Blackstone Mortgage Trust, Inc. (BXMT) Q4 2019 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the Blackstone Mortgage Trust, Fourth Quarter and Full Year 2019 Conference Call. My name is Lesley and I’m the event manager. [Operator Instructions].And now, I’d like to hand you over to your host for today, Weston Tucker. Please go ahead.

Great! Thanks Lesley, and good morning and welcome to Blackstone Mortgage Trust's fourth quarter conference call. I'm joined today by Steve Plavin, Chief Executive Officer; Tony Marone, Chief Financial Officer; Doug Armer, Executive Vice President, Capital Markets, and Katie Keenan, Executive Vice President, Investments.Last night we filed our 10-K and issued a press release with a presentation of our results, which are available on our website and have been filed with the SEC. 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 section of our most recent 10-K. We do not undertake any duty to update these forward-looking statements.We will also refer to certain non-GAAP measures on the call, and for reconciliations you should refer to the press release and our 10-K. 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.We reported GAAP net income per share of $0.59 for the fourth quarter, while core earnings were $0.68 per share. Last month we paid a dividend of $0.62 with respect to the fourth quarter. If you have any questions following today's call, please let me know.And with that, I'll now turn things over to Steve.

Thanks, Weston, and good morning everyone. An excellent fourth quarter capped another strong year for BXMT. We originated $3 billion of loans in the quarter and $8.6 billion for the year. In 2019 we grew our portfolio by $2.1 billion to $17.9 billion, while maintaining an origination LTV of 64%.The growth in our loan portfolio helped drive full year core earnings to $2.70 per share, which produced 109% coverage of our dividend. The strong coverage reflects our focus and the quality of the dividend which was generated solely from our senior lending business, and we retain the excess earnings, which contributed to our increase in book value during the year.Our portfolio growth over the past two years has come from targeting larger loans, but there is not only less competition, but also higher quality real-estate, markets and sponsorship. Blackstone equity vehicles own almost everywhere we lend and the larger scale real-estate securing our loans is most comparable with what's in these vehicle, which is when the competitive advantages of being part of Blackstone’s Global real-estate platform are most powerful. Because of the emphasis on larger scale assets, the average value of the real-estate underlying each of our directly regenerated loans exceeds $350 million.A great example of our large loan strategy is a $724 million refinancing of Hudson Commons, a newly completed building in the Hudson Yards submarket of Manhattan that we closed in the fourth quarter.Other origination highlights include a $470 million loan and an office complex undergoing redevelopment in West LA, a $342 million construction loan on a Mixed-Use project in Midtown Atlanta and $238 million of loans in the Walker & Dunlop JV.Our London based origination team continues to source excellent opportunity from European major market and closed $609 million of loans in the quarter. 38% of our entire 2019 production were loans in Europe, highlighted by the €1.2 billion euro acquisition financing for Henderson Park for the Dublin based Green REIT portfolio.Although loan demand remains more episodic in Europe than in the U.S., the quality of the opportunities is excellent. The market leading Blackstone Europe Real-Estate franchise providers us with great reach and competitive advantage; we expect continued strong contributions from our lending because there.As for the origination climate more broadly, we expect to see transaction activity pick up from here, though election of certainty could impact the pace later in the year. Credit quality in the major markets we target remains constructive, particularly with the larger scale assets and sponsors. We see healthy tenant demand continuing from the strong economy and growth in technology, life sciences and content creation.The real-estate opportunity funds to comprise the most active segment of our client base of over $120 billion of dry powder in their investment vehicle, and the deployment of that equity should drive originations.In addition, with spreads tight, borrowers will be looking to take advantage of accretive refinancing, which will also help increase our production. To kick-off our 2020 originations, we have $1.4 billion of loans that close post quarter end or in the closing process.The balance sheet growth we've achieved has significantly improved our ability to access a wide array of efficiently priced capital markets alternatives. To fund our 2019 portfolio expansion, we raised $377 million of equity during the year, at an average book multiple of 1.3x, added $3.7 billion of incremental credit facility capacity on improve terms, and excused our first corporate term lean which we subsequently increased to a total of $747 million and reprised it higher.We are in the process of closing the $1.5 billion CLO to refinance a portion of our balance sheet assets with non-mark-to-market, non-recourse financing. The CLO is innovatively structured to improve both its cost efficiency and our asset management flexibility, and we get the added benefit of recharging our credit facility capacity while improving our liability structure.Our execution on the right side the balance sheet has enabled us to continually lower our cost to capital and build a higher quality, lower-risk loan portfolio. Our overall performance demonstrates the virtue of our Simple Senior Mortgage Business Model. In a period of declining yields around the world, BXMT with its stable, high quality dividend continued to deliver excellent returns to investors.Before I turn the call over Tony, I want to share some exciting news about our leadership. We are promoting Katie Keenan to President of BXMT. Two years ago as our growth was accelerating we augmented the BXMT team by having Katie, a highly productive originator, divide here time between originations and BXMT management. Katie is a supremely talented strategic thinker and leader within our debt business and her inclusion to BXMT management was game changing for me and our team.With the company continuing to grow in scale, complexity and potential, Katie will further increase our focus on BXMT. This promotion is very well deserved, a recognition of Katie's great accomplishments and ability and the importance of her expanded role.Katie will maintain a few key origination relationships, but her top priority will be working with me and the rest of our leadership team to maximize REIT performance. I’ve never seen an organization that recruits and develops talent like Blackstone. It is key to the great investment success the firm has achieved. Katie recruited into our real-estate debt business eight years ago, that exemplifies her capability and her expanded BXMT role as President is a win for our management team and our shareholders.And with that, I’ll congregate Katie and turn the call over to Tony.

Thank you, Steve, and congratulations Katie. This quarter's results cap-off another year of strong performance for BXMT characterized by continued positive performance in our key metrics, with strong earnings supporting an attractive dividend and growing book value, further increased scaling of our loan portfolio while maintaining healthy credit metric and a stable balance sheet with efficiently priced and well structured financings to support our business.We generated GAAP-net income of $0.59 per share and core earnings of $0.68 during 4Q, bringing our 2019 full year GAAP earnings to $2.35 per share to $2.70 of core earnings. Looking at 2019 results, we saw consistent earnings generation from our predominately floating rate senior lending business, despite year-over-year declines in LIBOR from 2.5% to 1.8% and generally tighter lending spreads.We've benefited from active LIBOR floors on 34% of our loans, which help mitigate the decline in floating rates, as well as our match funded financing model, which ties our floating rate loans to floating rate liabilities. In addition, we continue to benefit from periodic earnings generation from prepayment fees, which contributed $0.04 to our 4Q earnings and $0.08 for the full year. We maintained a stable and high quality $0.62 dividend throughout 2019, which was 109% covered by our core earrings.Lastly, we increased book value by $0.62 during 2019 as we continued our track record of issuing equity at a premium to book value, which effectively reduces our cost of capital and increases our competitive advantage when pricing new loans.During the fourth quarter we closed 17 loans totaling $3 billion of originations, bringing our 2019 volume to $8.6 billion across 48 loans, our second largest year of direct originations. We had net funding of $1.4 billion during 4Q and $2.1 billion during 2019, bringing our total loan portfolio to a record $17.9 billion, up 13% from last year.Our 2019 direct originations had an average size of $232 million, reflecting our continued focus on large loans where we have a competitive advantage. Notably, we also sourced 39% of this year's origination outside the U.S., highlighting the global scale of our lending business and the benefit of Blackstone’s broader real-estate platform.We continue to realize the benefits of funding, previously originated loans as the component of our growing portfolio with $767 million funded this year, up $113 million or 17% from 2018. Consistent with our mandate as a senior lander, we've not sacrifice credit as our business continues to grow and our 2019 originations have a weighted average LTV of 65%, right in line with our overall portfolio LTV a 64% as of year-end.We continue to see 100% performance in our loan portfolio, with an average risk rating of 2.8 out of 5 in line with prior periods. The right hand side of our balance sheet continued to support our lending activity in 2019, with our inaugural term loan issuance and $3.7 billion of newly expanded credit facilities.Notably in 4Q, we outside our term loan by $250 million to $747 million and reduced pricing 25 basis points to LIBOR plus 225, reflecting the strong secondary trading in the initial term loan we issued in April and a further indication of general market support for a business.As Steve mentioned, we continued our capital markets activity in January, with the pricing of our second $1.5 billion CLO with an average cast coupon of LIBOR plus 113 down 8 basis points from the $1 billion CLO we issued in 2017.We closed 2019 with liquidity of $751 million, and total debt equity of 3.0x, which we reduced in January as the proceeds of our CLO repaid outstanding credit facilities and further diversify our access to capital.I will conclude my remarks with a brief discussion of the current expected credit losses or CECL accounting standard, which was effective for BSMT and similar sized public companies on January 1, 2020.Last quarter we noted that CECL requires all lenders to record an estimated life of loan loss reserve against all loans in their portfolio, and with few exceptions this reserve cannot be zero. To determine our CECL reserve, we augmented our track record of no realized losses across the $42 billion of loans we have originated since our senior lending business launched in 2013 with securitized loan data we licensed from Trepp, LLC.Although securitized loans are not perfectly comparable to the high quality loans we make at BXMT, we’ve tailored our approach to focus on Trepp’s loss data for loans that are most similar to our business model, which is focused on large senior mortgage loans to quality assets located in major markets.We primarily elected to use the weighted average remaining maturity method to estimate our CECL reserve, which applies this historical loan loss experience against the loans in our portfolio over their expected tenor, including future funding obligations.In certain instances, for loans with unique credit characteristics, we may instead use a probability weighted model that considers the likelihood of default and expected loss given default for each unique loan. We expect to record a modest CECL reserve of approximately $17.6 million or $0.13 per share in our first quarter 2020 results, which will run through our balance sheet as a reduction of book value.The CECL reserve will modulate in future periods through an adjustments to net income. As our portfolio expands or contracts, the credit quality and risk attributes of our loans improves or declines or overall market conditions strengthen or weaken. We will provide further disclosure of our CECL reserve next quarter, when this new accounting standard has been fully adopted and our initial reserve calculations have been finalized.Thank you for your support, and with that I will ask the operator to open the call to questions.

Thank you, and thank you everyone. [Operator Instructions]. Okay and your first question comes from the line of Rick Shane from JP Morgan. Please go ahead Rick, your live in the call.

Thank you so much. Hey guys, thanks for taking my question. You touched on CECL reserve methodology, you guys have adopted the warm methodology approach. I am curious when you go through that, how sensitive your reserve levels are to LTV, both at inception and on a mark-to-market or sort of real-time basis, and if that’s going to be the primary factor that drives changes to the reserve level.

Sure, I don’t know that I would focus on LTV per say as something that would move in small increments, period-over-period. What will really drive the CECL reserve to your point is our overall credit quality of our loans and the type of loans that we make. So as long as we're making the types of loans that has been our business model, focused on the major markets, major asset classes, larger loans which would comp to historical reference data that have had relatively few losses when you look over time. I think that would be the main driver. If you thought one could move our reserve, it would be more if we shifted the type of loans that we make.To the same point, if there was a significant market move, because CECL does have an element of looking at the macro-economic environment and a little bit of a look forward, if you saw significant market deterioration where we felt like our loans were starting to be more at risk of loss, that would adjust the CECL reserve as well. But I highlight that to think less of it as some you know 5% move in LTV would have a one-for-one impact to CECL. It’s a little bit more directional as opposed to direct arithmetic.

Got it! So you know – and again look, we have the context of looking at this from not only our mortgage re-coverage, but also from our consumer finance coverage and the consumer finance companies have indicated that they do expect that there will be greater volatility or was it related to reserve levels from CECL. It sounds to me like given both the granularity of your portfolio, the level of credit protection that you don't necessarily expect that same level of volatility in the mortgage REIT sector.

I would agree with that. I think if you look at some of the things we've seen from the banks that have put out somewhat more voluminous CECL disclosures, you know it’s actually coming out of the 4Q earning season. The areas that CECL is more impactful for generally and I would expect would have more volatility generally are the things like credit card loans, auto loans, residential mortgage loans.It’s much more a macro asset class and therefore you're going to ebb and flow with markets to a larger degree. You hit the word, the granularity of our portfolio, the stickiness of our assets, means that although we will have more volatility than we did before CECL of course, but I don't think it'll bounce around as much as you would see in those other asset classes.

Got it, okay. Thank you very much, and Kate congratulations.

Thank you.

Thank you. Your next question comes from the line of Doug Harter from Credit Suisse. Your live in the call Doug, please go ahead.

Thank you. Can you talk about kind of how you view liquidity to the fund the pipeline that you talked about, and how the completion of the CLO will impact that number?

Sure. Hey Doug, it's Doug. We reported $750-plus million of liquidity at year end. I think, you know I mentioned last quarter and it's true this quarter as well, that there's probably, there is several hundred million of what I would call shadow liquidity behind that number in terms of financings that are in process, one of which would be the CLO and the advance rate on the CLO was higher than the advance rate on the credit facilities that we’re previously financing those assets. So I think from a liquidity position, we are in very good shape to fund the forward pipeline and additional $2 billion to $3 billion of portfolio growth given our current capitalization.

And then I guess, as things like this CLO get completed with better advance rates, I mean I guess how does that influence or impact your view on kind of overall portfolio leverage?

I wouldn't say that it influences our view on overall portfolio leverage very much, and I think we start from the assets in terms of determining what we think is an appropriate leverage level in our business, and we've talked about you know the potential for increased leverage on our balance sheet, as we deploy the capital that we've been raising and grow into the larger portfolio. I think those dynamics remain largely unchanged.What we like about the CLOs, and Steve referenced this, that it is non-mark to market and non-recourse. So all else equal, I think having more integrity in our balance sheet and our liability structure, longer liabilities you know would allow us from a risk management point of view to tolerate the higher end of the range of leverage that we've talked about over the years, but fundamentally we really look at our attachment and detachment point relative to the underlying real-estate and we think that we are very conservatively levered and we don't think we're going to change that strategy going forward.

Great, thank you Doug.

Thank you. Your next question comes from the line of Steve Delaney from JMP Securities. Your live in the all Steve, please go ahead.

Thanks. Congratulations Katie, and to everyone for a strong quarter and year. Would like to ask about loan spreads – at September 30 the weighted average spread over LIBOR was 334 basis points, and I was wondering if you had handy what the weighted spread was on the fourth quarter originations? Thanks.

We don’t have that number in front of us, but may I think we've may have mentioned that in previous calls. By the way, we’re happy to give it to you subsequently if that’s helpful for your model.I mean, I think we mentioned in previous calls that any given quarter the spread may move slightly, they're very idiosyncratic to what originations we happen to close in that quarter. What repayments haven’t come in a quarter and also the financing side of it also moves around, so you're net ROI that you are generating on the loans is barely consistent even though the top line may move around and there's a bottom line that moves around as well, but we can get you that number.

Sure, obviously the quality of the property, size of the loan, great point, and I was just – you know over the last couple years we’ve just heard a lot about going back two years about spread pressure. It seems to me anyway that on the last couple of earnings calls we're not hearing as much from companies on spreads, and maybe it's because the financing is improving as well, but we'll stay tuned on that.Floors obviously are helping you now. I think I understood you say 34% or active. Can you share with us what the weighted average LIBOR floor was for the portfolio at December 31?

As Steve – hey, it's Doug. We actually – we don't disclose that by particular detail. I think what's actually important is you know what the shape of the curve if you will you know is of the floors rather than the weighted average and you know it's ultimately – you know it's a somewhat complicated picture and that you've got a factor in our overall LIBOR exposure relative to our liabilities and the leverage on the balance sheet.You can tell from that chart in our earnings release that we’re very well positioned vis-à-vis rates. We benefit both from increasing rates and also decreasing rates, but you can't sort of calculate that based on a weighted average level. You've got to look at the full picture and so you know what we try and do is sort of get that picture across with that table in the earnings release, rather than focus on you know the one data point that I think you know could be a little bit misleading in isolation.

Great point, and I bet that table was very helpful because even if I had the weighted average floor, obviously the age of the loans is also an important factor in that dynamic. Thank you for your comments.

It is a moving target.

Thank you.

Thank you. Your next question comes from the line of Arren Cyganovich. Your live in the call Arren; please go ahead.

Hey. I just was wondering if you could talk a little bit about the largest loan that you made, the refinancing of the Hudson Commons. The yield on the spread on that had helped us, 275. Are you able to finance that at a lower level than what your average rate is for your existing facilities? I think it's like 179. Just like if you're just using your 179, it looks like the leverage, even if you put 4x on it, it will still be below the 7% return on that.

Yes, the great thing about sort of the range of opportunities we have in the leading space is we can correlate our financing cost to the risk profile and the overall credit characteristics of the loan. So Hudson Commons was a deal that we really liked for all the reasons that Steve mentioned in the initial remarks, and it is one of the less transitional loans that we've done historically and a very high quality, institutional quality asset, and as result of that, we are able to hit the very low end of our range, the credit facility financing and achieve an ROI in that particular loan that's consistent with what we achieved generally in the portfolio.

Okay, got it. And maybe you can just talk a little bit about the competitive environment in general. Are you seeing you know any particular geographies or asset classes that are you know under a little bit more pressure across the country?

As far as the competitive environment, you know I think that it continues to be competitive, but are advantages continue to bear fruit as we can see in the origination volumes. The most important one of that, which is we’re able to access loans that are much larger than many of the other active lenders out there. I think you can see that from some of the disclosure we had in the release and as a result of that, you know it tends to be a space where there are just less players and we’re able to have better outcomes when we’re trying to target the types of loans that you know we've done historically.We also have our very deep, our relationships which continue to compound you know every year and that allows us to maintain the competitive advantages of accessing that type of pipeline that fits our investment strategy.So I think that you know overall we continue to see you know a relatively benign competitive environment for our specific strategies and I think that our originations over time have shown the outcome of that.

Okay, thank you.

Thank you. Your next question comes from Jade Rahmani from KBW. You’re live in the call Jade; please go ahead.

Thanks very much. I was wondering if you could comment on what drove the elevated repayments in the quarter? If there are anything, any loans that were outsized that contributed to that and what your expectations are for other the first quarter or for the full year?

Hey Jade, its Steve. I think there was – we had some large loans to repay, but you know we have a balance sheet full of large loan, and your repayments have been pretty calm through the prior portion of the year, so it was just inevitable that we have a quarter at some point where we get more elevated repayment.And I don't think the length or the profile of our loans is changed. If anything, through our active asset management we’ll be able to extend the duration of our loans. I think that’s one of the things that caused some of the delay in prepayment and the back ending during the year.So as I look forward, I think we’ll see a 30%- ish plus or minus of our portfolio to repay. It’s very difficult to predict. We’ve got 90 to maybe 120 days visibility on repayments, but we're still anticipating portfolio growth and again. You repayments in the floating rate loans are just part of life. I mean there would be a much bigger issue if they weren't repaying.

And in terms of the asset management process, are you tracking the life cycle of these loans and what these borrowers are refinancing, and so could you give any color on whether their refinancing has been through permanent fixed rate financing on stabilized underwriting or if they're recommencing into other floating rate types of structures.

Yeah, great question. A lot of the take outs of our loans are property sales. When you think about the opportunistic and value-add fund sponsors that are our client base. When they – on a plastic sell business plan, when they achieve the end of their business plan, the success, you know the asset at that point in time is generally solid, because a lot of these sponsors are utilizing front end life investment vehicles and it’s a sale at the end, not a refi.So we typically don't get refied out by other floating rate lenders that look like us. We are generally able to hold on to our loans. We are efficiently priced and we are able to be proactive and try and make a compelling reason for our borrowers to stay with us.For the generational holders, occasionally they will move to either a permanent loan or much lower financing that we’re able to provide in the case of a New York City asset, one of our New York City assets which refinanced at 160 over LIBOR because we've gone from about 30% leased to about 90% lease during its life. But generally it's a property sale that takes us out.

And then that’s close to 100%. Before the question I was thinking that Blackstone historically has just a great history in securitization and it’s driven to be an innovator in that space, why not construct the securitization vehicle that could offer borrowers a permanent refinance and be the manager of that vehicle. So retain that relationship, extended ration of that income and fees which would be accretive today.And another related question would be if BXMT would consider launching a CMBS conduit. There been somewhat of a shakeout in that sector and I think institutionally known names like Blackstone would go really well in that space and could also add retained earnings for the benefit of shareholders would be accretive and given the size of the portfolio wouldn't add much additional income volatility or risk.

Well, I appreciate the creativity Jade and the question. The part of the real-estate finance universe that works best in our business historically has been the floating rate portion of the universe. So, and while we are always looking to see if there's ways that we could extend the duration of our loans and provide more the solutions for our sponsors that we currently do, and what – you know some of the ideas that were in part of your question, things that we think about all the time.You know on the floating rate business we are able to have, to maintain a much larger portion of the loan net of our financing that what you are able to achieve in the fixed rate market and so it’s one of the considerations that we think about when we think about leverage.But securitization I think it's – well, I think will be an increasingly important part of our, the right side of our balance sheet. You saw the innovation of our CLO. You know we’ve tapped the single borrower market. I think we’ll continue to do that when we see appropriate opportunities and obviously we are a very significant player in that market, you're right and we use all the tools to finance the company as efficiently as possible and also extend the duration of our assets.So I appreciate the ideas and the questions and all those things that you are talking about in terms of extending the life and providing more solutions to our clients are things that we look to do all the time.

Thank you. I wanted to ask on CECL. Were there any loans that required a specific idiosyncratic reserve such as perhaps in the New York multi-family deals; any specific reserves required?

Sure. So there are a handful of loans as I mentioned that we just termed as unique loans, where we felt like the reference data that we had available to us, both from our own experience over the past six years and the market data that we were able to license from Trepp, that just didn't comp well for various reasons. There's a handful of them, I think it was five off top of my head.We are giving details on loan by loan, so I wouldn't get into that component, but I would say as it relates to the broader CECL reserve, the reserves that those loans attracted is not significantly different from the reserves that we took generally based on the market data that we referenced. It was more of a difference in approach and we wanted to adopt a policy that gave us the flexibility, should we have other idiosyncratic loans in the future that maybe would warrant a larger reserve or smaller reserve that didn't come through our market data, we had that flexibility, but based on the Jan 1 math, the ones that we did run through that that separate process really came out pretty much consistent with the rest of the group.

And how is the Spanish NPL deal, how is that treated?

I mean, again, I think that would be a candidate for the loans that comp less well to the market data that we have. So that's a case where we will be able to take advantage of our policy having the primary focus on comping to market data, but allowing us to look at some of those loans individually. So that's a good example of where we were able to utilize that component of our policy.

And do construction loans generally have a higher or lower CECL reserve, because one of the interesting dynamics is that there's a lot more hurdles for releasing a fund in highly transitional or construction types of investments. So proceeds advance though stages, where the product meet performance for loans, so that could theoretically require lower reserve, but on the other hand the lease of risk is much greater, thereby creating higher potential loss severity. So are construction loans subject to a higher CECL reserve?

It’s a fair question and you did highlight some of the pros and cons that would go into it. I would say to your point, well first of all I don't think we draw a hardline of a construction loan versus of a transitional loan, because as you noted they both have some element of that forward flow to them.The way CECL works is you do take into account your unfunded loan balance. So all else equal, this CECL reserve on a funded loan would be higher for a loan with a significant future funding, because you're taking into account the potential future loss on the loan you haven't funded yet. So all else equal, those would be marginally higher.I think going back to one of the comments in the opening questions that I made is, the primary driver of the CECL reserves for us is less so the tenor point, although in the math that does come out to play, but it’s the credit quality that underlies the loans, the low LTV major markets, significant asset class, in particular on some of our more transitional and construction loans we tend to have even lower LTVs than average, so that further makes the point.But you know I'd say the driving force behind our CECL reserve and the person we took and the math that we did was the stability of the assets, the markets that we are lending in, the granularity of our portfolio and while on the margins definitely the math under CECL would penalize future fundings pound for pound more than a fully funded loan, that isn't the main thing that moves the needle for us, it's really more the credit quality and the asset class.

And lastly, was the data set CMBS Trepp data, a subset of that over laid for large loans bank markets, and how far back would you look? Would you look just subsequent to the financial crisis or did you look at prior commercial real-estate cycles.

Sure, so the data that we licensed from Trepp, which I think is going to be what you'll hear on most of these earnings calls and our space goes back to the late 90s, so it is pre-crisis. It picks-up the boom and bust years.We licensed the entire database, which is north of 200,000 loans, 3 trillion loans in total. Most of that our conduit loans which have higher loss rates, because that's where your more buying the market to the earlier comment again about what we’ve seen from – consistent with what we’ve seen from the banks where CECL is more impacted over things like auto, resi, middle market lending.So we focused our analysis on the subset of the Trepp data, which is to say the SASB and large loan securitization which we think are more comparable, although still not perfectly comparable to our loans, they tend to be larger, they tend to be in better markets, you're not part of a conduit flow lending business. So we thought that that was the most comparable component, and so that’s what we focused on.

Okay. Sorry, and one more if I could squeeze in, a question from an investor, which was around the election in Ireland, and you know risks that drives if any to your exposure there.

Sure, I think we're definitely monitoring the outcomes there. It's too soon to tell exactly what the impact will be given that the government is still being formed, but I think from our perspective the investment have in Ireland is all in the form of project glass, which is the one we talked about last quarter. That is a 96% lease stabilized office portfolio with long lease terms, 8 year weighted average life to generally multinational corporations. So our view is that our particular collateral in the market will be relatively insulated.

Thanks, very much.

Okay, thank you. Your last question comes from the line of Stephen Laws from Raymond James. Your live in the call Stephen; please go ahead.

Hi, good morning. A lot of the CECL stuff has already been covered clearly, but I did have one question with regards to the go forward impact and the duration assumptions behind the day one impact.If I understand it correctly then your day one impact, you look at the remaining duration on your loans to something this quarter – maybe a couple months duration for the initial impact and when that capital is recycled or redeployed, it will come in with a three or four, some longer duration. So as the portfolio turns over from the day one impact, should we expect that CECL reserve to increase as a percentage of UPB?

It’s a fair question and you're right, so we are looking at forward duration and so your day one impact, there are some three month loans in there and six month loans and nine month loans. I think though, it will be much more of a treadmill than you might be thinking, because although the three month loans will go away and perhaps be replaced with three year loans, also every other loan will get three months shorter in tenure.So it's going to be more of a treadmill and I think what will drive it more as if we are generally seeing, not per se because of the quarterly turnover of the portfolio, if generally were making longer loans or generally there's more on funded that are penalizing us the way math works a little bit longer, a little bit more as a general point as opposed to a quarterly turnover point, I think you’d see the movie there, but I think the actual tenor point will be a pretty muted impact.

That’s great. And then kind of competitively, did this impact the competitive market at all. I mean regulated financials obviously have capital ratios they are watching, being forced to take reserves on unfunded commitments to maybe something that is not of their interest. So you know I know it’s a short time line, but you expect to see any change in behavior from regulated financial competitors with construction loans? Have you seen any yet or any thoughts around that?

We really haven't. You know I think that as far as the specific types of loans that were targeting and our competitors are targeting, I wouldn't expect CECL in particular to drive that strategy.

Okay, great! I think everything else has been covered. So I appreciate the opportunity to ask these questions. Thank you.

Thank you. I now would like to hand back to Weston Tucker for final remarks.

Thanks everyone for joining us today and please follow-up with me after the call if you have any further questions.