Blackstone Mortgage Trust, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Blackstone Mortgage Trust (NYSE: BXMT) is an externally managed REIT that originates senior commercial real estate loans in North America, Europe and Australia. Amounts below are in U.S. dollars.
Financial and portfolio highlights
| Metric | Q1 2023 / March 31, 2023 | Comparison |
|---|---|---|
| Interest and related income | $491.4 million | $234.4 million in Q1 2022 |
| Interest expense | $317.2 million | $100.7 million in Q1 2022 |
| Net interest income | $174.2 million | $133.7 million in Q1 2022 |
| Net income attributable to BXMT | $117.8 million; basic/diluted EPS of $0.68/$0.67 | $99.7 million; $0.59/$0.58 in Q1 2022 |
| Distributable Earnings (non-GAAP) | $136.1 million, or $0.79 per share | $0.87 per share in Q4 2022 |
| Cash and cash equivalents | $515.8 million | $291.3 million at December 31, 2022 |
| Operating cash flow | $110.2 million | $90.1 million in Q1 2022 |
| Total equity / book value | $4.56 billion / $26.28 per share | $4.54 billion / $26.26 per share at year-end |
| Loans receivable, net | $24.56 billion; 199 loans | $24.69 billion; 203 loans at year-end |
| CECL reserves | $336.6 million on funded loans; $15.7 million on unfunded commitments | Funded-loan reserve was $326.1 million at year-end |
| Debt and leverage | $14.1 billion secured debt; $2.7 billion CLO debt; $2.9 billion corporate financing. Debt-to-equity 3.8x; total leverage 4.8x | Leverage ratios were unchanged from year-end |
| Liquidity | $1.56 billion, including $515.8 million cash and $1.03 billion available secured borrowings | $1.84 billion at year-end |
| Dividend | $0.62 per share declared; $106.8 million in aggregate | $0.62 per share in Q1 2022 and Q4 2022 |
Net interest income increased 30% year over year as floating benchmark rates rose and average loan balances grew; higher financing balances and interest costs partly offset the increase. Versus Q4 2022, net interest income declined $16.9 million, primarily due to lower prepayment fees and reduced interest accrual on loans moved to cost-recovery accounting. The company reported a $223.0 million increase in cash during the quarter, compared with a $238.6 million decrease in Q1 2022.
Material changes and credit developments
- Loan fundings were $443.6 million and repayments and sales were $593.9 million, producing $150.3 million of net repayments. No loan originations were reported for the quarter.
- The funded-loan CECL reserve rose $10.5 million. Six loans, with aggregate net book value of $997.7 million, had $197.3 million of asset-specific reserves; one additional loan was impaired during the quarter. The portfolio’s weighted-average risk rating remained 2.9, while loans rated 4 or 5 totaled 19 loans.
- Management said all borrowers were current on contractual terms, including interest, and that 100% of interest payments due were collected with no deferrals. The filing also reports $18.3 million of cash proceeds applied to principal on impaired loans.
- Unfunded loan commitments were $3.38 billion across 112 loans; $2.1 billion had committed or identified financing, leaving $1.3 billion net unfunded. Expected future funding period averaged 3.0 years.
- BXMT repaid $220 million principal on convertible notes at maturity. The remaining convertible notes had $300 million principal outstanding.
- Office loans represented 34% of net loan exposure; multifamily 27% and hospitality 19%. The portfolio’s origination weighted-average LTV was 63.8%.
Outlook, risks and other matters
The filing provides no quantified earnings or dividend guidance. Management noted market volatility related to inflation, rising rates, slower growth, geopolitical uncertainty, and bank failures and consolidations, which it said had reduced liquidity and credit availability. Rising rates may increase BXMT’s earnings, all else equal, but can also pressure borrowers’ debt service and property cash flows and increase default risk. The filing estimates that a 100-basis-point rate increase would raise net interest income, net of incentive fees, by approximately $32.8 million over the following 12 months, assuming unchanged credit spreads, portfolio composition and asset performance.
As of March 31, 2023, 80% of loan principal had transitioned to a replacement benchmark or was not expected to require replacement; management expected to transition the remaining 20% during 2023. Foreign currency exposure was substantially hedged. The company was in compliance with stated debt covenants and REIT requirements, and reported no material legal proceedings or material changes to previously disclosed risk factors. The CECL estimate depends on management assumptions about collateral values, property performance, market conditions and future losses; actual outcomes may differ.
Most important facts for investors to verify
- Performance and recoverability of the six impaired loans, including the new impairment and the $197.3 million specific reserve.
- Whether rising borrowing costs or weaker property cash flows lead to payment stress, defaults or further increases in credit reserves.
- Funding needs and financing availability for the $1.3 billion net unfunded commitment exposure, alongside the decline in reported liquidity.
- Whether the $0.62 quarterly dividend remains supported by taxable income, cash needs and future earnings; Distributable Earnings is non-GAAP and excludes CECL reserve changes until realized.
- Progress and any economic or operational effects of the remaining benchmark-rate transitions, as well as debt maturities and covenant compliance.