TPG RE Finance Trust Inc: Bullish 10.6%-Yielder Closing in on Record High
December 11, 2024
TPG RE Finance Trust Benefitting From Lower Interest Rates
Lower interest rates are great for real estate investment trusts (REITs); mortgage REITs (mREITs) like TPG RE Finance Trust Inc (NYSE:TRTX) in particular.
Why?
Lower interest rates bring down borrowing costs for mREITs, which allows them to generate better profit margins on their debt. In this environment, mREITs can also refinance loans at lower interest rates, which can enhance their balance sheets.
And finally, lower rates could lead to higher dividends. And no passive income investor will complain about that.
TPG RE Finance Trust Inc is an mREIT that originates first-mortgage loans greater than $50.0 million. As of September 30, 2024, the trust manages a $3.4-billion portfolio of assets in primary and secondary U.S. markets. (Source: “About Us,” TPG RE Finance Trust Inc, last accessed November 26, 2024.)
The company’s average loan size is $70.5 million, with 99.7% of its portfolio tied to floating rates. The weighted average all-in yield is 8.81%, while the weighted average credit spread is 3.71%.
TPG RE Finance invests in commercial mortgage loans; subordinate mortgage interests, mezzanine loans, secured real estate securities, note financing, preferred equity, and miscellaneous debt instruments, as well as commercial real estate collateralized loan obligations and commercial mortgage-backed securities.
The trust’s portfolio is secured by properties primarily in the multifamily (54.5% of portfolio), office (18.1%), life science (11.7%), hotel (10.3%), mixed-use (2.3%), self storage (2%), and industrial (1.1%) sectors. (Source: “Our Investment Portfolio,” TPG RE Finance Trust Inc, last accessed November 26, 2024.)
Third-Quarter Results
For the third quarter ended September 30, 2024, TPG RE reported net income of $18.6 million, or $0.23 per diluted share. This was a marked improvement over its third-quarter 2023 net loss of $64.6 million, or a loss of $0.83 per diluted share. (Source: “TPG RE Finance Trust, Inc. Reports Operating Results for the Quarter Ended September 30, 2024,” TPG RE Finance Trust Inc, October 29, 2024.)
The company’s third-quarter distributable earnings were $23.0 million, or $0.28 per diluted share, up slightly from third-quarter 2023 distributable earnings of $22.3 million, or $0.28 per share.
TPG RE ended the quarter with $357.0 million in liquidity.
Commenting on the results, Doug Bouquard, the company’s chief executive officer, said, “As we seek to continue to take advantage of the attractive opportunity set within real estate credit, TPG’s integrated global real estate investing platform team enabled us to originate $204 million of new investments. We believe that this capital deployment combined with our strong balance sheet and liquidity profile positions us well to continue to drive long-term shareholder value.”
Outearned Dividend by 115%
Over the third quarter, TPG RE Finance delivered strong operating earnings and outearned its dividend by more than 115%.
And, because it’s an mREIT, it has to distribute at least 90% of its taxable income to its shareholders. For the third quarter, the trust maintained its dividend payout at $0.24 per share, or $0.96 on an annual basis, for a forward yield of 10.63%.
That ultra-high dividend yield is actually a little lower than TPG RE’s five-year average dividend yield of 11.7%. That’s probably because TRTX stock is doing so well. And that’s the kind of trade-off I think most income investors are happy to concede to.
TRTX Stock Crushing Broader Market
In addition to having a reliable ultra-high-yield dividend, TPG RE Trust stock is also closing in on a record high. As of this writing, TRTX is up 54% year to date and 85.5% on an annual basis. For comparison’s sake, the S&P 500 is up just 26% in 2024 and 32% year over year.
As of this writing (November 26), TRTX stock is trading hands at $9.18 per share, with conservative Wall Street analysts providing a 12-month median share price target of $9.50 and high estimate of $11.00 per share. That points to potential gains of 3.6% to 20%.
Should TRTX hit the high estimate, this would put it well above its February 2020 record high of $10.79 per share.
Chart courtesy of StockCharts.com
The Lowdown on TPG RE Finance Trust Inc
TPG Real Estate Finance Trust is a great mREIT that has benefitted from the lower interest rate environment. It reported strong third-quarter results, originated $204.0 million in new investments, and continues to boast a strong balance sheet.
Even conservative Wall Street is impressed. TRTX has massive institutional support with 206 institutions holding 86.71% of the outstanding shares. Around 8.7% of the stock is held by TPG GP A, LLC, followed by BlackRock, Inc. (7.45% stake), Vanguard Group Inc (6.03% stake), and Morgan Stanley (4.25% stake). (Source: “Holders,” Yahoo! Finance, last accessed November 26, 2024.)
