Q1 2025 Blackstone Mortgage Trust Inc Earnings Call
Okay.
Good day, and welcome to Blackstone mortgage trusts first quarter 'twenty twenty-five investor call. Today's conference is being recorded at this time all participants are in a listen only mode. If you require operator assistance at any time. Please press star zero, if you'd like to ask a question.
Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment at this time I'd like to turn the conference over to Tim Hayes, Vice President Vice.
Vice President shareholder Relations. Please go ahead.
Tim Hayes: Good morning, and welcome everyone to Blackstone mortgage trusts first quarter 2025 earnings conference call.
Speaker Change: Joining today by Tim Johnson, Gallbladder breads, Katie Keenan, Chief Executive Officer, Tony Marone, Chief Financial Officer, Daniel <unk> Executive Vice President of investments.
Morning.
Speaker Change: 10-Q, and issued a press release with a presentation of our results, which are available on our website and have been filed with the SEC.
Speaker Change: I'd like to remind everyone that today's call may include forward looking statements, which are subject to risks uncertainties and other factors outside the company's control.
Speaker Change: Actual results may differ materially.
Speaker Change: 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 forward looking statements.
Speaker Change: We will also refer to certain non-GAAP measures on this call and for reconciliations you should refer to the press release and 10-Q.
Speaker Change: This audiocast is copyrighted material of Blackstone mortgage trust, you may not be duplicated without our consent.
Speaker Change: For the first quarter, we reported a GAAP net loss and effectively zero and distributable earnings of 17 cents per share.
Speaker Change: Well earnings power to charge offs were 42 cents per share a few weeks ago paid a dividend of 47 cents per share with respect to the first quarter.
Speaker Change: Please let me know if you have any questions following today's call and with that I'll turn things over to Katy.
Katy: Amidst a dynamic backdrop the SMT as first quarter results demonstrate continued progress across every aspect of our business building on the momentum from last quarter.
Katy: That one then the XM fees forward trajectory is propelled by three key drivers one portfolio turnover through repayments and redeployment into high quality, new credit opportunities too.
Katy: <unk> resolution of impaired loans and three optimization of our balance sheet.
Katy: I'll play a critical role in unlocking future earnings potential and further positioning <unk> for performance and we took a proactive approach on each this quarter, putting the company on very strong footing in the current environment.
Katy: Starting on the macro.
Katy: Tariff policy has created greater uncertainty and a slowdown could weigh on the broader market over time, we believe that real estate is well positioned to outperform.
Katy: In contrast to other sectors real estate already went through its cycle with values resetting lower and many challenge deal addressed.
Katy: Still in the recovery phase far from the pitfalls of Overleverage, our overbuilding that preceded prior real estate downturn.
Katy: The terrorists may pressure goods prices other key components of inflation are coming down.
Katy: And critically real estate cash flows over time should benefit from diminished supply, which is already at historically low levels and likely to fall even further.
Katy: Real estate capital markets have functioned well through this period capital is broadly available and while spreads have widened marginally overall cost of capital is still around 40% lower than peak.
Katy: Many banks insurance companies and investors are under allocated to real estate underpinning continued blending demand.
Katy: Public markets, which react most quickly have already started to digest with spreads settling down and several of the MBS and our MBS deals pricing into healthy demand in the last week.
Katy: And on the private side, new financings continue to attract robust bidding pools, both on the direct lending and back leverage side.
Katy: Notably for well positioned investors volatility creates opportunity and here at <unk>, we are capitalizing.
Katy: In a turbulent market, we provide certainty and can grow our share while benefiting from the incrementally better risk adjusted returns available as the market retrenching.
Katy: And our large scale global origination footprint gives us a tremendous advantage in identifying the most compelling investment opportunities as the market evolves.
Katy: We took a big step forward in portfolio turnover in Q1, the first of our key priorities with one point in those colors of repayments, including 86% in office and $1 $6 billion of new investments, our highest level of quarterly originations in more than two years.
Katy: We have another $2 billion closed or closing so far in Q2.
Katy: Our investment strategy in this environment has been clear.
Katy: To minimize credit risk, while leveraging our platform and cost of capital advantages to generate target returns.
Katy: And we are executing looking at the total $3 5 billion of 2025 activity, 90% is backed by multifamily properties are cross collateralized industrial portfolios. These deals setup to an attractive levered return of 900 basis points over base rates on average with well protected credit profiles, 64%.
Katy: Average LTV on todays reset values benefiting from a combination of diversification premier sponsorship and robust underlying fundamentals.
Katy: Our capital allocation strategy has translated to improved credit composition on our overall asset base our.
Katy: Is 95% performing today up from 88% at the trough U S office exposure once nearly 40% is down to just 21% today, while multifamily industrial and self storage are now nearly half.
Katy: QQ closings will further this trend.
Katy: We are well diversified geographically with over 40% of our investments abroad.
Katy: And while macro volatility may slow repayment some we.
Katy: We have consistently seen that our short duration high quality assets show continued liquidity even in markets far more dislocated than this one I'll repayments averaged over $750 million per quarter through the slowest period of the rate hike cycle.
Katy: We're harvesting differentiated opportunity is from across our broad sourcing channels in the U S Europe, Canada, and Australia and this quarter. We also commenced our net lease investment strategy acquiring 27 properties.
The profile of these deals is highly attractive concentrated in defensive businesses in the essential use and service retail sectors with average 18 year lease terms, 2% rent bumps three times in place EBITDAR coverage and 7% to 8% cap rates.
Katy: <unk> is a naturally resilient sector in periods of volatility and complementary with our broader lending business, creating another cylinder for enhancing and diversifying our overall portfolio positioning.
Katy: Turning to our second key driver resolution of impaired assets, we had another quarter of strong forward progress with $400 million of resolutions closed this quarter. We've now addressed one 5 billion of impaired assets in the last six months at a premium to aggregate carrying value.
Katy: This relentless approach to asset management has reduced our impaired loan balance by 58% from the peak and recaptured a significant tailwind to earnings power and.
Katy: And over this period resolutions have collectively contributed to a $64 million reversal in our seasonal reserve, providing incremental book value support and contributing to a positive economic shareholder return.
Katy: Our impaired loan balance is now at its lowest level in seven quarters and while we are mindful of potential macro driven risks on the horizon. We also see incremental resolutions ahead, including one closed just this week and another under hard contract for sale.
Katy: Finally, turning to the further optimization of our balance sheet. We're in great shape. Today, we ended the quarter with $1 $6 billion of liquidity and three four times D E. Our lowest leverage level in three years.
Katy: We have 14 credit facility lenders with market, leading structure and pricing earned via our strong track record as a borrower overtime.
Katy: Our robust balance sheet is a critical advantage in this environment, providing both staying power and firepower to propel investment activity and asset management execution.
Katy: Over the past two quarters, we have moved nimbly and aggressively to execute on our capital markets priorities terming out our corporate debt in November and closing of $1 billion reinvesting CLO in March.
Katy: With deep capital markets expertise and a talented dedicated team. We can act quickly and when market conditions are favorable a competitive advantage, particularly in a world of quickly shifting crosswinds.
Katy: As a result, we benefit today from a well structured balance sheet, which is nearly 70% non mark to market, a latter corporate debt structure with no material maturities until 2027 and substantial dry powder.
Katy: Our banks remain highly supportive of our investment activity continuing to quote and close deals constructively throughout the last months.
Katy: Today, many of our largest banks are seeking to grow their lending books, having collected substantial repayments in the last several quarters.
Katy: Credit facility financing to large scale platforms like the <unk> is one of their best ways to rebuild exposure and earnings power efficiently and at optimal capital charges with the confidence in the strong credit performance they've seen in this product cycle.
Katy: As a result, our house lenders are looking to grow and new lenders are looking to enter the space together, yielding a strong competitive dynamic for our borrowing activity.
Katy: To conclude the SMT has demonstrated the strength of its cycle tested business model several times over and just the last five years.
Katy: Today, <unk> competitive advantages and balance sheet positioning once again set us up well for a wide range of macro scenarios.
Speaker Change: Gail insight capitalization portfolio and quality of platform always drive value, but never more so than in periods of change and here at Blackstone, we have shown time and again, the ability to outperform and volatility and emerge stronger.
Tony: Thank you and with that I will turn it over to Tony.
Tony: Thank you Katie and good morning, everyone.
Tony: First quarter <unk> reported a GAAP net loss was effectively zero.
Tony: <unk> earnings were <unk> 17 per share.
Tony: <unk> prior to charge offs, which excuse it realized loss from an impaired loan resolution. It was 42 cents per share.
Tony: Okay outlined <unk> continues to make significant progress on the key initiatives that we expect will drive long term earnings potential of our platform as we move past near term headwind.
Tony: I'll highlight two of these headwinds in the context of this quarter's results.
Tony: The first is the timing mismatch between when repayments are received and capital subsequently redeployed into new investments.
Tony: In the first quarter, we collected $1 $8 billion of repayments, which on average closed two weeks into the quarter.
Tony: About $1 7 billion of loan fundings were closed in average.
Tony: Okay.
Tony: As a result, our average portfolio size of nearly $1 billion lower than our 331 balance had a notable impact on the quarter.
Tony: With $2 billion of loans closed during closing so far in the second quarter. We are firmly playing offense unexpected timing headwinds we faced this quarter shifted tailwind all else equal.
Tony: Second earnings headwind as the drag from the remaining capital invested in our non earning assets.
Tony: We continued to demonstrate significant momentum with impaired loan resolutions completing $1 $5 billion over the past few quarters at a premium to our aggregate carrying values.
Tony: Q1 resolutions of $406 million, even one new cash flowing Oreo asset to loan restructurings.
Tony: We received nearly $50 million of incremental cash equity from our borrowers.
Tony: Significantly reset the basis of our architecture.
Tony: As we execute our resolution strategies, we expect to see immediate positive impact on earnings as we begin to recognize income from these previously non earning assets.
Tony: With even greater long term upside potential as capital is redeployed into new investments at target returns overtime.
Tony: Our impaired loans today represent $970 million or 5% of the portfolio and remained burdened by seven tons of interest expense in Q1.
Tony: Spending on credit trends in our portfolio remained positive in Q1.
Tony: <unk>, improving to 95%, 93% quarter over quarter, driven by limited new credit migration and continued execution of loan resolutions.
Tony: We upgraded seven loans this quarter, including two risk rated four office calls where our credit position was enhanced by a large pay down in one and continued business plan execution supporting property cash flow on the other.
Tony: By contrast, we downgraded only three loans this quarter, including one new impairment of an Atlanta office.
Tony: We foreclosed on one previously impaired loan in Q1, bringing the acquisition date fair value of our Oreo portfolio to $691 million across Geos.
Tony: Our Oreo assets stand at just 3% of our overall portfolio generated $7 million a day in Q1 with further potential upside in the future.
Tony: Our seasonal reserve ended the quarter at $754 million or three 9% of our portfolio both stable versus 12 31.
Tony: The general reserve increased modestly by $33 million quarter over quarter due to strong new origination activity, which was largely offset by the net decline in our asset specific reserve.
Tony: In addition, we continued to reduce our basis in impaired loans with $19 million of cash interest received this quarter and apply that cost recovery proceeds, reflecting the 76% of impaired loans remain current on contractual interesting.
Tony: Book value ended the quarter at $21 42 per share, which benefited from accretive impaired loan resolutions and $32 million of common stock repurchases at a discount to book value.
Tony: Bringing total repurchases to over $60 million since establishing our program in 2024.
Tony: Considering the change in book value and a 47 per share dividend <unk> delivered a positive economic return for the second consecutive quarter.
Tony: Turning to the balance sheet, we continue to maintain best in class liabilities, which we believe are particularly valuable in more turbulent market conditions.
Tony: In a market environment, where investors naturally have concerns around rate volatility capital markets volatility and foreign currency volatility, we benefit from rate and duration matched financings with no capital markets Mark to market provisions and a capital structure that is fully hedged against foreign exchange rates.
Tony: <unk> achieved several balance sheet milestones this quarter.
Tony: We issued a $1 billion CLO fifth transaction, but the first with a 30 month reinvestment feature.
Tony: We believe this feature will be particularly valuable as we continue to collect repayments of our existing loans and actively deploy capital in today's attractive environment.
We closed the CLO in late March locking in well priced nonrecourse non mark to market financing enhancing the optionality and diversity of our capital structure.
Tony: With this new CLO, our debt to equity ratio declined to three four times its lowest level in three years.
Tony: Taken together with our strong liquidity at $1 6 billion.
Tony: <unk> has the flexibility to navigate volatility and capitalize on attractive investment opportunities across real estate credit markets globally.
Tony: Considering our Q1 results and position going forward. We believe <unk> is a compelling investment in this uncertain market environment with our strong balance sheet ample dry powder and origination platform informed by the insights and experience of Blackstone's global real estate business.
Tony: This dynamic is driven the outperformance of our stock year to date continues to offer attractive value trading price approximately 10% below book value at a 10% dividend yield.
Speaker Change: Thank you for joining today's call I will now ask the operator to open the call to questions.
Speaker Change: Thank you as a reminder, please press star one to ask a question. We ask you limit yourself to one question and one follow up question to allow as many callers to join the queue as possible.
Speaker Change: We'll take our first question from Rick Shane with Jpmorgan.
Rick Shane: Hey, guys. Thanks for taking my questions. This morning.
Speaker Change: Look I think you talked about the migration of I believe it was three or four rated loans back to three this quarter.
Speaker Change: When we think about the four book how many loans are currently.
Speaker Change: In that category, what's the value and when you think about the pass on force is what's sort of the historical transition from four to five versus quarter three.
Speaker Change: Because I think for sort of the.
Speaker Change: In between zone.
Speaker Change:
Speaker Change: And they ultimately wind up in one bucket or the other.
Speaker Change: Sure. So I think as we look at our <unk>. Our main focus as we said in the past it's really on the non modified or rated office. The rest of it we've either modified loans with very significant capital in the door or to your question a lot of for us have really just persistent as far as freight.
Speaker Change: Long time, I would say in general, we're pretty conservative with our risk ratings and as a result, we enforce that we moved to that category in Covid overtime, and then sort of continued performing continue ticking along we don't see material upticks in performance and so we keep them. It's worth but we also don't see material downtick some performance.
Speaker Change: Say on the non modified for rented office, that's around $500 million down significantly from a year ago with 1 billion. It was higher than that before and that's really where we focus our attention and that's where we're focused on moths. We have Mars ongoing conversations on a couple of those deals that should move them into the sort of post modification category Theres, others that we will see which.
Speaker Change: They go but it's really a very diminishing universe of assets that I think are truly in that sort of cost down.
Got it okay. Thank you.
Speaker Change: Again, I'm, assuming that with the.
Speaker Change: Sort of a non sequitur, but given the 30 month reinvestment period.
Speaker Change: On the new CLO and favorable terms, that's going to allow you to really the.
Speaker Change: Forward leaning in terms of originations from here.
Speaker Change: Yeah, I mean look I think we have many many options for accretive financing of our new originations, we have great relationships with our lenders, they're very active in wanting to lend to US. We also now have the reinvesting CLS I think what it really gives us the optionality, which as you know we love diversification, we love Optionality in terms of how we finance our new.
Speaker Change: Originations.
Speaker Change: And I think that having one more tool one more avenue of Optionality is always a good thing, but I think I'd say generally we see very good liquidity.
Speaker Change: Very good sort of capital markets access for various ways to finance the new originations that were pursuing.
Speaker Change: Got it and at the risk of annoying my peers, who are listening.
Speaker Change: Assuming given the timing of that transaction.
Speaker Change: It probably couldnt be recreated is easily today in this volatile environment as it was at the end of March.
Speaker Change: Yeah, I mean, we're obviously really pleased to have gotten it done I think it's a testament to how quickly we moved seeing the market was open that.
Speaker Change: Sort of capacity and strength of our team getting that deal up and down very quickly as early as we could in the first quarter the market settling down so I won't be surprised to see this.
Speaker Change: Hello market sort of return over the coming months, if the trajectory continues but certainly looking at it today, we're very happy to have executed that transaction and I think it'll be a good one for our CLO investors as well.
Speaker Change: Great. Thank you for taking all my questions.
Speaker Change: Well take our next question from Tom Catherwood with <unk>.
Speaker Change: Okay.
Tom Catherwood: Thank you and good morning, everybody.
Tom Catherwood: Great to see originations ramping obviously repayments in <unk> were boosted by the spiral refinancing.
Speaker Change: When you look out over the next three quarters of 2025, and assuming repayments moderate how much do you think you can grow your loan book from here.
Tom Catherwood: Yeah, So I mean, I think that it's interesting.
Tom Catherwood: The pace of repayments clearly impacted by overall capital markets liquidity, but I would tell you again as we sit today the pace of repayments is continuing we've had $200 million. So far this quarter nothing that we anticipated repaying has fallen out we continue to have repayments tracking.
Speaker Change: You know I think in terms of the premise. If we think about you know whether things have changed materially it doesn't feel that way today that being said I think that we're underinvested today as Tony mentioned, we have $2 billion in clothing.
Speaker Change: Continue to look for great new investment opportunities.
Speaker Change: And I think that in terms of growth, where we're looking to grow the portfolio from here up towards that $20 billion number we talked about last quarter and you know, we'll obviously be very mindful around credit as we mentioned on the on the scripts and that's our primary focus obviously, but we're seeing a lot of opportunities.
Speaker Change: Okay I appreciate that and then maybe beyond the 2 billion. That's in closing that you mentioned KD. How was your origination pipeline shifted since tariff announcements either in terms of volume or sector or geography.
Tom Catherwood: Yes, I can take that Tom soften.
Tom Catherwood: I think really it hasnt shifted per say I think our strategy has been consistent.
Tom Catherwood: Limited to yours mentioned earlier, 90% of our activity is in profiles that we think are quite resilient multifamily cross portfolios of industrial and storage. These are the types of investments that we wanted to do going back several months and I think that.
Tom Catherwood: That still remains the case today and if you look at our pipeline that that's also very very similar in profile. So.
Tom Catherwood: Our strategy remains consistent I think in a more uncertain world that strategy feels even better.
Tom Catherwood: But I don't think it's really changed very much over the last few weeks.
Tom Catherwood: Got it I appreciate the answers thanks, everyone.
Speaker Change: We'll take our next question from Jade Rahmani with Keith VW.
Speaker Change: Thank you very much.
Speaker Change: First question would be on the repo market a huge strength for being some tea has been its relationship with credit facility providers.
Speaker Change: Could you talk to.
Speaker Change: What trends Youre seeing with respect to <unk> zone, Counterparties and its relationships, but then perhaps the broader.
Speaker Change: Market I suspect that the XM Ts.
Speaker Change: Wherewithal has continued to demonstrate itself.
Speaker Change: But there could be some turbulence with other with other smaller less well capitalized lenders. So if you could comment on any trends youre seeing that would be helpful. Thank you.
Speaker Change: Sure. Thanks, Jade and I appreciate the comments I definitely will.
Speaker Change: Really pleased by our relationships with our lenders and how we've seen that through this period, especially in and really throughout the last couple of years.
Speaker Change: I would tell you that the dynamic that we've heard from banks around desire to generally grow their credit facility exposure because of how well it works from their capital charge perspective, because of how well it works in their overall business model, we have not seen any change in that either in word or indeed.
Speaker Change: They're saying the same things and they are doing the same things in terms of quoting deals.
Speaker Change: The market constantly with our pipeline, we're constantly getting multiple quotes at competitive levels from different banks. We have new facility is sort of in clothing, where banks are looking to grow relationships with us and I think it is all driven by certainly our performance in our track record, but also the broader trend towards this being a very high quality product for the.
Speaker Change: Bank.
Speaker Change: I can't speak too much to other people's experiences, but I think that the large banks like this business. They are looking to expand it.
Speaker Change: The sort of more medium sized banks are curious about it and looking to get into it and I think that's going to benefit the space, but I agree with you that sort of how that plays through will be across the spectrum, depending on the strength of the platform the strength of the performance.
Speaker Change: And in the various you know in the various platform.
Speaker Change: Okay.
Speaker Change: Thank you very much.
Speaker Change: Secondly, you mentioned real estate has already gone through its cycle, but really what we went through was an interest rate shock and then stress in the office sector that had been building for years, especially post COVID-19 hospitality multifamily and industrial however were pretty strong despite.
Speaker Change: The interest rate hikes, we saw operating performance held up well so could you comment on those three sectors and what Youre seeing there is performance holding up and maybe start with hospitality since that's the most interest rates.
Speaker Change: Economically sensitive.
Speaker Change: Sure. So I think I think for sure as we look across the sector today and think about areas of potential impact with the macro I think hospitality is probably the area. We're most focused on and obviously resets most quickly most correlated with overall economic activity I think the good news for us.
Speaker Change: With that our hospitality exposure has come down quite a lot.
Speaker Change: Hospitality is only six 5% of the portfolio as a whole.
Speaker Change: Got a couple of Big cross portfolios in Europe that are doing very well.
Speaker Change: But I think that it's something that we're watching.
Speaker Change: Various you have transient you have.
Leisure versus business.
Speaker Change: We have currency impacts the weaker dollar could result in some change in we've seen some.
Speaker Change: Negative trends in terms of international inbound travel in recent days, but you can also see the dollar having some impact of that over time. So I think it's a little too soon to tell but I agree with that.
Speaker Change: Hospitality is one of the sectors that we're watching and I think on the multifamily side. The performance. There has been very resilient in the big story, there with obviously the wave of supply that came in over the last year that supply is really rolling over and the first quarter across the sunbelt, where a lot of the focus has been we saw positive net absorption.
Speaker Change: Obviously, new starts are way down, but deliveries are coming down and so you know I think multifamily is is kind of moving in the right direction from that perspective, and we you know we have a lot of conviction and investing in that asset class. Obviously as you can see from our pipeline.
Speaker Change: And then I think on the industrial side, we continue to see that as relatively resilience I think theres going to be some markets that are very oriented towards international trade maybe on the west coast. We have basically no exposure there that lets see a bit of an impact but theres also a balance in that theres going to be probably more reassuring more inventory building up in <unk>.
Speaker Change: Generally again, the long term tailwind in terms of e-commerce, and good sort of sitting in warehouses versus sitting in stores that really continues. So I think that you can see from how we're investing how we're thinking about you know what.
Speaker Change: Sectors, we're interested in and where we see that risks and opportunities going forward and it really comes down to I think what often side like multifamily and we like diversification, we like resilience asset classes, not least certainly falls in that category.
Speaker Change: And that's sort of where our perspective sits today.
Speaker Change: Thank you very much.
Speaker Change: We'll take our next question from Harsha <unk> with Green Street.
Speaker Change: Thank you.
Speaker Change: One of the things we've sort of seen boost these startup announcements is that.
Speaker Change: Construction costs.
Speaker Change: Oh.
Speaker Change: <unk> business plan costs are increasing.
Speaker Change: Real estate owners and so have you seen a should boost <unk> and the types of borrowers that are coming for new loans and the type of business plan stood there.
Speaker Change: Trying to look at.
Speaker Change: Oh, I guess less heavy transitional Ben than <unk>.
Speaker Change: Okay.
Speaker Change: Yeah, absolutely I'll lead off and take that one yeah, I think harsh really we started to see that even before the last few weeks when.
Speaker Change: When we look at the profile of the investments, we're making today certainly much more light.
Speaker Change: High value add business plans.
Speaker Change: As you know sort of transition or heavy transition.
Speaker Change: Yes, it really is reflective of.
Speaker Change: The challenges are.
Speaker Change: I've already seen those cost pressures I think that that could potentially.
Speaker Change: The increase and I think as Katie said, we could expect to see supply come down even more.
Speaker Change: So it's really a continuation of that trend more than more than anything else, yeah, and I think I would also add as we think about how we want to invest we're taking shorter duration business plan risk last business plan rest of the way the market has moved we're able to.
Speaker Change: Invest at our target returns fundamentally in less transitional assets I think part of that is our view and I think part of it is the fact that construction is really hard to pencil today to your point value add business plans with a lot of construction oriented aspect to it also hard to pencil that's been the case for a long time and certainly the <unk>.
Speaker Change: Tariffs are going to make that more so but the broader impact as often mentioned and as you know as I talked about in the call. It was really just going to be even less new supply, which fundamentally makes the value of existing assets that we lend on better.
Speaker Change: Oh, maybe maybe one more for me have you it.
Speaker Change: It sounds like loan volume.
Speaker Change: Repayment volumes Havent really been slowing down post Dodd of announcements, maybe how those spreads on new loans team with you.
Rick Shane: Is it perhaps fair to say that Jordan.
Rick Shane: Looking at your financing cost at this time given that the investment option this year Lewis.
Rick Shane: That stake on those.
Rick Shane: Greg on your new loans have been widening the knickerbocker boost.
Rick Shane: <unk>.
Rick Shane: Yeah, I would I would say.
Rick Shane: During the first quarter spreads we did start to see at the beginning of the quarter pre volatility tightening in both the asset side lending spreads as well as where we our cost of financing and where we borrow you know I think that's obviously changed over the last few weeks.
Spreads are probably out bonds.
Rick Shane: On the asset side 10 to 20 basis points, but similarly on the on the financing side and so they tend to be more pretty correlated I think the advantage of our platform as Katie mentioned, having 14 different credit facility providers, having the advantage of having the reinvesting CLO, we have a lot of options on the financing side and so that really gives us an opportunity to do we.
Rick Shane: Think capture some opportunities.
Rick Shane: In this environment, I think being a stable and certain provider of capital to our borrowers is a really powerful tool in an environment like this and having diversified sources of capital and strong liquidity.
Rick Shane: I think that creates a lot of opportunities for us.
Rick Shane: Got it thank you.
Speaker Change: We'll take our next question from Don <unk> with Wells Fargo.
Speaker Change: Yes. Your international exposure I think is around 41% are you sort of cap or not cockpit is that likely to just sort of hang out in that level, maybe come down and then how are you feeling about credit internationally.
Speaker Change: The U S. Just given all the tariff movements.
Speaker Change: Yeah, So I think that our ability to harness investment opportunities globally is one of our biggest strengths and I think that.
Speaker Change: It's something that we've seen create great opportunities for relative value over time, it's certainly something that others in the space are trying to do.
Speaker Change: We have the advantage of having been deeply presence in Europe for over a decade, we have a fantastic team there great borrower relationships and I think we've seen that again in periods of volatility and in periods of stability the ability to look around and find the most compelling investment opportunities anywhere in the world allows us to create a.
Speaker Change: Better portfolio from a risk adjusted return perspective, we feel very good about our European exposure is primarily crossed industrial portfolios.
Speaker Change: Some cross hotel portfolio that I mentioned are doing well.
Speaker Change: Some multifamily.
Speaker Change: The lending market in Europe tends to be quite stable relatively low leverage we are able to benefit from our cost of capital advantage in Europe that allows us to create I would say better risk adjusted returns and the overall competitive dynamic in Europe is different than the U S to see MBS market is much less active there are many fewer platforms like.
Speaker Change: Ours that can achieve the types of investments that we can and therefore, we're able to create some excess return. So we feel good about that portfolio. We also think it provides a nice balance in a period of uncertainty and we've seen over the history of the business that it's always been around 35% to 40% we have no.
Speaker Change: Particular cap, but I think the relative size of the markets and the activity you have sort of proved out over time that that's generally where it where it says I doubt, it's going to change materially in either direction.
Speaker Change: Okay.
Speaker Change: Thank you we'll take our next question from Chris Muller with citizens capital markets.
Chris Muller: Hey, guys. Thanks for taking my questions. So it's nice to see the CLO market coming back to life in the first quarter, but Dave you touched on this a little bit, but I guess, how has the recent market volatility impacted new CLO issuance and I guess the meat of my question is could we see another CLO from you guys at some point this year if the market does accommodate.
Chris Muller: Yeah, I think it's a great question so.
Chris Muller: The first weeks of the market volatility.
Chris Muller: There were some CLO that has sort of been out there that got put on the shelf.
Chris Muller: As was the case across see MBS market, but what we've seen in the recent weeks is is really a settling down there is capital in the market I would say if anything there is you know as.
Chris Muller: As many buyers or sellers at wider spreads in this market, perhaps more buyers. So I wouldn't be surprised if we saw at cielo is coming back into the market. I think there are a couple that were privately placed.
Chris Muller: Earlier this week, maybe so we will I think the CLO market will.
Chris Muller: We will settle out just as we're seeing the MBS market settle out there were a couple of conduit deals that came last week that price quite well.
Chris Muller: And so I think again, there's plenty of capital in that market it needs to adjust to slightly wider spreads at the overall lending market has.
Chris Muller: But those markets are outperforming relative to corporates and other parts of the credit market and I think it's a testament to the desire for capital come in and and yes, the CLO market settles out in it and it looks like a good option for US you know the origination volumes that we're creating are obviously very conducive to potentially coming back to the C. L.
Chris Muller: La market later in the year, we like that as a potential capital source and we will certainly be monitoring it.
Speaker Change: Got it that's very helpful. And then I guess on the remaining impaired loans.
Speaker Change: Is it fair to assume that you continue resolving those at a similar pace and I know they can be chunky. So maybe asked a little bit differently. Do you think you guys will resolve the bulk of that bucket at some point through 2025, or so that could some of that slipped to 26.
Speaker Change: Well, it's certainly our goal and they are chunky and they all have their own story I mean, we've certainly resolved a lot of them and sort of naturally as the universe shrinks each individual one the timing has more impact.
Speaker Change: But as I mentioned on the call we already have resolved another asset. This week, we have one under hard contract for clothing, we have a clear path for a couple of others. So we certainly see the continued trajectory as positive in terms of resolving the existing impaired assets.
Speaker Change: And that's our that's a huge focus of our asset management team. So we're we're optimistic we're cracking through that is one of our highest priority is then there will be some idiosyncrasies in timing you know one quarter versus another but I think we should continue to see the benefit of.
Speaker Change: Resolution processes that we have in flight coming through.
Speaker Change: Got it very helpful. Thanks for taking my questions.
Rick Shane: Thank you, we'll take our final question from Doug Harter with UBS.
Speaker Change: Okay.
Speaker Change: Oh, Thanks, I'm, hoping you could put a little context about around the general reserve increase in the first quarter does that reflect the conditions as of 331 or does that.
Speaker Change: Are you able to incorporate any of the kind of early April volatility.
Speaker Change: Into that.
Speaker Change: I would say we come up with these reserves in April right as we're closing the books it is as of $3 31.
Speaker Change: The way, we come up with our reserve.
Speaker Change: For one it's not meant to capture short term volatility, it's not a mark to market standard where you would expect any change in capital markets, we necessarily come through.
Speaker Change: So we're looking at the long term credit risk profile, and we think that the way we've ratcheted the risk profile in our general reserve as of 331 basically reflects the market, we'll see how things play through for the rest of the second quarter and that neither a slight notch up or are things any different direction slight notch notch down, but I wouldn't expect any.
Speaker Change: Dramatic change in the <unk>.
Speaker Change: Second quarter as a result.
Speaker Change: Great appreciate that.
Speaker Change: And then is there can you give us any context around the size of the two long the loan that you resolved this week and the ones you have under our contract.
Speaker Change: And then I guess just further on loan resolutions how are you thinking about the pace of resolving.
Speaker Change: Sort of moving on from the.
Speaker Change: Oreos.
Speaker Change: And kind of moving back into loans or could those be longer term.
Speaker Change: Sure so as far as the resolutions we have in clothing, it's around $200 million in total the two that I mentioned.
Speaker Change: In terms of the Oreo the assets, we took <unk>, we generally made that decision because we see the opportunity to implement our business plan and improve value over time, and that's not necessarily an overnight thing. So we're it's 3% of the portfolio are 3% of our overall business not a huge number.
Speaker Change: They're not necessarily assets that are going to require a lot of capex and a lot of cases, it's more pursuing a business plan change of use.
Speaker Change: Something like that and we're going to we're going to focus on driving return over time as opposed to sort of a quick thing that being said, they're all different I mean, I think we have a couple that we might be able to exit pretty soon and I think we have others that we may have for longer but I think the overarching theme is it's a small part of the portfolio.
Speaker Change: There are actually a number of assets there that have pretty good cash flow and potential cash flow trajectory, we recognize that cash flow as it comes through in earnings.
Speaker Change: And I think we're just focused on maximizing value over time for those assets.
Speaker Change: However, long that may take in and if we see an opportunity that exited at a good level, obviously will take that.
Speaker Change: Great I appreciate that thank you.
Tim Hayes: Thank you with no additional questions in queue I will turn the call back over to Mr. Hayes for any additional or closing remarks.
Tim Hayes: Thank you Katie and to everyone joining today's call. Please reach out with any questions.
Tim Hayes: Sure.
Tim Hayes: That will conclude today's call. We appreciate your participation.
Tim Hayes: [music].