Franklin BSP Realty Trust(FBRT) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - FBRT reported a GAAP loss of $3.8 million or $0.11 per diluted common share for Q2 2024, primarily due to an increase in the CECL reserve and lower conduit income [10][11] - The CECL provision increased by $31.4 million, with a specific provision of $32.3 million related to four watch list loans, impacting GAAP earnings and book value [7][10] - Book value at quarter end was $15.27, incorporating $0.93 per share of CECL reserves [10] Business Line Data and Key Metrics Changes - The company originated $622 million in new commitments during Q2 2024, bringing the year-to-date total to over $1.3 billion, with approximately 25% of the loan portfolio originated in the last 12 months [6][10] - Distributable earnings for Q2 were $0.31 per fully converted share, lower due to the realization of losses from the Walgreens sale [11] - The average cost of debt on the core portfolio decreased slightly to 7.8%, while net leverage increased to 2.7 times due to portfolio growth [13] Market Data and Key Metrics Changes - The company experienced strong demand for multifamily assets, with significant interest from major players like Blackstone and Brookfield [16][17] - The market is currently seeing a lack of willing sellers, despite high demand for stabilized multifamily assets [17] - The conduit platform was active but generated lower income quarter-over-quarter, with expectations for future contributions to earnings [18] Company Strategy and Development Direction - FBRT aims to emerge as a market leader by leveraging its solid financial position and active origination strategy [9][27] - The company is focused on high-quality multifamily assets and has limited exposure to secondary and tertiary markets, which has positioned it advantageously [15][16] - The management is optimistic about the multifamily market's future, anticipating a decline in new supply and potential for strong rent growth [26][43] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges in the current environment but expressed confidence in the company's ability to navigate through them [9][27] - The sentiment for office properties is improving, although the realization of losses is expected to continue [23] - Management emphasized the importance of stabilizing assets before liquidation to maximize recovery value for shareholders [41][43] Other Important Information - The company repurchased $3 million of its common stock during Q2 2024, totaling nearly $69 million since the program began [9] - FBRT ended the quarter with $700 million in available liquidity, which decreased from the first quarter due to portfolio growth [8] Q&A Session Summary Question: Can you repeat what happened with the Walgreens and the $25 million impact for next quarter? - The $25 million refers to the realization difference from the sale of 18 stores, which will affect Q3 distributable earnings [29] Question: What is the status of the Denver asset? - The asset is not in default and management is in ongoing discussions with the borrower to monitor its performance [30][31] Question: What was the NII drag this quarter from non-accrual loans? - The drag was approximately $4 million due to non-accrual loans and the friction of turning over assets [32] Question: Which assets are expected to be resolved in the second half of the year? - The Mooresville and Lubbock assets are anticipated to be resolved by year-end, along with potential resolutions for Raleigh and Chapel Hill [33] Question: How does FBRT differentiate itself in the current lending market? - FBRT's broad product offering across various loan types allows it to compete effectively in a less crowded market [37] Question: When will the portfolio reach an earnings inflection point? - It will take a few quarters to see meaningful improvement as the company continues to work through its watch list and REO portfolios [39] Question: What are the thoughts on the funding side regarding repo lines versus CLOs? - The pricing on bank lines is currently favorable, allowing the company to be patient before tapping into the CLO market [44][58]