Franklin BSP Realty Trust(US:FBRT)2023-02-23 16:26Financial Data and Key Metrics Changes - The company generated $0.37 in distributable earnings in Q4 2022, a 12% increase from the prior quarter, translating to a distributable earnings ROE of 9.2% [9][15] - The total commercial real estate portfolio ended the year at $5.3 billion in principal balance, with new loan commitments for the year totaling $2.3 billion at a weighted average spread of 462 basis points [4][16] - The company's cash and total liquidity stood at $179 million and $1 billion, respectively, providing a strong liquidity cushion [6][32] Business Line Data and Key Metrics Changes - The commercial real estate portfolio is predominantly multi-family, with 76% of loans allocated to this sector, which is expected to remain resilient [6][26] - The average risk rating of the portfolio increased slightly from 2.1 to 2.2, with two loans added to the watch list and three positions added to foreclosure REO [11][49] - The company executed $209 million in new loan commitments in Q4, with a total of $5.9 billion in total commitments by year-end, reflecting a 23% growth for the year [23] Market Data and Key Metrics Changes - The company noted a significant increase in deal flow for the first six weeks of the year compared to Q4, indicating a more favorable market environment [27] - The company has no international exposure and intends to maintain this stance, focusing on the Southeast and Southwest markets [48] Company Strategy and Development Direction - The company aims to take advantage of accretive new origination opportunities throughout the year, anticipating a more opportunistic origination environment as values adjust [13] - The company has a defensive posture entering 2023, with a focus on maintaining liquidity and being opportunistic in times of market dislocation [37] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the quality of the diversified portfolio and the ability to weather potential market storms due to high interest rates and a slowing economy [13] - The company is optimistic about the resolution of ongoing legal proceedings related to the Walgreens portfolio and the Brooklyn Hotel, which could provide positive outcomes in 2023 [28] Other Important Information - The company repurchased approximately $16.6 million of common stock in Q3 and Q4 2022, with over $48 million remaining on the buyback authorization [7][8] - The company has a conservative leverage position, with net leverage ending the quarter at 2.5x and recourse leverage at 0.68x [18] Q&A Session Summary Question: Will the portfolio remain static or grow in 2023? - Management indicated a potential for growth if the right credit and returns present themselves, while currently maintaining a defensive posture [29][37] Question: What is the impact of non-accrual loans on the portfolio? - Management noted that two loans on non-accrual total approximately $150 million, with potential upside as these positions are resolved [38][39] Question: What is the makeup of the forward pipeline? - The forward pipeline consists of a mix of repeat borrowers and new clients, reflecting a traditional middle market sponsorship structure [56] Question: How comfortable is the company with operating assets for an extended period? - Management stated they are comfortable operating assets for several years if necessary, depending on market conditions [58]