TPG RE Finance Trust, Inc. Q4 FY2024 earnings call

• Strong economic growth and resilient labor market in the U.S. with Fed potentially pausing rate cuts in 2025.
• Intend to continue acquisition and tailored financings to recapitalize broken capital structures. 2024 was successful with a fortress balance sheet, 100% performing balance sheet, reduced CECL reserves, and distributable earnings covering dividends.
• In H2 2024, net earning assets increased by 3% with $446 million new loan commitments. Investment team has a substantial pipeline with over $300 million of live opportunities.
• Recently completed an accretive amendment to a New York City office loan, reducing loan commitment and improving credit position.
• REO has 8 properties with aggregate carrying value $275.8 million, and the integrated TPG platform works to optimize REO performance. Foreclosed on 2 multifamily loans in Q4.
• Liquidity is $320.8 million, leverage 2.14:1, and in compliance with financial covenants.

The loan portfolio saw net earning assets increase by 3% in the second half of 2024 due to $446 million of new loan commitments, primarily in multifamily and industrial portfolios across the U.S. with an LTV of approximately 60% and a weighted-average spread of SOFR plus 3.25%. 100% of the loan portfolio is performing. For REO, there are 8 properties with an aggregate carrying value of $275.8 million, comprising 7.4% of total assets. The 4 multifamily properties represent 56.5% of REO holdings and 4 office properties make up the remainder.

• Expect real estate investment activity to increase in 2025 driven by dry powder deployment and elevated interest rates.
• Substantial investment pipeline with over $300 million of live opportunities.
• Dividend yield expected to decline as market recognizes prior performance, credit quality, and growth levers.
• New loan investment activity not reliant on loan repayments due to ample liquidity and financing capacity.

• Interest rate volatility could impact real estate investment activity.
• Real estate market conditions may affect loan performance and REO management.
• CECL reserve changes based on macroeconomic factors and loss given default models.
• Uncertainty in the path of SOFR and 10-year Treasury rates affecting financing and investment opportunities.

Q: On the 2 multifamily loans taken into foreclosure, can you talk about the change from 4-risk rated to foreclosure?

A: These loans were engaged with borrowers, but when it became clear borrowers wouldn't meet modification terms, remedies were enforced. Properties are being stabilized with property management teams in place.

Q: How do you expect leverage to scale in 2025?

A: As we deploy liquidity, we'll back-lever with existing credit facilities. Current leverage is 2.14:1, and we expect it to march up steadily towards historical levels.

Q: Update on life sciences exposure?

A: Began with 4 deals, now down to 3. None are in shell condition, centered on high-quality borrowers, and TPG's expertise helps. Leasing/touring activity has slightly upticked.

Q: How do you define 'reasonably quickly' for REO sales?

A: 2 California assets are being marketed, offers expected in early March. Second tranche of properties will come to market shortly, and by end of 2025, existing REO portfolio expected to be reduced by about half.

Q: On provision expense going forward?

A: Expect CECL reserve rate in basis points to be flat or decline as the book is 100% performing. Dollar amount will increase with book growth. Migration of loans from 3 to 4-rated is minimal.