Participants

Timothy Hayes; Vice President-Shareholder Relations; Blackstone Mortgage Trust Inc.

Katharine Keenan; President, Chief Executive Officer, Director; Blackstone Mortgage Trust Inc.

Anthony Marone, Jr.; Chief Financial Officer, Treasurer, Assistant Secretary, Principal Accounting Officer; Blackstone Mortgage Trust Inc.

Austin Pena; Executive Vice President-Investments; Blackstone Mortgage Trust Inc.

Stephen Laws; Analyst; Raymond James

Steven DeLaney; Analyst; Citizens JMP

Thomas Catherwood; Analyst; BTIG

Doug Harter; Analyst; UBS Equities

Jade Rahmani; Analyst; Keefe, Bruyette & Woods North America

Harsh Hemnani; Analyst; Green Street Advisors LLC

Donald Fandetti; Analyst; Wells Fargo Securities LLC

Richard Shane; Analyst; JPMorgan

Presentation

Operator

Good day and welcome to the Blackstone Mortgage Trust fourth-quarter and full-year 2024 investor call. Today's conference is being recorded. At this time, all participants are on listen-only mode. (Operator Instructions)
At this time, I'd like to turn the conference over to Tim Hayes, Vice President-Shareholder Relations. Please go ahead.

Timothy Hayes

Good morning and welcome, everyone, to Blackstone Mortgage Trust fourth-quarter and full-year 2024 earnings conference call. I'm joined today by Katie Keenan, Chief Executive Officer; Tony Marone, Chief Financial Officer; and Austin Pena, Executive Vice President of Investments.
This morning, we filed our 10-K and issued a press release with the presentation of our results which are available on our website and have been filed with the SEC.
I'd like to remind everyone that today's call may include forward-looking statements which are subject to risks, uncertainties, and other factors outside of the company's control. Actual results may differ materially. For a discussion of some of the risks that could affect results, please see the Risk Factors section of our most recent 10-K. We do not undertake any duty to update forward-looking statements. We will also refer to certain non-GAAP measures on this call. And for reconciliation, you should refer to the press release and 10-K.
This audio cast is copyrighted material of Blackstone Mortgage Trust and may not be duplicated without our consent.
For the fourth quarter, we reported GAAP net income of $0.21 per share and distributable earnings of negative $1.25 per share. Distributable earnings prior to charge-offs were $0.44 per share. A few weeks ago, we paid a dividend of $0.47 per share with respect to the fourth quarter. Please let me know if you have any questions following today's call.
With that, I'll now turn things over to Katie.

Katharine Keenan

Thanks, Tim. The fourth quarter marked a meaningful positive inflection point for BXMT. We resolved $1.1 billion, or 49% of our impaired loans, proving out our view that credit performance troughed last quarter and bringing our performing loan percentage to 93% today. Book value ended the quarter within 1% of 3Q levels, the combined result of limited further credit migration and upside wins on impaired asset resolutions above our marks. Robust repayments continued $1.6 billion in the quarter, bringing us to $5.2 billion for the year, including $2 billion of office. And we've seen another $1.6 billion year-to-date, bringing our liquidity to a record $1.9 billion today.
Our capital markets access continues to prove exceptional. We completed the largest corporate debt transaction in our history, a $1.1 billion deal which turned out our maturities and attracted robust demand at 4 times oversubscribed. At the same time, we reduced overall debt to equity to 3.5 times, our lowest level in 11 quarters.
And with all the pillars in place, a healthy balance sheet, plenty of liquidity, a more normalized credit outlook, and most importantly, a historically attractive environment for real estate lending, we've turned our attention to offense. We enter 2025 poised for portfolio and earnings growth with $2 billion of pipeline closed or in closing today.
While not V-shaped, we are squarely amidst a real estate recovery. Values have shown four straight quarters of improvement. Through the end of last year and coming into the first quarter, we've seen a meaningful return of liquidity across real estate markets. Despite the uptick in long rates, a robust macroeconomic backdrop and strong fund flows have driven tightening risk premia across the credit space, reducing the cost of capital and creating a solid baseline for real estate capital markets.
CMBS issuance, which eclipsed $100 billion last year, is off to a strong start in 2025, with $20 billion already closed and another $20 billion anticipated in the coming weeks, including the sixth office SASB deal this year. Transaction volumes were up 30% quarter over quarter, representing a 72% increase from the 1Q '24 trough.
Underpinning the recovery are solid real estate fundamentals, with demand bolstered by resilient economic activity and new supply roughly two-thirds lower than recent peak levels across core asset classes, a powerful long-term driver of performance. We believe real estate credit offers highly compelling relative value today. Reset values mean better credit, higher debt yields, and more cash flow coverage for our loans. Spreads, while compressing, remain attractive, especially relative to credit alternatives which are pushing all-time tights. And with base rates elevated, all-in yields are high.
Moreover, within BXMT, our returns are generated based on the difference between where we lend and where we borrow. Cost of capital for more stabilized senior risk is compressing most rapidly. And with market-leading access to a diversified base of bank lenders and securitized markets, we are uniquely positioned to capitalize on this dynamic and drive incrementally improving net interest margins.
This backdrop offers a fruitful environment for new investment, which I'll cover shortly. But it also spells a meaningful uptake in repayments and resolutions, accelerating the turnover of our portfolio. Our $5.2 billion of repayments this year were 36% above last year's levels and indeed represent our second highest repayment year ever.
Notably, our office loans continue to repay roughly proportionately to our overall portfolio. And we have therefore reduced our office exposure by over $3 billion since the beginning of 2022 through repayments of 27 individual loans. And that's before $1.5 billion of office repayments so far this year.
Our loan portfolio continues to show meaningful liquidity, powerful evidence of the resilient credit of the vast majority of our pre-rate hike portfolio and the institutional demand for our high-quality collateral. This is now a cycle-tested business multiple times over. Through two years of difficult market conditions, our loans continued to repay, our liability structure proved durable, and we maintained near record liquidity levels throughout.
The stability of our balance sheet through this extended credit cycle also allowed for patience, affording us the flexibility to proactively manage challenged assets and resolve or monetize them now when markets are healthier, rather than fire selling at the illiquid depths of the cycle. Case in point, the sale of New York City and West LA office buildings this quarter through competitive institutional bidding processes, ultimately selling within 10% of our par balance on average.
All in all, we resolved 10 impaired loans this quarter. We generated $32 million of book value as sale proceeds came in above our aggregate reserve levels. And on our REO assets, we see longer term upside potential as we implement business plans in coordination with our highly experienced real estate asset management team. And despite rates moving at the end of the year, we've seen no slowdown in the pace of our resolutions, with several deals closing at year end and an incremental $400 million of resolutions closed during closing in 1Q.
We believe credit performance troughed in the third quarter. And while it won't be linear, the direction of travel is clearly positive. More broadly, the substantial portfolio turnover underway will enable us over time to shift our asset base with larger concentration in new investments originated at reset bases in today's attractive credit environment. Depending on the pace of repayments, we estimate that nearly 40% of our year-end portfolio could constitute 2025 originations. And we're off to a great start with a robust global pipeline.
Our current $2 billion of closed and committed deals are concentrated in strong lending sectors like multifamily, industrial, and self-storage, with levered yields averaging more than 900 basis points over base rates and safe overall credit characteristics. And we are leveraging our sourcing capabilities to drive differentiated opportunities.
In addition to nine deals in the U.S., our pipeline is over 60% Canada, Europe, the UK, and Australia, markets which offer attractive relative value, including a $100 million cash flowing industrial portfolio in Europe and a $140 million multifamily loan in Australia, both around 100 basis points wide of comparable U.S. transaction pricing.
The Blackstone real estate debt business is the largest alternative manager of real estate credit in the world, which positions BXMT to best capture the investment opportunity today. With over 150 real estate debt professionals, over $100 billion of historical originations, and relationships with over 500 borrowers driving 84% repeat business, our ability to access an attractive pipeline of new deals is exceptional.
This is a platform that was uniquely positioned to originate the Spiral, a flagship BXMT loan and the largest in our portfolio, which after seven years repaid earlier this month. This was a $1.3 billion senior construction loan originated in 2018 at 28% pre-leased and 50% loan-to-cost. Now 94% leased, the loan repaid through a banner CMBS execution which was 5 times oversubscribed, priced at the low 100 spread, and yielded proceeds 2 times our basis, implying an exit LTV on our loan of 29%.
While larger and somewhat lower leveraged than our typical office loan, this loan shares many qualities with our overall origination philosophy: High quality real estate that outperforms, strong institutional sponsorship, and moderate leverage. Liquidity has definitively returned for high-quality office. And with more than 75% of our 1 to 3 risk-rated office, new or vintage, our portfolio should benefit.
As we look ahead, we are leveraging the same Blackstone platform advantages and entrepreneurial DNA to look across the real estate credit universe and identify the best suited incremental strategic opportunities for our business.
With interest rates remaining elevated, a positive outlook for the U.S. consumer, and essential needs-based retail showing resilient performance, we see a compelling setup today to build a credit-oriented, diversified net lease strategy. This business produces stable, long duration cash flows, with the potential for value appreciation. Elements which naturally complement BXMT's core floating rate lending business. We believe we can acquire assets at a significant discount to replacement costs with 10- to 20-year leases and strong EBITDA coverage generated by established businesses.
Over time, we expect to curate a diversified portfolio, generating compelling cash yields with duration. We have a differentiated approach, building our business from scratch through a dedicated platform established in partnership with our real estate equity colleagues and an experienced handpicked team. While this strategy will take time to ramp, it is meaningfully scalable with a total addressable market in the trillions. And further, it brings the benefit of adding another attractive outlet for capital deployment, further expanding the scope of BXMT's new investment pipeline and positioning the company to capture the best relative value across real estate credit markets.
In closing, we are optimistic about the trajectory of the real estate cycle and our business. The composition of our portfolio will be enhanced through resolutions, repayments, and redeployment of capital into attractive new investment opportunities. These drivers have put BXMT on a clear path to rebuilding earnings power over the course of the year and beyond. The credit pressures are easing and at the same time, we are building the potential for long-term value creation, including the net lease and agency strategies and the upside we now own in our REO. Assets where valuation resets have been reflected in book value, but we see the potential for upside through value-add as the market recovers.
The entry point for BXMT remains highly attractive. The S&P is near all-time highs, corporate bond spreads near all-time tights, and we continue to see retracement and evaluations across the real estate market. Commercial mortgage REITs, dividend yield spreads to base rates are virtually the only liquid real estate credit product that has not tightened materially since the Fed's first rate cut in September.
BXMT today trades at a 10% dividend yield and 87% of post-reserve book value, offering the opportunity to buy into a growing portfolio at a substantial discount and collect meaningful current income with valuation upside. And we're expressing this view actively with over $50 million of stock buybacks in the last three months.
Before I close, I want to thank our team for their tremendous efforts this year, taking a tireless, unrelenting approach to maximizing outcomes on behalf of our investors. And today, those efforts put BXMT on excellent footing for growth into an attractive market.
I also want to welcome Marcin Urbaszek, who I think is well known and highly regarded by many on this call, as he joins our growing BXMT team.
Thank you. And with that, I will turn the call over to Tony.

Anthony Marone, Jr.

Thank you, Katie. And good morning, everyone. I want to begin by also welcoming Marcin to the team who brings significant mortgage REIT experience and deepens our finance team's bench as BXMT enters this next phase of the cycle.
Turning to our fourth quarter results, BXMT reported GAAP net income of $0.21 per share and distributable earnings or DE of negative $1.25 per share. Notably, DE this quarter included $294 million or $1.69 per share of charge-offs related to impaired loan resolutions. These resolutions were achieved at levels above our aggregate carrying values, and we resolved more loans in 4Q than we anticipated on our call last quarter.
While these resolutions crystallize, DE losses already reflected in our CECL reserves and book value. They, more importantly, are a leading indicator of our ability to recapture earnings from this capital going forward, which is a natural tailwind to dividend coverage. Although headline DE was negative, the long-term benefits from the substantial progress we have made in resolving our challenged assets far outweighs that short-term impact. With continued strong momentum and loan resolutions and a growing pipeline of new investments, we expect our earnings will grow and more closely aligned to their longer term potential as we progress through 2025.
Excluding the impact from CECL reserve charge-offs, fourth quarter DE was $0.44 per share which notably included $0.02 per share related to startup costs incurred in connection with our new net lease strategy and the acceleration of deferred financing cost amortization resulting from the retirement of our 2026 term lending. We ended the quarter with book value of $21.87 per share which benefited from a $32 million reversal of CECL reserves as we executed loan resolutions at an aggregate premium to our carrying values, and also from $18 million of common stock repurchased at an average share price of $17.91, nearly a $4 discount to our book value.
All in, book value was down just 1% from the third quarter, reflecting the positive market trends driving strong credit performance broadly throughout our portfolio. And importantly, when factoring in the $0.47 per share dividend paid during the quarter, we delivered a positive 1% economic return to our stockholders.
Digging deeper into credit, portfolio performance improved to 93%, up 5% quarter over quarter, and the highest level since 4Q '23. This improvement was primarily driven by $1.1 billion of impaired loan resolutions which represents 49% of the total impaired loan balance as of 9/30. These resolutions included four loan sales and DPOs with realized prices at an 8% premium to our aggregate carrying value, an important benefit to our stockholders and validation of the accuracy of our reserves.
Upon exit, we immediately experienced an earnings benefit by repaying the related financing and reducing associated interest expense. And we expect to see further earnings uplift as we redeploy this capital into new investments.
We also completed two loan restructurings, receiving $96 million of incremental subordinate capital from borrowers to significantly de-risk these positions, and acquired four REO assets, all transactions where our bases have been reset to reflect the current environment. Our REO portfolio now stands at $588 million across seven investments and generated $1.6 million of DE in the fourth quarter which excludes the impact of depreciation and amortization included in GAAP results.
Looking ahead, we expect the loan resolutions completed in the fourth quarter will have a positive earnings impact over time that capital is fully redeployed and rotated into new investments in today's attractive environment. And we see an additional near-term and long-term earnings tailwind through loan resolutions, with another $400 million closed or in closing so far this quarter, bringing aggregate resolutions to over two-thirds of the three quarter peak and continued progress on the remainder.
For context, our 13 remaining impaired loans as of 12/31 were burdened by $0.10 per share of quarterly interest expense last quarter. Credit trends were stable this quarter with five upgrades, more than offsetting four downgrades. Included in upgrades was a four risk-rated multifamily loan where the borrower committed new cash equity, purchased a new rate cap, and continues to execute their business plan. And downgrades, we had just one new impairment, a leased UK office loan with long-term development potential where we have visibility into a near-term loan.
Overall, our CECL reserve ended the quarter at $746 million, down 27% quarter over quarter, reflecting the impaired loan resolutions and otherwise generally stable credit in our portfolio. We received $1.6 billion of repayments in 4Q, including a four risk-rated multifamily loan and $5.2 billion of repayments throughout 2024, including $2 billion of office loans, a strong indication of performance and institutional liquidity for BXMT's loan collateral, notwithstanding challenging market conditions. So far in 2025, we have collected another $1.6 billion of repayments.
In addition to our strong liquidity and nearly $7 billion of available financing capacity, this positions BXMT well to redeploy low repayment proceeds and capitalize on our growing pipeline of new investment opportunities.
To that end, BXMT closed $186 million of loan originations in 4Q, largely concentrated in multifamily and industrial sectors, and has over $2 billion of loans closed during closing so far in the first quarter of 2025. Capital deployment lagging repayments, we expect near-term portfolio contraction to modestly weigh on DE. So given the robust investment pipeline, we see our portfolio balance stabilizing in 1Q and then growing from there.
In addition, the first four loans closed in our M&T multifamily agency lending partnership this quarter, generating fee income and creating book value for our participation in the underlying MSRs, all with virtually no incremental expense or capital outlay from BXMT.
We continue to maintain a best-in-class balance sheet with well-structured term match financing and no capital markets mark-to-market provisions. We reduced debt to equity to 3.5 times from 3.8 times quarter over quarter, squarely within our target range of 3 to 4 times while maintaining strong liquidity of $1.5 billion.
The ability of our balance sheet, which has been borne out over the recent credit cycle, continues to be a critical differentiator that consistently affords BXMT the patience and optionality to maximize economic outcomes for our stockholders and is an asset that will support the next phase of growth for our business.
We completed a $1.1 billion corporate debt transaction in November which added to liquidity and meaningfully extended the maturity profile of our corporate liabilities. The deal was met with strong institutional demand and emphasized BXMT's broad access to capital markets. Along this line, we see additional opportunities to capitalize on tighter financing spreads and drive further enhancements to our capital structure across several markets.
Notably in CLOs, where we have been an opportunistic issuer in the past, and today we are building a strong pipeline of new investments that are a natural fit for that market.
In closing, we are proud of our 2024 results and the proactive measures we have taken to resolve the majority of our challenged assets while maintaining a strong balance sheet and robust liquidity that position BXMT for growth in 2025. While earnings today reflect the natural near-term headwinds from portfolio turnover, the tailwinds of the market recovery, our growing investment pipelines, and our expansion into new diversified investments all combined to generate a positive forward trajectory for our business.
Thank you for joining today's call. I will now ask the operator to open the call to questions.

Question and Answer Session

Operator

(Operator Instructions)
Stephen Laws, Raymond James.

Stephen Laws

Good morning. Congratulations. You guys got a lot done at the end of the year and year-to-date as well. Katie, I want to start a few moving parts and I think the comments towards the end of the prepared remarks about the balance -- portfolio balance stabilizing in Q1and growing, help us provide some color. But curious to think about an earnings bridge into the beginning of the year. When we think about earnings troughing, you've had additional repayments, one new NPL at year end, but you've also got the benefit of some financing on resolved non-accruals that goes away as well as a couple of penny drag from some one-time expenses in Q4. So just trying to think about what is that, ex losses, earnings power of the portfolio earlier this year and how do we think about that ramping as we move forward.

Katharine Keenan

Sure. I think that the way we think about it, we had obviously $0.44 in the fourth quarter, $0.46 if you take out the amortization of costs on the refi and the startup costs. And then from there, the most impactful driver of earnings is resolutions. And we're executing. We have $1 billion over the course of the quarter, another $400 million in closing. The other key driver and impact in terms of ins and outs last quarter, this quarter, is repayments. We've received a lot. It's a great sign for credit. And we're now reinvesting those proceeds with $2 billion closer in closing and growth capacity beyond that. So both resolutions and reinvestments obviously will take a quarter to see the full run rate impact. So I think we're in the trough now and we'll come through it as we get into the second quarter.

Stephen Laws

Great. And that leads to my follow-up about the resolutions, I think you mentioned $400 million. As we think about the remaining $1.5 billion of 5-rated loans, is the $400 million what you think about maybe as first half resolution? Is that more first quarter? How do we think about the if we assume for now no new 5-rated loans, how do we think about that existing balance of 5-rated loans unwinding over the year?

Katharine Keenan

Yeah. So the $400 million is assets that we have very clear visibility into hopefully near-term closings. These things can always move around a bit. But those are deals that were on the 10- or 15-yard line on. So I would hope that those would be first quarter. And hopefully, we'll have more beyond that in the first half of the year at the risk of overpromising for my asset management team. But we're extremely focused on getting our impaired loan balance down as quickly as possible. And we're working on every single one of them. The $400 million is really just deals that we have effectively, signed, deals agreed, and in closing.

Stephen Laws

Great. Appreciate the comments this morning, Katie.

Operator

Steve DeLaney, Citizens JMP Security.

Steven DeLaney

Thanks. Good morning, everyone. And hello again, Marcin, from my (inaudible) in on that. So Katie, if we look at the realized losses, they ran -- I think I calculated about 13% of UPB. So if we think about the $400 million or whatever elses in the 5 plays out in, say, the first half of this year, is something in that magnitude, let's just call it round number like 13%, is that a reasonable assumed loss on UPB when you resolve these remaining 5s?

Anthony Marone, Jr.

What I would point you to -- thanks for the question, is firstly, if you look at our CECL reserves, they tend to be in the mid-20s. And we're resolving around that marked or slightly better. So I think the 13% -- we could take it offline, I'll show you exactly what math we're doing. But I would look to our CECL reserves on the 5s which have mostly been born out to be accurate or a little bit conservative and think about that as your assumption for where things would play out on future resolutions.

Steven DeLaney

Okay. My math may have been off and I will follow up on that just to be clear. I had like $140 million of realized losses, on one point $1 billion. And I took $0.81 times 173.5 million shares. But I'll follow up on that, Tony.
Katie, just on the buyback, certainly applaud that, would you expect that if the stock remains, say, under 85% of book value, should we expect those to continue? And with the Board -- do you think the Board will consider increasing it once the current authorization is expired or has been used up? Thank you.

Katharine Keenan

Sure. Thank you. So I think our view on the stock and the economic proposition on offer is clear. I covered that in remarks. And we have $90 million left on our stock buyback authorization. We also have almost $2 billion of liquidity today. And we're looking to actively deploy into a bunch of different real estate credit investment opportunities. So I would certainly see the stock as very much on that list.

Steven DeLaney

Okay. Thanks for the comments.

Operator

Tom Catherwood, BTIG.

Thomas Catherwood

Thanks and good morning everybody. Katie, a clarification here. I think I heard you mention that 40% of the portfolio could be 2025 originations and if we do a quick back-of-the envelope and assume the same repayment level as '24, that would imply something like $10 billion of originations in '25. Are we thinking of this correctly?

Katharine Keenan

So I think that when we think about our repayment projections for this year, we had $5.2 billion last year, but I think we anticipate that this year will probably be higher than that. And that's really a factor of what I mentioned, I think, on the last call. There's an element going on right now of a catch-up in our portfolio. We have a lot of loans that are performing well that are in a place in their business plans where they can be repaid. And now that the capital markets have clearly normalized and a lot of liquidity has returned, we would expect a lot of that portfolio to turn over and then for us to then reinvest the proceeds. So I think that we would expect a higher repayment level this year and therefore a higher reinvestment level this year sort of getting towards that 40% number.

Thomas Catherwood

Got it. That's really helpful. Understood. And then switching over to your comments on net lease investing. I know you mentioned the total addressable market in the trillions. But this is also a sector with some of the most sophisticated investment platforms anywhere. How would BXMT's approach differentiate itself from that of the other major institutional players in the net lease sector?

Katharine Keenan

Yeah. It's a great question. We think that there are obviously some very high-quality peers in the space. But it is also a very large market and an extremely granular market. And so when we think about building this platform, a little bit will go a long way and we'll look to grow it over time. We're not in a place where we have a multi-billions of dollars portfolio where we need to be buying a billion dollars a year or a quarter to show growth. So I think that we can be thoughtful but also build up a portfolio that is granular, diversified, well- protected from a credit perspective, and additive, very complementary to the earnings profile of our overall business. And we're doing that with a thoughtful and I think well-conceived approach and a very high-quality experienced platform.

Thomas Catherwood

Got it. Appreciate the answers. Thanks, everyone.

Operator

Doug Harter, UBS.

Doug Harter

Thanks. I was hoping you could talk about the types of spreads or IRRs you expect to get on the new loans that you'll be doing in 1Q and '25.

Katharine Keenan

Sure. Austin, you want to take one?

Austin Pena

Yeah. Thanks, Doug. In terms of spreads, I think as Katie alluded to, asset spreads have come in, but importantly, so have the spreads on the liability side. And so when you look at the leverage spreads or the IRRs as you referred to, they're really quite consistent with what we've seen historically, around 900 or 1,000 over. And importantly, when we look at the risk-adjusted returns today on the investments in our pipeline, we really see them as quite compelling really given the credit profile of the deals in the pipeline. Today, we're making loans at reset basis that reflect today's valuation environments. So we really feel very good about the risk-adjusted returns we are able to create right now.

Doug Harter

I appreciate that. And then as you think about -- as the portfolio regrows, how are you thinking about what type of leverage level you want to be running this business at as the market is beginning to heal?

Katharine Keenan

Yeah, absolutely. So I think that the performance of our balance sheet and the stability and durability that we've seen over the last couple of years has really proven out that the strategy we've run for this business, making senior first mortgage loans at a reasonable leverage point and having a leverage level of between 3 and 4 times, which has always been our target, has worked well. We were 3.5 times at the end of the year. We've gotten a lot of repayments since then. And so I think we're sort of squarely at the mid to kind of today, probably a little lower end of the range. And you know we feel good about the prospect of portfolio growth beyond within our target level.

Doug Harter

Great. Thank you, Katie.

Operator

Jade Rahmani, KBW.

Jade Rahmani

Thank you very much. Just wondering in terms of rates, has that created any new potential credit challenges just merely as a result of the rate volatility we've seen or do you feel like you have your arms around the problem set at this point?

Katharine Keenan

Yeah. I think it's certainly a question we think a lot about. And I think that the couple of things we see, first of all, we haven't seen any material impact of the rate uptick on repayments. We obviously got pretty strong fourth quarter and then another significant amount of repayments so far in the first quarter. We monitor the capital markets obviously on a daily basis. We're actively investing in them. There has not been a meaningful change. And if anything, I think that the slight uptick in rates has driven more capital into the credit markets, which has created more liquidity for repayments. And that is a benefit in terms of the credit profile of our portfolio. So I think that we have 130, 150 loans. There's always a little bit of movement and that's normal and we should expect that. But the direction of travel is clearly positive. And I think that the liquidity that we see ongoing in the markets is going to continue to result in repayments and resolutions.

Jade Rahmani

Thank you very much. And then on the net lease strategy, is one component the eventual enabling of access to unsecured debt as one of your peers definitely has done? And in addition, how quickly do you think that you can ramp up this strategy?

Katharine Keenan

Yeah. So I think that access to different financing markets with the net lease strategy, whether it is the ABS market, other types of securitized markets, or a broader corporate debt strategy is one of the reasons that we like that business in addition to just the fundamental yields that we're acquiring assets at and the credit profile that we can generate there. So certainly thinking about continuing to expand the diversification and flexibility of our balance sheet which has always been a big strength of how we deliver consistent returns over time. Whether that's unsecured or, as I said, ABS securitized markets, that's something that we'll be thinking about as we ramp this up.

Jade Rahmani

And just the the follow-up about timing to scale this.

Katharine Keenan

Yeah. I mean, look, we really like the opportunity today, as I mentioned. And we've put money into getting this platform up and going. We have a couple of deals that I think closed today or this week. So we're actively out there. But we're going to be guided by the investment opportunity, as we always have been. So I don't want to put a number on it because the key is just finding great deals that we like and building the portfolio allocation that we think is appropriate. We're going to do that with regard to thinking about the underwriting, cash flow coverage, structure of the leases, performance of the underlying businesses. And be very thoughtful about building a durable, resilient, and diversified portfolio with credits that we like. So we hope it ramps quickly. But this is also a build -- this is a build, this isn't a buy, and so we want to do it the right way.

Anthony Marone, Jr.

Thank you.

Operator

Harsh Hemnani, Green Street.

Harsh Hemnani

Thank you. So you mentioned sort of the improving fundamental backdrop and the improving capital market liquidity for office, and it seems like about 4% of 2025 originations are in that sector. I want to ask what's the willingness to expand into office given an improving fundamental backdrop for high-quality office in 2025?

Austin Pena

Yeah, Harsh. Hey, it's Austin. I can take that one. I think we've been very consistent throughout this cycle about our belief in high-quality office which really is outperforming. I think you're seeing that today in the capital markets, obviously, as Katie alluded to earlier. The bar for us is high for new investment in office. But as you noted, we are seeing opportunities to lend on really high-quality, well-leased assets at very low basis. I think, overall, office exposure for us continues to come down. We don't really see it meaningfully growing from here. But we are going to pursue opportunities that we think make sense and generate attractive returns that we feel on high-quality assets.

Harsh Hemnani

Got it. And then is there sort of a percentage of your portfolio that you would feel comfortable at in terms of office exposure?

Katharine Keenan

I think it really comes down to the opportunities that we see. I mean, if we could do more deals like the Spiral, we absolutely would. I think that though, as Austin mentioned, the aperture of the type of office opportunities and where we see our performance is quite narrow, and we're going to be extremely selective. So I think we would expect that exposure within our portfolio to come down over time because, obviously, we're getting a lot of repayments and we're going to be very selective on the new stuff. So I think that's the general approach we're taking. We'll certainly see less office in the portfolio as we move forward here.

Harsh Hemnani

Got it. That's helpful. Last one for me. Going back to leverage, I want to ask how you see the long term leverage of this business changing with the addition of the net lease strategy if it changes at all in your mind.

Katharine Keenan

Yeah. I think that, as I mentioned, I think, in one of the other questions, we do see a lot of opportunities for securitized financing in net lease. That's obviously been a strategy. And it is, fundamentally, a business that is lower leveraged than our core lending business because we're obviously buying assets as opposed to making 65% senior loans. So I think that it's positive in terms of our overall leverage profile going forward and yet we think we can generate similar returns to our core strategy. That's one of the reasons we like it.
Okay. Thank you.

Operator

Don Fandetti, Wells Fargo.

Donald Fandetti

Katie, can you talk a little bit about the international markets, how you're thinking about them? It looks like you're still active on originations and seeing pretty good returns. And then also on the credit perspective from international?

Katharine Keenan

Sure, absolutely. So yes, as you mentioned, we definitely have seen positive relative value in international markets overall. And there's different markets obviously. We're active in Australia which is a very stable market. We're active in the UK, in Europe, in Canada. I think that, obviously, the growth profile of the U.S. is the most positive that we see from a global perspective. I think that's clear. But at the same time, looking at high-quality, high-conviction sectors in these markets, industrial, multifamily, we see very stable trends. Supply, if anything, is even lower in a lot of these markets than it is in the U.S. And obviously, supply in the U.S. is coming down quite materially. Rates in Europe are coming down more quickly than in the U.S. And the competitive dynamic, really, it can't be overstated. It's quite different outside of the U.S.
And so our ability to drive low leverage, very strong credit profiles, attractive returns, because there's not much of a CMBS market in these other areas, because our platform differentiation, competitive advantages that we have in terms of sourcing these deals, is really, I would say, even stronger outside of the U.S. than it is here. We were able to generate, in our view, very high-quality credit opportunities notwithstanding what I think we can all acknowledge is probably a slower growth profile outside of the U.S. today.

Operator

Rick Shane, JPMorgan.

Richard Shane

Hey, everybody. Thanks for taking the question. And Marcin, welcome. I just want to make sure, did I -- I know there was about $1.6 billion in repayments in the fourth quarter. Did I hear that it's $1.6 billion repayments quarter-to-date as well?

Katharine Keenan

That's correct.

Richard Shane

And are those repayments at par or are there going to be any discounted repayments there?

Katharine Keenan

Those are all at par.

Richard Shane

Okay. Great. Next question is you guys had talked about the $2 billion pipeline for the first quarter. How should we think about that translating into funding as we move to the quarter? Is this a pipeline that is largely sort of funded at time of origination or are there going to be substantial draws on this going forward?

Katharine Keenan

Yeah. It's a good question. What we see is a good mix of sort of refis and acquisitions which are generally funded at closing with maybe a little bit of construction. Construction activity has obviously come way down across the U.S. We like that opportunity today from a risk return perspective, but there's just not a lot of deals there. So as we think about the funding, I would expect that it's largely close to funded balance. But of course, we're just going to continue pursuing all the opportunities that we like. And if we can find multifamily construction to do, we'd like to do it. But again, that segment of the market is not as active today as it's been historically just given higher replacement costs and the overall downtick in new supply starts that we're seeing across sectors.

Richard Shane

Got it. Okay. That's helpful. And then last question, it looks like peak income increased incrementally from the third quarter. I think the run rate would be about $3 million a quarter. Looks like it's ticked up to at least $7 million. Is that correct? And is that what we should assume as a run rate through '25? Presumably it will be diluted away, but from a dollar perspective, should we assume that $7 million a quarter?

Anthony Marone, Jr.

I don't know that I would assume that as necessarily a run rate. I mean, the peak income in our portfolio is generally pretty idiosyncratic and varies deal by deal. We don't have many deals that peak. And where they do, they're usually for particular reasons within the structure of the loan. So I think that you're going to see that bounce around in particular as we have some of these legacy loans repay or resolutions of NPLs. So I would probably not assume a straight line there, and that's just going to be something that bounces around. In either case, not a material component of our earnings.

Richard Shane

Got it. Okay. Terrific. Thank you so much.

Operator

Thank you. That will conclude our question-and-answer session. At this time, I'd like to turn the call back over to Tim Hayes for any additional or closing remarks.

Timothy Hayes

Thank you, Katie, and to everyone for joining today's call. Please reach out with any questions.