Blackstone Mortgage Trust, Inc. — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015. Blackstone Mortgage Trust is an externally managed commercial real estate lender and REIT focused on senior loans secured by properties in North America and Europe.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Interest and related income | $80.5 million | $42.5 million | $143.9 million | $76.1 million |
| Interest expense | $30.6 million | $15.7 million | $54.8 million | $27.8 million |
| Net income from loans and other investments | $49.8 million | $26.7 million | $89.1 million | $48.3 million |
| Net income attributable to BXMT | $29.3 million | $33.5 million | $64.7 million | $46.5 million |
| EPS, basic and diluted | $0.36 | $0.70 | $0.93 | $1.08 |
| Dividends declared per share | $0.52 | $0.48 | $1.04 | $0.96 |
- Q2 Core Earnings, a company-defined non-GAAP measure, were $0.38 per share, down from $0.54 in Q1 2015. Management attributed the decline primarily to GE acquisition transaction costs and the larger share count following equity issuance.
- At June 30, the loan portfolio comprised 138 loans with $10.17 billion principal balance and $10.13 billion net book value. Weighted-average cash coupon was 4.72%, all-in yield 5.06%, and maximum maturity 3.4 years. About 79% of loans were floating rate; 98% of portfolio book value was senior loans.
- Q2 loan growth followed the $4.7 billion purchase of a 77-loan GE portfolio and $1.7 billion of new originations. The portfolio acquisition and new lending drove higher interest income, while the increased financing balance also raised interest expense.
Balance sheet, cash flow and liquidity
- Total assets were $10.47 billion at June 30, 2015, versus $4.59 billion at December 31, 2014. Loans receivable were $10.13 billion; total equity was $2.50 billion and reported book value was $26.60 per share.
- Secured debt agreements totaled $7.09 billion, up from $2.37 billion at year-end. Loan participations sold were $635.6 million, and convertible notes had $163.1 million net carrying value ($172.5 million principal; 5.25% coupon; due December 2018).
- Cash and cash equivalents were $104.3 million. Available borrowings under revolving facilities were $412.4 million, for reported cash and facility availability of $516.6 million. Unfunded loan commitments were $791.2 million, primarily for property improvements and leasing costs.
- For the first six months, operating cash flow was $6.4 million, investing cash flow was negative $5.72 billion, and financing cash flow was positive $5.77 billion. Financing included $1.03 billion net equity proceeds and substantial secured borrowings; loan originations and fundings totaled $6.43 billion.
- The company reported compliance with secured-debt financial covenants at June 30, including the maximum debt-to-assets covenant. The filing reports no material off-balance-sheet arrangements.
Material changes, outlook and risks
- Growth and dilution: The GE portfolio acquisition substantially expanded the loan book and was financed in part with a $4.0 billion Wells Fargo facility and approximately $1.0 billion of equity proceeds. The company issued 34.8 million shares during the first half; weighted-average shares rose materially year over year. Book value per share increased from $24.87 at March 31 to $26.60 at June 30, partly reflecting equity proceeds.
- Profit comparison: Q2 net income attributable to BXMT and EPS declined year over year despite higher net interest income. CTOPI promote income was $1.7 million in Q2 2015 versus $24.3 million in Q2 2014; the company also incurred $9.0 million of GE transaction costs. For the six-month period, CT Legacy Portfolio unrealized gains were $22.2 million and CTOPI promote income was $5.7 million.
- Portfolio condition: Management reported all loans performing, a weighted-average internal risk rating of 2.2, and no impaired, nonaccrual, or maturity-default loans at June 30. These assessments are management’s and depend on collateral and borrower performance.
- Rate and currency exposure: Management said rising rates generally benefit net income where floating-rate assets exceed floating-rate liabilities, but 21% of loans were fixed rate and financed with floating-rate liabilities. Interest-rate caps provide partial protection. A 10% U.S. dollar appreciation was estimated to reduce net asset value by $25.6 million for sterling exposure and $14.6 million for euro exposure; Canadian-dollar net exposure was substantially hedged.
- Other risks and contingencies: The filing identifies commercial real estate credit and collateral risk, financing and capital-market access, counterparty risk, foreign exchange exposure, and REIT distribution and qualification requirements. IRS and New York examinations of a former subsidiary’s 2011–2012 tax returns were ongoing; no adjustments had been communicated and no reserve was recorded. No material legal proceedings were reported.
- Unusual and related-party items: A hotel-portfolio sale by a CT Legacy joint venture produced $22.1 million of recognized gain; incentive compensation to Manager employees was associated with the sale. The GE portfolio purchase involved an affiliate’s broader GE transaction, and a $590 million loan originated by BXMT repaid an existing loan held by a Manager affiliate. Review the disclosed related-party terms and transaction-cost allocations.
- Guidance: The filing provides no specific earnings or portfolio guidance. Management’s discussion contains forward-looking statements subject to the risks described in the filing.
Important facts for investors to verify
- Whether the GE portfolio’s performance, unfunded commitments, and financing terms develop as expected, including the facility’s guarantees and repayment structure.
- How the much larger share count affects per-share earnings and the sustainability of the $0.52 quarterly dividend; Core Earnings is non-GAAP and is not cash flow or GAAP net income.
- Loan credit quality and concentration by property type, geography, borrower, and risk rating, particularly following the rapid portfolio expansion.
- Liquidity relative to $791.2 million of unfunded loan commitments and contractual maturities, and the company’s ability to maintain access to secured and equity funding.
- Related-party transaction disclosures, the status of tax examinations, and sensitivity to interest-rate, currency, and commercial real estate market changes.