Blackstone Mortgage Trust, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020, with fourth-quarter results also disclosed. Blackstone Mortgage Trust (NYSE: BXMT) is an externally managed REIT that originates and acquires commercial real estate loans, primarily senior floating-rate loans, in North America, Europe and Australia.
Financial and operating performance
| Metric | FY2020 / year-end | Prior comparable period |
|---|---|---|
| Interest and related income | $779.6 million | $882.7 million in 2019 |
| Interest and related expense | $347.5 million | $458.5 million in 2019 |
| Net income from loans and other investments | $432.2 million | $424.2 million in 2019 |
| Net income attributable to BXMT | $137.7 million; $0.97 per share | $305.6 million; $2.35 per share in 2019 |
| Distributable Earnings, a non-GAAP measure | $352.0 million; $2.48 per share | $350.7 million; $2.70 per share in 2019 |
| Dividends declared | $2.48 per share; $356.2 million total | $2.48 per share in 2019 |
| Cash flows from operating activities | $336.6 million | $304.0 million in 2019 |
| Cash and cash equivalents | $290.0 million | $150.1 million at year-end 2019 |
| Available liquidity | $1.14 billion | $750.9 million at year-end 2019 |
| Book value per share | $26.42 | $27.82 at year-end 2019 |
| Debt-to-equity ratio | 2.5x | 3.0x at year-end 2019 |
| Total leverage ratio | 3.6x | 3.7x at year-end 2019 |
Net income includes a $167.7 million increase in the current expected credit loss (CECL) reserve. Distributable Earnings excludes that increase under BXMT’s stated non-GAAP methodology; it is not GAAP income or cash flow. FY2020 net income was below declared dividends, while Distributable Earnings was slightly below total dividends. Management identifies Distributable Earnings as a metric considered when setting dividends.
At December 31, 2020, the portfolio comprised 121 investments with $18.2 billion of total investment exposure, a 64.0% weighted-average origination loan-to-value ratio and a 3.56% weighted-average all-in spread over relevant floating benchmarks. 98% of investments by total exposure were floating-rate. The balance-sheet loan portfolio had $16.4 billion net book value after reserves; total loan exposure also includes certain non-consolidated senior interests.
Material changes and financing
- Interest income fell $103.0 million year over year, while interest expense fell $111.0 million; net interest income consequently increased $8.0 million. Lower benchmark rates and reduced prepayment fees weighed on income; interest-rate floors on many loans and a higher average loan balance partly offset those effects.
- GAAP net income attributable to BXMT fell $167.9 million, mainly reflecting the newly adopted CECL model and pandemic-related reserve increase. Distributable Earnings rose modestly in aggregate but fell per share, in part as weighted-average shares increased to 141.8 million from 130.1 million.
- Loans originated or acquired totaled $1.6 billion; fundings were $2.1 billion and repayments and sales were $2.0 billion, for net fundings of $139.5 million. Contractual interest collections were 99.7% for the year.
- BXMT issued 10.0 million common shares in an underwritten offering, receiving $278.3 million net proceeds, and entered into a $325 million senior secured term loan facility. Two non-recourse securitizations refinanced $2.1 billion of secured credit facilities. Secured credit capacity was increased by $650 million; year-end available borrowings under secured debt agreements were $829.2 million.
- Year-end portfolio financing principal totaled $12.7 billion: $7.9 billion secured debt agreements, $3.6 billion securitizations and $1.2 billion asset-specific financing. Corporate debt was $1.7 billion. Management reported compliance with debt covenants.
COVID-19, outlook, risks and unusual items
- BXMT recorded a $167.7 million net increase in CECL reserves during 2020; the total reserve was $185.4 million at year-end across loans, held-to-maturity debt securities and unfunded commitments. The filing says this reflects pandemic impacts and is not representative of the reserve expected absent those impacts.
- Borrowers sought pandemic-related relief. BXMT completed 49 loan modifications covering $6.5 billion of principal during 2020, primarily extensions, rate changes, reserve changes and covenant or performance-test waivers; many included additional sponsor equity and the company reported virtually no interest deferrals overall. Hospitality represented 17% of total investment exposure.
- Two modified loans, with $338.7 million aggregate principal outstanding, were classified as troubled debt restructurings and rated risk category 5. A $52.4 million multifamily loan and a $286.3 million hospitality loan had specific CECL reserves of $14.8 million and $54.9 million, respectively. Income accrual on both was suspended beginning July 1, 2020.
- The weighted-average internal loan risk rating deteriorated from 2.8 to 3.0; $3.2 billion of loans were downgraded to ratings 4 or 5 during the year. Management expressed confidence in collateral and sponsor support but cautioned that principal recovery is not assured.
- Liquidity and funding risks remain material. The company had $3.2 billion of unfunded loan commitments, with $2.2 billion of identified financing, and said pandemic-related delays had slowed construction, leasing and related funding needs. Seven major credit facilities had temporary credit-mark suspensions extended through year-end without further deleveraging; future extensions or the ability to re-lever are not assured.
- Interest-rate exposure is mixed: although most assets and related funding are floating-rate, the filing’s sensitivity analysis estimates that an immediate 25-basis-point increase would reduce next-12-month net interest income by about $8.7 million, while a 25-basis-point decrease would increase it by about $4.8 million, under stated assumptions including floors. The analysis reflects funding and asset mismatches and differs from the general statement that rising rates may benefit net income.
- About $16.0 billion of floating-rate investments and $12.0 billion of floating-rate debt had maximum maturities extending past 2021 and were tied to IBOR benchmarks. The transition away from LIBOR and other benchmarks may create contractual, operational and spread-mismatch risks.
- No numerical earnings or dividend guidance is provided. The company states that future dividends remain at board discretion and may be reduced, suspended or paid partly in stock. It generally seeks to distribute substantially all taxable income to maintain REIT status.
- Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting. The audit identified CECL macroeconomic adjustments and collateral valuations for impaired loans as critical audit matters. BXMT reported no material legal proceedings and no off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether the CECL reserve and valuations for the two risk-rating-5 loans adequately reflect collateral performance and ultimate recovery prospects.
- How hospitality exposure, borrower modifications and risk-rating deterioration evolve, and whether sponsor equity support is delivered as expected.
- Whether liquidity remains sufficient to meet debt service and the $3.2 billion of unfunded commitments, particularly if repayments slow or lenders require additional collateral.
- Whether the $2.48 annual dividend remains supported by recurring earnings and cash generation, considering GAAP earnings, Distributable Earnings and the amount of dividends paid.
- How LIBOR/IBOR replacement affects asset yields, funding costs, contracts and hedges, and whether debt maturities and loan repayments remain appropriately matched.
- Whether portfolio and leverage measures account consistently for securitized and non-consolidated loan interests, and whether covenant compliance and credit-mark arrangements remain in place.