Q2 2025 TPG RE Finance Trust Inc Earnings Call
Good morning, ladies and gentlemen, and thank you for standing by welcome.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to TPG RE Finance Trust Inc.'s second quarter 2025 earnings conference call. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. It is now my pleasure to turn the call over to management. Thank you. You may begin.
T be cheese TPG real estate Finance Trust second quarter 2025 earnings Conference call.
A 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.
Please note. This conference is being recorded it is now my pleasure to turn the call over to management. Thank you you may begin.
Good morning, and welcome to the TPG already Finance Trust earnings call for the second quarter of 2025 todays speakers are Doug Blue card, Chief Executive Officer, and Bob Foley Chief Financial Officer.
Bob Foley: Good morning and welcome to the TPG RE Finance Trust earnings call for the second quarter of 2025. Today's speakers are Doug Bouquard, Chief Executive Officer, and Bob Foley, Chief Financial Officer. Doug and Bob will provide commentary regarding the company, its performance, and the general economy, and will answer questions from call participants. Yesterday afternoon, we filed our Form 10-Q, issued a press release, and shared an earnings supplemental, all of which are available on the company's website in the Investor Relations section. This morning's call is being recorded. Information regarding the replay of this call is available in our earnings release and on the TRTX website. Recordings are the property of TRTX, and any unauthorized broadcast or reproduction in any form is strictly prohibited. This morning's call will include forward-looking statements, which are uncertain and outside of the company's control. Actual results may differ materially.
Doug and Bob will provide commentary regarding the company its performance and the general economy I will answer questions from call participants.
Yesterday afternoon, we filed our Form 10-Q issued a press release and Sheridan earnings supplemental all of which are available on the company's website in the Investor Relations section.
This mornings call is being recorded information regarding the replay of this call is available in our earnings release and on the <unk> website.
Recordings are the property of <unk> and any unauthorized broadcast of reproduction in any form is strictly prohibited.
This morning's call will include forward looking statements, which are uncertain and outside of the company's control actual results may differ materially for a comprehensive discussion of risks that could affect results. Please see the risk factors section of the company's latest Form 10-K.
Bob Foley: For a comprehensive discussion of risks that could affect results, please see the Risk Factors section of the company's latest Form 10-K. The company does not undertake any duty to update our forward-looking statements or projections unless required by law. We will refer during today's call to certain non-GAAP financial measures, which are reconciled to GAAP amounts in our earnings release and our earnings supplemental, both of which are available in the Investor Relations section of our website. Now, I'll turn the call over to Doug.
The company does not undertake any duty to update our forward looking statements or projections unless required by law.
We will refer during todays call to certain non-GAAP financial measures, which are reconciled to GAAP amounts in our earnings release and our earnings supplemental both of which are available in the Investor Relations section of our website.
Now I'll turn the call over to Doug.
Before we discuss our results for the quarter, we wanted to share that our hearts are heavy in the wake of Monday's senseless attack at $3 45 Park Avenue.
Doug Bouquard: Before we discuss our results for the quarter, we wanted to share that our hearts are heavy in the wake of Monday's senseless attack at 345 Park Avenue. We are grieving with our friends and neighbors at Blackstone and the NYPD, and our thoughts are with the teams at KPMG, the NFL, and all those impacted by this tragedy. Many of us at TPG had the utmost privilege of working alongside Wesley Lapatner at Blackstone across her career. She will be remembered for her exceptional talent, her kindness, and most importantly, as a loving wife and mother of two children. Our industry has lost a leader, and we have lost a friend. We are grateful for the swift response and dedication of local law enforcement, first responders, and security personnel.
We are dreaming with their friends and neighbors at Blackstone and the NYPD and our thoughts are with the teams at KPMG.
And all of those impacted by this tragedy.
Many of US at TPG had the utmost privilege of working alongside of Wesley lot patent or a blackstone across your career.
He will be remembered for exceptional talent her kindness and most importantly, as a loving wife and mother of two children.
Our industry has lost the leader and we have lost a friend.
We are grateful for the Swift response, and dedication of local law enforcement first responders and security personnel.
Doug Bouquard: At this profoundly difficult moment, we are mourning with those who have lost loved ones and colleagues, and we stand in solidarity with all those affected. Turning to our quarterly results, global markets have continued to adjust to the effects of ongoing tariff negotiations. Over the past week, U.S. equity markets have rallied meaningfully as the S&P 500 reached yet another all-time high yesterday. Equity markets remain very well-bid, and corporate credit markets have tightened to levels not seen since early March of this year. Meanwhile, in the real estate credit markets, tariff volatility drove widening in loan spreads, while banks continued their reluctance to lean into direct lending. This market backdrop afforded TPG RE Finance Trust Inc an excellent window of opportunity during the quarter, as widening direct loan spreads outpaced the widening of back-leveraged spreads, thus generating attractive risk-adjusted returns for new investments on behalf of our shareholders.
At this profoundly difficult moment, we're morning, with those who have lost loved ones and colleagues and we stand in solidarity with all those affected.
Turning to our quarterly results.
Global markets have continued to adjust to the effects of ongoing tariff negotiations over the past week U S equity markets have rallied meaningfully as the S&P 500 reached yet another all time high yesterday.
Equity markets remained very well bid and corporate credit markets have tightened to levels not seen since early March of this year.
Meanwhile, in our real estate credit markets tariff volatility drove widening in loan spreads well. Thanks continued their reluctance to lean into direct lending.
This market backdrop afforded TRT exit excellent window of opportunity during the quarter as widening direct loan spreads outpaced the widening of back leverage spreads thus generating attractive risk adjusted returns for new investments on behalf of our shareholders.
Doug Bouquard: During the second quarter, TPG RE Finance Trust Inc delivered a standout performance, decisively executing the plan we previously outlined to drive earnings growth and maximize shareholder value. In previous earnings calls, we outlined the many levers available to TPG RE Finance Trust Inc to grow earnings, including: one, deployment of excess liquidity; two, utilizing untapped financing capacity; three, recycling equity currently invested in REO; and four, creating additional liquidity via capital markets activity. During the second quarter, we pulled on each lever to build a strong foundation for high-quality earnings growth. The deep sourcing and investing capabilities of TPG's integrated real estate debt and equity platform drove our 15% net earning loan growth in the second quarter.
During the second quarter <unk> delivered a standout performance.
Basically executing the plan, we previously outlined to drive earnings growth and maximize shareholder value in previous earnings calls, we outlined the many levers available to TRT X to grow earnings including.
One deployment of excess liquidity to utilizing untapped financing capacity.
<unk> recycling equity currently invested in Rio and for creating additional liquidity via capital markets activity.
During the second quarter, we pulled on each lever to build a strong foundation for high quality earnings.
The deep sourcing and invest in capabilities of Tpg's integrated real estate debt and equity platform drove a 15% net earning loan growth in the second quarter.
Doug Bouquard: The balance sheet is poised for further capital deployment with $236 million of available liquidity, a stable and 100% performing loan portfolio, a continued reduction in our REO portfolio, and a debt-to-equity ratio now at 2.6 times that is still materially less than our peers. Despite the tariff-driven market disruption earlier in Q2, our investment team took advantage of this opportunity and buoyed by substantial dry powder and a stable liability structure, closed seven new loans totaling $696 million, with a weighted average loan-to-value ratio of 68%. This investment activity was concentrated in our thematic sectors of multifamily and industrial and was diverse across geographic markets and institutional partners. In addition, we currently have more than $200 million of newly executed term sheets and an extensive pipeline which will fuel continued growth in earnings for TRTX shareholders.
Our balance sheet is poised for further capital deployment with $236 million of available liquidity.
Table and 100% performing loan portfolio.
The continued reduction in our Oreo portfolio and a debt to equity ratio now at two six times that is still materially less than our peers.
Despite the tariff driven market disruption earlier in the second quarter. Our investment team took advantage of this opportunity and buoyed by a substantial dry powder and a stable liability structure.
Seven new loans totaling $696 million with a weighted average loan to value ratio of 68%.
This investment activity was concentrated in our thematic sectors of multifamily and industrial and was diverse across geographic markets and institutional borrowers. In addition, we currently have more than $200 million of newly executed term sheets and an extensive pipeline, which will fuel continued growth in earnings for Trs <unk> shareholders.
Doug Bouquard: In capital markets, we continue to take advantage of our industry-leading liquidity position in terms of dry powder and 95% non-mark-to-market liability structure. In addition, the sale of two REO office properties generated a $7 million GAAP gain, reduced our REO exposure to approximately 5% of total assets, and our remaining REO exposure is now 74% multifamily, with office REO now representing approximately 1% of our balance sheet. These REO sales proceeds are being deployed actively into new loan investments, demonstrating our well-established ability to efficiently redeploy capital. Lastly, in Q2, we repurchased Common Stock, which generated $0.08 per share of net book value accretion. Our Q2 investment activity and operating results demonstrated our ability to leverage every available tool to grow earnings, recycle, and allocate capital efficiently, all while maintaining a disciplined approach to credit risk and liquidity.
In capital markets, we continue to take advantage of our industry, leading liquidity position in terms of dry powder and 95% non mark to market liability structure.
In addition, the sale of two Oreo office properties generated $7 million GAAP gain reduced our Oreo exposure to approximately 5% of total assets and our remaining Oreo exposure is now 74% multifamily with office Oreo now representing approximately 1% of our balance sheet.
These Oreo sales proceeds are being deployed actively in the new loan investments demonstrating our well established ability to efficiently redeploy cap.
Lastly, in the second quarter, we repurchased common stock, which generated <unk> <unk> per share net book value accretion.
Our second quarter investment activity and operating results demonstrate our ability to leverage every available tool to grow earnings recycle and allocate capital efficiently all while maintaining a disciplined approach to credit risk and liquidity.
Doug Bouquard: TRTX currently trades at a 25% discount to book value and an 11.5% dividend yield. We continue to believe our current share price presents a compelling investment opportunity, backed by a 100% performing loan book, a stable liability structure, an offensively oriented liquidity position, and led by the investment insights of TPG's industry-leading integrated debt and equity real estate platform. With that, I will turn it over to Bob to review our financial results.
<unk> currently trades at a 25% discount to book value and an 11, 5% dividend yield.
We continue to believe our current share price presents a compelling investment opportunity backed by a 100% performing loan book stable liability structure and offensively oriented liquidity position and led by the investment insights of Tpg's industry, leading integrated debt in equity real estate platform.
With that I'll turn it over to Bob to review our financial results. Thank you Doug Good morning, everyone. Thank you for joining us.
Bob Foley: Thank you, Doug. Good morning, everyone. Thank you for joining us. For the second quarter of 2025, TPG RE Finance Trust Inc reported GAAP net income of $16.9 million, or $0.21 per common share, and distributable earnings of $0.24 per common share, which again covered our quarterly dividend of $0.24 per common share. Book value per common share was $11.20 versus $11.19 for the previous quarter. Our results reflect accelerating execution of our business strategy, which is predicated on a durable liability structure, strong liquidity, prudent and commercial portfolio construction, rigorous asset management, and disciplined capital allocation. Regarding capital allocation, we directly originated seven loans with total commitments of $695.6 million, $675.0 million of initial unpaid principal balance, and a weighted average credit spread of 2.86%.
The second quarter of 2025, CRT ex reported GAAP net income of $16 $9 million or 21 per common share.
And distributable earnings of 24 cents per common share, which again covered our quarterly dividend of 24 per common share books.
Book value per common share was $11 20.
Versus $11 19 for the previous quarter.
Our results reflect accelerating execution of our business strategy, which is predicated on a durable liability structure strong liquidity prudent and commercial portfolio construction rigorous asset management and disciplined capital allocation.
Regarding capital allocation, we directly originated seven loans with total commitments of $695 $6 million.
$675 million of initial unpaid principal balance and a weighted average credit spread of 286%.
Bob Foley: We repurchased 1.7 million common shares for an aggregate price of $12.5 million, or $7.52 per share, generating approximately $0.08 per share of book value accretion. At quarter end, 9.3 million of repurchased capacity remained under existing board authorization. In capital markets, we financed our nearly $700 million of new loan investments using reinvestment capacity and TPG RE Finance Trust Inc 2025 FL6 of $172.2 million, including $103 million of cash from loan repayments and $69.2 million of ramp cash. We used our secured revolver, pending transfer primarily to non-mark-to-market term financing arrangements, balance sheet cash intentionally deployed to reduce idle liquidity and lessen earnings drag, and defer borrowings to reduce interest expense. Our liquidity management strategy reflects our 100% performing loan book and 95% non-mark-to-market liability structure. We will back lever in future quarters and recycle borrowed cash into new loan investments as we originate them.
We repurchased one 7 million common shares for an aggregate price of $12 5 million or $7 52 per share generating approximately <unk> <unk> per share of book value accretion.
At quarter end, $9 3 million of repurchase capacity remained under existing board authorizations.
In capital markets, we financed our nearly $700 million of new loan investments using reinvestment capacity in <unk> 2025 <unk> six.
Of $172 2 million, including $103 million of cash from loan repayments and $69 2 million of ramp cash.
We used our secured revolver pending transfer primarily to non mark to market term financing arrangements.
Balance sheet cash intentionally deployed to reduce idle liquidity and lessen earnings drag and defer borrowings to reduce interest expense our liquidity management strategy reflects our 100% performing loan book and 95% non mark to market liability structure.
We will back lever in future quarters, and recycle borrowed cash into new loan investments as we originate them.
Bob Foley: In asset management, we maintained a 100% performing loan portfolio with an unchanged weighted average risk rating of 3.0 and no credit migration. We sold two REO properties, both at gains, which combined to a GAAP gain of $7 million and a contribution to distributable earnings of $1.9 million. Consequently, our REO carrying value declined by $32.5 million, or approximately 12%. We intend to launch sales processes for several more REO investments in the coming quarters. Refer to footnote four of our financial statements for additional information regarding our REO investment portfolio. Regarding our loan portfolio, it grew by 15% during the second quarter, driven by strong origination volume and repayments consistent with our expectations. 100% of our loan portfolio is performing. We have no 5-rated loans and only two 4-rated loans. Our weighted average risk rating is 3.0, consistent with the prior six quarters.
In asset management, we maintained a 100% performing loan portfolio with an unchanged weighted average risk rating of three point out and no credit migration we.
We sold two Oreo properties, both at gains, which combined to a GAAP gain of $7 million and a contribution to distributable earnings of $1 9 million.
Consequently, our Oreo carrying value declined by $32 5 million or approximately 12%.
We intend to launch sales processes for several more Oreo investments in the coming quarters.
Refer to footnote four of our financial statements for additional information regarding our investment portfolio.
Regarding our loan portfolio. It grew by 15% during the second quarter, driven by strong origination volume and repayments consistent with our expectations.
100% of our loan portfolio is performing well.
We have no five rated loans and only two four rated.
Our weighted average risk rating of three point out consistent with the prior six quarters.
Bob Foley: Our CECL reserve rate declined to 176 basis points from 199 basis points. This 12% decline reflects our 100% performing loan book and 15% growth in our loan portfolio quarter over quarter. Portfolio composition is detailed on page seven of our earnings supplemental, where you will note growth in multifamily and industrial exposure, accompanied by declines in life sciences, hotels, and office. Non-mark-to-market financing increased to 95% from 91% of our secured liabilities, reinforcing our industry-leading position. Total leverage increased modestly to 2.6 times from 2.2 times in support of loan portfolio growth. At quarter end, we had $1.7 billion of financing capacity available to support loan investment activity, and we were in compliance with all financial governance. Regarding liquidity, we deployed balance sheet cash into new loan investments and share repurchases.
Cecil Reserve rate declined to 176 basis points from 199 basis points. This 12% decline reflects our 100% performing loan book and 15% growth in our loan portfolio quarter over quarter.
Portfolio composition as detailed on page seven of our earnings supplemental where you will note growth in multifamily and industrial exposure accompanied by declines in life Sciences Hotel and office.
Non mark to market financing increased to 95% from 91% of our secured liabilities reinforcing our industry leading position.
Total leverage increased modestly to two six times from two two times in support of loan portfolio growth.
At quarter end, we had $1 7 billion of financing capacity available to support loan investment activity and we were in compliance with all financial covenants.
Regarding liquidity, we deployed balance sheet cash into new loan investments and share repurchases quarter.
Bob Foley: Quarter-end liquidity of $236.4 million, or 5.7% of total assets, included $165.9 million of cash, including $20.7 million to satisfy our covenant requirements, $66.1 million of undrawn capacity under our secured credit agreements and asset-specific financing arrangements, and $1.8 million of CRE/CLO investment cash. We funded during the quarter $8.8 million of commitments under existing loans. At quarter end, our deferred funding obligations under existing loan commitments were $116.4 million, only 3% of our total loan commitments. In summary, our second quarter results demonstrate the disciplined execution of our business plan translates into loan portfolio growth. We maintained book value, delivered stable earnings, and enhanced shareholder value through disciplined capital deployment, including loan investments and share repurchases. TRTX has strong liquidity, a 100% performing loan portfolio with stable risk ratings, low leverage, a cost-efficient, stable liability structure that is 95% non-mark-to-market, and meaningful capacity for continued growth.
Quarter end liquidity of $236 4 million or five 7% of total assets included $165 $9 million of cash, including $20 7 million to satisfy our covenant requirements $66 1 million of Undrawn capacity under our secured credit agreements and asset specific.
<unk> arrangements and $1 8 million of CRE CLO investment cash.
We funded during the quarter $8 8 million of commitments under existing loans at quarter end, our deferred funding obligations under existing loan commitments were $116 $4 million only 3% of our total loan commitments.
In summary, our second quarter results demonstrates the disciplined execution of our business plan translates into loan portfolio brands.
We maintained book value delivered stable earnings and enhance shareholder value through disciplined capital deployment.
<unk> loan investments and share repurchases crts has strong liquidity and 100% performing loan portfolio with stable risk ratings.
Low leverage a cost efficient stable liability structure that is 95% non mark to market and meaningful capacity for continued growth.
Bob Foley: TRTX's share price performance continues to lead its peers, with a cumulative return of 68% since January of 2023. We remain focused on sustaining that momentum to eliminate the gap between our share price and book value. With that, we would like to open the floor to questions. Operator?
<unk> share price performance continues to lead its peers with a cumulative return of 68% since January of 2023.
We remain focused on sustaining that momentum to eliminate the gap between our share price and book value.
And with that we'd like to open the floor to questions operator.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Operator: Thank you. We will now 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. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Again, that is star one if you would like to ask a question. Our first question comes from John Nicodemus with BTIG.
A confirmation tone will indicate your line is in the question queue.
You May press star two if he would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
And again that is star one if you would like to ask a question.
And our first question comes from Jon Nicodemus with B P. I G.
Hi, good morning, everyone.
John Nicodemus: Hi. Good morning, everyone. We were obviously excited to see almost $700 million of originations during the quarter, with $112 million already in the pipeline so far in July. Just curious how we should think about quarterly origination volumes going forward. That is to say, will volumes like that of the second quarter become the norm, or is that higher than what we will likely see the rest of this year? Thanks.
We're obviously excited to see almost $700 million of originations during the quarter.
With 112 million already in the pipeline so far in July just curious how we should think about quarterly quarterly origination volumes going forward that is to say well volumes like that of second quarter become the norm or is it higher than what we'll likely see the rest of this year. Thanks.
And speakers I believe your line is on mute can you <unk>.
Operator: Speakers, I believe your line is on mute. Can you unmute your line? Please stand by.
Mute your line.
Okay.
Please standby.
Yeah.
Okay.
Hello.
Doug Bouquard: Hello?
Operator: Yes, we can hear you. Please continue.
Yes, we can hear you.
Please continue.
Doug Bouquard: Yep. Apologies there for the technical difficulty. Yes, as we think about pacing, first and foremost, we have a number of levers available to us on our balance sheet that I had shared in my prepared remarks. What we found recently is that there are really kind of two things happening. One is we continue to see a very attractive lending opportunity as banks have continued to basically pull back. Secondly, from a pacing perspective, because we have a number of these levers, we are not really bound by the pace of repayments or really other sort of balance sheet-related constraints from a pacing perspective. I think that it is safe to say that you will continue to see an elevated pace of new investments over coming quarters as we begin to re-lever and, frankly, grow our balance sheet.
Yep I apologize there for the technical difficulty.
So as as we think about pacing young.
Yeah, again first and foremost we have a number of level levers available to us.
On our balance sheet.
And I had shared in my prepared remarks.
What we found recently is that you're looking at two things happening. One is we continue to see a very attractive lending opportunity as banks have continued to basically pull back and I would say secondly from a pacing perspective.
Because we had a number of these levers we're not really bound by the pace of repayments or really other other sort of balance sheet related constraints from a pacing perspective. So I think that it's safe to say that you'll continue to see I would say an elevated pace of new investments over coming quarters, as we begin to re lever and frankly grow our balance sheet.
Great. Thanks, so much Doug that's Super helpful and then for Mike.
John Nicodemus: Great. Thanks so much, Doug. That is super helpful. Then for my other question, similar lines, I wanted to ask about loan size. We noticed that two of your loans originated last quarter are now in your top five largest loans in your book. Was that an active decision by your team to target loans of that size, or did those opportunities just present themselves that way? Thanks a lot.
Other question similar lines, but wanted to ask about loan size, we noticed that two of your loans originated last quarter are now in your top five largest loans in your book was that an active decision by your team to target loans of that size or did those opportunities just sort of present themselves that way. Thanks a lot.
Yes.
Doug Bouquard: Yeah, sure. I think our scale and size of loans that we are investing in has generally remained somewhat consistent over the past number of years. Specific to the larger loans that are included, these are institutional borrowers and institutional assets. We like the fact that we can traffic in the, I will call it like the $40 million to $100 million range, which I would say is more of a middle-market type of lending. Additionally, given the size and scale of our balance sheet, we can also kind of scale up into loans that are in the context of $200 million. Additionally, with some of these larger loans, we are able to, within those loans, actually have diversity. For example, one of the largest transactions that we did, which was an industrial portfolio, that provided diversification of industrial exposure, frankly, across the U.S.
Yeah sure so I think our scale and size of.
Loans that were divesting in is generally remain somewhat consistent.
Over the past number of years specific to.
The larger loans that are included these are institutional borrowers in institutional assets. So we like the fact that we can traffic in the I'll call. It like the $40 million to $100 million range, which I'd say is more of a middle market type of lending and then also given the size and scale of our balance sheet. We can also kind of scale up into loans that are in the context of.
Hi.
200 $200 million.
And additionally, with some of these larger loans, we are able to within those loans actually have diversity and for example, one of the largest transaction that we did which was an industrial portfolio.
That provided diversification of industrial exposure frankly across the U S. So we do life, where we can gain a little bit more diversity through the form of a larger size loans.
Doug Bouquard: So we do like when we can gain a little bit more diversity through the form of a larger size loan.
Awesome. Thank you so much Doug and that's all for me. Thanks.
John Nicodemus: Awesome. Thank you so much, Doug. That's all for me. Thanks.
Thank you.
Doug Bouquard: Thank you.
Operator: Our next question comes from Chris Miller with Citizens Capital Markets.
Our next question comes from Chris Miller with citizens capital market.
Hey, guys. Thanks for taking my question and congrats on a really solid quarter.
Chris Miller: Hey, guys. Thanks for taking the question. Congratulations on a really solid quarter. I wanted to hit on some of the REO. It is great to see that gain you guys got on those sales there. I know you will not be able to give any specifics or guidance on this, but given the timing of when you took back some of the other REO properties compared to current market valuations, could we see some other gains come through when those properties get sold?
I wanted to hit on some of the Oreo, it's great to see that that gain you guys got on those sales there and I know you won't be able to give any specifics our guidance on this but given the timing of when you took back some of the other Oreo properties compared to current market valuations could we see some other gains come through when those properties gets old.
Hey, Chris Thanks for your question.
Bob Foley: Hey, Chris. Thanks for your question. We're always hesitant to provide forward guidance, but I'll make a couple of general observations about our experience in REO. The first is that historically, we've been very aggressive about managing the performance of properties we take back, then moving them to market relatively quickly, and frankly, with good results. By that, I mean to say that to date, every piece of REO that we've sold, we've sold at a book gain. We have plans in place with respect to our remaining REO properties. We've improved the operating performance of virtually all of them, and we will be moving to market several of them for sale in the not-too-distant future.
Yes, we're always hesitant to.
Provide forward guidance, but I'll make a couple of general observations about our experience in Oreo.
The first is that.
Historically, we've been.
Very aggressive about managing the performance of properties, we take back and then moving them to market.
Relatively quickly.
And frankly with good results and by that I mean to say that.
To date.
Every piece of Oreo that we sold we sold it at a book gain.
We have plans in place with respect to our remaining Oreo properties.
Improve the operating performance of virtually all of them.
And we will be moving to market several of them for sale.
In the not too distant future.
Got it that's helpful. And then I guess kind of following up on that a little bit.
Chris Miller: Got it. That is helpful. Following up on that a little bit, on the multifamily REO you guys have on the books still, it looks like you do not have any financing against those assets. Is that mainly just due to expecting those properties getting listed for sale in the coming quarters?
On the multifamily Oreo you guys have on the books still it looks like you don't have any financing against those assets is that mainly just due to expecting those properties getting listed for sale in the coming quarters.
Youre correct, we don't have secured financing against them and the frictional cost of financing.
Bob Foley: are correct. We do not have secured financing against them. The frictional cost of financing investments that we think will be relatively short-term in nature is a reason, or one of the principal reasons we have not financed those. But we always have that option to finance them if we choose to do so. They are eminently financeable.
Investments that we think will be relatively short term in nature as a reason for one of the principal reasons, we haven't finance those but we always have that option to finance them, if we choose to do so.
And there are eminently financeable.
Chris Miller: Well, thanks for taking the questions. And glad to see you guys firing on all cylinders over there.
Got it well thanks for taking the question then glad to see you guys firing on all cylinders over there.
Bob Foley: Thanks very much.
Thanks very much.
Next question comes from brick Shane with J P. Morgan.
Operator: Next question comes from Rick Shane with J.P. Morgan.
Hey, guys. Good morning, Thanks for taking my questions.
Rick Shane: Hey, guys. Good morning, and thanks for taking my questions. Look, you know when we consider activity in commercial real estate lending and property sales throughout the country, there's really a pretty wide discrepancy both geographically by property type. As you look at portfolio opportunity and repositioning, where are you going to be trying to lean in on the offensive side, and where do you want to continue to be defensive?
Look.
<unk>.
Consider activity.
In commercial real estate lending and property sales throughout the country.
There's really a pretty wide discrepancy, both geographically and by property type.
As you look at portfolio opportunity and repositioning.
Where are you going to be trying to lean in on the offensive side and where do you want to continue to be defensive.
Thanks, Rick.
Doug Bouquard: Thanks, Rick. Yeah, it's a good, it's an important question. So I think that from what you've seen from our past quarter, you know, we still remain, I would say, concentrated within multifamily and industrial. Those are two markets, or I should say property types, that are both liquid. There still are transactions occurring there. But also, they're just two sectors that we prefer thematically across our entire integrated real estate debt and equity platform. Also, I think that we've seen over the cycles that these assets tend to perform better just from a loss and default perspective as you kind of go through economic cycles. That being said, we're not just limited to multifamily and industrial. We are in sort of regular pursuit of other asset classes, for example, student housing, to pick one sector. But the bulk of the activity right now has been primarily multi and industrial.
It's an important question. So I think that from what you've seen from our past quarter, we still remain I would say.
Concentrated within multifamily and industrial.
Those are two markets or I should say of property types that are both liquid.
Still our transactions occurring there, but also they're just two sectors that we prefer thematic lee across our entire integrated real estate debt and equity platform and also I think that we've seen over the cycles that.
These these assets tend to perform better just from a just from a from a loss and default perspective as you kind of go through economic cycles.
That being said, we're not just limited to.
Multifamily and industrial we are in sort of regular pursuit of other asset classes for example student housing.
Just to pick to pick one sector, but the bulk of the activity right now has been primarily multi in industrial.
Doug Bouquard: When we think about what we're seeing in our pipeline, there's also another sort of underlying trend that really has remained consistent for the last two years, which is that we're still seeing primarily refinancings within our pipeline. That's one trend that we're really kind of keeping an eye on. We obviously would like to see some more acquisition loans within our pipeline and ultimately closing onto our balance sheet. But that's one trend that we do think, as there's perhaps a little bit more clarity in terms of the path of interest rates and, frankly, as the gap between where buyers and sellers will transact narrows, we do expect acquisitions to pick up. But I think that's, I'd say, that's sort of the next big trend that we are very closely monitoring.
When we think about what we're seeing in our pipeline. There is also another sort of underlying trend that really has remained consistent the last two years, which is that we're still seeing primarily refinancings within our pipeline.
That's one trend that we're really kind of keeping an eye on.
We obviously would like to see some more acquisition loans.
Within our pipeline and ultimately closing out of our balance sheet, but thats one trend that we do think as there is perhaps a little bit more clarity in terms of the.
Path of interest rates, and frankly, as the gap between where buyers and sellers will will transact narrows, we do expect acquisitions to pick up but I think that's I'd say, that's sort of a next big trend that we are very closely Marc.
Got it.
Rick Shane: Got it. Look, one of the other big themes that is emerging is it does appear that we are sort of approaching peak delivery of multifamily. There is going to be a little bit of a lag as we approach peak lease-up there. Are you starting to see the underlying economics in multifamily from a cash flow perspective improve? As we sort of get, as the market digests that additional capacity, are you starting to have conversations about any sort of resurgence in, or resurgence is probably an overstatement, rebound in multifamily development as well for new build?
Look one of the other.
<unk> themes. That's emerging is it does appear that we're sort of approaching peak delivery of multifamily there's going to be a little bit of a lag as we approach.
Pete lease up there are you starting to see the underlying economics and multifamily from a cash flow perspective, improve and as we sort of get as the market digests.
That additional capacity are you starting to have conversations about.
Any sort of.
Resurgence in our resurgence is probably an overstatement rebound in multifamily development as well for new build.
Yes look I think that what we've seen first of all just within our portfolio specifically our experience has been really across nearly every market generally very strong fundamentals in terms of multifamily I think that's been buoyed by number one as you mentioned.
Doug Bouquard: Yeah, I think that what we've seen, first of all, just within our portfolio specifically, our experience has been really across nearly every market, generally very strong fundamentals in terms of multifamily. I think that's been buoyed by, number one, as you mentioned, slowing in terms of new construction. Secondly, elevated borrowing rates on the residential side have, frankly, just kind of kept renters within their existing units. Then I would say, thirdly, I think you're seeing it a bit in some of the home sales data where there is a little bit of, I would say, pause from a risk perspective from your generic homeowner about kind of buying that next home. So again, I think all those factors lean sort of heavily into strong fundamentals for multifamily. That's definitely a trend that we continue to expect to kind of come over time.
Flowing in terms of new construction, secondly, elevated borrowing rates on the residential side, frankly, I'm just kind of kept renters.
Their existing units.
And then I would say.
Thirdly, I think youre seeing it a bit in some of the some of the home sales data where there is.
A little bit of I would say pause from a risk perspective from your generic homeowner about kind of buying that next home. So again I think all of those factors.
The sort of heavily into strong fundamentals for for multifamily and that's definitely a trend that we continue to expect kind.
Kind of come over time as it comes to multifamily starts I would say that we do have abroad.
Doug Bouquard: As it comes to multifamily starts, I would say that we do have a broad integrated debt and equity platform that really has its finger on the pulse of any new activity. We're really not seeing, I would say, a sort of large and growing wave of new construction deals really across either debt or equity. So I think, again, that just kind of creates a little bit of a sort of stronger moat around our current multifamily exposure. Then I'd say lastly, what we are starting to see is, even in, like I think, a few of the Sunbelt markets that perhaps had some of the greatest supply over the last couple of years, they are beginning to absorb that supply. So it does kind of seem like, as you look out one to two years, the sort of picture for multifamily remains very strong.
Great a debt and equity platform.
It really is kind of has its finger on the pulse of any new activity and we're really not seeing I would say.
It's sort of large and growing wave of new construction deals really across either debt or equity, but again that just kind of creates a little bit of a sort of stronger moat around our current multifamily exposure.
And then I'd say lastly, what we are starting to see is.
Even in the.
A few of the sunbelt markets.
That perhaps had some of the greatest.
Supply over the last couple of years, they are beginning to absorb that supply. So it does kind of seem like as you look out one to two years.
Sort of picture for multifamily remains very strong.
Got it okay. Thank you very much and I'll.
Rick Shane: Got it. Okay. Thank you very much. I really appreciate your thoughtful comments about everything that happened yesterday. I think everybody is feeling it, and you expressed it for you articulated it so well for all of us. Thank you.
I really appreciate your thoughtful comments about everything that happened yesterday, I think everybody's feeling it and you expressed it for you articulated it so well for all of US. So thank you.
Doug Bouquard: Thank you, Rick.
Thank you Brad.
Okay.
Operator: Our final question will come from Don Fendetti with Wells Fargo.
And our final question will come from Don Vendetti with Wells Fargo.
Yes, how are you thinking about credit risk migration from here, it's been very stable.
Don Fendetti: Yes. How are you thinking about credit risk migration from here? It has been very stable. I guess, let us say the Fed does not cut. Would that lead you to need some additional reserves, or do you feel like that scenario is baked into your current reserves?
You know lets say the fed does not cut.
Would that lead you to need some additional reserves or do you feel like.
That scenario is baked into your current reserves.
Thanks for your question, Don taking them in reverse order.
Bob Foley: Thanks for your question, Don. Taking them in reverse order, under Cecil, registrants' reserves should always reflect their future expectations. We have incorporated into our current estimates forecasts about changing interest rates and inflation, GDP growth, and so on. I do not think those factors in particular would directly weigh on the future direction of our Cecil reserve. In terms of credit migration and portfolio performance, our risk ratings have been very stable. We have had virtually no credit migration. As it stands right now, we would not expect any. Specific circumstances can change, but right now, we feel good about the profile of our loan book. In connection with multifamily in particular, some of the factors that Doug just mentioned are really important in our assessment.
Undersea so registrants reserves should always reflect their future expectation. So we've incorporated into our current estimates.
Uh huh.
Forecast about changing interest rates and inflation GDP growth and so on so I don't think those factors in particular.
Would directly way.
The future direction of our <unk> and.
In terms of credit migration and portfolio performance.
Our risk ratings have been very stable, we've had virtually no credit migration.
And as it stands right now we wouldn't expect any.
Specific circumstances can change, but right now we feel good.
About the profile of our loan book.
And in connection with multifamily in particular some of the factors that Doug just mentioned are really important in our assessment.
Don Fendetti: Great. Thanks, Paul.
Great. Thanks, Bob.
This now concludes our question and answer session I would like to turn the floor back over to management for closing comments.
Operator: This now concludes our question and answer session. I would like to turn the floor back over to management for closing comments.
Yes, just wanted to thank everyone for joining the call today.
Doug Bouquard: Yes, I just want to thank everyone for joining the call today. We are very proud of the team's accomplishments this quarter and look forward to providing further updates to the market. Thank you.
We're very proud of the team's accomplishments this quarter and look forward to providing further updates to the market. Thank you.
Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.
Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.
Yeah.
[music].
Okay.
Okay.
Yes.
[music].
Yeah.
[music].
Yes.
Okay.
[music].
Yes.
Okay.
Yes.