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KKR Real Estate Finance Trust Inc.  (NYSE:KREF)
Q4 2019 Earnings Conference Call
Feb. 21, 2019, 9:30 a.m. ET

Contents:

Prepared Remarks:

Operator

Good morning and welcome to the KKR Real Estate Finance Trust Inc. Fourth Quarter and Full Year 2018 Financial Results Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please also note, today's event is being recorded.

I would now like to turn the conference over to Sasha Hamilton. Please go ahead.

Sasha Hamilton -- Investor Relations

Thank you. Welcome to the KKR Real Estate Finance Trust earnings call for the fourth quarter 2018. I'm joined today by Chris Lee and Matt Salem, our Co-CEOs; Patrick Mattson, our CEO; and Mostafa Nagaty, our CFO.

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 forward-looking statements, which do not guarantee future events or performance. Please refer to our most recently filed 10-K precautionary factors related to these statements.

Before we start, we found the computational air in the company's 2018 annualized non-GAAP financial measures, net core earnings and core earnings and related per share amounts. We filed an amended 8-K this morning with the corrected annualized earnings numbers in the earnings release and supplementary presentation. No other information has been modified. We also intend to file an amended 10-K shortly. We apologize for any inconvenience that this may have caused.

Before I turn things over to Chris, I'll provide a quick recap of our results. For the full year 2018, our GAAP net income was $87.3 million or $1.58 per share. Net core earnings was $100 million or $1.81 per share. For the fourth quarter 2018, our GAAP net income was $19.7 million or $0.34 per share. Net core earnings were $22.2 million or $0.38 per share.

Book value as of December 31st was $19.66. In January, we paid a dividend of $0.43 per share with respect to the fourth quarter. Based on yesterday's closing stock price of $20.21, the dividend reflects an annualized yield of 8.5%. Our Board is scheduled to meet in mid-March to discuss the first quarter dividend and we will make an announcement shortly thereafter.

With that, I would now like to turn the call over to Chris Lee.

Chris Lee -- Co-Chief Executive Officer and Co-President

Thank you, Sasha. Good morning, and thank you for joining us for our fourth quarter earnings call. 2018 was a milestone year for our company. It marked our first full calendar year as a public company and our fourth full year of operations since we began our investing activities in October 2014. We originated a record $2.7 billion of senior floating-rate loans during the year and 84% increase over 2017 loan originations. We grew our portfolio to $4.1 billion as of December 31st, two times increased from the end of 2017 and more than a three times increase from the second quarter of 2017, when we completed our IPO. And on the right side of the balance sheet, we've significantly improved the cost and structure of our liabilities, and we increased our total funding capacity during the year by $2.3 billion to $4.1 billion.

2019 is off to a busy start. We closed a $76 million loan in January and have also built up a robust pipeline of opportunities. Matt will provide more details on our investment activity shortly. The macroeconomic backdrop for our business remains favorable. In 2018, commercial real estate transaction volume reached the second highest annual level since the global financial crisis. We also continue to see strong demand for real estate by global institutional investors as evidenced by dry powder in the value add and opportunistic real estate funds increasing to over $180 billion compared to $150 billion at the end of last year and a low of $100 billion coming out of the financial crisis. Overall, the underpinnings of real estate capital flows have remained strong and support our strategy of lending on transitional assets in larger liquid markets to experience sponsors.

Before I touch on our goals for 2019, let me review our 2018 strategic initiatives and the progress we made on each. Our first initiative was to continue to deploy capital in a prudent manner. Despite a competitive lending environment, we've been able to secure attractive opportunities to invest capital consistent with the same risk return parameters we have had, since we first went public. Our record originations pace demonstrates the strength of our extensive relationships with sponsors and intermediaries in the marketplace.

And the benefit of our integration with the KKR Real Estate platform and with KKR more broadly. We believe we have built a defensive portfolio with a focus on institutional quality real estate owned by high quality sponsors, in the most liquid markets. Matt will discuss our portfolio in more detail shortly. Our second initiative was to improve the liquidity of our shares and grow the company prudently and accretively. KKR is the largest investor in the company owning approximately 35% of outstanding shares. We are extremely aligned with our shareholders and are focused on being good long-term stewards of capital.

Given our performance and investment pace, we raise accretive equity twice in 2018. These transactions helped fund our growing pipeline and increase the three-month average daily trading volume of our shares are approximately six times from 55,000 shares per day at the end of 2017 to 320,000 shares per day currently. Third, we discussed our strategic initiative to diversify our funding sources and improve the cost structure of our liabilities. We gauge KKR Capital Markets to help us source this differentiated capital. By leveraging the broad capital markets relationships of KKR, we exceeded expectations. We created an attractively priced $1 billion non-recourse non-mark-to-market term loan facility another, $200 million non-mark-to-market asset specific financing facility and issued one of the largest commercial real estate managed CLOs in over a decade.

In 2018, the company significantly diversified its financing sources, especially those sources that provide non-mark-to-market financing, reducing our exposure to market volatility. As of year-end 60% of our outstanding borrowings were non-mark-to-market compared to 13% at year-end 2017. By diversifying our funding sources and reducing our cost of liabilities, we were able to offset some of the spread compression that we've seen, we continue to deliver an attractive risk-adjusted return to our shareholders. In 2019, we will focus on executing the same strategy that has made us successful thus far. We will continue our conservative investment strategy to preserve capital, will continue to be creative and seek out ways to further enhance our balance sheet and drive down our cost of capital and increase our non-mark-to-market financing sources.

Finally, we will continue to focus on improving the liquidity of our shares and we'll look at various alternatives to grow our company when it is prudent and accretive. 2018 was a record year for our company. Overall, we are pleased with our origination activity, our market positioning, our portfolio and pipeline. We are excited about the growth opportunities for KREF in 2019. And we look forward to continue to create value for our shareholders.

With that, I'll turn the call over to Matt.

Matt Salem -- Co-Chief Executive Officer and Co-President

Thanks, Chris, and good morning, everyone. I'll start by discussing our investment activity. The fourth quarter was a record origination quarter for us. Capping a record year, we originated seven floating rate senior loans totaled $908 million. These loans are collateralized by six multifamily properties located in New York, Queens, Philadelphia, West Palm Beach and San Diego and by an upscale hotel in Fort Lauderdale.

The Weighted average LTV and coupon for these loans are 69% and LIBOR plus 3%, respectively. And on levered basis, the loans had a weighted average underwritten IRR of 12.1% at spot LIBOR, which is consistent with our existing portfolio. These loans fit our program of light transitional lending to institutional sponsors in major markets. As Chris mentioned, in 2018, we originated $2.7 billion of senior loans compared to $1.5 billion last year. The 19 loans have a weighted average LTV and coupon of 70% and LIBOR plus 3%, respectively. And we're originated to generate a weighted average IRR of 11.9% on a levered basis. The loan is secured by mix of property types, including multifamily, office, industrial and hospitality located across major markets. Multifamily and office property types represent 92% of total 2018 origination volume.

Importantly, our average loan size is also increasing, with an average of $144 million in 2018, up 16% compared to last year. Our brand awareness and market presence have improved in 2018, which has led to increase market penetration. In this competitive market, we differentiate ourselves through non-economic variables like speed, certainty and creativity, as it relates to structuring around complexity. We have also developed a strong reputation, as being responsive partner to our borrowers, during the post close face the loan, which is driving significant repeat business across our portfolio.

Four to seven loans this quarter and half of the loans originated in 2018 were to repeat borrowers. Borrower experience is important in transitional lending and we pride ourselves on being responsive and providing high quality service. Our ability to convert existing borrowers to repeat borrowers, speaks volumes about our team, process and reputation. As our origination volume and portfolio has expanded, we continue to add resources to our team.

In the fourth quarter, we hired Christine Patterson to lead our asset management platform across the real estate credit business. Our strong origination pace has continued into the first quarter. We have already closed one senior loan, totaling $76 million. The loan is secured by 196 key, full service hotel, located in Brooklyn, New York. And has a weighted average LTV and coupon of 69% and LIBOR plus 2.9%, respectively. In terms of repayment this quarter, we received $100 million repayment of the senior loan, secured by a multifamily property in Hawaii, and we had an $11 million pay down of our condo inventory loan. Post quarter end, we received $300 million of loan repayments, including a multifamily property in Denver, an office in Atlanta and an office in Brooklyn. As discussed on previous calls, we expect to see a pickup in repayment volume as we enter our more run rate payout schedule in the first half of 2019.

Turning to our portfolio, as of December 31st, our portfolio totaled $4.1 billion with another $430 million of future funding obligations. 100% of our loans are performing and our securities portfolio is performing as expected. The portfolio is 98% invested in senior loans and is diversified both geographically and across property types. Notably office and multifamily comprised 86% of the portfolio. As we've discussed on the last few calls, we continue to concentrate on the multifamily and office property types, due to the shorter term, light transitional business plans.

As of quarter end, the average occupancy of the office properties in our portfolio was approximately 80%. We are focused on creating a defensively positioned portfolio and we will continue to target the highest quality opportunities, trading incremental yield for credit quality. In summary, we have a defensively positioned portfolio and our origination activity continues to meet our expectation in terms of credit, volume and return.

Now I'll turn the call over to Patrick.

Patrick Mattson -- Chief Operating Officer and Secretary

Thank you, Matt. and good morning, everyone. Our portfolio, which totaled $4.1 billion at the end of the quarter has a weighted average risk rating of 2.9 on a five-point scale consistent with the prior quarter, and we have no loans with the rating above a 3. As of quarter end, 98% of the portfolio was invested in LIBOR-based floating rate loans, which positions us well to benefit from increases in short-term interest rates. Additionally, our launch generally feature LIBOR floors minimizing the impact of interest rate decreases.

Looking at the right-hand side of the balance sheet, we continue to optimize our financing. As Chris mentioned, in the fourth quarter, we closed a $1 billion managed CLO. The closing of our inaugural CLO transaction represents another important step in diversifying our financing sources and increasing our total non-mark-to-market financing capacity. The CLO provides the company with $810 million of match-term financing on a non-mark-to-market and non-recourse basis. It is a two-year reinvestment feature with an 81% advance rate at a weighted average running cost of capital of LIBOR plus 1.36% before amortized cost. The scale and quality of our loan portfolio positioned us to execute this market leading financing at an attractive cost of capital.

KKR Capital Markets has been instrumental and helping us explore funding options and improve the cost and structure of our liabilities. In addition to the CLO, working with the capital markets team in 2018, we put in place a $1 billion matched term, non-mark-to-market and non-recourse term loan financing facility. We also closed on a $200 million match term non-mark-to-market asset specific financing facility. And in the fourth quarter, we added a new $100 million unsecured corporate revolving credit facility replacing a $75 million secured revolver. The attractive cost of these various funding options allows us to compete for the highest quality lending opportunities and secure better credits for KREF, while still delivering an attractive return to the company. In addition, the liability structure is more durable from a mark-to-market perspective and improves our ability to manage risk and liquidity on the balance sheet.

This financing activity brought our total non-mark-to-market financing to $1.8 billion as of year-end, representing 60% of our total outstanding asset-based financing. Our term credit facilities represent the remaining 40% of outstanding financing. As a reminder, these facilities, do not have capital markets mark-to-market provisions, further enhancing the durability of our balance sheet.

Turning to the debt to equity ratio. We closed the year at 1.1 times and 2.6 times from a total leverage perspective. As a reminder, we generally target a three to four times leverage ratio on new senior loans depending on the source of financing. One other note on the balance sheet. Given the equity market volatility in the fourth quarter, we repurchased approximately 900,000 shares at a weighted average price of $19.12 per share for a total of $18 million, bringing full year repurchases to $31 million. As of today, $27 million is remaining for future stock repurchases below book value and an additional $50 million is generally available during this authorization period.

Finally, to discuss our dividend. As we have stated before, our dividend policy is to pay out essentially all of our taxable earnings on an annual basis. For the full year 2018, we paid $1.69 per share in dividends to our shareholders. Compared to approximately $1.65 per share of taxable earnings. This compares to GAAP net income of $1.58 per share and net core earnings of $1.81 per share for 2018. As a reminder, net core earnings included the realized gain on the sale of our CMBS investments in the second quarter. Going forward, we would expect our taxable income, GAAP earnings and net core earnings to be more closely aligned.

Wrapping things up, 2018 was a record year for our company and we are off to another strong start in 2019. Our pipeline remains robust. Our portfolio is performing and we made significant progress creating differentiated financing.

Thank you, again, for joining us today. And now, we're happy to take your questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) And today's first question comes from Jade Rahmani of KBW. Please go ahead.

Jade J. Rahmani -- Keefe, Bruyette & Woods -- Analyst

Thanks very much. At the outset, can you give any color into how KKR is thinking about its interest in KREF noting that the shares have been registered? Have gotten some questions from investors about this and I think this some clarity could potentially be constructive to the stock price.

Chris Lee -- Co-Chief Executive Officer and Co-President

Hey, Jade. Good morning, it's Chris. We can't really comment much about KKR's investment in KREF because it's clearly not within the control of this management team. I think what we would say is, it continues to be a large strategic position for KKR, I think number one, number two, KKR is a prudent seller of any shares in any of the portfolio companies that we have either ceded or have sponsored overtime. So I think you can look to some of the historical press, so over the last 42 years, we've transitioned companies to the public. But I think, you can think about anything that KKR does with shares, it will be in a responsible manner and it is a -- although it's a core position, it is not a position that is outsized from a KKR perspective. So it's something that will be managed prudently when it really at the discretion of the leadership of KKR and et cetera.

Jade J. Rahmani -- Keefe, Bruyette & Woods -- Analyst

Do you know if they have any concerns about the commercial real estate cycle and what may play out later this year with respect to trajectory of interest rates. And if that will influence how they're thinking about it?

Chris Lee -- Co-Chief Executive Officer and Co-President

Yes. No, we -- the firm is very, very constructive in terms of supporting the real estate business and this is just one position of the broader approximately $1 billion of balance sheet allocated to the KKR Real Estate business. So if you listen to any of the KKR earnings call, this is a strategic business for the firm. It's a business that is strategic in terms of growth in the KKR's earnings outlook in the future. So it is a business that the firm will continue to support and that will continue to allocate capital and resources to in the future.

Jade J. Rahmani -- Keefe, Bruyette & Woods -- Analyst

And just a follow-up on that point. On their call, they did mentioned launching other strategies in real estate credit beyond pieces, can you elaborate on that and how KREF may play in that?

Chris Lee -- Co-Chief Executive Officer and Co-President

Yes, I mean, we can't talk about any in-progress fundraising. I think what I would continue to say is that KKR will continue to add adjacent products, products that are synergistic with our existing in businesses that could be across real estate credit or in real estate equity, and most likely those new strategies will be supported by the balance sheet of KKR. We can't really talk about any other existing strategies, other than any strategies that we add will likely be synergistic and in additive to anything that we're already doing today.

Jade J. Rahmani -- Keefe, Bruyette & Woods -- Analyst

In terms of the earnings outlook with the spike in 1Q repayments and the decline in the portfolio that seems likely. Do you anticipate fully earning the dividend out of net core earnings this year and do you see any potential for a dividend increase later in the year?

Patrick Mattson -- Chief Operating Officer and Secretary

Hey, Jay, good morning. It's Patrick. Thanks for the question. Just a comment on the dividend, as we've said, we've set a dividend based on our expectation of taxable earnings for the year and obviously, we increased it last year based on that assumption as well as kind of our outlook for our origination pipeline. And I think if you look at where we are on a leverage basis today, obviously, we've got some additional capital to deploy. But based on a full deployment, we feel confident in the dividend that we've set today, and expect as we realize on this pipeline and the benefit of those loans or on the balance sheet that will be at a point where the cut -- we're in coverage of the dividend.

Jade J. Rahmani -- Keefe, Bruyette & Woods -- Analyst

Thanks very much for taking the questions.

Operator

And our next question today comes from Steve DeLaney of JMP Securities. Please go ahead.

Steven DeLaney -- JMP Securities -- Analyst

Good morning, and thanks for taking the question. Leveraged moved up very nicely in the fourth quarter from 1.9 times to 2.6 times at year-end. Just curious if you could comment on how much higher you expect that to go in 2019. I assume the CLO contributed to the more robust leverages as well? Thanks for any comments going forward, where that 2.6 times might move too? Thank you.

Patrick Mattson -- Chief Operating Officer and Secretary

Good morning, Steve, it's Patrick. I'll take that. You're right. As we've added some of the non-mark-to-market financing, including the CLO, we've been borrowing at a closer to four times leverage ratio. And so, we were 2.6 times at the end of the year as we continue to gravitate more toward -- more of these non-mark-to-market financing, I expect us on a total leverage ratio to be in that north of 3 to 4 times range.

Steven DeLaney -- JMP Securities -- Analyst

That's very helpful. Thank you, Patrick. And then just kind of tied into that, if you look at your balance sheet as we sit today, given the repayments and the one I think you had $100 million or so in loans, and $300 million come in. When you look at mature capacity right now, could you estimate the capacity to fund net new loans with the existing balance sheet?

Patrick Mattson -- Chief Operating Officer and Secretary

Sure. Estimate right now is about $1 billion of new loans.

Steven DeLaney -- JMP Securities -- Analyst

$1 billion, OK. Thank you, guys. That's all I have this morning.

Operator

And our next question today comes from Kelly Wang of Citi Please go ahead.

Kelly Wang -- Citi -- Analyst

Thanks for taking my question. Could you just talk about this broad dynamic, are you seeing a moderation of the compression? Or just how should we think about it going forward?

Matt Salem -- Co-Chief Executive Officer and Co-President

Hi. Yes. Thanks for the question. Its Matt. I'll answer it, and maybe touch on couple of other points as well in terms of just the broader market and how it's impacting the portfolio. The market continue to be competitive, but it is disciplined, and to your point, we haven't seen the spread compression that we experienced in the first half of 2018. In terms of impact of some of the competition in the first quarter, I think that the first quarter volumes will be a little low, but that's going to be due to really seasonality as well as some of that volatility that we saw in the fourth quarter of last year. And as we look out in the pipeline, it feels pretty robust. We would still expect 2019 originations to be in line with last year. I know there's been a couple of comments around repayment and we are seeing a higher level of repayments as our portfolio seasons and our borrowers execute on their business plan. So given the larger loan size both in originations per quarter and repayments per quarter can be lumpy, but we expect repayments call $300 million to $500 million per quarter this year.

Kelly Wang -- Citi -- Analyst

Great. And could you maybe just talk about like general competitive market and where do you see the most attractive opportunities in terms of locations and property types?

Matt Salem -- Co-Chief Executive Officer and Co-President

Yes, I think, well, say number one, as we have gravitated higher in loan size, we think that's the most attractive part of the market. It offers the highest quality borrowers as well as real estate and at the same time has the least amount of competitors. So I think from a size perspective, you saw us grow to around 16%, upto $140 million -- over $140 million this year in average loan size. So I think you'll continue to try to see us move higher to take advantage of those dynamics. I don't think from a markets perspective or a property type perspective, we're really looking into change much. If you look at our origination last year, I think if you look at this quarter, it will be focused predominantly on the multifamily and the light transitional lending and the office segment as well. And we've always been more of a top 30 lender. We want to play in the more liquid, more transparent markets we think over time that will prove out to be a higher quality credit. So from that perspective, I think you'll just see us do a little bit more of the same.

Kelly Wang -- Citi -- Analyst

Okay. And in terms of the timing of the deals in 4Q, were they quarter end weighted or were they just spread throughout the quarter?

Patrick Mattson -- Chief Operating Officer and Secretary

We did -- this is Patrick, they were spread out through the quarter, but they were more oriented toward the back end of the quarter. So we didn't get the full impact of those originations until the first quarter.

Kelly Wang -- Citi -- Analyst

Got it. Okay, that's it for me. Thank you.

Patrick Mattson -- Chief Operating Officer and Secretary

Thank you.

Chris Lee -- Co-Chief Executive Officer and Co-President

Thank you.

Operator

(Operator Instructions) Today's next question is a follow-up from Jade Rahmani of KBW. Please go ahead.

Jade J. Rahmani -- Keefe, Bruyette & Woods -- Analyst

Thanks. Based on the elevated level of 1Q repayments, do you anticipate early prepayment income in the first quarter?

Chris Lee -- Co-Chief Executive Officer and Co-President

Yes. This is Chris. We expect it to be a little bit episodic. We will have a combination, sometimes prepayment income will be associated, but what we will see is the acceleration of any unamortized OID. So you should expect to see that become a little bit more normalized, when we get on a more normal repayment schedule like Matt mentioned earlier and that will sometimes be lumpy, depending on the size or the tenure of the loan that gets repaid, but it will become a little bit more normalized in 2019.

Jade J. Rahmani -- Keefe, Bruyette & Woods -- Analyst

When were the 1Q repayments originated? Just generally speaking.

Chris Lee -- Co-Chief Executive Officer and Co-President

I think we had some is 2016, '17...

Matt Salem -- Co-Chief Executive Officer and Co-President

'16 and '17.

Chris Lee -- Co-Chief Executive Officer and Co-President

'17.

Jade J. Rahmani -- Keefe, Bruyette & Woods -- Analyst

Okay. So based on that, there shouldn't be much acceleration of unamortized fees?

Matt Salem -- Co-Chief Executive Officer and Co-President

That's already season.

Chris Lee -- Co-Chief Executive Officer and Co-President

No, there'll be some, especially on some of the 2017 because you have -- these are usually three-year initial based terms. So you'll have some unamortized over -- if the loan gets paid off in two years and the amortization period was three years, you will have some.

Jade J. Rahmani -- Keefe, Bruyette & Woods -- Analyst

Okay. Separately, are you seeing any concessions that lenders are making on origination fees and/or structure?

Matt Salem -- Co-Chief Executive Officer and Co-President

Hey, Jay. Its Matt. I don't think we're seeing anything material that hasn't kind of been in the market on the fee side when we start there. I don't think -- there's not really any change over the last few quarters. Our fees ranged from -- our upfront fees will range from 50 basis points to a point generally, as an organization fee and it's just individual deal dynamics, determine that range, and on more the structure side, I don't think we're seeing anything different over the last few quarters. The market feels discipline to us, some of the loan term -- some people are giving longer based terms, but again, we play and invest and really that -- really light transitional part of the market. So these -- a lot of the properties are largely stabilized. So you can see a little bit more base terms outside of that and I wouldn't say there's anything material.

Jade J. Rahmani -- Keefe, Bruyette & Woods -- Analyst

Did any of the volatility that played out in December impacts the market, did you see a pause, do you anticipate that impacting 1Q volumes. Has there been any impact on the pipeline?

Matt Salem -- Co-Chief Executive Officer and Co-President

Yes. I mentioned that I think earlier, I do think it slowed things down for the first quarter. I mean, the first quarter is always a little bit slow just given clearly holidays and some the conference schedules, but I do think that will have an impact and push our total origination volume more weighted toward post first quarter or toward the end of the first quarter. So I do see an impact from that. But outside of just a delay, a slight delay and the timing of our originations, I don't see -- I don't think it really had a material impact on where we stand today in terms of spreads and market dynamics.

Jade J. Rahmani -- Keefe, Bruyette & Woods -- Analyst

Thanks for taking the questions.

Chris Lee -- Co-Chief Executive Officer and Co-President

Thanks, Jay.

Operator

And our next question comes from Don Fandetti of Wells Fargo. Please go ahead.

Don Fandetti -- Wells Fargo -- Analyst

Hi, good morning. I was wondering if you could dig in a little bit more on, as you talk to large private real estate buyers of transitional properties, given the volatility, then the fed pausing, which could arguably create more deal velocity. I mean what are you hearing from the private side? Are they spook by what happen? Are they still confident? What sort of your expectation over the next 12 months in terms of the behavior of the buyers of these properties?

Chris Lee -- Co-Chief Executive Officer and Co-President

Hey, Don, it's Chris. I think what we saw at the end of the year, I think gave people a little bit of pause, but I think coming back in the fed, change in their tone has clearly settled down the market a lot. We number one see a fair amount of dry powder that's still sitting on the sidelines and is -- it's actually allocated to the value add and opportunistic space. We are in that business as well. So you have a dynamic of people who are in the market looking to buy properties, but I think the second part is you have legacy funds where people need to sell properties as well. So we saw last year was a very healthy real estate capital markets and we expect this year to be quite healthy when you think about the combination of equity dry powder you have a healthy debt capital markets, whether it's in the bank or in the transitional lending space and then you have active sellers on the other end as well. So we expect this year to be pretty target-rich from a deployment perspective. And I'd say the last comment is because spreads have compressed over the last couple of years, you have a lot of existing owners that are looking to refinance properties that are outside of their call protection period. So some of the loans that we are making are bridge loans to take out construction loan, or sometimes another bridge lender, and we're also seeing that where some of our take-outs are not necessarily sales of properties, but someone taking us out to execute maybe a safer or less risky stage of the business plan. So we actually think this year with sets up quite well for the transitional lending segment.

Don Fandetti -- Wells Fargo -- Analyst

Thanks, Chris. Helpful.

Operator

And ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the conference back over to Sasha Hamilton for any closing remarks.

Sasha Hamilton -- Investor Relations

Thank you, again for joining us on the call this morning. If you have any follow-up questions, feel free to reach out to me directly. Thank you.

Operator

And thank you. Today's conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

Duration: 37 minutes

Call participants:

Sasha Hamilton -- Investor Relations

Chris Lee -- Co-Chief Executive Officer and Co-President

Matt Salem -- Co-Chief Executive Officer and Co-President

Patrick Mattson -- Chief Operating Officer and Secretary

Jade J. Rahmani -- Keefe, Bruyette & Woods -- Analyst

Steven DeLaney -- JMP Securities -- Analyst

Kelly Wang -- Citi -- Analyst

Don Fandetti -- Wells Fargo -- Analyst

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