Blackstone Mortgage Trust, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; balance-sheet comparisons are with December 31, 2012. The company, formerly Capital Trust, completed the sale of its investment-management and special-servicing business in December 2012 and is now externally managed by a Blackstone affiliate. Its stated strategy is to originate, acquire and manage commercial real-estate debt. The reported quarter largely reflects legacy portfolios, rather than a newly built lending platform.
Key financial metrics
| Metric | Q1 2013 / March 31, 2013 | Comparable period / December 31, 2012 |
|---|---|---|
| Total assets | $365.2 million | $322.3 million |
| Total liabilities | $202.7 million | $168.9 million |
| Stockholders’ equity attributable to the company | $76.1 million | $73.4 million |
| Cash and cash equivalents | $15.4 million | $15.4 million |
| Interest and related income | $1.5 million | $14.7 million in Q1 2012 |
| Interest and related expenses | $0.8 million | $23.3 million in Q1 2012 |
| Net interest income (loss) | $0.7 million | $(8.6) million in Q1 2012 |
| General and administrative expense | $2.0 million | $0.8 million in Q1 2012 |
| Net income (loss) | $(1.6) million consolidated; $(3.1) million attributable to the company | $140.6 million consolidated; $66.6 million attributable to the company in Q1 2012 |
| Diluted earnings (loss) per share | $(1.03) | $27.39 in Q1 2012 |
| Cash from operating activities | $0.8 million | $1.3 million in Q1 2012 |
| Book value per share | $25.21 | $24.35 |
Amounts are reported in U.S. dollars. The filing does not present a comparable operating-margin measure; the sharp year-over-year earnings difference is not a like-for-like indication of underlying performance.
Material changes and portfolio condition
- Interest income declined 90% year over year, while interest expense fell 97%. Management attributed the changes mainly to prior-period deconsolidations and portfolio repayments; Q1 2012 interest expense also included $10.2 million from accelerated discount on a mezzanine loan.
- Q1 2012 included a $146.4 million gain on deconsolidation, a $4.0 million fair-value gain on the CT Legacy Asset and other unusual items. These substantially explain the prior-year reported profit and make the comparison with Q1 2013 unusually large.
- At March 31, CT Legacy Partners held loans with $257.4 million principal and $150.3 million fair value, plus securities with $135.3 million face value and $11.7 million fair value. The company reports a 52% interest in this vehicle, subject to other equity interests and obligations.
- CT Legacy Partners’ loan portfolio was heavily distressed: six of 12 loans, totaling $183.0 million principal, were rated risk 6–8. Loans on nonaccrual had $112.6 million principal and $11.9 million net book value. The company said the legacy portfolio contains assets not expected to repay in full, or in some cases at all.
- For consolidated securitization vehicles, loans receivable declined to $139.5 million from $141.5 million. Two impaired subordinate mortgage interests with $18.1 million principal were fully reserved. A separate $27.0 million loan was in maturity default without a reserve; management expected collection of principal and interest.
Liquidity, debt and outlook
- Cash was $15.4 million, but management said it currently had no access to liquidity generated by its portfolio interests. Restricted cash of $12.7 million belonged to CT Legacy Partners and was not available for general company use.
- Reported debt included $8.7 million of secured notes, $20.2 million of CT Legacy Partners repurchase obligations and $136.9 million of securitized debt. These obligations are described as non-recourse to the company, subject to their respective collateral and structural arrangements. The company reported no off-balance-sheet arrangements.
- CT Legacy Partners’ repurchase facility was priced at LIBOR plus 6.00%. The company’s secured notes bear 8.2% interest and may require total principal and interest payments of $11.1 million including the prepayment premium. CT CDO I cash flows were being redirected to amortize senior debt following covenant breaches, limiting distributions to the company.
- After quarter-end, asset repayments reduced the JPMorgan repurchase balance by $13.6 million, to $6.6 million as of May 6, 2013.
- The filing provides no earnings or dividend guidance. Management said it expected recoveries from legacy portfolios over several years, but distributions are subject to debt repayment, priority claims and fund return hurdles. It filed a registration statement for a proposed common-stock offering and planned to use substantially all net proceeds for target-asset acquisitions, working capital and general corporate purposes.
- No common dividends were declared in Q1 2013. The company said it intended to distribute substantially all taxable income as required to maintain REIT status, while noting that qualification requirements and potential tax consequences remain risks.
- Management disclosed interest-rate exposure: a 100-basis-point LIBOR change was estimated to affect net income by about $2.8 million for CT Legacy Partners and $0.27 million for CT CDO I, based on the stated portfolio exposures.
- On May 6, 2013, the company changed its name from Capital Trust to Blackstone Mortgage Trust, changed its ticker from CT to BXMT and effected a one-for-ten reverse stock split. The Blackstone name is licensed and use may end under specified circumstances. Management reported effective disclosure controls and no significant change in internal control over financial reporting; no legal proceedings were reported.
Important facts for investors to verify
- Whether the proposed equity offering was completed, its terms, and how proceeds were invested.
- Realizable values and recovery timing for the distressed CT Legacy Partners loans and securities, including nonaccrual and maturity-default exposures.
- How much cash, if any, becomes distributable after repurchase debt, secured notes, incentive awards and other priority claims.
- Whether CT CDO covenant tests and cash-flow redirection continue to constrain residual distributions, and whether the $27.0 million maturity-default loan is collected as management expects.
- The company’s ongoing REIT qualification, potential use of tax-loss carryforwards, and any implications of the externally managed structure and Blackstone-related conflicts.