Blackstone Mortgage Trust, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; balance-sheet comparisons are with December 31, 2016 unless noted. The company is an externally managed REIT originating and purchasing senior commercial real estate loans in North America and Europe.
Financial and operating highlights
- Income: Interest and related income was $118.5 million versus $123.0 million in Q1 2016. Interest expense increased to $46.7 million from $45.4 million, reducing net income from loans and investments to $71.8 million from $77.6 million.
- Profit: Net income attributable to the company was $51.4 million, down from $57.0 million; diluted EPS was $0.54 versus $0.61. Core Earnings, a non-GAAP measure, were $58.1 million, or $0.61 per share, compared with $58.3 million, or $0.62 per share, in Q4 2016.
- Dividend and book value: The quarterly dividend remained $0.62 per share, exceeding GAAP EPS and slightly exceeding Q1 Core Earnings per share. Book value was $26.28 per share, compared with $26.33 at year-end. The declared $58.8 million dividend was paid April 17, 2017.
- Cash flow: Operating cash flow was $57.4 million versus $65.8 million in Q1 2016; investing used $124.5 million and financing provided $55.2 million. Cash decreased $11.9 million to $64.3 million, compared with a $11.5 million increase in Q1 2016.
- Portfolio: The balance-sheet loan portfolio included 103 loans with $8.76 billion principal and $8.72 billion net book value. Total loan exposure was $9.73 billion including approximately $974 million of non-consolidated senior interests. Weighted-average cash coupon was 4.97% and all-in yield 5.43% on total loan exposure. Office loans represented 50% and hotel loans 22% of the portfolio; 79% of exposure was in the U.S.
- Loan activity and commitments: Q1 originations were $997.7 million; portfolio fundings were $725.2 million and repayments were $780.8 million. Unfunded loan commitments were $1.15 billion, primarily for property improvements and leasing costs.
- Debt and liquidity: Secured debt was $5.78 billion principal, and convertible notes had $172.5 million principal outstanding. The company also reported $355.6 million of loan participations sold and $973.7 million of non-consolidated senior interests. Debt-to-equity was 2.4x and total leverage was 2.9x, versus 2.3x and 2.9x at year-end. Reported liquidity sources totaled $669.7 million, including $64.3 million cash, $562.8 million available secured borrowings, and $42.7 million of net loan payments held by servicers.
Changes, outlook and risks
- Compared with Q1 2016, net interest income declined $5.8 million, primarily because the loan portfolio principal balance was $586.6 million lower year over year. Lower income from legacy investments also contributed to the net-income comparison.
- Compared with year-end, the loan count fell from 107 to 103 while unfunded commitments rose from $882.5 million to $1.15 billion. The weighted-average portfolio risk rating increased to 2.6 from 2.5, which management attributed primarily to repayment of lower-risk loans, rather than downgrades. No impaired, nonaccrual, or maturity-default loans were reported.
- During the quarter, the company increased the size of two credit facilities and converted an asset-specific financing into a $500 million credit facility. It had $449.5 million of available borrowing capacity under credit facilities; the $125 million revolving facility had no borrowings.
- Management said the largely floating-rate portfolio is generally positioned to benefit from rising rates; its modeled net interest income impact over the following 12 months was approximately +$4.8 million for a 25-basis-point increase and -$4.6 million for a 25-basis-point decrease. Rate floors, asset-liability mismatches, borrower performance, and hedging affect actual results. A 10% U.S. dollar appreciation was estimated to reduce net assets by $29.3 million against sterling and $8.5 million against the euro; Canadian-dollar exposure was substantially hedged.
- No specific earnings or dividend guidance was provided. The $0.62 dividend is subject to board discretion and REIT distribution requirements. Management reported compliance with debt covenants and REIT requirements, effective disclosure controls, no material litigation, and no material change to previously disclosed risk factors. Management noted that future adoption of the expected-credit-loss standard may lead to larger and earlier loan-loss provisions; no loan-loss provision was recorded at quarter-end.
Key investor verification points
- Assess dividend sustainability against GAAP earnings, Core Earnings, cash generation, and future loan funding needs; Core Earnings is non-GAAP and does not represent cash available for dividends.
- Review the $1.15 billion of unfunded commitments alongside available secured borrowing capacity and the timing of loan repayments and maturities.
- Monitor leverage, refinancing and facility availability, collateral requirements, covenant headroom, and the company’s reliance on short-term credit facilities.
- Track portfolio credit quality, especially the risk-rating mix, property and geographic concentrations, and performance of the large office and hotel exposures.
- Verify interest-rate and currency sensitivity, including hedge effectiveness and exposure to borrower stress if rates rise.