Blackstone Mortgage Trust posts $327.6M loss on office loans

Blackstone Mortgage Trust reported a $327.6 million net loss for the third quarter, roughly four times its second-quarter loss, as management attributed the result to expected but not yet realized losses on troubled office loans made before 2023, according to Commercial Observer. The per-share loss of $1.95 and distributable earnings of 42 cents a share both beat analyst expectations.

Chief executive Tim Johnson told investors on Thursday's earnings call that the lender had spent the quarter "proactively selling select loans more exposed to higher rates, harvesting repayments and reducing our watch list." He framed the period as progress on a plan set out three months earlier: "Last quarter, we outlined a path to accelerate portfolio turnover and reduce our exposure to these legacy, pre-2023 investments."

The gap between those two per-share numbers is what a holder is underwriting. The $327.6 million loss runs through book value, and Johnson said the effect of higher rates on the legacy book and the "secular challenges in office" behind the impairments are now largely reflected there. If that holds, further damage would come from loans not yet marked rather than another repricing of what has already been written down.

Total net revenue rose 7% year over year to $141.9 million. Revenue from owned real estate more than doubled to $77.5 million, while income from loans and other investments fell roughly 35% to $64.4 million, so property revenue topped loan revenue for the quarter.

The $17 billion portfolio is being reshaped. Net-lease, homebuilder finance and bank loan portfolio investments now make up nearly 10% of it, up from zero at the start of last year, president Austin Peña said. New investments included long-term leased retail properties, bank loan portfolios and homebuilder financing, and the company closed roughly $500 million of new investments in the quarter, including $300 million of new loans. Peña said the share of investments made after 2023 has risen roughly 50% over the year. Average investment size has fallen to $18 million from $130 million a few years ago.