Release Date: October 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Blackstone Mortgage Trust Inc (BXMT, Financial) reported a significant increase in liquidity, with $1.8 billion in repayments, marking the fourth highest repayment quarter ever.
- The company is actively in new investment mode, with nearly $700 million of new originations closed or in closing, focusing on sectors like multi-family, industrial, self-storage, and resort hotels.
- BXMT's portfolio turnover is accelerating, driven by repayments, resolutions, and redeployments, indicating strong forward momentum.
- The company has a strong pipeline of non-performing loan resolutions, with clear visibility on resolving over half of the $2.3 billion of impaired loans.
- BXMT's stock offers a 10% dividend yield, providing an attractive stream of current income as global yields climb.
Negative Points
- BXMT reported a GAAP net loss of $0.32 per share for the third quarter.
- The company expects to crystallize $225 million to $275 million of realized losses from non-performing loan resolutions in the near term.
- There is a temporary earnings drag expected in the fourth quarter due to the timing mismatch between repayments and new investments.
- BXMT's non-performing loan measure is at 12%, which is expected to be the peak, but still indicates significant credit challenges.
- The company trades at a deep discount, with the market pricing in another $600 million-plus of credit losses beyond the $1 billion already reserved.
Q & A Highlights
Q: Are the quarterly hits to book value behind us, or do you still see migration to 4- and 5-rated loans that could drive negative book value hits?
A: Katharine Keenan, CEO: We see the universe of potential challenges shrinking. The main focus is on non-modified 4-rated office loans, which is about $700 million today, down from $1 billion last quarter. We are making progress on these, and the existing reserves on impaired loans are appropriate given the resolutions negotiated to date.
Q: What is driving the higher level of resolutions? Is the market more supportive on the refinancing side?
A: Katharine Keenan, CEO: There has been a market acceleration of liquidity in the real estate market. CMBS issuance is up four times year-to-date, and transaction activity is up 20% quarter-over-quarter. Increased liquidity and value transparency have benefited our performing loans and resolutions.
Q: How are you weighing new originations versus returning capital in the current environment?
A: Katharine Keenan, CEO: We are strategic in capital allocation, considering both new originations and buybacks. New loans today have a 60% LTV, over 9% debt yield, and mid-teens levered returns, which are attractive. We also look at buying back in the capital structure where opportunities arise.
Q: How do you view the impact of rate cuts on credit and the market?
A: Katharine Keenan, CEO: The direction of travel for rates is clear, and the range of outcomes has narrowed, which is driving liquidity and transaction activity. Even if rates meander, it likely won't change the positive momentum in the market.
Q: What areas are you targeting for growth in 2025?
A: Katharine Keenan, CEO: We see strong opportunities in multi-family, industrial, and data centers in the US. Geographically, Europe offers relative value, and we have a competitive advantage there. We also see potential in Australia.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
