Blackstone Mortgage Trust, Inc. — Q3 2014 Form 10-Q
Reporting period: Three and nine months ended September 30, 2014. The company is an externally managed REIT focused primarily on originating and purchasing commercial real estate loans in North America and Europe. Its segments are Loan Origination and CT Legacy Portfolio. Financial statement amounts below are in U.S. dollars; amounts are converted to millions unless stated otherwise.
Key financial results
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Interest and related income | $50.4 million | $18.9 million | $126.5 million | $26.3 million |
| Net income from loans and other investments | $30.5 million | $14.4 million | $78.8 million | $19.8 million |
| Net income attributable to company | $22.0 million | $8.3 million | $68.6 million | $8.0 million |
| GAAP earnings per share, basic and diluted | $0.45 | $0.29 | $1.52 | $0.53 |
| Dividends declared per share | $0.50 | $0.27 | $1.46 | $0.27 |
| Operating cash flow | Not separately reported for the quarter | Not separately reported for the quarter | $57.5 million | $14.4 million |
- Balance sheet at September 30: Total assets were $4.10 billion, including $3.91 billion of net loans receivable. Cash and cash equivalents were $63.3 million, with another $10.9 million restricted. Total liabilities were $2.59 billion and total equity was $1.51 billion. Book value per share was $25.57.
- Portfolio: 55 loans with $3.94 billion principal balance and $513.4 million of unfunded commitments. Weighted-average cash coupon was LIBOR plus 4.42%; all-in yield was LIBOR plus 4.97%; maximum weighted-average maturity was 3.9 years, assuming extension options. 95% of net book value was senior loans.
- Debt and liquidity: Revolving repurchase borrowings were $1.67 billion, asset-specific repurchase agreements $227.0 million, loan participations sold $448.0 million, and convertible notes $161.3 million net carrying value ($172.5 million principal). Available revolving capacity was $433.7 million. Cash plus available revolving capacity totaled $497.1 million. The company reported compliance with financing covenants.
- Cash flows, nine months: Investing activities used $1.87 billion, primarily reflecting loan originations and fundings; financing activities provided $1.82 billion. Cash and cash equivalents increased $12.6 million to $63.3 million.
Material changes and notable items
- Compared with Q3 2013, Q3 2014 interest income rose $31.5 million and net income attributable to the company rose $13.7 million. Management attributed the earnings growth mainly to expansion of the loan origination business, relaunched in May 2013.
- Compared with the first nine months of 2013, net income attributable to the company increased to $68.6 million from $8.0 million. The 2014 period included $24.3 million of CTOPI promote income; management and incentive-related expenses also increased, including $11.2 million of CTOPI incentive-plan expense.
- Loan net book value increased from $2.05 billion at year-end 2013 to $3.91 billion. The company issued 28.2 million shares in public offerings during the first nine months, raising $763.4 million net. Repurchase facility borrowings and participations sold also expanded to support portfolio growth.
- All loans were rated 1–3 on the company’s internal 1–8 risk scale, with a weighted-average rating of 2.8. The company reported no impaired, nonaccrual, or maturity-default loans at September 30. A previously reserved $10.5 million legacy loan was written off during the period; a separate legacy loan in maturity default at year-end 2013 was restructured and reclassified to other assets.
- Foreign currency translation produced a $7.0 million nine-month comprehensive loss, and accumulated other comprehensive loss was $6.2 million at September 30.
Outlook, risks and contingencies
- No specific earnings or portfolio-growth guidance was provided. Management said its floating-rate loan portfolio is generally financed with floating-rate debt; a 100-basis-point increase in LIBOR was estimated to increase annual net income by approximately $15.0 million, or $0.26 per share, all else equal.
- Key risks include borrower credit and property performance, interest-rate effects on borrower debt service and defaults, reliance on debt and equity capital markets, financing-counterparty exposure, and foreign-currency movements. A 10% currency decline was estimated to reduce net assets by $10.7 million for sterling exposure and $9.4 million for euro exposure.
- The company noted $513.4 million of unfunded loan commitments, dividend and operating requirements, and approximately $2.5 billion of outstanding secured financings and convertible notes. Its REIT status generally requires substantial distributions of taxable income; the board retains discretion over dividends. The $0.50 Q3 dividend exceeded Q3 GAAP EPS of $0.45; taxable income and GAAP income may differ.
- The company is externally managed by a Blackstone affiliate, pays management and incentive fees, and disclosed potential conflicts involving legacy investments and affiliate interests. It reported no material legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls.
- Subsequent events: On October 23, 2014, the company amended its Wells Fargo repurchase facility, increasing its size from $500 million to $1.0 billion; other material terms, including maturity, remained unchanged. It also amended and restated its management agreement, including raising the investment-committee approval threshold for proposed investments from $150 million to $250 million.
Important facts for investors to verify
- Whether portfolio growth, loan commitments, and financing availability remain aligned, including the terms and collateral requirements of repurchase facilities.
- Loan credit quality and concentration by property type and geography, particularly the 28% hotel and 16% international portfolio exposures at September 30.
- The sustainability of dividends relative to taxable income, cash generation, and GAAP earnings; and the effect of share issuance on per-share results.
- The recurring versus nonrecurring contribution of CTOPI promote income and related incentive compensation to reported earnings.
- Foreign-currency exposure, LIBOR sensitivity, covenant headroom, and any changes in loan ratings, nonaccruals, or collateral performance.