Blackstone Mortgage Trust Inc (BXMT) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Blackstone Mortgage Trust Second Quarter 2016 Earnings Conference Call. My name is Derek, and I'll be your operator for today. (Operator instructions.) As a reminder, the conference is being recorded for replay purposes. At this time, I would like to turn the conference over to Mr. Weston Tucker, Head of Investor Relations. Please proceed.

Great. Thanks, Derek. Good morning everyone, and welcome to Blackstone Mortgage Trust's second quarter conference call. I'm joined today by Steve Plavin, President and CEO, Mike Nash, Executive Chairman, Jonathan Pollack, Head of Blackstone Real Estate Debt Strategies, Tony Marone, Chief Financial Officer, and Doug Armer, Head of Capital Markets.

Last night we filed a 10-Q and issued a press release with a 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 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 results, please see the Risk Factors sections of our most recent 10-K and 10-Q. We do not undertake any duty to update forward-looking statements. We will refer to certain non-GAAP measures on this call. And for reconciliations, you should refer to the press release and our 10-Q, which are posted on the website and which have been filed with the SEC. This audiocast is copyrighted material of Blackstone Mortgage Trust and may not be duplicated without our consent.

So, a quick recap of our results before I turn things over to Steve. We reported GAAP net income per share of $0.67 for the second quarter. We also reported core earnings per share of $0.67, which was up from the $0.65 in the first quarter. A few weeks ago, we paid a dividend of $0.62 per share with respect to the first quarter, equating to an attractive dividend yield of nearly 9%. If you have any questions following today's call, please let me know.

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

Thanks, Weston. Good morning, everyone. BXMT delivered strong results in the second quarter, with healthy origination activity and continued expansion of our credit capacity, a key driver of BXMT's strong asset-level ROIs. The BXMT origination performance through the first half of the year reflects the success of our client-centric balance sheet lending strategy. We closed high quality business throughout the period despite a turbulent lending environment which constrained deal flow. While many lenders retreated early in the year, we maintained our pipeline loans and sought to originate more.

By early second quarter, credit markets had improved. More borrowers came off the sidelines, and our pipeline expanded. Transaction activity in the property market is what makes our loan origination business tick. We don't need an opportunistic environment, a balanced market with high levels of regular-[weight] transactions. The conditions we are experiencing now in the US provides an excellent backdrop for BXMT.

As a result, our new origination activity and pipeline remain strong. We closed $859 million of loans in the quarter. The new loans were primarily backed by office buildings located in the major US markets where our portfolio is concentrated. The $161 million average size for our Q2 originations reflects our continued focus on larger loans secured by major market assets where we can best utilize our competitive advantages as part of Blackstone Real Estate.

Since quarter-end, we've already closed, or have in the closing process, another $1.1 billion of loans, reflecting the uptick in transaction activity that began in Q2. To finance all of our activity, we continue to expand our lender base and debt capacity. We added $1.4 billion of new credit facility capacity during the quarter. We also closed additional asset-specific financings to round out a very strong quarter of credit expansion from a diverse group of providers.

Our credit facilities, term, currency, and index-matched, helped drive our gross asset level ROIs, which averaged 13.64% on originations closed in the first half of the year. These ROIs are well in excess of comparable [beat-out] mezzanine returns, even with a moderate LTV senior mortgage loan portfolio. Our secured corporate credit facilities, structured to price inside of [A&Os], more efficiently lever the equity invested in our loans.

Perhaps the most newsworthy event of the quarter was the Brexit vote, which occurred late in June. The initial market reaction in the US was negative, but that quickly reversed, and the equity markets established new record highs. For BXMT, 13% of our loan portfolio is secured by properties in the UK, a mix of office, hotel, and retail assets with an average origination LTV of 61%. The collateral assets that we anticipate being most affected by Brexit are the transitional office buildings located in London, where leasing activity is likely to slow.

We have four loans secured by London office assets. They have an origination LTV of 46% and represent 2% of our loan portfolio. We believe that the equity cushion in these loans are more than sufficient to cover any reductions in value that may occur.

We're hopeful that the new European opportunities will emerge post-Brexit as competitive bank lending, now chilled, had made it very difficult for us to compete. Because of the pre-Brexit market conditions, we originated only one new loan in Continental Europe and the UK in the first half of 2016. Brexit may have an additional consequence of increasing the focus of global investment activity in the US real estate, where we expect values in the major markets that we target to remain strong. Global demand for stable investment opportunities and positive yields is accelerating as we face an extended period of low or even negative interest rates around the world.

Many of you on the call today will remember that we had one risk-rated four loan in our portfolio for the last three quarters. We acquired the loan from GE last year, and at that point it had an outstanding loan balance of $120 million. Our asset management team restructured the loan in Q4 of last year, which has led to a series of collateral asset sales executed by our borrower. We are very pleased to report that, during the second quarter, the loan was repaid by an additional $43 million, and now has an $11 million remaining balance and an upgraded risk rating of three.

Our loan portfolio generated significant liquidity for BXMT in the second quarter. The $966 million of repayments we received fully covered our originations. And we expect to continue the active repayment pace while our pipeline remains strong. We ended the quarter with liquidity of $612 million, which translates to $2.3 billion of lending capacity.

In closing, BXMT's steady performance despite the shifting and volatile market backdrop we experienced in the first half of 2016 demonstrates the strength and stability of our pure-play senior mortgage business model. Our borrowers, many of which are repeat customers, continue to seek our capital because of our reliability and reputation for fair dealing. We appreciate the great relationships that we have established with our borrowers, as well as our lenders. For stakeholders, BXMT's stable dividend currently yields 8.7%, a highly attractive value proposition in today's low rate environment.

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

Thank you, Steve, and good morning, everyone. This quarter, BXMT continued to deliver for its stakeholders, with strong earnings results, robust originations, and increased financing capacity.

Against the backdrop of continued market volatility and geopolitical events during the quarter, our senior lending business continues to shine. We originated four new floating rate loans and upsized three loans during the quarter for a total origination volume of $859 million. The loans that we originated this quarter have an average yield of LIBOR plus 4.7%, with an average LTV of only 57%. This compares to our current floating rate portfolio average yield of LIBOR plus 4.4% and origination LTV of 61%, as we are able to lend at higher yields given the favorable market dynamics Steve mentioned earlier.

Total loan funding during the quarter of $848 million was in line with repayments of $966 million as our pace of loan originations and repayments have begun to converge with the seasoning of our portfolio. We expect this trend to continue in the near-term. However, the exact [timing and] amount of originations and repayments will vary somewhat from quarter to quarter.

During the second quarter, the majority of our loan originations closed earlier in the quarter, with loan fundings outstanding on average for two-thirds of the quarter. On the other hand, repayments occurred on average just about mid-quarter, resulting in a larger portfolio outstanding during the quarter than we have on our 6-30 balance sheet and generating about $0.01 of additional earnings for 2Q.

Our portfolio continues to have no defaulted or impaired loans, and following the upgrade of the previous four rated loans Steve mentioned earlier, we no longer have any four or five risk-rated loans. Our overall portfolio LTV of 62%, and risk rating of 2.3 on a scale of one to five, is consistent with prior quarters, demonstrating the strong credit profile of our loan book.

We financed our 2Q originations primarily using our existing revolving credit facilities, which had an all-in cost of LIBOR plus 2.04% at quarter-end. During the quarter, we closed $1.8 billion of additional financing capacity, including $1.3 billion of upsizes to existing revolving credit facilities, $381 million of additional asset-specific financings, and a new $125 million revolving corporate credit facility. This facility provides additional flexibility to our capital structure and is designed to finance new originations on an interim basis as a bridge to a future senior syndication, or long-term pledge under our $5.5 billion of revolving credit facilities.

Turning to our operating results, we generated core earnings of $0.67 per share, up $0.02 from 1Q largely as a result of the higher intra-quarter portfolio peak I mentioned earlier. We have maintained our quarterly dividend at $0.62 per share, which, as before, is clearly covered by our core earnings and is an amount that we believe is sustainable and supportable, given the scale of our business.

GAAP net income of $0.67 per share increased more significantly than core earnings, up $0.06 from 1Q. This incremental increase is driven by nonrecurring mark-to-market income related to our CT legacy portfolio, which is carried at fair value and continues to liquidate in the ordinary course. Notwithstanding the results of any particular quarter, we believe that our core earnings will continue to trend toward the expected run rate of $0.62 per share over the medium-term.

Our book value increased to $26.54 from $26.53 at 3-31. Although the increment is only $0.01, we believe this is a compelling statistic in light of the foreign currency devaluation some companies experienced following the Brexit vote in June. As we have highlighted on previous calls, we finance our assets in local currencies, eliminating a significant majority of foreign currency risk in our investments. Further, we hedge a significant portion of our non-US dollar equity using forward contracts, further limiting our net foreign currency exposure.

On a net basis, we recorded an unrealized foreign currency loss of only $0.08 per share following a 7% decline of the pound and a 2% decline of the euro against the dollar during the quarter. This modest decline of 0.3% of book value was more than offset by retained earnings during the quarter for a net increase of $0.01 per share.

In terms of capitalization for our business, at 6-30, our debt to equity ratio of 2.5 times and total leverage of 3.1 times are both in line with where we began the quarter as the converging pace of loan originations and repayments allows us to self-fund new originations while maintaining consistent equity deployment.

On the capital markets front, we will be filing an updated shelf registration and prospectus supplements for our ATM and [DRP] programs later this week. These ordinary course filings are not in connection with an offering, but will allow us to take advantage of any compelling market opportunities that may arise in the future.

To close, I would like to highlight some key thematic differentiators of BXMT that are reflected in our 2Q results and in our overall $10 billion senior lending business. We remain highly correlated to increases in US dollar LIBOR, with an increase of 50 basis points, generating approximately $0.04 of additional core earnings on an annual basis.

Our earnings are driven entirely by the net interest income generated by our balance sheet loan portfolio without reliance on the securitization or other transactional markets. We generate returns for our stakeholders by making fundamentally low-risk senior loans and financing them prudently with best-in-class credit facilities free of capital markets-based margin call provisions.

And lastly, BXMT is uniquely positioned among mortgage REITs and other specialty finance companies as a component of Blackstone's real estate platform, providing us with expertise and market insight that drive every facet of our business.

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

(Operator instructions.) Steve Delaney, JMP Securities.

Thank you, and good morning, everyone. So, looking at the second quarter origination activity, this may be an over-simplification, but it looks like the current opportunity in the market is offering Blackstone Mortgage more yield for less risk in terms of LTV than you have generally seen over the last two years. I'm just curious if there's anything specific about the loan mix, or a couple of higher yielding loans that may have pushed things up a little bit in terms of the spread over LIBOR, or is my description of the market opportunity looking like more yield for less risk? Is that a reasonably accurate description of what you're seeing? Thank you.

Thanks for the question, Steve. I think the originations that we closed in the second quarter, some of those were deals that we carried over from being originated in the Q1 during [periods] have a high volatility and wider spreads. So, we did -- there is a little bit of a lag between origination and closing, so you do see the benefit in the Q2 closings of the Q1 market environment.

Spreads have moderated since the end of the first quarter. So, although I think we'll continue to generate gross ROIs in the same range as our historic levels, a couple of those loans that we closed in Q1 really were benefited from having gone through that very turbulent period.

Got it. That's helpful to have that color. And certainly first quarter was a unique period, and I guess that's another reason why you guys try to maintain a lot of liquidity so that you can be opportunistic if you do see those stressed conditions and take advantage of it.

Something more specific, I was listening to our hotel analyst today on the morning call, and she mentioned that three of her hotel REITs had just in the last 24 hours, had dropped to their rev par guidance. Now, hotels are I think 19% of your portfolio. It's your second highest property type behind office. Would just appreciate any comments about how Blackstone sees the hotel market today, and from a lending standpoint and within your portfolio, if there are any defensive characteristics that you would point to in your portfolio. Thanks.

I think, Steve, what we've seen in the hotel sector is obviously the deceleration of rev par growth. Growth in most markets, in most markets that we're active in as a lender, is still positive, which is again at a slower pace. I think we're beginning to see more and more hotel lending opportunities as a result of the REITs being somewhat on the sidelines and not being as active buyers that they had historically been.

And most of those deals we're declining. We're very cautious on full service hotels, and hotels in general. I do think there'll be some special situations that will be out there that will enable us to make very strong hospitality-based loans. But, it's definitely an asset class to view cautiously.

Got it. And I think that's where we can read into -- it seemed like most of your activity in the second quarter was office. Steve, would you describe that as maybe the most appealing sector for you right now from a property type standpoint?

I think it really varies sort of market to market and situation to situation. We're opportunistic, so we can find good loans in all property sectors. And we try and, again, support our client activity. If we see situations that we think are subject to greater risk, then if we don't pass, then we'll lend less. I mean, our LTVs reflect the potential volatility in our loans. So, our low LTVs give us a lot of protection for any kind of performance issues that may exist in hotels or in any other property sector that we're active in.

Good point. Well, thank you for the color, appreciate it.

Jessica Ribner, FBR Capital Markets.

Hey, guys, thanks for taking my question. Just to kind of piggyback off of Steve's question, are there any loan types or sectors that you're staying away from in the current environment, or is it kind of business as usual?

I think as we get sort of further into the cycle, we become more and more cautious and spend more time thinking about where things could migrate to. We're focused on larger assets in the major markets, markets where we see dynamic demand for space. And I think there's still good opportunities in those markets. We actually see values increasing in those markets, given sort of the view of low rates persisting maybe for even longer than what people thought, and more capital coming to the US and finding its home in real estate again in those more liquid major markets.

So, we're sort of sticking to our knitting, focused on larger loans, tough sponsors, better assets. We're not choosing the current market situation to go and venture into secondary and tertiary markets, and we don't think the primary markets are oversold. We think that the opportunities to lend in those markets are good, and in all asset classes as long as you do it with the information that we have and a realistic view of what might happen in the future.

Okay, thank you. And just a quick question on your earnings run rate-dividend. I know you mentioned the $0.62 kind of run rate, but it looks like you've been pretty easily covering the dividend. How do we kind of think about that?

Hey, Jessica, it's Doug. I think there are a couple of -- if you look back over the last three quarters, we have covered -- or four quarters -- the $0.62 dividend pretty healthily. And that's been a function of a couple of different factors, mostly related to the GE loan acquisition and the additional leverage and the relatively short-term but high yielding fixed rate loans that we took on in that acquisition. And that sort of plays through our results, and it'll continue to play through them through 2016 into 2017. So, we sized the dividend to be sustainable for the long-term based on our floating rate senior mortgage business, and we're continuing to see some accretion to that on a less recurring basis through 2016.

In this quarter, we had a good deal of repayments. Some of those repayments came with prepayment penalties and other nonrecurring items that increased earnings a little bit more than the Street expected, and more than the run rate might indicate. We do expect that to continue sporadically through 2016 and into 2017. That's part of our business, and it does add a little bit to our yield.

So, the dividend is sized conservatively, and we're very happy to cover it at 105% to 110% on an ongoing basis.

All right, fair enough. Thanks so much.

Jade Rahmani, KBW.

Thanks for taking my questions. Just to clarify on the dividend commentary, including what was said in the opening remarks, based on the run-off of the fixed rate, high-yielding portfolio and the prepayments that you've been receiving, once that process is complete, do you believe that recurring core earnings will match that current dividend level?

Jade, hey, it's Doug. We don't give guidance regarding future periods that specifically, but I would say that, if you think about our dividend policy in general, we've set it conservatively, but we've also set it at a level that we believe is sustainable. So, I think it stands to reason that we'll cover that dividend, going forward. We wouldn't have set if we didn't think so.

Okay. Just wanted to ask about equity issuance and how you think about that. It seems that the last couple of quarters' repayments are running close to or slightly in excess of originations over the last, say, several quarters, particularly this quarter. So, where the stock is currently trading, and it's up modestly today, would you be contemplating any equity issuance. And if you made that decision, what would drive it? Would it be a specific opportunity?

Jade, we feel really good about our liquidity and the firepower that we have in the business today. You're right in that our repayments have been sort of in sync with our originations and have been providing us with the liquidity to fund our business.

We look at equity issuance sort of dependent upon where we see the opportunities to deploy capital in our business. If the deployment opportunities expand, and we're hopeful that they will, then we'll look at issuing more equity when we need it for our business. That's sort of predicated upon where the stock would be trading, as well. We want to sell stock into a market where there's strong demand, and [where we're] priced more fairly than where we see it today. But, at the moment, we're very satisfied with our current liquidity and the outlook in terms of originations and repayments.

Thanks. And what are your thoughts on diversifying the business model? So far you've stuck to your niche in the first mortgage space primarily. Are there other sectors that could be attractive, such as triple net lease or even special servicing, or are there other ways to diversify by extending duration or doing more fixed rate lending?

We believe that the business activity that we run at BXMT, the floating rate direct origination model is the best use for our capital, and we have plenty of legs in the business model. So, we haven't really felt any need to diversify to what we would view to be the second and third best alternative for our capital.

That continues to be the case as we go forward. We believe that the dividend that we produce is more stable and lower volatility than those that are involved in these other activities, which are inherently more volatile than generating dividends from a portfolio of senior mortgage loans.

So, we're pleased with where we are. That notwithstanding, we look at all the alternatives to expand and make our business better, to create more value for our shareholders. We saw something that we thought was truly complementary and additive, then we would certainly give it serious consideration to add it into the mix.

Thanks very much for taking my questions.

Donald Fandetti, Citigroup.

Steve, there's some concern in the market about commercial real estate property values being at very peak levels. You seem to feel pretty good at least in the near-term, just given liquidity. Can you talk a little bit more about what gives you that confidence?

And then, secondarily, the early repayments that you are seeing over the last quarter or two, are they just sort of normal repayments where the borrower is just going for permanent refinancing, or is it more sort of opportunistic?

I think from the -- I think on the repayment front, what we're seeing is this sort of mix of repayments from property sales and from refinancing. Some of the GE loans that we have in the portfolio were fixed rate loans, and when the call protection expires, they've been repaid.

Some of the GE loans in the residential sectors have Fanny and Freddie alternative take-outs, which is obviously at much lower rates that we're able to offer. But in general, our asset management activities are focused on maintaining the loans that we feel are strong in our portfolio. We've had good success in extending the duration of the loans that we feel are very additive and appropriate for us to maintain. That will continue to be the focus.

But, in a liquid market like today, we'll still see a lot of repayments. And it generally is correlated with the origination activity. When we see more opportunities to lend, there's more likely that our existing loans will be impacted by the strength of property performance and debt market conditions.

As it relates to valuations, a lot of what we're seeing in valuations really relates to yields in the market. The cap rates are still well in excess of treasury rates, and the spread between cap rates and treasuries are still historically wide.

We don't see any upward pressure on rates. In fact, we see downward pressure on yields almost everywhere in the world. So, we feel that property cap rates are potentially going to go lower as opposed to going higher, and that's a huge driver of where we see valuations, especially in the market that we're involved in.

We try and focus our credit activities again in markets that are major and liquid, have dynamic sources of demand. We feel that by focusing in those markets, the valuations that underlie our loans will endure. And that's our strategy and we feel very confident that will continue to be the best strategy available to us as we go forward in terms of our lending business.

Thanks.

Douglas Harter, Credit Suisse.

Thanks. Touched on this a little bit, but just want to touch on a little more. You have a very strong liquidity of over $600 million. What is the target or minimum level that you guys sort of want to keep? And does that new interim financing facility lower that amount, given that it gives you more flexibility?

Hey Doug, it's the other Doug answering the question. I think we've talked a lot about a target liquidity in the range of $400 million to $600 million, which basically relates to a weighted average deployment in our equity of 80%. And that's what ultimately informs the $0.62 dividend based on the ROIs that we're able to generate in our senior floating rate business.

The swing line does actually help us on that [math]. It allows us to maintain liquidity in sort of non-equity form, or non-equity funded liquidity, so that we can increase that percentage of deployment in terms of equity.

So, that gave us a little bit more range. It also helps us operationally in terms of closing loans and executing the business, and so it allows us to up the stroke in terms of originations, which will also result in a higher degree of deployment on average.

So, those are the parameters that we're working in on that front. And as Steve mentioned, repayments and originations have been roughly in balance, and we've been sort of operating inside that range for the last few quarters now.

And then, I guess along the lines of non-equity liquidity, how are you thinking about other capital structure opportunities at this point, whether its converts or high yield notes, or something else?

We're thinking about those. Obviously there's-- the health in those marketplaces has returned, and so the economic equation is more appealing than it was certainly six months ago.

The ultimate question for us is what investable capital do we need in order to fund our origination pace and our deployment, and those are good sources of capital that are accretive, that will allow us to add a little of leverage to the balance sheet. We're very low-levered now with a 2.5 times debt to equity ratio, so there's certainly room in the capital structure to add, say, half a turn of leverage that would result from issuing high yield or convertible debt.

But, we don't have a need for capital, given the current status of the business right now, so it's a market that we keep our eye on, but it's not something that we have immediate plans to tap.

Great. Thank you.

Rick Shane, JPMorgan.

Hey guys, thanks. Most of my questions have been asked and answered, but I think I'd like to make sure we understand sort of the dynamics here.

The description is that sort of a reversion to regular [way] business, and the way I would think of it is Q1 was very volatile, low deal volumes, low repayments. That spilled through into Q2 in terms of the basically 20 basis point pickup in yield in terms of the originations.

We also saw I think a return to repayments on the fixed rate portfolio, which has, frankly, been part of the outlook for a long time, or since the acquisition, I should say. And my expectation at this point is that we'll continue to see that and [use] sort of a reversion to normal originations of floating rate paper and continued pay-down of that fixed-rate portfolio.

Yes. I think, Rick, one of the things I would tell you, the originations in Q2 were really kind of four-by-four loans, and so it's really hard to sort of generalize across such a small sample. If we had one outlier loan, it would really impact the average of those four.

So, I think the profile of the business is consistent, as has been over the three years or so since we've been executing it. Yes, spreads had widened in Q1 and we did benefit a little bit from that in our Q1 and Q2 originations, but not to a greater extent.

And so, I see the business continuing in the pattern that it's developed over the last several quarters. Our pipeline is very active now. We're seeing a lot of transactions in the market, so it feels like a good time for our business. We're excited about it, and we're able to continue to maintain strong asset level ROIs with relatively low-risk senior mortgage assets and generate our dividend. And what we're trying to do is get the market to appreciate the value of our dividend, how it's differentiated from those who generate it from more volatile activities, and hopefully see some more upward movement in the share price.

And I would just underscore that relative value point. Our dividend, we're trading today at roughly 8.5%, so we're 700 basis points wide of the 10-year treasury, and that's on a portfolio of first mortgages that are levered less than 2.5 times in terms of the debt to equity ratio.

So, it's a really incredible relative value story that we're able to generate from this very simple business model. And so, when you talk about a return to the regular way business, we see it as a return to an extremely appealing, safe business.

Okay. I'll accept that refinement. I guess the other question I would have is, obviously given the size of the portfolio acquisition that you made and the additional capital that you took on to bring that portfolio on, as that portfolio runs off, you had a origination platform that was able to grow a $4 billion or $5 billion balance sheet.

I'm assuming, given the brand and the scalability, that your expectations are that you will be able to scale the originations up over the long-term to replace that run-off, and this won't be a story where you have excess capital.

Yes. No, I think that you're already seeing -- our pace of origination really reflects the $10 billion portfolio, not the $4 billion to $5 billion that we had prior to GE. And so, if our originations, which are sort of in the $800 million to $1 billion range, are sufficient to keep that $10 billion portfolio deployed, and we're seeing the ability to originate more in the current market environment.

So, I think not only am I confident that we'll be able to keep the $10 billion of portfolio deployed over time, but there's a good opportunity for us to grow that if the market continues to stay strong as it is today.

Great. Thank you very much, guys.

Ken Bruce, Bank of America Merrill Lynch.

Thanks, good morning. Firstly, congratulations on another very solid quarter. Thanks for making our jobs easy.

My question relates more to I guess how you're thinking about kind of future opportunities. There's obviously some tension in the market as it relates to commercial real estate and whether values are [toppy] or not, and a lot of those things that are kind of a wash.

And some of that has to do with the CMBS maturities. Some of that has to do with essentially changes in risk retention and the like. But, how do you the market's going to play out either differently over the course of next six months? How might that impact what opportunities you're able to take advantage of in the market, and how you think that kind of works into the fundamentals of your business?

Yes. I think on the margin we see a few more opportunities than we had been previously as a result of the CMBS market not functioning very well, both fixed and floating. We're more impacted by the floating rate CMBS market than by the conduit market. But, when that market functions more poorly, we see more opportunity, which is obviously favorable to us.

I don't see a dramatic change in the landscape over the next six-month period. I don't think it's the time to sort of up the risk profile and reach for yields. That's not what we do. We keep the risk dialed down, and again -- and generate our returns, taking as low risk as we can from very safe senior mortgages. And that will continue to be our profile to make sure that our business and our loans endure whatever cycle may occur.

But, we're confident that, given our ability to utilize the Blackstone Investment platform, that we're focusing our energies as it relates to loan originations in the right places, the right markets with the right sponsors and the right assets, and I really do think that our loans in those properties will endure the cycle very well. And again, I don't see anything happening sort of the next three to six, nine months that is going to cause that to change.

Okay, thank you. And you mentioned to one of the prior questions that, with rates where they are, that there may be some downward bias in terms of cap rates, and that should help valuations. I'm interested in how you think about fundamentals in kind of major markets and major food groups that you're looking at. Are we seeing any pressure on fundamentals, or do you think that, from that point of view, that the commercial real estate business is still on a good footing?

I think demand for most space in most asset classes is slowing. So I don't think it's as robust as it's been over the last year or two from a demand standpoint, but demand is still generally positive in most markets and in most asset classes. Slow growth works quite well in commercial real estate in the low rate environment.

So, I think the fundamentals are in an okay spot. I don't think we're going to see the huge uptake in office building leasing and hotel rev pars that we've seen in prior years. But again, in the major markets with the right properties, still enough demand to make top assets very viable in the current market.

Great. I understand you look for dynamic demand market, so I won't ask any questions about which markets you don't like, but thank you. That's been very helpful. Appreciate the color.

And at this time, I'm showing we have no further questions in queue. I would like to turn the call back over to management for any closing remarks.

Great. Thanks, everyone, for joining us this morning, and please reach out with any questions.

Ladies and gentlemen, that concludes today's conference. We thank you for your participation. You may now disconnect. Have a great day.