Franklin BSP Realty Trust, Inc. Q3 FY2025 earnings call

• Acquisition of NewPoint: Closed on Jul 1, integration going well. NewPoint had record volume in Q3 with $2.2 billion of originations, contributing $9.3 million to distributable earnings. Brings intangible benefits like increased deal flow, stronger customer relationships, etc. • Liquidity and portfolio: Maintaining liquidity for acquisition limited new loan originations early in Q3. Core portfolio expected to return to target size of at least $5 billion in next few quarters. Closed 12th CRE CLO post quarter end, lowering interest expense and adding ~$1 billion origination capacity. Repurchased 540,000 shares for ~$6 million in Q4 with $25.6 million remaining on buyback allocation. • Legacy portfolio and REO: Actively managing watch list, 3 new loans added, 1 removed via full repayment. Expect to remove several watch list loans in Q4 via modifications or sales. Sold 2 REO properties in Q3, with a few more slated to close in Q4. Reduced REO balance through asset sales and expect to redeploy capital into new originations.

• NewPoint contributed $9.3 million to distributable earnings in its first full quarter as part of FBRT, which is $0.09 per fully converted share. Its agency volume was $2.2 billion in the quarter, and full year originations are expected to be toward the upper end of initial guidance. MSR income in Q3 was $19.7 million with an average MSR rate of ~91 basis points, and the MSR portfolio was valued at ~$221 million at Sep 30 with an implied life of 6.6 years. • Core portfolio: Ended Q3 at $4.4 billion across 147 loans, with multifamily assets making up 75%. Average cost of debt on core portfolio was SOFR plus 2.31%. Net leverage position ended the quarter at 2.55x with recourse leverage at 0.84x. Post interest rate hike originations represent ~60% of the book. Origination in Q3 was ~$304 million in commitments, $196 million funded, and $275 million in loan repayments received.

• Core portfolio: Expect to return to target size of at least $5 billion over next few quarters. • Stock repurchases: Resumed share repurchases in Q4, with $25.6 million remaining on buyback allocation and Board expanded authorization through Dec next year. • NewPoint: Expected to be accretive to GAAP earnings and book value per share in first half of 2026 and accretive to distributable earnings in second half of 2026. Full year originations of NewPoint expected toward upper end of initial guidance. • CLO transaction: FL12 closed post quarter end, ~75% of core book financed through nonrecourse non-mark-to-market structures, and reinvestment capacity available on 2 CLOs.

• Market conditions: Spreads on whole loan origination have tightened, which may impact origination margins. • Legacy portfolio management: Uncertainty in removing watch list loans and resolving REO assets could affect capital deployment. • Interest rate and refinancing: Changes in interest rates could impact loan repayments and refinancing opportunities.

Q: Touch on origination volumes and what led to the higher end of the range in Q3 and what's going to lead to the higher end of the range in 4Q?

A: Michael Comparato said they've been able to cultivate the balance sheet, converted a handful of loans from floating rate basis into CMBS product which has less competition, and subject to market conditions holding, Q4 could be strong in CMBS group.

Q: As it relates to the comp and benefits expense line item, what should we expect going forward?

A: Jerome Baglien said it's variable, trending with volume, scales throughout the year with people hitting hurdles in volume targets, so won't be easy to extrapolate just from Q3.

Q: On repayments, $275 million in Q3, wondering if in 4Q, are still seeing elevated repayments as of Oct end?

A: Jerome Baglien said repayments are relatively in line with the year, but 4Q is tougher to predict due to more variability in people trying to close things out before year end.

Q: On the core portfolio, is there a target size?

A: Michael Comparato said targeting a stabilized portfolio side on whole loan basis of between $5 billion and $5.5 billion.

Q: Congrats on nice quarter, great to hear record quarter for NewPoint, do you guys view this as a good run rate going forward or could there be further upside to volumes with the NewPoint acquisition?

A: Michael Comparato said it was a great quarter but not repeatable every quarter, wouldn't use 1 quarter to extrapolate forward, and no expectation of NewPoint putting up $8 billion of origination in 2026.

Q: Given the large transaction in NewPoint Q3, was there margin tightening, and could see margin improvement going forward?

A: Michael Comparato said there is slight margin tightening on that individual transaction.

Q: With talk of GSEs coming out of conservatorship, share thoughts on that and impact to market?

A: Michael Comparato said it's difficult to answer overall, but this administration won't do something to disrupt mortgage market, and guess solution could be explicit guarantee rather than implicit guarantee, but sceptical it happens quickly.