Blackstone Mortgage: It's Not Distributable EPS, It's Deleveraging

Core Viewpoint - Blackstone Mortgage Trust, Inc. (BXMT) has faced significant challenges, leading to a downgrade to "Sell" due to poor financial performance and a distribution cut, indicating a lack of stability and potential risks for investors [2][3][16]. Financial Performance - The distributable EPS for Q2 2024 was reported at 49 cents per share, down from the previous distribution of 62 cents, highlighting a significant decline in earnings [3][10]. - GAAP EPS was negative 35 cents, indicating further financial distress and additional charge-offs related to current expected credit losses (CECL) [3][10]. - Interest income has peaked, and the company is likely to face more challenges with potential Federal Reserve rate cuts on the horizon [4][5]. Distribution and Coverage - The new distribution is barely covered by the distributable EPS, raising concerns about the sustainability of future distributions [4][5]. - The loan-to-value (LTV) ratio stands at 63%, but this figure does not provide adequate stability due to significant declines in asset values, particularly in the office sector [5][6]. Balance Sheet and Leverage - BXMT's liabilities exceed total equity by over 4.5 times, with total liabilities amounting to $18.6 billion, despite a $1 billion reduction over the past year [7][9]. - The CECL reserves total $5.21 per share, which is considered minor in the context of the company's overall financial health [6][9]. Market Outlook - The office sector has seen value declines of 40%-60%, suggesting that much of BXMT's portfolio may be underwater, which is not fully reflected in the current financial statements [6][11]. - The company is expected to face significant refinancing challenges ahead, particularly as many loans are currently at low interest rates [15][16]. Investment Recommendation - The current financial metrics and market conditions suggest that BXMT is not a viable investment opportunity, with a recommendation to sell until the stock price drops below $12.00 per share [16].