Q4 2020 TPG RE Finance Trust Inc Earnings Call
Ladies and gentlemen, thank you for standing by our conference will begin momentarily once again, ladies and gentlemen, thank you for standing by our conference will begin momentarily.
[music].
Greetings and welcome to the TPG Real estate Finance Trust fourth quarter 2020 earnings Conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Deborah Ginsberg, Vice President and General Counsel. Thank you you may begin.
Good morning, and welcome to TPG Real estate Finance Trust's conference call for the fourth quarter of 2020.
I'm joined today by Greta Guggenheim Chief Executive Officer, Matt Coleman, President, Bob Foley, Chief Financial Officer, and Peter Smith, Chief Investment Officer, Glenn I'm out and Bob will share some comments about the quarter and the year and then we'll open up the call for some questions yesterday evening, we filed our form 10-K and issued a press release with a presentation.
Our operating results all of which are available on our website in the Investor Relations section.
I'd like to remind everyone that today's call may include forward looking statements, which are uncertain and outside of the company's control actual actual results may differ materially for a discussion of some of the risks that could affect results. Please see the risk factors section of our 10-K, we do not undertake any duty to update these statements and we will also refer to certain non-GAAP.
Measures on this call and for reconciliations you should refer to the press release, and our 10-K with that I turn the call over to credit Guggenheim Chief Executive Officer of TPG Real estate Finance Trust.
Good morning.
And welcome to our fourth quarter conference call.
As I suspect you may have read I announced I will be retiring from my position as CEO and resigning from the board as of the end of this quarter.
I've been thinking about my retirement for some time actually since late 2019, after having helped build the company and with the intention of leaving it well positioned for future growth.
This was delayed a bit but with the.
The strength of our balance sheet restored our strong liquidity position and with our experienced management and origination teams I feel now is a good time to move on.
The firm has asked and I have gladly accepted to stay on as an adviser to the business through this transition period.
I want to thank TPG and and the T. R. T X team for their commitment and support I'm incredibly proud of what we've accomplished over these last five years and know the company is well positioned for continued success with that it's my pleasure to turn the call over to our President Matt Coleman.
<unk> has assumed responsibility for the day to day management of the company and TPG and the board will jointly conduct a search for a new CEO, Matt and Bob will now provide the earnings readout and share some comments about 2020 in the past quarter.
Thank you.
Thank you Greg on.
Behalf from TPG and everyone at TPG TPG.
I want to thank Greg for contributions to the company over the last five years.
During her tenure at the firm Greta led the successful IPO Crts built a world class team. That's originated $9 1 billion of loans under her watch and helped establish the company as a leading real estate franchise.
Greta we all wish you well in retirement and I. Thank you again for your many contributions to TR T X.
Well, Greg It will soon be retiring we're confident that the in place management team is up to the tasks ahead of us this year and beyond and I personally couldn't be more proud to partner with this group of people.
The professionals, who work on behalf of the TRT ex manager or immensely smart talented and dedicated and I'm excited about what we can achieve together in the quarters and years ahead.
I'd like to share a brief summary of my background and my experience with TRT acts and TPG.
Worked in and around credit and private equity markets for more than 20 years.
In 2012 by Duane TPG, where I'm a partner in the firm and the Chief operating officer of the firms real estate business.
$10 $6 billion AUM vertical encompassing both TRT acts and TPG real estate private equity business.
Across the firms real estate businesses and deeply involved in strategy business development and other leadership initiatives and I serve as a member of the investment committees of both <unk> and our equity business.
Serve as a director on several portfolio company boards in the United States and Europe.
My role affords me, an expansive view of the U S real estate markets and provides me with deep connectivity within TPG, all of which will be valuable to <unk> as we navigate this transition.
I've been involved with tier TX since inception in late 2014, and this past July it was named President and joined the investment Committee.
Prior to TPG I spent seven years at D E Shaw and its real estate equity and credit business.
With that introduction I'll recap 2020, and look ahead to the rest of 2021.
2020 was a tough year, there's no way around that.
We ended the year with a GAAP net loss attributable to common shareholders of $155 $5 million.
$2 <unk> per share and distributable earnings of negative $106 6 million.
Or negative $1 39 per share.
Prior to the onset of COVID-19, we originated five loans, representing approximately $437 million of aggregate commitment.
Although 2020 was a turbulent year, we took quick and decisive steps to stabilize the company.
We completely exited $969 $8 million of CRT securities.
Terminated $722 $7 million of associated debt.
We raised capital as needed, including $225 million of series B preferred stock from affiliates of Starwood capital group.
We took steps to shore up the right side of our balance sheet, increasing our percentage of non mark to market liabilities from 43, 4% at March 31, 2020 to 63, 5% as of December 31 2020.
And we ended the year on a healthy liquidity position with a stable balance sheet we.
We also positioned ourselves to reenter the lending market, which is now our primary focus.
As we reported last night, we increased our seasonal reserve in Q4, 2020 to 127 basis points of total loan commitments versus 109 basis points in Q3 2020.
The increase reserves reflect our macro view of a longer recovery than was initially expected and an increase in our specific loan loss reserve for a default in retail loans.
While we're optimistic about the rollout of vaccinations across the country. There remains considerable uncertainty with different COVID-19 strains emerging and the pace of economic recovery unclear.
Accordingly, we've maintained a conservative stance with respect to our reserves to allow us to focus on retention on the path forward.
At the asset level, we continue to address challenges with respect to two specific loans. The landline in Las Vegas that we discussed last quarter, we took title through a deed in lieu of foreclosure on December 31.
And a $331 $2 million loans on a retail property in Los Angeles, which defaulted in December.
Neither of these situations came as a surprise to US we've acted quickly and we're working to maximize the value of each of these investments.
Across our portfolio, we remain positive about the quality of our assets and the strength and motivation of our borrowers Inc.
Interest collections in Q4 were 96, 7%, including 1.7% Pik interest Las Vegas land and the Los Angeles retail loans, the only non paying loans.
Repayments in 2020 totaled $885 $6 million, which was in line with expectations and contributed to our strong liquidity position.
Liquidity at year end was $342 $6 million comprised primarily of $319 $7 million in cash and $22 $8 million in available Undrawn capacity.
Accordingly late in the fourth quarter, we restarted our origination efforts. We are actively reviewing nearly $3 $5 billion of new opportunities and we're optimistic about transaction volume in 2021.
We recently signed a term sheet for $52 million multifamily loans on an asset in Durham North Carolina.
Our market was exceedingly strong demographic trends.
Competition, among private debt funds and public commercial mortgage rates for high quality loans remains strong, particularly in multifamily industrial and life science, and we've seen spread compression primarily due to an abundance of liquidity in the market and the extraordinarily low interest rate environment.
But while we may have experienced some changes in our business and in the markets. One thing remains steadfast and that's our disciplined view on credit our focus is on quality assets markets and sponsors and we will not compromise on these core principles.
To support our originations activity, we continue to work to optimize our capital structure.
As I mentioned earlier in 2020, we increased our proportion of non mark to market liabilities by more than 20 points to 64, four sorry to 64%.
Through a combination of deleveraging.
New secured financing facility collateralized by our hotel assets and by contributing additional collateral to our two CLO.
Just as we're seeing tightening spreads in our lending markets. We're also seeing historically advantageous debt capital markets available to us.
As we've done in the past we expect to access these markets to further reduce our use of mark to market financing extend the duration of our liabilities and maintain a low cost of debt capital.
Our strategic plan for 2021 is at the intersection of these activities.
Active asset management of the loans on our portfolio robust originations focused on compelling underlying credit and optimizing our capital structure. We expect our 2021 achievements in these areas will drive to <unk> profitability and maximize value for our shareholders.
With that I'll turn the call over to Bob to discuss our fourth quarter and year end results in more detail.
Thank you, Matt and good morning, everyone.
First I want to extend my warmest wishes to Greta upon her retirement from TR T X.
Many of you know that for decades, Greta and I were competitors and friends before we became colleagues in early 2016.
Her retirement marks the end of one chapter and the beginning of another.
Thank you for your leadership competitive fire integrity and wise counsel.
Complishments of TR T X and this team are the direct result of your forceful leadership I will Miss you as a boss partner and a friend. Thank you.
Now onto the business at hand, we reported yesterday afternoon for the quarter ending December 31.
GAAP net income for TR T X a $14 6 million GAAP net income allocable to shareholders of $6 6 million or <unk> <unk> per share and distributable earnings of $11 7 million or <unk> 15 per diluted share book.
Book value declined to $16 50 per share a decline.
A decline of 28 cents for two reasons first we declared on December 15th and paid on January 22nd a special dividend of <unk> 18 per share attributable to the buildup of undistributed taxable income in earlier quarters of 2020 that exceeded our stated dividend rate of <unk> 20 per share and two we recorded credit loss expense of <unk>.
$16 $3 million or 21 cents per share due to a specific reserve of $10 million on the defaulted retail loan in Metro Los Angeles and.
And then an incremental $6 3 million to our general seasonal reserve due to the cautious stance, we have on the economic reopening due to the slow rollout of the COVID-19 vaccine net.
Net interest margin declined by $7 $8 million or 10 cents per share due to loan repayments. The full earn in of $199 6 million received late in the third quarter and 365 million of loan repayments received very early in the fourth quarter.
We collected 96, 7% of interest due which includes pik interest of 0.9 million, which is only one 7% of total interest collections.
Six of our 57 loans are subject to modification at year end, representing $548 4 million of U T B and 12, 1% of our loan portfolio.
[noise] on operating expenses have returned to pre COVID-19 levels, and we continue to see process improvements and operating efficiencies.
Cash on hand at quarter end was $319 7 million or six 5% of our total assets. That's about twice its historical level due to our concern during 2020 regarding the markets the economy public health concerns and political uncertainties.
The gradual growth of commercial real estate investment activity and the remarkable return of liquidity to the equity and debt capital markets positions us well to realize the earnings power of this liquidity via new loan originations and the selective repayment of higher cost borrowings.
At quarter end, 64% of our loan related liabilities were not subject to mark to market provisions that's up from 54% at September 30, and 52% at December of the prior year and.
And based on a review of our SEC filings at yearend. We believe we ranked second among our publicly traded peers in terms of the lease reliance on mark to market liabilities.
Hotel loans represented 15% of our loan portfolio at quarter end all are financed on a non mark to market basis via our two C. L o's or the unique $250 million secured credit arrangement. We closed on in October 2020. These financings help insulate us from the ill effects of a slow vaccine rollout on the economy generally.
And on hospitality in particular, we do agree with observers, who believe hospitality performance will snap back once the economy reopens and leisure travel in particular resumes.
As loans financing, our CLO repay those clo's can absorb more loans from our terms secured credit facilities further reducing our use of non mark to market financing in the fourth quarter alone, we recycled $163 1 million across our two C. L OS for the year that figure was $619 million.
In mid February we extended through May 2022, our credit facility with Morgan Stanley on.
On the two of our seven secured credit facilities mature in 2021 involving borrowings at year end of only $138 million.
<unk> average maturity of our secured credit facilities is now through July 2023, or roughly two six years.
We downsized in mid 2020, several of our secured credit facilities to avoid unused costs. During a period of low utilization. We negotiated accordion features totaling $550 million to provide us additional warehouse capacity as our origination activity ramps this year.
Fixed income markets have recovered with remarkable speed, especially CRE CLO.
One of the more active issuers of Cielo is over time, we've done two to $2 6 billion in 2018 in 2019, we are again focused on our proven ability to raise nonrecourse long term low cost liabilities. We estimate the current fully loaded borrowing cost of todays CRE CLO market is approximately 40 basis point.
It's less than four secured credit facilities provided by banks and life companies and that's without the recourse on mark to market requirements of those arrangements are.
Our leverage remains low at September 30th It was 2.541 net of cash and $2 79 to one gross of cash well below our standing long term target of three and a half to one.
Of equal importance to the quantum of leverage is its composition all else equal greater degrees of leverage can be prudently employed if longer term nonrecourse and free of mark to market risk as you know 64% of our liabilities are non mark to market. At this time, you should expect that proportion to grow during this year.
Like our peers, who have already reported we have adopted distributable earnings is a direct replacement for core earnings as the key non-GAAP measure in the commercial mortgage REIT industry, There's really no substantive difference between the two noncash loan loss reserves will remain a component of distributable earnings realized losses will be treated as a reduction in distributable earnings.
Although not a perfect substitute for taxable income, we do expect that over time distributable earnings and taxable income will closely track each other.
Finally, a few comments about the series B preferred stock we issued to Starwood capital in May of last year.
Due to our strong liquidity position at year end, we allowed our option to issue up to an additional 100 million of preferred stock to expire unused at year end. The 12 million warrants issued in conjunction with that preferred stock must be net settled if and when they are exercised for purposes of determining dilution in earnings and book value that means no cash.
Will change hands in the amount of new common shares issue will equal the net gain on the warrants at the time of exercise divided by the then current TRT X share price.
Currently that dilutive effect is about approximately 3.25% for two and a half million shares.
And with that we'd be pleased to take your questions operator.
Thank you, we'll now be conducting a question and answer session in the interest of time, we ask that you. Please limit yourself to one question and one follow up.
You would like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is on the question queue. You May press star two if you'd like do you have a question from the queue for participants using speaker equipment may be necessary to pick up your handset before pressing the star keys, one moment. Please poll for your questions.
Our first question comes from the line of Stephen Laws with Raymond James. Please proceed with your question.
Hi, good morning first.
First Greg congratulations on retirement.
Pleasure working with you and wish you well on the future.
No.
So think about portfolio growth, Bob and modeling for the year.
Can you talk about you know what if I look at the maturity schedule. It's it's.
You know Bert next maturity is a lot this year and next year, but extended maturity as a couple of years out. So can you talk about the repayment expectations.
You know as an offset to your origination outlook and how we should think about leverage trending over the course of 'twenty one.
Yes, thanks, and good morning, Stephen.
Let me, let me take the repayment in leverage and then I may ask Peter to make some comments with respect to originations.
Historically, our repayments who have ranged annually between a billion three and about 2 billion.
On that dynamic has not really changed in Covid. There there has not been as much extension as one might think for the year that just ended our repayments were in the range of $1 billion.
And our expectations for the current year are roughly the same that clearly means that some of the loans that have current scheduled.
Scheduled maturities in 2021 or are likely to extend and we're managing that very carefully.
And that will just play out during the course of the year. So I think that's a pretty reasonable expectation.
In terms of leverage assumptions.
We have reduced our leverage as have most of our competitors with respect to bank oriented borrowings.
But on the term side, which in our instance is primarily the two CLO that we have outstanding.
You know our our advance rates there are slightly above 80%, which as I said in my comments, we believe is prudent given.
Given the nonrecourse non mark to market nature of those financing. So I think you'll expect to see leverage largely unchanged.
If we were more active in the capital markets it might creep up a little bit I don't think you'll see us do that much more leverage on the bank financing side that is a healthy market the bank and insurance companies are anxious to add assets.
And we're receiving very strong quotes from them with respect to origination pipeline, but I think you'll see those advance rates range in the 75% against loan balance rather than a D and I think you'll see the higher advance rates only in our term funding arrangements Peter.
Sure. Thanks.
Actually the pipeline looks pretty good right now and we really maintained a lot of the relationships and contacts with the borrowers and brokers that we've historically done a lot of business with during 2020, and so we kept the communication lines open. So when we started to really originated again it was relatively seamless.
And we've been reaching out.
Two brokers that necessarily we don't have daily or weekly contact with our borrowers. So we feel pretty good. So overall the pipeline looks pretty decent, albeit the strike zone for I think for for US has gotten a little bit a little bit smaller we're going to look to be more heavily in multifamily. This year similar to a lot of them.
People I think you're hearing that across the board and we feel pretty good.
A decent pipeline for the rest of the year.
So to put that in numerical context, Stephen and others I think that.
You know in prior years, we typically originated between three two and $3 billion on.
On a measured by commitment.
We're currently a recycler of capital as is everyone in our space.
And so we would expect that current year originations.
Originations would probably be.
On the low end of that range is.
As opposed to the high but market conditions will largely determine how that plays out.
Great. Thanks, Thanks, Steven Thanks, Bob Yeah.
Follow up can you talk about the series B preferreds for a second winter those Lincoln that'd be.
Refinance that to a lower cost of capital is that a 'twenty two of that or or when can you reevaluate that.
Well it is.
Used to say [noise].
That's job one.
Along with maintaining the credit discipline that Matt mentioned earlier.
[noise] so retiring the series B preferred stock is truly.
Truly the most important corporate finance objective that we have on our capital markets team has for 'twenty and 'twenty one.
Specific answer to your question is that there is you'll you'll maintenance on the series B, it's effectively the present value of the dividend stream. The dividend rate is 11% through the second anniversary date of the deal which is May 28, 2022, and after that the premium is one O. Five then it steps down to one on two and a half.
For the for the third year. So we're looking very closely at that Starwood has been a great partner of ours, thus far but it is expensive capital and so the positive momentum and.
Lower funding costs that we're seeing across the you know the fixed income and hybrid debt equity.
Spectrum is obviously very interesting to us and we're pretty focused on on.
You know refunding the the series B as quickly as is.
As practicable, so we'll be weighing the cost of new funds and the accretive use of that capital with the with the make hold its too.
Alright, thanks for the comments this morning.
You bet. Thank you Steven.
Thank you. Our next question comes from the line of Charlie <unk> with J P. Morgan. Please proceed with your question.
Hey, good morning, everybody. Thanks for taking the questions today I actually have a follow up on on sort of on maturities question from earlier.
I'm looking at that chart on slide four I'm wondering if you have.
I have disclosed kind of what the asset type or property type mix is on those 21 maturities if it's pretty representative of the existing portfolio or if there's any real weightings.
Property types, there and then just sort of at a high level.
What milestones really have to be met for those extension options to be realized and then lastly realize this is a bunch of questions apologize, but if you expect any additional credit reserves on those near term maturities.
Sure well, let's take those.
Questions Charlie in the order on what you ask them first.
<unk>.
Repayment behavior, thus far as you've seen and what was reported has been.
Heavily weighted on multifamily, which should not be a surprise given.
The strength of the multifamily financing market in the presence of the Gse's in particular.
We expect that trend to continue during 2021.
Our multifamily portfolio has paid down from roughly 23% of the total book to about <unk>.
15, or 16% and we think that pace will continue so much of the repayment activity that we forecast in that you see in 2021 is multifamily related not all but much and a quick weighted to get at that is you can download the loans the mortgage loans schedule.
In excel and sort by property type.
The maturity date.
Your next question is which loans that had a scheduled maturity in 2021 do we expect will extend and what tests to borrowers need to achieve in order to exercise those extensions.
Our loan documents typically involve extension tests that include.
Eight a minimum debt yield requirement and or a.
Minimum LTV requirement, sometimes both.
And so we're able to predict with some accuracy and by staying in contact with our borrowers were able to see where we think borrowers will be able to achieve those hurdles and where they wont if they can't and we feel comfortable with our asset coverage and the business plan than an extension.
Modification.
B in order, it's difficult to predict exactly on which loans and when and if we can't then the bar is going to need to raise capital either conventionally through the mortgage market or mortgage perhaps plus mezz in order to pay us back.
But we do expect that there will be some extensions.
During 2021, and so for all of you. If you look at page four in the schedule at the bottom reality is likely to be somewhere between the blue bars on the gray bars.
And then finally your third question Charlie was with respect to.
Loan loss reserves and further reserves and the answer is we do our very best job every quarter through our portfolio reviews, and the cease of loan loss reserve process too.
Be prudent to apply the accounting pronouncements and to come up with our best estimates of.
What the expected losses across our portfolio will be over the life of the loans in that portfolio.
And so our reserve it at quarter end reflects that.
There are sometimes events and we've experienced them and so have others in the industry that are that are pretty sudden that crop up and alone that.
Was humming along all of a sudden isn't but we're comfortable with our level of reserves right now and are probably conservative at least based on what we've seen from.
Our competitors reporting.
Okay I appreciate all the color on that thank you you bet. Thank you.
I guess, what I'm trying to get one more in.
Okay. Whoever is next in the queue will graciously yield their time to you.
Apologize.
On the on the Las Vegas.
And it's really early in the process, but.
We'd love to get your thoughts on longer term plans for the asset if it's a potential sale candidate or if development is maybe on the table as well.
Well, let me take a crack at that and Peter and Matt May have some follow ons.
[noise], you'll see both arrange a discount rates and a sort of an estimated range of hold period for that asset and while there are no assurances that that will play out exactly the way that we've modeled at our expectation is Matt said is that this will be a relatively short term holes, but in a.
Old way you know we financed it we're well capitalized.
We know that market pretty well.
And so we'll be looking to maximize our value.
As we should be for shareholders.
Thanks, very much guidance that's it for me I appreciate it.
Thank you once again as a reminder, if you would like to ask a question. Please pass star one on your telephone keypad. Our next question comes from the line at 10 Hayes with B T. I D. Please proceed with your question.
Hey, good morning, guys. Thanks for taking my questions and granted best of luck to you on your next steps just on the pipeline again I I think you might've sized it earlier in the call by mistake can you I just wanted to get a little bit more color on the pipeline, how many opportunities you're evaluating right now what type of assets day largely consist of and then you know you mention.
And just the impact of competition potentially on on spreads and so what do all on coupons look like on loans in the pipeline vs. The portfolio average thanks.
Good morning to <unk> I'll, let Peter provide color the the number that I referenced in my earlier comments was three and a half billion dollars currently under under evaluation, but let me turn it over to Peter to give some color on asset classes and pricing that we're sitting in the market.
Sure sure then three and a half a three and a half billion realize a snapshot that we have right now and that generally remains pretty consistent throw out I think the vast majority of stuff that we find sort of actionable on interesting right now is in the multi family space and we have a pretty good reach into that market and so that's what we're.
Spending the vast majority of our time and.
We feel we have yeah, we could probably on three more deals that we're gonna be signing up in the next week week or so on the multifamily side. So that's really where we're gonna probably be focused over the next you know in the next 12 12 months or so we think that's that you know the best area, where we can actually have good an impact can also.
Is good risk reward scenario with respect to you know coupons and uhm really interest rates and things like that I think we should really talk about coupons here vs spread primarily to an amusement just such an unprecedented fly in in LIBOR. So libraries at 14 50 basis points or something like that right now so we're.
Really talking online coupons these days and just to give a little context on that.
Pre COVID-19 D to sort of the all in coupon that were you generally in the stripes on it was about four and a quarter to four and a half and right now on the multifamily side of the world. It's really 350 to say 375, sometimes a little bit a little bit tighter. So that's quite a bit that's quite a bit inside so we're spending time there until.
Why ABOR Flores used to be you know 150. The 175 now we're really run in with a LIBOR four of 25. The good thing about that is that it as you know.
Yeah, we're not holding my breath, but as rates on the short term start on that scale.
Increase will be picking up a little more yield on that so we feel pretty good we're price accordingly, I'd also not to be overlooked as our liabilities have gone down and and write quite a bit.
Right now that that's really helpful and that was gonna be kind of part B that question is you know you you talked about just the capital market side of things, but you know on your on your repo lines. You know have you seen funding costs come down there and just you know as banks are.
And what we heard shopping at the bit to do business and have to compete with some attractive capital markets conditions.
We have <unk> I I would say that advanced rates have returned to pre COVID-19 levels, which means for.
Well sponsored transactions in the right property types.
You know multifamily industrial I'd say stronger office business plans, you can finance up to 80% and that's consistent with a pre COVID-19 environment Uhm spreads are a little wider you know depending again on sponsorship and everything else you know spreads are sort of one.
175 ish to low to hundreds from multifamily you can probably do a little better from our perspective and my perspective.
The the really interesting thing about this market is that uhm financing markets have inverted and structured finance is now materially less costly then borrowing from banks are life insurance companies on Ah you know credit facility basis, I mentioned earlier that spread that favorable spread and favorites of Cru's yellows.
Is probably between 35, and 45 basis points fully loaded including transaction costs and so that's a pretty important in version and one that we and others are you know very focused on and I think you're likely to see quite a bit of issuance volume in that market. This year.
You know the financing market started strong across the board. The banks are very active they have a strike zone.
That mirrors ours cost of funds are a little higher advanced rates are roughly consistent that would be our summary report card.
Yeah.
No that that's most other great day color there.
Yeah. They they have a lot of cat on to put to work.
Right right.
Thanks for that and then just one one more quick one if I can [laughter] just on liquidity, you know and and your cash position. Just curious sharp you know it seems like you're playing a little bit more often sees day. Then you were a few months ago. So you know has your view on minimum cash level changed at all and if you can just give us an idea of how much you'd feel comfortable deploying at this time.
Sure. We do have a very strong cash position, we expect that to go down Peter and the originations team are doing a great job of of sourcing the kinds of business. We want to do there are also some opportunities in our liability portfolio to prune some selectively some of our higher costs borrowings.
<unk> might do in the structured finance markets typically in our industry folks have held cash that's roughly 2% to 3% of their total assets that's.
Our history supports that as well that would be a reasonable target for us there are some variables that influenced that the more revolving capacity you have on your credit facilities, whether they're secure door unsecured the lower cash balance is one can hold and so as we.
<unk> continued optimizer capital structure, I think you'll see our cash levels diminish even further but but they'll still be healthy you know and they always happen one wants to be prepared for the unexpected.
Fair enough thanks for the color Bob <unk>.
You bet.
Michelle.
Back to the queue.
Thank you we have reached the end of our question and answer session I'd like to turn the call back over to Mister Coleman for any closing remarks.
Thank you.
To conclude I'm excited about our progress in our path forward and look forward to getting to know those of you if not already met.
Thank you again for your interest into your T S and will speak to next quarter. Thank you.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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