TPG RE Finance Trust, Inc.

Good morning and welcome to the TPGRE Finance Trust Second Quarter 2023 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Deborah Ginsberg, General Counsel, Vice President and Secretary. Please go ahead.

Good morning and welcome to TPG Real Estate Finance Trust Conference Call for the Second Quarter of 2023. I'm joined today by Doug Bucard, Chief Executive Officer, and Bob Foley, Chief Financial Officer. Doug and Bob will share some comments about the quarter, and then we'll open up the call for questions. Yesterday evening, we filed our Form 10-Q and issued a press release and earnings supplemental 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 factors section of our 10Q and 10K. 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, it's my pleasure to turn the call over to Doug Picard, Chief Executive Officer.

Thank you, Debra. Good morning, and thank you for joining our call. Over the past quarter, the market has begun to reflect a greater likelihood of a soft landing, as the Federal Reserve has been successful in dampening inflation without triggering a recession. Over the past 16 months, front-end interest rates have increased from nearly zero to their highest level seen in 22 years. Despite the Fed's restrictive policy in place, we should acknowledge a few noteworthy takeaways. First, the labor market remains incredibly strong. Second, the residential housing market has remained resilient with positive national price appreciation despite mortgage rates hovering around 7%. Third, credit spreads in the corporate credit market have tightened dramatically and have almost fully retraced to their pre-FedHike levels. And lastly, the U.S. public equity market has rallied nearly 18% year-to-date as the S&P 500 quickly approaches an all-time high. Despite the broader positive shift in risk sentiment in many asset classes, commercial real estate continues to underperform. This underperformance is driven by the pressure on values across the commercial real estate landscape, reduced liquidity for debt and equity, and secular challenges facing the office market. Ultimately, there are a variety of micro and macroeconomic forces that drive commercial real estate pricing. But in addition to the headwinds I just mentioned, continued uncertainty relating to both spot and forward interest rates continue to create volatility on valuations and hesitation on investment activity across the sector. Our view remains that pressure within the commercial real estate space may persist for an extended period, and therefore we continue to maintain our strategic posture of first, cautiously deploying capital, second, maintaining a strong liquidity position, and third, proactively risk managing our investment portfolio in a disciplined and tactical manner while focusing on long-term maximization of shareholder value. Over the past quarter, our decline in net income to shareholders was driven primarily by a $56 million net increase in our CECL reserve, which reflects our view of sustained value declines within the office market. Despite the net increase in our CECL expense, we continue to make progress reducing exposure to credit-challenged assets. In May, we sold a $71 million Brooklyn office loan and post quarter end in July, we sold a $129 million office and retail loan located in Soho. For each of these loans, we determined the optimal resolution path was via loan sale and executed accordingly. It's also worth noting that TRTX provided no seller financing as part of these transactions. And on a combined basis, the recovery amounts exceeded the carrying value at which we held them on our balance sheet. For broader context, over the past 15 months, we have reduced our cumulative office exposure by approximately $1 billion. From a balance sheet perspective, we fund no new investments this quarter. However, we did receive $279 million of repayments during the second quarter, primarily from multifamily refinancing activities. While the multifamily sector has experienced cap rate widening over the past year, both debt and equity capital remain available, albeit at a lower entry point relative to the peak of the QE cycle in 2021. From a liquidity perspective, we continue to maintain a defensive posture. Total liquidity exceeded $542 million. broken out as $307 million of cash, $206 million of CLO reinvestment capacity, and $28 million of undrawn capacity on our secured credit facilities. Our performance this quarter continues to reflect an asset management strategy that relies on the depth and breadth of TPG's broad real estate platform, with approximately $20 billion of AOM across a mix of debt and equity strategies. From an asset resolution perspective, we continue to maximize value for our shareholders regardless of whether we execute a loan modification, sell a loan, or foreclose on an asset, we continue to believe the kick-the-can approach for assets facing long-term secular headwinds is not a winning strategy. Furthermore, our deep investing experience across multiple business cycles and our diverse real estate investment platform allows us to evaluate and execute on all potential resolution strategies. Inherent in this approach the market should expect a certain amount of near-term volatility in our distributable earnings, and this quarter was no different. However, we continue to have high conviction that this is the optimal long-term strategy for our shareholders, and we'll position TRTX for growth as the real estate credit market continues to evolve. With that, I'll turn the call over to Bob to discuss our financial results.