Blackstone Mortgage Trust, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; filed April 28, 2020. Blackstone Mortgage Trust (BXMT) originates senior loans secured by commercial real estate in North America, Europe and Australia and operates as a REIT through an external manager.
Financial performance and position
| Metric | Q1 2020 | Comparison |
|---|---|---|
| Interest and related income | $204.9 million | $224.8 million in Q1 2019 |
| Interest and related expense | $104.2 million | $118.7 million in Q1 2019 |
| Net interest income | $100.6 million | $106.1 million in Q1 2019 |
| GAAP net income (loss) attributable to BXMT | $(53.4) million; $(0.39) per share | $76.6 million; $0.62 per share in Q1 2019 |
| Core Earnings (non-GAAP) | $86.5 million; $0.64 per share | Management compares with Q4 2019: $91.1 million; $0.68 per share |
| Cash flow from operations | $68.6 million | $77.6 million in Q1 2019 |
| Cash and cash equivalents | $355.0 million | $150.1 million at December 31, 2019 |
| Loans receivable, net | $16.25 billion | $16.16 billion at December 31, 2019 |
| Total equity | $3.67 billion | $3.78 billion at December 31, 2019 |
| Dividend declared | $0.62 per share | Unchanged from Q1 2019; paid April 15, 2020 |
Q1 2020 GAAP results included a $122.7 million increase in the expected credit loss provision, primarily reflecting COVID-19-related macroeconomic assumptions rather than identified loan impairments. The quarter-end reserve was $140.4 million in total across loans, held-to-maturity securities and unfunded commitments; the loan reserve alone was $112.7 million. The company adopted CECL on January 1, recording a $17.7 million opening retained-earnings adjustment.
Cash flow from operations was positive despite the GAAP loss, in part because the credit-loss provision was noncash. Investing activities used $249.3 million; financing activities provided $389.1 million, including $1.24 billion of proceeds from a new CLO. Cash increased by $208.4 million during the quarter.
Material changes and portfolio
- Interest income fell $19.9 million year over year; net interest income declined $5.4 million. Management cited lower LIBOR and higher average financing balances, partly offset by growth in the loan portfolio.
- The loan portfolio grew to 132 loans with $16.47 billion principal balance. Q1 originations or acquisitions were $1.30 billion; fundings were $1.00 billion and repayments were $567.4 million.
- Hospitality and office were the largest property exposures, at 13% and 57% of portfolio exposure, respectively. The portfolio’s weighted-average risk rating rose to 3.0 from 2.8 at year-end; approximately $3.1 billion of loans were downgraded to risk rating 4, mainly because of pandemic pressure on hospitality and selected other assets.
- Management reported no impaired, nonaccrual, or maturity-default loans at March 31 and said all interest payments due in April had been paid. One $52.8 million loan was modified as a troubled debt restructuring during Q1; the borrower was current and the company expected to collect contractual amounts.
- Book value per share was $26.92, down from $27.82 at December 31, 2019. Comprehensive loss attributable to BXMT was $18.9 million, including foreign-currency translation losses partly offset by derivative gains.
Debt, liquidity and risks
At March 31, secured debt agreements were $9.37 billion principal, securitized debt obligations $2.25 billion, the secured term loan $745.0 million face value, and convertible notes $622.5 million face value. The balance sheet reports $13.08 billion of total liabilities. Management cited $1.4 billion of corporate debt and $12.3 billion of asset-level financing. Debt-to-equity was 2.8x and total leverage was 3.9x, compared with 3.0x and 3.7x at year-end, respectively.
Reported liquidity sources totaled $835.9 million: $355.0 million cash, $480.3 million available borrowings under secured debt agreements, and $0.7 million of net loan payments held by servicers. Credit-facility borrowings were $9.02 billion, with $446.1 million of additional potential borrowing against approved and pledged collateral. The company added $650 million of aggregate credit capacity during the quarter and was in compliance with debt covenants.
Unfunded loan commitments totaled $3.9 billion across 94 loans; management identified financing for $2.4 billion and estimated a 4.0-year weighted-average future funding period. COVID-19 could slow repayments, pressure operating cash flow and collateral values, generate borrower requests for deferrals or forbearance, and create future funding or lender demands. BXMT reported no margin calls to date but was discussing lower advance rates on certain assets to reduce future margin-call risk. Foreign currency forward contracts were terminated during Q1, generating $68.5 million cash; remaining foreign-currency exposure persists.
Outlook and unusual items
The filing gives no quantitative earnings or portfolio guidance. Management said the pandemic’s duration and financial effects were uncertain and could adversely affect results, liquidity and distributions. It said it was seeking to preserve liquidity and could raise capital, borrow, sell assets, pay management and incentive fees in shares, or reduce, suspend or pay future dividends in kind. These are possible actions, not announced changes to the $0.62 dividend declared for Q1.
Management described potential defensive loan modifications, such as reserve use, temporary interest deferrals or covenant waivers, generally paired with added sponsor equity or guarantees. It stated that no modifications of this nature had closed as of the discussion, apart from the separately disclosed Q1 troubled debt restructuring. No material legal proceedings or off-balance-sheet arrangements were reported.
Important facts for investors to verify
- How COVID-19 affects borrower payment performance, particularly hospitality and other downgraded loans, and whether requests for relief become formal modifications, defaults or foreclosures.
- Whether the $140.4 million total CECL reserve adequately reflects changing economic conditions; distinguish the $112.7 million loan reserve from reserves on securities and unfunded commitments.
- Availability and terms of secured financing, collateral advance rates, margin-call exposure, and the company’s capacity to meet $3.9 billion of unfunded commitments.
- Whether cash generation, loan repayments and funding access support the dividend; management expressly reserved the option to change future distributions.
- Core Earnings’ non-GAAP adjustments and its comparability with GAAP results; Q1 2020 Core Earnings excluded the $122.7 million CECL expense.