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Section 1: 10-Q (10-Q)

trtx-10q_20190630.htm
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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 June 30, 2019.

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)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.001 per share

 

TRTX

 

New York Stock Exchange

 

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  YES   NO 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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

 

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 July 26, 2019, there were 72,943,213 shares of the registrant’s common stock, $0.001 par value per share, and 1,143,313 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, 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, 2019, 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, floods, earthquakes, wildfires, mudslides, volcanic eruptions, 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;

 

changes in the availability of attractive loan and other investment opportunities, whether they are due to competition, regulation or otherwise;

 

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 our Manager (as defined below);

 

conflicts with TPG (as defined below) and its affiliates, 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 ability to maintain our exemption or 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 SEC, the Internal Revenue Service, the New York Stock Exchange 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 section entitled “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 June 30, 2019 (unaudited) and December 31, 2018

1

 

 

 

 

Consolidated Statements of Income and Comprehensive Income (unaudited) for the Three and Six Months ended June 30, 2019 and June 30, 2018

2

 

 

 

 

Consolidated Statements of Changes in Equity (unaudited) for the Six Months ended June 30, 2019 and June 30, 2018

3

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) for the Six Months ended June 30, 2019 and June 30, 2018

5

 

 

 

 

Notes to the Consolidated Financial Statements (unaudited)

6

 

 

 

Item 2. 

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

29

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

51

 

 

 

Item 4. 

Controls and Procedures

53

 

 

 

Part II. Other Information

54

 

 

Item 1. 

Legal Proceedings

54

 

 

 

Item 1A. 

Risk Factors

54

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

54

 

 

 

Item 3. 

Defaults Upon Senior Securities

54

 

 

 

Item 4. 

Mine Safety Disclosures

54

 

 

 

Item 5. 

Other Information

54

 

 

 

Item 6. 

Exhibits

55

 

 

 

Signatures

56

 

 


 

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)

 

 

 

June 30, 2019

 

 

December 31, 2018

 

ASSETS(1)

 

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

70,042

 

 

$

39,720

 

Restricted Cash

 

 

450

 

 

 

1,000

 

Accounts Receivable

 

 

42

 

 

 

38

 

Accounts Receivable from Servicer/Trustee

 

 

213,410

 

 

 

96,464

 

Accrued Interest Receivable

 

 

30,923

 

 

 

20,731

 

Loans Held for Investment, net (includes $2,807,240 and $2,219,574 pledged as collateral under secured revolving repurchase and secured credit agreements)

 

 

4,830,235

 

 

 

4,293,787

 

Investment in Available-for-Sale Debt Securities (includes $641,426 and $36,307 pledged as collateral under secured revolving repurchase agreements)

 

 

679,178

 

 

 

74,381

 

Other Assets, Net

 

 

354

 

 

 

669

 

Total Assets

 

$

5,824,634

 

 

$

4,526,790

 

LIABILITIES AND STOCKHOLDERS’ EQUITY(1)

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Accrued Interest Payable

 

$

9,604

 

 

$

6,146

 

Accrued Expenses

 

 

6,084

 

 

 

8,151

 

Secured Revolving Repurchase, Senior Secured, and Secured Credit Agreements (net of deferred financing costs of $9,823 and $10,448)

 

 

2,749,126

 

 

 

1,494,078

 

Collateralized Loan Obligations (net of deferred financing costs of $7,945 and $12,447)

 

 

1,179,464

 

 

 

1,509,930

 

Term Loan Facility (net of deferred financing costs of $1,023 and $758)

 

 

266,638

 

 

 

113,504

 

Asset-Specific Financings (net of deferred financing costs of $564 and $129)

 

 

108,936

 

 

 

32,371

 

Payable to Affiliates

 

 

7,649

 

 

 

5,996

 

Deferred Revenue

 

 

391

 

 

 

463

 

Dividends Payable

 

 

31,985

 

 

 

28,981

 

Total Liabilities

 

 

4,359,877

 

 

 

3,199,620

 

Commitments and Contingencies—See Note 14

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Preferred Stock ($0.001 par value per share; 100,000,000 shares authorized; 125 and 0 shares issued and outstanding, respectively)

 

 

 

 

 

 

Common Stock ($0.001 par value per share; 300,000,000 shares authorized; 72,996,096 and 66,020,387 shares issued and outstanding, respectively)

 

 

73

 

 

 

67

 

Class A Common Stock ($0.001 par value per share; 2,500,000 shares authorized; 1,143,313 shares issued and outstanding)

 

 

1

 

 

 

1

 

Additional Paid-in-Capital

 

 

1,492,670

 

 

 

1,355,002

 

Accumulated Deficit

 

 

(29,220

)

 

 

(25,915

)

Accumulated Other Comprehensive Gain (Loss)

 

 

1,233

 

 

 

(1,985

)

Total Stockholders' Equity

 

 

1,464,757

 

 

 

1,327,170

 

Total Liabilities and Stockholders' Equity

 

$

5,824,634

 

 

$

4,526,790

 

 

(1)

The Company’s consolidated Total Assets and Total Liabilities at June 30, 2019 include assets and liabilities of variable interest entities (“VIEs”) of $1.6 billion and $1.2 billion, respectively. The Company’s consolidated Total Assets and Total Liabilities at December 31, 2018 include assets and liabilities of VIEs of $1.9 billion and $1.5 billion, respectively. These assets can be used only to satisfy obligations of the VIEs, and creditors of the VIEs 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 June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Income

 

$

88,254

 

 

$

64,693

 

 

$

164,855

 

 

$

124,058

 

Interest Expense

 

 

(46,426

)

 

 

(30,154

)

 

 

(85,793

)

 

 

(56,152

)

Net Interest Income

 

 

41,828

 

 

 

34,539

 

 

 

79,062

 

 

 

67,906

 

OTHER REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income, net

 

 

412

 

 

 

509

 

 

 

834

 

 

 

875

 

Total Other Revenue

 

 

412

 

 

 

509

 

 

 

834

 

 

 

875

 

OTHER EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Professional Fees

 

 

593

 

 

 

855

 

 

 

1,272

 

 

 

1,754

 

General and Administrative

 

 

1,674

 

 

 

1,089

 

 

 

2,999

 

 

 

2,197

 

Servicing and Asset Management Fees

 

 

431

 

 

 

767

 

 

 

944

 

 

 

1,534

 

Management Fee

 

 

5,323

 

 

 

4,763

 

 

 

10,466

 

 

 

9,467

 

Incentive Management Fee

 

 

2,048

 

 

 

1,146

 

 

 

3,413

 

 

 

2,072

 

Total Other Expenses

 

 

10,069

 

 

 

8,620

 

 

 

19,094

 

 

 

17,024

 

Income Before Income Taxes

 

 

32,171

 

 

 

26,428

 

 

 

60,802

 

 

 

51,757

 

Income Tax (Expense) Income, net

 

 

(202

)

 

 

10

 

 

 

(421

)

 

 

(205

)

Net Income

 

$

31,969

 

 

$

26,438

 

 

$

60,381

 

 

$

51,552

 

Preferred Stock Dividends

 

 

(4

)

 

 

 

 

 

(7

)

 

 

(3

)

Net Income Attributable to TPG RE Finance Trust, Inc.

 

$

31,965

 

 

$

26,438

 

 

$

60,374

 

 

$

51,549

 

Basic Earnings per Common Share

 

$

0.43

 

 

$

0.44

 

 

$

0.85

 

 

$

0.86

 

Diluted Earnings per Common Share

 

$

0.43

 

 

$

0.44

 

 

$

0.85

 

 

$

0.86

 

Weighted Average Number of Common Shares Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

73,963,337

 

 

 

60,175,373

 

 

 

71,144,696

 

 

 

60,283,992

 

Diluted:

 

 

73,963,337

 

 

 

60,175,373

 

 

 

71,144,696

 

 

 

60,283,992

 

OTHER COMPREHENSIVE INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

31,969

 

 

$

26,438

 

 

$

60,381

 

 

$

51,552

 

Unrealized Gain (Loss) on Available-for-Sale Debt Securities

 

 

3,112

 

 

 

(1,424

)

 

 

3,218

 

 

 

(1,638

)

Comprehensive Net Income

 

$

35,081

 

 

$

25,014

 

 

$

63,599

 

 

$

49,914

 

 

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 and per 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

Income (Loss)

 

 

Total

Equity

 

January 1, 2019

 

 

 

 

$

 

 

 

66,020,387

 

 

$

67

 

 

 

1,143,313

 

 

$

1

 

 

$

1,355,002

 

 

$

(25,915

)

 

$

(1,985

)

 

$

1,327,170

 

Issuance of Common Stock

 

 

 

 

 

 

 

 

6,000,000

 

 

 

6

 

 

 

 

 

 

 

 

 

119,094

 

 

 

 

 

 

 

 

 

119,100

 

Repurchases of Common Stock

 

 

 

 

 

 

 

 

(2,324

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(42

)

 

 

 

 

 

(42

)

Issuance of Series A Preferred Stock

 

 

125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

125

 

 

 

 

 

 

 

 

 

125

 

Equity Issuance and Equity Distribution Agreement Transaction Costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(300

)

 

 

 

 

 

 

 

 

(300

)

Amortization of Share Based Compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

633

 

 

 

 

 

 

 

 

 

633

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28,412

 

 

 

 

 

 

28,412

 

Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

106

 

 

 

106

 

Dividends on Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

(3

)

Dividends on Common Stock (Dividends Declared per Share of $0.43)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31,160

)

 

 

 

 

 

(31,160

)

Dividends on Class A Common Stock (Dividends declared per Share of $0.43)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(492

)

 

 

 

 

 

(492

)

March 31, 2019

 

 

125

 

 

$

 

 

 

72,018,063

 

 

$

73

 

 

 

1,143,313

 

 

$

1

 

 

$

1,474,554

 

 

$

(29,200

)

 

$

(1,879

)

 

$

1,443,549

 

Issuance of Common Stock

 

 

 

 

 

 

 

 

978,033

 

 

 

 

 

 

 

 

 

 

 

 

17,432

 

 

 

 

 

 

 

 

 

17,432

 

Equity Issuance and Equity Distribution Agreement Transaction Costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(197

)

 

 

 

 

 

 

 

 

(197

)

Amortization of Share Based Compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

881

 

 

 

 

 

 

 

 

 

881

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31,969

 

 

 

 

 

 

31,969

 

Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,112

 

 

 

3,112

 

Dividends on Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

 

 

 

(4

)

Dividends on Common Stock (Dividends Declared per Share of $0.43)