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KKR Real Estate Finance Trust Inc. (KREF) Q1 2021 Earnings Call Transcript

By Motley Fool Transcribers - Apr 27, 2021 at 1:30PM

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KREF earnings call for the period ending March 31, 2021.

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KKR Real Estate Finance Trust Inc. (KREF 1.07%)
Q1 2021 Earnings Call
Apr 27, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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].

I would now like to turn the conference over to Jack Switala. Please go ahead, sir.

Jack Switala -- Investor Relations

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 I 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 31st, 2021 increased to $18.89, which includes the CECL impact of $1.06 per share, as compared to $18.76 as of December 31st.

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.

Matt Salem -- Chief Executive Officer

Thank you, Jack, and welcome to the team. Good morning, everyone, and thank you for joining us today. We hope you are 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 1.3 times. This is a continuation of the success we had in 2020, where distributable earnings covered our dividend by over 1.1 times, despite the global pandemic.

Our earnings continue 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 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 31st.

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 -- 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 improved 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 rent as tenant leases expire. Finally, we have 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 principle 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 and activity in the life science and industrial sectors. I'd note this current pipeline is underwritten to 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 in retail continue to be underweight and represent just 6% of the portfolio. Performance of the loan portfolio remain 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.

Patrick Mattson -- President and Chief Operating Officer

Thank you, Matt, and good morning, everyone. As of quarter end, 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 were 2.1 times and 3.7 times, respectively. Following the preferred stock raise, our debt-to-equity ratio and total leverage ratio sits at 1.7 times and 3.1 times, 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 five 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 three or better, which has improved from 84% in Q4. The improvement is the result of two -- four risk rated 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 risk rated at five and is primarily comprised of our Portland retail loan.

While the property remains challenged, we continue to dialog with the existing and prospective sponsors regarding the next phase of the property and we continue to believe there are 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 basis points 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, 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 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 now we're happy to take your questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] And our first question today will come from Jade Rahmani with KBW. Please go ahead.

Jade Rahmani -- KBW -- Analyst

Thank you very much. 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 can be elevated in the back half of the year or under pressure in the back half of the year?

Matt Salem -- Chief Executive Officer

Hey, 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 -- with the existing portfolio and the embedded LIBOR floors. We're seeing that 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.

Jade Rahmani -- KBW -- Analyst

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

Matt Salem -- Chief Executive Officer

Yeah. Well, 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 -- from those LIBOR floors anymore and then the -- the excess -- the excess NIM. But in that -- in those quarters, they pay off. We'll see a little bit of that come through.

Jade Rahmani -- KBW -- Analyst

And the weighted average IRR of 13% to 14% on the pipeline, how does that compare with the IRRs the company has historically generated?

Matt Salem -- Chief Executive Officer

Yeah. I mean, you want to just think about the market environment today, I guess comment one would be, the pipeline is very big. So there is lots of opportunities to look at. So that's certainly a positive in what we're seeing. Competitive environment was high, and we've certainly seen spread and yield compression in the market. That being said, the way we finance ourselves, there is 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 will look a little bit more like we did pre-COVID. So closer to that 11% to 12% on an IRR context, just as -- our expectation of the competitive pressures on the market continue.

Jade Rahmani -- KBW -- Analyst

And just the last question would be in terms of capital management, capital issuance that the preferred stock issuance, with the stock at about 6% above book value, what level would -- would it make sense to issue common equity?

Matt Salem -- Chief Executive Officer

Yeah. 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, it took a lot of our 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're 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 and 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 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.

Jade Rahmani -- KBW -- Analyst

Thank you very much.

Operator

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

Stephen Laws -- Raymond James -- Analyst

Hi. Good morning. 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 sort of -- sorry, repayment wave in the second half, you're actively trying to increase the unfunded commitment balance to have those draw downs take place in three months or six months or 12 months. I mean is that something you look to do or is that just coincidental as post 2Q originations or post -- post 3/31 originations.

Matt Salem -- Chief Executive Officer

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 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, 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 new build -- from new build industrial. So that -- 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 effective 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.

Stephen Laws -- Raymond James -- Analyst

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

Patrick Mattson -- President and Chief Operating Officer

Stephen, 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 one hotel loan in Brooklyn, 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 quarter we also saw 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.

Stephen Laws -- Raymond James -- Analyst

Okay. Great. So pretty, pretty small debt especially relative to some peers. Thanks, Patrick. Matt, last question. Maybe of the four loans to New York, Resi, Brooklyn Hospitality, Queens industrial, can you maybe just talk about New York, you guys were there, feet don't the ground. So maybe just give us a bigger picture 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?

Matt Salem -- Chief Executive Officer

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 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 fall -- in the fall from -- 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. And so that's a little bit more, I would say, uncertain at this point in time. And I would 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 qualities that or the asset property types that we have, we think about the condo, I think the condo inventory loans that we have, the two that you mentioned, one that has product readily for sale. It's a little bit later in its business cycle or its 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 certainly seen that at our -- at our property. I think we've had almost $50 million of sales since COVID and there isn't number of units still under contracts that haven't 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 is liquidity in clearing levels. And those are the comments I make around New York.

Stephen Laws -- Raymond James -- Analyst

Great. I appreciate the color there. Thanks for the comments, Matt and Patrick, and congratulations on nice quarter and the recent capital raise.

Matt Salem -- Chief Executive Officer

Thanks, Stephen.

Patrick Mattson -- President and Chief Operating Officer

Thank you.

Operator

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

Tim Hayes -- BTIG -- Analyst

Hey, good morning, guys. 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 down and/or advance rates move up, as the banks are competing with a very hot capital markets backdrop 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 you feel about that financing strategy in the near term as well?

Patrick Mattson -- President and Chief Operating Officer

Tim, good morning. It's Patrick, I'll take both of those. So first on the financing cost. Yes, we're seeing compression on the liability -- on the liability side. Sometimes these don't always move in tandem, and sometimes there is 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 one or two 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 the market that we continue to track closely.

We've 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 passed 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 and particular in the CRE CLO market, as we're thinking about financing needs over the course of this year.

Tim Hayes -- BTIG -- Analyst

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 could -- 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 that 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 little 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 pickup?

Matt Salem -- Chief Executive Officer

Sure. So I think -- I think about the offset has been 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 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. 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 are 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'll 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 reset a new LIBOR floors to the current spot rate. So 10 basis point 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 higher rate -- in a higher rate environment.

Tim Hayes -- BTIG -- Analyst

Right. That definitely makes sense. And I can go back and see kind of what -- excuse me, dividend coverage look like before COVID and if that's kind of where NIM is expecting to trend, we can kind of put tune 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?

Matt Salem -- Chief Executive Officer

Yeah. 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 -- 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.

Tim Hayes -- BTIG -- Analyst

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?

Matt Salem -- Chief Executive Officer

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 a interest collection standpoint, it remains the same. Two loans that we're not collecting on, which is 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 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 -- so directionally, I think it's positive. I don't have an exact figure in terms of what those collections have been, but they have 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.

Tim Hayes -- BTIG -- Analyst

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

Matt Salem -- Chief Executive Officer

Thanks, Tim.

Operator

And our next question will come from Charlie Arestia with JP Morgan. Please go ahead.

Charlie Arestia -- JP Morgan -- Analyst

Hi, good morning, guys. Thanks for taking the questions. Most of them have been covered already. But I 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 475, and I think there was 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 in 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?

Patrick Mattson -- President and Chief Operating Officer

Hey, Charlie, thanks for the question.

Matt Salem -- Chief Executive Officer

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

Patrick Mattson -- President and Chief Operating Officer

Sure.

Matt Salem -- Chief Executive Officer

I would say on the new origination front we're 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 can get a little -- you can catch 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 low 3% context like the very light transitional assets right now. Patrick I'll hand it over to you for the second part.

Patrick Mattson -- President and Chief Operating Officer

Yeah. On the financing side, it's really -- 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 day that expires September 1st 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 -- but we're encouraged by what we're seeing in that market and obviously there is 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 aggregator form is 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 cost down over time.

Charlie Arestia -- JP Morgan -- Analyst

Got it. Okay. Thanks for that. 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, I 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?

Matt Salem -- Chief Executive Officer

Yes. It's, Matt. I can take that one. Yeah. 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 build -- to built rent for an institutional sponsor that we covered pre-pandemic. It's a unique opportunity within Phoenix. This is an area that has a lot, when I say area, 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 -- continue to do these. But there is 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.

Charlie Arestia -- JP Morgan -- Analyst

Thanks very much for taking the question.

Operator

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

Don Fandetti -- Wells Fargo -- Analyst

Yes. 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?

Matt Salem -- Chief Executive Officer

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

Don Fandetti -- Wells Fargo -- Analyst

No problem.

Matt Salem -- Chief Executive Officer

So let me give you the current month occupancy within the 70s, ADR in the high 300s, so RevPAR very high 200s. If you look back to like a stabilized number, call it, like a T12 pre-COVID, rev occupancy is in line with that and ADR is actually higher. So our RevPAR for this current month is beating the -- is ahead of call the T12 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 delevering the loan by $10 million. So -- and we upgraded this loan from a four to a three for all these performance and the most recent modification, etc, so...

Don Fandetti -- Wells Fargo -- Analyst

Got it. Thanks for the details. 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, that's in -- the pipeline for e-commerce would be pretty competitive. Are you seeing a lot of competition in those types of deals or is there enough sort of construction risk to where you can like create some value?

Jack Switala -- Investor Relations

It's a competitive sector, but it does feel like there is 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 is 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 to overlap them what we're doing on the equity side and the credit side and vis-a-vis. So I do think there is -- 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.

Don Fandetti -- Wells Fargo -- Analyst

Okay. Thank you.

Operator

And our next question will come from Steve DeLaney with JMP Securities. Please go ahead.

Steve DeLaney -- JMP Securities -- Analyst

Thanks. Yeah. Thanks, and good morning, everyone. I would also like to welcome, Jack. We look forward to working with you moving forward. Guys, obviously everything is -- has been covered, pretty, 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 two -- four loans that were upgraded to three. And given that there are several other four rated loans, if those were to also be upgraded, could there be additional CECL recoveries in the -- in the year ahead? Thanks.

Mostafa Nagaty -- Chief Financial Officer and Treasurer

Good morning, Steven. This is Mostafa Nagaty. Hope you're doing well.

Steve DeLaney -- JMP Securities -- Analyst

Hi, Mostafa.

Mostafa Nagaty -- Chief Financial Officer and Treasurer

Thanks for the question. Hi, Steven. So yeah, good question. So with respect to the CECL obviously we had the $1.6 million benefit and then, this is a variety of factors that kind of resulted in this net decreased our reserve quarter-over-quarter. I think for most is really the macroeconomic scenario that we implemented 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 namely the Fort Lauderdale hotel that were also resulted in -- about a good portion of the decrease. That will 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 two key factors here kind of the upgrades and the upgrades for the hotel loan that Patrick just touched on, as well as the macroeconomic assumption.

Steve DeLaney -- JMP Securities -- Analyst

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

Matt Salem -- Chief Executive Officer

Thank you.

Operator

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

Arren Cyganovich -- Citigroup -- Analyst

Thanks. You mentioned your pipeline is fairly large, and you've had some nice activity post quarter. What -- what's the activity of the sponsors, are you seeing that kind of continued to increase, is it or 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?

Matt Salem -- Chief Executive Officer

Well, thanks for the question. I definitely think we see increased activity from all the -- from all of our sponsors and that's just a continuation really of I'd 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 how the real estate is set up right now from a macro view in a low interest rate environment, where there is potentially long term concern around inflation, real estate sets 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 -- the 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 is a lot of haves in the real estate world now that and there is a much more clear bifurcation between the have and have not. And so, sectors with the most entrants are all the -- all the housing sectors. So obviously multifamily, single family, rental, I think there is a lot of demand for coming back for student housing, as schools announced their back to school programs for the fall. 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 a capital base, it's obviously from the tenant base as well that's driving this activity. And there is 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 is 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 sectors aren't something we've historically done and involved in. But certainly, you've seen a big pause therefore for the obvious reasons. So I'd say nothing too unexpected, just continue the activity and the real focus on where people have identified growth.

Arren Cyganovich -- Citigroup -- Analyst

Very helpful. Thank you.

Operator

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.

Jack Switala -- Investor Relations

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.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

Jack Switala -- Investor Relations

Matt Salem -- Chief Executive Officer

Patrick Mattson -- President and Chief Operating Officer

Mostafa Nagaty -- Chief Financial Officer and Treasurer

Jade Rahmani -- KBW -- Analyst

Stephen Laws -- Raymond James -- Analyst

Tim Hayes -- BTIG -- Analyst

Charlie Arestia -- JP Morgan -- Analyst

Don Fandetti -- Wells Fargo -- Analyst

Steve DeLaney -- JMP Securities -- Analyst

Arren Cyganovich -- Citigroup -- Analyst

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