Hedge fund Muddy Waters has revealed a short-selling bet against Blackstone’s $22bn mortgage REIT.
The short-seller said that, even factoring in rates cuts, losses on the Blackstone Mortgage Trust’s loan book values could reach between $2.5bn and $4.5bn over and above its existing loss provision. As a result, the REIT’s $3.6bn market capitalisation “is at risk of being completely wiped out”.
The $23bn AUM REIT was set up in 2013 and provides loans to commercial real estate groups in North America, Europe and Australia.
The Muddy Waters report, titled Here comes the cliff! and illustrated with a cartoon of Wile E Coyote hovering in mid-air before the inevitable plunge, predicts that the REIT will be “hammered by the macro”.
The report said interest rate swaps and manipulated risk ratings and loss provisions had “obscured serious deterioration in BXMT’s loan book”. It said nine loans totalling $1.6bn had already been “modified” in Q3.
Muddy Waters added that from next year, as an estimated $16bn of swaps terminate, the REIT will be forced to halve its quarterly dividend.
Muddy Waters added: “We think large numbers of borrowers will be unable to refinance and repay BXMT,” leaving the REIT “at risk of a liquidity crisis”.
The report added: “It seems that ~70%-75% of the US loan book is unable to service its debt absent rate swaps,” based on an extrapolation of publicly available data.
Blackstone Mortgage Trust said Muddy Waters’ report was “highly misleading”.
Muddy Waters CIO Carson Block said there was “a lot of rot in its book”.
Shares in the trust fell by more than 8% in Wednesday trading.
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