Blackstone Mortgage Trust Inc (BXMT) 2017 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Blackstone Mortgage Trust Third Quarter 2017 Investor Call. (Operator Instructions)

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

Great. Thanks, Lisa. And good morning and welcome to Blackstone Mortgage Trust's Third Quarter Conference Call.

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

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

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-factor section of our most recent 10-K. We do not undertake any duty to update forward-looking statements.

We'll refer to certain non-GAAP measures on this call, and for reconciliations you should refer to the press release and our 10-Q, both of which are posted on our website and have been filed with the FCC.

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

A quick recap of our results, before I turn things over to Steve. We reported GAAP (inaudible) per share of $0.61 in the quarter and core earnings per share of $0.69, which was up sharply from the second quarter. Earlier this month, we paid a dividend of $0.62 with respect to the third quarter, and based on today's stock price, that reflects an attractive dividend yield of nearly 8%.

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, and good morning, everyone.

BXMT had an excellent third quarter, highlighted by core EPS at $0.69. We've now earned $1.90 year to date demonstrating the earnings power of our business, strong originations; 1.1 billion for the quarter and 3.6 billion year to date led to the portfolio growth that helped generate the increased quarterly earnings.

We have added another $768 million of loans that have closed or are now in the closing process since quarter end.

In a highly-competitive lending market, our 2017 originations are up 33% over last year. Our clients, primarily institutional sponsors of opportunistic and value-add real estate funds, are active, well served by the Blackstone real estate platform and have had great experience working with our team.

We continue to focus our direct origination efforts on coastal markets with dynamic demand and high barriers to entry where the entire Blackstone real estate platform has had great success.

The major markets are also, we believe, asset and sponsor quality of the highest and property values most enduring. As part of that focus, earlier in the year, we expanded our California regional office to better address West Coast lending opportunities, and that strategy has paid off; 64% of our Q-3 loans are secured by assets in California, a testament to our high quality team in LA and its origination success in top West coast markets.

Construction loans in our target markets remain a very attractive opportunity for BXMT as the banks continue to struggle with regulatory challenges and capital constraints. Two of our third-quarter originations totally $284 million were construction loans in Northern California with an average LTV of 54% and an interest rate of (inaudible) plus 515, one office building and one multifamily asset. Both projects are well conceived with excellent sponsorship.

In addition to the contribution from new construction loans, we are now seeing the earnings benefit from the construction loans closed in prior periods. During the quarter, we advanced $172 million in commitments related to construction and transitional loans that were made before Q-3. The funding of these commitments has been contributing to the equivalent of another loan per quarter to our asset base in recent periods.

During the quarter, we also closed our initial loans in the Walker & Dunlop JV, which, as you will recall, originates and finances middle-market, multifamily loans bridging the agency takeouts.

We like the multifamily asset class more broadly and have established an excellent working relationship with our partner, Walker & Dunlop, the leading non-bank agency loan originator, to increase our multifamily lending.

Of our $1.1 billion in originations in the quarter, seven loans, totaling $146 million, are JV assets, 13% of our total quarterly production. The JV complements our regular origination effort and produces nice additions to our loan portfolio.

To finance the Walker JV loans, we closed two new credit facilities tailored to the existing and anticipated originations. These facilities should enable us to generate leveraged returns on the JV, comparable to those in our direct portfolio.

All of our origination and funding activity has contributed to year-to-date core EPS of $1.90, providing a very healthy 102% coverage of our dividends. Our focus remains on dividend quality and stability. BXMT stock is supported by a portfolio of match-funded senior mortgages originated by Blackstone that is 100% performing with an average origination LTV of 61%, a powerful value proposition.

Investors in (inaudible) in May 2013 have earned a 13% compounded return to date from our simple and transparent senior mortgage portfolio loan strategy. Our stock yields a very attractive 7.8% at its current price. With our loans 92% of floating rate our earnings would benefit from increased short-term rates.

In conclusion, BXMT is well positioned to continue to execute its business model, serving our borrowers and driving attractive risk-adjusted returns for our shareholders.

Thank you for your interest and support.

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

Thank you, Steve, and good morning, everyone.

This quarter, we produced outsized operating results underpinned by robust originations, a strong senior-loan portfolio and our market-leading financing structure.

Starting with operating results, we reported GAAP net income of $0.61 per share and generated core earnings of $0.69, both up 15% or $0.08 and $0.09 respectively, from the second quarter. This increase was, in part, due to $0.03 of additional pre-payment income as well as higher intra-quarter deployment.

We declared a dividend of $0.62 per share for the third quarter, which is covered 102% by our core earnings on a trailing 12-month basis. We remain comfortable with this dividend level as reflecting our medium-term earnings power, notwithstanding any quarterly peaks and valleys.

Our book value of $26.52 is up $0.14 per share for the quarter and $0.19 year to date, driven by the net appreciation in our Pound Sterling- and Euro-denominated portfolios and our outsized earnings this quarter.

As we have mentioned on previous calls, our book value is not generally subject to significant fluctuation over time, as our loan portfolio is held for long-term investment and we do not own any mark-to-market securities or long-dated fixed-rate assets.

As Steve mentioned, our 3Q originations totaled $1.1 billion, bringing year-to-date originations to $3.6 billion, up 33% year over year. These loans are all floating-rate senior loans with an average origination LTV of 63%.

Loan fundings during the quarter totaled 860 million, including $172 million funded under previously-originated loans, adding the equivalent of one additional new loan to the portfolio.

Notably, we also closed our first seven loans in the Walker & Dunlop joint venture, totaling $146 million in new loans and providing an additional avenue for portfolio growth in our business.

We collected repayments of $871 million during the quarter, roughly equivalent to our 3Q fundings. However, these repayments were, on average, fairly late in the quarter. Therefore, other than the related prepayment income, these loan repayments had a muted impact on our 3Q earnings results.

Our total loan portfolio of $10.7 billion, up slightly this quarter, remains strong, with 100% performance and key metrics all in line with June 30th. Our average risk rating is 2.6 on a scale of 5. Our average LTV is 61%, and our portfolio's all in yield is 5.6%.

On the right-hand side of our balance sheet, we continue to support the growth of our business with two new credit facilities, totaling $450 million, to finance loans originated by our Walker & Dunlop joint venture in a syndication of one of our construction loans originated last quarter.

In addition, we completed a $115 million follow-on offering of our May 2022 convertible notes. As we mentioned, following the initial $288 million offering in 2Q, these notes have an initial conversion price of $35.67 with a coupon of 4-3/8, down from the 5.25% of our 2013 convertible notes. We are excited to capture the positive market view of our existing notes and execute (inaudible) of up size during the quarter.

We closed the quarter with a debt-to-equity ratio of only 2.6 times, up slightly from 2.5 times out of the 630 following our additional capital deployment during the quarter.

Available borrowings under our revolving credit facilities comprised the majority of our $702 million of liquidity at quarter end, which amount is available for us for future investment activity.

Lastly, one quick accounting note for the quarter, our Walker & Dunlop joint venture is included in our consolidated balance sheet and statement of operations, with Walker's 15% interest reflected in non-controlling interests as a reduction to arrive at our stockholder's equity and earnings per share.

We are pleased with our results for the quarter, demonstrating the support and stability of our quarterly dividend over time. We remain favorably correlated to rising interest rates with a 100 basis point increase in USD LIBOR adding $0.26 per share to our annual net interest income, and we look forward to generating continued positive results for our stockholders in the future.

Thank you for your support.

And, with that, I will ask the operator to open the call to questions.

Lisa, I think we can open now for questions now, please.

(Operator Instructions) The first question comes from the line of Doug Harter, Credit Suisse. Please proceed.

-- where the liquidity position was at the end of the quarter and, you know, your ability to grow on the existing capital base.

Doug, we got cut off just on the start of your question there. Could you just repeat that, please?

Sure. Just where the liquidity position was at the end of the quarter and the ability to grow the balance sheet on the existing equity base.

Thanks, Doug. You know, $702 million is a good liquidity number for us, and we continue to have a flow of repayment. So I think we're comfortable with the existing capitalization and liquidity as we look forward.

You know, we will always sort of look to make sure that we have adequate capital to meet what we anticipate our future origination and deployment needs will be, and so then that's a dynamic process depending upon what we see in terms of market opportunity. But, yeah, we've been operating in a very nice level now for several quarters.

And then just thinking about the capital, you know, the capital structure, you know, as you mentioned, you added additional converts this quarter. I guess how do you think about your mix of capital now between converts, common equity and whether there's any other structures that you're considering?

Hi, Doug. It's Doug Armer here.

You know, we continue to think about that mix, you know, very carefully. Obviously, what we want to do is optimize our cost of capital. The convertible notes, you know, were a very efficient issuance for us, and Tony mentioned the 4-3/8 coupon. That's highly accretive.

If you think about those, you know, those notes in combination with the other notes that are on the balance sheet, you know, as our unsecured corporate debt, representing essentially, you know, one turn of leverage on the balance sheet as fully deployed, and so I think that's probably about where we want to be in terms of the mix, you know, of common equity to corporate debt on the balance sheet, and we remain, you know, committed to the, you know, roughly four times leverage at the asset level strategy for our secured debt.

I think what you'll probably see is, you know, more creativity in terms of the forms of that secured debt. So, you know, we've added a bunch of new lenders. You know, over the course of the last year, we've taken the total number of lenders, you know, up from six or seven to 10 now. If you include Barkley's at the swing line, we've added that corporate revolver. You know, the CLO market is -- for commercial real estate loans -- is a very healthy market. And there are other structured alternatives that we think, you know, could come into the mix to complement our credit facilities.

Thank you.

And the next question comes from the line of Jade Rahmani, KBW. Please proceed.

Thanks very much.

Was there an acceleration of deferred financing fees in addition to the $0.03 of prepayment income?

Yes, Jade, the $0.03 that I referenced is net. So we do -- That's the net of acceleration of income on the assets and for financing fees on the liabilities. So that's net-to-net income on our core earnings.

And there's typically some level of prepayment income on, you know, regular repayments. So I guess excluding that $0.03, do you see the $0.60 -- $0.66 of core earnings as a sustainable level or is that also outsized due to, you know, the timing of repayments you mentioned?

Jade, hey, it's Doug here. You know, I think, you know, with regard to, you know, the look forward, you know, what we point to is the dividend level. You know, there are going to be ups and downs, you know, quarter over quarter, you know, relative to our average deployment, you know, not just our, you know point-to-point deployment, you know, quarter-over-quarter, and, you know, given the size of our portfolio and, you know, the leverage on our balance sheet, you know, we feel comfortable at the $0.62 dividend, and with the prospect for growth going forward, particularly as rates increase and as we grow the portfolio. So, you know, those are the numbers that we would point to as opposed to the $0.66.

Okay. Just switching to the investment environment, can you comment on where you're finding attractive opportunities and perhaps what you're avoiding? You noted California as an outsized share of originations. I'm wondering if you could comment on the investment environment.

You know, the investment environment is very active. We're seeing a lot of opportunities. You know, the market is competitive, so we're working very hard for what we originate, but we're very focused on larger deals and larger markets, and I would say the multifamily asset class more broadly with Walker & Dunlop.

And so if you look at our originations, office and multi, primarily, those are the asset classes that we're seeing the most of. We're more cautious on hotel. We've done very little retail and we're very cautious on retail as an asset class.

But, you know, we're opportunistic, and as a lender with an equity investment, you know, we always have the opportunity to finance things that might be contrary to the common view, in terms of the attractiveness of an asset class or a market.

But we're definitely, you know, coastal market focus. We like California. We continue to like New York. I think you'll see a lot of our future activity in those markets.

And turning to competition, can you discuss trends in loan spreads, which seemed quite stable in your actual originations, but are you seeing banks getting more aggressive? Is the pressure points on competition coming from other debt funds or, you know, providers of bridge capital? And are you seeing any compromise in deal structure or, you know, covenants and underwriting standards?

Let me take the last part of your question first. I think the quality of underwriting and loan structure has held up very well, and so, you know, we've been pleased as pricing has gotten more competitive loan structure has held up. And we still have a lot of clients who don't want extra leverage. So the leverage requests that we're seeing now are still much lower than what we saw pre-crisis. So, you know, we take a lot of comfort in that. We don't see a lot of the warning signs that we saw, you know, in 2006 and 2007 in the current market, you know.

The competition, we feel, is mostly around rates. Some is from other debt funds and other mortgage REITs. Some is from the banks. You know, we have our niche in terms of transitional loans and construction loans that we serve very well, I think better than -- certainly better than the banks. We're better suited to these kinds of lending situations than the banks are.

And, you know, and if there's one aspect of our world what we're seeing, you know, I think even improved conditions it's really been in construction lending where the banks continue to have their regulatory challenges, and the construction-loan opportunity -- and I talked about the two loans we did this quarter -- continues to be a very strong one.

But I think across a broader array of markets and activities, construction loans, refinancings and acquisition activity, you know, there is a healthy degree of lending to be done, and we're competing very effectively for it.

And are you planning to lever the construction loans?

Jade, hey, it's Doug. We are planning to lever the construction loans. You know, we've got, you know, a portfolio of roughly half a dozen of construction loans, you know, which are levered. So, you know, we tend to lever those, you know, in -- through senior syndications or, you know, more sort of non-recourse or one-off transactions as opposed to through our credit facilities for the transitional loans, but we do lever those to basically the same sort of low double-digit ROIs that we lever our transitional lending business to.

Wanted to ask aside from growth in LIBOR, which I think expectations seem to be moderating somewhat, how do you look at prospects to grow earnings over the next year? And are there any new business lines that look interesting? I don't know if you're interested at all in CMBS conduit special servicing or, you know, any other, you know, parts of the (inaudible) finance market, but also CLOs, wanted to see if you could comment on whether that's an attractive source of capital.

Sure, Jade. It's Doug. I'll take those in order. I think, you know, we do see a good prospect for growth in earnings, you know, that'll come with the growth in our balance sheet. So having had the issue of the, you know, the corporate debt over the last couple of quarters, you know, I think, you know, we've got some deployment to do to grow the balance sheet, you know, by a couple of billion dollars. And we have, you know, credit capacity to do that, you know, in place now. So I think that that's, you know, in addition to rising LIBOR where you're going to see the potential for growth in earnings.

I think we are also interested in, you know, complementary business models. You know, we've looked at, over the years, at those. You know, we always, you know, judge whether they're accretive, you know, relative to our existing business, and, you know, there's certainly the potential for some of those, given current market conditions, you know, to be entered into in the medium term.

With regard to CLOs, you know, our goal, you know, particularly in the, you know, spread-compressing environment that we're seeing on the loan side, you know, is to optimize, you know, our cost of capital, and, you know, we've had a lot of success doing that with our credit facilities expanding capacity there.

But in 2017, in particular, the CLO market has become very competitive. So it's an interesting alternative for us. It's certainly something that you, you know, that we have the potential to tap. We've got a large-scale portfolio and we have, you know, very well-performing loans and people are obviously interested in buying Blackstone-affiliated or, you know, -issued securities. So I think CLO issuance is certainly a very real possibility for our financing strategy.

Thanks for taking the questions.

And the next question comes from the line of Jessica Levi-Ribner of FBR Capital Markets.

Good morning, guys. Thanks so much for taking my questions.

I just have one left here, but the -- could you size the potential with the Walker & Dunlop JV, what the pipeline looks like and what that opportunity looks like for you guys on a go forward?

Thanks for the question, Jessica. And I would say, you know, I would say, you know, this was the first quarter that we closed loans with Walker & Dunlop, and so -- and we spent a lot of time, you know, with their team, you know, creating, you know, a joint process of looking at opportunities and getting them closed and funded. I think we've had great success. We have great mutual respect with the Walker team in terms of getting that process established. We closed two new credit facilities on attractive terms (inaudible) consistent with the loans that we're doing on a direct basis.

You know, you saw that the volume that we reported this quarter was seven loans, $147 million. You know, so the going forward, I think, you know, we hope to originate something in that general band of activity that -- this quarter's activity included a few loans that originated prior to the formation of the JV that the JV acquired at its closing.

We're seeing a very nice pipeline of opportunities via the joint venture. I think it'll be a meaningful contributor to loans as we go forward. You know, I think, you know, the vast majority of our production will continue to be our direct larger loan major market strategy, but I think the two combined will create a very nice picture for us going forward.

Thank you. Can you give us an idea of the yield on those loans and also maybe talk a little bit about the multifamily backdrop right now? I know that you made comments that you're positively predisposed to offer some multifamily, and maybe talk a little bit about the trends in the market.

Well, I think, you know, generally, multifamily sort of broadly, there's generally a housing shortage, you know, post crisis that has really benefited the multifamily asset class. We're seeing strength in multifamily asset class particularly in Class B assets, which is really where more of the Walker JV is focused. You know, Walker is helping us access markets and opportunities that we wouldn't ordinarily see in our direct origination activities, which are focused on larger loans.

And so -- And multi is unique in that as you go down an asset size you don't necessarily compromise an asset quality. You know, there's a lot of strong multifamily markets that are not major markets in the U.S. We like the value proposition that comes with those loans in some of the smaller markets. We don't feel the same way about the other asset classes, where you have a tendency to have quality go down with loan size.

You know, I think on office, we're more focused on those markets with dynamic demand, you know, where tech tenants have tended to locate, where younger workers want to live and work, and that's, you know, markets like the California markets and New York and Boston and Washington have had very good upticks from (inaudible) tenants. And so that's what we're trying to focus our lending activity there and trying to stay away from suburban markets and markets that have flat and no real growth in long-term demand.

And so our lending tends to mirror where we want to be as investors, shaped by the, you know, the magnitude and the breadth of our equity investing activity in these assets. So we really have a unique perspective, given the overall scale of Blackstone's real estate platform, and it really comes across in where you see the loans that we're originating, what they look like, where they're located.

Okay. Thanks so much.

And the next question comes from the line of Steve Delaney, JMP. Please proceed.

Good morning, everyone, and congratulations on a strong quarter.

So most of my topics have been covered by now, so I'll try to be brief. Just curious on the construction loan product. Are you comfortable commenting whether the way you model that out, including the leverage that you have available for the senior syndications -- with that product, do you see an incremental return on equity opportunity as compared to your traditional transitional loan business? Thanks.

Hey, it's Doug. You know, with that product, I think, you know, what we see is a higher ROA and a little bit, you know, less leverage and an in-line ROI or ROE as compared to our traditional lending business.

You know, so what's interesting about that product -- and Steve mentioned it in his remarks -- is that after we originate the loans, you know, we layer in the benefits of the funding in terms of growing our balance sheet and the earnings power. And so we think of those as sort of, you know, forward earnings, you know, that are, you know, levered and financed and sort of complement our quarter-by-quarter originations of the transitional loan business. So it's accretive because of the additional deployment and growth in our total assets, but it's basically in line in terms of the ROI with a slightly different mix of financing.

That's a great point about the forward funding. And could you roughly estimate on these like office and multifamily projects, you know, I assume you're looking at something maybe extending a year. Would that funding generally be over an 18-month to two-year period of time on this type of a project?

Yeah, I think that's a good estimate, Steve. We sort of view that the, on average, the loans will be about half outstanding over the first two years or so. You know, on bigger projects, it's a longer period of time and on smaller projects, it's a shorter period of time.

Thanks. That's very helpful. And this kind of ties into my next question. You know, Doug commented on CLOs obviously being strong, and we've seen that, but, obviously, the fixed-rate CMBS market spreads are really tight, and the supply builds, but the spreads don't seem to widen, and, obviously, now, we're got tax reform, (inaudible) and we've had a spike in the 10 year.

As you look at the (inaudible) coming in (inaudible) sensing that there may be --

There's a little --

I'm sorry. Can you hear me?

Background noise on your end. Could you -- Yeah, that's much better.

Okay. It's a headset. I think it was my mic on my shirt. Sorry, gentlemen.

I guess my question is this, are you sensing with rates moving higher, the 10-year moving higher, the strong conditions currently in the CMBS market, are you sensing any type of an increased urgency for some of your transitional borrowers to maybe move into their permanent financing more quickly than they may have otherwise?

You know, Steve, we really haven't. Most of our borrowers are committed floating-rate borrowers, and our loan typically bridges them from the acquisition of a property to the ultimate property sale. You know, they're fund sponsors. They typically have a three-to-five-year life of any individual investment. What we try and do is -- as originators and asset managers -- is be the lender through that entire period of time.

Got it. And so, specifically, your private-equity-fund borrowers are more opportunistic, value-added, and the CMBS market, with the 10-year financing, I think I'm hearing you say, Steve, that that loan product is of more interest to the core real estate investor that maybe buys the property from your borrower. Is that what you're suggesting?

Yes.

Okay.

Yes, I am.

Well, thank you.

It's a product for people who are generational holders and longer-term holders, but, yes, that's correct.

Thank you for the comments.

The next question comes from the line of Rick Shane, JP Morgan. Please proceed.

Thanks, guys, for taking my questions.

Steve Delaney has addressed most of them, but I just want to make sure that we understand what's going on here, which is that there has been, over the last three quarters, a pretty substantial gap between originations and funding, and that's clearly being driven by the focus on construction loans or the greater emphasis on construction loans.

Is it fair to say that it's probably a 12-to-18-month lag where if originations were to start to stay flat and you were to have that same sort of mix that originations and fundings would begin to converge?

Hey, Rick, it's Doug. That's exactly right. So I think this quarter you began to see, you know, those lines, you know, come close to intersecting. So we had $172 million of fundings of, you know, previously originated commitments, and, you know, $230 million of construction loans. So, you know, those lines are beginning to intersect, and, you know, something like, you know, 18 months to two years into the life of that origination cycle, given flat originations, you'd see them, you cross over.

Got it. And then --

Quick correction, Rick, $284 million of construction loans. So, you know, we're two-thirds of the way there.

Got it. And just a quick refinement I hadn't been thinking about as this becomes more significant within the model, are there commitment fees associated with those loans that are driving income on a quarterly basis that isn't tied to an asset on the balance sheet that we would normally be thinking about?

There are commitment fees, but we account for them in the same way that we account for origination fees on our transitional loans, so they're amortized in over time to create a level yield on the asset. So we have the relatively smooth ROI in line with funding, as opposed to in line, you know, just with the tenor of the loan.

Okay. I think I want to clarify that a little bit. So that would suggest that if you originate a loan, but don't fund it for six months, during that first six-month period there would be no commitment fees accreted into income.

That's right.

Okay. Fair enough. Thank you.

The next question comes from the line of Kenneth Bruce, BOA. Please proceed.

Thanks. Good morning, guys.

Just a few follow-up questions. I'm sorry if you've kind of mentioned this before. Been a busy morning. But earlier in the year, we saw some spread compression and I'm interested if you see anything incrementally that's occurred here over the course of the last quarter, you know, kind of what the, you know, general spread is relative, you know, across -- Obviously, there's some (inaudible) shift here that we're, you know, that we've been talking about, but just, you know, if you look at it on a like-for-like basis if there's been any further spread compression.

Hey, Ken. I think the spread compression we saw in the first year, which was really significant, has definitely slowed as we sort of hit the summer and rolling into the fall. We're still seeing it. So the market's competitive and there is price competition for loans, and so spreads are, I think, on the margin, still tightening, but not in a really significant way anymore. So I do think the worst of the tightening is over. That's certainly our hope.

And, you know, we've been able to maintain, you know, the ROIs necessary to make our business model work well. So I feel, you know, that that has also made it more difficult for some of our competitors who have a higher cost of capital than us to compete. So, in some regard, we've been a winner from the tightening environment. Although, in general, it's always nicer to see spreads higher than lower.

Right. And are you finding yourself going into, you know, deeper transitional loans as you kind of move through this point in the cycle? I mean, obviously, you know, go into construction itself for having more of that kind of suggests that you are, but, I mean, maybe give us a sense as to kind of within the transitional loan space if you're finding yourself going, you know, into deeper, you know, deeper markets.

I think, Ken, that the business has really been relatively steady over an extended period of time. There is some quarter-to-quarter, and, you know, and if you look at our loans, it's three general categories of acquisition loans, refinancings and construction loans. You know, the mix -- again, the mixed areas, but the opportunities have been consistent through the year. This quarter we saw more acquisition financing as our clients' level of activity picked up, and they were more actively getting their -- more activating their funds invested in buying property. So it created some great opportunities for us.

With spreads tightening and some of these properties getting a little further along in their business plans, we'll continue to see good refinancing opportunities as well, and those will be less transitional and a little bit more stable from a property standpoint than the acquisitions that we look at.

But the profile hasn't really changed and, you know, we continue to address the market opportunities well.

And my last question is just regarding scale, I mean, from a point of origination, there were just, you know, ability to generate investments on the current platform is there significant upside from here?

You know, we've spoken over the years. I mean, there's -- we're always trying to gauge how much you, you know, you can grow and, you know, what the capital formation needs to be in order to, you know, support that. And, obviously, there's a lot of moving pieces in that, but I'm always kind of interested in whether you think you're kind of at the right level of origination activities, whether you look at it, you know, on a, you know, kind of spot basis or in the context of construction loans that obviously fund in the future, whether you're kind of at scale or if you've got a lot more upside from there, from here.

Ken, hey, it's Doug. Maybe I'll take the first part of that. You know, one thing I'd point you to is the originations growth, you know, that we experience year over year. So we're up 33%, you know, 2017 over 2016 at 3.6 billion versus 2.7 billion. So I think you're seeing that growth manifest in a growing portfolio.

We've been working through the GE repayments during, you know, 2016 in particular, so the top line didn't change a whole lot, but you'll begin to see, and I think, you know, you saw last quarter the top line in terms of total assets begin to change. You know, we continued moving in that direction this quarter.

If you look at our capital base, including the convertible notes, you know, there's room to support a portfolio that's, you know, up to 20% round numbers larger than it is currently on a fully-deployed basis. And so, you know, I think, in terms of growth and earnings and growth in the portfolio we've got the capital in place to support that and we're seeing in terms of our origination activity, particularly when you zoom out and look over year-over-year periods as opposed to, you know, any individual quarter, which can be a little bit lumpy.

And maybe just to refine that a little bit, I mean, I guess from here, though, do you feel like you've got a significant amount of excess capacity that you can continue to effectively lag into a larger portfolio --

We do have $700 million of liquidity on the balance sheet. Now, not all of that is offensive and deployable, but round numbers, you know, $500 million of it is, in theory. And so --

Yeah, I'm sorry. I guess I'm not really referring to the capital set. I'm really more referring to the, you know, just the capacity that the operation can produce from dollar amounts of investments. You know, do your people that you have in place, can you scale that part of the business up?

Absolutely. You know, and that's, you know, that's part of being, you know, part of the Blackstone real estate platform. You know, our focus on larger loans is key in that regard, and we've seen that number, our average loan size, you know, go up year over year as well. And we've also, you know, continued to, you know, to build out the team here. Steve referred to the, you know, the increased presence in California.

So, you know, I think tracking for originations, as you've seen in 2017, you know, over $1 billion a quarter as opposed to, you know, just under $1 billion a quarter is totally supportable from our platform.

Yeah. We really do, Ken, upgrade investment capacity here. I mean, you know, Blackstone is an organization that's really built to invest. You know, when I talked about, you know, the new people in LA, but we've also added people in London as well and expect to see more origination in Europe going forward than what we've seen in the past year or so.

And so we have the people in place and we definitely have the ability, and we're seeing the opportunities, and we continue to also track what we hope to be very large opportunities as well. You know, we benefit from an ability to do larger deals and we have a large balance sheet, so we can absorb them, so we can continue to focus on larger opportunities that could significantly move the capital base, you know.

It's hard to predict when a deal like a GE or something else is going to come down the pike again, but I can tell you that we're better positioned than anyone for that sort of business should it arise, and we're looking for it all the time.

Well, thank you for all your comments and congratulations on another good quarter. Appreciate it. Take care.

The next question comes from the line of George Bahamondes from Deutsche Bank. Please proceed.

Hi, guys, good morning. Most of my questions have been answered. It's more of a housekeeping item. Did you guys disclose the amount of loans you've closed or are in the process of closing in the fourth quarter?

We did. I will get you that number. It was 768 million. It's a combination of loans we've already closed and ones where we have signed term sheets that are in the closing process.

Great. That's it for me. Thank you.

And a final question comes from the line of (inaudible) from (inaudible). Please proceed.

Morning, guys. For the loan exposure that you have in the kind of refi cashout variety, have you guys ever disclosed that and are you willing to talk about kind of what's in the books and in terms of the third quarter how much of it was a refi cashout?

Well, we don't -- We typically, when we talk about our loans, we really look at LTV and all the good qualities of the loans and the risk associated with them, and so, yeah, we're certainly mindful of situations where cash is coming out versus equity going in, but, you know, as it related to the quarter, other than the construction loans, every loan but one was new acquisitions, so it was primarily this quarter was almost exclusively acquisition financing.

Again, that varies quarter to quarter. And, you know, and when we look at refinancings, you know, we're certainly mindful of the sponsors' equity, cash equity and implied equity in the deal, and, you know, we believe we can underwrite real estate on a refinancing just as well as we can on an acquisition. So they're both important parts of our business, but in this most recent quarter, it was almost all acquisitions and the two construction loans.

One small question. On the financing page or the balance sheet page, in the prior quarter, you had shown kind of the credit facilities with the all-in cost, and now you show just the coupon. Were there some hedges taken off or what was the reason for the switch? You know what I'm talking about?

Hey, it's Doug here. You know, the all-in costs versus the coupons have really just the amortization of fees and expenses setting up the facilities. So the current incremental costs we think is better represented by the coupon, but the detail is in the 10-Q and we can point you to that specifically.

Okay. Thank you.

Turn the call back over to Tucker Weston.

Great. Thanks everybody for joining us today, and if you have any follow-up questions, please let me know.

Ladies and gentlemen, that concludes today's conference. You may now disconnect. Have a wonderful day.