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| 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 |
| I think as you can see from what we were able to achieve, particularly in the fourth quarter and really in all 2023, that really allows us, to your point, to have, frankly, a much clear window into the sort of long-term earnings power of the company |
| Even though we are really pleased as to where our balance sheet is and our ability to frankly deploy capital in 2024, we remain respectful of the fact that the real estate market is in no way out of the woods |
| 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 |
| And as you just mentioned, generates a very attractive 9%-plus ROE |
| Our results for the fourth quarter and full year illustrate our success in executing our 2023 operating, which was to efficiently resolve or identify credit challenge loans, primarily office, at the best values available in the market, sustain high levels of liquidity, maintain or reduce our already low leverage levels and position TRTX at year end to play offense, defense or both in 2024 |
| 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 |
| 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 |
| 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 |
| We’ve actually improved occupancy by about 5 or 6 points in the seven weeks since we acquired it |
| Distributable earnings before realized credit losses averaged $0.23 per quarter for the full year 2023, which we view as a solid foundation from which to build in 2024 |
| And number three, position TRTX to take advantage of an attractive investment environment in 2024 and beyond |
| Our fourth quarter results exemplify our commitment to getting ahead of and resolving underperforming credit exposures |
| 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 |
| Following-up on Stephen’s comment about the cleanup that you’ve done was truly remarkable |
| We have no material financing maturities until 2026, which provides us an attractive runway to deploy fresh capital into the real estate credit market |
| And then beyond that, we will have the ability to deploy excess cash, which, of course, can help drive earnings power of the company |
| On that point, I think based on where we are as a company, we’re in a really unique spot where we actually are able to start and play, frankly, a lot more offensively |
| We further de-levered to 2.5 to 1, which is defensive, but gives us ample room for growth when warranted |
| On the positive side, thus far in 2024, credit spreads in the CMBS and Series CLO markets have tightened with particularly strong demand from the bond buying community in favor property types such as multifamily and industrial |
| However, we are pleased with how we are positioned to navigate 2024 and beyond |
| Number two, resolve identified credit challenged loans with an eye towards maximizing shareholder value |
| 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 |
| So from a back leverage perspective, there’s ample liquidity |
| Regarding credit, risk ratings improved to 3.0 from 3.2, due almost entirely to loan resolutions during the fourth quarter |
| So all the best in 2024 |
| Many traditional providers of real estate debt capital, particularly regional banks, remain defensively positioned |
| So that’s a pure operations exercise, which we’re confident will go well under our control |
| So I think starting from that $0.23 per share number is, I think, a relatively good base |
| I expect 2024 will be a year of increased transaction volumes and price discovery across the sector |
| Statement |
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| Broad pressure on values, secular challenges to office, elevated borrowing costs and reduced liquidity |
| 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 |
| Book value per share is $11.86, a decline of $0.18 per share from $12.04 in the third quarter |
| Distributable earnings declined quarter-over-quarter to a loss of $159.7 million versus a loss of $103.7 million in the prior quarter due entirely to realized losses incurred from the resolution of all of our non-performing and 5 rated loans during the fourth quarter |
| And I think as we think about deploying capital in 2024, we still do prefer housing as a broad theme, while we do acknowledge that there are parts of the multifamily market which are under pressure due to either an increased amount of supply in certain markets, and then sort of on the borrower level, in some cases, seeing pressure with elevated short-term rates |
| Looking ahead, uncertainty continues to permeate the broader real estate market |
| And when you think about SOFR at roughly 5, 5.3, that may put pressure on certain multifamily borrowers |
| To accomplish our goal, we incurred realized losses during the full quarter of $184.1 million and for the year of $334.7 million |
| 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 |
| With respect to our expectations for the future, Doug had mentioned earlier that, we are in a period of uncertainty and correction, uncertainty in the broader real estate or in the broader economy and certainly correction of real estate |
| Office has declined 68% over the past eight quarters to 19.9%, life sciences is 11%, hotel is 10.6% and no other property type comprises more than 3.1% of our portfolio |
| And I realized there’s an enormous amount of uncertainty, ambiguity and what is optimal for shareholders |
| The small quarterly decline in book value in the face of $184.1 million of realized losses reflects that our CECL reserve had already largely captured the eventual losses realized upon resolution |
| Number one, maintain elevated levels of liquidity given the broader market pressure and uncertainty |
| This decline reflects $466 million of loan resolutions during the fourth quarter involving identified credit challenge loans, including the elimination of all 5 rated loans and non-performing loans |
| We sold one of the office properties in the fourth quarter of 2022 for a net loss of roughly $200,000, which translated into a recovery against our pre-foreclosure EPV of roughly 95% |
| So, if the actual path of the economy and rates proves to be different than what we currently expect it will be, that could weigh on borrower behavior and consequently on risk ratings to the negative or the positive |
| However, real estate as an asset class has lagged the broader market rally |
| Our CECL reserve rate declined to 190 basis points from 560 basis points |
| Doug Bouquard Absolutely – Bob Foley I’d like to just add one more thing to Rick’s thoughtful line of questioning, which is that, dividend policy is an important and big linear programming problem or application |
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