Yahoo Finance TPG RE Finance Trust Inc (TRTX) Q1 2024 Earnings Call Transcript Highlights: Strong Performance ...
GAAP Net Income: $13.1 million for Q1 2024, up from $2.6 million in the previous quarter.
Net Interest Margin: Increased to $26.8 million from $21.3 million in the prior quarter.
Distributable Earnings: $23.3 million or $0.3 per share, with dividend coverage of 1.25 times.
Book Value Per Share: $11.81, slightly down from $11.86 last quarter.
Liquidity: Ended the quarter with $370 million available.
Debt-to-Equity Ratio: Reduced to 2.2 from 2.5 at the end of the previous quarter.
New Investments: Originated three senior mortgage loans totaling $116 million, all secured by multifamily properties.
CECL Reserve: Increased to $74.1 million from $69.8 million, representing 210 basis points of the loan portfolio.
Share Repurchase Plan: Board approved a plan of up to $25 million.
Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
TPG RE Finance Trust Inc reported a 100% performing loan portfolio, indicating strong asset quality and performance.
The company successfully reduced interest expenses by $7.4 million quarter over quarter, enhancing profitability.
TPG RE Finance Trust Inc maintained high liquidity levels, ending the quarter with $370 million across cash and other available liquidity channels.
The company's strategic focus on multifamily properties, which comprise 50% of the loan portfolio, provides stable investment opportunities given the sector's resilience.
TPG RE Finance Trust Inc has a robust pipeline for new investments, particularly in multifamily properties, which supports potential growth and earnings.
Negative Points
The volatile and elevated interest rate environment poses risks to transaction activity and property values, potentially impacting borrower financial stability.
Despite a strong loan performance, the company faces challenges from broader market conditions, including inflation and interest rate expectations, which could affect future performance.
The company's share price continues to trade at a significant discount to book value, suggesting market undervaluation or concerns about future growth.
TPG RE Finance Trust Inc's reliance on multifamily properties, while currently beneficial, could pose concentration risks if the sector experiences downturns.
The company's CECL reserve increased to $74.1 million from $69.8 million, driven by worsening macroeconomic and loan default data, indicating potential concerns about future credit losses.
Q & A Highlights
Q: Hi, good morning and congrats on a nice start to the year. Bob and Doug Nice to see have stability here over the last couple of quarters. Wanted to touch on the CLO. I think it was around $50 million of replenishment capacity at quarter-end. Did that get filled with a loan that was funded on a bank line or were there some originations post quarter end? Can you can you talk to that and maybe more generally kind of your origination pipeline and how you think about moving leverage from the current two to over the course of this year? A: Good morning, Stephen, and thanks for joining us. On with respect to the $51 million of CLO cash that we deployed in April after quarter end, in that particular instance, we actually took an existing loan that had been financed with the bank and deposited it deposited it into CLO, which actually generated about 11 or $12 million of cash. We were you know, we had borrowed less from our bank counterparties with respect to that loan than there was cash in the CLO. So we ended up netting about $11 million or $12 million on our balance sheet cash as a consequence of that it redeployment and the cost of funds was clearly lower in the in the CLO than it was on the bank. And I'm going to ask Doug to address your question about investment activity.
Q: Great. Appreciate the color on both of those topics, but wanted to touch base on the debt side, and you mentioned this in your prepared remarks about the Morgan Stanley facility that matures, I think at the end of this week and you really know everything drawn down on it. So curious for thoughts on, you know, the pros and cons of extending it versus letting it expire you even without it, you still have excess of $1 billion of capacity on your bank clients. What are the commitment fees that you would have to pay if you extend it and then you know, larger picture debt covenants, coverage ratios. I know it reverted back to 1.4 at quarter end and you're in compliance with that. You maybe update us on where you stand with the ratio for churn shelters. A: With respect to our particular arrangement with Morgan Stanley, Morgan Stanley has been an important financing partner of ours. Since we went public in 2017, we've got a great relationship with them and they're with us. And I think we don't have much borrow with them right now for two reasons. One is we haven't recently found a commonality between our credit box and theirs and two. And our financing focus has for a number of years now shifted strongly in favor of non-mark-to-market matched term non-recourse financing, hence all of the note on note and CLO financings that we've done since 2018. Bank financing does remain an important part of our financing strategy because it is a very flexible and it's it moves quickly, but we have spent a considerable amount of time over the last several quarters of evaluating each of our counterparty relationships. And Doug, in determining where it makes sense to continue and where it may not make sense for us to continue. And then so that's that with respect to financial covenants, we were we did we were in compliance at quarter end as we have been in each of the previous quarters, we had, as you pointed out, obtained from all of our lenders because we have harmonized financial covenants across all of our borrowing arrangements on a a waiver arrangement that allowed our debt service coverage ratio to temporarily fall below 1.4 times. We're above that. We're very low levered at this point. And we would expect as we invest more and perhaps use more leverage from that since we don't use a ton of leverage the US, yes, interest coverage, even at the high benchmark rates that we experienced today will continue to be satisfied. So I hope that answers that question.
Q: Thanks for taking my questions. Steve actually covered a lot of the ground I was interested in and on the facilities and one thing I'm looking at the extension of the Goldman facilities are spread stays the same. I am curious if there are are there any changes to the terms that we should be aware of any sort of refinement of the credit box going forward now? A: No material changes. We will pay for financing on a pay-as-you-go basis. And Goldman has been another very important business partner of ours. They were actually our first credit counterparty when we were a private company. And I'm getting to your point about credit box from each each we've talked about this before we view our liability, our portfolio liability providers and the construction of that portfolio is being as important as constructing our investment portfolio and everybody's credit box a little bit different but when stitch together what we want and what we have is a mosaic that works for our business in the case of gold, and we're pretty simpatico. I wouldn't say that there's been a change in credit profile at all. And those decisions are made, honestly, on a on it deal-by-deal basis.
Q: Hey, guys. Good morning, most of mine have been covered, but just wanted to on the I just wanted to ask about how have conversations with borrowers changed at all over the last month? Is kind of the rate outlook has changed a bit and kind of what you're hearing from your portfolio or borrowers? A: No, I think it's a great question. I think that broadly, the narrative was obviously the slowing of expected rate cuts combined with, I would say, the sort of what feels like working on over the past few weeks a little bit of a slowdown in transaction activity. And I think that's been kind of more of the dialogues we've been hearing about yield relative to our current portfolio has seen a very modest 1% deal performing. I think that we we generally kind of would characterize the borrower universe as still looking through long term. It's effectively where yield where long-term rates will settle and still kind of leaning positive in terms of their ability to kind of weather the storm with elevated over the near term? That's I'd say that's the best way to characterize the mindset. So as that evolves, of course, your aggregate data, but that's kind of where the market is right now. And again, we're definitely at a deal creation point narrative wise just kind of what's going on within macro. And I would say that despite our intimate knowledge of what's going on the ground in the real estate sector, given our our sort of broad. So our lens through which we invest and keeping an eye, frankly on what the Fed is doing is saying, and it is really important and we're very attuned to that. Yes, our eyes are on 20.15 P.M. Eastern time today at that point about us.
Q: Guys, thanks for taking the questions and congrats on a great start to the year. And so following up on some of the prior questions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
