Franklin BSP Realty Trust(US:FBRT)2025-02-14 18:01Financial Data and Key Metrics Changes - FBRT reported GAAP earnings of $0.29 and $0.82 per diluted common share for Q4 and the year ended 2024 respectively, with distributable earnings of $0.30 and $0.92 per diluted common share for the same periods [18] - The book value was $15.19 per fully converted common share at year-end, with a slight decrease in book value in Q4 due to changes in reserves and dividends exceeding earnings [21][22] - The company ended the year with $535 million in liquidity, including $184 million in unrestricted cash [14][25] Business Line Data and Key Metrics Changes - In 2024, FBRT originated $2 billion in new loan commitments, with $441 million in Q4, and 52% of the portfolio consists of loans originated post interest rate hikes [8][17] - The multifamily sector comprised 68% of the fourth quarter origination activity, with significant repayments from loans originated in 2021 and 2022 [22][26] - The REO portfolio decreased by approximately $63 million through asset sales in Q4, with an additional sale of $63.8 million after the quarter [19][38] Market Data and Key Metrics Changes - The average cost of debt on the core portfolio was SOFR plus 2.12%, with 89% of financing being non-mark-to-market [24] - The traditional multi-tenant office exposure at year-end was only 2.3% of the total portfolio, significantly marked down in previous quarters [12][37] - The company anticipates a moderate return of competition in the market, but believes there is insufficient credit capital to address the $3.4 trillion of commercial real estate debt maturing in the next 36 months [29] Company Strategy and Development Direction - FBRT is focusing on actively managing its legacy loan portfolio and pursuing new portfolio originations, with significant opportunities in new originations demonstrated by $3.6 billion originated across its real estate platform in 2024 [17] - The company aims to liquidate its entire REO portfolio as quickly as possible while stabilizing assets first to achieve higher recovery prices [39] - The strategy includes addressing legacy loans proactively and maintaining a diversified product offering to avoid competition in highly contested areas [55] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the portfolio, noting that while there may be near-term earnings drag from non-performing loans, they expect to generate additional distributable earnings as REO assets are resolved [20] - The company is optimistic about the multifamily sector, citing strong demand and liquidity, while acknowledging ongoing challenges in the office sector [36] - Management highlighted the importance of borrower behavior and the need to navigate uncertainties in repayments and asset sales [80] Other Important Information - The company plans to return to the CLO market in 2025, with expectations that it will be a very accretive liability if market conditions remain favorable [92] - FBRT's watchlist consisted of four properties at quarter-end, which has since been reduced to three following a successful asset sale [30] Q&A Session Summary Question: Can you talk about spreads and their future expectations? - Management noted that spread tightening is likely nearing its end, with floating rate credit spreads having tightened significantly but unlikely to tighten materially further [45][46] Question: How are you managing the increased competition in multifamily lending? - Management emphasized their advantage due to prior origination levels and a diverse product offering, allowing them to avoid chasing highly competitive deals [55] Question: What is the outlook for portfolio growth given repayments? - Management acknowledged the uncertainty in repayments but expressed a goal to outpace them with new originations, focusing on transitioning to a new vintage of loans [60] Question: What is the status of remaining REO assets? - Management indicated that the remaining REO assets are at various stages of stabilization, with plans to have most in the market for sale by late Q2 or early Q3 [62] Question: Can you elaborate on liquidity changes this quarter? - Management explained that liquidity changes were primarily due to the amortization of CLOs, affecting when equity can be unlocked [68] Question: What are the expectations for CLO market participation? - Management expressed a strong interest in returning to the CLO market in 2025, anticipating favorable conditions for issuing liabilities [92]