W. Patrick Mattson
Thanks Matt, good morning, everyone. Fourth quarter repayments exceeded $450 million comprised of six loans secured by multifamily and industrial properties as well as the par sale of a Dallas office loan full year repayments to $1.5 billion representing approximately 19% of our portfolio.
The reported fourth quarter distributable earnings prior to realized losses of $0.31 and de of negative $0.21 per share, which includes the realized loss on the San Carlos Life Science loan. We now have four watch list loans in the portfolio representing 8% of the loan portfolio compared to 13% a year ago.
While additional watch list loans would not be surprising over the course of this year, we remain confident that we are well beyond the peak stress with excess liquidity, a stabilizing portfolio and leverage at the low end of our target, we are actively looking to invest repayments into new loans.
Repayments are expected to exceed $1 billion again this year. And given our current leverage levels, we anticipate originations to outpace repayments in the near term.
We closed two loans for a total of $225 million last month including a four property multifamily portfolio of newer vintage and recently renovated assets with a business plan to improve physical occupancy and burn off current concessions.
Turning to our Cecil allowance and watch list as we suggested in the previous earnings call in fourth quarter, we modified the San Carlos Life Science loan and subordinated a portion of the loan to new sponsor equity.
The $36 million subordinated note was written off and the corresponding cecil reserve was released.
Subsequently, the restructured and reduced senior loan was upgraded to a risk rating of three. Our total Cecil reserve decreased to $120 million or 92% and 92% of the portfolio is risk rated three or better on our watch list. We continue to make progress on our West Hollywood Multifamily loan and we are continuing down a path to ownership and subsequent condo sell out.
We will keep you updated on the progress in the coming quarters. As of the fourth quarter, our debt to equity ratio is 1.6 times and total leverage ratio is 3.6 times KFS leverage at this point is on the lower end of our target zone. So we are actively originating loans as part of our investment allocation.
We've continually looked to evaluate share repurchase opportunities.
Prior to the fourth quarter, we bought back almost $100 million of stock since inception of the company in the fourth quarter, we added to that total repurchasing $10 million of KREF stock representing a weighted average stock price of $11.64.
We've made great progress on our watch list over the last 12 months and remain excited about the current market opportunity. There should be a stronger payment and origination year for KRF the lending market is attractive and we plan to be active.
We feel confident in our positioning from a portfolio quality liability structure and leverage perspective and look forward to the opportunity ahead in 2025.
Thank you again for joining us this morning and now we're happy to take your questions.
Operator
(Operator Instructions) Tom Catherwood with BTIG. Please go ahead.
Tom Catherwood
Thanks and good morning, everybody. Maybe starting with repayments. Obviously, huge jump in four Q. You had alluded to that obviously, with three Q earnings just that you expect the pace to be accelerated. How has that pace trended with the steeping of the yield curve?
Kind of has that slowed as we've begun 2025? And you know, how much of that do you kind of expect of the, billion plus dollars of repayments? Do you think that that's likely early, 25 event or should it come in kind of evenly throughout the year.
W. Patrick Mattson
Tom. Good morning. It's Patrick, I'll take that that question. So, you're right. We did have a pretty meaningful acceleration in the, in the fourth quarter as you know, our, our loans are pretty chunky, so we get a few more repayments in any one quarter and that can sort of drive the numbers.
Obviously, that was at a time when we saw, rates back up and, there wasn't a meaningful impact in repayments. I don't see that as a main driver for, for the repayments, a lot of these loans have reached their business plans and it's about, optimizing the refinance for our, our counterparts, our counterparties.
So I don't see a material impact there in terms of the forecast this year, again, difficult sort of quarter by quarter. We certainly think it's over $1 billion this year.
If I had to, if I had to sort of lean one way or another, I'd probably say that's middle to sort of back end it, but it's, it's really, difficult to forecast. What we saw in the fourth quarter was an acceleration of some repayments that we had forecasted to repay in 2026 and, and obviously came early.
Tom Catherwood
Got it. Appreciate that. And Patrick, I just want to make sure I heard you right. Did you say you expect originations to exceed repayments in the near term in your [f ] remarks.
W. Patrick Mattson
That's right. And, and that really stems from the fact that we're at the low end of our leverage target here. So as we start to redeploy the capital, we think there's an opportunity for us to get ahead of some of these repayments, but also get back into the midrange of our, our leverage ratio.
So, out of the gates, we had a pretty strong January to start with. There were no repayments that came in that month. So, already in the first quarter, we're seeing the trend that I was discussing.
Tom Catherwood
Great. And then along those lines, can you talk about the kind of, I mean, obviously we, appreciate the color on the hospitality loan in Tennessee and the multi family loans in various locations. But as far as your pipeline, looking forward, can you talk a bit about the asset classes that you're targeting and maybe how the scope of that pipeline might compare to, pre-pandemic or kind of early 2020 times?
Matthew Salem
Hey Tom, it's Matt. Yeah. I can jump in on that one I think the first takeaway is largely the same in terms of what we're targeting and we're going to continue to target institutional sponsorship and really high quality real estate and major food groups.
So we'll continue to focus on multifamily industrial student housing. Obviously, we did a hotel deal this this quarter that's always been a little bit smaller part of what we've done. But you know, an important, an important piece of the portfolio.
In terms of just what's different. I would say a couple of things. Number One for us, Europe, we'd hope to we built a business in Europe over the last few years and we've been actively lending there. So we'd, we'd like to add that to the portfolio from a diversification perspective, again, similar property types and sponsors.
But we will get that geographic diversity in the portfolio. And then secondly, I would say from a business plan perspective, things tend to be a little bit more stabilized. And I think the multifamily deal that we you know that we did this, January is a good illustration of that where, before the rate increase, we were doing a lot of kind of newly built construction takeout lending and, and providing that bridge to, to lease the asset up and we still like that and we'll, and we'll still do that.
But this most recent deal is more a function of like the business plan is, it's, mostly leased assets, it may burn off some concessions over time, but our loan is really just providing the sponsor with just a little bit more time to get into a little bit better rate environment. And you grow revenues a little bit but not the same kind of dramatic increase in occupancy that we were lending on a few years back. So.
The underlying business plans have changed. And then from a property type perspective.The only thing I would add is just the data center sector continues to, we continue to see a lot of demand for financing there. And, and so I think that would be a new area that we could potentially introduce into the portfolio.
Tom Catherwood
I appreciate that the last one for me kind of sticking with you, for office, we would usually speak about the sector and hush tones. Obviously you mentioned in your prepared remarks, some positive shifts recently in the sector, albeit off of a very low base. But kind of how are you thinking of your office loans right now? Both you know, the ones on your, in your loan book and the REO assets on your balance sheet.
Matthew Salem
Yeah, I think there's three segments there. Probably I would highlight on the audio. The green shoots that we're beginning to see in the sector are encouraging, it's early still and I think we have to be patient but there's active.
There's leasing activity. And I, and I think what we own both in the office and in the life science sector, it's really high-quality real estate and the reason that we went to title on it and it's not without cost, let's let's be clear.
But the reason that we did. That was because we thought we had really good assets that would lease over time. And now we're beginning to see some of those, tenants come back into the market again early, but it's got to start somewhere. And so that it's nice to kind of see that again.
And then the second part of the portfolio I would comment on is just the three rated, three rated office loans there. It's a much more positive sign because the financing markets are back. So these are our three office loans tend to have a long term.
They're well leased, they have long remaining lease terms. And our leverage point is reasonable. So when as the financing markets come back, you know, you can see, you can start to see some liquidity in those positions. So I'd say that's pretty encouraging on that component.
And I think on the watch list side, it, it's, it'll still be, we've got a risk rated office loan in Minneapolis and, it's still probably a little bit of a wait and see and let's keep working through it. And we, we've modified that and have big reserves already.
But, you know, again, we're not, we're not finished with the, we're not out of that as yet either. So a little bit of a little bit of a mix depending on which group you're looking at.
Tom Catherwood
Got it. Appreciate all your thoughts. Thanks everyone.
Matthew Salem
Thank you.
Operator
Next question will come from Don Vendetti with Wells Fargo. Please go ahead.
Don Fandetti
Yeah, Matt. So, it seems like there's some cross currents in your business. You've got office getting a little bit better but higher for longer might not be so great for apartments, multifamily as you think about book value, should investors sort of view, this is a more stable environment, maybe a little bit of migration from three to four, but nothing too significant to where you're doing very large reserve builds and eating into that book or is that a reasonable, kind of base case over the next 12 months?
Matthew Salem
I mean, it's hard to look out, I'd say hard to look out. Into the future. I think we like, we try to make these comments that, we largely through, what we think is going to come through the portfolio, but we're not done yet.
So I don't know exactly what that means just because it's hard to, it's hard to, look at a couple of quarters and, and, and project, what, what might happen. And obviously it's a pretty volatile macro environment, rate complex and in the, in the economy as well.
So i it's hard, I think we're entering this phase where we're seeing we're going to see much more book value stability. But again, hard hard to object over a few quarters or a handful of quarters. Like, what else might come down the road?
Don Fandetti
Got it. And what's your sense on multifamily and your portfolio? You've had a couple of rate cuts? But now it looks like, maybe fewer. What are you hearing from borrowers? Are they sort of willing to hang in there? Is there still some hope?
Or, and if you do take real estate back, do you still feel like you can you know, still monetize the value because there's liquidity in multifamily?
Matthew Salem
Yeah, I with the multifamily, I'll kind of start where you ended, which is there's a tremendous amount of liquidity across the capital structure, senior loans, mezzanine preferred equity, there is a lot of a lot of demand for it.
And if you, if you just do the math of, the change in kind of the forward curve, it would imply that, values are down a little bit more, but there's a few things that are like offsetting that I would say number one spreads have compressed.
So the cost of capital has come in a little bit to offset some of that interest rate increase. Number two, we're, we're further down the road
The supply pipeline road, which means we're closer to that moment in time where good or bad these markets are going to be undersupplied again, we're not there yet, but we're close closer to it and that, that impacts the, just your projections as it relates to rents over time.
And then finally, it feels like this latest rate increase has been accompanied by more a higher degree of, of growth in the market. And so, perhaps investors are going to put a little bit more weight behind their rent assumptions or rental assumptions going forward. So there's, there's kind of some puts and takes, I would say as it relates to our portfolio.
I honestly don't think we have like a lot of like rate sensitivity in our multifamily portfolio. We've got a couple of watchlist loans. I don't think those are really rate sensitive. And then our overall portfolio, I don't think it really is. I think there's still equity cushion there.
And for the most part, and I don't think this rate move is, is really going to impact us that, that much. There were a lot of borrowers that elongated capital structures paid down loans to try to get to a lower interest rate environment.
And clearly they're going to have to wait a little bit longer. My guess is within our portfolio and our, the quality of the sponsorship we lend to my guess is that they'll continue to play that forward and they'll delever us a little bit and buy some more and buy some more time not every sponsor has got the liquidity, you know, to do that.
So as you start to get into smaller sponsors, that, that's where I think you could see a little bit more of delinquencies. And but I don't think values have changed that much over the last couple of quarters in multifamily.
Operator
Thanks. And our next question will come from Stephen Laws with Raymond James. Please go ahead.
Stephen Laws
Hi, good morning. Matt, I wanted to circle back on you made a couple of comments to the Minneapolis Office. I know you guys provided some color on the West Hollywood Multi Deal. But as you think about that Minneapolis Office asset five rated, it looks like the maturity date sometime in the first half this year.
You know, how do you, do you expect to, any color you can provide on kind of the resolution path there? Do you think that's something that moves into to the real estate portfolio? Do you expect something more aligned along of the San Carlos resolution? How do you anticipate that moving in the first half of this year?
Matthew Salem
Yeah, we don't, we don't have a determined path yet so we could go a couple of different ways. I think we have a little bit more time on an asset like that as well because it continues to be pretty well leased. It's, it's similar occupancy from over the last few years.
It hasn't we've lost some tenants, we've got some tenants. So it's, it's relatively well leased and in cash flowing well, and it competes well in the market and it's a Minneapolis is a really difficult market, but that asset competes, fine competes well in the market for tenants.
So I'm not exactly sure what the path is, but there's probably more options there just given the cash flow and we could potentially just try to push that forward again. And, and, and see if we can buy some more time.
Stephen Laws
Great, appreciate that color. You know, as you think about originations and, and use of capital, how do you, how do you view additional stock repurchases in the current market? You know, especially given kind of the sell off year-to-date, I guess, assume that's a quiet period. But how do you think about repurchase activity versus new originations going forward?
W. Patrick Mattson
Well.
Matthew Salem
Patrick did a nice job of highlighting on the remarks that we've been very consistent buyers of our stock when we thought it was undervalued. And I think we'll, we'll obviously continue to evaluate that that opportunity here. But, there needs to be a balance in my mind as well and our business is to invest capital in and make loans.
And I think it's important for us to for a lot of reasons vintage exposure portfolio diversification duration, to make sure that we're turned back on and, and making new loans. So it's, I don't like to think about it like one or the other, but I think as you saw us do over the course of the last few months, a balanced approach is kind of what we've taken in the past.
Stephen Laws
Great and Patrick one for you on Cecil. You know, as you think about the new originations coming on that originated, current environment, current cap rates new underwriting standards versus a few years ago. You know, how do you think about the right level of reserves on the new originations this year?
I mean, is it [75 Bs] [100 Bs]? Like, how do we think about the normalized return level as we move back to a portfolio? That's, that is increasingly, you know, originated in this current environment.
W. Patrick Mattson
That's a good question, Steve, certainly, as we're originating new loans just on the margin, I'd expect Cecil to go up a bit because it's model driven for these three rated loans and the model for, a short duration loan, like many of the loans on the book today have a lower Cecil than a newly originated, five year loan.
So I would expect that, marginally we'd, we'd sort of go up. Certainly, that's something that we're going to be evaluating as we're making new loans. And, and I think part of your question is, what's a minimum cecil that should be expected. And I think that's something that we continue to do work around.
But I do think at the margin over the course of this year, absent any other movement, we would expect that, there's slightly greater Cecil.
Stephen Laws
But to clarify that that as an absolute number, right? And not necessarily, and that's largely driven by the portfolio growth because of the new originations or are you referring to, the basis points of, of the portfolio?
W. Patrick Mattson
A little bit of both? One? Because I think from a portfolio growth, there's a growth opportunity here just where we've got capital and where we're at a leverage level and then at the margin putting aside resolutions clearly, if we resolve some of the fours and the fives, we'd expect Cecil as a percentage to come down.
But as I think about our three rated assets and think about the percentage of Cecil against those, I would expect that to go up not only in nominal dollars but in percentage terms.
Stephen Laws
Okay, great. That's helpful color. I appreciate that Patrick, I appreciate your time today. Thanks.
Don Fandetti
Thank you. Thank you.
Operator
Next question will come from Steve Delaney with citizens J&P. Please go ahead.
Steve Delaney
Thanks. Good morning, everyone. Look first, we just want to applaud the buyback activity. It's very shareholder friendly and it's something frankly that it's not always seen among the externally managed companies. Your average price was 1,164 we're down to 14% to about 1,005 now or around $10 range.
And so we should assume that you continue to view that regardless of the volume and the, and the leverage. I mean, I assume you still look at buybacks as being a very attractive opportunity. Is that correct?
Matthew Salem
Hey, Steve, thanks for the. Questions, Matt. Yeah, I think, like I said, like I said earlier, like we we're evaluating both buybacks and new loans and I think like we've done in the past, we'll, we really go down about a balanced approach.
Steve Delaney
Sure and to that point, Matt about the portfolio, just curious looking at the portfolio at $5.9 billion, obviously, activity has been a little slow over the last year or two. It's been more a credit issue. The high was like $7.6 billion at the end in early '23 you've got $1.4 billion of equity at year end of 24.
Do you have in mind sort of a, a round number or a range for where you think the portfolio could grow over the next year.
W. Patrick Mattson
Steve, it's Patrick, I'm happy to take that. So, thank you, welcome. So yes, as we think about the portfolio and think about our target leverage range, this is absent, resolution of, some of the REO assets because that changes a little bit of that number. But just on the current portfolio. We think that number is in the kind of 6.6 to $6.7 billion range.
Steve Delaney
Very helpful. Well, thanks for the comments. A lot's been covered up and I think I'm good.
Don Fandetti
Thank you, Steve.
Operator
Next question will come from Rick Shane with JP Morgan. Please go ahead.
Rick Shane
Good morning, everybody. Hey, look, a lot has been covered here, but I guess I really have two questions. First is, we've seen movement rates. I am curious, the comment was made implicitly that puts a little bit of downward pressure on valuations.
When you look at what is transacting in the market is market sentiment and the ability for the market to clear a function of price or is it a function of buyers and sellers developing greater confidence about where we are? It, it's sort of at the end of the cycle, like are people less concerned about?
Hey, we spent $100 million this and yes, it's going to be miserable to trade out at $ 50 million or is it? Hey we're now trading out at $50 million and we're a lot less worried about it being worth $40 million next week.
Matthew Salem
Hey, Rick, it's Matt. Thanks for the question let me answer it this way and, and hopefully what you're looking for comes through. I think it's a function of like over the last few years or a couple of years. It's been a function of who are the sellers. Because a lot of these assets are fundamentally strong and setting office aside.
They're, they're well leased, they're cash flowing. And they have a valuation issue around cost of capital. And so there, there just haven't been that many willing sellers in the market and the larger sellers have been, it's been really around liquidity and, and not around, it's really, they have to sell to repatriate capital. You know, that's been where most of the sales have been.
Now as we start to enter this next phase, you have, I think there's more certainty within locally with where values are. So there's the bid offer has definitely compressed. And then it's just a question of like, okay, do the existing owners, do they just want to keep buying a little bit more time and playing it forward And trying to get into a little bit lower cost of capital environment,
let growth continue to build in their portfolio. Let some of these supply pipelines within the multifamily sector burn off and get into a larger rent increase dynamic so.
That's really what I think is happening. And then the overlay again is like this capital structures are becoming short. Because you think about all the acquisitions that happened in '21 and ;22 a lot of those were financed with five year loans.
So people are just running a little bit short on time and there's a little bit more acute decision I think that they have to make. So that that's, how I, see it and quarter over quarter for the last four or five quarters, like we've seen volumes build, transaction volumes continue to increase.
And I think it's a function of just what I described, like reality setting in capital structures, getting maturing and, and people needing liquidity. So I personally think it will be a little bit more of a continuation of that. I don't think there's going to be a huge change in transaction volumes this year. We're just in this very slow deleveraging process for the industry.
Rick Shane
Got it. Hey, Matt, first of all, thank you. I know it's a little bit of an amorphous question and thank you for swinging at the pitch. I appreciate that. I said one more question, but I'm actually going to follow up and then ask the second question is, what you just described the explanation for the Minneapolis office loan.
You've described it as well leased and alluded to the possibility of extending that a little bit longer. Is it just giving that giving everybody time to let cash flows align a little bit better if the rate environment improves?
Matthew Salem
Well, I put I would put, I would put offices a little bit of a separate category where there's been liquidity for all these other sectors throughout the last couple of years because nobody really wanted to sell at the at the price that that there is liquidity. People just would rather hold out with office.
There was. In my mind like very little to zero liquidity. Now you're starting to see some of that liquidity come back into the market so it's a little bit different dynamic there where you not only could the rate market help improve the valuation of those assets, but just like more buyers in the market and some level of, of interest in owning office. You know, can, could really help that.
I just don't think office was a liquid asset class over the last couple of years. And now you're starting, you're starting with the best. Like I'm not, I don't want to overstate it like the highest quality stuff first, but that's where, of course, that's where it's going to start. And I think that's the gun.
Rick Shane
Got it. Thank you. And then the other question I had is this, we tend to take a pretty high level top down view of the space. And one of the observations I would make is that you guys make three year loans that never last three years.
When times are good, they last 18 months or 24 months and when times are bad, they these three year loans that have five-year terms or five-year extensions go six or seven years.
And we saw the pendulum swing wildly in the last three years or four years on that, you talked about a repayment in the fourth quarter. That was something you didn't expect until 2026.
I realize it's just one loan and everything is super idiosyncratic. Is there any indication that some of the newer loans that, that things are swinging a little bit back in the other direction.
Matthew Salem
In terms of the portfolio?
Rick Shane
You know, we went from two years to seven years. Is there anything that we're starting to see stuff, anything out there execute a lot faster than we've been seeing over the last three or four years.
Matthew Salem
Yes, I think there's more liquidity in the debt markets today than there has been, which is allowing, and some of our sponsors to refinance earlier and I think the new loans that we're making now, I hear your point. I mean, I think the new loans we're making now are, are pretty, pretty strong.
I mean, we have got weet basis good terms and I think I agree with you. I think those are likely going to be on the, on the shorter end. As I think people are getting good, good buys today and, and, or if it's a refinance, then they probably don't want all five years, they probably only want a couple of years to, before they repatriate capital and then part of it is just a function of like where we are.
Today. Like they've had, our sponsors have largely had a few years to implement their business plan. So they've executed on it. And and now they can, they have the cash flows that they can either sell or, or go refinance.
So, and I, we've been thinking more about duration to, to your point around, you know, just always on the always on the treadmill and short duration loans. And you know, the portfolio of exposure that can create. So it's something that's on our mind as well.
Rick Shane
Got it. Okay. Really, really appreciate it and sorry for all the questions, but I realize we're sort of at the end of this and hopefully that's okay. Thank you guys.
Operator
(Operator Instructions) our next question will come from Jason Sapin with KBW. Please go ahead.
Hi, good morning. Could you please give an update on KRS Life Science deals and the outlook for leasing and ultimately value in those assets? That's probably the number one area of pushback that we hear.
So, addressing that would be helpful. And is that where you could see the potential credit migration in the portfolio that you alluded to previously? Thanks.
Matthew Salem
Yeah, I'll try to cover, I'll try to cover some of that without going into too much detail. and first of all, we've made some, we've made some progress on the life science piece of it. we foreclosed on an asset we've modified. You know, that last quarter, we had that big modification, which, hopefully dealt with that.
And then a lot of our remaining exposure is on really construct, they were construction loans. So these are really high quality, very well located trophy, like in some cases, assets where when I commented on the green shoots, a lot of it is related to, to those types of those types of exposures.
And we think that tenants are coming back into these markets and they're, and they're really looking for the best assets in the market. And we have our exposure is not 100% but largely in that type of that type of space and with that type of quality and, our sponsors I think are you know, excited about what they're seeing in terms of just the tenants coming back into the market.
Why don't I stop there without going loan by loan?
Great. Thank you. And on the Multifamily watch list assets. It would be helpful to hear about what the issues there are. Is it basis rent supplier or something else? Thanks.
Matthew Salem
Yeah, I think it's a little bit depends on the asset. A couple of them are more supply driven markets where you have seen that impact a little bit occupancies but certainly rental levels. So that's, that's some of it, I'd say the West, our West Hollywood multi family are different. It's a different deal.
That was just a very, the peak of the market, acquisition or financing. So more of a value, really more of a value issue there at the end of the day from a multifamily perspective, which is why we're continuing to move down the path of a of a condo sell out there because it was really built for condo.
So a little bit of a mix depending on which asset we're looking at.
Operator
Thanks. This concludes our question-and-answer session. I would like to turn the conference back over to Jack Zala for any closing remarks.
Jack Switala
Well, great, thanks operator and thanks everyone for joining today. Please feel free to reach out to me or the team here. If you have any questions, take care.
Operator
The conference has concluded. Thank you for attending today's presentation. You may now disconnect.
