Business context and reporting period
Blackstone Mortgage Trust, Inc. (NYSE: BXMT) is an externally managed REIT that originates senior commercial real estate loans in North America, Europe and Australia. This unaudited Form 10-Q covers the three months ended March 31, 2022; comparisons below are primarily with the first quarter of 2021, or with December 31, 2021 for balance-sheet measures.
Financial performance and condition
- Earnings: Interest and related income was $234.4 million, up 25% year over year; interest expense rose to $100.7 million from $78.4 million. Net interest income increased to $133.7 million from $109.2 million. Net income attributable to BXMT was $99.7 million, versus $79.9 million; basic and diluted EPS were $0.59 and $0.58, respectively, compared with $0.54 for both measures a year earlier.
- Non-GAAP earnings and dividend: Distributable Earnings were $105.6 million, or $0.62 per share, versus $0.62 per share in declared dividends. Distributable Earnings is a non-GAAP measure and is not a substitute for GAAP earnings or operating cash flow. The quarterly dividend was unchanged from Q1 2021.
- Portfolio: At March 31, loans receivable totaled $23.7 billion net of a $122.2 million CECL reserve; total loan exposure, including non-consolidated senior interests, was $25.6 billion. The portfolio comprised 203 loans, with a 3.57% weighted-average all-in yield and 3.5-year weighted-average maximum maturity. Office represented 42% and multifamily 26% of portfolio exposure. The weighted-average risk rating was 2.8, unchanged from year-end.
- Credit quality: Total CECL reserves were $128.5 million, including $6.3 million for unfunded commitments; reserves decreased by $2.5 million in the quarter. One hospitality loan, rated risk 5, had $286.3 million outstanding and a $54.9 million reserve; BXMT recorded no income on it in the quarter. Management reported collecting all contractual interest due during the quarter, with no interest deferrals.
- Cash flow and liquidity: Operating cash flow was $90.1 million, compared with $83.0 million in Q1 2021. Investing cash outflow was $1.69 billion, primarily reflecting loan fundings; financing cash inflow was $1.36 billion. Cash ended the quarter at $309.4 million, down from $551.2 million at year-end. Reported available liquidity was $1.50 billion, including $1.19 billion of available secured-facility borrowings.
- Debt and leverage: Total liabilities were $19.4 billion and equity was $4.67 billion. Portfolio financing outstanding was $18.4 billion; corporate financing was $2.60 billion. Debt-to-equity was 3.4x and total leverage was 4.5x, up from 3.2x and 4.2x at year-end. The company reported compliance with its financial covenants.
- Book value: Book value was $27.21 per share, essentially unchanged from $27.22 at December 31, 2021, and includes a cumulative CECL reserve of $0.75 per share.
Material changes versus comparable periods
- Compared with Q1 2021, net interest income rose $24.6 million and net income attributable to BXMT increased $19.8 million. Management attributed the net interest income improvement mainly to a $6.0 billion increase in the weighted-average loan portfolio, partly offset by higher financing balances and expense.
- Loan originations or acquisitions were $3.4 billion; fundings were $3.0 billion and repayments and sales were $1.3 billion, producing $1.7 billion of net fundings. The loan portfolio grew from 188 loans and $22.2 billion principal at year-end to 203 loans and $23.9 billion principal.
- During the quarter, BXMT issued $300 million of 5.50% convertible notes due 2027 and repurchased $64.7 million principal of its 2017 convertible notes. The 2017 notes’ remaining $337.9 million principal was due in May 2022. BXMT also sold a $244.4 million senior loan participation and issued 1.675 million shares through its at-the-market program for $52.2 million net proceeds.
- Cash declined by $238.6 million during Q1 2022, compared with an $8.9 million decline in Q1 2021, as loan investment activity increased.
Outlook, risks and unusual items
- The filing provides no specific earnings or portfolio guidance. Management says higher rates generally benefit net income because assets and financing are predominantly floating-rate, but interest-rate floors and borrower payment capacity may affect the outcome. A modeled 100-basis-point increase in rates was estimated to add $8.0 million to 12-month net interest income, net of incentive fees, under stated assumptions; this is a sensitivity analysis, not guidance.
- Interest-rate benchmark transition remains a risk: USD LIBOR publication was expected to end after June 30, 2023. SOFR was already used on 37 loans and certain financings; SONIA was used for floating-rate sterling loans and related financings. Management said market effects of benchmark transitions were uncertain.
- Other risks include commercial-property performance and valuations, COVID-19-related economic effects, inflation, labor and supply-chain pressures, foreign exchange, funding and capital-market access, and potential defaults as higher rates increase borrowers’ debt service. Unfunded loan commitments were $4.5 billion, with $2.5 billion of committed or identified financing, leaving $2.0 billion net unfunded; timing depends on borrower and collateral performance.
- A troubled New York multifamily loan was current on interest after a prior modification and principal reduction. The separate hospitality loan remains on cost-recovery accounting with no interest income recognized. Management cautions that CECL estimates depend on assumptions and actual losses may differ.
- BXMT adopted ASU 2020-06 on January 1, 2022; adoption reduced Q1 diluted EPS by $0.01. No material legal proceedings or material changes to previously disclosed risk factors were reported. Disclosure controls were concluded effective.
Important facts for investors to verify
- Progress and recovery assumptions for the $286.3 million hospitality loan and adequacy of its $54.9 million CECL reserve.
- Ability to fund the $2.0 billion net unfunded commitment exposure while maintaining liquidity and covenant compliance.
- Repayment or refinancing of the $337.9 million convertible notes due May 2022 and the $220 million notes due March 2023.
- How benchmark-rate changes, index floors, and borrower debt-service capacity affect net interest income, credit performance, and the dividend.
- Whether leverage, funding costs, and portfolio credit mix remain consistent with management’s stated risk and asset-management approach.