Franklin BSP Realty Trust(FBRT) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - FBRT reported GAAP earnings of $23.7 million or $0.20 per diluted common share for Q1 2025, while distributable earnings were negative $6.2 million or negative $0.12 per fully converted share [16] - Distributable earnings before realized losses were $31.9 million or $0.31 per fully converted common share [16] - The book value per fully converted common share at the end of the quarter stood at $14.95, reflecting a decrease primarily due to dividend payouts exceeding earnings [20] Business Line Data and Key Metrics Changes - The company originated $341 million in new loan commitments during Q1 2025, with multifamily loans accounting for 79% of total origination volume [20] - Loan repayments totaled $353 million, predominantly from loans originated in 2021 and 2022, with multifamily loans making up the majority of pay downs [20] - The average cost of debt on the core portfolio was SOFR plus 2.18%, with 81% of financing through CLOs [21] Market Data and Key Metrics Changes - The company’s liquidity stood at $913 million at quarter end, including $215 million in unrestricted cash [13] - The average risk rating at quarter end was 2.2, with 146 of 152 positions risk-weighted at two or three [13] - Watch list loans represented 4% of the total portfolio, comprising six names at the end of the quarter [13] Company Strategy and Development Direction - The pending acquisition of NewPoint is expected to provide meaningful synergies and aligns with the strategic focus on the multifamily sector, enhancing earnings quality and consistency [14] - The company aims to recycle the bulk of its legacy book into current vintage loans, positioning itself for sustained growth and potential premium trading to book value [14] Management Comments on Operating Environment and Future Outlook - Management acknowledged that the REO portfolio has created a near-term drag on earnings but emphasized a proactive approach to recover invested capital [10] - The company anticipates potential shortfalls in dividend coverage in the near term due to REO and non-performing loan portfolios [12] - Management expressed confidence in the long-term earning power of the company to cover dividends, contingent on the pace of REO sales and market conditions [19] Other Important Information - The company has moved four loans to watch list status, bringing the total to six, with ongoing discussions regarding loan modifications [26] - The foreclosure REO portfolio stood at 12 positions at quarter end, with plans to liquidate assets for the best possible outcome [29] - The integration of NewPoint is expected to create book value growth and enhanced earning powers over time [31] Q&A Session Summary Question: Plans for loan portfolio and REO proceeds - Management indicated that any new capital from REO sales would be proactively reinvested into new originations, although cash is being held for the NewPoint acquisition [35] Question: Impact of NewPoint acquisition on expenses - Expenses in Q1 were elevated due to transaction costs related to NewPoint and ongoing REO expenses, which are expected to normalize post-acquisition [38] Question: Balancing REO asset sales versus holding for potential gains - Management stated that each asset is evaluated on a case-by-case basis, prioritizing the liquidation of REO to redeploy capital into earning loans [43] Question: Dividend sustainability and potential adjustments - Management noted that the ability to cover dividends will be monitored closely, particularly in relation to the pace of REO turnover and market volatility [48] Question: Changes in originations and market conditions - Management confirmed that originations have been consistent, with a temporary pause for cash gathering for the NewPoint acquisition, but expect to resume soon [57] Question: Insights on agency lending and regulatory changes - Management expressed uncertainty regarding future government actions but highlighted the unique opportunity presented by the NewPoint acquisition to enhance their multifamily lending platform [64]