Blackstone Mortgage Trust(BXMT) - 2021 Q2 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements This section presents Blackstone Mortgage Trust's unaudited consolidated financial statements for Q2 and H1 2021, covering key financial statements and detailed notes Consolidated Financial Statements (Unaudited) Total assets grew to $17.90 billion by June 30, 2021, driven by loans, with Q2 2021 net income significantly improving to $132.5 million due to reduced credit loss provisions Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $17,901,747 | $16,958,955 | | Loans receivable, net | $17,307,898 | $16,399,166 | | Total Liabilities | $13,944,792 | $13,054,724 | | Secured debt, net | $8,709,818 | $7,880,536 | | Total Equity | $3,956,955 | $3,904,231 | Consolidated Statement of Operations Highlights (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Income from loans, net | $113,951 | $107,129 | $223,104 | $207,765 | | (Decrease) increase in CECL reserve | $50,906 | $(56,819) | $52,199 | $(179,521) | | Net income (loss) | $132,468 | $18,505 | $213,008 | $(34,780) | | Net income (loss) per share | $0.89 | $0.13 | $1.44 | $(0.26) | Consolidated Statement of Cash Flows Highlights (in thousands) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $165,373 | $175,708 | | Net cash used in investing activities | $(924,972) | $(234,728) | | Net cash provided by financing activities | $806,118 | $1,169,772 | Notes to Consolidated Financial Statements These notes detail the company's accounting policies, loan portfolio, financing, CECL, derivatives, equity, and commitments - The company is a real estate finance company organized as a REIT, originating senior loans collateralized by commercial real estate in North America, Europe, and Australia[31] - The company's CECL reserve estimation uses the Weighted Average Remaining Maturity (WARM) method, augmented with market loan loss data from Trepp LLC, focusing on comparable CMBS data[48][51] - The company acknowledges that the COVID-19 pandemic creates uncertainty, making estimates and assumptions as of June 30, 2021, inherently less certain[39] - The company is actively managing the transition from LIBOR to alternative reference rates like SOFR and SONIA, with some financing facilities already transitioned[94][95] Note 3: Loans Receivable, Net The loan portfolio expanded to $17.5 billion by June 30, 2021, primarily floating-rate senior loans, with improved credit quality and a reduced CECL reserve Loan Portfolio Overview (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Number of loans | 124 | 120 | | Principal balance | $17,529,542 | $16,652,824 | | Net book value | $17,307,898 | $16,399,166 | | Unfunded loan commitments | $3,353,259 | $3,160,084 | Loan Portfolio Composition by Property Type (June 30, 2021) | Property Type | Percentage of Portfolio | | :--- | :--- | | Office | 53% | | Hospitality | 14% | | Multifamily | 14% | | Industrial | 5% | | Other | 14% | Loan Portfolio by Risk Rating (Total Loan Exposure) | Risk Rating | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | 1 - Very Low Risk | $877.7M | $778.3M | | 2 - Low Risk | $3,849.0M | $2,528.8M | | 3 - Medium Risk | $11,116.9M | $10,763.5M | | 4 - High Risk | $2,346.4M | $3,045.3M | | 5 - Impaired/Loss Likely | $338.7M | $338.7M | | Weighted-Average | 2.9 | 3.0 | - The CECL reserve for loans receivable decreased by $44.6 million during the first six months of 2021 to $128.9 million, reflecting the ongoing market recovery from COVID-19. Two loans with an aggregate principal of $338.7 million remain on non-accrual status with a specific CECL reserve of $69.7 million[114][115][116] Note 5-9: Financing and Debt Structure The company's financing strategy includes $8.7 billion in secured credit facilities, $2.8 billion in CLOs, and other debt, with new facilities and increased term loan borrowings in Q2 2021 - In Q2 2021, the company entered into a new €1.5 billion Master Repurchase Agreement with Banco Santander and increased an existing facility with Citibank by $500 million to $2.0 billion[389][393] Financing Structure (Net Book Value, in thousands) | Debt Type | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Secured debt, net | $8,709,818 | $7,880,536 | | Securitized debt obligations, net | $2,833,778 | $2,922,499 | | Asset-specific debt, net | $292,122 | $391,269 | | Term loans, net | $1,332,130 | $1,041,704 | | Convertible notes, net | $618,111 | $616,389 | - During H1 2021, the company increased borrowings under its term loan facilities by a net $300.0 million[153] - In Q2 2021, the company issued a new $803.8 million CLO (2021 FL4), collateralized by $1.0 billion of loans[147][148] Note 10: Derivative Financial Instruments The company uses derivatives like foreign currency forwards and interest rate caps to hedge investment and financing risks, holding $19.9 million in derivative assets and $13.7 million in liabilities - The sole objective for using derivatives is to minimize risks and costs associated with investments and financing; they are not used for speculative purposes[164] - The company uses foreign currency forward contracts as net investment hedges to protect against currency risk and interest rate caps as cash flow hedges for interest rate risk[166][168] Fair Value of Derivative Instruments (in thousands) | Position | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Derivative Assets | $19,860 | $522 | | Derivative Liabilities | $13,749 | $58,915 | Note 11: Equity As of June 30, 2021, the company had 147.0 million shares outstanding, declared a $0.62/share dividend, reported $0.89 Q2 EPS, and made no ATM sales - A dividend of $0.62 per share ($91.1 million in aggregate) was declared on June 15, 2021[186] Earnings Per Share (EPS) | Period | Net Income (Loss) Attributable to BXMT (in thousands) | Weighted-Average Shares | Basic & Diluted EPS | | :--- | :--- | :--- | :--- | | Q2 2021 | $131,595 | 147,342,822 | $0.89 | | Q2 2020 | $17,544 | 138,299,418 | $0.13 | | H1 2021 | $211,497 | 147,339,895 | $1.44 | | H1 2020 | $(35,808) | 136,959,341 | $(0.26) | - No shares were sold under the At-The-Market (ATM) stock offering program during the six months ended June 30, 2021. An aggregate of $363.8 million remained available for issuance[184] Note 18: Commitments and Contingencies The company's commitments total $15.1 billion, including $3.4 billion in unfunded loan commitments, with $1.2 billion due within one year, alongside ongoing COVID-19 uncertainty - As of June 30, 2021, the company had unfunded commitments of $3.4 billion related to 86 loans receivable, with an average future funding period of 3.1 years[234] Contractual Obligations and Commitments (in thousands) | Obligation Type | Total Obligation | Less Than 1 Year | 1 to 3 Years | 3 to 5 Years | More Than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Unfunded loan commitments | $3,353,259 | $153,985 | $1,666,386 | $1,525,438 | $7,450 | | Principal debt repayments | $11,007,522 | $812,386 | $3,865,234 | $5,848,654 | $481,248 | | Interest payments | $722,833 | $233,663 | $325,750 | $159,561 | $3,859 | | Total | $15,083,614 | $1,196,034 | $5,851,200 | $7,533,653 | $502,727 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A highlights Q2 2021 Distributable Earnings of $0.61/share, $2.2 billion in loan originations, $19.2 billion portfolio, improved credit quality, $1.4 billion liquidity, and increased net income due to reduced CECL reserve Key Financial Measures and Indicators Key metrics for Q2 2021 include $0.89 GAAP EPS, $0.62 dividend, $0.61 Distributable Earnings, and $26.68 book value per share, with Distributable Earnings as a non-GAAP dividend capacity indicator Key Metrics per Share - Q2 2021 | Metric | Value | | :--- | :--- | | Earnings Per Share (GAAP) | $0.89 | | Dividends Declared | $0.62 | | Distributable Earnings (Non-GAAP) | $0.61 | | Book Value Per Share | $26.68 | Reconciliation of GAAP Net Income to Distributable Earnings (Q2 2021, in thousands) | Line Item | Amount | | :--- | :--- | | Net income attributable to Blackstone Mortgage Trust | $131,595 | | Less: Decrease in CECL reserve | $(50,906) | | Add: Non-cash compensation expense | $8,020 | | Add: Other adjustments | $1,186 | | Distributable Earnings | $89,895 | Loan Portfolio Analysis Strong Q2 2021 loan originations of $2.2 billion grew the portfolio to $19.2 billion, with improved credit quality (2.9 risk rating), 100% interest collection, and a reduced CECL reserve of $133.1 million - Originated or acquired $2.2 billion of loans in Q2 2021 and $3.9 billion in the first six months of 2021[264][265] Total Investment Portfolio Statistics (June 30, 2021) | Metric | Value | | :--- | :--- | | Total Investment Exposure | $19.2 billion | | Number of Investments | 125 | | Weighted-Average Origination LTV | 64.8% | | Weighted-Average All-in Yield | +3.56% | - During Q2 2021, the company collected 100% of contractual interest payments due under its loans, with virtually no interest deferrals[272] - The total CECL reserve (for loans, debt securities, and unfunded commitments) decreased by an aggregate $52.2 million during H1 2021 to a total of $133.1 million as of June 30, 2021[279] Portfolio Financing and Capital Resources The company maintains a robust capital structure with $13.4 billion in asset-level financing, $2.0 billion in corporate debt, 2.7x debt-to-equity, 3.8x total leverage, and $1.4 billion liquidity, with floating-rate financing positively correlated to rising rates Leverage Ratios | Ratio | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Debt-to-equity ratio | 2.7x | 2.5x | | Total leverage ratio | 3.8x | 3.6x | Sources of Liquidity (in thousands) | Source | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $289,552 | $289,970 | | Available borrowings under secured debt | $1,068,649 | $829,165 | | Loan principal payments held by servicer, net | $27,612 | $19,460 | | Total Liquidity | $1,385,813 | $1,138,595 | - As of June 30, 2021, 98% of the company's investments by total exposure earned a floating rate of interest, financed with floating-rate liabilities, resulting in a positive correlation to rising interest rates[306] Results of Operations Q2 2021 net income rose to $131.6 million ($0.89/share), primarily due to a $49.6 million decrease in the CECL reserve and increased net interest income, leading to $211.5 million net income for H1 2021 Quarter-over-Quarter Results of Operations (in thousands) | Metric | Q2 2021 | Q1 2021 | Change | | :--- | :--- | :--- | :--- | | Net interest income | $113,951 | $109,152 | $4,799 | | Decrease in CECL reserve | $50,906 | $1,293 | $49,613 | | Net income attributable to BXMT | $131,595 | $79,902 | $51,693 | Year-over-Year (Six Months) Results of Operations (in thousands) | Metric | H1 2021 | H1 2020 | Change | | :--- | :--- | :--- | :--- | | Net interest income | $223,104 | $207,765 | $15,339 | | (Decrease) increase in CECL reserve | $52,199 | $(179,521) | $231,720 | | Net income (loss) attributable to BXMT | $211,497 | $(35,808) | $247,305 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with 98% floating-rate investments, projecting a $10.0 million decrease in net interest income for a 50 bps rate increase, while credit and currency risks are mitigated Annualized Interest Rate Sensitivity Analysis (in thousands) | Rate Change | Impact on Net Interest Income | | :--- | :--- | | +50 bps | $(10,043) | | +25 bps | $(5,592) | | -25 bps | $4,134 | | -50 bps | $4,200 | - Credit risk is managed through disciplined underwriting and active asset management, benefiting from Blackstone's real estate platform. The portfolio's low weighted-average LTV of 64.8% provides significant equity protection[368][369] - Currency risk is substantially mitigated by matching the currency of foreign assets with corresponding borrowings and using foreign currency forward contracts to hedge the net asset exposure[375][377] - Margin call provisions in credit facilities are limited to collateral-specific credit marks and do not permit valuation adjustments based on general capital markets events[371] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures are effective in ensuring timely and accurate reporting as required by the SEC[378] - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[379] Part II. Other Information Summary of Part II Items Part II reports no material legal proceedings, risk factor changes, or defaults, detailing debt agreement amendments including refinancing term loans and new/increased repurchase agreements - The company reports no material legal proceedings, no material changes to risk factors, and no defaults on senior securities[381][382][384] - On June 21, 2021, the company amended its Term Loan Credit Agreement to refinance and increase its B-2 term loans by $100.0 million, while reducing the interest rate spread to 2.75% from 4.75%[387] - On May 14, 2021, subsidiaries entered into a new Master Repurchase Agreement with Banco Santander for up to €1.5 billion[389][390] - On April 16, 2021, the company amended its Master Repurchase Agreement with Citibank, increasing the maximum facility size from $1.5 billion to $2.0 billion[393]