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Q4 2023 TPG RE Finance Trust Inc Earnings Call

Participants

Doug Bouquard; Chief Executive Officer, Director; TPG RE Finance Trust Inc

Robert Foley; Chief Financial Officer; TPG RE Finance Trust Inc

Arren Cyganovich; Analyst; Citi

Stephen Laws; Analyst; Raymond James

Steve Delaney; Analyst; JMP Securities

Sara Barcomb; Analyst; BTIG

Rick Shane; Analyst; J.P. Morgan

Don Fandetti; Analyst; Wells Fargo Securities, LLC

Presentation

Operator

Yes, in all Greetings, and welcome to TPG Real Estate Finance Trust earnings call for the fourth quarter and full year of 2023. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, today's call is being recorded, and it is now my pleasure to turn the call over to the company. Thank you. You may begin.

Good morning and welcome to GPGRU. Finance Trust earnings call for the fourth quarter and full year of 2023. We are joined today by Doug Ricard, Chief Executive Officer, and Bob Foley, Chief Financial Officer. Doug and Bob will share some comments about the quarter and then we will open the floor for questions.
Last evening, the company filed its Form 10 K and issued a press release and earnings supplemental with a presentation of operating results, all of which are available on the company's website in the Investor Relations section. As a reminder, today's call may include forward-looking statements, which are uncertain and outside of the company's control. Actual results may differ materially. For a discussion of risks that could affect results, please see the Risk Factors section of the Company's Form 10 K. The Company does not undertake any duty to update these statements, and today's call participants will refer to certain non-GAAP measures. And for reconciliations, you should refer to the press release and the Form 10 K. At this time, I'll turn the call over to Doug Rickard, Chief Executive Officer.

Doug Bouquard

Good morning, and thank you for joining the call over the past quarter, the market has rallied broadly driven by a mix of robust economic growth, a tight labor market and the expectation that the worst is behind us in terms of both inflation and restrictive Fed policy. Not only is the S&P 500, up about 5% since the start of the year. It's worth noting that since October 2022 of the S&P has rallied a remarkable 40% in credit markets. Corporate credit spreads continued to tighten in sympathy with the equity markets. However, real estate credit spreads continued to underperform on a relative basis, driven by the same themes that have been affecting the real estate market for the last several quarters brought pressure on values, secular challenges to office, elevated borrowing costs and reduced liquidity. Many traditional providers of real estate debt capital, particularly regional banks, remain defensively positioned. While there are a multitude of dynamics at play within real estate capital markets. The pace of Fed rate cuts will be a key driver of credit performance, particularly among floating-rate lenders. On the positive side thus far in 2024, credit spreads in the CMBS and CRE CLO markets have tightened with particularly strong demand from the bond buying community for in favor property types such as multifamily and industrial. However, real estate as an asset class has lagged the broader market rally. I expect 2024 will be a year of increased transaction volumes and price discovery across the sector in the fourth quarter TRTX. followed through decisively on the strategy that we have steadily articulated to the market. Number one, maintain elevated levels of liquidity given the broader market pressure and uncertainty. Number two, resolve identify credit challenge loans with an eye towards maximizing shareholder value. And number three, position TRIOLEX to take advantage of an attractive investment environment in 2024 and beyond.
As I've mentioned in prior quarters, we continue to use every asset management tool at our disposal to maximize shareholder value, including those available to TRTX. by virtue of being part of a broader real estate investment platform and a $222 billion multi-strategy asset management firm, driven by the hard work and focus of our asset management team we resolved during 2023 and especially in the fourth quarter, all of our identified credit challenged loans at levels in line with our CECL reserves. Consequently, we ended the year with a loan portfolio that is 100% performing contains no five rated loans nor nonperforming loans and achieved a 71% reduction in CECL reserves all while maintaining liquidity of $480 million. Simply put, we were an early mover to identify and address challenges within the sector. Our fourth quarter results exemplify our commitment to getting ahead of and resolving underperforming credit exposures.
Looking at our asset management progress through more focused loans, we identified the challenges facing the office market and moved prudently to reduce our exposure by approximately 70% from $2.3 billion to $728 million since early 2022. A substantial portion of that risk reduction came in the form of full or partial repayments from our borrowers. However, in certain cases where we deem to be the optimal path for shareholder value, we sold loans or took title to assets. These asset management decisions are rooted in the investment framework we apply to all of our investments, given that TRTX. is part of TPG's fully integrated debt and equity investment platform, we are uniquely positioned to manage REO assets and maximize shareholder value.
At quarter-end, REO assets account for slightly less than 5% of TRT. X's total assets despite the banking industry's emphasis to reduce direct lending on commercial real estate assets. We continue to benefit from strong demand from our financing counterparties to deepen their lending relationship with TRTX. To that end, we extended a $500 million secured credit facility with Goldman Sachs to 2028 and closed a new financing arrangement with HSBC. We have no material financing maturities until 2026, which provides us an attractive runway to deploy fresh capital into the real estate credit market.
Looking ahead, uncertainty continues to permeate the broader real estate market for TRTX. due to the substantial progress made over the past year.
In reshaping our loan portfolio, our strong liquidity and low leverage we are confident in our ability to navigate the current environment.
From an exposure perspective, our loan portfolio was 49% multifamily, which we believe is a sector with positive long-term tailwinds. Despite the near term pressures of new supply and elevated short-term borrowing costs.
Our multifamily book is 100% performing. Furthermore, on 100% of our multifamily borrowers who are required to replace their interest rate caps in 2023 did so by either renewing, we're placing a cap or funding an interest reserve, which is a positive signal towards borrower commitment, the strength of our collateral and the overall credit quality of our balance sheet. While slower than expected interest rate cuts may put pressure on the sector and our borrowers we continue to favor the housing sector and believe this will be an area for attractive new investment in the coming quarters. Against this improving backdrop, our current share price represents approximately 50% of book value. So there remains a clear disconnect from the company's fundamentals, including the significant progress made in 2023 and our 100% performing loan portfolio in simple terms with $480 million of available liquidity, a conservative leverage ratio of 2.5 to one, our balance sheet with 100% performing loans and the deep investment experience of TPG's global real estate platform. We believe that our shares offer compelling value at today's price. We acknowledge the real estate sector remains under pressure and that credit performance may be heavily dependent on the pace of future interest rate cuts. However, we are pleased with how we are positioned to navigate 2024 and beyond. With that, I will turn it over to Bob for a more detailed summary of this quarter's performance.

Robert Foley

Thank you, Doug, and good morning, everyone, and thanks for joining our results for the fourth quarter and full year illustrate our success in executing our 2023 operating, which was to efficiently resolve our identified credit challenge loans, primarily office at the best value available in the market, sustain high levels of liquidity, maintain or reduce our already low leverage levels and position TRTX. year end to play offense defense for both in 2024.
Regarding our operating results, GAAP net income attributable to common shareholders was $2.6 million for the fourth quarter as compared to a loss of $64.6 million for the third quarter. Net interest margin for our loan portfolio was $21.3 million versus $19.5 million in the prior quarter, an increase of 1.8 million or $0.02 per common share, due largely to repayment of borrowings associated with nonperforming loans resolved during the fourth quarter. Distributable earnings before realized credit losses was $24.1 million or $0.31 per common share as compared to $13.7 million or $0.18 per common share in the prior quarter. Distributable earnings before realized credit losses averaged $0.23 per quarter.
Moving for the full year 2023, which we view as a solid foundation from which to build in 2024. Distributable earnings declined quarter over quarter to a loss of $159.7 million versus a loss of $103.7 million in the prior year due entirely to realized losses incurred from the resolution of all of our nonperforming and five rated loans during the fourth quarter, the realized losses recognized in the fourth quarter, nearly identical to the CECL reserves associated with the resolve of our CECL reserve decreased quarter over quarter by $166.8 million or 7.5% to $69.8 million from $236.6 million as of September 30th, 2023, our CECL reserve rate declined to 190 basis points from 560 basis points. This decline reflects $466 million of loan resolutions during the fourth quarter involving identified credit challenge loans including the elimination of all five rated loans and nonperforming loans. We have no specific reserves for loan losses at year-end. Book value per share is $11.86 a decline of $0.18 per share from $12.4 in the first quarter. Some important data points. We reduced nonperforming loans to zero from a peak of $558.9 million at March 31st, 2023. Our $3.7 billion loan portfolio was at year end, 100%, performing 100% floating rate and 100%. First Mortgage resolved $466 million of identified credit challenge loans in the fourth quarter and $951 million during the entire year. For the quarter, the loan resolutions included one office loan sold three office on converted to REO, one multifamily loan sold and one multifamily loan converted to REO excluded from these amounts are $7 million of regular way loan repayments in full on one hotel loan and partial repayments of $30.2 million across three. To accomplish our goal, we incurred realized losses during the fourth quarter of $184.1 million and for the year of 334.7, these losses were within 3% for the quarter and 9.5% for the full year that the aggregate CECL reserves related to those resolve months for small quarterly decline in book value in the face of $184.1 million of realized losses reflected our CECL reserve that already largely captured the eventual losses realized upon resolution and winning our balance sheet of these identified credit challenged loans. We also shipped $280.6 million of borrowings used to fund those non-earning assets and $6.1 million of related quarterly interest expense or approximately $0.08 per share per quarter. Multifamily loans now represent 49.2% of our loan portfolio. Offices declined 68% of the eight past eight close to 19.9%. Life sciences is 11%. Hotel is 10.6% and no other property type comprises more than 3.1% of our portfolio unfunded commitments, total $183.3 million, only 5% of our total incremental. We further delever to 2.5 to one, which is defensive, but gives us ample room for growth when warranted. We have $4.9 billion of total financing capacity across 13 different arrangements. During the fourth quarter, we added a non-mark-to-market note on note financing arrangement with a new counterparty. And shortly after year end, we extended our existing $500 million secured credit facility with Goldman Sachs for two additional years through 2026 and tacked on a two year term out provision through 2028. Our only scheduled debt maturity in 2024 is $1.8 million under our credit facility, we expect to extend regarding REO one of our strategies to resolve credit challenged loans and recycle capital to convert certain loan investments earlier, which gives TRTX. sole control of the properties. And in that sense, during the fourth quarter, we converted to REO for loans, three office properties and one multifamily property holdings at year end comprise five properties for office and one multifamily with a total carrying value of $199.8 million, a blended current annualized yield of 6% and average basis per square foot for office of $121 and per apartment unit of $274,000. Refer to Footnote four of our financial statements for a snapshot of our REO portfolio at year-end, we're using the broad resources at TPG Real Estate, $18 billion real estate platform and TPG., including platform companies owned by equity funds, senior advisers and partners and counterparties to optimize REO returns, giving due consideration to investment alternatives, cash on cash returns, capital requirements and holding period CRTX. has experienced owning effectively managing and harvesting area. Prior to the fourth quarter of 2023, we've taken title to four properties, one, land, two office and one in multifamily. We sold the land within 14 months of acquisition for a gain of $29.1 million. We sold one of the office properties in the fourth quarter of 2022 for a net loss of roughly $200,000, which translated into a recovery against our pre-foreclosure UPV. of roughly 95% refinanced return. The second office building, which we own today and operate and which generates a 9% yield on equity. And we sold in November just three months after acquisition. This is a multifamily property for all cash, no seller financing and generating a $7 million gain compared to our REO caring value with total proceeds roughly equal to our pre-foreclosure moments. The gain is reflected in our results of operations for the fourth quarter.
Regarding credit risk ratings improved to 3.0 from 3.2 due almost entirely to loan resolutions during the fourth quarter refer to Pages 73 and 74 of our Form 10 K for a detailed recap of risk rating changes during the quarter regarding our liabilities and our capital base non-mark-to-market liabilities remain an essential ingredient in our financing strategy. At quarter end, non-mark-to-market liabilities represented 73.5% of our liability base as compared to 68.9% at September 30th, leverage declined further to 2.5 from 2.6 to 1 at September 30th and 2.8 to one at June 30th. We were in compliance with all financial covenants at December 31st, 2023. At quarter end, we had $247.2 million of investment capacity available in FL. five to refinance existing loans financed elsewhere on our balance sheet or to support new loan acquisitions or originations. We have since utilized $71.2 million of this capacity and intend to fully utilize the remaining $176 million before the outside and the investment they present in April. We estimate the total incremental quarterly interest income of approximately $0.07 per share starting liquidity, maintain high levels of immediate and near term liquidity, roughly 11.4% of total assets to support our asset resolution and loan investment strategies cash and near term.
Liquidity remained substantial at quarter end at $480 million, comprised of $206.4 million of cash, $247.2 million of CLO reinvestment cash and $26.4 million of undrawn capacity under our secured credit agreements. Our third CLO remains open for reinvestment through mid April of this year. And during the quarter, we funded $34.6 million of commitments under existing loans.
And with that, we'll open the floor to questions. Operator?

Question and Answer Session

Operator

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two. If you would like to move your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the stock is One moment please while we poll for questions. First question comes from the line of Arren Cyganovich with Citi.

Arren Cyganovich

I guess maybe now that you've worked through some of your most challenged loans. Is your time now just focusing on realizing the value of the REO or can you start to get on a more offense of footing and start to look at it, investing in some new loans as well?

Doug Bouquard

Thank you for the question on that point. I think based on where we are as a company, we're in a really unique spot where we actually are able to start and play, frankly, a lot more offensively, our record in terms of managing and owning RTO. I know that Bob spent some time in his prepared remarks speaking to our experience there. But from a capital allocation perspective, we will be deploying capital into new loans in 2024. Part of that, of course, will be by deploying our CRE CLO reinvestment capacity. And then beyond that, we will have the ability to deploy excess cash which, of course, can help drive earnings power of the Company.

Arren Cyganovich

I guess on the last point on, I guess, where we stand at the end of the year or today, where is the earnings power that you see right now now that you've kind of had a lot of calm activity in the fourth quarter?

Doug Bouquard

So I think to maybe anchor everyone for a moment. One thing that we mentioned earlier in the call is that when you look at our average distributable earnings before credit losses in 2023 on a quarterly basis, we averaged about $0.23. And that $0.23, of course, was during a period of time where we were generally playing, I'd say more defense had elevated cash levels so I think kind of starting from that $0.23 per share number is, I think, a relatively good base. And then really from there, I would describe it as our having kind of three levers upon which we can we can build the earnings power of the Company up the first of which, as I mentioned, is deploying the CRE CLO reinvestment capacity, which we're well in the process of. As Bob mentioned, we have $274 million of capacity within those CLOs. We have already deployed thus far about $71 million of that, and we fully intend to fund that remaining amount. And secondly, we may look to deploy excess cash into investments as well. We are fortunate to have a series of financing counterparties that would like to continue to grow our relationship. So from a from a bank leverage perspective, there's ample liquidity. So again, sort of a lever to would be deploying excess cash.
And then third, just from a leverage perspective, we are relatively low levered. And when you look at really across the landscape, we're levered at 2.5 to one. So we do have the opportunity to potentially have a bit more leverage at our at our company level.

Arren Cyganovich

Thank you.

Operator

Thank you, nCUBE. A reminder to all the participants that you may press star one to ask a question. Next question comes from the line of Stephen Laws with Raymond James. Please go ahead.

Stephen Laws

Good morning and congratulations, mortgage a little bit of a morning, a busy busy fourth quarter and a lot of progress. I wanted to touch base, Bob revisit, I think you said $0.07 per share. Is that a quarterly number, what's what's I guess you won't get a full quarter impact later this year, but is that a full quarter impact of $0.07 once the CLOs are topped off Yes, that's correct, Stephen, very disciplined, et cetera.

Robert Foley

Yes, to 47 was uninvested. At year end, we've deployed about $0.71. And so that leaves about $176 million. So we're all that deployed based on where we're originating loans today in the first quarter. That's that's how you get to the $0.07.

Stephen Laws

Great. And that's a great lead-in to my next question. So the$ 71 million done so far, were those new originations closed this year with those existing that well in other facilities? And what are you looking at in the current new investment pipeline that's likely to go into those CLO vehicles?

Doug Bouquard

Yes. So there's those two and downtime or both, but those were both new investments and both both within the multifamily sector.
And I think as we think about deploying capital in 2024, we will still do prefer housing as a broad theme one, while we do acknowledge that there are parts of the multi-family market which are under pressure due to either an increased amount of supply in certain markets. And then sort of on the borrower level, in some cases, seeing pressure with elevated short-term rates. But beyond those two factors, we really do like the multifamily space specifically longer term. So I might my expectation is that we will be deploying capital within the housing sector. But when we look at the current leverage point that we're able to and we're basically able to lend that in today's market. We are, I would say, generally lending at a lower going in loan-to-value than I think a lot of where the market was lending in 2021 22. Appreciate the color there?

Stephen Laws

And then on the REO, I know one of your assets that's currently there, they're generating a fairly attractive return. But can you talk about the time line of maybe moving others off the balance sheet or are they assets you need to lease up over time and stabilized? Or are there some that may find other homes sooner than others?

Robert Foley

Can can you give us a little color on that store upon once you have to turn that one to Stephen, we at year end our REO portfolio was comprised of five properties, one of which is an office building in Houston that rebound since earlier in 2023. And as you just mentioned, a group generates a very attractive nine plus percent ROE for each of the others we have altered. We have evaluated alternative business plans for each. That was an important part of the employee and the investment framework to determine whether we were in fact going to foreclose or pursue another resolution strategy for each of them was now REO on, I would say, generally speaking, properties that we own that generate less current cash, we require more capital for investment and have a longer hold period in order to fully realize that investment probably have a higher return barred and therefore, are likely to be owned for shorter periods of time and the opposite would hold true. So for example, we now own a very nice Class A. multifamily project in the western suburbs of Chicago to that properties completed several years ago in reset, we've actually improved occupancy by about five or six points in the seven weeks since we've acquired it. That's probably something that we lease up, stabilize and then sell there some other assets that may have more complex business plans and will report back to the market as we work through.
That's great.

Stephen Laws

And one last quick one from the K mentioned the interest coverage ratio of covenant reverts back to 1.4 at the end of this quarter on, can you give us an update on where you stand on that with that moving from one three back to one four and any moving pieces we need.

Robert Foley

No, there are absolutely correct in your assessment. We're obviously monitoring that closely. And that's in constant discussions with our lenders about a number of things including that. But we don't expect that that will be an issue from Quadrem.
Just just want to add one more thing in response to your question. I'm retiring this substantial borrowings that we had in connection with the NPLs, which we no longer have was an important point in addressing the interest coverage ratio.
And the other thing I would just remind investors and analysts is that that test is a trailing four quarter test so you sort of earn your way into it and out of it. Thanks, Stephen. Thanks, Bob.

Stephen Laws

Appreciate the comments.

Operator

Thank you. A reminder to all the participants that you may press star and one to ask a question. Next question comes from the line of Steve Delaney with Citizens' GMP. Please correct.
I'm sorry, Lenny, please go ahead with the question. You have a question.

Steve Delaney

Apologies. I was on mute. My apologies. Thank you for taking the question. Following up on Steve's comment about the cleanup which I've done is was truly remarkable. So we have to I have to applaud that now that sort of the credit is boxed in, if you will, and your ag, you're looking at new loan opportunities where in the the ranking of priorities, would you put our share buybacks with the stock units slightly under 50% of book value? I realize that that scale and growth are important, but what should shareholders expect, if anything, on buybacks at this point? Thanks.

Doug Bouquard

Thank you. So a share repurchase is certainly a potential tool in the capital allocation arsenal for us. That being said, we really will be looking at both new investments and other ways for us to be deploying our capital. So just to be very, very direct about it. We along with our board are carefully considering the option and are seeking the best returns for our investors.

Steve Delaney

Sure. I understand that you did not have I'm looking at the balance sheet. I don't see a convert or any high-yield debt, is that correct? I just see secured debt.

Robert Foley

Am I missing something as far as correct, so you're right, you're absolutely right, okay.

Steve Delaney

Yes, because we've seen some some really nice buybacks on those. We'll look at capital allocation is a it's part offense and part defense. So for now, we'll just say congratulations on the on the great cleanup effort, and I am sure your Board will make the right calls moving forward. So all the best in 2024.

Doug Bouquard

Thank you very much. We appreciate it.

Operator

Thank you. Next question comes from the line of Sara Malcolm PTHU., please.

Sara Barcomb

Hey, good morning, everyone. Thanks for taking the question on. So my first question is about the run rate distributable earnings on the put on the performing loan portfolio. And could you walk me through your thoughts on go forward earnings power now that you've gotten zero nonperforming loans basically like what needs to happen in order for you to remain constructive on that credit on you mentioned in the prepared remarks that the timing and pace of a Fed pivot is important here on. Would we need to see that within the next few months? Or can you speak to any sensitivity there on, you know, any other variables that we should consider as we think about the go forward, nonaccrual risk. Thank you.

Doug Bouquard

Sure. Happy to address that, and thanks for the question. You're up.
I'll of start just once again just around again, anchoring on our average distributable earnings in 2023 before credit losses, again, just to use that as a guidepost of approximately $0.23 per quarter. And then from there again, there is ways to grow the balance sheet in terms of sorry, to grow earnings power by deploying the series CLO reinvestment capacity by deploying excess cash and then also potentially adding adding more leverage, given that we are relatively modestly levered within our within our cohort at 2.5 to 1 as we look forward. And I think that why both both Bob and I have kind of spoken to the fact that we are respectful of where we are in the cycle, even though we are really pleased as to where our balance sheet is and our ability to frankly, deploy capital in 2024, we remain respectful of the fact that the real estate market is in no way out of the woods. And so when we think about how we've positioned our balance sheet 2024, we continue to have flexibility if the market does get more challenging and specific to the comment relating to Fed rate cuts when we look across our balance sheet now, particularly now that we've resolved the substantial portion of our credit challenged assets, the the one area that we look through 2024 when it comes to risk is, of course, that the Fed is slower. And when you think about so for at roughly five or five and a third that may put pressure on certain multifamily borrowers.
So we just want to be respectful of that. And but when it comes down to it, ultimately, again, we've positioned the balance sheet where we can play a lot more offense this year relative to defense, but also just want to be real respectful in terms of where we are in terms of the market.

Sara Barcomb

Okay, great. Thank you. And my second question relates to liquidity needs for the REO portfolio on you've already given some good detail here, and thanks again for reminding us on the successful resolutions for the previous REO assets on just digging into these four new REO properties, how much liquidity do you think is needed to manage these? And will you lever these up or run them unlevered on? Just curious about CapEx plans here and overall liquidity needs? Thank you.

Robert Foley

The short answer to your question, Sarah, on the answer is yes, and the answer is going to be different for each of the assets.
Just to provide goalpost on the multifamily project I alluded to earlier in the southern suburbs of Chicago, it doesn't require any capital. The property is, call it, 75, 76% leased and occupied. So that's a pure a pure operations exercise, which we're confident will go well under control. And at the other end of the spectrum, there are some assets that would require capital, perhaps reconditioning, perhaps for new leasing. Our liquidity projections for the Company obviously incorporate our expectations there, but we're not going to provide at this point specific budgets, you'll be able to see the spend over time as we as we undertake our business plans here. But generally speaking, as I mentioned earlier, one of the criteria is now we're looking for the best return for our investors. All else being equal, we'd rather limit the capital spend where we can.

Sara Barcomb

Okay, great. And then just really quickly, I wanted to clarify on that $0.07 earnings income benefit that you mentioned, is that layering in your expectations on for going on offense and making new loans? Or is that just the benefit of moving existing loans that are currently on warehouse lines over to the CLOs?

Robert Foley

Well, it's actually a blend of the two. But as Doug and I think I mentioned a few minutes ago, the about the utilization of the $71 million of the $247 million, those were to new loan originations, right, right. And we got the origination almost we've been originated almost $300 million of loans last year, and we've originated close to $90 million thus far this year. So we have not been idle.

Sara Barcomb

And also just to expand on that, sir, which I think is just helpful context if you think about where we are liquidity wise, but from a cash perspective from a CRE CLO capacity perspective and then also all of the new available secured financing that we just lined up. We really had a lot of different ways for us to deploy capital. So even though we will, of course, use every dollar of that CRE CLO capacity and there are certain loans where we may opt to fund that even today outside of the CRE CLO, if we have a more attractive channel in terms of available available back leverage, a lot of what we've seen from from the bank community so far this year is although they are generally more cautious about direct lending, we've seen actually pretty strong appetite from banks to be providing us back leverage as we're out there making new investments. So I think that that's really what provides us some flexibility where, again, we, of course, will be fully fully populating that CRE CLO reinvested capacity, but we do have many other liquidity alternatives. And as we deploy more and more capital, we will optimize between the two. Thank you.

Doug Bouquard

Thank you very much.

Operator

Thank you. Next question comes from the line of Rick Shane with JPMorgan.

Robert Foley

Please go ahead.

Rick Shane

Thanks, everybody, for taking my questions this morning. Look, it cleaning up the book at the end of 23 gives you a tremendous amount of flexibility as you head into 24 on Steve DeLaney had asked about repurchases. One of the other places that you have flexibility is related to dividend policy and I understand there have been a lot of questions about, hey, what's the run rate on distributable earnings, but the reality is at this point on given the realized losses in 23 on dividend is I assume going to be a return of capital. I understand that there is a signaling to the dividend level, but the reality is even with the stock running up. It's trading at a 16 plus percent yield in the spirit of preserving flexibility and not really getting full credit for that dividend.
Does it make sense? And again, I realize this is not out of necessity, but perhaps out of out of efficiency to maintain the dividend at the current level, even if you can look, it's a great question and we, of course, spend a lot of time being very thoughtful about our dividend policy.

Doug Bouquard

I'll first start with we continue to think about our dividend policy, along with our board but really to be anchored around a level that is reflective of the long-term earnings power of the Company.
I think as you can see from what we what we were able to achieve, particularly in the fourth quarter and really in all 2023. That really allows us to your point to have, frankly, a much clearer window into the sort of long-term earnings power of the Company. And frankly, that's exactly what we'll be using as we as we think through the dividend policy going forward.

Rick Shane

Got it. And look, I see that the flip side of it is that the realized losses last year probably equate to call it almost three years of dividend distributions and so on. Again, I just I just think of it preserving capital, being able to you guys have as a read in the problem, which is that you can't really retain and reinvest capital. You're in a situation right now where you're probably looking at above historical norm returns on marginal investments. Does it make sense to in this window where you actually can retain capital to retain and reinvest?

Doug Bouquard

Yes. Look, I think you're asking really, really thoughtful questions. And again, we are evaluating dividend policy. But again, we really used the guiding light as the long-term earnings power of the Company. And I think that as we evolve in our balance sheet and we see opportunities out in the market, that's exactly what's going to help us shape our policy and navigate some of the complexities that frankly, you laid out quite eloquently.

Rick Shane

Okay. Take one last question and then again, look at understanding the policy is really helpful. And I realize there's an enormous amount of uncertainty ambiguity in what is optimal for shareholders. I'm not saying that this is the right choice. I'm just I'm just trying to weigh what the different on what you guys will consider as you think about this.

Robert Foley

Perhaps I'd like to just add one more thing to Rick's thoughtful line of questioning, which is that dividend policy is important and big linear programming problem for application. And none of us should forget that one of the other it overlays or constraints that already to operate under is that in order to preserve your requalification you need to distribute at least 90% of your taxable income. So the discussion today seems to have been focused on situations where the real question, which I think this morning is TRTX., it doesn't have taxable income, but there have been yes, there are instances where there is taxable income. And so that's something that every management team and Board needs to consider as well. Thanks for that.

Doug Bouquard

Thank you.

Operator

Thank you. The final question comes from the line of Don Fandetti with Wells Fargo. Please correct.

Don Fandetti

I guess as you look out over the next quarter or two, how are you thinking about the risk of migration from three to four and also reserve build over the next quarter or two?

Robert Foley

Hey, Dan, it's Bob. Thanks for your question. On sort of take those in order in terms of risk ratings, I would say two things. At the end of every quarter, we carefully scrubbed. All the loans and our risk ratings reflect our assessment of current and expected future macro conditions, real estate conditions and our assessment of our individual loan collateral loan sponsor and so on. So our risk ratings at the end of any quarter, including December 31st, are based on both current reality and our expectations of the future.
With respect to our expectations for the future. As Doug had mentioned earlier, that we're in a we're in a period of uncertainty and corrections uncertainty in the broader real estate or in the broader economy and certainly direction of real estate. And that Fed policy, in particular weighs heavily on real estate. So if the actual pass through of the economy and rates proves to be differ than different than what we currently expect it will be that could weigh on borrower behavior and consequently on risk ratings too, the negative or the positive.
With respect to Cecil, you mentioned build and, you know, Bill, that's not the way CECL is structured. So at any period end, the CECL reserve again is supposed to reflect management's assessments of the it's a current assessment of expected losses over the life of the well. So our our reserves at any quarter end, our intended to reflect that and due to the best of our ability I think to date, our empirical evidence of realized losses in comparison to CECL reserves has been pretty tight. And so the short answer to your question is we're comfortable today with our CECL reserve based on what we see in the future. If the market environment in the future is materially different than our current assessment, then we'll we'll adjust it at the appropriate time. But again, thus far our reserves have been pretty on target. I hope that answers your question. Yes.

Operator

Thank you. Ladies and gentlemen, we have reached the end of question and answer session. I would now like to turn the floor over to the management for closing comments.

Doug Bouquard

Yes. And I'd just like to thank you all for joining today, and we look forward and we look forward to speaking you again speaking with you again on our next earnings call.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your part patients.

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