By Nell Mackenzie
LONDON (Reuters) - Blackstone's Mortgage Trust shares fell as much as 9% on Wednesday after short-selling hedge fund Muddy Waters said that it had taken out a short position in Blackstone's real estate investment trust.
Carson Block, the CEO of Muddy Waters, told attendees at the Sohn Conference in London that Blackstone's real estate investment trust (REIT) faced issues of over supply, under-funded loan commitments, expiring leases and that its net operating income was compromised.
"It is at a good risk of a liquidity crisis," said Block.
Blackstone said in a statement that it believed the report was "self-interested and misleading" designed at negatively impacting BXMT’s share price. It said it had "a conservative liquidity posture".
The trust which is publicly traded, borrows money and lends it onward to commercial mortgage borrowers. Because these are interest-only loans, this model relies on borrowers being able to refinance to repay the loans, explained a report which accompanied the short presentation that Block made at the conference.
Blackstone's REIT will likely significantly cut its dividend as soon as the second half of next year, the shortseller said.
Even considering rate cuts, the Blackstone Mortgage Trusts losses on the book value of its loans could reach between $2.5-4.5 billion of the almost $4 billion market cap of the REIT, said Muddy Waters.
The losses would be in addition to BXMT's existing loss provisions, the shortseller said.
"This is not a story where bad people have done bad things, they are just unlucky," he said, talking about problems in the property sector which has meant less income to service debt.
Block said that next year large numbers of borrowers would be unable to refinance and repay the mortgages and loans that Blackstone's trust oversees.
Even if Blackstone tried to modify them to make them weather economic troubles, the company would not be successful, he said.
"Blackstone may modify the loans but it's such a big number of loans terminating next year that (they) will not be able to be swept under the rug," said Block.
Its shares at 1846 GMT were down almost 7%.
The statement from Blackstone said: "We will respond in greater detail – however the steps we have taken on both sides of our balance sheet, including proactive asset management, a conservative liquidity posture, and a patient approach to new investments, leave us well positioned to navigate this environment."
The company also said that liquidity on the REIT was at record levels and pointed to its recent third quarter results, where it said it covered its dividend by 126%.
(Reporting by Nell Mackenzie; Editing by Dhara Ranasinghe, Alexandra Hudson and Alison Williams)