Q1 2024 TPG RE Finance Trust Inc Earnings Call
Good morning, ladies and gentlemen, and thank you for standing by and welcome to the TPG Real estate Finance Trust's first quarter 2024 earnings conference call.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the TPG Real Estate Finance Trust first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Should you require operator assistance during the conference, please press star zero to signal an operator. Please note this conference is being recorded. It is now my pleasure to turn the call over to the company. Thank you. Good morning.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation should you require operator assistance during the conference. Please press star zero to signal an operator. Please note. This conference is being recorded.
Speaker Change: Now my pleasure to turn the call over to you to the company. Thank you you may begin.
Operator: Good morning, and welcome to TPG RE Finance Trust's conference call for the first quarter of 2024. We're joined today by Doug Bouquard, Chief Executive Officer, and Bob Foley, Chief Financial Officer. Doug and Bob will share some comments about the quarter, and then we will open the floor for questions.
Speaker Change: Good morning, and welcome to keeping G. R E Finance Trust's conference call for the first quarter of 'twenty 'twenty four rejoin.
Speaker Change: We are joined today by Doug Black card, Chief Executive Officer, and Bob Foley Chief Financial Officer.
Speaker Change: Doug and Bob will share some comments about the quarter and then we will open the floor for questions yesterday evening. The company filed its Form 10-Q and issued a press release and earnings supplemental with a presentation of operating results all of which are available on the company's website in the Investor Relations section.
Operator: Yesterday evening, the company filed its Form 10-Q and issued a press release in earnings supplemental with a presentation of operating results, all of which are available on the company's website in the investor relations section. As a reminder, today's call may include forward-looking statements that are uncertain and outside of the company's control. Actual results may differ materially.
Speaker Change: As a reminder, today's call may include forward looking statements, which are uncertain and outside of the company's control actual results may differ materially.
Operator: For discussion of risks that could affect results, please see the risk factor section of the company's Form 10-Q and Form 10-K. The company does not undertake any duty to update these statements, and today's call participants will refer to certain non-GAAP measures. And for reconciliations, you should refer to the press release and the Form 10-Q. At this time, I'll turn the call over to Doug Bouquard, Chief Executive Officer.
Speaker Change: For a discussion of risks that could affect results. Please see the risk factors section of the company's Form 10-Q and Form 10-K.
Speaker Change: The company does not undertake any duty to update these statements in today's call participants will refer to certain non-GAAP measures and for reconciliations you should refer to the press release and the Form 10-Q.
Speaker Change: At this time I'll turn the call over to Doug Burkhardt, Chief Executive Officer, Doug.
Doug Bouquard: Thank you Chris.
Doug Bouquard: Good morning, and thank you for joining the call. Since the beginning of the year, the economy and labor markets have continued to be remarkably resilient across the U.S. The market remains highly confident in a soft landing for the U.S. economy, and global demand for risk assets remains strong. However, more recently, inflation has proved challenging to tame, and the interest rate market has adjusted its expectations for rate cuts in 2024 over the past few months. Furthermore, the 10-year Treasury yield has moved nearly 80 bps during the first four months of the year and is now approaching 4.7%.
Doug Bouquard: Good morning, and thank you for joining the call.
Doug Bouquard: At the beginning of the year, the economy and labor markets continued.
Doug Bouquard: Continued to be remarkably resilient across the U S market remains highly confident in a soft landing for the U S economy and global demand for risk assets remain strong.
Doug Bouquard: More recently, however, inflation has proved challenging to team and the interest rate market has adjusted its expectations for rate cuts in 2024 over the past few weeks.
Doug Bouquard: Further the 10 year Treasury yield has moved nearly 80 bps. During the first four months of the year and is now approaching four 7%.
Doug Bouquard: Within broad credit markets, corporate credit spreads are at multi-year tights, while real estate credit spreads have rallied in certain areas, but they do continue to underperform on a relative basis. Once again, this combination of factors provides mixed signals to real estate investors. On the one hand, broad market demand for risk assets, a strong economy, and low unemployment should provide tailwinds for real estate valuation, and we do see these trends flowing through in our portfolio. On the other hand, a volatile and elevated interest rate environment tends to reduce transaction activity, put pressure on values, and increase the financial burden on borrowers.
Doug Bouquard: But the broad credit markets corporate credit spreads are at multi year tights, while real estate credit spreads have rallied in certain areas, but do you continue to underperform on a relative basis.
Doug Bouquard: Once again this combination of factors provide some mixed signals to real estate investors on one hand broad market demand for risk assets, a strong economy and low unemployment should provide a tailwind for real estate valuation.
Doug Bouquard: And we do see these trends flowing through in our portfolio.
Doug Bouquard: On the other hand, a volatile and elevated interest rate environment tends to reduce track transaction activity have pressure on values and increase the financial burden on borrowers. This uncertainty is compounded by the shifts we are seeing within the real estate credit landscape.
Doug Bouquard: This uncertainty is compounded by the shifts we are seeing within the real estate credit landscape. From a lending perspective, banks continue to retreat from direct lending and pivot their attention to loan-on-loan financing, which does benefit TRTX by providing attractive funding sources for its loan portfolio and new origination. We continue to invest TRTX's balance sheet with these competing forces in mind, and our quarterly results reflect our strategic position. During the first quarter of the year, our approach to capital deployment and risk management remained consistent with prior quarters.
Doug Bouquard: A lending perspective banks continue to retreat from direct lending and payment. They are attaching to aloha loan financing, which does benefit TRT X by providing attractive funding sources for its loan portfolio and new originations.
Doug Bouquard: We continue to invest TRT excess balance sheet, but these competing forces in mind and our quarterly results reflect our strategic positioning.
Doug Bouquard: During the first quarter of the year, our approach to capital deployment and risk management remained consistent with prior quarters given the market backdrop, we continue to focus on one maintaining elevated levels of liquidity to proactively risk managing our investment portfolio and then three.
Doug Bouquard: Given the market backdrop, we continue to focus on, one, maintaining elevated levels of liquidity, two, proactively risk managing our investment portfolio, and then three, continuing to position our balance sheet to be able to take advantage of the dislocation of lending markets in 2024 and beyond. Over the past quarter, TRTX's performance reflects both the dedicated focus of our asset management team and the benefits of TPG's broad global investment platform. Our loan portfolio is 100% performing, and both our CECL reserve and risk ratings reflect very modest changes over the past quarter.
Doug Bouquard: Turning to balance sheet to position our balance sheet to be able to take advantage of the dislocation in lending markets in 2024 and beyond.
Doug Bouquard: Over the past quarter TRT excess performance reflects both the dedicated focus of our asset management team and the benefits of Tpg's broad global investment platform. Our loan portfolio was 100% performing in both our seasonal reserve in risk ratings reflect very modest changed over the past quarter from a property type perspective, 50% of our launch.
Doug Bouquard: From a property-type perspective, 50% of our loan portfolio is multifamily. Despite the pressures on values within the multifamily sector, we continue to see ample liquidity for both debt and equity transactions. While we acknowledge the Fed's signaling to slow rate cuts may put pressure on both near-term values and borrowing costs, we remain confident in the long-term underlying fundamentals of the housing sector. In terms of new investments during the quarter, we originated three senior mortgage loans totaling $116 million, 100% of which are secured by multifamily properties.
Doug Bouquard: Portfolio is multifamily despite the pressures on values within the multifamily sector. We continue to see ample liquidity for both debt and equity transactions, while we acknowledged the feds sink spent signaling to slow rate cuts may put pressure on both near term values and borrowing costs. We remain confident in the long term underlying fundamentals of the housing sector broadly.
Doug Bouquard: Okay.
Doug Bouquard: In terms of new investments during the quarter, we originated three senior mortgage loans totaling $116 million, 100% of which these loans are secured by multifamily properties. We continue to prefer lending in the sector given the downside protection is available in today's market environment.
Doug Bouquard: We continue to prefer lending in this sector given the downside protections available in today's market environment. From a liquidity and leverage perspective, we ended the quarter with $370 million of liquidity across both cash and other available liquidity channels and a debt-to-equity ratio of 2.21. While the discount to book value at our current share price has compressed since we last spoke, we continue to believe that this discount is significant and that our shares offer a compelling value proposition at today's price.
Doug Bouquard: Our liquidity and leverage perspective, we ended the quarter with $370 million of liquidity across the cash and other available liquidity channels and a debt to equity ratio of 2.21 well.
Doug Bouquard: The discount to book value at our current share price has compressed since we last spoke we continue to believe that this discount is significant and that our shares offer a compelling value proposition at today's price.
Doug Bouquard: To that end, on April 25th, our board of directors approved a share repurchase plan of up to $25 million, demonstrating the board and management's confidence in the value of TRTF shares. In summary, the past quarter represented an important turning point for TRTX as we began to deploy capital with a slightly more offensive bet. The resources and deep experience of TPG's real estate debt and equity investment platform give us unique insights into valuation shifts and capital flows across the real estate landscape.
Doug Bouquard: To that end on April 25th our board of directors approved a share repurchase plan of up to $25 million, demonstrating the board and management's confidence in the value of <unk> shares.
Doug Bouquard: In summary, the past quarter represented an important turning point for TRT acts as we begin to deploy capital with a slightly more offensive bet.
Doug Bouquard: The resources and deep experience of Tpg's real estate debt and equity investment platform grants us unique insights into evaluation shifts in capital flows across the real estate landscape, while we acknowledge elevated borrowing costs may increase financial stress on our borrowers we remain confident in our ability to navigate the ever evolving real estate credit landscape and are pleased with how our coffee.
Doug Bouquard: While we acknowledge elevated borrowing costs may increase financial stress on our borrowers, we remain confident in our ability to navigate the ever-evolving real estate credit landscape and are pleased with how our company is positioned to create long-term shareholder value. With that, I will turn it over to Bob for a more detailed summary of this quarter's performance.
Doug Bouquard: Is positioned to create long term shareholder shareholder value.
Doug Bouquard: With that I'll turn it over to Bob for a more detailed summary of this quarter's performance.
Robert R. Foley: Thanks, Doug Good morning, everyone and thank you for joining us our first quarter results reflect the benefit of a 100% performing loan portfolio.
Robert R. Foley: Thanks, Doug. Good morning, everyone, and thank you for joining us.
Robert R. Foley: Our first-quarter results reflect the benefit of a 100% performing loan portfolio, a further reduction in interest expense due to continued optimization of our liability structure, including a reduction of interest expense quarter over quarter of $7.4 million, or $0.10 per share, and nearly full deployment of approximately $247.2 million of reinvestment cash and our FL5 CRE CLO. The quarterly gap net income attributable to common shareholders was $13.1 million as compared to $2.6 million for the preceding quarter.
Robert R. Foley: Further reduction in interest expense due to continued optimization of our liability structure.
Robert R. Foley: Including the reduction of interest expense quarter over quarter $7 4 million.
Robert R. Foley: Sure Andy.
Robert R. Foley: Nearly full deployment of approximately $247 2 million in reinvestment cash in.
Robert R. Foley: Oh, five CRE CLO.
Robert R. Foley: For the quarter GAAP net income attributable to common shareholders was $13 1 million.
Robert R. Foley: As compared to $2 6 million for the preceding quarter net.
Robert R. Foley: The net interest margin for our loan portfolio was $26.8 million versus $21.3 million in the prior quarter, an increase of $5.5 million, or $0.07 per common share, due to further optimization of our liability structure and the absence of higher-cost financing for non-performing loans, of which we have none. Our weighted average credit spread and borrowings declined quarter over quarter to 195 basis points from 204 basis points. Distributable earnings were $23.3 million, or $0.30 per share.
Robert R. Foley: Net interest margin for our loan portfolio was $26 8 million versus $21 3 million in the prior quarter, an increase of $5 5 million or seven cents per common share.
Robert R. Foley: Due to further optimization of our liability structure and the absence of higher cost financing for nonperforming loans of which we have not.
Robert R. Foley: Our weighted average credit spread and borrowings declined quarter over quarter to 195 basis points and 204 basis points.
Robert R. Foley: Distributable earnings were $23 3 million or <unk> 30 per share.
Robert R. Foley: Coverage in the quarter for the quarter of our 24 cent dividend was 1.25 times. Distributable earnings before realized credit losses was $23.3 million or $0.30 per share versus $24.4 million or $0.31 per share in the prior quarter due to an improvement in net interest margin offset by a reduction in non-cash credit loss expense, or ceased-to-reserve increased slightly. To $74.1 million from $69.8 million, due primarily to worsening macroeconomic and generic loan default and loss data embedded in the TREP database and model we use to forecast our general CECL loan loss reserve. However, we had no five-rated loans, no specifically identified loans, and thus no specific CECL loan loss reserve according. Our CESA reserve was 210 basis points versus 190 basis points on the prior. The total value per share is $11.81.
Robert R. Foley: Coverage in the quarter for the quarter of our 24 cent dividend was 1.25 times.
Robert R. Foley: Distributable earnings before realized credit losses was $23 3 million or <unk> 30 per share versus $24 4 million or <unk>.
Robert R. Foley: 31 cents per share in the prior quarter due to an improvement in net interest margin offset by a reduction in noncash credit loss expense.
Robert R. Foley: Our system reserve increased slightly.
Robert R. Foley: [noise] to $74 1 million from $69 8 million.
Robert R. Foley: Due primarily to worsening macroeconomic and generic non default and loss scatter.
Robert R. Foley: Embedded in the truck database model, we've used to forecast our general C. So loan loss reserve we.
Robert R. Foley: We had no five rated islands no specifically identifiable islands, thus no specific seasonal loan loss reserve at quarter end our.
Robert R. Foley: <unk> reserve was 210 basis points versus 190 basis points from the prior.
Robert R. Foley: Book value per share is $11.81.
Robert R. Foley: As compared to $11.86 last quarter, this is due primarily to the slight increase in our CESA reserve. Multifamily now represents 50% of our loan portfolio. Office has declined 68% over the past nine quarters to 20.4%.
Robert R. Foley: As compared to $11.86 last quarter due primarily to the slight increase in our <unk> reserve.
Robert R. Foley: Multifamily now represents 50% of our loan portfolio office has declined 68% over the past nine quarters to 24%.
Robert R. Foley: Life Sciences is 11.4%, Hotel is 9.9%, and no other property type comprises more than 3.3% of our portfolio. Regarding REO, we have five REO properties, one multifamily property, and four office properties with a total carrying value of $192.4 million and a blended current annualized yield on cost of 6%. Ariel represents a mere 5% of our total assets.
Robert R. Foley: Life Sciences is 11, 4%.
Robert R. Foley: Hotel is nine 9% and no other property type comprises more than three 3% our portfolio.
Robert R. Foley: Regarding Oreo, we have five Oreo properties, one multifamily property and floor office properties with a total carrying value of <unk>.
Robert R. Foley: $192 4 million and a blended current annualized yield on cost of 6%.
Robert R. Foley: Are you all represents a mere 5% our total assets.
Robert R. Foley: Using the substantial resources of TPG Real Estate, we made significant progress during the quarter in advancing value creation and realization strategies for each REO investor. Regarding our multifamily property in suburban Chicago, we've already improved lease occupancy by more than 10 points to 93%. Refer to footnote four of our financial statements for a snapshot of our REO report. Regarding credit, our weighted average risk ratings were unchanged at 3.0.
Robert R. Foley: Using the substantial resources of TPG real estate, we made significant progress during the quarter in advancing value creation and realization strategies for each investment.
Robert R. Foley: Regarding our multifamily property in suburban Chicago, we've already improved leased occupancy by more than 10 points to 93%.
Robert R. Foley: Refer to footnote four of our financial statements for a snapshot of our Oreo portfolio.
Robert R. Foley: Regarding credit.
Robert R. Foley: Weighted average risk ratings were unchanged at three point out all of our loans were performing we had a small number of changes in risk ratings. During the first quarter refer to page 52 of our Form 10-Q for more detail.
Robert R. Foley: All of our loans were performing well, and we had a small number of changes in risk ratings during the first quarter. Refer to page 52 of our Form 10-Q for more details. Regarding liabilities in our capital base, we remain focused on maintaining high levels of non-mark-to-market, non-recourse term financing. At quarter ends, such arrangements represented 77.1% of our borrowers, as compared to 73.5% on December 31st. Our total leverage declined further to 2.2 to 1 from 2.5 to 1 on December 31st.
Robert R. Foley: Regarding liabilities in our capital base, we remain focused on maintaining high levels of non mark to market nonrecourse term financing.
Robert R. Foley: At quarter end, such arrangements represented 77, 1% of our borrowings as compared to 73, 5% at December 31st.
Robert R. Foley: Our total average declined further to two two to one from two and a half to one at December 31st.
Robert R. Foley: We have $4.7 billion of total financing capacity across 12 discrete financing arrangements. During the quarter, we extended the investment period under our existing secured credit facility with Goldman Sachs for two additional years through 2026 and tacked on a two-year term out provision through 2028. Our only scheduled debt maturity in 2024 is $1.8 million under a credit facility we expect to extend or repay and terminate during the second quarter. We were in compliance with all financial covenants at March 31st, 2020. At quarter end, we have $51 million of reinvestment capacity available, which we used in mid-April.
Robert R. Foley: We have $4 7 billion of total financing capacity across 12 discrete financing arrangements.
Robert R. Foley: During the quarter, we extended the investment period under our existing secured credit facility with Goldman Sachs for two additional years through 2026 and tacked on a two year term loan provision through 2028.
Robert R. Foley: Our only scheduled debt maturity in 2024 is $1 8 million under our credit facility, we expect to extend or repay and terminate during the second quarter.
Robert R. Foley: We were in compliance with all financial covenants at March 31, 2024.
Robert R. Foley: The corner and we have $51 million of reinvestment capacity available, which we used in mid April.
Robert R. Foley: We deploy into loans during the quarter roughly $196.2 million of reinvestment cash. Reinvestment windows are now closed for all three of our extant CRE CLOs, although we remain able to substitute and exchange loans under certain circumstances.
Robert R. Foley: We deployed into loans during the quarter, roughly $196 2 million of reinvestment cash.
Robert R. Foley: The reinvestment Windows are now closed for all three of our accident CRE CLO, although we remain able to substitute in exchange loans under certain circumstances.
Robert R. Foley: Regarding liquidity, we maintain high levels of immediate and near-term liquidity, roughly 9.7% of total assets. Cash and near-term liquidity was $370.7 million at quarter end, comprised of $188.1 million of cash in excess of our cover. And finally, I'd like to thank all of our panelists for joining us today. Thank you. Thank you. Thank you.
Robert R. Foley: Regarding liquidity, we maintain high levels of immediate and near term liquidity.
Robert R. Foley: Nine 7% total assets cash and near term liquidity was $370 7 million at quarter end.
Robert R. Foley: Priced at $188 1 million of cash in excess of our covenant requirements.
Robert R. Foley: The $1 million of CLO reinvestment cash since deployed.
Robert R. Foley: And $116 6 million of Undrawn capacity under our secured credit agreements as of last Friday, our cash position in excess of covenant requirements was actually higher.
Robert R. Foley: 235.5 million due to loan repayments and receipt of a $26 million service or receivable, which was connected with a loan sale that closed during the fourth quarter of 2023. During the quarter, we funded $10.7 million of commitments under existing loans. At Quarter End, our deferred funding obligations under existing loan commitments totaled only $163.8 million, a mere 4.6% of our total. In summary, a quarter characterized by strong operating performance, solid credit, further optimization of our liability structure in terms of cost, non-mark-to-market borrowings and extended tenor, and significant liquidity for a balanced stance versus the market. And with that, we'll open the floor to questions. Operator?
Robert R. Foley: $235 5 million.
Robert R. Foley: Due to loan repayments and receipt of a $26 million servicer receivable.
Robert R. Foley: In connection with the loan sale that closed during the fourth quarter of 2023.
Robert R. Foley: In the quarter, we funded $10 7 million of commitments under existing loans.
Robert R. Foley: Quarter end, our deferred funding obligations under existing loan commitments totaled only $163 8 million a mere four 6% our total loan commitments.
Robert R. Foley: In summary, a quarter characterized by strong operating performance solid credit further optimization of our liability structure in terms of cost non mark to market borrowings and extended tenor.
Robert R. Foley: And significant liquidity to the balanced stance versus the market.
Speaker Change: And with that we'll open the floor to questions.
Speaker Change: Operator.
Operator: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. If at any time you wish to remove your question from the queue, please press star 2. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question is from Stephen Laws, with Raymond James.
Speaker Change: Thank you at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Operator: If at any time, you wish to remove your question from the queue. Please press star two.
Speaker Change: Participants using speaker equipment may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Our first question is from Stephen laws with Raymond James.
Stephen Albert Laws: Hi, good morning.
Stephen Albert Laws: Good morning. Congratulations on a nice start to the year, Bob and Doug. You know, it's nice to see stability here over the last couple of quarters. I wanted to touch on the CLO. I think there was around $50 million of replenishment capacity at quarter end. Did that get filled with a loan that was funded on a bank line, or were there some originations post-quarter end? Can you talk about that and maybe more generally about your origination pipeline and how you think about moving leverage from the current 2-2 over the course of this year? Good morning.
Stephen Albert Laws:
Stephen Albert Laws: Congrats on a nice start to the year, Bob and Doug job in a nice to see.
Stephen Albert Laws: Stability here over the last couple of quarters.
Stephen Albert Laws: Wanted to touch on the CLO I think it was around $50 million of replenishment capacity at quarter end. It did that get filled with alone that was funded on our bank line are or were there. Some originations post quarter end can you can you talk to.
Stephen Albert Laws: That and maybe more generally kind of your origination pipeline and how you think about moving leverage from a credit to two over the course of this year.
Robert R. Foley: Good morning, Steven, and thanks for joining us. With respect to the $51 million of CLO cash that we deployed in April after quarter end, in that particular instance, we actually took an existing loan that had been financed with a bank and deposited it into the CLO, which actually generated about $11 or $12 million of cash. You know, we borrowed less from our bank counterparty with respect to that loan than there was cash in the CLO.
Speaker Change: Good morning, Stephen and thanks for joining us.
Stephen Albert Laws: With respect to the $51 million of CLO cash that we deploy and in April after quarter end.
Stephen Albert Laws: In that particular instance, we actually took an existing loan that had been financed with the bank.
Speaker Change: And the positive.
Stephen Albert Laws: It into.
Stephen Albert Laws: The CLO, which actually generated about 11 or $12 million of cash we were.
Stephen Albert Laws: We have borrowed less from our bank counterparty with respect to that world than there was cash in the CLO. So we ended up netting about 11 or $12 million on our balance sheet cash as a consequence of that.
Robert R. Foley: So we ended up netting about eleven or twelve million dollars on our balance sheet cash as a consequence of that redeployment. And the cost of funds was, you know, it's clearly lower in the CLO than it was on, And the coupon on the loan didn't change. Its residence is now different. CLO, not a bank. And I'm going to ask Doug to address your question about the Investment Act.
Stephen Albert Laws: Redeployment and the cost of funds was.
Stephen Albert Laws: It was clearly lower than the <unk>.
Stephen Albert Laws: In the CLO then it was asked and answered.
Stephen Albert Laws: And the coupon on the loan didn't change its residents is now different CLO not a bank financing.
Stephen Albert Laws: And I'm going to ask Doug to address your question about.
Doug: Investment activity.
Doug Bouquard: Thanks, Stephen. So on the investment side, we're excited about the fact that we're kind of hitting on more offensive and have a very active pipeline currently. If you look at our originations in the 1st quarter, which were 100% multifamily, we do still favor that sector, particularly now being able to deploy capital at what is a lower LTB. Combined with, you know, obviously, values are lower than where they were in 2020. We still need to work out the details.
Doug: Thanks Steven.
Doug: On the investment side.
Doug: We're excited about the fact that activity.
Doug: Activity more offensive.
Doug: Reactive pipeline currently.
Doug: If you look at our originations in the first quarter, which was a 100% multifamily we do still.
Doug: Favre that sector, particularly now being able to deploy capital at.
Doug: What is the lower LTV.
Doug: Combined with values.
Doug: Values are lower than where they were in 2021.
Doug: Don't need for Calvin.
Doug Bouquard: But two, you know, we're being selective. I think I mentioned earlier in my remarks about the sort of mixed signals that we're getting from both the macro picture and then also locally within real estate. So we're being respectful of where we are within the market cycle, but we are definitely able to play offense. We continue to pursue new investment opportunities to help drive earnings growth.
Doug: John.
Doug: But frankly, we're being selective I think I mentioned earlier in my remarks about mixed signals that we're getting.
Doug: From both the sort.
Doug: Sort of macro picture and also locally within the real estate. So it will be respectful of where we are within the market cycle.
Doug: Definitely able to play offense.
Doug: That will continue to pursue investment opportunities to help drive.
Doug: Earnings freshmen.
Speaker Change: Great appreciate the color on both of those topics.
Stephen Albert Laws: Great. I appreciate the color on both of those topics.
Speaker Change: Rob wanted to touch base on the <unk>.
Doug: <unk> side, and you mentioned that the end of your prepared remarks about the the Morgan Stanley facility that matures I think at the end of this week.
Doug: You really don't have anything drawn download it right. So curious.
Doug: Thoughts on.
Rob: You know the pros and cons of extending it versus letting it expire.
Rob: Even without it you still have excess of $1 billion of capacity on your bank clients. You know what are the commitment fees that you would have to pay if you extend it and then.
Doug: You know a larger picture of debt covenants coverage ratios I know it reverted back to 1.4 at quarter end and you're in compliance with that you can maybe update us on where you stand with the ratio.
Stephen Albert Laws: Bob, I wanted to touch base on the debt side. And you mentioned this in your prepared remarks about the Morgan Stanley facility that matures, I think, at the end of this week. But you really don't have anything drawn down on it, right?
Speaker Change: Sure So first with respect to.
Robert R. Foley: So curious to hear your thoughts on the pros and cons of extending it versus letting it expire. You know, even without it, you still have an excess of a billion dollars of capacity on your bank lines. You know, what are the commitment fees that you would have to pay if you extended it? And then, you know, larger-picture debt covenants, coverage ratios. I know it reverted back to 1.4 at quarter end, and you're in compliance with that. Can you maybe update us on where you stand with the ratio?
Speaker Change: Our particular arrangement with Morgan Stanley Morgan Stanley has been an important financing partner of ours.
Speaker Change: Since we went public in 2017, we've got a great relationship with them and they with us.
Doug: I think we don't have much far out with them right now for two reasons one is.
Robert R. Foley: Sure. So, first, with respect to our particular arrangement with Morgan Stanley, Morgan Stanley has been an important financing partner of ours since we went public in 2017. We've got a great relationship with them, and they with us. I think, you know, we don't have much borrowed with them right now for two reasons. One is that
Robert R. Foley: So, we haven't recently found a commonality between, you know, our credit box and theirs. And two, our financing focus has, for a number of years now, shifted strongly in favor of, you know, non-mark-to-market, match-term, non-recourse financing, hence all the note-on-note and CLO financings that we've done since 2018. Bank financing has remained an important part of our financing strategy because it is very flexible and it moves quickly. But we have spent a considerable amount of time over the last several quarters evaluating each of our counterparty relationships and determining, you know, where it makes sense to continue and where it may not make sense for us to continue.
Doug: Well, we haven't recently found the commonality between now our credit box and theirs and too.
Doug: Our financing focus has for a number of years now shifted.
Doug: Strongly in favor of.
Doug: Non mark to market match term nonrecourse.
Doug: Hence all the note I'd note and CLO financings that we've done since 2018.
Doug: Bank financing does remain an important part of our financing strategy because it is a very flexible and it's it moves quickly.
Doug: But we have spent a considerable amount of time over the last several quarters.
Doug: Evaluating each of our counterparty relationships and.
Doug: You know in determining where it makes sense to continue and where it may not make sense for us to continue.
Doug: And then.
Robert R. Foley: And then, So that's that. With respect to financial covenants, we were, we did, we were in compliance at quarter end, as we have been in each of the previous quarters. We had, as you pointed out, obtained from all of our lenders, because we have harmonized financial covenants across all of our borrowing, a waiver arrangement that allowed our debt service coverage ratio to temporarily fall below 1.4 times. We're above that, you know; we're very low-leveraged at this point, and we would expect as we invest more and perhaps use more leverage that, since we don't use a ton of leverage, the interest coverage, even at the high benchmark rates that we experienced today, will continue to be satisfied.
Doug: So that's that with.
Doug: With respect to financial covenants.
Doug: Where we did we were in compliance at quarter end as we have been in each of the previous quarters. We had as you pointed out.
Doug: <unk> obtained from all of our lenders because we have harmonized financial covenants across all of our borrowing arrangements.
Doug: A a waiver arrangement that ladder sensors coverage ratio to temporarily fall below one four times Whereabout that you know, we're very low levered.
Doug: At this point and we would expect as we invest more and perhaps use more leverage.
Doug: That.
Doug: Since we don't use it kind of leverage the.
Doug: Interest coverage, even at the high benchmark rates that we experienced today will continue to be satisfied.
Doug: So.
Robert R. Foley: I hope that answers that question, and with that, I'll ask Doug. Doug, you just got a comment about. Yeah, and, and Steve, I think you
Doug: Hope that answers that question and with that I'll ask Scott.
Scott: He's got a comment about.
Scott: The financing markets more generally.
Doug Bouquard: Yeah, and Steve, I think you do bring up a really important trend that we're seeing as I think about the first quarter. The demand from the banks for loan-on-loan business is definitely as strong as we've seen it in, frankly, a couple of quarters.
Scott: Steve I think you do bring up.
Scott: The important trend that we're seeing and as I think about it.
Scott: The first quarter.
Scott: Demand from the banks for loan on loan business.
Scott: The strongest we've seen it frankly.
Doug Bouquard: And I think that's really observed by a few things. One is that banks continue to pull back on direct lending. And if they are going to be doing direct lending, they're generally pivoting more towards CMBS execution rather than actually a Long-Term Valid Fee Investment. And then, secondly, capital rules continue to kind of push banks towards providing back leverage to platforms like TRTX. So I think on the positive side, as we think about our pipeline through 2024 and beyond, that amount of demand is a really positive tailwind for our platform. [inaudible] I think, yeah.
Scott: A couple of quarters.
Scott: And that's really driven by a few things one as banks continue to pull back on direct lending and if they are going to be doing direct lending theyre generally pivoting more towards C MBS execution rather than actual.
Scott: Long term balance sheet investment and then secondly capital rules continue to kind of push banks towards providing back leverage to platforms like Trs, yes. So I think on the on the positive side as we think about our pipeline through 2024 and beyond.
Scott: That debt down.
Scott: That amount of demand I think is a really positive tailwind for our platform. It is a trend that we expect to continue over the over the coming quarters I think doug's earlier comment about mixed signals in the market I think.
Robert R. Foley: I think, you know, Doug's earlier comment about mixed signals in the market sort of highlights this particular point, which is that demand by banks to provide financing is quite strong. We have a ton of inbound inquiries from our existing counterparties about borrowing more from them. The nature of the financing that they're providing to the CRE world has clearly shifted. As Doug described, and honestly, spreads are coming in with respect to secured financing that can be obtained by lenders like us.
Scott: Sort of highlights this particular point, which is.
Scott:
Scott: Demand by banks to provide financing is quite strong.
Scott: We have a ton of inbound inquiry from our existing Counterparties.
Scott: About borrowing more from that.
Scott: The nature of the financing that they are providing to the CRE world has clearly shifted as Doug described and honestly spreads are coming in with respect to secured financing that can be obtained by lenders like us.
Robert R. Foley: The investment sales market for properties and the financing market for those transactions. That environment is a little more opaque and a little less so. Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. But, you know, loan spreads are kind of all over the place.
Scott: The investment sales market for properties.
Scott: And the financing market for those transactions.
Scott: That environment is.
Scott: A little more opaque and a little less clear.
Scott: Clear right now, which is really the point that Doug was making earlier. So there's there's an interesting technical thing going on right now where financing costs are coming in.
Scott: But.
Scott: Loan spreads are kind of all over the place.
Scott: Yes.
Stephen Albert Laws: Great. Really interesting comments, and I appreciate getting both your thoughts on that.
Speaker Change: Great really interesting comments and appreciate getting both of your thoughts on that thank you.
Speaker Change: Thanks, Steve.
Speaker Change: Our next question is from Rick Shane with J P. Morgan.
Operator: Our next question is from Rick Shane with J.P. Morgan.
Speaker Change:
Richard Barry Shane: Hey guys, thanks for taking my questions. Steve actually covered a lot of the ground I was interested in and on the facilities. One thing, looking at the extension of the Goldman facility, the spread stays the same. I am curious if there are any changes to the terms that we should be aware of, any sort of refinement of the credit box going forward.
Richard Barry Shane: Hey, guys. Thanks for taking my questions.
Richard Barry Shane: We've actually covered a lot of the ground I was interested in and out of the facilities.
Richard Barry Shane: One thing.
Richard Barry Shane: Looking at the extension of the Goldman facility.
Richard Barry Shane: Fred stays the same I am curious if there are any changes to the terms.
Richard Barry Shane: Terms that we should be aware of any sort of refinement of the credit box.
Richard Barry Shane: Going forward.
Robert R. Foley: No, no material changes. We pay for financing on a pay-as-you-go basis. Goldman has been another very important business partner of ours, a credit counterparty when we were a private company. You know, your point about the credit box, each, each. We've talked about this before. We view our liability, our portfolio liability provider, and the construction of that portfolio is as important as constructing our investment portfolio, and everybody's credit box is a little bit different.
Speaker Change: No no.
Richard Barry Shane: No material changes, we we pay for financing on a pay as you go basis.
Richard Barry Shane: Goldman has been another very important.
Richard Barry Shane: Business partner of ours, they were actually our first.
Richard Barry Shane: Credit counterparty when we were a private company.
Richard Barry Shane: And.
Richard Barry Shane: Your point about credit box.
Richard Barry Shane: Each each week.
Richard Barry Shane: We've talked about this before we view our liability.
Richard Barry Shane: Portfolio liability providers.
Robert R. Foley: But when stitched together, what we want and what we have is a mosaic that works for our business. In the case of Goldman, we're pretty simpatico. I wouldn't say that there's been a change in credit profile at all, and those decisions are made honestly on a deal-by-deal basis.
Richard Barry Shane: And the construction of that portfolio is being as important as constructing our investment portfolio and everybody's credit box, a little bit different but when stitched together, what we want and what we have is a mosaic that works for our business in the case of Goldman were pretty simpatico.
Richard Barry Shane: I Wouldnt say that theres been a change in credit profile at all and those decisions are made honestly.
Richard Barry Shane: On a on a deal by deal basis.
Speaker Change: Got it okay that makes sense and yet obviously.
Robert R. Foley: Okay, that makes sense. And yeah, obviously, given the history with Goldman, that's a significant renewal. Look, the other question is, as you sort of change your footing and start to move back into making more loans, I'm curious what you're finding in the market, and what capital deployment is going forward going to be like. Idiosyncratic. Every quarter, we're going to hear about some deployment, and it's going to be very much a story about, "hey, we found this opportunity."
Richard Barry Shane: Given the history with Goldman I, that's that's a.
Richard Barry Shane: Significant renewal.
Richard Barry Shane: The other question is as you sort of changed your footing and start to move back into making more loans.
Richard Barry Shane: Curious.
Richard Barry Shane: What you're finding in the market and is there is capital deployment going forward, we're going to be.
Richard Barry Shane: Idiosyncratic every quarter, we're going to hear about some deployment and it's going to be very much a story hey, we found this.
Robert R. Foley: This is why we love it. Or is it going to be thematic? There is something in the market that you're going to be targeting, whether it's a geography, a property type, or, like I said, a thematic approach to reemerging in the market. Yeah, I mean, I would say for us at the
Richard Barry Shane: <unk>. This is why we love it or is it going to be thematic there there was something in the market that you're going to be targeting whether it's a G. L. A property type of work.
Richard Barry Shane: Like I said, a thematic approach too.
Richard Barry Shane: Reemerge in the market.
Doug Bouquard: Yeah, I mean, really, for us, at the top of the list, we do think about investing within the real estate space from a thematic lens, and that's really kind of born across both our debt and equity platform. One, you know, as we think about themes, you know, we really, I would say, are very much drawn to a few things.
Speaker Change: Yes, I mean, I would say it really for us at the top the list. We do think about investing within the real estate space from from a thematic glenn's naturally kind of <expletive> across both debt and equity platform.
Doug Bouquard: I would say, one, you know, we've mentioned our sort of bias towards housing and actually do acknowledge that, again, multifamily values are down from the peak. So, that's really one. I would say two, from a team perspective, you know, when you kind of get a little more granular and you're really out there looking at new investments, I'd say there are kind of two areas that I think are particularly attractive for us to really focus on. One is, you know, new acquisition activity is obviously going to be a big draw. I think wherever we see, you know, fresh capital coming in. So, reflecting today's market values, that's attractive.
Richard Barry Shane: Yeah.
Richard Barry Shane: Think about themes.
Richard Barry Shane: We really I would say are very much structure, a few things I would say one that we mentioned are bias towards housing and it actually do acknowledge that again multifamily values are down from the peak, but where we can make the.
Richard Barry Shane: New loans today at 65, LTV acknowledged net fee is now potentially 15% to 20% lower.
Richard Barry Shane: Really attractive entry.
Richard Barry Shane: That's really one.
Richard Barry Shane: I would say tuned from a fee perspective.
Richard Barry Shane: When you kind of get a little more granular you're really out there looking at new investments I'd say.
Richard Barry Shane: There's kind of two areas that I think are particularly attractive to you.
Richard Barry Shane: Focus on one is.
Richard Barry Shane: New acquisition activity.
Richard Barry Shane: Obviously, there will be a big draw I think wherever we see.
Richard Barry Shane: Fresh capital coming in.
Richard Barry Shane: Okay.
Richard Barry Shane: Reflecting today's market values that that's attractive.
Doug Bouquard: And then I would say, secondly, if there was a part of the market that's probably most interesting, it really continues to be trafficking within the area of where regional banks had been lending. I think that still is probably the story that's obviously out there very broadly about banks pulling back. But acknowledging that of all the outstanding commercial real estate debt held by banks, about 75% resides in the regional banks. And those regional banks continue to, I would say, not pull up.
Richard Barry Shane: And then I would say secondly.
Richard Barry Shane: If there was a part of the market that that's probably.
Richard Barry Shane: Most interesting and it really continues to be.
Richard Barry Shane: Trafficking within the area of where regional banks had been lending I think it still is probably either at.
Richard Barry Shane: The stores are obviously out there very broadly about banks pulling back, but acknowledging that all of the outstanding commercial real estate debt held by banks about 75% resides in regional labs, and those regional banks continue to Kimberly I would say not pull up and we've seen that in Q1 as well.
Doug Bouquard: And we've seen that in Q1 as we're out there competing for loans. So, again, really view it as a bias towards housing. Second, a bias towards new acquisitions. And then, as we think about capital deployment going forward, we've really positioned the balance sheet where we can navigate what I would describe as the sort of mixed signals that we're getting from the market. And that's exactly how we think about liquidity, and we think about new investors.
Richard Barry Shane: So again really viewed as a bias towards housing one.
Richard Barry Shane: Our bias towards new acquisitions and then.
Richard Barry Shane: And then as we as we think about capital deployment going forward.
Richard Barry Shane: We'd really positioned the balance sheet, where we can you can navigate what I would describe as sort of mixed signals that we're getting from the market.
Richard Barry Shane: And that's exactly kind of how we.
Richard Barry Shane: Do you think about liquidity and we think about new investments.
Doug Bouquard: Doug, that's really helpful. I am curious as you start to look at multifamily, if you would just give some sort of context as to where cap rates were previously and where you see deals getting done today. And that's it for me. Thank you, guys.
Doug that's really helpful. I am curious as you.
Stephen Laws: Chart to look at multifamily.
Speaker Change: You would just give some sort of context, where cap rates were previously where you see deals getting done today and that's it for me. Thank you guys.
Doug Bouquard: Yeah, sure. I mean, look, I think, you know. Multifamily is a very, very heavily debated sector right now, just kind of given all the, You know, kind of right at the heart of the confluence of some of the macro trends with interest rates and inflation. I think that where we're seeing new transactions get done, generally speaking, have been in the sort of mid to high fives cap rate range. That's a good slide.
Doug: Yeah sure I mean look I think.
Doug: Multifamily all CSA.
Doug Bouquard: Very heavily debated sector right now just kind of given all the.
Speaker Change: Kind of right at the heart of the confluence of some of the macro trends with interest rates and inflation.
Speaker Change: Is that where we're seeing new transactions.
Doug Bouquard: It doesn't generally speaking have been in the sort of mid to high fives.
Speaker Change: <unk> cap rate range.
Speaker Change: Okay.
Speaker Change: But it feels like.
Speaker Change: From a liquidity perspective, as multifamily cap rates get into the sixes. There is a lot of liquidity on the equity side.
Doug Bouquard: It feels like, you know, from a liquidity perspective, as multifamily cap rates get into sixes, there is a lot of liquidity on the equity side. And I think as the cap rates get, let's call it, inside of five and a quarter is where I would say that liquidity dries up. So, again, viewed as the sort of midpoint, pick a number five and three quarters, and that's, you know, again, which allows us to be making loans from a risk perspective at, you know, stabilized debt yields in the seven and a half to eight and a half percent range, again, depending on the property type and some of the specifics of that certain asset.
Speaker Change: And then it gets really cap rates get let's call. It inside of five in a quarter is where I would say that liquidity dries up so.
Doug Bouquard: When viewed as a sort of midpoint is to pick a number five and three quarters.
Doug Bouquard: And that's again, what which allows us to be making loans from a risk perspective at stabilized debt yields in the <unk>.
Seven five to eight 5% range again, depending on the property type of some of the specifics to that.
Doug Bouquard: Certain asset.
Richard Barry Shane: Got it. Thank you very much.
Speaker Change: Got it thank you very much.
Speaker Change: Thank you.
Richard Barry Shane: Our next question is from Eric Dray with Bank of America.
Operator: Our next question is from Eric Dre with Bank of America.
Eric Dre: Hey, guys good morning.
Eric Dre: Hey, guys. Good morning. Most of mine have been covered, but just wanted to ask about how conversations with borrowers changed all over the last month. You know, has kind of the rate outlook changed a bit, and kind of what you're hearing from your portfolio borrowers? Yeah, no. I think that's a great question.
Eric Dre: Or might have been covered but just wanted to hey, just wanted to ask about how have conversations with borrowers changed all over the last month.
Speaker Change: It was kind of the the rate outlook has changed a bit.
Speaker Change: And kind of what you're hearing from from your portfolio.
Eric Dre: Growers.
Eric Dre: Yes.
Doug Bouquard: Yeah, no, I think that's a great question. I think that, you know, broadly the narrative with, you know, obviously the slowing of expected rate cuts. Combined with, I would say, the sort of what feels like, over the past few weeks, a little bit of a slowdown in terms of transaction activity. I think that's kind of more the dialogue that we've been hearing about. Relative to our current portfolio, bearing in mind it's 100% performing, I think that we generally kind of would characterize the borrowing universe as still looking through the long term because, in fact, where long-term rates will settle, and still kind of leaning positive in terms of their ability to kind of weather the storm with elevated silver in the near term.
Speaker Change: Question I think that.
Doug Bouquard: Broadly the narrative with obviously the slowing of expected rate cuts.
Doug Bouquard: Bind with I would say that's sort of.
Doug Bouquard: What feels like over the past few weeks is a little bit of a slowdown in terms of that.
Doug Bouquard: <unk> activity I think that's been kind of more of the dialogues that we've been hearing.
Doug Bouquard: About.
Doug Bouquard: Relative to our current portfolio I've seen a very modest 100% performing I think that we.
Doug Bouquard: We generally kind of would characterize the borrowing universe as still looking through the long term, which is exactly where we're.
Doug Bouquard: Long term rates will settle and still kind of leaning positive in terms of.
Doug Bouquard: Their ability to just to kind of weather the storm.
Doug Bouquard: With elevated so for the near term.
Doug Bouquard: And that's, I'd say, the best way to characterize the mindset. So, as that evolves, of course, you know, I have to keep you updated, but that's really kind of where the market is right now. Again, we're definitely at a pretty interesting point narrative-wise, just kind of what's going on within macro. And I would say that, you know, despite our intimate knowledge of what's going on on the ground within the real estate sector, given our sort of broad. The broad lens through which we invest, keeping an eye frankly on what the Fed is doing and saying, I think is really important, and we're very attuned to that message.
Doug Bouquard: The best way to characterize the mindset so.
Doug Bouquard: As that evolves of course, you don't have to keep you updated but that's where kind of where the market is right now and again, we're definitely added pre entry point.
Doug Bouquard: Narrative wise, just kind of what's going on within macro and I would say that despite our intimate knowledge of what's going on the ground.
Doug Bouquard: Secondly, given our archer abroad.
Doug Bouquard: Broad lens through which we invest.
Doug Bouquard: Keeping an eye, especially on.
Doug Bouquard: What the fed is doing is saying I think this is really important.
Doug Bouquard: Turning to debt.
Doug Bouquard: Yeah.
Doug Bouquard: All eyes are on 215 PM eastern time today.
Doug Bouquard: All yes are on 215, Phoenix Eastern Time today.
Speaker Change: [laughter] definitely okay Awesome and then real quick just for modeling purposes. I mean, do you think that kind of the 30 day that you posted this quarter I mean is that kind of like where do you guys think the portfolio can kind of maintain here in the next few quarters or any like onetime things to call out.
Eric Dre: For modeling purposes, do you think the $0.30 DE that you posted this quarter is that where you guys think the portfolio can maintain in the next few quarters, or are there any one-time things to call out?
Robert R. Foley: No, we never provide guidance, but I think that it. Backwarding into that number and its composition, I think it's pretty easy to see what's being generated by the loan book and what's being generated by small. REO portfolio. We've been pretty clear about our dividend policy and our view about, you know, sustainable levels, distributable earnings, and so on. We're comfortable with our current position but can't provide anything. Yeah, I think it's just a give.
Eric Dre: We never we.
Robert R. Foley: We never provide guidance, but I think that.
Robert R. Foley: Yeah.
Robert R. Foley: According into that number and its composition I think it's pretty easy to see.
Robert R. Foley: What's being generated by the loan book and what's being generated by them.
Robert R. Foley: Our small.
Robert R. Foley: [noise] Oreo portfolio.
Robert R. Foley: So.
Robert R. Foley: No.
Robert R. Foley: We've been pretty clear about our dividend policy and argue about sustainable levels.
Robert R. Foley: Tribute of learnings and somewhat but we're comfortable with our current position that can't provide any guidance.
Doug Bouquard: Yeah, I think it's just to give perhaps a little bit more context, which is helpful as you think about the sort of levers that we have to grow earnings. I would just kind of think, you know, very quickly about kind of what our balance sheet looks like. First and foremost, we have a substantial cash balance that, combined with other available liquidity channels, holds approximately $371 million currently. You know, secondly, we are out there with a pipeline of potential investments that we could potentially pursue over the coming quarters.
Speaker Change: Yeah, I think it's just to give perhaps a little bit more context switches, which is helpful. As you think about sort of leverage that we have to grow earnings.
Doug Bouquard: Just kind of think through what the balance sheet looks like first and foremost a substantial cash balance that.
Doug Bouquard: That combined with other.
Doug Bouquard: Available liquidity channels holds approximately $271 million currently.
Doug Bouquard: Secondly, we are out there with a pipeline of.
Doug Bouquard: Potential investments that we.
Doug Bouquard: It could potentially pursue over the coming quarters, just from a new investment perspective that of course can drive earnings and then and then lastly, you know again to Bob's comment.
Doug Bouquard: It's from a new investment perspective that, of course, can drive earnings. And then, and then lastly, you know, again to Bob's comment, we have approximately 5% REO, practically, as we navigate through those assets and maximize value that also can be recycled into newer loan investments, which will also grow earnings over time. So kind of view that as the broader, broader qualitative.
Doug Bouquard: Ultimately, 5% Oreo rapidly as we are.
Doug Bouquard: As we navigate through those assets and maximize value of that also.
Doug Bouquard: Can be recycled into newer loan investments, which which will also grow earnings overtime, so kind of view that as the sort of broader qualitative picture on that.
Speaker Change: Okay, great. Thank you guys.
Speaker Change: Thanks, Eric I appreciate it.
Eric Dre: Thank you, Derek. I appreciate it. Our final question is from Chris Muller with JMP Security.
Eric Dre: Our final question is from Chris Muller with JMP Securities.
Chris Muller: Hey, guys. Thanks for taking the questions, and congrats on a great start to the year. So, following up on some of the prior questions, now that you guys are back to lending and the portfolio is cleaned up, should we expect to see some portfolio growth in the back half of this year, or will it be more of a flattish-type portfolio? And I guess the root of the question is, how aggressively do you guys want to match repayment with new loans over the coming quarters? Thanks.
Chris Muller: Hey, guys. Thanks for taking the questions and congrats on a great start to the year. So following up on some of the prior questions. So now that you guys are back to lending in the portfolio is cleaned up should we expect to see some portfolio growth in the back half of this year or will it be more of a flattish type portfolio I guess at the root of the question is how aggressively do you guys want to.
Chris Muller: Repayments with with new loans over the coming quarters. Thanks.
Chris Muller: I mean look I would say that from a strategic perspective, you'd really kind of built the balance sheet too.
Doug Bouquard: I mean, look, I think that we've, you know, from a strategic perspective, we've really kind of built the balance sheet to be able to kind of stomach what I've described as like a sort of all-weather outcome here, again acknowledging those mixed signals, you know, where we are kind of currently sitting today. I would say it definitely kind of leans more towards the offensive. So, from a deployment perspective, you know, I would expect So, I think it's really important for us to be able to, you know, find new investments in the coming quarter.
Doug Bouquard: What kind of stomach what I'd describe as like a suit all weather outcome here again acknowledging those mixed signals.
Doug Bouquard: Where we are currently sitting today I would say its up it kind of leans more towards the offensive so from a deployment perspective.
Doug Bouquard: I would expect.
Doug Bouquard: So, as we think about kind of repayments, you know, repayments so far definitely have slowed, and that will be one of the byproducts, frankly, of both elevated rates but also, more probably, elevated rate volatility right now. But I would say, generally speaking, as I mentioned earlier about the sort of three levers that we have to grow earnings.
Doug Bouquard: Us to be able to find new investments in the coming quarters. So as we think about kind of repayments.
Doug Bouquard: Repayments, so far definitely have slowed and that will be one of the byproducts frankly of those elevated rates, but also more planned probably elevated REIT ball right now.
Doug Bouquard: But I would say generally speaking as you know.
Doug Bouquard: I mentioned earlier about the sort of the three levers that we have to grow earnings.
Doug Bouquard: Yeah.
Doug Bouquard: I would describe our ability and appetite to generate new investments just trying to get at the top of list to be able to grow for the company.
Speaker Change: Got it that's helpful and then the other one I have so but some of your CLO financing out of the reinvestment period can you just give your thoughts on if a new CLO as possible in 2024, and just how you guys are viewing that market today.
Chris Muller: Yeah, that's helpful. And then there is the other one I have.
Doug Bouquard: Yeah, sure. I mean, I think there have, of course, been a handful of Series CLOs done recently in the market. It's a bit of an interesting dynamic right now where the available financing that we're being provided from just bank balance sheets continues to be more attractive than what we see within the Series CLO market. Given that we're active really in kind of both worlds, we're always looking on a daily basis at, frankly, the sort of delta between what kind of advancing spread in terms we can get from banks on their balance sheets versus what the bond market will We'll bear it, and simply put, you know, we will continue to optimize that.
Doug Bouquard: So with some of your CLO financing out of the reinvestment period, can you give your thoughts on if a new CLO is possible in 2024? And just how you guys are viewing that market today? Yeah.
Speaker Change: Yeah sure I mean I think.
Doug Bouquard: I have of course been handful of series seal has done recently in the market.
Doug Bouquard: It's a bit of an interesting dynamic right now where.
Doug Bouquard: The available financing that were being provided from bank balance sheets continues to be more attractive than what we see within the CRE CLO market.
Doug Bouquard: Given that we're actively kind of both of those we're always looking on a daily basis and frankly.
Doug Bouquard: Delta between.
Doug Bouquard: What kind of advanced and spread in terms, we can get from banks on their balance sheets versus what the bond.
Doug Bouquard: Bond market will be.
Doug Bouquard: We will bear and.
Doug Bouquard: Simply put we will continue to optimize that.
Doug Bouquard: Yeah.
Doug Bouquard: So, I would say spot right now, again, to my comment earlier on banks just seem to have a lot of demand to put capital out. They're restrained in putting out direct lending capital, and they definitely have a lot of demand to be providing loan-on-loan financing for us. So, I think that's really how we're looking at it. You know, when we think about the Series C low market, Series C is, of course, a really important part of our capital structure.
Doug Bouquard: Going forward, so I would say spot right now again to my point earlier on banks just seem to have a lot of demand to put capital out there restrains on.
Doug Bouquard: Putting out direct lending capital.
Doug Bouquard: Definitely I don't have a lot of.
Doug Bouquard: Demand to be can be providing low loan financing for us. So I think that that's really how we're looking at it but.
Doug Bouquard: They do provide, I would say, frankly, a lot of flexibility from a financing perspective, and they do, of course, offer the benefits. And then, we have, I think, the last term, non-market to market, non-recoursed financing. So, as we balance, advance, and spread, there also is a kind of structural side of things. Series CLO spreads have really kind of lagged, and what I had to mention earlier about the sort of moving corporate credit spreads, you know, close to the tights, but you really haven't seen Series CLO spreads move back to, frankly, where they were.
Doug Bouquard: When we think about the CRE CLO market. So we see those of course are a really important part of our capital structure. They do provide say frankly, a lot of flex.
Doug Bouquard: Flexibility from a financing perspective, and and then do a course offered the benefits of.
Doug Bouquard: Matched term non mark to market.
Doug Bouquard: Person asking so as the balance sheet advancing spread there I'll say is the kind of structural side of things, but I think at this point.
Doug Bouquard: CRE CLO spreads have really kind of lagged and havent.
Doug Bouquard: What I had mentioned earlier about the sort of corporate credit spreads.
Doug Bouquard: Closer to tight, but you really havent seen see we see low spreads.
Doug Bouquard: Move back to frankly, where they where do you think about that.
Doug Bouquard: If you think about the types of the last 3 or 4 years, I mean, AAAs were really as tight as about, you know, it's called, at the time, LIBOR plus 80. Now we're still seeing series AAA spreads in the kind of mid to high 100s, best case. So there's still a lot of compression to happen on the series CLO.
Doug Bouquard: The types of the last three or four years I mean tripoli's, we're really excited about you know let's call. It approximately at the time LIBOR plus 80.
Doug Bouquard: Now we are still seeing series AAA spreads in the mid to high one hundreds best case, so there's still a lot of compression to happen. So we see a lot of insight.
Chris Muller: Very helpful. Thanks for taking the question.
Speaker Change: Got it very helpful. Thanks for taking the questions.
Chris Muller: Before we conclude the Q&A, we do have a follow up from Rick Shane with J P. Morgan. Please go ahead.
Operator: Before we conclude the Q&A, we do have a follow-up from Rick Shane with J.P. Morgan. Please go ahead.
Richard Barry Shane: Hey guys, thanks for taking my follow-up. Having asked so many questions over time about repurchases, and I think I'd be remiss not to address that, it's nice to see you guys announce a repurchase. I'm curious how you will approach that. It's a $25 million allocation. Do you expect to be pretty consistent in the market, or is that something that will just be there very defensively if you see some really bad days?
Richard Barry Shane: Hey, guys. Thanks for taking my follow up.
Richard Barry Shane: He asked so many questions over time about the about repurchases and I think I'd be remiss not to address that.
Richard Barry Shane:
Richard Barry Shane: It's nice to see you guys announced a repurchase I'm curious how you will approach that it's a $25 million.
Richard Barry Shane: Allocation do you expect to be pretty consistently in the market or is that something that will just be there very defensively. If you see some some really bad days.
Doug Bouquard: Yeah, look, I think on the share repurchase side... First and foremost, it's a tool in our toolkit which we... Acknowledge and have knowledge over time is a really powerful way for us to both, you know, generate earnings for the company and also, I think is a real statement about. In fact, with the credit quality of our current book, relative to book value, buying shares at today's market price, you know, for us, does look very attractive.
Speaker Change: Yes, I think on the on the share repurchase side.
Doug Bouquard: First and foremost.
Doug Bouquard: It's a tool in our toolkit, which which we.
Doug Bouquard: Acknowledge and have now.
Doug Bouquard: Overtime is really powerful way for us to both generate earnings for the company and also I think is a real statement about.
Doug Bouquard: In fact with the credit quality of our current book relative to book value.
Doug Bouquard: Buying shares at today's market price.
Doug Bouquard: It doesn't look very attractive.
Doug Bouquard: In terms of going forward, you know, all I can say at this point, Rick, is that it will continue to be a tool in our toolkit. And I expect that, over time, we will continue to use this as a potential way to drive our interest in the company.
Doug Bouquard: In terms of going forward.
Doug Bouquard: I think they just didn't recognize it will continue to be a tool in our toolkit.
Doug Bouquard: Overtime, we will continue to use this as a potential way to drive earnings for the company.
Speaker Change: Okay, great. Thank you for taking my question guys.
Doug Bouquard: Great. Thank you for taking the question, guys. Thank you, Rick.
Doug Bouquard: Thank you, Rick. Thank you, Rick. Ladies and gentlemen, we have reached the end of the question and answer session. I would like to turn the call back to management for closing remarks.
Speaker Change: Thank you thanks, Rick I appreciate it.
Speaker Change: Ladies and gentlemen, we have reached the end of the question and answer session I would like to turn the call back to management for closing remarks.
Speaker Change: Just wanted to thank everyone for taking the time. This morning on the call and look forward to speaking to all of the network. Thank you very much.
Doug Bouquard: I just wanted to thank everyone for taking the time this morning on the call and look forward to speaking to all of you next quarter. Thank you very much.
Speaker Change: This concludes today's conference.
Operator: This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.
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Operator: Thank you for your participation you may disconnect your lines at this time.
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