KKR Real Estate Finance Trust Inc (KREF) 2021 Q1 法說會逐字稿

Good morning, and welcome to the KKR Real Estate Finance Trust Inc. First Quarter 2021 Financial Results Conference Call. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please not that this event is being recorded.

I would now like to turn the conference over to Jack Switala. 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 KREF. 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, Mostafa Nagaty.

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 of $29.2 million or $0.52 per share, which included a $1.6 million benefit from a lower CECL provision. Distributable earnings this quarter were $30.4 million or $0.55 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 CECL 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 $0.43 per share with respect to the first quarter. Based on yesterday's closing price, the dividend reflects an annualized yield of 8.7%.

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.

KREF is off to a great start this year in terms of financial results, another outstanding quarter with distributable earnings of $0.55 per share, covering the $0.43 dividend by 1.3x. This is a continuation of the success we had in 2020 where distributable earnings covered our dividend by over 1.1x despite the global pandemic.

Our earnings continued to benefit from strong portfolio performance and existing LIBOR floors. We are 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 3 loans totaling $535 million comprised of 2 office properties and 1 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 $172.5 million of preferred -- or perpetual preferred stock at a fixed for life cost of 6.5%. This permanent capital allows us to take advantage of current market opportunities, service our institutional clients and grow our portfolio, which should lead to improve operating leverage over time.

On the origination front, I want to highlight the Dallas office loan we recently closed. COVID has impacted the office market, so I thought it would be helpful to give a little color on how we are approaching the sector. The short answer is we are marginally more conservative on office, but we'll continue with our same approach as pre-COVID with a focus on growth markets and a cautious approach to the gateway markets.

The first thing we start with on all loans is 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. Third, the business plan is consistent with our light transitional target profile. The property has recently undergone a CapEx plan and is currently 75% occupied to a diverse tenant base, and the sponsor intends to increase occupancy and rents as tenant leases expire. Finally, we have a low-cost, low basis on acquisition financing at 65% loan to cost.

Turning to our Forth Worth pipeline. We've been active in the market with 6 senior loans that are either closed or under exclusivity, which represents $750 million in committed principal amount for KREF. Our activity reflects our desire to capitalize on attractive opportunities in the current market, some of which stem from COVID's impact on real estate.

While we continue to target similar profiles to our pre-COVID activity, like multifamily and select office, we are increasing our focus in activity in the life science and industrial sectors. I note this current pipeline is underwritten to a weighted average IRR in the 13% to 14% range.

Our portfolio composition remains consistent and is comprised of predominantly lighter transitional floating rate senior loans secured by institutional quality real estate. 85% of the portfolio is comprised of multifamily and office properties. Hospitality and retail continue 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. As of quarter end, a market leading 76% of our asset financing remains completely nonmark-to-market, and the 24% remaining balance is only subject to credit marks. Also as of quarter end, our debt-to-equity ratio and total leverage ratio were 2.1 and 3.7x, respectively. Following the preferred stock raise, our debt-to-equity ratio and total leverage ratio sits at 1.7x and 3.1x, respectively, today. But we expect our leverage ratios 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 3.1 on a 5-point scale is consistent with the weighted average risk rating last quarter. As we've done in prior quarters, we continue to provide a detailed breakout of our watch list loans in the supplemental presentation.

Notably, 89% of our loans are now risk-rated 3 or better, which has improved from 84% in Q4. The improvement is the result of 2 4-risk-rated loans being upgraded to a 3 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 risk-rated a 5, and it's primarily comprised of our Portland retail loan. While the property remains challenged, we continue to dialogue with the existing and prospective sponsors regarding the next phase of the property. And we continue to believe their adequate CECL 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, KREF should continue to benefit from its in-place LIBOR floors and elevated effective net interest margins. While the portfolio is almost entirely floating rate. Currently, 69% of the loan portfolio has a LIBOR floor of at least 1%, 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 experience a rotation in our portfolio through loan repayments and new originations, we expect our effective portfolio NIM to compress over time.

Finally, KREF finished the quarter with a strong liquidity position of over $570 million. This total included $209 million of cash and $335 million in 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 $0.55 per share. We remain on offense, originating 3 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 now we're happy to take your questions.

(Operator Instructions) And our first question today will come from Jade Rahmani with KBW.

I was wondering, Matt, if you could just put a little color around your comments that around back half of the year elevated repayments, after which you expect earnings to normalize. Are you saying that earnings could be elevated in the back half of the year or under pressure in the back half of the year?

Jade, thank you for the -- thanks for the question. I think as we look forward over the next couple of quarters, we still feel like earnings could be elevated as we sit with the existing portfolio and the embedded LIBOR floors. We're seeing the -- our best guess, and it's difficult to predict for sure, but our best guess right now is that in the third and fourth quarter, we'll have some pretty heavy repayments. And so once we get through those quarters, that's when you'll start to see a more normalization of -- what -- of earnings.

And will those repayments have an earnings benefit from accelerated prepayment income?

Yes. I mean, we'll get some of that, will come through, obviously, in that particular quarter. And then following quarter, obviously, we're not benefiting from those LIBOR floors anymore and those 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 IRRs the company has historically generated?

Yes. If you want to just think about the market environment today, I guess, comment one would be the pipeline is very big. So there's lots of opportunities to look at. So that's certainly a positive in what we're seeing. Competitive environment is high. And you've certainly seen spread and 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 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. My guess is some of the loans that we're doing over the next couple of quarters -- next couple of quarters will look a little bit more like we did pre-COVID, 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, the preferred stock issuance. With the stock at about 6% above book value, at what level would it make sense to issue common equity?

Yes. I think we've been pretty disciplined in the past about accessing the market when it's only accretive to the stock. The preferred equity issuance took a lot of our near-term -- or solved 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 preferred.

So looking ahead, what we're really trying to balance is our 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 certainly take care of 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 kind of grow beyond what we think our repayments are, but that's how we're thinking about it in the near term.

And our next question will come from Stephen Laws with Raymond James.

I guess, first, maybe to follow-up on Jade's questions. Just kind of -- I realize these are all unique loans but -- and 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 than your originations in Q1. As you try and manage your pipeline into that refinance -- or sorry, repayment wave in the second half, you're actively trying to increase the unfunded commitment balance to have those drawdowns take place in 3 or 6 months or 12 months. I mean, is that something you look to do? Or is that just coincidental with the post 2Q originations? Or post 3/31 originations?

Well, thanks for the question, Steve, and 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 is 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 or 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, newbuild industrial. So that's driving most of that -- not all, but most of that kind of future funding component that you're seeing in terms of the change quarter-over-quarter. So it's a factor that historically, we haven't lent a lot on, but obviously, with COVID, and it's a big accelerated sector and with e-commerce and -- we think it's a really attractive opportunity set. And so we've got a couple of deals, and that's driving that number.

Great. And then PIK income -- apologies, you haven't made it through the entire Q yet. What was PIK income for the quarter? And then maybe how did that change on a year-over-year basis, which would obviously be a very tough comp for most companies? And then maybe how did that change on a sequential basis?

David, it's Patrick. I'll talk about that. So on the PIK income, we saw a little bit of change into 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 1 hotel loan in Brooklyn 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 quarter, we also saw a reversal of a PIK. One of our hotel loans or other hotel loan, which is the Fort Lauderdale hotel loan, got modified. There was a $10 million pay down, a true-up of the PIK balance, and that loan is now current going forward. So it's a modest amount that we had. I think the net change was about $850,000 for the quarter.

Okay. Great. So pretty small then, especially relative to some peers. Matt, last question, maybe of the 4 loans: 2 New York, resi, Brooklyn hospitality, Queen's industrial, can you maybe just talk about New York? You guys were there, feet on the ground. So can you maybe just give us a bigger picture in New York and how you guys are seeing things as far as the reopening and people returning to the office and other things like that? Just given you guys are all based 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 you see the move-ins, that there's a number of folks obviously that moved out during the pandemic. I think you're starting to see the repopulation to come back as these offices open. And I think New York is a little bit more slow -- 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 full in the fall from a lot of tenants. But you're just starting to see, I think, apartment prices stabilize, 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 resetting, where sublease rates are, where occupancy will settle in. So 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 certainly the office sector in New York still. And you can -- the embedded assumptions I think people are making on new loans are very conservative in Manhattan.

In terms of specifically on the asset quality that -- or the asset property types that we have, when we think about the condo, I think the kind of inventory loans that we have, the 2 that you mentioned, one that has product readily for sale. It's a little bit later in its business cycle -- business plan. We've seen a lot of progress and a lot of velocity. And I think you're seeing that across the market. Certainly, you can read about articles in terms of how much velocity there is on condo sales in New York now.

And we've certainly seen that at our property. I think we've had almost $50 million of sales since COVID, and there's a whole number of units still under contract that haven't closed yet. So certainly positive in that regard. I think it just shows you that if you lower prices as the market comes down to meet the market, you can certainly sell units and there's liquidity and clearing levels. And those are the comments I'll make around New York.

Matt and Patrick, congratulations on the nice quarter and the recent capital raise.

And our next question will come from Tim Hayes with BTIG.

Matt, I just want 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. But are you seeing repo costs come down and/or advance rates move up as the banks are competing with a very hot capital market stack shop right now?

And then just part B to that is a lot of your peers have executed on CRE, CLOs this year. And just curious, with your light transitional strategy, I know you already have one -- done one before. But how do you feel about that financing strategy in the near-term as well?

Tim, it's Patrick. I'll take both of those. So first, on the financing cost, yes, we are seeing compression on the liability side. 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, repo spreads compress in the market. I think, in part, that's driven by what's happening in the broader securitization market, including the CLO side. I think this has been a very active year on the CRE, CLO side, and as you noted, some of our public and private peers have accessed that market. We're seeing 1 or 2 deals come to market a week. So very, very active and at a very efficient cost of capital.

So that's an active -- that's 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, as we're 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 -- I guess, the velocity of those spreads coming in and maybe what you would expect with the CRE, CLO, I mean, do you think that the trajectory in funding costs would just partially offset the pressure on asset yields you're seeing as repayments are recycled into new assets at tighter spreads or lower basis? Or would it partially offset, fully offset or more than offset? Just curious kind of what your expectations are there.

And I guess, just more broadly, I'm trying to see if it's really the spread, the NIM spread that's coming in that's going to put -- I guess, bring earnings power more to more normalized levels next year? Or it's really just maybe expectations for portfolio contraction as repayments pick up?

Sure. So 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 NIMs 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 last 1.5 years 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. We're seeing NIMs that are, on a relative basis, very attractive. I think if we try to compare them to our effective NIMs today, it will look like a lot of compression. If you look at it in comparison to the market, pre pandemic and before we saw a really dramatic drop in LIBOR, they're actually very comparable. So we're obviously pleased with that and the level of activity that's happening on the liability side.

I think the other thing that 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, we're resetting new LIBOR floors to the current spot rates, so 10 to 15 basis point LIBOR floors, which means that at some point in the future, if and when LIBOR does rise, we'll have some positive correlation within the portfolio to that rising LIBOR. And we'll get some positive benefit in a higher rate environment.

Right. No, no, that definitely makes sense. And I can go back and see kind of what dividend coverage looked like before COVID. And if that's kind of where NIM is expected to trend, we can kind of put 2 and 2 together. But I'm just curious if you could just provide some comments around your expectations for dividend coverage as we get to that more kind of normalized earnings run rate early next year.

Yes. I think our pre-COVID 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 our expectation is that they will normalize, i.e., that some of the elevation that we've had in this 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. I know you made some comments earlier, but can you maybe give us an idea how interest collection or just rent collections on properties underlying your portfolios have trended so far in April relative to the first quarter?

I think on 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 an interest collection standpoint, it remains the same 2 loans that we're not collecting on, which is the 5-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 multifamily assets, we're 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 issue with sort of tenant collections at our assets, and I expect that trend to continue.

Great. Well I appreciate the color there, guys. Congrats on a strong quarter.

And our next question will come from Charlie Arestia with JPMorgan.

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 guys closed the term loan late last year at like L plus 4.75, and I think there was a 100 bp floor on that. And I believe that started amortizing in March. When you look at the new loans putting that are coming on the portfolio that are inside those spreads, and overall, the more diversified funding structure that you guys have beyond the traditional warehouse lines, can you just talk a bit about 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 your all-in funding costs?

Charlie, thanks for the question. Patrick, why don't I take -- I can take the first part of it and then I kind of hand it over to you.

Sure.

I would say on the new origination front, for light transitional assets, we're seeing all-in coupons, call it, in the 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 -- we can capture a little bit more return there, and that's on 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.

Patrick, I'll hand it over to you for the second part.

Yes. On the financing side, Charlie, the Term Loan B, obviously, is one piece of our diversified financing structure. I think we're encouraged by what we're seeing in that market. We've got a soft call date that is -- expires September 1 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 we're encouraged by what we're seeing in that market. And obviously, there's an ability to kind of reset rate there. But it's one component of 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 two, driving costs down over time.

Got it. Okay. And then just switching gears real quick. Looking at the forward pipeline. I saw one of the new April loans 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 over the last couple of quarters post-COVID. 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 accelerated areas as well. And so when you think about what we're doing across industrial, life sciences would certainly be another area that has benefited from the pandemic. This particular loan is for -- to build the rent for an institutional sponsor that we covered prepandemic. It's a unique opportunity within Phoenix.

This is an area that has a lot -- when I say area is 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, we'll continue to do these. But there's a lot of liquidity in this sector. So we'll have to find kind of pick our spots in terms of where we can create returns and the risk profile that makes sense for us.

And our next question will come from Don Fandetti with Wells Fargo.

Jack, congratulations on the new role. Matt, on the Fort Lauderdale hotel, can you remind us where RevPAR occupancy was pre-COVID, where it sort of dipped and where we are today, just to give a sense on the recovery there?

And Don, thanks for the question. Let me pull that up. I don't have those numbers off the top of my head.

No problem.

So let me give you the current month. Occupancy was in the 70s, ADR in the high 300s. So RevPAR, very high 200s. If you look back to like a stabilized number, call it, like at T-12 pre-COVID, occupancies in line with that and ADR is actually higher. So our RevPAR for this current month is beating is ahead of, call it, the T-12 number pre-COVID.

Now keep in mind, this is 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 deleveraging the loan by $10 million. So -- and we upgraded this loan from a 4 to a 3 for all these performance and the most recent modification, et cetera. So...

Got it. I guess also on the shift to a little bit leading harder into industrial. I would think that sort of these developments that you -- it sounds like is in the pipeline for 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?

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 multi-story building, whether that's multi-year office. However, just the fact that is 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 knowledge in that we can use the overlap from what we're doing on the equity side and the credit side and vice versa. So I do think there's -- we're 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.

And our next question will come from Steve Delaney with JMP Securities.

I would also like to welcome Jack. We look forward to working with you moving forward. Guys, obviously, everything has been covered pretty thoroughly. The only thing I have left on my list is the $1.6 million reduction in the CECL provision. Is that specifically related to the 2 4 loans that were upgraded to 3? And given that they're several other 4-rated loans, if those were to also be upgraded, could there be additional CECL recoveries in the year ahead?

Steven, this is Mostafa Nagaty. Hope you're doing well. Thanks for the question, Steven. So yes, good question. So with respect to the CECL, obviously, we had the $1.6 million benefit, and this is a variety of factors that kind of resulted in this net decrease to our reserve quarter-over-quarter. For most, it's really the macroeconomic scenario that we reimplemented this quarter, which is pretty much in line, slightly better than prior quarter. So that's resulted for a good portion of the increase.

There were some offsetting factors, I think, on some of the upgrades that we had in, namely the Fort Lauderdale hotel that were also resulted in -- but a good portion of the decrease. That was also offset by some of the originations. Keep in mind that this quarter, our originations were double the repayments. So there were some offsetting factors. But I think the 2 key factors here are kind of the upgrades for the hotel loan that you just touched on as well as the macroeconomic assumption.

Okay. Well, I know you guys have taken a lot of questions, so I will leave it there. And it sounds like you're in a great position set up for 2021. So congratulations.

And our next question will come from Arren Cyganovich with Citi.

You mentioned your pipeline is fairly large, and you had some nice activity post quarter. What's the activity of the sponsors? Are you seeing that kind of continue to increase? Is it -- are 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. I definitely think we see increased activity 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 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. And the flow of capital continues in the alternative space and specifically within real estate.

And if you think about the real estate setup right now, from a macro view, in a low interest rate environment, where there's potentially long-term concern around inflation, real estate stepped up pretty nicely. It's got a yield component to it and can be a hedge against inflation. So our expectation is that you'll see continued capital flowing into the sector, which will obviously benefit our sponsors and create deal activity for us.

In terms of where we see the focus, it's similar to what I think we described on the call. There's a lot of halves in the real estate world now that -- and there's like much more clear bifurcation between the have and have nots. And so sectors with the most entrants are all the housing sectors, so obviously, multifamily, single-family, rental. I think there's a lot of demand for coming back for student housing as schools announce their back-to-school programs come to fall. And senior housing is probably a little bit behind all that given the unique impact of COVID on that sector.

But then you're seeing things like life science, industrial, a lot of activity in those sectors. And that's not just from capital base, it's obviously from the tenant base as well that's driving this activity. And there's a real need for either converted space or new space in 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 done and involved in. But certainly, you've seen a big pause there for the obvious reasons.

So I'd say nothing too unexpected, just continued activity and a real focus on where people have identified growth.

And this will conclude the question-and-answer session. I'd like to turn the conference back over to Jack Switala 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.