Good morning. Welcome to Tremont Mortgage Trust's Third Quarter 2019 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Christopher Ranjitkar, Senior Director of Marketing and Investor Relations.

Please go ahead..

Thank you, Debbie, and good morning, everyone. Thanks for joining us today. With me on the call are President and Chief Executive Officer, David Blackman; and Chief Financial Officer and Treasurer, Doug Lanois. In just a moment, they will provide details about our business and our performance for the third quarter of 2019.

First, I would like to note that the recording and retransmission of today's conference call is strictly prohibited without the prior written consent of the company. Also note that today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws.

These forward-looking statements are based on Tremont's beliefs and expectations as of today, November 6, 2019, and actual results may differ materially from those that we project. The company undertakes no obligation to revise or publicly release the results of any revisions to the forward-looking statements made in today's conference call.

Additional information concerning factors that could cause those differences is contained in our filings with the Securities and Exchange Commission, or SEC, which can be accessed from our website, trmtreit.com or the SEC's website. Investors are cautioned not to place undue reliance upon any forward-looking statements.

And now, I will turn the call over to David..

Thank you, Christopher, and good morning. Welcome to the third quarter earnings call for Tremont Mortgage Trust. As Doug will discuss in greater detail, this morning, we announced third quarter core earnings of $0.26 per share, which beat consensus estimates by $0.02.

During the quarter, we had 2 loans repaid early, totaling $53.6 million, plus earned nonrecurring prepayment premiums of $449,000. With these proceeds, we've fully repaid our term loan with Texas Capital Bank, totaling $31.7 million and paid down our Citi repurchase facility by $22.4 million.

We ended the quarter with leverage below our long-term target. As of today, Tremont has sufficient capital to originate $73 million of transitional bridge loans. During the quarter, we evaluated 70 loan opportunities with approximately $1.9 billion of potential commitments.

As of today, we have 6 outstanding term sheets for total loan commitments of $187 million plus 2 accepted applications in diligence and 1 application approved and under negotiation for $55.5 million in aggregate. Our expectation is to be fully invested by year-end, barring no further loan repayments during the fourth quarter.

In addition to investing our available capital, we remain focused on asset managing our loan portfolio. In October, Tremont declared distribution of $0.22 per share, consistent with what we paid in August. This distribution is supported by our core earnings of $0.26 per share in the third quarter.

We expect fourth quarter core earnings to be down as compared to the third quarter as a result of not being fully invested. However, we believe our total core earnings during 2019 will be sufficient for our Board to support maintaining our distribution at its current level when we declare our next distribution in January 2020.

I will now turn the call over to Doug to review our financial results and balance sheet.

Doug?.

Thank you, David, and good morning, everyone. Let's begin with a review of the income statement. Our third quarter net income was $2.1 million or $0.25 per weighted average diluted share. This compares with a net loss of $0.02 per weighted average diluted share for the same period last year.

The year-over-year improvement is largely attributed to the increase in our loans held for investment from $81.7 million in 2018 to $207.5 million in 2019.

Interest income from investments for the quarter was $5 million, which reflects full quarter interest payments on 10 loans and partial quarter interest payments on the 2 loans repaid in the quarter, totaling $53.6 million.

Interest and related expenses incurred from borrowings on our master repurchase facility and our note payable was approximately $2 million, leaving us with net income from investments of $3 million for the quarter.

As presented in our supplemental financial package, our weighted average all-in yield on our investments as of September 30, 2019, is LIBOR plus 425 basis points and our weighted average LIBOR floor is 219 basis points.

Our expenses in the third quarter totaled approximately $911,000 and include G&A expenses of $541,000, of which $80,000 was noncash stock compensation expense. Shared services expense reimbursement amounted to $370,000. The G&A and shared services expense levels are consistent with our expected levels for the remainder of 2019.

As a reminder, we announced last June that our manager agreed to waive its management fee for the period July 1, 2018, through June 30, 2020, which amounted to savings of $322,000 for the quarter.

Core earnings for the quarter was $2.1 million or $0.26 per weighted average diluted share, which again includes full quarter interest payments from 10 loans and partial quarter interest payments from 2 loans. Now turning to the balance sheet. At the end of the third quarter, we had $9.2 million in cash and cash equivalents.

Our loans held for investment at quarter end totaled $207.5 million, a decrease of $51.5 million from last quarter. At quarter end, we had $18.9 million in unfunded loan commitments.

During the quarter, we paid down $22.4 million on our master repurchase facility in connection with the 2 loan repayments, making the new outstanding balance $131.3 million. As of September 30, we had $82.2 million of capacity in our master repurchase facility, of which $24.2 million is available from existing pledged loans.

Our Citi repurchase agreement has a maximum capacity of $213 million, creating sufficient capital for new loan originations of approximately $73 million, of which $55.5 million has been approved by our investment committee. Our expectation is to be fully invested by year-end. Operator, this concludes our prepared remarks.

We will take questions from sell-side research analysts..

[Operator Instructions] The first question comes from Brock Vandervliet with UBS..

If, now on the Texas Capital line, is that, that's paid down.

Do you anticipate drawing from that again?.

Brock, that was a term loan that match funded our loan for the JFK Hotel. And so when that loan repaid, we repaid the Texas Capital note in full and terminated the note..

I would add, we do expect to access that type of financing from time to time when it's a good accretive financing..

Got it. Okay. So with the Citi line, you've got runway to fund $73 million, it sounds like.

Are you, it sounds like, Doug, you're exploring other options to extend that runway a bit?.

Well, we, the $73 million, Brock, is our maximum lending capacity whilst working within our financial covenants. So we can't just go out and borrow additional money. We'll need equity to go along with that. So really, once we fund the $73 million, we don't have any more lending capacity unless we have some more loans with that..

Okay. And just lastly, as we think about your total book size, it sounds like with that $73 million, assuming you get there, you're going to be close to $300 million or thereabouts.

Is that reasonable?.

Yes, that's correct..

The next question comes from Kaili Wang with Citi..

I guess, in terms of the origination pipeline, last quarter on the call you talked about the pipeline being incredibly strong. I want to know if there were any delay of closing that you expected to happen in 3Q but now might have moved into 4Q..

Kaili, the pipeline is still very strong. We've been working through some diligence on a couple of loans and hope to get those closed here in the next month or so. But we continue to have probably 30 separate transactions and over $900 million of transactions that we either have term sheets issued on or we're evaluating..

Okay.

And given your loan activity this quarter and what we are seeing with the interest rate environment, I know you mentioned 4Q EPS to be down quarter-over-quarter, but do you still think it will be able to cover the dividend for 4Q?.

Yes, we will be down in the fourth quarter just simply because we haven't been fully funded for the full quarter. We think that when we look at our annual core earnings, it should be adequate for the Board to support maintaining our distribution at $0.22 per share when we declare that in January 2020..

Okay, got it.

And just wondering if you could give an update on the performance of the retail loan in Omaha that you originated in June?.

So we look at that quarterly in our loan rating process. We look at the market, we look at the sponsor and the collateral performance. And so, all of our loans are still rated a 3, and that one included. That property is stable and performing as expected..

This concludes our question-and-answer session. I would like to turn the conference back over to David Blackman, President and CEO, for any closing remarks..

Thank you, Debbie, and thank you for joining us today on our earnings call. That concludes today's call..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..