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Bank of America: Blackstone Mortgage Trust Now A 'Buy' On Valuation & Deal Pipeline

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Bank of America: Blackstone Mortgage Trust Now A 'Buy' On Valuation & Deal Pipeline

On June 22, Bank of America/Merrill Lynch analyst Kenneth Bruce published a research note upgrading commercial mREIT Blackstone Mortgage Trust Inc (NYSE: BXMT) from Neutral to Buy.

BXMT is externally managed by Blackstone Group LP (NYSE: BX), the largest U.S. publicly traded alternative asset manager with ~$93 billion of global real estate assets under management (AUM).

Bruce noted that Blackstone has recently announced multiple transactions to acquire additional properties including GE Capital's commercial real estate debt assets.

Related Link: Blackstone CEO Schwarzman Talks Global Real Estate, Mega-Deals & More

Bruce expects that $2.75 billion cap BXMT will continue to benefit from its Blackstone sponsorship, which should result in additional growth opportunities moving forward.

Tale Of The Tape - Past Year

During the past 52-weeks BXMT shares have traded in a range of $ 25.56 - $31.80, closing up slightly on Monday after the Bank of America upgrade.

bxmt_-_finviz_bmal_upgrade_june_22.jpg
Notably June 22, was a down day for most mREITs, net-lease, and healthcare REITs due to rising rate concerns.

BMXT - Loan Portfolio

Blackstone Mortgage Trust is primarily focused on originating floating rate senior mortgages, and has a portfolio that does not lose value when interest rates rise.

bxmt_-_feb_2015_slide_12_0.jpg
Source: BXMT Feb 2015 presentation

BXMT shares are a way for income investors to hedge against rising rates, unlike residential mREITs with a majority of fixed rate loan portfolios.

BXMT Chart Comparison YTD - Starwood Property Trust

Starwood Property Trust, Inc. (NYSE: STWD) is another commercial mortgage REIT with a Bank of America Buy rating, and is one of BXMT's closest mREIT peers.

bxmt_-_ychart_vs_stwd_-_baml_upgrade_june_22.jpg

Currently, $5.4 billion cap Starwood shares pay a dividend yielding 8.5 percent, while BXMT distributions are currently ~7 percent for investors.

Bank of America - BMXT: Upgrade Neutral To Buy, $32 PO Unchanged

  • The BXMT $32 price objective represents a potential ~8.8 percent price upside to BXMT shares based upon the recent close of $29.41 per share; and a total return of 15.8 percent including the 7 percent dividend yield.
  • The Bank of America $32 PO is derived from "a 7.5% distribution yield based on [Bank of America's] 2016 dividend forecast of $2.40, in-line with high-quality commercial mortgage REIT peers."
  • The $32 PO for BXMT "also implies a 1.2x multiple to [Bank of America's] 2016 book value estimate."
  • Bruce noted that BXMT's "penchant for equity issuance" could act as a damper on future multiple expansion.

Bank of America - BXMT Deal Pipeline

BXMT management has revealed as of June 1, "… it had closed direct originations totaling $1.1B so far this quarter and has a $900M loan pipeline with agreed terms that are in the process of closing."

"BXMT financed part of the direct originations by selling $590M through the syndication of non-consolidated senior interests."

Notably, this level of loan origination represents the strongest quarter in the history of BXMT.

Bank of America - BXMT Bottom Line

"BXMT is a high-quality way for investors to participate in the recapitalization of commercial mortgage markets, which should generate relatively high risk-adjusted dividend distributions for investors."

Investor Takeaway

The Bank of America upgrade was based in part on valuation, given the pullback of BXMT shares from the spike up during April; as well as confidence that BXMT loan originations will continue to benefit from external manager Blackstone Group's best-in-class global real estate platform.

Related Link: A Small-Cap Mortgage REIT Might Be The GE Capital Deal's Biggest Winner

More detail regarding The Blackstone Groupon/GE Capital deal, as well as additional presentation slides detailing the BXMT business model, can be found in this related Benzinga article link.

Latest Ratings for BXMT

DateFirmActionFromTo
Feb 2019Deutsche BankDowngradesHoldBuy
Dec 2018Deutsche BankDowngradesBuyHold
Oct 2018BTIG ResearchInitiates Coverage OnNeutral

View More Analyst Ratings for BXMT
View the Latest Analyst Ratings

Posted-In: Bank of AmericaAnalyst Color Long Ideas REIT Dividends Top Stories Analyst Ratings Trading Ideas Best of Benzinga

 

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