Moody’s Downgrades Blackstone Mortgage Trust On Office Concerns

Moody’s Ratings has cut Blackstone Mortgage Trust's corporate credit rating, largely due to analysts’ concerns with the mortgage REIT’s office portfolio.

Moody’s downgraded Blackstone Mortgage Trust’s corporate family rating and its ratings for senior secured notes and senior secured bank credit facilities to B1 from Ba3 on Nov. 15.

The ratings house highlighted that Blackstone Mortgage Trust, which trades under the stock ticker BXMT, has reported a net loss of $241.3M through the end of the third quarter, driven by a $519.7M increase in the lender’s expected credit loss reserve. 

Blackstone Mortgage Trust has seen an increase in problem loans driven by office debt, which accounts for a third of its total loans, according to Moody’s. The ratings firm identified 12 office loans at an elevated risk level with a combined net book value of $2.2B, accounting for 30% of the lender’s total office loans. 

Moody's has 21 investment grades ranging from Aaa to C, with Ba1 ratings representing the midpoint and the starting point for what Moody's considers to be non-investment grade debt.

Obligations with B ratings are considered speculative and subject to substantial credit risk as opposed to the high credit risk of Ba-rated debt. B1 debt is in the least-risky group of B-rated debt tracked by Moody's.  

Blackstone Mortgage Trust expects to resolve its riskiest loans over the next two quarters through discounted sales and loan payoffs, and Moody’s changed its outlook on the REIT from negative to stable following the downgrade. 

“The stable outlook reflects our view that despite expected weakening in asset quality and profitability, [Blackstone Mortgage Trust's] capital position and funding profile will remain stable and supportive of the company's credit profile over the next 12-18 months,” Moody’s analysts wrote. 

After the downgrade, Blackstone Mortgage Trust announced what it described as “strong quarter-to-date progress on repayments and non-performing loan resolutions,” including $1B in repayments collected and another $1B in non-performing loan resolutions in the closing phase.   

“The ongoing recovery and resurgence in capital markets activity continues to drive strong positive momentum in BXMT’s business,” CEO Katie Keenan said in a statement. “We are pleased to deliver these positive outcomes for our investors, which accelerate portfolio turnover with the redeployment of capital in today’s attractive investment environment.”

This week, the lender facilitated the sale of a 177K SF office tower in Lower Manhattan for $255M, about 4% less than the total outstanding debt tied to the building. Savanna purchased the newly built property in a distress sale from developers Columbia Property Trust and Cannon Hill Capital Partners.

The sale was a “great outcome for investors,” a Blackstone Mortgage Trust spokesperson said in a statement, and part of the firm’s strategic effort to resolve impaired assets.  

Last month, the REIT took over an 888K SF mixed-use complex in Washington, D.C., paying $83.7M for the complex at a foreclosure auction, the Washington Business Journal reported. The debt on the properties was part of larger commercial mortgage-backed securities created by the REIT that included 30 loan participants and a $901M in-trust balance, per WBJ.    

Moody’s downgrade follows a similar move from S&P Global Ratings in February that moved the REIT from BB- to B+, where the firm has sat ever since, over concerns about asset quality. 

In July, the REIT cut its dividend from 62 cents to 47 cents in a move that was estimated to save it roughly $100M annually and authorized a $150M stock buyback program. 

Moody’s analysts said the firm could improve its rating by reducing problem loans and office exposure, strengthening its capital position and relying less on secured borrowing facilities for liquidity. 

A “continued sizable deterioration in asset quality, leading to outsized losses,” further capital weakness or liquidity problems could lead to a further downgrade, Moody’s analysts wrote.

CORRECTION, NOV. 20, 5:30 P.M. ET: A previous version of this story misstated Blackstone Mortgage Trust's dividend. It is 47 cents.