Blackstone Mortgage Trust, Inc. — Q3 2013 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2013. Amounts are in U.S. dollars; financial figures below are in millions unless noted. The company is an externally managed REIT focused primarily on originating and purchasing commercial real estate mortgage loans. It changed its name from Capital Trust, Inc. in May 2013 and operates Loan Origination and CT Legacy Portfolio segments.
Financial results and position
- Q3 earnings: Interest and related income was $18.9 million, interest expense $4.4 million, and net income from loans and other investments $14.4 million. Consolidated net income was $10.5 million; $8.3 million was attributable to Blackstone Mortgage Trust, or $0.29 per share. Core Earnings, a non-GAAP measure, was $8.0 million, or $0.28 per share.
- Nine-month earnings: Consolidated net income was $15.7 million and income attributable to the company was $8.0 million, or $0.53 per share. The comparable 2012 figures were much higher—$156.9 million and $75.8 million, respectively—primarily because 2012 included a $146.4 million gain on deconsolidation of subsidiaries.
- Balance sheet: Total assets were $1.58 billion, total liabilities $773.8 million, total equity $803.5 million, and company stockholders’ equity $713.3 million. Book value was $24.68 per share. Cash and cash equivalents were $10.3 million; restricted cash of $76.4 million was held in the legacy portfolio and was not freely available to the company.
- Loan portfolio: Amortized-cost loans receivable were $1.36 billion across 22 loans, with $1.387 billion principal outstanding. The reported weighted-average cash coupon was LIBOR plus 4.28%, and all-in yield LIBOR plus 4.91%. Separately, legacy loans carried at fair value were $66.1 million, against $176.0 million principal across nine loans.
- Debt and liquidity: At quarter-end, repurchase borrowings were $643.0 million, secured notes $9.0 million, and securitized debt $74.2 million. Repurchase facilities had $344.5 million of available borrowing capacity; reported available liquidity, including $10.3 million cash, was $354.8 million. The company reported compliance with applicable repurchase-facility covenants.
- Cash flow, nine months: Operating activities provided $14.4 million; investing activities used $1.196 billion; financing activities provided $1.176 billion. Cash and cash equivalents decreased $5.1 million. Investing outflows primarily reflected loan originations and purchases.
- Dividend: A $0.27 per-share dividend was declared in September and paid October 15, 2013. No specific net interest margin percentage is stated in the filing.
Changes versus comparable periods
- Against Q3 2012, Q3 2013 interest income rose from $6.9 million to $18.9 million, and net interest income rose from $1.8 million to $14.4 million, largely reflecting new loan originations. Company-attributable net income increased 18.9% to $8.3 million, while EPS fell from $2.84 diluted to $0.29, mainly amid a substantial increase in weighted-average shares after the May equity offering and reverse stock split.
- Against Q2 2013, Q3 net income attributable to the company rose from $2.7 million to $8.3 million, and EPS rose from $0.22 to $0.29. Management attributed higher net interest income chiefly to earning a full quarter on earlier originations and funding additional loans.
- The May offering issued 25.875 million shares at $25.50 each and generated $633.8 million net proceeds. The company also expanded or added repurchase facilities during 2013, supporting rapid loan-book growth.
Outlook, risks, and unusual items
- No formal earnings or portfolio guidance is provided. Subsequent to quarter-end, the company originated three loans with $330.8 million total commitments, $315.7 million funded at closing, and borrowed $214.3 million under existing repurchase facilities.
- On October 9, CT Legacy Partners distributed $75.0 million to its common shareholders, including $36.2 million to the company. The company used $11.1 million to repay secured notes and $4.8 million for the CT Legacy management incentive awards plan.
- Management estimated that a 100-basis-point LIBOR increase would raise annual net income by approximately $6.5 million for the Loan Origination segment, excluding the impact of certain LIBOR floors. Higher rates could also strain borrowers’ property cash flows and increase credit risk.
- The Loan Origination portfolio was reported as performing as expected, with a weighted-average internal risk rating of 2.6 and no impairments. Legacy assets remain riskier: 8 of 9 CT Legacy Partners loans, representing 69.8% of their net book value, were on the watch list; certain legacy loans were impaired, nonaccrual, or in maturity default. CT CDO I currently made no cash payments to the company due to structural tests and cash-flow priorities.
- Other material risks include commercial real estate and borrower credit performance, reliance on repo and equity capital markets, liquidity constraints, REIT qualification and distribution requirements, and limits on using tax-loss carryforwards following the share issuance. The filing describes potential conflicts with the external manager and affiliates. No material legal proceedings or material changes to previously disclosed risk factors were reported.
- Forward-looking statements are subject to risks and actual results may differ; the company disclaims an obligation to update them. Core Earnings is non-GAAP and is not a substitute for GAAP earnings, operating cash flow, or a liquidity measure.
Important facts for investors to verify
- Whether loan originations and repayments sustain net interest income, and how portfolio credit quality evolves as the business scales.
- Repo facility availability, maturities, collateral and guarantee terms, covenant compliance, and sensitivity to funding-market changes.
- Cash available for company use, distinguishing unrestricted cash from restricted legacy cash and cash subject to vehicle-level distribution rules.
- Recoveries and watch-list developments in CT Legacy Partners and CT CDO I, including the effects of nonaccruals, impairments, and incentive obligations.
- The effects of share issuance and the reverse split on per-share comparisons, and the limitations of Core Earnings relative to GAAP results.
- REIT qualification, dividend capacity, and the extent to which the May 2013 ownership change limits use of net operating and capital losses.