TPG RE Finance Trust - Earnings Call - Q2 2025

Executive Summary

• TRTX delivered a stronger quarter: GAAP net income attributable to common stockholders rose to $16.9M ($0.21 diluted EPS), with Distributable Earnings of $$0.24 per share that covered the common dividend; book value per share edged up to $$11.20.
• Significant activity: $695.6M of originations, $172.3M of repayments, and sale of two office REO properties for $39.4M generating a $7.0M GAAP gain (contributing $1.9M to DE).
• Balance sheet and funding strength: $236.4M near-term liquidity, 94.8% non-mark-to-market borrowings, debt-to-equity at ~2.6x; credit quality remained stable (weighted average risk rating 3.0) and CECL reserve increased modestly to $68.8M (176 bps of commitments).
• Results beat Wall Street consensus: Q2 2025 EPS of $0.24 vs. $0.226 estimate; “Revenue” $34.4M vs. $23.8M estimate; the beat was driven by higher net interest income and REO gain, while maintaining disciplined credit and liability structure (values from S&P Global)*.
• Forward catalysts: elevated origination pace with more than $200M of executed term sheets and continued REO monetization; management emphasized trading below book and a stable liability stack as a support for shareholder value.

What Went Well and What Went Wrong

What Went Well

• Origination momentum and earnings coverage: “standout performance… closed seven new loans totaling $696M” with DE of $$0.24 per share covering the $0.24 dividend.
• REO execution: sold two office REO properties for $39.4M with a $7.0M GAAP gain and $1.9M contribution to Distributable Earnings; REO carrying value fell by ~12% QoQ.
• Liability structure and liquidity: 94.8% non‑MTM financing and $236.4M near-term liquidity supported “offensively oriented” deployment; debt-to-equity ~2.6x, still materially below peers, per CEO commentary.

What Went Wrong

• Credit loss expense increased: recognized $1.8M credit loss expense (CECL reserve rose to $68.8M, 176 bps), though allowance rate declined vs. Q1 due to portfolio growth.
• Revenue from REO operations remained a drag vs. expenses: REO revenue of $8.2M vs. REO expenses of $10.3M in Q2; net REO revenue continues to weigh on GAAP earnings despite gains on sales.
• Slight book value dilution factors: common and preferred dividends, equity comp, and CECL expense offset otherwise positive net income; book value per share increased only modestly from $11.19 to $11.20.

Transcript

Speaker 4

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to TPG RE Finance Trust's second quarter 2025 earnings conference call. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. Please note this conference is being recorded. It is now my pleasure to turn the call over to management. Thank you. You may begin.

Speaker 0

Good morning and welcome to the TPG RE Finance Trust earnings call for the second quarter of 2025. Today's speakers are Doug Bouquard, Chief Executive Officer, and Bob Foley, Chief Financial Officer. Doug and Bob will provide commentary regarding the company, its performance, and the general economy, and will answer questions from call participants. Yesterday afternoon, we filed our Form 10-Q, issued a press release, and shared an earnings supplemental, all of which are available on the company's website in the Investor Relations section. This morning's call is being recorded. Information regarding the replay of this call is available in our earnings release and on the TRTX website. Recordings are the property of TRTX, and any unauthorized broadcast or reproduction in any form is strictly prohibited. This morning's call will include forward-looking statements, which are uncertain and outside of the company's control. Actual results may differ materially.

For a comprehensive discussion of risks that could affect results, please see the Risk Factors section of the company's latest Form 10-K. The company does not undertake any duty to update our forward-looking statements or projections unless required by law. We will refer during today's call to certain non-GAAP financial measures, which are reconciled to GAAP amounts in our earnings release and our earnings supplemental, both of which are available in the Investor Relations section of our website. Now, I'll turn the call over to Doug.

Before we discuss our results for the quarter, we wanted to share that our hearts are heavy in the wake of Monday's senseless attack at 345 Park Avenue. We are grieving with our friends and neighbors at Blackstone and the NYPD, and our thoughts are with the teams at KPMG, the NFL, and all those impacted by this tragedy. Many of us at TPG had the utmost privilege of working alongside Wesley Limpatner at Blackstone across her career. She'll be remembered for her exceptional talent, her kindness, and most importantly, as a loving wife and mother of two children. Our industry has lost a leader, and we have lost a friend. We are grateful for the swift response and dedication of local law enforcement, first responders, and security personnel.

At this profoundly difficult moment, we are mourning with those who have lost loved ones and colleagues, and we stand in solidarity with all those affected. Turning to our quarterly results, global markets have continued to adjust to the effects of ongoing tariff negotiations. Over the past week, U.S. equity markets have rallied meaningfully as the S&P 500 reached yet another all-time high yesterday. Equity markets remain very well-bid, and corporate credit markets have tightened to levels not seen since early March of this year. Meanwhile, in real estate credit markets, tariff volatility drove widening in loan spreads, while banks continued their reluctance to lean into direct lending. This market backdrop afforded TRTX an excellent window of opportunity during the quarter, as widening direct loan spreads outpaced the widening of back-leveraged spreads, thus generating attractive risk-adjusted returns for new investments on behalf of our shareholders.

During the second quarter, TRTX delivered a standout performance, decisively executing the plan we previously outlined to drive earnings growth and maximize shareholder value. In previous earnings calls, we outlined the many levers available to TRTX to grow earnings, including: one, deployment of excess liquidity; two, utilizing untapped financing capacity; three, recycling equity currently invested in REO; and four, creating additional liquidity via capital markets activity. During the second quarter, we pulled on each lever to build a strong foundation for high-quality earnings growth. The deep sourcing and investing capabilities of TPG's integrated real estate debt and equity platform drove our 15% net earning loan growth in the second quarter.

Our balance sheet is poised for further capital deployment with $236 million of available liquidity, a stable and 100% performing loan portfolio, a continued reduction in our REO portfolio, and a debt-to-equity ratio now at 2.6 times that is still materially less than our peers. Despite the tariff-driven market disruption earlier in the second quarter, our investment team took advantage of this opportunity and, buoyed by substantial dry powder and a stable liability structure, closed seven new loans totaling $696 million, with a weighted average loan-to-value ratio of 68%. This investment activity was concentrated in our thematic sectors of multifamily and industrial and was diverse across geographic markets and institutional borrowers. In addition, we currently have more than $200 million of newly executed term sheets and an extensive pipeline which will fuel continued growth in earnings for TRTX shareholders.

In capital markets, we continue to take advantage of our industry-leading liquidity position in terms of dry powder and 95% non-mark-to-market liability structure. In addition, the sale of two REO office properties generated a $7 million GAAP gain, reduced our REO exposure to approximately 5% of total assets, and our remaining REO exposure is now 74% multifamily, with office REO now representing approximately 1% of our balance sheet. These REO sales proceeds are being deployed actively in the new loan investments, demonstrating our well-established ability to efficiently redeploy capital. Lastly, in the second quarter, we repurchased Common Stock, which generated $0.08 per share of net book value increase. Our second quarter investment activity and operating results demonstrated our ability to leverage every available tool to grow earnings, recycle, and allocate capital efficiently, all while maintaining a disciplined approach to credit risk and liquidity.

TRTX currently trades at a 25% discount to book value and an 11.5% dividend yield. We continue to believe our current share price presents a compelling investment opportunity, backed by a 100% performing loan book, a stable liability structure, an offensively oriented liquidity position, and led by the investment insights of TPG's industry-leading integrated debt and equity real estate platform. With that, I'll turn it over to Bob to review our financial results.

Speaker 3

Thank you, Doug. Good morning, everyone. Thank you for joining us. For the second quarter of 2025, TRTX reported GAAP net income of $16.9 million, or $0.21 per common share, and distributable earnings of $0.24 per common share, which again covered our quarterly dividend of $0.24 per common share. Book value per common share was $11.20 versus $11.19 for the previous quarter. Our results reflect accelerating execution of our business strategy, which is predicated on a durable liability structure, strong liquidity, prudent and commercial portfolio construction, rigorous asset management, and disciplined capital allocation. Regarding capital allocation, we directly originated seven loans with total commitments of $695.6 million, $675.0 million of initial unpaid principal balance, and a weighted average credit spread of 2.86%. We repurchased 1.7 million common shares for an aggregate price of $12.5 million, or $7.52 per share, generating approximately $0.08 per share of book value accretion.

At quarter end, $9.3 million of repurchase capacity remained under existing board authorization. In capital markets, we financed our nearly $700 million of new loan investments using reinvestment capacity and TRTX 2025 FL6 of $172.2 million, including $103 million of cash from loan repayments and $69.2 million of RAM cash. We used our secured revolver, pending transfer primarily to non-mark-to-market term financing arrangements, balance sheet cash intentionally deployed to reduce idle liquidity and lessen earnings drag, and defer borrowings to reduce interest expense. Our liquidity management strategy reflects our 100% performing loan book and 95% non-mark-to-market liability structure. We will backlever in future quarters and recycle borrowed cash into new loan investments as we originate them. In asset management, we maintained a 100% performing loan portfolio with an unchanged weighted average risk rating of 3.0 and no credit migration.

We sold two REO properties, both at gains, which combined to a GAAP gain of $7 million and a contribution to distributable earnings of $1.9 million. Consequently, our REO carrying value declined by $32.5 million, or approximately 12%. We intend to launch sales processes for several more REO investments in the coming quarters. Refer to Footnote 4 of our financial statements for additional information regarding our REO investment portfolio. Regarding our loan portfolio, it grew by 15% during the second quarter, driven by strong origination volume and repayments consistent with our expectations. 100% of our loan portfolio is performing. We have no 5-rated loans and only two 4-rated loans. Our weighted average risk rating is 3.0, consistent with the prior six quarters. Our CECL reserve rate declined to 176 basis points from 199 basis points.

This 12% decline reflects our 100% performing loan book and 15% growth in our loan portfolio quarter over quarter. Portfolio composition is detailed on page 7 of our earnings supplemental, where you will note growth in multifamily and industrial exposure, accompanied by declines in life sciences, hotel, and office. Non-mark-to-market financing increased to 95% from 91% of our secured liabilities, reinforcing our industry-leading position. Total leverage increased modestly to 2.6 times from 2.2 times in support of loan portfolio growth. At quarter end, we had $1.7 billion of financing capacity available to support loan investment activity, and we were in compliance with all financial governance. Regarding liquidity, we deployed balance sheet cash into new loan investments and share repurchases.

Quarter-end liquidity of $236.4 million, or 5.7% of total assets, included $165.9 million of cash, including $20.7 million to satisfy our covenant requirements, $66.1 million of undrawn capacity under our secured credit agreements and asset-specific financing arrangements, and $1.8 million of CRE/CLO investment cash. We funded during the quarter $8.8 million of commitments under existing loans. At quarter end, our deferred funding obligations under existing loan commitments were $116.4 million, only 3% of our total loan commitments. In summary, our second quarter results demonstrate that disciplined execution of our business plan translates into loan portfolio growth. We maintained book value, delivered stable earnings, and enhanced shareholder value through disciplined capital deployment, including loan investments and share repurchases. TRTX has strong liquidity, a 100% performing loan portfolio with stable risk ratings, low leverage, a cost-efficient, stable liability structure that is 95% non-mark-to-market, and meaningful capacity for continued growth.

TRTX's share price performance continues to lead its peers with a cumulative return of 68% since January of 2023. We remain focused on sustaining that momentum to eliminate the gap between our share price and book value. With that, we'd like to open the floor to questions. Operator?

Speaker 4

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the * keys. That is *1 if you would like to ask a question. Our first question comes from John Nicodemus with BTIG.

Hi. Good morning, everyone. We were obviously excited to see almost $700 million of originations during the quarter, with $112 million already in the pipeline so far in July. Just curious how we should think about quarterly origination volumes going forward. That is to say, will volumes like that of the second quarter become the norm, or is that higher than what we'll likely see the rest of this year? Thanks.

Speakers, I believe your line is on mute. Can you unmute your line? Please stand by.

Speaker 0

Hello?

Speaker 4

Yes, we can hear you. Please continue.

Speaker 0

Thanks, Karen. Apologies there for the technical difficulty. As we think about pacing, first and foremost, we have a number of levers available to us on our balance sheet that I had shared in my prepared remarks. What we found recently is that there's really kind of two things happening. One is we continue to see a very attractive lending opportunity as banks have continued to basically pull back. Secondly, from a pacing perspective, because we have a number of these levers, we're not really bound by the pace of repayments or other sort of balance sheet-related constraints from a pacing perspective. I think that it's safe to say that you'll continue to see, I would say, an elevated pace of new investments over coming quarters as we begin to re-lever and, frankly, grow our balance sheet.

Great. Thanks so much, Doug. That's super helpful. For my other question, similar lines, but wanted to ask about loan size. We noticed that two of your loans originated last quarter are now in your top five largest loans in your book. Was that an active decision by your team to target loans of that size, or did those opportunities just sort of present themselves that way? Thanks a lot.

Yeah, sure. I think our scale and size of loans that we're investing in has generally remained somewhat consistent over the past number of years. Specific to the larger loans that are included, these are institutional borrowers and institutional assets. We like the fact that we can traffic in the, I'll call it like the $40 to $100 million range, which I'd say is more of a middle-market type of lending. Also, given the size and scale of our balance sheet, we can kind of scale up into loans that are in the context of $200 million. Additionally, with some of these larger loans, we are able to, within those loans, actually have diversity. For example, one of the largest transactions that we did, which was an industrial portfolio, that provided diversification of industrial exposure, frankly, across the U.S.

We do like where we can gain a little bit more diversity through the form of a larger size loan.

Awesome. Thank you so much, Doug. That's all for me. Thanks.

Thank you.

Speaker 4

Our next question comes from Chris Miller with Citizens Capital Markets.

Hey, guys. Thanks for taking the question. Congrats on a really solid quarter. I wanted to hit on some of the REO. It's great to see that gain you guys got on those sales there. I know you won't be able to give any specifics or guidance on this, but given the timing of when you took back some of the other REO properties compared to current market valuations, could we see some other gains come through when those properties get sold?

Speaker 3

Hey, Chris. Thanks for your question. You know, we're always hesitant to provide forward guidance, but I'll make a couple of general observations about our experience in REO. The first is that historically, we've been very aggressive about managing the performance of properties we take back and then moving them to market relatively quickly, frankly, with good results. By that, I mean to say that to date, every piece of REO that we've sold, we've sold at a book gain. We have plans in place with respect to our remaining REO properties. We've improved the operating performance of virtually all of them, and we will be moving to market several of them for sale in the not-too-distant future.

Got it. That's helpful. I guess kind of following up on that a little bit, on the multifamily REO you guys have on the books still, it looks like you don't have any financing against those assets. Is that mainly just due to expecting those properties getting listed for sale in the coming quarters?

You're correct. We don't have secured financing against them. The frictional cost of financing investments that we think will be relatively short-term in nature is a reason for one of the principal reasons we haven't financed those. We always have that option to finance them if we choose to do so, and they're eminently financeable.

Got it. Thanks for taking the questions. Glad to see you guys firing on all cylinders over there.

Thanks very much.

Speaker 4

Next question comes from Rick Shane with JPMorgan.

Hey, guys. Good morning and thanks for taking my questions. When we consider activity in commercial real estate lending and property sales throughout the country, there's really a pretty wide discrepancy both geographically and by property type. As you look at portfolio opportunity and repositioning, where are you going to be trying to lean in on the offensive side, and where do you want to continue to be defensive?

Speaker 0

Thanks, Rick. Yeah, it's an important question. I think that from what you've seen from our past quarter, we still remain, I would say, concentrated within multifamily and industrial. Those are two markets, or I should say property types, that are both liquid. There still are transactions occurring there. They're just two sectors that we prefer thematically across our entire integrated real estate debt and equity platform. I think that we've seen over the cycles that these assets tend to perform better just from a loss and default perspective as you kind of go through economic cycles. That being said, we're not just limited to multifamily and industrial. We are in regular pursuit of other asset classes. For example, student housing, to pick one sector. The bulk of the activity right now has been primarily multi and industrial.

When we think about what we're seeing in our pipeline, there's also another underlying trend that really has remained consistent the last two years, which is that we're still seeing primarily refinancings within our pipeline. That's one trend that we're really kind of keeping an eye on. We obviously would like to see some more acquisition loans within our pipeline and ultimately closing onto our balance sheet. That's one trend that we do think, as there's perhaps a little bit more clarity in terms of the path of interest rates and, frankly, as the gap between where buyers and sellers will transact narrows, we do expect acquisitions to pick up. I think that's the next big trend that we are very closely monitoring.

Got it. One of the other big themes that's emerging is it does appear that we're sort of approaching peak delivery of multifamily. There's going to be a little bit of a lag as we approach peak lease-up there. Are you starting to see the underlying economics in multifamily from a cash flow perspective improve? As we sort of get, as the market digests that additional capacity, are you starting to have conversations about any sort of resurgence in, or resurgence is probably an overstatement, rebound in multifamily development as well for new build?

Yeah, look, I think that what we've seen, first of all, just within our portfolio specifically, our experience has been really across nearly every market, generally very strong fundamentals in terms of multifamily. I think that's been buoyed by, number one, as you mentioned, a slowing in terms of new construction. Secondly, elevated borrowing rates on the residential side. Frankly, it just kind of kept renters within their existing units. I would say, thirdly, I think you're seeing it a bit in some of the home sales data where there is a little bit of, I would say, pause from a risk perspective from your generic homeowner about kind of buying that next home. Again, I think all those factors lean sort of heavily into strong fundamentals for multifamily. That's definitely a trend that we continue to expect to kind of come over time.

As it comes to multifamily starts, I would say that we do have a broad integrated debt and equity platform that really has its finger on the pulse of any new activity. We're really not seeing a sort of large and growing wave of new construction deals really across either debt or equities. I think, again, that just kind of creates a little bit of a stronger moat around our current multifamily exposure. Lastly, what we are starting to see is, even in, like, I think, a few of the Sunbelt markets that perhaps had some of the greatest supply over the last couple of years, they are beginning to absorb that supply. It does kind of seem like, as you look out one to two years, the sort of picture for multifamily remains very strong.

Got it. Okay. Thank you very much. I really appreciate your thoughtful comments about everything that happened yesterday. I think everybody's feeling it, and you articulated it so well for all of us. Thank you.

Thank you, Rick.

Speaker 4

Our final question will come from Don Fandetti with Wells Fargo.

Yes. How are you thinking about credit risk migration from here? It's been, you know, very stable. I guess, you know, let's say the Fed does not cut. Would that lead you to need some additional reserves, or do you feel like that scenario is baked into your current reserves?

Speaker 3

Thanks for your question, Don. Taking them in reverse order, under CECL, registrants' reserves should always reflect their future expectations. We've incorporated into our current estimates forecasts about changing interest rates and inflation, GDP growth, and so on. I don't think those factors in particular would directly weigh on the future direction of our CECL reserve. In terms of credit migration and portfolio performance, our risk ratings have been very stable. We've had virtually no credit migration. As it stands right now, we wouldn't expect any. Specific circumstances can change, but right now, we feel good about the profile of our loan book. In connection with multifamily in particular, some of the factors that Doug just mentioned are really important in our assessment.

Great. Thanks, Bob.

Speaker 4

This now concludes our question and answer session. I would like to turn the floor back over to management for closing comments.

Speaker 0

Yes. I just want to thank everyone for joining the call today. We're very proud of the team's accomplishments this quarter and look forward to providing further updates to the market. Thank you.

Speaker 4

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.