Franklin BSP Realty Trust, Inc. Q2 FY2025 earnings call

• Key developments in Q2: Originated $61M in new loan commitments, received $317M in loan repayments. Distributable earnings were $0.27 per fully converted share. Average risk rating at quarter end was 2.3, with watch list loans representing 5% of the total portfolio. Sold 3 multifamily REO assets totaling $56M. - NewPoint acquisition: Expands the platform in multifamily lending, brings synergies in origination and servicing capabilities, and adds a fully integrated mortgage servicing platform. - Plans: Intend to call CLOs to free up liquidity, reinvest REO capital into new originations, and leverage NewPoint's growth to enhance earnings and book value.

The core portfolio ended the quarter at $4.5 billion across 145 loans, with multifamily making up 74%. The firm selectively originated $61 million in new loan commitments in the second quarter, primarily in multifamily assets. It received $317 million in loan repayments across 4 property types. Distributable earnings were $0.27 per fully converted share. Book value ended at $14.82 per fully converted share. The NewPoint acquisition closed on July 1, with its MSR portfolio valued at approximately $217 million and an implied life of 6.8 years. NewPoint is expected to contribute meaningfully to earnings over time, with potential for low teens ROE in the long term.

• Distributable earnings expected to grow via three paths: Calling CLOs to generate $0.04-$0.06 per share quarterly, reinvesting REO capital for $0.08-$0.12 per share quarterly, and NewPoint contributing $0.08 per share quarterly with potential for low teens ROE long-term. - Target core portfolio size around $5 billion for optimal dividend coverage, leveraging additional originations and favorable asset yields.

• Market conditions and interest rate fluctuations could impact origination spreads and asset performance. - Potential unrealized losses in the legacy portfolio if market conditions deteriorate significantly, though management is confident in the current quality of the legacy book given strong payoffs and REO sales history.

Q: When it comes to the core portfolio, have you guys resumed originations and at what pace since the closing of NewPoint?

A: Originations have resumed, starting slow but expected to grow, with target core portfolio size around $5 billion for optimal dividend coverage.

Q: With these originations, what are you guys seeing in terms of spreads compared to historical?

A: Spreads are tighter than a year ago but looser than 60 days ago due to an influx of liquidity in the credit space.

Q: On NewPoint, when will pro formas be out and how do they relate to guidance?

A: Pro formas should be out in the next 24 hours. They will help model volume and expected results as NewPoint is a volume-driven business, aligning with the guidance on volume and end results.

Q: What sparks sustained recovery in investment sales?

A: No specific catalyst, but exhaustion of 'pretend and extend' will lead to recovery as owners seek liquidity and lenders show less willingness to extend loans.

Q: Breakdown of NewPoint ROE between origination and servicing?

A: No disclosed breakout of ROE between origination and servicing, but pro formas once released will show income drivers from both segments.