, CLO Participation Custodial Agent and Future Funding Indemnitor with respect to the Purchased Loan known as Douglass Entrance, (iii) Participation Agreement and Future-Funding Indemnification Agreement, dated as of December 21, 2017, by and among Mortgage Lender, Initial CLO Participation A-1 Holder, Initial CLO Participation A-2 Holder, CLO Participation Custodial Agent and Future Funding Indemnitor with respect to the Purchased Loan known as Ambassador Waikiki II and (iv) Participation Agreement and Future-Funding Indemnification Agreement, dated as of December 21, 2017, by and among Mortgage Lender, Initial CLO Participation A-1 Holder, Initial CLO Participation A-2 Holder, CLO Participation Custodial Agent and Future Funding Indemnitor with respect to the Purchased Loan known as Torrance Portfolio, as each may be amended, modified and/or restated from time to time.
CLO Servicing Agreement shall have the meaning assigned to such term in the CLO Participation Agreements, as the same may be amended, modified and/or restated from time to time.
Code shall mean The Internal Revenue Code of 1986 and the regulations promulgated and rulings issued thereunder, in each case as amended, modified or replaced from time to time.
Collateral shall have the meaning specified in Section 6 of this Agreement.
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Collateral Tape shall mean, with respect to each Eligible Loan, the tape containing the fields of information set forth in Exhibit VII attached hereto and any other similar information with respect to a Foreign Purchased Loan.
Column A shall have the meaning specified in the definition of Facility Asset Chart.
Column B shall have the meaning specified in the definition of Facility Asset Chart.
Column C shall have the meaning specified in the definition of Facility Asset Chart.
Column D shall have the meaning specified in the definition of Facility Asset Chart.
Column E shall have the meaning specified in the definition of Facility Asset Chart.
Concentration Limit shall mean, unless otherwise agreed to in writing by Buyer (including, without limitation, in a Confirmation), the test that shall be satisfied at any applicable date of determination, if the aggregate outstanding Purchase Price with respect to all Purchased Loans which are Participation Interests shall not exceed 33% of the Facility Amount (i) which outstanding Purchase Price for Foreign Purchased Loans shall for purposes of such calculations be converted to U.S. Dollars based on the Purchase Date Spot Rate (U.S. Dollars) for such Foreign Purchased Loan, and (ii) excluding for purposes of such calculation each CLO Participation A-1 issued pursuant to a CLO Participation Agreement for which no Concentration Limit shall be applicable.
Confirmation shall have the meaning specified in Section 3(b) of this Agreement.
Connection Income Taxes shall mean Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
Control shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or by contract and Controlling and Controlled shall have meanings correlative thereto.
Current Appraisal shall mean, as of any date of determination, an Appraisal approved by Buyer dated within six (6) months (or such greater number of months as Buyer may approve in its sole discretion) of such date of determination.
Custodial Agreement shall mean, individually or collectively, as the context may require, (i) that certain Second Amended and Restated Custodial Agreement, dated as of the Third Amendment and Restatement Date, among the Custodian, Sellers and Buyer, as the same may be further amended, modified and/or restated from time to time, and (ii) each additional Custodial Agreement entered into among a new Seller admitted to this Agreement pursuant to a Joinder Agreement, the Custodian and Buyer, as the same may be amended, modified and/or restated from time to time.
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Custodial Delivery shall mean the form executed by Seller in order to deliver the Purchased Loan Schedule and the Purchased Loan File to Buyer or its designee (including the Custodian) pursuant to Section 7 hereof, a form of which is attached hereto as Exhibit III.
Custodian shall mean U.S. Bank, National Association, or any successor Custodian appointed by Buyer with the prior written consent of Seller (which consent shall not be unreasonably withheld or delayed).
Debt Yield (Loan UPB) shall mean, with respect to each Purchased Loan or proposed Purchased Loan, as of any date of determination, the net cash flow debt yield equal to the percentage equivalent of the quotient obtained by dividing (a) the in place underwritten net cash flow of the related Mortgaged Property, as determined by Buyer in its good faith business judgment, by (b) the unpaid principal balance of such Purchased Loan or proposed Purchased Loan, as applicable, on such date of determination.
Debt Yield (Purchase Price) shall mean, with respect to each Purchased Loan, as of any date of determination, the net cash flow debt yield equal to the percentage equivalent of the quotient obtained by dividing (a) the in place underwritten net cash flow of the related Mortgaged Property, as determined by Buyer in its good faith business judgment, by (b) the outstanding Purchase Price of such Purchased Loan on such date of determination.
Default shall mean any event which, with the giving of notice, the passage of time, or both, would constitute an Event of Default.
Defeasance shall have the meaning specified in Exhibit VI-I.
Depository shall mean PNC Bank, or any successor Depository appointed by Seller with the prior written consent of Buyer (which consent shall not be unreasonably withheld or delayed).
Due Date (Foreign Purchased Loan (AU)) shall have the meaning given to the term Due Date in the Servicing Agreement referenced in clause (v) of the definition of Servicing Agreement.
Due Diligence Package shall mean: (i) the Collateral Tape, (ii) the items on the Eligible Loan Due Diligence Checklist, in each case to the extent applicable and (iii) such other documents or information as Buyer or its counsel shall reasonably deem necessary.
Early Repurchase Date shall have the meaning specified in Section 3(d) of this Agreement.
Eligible Loan Due Diligence Checklist shall mean the due diligence materials set forth in Exhibit IV attached hereto and any other similar information with respect to a Foreign Purchased Loan.
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Eligible Loans shall mean fixed or floating rate whole mortgage loans ( Whole Loans ) or senior interests (including A notes in an A/B note structure) in such Whole Loans ( Senior Interests ) or certificated participation interests in such Whole Loans or Senior Interests which are (1) denominated in an Applicable Currency and (2) secured by stabilized or un-stabilized multi-family or commercial properties (including, but not limited to, office, retail, industrial and hotel properties, but excluding, with respect to potential Foreign Purchased Loans, development and heavy restructuring facilities), which have been approved by Buyer in its sole discretion as a Purchased Loan and which satisfy all of the following criteria as of the applicable Purchase Date:
(a) the Debt Yield (Loan UPB) is equal to or greater than 6.00%,
(b) the LTV (Loan UPB) is 75.00% or less (or such higher percentage as Buyer may agree to in its sole discretion),
(c) the LTV (Aggregate Loan UPB) is 80.00% or less,
(d) a term of not more than five (5) years, and
(e) in the event the maturity date of the subject Whole Loan or Senior Interests (or participation interests therein) shall be later than three (3) years (inclusive of all extension terms) after the expiration of the Facility Availability Period, then the conditions precedent to the exercise of any option that would extend the maturity date of such Whole Loan or Senior Interests (or participation interests therein) beyond such three (3) year period shall include extension conditions satisfactory to Buyer, including but not limited to, enhanced credit metrics relative to those in place at the time of such Purchased Loans origination.
Eligible Loans shall also include such other loans and debt instruments (or interests in such loans and debt instruments) as Buyer may approve from time to time in its sole discretion, subject to terms and conditions and document delivery requirements as may be established by Buyer.
Environmental Law shall mean, any federal, state, foreign or local statute, law, rule, regulation, ordinance, code and rule of common law now or hereafter in effect and in each case as amended, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to the environment, employee health and safety or Hazardous Materials, including, without limitation, CERCLA; RCRA; the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq .; the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq .; the Clean Air Act, 42 U.S.C. § 7401 et seq .; the Safe Drinking Water Act, 42 U.S.C. § 3803 et seq .; the Oil Pollution Act of 1990, 33 U.S.C. § 2701 et seq .; the Emergency Planning the Community Right-to-Know Act of 1986, 42 U.S.C. § 11001 et seq .; the Hazardous Material Transportation Act, 49 U.S.C. § 1801 et seq .; and the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq .; and any state and local or foreign counterparts or equivalents, in each case as amended from time to time.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated thereunder. Section references to ERISA are to ERISA, as in effect at the date of this Agreement and, as of the relevant date, any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor.
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ERISA Affiliate shall mean any corporation or trade or business that is a member of any group of organizations (i) described in Section 414(b) or (c) of the Code of which Seller is a member and (ii) solely for purposes of potential liability under Section 302 of ERISA and Section 412 of the Code and the lien created under Section 303(k) of ERISA and Section 430(k) of the Code, described in Section 414(m) or (o) of the Code of which Seller is a member.
ESA shall have the meaning specified in Exhibit VI-I.
EURIBOR shall mean, with respect to each Pricing Rate Period, the Euro interbank offered rate administered by the European Money Markets Institute (or any other person which takes over the administration of that rate), for a three month period, that appears (a) on page EURIBOR01 of the Thomson Reuters screen (or any replacement Thomson Reuters page which displays that rate) or (b) on the appropriate page of such other information service which publishes that rate from time to time in place of Thomson Reuters, in each case as of 11:00 a.m., Brussels time, on the related Pricing Rate Determination Date (the EURIBOR Screen Rate ). If such page or service ceases to be available, Buyer may specify another page or service displaying the relevant rate after consultation with Seller.
If the EURIBOR Screen Rate is not available, Buyer shall request the principal London office of the Reference Banks to provide (i) (other than where clause (ii) below applies) the rate at which the relevant Reference Bank believes one prime bank is quoting to another prime bank for interbank term deposits in euro within the Participating Member States for amounts of not less than the Repurchase Price of the applicable Transaction for the three month period; or (ii) if different, the rate (if any and applied to the relevant Reference Bank and the three month period) which contributors to the EURIBOR Screen Rate are asked to submit to the relevant administrator, in each case, as of 11:00 a.m., Brussels time, on the related Pricing Rate Determination Date.
If at least one such offered quotation is provided, EURIBOR with respect to the relevant Pricing Rate Period related to a Foreign Purchased Loan (GBP) shall be (i) where more than one offered quotation is provided by the Reference Banks, the arithmetic mean (rounded upwards to four decimal places) of all of such offered quotations or (ii) where only one offered quotation is provided by the Reference Banks, such offered quotation (rounded upwards to four decimal places).
If at or about noon, London time, on the related Pricing Rate Determination Date, no Reference Banks have provided quotations, then EURIBOR with respect to the relevant Pricing Rate Period related to a Foreign Purchased Loan (GBP) shall be the rate determined by Buyer, as a percentage rate per annum, of the cost to Buyer of funding an amount not less than the Repurchase Price for the applicable Transaction from whatever source it may reasonably select.
EUBIROR shall be determined by Buyer or its agent, which determination shall be conclusive absent manifest error. If the calculation of EURIBOR with respect to a Pricing Rate Period results in a EURIBOR rate of less than zero (0), EURIBOR shall be deemed to be zero (0) for all purposes of this Agreement with respect to such Pricing Rate Period.
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EURIBO Rate shall mean, with respect to any Pricing Rate Period pertaining to a Transaction for which EURIBOR is the applicable Pricing Rate, a rate per annum determined for such Pricing Rate Period in accordance with the following formula (rounded upward to the nearest 1/100th of 1%):
EURIBOR
1 Reserve Requirement
EURIBOR Screen Rate shall have the meaning set forth in the definition of EURIBOR.
Euros and shall mean the lawful currency of the member states of the European Union that have adopted and retain the single currency in accordance with the Treaty establishing the European Community, as amended from time to time; provided that if any member state or states ceases to have such single currency as its lawful currency (such member state(s) being the Exiting State(s) ), Euro and shall, for the avoidance of doubt, mean for all purposes of this Agreement the single currency adopted and retained as the lawful currency of the remaining member states and shall not include any successor currency introduced by the Exiting State(s).
Event of Default shall have the meaning specified in Section 14(a) of this Agreement.
Excluded Taxes shall mean, any of the following Taxes imposed on or with respect to payment to Buyer or required to be withheld or deducted from such payment, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, Taxes imposed on or measured by net worth (however denominated) and branch profits Taxes, in each case, (i) imposed as a result of Buyer being organized under the laws of, or having its principal office or the office from which it books the Transactions located in, the jurisdiction imposing such Taxes (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) U.S. federal withholding Taxes imposed on amounts payable to or for the account of Buyer with respect to an interest in the Transactions pursuant to a law in effect on the date on which such Party (i) acquires such interest in the Transactions or (ii) changes its principal office or the office from which it books the Transactions, except in each case to the extent that, pursuant to Section 31, amounts with respect to such Taxes were payable either to such Buyers assignor immediately before such Buyer became a party hereto or to such Buyer immediately before it changed the office from which it books the Transactions, (c) Taxes attributable to Buyers failure to comply with Section 31 of this Agreement, (d) Taxes attributable to Buyers failure to comply with its obligations under Sections 19(c), 19(d) or 23(i) of this Agreement, (e) any withholding Taxes imposed under FATCA, (f) any U.S. federal backup withholding Taxes imposed under Section 3406 of the Code, (g) an Australian Tax required to be withheld or deducted from any interest or other payment under Division 11A of Part III of the Income Tax Assessment Act 1936 (Cth) or the Income Tax Assessment Act 1997 (Cth) or Subdivision 12-F of Schedule 1 to the Taxation Administration Act 1953 (Cth), and (h) any interest, additions to tax or penalties in respect of the foregoing.
Exit Fee shall have the meaning specified in the Fee Agreement.
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Extension Fee shall have the meaning specified in the Fee Agreement.
Facility Amount shall mean, subject to Section 30(j) of this Agreement, One Billion Dollars ($1,000,000,000); provided that whenever under this Agreement Seller and Buyer are required or otherwise need to calculate whether the Facility Amount has been or would be exceeded, then all applicable amounts for Foreign Purchased Loans necessary for such calculation shall be converted to U.S. Dollars based on the Purchase Date Spot Rate (U.S. Dollars) for such Foreign Purchased Loan for all purposes of such calculation.
Facility Asset Chart shall mean a chart in the form of Exhibit XII to this Agreement setting forth, as of any date of determination, with respect to each Purchased Loan, (i) the current outstanding Purchase Price (under the heading Current Outstanding Buyer Purchase Prices and referred to herein as Column A ), (ii) the current Margin Excess (Other) (under the heading Current Margin Excess (Other) and referred to herein as Column B ), (iii) the available Margin Excess (Future Funding) (under the heading Adjusted Margin Excess (Future Fundings) and referred to herein as Column C ), (iv) the Maximum Purchase Price (under the heading Total of A, B, C and referred to herein as Column D ), and (v) the potentially available Margin Excess (Future Funding) (under the heading Potential Margin Excess (Future Fundings) and referred to herein as Column E ).
Facility Availability Period shall mean the period commencing on June 12, 2013 and ending on October 12, 2021 (or if such day is not a Business Day, the next succeeding Business Day). Notwithstanding anything herein to the contrary, at any time during the Facility Availability Period, Seller may request an extension of the Facility Availability Period which extension shall be in Buyers sole discretion and subject to terms and conditions determined by Buyer in its sole discretion.
Facility Expiration Date shall mean the last day of the Facility Availability Period; provided , that the Facility Expiration Date shall be extendible by Seller on an annual basis thereafter (i.e. for consecutive twelve (12) month periods), subject to the following:
(a) Seller delivers to Buyer a written request of the extension of the Facility Expiration Date no earlier than ninety (90) nor later than thirty (30) days before the then current Facility Expiration Date,
(b) no Default or Event of Default has occurred and is continuing on the date the request to extend is delivered or on the then current Facility Expiration Date,
(c) no Margin Deficit exists that has not been satisfied,
(d) the Concentration Limit is satisfied on the date the request to extend is delivered and on the then current Facility Expiration Date (except to the extent waived or otherwise approved by Buyer), and
(e) Seller shall have paid to Buyer the Extension Fee on or before the then current Facility Expiration Date.
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FATCA shall mean Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and, for the avoidance of doubt, any agreements entered into pursuant to any of the foregoing.
FCA Regulations shall have the meaning specified in Section 23(a) of this Agreement.
FDIA shall have the meaning specified in Section 23(f) of this Agreement.
FDICIA shall have the meaning specified in Section 23(g) of this Agreement.
Fee Agreement shall mean: (i) that certain Fifth Amended and Restated Fee Letter, dated as of the Third Amendment and Restatement Date, between Seller and Buyer, as the same may be amended, modified and/or restated from time to time (including through a Joinder Agreement), and (ii) each additional Fee Letter entered into among a new Seller admitted to this Agreement pursuant to a Joinder Agreement, the Custodian and Buyer, as the same may be amended, modified and/or restated from time to time.
Filings shall have the meaning specified in Section 6.
Financing Lease shall mean any lease of property, real or personal, the obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a balance sheet of the lessee.
FIRREA shall mean the Financial Institutions, Reform, Recovery and Enforcement Act of 1989.
First Amendment and Restatement Date shall mean July 28, 2014.
Foreign Assignment Agreement shall mean, with respect to a Foreign Purchased Loan, a security agreement or a security deed between the applicable Seller and Buyer pursuant to which such Seller assigns by way of security to Buyer all of its right, title and interest under and in relation to each related Purchased Loan Document relating to such Foreign Purchased Loan (including its rights against any Security Agent) and any professional report delivered with respect to a Foreign Purchased Loan that is addressed to or capable of being relied on by such Seller.
Foreign Purchased Loan shall mean: (i) with respect to any Transaction, an Eligible Loan secured by Mortgaged Property located outside of the United States of America or any territory thereof and which is sold by the applicable Seller to Buyer in such Transaction and (ii) with respect to the Transactions for Foreign Purchased Loans in general, all Eligible Loans secured by Mortgaged Property located outside of the United States of America or any territory thereof and which are sold by the applicable Sellers to Buyer.
Foreign Purchased Loan (AU) shall mean a Foreign Purchased Loan denominated in AU Dollars.
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Foreign Purchased Loan (EUR) shall mean a Foreign Purchased Loan denominated in Euros.
Foreign Purchased Loan (GBP) shall mean a Foreign Purchased Loan denominated in Pounds Sterling.
Foreign Sanctions Authority shall mean the Financial Conduct Authority, the Foreign & Commonwealth Office, Her Majestys Treasury of the United Kingdom, the Department of Foreign Affairs and Trade of Australia, the United Nations or any other analogous Governmental Authority in any applicable non-U.S. jurisdiction in which a Mortgaged Property securing a Purchased Loan is located.
Foreign Sanctions List shall mean any sanctions or black list maintained by a Foreign Sanctions Authority.
Funding Fee shall have the meaning specified in the Fee Agreement.
Future Funding Conditions Precedent shall have the meaning specified in Section 4(c).
GAAP shall mean United States generally accepted accounting principles consistently applied as in effect from time to time.
Governmental Authority shall mean any national or federal government, any state, regional, local or other political subdivision thereof with jurisdiction exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
Ground Lease shall have the meaning specified in Exhibit VI-I.
Guarantor shall mean Blackstone Mortgage Trust, Inc., a Maryland corporation (or, following a substitution consummated in accordance with Section 9, Successor Guarantor).
Guaranty shall mean the Limited Guaranty, dated as of June 12, 2013, from Guarantor in favor of Buyer, as amended by that certain First Amendment to Limited Guaranty, dated as of November 20, 2013, from Guarantor in favor of Buyer, as further amended by that certain Second Amendment to Limited Guaranty, dated as of February 24, 2014, from Guarantor in favor of Buyer, as further amended by that certain Third Amendment to Limited Guaranty, dated as of the Second Amendment and Restatement Date, from Guarantor in favor of Buyer, as further amended by that certain Fourth Amendment to Limited Guaranty, dated as of the Third Amendment and Restatement Date, as the same may be further amended, modified and/or restated from time to time.
Hedging Transactions shall mean, with respect to any Purchased Loan that is a fixed rate loan, any short sale of U.S. Treasury Securities or mortgage- related securities, futures contract (including Eurodollar futures) or options contract or any interest rate swap, cap or collar agreement or similar arrangements providing for protection against fluctuations in interest rates
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or the exchange of nominal interest obligations, either generally or under specific contingencies, entered into by Seller with either (x) Buyer or an Affiliate of Buyer or (y) one or more other counterparties reasonably acceptable to Buyer and, in the case of clause (y) only, assigned by Seller to Buyer as additional collateral for the applicable Transaction.
Income shall mean, with respect to any Purchased Loan at any time, the sum of (x) any principal thereof and all interest, dividends or other distributions thereon and (y) all net sale proceeds received by Seller in connection with a sale of such Purchased Loan to a Person other than Buyer.
Indebtedness shall mean, for any Person: (a) obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of Property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such Property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of Property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within ninety (90) days of the date the respective goods are delivered or the respective services are rendered; (c) Indebtedness of others secured by a Lien on the Property of such Person, whether or not the respective Indebtedness so secured has been assumed by such Person; (d) obligations (contingent or otherwise) of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for account of such Person; contingent or future funding obligations under any Purchased Loan or any obligations senior to, or pari passu with, any Purchased Loan; (e) Capital Lease Obligations of such Person; and (f) obligations of such Person under repurchase agreements or like arrangements; (g) Indebtedness of others guaranteed by such Person to the extent of such guarantee; and (h) all obligations of such Person incurred in connection with the acquisition or carrying of fixed assets by such Person. Notwithstanding the foregoing, nonrecourse Indebtedness owing pursuant to a securitization transaction such as a REMIC securitization, a collateralized loan obligation transaction or other similar securitization shall not be considered Indebtedness for any person.
Indemnified Amounts and Indemnified Parties shall have the meaning specified in Section 27 of this Agreement.
Indemnified Taxes shall mean: (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of Seller under any Transaction Document and (b) Other Taxes.
Independent Director shall mean a duly appointed manager or member of the board of directors (or managers) of the relevant entity who shall not have been, at the time of such appointment or at any time while serving as a director or manager of the relevant entity and may not have been at any time in the preceding five (5) years, (a) a direct or indirect legal or beneficial owner in such entity or any of its Affiliates, (b) a creditor, supplier, employee, officer, director (other than in its capacity as Independent Director), family member, manager or contractor of such entity or any of its Affiliates, or (c) a Person who controls (directly, indirectly or otherwise) such entity or any of its Affiliates or any creditor, supplier, employee, officer, director, family member, manager or contractor of such Person or any of its Affiliates.
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Index Rate shall mean the EURIBO Rate, LIBO Rate or BBSY Rate, as applicable.
Insolvency Laws shall mean the Bankruptcy Code and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, suspension or payments and similar debtor relief laws from time to time in effect affecting the rights of creditors generally.
Insurance Rating Requirements shall have the meaning specified in Exhibit VI-I.
Irrevocable Direction Letter shall have the meaning specified in Section 5(b).
Joinder Agreement shall have the meaning specified in the definition of Seller.
Junior Interest shall have the meaning specified in Exhibit VI-I.
LIBOR shall mean:
(a) With respect to each Pricing Rate Period related to any U.S. Purchased Loan, the rate (expressed as a percentage per annum) for deposits in U.S. Dollars, for a one month period, that appears on Page BBAM of the Bloomberg Financial Markets Services Screen (or the successor thereto) as of 11:00 a.m., London time, on the related Pricing Rate Determination Date. If such rate does not appear on Page BBAM of the Bloomberg Financial Markets Services Screen (or the successor thereto) as of 11:00 a.m., London time, on such Pricing Rate Determination Date, Buyer shall request the Reference Banks to provide such banks offered quotation (expressed as a percentage per annum) to prime banks in the London interbank market for deposits in U.S. Dollars for a one month period as of 11:00 a.m., London time, on such Pricing Rate Determination Date for amounts of not less than the Repurchase Price of the applicable Transaction. If at least two such offered quotations are so provided, LIBOR with respect to the relevant Pricing Rate Period related to a U.S. Purchased Loan, shall be the arithmetic mean of such quotations. If fewer than two such quotations are so provided, Buyer shall request any three major banks in New York City selected by Buyer to provide such banks rate (expressed as a percentage per annum) for loans in U.S. Dollars to leading European banks for a one month period as of approximately 11:00 a.m., New York City time on the applicable Pricing Rate Determination Date for amounts of not less than the Repurchase Price of such Transaction. If at least two such rates are so provided, LIBOR with respect to the relevant Pricing Rate Period related to a U.S. Purchased Loan shall be the arithmetic mean of such rates. LIBOR with respect to each Pricing Rate Period related to any U.S. Purchased Loan shall be determined by Buyer or its agent, which determination shall be conclusive absent manifest error; and
(b) With respect to each Pricing Rate Period related to any Foreign Purchased Loan (GBP), the London interbank offered rate administered by ICE Benchmark Administration Limited (or any person which takes over the administration of that rate) for deposits in Pounds Sterling for a three month period that appears page LIBOR01 of the Thomson Reuters screen (or any replacement Thomson Reuters page which displays that rate) or on the appropriate page of such other information service which publishes that rate from time to time in place of Thomson Reuters as of 11:00 a.m., London time, on the related Pricing Rate Determination Date (the LIBOR Screen Rate ). If the LIBOR Screen Rate ceases to be available, Buyer may specify
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another page or service displaying the relevant rate after consultation with Seller. If the LIBOR Screen Rate is unavailable, Buyer shall request the principal London office of the Reference Banks to provide (i) if the Reference Bank is a contributor to the LIBOR Screen Rate and it consists of a single figure, the rate applied to the relevant Reference Bank and Pounds Sterling in amounts not less than the Repurchase Price of the applicable Transaction for a three-month period, or (ii) in any other case, the rate at which the relevant Reference Bank could fund itself in in Pounds Sterling for amounts of not less than the Repurchase Price of the applicable Transaction for a three-month period with reference to the unsecured wholesale funding market as of 11:00 a.m., Brussels time, on the related Pricing Rate Determination Date.
If at least one such offered quotation is provided, LIBOR with respect to the relevant Pricing Rate Period related to a Foreign Purchased Loan (GBP) shall be (i) where more than one offered quotation is provided by the Reference Banks, the arithmetic mean (rounded upwards to four decimal places) of all of such offered quotations or (ii) where only one offered quotation is provided by the Reference Banks, such offered quotation (rounded upwards to four decimal places).
If at or about noon, London time, on the related Pricing Rate Determination Date, no Reference Banks have provided quotations, then LIBOR with respect to the relevant Pricing Rate Period related to a Foreign Purchased Loan (GBP) shall be the rate determined by Buyer, as a percentage rate per annum, of the cost to Buyer of funding an amount not less than the Repurchase Price for the applicable Transaction from whatever source it may reasonably select.
LIBOR with respect to each Pricing Rate Period related to any Foreign Purchased Loan (GBP) shall be determined by Buyer or its agent, which determination shall be conclusive absent manifest error.
If the calculation of LIBOR pursuant to this definition with respect to a Pricing Rate Period related to a Purchased Loan sold by Seller to Buyer in a Transaction after the Second Amendment and Restatement Date results in a LIBOR rate of less than zero (0), LIBOR shall be deemed to be zero (0) for all purposes of this Agreement with respect to such Pricing Rate Period.
LIBO Rate shall mean, with respect to any Pricing Rate Period pertaining to a Transaction for which LIBOR is the applicable Pricing Rate, a rate per annum determined for such Pricing Rate Period in accordance with the following formula (rounded upward to the nearest 1/100th of 1%):
LIBOR
1 Reserve Requirement
LIBOR Screen Rate shall have the meaning set forth in the definition of LIBOR.
Lien shall mean any mortgage, lien, encumbrance, charge, trust, retention of title or other security interest by way of, or having similar commercial effect to, security for the payment or performance of an obligation, whether arising under contract, by operation of law, judicial process or otherwise.
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LTV (Aggregate Loan UPB) shall mean, with respect to any Purchased Loan or proposed Purchased Loan, the ratio, expressed as a percentage, the numerator of which shall equal the sum of (x) the unpaid principal balance of such Purchased Loan or proposed Purchased Loan plus (y) the unpaid principal balance of any subordinate or mezzanine debt secured indirectly by the Mortgaged Property and the denominator of which shall equal the as is value of such Mortgaged Property securing such Purchased Loan or proposed Purchased Loan as determined by Buyer as of the Purchase Date in its sole discretion and, in each case, calculated using the Applicable Currency relevant to such Purchased Loan. For purposes of determining the value of a Mortgaged Property in accordance with this definition, (i) the value may be determined by reference to a Current Appraisal, discounted cash flow analysis or other commercially reasonable method and (ii) for the avoidance of doubt, Buyer may reduce value for any actual or potential risks (including risk of delay) posed by any Liens on the related Mortgaged Property.
LTV (Loan UPB) shall mean, with respect to any Purchased Loan or proposed Purchased Loan, the ratio, expressed as a percentage, the numerator of which shall equal the unpaid principal balance of such Purchased Loan or proposed Purchased Loan, as applicable, and the denominator of which shall equal the as is value of the related Mortgaged Property securing such Purchased Loan or proposed Purchased Loan, as applicable, as determined by Buyer as of the Purchase Date in its sole discretion and, in each case, calculated using the Applicable Currency relevant to such Purchased Loan. For purposes of determining the value of a Mortgaged Property in accordance with this definition, (i) the value may be determined by reference to a Current Appraisal, discounted cash flow analysis or other commercially reasonable method and (ii) for the avoidance of doubt, Buyer may reduce value for any actual or potential risks (including risk of delay) posed by any Liens on the related Mortgaged Property.
LTV (Purchase Price) shall mean, with respect to any Purchased Loan, the ratio, expressed as a percentage, the numerator of which shall equal the outstanding Purchase Price of such Purchased Loan and the denominator of which shall equal the as is value of the related Mortgaged Property securing such Purchased Loan as determined by Buyer as of the Purchase Date in its sole discretion and at all times thereafter in Buyers commercially reasonable discretion and, in each case, calculated using the Applicable Currency relevant to such Purchased Loan. For purposes of determining the value of a Mortgaged Property in accordance with this definition, (i) the value may be determined by reference to a Current Appraisal, discounted cash flow analysis or other commercially reasonable method and (ii) for the avoidance of doubt, Buyer may reduce value for any actual or potential risks (including risk of delay) posed by any Liens on the related Mortgaged Property.
MAI shall have the meaning specified in Exhibit VI-I.
Margin Amount shall mean, with respect to any Purchased Loan as of any date of determination, an amount equal to the product of the applicable Margin Percentage and the outstanding Purchase Price of such Purchased Loan as of such date.
Margin Deficit shall have the meaning specified in Section 4(a).
Margin Deficit Notice shall have the meaning specified in Section 4(b).
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Margin Excess shall mean, as applicable, Margin Excess (Future Funding) or Margin Excess (Other).
Margin Excess (Future Funding) shall have the meaning specified in Section 4(c).
Margin Excess (Other) shall have the meaning specified in Section 4(e).
Margin Percentage shall mean, with respect to any Purchased Loan as of any date of determination, the reciprocal of the applicable Maximum Purchase Price Percentage.
Market Value shall mean, with respect to any Purchased Loan, the market value for such Purchased Loan, as determined by Buyer at the Applicable Standard of Discretion on each Business Day in accordance with this definition. For purposes of Section 4(a) and 5(e), as applicable, changes in the Market Value of a Purchased Loan shall be determined solely in relation to material positive or negative changes (relative to Buyers initial underwriting or the most recent determination of Market Value in terms of the performance or condition, taken in the aggregate, of (i) the Mortgaged Property securing the Purchased Loan or other collateral securing or related to the Purchased Loan, (ii) the Purchased Loans borrower (including obligors, guarantors, participants and sponsors) and the borrower on any underlying property or other collateral securing such Purchased Loan, (iii) the commercial real estate market relevant to the Mortgaged Property, and (iv) any actual risks posed by any liens or claims on the related Mortgaged Property or Properties. In addition, the Market Value for any Purchased Loan may be deemed by Buyer to be zero or such greater amount (in the Applicable Standard of Discretion) in the event any of the following occurs with respect to such Purchased Loan: (a) a negative change in Market Value to the extent resulting from a continuing material breach of a representation or warranty set forth on Exhibit VI- I, Exhibit VI-II or Exhibit VI-III, as applicable (but without giving effect to any qualifications for Sellers Actual Knowledge); or (b) the Repurchase Date with respect to such Purchased Loan occurs without repurchase of such Purchased Loan. For the avoidance of doubt, the Market Value of any Purchased Loan shall be denominated in the same Applicable Currency as the Purchase Price of such Purchased Loan and, if determined in a currency other than such Applicable Currency, shall be converted to such Applicable Currency for the purposes herein based on the applicable Purchase Date Spot Rate with respect to such Purchased Loan.
Material Adverse Effect shall mean a material adverse effect on (a) the business, condition (financial or otherwise) or results of operations of Seller and Guarantor, taken as a whole, (b) the ability of Seller or Guarantor to pay and perform its material obligations under any of the Transaction Documents, (c) the legality, validity or enforceability of any of the Transaction Documents, (d) the rights and remedies of Buyer under any of the Transaction Documents, or (e) the perfection or priority of any Lien granted under any Purchased Loan Document.
Maximum LTV (Purchase Price) shall mean, with respect to any Purchased Loan, the ratio, expressed as a percentage, the numerator of which shall equal the Maximum Purchase Price of the Purchased Loan and the denominator of which shall equal the as is value of the related Mortgaged Property securing such Purchased Loan as determined by Buyer in its commercially reasonable discretion and, in each case, calculated using the Applicable Currency relevant to such Purchased Loan.
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Maximum Purchase Price shall have the meaning set forth in the Fee Agreement.
Maximum Purchase Price Percentage shall have the meaning set forth in the Fee Agreement.
Mortgage shall mean: (x) with respect to U.S. Purchased Loans, a mortgage, deed of trust, deed to secure debt or other instrument, creating a valid and enforceable first lien on or a first priority ownership interest in an estate in fee simple in real property and the improvements thereon, or a leasehold interest therein, securing a mortgage note or similar evidence of indebtedness, and (y) with respect to Foreign Purchased Loans, the related mortgage, debenture or equivalent security deed or other instrument creating a first priority lien, first priority mortgage or a first priority security interest in an estate in fee simple in real property and the improvements thereon, or in a freehold or crown leasehold interest therein, securing a mortgage note or similar evidence of indebtedness and any other security deed or other instrument or securing indebtedness under a loan or facility agreement (and any related finance documentation), in each case securing indebtedness under applicable Requirements of Law in the relevant non-U.S. jurisdiction.
Mortgage Note shall mean: (x) with respect to U.S. Purchased Loans, a note or other evidence of indebtedness of a Mortgagor secured by a Mortgage in connection with such U.S. Purchased Loan, and (y) with respect to Foreign Purchased Loans, any evidence of indebtedness of a Mortgagor that is secured by a Mortgage in connection with such Foreign Purchased Loan (including, without limitation, the applicable facility or loan agreement).
Mortgaged Property shall mean the real property securing repayment of the debt evidenced by (x) with respect to U.S. Purchased Loans, a Mortgage Note, and (y) with respect to Foreign Purchased Loans, a Mortgage.
Mortgagee shall mean the record holder or registered holder (as applicable) of (x) with respect to U.S. Purchased Loans, a Mortgage Note secured by a Mortgage, and (y) with respect to Foreign Purchased Loans, a Mortgage.
Mortgagor shall mean the obligor (x) with respect to U.S. Purchased Loans, on a Mortgage Note and the grantor of the related Mortgage, and (y) with respect to Foreign Purchased Loans, that is expressed in the loan agreement for the relevant Foreign Purchased Loan to be the legal or beneficial owner of the relevant Mortgaged Property and which is the grantor of the related Mortgage.
MTM Representations shall mean the representations and warranties set forth as items (a) 11, 12, 14, 25, 35, 36, 37, 42, 47, 50 and 55 on Exhibit VI-I of this Agreement, (b) 3, 7, 9, 16 and 20 on Exhibit VI-II of this Agreement and (c) 8, 9, 18, 19, 20, 21, 24 and 30 on Exhibit VI-III of this Agreement.
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Multiemployer Plan shall mean a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been, or were required to have been, made by Seller or any ERISA Affiliate during the preceding five plan years and which is subject to Title IV of ERISA.
OFAC shall mean the U.S. Department of Treasury, Office of Foreign Assets Control
OFAC List shall mean the Specially Designated Nationals list maintained by OFAC.
Omnibus Amendment shall mean that certain Omnibus Amendment to Other Transaction Documents and Reaffirmation of Guaranty dated as of the First Amendment and Restatement Date, by and among Seller, Guarantor and Buyer.
Original Agreement shall have the meaning set forth in Section 1 of this Agreement.
Other Connection Taxes shall mean Taxes imposed as a result of a present or former connection between Buyer and the jurisdiction imposing such Taxes (other than a connection arising solely as a result of Buyer having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under or enforced any Transaction Document, or sold or assigned an interest in any Transaction or Transaction Document).
Other Taxes shall mean all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes (including, without limitation, United Kingdom stamp duty and stamp duty reserve tax) that arise from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under any Transaction Document; provided, however, that Other Taxes shall not include (i) Taxes imposed with respect to an assignment, transfer or sale of participation or other interest in or with respect to the Transaction Documents or (ii) any Excluded Taxes.
Parlex 2 shall have the meaning set forth in the preamble of this Agreement.
Parlex 2A shall have the meaning set forth in the preamble of this Agreement.
Parlex 2 AU shall have the meaning set forth in the preamble of this Agreement.
Parlex 2 EUR shall have the meaning set forth in the preamble of this Agreement.
Parlex 2 UK shall have the meaning set forth in the preamble of this Agreement.
Participant Register shall have the meaning specified in Section 19(d).
Participating Member State shall mean any member state of the European Union that has the Euro as its lawful currency in accordance with legislation of the European Union relating to Economic and Monetary Union.
Participation Interests shall have the meaning assigned to such term in Exhibit VI-II.
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Permitted Encumbrances shall have the meaning specified in Exhibit VI-I.
Permitted Liens shall mean any of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding has been commenced: (a) Liens for Taxes not yet due and payable or which are being contested in good faith and for which adequate reserves have been established in accordance with GAAP, (b) Liens imposed by Requirements of Law, such as materialmens, mechanics, carriers, workmens, repairmens and similar Liens, arising in the ordinary course of business securing obligations that are not overdue for more than thirty (30) days, (c) Liens securing the unpaid balance of purchase money for property acquired in the ordinary course of business under an instalment contract on the suppliers standard terms where such unpaid balance is not yet due, and (d) Liens granted pursuant to or by the Transaction Documents.
Permitted Purchased Loan Modification shall mean any modification or amendment of a Purchased Loan which is not a Significant Purchased Loan Modification.
Person shall mean an individual, corporation, limited liability company, business trust, partnership, joint tenant or tenant-in-common, trust, unincorporated organization, or other entity, or a federal, state or local government or any agency or political subdivision thereof.
PEXA shall mean the electronic registration platform known as Property Exchange Australia.
Plan shall mean an employee benefit or other plan established or maintained by Seller or any ERISA Affiliate during the five year period ended prior to the date of this Agreement or to which Seller or any ERISA Affiliate makes, is obligated to make or has, within the five year period ended prior to the date of this Agreement, been required to make contributions and that is covered by Title IV of ERISA or Section 302 of ERISA or Section 412 of the Code, other than a Multiemployer Plan.
Plan Party shall have the meaning specified in Section 22(a) of this Agreement.
Pounds Sterling and £ shall mean the lawful currency for the time being of the United Kingdom.
PPSA shall mean the Personal Property Securities Act (2009) Cth.
PPS Register shall mean the Personal Property Securities Register established under section 147 of the PPSA.
Price Differential shall mean, with respect to any Transaction as of any date, the aggregate amount obtained by daily application of the Pricing Rate for such Transaction to the outstanding Purchase Price for such Transaction on a 360-day-per- year basis (or, in the case of Foreign Purchased Loans (AU) only, a 365-day-per-year basis) for the actual number of days during the period commencing on (and including) the Purchase Date for such Transaction and ending on (but excluding) the date of determination (reduced by any amount of such Price Differential previously paid by Seller to Buyer with respect to such Transaction). Price Differential shall be payable in the Applicable Currency of the Purchase Price of the applicable Purchased Loan.
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Pricing Matrix shall mean the matrix attached to the Fee Agreement which shall be used to determine the Purchase Price Percentage, Maximum Purchase Price Percentage and the Applicable Spread for each Purchased Loan.
Pricing Rate shall mean, for any Pricing Rate Period, an annual rate equal to the Index Rate for such Pricing Rate Period (as specified in the related Confirmation) plus the Applicable Spread for such Transaction plus the Spread Adjustment for such Transaction and shall be subject to adjustment and/or conversion as provided in Sections 3(g) and 3(h) of this Agreement.
Pricing Rate Determination Date shall mean with respect to any Pricing Rate Period with respect to any Transaction, the second (2nd) Business Day preceding the first day of such Pricing Rate Period (or, in the case of a Foreign Purchased Loan (AU) only, the first day of such Pricing Rate Period).
Pricing Rate Period shall mean, (a) in the case of the first Pricing Rate Period with respect to any Transaction, the period commencing on and including the Purchase Date for such Transaction and ending on and excluding the following Remittance Date, and (b) in the case of any subsequent Pricing Rate Period, the period commencing on and including such Remittance Date and ending on and excluding the following Remittance Date; provided , however , that in no event shall any Pricing Rate Period end subsequent to the Repurchase Date.
Prime Rate shall mean the prime rate of U.S. commercial banks as published in The Wall Street Journal (or, if more than one such rate is published, the average of such rates).
Principal Payment shall mean, with respect to any Purchased Loan, any payment or prepayment of principal received by the Depository in respect thereof.
Prohibited Person shall mean any (1) person or entity who is on the OFAC List or any Foreign Sanctions List; a designated national, specially designated national, specially designated terrorist, specially designated global terrorist, foreign terrorist organization, or blocked person within the definitions set forth in the Foreign Assets Control Regulations of the United States Treasury Department, 31 C.F.R., Subtitle B, Chapter V, as amended, (2) person acting on behalf of, or an entity owned or controlled by, any government against whom the United States maintains economic sanctions or embargoes under the Regulations of the United States Treasury Department, 31 C.F.R., Subtitle B, Chapter V, as amended, including, but not limited to, the Government of Sudan, the Government of Iran, and the Government of Cuba, and any person or organization determined by the Director of the Office of Foreign Assets Control to be included within 31 C.F.R. Section 575.306 (definition of Government of Iraq), (3) person or entity who is listed in the Annex to or is otherwise within the scope of Executive Order 13224 Blocking Property and Prohibiting Transactions with Person who Commit, Threaten to Commit, or Support Terrorism, effective September 24, 2001, or (4) person or entity subject to additional restrictions imposed by the following statutes or Regulations and Executive Orders issued thereunder: the Trading with the Enemy Act, 50 U.S.C. app. §§ 1 et seq. , the Iraq Sanctions Act, Pub. L. 101-513, Title V, §§ 586 to 586J, 104 Stat. 2047, the
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National Emergencies Act, 50 U.S.C. §§ 1601 et seq. , the Anti-Terrorism and Effective Death Penalty Act of 1996, Pub. L. 104-132, 110 Stat. 1214-1319, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq. , the United Nations Participation Act, 22 U.S.C. § 287c, the International Security and Development Cooperation Act, 22 U.S.C. § 2349aa-9, the Nuclear Proliferation Prevention Act of 1994, Pub. L. 103-236, 108 Stat. 507, the Foreign Narcotics Kingpin Designation Act, 21 U.S.C. §§ 1901 et seq. , the Iran and Libya Sanctions Act of 1996, Pub. L. 104-172, 110 Stat. 1541, the Cuban Democracy Act, 22 U.S.C. §§ 6001 et seq. , the Cuban Liberty and Democratic Solidarity Act, 22 U.S.C. §§ 6201-91, the Foreign Operations, Export Financing and Related Programs Appropriations Act, 1997, Pub. L. 104-208, 110 Stat. 3009-172, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. 107-56, 115 Stat. 272, or any other law of similar import as to any non-U.S. country, as each such Act or law has been or may be amended, adjusted, modified, or reviewed from time to time.
Prohibited Transferee shall mean any of the Persons listed on Schedule I attached to this Agreement.
Property shall mean any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible.
Property Report shall mean, with respect to a Foreign Purchased Loan, an original, duplicate or counterpart certificate, report or document of title in relation to the related Mortgaged Property (including, if applicable, a certificate of units in a unit trust or share certificate) that is delivered as a condition precedent to the making of the related Foreign Purchased Loan under the loan agreement for such Foreign Purchased Loan.
Purchase Date shall mean any date on which a Purchased Loan is to be transferred by Seller to Buyer.
Purchase Date Spot Rate (AU) shall mean with respect to any Purchased Loan which is not a Foreign Purchased Loan (AU), the Spot Rate for converting the Applicable Currency of such Purchased Loan to AU Dollars on the related Purchase Date (which shall be set forth in the applicable Confirmation).
Purchase Date Spot Rate (EUR) shall mean with respect to any Purchased Loan which is not a Foreign Purchased Loan (EUR), the Spot Rate for converting the Applicable Currency of such Purchased Loan to Euro on the related Purchase Date (which shall be set forth in the applicable Confirmation).
Purchase Date Spot Rate (GBP) shall mean with respect to any Purchased Loan which is not a Foreign Purchased Loan (GBP), the Spot Rate for converting the Applicable Currency of such Purchased Loan to Pounds Sterling on the related Purchase Date (which shall be set forth in the applicable Confirmation).
Purchase Date Spot Rate (U.S. Dollars) shall mean with respect to any Purchased Loan which is not a U.S. Purchased Loan, the Spot Rate for converting the Applicable Currency of such Purchased Loan to U.S. Dollars on the related Purchase Date (which shall be set forth in the applicable Confirmation).
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Purchase Date Spot Rate shall mean the Purchase Date Spot Date (AU), Purchase Date Spot Date (EUR), the Purchase Date Spot Rate (GBP) or the Purchase Date Spot Rate (U.S. Dollars), as applicable.
Purchase Price shall mean, with respect to any Purchased Loan, the price at which such Purchased Loan is transferred by Seller to Buyer on the applicable Purchase Date (paid in the same Applicable Currency as the related Whole Loan or Senior Interest (or participation interest therein) and stated on the related Confirmation), as adjusted after the Purchase Date, all as set forth below and not to exceed the Maximum Purchase Price. The Purchase Price as of the Purchase Date for any Purchased Loan shall be the amount set forth on the applicable Confirmation (expressed in the same Applicable Currency as the related Whole Loan or Senior Interest (or participation interest therein)) equal to the lesser of (a) the product obtained by multiplying (i) the lesser of the Market Value of such Purchased Loan and the par amount of such Purchased Loan by (ii) the applicable Purchase Price Percentage and (b) the amount that causes the LTV (Purchase Price) to equal 60.00%. The Purchase Price of any Purchased Loan shall thereafter only be modified to be (a) increased by any Margin Excess transferred by Buyer to Seller pursuant to Section 4(c) or 4(e) of this Agreement, not to exceed the Maximum Purchase Price, and (b) reduced by any amount applied to reduce such Purchase Price pursuant to Section 3(f), 4(a) or 5 of this Agreement (or, in the case of Principal Payments made in respect of such Purchased Loan, remitted to the applicable Cash Management Account for application to reduce such Purchase Price pursuant to Section 5(e)).
Purchase Price Percentage shall mean, with respect to each Purchased Loan, the amount, expressed as a percentage, determined by dividing (i) the outstanding Purchase Price of such Purchased Loan as of any date of determination hereunder by (ii) the Market Value of such Purchased Loan as of such date, not to exceed the Maximum Purchase Price Percentage.
Purchased Loan shall mean a Foreign Purchased Loan or a U.S. Purchased Loan, as applicable.
Purchased Loan Documents shall mean, with respect to a Purchased Loan, the documents comprising the Purchased Loan File for such Purchased Loan.
Purchased Loan File shall mean the documents specified as the Purchased Loan File in Section 7(b), together with any additional documents and information required to be delivered to Buyer or its designee (including the Custodian) pursuant to this Agreement.
Purchased Loan Schedule shall mean a schedule of Purchased Loans attached to each Trust Receipt and Custodial Delivery, which may but is not required to, contain information substantially similar to the Collateral Tape.
Recast Insolvency Regulation shall have the meaning specified in Section 10(b)(xxii).
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Reference Banks shall mean any four major reference banks in the London interbank market selected by Buyer.
Register shall have the meaning specified in Section 19(c) .
REMIC shall mean a real estate mortgage investment conduit, within the meaning of Section 860D(a) of the Code.
Remittance Date shall mean: (a) with respect to U.S. Purchased Loans, the seventeenth (17th) calendar day of each month, or the next succeeding Business Day, if such calendar day shall not be a Business Day; (b) with respect to Foreign Purchased Loans (AU), either (i) solely to the extent the related Purchased Loan Documents require monthly (as opposed to quarterly) interest payments by the relevant Mortgagor, the twelfth (12th) calendar day of each month, or the next succeeding Business Day, if such calendar day shall not be a Business Day or (ii) solely to the extent the related Purchased Loan Documents require quarterly (as opposed to monthly) interest payments by the relevant Mortgagor, January 12, April 12, July 12 and October 12, or the next succeeding Business Day, if such calendar day shall not be a Business Day; provided that, notwithstanding the foregoing, in the event that the Due Date (Foreign Purchased Loan (AU)) applicable to such Foreign Purchased Loan (AU) in any month occurs less than three (3) Business Days prior to the applicable date specified in either of the foregoing clause (b)(i) or (ii), then the Remittance Date for such Foreign Purchased Loan (AU) shall be the date which is three (3) Business Days after such Due Date (Foreign Purchased Loan (AU)); and (c) with respect to all other Foreign Purchased Loans, January 25, April 25, July 25 and October 25, or the next succeeding Business Day, if such calendar day shall not be a Business Day, or, in each case, such other day as is mutually agreed to by Seller and Buyer.
Repurchase Date shall mean, with respect to each Purchased Loan, the earliest of: (x) the Facility Expiration Date or (y) the maturity date of such Purchased Loan (subject to extension, if applicable, in accordance with its Purchased Loan Documents) or (z) the related Early Repurchase Date.
Repurchase Obligations shall mean all obligations of Seller to pay the Repurchase Price on the Repurchase Date and all other obligations and liabilities of Seller to Buyer arising under or in connection with the Transaction Documents, whether now existing or hereafter arising.
Repurchase Price shall mean, with respect to any Purchased Loan as of any date, the price at which such Purchased Loan is to be transferred from Buyer to Seller upon termination of the related Transaction (which price shall be expressed and payable in the Applicable Currency stated on the Confirmation for such Purchased Loan); such price will be determined in each case as the sum of (a) the outstanding Purchase Price of such Purchased Loan, (b) the accrued but unpaid Price Differential thereon with respect to such Purchased Loan as of such date, (c) all other amounts due and payable as of such date by Seller to Buyer under this Agreement or any Transaction Document with respect to such Purchased Loan (including, but not limited to, accrued and unpaid fees, expenses and indemnity amounts) and (d) any costs incurred in connection with terminating any related Hedging Transactions entered into with Buyer or an Affiliate of Buyer.
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Request for Margin Excess shall mean a request for Margin Excess, in the form of Exhibit IX attached hereto.
Requirement of Law shall mean any law, treaty, rule, regulation, code, directive, policy, order or requirement or determination of an arbitrator or a court or other Governmental Authority whether now or hereafter enacted or in effect.
Required Filing shall mean, with respect to any Foreign Purchased Loan, to the extent applicable, (w) registration of particulars of the related Mortgage at the Companies Registration Office under the Companies Act 2006 and payment of associated fees, (x) registration of the related Mortgage at the Land Registry or Land Charges Registry in England and Wales and payment of associated fees, (y) registration of the related Mortgage at the land registry, land titles office or similar Governmental Authority (including, where applicable, through PEXA) in the relevant State or Territory of the Commonwealth of Australia in which the related Mortgaged Property is situated, and (z) registration of the related Mortgage with any analogous Governmental Authority in the applicable non-U.S. jurisdiction in which the Mortgaged Property securing the related Mortgage is located.
Reserve Requirement shall mean, with respect to any Pricing Rate Period, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect during such Pricing Rate Period (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as Eurocurrency Liabilities in Regulation D of such Board of Governors) maintained by Buyer.
RICS shall mean the then-current Statements of Asset Valuation Practice and Guidance Notes issued by the Royal Institution of Chartered Surveyors.
SEC shall have the meaning specified in Exhibit VI-I.
Second Amendment and Restatement Date shall have the meaning specified in Section 1 of this Agreement.
Security Agent shall mean, with respect to a Foreign Purchased Loan that is in syndicated form, a security agent or a security trustee appointed by the lenders under such Foreign Purchased Loan to hold the benefit of any security agreements relating to such Foreign Purchased Loan on their behalf.
Seller shall mean, collectively, Parlex 2, Parlex 2A, Parlex 2 UK, Parlex 2 EUR, Parlex 2 AU and each other Person as and when same may be approved by Buyer in its sole discretion from time to time and admitted to this Agreement as a Seller by a joinder agreement executed and delivered by Buyer, Seller and such approved other Seller in the form of Exhibit XI to this Agreement (a Joinder Agreement ).
29
Senior Interests shall have the meaning given to such term in the definition of Eligible Loans.
Servicer shall mean: (x) Midland Loan Services, a division of PNC Bank, National Association or (y) any other third party servicer selected by Seller and approved by Buyer in its sole discretion; provided , that notwithstanding the foregoing, such other third party servicer selected by Seller shall be approved by Buyer in its reasonable discretion, so long as such Persons primary servicer rating shall be at least above average by Standard & Poors Ratings Service.
Servicing Agreement shall mean, individually or collectively, as the context may require (a) other than with respect to each CLO Participation A-1 issued pursuant to a CLO Participation Agreement, (i) that certain Servicing Agreement, dated as of June 12, 2013, among Parlex 2, Buyer and Servicer, as the same may be amended, modified and/or restated from time to time, (ii) that certain Servicing Agreement, dated as of January 31, 2014, among Parlex 2A, Buyer, and Servicer, as the same may be amended, modified and/or restated from time to time, (iii) that certain Servicing Agreement, dated as of the Second Amendment and Restatement Date, among Parlex 2 UK, Buyer, and Servicer, as the same may be amended, modified and/or restated from time to time, (iv) that certain Servicing Agreement, dated as of the Second Amendment and Restatement Date, among Parlex 2 EUR, Buyer, and Servicer, as the same may be amended, modified and/or restated from time to time, (v) that certain Servicing Agreement, dated as of the Third Amendment and Restatement Date, among Parlex 2 AU, Buyer, and Servicer, as the same may be amended, modified and/or restated from time to time, and (vi) any other servicing agreement entered into by a Seller, Buyer and any Servicer approved by Buyer for the servicing of Purchased Loans, as the same may be amended, modified and/or restated from time to time and (b) with respect to each CLO Participation A-1 issued pursuant to a CLO Participation Agreement, (x) for so long as the corresponding CLO Participation A-2 is an asset of the CLO, the CLO Servicing Agreement and (y) at any time such corresponding CLO Participation A-2 is not an asset of the CLO, the servicing agreement entered into in accordance with the applicable CLO Participation Agreement.
Servicing Records shall have the meaning specified in Section 29(b).
Servicing Rights shall mean Sellers right, title and interest in and to any and all of the following: (a) any and all rights to service the related Purchased Loan; (b) any payments to or monies received by such Seller or any other Person as a fee for servicing such Purchased Loan; (c) any late fees, penalties or similar payments with respect to such Purchased Loan; (d) all agreements or documents creating, defining or evidencing any such servicing rights to the extent they relate to such servicing rights and all rights of such Seller or any other Person thereunder; (e) escrow payments or other similar payments with respect to such Purchased Loan and any amounts actually collected by such Seller or any other Person with respect thereto; (f) the right, if any, to appoint a special servicer or liquidator of such Purchased Loan; and (g) all accounts and other rights to payment related to the servicing of such Purchased Loan.
Similar Loan shall have the meaning specified in Section 3(g) of this Agreement.
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Significant Purchased Loan Modification means any modification or amendment of a Purchased Loan which
(i) reduces the principal amount of the Purchased Loan in question other than (1) with respect to a dollar-for-dollar principal payment or (2) reductions of principal to the extent of deferred, accrued or capitalized interest added to principal which additional amount subsequently reduced was not taken into account by Buyer in determining the related Purchase Price,
(ii) increases the principal amount of a Purchased Loan other than (a) increases which are derived from accrual or capitalization of deferred interest which is added to principal or protective advances or (b) increases resulting from future fundings made pursuant to the Purchased Loan Documents,
(iii) modifies the amount or timing of any regularly scheduled payments of principal and non-contingent interest of the Purchased Loan in question, provided, however, that Seller may, without the consent of Buyer change the scheduled payment date of a Purchased Loan within any given calendar month,
(iv) changes the frequency of scheduled payments of principal and interest in respect of a Purchased Loan,
(v) subordinates the lien priority of the Purchased Loan in question or the payment priority of the Purchased Loan in question other than subordinations required under the then existing terms and conditions of the Purchased Loan in question (provided, however, the foregoing shall not preclude the execution and delivery of subordination, nondisturbance and attornment agreements with tenants, subordination to tenant leases, easements, plats of subdivision and condominium declarations, conditions, covenants and restrictions and similar instruments which in the commercially reasonable judgment of Seller do not materially adversely affect the rights and interest of the holder of the Purchased Loan in question),
(vi) releases any collateral for the Purchased Loan in question other than releases required under the then existing Purchased Loan documents or releases in connection with eminent domain or under threat of eminent domain,
(vii) waives, amends or modifies any cash management or reserve account requirements of the Purchased Loan other than changes required under the then existing Purchased Loan documentation,
(viii) waives any due-on-sale or due-on-encumbrance provisions of the Purchased Loan in question other than waivers required to be given under the then existing Purchased Loan documents, or
(ix) waives, amends or modifies the underlying insurance requirements of the Purchased Loan;
31
provided , however , that this definition of Significant Purchased Loan Modification shall not include any modification or amendment to any Purchased Loan Document solely in connection with the reallocation of a portion of the principal balance of any CLO Participation A-1 to the corresponding CLO Participation A-2 pursuant to Section 29(b) of the applicable CLO Participation Agreement in order to implement a replenishment pursuant to Section 12.2 of the CLO Indenture, so long as such reallocation is implemented in connection with an early repurchase consummated in accordance with Section 3(d) of this Agreement.
Single Purpose Entity shall have the meaning specified in Exhibit VI-I.
SIPA shall have the meaning specified in Section 24(a) of this Agreement.
Solvent shall mean with respect to any Person at any time, having a state of affairs such that all of the following conditions are met at such time: (a) the fair value of the assets and property of such Person is greater than the amount of such Persons liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(32) of the Bankruptcy Code, (b) the present fair salable value of the assets and property of such Person in an orderly liquidation of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Persons ability to pay as such debts and liabilities mature, and (d) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such Persons assets and property would constitute unreasonably small capital.
Special Purpose Entity shall mean a Person, other than an individual, which is formed or organized solely for the purpose of holding, directly and subject to this Agreement, the Purchased Loans and otherwise complies with the requirements of Section 13.
Spot Rate shall mean, with respect to an Applicable Currency, as of any date of determination, the rate quoted as the spot rate for the purchase of such Applicable Currency with another Applicable Currency at or about 11:00 a.m., London time (in the case of each Foreign Purchased Loan (EUR) and Foreign Purchased Loan (GBP)) or Sydney time (in the case of each Foreign Purchased Loan (AU)), on the date that is two (2) Business Days prior to the date as of which the foreign exchange computation is made as obtained from the applicable screen on Bloomberg.
Spread Adjustment shall have the meaning specified in the Fee Agreement.
Standard Qualifications shall have the meaning specified in Exhibit VI-I.
Survey shall mean: (x) with respect to U.S. Purchased Loans, a certified ALTA/ACSM (or applicable state standards for the state in which the Mortgaged Property is located) survey of a Mortgaged Property prepared by a registered independent surveyor or engineer, and (y) with respect to Foreign Purchased Loans (other than Foreign Purchased Loans (AU)), a valuation of such Mortgaged Property by a valuer prepared on the basis of the market value as that term is
32
defined in the then current Statements of Asset Valuation Practice and Guidance Notes issued by the Royal Institution of Chartered Surveyors or its equivalent in any applicable jurisdiction, in each case, in form and content satisfactory to Buyer in its commercially reasonable discretion and, in the case of the foregoing clause (x), in form and content satisfactory to the company issuing the Title Policy for such Mortgaged Property.
Taxes shall mean all present or future Taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto and including any stamp duty, transfer taxes and any value added or goods or services tax.
Terrorism Cap Amount shall have the meaning specified in Exhibit VI-I.
Third Amendment and Restatement Date shall mean October 12, 2018.
Title Policy shall have the meaning specified in Exhibit VI-I.
Transaction shall have the meaning set forth in Section 1.
Transaction Conditions Precedent shall have the meaning specified in Section 3(b) of this Agreement.
Transaction Documents shall mean, collectively, this Agreement, any applicable Annexes to this Agreement, the Guaranty, any Custodial Agreement, any Blocked Account Agreement, any Servicing Agreement, any Joinder Agreement, the Omnibus Amendment, all Confirmations executed pursuant to this Agreement or the Original Agreement in connection with specific Transactions, any other documents or instruments relating to any such documents executed by Seller or Guarantor, and any written modifications, extensions, renewals, restatements, or replacements of any of the foregoing.
Transaction Request shall mean a request to enter into a Transaction, in the form of Exhibit VIII attached hereto.
Transfer Certificate shall mean, with respect to a Foreign Purchased Loan, any form of transfer or substitution certificate or assignment agreement that is scheduled to the related loan agreement or other equivalent agreement for such Foreign Purchased Loan and that is used to effect the legal transfer or assignment of such Foreign Purchased Loan and (if applicable) any accession or substitution certificate, if any, required for the Buyer to become a beneficiary of the security trust in respect of such Foreign Purchased Loan.
Treasury Regulations shall have the meaning specified in Section 19(d) of this Agreement.
TRIA shall have the meaning specified in Exhibit VI-I.
Trust Receipt shall mean a trust receipt issued by Custodian to Buyer confirming the Custodians possession of certain Purchased Loan Files which are the property of and held by Custodian for the benefit of Buyer (or any other holder of such trust receipt) or a bailment arrangement with an Acceptable Attorney.
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UCC shall have the meaning specified in Section 6 of this Agreement.
U.S. Dollars and $ shall mean the lawful currency of the United States of America.
U.S. Person shall mean a United States person as defined in Section 7701(a)(30) of the Code.
U.S. Purchased Loan shall mean: (i) with respect to any Transaction, an Eligible Loan secured by Mortgaged Property located in the United States of America or any territory thereof and which is sold by the applicable Seller to Buyer in such Transaction and (ii) with respect to the Transactions for U.S. Purchased Loans in general, all Eligible Loans secured by Mortgaged Property located in the United States of America or any territory thereof and which are sold by the applicable Sellers to Buyer.
Whole Loans shall have the meaning given to such term in the definition of Eligible Loans.
Zoning Regulations shall have the meaning specified in Exhibit VI-I.
3. |
INITIATION; CONFIRMATION; TERMINATION; FEES |
(a) Subject to the terms and conditions set forth in this Agreement (including, without limitation, (x) the Transaction Conditions Precedent specified in Section 3(b) of this Agreement and (y) Section 4(h) of this Agreement), an agreement to enter into a Transaction shall be made, from time to time, in writing at the initiation of Seller as provided below; provided , however , that (i) the aggregate outstanding Purchase Price at any time for all Purchased Loans shall not exceed the Facility Amount, and (ii) Buyer shall not have any obligation to enter into new Transactions with Seller after the occurrence and during the continuance of a monetary or material non-monetary Default or an Event of Default or after the Facility Availability Period. Seller may, from time to time, submit to Buyer a Transaction Request, in the form of Exhibit VIII attached hereto, for Buyers review and approval in order to enter into a Transaction with respect to any Eligible Loan that Seller proposes to be included as Collateral under this Agreement. Upon Buyers receipt of a complete Due Diligence Package, Buyer shall have the right to request, in Buyers good faith business judgment and in a manner consistent with Buyers other master repurchase facilities for comparable assets, additional diligence materials and deliveries with respect to the applicable Eligible Loan, to the extent necessary for Buyers underwriting of such Eligible Loan. Upon Buyers receipt of the Transaction Request, Due Diligence Package and such additional diligence materials, Buyer shall use commercially reasonable efforts to within five (5) Business Days and following receipt of internal credit approval, either (i) notify Seller of the Purchase Price and the Market Value for the Eligible Loan or (ii) deny Sellers request for a Transaction. Buyers failure to respond to Seller within five (5) Business Days shall be deemed to be a denial of Sellers request for a Transaction, unless Buyer and Seller have agreed otherwise in writing. Buyer shall have the right to review all Eligible Loans proposed to be sold to Buyer in any Transaction and to conduct
34
its own due diligence investigation of such Eligible Loans as Buyer reasonably determines. Buyer shall be entitled to make a determination, in its sole discretion, that it shall or shall not purchase any or all of the Eligible Loans proposed to be sold to Buyer by Seller. On the Purchase Date for the Transaction which shall be on a date mutually agreed upon by Buyer and Seller following the approval of an Eligible Loan by Buyer, the Purchased Loan shall be transferred to Buyer or its designee against the transfer of the Purchase Price (which Purchase Price shall be funded in the Applicable Currency of the related Whole Loan or Senior Interest (or participation interest therein) and stated on the applicable Confirmation) to an account of Seller or as directed by Seller in writing (and subject to the last sentence of Section 17).
(b) Upon agreeing to enter into a Transaction hereunder, provided each of the Transaction Conditions Precedent shall have been satisfied (or waived by Buyer), Buyer shall promptly deliver to Seller a written confirmation in the form of Exhibit I attached hereto of each Transaction (a Confirmation ). Such Confirmation shall describe the Purchased Loan, shall identify Buyer and Seller, and shall set forth:
(i) |
the Purchase Date, |
(ii) |
the Purchase Price Percentage, Maximum Purchase Price Percentage, the initial Purchase Price and the Maximum Purchase Price for such Purchased Loan (which initial Purchase Price and the Maximum Purchase Price shall be expressed and payable in the same Applicable Currency as the related Purchased Loan), |
(iii) |
the Repurchase Date, |
(iv) |
the Pricing Rate (including the Applicable Spread), |
(v) |
the Margin Percentage, |
(vi) |
the LTV (Purchase Price) and Maximum LTV (Purchase Price), |
(vii) |
the LTV (Loan UPB) and LTV (Aggregate Loan UPB) (if applicable), |
(viii) |
the Funding Fee, any additional conditions precedent to the availability of Margin Excess (Future Funding) and the type of funding (i.e. table funded/non-table funded), |
(ix) |
the Applicable Currency (which shall be the same Applicable Currency as the related Purchased Loan), |
(x) |
the applicable Purchase Date Spot Rates, and |
(xi) |
any additional reasonable terms or conditions not inconsistent with this Agreement and mutually agreed upon by Buyer and Seller. |
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With respect to any Transaction, the Pricing Rate shall be determined initially on the Pricing Rate Determination Date applicable to the first Pricing Rate Period for such Transaction, and shall be reset on each subsequent Pricing Rate Determination Date for the next succeeding Pricing Rate Period for such Transaction. Buyer or its agent shall determine in accordance with the terms of this Agreement the Pricing Rate on each Pricing Rate Determination Date for the related Pricing Rate Period and notify Seller of such rate for such period on such subsequent Pricing Rate Determination Date. For purposes of this Section 3(b), the Transaction Conditions Precedent shall be deemed to have been satisfied with respect to any proposed Transaction if:
(A) |
no monetary or material non-monetary Default or Event of Default under this Agreement shall have occurred and be continuing as of the Purchase Date for such proposed Transaction; |
(B) |
subject to any exceptions reasonably approved by Buyer, the representations and warranties made by Seller in any of the Transaction Documents shall be true and correct in all material respects as of the Purchase Date for such Transaction, before and after giving effect to such Transaction, as though made on such Purchase Date (except to the extent such representations and warranties are made as of a particular date); |
(C) |
Buyer shall have received from Seller all corporate and governmental approvals, legal opinions of counsel to Seller and Guarantor (including, without limitation, as to authority, enforceability, perfection under the UCC and, with respect to any Foreign Purchased Loan, the equivalent Requirements of Law under the relevant non-U.S. jurisdiction, bankruptcy safe harbor and the Investment Company Act of 1940) and closing documentation as Buyer may reasonably request pursuant to this Agreement (including, with respect to any Foreign Purchased Loan, a Foreign Assignment Agreement and such other closing documentation necessary to transfer such Foreign Purchased Loan to Buyer and perfect the security interest therein granted by Seller in favor of Buyer in the relevant non-U.S. jurisdiction); |
(D) |
Seller shall have paid to Buyer (x) the Funding Fee then due and payable with respect to such Transaction pursuant to the Fee Agreement and (y) Buyers out-of-pocket costs and expenses pursuant to Section 30(d) of this Agreement (which amounts referred to in the preceding sub-clauses (D)(x) and (D)(y) may be paid through a holdback to the Purchase Price); |
(E) |
Buyer shall have (A) determined, in accordance with the applicable provisions of Section 3(a) of this Agreement, that the Assets proposed to be sold to Buyer by Seller in such Transaction are Eligible Loans and (B) obtained internal credit approval for the inclusion of such Eligible Loan as a Purchased Loan in a Transaction; |
(F) |
Buyer shall have determined that no event has occurred which is reasonably likely to result in a Material Adverse Effect; and |
(G) |
as of the applicable Purchase Date, each of the applicable Concentration Limits is satisfied (unless waived by Buyer). |
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(c) Each Confirmation, together with this Agreement, shall be conclusive evidence of the terms of the Transaction(s) covered thereby unless specific objection is made in writing no less than three (3) Business Days after the date thereof. In the event of any conflict between the terms of such Confirmation and the terms of this Agreement, the Confirmation shall prevail. An objection sent by Seller with respect to any Confirmation must state specifically that the writing is an objection, must specify the provision(s) of such Confirmation being objected to by Seller, must set forth such provision(s) in the manner that Seller believes such provisions should be stated, and must be sent by Seller no more than five (5) Business Days after such Confirmation is received by Seller. It is understood and agreed that once a Confirmation has been executed by Buyer and Seller, such Confirmation shall be binding on the parties hereto (absent manifest error) and shall constitute evidence of Buyers approval of the applicable Purchased Loan and the terms of the applicable Transaction.
(d) No Transaction shall be terminable on demand by Buyer (other than upon the occurrence and during the continuance of an Event of Default). Seller shall be entitled to terminate a Transaction on demand, in whole or in part (but in the case of a termination in part, solely in connection with the reallocation of a portion of the principal balance of any CLO Participation A-1 to the corresponding CLO Participation A-2 pursuant to Section 29(b) of the applicable CLO Participation Agreement in order to implement a replenishment pursuant to Section 12.2 of the CLO Indenture), and repurchase the Purchased Loan subject to a Transaction on any Business Day prior to the Repurchase Date (an Early Repurchase Date ); provided , however , that:
(i) |
Seller notifies Buyer in writing of its intent to terminate such Transaction and repurchase such Purchased Loan no later than three (3) Business Days prior to such Early Repurchase Date, |
(ii) |
on such Early Repurchase Date Seller pays to Buyer an amount equal to the sum of (x) the Repurchase Price for such Transaction, (y) the Exit Fee, if any, then due and payable with respect to such Transaction pursuant to the Fee Agreement (provided, however, that no Exit Fee shall be due and payable in connection with a termination of a Transaction by Seller either (x) in part or (y) in whole in connection with a severing of any CLO Participation A-1 into multiple participations representing the funded portion of such CLO Participation A-1 following which a severed portion is reallocated to the corresponding CLO Participation A-2 and the other severed portion is the subject of a new Transaction under this Agreement) and (z) any other amounts payable under this Agreement (including, without limitation, Section 3(i) of this Agreement) with respect to such Transaction, in connection with the transfer to Seller or its agent of such Purchased Loan; provided, however, that no amounts shall be due and payable pursuant to Section 3(i)(ii) of this Agreement in connection with a termination of a Transaction by Seller in part or in whole in the circumstance described in the parenthetical to clause (ii)(y) above, |
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(iii) |
on such Early Repurchase Date, following the payment of the amounts set forth in subclause (ii) above, no unpaid Margin Deficit exists, and |
(iv) |
no Default or Event of Default shall have occurred and be continuing as of such Early Repurchase Date. |
Such notice shall set forth the Early Repurchase Date and shall identify with particularity the Purchased Loans to be repurchased on such Early Repurchase Date.
(e) On the Repurchase Date or any Early Repurchase Date (including, without limitation, in order to cure a Margin Deficit), termination of the applicable Transaction will be effected by transfer to Seller or its agent of the applicable Purchased Loan and any Income in respect thereof received by Buyer (and not previously credited or transferred to, or applied to the obligations of, Seller pursuant to Section 5 of this Agreement) against the simultaneous transfer to an account of Buyer of the Repurchase Price, the amount, if any, payable by Seller in the event any Hedging Transaction related to such Purchased Loan is being terminated as of such date and any other amounts payable under this Agreement with respect to such Transaction.
(f) On any Remittance Date before the Repurchase Date (or any Business Day before the Repurchase Date upon two (2) Business Days prior notice to Buyer, with respect to a reduction in outstanding Purchase Price of greater than $2,000,000 (or, with respect to any Foreign Purchased Loan, the then-current equivalent of such amount based on the Spot Rate with respect to the Applicable Currency of such Foreign Purchased Loan as of the date of determination), Seller shall have the right, from time to time, to transfer cash (in the Applicable Currency of the related Purchased Loan) to Buyer for the purpose of reducing the outstanding Purchase Price of, but not terminating, a Transaction and without the release of any Collateral or the payment of any Exit Fee or other prepayment fee or penalty; provided , that any such reduction in outstanding Purchase Price occurring on a date other than a Remittance Date shall be required to be accompanied by payment of all unpaid accrued Price Differential on the amount of such reduction. Upon any reduction in outstanding Purchase Price in accordance with this Section 3(f), either Seller or Buyer can request an amended and restated Confirmation which shall reflect the decrease in the outstanding Purchase Price (it being acknowledged that the failure by any party to request or deliver such amended and restated Confirmation shall not be a Default).
(g) If prior to any Pricing Rate Period with respect to any Transaction, Buyer shall have determined in the exercise of its reasonable business judgment (which determination shall be conclusive and binding upon Seller) that, (i) by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Index Rate for such Pricing Rate Period, or (ii) in the case of any Purchased Loan for which the LIBO Rate or the EURIBO Rate is the Index Rate, that LIBOR or EURIBOR, as applicable, has been succeeded by an Alternative Rate, Buyer shall give written notice thereof to Seller as soon as practicable thereafter, which notice shall set forth the affected Transactions and the circumstances for such
38
determination in reasonable detail. If such notice is given, the Pricing Rate with respect to such affected Transactions for such Pricing Rate Period, and for any subsequent Pricing Rate Periods until such notice has been withdrawn by Buyer (which withdrawal shall be delivered by Buyer promptly after Buyer becomes aware that the condition for switching to the Alternative Rate no longer exists) shall be a per annum rate determined by reference to the Alternative Rate in lieu of the applicable Index Rate. In exercising its rights and remedies under this Article 3(g), Buyer shall act in a manner consistent to how Buyer is contemporaneously treating its similarly situated customers domiciled in the United States under repurchase facilities under which Buyer has a comparable contractual right, which repurchase facilities finance commercial real estate mortgage loans of similar type, size and duration to the affected Purchased Loans and which are otherwise similar to such Purchased Loans in a manner which is material to Buyers determination hereunder ( Similar Loans ).
(h) Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for Buyer to effect or continue Transactions as contemplated by the Transaction Documents, (a) the commitment of Buyer hereunder to enter into new Transactions shall forthwith be canceled, and (b) the Transactions then outstanding shall be converted automatically to Alternative Rate Transactions on the last day of the then current Pricing Rate Period or within such earlier period as may be required by law. If any such conversion of a Transaction occurs on a day which is not the last day of the then current Pricing Rate Period with respect to such Transaction, Seller shall pay to Buyer such amounts, if any, as may be required pursuant to Section 3(i) of this Agreement.
(i) Upon written demand by Buyer, Seller shall indemnify Buyer and hold Buyer harmless from any net actual, out-of-pocket loss or expense (not to include any lost profit or opportunity or other consequential costs, loss or damages) (including, without limitation, reasonable actual attorneys fees and disbursements of outside counsel) which Buyer sustains or incurs as a consequence of (i) default by Seller in terminating any Transaction after Seller has given a notice in accordance with Section 3(d) hereof of a termination of a Transaction, (ii) any payment of the Repurchase Price on any day other than a Remittance Date or the Repurchase Date (including, without limitation, any such actual, out-of-pocket loss or expense arising from the reemployment of funds obtained by Buyer to maintain Transactions hereunder or from customary and reasonable fees payable to terminate the deposits from which such funds were obtained) or (iii) a default by Seller in selling Eligible Loans after Seller has delivered to Buyer an executed Confirmation in connection with a proposed Transaction and Buyer has agreed to purchase such Eligible Loans in accordance with the provisions of this Agreement as evidenced by a countersigned Confirmation executed by Buyer and delivered to Seller. A certificate as to such actual costs, losses, damages and expenses, setting forth the calculations therefor shall be submitted promptly by Buyer to Seller.
(j) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof by any Governmental Authority or compliance by Buyer with any request or directive from any central bank or other Governmental Authority having jurisdiction over Buyer made subsequent to the date hereof:
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(i) |
shall subject Buyer to any tax of any kind whatsoever with respect to the Transaction Documents, any Purchased Loan or any Transaction, or change the basis of taxation of payments to Buyer in respect thereof (except for (i) Indemnified Taxes (with Other Taxes applying for this purpose without the proviso in the definition thereof), (ii) Taxes described in clauses (b) through (h) of the definition of Excluded Taxes and (iii) Connection Income Taxes); or |
(ii) |
shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of Buyer which is not otherwise included in the determination of the Index Rate hereunder; |
and the result of any of the foregoing is to increase the cost to Buyer, by an amount which Buyer deems, in the exercise of its reasonable business judgment, to be material, of entering into, continuing or maintaining Transactions or to reduce in a material manner any amount receivable under the Transaction Documents in respect thereof; then, in any such case, and provided Buyer imposes such additional costs generally on all of its similarly situated customers, Seller shall pay to Buyer within ten (10) Business Days any additional amounts necessary to compensate Buyer for such increased cost or reduced amount receivable. If Buyer becomes entitled to claim any additional amounts pursuant to this Section 3(j), it shall notify Seller in writing of the event by reason of which it has become so entitled. Such notification as to the calculation of any additional amounts payable pursuant to this subsection shall be submitted by Buyer to Seller. Any claim by Buyer made under this clause Section 3(j) arising in connection with any Transaction relating to a Foreign Purchased Loan (AU) shall be accompanied by reasonable details of the event giving rise to such claim and, if made more than one hundred eighty (180) days after Buyer becomes aware of and was able to quantify the applicable loss or expense, cannot be made in respect of any period occurring more than one hundred eighty (180) days before the date of the applicable demand.
(k) If Buyer shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by Buyer or any corporation controlling Buyer with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof has the effect of reducing the rate of return on Buyers or such corporations capital deployed in respect of any Transaction as a consequence of its obligations hereunder to a level below that which Buyer or such corporation could have achieved but for such adoption, change or compliance (taking into consideration Buyers or such corporations policies with respect to capital adequacy) by an amount deemed by Buyer, in the exercise of its reasonable business judgment, to be material, then from time to time, after submission by Buyer to Seller of a written request therefor, and provided Buyer imposes such additional costs generally on all of its similarly situated customers, Seller shall pay to Buyer within ten (10) Business Days such additional amount or amounts as will compensate Buyer for such reduction. Such notification as to the calculation of any additional amounts payable
40
pursuant to this subsection shall be submitted by Buyer to Seller. Any claim by Buyer made under this clause Section 3(k) arising in connection with any Transaction relating to a Foreign Purchased Loan (AU) shall be accompanied by reasonable details of the event giving rise to such claim and, if made more than one hundred eighty (180) days after Buyer becomes aware of and was able to quantify the applicable amount, cannot be made in respect of any period occurring more than one hundred eighty (180) days before the date of the applicable demand.
(l) Notwithstanding the foregoing or anything herein or in the Fee Agreement to the contrary, (x) if any Transaction is converted to an Alternative Rate Transaction, then Seller may consummate an early repurchase of the related Purchased Loan at any time while the Alternative Rate is in effect without payment of the Exit Fee, (y) if Buyer notifies Seller of its entitlement to additional amounts pursuant to Section 3(j) or 3(k), then provided Seller pays such additional amounts pursuant to Section 3(j) or 3(k), Seller may consummate an early repurchase of all of the Purchased Loans and terminate this Agreement and the other Transaction Documents without payment of the Exit Fee and (z) no Exit Fee shall be due and payable in connection with any reduction in outstanding Purchase Price or consummation of an early repurchase of a Purchased Loan in accordance with Section 4(a).
(m) Notwithstanding the foregoing or anything herein to the contrary, neither Section 3(i) nor Section 3(k) shall apply with respect to any Transaction relating to a Foreign Purchased Loan (AU) the extent such loss, expense or other amount otherwise covered by such Sections are attributable to the implementation or application of or compliance with Basel II or Basel III, to the extent full details have been officially announced and publicly released prior to the date of this Agreement and which are applicable to the Buyer.
(n) Notwithstanding the foregoing or anything herein to the contrary, Buyer, in consultation with Seller, shall take all reasonable steps consistent with prudent banking practice to mitigate any circumstances which would result in any consequence described in Section 3(h) and any amount becoming payable under any of Sections 3(i) through (k), in each case with respect to each Foreign Purchased Loan (AU) (including transferring its rights and obligations under the Transaction Documents to a related entity of Buyer or changing its lending office), provided that Buyer shall not be obligated to take any steps under this Section 3(n) if, in Buyers opinion (acting reasonably), to do so might be prejudicial to it. Seller shall indemnify Buyer and hold Buyer harmless from any reasonable out-of-pocket loss or expense (not to include any lost profit or opportunity or other consequential costs, loss or damages) (including, without limitation, reasonable actual attorneys fees and disbursements of outside counsel) which Buyer sustains or incurs as a result of steps required to be taken by it under this Section 3(n).
4. |
MARGIN MAINTENANCE |
(a) If, at any time, (w) the aggregate Market Value of all U.S. Purchased Loans shall be less than the sum of the Margin Amounts calculated individually with respect to each U.S. Purchased Loan, (x) the aggregate Market Value of all Foreign Purchased Loans (EUR) shall be less than the sum of the Margin Amounts calculated individually with respect to each Foreign Purchased Loan (EUR), (y) the aggregate Market Value of all Foreign Purchased Loans (GBP) shall be less than the sum of the Margin Amounts calculated individually with respect to each Foreign Purchased Loan (GBP), or (z) the aggregate Market Value of all Foreign Purchased
41
Loans (AU) shall be less than the sum of the Margin Amounts calculated individually with respect to each Foreign Purchased Loan (AU) (each of the foregoing clauses (w), (x), (y) and (z), a Margin Deficit ), then in any such case Buyer may by notice to Seller in writing (including therein a description of the then-current Market Value calculation for the Purchased Loan for which a Margin Deficit exists, together with a description of the then-current Market Value calculation for all other Purchased Loans) require Seller to cure such Margin Deficit by any of the following methods selected by Seller:
(i) |
transferring to Buyer additional cash collateral in an amount at least equal to the sum of the amounts, calculated individually for each U.S. Purchased Loan, Foreign Purchased Loan (EUR), Foreign Purchased Loan (GBP) or Foreign Purchased Loan (AU), as applicable, equal to the product of (x) the difference between the Margin Amount with respect to such Purchased Loan and the Market Value of such Purchased Loan multiplied by (y) the applicable Maximum Purchase Price Percentage, which cash collateral shall be held by Buyer as additional Collateral with respect to the applicable Purchased Loan(s); |
(ii) |
reducing the outstanding Purchase Price of any U.S. Purchased Loan, Foreign Purchased Loan (EUR), Foreign Purchased Loan (GBP) or Foreign Purchased Loan (AU), as applicable, such that the aggregate Market Value of the U.S. Purchased Loans, Foreign Purchased Loans (EUR), Foreign Purchased Loan (GBP) or Foreign Purchased Loan (AU), as applicable, is at least equal to or is greater than the sum of the Margin Amounts of the U.S. Purchased Loans, Foreign Purchased Loans (EUR), Foreign Purchased Loan (GBP) or Foreign Purchased Loan (AU), as applicable; or |
(iii) |
doing an early repurchase on an Early Repurchase Date of any U.S. Purchased Loan, Foreign Purchased Loan (EUR), Foreign Purchased Loan (GBP) or Foreign Purchased Loan (AU), as applicable, pursuant to Section 3(d) of this Agreement and paying the related Repurchase Price which early repurchase results in a cure of such Margin Deficit. |
With respect to this Section 4(a), such payments and/or reductions shall be made by Seller in the Applicable Currency of the related Purchased Loan(s) with respect to which such Margin Deficit exists. Any cash transferred to Buyer pursuant to clause (ii) of this Section 4(a) of this Agreement with respect to any Purchased Loan shall be applied to reduce the outstanding Purchase Price for such Purchased Loan on a dollar-for-dollar basis for which there was a Margin Deficit. Notwithstanding the foregoing or anything herein to the contrary, a Margin Deficit shall not exist or be deemed to exist with respect to any Purchased Loan at any time the outstanding Purchase Price with respect to such Purchased Loan is less than 60% of the related Market Value.
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(b) If any notice is given by Buyer under Section 4(a) of this Agreement on any Business Day (such notice, a Margin Deficit Notice ) and Seller elects to transfer cash pursuant to Section 4(a)(i) or (ii), Seller shall transfer cash in the full amount (and in the Applicable Currency) required in Section 4(a)(i) or (ii), if the Margin Deficit Notice is given before 1:00 p.m. EST, by no later than the close of business on the Business Day following the Business Day on which such Margin Deficit Notice is given, and if the Margin Deficit Notice is given on or after 1:00 p.m. EST, by no later than the close of business on the second (2 nd ) Business Day following the Business Day on which such Margin Deficit Notice is given. The failure of Buyer, on any one or more occasions, to exercise its rights under Section 4(a) of this Agreement shall not change or alter the terms and conditions to which this Agreement is subject or limit the right of Buyer to do so at a later date. Buyer and Seller agree that any failure or delay by Buyer to exercise its rights under Section 4(a) of this Agreement shall not limit such partys rights under this Agreement or otherwise existing by law or in any way create additional rights for such party.
(c) At any time prior to the Facility Expiration Date, in the event a future funding is contractually required to be made available to the related Mortgagor under a Purchased Loan, Seller may submit to Buyer a Request for Margin Excess, in the form of Exhibit IX attached hereto, which requests that Buyer transfer to Seller, by wire transfer to an account of Seller or as directed by Seller in writing (and subject to the last sentence of Section 17), cash (in the Applicable Currency of such Purchased Loan) in an amount equal to the product of a percentage, not to exceed the applicable Maximum Purchase Price Percentage for such Purchased Loan, multiplied by the amount of such future funding (such product, Margin Excess (Future Funding) ), which cash shall be applied to increase the outstanding Purchase Price with respect to the Transaction for such Purchased Loan and to satisfy such future funding obligation in part; provided , that, Buyer shall not have any obligation to transfer such Margin Excess (Future Funding) to Seller unless Buyer shall have determined that all of the following conditions precedent (such conditions, the Future Funding Conditions Precedent ) are satisfied:
(i) |
If in connection with the entry into the initial Transaction relating to the Purchased Loan that is the subject of a future funding obligation, Buyer and Seller agreed upon additional conditions precedent which are required to be satisfied ( e.g. maintenance of or improvement in Debt Yield (Purchase Price) and/or Debt Yield (Loan UPB)) with respect to such Purchased Loan and which are specified in the Confirmation, taking into account the increase in the outstanding Purchase Price attributable to such Margin Excess (Future Funding), then such additional conditions precedent are satisfied; |
(ii) |
taking into account the increase in the outstanding Purchase Price attributable to such Margin Excess (Future Funding), the LTV (Purchase Price) shall not exceed sixty percent (60%); |
(iii) |
no Default or Event of Default has occurred and is continuing; |
(iv) |
the increase in the outstanding Purchase Price with respect to such Purchased Loan attributable to such Margin Excess (Future Funding) shall be equal to or greater than $250,000 (or, with respect to any Foreign Purchased Loan, the then-current equivalent of such amount based on the Spot Rate with respect to the Applicable Currency of such Foreign Purchased Loan as of the date of determination); |
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(v) |
Seller shall have demonstrated to Buyers reasonable satisfaction that all conditions precedent to the future funding obligation under the Purchased Loan documentation shall have been satisfied in all material respects; and |
(vi) |
following such increase in the outstanding Purchase Price attributable to such Margin Excess (Future Funding), no Margin Deficit shall exist. |
In addition to and in no way limiting Sellers right to submit to Buyer a Request for Margin Excess in accordance with this Section 4(c), concurrent with or following a future funding made by Seller to a Mortgagor under a Purchased Loan, Seller may submit to Buyer a written request that Buyer, after applying all of the Future Funding Conditions Precedent referred to above, provide Seller with an indication of the amount of availability created with respect to such Purchased Loan by Seller making such future funding.
(d) If any notice is given by Seller under Section 4(c) of this Agreement on any Business Day, Buyer shall transfer cash as provided in Section 4(c) (and subject to the last sentence of Section 17) by no later than the close of business on the second (2 nd ) Business Day following the Business Day on which Buyer reasonably determines that the Future Funding Conditions Precedent have been satisfied (or, in Buyers sole discretion, waived). The failure of Seller, on any one or more occasions, to exercise its rights under Section 4(c) of this Agreement shall not change or alter the terms and conditions to which this Agreement is subject or limit the right of Seller to do so at a later date. Buyer and Seller agree that any failure or delay by Seller to exercise its rights under Section 4(c) of this Agreement shall not limit such partys rights under this Agreement or otherwise existing by law or in any way create additional rights for such party.
(e) At any time prior to the Facility Expiration Date, in the event,
(x)(a) Seller elects to transfer cash to Buyer pursuant to Section 4(a)(i) or (ii) to satisfy a Margin Deficit and (b) on any date subsequent to such transfer of cash, the Market Value of a Purchased Loan increases such that the outstanding Purchase Price (or if cash collateral was transferred in accordance with Section 4(a)(i), the outstanding Purchase Price less such cash collateral so transferred) with respect to such Purchased Loan is less than the Maximum Purchase Price with respect to such Purchased Loan, or
(y)(a) Seller elects to transfer cash to Buyer pursuant to Section 3(f) or elects as described in the definition of Pricing Matrix to receive on the applicable Purchase Date a Purchase Price lower than the Maximum Purchase Price of such Purchased Loan and (b) on any date subsequent to such transfer of cash, Seller desires to receive a re-advance of such cash so transferred or an additional advance of cash in an amount up to the Maximum Purchase Price of such Purchased Loan (the difference between the actual outstanding Purchase Price (or outstanding Purchase Price less cash collateral transferred, as the case may be), and the Maximum Purchase Price, the Margin Excess (Other) ),
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then Seller in either case may submit to Buyer a Request for Margin Excess, in the form of Exhibit IX attached hereto, which requests that Buyer transfer to Seller an amount up to such Margin Excess (Other) (in the Applicable Currency of the Purchased Loan for which such Margin Excess (Other) exists), by wire transfer to an account of Seller or designated by Seller in writing (and subject to the last sentence of Section 17); provided , that, Buyer shall not have any obligation to transfer such Margin Excess (Other) to Seller unless Buyer shall have determined that all of the following conditions precedent are satisfied:
(i) |
no Default or Event of Default has occurred and is continuing; |
(ii) |
with respect to any Purchased Loan, the amount of cash transferred by Buyer pursuant to clause (x) or (y) above shall not cause the Purchase Price to exceed the Maximum Purchase Price for such Purchased Loan; |
(iii) |
the increase in the outstanding Purchase Price with respect to such Purchased Loan attributable to such Margin Excess (Other) shall be equal to or greater than $250,000 (or, with respect to any Foreign Purchased Loan, the then-current equivalent of such amount based on the Spot Rate with respect to the Applicable Currency of such Foreign Purchased Loan as of the date of determination); and |
(iv) |
following such increase in the outstanding Purchase Price attributable to such Margin Excess (Other), no Margin Deficit shall exist. |
(f) If any Request for Margin Excess is given by Seller on any Business Day under (x) Section 4(e)(x) of this Agreement, Buyer shall transfer cash as provided in Section 4(e) by no later than the close of business on the next succeeding Business Day following the Business Day on which Buyer has completed its calculation of Market Value, or (y) Section 4(e)(y) of this Agreement, Buyer shall transfer cash as provided in Section 4(e) by no later than the close of business on the next succeeding Business Day following the Business Day on which such Request for Margin Excess is submitted. The failure of Seller, on any one or more occasions, to exercise its rights under Section 4(e) of this Agreement shall not change or alter the terms and conditions to which this Agreement is subject or limit the right of Seller to do so at a later date. Buyer and Seller agree that any failure or delay by Seller to exercise its rights under Section 4(e) of this Agreement shall not limit such partys rights under this Agreement or otherwise existing by law or in any way create additional rights for such party.
(g) Promptly following the transfer of Margin Excess by Buyer to Seller, or any increase to the Market Value of a Purchased Loan, in each case pursuant to Section 4(c) and 4(d) or 4(e) and 4(f), as applicable, Buyer and Seller shall revise the Confirmation to reflect the revised outstanding Purchase Price, Maximum Purchase Price, Purchase Price Percentage, and Maximum Purchase Price Percentage for such Purchased Loan, as applicable, and any other necessary modifications to the terms set forth on the existing Confirmation.
(h) In the event Seller requests to enter into a Transaction with Buyer with respect to any Eligible Loan which includes Margin Excess (Future Funding) obligations approved by Buyer, or Seller requests a Margin Excess (Future Funding) with respect to any Purchased Loan, and the result of such Transaction with respect to such Eligible Loan or the funding of such Margin Excess (Future Funding) with respect to such Purchased Loan would be that, the sum of
45
Column A plus Column B plus Column C calculated with respect to all Purchased Loans collectively (including for this purpose, such Eligible Loan) (with such calculation with respect to Foreign Purchased Loans to be based on the applicable amounts converted to U.S. Dollars based on the Purchase Date Spot Rate (U.S. Dollars) for such Foreign Purchased Loan) would exceed the Facility Amount, then Seller may notify Buyer in writing that Seller elects to reallocate downward, in its sole discretion, the amount referenced in Column C with respect to any Purchased Loan by an amount necessary for the sum of Column A plus Column B plus Column C calculated with respect to all Purchased Loans collectively (including for this purpose, such Eligible Loan) (with such calculation with respect to Foreign Purchased Loans to be based on the applicable amounts converted to U.S. Dollars based on the Purchase Date Spot Rate (U.S. Dollars) for such Foreign Purchased Loan) not to exceed, with respect to all Purchased Loans collectively (including for this purpose, such Eligible Loan), the Facility Amount. Notwithstanding the foregoing, Seller shall be permitted, at any time and from time to time, upon written notice to Buyer, to reallocate upward or downward the amount referenced in Column C with respect to any Purchased Loan so long as (a) the sum of Column A plus Column B plus Column C calculated with respect to all Purchased Loans collectively (with such calculation with respect to Foreign Purchased Loans to be based on the applicable amounts converted to U.S. Dollars based on the Purchase Date Spot Rate (U.S. Dollars) for such Foreign Purchased Loan) does not exceed the Facility Amount, and (b) any upward reallocation of the amount referenced in Column C for any Purchased Loan does not exceed the amount referenced in Column E with respect to such Purchased Loan. Upon making any such reallocations, Seller shall promptly deliver to Buyer (by e-mail) a Facility Asset Chart, which then-current Facility Asset Chart shall represent the definitive allocation of Buyers Margin Excess (Future Funding) obligations with respect to all Purchased Loans. Notwithstanding anything to the contrary set forth in this Agreement or any other Transaction Document, Buyer and Seller hereby acknowledge and agree that, as of any date of determination, (i) the amount referenced in Column C of the then-current version of the Facility Asset Chart with respect to any Purchased Loan shall be the maximum amount of Margin Excess (Future Funding) that Buyer would be obligated to transfer to Seller with respect to such Purchased Loan upon satisfaction of the Future Funding Conditions Precedent, in accordance with Sections 4(c) and (d) of this Agreement, and (ii) the sum of Column A plus Column B plus Column C calculated with respect to each Purchased Loan individually, as reflected in Column D, shall not exceed, with respect to all Purchased Loans collectively (with such calculation with respect to Foreign Purchased Loans to be based on the applicable amounts converted to U.S. Dollars based on the Purchase Date Spot Rate (U.S. Dollars) for such Foreign Purchased Loan), the Facility Amount.
5. |
INCOME PAYMENTS AND PRINCIPAL PAYMENTS |
(a) Each Cash Management Account shall be established at the Depository, which (i) in the case of the Cash Management Account established by Parlex 2, shall have been established on June 12, 2013, (ii) in the case of the Cash Management Account established by Parlex 2A, shall have been established on January 31, 2014, (iii) in the case of the Cash Management Account established by Parlex 2 UK, shall have been established on the Second Amendment and Restatement Date, (iv) in the case of the Cash Management Account established by Parlex 2 EUR, shall have been established on the Second Amendment and Restatement Date, (v) in the case of the Cash Management Account established by Parlex 2 AU, shall have been established
46
on the Third Amendment and Restatement Date, and (vi) in the case of any Cash Management Account established by any Person that joins as a Seller under this Agreement from time to time, shall be established concurrently with the execution and delivery of the Joinder Agreement by which such Person joins as a Seller under this Agreement. Buyer shall have sole dominion and control over each Cash Management Account. All Income in respect of the Purchased Loans and any payments in respect of associated Hedging Transactions, as well as any interest received from the reinvestment of such Income, shall be deposited directly into the applicable Cash Management Account and shall be remitted by the Depository in accordance with the provisions of the applicable Blocked Account Agreement and Servicing Agreement (which remittances shall be in conformity to the applicable provisions of Sections 5(d), 5(e), 5(f) and 14(b)(iii) of this Agreement).
(b) With respect to each Purchased Loan, Seller shall deliver to each Mortgagor, issuer of a participation or borrower or similar Person (however described) under a Purchased Loan an irrevocable direction letter (the Irrevocable Direction Letter ) in the form attached as Exhibit X to this Agreement (in the case of any Foreign Purchased Loan, with such reasonable changes as are mutually agreed upon by Buyer and Seller to reflect any equivalent terminology, customary market practices, Requirements of Law in the relevant non-U.S. jurisdiction, in each case applicable to such Foreign Purchased Loan) with a simultaneous copy to Servicer, instructing the Mortgagor and Servicer to pay all amounts payable under the related Purchased Loan to the applicable Cash Management Account and shall provide to Buyer proof of such delivery. If a Mortgagor or Servicer forwards any Income with respect to a Purchased Loan to Seller rather than directly to the applicable Cash Management Account, Seller shall (i) deliver an additional Irrevocable Direction Letter to the applicable Mortgagor, with a simultaneous copy to Servicer, and make other commercially reasonable efforts to cause such Mortgagor or Servicer to forward such amounts directly to the applicable Cash Management Account and (ii) deposit in the applicable Cash Management Account any such amounts within one Business Day of Sellers receipt thereof.
(c) On each Remittance Date, Seller shall pay to Buyer an amount equal to the Price Differential which has accrued during the related Pricing Rate Period for each Transaction to the extent not previously paid to Buyer.
(d) So long as no Event of Default shall have occurred and be continuing, during the Facility Availability Period (or, with respect to Foreign Purchased Loans (AU) only, at any time), all Income received by the Depository in respect of the Purchased Loans and the associated Hedging Transactions (other than Principal Payments and net sale proceeds) may be remitted by the Depository on the next Business Day to the account of Seller specified in the applicable Blocked Account Agreement (or in accordance with such other direction and instruction of Seller which is reasonably approved by Buyer).
(e) So long as no Event of Default shall have occurred and be continuing, during the Facility Availability Period, all Principal Payments in respect of each Purchased Loan received by the Depository shall be paid, pursuant to the withdrawal instructions of Seller that have been approved by Buyer, either (x) with respect to scheduled Principal Payments (other than Principal Payments in full), on the next Remittance Date, or (y) with respect to unscheduled Principal
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Payments and scheduled Principal Payments in full, on the first (1 st ) Business Day immediately following the date such Principal Payment was deposited in the applicable Cash Management Account), and, in each instance, applied as follows: (i) first, toward the reduction of the outstanding Purchase Price of such Purchased Loan to the extent necessary to cause the outstanding Purchase Price with respect to such Purchased Loan to equal the product of the related Market Value and the applicable Purchase Price Percentage (or with respect to any Principal Payment in full, in the amount necessary to reduce the outstanding Purchase Price of such Purchased Loan to zero) and (ii) second, to the extent necessary to cause the outstanding Purchase Price with respect to each other Purchased Loan to equal the product of the related Market Value and the applicable Purchase Price Percentage. Any Principal Payments received by the Depository and not paid to Buyer pursuant to the preceding sentence during the Facility Availability Period shall be remitted promptly to Seller.
(f) Following the end of the Facility Availability Period (so long as no Event of Default shall have occurred and be continuing), all Income received by the Depository (and, with respect to Foreign Purchased Loans (AU), Seller) in respect of any Purchased Loan and the associated Hedging Transactions shall be applied, pursuant to the withdrawal instructions of Seller that have been approved by Buyer (which withdrawal instructions shall set forth the applicable Spot Rate(s) referenced in clause (vii) below), by the Depository (and, with respect to Foreign Purchased Loans (AU), Seller) on each Remittance Date as follows (subject to the following sentence):
(i) |
first , to the Depository and Custodian an amount equal to the depository and custodial fees due and payable; |
(ii) |
second , to Buyer an amount equal to its out-of-pocket costs and expenses and any other amounts due and payable under this Agreement; |
(iii) |
third , to Buyer an amount equal to the Price Differential which has accrued and is outstanding in respect of all of the Purchased Loans denominated in the same Applicable Currency as the Purchased Loan from which the Income was received as of such Business Day, such payment to be allocated amongst all such Purchased Loans on a pro rata basis based upon the outstanding Purchase Price of each such Purchased Loan; |
(iv) |
fourth , to pay the amount, if any, payable by Seller in the event any Hedging Transaction is being terminated as of such date; |
(v) |
fifth , to make a payment to Buyer in reduction of the outstanding Purchase Price of the Purchased Loan from which the Income was received; |
(vi) |
sixth , to make a payment to Buyer in reduction of the outstanding Purchase Price of all of the Purchased Loans denominated in the same Applicable Currency as the Purchased Loan from which the Income was received, such payment to be allocated amongst all such Purchased Loans on a pro rata basis based upon the outstanding Purchase Price of each such Purchased Loan; |
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(vii) |
seventh , to make a payment to Buyer in reduction of the outstanding Purchase Price of all of the Purchased Loans denominated in an Applicable Currency different than the Applicable Currency of the Purchased Loan from which the Income was received, such payment to be allocated amongst all such Purchased Loans on a pro rata basis based upon the outstanding Purchase Price of each such Purchased Loan (which pro rata allocation shall be calculated based on the then-current equivalent of such Purchase Price in the Applicable Currency of the Purchased Loan from which the Income was received based on the applicable Spot Rate as of the date of determination); and |
(viii) |
eighth , the surplus, if any, to Seller. |
Notwithstanding anything in Section 5(f) of this Agreement to the contrary, prior to the application of funds pursuant to such Section, Seller shall be entitled upon written request to Buyer to receive the amount of funds, if any, as may be required by applicable law to be distributed for Guarantor to maintain its status as a real estate investment trust for tax purposes and to avoid other adverse tax consequences to Guarantor and/or its shareholders related to the status of Guarantor as a real estate investment trust for tax purposes; provided , that such distribution shall be subject to the condition precedent (which Seller shall be required to demonstrate to the satisfaction of Buyer in its sole discretion) that Guarantor has exhausted all other sources of cash flow and income, whether in the form of equity or debt, prior to such request being made to Buyer.
(g) If an Event of Default shall have occurred and be continuing, all Income received by the Depository in respect of the Purchased Loans and the associated Hedging Transactions shall be applied, upon the direction and instruction of Buyer, by the Depository on the Business Day next following the Business Day on which such funds are deposited in the applicable Cash Management Account as follows:
(i) |
first , to the Depository and Custodian an amount equal to the depository and custodial fees due and payable; |
(ii) |
second , to Buyer an amount equal to its out-of-pocket costs and expenses and any other amounts due and payable under this Agreement; |
(iii) |
third , to Buyer an amount equal to the Price Differential which has accrued and is outstanding in respect of all of the Purchased Loans as of such Business Day; |
(iv) |
fourth , to make a payment to Buyer in reduction of the outstanding Purchase Price of the Purchased Loans, such payment to be allocated amongst the Purchased Loans as determined by Buyer in its sole discretion, until the outstanding Purchase Price for all of the Purchased Loans has been reduced to zero; |
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(v) |
fifth , to pay, the amount, if any, payable by Seller in the event any Hedging Transaction related to such Purchased Loan is being terminated as of such date; and |
(vi) |
sixth , the surplus, if any, to whoever may be lawfully entitled to receive such surplus. |
(h) Notwithstanding any other provision of this Section 5, Income derived from Foreign Purchased Loans (AU) which require quarterly (as opposed to monthly) interest payments by the relevant Mortgagor, which Income is credited to Parlex 2 AUs Cash Management Account shall only be distributed pursuant to this Section 5 on Remittance Dates specified in clause (b)(ii) of the definition thereof, and shall remain in such Cash Management Account and shall not be applied to any payments pursuant to this Section 5 on any Remittance Date specified in clause (b)(i) of the definition thereof.
6. |
SECURITY INTEREST |
Buyer and Seller intend that all Transactions hereunder be sales to Buyer of the Purchased Loans and not loans from Buyer to Seller secured by the Purchased Loans (other than for tax purposes). However, in the event any such Transaction is deemed to be a loan, Seller hereby pledges all of its right, title, and interest in, to and under and grants a first priority lien on, and security interest in, all of Sellers interest in the following property, whether now owned or hereafter acquired, now existing or hereafter created and wherever located (collectively, the Collateral ) to Buyer to secure the payment and performance of all other amounts or obligations owing to Buyer pursuant to this Agreement and the related documents described herein:
(a) the Purchased Loans, the Servicing Rights, Servicing Agreements, Servicing Records, insurance relating to the Purchased Loans, and collection and escrow accounts relating to the Purchased Loans;
(b) the Hedging Transactions, if any, entered into pursuant to this Agreement;
(c) each Cash Management Account and all financial assets (including, without limitation, all security entitlements with respect to all financial assets) from time to time on deposit in each Cash Management Account;
(d) the Foreign Assignment Agreement, if any;
(e) all general intangibles, accounts and chattel paper as defined in the UCC relating to or constituting any and all of the foregoing; and
(f) all replacements, substitutions or distributions on or proceeds, payments, Income and profits of, and records (but excluding any financial models or other proprietary information) and files relating to any and all of any of the foregoing.
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Buyers security interest in the Collateral shall terminate only upon termination of Sellers obligations under this Agreement and the documents delivered in connection herewith and therewith. Upon such termination, Buyer shall promptly deliver to Seller such UCC termination statements, the equivalent under applicable Requirements of Law in the relevant non-U.S. jurisdiction (with respect to Foreign Purchased Loans) and other release documents as may be commercially reasonable and to return the Purchased Loans to Seller and, in the case of each Foreign Purchased Loan (AU), the Buyer shall promptly register a financing change statement on the PPS Register amending or removing any registration on the PPS Register relating to such Collateral. For purposes of the grant of the security interest pursuant to this Section 6, this Agreement shall be deemed to constitute a security agreement under the New York Uniform Commercial Code (the UCC ) and, in relation to each Foreign Purchased Loan (AU), under the PPSA. Buyer shall have all of the rights and may exercise all of the remedies of a secured creditor under applicable Requirements of Law in the relevant jurisdiction (including, with respect to U.S. Purchased Loans, the UCC and the other laws of the State of New York). In furtherance of the foregoing, (a) Buyer, at Sellers sole cost and expense, shall cause to be filed in such locations as may be reasonably necessary to perfect and maintain perfection and priority of the security interest granted hereby and by any Foreign Assignment Agreement, UCC financing statements and continuation statements or their equivalent under applicable Requirements of Law in the relevant non-U.S. jurisdiction, including any registrations on the PPS Register (with respect to Foreign Purchased Loans) (collectively, the Filings ), and shall forward copies of such Filings to Seller upon completion thereof, and (b) Seller shall from time to time take such further actions as may be reasonably requested by Buyer to maintain and continue the perfection and priority of the security interest granted hereby and by any Foreign Assignment Agreement (including (x) in the case of any Foreign Purchased Loan (AU), upon the request of Buyer, executing a legal or statutory mortgage in favour of Buyer over any real property or any other form of security which Buyer reasonably considers appropriate for the property to be subject to that security, each in form and substance reasonably required by Buyer, and (y) marking its records and files to evidence the interests granted to Buyer hereunder).
With respect to each Foreign Purchased Loan (AU), to the extent the law permits, (a) for the purposes of section 115(1) and 115(7) of the PPSA, Buyer need not comply with sections 95, 118, 121(4), 125, 130, 132(3)(d) or 132(4); and sections 142 and 143 are excluded; (b) for the purposes of section 115(7) of the PPSA, Buyer need not comply with sections 132 and 137(3); and (c) Parlex 2 AU agrees not to exercise its rights to make any request of Buyer under section 275 of the PPSA, to authorise the disclosure of any information under that section or to waive any duty of confidence that would otherwise permit non-disclosure under that section.
7. |
PAYMENT, TRANSFER AND CUSTODY |
(a) On the Purchase Date for each Transaction, ownership of the Purchased Loans shall be transferred to Buyer or its designee (including the Custodian) against the simultaneous transfer of the Purchase Price to an account of Seller specified in writing by Seller relating to such Transaction (and subject to the last sentence of Section 17).
(b) On or before each Purchase Date, Seller shall deliver or cause to be delivered to Buyer or its designee the Custodial Delivery in the form attached hereto as Exhibit III; provided, that notwithstanding the foregoing, upon request of Seller, Buyer in its sole discretion may elect to permit Seller to make such delivery by not later than the third (3 rd ) Business Day (or, in the
51
case of each Foreign Purchased Loan (AU), the tenth (10 th ) Business Day) after the related Purchase Date, so long as Seller causes an Acceptable Attorney to deliver to Buyer and the Custodian an Attorneys Bailee Letter on or prior to such Purchase Date. In connection with each sale, transfer, conveyance and assignment of a Purchased Loan, on or prior to the Purchase Date with respect to such Purchased Loan, Seller shall deliver or cause to be delivered and released the following documents (collectively, the Purchased Loan File ) pertaining to such Purchased Loan to the Custodian on or prior to the Purchase Date (unless otherwise waived by Buyer) with respect to such Purchased Loan (or, pursuant to the proviso in the immediately preceding sentence, by not later than the third (3 rd ) Business Day (or, in the case of each Foreign Purchased Loan (AU), the tenth (10 th ) Business Day) after the related Purchase Date):
With respect to each Purchased Loan that is a Whole Loan or Senior Interest, to the extent applicable:
(i) |
The original Mortgage Note (or senior Mortgage Note in an A/B structure), bearing all intervening endorsements and/or assignments (including, with respect to Foreign Purchased Loans, copies of all Transfer Certificates duly executed by the relevant parties). |
(ii) |
An original or copy of any loan agreement and any guarantee executed in connection with the Mortgage Note. |
(iii) |
An original or copy of the Mortgage with evidence of recordation, or submission for recordation, from the appropriate governmental recording office of the jurisdiction where the Mortgaged Property is located (or, in the case of a Foreign Purchased Loan, with evidence of all filings, recordings, notifications and/or regulations required under applicable Requirements of Law in the relevant non-U.S. jurisdiction to perfect a valid first priority security in the Mortgaged Property). |
(iv) |
Originals or copies of all assumption, modification, consolidation or extension agreements with evidence of recordation, or submission for recordation, from the appropriate governmental recording office of the jurisdiction where the Mortgaged Property is located (or, in the case of a Foreign Purchased Loan, with evidence of all filings, recordings, notifications and/or registrations required under applicable Requirements of Law in the relevant non-U.S. jurisdiction). |
(v) |
An original of the Assignment Documents in Blank. |
(vi) |
An original of the Foreign Assignment Agreement. |
(vii) |
Originals or copies of all intervening assignments of mortgage with evidence of recordation, or submission for recordation, from the appropriate governmental recording office of the jurisdiction where the Mortgaged Property is located (or, in the case of a Foreign Purchased Loan, with evidence of all filings, recordings, notifications and/or regulations required under applicable Requirements of Law in the relevant non-U.S. jurisdiction to perfect a valid first priority security in the Mortgaged Property). |
52
(viii) |
Other than in the case of Foreign Purchased Loans (AU), an original or copy of the attorneys opinion of title and abstract of title or a copy of the mortgagee title insurance policy, as applicable, or if the mortgagee title insurance policy has not been issued, a copy of the irrevocable marked commitment to issue the same (or irrevocable signed proforma policy). |
(ix) |
An original or copy of any security agreement, chattel mortgage or equivalent document executed in connection with the Purchased Loan and, together, in the case of a Foreign Purchased Loan, with evidence of all filings, recordings, notifications and/or registrations required under applicable Requirements of Law in the relevant non-U.S. jurisdiction necessary to perfect a valid first priority security interest in the relevant Mortgaged Property. |
(x) |
Other than in the case of Foreign Purchased Loans (AU), an original or copy of the assignment of leases and rents, if any, with evidence of recordation, or submission for recordation, from the appropriate governmental recording office of the jurisdiction where the Mortgaged Property is located (or, in the case of a Foreign Purchased Loan, with evidence of all filings, recordings, notifications and/or registrations required under applicable Requirements of Law in the relevant non-U.S. jurisdiction necessary to perfect a valid first priority security interest in the relevant Mortgaged Property). |
(xi) |
Originals or copies of all intervening assignments of assignment of leases and rents, if any, or copies thereof, with evidence of recordation, or submission for recordation, from the appropriate governmental recording office of the jurisdiction where the Mortgaged Property is located (or, in the case of a Foreign Purchased Loan, with evidence of all filings, recordings, notifications and/or registrations required under applicable Requirements of Law in the relevant non-U.S. jurisdiction). |
(xii) |
A copy of the UCC financing statements and all necessary UCC continuation statements (or, with respect to Foreign Purchased Loans, their equivalent under applicable Requirements of Law in the relevant non-U.S. jurisdiction) with evidence of filing or submission for filing thereon, and UCC assignments (or, with respect to Foreign Purchased Loans, their equivalent under applicable Requirements of Law in the relevant non-U.S. jurisdiction) prepared by Seller in blank, which UCC assignments or such equivalent shall be in form and substance acceptable for filing. |
(xiii) |
An environmental indemnity agreement (if any). |
53
(xiv) |
Mortgagors certificate or title affidavit (if any). |
(xv) |
Other than in the case of Foreign Purchased Loans (AU), a Survey of the Mortgaged Property (if any) as accepted by the title company for issuance of the Title Policy (or, with respect to Foreign Purchased Loans, by Buyer). |
(xvi) |
With respect to Foreign Purchased Loans, a Property Report and, an overview thereon prepared by Sellers (or, to the extent customary in the relevant non-U.S. jurisdiction, the relevant Mortgagors) counsel addressed to or capable of being relied on by Buyer or its designee upon registration of Buyer or its designee, as lender of record (if available). |
(xvii) |
A copy of the opinion of Mortgagors (or, with respect to any Foreign Purchased Loan, to the extent customary in the relevant non-U.S. jurisdiction, Mortgagees) counsel. |
(xviii) |
An assignment of permits, contracts and agreements (if any). |
With respect to each Purchased Loan which is a participation interest in a Whole Loan or Senior Interest:
(i) |
the original or a copy of all of the documents described above with respect to a Purchased Loan which is a whole mortgage loan; |
(ii) |
if applicable, an original participation certificate bearing all intervening endorsements; |
(iii) |
an original or copy of any participation agreement and an original or copy of any intercreditor agreement, colender agreement and/or servicing agreement executed in connection with the Purchased Loan; and |
(iv) |
An original of the Assignment Documents in Blank. |
From time to time, Seller shall forward to the Custodian additional original documents or additional documents evidencing any assumption, modification, consolidation or extension of a Purchased Loan approved in accordance with the terms of this Agreement, and upon receipt of any such other documents, the Custodian shall hold such other documents as Buyer shall request from time to time. With respect to any documents which have been delivered or are being delivered to recording offices for recording and have not been returned to Seller in time to permit their delivery hereunder at the time required, in lieu of delivering such original documents, Seller shall deliver to Buyer a true copy thereof with an officers certificate certifying that such copy is a true, correct and complete copy of the original, which has been transmitted for recordation. Seller shall deliver such original documents to the Custodian promptly when they are received. With respect to all of the Purchased Loans delivered by Seller to Buyer or its designee (including the Custodian), Seller shall execute an omnibus power of attorney substantially in the form of Exhibit V-A or Exhibit V-B attached hereto, as applicable, irrevocably appointing Buyer or its
54
designee its attorney-in-fact with full power during the occurrence and continuance of an Event of Default and, subject to the following sentence, during the occurrence and continuance of a monetary Default or material non-monetary Default, to take the actions described therein, on the terms and conditions set forth therein. If a monetary Default or a material non-monetary Default has occurred and is continuing and Buyer has requested in writing that Seller take or cause to be taken any action that Buyer deems reasonably necessary to preserve Buyers or its designees ability to enforce upon the Purchased Loans as and when permitted pursuant to Section 14(b) hereof (which writing shall include a statement that Buyer will exercise its power of attorney if Seller fails to take or cause to be taken such action requested by Buyer), and Seller has not complied with any such request promptly following receipt thereof, then Buyer (or its designee) may exercise its power of attorney during the existence and continuation of any such monetary Default or material non-monetary Default, as the case may be, as Buyer deems reasonably necessary to preserve Buyers or its designees ability to enforce upon the Purchased Loans as and when permitted pursuant to Section 14(b) hereof. Buyer shall deposit the Purchased Loan Files representing the Purchased Loans, or direct that the Purchased Loan Files be deposited directly, with the Custodian. The Purchased Loan Files shall be maintained in accordance with the applicable Custodial Agreement. Any Purchased Loan Files not delivered to Buyer or its designee (including the Custodian) are and shall be held in trust by Seller or its designee for the benefit of Buyer as the owner thereof. Seller or its designee shall maintain a copy of the Purchased Loan File and the originals of the Purchased Loan File not delivered to Buyer or its designee (to the extent such originals are in the possession or control of the Seller). The possession of the Purchased Loan File by Seller or its designee, is at the will of Buyer for the sole purpose of servicing the related Purchased Loan, and such retention and possession by Seller or its designee is in a custodial capacity only. The books and records (including, without limitation, any computer records or tapes) of Seller or its designee shall be marked appropriately to reflect clearly the sale of the related Purchased Loan to Buyer. Seller or its designee (including the Custodian) shall release its custody of the Purchased Loan File only in accordance with written instructions from Buyer, unless such release is required as incidental to the servicing of the Purchased Loans, is in connection with a repurchase of any Purchased Loan by Seller or as otherwise required by law.
(c) Unless an Event of Default shall have occurred and be continuing, Buyer and/or its designee shall exercise all voting and corporate rights with respect to the Purchased Loans in accordance with Sellers written instructions; provided , however , that Buyer and/or its designee, shall not be required to follow Sellers instructions concerning any vote or corporate right if doing so would, in Buyers Applicable Standard of Discretion and in a manner consistent with Buyers other master repurchase facilities for comparable assets, be inconsistent with or result in any violation of any provision of the Transaction Documents or any Requirement of Law. The rights of Buyer as described in Section 3.07 of the Servicing Agreement in relation to the consideration of and provision to the Servicer of any consents, authorizations, directions and/or instructions shall constitute the exercise of voting and corporate rights with respect to the Purchased Loans for the purpose of this Section 7(c) . Upon the occurrence and during the continuation of an Event of Default, Buyer and/or its designee, shall be entitled to exercise all voting and corporate rights with respect to the Purchased Loans without regard to Sellers instructions.
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8. |
SALE, TRANSFER, HYPOTHECATION OR PLEDGE OF PURCHASED LOANS |
(a) Title to all Purchased Loans shall pass to Buyer (or its designee) on the applicable Purchase Date, and Buyer (or its designee) shall have free and unrestricted use of all Purchased Loans, subject however, to the terms of this Agreement. Nothing in this Agreement or any other Transaction Document shall preclude Buyer (or its designee) from engaging in repurchase transactions with the Purchased Loans or otherwise selling, transferring, pledging, repledging, hypothecating, or rehypothecating the Purchased Loans, but no such transaction shall relieve Buyer of its obligations to transfer the Purchased Loans to Seller pursuant to Section 3 of this Agreement, of Buyers obligation to credit or pay Income to, or apply Income to the obligations of, Seller pursuant to Section 5 hereof or of Buyers obligations pursuant to Section 19(b).
(b) Nothing contained in this Agreement or any other Transaction Document shall obligate Buyer to segregate any Purchased Loans delivered to Buyer (or its designee) by Seller. Notwithstanding anything to the contrary in this Agreement or any other Transaction Document, no Purchased Loan shall remain in the custody of Seller or an Affiliate of Seller.
9. |
INTENTIONALLY OMITTED |
10. |
REPRESENTATIONS |
(a) Each of Buyer and Seller represents and warrants to the other that (i) it is duly authorized to execute and deliver this Agreement, to enter into Transactions contemplated hereunder and to perform its obligations hereunder and has taken all necessary action to authorize such execution, delivery and performance, (ii) it will engage in such Transactions as principal (or, if agreed in writing, in the form of an annex hereto or otherwise, in advance of any Transaction by the other party hereto, as agent for a disclosed principal), (iii) the person signing this Agreement on its behalf is duly authorized to do so on its behalf (or on behalf of any such disclosed principal), (iv) it has obtained all authorizations of any governmental body required in connection with this Agreement and the Transactions hereunder and such authorizations are in full force and effect and (v) the execution, delivery and performance of this Agreement and the Transactions hereunder will not violate any law, ordinance or rule applicable to it or its organizational documents or any agreement by which it is bound or by which any of its assets are affected.
(b) In addition to the representations and warranties in subsection (a) above, Seller represents and warrants to Buyer that as of the date of this Agreement, as of the Purchase Date for the purchase of any Purchased Loans by Buyer from Seller and any Transaction thereunder, as of any Business Day on which Margin Excess is made available by Buyer to Seller, and at all times while this Agreement and any Transaction thereunder is in full force and effect:
(i) |
Organization . Seller is duly formed, validly existing and in good standing under the laws and regulations of the state of Sellers formation and is duly licensed, qualified, and in good standing in every jurisdiction where such licensing or qualification is necessary for the transaction of Sellers business. Seller has the power to own and hold the assets it purports to own and hold, and to carry on its business as now being conducted and proposed to be conducted, and has the power to execute, deliver, and perform its obligations under this Agreement and the other Transaction Documents. |
56
(ii) |
Due Execution; Enforceability . The Transaction Documents have been or will be duly executed and delivered by Seller. The Transaction Documents constitute the legal, valid and binding obligations of Seller, enforceable against Seller in accordance with their respective terms subject to bankruptcy, insolvency, court schemes, moratoria, administration, examinership, reorganisation and other limitations on creditors rights generally and to equitable principles. |
(iii) |
Non-Contravention . Neither the execution and delivery of the Transaction Documents, nor consummation by Seller of the transactions contemplated by the Transaction Documents (or any of them), nor compliance by Seller with the terms, conditions and provisions of the Transaction Documents (or any of them) will conflict with or result in a breach of any of the terms or provisions of (i) the organizational documents of Seller, (ii) any contractual obligation to which Seller is now a party or the rights under which have been assigned to Seller or the obligations under which have been assumed by Seller or to which the assets of Seller are subject or constitute a default thereunder, or result thereunder in the creation or imposition of any lien upon any of the assets of Seller, other than pursuant to the Transaction Documents, (iii) any judgment or order, writ, injunction, decree or demand of any court applicable to Seller, or (iv) any applicable Requirement of Law, in the case of clauses (ii)-(iv) above, to the extent that such conflict or breach would have a Material Adverse Effect. Seller has all necessary licenses, permits and other consents from Governmental Authorities necessary to acquire, own and sell the Purchased Loans and for the performance of its obligations under the Transaction Documents, except to the extent failure to have such licenses, permits and consents is not reasonably likely to have a Material Adverse Effect. |
(iv) |
Litigation; Requirements of Law . Except as disclosed in writing to Buyer, there is no action, suit, proceeding, investigation, or arbitration pending or, to Sellers Actual Knowledge, threatened in writing against Seller or any of its assets, which is reasonably likely to have a Material Adverse Effect. Seller is in compliance in all material respects with all Requirements of Law. Seller is not in default in any material respect with respect to any judgment, order, writ, injunction, decree, rule or regulation of any arbitrator or Governmental Authority. |
(v) |
No Broker . Seller has not dealt with any broker, investment banker, agent, or other Person (other than Buyer or an Affiliate of Buyer) who may be entitled to any commission or compensation in connection with the sale of Purchased Loans pursuant to any of the Transaction Documents. |
57
(vi) |
Good Title to Purchased Loans . Immediately prior to the purchase of any Purchased Loans by Buyer from Seller, such Purchased Loans are free and clear of any lien, encumbrance or impediment to transfer (including any adverse claim as defined in Section 8-102(a)(1) of the UCC), and Seller is the record and beneficial owner of and has good and marketable title to and the right to sell and transfer such Purchased Loans to Buyer and, upon transfer of such Purchased Loans to Buyer, Buyer shall be the owner of such Purchased Loans free of any adverse claim, subject to the rights of Seller and other obligations of Buyer pursuant to the terms of this Agreement. In the event the related Transaction is recharacterized as a secured financing of the Purchased Loans, the provisions of this Agreement (together, with respect to any Foreign Purchased Loan, with the relevant Foreign Assignment Agreement) are effective to create in favor of Buyer a valid security interest in all rights, title and interest of Seller in, to and under the Collateral and Buyer shall have a valid, perfected first priority security interest in the Purchased Loans. |
(vii) |
No Default . As of the date of this Agreement and each Purchase Date, no Default or Event of Default has occurred and is continuing under or with respect to the Transaction Documents. At all times while this Agreement and any Transaction thereunder is in effect, no monetary Default, material non-monetary Default or Event of Default to Sellers Actual Knowledge has occurred and is continuing under or with respect to the Transaction Documents. |
(viii) |
Representations and Warranties Regarding Purchased Loans; Delivery of Purchased Loan File . Seller represents and warrants to Buyer that each Purchased Loan sold in a Transaction hereunder, as of the related Purchase Date for such Transaction and as of any Business Day on which Margin Excess is made available by Buyer to Seller which increases the outstanding Purchase Price of such Purchased Loan, conforms to the applicable representations and warranties set forth in Exhibit VI-I, Exhibit VI-II and Exhibit VI-III attached hereto in all material respects, except as disclosed to Buyer in writing. With respect to each Purchased Loan, the Mortgage Note, the Mortgage, the Assignment of Mortgage, the Transfer Certificate and any other documents required to be delivered under this Agreement and the applicable Custodial Agreement for such Purchased Loan have been delivered to Buyer or the Custodian on its behalf (or shall be delivered in accordance with the time periods set forth herein). |
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(ix) |
Adequate Capitalization; No Fraudulent Transfer . Seller is generally able to pay, and as of the date hereof is paying, its debts as they come due. Seller has not become, and is not presently, financially insolvent nor will Seller be made insolvent by virtue of Sellers execution of or performance under any of the Transaction Documents within the meaning of the bankruptcy laws or the insolvency laws of any jurisdiction. Seller has not entered into any Transaction Document or any Transaction pursuant thereto in contemplation of insolvency or with intent to hinder, delay or defraud any creditor. Seller has not received any written notice that any payment or other transfer made to or on account of Seller from or on account of any Mortgagor or any other person obligated under any Purchased Loan Documents is or may be void or voidable as an actual or constructive fraudulent transfer or as a preferential transfer. |
(x) |
Consents . No consent, approval or other action of, or filing by Seller with, any Governmental Authority or any other Person is required to authorize, or is otherwise required in connection with, the execution, delivery and performance of any of the Transaction Documents (other than consents, approvals and filings that have been obtained or made, as applicable, or that, if not obtained or made, are not reasonably likely to have a Material Adverse Effect). |
(xi) |
Members . Seller is a wholly owned subsidiary of Guarantor. |
(xii) |
Organizational Documents . Seller has delivered to Buyer certified copies of its organizational documents, together with all amendments thereto, if any. |
(xiii) |
No Encumbrances . Except to the extent expressly set forth in this Agreement, there are (i) no outstanding rights, options, warrants or agreements on the part of Seller for a purchase, sale or issuance, in connection with the Purchased Loans, (ii) no agreements on the part of Seller to issue, sell or distribute the Purchased Loans, and (iii) no obligations on the part of Seller (contingent or otherwise) to purchase, redeem or otherwise acquire any securities or any interest therein or to pay any dividend or make any distribution in respect of the Purchased Loans. |
(xiv) |
Federal Regulations . Seller is not (A) required to register as an investment company, or a company controlled by an investment company, within the meaning of the Investment Company Act of 1940, as amended, or (B) a holding company, or a subsidiary company of a holding company, or an affiliate of either a holding company or a subsidiary company of a holding company, as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. |
(xv) |
Taxes . Seller and Guarantor have filed or caused to be filed all federal and other material tax returns which are required to be filed with respect to Seller and have paid all federal and other material taxes imposed on or with respect to Seller except for any such taxes as are being appropriately contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves have been provided in accordance with GAAP; no tax liens have been filed against Seller or its assets (except for Permitted Liens). |
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(xvi) |
ERISA . Neither Seller nor any ERISA Affiliate maintains any Plans and neither Seller nor any ERISA Affiliate and makes any contributions to any Plans or any Multiemployer Plans. |
(xvii) |
Judgments/Bankruptcy . Except as disclosed in writing to Buyer, there are no judgments against Seller unsatisfied of record or docketed in any court located in the United States of America. No Act of Insolvency has ever occurred with respect to Seller. |
(xviii) |
Full and Accurate Disclosure . No information contained in the Transaction Documents or in any written statement prepared and delivered by Seller or Guarantor pursuant to the terms of the Transaction Documents contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made when such statements and omissions are considered in the totality of the circumstances in question. |
(xix) |
Financial Information . All financial data concerning Seller and Guarantor that has been delivered by Seller to Buyer is true, complete and correct in all material respects and has been prepared in accordance with GAAP. To Sellers Actual Knowledge, all financial data concerning the Purchased Loans that has been delivered by or on behalf of Seller to Buyer is true, complete and correct in all material respects. Since the delivery of such data, except as otherwise disclosed in writing to Buyer, there has been no change in the financial position of Seller and Guarantor or in the operations of Seller and Guarantor or, to Sellers Actual Knowledge, the financial position of the Purchased Loans, which change is reasonably likely to have in a Material Adverse Effect. |
(xx) |
Notice Address; Jurisdiction of Organization . On the date of this Agreement, Sellers address for notices is as set forth in Annex I. Sellers jurisdiction of organization is Delaware. The location where Seller keeps its books and records, including all computer tapes and records relating to the Collateral, is its notice address. |
(xxi) |
Prohibited Person . None of Seller, Guarantor or any of their respective Affiliates is a Prohibited Person and each of Seller and Guarantor is in full compliance with all applicable orders, rules, regulations and recommendations of OFAC and each Foreign Sanctions Authority. None of Seller or Guarantor or any of their respective members, directors, executive officers, parents or Subsidiaries, as applicable: (A) are subject to U.S. or multilateral economic or trade sanctions currently in force; (B) are |
60
owned or controlled by, or act on behalf of, any governments, corporations, entities or individuals that are subject to U.S. or multilateral economic or trade sanctions currently in force; or (C) is a Prohibited Person or is otherwise named, identified or described on any blocked persons list, designated nationals list, denied persons list, entity list, debarred party list, unverified list, sanctions list or other list of individuals or entities with whom U.S. persons may not conduct business, including but not limited to lists published or maintained by OFAC, the U.S. Department of Commerce, the U.S. Department of State and any Foreign Sanctions Authority. Each of Seller and Guarantor has established an anti-money laundering compliance program as required by all applicable anti-money laundering laws and regulations, including without limitation the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56). |
(xxii) |
Centre of Main Interests . Seller has not (A) taken any action that would cause its centre of main interests (as such term is used in Section 3(1) of the Regulation (EU) No. 2015/848 on Insolvency Proceedings (the Recast Insolvency Regulation )) to be located in the United Kingdom or Europe or (B) registered as a company in any jurisdiction other than Delaware. |
11. |
NEGATIVE COVENANTS OF SELLER |
On and as of the date hereof and until this Agreement is no longer in force with respect to any Transaction, Seller shall not without the prior written consent of Buyer:
(a) subject to Sellers right to repurchase any Purchased Loan, take any action which would directly or indirectly impair or adversely affect Buyers title to the Purchased Loans;
(b) transfer, assign, convey, grant, bargain, sell, set over, deliver or otherwise dispose of, or pledge or hypothecate, directly or indirectly, any interest in the Purchased Loans (or any of them) to any Person other than Buyer, or engage in repurchase transactions or similar transactions with respect to the Purchased Loans (or any of them) with any Person other than Buyer, unless and until such Purchased Loans are repurchased by Seller in accordance with this Agreement;
(c) create, incur or permit to exist any Lien in or on the Purchased Loans, except as described in Section 6 of this Agreement;
(d) create, incur or permit to exist any lien, encumbrance or security interest in or on any of the other Collateral subject to the security interest granted by Seller pursuant to Section 6 of this Agreement;
61
(e) modify or terminate any of the organizational documents of Seller (except Buyer shall not unreasonably withhold or delay any request for a consent to such modification to the organizational documents (excluding the special purpose entity provisions));
(f) consent to any amendment or supplement to, or termination of any note, loan agreement, mortgage or guaranty relating to the Purchased Loans or other material agreement or instrument relating to the Purchased Loans (other than Permitted Purchased Loan Modifications), unless and until such Purchased Loans are repurchased by Seller in accordance with this Agreement; provided , that notwithstanding the foregoing, to the extent Buyers prior approval is required for any such amendment or termination set forth in this Section 11(f) and Seller delivers a written request for approval to Buyer which is not responded to within five (5) Business Days, then Buyer shall be deemed to have granted its approval to such amendment or termination if Seller proceeds to deliver to Buyer a second written request for approval which is not responded to within five (5) Business Days, so long as such second request is marked in bold lettering with the following language: BUYERS RESPONSE IS REQUIRED WITHIN FIVE (5) BUSINESS DAYS OF RECEIPT OF THIS NOTICE PURSUANT TO THE TERMS OF A REPURCHASE AGREEMENT BETWEEN THE UNDERSIGNED AND BUYER and the envelope containing the request must be marked PRIORITY;
(g) admit any additional members in Seller, or permit the sole member of Seller to assign or transfer all or any portion of its membership interest in Seller;
(h) enter into any Hedging Transactions other than to the extent required under Section 12(e) (it being understood and agreed Seller shall not have any obligation to enter into Hedging Transactions with respect to individual Purchased Loans or pursue hedging strategies at the level of Seller with respect to the Purchased Loans);
(i) after the occurrence and during the continuation of an Event of Default, make any distribution, payment on account of, or set apart assets for, a sinking or other analogous fund for the purchase, redemption, defeasance, retirement or other acquisition of any Capital Stock of Seller, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of Seller; or
(h) take any action that will cause its centre of main interests (as such term is used in the Recast Insolvency Regulation) to be located in the United Kingdom or Europe or register as a company in any jurisdiction other than Delaware.
12. |
AFFIRMATIVE COVENANTS OF SELLER |
(a) Seller shall use commercially reasonable efforts to promptly notify Buyer of any change in its business operations and/or financial condition that would be reasonably likely to have a Material Adverse Effect; provided , however , the failure to deliver such notice in accordance with this Section 12(a) shall not give rise to an Event of Default; provided , further , that nothing in this Section 12 shall relieve Seller of its obligations under this Agreement.
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(b) Seller shall provide Buyer with copies of such documents as Buyer may reasonably request and which are in Sellers possession or control evidencing the truthfulness of the representations set forth in Section 10.
(c) Seller (1) shall defend the right, title and interest of Buyer in and to the Collateral against, and take such other action as is necessary to remove, the Liens of all Persons (other than security interests by or through Buyer and Permitted Liens) and (2) shall, at Buyers reasonable request, take all action necessary to ensure that Buyer will have a first priority security interest in the Purchased Loans subject to any of the Transactions in the event such Transactions are recharacterized as secured financings (including, in the case of any Foreign Purchased Loan (AU), upon the request of Buyer, executing a legal or statutory mortgage in favour of Buyer over any real property or any other form of security which Buyer reasonably considers appropriate for the property to be subject to that security, each in form and substance reasonably required by Buyer).
(d) Seller shall notify Buyer and the Depository of the occurrence of any Default or Event of Default of which Seller has written notice or Actual Knowledge and which has not otherwise been disclosed pursuant to the reports delivered in accordance with Section 12(i).
(e) With respect to each fixed rate Purchased Loan, Seller shall enter into Hedging Transactions designed to mitigate interest rate risk (i.e. not credit risk) pursuant to a hedging strategy reasonably acceptable to Buyer and pledge such Hedging Transactions to Buyer as Collateral (including, without limitation, to the extent such Hedging Transactions are entered into with a party other than Buyer, delivering a collateral assignment of such Hedging Transactions in form and substance acceptable to Buyer). Seller acknowledges Buyer will mark to market such Hedging Transactions from time to time in accordance with and subject to the terms of this Agreement.
(f) Seller shall promptly (and in any event not later than three (3) Business Days following receipt) deliver to Buyer (i) any written notice of the occurrence of an event of default received by Seller pursuant to the Purchased Loan Documents and (ii) any other information with respect to the Purchased Loans within Sellers possession or control as may be reasonably requested by Buyer from time to time.
(g) Seller will permit Buyer or its designated representative to inspect at Buyers sole cost and expense (so long as an Event of Default has not occurred and is not continuing) Sellers records which are not privileged or confidential (but excluding for this purpose all information received from Mortgagors or other obligors on the Purchased Loans) and the conduct and operation of its business related thereto upon reasonable prior written notice from Buyer or its designated representative, at such reasonable times and with reasonable frequency (not to exceed twice per calendar year, so long as an Event of Default has not occurred and is not continuing), subject to the terms of any confidentiality agreement between Buyer and Seller and applicable law, and if no such confidentiality agreement then exists between Buyer and Seller, Buyer and Seller shall act in accordance with customary market standards regarding confidentiality and applicable law. Buyer shall act in a commercially reasonable manner in requesting and conducting any inspection relating to the conduct and operation of Sellers business.
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(h) At any time from time to time upon the reasonable request of Buyer, at the sole expense of Seller, Seller will promptly and duly execute and deliver such further instruments and documents and take such further actions as Buyer may reasonably request for the purposes of obtaining or preserving the full benefits of this Agreement including the first priority security interest granted hereunder and of the rights and powers herein granted (including, among other things, filing such UCC financing statements or their equivalent under applicable Requirements of Law in any relevant non-U.S. jurisdiction as Buyer may reasonably request). If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any promissory note, other instrument or chattel paper, such note, instrument or chattel paper shall be immediately delivered to Buyer, duly endorsed in a manner reasonably satisfactory to Buyer, to be held as Collateral pursuant to this Agreement, and the documents delivered in connection herewith.
(i) Seller shall provide Buyer with the following financial and reporting information:
(i) |
Within 45 days after the last day of each of the first three fiscal quarters in any fiscal year, Guarantors and (to the extent prepared separately from Guarantor) Sellers unaudited consolidated balance sheets as of the end of such quarter, in each case certified as being true and correct by an officers certificate; |
(ii) |
Within 90 days after the last day of its fiscal year, Guarantors audited and (to the extent prepared separately from Guarantor) Sellers unaudited (or, if generated by Seller, Sellers audited) consolidated statements of income and statements of changes in cash flow for such year and balance sheets as of the end of such year, in each case presented fairly in accordance with GAAP, and accompanied, in the case of Guarantor, by an unqualified report of a nationally recognized independent certified public accounting firm, Deloitte & Touche LLP or any other accounting firm consented to by Buyer in its reasonable discretion; |
(iii) |
Within 30 days after the last day of each calendar month, any and all property level financial information (including, without limitation, operating and financial statements) with respect to the Purchased Loans that was received during the preceding calendar month and is in the possession of Seller or an Affiliate, including, without limitation, rent rolls and income statements; |
(iv) |
Within 30 days after the last day of each calendar quarter in any fiscal year, an officers certificate from Seller addressed to Buyer certifying that, as of such calendar month, (x) Seller and Guarantor are in compliance in all material respects with all of the terms and requirements of this Agreement, (y) Guarantor is in compliance with the financial covenants set forth in the Guaranty (including therein detailed calculations demonstrating such compliance) and (z) no Event of Default has occurred and is continuing; and |
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(v) |
With respect to the Purchased Loans and related Mortgaged Properties: (x) within 30 days after the last day of each calendar month, Sellers monthly operations report covering occupancy, collections, delinquencies, losses, recoveries, cash flows and such other property level information as may reasonably be requested by Buyer and (y) within 30 days after the last day of each calendar quarter in any fiscal year, an asset management report prepared by Seller or Guarantor. |
(j) Seller shall at all times comply with all laws, ordinances, rules and regulations of any federal, state, municipal or other public authority having jurisdiction over Seller or any of its assets, except to the extent any failure thereof is not reasonably likely to result in a Material Adverse Effect. Seller shall do or cause to be done all things reasonably necessary to preserve and maintain in full force and effect its legal existence, and all licenses material to its business.
(k) Seller shall at all times keep proper books of records and accounts in which full, true and correct entries shall be made of its transactions in accordance with GAAP and set aside on its books from its earnings for each fiscal year all such proper reserves in accordance with GAAP.
(l) Seller shall observe, perform and satisfy all the terms, provisions and covenants required to be observed, performed or satisfied by it, and shall pay when due all costs, fees and expenses required to be paid by it, under the Transaction Documents. Seller shall pay and discharge all Taxes, levies, liens and other charges on its assets and on the Collateral that, in each case, in any manner would create any Lien upon the Collateral, except for Permitted Liens or similar charges.
(m) Seller will maintain records with respect to the Collateral and the conduct and operation of its business with no less a degree of prudence than if the Collateral were held by Seller for its own account.
(n) In the event that Guarantor terminates BXMT Advisors L.L.C. as Guarantors external manager pursuant to the Second Amended and Restated Management Agreement, dated as of October 23, 2014, between Guarantor and BXMT Advisors L.L.C., any replacement external manager or switch to internal management shall be subject to Buyers prior written approval, not to be unreasonably withheld, conditioned or delayed.
13. |
SINGLE-PURPOSE ENTITY |
Seller hereby represents and warrants to Buyer, and covenants with Buyer, that as of the date hereof and so long as any of the Transaction Documents shall remain in effect:
(a) It is and intends to remain Solvent and it has paid and will pay its debts and liabilities (including employment and overhead expenses) from and solely to the extent of its own assets as the same shall become due.
(b) It has complied and will comply with the provisions of its organizational documents (i.e. certificate of formation and operating agreement) in all material respects.
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(c) It has done or caused to be done and will, to the extent under its control, do all things necessary to observe corporate formalities and to preserve its existence.
(d) It has maintained and will maintain all of its books, records, financial statements and bank accounts separate from those of its Affiliates, its members and any other Person (except, in each case, to the extent consolidation is permitted under GAAP or as a matter of law), and, to the extent required by law, it will file its own tax returns, if any (except, for the avoidance of doubt, if Seller is included as part of a consolidated, unitary, combined or similar tax return, or if Seller is disregarded as a separate entity for applicable tax purposes).
(e) It has been, is and will be, and at all times will hold itself out to the public as, a legal entity separate and distinct from any other entity (including any Affiliate), shall correct any misunderstanding of which it has Actual Knowledge regarding its status as a separate entity, shall conduct business in its own name, shall not identify itself or any of its Affiliates as a division or part of the other, shall maintain and utilize separate stationery, invoices and checks, and allocate fairly and reasonably any overhead for shared office space and for services performed by an employee of an Affiliate.
(f) It has not owned and will not own any property or any other assets other than Purchased Loans, assets intended to be offered as Eligible Loans pursuant to this Agreement, cash and its interest under any associated Hedging Transactions; provided , however , that Seller shall not be in breach of this provision to the extent that Seller acquires or originates an Eligible Loan under its good faith belief that such Eligible Loan will become a Purchased Loan; provided, further, that in the event Buyer does not approve such Eligible Loan for inclusion in a Transaction after Buyers receipt of the applicable Transaction Request, Due Diligence Package and such additional diligence materials in accordance with Section 3(a), then Seller shall convey all of its right, title and interest in such Eligible Loan to a third party by not later than ten (10) Business Days after Buyer disapproves (or is deemed to have disapproved) such Eligible Loan in accordance with Section 3(a).
(g) It has not engaged and will not engage in any business other than the acquisition, origination, ownership, servicing, enforcement, financing and disposition of Purchased Loans in accordance with the applicable provisions of the Transaction Documents and its organizational documents.
(h) It has not entered into, and will not enter into, any contract or agreement with any of its Affiliates, except upon terms and conditions that are substantially similar to those that would be available on an arms-length basis with Persons other than such Affiliate.
(i) It has not incurred and will not incur any Indebtedness or other obligation, secured or unsecured, direct or indirect, absolute or contingent (including guaranteeing any obligation), other than (A) with respect to the Purchased Loan Documents, and (B) trade payables in the ordinary course of its business which are either (x) no more than ninety (90) days past due and do not exceed $500,000.00 in the aggregate or (y) more than ninety (90) days past due and do not exceed $250,000.00 in the aggregate, and are being contested in good faith and for which adequate reserves are maintained, and (C) as otherwise expressly permitted under this Agreement.
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(j) It has not made and will not make any loans or advances to any other Person, except as permitted under this Agreement and under assets intended to be offered as Eligible Loans pursuant to this Agreement (subject to the provisos to Section 12(f) herein), and shall not acquire obligations or securities of any member or any Affiliate of any member or any other Person.
(k) It will maintain adequate capital derived from income from its business operations for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations.
(l) It shall not seek its dissolution, liquidation or winding up, in whole or in part, or suffer any Change of Control or consolidation or merger with respect to Seller.
(m) It will not commingle its funds and other assets with those of any of its Affiliates or any other Person.
(n) It has maintained and will maintain its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any of its Affiliates or any other Person.
(o) Except as expressly permitted under this Agreement, it has not held and will not hold itself out to be responsible for the debts or obligations of any other Person.
(p) Seller shall not take any Act of Insolvency without the affirmative vote of the Independent Director.
(q) It shall at all times maintain at least one Independent Director. For so long as the Repurchase Obligations remain outstanding, Seller shall not take any of the actions contemplated by Section 13(p) above (including, to the extent, applicable without the affirmative vote of such Independent Director).
(r) It shall not pledge its assets to secure the obligations of any other Person.
14. |
EVENTS OF DEFAULT; REMEDIES |
(a) After the occurrence and during the continuance of an Event of Default, Seller hereby appoints Buyer as attorney-in-fact of Seller in accordance with Section 7(b) for the purpose of carrying out the provisions of this Agreement and taking any action and executing or endorsing any instruments that Buyer may deem necessary or advisable to accomplish the purposes hereof, which appointment as attorney-in-fact is irrevocable and coupled with an interest. With respect to each Transaction, each of the following clauses (i) through (xv) shall be an Event of Default under this Agreement:
(i) |
Seller fails to repurchase the Purchased Loans upon the applicable Repurchase Date; |
(ii) |
Seller fails to cure a Margin Deficit in accordance with Section 4 hereof; |
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(iii) |
an Act of Insolvency occurs with respect to Seller or Guarantor; |
(iv) |
Guarantor fails to qualify as a REIT (after giving effect to any cure or corrective periods or allowances pursuant to the Code); |
(v) |
either (A) the Transaction Documents shall for any reason not cause, or shall cease to cause, Buyer (or its designee) to be the owner free of any adverse claim of any of the Purchased Loans, or (B) if a Transaction is recharacterized as a secured financing, the Transaction Documents with respect to any Transaction shall for any reason cease to create a valid first priority security interest in favor of Buyer (or its designee) in any of the Purchased Loans; |
(vi) |
if an event occurs which would constitute (a) an event of default under any Hedging Transaction or (b) a termination event or an additional termination event under any Hedging Transaction (and, in either case, Seller has failed to cure the event of default within the applicable cure period or to meet its obligation to pay the Early Termination Amount, if any, pursuant to the terms of such Hedging Transaction); |
(vii) |
failure of Buyer to receive within one (1) Business Day after any Remittance Date the accreted value of the Price Differential (less any amount of such Price Differential previously paid by Seller to Buyer); |
(viii) |
failure of Seller to make any other payment owing to Buyer which has become due, whether by acceleration or otherwise under the terms of this Agreement (other than due to any act or failure to act of Depository to the extent available funds are on deposit in the applicable Cash Management Account), which failure is not remedied within three (3) Business Days after written notice thereof to Seller from Buyer; |
(ix) |
any Governmental Authority takes any action to (i) condemn, seize or appropriate, or assume custody or control of, all or any substantial part of the property of Seller, (ii) displace the management of Seller or curtail its authority in the conduct of the business of Seller, or (iii) terminate the activities of Seller as contemplated by the Transaction Documents; |
(x) |
a Change of Control shall have occurred; |
(xi) |
any representation (other than a MTM Representation) made by Seller or Guarantor in any Transaction Document shall have been incorrect or untrue in any material respect when made or repeated or deemed to have been made or repeated and such incorrect or untrue representation exists and continues unremedied for ten (10) Business Days after the earlier of receipt of written notice thereof from Buyer or Sellers acquiring Actual Knowledge of such incorrect or untrue representation (other than the representations and warranties set forth in Section 10(b)(viii) of this |
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Agreement made by Seller, which shall not be considered an Event of Default if incorrect or untrue in any material respect, provided Seller repurchases the related Purchased Loan on an Early Repurchase Date no later than three (3) Business Days after receiving notice of such incorrect or untrue representation and terminates the related Transaction; provided further Seller shall not have made any such representation with actual knowledge that it was materially incorrect or untrue at the time made);
(xii) |
(i) Guarantor breaches any of the payment obligations set forth in the Guaranty or (ii) Guarantor shall fail to observe any of the financial covenants set forth in the Guaranty or (iii) shall have defaulted or failed to perform any of the other obligations under the Guaranty in any material respect and such default or failure referred to in this clause (iii) remains uncured for a period of seven (7) Business Days after the earlier of receipt of notice thereof from Buyer or Sellers acquiring Actual Knowledge of such default or failure by Guarantor; |
(xiii) |
a final non-appealable judgment by any competent court in the United States of America for the payment of money in an amount greater than $100,000 (in the case of Seller) or $5,000,000 (in the case of the Guarantor) shall have been rendered against Seller or Guarantor, and remains undischarged or unpaid for a period of forty-five (45) days, during which period execution of such judgment is stayed by the posting of cash or a bond or other collateral acceptable to Buyer in the amount of the judgment; |
(xiv) |
Seller or Guarantor shall have (x) defaulted under any note, indenture, loan agreement, guaranty or other Indebtedness to which it is a party, which default (A) involves the failure to pay a matured obligation in excess of $100,000 (in the case of Seller) or the greater of (a) $5,000,000 or (b) the lesser of (i) 5% of Tangible Net Worth (as such term is defined in the Guaranty) and (ii) $25,000,000 (in the case of Guarantor), or (B) results in the acceleration of the maturity of such Indebtedness in excess of a principal amount of $100,000 (in the case of Seller) or the greater of (a) $5,000,000 or (b) the lesser of (i) 5% of Tangible Net Worth (as such term is defined in the Guaranty) and (ii) $25,000,000 (in the case of Guarantor) by any other party to or beneficiary of such note, indenture, loan agreement, guaranty or other Indebtedness or (y) failed to perform any other material non-payment obligation under such note, indenture, loan agreement, guaranty or other Indebtedness with an asserted actual out-of-pocket damages claim in excess of the limits referenced in clause (x) with respect to Seller or Guarantor, as applicable and acceleration occurs under such Indebtedness as a result thereof; provided , however , that any such default, failure to perform or breach shall not constitute an Event of Default if Seller or Guarantor cures such default or failure to perform, as the case may be, within the grace notice and/or cure period, if any, provided under the applicable agreement; or |
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(xv) |
if Seller or Guarantor shall breach or fail to perform any of the terms, agreements, conditions, covenants or obligations applicable to such Person under this Agreement, any other Transaction Document or any Purchased Loan Document to which such Person is a party, other than as specifically otherwise referred to in this definition of Event of Default (including, without limitation, the failure by Seller to deliver any report required pursuant to Section 12(i)), and such breach or failure to perform is not remedied within fifteen (15) Business Days after written notice thereof to Seller from the applicable party or its successors or assigns; (each of (i) through (xv), an Event of Default ). |
(b) If an Event of Default shall occur and be continuing, the following rights and remedies shall be available to Buyer:
(i) |
At the option of Buyer, exercised by written notice to Seller (which option shall be deemed to have been exercised, even if no notice is given, immediately upon the occurrence of an Act of Insolvency), the Repurchase Date for each Transaction hereunder shall, if it has not already occurred, be deemed immediately to occur (the date on which such option is exercised or deemed to have been exercised being referred to hereinafter as the Accelerated Repurchase Date ). |
(ii) |
If Buyer exercises or is deemed to have exercised the option referred to in Section 14(b)(i) of this Agreement: |
(A) |
Sellers obligations hereunder to repurchase all Purchased Loans shall become immediately due and payable on and as of the Accelerated Repurchase Date; and |
(B) |
to the extent permitted by applicable law, the Repurchase Price with respect to each Transaction (determined as of the Accelerated Repurchase Date) shall be increased by the aggregate amount obtained by daily application of, on a 360 day per year basis (or, in the case of a Transaction relating to a Foreign Purchased Loan (AU), a 365 day per year basis) for the actual number of days during the period from and including the Accelerated Repurchase Date to but excluding the date of payment of the Repurchase Price (as so increased), (x) the Pricing Rate for such Transaction multiplied by (y) the outstanding Purchase Price for such Transaction (decreased by (I) any amounts actually remitted to Buyer by the Depository or Seller from time to time pursuant to Sections 4 or 5 of this Agreement and applied to such Repurchase Price, and (II) any amounts applied to the Repurchase Price pursuant to Section 14(b)(iii) of this Agreement); and |
(C) |
the Custodian shall, upon the request of Buyer, deliver to Buyer all instruments, certificates and other documents then held by the Custodian relating to the Purchased Loans. |
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(iii) |
Upon the occurrence and during the continuance of an Event of Default with respect to Seller, Buyer may (A) immediately sell, at a public or private sale in a commercially reasonable manner in accordance with Requirements of Law, and with prior written notice to Seller, at such price or prices as Buyer may reasonably deem satisfactory any or all of the Purchased Loans or (B) in its sole discretion elect, in lieu of selling all or a portion of such Purchased Loans, to give Seller credit for such Purchased Loans in an amount equal to the market value of such Purchased Loans as determined by Buyer in its sole discretion against the aggregate unpaid Repurchase Price for such Purchased Loans and any other amounts owing by Seller under the Transaction Documents. The proceeds of any disposition of Purchased Loans effected pursuant to this Section 14(b)(iii) shall be applied in accordance with Section 5(g). |
(iv) |
The parties recognize that it may not be possible to purchase or sell all of the Purchased Loans on a particular Business Day, or in a transaction with the same purchaser, or in the same manner because the market for such Purchased Loans may not be liquid. In view of the nature of the Purchased Loans, the parties agree that liquidation of a Transaction or the Purchased Loans does not require a public purchase or sale and that a good faith private purchase or sale shall be deemed to have been made in a commercially reasonable manner. Accordingly, Buyer may elect, in its sole discretion in accordance with Requirements of Law, the time and manner of liquidating any Purchased Loans, and nothing contained herein shall (A) obligate Buyer to liquidate any Purchased Loans on the occurrence and during the continuance of an Event of Default or to liquidate all of the Purchased Loans in the same manner or on the same Business Day or (B) constitute a waiver of any right or remedy of Buyer. |
(v) |
Seller shall be liable to Buyer for (A) the amount of all actual out-of-pocket expenses, including reasonable legal fees and expenses, actually incurred by Buyer in connection with or as a consequence of an Event of Default with respect to Seller, (B) all actual costs incurred in connection with the termination of Hedging Transactions, and (C) any other actual out-of-pocket loss, damage, cost or expense directly arising or resulting from the occurrence and continuance of an Event of Default with respect to Seller. |
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(vi) |
Buyer shall have, in addition to its rights and remedies under the Transaction Documents, all of the rights and remedies provided by applicable federal, state, foreign, and local laws (including, without limitation, if the Transactions are recharacterized as secured financings, the rights and remedies of a secured party under the UCC of the State of New York or, with respect to any Foreign Purchased Loan, the equivalent Requirement of Law in the relevant non-U.S. jurisdiction, to the extent that the UCC or such other Requirement of Law is applicable, and the right to offset any mutual debt and claim and the right to appropriate the Purchased Loans in accordance with this Section 12(b)(vi)), in equity, and under any other agreement between Buyer and Seller. In relation to Foreign Purchased Loans (AU), the Buyer shall also have the right to appoint any person or persons to be a receiver and manager of the Collateral and, without the need for any consent from Seller or any other Person but subject to the same restrictions and limitations imposed on Buyer as set forth in the Transaction Documents, each receiver will have the power to do all things the law allows an owner of any interest in the Collateral to do. Without limiting the generality of the foregoing, Buyer shall be entitled to set off the proceeds of the liquidation of the Purchased Loans against all of Sellers obligations to Buyer pursuant to this Agreement, whether or not such obligations are then due, without prejudice to Buyers right to recover any deficiency. The parties hereto agree that the method of valuation of Purchased Loans provided for in this Section 12(b)(vi) shall constitute a commercially reasonable method of valuation for the purposes of the FCA Regulations. |
(vii) |
Subject to the notice and grace periods set forth herein, Buyer may exercise any or all of the remedies available to Buyer immediately upon the occurrence and continuance of an Event of Default (other than with respect to Buyer) and at any time during the continuance thereof. All rights and remedies arising under the Transaction Documents, as amended from time to time, are cumulative and not exclusive of any other rights or remedies which Buyer may have. |
(viii) |
Buyer may enforce its rights and remedies hereunder without prior judicial process or hearing, and Seller hereby expressly waives any defenses Seller might otherwise have to require Buyer to enforce its rights by judicial process. Seller also waives any defense Seller might otherwise have arising from the use of nonjudicial process, disposition of any or all of the Purchased Loans, or from any other election of remedies. Seller recognizes that nonjudicial remedies are consistent with the usages of the trade, are responsive to commercial necessity and are the result of a bargain at arms length. |
(ix) |
Upon the designation of any Accelerated Repurchase Date, Buyer may, without prior notice to Seller, set off any sum or obligation (whether or not arising under this Agreement, whether matured or unmatured, whether or not contingent and irrespective of the currency, place of payment or booking office of the sum or obligation) owed by Seller to Buyer or any Affiliate of Buyer against any sum or obligation (whether or not arising |
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under this Agreement, whether matured or unmatured, whether or not contingent and irrespective of the currency, place of payment or booking office of the sum or obligation) owed by Buyer or any Affiliate of Buyer to Seller. Buyer will give written notice to the other party of any set off effected under this Section 14(b)(ix). If a sum or obligation is unascertained, Buyer may in good faith estimate that obligation and set-off in respect of the estimate, subject to the relevant party accounting to the other when the obligation is ascertained. Nothing in this Section 14(b)(ix) shall be effective to create a charge or other security interest. This Section 14(b)(ix) shall be without prejudice and in addition to any right of set-off, combination of accounts, lien or other rights to which any party is at any time otherwise entitled (whether by operation of law, contract or otherwise). |
(x) |
With respect to any Foreign Purchased Loan, Buyer may take any steps necessary to vest all or any of such Foreign Purchased Loan in the name of Buyer (or its designee) including completing and submitting any Transfer Certificate to the relevant facility agent and making payment of any transfer fees. Seller hereby agrees that any such transfer fees paid by Buyer will constitute Indemnified Amounts for the purposes of Section 27 of this Agreement. |
15. |
SINGLE AGREEMENT |
Buyer and Seller acknowledge that, and have entered hereinto and will enter into each Transaction hereunder in consideration of and in reliance upon the fact that, all Transactions hereunder constitute a single business and contractual relationship and have been made in consideration of each other. Accordingly, each of Buyer and Seller agrees (i) to perform all of its obligations in respect of each Transaction hereunder, and that a default in the performance of any such obligations shall constitute a default by it in respect of all Transactions hereunder, (ii) that each of them shall be entitled to set off claims and apply property held by them in respect of any Transaction against obligations owing to them in respect of any other Transactions hereunder and (iii) that payments, deliveries and other transfers made by either of them in respect of any Transaction shall be deemed to have been made in consideration of payments, deliveries and other transfers in respect of any other Transactions hereunder, and the obligations to make any such payments, deliveries and other transfers may be applied against each other and netted.
16. |
RECORDING OF COMMUNICATIONS |
EACH OF BUYER AND SELLER SHALL HAVE THE RIGHT (BUT NOT THE OBLIGATION) FROM TIME TO TIME TO MAKE OR CAUSE TO BE MADE TAPE RECORDINGS OF COMMUNICATIONS BETWEEN ITS EMPLOYEES, IF ANY, AND THOSE OF THE OTHER PARTY WITH RESPECT TO TRANSACTIONS; PROVIDED, HOWEVER, THAT SUCH RIGHT TO RECORD COMMUNICATIONS SHALL BE LIMITED TO COMMUNICATIONS OF EMPLOYEES TAKING PLACE ON THE TRADING FLOOR OF THE APPLICABLE PARTY.
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17. |
NOTICES AND OTHER COMMUNICATIONS |
Unless otherwise provided in this Agreement, all notices, consents, approvals and requests required or permitted hereunder shall be given in writing and shall be effective for all purposes if hand delivered or sent by (a) hand delivery, with proof of delivery, (b) certified or registered United States mail, postage prepaid, (c) expedited prepaid delivery service, either commercial, United States Postal Service, Royal Mail or Australia Post, with proof of delivery, or (d) by email with proof of delivery to the address specified in Annex I hereto or at such other address and person as shall be designated from time to time by any party hereto, as the case may be, in a written notice to the other parties hereto in the manner provided for in this Section . A notice shall be deemed to have been given: (a) in the case of hand delivery, at the time of delivery, (b) in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day, (c) in the case of expedited prepaid delivery upon the first attempted delivery on a Business Day, or (d) in the case of email, upon receipt of confirmation of transmission and delivery, respectively, provided that such notice sent by email was also delivered as required in this Section . A party receiving a notice which does not comply with the technical requirements for notice under this Section may elect to waive any deficiencies and treat the notice as having been properly given. Notwithstanding the foregoing, in the event that Seller directs Buyer to transfer funds pursuant to a Transaction or otherwise in accordance with Section 3 or 4 to an account or recipient other than Sellers wiring instructions specified on Annex I, such direction shall be in writing (including in a Confirmation) and signed by two (2) authorized officers of Seller.
18. |
ENTIRE AGREEMENT; SEVERABILITY |
This Agreement shall supersede any existing agreements between the parties containing general terms and conditions for repurchase transactions. Each provision and agreement herein shall be treated as separate and independent from any other provision or agreement herein and shall be enforceable notwithstanding the unenforceability of any such other provision or agreement.
19. |
NON-ASSIGNABILITY |
(a) The rights and obligations of Seller under the Transaction Documents and under any Transaction shall not be assigned by Seller without the prior written consent of Buyer.
(b) Upon prior written notice to Seller, Buyer shall be entitled to assign an interest in its rights and obligations under the Transaction Documents and/or under any Transaction to any other Person or issue one or more participation interests with respect to any or all of the Transactions and, in connection therewith, may bifurcate or allocate (i.e. senior/subordinate) amounts due to Buyer; provided, however, in all such instances, so long as no Event of Default has occurred and is continuing, (i) Buyer may not assign an interest in its rights and obligations under the Transaction Documents and/or under any Transaction or issue one or more participation interests with respect to any or all of the Transactions to any Prohibited Transferee, (ii) Buyer shall retain control and authority over its rights and obligations under the Transaction Documents and/or under any Transaction, (iii) Seller shall not be obligated to deal directly or indirectly with any party other than Buyer, and (iv) Seller shall not be charged for, incur or be
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required to pay or reimburse Buyer or any assignee, transferee, participant or other third party for any costs that would not have been incurred but for the assignment, participation, bifurcation or allocation by Buyer in accordance with this Section 19(b). In furtherance of and without limitation to the foregoing, in no event shall Buyer confer on or grant any rights in any Person other than Buyer any right to determine the Market Value of any Purchased Loan, to declare a Margin Deficit, to determine whether a Default or Event of Default has occurred or is continuing, to approve a Purchased Loan, to make available to Seller Margin Excess, or to enforce any provision of any Transaction Documents against Seller or Guarantor, it being understood and agreed that nothing herein shall restrict or limit Buyers right to consult with and consider the views and opinions of any assignee, transferee or participant under this Agreement.
(c) Buyer, acting solely for this purpose as a non-fiduciary agent of Seller, shall maintain a register for the recordation of each assignment pursuant to Section 19(b) above and the name and address of any assignee, and the Repurchase Price and Price Differential owing to such assignee (the Register ). The entries in the Register shall be conclusive absent manifest error. Buyer and Seller shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as the owner of the applicable rights and obligations and no transfer or assignment shall be effective unless duly noted in the Register. The Register shall be available for inspection by Seller at any reasonable time and from time to time upon reasonable request.
(d) Buyer and each assignee, if any that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of Seller, maintain a register on which it records such sale, the name and address of the applicable participant and, with respect to each such participant, the participated Repurchase Price and Price Differential (the Participant Register ). Neither Buyer nor any such assignee shall have any obligation to disclose the identity of any participant or any information relating to a participants interest in any obligations under any Transaction Document to any Person except (i) to the extent that the Internal Revenue Service requests such disclosure (from Seller, Guarantor, Buyer, such assignee or otherwise) or such disclosure is otherwise reasonably determined to be required to establish that such obligation is in registered form under Section 5f.103-1I of the United States Treasury Regulations (the Treasury Regulations ), and (ii) the portion of the Participant Register relating to any such participant requesting (directly or through Buyer or an assignee) payment from Seller under the Transaction Documents shall be made available to Seller upon reasonable request. The entries in the Participant Register shall be conclusive absent manifest error. The applicable Buyer shall treat each Person whose name is recorded in the Participant Register as the owner of the applicable participation for all purposes of this Agreement and no sale of a participation shall be effective unless duly noted in the Participant Register.
(e) Subject to the foregoing, the Transaction Documents and any Transactions shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns. Nothing in the Transaction Documents, express or implied, shall give to any Person, other than the parties to the Transaction Documents and their respective successors, any benefit or any legal or equitable right, power, remedy or claim under the Transaction Documents.
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20. |
GOVERNING LAW |
This Agreement shall be governed by the laws of the State of New York without giving effect to the conflict of law principles thereof. The parties hereto intend that the provisions of section 5-1401 of the New York General Obligations Law shall apply to this Agreement.
21. |
NO WAIVERS, ETC. |
No express or implied waiver of any Event of Default by either party shall constitute a waiver of any other Event of Default and no exercise of any remedy hereunder by any party shall constitute a waiver of its right to exercise any other remedy hereunder. No modification or waiver of any provision of this Agreement and no consent by any party to a departure herefrom shall be effective unless and until such shall be in writing and duly executed by both of the parties hereto. Without limitation on any of the foregoing, the failure to give a notice pursuant to Section 4(a) or 4(b) hereof will not constitute a waiver of any right to do so at a later date.
22. |
USE OF EMPLOYEE PLAN ASSETS |
(a) If assets of an employee benefit plan subject to any provision of the Employee Retirement Income Security Act of 1974 ( ERISA ) are intended to be used by either party hereto (the Plan Party ) in a Transaction, the Plan Party shall so notify the other party prior to the Transaction. The Plan Party shall represent in writing to the other party that the Transaction does not constitute a prohibited transaction under ERISA, and the other party may proceed in reliance thereon but shall not be required so to proceed.
(b) Subject to the last sentence of subparagraph (a) of this Section, any such Transaction shall proceed only if Seller furnishes or has furnished to Buyer its most recent available unaudited statement of its financial condition.
(c) By entering into a Transaction pursuant to this Section, Seller shall be deemed (i) to represent to Buyer that since the date of Sellers latest such financial statements, there has been no material adverse change in Sellers financial condition which Seller has not disclosed to Buyer, and (ii) to agree to provide Buyer with future audited and unaudited statements of its financial condition as they are issued, so long as it is a Seller in any outstanding Transaction involving a Plan Party.
23. |
INTENT |
(a) The parties recognize and agree that: (i) each Transaction is a repurchase agreement as that term is defined in Section 101(47) of the Bankruptcy Code and a securities contract as that term is defined in Section 741(7) of the Bankruptcy Code, (ii) payments under this Agreement are deemed margin payments or settlement payments, as defined in Section 741 of the Bankruptcy Code, and (iii) the grant of a security interest set forth in Sections 6 and 29(b) hereof and the Guaranty, each of which secures the rights of Buyer hereunder also constitutes a repurchase agreement as contemplated by Section 101(47)(A)(v) of the Bankruptcy Code and a securities contract as contemplated by Section 741(7)(A)(xi) of the Bankruptcy Code. It is further understood that this Agreement constitutes a master netting
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agreement as defined in Section 101(38A) of the Bankruptcy Code, as amended, with respect to the Transaction so constituting a repurchase agreement or securities contract. The parties intend and recognize that the arrangements under this Agreement are to constitute a title transfer financial collateral arrangement or a security financial collateral arrangement for the purposes of the Financial Collateral Arrangements (No 2) Regulations 2003 (the FCA Regulations ).
(b) The parties recognize and agree that each of Buyer and Seller is a repo participant as that term is defined in Section 101(46) of the Bankruptcy Code.
(c) The parties recognize and agree that each party (for so long as each is either a financial institution, financial participant, repo participant, or master netting participant or other entity listed in Section 555, 559, 561, 362(b)(6), or 362(b)(7) of the Bankruptcy Code) shall be entitled to the safe harbor benefits and protections afforded under the Bankruptcy Code with respect to a repurchase agreement and a securities contract and a master netting agreement, including (x) the rights set forth in Sections 3 and 14 and in Section 555, 559, and 561 of the Bankruptcy Code to liquidate the Purchased Loans and/or accelerate or terminate this Agreement, and (y) the right to offset or net out termination payments, payment amounts or other transfer obligations and otherwise exercise contractual rights as set forth in Sections 362(b)(6), 362(b)(7), 362(b)(27), 362(o), and 546 of the Bankruptcy Code.
(d) Each party hereto hereby further agrees that it shall not challenge the characterization of (i) this Agreement as a repurchase agreement, securities contract and/or master netting agreement, or (ii) each party as a repo participant within the meaning of the Bankruptcy Code except insofar as, in the case of a repurchase agreement, the term of the Transactions, would render such definition inapplicable.
(e) It is understood that either partys right to accelerate or terminate this Agreement or to liquidate assets delivered to it in connection with the Transactions hereunder or to exercise any other remedies pursuant to Section 14 or 29 hereof is a contractual right to accelerate, terminate or liquidate this Agreement or the Transactions as described in Sections 555 and 559 of the Bankruptcy Code. It is further understood and agreed that either partys right to cause the termination, liquidation, or acceleration of, or to offset net termination values, payment amounts or other transfer obligations arising under or in connection with, this Agreement or the Transactions hereunder is a contractual right to cause the termination, liquidation, or acceleration of, or to offset net termination values, payment amounts or other transfer obligations arising under or in connection with, this Agreement as described in Section 561 of the Bankruptcy Code.
(f) The parties agree and acknowledge that if a party hereto is an insured depository institution, as such term is defined in the Federal Deposit Insurance Act, as amended ( FDIA ), then each of the Transactions hereunder is a qualified financial contract, as that term is defined in FDIA and any rules, orders or policy statements thereunder (except insofar as the type of assets subject to the Transactions would render such definition inapplicable).
(g) The parties agree and acknowledge that this Agreement constitutes a netting contract as defined in and subject to Title IV of the Federal Deposit Insurance Corporation Improvement Act of 1991 ( FDICIA ) and each payment entitlement and payment obligation under the Transactions hereunder shall constitute a covered contractual payment entitlement or covered contractual payment obligation, respectively, as defined in and subject to FDICIA (except insofar as one or both of the parties is not a financial institution as that term is defined in FDICIA).
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(h) In light of the intent set forth above in this Section 23, each Party agrees that, from time to time upon the written request of the other Party (the Requesting Party ), each Party will execute and deliver any supplements, modifications, addendums or other documents as may be necessary or desirable, in the Requesting Partys good faith discretion, in order to cause this Agreement and the Transactions contemplated hereby to qualify for, comply with the provisions of, or otherwise satisfy, maintain or preserve the criteria for safe harbor treatment under the Bankruptcy Code for repurchase agreements, securities contracts and master netting agreements; provided, however, that either Partys failure to request, or either Partys failure to execute, such supplements, modifications, addendums or other documents does not in any way alter or otherwise change the intention of the parties hereto that this Agreement and the Transactions hereunder constitute repurchase agreements, securities contracts and/or a master netting agreement as such terms are defined in the Bankruptcy Code.
(i) Notwithstanding anything to the contrary in this Agreement, it is the intention of the parties that, for U.S. Federal, state and local income and franchise tax purposes, the Transactions constitute a loan from Buyer to Seller, and that Seller is and, so long as no Event of Default shall have occurred and be continuing, will continue to be, treated as the owner of the Purchased Loans for such purposes. Unless prohibited by applicable law, Seller and Buyer (and its assignees and participants, if any) shall treat the Transactions as described in the preceding sentence for all U.S. Federal, state and local income and franchise tax purposes (including, without limitations, on any and all filings with any U.S. Federal, state or local taxing authority).
24. |
DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS |
The parties acknowledge that they have been advised that:
(a) in the case of Transactions in which one of the parties is a broker or dealer registered with the Securities and Exchange Commission ( SEC ) under Section 15 of the Securities Exchange Act of 1934 ( 1934 Act ), the Securities Investor Protection Corporation has taken the position that the provisions of the Securities Investor Protection Act of 1970 ( SIPA ) do not protect the other party with respect to any Transaction hereunder;
(b) in the case of Transactions in which one of the parties is a government securities broker or a government securities dealer registered with the SEC under Section 15C of the 1934 Act, SIPA will not provide protection to the other party with respect to any Transaction hereunder;
(c) in the case of Transactions in which one of the parties is a financial institution, funds held by the financial institution pursuant to a Transaction hereunder are not a deposit and therefore are not insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, as applicable; and
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(d) in the case of Transactions that may be a financial service in Australia, Citibank, N.A. relies upon various exemptions from the need to hold an Australian Financial Services Licence ( AFSL ) including the exemption in ASIC Class Order CO 03/1101. Citibank, N.A. is incorporated in the United States of America and its principal regulators are the US Office of the Comptroller of Currency and Federal Reserve under US laws, which differ from Australian laws. It does not hold an AFSL under the Corporations Act 2001 (Cth) as it enjoys the benefit of an exemption under ASIC Class Order CO 03/1101.
25. |
CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL |
(a) Each party irrevocably and unconditionally (i) submits to the exclusive jurisdiction of any United States Federal or New York State court sitting in Manhattan, and any appellate court from any such court, solely for the purpose of any suit, action or proceeding brought to enforce its obligations under this Agreement or relating in any way to this Agreement or any Transaction under this Agreement and (ii) waives, to the fullest extent it may effectively do so, any defense of an inconvenient forum to the maintenance of such action or proceeding in any such court and any right of jurisdiction on account of its place of residence or domicile.
(b) To the extent that either party has or hereafter may acquire any immunity (sovereign or otherwise) from any legal action, suit or proceeding, from jurisdiction of any court or from set off or any legal process (whether service or notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise) with respect to itself or any of its property, such party hereby irrevocably waives and agrees not to plead or claim such immunity in respect of any action brought to enforce its obligations under this Agreement or relating in any way to this Agreement or any Transaction under this Agreement.
(c) The parties hereby irrevocably waive, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding and irrevocably consent to the service of any summons and complaint and any other process by the mailing of copies of such process to them at their respective address specified herein. The parties hereby agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Section 25 shall affect the right of Buyer or Seller to serve legal process in any other manner permitted by law or affect the right of Buyer or Seller to bring any action or proceeding against the other party or its property in the courts of other jurisdictions.
(d) EACH OF THE PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR ANY INSTRUMENT OR DOCUMENT DELIVERED HEREUNDER OR THEREUNDER.
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26. |
NO RELIANCE |
Each of Buyer and Seller hereby acknowledges, represents and warrants to the other that, in connection with the negotiation of, the entering into, and the performance under, the Transaction Documents and each Transaction thereunder:
(a) It is not relying (for purposes of making any investment decision or otherwise) upon any advice, counsel or representations (whether written or oral) of the other party to the Transaction Documents, other than the representations expressly set forth in the Transaction Documents;
(b) It has consulted with its own legal, regulatory, tax, business, investment, financial and accounting advisors to the extent that it has deemed necessary, and it has made its own investment, hedging and trading decisions (including decisions regarding the suitability of any Transaction) based upon its own judgment and upon any advice from such advisors as it has deemed necessary and not upon any view expressed by the other party;
(c) It is a sophisticated and informed Person that has a full understanding of all the terms, conditions and risks (economic and otherwise) of the Transaction Documents and each Transaction thereunder and is capable of assuming and willing to assume (financially and otherwise) those risks;
(d) It is entering into the Transaction Documents and each Transaction thereunder for the purposes of managing its borrowings or investments or hedging its underlying assets or liabilities and not for purposes of speculation; and
(e) It is not acting as a fiduciary or financial, investment or commodity trading advisor for the other party and has not given the other party (directly or indirectly through any other Person) any assurance, guaranty or representation whatsoever as to the merits (either legal, regulatory, tax, business, investment, financial accounting or otherwise) of the Transaction Documents or any Transaction thereunder.
27. |
INDEMNITY |
Seller hereby agrees to indemnify Buyer and each of its officers, directors, employees and agents ( Indemnified Parties ) from and against any and all actual out-of-pocket liabilities, obligations, losses, damages, penalties, actions, judgments, suits, fees, costs, expenses (including reasonable attorneys fees and disbursements of outside counsel) or disbursements (all of the foregoing, collectively Indemnified Amounts ) which may at any time (including, without limitation, such time as this Agreement shall no longer be in effect and the Transactions shall have been repaid in full) be imposed on or asserted against any Indemnified Party in any way whatsoever arising out of or in connection with, or relating to, this Agreement or any Transactions thereunder or any action taken or omitted to be taken by any Indemnified Party under or in connection with any of the foregoing; provided , that Seller shall not be liable for Indemnified Amounts resulting from the gross negligence or willful misconduct of any Indemnified Party. Without limiting the generality of the foregoing, Seller agrees to hold Buyer harmless from and indemnify Buyer against all Indemnified Amounts with respect to all
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Purchased Loans relating to or arising out of any violation or alleged violation of any Environmental Law, rule or regulation or any consumer credit laws, including without limitation ERISA, the Truth in Lending Act and/or the Real Estate Settlement Procedures Act, that, in each case, results from anything other than Buyers gross negligence or willful misconduct. In any suit, proceeding or action brought by Buyer in connection with any Purchased Loan for any sum owing thereunder, or to enforce any provisions of any Purchased Loan, Seller will save, indemnify and hold Buyer harmless from and against all actual out-of-pocket expense (including reasonable attorneys fees of outside counsel), actual out-of-pocket loss or damage suffered by reason of any defense, set-off, counterclaim, recoupment or reduction or liability whatsoever of the account debtor or obligor thereunder, arising out of a breach by Seller of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such account debtor or obligor or its successors from Seller. This Section 27 shall not apply with respect to Taxes other than any Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim.
28. |
DUE DILIGENCE |
Seller acknowledges that, at reasonable times and upon reasonable notice to Seller, Buyer has the right to perform continuing due diligence reviews with respect to the Purchased Loans, for purposes of verifying compliance with the representations, warranties and specifications made hereunder, or otherwise, and Seller agrees that upon reasonable prior written notice to Seller, Buyer or its authorized representatives will be permitted during normal business hours to examine, inspect, and make copies and extracts of, the Purchased Loan Files, Servicing Records and any and all documents, records, agreements, instruments or information relating to such Purchased Loans in the possession or under the control of Seller, any other servicer or subservicer of Seller and/or the Custodian. Seller also shall make available to Buyer upon reasonable advance written notice a knowledgeable financial or accounting officer for the purpose of answering financial or accounting questions respecting the Purchased Loan Files and the Purchased Loans. Without limiting the generality of the foregoing, Seller acknowledges that Buyer may enter into Transactions with Seller based solely upon the information provided by Seller to Buyer and the representations, warranties and covenants contained herein, and that Buyer, at its option, has the right at any time to conduct a partial or complete due diligence review on some or all of the Purchased Loans. Buyer may underwrite such Purchased Loans itself or engage a third party underwriter to perform such underwriting. Seller agrees to reasonably cooperate with Buyer and any third party underwriter reasonably acceptable to Seller in connection with such underwriting, including, but not limited to, providing Buyer and any third party underwriter with access to any and all documents, records, agreements, instruments or information relating to such Purchased Loans in the possession, or under the control, of Seller. Seller further agrees that Seller shall reimburse Buyer for any and all actual costs and expenses reasonably incurred by Buyer in connection with Buyers activities pursuant to this Section 28 and for Buyers actual costs and out-of-pocket expenses incurred in connection with due diligence reviews with respect to Eligible Loans which Seller proposes to make the subject of a Transaction under this Agreement. Notwithstanding the foregoing, (x) Sellers obligation to reimburse Buyer for Buyers out-of-pocket costs and expenses (including legal expenses) incurred in connection with Eligible Loans which Seller proposes to make the subject of a Transaction shall not exceed (1) with respect to each U.S. Purchased Loan, $15,000 with respect
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to any individual Eligible Loan without Sellers prior consent and (2) with respect to each Foreign Purchased Loan, an amount to be agreed upon in writing by Seller and Buyer prior to the commencement of due diligence, each acting reasonably and (y) so long as an Event of Default has not occurred and is not continuing, with respect to any due diligence Buyer proposes to perform with respect to any Purchased Loan after the related Purchase Date which would create a reimbursement obligation on the part of Seller, Buyer shall provide to Seller prior written notice of such due diligence activities (including an estimate of the cost) and a reasonable opportunity for Seller to demonstrate to Buyer that such due diligence need not be performed, provided the final determination to perform or not perform such due diligence shall be made by Buyer.
29. |
SERVICING |
(a) Seller and Buyer agree that all Servicing Rights with respect to the Purchased Loans are being transferred hereunder to Buyer on the applicable Purchase Date and such Servicing Rights shall be transferred by Buyer to Seller upon Sellers payment of the Repurchase Price for such applicable Purchased Loan. Notwithstanding the purchase and sale of the Purchased Loans and Servicing Rights hereby, Seller or, upon request by Seller, Servicer shall be granted a revocable license to exercise the Servicing Rights with respect to the Purchased Loans for the benefit of Buyer and, if Buyer shall exercise its rights to pledge or hypothecate a Purchased Loan prior to the Repurchase Date pursuant to Section 8, Buyers assigns (which license shall be deemed automatically revoked upon the occurrence and during the continuance of an Event of Default); provided , however , that the obligations of Seller or Servicer to service the Purchased Loans shall cease, at Sellers option, upon the payment by Seller to Buyer of the Repurchase Price therefor. Seller shall cause Servicer to service the Purchased Loans pursuant to the Servicing Agreement, in each case, in accordance with Accepted Servicing Practices. Seller shall obtain the written consent of Buyer prior to appointing any third party Servicer for a Purchased Loan or entering into any Servicing Agreement with a Servicer (other than the initial Servicing Agreement with Midland Loan Services as initial Servicer).
(b) Seller agrees that Buyer is the owner of all servicing records, files, documents, records, data bases, computer tapes, copies of computer tapes, proof of insurance coverage, insurance policies, appraisals, other closing documentation, payment history records, and any other records relating to or evidencing the servicing of Purchased Loans (collectively, the Servicing Records ) so long as the Purchased Loans are subject to this Agreement. Seller grants Buyer a security interest in all servicing fees and rights relating to the Purchased Loans and all Servicing Records to secure the obligation of Seller or Servicer to service in conformity with this Section and any other obligation of Seller to Buyer. Seller covenants to safeguard such Servicing Records which are in Sellers possession and to deliver them promptly to Buyer or its designee (including the Custodian) at Buyers request.
(c) Upon the occurrence and during the continuance of an Event of Default, Buyer may, in its sole discretion, (i) sell its right to the Purchased Loans on a servicing released basis or (ii) terminate any Seller or Servicer of the Purchased Loans with or without cause, in each case without payment of any termination fee to the extent provided in the Servicing Agreement.
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(d) Seller shall not employ or permit Servicer to employ sub-servicers to service the Purchased Loans without (x) in the case of U.S. Purchased Loans only, the prior written approval of Buyer in its sole discretion, except to the extent permitted in the applicable Servicing Agreement so long as, such employment of a sub-servicer constitutes a delegation of duties by Servicer which does not relieve Servicer of its primary obligation to perform such duties or (y) in the case of Foreign Purchased Loans, prior to consummating any such appointment, a consultation with Buyer.
(e) The payment of servicing fees under any Servicing Agreement shall be solely the obligation of Seller.
(f) With respect to each CLO Participation A-1 issued pursuant to a CLO Participation Agreement, in the event of any inconsistency between the provisions of this Section 29 and of each CLO Participation Agreement and the CLO Servicing Agreement, the terms of such CLO Participation Agreement and the CLO Servicing Agreement shall control with respect to such CLO Participation A-1 only.
30. |
MISCELLANEOUS |
(a) All rights, remedies and powers of Buyer hereunder and in connection herewith are irrevocable and cumulative, and not alternative or exclusive, and shall be in addition to all other rights, remedies and powers of Buyer whether under law, equity or agreement. In addition to the rights and remedies granted to it in this Agreement, to the extent this Agreement is determined to create a security interest, Buyer shall have all rights and remedies of a secured party under the UCC or, with respect to Foreign Purchased Loans, the equivalent Requirements of Law in the relevant non-U.S. jurisdiction.
(b) The Transaction Documents may be executed in counterparts, each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument. Signatures delivered by email (in PDF format) shall be considered binding with the same force and effect as original signatures.
(c) The headings in the Transaction Documents are for convenience of reference only and shall not affect the interpretation or construction of the Transaction Documents.
(d) Without limiting the rights and remedies of Buyer under the Transaction Documents, Seller shall pay Buyers reasonable actual out-of-pocket costs and expenses, including reasonable fees and expenses of outside accountants, attorneys and advisors, incurred in connection with the preparation, negotiation, execution and consummation of, and any amendment, supplement or modification to, the Transaction Documents and the Transactions thereunder. Seller agrees to pay Buyer promptly all costs and expenses (including reasonable expenses for legal services of every kind) of any subsequent enforcement of any of the provisions hereof, or of the performance by Buyer of any obligations of Seller in respect of the Purchased Loans, or any actual or attempted sale, or any exchange, enforcement, collection, compromise or settlement in respect of any of the Collateral and for the custody, care or preservation of the Collateral (including insurance costs) and defending or asserting rights and claims of Buyer in respect thereof, by litigation or otherwise. In addition, Seller agrees to pay
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Buyer promptly all reasonable actual out-of-pocket costs and expenses (including reasonable expenses for legal services of outside counsel) reasonably incurred in connection with the maintenance of each Cash Management Account and registering the Collateral in the name of Buyer or its nominee. All such expenses shall be recourse obligations of Seller to Buyer under this Agreement.
(e) Each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or be invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
(f) This Agreement contains a final and complete integration of all prior expressions by the parties with respect to the subject matter hereof and thereof and shall constitute the entire agreement among the parties with respect to such subject matter, superseding all prior oral or written understandings.
(g) The parties understand that this Agreement is a legally binding agreement that may affect such partys rights. Each party represents to the other that it has received legal advice from counsel of its choice regarding the meaning and legal significance of this Agreement and that it is satisfied with its legal counsel and the advice received from it.
(h) Should any provision of this Agreement require judicial interpretation, it is agreed that a court interpreting or construing the same shall not apply a presumption that the terms hereof shall be more strictly construed against any Person by reason of the rule of construction that a document is to be construed more strictly against the Person who itself or through its agent prepared the same, it being agreed that all parties have participated in the preparation of this Agreement.
(i) The parties recognize that each Transaction is a securities contract as that term is defined in Section 741 of Title 11 of the United States Code, as amended.
(j) The Transaction with respect to the Purchased Loan referred to as 190 Bowery shall remain as a Transaction for all purposes under the Agreement, but shall not be counted towards the Facility Amount for purposes of determining availability with respect to proposed Purchased Loans or for purpose of Section 3(a)(i) of this Agreement.
31. |
TAXES |
(a) Any and all payments by or on account of any obligation of Seller under any Transaction Document shall be made without deduction or withholding for any Taxes, except as required by applicable law. If any applicable law requires the deduction or withholding of any Tax from any such payment, then Seller shall make (or cause to be made) such deduction or withholding and shall timely pay (or cause to be timely paid) the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law and, if such Tax is an Indemnified Tax, then the sum payable shall be increased by Seller as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section 31) Buyer receives an amount equal to the sum it would have received had no such deduction or withholding been made.
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(b) Seller shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.
(c) Seller shall indemnify Buyer, within ten (10) Business Days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section 31) payable or paid by Buyer or required to be withheld or deducted from a payment to Buyer, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate setting forth in reasonable detail calculation of the amount of such payment or liability (together with a certified copy of the return reporting such payment, if applicable or other evidence of such payment reasonably satisfactory to Seller) delivered to Seller by Buyer shall be conclusive absent manifest error.
(d) Buyer shall deliver to Seller such documentation as prescribed by applicable law or as reasonably requested by Seller as will enable Seller to determine whether or not payments hereunder or under any other Transaction Document to or for the benefit of Buyer (or any assignee or participant thereof) is subject to tax withholding, backup withholding or information reporting requirements. Without limiting the generality of the foregoing, if Buyer (or an assignee or participant thereof) is entitled to an exemption from or reduction of withholding tax with respect to payments made under any Transaction Document, Buyer shall deliver to Seller, at the time or times prescribed by applicable law and otherwise as reasonably requested by Seller, such properly completed and executed documentation as prescribed by applicable law or as reasonably requested by Seller as will permit such payments to be made without withholding or at a reduced rate of withholding. Without limiting the generality of the foregoing:
(i) On or prior to the date on which Buyer becomes a Buyer under this Agreement and prior to the entry in the Register of any assignment to a U.S. Person (and from time to time thereafter as required by applicable law or upon the reasonable request of Seller) Buyer shall deliver to Seller two (2) executed originals of IRS Form W-9 (or successor forms) certifying that Buyer (and/or such assignee) is exempt from U.S. federal backup withholding tax.
(ii) On or prior to entry in the Register of an assignment to an assignee that is not a U.S. Person (and from time to time thereafter as required by applicable law or upon the reasonable request of Seller) Buyer shall deliver to Seller two (2) executed originals of IRS Forms W-8ECI, W-8BEN, W-8BEN-E, W-8IMY (or any successor forms thereof, as applicable) or other applicable form, certificate or document prescribed by the United States Internal Revenue Service certifying as to such persons entitlement to exemption from, or reduction in the rate of, withholding Taxes.
(e) If a payment made to Buyer (or any assignee or participant thereof) under any Transaction Document would be subject to U.S. federal withholding Tax imposed by FATCA if such person were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such person
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shall deliver to Seller at the time or times prescribed by law and at such time or times reasonably requested by Seller such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by Seller as may be necessary for Seller to comply with its obligations under FATCA and to determine that such person has complied with its obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (c), FATCA shall include any amendments made to FATCA after the date of this Agreement
(f) Buyer may not effect an assignment (and may not reflect such assignment in the Register) to an assignee that is not a U.S. Person, unless such assignee delivers a valid U.S. branch withholding certificate on IRS Form W-8IMY (or any successor thereto) evidencing its agreement with Buyer and Seller to be treated as a U.S. Person for U.S. federal withholding purposes.
(g) Buyer (and each applicable assignee and participant) agrees that if any form or certification it previously delivered (on behalf of itself or any assignee or any participant thereof) expires or becomes obsolete or inaccurate in any respect, it shall update (in the case of an assignee or participant, by obtaining such updated form for such person) such form or certification or promptly notify Seller in writing of its legal inability to do so.
(h) If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 31 (including by the payment of additional amounts pursuant to this Section 31), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section 31 with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this Section 31(h) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this Section 31(h), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this Section 31(h) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the indemnification payments or additional amounts giving rise to such refund had never been paid. This Section 31(h) shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.
(i) Buyer on the one hand, and each of Parlex 2 UK, Parlex 2 EUR and Parlex 2 AU (as relevant) on the other hand, each confirm that it will take all steps (including without limitation the completion of procedural formalities) reasonably required by the other such that payments by the obligors in respect of the Foreign Purchased Loans can be made without deduction or withholding for or on account of tax so far as legally permissible.
86
(j) Buyer (and each of its designees) and Parlex 2 UK each confirm that it is entitled to full exemption from tax imposed by the United Kingdom on interest under the terms of the double taxation agreement between the United Kingdom and the United States of America. Buyer (and each of its designees) and Parlex 2 AU each confirm that it is entitled to full exemption from tax imposed by Australia on interest under the terms of the Convention between the Government of Australia and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income [1983] ATS 16 and Protocol [2003] ATS 14 .
(k) Buyer agrees that, so long as no Event of Default has occurred and is continuing, it will promptly notify Seller if Buyer (or its designee) assigns or otherwise transfers any interest in any Foreign Purchased Loan where it is aware that to do so could result in any increased deduction or withholding for or on account of tax from amounts payable by the obligors in respect of such Foreign Purchased Loan.
(l) Each partys obligations under this Section 31 shall survive any assignment of rights by, or the replacement of, Buyer, the termination of the Transactions and the repayment, satisfaction or discharge of all obligations under any Transaction Document.
32. |
JOINT AND SEVERAL OBLIGATIONS |
(a) Each Seller hereby acknowledges and agrees that (i) each Seller shall be jointly and severally liable to Buyer to the maximum extent permitted by Requirement of Law for all Repurchase Obligations, (ii) the liability of each Seller with respect to the Repurchase Obligations (A) shall be absolute and unconditional to the extent set forth in this Agreement and the other Transaction Documents and shall remain in full force and effect (or be reinstated) until all Repurchase Obligations shall have been paid, performed and/or satisfied, as applicable, in full, and (B) until such payment, performance and/or satisfaction, as applicable, has occurred, shall not be discharged, affected, modified or impaired on the occurrence from time to time of any event, including any of the following, whether or not with notice to or the consent of each Seller, (1) the waiver, compromise, settlement, release, termination or amendment (including any extension or postponement of the time for payment, performance, satisfaction, renewal or refinancing) of any of the Repurchase Obligations (other than a waiver, compromise, settlement, release or termination in full of the Repurchase Obligations), (2) the failure to give notice to each Seller of the occurrence of an Event of Default, (3) the release, substitution or exchange by Buyer of any Purchased Loan (whether with or without consideration) or the acceptance by Buyer of any additional collateral or the availability or claimed availability of any other collateral or source of repayment or any non-perfection or other impairment of collateral, (4) the release of any Person primarily or secondarily liable for all or any part of the Repurchase Obligations, whether by Buyer or in connection with any Act of Insolvency affecting any Seller or any other Person who, or any of whose property, shall at the time in question be obligated in respect of the Repurchase Obligations or any part thereof, or (5) to the extent permitted by Requirement of Law, any other event, occurrence, action or circumstance that would, in the absence of this Section 32, result in the release or discharge of any or all Sellers from the performance or observance of any Repurchase Obligation, (iii) Buyer shall not be required first to initiate any suit or to exhaust its remedies against any Seller or any other Person to become
87
liable, or against any of the Purchased Loans, in order to enforce the Transaction Documents and each Seller expressly agrees that, notwithstanding the occurrence of any of the foregoing, each Seller shall be and remain directly and primarily liable for all sums due under any of the Transaction Documents, (iv) when making any demand hereunder against any Seller, Buyer may, but shall be under no obligation to, make a similar demand on any other Seller, and any failure by Buyer to make any such demand or to collect any payments from any other Seller, or any release of any such other Seller shall not relieve any Seller in a respect of which a demand or collection is not made or Sellers not so released of their obligations or liabilities hereunder, and shall not impair or affect the rights and remedies, express or implied, or as a matter of law, of Buyer against Sellers, and (v) on disposition by Buyer of any property encumbered by any Purchased Loans, each Seller shall be and shall remain jointly and severally liable for any deficiency to the extent set forth in this Agreement and the other Transaction Documents.
(b) Buyer hereby acknowledges and agrees that the provisions of this Section 32 and the obligation of each Seller to be jointly and severally liable for the Repurchase Obligations do not and shall not violate any of the provisions of Section 13 of this Agreement or otherwise cause any Seller to no longer be a Special Purpose Entity.
88
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day first written above.
BUYER : | ||
CITIBANK, N.A. | ||
By: |
/s/ Richard B. Schlenger |
|
Name: | Richard B. Schlenger | |
Title: | Authorized Signatory |
[SIGNATURES CONTINUE ON NEXT PAGE]
[Signature Page to Third Amended and Restated Master Repurchase Agreement]
SELLER : | ||||
PARLEX 2 FINANCE, LLC, | ||||
a Delaware limited liability company | ||||
By: |
/s/ Douglas N. Armer |
|||
Name: | Douglas N. Armer | |||
Title: | Managing Director, Head of Capital Markets and Treasurer | |||
PARLEX 2A FINCO, LLC, | ||||
a Delaware limited liability company | ||||
By: |
/s/ Douglas N. Armer |
|||
Name: | Douglas N. Armer | |||
Title: | Managing Director, Head of Capital Markets and Treasurer | |||
PARLEX 2 UK FINCO, LLC, | ||||
a Delaware limited liability company | ||||
By: |
/s/ Douglas N. Armer |
|||
Name: | Douglas N. Armer | |||
Title: | Managing Director, Head of Capital Markets and Treasurer | |||
PARLEX 2 EUR FINCO, LLC, | ||||
a Delaware limited liability company | ||||
By: |
/s/ Douglas N. Armer |
|||
Name: | Douglas N. Armer | |||
Title: | Managing Director, Head of Capital Markets and Treasurer | |||
PARLEX 2 AU FINCO, LLC, | ||||
a Delaware limited liability company | ||||
By: |
/s/ Douglas N. Armer |
|||
Name: | Douglas N. Armer | |||
Title: | Managing Director, Head of Capital Markets and Treasurer |
[Signature Page to Third Amended and Restated Master Repurchase Agreement]
ANNEXES AND EXHIBITS
ANNEX I | Names and Addresses for Communications between Parties and Wire Instructions | |
SCHEDULE I | Prohibited Transferees | |
EXHIBIT I | Form of Confirmation | |
EXHIBIT II | Authorized Representatives of Sellers | |
EXHIBIT III | Form of Custodial Delivery | |
EXHIBIT IV | Eligible Loan Due Diligence Checklist | |
EXHIBIT V-A | Form of Power of Attorney for U.S. Purchased Loans | |
EXHIBIT V-B | Form of Power of Attorney for Foreign Purchased Loans | |
EXHIBIT VI-I | Representations and Warranties Regarding Each Individual Purchased Loan Which Is Not a Foreign Purchased Loan (AU) or a Participation Interest in a Whole Loan | |
EXHIBIT VI-II | Representations and Warranties Regarding Each Individual Purchased Loan Which Is a Participation Interest in a Whole Loan | |
EXHIBIT VI-III | Representations and Warranties Regarding Each Individual Purchased Loan Which Is a Foreign Purchased Loan (AU) | |
EXHIBIT VII | Collateral Tape | |
EXHIBIT VIII | Form of Transaction Request | |
EXHIBIT IX | Form of Request for Margin Excess | |
EXHIBIT X | Form of Irrevocable Direction Letter | |
EXHIBIT XI | Form of Joinder Agreement | |
EXHIBIT XII | Form of Facility Asset Chart |
ANNEX I
Names and Addresses for Communications Between Parties and Wire Instructions
Buyer :
Citibank, N.A.
388 Greenwich Street
New York, New York 10013
Attention: Richard Schlenger
Tel: (212) 816-7806
Email: Richard.Schlenger@Citi.com
and
Sidley Austin LLP
787 Seventh Avenue
New York, New York 10019
Attention: Brian Krisberg, Esq.
Tel: (212) 839-8735
Email: Brian.Krisberg@Sidley.com
Sellers :
Parlex 2 Finance, LLC, Parlex 2A Finco, LLC, Parlex 2 UK Finco, LLC, Parlex 2 EUR Finco, LLC and Parlex 2 AU Finco, LLC
c/o Blackstone Mortgage Trust, Inc.
345 Park Avenue
New York, NY 10154
Attention: Douglas Armer
Tel: (212) 583-5000
Email: BXMTCitiRepo@blackstone.com
With copies to :
Ropes & Gray LLP
1211 Avenue of the Americas
New York, New York 10036
Attention: Daniel L. Stanco
Tel: (212) 841-5758
Email: daniel.stanco@ropesgray.com
Payments to Buyer : Payments to Buyer under this Agreement shall be made by transfer, via wire transfer, to the following account of Buyer: Citibank, New York, ABA #: 021000089, Account #: 36855692, Account Name: Citi, NA, Ref: Loan No. BXMT, Credit to: Mortgage Ops.
Payments to Parlex 2 Finance, LLC and Parlex 2A Finco, LLC : Payments to each of Parlex 2 Finance, LLC and Parlex 2A Finco, LLC under this Agreement shall be made by transfer, via wire transfer, to the following account: Bank of America, ABA #: 026009593, Account #: 483024227101, Account Name: Blackstone Mortgage Trust, Inc..
Payments to Parlex 2 UK Finco, LLC : Payments to Parlex 2 UK Finco, LLC under this Agreement shall be made by transfer, via wire transfer, to the following account: Bank of America, Bank Sort Code #: 165050, IBAN #: GB69 BOFA 1650 5022 0960 11, Bank SWIFT ID: BOFAGB22, Account #: 22096011, Account Name: Ambassador GBP Holdings, LLC.
Payments to Parlex 2 EUR Finco, LLC : Payments to Parlex 2 EUR Finco, LLC under this Agreement shall be made by transfer, via wire transfer, to the following account: Bank of America, IBAN #: GB77 BOFA 1650 5022 0780 19, Bank SWIFT ID: BOFAGB22, Account Name: Ambassador EUR Holdings, LLC.
Payments to Parlex 2 AU Finco, LLC : Payments to Parlex 2 EUR Finco, LLC under this Agreement shall be made by transfer, via wire transfer, to the following account: Bank of America N.A., Australian Branch, BSB #: 232 001, Bank SWIFT ID: BOFAAUSX, Account #: 18331014, Account Name: Ambassador AUD Holdings, LLC.
SCHEDULE I
Prohibited Transferees
All Affiliates, successors and assigns of the entities listed on this Schedule I and such other Persons indicated by Seller from time to time and approved by Buyer, such approval not to be unreasonably withheld, shall be Prohibited Transferees, as defined and used in the Agreement.
ACORE Capital, LP |
Ladder Capital Securities LLC |
|
Angelo, Gordon & Co., L.P. |
LoanCore Capital, LLC |
|
Annaly Capital Management, Inc. |
Lone Star U.S. Acquisitions, LLC |
|
Apollo Commercial Real Estate Finance, Inc. |
Macquarie Group Limited |
|
Arbor Realty Trust Inc. |
Mesa West Capital, LLC |
|
Ares Commercial Real Estate Corporation |
NCH Capital Inc. |
|
Baupost Group, LLC |
Newcastle Investment Corp. |
|
Brookfield Investment Management Inc. |
Oaktree Capital Management, L.P. |
|
Cantor Fitzgerald & Co. |
OZ Management LP |
|
CapitalSource Inc. |
Pacific Investment Management Company LLC |
|
Carlyle Realty Partners L.P. |
RAIT Financial Trust |
|
Cerberus Capital Management, LLP |
Redwood Trust Inc. |
|
Childrens Investment Fund LP |
Related Fund Management, LLC |
|
CIM Group, Inc. |
Rialto Capital Management, LLC |
|
Colony Financial, Inc. |
Rockwood Capital LLC |
|
Colony NorthStar, Inc. |
SL Green Realty Corp. |
|
CreXus Investment Corp. |
Square Mile Capital Management, LLC |
|
Fortress Credit Corp. |
Starwood Capital Group |
|
Guggenheim Partners, LLC |
Starwood Property Trust, Inc. |
|
H/2 Credit Manager LP |
TPG Capital Management, L.P. |
|
iStar Financial Inc. |
Westbrook Partners LLC |
|
Invesco Ltd. |
Winthrop Capital Management, LLC |
|
KKR & Co. L.P. |
EXHIBIT I
CONFIRMATION STATEMENT
Ladies and Gentlemen:
Citibank, N.A., is pleased to deliver our written CONFIRMATION of our agreement to enter into the Transaction pursuant to which Citibank, N.A. shall purchase from you, [ ], LLC ( Seller ), the Purchased Loans identified on Schedule 1, pursuant to the terms of that certain Third Amended and Restated Master Repurchase Agreement, dated as of October 12, 2018 (the Agreement ), among Citibank, N.A. ( Buyer ) and Seller, [ list Seller entities other than the Seller defined hereunder ] and any Person that joins as a Seller (as such term is defined in the Agreement) under the Agreement from time to time, as follows below and on the attached Schedule 1. Capitalized terms used herein without definition have the meanings given in the Agreement.
Purchased Loan: |
(as identified on attached Schedule 1) | |
Aggregate Principal Amount of Purchased Loan: |
[$/£//A$____] | |
Governing Agreements: |
As identified on attached Schedule 1 | |
Purchase Date: |
__________, 20__ | |
Repurchase Date: |
The earlier of (x) the Facility Expiration Date and (y) the maturity date of the Purchased Loan | |
Purchase Price Percentage: |
[____%] | |
Maximum Purchase Price Percentage: |
[____%] | |
Pricing Rate: |
[one/three] month [LIBOR/EURIBOR/BBSY] plus [____%] | |
Margin Percentage: |
[____%] | |
LTV (Purchase Price): |
[____%] | |
Maximum LTV (Purchase Price): |
[____%] | |
LTV (Aggregate Loan UPB): |
[____%] | |
LTV (Loan UPB): |
[____%] | |
Purchase Price: |
[$/£//A$____] (see Transaction Activity Log on Schedule 2) |
I-1
1 |
For Foreign Purchased Loans. |
2 |
For Foreign Purchased Loans denominated in AU Dollars where underlying Mortgaged Property is denominated in currency other than AU Dollars. |
3 |
For Foreign Purchased Loans denominated in Euro where underlying Mortgaged Property is denominated in currency other than Euro. |
4 |
For Foreign Purchased Loans denominated in Pounds Sterling where underlying Mortgaged Property is denominated in currency other than Pounds Sterling. |
5 |
As mutually agreed upon by Buyer and Seller. |
6 |
For Foreign Purchased Loans, as necessary pursuant to clause (iii) of the definition of Business Day. |
7 |
If different than the standard wiring instructions on Annex I to the Master Repurchase Agreement, Confirmation requires signature of two officers of Seller. |
I-2
Name and address for communications: | Buyer : | Citibank, N.A. | ||||
388 Greenwich Street | ||||||
New York, New York 10013 | ||||||
Attention: Richard Schlenger | ||||||
Tel: (212) 816-7806 | ||||||
Email: Richard.Schlenger@Citi.com | ||||||
Seller : | [ ], LLC | |||||
c/o Blackstone Mortgage Trust, Inc. | ||||||
345 Park Avenue | ||||||
New York, NY 10154 | ||||||
Attention: Douglas Armer | ||||||
Tel: (212) 583-5000 | ||||||
Email: | ||||||
BXMTCitiRepo@blackstone.com |
I-3
CITIBANK, N.A. |
By: |
|
Name: |
|
Title: |
|
AGREED AND ACKNOWLEDGED: | ||
[ ], LLC, a Delaware limited liability company |
By: |
|
Name: | ||
Title: |
[By: |
|
Name: | ||
Title:] 8 |
8 |
Second signature of Seller is only needed if Seller is directing Buyer to fund to an account other than Sellers account specified in Annex I to the Master Repurchase Agreement. |
I-4
Schedule 1 to Confirmation Statement
Purchased Loan:
[Maximum] Aggregate Principal Amount:
[Additional Transaction Conditions Precedent:]
[Other Applicable Business Day:]
I-5
Schedule 2 to Confirmation Statement
I-6
Schedule 3 to Confirmation Statement
Wiring Instructions
Bank Name: _____________
ABA No/BIC/SWIFT: _____________
Acct. No: _______________
Account Name: _____________
I-7
EXHIBIT II
AUTHORIZED REPRESENTATIVES OF SELLERS
Name |
Office |
Specimen Signature |
||||||
Stephen D. Plavin | Chief Executive Officer, President and Director |
/s/ Stephen D. Plavin |
||||||
Douglas N. Armer | Managing Director, Head of Capital Markets and Treasurer |
/s/ Douglas N. Armer |
||||||
Anthony F. Marone, Jr. | Managing Director and Chief Financial Officer |
/s/ Anthony F. Marone, Jr. |
||||||
Leon Volchyok | Principal, Head of Legal and Compliance and Secretary |
/s/ Leon Volchyok |
||||||
Thomas C. Ruffing | Managing Director, Head of Asset Management |
/s/ Thomas C. Ruffing |
||||||
Weston Tucker | Managing Director, Head of Investor Relations |
/s/ Weston Tucker |
II-1
EXHIBIT III
FORM OF CUSTODIAL DELIVERY
On this [ ] day of [ ], 20[ ], [ ], LLC, a Delaware limited liability company ( Seller ), pursuant to (i) that certain Second Amended and Restated Custodial Agreement, dated as of October 12, 2018 (as amended, modified or supplemented from time to time, the Custodial Agreement ), among Seller, [ list Seller entities other than Seller defined hereunder ], U.S. Bank National Association, as Custodian, and Citibank, N.A. ( Buyer ) and (ii) that certain Third Amended and Restated Master Repurchase Agreement, dated as of October 12, 2018 (as amended, modified or supplemented from time to time, the Repurchase Agreement ), among Seller, [ list Seller entities other than Seller defined hereunder ], any Person that joins as a Seller (as such term is defined in the Agreement) under the Repurchase Agreement from time to time, and Buyer, does hereby deliver the documents comprising the Purchased Loan File(s) (and listed on Exhibit B hereto with respect to the Purchased Loan(s) identified in Exhibit A hereto) to (a) the applicable Acceptable Attorney, for such Acceptable Attorney to hold and deliver to Custodian as set forth therein, and (b) the Custodian (through such Acceptable Attorney aforesaid, pursuant to Section 7(b) of the Repurchase Agreement and that certain Attorneys Bailee Letter between such Acceptable Attorney and Seller dated as of [ ], 20[ ] (the Attorneys Bailee Letter )). Seller hereby instructs such Acceptable Attorney to comply with the terms of the Attorneys Bailee Letter, and hereby instructs Custodian to comply with the Custodial Agreement, in each case, holding the Purchased Loan File(s) for the benefit of Buyer.
With respect to the Purchased Loan File(s) delivered herewith, for purposes of issuing its Trust Receipt, Custodian shall review the Purchased Loan File(s) to confirm receipt of each of the documents identified on Exhibit B hereto.
Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Custodial Agreement.
[Remainder of this page intentionally left blank.]
III-1
IN WITNESS WHEREOF, Seller has caused this Custodial Delivery Certificate to be executed and delivered by its duly authorized officer as of the day and year first above written.
[ ], LLC , a Delaware limited liability company |
By: |
|
Name: | ||
Title: |
III-2
EXHIBIT IV
ELIGIBLE LOAN DUE DILIGENCE CHECKLIST
General Information
Asset Summary Report
Site Inspection Report
Maps and Photos
Borrower/Sponsor Information
Credit Reports
Financial Statements & Tax Returns
Borrower Structure or Org Chart
Bankruptcy and Foreclosure History
Corporate authorizations and solvency certificates delivered at closing of the Purchased Loan (Foreign Purchased Loan)
Property Information
Historical Operating Statements
Rent Rolls
Budget
Insurance Review
Retail Sales Figures
Market Survey
Insurance valuation (Foreign Purchased Loan)
Archaeological survey/ground condition report/structural survey/rights of light report/any other professional report delivered at the closing of the Purchased Loan (Foreign Purchased Loan) Certificate of Title/Report on Title and overview report of the same delivered at the closing of the Purchased Loan (Foreign Purchased Loan)
Evidence of the release of all prior security affecting all Mortgaged Property and other assets securing the Purchased Loan (Foreign Purchased Loan)
All necessary Land Registry application forms in relation to the transfer of and the charging of all Mortgaged Property securing the Purchased Loan (Foreign Purchased Loan)
A land transaction return in relation to any stamp duty land tax payable in connection with the transfer of any Mortgaged Property to the Mortgagor (Foreign Purchased Loan)
Copies of all authorisations necessary for the transfer and/or charging of all Mortgaged Property and other assets securing the Purchased Loan delivered at closing of the Purchased Loan (Foreign Purchased Loan)
Leasing Information
Stacking Plan
Major Leases
Tenant Estoppels
Standard Lease Forms
IV-1
SNDAs
Copies of all notices to the reversioner of any lease and copies of last rent demands (Foreign Purchased Loan)
Third Party Reports
Appraisals
Environmental Site Assessments
Engineering Reports
Seismic Reports
Other Information
Hotel Franchise Compliance Reports
Hotel Franchise Agreement
Hotel Franchise Comfort Letters
Ground Lease
Management Contract
Disclosures provided for in Exhibit VI (Foreign Purchased Loan)
Undertaking from solicitors holding the original title documentation (Foreign Purchased Loan)
Managing agent agreement and associated duty of care agreement (Foreign Purchased Loan)
All tax forms (including VAT registration certificates and double tax treaty confirmations) (Foreign Purchased Loan)
Documentation
Purchase and Sale Agreement
Closing Statement
Legal Binder
IV-2
EXHIBIT V-A
FORM OF POWER OF ATTORNEY FOR U.S. PURCHASED LOANS
Know All Men by These Presents, that [ ], LLC ( Seller ), does hereby appoint Citibank, N.A. ( Buyer ), its attorney-in-fact to act in Sellers name, place and stead in any way which Seller could do during the occurrence and continuance of an Event of Default and, subject to the following sentence, during the occurrence and continuance of a monetary Default or material non-monetary Default, with respect to (i) the completion of the endorsements of the Mortgage Notes and the Assignments of Mortgages, (ii) the recordation of the Assignments of Mortgages, and (iii) the enforcement of Sellers rights under the Purchased Loans purchased by Buyer pursuant to the Third Amended and Restated Master Repurchase Agreement dated as of October 12, 2018 (as amended, restated, supplemented or otherwise modified and in effect from time to time, the Repurchase Agreement ), among Buyer, Seller, [ list Seller entities other than Seller defined hereunder ] and any Person that joins as a Seller under the Repurchase Agreement from time to time, and to take such other steps as may be necessary or desirable to enforce Buyers rights against such Purchased Loans, the related Purchased Loan Files and the Servicing Records to the extent that Seller is permitted by law to act through an agent. If a monetary Default or a material non-monetary Default has occurred and is continuing and Buyer has requested in writing that Seller take or cause to be taken any action that Buyer deems reasonably necessary to preserve Buyers ability to enforce upon the Purchased Loans as and when permitted pursuant to Section 14(b) of the Repurchase Agreement (which writing shall include a statement that Buyer will exercise its power of attorney if Seller fails to take or cause to be taken such action requested by Buyer), and Seller has not complied with any such request promptly following receipt thereof, then Buyer may exercise its power of attorney during the existence and continuation of any such monetary Default or material non-monetary Default, as the case may be, as Buyer deems reasonably necessary to preserve Buyers ability to enforce upon the Purchased Loans as and when permitted pursuant to Section 14(b) of the Repurchase Agreement.
Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Repurchase Agreement.
TO INDUCE ANY THIRD PARTY TO ACT HEREUNDER, SELLER HEREBY AGREES THAT ANY THIRD PARTY RECEIVING A DULY EXECUTED COPY OF FACSIMILE OF THIS INSTRUMENT MAY ACT HEREUNDER, AND THAT REVOCATION OR TERMINATION HEREOF SHALL BE INEFFECTIVE AS TO SUCH THIRD PARTY UNLESS AND UNTIL ACTUAL NOTICE OR KNOWLEDGE OR SUCH REVOCATION OR TERMINATION SHALL HAVE BEEN RECEIVED BY SUCH THIRD PARTY, AND SELLER ON ITS OWN BEHALF AND ON BEHALF OF SELLERS ASSIGNS, HEREBY AGREES TO HOLD HARMLESS ANY SUCH THIRD PARTY FROM AND AGAINST ANY AND ALL CLAIMS THAT MAY ARISE AGAINST SUCH THIRD PARTY BY REASON OF SUCH THIRD PARTY HAVING RELIED ON THE PROVISIONS OF THIS INSTRUMENT.
V-1
IN WITNESS WHEREOF Seller has caused this Power of Attorney to be executed as a deed this day of , 20[ ].
[ ] , a Delaware limited liability company |
By: |
|
Name: | ||
Title: |
V-2
EXHIBIT V-B
FORM OF POWER OF ATTORNEY FOR FOREIGN PURCHASED LOANS 9
THIS POWER OF ATTORNEY is made and given on [ ], 20[ ], by [Parlex 2 UK Finco, LLC/Parlex 2 EUR Finco, LLC/Parlex 2 AU Finco, LLC], a limited liability company incorporated under the laws of Delaware whose registered office is at [ ] (the Seller ) in favour of Citibank, N.A., whose registered office is at [ ] (the Attorney ), for the purposes and on the terms hereinafter set forth.
(A) |
By the Third Amended and Restated Master Repurchase Agreement dated as of October 12, 2018 (as amended, restated, supplemented or otherwise modified and in effect from time to time, the Agreement ), Seller agreed to sell, and the Attorney agreed to purchase, the Purchased Loans on terms requiring Seller to repurchase the same on the terms set out therein. |
(B) |
In connection with the agreement of the Attorney to purchase the Purchased Loans, Seller has agreed to enter into these presents for the purposes hereinafter appearing. |
NOW THIS DEED WITNESSETH and SELLER HEREBY APPOINTS the Attorney to be its true and lawful attorney in the name of Seller or otherwise, for and on behalf of Seller to do any of the following acts, deeds and things or any of them:
date and deliver to the facility agent [and/or security trustee (if applicable)] 10 for execution any Transfer Certificate executed by Seller,
take any action (including exercising voting and/or consent rights) with respect to any participation interest,
complete the preparation and filing, in form and substance satisfactory to Buyer, of such financing statements, continuation statements, [financing change statements] 11 and other UCC forms [(or forms required for registration on the PPS Register)] 12 , as Buyer may from time to time, reasonably consider necessary to create, perfect, and preserve Buyers security interest in the Purchased Loans,
enforce Sellers rights under the Purchased Loans purchased by Buyer pursuant to the Agreement,
9 |
On the Purchase Date for each Foreign Purchased Loan secured by Mortgaged Property located outside of the United Kingdom, Belgium and Australia, this Exhibit V-A shall be reasonably revised as mutually agreed upon by Buyer and Seller to reflect any equivalent terminology, customary market practices and Requirements of Law in the relevant non-U.S. jurisdiction, in each case applicable to such Foreign Purchased Loan. |
10 |
Include for each Foreign Purchased Loan (AU). |
11 |
Include for each Foreign Purchased Loan (AU). |
12 |
Include for each Foreign Purchased Loan (AU). |
V-1
to take such other steps as may be necessary or desirable to fully and effectively transfer Sellers rights, title and interests in the Purchased Loans to Buyer or to enforce Buyers rights against, under or with respect to such Purchased Loans and the related Purchased Loans Files and the Servicing Records or to enforce Sellers rights under the Purchased Loans purchased by Buyer pursuant to the Agreement,
provided that Attorney agrees not to exercise its rights under this instrument unless a monetary Default, material non-monetary Default or an Event of Default has occurred and is continuing.
The Attorney shall have the power in writing under seal by an officer of the Attorney from time to time to appoint a substitute (each, a Substitute Attorney ) who shall have the power to act on behalf of Seller (whether concurrently with or independently of the Attorney) as if that Substitute Attorney shall have been originally appointed as the Attorney by this Deed and/or to revoke any such appointment at any time without assigning any reason therefor provided the Attorney shall continue to be liable for the negligence, wilful misconduct or bad faith of any such Substitute Attorney appointed by it.
Seller hereby agrees at all times hereafter to ratify and confirm whatever the Attorney or any Substitute Attorney lawfully does or purports to do in the exercise of any power conferred by this Power of Attorney.
SELLER DECLARES THAT:
This Power of Attorney shall be irrevocable and is given as security for the interests of the Attorney under the Agreement and will survive and not be affected by the subsequent bankruptcy or insolvency or dissolution of Seller.
Words and expressions defined in the Agreement shall have the same meanings in this Power of Attorney except so far as the context otherwise requires.
This Power of Attorney is governed by and shall be construed in accordance with [ ] law.
V-2
IN WITNESS WHEREOF Seller has caused this Power of Attorney to be executed as a deed this [ ] day of [ ], 20[ ].
[PARLEX 2 UK FINCO, LLC/PARLEX 2 EUR | ||||
FINCO, LLC/PARLEX 2 AU FINCO, LLC], a | ||||
Delaware limited liability company 13 | ||||
By: | ||||
Name: |
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Title: |
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13 |
For each Foreign Purchased Loan (AU), add execution block for a witness. |
V-3
EXHIBIT VI-I
REPRESENTATIONS AND WARRANTIES
REGARDING EACH INDIVIDUAL PURCHASED LOAN WHICH IS NOT A FOREIGN
PURCHASED LOAN (AU) OR A PARTICIPATION INTEREST IN A WHOLE LOAN
On the Purchase Date for each Foreign Purchased Loan (EUR) or Foreign Purchased Loan (GBP) secured by Mortgaged Property located outside of the United Kingdom, the representations and warranties set forth on this Exhibit VI-I shall be revised to the extent necessary, as mutually agreed upon by Buyer and Seller, to reflect any equivalent terminology, customary market practices and Requirements of Law in the relevant non-U.S. jurisdiction, in each case applicable to such Foreign Purchased Loan.
With respect to Foreign Purchased Loans, any reference in this Exhibit to a Mortgage shall be deemed to refer to all security documents entered into in connection with such Foreign Purchased Loan and any reference to Mortgaged Property shall mean the real property and other assets and rights securing repayment of the Foreign Purchased Loan.
(1) |
Whole Loan; Ownership of Purchased Loans . Except with respect to a Purchased Loan that is part of a Whole Loan, each Purchased Loan is a whole loan and not a participation interest in a Purchased Loan. Each Purchased Loan that is part of a Whole Loan is a senior portion of a whole mortgage loan evidenced by a senior note or, with respect to any Foreign Purchased Loan, other applicable Purchased Loan Document. At the time of the sale, transfer and assignment to Buyer, no Mortgage Note or Mortgage (or, with respect to a Foreign Purchased Loan, any other applicable Purchased Loan Document) was subject to any assignment, participation or pledge, and Seller had good title to, and was the sole owner (or, in relation to a Foreign Purchased Loan, the sole legal and beneficial owner) of, each Purchased Loan free and clear of any and all liens, charges, pledges, encumbrances, participations, any other ownership interests on, in or to such Purchased Loan other than any servicing rights appointment or similar agreement and rights of the holder of a related B note in an A/B structure in a commercial real estate loan (a Junior Interest ). Seller has full right and authority to sell, assign and transfer each Purchased Loan, and the assignment to Buyer constitutes a legal, valid and binding assignment of such Purchased Loan free and clear of any and all liens, pledges, charges or security interests of any nature encumbering such Purchased Loan other than the rights of the holder of a related Junior Interest. |
(2) |
Loan Document Status . Each related Mortgage Note, Mortgage, Assignment of Leases (if a separate instrument), guaranty and other agreement executed by or on behalf of the related Mortgagor, guarantor or other obligor in connection with such Purchased Loan is the legal, valid and binding obligation of the related Mortgagor, guarantor or other obligor (subject to any non-recourse provisions contained in any of the foregoing |
VI-I-1
agreements and any applicable state anti-deficiency or market value limit deficiency legislation), as applicable, and is enforceable in accordance with its terms, except (i) as such enforcement may be limited by (a) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws affecting the enforcement of creditors rights generally and (b) general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law) and (ii) that certain provisions in such Purchased Loan Documents (including, without limitation, provisions requiring the payment of default interest, late fees or prepayment/yield maintenance fees, charges and/or premiums) are, or may be, further limited or rendered unenforceable by or under applicable law, but (subject to the limitations set forth in clause (i) above) such limitations or unenforceability will not render such Purchased Loan Documents invalid as a whole or materially interfere with the Mortgagees realization of the principal benefits and/or security provided thereby (clauses (i) and (ii) collectively, the Standard Qualifications ).
Except as set forth in the immediately preceding sentence, there is no valid offset, defense, counterclaim or right of rescission available to the related Mortgagor with respect to any of the related Mortgage Notes, Mortgages or other Purchased Loan Documents, including, without limitation, any such valid offset, defense, counterclaim or right based on intentional fraud by Seller in connection with the origination of the Purchased Loan, that would deny the Mortgagee the principal benefits intended to be provided by the Mortgage Note, Mortgage or other Purchased Loan Documents.
(3) |
Mortgage Provisions . The Purchased Loan Documents for each Purchased Loan contain provisions that render the rights and remedies of the holder thereof adequate for the practical realization against the Mortgaged Property of the principal benefits of the security intended to be provided thereby, including realization by judicial or, if applicable, nonjudicial foreclosure subject to the limitations set forth in the Standard Qualifications. |
(4) |
Mortgage Status; Waivers and Modifications . Since origination and except by written instruments set forth in the related Purchased Loan File (a) the material terms of such Mortgage, Mortgage Note, Purchased Loan guaranty, and related Purchased Loan Documents have not been waived, impaired, modified, altered, satisfied, canceled, subordinated or rescinded in any respect which materially interferes with the security intended to be provided by such Mortgage; (b) no related Mortgaged Property or any portion thereof has been released from the lien of the related Mortgage in any manner which materially interferes with the security intended to be provided by such Mortgage or the use or operation of the remaining portion of such Mortgaged Property; and (c) neither the related Mortgagor nor the related guarantor has been released from any of its material obligations under the Purchased Loan. |
VI-I-2
(5) |
Lien; Valid Assignment . Subject to the Standard Qualifications, each assignment of Mortgage and assignment of Assignment of Leases to the Mortgagee and, with respect to any Foreign Purchased Loan, assignment of any other applicable Purchased Loan Document, constitutes a legal, valid and binding assignment to the Mortgagee. Each related Mortgage and Assignment of Leases and applicable Purchased Loan Document is freely assignable or transferable without the consent of or any requirement to consult with or obtain authorization or consent from the related Mortgagor. |
Each related Mortgage is a legal, valid and enforceable first lien or other first priority security interest on the related Mortgagors fee (or if identified in the Due Diligence Package, leasehold) interest in the Mortgaged Property in the principal amount of such Purchased Loan or allocated loan amount (subject only to (i) Permitted Encumbrances (as defined below); (ii) with respect to any U.S. Purchased Loan, the exceptions to paragraph 6 ( Permitted Liens; Title Insurance ) of this Exhibit VI set forth in the related report delivered by Seller to Buyer of any exceptions to the representations and warranties set forth in this Exhibit VI; and (iii) with respect to any Foreign Purchased Loan, matters that have been disclosed by or on behalf of the applicable Seller to Buyer in writing prior to the Purchase Date as part of the Due Diligence Package (each such exception in the foregoing clauses (i) through (iii), a Title Exception )), except as the enforcement thereof may be limited by the Standard Qualifications. Except as otherwise set forth in the Title Policy (as hereinafter defined) relating to any U.S. Purchased Loan, or, with respect to any Foreign Purchased Loan, that has been disclosed by or on behalf of the applicable Seller to Buyer in writing prior to the Purchase Date as part of the Due Diligence Package, such Mortgaged Property (subject to and excepting Permitted Encumbrances and Title Exceptions) as of origination was, and currently is, free and clear of any recorded mechanics liens, recorded materialmens liens (or, with respect to any Foreign Purchased Loan, the equivalent in the relevant non-U.S. jurisdiction) and other recorded encumbrances which are prior to or equal with the lien of the related Mortgage, except those which are bonded over, escrowed for or insured against by a lenders title insurance policy (as described below), and, subject to the rights of tenants (as tenants only) (subject to and excepting Permitted Encumbrances), no rights exist which under law could give rise to any such lien or encumbrance that would be prior to or equal with the lien of the related Mortgage, except those which are bonded over, escrowed for or insured against by a lenders title insurance policy (as described below). Notwithstanding anything herein to the contrary and in relation to U.S Purchased Loans only, no representation is made as to the perfection of any security interest in rents or other personal property to the extent that possession or control of such items or actions other than the filing of Uniform Commercial Code financing statements is required in order to effect such perfection.
With respect to Foreign Purchased Loans, all actions have been taken and all filings, recordings and registrations have been made (or will have been submitted in proper form for filing, recording and/or registration within any applicable time limits prescribed by applicable Requirements of Law) in all public places necessary to perfect a valid first priority security interest in the Mortgaged Property and the security created by such Mortgage.
VI-I-3
(6) |
Permitted Liens; Title Insurance . In respect of any U.S. Purchased Loan, Mortgaged Property securing a Purchased Loan is covered by an American Land Title Association loan title insurance policy or a comparable form of loan title insurance policy approved for use in the applicable jurisdiction (or, if such policy is yet to be issued, by a pro forma policy, a preliminary title policy with escrow instructions or a marked up commitment, in each case binding on the title insurer) (the Title Policy ) in the original principal amount of such Purchased Loan (or with respect to a Purchased Loan secured by multiple properties, an amount equal to at least the allocated loan amount with respect to the Title Policy for each such property) after all advances of principal (including any advances held in escrow or reserves), that insures for the benefit of the owner of the indebtedness secured by the Mortgage, the first priority lien of the Mortgage, which lien is subject only to (a) the lien of current real property taxes, water charges, sewer rents and assessments due and payable but not yet delinquent; (b) covenants, conditions and restrictions, rights of way, easements and other matters of public record; (c) the exceptions (general and specific) and exclusions set forth in such Title Policy; (d) other matters to which like properties are commonly subject; (e) the rights of tenants (as tenants only) under leases (including subleases) pertaining to the related Mortgaged Property and condominium declarations; (f) if the related Purchased Loan is part of a Whole Loan, the rights of the holder of the related Junior Interest; and (g) if the related Purchased Loan is cross-collateralized and cross-defaulted with one or more mortgage loans, the lien of the Mortgage for another mortgage loan contained in the same cross-collateralized and cross-defaulted group of mortgage loans; provided that none of which items (a) through (f), individually or in the aggregate, materially and adversely interferes with the value or current use of the Mortgaged Property or the security intended to be provided by such Mortgage or the Mortgagors ability to pay its obligations when they become due (collectively, the Permitted Encumbrances (which term, for the avoidance of doubt, is also applicable to Foreign Purchased Loans for purposes of this Exhibit VI)). Except as contemplated by clause (g) of the preceding sentence, none of the Permitted Encumbrances are mortgage liens that are senior to or coordinate and co-equal with the lien of the related Mortgage. With respect to such U.S. Purchased Loan, such Title Policy (or, if it has yet to be issued, the coverage to be provided thereby) is in full force and effect, all premiums thereon have been paid and no claims have been made by Seller thereunder and no claims have been paid thereunder. Neither Seller, nor to Sellers Actual Knowledge, any other holder of such U.S. Purchased Loan, has done, by act or omission, anything that would materially impair the coverage under such Title Policy. |
(7) |
Junior Liens . It being understood that B notes secured by the same Mortgage as a Purchased Loan are not subordinate mortgages or junior liens, except for any Junior Interests and Purchased Loan that is cross-collateralized and cross-defaulted with another Purchased Loan, there are, as of origination, and to Sellers Actual Knowledge, no subordinate mortgages or junior liens securing the payment of money encumbering the related Mortgaged Property (other than, as applicable, Permitted Encumbrances and the Title Exceptions, taxes and assessments, mechanics and materialmens liens (which are |
VI-I-4
the subject of the representation in paragraph (5) above), and equipment and other personal property financing). Except as set forth in the Due Diligence Package, Seller has no Actual Knowledge of any mezzanine debt secured directly by interests in the related Mortgagor.
(8) |
Assignment of Leases and Rents . There exists as part of the related Purchased Loan File an Assignment of Leases (either as a separate instrument or incorporated into the related Mortgage) or, with respect to any Foreign Purchased Loan, other applicable comparable Purchased Loan Document in the applicable jurisdiction. Subject to the Permitted Encumbrances and the Title Exceptions, as applicable, and with respect to any Foreign Purchased Loan, to the extent disclosed by or on behalf of the applicable Seller to Buyer in writing prior to the Purchase Date as part of the Due Diligence Package, each related Assignment of Leases or Purchased Loan Document, as applicable, creates a valid first-priority collateral assignment of, or a valid first-priority lien or security interest in, rents and certain rights under the related lease or leases, subject only to a license granted to the related Mortgagor to exercise certain rights and to perform certain obligations of the lessor under such lease or leases, including the right to operate the related leased property, except as the enforcement thereof may be limited by the Standard Qualifications. The related Mortgage or related Assignment of Leases or Purchased Loan Document, as applicable, subject to applicable law and the Standard Qualifications, provides that, upon an event of default under the Purchased Loan, a receiver is permitted to be appointed for the collection of rents or for the related Mortgagee to enter into possession to collect the rents or for rents to be paid directly to the Mortgagee. |
(9) |
UCC Filings / Required Filings . With respect to (i) any Foreign Purchased Loan regardless of the type of related Mortgaged Property and (ii) any U.S. Purchased Loan where the related Mortgaged Property is operated as a hospitality property, Seller has filed and/or recorded or caused to be filed and/or recorded (or, if not filed and/or recorded, have been submitted in proper form for filing and/or recording), UCC financing statements (or, with respect to any Foreign Purchased Loan, the equivalent under Applicable Requirements of Law in the relevant non-U.S. jurisdiction or Required Filings) in the appropriate public filing and/or recording offices necessary at the time of the origination of the Purchased Loan to perfect a valid security interest in all items of physical personal property reasonably necessary to operate such Mortgaged Property owned by such Mortgagor and located on the related Mortgaged Property (other than any non-material personal property, any personal property subject to a purchase money security interest, a sale and leaseback financing arrangement as permitted under the terms of the related Purchased Loan Documents or any other personal property leases applicable to such personal property), to the extent perfection may be effected pursuant to applicable law by recording or filing, as the case may be. Subject to the Standard Qualifications, each related Mortgage (or equivalent document) creates a valid and enforceable lien and security interest on the items of personalty described above. No representation is made as to the perfection of any security interest in rents or other personal property to the extent that possession or control of such items or actions other than the filing of UCC financing statements (or, with respect to any Foreign Purchased Loan, the equivalent under Applicable Requirements of Law in the relevant non-U.S. jurisdiction or Required Filings) are required in order to effect such perfection. |
VI-I-5
(10) |
Condition of Property . Seller or the originator of the Purchased Loan inspected or caused to be inspected each related Mortgaged Property within six months of origination of the Purchased Loan and within thirteen months of the Purchase Date. |
An engineering report or property condition assessment (and, with respect to Foreign Purchased Loans, such other engineering, property and technical reports that are customarily prepared in connection with the origination of such Foreign Purchased Loans) was prepared in connection with the origination of each Purchased Loan no more than thirteen months prior to the Purchase Date. To Sellers Actual Knowledge, based solely upon due diligence customarily performed in connection with the origination of comparable mortgage loans, and except as disclosed on any engineering report or property condition assessment (or, with respect to Foreign Purchased Loans, such other engineering, property and technical reports) delivered to Buyer, as of the Purchase Date, each related Mortgaged Property was free and clear of any material damage (other than (i) deferred maintenance for which escrows were established at origination and (ii) any damage fully covered by insurance) that would affect materially and adversely the use or value of such Mortgaged Property as security for the Purchased Loan.
(11) |
Taxes and Assessments . All taxes, governmental assessments and other outstanding governmental charges (including, without limitation, water and sewage charges), or installments thereof, which could be a lien on the related Mortgaged Property that would be of equal or superior priority to the lien of the Mortgage and that prior to the Purchase Date have become delinquent in respect of each related Mortgaged Property, to Sellers Actual Knowledge, have been paid, or an escrow of funds has been established in an amount sufficient to cover such payments and reasonably estimated interest and penalties, if any, thereon. For purposes of this representation and warranty, real estate taxes and governmental assessments and other outstanding governmental charges and installments thereof shall not be considered delinquent until the earlier of (a) the date on which interest and/or penalties would first be payable thereon and (b) the date on which enforcement action is entitled to be taken by the related taxing authority. |
(12) |
Condemnation . To Sellers Actual Knowledge, as of the Purchase Date, Seller has not received written notice from any government agency or body of any proceeding pending or threatened, for the total or partial condemnation of such Mortgaged Property that would have a material adverse effect on the value, use or operation of the Mortgaged Property. |
VI-I-6
(13) |
Actions Concerning Purchased Loan . To Sellers Actual Knowledge as of the Purchase Date, there was no pending or filed action, suit or proceeding, arbitration or governmental investigation involving any Mortgagor, guarantor, or Mortgagors interest in the Mortgaged Property, the Mortgage or any other Purchased Loan Document, an adverse outcome of which would reasonably be expected to materially and adversely affect (a) such Mortgagors title to the Mortgaged Property, (b) the validity or enforceability of the Mortgage, (c) such Mortgagors ability to perform under the related Purchased Loan, (d) such guarantors ability to perform under the related guaranty, (e) the principal benefit of the security intended to be provided by the Purchased Loan Documents, (f) the current principal use of the Mortgaged Property or (g) title or ownership of Seller and/or Buyer of the Purchased Loan Documents and/or the rights, title and interests thereunder. |
(14) |
Escrow Deposits . All escrow deposits and payments required to be escrowed with Mortgagee pursuant to each Purchased Loan are in the possession, or under the control, of Seller or its servicer, and there are no deficiencies (subject to any applicable grace or cure periods) in connection therewith, and all such escrows and deposits (or the right thereto) that are required to be escrowed with Mortgagee under the related Purchased Loan Documents are being conveyed by Seller to Buyer or its servicer. |
(15) |
No Holdbacks . Except as for Purchased Loans identified to Buyer in connection with the subject transaction as having future advances, the principal amount of the Purchased Loan stated in the Due Diligence Package has been fully disbursed as of the Purchase Date and there is no requirement for future advances thereunder (except in those cases where the full amount of the Purchased Loan has been disbursed but a portion thereof is being held in escrow or reserve accounts pending the satisfaction of certain conditions relating to leasing, repairs or other matters with respect to the related Mortgaged Property, the Mortgagor or other considerations determined by Seller to merit such holdback). |
(16) |
Insurance . Each related Mortgaged Property is, and is required pursuant to the related Mortgage to be, insured by a property insurance policy providing coverage for loss in accordance with coverage found under a special cause of loss form or all risk form that includes replacement cost valuation issued by an insurer meeting the requirements of the related Purchased Loan Documents and having a claims-paying or financial strength rating of at least A-:VIII from A.M. Best Company or A3 (or the equivalent) from Moodys Investors Service, Inc. or A- from Standard & Poors Ratings Service (with respect to any Foreign Purchased Loan, other equivalent rating from a comparable rating company) (collectively, the Insurance Rating Requirements ), in an amount (subject to a customary deductible) not less than the lesser of (1) the outstanding principal balance of the Purchased Loan and (2) the full insurable value on a replacement cost basis of the improvements, furniture, furnishings, fixtures and equipment owned by the Mortgagor and included in the Mortgaged Property (with no deduction for physical depreciation), but, in any event, not less than the amount necessary or containing such endorsements as are necessary to avoid the operation of any coinsurance provisions with respect to the related Mortgaged Property. |
VI-I-7
Each related Mortgaged Property is also covered, and required to be covered pursuant to the related Purchased Loan Documents, by business interruption or rental loss insurance which (subject to a customary deductible) covers a period of not less than 12 months (or with respect to each Purchased Loan on a single asset with a principal balance of $50 million (or, with respect to any Foreign Purchased Loan, its then- current equivalent based on the Spot Rate with respect to the Applicable Currency of such Foreign Purchased Loan as of the date of determination) or more, 18 months).
If any material part of the improvements, exclusive of a parking lot, located on a Mortgaged Property is in an area identified in the Federal Register by the Federal Emergency Management Agency (or other applicable body with respect to a Foreign Purchased Loan) as a Special Flood Hazard Area or, with respect to any such Foreign Purchased Loan, otherwise as having special flood hazards, the related Mortgagor is required to maintain insurance in the maximum amount available under the National Flood Insurance Program (or, with respect to a Foreign Purchased Loan, in such amount as is customary in the applicable non-U.S. jurisdiction).
If the Mortgaged Property is located within 25 miles of the coast of the Gulf of Mexico or the Atlantic coast of Florida, Georgia, South Carolina or North Carolina, the related Mortgagor is required to maintain coverage for windstorm and/or windstorm related perils and/or named storms issued by an insurer meeting the Insurance Rating Requirements or endorsement covering damage from windstorm and/or windstorm related perils and/or named storms.
The Mortgaged Property is covered, and required to be covered pursuant to the related Purchased Loan Documents, by a commercial general liability insurance policy issued by an insurer meeting the Insurance Rating Requirements including coverage for property damage, contractual damage and personal injury (including bodily injury and death) in amounts as are generally required by prudent institutional commercial mortgage lenders, and in any event not less than $1 million per occurrence and $2 million in the aggregate (or, in each case, with respect to any Foreign Purchased Loan, its then-current equivalent based on the Spot Rate with respect to the Applicable Currency of such Foreign Purchased Loan as of the date of determination).
With respect to a U.S. Purchased Loan, an architectural or engineering consultant has performed an analysis of each of the Mortgaged Properties located in seismic zones 3 or 4 in order to evaluate the structural and seismic condition of such property, for the sole purpose of assessing the scenario expected limit (SEL) for the Mortgaged Property in the event of an earthquake. In such instance, the SEL was based on a 475-year return period, an exposure period of 50 years and a 10% probability of exceedance. If the resulting report concluded that the SEL would exceed 20% of the amount of the replacement costs of the improvements, earthquake insurance on such Mortgaged Property was obtained by an insurer rated at least A:VIII by A.M. Best Company or A3 (or the equivalent) from Moodys Investors Service, Inc. or A- by Standard & Poors Ratings Service in an amount not less than 100% of the SEL.
VI-I-8
The related Purchased Loan Documents require insurance proceeds in respect of a property loss to be applied either (a) to the repair or restoration of all or part of the related Mortgaged Property, with respect to all property losses in excess of 5% of the then outstanding principal amount of the related Purchased Loan, the Mortgagee (or a trustee appointed by it) having the right to hold and disburse such proceeds as the repair or restoration progresses, or (b) to the payment of the outstanding principal balance of such Purchased Loan together with any accrued interest thereon.
All premiums on all insurance policies referred to in this section due and payable as of the Purchase Date have been paid, and such insurance policies name the Mortgagee under the Purchased Loan and its successors and assigns as a loss payee under a mortgagee endorsement clause or, in the case of the general liability insurance policy, as named or additional insured. Such insurance policies will inure to the benefit of Buyer. Each related Purchased Loan obligates the related Mortgagor to maintain or cause to be maintained all such insurance and, at such Mortgagors failure to do so, authorizes the Mortgagee to maintain such insurance at the Mortgagors reasonable cost and expense and to charge such Mortgagor for related premiums. All such insurance policies (other than commercial liability policies) require prior notice as provided in the Purchased Loan Documents to the lender of termination or cancellation (or such lesser period, as may be required by applicable law) arising for any reason other than non-payment of a premium and no such notice has been received by Seller.
(17) |
Access; Utilities; Separate Tax Lots . To Sellers Actual Knowledge, based solely upon Sellers review of the related Title Policy (if applicable) and current surveys obtained in connection with origination, each Mortgaged Property (a) is located on or adjacent to a public road and has direct legal access to such road, or has access via an irrevocable easement or irrevocable right of way permitting ingress and egress to/from a public road, (b) is served by or has uninhibited access rights to public or private water and sewer (or well and septic) and all required utilities, all of which are appropriate for the current use of the Mortgaged Property, and (c) constitutes one or more separate tax parcels (if applicable) which do not include any property which is not part of the Mortgaged Property or, if applicable, is subject to an endorsement under the related Title Policy insuring the Mortgaged Property or, with respect to any Foreign Purchased Loan, except as disclosed by or on behalf of the applicable Seller to Buyer in writing prior to the Purchase Date as part of the Due Diligence Package, or in certain cases, an application has been, or will be, made to the applicable governing authority for creation of separate tax lots, in which case the Purchased Loan requires the Mortgagor to escrow an amount sufficient to pay taxes for the existing tax parcel of which the Mortgaged Property is a part until the separate tax lots are created. |
VI-I-9
(18) |
No Encroachments . To Sellers Actual Knowledge based solely on current surveys and, with respect to a U.S. Purchased Loan, the Mortgagees Title Policy (or, if such policy is not yet issued, a pro forma title policy, a preliminary title policy with escrow instructions or a marked up commitment) obtained in connection with the origination of each Purchased Loan, or, with respect to any Foreign Purchased Loan, except as disclosed by or on behalf of the applicable Seller to Buyer in writing prior to the Purchase Date, (a) all material improvements that were included for the purpose of determining the appraised value of the related Mortgaged Property at the time of the origination of such Purchased Loan are within the boundaries of the related Mortgaged Property, except encroachments that do not materially and adversely affect the value or current use of such Mortgaged Property or, with respect to a U.S. Purchased Loan, for which encroachments insurance or endorsements were obtained under the Title Policy, (b) no improvements on adjoining parcels encroach onto the related Mortgaged Property except for encroachments that do not materially and adversely affect the value or current use of such Mortgaged Property or, with respect to a U.S. Purchased Loan, for which encroachments insurance or endorsements were obtained under the Title Policy, and (c) no improvements encroach upon any easements except for encroachments the removal of which would not materially and adversely affect the value or current use of such Mortgaged Property or, with respect to a U.S. Purchased Loan, for which encroachments insurance or endorsements obtained with respect to the Title Policy. |
(19) |
No Contingent Interest or Equity Participation . No Purchased Loan has a shared appreciation feature, any other contingent interest feature or a negative amortization feature (except that an ARD Loan may provide for the accrual of the portion of interest in excess of the rate in effect prior to the anticipated repayment date) or an equity participation by Seller (excluding any equity interest held or pledged in connection with a Mezzanine Loan or preferred equity interest). |
(20) |
REMIC . In respect of a U.S. Purchased Loan, to the extent such Purchased Loan is identified as being REMIC eligible, the Purchased Loan is a qualified mortgage within the meaning of Section 860G(a)(3) of the Code (but determined without regard to the rule in the Treasury Regulations Section 1.860G-2(f)(2) that treats certain defective mortgage loans as qualified mortgages), and, accordingly, (A) the issue price of the Purchased Loan to the related Mortgagor at origination did not exceed the non-contingent principal amount of the Purchased Loan and (B) either: (a) such Purchased Loan is secured by an interest in real property (including buildings and structural components thereof, but excluding personal property) having a fair market value (i) at the date the Purchased Loan was originated at least equal to 80% of the adjusted issue price of the Purchased Loan on such date or (ii) at the Purchase Date at least equal to 80% of the adjusted issue price of the Purchased Loan on such date, provided that for purposes hereof, the fair market value of the real property interest must first be reduced by (A) the amount of any lien on the real property interest that is senior to the Purchased Loan and (B) a proportionate amount of any lien that is in parity with the Purchased Loan; or (b) substantially all of the proceeds of such Purchased Loan were used to acquire, improve or protect the real |
VI-I-10
property which served as the only security for such Purchased Loan (other than a recourse feature or other third-party credit enhancement within the meaning of Treasury Regulations Section 1.860G-2(a)(1)(ii)). If such U.S. Purchased Loan was significantly modified prior to the Purchase Date so as to result in a taxable exchange under Section 1001 of the Code, it either (x) was modified as a result of the default or reasonably foreseeable default of such Purchased Loan or (y) satisfies the provisions of either sub-clause (B)(a)(i) above (substituting the date of the last such modification for the date the Purchased Loan was originated) or sub- clause (B)(a)(ii), including the proviso thereto. Any prepayment premium and yield maintenance charges applicable to such U.S. Purchased Loan constitute customary prepayment penalties within the meaning of Treasury Regulations Section 1.860G-1(b)(2). All terms used in this paragraph shall have the same meanings as set forth in the related Treasury Regulations.
(21) |
Compliance with Usury Laws . To Sellers Actual Knowledge, in reliance solely upon legal opinions delivered in connection with a Purchased Loan, the interest rate (exclusive of any default interest, late charges, yield maintenance charge, or prepayment premiums) of such Purchased Loan complied as of the date of origination with, or was exempt from, applicable laws including state or federal laws, regulations and other requirements pertaining to usury. |
(22) |
Authorized to do Business . To the extent required under applicable law, as of the Purchase Date or as of the date that such entity held the Mortgage Note, each holder of the Mortgage Note was authorized to transact and do business in the jurisdiction in which each related Mortgaged Property is located, or the failure to be so authorized does not materially and adversely affect the enforceability of such Purchased Loan by Buyer. |
(23) |
Trustee under Deed of Trust . With respect to each Mortgage which is a deed of trust, as of the date of origination and, to Sellers Actual Knowledge, as of the Purchase Date, a trustee, duly qualified under applicable law to serve as such, currently so serves and is named in the deed of trust or has been substituted in accordance with the Mortgage and applicable law or may be substituted in accordance with the Mortgage and applicable law by the related Mortgagee. |
To the extent applicable, if any Mortgage is held in trust for the lender and/or related parties:
(a) a trustee, duly qualified under applicable law to serve as such, is properly designated and serving as such; and
(b) no fees or expenses other than customary fees, costs and indemnities (including annual agency/security agency fees, transfer fees and fees for management time) are payable to such trustee by Seller if the related Mortgagor does not fulfill its obligations to pay such amounts under the Purchased Loan.
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(24) |
Local Law Compliance . To Sellers Actual Knowledge, based solely upon any of a letter from any governmental authorities, a legal opinion, an architects letter, a zoning consultants report, an endorsement to the related Title Policy (if applicable), or other affirmative investigation of local law compliance consistent with the investigation conducted by Seller for similar commercial and multifamily mortgage loans intended for securitization, the improvements located on or forming part of each Mortgaged Property securing a Purchased Loan as of the date of origination of such Purchased Loan (or related Whole Loan, as applicable) and as of the Purchase Date, there are no material violations of applicable zoning ordinances, building codes and land laws (collectively Zoning Regulations ) other than those which (i) are insured by the Title Policy or a law and ordinance insurance policy, or, with respect to a Foreign Purchased Loan, matters that have been described in the related Property Report, (ii) are adequately reserved for in accordance with the Purchased Loan Documents, or (iii) would not have a material adverse effect on the value, operation or net operating income of the Mortgaged Property. The terms of the Purchased Loan Documents require the Mortgagor to comply in all material respects with all applicable governmental regulations, zoning and building laws. |
(25) |
Licenses and Permits . Each Mortgagor covenants in the Purchased Loan Documents that it shall keep all material licenses, permits and applicable governmental authorizations necessary for its operation of the Mortgaged Property in full force and effect, and to Sellers Actual Knowledge based upon any of a letter from any government authorities or other affirmative investigation of local law compliance consistent with the investigation conducted by Seller for similar commercial and multifamily mortgage loans intended for securitization, all such material licenses, permits and applicable governmental authorizations are in effect. The Purchased Loan requires the related Mortgagor to be qualified to do business in the jurisdiction in which the related Mortgaged Property is located. |
(26) |
Recourse Obligations . The Purchased Loan Documents for each U.S. Purchased Loan provide that such Purchased Loan (a) becomes full recourse to the Mortgagor or guarantor (which is a natural person or persons, or an entity distinct from the Mortgagor (but may be affiliated with the Mortgagor) that has assets other than equity in the related Mortgaged Property that are not de minimis) in any of the following events: (i) if any voluntary petition for bankruptcy, insolvency, dissolution or liquidation pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by the Mortgagor; (ii) Mortgagor or guarantor shall have colluded with (or, alternatively, solicited or caused to be solicited) other creditors to cause an involuntary bankruptcy filing with respect to the Mortgagor or (iii) voluntary transfers of either the Mortgaged Property or equity interests in Mortgagor made in violation of the Purchased Loan Documents; and (b) contains provisions providing for recourse against the Mortgagor or guarantor (which is a natural person or persons, or an entity distinct from the Mortgagor (but may be affiliated with the Mortgagor) that has assets other than equity in the related Mortgaged Property that are not de minimis), for losses and damages sustained by reason |
VI-I-12
of Mortgagors (i) misappropriation of rents after the occurrence of an event of default under the Purchased Loan, (ii) misappropriation of (A) insurance proceeds or condemnation awards or (B) security deposits or, alternatively, the failure of any security deposits to be delivered to Mortgagee upon foreclosure or action in lieu thereof (except to the extent applied in accordance with leases prior to a Purchased Loan event of default); (iii) fraud or intentional material misrepresentation; (iv) breaches of the environmental covenants in the Purchased Loan Documents; or (v) commission of intentional material physical waste at the Mortgaged Property.
(27) |
Mortgage Releases . The terms of the related Mortgage or related Purchased Loan Documents do not provide for release of any material portion of the Mortgaged Property from the lien of the Mortgage except (a) a partial release, accompanied by principal repayment, or (in the case of a U.S. Purchased Loan) partial Defeasance (as defined in paragraph (32)), of not less than a specified percentage, which, in the case of a U.S. Purchased Loan identified as REMIC eligible, at least equal to the lesser of (i) 110% of the related allocated loan amount of such portion of the Mortgaged Property and (ii) the outstanding principal balance of the Purchased Loan, (b) upon payment in full of such Purchased Loan, (c) upon a Defeasance defined in paragraph (32) below, (d) releases of out-parcels that are unimproved or other portions of the Mortgaged Property which will not have a material adverse effect on the underwritten value of the Mortgaged Property and which were not afforded any material value in the appraisal obtained at the origination of the Purchased Loan and are not necessary for physical access to the Mortgaged Property or compliance with zoning requirements, or (e) as required pursuant to an order of condemnation or taking by a state or other jurisdiction or any political subdivision or authority thereof. With respect to any U.S. Purchased Loan identified as REMIC eligible, with respect to any partial release under the preceding clauses (a) or (d), either: (x) such release of collateral (i) would not constitute a significant modification of such Purchased Loan within the meaning of Section 1.860G-2(b)(2) of the Treasury Regulations and (ii) would not cause such Purchased Loan to fail to be a qualified mortgage within the meaning of Section 860G(a)(3)(A) of the Code; or (y) the Mortgagee or Servicer can, in accordance with the related Purchased Loan Documents, condition such release of collateral on the related Mortgagors delivery of an opinion of tax counsel to the effect specified in the immediately preceding clause (x). For purposes of the preceding clause (x), if the fair market value of the real property constituting such Mortgaged Property after the release is not equal to at least 80% of the principal balance of such Purchased Loan outstanding after the release, the Mortgagor is required to make a payment of principal in an amount not less than the amount required by the REMIC provisions. |
(28) |
Financial Reporting and Rent Rolls . Each Mortgage requires the Mortgagor to provide the owner or holder of the Mortgage with quarterly (other than for single-tenant properties) and annual operating statements, and quarterly (other than for single-tenant properties) rent rolls for properties that have leases contributing more than 5% of the in-place base rent and annual financial statements, which annual financial statements with |
VI-I-13
respect to each Purchased Loan with more than one Mortgagor are in the form of an annual combined balance sheet of the Mortgagor entities (and no other entities), together with the related combined statements of operations, members capital and cash flows, including a combining balance sheet and statement of income for the Mortgaged Properties on a combined basis.
(29) |
Acts of Terrorism Exclusion . With respect to each Purchased Loan over $20 million (or, with respect to any Foreign Purchased Loan, its then-current equivalent based on the Spot Rate with respect to the Applicable Currency of such Foreign Purchased Loan as of the date of determination), the related special-form all-risk insurance policy and business interruption policy (issued by an insurer meeting the Insurance Rating Requirements) do not specifically exclude Acts of Terrorism, as defined in the Terrorism Risk Insurance Act of 2002, as amended by the Terrorism Risk Insurance Program Reauthorization Act of 2007 (collectively referred to as TRIA ) (or, with respect to a Foreign Purchased Loan, the equivalent term under the equivalent Requirements of Law under the relevant non-U.S. jurisdiction), from coverage, or if such coverage is excluded, it is covered by a separate terrorism insurance policy. With respect to each other Purchased Loan, the related special all-risk insurance policy and business interruption policy (issued by an insurer meeting the Insurance Rating Requirements) did not, as of the date of origination of the Purchased Loan, and, to Sellers Actual Knowledge, do not, as of the Purchase Date, specifically exclude Acts of Terrorism, as defined in TRIA (or, with respect to a Foreign Purchased Loan, the equivalent term under the equivalent Requirements of Law under the relevant non-U.S. jurisdiction), from coverage, or if such coverage is excluded, it is covered by a separate terrorism insurance policy. With respect to each Purchased Loan, the related Purchased Loan Documents do not expressly waive or prohibit the Mortgagee from requiring coverage for Acts of Terrorism, as defined in TRIA (or, with respect to a Foreign Purchased Loan, the equivalent term under the equivalent Requirements of Law under the relevant non-U.S. jurisdiction), or damages related thereto except to the extent that any right to require such coverage may be limited by commercial availability on commercially reasonable terms, or as otherwise indicated in the related report delivered by Seller to Buyer of any exceptions to the representations and warranties set forth in this Exhibit VI; provided, that if TRIA (or, with respect to a Foreign Purchased Loan, the equivalent Requirements of Law under the relevant non-U.S. jurisdiction) or a similar or subsequent statute is not in effect, then, provided that terrorism insurance is commercially available, the Mortgagor under each Purchased Loan is required to carry terrorism insurance, but in such event the Mortgagor shall not be required to spend more than the Terrorism Cap Amount on terrorism insurance coverage, and if the cost of terrorism insurance exceeds the Terrorism Cap Amount, the Mortgagor is required to purchase the maximum amount of terrorism insurance available with funds equal to the Terrorism Cap Amount. The Terrorism Cap Amount is the specified percentage (which is at least equal to 200%) of the amount of the insurance premium that is payable at such time in respect of the property and business interruption/rental loss insurance required under the related Purchased Loan Documents (without giving effect to the cost of terrorism and earthquake components of such casualty and business interruption/rental loss insurance). |
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(30) |
Due on Sale or Encumbrance . Except as otherwise disclosed in the Due Diligence Package, subject to specific exceptions set forth below, each U.S. Purchased Loan contains a due on sale or other such provision for the acceleration of the payment of the unpaid principal balance of such Purchased Loan if, without the consent of the holder of the Mortgage (which consent, in some cases, may not be unreasonably withheld) and/or complying with the requirements of the related Purchased Loan Documents (which provide for transfers without the consent of the Mortgagee which are customarily acceptable to Seller lending on the security of property comparable to the related Mortgaged Property, including, without limitation, transfers of worn-out or obsolete furnishings, fixtures, or equipment promptly replaced with property of equivalent value and functionality and transfers by leases entered into in accordance with the Purchased Loan Documents), (a) the related Mortgaged Property, or any equity interest of greater than 50% in the related Mortgagor, is directly or indirectly pledged, transferred or sold, other than as related to (i) family and estate planning transfers or transfers upon death or legal incapacity, (ii) transfers to certain affiliates as defined in the related Purchased Loan Documents, (iii) transfers of less than, or other than, a controlling interest in the related Mortgagor, (iv) transfers to another holder of direct or indirect equity in the Mortgagor, a specific Person designated in the related Purchased Loan Documents or a Person satisfying specific criteria identified in the related Purchased Loan Documents, such as a qualified equityholder, (v) transfers of stock or similar equity units in publicly traded companies or (vi) a substitution or release of collateral within the parameters of paragraphs (27) and (32) herein, or (vii) by reason of any mezzanine debt that existed at the origination of the related Purchased Loan, or future permitted mezzanine debt as set forth in the Due Diligence Package or (b) the related Mortgaged Property is encumbered with a subordinate lien or security interest against the related Mortgaged Property, other than (i) any Junior Interest of any Purchased Loan or any subordinate debt that existed at origination and is permitted under the related Purchased Loan Documents, (ii) purchase money security interests (iii) any Purchased Loan that is cross-collateralized and cross-defaulted with another Purchased Loan, as set forth in the Due Diligence Package or (iv) Permitted Encumbrances. The related Mortgage or other Purchased Loan Documents provide that to the extent any rating agency fees are incurred in connection with the review of and consent to any transfer or encumbrance, the Mortgagor is responsible for such payment along with all other reasonable out-of-pocket fees and expenses incurred by the Mortgagee relative to such transfer or encumbrance. Upon the acceleration of a Foreign Purchased Loan, all related security shall become immediately enforceable. |
(31) |
Single-Purpose Entity . Except as otherwise disclosed in the Due Diligence Package, each Purchased Loan requires the Mortgagor to be a Single-Purpose Entity for at least as long as the Purchased Loan is outstanding. Both the Purchased Loan Documents and the organizational documents of the Mortgagor with respect to each Purchased Loan with an unpaid principal balance as of the Purchase Date in excess of $5 million (or, with respect |
VI-I-15
to any Foreign Purchased Loan, its then-current equivalent based on the Spot Rate with respect to the Applicable Currency of such Foreign Purchased Loan as of the date of determination) provide that the Mortgagor is a Single-Purpose Entity, and each Purchased Loan with an unpaid principal balance as of the Purchase Date of $50 million (or, with respect to any Foreign Purchased Loan, its then-current equivalent based on the Spot Rate with respect to the Applicable Currency of such Foreign Purchased Loan as of the date of determination) or more has a counsels opinion regarding non-consolidation of the Mortgagor. For this purpose, a Single-Purpose Entity shall mean an entity, other than an individual, whose organizational documents (or if the Purchased Loan has an unpaid principal balance as of the Purchase Date equal to $5 million (or, with respect to any Foreign Purchased Loan, its then-current equivalent based on the Spot Rate with respect to the Applicable Currency of such Foreign Purchased Loan as of the date of determination) or less, its organizational documents or the related Purchased Loan Documents) provide substantially to the effect that it was formed or organized solely for the purpose of owning and operating one or more of the Mortgaged Properties securing the Purchased Loans and prohibit it from engaging in any business unrelated to such Mortgaged Property or (in the case of U.S. Purchased Loans only) commercial or multi-family properties, and whose organizational documents further provide, or which entity represented in the related Purchased Loan Documents, substantially to the effect that it does not have any assets other than those related to its interest in and operation of such Mortgaged Property or (in the case of U.S. Purchased Loans only) commercial or multi-family properties, or any indebtedness other than as permitted by the related Mortgage(s) or the other related Purchased Loan Documents, that it has its own books and records and accounts separate and apart from those of any other person (other than a Mortgagor for a Purchased Loan that is cross-collateralized and cross-defaulted with the related Purchased Loan), and that it holds itself out as a legal entity, separate and apart from any other person or entity.
(32) |
Defeasance . With respect to any U.S. Purchased Loan that, pursuant to the related Purchased Loan Documents, can be defeased (a Defeasance ), (i) the Purchased Loan Documents provide for defeasance as a unilateral right of the Mortgagor, subject to satisfaction of conditions specified in the Purchased Loan Documents; (ii) the Purchased Loan cannot be defeased within two years after the date of origination of such Purchased Loan; (iii) the Mortgagor is permitted to pledge only United States government securities within the meaning of Treasury Regulations Section 1.860G-2(a)(8)(ii), the revenues from which will, in the case of a full Defeasance, be sufficient to make all scheduled payments under the Purchased Loan when due, including the entire remaining principal balance on the maturity date (or on or after the first date on which payment may be made without payment of a yield maintenance charge or prepayment penalty) or, if the Senior Loan is an ARD Loan, the entire principal balance outstanding on the anticipated repayment date, and if the Purchased Loan permits partial releases of real property in connection with partial defeasance, the revenues from the collateral will be sufficient to pay all such scheduled payments calculated on a principal amount equal to a specified percentage at least equal to the lesser of (a) 110% of the allocated loan amount for the |
VI-I-16
real property to be released and (b) the outstanding principal balance of the Purchased Loan; (iv) the Mortgagor is required to provide a certification from an independent certified public accountant that the collateral is sufficient to make all scheduled payments under the Mortgage Note as set forth in (iii) above, (v) if the Mortgagor would continue to own assets in addition to the defeasance collateral, the portion of the Purchased Loan secured by defeasance collateral is required to be assumed (or the Mortgagee may require such assumption) by a Single-Purpose Entity; (vi) the Mortgagor is required to provide an opinion of counsel that the Mortgagee has a perfected security interest in such collateral prior to any other claim or interest; and (vii) the Mortgagor is required to pay all rating agency fees associated with Defeasance (if rating confirmation is a specific condition precedent thereto) and all other reasonable out-of-pocket expenses associated with Defeasance, including, but not limited to, accountants fees and opinions of counsel.
(33) |
Ground Leases . For purposes of this Exhibit VI, a Ground Lease shall mean a lease creating a leasehold estate in real property where the fee owner as the ground lessor conveys for a term or terms of years its entire interest in the land and buildings and other improvements, if any, comprising the premises demised under such lease to the ground lessee (who may, in certain circumstances, own the building and improvements on the land), subject to the reversionary interest of the ground lessor as fee owner and does not include industrial development agency (IDA) or similar leases for purposes of conferring a tax abatement or other benefit. |
With respect to any Purchased Loan where the Purchased Loan is secured by a leasehold estate under a Ground Lease in whole or in part, and the related Mortgage does not also encumber the related lessors fee interest in such Mortgaged Property, based upon the terms of the Ground Lease and any estoppel or other agreement received from the ground lessor in favor of Seller, its successors and assigns, Seller represents and warrants that:
(a) |
The Ground Lease or a memorandum regarding such Ground Lease has been duly recorded or registered or submitted for recordation or registration in a form that is acceptable for recording or registration in the applicable jurisdiction. The Ground Lease or an estoppel or other agreement received from the ground lessor permits the interest of the lessee to be encumbered by the related Mortgage and does not restrict the use of the related Mortgaged Property by such lessee, its successors or assigns in a manner that would materially adversely affect the security provided by the related Mortgage; |
(b) |
The lessor under such Ground Lease has agreed in a writing included in the related Purchased Loan File (or in such Ground Lease) that the Ground Lease may not be amended or modified, or canceled or terminated by agreement of lessor and lessee, without the prior written consent of the Mortgagee; |
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(c) |
The Ground Lease has an original term (or an original term plus one or more optional renewal terms, which, under all circumstances, may be exercised, and will be enforceable, by either Mortgagor or the Mortgagee) that extends not less than 20 years beyond the stated maturity of the related Purchased Loan, or 10 years past the stated maturity if such Purchased Loan fully amortizes by the stated maturity (or with respect to a Purchased Loan that accrues on an actual 360 basis, substantially amortizes); |
(d) |
The Ground Lease either (i) is not subject to any liens or encumbrances superior to, or of equal priority with, the Mortgage, except for the related fee interest of the ground lessor and the Permitted Encumbrances, or (ii) is subject to a subordination, non-disturbance and attornment agreement to which the Mortgagee on the lessors fee interest in the Mortgaged Property is subject; |
(e) |
The Ground Lease does not place, in Sellers reasonable judgment and to Sellers Actual Knowledge, commercially unreasonably restrictions on the identity of the Mortgagee and, upon foreclosing on the Mortgage, the Ground Lease is assignable to the holder of the Purchased Loan and its successors and assigns without the consent of the lessor thereunder (provided that proper notice is delivered to the extent required in accordance with such Ground Lease), and in the event it is so assigned, it is further assignable by the holder of the Purchased Loan and its successors and assigns without the consent of the lessor; |
(f) |
Seller has not received any written notice of material default (or in the case of a Foreign Purchased Loan, forfeiture) under or notice of termination of such Ground Lease. To Sellers Actual Knowledge, there is no material default under such Ground Lease and no condition that, but for the passage of time or giving of notice, would result in a material default under the terms of such Ground Lease, and in the case of a Foreign Purchased Loan, would lead to a forfeiture of such Ground Lease, and to Sellers Actual Knowledge, such Ground Lease is in full force and effect as of the Purchase Date; |
(g) |
The Ground Lease or ancillary agreement between the lessor and the lessee requires the lessor to give to the Mortgagee written notice of any default, and provides that no notice of default or termination is effective against the Mortgagee unless such notice is given to the Mortgagee; |
(h) |
The Mortgagee is permitted a reasonable opportunity (including, where necessary, sufficient time to gain possession of the interest of the lessee under the Ground Lease through legal proceedings) to cure any default under the Ground Lease which is curable after the Mortgagees receipt of notice of any default before the lessor may terminate the Ground Lease; |
(i) |
The Ground Lease does not impose any restrictions on subletting that would be viewed, in Sellers reasonable judgment, as commercially unreasonable by a Seller in connection with loans originated for securitization; |
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(j) |
Under the terms of the Ground Lease, an estoppel or other agreement received from the ground lessor and the related Mortgage (taken together), any related insurance proceeds or the portion of the condemnation award allocable to the ground lessees interest (other than (i) de minimis amounts for minor casualties or (ii) in respect of a total or substantially total loss or taking as addressed in subpart (k)) will be applied either to the repair or to restoration of all or part of the related Mortgaged Property with (so long as such proceeds are in excess of the threshold amount specified in the related Purchased Loan Documents) the Mortgagee or a trustee appointed by it having the right to hold and disburse such proceeds as repair or restoration progresses, or to the payment of the outstanding principal balance of the Purchased Loan, together with any accrued interest; |
(k) |
In the case of a total or substantially total taking or loss, under the terms of the Ground Lease, an estoppel or other agreement and the related Mortgage (taken together), any related insurance proceeds, or portion of the condemnation award allocable to ground lessees interest in respect of a total or substantially total loss or taking of the related Mortgaged Property to the extent not applied to restoration, will be applied first to the payment of the outstanding principal balance of the Purchased Loan, together with any accrued interest; and |
(l) |
Provided that the Mortgagee cures any defaults which are susceptible to being cured, the ground lessor has agreed to enter into a new lease with Mortgagee upon termination of the Ground Lease for any reason, including rejection of the Ground Lease in an Act of Insolvency. |
(35) |
Servicing . The servicing and collection practices used by Seller with respect to the Purchased Loan have been, in all respects, legal and have met customary industry standards for servicing of commercial loans. |
(36) |
Origination and Underwriting . The origination practices of Seller (or to Sellers Actual Knowledge the related originator if Seller was not the originator) with respect to each Purchased Loan have been, in all material respects, in material compliance with applicable law and as of the date of its origination, such Purchased Loan (or the related Whole Loan, as applicable) and to the extent originated by Seller or its Affiliates or, if originated by another Person, to Sellers Actual Knowledge, the origination thereof complied in all material respects with, or was exempt from, all requirements of federal, state or local law relating to the origination of such Purchased Loan; provided that such representation and warranty does not address or otherwise cover any matters with respect to federal, state or local law otherwise covered in this Exhibit VI . |
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(37) |
No Material Default; Payment Record . As of the Purchase Date and the date of the transfer of any Margin Excess to Seller, no Purchased Loan has been more than 30 days delinquent, without giving effect to any grace or cure period, in making required debt service payments since origination, and no Purchased Loan is more than 30 days delinquent (beyond any applicable grace or cure period) in making required payments. As of the Purchase Date and the date of the transfer of any Margin Excess to Seller, to Sellers Actual Knowledge, there is (a) no material default, breach, violation or event of acceleration existing under the related Purchased Loan, or (b) no event (other than payments due but not yet delinquent) which, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a material default, breach, violation or event of acceleration, which default, breach, violation or event of acceleration, in the case of either (a) or (b), materially and adversely affects the value of the Purchased Loan or the value, use or operation of the related Mortgaged Property, provided, however, that this representation and warranty does not cover any default, breach, violation or event of acceleration that specifically pertains to or arises out of an exception scheduled to any other representation and warranty made by Seller in this Exhibit VI (including, but not limited to, the prior sentence). Solely with respect to a Whole Loan, no person other than the holder of such Purchased Loan may declare any event of default under the Purchased Loan or accelerate any indebtedness under the Purchased Loan Documents. |
(38) |
Bankruptcy . To Sellers Actual Knowledge as of the Purchase Date and the date of the transfer of any Margin Excess to Seller, neither the Mortgaged Property (other than any tenants of such Mortgaged Property), nor any portion thereof, is the subject of, and no Mortgagor, guarantor or tenant occupying a single-tenant property is a debtor in a state or federal Act of Insolvency, and in the case of any Foreign Purchased Loan, is not a debtor in any bankruptcy, receivership, conservatorship, reorganization, insolvency, moratorium, administration, examinership or similar proceeding. |
(39) |
Organization of Mortgagor . With respect to each U.S. Purchased Loan, based solely upon Sellers reliance on certified copies of the organizational documents of the Mortgagor delivered by the Mortgagor in connection with the origination of such Purchased Loan (or related Whole Loan, as applicable), the Mortgagor is an entity organized under the laws of a state of the United States of America, the District of Columbia or the Commonwealth of Puerto Rico. With respect to each Foreign Purchased Loan, based solely upon Sellers reliance on certified copies of the organizational documents of the Mortgagor delivered by the Mortgagor in connection with the origination of such Purchased Loan (or related Whole Loan, as applicable), the related Mortgagor is an entity organized under the laws of England and Wales, Jersey, Guernsey, Luxembourg, Germany or another jurisdiction in which single purpose entities formed for the purposes of investment in mortgaged properties located in England and Wales or other European countries are commonly organized. Except with respect to any Purchased Loan that is cross-collateralized and cross defaulted with another Purchased Loan, to Sellers Actual Knowledge, no Purchased Loan has a Mortgagor that is an affiliate of another Mortgagor. An Affiliate for purposes of this Paragraph 39 means, a mortgagor that is under direct or indirect common ownership and control with another mortgagor. |
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(40) |
Environmental Conditions . There is no material and adverse environmental condition or circumstance affecting the related Mortgaged Property; there is no material violation of any applicable Environmental Law with respect to the related Mortgaged Property. Neither Seller nor the underlying obligor on such Senior Loan has taken any actions which would cause the related Mortgaged Property not to be in material compliance with all applicable Environmental Laws. The related Purchased Loan Documents require the borrower to materially comply with all Environmental Laws. Each mortgagor has agreed to either indemnify the mortgagee for any losses resulting from any material, adverse environmental condition (to the extent such condition is not caused by Seller, or from any failure of the mortgagor to abide by such Environmental Laws) or has provided environmental insurance. |
(41) |
Appraisal . The Purchased Loan File contains an appraisal of the related Mortgaged Property with an appraisal date within 6 months of the Purchased Loan origination date, and within 12 months of the Purchase Date. The appraisal is signed by an appraiser who (i) is a Member of the Appraisal Institute ( MAI ) (or (A) in the case of a Mortgaged Property located in England and Wales, a Charter Surveyor, and (B) in the case of a Mortgaged Property located elsewhere in the European Union, a functional equivalent) and (ii), to Sellers Actual Knowledge, had no interest, direct or indirect, in the Mortgaged Property or the Mortgagor or in any loan made on the security thereof, and whose compensation is not affected by the approval or disapproval of the Purchased Loan. Each appraiser has represented in such appraisal or in a supplemental letter that the appraisal satisfies the requirements of: (i) in the case of a Mortgaged Property located in the United States, the Uniform Standards of Professional Appraisal Practice as adopted by the Appraisal Standards Board of the Appraisal Foundation, (ii) in the case of a Mortgaged Property located in England and Wales, the Valuations Standards (Red Book) published by the Royal Institute of Chartered Surveyors, and (iii) in the case of a Mortgaged Property located elsewhere in the European Union, the appraisal standards uniformly or customarily followed or adopted by the commercial real estate industry within the relevant jurisdiction. |
(42) |
Due Diligence Package . To Sellers Actual Knowledge, the information pertaining to each Purchased Loan which is set forth in the Due Diligence Package is true and correct in all material respects as of the Purchase Date. |
(43) |
[ Intentionally Omitted ] |
(44) |
Advance of Funds by Seller . After origination, no advance of funds has been made by Seller to the related Mortgagor other than in accordance with the Purchased Loan Documents, and, to Sellers Actual Knowledge, no funds have been received from any person other than the related Mortgagor or an affiliate for, or on account of, payments due on the Purchased Loan (other than as contemplated by the Purchased Loan Documents, such as, by way of example and not in limitation of the foregoing, amounts paid by the tenant(s) into a Mortgagee-controlled lockbox if required or contemplated under the related lease or Purchased Loan Documents). Neither Seller nor any affiliate thereof has any obligation to make any capital contribution to any Mortgagor under a Purchased Loan, other than contributions made on or prior to the date hereof. |
VI-I-21
(45) |
Compliance with Anti-Money Laundering Laws . Seller has complied in all material respects with all applicable anti-money laundering laws and regulations, including without limitation the USA PATRIOT Act of 2001 with respect to the origination of the Purchased Loan, the failure to comply with which would have a material adverse effect on the Purchased Loan. |
The following representations and warranties shall be made (when and as required by the terms of the Agreement) with respect to Foreign Purchased Loans only:
(46) |
Transferability (Foreign Purchased Loans) : Other than consents and approvals obtained or granted pursuant to the related Mortgage and/or Foreign Purchased Loan Documents, no consent or approval by any Person is required in connection with (a) Sellers sale and/or Buyers acquisition of such Foreign Purchased Loan, (b) Buyers exercise of any rights or remedies in respect of such Foreign Purchased Loan (except with respect to compliance with any applicable Requirement of Law in connection with the exercise of any rights or remedies by Buyer) or (c) Buyers sale, pledge or other disposition of such Foreign Purchased Loan. No third party holds any right of first refusal, right of first negotiation, right of first offer, purchase option or other similar rights of any kind, and no other impediment exists to any such transfer or exercise of rights or remedies. |
(47) |
Condition of the Mortgaged Property (Foreign Purchased Loans) : (a) Seller has not received notice of any pending or, to Sellers Actual Knowledge, threatened steps to affect the compulsory purchase of all or any material portion of the Mortgaged Property and (b ) to Sellers Actual Knowledge (based on valuations obtained in connection with the origination of a Foreign Purchased Loan) as of the date of the origination of such Foreign Purchased Loan, no such valuation disclosed any matter or thing that would materially and adversely affect the value or marketability of the Mortgaged Property. |
(48) |
Title (Foreign Purchased Loans) : Seller obtained from its lawyer or other approved party a report on title which showed no adverse entries, or, if such report did reveal any adverse entries, such report satisfactorily indicated that such entries would not have caused a reasonably prudent lender of money secured on commercial property to decline to proceed with the related advance on its agreed terms. |
(49) |
Provisions of Purchased Loan Documents (Foreign Purchased Loans) : (a) to Sellers Actual Knowledge, the representations and warranties in the applicable Purchased Loan Documents are true and correct in all material respects and (b) the applicable Purchased Loan Documents require the Mortgagor to provide Seller with (A) annual audited accounts of the Mortgagor in respect of the Purchased Loans, (ii) semi-annual unaudited management accounts of the Mortgagor in respect of the Purchased Loans, (iii) annual valuations for the Mortgaged Property comprising real estate, (iv) quarterly rent rolls and quarterly forecast of expenses for the Mortgaged Property. |
VI-I-22
(50) |
Planning Law (Foreign Purchased Loans) : To Sellers Actual Knowledge, the Mortgaged Property is, in all material respects, in compliance with, and is used and occupied in accordance with, all restrictive covenants of record applicable to such Mortgaged Property and applicable planning laws and all inspections, licenses, permits and certificates of occupancy required by law, ordinance or regulation to be made or issued with regard to the Mortgaged Property have been obtained and are in full force and effect, except to the extent the failure to obtain or maintain such inspections, licenses, permits or certificates of occupancy does not materially impair or materially and adversely affect the use and/or operation of the Mortgaged Property as it was used and operated as of the date of origination of the Foreign Purchased Loan or the rights of a holder of the Purchased Loan. |
(51) |
Advancement of Funds (Foreign Purchased Loans): Seller has not advanced funds or induced, solicited or knowingly received any advance of funds from a party other than the Mortgagor, directly or indirectly, for the payment of any amount required by the Foreign Purchased Loan. |
(52) |
Cross-Collaterialization; Cross-Default (Foreign Purchased Loans): The Foreign Purchased Loan is not cross-collateralized or cross-defaulted with any other loan or security. |
(53) |
Acceleration (Foreign Purchased Loans) : The applicable Purchased Loan Documents contain provisions for the acceleration of the payment of the unpaid principal balance of the Foreign Purchased Loan if (a) there is a disposal of the Mortgaged Property or the Mortgagor, or (b) any security interests are created over the Mortgaged Property or the Mortgagor in contravention of the Purchased Loan Documents. |
(54) |
Approval Rights (Foreign Purchased Loans) : Pursuant to the terms of the applicable Foreign Purchased Loan Documents: (a) no material terms of the Mortgage may be waived, cancelled, subordinated or modified in any material respect and no material portion of the Mortgage or the Mortgaged Property may be released without the consent of the holder of the Foreign Purchased Loan, except to the extent such release is permitted under the terms of the applicable Purchased Loan Documents; (b) no material action affecting the value of the Mortgaged Property may be taken by the owner of the Mortgaged Property with respect to the Mortgaged Property without the consent of the holder of the applicable Purchased Loan Documents; and (c) the consent of the holder of the applicable Purchased Loan Documents is required prior to the owner of the Mortgaged Property incurring any additional indebtedness in each case, subject to such exceptions as are customarily acceptable to prudent commercial and multifamily mortgage lending institutions lending on the security of property comparable to the Mortgaged Property in the jurisdiction in which the Mortgaged Property is located. |
VI-I-23
(55) |
Reserves (Foreign Purchased Loans) : All reserves, funds, escrows and deposits required pursuant to the Purchased Loan Documents for a Foreign Purchased Loan have been so funded and deposited, are in the possession, or under the control, of an agent of trustee for the holder of the Foreign Purchased Loan and, to Sellers Actual Knowledge, there are no deficiencies in connection therewith. |
(56) |
Valuation (Foreign Purchased Loans): A valuation of the Mortgaged Property securing the Foreign Purchased Loan was conducted within twelve (12) months of the origination of the Foreign Purchased Loan, and to Sellers Actual Knowledge, such valuation satisfied in all material respects the requirements for a valuation on a market value basis as defined in the then current Royal Institution of Chartered Surveyors Appraisal and Valuation Manual in association with the Incorporated Society of Valuers and Auctioneers and the Institute of Revenues Rating and Valuation, Practice Statement 4 (or its successor) (or its equivalent in any applicable jurisdiction). |
(57) |
No Fraud (Foreign Purchased Loans) : No fraudulent acts were committed by Seller in connection with its acquisition or origination of the Foreign Purchased Loan nor, to Sellers Actual Knowledge, were any fraudulent acts committed by any person in connection with the origination of the Foreign Purchased Loan. |
(58) |
No Equity Participation; No Contingent Interest (Foreign Purchased Loans): No Foreign Purchased Loan (a) contains an equity participation by the lender or shared appreciation feature or profit participation feature, (b) provides for negative amortization, (c) provides for any contingent or additional interest in the form of participation in the cash flow of the related Mortgaged Property or (d) has capitalized interest included in its principal balance. |
(59) |
Transfer Certificate (Foreign Purchased Loan) : Each Transfer Certificate executed by Seller in blank (assuming the insertion of the date and an assignees name) will constitute the legal, valid and binding first priority assignment of the related Foreign Purchased Loan from Seller to such named assignee (except as such enforcement may be limited by anti-deficiency laws or bankruptcy, receivership, conversavtorship, reorganization, insolvency, moratorium or other similar laws affecting the enforcement of creditors rights generally, and by general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law)). |
For purposes of these representations and warranties, Mortgagee shall mean the mortgagee, grantee or beneficiary under any Mortgage, any holder of legal title to any portion of any Purchased Loan or, if applicable, any agent or servicer on behalf of such party.
VI-I-24
EXHIBIT VI-II
REPRESENTATIONS AND WARRANTIES REGARDING EACH INDIVIDUAL
PURCHASED LOAN WHICH IS A PARTICIPATION INTEREST IN A WHOLE LOAN
(1) |
Senior Interest; Ownership of Purchased Loans . The related participation interest (the Participation Interest ) is a senior participation interest in a Whole Loan. In each case, the related Whole Loan (the Underlying Whole Loan ) is a mortgage loan secured by a first priority security interest in a commercial or multifamily property. At the time of the sale, transfer and assignment to Buyer, no Mortgage Note or Mortgage related to such Participation Interest was subject to any other assignment, participation (other than senior pari passu Participation Interests in the related Underlying Whole Loan issued in accordance with the Purchased Loan Documents) or pledge, and Seller had good title to, and was the sole owner of, such Participation Interest free and clear of any and all liens, charges, pledges, encumbrances, participations, any other ownership interests on, in or to such Participation Interest other than any servicing rights appointment or similar agreement and rights of the holder of a related B note in an A/B structure in a commercial real estate loan (a Junior Interest). Seller has full right and authority to sell, assign and transfer such Participation Interest, and the assignment to Buyer constitutes a legal, valid and binding assignment of such Participation Interest free and clear of any and all liens, pledges, charges or security interests of any nature encumbering such Participation Interest other than the rights of the holder of a related Junior Interest. |
(2) |
Authorized to do Business . To the extent required under applicable law, as of the Purchase Date or as of the date that such entity held the related Participation Interest, each holder of such Participation Interest was authorized to transact and do business in the jurisdiction in which each related Mortgaged Property is located, or the failure to be so authorized does not materially and adversely affect the enforceability of such Participation Interest by Buyer. |
(3) |
Due Diligence Package . To Sellers Actual Knowledge, the information pertaining to such Participation Interest which is set forth in the Due Diligence Package is true and correct in all material respects as of the Purchase Date. |
(4) |
Absence of Required Consents . Other than consents and approvals obtained as of the related Purchase Date or those already granted in the related Purchased Loan Documents, and assuming that Buyer and any other transferees comply with any intercreditor restrictions set forth in the related Purchased Loan Documents limiting assignees to Qualified Transferees, Qualified Conduit Lenders or such comparable terms or conditions under the applicable Purchased Loan Documents, no consent or approval by any Person is required in connection with Sellers sale and/or Buyers acquisition of such Participation Interest or for Buyers exercise of |
VI-II-1
any rights or remedies in respect of such Participation Interest (except for compliance with applicable Requirements of Law in connection with the exercise of any rights or remedies by Buyer). No third party holds any right of first refusal, right of first negotiation, right of first offer, purchase option, or other similar rights of any kind, and no other impediment exists to any such transfer or exercise of rights or remedies.
(5) |
Absence of Required Governmental Actions . No consent, approval, authorization or order of, or registration or filing with, or notice to, any court or governmental agency or body having jurisdiction or regulatory authority is required for any transfer or assignment by the holder of such Participation Interest. |
(6) |
Delivery of Original Certificate . Seller has delivered to Buyer or its designee the original participation certificate or other similar document(s) representing ownership of such Participation Interest, however denominated, endorsed by Seller in blank. |
(7) |
No Material Default; Payment Record . As of the Purchase Date and the date of the transfer of any Margin Excess to Seller, neither the related Participation Interest nor the related Underlying Whole Loan has been more than 30 days delinquent, without giving effect to any grace or cure period, in making required debt service payments since issuance of such Participation Interest or origination of such Underlying Mortgage Loan, as the case may be, and neither such Participation Interest nor such Underlying Whole Loan is more than 30 days delinquent (beyond any applicable grace or cure period) in making required payments. As of the Purchase Date and the date of the transfer of any Margin Excess to Seller, to Sellers Actual Knowledge, there is (a) no material default, breach, violation or event of acceleration existing under such Participation Interest or Underlying Whole Loan, and (b) no event (other than payments due but not yet delinquent) which, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a material default, breach, violation or event of acceleration thereunder, which default, breach, violation or event of acceleration, in the case of either (a) or (b), materially and adversely affects the value of such Participation Interest or Underlying Whole Loan or the value, use or operation of the related Mortgaged Property, provided, however, that this representation and warranty does not cover any default, breach, violation or event of acceleration that specifically pertains to or arises out of an exception scheduled to any other representation and warranty made by Seller in Exhibit VI-I and this Exhibit VI-II (including, but not limited to, the prior sentence). No person other than the holder of such Underlying Whole Loan may declare any event of default under such Underlying Whole Loan or accelerate any indebtedness under the related Underlying Whole Loan documents. |
(8) |
Not a Security . Such Participation Interest has not been and shall not be deemed to be a Security within the meaning of the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended. |
VI-II-2
(9) |
No Notice of Liabilities . As of the Purchase Date, Seller has not received written notice of any outstanding material liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind for which the holder of such Participation Interest is or may become obligated under the related Purchased Loan Documents. |
(10) |
No Advance of Funds . Seller has not advanced funds, or, to Sellers A c t u a l Knowledge, as of the Purchase Date, received any advance of funds from a party other than the Mortgagor relating to such Participation Interest, directly or indirectly, for the payment of any amount required by such Participation Interest (other than as contemplated by the related Purchased Loan Documents, such as, by way of example and not in limitation of the foregoing, amounts paid by the tenant(s) into a Mortgagee-controlled lockbox if required or contemplated under the related lease or Purchased Loan Documents). |
(11) |
No Offsets, Defenses, Etc . As of the Purchase Date, with respect to the related Participation Interest, there is no valid offset, defense, counterclaim, abatement or right to rescission with respect to any related Mortgage Note, Mortgage or other agreements executed in connection therewith that would deny the holder of such Participation Interest the principal benefits intended to be provided thereby, except with respect to the related Underlying Whole Loan as set forth in the representation and warranty in Paragraph 2 (Loan Document Status) in this Exhibit VI-II. |
(12) |
Bankruptcy . To Sellers Actual Knowledge as of the Purchase Date and the date of the transfer of any Margin Excess to Seller, neither the related Mortgaged Property (other than any tenants of such Mortgaged Property), nor any portion thereof, is the subject of, and no co-partcipant, co-lender, Mortgagor, guarantor or tenant occupying a single-tenant property is a debtor in a state or federal Act of Insolvency, and in the case of any Foreign Purchased Loan, is not a debtor in any bankruptcy, receivership, conservatorship, reorganization, insolvency, moratorium, administration, examinership or similar proceeding. |
(13) |
No Contingent Interest or Equity Participation . Except for such Participation Interest and such other senior pari passu Participation Interests in the related Underlying Whole Loan issued in accordance with the Purchased Loan Documents, the related Underlying Whole Loan d o e s not have a shared appreciation feature, any other contingent interest feature or a negative amortization feature (except that an ARD Loan may provide for the accrual of the portion of interest in excess of the rate in effect prior to the anticipated repayment date) or an equity participation by Seller (excluding any equity interest held or pledged in connection with a Mezzanine Loan or preferred equity interest). |
VI-II-3
(14) |
Mortgage Status; Waivers and Modifications . Since origination and except by written instruments set forth in the related Purchased Loan File: (a) the material terms of the related Mortgage, Mortgage Note, Purchased Loan guaranty, and related Purchased Loan Documents have not been waived, impaired, modified, altered, satisfied, canceled, subordinated or rescinded in any respect which materially interferes with the security intended to be provided by such Mortgage; (b) no related Mortgaged Property or any portion thereof has been released from the lien of the related Mortgage in any manner which materially interferes with the security intended to be provided by such Mortgage or the use or operation of the remaining portion of such Mortgaged Property; and (c) neither the related Mortgagor nor the related guarantor has been released from any of its material obligations under the Purchased Loan. |
(15) |
Compliance with Usury Laws . To Sellers Actual Knowledge, in reliance solely upon legal opinions delivered in connection with a Purchased Loan, the interest rate (exclusive of any default interest, late charges, yield maintenance charge, or prepayment premiums) of (i) such Purchased Loan and (ii) the related Underlying Whole Loan complied (in the case of clause (i), as of the Purchase Date, and in the case clause (ii), as of the date of origination) with, or was exempt from, applicable laws including state or federal laws, regulations and other requirements pertaining to usury. |
(16) |
Escrow Deposits . All escrow deposits and payments required to be escrowed with Seller pursuant to each related Purchased Loan are in the possession, or under the control, of Seller or its servicer, and there are no deficiencies (subject to any applicable grace or cure periods) in connection therewith, and all such escrows and deposits (or the right thereto) that are required to be escrowed with Seller under the related Purchased Loan Documents are being conveyed by Seller to Buyer or its servicer. |
(17) |
Origination and Underwriting . The origination practices of Seller (or, to Sellers Actual Knowledge, the related originator if Seller was not the originator of the related Underlying Whole Loan or issuer of such Participation Interest) with respect to such Participation Interest and the related Underlying Whole Loan have been, in all material respects, in material compliance with applicable law; and as of the date of its origination or issuance, as applicable, such Participation Interest and the related Underlying Whole Loan (if originated or issued by a Person other than Seller or an Affiliate, to Sellers Actual Knowledge), the origination or issuance thereof, as applicable, complied in all material respects with, or was exempt from, all requirements of federal, state or local law relating to the origination or issuance of such Participation Interest and the related Underlying Whole Loan, as applicable; provided, that such representation and warranty does not address or otherwise cover any matters with respect to federal, state or local law otherwise covered in this Exhibit VI-II. |
VI-II-4
(18) |
Compliance with Anti-Money Laundering Laws . Seller has complied in all material respects with all applicable anti-money laundering laws and regulations, including without limitation the USA PATRIOT Act of 2001, with respect to the origination of the related Underlying Whole Loan and the creation of such Participation Interest, the failure to comply with which would have a material adverse effect on such Underlying Whole Loan or such Participation Interest, as the case may be. |
(19) |
Actions Concerning Purchased Loan . To Sellers Actual Knowledge as of the Purchase Date, there was no pending or filed action, suit or proceeding, arbitration or governmental investigation involving any related Mortgagor, guarantor, or Mortgagors interest in the related Mortgaged Property, the related Mortgage or any other related Purchased Loan Document, an adverse outcome of which would reasonably be expected to materially and adversely affect (a) such Mortgagors title to such Mortgaged Property, (b) the validity or enforceability of such Mortgage, (c) such Mortgagors ability to perform under the related Purchased Loan, (d) such guarantors ability to perform under the related guaranty, (e) the principal benefit of the security intended to be provided by such Purchased Loan Documents, (f) the current principal use of such Mortgaged Property or (g) title or ownership of Seller and/or Buyer of such Purchased Loan Documents and/or the rights, title and interests thereunder. |
(20) |
Underlying Whole Loan Representations and Warranties . Except for the representations and warranties contained in Paragraph 1 (Whole Loan; Ownership of Purchased Loans), Paragraph 4 (Mortgage Status; Waivers and Modifications), Paragraph 13 (Actions Concerning Purchased Loan), Paragraph 19 (No Contingent Interest or Equity Participation), Paragraph 21 (Compliance with Usury Laws), Paragraph 36 (Origination and Underwriting), Paragraph 37 (No Material Default; Payment Record), Paragraph 38 (Bankruptcy), Paragraph 42 (Due Diligence Package) and Paragraph 45 (Compliance with Anti-Money Laundering Laws), each of the representations and warranties contained in Exhibit VI-I with respect to Whole Loans is, to Sellers Actual Knowledge, true and correct with respect to the related Underlying Whole Loan. To the extent the related Underlying Whole Loan is identified in the related Diligence Materials as REMIC eligible, if such Underlying Whole Loan contains a provision for any defeasance of mortgage collateral, the representation and warranty in Paragraph 33 (Defeasance) in Exhibit VI-I is also true and correct with respect to such related Underlying Whole Loan if clause (ii) thereof read (ii) the Whole Loan cannot be defeased within two years after any securitization of such Whole Loan or the r e l a t e d Participation Interest. For purposes of this Paragraph 20, all references to the term Seller (other than in respect of Sellers Actual Knowledge) and the term Purchased Loan, in each case in Exhibit VI-I, shall be deemed to be references to the related Mortgage lender and the related Whole Loan. |
VI-II-5
EXHIBIT VI-III
REPRESENTATIONS AND WARRANTIES
REGARDING EACH INDIVIDUAL PURCHASED LOAN
WHICH IS A FOREIGN PURCHASED LOAN (AU)
A. |
DEFINED TERMS |
Authorisation shall mean (a) any consent, registration, filing, agreement, notice of non objection, notarisation, certificate, licence, approval, permit, authority or exemption; or (b) in relation to anything which a Government Agency may prohibit or restrict within a specific period, the expiry of that period without intervention or action or notice of intended intervention or action.
Contamination shall mean, in respect of a property, the presence of Pollutants (a) in, on or under the property, or (b) in the ambient air and emanating from the property.
Controller shall mean a controller as defined in section 9 of the Corporations Act 2001
(Cth).
Encumbrance shall mean an interest or power (a) reserved in or over an interest in any asset, including any retention of title, or (b) created or otherwise arising in or over any interest in any asset under a security agreement, bill of sale, mortgage, charge, lien, pledge, trust or power or any other agreement having similar effect, in each case by way of, or having similar commercial effect to, security for the payment of a debt, any other monetary obligation or the performance of any other obligation, and includes any agreement to grant or create any of the above and includes a security interest within the meaning of section 12(1) of the PPSA.
Legal Reservations shall mean (a) the principle that equitable remedies (or remedies that are analogous to equitable remedies in other jurisdictions) may be granted or refused at the discretion of a court and the limitation of enforcement by laws relating to bankruptcy, insolvency, liquidation, court schemes, moratoria, administration, examinership, reorganisation and other laws generally affecting the rights of creditors; and (b) the time barring of claims under any limitation laws, the possibility that an undertaking to assume liability for or indemnify a person against non-payment of stamp duty or other Taxes may be void and defences of set-off or counterclaim.
Loan Obligor shall mean, in relation to a Foreign Purchased Loan (AU), (a) any borrower or other person liable for such Foreign Purchased Loan (AU) as principal debtor, (b) any guarantor of such Foreign Purchased Loan (AU), or (c) any other person that provides or has provided a Loan Security in respect of such Foreign Purchased Loan (AU) (including the relevant Mortgagor).
VI-III-1
Loan Secured Assets shall mean, in respect of a Foreign Purchased Loan (AU), the Mortgaged Properties for such Foreign Purchased Loan (AU) and all other property and rights subject to a Loan Security securing such Foreign Purchased Loan (AU).
Loan Security shall mean, in relation to a Foreign Purchased Loan (AU) means (a) each Mortgage, (b) each general security agreement (if applicable), (c) each other Encumbrance, and (d) each guarantee, indemnity or assurance, in each case that secures, guarantees or provides assurance or is expressed to secure, guarantee or provide assurance for the payment or repayment or other discharge of the principal amount of such Foreign Purchased Loan (AU), interest or fee on such Foreign Purchased Loan (AU) or any other monies payable in respect of such Foreign Purchased Loan (AU) (and notwithstanding that the terms of the mortgage, charge, Encumbrance, guarantee, indemnity or other assurance may not secure all such amounts or may also secure, guarantee or provide assurance for the payment of other liabilities).
Pollutant shall mean a pollutant, contaminant, dangerous, toxic or hazardous substance, petroleum or petroleum product, chemical, solid, special liquid, industrial or other waste.
Permitted Mortgaged Property Encumbrances shall mean, in relation to a Mortgaged Property, (a) any lien on the Mortgaged Property relating to rates, land tax and other Taxes in respect of that Mortgaged Property due and payable but not yet delinquent; (b) covenants, conditions and restrictions, rights of way, easements and other matters of a similar nature registered on the applicable land titles register as a dealing against such Mortgaged Property; (c) other liens and matters to which like properties are commonly subject; (d) the rights of tenants (as tenants only) under Leases (including sub-leases) pertaining to the Mortgaged Property; (e) if the related Foreign Purchased Loan (AU) is a Senior Interest, the rights if the holder of the related Junior Interest; and (f) if the related Foreign Purchased Loan (AU) is cross-collateralised and cross-defaulted with one or more mortgage loans, the mortgage for the other mortgage loan contained in the same cross-collateralised and cross-defaulted group of mortgage loans, provided that none of the above individually, or in aggregate, materially and adversely interferes with the value or current use of the Mortgaged Property, the enforceability of the Mortgage over such Mortgaged Property or the relevant Mortgagors ability to pay its obligations in relation to the related Foreign Purchased Loan (AU) as and when they fall due for payment.
Required Policy shall have the meaning specified in paragraph 14(b) of this Exhibit VI-III.
Sub-participation Agreement shall mean, in respect of a Subparticipated Loan, the agreement between Parlex 2 AU and a creditor in respect of the underlying Whole Loan under which such creditor grants the Borrower a sub-participation interest in the relevant Whole Loan.
Subparticipated Loan shall mean a Foreign Purchased Loan (AU) in which Parlex 2 AU has been granted a sub-participation interest and is not a lender of record.
VI-III-2
B. |
REPRESENTATIONS AND WARRANTIES |
(1) |
Sole Legal and Beneficial Owner . Parlex 2 AU is the sole legal and beneficial owner of (a) such Foreign Purchased Loan (AU) (whether acquired or made) other than a Subparticipated Loan; (b) all of the Purchased Loan Documents in relation to such Foreign Purchased Loan (AU) (other than a Subparticipated Loan) other than any Loan Security which is held by a security trustee; and (c) the Subparticipation Agreement in respect of each Subparticipated Loan, in each case free and clear of any Encumbrance, participation or other ownership interest in relation to its right, title and interest in such Foreign Purchased Loan (AU), Purchased Loan Documents or Subparticipated Loan (as applicable), other than a Permitted Lien. |
(2) |
Purchased Loan Document Status . The obligations which are expressed to be assumed by each Loan Obligor in respect of such Foreign Purchased Loan (AU) under the applicable Purchased Loan Documents to which it is a party are legal, valid, binding and enforceable obligations subject only to the Legal Reservations. |
(3) |
No Set-Off, Counterclaim . Any amounts payable under any related Purchased Loan Document will be payable without set-off or counterclaim and Parlex 2 AU is not aware that any Loan Obligor has any valid defence or counterclaim to payment in full of such Foreign Purchased Loan (AU) or any right of rescission in respect of a related Purchased Loan Document. |
(4) |
Waivers and Amendments. Since origination of such Foreign Purchased Loan (AU), except by written instruments included in the related Purchased Loan File: (a) the material terms of the Loan Security in respect of such Foreign Purchased Loan (AU) have not been waived, impaired, modified, altered, satisfied, cancelled, subordinated or rescinded in any respect which materially interferes with the security intended to be provided by such Loan Security; (b) no Loan Secured Assets in respect of such Foreign Purchased Loan (AU) or any portion thereof have been released from the relevant Loan Security in any manner which materially interferes with the security intended to be provided by such Loan Security or the use or operation of the remaining portion of such Loan Secured Assets; and (c) no Loan Obligor in respect of such Foreign Purchased Loan (AU) has been released from any of its material obligations in respect of such Foreign Purchased Loan (AU). |
(5) |
Encumbrance Permitted. No related Purchased Loan Document prohibits or restricts Parlex 2 AU from, or otherwise requires Parlex 2 AU to obtain the consent of, or consult with, any Loan Obligor prior to: (a) granting an Encumbrance over its right, title and interest in and to that Purchased Loan Document (or the rights thereunder); or (b) assigning its rights, or transferring its rights and obligations, under such Purchased Loan Document. |
VI-III-3
(6) |
Perfection and Registration . Each Mortgage or other Loan Security in respect of such Foreign Purchased Loan (AU): (a) creates the Encumbrance purported to be created by it over the assets purported to be encumbered by it; (b) has been perfected in relation to all Loan Secured Assets expressed to be subject to that Mortgage or other Loan Security (as applicable); and (c) has the priority it is intended to have. |
(7) |
No Notice of Encumbrances . Other than a Permitted Mortgaged Property Encumbrance or as disclosed by or on behalf of Parlex 2 AU in writing in the Due Diligence Package relating to such Foreign Purchased Loan (AU), Parlex 2 AU has not received notice from any Person that claims to have an Encumbrance ranking in priority to or equal with the Encumbrance held by Parle 2 AU and constituted by the Loan Security for such Foreign Purchased Loan (AU). |
(8) |
Condition of Mortgaged Property . Parlex 2 AU or the originator of such Foreign Purchased Loan (AU) (if not Parlex 2 AU) inspected or caused to be inspected the Mortgaged Property for such Foreign Purchased Loan (AU) within six (6) months of origination of such Foreign Purchased Loan (AU) and within thirteen (13) months of the related Purchase Date; a technical due diligence report was prepared in connection with the origination of such Foreign Purchased Loan (AU) no more than thirteen (13) months prior to the related Purchase Date; and to Parlex 2 AUs Actual Knowledge, based solely on due diligence customarily performed in connection with the origination of comparable mortgage loans and except as disclosed in any technical due diligence report relating to a related Mortgaged Property delivered to Buyer, as of the related Purchase Date, each Mortgaged Property for such Foreign Purchased Loan (AU) was free and clear of material damage that would materially and adversely affect the use or value of such Mortgaged Property as security for that Foreign Purchased Loan (AU) (excluding any such material damage relating to either deferred maintenance for which reserves were established at origination or which is fully covered by insurance). |
(9) |
Taxes and Assessments . To the extent that prior to the related Purchase Date, there were any delinquent Taxes which could give rise to a lien on the related Mortgaged Property ranking prior or equal to the related Mortgage, to Parlex 2 AUs Actual Knowledge, such Taxes have been paid, or an escrow of funds has been established in an amount sufficient to cover such payments and any reasonably estimated interests and penalties thereon. For the purposes of this paragraph (9), a Tax shall not be considered delinquent until the earlier of the date on which interest and/or penalties would first be payable thereon; and the date on which enforcement action is entitled to be taken by the relevant Governmental Agency. |
(10) |
Subordinated Interests . There are, as of origination, and to Parlex 2 AUs Actual Knowledge, no Encumbrances affecting the Mortgaged Property relating to such Foreign Purchased Loan (AU) that secure the payment of money which are subordinated or otherwise rank in priority behind the relevant Mortgage other than Junior Interests (if applicable) or Permitted Mortgaged Property Encumbrances; and except as disclosed in the Due Diligence Package for the relevant Foreign Purchased Loan (AU), Parlex 2 AU has no Actual Knowledge of any mezzanine or junior debt secured directly by interests in such Loan Obligor in respect of such Foreign Purchased Loan (AU). |
VI-III-4
(11) |
Leases and Rents . Subject to the Legal Reservations, except as disclosed to Buyer in the Due Diligence Package for such Foreign Purchased Loan (AU), the Loan Security for such Foreign Purchased Loan (AU) creates a valid, first priority Encumbrance in rents and certain rights of the related Loan Obligor under any lease or leases of the Mortgaged Property, subject to any Permitted Liens; and the applicable Loan Security provides that upon an event of default (howsoever described) in respect of the such Foreign Purchased Loan (AU), a Controller is permitted to be appointed or the Mortgagee may enter into possession, in either case, to collect rents or for rents to be paid directly to the Mortgagee. |
(12) |
No Litigation . To Parlex 2 AUs Actual Knowledge as of the related Purchased Date, no litigation, administration proceedings, government investigation or arbitration is pending involving any Loan Obligor in respect of such Foreign Purchased Loan (AU), the relevant Mortgagors interest in its Mortgaged Property, or any related Purchased Loan Document, which adversely determined, would be reasonably expected to materially and adversely affect: (a) the relevant Mortgagors title to the Mortgaged Property; (b) the validity or enforceability of the relevant Mortgage; (c) the relevant Mortgagors ability to perform its obligations in respect of the related Foreign Purchased Loan (AU); (d) the ability of any relevant Loan Obligor that is a guarantor to perform its obligations under the related guarantee; (e) the principal benefit of the security intended to be provided by the related Loan Security; (f) the then current principal use of the relevant Mortgaged Property; or (g) the title or ownership of Parlex 2 AU of the relevant Purchased Loan Documents (or, in the case of a Subparticipated Loan, the relevant Subparticipation Agreement) and/or its rights, title and interest thereunder. |
(13) |
No Additional Funding . Other than a Foreign Purchased Loan (AU) which has been identified to Buyer in writing as requiring further advances, the principal amount of the relevant Foreign Purchased Loan (AU) as stated in the related Due Diligence Package has been, or simultaneously with the provision of the Margin Excess (Future Funding) under the relevant Transaction will be, fully disbursed as at the related Purchase Date and there is no requirement for future advances thereunder (excluding where a portion of the disbursed Foreign Purchased Loan (AU) is escrowed or held in a reserve account pending the satisfaction of certain conditions relating to leasing, repairs or other matters with respect to the relevant Mortgaged Property, the relevant Mortgagor or other considerations determined by Palex 2 AU to merit such holdback. |
(14) |
Insurance . |
(a) |
each related Mortgaged Property is, and is required pursuant to the related Purchased Loan Documents to be, insured (i) against damage, destruction and any other risk in an amount (subject to a customary deductible) that is no less than the lesser of (x) the outstanding principal balance of the relevant Foreign Purchased Loan (AU) and (y) the full insurable value on a replacement or reinstatement cost basis of the improvements, furniture, furnishings, fixtures and equipment owned by the related Mortgagor and included in the related Mortgaged Property; and (ii) for workers compensation, public liability and business interruption, in each case, with a reputable and substantial insurer; |
VI-III-5
(b) |
as at the related Purchased Date, all premiums on all insurance policies referred to in paragraph (14)(a) above (each a Required Policy ) relating to the related Mortgaged Property have been paid to the extent the same have fallen due; |
(c) |
each Required Policy for a related Mortgaged Property (other than a workers compensation or public liability insurance policy) names the relevant Mortgagee as the loss payee; |
(d) |
the relevant Purchased Loan Documents require the Loan Obligors to notify Parlex 2 AU (or any facility or similar agent, or security trustee, in respect of such Foreign Purchased Loan (AU)) of any cancellation or termination of a Required Policy; and |
(e) |
the relevant Purchased Loan Documents require proceeds from any insurance claim made in respect of a property loss to be applied either (x) to the repair, restoration or reinstatement of all or part of the related Mortgaged Property to which the relevant claim relates where the property loss exceeds 5% of the then outstanding principal balance of such Foreign Purchased Loan (AU), or (y) to the payment of the outstanding principal balance of such Foreign Purchased Loan (AU) together with any accrued interest thereon. |
(15) |
No Encroachments . To Parlex 2 AUs Actual Knowledge, based solely on searches of the land titles registry service for the state or territory in which the related Mortgaged Property is located obtained by Parlex 2 AU in connection with the origination of such Foreign Purchased Loan (AU), (a) all material improvements that were included for the purposes of determining the appraised value of any related Mortgaged Property at the time of origination of such Foreign Purchased Loan (AU) are within the boundaries of the such Mortgaged Property (except for encroachments that do not materially or adversely affect the value or current use of such Mortgaged Property), (b) is no encroachment onto any related Mortgaged Property by improvements on or used with adjoining land which materially and adversely affects the value or current use of such Mortgaged Property, (c) no improvements encroach upon any easements affecting any related Mortgaged Property where such encroachment materially and adversely affects the value and current use of that Mortgaged Property; and (d) the related Mortgaged Property is not affected by any easement, restriction, right, interest or claim derived under the Native Title Act 1993 (Cth). |
(16) |
Authorisations . Each Mortgagor covenants in the relevant Purchased Loan Documents that it shall keep all Authorisations required in relation to the Mortgaged Property in full force and effect where failure to do so will have, or will be reasonably likely to have, a material adverse effect on the Mortgagors ability to perform its material obligations under the relevant Purchased Loan Documents or the enforceability or priority of the relevant Mortgage. |
VI-III-6
(17) |
Financial Reporting . Each related Purchased Loan Agreement requires one or more of the relevant Loan Obligors to provide the creditor in respect of such Foreign Purchased Loan (AU) (or any facility or similar agent, or security trustee, in respect of such Foreign Purchased Loan (AU)) with the following: (a) annual audited financial statements for the relevant Loan Obligors (consolidated if applicable); (b) semi-annual unaudited management accounts of the Loan Obligors; (c) quarterly property management reports (other than for single-tenant properties); (d) quarterly rent rolls and forecasts of expenses for any Mortgaged Property (other than a single-tenant property) that has Leases contributing more than 5% of the in place base rent; and (e) annual Appraisals for the relevant Mortgaged Property; |
(18) |
Servicing . The servicing and collection practices used by Parlex 2 AU (or any appointed Servicer) with respect to such Foreign Purchased Loan (AU) have been, in all respects, legal and have met customary industry standards for servicing of commercial loans. |
(19) |
Origination and Underwriting . The origination practices of Parlex 2 AU (or, to Parlex 2 AUs Actual Knowledge, the relevant originator if Parlex 2 AU was not the originator) with respect to such Foreign Purchased Loan (AU) have been, in all material respects, in material compliance with applicable law; and as of the date of its origination, to Parlex 2 AUs Actual Knowledge (where Parlex 2 AU was not the originator), such Foreign Purchased Loan (AU) and the origination thereof complied in all material respects with, or was exempt from, all applicable laws relating to the origination of such Foreign Purchased Loan (AU), provided that the representation and warranty in this paragraph (19) does not address or otherwise cover any matters with respect to laws otherwise covered in other paragraphs of this Exhibit VI-III. |
(20) |
No Material Default; Payment Record . As of the related Purchase Date and the date of advancing any Margin Excess to Parlex 2 AU in respect of such Foreign Purchased Loan (AU): (a) such Foreign Purchased Loan (AU) has not been more than thirty (30) days delinquent, without giving effect to any grace or cure period, in making required debt service payments since origination, such Foreign Purchased Loan (AU) is not more than thirty (30) days delinquent (beyond any applicable grace or cure period) in making required payments; and (b) to Parlex 2 AUs Actual Knowledge, there is no (x) material default, breach, violation or event of acceleration existing under such Foreign Purchased Loan (AU), or (y) event (other than payments due but not yet delinquent) which, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a material default, breach, violation or event of acceleration, which in either case, materially and adversely affects the value of such Foreign Purchased Loan (AU) or the value, use or operation of the related Mortgaged Property. |
(21) |
Compulsory Acquisition . Parlex 2 AU has not received notice of any pending or, to its Actual Knowledge, threatened steps to affect the compulsory purchase of all or any material portion of any related Mortgaged Property; and to Parlex 2 AUs Actual Knowledge (based on Appraisals obtained in connection with the origination of the relevant Foreign Purchased Loan (AU)) as of the date of the origination of such Foreign Purchased Loan (AU), no such Appraisal disclosed any matter or thing that would materially and adversely affect the value or marketability of the relevant Mortgaged Property. |
VI-III-7
(22) |
Insolvency . To Parlex 2 AUs Actual Knowledge as of the related Purchase Date and as of the date of the advance of any Margin Excess to Parlex 2 AU in respect of such Foreign Purchased Loan (AU): (a) neither the related Mortgaged Property, nor any portion thereof, is the subject of any bankruptcy, receivership, administration, insolvent winding up or similar proceeding; and (b) no Controller, trustee in bankruptcy, administrator, liquidator or similar officer has been and remains appointed to a Loan Obligor for such Foreign Purchased Loan (AU) or, where the related Mortgaged Property is a single-tenant property, the tenant of the Mortgaged Property. |
(23) |
Environmental Laws . In relation to such Foreign Purchased Loan (AU) and its related Mortgaged Property: (a) to Parlex 2 AUs Actual Knowledge, there is no Contamination on, in or under or migrating to or from, that Mortgaged Property which is reasonably likely to have a Material Adverse Effect; (b) there is no material violation of Environmental Law with respect to the Mortgaged Property; (c) the related Purchased Loan Documents require the relevant Loan Obligors to materially comply with all applicable Environmental Laws. |
(24) |
Due Diligence Package . To Parlex 2 AUs Actual Knowledge, the information pertaining to such Foreign Purchased Loan (AU) which is set for in the relevant Due Diligence Package is true and correct in all material respects as of the related Purchase Date. |
(25) |
Compliance with Anti-Money Laundering Laws . Parlex 2 AU has complied in all material respects with all applicable anti-money laundering laws and regulations with respect to the origination of such Foreign Purchased Loan (AU) (if originated by Parlex 2 AU), the failure to comply with which would have a material adverse effect on such Foreign Purchased Loan (AU). |
(26) |
Title . Parlex 2 AU obtained from its lawyer or the lawyer for the relevant Loan Obligor(s), a legal property due diligence report covering title matters which showed no adverse entries, or, if such report did reveal any adverse entries, such report satisfactorily indicated that such entries would not have caused a reasonably prudent lender of money secured on commercial property to decline to proceed with the related advance on its agreed terms. |
(27) |
Cross-Collateralisation . No Foreign Purchased Loan (AU) is cross-collateralized with any other loan or security which is not a Purchased Loan. |
VI-III-8
(28) |
Acceleration . The applicable Purchased Loan Documents for such Foreign Purchased Loan (AU) contain provisions which give the holder (or, in the case of a syndicated Foreign Purchased Loan (AU), the facility agent on the instructions of holders representing no less than a majority by commitments) the right to accelerate the payment of the unpaid principal balance of such Foreign Purchased Loan (AU) if (a) there is a disposal of any related Mortgaged Property or of the equity interests the relevant Mortgagor, or (b) any Encumbrance is created over any related Mortgaged Property or the relevant Mortgagor, in each case, in contravention of the terms of applicable Purchased Loan Documents (and subject to any applicable grace periods specified in the Purchased Loan Documents for remedy). |
(29) |
Approval Rights . Under the terms of the applicable Purchased Loan Documents: |
(a) |
no material terms of the related Mortgage may be waived, cancelled, subordinated or modified in any material respect and no material portion of the Mortgage or the related Mortgaged Property may be released without the consent of the holder of such Foreign Purchased Loan (AU) (or where such Foreign Purchased Loan (AU) is syndicated, without the consent of the facility agent for such Foreign Purchased Loan (AU) acting on the instructions of no less than a majority by commitments of the holders of such Foreign Purchased Loan (AU)), except to the extent such release is permitted under the terms of the applicable Purchased Loan Documents; |
(b) |
no material action adversely affecting the value of the related Mortgaged Property may be taken by the owner of the Mortgaged Property without the consent of the holder of the applicable Purchased Loan Documents (or where such Foreign Purchased Loan (AU) is syndicated, without the consent of the facility agent for such Foreign Purchased Loan (AU) acting on the instructions of no less than a majority by commitments of the holders of such Foreign Purchased Loan (AU)); and |
(c) |
the consent of the holder of the applicable Purchased Loan Documents (or where such Foreign Purchased Loan (AU) is syndicated, the consent of the facility agent for such Foreign Purchased Loan (AU) acting on the instructions of no less than a majority by commitments of the holders of such Foreign Purchased Loan (AU)) is required prior to the owner of the related Mortgaged Property incurring any additional indebtedness subject to such exceptions as are customarily acceptable to prudent commercial and multifamily mortgage lending institutions lending on the security of property comparable to the Mortgaged Property in Australia. |
(30) |
Reserves . All reserves, funds, escrows and deposits required pursuant to the terms of the Purchased Loan Documents for such Foreign Purchased Loan (AU) have been so funded and deposited, are in the possession, or under the control, of the creditor of such Foreign Purchased Loan (AU) (or an agent or trustee for the creditor (or creditors) of such Foreign Purchased Loan (AU)) and, to Parlex 2 AUs Actual Knowledge, there are no deficiencies in connection therewith. |
(31) |
Appraisals . An Appraisal of the Mortgaged Property securing such Foreign Purchased Loan (AU) was conducted within twelve (12) months of the origination of such Foreign Purchased Loan (AU). |
VI-III-9
(32) |
No Fraud . No fraudulent acts were committed by Parlex 2 AU in connection with its acquisition or origination (as applicable) of such Foreign Purchased Loan (AU) nor, to Parlex 2 AUs Actual Knowledge, were any fraudulent acts committed by any person in connection with the origination of such Foreign Purchased Loan (AU). |
(33) |
No Equity Participation; No Contingent Interest . No Foreign Purchased Loan (AU) (a) contains an equity participation by the holder of such Foreign Purchased Loan (AU) or shared appreciation feature or profit participation feature, (b) provides for negative amortization, (c) provides for any contingent or additional interest in the form of participation in the cash flow of the related Mortgaged Property, or (d) has capitalised interest included in its principal balance. |
VI-III-10
EXHIBIT VII
COLLATERAL TAPE
Appraisal | Appraisal | Appraisal | Appraisal | Appraisal | Appraisal | Appraisal | Appraisal | Appraisal | Rent Roll | Appraisal |
Rent Roll- Physical |
Rent Roll |
All Debt-
Calc |
Calc
|
Mortgage |
B-Note Original Balance |
Mezzanine Debt Original Balance |
Calc | ||||||||||||||||||||||||
Property
|
|
Number of
Mortgaged Properties |
Property
Name |
Address | City | State | Zip Code |
General
Property Type |
Detailed
Property Type |
Year
Built |
Year
Renovated |
UniteS,
Pads, Rooms, Sq. FL |
Unit
Description |
Occupancy
(%) |
Occupancy
Date |
Total Debt
Original Balance |
Whole
Loan Original Balance |
A-Note
Original Balance |
B-Note
Original Balance |
Mezzanine
Debt Original Balance |
Total Debt
Cut-off Balance |
VII-1
Calc | Calc | Calc | Calc | Calc | Calc | Calc | Calc | Calc | Calc | Calc | Calc | Calc | Calc | Calc | Calc | Calc | Loan Amgt |
Loan
Amgt |
Calc | |||||||||||||||||||
Whole
|
A-Note
Cut-off Balance |
B-Note
Cut-off Balance |
Mezzanine
Debt Cut- off Balance |
Total Debt
Initial Maturity Balance |
Whole
Loan Initial Maturity Balance |
A-Note
Initial Maturity Balance |
B-Note
Initial Maturity Balance |
Mezzanine
Debt Initial Maturity Balance |
Total
Debt Final Maturity Balance |
Whole
Loan Final Maturity Balance |
A-Note
Final Maturity Balance |
B-Note
Final Maturity Balance |
Mezzanine
Debt Final Maturity Balance |
A-Note
Loan Per Unit |
Whole
Loan Loan Per Unit |
Total
Debt Loan Per Unit |
Amortization
|
Interest
Accrual Method |
Original
Term (Excluding Extensions) |
VII-2
Loan
Agmt |
Loan
Agmt |
Calc | calc | calc | calc | calc |
Loan Agmt |
Loan Agmt |
Loan Agmt |
Loan Agmt |
Loan Agmt |
Loan Agmt |
Loan Agmt |
Loan Agmt |
Loan Agmt |
Loan Agmt |
Loan Agmt |
Loan Agmt |
||||||||||||||||||||||||
Original
|
original
Term (Including Extension Options) |
IO
Period |
Seasoning |
Remaining
Term to Maturity |
Remaining
Amortization Term |
Remaining
Term (Including Extensions) |
Remaining
Amortization Term (Including Extensions) |
Origination
Date |
First
Due Date |
Initial
Maturity Date |
Extension
Options (Yes/no) |
Extension
Options Description |
Fully
Extended Maturity Date |
First
Extension Fee |
Second
Extension Fee |
Third
Extension Fee |
Extension
Test Description |
Extension
Spread Increase (Yes/No) |
Extension
Spread Increase Description |
Exit
Fees |
Payment
Day or Month |
VII-3
Strike Price | ||||||||||||||||||||||||||||||||||||||||
Loan
Agmt |
Loan
Agmt |
Loan
Agmt |
Loan
Agmt |
Loan
Agmt |
Loan
Agmt |
Loan
Agmt |
Loan Agmt |
Loan
Agmt |
Loan
Agmt |
Loan
Agmt |
Loan
Agmt |
Cap Agreement |
Cap Agreement |
Bloomberg |
Loan
Agmt |
Loan
Agmt |
Loan
Agmt |
Loan
Agmt |
Loan
Agmt |
|||||||||||||||||||||
Payment
|
Payment
Grace Period Event of Default |
Payment
Grace Period Event or Late Fee |
Balloon
Grace Period Event or Default |
Balloon
Grace Period Event of Late Fee |
Interest
accrual period start |
Interest
accrual period end |
Interest
rate adjustment frequency |
LIBOR
rounding methodology |
LIBOR
Lookback Days |
LIBOR
Floor |
LIBOR
Cap |
LIBOR
Cap after Extension |
LIBOR
Cap expiration date |
LIBOR
Cap provider |
LIBOR
Cap provider rating |
Total
Debt Margin |
Whole
Loan Margin |
A-Note
Margin |
B-Note
Margin |
Mezzanine
Margin |
VII-4
Calc | calc | Calc | Calc | Calc | Calc |
Loan
Agmt |
calc | Calc |
Loan
Agmt |
|||||||||||||||||||||||||||||||
Total
|
Whole
Loan interest Rate |
Trust
Asset interest Rate |
Total
Debt Interest Rate (At LIBOR Cap) |
Whole
Loan Interest Rate (At LIBOR Cap) |
Trust
Asset Interest Rate (At LIBOR Cap) |
Original
Lockout Payments |
Remaining
Lockout Payments |
Lockout
End Date |
Spread
Maintenance |
Open
payments |
Prepayment
string |
Partially
Prepayable without Penalty |
Partially
Prepayable without Penalty Description |
Partial
Collateral Release [Y/N] |
Partial
Collateral Release Description |
Substitution
Allowed [Y/ N] |
Substitution
Provision Description |
LockBox
[Y/N] |
Lockbox
Type |
Terms/
Description of Springing Lockbox (if applicable) |
VII-5
Closing Statement |
Servicer Tape |
Loan
Agreement |
Loan
Agreement |
Closing Statement |
Servicer Tape |
Loan
Agreement |
Loan Agreement |
Loan Agreement |
Loan Agreement |
Closing Statement |
||||||||||||||||||||||||||||||||
Cash
|
upfront
RE Tax Reserve |
Monthly
RE Tax Reserve |
Tax
Reserve Cap |
Terms/
Description of Springing Tax Reserve (if applicable) |
Upfront
insurance Reserve |
Monthly
Insurance Reserve |
Terms/
Description of Springing insurance (if Reserve applicable) |
Upfront
Replacement Reserve |
Monthly
Replacement Reserve |
Replacement
Reserve Cap |
Terms/
Description of Springing Replacement Reserve (if applicable) |
Upfront
Capex Reserve |
upfront
TI/LC Reserve |
|
TI/LC
Reserve Cap |
Terms/
Description of Springing TI/LC Reserve (If Cap applicable |
Upfront
Debt Service Reserve |
Monthly
Debt Service Reserve |
Other
Reserve Description |
Upfront
Otner Reserve |
Monthly
Other Reserve |
VII-6
Appraisal | Appraisal | Appraisal | Appraisal | |||||||||||||||||||||||||||||||||
Other Reserve Cap |
Terms/
Description of Springing Other Reserve (if appilcable) |
Appraised
Value (s) |
Appraisal
Type |
Appraisal
Cap Rate |
Appraised
Value Date |
Envirnomental
Phase I Date |
Phase II
Recommended |
Environmental
Phase II Date |
Engineering
Report Date |
Selemic
Report Date |
PML
or SEL (%) |
ownership
Interest |
Ground
Lease Expiration |
Ground
Lease Extension Options |
Annual
Ground Lease Payment |
Ground
Lease Escalation Terms |
Borrower
Name |
Recourse
Guarantor |
VII-7
EXHIBIT VIII
FORM OF TRANSACTION REQUEST
Ladies and Gentlemen:
Pursuant to Section 3(a) of that certain Third Amended and Restated Master Repurchase Agreement, dated as of October 12, 2018 (the Agreement ), among Citibank, N.A. ( Buyer ) and [ list Seller entities other than the Seller defined hereunder ] and any Person that joins as a Seller (as such term is defined in the Agreement) under the Agreement from time to time, [__________], LLC ( Seller ) hereby requests that Buyer enter into a Transaction with respect to the Eligible Loans set forth on Schedule 1 attached hereto, upon the proposed terms set forth below. Capitalized terms used herein without definition have the meanings given in the Agreement.
VIII-1
Name and address for | Buyer : | |||||
communications: | ||||||
Citibank, N.A. | ||||||
388 Greenwich Street | ||||||
New York, New York 10013 | ||||||
Attention: | Richard Schlenger | |||||
Telephone: | (212) 816-7806 | |||||
Email: Richard.Schlenger@Citi.com | ||||||
Seller : | ||||||
[________________], LLC | ||||||
c/o Blackstone Mortgage Trust, Inc. | ||||||
345 Park Avenue | ||||||
New York, NY 10154 | ||||||
Attention: Douglas Armer | ||||||
Tel: (212) 583-5000 | ||||||
Email: BXMTCitiRepo@blackstone.com |
VIII-2
SELLER: |
[_________________________], LLC , a Delaware limited liability company |
By: |
|
|
Name: | ||
Title: |
VIII-3
Schedule 1 to Transaction Request
(Attachments: Collateral Tape and Eligible Loan Due Diligence Checklist)
Eligible Loan:
Aggregate Principal Amount of Eligible Loan: [$/£//A$ ______________]
VIII-4
Schedule 2 to Transaction Request
Exceptions to Representations and Warranties Set
Forth on Exhibit VI
VIII-5
EXHIBIT IX
FORM OF REQUEST FOR MARGIN EXCESS
Ladies and Gentlemen:
Pursuant to Section [4(c)][4(e)] of that certain Third Amended and Restated Master Repurchase Agreement, dated as of October 12, 2018 (the Agreement ), among Citibank, N.A. ( Buyer ) and [ list Seller entities other than the Seller defined hereunder ] and any Person that joins as a Seller (as such term is defined in the Agreement) under the Agreement from time to time, [__________], LLC ( Seller ) hereby requests that Buyer transfer cash to Seller with respect to the Purchased Loan described below in the amount set forth below. Capitalized terms used herein without definition have the meanings given in the Agreement.
Purchased Loan: |
[__________________] | |
Amount of Increase in outstanding Purchase Price Requested by Seller: |
[$/£//A$_________________] [Describe how Amount Calculated] | |
Type of Margin Excess: |
[Margin Excess (Future Funding)] | |
[Margin Excess (Other) [DESCRIBE REASON: | ||
Margin Deficit, Prior Paydown without Release of | ||
Collateral, Original Purchase Price less than | ||
Maximum Purchase Price]] |
IX-1
Name and address for | Buyer : | |||||
communications: | ||||||
Citibank, N.A. | ||||||
388 Greenwich Street | ||||||
New York, New York 10013 | ||||||
Attention: | Richard Schlenger | |||||
Telephone: | (212) 816-7806 | |||||
Email: Richard.Schlenger@Citi.com | ||||||
Seller : | ||||||
[______________________], LLC | ||||||
c/o Blackstone Mortgage Trust, Inc. | ||||||
345 Park Avenue | ||||||
New York, NY 10154 | ||||||
Attention: | Douglas Armer | |||||
Tel: (212) 583-5000 | ||||||
Email: BXMTCitiRepo@blackstone.com |
IX-2
SELLER: |
[______________________], LLC , a Delaware limited liability company |
By: |
|
|
Name: | ||
Title: |
IX-3
EXHIBIT X
FORM OF IRREVOCABLE DIRECTION LETTER 14
[SELLER]
[LETTERHEAD]
IRREVOCABLE DIRECTION LETTER
AS OF [ ], 20[ ]
Ladies and Gentlemen:
Please refer to: (a) that certain [Loan Agreement], dated [ ], 20[__], by and among [ ] (the Borrower), as borrower, and [_____________] (the Lender), as lender; and (b) all documents securing or relating to that certain [$/£//A$ ] loan made by the Lender to the Borrower on [ ], 20[__] (the Loan).
You are advised as follows, effective as of the date of this letter.
Assignment of the Loan . The Lender has entered into that certain Third Amended and Restated Master Repurchase Agreement, dated as October 12, 2018 (as the same may be amended, supplemented, extended, restated, replaced and/or otherwise modified from time to time, the Repo Agreement), with Citibank, N.A. (Citi), 388 Greenwich Street, New York, New York 10013, [ list Seller entities other than the Lender defined hereunder ] and any other Person that joins as a Seller under the Repo Agreement from time to time, and has assigned its rights and interests in the Loan (and all of its rights and remedies in respect of the Loan) to Citi. This assignment shall remain in effect unless and until Citi has notified Borrower otherwise in writing.
Direction of Funds . In connection with Lenders obligations under the Repo Agreement, Lender hereby directs Borrower to disburse, by wire transfer, any and all payments to be made under or in respect of the Loan to the following account at [____________] for the benefit of Citi:
______________
______________
______________
14 |
On the Purchase Date for each Foreign Purchased Loan, this Exhibit X shall be reasonably revised as mutually agreed upon by Buyer and Seller to reflect any equivalent terminology, customary market practices and Requirements of Law in the relevant non-U.S. jurisdiction, in each case applicable to such Foreign Purchased Loan. |
X-1
Account: _____________
Attn: ____________________
This direction shall remain in effect unless and until Citi has notified Borrower otherwise in writing.
Modifications, Waivers, Etc. No modification or waiver of any partys obligations in respect of this letter shall be effective without the prior written consent of Citi.
X-2
Please acknowledge your acceptance of the terms and directions contained in this correspondence by executing a counterpart of this correspondence and returning it to the undersigned.
[Signature Page Follows]
X-3
Very truly yours, |
[______________________________] , | ||
a Delaware limited liability company |
By: |
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Name: | ||
Title: | ||
Date: [ ], 20[__] |
Agreed and accepted this [ ] | ||
day of [ ], 20[__] | ||
[ ] |
By: |
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Name: |
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Title: |
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X-4
EXHIBIT XI
FORM OF JOINDER AGREEMENT
This JOINDER AGREEMENT (this Joinder Agreement ) dated as of [], is made by and among Parlex 2 Finance, LLC, Parlex 2A Finco, LLC, Parlex 2 UK Finco, LLC, Parlex 2 EUR Finco, LLC, Parlex 2 AU Finco, LLC, [ADD OTHER PREVIOUSLY ADDED SELLERS], each a Delaware limited liability company (collectively, the Existing Sellers ), [], a Delaware limited liability company] (the Joining Seller ) and Citibank, N.A. ( Buyer ).
W I T N E S S E T H:
WHEREAS, Existing Sellers and Buyer, entered into that certain Third Amended and Restated Master Repurchase Agreement, dated as of October 12, 2018 (as the same may be amended, supplemented, extended, restated, replaced or otherwise modified from time to time, the Repurchase Agreement), pursuant to which Existing Sellers agreed to sell to Buyer certain Eligible Loans upon the terms and subject to the conditions set forth therein (each such transaction, a Transaction );
WHEREAS , all capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Repurchase Agreement; and
WHEREAS, Existing Sellers and Buyer desire to modify certain terms and provisions of the Repurchase Agreement and the other Transaction Documents to admit Joining Seller to the Repurchase Agreement and the other Transaction Documents as a Seller in accordance with this Joinder Agreement.
NOW, THEREFORE, in order to induce Buyer to enter into a Transaction with Joining Seller, and in consideration of the substantial benefit Joining Seller will derive from Buyer entering into such Transaction, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, Joining Seller hereby agrees as follows:
1. In consideration of Joining Seller becoming a Seller entitled to enter into Transactions with Buyer under and subject to the terms and conditions of the Repurchase Agreement, Joining Seller hereby agrees that, effective as of the date hereof, Joining Seller is, and shall be deemed to be, a Seller under the Repurchase Agreement and each of the other Transaction Documents to which a Seller is a party (including, without limitation, the Fee Agreement), and agrees that from the date hereof and so long as the Repurchase Obligations remain outstanding, Joining Seller hereby assumes the obligations of a Seller under, and Joining Seller shall perform, comply with and be subject to and bound by each of the terms, covenants and conditions of the Repurchase Agreement and each of the other Transaction Documents which are stated to apply to or are made by a Seller (including, without limitation, the Fee Agreement).
XI-1
Without limiting the generality of the foregoing, Joining Seller hereby represents and warrants that (i) each of the representations and warranties set forth in Section 10 of the Repurchase Agreement are true and correct as to Joining Seller and its related Purchased Loan on and as of the date hereof and (ii) Joining Seller has heretofore received true and correct copies of the Repurchase Agreement and each of the other Transaction Documents as in effect on the date hereof.
2. Without limiting the foregoing, Joining Seller agrees that it is and shall be obligated to pay the Repurchase Price applicable to its Purchased Loan on the Repurchase Date therefor and perform and pay all of the other Repurchase Obligations applicable to Joining Seller and such Purchased Loan as if it were an original party to the Repurchase Agreement (including, without limitation, all obligations arising under the Fee Agreement) and agrees to execute and deliver such documents, agreements and other instruments as Buyer may reasonably request in connection with such Joining Sellers obligations hereunder and under the Repurchase Agreement and the other Transaction Documents.
3. In furtherance of the foregoing, Joining Seller shall execute and deliver or cause to be executed and delivered, at any time and from time to time, such further instruments and documents, and shall do or cause to be done such further acts, as may be reasonably necessary or proper in the opinion of Buyer to carry out more effectively the provisions and purposes of this Joinder Agreement and the Repurchase Agreement.
4. The Existing Sellers and Joining Seller each acknowledge and agree that, except as modified by this Joinder Agreement, the Repurchase Agreement and each of the other Transaction Documents remains unmodified and in full force and effect and all of the terms, covenants and conditions thereof are hereby ratified and confirmed in all respects.
5. Notwithstanding any provision, covenant, agreement or requirement to the contrary contained in this Joinder Agreement, the Repurchase Agreement or any other Transaction Document, Seller shall make commercially reasonable efforts to amend, restate, or otherwise modify the Custodial Agreement in order to join the Joining Seller thereto, and for the Joining Seller to enter into a new (a) servicing agreement with Servicer in substantially the same form as the applicable Servicing Agreement and (b) blocked account agreement with Servicer and Depository in substantially the same form as the applicable Blocked Account Agreement establishing a Cash Management Account with Depository in the manner required pursuant to Section 5(a) of the Repurchase Agreement.
6. Notice information for Joining Seller for purposes of Section 17 and Annex I of the Repurchase Agreement and each other applicable Transaction Document shall be as specified in the signature pages hereto for Joining Seller, or at such other address and person as shall be designated from time to time in a written notice to the other parties hereto in the manner provided for in Section 17 of the Repurchase Agreement.
XI-2
7. THIS JOINDER AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.
8. This Joinder Agreement may be executed in any number of counterparts, and all such counterparts shall together constitute the same agreement. Signatures delivered by email (in PDF format) shall be considered binding with the same force and effect as original signatures.
[Remainder of page intentionally left blank; signatures follow on next page.]
XI-3
IN WITNESS WHEREOF, each of Joining Seller, Exiting Sellers and Buyer has duly executed and delivered this Joinder Agreement as of the date and year first above written.
JOINING SELLER : | ||
[] | ||
By: |
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Name: | ||
Title: | ||
Address for notices to Joining Seller: |
[Joining Seller] c/o Blackstone Mortgage Trust, Inc. 345 Park Avenue |
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New York, NY 10154 | ||
Attention: Douglas Armer | ||
Tel: (212) 583-5000 | ||
Email: BXMTCitiRepo@blackstone.com | ||
With a copy to: | ||
Ropes & Gray LLP 1211 Avenue of the Americas |
||
New York, New York 10036 | ||
Attention: Daniel L. Stanco | ||
Tel: (212) 841-5758 | ||
Email: daniel.stanco@ropesgray.com |
XI-4
EXISTING SELLERS:
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PARLEX 2 FINANCE, LLC | ||
By: |
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Name: | ||
Title: | ||
PARLEX 2A FINCO, LLC | ||
By: |
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Name: | ||
Title: | ||
PARLEX 2 UK FINCO, LLC | ||
By: |
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Name: | ||
Title: | ||
PARLEX 2 EUR FINCO, LLC | ||
By: |
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Name: | ||
Title: | ||
PARLEX 2 AU FINCO, LLC | ||
By: |
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Name: | ||
Title: |
XI-5
BUYER:
CITIBANK, N.A. |
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By: |
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Name: | ||
Title: |
XI-6
EXHIBIT XII
FORM OF FACILITY ASSET CHART
XII-1
Exhibit 10.41
FOURTH AMENDMENT TO LIMITED GUARANTY
THIS FOURTH AMENDMENT TO LIMITED GUARANTY (this Amendment ) is made as of October 12, 2018 (the Effective Date ), by and between BLACKSTONE MORTGAGE TRUST, INC. , a Maryland corporation ( Guarantor ), and CITIBANK, N.A. , a national banking association ( Buyer ).
RECITALS:
WHEREAS , Parlex 2 Finance, LLC, a Delaware limited liability company ( Parlex 2 ), Parlex 2A Finco, LLC, a Delaware limited liability company ( Parlex 2A and together with Parlex 2, Original Sellers ), and Buyer entered into that certain Amended and Restated Master Repurchase Agreement, dated as of July 28, 2014, as amended by that certain First Amendment to Amended and Restated Master Repurchase Agreement dated as of July 28, 2016, by and among Original Sellers and Buyer (collectively, the First A&R Repurchase Agreement ), which First A&R Repurchase Agreement amended, restated and replaced in its entirety that certain Repurchase Agreement, dated as of June 12, 2013 (the Original Repurchase Agreement ), as amended by that certain First Amendment to Master Repurchase Agreement, dated as of July 26, 2013, that certain Second Amendment to Master Repurchase Agreement, dated as of September 11, 2013, that certain Third Amendment to Master Repurchase Agreement, dated as of November 20, 2013, that certain Fourth Amendment to Master Repurchase Agreement, dated as of January 31, 2014, and that certain Joinder Agreement, dated as of January 31, 2014 between Buyer, Parlex 2 and Parlex 2A);
WHEREAS , Original Sellers, Parlex 2 UK Finco, LLC, a Delaware limited liability company ( Parlex 2 UK ) and Parlex 2 EUR Finco, LLC, a Delaware limited liability company ( Parlex 2 EUR ), and Buyer entered into that certain Second Amended and Restated Master Repurchase Agreement, dated as of March 31, 2017 (the Second A&R Repurchase Agreement ), which Second A&R Repurchase Agreement amended, restated and replaced in its entirety the First A&R Repurchase Agreement, as amended by that certain First Amendment to Master Repurchase Agreement, dated as of December 21, 2017 and that certain Second Amendment to Master Repurchase Agreement, dated as of March 30, 2018;
WHEREAS , in connection with the Original Repurchase Agreement, Guarantor entered into that certain Limited Guaranty dated as of June 12, 2013, as amended by that certain First Amendment to Limited Guaranty dated as of November 20, 2013, as further amended by that certain Second Amendment to Limited Guaranty, dated as of February 24, 2014, as further amended by that certain Third Amendment to Limited Guaranty, dated as of March 31, 2017 (collectively, and as the same may be further amended, supplemented or otherwise modified from time to time, the Guaranty ), in favor of Buyer, guaranteeing certain obligations of Original Sellers, Parlex 2 UK and Parlex 2 EUR;
WHEREAS , concurrently with the Effective Date, Original Sellers, Parlex 2 UK, Parlex 2 EUR, Parlex 2 AU Finco, LLC, a Delaware limited liability company ( Parlex 2 AU together with Original Sellers, Parlex 2 EUR and Parlex 2 UK, Seller ), and Buyer have entered into that certain Third Amended and Restated Master Repurchase Agreement (as the same may be
amended, supplemented, extended, restated, replaced or otherwise modified from time to time, the Third A&R Repurchase Agreement ), which Third A&R Repurchase Agreement amended, restated and replaced in its entirety the Second A&R Repurchase Agreement. Capitalized terms used but not defined herein shall have the meanings assigned to them in the Guaranty or the Third A&R Repurchase Agreement, as applicable; and
WHEREAS , in connection with the Third A&R Repurchase Agreement, the parties hereto desire to (i) modify certain terms and provisions of the Guaranty as set forth herein, (ii) reaffirm the obligations of Guarantor under the Guaranty and (iii) amend and enter into certain other Transaction Documents.
NOW THEREFORE , in consideration of the foregoing and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby consent and agree as follows:
AGREEMENT:
1. A MENDMENTS TO G UARANTY . The Guaranty is hereby amended and modified as
follows:
(a) Any references to, and any definition of, the Repurchase Agreement in the Guaranty shall mean, and such definition is hereby amended to refer to, the Third A&R Repurchase Agreement, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.
2. R EAFFIRMATION OF G UARANTY . Guarantor hereby (i) acknowledges and consents to the Third A&R Repurchase Agreement and the execution and delivery of this Amendment and (ii) represents, warrants and covenants that notwithstanding the execution and delivery of this Amendment and the Third A&R Repurchase Agreement, all of Guarantors obligations under the Guaranty remain in full force and effect and the same are hereby irrevocably and unconditionally ratified and confirmed by Guarantor in all respects.
3. G UARANTOR S R EPRESENTATIONS . Guarantor represents and warrants that (i) Guarantor has taken all necessary action to authorize the execution, delivery and performance of this Amendment, (ii) this Amendment has been duly executed and delivered by or on behalf of Guarantor and constitutes the legal, valid and binding obligation of Guarantor enforceable against Guarantor in accordance with its terms subject to bankruptcy, insolvency, and other limitations on creditors rights generally and to equitable principles, (iii) no Event of Default has occurred and is continuing, and no Event of Default will occur as a result of the execution, delivery and performance by Guarantor of this Amendment, and (iv) any consent, approval, authorization, order, registration or qualification of or with any Governmental Authority required for the execution, delivery and performance by Guarantor of this Amendment has been obtained and is in full force and effect (other than consents, approvals, authorizations, orders, registrations or qualifications that if not obtained, are not reasonably likely to have a Material Adverse Effect).
4. G OVERNING L AW ; W AIVER OF J URY T RIAL ; C ONSENT TO J URISDICTION . This Amendment shall be governed in accordance with the terms and provisions of Sections 19, 21 and 27(c) of the Guaranty, mutatis mutandis .
5. S EVERABILITY . Wherever possible, each provision of this Amendment shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Amendment shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Amendment.
6. C OUNTERPARTS . This Amendment may be executed in any number of counterparts, and all such counterparts shall together constitute the same agreement. Signatures delivered by email (in PDF format) shall be considered binding with the same force and effect as original signatures.
7. S UCCESSORS AND A SSIGNS . This Amendment shall inure to the benefit of and shall be binding on the parties hereto and their respective successors and assigns.
8. A MENDMENTS . This Amendment may not be modified, amended, waived, changed or terminated orally, but only by an agreement in writing signed by the party against whom the enforcement of the modification, amendment, waiver, change or termination is sought.
[NO FURTHER TEXT ON THIS PAGE]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their duly authorized representatives, all as of the day and year first above written.
GUARANTOR : | ||
BLACKSTONE MORTGAGE TRUST, INC., | ||
a Maryland corporation | ||
By: |
/s/ Douglas N. Armer |
|
Name: | Douglas N. Armer | |
Title: | Managing Director, Head of Capital Markets and Treasurer |
[Signatures Continued on Next Page]
[Signature Page to Fourth Amendment to Guaranty]
BUYER : | ||||
CITIBANK, N.A. | ||||
By: |
/s/ Richard B. Schlenger |
|||
Name: | Richard B. Schlenger | |||
Title: | Authorized Signatory |
[Signature Page to Fourth Amendment to Guaranty]
Exhibit 10.52
AMENDMENT NO. 9 TO AMENDED AND RESTATED MASTER REPURCHASE AND
SECURITIES CONTRACT
AMENDMENT NO. 9 TO AMENDED AND RESTATED MASTER REPURCHASE AND SECURITIES CONTRACT, dated as of December 21, 2018 (this Amendment ), between PARLEX 5 FINCO, LLC , a Delaware limited liability company ( Seller ) and WELLS FARGO BANK, NATIONAL ASSOCIATION , a national banking association ( Buyer ). Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Repurchase Agreement (as defined below).
RECITALS
WHEREAS, Seller and Buyer are parties to that certain Amended and Restated Master Repurchase and Securities Contract, dated as of April 4, 2014 (as amended by that certain Amendment No. 1 to Amended and Restated Master Repurchase and Securities Contract, dated as of October 23, 2014, as further amended by that certain Amendment No. 2 to Amended and Restated Master Repurchase and Securities Contract, dated as of March 13, 2015, as further amended by that certain Amendment No. 3 to Amended and Restated Master Repurchase and Securities Contract, dated as of April 14, 2015, as further amended by that certain Amendment No. 4 to Amended and Restated Master Repurchase and Securities Contract, dated as of March 11, 2016, as further amended by that certain Amendment No. 5 to Amended and Restated Master Repurchase and Securities Contract, dated as of June 30, 2016, as further amended by that certain Amendment No. 6 to Amended and Restated Master Repurchase and Securities Contract, dated as of March 13, 2017, as further amended by that certain Amendment No. 7 to Amended and Restated Master Repurchase and Securities Contract, dated as of March 31, 2017, as further amended by that certain Amendment No. 8 to Amended and Restated Master Repurchase and Securities Contract, dated as of March 13, 2018, as amended hereby and as further amended, restated, supplemented or otherwise modified and in effect from time to time, the Repurchase Agreement );
WHEREAS, Seller has requested, and Buyer has agreed, to amend the Repurchase Agreement as set forth in this Amendment and Blackstone Mortgage Trust, Inc. ( Guarantor ) agrees to make the acknowledgements set forth herein.
Therefore, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer hereby agree as follows:
SECTION 1. Amendments to Repurchase Agreement .
(a) Article 2 of the Repurchase Agreement is hereby amended by inserting the following, new defined terms in correct alphabetical order:
Beneficial Ownership Certification : A certification regarding beneficial ownership as required by the Beneficial Ownership Regulation in a form as agreed to by Buyer.
Beneficial Ownership Regulation : Means 31 C.F.R. § 1010.230.
Delaware LLC Act : Chapter 18 of the Delaware Limited Liability Company Act, 6 Del. C. §§ 18 101 et seq., as amended.
Dividing LLC : A Delaware limited liability company that is effecting a Division pursuant to and in accordance with Section 18 217 of the Delaware LLC Act.
Division : The division of a Dividing LLC into two or more domestic limited liability companies pursuant to and in accordance with Section 18 217 of the Delaware LLC Act.
Division LLC : A surviving company, if any, and each resulting company, in each case that is the result of a Division.
Upsize Option : Defined in Section 3.13 .
(b) The defined term Funding Expiration Date , as set forth in Article 2 of the Repurchase Agreement, is hereby amended and restated in its entirety to read as follows:
Funding Expiration Date : March 13, 2020; provided that, in the event that Seller requests an extension of the Funding Expiration Date, such request may be approved or denied by Buyer for any reason or for no reason, as determined in Buyers sole and absolute discretion, and it is expressly acknowledged and agreed that Buyer has no obligation to consider or grant any such request.
(c) The defined term Maximum Amount , as set forth in Article 2 of the Repurchase Agreement, is hereby amended by deleting the number $2,000,000,000 in the first line thereof and replacing such number with the following new clause:
$2,500,000,000, as such amount may be increased pursuant to Section 3.13 ;
(d) Section 3.02 of the Repurchase Agreement is hereby amended to add the following sentence to the end thereof:
To the extent any additional limited liability company is formed by a Division of Seller (and without prejudice to Sections 8.01 and 9.01 hereof), Seller shall cause each such Division LLC to sell, transfer, convey and assign to Buyer on a servicing released basis and for no additional consideration all of each such Division LLCs right, title and interest in and to each Purchased Asset, together with all related Servicing Rights in the same manner and to the same extent as the sale, transfer, conveyance and assignment by Seller on each related Purchase Date of all of Sellers right, title and interest in and to each Purchased Asset, together with all related Servicing Rights.
(e) Article 3 of the Repurchase Agreement is hereby amended to add the following new Section 3.13 thereto in correct numerical order:
Section 3.13 Maximum Amount Upsize Option . Seller may request up to five (5) separate increases to the Maximum Amount, in increments of no less than $100,000,000 each, to an amount not to exceed $3,000,000,000 in the aggregate (each such increase, an Upsize Option ), in each case by the delivery of at least thirty (30) days prior written notice thereof to Buyer. No Upsize Option shall be allowed on or after the last day of the Funding Period. Sellers request(s) to exercise any Upsize Option may be approved or denied by Buyer, in its sole discretion, and no Upsize Option shall be effective unless, in each case, Buyer has approved such Upsize Option in writing and given Seller written notice of the effective date thereof and the amount of the related increase. Sellers request(s) to exercise any Upsize Option will be deemed to be denied if, on the date of such request or on the proposed effective date of such increase (i) a Default or Event of Default has occurred and is continuing, (ii) an unsatisfied Margin Deficit exists or (iii) Buyer has requested a new or updated Beneficial Ownership Certification, as applicable, in relation to Seller (to the extent Seller qualifies as a legal entity customer), and Seller has failed to provide such new or updated Beneficial Ownership Certification to Buyer.
(f) Article 7 of the Repurchase Agreement is hereby amended to add the following new Section 7.21 thereto in correct numerical order:
Section 7.21 Beneficial Ownership Certification . The information included in each Beneficial Ownership Certification is true and correct in all respects, in each case as of the date of delivery.
(g) Article 8 of the Repurchase Agreement is hereby amended to add the following new Section 8.14 thereto in correct numerical order:
Section 8.14 Beneficial Ownership . To the extent that Seller is a legal entity customer under the Beneficial Ownership Regulation, Seller shall promptly give notice to Buyer of any change in the information provided in any Beneficial Ownership Certification that would result in a change to the list of beneficial owners identified therein and shall promptly deliver an updated Beneficial Ownership Certification to Buyer.
(h) The third sentence of Section 8.03 of the Repurchase Agreement is hereby amended and restated in its entirety to read as follows:
Notwithstanding the foregoing, (i) if Seller grants a Lien on any Purchased Asset in violation of this Section 8.03 or any other Repurchase Document, Seller shall be deemed to have simultaneously granted an equal and ratable Lien on such Purchased Asset in favor of Buyer to the extent such Lien has not already been
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granted to Buyer; provided, that such equal and ratable Lien shall not cure any resulting Event of Default, and (ii) to the extent any additional limited liability company is formed by a Division of Seller (and without prejudice to Sections 8.01 and 9.01 hereof), Seller shall cause any such Division LLC to assign, pledge and grant to Buyer, for no additional consideration, all of its assets, and shall cause any owner of each such Division LLC to pledge all of the Equity Interests and any rights in connection therewith of each such Division LLC to Buyer, for no additional consideration, in support of all Repurchase Obligations in the same manner and to the same extent as the assignment, pledge and grant by Seller of all of Sellers assets hereunder, and in the same manner and to the same extent as the pledge by Pledgor of all of Pledgors right, title and interest in all of the Equity Interests of Seller and any rights in connection therewith, in each case pursuant to the Pledge and Security Agreement.
(i) Clause (x) of Section 9.01 of the Repurchase Agreement is hereby amended and restated in its entirety to read as follows:
(x) not engage in or suffer any Change of Control, dissolution, winding up, liquidation, consolidation or merger in whole or in part or convey or transfer all or substantially all of its properties and assets to any Person (except as contemplated herein), nor shall Seller adopt, file or effect a Division,
(j) Section 10.01 of the Repurchase Agreement is hereby amended to add the following new clause (w) to the end thereof:
(w) Seller adopts, files or effects a Division.
(k) Section 18.15(b) of the Repurchase Agreement is hereby amended and restated in its entirety to read as follows:
(b) Seller will promptly at its expense execute and deliver such instruments and documents and take such other actions as Buyer may reasonably request from time to time in order to perfect, protect, evidence, exercise and enforce Buyers rights and remedies under and with respect to the Repurchase Documents, the Transactions and the Purchased Assets. Seller and Guarantor shall, promptly upon Buyers request, deliver documentation in form and substance satisfactory to Buyer which Buyer deems necessary or desirable to evidence compliance with all applicable know your customer due diligence checks, including, but not limited to, any information required to be obtained by Buyer pursuant to the Beneficial Ownership Regulation.
SECTION 2. Amendment Effective Date . This Amendment and its provisions shall become effective on the date first set forth above (the Amendment Effective Date ), which is the date that this Amendment was executed and delivered by a duly authorized officer of each of Seller, Buyer and Guarantor.
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SECTION 3. Representations, Warranties and Covenants . Seller hereby represents and warrants to Buyer, as of the Amendment Effective Date, that (i) it is in full compliance with all of the terms and provisions and its undertakings and obligations set forth in the Repurchase Agreement and each other Repurchase Document to which it is a party on its part to be observed or performed, and (ii) no Default or Event of Default has occurred or is continuing. Seller hereby confirms and reaffirms its representations, warranties and covenants contained in each Repurchase Document to which it is a party.
SECTION 4. Acknowledgments of Guarantor . Guarantor hereby acknowledges (a) the execution and delivery of this Amendment and agrees that it continues to be bound by that certain Guarantee Agreement, dated as of March 13, 2014 (the Guarantee Agreement ), made by Guarantor in favor of Buyer, notwithstanding the execution and delivery of this Amendment and the impact of the changes set forth herein, and (b) that, as of the date hereof Buyer is in compliance with its undertakings and obligations under the Repurchase Agreement, the Guarantee Agreement and each of the other Repurchase Documents.
SECTION 5. Conditions Subsequent . Within ten (10) Business Days following the Amendment Effective Date, Seller and Guarantor shall provide Buyer with a secretary certificate and bring down letters affirming the opinions as to corporate, enforceability and bankruptcy matters provided to Buyer on the Closing Date, each, in form and substance acceptable to Buyer and its counsel. The failure of Seller and Guarantor to do so on a timely basis shall, upon written notice to Seller from Buyer, constitute an immediate Event of Default under the Repurchase Agreement.
SECTION 6. Limited Effect . Except as expressly amended and modified by this Amendment, the Repurchase Agreement and each of the other Repurchase Documents shall continue to be, and shall remain, in full force and effect in accordance with their respective terms; provided , however , that upon the Amendment Effective Date, each (x) reference therein and herein to the Repurchase Documents shall be deemed to include, in any event, this Amendment, (y) each reference to the Repurchase Agreement in any of the Repurchase Documents shall be deemed to be a reference to the Repurchase Agreement, as amended hereby, and (z) each reference in the Repurchase Agreement to this Agreement, this Repurchase Agreement, this Amended and Restated Repurchase Agreement, hereof, herein or words of similar effect in referring to the Repurchase Agreement shall be deemed to be references to the Repurchase Agreement, as amended by this Amendment.
SECTION 7. No Novation, Effect of Agreement. Seller and Buyer have entered into this Amendment solely to amend the terms of the Repurchase Agreement and do not intend this Amendment or the transactions contemplated hereby to be, and this Amendment and the transactions contemplated hereby shall not be construed to be, a novation of any of the obligations owing by Seller, Guarantor or Pledgor (the Repurchase Parties ) under or in connection with the Repurchase Agreement, the Fee Letter, the Pledge and Security Agreement or any of the other Repurchase Documents to which any Repurchase Party is a party. It is the intention of each of the parties hereto that (i) the perfection and priority of all security interests securing the payment of the Repurchase Obligations of the Repurchase Parties under the Repurchase Agreement and the Pledge and Security Agreement are preserved, (ii) the liens and security interests granted under the Repurchase Agreement and the Pledge and Security Agreement continue in full force and effect, and (iii) any reference to the Repurchase Agreement in any such Repurchase Document shall be deemed to also reference this Amendment.
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SECTION 8. Counterparts . This Amendment may be executed by each of the parties hereto on any number of separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment in Portable Document Format (PDF) or by facsimile transmission shall be effective as delivery of a manually executed original counterpart thereof.
SECTION 9. Expenses . Seller and Guarantor agree to pay and reimburse Buyer for all out-of-pocket costs and expenses incurred by Buyer in connection with the preparation, execution and delivery of this Amendment, including, without limitation, the fees and disbursements of Cadwalader, Wickersham & Taft LLP, counsel to Buyer
SECTION 10. GOVERNING LAW . THIS AMENDMENT AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS AMENDMENT, THE RELATIONSHIP OF THE PARTIES TO THIS AMENDMENT, AND/OR THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES TO THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS AND DECISIONS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CHOICE OF LAW RULES THEREOF. THE PARTIES HERETO INTEND THAT THE PROVISIONS OF SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW SHALL APPLY TO THIS AMENDMENT .
[SIGNATURES FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the day and year first above written.
SELLER : | ||
PARLEX 5 FINCO, LLC, a Delaware limited liability company |
||
By: |
/s/ Douglas N. Armer |
|
Name: Douglas N. Armer | ||
Title: Managing Director, Head of Capital Markets and Treasurer |
[Signature Page - Amendment No. 9 to A&R Master Repurchase and Securities Contract - Wells (US)]
BUYER : | ||
WELLS FARGO BANK, N.A., a national banking association |
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By: |
/s/ Allen Lewis |
|
Name: Allen Lewis | ||
Title: Managing Director |
[Signature Page - Amendment No. 9 to A&R Master Repurchase and Securities Contract - Wells (US)]
With respect to the acknowledgments set forth in Section 4 herein: |
||
GUARANTOR : | ||
BLACKSTONE MORTGAGE TRUST, INC., a Maryland corporation |
||
By: |
/s/ Douglas N. Armer |
|
Name: Douglas N. Armer | ||
Title: Managing Director, Head of Capital Markets and Treasurer |
[Signature Page - Amendment No. 9 to A&R Master Repurchase and Securities Contract - Wells (US)]
Exhibit 10.64
AMENDMENT NO. 2 TO AMENDED AND RESTATED MASTER REPURCHASE
AGREEMENT AND OMNIBUS AMENDMENT TO CONFIRMATIONS
AMENDMENT NO. 2 TO AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO CONFIRMATIONS, dated as of October 16, 2017 (this Amendment ), by and among PARLEX 15 FINCO, LLC , a Delaware limited liability company, ( Master Seller ), on behalf of itself and each Series Seller and DEUTSCHE BANK AG, CAYMAN ISLANDS BRANCH , a branch of a foreign banking institution ( Buyer ). Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Repurchase Agreement (as defined below).
RECITALS
WHEREAS, Master Seller and Buyer are parties to that certain Amended and Restated Master Repurchase Agreement, dated as of February 9, 2017 which amended and restated that certain Master Repurchase Agreement, dated as of August 2, 2016, by and between Master Seller and Buyer (as amended by that certain Amendment No. 1 to Amended and Restated Master Repurchase Agreement and Guaranty, dated as of March 24, 2017, as amended hereby, and as the same may be amended, restated, supplemented or otherwise modified and in effect from time to time, the Repurchase Agreement );
WHEREAS, Master Seller and Buyer have agreed to amend certain provisions of the Repurchase Agreement and the Confirmations relating to the Transactions entered into between Buyer and Seller prior to the date hereof, in the manner set forth herein, and Blackstone Mortgage Trust, Inc. ( Guarantor ) hereby agrees to make the acknowledgements set forth herein.
Therefore, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Master Seller, on behalf of itself and each Series Seller that is a party to any Transaction under the Repurchase Agreement, and Buyer hereby agree as follows:
SECTION 1. Amendments to Repurchase Agreement .
(a) Section 2(a) of the Repurchase Agreement is hereby amended by inserting the following new definitions in correct alphabetical order:
Financing Fee shall mean, with respect to any Transaction as of any date, the aggregate amount obtained by daily application of the Financing Fee Rate to the Repurchase Price (excluding Price Differential) for such Transaction (as adjusted from time to time by reductions in the Repurchase Price pursuant to the terms of this Agreement including Sections 3(e), 3(k), 4(b), 5(c)(iii), 5(d)(iii), 5(d)(v) and 5(e)(iv) and increases in the Repurchase Price pursuant to the terms of this Agreement including Sections 3(o) and/or Section 4(c)) on a 360-day-per-year
basis for the actual number of days during the period commencing on (and including) the Purchase Date for such Transaction (or, if later, the date of the Omnibus Amendment) and ending on (but excluding) the date of determination (reduced by any amount of such Financing Fee previously paid by Seller to Buyer with respect to such Transaction).
Financing Fee Cap shall have the meaning specified in Section 3(r) .
Financing Fee Rate shall have the meaning specified in Section 3(r) .
Omnibus Amendment shall mean that certain Amendment No. 2 to Amended and Restated Master Repurchase Agreement and Omnibus Amendment to Confirmations, dated as of October 16, 2017, by and among Master Seller, on behalf of itself and each Series Seller and Buyer.
(b) The definition of Remittance Date in Section 2(a) of the Repurchase Agreement is hereby amended by replacing the words seventeeth (17 th ) contained therein with the words twenty-third (23 rd ). Accordingly, the next Remittance Date to occur from and after the date of this Amendment shall be October 23, 2017.
(c) Section 3(b)(viii) of the Repurchase Agreement is hereby amended by inserting the words and the Financing Fee Rate applicable to the Transaction following the word Transaction.
(d) Section 3 of the Repurchase Agreement is hereby amended by inserting the following new Section 3(r) :
(r) Without limiting the provisions hereof or of the other Transaction Documents, unless otherwise expressly set forth in a Confirmation with respect to a specific Purchased Loan, Master Seller, on behalf of itself and each Series Seller that may be a party to a Transaction hereunder, and Buyer hereby agree that Seller shall be obligated to pay to Buyer, for each Transaction, a Financing Fee at a rate specified by Buyer in its sole and absolute discretion (for each Transaction, the Financing Fee Rate ) as set forth in the Confirmation related to such Transaction, which Financing Fee Rate shall not exceed the cap specified in such Confirmation (the Financing Fee Cap ). The accrued but unpaid Financing Fee with respect to a Purchased Loan shall be payable on each Remittance Date and, unless otherwise paid by Seller or its Affiliates, the accrued Financing Fees shall be remitted by Depository to Buyer (or to such other party as may be designated by Buyer in the relevant Confirmation) from the Cash Management Account on each Remittance Date pursuant to the provisions of Sections 5(c)(iv) , 5(d)(iv) or 5(e)(iii) , as applicable. For the avoidance of doubt: (i) if no Financing Fee Rate is specified in the applicable Confirmation, the amount of corresponding Financing Fee shall be zero, (ii) if a Financing Fee Rate is specified in the applicable Confirmation for a Transaction, it shall be expressed as a percentage or as basis points, and (iii) in no event shall Seller be obligated to pay Financing Fees in excess of the Financing Fee Cap with respect to any Transaction.
(e) Exhibit I to the Repurchase Agreement is hereby amended and restated in its entirety to read as set forth on Exhibit I attached hereto.
SECTION 2. Amendments to Confirmations . Master Seller, on behalf of itself and each Series Seller that is a party to a Transaction under the Repurchase Agreement as of the date hereof, and Buyer hereby agree that effective as of the date hereof with respect to each Confirmation relating to the Transactions identified on Exhibit II hereto, (a) the Applicable Spread set forth in each such Confirmation shall be amended and restated in its entirety to read as set forth on the corresponding entries in Exhibit II hereto with respect to each such Confirmation and (b) the Financing Fee Rate, Financing Fee Cap and specified payee for each such Transaction shall be as set forth on Exhibit II hereto with respect to each such Confirmation.
SECTION 3. Conditions Precedent . This Amendment and its provisions shall become effective on the date hereof provided that this Amendment is duly executed and delivered by a duly authorized officer of each of Master Seller, Buyer and Guarantor.
SECTION 4. Representations, Warranties and Covenants . Master Seller, on behalf of itself and each Series Seller that is party to any Transaction under the Repurchase Agreement as of the date hereof, hereby represents and warrants to Buyer, as of the date hereof, that (i) it is in full compliance with all of the terms and provisions set forth in each Transaction Document to which it is a party on its part to be observed or performed, and (ii) no Default or Event of Default has occurred or is continuing. Master Seller, on its own behalf and on behalf of each Series Seller that is party to any Transaction under the Repurchase Agreement as of the date hereof, hereby confirms and reaffirms its representations, warranties and covenants contained in each Transaction Document to which it is a party.
SECTION 5. Acknowledgments of Guarantor . Guarantor hereby acknowledges the execution and delivery of this Amendment by Master Seller and Buyer and agrees that it continues to be bound by the Guaranty notwithstanding the execution and delivery of this Amendment and the impact of the changes set forth herein.
SECTION 6. Limited Effect . Except as expressly amended and modified by this Amendment, the Repurchase Agreement, the Confirmations amended hereby and each of the other Transaction Documents shall continue to be, and shall remain, in full force and effect in accordance with their respective terms; provided , however , that upon the execution of this Amendment, each (x) reference therein and herein to the Transaction Documents shall be deemed to include, in any event, this Amendment, (y) each reference to the Repurchase Agreement or any Confirmation amended hereby in any of the Transaction Documents shall be deemed to be a reference to the Repurchase Agreement or such Confirmation, as applicable, as amended hereby, and (z) each reference in the Repurchase Agreement or any such Confirmation, as applicable, to this Agreement, this Repurchase Agreement, this Confirmation, hereof, herein or words of similar effect in referring to the Repurchase Agreement or any such Confirmation shall be deemed to be references to the Repurchase Agreement or such Confirmation, as applicable, as amended by this Amendment.
SECTION 7. No Novation, Effect of Agreement . The parties hereto have entered into this Amendment solely to amend the terms of the Repurchase Agreement and the applicable Confirmations amended hereby and do not intend this Amendment or the transactions contemplated hereby to be, and this Amendment and the transactions contemplated hereby shall not be construed to be, a novation of any of the obligations owing by Seller or any of its Affiliates (the Repurchase Parties ) under or in connection with the Repurchase Agreement, the Confirmations or any of the other Transaction Documents. It is the intention of each of the parties hereto that (i) the perfection and priority of all security interests securing the payment of the Repurchase Obligations of the Repurchase Parties under the Repurchase Agreement are preserved, (ii) the liens and security interests granted under the Repurchase Agreement continue in full force and effect, and (iii) any reference to the Repurchase Agreement or the Confirmations amended hereby, as applicable, in any such Transaction Document shall be deemed to also reference the Repurchase Agreement or such Confirmations, as applicable, as amended by this Amendment.
SECTION 8. Counterparts . This Amendment may be executed by each of the parties hereto on any number of separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment in Portable Document Format (PDF) or by facsimile transmission shall be effective as delivery of a manually executed original counterpart thereof.
SECTION 9. Expenses . Seller agrees to pay and reimburse Buyer for all reasonable out-of-pocket costs and expenses incurred by Buyer in connection with the preparation, execution and delivery of this Amendment in accordance with Section 26 the Repurchase Agreement.
SECTION 10. GOVERNING LAW . THIS AMENDMENT AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO OR IN CONNECTION WITH THIS AMENDMENT, THE RELATIONSHIP OF THE PARTIES, AND/OR THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES WILL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICTS OF LAW PRINCIPLES OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
[SIGNATURES FOLLOW]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the day and year first above written.
MASTER SELLER : | ||||
PARLEX 15 FINCO, LLC, | ||||
a Delaware limited liability company | ||||
By: |
/s/ Douglas Armer |
|||
Name: | Douglas Armer | |||
Title: |
Managing Director, Head of Capital Markets and Treasurer |
|||
With respect to the acknowledgments set forth in Section 5 | ||||
herein : | ||||
GUARANTOR: | ||||
BLACKSTONE MORTGAGE TRUST, INC., a Maryland corporation |
||||
By: |
/s/ Douglas Armer |
|||
Name: | Douglas Armer | |||
Title: |
Managing Director, Head of Capital Markets and Treasurer |
[Amendment No. 2 to Amended and Restated Master Repurchase Agreement and Omnibus Amendment to Confirmations]
BUYER : | ||||
DEUTSCHE BANK AG, CAYMAN ISLANDS BRANCH | ||||
By: |
/s/ Dean Aotani |
|||
Name: | Dean Aotani | |||
Title: | Managing Director | |||
By: |
/s/ R. Christopher Jones |
|||
Name: | R. Christopher Jones | |||
Title: | Director |
[Amendment No. 2 to Amended and Restated Master Repurchase Agreement and Omnibus Amendment to Confirmations]
EXHIBIT I
CONFIRMATION STATEMENT
DEUTSCHE BANK AG,
Cayman Islands Branch
Ladies and Gentlemen:
Deutsche Bank AG, Cayman Islands Branch, is pleased to deliver our written CONFIRMATION of our agreement to enter into the Transaction pursuant to which Deutsche Bank AG, Cayman Islands Branch shall purchase from you the Purchased Loans identified on Schedule 1 attached hereto, pursuant to the terms of that certain Amended and Restated Master Repurchase Agreement, dated as of February 9, 2017 (as amended, modified and/or restated, the Agreement ), between Deutsche Bank AG, Cayman Islands Branch ( Buyer ) and Parlex 15 Finco, LLC, a Delaware limited liability company ( Master Seller ; together with the Series Seller (as defined in the Agreement) identified below, collectively, Seller ). Capitalized terms used herein without definition have the meanings given in the Agreement.
Series Seller: |
[______________________] |
|
Purchase Date: |
[______________________] |
|
Repurchase Date: |
[______________________] (provided, if the |
|
Facility Termination Date is extended pursuant to |
||
Section 3(p) of the Agreement, the Repurchase Date |
||
shall be automatically extended to the date |
||
determined in accordance with Section 3(p) of the |
||
Agreement) |
||
Purchased Loan: |
[______________________] |
|
Initial Principal Balance of Purchased Loan: |
[______________________] |
|
Purchase Date Market Value: |
[______________________] |
|
Actual Original Purchase Percentage: |
[______________________] |
|
Maximum Original Purchase Percentage: |
[______________________] |
|
Purchase Price: |
[______________________] |
|
Recourse Reference Amount: |
[______________________] |
|
Initial Pricing Rate: |
[______________________] |
|
Applicable Spread: |
[______________________] |
|
[Subject to Approved Transaction (Y/N):] |
[______________________] |
[SIGNATURE PAGES FOLLOW]
BUYER : | ||
DEUTSCHE BANK AG, CAYMAN ISLANDS BRANCH | ||
By: |
|
|
Name: | ||
Title: | ||
By: |
|
|
Name: | ||
Title: |
AGREED AND ACKNOWLEDGED: | ||
MASTER SELLER: | ||
PARLEX 15 FINCO, LLC , a Delaware limited liability company |
||
By: | ||
Name: | ||
Title: | ||
SERIES SELLER: | ||
[____________________________] | ||
By: | ||
Name: | ||
Title: |
SCHEDULE 1 TO CONFIRMATION
(PURCHASED LOAN)
SCHEDULE 2 TO CONFIRMATION
(REPRESENTATIONS AND WARRANTIES)
[** Exhibit VI to Master Repurchase Agreement then in effect to be attached.**]
SCHEDULE 3 TO CONFIRMATION
(EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES)
EXHIBIT II
TRANSACTIONS
Purchased Loan |
Purchased
Loan Outstanding Principal Balance |
Outstanding Purchase Price |
Purchase
|
Financing
|
Financing Fee Cap |
Applicable
|
Financing
|
Wiring Instructions of
|
||||||||
Watchtower A-1 Note | $194,093,779.41 | $144,466,961.39 | 8/3/2016 | 0.03% | 0.03% | 2.72% | Lighthouse |
Account Name: Lighthouse Advisory Services LLC Account Number: 800867566 Bank Transit Number: 021000021 Bank Name: JPMorgan Chase Bank, N.A. |
||||||||
640 Broadway | $48,470,000 | $38,776,000 | 02/09/17 | 0.07% | 0.07% | 2.43% | Lighthouse |
Account Name: Lighthouse Advisory Services LLC Account Number: 800867566 Bank Transit Number: 021000021 Bank Name: JPMorgan Chase Bank, N.A. |
||||||||
Hilton Garden Inn Waikiki | $150,000,000 | $112,500,000 | 03/24/17 | 0.05% | 0.05% | 2.70% | Lighthouse |
Account Name: Lighthouse Advisory Services LLC Account Number: 800867566 Bank Transit Number: 021000021 Bank Name: JPMorgan Chase Bank, N.A. |
Exhibit 10.65
AMENDMENT NO. 3 TO AMENDED AND RESTATED MASTER REPURCHASE
AGREEMENT
AMENDMENT NO. 3 TO AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT, dated as of October 30, 2018 (this Amendment ), by and among PARLEX 15 FINCO, LLC , a Delaware limited liability company, ( Master Seller ), on behalf of itself and each Series Seller, and DEUTSCHE BANK AG, CAYMAN ISLANDS BRANCH , a branch of a foreign banking institution ( Buyer ). Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Repurchase Agreement (as defined below).
RECITALS
WHEREAS, Master Seller and Buyer are parties to that certain Amended and Restated Master Repurchase Agreement, dated as of February 9, 2017 which amended and restated that certain Master Repurchase Agreement, dated as of August 2, 2016, by and between Master Seller and Buyer, as amended by Amendment No. 1 to Master Repurchase Agreement and Guaranty, dated as of March 24, 2017, and as further amended by Amendment No. 2 to Amended and Restated Master Repurchase Agreement and Omnibus Amendment to Confirmations, dated as of October 17, 2017 (as the same may be amended, restated, supplemented or otherwise modified and in effect from time to time, the Repurchase Agreement );
WHEREAS, Master Seller and Buyer have agreed to further amend certain provisions of the Repurchase Agreement and the Guaranty in the manner set forth herein, and Guarantor hereby agrees to make the acknowledgements set forth herein.
Therefore, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Master Seller, Buyer and Guarantor hereby agree as follows:
SECTION 1. Repurchase Agreement Amendments . Master Seller and Buyer agree as follows with respect to the Repurchase Agreement:
(a) The following definition Eligible Assignee shall be added to Article 2(a) of the Repurchase Agreement in the correct alphabetical order.
Eligible Assignee : Any of the following Persons designated by Buyer for purposes of the second sentence of Section 18(b) : (i) a bank, financial institution, pension fund, insurance company or similar Person regularly engaged in the business of originating, lending against, or owning commercial real estate loans similar to the Purchased Assets, or any Affiliate of any of the foregoing that, in each case, has total shareholders equity and/or capital surplus of $400,000,000 or more and (ii) and any Affiliate of Buyer.
(b) The definition of Maximum Amount , as set forth in Section 2(a) of the Repurchase Agreement is hereby amended by replacing the dollar figure $500,000,000 set forth therein with the dollar figure $510,000,000.00..
(c) The following sentence shall be added as a new second sentence of Section 18(b) of the Repurchase Agreement after the first sentence of Section 18(b) of the Repurchase Agreement, as follows:
In addition to the foregoing, so long as no monetary Default, material non-monetary Default or Event of Default has occurred and is continuing, Buyer shall not assign (but, for avoidance of doubt, may sell participation interests in) its rights and obligations in this Agreement to any Person without Sellers prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed, unless such Person is an Eligible Assignee..
SECTION 2. Omnibus Amendment to Confirmations . Clause (G) of the Fourth Amended and Restated Confirmation Statement for the Purchased Loan identified therein as Watchtower A-1 Note shall be deleted in its entirety. Clause (F) of the Confirmation Statement for the Purchased Loan identified therein as Aston Waikiki shall be deleted in its entirety.
SECTION 3. Conditions Precedent . This Amendment and its provisions shall become effective on the date hereof (the Amendment Effective Date ) provided that this Amendment is duly executed and delivered by a duly authorized officer of each of Master Seller, Buyer and Guarantor.
SECTION 4. Representations, Warranties and Covenants . Each of Seller and Guarantor hereby represents and warrants to Buyer, as of the date hereof, that (i) it is in full compliance with all of the terms and provisions set forth in each Transaction Document to which it is a party on its part to be observed or performed, and (ii) no Default or Event of Default has occurred or is continuing. Each of Seller and Guarantor hereby confirms and reaffirms its representations, warranties and covenants contained in each Transaction Document to which it is a party.
SECTION 5. Acknowledgments of Guarantor . Guarantor hereby acknowledges the execution and delivery of this Amendment by Master Seller and Buyer and Guarantor agrees that it continues to be bound by the Guaranty notwithstanding the execution and delivery of this Amendment and the impact of the changes set forth herein.
SECTION 6. Limited Effect . Except as expressly amended and modified by this Amendment, the Repurchase Agreement, the Guaranty and each of the other Transaction Documents shall continue to be, and shall remain, in full force and effect in accordance with their respective terms; provided , however , that upon the execution of this Amendment, each (x) reference therein and herein to the Transaction Documents shall be deemed to include, in any event, this Amendment, (y) each reference to the Repurchase Agreement or the Guaranty in any of the Transaction Documents shall be deemed to be a reference to the Repurchase Agreement or the Guaranty, as applicable, as amended hereby, and (z) each reference in the Repurchase Agreement or the Guaranty, as applicable, to this Agreement, this Repurchase Agreement, this Guaranty, hereof, herein or words of similar effect in referring to the Repurchase Agreement shall be deemed to be references to the Repurchase Agreement or the Guaranty, as applicable, as amended by this Amendment.
-2-
SECTION 7. No Novation, Effect of Agreement . The parties hereto have entered into this Amendment solely to amend the terms of the Repurchase Agreement and the Guaranty and do not intend this Amendment or the transactions contemplated hereby to be, and this Amendment and the transactions contemplated hereby shall not be construed to be, a novation of any of the obligations owing by Seller, Guarantor or any of their respective Affiliates (the Repurchase Parties ) under or in connection with the Repurchase Agreement, the Guaranty or any of the other Transaction Documents. It is the intention of each of the parties hereto that (i) the perfection and priority of all security interests securing the payment of the Repurchase Obligations of the Repurchase Parties under the Repurchase Agreement are preserved, (ii) the liens and security interests granted under the Repurchase Agreement continue in full force and effect, and (iii) any reference to the Repurchase Agreement or the Guaranty, as applicable, in any such Transaction Document shall be deemed to also reference the Repurchase Agreement or the Guaranty, as applicable, as amended by this Amendment.
SECTION 8. Counterparts . This Amendment may be executed by each of the parties hereto on any number of separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment in Portable Document Format (PDF) or by facsimile transmission shall be effective as delivery of a manually executed original counterpart thereof.
SECTION 9. Expenses . Seller agrees to pay and reimburse Buyer for all reasonable out-of-pocket costs and expenses incurred by Buyer in connection with the preparation, execution and delivery of this Amendment in accordance with the Repurchase Agreement.
SECTION 10 . GOVERNING LAW . THIS AMENDMENT AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO OR IN CONNECTION WITH THIS AMENDMENT, THE RELATIONSHIP OF THE PARTIES, AND/OR THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES WILL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICTS OF LAW PRINCIPLES OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
[SIGNATURES FOLLOW]
-3-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the day and year first above written.
MASTER SELLER : | ||
PARLEX 15 FINCO, LLC, a Delaware limited liability company |
||
By: |
/s/ Douglas Armer |
|
Name: Douglas Armer | ||
Title: Managing Director, Head of Capital Markets and Treasurer |
||
ACKNOWLEDGED AND AGREED : | ||
GUARANTOR : | ||
BLACKSTONE MORTGAGE TRUST, INC., a Maryland corporation |
||
By: |
/s/ Douglas Armer |
|
Name: Douglas Armer | ||
Title: Managing Director, Head of Capital Markets and Treasurer |
[Signature Page - Amendment No. 3 to Amended and Restated Master Repurchase Agreement]
BUYER : | ||
DEUTSCHE BANK AG, CAYMAN ISLANDS BRANCH |
||
By: |
/s/ Thomas Rugg |
|
Name: Thomas Rugg | ||
Title: Managing Director | ||
/s/ Robert Christopher Jones |
||
Robert Christopher Jones | ||
Director |
[Signature Page - Amendment No. 3 to Amended and Restated Master Repurchase Agreement]
Exhibit 10.66
AMENDMENT NO. 4 TO AMENDED AND
RESTATED MASTER REPURCHASE AGREEMENT
AMENDMENT NO. 4 TO AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT, dated as of November 20, 2018 (this Amendment ), by and among PARLEX 15 FINCO, LLC , a Delaware limited liability company, ( Master Seller ), on behalf of itself and each Series Seller, and DEUTSCHE BANK AG, CAYMAN ISLANDS BRANCH , a branch of a foreign banking institution ( Buyer ). Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Repurchase Agreement (as defined below).
RECITALS
WHEREAS, Master Seller and Buyer are parties to that certain Amended and Restated Master Repurchase Agreement, dated as of February 9, 2017 which amended and restated that certain Master Repurchase Agreement, dated as of August 2, 2016, by and between Master Seller and Buyer, as amended by Amendment No. 1 to Master Repurchase Agreement and Guaranty, dated as of March 24, 2017, as further amended by Amendment No. 2 to Amended and Restated Master Repurchase Agreement and Omnibus Amendment to Confirmations, dated as of October 17, 2017, and as further amended by Amendment No. 3 to Amended and Restated Master Repurchase Agreement, dated as of October 30, 2018 (as the same may be amended, restated, supplemented or otherwise modified and in effect from time to time, the Repurchase Agreement );
WHEREAS, Master Seller and Buyer have agreed to further amend certain provisions of the Repurchase Agreement in the manner set forth herein, and Guarantor hereby agrees to make the acknowledgements set forth herein.
Therefore, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Master Seller, Buyer and Guarantor hereby agree as follows:
SECTION 1. Repurchase Agreement Amendments . Master Seller and Buyer agree as follows with respect to the Repurchase Agreement:
The definition of Maximum Amount , as set forth in Section 2(a) of the Repurchase Agreement is hereby amended by replacing the dollar figure $510,000,000 set forth therein with the dollar figure $1,100,000,000.
SECTION 2. Conditions Precedent . This Amendment and its provisions shall become effective on the date hereof (the Amendment Effective Date ) provided that this Amendment is duly executed and delivered by a duly authorized officer of each of Master Seller, Buyer and Guarantor.
SECTION 3. Representations, Warranties and Covenants . Seller hereby represents and warrants to Buyer, as of the date hereof, that (i) it is in full compliance with all of the terms and provisions set forth in each Transaction Document to which it is a party on its part to be observed or performed, and (ii) no Default or Event of Default has occurred or is continuing. Seller hereby confirms and reaffirms its representations, warranties and covenants contained in each Transaction Document to which it is a party.
SECTION 4. Acknowledgments of Guarantor . Guarantor hereby acknowledges the execution and delivery of this Amendment by Master Seller and Buyer and Guarantor agrees that it continues to be bound by the Guaranty notwithstanding the execution and delivery of this Amendment and the impact of the changes set forth herein.
SECTION 5. Limited Effect . Except as expressly amended and modified by this Amendment, the Repurchase Agreement and each of the other Transaction Documents shall continue to be, and shall remain, in full force and effect in accordance with their respective terms; provided , however , that upon the execution of this Amendment, each (x) reference therein and herein to the Transaction Documents shall be deemed to include, in any event, this Amendment, (y) each reference to the Repurchase Agreement in any of the Transaction Documents shall be deemed to be a reference to the Repurchase Agreement as amended hereby, and (z) each reference in the Repurchase Agreement to this Agreement, this Repurchase Agreement, hereof, herein or words of similar effect in referring to the Repurchase Agreement shall be deemed to be references to the Repurchase Agreement as amended by this Amendment.
SECTION 6. No Novation, Effect of Agreement . The parties hereto have entered into this Amendment solely to amend the terms of the Repurchase Agreement and do not intend this Amendment or the transactions contemplated hereby to be, and this Amendment and the transactions contemplated hereby shall not be construed to be, a novation of any of the obligations owing by Seller, Guarantor or any of their respective Affiliates (the Repurchase Parties ) under or in connection with the Repurchase Agreement or any of the other Transaction Documents. It is the intention of each of the parties hereto that (i) the perfection and priority of all security interests securing the payment of the Repurchase Obligations of the Repurchase Parties under the Repurchase Agreement are preserved, (ii) the liens and security interests granted under the Repurchase Agreement continue in full force and effect, and (iii) any reference to the Repurchase Agreement in any such Transaction Document shall be deemed to also reference the Repurchase Agreement as amended by this Amendment.
SECTION 7. Counterparts . This Amendment may be executed by each of the parties hereto on any number of separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment in Portable Document Format (PDF) or by facsimile transmission shall be effective as delivery of a manually executed original counterpart thereof.
-2-
SECTION 8. Expenses . Seller agrees to pay and reimburse Buyer for all reasonable out-of-pocket costs and expenses incurred by Buyer in connection with the preparation, execution and delivery of this Amendment in accordance with the Repurchase Agreement.
SECTION 9. GOVERNING LAW . THIS AMENDMENT AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO OR IN CONNECTION WITH THIS AMENDMENT, THE RELATIONSHIP OF THE PARTIES, AND/OR THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES WILL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICTS OF LAW PRINCIPLES OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
[SIGNATURES FOLLOW]
-3-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the day and year first above written.
MASTER SELLER : | ||
PARLEX 15 FINCO, LLC , a Delaware limited liability company |
||
By: |
/s/ Anthony F. Marone, Jr. |
|
Name: Anthony F. Marone, Jr. | ||
Title: Chief Financial Officer, Principal Accounting Officer and Assistant Secretary |
||
ACKNOWLEDGED AND AGREED : | ||
GUARANTOR : | ||
BLACKSTONE MORTGAGE TRUST, INC., a Maryland corporation |
||
By: |
/s/ Anthony F. Marone, Jr. |
|
Name: Anthony F. Marone, Jr. | ||
Title: Chief Financial Officer, Principal Accounting Officer and Assistant Secretary |
[Signature Page to - Amendment No. 4 to Amended and Restated Master Repurchase Agreement]
BUYER : | ||
DEUTSCHE BANK AG, CAYMAN ISLANDS BRANCH |
||
By: |
/s/ Thomas Rugg |
|
Name: Thomas Rugg | ||
Title: Managing Director | ||
/s/ Robert Christopher Jones |
||
Robert Christopher Jones | ||
Director |
[Signature Page to - Amendment No. 4 to Amended and Restated Master Repurchase Agreement]
Exhibit 21.1
Jurisdiction of | D/B/A | |||
Entity |
Incorporation |
Jurisdiction |
||
345-1 Partners, LLC | Delaware | |||
345-30 Partners, LLC | Delaware | |||
345-40 Partners, LLC | Delaware | |||
345-50 Partners, LLC | Delaware | |||
345-7501 MM, LLC | Delaware | |||
345-JV Partners, LLC | Delaware | |||
345-Lux EUR Partners, LLC | Delaware | |||
345-Lux GBP Partners, LLC | Delaware | |||
42-16 Partners, LLC | Delaware | |||
42-16 CLO Holdco, LLC | Delaware | |||
42-16 CLO L Sell, LLC | Delaware | |||
Ambassador AUD Holdings, LLC | Delaware | |||
Ambassador CAD Holdings, LLC | Delaware | |||
Ambassador EUR Holdings, LLC | Delaware | |||
Ambassador GBP Holdings, LLC | Delaware | |||
BXMT 2017-FL1, LLC | Delaware | |||
BXMT 2017-FL1, Ltd. | Cayman Islands | |||
Canada Office Portfolio Finco 2014, LLC | Delaware | |||
Capital Trust RE CDO Depositor Corp. | Delaware | |||
CT Legacy Asset, LLC | Delaware | |||
CT Legacy Cayman, Ltd. | Cayman Islands | |||
CT Legacy Holdings, LLC | Delaware | |||
CT Legacy JPM SPV, LLC | Delaware | |||
CT Legacy Manager, LLC | Delaware | |||
CT Legacy REIT Holdings, LLC | Delaware | |||
CT RE CDO 2004-1 Sub, LLC | Delaware | |||
De Vere Resorts Finco 2014, LLC | Delaware | |||
Husky Finco, LLC | Delaware | |||
Husky AU Finco, LLC | Delaware | |||
Husky CAD Finco, LLC | Delaware | |||
Husky EUR Finco, LLC | Delaware | |||
Husky UK Finco, LLC | Delaware | |||
KK-RR Finco, LLC | Delaware | |||
Magma Finco 12, LLC | Delaware | |||
Magma Finco 13, LLC | Delaware | |||
Magma Finco 16, LLC | Delaware | |||
Molten Partners, LLC | Delaware | |||
Parlex 1 Finance, LLC | Delaware | |||
Parlex 2 Finance, LLC | Delaware | |||
Parlex 2 AU HoldCo, LLC | Delaware | |||
Parlex 2 AU HoldCo II, LLC | Delaware |
Parlex 2 AU Sub TC Pty Ltd | Australia | |||
Parlex 2 AU Sub Trust | Australia | |||
Parlex 2 AU TC Pty Ltd | Australia | |||
Parlex 2 AU Trust | Australia | |||
Parlex 2 AU Finco, LLC | Delaware | |||
Parlex 2 EUR Finco, LLC | Delaware | |||
Parlex 2 UK Finco, LLC | Delaware | |||
Parlex 2A Finco, LLC | Delaware | |||
Parlex 3 Finance, LLC | Delaware | |||
Parlex 3 CAD Finco, LLC | Delaware | |||
Parlex 3 EUR Finco, LLC | Delaware | |||
Parlex 3 UK Finco, LLC | Delaware | |||
Parlex 3A Finco, LLC | Delaware | |||
Parlex 4 Finance, LLC | Delaware | |||
Parlex 4 UK Finco, LLC | Delaware | |||
Parlex 5 Finco, LLC | Delaware | |||
Parlex 5 Ken Finco, LLC | Delaware | |||
Parlex 5 Ken CAD Finco, LLC | Delaware | |||
Parlex 5 Ken EUR Finco, LLC | Delaware | |||
Parlex 5 Ken UK Finco, LLC | Delaware | |||
Parlex 5 Ken ONT Finco, LLC | Delaware | |||
Parlex 6 Finco, LLC | Delaware | |||
Parlex 6 EUR Finco, LLC | Delaware | |||
Parlex 6 UK Finco, LLC | Delaware | |||
Parlex 7 Finco, LLC | Delaware | |||
Parlex 9 Finco, LLC | Delaware | |||
Parlex 10 Finco, LLC | Delaware | |||
Parlex 10 Lux EUR Finco, S.a r.l. | Luxembourg | |||
Parlex 10 Lux EUR Pledgeco, S.a r.l. | Luxembourg | |||
Parlex 10 Lux GBP Finco, S.a r.l. | Luxembourg | |||
Parlex 10 Lux GBP Pledgeco, S.a r.l. | Luxembourg | |||
Parlex 11 Finco, LLC | Delaware | |||
Parlex 14 Finco, LLC | Delaware | |||
Parlex 15 Finco, LLC | Delaware | |||
Parlex 15 AU Finco, LLC | Delaware | |||
Parlex 15 Lux EUR Finco, S.a r.l. | Luxembourg | |||
Parlex 15 Lux EUR Pledgeco, S.a r.l. | Luxembourg | |||
Parlex ONT Partners GP, LLC | Delaware | |||
Parlex ONT Partners, LP | Canada | |||
Q Hotels Finco 2014, LLC | Delaware | |||
Victor Holdings I, LLC | Delaware | |||
WD-BXMT Lending, LLC | Delaware | |||
Wispar 1 Finco, LLC | Delaware |
Wispar 2 Finco, LLC | Delaware | |||
Wispar 3 Finco, LLC | Delaware | |||
Wispar 4 Finco, LLC | Delaware |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement on Form S-3 (File No. 333-212769) and on Forms S-8 (File Nos. 333-39743, 333-144929, 333-179668, 333-189806, 333-212112 and 333-225774) pertaining to (i) the Amended and Restated 1997 Long Term Incentive Stock Plan and Amended and Restated 1997 Non-Employee Director Stock Plan; (ii) 2007 Long-Term Incentive Plan; (iii) the 2011 Long-Term Incentive Plan; (iv) the 2013 Stock Incentive Plan; (v) the 2016 Stock Incentive Plan; and (vi) the 2018 Stock Incentive Plan of our report dated February 12, 2019 relating to the consolidated financial statements and financial statement schedule of Blackstone Mortgage Trust, Inc. and subsidiaries (the Company), and the effectiveness of the Companys internal control over financial reporting, appearing in this Annual Report on Form 10-K of Blackstone Mortgage Trust, Inc. for the year ended December 31, 2018.
/s/ Deloitte & Touche LLP
New York, NY
February 12, 2019
Exhibit 31.1
CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Stephen D. Plavin, certify that:
1. |
I have reviewed this annual report on Form 10-K of Blackstone Mortgage Trust, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. |
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: February 12, 2019
/s/ Stephen D. Plavin |
Stephen D. Plavin |
Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Anthony F. Marone, Jr., certify that:
1. |
I have reviewed this annual report on Form 10-K of Blackstone Mortgage Trust, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. |
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: February 12, 2019
/s/ Anthony F. Marone, Jr. |
Anthony F. Marone, Jr. |
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Blackstone Mortgage Trust, Inc. (the Company ) on Form 10-K for the period ended December 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the Report ), I, Stephen D. Plavin, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Stephen D. Plavin |
Stephen D. Plavin |
Chief Executive Officer |
February 12, 2019 |
This certification accompanies each Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has been provided by the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Blackstone Mortgage Trust, Inc. (the Company ) on Form 10-K for the period ended December 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the Report ), I, Anthony F. Marone, Jr., Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Anthony F. Marone, Jr. |
Anthony F. Marone, Jr. |
Chief Financial Officer |
February 12, 2019 |
This certification accompanies each Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has been provided by the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.