Good day, ladies and gentlemen and welcome to the Blackstone Mortgage Trust Third Quarter 2015 Earnings Conference Call. At this time, all participants are in listen-only mode. Later we’ll conduct a question-and-answer session. [Operator Instructions] As a reminder this conference is being recorded. I would now like to turn the call over to Mr. Weston Tucker, Head of Investor Relations. Please proceed, sir.

Great, thanks, Lauren. Good morning and welcome to Blackstone Mortgage Trust's third quarter 2015 conference call. I'm joined today by Steve Plavin, President and CEO; Mike Nash, Executive Chairman; Paul Quinlan, Chief Financial Officer; Doug Armer, Treasurer and Head of Capital Markets; 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 could affect the company's results, please see the Risk Factors section of our most recent Form 10-K and subsequent Form 10-Qs. We do not undertake any duty to update forward-looking statements. We will refer to certain non-GAAP measures on this call. For reconciliations to GAAP, you should refer to the press release and to our third quarter Form 10-Q, each of which have been posted to our Web site 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, quick recap of our results before I turn things over to Steve. We reported core earnings per share of $0.72 for the quarter which was a record and which was up sharply versus the prior quarter and prior-year. A few weeks ago we paid a dividend of $0.62 per share with respect to the third quarter which was a 19% increase from the prior quarter. If you have questions following today's call you can reach out to me or Doug directly. With that I'll now turn the call over to Steve.

Thanks Weston and good morning everyone. During the third quarter we experienced the full impact of the GE portfolio acquisition which closed late in the second-quarter. The transaction helped drive the substantial growth in core earnings and led to the 19% increase in our dividend that we announced during the quarter. Our dividend reflects the benefits of greater scale and deployment that we expect to sustain long-term. An outline of the accretion to core earnings we experienced in the third quarter, the impact from the fixed-rate GE loans, as well as with the add-on advance from Wells which essentially fully financed the expected near-term repayments in the GE portfolio, will diminish as loans are repaid. However the redeployment of capital from repayments will be the major source of funding for new senior floating rate loans that will also increase our positive correlation to LIBOR overtime. BXMT with its larger asset base now is 132 loans with 93 sponsors, managed by the Blackstone Loan Asset Management team. The credit profiles of our loan portfolio remains conservative with overall LTV of 64%, we’re well diversified by region and asset class. During the quarter our asset managers increased or extended 10 loans with a total balance of $824 million. A great example of our asset management activity is the modification upsize of the long-term clause of loan that we acquired from GE. That is secured by a DC office and retail property ahead of December 2015 maturity. Post quarter end we modified the loan, extending the term to October 2020 increasing the principal amount by $17.5 million and buying out a $66 million participant. We essentially negotiated a new $229 million loan with a top sponsor while BXMT avoided repayment and committed $84 million of new money. On the direct origination front, we…

Thank you, Steve and good morning everyone. Our headline results this quarter declaring a $0.62 per share dividend and reporting $0.72 of core earnings reflect the powerful accretion of the GE portfolio acquisition. This increased dividend besides relative to our expected stabilized earnings power following the GE acquisition and does not include the incremental earnings accretion that drove an additional $0.10 per share of core earnings this quarter. As I discuss our results I'll outline how this accretion resulted in an heightening profitability this quarter which we expect to continue as we trend towards a more stabilized earnings level in 2016. Loan closings totaled $886 million and loan fundings totaled 868 million including 85 million of fundings under previously originated loans. We financed this activity primarily with two senior syndication financings totaling 534 million. GAAP does not consolidate these senior loan interests contributing to a decline in the size of the loan portfolio reflected on our balance sheet, however considering the gross originations of 886 million relative to the $497 million of repayments we received in our directly originated portfolio. Our net origination portfolio grew by $389 million. In addition we received $537 million of loan repayments from the seasoned GE portfolio. It is important to distinguish these repayments from those in our directly originated portfolio as we expected this level of repayments in our underwriting and sized our add-on sequential advanced financing from Wells Fargo to cover expected repayments in the first few quarters post-acquisition. This financing allowed us to effectively fund this portion of the portfolio with 100% debt avoiding incremental need for equity financing. As a result these repayments do not generate increased liquidity available for redeployment until the add-on sequential advance is fully repaid. Looking at our platform as a whole we ended the quarter with…

[Operator Instructions] And your first question comes from the line of Dan Altscher. Please proceed.

A really simple question, we have talked about stabilized earnings profile and I think Paul and your -- whereas mentioned a more stabilized earnings propel as we move to 2016. I guess can you usually help us to get a sense of when stabilization kind of finally or fully occurs. The $0.62 dividend being stabilized, what’s kind of the right timeframe to actually get in there in personality?

Dan hi it's Doug. I think the timeframe is a little bit TBD. I think sometime during 2016 is a good assumption. What it relates to is essentially the timing of the repayments in the GE portfolio and the deleveraging that comes from paying down the add-on advance. And it also relates to how the GE fixed rate loans play out. They have a 1.7 year weighted average life, and that assumes all else equal right that we continue to generate the LIBOR plus 12 plus returns in the floating rate portfolio and maintain deployment that we've seen over the last two or three quarters. So with those assumptions I think the idea that through 2016 we’ll trend towards that stabilized level is the right timeframe to be thinking about.

And then speaking about the add-on advance, can you give a sense as to how much of that was repaid during the quarter and how much is left?

Absolutely, I think roughly half of it was paid during the quarter, a touch of that may've been actually at the end of the second quarter, and so there is at the beginning of this quarter about half of it left. So 125 million of 227 was repaid by the end of the third quarter.

One other quick one, Steve you mentioned in your prepared remarks one of the extensions and modifications that you made to an existing loan increasing or extending out term, increasing size, did that come at the expense of pricing or yield?

There was a slight adjustment to the yield on the loan, but still well above our threshold hurdle. The yield in the floating rate GE loan is not dissimilar from the yield on the directly originated BXMT floating rate loans. So as we modify and extend those loans I don't expect there will be a meaningful economic impact.

And then one other one and I'll drop off. Between the repayments that are coming along the pretty strong liquidity position that is in place and in the quarter and I think the -- may be from the remarks try to get that internally it feels like from a capital front that you're in a pretty good self funding position for quite a while. Can you just maybe provide any other color or thoughts around that?

Yes Dan I think you raised a good point. What we saw this quarter if you sort of step back and look at the really big picture was that the pace of originations and the pace of repayments are roughly coming into balance and as we enter the third year of the business model and you think about sort of typical three year lives on these loans you'd expect to see that as a general dynamic or coming closer into balance than during the sort of ramp phase. Now if originations accelerate you could see sort of net growth again it’s chunky quarter-to-quarter, so you can’t read too much in any individual quarter. But I think you do see that trend of them coming closer into balance as we enter the third year of the business.

Your next question comes from the line of Steve DeLaney of JMP Securities. Please proceed.

So wanted to just ask about the -- you did a lot larger amount of these non-consolidated senior interests this quarter, lot of the funding of the loans. And is there a simple explanation between the difference between structuring something as this NCSI versus the traditional A Note. Could you just help us understand why some things are A Notes and some things are the NCSI structure? Thank you.

Sure I mean typically the difference between the A Note and the non-consolidated structure is if when we take our originated loan and we divide it within a mortgage loan senior and junior then you have the A Note B Note construct. Sometimes we originate the whole loans we divide them instead of A Note, B Note mortgage them as. And so sometimes we prefer a collateral being a mezzanine position. And so that’s what dictates the different accounting treatments, it is very similar impact but it will fill the different on GAAP statement.

Obviously, yes so you’re saying economic is very much the same just GAAP rules require the cosmetically the A Note structure looks more like a financing whereas the NCSI structure just you only record on your balance sheet, your mezz piece?

Yes it looks a little bit more like a loan sale than a financing. But the reality is the impact and affect of the two are very similar. And we look at it case by case and optimize the individual situation.

And then the thing that I noticed throughout the back and looking at your release, the volume of loans pretty much we’ve come to expect something close to $1 billion a quarter. But I was struck by the fact that essentially it was four large loans with balances averaging over 200 million. Obviously the portfolio is composed of much smaller loans, more like a $70 million average. Can you comment on that, is there anything specific about the large loan market that looks particularly attractive now or is this more just coincidental that this particular quarter had these big chunky loans? Thank you.

Well, I think we definitely target larger loans in larger markets, they have greater liquidity, better sponsorship they are more consistent with what Blackstone owns in its equity business. So you always see a bias to us in terms of looking to the larger loans it is also competitive landscape for those are better, because a lot of the smaller players can’t handle the larger size. But on the other hand this quarter was unusual and that we didn’t have some of more of the smaller and medium sized loans which we typically mix in with the larger loans. So it was unique in that regard but our focus is still always on larger deals, major markets, top sponsors.

Your next question comes from the line of Jade Rahmani of KBW. Please proceed.

Just a milling question to start off if I took your average portfolio and just annualized the interest income, I think it implies a higher yield than the 4.87% weighted average. So can you just discuss maybe timing of repayments, the impact of prepayment income and what you might expect? Just going forward if I take your period end portfolio and use that 4.87% yield that would imply about $114 million of interest income versus the $138 million you reported in the quarter.

Yes two points there Jade, one is that 4.87% is the average yield of our whole loans so it excludes the loans that are financed with non-consolidated senior interest and you need to adjust for that in sort of relating the interest income to the average balance. And second point as a matter of fact, the repayments were fairly back-ended in the quarter. So the average balance in the quarter was actually closer to the June 30th balance and the 9, 30th balance I think that would also skew that calculation if we take a simple average. So we think the best thing to do in terms of modeling is to really look at in the 10-Q to look at the rates that are in place as of 9/30 and make assumptions about repayment speeds going forward. There was relatively little impact from accelerations during the quarter. I think something like 1 penny to 2 pennies may've come from the accelerations due to repayments in the quarter. And so you can factor that in as well. I would say that we do generally have some accelerations income from prepayments each quarter. So it’s likely that, that will continue sporadically going forward.

So effectively the yield on your retained interest is much higher than the 4.87%.

That’s right. It's of course in line with the LIBOR plus 12% for example that we have when you look at the ROI. I would say those yields are comparable to the ROIs as opposed to the asset yields which is why we exclude them from that average.

And then just regard, the current earnings level of $0.72 which is after the incentive fee versus $0.62 dividend and your expectations about a normalization, over what timeframe do you think that is likely to occur? Do you think 4Q I believe you previous said was also going to be elevated is that going to be similar to 3Q or do you expect sequentially lower earnings and just over what kind of timeframe should this process take place?

It is a good question Paul addressed it a bit in his remarks we talked about with Dan. Essentially over 2016 we expect the effect of those additionally accretive factors to burn off. It relates to the repayment of the short-term loans in the GE portfolio and the related repayments of the add-on advancements that additional deployment and it also relates to the tapering or the run off the GE's fixed rate loan which have a weighted average life of 1.7 years. So it will be sometime over the coming several quarters that we trend from the 72 to 62, all other things being equal and of course all other things won’t necessarily be equal as we go forward. So not by way of guidance but by way of just understanding those dynamics over the course of the next year or so we expect those to trend back to 62.

Some bigger questions Steve I think it would be helpful to hear your view on how you think about investing in the current environment, if your plan is to just stick with the core investment strategy large loans transitional real estate major MSAs or if you're increasingly look to add additional business lines and even if you could -- if you would consider branching into perhaps real estate equity?

Well I think that we still believe our senior mortgage floating rate strategy is the best strategy that’s out there, and it has worked very well for us and for our shareholders. So that continues to be our focus in the foundation of the company. We’ll however continue to look opportunistically all other elements that are or in adjacencies that make sense for us to think about adding it to the mix. And that’s just probably ongoing strategic thinking of the management team and in the sense of deal shop. So we look at new opportunities and new interesting things all the time. So maybe at some point we’ll find something that we think is additive and accretive to shareholders. It's definitely part of the ongoing effort but again we love the core business and think that has a lot of legs to it.

And switching to credit and also perhaps the real estate cycle, just bigger picture can you discuss credit surveillance of the overall portfolio? And can you also give some color on the one maturity default that was experienced in the quarter? And overall if there is any issues in the portfolio any loans that stand out or perhaps geographies, property types as concerned?

No I think overall the portfolio is performing very well. I think in general the risk rating trend overall is favorable. So our risk rating is on balance and are improving as a portfolio. The loan that was in the fall the quarter end was just one where we were -- it had an expiration near the end of the quarter. It’s a client that we know very well and we’re working with them on a longer term extension. I think from a surveillance standpoint we have a great asset management team highly experienced, very hands on. I think we’re all over all of the loans now that as we fully integrated the GE loans. And so I think we’re as up to speed on those as we are in the directly originated portfolio. And trend wise as I mentioned, I think the trend is still basically positive in the portfolio. We’re incredibly mindful of any signals or signs that something is up in any one of our loans or in the portfolio. But right now the trend is positive.

And regarding the maturity default and you would expect essentially that loan to be extended and to the borrower to continue to be able to make payments?

Yes.

And can you just say what type of property that is and where it is?

It’s an office portfolio concentrated primarily in and around Boston.

Your next question comes from the line of Rick Shane of JPMorgan. Please proceed.

One sort of conceptual and then one as just a housekeeping question. In terms of you made comment upfront that there’s a disconnect between potentially between your borrowers and what goes on in the capital markets because they cannot be sensitive to capital markets’ activity. That said there has been an enormous amount of volatility and we’ve seen the impact in terms of how deal terms are changing. Ultimately there is a pretty strong nexus even if there is a lag between the types of loans you make and what goes on in the capital markets. Can you talk about longer term what you think the impacts will be? Is it positive? Is it negative? And then the housekeeping question is just so we can all get trued up on our NIM calculations. What were the average loan balances for the quarter using your methodology?

I think with regard to the NIM question is that really the best way to model going forward is to look at what’s in place at 9/30, the fact of the matter is that the average balance was much closer to the June 30th starting balance than the 9/30 ending balance. So I think if you want to use that June 30th number as the average to sort of back into the calculations, that’s probably the best way to go.

Got it, great. Thank you. Now the harder question.

Yes as it relates to the capital markets, my comment was that our borrower is not being capital market so it’s related more to the difference between portfolio lenders and capital markets lenders. And I’d certainly agree with your overall comment that the capital markets are certainly great indicator of the world at large and of course our business is impacted by changes in the capital markets. We’re not seeing on a short-term basis the opportunity for our business changing. Because again most of the portfolio lenders with whom we compete are not necessarily raising their money in the capital markets we’re selling their loans into the capital markets. There are -- a lot of them are private equity funds and/or that have a transitional loan strategy. In some cases there it is commercial banks that still are pursuing growth and earnings in their real estate businesses. But overall if there continues to be volatility in the world then it will certainly impact real estate and loans in our business I think everything is ultimately connected. And whatever we see the volatility that we’ve been experiencing in CMBS and in other markets we look for the opportunities that might emanate uniquely from that volatility. So we look for situations where someone is borrowing on a capital market basis and maybe the loan got re-priced or essentially where their commitment went away and we have the opportunity to quickly step in. We test the loans that we originate a little bit wider in spread to see if wider spreads in the capital markets could translate into wider spreads in our business. So we’re very focused on what’s going on in the world at large. It does create opportunity for us. And I think you’re right in terms of keeping a careful eye on what’s going on with real estate capital markets overall, it’s a long term indicator as to what will happen with businesses like ours.

And if I can reframe the question slightly, do you think what we're seeing in the CMBS markets is technical or fundamental, because I think that ultimately impacts your purge. If you think it's fundamental then maybe it means a tapping that braced a little bit if you see it as technical it means maybe putting your foot on the gas a little bit more.

I think we see it primarily based upon I think your question I think we see it as more technical rather than fundamental. There has been a lot of CMBS supply, I think the lot of the volatility is sort of challenged the confidence of some of the bond buyers, so not all the supplies is making its way to the market, cleanly as it otherwise might. The market participant zone is increasing supply coming because of the uptick in maturities in ’16 and ’17, we’re sort of getting near year-end and people trying to think of what next year and the year-after will hold. But we think that fundamentally that we’re still mid cycle and that property performance is good and in most cases getting better. And it's a good time if we can see opportunities emanating from the capital markets to quickly step in and take advantage.

And your final question comes from the line of Charles Nabhan of Wells Fargo. Please proceed.

Most of my questions have been asked, but I just had a couple of quick high level questions. First I was hoping to get your comments on capital flows particularly into the gateway cities where global deflation and lower commodity prices may or may not have had impact on investment activity. And secondly you have touched on volatility in your previous comments, and I wanted to get an idea of whether you anticipate any potential opportunities perhaps not to the same scale of GE capital, but do you envision any asset sales either in Europe or in the U.S. that you could potentially capitalize on?

Well we’re always hopeful there will be more asset sales, and that’s a market that we actively pursue. The big platform here is ideally constructed to handle larger loans. And so we’re looking here and in Europe and I think that portfolio opportunities are as likely to occur there as they are here the banks in Europe are not as far long and the disposition of their real estate loans that sort of are remnant from the last cycle. And so we do think there could be more to do in Europe. But it's difficult to predict when one of those larger deals will come down the pike. So we are, and we just look we hope and then any then if something happens we’ll be all over it.

And just a quick modeling question if I could sneak it in. Looking at the G&A base there is a small amount of GE capital transaction cost which I imagine will go away but that aside if we look at the operating cost, should we think of that as a run rate or will that potentially decline overtime as some of the expenses associated with GE go away as the portfolio pays down?

I think you could look at that as a run rate, if you look at the detail on G&A we put in the 10-Q we've got the three category split out including GE transaction cost which we would characterize as being non-recurring but the other two categories professional services and operating another cost totaling about 1.6 million I think that’s a pretty good level to look at.

I don't think I answered one of your questions from earlier. So as it relates to capital allocations in the gateway cities, we still see very significant capital flows into the major markets. And in general believe they will be the last market to lose liquidity in the first for liquidity to return. So you also sort of mentioned sort of natural resource economies and there are some markets like Houston or Western Canada that we’re active in, and we’re not particularly active in either one, but they are part of our market territory. And so we’re incredibly mindful of avoiding economies that have sort of single employer or sharply cyclical or things where we think the market conditions create a lack of liquidity for our loans and our business. We have very, very little exposure in all of those areas, but we’re very focused in the major market gateway cities and we’ll to be as we go forward.

I will now turn the call over to Weston Tucker for any closing remarks.

Great, perfect. Thanks everyone for joining us this morning. And if you have any questions, please just give me a call.

Thank you.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.