TPG RE Finance Trust, Inc.

CPG Real Estate Finance Trust earnings call for the fourth quarter and full year of 2023. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, today's call is being recorded. It is now my pleasure to turn the call over to the company. Thank you. You may begin.

Good morning and welcome to TPGRE Finance Trust's earning call for the fourth quarter and full year of 2023. We are 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 will open the floor for questions. Last evening, the company filed its Form 10-K and issued a press release and earnings supplemental with a presentation of operating results, all of which are available on the company's website in the Investor Relations section. As a reminder, 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 risks that could affect results, please see the Risk Factor section of the company's Form 10-K. The company does not undertake any duty to update these statements, and today's call participants will refer to certain non-GAAP measures. And for reconciliations, you should refer to the press release and the Form 10-K. At this time, I'll turn the call over to Doug Bucard, Chief Executive Officer.

Good morning, and thank you for joining the call. Over the past quarter, the market has rallied broadly, driven by a mix of robust economic growth, a tight labor market, and the expectation that the worst is behind us in terms of both inflation and restrictive Fed policy. Not only is the S&P 500 up about 5% since the start of the year, it's worth noting that since October 2022, the S&P has rallied a remarkable 40%. In credit markets, corporate credit spreads continue to tighten in sympathy with the equity markets. However, real estate credit spreads continue to underperform on a relative basis, driven by the same themes that have been affecting the real estate market for the last several quarters. broad pressure on values, secular challenges to office, elevated borrowing costs, and reduced liquidity. Many traditional providers of real estate debt capital, particularly regional banks, remain defensively positioned. While there are a multitude of dynamics at play within real estate capital markets, the pace of Fed rate cuts will be a key driver of credit performance, particularly among floating rate lenders. On the positive side, thus far in 2024, Credit spreads in the CMBS and Series C low markets have tightened, with particularly strong demand from the bond-buying community for in-favor property types such as multifamily and industrial. However, real estate as an asset class has lagged the broader market rally. I expect 2024 will be a year of increased transaction volumes and price discovery across the sector. In the fourth quarter, TRTX followed through decisively on the strategy that we have steadily articulated to the market. Number one, maintain elevated levels of liquidity given the broader market pressure and uncertainty. Number two, resolve identified credit challenge loans with an eye towards maximizing shareholder value. And number three, position TRTX to take advantage of an attractive investment environment in 2024 and beyond. As I've mentioned in prior quarters, we continue to use every asset management tool at our disposal to maximize shareholder value. including those available to TRTX by virtue of being part of a broader real estate investment platform and a $222 billion multi-strategy asset management firm. Driven by the hard work and focus of our asset management team, we resolved during 2023, and especially in the fourth quarter, all of our identified credit challenge loans at levels in line with our CECL reserves. Consequently, we ended the year with a loan portfolio that is 100% performing, contains no five-rated loans nor non-performing loans, and achieved a 71% reduction in CECL reserves, all while maintaining liquidity of $480 million. Simply put, we were an early mover to identify and address challenges within the sector. Our fourth quarter results exemplify our commitment to getting ahead of and resolving underperforming credit exposures. Looking at our asset management progress through a more focused lens, We identified the challenges facing the office market and moved prudently to reduce our exposure by approximately 70% from 2.3 billion to 728 million since early 2022. A substantial portion of that risk reduction came in the form of full or partial repayments from our borrowers. However, in certain cases where we deemed it to be the optimal path for shareholder value, we sold loans or took title to assets. These asset management decisions are rooted in the investment framework we apply to all of our investments. Given that TRTX is part of TPG's fully integrated debt and equity investment platform, we are uniquely positioned to manage REO assets and maximize shareholder value. At quarter end, REO assets account for slightly less than 5% of TRTX's total assets. Despite the banking industry's emphasis to reduce direct lending on commercial real estate assets, we continue to benefit from strong demand from our financing counterparties to deepen their lending relationship with TRTX. To that end, we extended a $500 million secured credit facility with Goldman Sachs to 2028 and closed a new financing arrangement with HSBC. We have no material financing maturities until 2026, which provides us an attractive runway to deploy fresh capital into the real estate credit market. Looking ahead, Uncertainty continues to permeate the broader real estate market. For TRTX, due to the substantial progress made over the past year in reshaping our loan portfolio, our strong liquidity and low leverage, we are confident in our ability to navigate the current environment. From an exposure perspective, our loan portfolio is 49% multifamily, which we believe is a sector with positive long-term tailwinds despite the near-term pressures of new supply and elevated short-term borrowing costs. Our multifamily book is 100% performing. Furthermore, 100% of our multifamily borrowers who are required to replace their interest rate caps in 2023 did so by either renewing, replacing a cap, or funding an interest reserve, which is a positive signal towards borrower commitment, the strength of our collateral, and the overall credit quality of our balance sheet. While slower than expected interest rate cuts may put pressure on the sector and our borrowers, we continue to favor the housing sector and believe this will be an area for attractive new investment in the coming quarters. Against this improving backdrop, our current share price represents approximately 50% of book value, so there remains a clear disconnect from the company's fundamentals, including the significant progress made in 2023 and our 100% performing loan portfolio. In simple terms, with $480 million of available liquidity, a conservative leverage ratio of 2.5 to 1, a balance sheet with 100% performing loans, and the deep investing experience of TPG's global real estate platform, we believe that our shares offer compelling value at today's price. We acknowledge the real estate sector remains under pressure and that credit performance may be heavily dependent on the pace of future interest rate cuts. However, we are pleased with how we are positioned to navigate 2024 and beyond. With that, I will turn it over to Bob for a more detailed summary of this quarter's performance. Thank you, Doug.