Q1 2021 KKR Real Estate Finance Trust Inc Earnings Call
Pardon me. This is the conference operator speaking the KKR Real estate Finance Trust, Inc. First quarter 2021 will begin in approximately one minute. We just kindly ask that you. Please remain on the line and we appreciate your patients once again, the KKR Real estate Finance Trust, Inc. Will begin in approximately one minute.
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Good morning, and welcome to the KKR Real estate Finance Trust, Inc. First quarter 2021 financial results Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone.
Pat.
Your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Jack fatalities. Please go ahead Sir.
Great. Thank you operator, welcome to the KKR Real estate Finance Trust earnings call for the first quarter of 2021, we hope that all of you and your families are safe and healthy as the operator mentioned this is Jack Switala I recently joined KKR and going forward will serve as the head of Investor.
Relations for Kers.
I'm looking forward to connecting with you directly.
Today I'm joined on the call by our CEO, Matt Salem, our President and COO, Patrick Mattson and our CFO stopping a gutsy.
I would like to remind everyone that we will refer to certain non-GAAP financial measures on the call, which are reconciled to GAAP figures in our earnings release and in the supplementary presentation, both of which are available on the Investor relations portion of our website.
This call will also contain certain forward looking statements, which do not guarantee future events or performance.
Please refer to our most recently filed 10-Q for cautionary factors related to these statements.
Before I turn the call over to Matt I will provide a quick recap of our results.
For the first quarter 2021, we had GAAP net income $29 $2 million or <unk> 52 per share, which included a $1 $6 million benefit from a lower seasonal provincial.
Distributable earnings this quarter were $34 million or <unk> 55 per share driven by the growth of our portfolio and continued strong asset performance.
Book value per share as of March 31, 2021 increased to $18 89.
Which includes the seasonal impact of $1.06 per share as compared to $18.76 as of December 31.
Finally, I would note in mid April we paid a cash dividend of 43 cents per share with respect to the first quarter.
Based on yesterday's closing price the dividend reflects an annualized yield of eight 7%.
With that I would now like to turn the call over to Matt.
Thank you Jack and welcome to the team.
Good morning, everyone and thank you for joining US today, we hope you're all healthy and safe.
<unk> is off to a great start this year in terms of financial results another outstanding quarter with distributable earnings of 55 cents per share.
Covering the 43 cent dividend by 1.3 times.
This is a continuation of its ex tax we had in 2020.
Where distributable earnings covered our dividend by over $1 one times, despite the global pandemic.
Our earnings continued to benefit from strong portfolio performance.
And existing LIBOR floors.
We're seeing good progress on property business plans.
Which we expect to lead to elevated repayments in the back half of the year.
After which earnings will begin to normalize.
On the origination front, we remained active.
With a continued focus on high quality real estate.
Owned by Premier sponsors.
In the first quarter.
We originated three loans totaling 535 million.
Comprised of two office properties and one multifamily property.
Net funding this past quarter exceeded $330 million and our portfolio grew to over $5 3 billion.
As of March 31.
Our pipeline remains robust with approximately $750 million of loans, either closed or under exclusivity subsequent to quarter end.
To support this growing opportunity set.
Earlier this month.
We raised 172 and a half million of preferred perpetual preferred stock at a fixed for life cost of six 5%.
This permanent capital allows us to take advantage of current market opportunities.
Service, our institutional clients.
And grow our portfolio.
What should we do improve operating leverage overtime.
On the origination front I want to highlight the Dallas office alone we recently closed.
COVID-19 has impacted the office market.
I thought it would be helpful to give a little color on how we are approaching this sector.
The short answer is.
As we are marginally more conservative on office.
But we'll continue with our same approach as pre COVID-19.
With a focus on growth markets.
Cautious approach to the gateway markets.
The first thing we start with on all loans of sponsorship.
In this case, it's a premier sponsor.
With over 100 billion of real estate AUM.
And a deep knowledge of the Dallas Fort worth market.
Second is asset quality and location.
This is a class a property located in infill suburban location.
In close proximity to affluent housing.
And decision makers that value convenience.
Sure.
With business plans consistent with our light transitional target profile.
The property has recently undergone a capex plan and.
It is currently 75 per cent occupied to a diverse tenant base.
And the sponsor intends to increase occupancy and rents as tenant leases expire.
Finally, we are a low cost low basis on acquisition financing.
At 65% loan to cost.
Turning to our forward pipeline.
We've been active in the market with six senior loans.
That are either closed or under exclusivity, which represents $750 million in committed principal amount for Kara.
Our activity reflects our desire to capitalize on attractive opportunities in the current market.
Some of which stemmed from COVID-19 impact on real estate.
While we continue to target similar profiles to our pre COVID-19 activity.
Like multifamily in select office.
We are increasing our focus and activity in the life science and industrial sectors.
Yeah.
I'd note that this current pipeline is underwritten to weighted average IRR in.
In the 13 to 14 per cent range.
Our portfolio composition remains consistent.
And it's comprised of predominantly lighter transitional floating rate senior loans.
Secured by institutional quality real estate.
85 per cent of the portfolio is comprised of multifamily and office properties.
Hospitality and retail continued to be underweight.
And represent just 6% of the portfolio.
Performance of the loan portfolio remains strong.
With interest collected on approximately 97% of the portfolio as of the first quarter.
To summarize we had a successful quarter across earnings.
Originations and portfolio performance.
We're excited about our franchise and our competitive positioning in the market as we head into the second quarter and beyond.
With that I will turn the call over to Patrick.
Thank you, Matt and good morning, everyone at.
That's a porter and a market leading 76% of our asset financing remains completely non mark to market.
And the 24% remaining balance is always subject to credit marks.
Also as of quarter end, our debt to equity ratio and total leverage ratio.
For 2.1, and 3.7 times respectively.
Following the preferred stock raise our debt to equity ratio and total leverage ratio sits at one seven times and three one times respectively today.
What we expect our leverage ratio to return to the first quarter range in subsequent quarters.
As we invest in new capital.
As we have discussed in the past we have a robust quarterly asset review process.
And we evaluate every loan in the portfolio to assign an updated risk rating.
The current portfolio risk rating of 3.11, a five point scale is consistent with the weighted average risk rating last quarter.
As we've done in prior quarters, we continued to provide a detailed breakout of our watch list loans in the supplemental presentation.
Notably 89% of our loans are now risk rated three or better.
Which has improved from 84% in Q4.
The improvement is the result of two four risk weighted loans being upgraded to a three risk rating in Q1.
Specifically, the Fort Lauderdale Hotel loan.
And the San Diego multifamily loan.
Furthermore.
We are seeing improving trends in additional properties, which may lead to positive credit momentum in other assets.
Approximately 2% of our portfolio is worse rated a five.
And it's primarily comprised of our Portland retail loan.
While the property remains challenged we continue to dialogue with existing and prospective sponsors regarding the next phase of the property.
And we continue to believe there are adequate see saw reserves.
We received approximately 244 million of repayments in the first quarter.
And while it's always difficult to predict repayments with certainty.
Consistent with our comments last quarter.
Our expectation remains for increased repayment activity in the second half of the year.
In the near term K Rep should continue to benefit from its in place LIBOR floors.
And elevated effective net interest margins.
While the portfolio.
Palio is almost entirely floating rate.
Currently 69% of the loan portfolio has a LIBOR floor of at least 1% and.
And half of the loan portfolio is subject to a LIBOR floor of at least 1.65%.
LIBOR floors on new loans are resetting to spot rates typically around 10 to 15 basis points.
As we experienced a rotation in our portfolio through loan repayments and new originations, we expect our effective portfolio NIM to compress over time.
Finally cash.
<unk> finished the quarter with a strong liquidity position of over $570 million.
This total included $209 million of cash.
$335 million and Undrawn corporate revolver capacity available to us.
Combined with our recent closing of the preferred stock offering we remain well positioned to capitalize on the growing pipeline of opportunities.
In summary.
Another strong quarter with elevated distributable earnings of 55 cents per share.
We remain on offense originating three new floating rate senior loans totaling $535 million.
And have a robust pipeline of approximately $750 million.
Under exclusivity or closed since quarter end.
We completed an inaugural perpetual preferred stock issuance.
Adding permanent capital that positions the company for portfolio growth and improved operating leverage.
Thank you for joining us today and.
And now we're happy to take your questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
But at this time, we will pause momentarily to assemble the roster.
And our first question today will come from Jade Rahmani with K B W. Please go ahead.
Thank you very much I was wondering Matt if you could just put a little color around your comments that.
<unk>.
Around back half of the year elevated repayments after which you expect earnings to normalized are you, saying that.
Our earnings can be elevated in the back half of the year or under pressure in the back half of the year.
Hey, Jade. Thank you for the thanks for the question.
I think as we look forward over the next couple of quarters.
Yeah, we still feel like earnings could be elevated as we sit with the you know with the existing portfolio and the you know the embedded LIBOR floors.
Yeah, we're seeing that our best guess and it's difficult to predict for sure, but our best guess right now is that.
And the third and fourth quarter will have some pretty heavy repayments.
And so once we get through those quarters, that's when you'll start to see more normalization.
What oh of earnings.
And will those repayments have an earnings benefit from.
Accelerated prepayment income.
Yeah, well I mean, we will get some of that will come through.
If we in that particular quarter and then you know.
Following quarter, obviously, we're not benefiting from those from those LIBOR floors anymore, and then those excess the excess NIM, but in that in those quarters. They pay off we'll see a little bit of that come through.
And the weighted average IRR of 13% to 14% on the pipeline how does that compare with the IRR is the company has historically generated.
Yeah. If you wanted to think about the market environment today.
I guess comment one would be the pipeline is very big so theres lots of opportunities to look at.
So that's certainly a positive and what we're seeing.
Competitive environment.
Yeah It was high.
And you've certainly seen spread in yield compression in the market.
That being said the way we finance ourselves.
There's also a lot of competition in that market and you've seen the cost of capital from the debt side compress.
And so you asked about kind of the ROE that we saw.
Kind of in the pipeline I would say that's slightly higher than what we saw pre COVID-19.
You know my guess is you know some of the loans that we're doing over the next couple of quarters or couple of quarters will look.
A little bit more like we did pre pre COVID-19, so closer to that 11% to 12% all in IRR context.
Just as our expectation of the competitive pressures on the market continue.
And just the last question would be in terms of capital management capital issuance, you know the preferred stock issuance.
With the stock at about 6% above book value you know at.
At what level would would it make sense to issue common equity.
Yeah.
I think we've been pretty disciplined in the past about accessing the market when it's only accretive to.
To the stock.
The preferred equity issuance you took a lot of them are.
Near term.
Or solve for a lot of our near term needs for liquidity. So we had a developing pipeline I think on the last call. We mentioned we were focused on equity.
And we were able to execute a really successful deal on the on the preferred.
So looking ahead.
What we're really trying to balance.
Is or expectations of these repayments.
And so.
As we start to think about the third and fourth quarter and heavy repayments.
I'd say that takes a little bit of.
It probably gives us a little bit more caution in terms of raising equity here in the near term because we did the preferred we can so we can certainly.
Take care of the our existing pipeline and then we'll start to get into a repayment schedule.
It's not to say things can't change our pipeline could continue to grow beyond what we think our repayments are.
But that's how we're thinking about it in the near term.
Thank you very much.
And our next question will come from Stephen laws with Raymond James. Please go ahead.
Hi, good morning.
I guess first maybe to follow up on on Jades questions just kind of.
I realize these are all unique loans, but.
And it certainly could be coincidence, but when I look at the subsequent to quarter end loans.
It looks like a much lower percentage of that loan was funded then your originations from Q1.
You know as you try and manage your pipeline into that refinance or repayment wave in the second half.
And are you actively trying to increase the unfunded commitment balance to have those drawdowns take place in three or six months or are 12 months. I mean is that something you look to do or is that just coincidental with the post to Q originations or post post 331 originations.
Well thanks for the question Stephen Good to talk with you.
I think having some base level of future funding is appropriate and takes a little bit of the pressure off quarter to quarter originations.
That being said.
I think what you're describing.
It's a little bit more coincidental and.
It's a little bit in response to some of the market opportunities you're seeing.
Some of that future funding for most of that future funding is coming from.
Our participation in the industrial sector of the market.
Where we've rolled out.
A program, where we have some construction lending.
For obviously, a newbuild from Newbuild industrial.
So that that's driving them.
Most of that not all but most of that future funding component that you're seeing in terms of the change.
Quarter over quarter so.
It's a sector that you know historically, we havent lent a lot on them, but obviously with COVID-19 and its a big accelerated sector and with ecommerce.
We think it's a really attractive opportunity set and so.
We've done a couple of deals and that's driving that number.
Great and then you know pick income and apologize I haven't made it through the entire cube yet.
You know what was Pik income for the quarter and then maybe how did that change from a year over year basis, which would obviously be a very tough comp for for most companies and then maybe how did that change on a sequential basis.
Steven It's Patrick I'll I'll talk about that so on the Pik income, we saw a little bit of change.
For the first quarter, it's really driven by just a couple of assets I think we've talked about some of these assets in the past.
Including our one hotel loan in Brooklyn as.
As well as a.
As well as the condo loan in New York. So we've got about $3 3 million in total I would note that in the corridor. We also saw a reversal of a pik.
One of our hotel loans are there a hotel loan which is the Fort Lauderdale Hotel loan.
Modified.
There was a $10 million paydown, a true up of the of the Pik balance.
And that loan is now current going forward.
So it's a.
A modest amount that we had I think that the net change was about 850000 for the quarter.
Okay, great, so pretty pretty small debt, especially relative to peers.
<unk>.
Thanks, Patrick Matt last question, maybe you know.
Of the four loans to two New York Razee, Brooklyn, Hospitality Queens Industrial can you maybe just talk about New York you.
You know you guys were there on the ground. So maybe just give us a bigger picture in New York and you know how you guys are seeing things as far as the reopening and.
You know people returning to the office and other things like that.
Just given you guys are all base there.
Sure.
Well I think you're just starting to see.
The reopening as you mentioned and that's impacting.
I would say first and foremost multifamily where do you see the move ins that there's a number of.
Our folks obviously that moved out.
During the pandemic I think youre starting to see the repopulation to come back as these offices open.
And I think New York is a little bit more it's probably opening more slowly than some of the other markets.
With people opening.
Either a little bit now, but a lot of talk about opening you know full in the fall from from a lot of tenants.
But you're just starting to see any apartment.
You know prices stabilize and start to go up a little bit we've seen some concessions come down in the apartment sector.
I think the office market is still delayed in terms of trying to understand where rents are we setting where sublease rates are where occupancy will settle in.
That's a little bit more I would say uncertain at this point in time.
And I'd say the financing markets are cautious on and certainly the office sector and in New York still.
And you can you know the embedded assumptions I think people are making on our new loans are very conservative.
In Manhattan.
Hum.
You know in terms of specifically on the asset qualities that are the asset property types that we have do we think about the condo I think.
The condo inventory loans that we have the two that you mentioned.
The one that has product readily for sale, it's a little bit later in its business cycle.
Our business plan we've.
We've seen a lot of progress and a lot of velocity.
I think youre seeing that across the market.
Certainly you complete about articles in terms of.
How much velocity there is on condo sales and in New York now and.
And we've certainly seen that at all or.
At our property I think we've had almost $50 million of sales.
Since COVID-19 and there's a whole number of units still under contract that Havent havent closed yet.
So certainly positive.
In that regard I think it just shows you that if you lower prices as the as the market comes down to meet the market you can certainly sell units and there's liquidity and clearing levels.
Well those are the comments I'd make are around New York.
Great I appreciate the color there thanks for the comments that Patrick Congrats.
Congratulations from last quarter and at the recent capital raise.
Thanks, David.
And our next question will come from Tim Hayes with B T. O G. Please go ahead.
Hey, Good morning, guys I just wanted to circle back My first question around I think you might have made a comment about kind of funding cost and how that relates to the all in Roes, you're seeing on new loans versus.
Pre COVID-19, but are.
Are you seeing repo costs come down and do our advance rates move up as you know the banks are competing with a very hot capital markets backdrop, right now and and then just part B to that is you know a lot of your peers have executed on CRE CLO. This year and just curious with your light transitional strategy. I know you already have won and done one before but.
How do you feel about that financing strategy and in the near term as well.
Tim Good morning, It's Patrick I'll take I'll take both of those so first of all on the financing cost, yes, we are seeing compression on the liability.
On the liability side, you know, sometimes these don't always move in tandem and sometimes there's a delay to what's happening on the asset side, but we're certainly seeing across the board.
Both spreads compressed in the market I think in part that's driven by what's happening in the broader securitization market, including the CLO side.
This has been a very active year on the CRE CLO side and as you noted some of our public and private peers have have access that market.
We're seeing one or two deals come to market a week.
So very very active in and at a very efficient cost of capital. So that's an active there is a market that we continue to track closely.
We have a very attractive cost of capital on our existing CLO.
We haven't had a lot of repayments to date, so even though we're past the reinvestment period.
We're still benefiting from that very attractive cost of capital, but we're encouraged by what we're seeing on the liability side in particular in the CRE CLO market, it's worth thinking about financing needs over the course of this year.
Got it that's helpful and I guess, we'll see what happens there, but just based on kind of what the I guess the velocity of those spreads coming in and maybe what you would expect with the CRE CLO.
Do you think that the trajectory in funding costs would you know just partially offset the pressure on asset yields you're seeing as repayments are real.
Recycled into new assets at tighter.
Tighter spreads or lower basis or a.
Partially offset fully offset or more than offset just curious kind of what your expectations are there and it had net.
Yes, just real.
More broadly I'm trying to see if.
If it's really the spread the NIM spread that's coming in that's going to put you know I guess bring earnings power more day.
More normalized levels next year upwards really just maybe expectations for portfolio contraction as repayments pick up.
Sure. So I think I think about the offset as being sort of partial to what's happening on the asset spread.
I think you also have to separate a little bit of the current effective names that we have in the portfolio are really a benefit of from these LIBOR floors. So when we originally underwrote those loans that's not the NIM that we were anticipating but obviously, we've gotten the benefit of over the lines and year and a half.
Or so so if I compare that if I compare the market today to some of the pre pandemic levels and think about that from a NIM standpoint.
It's not actually very different from the pre pandemic market.
Seeing nims that are on a relative basis very attractive I think if we try to compare them to our effectiveness today.
It will look like a lot of compression if you look at it in comparison to the market you know per.
Pre pandemic before we saw a really dramatic drop in LIBOR, they're actually very comparable so we're we're obviously.
I'm pleased with that and the level of activity that's happening on the on the liability side I think the other thing that will.
We will likely get the benefit of as some of these loans pay down with these higher LIBOR floors as I mentioned on the opening remarks will reset a new LIBOR floors to the current spot rates. So 10 to 15 basis point LIBOR floors, which means that at some point in the.
Sure if and when LIBOR does rise we will have some positive correlation within the portfolio to that rising LIBOR and we will get some positive benefit in.
In higher rate in a higher rate environment.
Right.
No no that definitely makes sense and you know I can go back and see kind of what <unk> excuse me given us coverage look like before COVID-19 and if that's kind of where NIM is expected to trend, we can kind of attunity together, but I'm. Just curious if you could just provide some comments around you know your your expectations for dividend coverage as we get.
Not more kind of normalized earnings run rate.
Next year.
Yeah, I think our pre.
Pre COVID-19 sort of quarters, where we were fully deployed I think are fairly representative.
That said, it's really early right to think about that and how that all transpires.
Over the next year or so.
So I think that our expectation is that that will normalize I E.
Some of the elevation that we've had in this.
In these earnings will sort of come down, but I think in terms of sort of exact levels in terms of coverage I think it's too difficult to predict at this point.
Sure.
Okay.
And then just.
On credit and you know.
I know you made some comments earlier, but can you maybe give us an idea of how how our interest collection or or just rent collections on properties underlying our portfolios have trended so far in April relative to the first quarter.
I think some of the April numbers.
It's probably a tad bit early to get all of that sort of flow through I would say that.
From a cash interest collection standpoint. It remains the same to loans that were were not collecting on which is the the five rated loans.
I think on the underlying properties if I look at just some of the occupancy trends that we're seeing in particular on the multi family assets were seeing positive improvement there.
From sort of the later quarters of last year. So I think that's encouraging I think and so directionally I think it's positive I don't have an exact figure in terms of what those collections have been but they've been very high.
Across the portfolio, we've seen very little.
Very little issue with sort of tenant collections.
At our assets and I expect that trend to continue.
Great well I appreciate the color there guys and congrats on a strong quarter.
Thanks, Tim.
And our next question will come from Charlie <unk> with J P. Morgan. Please go ahead.
Hey, good morning, guys. Thanks for taking the questions most of them have been covered already but wanted to follow up I guess on Tim's question on the financing side or I guess realistically asking a similar question in a different way.
You you guys closed a term loan late last year.
L plus $4 75, and I think there was 100 pit floor on that.
And I believe that started amortizing in March.
You know when you look at the new loans, putting that are coming on the portfolio that are inside those spreads and overall you know the more diversified funding structure that you guys have beyond.
The traditional warehouse lines can you just talk a bit about.
You know, where you see loan origination spreads directionally going from here and I guess ultimately how you see the economics of those new loans coming on the book.
Flowing through to the bottom line versus you know your all in funding costs.
Hey, Jeff Good question.
Patrick why don't I take I can take the first part of it.
Kind of hand, it over to you.
I would say on the new origination front.
For light transitional assets.
Assets.
We're seeing all in coupons call it and.
Mid to low 3% context right now.
And we've been creating a little bit more return than that.
Playing in some of the sectors, we like like industrial for instance.
You get a little cash a little bit more return there and that's all the construction lending side. So.
But I would say in that call it 3% mid to low 3% context like the very light transitional assets right now.
No Patrick I'll hand, it over here from the second part.
Yeah on the financing side Charlie.
From loan be obviously is one piece of our diversified financing structure.
I think we're encouraged by what we're seeing.
In that in that market.
We've got a soft call date that is expires September one of this year.
We think that there are potentially a number of deals that we'll see.
Fresh kind of pricing points between sort of now and then.
But what we're encouraged by what we're seeing in that market.
Obviously, there is an ability to kind of reset right there, but it's one component.
But what we're what we're doing.
And we think about that cost of capital Holistically and so that you'll see that we've got a range from our repo facilities to the CLO.
To the term loan b that all.
Aggregate to form this kind of weighted average cost of capital and I think you've seen we've been very disciplined about one diversifying it but to driving costs down over time.
Got it okay. Thanks for that.
And then just switching gears real quick.
Looking at the forward pipeline.
Saw one of the new April allowance.
<unk> secured by single family rental portfolio would love to get your thoughts more broadly on that property type it seems like.
It's been a real growth area.
The last couple of quarters post COVID-19 and kind of just curious to get your outlook on the competitive environment there.
Yes, it's Matt I can take that one.
Yes, it's a sector, we like a lot obviously, one of the COVID-19 accelerated areas as well.
And so when you think about what we're doing in cross industrial life Sciences would certainly be another.
Area that has benefited from.
From the from the pandemic.
This particular loan is for you bill it the build to rent them for an institutional sponsor that we covered our pre pandemic.
It's a unique opportunity within within Phoenix. This is an area that has a lot when I say every single family rental broadly.
It's got a lot of access to liquidity.
Across both debt and equity so I don't see this as being a very large part of the portfolio, but we like the sector and if we can find opportunities like this will continue to continue.
Continue to do these but.
There's a lot of liquidity in this sector. So.
We'll have to find a kind of pick our spots in terms of where we can create returns and the risk profile that makes sense for us.
Thanks, very much for taking the questions.
And our next question will come from Don Vendetti with Wells Fargo. Please go ahead.
Yes, Jack congratulations on the new role met on the Fort Lauderdale Hotel can you remind us where revpar occupancy was pre COVID-19, where it sort of adapted where we are today just to give a sense on the recovery there.
Yes.
And Don Thanks for the question, let me pull that up don't have those numbers off the top of my head.
No problem.
Yeah.
So let me give you.
The current month.
<unk>.
Occupancy was in the seventies ADR in the high three hundreds.
So revpar.
Very high.
Two hundreds.
If you look back to like a stabilized number.
Call it like a teach world.
Pre COVID-19.
Rev occupancy is in line with that.
ADR is actually higher so our revpar for this current month as.
Beating.
Yes.
Call It 12 number pre.
Pre COVID-19 now keep in mind. This is a you know.
Obviously, a good time to be in Florida in terms of vacations and things like that so we would have expected that but.
The performance has been very strong and clearly the sponsor here is committed to the asset with the most recent modification coming out of pocket and paying off the accrued interest that we had or the pik interest and delevering below $10 million. So you know we upgraded this loan for about Florida with three for all of these performing.
And the most recent modification et cetera. So.
Got it thanks for the details I guess also on the.
The shift to a little bit leaning harder into industrial I would think that you know sort of these developments that you. It sounds like there is in the.
Pipeline.
E Commerce would be pretty competitive are you seeing a lot of competition on those types of deals or is there enough sort of construction risk to where you can create some value.
Okay.
It's a competitive sector, but it does feel like there's a lot of opportunity here.
The construction component of industrial obviously is a little bit more simple than a.
Our multi storey building, whether that's multi year office.
However.
Just the fact that as construction does limit the capital base, especially from some of the regulated.
Institutions.
And so I think there's certainly opportunity here.
And it's an area.
If you think about the equity side of our business.
We have millions of square feet of exposure and market knowledge.
And so I think it works nicely with our overall theme of.
Investing in areas.
That we have a lot of a lot of knowledge in.
We can use the overlap from what we're doing on the equity side and the credit side and by vice versa.
So.
I do think Theres there were certainly seeing a lot of opportunity just given the increase in demand in that sector.
So I'm, hoping that will continue through the year.
Okay. Thank you.
And our next question will come from Steve Delaney with JMP Securities. Please go ahead.
Yeah, Thanks, and good morning, everyone I would also like to welcome Jack We look forward to working with you moving forward.
Got it obviously everything has been covered pretty pretty thoroughly the only thing I have left on my list is.
The $1 6 million reduction in D C. So provision.
Is that specifically related to the two four loans that were upgraded to three and given that there.
Several other four rated loans.
If those were to also be upgraded could there be additional.
Seasonal recoveries in the year ahead. Thanks.
Good morning, Stephen there's little soft line again, I hope you're doing well.
<unk>.
Hi, Stephen So yeah. Good question, so with respect to the seats that obviously, we had the $1 six benefit and then this is a variety of factors that kind of resulted in the net.
We used our reserve quarter over quarter.
Almost as really that bad that macroeconomic scenario that we implemented this quarter, which is pretty much in line slightly better than prior quarter. So that's just started for a good you know.
<unk> of the increase there was some offsetting factors I think are some of the upgrades that we had and then data M D.
The fourth floor day, a hotel that's what also resulted in us but.
What portion of the decrease.
That will also offset by some of the originations that keep in mind that this quarter, our originations were double the repayments.
There were some offsetting factors, but I think the two key factors here kind of the upgrades and the.
Great for us.
The hotel loan that you just touched on as well as the macroeconomic assumptions.
Okay, well I know you guys have taken a lot of questions. So I will leave it there.
Sounds like you're in a great position set up for 2021, so congratulations.
Thank you.
And our next question will come from <unk> <unk> with Citi. Please go ahead.
Thanks.
You mentioned your pipeline is.
A fairly large and you've had some nice activity post quarter what.
Whats the activity of the sponsors are you seeing that kind.
Kind of continue to increase as the sponsors coming with a lot of the similar type of properties are you seeing a more broadening of sponsor activity.
Related to your business.
Well thanks for the question.
Yes.
I definitely think we see increased activity.
From all the.
From all of our sponsors.
And that's just a continuation really of I would say what we saw.
In the fourth quarter of last year, certainly ramping up into into this year.
And.
I think there was a lot of pent up demand both on the refinance side, but as well as on the acquisition side.
The flow of capital.
<unk>.
In the alternative space and.
Specifically within real estate.
If you think about from the real estate set up right now.
From a macro view and.
In a low interest rate environment.
Where there is potentially long term concern around inflation.
Real estate stepped up pretty nicely, it's got a yield component to it.
And it can be a hedge against inflation.
No.
Our expectation.
Is that you'll see continued.
Our capital flowing into the sector.
Which will obviously benefit our sponsors and Inc.
Craig deal activity for us.
In terms of where.
We see the focus.
It's similar to what I think we described on the on the on the call there's a lot of halves.
And the real estate World now that much.
Much more clear bifurcation between that have the have and the have nots.
And so.
Sectors with the most entrance or all the all.
All the housing sectors. So.
Obviously multifamily single family rental I think theres a lot of demand for coming back for student housing as schools amounts there the back to school programs for the fall.
Senior housing is probably a little bit behind all of that coming in the unique impact of COVID-19 on that sector.
But then youre seeing things like life Science industrial.
A lot of activity in those sectors and that's not just from a capital basis, obviously from the tenant base as well that's driving this activity and there is a real need for either converted space, our new space and some of these sectors.
And that's great for our capital base, because that's really what we're set up to do is to lend on that level of transition.
I still think there's a big question Mark for most of our sponsors around how to play some of the office sector.
How to play the retail sector.
Obviously, the retail sector is not something we've.
Historically been that involved and but certainly you've seen a big pause. Therefore, you know for the obvious reasons.
So I'd say nothing too unexpected just continued activity in our real focus on on where people have identified growth.
Very helpful. Thank you.
And this will conclude the question and answer session I would like to turn the conference back over to checks. So total Li for any closing remarks.
Great Hey, everyone. Thanks for joining our call today.
Feel free to reach out to me or the team here with any follow ups. Thanks, everyone.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
Okay.