Franklin BSP Realty Trust(US:FBRT)2023-10-31 16:37Financial Data and Key Metrics Changes - The portfolio ended the quarter at $5 billion, with a slight decrease due to lower originations of $153 million and repayments of $290 million [3][29] - Book value decreased slightly to $15.82 from $15.85, primarily due to a write-down on the Walgreens retail portfolio [29] - Distributable earnings were $0.43 per fully converted share, representing a 10.7% return on equity, with a dividend coverage of nearly 120% [70][71] Business Line Data and Key Metrics Changes - The portfolio consists of 145 loans, with multifamily representing 78% of the total exposure [9][10] - The average loan size is $34 million, and the company originated four loans at a weighted average spread of 398 basis points, primarily in multifamily and hospitality [32] - The company has three loans on the watch-list, representing approximately $83 million in value, with no new additions this quarter [11] Market Data and Key Metrics Changes - The company expects continued market distress as over $1.5 trillion in commercial real estate debt comes due in the coming years [10] - The average cost of debt increased to 7.7%, reflecting the rise in SOFR rates [30] - The company noted a short-term supply issue in certain markets, particularly in Phoenix and suburban Austin, affecting new lease rent growth [66] Company Strategy and Development Direction - The company remains focused on multifamily and hospitality sectors, viewing them as recession-resistant and offering better liquidity compared to other asset classes [9][10] - The company plans to be selective in loan origination, seeking the best credits at favorable terms while maintaining a strong capital position [5][10] - The company intends to liquidate its Walgreens retail portfolio as market conditions permit, while being patient sellers [34][72] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating market dislocations due to strong asset quality and allocation within the portfolio [10] - The company is proactively engaging with borrowers to address pending maturities and has seen positive borrower behavior [33][46] - Management anticipates a potential "perfect storm" for multifamily in 2025-2027 due to muted supply and high mortgage rates, leading to increased demand for rentals [49] Other Important Information - The company ended the quarter with $411 million in unrestricted cash, representing 7% of total assets, and total liquidity of $1.8 billion [71] - The company has a buyback authorization of $39 million remaining and has been active in repurchasing shares [72] Q&A Session Summary Question: How do you see the balance sheet shifting in the coming quarters? - The company is actively trying to originate loans, with current loans being some of the best seen in years, and plans to use warehouse financing for new originations [36] Question: Can you discuss the multifamily insurance and any impacts on LTVs? - The company noted significant increases in insurance costs, particularly in coastal areas, which are being factored into underwriting and origination [40] Question: What are your thoughts on the current multifamily market slowdown? - Management acknowledged a short-term supply issue affecting new lease rent growth but does not believe it will impact credit on a macro basis [66]