Deutsche Bank Group Research 21 August 2025 Date Kentaro Koyama Chief Economist +81-3-6730-0683 Deutsche Securities Inc. Japan IMPORTANT RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS LOCATED IN APPENDIX 1. UNTIL 19th MARCH 2021 INCOMPLETE DISCLOSURE INFORMATION MAY HAVE BEEN DISPLAYED, PLEASE SEE APPENDIX 1 FOR FURTHER DETAILS. Japan Economics Japan Economic Perspectives 7T2se3r0Ot6kwoPa Japan economic outlook: Tariffs, monetary policy, political landscape The growth forecast for fiscal 2025 has been revi ...

Financial Data and Key Metrics Changes - Revenue for Q2 2025 was $7.7 billion, consistent with Q2 2024, impacted by strategic divestitures of approximately $200 million in revenue [6][7] - Earnings before taxes (EBT) increased by 4%, net income also increased by 4%, and earnings per share rose by 5% compared to 2024 [7] - Gross profit increased to $1.3 billion, with a gross profit margin of 16.9%, marking the eighth consecutive quarter of stable gross margin [8][9] - Selling, general and administrative expenses as a percentage of gross profit improved by 30 basis points to 69.9% [9] Business Line Data and Key Metrics Changes - North American retail automotive service and parts gross profit increased by 9%, with same-store service and parts revenue up by 7% [14] - Premier Truck Group's new unit sales increased by 4%, while used unit sales decreased by 8%, but used truck grosses increased over 50% [17] - Penske Transportation Solutions (PTS) revenue was $2.8 billion, with full-service revenue and contracts increasing by 4% [19] Market Data and Key Metrics Changes - Approximately 61% of revenue is generated in North America, 29% in the UK, and 10% from other international markets [11] - In the UK, new unit deliveries declined by 16% due to OEM product changes and reduced incentives [21] - Same-store used units in the UK declined by 23%, attributed to the realignment of the company's used-only dealerships [22] Company Strategy and Development Direction - The company focuses on diversification across retail automotive and commercial truck industries, leveraging a highly variable cost structure [12][34] - Recent trade agreements, particularly with the EU, are expected to benefit major partners by enhancing U.S. production exports [10] - The company is actively pursuing acquisitions and has a pipeline for potential M&A opportunities [104][112] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of the business and the benefits of diversification, cost control, and a strong balance sheet [34] - The operating environment remains fluid, with OEMs adjusting pricing strategies amid tariff negotiations [10][42] - Management anticipates a gradual improvement in used vehicle sourcing as lease returns increase in 2026 [13] Other Important Information - The company generated $472 million in cash flow from operations for the first half of 2025, with a trailing twelve-month EBITDA of over $1.5 billion [27] - The dividend was increased by 4.8% to $1.32 per share, marking the nineteenth consecutive quarterly increase [29] - The company has a backlog of $350 million for 2025 delivery in its commercial vehicle and power systems business [25] Q&A Session Summary Question: Can you quantify the moving pieces affecting unit sales in the US and the UK? - Management noted approximately $200 million in revenue loss due to divestitures and store closures, impacting new and used vehicle units sold [38][40] Question: What about the impact of the UK market? - The UK faced challenges with mobility credits and OEMs suspending wholesales, affecting premium sector sales [42] Question: How do you see GPU trajectory and cadence throughout the quarter? - Management indicated stable grosses throughout the quarter, with the highest in April, and noted a potential for gross compression moving forward [62] Question: What is the outlook for capital allocation with the additional cash flow? - Management stated that the additional cash flow provides more opportunities for capital allocation, including share buybacks and acquisitions [100][103] Question: Is the $1.5 billion acquisition target still realistic? - Management indicated that while the target may not be met, they remain focused on organic growth and acquisitions [110][112]

Financial Data and Key Metrics Changes - TRTX reported GAAP net income of $16.9 million or $0.21 per common share, with distributable earnings of $0.24 per common share, covering the quarterly dividend [12] - Book value per common share was $11.2, slightly down from $11.19 in the previous quarter [12] - The CECL reserve rate declined to 176 basis points from 199 basis points, reflecting a 12% decrease [16] Business Line Data and Key Metrics Changes - The loan portfolio grew by 15% during the second quarter, driven by strong origination volume [15] - Seven new loans were originated with total commitments of $695.6 million and a weighted average credit spread of 2.86% [13] - The REO carrying value declined by $32.5 million or approximately 12% due to the sale of two REO properties, generating a GAAP gain of $7 million [14] Market Data and Key Metrics Changes - U.S. equity markets rallied, with the S&P 500 reaching an all-time high, while corporate credit markets tightened [6] - Real estate credit markets experienced widening in loan spreads due to tariff volatility, impacting lending dynamics [6] Company Strategy and Development Direction - The company aims to leverage its liquidity position and capital deployment strategies to drive earnings growth [10] - TRTX is focused on multifamily and industrial sectors, which are seen as liquid and resilient during economic cycles [39] - The company plans to continue selling REO properties and has a strategy in place for managing and improving the performance of these assets [33] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the stability of the loan portfolio, with no credit migration expected [48] - The company anticipates an elevated pace of new investments in the coming quarters, supported by a strong pipeline [25] - Management noted strong fundamentals in the multifamily sector, driven by slowing new construction and elevated borrowing rates [42] Other Important Information - TRTX's share price performance has led its peers with a cumulative return of 68% since January 2023 [19] - The company maintains a 100% performing loan portfolio and a stable liability structure that is 95% non mark to market [18] Q&A Session Summary Question: Future quarterly origination volumes - Management indicated that elevated origination volumes are expected to continue due to attractive lending opportunities as banks pull back [24] Question: Loan size targeting - The company has maintained a consistent scale in loan sizes, with larger loans providing diversification benefits [27] Question: REO sales and potential gains - Management noted a history of selling REO properties at book gains and plans to move several remaining properties to market soon [32] Question: Portfolio opportunity and repositioning - The focus remains on multifamily and industrial sectors, with ongoing monitoring of refinancing trends and potential acquisition loans [40] Question: Credit risk migration - Management stated that current reserves reflect future expectations, and no significant credit migration is anticipated [47]

Trade Relations - The European Union needs to act swiftly in tariff negotiations with the US [1] - The European Union needs to maintain a firm stance in tariff negotiations with the US [1]

Trade Relations - Swiss exports to the US rebounded in June, indicating resilient trade despite tariff negotiations [1]

Trade & Policy - Indonesia's plan to purchase billions of US dollars' worth of US oil-related goods is contingent on tariff negotiations [1]

Investment Rating - The report does not explicitly provide an investment rating for the industry or specific companies covered. Core Insights - The timing of tariff impacts on the economy will depend on the actual application of tariffs and the outcomes of ongoing negotiations [4] - Trade negotiations typically take years rather than months, indicating that any near-term outcomes may be limited to framework agreements or narrow deals [8] - The interaction between country-specific tariffs and sector-based tariffs remains uncertain, with upcoming deadlines in July and August expected to provide clarity [9][11] Summary by Sections Trade Negotiations and Tariffs - A series of tariff deadlines are approaching, with significant negotiations involving the US, Japan, India, Mexico, and Canada in July, followed by China in August [9] - Historical experiences suggest that trade negotiations can span several years, with the UK-US trade agreement serving as a reference point for future deals [12][22] - The report anticipates that the administration may seek to extend the July 9 deadline, citing progress in trade discussions [11] Economic Implications - Opinion polling indicates that voters do not currently perceive a negative impact from tariffs, which may reduce political risks associated with tariff escalations [13] - The economic effects of tariffs have not yet manifested in hard data, with delays expected in the transmission of price changes due to tariffs [30][31] - The report highlights that the effective tariff rate is expected to stabilize around mid-teens percentages, with ongoing legal challenges and negotiations influencing final levels [11][33] Sector and Country Tariffs - The report discusses the complexity of how country and sector tariffs will interact, particularly in the context of the USMCA and ongoing bilateral negotiations [15][16] - The categorization of trade with Canada and Mexico will significantly affect tariff levels, with a mix of Most Favored Nation (MFN) and USMCA compliance currently in place [20] - The transition from country to sector tariffs is a key focus, with implications for supply chains and revenue generation from tariffs [21][34]

Investment Rating - The report indicates a positive outlook for the US economy, with raised growth forecasts and lowered recession odds, suggesting a favorable investment environment [1][2][4]. Core Insights - The report highlights a significant reduction in US recession odds to 35% and an increase in the 2025 growth forecast by 0.5 percentage points to 1% [4][5]. - The effective US tariff rate is expected to increase by 13 percentage points, which is lower than previous estimates, indicating a more favorable trade environment [3][9]. - The S&P 500 return forecasts have been revised upwards to +1% for 3 months and +11% for 12 months, with target levels set at 5900 and 6500 respectively [7][8]. - China's real GDP growth forecast has been raised to 4.6% for 2025, reflecting improved economic conditions [8]. Summary by Sections Economic Forecasts - The US growth forecast has been raised due to positive developments in tariff negotiations, with recession odds lowered to 35% [2][4]. - The report anticipates a series of three rate cuts by the Federal Reserve starting in December, later than previously expected [5][6]. Tariff Implications - The US-China tariff rate is now expected to increase by 13 percentage points, which is less than the previously anticipated 15 percentage points [3][9]. - The report suggests that the reduction in tariff rates will positively impact the S&P 500 and overall market sentiment [7][8]. Currency Dynamics - The report identifies favored emerging market currencies in Asia, including KRW, TWD, MYR, and SGD, as potential investment opportunities [12][18]. - It notes that the USD's underperformance is increasingly led by emerging markets rather than the DXY index, indicating a shift in currency dynamics [4][35]. Trade and Market Sentiment - The report discusses the potential for "currency deals" within trade agreements that could strengthen underperforming Asian currencies [37]. - It emphasizes that recent dollar weakness is benefiting Asian currencies, particularly TWD, CNH, and IDR, suggesting a favorable environment for emerging market currencies [38].

Financial Data and Key Metrics Changes - Net sales for Q1 2025 decreased by 10.5% to $425.4 million from $475.2 million in Q1 2024, with a significant decline of almost 20% in January [6][19] - Adjusted EBITDA fell by $15.9 million to $59.1 million, representing 13.9% of net sales compared to 15.8% in Q1 2024 [7][27] - Adjusted net income was $3.4 million or $0.04 per adjusted diluted share, down from $14.4 million or $0.18 per adjusted diluted share in Q1 2024 [28] Business Line Data and Key Metrics Changes - Specialty segment net sales decreased by 13.1% to $134.4 million, with adjusted EBITDA down by 9.9% [28][29] - Meals segment net sales fell by 11.6% to $106.1 million, with adjusted EBITDA decreasing by approximately $700,000 [29][30] - Frozen and vegetables segment net sales dropped by 11.2% to $93.1 million, with adjusted EBITDA turning negative at -$1.5 million compared to $7.8 million in the prior year [30][31] - Spices and Flavor Solutions segment net sales decreased by 4% to $91.7 million, with adjusted EBITDA down by 8.4% [32] Market Data and Key Metrics Changes - Consumption trends across measured and unmeasured channels were approximately -6% in Q1, with improvement noted in April to -2% [8][12] - Retailer inventories were significantly reduced, impacting net sales by an estimated $15 million in Q1 [9] - The Canadian market showed mid-single-digit net sales growth for frozen and vegetables despite currency translation impacts [22] Company Strategy and Development Direction - The company is focused on reshaping its portfolio to improve margins and cash flow, with a target of adjusted EBITDA as a percentage of net sales approaching 20% [13][14] - Plans include evaluating divestitures of non-core businesses and potential sales of frozen and vegetable assets [14][15] - The company aims to reduce leverage to below five times through divestitures and excess cash flow [37] Management Comments on Operating Environment and Future Outlook - Management acknowledged a challenging start to 2025 but noted improving trends in April and early May [5][12] - The company revised its fiscal year 2025 guidance down to net sales of $1.86 billion to $1.91 billion and adjusted EBITDA of $280 million to $290 million [12][34] - There is uncertainty regarding consumer behavior and inflation impacts, but management expects to lap negative comps by mid-2025 [12][60] Other Important Information - Promotional trade spending increased significantly, impacting gross profit margins [24][27] - The company is monitoring input cost inflation and foreign exchange impacts, particularly related to the Mexican peso [25][26] Q&A Session Summary Question: Impact of tariffs on potential sale of Frozen - Management indicated that ongoing M&A discussions are not typically commented on, but the Green Giant business is compliant under USMCA, minimizing tariff impacts [39][41] Question: Accelerating portfolio changes due to stock reaction - Management confirmed that efforts to accelerate portfolio shaping and cost reduction programs were already in progress prior to the stock reaction [49][50] Question: Clarification on consumption trends and Easter effects - Management noted that while there may be some Easter benefits, the underlying consumption trends are improving gradually [52] Question: Retailer inventory reduction and potential volume recoup - Management believes the inventory reductions are largely permanent, with limited expectations for recouping lost volume [59] Question: Promotional spending moving forward - Management plans to resume more normal promotional spending rates after the aggressive promotional investments made in Q1 [77][78]