Blackstone's mortgage fund slashes dividend as slump in office puts it under pressure

The impact of a still-weak market for office real estate is felt by Blackstone's huge mortgage fund.

• Blackstone Mortgage Trust, or BXMT, says its holds $9 billion of office loans.
• That office exposure represents roughly 40% of BXMT's loan book.
• A 24% reduction in BXMT's dividend shows how office values remain under serious pressure.

Blackstone Mortgage Trust, a commercial real estate lender with a $22 billion loan portfolio, is cutting its dividend after losing $60 million in the second quarter and raising its reserves by $142.6 million.

The company, a publicly traded lender that is managed by the $1 trillion investment behemoth Blackstone, said on Wednesday that it would shrink its dividend to 47 cents per share from 62 cents, a 24% reduction. Its stock tumbled nearly 12% on Wednesday.

Executives at Blackstone Mortgage Trust, or BXMT, have said that it was well-positioned to withstand stresses in the commercial real estate market brought on by the pandemic and sharply rising interest rates. Executives at Blackstone have also said that they see the real estate market bottoming.

The fund's loan book is tied largely to strong segments of the commercial real estate market, including residential apartment buildings, industrial warehouses, and hotels. Executives have described its loan balances as conservative relative to the value of the real estate assets that serve as their collateral.

But BXMT has significant exposure to the office market, where value declines have been steep enough to dip below outstanding loan balances in some cases.

The company reported that it held $9 billion of office loans, amounting to roughly 40% of its loan book – larger than any other real estate asset type in its portfolio. During the quarter, it raised the reserve of cash it holds to protect against loan losses by $142.6 million, bringing it to $906 million. The increase was done largely to compensate for "new non-performing office loans," according to BXMT's chief financial officer, Anthony Marone.

It held 25 office loans totaling $3.7 billion in book value that it labeled as having an elevated risk level for losses, totaling about 17% of its portfolio.

Office values have been battered over the past year, according to data from MSCI. Prices on average were down 12.4% in the second quarter from the previous year. Office space located in central business districts was down more sharply during the same period, by 24.7%.

"Resolving challenged assets remains a key priority for the business," Katie Keenan, the chief executive officer of BXMT, said in the company's earnings call.

She also signaled that the company's dividend, key to its attractiveness to shareholders, would likely remain reduced for the foreseeable future.

"This level really is based on what we think is sustainable over time," Keenan said.