Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Franklin BSP Realty Trust Inc (FBRT, Financial) originated $622 million in new commitments during the second quarter, with a year-to-date origination total of over $1.3 billion.
- Approximately 25% of FBRT's loan portfolio was originated in the last 12 months, enhancing the credit quality of their book.
- FBRT successfully liquidated 18 Walgreens properties close to their marked basis, leaving only five remaining.
- The company has $700 million in available liquidity, providing a comfortable position for future growth.
- FBRT repurchased 3 million of its common stock during the second quarter, totaling nearly 69 million shares since the program began.
Negative Points
- FBRT reported a GAAP loss of $3.8 million for the quarter, largely due to a $32.3 million specific CECL provision on four watch list loans.
- The CECL provision resulted in a $0.37 decrease in book value per share and negatively affected GAAP earnings.
- The Walgreens asset sales reduced GAAP net income by $4.3 million this quarter.
- FBRT's net leverage position increased to 2.7 times, driven by portfolio growth.
- The company has seven loans on its watch list, with two loans risk-rated five, indicating potential challenges in asset management.
Q & A Highlights
Q: Can you explain the $25 million impact related to Walgreens that will affect next quarter's earnings?
A: The $25 million is the realization difference for Q3. We sold 18 stores, most settling in Q3. This will flow through the distributable portion of our earnings in Q3, not Q2, to maintain consistency with our GAAP earnings. This won't change the book value but will affect the distributable earnings. - Jerome Baglien, CFO
Q: Regarding the Denver asset, is there a timeline for resolution, and what are your plans if you take it on?
A: We recently entered a modification with the borrower. The asset is not in default, and both parties are working to see where the market goes. If it becomes REO, we'll reassess based on market conditions. - Michael Comparato, Managing Director
Q: What was the NII drag this quarter from non-accrual loans, and which assets might be resolved this year?
A: The drag was about $4 million due to non-accrual loans. We hope to resolve the Mooresville and Lubbock assets by year-end, with potential resolutions for Raleigh and Chapel Hill as well. - Jerome Baglien, CFO and Michael Comparato, Managing Director
Q: How is FBRT positioned to win new origination deals in a competitive market, and what is your capacity for growth?
A: The banking sector is largely sidelined, and many peers have high legacy office exposure. Our platform is differentiated by offering a wide range of products, which drives our origination. We have capacity for continued growth, focusing on the middle market. - Michael Comparato, Managing Director
Q: When will the portfolio reach an earnings inflection point where new originations offset non-accrual and REO drags?
A: It will take a few quarters to see meaningful improvement. The majority of our portfolio will reach final maturity over the next few quarters, and we will continue to chip away at the watch list and REO portfolios. - Richard Byrne, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
