Q4 2019 Earnings Call
Good day, everyone welcome to the Blackstone mortgage Trust fourth quarter on full year 2019 Conference call. My name is less land on the <unk>.
During the presentation, you'll line for my listen only mode. If you require assistance at any time. Please Kay stores there on your telephone coordinating we'll be happy to assist you know how do you all that you know how did they Weston Tucker. Please go ahead.
Great. Thanks, Leslie and good morning, welcome to Blackstone Mortgage Trust fourth quarter Conference call I'm joined today by steep Klabin, Chief Executive Officer, Tony Marone, Chief Financial Officer.
Armor Executive Vice President capital markets, and Kt Kenan Executive Vice President investments last night, we filed our 10-K and issued a press release with the presentation of our results, which are available on our website and I've been filed with the FCC.
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 summer the risks that could affect results. We see the risk factor section of our most recent 10-K.
We do not undertake any duty to update forward looking statements. We were also refer to certain non-GAAP measures on is calling for reconciliations you should refer to the press release and our 10-K.
It's audiocast is copyrighted material Blackstone mortgage trust it may not be duplicated without our consent.
So a quick recap of our results.
<unk> GAAP net income per share a 59 cents for the fourth quarter core earnings were 68 cents per share.
Last month, we paid a dividend of 62 cents with respect to the fourth quarter.
If you have any questions. Following today's call. Please let me now and with that I'll now turn things over to Steve Thanks, Weston and good morning, everyone.
The next one fourth quarter caps, another strong year for be exome too we originated $3 billion the bugs 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 gross or loan portfolio helped drive full year core earnings to $2.70 per share, which produced 109% coverage of our dividends.
The strong coverage reflects our focus and the quality of the dividend, which was generate 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.
It's not only less competition were also higher quality real estate markets and sponsorship.
Wax don't equity vehicles on almost everywhere, we land and the larger scale real estate securing our loans is most comparable what's in these vehicles, which is one competitive advantages of being part of Blackstone's Global real estate bought for my most powerful.
Because of the emphasis on larger scale assets the average value of the real estate underway each of our directly originated loans exceeds $350 million.
A great example, if our large loan strategy as 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 alone on an office complex undergoing redevelopment in west L.A.
342 million dollar construction loan on a mixed use project in Midtown Atlanta, and $238 million of loans in the Walker and Dunlop JV.
Our London based origination team continues to source export opportunities and European major markets and close $609 billion of loans in the quarter.
38% of our entire 29 seemed production were loans in Europe highlighted by the 1.2 billion Euro acquisition financing for Henderson part of the Dublin based screen read portfolio.
Although loan demand remains more episodic in Europe than in the U.S. the quality of the opportunities is excellent.
Market, leading Blackstone Europe real estate franchise provides us with great reach and competitive advantage. We expect continued strong contributions from our lending business there.
That's the origination caught up more broadly we expect to see transaction activity pick up from here the election uncertainty could impact the pace later in the year.
Credit quality in the major markets, we target remains constructive, particularly with the larger scale assets the 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 most active segment of our client base of over $120 billion of dry powder and their investment vehicles and the deployment of that equity should drive originations.
In addition, with spreads type borrows be looking to take advantage of accretive refinancings, which will also help increase our production.
To kick off our 2020 originations, we have $1.4 billion, along the 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.
The fund our 2019 portfolio expansion, we raised $377 million of equity during the year at an average book multiple of 1.3 times.
Added $3.7 billion of incremental credit facility capacity on improved terms executed a first corporate term loan, which we subsequently increased to a total of 747 million and reprice tighter.
We were in the process of closing at $1.5 billion COO to refinance a portion of our balance sheet assets with non mark to market nonrecourse financing.
See allows innovative we 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 [noise].
Our execution on the Rightside the balance sheet enable us to continually lower our cost of capital and build a higher quality lower risk loan portfolio.
Our overall performance demonstrates the Virtu Abbas simple senior mortgage business model and.
In a period of declining yields around the world BXMT T. with a stable high quality dividend continued to deliver excellent returns to investors.
Before I turn the call over Tony I wanted to share some exciting news about our leadership.
We're promoting kt keen in the president of Bx empty.
Two years ago as a growth was accelerating we augmented the be xseventy team by having kt a highly productive originator divided time between originations and be ex ante management.
Ladies the supremely talented strategic thinker and leader within our debt business and our inclusion and be XT management was game changing to me and our team.
With the company continues to grow in scale complexity of potential Kt will further increase or focus on be exome tea.
Promotions, very well deserved recognition of case, great accomplishments and ability and the importance of or expanded role.
Kt will maintain a few key origination relationships, but our top priority will be working with me and the rest of our leadership team to maximize read performance.
Never seen an organization that recruits and develops talent like Blackstone is key to the great investment success. The firm has achieved.
Katy recruited into our real estate debt business eight years ago.
Exemplifies this capability and our expanded bx since he role as president is a win for our management team and our shareholders.
That all congratulate Katy 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 B F. 17 characterized by continued positive performance in our key metrics with strong earnings supporting an attractive dividend and growing book value.
Further increase scaling of our loan portfolio, while maintaining healthy credit metrics.
Our balance sheet with efficiently price and well structured financings to support our business.
We generated GAAP net income of 59 cents per share in core earnings of 68 cents. During Fourq you, bringing our 2019 full year GAAP earnings to $2.35 per share with $2.70 of core earnings.
Looking at 2019 results, we saw consistent earnings generation from our predominantly floating rate senior lending business. Despite year over year declines in Libra from 2.5% to 1.8% generally tighter lending spreads.
We have benefited from active LIBOR floors on 34% of our loans, which helped mitigate the decline in floating rates as well as our match funded financing model, which ties our floating rate loans to floating rate liability.
In addition, we continue to benefit from periodic earnings generation from prepayment fees, which contributed four cents to our Fourq you earnings and eight cents for the full year.
We maintained a stable and high quality 62 cents dividend throughout 2019, which was 109% covered by our core earnings.
Lastly, we increased book value by 62 cents. 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 close 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 fundings of $1.4 billion during Fourq, you and $2.1 billion during 2019, bringing our total loan portfolio to a record $17.9 billion up 13% for 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 source, 39% of this year's originations outside the U.S.
Highlighting the global scale of our lending business and the benefit of Blackstone has brought a real estate.
Hello.
We continue to realize the benefits of funding previously originated loans as a 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 lender, we've not sacrifice credit as our business continues to grow at our 2019 originations have a weighted average LTV of 65%.
Right inline with our overall portfolio LTV of 64% as of yearend.
We continue to see 100% performance our loan portfolio with an average risk rating of two pointing out of five inline 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 new or expanded credit facility.
Notably in Fourq, you, we upsized, 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 our business.
As Steve mentioned, we continued our capital markets activity in January.
Pricing of our second $1.5 billion COO.
Average cash coupon of LIBOR, plus 113 down eight basis points from the $1 billion CLL, we issued in 2017.
We closed 2019 with liquidity of $751 million and total debt to equity of 3.0 times, which we reduced in January as the proceeds of our COO repaid outstanding credit facilities and further diversified our access to capital.
I will conclude my remarks with a brief discussion of the current expected credit losses, or Cecil accounting standard, which was effective for be SNC similar size public companies on January Onest of 2020.
Last quarter, we noted that see some requires all lenders to record an estimated life of loan loss reserve against all loans in their portfolio with few exceptions. This reserve cannot be zero.
To determine our sees a 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 trap LLC.
Although securitized loans are not perfectly comparable to the high quality loans, we make it'd be empty.
We have tailored our approach to focus on Trups 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 c. So 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 Cecil reserve of approximately $17.6 million or 13 cents per share and our first quarter 2020 results, which will run through our balance sheet as a reduction of book value.
This Isa reserve will modulating future periods through an adjustment to net income as our portfolio expands their contracts.
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 seasonal 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 the questions.
Thank you. Thank you everyone. Your question answer session will now begin if you wish to ask a question. It's just star then one on your tennis huh.
You want to withdraw your question its dovetail.
Just a reminder, if you wish to ask a question. It's just star then one on your telephone.
Okay and your first question comes from the line.
Shane.
Rick Shane sorry from JP Morgan. Please go ahead, Mike your light in the call.
Thank you so much hey, guys. Thanks for taking my question.
Look you you touched on the Cecil Reserve methodology, you guys adopted the warm.
Methodology approach.
I am curious when you go through that how sensitive you or a reserve levels are cheap LTV, both at inception, and on a mark to market or sort of real time basis.
In it that is gonna be the primary factor that drives changes to the reserve level.
Sure I don't know that I would focus on LTV per se as something that would move in small increments period over period, what will really drive the Cecil 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 has had relatively few losses. When you look overtime I think that would be the main driver if he thought what could move our reserve it would be more if we shift.
Good.
On the type of loans that we make yeah to the same point if there was a significant market move because Cecil 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 would adjust to seize the reserve as well but.
I highlight that that think of less of it as some 5% move and LTV would have a one for one impact to Cecil it's a little bit more directional as opposed to direct arithmetic.
Got it.
So you know going again look we have hit the context of looking at this.
I'm.
Not only our mortgage riet coverage, but also from our consumer finance coverage and the consumer finance companies have indicated that they do you expect that there will be greater volatility was it related to reserve levels from C.. So it sounds to me like given both the granularity.
Oh your portfolio.
The level of credit protection that you don't necessarily expect that same level of volatility in the mortgage REIT sector.
I 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 Cecil disclosures, you know is especially coming out of the 40 earnings season.
The areas that Cecil is more impactful for generally and that I would expect would have more volatility generally are the things like credit card loans auto loans residential mortgage loans, which must it's much more of a macro asset class and therefore, you're you're going to ebb and flow with markets.
To a larger degree you.
You had the right where the granularity of our portfolio the stickiness of our assets means that although we will have more volatility than we did before Cecil of course.
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 in case congratulations.
Thank you.
Thank you. Your next question comes from the line of adult Costa from Credit Suisse. You live in the coal Doug. Please go ahead.
Thank you.
Can you talk about kind of how you view liquidity to fund a the pipeline that you talked about and how the the completion of the celo will impact that that number.
Sure, Hey, Hey, Doug It's a it's Doug you know, we reported 750, plus a million dollars of liquidity at year end I think.
I mentioned last quarter, and it's true this quarter as well that there's probably you know there there are several hundred million dollars or what I would call shadow liquidity behind that number in terms of financings that are in process, one of which would be the COO and that you know the advance rate on this yellow is higher than the advance rate on the credit facilities that you know who previously financing.
Those assets.
So I think from a liquidity position where were you know we're in very good shape to fund the forward pipeline and you know and additional $2 billion to $3 billion of portfolio growth given our current capitalization.
And then I guess as as things like this the celo get completed with better advance rates I mean, I guess, how does that and influence or impact your view on kind of overall portfolio leverage.
I wouldn't say that and that it influences our view on over all portfolio leverage very much in that 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 the potential for increased leverage on our balance sheet as we as we deploy the capital that we've been raising and grow into the larger portfolio I think those dynamics remain largely unchanged and what we like about the COO, Steve references that it is non mark to market.
And non recourse on so all else equal I think having more integrity and our balance sheet in or liability structure longer liabilities 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 detachment point.
Relative to the underlying real estate and we think that were very conservatively levered and we don't think we're going to change that strategy going forward.
Great. Thank you Doug.
Thank you.
Good question comes from the line of Steve Delaney from J.P. Securities. Your line open the call Steve. Please go ahead.
Thanks, Congratulations kt into every one for a strong quarter in year.
We'd like to ask about loan spreads Pat.
Excuse me.
[noise] excuse me at September 30, the weighted average spread over LIBOR was 334 basis points and I was wondering if you had handy with the weighted spread was on the third or fourth quarter origination snacks.
I don't we don't have a number in front of us, but I think we've had mentioned that in previous calls it by the way we're happy to give it to you subsequently, but that's helpful. For your model I mean, I think we mentioned in previous calls at any given quarter the spreads maybe slightly they're very idiosyncratic to whatever.
Our nation's we happened to close in that sure what repayments haven't come in that quarter and and also the financing side of it also moves around so your your net ROI that you're generating on the loans is fairly consistent even though that the topline may move around there's a bottom line. It was around as well, but we can give you that number.
Sure obviously, the quality of the properties size alone.
Great point and I was just you know over the last couple of years, we've just heard a lot about going back two years about spread pressure it seems to be any way that on the last couple earnings calls, we're not hearing as much from a from companies on spreads and maybe it's because the financing is improving.
As well, but we'll have we'll stay tuned on that.
[noise] floors, obviously, your or helping you now I think I understood you say, 34% our active can you share with us with the weighted average LIBOR floor was for the portfolio at December 31st.
And as Steve Hey, it's Doug we actually we don't disclose that particular detail I think what's actually important as you know what that the shape of the curve. If you will you know is of the floors rather than the weighted average and sure. It's it's ultimately a you know it's a somewhat complicated picture in that.
You've got to factor in our overall LIBOR exposure relative to our liabilities in the leverage on the balance sheet. You can tell from the chart in our earnings release that we're very well positioned vis-a-vis rates.
We benefit both from increasing rates and also decreasing rates, but you can sort of calculate that based on a weighted average level you've got to look at at the full picture and so what we try and do is sort of get that picture across with that table in the earnings release, rather than focus on the one data point that it.
Thank you know could be a little bit misleading in isolation.
Good great pointed out that table is very helpful. Because even if I had the weighted average floor. Obviously the the age of the loans is also an important factor in and that dynamic from thank you comments. It is it it is a moving target.
Thank you.
Okay. Thank you. Your next question comes from the line of Arren Cyganovich, you're leaving the Cohen. Please go ahead.
Thanks.
And this was wondering if you could talk a little bit about the largest.
You mean the.
And the refinancing of the Hudson Commons.
The yield on their this spread on that.
L plus 275 or are you able to finance that at a lower level then what your average rate is for for your existing facilities I think it's like 179.
Just like if you're just using your 179 looks like the leverage even if you put four times on that it's there will be below 7%.
Return on that.
Yes.
Great thing about sort of the range as opportunities we have in the lending space as we can correlate our financing costs to the risk profile in the overall credit characteristics of the allowance so Hudson comments.
With the deal that we really like for all the reasons that Steve mentioned in the earnings in the that initial remarks.
And it is to it is one of the last transitional loans that we've done historically and a very high quality institutional quality asset and as a result of that we are able to hit the very low end up our range on the credit facility financing and achieve an ROI on that particular alone that's consistent with what we achieve generally in the portfolio.
Okay got it.
And maybe you just talk a little bit about the competitive environment. In general are you seeing any particular geography use or asset classes that are under a little bit more.
Pressure across the country.
As far as the competitive environment I think that it continues to be competitive, but our advantage as continue to add bear fruit as we can see any origination volumes. The most important one is that it which as we're able to access loans that are much larger than many of the other active lenders.
There you can see it out from some of that disclosure we had in the release and as a result of that you know it tends to be a space, where they're just last players and were able to have better outcomes.
One way or trying to target the types of loans that you know we've done historically, we also have are very deeper relationships, which continued to compound every year and not allows us to maintain a competitive advantage as it accessing that type of pipeline that fits our investment strategy. So I think that you know over.
We continue to see relatively benign competitive environment for our specific strategy and I think that our originations over time have shown the outcome of that.
Okay. Thank you.
Thank you. Your next question comes from the line of Jade Rahmani from KBW. Your line open the call Jade. Please go ahead.
Thanks, very much I'm just wondering if you could comment on what drove the elevated repayments in the quarter if there anything.
Any loans that are outside that contributed to that and what your expectations are for either the first quarter or for the full year.
Yeah, Hey, Jay that Steve I think there was we had some large loans repay but we have a balance sheet full of large loans.
And yet you know repayments have been pretty calm through the through the prior portion of the year. So it was inevitable that we'd have a quarter at some point, where we get more elevated repayments.
And I I don't think the length of the profile of our loans has changed if anything through our active asset as we unveiled to extend the duration of our loans I think that that's one of the things that caused some of the the delay and prepayment and the back end they have to have during the year. So as I look forward I think what you will see.
You know a thirtyish percent plus or minus of our of our portfolio repay it's very difficult to predict we have about 92, maybe 120 days visibility on Henri Henri payments.
But we're still anticipating portfolio growth and and again you know repayments in the floating rate loans. There just aren't as part of life. So many are there would be a a much bigger issue if they weren't repaying.
And in terms of the asset management process are you tracking.
Lifecycle of these loans and what these borrowers or refinancing into can you give any color on what they are refinancing into permanent.
Fixed rate financings on stabilized.
Underwriting or if they're a refinancing into other floating rate.
I had some structures.
Yeah, Great question, a lot of a lot of to take outs of our loans are our property sales.
When you think about the opportunistic and value added fund sponsors that our client base.
Yeah, when they on the on a biopic cell business plan when they achieved the end of their business plan. The success of the acid at that point in time is generally sold because there are these.
These books sponsors or are are utilizing finite life investment vehicle. So and this is the sale of yet not a refinery.
So we typically don't get refinanced out by other floating rate lenders that look like us were generally able to hold onto our loans, we are efficiently priced and we were able to.
Be proactive and try and make a compelling reason for our borrowers to stay with us.
For the for the generational holders occasionally there they will move to either.
A permanent loan or much lower financing, though we're able to provide in the case of a New York City asset one of our New York City assets was refinanced at 160 over live or because we've gone from about 30% leased about 90% leased during his life, but generally it's a property sale the Texas out.
And then that close to 100% the core of the question I was thinking that Blackstone has stuck that's that's a great history and securitization and be at some kids proven to be an innovator in that space why not construct the securitization vehicle Bakken offer borrowers a permanent refinance and be the manager that vehicle.
Sort of retain that relationship extended the duration of that income and had a feeds which would be accretive to be at some point. Another related question would be it the excellent team would consider launching a CMBS conduit has been somewhat of the shakeout in that sector, I think and institutional no name like Blackstone.
I would go up really well in that space and can 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 and the question.
The.
The the part of the real estate sense Universe that works best in our business. Historically has been has been the floating rate portion of the of the universe. So.
And then by the way, we'll we're always looking to see if theres ways that we extended the duration of our loans will provide more the solutions gross losses that we currently do and and what you know some of the ideas that.
We're in part of your question or things that we think about but all the time you on the floating rate business, we're able to to have.
Maintain a much larger portion of the loan that of our financing the what you're able to achieve in the fixed.
Fixed rate market and so that's one of the considerations that we think about when we think about leverage.
But securitization I think is will will I think it'd be an increasingly important part of our the right side of our balance sheet you saw the innovation of our of our COO. We've tapped the single borrower market I think we'll continue to do that when we see appropriate opportunities and.
Obviously, we're a very significant player in that market, you're right and we use all the tools to.
But as the company as efficiently as possible also to extend the duration of our asset so.
I appreciate the ideas and the questions and all those things that you are at that you're talking about in terms of.
Extending the life and providing more solutions to our clients are things that we that we look to do all the time.
Thank you I wanted to ask John C.. So were there any loans that required a specific idiosyncratic reserve such as perhaps in the New York multifamily.
Deals.
Any any specific reserves required.
Sure.
So.
The there are a handful of loans as I mentioned that that we've we've 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 trap that just didnt comp well for various reasons.
There's a handful of them I think there was five off top of my head.
I, we are giving details on a loan by loan so I wouldn't get into that component, but I would say as it relates to the broader Cecil reserves.
The 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 and we want it 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 for smaller reserve.
That didn't come to our market data that we had that flexibility, but based on the Jan one NAFTA 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 are they are the Spanish NPL deal how is that you need it.
Mhm.
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 wouldn't be able to take advantage of our policy, having the primary focus on comping to market data, but allowing us to low.
In 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 seasonal reserves, because one of the Ah interesting.
Dynamics that there's a lot more hurdles for releasing the funds and highly transitional or construction types of investments.
So proceeds or advance through stages, where the private system meat performance hurdles.
So that could theoretically require lower reserve, but on the other hand, the lease up risk as much greater thereby creating higher potential loss severity, so or construction loans subject to a higher seasonal reserve.
The 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 drew a hard line of a construction loan versus a have a transition alone could that as you noted they both have some element of that forward flow to them on the way Cecil works is you do take into account your unfunded loan balance so.
All else equal the Cecil reserve on funded loan would be higher for alone with a significant future funding because you're taking into account the potential future loss on the loan you havent funded yet so all else equal those would be marginally higher I think going going back to.
One of the comments and the opening questions that I made is the primary driver of the Cesar reserves for US is less so the the tenor point, although in the math that does come out to play, but it's the credit quality that underlies the loans you know the the low LTV major markets significant asset class in parts.
Regular on some of our more transitional on construction loans, we tend to have even lower ltvs on average so that further makes the point, but I'd say the driving force behind our Cecil reserve and the person we took an amount that we did was.
The stability of the assets the markets that where we are lending in the granularity of our portfolio and and while on the margins definitely the math under Cecil would penalize feature fundings a pound for pound more than a fully funded loan that isn't the main thing that that moves the needle for us, it's really more the credit quality and the asset class.
And lastly, once the data that CMBS data.
A subset of that overlaid for large loan buckets and over what how far back you look just subsequent to the financial crisis or did you look at Pryor.
Commercial real estate cycles.
Sure. So the data that we licensed from trap, which I think is going to be where you'll hear on most of these earnings calls and in our space goes back to the late Ninetys. So it is pre crisis it picks up the boom and bust years.
HM we licensed the entire database, which is you know north of 200000 loans like three trillion loans in total.
Most of that our conduit loans.
Which have higher loss rates, because that's where you're 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 Cecil was more impactful for things like auto resi middle market lending.
So we focused our.
Analysis on the subset of the trip data, which is to say this ads b and large loan securitizations, which we think are more comparable although still a 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.
In business.
So we thought that that was the most comparable component.
And so that's what we focused on.
Okay, sorry, one more if I could squeeze the then question from an investor.
Which was around the the election in Ireland and risks that implies if any to a your exposure there.
Sure. So I think you know 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 farms, but I think from our perspective. The investment we Havent Ireland is all in the form a project glass switches allow me talked about last quarter that is a 96%.
Stabilized office portfolio with long lease terms, a our weighted average life to generally multinational corporation. So our view is that our particular collateral in the market will be relatively insulated.
Yes.
Thanks, Pat Thanks very much.
Okay. Thank you.
It comes from the line of Stephen Laws Raymond James Your line open the call Stephen Please go ahead.
Hi, good morning.
A lot of the.
Cecil stuff is already been covered clearly, but I didnt have one question with regards to the go forward impact and.
The duration assumptions behind the day one impact.
If I understand correctly then your day one impact you look at the remaining duration on your loans. So something this quarter, maybe a couple of month duration for the initial impact.
When that's right.
Capitals recycled or redeployed old come in with the three or four some some longer duration. So as the portfolio turns over from the day one impact should we expect that Cecil reserve to increase as a percentage of your TV.
It's a it's a fair question I and you're right. So when we are looking at forward duration and so your day one impact there are some three month loans in there and six month one of the 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 and 10 or so it's going to be more of a treadmill and I think what will will will drive it more as if we're generally seeing.
Got per se because of the quarterly turnover of the portfolio generally we're making longer loans.
Or generally there's more unfundeds that are penalizing us the way the 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 move there.
But but I, but I think the actual tenor point will be a pretty muted impact.
Okay, Great and then.
You know kind of competitively.
This impacted competitive market at all I mean regular regulated financials, obviously have capital ratios there watching you know being forced to.
Take reserves on unfunded commitments, maybe something that that is not of their interest. So you know I know its hutch short timeline, but do you expect that 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 CSL in particular to drive that strategy.
Okay.
Great. Thank everything else and has been covered so appreciate the opportunity asked his questions. Thank you.
Thank you I'd now like Tom back to Weston Tucker final run off.
Thanks, Thanks, everyone for joining us today and please follow up with me after the call. If you have any further questions.
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