Blackstone Mortgage: You Had Me At 11% Yield

1 year ago

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Who tin hide nan Tom Cruise and Renée Zellweger movie, "Jerry Maguire", successful which nan second said "You Had Me At Hello" astatine nan extremity of nan movie? This classical is decidedly worthy re-watching each now and then, and arsenic personification wisely told maine once, you have to watch it from opening to extremity and not skip astir to afloat admit nan ending.

But I digress, arsenic successful summation to classical movies, I besides person a soft spot for beaten down high-yielders for illustration Blackstone Mortgage Trust (NYSE:BXMT). BXMT is presently trading adjacent to its 52-week debased of $20.87, and presently yields 10.9%, giving income investors a bully opportunity to furniture into this name. Let's research what makes BXMT an appealing bargain astatine present.

Why BXMT?

Blackstone Mortgage Trust is simply a elephantine successful nan commercialized owe REIT space, generating elder loans collateralized by existent property successful 3 continents, successful North America, Europe, and Australia.

It's externally managed by Blackstone (BX), 1 of nan largest plus managers successful nan world, pinch complete $200 cardinal worthy of existent property assets nether management. This affiliation benefits BXMT successful that it provides it pinch a woody pipeline and valuable statement of show into nan commercialized existent property space.

BXMT carries important size and standard pinch its $26.8 cardinal elder indebtedness portfolio, making it 1 of nan biggest players successful nan commercialized mREIT space. Management adopts a blimpish lending believe pinch mean origination LTV of 64% and by investing successful loans backed by organization value existent property arsenic collateral.

Moreover, BXMT is diversified crossed 203 loans and is capable to leverage Blackstone breadth and beingness to put charismatic opportunities internationally. As shown below, BXMT has meaningful vulnerability to Europe and Asia, and its apical 3 sectors dwell of office, multifamily, and hospitality.

While specified precocious vulnerability to agency properties whitethorn springiness immoderate investors pause, it's worthy noting that galore CEOs person requested that labor return to nan agency connected astatine slightest a portion clip basis, noting nan worth of in-person engagement.

This makes nan early of activity much apt to beryllium hybrid alternatively than afloat remote. Plus, 88% of BXMT's agency loans are to properties that are caller and businesslike buildings pinch modern amenities, debased leverage pinch important sponsor equity, and/or are located successful nan fast-growing Sunbelt region of nan U.S.

It's besides worthy noting that astir of BXMT's loans person durations of conscionable a fewer years, giving guidance nan opportunity to pivot into different spot classes. This is reflected by $1.7 cardinal of agency repayments successful 2022, giving guidance nan opportunity to deploy superior into amended positioned plus classes specified arsenic business and multifamily, which comprised 90% BXMT's 2nd half 2022 origination activity, arsenic shown below.

Notably, BXMT does person higher leverage than immoderate of its commercialized mREIT peers, pinch a indebtedness to equity ratio of 3.8x astatine nan extremity of 2022, and is higher than nan 3.6x from nan 3rd quarter. However, this was nan consequence of BXMT raising its CECL (current expected in installments loss) reserve, which reduced its GAAP equity, alternatively than really expanding leverage.

In addition, BXMT's liabilities are word matched to its plus maturities, and has a important $1.6 cardinal worthy of liquidity, aft raising $1.2 cardinal of superior connected charismatic position during 2022. Management expects to repay $220 cardinal worthy of maturities this twelvemonth pinch existing liquidity and has nary different indebtedness maturities until 2026, thereby mitigating nan impacts of higher liking rates successful nan adjacent term.

Importantly, BXMT is benefitting from higher liking rates, pinch distributable EPS of $0.80 during nan 4th quarter, resulting successful 1.29x dividend coverage.

BXMT is besides reasonably easy to value, considering its plain vanilla elder indebtedness portfolio pinch nary beingness existent property assets that person depreciation considerations. At nan existent value of $22.69, BXMT appears to beryllium successful worth territory.

As shown below, this sits good beneath its humanities trading scope complete nan past 5-years extracurricular of nan 2020 timeframe. Analysts besides person a statement Buy standing pinch an mean value target of $24.86, which equates to a imaginable one-year 20% full return.

Investor Takeaway

BXMT offers investors vulnerability to a blimpish lending believe pinch organization value existent property arsenic collateral, important size and scale, and beardown beingness successful some nan U.S. and world markets.

While BXMT does transportation higher leverage than immoderate of its peers, BXMT's operation of scale, entree to in installments markets, discount to book worth and precocious and well-covered dividend output make it an charismatic bargain for income investors pinch imaginable for superior appreciation to boot.

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