Blackstone Mortgage Trust, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter ended September 30, 2022; financial statements are unaudited. Blackstone Mortgage Trust (NYSE: BXMT) originates senior commercial real estate loans in North America, Europe and Australia and operates as a REIT. Figures below are in U.S. dollars.
Financial performance and position
| Metric | Q3 2022 / September 30, 2022 | Comparison |
|---|---|---|
| Interest and related income | $358.6 million | Up from $200.1 million in Q3 2021 |
| Net interest income | $156.2 million | Up from $117.4 million in Q3 2021 |
| Net income attributable to BXMT | $103.2 million; $0.60 basic and $0.59 diluted EPS | Up from $83.8 million and $0.56 EPS in Q3 2021 |
| Distributable Earnings | $122.0 million; $0.71 per share | $0.67 per share in Q2 2022 |
| Dividend declared | $0.62 per share | Unchanged from Q3 2021 and Q2 2022 |
| Loans receivable, net | $24.3 billion | $21.9 billion at December 31, 2021 |
| Cash and cash equivalents | $271.9 million | $551.2 million at December 31, 2021 |
| Liquidity, as defined by management | $1.67 billion | Includes $1.40 billion of available secured-facility borrowings |
| Equity / book value per share | $4.66 billion / $27.20 | Book value was $27.17 at June 30, 2022 |
| Leverage | Debt-to-equity 3.6x; total leverage 4.6x | 3.2x and 4.2x, respectively, at December 31, 2021 |
For the nine months ended September 30, 2022, net income attributable to BXMT was $296.2 million, or $1.74 basic EPS, compared with $295.3 million and $2.00 basic EPS in 2021. Net cash provided by operating activities was $266.6 million, versus $255.0 million. Cash decreased by $261.8 million over the period; investing activities used $3.20 billion and financing activities provided $2.67 billion. The filing does not provide a conventional operating-margin measure.
Material changes and portfolio
- Q3 net interest income rose $9.1 million from Q2, primarily reflecting higher floating benchmark rates and a larger average loan balance, partly offset by higher financing balances and expense.
- For the first nine months, net interest income increased $96.4 million year over year, but higher expenses and a $22.7 million CECL reserve increase (versus a $49.4 million reserve decrease in 2021) left net income nearly flat. EPS declined, in part alongside higher weighted-average shares.
- The portfolio comprised 205 loans with $24.6 billion principal balance and $4.1 billion of unfunded commitments. Office was 41% of portfolio exposure, multifamily 24%, and hospitality 19%. Weighted-average risk rating was 2.8 and origination LTV was 63.8%.
- Loan-funding commitments totaled $4.1 billion, with $2.7 billion of committed or identified financing; net unfunded commitments were $1.4 billion. Management expects funding over the loans’ remaining terms, averaging 3.9 years.
- Total CECL reserves, including unfunded commitments, were $153.7 million. One impaired New York hospitality loan had $286.3 million outstanding and a $54.9 million specific reserve; no income was recorded on it in the first nine months of 2022.
Debt, outlook and risks
- At September 30, 2022, capitalization included $2.8 billion of corporate debt and $18.8 billion of asset-level financings. Secured debt was $13.2 billion; consolidated securitized debt was $2.9 billion. Management reported compliance with applicable debt covenants.
- The company issued $300 million of 5.50% convertible notes due 2027 and entered a $500 million SOFR-indexed term loan during the first nine months. A $337.9 million 2017 convertible-note maturity was repaid in May; $220 million of 2018 convertible notes remained due March 2023.
- Management states that higher rates generally increase net income because both assets and borrowings are largely floating-rate, while noting floors and currency-specific funding affect sensitivity. Its modeled net interest income sensitivity for a 100-basis-point rate increase was approximately $41.4 million over 12 months, assuming unchanged spreads, portfolio composition and asset performance.
- Management cited inflation, rapid rate increases, slower growth and geopolitical uncertainty as sources of borrower and collateral risk. Higher rates may strain borrowers’ debt service and property cash flows; office concentration, real estate values, credit performance, financing access and currency exposures are key risks. The filing provides no earnings or dividend guidance.
- BXMT reported collecting all contractual interest due in Q3, with no interest deferrals. It also cautioned that actual economic conditions and credit losses may differ from estimates. The $0.62 quarterly dividend exceeded Q3 Distributable Earnings of $0.71 per share? No: Distributable Earnings per share was $0.71, above the dividend; this non-GAAP measure is not cash flow or taxable income.
- The filing reports no material legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls. Its external management agreement was scheduled for automatic one-year renewal in December 2022 unless terminated.
Important facts for investors to verify
- Performance and repayment prospects of the impaired $286.3 million hospitality loan, and changes in CECL reserves as property values and economic forecasts evolve.
- Office and hospitality loan exposure, borrower debt-service capacity under higher rates, and any emerging delinquencies, modifications or interest deferrals.
- Ability to meet $1.4 billion of net unfunded commitments while maintaining liquidity, financing availability and covenant compliance.
- Near-term debt maturities, including the $220 million convertible notes due March 2023, and refinancing terms amid volatile credit markets.
- Dividend sustainability: compare future distributions with taxable income, cash resources and Distributable Earnings, recognizing that the latter is a non-GAAP measure.
- Interest-rate benchmark transition, including remaining USD LIBOR-linked loans and financings ahead of the expected cessation of remaining USD LIBOR settings after June 30, 2023.