Q4 2023 Franklin BSP Realty Trust Inc Earnings Call

Operator: Good day, and welcome to the Franklin BSP Realty Trust fourth quarter 2023 earnings conference call. All participants will be in listen only mode.

Good day and welcome to the Franklin B S. P. Realty Trust fourth quarter 2023 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero. After today's presentation, there will be an opportunity to add.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star then... Please note, this event is being recorded. I would like now to turn the conference over to Lindsey Crabbe, Director of Investor Relations. Please go ahead.

Two questions to ask a question you May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would like now to turn the conference over to Lindsey Crabbe director of Investor Relations. Please go ahead.

Lindsey Crabbe: Good morning. Thank you, Alan, for hosting our call today. Welcome to the Franklin BSP Realty Trust fourth quarter and full year 2023 earnings conference call. With me on the call today are Richard Byrne, Chairman and CEO of SBRT, Jerry Baglion, Chief Financial Officer and Chief Operating Officer of SBRT, and Michael Camperotto, President of SBRT. Before we begin, I want to mention that some of today's comments are forward-looking statements and are based on certain... Those comments and assumptions are subject to inherent risks and uncertainties, as described in our most recently filed SEC periodic report, and actual future results may differ materially. The information conveyed on this call is current only as of the date of this call, February 15, 2021. The company assumes no obligation to update any statements made during this call, including any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Additionally, we will refer to certain non-GAAP financial measures which are reconciled to GAAP figures in our earnings release and supplementary slide deck, each of which is available on our website at www.sbrtreet.com. We will refer to the supplementary slide deck on today's call. With that, I'll turn the call over to Richard. Perfect. Thanks, Lindsey. And good morning, everyone.

Good morning, Thank you for hosting our call today welcome to the Franklin D. S emails he trusts fourth quarter and full year 2023 earnings conference call.

With me on the call today are Richard Burton, Chairman and CEO of FBR T. Gary Bachman, Chief Financial Officer, and Chief operating Officer, and Michael Colorado precedent.

Before we get begin I want to mention that some of today's comments are forward looking statements and are based on certain assumptions those comments and assumptions are subject to inherent risks and uncertainties as described in our most recently filed periodic report and actual future results may differ materially.

Information conveyed on this call is current only as of the date of this call February 15th 2024. The company assumes no obligation to update any statements made during this call, including any forward looking statements, whether as a result of new information future events or otherwise except as required by law.

Additionally, we will refer to certain non-GAAP financial measures, which are reconciled to GAAP figures in our earnings release and supplementary slide deck each of which are available on our website at www Dot FBR T. REIT dotcom, we'll refer to the supplementary slide deck on today's call with that I'll turn the call over to rich Barton.

Perfect. Thanks, Lindsay and good morning, everyone and thank you for joining us today, I'm Rich Byrne, I'm, chairman and CEO of F. B R. T. As Lindsey mentioned, our earnings release and supplemental back were published to our website yesterday. So we're going to begin today's call by reviewing our fourth quarter results and then we're going to open up to.

Richard Jan Byrne: And thank you for joining us today. I'm Rich Byrne, Chairman and CEO of FBRT. As Lindsey mentioned, our earnings release and supplemental deck were published on our website yesterday. So we're going to begin today's call by reviewing our fourth-quarter results, and then we're going to open up the call for your questions. I'm going to begin on slide four.

Call for your questions.

I'm going to begin on slide four.

Richard Jan Byrne: For the year ended 2023, FBRT had distributable earnings per fully converted share of $1.99. This is a 79% year-over-year increase and equates to a 12.1% distributable earnings return on common equity. Our distributable earnings dividend coverage for 2023 for the full year was $135,000. In the fourth quarter, FDRT had distributable earnings of $0.39 per fully converted share, representing an almost 10% return on common equity. Our distributable earnings dividend coverage was 109% for the quarter. However, earnings were modestly lower in the fourth quarter versus the third quarter of this past year.

For the year ended 2023 F. B Archie had distributable earnings for fully converted share of $1 92.

This is a 79% year over year increase and equates to a 12.1% distributable earnings return on common equity our distributable earnings dividend coverage for 2023 for the full year was 135%.

In the fourth quarter F. D. Archie had distributable earnings of 39 cents per fully converted share representing an almost 10% return on common equity our distributable earnings dividend coverage was 109% for the quarter.

Our earnings were modestly lower in the fourth quarter versus the third quarter.

Of this past year, the difference was due to the timing of minimum interest payments.

Richard Jan Byrne: The difference was due to the timing of minimum interest payments. Our portfolio ended the year at $5 billion, reflecting net portfolio growth of $84 million in Q4. We have been steadily originating every quarter throughout 2023, and in total, we originated $818 million of new loan commitments for the year. Our portfolio remains heavily focused on multifamily, with 77% of our exposure in this sector. We ended the quarter with $1.5 billion in available liquidity. Unrestricted cash decreased slightly to $338 million due to our Net Origination Act.

Our portfolio ended the year at 5 billion, reflecting net portfolio growth of $84 million in Q4, we have been steadily originating every quarter throughout 2023 and in total we originated $818 million of new loan commitments for the year.

And our portfolio remains heavily focused in multifamily with 77% of our exposure in this sector.

We ended the quarter with 1.5 billion in available liquidity unrestricted cash decreased slightly to 338 million due to our net origination activity.

Richard Jan Byrne: With 5%, excuse me, with 5.7% of our total assets in unrestricted cash, we are not just playing. We are actively working to deploy capital, and we are originating very attractive investments that we believe will be meaningfully accretive to our earnings. With many other lenders on the sidelines, we have been able to build a robust pipeline, which you will hear more about shortly. An area we want to provide more details on today is our watch list and general CECL results. We ended the quarter with six loans on our watch list versus three loans at the end of Q3. Each watch list loan is rated at four.

With five first excuse me with five 7% of our total assets in unrestricted cash we're not just playing defense. We are actively working to deploy capital and we are originating very attractive investments that we believe will be meaningfully accretive to our earnings.

With many other lenders on the sideline, we have been able to build a robust pipeline, which you will hear more about shortly from Mike.

An area, we want to provide more details on today is our watch list and general seasonal reserve.

We ended the quarter with six loans on our watch list versus three loans at the end of Q3.

Each watch list loan is rated a four subsequent to quarter end, we took title to one of the watch list loans.

Richard Jan Byrne: Subsequent to quarter end, we took title to one of the watchlist loans and have already liquidated it as a modest gain to our base, meaning that our six watchlist loans are now down to five, or 4.3% of our total portfolio. Mike will provide more watchlist detail in his comments, including our definition of how we characterize a four-rated loan, which may be more conservative versus many of our peers.

And have already liquidated at a modest gain to our basis, meaning that our our six watchlist loans are now down to five or 4.3% of our total portfolio, Mike will provide more watchlist detail in his comments, including our definition of how we characterize a four rated loan.

Which may be more conservative versus many of our peers.

Richard Jan Byrne: The risk profile of our portfolio is relatively low, with almost 95% of our loans rated three or better and an average overall risk rating of 2.3 at the end of the quarter. Our focus on originating newer vintage, high quality multifamily loans continues to deliver stable performance for the vast majority of our portfolio. At quarter end, we held three foreclosure REO positions representing 2% of our total assets. Most of the balance of our foreclosure REO was our Walgreens retail portfolio, which we are marketing for sale. Mike will also provide some detail on our REO positions during his commentary.

The risk profile of our portfolio is relatively low with almost 95% of our loans rated a three or better and then average overall risk rating of 2.3 at the end of the quarter, our focus on originating newer vintage high quality multifamily loans continues to deliver stable.

Performance for the vast majority of our portfolio.

At quarter end, we held three foreclosure Oreo positions, representing 2% of our total assets most of the balance of our foreclosure Oreo was our Walgreens retail portfolio, which we are marketing for sale. Mike will also provide some detail on our Oreo positions during his commentary.

Richard Jan Byrne: No asset-specific CECL charges were incurred in Q4, but we increased our general CECL reserve by $5.4 million. Overall, our CECL reserve is 96 basis points of our total portfolio, which we believe is conservative given our portfolio's strong credit quality and the multifamily focus that we have. Gary will provide more details on the calculation of our CECL estimate in a section which we'll get to shortly. Finally, FDRT's buyback authorization had under $36 million remaining at the end of the quarter.

No asset specific seasonal charges were incurred in Q4, but we increased our general reserve by $5 4 million overall, our seasonal reserve is 96 basis points of our total portfolio.

We believe it's conservative given our portfolio of strong credit quality and the multifamily focus that we have.

Gary will provide more details on the calculation of our she's still estimate intersection which will get up to shortly.

Finally F. B R. T is buyback authorization that had under $36 million remaining at the end of the quarter.

Richard Jan Byrne: We purchased $3.3 million of FBRT common stock during the fourth quarter and $12.5 million throughout 2023. In total, since our program began, the company and its advisor have purchased $64 million of FBRT common stock. We continue to be active in the first quarter of 2024; we're purchasing approximately 1.6 million of our common stock through February 13th. Our company buyback is authorized through the end of 2024. Lastly, we are pleased with FBRT's strong performance in 2023. Our earnings comfortably covered our dividend and produced a competitive risk-adjusted return.

We purchased $3.3 million of F. D. R. T common stock during the fourth quarter and $12 5 million throughout 2023 in total since our program began the company and its advisor purchased $64 million of F. B R. A T. A common stock we continue to be active in the first quarter of <unk>.

For 2024 of this year repurchasing approximately $1.6 million of our common stock through February 13th.

Our company buyback at all is authorized through the end of 'twenty 'twenty four.

Lastly, we are pleased with that be Archie strong performance in 2023, our earnings comfortably covered our dividend and produced a competitive risk adjusted return and we expect our earnings power to be enhanced as we grow our portfolio in 2024.

Jerry Baglion: And we expect our earnings power to be enhanced as we grow our portfolio in 2024. We remain confident in the resilience of our assets in our portfolio, we have ample liquidity, and we are singularly focused on delivering long-term shareholder value. With that, I'll stop there, and I'll turn things over to Jerry to discuss our financial results. Okay.

We remain confident in the resilience of our assets in our portfolio, we have ample liquidity and we are singularly focused on delivering long term shareholder value.

With that I'll stop there and I'll turn things over to Jerry to discuss our financial results over to you Jerry.

Jerry Baglion: Great. Thanks, Rich. I'm Jerry Baglian, the Chief Financial Officer and Chief Operating Officer of FBRT. I appreciate everyone being on the call today. Moving on to our results, let's start on slide five. FBRT generated gap earnings of 30 million, which is 28 cents per share on a diluted common share calculation that represents a 7.2% return on common equity in the fourth quarter. Our general CESA reserve increased to $48.3 million this quarter, reflecting an increase of $5.4 million and a 0.6 cents per share reduction to gap earnings. For our fourth-quarter CECL calculation, we adopted a more conservative economic scenario to determine the reserve.

Great. Thanks, Rich I'm very badly in the Chief Financial Officer, and Chief operating Officer about B R. A T. I appreciate everyone being on the call today.

You got it onto our results, let's start on slide five.

S. PRT generated GAAP earnings of $30 million, which is 28 cents per share on a diluted common share calculation that represents a seven 2% return on common equity in the first fourth quarter.

Our general seasonal reserves increased to $48 3 million this quarter, reflecting an increase of $5 4 million and I 0.66 cents per share a reduction to GAAP earnings.

Our fourth quarter seasonal calculation, we adopted a more conservative economic scenarios to determine the reserve.

Jerry Baglion: The calculation is largely driven by economic conditions and the state of the real estate. It is also influenced by the movement of our assets in our internal. We earned $39.3 million in distributable earnings in the fourth quarter, and a walkthrough of our distributable earnings to gap net income can be found in the earnings. Book value was down in the fourth quarter to $15.77 from $15.82.

The calculation is largely driven by economic conditions and the state of the real estate market.

It is also influenced by the movement of our assets and our internal risk ratings.

We earned $39 3 million in distributable earnings in the fourth quarter and a walkthrough of our distributable earnings to GAAP net income can be found in the earnings release.

Book value was down in the fourth quarter to $15.77 from $15.82 or.

Jerry Baglion: Our increase to the general CSO provision was the largest driver of this decline, resulting in a six cents per share reduction to book value. This reduction is partially offset by distributable earnings in excess of our common distribution. Slide seven summarizes our portfolio progression. As Rich mentioned, our portfolio grew this quarter, with our originations outpacing our... However, when looking at the entirety of 2023, our repayments exceeded origination, resulting in a modestly smaller portfolio size year over year.

Our increase to the general seasonal provision was the largest driver of this decline, resulting in a six cents per share reduction to book value.

This reduction was partially offset by distributable earnings in excess of our common distributions.

Slide seven summarizes our portfolio of progression as rich mentioned, our portfolio grew this quarter with our originations outpacing our repayments. However, when looking at the entirety of 2020 three our repayments exceeded originations. This result in a modestly smaller portfolio size year over year.

Jerry Baglion: Despite the smaller portfolio, we are encouraged by the consistency in our... The repayments speak to the credit quality of our assets and the liquidity in the market for certain assets. In aggregate, seven loans were repaid in the quarter.

Despite the smaller portfolio, we're encouraged by the consistency in our prepayments and repayments speak to the credit quality of our assets and our liquidity in the market for certain asset classes.

In aggregate seven loans were repaid in the quarter most of our repayments from where for multifamily and hospitality loans, contributing 80% and 15% of the balanced respectively.

Mike Camperotto: Most of our repayments were for multifamily and hospitality loans, contributing 80% and 15% of the balance, respectively. Flight 8 provides a high-level snapshot of our capitalization. Our average cost of debt during the quarter increased modestly to 7.9%. The increase in our cost of debt is a combination of the issuance of FL-10 at the end of the third quarter and the increase in SOFR over the period. 89% of our financing on our core book is non-recourse, non-market. With Reinvest available on four of our CLOs and the newly issued FL10, we do not have an immediate need to go to market with another issuer. That said, we are always watching the CLL markets, and we'll engage in new issuance when the levels are attractive, are net leverage positionary and modest at roughly 2.3 times. We are deliberate in our use of leverage and view it as a structural highlight. With that, I'll turn it over to Mike to give you an update on our portfolio. Thanks, Jerry. Good morning, everyone, and thank you for joining us.

Slide eight provides a high level snapshot of our capitalization our average cost of debt during the quarter increased modestly to seven 9% the increase in our cost of debt is a combination of the issuance of Apple 10 at the end of the third quarter and the increase in silver over the period.

89% of our financing on our core book is nonrecourse non mark to market with reinvest available on four of our CLO and newly issued at El Pen, we do not have an immediate need to go to market with another issuance.

That said, we are always watching the CLO market and will engage in new issuance when that levels are attractive to us.

Our net leverage position remained modest at roughly 2.3 times. This quarter, we were deliberate in our use of leverage and view it as a structural highlight.

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

Thanks, Gary Good morning, everyone and thank you for joining us.

Mike Camperotto: I'm Mike Amparato, President of FBRT, and I'm going to start on slide 12. Our portfolio ended the quarter at $5 billion, spread across 144 loans with an average size of $35 million. As Rich mentioned, our exposure is now 77% in the multifamily sector, and our multifamily exposure is in newer vintage assets. Almost one-third of our multifamily exposure was built between 2020 and 2023, while 40% of our exposure was built between 1990 and 2020. Importantly, our exposure is in population centers with meaningful employment bases. Across our entire portfolio, the weighted average five-mile population size is approximately 240,000.

Copper auto President of F. B R T and I'm going to start on slide 12.

Our portfolio ended the quarter at 5 billion spread across 144 loans with an average size of $35 million as rich mentioned, our exposure is now 77% in the multifamily sector.

Our multifamily exposure is a newer vintage assets almost one third of our multifamily exposure was built between 2020 and 2023.

40% of our exposure was built between 1990 and 2020.

Importantly, our exposure isn't population centers with meaningful employment basis.

Across our entire portfolio the weighted average five mile population size is approximately 240000 people.

Mike Camperotto: There's been talk in the market about current weakness in multifamily property. We continue to believe this weakness is more a reflection of overleveraged borrowers likely taking losses on late 2021 and early 2022 acquisitions and is not reflective of weakness at the asset level. In other words, it's a story of good assets and broken balance.

There's been talk in the market about current weakness in multifamily properties. We continue to believe this weakness is more of a reflection of overleverage borrowers likely taking losses on late 2021, and early 2022 acquisitions and is not reflective of weakness at the asset level in other words, it's a story of good assets and broke.

And balance sheets.

Mike Camperotto: While there will be equity losses in multifamily, I do not believe FBRT is likely to experience any meaningful losses in our current multifamily book. To be clear, that view is in the context of a 425 10-year Treasury yield. In addition, we have an integrated equity asset management team and believe we may even have the opportunity to turn some potential future REO situations into profitable transactions over time. We are long-term bullish on the fundamentals of multifamily at the asset level, and we'll continue our focus on our portfolio originations on newer vintage assets and larger markets. There continues to be an exceptional amount of liquidity in the multifamily market, as evidenced by the robust levels of repayments that we have been receiving and by the endless inquiries we are receiving from investors looking to acquire loans as a means of obtaining title. This liquidity was especially evident in a transaction that recently went into maturity default. After an extensive negotiation to extend a loan, a borrower offered an unexpected deed of lieu and foreclosure last December. We made five phone calls to local market participants, all who were extremely interested in acquiring the property.

While there will be equity losses in multifamily I do not believe FBR T is likely to experience any meaningful losses in our current multifamily book to be clear that view is in the context of a 425 10 year treasury yield in.

In addition, we have an integrated equity asset management team and believe we may even have the opportunity to turn some potential future oreo situations into profitable transactions over time.

We are long term bullish on the fundamentals of multifamily at the asset level and will continue our focus on our portfolio originations, a newer vintage assets and larger market.

There continues to be an exceptional amount of liquidity in the multifamily market as evidenced by the robust levels of repayments that we had been receiving and buy the endless inquiries, we're receiving from investors looking to acquire loans as a mean to obtaining title.

This liquidity was especially evident in a transaction that recently went into maturity default.

After an extensive negotiation to extend a loan a borrower offered an unexpected beautiful ore and foreclosure last December.

We made five phone calls to local market participants all who were extremely interested in in acquiring the property one investor even offered to sign a PSA that week with a nonrefundable deposit.

Mike Camperotto: One investor even offered to sign a PSA that week with a non-refundable deposit. However, conversations like these rarely occur in any other asset class within the commercial real estate universe. We took title to the property and less than a week later closed on the disposition at a price above our outstanding balance. Slide 13 highlights our origination activity specific to the fourth quarter. We originated seven loans at a weighted average spread of 391 basis points.

Conversations like these rarely occur and any other asset class within the commercial real estate universe.

We took title to the property and less than a week later closed on the disposition at a price above our outstanding balance.

Why 13 highlights our origination activities specific to the fourth quarter, we originated seven loans at a weighted average spread of 391 basis points. These transactions were primarily in multifamily and hospitality and we're located located across the Sun belt.

Mike Camperotto: These transactions were primarily in multifamily and hospitality and were located across the Sun Belt. Turning to 2024, we've seen transactional volume pick up across multiple product lines. We expect to see substantially more transactions in the nominal market. However, competition remains thinned out, and the regional bank bid has not returned.

Turning to 2024, we've seen transactional volume pick up across multiple product lines.

We expect to see substantially more transactions in the middle market.

Competition remains send out in the regional bank debt has not returned.

Mike Camperotto: Quarter to date, FBRT has committed to $155 million of new loans and funded $122 million. We anticipate funding another $78 million tomorrow and have a robust pipeline through the remainder of the quarter. We are also seeing green shoots in the conduit market, which has historically been an earnings enhancement. In Q1 of 2024, we project to generate approximately $3 million in conduit revenue, which would be our highest quarterly conduit revenue in over two years. CMBS has again become one of the lower-cost financing options in the market, so we are cautiously optimistic that Conduit Revenue could pick up in 2024. Borrower behavior remains difficult to predict.

Quarter to date S. P. O T has committed to $155 million of new loans and funded $122 million. We anticipate funding another 78 million tomorrow and have a robust pipeline through the remainder of the quarter.

We are also seeing green shoots in the conduit market, which has historically been an earnings enhancer and.

In Q1 of 'twenty 'twenty, four we project to generate approximately $3 million in conduit revenue, which would be our highest quarterly conduit revenue in over two years.

C N P. S has again become one of the lower cost financing options in the market. So we are cautiously optimistic the conduit revenue could pick up in 'twenty 'twenty four.

Borrower behavior remains difficult to predict we were being proactive and getting ahead of issues with our borrowers and are in constant contact with borrowers were constant contact as needed.

Mike Camperotto: We're being proactive in getting ahead of issues with our borrowers and are in constant contact with borrowers where constant contact is needed. Our real estate team's experience is deep and is equipped to handle a wide range of outcomes. We've been successful in resolving loans and extending or modifying when appropriate. In the fourth quarter, we modified 13 loans.

Our real estate teams experience is deep and is equipped to handle a wide range of outcomes, we've been successful in resolving loans and extending or modifying when appropriate.

In the fourth quarter, we modified 13 loans 10 of those 13 modifications to borrowers contributed additional equity and in eight of those 13 modifications, we were able to reduce our total loan exposure.

Mike Camperotto: In ten of those 13 modifications, the borrowers contributed additional equity, and in eight of those 13 modifications, we were able to reduce our total loan exposure. We will continue to be laser focused on improving our existing book when opportunities present themselves. Even though we already have one of the lowest office loan exposures in the industry, we continue to shrink that exposure. We received one full office repayment in Q4 and another in early January of this year. Excluding our long-term net leased corporate headquarters and distribution facility, our office exposure is now comfortably under 5% of the portfolio. Moving to slide 14, you will see a summary of our watch list.

We will continue to be laser focused on improving our existing book when the opportunities present themselves.

Even though we already have one of the lowest office loan exposures in the industry. We continue to shrink that exposure. We received one full office repayment in Q4 and another in early January of this year.

Excluding our long term net leased corporate headquarters and distribution facility. Our office exposure is now comfortably under 5% of the portfolio.

Moving to slide 14, you'll see a summary of our watch list activity. We ended the quarter with six loans on our watch list all four rated with an aggregate value of $272 million.

Mike Camperotto: We ended the quarter with six loans on our watch list, all four rated, with an aggregate value of $272 million. As already mentioned, one of those six has been fully repaid and resolved. Risk ratings vary company to company, and we review our entire portfolio every quarter and re-rate each loan. Certain characteristics warrant us rating a loan a four. Our quarterly and annual filings define each investment rating, but for the purpose of our current watch list, I'll describe a four-rated asset. For us, a four-rated asset is one that is an underperforming investment with the potential of some interest loss but still expecting a positive return on investment.

As already mentioned one of those six has been fully repaid and resolved.

Risk ratings very company to company and we review our entire portfolio every quarter and re rate each loan.

Certain characteristics warrant us reading alone for our quarterly and annual filings define each investment rating, but for the purposes of our current watch list I'll describe before rating for US before rated asset is one that is an underperforming investment with a potential of some interest loss, but still expecting a positive return on investment.

Mike Camperotto: Trends and risk factors are negative, but this is not indicative of expected loss and future loss to our base. During our quarterly review process in the fourth quarter, loans were downgraded to a four based on the measurements I just described. However, today we already have positive updates on several of those loans. The six loans on our watch list are a CBD high-rise office building in Denver, Colorado. This loan was added to the watch list in Q3 of 23, and we are in the process of amending this loan with the borrower. We also have a Class A office building in Alpharetta, Georgia.

Trends and risk factors are negative, but it is not indicative of expected loss and in our future loss to our basis.

During our quarterly review process in the fourth quarter loans were downgraded to a four based on the measurements I. Just described however today, we already have positive updates on several of those loans.

Six loans on our watch list, our CBD high rise office building in Denver, Colorado. This one was added to watch list in Q3 of 'twenty three and we are in the process of amending this loan with the borrower.

We also have an a class a office building in Alpharetta, Georgia. This loan was added to watch list as well in Q3 last year, we have reduced our basis unless asset meaningfully in 2023 and recently entered into another loan amendment.

Mike Camperotto: This loan was added to the watch list as well in Q3 last year. We have reduced our basis in this asset meaningfully in 2023 and recently entered into another loan amendment, which included additional repayments on principal. We have a 279-key hotel in Dallas, Texas.

Which included additional repayments on principle.

We have a 270 and 90 hotel in Dallas, Texas. This loan was added in Q4. It has since been extended and is being actively marketed for sale.

Mike Camperotto: This loan was added in Q4. It has since been extended and is being actively marketed for sale. The 352-unit apartment community in San Antonio is one we previously mentioned. This asset was sold yesterday at a gain to our basis and, therefore, will be removed from watch. We have a 471-unit apartment community in Raleigh, North Carolina, that was added in Q4.

The 352 unit apartment community in San Antonio is one we previously mentioned this asset was sold yesterday at a gain to our basis and therefore, therefore will be removed from watch list.

We have a 471 unit apartment community in Raleigh, North Carolina that was added in Q4, we are in active dialogue with the borrower and we have received extensive interest from the market to acquire the loan at par.

Mike Camperotto: We are in active dialogue with the borrower, and we have received extensive interest from the market to acquire the loan at par. This loan was lastly added in Q4, and we are in active dialogue with the borrower and reviewing potential options. Our total foreclosure REO positions at quarter end stood at three. As we discussed on our last call, one asset was removed from our watch list in Q4 and taken as REO. This is a small multifamily position in Lubbock, Texas.

And lastly, a two property apartment portfolio in Mooresville in Chapel Hill, North Carolina. This loan was lastly added in Q4, and we are in active dialogue with the borrower and reviewing potential auctions.

Our total foreclosure Oreo positions at quarter end stood at three as we discussed on our last call. One asset was removed from our watch list in Q4 and taken as Oreo.

This is a small multifamily position Lubbock, Texas, our asset management team has meaningfully improved the asset quality in a short period of time and the property is positive leasing momentum. It is currently held for investment as we improve the asset.

Mike Camperotto: Our asset management team has meaningfully improved asset quality in a short period of time, and the property has positive leasing momentum. It is currently held for investment as we improve the asset. The other two assets remaining as foreclosure REO are the Portland office building and the Walgreens portfolio.

The other two assets remaining as foreclosure Oreo R. The Portland office building and the Walgreens portfolio.

Mike Camperotto: As it pertains to the Portland office property, we received a meaningful payment from one of the property tenants. However, big picture, we do not believe exiting the asset in the current market environment for office buildings is the proper decision. Lastly, our REO Walgreens portfolio. We did not sell any stores in the fourth quarter.

As it pertains to the Portland Office property, we received a meaningful payment from one of the property tenants. However, big picture, we do not believe exiting the asset and the current market environment for office buildings is the proper decision.

Lastly, as our Oreo Walgreens portfolio, we did not sell any stores in the fourth quarter, our intention remains to liquidate the portfolio as the market permits, but we are not for sellers. We're comfortable holding these assets until we reach pricing levels that we feel are appropriate.

Mike Camperotto: Our intention remains to liquidate the portfolio as the market permits, but we are not sellers. We are comfortable holding these assets until we reach pricing levels that we feel are appropriate. In aggregate, our foreclosure REO balance ended the quarter at $122 million, which is approximately 2% of total assets.

In aggregate, our foreclosure Oreo balance ended the quarter at 122 million, which is approximately 2% of total assets.

Operator: In closing, it's clear that our industry is dealing with significant headwinds. However, we are actually quite bullish about the market opportunities for FBRT right now, given our substantial liquidity position and our limited office exposure. Also, we remain confident in the continued outperformance of our existing portfolio given our relatively outsized exposure, not only to just multifamily, but newer vintage, higher quality multifamily in larger liquid markets. We believe this will provide us with a competitive advantage in 2024 and allow us to continue to play offense when most other lenders are on the sidelines. With that, I would like to turn it back to the operator to begin the Q&A session. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone.

In closing, it's clear that our industry is dealing with significant headwinds. However, we are actually quite bullish about the market opportunity for F. B O T right now given our substantial liquidity position and our limited office exposure also we remain confident in the continued outperformance of our existing portfolio given our relatively outs.

<unk> exposure not only to just multifamily, but newer vintage higher quality multifamily in larger liquid markets. We believe this will provide us with a competitive advantage in 'twenty 'twenty four and continue to play offense when most when most other lenders are on the sidelines with that I would like I would like to turn it back to the operator to begin.

The Q&A session.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw. It. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Operator: If you are using a speakerphone, please pick up your handset before pressing the button. If at any time your question has been addressed and you would like to withdraw it, please press star then. At this time, we will pause momentarily to assemble our. Our first question comes from Sarah Barcomb of BTIG. Go to Beadaholique.com for all of your beading supply needs!

Our first question comes from Sara Barcomb of P. T. I G. Please go ahead.

Hey, good morning, everyone and so I'm, just starting to narrow in on that.

And I'm counting out foreclosure you know I think the key takeaway here is that you guys had a full recovery on that can you talk a bit more about what led to sponsored walk away here and how you might view this property differently compared to the broader portfolio.

Mike Camperotto: Hey, good morning, everyone. So I just wanted to narrow in on this San Antonio foreclosure. You know, I think the key takeaway here is that you guys got a full recovery. But can you talk a bit more about what led the sponsor to walk away here and how you might view this property differently compared to the broader multi-portfolio? You know, this was a higher LTV peak for Sunbelt multifamily cap rates vintage assets, and that new valuation you disclosed implied nearly a full equity wipeout. Is this a standard outcome for an asset like this, where maybe you get the keys back, but at the senior mortgage lender basis, you know, you see a full recovery? And I'm also curious if you think this could represent a peak to trough valuation for this cycle? I'd appreciate any color there.

The higher LTV.

And they'll all be Hammond cap rates can teach out and the new valuation you describe they can find nearly full equity wipe out.

Our standard outcome for an asset like that where maybe you got the keys back, but the senior mortgage lender base.

<unk> you know you see a full recovery.

I'm also curious if you think this could represent a peak to trough valuation for this call I would appreciate any color there.

Mike Camperotto: Hey Sarah, good morning, and thank you for the question. This was a fairly frustrating process, but as you alluded, all's well that ends well. I do think it's representative of a lot of transactions that closed in late 21 and early 22. The borrower had an extension option, and the only condition to exercising that extension was buying a new interest rate cap.

Hey, good morning, and thank you for the question.

This is this was a fairly frustrating process, but as you alluded a all's well that ends well.

I do think its representative a lot of transactions that closed in late 'twenty. One in early 'twenty. Two are we the borrower had a an extension option and the only condition to exercising that extension was buying a new interest rate cap. They told us they were going to.

Mike Camperotto: They told us they were going to buy a new interest rate cap, then they told us they weren't going to buy a new interest rate cap. They offered us a proposal, we negotiated a proposal, they agreed to the proposal, and then, when all was said and done, they couldn't raise the additional money from their LPs to move forward at all. It was very surprising to us, but as I've talked about for several quarters and even again today, borrower behavior is very, very difficult to predict. As frustrating as it is for you guys, it's frustrating for us as well.

By a new interest rate cap then they told us they weren't going to buy a new interest rate cap. They offered us a proposal we negotiated a proposal they agreed to the proposal and then when all was said and done they couldn't raise the additional money from their Lps to move forward at all so it was very surprising to us.

But as I've talked about for several quarters and even against a borrower behavior.

It's very very difficult to predict so as frustrating as it is for you guys that it's frustrating for us as well.

Mike Camperotto: But again, we took the asset, these assets are very liquid right now in the market, and we're able to sell them for a gain. But generally speaking, yes, I do think this is probably representative of what we will see for those late 21, early 22 acquisitions where, again, as I alluded to in my comments today, I don't foresee us having any meaningful losses in the multifamily book given where the market is today. I think if borrowers elect not to move forward and extend or continue their business plans, I believe we have the ability to move most of our positions above our current debt base. Okay.

But again, yeah. We we took the asset. These these these assets are very liquid right now in the market and we're able to sell it for a gain.

But generally speaking yes, I do think this is probably representative of what we will see for those late 'twenty. One early 'twenty two acquisitions, where you know as again as I alluded to in my comments today, I don't foresee us having any meaningful losses in the multifamily book, given where the market is today.

I think if borrowers elect not to move forward and extend or continue their business plans I believe we have the ability to move most of our positions above our current debt basis.

Mike Camperotto: And then, you know, and you've already touched on this, but my follow-up is related to that risk rating migration. You know, you've repeatedly highlighted, before this call as well, that borrower behavior is very difficult to predict. You know, so to recover that full basis, you know, we saw this migrate from a two in Q3 to a foreclosure in this print. Can you just talk about how you're thinking about risk rankings going forward? I mean, it's an imperfect world, right?

Okay, Great and then you know you've already touched on that but my follow up is related to that risk rating migration.

Repeatedly highlighted before this call as well that borrower behavior is very difficult to predict.

Yeah.

Cover that whole base that we started to migrate from two in Q3 to a foreclosure and this trend can you just talk about how you're thinking about risk ranking is going forward.

I mean, it's it's an imperfect world right and it's an imperfect illiquid asset class.

Mike Camperotto: And it's an imperfect illiquid asset class, so the only information we can gather is the actual quantitative data at the property level and then our conversations with the borrower. They had been implementing the business plan. They were renovating units.

So the the only information we can gather is you know the actual quantitative data at the property level and then our conversations with the borrower. They had been implementing the business plan. They were renovating units they were improving the asset a they were doing the things that they told us.

Mike Camperotto: They were improving the asset. They were doing the things that they told us they were going to do. And, as always, our asset management team engaged with them probably four to six months in advance of their loan maturing, and every conversation was, we're moving forward, we're moving forward, we're going to amend, we're going to do what we need to do. And it was literally days before maturity.

They were going to do.

And as always our asset management team engaged with them I know probably four to six months in advance of their loan maturing and every conversation was we're moving forward. We're moving forward, we're going to them and you know we're going to do what we need to do and it was literally days before maturity.

Mike Camperotto: We had a fully negotiated, documented extension papered with the attorneys, and they just called us a few days before and said, "Can't do it." So I'm not sure what we could do differently within the context of that set of facts. I think we've got a very good process. I believe our rankings are as accurate as they can possibly be given the information we have, and we'll just continue to do our best to give you guys as much transparency as we can. Yeah, yeah, no, I appreciate the color there.

Well, we've negotiated documented extension papered with the attorneys and they just called US a few days before and said can't do it and so I'm not sure what we could do differently within the context of that set of facts.

I think we've got a very good process I I believe our rankings are as accurate as they can possibly be given the information we have and we'll just continue to you have to do our best to give you guys as much transparency as we can.

Yeah, Yeah, no I appreciate the color there and you know again, it's it's good to see that that's come back.

Mike Camperotto: You know, again, it's good to see this come back as effectively a full repayment. So thanks for taking my question. Thank you. The next question comes from Steven Laws of Raymond James. Go to Beadaholique.com for all of your beading supply needs!

Effectively a full repay so thanks for taking my question.

Thank you. The next question comes from Stephen Laws of Raymond James. Please go ahead.

Operator: Hi, good morning. First, I want to thank you for the detail and the color on the watchlist and REO. It's nice to have that level of discussion. One follow-up on Sarah's question about San Antonio. You know, I know you're able to exit at your bases.

Hi, good morning.

The first one.

Thank you for the detailed color on the watch list.

Nice to have that level of discussion.

One follow up on Sarah's question around San Antonio You know I know you were able to exit at your basis can you talk about what the original loan balance was and then did you provide financing to the new player and if so what type of LTV did you look at on the new valuation as far as setting the new loan.

Mike Camperotto: Can you talk about what the original loan balance was? And then did you provide financing to the new player? And if so, you know, what type of LTV did you look at on the new valuation as far as setting the new loan? Hey, Steven. Good morning.

Hey, Stephen Good morning, Thanks for the question I'll start backwards. So yes, we did provide financing to the new buyer their anticipation is to flip. This two agency financing very quickly the asset was largely stabilized I think it was like 92.

Mike Camperotto: Thanks for the question. I'll start backwards. So, yes, we did provide financing to the new buyer. Their anticipation is to flip this to agency financing very quickly. The asset was largely stabilized. I think it was like 92% leased or 93% leased for the past few months.

Our percent leased or 93% leased for the past few months.

Mike Camperotto: So, we provided just a one-year acquisition facility, $38 million, roughly, or maybe $36 to $38 million in that range. And it was just a one-year loan fixed at 9% with a one-point origination fee. So, based on how much interest there was in the asset at the $43 million level, we felt very good about returning another 10 to 15 points on only one year of exposure. And it's a very, very top shelf middle market operator who we historically have not provided financing to. So, we're very happy to also get a new client out of the opportunity. Great And I apologize, Steven. What was the first part of the question again? The original loan balance, you know, as opposed to I think you provided the carrying value, but the original loan balance.

So we provided just a one year acquisition facility a $38 million roughly are.

It may be 30 $36 million to $38 million in that range.

And it was just a one year loan fixed at 9% with a one point origination fee. So yeah, we we thought based on.

How much interest there was in the asset at the $43 million level. We felt very good you know back another 10 to 15 points on only one year of exposure and it's a very very top shelf middle market, operator, who we historically have not provided financing to so we were very happy to also get a new client out of.

The opportunity.

Great and then I apologize, Steve what was the first part of your question again.

The original loan balance awhile, you know as far as opposed to I think you provided the carrying value, but the original loan balance.

Mike Camperotto: I believe it was about $1.5 million back of where our ending balance was. I think we had about $1.5 million in future funding to effectuate the business plan. Thanks for the color.

I believe it was about a million five back of where our ending balance was I think we had about a million five and future fundings.

To effectuate the business plan.

Mike Camperotto: They really appreciate the details as a follow-up kind of bigger picture on multi-unit. You mentioned exactly my notes, but I think of the modifications. I think you said ten maybe put new equity in, maybe it was eight. But the majority put new equity into the transaction. Is that equity coming from the sponsor? Are they going to third parties and getting Mez or prep loans to do those kinds of things? Recaps and pay down. What kind of topics can you talk about? you know, where they're getting that capital and, and, you know, general thoughts around multilateral lending and the ability of other borrowers to do that. Yeah, so I think largely the capital that was infused into those extensions was from existing investors, the existing LPs. I think there has been a lot of conversation in the market about preferred equity that is available to sponsors in these over-leveraged positions. And I'm just not sure at the end of the day if it makes a whole lot of sense, right? It's very expensive.

Thanks for the color there really appreciate the details as a follow up kind of bigger picture on multi you know you mentioned Oh I can't put an exact in my notes, but I think of the modifications I think you said 10, maybe put new equity maybe it was eight but the majority of put new equity into the transaction is that is that equity coming from the sponsor.

Are they going to third parties and getting measure press loves to do those kind of recap some pay down and kind of can you talk about you know.

Where they're getting that capital in and.

General thoughts around multi and the ability of other borrowers to do the same.

Yeah. So I think largely the capital that was infused into those extensions was from the existing investors your existing L. P. S.

I think there has been a lot of conversation in the market about <unk> equity that is available to sponsors in these over levered positions and I'm just not sure at the end of the day if it makes a whole lot of sense right, it's very expensive.

Mike Camperotto: It's dilutive if they're taking a piece of the common, but we have not seen a lot of it. So there's a lot of banter around it in the market, but we actually haven't seen it solve any problems really, because I'm not sure it really does solve any problems. So I think the... Generally, these outcomes have been fairly binary thus far, right? It's either we're going to keep our existing investors, our existing investors want to bridge to brighter days, or we're out; we'll sell it ourselves and get $0.10 or $0.20 back, or we'll just hand it off to you guys and deal with it that way. And off the top of my head, I think of only one transaction where a new LP has stepped in or a new equity provider has stepped in to provide Great. And then one last question, if you don't mind, on the competitive front. You know, you mentioned in the prepared remarks that you really haven't seen the banks come back. Can you talk about the competitive landscape, kind of where it spreads on new multi-deals? You know, who are you competing against there?

It's dilutive and you know if if they're taking a piece of the common we have not seen a lot of it so that there's a lot of banter around it in the market, but we actually haven't seen it solve any problems really because I'm not sure. It really does solve any problems. So I think the.

Generally these outcomes have been fairly binary thus far right. It's it's either we're going to keep our existing investors are existing investors want to bridge to brighter days are or it's we're out we'll sell it ourselves and get you know 10 or 20 cents back or we'll just.

I'll hand, it off to you guys and deal with it that way, but we've seen.

Off the top of my head I think only one transaction that I can that I can think of where our new L. P has stepped in or a new equity provider has stepped in to provide meaningful dollars.

Great and then one last question if you don't mind on the competitive front you know you mentioned in the prepared remarks that you really haven't seen the banks come back you know can you talk about the competitive landscape kind of where spreads on new multi deals you know who are you competing against there and then you know what what do you think needs to happen in the market for bags to return.

Mike Camperotto: And then, you know, what do you think needs to happen in the market for banks to return? Um, so, you know, I would say that what we're seeing on the origination front is probably some of the highest quality credits that we've seen, maybe in the 10 years that I've been at Benefit Street. There's a very, very limited supply out there.

So you know I I would say that what we're seeing on the origination front as probably some of the highest quality credits that we've seen maybe in the 10 years that I've been at benefit Street.

There is a very very limited bid out there are the you know as you know the bank debt is gone the publicly traded mortgage REIT space I mean, I think of the 15 players that are out there only three wrote alone all of 2023 so they're largely on the sidelines the competition that we're.

Mike Camperotto: The, you know, as you know, the bank bid is gone. The public traded mortgage REIT space, I mean, I think of the 15 players that are out there, only three wrote a loan in all of 2023. So they're largely on the sideline.

Mike Camperotto: The competition that we're seeing is really only in the multifamily sector. I would say, you know, there are a handful of debt funds, and obviously the agency bid never goes away that we're competing with. But on all other asset classes, it's fairly thinned out. And as you get higher in loan size, believe it or not, as loans get bigger, they're getting meaningfully tougher to do.

We're seeing is really only in the multifamily sector are I would say you know, there's there's a handful of debt funds and obviously the agency, but it never goes away that we're competing with but on all other asset classes. It its fairly send out and as you get higher in loan size are you know believe it or not as loans get.

Bigger theyre getting meaningfully tougher to do so us anything in the 7500 hundred and $25 million range. There. There is really not a deep bid there at all for anything so.

Mike Camperotto: So anything in the $7,500, $125 million range, there is really not a deep bid there at all for anything. So we're seeing really interesting opportunities on the larger loan side of things. Pricing has tightened over the past, I would say, 30 to 60 days. You've seen an incredible spread rally, you know, kind of across the world for the past four months. You know, that's been on the screen. The real world usually delays 60 to 90 days.

We're seeing really interesting opportunities in the larger loan side of things pricing has tightened over the past I would say 30 to 60 days you've seen a incredible spread rally you know kind of across the world for the past four months Ah Yeah. That's been on the screen you know real world usually does.

Lays 60 to 90 days, so we're starting to see that come through.

Mike Camperotto: So we're starting to see that come through in our spreads on loans. But I would say, you know, generic multifamily today is probably pricing around 300, 325, you know, really high quality stuff has a two handle, and a little spicier stuff could be in the high threes. Fantastic. I appreciate the call this morning. Thanks. The next question comes from Matthew Erdner of Jones Trading. Let's go ahead. Hey, good morning, guys.

And in our spreads on loans, but I would say no generic multifamily today is probably pricing around so for $303 25, you know really high quality stuff has a two handle a little spicy stuff could be in the high threes.

Fantastic I appreciate the color. This morning, Thanks a lot.

Thanks, Steve.

The next question comes from Matthew <unk> of Jones trading. Please go ahead.

Mike Camperotto: Thanks for taking the questions. Can you expand on the hospitality loans that you originated this quarter in terms of LTV, geography, etc., and then what your overall thought is on that sector going forward given the migration of the Dallas loan to a fourth? Yeah, the Dallas loan was a pre-COVID origination. We, you know, a repeat client of ours that has, you know, we've done probably close to a dozen loans with. They had done the right thing through the totality of COVID. I mean, paid us down substantially along the way, contributed equity, you know, kept going into their pockets. They just kind of said no moss.

Hey, good morning, guys. Thanks for taking the questions can you expand on the hospitality loans that you originated this quarter in terms of L. T V geography.

What your overall thought is on that sector going forward given the migration of the Dallas alone two or four.

Yeah, the the the Dallas loan that that was a pre COVID-19 origination.

We you know repeat client of ours that has you know we've done probably close to a dozen loans with they had done the right thing through the totality of Covid I mean paid us down substantially along the way contributed equity kept going into their pockets are they just kind of said no mass.

Mike Camperotto: I think that the issue that we're dealing with on that specific asset is more a micro market, uh, locational issue than it is a, broader, you know, commentary on the hospitality market. Generally speaking, I think we've seen hospitality perform exceptionally well. We've seen leisure-oriented hotels kind of blow through peak REVPAR numbers in 2019. Performance has been great. The business-oriented travel segment is still slow to recover.

I think that the.

The issue that we're dealing with on that specific asset is more a micro market a locational issue than it is a broader.

The.

Commentary on the hospitality market.

Generally speaking I think we've seen hospitality perform exceptionally well.

We've seen leisure oriented hotels kind of blow through.

Revpar numbers from 2019 performance has been great. The business oriented travel segment is is still slow to recover its still moving in the right direction, but it is a very very slow move in the right direction.

Mike Camperotto: It's still moving in the right direction, but it is a very, very slow move in the right direction. And so I would say, overall, we're fairly bullish on the sector. And I think more importantly, we're bullish on the loans that we're writing in the sector because a lot of them are generally lower leverage, lower leverage loans that are either acquisition loans or cash in refis. For example, I think one of the loans that we originated in Q4 was like a 35 LTV in Tampa, Florida, you know, great institutional sponsor, we had a great Mez loan, subordinate to us, and we just wrote So, again, pretty positive on the sector and even more positive on the lower leverage loans that we've been writing. That's helpful. Thanks for that. And then can you talk about conduits again? I kind of missed the numbers that you threw out there.

And so I would say overall, we're fairly bullish on the sector.

And I think more importantly, we're bullish on the credits that were writing in the sector because a lot of them are generally lower leverage.

Lower leverage loans that are either acquisition loans or cash in refis.

For example, I think one of the loans that we originated in in Q4 was like a 35 L. T V.

In Tampa, Florida.

Great institutional sponsor, we had a great mezz loan subordinate to us and we just wrote a very very low leverage hotel loan so.

Again pretty pretty positive on the sector and even more positive on the lower leverage credits that we've been writing.

Okay. That's helpful. Thanks for that and then can you talk about conduit again I kind of missed the numbers that you threw out there and then any conduit deals were done in four Q.

Mike Camperotto: And then, if any conduit deals were done in 4Q, can you tell me what they were? Thanks. Jerry, do you have the Q4 revenue number? Well, I'll give Jerry a second to look that up if he doesn't know it, but I had mentioned in the remarks that we anticipate 3 million in revenue, approximately 3 million in revenue in Q1 of 24, and we've seen a real pickup in demand for that product right now. So, you know, again, cautiously optimistic that 2024 could be the best year we've had in a few years as it pertains to conduit revenue. Thank you. Jerry, I don't know if you had the Q4 revenue number or not, but yeah, I'll mention it in a second. Let me just pull it up.

Can you tell me what that was.

Jerry do you have the Q4 revenue number well I'll give you a second to look that up if he doesn't know what but but I had mentioned in the in the remarks that we anticipate a $3 million of revenue of approximately $3 million of revenue in Q1 of 'twenty four and we've seen a real pickup.

Up and demand for that product right now so you know again cautiously optimistic that the 'twenty.

'twenty 'twenty four it could be.

The best year, we've had in a few years as it pertains to conduit revenue.

Thank you.

Okay.

Jerry I don't know if you had to the Q4 revenue number or not.

All of them actually have a second let me just pull it up.

Operator: Operator, Alan, any more questions? Most certainly, our next question comes from Steve DeLaney of Citizens JMP. Please go ahead. Thank you. Good morning, everyone, and congratulations on a strong year. You know, we look at the balance sheet at year-end, and with $350 million of cash, leverage is 2.3 times. 3.0 is kind of a, kind of a standard, I guess we call it.

Operator, Alan any more questions.

Certainly our next question comes from Steve Delaney of citizens JMP.

Please go ahead thank.

Thank you good morning, everyone and congratulations on a strong year you know we look at the balance sheet, you're in with 350 million of cash leverage is two three times.

3.0 is kind of a.

Kind of a standard I guess, we call. It I mean, we think about 'twenty 'twenty four it looks like you're poised for portfolio growth. If you want it and you can find it so I guess compared to about 800 million and in new originations in a $5 billion portfolio what might those numbers look like in 'twenty 'twenty four thanks.

Richard Jan Byrne: I mean, when you think about 2024, it looks like you're poised for portfolio growth if you want it and you can find it. So I guess, compared to about $800 million in new originations and a $5 billion portfolio, what might those numbers look like in 2024? Thanks. Hey, Steve. Maybe I'll start off and then Mike can get some more detail. Hey, Rich. Thank you.

Hey, Steve maybe I'll, maybe I'll start off and then Mike can give some more detail rich.

Hey, Steve.

The.

Richard Jan Byrne: You're right to point out, I would almost rephrase that as the untapped earnings power that we have. I mean, we have over $300 million in cash. You know, our Walgreens holdings alone, which are kind of earning barely any cash, that's another $90 million of equity that's tied up in those properties that, you know, we could redeploy.

Right to point out.

I would almost rephrase that is like the untapped earnings power that we have I mean, we have over 300 million of cash you know, our Walgreens holdings alone, which are kind of earning but barely even cash Ah. That's another $90 million of of of equity Ah that's tied up in those prop.

Is that you know we could redeploy.

Richard Jan Byrne: As you pointed out, our leverage is low. So, you know, we've got it, and we're in this nice position. I know most of the space is because of the rise in interest rates that we're over covering our dividend, even though we're not even close to fully deployed. I think the difference for us is that we're not building a war chest. You know, like you said, throughout the year, we've originated pretty consistently every quarter.

As you pointed out our leverage is low so yeah, we've got up and we're in this this nice position I know most of the spaces because of the rise in interest rates that we're overcoming our dividend, even though we're not even close to fully deployed I think the difference for us is that we're not building.

War chest, you know you've seen like you said throughout the year. We've we've originated a pretty consistently every quarter. We're.

Richard Jan Byrne: We're not building a, I don't know what the word is, war chest or, you know, reserve fund for, you know, bailing out of maybe some outside tail risk. I think, just as you've heard from the nature of our portfolio, we feel relatively good. You know, understand the market's choppy and it's going to, you know, we're going to see maturities in everybody's book over the next four to six quarters. So, we want to have some capital in reserve to protect against, you know, any issues. But we certainly do not need the amount of liquidity that we have.

We're not building a Ah I don't know what the word is war chest or you know a reserve fund for bailing out of maybe some outside tail risk I think just as you've heard from the nature of our portfolio, we feel relatively good.

You know I understand the market's choppy and its going to you know we're gonna see maturities of everybody's book over the next four to six quarters. So we wanted to have some capital.

In reserve to protect against any issues, but we certainly don't need the amount of liquidity that we have so you know and I think people will look back on this vintage as Mike sort of alluded to of deal flow that we're seeing now as being one of the best vintages, that's come around in a long time, mostly because there isn't a lot of people.

Richard Jan Byrne: So, you know, and I think people will look back on this vintage, as Mike sort of alluded to, of deal flow that we're seeing now as being one of the best vintages that's come around in a long time, mostly because there aren't a lot of people competing with us to underwrite these loans. So, I think that's the big picture backdrop that it would make a lot of sense to be active if we find the right deal flow. And I think the only missing piece that's starting to come together, as Mike alluded to from the backlog that we have in Q1, is just the volume of transactions. It's obviously been light.

Competing with us to shoot to underwrite these loans.

So I think that's the book, but the big picture backdrop is that it would make a lot of sense to be active if we find the right deal flow and I think the only missing piece, that's starting to come together as Mike alluded to from the from.

From the backlog that we have in Q1.

Is just volume of transactions, it's obviously been light, but to the extent, we can see good deals youre going to see us originating and you know growing our earnings power.

Richard Jan Byrne: But to the extent we can see good deals, you're going to see us originating and, you know, growing. I appreciate it. And, you know, you've got your conduit business, which is sort of a follow-on. I don't know how much conversion you get from bridge to conduit, but I assume that's one of the synergies and benefits of having that product.

I appreciate your coverage.

So you've got your.

You've got your conduit business, which is sort of a follow on I don't know how much conversion you get from bridge two conduit I assume that's one of the synergies and benefits of having that product.

Mike Camperotto: Crazy question, I guess, but 77% multifamily, would you guys ever consider buying a small dust lender just to kind of have that same conversion opportunity between bridge and permanent financing? Thanks, Stevie. I mean, it's something we talk about, you know, more often than not. It is easier said than done.

Oh Crazy question, I guess, but 77% multifamily I mean would you guys ever consider buying a small dust lender just to kind of have that same conversion opportunity between bridge and permanent financing.

Okay.

Thanksgiving I mean, it's it's something we talk about yeah.

More often than not a it is easier said than done if the right opportunity presented itself, we would certainly be interested in looking at that.

Mike Camperotto: If the right opportunity presented itself, we would certainly be interested in looking at that. But yes, the more products that we can have that complement each other and we can cross sell, you know, the better experience that we're giving to our client base. So we're always looking to do that. I appreciate the comment. Thank you. As a reminder, if you have a question, please press the star then. Our next question comes from Matthew Howlett of Be Right. Go to www.

But yes, the more products that we can have that complement each other and we can cross sell the better experience that we're giving to our client base. So we're always looking to do that.

Great I appreciate the comments.

Thanks.

As a reminder, if you have a question. Please press Star then one our next question comes from Matthew Howlett of B Riley. Please go ahead.

Operator: FEMA.gov to learn more. Okay, thanks, everybody. Thanks for taking my question. A strong way to end the year.

Oh, Hey, thanks, everybody. Thanks for taking my question.

Wait another year, but my question is to you Gerry on Cecil and then general seasonal reserve.

Jerry Baglion: My question first is to you, Jerry, on CECL and the general CECL reserve. I realize you're not taking anything as specific as the last quarter, but how do we think about that going forward? I know it's a lot of noise.

We're not taking anything as a specific last quarter, but how do we think about that going forward and I know, it's a it's a lot of noise and I know you look at city Board economic inputs, I mean could that begin to subside or towards the back half of the year or if you're growing if you're really growing the portfolio, but that will be kind of a headwind for GAAP earnings I realize you back it out.

Jerry Baglion: And I know you look at sort of forward economic, inputs. I mean, could that begin to subside, you know, towards the back half of the year, or if you're growing, if you're really growing the portfolio, will that still be kind of a headwind for GAAP earnings? I realize you're back. Core.

Core just curious on how to think about you know the noise that created that over the course of 'twenty four yeah.

Jerry Baglion: Just curious about how to think about, you know, the noise that's created that over the course of 24 hours. Yeah, good question. I mean, in terms of portfolio growth, I would assume you're taking that number of basis points against what you're originating going forward, give or take a little bit. I just think it's a proxy. So yeah, it's going to create, you know, some gap offset as we grow the book. And I don't, I don't expect a big change in the economic scenario throughout the year, but it's possible. But I mean, you've heard our opinion on how we think the market is going to go. We've taken a pretty conservative approach to the economic forecast that we use, and I don't see us switching that to a rosier picture in 24.

Yeah. Good question I mean in terms of portfolio growth I would assume you're taking.

That number of basis points against what you're originating going forward give or take a little bit I. Just think it's the right. The proxy so yeah, it's going to create.

Some some gap offset as we grow the book.

And I don't I don't expect.

The big change in the economic scenario throughout the area, it's possible, but I mean, you've heard our opinion on how we think the market is going to go we've taken a pretty conservative approach to the economic forecast that we use.

And I don't see a switching that to a rosier picture and 24, So I think youre going to have you know you.

Jerry Baglion: So I think you're going to have to. It'll move around a little bit, just depending on what those future scenarios are, but I think we would expect to keep a pretty conservative approach to how we think about that portfolio reserve. And the only other factor is just how our risk gradients kind of move, because that'll drive a little bit of the totality of that number as well.

It'll move around a little bit just depending on.

What those future scenarios are but I think we would expect to keep a pretty conservative approach to how we think about that portfolio reserve.

And the only other factors just how our risk ratings kind of move because that will drive a little bit of that.

Tally of that number as well.

Jerry Baglion: But I'm not expecting big relief from some sort of decline in general throughout the year at this point. I think the base cases we've brought in are relatively similar to where we are now. Great. You know, investors do look at the Adjusted Book, and I think you said it had 96 dips in it, but it's just something to, you know, I think the conservatism, you know, I think investors appreciate, but certainly it's a head with a noise too, that Adjusted Book by. But I appreciate the color, and it sounds like it's good to hear there wasn't really any asset-specific The second question, I guess on the funding side, I think I heard you mention you did the CLO in the quarter.

But I'm not expecting big relief from some sort of a decline in general throughout the year at this point I think the base cases, we'd run.

Relatively similar to where we are now.

Great No I know.

That's really if you look at the adjusted book and I think you said 96 bits in it but it's just something to you know I think the conservatism I think investors appreciate but certainly it's a it's a headwind that nobody's too that adjusted book value number any given quarter.

But I appreciate the color on it sounds like it's good to hear that there wasn't really any asset specific.

C stores are up this quarter, so that certainly speaks to your underwriting and the second question I guess on the funding side I think I heard you mentioned your you know you did the CLO in the quarter, you're sort of monitoring that market you got you.

Jerry Baglion: You're sort of monitoring that market. You've got, you know... what six outstanding CLOs with the 10 or five outstanding today, the cost of debt. How do you look at that market going forward when you want to begin growing the portfolio?

Six outstanding C L OS with the 10.

Or five outstanding today.

The deaths Odyssey, let alone how do you look at that market going forward. When do you want to begin growing the portfolio would you like to keep.

Jerry Baglion: Would you like to keep the predominant reliance on the CLOs given they're non-recourse, and you get great advance rates? Well, would you want to expand into, you know, would you want to use more bank lines going forward and just talk to me about the liability as you begin to really start growing the portfolio? Will the liability mix change? I can start, and I'll let others jump in, but I think our perspective on this... all things being equal, it's hard to beat CLO.

The.

The dominant influence on the Cielo has given they're nonrecourse you get a great advance rates.

Do you want to expand into you know what do you want to use more bank lines going forward and just talked to be able to the liability you can see as you begin to really start growing the portfolio with the liability mix change after guarantee.

I can start and let others jump out Oh go ahead.

I think our perspective on this is all things being equal it's hard to beat CLO financing.

Jerry Baglion: I mean, we didn't get a match term, non-mark-to-market financing. It's a pretty good solution. So, you know, once we have a nice pool of assets built up to do another deal, the market makes sense. You know, equal to or better than what we can get on a bank loan.

I mean, we didn't get matched term non mark to market financing.

It's a pretty good solution so.

Once we have a nice pool of assets built up to do another deal.

And the market makes sense.

It's equal to or better than what we can get on our bank line I think we generally prefer that I'm, particularly if we can get you know the reinvestment components that we like to have on those deals which makes them useful for really a couple of years.

Jerry Baglion: I think we generally prefer that, particularly if we can get, you know, the reinvestment components that we like to have on those deals, which make them useful for really a couple years. And then you've got a couple years of runoff, depending on how the portfolio sits after that. So if the market's open and accretive, I don't expect this to stop going out. You know, that said, I think we've built the book with a lot of optionality. I mean, right now, virtually all of our book is in CLOs.

And then you've got a couple of years of run off depending on how the portfolio sits after that.

If the market is open and accretive I don't expect us to stop going out you know that said I think we've built the book with a lot of Optionality I mean, right now virtually all of our book is N C. L O's.

Jerry Baglion: So it means we're in absolutely no rush to do a deal. I think we're well-positioned to be, you know, a very choosy issuer. You know, we don't have to rush to market, and we've got tons of capacity with our bank partners right now. So I kind of like where we're at. You know, we have total flexibility with our balance sheet at the moment. So would we do a deal?

So it means we're in absolutely no rush to do a deal I think we're well positioned to be you know a very choosy issuer, we don't have to rush to market and we've got tons of capacity with our bank partners right now.

So I kind of like where we're at you know its total flexibility with our balance sheet at the moment. So what do we do a deal I think so but we're certainly not in any rush nor do we have any impetus to have to go out and issue. So.

Jerry Baglion: I think so, but we're certainly not in any rush, nor do we have, you know, any impetus to have to go out and issue them. So I'm very comfortable with how we're positioned on that. Great. And then, just last final one, if I may, on capital management, clearly you're buying back stock. I'm sure you're frustrated with the 20 plus percent discount the stock is trading at to adjust it

I'm very comfortable with how we're positioned on that going forward.

Great and then just last final one if I made on capital management clarity, you're buying back stock I'm sure you're frustrated with the 20 plus percent discount the stock trading at to adjust it but youre also trading at a little over 11% dividend yield with run rate earnings above the dividend clearly probably going.

Richard Jan Byrne: But, you're also trading at over 11% dividend yield with run rate earnings above the dividend and clearly probably going much higher. I mean, Rich, bigger pitch question, bigger pitcher question: would you like to raise the dividend if you continue the growth in the portfolio this year? Or is the focus just buying back stock if you're going to trade at this discount? Thank you. All right. Hey, Matt.

Much higher I mean, rich bigger picture question bigger picture question would you like to raise the dividend.

If you continue the growth in our portfolio this year.

Or is the focus just buying back stock. If you are going to trade at this discount. Thank you.

Alright, Hey, Matt Yeah, Thanks, Matt It's Oh, okay.

Richard Jan Byrne: Yeah, thanks, man. It's a Oh, okay. Go ahead, Rich.

Richard Jan Byrne: Go ahead. All right, Mike. Yeah, the first of all, they're not mutually exclusive concepts.

Go ahead rich.

Alright, Mike Yeah. The first of all they're not mutually exclusive concepts. We have you know.

Richard Jan Byrne: We have, you know, sort of since our public market debut, been pretty consistent in buying back our shares when our shares get cheap. So I think, you know, as long as we have liquidity, there's, that's always an attractive use of capital if the market trades our stock poorly. But, and the conversation about dividends is one that we have frequently; we have it with ourselves, and we have it with our board. I think our dividend policy, or I don't think, clearly our dividend policy is to pay what we earn or what we think we're gonna earn. That crystal ball is sometimes a little difficult to interpret.

Since our public market debut we've been pretty consistent in buying back our shares win when our shares get cheap so.

I think you know as long as we have liquidity. There is a that's a that's always an attractive use of capital if the market trades are stopped poorly, but and the conversation about dividend is one that we have frequently we havoc with ourselves and we have it with our board I think our dividend policy or I don't think I clearly our dividend policy is to pay what.

We earn or what we think we're going to earn that crystal ball with sometimes a little difficult to to interpret you're right. As you commented we have lots of untapped earnings potential as we deploy our.

Richard Jan Byrne: You're right, as you commented, we have lots of untapped earnings potential as we deploy our excess cash and as we put additional capital to work and possibly even increase leverage modestly. So that would portend some real earnings power. You know, the timing of our new deal flow is a little bit trickier to predict. And then, of course, there's things on the other side of the ledger. Probably the biggest benefit for everybody over the last year and a half has been the rise in rates. As far as you know, earnings power hasn't helped asset quality in many cases, but it certainly has helped our earnings power. Who the heck knows where rates are going? Probably, the trajectory is more likely down than up.

Our excess cash and as we put additional capital to work and possibly even increase leverage.

Modestly up.

So that would portend some some real earnings power I, you know the timing of the of our new deal flow is a little bit trickier to predict and then of course, there's things on the other side of the ledger, probably the biggest benefit everybody has had over the last year and change has been the ryzen.

So as far as you know our earnings power.

Hasn't helped us.

Asset quality in many cases, but it certainly has helped our earnings power, who the heck knows where rates are going are probably the trajectory is more likely down then up and then you know many others are cutting dividends or or sort of certainly not having an increasing dividend conversation because of potential asset problems. So.

Richard Jan Byrne: And then, you know, many others are cutting dividends or sort of certainly not having an increasing dividend conversation because of potential asset problems. So I think, you know, I think all these factors weigh together, and we're going to continue to analyze things, but the end conclusion we will always reach is paying what we earn. We're certainly doing our best to predict what we're going to earn and pay a dividend level there. So, you know, that's my best way of saying thank you. Thank you. We're going to continue to monitor it, but your point is not wrong. We certainly have a lot of earnings power that's been untapped. I just want to weigh it in the context of all the other things I said.

I think you know I think all of these factors way together and you know we're going to continue to analyze things, but the end conclusion, we will always reaches paying what we earn or certainly doing our best to predict what we're going to earn and paying a dividend level are there.

So you know that's.

That's my that's why I'm, saying I'm.

We're going to continue to monitor it and but your point is not a wrong, we certainly have a lot of.

Earnings power that's been untapped just just wanted weighed in the context of all the other things I said.

Richard Jan Byrne: I really appreciate it. Yeah. And Matt, let me just add quickly to that, just Chris. I think... We clearly have upside in earnings power. I think that does lead to upside in potential dividends. I think the key there is when we raise, if we raise, it is going to be in the context of giving the all clear on not only a backward-looking legacy portfolio basis but also a forward-looking earnings power basis. We don't want to be in a position where we're moving dividends every quarter or two.

Yeah, and Matt, let let me just add quickly to that just Chris I mean I think.

We clearly have upside in earnings power I think that does lead to upside and potential dividend.

I think the key there is when we raise if we raise it is going to be in the context of giving the all clear on not only a backward looking legacy portfolio basis, but also a forward looking earnings power basis, right. We don't want to Pee in a position where we're moving.

And you know every quarter or two.

Richard Jan Byrne: If we raise it, it will be in the context of things feeling really, really strong. It will be with a strong message to the market. But I do think the potential is there in the future.

If we raise it will be in the context of things feel really really strong it will be with a strong message to the market, but I do think the potential is there in the future.

Richard Jan Byrne: I appreciate it. I just think you guys are certainly in the camp that, you know, potentially raising the dividend this year. And I know that's counter to some of the other peers that we've seen out there, but certainly, it's a nice conversation to be having. And I figure I should bring it up.

No I appreciate I just think you guys are certainly in the camp that.

To potentially raising the dividend this year and I know that's counter to some of the other peers that we've seen out there, but certainly its a nice conversation to be had when they figure I bring it up I appreciate it. Thank you great. Thanks, Matt.

Lindsey Crabbe: I appreciate it. Great. Thanks, Matt. This concludes our question and answer session. I would like to turn the conference back over to Lindsey Crabbe for any closing remarks. Thanks, Alan. We appreciate everyone joining us today. If you have any further questions, please reach out to me or the team. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now go to, www. TheBusinessProfessor.com http://www.youtube.com or the link in the description below, and more. Thanks for watching. We'll see you next time, and Bill Gates. I'm Bill Gates. I'm reporting for NPR, and I'm going to be talking about the importance of privacy. I'm gonna talk about it in just a minute, but I'm going to start with this example and I'm going to start with this example and I'm going to start with this example and I'm going to start with this example and I'm going to start with this example and I'm going to start with this example and I'm going to start with this example and I'm going to start with this example and I'm going to

This concludes our question and answer session I would like to turn the conference back over to Lindsey Crabbe for any closing remarks.

Thanks, Alan we appreciate everyone joining us today, if you have any further questions. Please reach out to me or the team. Thank you.

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