Blackstone Mortgage's CEO Discusses Q3 2013 Results - Earnings Call Transcript

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 |  About: Blackstone Mortgage Trust, Inc. (BXMT)
by: SA Transcripts

Blackstone Mortgage Trust, Inc. (NYSE:BXMT)

Q3 2013 Earnings Conference Call

October 30, 2013 12:00 PM ET

Executives

Weston Tucker - Head of Investor Relations

Steve Plavin - President and CEO

Mike Nash - Executive Chairman

Doug Armer - Treasurer and Head of Capital Markets

Tony Marone - Principal Accounting Officer

Analysts

Dan Altscher - FBR Capital Markets

Jade Rahmani - KBW

Steve DeLaney - JMP Securities

Stephen Laws - Deutsche Bank

Ken Bruce - Bank of America Merrill Lynch

Joel Houck - Wells Fargo

Rich Shane - JPMorgan

Don Fandetti - Citigroup

Operator

Good day, ladies and gentlemen, and welcome to the Blackstone Mortgage Trust third quarter 2013 results conference call. At this time, all participants are in listen-only mode. Later we will be conducting a question-and-answer session. (Operator Instructions). As a reminder, today’s event is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Weston Tucker, Head of Investor Relations. Please go ahead, Mr. Tucker.

Weston Tucker

Good morning and welcome to Blackstone Mortgage Trust third quarter 2013 conference call. I am joined today by Steve Plavin, President and CEO; Mike Nash, Executive Chairman; Doug Armer, Treasurer and Head of Capital Markets and Tony Marone, Principal Accounting Officer.

Last night we filed our 10-Q report and issued a press release with the presentation of our 3Q 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 discussion of some of the risks that could affect the company’s results, please see the Risk Factors section of our 10-K report. We do not undertake any duty to update any forward-looking statements. We will refer to non-GAAP measures on this call. For reconciliations to GAAP measures you should refer to the press release and to our Form 10-Q filings. This audiocast is copyrighted material of Blackstone Mortgage Trust and may not be duplicated, reproduced or rebroadcast without consent.

So a quick recap of our results before I turn things over to Steve, we reported core earnings of $0.28 per share for the third quarter, our first full quarter of operations since our recapitalization in May. The strong results were driven by growth in our loan origination portfolio, which reached $1.3 billion as of September 30, up from $757 million at the end of the second quarter.

A few weeks ago we announced and paid a dividend of $0.27 per share with respect to the third quarter. The dividend was the first we paid since the recapitalization and reflected the success we’ve had in quickly ramping the business to-date. If you have any additional questions following today’s call, you can reach out to me or Doug directly.

With that, I now turn things over to Steve.

Steve Plavin

Thank you and good morning. It’s been very exciting for us to BXMT since the relaunch in May. As we discussed last quarter, our focus has been the responsible and rapid deployment of our capital in order to achieve a stabilized run rate dividend. I am happy to report that we’ve made great progress on both fronts. In hindsight, we relaunched the company at an ideal time. Market conditions for simple, focused strategy of providing floating rates plus mortgage loans remains very favorable.

We benefit from transaction activity, and with more properties trading, we are being improved and repositioned, we have more opportunities to lend. We see this increased transaction volume and greater borrower demand in both the U.S. and Europe, our target markets.

Also, real estate fundamentals are improving, which further supports our business. In short, it’s a great time to be value-add senior mortgage lender. More importantly, our affiliation with Blackstone is a great competitive advantage. Our access to proprietary deal flow and property and market information is unparallel given the scale of Blackstone’s real estate business. As part of Blackstone, we are better positioned to obtain market leading credit. The low cost and superior structure of our financing enhances the returns on our loans. So our connection to Blackstone allows us to benefit on both sides of the balance sheet.

We have done an enormous amount of business since May, over $2 billion of loans closed or closing in less than six months. We have great momentum going forward. Our ability to win business is a direct result of Blackstone’s reputation with borrowers, mortgage brokers and financial firms.

The market’s response to our relaunch and the way we do business has been very positive. Borrowers love our efficient and definitive analysis in decision making. Our broker’s relationships are unparallel and generate the best possible opportunities to win competitively. We are well ahead of our initial expectations for our business and we are still in the early stages of growing out our direct lending platform.

As we mentioned last quarter, we are going to lend in Europe as Blackstone’s presence there is particularly strong. We have a well established debt investments team in London and expect to close our first BXMT loans and credit facilities in the U.K. in the fourth quarter further expanding our loan origination business.

We’ve remain vigilant and maintaining the senior mortgage risk profile of our expanding loan portfolio. We’re able to rapidly deploy capital in this strategy and generate an attractive dividend yields that will grow with increases in LIBOR. As we have highlighted before, we will benefit from a rising rate environment given our emphasis on floating rate loans.

With that, I will turn to our financial results for the third quarter which reflects the significant growth on our loan portfolio during our first full quarter as BXMT. We will run through some detail but like to emphasize two important numbers, $0.28 and $0.44. The $0.28 is our core earnings per share for the third quarter, which was our first full quarter post recap. The $0.44 reflects our dividend run rate based on our current portfolio and loans in closing as of today.

We reported net income of $8.3 million or $0.29 per share and core earnings is $8 million or $0.28 per share. You can find the details of our core earnings calculation in the earnings release in 10-Q.

At quarter end, total assets stood at $1.6 billion, up 45% driven by strong loan growth. During the quarter we closed 10 new floating rate loans representing total commitments of $729 million. We funded $629 million under these and existing commitments during the quarter bringing our total loan portfolio to $1.3 billion as of September 30, with a weighted average yield of LIBOR plus 488.

Including all loans now closed or in closing, we have reached cumulative originations of $2.2 billion. We expanded our access to tightly price well structured credit for our business upsizing two of our credit facilities by $250 million each and closing $92 million of assets specific financings for a total of $592 million of additional [term-match] credit. We are in the process of adding more credit capacity in both U.S. and in Europe.

This quarter we bought a net $478 million under our credit facilities to finance the growth of our loan portfolio. Our quarter end weighted average all-in borrowing costs with LIBOR plus 249 with $345 million of additional immediate available borrowings based upon our quarter end loan portfolio.

We believe they are stable, longer duration LIBOR indexed liabilities combined with our LIBOR index senior mortgage loan assets produce a more liable income stream. At quarter end, our book value was $713 million or $24.68 per share. Over 90% of our book value relates to our loan origination business with the balance related to our declining CT legacy portfolio. CT Legacy Partners, the largest component of our legacy portfolio does not directly contribute to our quarterly dividends, but it does periodically distribute cash from underlying loan repayments to its shareholders, the largest of which is BXMT.

In October we received the net $20 million distribution from CT Legacy Partners, which we planned to redeploy in our lending business and further augment our dividend paying capability. We announced our first dividend as Blackstone Mortgage Trust during the third quarter. The $0.27 dividend reflected the great progress that we made deploying equity capital in our first four months originating senior mortgage loans. Post quarter end, we've maintained the risk origination pace. Our existing portfolio and loans in closing generate $0.44 of quarterly run rate core earnings. In addition, we have a great pipeline of perspective loans that should further advance our ramp and increase our dividend paying capability.

With that, I'll ask Virginia to open the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question is from the line of Dan Altscher with FBR. Dan, your line is open.

Dan Altscher - FBR Capital Markets

Great first I guess second quarter (inaudible) looking things good. $2.2 billion is a great number that clearly by year-end is going to hit, it is too early to start thinking about 2014, can this pace of origination continue or how should we think about that as we approach 2014?

Steve Plavin

Dan, the business opportunity is still great for us. So we think the pace will continue rolling into 2014, and we’re targeting a larger and larger loans, it really give us the ability to I think increase the absolute dollar volume of our originations.

Dan Altscher - FBR Capital Markets

Okay. And thinking about that, 2014 isn’t that far away. Clearly there is capacity on the credit facilities that you can draw down on, but thinking more about any permanent capital to expand the platform at this point, how are you thinking about that, is there an absolute need for more capital, and if there are not, is there may be a convert market might be open or may be preferred market instead doing straight common if needed?

Steve Plavin

Given our current pace of deployment and the opportunities that we see out there to invest, we’re going to need some additional capital in the next few months. We’re looking at the common market and alternative markets as well and we’ll make that decision based upon market conditions at the time.

Dan Altscher - FBR Capital Markets

Okay. I’ll drop back in the queue.

Operator

Your next question is from the line of Jade Rahmani with KBW.

Jade Rahmani - KBW

Thanks for taking the question. Just a follow-up on the leverage side, can you discuss how you think about the difference between the actual available borrowing capacity and the potential borrowing capacity that’s shown in the slides?

Doug Armer

Jade, it’s Doug. I can help you with that. The potential available borrowings are the borrowings, it’s the maximum amount that we could borrow given the collateral that we have pledged today and what available is that number less was actually outstanding today. So if you look at the press release, you can sort of read those three numbers straight across.

Jade Rahmani - KBW

Okay. Thanks for that clarification. As you look across the Blackstone real estate debt platform, would you characterize deal flow as accelerating and how much of that would you attribute to the market growth rate or borrower changes, borrower preferences for floating rate debt, any changes you have seen there, and then finally just the strength of the overall Blackstone platform itself?

Doug Armer

All those factors really contribute is that the platform gives us access to everything that’s occurring in the market. So we see deal flow not only from our own loan originators but also from all the investors and portfolio companies that house in the equity side of the business here. The transaction activity in the market continues to accelerate. We are a direct beneficiary of that transaction activity. So we see the set of opportunities for us continuing to grow and that’s what so exciting about the business now is that the opportunity really seems to be expanding as we move along in the cycle.

Jade Rahmani - KBW

And just finally I wondered Steve if you could discuss the [AV note] financing strategy and how important part of your business you would expect that to become? Do you think that strategy could provide a potential significant source of capital? And what percentage you think you might look to originate that would be a candidate for financing through [NA note]?

Steve Plavin

Well, when we originate whole loans and look to acquire leverage sales loans, we also evaluate whether or not selling [NA note] into the market would be a better economic alternative for us. And generally, we will pursue the path that we think results in the highest yield and what we retained in BXMT. So if we think the [A note] market is at a lower spread or more favorable terms than what we borrow, then we will go to the [A note] market, otherwise we will continue to borrow on credit facilities.

We also actively monitor the CLO market which is sort of the third alternatives for us to finance the loans that we originate. That market also is rapidly evolving and we think there is a reasonable chance that we will deploy some of our balance sheet leverage that way as we get in 2014. As we sit today, our best alternatives are own credit facilities and also [A note] market.

Jade Rahmani - KBW

Great, thanks very much.

Operator

Your next question is from the line of Steve DeLaney with JMP Securities.

Steve DeLaney - JMP Securities

Steve if you would just clarify, I was multitasking and I apologize, I may have not heard your comment clearly about the first U.K. facility, were you saying to us that you have established your first U.K. credit facility to help support your lending effort there?

Steve Plavin

Yeah, it is not yet closed. We have reached agreement with one of our core lenders for a facility that is available to us to make kind of denominated loans in the U.K. We expect that to close in the next 30 or so days in conjunction with the first loan closings that we have in that market.

Steve DeLaney - JMP Securities

Right. And that was my follow-up question, whether any of the loans included in the $2.2 billion would be based in the UK or Europe? And it sounds like that you’re saying that is the case?

Steve Plavin

Yeah. We have one UK loan in closing, but the forward pipeline in the UK is very strong. The environment there is a little different than the U.S., it's more opportunistic there is less liquidity. And so we're really seeing a very interesting flow of deals in the UK. And our presence in that market is very strong. We have a great team in London. So we really do get to see a good blow of opportunities. And I think they will become a larger percentage of our business in 2014 as we go through the year.

Steve DeLaney - JMP Securities

And looking at that business, should we assume some incremental higher all-in yield compared to the current, I think you're LIBOR plus 488 currently. Do you see that business as just volume or do you see it enhancing the overall yield of the portfolio?

Steve Plavin

I would say at this stage, we're seeing the overall net returns in the same range as we're seeing them in the U.S. In some cases we're able to achieve those returns at a little bit lower loan-to-value. So reflecting some of the systemic risk that exists in the UK because things are at earlier stage of recovery, there is also less liquidity. But the opportunities we're seeing generate some more yields, but I think the risk profile of those transactions is very attractive.

Steve DeLaney - JMP Securities

Okay. And then picking up on Dan's question earlier, it's helpful you have given us a run rate indication of $0.44 for what it’s worth, we were modeling $0.45 in the first quarter and I assume that’s when you are looking at the $0.44 to really apply given full deployment of capital, so all good there. Just curious if you run any numbers internally, you do have certain fixed cost and is it realistic to think on the next round of capital that in terms of just better cost efficiency, spreading the cost over larger base that there could be a penny or two upside to that run rate moving forward from scale?

Steve Plavin

Yeah. There really should be. Most of our G&A fixed costs virtually are fixed and don’t move in lock step with our loan portfolio. We will achieve greater efficiencies as we grow the business.

Steve DeLaney - JMP Securities

Okay. Thanks guys for the comments. I appreciate it.

Operator

Your next question is from the line of Stephen Laws with Deutsche Bank.

Stephen Laws - Deutsche Bank

Hi. Good morning. Thanks for taking my question. A couple of things have already been hit on, but I wanted to talk about kind of return I know Steve that that’s about some European opportunities. Can you maybe talk about what you’re seeing in the U.S. how are terms and new investments changed today versus even just three, four, five months ago, what are you hearing back from your borrowers as you look at pricing and opportunities in the market?

Steve Plavin

I would say on an overall basis, we haven’t seen a fundamental shift in the deals that we're seeing now versus what we saw two, three, four months ago. We are seeing a greater volume of opportunities I think as we go through the cycle. More of the properties that hadn’t been refinanced are now ready for refinancing or ready to be traded. So the set of opportunities is definitely expanding. I think from a competitive environment, there are people out there that we see on a regular basis as we pursue loans, but our ability to win continues to be very good. And so I think the prospects continue to be very favorable and aren’t really meaningfully changed in the last three to four months.

Stephen Laws - Deutsche Bank

Great. And then one follow-up looking at the portfolio table you guys provided in your earnings presentation, Loan 3 and Loan 8 specifically as mentioned as the land loan, but Loan 3 as well shorter duration with the maturity date in ‘14 and ‘15 I think respectively, but much higher yields on those. Can you may be talk to those loans or loans similar to those, do you expect to see more loans like that in the portfolio. Is that a specific mix as far as the size mix in the portfolio you’d like to see as kind of higher yielding I assume associated with that higher risk type land loans. Obviously those will turn over a little faster. Are there any origination fees or repayment penalties that are associated with those to pay-off early which clearly would result in a lower blended yield on the portfolio, so maybe if you could speak to those two loans and maybe similar opportunities like those?

Steve Plavin

Good question. I think the two loans that you referenced really were a really special situations for us. The land loan was a particularly high yielding loan that we were able to acquire. It’s on a project in New York that is, that should be, where construction is expected to start in 2014. It’s a site of multifamily property. So we were, from a risk standpoint, we’re very comfortable with that risk in the fact that the land was permitted and approved, a unique opportunity for us and also very high yielding relative to its risk.

The other loan that you referenced was really one that we were able to capture because we’re able to close quickly. And we provided a bridge loan to someone who would post it hard money and try to and acquire the property off market. I think we’ll see more of those opportunities going forward.

We do have a great ability to make assessments quickly and close in a short period of time. And one of the great things about our lending platform versus that of a bank is we’re really able to make those lending decisions quickly and decisively and it’s nice to get paid when you close quickly and execute well as opposed to having to take additional risk. And I do think we’ll see more of those opportunities. It’s hard to forecast what they will be because they tend to come on a one-off basis. But I think we periodically see opportunities to earn extraordinary returns on loans that we are outsourcing.

Stephen Laws - Deutsche Bank

Great. And to those shorter duration or with maturities and --. Do those carry prepayment penalties with those as we think about modeling of kind of a blended yield on the portfolio going forward kind of will there be prepayment penalties associated with if they repay early calls and kind of a lower yield than we expect after the prepayment?

Steve Plavin

I would say in general most of our, I will answer the question generally and specifically. In general most of our loans do have early repayment penalties so that they get repaid in the first 12 to 18 months. We receive either excess fee or some sort of yield maintenance call protection type additional income component. We also in that scenario accelerate the portion of the upfront fee that we haven’t already taken in the earnings. So it did have a one-time impact in terms of creating more earnings. And so, and it’s by design because we are, it justify for us to get paid more for loans that only fit our balance sheet for a short period of time.

Stephen Laws - Deutsche Bank

Great. I appreciate the details there and congratulations on nice quarter.

Steve Plavin

The all-in yields that you see on the portfolio table, those exclude [exit] and the impact of early repayments, so the yields are LIBOR plus 488 yields will be higher if we get repayments early in the turnover loans that we have made.

Operator

Your next question is from the line of Ken Bruce of Bank of America Merrill Lynch.

Ken Bruce - Bank of America Merrill Lynch

Thanks. Good afternoon gentlemen. You spoke to this on both in your prepared remarks, as well as on some of the questions, obviously momentum in the business is quite good and you are seeing increasing opportunities both here and abroad, that’s all very encouraging. I guess when we think about some of the system of the governors on the business capitals one of them will come back to that. But as you look at your platform, what do you believe is the right flow of and you can eventualize if anyway you want it, but either in terms of amount of business or number of loans, what do you think that the BXMT platform can essentially generate on any given quarter?

Steve Plavin

On any given quarter I think if you look at our last two quarters, we’ve sort of been at $700 million of pace, but I think that in any given quarter it can be a billion dollars or more. Our goal is to make this platform and this business very, very big. We have a lot of capacity in the platform and we have unique advantage competitive weighted to source loans that enable us to build a very large company and a very large loan portfolio. I expect that we will keep all of these numbers to pace the size of our portfolio, our quarterly originations will all grow overtime.

Ken Bruce - Bank of America Merrill Lynch

Understood. And is there a way to think about what the capacity is today in terms of you had mentioned you are looking at larger loans where the dollar volume can be a little misleading, but in terms of what the actual capacity is on the current platform and then what you would expect to grow it. And I realize you don't want to get too far in front of providing guidance, but I just want to try to understand how the business can grow over the next year or year and a half two years whatever timeframe you want to basically [dimensionalize] that?

Steve Plavin

Well I think, again I think the business can grow from a pace of momentum standpoint from what we have established so far. So again we have sort of been at this $500 million to a billion range and I do expect this to sort of trend to the top of that range and ultimately exceed it as we move forward. We are obviously going to need more capital to realize that kind of growth in our portfolio. And so we are mindful of that and we will look to source additional capital over the next few months.

Ken Bruce - Bank of America Merrill Lynch

Right. And thank you that's a good segue. In terms of the capping the capital market, is this something that you would envision as being essentially just in time type from a capital raising standpoint or do you envision doing something larger just as maybe initially out of the box in order that you have enough of awards just to kind of develop the business over a reasonable horizon. How are you thinking about the capital formation just in terms of sizing I guess maybe it’s one way to frame it?

Steve Plavin

Again when I think of our capital raising I look at it in the context of the opportunities that are available to us which at this point are great. But I think we will be restraint in terms of how much capital we raise at any one time. And I think we're really, I think programmatically we’ll be looking to invest over a 1 to 2 quarter timeframe any capital that we raise at a single offering. We want to continue on the dividend ramp so we don’t want to set ourselves back. And so I think that’s the right amount of capital to raise for our business.

Ken Bruce - Bank of America Merrill Lynch

Okay. That makes sense. And maybe one little clarification, just in terms of the accounting around the $20 million distribution from CT Legacy Partners, is that can have a P&L impact or how we're going to see that come through in the quarter?

Tony Marone

This is Tony. The fourth quarter will have a little bit of noise in it from the legacy portfolio on the accounting side. The $20 million distribution is net. So there will be some items that are netted off from a gross distribution of about $35 million. I think what’s important to be mindful is that those are adjustments that we added back to core earnings so they won’t impact the core earnings of the business which is our key metric, but you’ll have some GAAP noise in the fourth quarter because of it.

Ken Bruce - Bank of America Merrill Lynch

Okay. Thank you. Good quarter gentlemen.

Operator

Your next question is from the line of Joel Houck with Wells Fargo.

Joel Houck - Wells Fargo

Thanks and good morning. Just on the distribution, just to clarify. The $20 million will that be a reduction in the equity value of the legacy book in the fourth quarter as well?

Tony Marone

Yes.

Steve Plavin

It will be a reduction in the equity value of the legacy book and it’s also therefore an increase in the equity value of the loan origination book. So the way we look at that is that’s $20 million that’s now liquid capital available for us to invest in our loan origination business and available to begin contributing to the dividend on a per share basis.

Joel Houck - Wells Fargo

Right, okay. And so the remaining portion would kind of work the same way overtime as you get all of that back as that business is liquidated?

Steve Plavin

Exactly. I think the one difference is on that, that’s a tough promote number which is not currently in the book value rather than being a preservation of book value or a shift that would represent income which would either increase book value or be distributable.

Joel Houck - Wells Fargo

Okay. Good. Just switches gears, you talked about the extra fees and prepayment fees. How -- I mean, I obviously that the portfolio is relatively new but we did see full prepayment, how should we think about modelling repayments say over kind of more broader ones to your timeframe or is it still kind of to really to predict that, they will just come in when they come in?

Mike Nash

The repayments are difficult to predict. When the market improves the duration of the loans tends to be shorter. The call protection that we have in place is very effective means of discouraging early term repayment.

But when we model our business, I think we presume that the average life of loans in the current environment will be two, two and half years on average.

Joel Houck - Wells Fargo

Okay. Two and half year life, okay. And lastly, I am wondering if obviously the GSCs have reduced the amount of capital they are putting into multifamily and they haven’t announced the ‘14 program plan, yet, but I am wondering is that having a positive effect in terms of obviously that market’s fairly robust as people need somewhere to live or are you seeing positive effects from that or is it too small to notice?

Mike Nash

Well, I don’t know, if it’s from the GSCs refresh, but we have seen a very good flow of multifamily loan opportunities in BXMT, I think more than what we originally expected. So as you can see multifamily, has become a pretty big component of our business and relatively high percentage of our asset classes. I do expect to see more of that going forward in part, because the refreshment of Fannie and Freddie.

Joel Houck - Wells Fargo

Okay. And do you have any comments specifically on like the multifamily pipeline you just mentioned that it was the actual fundings are probably greater than you thought initially, is that kind of convert in terms of the pipeline you are seeing?

Mike Nash

I think it’s reflected in the pipeline in our existing loan portfolio. We like the multifamily asset class, it tends to be more stable than the other asset classes, it’s performing exceedingly well. We are avoiding situations where we foresee a lot of additions to supply in some markets and multifamily is one of the few markets where there is new construction. But in general the multifamily deal flow that we are seeing is great and a real positive to our loan portfolio.

Joel Houck - Wells Fargo

Alright and thanks for the color. And good job on a good start this year.

Operator

Your next question is from the line of Rich Shane with JP Morgan.

Rich Shane - JPMorgan

Hey guys, thanks for taking my question. Actually Joe addressed a great deal of it, but just wanted sort of dive in a little bit deeper into the portfolio. When we compare the portfolio as of September 30th versus June 30th I think the things we were looking at is the cash coupon trend doesn’t actually look frankly like there was a lot of pricing pressure, if you could comment on that? You guys have discussed the shift, there was a lot of multifamily origination in the quarter that was the second trend. And then the third trend was that the originations during the quarter seem to be smaller than most of the portfolio is that just a function of the portfolio was a little bit more concentrated prior with to deploy the capital from the original offering and should we expect increase granularity going forward?

Mike Nash

Yeah. As it relates to your loan size of questions, in general we are trying to maintain loan size with $50 million or higher. We go lower in loan size to support our client relationships that we care about, so a lot of the smaller loans you will see as make ones with clients that we want to account for as much of that businesses as we possibility can. The additional benefit of smaller loans, it does create a little bit more granularity and if we think about the CLO market, having those additional data points will be beneficial and achieving better terms as we leverage our portfolio in that way. But I would say in general, when we look to do larger.

Rich Shane - JPMorgan

Got it. And do you want to comment at all, I mean I didn’t see any pattern in terms of coupon, the blender rate came down a little bit just because of that 8% loans becomes less meaningful in the portfolio but it didn’t look like there was any real trend versus the portfolio of previously in terms of where coupons were coming in?

Mike Nash

Yeah. I would agree with that assessment. We haven’t seen a fundamental change and so the risk in return profile of our business. The metrics that we put in the place still hold through. And that we are able to originate now like what we were able to in April and May to achieve these similar target returns. So I think it is very encouraging that we haven’t seen the impact of competition or spread compression in our business yet.

Rich Shane - JPMorgan

And Steve, do you think that that’s just a function of capital constraint in the industry? I mean again I would have thought and you might have seen a little bit more pricing pressure, but it’s just a function of not enough supply of capital to meet the demand?

Steve Plavin

I think that's part of it. I think that, we’re in a lending segment, where there isn’t a lot of competition, we’re generally not competing with the banks, we’re typically a little bit beyond where the banks want to go in terms of loan to value or non-recourse the banks require a guarantee. So we’re not seeing a lot of bank competition. It is not very many public companies with the business strategy similar to ours.

So I think the competitive landscape is good, so as a result, we’re not seeing a lot of compensation. And also borrow demand as good, as well. So again there is more and more opportunities. And with it is a lot of loan maturities coming out of pike in 2014, ‘15, ’16. So there should be even a greater supply of loans.

As the old curves deepens and we think more of those loans will go to the floating rate market, it’s pretty encouraging that so many people are borrowing floating rate given where fixed rates are now, notwithstanding a little bit higher than they were in the spring.

So I think all of these factors bode well for the business and so far that's bearing up.

Rich Shane - JPMorgan

Got it, okay. Thank you very much.

Operator

Your final question of the day comes from the line of Don Fandetti with Citigroup.

Don Fandetti - Citigroup

Yes. Steve, two quick questions, one seems like there typically heavy seasonality in the serial lending business as you get towards year-end. Is that what you are expecting to see? And then secondarily, your strategy has been typically sort of clean simple and first mortgages, would you expect to maintain that strategy or do you have already seen some sense that you might look at other different areas as some of your peers are?

Steve Plavin

I'll take the seasonality question first. I mean typically the fourth quarter is the busiest quarter for us for real estate lender, inevitably there are transactions that need to get done by year-end and we expect to have a busy fourth quarter as it relates to closings and originations.

As it relates to where our lending strategy is going to go, I think that we evaluate every lending opportunities that we see and compared to what we're doing in terms of first mortgage business, we don’t intend to change the first mortgage risk profile of our business. If we can achieve higher returns in loans that maybe aren’t first mortgages that’s similar risk profile and similar trend profiles then we’ll consider those very seriously.

Right now, we're able to deploy our capital very rapidly in this first mortgage strategy and we're sticking with it. You’ll see a little bit, as we hit the end-out market, you’ll see our financials will begin look a little bit different reflecting end-out sales versus the leveraging of our portfolio was rebuilt, but the risk profile is what we retain is similar in both, it is essentially the same in both circumstances.

So we're fortunate that we have a lot of good origination opportunities available to us on a different ways that we can achieve our yield through the financing market and we’ll see how it goes going forward, but no plans to change the risk profile of what we're doing.

Don Fandetti - Citigroup

Got it. Okay.

Operator

And with that ladies and gentleman we’d like to thank you so much for your participation in today’s broadcast. This does conclude the presentation and you may now disconnect. Have a great day.

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