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Final Transcript

Blackstone Mortgage Trust, Inc.: 1Q 2015 Earnings Call

April 29, 2015/10:00 a.m. EDT

SPEAKERS

Stephen D. Plavin – President & Chief Executive Officer

Michael B. Nash – Executive Chairman

Paul D. Quinlan – Chief Financial Officer

Douglas N. Armer – Head of Capital Markets and Treasurer

Anthony F. Marone – Principal Accounting Officer

Weston Tucker – Head of Investor Relations

ANALYSTS

Daniel Altscher – FBR Capital Markets

Donald Fandetti – Citigroup

Richard Shane – J.P. Morgan

Tony Gleason – Neuberger

Jade Rahmani – KBW

Final Transcript Blackstone Mortgage Trust, Inc.: 1Q 2015 Earnings Call April 29, 2015/10:00 a.m. EDT

Coordinator Welcome to the Blackstone Mortgage Trust’s First Quarter 2015

Investor Call. I would now like to turn the conference over to Weston

Tucker, Head of Investor Relations.

W. Tucker Good morning and welcome to Blackstone Mortgage Trust’s First

Quarter 2015 conference call. I’m joined today by Steve Plavin,

President and CEO; Mike Nash, Executive Chairman; Paul Quinlan,

CFO; Doug Armer, Head of Capital Markets and Treasurer; and Tony

Marone, Principal Accounting Officer. Last night we filed our Form 10-

Q and issued a press release with a presentation of our results which,

hopefully, you’ve all had some time to review.

I’d like to remind everyone that today’s call may include forward-

looking statements which, by their nature, are uncertain and outside of

the company’s control. Actual results may differ materially. For a

discussion of some of the risks that can affect the company’s results,

please see the risk factor section of our most recent Form 10-K and our

Form 10-Q for the first quarter of 2015. We do not undertake any duty

to update forward looking statements.

We’ll refer to certain non-GAAP measures on this call. For

reconciliations to GAAP, you should refer to the press release and to

our Form 10-Q, each of which have been posted on our website and


have been filed with the SEC. This audio-cast is copyrighted material of

Blackstone Mortgage Trust and may not be duplicated without our

consent.

So a quick recap of our results, before I turn things over to Steve. We

reported Core Earnings per share of $0.54 for the first quarter, up 26%

versus the prior year first quarter due to greater net interest income

from the continued growth in our loan origination portfolio. A few

weeks ago we paid a dividend of $0.52 per share with respect to the

first quarter.

If you have any additional questions following today's call, you can

reach out to me or Doug directly. With that, I will now turn the call

over to Steve.

S. Plavin Thanks Weston and good morning everyone.

In the first quarter, BXMT continued on its path of strong organic

growth with $937 million of originations and core earnings of $0.54

per share. We also added $1.1 billion to our financing capacity, a key

element of our ability to grow and drive returns. We increased total

assets by 11% in the quarter, funding an incremental $570 million net

of repayments, and we now have an additional $1.0 billion of directly


originated loans with agreed terms that we expect to close over the

coming months.

In an increasingly competitive direct origination market, we continue

to achieve strong deal flow with stable ROIs, while maintaining the

conservative credit profile of our senior mortgage business.

Our organic deal flow will soon be turbo-charged from the $4.6 billion,

82-loan GE Capital portfolio acquisition that we announced post

quarter-end. We’re thrilled about this opportunity to expand our

senior loan business and deliver the benefits of greater scale and

deployment to BXMT and its shareholders. Paul will go into more

detail on the earnings power of this transaction in a moment, but I

would like to focus on its great fit and strategic benefits for our

business.

The GE loans are all senior mortgages and remarkably similar to our

directly originated portfolio in LTV and credit spread. The 82 loans

bring 54 new sponsor relationships to BXMT- which is particularly

significant given the success we have had mining existing borrower

relationships. More than half of our directly originated loan balance is

with sponsors that have borrowed from BXMT two or more times.


These new borrower relationships will lead to a broadening of our

origination pipeline and additional value from our acquisition.

In a similar vein, the GE portfolio expands our presence in the U.S. and

Europe and also establishes a very strong position for BXMT in

Canada, a market we like, with $667 million of loans. In addition to

further diversifying our portfolio geographically, we achieve greater

asset class diversification and add $1.4 billion in the very attractive

manufactured housing segment, a stable, strong performing sector in

which GE had a leadership position. We look forward to leveraging

these market-leading geographic and asset class positions to drive

future originations volume for BXMT.

A key factor in circling the GE transaction is our fantastic partnership

with Wells Fargo and the $4.0 billion customized financing

commitment Wells provided to facilitate the BXMT acquisition. The

Wells currency and term matched financing provides the stable liability

structure necessary to hold the acquired loans to their maturities and

helps generate an attractive equity return for BXMT. This facility with

Wells Fargo is an expansion of our existing credit relationship and

further demonstrates our ability to grow our financing capacity on

market leading terms.


The addition of the GE portfolio will push the scale of our balance sheet

forward several steps in a single transaction. The larger scale balance

sheet means increased operating leverage in terms of our fixed costs

and also in terms of the working capital that we need to maintain to

fund our ongoing originations. The increased scale will also lead to a

more efficient cost of capital and moderately higher leverage, both of

which will be accretive to core earnings.

The opportunity to buy the GE loans was proprietary and off-market

and we utilized the extensive resources and relationships of Blackstone

to source, underwrite and finance this extraordinary transaction. We

have spoken frequently about BXMT's Blackstone affiliation and our

superior access to transactions and ability to leverage key relationships

that comes from being part of the leading real estate investment

platform in the world. It remains our single biggest competitive

advantage. We’re very pleased that our Blackstone affiliation led to this

transformational acquisition and the opportunity to generate

incremental core earnings and shareholder value for BXMT.

As a final note, I would like to acknowledge the amazing efforts of our

investment, asset management, capital markets, finance and legal

teams in evaluating and negotiating all aspects of our transaction with

GE and Wells Fargo. This work is still ongoing as we proceed to our


first scheduled closings in late May, but the talent, integrity and

commitment level of our people is truly outstanding. With that, I’d like

to turn the call over to Paul.

P. Quinlan Thank you Steve, and good morning everyone.

I’ll begin my remarks by touching on first quarter highlights, and then

provide some additional forward looking context in connection with

the GE Capital portfolio acquisition and related equity offering we just

completed.

Core earnings in 1Q were $0.54 per share, as our loan portfolio reached

nearly $5 billion dollars. During the quarter, BXMT funded $903

million of loans, including $118 million under previously existing

commitments. This was partially offset by $333 million of repayments,

resulting in net fundings of $570 million. Net loan fundings were

capitalized using available liquidity under our revolving repurchase

facilities and $355 million of asset specific financings. At quarter end,

we had total financing capacity of $5.4 billion dollars -- $1.8 billion of

which remains available for new fundings.

A 12% increase in our loan portfolio generated net interest income of

$39 million dollars, up 7% vs. 4Q. On the expense side, management


fees were roughly flat at $5.5 million dollars. Core G&A was $1.5

million, up from $1.1 million in 4Q, primarily due to several one-time

expenses incurred during the quarter. Core Earnings were up 4% from

the 4th quarter and exceeded the incentive fee threshold on a four

quarter look-back basis, resulting in incentive fees of $1.2 million

dollars.

Book value ended the quarter at $24.87 per share, down from $25.10 in

4Q, due in part to the re-measurement of our net investment in loans

denominated in Euros and Pounds, which although unrealized is

recognized through OCI on our consolidated balance sheet.

This was partially offset by gains in our CT Legacy portfolio, which

generated $8.4 million of GAAP income, or $0.14 per share,

contributing to $0.60 per share of GAAP net income for the quarter.

The CT Legacy income was related to the fair value mark-to-market of

an asset under contract for sale, as well as recognition of previously

deferred CTOPI promote revenue on its realization. Note that

beginning this quarter we are no longer presenting CT Legacy as a

separate segment in our financial reporting given the successful wind

down of the portfolio.


Moving on from 1Q, Steve spoke earlier about the significant positive

impacts the GE transaction will have on BXMT. I would like to touch

on some of the expected financial impacts of the acquisition and the

steps we’ve taken to capitalize the company for it.

Steve mentioned the $4 billion dollar customized secured financing

provided by Wells Fargo to fund the GE portfolio acquisition. This

financing includes a $222 million dollar add-on feature which together

with the 80% advance essentially fully debt funds the portion of the GE

portfolio we expect to repay in the near term. In the aggregate, this

results in a Day 1 funding of the GE portfolio with 85% leverage, which

we expect will decline to 80% over approximately 12 months as

proceeds from the early loan repayments are used to sequentially pay

down the Wells financing, after which point the facility is pro rata pay.

The balance of the acquisition financing will come from the net

proceeds from our April 17th stock issuance launched after the

announcement of the GE portfolio acquisition. The offering was well

received by the market and we issued 23 million shares of BXMT stock,

which generated $682 million of net proceeds to the company. The

additional proceeds remaining after funding the GE acquisition will be

used to fund our ongoing direct origination business.


The offering added approximately $1.35 to book value per share upon

their issuance. But with the shares issued early in the quarter and the

GE portfolio acquisition closing in stages beginning later in the quarter

there will be a period during which the new capital is not optimally

deployed. Therefore we expect Core Earnings per share will be lower in

2Q. The specific factors to consider are as follows:

First, the additional share count, which increases our shares

outstanding to 81.6 million, and which we expect will result in 77.6

million shares outstanding on a weighted average basis for 2Q.

We have initially used the net $682 million of proceeds to revolve

down debt, thereby reducing interest expense.

We will incur management fees of 1.5% per annum applied to the

incremental net equity raised, pro rata based on the time it is

outstanding.

We expect to recognize transaction expenses in connection with the GE

acquisition. GAAP requires us to run the majority of these expenses

through the income statement as incurred rather than amortize them

over the life of a loan as we do with our originated loans.


We are still in the process of incurring expenses related to the GE

acquisition, but our best estimate is a total expense in the $10 - $15

million dollar range. As a clarification, these expenses will be included

in Core Earnings when recognized under GAAP.

There is likely to be some income generated from loans that close in the

2nd half of the quarter, but we do not have a precise estimate for the

timing or quantum of loans to be closed in the quarter. We are fully

mobilized to close the loans as quickly as possible, with a first closing

targeted for late May. Any loans closed in the quarter would be

additive to Core Earnings in 2Q, and of course would significantly

increase our earnings in 3Q and onward. As an illustrative example, if

we close 50% of the portfolio on May 31st, we would expect to add

approximately $3 to $3.5 million dollars to 2Q Net Interest Income.

Overall, when the dust settles at the end of 2Q, we would expect to end

up with book value more than $1 per share higher than 1Q levels and to

have a significantly larger, more efficiently levered and more profitable

senior loan portfolio.

A few comments on interest rates and currencies. The acquired

portfolio is 50% fixed rate, with an average fixed rate coupon of 5.3%

and average duration of 2.1 years. Our combined post-acquisition


portfolio will still have a modest positive correlation to increases in

USD LIBOR, but the acquired fixed rate loans and loans with LIBOR

floors significantly dampen this correlation in the near term. We are

currently evaluating whether to enter into interest rate hedges for our

fixed rate portfolio to mitigate potential negative impacts to earnings

resulting from increases in interest rates, in particular in our non-US

dollar fixed rate portfolios. Overall, however, we consider the fixed rate

portion of the acquired portfolio to be an opportunistic benefit, as

these short duration, higher coupon fixed rate loans will generate

additional revenue in the near-term, but are expected to largely repay

before material increases in floating rate indices are likely to occur.

The acquired portfolio is 32% denominated in foreign currencies. As

we have noted, our committed financing is currency matched,

substantially mitigating this FX exposure. And we also intend to hedge

our incremental net investment in Canadian Dollars, Pounds and

Euros using a rolling forward strategy. The earnings impact associated

with these hedging strategies are incorporated into our “Stabilized Pro

Forma” earnings estimates, which I will summarize in some more

detail.

In the medium term, we believe that with the GE portfolio and

associated financing added to our growing direct origination business,


the balance sheet will stabilize at a leverage ratio of approximately 3.0x

debt to equity. At this stabilized level, we believe Core EPS will increase

by $0.24 - $0.28 per annum, or 11 – 13% from Q1 annualized levels.

The main driver of this accretion is the benefit of scale. We expect to

maintain a similar level of liquidity to fund our origination business as

we have historically, and the increase in the ratio of deployed capital to

both working capital and other fixed costs, is essentially the financial

basis for the accretion that will be generated by the GE acquisition.

In closing, we think the financial accretion from the GE transaction

coupled with the ongoing strategic benefits Steve outlined emanate

from our affiliation with Blackstone Real Estate. While this

transaction has been a uniquely prominent example of the benefits of

Blackstone’s sponsorship, we see its impact on the ground every day in

ways large and small and are confident in its enduring benefit to

BXMT.

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

Coordinator Your first question comes from the line of Dan Altscher, FBR Capital

Markets.

D. Altscher Thanks, and good morning, everyone. Appreciate you taking my

questions. I was wondering if you could talk a little about the GE


transaction. One of the, I think, major questions and things that folks

have been wondering about is really the credit quality of the GE

portfolio. I know, Steve, I think you mentioned in terms of spread and

LTVs it looks very similar to the existing portfolio which seems to be

true. But I was wondering if you could talk just a little about that credit

quality. Where maybe it falls within your internal fixed ratings? That

might be a helpful kind of a metric.

S. Plavin Sure, Dan. I think that the quality of the portfolio, as I mentioned, is in

line with our directly originated portfolio. The loans are a little bit

more seasoned than the loans that we’ve originated. Our originated

loans only date back to May of 2013, whereas several of the GE loans

were originated in the period before that. So, in terms of the

transitional properties they finance, a lot of them are further advanced

in terms of generating cash flow. So I would say, in general, their loans

have higher debt yields than our loans, they are more diverse; they

tended to do large loans as portfolio loans with crossed pools of RE

collateral.

So, I think they’re a very nice complement to the bigger, more core

urban loans that we have been making in the recent quarters in the

BXMT portfolio. I think the GE portfolio is a good mix, and again, I

think consistent, overall, in quality to the loans we’ve originated.


D. Altscher Okay. I guess then just sticking with that point as well, I think it was

maybe reported that, maybe, a third or so of the portfolio was maybe

pre-2011 which, certainly, would be consistent with your comment that

they’re more seasoned. For those loans that are pre-2011, is it that

there’s substantial call protection at this point that those haven’t been

able to refinance as opposed to borrowers maybe not being on track

with whatever plans they might have?

S. Plavin GE has a strategy of really trying to maintain their loans long-term, and

they have a great history in doing so, it’s especially true in the

manufactured housing segment. But their originators were highly

incented to maintain loans and, obviously, it requires less effort to

extend and maintain a loan than it does to originate a completely new

one. So, philosophically, that was their objective, and they were,

generally, successful in doing that.

It’s a good thing to develop the relationships they have with those

borrowers where in addition to extending the existing and older loans,

they had the dialog regarding adding new ones as well.

D. Altscher Okay. I see. Got it. Something that I thought was maybe missed by a

lot of folks was the add-on feature that I think was referenced in the


script. Can we talk a little bit more about that, the nuances around

that, really, the benefit of that, really the place it holds with funding the

deal?

D. Armer Yes. Hey, Dan, it’s Doug. That’s a great question. The add-on feature

to the Wells financing was very important for us because it enabled us

to fully debt fund the portion of the loans that we expect to repay in the

very near-term. And so, the $220-odd million that the additional 5%

advanced, 80% to 85%, represents can really be thought of as the full

haircut on 20% to 25% of the total portfolio.

So say, $1.1 billion, $1.2 billion of loans are actually 100% debt funded

and the remaining loans are 80% debt funded. So, that means we

didn’t need to raise equity in order to fund that portion of the portfolio,

and instead we’ll have a slightly more levered balance sheet around

that particularly opportunistic piece of the investment.

D. Altscher Okay. That’s perfect. Appreciate that. Maybe just one more from me

and then I’ll let others take a crack. Just also with the GE portfolio, I

think it was really shown in the 8-K that there’s going to be roughly

45% of the portfolio is either eligible or scheduled to mature over the

next year or so. What, maybe, is your expectation of what could


actually repay? Because I think those were just eligible as opposed to

scheduled.

S. Plavin When we look at the portfolio, and when we structured the add-on, we

looked at a $1 billion to $2 billion range, of potential repayments in the

first 12 to 18 months. It’s very difficult to predict when the the floating-

rate loans will repay. A meaningful portion of the portfolio is fixed-rate

with the traditional fixed-rate like yield maintenance or swap breakage

provisions which provides a little bit more protection for some of the

loans in terms of duration. But we expect a pretty even mix over a one

to three-year timeframe in terms of how we see the loans repaying.

D. Altscher Okay. Great. I’ll drop back in the queue. Thanks so much.

M Thanks, Dan.

Coordinator Your next question comes from the line of Don Fandetti of Citigroup.

Please proceed.

D. Fandetti Yes. Steve, I was wondering if you could talk a little bit about spread

compression. I guess there’s been a little bit of that. What is your

expectation on a going-forward basis and do you think that’ll

eventually push you into looking at some other areas? And then, how


is the pipeline outside of the GE Capital deal in terms of targeted new

investments?

S. Plavin Well, as to spread compression, you know the market continues to be

very competitive. I think as it relates to our direct competitors, the

finance companies, the people we compete with on a one-to-one basis,

I think we continue to win more than our fair share of that business.

The challenge in terms of the competitive environment is banks

reaching in risk. We still aren’t seeing a lot of that. They’re still facing

the regulatory impediments to taking greater risk in real estate lending.

In some instances, it just takes one or two banks in a competitive

situation decide that they’ll lend 5% or 10% more, or they want to take

leasing risk they might not ordinarily take. And so, that’s what we feel

occasionally. This is the greatest competitive influence in our business.

Interestingly enough, the single biggest competitor in our business

over the last year or so had been GE, so there is an additional benefit of

this transaction: it ended up taking one of our biggest competitors out

of the market.

Pipeline. Obviously we have a good forward pipeline as we said today.

I noted that we have $1 billion of loans that we have with agreed terms


that are in the closing process. And the forward pipeline has been

building pretty well. We have been spending a huge amount of time,

everybody on the staff, working the GE transaction. But we’re still

originating, and I think we’ll still build additional direct origination

opportunities for Q3 and Q4. The focus has been on taking these new

82 GE loans and making sure that we’re completely on top of them and

integrating them into our loan portfolio.

D. Fandetti Thank you.

Coordinator Your next question comes from the line of Rick Shane of JP Morgan.

Please proceed.

R. Shane Hey, guys. Thanks for taking my questions this morning. I really just

want to talk a little bit about potential operating leverage and in

context of your long-term ROE objective. What you guys have basically

said historically is LIBOR plus 8% is sort of the target. Does the GE

acquisition, and effectively doubling the portfolio, change that in any

meaningful way, at this point?

D. Armer I think it does, Rick. It’s Doug here. We talked about the accretion

that we expect to experience as a result of our increased scale which is

really a function of the increased operating leverage that you’re


referring to. And just in round numbers, we talked about $0.25 on a

per annum basis in terms of accretion and that works out to roughly a

point in terms of the yield on book value, which is in the same range. I

think the 8% target, which translates to a low $0.50 per quarter yield,

is probably closer to a $0.60 target given that increased operating

leverage.

R. Shane Okay. Great. Thank you, guys.

Coordinator Your next question comes from the line of Tony Gleason of Neuberger.

Please proceed.

T. Gleason Hi. Good morning, guys. Thanks for the call and the clarification on

the GE deal. Just wanted to put some time horizons on some of the

things that you were talking about. Can you refresh me as to what

percent of assets will be fixed, pro forma the GE acquisition? How long

or what time frame do you have in your own forecast for getting back to

all floating portfolio, one?

And then two, what sort of timeframe should we be expecting to get

that debt to equity back down to the three level that you had

mentioned? Just trying to get a little time horizon there.


Just as a side comment, very happy to see you guys step up and buy

some more stock, both Steve and Mike, by the way.

D. Armer Thanks, Tony. The portfolio is, on a combined pro forma basis, 23%

fixed, as Paul mentioned there are also some floating-rate loans with

LIBOR floors, which factor into the correlation with US dollar LIBOR

in the near-term.

But talking about the fixed-rate loans, they’ve got an average duration

of 2.1 years. They also have an average coupon of 5.3 %, so they’re

relatively high yielding. But that two-year time horizon is really, I

think, the right timing benchmark with regard to the fixed-rate

portfolio.

On the leverage question, we think that we’ll move towards the 3x

leveraged pro forma stabilized level over the course of the next year or

so, which is the term for the add-on advance from Wells. And so, the

next 12 to 18 months is when we expect to return to our target leverage

level after the turbocharged component from the add-on burns off.

T. Gleason Okay. Thank you. That’s very helpful. Appreciate it.

D. Armer Thanks, Tony.


Coordinator Your final question comes from the line of Jade Rahmani of KBW.

Please proceed.

J. Rahmani Hi. Thanks for taking the questions. Just a clarification on the ROE,

because I think the term you used is core earnings which historically

the definition has included the add-back of the incentive fee. So, I

want to just confirm or clarify that the accretion you expect from the

GE deal is after the incentive fee.

D. Armer We’re talking in terms of core earnings which, you’re right, is before

the incentive fee. I think we expect that core earnings and the dividend

will continue to move in step. I think the relationship between the two

will be different over time as we move through the ramp period into a

more stabilized full-scale business model, but the accretion we expect

to be, that we’re discussing, is in terms of core earnings, which is before

the incentive fee.

J. Rahmani So, to put it another way, do you expect a similar level of accretion to

the dividend?

D. Armer We don’t give guidance about the dividend specifically. But I think we

expect a similar level of accretion. One of our priorities is obviously to


maintain book value, and so we don’t expect to pay out book value in

our dividends outside of the ramp phase of the company. There could

be, at a different stage of the company, beyond the ramp stage, there

could be a slightly different relationship between core earnings and the

dividend. We want to make sure that the dividend is sustainable,

predictable, and always increasing, never decreasing. So, it may not be

right on top of or ahead of core earnings outside of the ramp phase, but

it will be in line, it’ll be higher post the GE transaction than it would be

before it.

J. Rahmani Okay. So the payout ratios likely can moderate on a stabilized basis?

Okay.

J. Rahmani Just a couple of other items. Can you just describe the due diligence in

the underwriting process on the GE loans given how quick the entire

process was? And then, secondly, can you clarify expansion plans for

headcount at the platform?

S. Plavin Sure. On the underwriting side, we’re acquiring 82 loans and although

it is an enormous amount of work, we have excellent resources to

evaluate the loans in the new portfolio. If you think about it in the

terms of the CMBS deal, a current market CMBS deal might have 100


loans and a bond or B-piece buyer would look at buying that in sort of a

similar timetable.

Yes the time frame was compressed. And we did an enormous amount

of work in a very short period of time, but we certainly felt like we had

adequate time to fully evaluate the loans and the collateral that we

were acquiring, before entering into our agreement with GE and with

Wells.

To people, we do plan to add to the platform, most significantly in asset

management, but we’ll look at it in all areas. We have various

discussions ongoing, too early to say exactly what the final result of

that will be, but we certainly hope to add to our platform and to our

capabilities as another benefit of this transaction.

J. Rahmani Is there a process underway to preserve the existing relationships with

all of the new many borrowers that you’re gaining access to?

S. Plavin Yes. . .

J. Rahmani From originations and new business perspective?


S. Plavin Yes. We’ve had a coordinated process with GE to reach out to and meet

the borrowers and make sure there’s dialog prior to the closing of the

loan sale. So, we’ve had a great relationship with GE in terms of

coordinating that process, and that’s ongoing as we still have the

countdown over the next couple of weeks until we’d be in closing. But,

yes, we’ve reached out, had a dialog with almost all of the significant

clients.

J. Rahmani Okay. And just with respect to ongoing originations, you cited the

billion dollars of loans that are in process of closing. Can you just

clarify what time period you expect that to take place? And also, I

think your broader comments were that we should expect somewhat of

a pause in the pace of originations as the focus shifts to absorbing this

large portfolio.

S. Plavin Yes. Looking at this billion dollars of loans, I think our expectation is

that they will close in Q2. There’s one larger loan that could possibly

roll into Q3, but I think our expectation is that they’ll, as we stated, that

they’ll all close later this quarter. We do have some good deal flow.

We’re getting some deal flow from this transaction, pipeline

transactions, and some of the new relationships that we’ll be inheriting.

So that will be added to our pipeline, but all of our resources have been


dedicated for the last three or four weeks to getting in a position to

close the GE deal as quickly as we can.

J. Rahmani Okay. And just lastly a question I got from an investor. Can you clarify

what drove the sequential decline in book value per share?

P. Quinlan Sure. Hi, Jade, it’s Paul. The sequential decline in book value per

share was really driven by the OCI impact of the re-measurement of

our net investment in euros and pounds which are presently unhedged.

So, that is an unrealized loss that flows through OCI. That was

partially offset by the gains that we experienced in our CT Legacy

Portfolio.

J. Rahmani Okay. Thanks very much.

Coordinator And we do have a follow-up question from the line of Dan Altscher of

FBR. Please proceed.

D. Altscher Hey, guys. Thanks again for taking the question. Sorry to extend the

call a little bit longer. I had a specific question related to CT Legacy. I

think if I read correctly, there was a deal that Blackstone did with

Paulson, and I think this was referenced in the Q, the three pack JV.

Honestly, I think I understand that’s the unrealized gain that was in the


quarter. But, do you have a sense as the timing of when that might

close and is that capital then that actually comes back to you that can

then be redeployed into the loan segment for the loan business?

S. Plavin That transaction is expected to close in mid-May and there is a large

non-refundable deposit that’s been posted, and the cash will come

back, too, and it will be available to be redeployed.

D. Altscher Okay. That’s great. And then just one other quickie. On the

residential side, we’ve seen a lot of mortgage REITs gain assets, the

FHLB even with this moratorium in place which is interesting. I

suspect you guys may have been in the process of also exploring FHLB

a couple quarters ago. Any update on that side, on where things stand.

P. Quinlan Hey, Dan, it’s Paul. I would say no update for the time being. We are

monitoring the ongoing dialog as it relates to mortgage REIT access to

the FHLB and keeping a close eye on it but no update at this point.

D. Altscher Okay. Thanks so much.

Coordinator At this time, there are no additional questions in the queue, and I

would like to turn the call back over to Weston Tucker for closing

remarks. Please proceed.


W. Tucker Great. Thank you, and thanks, everyone, for joining the call this

morning.

Coordinator Thank you for your participation in today’s conference. This concludes

the presentation. You may now disconnect. Have a wonderful day.

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