TPG RE Finance Trust - Q4 2025

Transcript

Operator (participant)

As a reminder, this call is being recorded. It is now my pleasure to pass it off to our host, Dan Cassell. Thank you. You may begin.

Dan Cassell (Head of Investor Relations)

Good morning, and welcome to the TPG RE Finance Trust earnings call for the Q4 of 2025. Today's speakers are Doug Bouquard, Chief Executive Officer, and Brandon Fox, Interim Chief Financial Officer and Chief Accounting Officer. Doug and Brandon are joined by Ryan Roberto, Head of Capital Markets and Asset Management. Doug and Brandon 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-K, 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 and webcast 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 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.

Doug Bouquard (CEO)

Good morning, everyone, and thank you for joining the call. The broader economic backdrop continues to provide a solid foundation for investment activity within the real estate sector. With dislocation in certain parts of the corporate credit market appearing, we are observing a marginal trend of capital allocation oriented towards real estate credit. As we have observed at the start of the year, the combination of increased dry powder, a 10-year treasury hovering just above 4%, and favorable real estate fundamentals should be drivers of continued growth investment activity for TRTX. Increased transaction volume is the essential catalyst for true price discovery, and as more real estate assets trade, investors can more clearly triangulate where valuations have reset, replacing speculation with hard market clearing data.

While we are almost four years removed from when the Fed began hiking rates, this price transparency forms the backdrop for what is shaping up to be an incredibly active year for both borrowers and lenders. 2025 was an important turning point for TRTX. We closed $1.9 billion of new investments, drove 25% year-over-year growth in earning assets, and generated distributable earnings of $0.97 per share, which outearned our dividend for the year. Furthermore, we were able to achieve this while maintaining stable risk ratings, further diversifying our liability structure and ending the year with a 100% performing loan portfolio. From a recent investment perspective, the Q4 was incredibly active, with $927 million of new loans closed, consisting of 62% multifamily and 38% industrial collateral. Two thematic sectors that we continue to target.

As a testament to the strength of our franchise, this quarter's investment activity was not only one of the most active quarters we've had since the company's founding, but over 90% of our new originations were with repeat borrowers. This demonstrates our deep relationships within the real estate ecosystem, further enhanced by the depth and breadth of TPG's real estate debt and equity investment platform. Capital markets velocity remains healthy on our balance sheet, as we received just under $1 billion of repayments this past year. Driven by the robust volume of newly originated loans in 2025 and the repayment of older vintage loans, our balance sheet has undergone a substantial evolution.

For context, at the beginning of 2022, 30% of our balance sheet was exposed to multifamily and industrial collateral, whereas today, we have increased our combined exposure to those sectors to over 72% of our current balance sheet. In recent years, we've been able to accomplish this transformation toward newer vintage loans while generating consistent earnings and maintaining a steady credit profile. From a liability perspective, we continue to grow our lender relationships, optimize our existing capital structure, and are fortunate to have recently issued 2 series CLOs in 2025, which afford the company ample reinvestment capacity over the next 2 years at an attractive cost of funds. While we are proud that 2025 was a year where we delivered on our strategic goals, we remain laser-focused on continuing to build on the success in 2026.

With the insights of TPG's real estate investment platform, combined with a stable balance sheet and an attractive opportunity set, we are confident in our ability to deliver continued strong performance. Tactically, we plan to continue to pull the many levers for growth at our disposal, which include continuing net asset growth through prudent investment and risk management, increasing our leverage ratio towards our target of full investment, and utilizing untapped liquidity. In summary, the offensive posture we were able to embrace this year is a direct result of the strategic approach we laid out years ago.

Our performance in 2025 has set a high bar, and we enter 2026 with the capital, the team, and the momentum to continue to drive value for our shareholders. With that, I will turn the call over to Brandon to discuss our financial results in more detail.

Brandon Fox (Interim CFO and Chief Accounting Officer)

Thank you, Doug, and good morning.

For the Q4 of 2025, TRTX reported GAAP net income of $0.2 million. Distributable earnings for the quarter was $18.5 million or $0.24 per common share. For the full year ending December 31, 2025, TRTX reported GAAP net income of $45.5 million, or $0.57 per share, and distributable earnings of $76.8 million, or $0.97 per common share. A 1.01x coverage ratio of our annual dividend of $0.96 per share. We have covered our common stock dividend for each of the last two years. Book value per common share decreased quarter-over-quarter to $11.07 from $11.25.

Our net asset growth during 2025 continues to reflect our focus on allocating capital to new loan investments and actively managing our portfolio. For the full year, 2025, we originated 20 loans with total commitments of $1.9 billion at a weighted average credit spread of 2.82% and received loan repayments of $987.9 million, including full loan repayments of $931.5 million on 15 loans, where the underlying collateral was 64% multifamily, 20% hotel, 14% office, and 2% industrial. Year-over-year, we grew our net assets from $3.3 billion, $4.1 billion, or 25%. At year-end, our loan portfolio was 100% performing. Our weighted average risk rating for the loan portfolio is unchanged at 3.0.

During the quarter, we upgraded 2 multifamily loans from a risk rating of 3 to 2 based on their continued strong operating performance, and downgraded 1 multifamily loan from a risk rating of 3 to 4 due to operational challenges in the quarter. This loan represents approximately 1% of our total loan commitments at year-end. Our CECL reserves slightly increased quarter-over-quarter to 180 basis points, compared to 176 basis points at September 30. We ended the quarter with near-term liquidity of $143 million, consisting of $72.6 million of cash on hand available for investment, net of $15 million held to satisfy liquidity covenants, undrawn capacity under secured financing arrangements of $51.4 million, and CRE CLO reinvestment proceeds of $4 million.

Additionally, we held unencumbered loan investments with an aggregate unpaid principal balance of $127.1 million that are eligible to pledge under our existing financing arrangements. The company's liability structure is 82% non-mark-to-market, an increase of 6% from 77% at December 31, 2024. Year-over-year, our cost of funds declined 18 basis points, or 9%, from 2.0% to 1.82%. The continued improvements to our liability structure in 2025 are primarily due to the issuance of our two CRE CLOs, TRTX 2025-FL6 and 2025-FL7, totaling $2.2 billion. Total leverage increased quarter-over-quarter to 3.02x from 2.64x as a result of our substantial loan origination volume in the current quarter.

At year-end, we had $1.6 billion of financing capacity available to support loan investment activity and were in compliance with all of our financial covenants. With that, we welcome your questions. Operator?

Operator (participant)

Thank you. We will now conduct a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star one to ask a question at this time. One moment while we poll for the first question. First question comes from Christopher Mueller with Citizens Capital. Please proceed.

Christopher Mueller (VP of Equity Research)

Hey, guys. Thanks for taking the question and congrats on a really strong quarter here. So it looks like only one close, one loan closed so far in the Q1. Do you guys expect origination to slow a little bit in the Q1, or will it be more just like later closings past February? And how are you guys thinking about the pace of originations in 2026?

Brandon Fox (Interim CFO and Chief Accounting Officer)

Of the quarter, rather, and frankly, a lot of that did actually occur as well within Q4 for us, where we had the bulk of our payoffs in Q4 happened, frankly, in the closer to the first month of the quarter, and then the bulk of our new fundings occurred really kind of in the last month of the quarter. So we do see that trend continuing. Secondly, as it relates to pipeline, look, our pipeline is incredibly robust. We are seeing a lot of activity really across all property types, all regions. A number of our borrowers, including repeat borrowers, have been very active. So I think that from a sort of pacing and investment perspective, I do feel really positive about this year.

I mentioned in my remarks that there are a lot of-

Doug Bouquard (CEO)

... , kind of components that are driving that. I would say one, , we are still seeing a lot of those, , kind of peak of the market purchases from 2020, 2021 and 2022. Many of those, , five-year loans are now in kind of some stage of either coming due. And when you combine that with the fact that a number of borrowers have generally not sold those assets yet, they're generally coming to us for typically, , a new financing, in some cases requiring, , cash in. So I think it's really a combination of a lot of those five-year loans coming due from when there was tremendously high activity.

And then I think this year, what's been happening is, if you just look, like from a macro perspective, there's a little bit more clarity around the sort of path of rates. You've got a, , 10-year hovering around 4%, and all in all, credit spreads are, are, are relatively accommodative. So I do feel like that's a pretty nice recipe for a very active year for us.

Christopher Mueller (VP of Equity Research)

Got it. So it sounds like the origination volumes in Q4 isn't really showing up in interest income yet, which is really good to hear. I guess the other question I have here is, it looks like spreads on new loans is about 50 basis points below the portfolio average. Do you expect that type of drop-off on spreads for new loans to continue? And is that due to market competition or more so the type of assets you guys are originating?

Doug Bouquard (CEO)

Yeah, I think it's a combination of really a few things. I would say first we've been very concentrated within multifamily and industrial, and we've been kind of keeping our LTVs in that sub-65% loan-to-value range. I would say, two, although loan spreads, particularly in the Q4, were a touch tighter than prior quarters, we've seen our cost of funds really, frankly, move in line. That's really been the story the entire year, which is, although loan spreads have come tighter, , the demand and competition to provide us back leverage continues to be incredibly robust. , we saw that both in the closing of our Series C loan in Q4 with a weighted average cost of funds of about 1.67.

But then also what is, , maybe less obvious is the number of bank relationships that we have across the broader TPG franchise that are, I would say, incredibly aggressive right now in terms of leading into providing us back leverage. So I think all of that has kind of resulted in, despite loan spreads being a touch tighter, our ROEs generated are generally static relative to the prior quarters.

Christopher Mueller (VP of Equity Research)

Got it. Appreciate you guys taking the questions, and congrats on again on a really Q2.

Doug Bouquard (CEO)

Absolutely. Thanks a lot.

Operator (participant)

The next question comes from Gabriel Poggi with Raymond James. Please proceed.

Gabriel Poggi (Senior Equity Research Analyst)

Hey, good morning, guys. Thanks for taking the question. Can you just talk about target leverage again? I know you're at 3x right now. Just remind us of kind of the ballpark comfort zone, where you'd like to be as we go through the course of 2026. And then just a follow-up, I'll give it to you now, is I know that current REO is not a lever you need to pull. You have optionality there, but any color you can provide on the REO assets at TRTX, at the asset level and how you're thinking about those assets as the year progresses, especially if transaction volume picks up. Thanks.

Doug Bouquard (CEO)

Yeah, sure. Absolutely. I think first, from a target leverage perspective, I would say right now we're really kind of targeting that 3.5-3.75 to 1 range is a target. I think that once we get to that point is where we will, , likely reassess, but I feel like that kind of gets us to what I would describe as close to fully invested. , from an REO perspective, , last year we sold two office assets.

We do have some REO remaining, but I think you said it well, which is that when we kind of think about levers to growth, we kind of, I would say, prioritized, , kind of getting fully invested given the opportunity set one, and you're kind of seeing us do that quarter-by-quarter. In terms of the REO, we do feel like this year is going to be a relatively attractive year to be continuing to sell down that REO. So you will see further progress out of us on our REO portfolio throughout the year.

Gabriel Poggi (Senior Equity Research Analyst)

Thanks, guys.

Doug Bouquard (CEO)

Thank you.

Operator (participant)

The next question comes from Rick Shane with JP Morgan. Please proceed.

Rick Shane (Managing Director and Senior Equity Research Analyst)

Hey, guys. Thanks for taking my questions this morning. I have two, actually. First is actually, and I'm going to have to get this right after REO. On ROE, your returns right now are about, call it, SOFR + 5%. I'm curious, when you think about the business model long term, what do you think the appropriate ROE target is as a function of a spread to SOFR?

Doug Bouquard (CEO)

Yeah, look, I mean, I think that we've generally been able to achieve an ROE in excess of that. And I think that when we look at the ROE for a, , frankly, a lending business that does require some amount of back leverage, I think that really is the health of the back leverage market continues to frankly make our business model incredibly relevant in the market. And so when I think about the sort of longer-term trends, I mean, I think again, that 500 number isn't too far off from what I would think these businesses, frankly, should look like.

, I think that when you zoom out more broadly and obviously you're, you're kind of hitting on a, on a pretty, , kind of topical area, , real estate credit has been going through a pretty interesting evolution, frankly, over the last decade or two. And that, , big evolution has been a combination of, , banks pulling back, agencies growing in the space, and then also all the non-bank lenders.

, we, we, of course, being one of those non-bank lenders and having a large platform. So, , when we think about the sort of evolution of real estate lending and real estate credit, , we as a, , we as a platform are very much sort of on the tip of the spear in terms of where that market evolves to.

But, , again, when I think about , what's really kind of driving a lot of the non-bank lending activity, I think that the sort of inside baseball does relate to the the sort of regulatory capital regime that is orienting banks towards providing back leverage. And I think that, again, is something that we are very focused on. And again, that seems to be a trend that continues to grow.

Rick Shane (Managing Director and Senior Equity Research Analyst)

Got it. Okay. And then second question, and it is related. Obviously, there's been a significant transaction in the space with Apollo planning to sell their assets. You guys are executing well. I would describe it in terms of sort of the continuum of recovery. You guys are very much on the front end of that or leading edge of that, I should say. And your stock's still trading at a, call it, 20% discount to book. I'm curious how you think you can close that value gap, or does it, , is the ARI transaction an indication that at least one sophisticated player in the space is not convinced that that is gonna happen for the sector?

Doug Bouquard (CEO)

Yeah, look, I mean, I think, , first thing, we've kind of set a very clear record around maximizing shareholder value and have been, , incredibly clear about our strategic goals. And we look back about kind of what we achieved last year and seek to achieve this year. I think that we are, , well on our way of closing that gap, and that's a big focus for us. I think, too, , when I think about, , the ARI transaction and just other kind of, , flows in the market, I can say that, , TPG broadly as a platform is, , constantly evaluating opportunities. And, , we're, we are always looking for ways to maximize shareholder value, to be creative.

Obviously, the firm has a, , multiple decade background in, , platform acquisition and being thoughtful around organic and inorganic growth. So I can tell you that we are, , always thinking about it, and we're gonna continue to be searching for opportunities to basically scale and grow.

Rick Shane (Managing Director and Senior Equity Research Analyst)

Got it. Look, I realize that's a tricky question, and I appreciate the answer very much. Thanks, Doug.

Doug Bouquard (CEO)

Yeah, thank you.

Operator (participant)

Thank you. Once again, to ask a question, that's star one on your telephone keypad. The next question comes from John Nicodemus with BTIG. Please proceed.

John Nicodemus (Equity Research Analyst)

Hi, good morning, everyone. Most of my questions have been asked already, but have one more for the team here. Industrial exposure. Noticed that's gone up a bunch, highlighted it in the prepared remarks, and I believe you mentioned, 72% of the book is now in either multifamily or industrial. How are you thinking about, target levels for industrial? Should we expect to see that continue to rise? Just sort of that trend over the course of 2026. Any details you could provide there would be great. Thank you.

Doug Bouquard (CEO)

Yeah, sure. Happy to cover that. As you see, we've, , we have mainly grown our industrial exposure from, , a few, a few years back, frankly, , less than 5% generally, and now we're kind of, , kind of just under 20%. When thinking about kind of like an appropriate target level, it's probably somewhere in that kind of 25%-30% range, would be an area where I think that we'd perhaps touch the brakes a little bit. But right now, what we're seeing is, , again, sort of how I mentioned, there are many transactions that were, , that were done in, , really over the last kind of 3-5 years, where there is some amount of recapitalization needed.

So we still look at multi and industrial together as sectors that we think we can, , we have a particular edge in. Specific to industrial, , we would, , across our platform, have been an owner of industrial assets. We have a lot of intelligence across the entire market around valuation, leasing activity and otherwise. So we do feel like we, as a platform, have a bit of an edge relative to most of the lenders, just kind of given the depth and breadth of our franchise. But, but again, I think you'll see marginally more growth within industrial over time.

, I think as we get to that kind of 25% range, we will of course assess and kind of take our views of the market at that juncture.

John Nicodemus (Equity Research Analyst)

Great. Appreciate the call, Doug. That's all for me.

Doug Bouquard (CEO)

All right.

Operator (participant)

Thank you. There are no further questions in queue at this time. I would like to turn the floor back to management for closing comments.

Doug Bouquard (CEO)

Yeah, just want to thank everyone for joining the call today, and we look forward to keeping you updated on our progress. Have a great day.

Operator (participant)

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.