Blackstone Mortgage Trust, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; includes fourth-quarter results. BXMT is an externally managed REIT that originates and acquires commercial real estate loans, primarily senior floating-rate mortgages in North America, Europe, and Australia.
Financial and portfolio highlights
| Metric | 2019 | 2018 |
|---|---|---|
| Interest and related income | $882.7 million | $756.1 million |
| Interest expense | $458.5 million | $359.6 million |
| Net income attributable to BXMT | $305.6 million | $285.1 million |
| GAAP earnings per share | $2.35 | $2.50 |
| Core Earnings per share (non-GAAP) | $2.70 | $2.90 |
| Dividends declared per share | $2.48 | $2.48 |
| Book value per share | $27.82 | $27.20 |
| Total assets | $16.55 billion | $14.47 billion |
| Total equity | $3.78 billion | $3.37 billion |
| Operating cash flow | $304.0 million | $290.0 million |
Net income from loans and other investments, after interest expense, was $424.2 million, up from $396.5 million. The filing does not provide a single reported margin measure. Cash used in investing activities was $1.87 billion, chiefly reflecting loan originations and fundings; financing activities provided $1.61 billion. Year-end cash and cash equivalents were $150.1 million.
BXMT originated or acquired $8.6 billion of loans during 2019; fundings were $7.0 billion and repayments were $4.8 billion, producing $2.1 billion of net fundings. At year-end, the portfolio comprised 129 investments with $17.9 billion of total investment exposure, a 3.9-year weighted-average maximum maturity, 63.7% weighted-average LTV, and a 3.56% spread over applicable benchmark rates for all-in yield. Office loans were 61% of loan exposure; U.S. loans were 66%.
Material changes and financing
- Net income rose 7% year over year, while GAAP EPS fell from $2.50 to $2.35; weighted-average shares increased to 130.1 million from 113.9 million.
- Core Earnings increased to $350.7 million from $330.7 million, but Core Earnings per share declined. Core Earnings is non-GAAP and should not be treated as GAAP income or operating cash flow.
- Net interest income increased $27.7 million, reflecting a larger average loan portfolio and higher benchmark rates, partly offset by higher financing balances and lower non-recurring prepayment fee income.
- BXMT issued 10.5 million shares for $372.3 million net proceeds and established a $746.9 million senior secured term loan at LIBOR plus 2.25%, maturing in 2026.
- Portfolio financing outstanding was $12.0 billion, including $9.8 billion of credit facilities, $330.9 million of asset-specific financing, $688.5 million of non-consolidated senior interests, and $1.19 billion of securitized debt obligations. Separately, balance-sheet debt included $10.1 billion of secured debt agreements, $736.1 million of secured term loan, $613.1 million of convertible notes, and $1.19 billion of securitized debt, net.
- Debt-to-equity was 3.0x, up from 2.8x; total leverage was 3.7x, unchanged. Disclosed liquidity sources totaled $750.9 million, including $598.8 million of available secured-debt borrowings.
Outlook, risks, and unusual items
- The filing gives no quantified earnings or loan-origination guidance. Management describes its objective as preserving capital and generating risk-adjusted returns primarily through portfolio income and dividends, and expects leverage not to exceed 4-to-1 debt to equity.
- BXMT said rising rates would generally increase net income given its floating-rate assets and liabilities, subject to loan floors and repricing differences. Its year-end sensitivity estimate showed a $2.3 million increase in net interest for a 25-basis-point rate rise and an $8.0 million increase for a 50-basis-point rise over the following 12 months; corresponding decreases were estimated at $0.5 million and $1.7 million.
- Reference-rate transition is a material exposure: $15.2 billion of floating-rate investments and $11.6 billion of floating-rate debt had maturities extending beyond 2021 and were tied to IBOR benchmarks. The impact of transition was not yet reasonably estimable.
- BXMT expected an initial CECL reserve of approximately $17.6 million, or $0.13 per share, upon adoption on January 1, 2020. This was expected to reduce retained earnings and equity; future reserve changes would affect earnings.
- Credit and concentration risks include borrower defaults, collateral-value declines, illiquid loans, construction and transitional lending, and portfolio exposure to office properties. The weighted-average internal loan risk rating rose to 2.8 from 2.7; the filing attributes this mainly to new originations. No impaired, nonaccrual, or maturity-default loans were reported at year-end, and no impairment loss was recognized in 2019.
- Other material risks include leverage, refinancing and margin-call needs, foreign currency and European market exposure, and conflicts arising from the Blackstone external-manager relationship and allocation of opportunities. The filing reports no material legal proceedings at year-end. Management and the auditor reported effective internal controls.
Important facts for investors to verify
- How dividend sustainability compares with GAAP earnings, Core Earnings, and cash available after loan funding and financing needs; 2019 dividends of $2.48 per share exceeded GAAP EPS of $2.35.
- Loan-level credit quality, office and geographic concentration, unfunded commitments of $3.9 billion, and changes in internal risk ratings.
- Debt maturities, covenant headroom, collateral and margin-call terms, and the composition and availability of the stated $750.9 million liquidity sources.
- The realized effects of CECL adoption and the transition from LIBOR and other IBOR benchmarks.
- Manager fees, related-party lending and financing, and safeguards around Blackstone conflicts and investment allocation.