TPG RE Finance Trust(TRTX) - 2022 Q1 - Quarterly Report

Part I Financial Statements Q1 2022 financial statements show total assets increased to $5.52 billion, net income decreased to $23.8 million, and significant cash from financing activities Consolidated Balance Sheets Total assets increased to $5.52 billion as of March 31, 2022, driven by loans, with liabilities also rising to $4.05 billion Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $351,572 | $260,635 | | Loans held for investment, net | $5,069,481 | $4,867,203 | | Total assets | $5,515,056 | $5,218,020 | | Liabilities & Equity | | | | Secured financing agreements, net | $1,192,956 | $1,162,206 | | Collateralized loan obligations, net | $2,810,626 | $2,545,691 | | Total liabilities | $4,047,148 | $3,753,314 | | Total stockholders' equity | $1,467,908 | $1,464,706 | - The company's consolidated total assets and liabilities as of March 31, 2022, include assets and liabilities of Variable Interest Entities (VIEs) of $3.4 billion and $2.8 billion, respectively, with these assets restricted to satisfying the obligations of the VIEs[15] Consolidated Statements of Income and Comprehensive Income Net income for Q1 2022 decreased to $23.8 million from $32.0 million in Q1 2021, primarily due to a $4.9 million credit loss expense Consolidated Income Statement Highlights (in thousands, except per share data) | Account | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net interest income | $38,516 | $37,858 | | Total other expenses | $9,784 | $9,106 | | Credit loss (expense) benefit, net | $(4,884) | $4,038 | | Net income | $23,781 | $31,955 | | Net income attributable to common stockholders | $20,436 | $24,233 | | Earnings per common share, diluted | $0.25 | $0.30 | Consolidated Statements of Changes in Equity Total stockholders' equity increased from $1.465 billion at the start of 2022 to $1.468 billion at the end of Q1 2022, driven by net income partially offset by dividends Changes in Equity for Q1 2022 (in thousands) | Description | Amount | | :--- | :--- | | Beginning Equity (Jan 1, 2022) | $1,464,706 | | Net Income | $23,781 | | Dividends on preferred stock | $(3,148) | | Dividends on common stock ($0.24/share) | $(18,697) | | Stock compensation expense | $1,266 | | Ending Equity (Mar 31, 2022) | $1,467,908 | Consolidated Statements of Cash Flows Q1 2022 cash flows show $32.6 million from operations, $205.8 million used in investing, and $264.6 million provided by financing, resulting in a $91.4 million net increase Cash Flow Summary for Q1 2022 vs Q1 2021 (in thousands) | Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $32,617 | $26,340 | | Net cash (used in) investing activities | $(205,812) | $(62,343) | | Net cash provided by financing activities | $264,575 | $18,754 | | Net change in cash | $91,380 | $(17,249) | Notes to the Consolidated Financial Statements Notes detail accounting policies, loan portfolio, VIEs for CLOs, financing, fair value, related party transactions, and equity structure - The company's principal business is originating and acquiring a diversified portfolio of commercial real estate credit investments, mainly first mortgage loans, operating as a REIT[27] - The company accounts for its allowance for credit losses on loans held for investment using the Current Expected Credit Loss (CECL) model under ASC 326[42] - The company uses a 5-point internal risk rating scale for its loans, from '1' (Outperform) to '5' (Default/Possibility of Loss), with new loans generally assigned a rating of '3'[45] - On February 16, 2022, the company entered into a new collateralized loan obligation, TRTX 2022-FL5, issuing $1.075 billion in notes and shares, which is consolidated as a VIE[118] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2022 performance, highlighting $20.4 million net income, $5.1 billion loan portfolio growth, new CLO issuance, and increased credit loss allowance Q1 2022 Key Financial Highlights | Metric | Q1 2022 | Q4 2021 | | :--- | :--- | :--- | | Net Income to Common Stockholders | $20.4M | $41.4M | | Distributable Earnings | $26.6M | $18.5M | | Common Stock Dividend per Share | $0.24 | $0.31 | | Book Value per Common Share | $16.41 | $16.37 | - Originated five first mortgage loans with total commitments of $233.0 million[250] - Issued TRTX 2022-FL5, a $1.075 billion managed CRE CLO, and redeemed the $600.0 million TRTX 2018-FL2 CLO[250] - Increased allowance for credit losses by $4.9 million, bringing the total to $51.1 million, or 91 basis points of total loan commitments[250] - Subsequent to quarter end, on April 4, 2022, the company sold its remaining 10-acre REO property for $75.0 million, expecting a gain of $13.3 million in Q2 2022[239][271] Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate, credit, and liquidity risks, minimizing interest rate exposure by match-indexing floating-rate assets and liabilities - The company's business model seeks to minimize interest rate risk by match-indexing floating-rate assets and liabilities, with 100% of the loan portfolio earning a floating rate of interest as of March 31, 2022[376] Interest Rate Sensitivity Analysis (Impact on Net Interest Income over 12 months, in thousands) | Rate Change | Increase | Decrease | | :--- | :--- | :--- | | 25 Basis Point | $(5,074) | $5,578 | | 50 Basis Point | $(9,735) | $9,003 | | 75 Basis Point | $(13,610) | $9,003 | - Credit risk is managed via underwriting and active asset management, with exposure to commercial real estate market risks like changes in occupancy and capitalization rates[379][380] - Liquidity risk primarily stems from financing longer-maturity assets with shorter-term borrowings and potential margin calls, mitigated by having 72.5% of borrowings from non-mark-to-market sources like CRE CLOs as of March 31, 2022[293][387] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal controls - Management concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2022[398] - No material changes were identified in the company's internal control over financial reporting during the first quarter of 2022[399] Part II. Other Information Legal Proceedings As of March 31, 2022, the company was not involved in any material legal proceedings - The company was not involved in any material legal proceedings as of March 31, 2022[402] Risk Factors There have been 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, 2021 - No material changes to risk factors were reported from the company's 2021 Form 10-K[403] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[404] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[405] Mine Safety Disclosures This item is not applicable to the company - Not applicable[406] Other Information The company reported no other information for this item - None[407] Exhibits This section lists all exhibits filed with the Form 10-Q, including amendments to credit agreements, officer certifications pursuant to the Sarbanes-Oxley Act, and XBRL data files - Filed exhibits include amendments to Master Repurchase and Securities Contracts with Wells Fargo and Goldman Sachs[409] - Certifications by the Principal Executive Officer and Chief Financial Officer under Sections 302 and 906 of the Sarbanes-Oxley Act were filed as exhibits[410]