Q2 2020 Tremont Mortgage Trust Earnings Call

All participants will be in listen only mode.

She did 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 buy press Star then one on your telephone keypad.

To withdraw your question. Please press Star then too.

Please note the see that is being recorded.

At this time I'd like to turn the conference separate it Christopher Ranjitkar senior director of marketing and corporate communications.

Please go ahead.

Thank you what good morning, everyone. Thanks for joining us today with me all the color President and Chief Executive Officer, David Blackman, and Chief Financial Officer, Treasurer Dog, Illinois in just a moment they will provide details about our business and outperformance for the second quarter of 2020, well then open the call to a question and answers.

Washington, <unk> self taught out.

First I would like to know for the recording and retransmission of today's conference call is strictly prohibited without prior written consent to the company also know that today's conference call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, another securities laws. These forward.

These statements are based on from a belief and expectations as of today Tuesday August four 2020, and actual results may differ materially from those that we project.

Company undertakes no obligation provides a public we released the results of any revisions of a 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 or have you seen which can be accessed from our website.

CRM to reach Dot com.

He sees website.

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

In addition, we'll be discussing non-GAAP numbers during this call.

Core earnings.

For a reconciliation of that income determined in accordance with the gap to core earnings we see this morning's quarterly earnings release, which is available on our website.

We'll now turn the call over to David David.

Thanks, Chris for every morning.

Welcome to the second quarter earnings call for train bought mortgage Trust.

As we discussed last quarter T. oriented capital of four we committed which eliminated our capacity to originate new loans during the second quarter.

As a result, our focus was on asset managing our loan limits the impact that a partial would close economy had on many of our borrowers with that said I'm pleased to report older borrowers are currently the first time.

Recall that during the first quarter, we reported one not pay but from a borrower that would quickly resolved throughout the rest of the core and core in July payments for borrowers have been paid as expected.

We do have some borrowers experienced various levels of distribution from tenants that are not able to operate them required <unk>.

For the trailing three month ended June 30, 2020, we had six loans, where the income generated from the tenants was not sufficient to pay operating expenses in debt service. However for the six loans are structured with reserves sufficient to meet the shortfalls.

The two loans without reserves or secure bard properties in the hospitality and retail sectors.

In the case of a retail property the shortfall with small and easily managed by the sponsor and was the result of two tenants receiving the rest the permits for the month since April and met.

Both tenants resumed rent payments in June.

In the case was the loan secured by the hotel the sponsor made a capital call never see they PPP you want to keep that service current.

Yeah, the relationship with our repo filled we'd love to remains in good standing where we maintain an active dialogue regarding our liquidity and the status of our loans during the quarter City advanced money to fund our loan commitments to borrowers, which we believe underscores the confidence in both the helping quality over a long port.

Oh, well as well our ability as a lender to effectively asset manager alarms.

At the ended the quarter, we announced the Tremont Realty advisors, our manager extended its management fee waiver through December 31, 20, Twond and an additional six months we.

We believe this importantly waiver underscores our managers alignment with shareholders, who are experiencing reduce quarterly distributions as a result of our proactive measure to preserve capital during these difficult economic times.

In July we declared a one cents per share distribution, the second consecutive quarter over to reduce distribution as a result of the economic distress brought on by the Cobot 19 pandemic.

However, our business continues to perform and assuming nothing out of ordinary we may need to declare an increased distribution in December in order to pay out sufficient taxable income to maintain green status.

The amount of payment type remained under review and will be determined during the fourth quarter.

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

Good morning.

Everybody. Thank you David.

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

Our second quarter core earnings was $2.4 million were 30 cents per weighted average diluted share.

Compared with 21 cents per share last quarter.

Interest income from investments for the quarter was $4.5 million.

Reflecting the impact of our LIBOR floors.

And fourth quarter interest payments on 14 loans.

Compared to $4.3 million into prior quarter.

When 12 loans were outstanding.

For a full quarter into loans were outstanding for partial quarter interest and related expenses incurred from borrowers on her master repurchase facility was approximately $1.4 million.

Compared to $1.8 million in the first quarter of 2020.

This reduction in interest expense is the result of the downward trend of LIBOR.

Income from investments increased to $3.1 million for the quarter from $2.5 million.

In the prior quarter.

As presented in our supplemental financial package, our weighted average all in yield on our investments as of June 30 2020.

There is LIBOR plus 429 basis points.

On a weighted average LIBOR floor is 210 basis points.

<unk> expenses in the second quarter totaled approximately $766000 include Genie expenses of $524000.

Of which $71000 was noncash stock compensation expense.

Reimbursed shared services expenses amounted to $242000.

The second quarter.

As we've mentioned before we expect shared services expenses to decrease over time.

Is there a manager allocate some of these expenses to other made its companies.

Now turning to our balance sheet.

At the ended the second quarter, we had $10.6 million in cash cash equivalents.

Our loans held for investment at quarter end total principal balance of $278.5 million, an increase of $6.3 million from last quarter.

At quarter end.

Total loan commitments of $296 million of which $17.6 million was on funded.

During the quarter, we borrowed an additional $4.8 million honor master repurchase facility.

To fund advances made by T. are empty to borrowers on this loan commitments, resulting in an outstanding principal balance of $201.1 million.

As of June Thirtyth, we had 213.5 million.

Total capacity on our master repurchase facility.

Which $12.3 million is undrawn.

Including $6.9 billion.

Below the maximum leverage from existing pledged loans.

In July the borrower under.

Our loan to a retail property in couple of Texas sold a pad site and repaid $2.1 million of their alone.

We utilized $1.4 million of these proceeds to reduce or master repurchase facility.

And retain the balance for liquidity.

Operator, this concludes our prepared remarks.

We will now take questions from sell side research analyst.

Thank you.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.

We are using a speakerphone please pick up your handset before pressing mickey's.

If at any time. Your question has been addressed and you would like to withdraw your question.

Please press Star and then too.

And our first question today will come from Steve Delaney of JMP Securities. Please go ahead.

Good morning, everyone.

First I'd like to commend the managers a decision to a wave Steve management fees to the ended the year I'm sure I think that's great news.

Given the current status of the dividends. So thank you Tibet, David and appreciate your comments about some visibility.

Towards year end with tax distribution I actually had that is is my question. So thank you for addressing it to two follow ups on that.

Would it be reasonable for us to just assumed in the third quarter. It will be likely the board would just maintain date the one cents place holder a pay out in September.

Yes, the that that is it fair assumption.

Okay. Thanks, and then looking ahead to year end and obviously a lot can change between now and then and Doug has to get all the final tax numbers at all.

Would you is it your plan to pay whatever is required would it be your plan to paid in cash or would it possibly be stock or some combination of cash and stock. We have seen some stock dividends earlier. This year I kept my personal views I can't say there there.

Very much appreciated by shareholders versus cash, but it does allow you to meet your your tax requirement.

Yeah. The that's a great question and in reality that is.

What we're really spending a lot of time analyzing and thinking about these days.

Yeah, we'll make that decision during the fourth quarter, you know at a minimum we would.

Happen at least 10% of Oh, the distribution writing cash.

But you know that.

It is a big question right now how do we pay a the distribution I totally understand the perspective wanting to receive that distribution in cash.

And we certainly you know don't feel like this you mean shared is is a in our best interest either but we'll just have to take all of that into consideration as we get towards the end of the fourth quarter understand what the total tax liability is.

And our availability of cash.

Understood David not completely appreciate the need for liquidity and and maintaining your your important relationship with city. So thank you. Thank you for the comments yep. Thanks.

Again, if you would like to ask a question. Please press star and then one.

Our next question today will come from Brock Vandervliet of you'd be yes. Please go ahead.

Hi, good morning, guys.

Hi, Brad.

Good morning.

If you could just start with [noise].

Maybe an update on the.

[noise] Coppell, Texas.

Credit I know you've got [noise] on slide 15, it looks like you've got about half year left.

That is in the retail bucket also.

What do you.

How does that credit looking at this point.

Yes.

Good question Brock.

Uh huh.

That property is you know performing below its business plan right now.

The primary source repayment for that long.

What's going to be a sale the property.

And so a you know it.

Is you know for the trailing three month.

It's delivered a pretty good debt yield a above nine times.

And it had pretty strong debt service coverage ratio. So you know I think the big question is.

Whether or not.

Or whether or not a they.

What a market the assets for sale in this market or whether they're going to exercise their expansion writes a in order to give themselves more time for the market to stabilize.

And in those extensions are they a one year.

Yes.

Yeah actually Brock I misspoke early I was looking at the wrong line or my on my she there they're dead deal was was right around.

A 5% and they were slightly below one times. So they would not qualified today for their automatic a extension and we would need to discuss.

Some type of restructure war amendment in order for them to extend.

Okay got it and.

I guess more broadly could you give us an update on.

The I guess, it's one hotel credit and two other.

Retail exposures that you've talked about in the past how are those trending at this point.

Well the hotel.

Experiencing improved occupancy.

They're still not that breakeven a revpar to generate positive cash flow.

But I got it I give the sponsor a tremendous amount of credit I'm you know they have stepped up and continue to support the hotel and have kept payments current so you know I think they're doing a great job with the kind of the hand.

The Delta then.

Have a tremendous amount of respect for what they're doing a the other property.

Where we had a.

A slight negative cash flow further for the trailing three months and we didn't have an interest reserve.

You know they had two tenants that we see rent deferrals for April and May both those tenants are back pain, Brad and so we expected that loan is gonna be fine on a go forward basis and expect for the third quarter.

They would generate a positive debt coverage ratio.

And that's the credit in.

Arizona or Nebraska, Nebraska.

Got it got it okay. Thank you.

Yep.

Ladies and gentlemen, this will conclude our question and answer session.

This time I'd like to turn the conference back over to David Blackman, President and CEO for any closing remarks.

Thank you operator, and thank you all for joining us today that concludes our hall.

The conference has now concluded we thank you for attending today's presentation and you may now disconnect your lines.