TPG RE Finance Trust, Inc.

Greetings and welcome to the TPGRE Finance Trust First Quarter 2020 Earnings Conference Call. At this time, all participants are in lesson-only mode. A brief question-and-answer session will follow the formal presentation. At that time, if you wish to ask a question, please do so by pressing star 1. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Deborah Ginsberg, Vice President and Secretary and General Counsel. Thank you. You may begin.

Good morning, and welcome to PPG Real Estate Finance Trust's first quarter 2020 conference call. I'm joined remotely today by Greta Guggenheim, Chief Executive Officer, and Bob Foley, Chief Financial and Risk Officer. Greta and Bob will share some comments about the quarter, and then we'll open up the call for questions. Last night, we filed our Form 10-Q and issued a press release with a presentation of our operating results. All of which are available on our website in the investor relations section. I'd like to remind everyone that today's call may include forward-looking statements which are uncertain and outside of the company's control. Actual results may differ materially. For a discussion of some of the risks that could affect results, please see the risk factor section of our most recent 10-K as well as our Form 10-Q. We do not undertake any duty to update these statements and we will also refer to certain non-GAAP measures on this call. and for reconciliations, you should refer to the press release and our 10Q. With that, I'll turn the call over to Greta. Thank you, Debra.

Good morning, everyone. I wish good health to all of you and your families and want to express our tremendous gratitude to the public and private sector workers who are risking so much to protect all of us. Let me start with the obvious. This was a tough quarter. We recorded losses of $203.5 million from the sale of our CRE CLO portfolio. There is no way to sugarcoat this. Faced with the extraordinary disruption to the markets and no timetable for recovery, we made the decision to eliminate additional securities margin call risk, all of it, by selling our entire bond portfolio. This was not an easy decision, but one that was necessary given the rapid series of events that unfolded in a stunningly short period of time. The worst global health crisis in 100 years, the most severe economic shock to the world economy since the Great Depression, and the most volatile market conditions of my career that dramatically affected all publicly traded securities values, including our highly rated short-duration LIBOR-based CLO securities. These historically liquid securities suddenly became significantly illiquid, requiring an unpredictable and significant diversion of capital. As a result, we sold the portfolio as we felt it was important to eliminate future securities margin call risk and raise cash to protect the value of our $5.1 billion in UPB first mortgage portfolio. Our portfolio today is comprised primarily of office and multifamily loans, Thank you for joining us. 50% of our loan portfolio is financed with non-market-to-market debt. In April, 99.5% of our loan portfolio paid interest to us. The one loan that is late is senior to an institutionally owned mezzanine loan that is 120% of our senior loan. The basis at sub-50% LTV of our loan is very attractive, and we are not concerned with the collectability of principal and interest on this loan. All of our hotel loans paid full debt service in April. As you know, interest is paid in arrears, and the April payments reflect March performance. While the economic lockdown continues, it would be naive to not expect tenant and therefore bar performance to become under increasing levels of stress. In Q1, before the market abruptly changed, we originated $437 million of loans comprised 90% of multifamily assets and 10% office assets. Consistent with the portfolio as a whole, these are light to moderate transitional assets with an in-place debt yield of 5.6%. 90% were acquisition loans. At this time, market conditions are too uncertain to originate new loans. We are focusing all of our efforts on protecting the value of our portfolio. In the current environment, this entails providing modifications to bars that need some payment timing relief during our country's lockdown period. Hotel and retail properties have been the most affected by COVID, and we've been working with bars representing 13% of our portfolio to complete loan modifications. Most all of the bars are agreeing to infuse significant new equity to support their properties. As we reported in the Form 10Q, A-Bar has very recently approached us to negotiate terms under which we would accept a deed in lieu. The bar's equity is from a very substantial global investment manager, and there are certain significant guaranteed financial obligations relating to completion and carry that must be paid in connection with a deed in lieu. Our discussions are at a very early stage, and we are currently assessing the financial impact, if any, to us of this development. While we were not expecting this to occur, given the quality of the asset, location, sponsor, the substantial equity invested in the asset by the sponsor, and the sponsor's recent infusion of capital into the bar, we are prepared to take whatever action is necessary to secure the asset's value. Based on changes to individual loan ratings, our overall portfolio risk rating increased to 3.1%. The increase primarily results from moving all operating hotels that were pre-COVID rated 2 or 3 to a 4 rating. We also moved one asset from a 4 to a 5 based on our belief the borrower may default in the very near future as the property is operating significantly below what we underwrote. We have great confidence in our country's ability to fight through the tremendous challenges we face. but we also realize that the economic strain experienced by tenants and landlords will not just disappear. We will have to continue to work with our borrowers. Regarding our financing counterparties, we have no margin calls and are in active discussions with our lenders to implement re-margining holidays. Our lenders have worked cooperatively with us on all fronts. As an example, in the first week of this month, we had one $500 million expiring facility that was renewed for one year with numerous extension options. Each of our lenders has been very responsive and supportive in approving loan modifications for higher-stressed assets such as hotels. I would like to acknowledge and thank the TRT team, which has performed 24-7 with extraordinary dedication during these times. Also, the strength of the TPG platform and its senior-level banking relationships have contributed significantly to our partnership with our lenders. And finally, and of utmost importance, has been the wise guidance of our Board of Directors who have helped us weather this unprecedentedly difficult period. I thank each of you for your dedication and tremendous commitment of time. As we've previously reported in the press, we have retained Houlihan Loki to help us source new capital to both weather the current economic environment and allow us to go on the offense once markets begin to stabilize. Finally, we believe that the long-term value of our portfolio is very strong and that the current disruptions to cash flow will begin to dissipate as the lockdowns are eased. And with that, I will now turn the call over to Bob Foley.