Earnings call transcript Q4 2022

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning, and welcome to the Franklin BSP Realty Trust Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Lindsey Crabbe. Please go ahead.

Lindsey Crabbe

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

As the and BSP. Richard operator Relations. mentioned, Operating Estate Baglien I'm Lindsey Crabbe, at and Officer Head on CEO FBRT; Chief call of Chief and Real Financial With of Director the today Comparato, Chairman are FBRT; Byrne, Officer of Jerome Michael me of Investor Commercial

as to statements mention the Before are that of and I we start as actual assumptions. the from call, this forward-looking XX, most future today's recently information date our uncertainties today's assumptions XXXX. described differ to February certain team on may want are and are SEC only materially. and conversation, The based in call comments periodic of comments our inherent results this some Those subject conveyed risks of reports, and on filed current is

update including new whether made no law. assumes statements during any company events future information, a call, this as as otherwise, or obligation required The except by statements, forward-looking result to any of

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

deck will We on supplementary to refer the slide call. today's

I that, Rich turn to will With the Byrne. over call

Richard Byrne

Lindsey Great. as Chairman I'm mentioned. FBRT. everyone, I thanks and Good CEO am Thanks, and morning, Lindsey. Richard for joining Byrne, today. of us

our published yesterday. were Our deck to website earnings and release supplemental

So, our XXXX. fourth this results year-ended morning, the going for quarter we're to review and the financial for

quickly going throughout cover where start, Slide want to to X XXXX. I'm and on milestones begin going I'm to FBRT's I

points. brings total a XXXX $X.X in for loan $XXX the new basis spread closed million at loan the we of entire fourth quarter. average billion XXX commitments This our of First, year weighted to commitments new

estate loans. over ended in commercial balance $X.X Our billion at the XXX principal year portfolio real spread

ahead inherited ARMs X.X year, recycled -- the from Importantly, specified the we entire of earnings originally by end the the portfolio. the underlying we real target our We the our the into reached throughout billion commercial Capstead’s year. this positive timeframe virtually we of estate entire coverage of well and of distributable and dividend merger liquidated capital did

with allocated multi-family two-year overall believe relatively raising our over resilient portfolio in perspective. XX% We managed reinvestment sector to represents billion. of risk opportunity of CLOs half the positioned periods. will the sector. this from loans reward well is and Both We a two continued issued have Our first a remain $X 'XX,

and now of So the percentage non-recourse non-mark-to-market are XX% our sits core at of portfolio. our that liabilities

liquidity also the year We ample ended with cushion.

We have cash and $XXX total million respectively. and billion, liquidity of $X

FBRT back XXXX. and in also Partners common of repurchased stock third our approximately in and advisor the million fourth stock company's quarter bought actively $XX.X the of FBRT during XXXX. Street total Benefit

extended left million $XX was XXXX. which over just our have the We buyback end year, on through of this authorization, XX, December

Partners, second Street advisor, Benefit during of quarter. $XX purchased million stock the and Additionally, third common the

and purchased purchase So in levels. that at combined FBRT's and attractive activity obviously million total $XX in stock, common was totaled BSP

the growth by our credits, well our are believe for in and liability encouraged perspectives, our many we XXXX executed from and strengthened we Overall, portfolio, plan including are structure. strategic our positioned

specifically I'd that, fourth more now with focus on the to quarter. So like

X.X% the we to translates fourth from increase earnings This the generated in earnings distributable distributable $X.XX in for the XX% quarter. First, of prior quarter, of quarter. an ROE

was XXX%. earnings distributable dividend coverage Our

yield delivering at on same This paid quarter remained $X.XXX. and it our was XX/XX six of value. dividend common is the unchanged a past fourth consecutive book X% approximately dividend quarters, we've for Our the

to X from from X.X. our higher Average X.X moved risk -- rating slightly moved of portfolio quarter this it

watch and our list. to previously REO, foreclosure two to were added were three loans two positions our of which added quarter, the watch on During list, were

our and list Walgreens in One our Mike detail foreclosure in our provide assets of more will watch remarks. our REO portfolio. on and their positions Jerry properties the REO represents

loan originated our last XX% quite portfolio months. XX was is performing in of term Thus, the muted. Importantly, maturity our profile near

with is quality we predominantly of diversified the remain portfolio that our multi-family. To comfortable conclude,

We to come weather or that of leverage the storms by liquidity be might low potential ample in have market a slowing accumulating and rates interest could -- economy. the pressure high sustained caused that and/or

values taking origination throughout opportunities new We we environment also more the will opportunistic advantage origination new look forward is become capital needed. believe year, as as to accretive adjust the and still of

With our that, the through quarter. let performance for I'll Jerry walk

Jerome Baglien

$X.XX for of I'm or to Thanks, million today. the walkthrough a income That far are X.X% Rich. of can GAAP jump generated earnings for A in COO helpful. share. being at and per distributable our earnings Slide FBRT ROE. well, if mentioned, represents found fully earnings In that's as definitions the $XX.X the distributable to on and converted morning, Good like the release, Rich back be the X. Baglien, into everybody. Thanks CFO Jerry call going FBRT. This is QX, I'm

our be $XXX Our $XXX ended million commercial the saw commitments. to this on these Spreads and quarter market balance. the $X.X new ARMs. the million million in CLO the Deal $XXX at remaining in year. in in continued to than higher real million billion during broader $XXX CRE quarter, principal lower to total with bonds, we trend first in real estate we half modestly but of increased what quarter in flow portfolio And the estate loans selectively continue originated securities

bonds of first little of we million the slight quarter, the at and quarter. the bit bonds, the to of we Subsequent a paired and ARM in $XX CRE CLO $XXX sold the back both this end gains another million

with The our on as basis, our conservative very book leverage value. at leverage and this a leverage on X.XXx. discuss highlight fully wanted is recourse time position ending a X.Xx, net converted lower slide a structural the much at view I We to quarter last

the declined a some and from on and non-cash modestly buying value of mostly quarter portfolio. from of book While CECL that ARM this fourth benefit $XX.XX the received reserves to retaining our mark-to-market shares capital is back our we remainder and a result overearning dividend,

earnings Moving XXX on our we SOFR to and X, of increase increases provide to basis the to we this point quarter approximate in growth, distributable over consecutive our see an quarter Slide and benefits to you'll had saw earnings. continued third

through repayments other received activity the already We Moving walks X, the transferred deed portfolio in fourth year $XX in our million I've quarter of quarter, we Slide and in fourth quarter this on foreclosures. lieu the out this you in or few touched XXXX. on foreclosures for to and note originations. the loan in A slide. things $XXX to ended million

and with total commitments the $X.X billion. our year XX%, of we ended billion year, $X.X the For total grew commitments by or

on two Regarding our two of assets portfolio. quarter this were added. part REO, an new that these the we Walgreens taken added positions to in not impairment charge We've addition

begun and these have to We intend sell we them marketing the in term. near

these pricing, of achieve and are desired comfortable operating longer However, if period not than we more for time. we do owning assets a the

Our watch a of of which rated X composed Walgreens, rated is list X. five a those and loans, is four are

watch represents later. on the X.X% our portfolio, Mike detail list a loan assets Our of watch in and balance more list little will touch

of we our X, On an Slide capitalization. have overview

is diversified of non-recourse our conservative an Our and XX% ability as book on over withstand mentioned, core posture our our financing market financing demonstrates this Rich volatility. to and further continued and are non-mark-to-market, and sources

Finally, liquidity Slide XX showcases our position.

on, liquidity, on quarter combination in we total and reinvest available cash and ended this previously, we $X mentioned Rich warehouse lines can billion is a of with available that CLO access. our hand the As capacity

lines are year-end. Our counterparties separate warehouse diversified six with at

to opportunities. advantage liquidity stabilizes enable of future will origination us Our our take and balance sheet

Mike to over it turn an on to I'll that, update portfolio. our With give you

Michael Comparato

I'm us. and Commercial of good for Real going Comparato, Jerry, on Thanks, morning, XX. Thank joining Slide at and Mike to BSP, you Estate everyone. start I'm Head

and are are is which floating of XXX predominantly rate. The in loans, that with the Our asset mortgages portfolio consists commercial XX% loan senior portfolio multi-family of class. invested XX% of XX% portfolio

focus unchanged geographic across from You'll to be prior the Southwest. and continuing our see our quarter with largely Southeast the footprint remains

Notably, repaid want the exposure office to be on. future. to adding largest of have continues last for have After Similar focal was in quarter full. office expand intention no exposure exposure end, point we our loan market quarter, the and international further a and second to one I in international no

XX asset large over triple headquarters. their public company as loan leased corporate to Our for net largest is a office a leased years

that average levels. loan an office this excluding and when exposure, to multi-tenant has only We loan $XX.X at of is very these loan repaid, X.X% and only traditional just the exposure million. be Our total office portfolio manageable the portfolio our of believe

quarter. Moving that specifics multi-family the We originated shows our for total quarter sector. be in fourth eight with million originations and over commitment of XX% loans for XX, add our largest of $XXX continued a the to to Slide in this activity

of size incredibly million allows $XX Our on average given space. loan us middle size credit selective quality the be to market of the

we a to and have not cap the versus to although the largest increase have year meaningful and the almost pipeline itself still we industrial occur rate amount six leverage weeks in seen one that quarters, six to we had say forward needs As Transactional rates and continues flow We widening be several issue deal pleased sectors. negative in for a on multi-family continues believe we deal limited, of have first to assets in tighter an meaningful quarter, for may I'm cap the the of that have discussed both resolve be fourth flow quickly. months.

as loans and on of and little Walgreens three XX. watch detail list. Jerry about XX, REO, the already on as Slide five Finally, more the December will our on watch but positions REO we talked list provide a I have REO

list On each to a risk the and under of a X. hotel, a limited million. two added watch CBD were loan quarter, were that CBD loans carrying value $XX both complex office this service Those rating with assigned were

each communication loan. sale limited and through borrowers loans with We going service current the in today process. hotel are the is through on a are close Both

the remains at building and put in third watch Our list high-rise X. quarter a apartment was on rated

weeks. hope borrower come have includes investment modification a terms in equity. new that the with We of coming meaningful a to modification loan finalize the formal to We

watch Walgreens in list The are and are Brooklyn retail ongoing proceedings. Hotel. legal portfolio our the other two loans Both still involved on

is So limited. our commentary

be continues portfolio litigation. Walgreens to The in

However, XX of remaining have we on and the foreclose year. today this the expect XX on properties foreclosed through to

has positive We process sale final The asset. gone the have million. through and $XX is made Brooklyn the bankruptcy some on price sale very the Hotel hotel steps

from exit a various the expenses. asset bankruptcy be associated this and to there expect upon of We payment after with gain

we conclusion of are that While our in exact the to of expect control. the and the XXXX, process timing outside happen

the that, session. With back the to operator call would to the Q&A turn begin to like over I

Operator

[Operator Instructions] from Securities. DeLaney And the first Steven question from is JMP

Steven DeLaney

in your first great a a company. year as on Congratulations performance public

there out that think in the the you Just and portfolio -- portfolio, we to there at thinking a range of is Or growth at possibly CLO you look remain some billion? if for of at this in $X billion your the the other to purposes, static, as XXXX on form another portfolio time, or X.Xx, $X.X do take to will is modeling maybe potential were billion $X.X capital? some leverage about roughly for do

Richard Byrne

tackle do Jerry, to or want that Mike, you yes? question

Jerome Baglien

for think Walgreens posture. our Thank portfolio SOFR, we're of of and our with a question. then resolution you I in the with portfolio. hopefully a coming both we overall year think and hotel resolution have tailwinds of of terms to coming lot the the into the defensive Look way the the We specific

So talked about. of if in platform, dislocation. a think liquidity us lot I we look we've you a opportunistic positioned historically, at times with as been ourselves we've as of And

And that first COVID. started the think, balance present very themselves. this opportunities I much expand returns lending and present as like out the themselves to one were lenders would right of we if sheet we credit through the marketplace, of

coverage. clearly where happy think with we're at very dividend we are I So, today

tailwinds, be add return those believe nice can have absolutely we adding. what to good we if We will be but risk we profiles

Steven DeLaney

you've Jerry. what through That's accruing what gone the those just you what impact ratings, rate and just impact not would think let's resolved not if is that portfolio earning anything the of what roughly I is is be in capital -- percentage I a given much have guess of EPS, it but on, how from terms but much I to quantify helpful, and roughly can of And accrual, so all of, today? an -- -- that X.X mean, basis guess on And your of deployed, non-accrual. you were run

Jerome Baglien

Walgreens, on It's This Williamsburg loans. non-accrual which two It's at are point. Jerry. and this is

still on watch is other list accrual. The

Steven DeLaney

up It's to, I don't open. do Walgreens okay. in the add those deck have -- And and two of dollars? two those What Williamsburg terms

Jerome Baglien

it $XXX easy million rounding. Call for

So, forward you're talking that a about repurposing basis. on go equity

the there, Walgreens, some Now, normal that but returns it's contribution commensurate on the get add our loan there we there's obviously only not caveat portfolio. is, with still rents earn we I'd on so would

that positions. a as equity there's some and free those up of So, of turnover we upside amount fair

Richard Byrne

Rich. It’s Steve.

little on it, X.X. we put think Hotel than leverage you think in hopefully that could mean, we've it, as capital have. of bankruptcy cash But that all range your unproductive always capital given been I plus to that I the about for life finger completely because a has Jerry is debt the describing, higher have, Brooklyn will just go a years, the come with we

So a our to we get leverage. to opportunistically even going any higher have capital of think we through lot about before on have even

markets So like liquidity. -- where just where and of are, just with we the all sort just given are that

Steven DeLaney

got in you've But underutilized of those no Yes, assets. some some, and capital you've couple tailwinds question. say, got just let's

So the and thanks all for XXXX. best for comments the

Operator

Jones Stewart Jason from is question Next Instructions] from [Operator Trading.

Unidentified Analyst

pipeline, good And what's makeup quarter. they -- of guys kind the you the can on Matthew in your a Are sponsor to strength? for borrowers? repeat is on Or people it? of talk Jason. are Congrats This the

Michael Comparato

Sure, the Matt. Mike. is Thanks This for question.

I borrowers, repeat new of mix clients. it's some think brokers a well repeat as as

of So it's a mix old actually pretty new. and even

as individuals, typically, And then funds, net three sponsorship. syndicated that's previously, high positions. we've smaller worth traditional talked and equity sponsorship, is Our middle market very about buckets:

just So there. structures and the portfolio pipeline, you borrower at look it if our forward much very reflects the existing

we're terms things. in on of There the interesting fairly void lot like, side space In a large to opportunities be what construction that a it seeing seems of looks today. loan of really

it's loan what But been want construction to we've continue bit continue in market. We that, originate typical to messaging industrial. than here. other the of originate to leaning we're little So want to a multi-family. the on We to book

very be hotel in office and selectively for very, environment. We are originating and retail the to finding bar credit high this

Unidentified Analyst

then of you construction I'm assuming that And a the kind same Southwest, loans Southeast, as mold multi-family, like follow-up are to the guys that, industrial.

Michael Comparato

our book. of construction That's loan entirety the

Unidentified Analyst

I as And got then Awesome. another out. one then and last question, I'll jump

owning you would I two look guys comfortable are say, guys for and hold operating. operating would don't you How duration the comfortable needed? for what's you Or mentioned You know, guys to if be, years? asset an that

Michael Comparato

I that. think we dictate the market would let

the the Just standpoint, both run value here as as equity well, from you multi-family we platforms portfolio. as as Templeton two operational add an Franklin REIT know, equity well

So balance liquidity in we we overall and comfortable need forced we how sheet is, have, real And difficult environment. how don't be much solid are sellers our an what operating very estate. like very, owning we because of is feel to

we're So able pricing if to we think sense, will we're achieve that those we makes we're a not, assets. seller. operate If

question, I specific for your could real be commercial time. to period of business years. an not extended know, several in this owning vehicle of You we're it think, But the estate in

we're will exit if we today. pastures look to not So to able in hopefully greener execute

Operator

any session. conference question-and-answer Ladies to turn and like gentlemen, this over to our concludes Crabbe back Lindsey for I’d to remarks. closing

Lindsey Crabbe

look forward today. you Thank Thank speaking attending our you We call to you. with quarter. next for

Operator

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

disconnect. now may You

Franklin BSP Realty Trust (FBRT) 23 Feb 232022 Q4 Earnings call transcript