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 September 30, 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, 35^th 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 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 November 2, 2018, there were 66,043,964 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 (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, 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 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 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 September 30, 2018 (unaudited) and December 31, 2017	1
	Consolidated Statements of Income and Comprehensive Income (unaudited) for the Three and Nine Months ended September 30, 2018 and September 30, 2017	2
	Consolidated Statements of Changes in Equity (unaudited) for the Nine Months ended September 30, 2018 and September 30, 2017	3
	Consolidated Statements of Cash Flows (unaudited) for the Nine Months ended September 30, 2018 and September 30, 2017	4
	Notes to the Consolidated Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52
Item 4.	Controls and Procedures	54
Part II. Other Information		55
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	55
Item 6.	Exhibits	56
Signatures		57

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)

	September 30, 2018			December 31, 2017
ASSETS(1)
Cash and Cash Equivalents	$	46,203		$	75,037
Restricted Cash		250			700
Accounts Receivable		38			141
Accounts Receivable from Servicer/Trustee		2,547			220
Accrued Interest Receivable		19,338			16,861
Loans Held for Investment (includes $3,035,098 and $2,694,106 pledged as collateral    under repurchase agreements and senior secured agreements)		4,157,653			3,175,672
Investment in Commercial Mortgage-Backed Securities, Available-for-Sale    (includes $37,345 and $47,762 pledged as collateral under repurchase agreements)		75,414			85,895
Other Assets, net		710			859
Total Assets	$	4,302,153		$	3,355,385
LIABILITIES AND STOCKHOLDERS’ EQUITY(1)
Liabilities
Accrued Interest Payable	$	5,025		$	5,385
Accrued Expenses		8,839			5,067
Collateralized Loan Obligation (net of deferred financing costs of $5,489 and $0)		735,415			—
Secured Revolving Repurchase and Senior Secured Agreements (net of deferred    financing costs of $12,924 and $8,697)		2,087,118			1,827,104
Notes Payable (net of deferred financing costs of $506 and $1,601)		100,832			287,886
Payable to Affiliates		6,904			5,227
Deferred Revenue		216			317
Dividend Payable		28,918			23,068
Total Liabilities		2,973,267			2,154,054
Commitments and Contingencies - See Note 14
Stockholders’ Equity:
Preferred Stock ($0.001 par value; 100,000,000 shares authorized;    0 and 125 shares issued and outstanding, respectively)		—			—
Common Stock ($0.001 par value; 300,000,000 shares authorized;    66,043,964 and 59,440,112 shares issued and outstanding, respectively)		67			60
Class A Common Stock ($0.001 par value; 2,500,000 shares authorized;    1,143,313 and 1,178,618 shares issued and outstanding, respectively)		1			1
Additional Paid-in-Capital		1,355,037			1,216,112
Accumulated Deficit		(25,070	)		(14,808	)
Accumulated Other Comprehensive (Loss)		(1,149	)		(34	)
Total Stockholders' Equity		1,328,886			1,201,331
Total Liabilities and Stockholders' Equity	$	4,302,153		$	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 September 30, 2018 include VIE assets and liabilities of $954.4 million and $741.5 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 September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
INTEREST INCOME
Interest Income	$	69,863		$	46,734		$	193,921		$	146,411
Interest Expense		(34,297	)		(19,150	)		(90,449	)		(56,585	)
Net Interest Income		35,566			27,584			103,472			89,826
OTHER REVENUE
Other (Loss) Income, net		(55	)		669			820			1,036
Total Other Revenue		(55	)		669			820			1,036
OTHER EXPENSES
Professional Fees		905			1,256			2,659			2,448
General and Administrative		965			1,003			3,162			2,192
Servicing and Asset Management Fees		767			720			2,301			3,061
Management Fee		4,879			4,133			14,346			9,489
Collateral Management Fee		—			23			—			225
Incentive Management Fee		1,168			327			3,240			3,713
Total Other Expenses		8,684			7,462			25,708			21,128
Income Before Income Taxes		26,827			20,791			78,584			69,734
Income Tax Expense		(3	)		—			(208	)		(140	)
Net Income	$	26,824		$	20,791		$	78,376		$	69,594
Preferred Stock Dividends		—			(4	)		(3	)		(12	)
Net Income Attributable to TPG RE Finance Trust, Inc.	$	26,824		$	20,787		$	78,373		$	69,582
Basic Earnings per Common Share(1)	$	0.42		$	0.35		$	1.27		$	1.34
Diluted Earnings per Common Share(1)	$	0.42		$	0.35		$	1.27		$	1.34
Weighted Average Number of Common Shares Outstanding(1)
Basic:		64,295,973			58,685,979			61,635,988			51,969,733
Diluted:		64,295,973			58,685,979			61,635,988			51,969,733
OTHER COMPREHENSIVE INCOME
Net Income	$	26,824		$	20,791		$	78,376		$	69,594
Unrealized  Gain (Loss) on Commercial Mortgage-Backed    Securities		523			(2,558	)		(1,115	)		(1,270	)
Comprehensive Net Income	$	27,347		$	18,233		$	77,261		$	68,324

(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 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 (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
Issuance of Class A Common Stock		—			—		—			—		14,711			—		365			—			—			365
Issuance of Common Stock		—			—		12,642,166			12		—			—		257,622			—			—			257,634
Common Stock and Class A Common Stock    Dividend		—			—		9,224,268			9		230,815			—		(9	)		—			—			—
Repurchases of Common Stock		—			—		(334,745	)		—		—			—		(7	)		(6,551	)		—			(6,558	)
Initial Public Offering Transaction Costs		—			—		—			—		—			—		(20,713	)		—			—			(20,713	)
Net Income		—			—		—			—		—			—		—			69,594			—			69,594
Other Comprehensive (loss)		—			—		—			—		—			—		—			—			(1,270	)		(1,270	)
Dividends on Preferred Stock		—			—		—			—		—			—		—			(12	)		—			(12	)
Dividends on Common Stock (Dividends    Declared per Share of $1.18)		—			—		—			—		—			—		—			(60,566	)		—			(60,566	)
Dividends on Class A Common Stock   (Dividends Declared per Share of $1.18)		—			—		—			—		—			—		—			(1,365	)		—			(1,365	)
Balance at September 30, 2017		125		$	—		59,791,742		$	60		1,213,026		$	1	$	1,216,725		$	(8,968	)	$	(20	)	$	1,207,798
Balance at December 31, 2017		125		$	—		59,440,112		$	60		1,178,618		$	1	$	1,216,112		$	(14,808	)	$	(34	)	$	1,201,331
Issuance of Class A Common Stock		—			—		—			—		—			—		—			—			—			—
Issuance of Common Stock		—			—		7,019,352			7		—			—		139,433			—			—			139,440
Conversions of Class A Common Stock to    Common Stock		—			—		35,305			—		(35,305	)		—		—			—			—			—
Repurchases of Common Stock		—			—		(450,805	)		—		—			—		(9	)		(8,499	)		—			(8,508	)
Redemption of Series A Preferred Stock		(125	)		—		—			—		—			—		(125	)		—			—			(125	)
Equity Issuance and Shelf Registration    Statement Transaction Costs		—			—		—			—		—			—		(857	)		—			—			(857	)
Amortization of Share Based Compensation		—			—		—			—		—			—		483			—			—			483
Net Income		—			—		—			—		—			—		—			78,376			—			78,376
Other Comprehensive (Loss)		—			—		—			—		—			—		—			—			(1,115	)		(1,115	)
Dividends on Preferred Stock		—			—		—			—		—			—		—			(3	)		—			(3	)
Dividends on Common Stock    (Dividends Declared per Share of $1.28)		—			—		—			—		—			—		—			(78,663	)		—			(78,663	)
Dividends on Class A Common Stock   (Dividends declared per Share of $1.28)		—			—		—			—		—			—		—			(1,473	)		—			(1,473	)
Balance at September 30, 2018		—		$	—		66,043,964		$	67		1,143,313		$	1	$	1,355,037		$	(25,070	)	$	(1,149	)	$	1,328,886

See accompanying notes to the Consolidated Financial Statements

3

TPG RE Finance Trust, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	Nine Months Ended September 30,
	2018			2017
Cash Flows from Operating Activities:
Net Income	$	78,376		$	69,594
Adjustment to Reconcile Net Income to Net Cash Provided by Operating Activities:
Amortization and Accretion of Premiums, Discounts and Loan Origination Fees, net		(11,867	)		(15,867	)
Amortization of Deferred Financing Costs		12,103			9,160
Capitalized Accrued Interest		—			1,865
Loss (Gain) on Sales of Loans Held for Investment and Commercial Mortgage-Backed Securities, net		524			(185	)
Stock Compensation Expense		483			—
Cash Flows Due to Changes in Operating Assets and Liabilities:
Accounts Receivable		103			503
Accrued Interest Receivable		(4,012	)		(776	)
Accrued Expenses		1,113			(2,454	)
Accrued Interest Payable		(360	)		826
Payable to Affiliates		1,677			5,193
Deferred Fee Income		(101	)		75
Other Assets		149			(694	)
Net Cash Provided by Operating Activities		78,188			67,240
Cash Flows from Investing Activities:
Origination of Loans Held for Investment		(1,622,084	)		(1,149,911	)
Advances on Loans Held for Investment		(207,657	)		(226,187	)
Principal Advances Held by Servicer/Trustee		—			496
Principal Repayments of Loans Held for Investment		858,130			975,258
Proceeds from Sales of Loans Held for Investment		2,174			65,054
Purchase of Commercial Mortgage-Backed Securities		(143,643	)		(96,294	)
Sales and Principal Repayments of  Commercial Mortgage-Backed Securities		146,016			29,802
Purchases and Disposals of Fixed Assets		—			(108	)
Net Cash Used in Investing Activities		(967,064	)		(401,890	)
Cash Flows from Financing Activities:
Payments on Collateralized Loan Obligation		—			(559,574	)
Proceeds from Collateralized Loan Obligation		745,904			16,254
Payments on Secured Financing Agreements		(1,432,221	)		(621,552	)
Proceeds from Secured Financing Agreements		1,508,313			1,293,530
Payment of Deferred Financing Costs		(18,818	)		(6,207	)
Proceeds from Issuance of Common Stock		139,440			243,654
Payments to Repurchase Common Stock		(8,361	)		(6,000	)
Proceeds from Issuance of Class A Common Stock		—			365
Payments to Redeem Series A Preferred Stock		(125	)		—
Payment of Equity Issuance and Shelf Registration Statement Transaction Costs		(251	)		(4,341	)
Dividends Paid on Common Stock		(72,857	)		(58,743	)
Dividends Paid on Class A Common Stock		(1,429	)		(1,403	)
Dividends Paid on Preferred Stock		(3	)		(8	)
Net Cash Provided by Financing Activities		859,592			295,975
Net Change in Cash, Cash Equivalents, and Restricted Cash		(29,284	)		(38,675	)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period		75,737			103,975
Cash, Cash Equivalents and Restricted Cash at End of Period	$	46,453		$	65,300
Supplemental Disclosure of Cash Flow Information:
Interest Paid	$	78,707		$	46,600
Taxes Paid		208			141
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Principal Repayments of Loans Held for Investment by Servicer/Trustee, net		—