Q3 2019 Earnings Call

Good morning, welcome to <unk> mortgage Trust third quarter 20 night team financial results Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.

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Please note. This event is being recorded I would now like to turn the conference over to Christopher Ranjitkar Senior director of marketing and Investor Relations. Please go ahead.

Thank you Debbie and good morning, everyone. Thanks for joining us today.

With me on the call, our President and Chief Executive Officer, David Blackman, Chief Financial Officer, and Treasurer, Doug.

And just a moment they will provide details about our business and our performance for the third quarter of 2019 first I would like to note that the recording and retransmission of today's conference call is strictly prohibited without the prior written consent of the company.

Also note that todays conference call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995. Another securities laws. These forward looking statements are based on cost beliefs and expectations I Love Today November six 2019, and actual results may differ materially from those that we project the company undertakes.

Jason to revive the publicly released the results of any revisions to forward looking statements made in today's conference call additional information concerning factors that could cause those differences is contained in our filings with the securities and Exchange Commission resi C, which can be accessed from our website TRP read dot com, where the Fccs website investors are cautioned not to play.

[noise] undue reliance upon any forward looking statement and now I will turn the call over to David.

Thank you Christopher Good morning, welcome to the third quarter earnings call for train lot mortgage Trust.

As Doug discussed in greater detail. This morning, we announced third quarter core earnings of 26 cents per share, which beat consensus estimates by two cents.

During the quarter, we had two arms repay early totaling $53.6 million plus earn nonrecurring prepayment premiums of $449000 with these proceeds we fully repaid our term loan with Texas capital Bank totaling 31.7 million.

Dollars and pay down our city repurchase facility by $22.4 million.

We ended the quarter with leverage below our long term target.

As of today tray might have sufficient capital to originate $73 million of transitional bridge launch during the quarter, we evaluated 70 loan opportunities with approximately $1.9 billion a potential commitments as of today, we have six outstanding term sheets for total loan.

Commitments of $187 million, plus two accepted applications in diligence and one application approved an under negotiation for $55.5 million in aggregate.

Our expectation is to be fully invested by year end barring no further loan repayments during the fourth quarter.

In addition to investing our available capital remain we remain focused on asset managing our loan portfolio.

In October timeframe on declared a distribution of 22 cents per share consistent with what we paid in August . This distribution is supported by our core earnings of 26 cents per share in the third quarter.

We expect fourth quarter core earnings to be down as compared to the third quarter as a result, not being fully invested however, we believe our total core earnings during 2019 will be sufficient for our board to support maintaining our distribution at its current level when we declare our next distribute.

As shown in January 2020.

I'll now turn the call over to Dog review, our financial results and balance sheet Doug.

Thank you David and good morning, everyone.

Let's begin with a review of the income statement.

Third quarter net income was $2.1 million were 25 cents per weighted average diluted share. This compares with a net loss of two cents per weighted average diluted share for the same period last year.

The year over year improvement is largely attributed to the increase in our loans held for investment from $81.7 million in 2000 $18 million to $207.5 million in 2019.

Interest income from investments for the quarter was $5 million, which reflects a full quarter interest payments on 10 loans and partial quarter interest payments on the two loans repaid in the quarter totaling $53.6 million.

Interest and related expenses incurred from borrowings on our master repurchase facility and our note payable was approximately $2 million, leaving us with net income from investments of $3 million for the quarter.

As presented in our supplemental financial package, our weighted average all in yield on our investments as of September 32019 is LIBOR, plus 425 basis points and our weighted average LIBOR floor is 219 basis points.

Our expenses in the third quarter total approximately $911000 and include GNS expenses of $541000 of which $80000 was non cash stock compensation expense.

Shared services expense reimbursement amounted to $370000.

Gionee and shared services expense levels are consistent with our expected levels for the remainder of 2019.

As a reminder, we announced last June that our manager agreed to waive its management fee for the period July one 2018 through June 32020.

Which amounted to savings of $322000 for the quarter.

Core earnings for the quarter was $2.1 million or 26 cents per weighted average diluted share, which again includes four quarter interest payments from 10 loans and partial quarter interest payments from two or.

Now turning to the balance sheet at the end of the third quarter, we had $9.2 million in cash and cash equivalents are loans held for investment at quarter end totaled $207.5 million.

The decrease a $51.5 million from last quarter.

At quarter end, we had $18.9 million, an unfunded loan commitments.

During the quarter, we paid down $22.4 million on our master repurchase facility.

Connection with the two loan repayments, making the new outstanding balance $131.3 million.

As of September 30, we had $82.2 million of capacity in our master repurchase facility.

Of which 24.2 million is available from existing pledged loans.

Our city repurchase agreement.

As a maximum capacity of $213 million.

Creating sufficient capital for new own originations of approximately $73 million.

All of which 55.5 million has been approved by our investment Committee.

Our expectation has to be fully invested by year end.

Operator.

This concludes our prepared remarks, we will take questions from sell side research analysts.

Okay. We will now begin the question and answer session.

To ask a question you May press Star then one on your Touchtone phone. If you were using a speakerphone. Please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then too.

At this time, we will pause momentarily to assemble our roster.

The first question comes from Brock Vandervliet with you be yes. Please go ahead.

Thanks, Good morning.

No on the a that the Texas capital line is that it that's paid down do you anticipate drawing from that again.

Right that was a term loan that match funded our alone for the JFK a hotel and so when that loan repaid we repaid the Texas capital note in full and and terminated than Uh huh.

I would add we do expect to access that type of financing from time to time, when it's a once a good accretive financing.

Got it okay. So with the city line, you've got runway to fund.

$73 million it sounds like are you.

Sounds like Doug Ewert, you're exploring other options to extend that runway a bit.

Well you know we.

The $73 million Brock.

Hi is our maximum.

Lending capacity, while working within our financial covenants. So we can't just go out and borrow additional money.

We will need equity go along with that so really once we file on the $73 million.

We don't have any more lending capacity in the last we have some more loans.

Okay.

And and just lastly, as we think about your your total book size. It sounds like with that 73, assuming you get there you're going to be close to 300 million.

Or thereabouts.

Reasonable, yes, that's correct.

Okay.

Alright, great I'll drop back kind of Q.

Thanks, Rob Yep.

The next question comes from Kylie Wang with Citi. Please go ahead.

Thanks, I guess in terms of the origination pipeline last quarter on the call you talked about a pipeline being incredibly strong I want to know if steel or any delay of closing that you expected to happen next week you been now might have moved into Fourq you.

[laughter] tally the pipeline is still very strong yeah, we've been working through some diligence on a couple of loans and hope to get those closed here in the next month or so.

But we continue to have probably 30 separate transactions and over $900 million of transactions that.

We either have term sheets issued on or we're evaluating.

Okay and given your at low activity this quarter and what we're seeing with the interest rate environment.

I know you mentioned for Q EPA has to be down quite a quite yet, but do you still think it'll be able to cover the dividend sportswear Q.

Yeah, we will be down in the fourth quarter, just simply because we haven't been fully funded for the full quarter. A we think that when we looked at our annual core earnings it should be adequate for the board to support maintaining our distribution at 22 cents per.

Share when we declare that in January 2020.

Okay got it and just wondering if you could give an update on debt performance that retail alone in Omaha that you originated engine.

So.

We looked at that quarterly.

Our loan rating process, we look at the market, we look at the gym.

Sponsor and the collateral performance and so all of our loans are still rate of the three that when included.

That.

Property is stable and.

Performing as expected.

Okay. Thanks, taking my question.

Thank you.

This concludes our question and answer session I would like to turn the conference back over to David Blackman, President and CEO for any closing remarks.

Thank you Debbie and thank you for joining us today on our earnings call a that concludes today's call.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.