Business Description
BXMT (Blackstone Mortgage Trust) was founded in 2013. It is a mortgage REIT that invests in senior loans secured by institutional quality real estate (commercial real estate), e.g. office, hotel, multi-family, retail, etc. It is externally managed by Blackstone.
SWOT analysis
Strengths
Managed by Blackstone, which is very reputational experienced in the real estate industry. Blackstone also provides a lot of opportunities for BXMT to invest in because Blackstone itself has an asset light business model.
Rich relationships with top global banks thanks to the Blackstone association.
Book value is steadily increasing, although not in a consistent manner. It's not common in the mortgage REIT industry.
Never cut its dividend, although it doesn't increase very often.
Well-covered dividend almost every quarter.
Largest in the industry, so it can take on unique loans.
Most loans are originated by Blackstone,so the management knows the collaterals very well.
100% floating rate assets and liabilities. Stable, match-funded financing structures with no capital markets mark-to-market provisions
Weaknesses
3.5x 3.9x debt-to-equity is one turn more than the competitor Starwood Property Trust (STWD).
Not diversified in terms of business lines. No originations like its peers, no significant owned properties.
Concentration risk: office
Real estate financing is a commodity service, so the company has to compete with other reputational firms as well. The relationships built by Blackstone is key.
Opportunities
Nothing stands out.
Threats
Macro risk in office properties in the US can be problematic.
The portfolio of the company only has a history of about 10 years, so it's uncertain how well its portfolio can perform. That being said, it went fine during covid. It's a testimony to its funding stability.
Updates
2024/09/12 Losing confidence in the company, decided to sell after 2024 Q2 earnings
I decided to sell my holdings given a few of the strengths in my SWOT analysis were not true anymore, e.g. stable book value, well-covered dividends. On the other hand, its weaknesses and threats have magnified recently, most from the ⅓ of loans in offices.
To give more specifics, here are the recent developments of the company which led to my decision to sell:
While the 24% dividend cut from $0.62 to $0.47 quarterly should be sufficient short term, there is no turnaround in sight for the office properties in the United States, so there is a downside risk of the $0.47 dividend in a year or so. With the current trading price at $18.6, dividend yield is 0.47*4/18.6 ~ 10%, which is not very high when I consider that it's the ceiling for the foreseeable future.
Some troubling signs in its multi-family portfolio, which is about ¼ of the total portfolio. Combining it with the offices portfolio, over 60% of the total portfolio is at risk, which is problematic for a company that is leveraged 3.9x debt-to-equity.
Debt-to-equity ratio increased from 3.5x in 2023 to 3.9x by the end of 2024 Q2. It's also the highest among its peers.
References:
2023/12/07 Comment on Muddy Waters short on BXMT
Muddy Waters's report on shorting BXMT are based on the following points:
The loans are interest-only, so borrowers have to refinance the whole balance of the loans at when loans mature (avg ~2.6 years)
The properties' NOI cannot support the higher interest expense (due to higher SOFR). The loans' interest payments were prevented by SWAPs which are going to expire when the loans mature.
There will be defaults, loan modifications, etc. BXMT's equity will be wiped in half or at least getting hurt in some significant way. Liquidity will also be an issue.
There are quite a few examples which show the properties are underwater (worth less than the loan balances), or at least deteriorated enough to prevent the properties from getting a refinance.
BXMT's risk ratings are aggressive (e.g.does not reflect the deteriorated situation of the properties in a timely manner)
I believe the high-level idea in Muddy Waters's report is true. However, I disagreed that the loan modifications will be catastrophic. As a lender, BXMT has more flexibility than banks, so they can work with the borrowers for a win-win situation. They can:
ask borrowers to inject capital in order to increase the debt yield
reduce the interest rate or taking interest with payment-in-kind (get some hit on income, but keep the loan mostly intact)
for properties which have enough NOI to support the interest expenses, extend the loans despite the LTV becomes higher
find a new owner of the asset
BXMT's cash flow and liquidity will definitely be impacted, but I am just not sure whether BXMT's portfolio deteriorated at a degree that is described by Muddy Waters.
Anyway, due to the leverage and black box nature of a mortgage REIT, I do not intend to buy more of it. I am reluctant to sell the position when it's not clear to me that BXMT will inevitably go down given there are lots of leverage that BXMT can pull.
2023/06/24 Entered a position, but decided not to buy more
On 2023/06/24, I bought it at $19.60 for the high dividend yield ($2.48 annually, 12.65%, ex-div date next thursday). It's mainly to cover the monthly fees for the Robinhood Gold membership. I do not intend to add more because its high leverage makes me a bit uncomfortable.
2023 Q1 update
$26.7 billion senior loan portfolio secured by institutional quality real estate, with a weighted average origination LTV of 64%
U.S. office represents 25% of BXMT’s net loan exposure,(5) with over 50% post-2015 vintage or Sunbelt collateral.
Book value $26.28. ($26.26 in 2022 Q4)
Performing Portfolio:: 97% (same as 2022 Q4)
Weighted Average Risk Rating: 2.9 (same as 2022 Q4)
GAAP EPS: $0.68
Distributable EPS: 0.79
Dividend per share: $0.62
Adjusted debt-to-equity ratio of 3.5x is down slightly from 3.6x last quarter
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