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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, and welcome everyone to the Blackstone Mortgage Trust Fourth Quarter and Full Year 2018 Investor Call, hosted by Weston Tucker, Head of Investor Relations. My name is Matthew, I'm your operator today. During the presentation your lines will remain on listen only. [Operator Instructions] This conference is being recorded for replay purposes.
I would now like hand over to Weston, please go ahead.
Great. Thanks, Matthew, and good morning everyone, and welcome to Blackstone Mortgage Trust's fourth quarter conference call. I'm joined today by Steve Plavin, President and CEO; Jonathan Pollack, Global Head of Blackstone Real Estate Debt strategies, Tony Marone, Chief Financial Officer; Doug Armer, Managing Director and Head of Capital Markets, and Katie Keenan, Managing Director of Blackstone Real Estate Debt Strategies. Last night, we filed our 10-K and issued a press release with a presentation of our results, which are available on our website and have been filed with the SEC.
I'd like to remind everyone that today's call may include forward-looking statements, which are uncertain and outside of the company's control. Actual results may differ materially. For a discussion of some of the risks that could affect results, please see the Risk Factors section of our most recent 10-K. We do not undertake any duty to update these statements and we will also refer to certain non-GAAP measures on this call, and for reconciliations, you should refer to the press release and our 10-K.
This audiocast is copyrighted material of Blackstone Mortgage Trust and may not be duplicated without our consent. So, a quick recap of our results. We reported GAAP net income per share of $0.61 for the fourth quarter, and $2.50 for the full year, core earnings were $0.69 per share for the quarter and $2.90 for the year, up from 255 in the prior year. A few weeks ago we paid a dividend of $0.62 with respect to the quarter reflecting an attractive annualized yield of 7.2% based on the yesterday's closing stock price. If you have any questions following today's call, please let me know.
And with that, I'll now turn things over to Steve.
Thanks, Weston and good morning everyone. And excellent fourth quarter capped an extraordinary year for BXMT. We originated $3.5 billion of loans in the quarter and 10.7 billion for the year our most active ever. In 2018, we grew our portfolio by $4.7 billion to 15.8 billion while maintaining an origination LTV of 62%. The portfolio growth helped drive core earnings to $2.90 per share, which produced 117% dividend coverage. The strong coverage reflects our focus and the quality of the dividend, which is generated solely from our pure play, senior lending business. And we're able to retain the excess earnings which contributed to our increase in book value during the year.
In Q4, we closed 21 loans, our highest ever quarterly loan count exclusive of the GE portfolio acquisition in 2015. With several originations during the quarter that highlight the power of our platform. The biggest was a 65% of cost $652 million acquisition bridge loan for terminal stores a historic New York City asset acquired for redevelopment by a joint venture of two strong BX relationship clients. The large loan size and transitional nature greatly reduce competition for the loan as is the confidence that borrowers needed and lenders ability to execute, so a great example of our competitive advantage.
Also during the quarter we separately financed the purchase of the Park Central New York and the Park Central San Francisco for existing relationship borrowers that also needed a quick indefinitive loan closing. The hotels were sold by Pebble Brook at the closing of its acquisition of LaSalle hotel REIT the loan proceeds were necessary component of the M&A deal. Because one of Blackstone's real estate equity investment vehicles that also pursued the acquisition of LaSalle the hotels have been recently underwritten. The experience along with our borrower relationships and the investments scale was critical in tying up the two loans totaling $545 million of limited competition.
Also during the fourth quarter we financed the other acquisitions in Midtown Atlanta, Washington DC, San Francisco, Chicago, London and Sydney as well as construction in New York and Fort Lauderdale. As is core exemplified we achieve our best economic results where we can leverage our scale and real estate expertise especially in larger loans, special situations where speed and certainty matter most, construction loans and loans in markets outside North America where Blackstone has extensive real estate holdings.
Late in the quarter the significant debt and equity market volatility led to a slowdown in real estate transaction activity. Our Q4 transactions were already well advanced but the Q1 origination pipeline slowed. We also saw offsetting slowing in repayments. To date in 2019 we have $855 million of loans closed during the closing process. The capital markets are now quickly recovering and we expect transaction volume to pickup as the year progresses. Also the real estate opportunity funds that comprise most active segment of our client base have reported over 100 billion of dry powder in their investment vehicles with even more capital commitments being raised. The deployment of that equity should continue to help propel our business. Keeping pace with the extraordinary performance our originations group our capital markets team also had a fantastic year helping to drive strong BXMT returns and balance sheet stability. To fund our 2018 portfolio growth, we raised $483 million of equity during the year in average book multiple of 1.22 times that is $5 billion of debt capacity. We now have 11 credit facility providers 13.6 billion of capacity and an array of great term index and currency matched financing options for our senior loan originations.
Fourth quarter end we successfully completed the nonrecourse syndicated financing of the senior loan component of The Spiral. So $1.8 billion construction loan for Tishman Speyer in Hudson Yards, enabling us to significantly mitigate the future funding obligations while preserving very substantial positive economics going forward for BXMT. We are very pleased with the results which are consistent with our business plan when we originated the loan and our overall financing strategy.
With the very significant growth in 2018 originations BXMT's competitive positioning and market recognition have never been stronger. The majority of our loans are with repeat borrowers the greatest endorsement of the way we do business and our differentiated client centric approach. We remain focused on dividend quality and stability and continuing to introduce investors to our Blackstone sponsored senior mortgage company. Since the inception of BXMT we have delivered a 13% return for our shareholders and stock still yields a very attractive 7.2%.
Before I turn the call over to Tony I also wanted to let you know the important steps that we took yearend. Me and Doug Armer and Katie Keenan BXMT Executive Vice President for Capital Markets and Investments respectively. Katie and Doug work closely with me on the day-to-day strategic management of BXMT and are great contributes to the success of the business. In addition to our BXMT responsibilities Katie also continues to originate loans and she led the deal team for The Spiral, among many others.
And with that I'll turn the call over to Tony.
Thank you, Steve and good morning, everyone. This quarter's results cap off an outstanding year for BXMT, characterized by continued strong earnings supporting an attractive and steady dividend, growth in our loan portfolio, while maintaining healthy credit metrics and a stable balance sheet producing a solid book value. I will review each of these aspects of our 4Q results as well as BXMT's performance for the 2018 fiscal year.
We generated GAAP net income of $0.61 per share and core earnings of $0.69 during 4Q, bringing our 2018 full year GAAP earnings to $2.50 per share with a record $2.90 of core earnings. Looking at 2018 fiscal results in particular 2Q and 3Q our earnings included a significant amount of prepayment related income totaling $0.22 per share over those two quarters, net of incentive fees. This is outside of the $0.01 to $0.03 quarterly run rate we would expect in a typical period and contributed to our earnings power during the year. In 4Q we experienced relatively fewer such fees as the pace of loan repayments slowed so our $0.69 of core earnings is almost entirely driven by run rate net interest income positioning us well as we move into 2019. We maintained a stable high-quality $0.62 dividend throughout 2018, which was well covered by a $2.90 of core earnings for the year.
During the quarter we closed 21 loans totaling $3.5 billion of originations our second-largest quarter of direct originations bringing our 2018 total to $10.7 billion across 52 loans more than double our 2017 volume. We had net fundings of $2.1 billion during the 4Q and $4.3 billion during 2018 bringing our total loan portfolio to $15.8 billion up 42% from last year.
Our 2018 loan originations had an average size of $201 million, reflecting our continued focus on larger loans where we have a competitive advantage. We also funded $630 million under previously originated loans during 2018, generating additional value for our shareholders from these investments. Importantly, we have not sacrificed credit quality as our business continues to grow and our 2018 originations have a weighted average LTV of 61% right in line with our overall portfolio origination LTV of 62% as of yearend. We have no loans with a risk rating above three with our last four rated loan repaid earlier this year and currently have fully performing loans across all geographic segments and asset classes in our portfolio.
We supported this growth of our loan book by expanding our credit capacity and raising additional equity capital. We added $3 billion of credit capacity in 4Q and $6.5 billion throughout 2018, highlighted by closing six newer outsized credit facilities and the CorePoint securitization we closed in 3Q. We remained focused on financing our assets with term, currency and index matched liabilities with no capital markets mark-to-market provisions which ensures the stability of our balance sheet throughout the course of the market cycle. We raised $108 million of common equity during the quarter at an average price of 1.27 times our 3Q book value and a total of $483 million of equity during 2018, which drove our book value up to $27.20 per share a 10% increase from the beginning of the year.
Our focus remains on originating floating rate assets currently 96% of our total portfolio, which is another aspect of our balance sheet stability as these assets are not mark-to-market and insulated from many implied valuation changes due to interest rate movements. We closed the year with a debt to equity ratio of only 2.8 times and liquidity of $470 million available to deploy into additional loan originations. As I mentioned earlier we view the fourth quarter and 2018 overall as a success for BXMT and more importantly our shareholders. We generated consistent, reliable dividend by originating well structured loans to quality assets with a six year track record of healthy loan performance and a stable balance sheet supporting continued growth.
Thank you for your support and with that I will ask the operator to open the call to questions.
[Operator Instructions] And your first question comes from line of Douglas Harter of Credit Suisse. Please go ahead.
Steve hoping you could talk about kind of the pace of spread compression that you saw in the fourth quarter over the second half whatever you think more relevant time period and kind of how what your outlook would be for your asset yields now that LIBOR is expected to be flat for at least the near-term?
I think we saw a moderating of spread compression in the second half of the year. We still saw some spread compression and we still think that moves on the short end and LIBOR increasing. I do think that with the LIBOR curve flattening out and the likelihood there will be either no or just one or two more Fed increases that we do expect to see spread compression continue to moderate, perhaps we maybe or at where spreads are going to ultimately run to. As it relates to our fourth quarter originations I think they are consistent from a return standpoint, what we did earlier in the year. As I mentioned in my remarks, we did originate a number of deals that were unique opportunities for us and we were very satisfied with the economic results. I think we are dealing with spread compression pretty well on the origination side. On the liability side, we continue to grind a little bit tighter in terms of all of our capital. Every time we go back to our lenders we try and reduce spread improve terms all of those help interpret ROI standpoint in the competitive environment.
Our next question is from the line of Don Fandetti. Please go ahead.
Steve it sounds like across the industry things slowed in December and then there was this bounce back in January. I was just curious as you talk to private real estate investors if you think that they have been shaken in was that more of a flip to where you would expect them to continue the appetite for transactional type acquisitions if you can comment on that?
So I think the impact from the debt market volatility was pretty much a blip, sort of a 60 to 90 day event. And we are moving quickly beyond that already. As it relates to investor activity and transactions when investors move the sidelines and then move back to the point where they are willing to transact again, there is 60 or 90 days delay just from when somebody resumes working on our deals when it can reasonably expect to close. So we are seeing resumption of a more active pipeline. It has gotten a little slow in December and January. So I think we expect to see it continue to pick up during the year. There is a general view that assets in the U.S. are more fully valued so the fund sponsors are being a little bit more cautious on our acquisitions, but they also have a lot of dry powder on a lot of capital deployed in their investment vehicles. We do expect that to happen. So we are anticipating an increasing flow of opportunities during the year and we do think that the funds will find opportunities to deploy their vehicles.
And your next question is from the line of Rick Shane of JP Morgan. Please go ahead.
First of all congratulations to Doug and Katie, I did want to talk a little bit about geography, historically you have been highly concentrated California and New York that certainly made sense and been a great strategy. This question we are starting to ask a little bit more with some of the tax driven shifts in terms of demographics, are you concentrating on more some of the -- towards there is expected to be migration related to repeal [indiscernible] elimination of consolidated option?
Interesting question. I think we are certainly mindful of the forces of demand for space whether they are tax driven or otherwise. We have been active in Florida one of our deals in the quarter was a construction and that was in part for multifamily in Fort Lauderdale which has been a very strong market and getting stronger as a result of migration of people from the Northeast. You know so all this does provide some headwinds for some of the major markets but we are still seeing a lot of demand for space a lot is driven by the technology companies and where they want to locate. And we are still seeing a lot of in migration to New York. We saw Amazon looks like Long Island City it will remain HQ2 and we are seeing also California, Southern California, as well as Northern California with a lot of demand for space and also the greatest array of large scale opportunities for our business. So we remain optimistic that the major markets is still the place to be but I do think there will be some interesting impacts in some states that will benefit from more favorable tax regimes.
Your next question is from the line of Steve Delaney of JMP Securities. Please go ahead.
Good morning and congrats on the quarter. A lot of hotel activity in the fourth quarter and obviously that’s an area that BX has significant expertise. I'm just curious Steve you are up to 23% of the portfolio. Is there any arbitrary limit there? Is there still room to grow? And also when you get into that more specialized sector do you find that there are fewer lenders that you are competing with in the hotel space?
Obviously Blackstone has typically been among the largest one of the largest owner of hotels in the world and we have obviously great insight into the markets. We had been and continue to be a cautious hotel lender and I think one of the things that did change a little bit in 2018 for us was that rolling into '18 we had no New York City hotels at all. And ordinarily that pie would have been at least 5% maybe as much as 10% of our overall portfolio given the scale of the market and the opportunity to typically fits in that market for lenders of our profile.
As the market strengthened a little bit in '18 and we got through more and more of the supply we did see some opportunities that to add some loans that we think are great opportunities for us low basis a little bit higher in spread than something in the other property sectors. And obviously it increased our hotel percentage as a result. Our hotel percentage was very low going into 2018. And generally in our business we see the most opportunity in office buildings and hotels. We own a lot of those all over the world and we have great insight into where we think and how they will perform and that really does dictate where we allocate most of our origination resources. So I think hotels will remain in the 20s in terms of the overall percentage of allocation across property sectors. We think that we feel great about the hotel portfolio that we have on the books today.
Your next question is from the line of Arren Cyganovich of Citi. Please go ahead.
I was wondering if you could just give a little more detail about the terminal stores and bridge loan what the thought process behind that? I'm not familiar with the property but it looks kind of like a old warehouse I would imagine good retail components to that and with the risk associated with having retail loans obviously in this environment why that might be a differentiator in the investment? And then the other question is on the quarter to quarter decline in book value as investors asking questions about that. I know it's related to the settlement of the convert but if you could give a little more detail around that for investors too.
I'll take the first one and maybe Tony could take the second. Terminal stores is a very cool historic structure between 10th and 11th Avenue sort of a backdoor to Hudson Yards. There is obviously a huge influx of office and residential tenants moving into Hudson Yards we think that huge source of new demand for the retail component of Terminal. Terminal will still be primarily office once is transformed. Our loan is really the bridge to the construction loan. So during the periods -- during the two to three years we hope to have this loan the sponsors are working on that final plan getting approvals and the landmarks and all the things they need to execute their plan. So this is 65% loan capitalized for the bridge period between acquisition and construction. Now I'm sure we will be vying for the construction loan when the time comes. But at the moment its really in planning stages and the thought of converting what would now has a lot of storage space and then more traditional office and then the ground floor to retail. The retail it will do great. If there is a ton of office surrounded not at all retail like it in a market where we see a ton of growth.
On the book value question so I think you have already answered it to some degree but I'll impact it a little bit. If we look at what happened to book value during the year and obviously the quarter we are up $0.27 on the year that’s driven by a couple of positive movers. We've issued equity above book which was accretive and increased our book value. We've also been pertaining earnings as we had a great earnings year and relatively -- not relatively a stable dividend that was offset by some share dilution for shares we issued under our equity plan similar to we have done in prior years and really a one-time event of the convert premium where you see in the fourth quarter is really the two negatives that happened during the year happened to land in the fourth quarter and less of the positive activity around retained earnings and accretive value of the equity offerings in the fourth quarter. So it's a little bit of the timing element. The convert overall over its five-year life was quite valuable, and generated value in terms of incremental earnings. It's just the way the accounting comes through that option value really comes through the books on the last day so it's more of a timing thing.
Your next question is from the line of Ben Zucker of BTIG. Please go ahead.
I have a high level question around the WD joint venture. Would you guys -- it revolves around do you guys have any interest in acquiring Walker & Dunlop. I know you won't go ahead and answer that outright but what are your thoughts from a high level on the GSE origination in servicing business? And then as a follow-up could that business model and revenue mix fit within your REIT structure?
The Walker & Dunlop joint venture has really been a positive development for us and I think for Walker & Dunlop as well. We provide capital both equity and financing capability to Walker on a pool of assets that they originate and we jointly approved. And we have managed the portfolios. But we have done about $700 million worth of volume through the program since inception. And I think the results have been great. It provides us access to multifamily assets and borrowers that we wouldn't ordinarily see, if they are smaller and more granular. And so it's just additive to what we are doing, and we are not in the GSE origination business today and they are so it's very complementary and that we provide the bridge to again to their take up.
As it relates to the agency origination business we have no plans to make any agency origination acquisitions or any other acquisitions. We do however contemplate all possibilities to expand our platform and allow the adjacent areas whether it would be in loan originations or other assets that would be complementary and additive to our company. And so again I think the way we look at the business now is that we have the Walker & Dunlop JV, which has been very beneficial for us to take advantage of that opportunity in terms of agency originations.
Your next question is from the line of Jade Rahmani of KBW. Please go ahead.
Could you give any color on the percentage of your loans that are or your originations that are bridge to bridge financing? Are you seeing that as an increasing trend? And is it something you're looking to avoid or embrace as an opportunity?
Jade, I'm not, could you, what type of loans you said bridge to bridge, I'm not sure I understand your question.
Yes, basically bridge lenders providing capital to take out other bridge loans essentially business plans that have not hit their benchmarks that have reached to maturity and the lender rather than granting extensions or the borrower rather than being able to have the extension granted is getting taken out the loans getting taken out by another bridge lender.
I think typically what we see in terms of the bridge lending space is I think a little bit of the opposite end of the spectrum. We typically see as business plans that have performed and then the original loan being perhaps light on leverage or low on spread or no longer on point relative to the real underlying real estate assets. So most of the refinancing opportunities that we see really relates to the trying to maintain loans that performed very well and are far advanced in their business plans. And we do actively asset management and try and hold on to those loans through the lifecycle of the business plan. Ultimately, most of our loans get repaid with the property sale again because our client base is primarily manage of a finite life investment vehicles they are ultimately buying, fixing and selling assets. So we do occasionally see assets that no longer work for other lenders for reasons other than outperformance but it’s a really small minority of what we see.
Your final question is from the line of Stephen Laws of Raymond James. Please go ahead.
A lot have been hit on but maybe could you talk about how large do you think your portfolio can grow? You continued to post significant growth do you have an additional need for capital this year? I guess probably that depends on your origination versus repayment expectations, but have we got the point are we close to a point where it's really the full time job just to recycle capital with the new investment so do you think you continued to post net growth on the portfolio size going forward?
I think we have had a great run of posting really significant growth and so I don’t think we feel that we are really at the end of the business plan. We continue to see opportunities to do and more interesting things the platform is expanding internationally as well as increasing its penetration in the U.S. We created eight new repeat borrowers in this past year and that's been our most productive source of new transactions. We expect we will develop more of those in 2019 and further grow the portfolio. So I'm optimistic that look at the magnitude of growth we had last year I don't know if we'll continue at that pace but I certainly expect that we will continue to grow the portfolio.
It's Doug here. On the capitalization point I would say we have got great capital markets access both in terms of debt and equity products to fund future growth and the portfolio. We saw a lot of growth during 2018 and we continue to have a very efficient cost to capital and a wider way of options in terms of capitalizing a larger portfolio going forward.
Thank you for your questions everyone. I will now turn the call over to Weston Tucker for the closing remarks.
Great, thanks everyone for joining us. And if you have any questions please follow-up after the call.
Thank you, sir. That concludes your conference call today everyone, you may now disconnect. Thank you very much for today for joining.