Franklin BSP Realty Trust(FBRT) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - FBRT reported GAAP earnings of $0.30 per diluted common share and distributable earnings of negative$0.10 per diluted common share for Q3 2024 [18] - Distributable earnings excluding realized losses were $0.31 per diluted common share, which excludes$36.4 million of losses related to the REO Walgreens portfolio [19] - Net interest income was slightly lower quarter-over-quarter due to a decrease in loan portfolio size [20] Business Line Data and Key Metrics Changes - The company added $380 million in new loan commitments during the quarter, primarily in the multifamily sector [22] - Loan repayments totaled$510 million in Q3, with $40 million coming from office loans [22] - Approximately 40$1 billion CRE CLO with an 86.5% advance rate and a weighted average cost of funds of SOFR+199 [24] - The multifamily sector accounted for 74% of the core portfolio, with a focus on favorable supply-demand dynamics [27][29] Company Strategy and Development Direction - FBRT is focused on addressing legacy loans and enhancing credit quality through new originations and loan modifications [17][40] - The company aims to liquidate its REO portfolio quickly and reinvest proceeds into new originations [37] - The management believes in a proactive approach to resolving issues rather than "extend and pretend" strategies [34] Management's Comments on Operating Environment and Future Outlook - The management expressed concerns about the office sector, predicting that delinquencies could surpass historical highs [33] - They anticipate a stabilization in market conditions, particularly in the multifamily sector, with potential rent increases from 2026 to 2028 [29] - The management remains confident in the earnings power of the platform once REO assets are resolved [66] Other Important Information - The company has $1.1 billion in available liquidity, which is expected to be deployed in the near future [15] - The board has extended the stock buyback allocation through December 31, 2025, with$31 million remaining [16] Q&A Session Summary Question: Can you provide additional color on the conduit business and expectations going forward? - The conduit had an exceptional third quarter, but rates may impact future performance. CMBS remains one of the cheapest financing options [42] Question: How do you view the available-for-sale securities and their management going forward? - The company has not been active buyers recently due to aggressive credit spread tightening, viewing the bond portfolio as a liquidity management tool [43] Question: Can you discuss the sentiment in lease-up and potential timing of monetizations for REOs? - Four properties are under contract, with hopes to complete sales by the end of Q1 next year. The focus is on stabilizing and quickly liquidating REO assets [46] Question: What are the expectations around repayments and portfolio growth in the next quarters? - The company expects normalized repayments and aims to replace what's paying off to avoid shrinking the portfolio [48] Question: Is the outlook for increasing leverage realistic for 2025? - The management believes there is significant earnings power without needing to increase leverage, focusing on high-quality new loans [55] Question: How is the conduit business performing in terms of locked pipeline and hedges? - The conduit business is well-managed, with no locked or committed loans currently, and the focus is on selling loans to manage exposure [58]