Blackstone Mortgage Trust, Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016. Amounts below are in U.S. dollars; financial statement amounts are rounded to millions unless stated otherwise.
Business context
Blackstone Mortgage Trust is an externally managed REIT that originates and purchases senior loans secured by commercial real estate in North America and Europe. At June 30, 2016, its portfolio comprised 116 loans with $9.1 billion of principal on balance sheet and $10.2 billion of total loan exposure, including non-consolidated senior interests.
Financial performance and position
| Metric | Q2 2016 / June 30, 2016 | Comparable period / prior date |
|---|---|---|
| Interest and related income | $130.5 million | $80.5 million in Q2 2015 |
| Interest and related expenses | $49.1 million | $30.6 million in Q2 2015 |
| Net income from loans and other investments | $81.4 million | $49.8 million in Q2 2015 |
| Net income attributable to the company | $63.1 million; $0.67 per share | $29.3 million; $0.36 per share in Q2 2015 |
| Core Earnings, non-GAAP | $63.1 million; $0.67 per share | $61.2 million; $0.65 per share in Q1 2016 |
| Dividend declared per share | $0.62 | $0.52 in Q2 2015 |
| Cash and cash equivalents | $181.8 million | $96.5 million at December 31, 2015 |
| Total assets / stockholders’ equity | $9.49 billion / $2.50 billion | $9.38 billion / $2.49 billion at December 31, 2015 |
| Secured debt, net carrying value | $6.20 billion | $6.12 billion at December 31, 2015 |
| Cash plus available borrowings | $611.9 million, including $430.1 million of available secured borrowing capacity | $601.2 million at December 31, 2015 |
For the six months ended June 30, 2016, net income attributable to the company was $120.1 million, or $1.28 per share, versus $64.7 million, or $0.93 per share, in 2015. Operating cash flow was $123.3 million versus $6.4 million; investing activities used $47.4 million, and financing activities provided $8.1 million. Cash increased by $84.0 million.
The portfolio’s weighted-average cash coupon and all-in yield were 4.85% and 5.19%, respectively. Total exposure had a weighted-average LTV of 61.8% and maximum maturity of 3.2 years. The company reported a 2.5x debt-to-equity ratio and 3.1x total leverage; total leverage includes loan participations sold and non-consolidated senior interests.
Material changes versus comparable periods
- Q2 net income attributable to the company more than doubled year over year. Six-month net interest income rose $70.0 million, primarily reflecting the contribution of the GE loan portfolio acquired in Q2 2015, partly offset by related financing expense.
- Q2 dividends increased to $0.62 per share from $0.52; six-month declared dividends rose to $1.24 per share from $1.04.
- Q2 2016 general and administrative expense was lower than Q2 2015, mainly because the prior-year period included $9.0 million of GE acquisition transaction costs. Management and incentive fees increased; six-month incentive fees were $10.6 million versus $1.2 million.
- Loan originations were $859.2 million in Q2, while repayments exceeded fundings by $118.7 million. For the six-month period, originations were $1.72 billion and net fundings were $125.1 million.
- The weighted-average portfolio risk rating increased to 2.3 from 2.2 at year-end 2015. No loans were impaired, on nonaccrual, or in maturity default at June 30, 2016.
Outlook, risks, contingencies and unusual items
- The filing provides no specific earnings or dividend guidance. Management describes the business model as generally benefiting from rising interest rates, but exposure varies by currency and asset-liability mix. A 25-basis-point increase was estimated to raise net interest income by about $1.6 million over the following 12 months, while a 25-basis-point decrease was estimated to reduce it by about $1.0 million, based on the filing’s assumptions.
- Credit risks include borrower/property performance and commercial real estate market conditions. Floating-rate debt service increases may strain borrowers; interest-rate floors, caps and active asset management partly mitigate exposure.
- The UK’s Brexit vote introduced currency, market and property-fundamental uncertainty. Management said the eventual effects could not yet be determined. A 10% U.S. dollar appreciation against sterling and the euro was estimated to reduce net assets by $27.2 million and $13.9 million, respectively.
- Unfunded loan commitments were $907.7 million across 63 loans, with $263.7 million scheduled within one year. The company also cited debt service, dividends and operating expenses as liquidity needs. It was in compliance with debt covenants at June 30.
- A previously maturity-defaulted loan had been modified; after collateral sales and repayments, its net book value was $10.3 million and its risk rating improved from 4 to 3. The borrower was current, and management expected contractual collection.
- The company had $102.6 million of secured debt repayments pending servicer remittance at quarter-end. An IRS and New York State examination of a former subsidiary’s 2011–2012 tax returns remained ongoing; no reserve was recorded. No material litigation was reported.
- After quarter-end, the company extended the maturity of its JPMorgan revolving repurchase facility to January 7, 2019. The current shelf registration statement was due to expire in July 2016; management expected to file a replacement in Q3.
Important facts for investors to verify
- Whether core loan earnings and the $0.62 quarterly dividend remain supported by recurring portfolio income; Core Earnings is non-GAAP and not a measure of cash available for distribution.
- The funding, timing and utilization of $907.7 million in loan commitments, and the availability and terms of secured borrowing capacity.
- Portfolio credit trends, especially the rise in weighted-average risk rating to 2.3 and the performance of higher-LTV or risk-rating-3 loans.
- Exposure to refinancing, interest-rate and currency movements, including Brexit-related effects on UK and European borrowers.
- The implications of management and incentive fees, leverage inclusive of off-balance-sheet structural financing, and the upcoming shelf-registration renewal.