Blackstone Mortgage Trust, Inc. Q1 FY2025 Earnings Call

Good day and welcome to Blackstone Mortgage Trust First Quarter 2025 Investor Call. Today's conference is being recorded. All participants are in a listen-only mode. Now, I would like to turn the conference over to Tim Hayes, Vice President of Shareholder Relations. Please go ahead.

Good morning and welcome everyone to Blackstone Mortgage Trust's First Quarter 2025 Earnings Conference Call. I am joined today by Tim Johnson, Global Head of BREDS; Katie Keenan, Chief Executive Officer; Tony Marone, Chief Financial Officer; and Austin Peña, Executive Vice President of Investments. This morning, we filed our 10-Q and issued a press release with a presentation of our results, which are available on our website and have been filed with the SEC. I'd like to remind everyone that today's call may include forward-looking statements, which are subject to risks, uncertainties, and other factors outside of the company's control. Actual results may differ materially. For 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 forward-looking statements. We will also refer to certain non-GAAP measures on this call. And for reconciliations, you should refer to the press release and 10-Q. This audiocast is copyrighted material Blackstone Mortgage Trust and may not be duplicated without our consent. For the first quarter, we reported a GAAP net loss of effectively $0.00 and distributable earnings of $0.17 per share. Distributable earnings prior to charge-offs were $0.42 per share. A few weeks ago, we paid a dividend of $0.47 per share with respect to the first quarter. Please let me know if you have any questions following today's call. And with that, I'll now turn things over to Katie.

Thanks, Tim. Amidst a dynamic backdrop, the BXMT’s first-quarter results demonstrate continued progress across every aspect of our business, building on the momentum from last quarter. As outlined then, the BXMT’s forward trajectory is propelled by three key drivers. One, portfolio turnover through repayments and redeployment into high-quality new credit opportunities. Two, resolution of impaired loans. And three, optimization of our balance sheet. All play a critical role in unlocking future earnings potential and further positioning BXMT for performance. And we took a proactive approach on each this quarter, putting the company on a very strong footing in the current environment. Starting on the macro, while tariff policy has created greater uncertainty and a slowdown could weigh on the broader market over time, we believe that real estate is well-positioned to outperform. In contrast to other sectors, real estate already went through its cycle, with values resetting lower and many challenged deals addressed. We're still in the recovery phase, far from the pitfalls of over-leverage or over-building that preceded prior real estate downturns. Though tariffs may pressure goods prices, other key components of inflation are coming down. And critically, real estate cash flows over time should benefit from diminished supply, which is already at historically low levels and likely to fall even further. Real estate capital markets have functioned well through this period. Capital is broadly available, and while spreads have widened marginally, the overall cost of capital is still around 40% lower than peak. Many banks, insurance companies, and investors are under allocated to real estate underpinning continued lending demand. The public markets, which react most quickly, have already started to digest with spreads settling down and several CMBS and RMBS deals pricing into healthy demand in the last week. On the private side, new financings continue to attract robust bidding pools, both on the direct lending and back leverage side. Notably, for well-positioned investors, volatility creates opportunity. And here at BXMT, we are capitalizing. In a turbulent market, we provide certainty and can grow our share while benefiting from the incrementally better risk-adjusted returns available as the market retrenches. Our large-scale global origination footprint gives us a tremendous advantage in identifying the most compelling investment opportunities as the market evolves. We took a big step forward in portfolio turnover in Q1, the first of our key priorities, with $1.8 billion of repayments, including 86% in office, and $1.6 billion of new investments, our highest level of quarterly originations in more than two years. We have another $2 billion closed or in closing so far in Q2. Our investment strategy in this environment has been clear: minimize credit risk while leveraging our platform and cost of capital advantages to generate target returns. And we are executing. Looking at the total $3.5 billion of 2025 activity, 90% is backed by multifamily properties or cross-collateralized industrial portfolios. These deals set up to an attractive levered return of 900 basis points over base rates on average with well-protected credit profiles, 64% average LTV on today's reset value benefiting from a combination of diversification, premier sponsorship, and robust underlying fundamentals. Our capital allocation strategy has translated to improved credit composition on our overall asset base. Our portfolio is 95% performing today, up from 88% of the trough. US office exposure, once nearly 40%, is down to just 21% today, while multifamily, industrial, and self-storage are now nearly half. Q2 closings will further this trend. We are well diversified geographically with over 40% of our investments abroad. And while macro volatility may slow repayment sums, we have consistently seen that our short-duration, high-quality assets show continued liquidity even in markets far more dislocated than this one. Our repayments averaged over $750 million per quarter through the slowest period of the rate hike cycle. We're harvesting differentiated opportunities from across our broad sourcing channel in the US, Europe, Canada, and Australia. This quarter, we also commenced our net lease investment strategy, acquiring 27 properties. The profile of these deals is highly attractive, concentrated in defensive businesses in the essential use and service retail sectors with average 18-year lease terms, 2% rent bonds, 3 times in-place EBITDA coverage, and 7% to 8% cap rates. Net lease is a naturally resilient sector in periods of volatility and complementary with our broader lending business, creating another cylinder for enhancing and diversifying our overall portfolio positioning. Turning to our second key driver, the resolution of impaired assets. We had another quarter of strong forward progress. With $400 million of resolutions closed this quarter, we've now addressed $1.5 billion of impaired assets in the last six months at a premium to aggregate carrying value. This relentless approach to asset management has reduced our impaired loan balance by 58% from the peak and recaptured a significant tailwind to earnings power. Over this period, resolutions have collectively contributed to a $64 million reversal in our CECL reserves, providing incremental book value support and contributing to a positive economic shareholder return. Our impaired loan balance is now at its lowest level in seven quarters. While we are mindful of potential macro-driven risks on the horizon, we see incremental resolutions ahead, including one closed just this week and another under hard contract for sale. Finally, turning to the further optimization of our balance sheet. We're in great shape today. We ended the quarter with $1.6 billion of liquidity and 3.4 times DE, our lowest leverage level in three years. We have 14 credit facility lenders with market-leading structure and pricing earned via our strong track record as a borrower over time. Our robust balance sheet is a critical advantage in this environment, providing both staying power and firepower to propel investment activity and asset management execution. Over the past two quarters, we have moved nimbly and aggressively to execute on our capital markets priorities, turning out our corporate debt in November and closing a $1 billion reinvesting CLO in March. With deep capital markets expertise and a talented, dedicated team, we can act quickly when market conditions are favorable, a competitive advantage, particularly in a world of quickly shifting crosswinds. As a result, we benefit today from a well-structured balance sheet, which is nearly 70% non-mark-to-market, a laddered corporate debt structure with no material maturities until 2027 and substantial dry powder. Our banks remain highly supportive of our investment activity, continuing to quote and close deals constructively throughout the last month. Today, many of our largest banks are seeking to grow their lending books, having collected substantial repayments in the last several quarters. Credit facility financing to large-scale platforms like BXMT is one of their best ways to rebuild exposure and earnings power efficiently and at optimal capital charges, with the confidence in the strong credit performance they've seen in this product cycle. As a result, our house lenders are looking to grow, and new lenders are looking to enter the space, together yielding a strong competitive dynamic for our borrowing activity. To conclude, BXMT has demonstrated the strength of its cycle-tested business model several times over in just the last five years. Today, BXMT's competitive advantages and balance sheet positioning once again set us up well for a wide range of macro scenarios. Scale, insight, capitalization, portfolio, and quality of platform always drive value, but never more so than in periods of change. Here at Blackstone, we have shown time and again the ability to outperform in volatility and emerge stronger. Thank you. With that, I will turn it over to Tony.

Excuse me. Thank you, Katie. Good morning, everyone. In the first quarter, BXMT reported a GAAP net loss of effectively zero and distributable earnings for DE of $0.17 per share. DE prior to charge-offs, which excludes a realized loss from an impaired loan resolution, was $0.42 per share. As Katie outlined, BXMT continues to make significant progress on the key initiatives that we expect will drive the long-term earnings potential of our platform, as we move past near-term headwinds. I will highlight two of these headwinds in the context of this quarter's results. The first is the timing mismatch between when repayments are received and capital is subsequently redeployed into new investments. In the first quarter, we collected $1.8 billion of repayments, which on average closed two weeks into the quarter, while $1.7 billion of loan fundings were closed an average of eight weeks into the quarter. As a result, our average portfolio size was nearly $1 billion lower than our 3/31 balance, which had a notable impact on DE for the quarter. With $2 billion of loans closed during the closing so far in the second quarter, we are firmly playing offense and expect the timing headwinds we face this quarter will shift to tailwinds in Q2, all else equal. The second earnings headwind is the drag from the remaining capital invested in our non-earning assets. We continue to demonstrate significant momentum with impaired loan resolutions, completing $1.5 billion over the past two quarters at a premium to our aggregate carrying values. Q1 resolutions of $406 million included one new cash flowing REO asset and two loan restructurings, where we received nearly $50 million of incremental cash equity from our borrowers and had significantly reset the basis of our A notes at well-protected levels. As we execute our resolution strategies, we expect to see immediate positive impacts on earnings as we begin to recognize income from these previously non-earning assets with even greater long-term upside potential as capital is redeployed into new investments at target returns over time. Our impaired loans today represent $970 million, or 5% of the portfolio, and remain burdened by $0.07 of interest expense in Q1. Expanding on credit, trends in our portfolio remained positive in Q1 with performance improving to 95% from 93% quarter-over-quarter, driven by limited new credit migration and continued execution of loan resolutions. We upgraded seven loans this quarter, including two risk-graded four office loans, where our credit position was enhanced by a large paydown in one and continued business plan execution supporting property cash flow on the other. By contrast, we downgraded only three loans this quarter, including one new impairment of an Atlanta office loan. We foreclosed on one previously impaired loan in Q1, bringing the acquisition date fair value of our REO portfolio to $691 million across eight assets. Our REO assets stand at just 3% of our overall portfolio and generated $7 million of DE in Q1, with further potential upside in the future. Our CECL Reserve ended the quarter at $754 million, or 3.9% of our portfolio, both stable versus 12/31. Our general reserve increased modestly by $33 million quarter-over-quarter due to strong new origination activity, which was largely offset by the net decline in our asset-specific reserve. In addition, we continue to reduce our basis in impaired loans with $19 million of cash interest received this quarter and applied as cost recovery proceeds, reflecting the 76% of impaired loans that remain current on contractual interest payments. Book value entered the quarter at $21.42 per share, which benefited from accretive impaired loan resolutions and $32 million of common stock repurchase at a discount to book value, bringing total repurchases to over $60 million since establishing our program in 2024. Considering the change in book value and our $0.47 per share dividend, BXMT delivered a positive economic return for the second consecutive quarter. Turning to the balance sheet, we continue to maintain best-in-class liabilities, which we believe are particularly valuable in more turbulent market conditions. In a market environment where investors naturally have concerns around rate volatility, capital markets volatility, and foreign currency volatility, we benefit from rate and duration matched financing with no capital markets mark-to-market provisions and a capital structure that is fully hedged against foreign exchange rates. BXMT achieved several balance sheet milestones this quarter. We issued a $1 billion CLO, our fifth transaction, but the first with a 30-month reinvestment feature. We believe this feature will be particularly valuable as we continue to collect repayments of our existing loans and actively deploy capital in today's attractive environment. We closed the CLO in late March, locking in well-priced, non-recourse, non-mark-to-market financing and enhancing the optionality and diversity of our capital structure. With this new CLO, our debt-to-equity ratio declined to 3.4 times, its lowest level in three years. Taken together with our strong liquidity of $1.6 billion, BXMT has the flexibility to navigate volatility and capitalize on attractive investment opportunities across real estate credit markets globally. Considering our Q1 results and position going forward, we believe BXMT is a compelling investment in this uncertain market environment with our strong balance sheet, ample dry powder, and an origination platform informed by the insights and experience of Blackstone's global real estate business. This dynamic has driven the outperformance of our stock year-to-date, which continues to offer attractive value with a trading price approximately 10% below book value and a 10% dividend yield. Thank you for joining today's call. I will now ask the operator to open the call to questions.

Thank you for taking my questions this morning. You mentioned the migration of some 3 and 4 rated loans back to 3 this quarter. I’d like to know how many loans are currently in the 4 category and what their total value is. Additionally, what has been the historical transition rate from 4 to 5 compared to 4 to 3? It seems like 4 is an in-between category, and ultimately those loans will end up in either of the other two buckets.

Sure, so, you know, I think as we look at our 4 book, our main focus, as we've said in the past, is really on the non-modified, 4-rated office. The rest of it, we've either modified loans with very significant capital in the door, or to your question, a lot of fours have really just persisted as fours for a long time. I would say, in general, we're pretty conservative with our risk ratings. And as a result, we have fours that we moved to that category in COVID over time. They've sort of continued performing and taking along. We don't see material upticks in performance, and so we keep them as fours. But we also don't see material downticks in performance. I'd say on the non-modified four-rated office, that's around $500 million. It's down significantly from a year ago; it was $1 billion. It was higher than that before. And that's really where we focus our attention. It's where we're focused on modifications. We have modifications ongoing and conversations on a couple of those deals that should move them into the post-modification category. There are others that, you know, we'll see which way they go. But it's really a very diminishing universe of assets that I think are truly in that cusp zone.

Got it. Okay. Thank you. And again, I'm assuming that with the sort of a non-sequitur, but given the 30-month reinvestment period on the new CLO and favorable terms, that's going to allow you to really be forward-leaning in terms of originations from here.

Yeah, I mean, look, I think we have many, many options for accretive financing of our new originations. We have great relationships with our lenders. They're very active in wanting to lend to us. We also now have the reinvesting CLO. So I think what it really gives us is optionality, which as you know, we love diversification. We love optionality in terms of how we finance our new originations. And I think that having one more tool, one more avenue of optionality is always a good thing. But I would say generally, we see very good liquidity and very good sort of capital markets access for various ways to finance the new originations that we're pursuing.

Got it. And at the risk of annoying my peers who are listening, I'm assuming given the timing of that transaction, it probably couldn't be recreated as easily today in this volatile environment as it was at the end of March.

Yeah, I mean, we're obviously really pleased to have gotten it done. I think it's a testament to how quickly we moved, seeing the market was open, the capacity and strength of our team, getting that deal up and down very quickly, as early as we could in the first quarter. You know, the market's settling down, so I won't be surprised to see the CLO market sort of return over the coming months if the trajectory continues. But, you know, certainly looking at it today, we're very happy to have executed that transaction, and I think it'll be a good one for our CLO investors as well.

Thank you and good morning everybody. It was great to see originations ramping. Obviously repayments in 1Q were boosted by the spiral refinancing. When you look out over the next three quarters of 2025 and assuming repayments moderate, how much do you think you can grow your loan book from here?

Yeah, so, I mean, I think that it's interesting. The pace of repayments is clearly impacted by overall capital markets liquidity. But I would tell you again, as we sit today, the pace of repayments is continuing. We've had $200 million so far this quarter, and nothing that we anticipated repaying has fallen out. We continue to have repayments tracking. So I think in terms of the premise, if we think about whether things have changed materially, it doesn't feel that way today. That being said, I think that we're under-invested today, as Tony mentioned, we have $2 billion in closing. We'll continue to look for great new investment opportunities. In terms of growth, we're looking to grow the portfolio from here up towards that $20 billion number we talked about last quarter, and we'll obviously be very mindful around credit, as we mentioned in the script. That's our primary focus, but we're seeing a lot of opportunities.

Appreciate that. Maybe beyond the $2 billion that's in closing that you mentioned, Katie, how has your origination pipeline shifted since tariff announcements, either in terms of volume or sector or geography?

Yeah, I can take that, Tom. Really, it hasn't shifted per se. I think our strategy has been consistent, as alluded to or as mentioned earlier, 90% of our activity is in profiles that we think are quite resilient: multifamily, cross portfolios of industrial and storage. These are the types of investments that we wanted to do, going back several months, and I think that still remains the case today. If you look at our pipeline, it's also very, very similar in profile. So, I think our strategy remains consistent. In a more uncertain world, that strategy feels even better. But I don't think it has really changed much over the last few weeks.

Thank you very much. The first question would be on the repo market. A huge strength for BXMT has been its relationship with credit facility providers. Could you talk to what trends you're seeing with respect to BXMT's own counterparties and its relationships, but then perhaps the broader market? I suspect that BXMT's wherewithal has continued to demonstrate itself, but there could be some turbulence with other smaller, less well-capitalized lenders. So if you could comment on any trends you're seeing, that would be helpful. Thank you.

Sure, thanks, Jade. I definitely, we're really pleased by our relationships with our lenders and how we've seen that through this period especially and really, throughout the last couple of years. I would tell you that the dynamic that we've heard from banks around the desire to generally grow their credit facility exposure because of how well it works from their capital charge perspective, and how well it works in their overall business model. We have not seen any change in that either in word or in deed. They're saying the same things and they're doing the same things in terms of quoting deals. You know, we're out to the market constantly with our pipeline. We're constantly getting multiple quotes at competitive levels from different banks. We have new facilities sort of in closing where banks are looking to grow relationships with us. I think it is all driven by certainly our performance and our track record, but also the broader trend towards this being a very high-quality product for the bank. I can't speak too much to other people's experiences, but I think that the large banks like this business; they're looking to expand it. The sort of more medium-sized banks are curious about it and looking to get into it. That’s going to benefit the space, but I agree with you that sort of how that plays through will be across the spectrum, depending on the strength of the platform and the strength of the performance in the various platforms.

Thank you very much. Secondly, you mentioned real estate has already gone through its cycle. But really what we went through was an interest rate shock and then stress in the office sector that had been building for years, especially post-COVID. Hospitality, multifamily, and industrial, however, were pretty strong despite the interest rate hikes. We saw operating performance hold up well. So could you comment on those three sectors and what you're seeing there as performance holding up and maybe start with hospitality since that's the most economically sensitive.

Sure, so I think for sure, as we look across the sectors today and think about areas of potential impact with the macro, hospitality is probably the area we are most focused on. It obviously resets most quickly, most correlated with overall economic activity. I think the good news for us is that our hospitality exposure has come down quite a lot. Our US hospitality is only 6.5% of the portfolio as a whole. We've got a couple of big cross portfolios in Europe that are doing very well. But I think that it is something that we're watching. You have transient, you have leisure versus business, and you obviously have currency impacts. The weaker dollar could result in some change in that. We've seen some negative trends in terms of international inbound travel in recent days, but you could also see the dollar having some impact over time. It's a little too soon to tell, but I agree that hospitality is one of the sectors that we're watching. On the multifamily side, the performance there has been very resilient. The big story there was obviously the wave of supply that came in over the last year. That supply is really rolling over. The first quarter, across the Sunbelt where a lot of the focus has been, we saw positive net absorption. Obviously, new starts are way down, but deliveries are coming down. I think multifamily is moving in the right direction from that perspective. We have a lot of conviction in investing in that asset class, as you can see from our pipeline. I think on the industrial side, we continue to see that as relatively resilient. There are going to be some markets very oriented towards international trade, maybe on the West Coast. We have basically no exposure there that see a bit of an impact, but there's also a balance in that there's probably going to be more reshoring and inventory building up. The long-term tailwinds in terms of e-commerce and goods sort of sitting in warehouses versus sitting in stores really continues. I think you can see from how we're investing that we like diversification and resilient asset classes. Net lease certainly falls into that category. That's where our perspective sits today.

Thank you. One of the things we've observed after the status announcements is that construction costs and value-added business plan costs are rising for real estate owners. Have you noticed any change since Q1 in the types of borrowers approaching you for new loans and the kinds of business plans they are considering? Are they now focusing less on heavy transitional projects compared to Q1?

Yeah, absolutely. I'll let Austin take that one.

Yeah, I think Harsh, really we started to see that even before the last few weeks when we look at the profile of the investment we're making today, certainly much more light value-added business plans, less sort of transitional or heavy transition. I think it really reflects the challenges of already seeing those cost pressures. I think that could potentially increase. As Katie said, we could expect to see supply come down even more. It's really a continuation of that trend more than anything else.

I think we want to invest, you know, we're taking shorter duration business plan risks, less business plan risk, the way the market has moved. We're able to invest at our target returns fundamentally in less transitional assets. That’s part of our view, and part of it is the fact that, you know, construction is really hard to pencil today. To your point, value-added business plans with a lot of construction-oriented aspects are also hard to pencil today. That's been the case for a long time, and certainly the tariffs are going to make that more so, but the broader impact, as I mentioned in the call, is really just going to be even less new supply, which fundamentally makes the value of existing assets that we lend on better.

Great. Maybe one more from me. Have you, it sounds like loan volume and repayment volumes haven't really been slowing down post tariff announcement. How have the spreads on new loans changed for you? Is it fair to say that you're looking at your financing cost at this time given the reinvestment option in the CLOs that stay constant but the spread on your new loans have been widening a little bit post Q1?

Yeah, I would say during the first quarter spreads, we did start to see at the beginning of the quarter pre-volatility tightening in both the asset-side lending spreads as well as where we borrow. I think that's obviously changed over the last few weeks. Spreads are probably out on the asset side, 10 to 20 basis points. Similarly on the financing side, they tend to be pretty correlated. I think the advantage of our platform, as Katie mentioned, having 14 different credit facility providers and the advantage of having the reinvesting CLO, we have a lot of options on the financing side. That really gives us an opportunity to capture some opportunities in this environment. I think being a stable and certain provider of capital to our borrowers is a really powerful tool in an environment like this. Having diversified sources of capital and strong liquidity creates a lot of opportunities for us.

Yes. Your international exposure gives around 41%. Are you sort of capped or not capped? Is that likely to just sort of hang out in that level, maybe come down? How are you feeling about credit internationally versus the US, just given all the tariff movements?

Yeah, so, you know, I think that our ability to harness investment opportunities globally is one of our biggest strengths. It's something that we've seen create great opportunities for relative value over time. It's certainly something that others in the space are trying to do. We have the advantage of having been deeply present in Europe for over a decade. We have a fantastic team there and great borrower relationships. I think we've seen that again, in periods of volatility and in periods of stability, the ability to look around and find the most compelling investment opportunities anywhere in the world allows us to create a better portfolio from a risk-adjusted return perspective. We feel very good about our European exposure. It's primarily cross industrial portfolios and some cross hotel portfolios that I mentioned are doing well, some multifamily. The lending market in Europe tends to be quite stable and relatively low leverage. We are able to benefit from a cost of capital advantage in Europe that allows us to create better risk-adjusted returns. The overall competitive dynamic in Europe is different than in the US. The CMBS market is much less active. There are many fewer platforms like ours that can achieve types of investments that we can, and therefore, we are able to create some excess return. We feel good about that portfolio. It also provides a nice balance in a period of uncertainty. We've seen over the history of the business that it's always been around 35% to 40%. We have no particular cap, but I think the relative size of the markets and the activity have sort of proved out over time that that’s generally where it sits. I doubt it's going to change materially in either direction.

Hey guys, thanks for taking the questions. So it's nice to see the CLO market coming back to life in the first quarter, but Katie touched on this a little bit. But I guess how has the recent market volatility impacted new CLO issuance? Could we see another CLO from you guys at some point this year if the market does accommodate?

Yeah, I think it's a great question. In the first weeks of the market volatility, there were some CLOs that had sort of been out there that got put on the shelf, as was the case across the CMBS market. What we’ve seen in the recent weeks is really a settling down. There are buyers in the market, I would say, if anything, there's as many buyers as sellers that wider spreads in this market, perhaps more buyers. I wouldn't be surprised if we saw CLOs coming back into the market. There were a couple that were privately placed earlier this week, maybe. I think the CLO market will settle out just as we're seeing the CMBS market settle out. There were a couple of conduit deals that came last week that priced quite well. There’s plenty of capital in that market. It needs to adjust to slightly wider spreads as the overall lending market has. Those markets are outperforming relative to corporates and other parts of the credit market. I think it's a testament to the desire for capital to come in. The CLO market settles out in a good option for us. The origination volumes that we're creating are conducive to potentially coming back to the CLO market later in the year. We like that as a potential capital source, and we'll certainly be monitoring it.

Got it. That's very helpful. And then I guess on the remaining impaired loans, is it fair to assume that you continue resolving those at a similar pace? I know they can be chunky, but do you think you guys will resolve the bulk of that bucket at some point through 2025, or could some of that slip to 2026?

Well, it's certainly our goal and they are chunky and they all have their own story. We’ve resolved a lot of them, and naturally, as the universe shrinks, each individual one, the timing has more impact. We've resolved another asset this week. We have one under hard contract for closing. We have a clear path for a couple of others. We certainly see the continued trajectory as positive in terms of resolving the existing impaired assets. That's a huge focus of our asset management team. We’re optimistic we're cracking through that as one of our highest priorities. There will be some idiosyncrasies in timing one quarter versus another, but we should continue to see the benefit of the resolution processes we have in the pipeline.

Thanks. I'm hoping you could put a little context around the general reserve increase in the first quarter. Does that reflect the conditions as of 3/31 or are you able to incorporate any of the kind of early April volatility into that?

I would say we come up with these reserves in April, right, as we're closing the books. It is as of 3/31, but the way we come up with our reserve, for one, it's not meant to capture short-term volatility. It's not a mark-to-market standard where you would expect any change in capital markets would necessarily come through. We are looking at the long-term credit risk profile. We think that the way we've ratcheted the risk profile in our general reserve as of 3/31 reflects the market. We'll see how things play through for the rest of the second quarter and if that needed a slight notch up or if things move in a different direction, a slight notch down, but I wouldn't expect any dramatic change in the second quarter as a result of some of the things we've seen in April.

All right. Great. Appreciate that. Can you give us any context around the size of the two loans – the loan that you've resolved this week and the one you have under hard contract? Further, on loan resolutions, how are you thinking about the pace of resolving and moving on from the REOs and back into loans? Or could those be longer-term holds?

Sure. The resolutions we have in closing are around $200 million in total for the two that I mentioned. In terms of the REOs, we generally made that decision because we see the opportunity to implement a business plan and improve value over time, and that's not necessarily an overnight thing. It's 3% of the portfolio or our overall business, not a huge number. They're not necessarily assets that are going to require a lot of CapEx. In a lot of cases, it's more pursuing a business plan, the change of use, something like that. We’re focused on driving return over time as opposed to a quick thing. That being said, they're all different. We have a couple that we might be able to exit pretty soon. We have others that we may have for longer. The overarching theme is that it's a small part of the portfolio. There are actually several assets there that have pretty good cash flow and potential cash flow trajectory. We recognize that cash flow as it comes through in earnings. We’re focused on maximizing value over time for those assets, however long that may take. If we see an opportunity to exit at a good level, we’ll take it.

Thank you, Katie, and to everyone joining today's call, please reach out with any questions.

That will conclude today's call. We appreciate your participation.