Blackstone Mortgage Trust, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. Blackstone Mortgage Trust originates senior commercial real estate loans in North America and Europe and is externally managed by a Blackstone affiliate. The financial statements are unaudited.
Financial results and position
| Metric | Q2 2018 / June 30, 2018 | Comparison |
|---|---|---|
| Interest and related income | $191.5 million | Up 51% from $126.8 million in Q2 2017 |
| Interest and related expense | $87.7 million | Up from $54.4 million |
| Net income from loans and other investments | $103.7 million | Up 43% from $72.5 million |
| Net income attributable to BXMT | $72.3 million; $0.66 per share | Up from $50.6 million; $0.53 per share |
| Core Earnings, non-GAAP | $90.4 million; $0.83 per share | Q1 2018: $69.3 million; $0.64 per share |
| Dividend declared | $0.62 per share | Unchanged year over year |
| Loan portfolio | 107 loans; $12.2 billion net book value; $12.8 billion total exposure | Net book value was $10.1 billion at Dec. 31, 2017 |
| Total assets / total equity | $12.4 billion / $3.0 billion | Assets were $10.3 billion / equity $2.9 billion at Dec. 31, 2017 |
| Debt | $7.0 billion secured debt; $779 million net convertible notes; $1.3 billion securitized obligations | Secured debt was $5.3 billion and convertible notes $564 million at Dec. 31, 2017 |
| Cash and available secured borrowing | $107.1 million cash; $735.5 million available borrowing | Liquidity sources totaled $843.9 million, including $1.3 million net loan payments held by servicers |
- Q2 loan originations were $3.9 billion; fundings were $2.2 billion and repayments $1.4 billion. Unfunded commitments were $3.0 billion at quarter-end.
- For the six months, operating cash flow was $135.0 million, investing cash outflow $2.15 billion, and financing cash inflow $2.02 billion. Cash, cash equivalents and restricted cash decreased $2.6 million.
- Book value per share was $27.08, versus $26.95 at March 31, 2018. Six-month share issuance generated $102.5 million in net proceeds.
- Weighted-average loan cash coupon was 5.52% and all-in yield 5.85%. The portfolio’s weighted-average maximum maturity was 4.1 years; weighted-average risk rating was 2.7.
Material changes versus comparable periods
- Q2 net income attributable to BXMT rose 43% year over year. Management attributed higher net interest income chiefly to non-recurring prepayment fee income and a larger average loan portfolio, partly offset by increased financing balances.
- Q2 total other expenses rose to $31.1 million from $21.8 million, including higher management and incentive fees. Incentive fees were $11.3 million in Q2 versus $4.8 million a year earlier.
- Debt-to-equity increased to 2.6x from 2.0x at year-end 2017; total leverage increased to 3.2x from 2.8x. Secured borrowings rose to $7.0 billion.
- Comprehensive income attributable to BXMT was $62.1 million, down slightly from $62.5 million in Q2 2017, reflecting a $35.1 million foreign-currency remeasurement loss partly offset by derivative gains.
- For the first half, GAAP net income attributable to BXMT was $133.3 million, versus $102.0 million in 2017; diluted EPS was $1.23 versus $1.07. Dividends declared remained $1.24 per share for the half-year.
Outlook, risks and unusual items
- The filing provides no specific earnings or dividend guidance. Management’s stated objective is capital preservation and attractive risk-adjusted returns, primarily through dividends from current loan income.
- Core Earnings included $8.7 million of previously deferred GE portfolio purchase-discount accretion after repayment of the remaining loans in that deferral pool was deemed substantially assured. Core Earnings is non-GAAP and should not be treated as GAAP income, cash flow, or liquidity.
- At June 30, 95% of loan exposure was floating-rate and financed with floating-rate liabilities. Management estimates a 25-basis-point rate increase would raise annual net interest income, net of incentive fees, by about $7.3 million; a 25-basis-point decrease would reduce it by about $6.5 million. Borrower credit stress may increase if rates rise.
- Foreign currency remains a risk despite currency-matched financing and hedges. Management estimated that a 10% U.S. dollar appreciation against sterling or the euro would reduce net assets by $30.2 million or $31.7 million, respectively.
- Contractual unfunded loan commitments were $3.0 billion. Estimated principal repayments within one year included $651.2 million under secured debt and $172.3 million of convertible notes. The November 2013 notes mature December 1, 2018.
- BXMT reported compliance with debt covenants and REIT requirements, no impaired, nonaccrual, or maturity-default loans, and no material legal proceedings. No material changes to previously disclosed risk factors were reported.
- Related-party matters include a €1.0 billion loan originated as part of a €7.3 billion Spanish senior term facility involving Blackstone-advised investment vehicles, and a Q2 purchase of a 50% interest in a $1.0 billion loan to a borrower partly owned by such an investment vehicle. BXMT stated these transactions were made on market terms or subject to relinquishing specified non-economic rights.
- On July 6, 2018, BXMT contributed a $517.5 million loan to a $1.0 billion single-asset securitization and invested in the related $99.0 million subordinate risk-retention position.
Most important facts for investors to verify
- Whether recurring loan income and portfolio growth can sustain earnings and the $0.62 quarterly dividend as prepayment fees normalize; compare GAAP EPS with non-GAAP Core Earnings.
- Loan credit quality, collateral performance, and concentration: office loans represented 47% of portfolio net book value, while 9% was Spanish assets; review unfunded commitments and the largest individual exposures.
- Funding and refinancing risk given higher leverage, secured-debt maturities, the December 2018 convertible-note maturity, and dependence on continued lender and capital-market access.
- Interest-rate, foreign-exchange, and borrower repayment sensitivity, including hedging effectiveness and the effects of rate floors and currency movements.
- Related-party loan transactions, manager fee growth, and share issuance dilution; Q2 ATM issuance totaled 3.25 million shares at a weighted-average $32.13 per share.