Franklin BSP Realty Trust, Inc. Q3 FY2024 earnings call

• Portfolio is divided into loans originated pre and post Fed rate hikes; office exposure has decreased significantly with mark-downs. New loans originated post rate hikes are high quality.
• Jerry discussed financial results: GAAP and distributable earnings, net interest income trends.
• Mike covered market conditions: multifamily supply-demand shifting positively, office sector challenges with rising delinquencies, progress on watch list (down to 3 positions) and REO portfolio (13 foreclosure REO positions, 4 under contract to sell).
• Rich mentioned origination activity, robust liquidity with $1.1 billion available, and buyback allocation extended through December 31, 2025.

FBRT reported GAAP earnings of $0.30 per diluted common share this quarter, with distributable earnings of a negative $0.10 per diluted common share. Distributable earnings excluding realized losses were $0.31 per diluted common share. Net interest income was slightly lower quarter-over-quarter as the loan portfolio size decreased. The portfolio is 74% multifamily collateral. New loan commitments for the quarter were $380 million, with $510 million in loan repayments received, primarily from the multifamily sector but also including $40 million from office loans.

• Expect to reverse net interest income decline in future quarters.
• Confident dividend level reflects long-term stabilized earnings potential.
• Plan to deploy much of the $1.1 billion liquidity, including $346 million of cash, into new originations.
• Continue to focus on resolving REO and reinvesting proceeds into new loans.

• Office sector challenges with CMBS office delinquency up 100 basis points month-over-month, expected to surpass all-time highs.
• Uncertainty around interest rate movements and their impact on CRE market, including potential pause in transactions if yields continue to widen.
• Potential delays in REO resolution affecting liquidity and earnings alignment with dividend payments.

Q: Could you provide additional color on the conduit business as fixed rate loans increased?

A: Rates moving quickly created a need to digest the impact, but CMBS remains a cheap financing option. Need more time to guide on conduit future quarters.

Q: Talk about sentiment in lease-up and timing of REO monetizations?

A: Four REO properties under contract, Walgreens portfolio mostly on market for sale, with expectations to be done with Walgreens by end of Q1 next year, and remaining multifamily REO to be sold in December/early January with others taking longer.

Q: Discussion on NII, repayments, and portfolio growth expectations?

A: Tracking to normalized repayments (turning ~1/3 of portfolio), goal is to redeploy repayments into new loans to keep portfolio stable, with more repayments expected but need to redeploy effectively.

Q: Big picture on bridge business, leverage, and 2025 outlook?

A: Current new loans are high quality, 40% of portfolio is new loans. Attractive loans available, with capacity to originate more without immediate need to increase leverage. Demand for loans is massive, but legacy loan issues still exist.

Q: Deal flow and 2025 origination pickup?

A: Less legacy office exposure, broad product offering, bought street credibility by being active during market lows, and sees opportunity as 50% of CRE loans due in next three years with banks not participating.

Q: Dividend coverage and redeployment timeline?

A: Dividend policy based on long-term earnings power, REO resolution is key to redeploy capital and get back to full dividend coverage, with goal to do so as soon as possible.