Q2 2021 Tremont Mortgage Trust Earnings Call

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Good day and welcome to the trim on mortgage Trust second quarter 2021 financial results conference call and.

All participants will be in a listen only mode should you need assistance. Please signal of the conference specialist by per.

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After today's presentation there'll be an opportunity to ask questions.

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I would now like to turn the conference over.

Kevin Berry manager of Investor Relations. Please go ahead.

Thank you and good morning, everyone and thanks for joining us today with me on the call, our President and Tom Lorenzini, and Chief Financial Officer, and Treasurer, Doug, Illinois, and just the moment they will provide details about our business and our performance for the second quarter of 2021.

We will then open the call for a question and answer session with sell side analysts 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 $19.95, and other security.

Pause.

These forward looking statements are based on tiara, and <unk> beliefs and expectations as of today Wednesday July 28, 2021, and actual results may differ materially from those that we project.

The company undertakes no obligation to revise and publicly release the results of any revision to the forward looking statements.

Curious what today's conference call and additional information concerning factors that could cause those differences is contained in our filings with the securities and exchange Commission or SEC, which can be accessed from the SEC's website investors are cautioned not to place undue reliance upon any forward looking statements.

In addition, our discussion regarding the pending merger of Trs.

T are empty and our MRM does not constitute an offer to sell or the solicitation of an offer to buy any securities or solicitation of any vote or approval and connection with the merger. Our MRM is filed with the SEC a registration statement on form S..4 containing the joint proxy statement prospectus and other doctors.

Documents with respect to the merger.

Investors are urged to read the joint proxy statement prospectus, including all of amendments and supplements and and the other documents filed or to be filed with the SEC and in connection with the merger or incorporated by reference and the joint proxy statement prospectus, because they contain and will contain important information.

And merger.

Information regarding potential participants and any proxy solicitation of tier empty and RMR and shareholders and a description of their direct and indirect interest by security holdings or otherwise are contained in the joint proxy statement prospectus.

And finally, we will be discussing non-GAAP numbers. During this call include.

<unk> distributable earnings and adjusted distributable earnings for a reconciliation of net income determined in accordance with GAAP to distributable earnings and adjusted distributable earnings. Please see our quarterly earnings release, which is available on our website.

I will now turn the call over to Tom.

Thank you Kevin good morning.

And about the 1 and welcome to the second quarter earnings call for mortgage Trust.

And we'll begin with an update on the <unk> second quarter performance and will provide some details on our loan portfolio and investment pipeline.

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

During the second quarter, we continued to execute on our business objectives.

Morning, everyone of invested capital and the first mortgage loan secured by middle market and transitional commercial real estate.

The <unk> portfolio continues to perform well with all of our loans are current on debt service and our risk rating continues to remain stable.

We generated adjusted adjusted distributable earnings of <unk> 25 per share and earlier.

Jack the month, our board maintained our quarterly distribution to shareholders of <unk> 10 per share.

Consistent with what we paid in May.

We also remain on track for our merger with RMR mortgage trust during the quarter, we filed our S..4 joint proxy and registration statement with the SEC, which became effective earlier. This week, we encourage all.

All of our shareholders to read these materials as they contain important information about the merger.

On September 17th and we are holding a special meeting with shareholders will vote, whether to adopt the merger agreement, although we urge all of our shareholders to submit their vote as soon as possible.

The shareholder approval, we expect to close the transaction later this quarter.

This is a tremendous opportunity for our shareholders to bring together 2 highly complementary businesses that will create a larger more diversified commercial mortgage REIT approaching $1 billion of assets when fully invested.

With increased scale and the greater financial strength, we believe the combined company will be much better positioned to pursue which focus on commercial mortgage.

Average lending drive earnings growth and deliver more attractive risk adjusted returns over the long term.

Based on the compelling benefits of the transaction CRM Tees Board recommends the shareholders vote for the merger proposal.

And we join our board and the recommendation and look forward to the successful combination of Trs <unk>.

And our MRM.

Now turning to our investment activity during the second quarter, we closed on a first mortgage whole loan of $15.2 million to refinance the Denver area office property.

The collateral price.

As of 2 multi tenant office buildings totaling approximately 125000 square feet. The loan includes an initial.

Funding of $13.5 million and future advances of up to $1.7 million with an initial long term of 3 years.

This low and fits well within our program of lending and our middle market transitional real estate with a stable current rent roll and likely enhanced collateral value as our borrower execution of their business plan.

We received the early repayment of our industrial loan and Barrington, New Jersey, with an outstanding principal amount of $36.2 million, which we used to pay down our Citi repurchase facility.

We also amended our loan secured by an office building in Houston, Texas. The loan was extended by 45 days until August 10, all of the sponsor finalizes the reference to refinance.

Our $14.5 million position.

We expect this loan to pay of maturity.

We also anticipate repayments during the third quarter from 3 of additional loans with an aggregate outstanding principal balance of $60.7 million.

Based on this anticipated repayment activity, we expect to have approximately $100 million of dry powder.

Available for new investments during the third quarter.

As of June 30, we had approximately $246 million and aggregate loan commitments consisting of 13 first mortgage whole loans with a weighted average loan to value of 65% and a weighted average maximum maturity of 2.2 years when including extension options.

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Our portfolio of 100% floating rate and all of our loans of act of LIBOR floors.

The portfolio had a weighted average coupon of 5.6% and and all in yield of 6.4% at quarter and our investments continue to be broadly diversified across geographies and property types.

Options, we continue to monitor the execution of our borrowers business plans and remain pleased with the ongoing strength of our investments none of our loans are and default and we have not recorded any credit losses.

The weighted average risk rating of our portfolio was stable at 3 of which speaks to the strong credit quality of our borrowers and our managers' ability to originate high quality loans.

During the second quarter, we upgraded 2 loans, our Houston, Texas Office loan was upgraded 2 of 3 based on our improved assessment of energy market office fundamentals and.

And we upgraded our double on Ohio loan from a $3.2 of 2 ratings driven by progress on the underlying business plan, which resulted in a substantial increase in debt yield and desktop <unk> exceeding our originally.

Britain estimates.

We did not have any downgrades.

Looking at the risk distribution of our loan book approximately 70% of our portfolio was rated 3 or better and none of our loans are rated at 5.

During the second half of 2021, we are focused on reinvesting in our available capital into strong credit opportunity.

On the under backed by high quality properties and sponsors with business plans that meet our investment return and credit criteria.

We expect increased deal flow will continue and the second half of the year as acquisition activity continues to increase and has remained strong this summer which is typically a slower season for transaction volume.

Our manager Tramontin.

<unk> advisors under their trade named Paramount Realty capital remains active and the bridge loan market with a healthy deal pipeline comprised of more than 20 potential transactions totaling over $600 million.

And various stages of review underwriting and diligence, including office retail multifamily and hospitality.

The debt markets.

To be marked by significant amount of liquidity seeking yield, creating a very competitive landscape further driving down pricing.

Competition for land and the quality properties as frequently coming from banks and addition to other mortgage Reits debt funds and life insurance companies.

With the continuing improvement and the economy and the availability of the Covid vaccine lenders such.

Much of CRM T are beginning to expand beyond multifamily lab office, and industrial which have been the preferred property types over the last year to once and once again include retail and hospitality along with niche products, such as self storage and manufactured housing.

This increase of the universe of investment opportunities as we continue to focus.

And new loans, the best align with our investment strategy and meet our required risk adjusted returns on capital.

We currently of 2 loans and diligence the backfill approximately $63 million of Tllp's recent and expected loan repayments..1 loan provides the acquisition financing for a class a multifamily property in Portland, Oregon, which.

Which we expect to.

Focus on and the next week. The second is for an acquisition financing for an office property outside of Dallas that we anticipate closing during the third quarter subject to our final diligence.

And with that on I'll turn it over to the dog of to review our quarterly financial results Doug.

Thank you Tom and good morning, everyone. Thank you for joining our call.

<unk> second quarter financial results reflect the adverse impact of transaction expenses, we incurred related to the proposed merger with RMR mortgage trust as well as our loan repayment activity during the first half of 2021.

We generated distributable earnings of $226000 of <unk>.

Per diluted share.

Excluding $1.8 million of merger transaction costs are.

Our adjusted distributable earnings came in at $2 million for 25 per weighted average diluted share.

This compares to the distributable earnings of 27.

And the prior quarter.

Our earnings continue to benefit from strong portfolio performance and in the money LIBOR floors embedded in our loans and.

Interest income from our investments for the quarter was $4.8 million driven by for quarter interest payments on 12 loans and partial quarter interest payments on the loan that repaid and the.

Originated during the second quarter.

Interest and the related expenses incurred from borrowings on our master repurchase facility was $988000, resulting in income from investments net of approximately $3.2 million for the quarter.

As presented in our supplemental financial package.

New loan on weighted average all in yield on the investments as of June 30 of 6.4%. This includes our weighted average LIBOR floor of 194 basis points, a weighted average spread of 366 basis points and amortization of loan fees.

Total expenses were approximate.

Approximately $3.1 million during the second quarter.

And this includes $1.8 million of transaction costs.

Related to the merger with RMR.

General and administrative expenses totaled $685000.

Including $128000 of noncash equity based compensation.

The shared service expense reimbursement amounts of $206000 TMT did not record any management incentive fees during the second quarter.

Earlier this month, we announced the regular quarter distribution of <unk> 10 per share or approximately $831000, which we paid in August.

Looking ahead to closing the merger.

In order to maintain compliance with REIT taxation requirements.

We will need to declare and pay a special distribution to shareholders of at least 90% of Pmt's taxable income prior to the closing of the merger Arb.

And our board will determine the amount necessary based on the <unk> financial performance.

Turning now.

To our balance sheet at.

And at the end of the second quarter, we had $8.3 million and cash which is intended to meet our liquidity requirements and fund future loan obligations.

Our loans held for investment net total approximately $238 million.

A decrease of $22 million from last quarter, driven by our net.

For repayments during the second quarter.

As of June 30, and.

We had an outstanding principal balance on our master repurchase facility of $156 million and.

And unused and <unk>.

Capacity of $57 million.

During the quarter, we paid down $38 million of outstanding balances and bar of.

$14 million to fund, our new loan origination.

Operator, this concludes our prepared remarks.

We will now take questions from sell side analysts.

Ladies and will now begin the question and answer session to ask a question you May Press Star then 1 on your <unk>.

Touchtone phone.

Good day, and using a speakerphone, please pick up the handset before pressing the keys.

And that anytime you question has been addressed and you would like to withdraw your question. Please.

The fifth Star then at this time, we will pause momentarily to assemble the roster.

Okay.

Okay.

And.

Okay.

Okay.

And we have no questions I would like to turn the conference back over to Thomas Lorenzini precedent of shaman market stress for any closing remarks.

Thank you operator, and thanks, everyone for joining us today.

This concludes our call.

Okay.

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

And then.

And then.

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