Release Date: November 05, 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) has significantly reduced its office exposure to only 4% of its portfolio, with further reductions expected.
- The company has originated over $1.6 billion in new loan commitments year-to-date, with 40% of its portfolio consisting of loans originated after January 2023.
- FBRT's liquidity position is strong, with $1.1 billion in available liquidity, bolstered by a recent CLO issuance.
- The company has made progress in resolving watchlist loans and REO assets, reducing watchlist loans from 7 to 3 this quarter.
- FBRT's focus on multifamily loans, which account for 74% of its portfolio, positions it well for future market conditions as new multifamily supply is expected to decrease.
Negative Points
- FBRT reported a negative distributable earnings of $0.10 per diluted common share for the quarter, indicating challenges in covering its dividend.
- The company has a foreclosure REO portfolio that increased to 13 positions this quarter, which could impact future earnings until resolved.
- Office sector challenges persist, with FBRT acknowledging significant declines in office asset valuations and ongoing delinquencies.
- The company's net interest income was slightly lower quarter-over-quarter due to a decrease in loan portfolio size and constant REO levels.
- FBRT faces potential delays in redeploying capital from REO sales back into loans, which could affect its ability to cover dividends in the short term.
Q & A Highlights
Q: Could you provide additional color on the increase in fixed-rate loans and expectations for the conduit business going forward?
A: Michael Comparato, President: The conduit had an exceptional third quarter, but the recent rate increases might slow down activity as the market digests these changes. Despite this, CMBS remains one of the cheapest financing options, and we need more time to assess the impact on the conduit business.
Q: How do you view the available-for-sale securities, and how will you manage that book going forward?
A: Michael Comparato, President: We have been opportunistic bond buyers when returns made sense compared to whole loan origination. The returns on our current bonds are excellent, and we view them as part of our liquidity management strategy. We are not actively selling them as they offer better returns than new whole loan originations.
Q: Can you discuss the sentiment and timing for monetizing the REO properties?
A: Michael Comparato, President: We have four properties under contract and aim to resolve the Walgreens portfolio by Q1 next year. Some multifamily properties will be marketed soon, with expected closures by Q1. Our goal is to stabilize and sell these assets quickly to redeploy cash.
Q: What are the expectations for net interest income (NII) given the timing of repayments and new investments?
A: Jerome Baglien, CFO: We expect repayments to be around $300 million or more, which is typical for us. The drag on NII is more from less productive assets moving from loans to REO rather than the timing mismatch of repayments and new investments. We aim to replace payoffs to maintain portfolio size.
Q: Is it realistic to expect portfolio growth to $6 billion in 2025 given the current leverage and market conditions?
A: Richard Byrne, CEO: We see attractive new loans that improve our portfolio quality, and we have capacity to add more without increasing leverage. We have $350 million in cash and are cycling through REO for liquidity. The market offers great opportunities, and we will continue to add quality loans.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
