Greetings, and welcome to the TPG RE Finance Trust, First Quarter 2020 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions]. As a reminder, this conference is being recorded.It is now my pleasure to introduce your host, Ms. Deborah Ginsberg, Vice President, Secretary and General Counsel. Thank you. You may begin.

Good morning, and welcome to TPG Real Estate Finance Trust, First Quarter 2020 Conference Call. I'm joined remotely today by Greta Guggenheim, Chief Executive Officer; and Bob Foley, Chief Financial & Risk Officer. Greta and Bob will share some comments about the quarter, and then we'll open up the call for questions.Last night we filed our Form 10-Q and issued a press release with a presentation of our operating results, all of which are available on our website in the Investor Relations section.I'd like to remind everyone that today's call may include forward-looking statements, which are uncertain and outside of the company's control. Actual results may differ materially. For a discussion of some of the risks that could affect results, please see the Risk Factors section of our most recent 10-K, as well as our Form 10-Q.We do not undertake any duty to update these statements, and we will also refer to certain non-GAAP measures on this call, and for reconciliations you should refer to the press release and our 10-Q.With that, I’ll turn the call over to Greta.

Thank you, Deborah. Good morning, everyone. I wish good health to all of you and your family and want to express our tremendous gratitude to the public and private sector workers who are risking so much to protect all of us.Let me start with the obvious, this was a tough quarter. We recorded losses of $203.5 million from the sale of our CRE CLO portfolio. There is no way to sugarcoat this. Faced with the extraordinary disruption to the markets and no timetable for recovery, we made the decision to eliminate additional securities margin call risk, all of it by selling our entire bond portfolio.This was not an easy decision, but one that was necessary given the rapid series of events that unfolded in the stunningly short period of time; the worst global health crisis in 100 years, the most severe economic shock to the world economy since the Great Depression and the most volatile market conditions of my career that dramatically affected all publicly traded securities values, including our highly rated short duration, LIBOR base CLO securities.These historically liquid securities suddenly became significantly illiquid, requiring an unpredictable and significant diversion of capital. As a result, we sold the portfolio as we felt it was important to eliminate future securities margin call risk and raised cash to protective the value of our 5.1 billion in UPB First Mortgage portfolio.Our portfolio today is comprised primarily of office and multi-family loans, 49% and 24% respectively. Hotel and retail loans represent 13% and 0.6% respectively. We remain focused on the top 10 markets, as well as other high employment growth major markets, clearly employment growth is now on pause.68% of our portfolio is secured by bridge and light transitional assets. We have one construction loan with future funding obligations of $15 million. 50%…

Thank you, Greta, and good morning everyone. For the first quarter we generated a GAAP-net loss of $232.8 million or $3.05 per diluted share and core earnings of $168.3 million or $2.20 per diluted share. Net interest income from our transitional lending business was $40.8 million and that's up 5.9% from the prior quarter.Our first quarter results were driven by the losses sustained in connection with the previously announced divestiture of our CRE debt securities portfolio. From March 23 through March 31 we sold $179.3 million of bonds, generating a loss of $36.2 million.At quarter end we recorded an impairment charge of $167.3 million against the $767.3 million face value of bonds we owned on that date. In sales executed over the next three weeks, we sold the entirety of our portfolio for a loss equal to the impairment charge recorded at March 31, offset by a very slight gain on the single bond.The reduction in book value resulting from these sales was $2.65 per share. Market volatility was extreme, liquidity was scarce and margin calls were frequent and material. Management and our Board of Directors opted to stop out our loss via this complete exit from our securities portfolio. All securities related financings were extinguished upon the last of our bond sales and currently our investment portfolio consists entirely of floating rate mortgage loans.With regards to CECL we recorded expense for CECL of $63.3 million, which is equal to the difference between the initial general reserves of $19.6 million established on January 1 and the total general reserve of $83 million recorded at March 31.Quarterly CECL expense is a non-cash expense and as an add back from GAAP net income to core earnings, which is consistent with existing new accounting practice and the terms of our management agreement with…

Thank you, sir [Operator Instructions]. Stephen Laws with Raymond James. Please go ahead your line is open.

Yes hi, good morning. Thanks for taking my questions. I appreciate the disclosure and color. Greta, if I could ask you about a couple of loans I guess first. Could you maybe provide a little bit more color on the five rated loan. I think its number 19, the multi-family in Houston if I have the numbers matched up correctly, but if you can give us any color on that asset and discussions and any property details about that?

Sure. I believe we referenced it before, because it has been a 4 rated loan for quite some time. This is the one that – it is a Class A multi-family property. It was completely redone and redeveloped office building in Houston. One, a very nice property; however, rent concessions have not gone away in that market. There had been tremendous amount of new supply that continued for quite a while, and so this probably hasn't been able to reduce concessions and rent growth has not been very significant as well.There's about 20,000 – excuse me, 29,000 square feet of retail space that never leased on the ground floor as well. So the bottom line is the property has underperformed and given the extra stress on the oil industry caused by COVID, we don't see that improving in the near term, and we believe that it is appropriate to rate this a 5.

Great! Thanks for that color. Then switching to the deed in lieu, I think – is that number 21, the Brooklyn office you know, and if so – and just correct me if I’m wrong please, but with the deed in lieu process I know you spent some time talking about it, but how do we take a resolution from a timing standpoint. Is this something that takes place in a matter of months or is it the balance of the year, would have to be discussed. Can you give us an update on you know timing and options and the resolutions for this.

We're very early stage on this. This just occurred, you know a matter of two weeks ago and we're determining the best strategy now. But what we do know is that there are significant financial obligations, many of which are guaranteed. The sponsor must comply with in order to tender the property to us, and we're evaluating those now. This is a property in Brooklyn as you mentioned. It's very well located and it's got a very, very substantial sponsor with very substantial equity in it. We are trying to – you know its early stages, so I can't really comment too much on it, but we're doing – we're very much diligent in what we think the best approach will be.

Great, and then on the ongoing concern that was in the 10-Q, can we talk to that as party of the analysis that went into the $432 million of funding due in a year. I know included in the press release you talked about renewing the Morgan Stanley facility and then that was mentioned in the prepared remarks and I think Goldman is in August. But can you give us any color about that, and what steps need to be taken to have that removed.

I'm going to ask Bob to address that question.

Sure Greta, I would be glad to. Good morning Steven, how you?

Good morning, Bob. Good.

With respect to the going concern disclosures, and going concern generally, this is a standard analysis that these for us are strong. It does or should be in each quarter, and at year end I think in our instance, well, in everyone's instance the key focus of the analysis is on inbound and outbound cash flows and debt maturities. In our instance Greta and I both mentioned earlier the reduction in liquidity that resulted from the liquidation of our bond portfolio.We project as I mentioned earlier sharply reduced loan repayments for the next several quarters and for us and other lenders, loan payments are a typical and material source of cash for retirement system debt and fueling new investment business. So I would say that those were the two principal factors in our analysis.We do have two notable credit facilities maturing later this year. As I said, about 14% of our secured credit facility borrowings; one is with Goldman Sachs. It was our first number back in the early stages of the company and we have successful extended our facility with them before. The other is with BAML where we have only one loan pledged and as we mentioned and we discussed earlier, we just extended last week Morgan Stanley, which has been another longtime member of ours. So management is comfortable and confident with our plans and that's the answer.

Great! Thanks for the color Bob, and last question Bob, kind of thinking about the portfolio you know turns and potential dividend obligations, I appreciate the disclosure you provided regarding our securities and losses that will be carried forward, not [inaudible]. Can you talk a little bit about the other things we need to think about as far as adjustments to our core, to think about re-tax from and other, some benefits of LIBOR floors. Can you maybe give us some – a little bit of color on how to think about where retaxable income – what is the consideration figure on that?

Sure, it's a technical matter; a couple of things. First is, you know we intend to maintain our statuses of REIT to do so. We and other REITS need the dividend that, at least 90% of their taxable income. There aren't that many REITs, book-to-tax differences. One of them I would say most notably will be CECL and it was the general reserve associate with that. And you know apart from that, the differences between how loan fees for example are accounted for between book and tax that are not material, nor are they for interest income for that matter. So I'd say the real issue is the CECL reserve, the biggest reconciling item.

Okay, thanks for the color. I appreciate the time in ’20 and I hope you and all your families are doing well. Thank you.

Thank you. Right back at you.

Thank you, Steve.

Steve Delaney of JMP Securities, please go ahead. Your line is open.

Good morning Greta and Bob, and I’m glad to hear your both well. Just a couple from me. In addition to the one delinquent loan that you cited Greta, can you comment if you have any other loans that you placed on non-accrual and have in more of a cost recovery mode than accruing interest. Thanks.

No, we do not have any.

Okay, and that process, can you just comment briefly on as you're looking at a loan and maybe it's using interest reserves, is there a point that you look at a loan and say, okay, we’re going to stop accruing interests on this one and just stop reducing our basis in the loan and maybe just what conditions would you look for to put a loan on non-accrual, because we’ve some non-accruals this quarter for the first time in this space and that’s why I’m asking.[Cross Talk]

I’m sorry, go ahead.

Well, I’ll start and I’m sure you will be able to fill in some gaps that I will probably encap. But I think a key factor is, is it current in its debt service obligations, and presently we just have that one loan that we referenced. So to me that is a key factor and you know typically you would look for it to be delinquent you know beyond – you know probably up to 60, 90 days before we would start thinking about that and we do not have that situation. And Bob, please add to that.

No, that's entirely accurate and we do clearly disclose in the Q what our policy is with respect to non-accrual, which is 90 days unless we otherwise have a firm conviction that interest accrued is collectible, even if it hasn't been paid for 90 days, which is a rare but not unheard of occurrence in the real estate business. But you know it’s a clearly defined cost and it’s one that we apply carefully.

That’s helpful. Thanks for clarifying that for me. And then switching to cash management now and in the world where securities are not going to be part of that, what should we think going forward? I know you commented repayments. You are not likely to be significant and you have some future fundings, but as you have – if you’re in a position where you have excess cash over a couple $100 million or $1 million or what have you, would you use that and pay down the revolver Term B loan or you think it will all go to specific loan financings to de-lever like you’ve done on your hotel loans and retail loans.

Well, I do think you know it’s been disclosed. We are in discussions with our repo counterparts parties to work out an arrangement with them. I mean we have no margin calls now, but we're in discussions to get a, you know sort of a longer term agreement for where they would forestall margining and we're having active discussions on that right now.You know presently we are not seeing interesting opportunities for deploying capital. You know I think the asset sales market has slowed dramatically and I think most lenders are hesitant to refinance properties, particularly if you know their cash flows have been affected, albeit you know temporarily while this pandemics going on, but nevertheless negatively affected by the pandemic. So we're not seeing a lot of opportunity, so we would at this moment you know hoard cash and pay down liabilities.

Great! And I guess for us with where I was going, I think hoarding cash is a great strategy right now Greta. I just was trying to get to the question of you were keeping control over that cash as opposed to is there a balance between you know putting the cash somewhere where you can get it back or I guess that depends on your discussions with the banks on a specific loan. But just trying to figure out how you view the different financings and which debt you choose to pay down is kind of where I was going on that.

Sure. Well, you know given the state of the world, we would probably pay down loans that are financing hotels first, because they are the most vulnerable.

Yes, understand.

But you know all things else being equal that's what we would do, and then otherwise we would look to pay the most expensive debts off first.

Makes sense, and just a final question. Stephen I think tried to get to this with his RTI question, but I'm just going to lay it out I guess directly and that is you know, as I’m representing your dividend currently in my comp table and talking to investors I'm staying, for now the dividend has been suspended and as we move forward here for the next few months or so, is that a proper way for me to reflect your view towards the dividend?

Are you referring to Q2 dividends or Q1?

Any. Well with Q1, Q1 you suspended debt.

Yes, so you know all I can say to that is that you know we – I would refer you back to our press release and we don't have any additional information or update on that at this time.

Got it. That's exactly what I needed to know. Thank you both and stay well.

Thank you.

Thank you, Steve.

Arren Cyganovich, Citi. Please go ahead. Your line is open.

Thanks Bob. You mentioned in your prepared remarks that you don't – we do not believe that the CECL allowance currently reflects the likely credit performance. I’m assuming that means you believe that it's over reserved for potential credit losses?

What I believe is that that statement was intended a different way and perhaps it was unclear as that A) CECL is a general reserve; B) its licensed alone and C) the impact of the new macroeconomic assumptions that we and others employ in connection with such corporate reserves is severe, and so the impact over the life of the loan may or may not be the same as what the CECL reserve suggest today depending upon many things; I'd say most importantly, you know for how long do the after effects of COVID-19 persist. Does that answer your question?

Yeah. I mean I imagine it's very specific and you have you know various properties that are already struggling. I think what is it that kind of stood out to me is you have two of the – it seems like the biggest problem or challenge right now are multi-family and offices. It's not even the hotel and retail, which we've been focusing on from that risk perspective. You know it's I guess a little bit surprising to the extent that you're having issues there at this point, but that’s both Houston and multi-family in this kind of environment [inaudible].The borrower modification is bad. I think Greta had mentioned 13% modifications thus far and we’re coming with equity, which would be nice. What works for like the underlying assets predominately within this 13%?

I'll take that Bob. So the 13% as far as who have requested modifications and that is primarily our hotel borrowers and our one $30 million retail loan and the modifications are really very bespoke and can until something as simple as allowing the bar to access cash in an FF&E reserve for uses other than FF&E such as you know paying debt service, in other cases it could be relaxing and extension conditions.If you have a debt yield task based on trailing 12 NOI and you know you're not going to have much NOI related to the COVID crisis, so there each one is very different. But I can say, in all cases you know the bar is committing additional capital and in most of the cases it's very significant capital.

Okay, and then just following-up on the deed in lieu, it’s just the process itself on that your too familiar with. Maybe you could just talk a little bit about you know how that works in a typical and maybe there's not a suggestion of what it typically means for deed in lieu foreclosure. I just don't understand what's the benefit for you to negotiate this kind of transaction versus just to foreclose on the property.

I'm going to ask Deborah Ginsberg, our General Counsel to address this. She will be much more legally precise than I will.

Sure. And so this sponsor has ongoing carry obligations for the property and I think that their idea is they would like to tender it to cut off their underlying carry obligations. As you know a foreclosure in New York could take, you know call two years under the current circumstances, so you know – but in order for them to tender and cut off those obligations, there are significant concessions that they would have to make towards us. So that's kind of the process that we're starting now. We expect it to take several weeks, possibly to months, I’m unclear on the resolution, but it is for it to be less than two years to actually foreclose.

So it would be essentially then giving you the keys, but also giving some cash along with that, that's kind of the way that you would expect it to play.

I would more express it as making sure it's complete in tying up our obligations of the property, so yes. That is probably the ultimate end result.

And then, I suppose just touching on the new capital sources that you're looking into, do you have any idea of what kind of form you know that you expect that to come from. We’re seeing you know other firms do you know various types of new capital coming from their sponsor converge, etcetera. Have you thought about what form that might come in?

Look, all I can report on that is what we've said publicly and that we have hired Houlihan Lokey to help us source capital. I know there's been a lot of reports in the press from others, not us. A lot of that may be misleading, but I can say that you know we hired them to consider all sources of capital and you know that's what we're doing.

Okay, thank you.

Thank you. [Operator Instructions] Rick Shane from JP Morgan. Please go ahead, your line is open.

Guys, thanks for taking my questions this morning and I hope everybody's well. Regarding the deed in lieu transaction, I am curious. That was a property in 2018. So they've been in there for two years. It is 52% LTV you know exception. This really sounds to me given the way you described the sponsor like a strategic default, as opposed to them not having the dry powder to see the project through.I'm curious if you can provide us some additional characteristics of the property given that they are two years into the transitional. Is this a property that's generating rent and what would it look like on the TRTX balance sheet as of REO [ph] in terms of income, and could you – would your idea be to hold it or to try to dispose of the property.

You know, we're very diligently evaluating all our options. What we like about the property is its location in Brooklyn. The sponsor, it was originally a warehouse project in that part of Brooklyn and the sponsorship bought it to convert it to creative office, and you know I think there wasn't a tremendous amount of demand for that. So we're looking at really all options to maximize value for the property.You know the sponsor has significant equity, you know 43% of equity at this point of cash equity invested. They’ve continuously contributed to the property since it's closed and we're in active discussions and diligent – it’s just really premature to say, you know to come to any conclusions on this property at this time.

Got it. One follow up on that and then one other follow-up. Related to that property was the idea that this was going to be a co-work space. Is that one of the things that’s changed?

No, that was not a primary driver of that. I mean, is it possible they considered a co-working tenant at some point, possible, but I don't have that knowledge.

Okay, great.

That was not the primary driver.

Great, thanks Greta. And then as you enter renegotiations or extensions on the existing debt facilities, one of the benefits to enjoy over the next 12 to 24 month is you have substantial floors in place on your assets and you guys provide a good chart in terms of how that impacts NII. I am curious if you think that there will be terms associated with the extension of the secured facility that dampen that, either floors on your borrowing or higher spreads on base rates in order to offset where the banks are in terms of low base rates right now.

Well, for our existing facilities, nothing material has changed. The arrangements pre-COVID still exists in most all cases. Do I expect to see floors in some type of bespoke financing? Yes, I think that's quite possible. I think we've seen it with a couple of competitors whose recently refinanced and you know outside of the banks. I don't know if that’s answering your question.

I'm specifically wondering, as you site the $432 million drawn on facilities and the extension of those facilities, if you think you'll see some efforts on behalf of those two banks to offset the low rate environment, either through higher floors or wider spreads.

It’s to be seen. I think there could be wider spreads for new borrowings. For additional borrowings, but under the existing facilities, I believe they will honor the terms of those facilities.

Okay.

And Bob, I don’t know if you have any further color on that.

No, I think that's accurately stated. I think that we’ve been, we are always in constant contact with our lenders and that predates the COVID crisis. We are clearly engaged in negotiating as Greta mentioned in connection with these voluntary deleveraging arrangements.With specific regard to extensions, generally speaking lenders on extensions hold firm to previous pricing for existing borrowings, existing pledge to assets. Clearly the financing markets have changed and so for new borrowings there could or could not be adjustments to pricing. I think that will depend on market circumstances and the facts at the time that those deals are extended, which we expect to be between now and their next maturity dates, which are in August and September of this year.

Okay. Thank you, guys.

As we mentioned, you know we have substantial towards and good weighted average spreads on our loan. So there is a strong basis from which to negotiate. Thanks Rick.I would like to revert to one point that Steven DeLaney made earlier. With respect to our first quarter dividend and I can’t comment Steve on your firms sort of nomenclature, but the first quarter dividend was differed. The company hasn't announced any suspension have been stated yet.

That is correct. Pursuant to the press release, yes that is the word, yes.

Alright, thank you.

Thank you. And as there are no further questions in the queue, I would like to turn the call back over to Greta Guggenheim, CEO for any additional or closing remarks. Over to you madam.

Well, thank you all for calling in this morning and great to hear your voices again and that you all are well and healthy, and we look forward to speaking to you next quarter.

Thank you. That does conclude today's conference call. Thank you for your participation. You may now disconnect.