Blackstone Mortgage Trust, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Blackstone Mortgage Trust (NYSE: BXMT) is an externally managed REIT that originates senior commercial real estate loans in North America, Europe, and Australia. Financial statements are unaudited.
Financial and operating highlights
| Metric | Q2 2022 | Comparable period / change |
|---|---|---|
| Interest and related income | $283.7 million | Up from $196.3 million in Q2 2021 |
| Interest and related expense | $136.6 million | Up from $82.4 million in Q2 2021 |
| Net income from loans and investments | $147.1 million | Up from $114.0 million in Q2 2021 |
| Net income attributable to BXMT | $93.3 million | Down from $131.6 million in Q2 2021 |
| Basic / diluted EPS | $0.55 / $0.54 | Basic EPS was $0.89 in Q2 2021 |
| Distributable Earnings (non-GAAP) | $0.67 per share | Compared with declared dividend of $0.62 per share |
| Six-month operating cash flow | $183.6 million | Up from $165.4 million in 2021 |
Higher floating-rate benchmarks and a larger loan portfolio increased net interest income, but financing costs also rose. Q2 included a $13.0 million increase in the CECL reserve, versus a $50.9 million reserve decrease (credit to earnings) in Q2 2021; this was a major factor in the year-over-year decline in reported profit. For the first half, net income attributable to BXMT was $192.9 million versus $211.5 million, and basic EPS was $1.14 versus $1.44. The six-month comparison also reflects a much larger weighted-average share count in 2022.
Portfolio, balance sheet, and liquidity
- Loans receivable, net, were $24.7 billion at June 30, 2022, up from $21.9 billion at year-end 2021. The 205-loan portfolio had $26.5 billion of total loan exposure, a 64% weighted-average origination LTV, and a 2.8 weighted-average internal risk rating, unchanged from year-end.
- Portfolio exposure was concentrated in office (41%), multifamily (25%), and hospitality (19%). Management said it collected all contractual interest due in Q2, with no interest deferrals.
- Total CECL reserves were $141.5 million, including $133.0 million against funded loans and $8.4 million for unfunded commitments. One impaired New York hospitality loan had $286.3 million of principal and a $54.9 million reserve; no income was recorded on it in the first half.
- Cash and cash equivalents were $283.6 million. Reported available liquidity was $1.51 billion, including $1.03 billion available under secured facilities and net loan principal payments held by servicers.
- Outstanding financing included $13.9 billion of secured debt, $2.8 billion of securitized debt, and $2.6 billion of asset-specific financing. Corporate financing principal was $2.76 billion. Debt-to-equity was 3.7x and total leverage was 4.7x, up from 3.2x and 4.2x, respectively, at December 31, 2021.
- Six-month investing cash use was $3.40 billion, largely reflecting $5.59 billion of loan fundings; financing activities provided $2.96 billion. Cash declined by $256.6 million over the period, after $209.8 million of dividends paid.
Changes, outlook, and risks
- In Q2, BXMT originated or acquired $3.0 billion of loans; quarterly net fundings were $1.38 billion. Across the first half, net fundings were $3.13 billion.
- The quarterly dividend remained $0.62 per share, or $1.24 for the first half. The June-quarter dividend was paid July 15, 2022. The filing provides no formal earnings or dividend guidance.
- Management stated that higher rates generally benefit net income because assets and liabilities are predominantly floating rate, while warning that higher debt service may weaken borrowers. Its sensitivity analysis estimated a $25.2 million increase in annual net interest income, net of incentive fees, for a 100-basis-point rate increase, assuming no change in spreads, portfolio composition, or performance.
- Macroeconomic concerns include inflation, rising rates, possible recession, lingering COVID-19 effects, and commercial-property performance. The company noted uncertainty around the transition from LIBOR to replacement benchmarks; 43 loans used one-month SOFR at quarter-end, and GBP loans and related financing used SONIA.
- Unfunded loan commitments were $4.6 billion across 125 loans, with $2.7 billion of committed or identified financing and $1.9 billion net unfunded. Timing depends on collateral performance and project needs.
- BXMT issued $300 million of 5.50% convertible notes due 2027 and repaid its remaining 2017 convertible notes at maturity. It also entered a Barclays master repurchase agreement providing for advances of up to $3.0 billion to finance eligible loans. The filing reports covenant compliance and no material legal proceedings.
Key facts for investors to verify
- Whether the impaired hospitality loan’s collateral value and $54.9 million CECL reserve remain adequate, and how other risk-rated 4 and 5 loans perform.
- Whether distributable earnings continue to cover the $0.62 quarterly dividend; this non-GAAP measure excludes CECL reserve changes and is not a measure of operating cash flow or liquidity.
- How rising rates affect borrower repayment capacity, financing expense, and actual net interest income relative to management’s sensitivity estimate.
- Availability and terms of committed funding for the $4.6 billion of unfunded commitments, and the company’s ability to manage leverage and debt maturities.
- Progress and potential costs of benchmark-rate transitions, and any effects of foreign currency hedges or related-party transactions.