Business Overview and History Established in 2014, TPG RE Finance Trust has built a strong foundation as a leading commercial real estate lender. The company is externally managed by TPG RE Finance Trust Management, L.P., an affiliate of the global alternative asset management firm TPG. This partnership provides TRTX with access to TPG's extensive real estate investment expertise and resources, enabling the company to identify and capitalize on attractive lending opportunities.
TRTX's investment strategy primarily focuses on directly originating and selectively acquiring floating-rate, first mortgage loans secured by high-quality commercial real estate properties undergoing some form of transition or value-creation, such as retenanting, refurbishment, or repositioning. The company's target markets include primary and select secondary markets in the United States, which it believes offer favorable economic conditions and commercial real estate fundamentals.
In 2017, TRTX made its initial public offering, raising $201.25 million through the issuance of 8.05 million shares of Series C Cumulative Redeemable Preferred Stock. The company further strengthened its capital position in 2020 by raising an additional $225 million through the issuance of 9 million shares of Series B Cumulative Redeemable Preferred Stock and warrants to purchase up to 12 million shares of common stock. The Series B Preferred Stock was subsequently redeemed in 2021, demonstrating the company's ability to adapt its capital structure to changing market conditions.
Throughout its history, TRTX has faced various challenges, including the economic uncertainty brought on by the COVID-19 pandemic in 2020. During this period, the company demonstrated its resilience and proactive approach by working closely with borrowers to address issues as they arose while striving to preserve the credit attributes of its loan portfolio. This hands-on approach has been instrumental in maintaining the company's stable credit profile over the years.
Financials and Operational Highlights As of September 30, 2024, TRTX's loan portfolio stood at nearly $3.4 billion, with a weighted average risk rating of 3.0 and a weighted average loan-to-value ratio of 67.2%. The company's loan originations during the nine months ended September 30, 2024, totaled $320.3 million, with an initial unpaid principal balance of $306.8 million and unfunded commitments at closing of $13.5 million.
TRTX's financial performance has remained resilient, with the company reporting net income of $63.65 million and Distributable Earnings of $83.61 million for the nine months ended September 30, 2024. The company's net interest margin increased by $16.18 million year-over-year, driven by net repayments on secured financing arrangements and a decrease in the number of loans on non-accrual status.
For the most recent quarter, TRTX reported revenue of $10.86 million, net income of $22.19 million, operating cash flow of $23.71 million, and free cash flow of $23.26 million. The company's GAAP net income attributable to common shareholders was $18.7 million for the quarter, compared to $21 million in the prior quarter. Distributable earnings were $23 million or $0.28 per share, compared to $22.3 million in the prior quarter. Dividend coverage was 1.7x for the quarter and 1.19x for the first 9 months of 2024. Book value per share increased to $11.41 from $11.40 in the prior quarter.
TRTX's loan investment portfolio consisted of 48 first mortgage loans or interests therein, totaling $3.4 billion in commitments with an unpaid principal balance of $3.3 billion. 99.7% of the loan commitments were floating rate loans, of which 100% were first mortgage loans or a first mortgage loan and contiguous mezzanine loan both owned by the company. The company had $122.3 million of unfunded loan commitments as of September 30, 2024.
For the three months ended September 30, 2024, TRTX generated $77.9 million in interest income and incurred $48.6 million in interest expense, resulting in net interest income of $29.3 million. This represented an increase of $1.8 million compared to the three months ended June 30, 2024, primarily due to net repayments on the company's secured financing arrangements during the third quarter.
TRTX recorded a $0.3 million decrease in its allowance for credit losses during the three months ended September 30, 2024, resulting in a total allowance of $69.3 million, or 205 basis points of total loan commitments. The decrease was primarily attributable to improved asset-level performance and changes to the macroeconomic assumptions used in determining the general CECL reserve.
As of September 30, 2024, TRTX owned four office properties and one multifamily property, which were previously collateral for first mortgage loans, with an aggregate carrying value of $188.5 million. The company did not acquire or sell any REO properties during the three and nine months ended September 30, 2024.
Liquidity The company's balance sheet remains conservatively positioned, with a debt-to-equity ratio of 2.02:1 and substantial liquidity of $357 million as of September 30, 2024, including $211 million in cash and $130.7 million of undrawn capacity under secured credit agreements. TRTX's liability structure is predominantly non-mark-to-market, with 79.7% of its total borrowings in the form of collateralized loan obligations, secured credit agreements, and asset-specific financing arrangements.
TRTX financed its loan investments using a combination of collateralized loan obligations (70.2% of total borrowings), secured credit agreements (21.5%), and asset-specific financing arrangements (8.3%) as of September 30, 2024. 79.7% of the company's total loan portfolio borrowings were non-mark-to-market financing sources.
Navigating the Evolving Market Environment The commercial real estate landscape has faced various challenges in recent years, including the lingering effects of the COVID-19 pandemic, heightened inflation, changes in fiscal and monetary policies, and structural shifts in the banking sector. TRTX has navigated these headwinds through its diversified loan portfolio, disciplined underwriting, and strategic financing approach.
The company has maintained a stable credit profile, with no risk rating migration during the third quarter of 2024 and a CECL reserve that has remained virtually unchanged for the past three quarters at 205 basis points. TRTX's proactive asset management and the depth of its sponsor relationships have allowed the company to work closely with borrowers to address issues and preserve the credit attributes of its loan investments.
Looking Ahead As the commercial real estate market continues to evolve, TRTX is well-positioned to capitalize on the attractive investment opportunities that are emerging. The company's strong liquidity, active pipeline of potential new investments, and high-quality credit profile, combined with the expertise of its management team and the resources of its parent company, TPG, provide a solid foundation for growth and value creation.
TRTX's diversified loan portfolio, conservative leverage, and predominantly non-mark-to-market financing structure offer resilience in the face of market volatility. Additionally, the company's focus on transitional, value-add commercial real estate assets aligns with the shifting dynamics in the market, where banks are retreating from direct lending and borrowers are increasingly seeking floating-rate financing solutions.
The company sees opportunities to grow its investment portfolio by deploying its balance sheet cash, recycling capital from REO sales, and utilizing existing financing capacity. TRTX views the current real estate lending market as attractive, with increased borrower demand for floating-rate loans.
Conclusion TPG RE Finance Trust has demonstrated its ability to navigate the complex and ever-changing commercial real estate landscape. The company's disciplined investment strategy, prudent risk management, and strategic financing approach have enabled it to deliver consistent performance and position itself for continued success. As the real estate credit market evolves, TRTX's strong liquidity, diversified portfolio, and integrated real estate platform position it to capitalize on the attractive investment opportunities ahead.