Blackstone Mortgage Trust, Inc. — Q1 2019 Form 10-Q
Business context and reporting period
Unaudited results cover the three months ended March 31, 2019; balance-sheet comparisons are to December 31, 2018. The company originates senior loans secured by commercial real estate in North America, Europe and Australia. It is externally managed, operates as a REIT, and focuses on current income and dividends.
Financial and operating highlights
- Earnings: Interest and related income was $224.8 million versus $155.4 million a year earlier; interest expense was $118.7 million versus $70.0 million. Net income from loans and other investments was $106.1 million, up from $85.4 million.
- Profit: Net income attributable to the company was $76.6 million, up from $61.0 million; basic and diluted EPS was $0.62 versus $0.56. Core Earnings, a non-GAAP measure, was $87.7 million, or $0.71 per share, versus $83.6 million, or $0.69, in Q4 2018.
- Dividend and equity: The company declared $0.62 per share, unchanged from Q1 2018. Book value was $27.32 per share, compared with $27.20 at year-end. It issued 1.91 million shares through its at-the-market program, receiving $65.4 million net.
- Loan portfolio: At quarter-end, 122 loans had $14.6 billion principal balance and $14.5 billion net book value, compared with 125 loans and $14.3 billion principal at year-end. Weighted-average cash coupon was 5.63%, all-in yield 5.99%, and maximum maturity 3.8 years. Approximately 96% of total loan exposure was floating-rate.
- Cash flow: Operating activities provided $77.6 million; investing activities used $333.4 million; financing activities provided $229.7 million. Cash and cash equivalents ended at $79.4 million, down from $105.7 million at year-end.
- Debt and liquidity: Total assets were $14.8 billion and total liabilities $11.3 billion. Secured debt agreements were $9.2 billion net, securitized debt $1.3 billion, and convertible notes $610.7 million net. Debt-to-equity was 2.8x and total leverage 3.7x, both unchanged from year-end. Reported liquidity sources totaled $487.2 million, including cash, $370.5 million of available secured borrowings, and net loan payments held by servicers.
Changes versus comparable periods
- Year over year, net income attributable to the company rose $15.6 million and EPS increased $0.06. Management attributed higher net interest income mainly to higher LIBOR and a larger weighted-average loan portfolio; financing balances also increased.
- Compared with year-end 2018, loan net book value increased $317.5 million, while secured debt net book value increased $233.3 million. Cash declined $26.2 million.
- The weighted-average portfolio risk rating remained 2.7. No loans were rated 4 or 5; the filing reports no impaired loans, nonaccrual loans, or loans in maturity default at quarter-end.
Outlook, risks and unusual items
- No quantitative earnings or portfolio guidance is provided. Management states that rising rates generally increase net income because most loans and related financing are floating-rate, subject to floors, mismatches and borrower performance. Its modeled 12-month net-interest impact was approximately +$7.0 million for a 25-basis-point increase and −$6.2 million for a 25-basis-point decrease.
- Key exposures include commercial real estate credit and collateral values, borrower ability to service floating-rate debt, capital-market access, counterparty performance, and foreign-currency movements. The portfolio was concentrated in office loans (47% of loan exposure) and U.S. collateral (79%).
- Unfunded loan commitments were $3.1 billion. Contractual obligations also include substantial debt principal and interest payments; the company reported $392.9 million of secured-debt principal due within one year. It stated that it was compliant with debt covenants.
- The company expects adoption of the new expected-credit-loss accounting standard in 2020 to increase and accelerate loan-loss provisions; it had no provision for loan losses at quarter-end.
- After quarter-end, the company closed a $500 million secured term loan facility on April 23, 2019, at LIBOR plus 2.50%, due April 2026. A Manager affiliate received a $500,000 book-runner fee, and affiliated funds participated for $55 million.
- The filing reports no material legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls.
Important facts for investors to verify
- Whether portfolio credit quality, collateral performance and loan risk ratings remain stable, particularly for office and hotel exposures.
- How the $3.1 billion of unfunded commitments and upcoming debt maturities will be funded, and whether available liquidity remains adequate.
- Whether earnings and the $0.62 quarterly dividend remain supported by recurring cash generation; Core Earnings is non-GAAP and should not be treated as cash flow or liquidity.
- The effect of rate movements, floors, foreign exchange and hedges on net interest income and borrower repayment capacity.
- The terms, use of proceeds and related-party participation in the post-quarter $500 million term loan, and the potential dilution from additional ATM share issuance.