BLACKSTONE MORTGAGE TRUST, INC. annual report, FY2023

Blackstone Mortgage Trust, Inc. — 2023 Form 10-K

Reporting period: Fiscal year ended December 31, 2023; includes fourth-quarter results. The company is an externally managed REIT that originates senior commercial real estate loans in North America, Europe and Australia. Figures are in U.S. dollars unless stated otherwise.

Financial and operating performance

Metric	2023	Prior comparable period
Interest and related income	$2.038 billion	$1.339 billion in 2022
Interest and related expense	$1.367 billion	$711 million in 2022
Net interest income	$670.7 million	$628.1 million in 2022
Net income attributable to BXMT	$246.6 million; $1.43 per share	$248.6 million; $1.46 per share in 2022
Distributable Earnings (non-GAAP)	$526.3 million; $3.05 per share	$489.8 million; $2.87 per share in 2022
Dividends declared	$2.48 per share; $427.9 million	$2.48 per share; $423.6 million in 2022
Cash from operating activities	$458.8 million	$396.8 million in 2022

• In Q4 2023, BXMT reported a net loss attributable to the company of $2.4 million, or $0.01 per share, and Distributable Earnings of $119.0 million, or $0.69 per share. It declared a $0.62 per-share dividend.
• Annual GAAP dividend coverage was 58%; Distributable Earnings coverage was 123%. Distributable Earnings is a non-GAAP measure that excludes CECL reserve changes and is not cash flow or a measure of liquidity.
• Year-end book value was $25.16 per share, down from $26.26, and included cumulative CECL reserves of $3.41 per share. Total equity was $4.39 billion.

Portfolio, debt and liquidity

• The portfolio comprised 178 loans with $23.9 billion of on-balance-sheet principal and $25.0 billion of total loan exposure, including certain non-consolidated interests. Weighted-average origination LTV was 63.6%; all-in yield was 3.66% over relevant floating benchmarks; maximum maturity averaged 2.4 years.
• About 99% of loan exposure was floating-rate. Office loans represented 36% of net loan exposure, multifamily 26%, hospitality 17% and industrial 10%. The U.S. accounted for 64% of net exposure; international loans accounted for 36%.
• Year-end liquidity was $1.7 billion: $350 million cash, $1.269 billion available secured-facility borrowings and $48 million of net loan payments held by servicers. Operating cash flow was $458.8 million; investing activities provided $1.44 billion and financing activities used $1.85 billion.
• Financing included $16.2 billion of portfolio financing and $2.8 billion of corporate debt. Debt-to-equity was 3.7x and total leverage was 4.3x; adjusted ratios excluding CECL reserves were 3.2x and 3.7x, respectively. Corporate debt maturities were not due until 2026.
• BXMT reduced portfolio and corporate financings by approximately $1.4 billion during 2023, including repaying $220 million of convertible notes due 2023, repurchasing $33.9 million face value of secured notes at an average 85% of par, and repaying a net $1.2 billion under portfolio financings. The note repurchases generated a $4.6 million gain.
• Unfunded loan commitments were $2.43 billion across 99 loans; $1.3 billion had committed or identified financing, leaving approximately $1.2 billion net unfunded commitments.

Material changes versus 2022

• Net interest income rose $42.6 million as higher floating benchmarks and a higher average loan balance more than offset financing-cost increases and reduced income on loans accounted for under the cost-recovery method.
• Interest income increased 52%, while interest expense increased 92%, reflecting the higher-rate environment and financing costs. Attributable net income declined slightly; Distributable Earnings increased.
• CECL reserves on loans and unfunded commitments increased by $249.8 million during 2023, versus a $211.5 million increase in 2022. Year-end reserves totaled $592.3 million, including $576.9 million against loans receivable.
• The loan portfolio decreased from 203 loans and $25.2 billion principal in 2022 to 178 loans and $23.9 billion in 2023. Unfunded commitments fell from $3.81 billion to $2.43 billion. Weighted-average all-in yield declined from 3.84% to 3.71% on the balance-sheet portfolio; the broader exposure measure reports 3.66%.
• Net cash increased by $55.0 million in 2023, compared with a $249.5 million decrease in 2022. The company paid $426.9 million of dividends in cash during 2023.

Outlook, risks and unusual items

• Management noted continuing uncertainty from inflation, elevated interest rates, slower growth, geopolitical events and reduced credit-market liquidity. Central banks might begin reducing rates in 2024, but rates could remain high; the filing provides no specific earnings or portfolio guidance.
• Management says higher rates can increase net income, all else equal, but may also pressure borrowers, property values and loan performance. A 100-basis-point rate increase was estimated to raise annual net interest income, net of incentive fees, by approximately $26.1 million under stated assumptions; a 100-basis-point decrease was estimated to reduce it by the same amount. These estimates assume unchanged credit spreads, portfolio mix and asset performance.
• At year-end, 93% of loans by net exposure were performing and 99.5% of borrowers were compliant with contractual terms. Thirteen loans had an aggregate $1.9 billion amortized cost basis and $417.7 million asset-specific CECL reserve. Three additional loans were impaired in Q4; income accrual was suspended when recovery of income and principal was considered doubtful. One impaired loan, with a $140 million amortized cost basis, was past maturity and less than 30 days past due on interest.
• Credit risk is heightened by office-market weakness, refinancing availability, borrower payment stress, property-value uncertainty and the transitional or construction nature of some loans. CECL estimates depend on judgmental collateral valuations and macroeconomic assumptions; the auditor identified both as critical audit matters.
• Other risks include leverage and funding access, collateral or margin requirements, foreign currency and derivative-counterparty exposure, loan extensions and repayment timing, and conflicts arising from the external management relationship with Blackstone and its affiliated investment vehicles. The company reported no material legal proceedings and stated that it complied with REIT requirements at year-end.

Important facts for investors to verify

• Review the loan-level detail and subsequent developments for the 13 impaired loans, especially office exposures, the $417.7 million specific reserve and the $140 million past-maturity loan.
• Assess whether further CECL increases, realized loan losses or additional modifications could reduce book value, GAAP earnings or future Distributable Earnings.
• Verify liquidity against the $2.43 billion of gross unfunded commitments, expected funding timing, debt maturities and facility availability; liquidity is not the same as unrestricted cash.
• Compare the $2.48 annual dividend with GAAP earnings, Distributable Earnings and cash generation, bearing in mind the non-GAAP exclusions and that the board may change the dividend.
• Track office-property performance, refinancing conditions, borrower extensions and actual loan repayments, as well as movements in benchmark rates and financing spreads.
• Consider leverage, future capital needs, possible share dilution and Blackstone-related conflicts. Management reported effective disclosure controls and internal control over financial reporting; Deloitte issued unqualified audit opinions.