Good day ladies and gentlemen and welcome to the Blackstone Mortgage Trust’s First Quarter 2017 Investor Call. My name is Derrick and I'll be your operator for today. At this time, all participants are in a listen-only mode. We shall facilitate a question-and-answer session towards the end of the conference. [Operator instructions] This 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 Derrick and good morning and welcome to Blackstone Mortgage Trust’s first quarter conference call. I am joined today by Steve Plavin, President and CEO; Jonathan Pollack, Global Head of Blackstone Real Estate Debt Strategies, Tony Marone, Chief Financial Officer; and Doug Armer, Head of Capital Markets. Last night we filed our Form 10-Q and issued a press release with a 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 Factors sections of our 10-K. 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-K, both which are 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 our consent. So, a quick recap of our results before I turn things over to Steve. We reported GAAP net income per share of $0.54 per share and core earnings per share of $0.61. Last week we paid a dividend of $0.62 with respect to the first quarter and based on today's stock price, the dividend reflects an attractive 8% yield. 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. The strength of our investment team was a dominant theme of our first quarter as we closed $1 billion of new loans and agreed the terms on another $1 billion plus of originations that are now in the closing process. The full run rate impact of our first quarter originations is not reflected in our 61% share -- $0.61 per share core earnings as we closed $350 million of loans in the last day of the quarter, but we will see the beneficial impact of those loans going forward as our BXMT originated portfolio continues to grow. Our strong origination pace reflects a broader mix of acquisition loans, refinancings and construction loans. With interest rates rising in the real estate cycle in a stable phase, we've seen opportunistic acquisition activities slow, but refinanced volumes have more than compensated. Our business is primarily driven by borrower demand from real estate opportunity and value add funds with senior floating rate transitional loans that we provide. The fund sponsors are now more actively pursuing opportunities to refinance loans made a few years ago in order to recapitalize asset, extend hold periods, or just access more accretive debt. In addition to the acquisition and refinance loans, during the quarter, we closed two construction loans totaling $348 million. Although construction loans that we like are not abundant or easily originated. We sourced a few excellent opportunities. The risk return dynamics in our transactions are compelling. The loans we closed in Q1 had an LTV of 46% and a weighted average all-in rate of L plus 6%. Construction lending is a segment of our business where we have benefited from the regulatory climate. The banks used to dominate but are now much more challenged by regulation. So, the loan terms…

Thank you, Steve and good morning, everyone. As Steve mentioned, this with a strong originations quarter for BXMT with $1 billion of originations, a 21% increase over 4Q volume, outpacing repayments of $781 million, our strongest origination quarter since 2Q of 2015. These senior loans were all floating rate with an average yield of LIBOR plus 5.25%, well above our current floating rate portfolio average of LIBOR plus 4.48%, but importantly with an average origination LTV of 60% right in line with our current floating-rate portfolio. Our strong 1Q originations maintained our total loan book at around $10 million, a level we have maintained since our acquisition of the GE portfolio in 2015, despite repayments of $3.3 billion of the acquired loans. Our fixed rate loan portfolio, predominantly acquired as part of the 2015 GE transaction, declined by $181 million during the quarter and to $886 million or only 9% of our total loans. This further increases our positive earnings correlations and rising interest rates with a 100-basis point increase in USD LIBOR, generating approximately $0.19 of additional earnings per share on an annual basis. Overall, our portfolio continues to have no defaulted or impaired loans with a stable weighted average risk rating of 2.6% portfolio LTV of 61%, demonstrating the strong consistent credit profile of our loan book. On the right-hand side of the balance sheet, we had a productive quarter with $1.1 billion of new credit capacity created across three of our credit facilities and term extensions on $2.8 million of credit facilities, demonstrating the continued supporting confidence of our lenders. We closed the quarter with a debt-to-equity ratio of only 2.4 times, consistent with our ratio of 2.3 times as of 12/31 with a slight uptick in net borrowings to fund loan origination during the quarter. We…

[Operator instructions] And our first question will come from the line of Jessica Ribner, FBR.

Good morning. Thanks so much for taking my question.

With regards to the Walker & Dunlop joint venture and how much capital would you be willing to put into it? Do they have kind of like a ceiling like a 10% to 15% of the portfolio will be constructions loans, is there something similar to that or just kind of see how it goes?

Yeah, I don't think there is any particular ceiling. We're excited about the opportunity to make these loans. They're consistent thematically with the loans that we make through our direct origination group today. So, we're hopeful for a lot of volume and I don't see any constraint in terms of what we'll be able to do with Walker & Dunlop.

Okay. Thanks. And the portfolio yields this quarter, it doesn’t seem like the increase in LIBOR really showed up in the yields, when can we expect that to flow through or am I thinking about it the wrong way?

Hey Jessica, its Doug. Well obviously, the floating rate loans on the books did benefit from the increase in LIBOR. We also had the timing issue with originations in the portfolio. There's a portion of the loans that were fixed rate that's reducing and reduced further this quarter. So, on the go-forward I think we'll see that correlation. Tony mentioned a one point increase in LIBOR adds $0.19 on an annual basis and we've got that floating-rate correlation. There are a lot of other variables in any given quarter with regard to result. So, we look at the whole picture there.

Okay. Great. Thanks so much.

Your next question will be from the line of Jade Rahmani, KBW.

Hi this is actually Ryan on for Jade. Sorry about that mix up. Thanks for taking our questions. I was wondering if you characterize the competitive environment overall in terms of the originations you're doing? You mentioned the increase in refi volume over acquisition. What types of trends are you seeing in those loan spreads versus what you've been doing previously?

So, I think the market is becoming increasingly competitive, but we're also seeing more and more opportunities to lend. If you look at what we're able to originate in Q1 and in our pace for Q2, it's never been stronger. So, from a competitive standpoint, our platform is doing great. We've so far been able to maintain spreads and yields in our loan portfolio consistent with prior quarters. If rates rise, we think that could be a little bit of additional spread compression, but I think in general we're very constructive about where we are from a competitive standpoint and very pleased with how we're performing.

This is Jade Rahmani from KBW, thanks. In terms the pipeline, what would you say is driving the strength? Is it a function of market activity increasing or a shift in competitive dynamic away from banks for example? What would you say is driving that?

I think that for us it's really the quality and the strength of our platform. We've a great investment team. We're able to move up in size much more easily than a lot of our smaller competitors. So, our average loan size was over $160 million in the first quarter and we have the ability to do very large loans, which is a huge competitive advantage to us and really moves the needle in our originations. So those are really the primary factors that we see.

Did you see any geographic mix shift in your pipeline to speak of for example in New York, we've noticed the investment sales transaction volumes have been pretty weak? So was there any notable mix shift and what do you think is driving those lower New York based investment sales volumes.

Well, I think we've see a slowdown in investment sales volumes sort of overall. I think rates are higher and the environment is more stable. So, I think pricing is still relatively high. We've been able to backfill our volume with a lot of refinancing, which obviously isn’t contingent on properties being sold. Our client base who are generally active of buying properties are now our active refinancing as well. If you look at our Q1, which was a mix of acquisition loans, refinancings and construction loans, all loans were with sponsors who have done prior business with six for six and repeat clients. Speaks to the platform and speaks to our ability to move our -- the construction loans that we've done have been primarily major market office buildings and so generally toward the 45% to 60% loan-to-cost range top sponsors with sponsors that we've done other business with. And we've really limited the product to best-in-class developers and we think the risk on a risk-adjusted basis, it's really a great opportunity for us. Typically, they don't have a large funded balance of closing and the equity goes in first and we've funded over time. So, we're going to get the benefit of increased fundings over time as construction progresses and I think we'll continue to limit the business to top assets, top sponsors, top markets consistent with our refinancing and acquisition lending.

In terms of the joint venture with Walker & Dunlop, I was wondering if you could provide any color on how it's structured, how things like origination fees would be treated and if there's any performance fees and just generally, how much capital would you expect to commit, what kinds of originations do you think could be achieved?

The JV with Walker & Dunlop is really -- is a combination of two companies that I think are ideally matched to pursue this business together. So, they're a market leader as are we in the lending and origination business. We're really excited about the combination of what it might yield. Credit approvals and major decisions are joint among the -- within the partnership. Capital was 85% for us, 15% Walker & Dunlop. The loans are going to be senior mortgage loans floating rate, similar in profile to the BXMT loans from a return standpoint as well. We expect the smaller lower -- a smaller average loan balance than what you see across our portfolio as Walker & Dunlop has a broader origination footprint in the multifamily space. So, I think what you should look at again is for loans that look a lot like the loans that we've made and smaller and we're hopeful they’ll be of very high volume going forward, and right now, we just closed and we're working together to get the venture up and running.

Thanks for taking the question.

You're welcome.

The next question will be from the line of Doug Harter, Credit Suisse.

Thanks. Can you talk about the retail portfolio and how the credit quality of that portfolio is faring today?

Sure, in terms of pure retail, so stray retail, our upwards flows were 8% retail. I think the significant thing to note is that we have no loans on enclosed malls. So, we've avoided the B mall space those years or pennies we haven't tried to make the credit call on whether a secondary mall is a survivor or not. So. we've been very selective on what we've done. What we have done in mostly urban retail in major markets, top sponsors, the average LTV across our pure retail is under 50%. We feel very good about the quality of our portfolio and obviously, we're fully aware of the pressures and the headwinds that exist in retail and I think if you look at our portfolio, the asset selection and what we've done reflects that view.

Great and then I guess just taking a broader look at the credit quality of the portfolio and any trends you're seeing in the underlying real estate performance and the execution of the business -- of the underlying business plans on the portfolio?

I think in general, our clients are working their way through the business plans. The assets leasing is generally improving at the assets where we made transition loans with assets that weren’t fully stable at the time of loan closing. We feel very good about the credit quality of those loans across the Board and so we're not seeing any alarming trends. We've stuck with strong markets with dynamic demand and top sponsors and lower LTVs and the portfolio looks good and we're confident that we'll endure any conditions going forward.

Thank you.

The next question will be from the line of Steve Delaney, JMP Securities.

Good morning and thanks for taking the question. I wanted to touch on the GE portfolio. Your deck shows that it's down to $1.6 billion. Could you share any color on the expected timing of any remaining payoffs coming out of that over the next few quarters? Thank you.

I think at this point the GE loans that remain or combination of loans that we've had the opportunity to amend or and extend and really, we sort of use those loans have been converted to BXMT loans. I see a large amount of the remaining GE loans the fixed-rate loans that are still call protected and we expect most of those loans to get repaid when the call protection expires to the remainder of the MAC portfolio and some of the other loans that we acquired some fixed-rate hotel loan. The LTV in that portfolio was also in general very well and we have we've got a little bit more duration on some of the stabilized asset because of the fact that those loans are our fixed rate and call protected.

That's helpful. So, it sounds like that the pressure from heavy prepayments is maybe slowing from that large acquisition as you sit today versus maybe six months ago.

Yeah, I think GE repayments were very important part of the story in 2016 we had one significant GE repayments in the first quarter but going forward I think it will be much less impactful. And so now the repayments that we’ll see going forward will be to a lesser extent GE and then just some of the repayments in the earlier stage once we made with the BXMT.

That's helpful thank you Steve. And just one final thing last Friday Commercial Mortgage Alert reported that Blackstone and I put that in quotes because they didn’t mention Blackstone mortgage specifically. But that the company's committed to a very large senior floating loan on an office project in Northern Virginia and they cited it’s being over $800 million just curious you mentioned about 1 billion pending closing can you say if BXMT specifically is involved in that financing and if so would that large loan be shared with other entities? Thank you.

Yeah Steve as a matter of policy we don't comment on loans prior to them being closed.

Okay.

What I can tell you is that our forward pipeline is very strong I mentioned it was $1 billion plus it spread across a few different loans. We feel great about the momentum we have with our investment team in terms of new originations. I think we’re as good a place in terms of our pace originations as we balanced since the company was formed.

Yeah, I appreciate the color thank you Steve.

Sure.

Your next question will be from the line of Rick Shane, JPMorgan.

Hey guys, thanks for taking my questions this morning. I know Jade did ask a couple questions about Walker & Dunlop but wanted to circle on two things there. Given that 85%, 15% split in terms of capital is that the way we should think about any fees been allocated or is there some sort of sourcing agreement that disproportionately allocates that?

I think the key to the 85/15 that really relates to the percentage of the loans that we ultimately own and sell. So, we run much more of balance sheet and capital intensive business than Walker & Dunlop. And so, the majority of the loans will sit with us and one of the big benefit of the JV for us is obviously to increase originations with high quality multifamily business that we were presently not addressing as Walker & Dunlop address in a great way with a market-leading team.

Hey Rick it’s Doug I just wanted to add to that we’re not disclosing the specific economic terms of the joint venture but what we can say is that the returns to the joint venture to 85/15 capital are going to be consistent with our existing floating rate business. So, we’re going to be levering those loans to LIBOR low teens returns that we see in the rest of our business and that will be the net economic impact for the company.

Doug, thank you for telling first that the question wasn't fully answered and I wasn't sure so I appreciate that, the other question related to the Walker & Dunlop relationship and you’ve talked about the size of the loans being smaller and the returns being comparable given the ultimate take-outs there is the duration on that portfolio likely to be shorter than the typical BXMT loans?

I think on average the duration will be a little shorter some of the loans – we typically make loans that have been ultimate five-year maturity at BXMT in our direct origination business. These loans will be a combination of three-year and five-year loans so potential they could be a little bit shorter. The take-out typically depend upon progress along the business plan and when properties qualify for an agency take out. We expect the velocity and the joint venture to be high and we’re hopeful of maintaining a high average loan balance across the portfolio.

Got it okay thanks. Last question any impact that you guys are seeing in terms of the changes in risk retention rules or bank behavior given some of the increased scrutiny related to CCAR and the issues that regulators have raised related to commercial real estate lending in particular?

Yeah, the banks have been cautious I believe it’s more of a credit profile a credit culture issue than a regulatory issue. But we don't have a lot of bank competition except for on – at the lowest LTV and in the least transitional assets that we pursue. The one area where I think regulations really impacted the banks has been in construction lending and the reason why we have that opportunity at the moment is because the banks have been unable to address the needs of their historic client base again because of the capital treatment and the consequences of HB CRE rules. So, it’s been a great opportunity for us I am still active in pursuing that opportunity but we have found some great opportunities as a result but otherwise I think on a regular way that the regulatory environment for the banks isn't really what influences the bank competition with us.

Okay great thank you.

The next question will be from the line of Charles Nabhan, Wells Fargo.

Hi good morning thanks guys. I understand there is degree of variability in pricing from deal to deal but was wondering if you could talk about what you're seeing in the spread environment and your expectations for spreads as the tightening cycle proceeds over the next year or two?

Well I think if you look at the spreads in our loan we have a fairly wideband of spread depending upon the nature of the loans that were making and the more stabilize loans that we make have lower spreads they typically have higher LTVs as well. We address volatility in assets by lending less and so the asset that are further from the stabilization process typically have lower LTVs and higher rates. So, the spreads on our loans and anyone quarter really reflect the composition of the loans we made during that quarter. We tried as a business always try and broaden the pallet of loans that we’re able to pursue. So, we want to be able to have more efficient liabilities so we can pursue lower spread business this and grow our originations that way and also make sure and have the ability to assess the risks of deals that maybe a little bit less efficient a little bit more challenging. So, I think you'll continue to see a wide array of spreads across the loans that we originate and potentially a wider band that we've seen previously as we look to expand too what we’re able to do in BXMT.

I guess what I'm trying to understand is I understand the variability but if you were to compare it you know on an apples-to-apples basis a similar deal that you might have done this quarter versus something you did in the first quarter of last year or even the previous year. I guess I'm just trying to understand apples-to-apples of spreads have come in at all?

Spreads have come in, you're forgetting Q1 of last year which was a period of unusually high volatility the trend of spreads over the last year or so in the business that we've been pursuing has been on the tight side. So yes, spreads are tighter.

Got it.

Say at least 25 basis points tighter.

Got it. And just a quick follow-up and I apologize if you touched on this earlier but the originations coming out of Walker & Dunlop JV should we think of those as incremental to the current run rate for originations?

Yes. The Walker & Dunlop the loans that we expect to see from the JV are loans that we don't presently address in our current direct originations. We have not pursued the multitenant bridged agency space. It's dominated by the agency ridges like Walker & Dunlop. So, we have the good fortune of now teaming with a leader in the space that has access to a pool of high-quality multifamily loans that we didn't presently have access to. So, we would expect all the origination that we do venture to be incremental.

Got it. Okay. Thank you.

Your next question will come from the line of George Bahamondes, Deutsche Bank.

Hey guys. Good morning. It seems like you guys nearly answered my question. It was really around maybe given an example of an opportunity you would anticipate seeing via the Walker & Dunlap JV and that BXMT may not have been exposed to complete had the JV not been put in place. And it sounds like that size of the loans will be smaller duration may be somewhat shorter. You did mention just now, is addressing maybe in a different market or in fact in the multifamily asset class that…

A prototypical loan would be let's say a $25 million or $30 million asset or maybe a couple of class A asset. It spend a lot of money -- spend money renovating it and a new NOI established till the loan get taken out by agency finance.

Your final question will come from the line of Jade Rahmani KBW.

Thanks for taking the follow-up, just looking at the consensus earnings expectations, the projection is for earnings to exceed the dividend and in some cases by wide margins and I assume analysts are factoring in forward LIBOR curve. So, I just wanted to see if you could comment on the reasonableness of that expectation assuming additional interest rate hikes this year?

Hey Jade, it's Doug. We don't give guidance or make forward-looking statements along those lines. I would point you to the chart with regard to the correlation to LIBOR. We talked about that. So, we think that increasing LIBOR will definitely benefit our earnings, but we're not going to comment on projections or estimates for the go-forward.

And with the risks to whether those expectations are too high involve loan yield compression as well as timing pace of originations and potential capital rates, those are the main factors that could impact that outlook.

I think the one fact that you're missing will be repayment. So, it's really about originations relative to repayments and the net growth in our loan portfolio, that's the major driver.

And then just finally, could you comment on how you assess current capital availability given the strong originations pipeline substantially waning GE repayments and also the WD joint venture, which you said was incremental, just how do you assess current capital availability?

Well we report quarter and you saw it was a strong number reflecting maximum origination capacity of about $2.5 billion. You saw that our net funding for the quarter were about breakeven. So, I think we're in a very strong liquidity position, but the way we look at our liquidity is relative to the opportunities that we see to the point of capital through our origination pipeline. So, we are happy with the forward-looking originations. We talked about a billion plus. The impact of Walker & Dunlop is going to be a little further out. We have to you -- we're in the process of arranging credit facilities for Walker & Dunlop and they will be a little bit of a lead time from originating those initial loans to getting close on to our books. So that's sort of how we look at -- that's how Walker & Dunlop factors into our thinking in terms of our liquidity and how we think about when we think we might need more and more capital.

Thanks. Very helpful. Appreciate it.

You're welcome.

And at this time, I am showing no further questions in queue. I would like to turn the conference back over to Mr. Weston Tucker for any closing remarks.

Okay. Thanks, everybody for joining us and if you have follow-up, give me a call.