Blackstone Mortgage Trust, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Blackstone Mortgage Trust (NYSE: BXMT) is an externally managed REIT that originates senior commercial real estate loans in North America, Europe and Australia.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Interest and related income | $223.4 million | $191.5 million | $448.1 million | $346.9 million |
| Net interest income | $106.5 million | $103.7 million | $212.5 million | $189.2 million |
| Net income attributable to BXMT | $75.2 million | $72.3 million | $151.7 million | $133.3 million |
| GAAP diluted EPS | $0.59 | $0.66 | $1.21 | $1.23 |
| Core Earnings per share (non-GAAP) | $0.68 | Not stated here | Not stated here | Not stated here |
| Dividend declared per share | $0.62 | $0.62 | $1.24 | $1.24 |
- Q2 interest income rose about 17% year over year and net interest income rose about 3%; management attributed growth primarily to a larger average loan portfolio and higher LIBOR, partly offset by increased financing balances and costs. Six-month net income increased about 14%.
- Q2 GAAP EPS declined about 11% despite higher attributable net income, alongside an increase in weighted-average shares to 126.5 million from 109.1 million. Core Earnings is a company-defined non-GAAP measure and should not be treated as GAAP income or cash flow.
- At June 30, total assets were $14.57 billion, loans receivable net were $14.28 billion, total equity was $3.78 billion, and cash was $80.6 million. Total liabilities were $10.79 billion.
- Six-month operating cash flow was $157.2 million, versus $135.0 million a year earlier. Cash decreased $25.1 million during the six months. Investing cash outflow was $90.4 million; financing cash outflow was $91.8 million.
- Reported liquidity sources totaled $961.7 million: $80.6 million cash, $848.1 million available under secured debt agreements, and $33.0 million of net loan payments held by servicers.
Portfolio, debt and material changes
- The loan portfolio comprised 123 loans with $14.37 billion principal balance and $14.28 billion net book value, versus 125 loans and $14.29 billion principal at year-end 2018. Q2 originations or acquisitions were $1.26 billion; quarterly repayments exceeded fundings by $248.0 million.
- Weighted-average cash coupon was 5.42% and all-in yield 5.77% at June 30, compared with 5.67% and 6.00%, respectively, at year-end. About 99% of balance-sheet loans earned floating rates. Average loan LTV was approximately 64%; weighted-average risk rating was 2.7, unchanged from year-end.
- Three loans totaling $166.7 million were risk-rated 4; none were rated 5. The company reported no impaired loans, nonaccrual loans or loans in maturity default at June 30.
- Debt-to-equity declined to 2.5x from 2.8x at year-end; total leverage declined to 3.2x from 3.7x. Secured debt agreements net were $8.26 billion, securitized debt obligations net $1.29 billion, secured term loan net $491.6 million, and convertible notes net $611.5 million.
- In April, the company issued a $500 million secured term loan, bearing interest at LIBOR plus 2.50% and maturing in 2026. Six-month net proceeds from common stock issuance were $372.3 million, including 8.6 million shares issued in June at a $36.00 weighted-average gross price. The share issuance increased equity capital but diluted per-share results.
- Q2 funding and repayment activity was active: $1.14 billion of loan fundings and $1.39 billion of repayments. Secured debt agreements outstanding declined to $8.28 billion gross from $9.00 billion at year-end; available borrowings under such agreements increased to $848.1 million from $359.6 million.
Outlook, risks and other matters
- The filing provides no specific earnings or portfolio guidance. Management states that higher benchmark rates generally increase net income because the portfolio is predominantly floating-rate, subject to loan floors, funding costs and borrower performance.
- In its modeled 12-month sensitivity, an immediate 50-basis-point rate increase was estimated to raise net interest by $14.9 million; a 50-basis-point decrease was estimated to reduce it by $8.1 million. These are estimates, not forecasts.
- Foreign currency exposure remains: a 10% U.S. dollar appreciation was estimated to reduce net assets by $58.0 million against sterling and $47.5 million against the euro. Canadian and Australian dollar net exposure was described as substantially hedged.
- Unfunded loan commitments were $3.22 billion, primarily for construction, development, improvements and leasing costs. The company also identified credit, commercial real estate market, refinancing/capital markets, interest-rate, currency and counterparty risks.
- The company had no loan-loss provision at June 30. It expects adoption of the expected-credit-loss standard on January 1, 2020 to result in earlier and potentially higher provisions; the impact was still being evaluated.
- The $0.62-per-share Q2 dividend was paid July 15, 2019. The declared dividend exceeded Q2 GAAP EPS of $0.59 but was below Core Earnings per share of $0.68; REIT distributions are based on taxable income, which differs from GAAP income.
- BXMT reported compliance with debt covenants and REIT requirements, effective disclosure controls, no material legal proceedings, and no material changes to previously disclosed risk factors. Certain Blackstone-advised vehicles participated in financing transactions and borrowers; the filing states the relevant loan terms were market-based.
Important facts for investors to verify
- Whether Core Earnings of $0.68 per share adequately covers the $0.62 dividend, and how taxable income compares with both measures.
- Loan-level performance, collateral values and migration among risk ratings, particularly the three risk-rated-4 loans and the portfolio’s office and hotel exposures.
- The timing and funding needs of $3.22 billion in unfunded commitments, and whether available financing and liquidity remain sufficient as loans fund or repay.
- Interest-rate, currency and refinancing sensitivities, including floating-rate loan floors, funding spreads and upcoming secured-facility maturities.
- The effect of share issuance on per-share earnings and book value, and the expected impact of the 2020 expected-credit-loss accounting adoption.
- Related-party lending, servicing and management-fee arrangements, including the disclosed Blackstone-affiliated borrower and financing transactions.