Q1 2020 Earnings Call

So do you need assistance. Please signal a corporate specialists why pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded I would now like to turn the conference over to Christopher Ranjitkar Senior director of marketing and corporate Communications. Please go ahead Sir.

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

With me on the call, our President and Chief Executive Officer, David Blackman, and Chief Financial Officer, and Treasurer Dot one noise and just a moment they will provide details about our business and our performance.

First quarter 20 Twond we.

Well then open the call to a question and answer session sell side analysts.

I would like to know recording and retransmission of today's conference call. It strictly prohibited without prior written consent of the company also note that todays call contain forward looking statement within the meaning of the private Securities Litigation Reform Act of Nike 95, another securities laws. These.

Forward looking statements are based on trauma beliefs and expectations as of today Monday Baseboard 2020, and actual results may differ materially from that was that we project.

Many undertakes no obligation to revise or publicly released results if any revision to the forward looking statements made in todays conference call.

Additional information concerning factors that could cause those differences is contained in our filings with the securities and exchange Commission or FCC, which can be accessed from our website T.R.M.T. <unk> dot com already he sees website.

Doctors are cautioned not to place undue reliance upon any forward looking statements.

In addition, we will be discussing non-GAAP numbers during this call, including core earnings for a reconciliation of net income determined in accordance with GAAP to core earnings. We see this morning quarterly earnings release, which is available on our website.

Before I turn the call over today, but I would like to know that as a result of the closure of non essential business is the Massachusetts. We are conducting this call from three separate location, which could impact our audio and couldn't caused delays during the question answer session David.

Thank you Chris Frank Good morning.

Welcome to the first quarter earnings call for train Mop mortgage trust.

During the first quarter, we closed two first mortgage whole loans would aggregate loan commitments $36.8 million that well, we committed aren't government capital.

One refinancing parking garage in downtown Allentown, Pennsylvania that its master lease to an investment grade company.

And the other refinanced a 513000 square foot office in lab complex in suburban Columbus, Ohio.

As a reminder, our investment portfolio does not include any securities and consider completely of transitional bridge first mortgage will with approximately $297 million in aggregate commitments.

As a result fully committed to our investment capital and the economic shock brought on by the Carbonite. They pandemic, that's substantially close not a central businesses across the U.S.

Our attention is acutely focused on asset management.

Yes.

We had all but one of our borrowers pay April debt service and as a result, we have one borrower into full.

However, we have not received the margin calls from Citi Group, our repurchase authority lender.

As you will note in our disclosures released this morning, we have executed alone amendment with the defaulted borrower.

They have failed to submit to us the rent they collected in April which is a condition precedent for the amendment to become effect.

We believe this payment is evident which will cure the default.

This back combined with the 11% aggregate debt yield generated from our wants the city long position.

Which is 200 basis points greater than the required minimum has kept us in good standing with Citi.

Notwithstanding our strong core earnings for the first quarter.

He uncertain impacted the cobot dyed T economic shock well have our borrowers let us to believe it was prudent to conserve cash by reducing our distribution. So one cent per share until such time is the economy stabilizes and the impact of our borrower tenant rent deferral has subsided.

As a reminder, our manager which is a wholly owned subsidiary of RMR or 19.4% of our outstanding shares and it's also waving that management fee from June 2018 until July 2020.

We appreciate the patients over shareholders as we take a long term view of managing through what is likely a challenging economic recession.

In light of the current situation, we thought it would be helpful to review our existing loan portfolio to help each of you better understand how we have structured our loans with interest reserves and cash flow suites, and the norm of course to mitigate the risk of debt service shortfalls in business plans executing more slowly.

And anticipated.

We have 14 first mortgage whole loans with approximately $297 million in aggregate loan commitments.

One loan secured by <unk> full service hotel, representing 8% I've worked all what commitments.

The loan isn't a cash flow suite and the borrower is working in a cooperative manner to keep alone correct.

We view this as one up or higher risk loans, but also believed the integrity of the borrower is a huge strength in the current situation.

Three loans, representing 17% of our total commitments are secured by neighborhood retail centers, where the business plan is to complete leasing of inline space or to renew anchor tenants.

Two of the three loans are performing but all the borrowers or experiencing a level of stress as a number of kind of in non essential businesses have requested rent relief.

Two of the loans were going to cash flow sweep and have interest reserves to pay debt service.

One of these loans, which has an interest reserve and it and the cash flow sweep its full recourse toy financially strong sponsor.

This is alone in default that we expect to cure why are executed one amendment and the payment to us or the April rents collected by the borrower.

Five loans, representing 34% of our coal commitments are secure by office properties, where the business plans are to provide tenant improvement capital to complete sponsors leasing plan.

Three of the loans are in a cash flow sweep and one has an interest reserve.

Two of the office buildings are located in Houston in Louisiana and had exposure to tenants in the energy sector.

The sponsors for these loans are working with tenants experiencing financial hardship to provide Brent assistance and support for cares Act simulators.

However, both of these loans are structured with interest reserves they can be used to pay debt service.

The balance of our loans, representing 41% of our total commitments are secured by lower risk multifamily communities industrial buildings and the master lease parking garage.

Even though these property types are experiencing less financial distress from the current economic shock several of the longer structure with interest reserve should the business plans not execute timely as expected.

So why do you can see there are some property type securing our loans that are exposed to pressure from the current economic shock.

We have employed interest reserves and cash flow sweeps to help mitigate the risk of debt service shortfalls and business plans that may execute more slowly than anticipated.

Likewise, we have changed our alone raised to more closely aligned with the risk we now see in the portfolio.

The changes result in our loan portfolio weighted average risk rating increasing from 2.9 at year end to 3.3 as of the end of the first quarter.

We have not taken any on impairments or loan loss reserves for the quarter and in no way does the risk rating modifications change our optimism that we will work closely with our borrowers and city to manage through the financial challenges that have arisen on the cobot nicely and.

I'll now turn the call every dog to review our financial results Doug.

Thank you David and good morning, everyone.

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

Our first quarter core earnings was $1.7 million were 21 cents per weighted average diluted share.

Paired to 17 cents per share in the fourth quarter 2019.

Interest income from investments for the quarter was $4.3 million.

Reflecting full quarter interest payments on 12 loans and partial quarter interest payments on the two loans are closed in the first quarter.

Interest in related expenses incurred from borrowings on our master repurchase facility was approximately $1.8 million, leaving us with income from investments of $2.5 million for the quarter.

As presented in our supplemental financial package, our weighted average all in yield on our investments as of March 30, Onest 2020 is LIBOR, plus 429 basis points and our weighted average LIBOR floor is 211 basis points.

Our expenses in the first quarter totaled approximately $861000 and include gene a expenses of $540000.

All of which $42000 was noncash stock compensation expense.

Excluding the reinstatement of or management fee in the third quarter. We expect that are first quarter gionee isn't appropriate quarterly run rate.

For 2020.

Reimbursed shared services expenses amounted to $321000 into first quarter.

As we mentioned last quarter, we expect shared services expense to decrease over time as our manager allocate some of these expenses to other managed companies.

Now turning to our balance sheet at the end of the first quarter, we had $10.2 million in cash and cash equivalents.

Our loans held for investment at quarter end totaled $271.5 million.

An increase of $29.4 million from last quarter.

At quarter end, we had $24.8 million, an unfunded loan commitments.

During the quarter, we borrowed an additional $30.8 million on our master repurchase agreement to fund two new loans and advances on existing loans, resulting in a balance of $195.6 million.

As of March 31st we had 213.5 million of total capacity.

On our master repurchase facility.

Which $17.1 billion is undrawn.

Including $7 million that is below the maximum leverage from existing pledged loans.

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

Thank you 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're using a speakerphone. Please pick up your handset before pressing leaky withdraw. Your question. Please press Star then to at this time, we'll pause momentarily to assemble our roster.

And our first question will come from Jason Stewart with Jones trading. Please go ahead.

Hi, good morning, Thank you.

I appreciate the additional color on the portfolio could you give us the total percentage of loans that are in cash sweep as it into the quarter.

That's a good question, Jason I actually I haven't.

That's the one that percentage, Doug you calculated that percentage.

I thought it was more in terms of the numbers.

Yeah, I don't have the percentage I can tell you that we have.

Hi Tech we have 806, we have Oh went to three.

We have eight loans and currently have the cash sweep.

Okay.

And when you when we think about reserves interest reserves, what's your typical requirement for prepayment coverage there.

Well you know typically what we've done is as part of the alone we have structured and interest reserve that can be used to help supplement that service a if the cash flow from the property isn't sufficient.

In some cases, you know it's up to the borrower to draw the proceeds.

In other cases, we may have the right.

It does.

Its also worth noting Jason that some of the loans, we actually closed into cash flow suites.

For one reason or another while the borrower executed its business plan. So.

Yeah. It's not these loans are in cash flow sweeps as a result over default, but in most cases, the debt service coverage ratio being below a certain threshold.

Right that make sense.

And then one more for me when do you think about Weiss maybe too.

When you look at the underlying.

Pick a property whether its retail or office, maybe retails are better example have you gotten any color from borrowers on their collections from from their portfolios that are backing these loans.

Yes, I mean, we've been and active dialogue with all of our borrowers.

You know they let US know you know the percentage of tenants or the number of tenants that they might have in there a in their assets that are in need of some pipe.

Since we're really so yes, we we've had conversations with all of our sponsors regarding that.

And I guess, it but there's anything you could share with us and maybe retail being a specific example, I mean, we've heard pretty wide.

Numbers from mid Twentys to mid Seventys in terms of collection rates and not ports and those types of portfolios any color you could pass along.

Yeah, I think you know we as we look at the neighborhood shopping centers.

Are those centers that have inline space that are made up of restaurants nail salons barbershops.

They have all struggled a in April.

I collect sufficient revenue has to pay rash.

Most of our anchor tenants, a there either grocery stores drug stores or other type of larger tenants are doing fine. So I would say that on average our borrowers in the retail.

Okay.

Our collecting anywhere between 40 and 60% of brands at this point a number of them have tenants that have.

Qualified for PC do you arms, a and are getting really.

From the care.

Which which is gonna be helpful.

Right. Okay. That's helpful.

Last one from me and I don't let somebody else jump in when you think about the the sponsor RMR to manager the work out groups. The amount of assets that you have behind these should that.

Be necessary to have do you feel like that that's that's supported sufficient if you do need to work out somebody's loans in and perhaps seldom.

You know certainly Jason one of the strengths of our platform has always been the fact that.

We have a number of companies that we operate that own a real estate.

Oh, we have our own property management group or we have several.

Operating companies that operate senior living as well as hotels. So we have a lot of a hands on experience in executing business plan and operating properties. So.

We also have you know very deep asset management teams for Ah office, industrial retail hotels and senior living so there's a tremendous amount of expertise that RMR.

Got to take over and manager property should want a bar borrowers to fall a and we have to take over operation of the asset.

Obviously, we hope it doesn't come to that but certainly a we had the expertise to work through an adverse situation.

Got it I appreciate the time for the questions and stay safe.

Thank you you too.

Again, if you have a question. Please press Star then one.

This concludes our question and answer session I would like to turn the conference back over to David Blackman for any closing remarks. Please go ahead Sir.

Thank you operator, thank you all for joining us on the call today, a that concludes our call.

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