Earnings call transcript: TPG RE Finance Trust Q1 2025 sees minor EPS miss

TPG RE Finance Trust reported its Q1 2025 earnings, showing a slight miss in earnings per share (EPS) but a small beat in revenue, prompting a 2.86% decline in its stock price. The company reported an EPS of $0.24, just below the forecast of $0.25, while revenue slightly exceeded expectations at $37.03 million. Trading at a P/E ratio of 10.07, InvestingPro analysis suggests the stock is currently undervalued, with additional insights available in the comprehensive Pro Research Report, part of the coverage of 1,400+ US equities.

Key Takeaways

• EPS of $0.24 missed the forecast by $0.01.
• Revenue slightly beat expectations, reaching $37.03 million.
• Stock price fell 2.86% in response to earnings results.
• Strong liquidity with $457.6 million in assets.
• 100% performing loan portfolio maintained.

Company Performance

TPG RE Finance Trust’s overall performance in Q1 2025 was stable, with minor fluctuations in key financial metrics. The company continues to demonstrate strong operational health, maintaining a 100% performing loan portfolio. However, the slight miss in EPS and stock price decline reflect investor concerns amid broader market uncertainties.

Financial Highlights

• Revenue: $37.03 million (slightly above forecast)
• Earnings per share: $0.24 (slightly below forecast)
• Book value per common share: $11.19
• Distributable earnings: $0.24 per common share

Earnings vs. Forecast

TPG RE Finance Trust’s EPS of $0.24 fell short of the $0.25 forecast by $0.01, a minor 4% miss. Revenue, however, came in slightly above expectations at $37.03 million, surpassing the forecast by $0.03 million. These results indicate a stable but cautious financial performance.

Market Reaction

Following the earnings release, TPG RE Finance Trust’s stock price dropped 2.86%, closing at $7.31. This decline moves the stock closer to its 52-week low of $6.47, reflecting investor concerns over the minor EPS miss and potential macroeconomic challenges. According to InvestingPro data, analyst price targets range from $7 to $11, suggesting potential upside despite current market sentiment.

Outlook & Guidance

Looking forward, TPG RE Finance Trust aims to focus on the multifamily and industrial sectors while monetizing its REO portfolio. The company remains positioned to capture special situation lending opportunities and targets growth in net earning assets and distributable earnings.

Executive Commentary

CFO Bob Foley stated, "We are optimally positioned to navigate the uncertain current market," emphasizing the company’s readiness to manage market challenges. CEO Doug Bucard highlighted the disciplined lending environment, noting, "Borrowers are being more disciplined about the amount of debt they want to put on an asset."

Risks and Challenges

• Market uncertainties affecting loan closing times.
• Increased leverage from 2.1x to 2.2x could impact financial stability.
• Potential macroeconomic pressures from global tariff changes.
• Loan spreads widening, affecting borrowing costs.
• Continued focus on maintaining a strong liquidity position.

Q&A

During the earnings call, analysts inquired about the company’s approach to a more disciplined lending environment compared to previous years. Executives emphasized their cautious stance on loan-to-value ratios and borrowing costs, aligning with the company’s strategic focus on financial stability and growth.

Full transcript - TPG RE Finance Trust Inc (TRTX) Q1 2025:

Conference Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to TPG Real Estate Finance Trust First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

It is now my pleasure to turn the call over to management. Thank you. You may begin.

Unidentified Presenter, TPG Real Estate Finance Trust: Good morning, and welcome to the TPG RE Finance Trust earnings call for the first quarter of twenty twenty five. Today’s speakers are Doug Bucard, 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 evening, 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 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, 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 ks.

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. Over the past quarter, global markets continue to adjust to the new tariff regime as investors wrestled with the potential short and long term effects of a protracted global trade war.

Doug Bucard, Chief Executive Officer, TPG Real Estate Finance Trust: Initially, prices reacted violently with a sharp sell off in equities and then accompanying widening of credit spreads across all parts of the market, including real estate credit. In general, real estate credit spreads have moved in sympathy with broader credit markets. However, investor sentiment at this stage indicates that real estate credit is considered somewhat of a safe haven relative to corporate credit and equity risk. Certain corporate borrowers have direct first order risk to the new tariffs, which can drive default sooner. And by contrast, real estate credit has more indirect exposure, hence we expect the effects of tariffs will likely lag on a relative basis with real estate credit.

Consequently, TRTX remains on offense, but with its usual cautious eye towards downside protection and tail risks. We continue to prefer the housing sector, particularly multifamily, given its resilient and stable NOI profile. However, our pipeline contains transactions across various property types and geographies, driven by the thematic insights of TPG’s integrated real estate debt and equity investment platform. Despite the broader market disruption, we made steady positive progress toward our strategic goals. From a balance sheet perspective, we maintained substantial liquidity, a 100% performing loan portfolio and stable risk ratings.

From a capital allocation perspective, we closed two multifamily loans after quarter end, totaling $131,000,000 and executed term sheets on another $310,000,000 of transactions. We also repurchased 9,000,000 worth of TRTX common shares, which we continue to believe delivers value and liquidity to our shareholders. From a liability perspective, we priced and closed our sixth CRE CLO, FL6, which generated $191,000,000 of cash to our balance sheet and provided another stable long term financing vehicle for our loan investment activity. This increased our non mark to market financing exposure to 91% of total borrowings. Our capital markets team did an excellent job driving the execution of the transaction before bond spreads widened out dramatically beginning in late March.

As a reminder, this series CLO financing provides us with match term, non mark to market, non recourse financing with a thirty month reinvestment window. The attractiveness, tenor and stability of this financing creates tremendous long term value for TRTX shareholders. We’ve discussed for several quarters the many levers TRTX possesses to drive growth in distributable 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. I am pleased to report that we’ve pulled each of the four levers toward advantage. Number one, we have closed or executed term sheets on approximately $441,000,000 of new investments and repurchased approximately $9,000,000 worth of shares.

Number two, we expect to close shortly the sale of two office properties within our REO portfolio. Number three, we lowered our cost of funds from SOFR plus 200 to SOFR plus 194. And fourth, we redeemed FL3 and issued FL6, which generated net liquidity of $260,000,000 for deployment in coming quarters. Lastly, we achieved all of this without any credit migration and while increasing liquidity quarter over quarter by $137,000,000 From a market comparable perspective, we are uniquely positioned amongst our competitors to take advantage of the attractive real estate credit market. In particular, the last few weeks have seen our investment pipeline grow dramatically, especially as certain lenders have paused or slowed their activity driven by the broader market pullback.

The combination of four fifty seven million dollars of dry powder, a 91% non mark to market liability structure, a credit stable balance sheet and the real time insights gained from TPG’s global real estate business provide TRTX with a comparative advantage in a dislocated opportunity rich investing environment. Furthermore, TRTX shares trading at a 13% dividend yield and a 33% discount to book value offer a compelling value proposition to the market even after considering broader market uncertainty. With that, I will turn it over to Bob to provide a detailed summary of our financial results.

Bob Foley, Chief Financial Officer, TPG Real Estate Finance Trust: Thank you, Doug. Good morning, everyone. Thanks for joining us. For the first quarter of twenty twenty five, we reported GAAP net income of $10,000,000 or $0.12 per common share, book value per common share of $11.19 and distributable earnings of $0.24 per common share, in line with our quarterly dividend of $0.24 per common share. We registered wins in every aspect of our business.

In capital markets, we issued a new $1,100,000,000 CRE CLO, thus further extending our maturities, reducing our cost of funds, and increasing our proportion of non mark to market non recourse term match liabilities to 91%. In asset management, we maintained a 100% performing loan portfolio, an unchanged weighted average risk rating of three point zero with no credit migration, and slightly increased our general reserve to $67,200,000 or 199 basis points from $64,000,000 or 187 basis points. In capital allocation, we’ve repurchased thus far in $20.25 1,100,000.0 common shares for an aggregate purchase price of $8,800,000 boosting book value per share by $05 Roughly $16,100,000 of share repurchase capacity remains under existing board authorization. And after quarter end, we originated two multifamily mortgage loans totaling $131,000,000 with a weighted average as is LTV of 68% and a weighted average credit spread of two eighty four basis points. Currently, three loans totaling $310,000,000 are subject to signed loan applications and are in the closing process.

CRTX’s share price performance remains the strongest among its peers since January of twenty twenty three, with a cumulative return of 47% through yesterday’s close. Regarding our loan portfolio, 100% of our loan portfolio is performing and current. We have only two four rated loans and no five rated loans. Our weighted average risk rating is three point zero, consistent with the prior five quarters. Portfolio composition is largely unchanged and reflects our continuing focus on our key investment themes of multifamily and industrial.

Regarding CECL, our general reserve increased to $67,200,000 from 64,000,000 or to 199 basis points from 187 basis points due primarily to assumptions in the loan loss forecasting model that reflect higher interest rates, the potential impact of likely tariffs, and an increased probability of an economic recession. We are on track to monetize our REO to optimize shareholders’ returns. Our two California office buildings are in the market for sale. One is under contract, the other is expected to be very shortly. Please refer to footnote four of our financial statements for additional information regarding our REO portfolio.

Regarding liabilities and our capital base, during the March, we redeemed TRTX twenty nineteen FL3 and priced TRTX twenty twenty five FL6, a $1,100,000,000 CRE CLO with a weighted average spread of 183 basis points. TRTX has traditionally been a first quarter issuer and 2025 was no exception. These two capital transactions boosted balance sheet cash by $191,000,000 and added $69,200,000 of investment cash to FL6. We also enlarged our table funding facility by $85,000,000 to $375,000,000 added an additional lender to the syndicate, and extended the facility for three years. Non mark to market nonrecourse term financing is now an industry leading 91% of our secured liabilities, up from 77% last quarter.

Our total leverage increased very slightly to 2.2 times from 2.1 times last quarter. We have $2,000,000,000 of financing capacity available to support loan investment activity. We were in compliance with all financial covenants at 03/31/2025. Regarding liquidity, at 11.6% of total assets, our liquidity is strong and highly supportive of our capital allocation strategy. At March 31, on the heels of settlement of FL6, our liquidity was $457,600,000 including $348,000,000 of cash in excess of our covenant requirements, dollars 25,400,000.0 of undrawn capacity under our secured credit agreements, and $69,200,000 of CRE CLO investment cash.

We funded during the quarter $13,600,000 of commitments under existing loans. At quarter end, our deferred funding obligations under existing loan commitments were $109,800,000 only 3.2% of our total loan commitments. TRTX is optimally positioned to navigate the uncertain current market and capture the special situation and other lending opportunities in our current and future pipelines. We have strong liquidity, low leverage, substantial low cost financing capacity 91% of our liabilities are non mark to market, non recourse and match term and a 100% performing loan portfolio with stable risk ratings. We’re poised to drive growth in net earning assets and distributable earnings and are not reliant on loan repayments to do so.

And with that, we’ll open the floor to questions. Operator?

Conference Operator: Thank you. We will now be conducting a question and answer session. Our first questions come from the line of Steve Delaney with JMP Securities. Please proceed with your questions.

Steve Delaney, Analyst, JMP Securities: Hey, good morning everyone. Congrats on a strong quarter and we certainly applaud the buybacks. Doug, if I could start with you, sort of big picture, can you provide us with any color about the risk profile that you’re seeing in your current originations and pipeline compared to what the bridge loan market looked like in 2021, ’20 ’20 ’2, both from maybe a loan structure, but also a borrower attitude, it just seems like that there is a more realistic or healthier market, but are my observations. I’d love to hear your view of the comparative opportunity today from a risk reward profile in bridge lending versus that post COVID period. Thank you.

Doug Bucard, Chief Executive Officer, TPG Real Estate Finance Trust: Sure. And thank you, Steve. So I would say first, just as you kind of zoom out and it’s an interesting kind of arc of time to think through. One of the biggest differences from 2021 and ’22 versus now is just frankly entry point. I think despite the fact that we have seen loan spreads kind of let’s call it broadly move in sympathy with perhaps corporate credit.

And we’ve been most excited about the fact that we really haven’t on the margin seen any kind of proceeds creep. I think that was a lot of what characterized that moment in time was you saw loans that were kind of creeping above that 70% loan to value threshold, generally speaking. I’d say first and foremost, it’s definitely proceeds. Would add secondly, from a borrower mentality perspective, I think that look, just looking at the available alternatives in terms of cost of funds, I mean, now, in sort of round numbers, agency borrowing is about a 6% cost, a conduit loan is about a 7% cost. And then transitional loans are obviously in excess of conduits.

So let’s just call it kind of generally, so for plus two seventy five four hundred depending on the risk profile. So the cost of borrowing is elevated, but I think that borrowers are being a bit more disciplined about the amount of debt that they want to put on an asset, just acknowledging also some of the uncertainties more broadly in the market.

Steve Delaney, Analyst, JMP Securities: Very helpful. And could you just roughly estimate I know you’ve got a new CLO, and we could use that for the financing side of things. But could you estimate what your kind of range of expected levered return on equity is on the new bridge loans that you’re making?

Doug Bucard, Chief Executive Officer, TPG Real Estate Finance Trust: Yes, sure. So I think from that perspective, first, just worth highlighting that we, just from a timing perspective, did a fantastic job of executing that CRE CLO in the simplest sense I would describe it as we were able to lock in bond spreads, which really kind of drive our cost of financing when they kind of closer to the tights of the year. Whereas now we’re actually able to use that financing as we’re out there deploying new capital at much wider loan spreads. So when you do think about our ROEs, that’s kind of all been kind of moving in our favor. They really haven’t seen yet flow into a lot of our numbers, but that’ll be one of the benefits that our balance sheet has versus competitors is that we were able to, again, kind of lock that deal in just before we saw a very meaningful widening within bond spreads.

But generally speaking, now, we’ve seen loan spreads over the last, let’s call it four to six weeks, move anywhere from 25 basis points to 75 basis points wider. That’s definitely very much a moving target. And I think if anything, you’re seeing a little bit of a steepness where loans that are perhaps are more challenging property types or more challenging markets, you could see even the cost to borrow outside of that 75 basis point range, as I mentioned. But when we’re out there making investments, we’re generally still generating gross ROEs in the low to mid teens range consistently.

Conference Operator: Thank you so much for the color.

Bob Foley, Chief Financial Officer, TPG Real Estate Finance Trust: Thanks, Steve.

Conference Operator: Thank you. Our next questions come from the line of John Nicodemus with BTIG. Please proceed with your questions.

John Nicodemus, Analyst, BTIG: Good morning, everyone. Thanks for taking my question. You noted in your prepared remarks during your last call that TRTx had over $300,000,000 of live investment opportunities. Obviously, none came in, in the first quarter, saw the 131 come in so far in the second quarter. Was that just a question of timing, why there weren’t any originations in the first quarter?

Was it something broader that your team saw that led to you holding off or something else entirely? Thanks.

Doug Bucard, Chief Executive Officer, TPG Real Estate Finance Trust: Yeah, sure. You know, it was a really, I’d say a combination of a few things. First, you know, when we looked at loan spreads in January and February, you know, market particularly as we got into February, you know, was getting kind of tighter and tighter. So we were very disciplined in terms of loans that we signed up and kind of where we were pursuing new investments. And that’s one.

Two, I think just as a function of the dislocation in markets and a lot of the, frankly, the heavy refinancing volume that we’re seeing in our pipeline, loans have been just taking longer to close, frankly. We’re really pleased that if you think about kind of how we’ve been able to time our entry into markets, March and April for us have been a very attractive moment for us to be deploying capital as evidenced in the $441,000,000 of transactions that we either have closed or committed to. So again, just to kind of put it in the simplest terms, there was a lot of discipline with the team in Jan and Feb as we saw deals get a little bit too tight. And then I would say secondly, the sort of average time to close deals has been probably a little bit longer than our typical historical experience. Again, some of that a mix of the heavy refine the pipeline and also just driven by the sort of broader market backdrop that of course just increases uncertainty and can extend out the closing timing.

John Nicodemus, Analyst, BTIG: Great. Thanks, Doug. That’s really helpful. And then my other question just goes into REO. You mentioned that you’re close on the sale of the two California office properties, which is exciting.

Just another callback to the last call. You mentioned you thought the REO portfolio could be reduced by about half by year end. Is this sort of still how you’re viewing the pacing there? Or has that changed at all given some of the broader market moves since last call? Thanks.

Bob Foley, Chief Financial Officer, TPG Real Estate Finance Trust: Thanks for your question, John.

Conference Operator: We are excited about the prospect of

Bob Foley, Chief Financial Officer, TPG Real Estate Finance Trust: these two near term sales in California. I would say that our plans and expectations are to stick to the cadence that we described on last quarter’s call. The events of the last four to six weeks have certainly increased uncertainty and unsettleness in the market, but whether they cause the pace to slow down is not yet clear, but I can assure you that we have a plan. We’ve been executing it. We would expect to move forward with some of the other properties we have teed up over the next several quarters.

John Nicodemus, Analyst, BTIG: Great. Thanks so much, Bob. That’s all for me.

Doug Bucard, Chief Executive Officer, TPG Real Estate Finance Trust: Thank you. Our

Conference Operator: next questions come from the line of Rick Shane with JPMorgan. Please proceed with your questions.

AJ, Analyst, JPMorgan: Hey, this is AJ on for Rick. For the two REOs that it sounds like you’re about to sell, how do the transaction prices compare to the carrying values? Should we expect any gains or losses on those?

Bob Foley, Chief Financial Officer, TPG Real Estate Finance Trust: Good morning, AJ. Thanks for your question. Well, when the transaction is closed, we’ll obviously report the prices at which we close those deals. You know, we’re in contract on one and we’re just about to be in contract on the other, we and I don’t believe it’s appropriate to share that information right now. But you’re familiar with the company and our track record with respect to REO dispositions in the past, and we’ve generally sold REO at prices in excess of our carrying value.

AJ, Analyst, JPMorgan: Okay, fair enough. And then just one more. Are there any other kind of like REO resolutions in the pipeline that are getting close to resolution where that might be worth lagging right now?

Bob Foley, Chief Financial Officer, TPG Real Estate Finance Trust: As I said in my last answer, there’s nothing else that we are actively marketing at this time. But we have a plan for each of our REO assets, which we’ve discussed on previous calls. There are some properties that are sort of next in queue. And as these two properties clear, then we’ll address and enter the market with the next tranche, for lack of a better term.

AJ, Analyst, JPMorgan: Okay. Thank you very much. That’s all for me.

Doug Bucard, Chief Executive Officer, TPG Real Estate Finance Trust: Thank you, AJ. K. Thank you.

Conference Operator: Have reached the end of our question and answer session. I would now like to turn the floor back over to management for any closing comments.

Doug Bucard, Chief Executive Officer, TPG Real Estate Finance Trust: Just wanted to thank everyone for joining the call this morning, and we look forward to updating you on our progress in about one quarter. Thank you very much.

Conference Operator: Thank you. This does conclude today’s teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

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