FBRT - Earnings call transcript Q4 2021 | Franklin BSP Realty Trust, Inc.

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Operator

Good morning, and welcome to the Franklin BSP Realty Trust Fourth Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Lindsey Crabbe, Vice President of Investor Relations. ahead. go Please

Lindsey Crabbe

you to Thank earnings hosting call our call. Good Franklin Andrew BSP Welcome the quarter Realty today. morning. for Trust conference fourth

Capital As Financial Richard of and Byrne, VP Group. and CEO Comparato, Lindsey Markets me I Head Jerry Commercial the Chief Chairman the Roy Baglien, Operating FBRT; Director Relations. Mike Chief on are Estate; Investor of and Kim, With Crabbe, today call of operator mentioned, Officer Real our of Managing am Officer;

Before conveyed from may made be to new forward-looking based XX, call, XX-Q actual this as of on information, filed today's statements most call The is we required risks comments The I this that a mention SEC inherent or except by statements, to future uncertainties future the XXXX. any want with are as to Those materially. and start today's company obligation results only our of the recently conversation, as and law. including otherwise, filed some February result of subject in and assumptions on and any the considered this no call, Form comments update certain assumptions. differ could date are team information whether as forward-looking events current during assumed statements described

website in our will we on release earnings our and figures www.fbrtreit.com. are refer are supplementary GAAP available Additionally, to deck, to certain which non-GAAP measures, reconciled slide which financial at

the on over Byrne. call. We to to will With that slide refer call I'll turn supplementary today's the deck Richard

Richard Byrne

Benefits clearly going it Chairman as I'm and and joining FBRT. Realty Trust, call now. the or Rich on markets I'm Good There – Lindsey. everyone BSP morning us. Thanks, for right the lot is Franklin Great. CEO in a of Franklin we Byrne. thanks

time making you of today. all our for appreciate we call So

and our Lindsey now. published earnings they're yesterday evening. supplemental our website release deck published As on mentioned, were available and are They

and walk and you review portfolio. to status of quarter our through we're call, this current fourth For the highlights results going

of for the portfolio. we're supplemental your what We today, update look call at than on information information cover also you'll ARMs through. on go will going more specifically to you we up that find hopefully year, since provides end it in to the can open questions. The but that our the also deck to residential has useful addition occurred what After

financials our that this XXXX note with our is able the we're merger of October XX, closing occurred QX time, on remember quarter Capstead, You'll consolidated the mid-quarter first following is to XXXX. show first the fully that

prior operating It prospects. for it of a and reminder, ROE wanted a to we Jerry I But As represented shareholders the opportunity into non-listed the X. publicly to in mortgage FBRT's we've gave months minutes color traded. a few REIT cover start some merge and Capstead opportunity lower will liquidity will and Capstead scale to predecessor transition strategic the that go ROE few higher position first a through portfolio. on being provide greater I'll highlights I progress in financial discuss the a Slide historically all Mike before the business. our and of that market our and to a commercial non-public additional with immediate REIT our an for future REIT transaction were XXXX. merger, the as represented since a The growth out business current will made

a QX breaking a record Looking to that our commercial led for breaking year real was estate indeed quarter at platform, record FBRT.

the up of end. entirety strong loans billion and it was portfolio was billion throughout is it where at was This origination strong the to also approximately beginning in portfolio very brought $X.X at quarter $X.X from from Our fourth year of our CRE We core XXXX. the year. the or of $X and QX business our billion

$X.X approximately due was give numbers on origination progress strong such bit through a to achieve this pipeline. merger. billion. we new strong time the closed We to sales evidenced X/XX. acquired that, ability in normal as did. more It ARMs was test our ability runoff. own our at at I ARMs which from of on exceeded disposition. QX, This to by the to by roughly our our great the the pace expectations the merger we selling $X.X both The billion October our To volume. the redeploy in XXth, originated $X.X assets, book also as origination That significant make portfolio which $X.X and period to context a through residential compares The Xx mentioned. billion QX ARMs to that is strategic year truth ability Our commitments decreased portfolio is we on continued was clearly From billion end of has year-end,

you interested the Something quarter on progress in our ARMs first many know is of as well. will be to the sales

has $X.X portfolio by further been another been has progress Our reduced billion. The ARMs great.

mention stands decrease ARMs $X.X bonds total billion. versus to at these very our detail also in a last through portfolio been we've and at very close with That's pleased go selling will that execution Jerry I'd quarter. XX% more Now their this marks. our

I the company the leverage rapid to core And our is before, also to billion. upside potential our or other In put Let we commercial of is $X inherited in ARMs update lower of is as our consists commercial continue loans, or into billion Today, we've core on the words, billion ratio lower $X.X turned and portfolio, little I higher would residential $X.X and another $X.X take to and volatility portfolio core commercial portfolio, the size just our to mentioned, down me context. billion. I ARMs company over completely portfolio On just transition what an earnings given our portfolio. X/XX, bit and was like second programs. ARMs and this provide buyback the historical that mentioned as also is from a portfolio, our pace manager of of. the that objective

$XXX $XX company. the the due to of any to With out available the Since full Templeton legal to we BSP December of This have use million Monday. XX, not proceeds those the $XX from blacked buyback first since from includes million million buyback from us. then. earnings, followed have release continue this been and lifted during been Franklin We yesterday's have our dedicated we so permitted restrictions restrictions, volatility trading starting market be to will by

value, will plan us continue discount permit stock, company market the buy as well through it the purchases in it to FBRT's Given open the our our to be shares. trading the the closed. intention is is window is to accomplished to significant company's can as and price and intention This book especially that when a XXbX-X support company's

words a REIT we say a two Before I to primary turn over in Jerry, really I was goals. had about When just want it year because XXXX, it over XXXX, took for the the historic to few BSP company.

First, turn the business we wanted mortgage to it stabilize best-in-class a into and commercial middle REIT. market

wanted provide liquidity to with Second, shareholders a event. our we

today, a look loan. increased our approximately approximately five of credit we've core In of BSP achieved year back or originations business, from by very book year five on originated XXX%. what have proud at our of increased five revenues the XXX%. distributable In never loss period, company's a to on As period, both we We've years billion this by we we year earnings the zero the $X.X had increased we're we end, and goals. accomplished. running basically have Clearly,

course And We middle very of and business our proud opinion top delivered estate liquidity in that. we're real one have the platforms of built merger. we event a origination in this of commercial market in through the XXXX,

Capstead's transition to of With go to portfolio, quarter. opportunity me the base for over to continue asset extremely excited let turn it now our CRE about our us. financial Jerry we Jerry? are we As in into the over front highlights that

Jerry Baglien

Officer Financial Rich. Thanks, Baglien. Chief that. in of I'm and the Chief calling everyone I'm Great. FBRT. today. everyone. appreciate Jerry Appreciate Officer I Operating Hello

Moving on the following let's to you're if start along. on Slide X results,

That in we earnings in A X.X% The start we the the on walkthrough how and distributable conversion GAAP $X.XX that details. distributable share earnings to or distributable of of to million, of full converted basis, generated an preferred first so the the get QX that release thing I to FBRT $XX.X found with be earnings all represents share, assuming in fully have. a ROE. that's want of can

of the $XX terms by driven it number, relating earnings million distributable the $XXX.X In includes the primarily and that's million merger. adjustments, to of

$XX fair the market of adjustment we a change Specifically, the to there a to significant today that value kind is of date a so of million XX/XX, in X/XX the struck embedded that. from end market. that took represents in mark And actually over, component change value is the merger, between we quarter in

you if year XX.X%. our that on is a Another distributable important XX.X%. on thing our at to ROE basis, quarterly was And portfolio, core full that it's note look

an quarter paid In common terms of our we XX.X the cents a fully of X.X% that aggregate represents on share. of $XX.XX yield stock per value converted of book a amount share dividends, for

at times quarter leverage quarter non-recourse ended leverage the X.Xx. at our Our and X.X end of a net on was basis the the at

portfolio around out of range of billion closed commitments continue Slide and us securities, ARMs you On $XXX more portfolio coming our us X.Xx. we we to over our XXX on leverage net different of normalized in the a somewhere continue growth quarter. to to we we basis, $X.X X, decrease additional As loan that to a net million see in transition the $X.X for core up can into back that's expect takes If move billion growth to positions.

our date. CLO. focus our It Slide in Moving non-mark to That million that non-recourse issued X, $XXX continues see can book. on in from to funding seventh market December largest you our was core our to on CLO we

CLO that existing another billion with both record new $X.X market that received that This in was announced was and transaction very we a new last included and that that week well Following QX was surpassed by in size. the investors. we

upsized I now five the and and the liabilities of growth in point separate size, our facilities counterparties. have want with our mention Another agreements merger we of on of we warehouse with the balance number a the conjunction to

the value ARM the we at of the of Slide billion to to ARM $X.X fair on into portfolio. a bit portfolio compared at end the Moving year, market $X.X XX, X/XX. can stood billion dive the the At

of of terms to first can where for terms on made If XX, excellent give update quarter. liquidation. we we we're on our the go in of Slide at bit progress So in a little an I

reduction addition to due two the portfolio portfolio changes decline to of value $XXX portfolio. on which from The hedging, things, of date to is to net portfolio of to With billion, the two Mike acquisition. This So to $X.X payments billion the number million was million and is downs. $X.X ARM is sold the all residential that, driven a sales an of ARM in fourth and January pay we've first billion by we've in we In on quarter, in to an February the $X.X the losses of through the market terms And I'll so far. roughly a turn XX, items. so it market what give saw redirecting current of in experienced ARM fair quarter. book in over of February additional you and change sales. through down, value those relating continued and another the make total progress primarily residential value, update in Securities value $XX.X of sales across the things: during We pay Agency roughly the principal XX% ARM

Mike Comparato

call add generated Appreciate are everyone. your Ukrainian people. Mike of easily Real I'm Capstead reiterate with Estate. to Multifamily XX% have were We and with in quarter Jerry. work to We residential a the we I sector. size. thoughts the a our on today to ARM from our and pace excess today for Good morning want and to start loans our put the able Thanks, originations is this this largest over Generally, XX. that similar continued of the in quarter. QX prayers XXXX. did in Comparato, XX Slide as looking of was at in record quarter of originations I'm being originated be originations of $X to quarter robust we on pipeline XXXX going expect the in capital team. multifamily Head to new during in originations billion that the Commercial are sales a

to is Slide our XX% exposure to to it at multifamily our of year-end portfolio. loan up XX, Going core shows

being different lack to major cause in cap markets sector an between complacency this in loan for strong with We so We concern. in focus to look our be Accordingly, tertiary our newer continue markets, the excellent volatile, primary pullback, rate assets vintages is rate portfolio. caused believe dynamic last the also for invest The several markets. multifamily a materially not higher a believe for tiering to more quarters, has interest over assets That primary of vintage value markets demand healthy credit been on rising attractive even will do markets stronger find believe within not concern. remain and have the multifamily that multifamily with concerned rate secondary healthy performance to dynamic of tiering higher We a be vintage market in valuation at and we market and and more what if be to continues cap multifamily be environment. be a The our and said, same we lack strong and you you'll quality, notice less quality, newer retention originations liquid. markets. the

of our been. most multifamily much it has same very XXXX in the remains focus for DNA While company was lending, always of the as our

are looking credit for investments with appropriate value-add metrics. risk and We

located sector correct to be was quality newer the to we if exposure returns. primary adjusted vintage higher While to multifamily choice risk believe multifamily QX, assets are of we can in actively increase what in achieve we assets non markets a looking

remains QX. in where while Our and still markets. finding We're was line Southwest it investing in the strong other opportunities geographic footprint selectively with Southeast in in regions

grow the with has one believe stronger Our on the it to the been. directors commercial briefly year and watch we risk was list managing non-accrual year the it are originate update is and we of ended portfolio. positioned loans for have and with an XX than relationships in repeat deep professionals We want estate unchanged and decades of of to for exceptional XX or team. quarter Over I quarter status. real are and/or to loan ever the portfolio rating well an only that with brokers with continue experience. provide borrowers I and remains portfolio the All this XX% all on

Rich and experienced loss and we’ve originated as certainly any been REIT the Lastly represents very by achievements, reiterate all our BSP. we've that global XXst XXXX Of importantly, what pandemic, most turn operator through team. the earlier, proud loss a this the on credit QX This consecutive quarter performance a culture mentioned to and we asset over be We're incredibly experienced single with of a Q&A managing I loan begin session. not a would of to back And robust the team. that credit no highlights to internal strong performance believe important. the management to it the that, to like

Operator

session. begin will Please the The Instructions] Securities. ahead. DeLaney go with Steve first We JMP from now question-and-answer [Operator question comes

Steve DeLaney

for Hi, to I had wake news. good thoughts to morning Ukraine – up this the and and prayers all We sharing share everyone that morning.

how high Rich, going might would fed it and that to decision, real hard now, we While own kind it's any Europe, any on about little our had right that decision obviously our in make a what raise expected to of was rates. estate I interest wondering, focus markets they is – the on level you if how thoughts impact

Richard Byrne

you off? that do to Mike, want start

Mike Comparato

I Sure. Thanks Hi, going their for been forward, clearly Steve. clearly plans in the has Look, a battling inflation open hawkish the remarkably think, position. and question. fed about

long-term overall. I But them gives that of This short be the basis path. today, think change there a expect would development, will very believe to the position hours of change in it not so XX as don't raise XX major of further long-term March meeting. this lot debate remains to early the I only this in them coming cover the escalation, probably I subject been XX easily. between we're fed Obviously, to. points the pretty of or has of the that late whole stands to

Steve DeLaney

yes, That makes – yes, that Rich. makes –

Richard Byrne

Go ahead.

Steve DeLaney

going just to say… I'm

Richard Byrne

Please go.

Steve DeLaney

Okay.

job way your would So, it would – perspective between your of in regarding somewhat lower correct from viewed certainly a views? be for and But of your Am that I you from and on your with agnostic cost at the your positive comparison portfolio you as interest longer FBRT, rates. manage I – borrowing. lower would look borrowers own borrower's terms their portfolio should you that think be appear

Jerry Baglien

else portfolio of to I'll floors think But had down This to seen burned Maybe benefit of is XX months the in. we you've I somebody some start dominate jump X mean, extent, a gone lot Jerry. those kind I the and that has have certainly, off. let the significantly, so from ago, that net

now seeing agnostic we space we with think I more which we're everybody. probably were that much a are the norm is year the across So than ago,

Richard Byrne

Steve. would Yes. out, And I point just

Obviously, applies our but business overall that much core rates would business a think for than I again, smaller to conduit higher business, portfolio. we that's… help the reasons. conduit actually few But core think net-net the different is our

Steve DeLaney

Interesting.

Richard Byrne

of doing what …a piece overall. smaller we're

Steve DeLaney

Okay, go ahead.

Jerry Baglien

just in context… broader And Steve,

Steve DeLaney

Yes, go ahead.

Jerry Baglien

have mean, $X.X shrunk we billion… I by our portfolio ARMs

Steve DeLaney

Right.

Jerry Baglien

The sales X.X those in lot of ahead this recent of today sort as you heard took a place downdraft. of QX

So, and prediction volatility. the most the – securities, side things given of more – add, a going good so term of I short volatility on hedging asked, period strategy. more as Also, quite conservative mean, you're just We're is what much over in hedging a agency the ARM maybe traditional more just as deployed the trying And of you agency higher you as not leverage some the about is I'll see time all portfolio see historical a to… of guys. the long good we mean, but a duration non-controversial generally to shorter, owners, is didn't thinking hedging I think, easiest the consider as we've of one not I

Steve DeLaney

Understood.

Jerry Baglien

…and other things.

about made, mean, of XXXX, quarter how what's of sort sort think the March sales the period other of than occurred. of certainly. the we avoided it on we've resi for quarter, if combination I been the we've hedged, – So COVID the lot mean, this has I we worst of aggressively on a you side think the

Steve DeLaney

Sure.

Jerry Baglien

long you've know, been I it, as And as probably covering don't Steve.

So, we're many volatility on lowering progress we're spread even wider where commercial book to we lending pleased potentially made into we've think opportunity have we in just excited given and cases the ahead, that such the just opportunities. the actually redeploy

Steve DeLaney

We've duration XX% to value double of going year first REIT. digit, understood. the losses this XX% levered with And mortgage last months highly for couple two – short seen XXXX, residential the or helps. and definitely back date month to the Okay of book some

has Jerry, just up So benefited to held with much obviously out close – better. your you. portfolio

you think fair far value thus in the on ARM were that the I mentioned portfolio. Is million marks that $XX XQ correct? XXXX

Jerry Baglien

Yes, that's net of correct. hedging,

Steve DeLaney

Right.

Okay.

So that's going expect should that we that shares, $X.XX to with XX be see… to million about

Jerry Baglien

Exactly.

Steve DeLaney

two? …or in we'll Is any And distributable book that loss? assume is that value. here flow will How your do payout decline item would there in the you quarter in see I or how value the fair that have dividend next – – view on impact through? earnings.

Jerry Baglien

Sure.

loss, a from – I part, rate don't as thinking mean, loss just run through are really we that'll come consider First distributable. yes, a that about but trading

Steve DeLaney

Okay, sure.

Jerry Baglien

cost said you rate of cost a we're operations, on on it that we the with if if the how that's interpret dividend is core back what you think to we've of company. amount I earning don't the at we're that totality in just of paying think what power, higher than level distributable portfolio uncomfortable than of is kind earning, And The that terms more look I wind at. the kind the of down set of But that.

returns the much So, where clearly. of of the into predicated and lot out is on ARMs core better we a see this shift

Steve DeLaney

Okay.

book any distributable standpoint down sound of cost the portfolio, than is going just item value impact. from – a the whatever but like that dividend of be hit actual earnings that there'll one-time a material cost forward other So to sort winding that

Jerry Baglien

now, That's how right it we correct. see

Richard Byrne

we our paying, And future the manage core earning or we what when $X.XX. said ARMs, that feel through you with with Steve, have as comfortable blend lower just historically transition. ROE just higher remember we pile we echo earned cents on said probably XX.X cents our the between we're as portfolio, Jerry we book, to we're Obviously, to intermediate but at ROE announced there, merger, that sort XX.X continuing the arms comfortable and on you very saw this of least, for that a the, had earning we were been

So plan. we're the but that's covering it,

Steve DeLaney

I Thank – appreciate for you each your question it. comments. your

Operator

next question with Jason comes go Trading. Please from Jones ahead. The Stewart

Jason Stewart

maybe for geography to morning. terms about you the maybe on us wanted give class in either or the from more other of And specifics if ask you maybe to if good or competition looks that picture Hi, an you the multifamily Thanks could the to I finer and and of asset a had taking multifamily questions. comments think some standpoint. that in could going where just economic on interesting. continue compress they forward margins has point put of expect origination sort changed there sort

Richard Byrne

Yes. Thanks, Jason.

for and worse, tethered I floating become markets core the to capital think – rate business has you the or if look at better the CRE highly CLO business or execution.

follow think And I along trend much in and we're those have the in that spreads CRE all spreads watching wider. the spreads what to market. very CLO been of marketplace been we've see going you're the clearly, going asset other seeing with So

of was were seeing XXXs, last tightest think spread to standpoint we of XXX. I a pricing the maybe back if that probably you from look the year, high So QX kind in

wider news, seeing I think, basis before were XX by XX this points. to we morning's that

XX% are cost to for of of spreads kind loan So, generic Loan Bridge in XXX multifamily be today. your to range kind going hearing multifamily XXX, the

Jason Stewart

Okay.

is put into And in CLO following your move the you asset or that get to that's where change adjusted terms can to over color a you doesn't classes more XQ better geographic decision we could financing so, guessing other risk returns. just of assuming is in that is I'm office, it spreads interesting. Maybe little like – year? that look this appetite market, originations area should sort of What a to XQ, portfolio on it bit – expect

Richard Byrne

from opportunities, origination leisure in centers Office, We work of standpoint. focusing for in COVID we're to space. are looking through some way still space. a yet air also closed and on long-term macro retail hesitant we're uncertain demographic for that of selectively home oriented And in I not long-term the but bullish open Yes, ramifications on the We're hospitality. we country. of office We've the good areas from been malls, work have think, their on system. demand believe just pretty the

not from we're usually you'll we've loans, have find always credit office, where to also the that So, things loans opposed pricing. us highest today. investments bar that probably then or some very think condo we're but as that's some inventory construction And able I of esoteric see nature we – done, to whether it's nice multifamily

Jason Stewart

Got it.

your the Okay. helpful. in just terms to time just to versus proper from CLO you a have origination the getting spreads process one, origination CLO. continue of balance those And up period size that from but That's billion period then you you the time pricing one with $X.X big the risk How is do this that scale Thank this last nice to do of thought execution, about two? [ph] take. you. and that more, expected volatility period CLO sharp How that think gestation to of is

Richard Byrne

we're friend. the is always our everybody's of Speed our best something about managing speed is to always thinking and friend. Obviously always ability

the forward CLO and were process looking the of we So, we QX beginning early. very, of pipeline very FLX started at our our in

process underwriting were in in rating going loans January. closing the for we the we price QX FLX So while agency were through

on We of say with really I exposure So it to company balance well was from to should seeing December the of liabilities actually the on warehouse of if positioned both. FLX, the $X.X would that shortest sheet ever at closing side of the just loans $X.X the priced approximately take we've facilities, that look advantage period had. year our the probably the billion be some And aggregation of we've January today. billion, you issuance on liability in to aggregate we're volatility of point, we two and reinvestment think able and date

Jason Stewart

it. I the for call. appreciate Thanks Great.

Operator

to would the I remarks. concludes Crabbe turn This over question-and-answer like for back our conference any Lindsey session. to closing

Lindsey Crabbe

Thank you for today. time your

a questions, please call. forward you If you have quarter. next any us with look speaking further give to We

Operator

attending concluded. now you today's for Thank has conference The presentation.

You disconnect. may now

Franklin BSP Realty Trust (FBRT) 24 Feb 222021 Q4 Earnings call transcript