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Edited Transcript of BXMT earnings conference call or presentation 24-Apr-19 2:00pm GMT

Q1 2019 Blackstone Mortgage Trust Inc Earnings Call

NEW YORK Jun 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Blackstone Mortgage Trust Inc earnings conference call or presentation Wednesday, April 24, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Anthony F. Marone

Blackstone Mortgage Trust, Inc. - MD, CFO & Assistant Secretary

* Douglas N. Armer

Blackstone Mortgage Trust, Inc. - Executive VP of Capital Markets & Treasurer

* Katharine Keenan

Blackstone Mortgage Trust, Inc. - Executive VP of Investments & MD

* Stephen D. Plavin

Blackstone Mortgage Trust, Inc. - CEO, President & Director

* Weston M. Tucker

Blackstone Mortgage Trust, Inc. - Head of IR & Senior MD

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Conference Call Participants

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* Benjamin Ira Zucker

BTIG, LLC, Research Division - Former Analyst

* Donald James Fandetti

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Douglas Michael Harter

Crédit Suisse AG, Research Division - Director

* Jade Joseph Rahmani

Keefe, Bruyette, & Woods, Inc., Research Division - Director

* Kaili Wang

Citigroup Inc, Research Division - Senior Associate

* Richard Barry Shane

JP Morgan Chase & Co, Research Division - Senior Equity Analyst

* Stephen Albert Laws

Raymond James & Associates, Inc., Research Division - Research Analyst

* Steven Cole Delaney

JMP Securities LLC, Research Division - MD, Director of Specialty Finance Research and Senior Research Analyst

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Presentation

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Operator [1]

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Good day and welcome to the Blackstone Mortgage Trust First Quarter 2019 Investor Call. My name is Joanne, and I'm your event manager. (Operator Instructions) I would like to advise all parties this conference is being recorded.

And now I'd like to hand over to Weston Tucker, President of Investor Relations.

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Weston M. Tucker, Blackstone Mortgage Trust, Inc. - Head of IR & Senior MD [2]

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Great. Thanks, Joanne, and good morning and welcome to Blackstone Mortgage Trust's first quarter conference call.

I'm joined today by Mike Nash, Executive Chairman; Steve Plavin; President and CEO; Tony Marone, Chief Financial Officer; Doug Armer, Executive Vice President, Capital Markets; and Katie Keenan, Executive Vice President, Investments.

Last night, we filed our 10-Q and issued a press release with the presentation of our results, which are available on our website and have been filed with the SEC.

I'd like to remind everyone that today's call may include forward-looking statements, which are uncertain and outside of the company's control. Actual results may differ materially. For discussion of some of the risks that could affect results, please see the Risk Factors section of our most recent 10-K. We do not undertake any duty to update forward-looking statements and we will also refer to certain non-GAAP measures on this call. For reconciliations, you should refer to the press release and our 10-Q.

This audio cast is copyrighted material of Blackstone Mortgage Trust and may not be duplicated without our consent.

So a quick recap of our results. We reported GAAP net income per share of $0.62 for the first quarter, while core earnings were $0.71 per share. Last week, we paid a dividend of $0.62 with respect to the first quarter. If you have any questions following today's call, please let me know.

And with that, I'll now turn things over to Steve.

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Stephen D. Plavin, Blackstone Mortgage Trust, Inc. - CEO, President & Director [3]

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Thanks, Weston, and good morning, everyone. Our 2018 portfolio growth provided very strong earnings momentum going into 2019. We started the year with our balance sheet heavily invested in loans, which provided robust earnings power to help drive our $0.71 of core earnings for the quarter. Our asset base remained well positioned throughout the quarter. The capital market's volatility that started in December and carried over to early Q1 slowed transaction activity and limited lending opportunities in the market, but we still grew our loan portfolio with $700 million of originations.

Our performance this quarter further demonstrates the strength and stability of our floating rate senior mortgage lending business model with a large portfolio that we've established. The largest loan closed in the first quarter was NEC, a GBP 240 million mortgage participation secured by the U.K. market leading Convention and Exposition Center and other complementary assets located in Birmingham and owned by a Blackstone equity fund. The 59% of cost loan is a participation with Starwood Property Trust. The NEC business caters to a primarily domestic client base and has proven resilient over time with very limited competition.

During the quarter, we also originated low LTV transitional acquisition loans for office buildings in Canada and London, a New York City hotel and apartments in San Antonio. We have another $875 million of loans either closed post quarter end or the agreed terms in the closing process.

Another origination I would like to specifically highlight is the upsize of an existing loan in California because it exemplifies several of the virtues of BXMT, including our transitional loan origination strategy, active asset management and advantages of Blackstone management.

The $195 million, 55% of cost loan was made by a West Coast team in 2018 to a major institutional sponsor and repeat client secured by a vacant historic departmental store in Downtown, Oakland undergoing conversion to creative office.

The market knowledge and investment conviction that comes from the Blackstone real estate ownership footprint were major advantages in this origination. As noted in our San Francisco office buildings and our equity funds, we agreed with the sponsor thesis that escalating requirements for space from tech tenants, combined with virtually no large block availability in San Francisco, would generate strong leasing demand for this high quality but pioneering Oakland asset. This viewpoint was critical in our underwriting and successful per suitable loan.

And 5 months post loan closing, our credit analysis was validated. A lease was signed for 100% of the office space with a major tech tenant on terms that exceeded our underwriting. With the lease in place, the property could attract more efficiently priced banker insurance company loan, but we work to maintain the loan and reached agreement on a modification, including an upsize of the loan amount, a reduction in rate and an extension of call protection. And because of the low risk profile of the leased asset, our credit facility provider agreed to reduce its rate to us, so we were able to maintain an attractive ROI and a larger, more stable loan.

Improving credit profile was the theme across our portfolio in Q1. During the quarter, we upgraded 9 loans, primarily from a risk rating of 3, where most loans are originated to risk rating of 2 without any downgrades. The upgrades were driven by improved leasing and cash flow as the collateral properties transitioned to more stabilized operating performance. On the Capital Market's front, we continue to optimize our debt financing. Yesterday, we closed the new efficiently priced and innovatively structured $500 million corporate term loan that significantly adds to our firepower with very little J curve. Along with our CLO, CMBS syndications and corporate credit facilities, we have a powerful array of debt execution options to maximize our efficiency. We also continue to tap our ATM during the quarter, raising equity capital at an average of 1.27x our book value. We've built a market leading, pure-play global senior mortgage lending business with a $16 billion portfolio, over $4 billion of equity market cap and a highly efficient match-funded liability structure. Our focus remains on dividend quality and stability and continuing to introduce investors to BXMT the opportunity to invest in this Blackstone-sponsored company, which has very compelling 7.1% dividend yield.

And with that, I'll turn it over to Tony.

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Anthony F. Marone, Blackstone Mortgage Trust, Inc. - MD, CFO & Assistant Secretary [4]

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Thank you, Steve, and good morning, everyone. This quarter demonstrated the earnings power of the BXMT platform with positive results in all of our key metrics. We generated GAAP net income of $0.62 per share and core earnings of $0.71, both up from the fourth quarter. Our quarterly earnings were almost entirely run rate with minimal contribution from onetime items and our performance was really driven by the strong loan origination volume coming into 2019 and nearly full deployment of our balance sheet capital, which we have been efficiently raising via just-in-time equity from our ATM program. During the first quarter, we raised $66 million under the ATM program at an average price of 1.27x book value, driving an increase in our book value to $27.32 per share. Our $0.71 of core earnings is 115% of our consistent $0.62 dividend, a further indication of the strength and stability of our platform.

During the quarter, we originated $699 million of new or upsized loans and funded $806 million under these and existing commitments. We saw limited repayment activity on our loan portfolio this quarter at only $508 million, which brought our total loan portfolio over $16 billion for the first time, up nearly $4 billion from this time last year.

Our portfolio continues to exhibit strong credit characteristics with 100% performance and origination LTV of 62% and risk rating of 2.7 on a scale of 1 to 5, all consistent with prior quarters.

In addition to the equity issuance under our ATM program that Steve and I mentioned earlier, we financed our portfolio growth primarily through our balance sheet credit facilities, which continue to provide us with market-differentiated financing for our assets. We continue to manage our cost of capital and negotiate market-leading terms for these facilities, which had an average cost of only LIBOR plus 1.9% as of quarter end and remain insulated from any capital markets base mark-to-market provisions.

During the quarter, we also closed the $936 million nonrecourse financing of The Spiral, the Hudson Yards' development loan we highlighted last year. This financing is effectively a syndication of a senior interest in our loan with our lenders committed to fund their share of future advances under the loan, representing 30% of total unfunded loan commitments across our portfolio.

Closed the quarter with a debt-to-equity ratio of only 2.8x, unchanged from prior quarter and liquidity of $487 million. Post quarter end, our liquidity grew significantly following the closing of our $500 million term loan Steve mentioned earlier. This loan carries an attractive interest rate of LIBOR plus 2.5% and priced at 99.75% at par with a covenant package in line with that of our existing credit facilities. The loan has a 7-year term with 6 months of prepayment protection and limited amortization requirements, providing an additional source of flexible capital for our business.

In closing, we've previously highlighted the floating rate focus of BXMT's portfolio, which was 96% floating rate as of quarter end and how this positions us to capture incremental earnings as rates rise. In addition to that important benefit, we would also like to highlight that while higher rates will directly increase our earnings, we are partially protected from declining revenues should rates decrease with LIBOR floors baked into the structure of many of our loans, which we believe is another example of the stability of the BXMT business model.

Thank you for your support. And with that, I'll ask the operator to open the call to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Doug Harter from Crédit Suisse.

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Douglas Michael Harter, Crédit Suisse AG, Research Division - Director [2]

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Can you -- you mentioned that your earnings were mostly run rate this quarter. Can you talk about how we are thinking about the dividend given that 115% coverage and kind of the high level of run rate earnings?

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Stephen D. Plavin, Blackstone Mortgage Trust, Inc. - CEO, President & Director [3]

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Hey, Doug, it's Steve. Thanks for the question. I think -- as I've mentioned in my script, we're really focused on the quality of the dividend and we really like the coverage and the fact that we're able to retain earnings. The retained earnings have been beneficial adding to book value. You've seen a steady progression in our book value per share over time. We'll continue to evaluate the dividend, and obviously we're proud of the strong coverage. But right now we like $0.62. Again, we'll continue to evaluate it quarter-by-quarter. But what we're trying to do now is get investors to appreciate the $0.62, how well it’s covered, and have the multiple in the dividend yield reflect that.

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Douglas Michael Harter, Crédit Suisse AG, Research Division - Director [4]

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Appreciate that. And then on -- when you're thinking about the new loan that you guys just closed, I guess how should we think about kind of your willingness to lever that capital and the impacts on leverage for the company as a whole going forward?

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Douglas N. Armer, Blackstone Mortgage Trust, Inc. - Executive VP of Capital Markets & Treasurer [5]

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Hey, Doug, it's Doug here. I think it's worth saying at the outset, the term loan's a really great deal for BXMT. It's floating rate and flexible capital, it's very efficiently priced and it will allow us to maintain moderate balance sheet leverage as we continue to grow our capital base. I think of it as providing very efficiently priced working capital for our business. As we deploy that capital and continue to grow the balance sheet, I'd expect leverage to increase somewhat from where it is today. We are very well deployed at 3 31 with the 2.8x debt-to-equity ratio. New capital in the capital structure in the form of debt would imply a slight increase to it. But a large part of that capital will be used as working capital. And so I think the amount of leverage on our balance sheet will remain in the range that you've seen it in over the last several quarters in that sort of 2.5 to 3.5 range ultimately in terms of debt to equity.

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Operator [6]

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Our next question comes from the line of Rick Shane from JPMC.

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Richard Barry Shane, JP Morgan Chase & Co, Research Division - Senior Equity Analyst [7]

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A couple things as we look to the sort of inflection point in the rates. And again, I guess none of us really know which way we're going to go, but appreciate the increased disclosure around lower rates. I'm curious 2 things from a business impact. One, given relatively tight spreads, would we expect that repayments might actually slow a little bit as rates decline? And the reason I asked that is, and the other part of this question is, could we expect spreads and originations to widen a little bit as you regain some pricing power versus LIBOR?

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Stephen D. Plavin, Blackstone Mortgage Trust, Inc. - CEO, President & Director [8]

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Hey, Rick. I certainly -- thanks for the question. I certainly hope that's the case. I think a lot of the spread compression that we saw was as a result of increases in the index. The index was low, spreads were historically wide. Now they've tightened a lot with LIBOR having increased. Hard to say what will happen to spreads is if rates -- if floating rates do decline, but I think there is certainly a possibility that we could see spreads stabilize, potentially move wider.

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Richard Barry Shane, JP Morgan Chase & Co, Research Division - Senior Equity Analyst [9]

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Got it. And again this has been new ones -- not even the new ones, but the huge difference between like you do and what we do. We look at this on a spread basis, I know you guys do as well. But when you're really engaged in conversations with borrowers, is it -- is the conversation focused on spread? Is it really focused on all-in yield?

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Stephen D. Plavin, Blackstone Mortgage Trust, Inc. - CEO, President & Director [10]

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I think the conversation with us and our borrowers is, I think there's a lot of economic and noneconomic elements that become part of the negotiation. I think it is all-in yield. I mean the rate is the primary focus around economics, but there is origination fees and extension fees and sometimes other fees depending upon the nature of the loan. Rate floors are important part of the negotiation as well. So all those factors, economic and the noneconomic factors, around loan structure and other important elements of -- as it relates to how our loan matches the business plan and how we look compared to our competitors, they all come into play. But ultimately, we're seeing most of the competition around economics. And so I think and you've seen a little bit of rate compression as a result. But with our repeat clients and the experience they've had with us, a lot of times we're able to win on to the total package that we're able to deliver to the client, not just loan rate.

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Operator [11]

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Next question comes from the line of Steve Delaney, JMP.

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Steven Cole Delaney, JMP Securities LLC, Research Division - MD, Director of Specialty Finance Research and Senior Research Analyst [12]

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Steve, I guess the best place to start and the thing that caught our eye right away when we saw the release was the origination volume. Just based on how significant your originations have been over the last couple of years. So $700 million compared to about $2.5 billion average last year, can you just comment -- obviously the end of last year was chaotic -- could you roughly, in your mind, weigh the lighter number and originations, how much is just sort of the timing lag as clients try to react to the market? And how much may reflect some greater selectivity on your part as your portfolio tends to reach optimal leverage as was commented on?

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Stephen D. Plavin, Blackstone Mortgage Trust, Inc. - CEO, President & Director [13]

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Thanks for the question, Steve. I think all those factors in terms of our originations in the first quarter come into play, and we are highly selective in terms of -- on a credit basis and our new originations. The biggest factor was really the volatility. And what happens in periods of volatility is that buyers and sellers, and again buyers are the primary driver of demand for our loans. They tend to go to the sidelines in periods of volatility and wait for the markets to resettle. And so although the period of volatility was relatively short and ended really in relatively early in Q1, that by the -- but it takes another sort of 60 to 90 days for regular-way transaction activity to resume, for deals to start closing after their sort of regular-way gestation period. So we are seeing a pickup in pipeline activity now relative to where it was, say, earlier in the year. And again, I think we feel very good about our origination pace. And you can see that if you look -- you can see that repayments in the first quarter were still below our origination. So there's a little bit of a natural hedge in that the origination environment isn't as potent. We see fewer repayments. The fact that we were able to grow our portfolio in Q1 was really positive. And we remain very well positioned at the end of the quarter just like we were at the beginning of the quarter in terms of earnings power on the go-forward basis.

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Steven Cole Delaney, JMP Securities LLC, Research Division - MD, Director of Specialty Finance Research and Senior Research Analyst [14]

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Okay. That's helpful. And if we were to look out a year, 2 years out, the on-balance sheet portfolio today is $14.5 billion. I think I heard a combination of $487 million in liquidity, $500 million in term loan. Is it reasonable to think that -- and let's just say, market conditions, real estate conditions, lending, profitability, et cetera, are stable. Reasonable for us to expect some portfolio growth, but maybe not at the pace seen over, say, the last 2 or 3 years? Could you give some color on sort of where the portfolio may trend over the next year or 2? And that'll take care of me.

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Stephen D. Plavin, Blackstone Mortgage Trust, Inc. - CEO, President & Director [15]

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Sure. Yes, I expect over extended period of time that we'll continue to grow the portfolio. It can vary from quarter-to-quarter. A little bit of what you saw in Q1 was the fact that we had a lot of Q4 deals that just closed in December that -- some of which we thought might roll over into Q1. So I think it was -- our Q4 was extraordinary and that did impact a little bit the spill over in terms of Q1. We had a little bit less than we otherwise would because of how many -- we closed over 20 loans in the fourth quarter. So I still think that we have a great product, we have a great client base. We're seeing -- we continue to see large opportunities to originate and to grow the portfolio. So that is my expectation going forward. Not sure that will match 2018. I think that was an extraordinary year, but I think you'll see a steady trend with us of strong originations.

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Operator [16]

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Next question comes from the line of Stephen Laws from Raymond James.

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Stephen Albert Laws, Raymond James & Associates, Inc., Research Division - Research Analyst [17]

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I guess, first, looking at the financing side, from looking at the Q, it looks like the asset-specific financing declined quite a bit. I believe from looking back historically, a good bit of that was a loan on the European portfolio. But could you maybe talk about what drove the asset-specific financing from up to $1.5 billion down to $100 million, please?

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Douglas N. Armer, Blackstone Mortgage Trust, Inc. - Executive VP of Capital Markets & Treasurer [18]

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Yes, Stephen. Hey, it's Doug here. That was largely the result of a recategorization of some of those financing. A big piece of the -- what we had previously categorized as asset-specific financing was the GE acquisition financing, a portfolio acquisition financing from Wells Fargo. That portfolio has really been fully turned over and is, in essence, cross-collateralized and part of our credit facility, our regular-way credit facility with Wells Fargo in effect. And so as that situation evolved and we recategorized some of that financing. So the actual outstandings aren't reduced. We're just -- we're redefining how we categorized those in the Q.

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Stephen Albert Laws, Raymond James & Associates, Inc., Research Division - Research Analyst [19]

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Right. That's helpful, Doug. And next question, Doug, if you could comment on CECL? You know your credit performance has been exceptional. You mentioned during the prepared remarks, you mentioned that there are some upgrades this quarter in loan performance. But how do you expect CECL to impact the results? How will you think about reporting a book value number or some adjusted number? Can you comment on that I guess, since we're about 6 months away?

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Anthony F. Marone, Blackstone Mortgage Trust, Inc. - MD, CFO & Assistant Secretary [20]

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Sure, this is Tony here. With respect to CECL, I'd say a couple of things. One is, we don't have any specific numbers we could share yet. We're still going through our analysis. We do expect that we will have to book some reserve, everyone is effectively required to. We think given the credit quality of our portfolio that, that reserve will be perhaps on the lower end of the range, but that remains to be concluded. As relates to its impact on the financials, the day 1 adoption is the balance sheet only. So it doesn't go through earnings, it reduces your loan portfolio and your equity and then it goes -- it changes in that reserve as loans come on or off, go through earning income -- the income statement in the future. Our expectation is that there'll be an adjustment for core earnings because this is not a realized expense. So from an earnings -- from a GAAP earnings perspective, you'll see some noise. The core earnings will remain consistent with what we've seen. And you asked specifically about book value. I think we have a decision to make if we are going to adjust our book value. I think we'll have to wait and see how the final analysis comes out on that one.

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Operator [21]

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Our next question comes from the line of Jade Rahmani from KBW.

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Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [22]

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On the NEC deal, I was wondering if you can give any further color? Is this a Starwood originated loan that you participated in? Motto of pricing and what kind of approvals are necessary since -- as you mentioned Blackstone owns the company?

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Katharine Keenan, Blackstone Mortgage Trust, Inc. - Executive VP of Investments & MD [23]

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Hey, Jade, it's Katie. Thank you for the question. This was a Starwood originated loan that we then had the opportunity to participate in 49%, as Steve mentioned in his script. The offer itself is pretty attractive. There is a 59% loan to cost loan secured by the dominant exhibition center business in the U.K., which includes 5 very large conference facilities totaling over 2 million square feet. It has strong in-place cash flow. The performance of the business have been quite stable with good forward visibility. So we like the business and we think our loan basis is very well protected. As far as the rate because the business is part -- in large part owned real estate, but also some operating business and then that overlaid with the geographic location and the Brexit considerations, that, combined with the deal size, we think impacted the general sort of competitiveness of the loan and drove a little bit of a higher rate, but again that rate was established by Starwood as part of their origination. And then because of the deal size and the affiliate nature, we do talk to our board about these types of deals and get their approval from our independent directors.

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Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [24]

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Okay. Is it -- is there a transitional element to the business plan you mentioned strong in-place cash flow?

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Katharine Keenan, Blackstone Mortgage Trust, Inc. - Executive VP of Investments & MD [25]

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The sponsor does intend to continue investing in the business, improving the facilities and we expect to see some cash flow improvement from that. But again, this is a very stable business and the cash flows are already good. So it would be great to see continued improvement in performance. But even at current levels because of our basis and the stability of the business and also the fact that most of the contracts in the business are 3 to 5 years in length, so there is good visibility as far as the next couple of years. Our protection as far as our loan is well established even if -- depending on the business plan.

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Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [26]

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Separately, Stephen, I wanted to ask if you could comment on how prepayments are trending quarter-to-date? Should we expect kind of a similar range that we've seen over the last few quarters like in the $500 million to $600 million range or, with a more liquid market, should we anticipate an acceleration?

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Douglas N. Armer, Blackstone Mortgage Trust, Inc. - Executive VP of Capital Markets & Treasurer [27]

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Jade, hey, it's Doug actually. So we don't disclose sort of forward-looking statements particularly with regard to portfolio activity other than the pipeline numbers that were in the script. So we'll have to wait until next quarter's disclosures for detail on that.

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Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [28]

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Okay. And lastly, I wanted to ask if you guys could share your thoughts on the co-working and flex office trend that we're seeing contributed to an outside share of leasing growth? I think JLL cited us a statistic of about 20% of total leasings were to go co-working. What are your thoughts there? And also does BXMT have any WeWork exposure?

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Katharine Keenan, Blackstone Mortgage Trust, Inc. - Executive VP of Investments & MD [29]

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Sure. We are seeing, WeWork in other co-working as an increasing force in the market in terms of their leasing activity. They're certainly quite active. And I think from our perspective, we generally think that a small co-working space can be additive in certain types of buildings as an amenity for tenants and also a source of potentially incubating new tenants that can grow in the building. But in our portfolio, specifically, we have very little exposure to WeWork and co-working in general. It's just not really a factor as far as the tenancy in our office buildings.

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Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [30]

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And by order of magnitude, are you talking in a couple of percent or less than that?

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Katharine Keenan, Blackstone Mortgage Trust, Inc. - Executive VP of Investments & MD [31]

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Yes, it's approximately 2.5%.

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Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [32]

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Okay.

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Stephen D. Plavin, Blackstone Mortgage Trust, Inc. - CEO, President & Director [33]

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Jade, it certainly is a force in the market and something that we're very mindful of. We look at recent take-up and also the impact on chances -- of demand going forward. But a lot of buildings is positive. We're certainly mindful of our exposures and prefer -- ultimately prefer tenants to have strong underlying credit and so sort of a traditional approach in terms of how we look at credit. But for us in our portfolio, co-working is, I think, has been positive.

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Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [34]

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And are you seeing it change any CapEx assumptions on the part of existing owners because they are dramatically improving property and making old buildings a lot more modern and full of amenities? Is that causing any changes in your CapEx assumptions?

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Stephen D. Plavin, Blackstone Mortgage Trust, Inc. - CEO, President & Director [35]

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Well, you're right in that the co-working tenants tend to get large amounts of TI and usually invest some of their own as well to improve their space and create whatever the environment is that they're trying to establish in a particular market. And so yes, it's usually beneficial and the space gets significantly improved. And as Katie mentioned, it can create a tenant amenity in the building. It just adds a different vibe. It gives tenants who are expanding or thinking about coming into the building a place to go, but they do tend to spend very happily on their space.

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Weston M. Tucker, Blackstone Mortgage Trust, Inc. - Head of IR & Senior MD [36]

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Next question, please, Joanne.

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Operator [37]

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Next question comes from the line of Don Fandetti from Wells Fargo.

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Donald James Fandetti, Wells Fargo Securities, LLC, Research Division - Senior Analyst [38]

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Steve, I was on the CIT call yesterday and they were just talking about being a little more careful on commercial real estate. Seems like we continue to hear that from banks. If I'm talking to an investor, what are your sort of key points on why you guys would continue to sort of grow pretty aggressively, while the banks are pulling back? I guess they obviously have some regulatory hurdles, but outside of that. And then secondarily, what are your thoughts on real estate asset pricing, let's say, office CBD, in general?

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Stephen D. Plavin, Blackstone Mortgage Trust, Inc. - CEO, President & Director [39]

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Well, thanks for your question, Don. We are really careful on credit. We have a great credit infrastructure here given our ownership footprint. How well managed the company is how information shared across the platform. We feel like we have a much better ability to assess real estate risk as a huge owner investor across the globe and frankly an investor in properties, just like the ones that we finance. We feel that we have better insight and a better ability to make assessments on the margin than some of the banks do. We continue to be very cautious in our growth, and whatever we do from a credit standpoint does reflect an investment committee process and analytical model that's highly focused on risk and I think exercises great caution.

The second part of your question about office building pricing. I think we're still seeing strong pricing for major market assets -- in markets where there's real growth, so the coasts are still very strong. We like the innovation cities, where there's dynamic sources of demand, where you're seeing tech take-up and biotech along with the traditional office uses. So we're seeing positive fundamentals still in those markets and a lot of demand for those properties and I think the pricing is held. The secondary markets where the tenant demand is less robust and there are less new economy tenants, those markets are much more challenged, but we tend to not participate in those.

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Operator [40]

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Our next question comes from the line of Ben Zucker from BTIG.

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Benjamin Ira Zucker, BTIG, LLC, Research Division - Former Analyst [41]

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Most of what I had was asked and answered. So just real quickly, I think I missed in your prepared remarks. But what did you call out as your origination pipeline right now?

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Stephen D. Plavin, Blackstone Mortgage Trust, Inc. - CEO, President & Director [42]

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$875 million.

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Benjamin Ira Zucker, BTIG, LLC, Research Division - Former Analyst [43]

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Great. And then just one more for me. Just given the change in the posture at the fed and what we're looking at now, would you happen to know offhand what percent of your loan book does in fact have LIBOR floors in place?

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Douglas N. Armer, Blackstone Mortgage Trust, Inc. - Executive VP of Capital Markets & Treasurer [44]

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Hey, Ben, it's Doug. Let me answer that a little bit in a roundabout way. Our business is very well positioned in terms of rates. We have a lot more upside than downside in our floating rate business model. And that's because of precisely the point that you bring up. Our loans do have LIBOR floors, which provides significant protection for our earnings in the lower LIBOR environment more than you might think because the floors themselves are levered in the same way that our loan book is levered. So there is a range of strike prices for the floors. Most of our loans do in fact have LIBOR floors, and the impact of those floors is levered and provides significant protection to us. We don't disclose the precise percentages or range of strike prices as that's ultimately a sort of a confidential and sort of business sensitive matter with our borrowers. What we do disclose, and it's in our earnings release, is the impact of that given our overall capital structure and portfolio, and you can see that it provides very significant protection, particularly for big moves in rates. And we're obviously very well positioned in terms of benefiting from big moves in rates on the upside.

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Operator [45]

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And our final question comes from the line of Arren Cyganovich from Citi.

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Kaili Wang, Citigroup Inc, Research Division - Senior Associate [46]

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This is Kaili Wang for Arren today. Maybe if you could give an update on what you're seeing with international investment opportunities and what are the risks and benefits of investing outside the U.S.? Are you still expecting it to remain at about 20% of that total portfolio?

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Stephen D. Plavin, Blackstone Mortgage Trust, Inc. - CEO, President & Director [47]

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Thanks for your question. We see great opportunity in markets outside the U.S. It's one of the -- I think one of the advantages of BXMT. And like in the U.S., everywhere we're making loans, we also own real estate. So it's true in Europe, true in Australia, true in Canada. And so we have the same platform benefits we have outside the U.S. that we have inside the U.S.. In Europe, we're about -- we are about -- it's about 20% of our portfolio and we are seeing a very attractive spread environment in Europe. Europe hasn't had much spread compression as has the U.S. So on a relative basis, from a rate standpoint, it's more attractive. But the deal flow is a little bit more episodic. They are relative to the U.S. It's more regular-way demand in the U.S. And so our ability to grow further in Europe is just a function of how much -- of how much loan demand there will be. We've seen a pretty good pace in recent quarters, and we have some good opportunities in our pipeline as we look forward. So we're optimistic. I can't tell you what the percentage will be because that's a reflection of not only what we originate in Europe, but also what we originate elsewhere. But I expect our global originations are originations outside the U.S. to continue to be a very meaningful part of the overall BXMT loan portfolio as we go forward.

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Operator [48]

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I'd like to turn the call back to Weston Tucker for final remarks.

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Weston M. Tucker, Blackstone Mortgage Trust, Inc. - Head of IR & Senior MD [49]

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Great. Thanks, everyone, for joining us this morning. And please let me know if you have any follow-up questions.

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Operator [50]

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Thank you. That concludes your conference call for today. You may now disconnect. Thank you for joining, and have a very good day. Thank you.