Blackstone Mortgage Trust, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The company is an externally managed REIT that originates senior commercial real estate loans in North America, Europe and Australia. Unless noted, amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q3 2021 / September 30, 2021 | Comparable period / prior year-end |
|---|---|---|
| Interest and related income | $200.1 million | $193.9 million in Q3 2020 |
| Interest expense | $82.7 million | $79.0 million in Q3 2020 |
| Net interest income | $117.4 million; 58.7% of interest income | $115.0 million in Q3 2020 |
| Net income attributable to the company | $83.8 million; $0.56 per share | $89.9 million; $0.61 per share in Q3 2020 |
| Distributable Earnings | $93.9 million; $0.63 per share | $89.9 million; $0.61 per share in Q2 2021 |
| Dividend declared | $0.62 per share | $0.62 in Q3 2020 and Q2 2021 |
| Loans receivable, net | $20.28 billion | $16.40 billion at December 31, 2020 |
| Total assets / total liabilities | $20.71 billion / $16.44 billion | $16.96 billion / $13.05 billion at December 31, 2020 |
| Cash and cash equivalents | $211.2 million | $290.0 million at December 31, 2020 |
| Debt, net, on balance sheet | $16.28 billion | $12.85 billion at December 31, 2020 |
| Leverage | Debt-to-equity 3.1x; total leverage 4.1x | 2.5x and 3.6x, respectively, at December 31, 2020 |
For the first nine months, net income attributable to the company was $295.3 million ($2.00 per share), versus $54.1 million ($0.39 per share) in 2020. Net interest income rose to $340.5 million from $322.7 million. The comparison was substantially affected by credit-loss accounting: the company recorded a $49.4 million decrease in its total CECL reserve in 2021, versus a $173.5 million increase in 2020.
Operating cash flow was $255.0 million for the nine months, compared with $261.3 million in 2020. Investing activities used $3.93 billion, primarily reflecting loan fundings; financing activities provided $3.62 billion. Cash, cash equivalents and restricted cash declined by $54.4 million. Management reported approximately $1.1 billion of liquidity, including $395 million of net proceeds from senior secured notes issued October 5, 2021.
Portfolio, credit and material changes
- The loan portfolio comprised 156 loans with $20.52 billion principal balance, up from 120 loans and $16.65 billion at year-end 2020. Q3 originations or acquisitions totaled $4.70 billion; net fundings after repayments and sales were $3.02 billion.
- Weighted-average loan spread was 3.18%, all-in yield 3.51%, and maximum maturity 3.3 years. Approximately 99.6% of loans by principal balance were floating rate. The portfolio’s origination LTV averaged 65.5%.
- Portfolio mix by loan exposure was 50% office, 21% multifamily and 13% hospitality; 71% was in the United States and 29% international. Total unfunded loan commitments were $4.22 billion, with $2.6 billion of committed or identified financing, leaving $1.6 billion net unfunded.
- The weighted-average risk rating improved to 2.8 from 3.0 at year-end 2020. The total CECL reserve was $135.9 million, comprising $130.4 million on loans, $0.3 million on debt securities and $5.2 million for unfunded commitments; it declined by $49.4 million over the nine-month period.
- Two New York loans, with $338.7 million aggregate principal balance, remained risk-rated 5 and on non-accrual. Their combined reserve was $69.7 million; the company had suspended income accrual on them since July 1, 2020.
Outlook, risks and unusual items
- The filing gives no quantitative earnings or portfolio guidance. Management said economic recovery from COVID-19 was underway but uneven, and that the timing and ultimate effects remained uncertain. Management reported collecting all contractual interest due during Q3, with virtually no deferrals.
- Q3 GAAP earnings per share of $0.56 were below the $0.62 dividend; Distributable Earnings were $0.63 per share. Distributable Earnings is a non-GAAP measure, excludes certain items including CECL changes, and is not cash flow or a measure of liquidity.
- Debt and funding risks increased alongside portfolio growth: total leverage rose to 4.1x from 3.6x at year-end. The company reported compliance with its debt covenants. A $402.5 million convertible note tranche matures in May 2022.
- Interest-rate exposure is generally positively correlated with rising rates, subject to loan floors and funding costs. The company estimated an approximately $8.8 million decrease in annual net interest income from an immediate 25-basis-point rate increase, and approximately $14.5 million decrease from a 50-basis-point increase.
- LIBOR transition creates uncertainty for loan and financing benchmarks; the filing discusses transition to SOFR and SONIA and potential effects on earnings, cash flows and investment values.
- On October 5, 2021, the company issued $400 million of 3.75% senior secured notes due 2027. It also disclosed related-party loans and financing activity involving Blackstone-advised vehicles; the filing states the transactions were negotiated without the company’s involvement or on market terms, as applicable.
- No material legal proceedings were reported, and the company reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether credit performance of the two non-accrual New York loans and the remaining CECL reserve supports eventual principal recovery.
- How the $1.6 billion net unfunded commitment exposure will be funded and whether collateral performance or financing availability changes.
- Debt maturities, covenant headroom, leverage and the composition of the reported $1.1 billion liquidity figure, including the post-quarter notes issuance.
- Whether Distributable Earnings continue to cover the dividend, and how much reported earnings depend on reserve movements versus recurring net interest income.
- Effects of benchmark-rate reform, interest-rate changes and commercial real estate conditions—particularly in office and hospitality—on portfolio income and loan credit quality.