Blackstone Mortgage Trust, Inc. (NYSE: BXMT) — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Financial statements are unaudited. BXMT is an externally managed REIT focused on originating senior commercial real estate loans in North America, Europe, and Australia.
Key financial metrics
| Metric | Q3 2020 / September 30, 2020 | Comparable period / prior year-end |
|---|---|---|
| Interest and related income | $193.9 million | $213.9 million in Q3 2019 |
| Interest expense | $79.0 million | $112.0 million in Q3 2019 |
| Net income from loans and other investments | $115.0 million | $101.9 million in Q3 2019 |
| Net income attributable to BXMT | $89.9 million; $0.61 per share | $74.9 million; $0.56 per share in Q3 2019 |
| Core Earnings, non-GAAP | $92.4 million; $0.63 per share | $85.2 million; $0.62 per share in Q2 2020 |
| Dividends declared | $0.62 per share for Q3 | $0.62 per share in Q3 2019; $1.86 per share for the first nine months of both years |
| Total assets | $16.88 billion | $16.55 billion at December 31, 2019 |
| Loans receivable, net | $16.29 billion, after $177.0 million CECL reserve | $16.16 billion at December 31, 2019, before CECL adoption |
| Cash and cash equivalents | $427.0 million | $150.1 million at December 31, 2019 |
| Total equity | $3.90 billion | $3.78 billion at December 31, 2019 |
| Debt and leverage | $1.7 billion corporate debt and $12.6 billion asset-level financing; 2.6x debt-to-equity and 3.6x total leverage | 3.0x debt-to-equity and 3.7x total leverage at December 31, 2019 |
| Liquidity sources | $1.24 billion: cash, $805.6 million available secured borrowings, and net servicer receivables | $750.9 million at December 31, 2019 |
The filing does not provide a conventional operating-margin measure. For the first nine months, net income attributable to BXMT was $54.1 million ($0.39 per share), versus $226.6 million ($1.76 per share) in 2019; the 2020 period included a $173.5 million increase in the credit-loss reserve. Nine-month operating cash flow was $261.3 million, investing cash outflow was $105.7 million, and financing cash inflow was $120.8 million, producing a $276.3 million increase in cash.
Material changes and portfolio
- Q3 net income attributable to BXMT increased from Q3 2019, while interest income declined and interest expense fell by more. Net income from loans and other investments rose $13.0 million year over year.
- BXMT adopted the CECL accounting standard in January 2020, recording a $17.7 million opening retained-earnings adjustment. By September 30, the loan reserve was $177.0 million; including reserves for debt securities and unfunded commitments, the total reserve was approximately $191.1 million.
- The loan portfolio comprised 123 loans with $16.55 billion principal balance. Office represented 60% of portfolio exposure and hospitality 13%. The weighted-average origination LTV was 63.6%; 98% of investment exposure was floating-rate.
- The weighted-average loan risk rating deteriorated to 3.0 from 2.8 at year-end 2019. Loans with $3.2 billion aggregate principal were downgraded to risk ratings 4 or 5, primarily reflecting COVID-19 exposure in hospitality and selected other assets. Two impaired loans totaling $338.8 million had $69.7 million of specifically assessed reserves and stopped accruing income from July 1.
- Management reported collecting 99% of contractual interest due in Q3. It closed 11 loan modifications covering $1.7 billion principal during the quarter; changes included extensions, interest adjustments, reserve use, temporary interest deferrals, and covenant waivers. Many included additional sponsor equity commitments.
Liquidity, risks, and outlook
- Unfunded loan commitments were $3.3 billion across 83 loans; BXMT identified financing for $2.3 billion. Funding timing and amounts depend on collateral performance and project needs, and management expected COVID-related delays to slow construction, leasing, and related funding.
- In Q2, seven secured-facility lenders, covering $7.9 billion of facilities, temporarily suspended certain collateral credit-mark provisions in exchange for cash repayments, additional collateral, and reduced available borrowings. BXMT said it was in compliance with debt covenants at September 30.
- Management emphasized preserving liquidity and strengthening the balance sheet. Potential actions included raising capital, borrowing, selling assets, paying manager fees in shares, and reducing, suspending, or paying future dividends in kind. These are possibilities, not formal guidance; no earnings or dividend forecast is provided.
- COVID-19 creates material uncertainty for borrower cash flows, collateral values, loan repayments, credit losses, operating cash flow, liquidity, and distributions. The filing notes continued risks from market volatility, financing availability and counterparty performance, foreign exchange, interest rates, and benchmark-rate transition.
- Corporate debt maturities begin in 2022; secured facilities are more substantial, with $4.39 billion of listed principal repayments falling in one to three years and $4.94 billion in three to five years. The contractual-obligations schedule also includes $790.1 million of estimated interest payments and excludes certain non-recourse securitized debt and senior participations.
- No material legal proceedings, defaults upon senior securities, or off-balance-sheet arrangements were reported. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting.
Important facts for investors to verify
- How subsequent property performance, loan modifications, and collateral valuations affect CECL reserves and the two non-accrual loans.
- Whether Q3’s 99% interest-collection rate and sponsor support persist, especially for hospitality and other downgraded exposures.
- Availability and terms of secured financing after the credit-mark accommodations, including unused borrowing capacity and future repayments.
- Funding schedule and financing coverage for the $3.3 billion of unfunded loan commitments.
- Dividend sustainability: Q3 declared dividends of $0.62 per share compared with GAAP EPS of $0.61 and non-GAAP Core Earnings of $0.63; management reserves discretion to change future distributions.
- Assumptions behind CECL estimates, including the macroeconomic outlook and valuation inputs for impaired collateral, and the effects of LIBOR and other benchmark-rate transitions.