Prepared remarks
Welcome to the TPG Real Estate Finance Trust Second Quarter 2026 Earnings Conference Call. Please note this conference is being recorded. I will now turn the conference over to Ashvin Rao. You may begin.
Thank you. Good morning, and welcome to the TPG Real Estate Finance Trust Earnings Call for the Second Quarter of 2026. I'm joined by Doug Bouquard, our Chief Executive Officer; Brandon Fox, our Interim Chief Financial Officer; and Ryan Roberto, our Head of Portfolio Management and Capital Markets. Doug, Brandon, and Ryan 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 and webcast are 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 from those set forth in or implied by these forward-looking statements. For discussion of risks that could affect results, please see the Risk Factors section of the company's latest Form 10-K and Form 10-Q. The company does not undertake any duty to update our forward-looking statements unless required to do so by law. We will refer during today's call to certain non-GAAP financial measures, which are reconciled to GAAP amounts in our Form 10-Q, our earnings release, and in our earnings supplemental, all of which are available in the Investor Relations section of our website. Now I'll turn the call over to Doug.
Good morning and thank you for joining the call. Over the past quarter, market activity was shaped by several competing forces, including heightened geopolitical tensions and continued debate around the path of inflation and interest rates. Despite this uncertainty, both equity and credit markets have remained broadly resilient. In real estate, the environment has remained largely consistent with prior quarters. Elevated interest rates and ongoing rate volatility continue to suppress transaction activity, while the gap between buyer and seller expectations remains wide. As a result, lending demand continues to be driven primarily by refinancing activity, particularly within the multifamily and industrial sectors, two of the most liquid areas of the real estate market. Importantly, this activity continues to be supported by both bank balance sheets and CRE CLO bond buyers where credit spreads tightened further during the quarter.
Against this market backdrop, TRTX continues to differentiate itself through disciplined growth and prudent risk management. Over the past year, we have closed $1.7 billion of new loan investments, driving $551 million or 15% net asset growth. During the second quarter, we closed $466 million of new loan investments and an additional $72 million subsequent to quarter end, continuing the steady growth of our earning asset base. Looking ahead, we have approximately $380 million of executed term sheets, providing good visibility into future deployment opportunities. We remain focused on prudently growing the portfolio while maintaining the disciplined underwriting and risk management approach that has differentiated TRTX throughout the cycle. From a credit perspective, portfolio performance remains stable with CECL reserves and risk ratings largely unchanged quarter to quarter. Meanwhile, the balance sheet transformation we have discussed over the past several years continues to advance.
As of June 30, 69% of our portfolio is comprised of loans originated in 2023 or later. This continued reinvestment into newer vintage assets enhances the overall credit profile of the portfolio and further differentiates TRTX relative to many of our peers. The second quarter also marked an important milestone in the continued evolution of our liability structure. During the quarter, we issued a $400 million Term Loan B with a 7-year maturity, added a new $100 million corporate revolving credit facility, upsized two existing secured financing arrangements by a combined $600 million and entered into a new $500 million secured financing arrangement. Importantly, these actions were effectively leverage and cost of funds neutral, allowing us to significantly strengthen and diversify our liability structure without sacrificing current earnings power. Beyond enhancing liquidity and financial flexibility, these transactions introduced a new source of long duration, covenant-light corporate capital and further broadened our funding base.
The expanding financing toolkit positions us to continue growing earning assets while maintaining our target leverage profile, particularly as we execute on our REO monetization strategy and recycle capital into new investment opportunities. Collectively, these transactions demonstrate the strength of the TRTX platform and our ability to access multiple forms of capital, including bank, syndicated loan and public bond markets, representing another important step in TRTX's evolution as a corporate borrower. Finally, we continue to view share repurchases as an attractive tool for creating shareholder value. During the quarter, we repurchased 1.3 million shares of common stock for a total consideration of $10.8 million at an average share price of $8.26 per share, which allows us to invest additional capital into our business at what we believe is a meaningful discount to intrinsic value. As we enter the second half of 2026, we are operating from a position of strength.
We have continued to grow the portfolio, maintained stable credit performance, enhanced our financing profile, and increased our financial flexibility. At the same time, we continue to see attractive investment opportunities and believe our competitive position has never been stronger. While market conditions remain dynamic, our strategy remains clear and consistent: responsibly grow earning assets, maintain disciplined risk management, strengthen our balance sheet, and allocate capital in a manner that maximizes long-term shareholder value. We continue to believe the market is not fully recognizing the earnings power of our platform, including the strength of our balance sheet, the breadth of TPG's integrated real estate debt and equity investment platform and our unique ability to take advantage of the current opportunities relative to competitors. We believe the foundation we have built and the strategy we have executed over the past several years leaves us well-positioned for continued success over the long term. With that, I will turn the call over to Brandon to discuss our financial results in more detail.
Thank you, Doug, and good morning. For the second quarter of 2026, TRTX reported GAAP net income of $9.4 million. Distributable earnings for the quarter was $17.6 million or $0.23 per common share. For the full year 2026, distributable earnings was $37.1 million, or $0.48 per common share, covering our common stock dividend of $0.48 per common share through June 30. As Doug mentioned, we repurchased 1.3 million shares of common stock during the quarter and have $9.3 million remaining on the company's share repurchase plan at June 30. Book value per common share was $10.95 at quarter end. During the second quarter, we originated three first mortgage loans with total commitments of $466 million at a weighted average credit spread of 2.79% and received loan repayments of $274.4 million, including one full office loan repayment of $227.1 million, which reduced our office exposure to 4.3% of total loan commitments as of June 30.
Quarter over quarter, net assets increased $190.4 million or 5% to $4.3 billion. Over a year, our net assets have grown 15% or $551.4 million. At quarter end, our loan portfolio was 100% performing. During the quarter, we did not have any credit migration in our loan portfolio. Our weighted average risk rating for the loan portfolio is unchanged at 3.0. Our CECL reserve was flat quarter over quarter at 179 basis points. In total, our CECL reserve increased $3.5 million to $80.7 million, primarily due to net asset growth quarter over quarter. As of June 30, 2026, our loan portfolio was 76.4% multifamily and industrial collateralized assets. Office now only makes up 4.3% of our loan portfolio at quarter end, down from 52.9% in June of 2021. From a capital markets perspective, this was an active and transformational quarter. During the quarter, we closed one, a $400 million Term Loan B due in 2033, priced at 99.75%, carrying a 2.75% credit spread.
Two, a $100 million corporate revolver due in 2031 with a 2.00% credit spread. Three, an upsize of two existing secured financing arrangements by a total of $600 million. And four, a new $500 million secured financing arrangement. As part of these capital markets transactions, we were able to amend and align our financial covenants across our capital structure to industry-leading terms, including maximum total debt to total assets ratio of 83.33% and an interest coverage ratio of not less than 1.3x. We accomplished this capital structure transformation while remaining leverage and cost of funds neutral. We ended the quarter with near-term liquidity of $488.2 million, consisting of $65.6 million of cash on hand, including amounts held to satisfy liquidity covenants, undrawn capacity under secured financing arrangements of $317.4 million, $100 million of undrawn capacity on the corporate revolver and CRE CLO reinvestment proceeds of $5.2 million.
Additionally, we held unencumbered loan investments with an unpaid principal balance of $186 million that are eligible to be pledged under our existing financing arrangements. The company's liability structure is now 85.2% non-mark-to-market across 11 financing sources and carries a weighted average cost of funds of 1.83%. Total leverage increased to 3.32x from 3.1x at March 31, 2026, as a result of our investment activity during the quarter. At quarter end, we had $1.8 billion of financing capacity available to support loan investment activity, and we're in compliance with all of our financial covenants. With that, we welcome your questions. Operator?
Questions and answers
Can you talk about loan origination repayment timing in the quarter? It looks like the large New York office loan was repaid early in the quarter, and you had a couple loans close very late. Just help us reconcile timing as it pertains to 1Q run rate to 2Q run rate and how you think about that in the back half of the year.
Yes, Gabe, you're spot on. From a timing perspective, it was a pretty chunky group of repayments that all happened within the first three weeks of the month, the largest of which was that New York City office deal that paid off. As we saw that repayment coming, we began to sign deals up, but about 70% of our new originations closed in the last three days of the quarter. That explains the drop in distributable earnings quarter over quarter; it's largely due to timing. As we scale and grow our balance sheet, we'll be making investments and risk decisions based on high quality credits and won't push the envelope. This was a unique moment where we had a chunky flow of repayments in the first few weeks of the quarter and then loans closing at the end of the quarter. Regarding investment activity and the rest of the year, a lot of the activity in our market remains refinancing. When it's a refinancing, the pressure for the borrower to close can be eased, and we've seen longer times from when we execute term sheets to closing, which can sometimes create a small difference relative to our expected run rate.
Looking to the next few quarters, our aggregate net asset growth combined with our aggregate debt to equity ratio is a better indicator for where we're headed in terms of expected distributable earnings. We'll continue growing prudently and carefully, and there can be times where there are gaps between when we receive repayments and when we make new investments.
That's helpful. A follow-up to what you just said: total leverage is 3.3x. Considering the macro, I know you guys have talked about 3.5x to 3.75x. Is that still the zone for the here and now with rate volatility and what you just talked about with the refinancing environment? Are we still on target for that target leverage ratio?
Yes, the short answer is yes. There's no change in how we're thinking about our strategy. Our investment paradigm is centered on making great credit investments, and that will continue to drive both growth in our balance sheet and the timing of our distributable earnings growth over time.
Yes, hi, this is Hong on for Rick Shane. Could you provide an update on your REO portfolio? Last quarter you talked about potentially selling a couple of assets by the end of the year. Is that still the expectation?
Thanks. We continue to make good progress on the REO front. We still expect to monetize and recycle a portion of that portfolio this year. In the interim, operating fundamentals continue to improve. We hope to share an update in the coming months on that.
Got it. If I could sneak one other question in: your office loan exposure shrunk dramatically with the repayments. Looking forward, do you expect to reduce your office exposure further, potentially to zero? Or are you okay with that level going forward?
That's a great question. The substantial reduction in office has been driven primarily by legacy office deals that we originated many years ago. When we think about new investments, although we do not have any office deals currently signed up, there are office deals in our broader pipeline that we are evaluating. I wouldn't say we are a hard no on office. We're being very selective. It wouldn't surprise me if we did an office deal or two between now and year end, but nothing is signed and we're being very selective in that sector.
Maybe building on Gabe's first question, how did the balance sheet optimization, all the work you did there, impact 2Q results? And what else needs to happen to get the balance sheet to where you consider it perfectly optimized?
I'll answer the first part and Doug can add on. This quarter, we opportunistically accessed the corporate loan market at what we believe are historically attractive terms. Why now? It was a period where we could immediately deploy the $400 million we raised without creating earnings drag or increasing our cost of capital. On a leverage-neutral and cost-of-funds basis, we deployed $400 million to retire a legacy liability structure that was amortizing and getting more expensive via each repayment. Long term, there will be accretion to the balance sheet. That was the rationale. There wasn't much of an impact from that on the P&L.
Got it. I was just going to ask if that accretion to the balance sheet was from the structure of the way it is today, or was it retiring that older CLO and then getting a new CLO out the door to make the cost of capital more efficient? What drives that accretion?
Having a piece of our liability structure that is long-dated, low-cost and non-mark-to-market is valuable. Over the next seven years, spreads will likely move in both directions, so having a very stable part of our liability structure allows us to be offensively oriented. We think it's the right long-term move as we position the company for earnings growth and an all-weather balance sheet.
Yes, a big credit to Ryan and the team for what we were able to do on the liability side. On Page 12 of our supplemental, there's an updated summary. When you look at the high percentage of non-mark-to-market, the long duration of the liability set, we have built a fortress liability structure. A lot of that is credit to a de-risked balance sheet relative to competitors, and we were rewarded by the debt market. So thanks to Ryan and the team.
Got it, appreciate that color. Last one for me, a broader question on rates and the impact on CRE. You mentioned almost 70% of your portfolio is newer vintage post-2023 loans. As the 10-year stays 4.6% and above, how does that increase the potential for some legacy loans to not be able to refinance with little equity left, leading to more watchlist migration? On the flip side, are you seeing new origination opportunities where buyers would normally go to agency financing but choose bridge loans because rates are more attractive? How is it impacting both sides of the equation right now?
First, the current rate complex is driving two clear trends. Marginally elevated rates and especially rate volatility tend to reduce transaction activity. That reduced transaction activity has led to two things: we're seeing slower repayments on the margin, and we're seeing a new origination market that is still primarily refinancing. If we had a portfolio of loans originated pre-Fed hikes, a move higher in rates could exacerbate breaking of those capital structures and potentially create further credit stress. Our balance sheet is different because about 70% of it was originated post-Fed hikes. In some ways, we view a higher rate complex as on balance positive for us because as SOFR goes higher, that's a net positive for our platform. On Page 14 of the supplemental, you can see how moves in index rates affect our earnings, and simply put, higher SOFR benefits our earnings. Because we have newer vintage collateral and have done $1.7 billion of new loans over the past year, we expect a more positive earnings outcome if rates stay the same or rise from here.
Congrats on all the progress on the balance sheet. Following up on the new financings, I hear you on cost of funds and leverage neutrality, but were there fees or any drag on earnings that hit in the quarter? I'm trying to think through the earnings run rate and if there was an impact from that in the quarter.
That's a very good question. There were fees associated with the transactions. The transaction closed mid-quarter, in mid-May, so there was some amortization of fees in the quarter. In our debt footnote, you can see the components of it. There were about $8 million or so of fees that got partially amortized in the quarter, and they are amortized over the life of the instruments, which is between five and seven years given the term loan and the corporate revolver maturity dates.
Got it, that's helpful. Changing gears to repayments: repayments excluding the large office loan were pretty low. What are you expecting in terms of repayments in the back half of the year? Is the slower pace of repayments due to a slower lending pace you guys had in 2023 and 2024?
There are a few factors. First, because we have largely post-Fed hike collateral, many of those loans are more recently originated and in many cases have call protection. So organically, we'll see a lower level of repayments versus competitors that have more pre-Fed hike exposure. Second, timing can be idiosyncratic. Even the New York City office deal that paid off early in the quarter had timing shifts. Getting a buyer, a seller and a new lender all in the same room to close on the same day can be challenging. Third, conviction levels among borrowers and equity investors are not incredibly high right now, and the real estate equity market is tricky to deploy capital in given current trends. Those dynamics combined explain some of the slower repayment pace. Finally, because we are primarily multifamily and industrial collateral, the business plans are relatively straightforward and give us a good window into repayment profiles over the coming quarters. And again, just wanted to thank everyone for taking the time this morning on the call, and we look forward to updating you on further progress. Thank you very much.
Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.