TPG RE Finance Trust(US:TRTX)2022-08-03 19:22Financial Data and Key Metrics Changes - Book value per common share decreased by $0.38 to $16.03 from $16.41, primarily due to an increase in the CECL reserve that outpaced operating earnings and a $13.3 million gain on sale [27] - GAAP net loss to common shareholders was reported at $8.8 million, while distributable earnings were positive at $21.5 million [29] - Diluted distributable earnings per share covered the dividend per share by a ratio of 1.1 to 1, with a year-to-date payout ratio of 80% [28] Business Line Data and Key Metrics Changes - Loan repayments totaled $757 million, with 35% from office, 23% from multifamily, and 22% from hotel properties [16] - New loan commitments amounted to $380 million at an average LTV of 65% and a weighted average spread of Term SOFR plus 4.21% [19] - 87% of second quarter loan originations were multifamily loans, with multifamily now representing 41% of total loan commitments [21] Market Data and Key Metrics Changes - The real estate lending market has seen a reduction in leverage and widening of credit spreads, indicating a more lender-friendly environment [10] - The company ended the quarter with over $770 million in total liquidity, consisting of $339 million in available cash and $365 million in reinvestment capacity [15] - The CRE CLO market remains open, with new issue volume for 2022 at $25 billion, slightly above the previous year's volume [40] Company Strategy and Development Direction - The company is focused on deploying capital prudently to benefit shareholders and aims to increase quarterly dividends when appropriate [23] - There is a strong emphasis on multifamily and industrial credits in select markets, as these sectors are believed to offer the most attractive risk-adjusted returns [21] - The company has diversified its funding sources to reduce reliance on the CRE CLO market and enhance its financing capabilities [41] Management's Comments on Operating Environment and Future Outlook - Management noted that tightening liquidity has affected nearly all asset classes, including real estate, leading to a more cautious approach to lending [9] - The company has increased its CECL reserve to reflect deteriorating market trends and specific credit concerns, particularly in the office sector [12] - Management expressed optimism about the lending conditions improving in favor of the company, with a strong pipeline of origination transactions [24] Other Important Information - The company received $267.2 million in office loan repayments during the second quarter, with an additional $226.2 million received since June 30 [37] - The company paid an incentive fee of $5.2 million to its manager due to exceeding the ROA hurdle of 7% [38] - The weighted average advance rate and credit spread for CLOs were reported at 83.6% and 179 basis points, respectively [43] Q&A Session Summary Question: Concerns about overcrowding in the Sun Belt multifamily market - Management indicated that recent loans are not overly concentrated in the Sun Belt and noted a broader array of multifamily lending across the country [48] Question: Concerns about specific markets showing substantial inflation - Management stated that no markets are avoided solely due to inflation concerns, but affordability is a key factor in underwriting decisions [50] Question: Activity in credit resolutions and non-accrual loans - Management confirmed the resolution of a non-accrual loan and indicated that there are no longer any five-rated loans or non-accrual loans in the portfolio [62] Question: Minimum liquidity levels - Management stated that the minimum liquidity level varies based on several factors, typically ranging between $125 million and $160 million [68] Question: Commercial real estate valuations and transitional borrowers - Management noted that private market valuations are reflecting lower price points and that underwriting assumptions are adjusting to higher debt yields and wider cap rates [76]