Good morning, ladies and gentlemen, and thank you for standing by. Welcome to TPG Real Estate Finance Trust Fourth Quarter and Full Year 2024 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. It's now my pleasure to turn the call over to management. Thank you. You may begin. Unknown Executive: Good morning, and welcome to the TPG Real Estate Finance Trust Earnings Call for the Fourth Quarter and Full Year of 2024. We are joined today by Doug Bouquard, our Chief Executive Officer; and Bob Foley, our Chief Financial Officer. Doug and Bob will share some comments about the quarter and the year, and then we will open up the call for questions. Yesterday evening, we filed our Form 10-K 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. As a reminder, today's call is being recorded and may include forward-looking statements which are uncertain and outside of the company's control. Actual results may differ materially. For a discussion of risks that could affect results, please see the Risk Factors section of the company's 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-K. At this time, I'll turn the call over to Doug.

Thank you. Over the past quarter, strong economic growth and a resilient labor market continued to power the U.S. economy. Positive economic sentiment and the lingering concern over inflationary pressures appear to have caused the Fed to pause and potentially forgo additional rate cuts in 2025. We expect real estate investment activity to increase in 2025, driven by the deployment of dry powder into new acquisitions and the forcing mechanism of elevated short-term and long-term interest rates. These factors create an excellent dynamic for opportunistic debt investing, especially for well-positioned platforms like TRTX. Regardless of causal factors, we intend to continue to provide acquisition and tailored financings to recapitalize broken capital structures at reset valuations. We expect our increased 2024 loan investment volume to accelerate in 2025, driven by: one, an offensively oriented balance sheet with substantial liquidity and a flexible liability structure; and two, robust sourcing channels fed by TPG's fully integrated global real estate platform encompassing both credit and equity investing. By all metrics, 2024 was a successful year for TRTX. We accomplished precisely what we set out to do: number one, build a fortress balance sheet with substantial liquidity; number two, maintain a 100% performing balance sheet at year-end with stable credit risk ratings; number three, register consistent reductions in our CECL reserves throughout the year; and four, generate distributable earnings after realized losses that fully covered our $0.96 per share common dividend for 2024. And on a prerealized loss basis, we generated $1.08 per share for the year, covering our dividend at 1.1x. We are exceptionally well positioned to pull on the many levers that TRTX possesses to grow earnings, including: number one, deployment of excess liquidity into new investments; two, recycling equity currently supporting REO assets; three, accessing undrawn capacity from our existing lenders; and…

Thank you, Doug. Good morning, everyone, and thanks for joining us. Our strong operating results for the full year 2024 and this fourth quarter reflect the success of our strategy and provide a springboard for increasing loan investment activity in 2025 and beyond. In the fourth quarter, we increased net earning assets for the second consecutive quarter due to $242 million of new loan commitments. With strong liquidity of $320.8 million, leverage of only 2.14:1, a CECL reserve of 187 basis points that has continued to decline in response to the solid credit performance of our loan book and stabilizing real estate market conditions, a weighted-average risk rating of 3.0 that hasn't wavered in 4 quarters, distributable earnings for the year that fully covered our $0.96 annual dividend throughout 2024 and distributable earnings before realized losses that covered our annual dividend by 1.1x, TRTX continues its march to increase earnings and shareholder value. TRTX's share price performance is the strongest among its peers since January 2023, with a cumulative return of 61% through last Friday. The levers that Doug detailed further support the compelling value TRTX offers at today's share price. Our operating results for the year and the quarter are amply reported in our earnings release, earnings supplemental and Form 10-K, all of which were filed with the SEC after yesterday's market close and are available on the TRTX website. Regarding our loan portfolio, 100% of our loan portfolio is performing and current. We have only 2 4-rated loans and no 5-rated loans. Our weighted-average risk rating is 3.0, consistent with the prior 4 quarters. For the year, we originated 8 loans, totaling $562.3 million of commitments. For the fourth quarter, we originated 2 loans, totaling $242 million of commitments; we funded $4.7 million of deferred fundings on existing…

[Operator Instructions] Our first question comes from Tom Catherwood, with BTIG.

Maybe, Bob, starting with you, on the 2 multifamily loans that you took into foreclosure, those were 4-risk rated last quarter. Can you talk us through kind of what the change was over the course of the quarter that took those from the 4 risk rating all the way to foreclosure? And then, how much needs to be done to bring those properties to stabilization?

Sure. Tom, thanks for the question. As we discussed in the third quarter call and pretty heavily previewed, these were 2 loans where we've been pretty engaged with the borrower. And on the third quarter call, everyone, I think, will recall that we said these things might be modified and resolved or we might enforce our remedies. In both situations, we did choose to enforce our remedies in the fourth quarter. That's consistent with our overarching REO philosophy, which is to max value for our shareholders. And after reaching a point with both borrowers where it became clear to us that neither borrower was going to meet the terms that we had set forth for a modification that was consistent with our principles, which are meaningful reduction in principal outstanding, replenishment of interest reserves and so on, we went immediately toward the enforcement path and took back all 3 properties: 2 in November and 1 in December. In terms of the path forward from here, the 2 properties in San Antonio -- well, with respect to all the properties, we immediately put our [indiscernible] transition and property management teams in place. We've used them on other properties that we've taken back in the past. In San Antonio, we're working to stabilize and rebuild occupancy, and we expect to do some work on the properties to achieve that. The property in Chicago is well leased. It's in excess of 90% leased, and we would expect that we would move reasonably quickly to sell that one.

Okay. Appreciate that, Bob. And then, following up on another item you discussed, you talked about tapping your financing capacity as you continue to ramp originations. How do you expect leverage to scale through the year? And could we see you out in the market looking to do a new CLO as well?

Good question. First, with respect to overall scaling of financing, I would say that as we continue to invest, which we've been doing on a net growth basis the past couple of quarters, we've got substantial liquidity already in place on the balance sheet. We have significant cash, as you can see by inspecting our balance sheet. I would expect that we would and are in the process actually of deploying that first, and then we'll back-lever. We have ample capacity to do that with existing credit facilities. I mentioned the [ table ] funding facility that we renewed for 3 years and upsized. We're a very active borrower in the note-on-note market, which, as I mentioned in my prepared remarks, continues to become more liquid and cheaper from the standpoint of borrowers like TRTX. And last, with respect to the CRE CLO market, that market has become increasingly active over the last couple of, call it, 2.5 to 3 quarters. TRTX has been a leader in the CRE CLO market since it revived in early 2018. And so I wouldn't be surprised, although I'm not committing here and now, that we would be a participant again as a new issuer in that market at some point in 2025. Actually, one last thing, in terms of -- and I didn't fully answer your question. So our current leverage is 2.14:1. We have historically operated the business in the sort of 3x to 3.3x leverage. As we continue to increase the pace of our deployment, I think you'll see that debt-to-equity ratio march up steadily.

Got it. And the last one from me, Doug, in your prepared remarks, you noted the steeper yield curve as a forcing mechanism. Is that -- do you think of that as kind of forcing borrowers to sell assets if they can't find relief? Is it forcing borrowers into shorter-term floating-rate paper? Or is it forcing something else in the CRE market? How do you kind of think of that statement that you made?

I mean, it's a little bit of all of the above. I would say that when we think about the interest rate market, look, I think, first, with the movement in forward SOFR, let's just say, kind of generally anchoring around 4%, that does put pressure on existing transactions that are out in the market where there might be a need for a newly capitalized debt financing, and we are looking at those types of transactions where we can be opportunistic. But I would say, again, that with SOFR being elevated, the forcing mechanism is just that some borrowers may look to kind of fix their broken capital structures. And that's one. And then I would say, two, as it relates to interest rates as well, clearly, on the fixed-rate takeout side, as the 10-year Treasury has kind of hovered around 4.5%, I think that's also putting a little bit of pressure on the timing for certain kind of term-out financings within perhaps the conduit or agency market. So I think all of that, again, will help drive opportunity set. And then I think all that is founded in the fact that the interest rate market has also shifted so far from a pipeline perspective, in that the second half of 2024 is really characterized by elevated interest rate volatility and that there was a lot of uncertainty in terms of the path of SOFR, kind of where perhaps the 10-year would settle. For what it's worth, as we've turned the calendar into January and February, we have begun to see a reduction in interest rate volatility, which generally means that should be met with an increase in real estate activity. I think that when real estate owners have a little bit more clarity in terms of the path of rates, they tend to deploy capital with, I would say, a bit higher pace. So I think those are kind of some of the big macro trends that are affecting our business. And again, all signs point to a very active 2025 investment pipeline.

And our next question comes from Stephen Laws, with Raymond James.

Two questions, I guess. First, Doug, can you give us an update on your life sciences exposure? I know things in that property type really seem to be asset by asset. So I would love to get a little bit of color on your exposures there and how those loans are performing.

Absolutely. So we began the quarter with 4 life sciences deals on our books. We actually had 1 of the 4 pay off. So we're actually now down to 3 life sciences transactions. When you think about our current exposure, I think that one of the things that are kind of really important to highlight is that, first of all, none of our assets are in shell condition, in that they're all built out and it's really just kind of a function of identifying tenants for those spaces. Secondly, from a borrower perspective, we've really kind of centered on the highest-quality borrowers, experienced borrowers in the market and those that we think are going to have a particular edge in terms of that lease-up. And then I'd say, lastly, if you zoom out for a moment and kind of think about TPG's expertise within life sciences, it really is kind of first class, both in terms of having real estate equity and debt exposure within life sciences and then also just the broader TPG healthcare investing platform, which can provide some insights into some of the trends around the demand for life sciences space. And I'd say, lastly, Stephen, as we have some insights in terms of our real estate equity business, we actually have seen a slight uptick in terms of leasing and touring activity over the last 90 to 120 days. So while we fully acknowledge that I'd say business plans are going certainly slower than they were 1 to 2 years ago, we've been investing in this asset class for many years, and we are starting to see a little bit of pickup in terms of activity.

Great. Appreciate those comments, Doug. Bob, a couple of questions related to REO. I think REO revenue was flat. I think that makes sense given your comments. Expenses, I believe I read in the K, were up $1.2 million related to the new assets. Can you talk about how you expect those line items to move forward? I think the Chicago, you mentioned 90% leased, but probably came in late in the quarter. So maybe add some real estate income there. But then expenses, we need a full quarter impact from the partial impact from Q4. Is that fair? Or are there other factors I'm not considering?

Thanks for your question, Stephen. I think there's a sort of macro and then some property-specific answers. I would say, generally speaking, most of our current REO properties are cash flow positive. The increase in real estate [ owned ] expenses that you cite was a one-timer and related entirely to the San Antonio property that we converted in early November. And with respect to Chicago and other multifamily properties, in particular, that we own, the 2 Chicago properties that we own are both 90-plus percent leased. They're very cash flow positive. Expenses are stable. So we would expect those to move toward sale reasonably quickly. And I would add, although you didn't ask, we don't really envision much in the way of capital expenditure across the portfolio as a whole.

Great. And I'll ask this difficult question. How do you define "reasonably quickly"? I think you mentioned in your prepared remarks, I think, the 2 California assets may be being marketed for sale. You mentioned Chicago is leased up, so something that could move quickly. When you think about the 8 properties in the REO bucket, is there a way to estimate how many may move in the first half or in 2025? Or other side of it, how many are kind of longer-term execution paths?

Sure. Well, let me -- I won't answer very specifically, but let me revisit again. Our job one with respect to REO is to maximize shareholder value. And for us, that means constantly evaluating the buy-versus-hold decision and then executing accordingly. We did that, and we have 2 properties in the market right now, and we would expect those to resolve themselves at or near the end of the second quarter. We have offers on one, and we expect offers on the other in early March. We then have a second tranche of properties that we have seasoned, and we would expect to bring those to market shortly thereafter. I would say, in general terms, by the end of 2025, I would expect that our existing REO portfolio would be reduced by about half, just to give you a general sense of timing.

Our next question comes from Steve Delaney, with JMP Securities.

Congrats on a strong close to what was certainly a challenging year for the broad CRE market. From your comments, it sounds like you have a far more constructive view of 2025. I'm hearing that's not only from your own internal view of the economy, but also a lot of feedback from real estate equity investors in the marketplace. So cutting right to the portfolio, which was $3.4 billion, it certainly sounds like you have the opportunity to grow and you have the relatively low leverage of 2.1x. Is it realistic to think, and I'll just go straight to some specific numbers and you can talk me off the mountain, just year-end 2025, if we model a portfolio of somewhere between $4.5 billion and $5 billion even, how realistic, in your mind, would that level of portfolio growth be for 2025?

Steve, thanks for your question. As you know and as everybody on the call knows, we've never been in the practice of providing guidance. Having said that, let me offer a little illumination on how we're thinking about the year. Doug was very clear that we think the year has set up very nicely for increased investment activity, and he's described the factors driving that. From our standpoint, we've got significant liquidity on the balance sheet today that's available to us for new investment, frankly, without leverage, without recycling REO capital, without anything else. So in rough terms, if we were to deploy, say, $200 million of that at 3:1 or 4:1, that's $800 million to $1 billion of new loan investment activity off the bat. In our peak years, the company has typically done around $2 billion, a little more than $2 billion, of investment activity. On the repayment side, Doug made clear in his remarks that higher rates and this more steeply sloped yield curve would suggest that, on balance, existing loans are probably more likely to lengthen a little bit than prepay. Obviously, every loan is a little bit different. But we've had strong steady repayments throughout the year, including the life science deal that Doug mentioned earlier. So I would expect that new investment activity would comfortably outpace loan repayment activity for the year. And so we would expect pretty significant growth in net earning assets, but I'm not in a position nor are we in the practice of providing a specific number.

Understood. That's very helpful color, and Chris and I will work that out. But I've heard more positive than negative in terms of the opportunity that you're facing to invest capital in 2025 vis-a-vis the past year. Just curious a little bit, my little quick follow-up. You covered so much in these first few questions. Of the 2 new loans of $242 million, I mean, on the surface, it looks a bit chunky. But then again, it's pretty clear you guys are not in the small-balance CRE lending market, which we would normally put it at $25 million or $50 million. And is that just reflecting sort of TPG from an institutional standpoint, your borrower mix? Would you consider yourself more upper-middle market? I don't know really how CRE lenders, other than the small-balance segment, which is so obvious, how you really kind of peg yourself in between the very mega borrowers and the small borrowers. But it seems like to me, what you're saying, a loan of $100 million to $150 million on an individual loan to one borrower, I'm hearing that that's not any kind of a heavy lift for TRTX. Is that a fair statement?

Yes. And happy to kind of speak to sort of how we think about loan sizing. I would first highlight that the 2 loans that we did in Q4, both of those do have some inherent diversity within the loans, in that they are portfolios. So as we do kind of lean perhaps above the $100 million size, we will also orient ourselves towards portfolio where we get the benefit of diversity. And that's statement one. I would say, secondly, these deals as well, we also are very focused on repeat borrowers. So we're seeing a lot of that both in the deals that we closed in the second half of 2024, and a lot of what we're seeing in our pipeline is repeat borrower-heavy. When you think about sort of average loan size, to kind of go back to the data, again, in approximate terms, average typically loan size is closer to kind of the $75 million range. So I think that, Steven, while we're somewhat uniquely positioned, is that we do have range. I mean, we can go down to $25 million to $50 million if we do see opportunities there, which we have done over the past year, but also if we do see a deal that's $150 million or more, we can pursue that as well. So to put a fine point on it, I would say that we're really trafficking really across both the middle market and upper-middle market. And I think as we look at more and more institutional borrowers, institutional real estate is where we tend to sometimes have some somewhat larger loan sizes.

And our next question comes from Don Fandetti, with Wells Fargo.

Bob, can you talk a little bit about the moving pieces in the allowance? It looks like there was around $4.6 million of provision. And then, were reserves sufficient to cover the conversion to the loan to REO this quarter?

Don, thanks for the question. So I'll speak in numbers rounded to the nearest million. At the end of last quarter, our CECL reserve was about $69 million. As previewed, we converted the 2 loans we've been discussing into REO. That occasioned a relief of the CECL reserve of $10 million, which was within about $250,000 to $300,000 of the reserve that we had previously been carrying with respect to those 2 loans. So the answer to your question is, yes, it was fully reserved for. And those results are actually consistent with our historical CECL results, where our realized losses have been around 3%, within 3% of what our CECL reserves were at the end of the quarter preceding the period in which the realized loss was taken. And then there was about $5 million of expense, as you said, during the quarter, which was really driven by the macro factor impact on our general reserve. We have no specific reserves, and we've had no specific reserves for a while. It's all general. And so inflation, steeper yield curve, higher rates, a lot of these factors as they course through the loss given default model that we and many of our competitors use to develop our CECL reserve, that's what gave rise to that approximately $5 million boost. So $69 million minus $10 million gets you to $59 million, plus $5 million gets you to $64 million. That's 187 basis points, which is actually 15, almost 20, basis points lower than the preceding quarter-end and just reinforces the steady decline in that reserve rate expressed in basis points that we've engineered over the last number of quarters.

So do you think -- what's your sense on provision, going forward? Because you could argue that there are some improving areas of commercial real estate. I guess, what's your thought process in terms of, like, move 3s to 4-rated? Do you feel like you're pretty stable there? And just kind of generally thinking about provision expense, going forward.

Let me disaggregate your question into 2 parts. The first is sort of where do we see CECL reserve going on a forward-looking basis. I would expect, given where we are in the cycle and the 100% performing nature of our current book, that the CECL rate expressed in basis points would not increase. And theoretically, over time, that rate should converge with sort of the long-term loss rate for us as a company or our peers as a company. As you know, CECL has been in effect for only 5 years. So all of us are still building our own sample set or universe of actual loans and losses. And in the interim, we're using these large data sets that we contract with other companies to get. So I would expect that the rate would kind of be flat or decline, but it's probably not going to go up. In dollar terms, as we continue to grow our book, which we have been doing, we expect and you should expect that the dollar amount of the CECL reserve will increase, because it has to, given how the CECL pronouncement is applied. Every loan is going to attract some amount of general reserve as soon as it's booked. So I hope that answers that question. The second part of the question was, I think, really about migration. We have only 2 4-rated loans. That's less than, or it's about 3% of our current loan book. Otherwise, our risk rating average has been 3.0 for a number of quarters. So we don't anticipate much migration. Historically, most of the 4-rated loans that we've had have either reperformed and become 3s or they've been resolved through payoffs. Obviously, some have migrated in the other direction, but that's not the majority. It's the minority.

And our final question comes from Rick Shane, with JPMorgan.

I've got a few actually, and a lot has been sort of covered. Just curious, last quarter, you were very, very clear about the potential path of the 4s: 2 of the 4s becoming REO. You've got 2 remaining 4s. Are you going -- is your intent to be as aggressive potentially in terms of REO solutions? Or do you see different paths on those?

Rick, thanks for your question. Before commenting specifically on those 2 loans, allow me to restate again, our view about loan asset management and REO management as well is our job is to max shareholder value. So we're going to make the decision based on the facts and circumstances of each loan as they develop and as the situation presents itself. So we've got 2 4-rated loans currently. I don't think it's really a matter of us being more or less aggressive. We've been very clear to the investor market and we're very clear to the borrower market that we'll be commercially reasonable on loan modifications and extensions. But "commercially reasonable," to us, means that a borrower is going to reduce its loan principal, it's going to replenish an interest reserve, it's going to buy the interest cap that it's obligated to buy under the loan agreement and so on. And if people do that, then we'll be commercial. And if they won't, our view is that shareholder value is best delivered by us owning it and doing whatever needs to be done and then monetizing the property at the right time. With respect to the 2 properties, I think one is an office property in Honolulu and the borrower looks like they're going to sell that property and repay us. And the other is a mixed-use property in Southern California. We continue to engage in discussions with the borrower about a potential modification that, if it occurred, would need to conform with the framework that I just described.

Got it. Okay. Second question, you guys have been -- you recently renewed your facility. So you are as close to that market as anybody. You're also, as you pointed out, very experienced CLO issuers. We've seen the market reopen. There have been over $5 billion issued year-to-date. When you look at the terms that you just received on your renewed facility and you look at what is happening in the CLO market, can you compare -- give us some context in terms of available leverage, spreads? What are the puts and takes versus the 2 markets right now?

Sure. Well, look, we're fortunate that we're part of TPG. So we have constant feelers out into the capital markets. And here within the real estate credit platform and TRTX, in particular, we're active users of the capital markets. With respect to the bank facility that you referenced, that market is pretty well developed and, I would say, recovering. I'm going to distinguish the market we just tapped from the repo market. The repo market, we're moderately active in. We don't use a lot of repo. It's typically 20% to 25% of our borrowings, max. But in the syndicated bank loan market, it's pretty active. It's receptive to companies like ours that have strong credit profiles and a good track record. I would say specifically on that deal, we found strong receptivity to our pricing, to the structure. We're able to move things on and off of that facility. We don't really have restrictions on what we can put on it, which is really, really valuable to us as we optimize the liability structure of the company. We have seen over the last couple of years very strong investor interest in the note-on-note market, and you've seen in our -- you've heard in our previous discussions and seen in our filings that we've been really active in that market. Advance rates have held steady strong, in the mid- to high, I'd call it, 75% to 80% range, and spreads have come in. Finally, with respect to the CRE CLO market, we have seen a lot of new issuance, and the industry observers expect that to remain strong for the remainder of the year. We've seen improved structure; in particular, longer reinvestment periods for managed transactions. We've seen spreads come in steadily. And we've also seen investor demand for transactions that have property types other than multifamily only and that includes seasoned collateral as well as newly originated collateral. So we see that as a really interesting market, where we have a strong brand and reputation. So we monitor all these markets and we try to optimize. That's our job on behalf of shareholders.

Got it. And then if I could, one last question, and this goes back to a discussion that actually the 2 of us had almost 5 years ago to the day. You talked about loan growth and implementation -- initial CECL reserves. 5 years ago, the industry was somewhat encumbered by the fact that you were using data where there was for the past decade very little default inventory. Now we're entering a period where there's a high degree of defaulted inventory. I'm curious when you think about the models, how they adjust for that sort of recency bias. Will we see initial CECL general reserve rates be higher because of this? And how do you sort of manage that sort of barbell time frame?

Sure. Good question. I do remember that conversation. And you're right that these data sets are different today than they were in early 2020, because we've been through a fairly pronounced commercial real estate correction where values have declined, in some instances, materially. But all of that loss data is timely and accurately captured by the various providers and compilers of the data. And look, the idea in these models and, frankly, in management's judgment of how to apply them is to, if necessary, adjust for what you termed recency bias. But clearly, loss rates for the couple of years leading into 2020 were quite low. But if you had looked at those loss rates extending back to 1998, which is when the data set actually begins, they had been through a couple of cycles as well. And now we have, I hate to say this, the benefit of the last 5 years, at least in terms of loss data. And so that will inform how we and others apply those loss rates to their CECL estimates each quarter. But I feel confident of our ability to do that. But I do believe that, again, these are forward-looking -- the pronouncement is focused on forward. It's a current estimate of expected losses in the future. And so it needs to take into account not only past loss experience, but also the macroeconomic data, rates, GDP growth, LTV, basis per square foot, the consumer, Property Price Index and a lot of other factors that are prospective, not historical.

Got it. Okay. It's going to be interesting to see how that develops over time, particularly as the industry resumes starting to grow loans again.

Thank you. And with that, there are no further questions at this time. I would like to turn the floor back to management for closing remarks.

I just wanted to thank everyone for joining us this morning on our call, and we look forward to updating all of you on the continued progress here at TRTX. Have a great day. Thank you very much.

Thank you. That does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.