Blackstone Mortgage Trust Inc (BXMT) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Blackstone Mortgage Trust full-year fourth-quarter 2014 conference call. My name is Jasmine, I'll be your Operator for today.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes.

And I would now like to turn the conference over to your host for today, Mr. Weston Tucker, Head of Investor Relations. Please proceed.

Great, thanks, Jasmine.

Good morning and welcome to Blackstone Mortgage Trust's fourth-quarter 2014 conference call. I'm joined today by Steve Plavin, President and CEO; Mike Nash, Executive Chairman; Paul Quinlan, CFO; Doug Armer, Treasurer and Head of Capital Markets; and Tony Marone, Principal Accounting Officer.

Last night we filed our Form 10-K and issued a press release for the presentation of our results, which hopefully you've all had some time to review. I'd like to remind everyone that today's call may include forward-looking statements, which by their nature are uncertain and outside of the Company's control.

Actual results may differ materially. For a discussion of some of the risks that could affect the Company's results please see the risk factor section of our Form 10-K. We do not undertake any duty to update forward-looking statements.

We'll refer to certain non-GAAP measures on this call. For reconciliations to GAAP, you should refer to the press release and to our Form 10-K, each of which have been posted on our website and have been filed with the SEC. This audio cast is copyrighted material of Blackstone Mortgage Trust and may not be duplicated without consent.

So a quick recap of our results before I turn things over to Steve, we reported core earnings per share of $0.52 for the fourth quarter and that's up 27% versus the prior-year fourth quarter due to greater net interest income from the growth in our loan origination portfolio. A few weeks ago, we paid a different, also $0.52 per share, with respect to the forth quarter. If you have any additional questions following today's call, you can reach out to me or Doug directly.

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

Thanks, Weston, good morning, everyone.

In the second year since our relaunch as BXMT, we continued to do what we said we would do at the outset, grow the scale of our floating rate lending business and produce attractive shareholder returns exclusively within the envelope of what we consider senior mortgage risk. During the year we originated $3.4 billion in loans and double our equity float while at the same time driving growth in core earnings which covered our increased dividends the second consecutive quarter.

In the fourth quarter, we closed eight loans totaling $781 million and another $315 million loan closed immediately subsequent to quarter end. Today we have an additional $1 billion of loans with agreed terms that we expect to close over the coming months and our pipeline remains active reflecting strong borrower demand and our ability to succeed in an increasingly competitive market for senior mortgage loans.

To remain most competitive we continually work to reduce or cost of debt and optimize our capital structure so that we can be very efficient at the asset level and maintain our levered yields. Market loan spreads have compressed but we have maintained a stable growth ROI in the LIBOR plus 12% to 13% range. To assert another of our competitive strengths, we target larger loans. The banks often look to syndicate bigger exposures, which limits their ability to commit quickly and efficiently.

With our increased scale and Blackstone real estate affiliation, we are strongest on bigger deals. The larger loans have the added benefits of better institutional sponsorship and higher quality real estate collateral located in stronger gateway markets. The larger loans also take advantage of our superior access to financing and the value that senior participants and syndicate members place on the Blackstone leadership endorsement of a transaction.

Because of this emphasis on larger deals, the average size for loans closed since the start of the fourth quarter is $148 million as compared to $89 million for our existing portfolio heading into the fourth quarter. The larger and more complex loans do tend to have longer closing lead times. What we have not done in response to competition is reach for yield or alter the risk profile of our lending.

The credit quality of our loan portfolio remains high with an average LTV at year end of 64% in line with prior periods. The portfolio remains well diversified across asset types including office, hotel and multi-family while focused in major markets in New York, California and Europe. Less than 1% of our portfolio was secured by collateral located in Houston.

In the fourth quarter, we received $216 million of repayments, the first quarter we've had a material amount. And a portion of our 2015 lending activity will be funded from recycled capital from repayments rather from new capital raising.

As part of our asset management activities, we proactively reach out to borrowers to try to extend the duration of our loans by better matching them to the improving underlying real estate performance and market conditions. But interim repayments are part of transitional lending and a validation of our loan underwriting. As our sponsors achieve success in their business plans, they will move to sell or refinance their stabilized properties.

We have matched our success on the origination front with great results in the leveraging of our loan portfolio and have developed $4.4 billion of credit capacity with market-leading terms and structure. In addition to establishing six bilateral revolving credit facilities, we've also selectively sold senior interest in our loans which provide additional capacity. To increase stability through the cycle, we also seek to index match, currency match and term match our financing.

The fundamentals of our Business remain very compelling. We were able to achieve attractive loan level ROIs, while maintaining the senior mortgage loan risk profile of our business. As we grow, the impact of our fixed costs and working capital will diminish over time, improving our ability to generate returns.

Our growth in core earnings and dividends have been achieved with LIBOR close to 0 since BXMT's inception. Virtually all of our assets and essentially our dividends remain indexed to LIBOR. Because of that, our stock is much different from equity REITs and residential mortgage REITs that have cash dividend yields and assets that become less valuable as rates increase.

When short term rates do inevitably rise, we will almost immediately generate increased earnings. This hedge against rising short term rates is a great bonus of owning BXMT shares and we are on a mission to make sure that the market understands this valuable feature of our Business.

In closing, I'm pleased with our fourth quarter and full year performance, I'm excited about the current opportunities for our Business. Thanks for your continued support, and with that, I'd like to turn the call over to Paul to review our financial results.

Thank you, Steve, and good morning, everyone.

BXMT's financials demonstrate a year of significant growth across all key metrics. In 2014, we achieved many of the goals we targeted in our May 2013 re-IPO, including the global scale of our business, the net returns generated from our investment strategy and the result in growth of our dividend.

Before I review the fourth-quarter results, I would like to mention a few annual highlights from our first full year of operations as BXMT. Core earnings of $30 million were up 150% from last year's fourth quarter, driven by a 120% increase in our loan portfolio to $4.4 billion. Earnings growth meanfully outpaced the growth in the balance sheet reflecting another benefit of increased scale.

We efficiently raised and deployed $766 million of equity capital during 2014, contributing to a net $0.85 per share increase in book value and a 27% increase in quarterly earnings per share from year earlier levels. This earnings growth supported a 16% year-over-year increase in our dividend to $0.52 per share for the fourth quarter of 2014.

Looking at the fourth quarter, core earnings increased 21% in absolute dollars and 4% on a per share basis as we deployed the capital raised in our September offering. A rise in interest income drove earnings with our loan portfolio increasing by $554 million as fundings of $770 million outpaced $216 million of repayments.

In general, repayments can be accretive to our portfolio yields in the quarter they occur. When a loan repays prior to it's stated maturity date, it accelerates the recognition of unamortized origination fees. This net loan growth was funded almost entirely by financing from our revolving repurchase facilities and asset-specific financings as we expanded our financing capacity in the quarter. We negotiated a $500 million upsize to an existing revolving facility and closed two additional asset-specific facilities, bringing our total financing capacity to $4.4 billion. This includes euro- and pound-denominated facilities to support our activity in Europe.

At quarter end, our debt to equity ratio was 2.1 times. The all-in cost of our revolving repurchase facilities, our primary source of balance sheet leverage, was LIBOR plus 2.1% at quarter end, a cost we continue to actively manage downward.

Although not a large contributor to our fourth quarter results, we did tap our ATM program, issuing an initial $100,000 of stock in mid December at an average gross sales price of $28.65 per share. We expect to issue shares under our ATM program periodically to provide additional liquidity and capture economics in the stock market without the dilutive effects of larger offerings on a given quarter's earnings.

Rounding out core earnings, management fees for the quarter were $5.5 million, up from $4.6 million last quarter as the proceeds from the September offering were part of the fee base for the full quarter. Core G&A was $1.1 million, roughly flat to the third quarter. Core earnings do not include the results of our CT Legacy segment, which posted a loss of $4.8 million during the quarter as an impairment of our net equity position in CT CDO I was only partially offset by gains in the CT Legacy portfolio and our CTOPI carried interest.

On balance, the portfolio represents an asset for our shareholders including $5.8 million, or $0.10 per share of unrealized net CTOPI carried interest, which is not included in book value. Also during 2014, the CT Legacy segment generated $9.8 million of net income to BXMT and now represents only 1.5% of book value. Looking forward, we expect the Legacy segment to have a modestly positive, but not meaningful impact on BXMT's financial results. Other items excluded from core earnings were incentive fees of $800,000 and non-cash compensation expense of $2.5 million.

Our book value at quarter end was $25.10 per share. The number is down this quarter due to an increased share count resulting from the 2014 LTIP share issuance, the CT Legacy portfolio net loss and net unrealized foreign currency translation losses. Our pound- and euro-denominated assets are financed with currency matched liabilities, providing a natural hedge against currency fluctuations based on the debt outstanding related to our European investments. The periodic remeasurement of the net investment in foreign currency produces a net unrealized gain or loss recognized through OCI on our consolidated balance sheet.

As Steve mentioned, we fully covered our $0.52 per share dividend this quarter. Based on last night's closing price, our $2.08 annualized dividend represents a 7.2% yield. We believe this is a compelling risk adjusted return for shareholders, given the stable credit profile of our senior loan portfolio and the positive correlation of that yield with short term rates given our 100% floating rate portfolio. Our interest income would increase by $0.26 per annum with a 100-basis point increase in LIBOR, implying a 12.5% increase to our earnings and dividend with virtually no downside, given LIBOR's current level at only 17 basis points.

In closing, we reflect on 2014 as a year of tremendous growth for BXMT and look forward to continue to deliver compelling stable returns to our shareholders. And with that, I will ask Jasmine to open the call to questions.

(Operator Instructions)

And your first question comes from the line of Dan Altscher with FBR Capital Markets.

First on the FX translation, I understand obviously it's unrealized and that can reverse at any point in time. But is there any incremental thoughts about maybe hedging the net equity exposure to FX in the future?

Hey, Dan, it's Doug. That's a good question. I think I'll answer that in two pieces. With regard to opportunistic investments, for example the investment we made in Canada, we would in fact hedge, we did hedge the Canadian deal with the rolling forward contract strategy.

But with regard to the existing $225 million that we have invested in our euro and pound loan programs, we take the long view with regard to those as you mentioned unrealized currency translations. Those loans have been earning good returns for us. And we expect for the foreseeable future that we'll continue to redeploy that capital into those loan programs and continue driving core earnings.

So we wouldn't change the strategy where it's appropriate to take the long view. And we would in fact hedge where we're making opportunistic investments. Additional investments in the euro and pound loan programs might very well be opportunistic as opposed to dedicated and we'd continue to evaluate that on a case-by-case basis.

Okay, thanks for that, Doug. And regarding the geographic exposure, page 5 of the deck has a new updated little map there. In regards to Texas and Canada being a little bit more oily, if you will, can you discuss or talk about a little bit exposure to oil and gas sensitive geographies, maybe those two in particular, whether it's property type or borrower type, anything there that can give us a little bit more of a feel as to what the oily exposure is?

Okay. Sure, Dan, this is Steve. We don't have a lot of -- we have very little exposure to what I would consider some oil driven economies. I mentioned in my remarks our Houston exposure is less than 1%. And actually we don't have any dedicated loans with collateral in Houston. We have properties in Houston that are part of cross collateralized pools, so further diminishing the reliance of performance on those local economies.

We do have -- we have some loans in Dallas. So overall Texas exposure is about 5%. We have our exposure in Canada is -- none of it is in the oil regions in Western Canada, so we have no Canadian oil exposure.

We do have some loans in Colorado. We view the Colorado economy as being less oil reliant and more diversified obviously than that of Texas, in general Houston and Houston specifically. But even in Colorado we're just a little over 1%. It's a mix of asset types in all cases across office, hotel and multi-family.

Thanks, Steve. And one quick follow up also. Based upon your remarks it sounded like the amount of repayments this quarter was a little bit elevated from what you were expecting. So is that correct, was it elevated and by how much?

And then also thinking about 2015, you made the remark that a lot of the loan origination in 2015 will be done with principle repayments received. Can you help us quantify what you're expecting in 2015 in terms of principal repayments?

It's really very difficult to predict when these loans will be repaid. The one thing that we do look at is the call protection that we typically get when we originate the loans. We generally have about 18 months of protection through prepayment penalties or other consequences of early retirement of our loans.

And the amount of repayments we get will depend upon the underlying real estate performance of the loans, market conditions. If spreads tighten or if properties perform better than expected, then we'll get repayments earlier because when properties achieve their stabilized results, a lot of time our transitional owners will sell those properties or finance them on a stabilized basis. So difficult to predict.

I think that it will be meaningful as we roll forward, as our portfolio ages, more of the call protection and the early loans will roll off. And as I mentioned, those repayments will fund a portion of our new originations in 2015. But only a portion, we still expect to have meaningful net growth in our loan portfolio.

Thanks, Steve. I appreciate the color.

And our next question comes from the line of Ben Zucker with JMP Securities.

I had a quick question on this $315 million loan that seems like it might be the largest loan closed to date for the Company. I was wondering if you guys could give any additional commentary as to maybe the property type, the location and the pricing on this loan?

Sure. It's a New York City asset. It was a 50% loan to value loan as a transitional asset to office. And as an overall transaction we're very excited about a lot of equity, great institutional sponsorship and located in Manhattan which obviously is a great market.

Okay, great. And one last question on capital outlook. I know that you put in the deck that with the cash on hand and the availability under your financing lines that you could originate about $1.5 billion. I was wondering if you look ahead if you believe that you guys also have the capacity to take up the corporate debt, your senior notes and how you guys are looking at balancing equity offerings verse the issuing additional notes? And that's it for me, thanks.

We do continually evaluate our corporate finance options, including high yield debt, convertible debt, common equity and everything in between, including some additional corporate level secured financing. So we always look to do what will add the most value for shareholders and enhance the liquidity position for the Company and be accretive to our investable capital base. So we'll continue to evaluate those on an ongoing basis.

Okay, great. That's it for me, guys, thanks for taking my questions.

And your next question comes from the line of Arren Cyganovich with Evercore ISI.

Like to touch on the loan compression, the loan yield compression which I know you addressed in your comments and you're still having stable ROI at the property level. I'm curious as to how much further you would expect this to fall relative to other more positive markets that we're experiencing today? It seemed post crisis there was a much wider yield in the market and that seems to be contracting with the competition today.

Yes, I think it's a good question, Arren. I think what we are seeing general loan level spread compression. As we work through the cycle I think you're seeing more competition, more lenders emerge. And so nothing that I think we wouldn't expect as we work through the business.

We're fortunate in that we individually capitalize the loans as we make them. And so we do have the ability to gear the right side of the balance sheet. We go back to our lenders and try to reduce our cost of capital and we can change the mix a little bit. And that's why we've been able to maintain our overall ROAs in the face of I think market pressure on spreads.

We do expect that we'll continue to be able to maintain our portfolio ROA in that same general range certainly as we see it today. But I do expect that those forces in the market to continue, more pressure on spreads. And it'll -- and we'll work harder in order to continue to originate and maintain the earnings momentum that we've established so far.

Thanks. And then in terms of your loan details, it looks like loan number eight was an office property in Canada. Had a relatively high yield relative to some of your other recent investments. Can you give a little bit of color around what was driving that relative to your other investments?

It was a unique opportunity with a large -- with a repeat client who was buying a portfolio of office properties in Canada off market. So we were able to negotiate with the borrower a deal outside the forces of a fully marketed process.

And because it's Canada and it was transitional and it was unique, it commanded a wider spread than a comparable loan would in the US. So we were fortunate to have that origination and we think it's a very strong deal for us.

Are there any specific issues around the office, a bigger transition period or something that makes it a little riskier than others?

The office -- it's a very transitional office. So it's a major re-leasing play. There's a lot of sponsor equity invested in the deal to mitigate that risk. But it does involve a fairly large degree of transition.

Most of the buildings were occupied by a single tenant. That tenant is still in occupancy. But our underwriting is based upon a lot of that space being relet to third parties over a two to three-year period of time.

Thanks for the color. And then lastly Steve, I missed your comments on the pipeline. Did you give any specifics as to dollar amount of pipeline or loans that are in the process of closing quarter to date?

I did. We talked -- we have about $1 billion of loans in the pipeline with agreed terms that we'll disclose over the next few months.

Very good, thank you.

Your next question comes from the line of Jade Rahmani with KBW.

On the competitive environment, are you seeing banks get more competitive and also are you looking at secondary or tertiary markets as a source of investment opportunity?

I think, Jade, I will say we are seeing banks compete with us more than we had previously. And I think on the positive note, the floating rate CMBS execution which a lot of the banks use to sell the loans once originated, that's become less of a competitive factor for us.

So there's some spread widening in that sector of the market in the fourth quarter where we feel bank competition is with the portfolio lending banks. So the banks that make loans and hold them on their balance sheet or syndicate those.

We're often able to beat that execution because again of our certainty of close, our ability to underwrite more difficult and challenging situations. But we are feeling I think increasing bank competition as we work through the cycle some of the banks are increasing their ability to take on risk. And so we're -- it is more of a factor for us in the competitive environment.

And are you seeing the most pressure on the yield side of it or the coupon side of it or is there also pressure on origination fees, prepayment fees and structural attributes.

I think that we're not seeing -- in general in the senior mortgage lending that we're pursuing, we're not seeing meaningful erosion of credit quality in the loans that are getting done in the marketplace. They're still good and sound.

It's primarily about price. And so -- and it can be in origination fees or in rate. If a bank is able to make a loan that we're trying to pursue, than -- and they typically have a lower capital of cost for us, so we generally need some other feature in the deal or the situation for us to win competitively. And typically those conditions exist.

Usually there's transition, there's the requirement for certainty, and there's some structural component that a bank can handle. But when the deals are in the competitive envelope of the bank, then those are the one's that are most difficult for us to win competitively.

Okay. And with respect to markets, are you looking -- you cited the Canada example as opportunistic, but are you looking at secondary markets, tertiary markets? And then also with respect to loan type, are you increasingly looking at either A note syndications or eventually do you foresee introducing more mezzanine or preferred equity?

Well in terms of your first question, I would say no in general we're not looking to secondary and tertiary markets for product. I talked about moving the portfolio to larger loans. And the larger loans tend to be in major markets, better real estate, more economies of scale and more synergies with Blackstone.

We still look to assert the competitive advantage that we have as being part of Blackstone real estate. So we always feel best when we're pursuing loans on real estate that are consistent with the real estate that Blackstone owns, that's when we have our strongest competitive edge.

What we see in secondary markets are occasionally portfolio opportunities. There when we have a crossed pool, then the loan size gets big enough and then also we diversify our exposure so we're not directly exposed to any one secondary market that maybe weaker than the major markets that we prefer.

As it relates to your second question, we are going to utilize A notes more in the future than we have in the past. We'll still opportunistically look at all available sources of capital to fund our loans.

But with some of the larger transactions that we're doing, there are very efficient syndication opportunities for us so we can control a situation and then bring in a bank or bank group senior. And a lot of times that creates a better execution than what's available in any other markets that we pursue to fund our loans.

Okay. With respect to investment capacity, can you walk through the logic on the $1.6 billion? First of all, I think there's some cash included in the liquidity you provided, but most of it is available borrowings. But to get to that $1.6 billion, is that essentially 3.5 times debt to equity at the asset level for the whole Company?

That's right, Jade. If you take the $436 million and multiply that by 4.5 times, because you take the $436 million and invest that and then you borrow 3.5 times that amount in new secured debt that arises as a result of the origination, and that's how you get to the $1.6 billion.

Okay. You cited volatility in the securitization market on the floating rate side. I was wondering, capital trust was a CDO, CLO issue where Blackstone obviously has a lot of expertise there. What's your current view on the attractiveness or lack of attractiveness of securitization financing?

I think you're right, there was volatility in the fourth quarter in the floating rate CMBS market that would obviously translate over to the CLO market for the types of transactions we would pursue. Pricing hasn't necessarily been the foremost issue I think in our view with regard to the facility of those types of transactions.

What we're looking for is a development in terms of structure of those deals, in particular around the reinvestment capability. And there has been some progress on that front in the market recently.

So I think we continue to stay very close to that market and to work with market participants in developing that technology. And when it does in fact present an accretive option for us in terms of developing additional capacity, we think that we will tap it. We do have the expertise and the history with that market both as BXMT and also the wider Blackstone platform.

Do you think that's something that can happen this year?

It could happen this year.

Great. Thanks a lot for taking my questions.

And your next question comes from the line of Rick Shane with JPMorgan.

I really want to follow up on Dan's questions related to repayments. Really two things and I guess they're related. When you give the all-in yield you talked about the call protection on the loans, how should we think of the economics of repayments? Could that enhance that all-in yield if you were to continue to see them in 2015?

And also again to pursue Dan's question, can you give us some sense of volume? I realize this is an evolution if you go from the transition to frankly a more mature portfolio now and we'll expect this going forward.

Hey, Rick, it's Doug. I'll take the first part of that question. I think you're right, it would enhance yield. That's the other side of the coin in terms of prepayment. So when we give our weighted average yield, we're assuming essentially the stated maturity date in terms of amortizing origination fees and discounts and other upfront economics.

And when a loan repays earlier, those economics are spread across a shorter weighted average life and that results in a higher yield. And as Steve mentioned, those prepayments are an inherent part of the business. And so ultimately we think that the yields that we realize will be somewhat higher than the stated yields based on the stated maturities.

Got it. And any -- do you guys want to take another stab at how we should think about -- and again, we don't need to think about it on a quarterly basis but on an annual basis what repayments might look like.

Again, really difficult to predict. I didn't necessarily perceive the $200 million as an anomaly. It was probably on the high end of what I expected to receive in the quarter. But that kind of number does not surprise me.

You think about our loans and we're underwriting a sponsor plan. And when they achieve the plan, a lot of our borrowers will sell the properties or potentially finance them again. But typically they're sellers, they're on a buy, fix, sell strategy. We become a victim of our successful underwriting.

But we do have an ability to extend the duration of some of the loans. If -- we can rightsize them if there weren't increases in loan amount over adjust loan spreads to market if our loans are no longer at current market.

So we actively work to try and extend the duration of our loans. But they do inevitably get repaid. If they didn't, you would have a different concern.

We have another Executive who always describes it when your borrower comes to pay you back, you say thank you.

You do. And the other thing that you should note is that we've done a tremendous amount of repeat business with the people who have borrowed from us so far. And so we continue to add to our portfolio second, third and fourth loans from the sponsors that were our initial borrowers. And with the regular dialogue we have them about their loans, if we're not trying to adjust their current loans, we're looking at trying to originate their next loans.

And so we do think that the other platform here is only 19 or 20 months old. And so we do -- we are still getting the word out. We are still expanding our origination footprint and we still see again a meaningful excess at this stage of originations relative to repayments.

Got it. Great, thank you very much.

And our next question comes from the line of Charles Nabhan from Wells Fargo.

I appreciate the disclosure on slide 6 on LIBOR sensitivity. I was wondering if you could provide the sensitivity to a 50 bp increase in LIBOR?

Yes. What I would say is it's roughly half of the $0.26, so I might say $0.125. There is a modest impact from LIBOR floors, but that's probably the right way to think about it, there's about $0.125 per annum.

Okay, great.

I'd point out Chuck that there is a bar on the graph that shows that the 67 basis point bar would be the 50 bp increase so that you can look on the graphs and find that.

Okay, great. That's helpful. And I know you've touched on the competitive environment in the US. I was wondering if you could comment on the environment in the UK and what you're seeing there from a competitive standpoint and perhaps how we should think incremental yields on that -- as that portfolio continues to grow in 2015?

Well I think the way I look at our European portfolio as compared to the US, the loans that we've done so far and what we're seeing in the market falls into two separate buckets. In London we're doing -- we're financing very transitional office place, not unlike what we're doing in the US. The office market there is very strong. The equity side of Blackstone is very active there and we feel like we have a competitive edge in terms of sourcing and evaluating those opportunities.

For what we've done outside of London, the collaterals that secures those loans, I would say cash flows at a higher level than what we're able to achieve in the US. In the US we're -- almost all that we do is transitional.

If you look at what we've done in Europe outside of London, it's less transitional, more cash flow and higher debt yield. We're able to make loans on assets that we wouldn't be able to make in the US. They'd go to insurance companies or banks or CMBS, more efficient sources of capital.

So that's one of the great things about our Europe program is the ability to achieve the same kinds of returns we're achieving on transitional assets but with stabilized assets. We do expect that -- Europe to get more competitive as the US is getting more competitive. But we haven't seen the same degree of competition there that we're seeing here.

The issue in Europe relative to the US is borrower demand. Again, we don't need a hugely opportunistic environment. What we need is more borrower demand for loans, and there is more borrower demand in the US than in Europe.

Again as we expand our footprint and get more active in Europe, we think we'll see more and more opportunities. We made our first loan in Europe in December of 2013, so the program there is even newer. But we are seeing additional opportunities to lend there and we're certainly hopeful that we will see growth in that portfolio as well.

Okay, that's helpful. Thank you.

And our next question comes from the line of Don Fandetti with Citigroup.

I was wondering what your appetite is for expanding into new areas beyond your core senior floating rate lending in commercial real estate? I know some of your peers are involved in conduit or servicing or properties, can you talk a little bit about that? Because I would imagine that this bank compression is a theme that will be around for some time.

Yes. Well, it's a great question, Don. I think -- I'll answer it in two ways. First is that we think our core business is still a great business, it still has legs. And yes, we'll feel the forces of competition as we go through the cycle. But we're still able to originate and achieve the same kinds of returns we were achieving when we set out at BXMT in May of 2013.

On the other hand, we constantly evaluate all other options to create additional shareholder value through complimentary activities or things that we think would be add-ons to the floating rate program, other credit sensitive products. We have evaluated all of the adjacent activities. Some of which we think have potential to be added to our line of business. Others we think don't fit so well.

Some of the activities that we look at servicing, other things are really more of a function of the last cycle and probably isn't -- doesn't represent the future for us. We spend most of the time looking at our assets that would have longer duration than our floaters and are credit sensitive and in line with the same kinds of activities that we're performing on our floating rate pool where we can utilize capital markets and the skill sets that we have here.

Nothing imminent. And again we haven't seen anything that we like as much as our primary activity. But we're constantly looking at evaluating anything that we can do to add on to our business line that would make the Company bigger and stronger.

Thank you.

And our next question comes from the line of Stephen Laws with Deutsche Bank.

Majority of my questions have been answered, so maybe one follow up on Europe. You've got some investments, primarily UK, a little bit in Spain and the Netherlands. Any other countries you're looking for there? What really drives the opportunity set there?

I know you've got a big office that you can utilize out of London, but where should we see the majority of that mix? Will it continue to be UK or were you thinking to branch out from there?

I think that the center of the activity will still be UK. But we're active most everywhere in Western Europe on the equity side of the house, so that gives us great access to opportunities for our debt business.

There are regions in Europe where we're willing to be a borrower where we're not willing to be a lender where the local law isn't good enough. But there are certainly many regions open and available to us where we haven't been active yet.

We're still new in terms of rolling out the business in some of those regions but we do expect to -- we are looking at loans in countries that we haven't presently been active in yet. Generally on deals that go cross border, so we've seen a number of portfolios that have assets in multiple jurisdictions. And those are transactions which we think set up well for us.

So hopefully we'll see some of those opportunities as the year rolls on. But we -- I think you will see us expand in terms of our footprint. But, again, I think the foundation will remain in the UK

Great. And then maybe a follow up to an earlier question talking about the competitive environment in Europe. I think to paraphrase your answer, you said it's starting to get more competitive but obviously not where we are in the US. Is there a way to quantify that in returns on investments, what kind of ROIs you see on investments there with similar leverage points versus here in the US?

I think what we found so far is that our ROIs in Europe are very similar to the ROIs we're generating in the US. And so in some cases the spreads are a little bit wider but our cost of capital is slightly higher. And in other cases, we've done some single asset financing that's been unique and one off.

Again, the big difference so far has really been more in the nature of the assets outside of London in that we've tended to find stabilized assets to finance as opposed to transitional. So you feel like you're taking less risk in regions outside the UK and it certainly helps mitigate the country risk and the view that we have of evaluating those loans relative to loans we're making in London and the US. And we still think the market opportunity there is strong. And so we do expect -- we do have expectations that we'll have greater originations in Europe.

Great. Thanks a lot for the details there, appreciate it.

And our last question comes from the line of Ken Bruce with Bank of America Merrill Lynch.

I'm hoping you would be willing to discuss some of the factors that lead you to use asset specific financing versus just the revolving facilities in terms of whether there are certain types of assets or regions that are best financed that way, if there's any differences in leverage or pricing?

I think there is typically a difference in terms of the leverage or pricing. And that comes from the logic of the credit facilities being cross collateralized and generally involving recourse to BXMT. That by definition drives a lower price, all other things equal then in asset specific financing.

And so you're right the analysis is on a case-by-case basis, the extent to which we want to trade off recourse cross collateralization and some of the other structural aspects for pricing on a loan-by-loan basis. And ultimately we're also doing that analysis with an eye towards maintaining adequate capacity both in terms of the total leverage on the balance sheet and also adequate capacity to revolve debt in the facilities.

I think the other thing Ken is that on some of the larger loans that we're pursuing, they're too big to utilize the credit facilities. And so it's -- so as a result we look at one-off solutions. I talk about how we individually capitalize loans when we make them. And on the larger loans, putting the exposures into credit facilities there typically between $500 million and $1 billion, isn't feasible.

So in those we tend to look for partners or individual -- or syndicate members or one-off financing sources specific to that individual loan. And, again, we are able to achieve similar returns. We pursue that financing strategy.

But as Doug mentioned, typically on -- for the medium and smaller exposures, our credit facilities are more efficient. On the bigger stuff, much more likely we will use A notes.

Okay, great. Thank you, that was it, appreciate it.

And now I would like to turn the conference over to Mr. Weston Tucker for closing remarks.

Great. Thanks everyone for their time this morning and please give us a call for any follow up.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation, you may now disconnect. So you all have a great day.