Franklin BSP Realty Trust, Inc. Q1 FY2025 earnings call

• The team originated $341 million in new loan commitments in the first quarter, with new loans enhancing the portfolio due to high-quality properties, borrowers, compelling economics, and low LTV ratios. • The portfolio has 56% of loans originated post-interest rate hike, which is a key quality metric. • REO has created a near-term drag on earnings, but foreclosure can be a prudent strategy for highest recovery. Charge-offs on two office loans held as REO were recognized in distributable earnings. • Distributable earnings before realized losses were $0.31 per fully converted share, representing 86% dividend coverage. • Liquidity stood at $913 million at quarter end, including $215 million in unrestricted cash. • Pending acquisition of NewPoint is on schedule, with regulatory approvals from HUD secured and expected approvals from Fannie Mae and Freddie Mac early in the third quarter. • Core portfolio is $4.8 billion, with multifamily securing 71%, and origination pace moderated due to strong spread tightening. • Watch list loans increased to 6, with various properties in different stages of resolution.

The core portfolio of Franklin BSP Realty Trust totals $4.8 billion at quarter end, comprised of 152 loans averaging $32 million. Multifamily remains the preferred sector, securing 71% of the portfolio. In the first quarter, the company originated $341 million in new loan commitments, with multifamily accounting for 79% of the total origination volume. The company received $353 million in loan repayments during the quarter, predominantly from loans originated in 2021 and 2022. The percentage of the portfolio originated post-interest rate hike is 56%, which is well ahead of peers.

• Anticipates short-term dividend coverage shortfall due to drag from REO and nonperforming loan portfolios. • Planning to keep cash balances higher than normal due to market conditions and NewPoint acquisition. • NewPoint acquisition expected to close early in the third quarter, which will provide synergies and enhance earnings power. • Believes the company is well-positioned for sustained growth, potentially trading at a premium to book value as it recycles legacy book into current vintage loans.

• Market volatility could impact origination and recovery of REO assets. • Slowdown in REO sales could persist, affecting dividend coverage. • Uncertainty around timing of resolving legacy REO and nonperforming loan portfolios. • Volatility in market conditions may impact the ability to redeploy capital into earning loans quickly.

Q: Regarding REO and originations, how are you thinking about deploying capital from REO sales?

A: Mike Comparato states any new capital from REO sales would be proactively put back to work in new origination as soon as possible.

Q: About first quarter expenses, are they due to NewPoint acquisition costs?

A: Jerome Baglien says there are a few million dollars of NewPoint transaction costs in OpEx this quarter, and REO expenses are also elevating expenses versus run rate.

Q: How do you balance moving loans off balance sheet or holding for gain on sale?

A: Jerome Baglien says they look at each asset case-by-case, considering stabilization, NOI, upside, and cost of holding; priority is to redeploy capital into earnings power.

Q: Commentary on dividend potentially being revisited?

A: Jerome Baglien mentions monitoring REO turnover and market volatility; Rich Byrne notes NewPoint acquisition closing in third quarter, so cash need will go away soon, and dividend is based on earnings power.

Q: How have originations paced in 2Q and shifts in pipeline?

A: Michael Comparato says originations were paused briefly due to tight spreads, but expect to resume soon as spreads have calmed; tons of deal flow available.

Q: Read on changes at Fannie, Freddie, HUD and agency lending impact?

A: Michael Comparato says it's hard to predict, but NewPoint has a strong team and licenses, and the acquisition will create a unique platform.

Q: Competition and borrowers with NewPoint's products?

A: Michael Comparato says the acquisition creates a one-stop shop, changing comp set, and borrowers may find conduit loans attractive for non-agency eligible multifamily products.

Q: Ballpark of agency business percentage of total revenue at NewPoint close and out a year?

A: Jerome Baglien says they haven't disclosed that yet, but more color will be provided when financials are released.

Q: Dividend coverage metric and NewPoint's impact?

A: Jerome Baglien says dividend coverage is a timing question, and NewPoint's integration is a building factor with some offset to growing the book ahead of distributable coverage.