TPG RE Finance Trust(US:TRTX)2024-04-30 20:06Part I. Financial Information Item 1. Financial Statements This section presents the unaudited consolidated financial statements for TPG RE Finance Trust, Inc. as of March 31, 2024, and for the three months then ended, including balance sheets, income statements, cash flows, and detailed notes Consolidated Balance Sheets Total assets decreased to $3.83 billion from $4.21 billion, primarily due to reductions in loans held for investment, while total liabilities also decreased to $2.71 billion from $3.09 billion, mainly from repayments on secured financing Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $203,077 | $206,376 | | Loans held for investment, net | $3,296,232 | $3,409,684 | | Real estate owned | $169,267 | $174,057 | | Total assets | $3,829,326 | $4,214,312 | | Liabilities | | | | Collateralized loan obligations, net | $1,875,381 | $1,915,174 | | Secured financing agreements, net | $619,832 | $820,824 | | Total liabilities | $2,708,434 | $3,089,527 | | Stockholders' equity | | | | Total stockholders' equity | $1,120,892 | $1,124,785 | Consolidated Statements of Income and Comprehensive Income Net income significantly increased to $16.7 million for Q1 2024 from $7.4 million in Q1 2023, driven by higher net interest income and revenue from real estate owned operations, resulting in $0.17 diluted earnings per share Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net interest income | $26,803 | $21,736 | | Total other revenue | $12,124 | $3,519 | | Credit loss expense, net | $(4,356) | $(7,784) | | Net income | $16,744 | $7,375 | | Net income attributable to common stockholders | $13,055 | $3,823 | | Earnings per common share, diluted | $0.17 | $0.05 | Consolidated Statements of Cash Flows Operating activities generated $37.4 million in cash, while investing activities provided $365.5 million, largely from loan repayments, offset by $406.5 million used in financing activities, resulting in a slight net decrease in cash Consolidated Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $37,371 | $23,473 | | Net cash provided by investing activities | $365,515 | $61,596 | | Net cash used in financing activities | $(406,542) | $(177,218) | | Net change in cash, cash equivalents, and restricted cash | $(3,656) | $(92,149) | Notes to the Consolidated Financial Statements These notes detail the company's accounting policies, loan portfolio, real estate owned assets, financing arrangements, and other financial matters, including CECL methodology and VIE consolidation - The company's principal business is originating and acquiring a diversified portfolio of commercial real estate credit investments, primarily first mortgage loans in the U.S.30 - The allowance for credit losses is determined using the Current Expected Credit Loss (CECL) model, which involves significant estimates regarding loan performance, collateral values, and macroeconomic forecasts4045 - The company consolidates Variable Interest Entities (VIEs), primarily its Collateralized Loan Obligation (CLO) issuers, where it is determined to be the primary beneficiary33130 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 financial condition and operations, covering business overview, loan activities, key financial metrics, investment portfolio, financing, liquidity, capital resources, and critical accounting estimates First Quarter 2024 Activity and Key Financial Measures In Q1 2024, the company originated $116.3 million in loans and received $227.8 million in repayments, reporting $13.1 million in net income and $23.3 million in Distributable Earnings - Originated three first mortgage loans with total commitments of $116.3 million237 - Received five full loan repayments and other principal payments totaling $227.8 million237 Key Financial Metrics Q1 2024 | Metric | Value | | :--- | :--- | | Net Income (Common Stockholders) | $13.1 million | | Distributable Earnings | $23.3 million | | Distributable Earnings per Diluted Share | $0.30 | | Common Stock Dividend per Share | $0.24 | | Book Value per Common Share | $11.81 | - Available near-term liquidity as of March 31, 2024, was $370.7 million, comprised of cash-on-hand, cash in CRE CLOs, and undrawn capacity under various financing agreements236 Investment Portfolio Overview As of March 31, 2024, the loan portfolio comprised 51 floating-rate first mortgage loans totaling $3.5 billion in commitments, with a weighted average risk rating of 3.0 and an increased allowance for credit losses of $74.1 million Loan Portfolio Statistics (as of March 31, 2024) | Metric | Value | | :--- | :--- | | Number of loans | 51 | | Total loan commitments | $3.54 billion | | Unpaid principal balance | $3.37 billion | | Floating rate loans | 100.0% | | Weighted average LTV | 67.4% | | Weighted average risk rating | 3.0 | - The allowance for credit losses increased to $74.1 million, or 210 bps of total loan commitments, reflecting ongoing macroeconomic concerns266268 - The company holds five Real Estate Owned (REO) properties with an aggregate carrying value of $192.4 million, consisting of four office properties and one multifamily property252260 Investment Portfolio Financing The company's $2.7 billion portfolio is primarily financed by collateralized loan obligations and secured credit agreements, with non-mark-to-market financing accounting for 77.1% of total borrowings, ensuring compliance with all financial covenants Financing Breakdown (in billions) | Financing Type | Outstanding Principal Balance (Mar 31, 2024) | | :--- | :--- | | Collateralized loan obligations | $1.9 | | Secured credit agreements | $0.6 | | Asset-specific financing | $0.1 | | Other | $0.1 | | Total | $2.7 | - Non-mark-to-market financing comprised 77.1% of total loan portfolio borrowings, an increase from 73.5% at year-end 2023, enhancing financial stability273274 - The company was in compliance with all financial covenants as of March 31, 2024. A temporary waiver for the minimum interest coverage ratio expired, and the threshold reverted to 1.40 to 1.0 for Q1 2024305306 Results of Operations Net interest income increased quarter-over-quarter by $5.5 million and year-over-year by $5.1 million, driven by secured financing repayments and REO operations, while credit loss expense significantly decreased in both periods - QoQ (vs. Q4 2023): Net interest income increased by $5.5 million, primarily due to repayments on secured financing arrangements. Credit loss expense decreased by $12.9 million320322326 - YoY (vs. Q1 2023): Net interest income increased by $5.1 million. Other revenue increased by $8.6 million, mainly from REO operations. Credit loss expense decreased by $3.4 million330331332334 Liquidity and Capital Resources As of March 31, 2024, the company maintained $370.7 million in near-term liquidity, including $203.1 million in cash, with its debt-to-equity ratio improving to 2.20x, and a $25.0 million share repurchase program approved post-quarter-end Sources of Liquidity (in thousands) | Source | March 31, 2024 | | :--- | :--- | | Cash and cash equivalents | $203,077 | | Secured credit agreements (undrawn) | $111,872 | | CLO proceeds held at trustee | $51,000 | | Other | $4,765 | | Total | $370,714 | - The Debt-to-Equity ratio decreased to 2.20x as of March 31, 2024, compared to 2.53x as of December 31, 2023340 - On April 25, 2024, the Board of Directors approved a share repurchase program authorizing up to $25.0 million of the company's common stock227343 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk by matching floating-rate assets and liabilities, with a 75 basis point rate change impacting net interest income by approximately $5.6 million annually, while credit and liquidity risks are mitigated through active management and non-mark-to-market financing - The company's business model aims to minimize interest rate risk by matching the duration and indices of its assets and liabilities. As of March 31, 2024, 100% of loan investments were floating rate380 Interest Rate Sensitivity Analysis (Annual Impact, in thousands) | Basis Point Change | Impact on Net Interest Income | | :--- | :--- | | +75 bps | $5,555 | | +50 bps | $3,704 | | +25 bps | $1,852 | | -25 bps | $(1,852) | | -50 bps | $(3,704) | | -75 bps | $(5,555) | - Liquidity risk is a principal concern, particularly related to margin calls on secured credit agreements. This risk is mitigated as these agreements are subject only to credit-specific marks, not market-wide spread movements391 Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2024402 - No material changes to the internal control over financial reporting occurred during the quarter ended March 31, 2024403 Part II. Other Information Item 1. Legal Proceedings The company reports no involvement in any material legal proceedings as of March 31, 2024 - As of March 31, 2024, the company was not involved in any material legal proceedings406 Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023, were reported - No material changes to the risk factors disclosed in the 2023 Form 10-K were reported407