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Section 1: 10-Q (10-Q)

trtx-10q_20180331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2018.

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from       to       

Commission file number 001-38156

 

TPG RE Finance Trust, Inc.

(Exact name of registrant as specified in its charter)

 

 

Maryland

 

36-4796967

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

888 Seventh Avenue, 35th Floor

New York, New York 10106

(Address of principal executive offices)(Zip Code)

(212) 601-4700

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES   NO 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).  YES   NO 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

 

Accelerated Filer

Non-accelerated Filer

(Do not check if a smaller reporting company)

Smaller Reporting Company

Emerging Growth Company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES  NO 

As of May 4, 2018, there were 59,020,613 shares of the registrant’s common stock, $0.001 par value per share, and 1,154,547 shares of the registrant’s Class A common stock, $0.001 par value per share, outstanding.

 

 


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as “outlook,” “believe,” “expect,” “potential,” “continue,” “may,” “should,” “seek,” “approximately,” “predict,” “intend,” “will,” “plan,” “estimate,” “anticipate,” the negative version of these words, other comparable words or other statements that do not relate strictly to historical or factual matters. By their nature, forward-looking statements speak only as of the date they are made, are not statements of historical fact or guarantees of future performance and are subject to risks, uncertainties, assumptions or changes in circumstances that are difficult to predict or quantify. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs and projections will occur or be achieved, and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.

There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements contained in this Form 10-Q. Such risks, uncertainties and other important factors include, among others, the risks, uncertainties and factors set forth under the heading Item 1A – “Risk Factors” in our Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 26, 2018, as such risk factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. Such risks, uncertainties and other factors include, but are not limited to, the following:

 

the general political, economic and competitive conditions in the markets in which we invest;

 

the level and volatility of prevailing interest rates and credit spreads;

 

adverse changes in the real estate and real estate capital markets;

 

general volatility of the securities markets in which we participate;

 

changes in our business, investment strategies or target assets;

 

difficulty in obtaining financing or raising capital;

 

reductions in the yield on our investments and increases in the cost of our financing;

 

adverse legislative or regulatory developments, including with respect to tax laws;

 

acts of God such as hurricanes, earthquakes, wildfires and other natural disasters, acts of war and/or terrorism and other events that may cause unanticipated and uninsured performance declines and/or losses to us or the owners and operators of the real estate securing our investments;

 

deterioration in the performance of properties securing our investments that may cause deterioration in the performance of our investments and potentially principal losses to us;

 

defaults by borrowers in paying debt service on outstanding indebtedness;

 

the adequacy of collateral securing our investments and declines in the fair value of our investments;

 

adverse developments in the availability of desirable investment opportunities;

 

difficulty in successfully managing our growth, including integrating new assets into our existing systems;

 

the cost of operating our platform, including, but not limited to, the cost of operating a real estate investment platform and the cost of operating as a publicly traded company;

 

the availability of qualified personnel and our relationship with TPG RE Finance Trust Management, L.P. (our “Manager”);

 

conflicts with TPG Global, LLC and its affiliates (“TPG”), including our Manager, the personnel of TPG providing services to us, including our officers, and certain funds managed by TPG;

 

our qualification as a real estate investment trust (“REIT”) for U.S. federal income tax purposes and our exclusion from registration under the Investment Company Act of 1940, as amended (the “Investment Company Act”); and

 

authoritative U.S. generally accepted accounting principles (or “GAAP”) or policy changes from such standard-setting bodies such as the Financial Accounting Standards Board (the “FASB”), the SEC, the Internal Revenue Service (the “IRS”), the New York Stock Exchange (the “NYSE) and other authorities that we are subject to, as well as their counterparts in any foreign jurisdictions where we might do business.

There may be other risks, uncertainties or factors that may cause our actual results to differ materially from the forward-looking statements, including risks, uncertainties, and factors disclosed under the sections entitled “Risk Factors” in our Form 10-K filed with the SEC on February 26, 2018 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this


Form 10-Q. You should evaluate all forward-looking statements made in this Form 10-Q in the context of these risks, uncertainties and other factors.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. All forward-looking statements in this Form 10-Q apply only as of the date made and are expressly qualified in their entirety by the cautionary statements included in this Form 10-Q and in other filings we make with the SEC. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances, except as required by law.

Except where the context requires otherwise, the terms “Company,” “we,” “us,” and “our” refer to TPG RE Finance Trust, Inc., a Maryland corporation, and its subsidiaries; the term “Manager” refers to our external manager, TPG RE Finance Trust Management, L.P., a Delaware limited partnership; and the term “TPG” refers to TPG Global, LLC, a Delaware limited liability company, and its affiliates.


TABLE OF CONTENTS

 

Part I. Financial Information

1

 

 

 

Item 1.

Financial Statements

1

 

 

 

 

Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017

1

 

 

 

 

Consolidated Statements of Income and Comprehensive Income (unaudited) for the Three Months ended March 31, 2018 and March 31, 2017

2

 

 

 

 

Consolidated Statements of Changes in Equity (unaudited) for the Three Months ended March 31, 2018 and March 31, 2017

3

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) for the Three Months ended March 31, 2018 and March 31, 2017

4

 

 

 

 

Notes to the Consolidated Financial Statements (unaudited)

5

 

 

 

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

49

 

 

 

Item 4. 

Controls and Procedures

51

 

 

 

Part II. Other Information

52

 

 

Item 1. 

Legal Proceedings

52

 

 

 

Item 1A. 

Risk Factors

52

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

52

 

 

 

Item 3. 

Defaults Upon Senior Securities

52

 

 

 

Item 4. 

Mine Safety Disclosures

52

 

 

 

Item 5. 

Other Information

53

 

 

 

Item 6. 

Exhibits

56

 

 

 

Signatures

58

 

 


 

Part I. Financial Information

Item 1. Financial Statements

TPG RE Finance Trust, Inc.

Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per share data)

 

 

 

March 31, 2018

 

 

December 31, 2017

 

ASSETS(1)

 

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

74,382

 

 

$

75,037

 

Restricted Cash

 

 

400

 

 

 

700

 

Accounts Receivable

 

 

141

 

 

 

141

 

Accounts Receivable from Servicer/Trustee

 

 

1,219

 

 

 

220

 

Accrued Interest Receivable

 

 

18,769

 

 

 

16,861

 

Loans Held for Investment (includes $2,159,565 and $2,694,106 pledged as collateral

   under secured revolving repurchase agreements, respectively)

 

 

3,597,210

 

 

 

3,175,672

 

Investment in Commercial Mortgage-Backed Securities, Available-for-Sale (includes

   $47,417 and $47,762 pledged as collateral under secured revolving repurchase

   agreements, respectively)

 

 

149,044

 

 

 

85,895

 

Other Assets, net

 

 

734

 

 

 

859

 

Total Assets

 

$

3,841,899

 

 

$

3,355,385

 

LIABILITIES AND STOCKHOLDERS’ EQUITY(1)

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Accrued Interest Payable

 

$

5,630

 

 

$

5,385

 

Accrued Expenses

 

 

6,734

 

 

 

5,067

 

Collateralized Loan Obligation (net of deferred financing costs of $8,471 and $0, respectively)

 

 

737,433

 

 

 

 

Secured Revolving Repurchase and Senior Secured Agreements (net of deferred financing

   costs of $7,533 and $8,697, respectively)

 

 

1,631,817

 

 

 

1,827,104

 

Notes Payable (net of deferred financing costs of $1,213 and $1,601, respectively)

 

 

236,378

 

 

 

287,886

 

Payable to Affiliates

 

 

5,875

 

 

 

5,227

 

Deferred Revenue

 

 

112

 

 

 

317

 

Dividends Payable

 

 

25,307

 

 

 

23,068

 

Total Liabilities

 

 

2,649,286

 

 

 

2,154,054

 

Commitments and Contingencies—See Note 14

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Preferred Stock ($0.001 par value; 100,000,000 and 100,000,000 shares authorized;

   0 and 125 shares issued and outstanding, respectively)

 

 

 

 

 

 

Common Stock ($0.001 par value; 300,000,000 and 300,000,000 shares authorized;

   59,020,613 and 59,440,112 shares issued and outstanding, respectively)

 

 

60

 

 

 

60

 

Class A Common Stock ($0.001 par value; 2,500,000 and 2,500,000 shares authorized;

   1,154,547 and 1,178,618 shares issued and outstanding, respectively)

 

 

1

 

 

 

1

 

Additional Paid-in-Capital

 

 

1,216,155

 

 

 

1,216,112

 

Accumulated Deficit

 

 

(23,355

)

 

 

(14,808

)

Accumulated Other Comprehensive (Loss)

 

 

(248

)

 

 

(34

)

Total Stockholders' Equity

 

 

1,192,613

 

 

 

1,201,331

 

Total Liabilities and Stockholders' Equity

 

$

3,841,899

 

 

$

3,355,385

 

 

(1)

At December 31, 2017, there were no VIE assets or liabilities recorded in the Company’s Total Assets and Total Liabilities. The Company’s consolidated Total Assets and Total Liabilities at March 31, 2018 include VIE assets and liabilities of $937.5 million and $738.5 million, respectively. These assets can be used only to satisfy obligations of the VIE, and creditors of the VIE have recourse only to these assets, and not to TPG RE Finance Trust, Inc. See Note 5 to the Consolidated Financial Statements for details.

See accompanying notes to the Consolidated Financial Statements

 

1


 

TPG RE Finance Trust, Inc.

Consolidated Statements of Income

and Comprehensive Income (Unaudited)

(in thousands, except share and per share data)

 

 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

INTEREST INCOME

 

 

 

 

 

 

 

 

Interest Income

 

$

59,365

 

 

$

47,941

 

Interest Expense

 

 

(25,998

)

 

 

(17,800

)

Net Interest Income

 

 

33,367

 

 

 

30,141

 

OTHER REVENUE

 

 

 

 

 

 

 

 

Other Income, net

 

 

366

 

 

 

122

 

Total Other Revenue

 

 

366

 

 

 

122

 

OTHER EXPENSES

 

 

 

 

 

 

 

 

Professional Fees

 

 

899

 

 

 

729

 

General and Administrative

 

 

1,108

 

 

 

469

 

Servicing and Asset Management Fees

 

 

767

 

 

 

1,136

 

Management Fee

 

 

4,704

 

 

 

2,588

 

Collateral Management Fee

 

 

 

 

 

131

 

Incentive Management Fee

 

 

926

 

 

 

1,581

 

Total Other Expenses

 

 

8,404

 

 

 

6,634

 

Income Before Income Taxes

 

 

25,329

 

 

 

23,629

 

Income Taxes

 

 

(215

)

 

 

(154

)

Net Income

 

$

25,114

 

 

$

23,475

 

Preferred Stock Dividends

 

 

(3

)

 

 

 

Net Income Attributable to Common Stockholders

 

$

25,111

 

 

$

23,475

 

Basic Earnings per Common Share(1)

 

$

0.42

 

 

$

0.48

 

Diluted Earnings per Common Share(1)

 

$

0.42

 

 

$

0.48

 

Weighted Average Number of Common Shares Outstanding(1)

 

 

 

 

 

 

 

 

Basic:

 

 

60,393,818

 

 

 

48,446,028

 

Diluted:

 

 

60,393,818

 

 

 

48,446,028

 

OTHER COMPREHENSIVE INCOME

 

 

 

 

 

 

 

 

Net Income

 

$

25,114

 

 

$

23,475

 

Unrealized (Loss) Gain on Commercial Mortgage-Backed Securities

 

 

(214

)

 

 

1,232

 

Comprehensive Net Income

 

$

24,900

 

 

$

24,707

 

 

(1)

Share and per share data reflect the impact of the common stock and Class A common stock dividend which was paid upon completion of the Company’s initial public offering on July 25, 2017 to holders of record as of July 3, 2017. See Note 12 to the Consolidated Financial Statements for details.

 

See accompanying notes to the Consolidated Financial Statements

 

 

2


 

TPG RE Finance Trust, Inc.

Consolidated Statements of

Changes in Equity (Unaudited)

(In thousands, except share data)

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Class A Common Stock

 

 

Additional

 

 

 

 

 

 

Accumulated

Other

 

 

 

 

 

 

 

Shares

 

 

Par

Value

 

 

Shares

 

 

Par

Value

 

 

Shares

 

 

Par

Value

 

 

Paid-

in-Capital

 

 

Accumulated

Deficit

 

 

Comprehensive

(Loss) Income

 

 

Total

Equity

 

Balance at December 31, 2016

 

 

125

 

 

$

 

 

 

38,260,053

 

 

$

39

 

 

 

967,500

 

 

$

1

 

 

$

979,467

 

 

$

(10,068

)

 

$

1,250

 

 

$

970,689

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23,475

 

 

 

 

 

 

23,475

 

Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,232

 

 

 

1,232

 

Dividends on Common Stock (Dividends

   Declared per Share of $0.44)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,773

)

 

 

 

 

 

(20,773

)

Dividends on Class A Common Stock (Dividends

   Declared per Share of $0.44)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(508

)

 

 

 

 

 

(508

)

Balance at March 31, 2017

 

 

125

 

 

$

 

 

 

38,260,053

 

 

$

39

 

 

 

967,500

 

 

$

1

 

 

$

979,467

 

 

$

(7,874

)

 

$

2,482

 

 

$

974,115

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

 

125

 

 

$

 

 

 

59,440,112

 

 

$

60

 

 

 

1,178,618

 

 

$

1

 

 

$

1,216,112

 

 

$

(14,808

)

 

$

(34

)

 

$

1,201,331

 

Conversions of Class A Common Stock to

   Common Stock

 

 

 

 

 

 

 

 

24,071

 

 

 

 

 

 

(24,071

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchases of Common Stock

 

 

 

 

 

 

 

 

(443,570

)

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

(8,351

)

 

 

 

 

 

(8,360

)

Redemption of Series A Preferred Stock

 

 

(125

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(125

)

 

 

 

 

 

 

 

 

(125

)

Amortization of Share Based Compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

177

 

 

 

 

 

 

 

 

 

177

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25,114

 

 

 

 

 

 

25,114

 

Other Comprehensive (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(214

)

 

 

(214

)

Dividends on Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

(3

)

Dividends on Common Stock (Dividends

   Declared per Share of $0.42)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,822

)

 

 

 

 

 

(24,822

)

Dividends on Class A Common Stock (Dividends

   Declared per Share of $0.42)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(485

)

 

 

 

 

 

(485

)

Balance at March 31, 2018

 

 

 

 

$

 

 

 

59,020,613

 

 

$

60

 

 

 

1,154,547

 

 

$

1

 

 

$

1,216,155

 

 

$

(23,355

)

 

$

(248

)

 

$

1,192,613

 

 

See accompanying notes to the Consolidated Financial Statements

 

 

3


 

TPG RE Finance Trust, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net Income

 

$

25,114

 

 

$

23,475

 

Adjustment to Reconcile Net Income to Net Cash Provided by Operating Activities:

 

 

 

 

 

 

 

 

Amortization and Accretion of Premiums, Discounts and Loan Origination Fees, Net

 

 

(4,147

)

 

 

(1,959

)

Amortization of Deferred Financing Costs

 

 

3,658

 

 

 

2,576

 

Capitalized Accrued Interest

 

 

 

 

 

2,972

 

Stock Compensation Expense

 

 

177

 

 

 

 

Cash Flows Due to Changes in Operating Assets and Liabilities:

 

 

 

 

 

 

 

 

Accounts Receivable

 

 

 

 

 

153

 

Accrued Interest Receivable

 

 

(2,771

)

 

 

(1,229

)

Accrued Expenses

 

 

610

 

 

 

(2,895

)

Accrued Interest Payable

 

 

245

 

 

 

719

 

Payable to Affiliates

 

 

648

 

 

 

1,150

 

Deferred Fee Income

 

 

(205

)

 

 

(49

)

Other Assets

 

 

125

 

 

 

68

 

Net Cash Provided by Operating Activities

 

 

23,454

 

 

 

24,981

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Origination of Loans Held for Investment

 

 

(512,522

)

 

 

(244,700

)

Advances on Loans Held for Investment

 

 

(60,972

)

 

 

(55,090

)

Principal Advances Held by Servicer/Trustee

 

 

 

 

 

(3,279

)

Principal Repayments of Loans Held for Investment

 

 

156,258

 

 

 

89,822

 

Proceeds from Sales of Loans Held for Investment

 

 

 

 

 

52,443

 

Purchase of Commercial Mortgage-Backed Securities

 

 

(63,654

)

 

 

(38,259

)

Principal Repayments of  Commercial Mortgage-Backed Securities

 

 

 

 

 

1,698

 

Purchases and Disposals of Fixed Assets

 

 

 

 

 

(79

)

Net Cash (Used in) Investing Activities

 

 

(480,890

)

 

 

(197,444

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Payments on Collateralized Loan Obligation

 

 

 

 

 

(27,791

)

Proceeds from Collateralized Loan Obligation

 

 

745,904

 

 

 

10,175

 

Payments on Secured Financing Agreements

 

 

(762,695

)

 

 

(156,623

)

Proceeds from Secured Financing Agreements

 

 

514,347

 

 

 

341,695

 

Payment of Deferred Financing Costs

 

 

(9,519

)

 

 

1,860

 

Payments to Repurchase Common Stock

 

 

(8,360

)

 

 

 

Payments to Redeem Series A Preferred Stock

 

 

(125

)

 

 

 

Dividends Paid on Common Stock

 

 

(22,620

)

 

 

(17,838

)

Dividends Paid on Class A Common Stock

 

 

(448

)

 

 

(508

)

Dividends Paid on Preferred Stock

 

 

(3

)

 

 

 

Net Cash Provided by Financing Activities

 

 

456,481

 

 

 

150,970

 

Net Change in Cash, Cash Equivalents, and Restricted Cash

 

 

(955

)

 

 

(21,493

)

Cash, Cash Equivalents and Restricted Cash at Beginning of Period

 

 

75,737

 

 

 

103,975

 

Cash, Cash Equivalents and Restricted Cash at End of Period

 

$

74,782

 

 

$

82,482

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

 

Interest Paid

 

$

22,096

 

 

$

14,507

 

Taxes Paid

 

 

215

 

 

 

154

 

Supplemental Disclosure of Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Principal Repayments of Loans Held for Investment by Servicer/Trustee, Net

 

 

 

 

 

36,206

 

Interest Payments of Loans Held for Investment and Commercial Mortgage-Backed

   Securities Held by Servicer/Trustee, Net

 

 

863

 

 

 

 

Principal Repayments of Commercial Mortgage-Backed Securities Held by Servicer/Trustee, net

 

 

211

 

 

 

 

Dividends Declared, not paid

 

 

25,307

 

 

 

21,281

 

Accrued Deferred Financing Costs

 

 

1,057

 

 

 

3,249

 

Unrealized (Loss) Gain on Commercial Mortgage-Backed Securities, Available-for-Sale

 

 

(214

)

 

 

1,232

 

Proceeds from Secured Financing Agreements Held by Trustee

 

 

 

 

 

20,918

 

Accrued Other Assets Costs

 

 

 

 

 

223

 

 

See accompanying notes to the Consolidated Financial Statements

4


 

TPG RE Finance Trust, Inc.

Notes to the Consolidated Financial Statements

(Unaudited)

(1) Business and Organization

TPG RE Finance Trust, Inc. (together with its consolidated subsidiaries, “we”, “us”, “our”, or the “Company”) is a Maryland corporation that was incorporated on October 24, 2014 and commenced operations on December 18, 2014 (“Inception”). We are organized as a holding company and conduct our operations primarily through our various subsidiaries. We conduct our operations as a real estate investment trust (“REIT”) for U.S. federal income tax purposes. We generally will not be subject to U.S. federal income taxes on our REIT taxable income to the extent that we annually distribute all of our REIT taxable income to stockholders and maintain our qualification as a REIT. We also operate our business in a manner that permits us to maintain an exclusion from registration under the Investment Company Act of 1940, as amended.

The Company’s principal business activity is to directly originate and acquire a diversified portfolio of commercial real estate related assets, primarily consisting of first mortgage loans and senior participation interests in first mortgage loans secured by institutional-quality properties in primary and select secondary markets in the United States, and commercial mortgage-backed securities (“CMBS”). As of March 31, 2018 and December 31, 2017, the Company conducted substantially all of its operations through a Delaware limited liability company, TPG RE Finance Trust Holdco, LLC (“Holdco”), and the Company’s other wholly-owned subsidiaries.

(2) Summary of Significant Accounting Policies

Basis of Presentation

The interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The interim consolidated financial statements include the Company’s accounts, consolidated variable interest entities for which the Company is the primary beneficiary, and its wholly-owned subsidiaries (see Note 5 for details). All intercompany transactions and balances have been eliminated.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires estimates of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ from management’s estimates, and such differences could be material. Significant estimates made in the consolidated financial statements include, but are not limited to: impairment; adequacy of provisions for loan losses; and valuation of financial instruments.

Principles of Consolidation

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810—Consolidation (“ASC 810”) provides guidance on the identification of a VIE (a variable interest entity for which control is achieved through means other than voting rights) and the determination of which business enterprise, if any, should consolidate the VIE. An entity is considered a VIE if any of the following applies: (1) the equity investors (if any) lack one or more of the essential characteristics of a controlling financial interest; (2) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support; or (3) the equity investors have voting rights that are not proportionate to their economic interests and the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest. The Company consolidates VIEs in which it is considered to be the primary beneficiary. The primary beneficiary is defined as the entity having both of the following characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the VIE’s performance; and (2) the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE.

At each reporting date, the Company reconsiders its primary beneficiary conclusion to determine if its obligation to absorb losses of, or its rights to receive benefits from, the VIE could potentially be more than insignificant, and will consolidate or not consolidate accordingly.

5


 

Revenue Recognition

Interest income on loans is accrued using the interest method based on the contractual terms of the loan, adjusted for credit impairment, if any. The objective of the interest method is to arrive at periodic interest income including recognition of fees and costs at a constant effective yield. Premiums, discounts, and origination fees are amortized or accreted into interest income over the lives of the loans using the interest method, or on a straight line basis when it approximates the interest method. Extension and modification fees are accreted into income on a straight line basis, when it approximates the interest method, over the related extension or modification period. Exit fees are accreted into income on a straight line basis, when it approximates the interest method, over the lives of the loans to which they relate unless they can be waived by the Company or a co-lender in connection with a loan refinancing. Prepayment penalties from borrowers are recognized as interest income when received. Certain of the Company’s loan investments may provide for additional interest based on the borrower’s operating cash flow or appreciation of the underlying collateral. Such amounts are considered contingent interest and are reflected as interest income only upon certainty of collection.

The Company considers a loan to be non-performing and places loans on non-accrual status at such time as: (1) management determines the borrower is incapable of, or has ceased efforts toward, curing the cause of a default; (2) the loan becomes 90 days delinquent; or (3) the loan has a maturity default. While on non-accrual status, based on the Company’s judgment as to collectability of principal, loans are either accounted for on a cash basis, where interest income is recognized only upon receipt of cash for principal and interest payments, or on a cost-recovery basis, where all cash receipts reduce a loan’s carrying value, and interest income is only recorded when such carrying value has been fully recovered. For the period ended March 31, 2018, no loans were placed on non-accrual status, and we have sustained no losses or impairments to our loan portfolio since Inception.

Loans Held for Investment

Loans that the Company has the intent and ability to hold for the foreseeable future, or until maturity or repayment, are reported at their outstanding principal balances net of any premiums, discounts, loan origination fees and an allowance for loan losses. Loan origination fees and direct loan origination costs are deferred and recognized in interest income over the estimated life of the loans using the interest method, or on a straight line basis when it approximates the interest method, adjusted for actual prepayments.

The Company evaluates each loan classified as a loan held for investment for impairment on a quarterly basis. Impairment occurs when it is deemed probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan. If the loan is considered to be impaired, an allowance is recorded to reduce the carrying value of the loan to the present value of the expected future cash flows discounted at the loan’s contractual effective rate, or the fair value of the collateral, less estimated costs to sell, if recovery of the Company’s investment is expected solely from the sale of the collateral. As part of the quarterly impairment review, we evaluate the risk of each loan and assign a risk rating based on a variety of factors, grouped as follows to include (without limitation): (i) loan and credit structure, including the as-is loan-to-value (“LTV”) and structural features; (ii) quality and stability of real estate value and operating cash flow, including debt yield, property type, dynamics of the geographic, property-type and local market, physical condition, stability of cash flow, leasing velocity and quality and diversity of tenancy; (iii) performance against underwritten business plan; and (iv) quality, experience and financial condition of sponsor, borrower and guarantor(s). Based on a 5-point scale, our loans are rated “1” through “5,” from least risk to greatest risk, respectively, which ratings are defined as follows:

 

1-

Outperform—Exceeds performance metrics (for example, technical milestones, occupancy, rents, net operating income) included in original or current credit underwriting and business plan;

 

2-

Meets or Exceeds Expectations—Collateral performance meets or exceeds substantially all performance metrics included in original or current underwriting / business plan;

 

3-

Satisfactory—Collateral performance meets or is on track to meet underwriting; business plan is met or can reasonably be achieved;

 

4-

Underperformance—Collateral performance falls short of original underwriting, and material differences exist from business plan; technical milestones have been missed; defaults may exist, or may soon occur absent material improvement; and

 

5-

Risk of Impairment/Default—Collateral performance is significantly worse than underwriting; major variance from business plan; loan covenants or technical milestones have been breached; timely exit from loan via sale or refinancing is questionable.

Since Inception, the Company has not recorded asset-specific loan loss reserves, nor has it recognized any impairments on its loan portfolio. Our determination of asset-specific loan loss reserves, should any such reserves be necessary, relies on material estimates regarding the fair value of loan collateral. Such losses could be caused by various factors, including, but not limited to, unanticipated adverse changes in the economy or events adversely affecting specific assets, borrowers, industries in which our

6


 

borrowers operate or markets in which our borrowers or their properties are located. Significant judgment is required when evaluating loans for impairment.

The Company’s loans are typically collateralized by real estate, or a partnership or similar equity interest in an entity that owns real estate. As a result, the Company regularly evaluates on a loan-by-loan basis the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower/sponsor. The Company also evaluates the financial strength of loan guarantors, if any, and the borrower’s competency in managing and operating the property or properties. In addition, the Company considers the overall economic environment, real estate sector, and geographic sub-market in which the borrower operates. Such impairment analyses are completed and reviewed by asset management personnel and evaluated by senior management, who utilize various data sources, including (i) periodic financial data such as property occupancy, tenant profile, rental rates, operating expenses, the borrower’s exit plan, and capitalization and discount rates, (ii) site inspections, (iii) sales and financing comparables, (iv) current credit spreads for refinancing and (v) other market data.

Commercial Mortgage-Backed Securities

The Company acquires CMBS investments for cash management and investment purposes. The Company designates CMBS investments as available-for-sale on the acquisition date. CMBS investments that are classified as available-for-sale are recorded at fair value in the Company’s consolidated financial statements. Additionally, CMBS investments that are not classified as held-to-maturity and which the Company does not hold for the purpose of selling in the near-term, but may dispose of prior to maturity, are also designated as available-for-sale and are carried at fair value. The Company’s recognition of interest income from its CMBS, including its amortization of premium and discount, follows the Company’s revenue recognition policy as described above under “Revenue Recognition”. The Company uses a specific identification method when determining the cost of a security sold and the amount of unrealized gain or loss reclassified from accumulated other comprehensive income (loss) into earnings. Unrealized losses on securities that, in the judgment of management, are other than temporary are charged against earnings as a loss in the consolidated statements of income and comprehensive income. Significant valuation inputs are Level II in the fair value hierarchy as described below under “Fair Value Measurements”.

Portfolio Financing Arrangements

The Company finances certain loan and CMBS investments using secured revolving repurchase agreements, asset-specific financing arrangements (notes payable on the consolidated balance sheets), a senior secured credit facility, and collateralized loan obligations. The related borrowings are recorded as separate liabilities on the Company’s consolidated balance sheets. Interest income earned on the investments and interest expense incurred on the related borrowings are reported separately on the Company’s consolidated statements of income and comprehensive income.

In certain instances, the Company creates structural leverage through the co-origination or non-recourse syndication of a senior loan interest to a third party. For all such syndications the Company has completed through March 31, 2018, the Company has transferred 100% of the senior mortgage loan that the Company originated on a non-recourse basis to a third-party lender and has retained as a loan investment a separate mezzanine loan investment secured by a pledge of the equity in the mortgage borrower. With respect to the senior mortgage loan transferred, the Company retains: no control over the mortgage loan; no economic interest in the mortgage loan; and no recourse to the purchaser or the borrower. Consequently, based on these circumstances and because the Company does not have any continuing involvement with the transferred senior mortgage loan, these syndications are accounted for as sales under GAAP and are removed from the Company’s consolidated financial statements at the time of transfer. The Company’s consolidated balance sheets only include the separate mezzanine loan remaining after the transfer, and not the non-consolidated senior loan interest sold or co-originated that the Company transferred.

7


 

Fair Value Measurements

The Company follows ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), for its holdings of financial instruments. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosure of fair value measurements. ASC 820-10 determines fair value to be the price that would be received for a financial instrument in a current sale, which assumes an orderly transaction between market participants on the measurement date. The Company determines the estimated fair value of financial assets and liabilities using the three-tier fair value hierarchy established by GAAP, which prioritizes the inputs used in measuring fair value. GAAP establishes market-based or observable inputs as the preferred source of values followed by valuation models using management assumptions in the absence of market inputs. The financial instruments recorded at fair value on a recurring basis in the Company’s consolidated financial statements are cash and cash equivalents, restricted cash and available-for-sale CMBS investments. The three levels of inputs that may be used to measure fair value are as follows:

Level I—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Level II—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level III—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

For certain financial instruments, the various inputs that management uses to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for such financial instrument is based on the lowest level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument. The Company may use valuation techniques consistent with the market and income approaches to measure the fair value of its assets and liabilities. The market approach uses third-party valuations and information obtained from market transactions involving identical or similar assets or liabilities. The income approach uses projections of the future economic benefits of an instrument to determine its fair value, such as in the discounted cash flow methodology. The inputs or methodology used for valuing financial instruments are not necessarily an indication of the risk associated with investing in these financial instruments. Transfers between levels of the fair value hierarchy are assumed to occur at the end of the reporting period.

Income Taxes

The Company qualifies and has elected to be taxed as a REIT for U.S. federal income tax purposes under the Internal Revenue Code of 1986, as amended, commencing with its initial taxable year ended December 31, 2014. To the extent that it annually distributes at least 90% of its REIT taxable income to stockholders and complies with various other requirements as a REIT, the Company generally will not be subject to U.S. federal income taxes on its distributed REIT taxable income. If the Company fails to continue to qualify as a REIT in any taxable year and does not qualify for certain statutory relief provisions, the Company will be subject to U.S. federal and state income taxes at regular corporate rates beginning with the year in which it fails to qualify and may be precluded from being able to elect to be treated as a REIT for the Company’s four subsequent taxable years. Even though the Company currently qualifies for taxation as a REIT, the Company may be subject to certain U.S. federal, state, local and foreign taxes on the Company’s income and property and to U.S. federal income and excise taxes on the Company’s undistributed REIT taxable income.

Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the periods in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period in which the enactment date occurs. Under ASC Topic 740, Income Taxes (“ASC 740”), a valuation allowance is established when management believes it is more likely than not that a deferred tax asset will not be realized. The Company intends to continue to operate in a manner consistent with, and to continue to meet the requirements to be treated as, a REIT for tax purposes and to distribute all of its REIT taxable income. Accordingly, the Company does not expect to pay corporate level taxes.

8


 

Earnings per Common Share

The Company utilizes the two-class method when assessing participating securities to calculate earnings per common share. Basic and diluted earnings per common share is computed by dividing net income attributable to common stockholders (i.e., holders of common stock and Class A common stock), by the weighted-average number of common shares (both common stock and Class A common stock) outstanding during the period. The preferences, rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of the Class A common stock are identical to the common stock, except (1) the Class A common stock is not a “margin security” as defined in Regulation U of the Board of Governors of the U.S. Federal Reserve System (and rulings and interpretations thereunder) and may not be listed on a national securities exchange or a national market system and (2) each share of Class A common stock is convertible at any time or from time to time, at the option of the holder, for one fully paid and non-assessable share of common stock. The Class A common stock votes together with the common stock as a single class. Shares of Class A common stock have been issued to, and are owned by, certain individuals or entities affiliated with the Company’s external manager, TPG RE Finance Trust Management, L.P., a Delaware limited partnership (the “Manager”), and the sale or conversion to common stock by investors of such shares of Class A common stock is subject to certain restrictions.

Diluted earnings per common share is calculated by including the effect of dilutive securities. The Company accounts for unvested share-based payment awards that contain non-forfeitable dividend rights or dividend equivalents (whether paid or unpaid) as participating securities, which are included in the computation of earnings per share pursuant to the two-class method.

Share-Based Compensation

Share-based compensation consists of awards issued by the Company to certain employees of affiliates of our Manager and certain members of our Board of Directors. These share-based awards generally vest in installments over a fixed period of time. Compensation expense is recognized in net income on a variable basis over the applicable award vesting period based on the value of our common stock. Forfeitures of share-based awards are recognized as they occur.

Deferred Financing Costs

Deferred financing costs are reflected net of the collateralized loan obligation and secured financing agreements on the Company’s consolidated balance sheets. These costs are amortized in interest expense using the interest method or on a straight line basis when it approximates the interest method over the life of the related obligations.

Cash and Cash Equivalents

Cash and cash equivalents include cash held in banks or invested in money market funds with original maturities of less than 90 days. The Company deposits its cash and cash equivalents with high credit quality institutions to minimize credit risk exposure. The Company maintains cash accounts at several financial institutions, which are insured up to a maximum of $250,000 per account as of March 31, 2018 and December 31, 2017. The balances in these accounts may exceed the insured limits.

Restricted Cash

Restricted cash primarily represents deposit proceeds from potential borrowers which may be returned to borrowers, after deducting transaction costs paid by the Company for the benefit of the borrowers, upon the closing of a loan transaction.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 will replace the “incurred loss” model under existing guidance with an “expected loss” model for instruments measured at amortized cost, and require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. Upon adoption, and resulting from this change, the Company expects that it will be required to record a loan loss reserve at origination or acquisition of an individual loan or a loan portfolio. ASU 2016-13 also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 and is to be adopted through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently evaluating the impact ASU 2016-13 will have on its consolidated financial statements.

9


 

Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In August 2015, the FASB issued an update (“ASU 2015-14”) to Topic 606, Deferral of the Effective Date, which deferred the adoption of ASU 2014-09 to interim and annual reporting periods in fiscal years that begin after December 15, 2017. In March 2016, the FASB issued an update (“ASU 2016-08”) to Topic 606, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard pursuant to ASU 2014-09. In April 2016, the FASB issued an update (“ASU 2016-10”) to Topic 606, Identifying Performance Obligations and Licensing, which clarifies guidance related to identifying performance obligations and licensing implementation guidance contained in ASU 2014-09. In May 2016, the FASB issued an update (“ASU 2016-12”) to Topic 606, Narrow-Scope Improvements and Practical Expedients, which amends certain aspects of the new revenue recognition standard pursuant to ASU 2014-09. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. Additionally, this guidance requires improved disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted the revenue recognition standard updates on January 1, 2018. The Company’s adoption of the revenue recognition standard updates on January 1, 2018 did not have a material impact on the Company’s consolidated financial statements.

(3) Loans Held for Investment

The Company currently originates and acquires first mortgage and mezzanine loans secured by commercial properties. These loans can potentially subject the Company to concentrations of credit risk as measured by various attributes, including the property type collateralizing the loan, loan size, loans to a single sponsor and loans in a single geographic area, among others. The Company’s loans held for investment are accounted for at amortized cost.

During the three months ended March 31, 2018, the Company originated seven loans with a total commitment of approximately $579.2 million, an initial unpaid principal balance of $516.7 million, and unfunded commitments at closing of $62.5 million. To fund these loan originations, the Company used cash on hand and its secured revolving repurchase facilities and senior secured credit facility. Total commitments related to the syndication of non-consolidated senior interests as of March 31, 2018 was $81.5 million.

The following tables present an overview of the loan investment portfolio as of March 31, 2018 and December 31, 2017 (dollars in thousands):

 

 

 

March 31, 2018

 

Loans Receivable

 

Outstanding

Principal

 

 

Unamortized Premium

(Discount), Loan

Origination Fees, net

 

 

Carrying

Amount

 

Senior loans

 

$

3,561,696

 

 

$

(22,257

)

 

$

3,539,439

 

Subordinated and mezzanine loans

 

 

57,946

 

 

 

(175

)

 

 

57,771

 

Subtotal before allowance

 

 

3,619,642

 

 

 

(22,432

)

 

 

3,597,210

 

Allowance for loan losses

 

 

 

 

 

 

 

 

 

Total

 

$

3,619,642

 

 

$

(22,432

)

 

$

3,597,210

 

 

 

 

December 31, 2017

 

Loans Receivable

 

Outstanding

Principal

 

 

Unamortized Premium

(Discount), Loan

Origination Fees, net

 

 

Carrying

Amount

 

Senior loans

 

$

3,122,670

 

 

$

(22,143

)

 

$

3,100,527

 

Subordinated and mezzanine loans

 

 

75,446

 

 

 

(301

)

 

 

75,145

 

Subtotal before allowance

 

 

3,198,116

 

 

 

(22,444

)

 

 

3,175,672

 

Allowance for loan losses

 

 

 

 

 

 

 

 

 

Total

 

$

3,198,116

 

 

$

(22,444

)

 

$

3,175,672

 

 

10


 

For the three months ended March 31, 2018, loan portfolio activity was as follows (dollars in thousands):

 

 

 

 

 

 

 

 

Carrying Value

 

Balance at December 31, 2017

 

$

3,175,672

 

Additions during the period:

 

 

 

 

Loans originated

 

 

512,522

 

Additional fundings

 

 

60,972

 

Amortization of discount and origination fees

 

 

4,227

 

Deductions during the period:

 

 

 

 

Collection of principal

 

 

(156,183

)

Balance at March 31, 2018

 

$

3,597,210

 

 

At March 31, 2018 and December 31, 2017, there was $1.1 million and $2.0 million of unamortized discount included in loans held for investment at amortized cost on the consolidated balance sheets.

The table below summarizes the carrying values and results of the Company’s internal risk rating review performed as of March 31, 2018 and December 31, 2017 (dollars in thousands):

 

 

 

Carrying Value

 

Rating

 

March 31, 2018

 

 

December 31, 2017

 

1

 

$

49,000

 

 

$

 

2

 

 

1,217,948

 

 

 

1,318,816

 

3

 

 

2,156,579

 

 

 

1,680,913

 

4

 

 

173,683

 

 

 

175,943

 

5

 

 

 

 

 

 

Totals

 

$

3,597,210

 

 

$

3,175,672

 

Weighted Average Risk Rating(1)

 

 

2.7

 

 

 

2.6

 

 

(1)

Weighted Average Risk Rating calculated based on unpaid principal balance at period end.

 

The weighted average risk rating at March 31, 2018 and December 31, 2017 was 2.7 and 2.6, respectively. During the three months ended March 31, 2018, one loan was moved from the Company’s Category 2 risk rating into its Category 1 risk rating as a result of improved operating performance of the underlying loan collateral. Additionally, the Company moved one loan that was classified in its Category 2 risk rating into its Category 3 risk rating, resulting from a delay in achieving certain construction milestones.

At March 31, 2018 and December 31, 2017, there were no loans on non-accrual status or that were impaired; thus, the Company did not record a reserve for loan loss. See Note 16 for details about the Company’s mortgage loan originations subsequent to March 31, 2018.

(4) Commercial Mortgage-Backed Securities

During the three months ended March 31, 2018, the Company purchased 10 CMBS investments for $63.7 million. The purchased CMBS consist of floating rate instruments which have a weighted average coupon of 2.6%. As of March 31, 2018 and December 31, 2017, the Company had 15 and five CMBS, respectively, designated as available-for-sale securities. Details of the carrying and fair values of the Company’s CMBS portfolio are as follows (dollars in thousands):

 

 

 

March 31, 2018

 

 

 

Face

Amount

 

 

Unamortized

Premium (Discount)

 

 

Gross

Unrealized Loss

 

 

Estimated

Fair Value

 

Investments, at Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial mortgage-backed securities

 

$

148,534

 

 

$

758

 

 

$

(248

)

 

$

149,044

 

11


 

 

 

 

December 31, 2017

 

 

 

Face

Amount

 

 

Unamortized

Premium (Discount)

 

 

Gross

Unrealized Loss

 

 

Estimated

Fair Value

 

Investments, at Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial mortgage-backed securities

 

$

85,661

 

 

$

268