Blackstone Mortgage Trust Inc (BXMT) 2013 Q2 法說會逐字稿

Hello and welcome to the Blackstone Mortgage Trust, Inc., second-quarter 2013 results conference call.

Before we begin, please be advised that the forward-looking statements contained on this conference call are subject to certain risks and uncertainties, including but not limited to the performance of the Company's investments; its ability to originate investments; its capability to repay debt as it comes due; the availability of capital and the Company's tax status; as well as other risks indicated from time to time in the Company's Form 10-K and Form 10-Q filings with the Securities and Exchange Commission. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events or circumstances.

There will be a Q&A session question-and-answer session following the conclusion of the presentation. At that time I will provide instructions for submitting a question to the management.

I will now turn the conference over to Stephen Plavin, CEO of BXMT. Please go ahead.

Thank you, Misty. Good morning, everyone, and welcome to our first earnings call as Blackstone Mortgage Trust. With me are Mike Nash, our Executive Chairman, and Geoff Jervis, our Chief Financial Officer. Hopefully you have had time to review our earnings release and 10-Q which we filed last night.

For the second quarter 2013 we earned $0.22 per share, driven by the continued strong results in the legacy portfolio, which continues to outperform. But the true highlights of Q2 relate to the exciting kickoff of our senior mortgage lending business under Blackstone Management, even though the full financial impact is still a quarter away.

This is an excellent time to be in the senior loan origination business. Transactional activity in the real estate capital markets is expanding the demand for floating-rate mortgage loans.

Market forces boosting the prospects for our business include larger amounts of maturing fixed- and floating-rate loans, expanding property sales volume, and increased resolutions to the peak of the market loan workouts. We are also seeing greater demand for financing to bridge lease-ups, renovations, and operational improvements or simply the hold period prior to a future property sale.

Bernanke's remarks in May caused rippling effects through the credit markets, including higher rates and wider spreads. This led to a 125 basis point increase in the borrowing rates for long-term fixed-rate mortgages from CMBS loan originators, which impacted new origination activity in that market. However in our market, the private short-term floating-rate senior mortgage market, spreads held, LIBOR didn't move, and originations continued unabated, allowing us to meet our volume and return objectives.

The second quarter was very active for BXMT. We commenced our senior mortgage lending business, designed to produce high current income with low volatility for BXMT investors. We began originating loans and arranging credit facilities to finance them on a term and index matched basis.

In late May, we completed our equity offering, raising $660 million in gross proceeds, a great endorsement of our simple floating-rate senior mortgage business plan and our sponsorship as a Blackstone managed company. By the June 28 quarter end, we'd closed $765 million of loans and $1 billion of credit facilities.

To date, less than three months from our capital raise and initial loan closing, we have closed over $1 billion of loans and $1.3 billion of credit facilities. In addition to the closed loans we have another $376 million of prospective loans with agreed terms in the closing process.

Blackstone deal flow, proprietary property and market information, and industry presence provide us with significant competitive advantages in originating and financing senior mortgage loans for BXMT. You can see this in the magnitude of the capital we raised and the loans and credit facilities we closed in a very short period of time.

Jon Gray, the Global Head of Real Estate for Blackstone, is a member of the BXMT Investment Committee. Michael Nash, our Executive Chairman and Chief Investment Officer of Blackstone's Real Estate Debt Strategies group, and John Schreiber, the cofounder of Blackstone's Real Estate investment business, are active as both BXMT Board members and Investment Committee members.

The competitive advantages of being part of Blackstone hold true not only in the US but also in Europe, where we expect additional lending opportunities. The greater distress, inefficiency, and reduced liquidity in these markets should produce significant opportunities for us to make loans with attractive risk-adjusted returns.

We will focus on the countries with the most favorable legal and regulatory structures. We anticipate that our initial European mortgage loan closings will occur later this year.

As you can see, we're off to a great start, ahead of the origination pace we anticipated when we were on the road show in May. We are very pleased with the risk profile of the first mortgage loans we have originated.

Our forward pipeline of senior loan opportunities looks equally strong. We remain confident that we will deploy our equity capital prior to year and.

We anticipate paying our first dividend as BXMT following the third quarter. Going forward, we expect that our dividend will track our average deployment during each quarter as we go from approximately 50% invested to fully invested. We continue to target a fully ramped LIBOR indexed dividend of 8% on book value and believe that we should trade at a significant premium to book as a result.

A final point about our business. Our short-term floating-rate assets benefit from rising short-term interest rates, as their current yields increase with these rates. REIT investors tend to fear rising rates, particularly investors in residential mortgage REITs, where many of the assets are fixed rate but the liabilities float.

But BXMT is different. Our loans are LIBOR-based and insulated from the valuation impact of rising rates.

Our credit facilities are also LIBOR indexed and matched to our assets. As a result, our equity returns directly benefit from increases in LIBOR. When rates rise in tandem with better economic activity, which is a scenario that we anticipate, then the real estate underlying our loans will generate higher cash flows as well.

In summary, we are very excited about the progress we have made. We are exceeding our origination target, our products and platforms are resonating with real estate owners, our credit facilities are best in class, and the synergies with Blackstone are providing enormous benefits. With that, I will turn it over to Geoff.

Thank you, Steve, and good morning, everyone. As Steve mentioned, last night we reported our earnings for the second quarter and filed our 10-Q. This filing represents our first quarterly filing after our successful re-IPO, reverse stock split, and name change to Blackstone Mortgage Trust, and more important, our first filing after commencing our new mortgage lending business. Needless to say, an extremely productive quarter by any measure.

For the second quarter, consolidated GAAP net income was $2.7 million or $0.22 per share. The period's results were driven by the activity in our CT legacy portfolio as we effectively commenced our new loan origination business in the final months of the quarter.

At quarter end, total consolidated assets on the balance sheet stood at $1.1 billion, increasing by $722 million as we funded $757 million of new loans in the lending business, offset by $99 million of repayments in the CT legacy portfolio.

As a result of the repayment activity, the CT legacy portfolio shrank to $268 million, representing less than 25% of total assets and only 9% of book value. While the accounting for the CT legacy portfolio continues to cause a degree of complexity in our financial statements, our new lending business model is simple -- produce attractive returns on equity by prudently leveraging a portfolio of newly originated first mortgages.

During the period, we originated $765 million of loans with an average loan-to-value of 65% and a weighted average yield of LIBOR plus 5.26%. The volume, risk metrics, and yields are all in line or better than our targets.

As our loan origination segment continues to grow and our CT legacy portfolio continues to experience repayments, our GAAP financial statements will continue to clarify and become a more straightforward expression of our business and performance.

On the liability front, we have secured significant credit for our new business. During the quarter, we closed $1 billion of credit facilities with four distinct providers and are in the process of adding significant additional credit capacity in both the US and Europe. Our revolving credit facilities provide us with the ability to efficiently finance first mortgages at leverage levels of 3 or 4 times at an all-in cost in the range of LIBOR plus 2% to 2.75%, allowing us to generate returns on equity at or about our target levels.

In addition to the attractive economic terms of our liabilities, we have designed our credit facilities to create a stable right-hand side of the balance sheet. Specifically, our credit facilities are partial recourse term-matched financings with modified mark-to-market provisions that do not allow for marks to market other than those associated with underlying collateral or property level performance, eliminating capital markets-based marks to market and the associated volatility.

On the equity front, book value at quarter end was $713 million or $24.67 per share, increasing as a result of the May 29 equity offering. As Steve mentioned, we are on pace to deploy the capital from our May equity offering before the end of the year.

Net proceeds from the offering were $634 million. And accounting for protective liquidity and anticipated leverage levels, we believe that the equity raised supports the origination of approximately $2.2 billion of senior mortgage loans. With $765 million closed at quarter end and $289 million closed subsequently, we have originated $1.1 billion of loans to date, representing 50% of the total loans we expect to fund from the May equity offering.

With the addition of $376 million of loans that are currently in the closing process, we will have originated $1.4 billion of loans, representing 65% of the capacity from the May equity offering. At this pace we expect to be fully deployed at some point in the fourth quarter.

Turning to the CT legacy portfolio, the quarter saw more solid gains as we continue to resolve the remaining loans. During the quarter, we received $99 million of repayments representing 27% of the portfolio and experienced $6 million of fair value increases on the portfolio as a whole.

As a result of the repayment specific to CT legacy partners, we were able to eliminate the last of the repurchase facility debt on the portfolio, as well as all of the remaining interest rate hedges, both significant milestones for us. Over time, we expect further reductions from repayments in the legacy asset base and its percentage of total assets and book value.

Looking forward, as we digest the progress we have made in executing our new loan origination business plan, we expect to be able to pay a partial dividend after the third quarter and expect to be in a position to pay a stabilized dividend after the fourth quarter. As we have consistently said, our expectation for a stabilized dividend is a LIBOR indexed 8% dividend on our book value.

As Steve mentioned, our objective is to provide protection in terms of asset value and cash flows in a rising interest rate environment. We expect to accomplish this by originating floating-rates LIBOR-indexed mortgages and financing them with floating-rate LIBOR-indexed liabilities. The result is effectively a LIBOR-indexed dividend, an attractive feature in the current interest rate environment.

On a final note, last Friday we filed a shelf registration statement that will allow us to issue various debt and equity securities in the public markets should we deem the market conditions to be appropriate. While we have no plans to offer equity immediately and continue to be subject to the 180-day lockup agreement we entered into in connection with our re-IPO at the end of May, the filing will allow us to have a sufficient access to capital in the future, a valuable tool as we continue to grow this platform and become a large-scale, industry-leading lending business.

With that I will turn it back to Steve.

Thanks, Geoff. Misty, please open the call to questions.

(Operator Instructions) Don Fandetti, Citigroup.

Yes, Steve and Geoff, the yields came in pretty strong this quarter. I was just curious on your outlook for the sustainability of spreads and your senior floating-rate loans, just given the competitive dynamic as it increases.

And secondarily, Geoff, just to quickly make sure I understand. The Q3 dividend would be paid after Q3, and based on your ramp up would probably be somewhere in the 50% to 65% of full capacity type level?

Don, I will take the first part of the question. I think that we are seeing the spread environment to be stable today. We do think it will likely tighten over time. I think we have room in our business model and also we have the benefit of our liabilities being floating rate, and we have the ability to reprice the liabilities in the event that our assets get repriced through tightening spreads.

In general, we are originating loans in the LIBOR plus 400 to 500 range, all in. So I think the results you see from Q2 were a little bit skewed by one very high-rate loan that we did on a land site in Manhattan; but in general, it is a LIBOR plus 400 to LIBOR plus 500 business.

Don, with respect to your question about dividend timing, yes. My comments -- to clarify, the third-quarter dividend would be paid in early October, and the fourth-quarter dividend would likely be paid in early January.

And with respect to the size of the dividend, or as you put it the percentage of the stabilized dividend we pay in the third quarter, I think our current expectation is somewhere in the range of 50% or greater of the stabilized dividend.

Okay, thank you.

Jade Rahmani, KBW.

Thanks for taking the question. The activity you announced so far in the third quarter including the expected closings equates to a monthly pace of roughly or in excess of $200 million per month. Do you view that as a sustainable rate?

Jade, I do. I think that it is difficult to predict loan originations on a monthly basis or even on a quarterly basis, because we are always making sure that the loans that we see and will close are of appropriate credit quality. But I think as you see, our pace is very strong. We are faring very well in the market on a competitive basis, so I do think that pace or a more significant pace will be achievable going forward.

Okay. Thanks for that. Then beyond the actual originations, can you just comment on deal flow and overall activity levels, the number of conversations that are ongoing, the number of interactions? Has that been increasing, or are you seeing that lessen somewhat, given interest rate volatility?

The deal flow is very good. I think one of the things to note is when we originated our original portfolio earlier in the second quarter, we hadn't really rolled out the platform. We are still really in the process of doing that, of creating more awareness that Blackstone is in the senior mortgage lending business.

As we do that we are seeing the opportunities that are available to us expand pretty significantly. We have greater market access to our real estate business here overall. And I do think that we will see opportunities continue to expand, not only in the US, but in Europe as well.

Thanks. Just a clarification on the high-yield urban land site you mentioned in Manhattan. Would you expect any potential prepayments on that over, say, the next 6 to 12 months?

Well, it's a possibility. A lot of our floating-rate loans become open to repayment at various stages of their lives. I think in this case we do expect to be taken out by a construction loan sometime in the next 12 months. I think the exact timing of that is still subject to the process that the property owner has in terms of securing that debt financing.

But one of the nice things that we liked about the land loan was that we saw the identified source of repayment. It was in an established location with a development plan very far progressed.

Great. Thank you very much.

Dan Altscher, FBR.

Thanks, good morning, everyone. I was wondering, the all-in yields at a LIBOR plus 5% to 6%, is there a apples-to-apples number for the financing cost of that? Because at a LIBOR plus 1.98%, if cash is there, are there other fees or anything that makes this a little bit more GAAP comparable to the 5% to 6% that we can think of?

Yes, and you're right, the LIBOR + 1.98% that is in the press release is a cash cost of debt. The reason that we didn't put in the book the GAAP cost was that given the fact that we are only borrowing $165 million of credit, yet we have paid fees and expenses for the $1 billion of credit, it wasn't an applicable number.

On a stabilized basis, our GAAP cost of debt should be somewhere in the range of LIBOR plus 2.5% to LIBOR plus 2.75%.

Great. That's perfect. That is exactly what I was looking for.

Then the opportunity in Europe, that is obviously pretty interesting. I think you alluded to maybe more safer countries or whatnot. Can you maybe elaborate a little bit more as terms of property types or specific geographies or even potential returns that you think that you can get out of the region?

Sure, Dan; this is Mike Nash. We have been landing in Europe through our existing platform for several years. We focus on the UK market, Germany, and France as primary focuses. Those are jurisdictions where we have been owning real estate, where the lending jurisdiction and legal protocols make sense and work, etc.

For this business, what is really important is to establish credit facilities so we can take out currency risk and things like that. We initiated I think it was 11 meetings over the last month to get some credit for the region. We're building a pipeline.

So we are really optimistic about what that market opportunity looks like. It is more impaired than it is here in the US; less banking capacity than we see here in the US; no CMBS market to speak of. So you should expect from us, I think, a continued evolution of that business plan over the next three months to six months.

But it has got to start with credit facilities first. And the risk-reward proposition, I would say the same or better return, taking less risk just to reflect the fact that there is more systemic risk in that region.

Okay, great. We will be on standby and on watch. Thanks.

Joel Houck, Wells Fargo.

Thanks and good morning. Just to clarify on page 4 of the debt facility, I know you guys added $250 million after the quarter. Can you talk about -- I am sure the advanced rates vary by facility; but give us a sense for what they are, not necessarily by lender, so that we can -- I guess what I was trying to get to is you raised net proceeds of $634 million; what is the maximum amount of leverage available to you guys off your equity?

Sure. I tried to give a little sense of maximum origination capacity off the $634 million of net proceeds. In my remarks I made the comment that we thought we could originate $2.2 billion worth of loans. So the difference would be the credit need for the business plan.

Specifically answering your question on page 4 of the press release where we list out the $1 billion of facilities that were closed by quarter end -- and you are right, we did close an additional $0.25 billion upsize to one of the facilities post-quarter-end. The advance rates for first mortgages range from 75% to 84% on the existing facilities we have in place.

Okay. That is exactly what I was looking for. So what you are saying is that the total based on the equity, [1566] is the total amount of debt you could deploy based on these advance rates?

That is not the total amount of debt we could deploy. It is the total amount of debt we plan to deploy.

I got you. Okay.

We won't fully deploy our equity. We will maintain liquidity for safety purposes, for asset management, to bridge to future capital raises.

Okay. The attachment point to LTV of a total of 65%, is that representative of what you guys are seeing with your pipeline? I know obviously it depends on property type. But overall, how should we think about that going forward?

I think that most of what we are seeing falls in the range of between 60% and 75%. So 65% is in the range; I would say more typically 70% would be the center of the range.

Okay, great. Thanks, guys.

Kenneth Bruce, Bank of America.

Thank you. Good morning. Firstly, good quarter. Thank you for the clear communications around your guidance for the year.

Could you maybe provide a little bit of context in terms of whether you expect any seasonality in the lending volumes in particular coming through the numbers? Or do you think you are going to grow through any normal seasonality that may be evident at the industry level?

This is a very good question, because typically the origination market slows down at the end of the summer and then also at the beginning of the year. So far we haven't seen a slowdown in our pace of originations and the volume of new deals that we are seeing.

We are also rolling into August, but we have a really, really strong forward calendar so I don't think we are going to feel that this year. So we're pretty optimistic that the pace will continue right through the end of the summer.

Good. Then in your prepared remarks you touch on a number of things, in particular being fully deployed by the end of the year puts you into the market from an equity perspective; not that long after, your shelf registration is in the process of working its way through. You mentioned about the evaluation, obviously, that market conditions would be important.

How are you thinking about the exercise of capital raising going forward? Is this something that you would anticipate relatively small equity raises in tandem with the current production and just doing more frequent raises? Or how are you thinking about that?

And then more generically, on the roadshow you had some discussion as to how big you think the business can grow over a period of time. If you could maybe update that, if there is any update, or maybe just discuss how you think the growth in the business, where it would plateau, please.

Sure, I will answer the first part of the question. With respect to our capital needs, obviously we are experiencing tremendous demand for our capital from the market, and the lending environment is very strong. And as long as that is maintained, we do expect to be fully deployed in the fourth quarter.

At that point in time, if the market continues to be strong and the stock is appropriately valued, we do anticipate a capital raise. From thinking about the stock, obviously, we know where book value is; we know where the last deal price was done. And those will all be significant factors in our decision-making.

With respect to the size of the offerings, it really depends upon the deal flow. I think that if the deal flow is extremely robust we would tend towards a larger offering. If the deal flow was softer we might go to the lower end of the range.

I think in terms of the second half of your question, our goals for the business are to achieve large scale, consistent with Blackstone's footprint in real estate, consistent with what we see as being part of the overall Blackstone platform. So we're going to gravitate towards larger loans in larger markets with primary sponsors. And I do think that creates a very large market opportunity for us, which we intend to exploit.

Okay. Just lastly, the topic of valuation and market conditions is always a little bit of a challenging one to answer. Looking at some of the peers and you went out of your way to differentiate yourselves from some of the more levered rate-sensitive mortgage REIT peers -- and I don't think anybody invested in Blackstone necessarily would put you in a comparable with that crowd. But there are, obviously, a few other commercial mortgage REITs; there is really only one that is valued currently at a significant premium.

What do you think it takes for the market to maybe understand the nature of what you are doing and how it is different than even those that are more comparable from the commercial standpoint, in order to possibly give you that significant premium to book valuation that you mentioned?

Well, we are hopeful that by having a good and clear communication in terms of what we are doing in the market from a loan origination standpoint, asset management, the growth of our portfolio, the competitive advantages we have as being a part of Blackstone in terms of sourcing transactions and evaluating them -- we think those are things that the market will appreciate over time. We really do think we are differentiated from our competitors in those regards.

We are staying true to a strategy that is a senior mortgage strategy. So we are not taking high degrees of asset level risk in this vehicle.

So those are all features that we expect the market to reward us for going forward. So we will just have to see where the stock trades, but we are very optimistic that the market, with greater communication, will understand how we differ from the competitors.

I would just add to that that as we pay a dividend, as we continue to make loans and demonstrate to the market that we can execute, I think that the appropriate valuation will come.

Well, you're off to a very good start. So thank you very much for your comments today.

Rick Shane, JPMorgan.

Hey, guys. Thanks for taking my questions this morning. I would like to talk a little bit about the timing and character of activity-based revenues and expenses. Specifically thinking about -- were there any structuring fees and origination fees that came through this quarter, and the mix between what you recognize immediately and what you accrete in over time? But also put that in the context of whatever professional fees you incur, so we understand the timing differential between the fees and the expenses.

Sure, Rick. With respect to -- we do have a breakout of G&A in the 10-Q, which I would encourage people to take a look at. But I think your instincts are correct, which was that in these first few quarters we are experiencing probably slightly higher G&A than we expect on a run-rate basis because of the transactions that we've executed, because we are getting the platform ramped. And I think that over time, as we have said in the past, that we believe that G&A on a run-rate basis would be a lot closer to the $4 million a year or $1 million a quarter range.

With respect to the differences between cash and non-cash items, the revenue side of the equation on the new business is very straightforward. There is a difference, which is simply the amortization of upfront fees, extension fees, and offset by any expenses, amortized over the maximum life of a loan.

And on the credit front, we do the same thing where we will amortize any drawdown fees or extension fees on our credit facilities, plus any expenses associated with pledging individual assets or setting up facilities at the outset over the expected life of the facility. But those really are probably 25 to 50 basis points of cost or of income on the interest and expense line items.

Geoff, so just to be clear then, none of the origination fees are immediately recognized. Those are just included in the yield over time.

Correct.

Okay. Great. That's very helpful.

Just to clarify, the LIBOR plus 5.26% on the existing book is the amortization on a level yield basis effectively of fees and expenses associated with that loan portfolio.

Got it. Great. Thank you, guys.

Stephen Laws, Deutsche Bank.

Hi, thanks. Congrats on a very nice quarter of portfolio growth. A number of my questions have been hit on already, but I want to follow up on the previous question.

Did I understand that correct, that you take the origination fees and you will amortize that income over the expected life of the investment?

Correct. That is GAAP, given our accounting regimes.

Great. So assuming we see anything pay off earlier than expected, we would see a one-time acceleration of all the income that was yet to be recognized?

Correct. Or yes -- and expenses, well to the extent that we have expenses associated with originating loans. But yes in general, it is a yield enhancement if a loan pays off early.

Great. Okay. Then can you talk maybe a little bit, you hit on Europe a little earlier in the call; but maybe US competition. I know while the BXMT vehicle has only been around for a couple months, you guys have been in this business for quite some time.

So how have things changed in the market with what you are seeing on the competitive front in the last three, six, or 12 months? Whatever time frame you feel is most informative.

And then what things do you feel like BXMT does that really differentiates itself the most? Is it flexibility of structure? Is it larger deal sizes since you're willing to do a little bit larger deals then some of the peers? Can you maybe talk about your positioning here in the competitive environment in the US?

Sure. I think from a competitive standpoint there is really no true one-to-one competitor with what we are trying to do. We have -- on any one transaction we see a lot of different competitors. Sometimes we will see the commercial mortgage REITs; sometimes we will see other private lenders, maybe in private equity fund format. Occasionally we will see commercial banks.

But in general what we are finding is that the competitive environment is good for us. We have the ability to do large loans, we have the ability to transact quickly and definitively. That is one of the big advantages we have over banks and other finance companies. And that, for borrowers to need either quick execution or certainty of execution, that is a big advantage to us.

I think a lot of the advantages that we have in the market relate to being part of the overall Blackstone Real Estate platform. We really have great information as it relates to the properties that we own or control.

For example, one of the loans that we made in the quarter was in Silicon Valley. Blackstone through the equity side of the house is the largest property owner in Northern California with 15 million square feet of owned property. They literally own properties all around the property that we were evaluating.

In many cases, Blackstone has tried to buy the properties or formally own the properties that we are looking to finance. So a big advantage there.

Our relationships with intermediaries and mortgage brokers are also very helpful. We tend to be very, very large clients of the firms that control the mortgage market from a brokerage standpoint. It gives us, I think, another competitive advantage that others don't have.

So all those features of why we are able to originate at the pace we are originating and why the quality of our portfolio will continue to be strong -- because we have such great information and a very strong investment process.

Great. Appreciate the color there. One last question. You mentioned in the presentation on your website the amount of loans you closed and the amount that has been funded, which is relatively similar.

But can you maybe talk about some nuances there? What is the typical timeline between closing a loan and funding it? And what, if any, impact does that have on when you start receiving the interest income from those new investments?

When we describe a loan as closed, that means it has been funded. In some cases, the commitment amount may be slightly larger than the initial funded amount. Some of our loans have future funding provisions for additional cost that property owners will incur as we go forward.

For example, tenant improvement dollars and capital expenditure dollars for buildings where there is renovation work ongoing. But in general, the vast majority of our capital goes out at the closing of the loan.

In terms of how long the origination process takes, it really varies from loan to loan. Sometimes when we hear of a loan till when we close it can be as short as 30 days. Sometimes as long as 90.

Generally the gestation period for our loans is in that 30- to 90-day band. So for the loans that we talk about as being in closing, I think the time frame for those is probably in that 30- to 60-day window since most of the loans have been originated in the past few weeks.

On a go-forward basis, we continue to have good visibility on a large pipeline of potential opportunities for the fourth quarter and hopefully as we roll into later in the year, the pipeline that will roll into the first part of 2014.

Great. Appreciate you taking my questions. Thank you.

Joel Houck, Wells Fargo.

Yes, just a follow-up on the -- you mentioned a robust pipeline. Can you put any numbers? Or how should we think about that in terms of size, likelihood of closings, or size of term sheets issued? Just any color would be helpful on that.

I think what we have indicated to the market in our communications is that we feel that we will get to the $2.2 billion of total originations at some point in the fourth quarter. I think that given our current pace we have a potential for that to occur earlier in the fourth quarter rather than later. But it is difficult to predict exactly when the loans will close.

In terms of what we are evaluating, the market opportunity is very strong right now for us and we are winning a lot when we compete. At any point in time, we are probably evaluating between $1 billion and $3 billion of prospective loans. The vast majority of what we see get rejected in our screening process.

So we really focus on -- again what we are typically focused on is larger loans in major markets with top sponsors. So a lot of the loans that are either smaller in size or don't meet the leverage or risk profile of our platform get rejected.

Did I hear you right? You are evaluating up to $3 billion in total potential opportunities?

Yes.

Okay. So that would mean -- so roughly if you get to $2.2 billion you're going to close about half of that. I understand the timing is subject to --

No, we will actually close -- that is incremental. We have -- between closed and closing we're at about $1.4 billion, so we have approximately $800 million of capacity left. It will vary depending upon the nature of the loans that we originate and how we choose to finance them.

For that $800 million, that is sort of what we are looking at. Today we are looking at, again, that $2 billion to $3 billion of opportunities; but before we get that $800 million deployed we will see many additional opportunities as we roll into the late summer and early fall. So a relatively small percentage of the deals that we initially evaluate make it through to the closing process.

Okay.

So I think that is sort of an important thing to understand.

Okay, great. Thank you.

You're welcome. I think that -- I believe that was our final question. Thank you, everyone, for participating. We look forward to reporting to you next quarter.

This does conclude our conference. You may disconnect any time. Have a wonderful day.