TRTX - Earnings call transcript Q2 2019 | TPG RE Finance Trust, Inc.

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Operator

Greetings, and welcome to the TPG RE Finance Trust Second Quarter 2019 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I would now like to turn the conference over to your host today,

Ginsberg. Deborah proceed. Please

Deborah Ginsberg

of and welcome quarter and Greta Real Finance about Chief Estate Chief will and Good some share conference to call. second comments XX-Q on the Financial of press a release Foley, website Bob XXXX the Officer; quarter, presentation open and by questions. Investor Officer. night, issued then I'm Trust's up Relations we'll available we Greta Executive and Last operating Bob morning, the and which results; in the all our for our call TPG filed are Risk joined Guggenheim, our Form section. today with

differ today's are like remind of control. outside I'd include may forward-looking company's call uncertain everyone materially. and statements, which that the to results may Actual

of duty that results, risks statements. the discussion update a you call, recently could Factors of and the should any of and for see reconciliations, And please will non-GAAP XX-K. refer to our some undertake to our this our filed not section press XX-Q. to on most Risk refer certain the also measures these release we do affect We For

Finance Executive the With Greta Chief to to Real Officer Trust. Estate that, of turn call Guggenheim, TPG it's pleasure my over

Greta Guggenheim

and Deborah earnings joining call. you, thank good Thank morning our and all for you second quarter

the on increased first are celebrating $XXX robust half ROEs and originated earnings, newly quarter. year our are originations including year in the attractive our to anniversary two pleased as continuance loans. We in of report now $X.X loans our billion and a million public We company the for originated the second of

$X.X income were billion quarter-end at Total net million. which of $XX earning generated assets

average a our attractive yields. spread for basis points LTV an source focus exceptional QX average on with combined XX% with weighted assets to ability XXX indicates credit of continued Our weighted

Currently our spread to is very point half and quality strong $XXX pipeline quarter. attractive and totaled the a of a this of weighted of process points testament is Our in for the basis the for the loans very of closing to the team. first million year XXX have the relative market in we average

earnings We REITs continue our have on coverage to repayments. of focus dividend, and and CRE the lumpy increasing originations mortgage

which So to a seek management cash factor continually optimize. we is key

our XX is We particularly The especially plus significant on quarter quarter A with balances institutional pleased follow-on offerings. of began markets. earnings from since Class this our are sponsors with we our strategy origination core properties the cash equity top in with the

stakeholder We are of borrower in half driven the markets. with augment with transactions work for case with us XX us negotiate and top where or opportunities wants the significant relationship loans. than these was up more to market These often XQ the which our exclusively

quarter debt As in-place of stabilized relationships decision XX%. of We key with makers. our and the reliability were to yield an given a over demonstrated spread second XX.X% for an debt example, had points an basis with first of this due yield long-term LIBOR assets our largest look XXX the on projected a X.X% and of loan a LTV

point largest exceptionally our only confidence loan we negotiating superior terms our the attaining to in with will our for our on. construction is understand this in case assets which early gives quarter origination market loan two credit the without and also relative in quote. out we exclusivity risk half on understanding alone first was and based construction should on strong know and counterparties They received loan which origination markets we success close Our surprises. returns we when of years. loan is in assets the This that I

loan. but increasing compelling we with construction we metrics is this case calls, prior we pursue exposure not certainly As the unusually which construction with on do our will have said focus on loans

percent a We these equity risk. closely monitor as as of borrower exposure are our average loan to sizes managing vital and

average X.X%. size equity as is of Our loan percentage a

portfolio. on our credit both in and steadfast are investment monitoring new for We

familiar For successful asset want on under broken bars with City's top to policies know those approach management of his we New policy, crime Bill York you window reduction our Bratton Police from planned. and the are are of when such monitoring a they us when imperative is loans do their But loans not plans it as drop. know they go need something also we loan actively business as Commissioner

misses evident on taking of the requires misses we believe this and generally well our item. that experienced of we aware to is We action focus of immediately detail take top We're misses, bigger to conversation lead each borrowers small capitalized given loan on will small are and acutely borrowers. we action every if a

and We go, invaluable. basis. no utilize transactions loan loan inform most in making based real Real equity TPG in significant Estate on the continue Groups go to is This real Equity scene us evaluating and sale on knowledge experience U.S. points value to in Their informed all educated experience estate data estate the and decisions. investment provides

is this people, our to tantamount experience. and But teamwork our our

We assuming environment of our to can be overemphasize unusual are and the a could credit today. exceptionally discipline does today's The environment, choppy loans pressure many points risk-off that loan this We structure in continue. are cognizant not highly liquid originate a importance environment. catalyst and refinanced. there that market most cannot is be I

on multi-family of because great $XX won City New trigger precise. New we of commitment rent secured multi-family to a $XX loan topic is York For Brooklyn properties York the were unpaid our regulations regulatory next balance loan which example to have ask, in a be Xth portfolio that X% shifts with I representing City, segway regulated change million million approved by know you that that such my will is new June rapid political rent as a portfolio

a while of borrowers range loans, revised acquisition. rating This valuation absorb last we closed even substantial to this about we from and the in moved by cash XX% cushion for being the mitigates incorporating three equity year a November the bantered potential our rating cushion the press. plan regulation. high a in Despite risk some evaluated four business acquisition very new the the rent We sponsor equity is loan asset unique to invested believe of this declines this to

are four business on we immediately rating. plans. in from multi-family are four We and two believe in to other paid loan $XXX full a both delays loans also loans executing a multi-family full. their we quarter-end, moved assets these three loans wide and value, impairments will at our million in quarter-end are portfolio While no remained rating enforcing as paid-off our be experiencing topic, at Both rating X.X loan largest on rated following risk totaling to this

were the sell expect in we Loan driven is and half. repayments the $XXX the ability this to for increase second by number in the and first to liquidity half million assets. or market year borrower’s refinance the of This tremendous

the know, and However funding in year. on we we you will our side and our equity comment our strong first as year, augment, diversify throughout the On results. financing will financial of our earning raised to sources. assets based on of year. of half grow $XXX Bob pipeline, our lengthen expect originations Throughout continue remainder the the to now million our very further will the year-to-date we net continue

Bob Foley

Thanks Greta.

million share, diluted to core share the the diluted quarter, quarter. $XX.X $XX.X and preceding for $X.XX For increase $X.XX million earnings generated of XX% an of per per we or second compared

increase of share was was $XXX.X $X.X $XXX.X portfolio. short-term investment growth deferred on an loan earnings our and mortgage million Earnings the $XX.X by million, $XXX net of our first During which core was covered eight fundings of of of of million total fundings X.XX the earnings. of Net times investment quarter quarter, commitments interest our $X.XX $XXX.X due due existing first earnings representing quarter-over-quarter we primarily of growth repayments million. per margin declared loans to initial and of the million by closing in driven from dividend of to million million, loans originations $XXX

XX was spread XXX loan $XX.X average For LTV basis our the loan was increased quarter-end, from level was our points at compared primarily weighted portfolio new of The million, originations, as loan XX.X% to average leverage average basis weighted basis loan the to to points spread at points XXX average credit At was XXX loan wide portfolio quarter-end weighted and repayments. XX%. March XX.X%. size due

to increased short-term our portfolio. loans times our growth investment due debt increased times equity in to leverage X.X and ratio on overall to X.X from Our

Book value unrealized due by the to earlier Unlike now million. lower gains $X.X share of portfolio $X.XX seem future. primarily grew in the rates per investment foreseeable in quarter-over-quarter for our year, short-term likely

LIBOR one Although the The LIBOR weighted to our quarter of LIBOR originations second portfolio as XXX. floor, for LIBOR of floor is compared loans wide alone X.XX% floor average was weighted current approximately carry X.XX%. a

On of our the of XX% sheet, balance less side hand are floor. liabilities the right than

XX.X% of tenure non by sheet match borrowing enhance term. June reduce match costs. of our mark-to-market match the the and our and to durability balance We term liabilities continue of loan were to At XX, targeting our liabilities non investments our mark-to-market

our credit which of originated face bulk ensures the investment. term loan mortgage secured markets the senior not permit the loan marks. quarter syndicated match for during interest non-consolidated $XXX a Additionally in million We funding capital this facilities related first do

reinvestment June this $XXX.X to period November CLO to have the end the repayments in of its $XX.X utilized in through XX, recycle funding received feature We our we continue Year-to-date million of second recycle million quarter. to we recycled expect through and the vehicle during term from loan capital reinvestment XXXX.

two relationships of of banks further enabled secured quarter, our revolving for second of costs. repurchase financing to TPG’s the with reduce terms our three During one us extend network agreements major years and and strong

all growth the as appropriate to our first our capital term of mark-to-market remain of Greta Operator? continue The will to initial support Thank be entertain further questions. draw and the results our origination quality liabilities, that markets the to and direct to for and your And to risk we high I of near-term as near capital capital loans our focus growth, structure part Similar the happy in generate debt strategy other through very that mortgage overall much. our exposure near-term the with of our maturities of will continue reduce base. you optimize ROEs. credit liabilities year tenure provide facilities are extend

Operator

will this At session. from Our Please conduct a Securities. with your we question. comes Instructions] JMP question-and-answer Delaney you. proceed time, first question Steve [Operator Thank with

Steven Delaney

morning Good you. Thank everyone.

this the balance we offering, certainly we book. wondering a could see if sort levered a now on returns expected Your increasing your March is continue $XXX up could you. on when Thank CLOs I'm been may follow-on million, sheet. the but that class the versus the that of range would you if you with and for Bob, short-term loan comment to of the place CLO significant we saw investments if being balance And find you on to asset have are

Greta Guggenheim

XX% excuse did over Steve it Bob. are of quarter yes Sure. And and AAA. million are hand second to XX%, A me then CLOs $XXX and I'll the XX% start over we approximately single and in better or purchased

So liquidity the be these these for to see these in them the I of was acquire don't we be we've the will purpose increase, same management. We're see not and same. cash lieu and position to of that really to really materially already increase do had of management because cash expect the purchased. it just to augment It ones the It's characteristics looking would as loans. we

Steven Delaney

the range helpful. returns Understood. there? returns, And general Yes, levered of that’s

Bob Foley

Sure, they're are I mean ROE average X.X% range little levered it's a on on lower. basis. about they

Some are higher.

deployed equity redeployed lower. opportunities. Some liquidity portfolio loan that the significant bulk that A is generally the origination as the the this said be we and will Peter have positions, team appropriate AAA. And additional as are subordination as The and and given these Greta see can we of that appropriate But short-term better. investment slightly credit or we're in view of

Steven Delaney

X.X% that’s on dividend yield roughly while helpful. new so yes, roughly Yes, value matches And obviously your lower the ventures. it's Great, that thanks. book your

Bob Foley

calculate clear To basis ROEs so is those same just yes. calculated ROE be are of we on to clear, ROE, be that ROEs the expenses, net that

Steven Delaney

Yes.

good to know. that's Okay

switching more and then on provided over a relative and what information appreciated Okay specific been floors seeing. to little there your you've is we've

below. for below that the where for probably actual But XXX one-month it more maybe of reasonable XXX with rate. when floor, in XXX-ish thinking quarter new direction month Is sort basis slightly average expectation about coincidence is terms that going the roughly the forward? I LIBOR, think about in that range floors would XX be we'll the second one I'm that us the points weighted of in was a LIBOR originations on be hearing

Greta Guggenheim

the a at It and how close it’s the it We borrowers. getting happens X% a have lower, borrowers average so to occasionally more. just No, succeeded average. money and sophisticated highly floor of to that out. this at worked much at but to some floors. that on LIBOR as bit But try battle the is because and point a money time we every to have we institutional the when passes focusing It’s are submit more getting high get loans we savvy in get be them just are

Steven Delaney

Sounds of the et cetera and et like loan badly just all negotiation the want part cetera? how you

Greta Guggenheim

Exactly and believe floor up we're back say we okay we're that will LIBOR negotiating go X a get to back loan back and the put right borrowers soon you have can now in for and to the ask come going and it. signed

So see that we how will goes.

Bob Foley

a floors Yes, respect and our was last XXX, average sense, you just call new give this weighted quarter to on LIBOR was to quarter the XXX. on with others the originations it

spirited fierce a this with simple point, is so of models. lot negotiation So least speak combat hand-to-hand our to to at or negotiation Greta’s

Steven Delaney

for helpful. your both comments, you thank Well

Greta Guggenheim

you. Thank

Operator

Shane Our Instructions] question. with proceed JPMorgan. your question with Rick [Operator Please from comes next

Rick Shane

questions. Hey that the explore how relative of CLO I'd affected in very of question shift but will is sort in policy floors taking from I given guys be of terms on am building really curious by the the you the guys, really thanks in market like the my Fed? have issuance, new Steve been active the size for strategy to

Greta Guggenheim

sorry. I’m what, in shift The

Rick Shane

from Policy the Fed?

Bob Foley

Well tomorrow soon enough. will here be

Now your CLOs behavior by as primarily think correct? question a question directed good guess is our an I of rather investor, issuer an than that's I

Rick Shane

more attractive trying Basically form an the of become where Yes dovish? is that's more or exactly lapse Fed it. environment is to equally does financing understand what that I'm in

Bob Foley

our talk then in our sheet from first borrowers. for and honestly balance our business, loans I Well let's about demand

fact about loans from In borrowers our let's for talk because more that's demand important. first

markets plan intend floating property. their they discussed independent that the are most with reasons rate the to the what level general we've It's of before function business As rates. somewhat borrowers a of really in our borrow of and for do of

or for don't or in the general we level floating its particular So rates view dependent transitional on rate loans as replacement of years. rate demand being largely in LIBOR several

strong margin economy loans we to With expect pretty first. fashion Greta we easier because repayments, flow cash year second in at lower a and for of as for did earlier, rates in amount the would make demand that pretty for feel it good. So more given in repay expect we to half borrowers will loans see continue the than and to markets repayments respect said the the the of the

very market as a terms of financing, source frankly In to the investor non-mark-to-market see of term CLO continue nonrecourse accessing we strong pretty strong, interest. well

that is floating lot which a way to and that inbound our be that quite and being interested There to think in inquiry a the a floating doing. if of going everyone are big couple being in deals income in demonstrates income of investors get something deal able in a last over believe adjust be. are fixed and month when then have We to fixed position from the market are well frankly investors will you that down the a next market rates done in that investors been lot seems of rate about have

Greta Guggenheim

invest the in And decision fact Rick on question other long rates if which not at their are of the and to to rate are short would is based and your to the the want going term floating AAA CLOs in steer part short in term investments. are duration looking investors wanting that where

term. the it's very them not clear help think the at great to be I rates missing that in going it they're higher opportunities on investment may margin any and near

on may it the and more make attractive. the actually, side it demand tightening sell spur it So could spread

Rick Shane

necessarily want understand exactly I it asked I knowing dynamic well. for, guys be type how to buyers it think the you CLO of you. going terms That's was about what the to what looking is try how about the of Got that's but not to effort we also and Thank insight question as it. in think that

Bob Foley

you, Yes, Rick. thank

Operator

queue further to back at are turn closing no like over time. There for would in comments. Greta Guggenheim call I the Thank you. questions to this

Greta Guggenheim

quarter on Well with the we thank a speaking you pipeline and level We're our excited assets strong joining you next quarter. of earning how to very to a starting next all for about look us very very with we're and today. forward call high

Operator

you. Thank today’s concludes teleconference. This does

your You have lines and time great at this disconnect day. may a

TPG RE Finance Trust (TRTX) 30 Jul 192019 Q2 Earnings call transcript