Blackstone Mortgage Trust: A Playbook for Profits

02/17/2020 5:00 am EST

Focus: FUNDS

Brett Owens

Chief Investment Strategist, BNK Invest, Inc.

More loans, more profits and (eventually) more dividends are the playbook for our generous payer Blackstone Mortgage Trust (BXMT), asserts Brett Owens, editor of Contrarian Outlook.

We buy commercial real estate through Blackstone, which has its hooks everywhere. The firm sports a $0.62 per share quarterly dividend (good for $2.48 per year) that is well-covered by earnings

Parent company Blackstone has access to deal flows that have helped BXMT build this impressive and geographically diversified loan portfolio in just over six years.

Another benefit of BXMT having access to Blackstone’s management team is the know-how and expertise to write a smart deal. Its weighted average loan-to-value (LTV) ratio is a conservative 62%—which means it has a big 38% equity cushion against real estate price declines.

Contrast this with your average homebuyer who has perhaps 5% to 10% — or rarely an old school 20% — equity cushion via his or her down payment.)  BXMT’s oldest existing loans are 6+ years and, impressively, there has not been a bad one yet!

A perfect 100% of BXMT’s loans are being paid on time.  Plus, the firm’s profits are completely hedged against higher and lower interest rates. It doesn’t get much better than this.

The only thing we’re missing from this perfect payout play is a dividend increase. I believe it’s only a matter of time. In the meantime, we should enjoy this 6.5% yield, which (along with price gains) has helped us to 54% total returns since we bought this stock three years ago.

BXMT is a better company now, too, with a more valuable commercial loan portfolio, and one that is closer to its long-awaited dividend increase. In the last quarter alone, BXMT grew its asset portfolio by another $730 million to $16.4 billion.

This is an impressive 4.7% increase in just 90 days, and we should have no doubt that these are similarly high-quality cash flowing loans that were smartly added by the firm’s excellent management team. BXMT is a compelling buy.

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