Q1 2024 Franklin BSP Realty Trust Inc Earnings Call

Operator: Good day, and welcome to the Franklin BSP Realty Trust first quarter 2024 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ms. Lindsey Crabbe. Please go ahead, ma'am.

Good day and welcome to the Franklin B S. P royalty trusts first quarter 2024 earnings conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one.

Can you touch tone phone and to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to MS. Lindsey Crabbe. Please go ahead ma'am.

Lindsey Crabbe: Good morning. Thank you, Chuck, for hosting our call today. Welcome to the Franklin BSP Realty Trust First Quarter 2024 Earnings Conference Call. As the operator mentioned, I'm Lindsey Crabbe.

Lindsey Crabbe: Good morning, Thank you Chuck for hosting our call today welcome to the Franklin D. S. P Realty Trust's first quarter trade 24, or any contract as jeopardy I mentioned.

Lindsey Crabbe: With me on the call today are Richard Byrne, Chairman and CEO of FBRT, Jerry Baglien, Chief Financial Officer and Chief Operating Officer of FBRT, and Michael Comparato, President of FBRT. Before we begin, I want to mention that some of today's comments are forward-looking statements that are based on certain assumptions. Those comments and assumptions are subject to inherent risks and uncertainty, as described in our most recently filed SEC periodic report, and actual future results may differ materially.

Lindsey Crabbe: With me on the call today are Richard Burton, Chairman and CEO of SPX.

Lindsey Crabbe: We bought land and Chief Financial Officer, and Chief operating Officer, and Michael <unk> President Jackie.

Lindsey Crabbe: And again I want to mention that kind of today's comments are forward looking statements and are based on certain assumptions that.

Lindsey Crabbe: Those comments and assumptions are subject to inherent risks and uncertainty as described in our most recently filed periodic reports on that.

Lindsey Crabbe: Actual future results may differ materially the information conveyed on this call is current only as of the date of this call April 30th 'twenty 'twenty four.

Lindsey Crabbe: The information conveyed on this call is current only as of the date of this call, April 30, 2024. The company assumes no obligation to update any statements made during the call, including any forward-listed 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.fbrtreet.com. We will refer to the supplementary slide deck on today's call. With that, I'll turn the call over to Rich Byrne.

Lindsey Crabbe: Company assumes no obligation to update any statement made during the call, including any forward looking statements, whether as a result of new information future events or otherwise.

Lindsey Crabbe: As required by law.

Lindsey Crabbe: 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. Rieck dotcom, we will refer to the supplementary slide back on today's call with that I'll turn the call over to Richard.

Richard Jan Byrne: Great. Thanks, Lindsey. And good morning, everyone.

Richard Jan Byrne: Great. Thanks, Lindsay and good morning, everyone and thank you for joining us today.

Richard Jan Byrne: And thank you for joining us today. As Lindsey mentioned, our earnings release and supplemental debt were published on our website yesterday. We will begin today's call on slide four, and I'm going to review our first quarter results and then open the call up, as always, for your questions. First, we were pleased with our first quarter results. FBRT's distributable earnings increased to $0.41 per fully converted share compared to $0.39 in the prior quarter.

Speaker Change: As long as he mentioned our earnings release and supplemental that were published to our website yesterday.

Richard Jan Byrne: We will begin todays call on slide four and I'm going to review our first quarter results and then open the call up as always for your questions.

Richard Jan Byrne: First we were pleased with our first quarter results. After Yorkies distributable earnings increased to 41 cents per fully converted share compared to 39 cents in the prior quarter. This equates to a 10.4% distributable earnings return on common equity our distributable earnings dividend coverage for the quarter was.

Richard Jan Byrne: This equates to a 10.4% distributable earnings return on common equity. Our distributable earnings dividend coverage for the quarter was 115%. Our strong earnings are the result of stable portfolio size throughout most of the quarter, which had the continued benefit of higher base rates as well as a strong contribution from our conduit business. Our conduit business is an alternative business line that can be an earnings enhancer.

Richard Jan Byrne: 115%.

Richard Jan Byrne: Our strong earnings are the result of stable portfolio size throughout most of the quarter.

Richard Jan Byrne: Which add to the continued benefit of higher base rates as well as a strong contribution from our conduit business our conduit.

Richard Jan Byrne: As an alternative business line that can be an earnings enhancer P. M. B C and D. S has again become one of the lower cost financing options in the market. So we remain cautiously optimistic that conduit revenues will continue to benefit our earnings in future quarters.

Richard Jan Byrne: CMBS has again become one of the lower cost financing options in the market, so we remain cautiously optimistic that conduit revenues will continue to benefit our earnings in future quarters. Our core portfolio ended the quarter at $5.2 billion in principal balance, which is an increase from the last quarter. This was due to very strong originations in Q1. In fact, Q1 was our fourth largest origination quarter since the inception of our company.

Richard Jan Byrne: Our core portfolio ended the quarter at 5.2 billion of principal balance, which is an increase from the call from the last quarter. This was due to very strong originations in Q1. In fact Q1 was our fourth largest origination quarter since the inception of our company.

Richard Jan Byrne: We added $591 million of new loan commitments in the quarter and committed to $756 million of originations through the entire year to date as of yesterday. Most of our Q1 portfolio growth happened towards the back half of the quarter, so we did not see the full benefit of the larger portfolio in our first quarter net interest margin. We expect to enjoy this positive impact in future quarters. Multifamily continues to be our main sector.

Richard Jan Byrne: We added 591 million of new loan commitments in the quarter and committed to $756 million of originations through the entire year to date as of yesterday.

Richard Jan Byrne: Most of our Q1 portfolio growth happened towards the back half of the quarter. So we did not see the full benefit of the larger portfolio in our first quarter net interest margin, we expect to enjoy this positive impact in future quarters.

Richard Jan Byrne: Multifamily contingent continues to be our main sector.

Richard Jan Byrne: This represents 75% of our commercial real estate loan portfolio. We closed the quarter with $1 billion in available liquidity, including $240 million of unrestricted cash. Our cash balance decreased by $98 million in the quarter versus Q4 due to our active deployment into new originations.

Richard Jan Byrne: This represents 75% of our commercial real estate loan portfolio.

Richard Jan Byrne: We closed the quarter with 1 billion in available liquidity, including 240 million of unrestricted cash our cash balance decreased by 98 million in the quarter versus a Q4 due to our active deployment into new originations our strong liquidity position allows us to capitalize on.

Richard Jan Byrne: Our strong liquidity position allows us to capitalize on the current abundance of attractive new investment opportunities and provides us flexibility to resolve credit issues to the extent they arise. Turning to our watch list, we ended the quarter with six loans with a risk rating of four on our watch list. Our watch list represents approximately 5% of our core portfolio. As previously disclosed, one asset was removed from our watch list during this quarter, taken as REO, and then liquidated at a modest gain.

Richard Jan Byrne: The current abundance of attractive new investment opportunities and provides us flexibility to resolve credit issues.

Richard Jan Byrne: Sent there Raj.

Richard Jan Byrne: Turning to our watch list, we ended the quarter with six loans with a risk rating of four on our watch list. Our watchlist represents approximately 5% of our core portfolio.

Richard Jan Byrne: As previously disclosed.

Richard Jan Byrne: One asset was removed from our watch list during this quarter taken as Oreo and then liquidate it at a modest gain we have been successful in working through problem loans and achieving positive outcomes well.

Richard Jan Byrne: We have been successful in working through problem loans and achieving positive outcomes. While there will continue to be changes to our watch list each quarter with loans potentially being added or removed, we are optimistic about our team's ability to continue to manage this process. Mike will provide more watchlist detail in his comments, including promising feedback on several aspects.

Richard Jan Byrne: Well there will continue to be changes to our watch list each quarter with loans potentially being added and removed we are optimistic about our team's ability to continue to manage this process.

Richard Jan Byrne: Mike will provide more watchlist detail in his comments, including promising feedback on several assets.

Richard Jan Byrne: The risk profile of our portfolio remains low, with an average overall risk rating of 2.3 at quarter end, unchanged from the prior quarter, and 95% of our loans are risk rated 3 or better. Our foreclosure REO positions also remained unchanged, sitting at 3 at quarter end. The Walgreens retail portfolio continues to make up most of this balance, and as we have said previously, the portfolio is being actively marketed for sale. In aggregate, our foreclosure REO positions represent 2.2% of our total assets.

Richard Jan Byrne: The risk or.

Richard Jan Byrne: The risk profile of our portfolio remains low with an average overall risk rating of 2.3 at quarter end unchanged from the prior quarter and 95% of our loans are risk rated three or better.

Richard Jan Byrne: Our foreclosure Oreo positions also remains unchanged sitting at three at quarter end, the Walgreen's retail portfolio continues to make up.

Richard Jan Byrne: Most of this balance.

Richard Jan Byrne: And as we have said previously the portfolio has is being actively marketed for sale.

Richard Jan Byrne: In aggregate, our foreclosure Oreo positions represent 2.2% of our total assets.

Richard Jan Byrne: Lastly, I want to mention that we purchased 1.9 million of FDRT common stock during the first quarter. We continue to be active in the second quarter, and so far, we've repurchased an additional 2.1, excuse me, 2.0 million of our common stock through April 19, 2024. This totals $3.8 million a year today. In total, since our program began, the company and its advisor have purchased $68 million of FBRT common stock. Our company buyback program is authorized through the end of 2024.

Richard Jan Byrne: Lastly, I want to mention that we purchased 1.9 million Oh, that's D. R. A T. A common stock during the first quarter, we continued to be active in the second quarter.

Richard Jan Byrne: And so far we've repurchased an additional 2.1 mill two excuse me 2.0, a million of our common stock through April 19th 2020 for this.

Richard Jan Byrne: This total 3.8 million year to date.

Richard Jan Byrne: In total since our program began the company and its advisor purchased 68 million of F. E. R. T common stock.

Richard Jan Byrne: Our company buyback program, that's authorized through the end of 'twenty 'twenty four.

Richard Jan Byrne: Finally, FDRT's first quarter was a strong start to 2024. Our distributable earnings once again comfortably exceeded our dividend level, and we were able to grow our loan portfolio, adding what we would call a new vintage of loans that offer strong credit quality, which will also enhance FBRT's earnings power. While we continue to see a challenging environment for commercial real estate, especially as many loans reach initial maturity this year, we are confident in the resilience of our multifamily-focused portfolio and our ability to effectively resolve challenging loans. Now, with all that, Jerry, I'm going to turn things over to you to cover our financial results.

Richard Jan Byrne: Finally, FTR teens first quarter was a strong start to 'twenty 'twenty four our distributable earnings once again comfortably exceeded our dividend level and we were able to grow our loan portfolio, adding what we would call a new vintage of loans that offers.

Richard Jan Byrne: Wrong credit quality.

Richard Jan Byrne: Which will also enhance F b, our Ts earnings power.

Speaker Change: Well, we continue to see a challenging environment for commercial real estate, especially as many loans reach initial maturity. This year. We are confident in the resilience of our multifamily focused portfolio and our ability to effectively resolve challenging loans now with all that Jerry I'm going to turn things over.

Jerry: To cover our financial results.

Jerome S. Baglien: Great, thanks Rich, and I appreciate everyone being on the call today. Moving on to our results, let's start on slide five. FBRT generated GAAP earnings of $35.8 million, or $0.35 per diluted common share. That's an increase of $0.07 from the prior quarter. And this earnings level represents an 8.9% return on common equity in the first quarter. We earned $41 million in distributable earnings in the first quarter, and a walkthrough of our distributable earnings to gap net income can be found in the earnings release. Our CSO reserve increased by $2.9 million during the quarter, which included an asset-specific reserve of $700,000 on one of our watch list loans. The CECL increase resulted in a $0.03 per share reduction in GAAP earnings.

Jerry: Great. Thanks, Rich and I appreciate everyone being on the call today.

Jerry: Moving onto our results, let's start on slide five.

Jerry: S. P O T generated GAAP earnings of $35 8 million or <unk> 35 cents per diluted common share.

Jerry: An increase of seven cents from the prior quarter.

Speaker Change: And this earning earnings level represents an 8.9% return on common equity in the first quarter.

Jerry: We earned $41 million in distributable earnings in the first quarter and a walkthrough of our distributable earnings to GAAP net income can be found in the earnings release.

Jerry: Our seasonal reserve increased by $2 9 million during the quarter, which includes an asset specific reserve about 700000 on one of our watch list loans.

Jerry: The seasonal increase resulted in a three cents per share reduction to GAAP earnings. This also impacted our first quarter book value, which ended the quarter at $15 68 per share.

Jerome S. Baglien: This also impacted our first quarter book value, which ended the quarter at $15.68 per share. Slide 7 summarizes our portfolio progression. As Rich said, our core portfolio ended the quarter with $5.2 billion in principal balance. New commitments, future funding on existing loans, and repayments this quarter resulted in a net increase of $199 million from last quarter. Nine loans were repaid in full during the quarter.

Jerry: Slide seven summarizes our portfolio of progression.

Jerry: As rich said, our core portfolio ended the quarter with $5 2 billion in principal balance new commitments future funding on existing loans and repayments. This quarter resulted in net increase of 199 million from last quarter.

Jerry: Nine loans were repaid in full during the quarter multifamily made up 70% of our repayments with hospitality self storage and office contributing to the remaining balance.

Jerome S. Baglien: Multifamily made up 70% of our repayments, with hospitality, self-storage, and office contributing to the remaining balance. We expect the pace of repayments to be similar in the coming quarter. Turning to slide eight, this provides a high-level snapshot of our capital. Our average cost of debt during the quarter was modestly lower at 7.8%.

Jerry: We expect the pace of repayments to be similar in the coming quarters.

Jerry: Turning to slide eight this provides a high level snapshot of our capitalization.

Jerry: Average cost of debt during the quarter was modestly lower at seven 8%.

Jerome S. Baglien: Our liability structure provides us with optionality. For example, a large portion of our portfolio is financed through our CLOs. At quarter end, 87% of our financing on our core book is non-recourse and non-mark-to-market. The reinvestment period is still available on two of our five CLOs. And despite limited issuance, the CRE CLO market has seen some activity and offerings since our last deal in September. Our current funding position is strong; however, we will remain opportunistic in accessing the capital markets when necessary in future quarters. We can strategically tap into CLO financing when market conditions are attractive and align with our future funding. Our liability structure is further enhanced by our warehouse facilities.

Jerry: Our liability structure provides us with Optionality, a large portion of our portfolio was financed through our Clo's court around 80%, 87% of our financing on our core book is nonrecourse and non mark to market.

Jerry: The reinvestment period is still available on two of our five C. L O's.

Jerry: And despite limited issuance the CRE CLO market has seen some activity.

Jerry: I'd offerings since our last deal in September.

Jerry: Current funding position is strong however, we will remain opportunistic in accessing the capital markets when necessary in future quarters.

Jerry: Strategically tap into CLO financing when market conditions are attractive and aligned with our future funding needs.

Jerry: Our liability structure is further enhanced by our warehouse facilities, we maintained strong relationships with a diverse group of six lenders each demonstrating a healthy appetite for our loans.

Jerome S. Baglien: We maintain strong relationships with a diverse group of six lenders, each demonstrating a healthy appetite for our loans. This strong demand underscores the credit quality of our entire portfolio, encompassing both legacy assets and our recent origination. Notably, our new loans boast some of the highest credit quality we've seen in several years. We maintained a net leverage position of 2.4 times at quarter end. Importantly, we have consistently delivered relatively strong distributable earnings returns on our equity without taking what we believe to be an outsized risk. With that, I'll turn it over to Mike to give you an update on our portfolio. Thanks, Sherry, and good morning, everybody.

Jerry: This strong demand underscores the credit quality of our entire portfolio encompassing both legacy assets and our recent originations.

Jerry: Notably our new loans, both some of the highest credit quality, we've seen in several years.

Jerry: We maintained our net leverage position of two four times at quarter end importantly, we've consistently delivered relatively strong distributable earnings return on our equity without taking what we believe to be outsized risk.

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

Jerry: Yeah.

Mike: Thanks, Gerry and good morning, everybody. Thank you for joining us I'm going to start on slide 12.

Michael Comparato: Thank you for joining us. I'm going to start on slide 12. Our core portfolio ended the quarter at $5.2 billion, spread across 145 loans with an average size of $36 million. As you can see, 99% of our loans are senior secured, and we have an exposure of 75% in the multifamily sector. We continue to be long-term bullish on the fundamentals of multifamily. As previously discussed, the asset class offers compelling advantages due to its superior credit quality and robust liquidity profile. We're strategically concentrated in the southeast and southwest U.S.

Mike: Our core portfolio ended the quarter at 5.2 billion spread across 145 loans with an average size of $36 million.

Mike: As you can see 99% of our loans are senior secured and our exposure is 75% in the multifamily sector.

Mike: We continue to be long term bullish on the fundamentals of multifamily as previously discussed yes, a class offers compelling advantages due to its superior credit quality and robust liquidity profile.

Mike: We're strategically concentrated on the southeast and southwest U S. Given the positive macroeconomic trends of the major metros within those geographies. These areas continue to be a focus for new investments.

Michael Comparato: Given the positive macroeconomic trends of the major metros within those geographies, these areas continue to be a focus for new investment. Slide 13 highlights our origination activity in the first quarter. We originated 11 loans at a weighted average spread of 464 basis points. While we had several unique transactions this quarter, this spread is indicative of the market opportunity previously mentioned. The quality of the deal flow we are seeing is very attractive, with strong terms, including higher debt yields and lower loan-to-values off revalued asset levels.

Mike: Slide 13 highlights our origination activity in the first quarter.

Mike: We originated 11 loans at a weighted average spread of 464 basis points. While we had several unique transactions. This quarter. This spread is indicative of the market opportunity previously mentioned.

Mike: Quality of the deal flow, we're seeing is very attractive with strong terms, including higher debt yields and lower loan to values off revalued asset levels.

Michael Comparato: This quarter, we originated loans in the multifamily, industrial, hospitality, and office sectors. And while we remain extremely bearish on office, the office loan we closed in March was a unique credit opportunity that came with very attractive economics. However, inclusive of this new loan, our office exposure still stands at only 6% across our entire portfolio, and excluding our long-term net lease, corporate headquarters, and distribution facility, our office exposure is under 5% of the portfolio.

Mike: This quarter, we originated loans in the multifamily industrial hospitality and office sectors.

Mike: And while we remain extremely bearish on office. The office alone. We closed in March was a unique credit opportunity that came with very attractive economics. However, inclusive of this new law are off expose our office exposure still stands at only 6% across our entire portfolio and excluding our long term net lease corporate.

Mike: Headquarters and distribution facility, our office exposure is under 5% of the portfolio.

Mike: Our conduit program platform had an excellent quarter closing five transactions echoing Rich's earlier remarks, we are encouraged by the conduit is momentum and in Q1, we securitized 101 million of loans with a weighted average profit margin of 5.5 points we.

Michael Comparato: Our Conduit program platform had an excellent quarter, closing five transactions. Echoing Rich's earlier remarks, we are encouraged by Conduit's momentum, and in Q1, we securitized $101 million of loans with a weighted average profit margin of 5.5 points. We look to Conduit revenue to continue to contribute to earnings in the coming quarter, but this is historically lumpy revenue and difficult to model.

Mike: We look to conduit revenue to continue to contribute to earnings in the coming quarter, but this is historically lumpy lumpy revenue and difficult to model.

Mike: We believe this is the first quarter in quite some time that we can say that all businesses within F. E. R. T. We're hitting on all cylinders.

Mike: That said, we recognize the current market presents challenges with increased borrowing costs and softening asset values.

Michael Comparato: We believe this is the first quarter in quite some time that we can say that all businesses within FVRT are hitting on all cylinders. That said, we recognize the current market presents challenges with increased borrowing costs and softening asset values. Fortunately, FBRT benefits from being a part of BSP's broader real estate platform and can leverage a team we believe is among the industry's best. Our asset and senior management teams are actively working with borrowers to develop solutions and address any loan-related issues that may arise. Moving to slide 14, you will see a summary of our watch list activities.

Mike: Fortunately after your T benefits from being a part of B S. P is broader real estate platform and can leverage a team. We believe is among the industry's best our asset and senior management teams are actively working with borrowers to develop solutions and address any loan related issues that may arise.

Mike: 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 $264 million.

Mike: Last quarter I provided detailed information on our risk rating process and I'll remind you today that a rate of four rated asset is one that is an asset with an underperforming business plan with the potential of some interest loss, but still expecting a positive return on investment.

Michael Comparato: We ended the quarter with six loans on our watch list, all four-rated, with an aggregate value of $264 million. Last quarter, I provided detailed information on our risk rating process, and I'll remind you today that a four-rated asset is one that is an asset with an underperforming business plan with the potential of some interest loss but still expecting a positive return on investment. The six loans on our watch list are a CBD high-rise office building in Denver, Colorado. This loan was amended and extended maturity by two years and requires a $2 million principal paydown later in 2024. We have a Class A suburban office building in Alpharetta, Georgia.

Mike: The six loans on our watch list are a CBD high rise office building in Denver, Colorado.

Mike: This loan was amended and extended maturity by two years and requires a $2 million principal pay down later in 'twenty 'twenty four.

Mike: We have a class a suburban office building in Alpharetta, Georgia. This one was also recently amended to extend maturity by one year. The borrower paid down the loan by approximately $1.4 million in 2023 and paid down an additional $1 million in the first quarter of 2024.

Mike: Our full service 279 key hotel in Dallas, Texas. This property is finalizing its sale process and should pay off at or very close to our outstanding debt balance based on the offers received to date.

Michael Comparato: This loan was also recently amended to extend maturity by one year. The borrower paid down the loan by approximately $1.4 million in 2023 and paid down an additional $1 million in the first quarter of 2024. A full-service, 279-key hotel in Dallas, Texas, this property is finalizing its sale process and should pay off at or very close to our outstanding debt balance based on offers received to date. A 426-unit apartment property in Cleveland, Ohio, is a new addition this quarter, and we are in active dialogue with the borrower.

Mike: That's a 426 unit apartment property in Cleveland, Ohio is a new add this quarter and we are in active dialogue with the borrower.

Mike: And the last to your watch list loans of 471 unit apartment community in Raleigh, North Carolina, and a two property portfolio of apartment assets in Mooresville in Chapel Hill, North Carolina, we are in the process of foreclosing on these assets and as of today, we expect to finalize their sale to third parties at or above our basis in the.

Mike: Second quarter.

Mike: With respect to non accruals, we will highlight the four loans one is a newly built multifamily asset in Las Vegas, where subsequent to quarter end, a mezzanine lender has taken control of the asset and the loan is now current.

Mike: Another two assets are the two last watch list loans I just discussed and lastly, we have across portfolio of multifamily assets that are also in the process of being sold.

Michael Comparato: And the last two watchlist loans are a 471-unit apartment community in Raleigh, North Carolina, and a two-property portfolio of apartment assets in Mooresville and Chapel Hill, North Carolina. We are in the process of foreclosing on these assets, and as of today, we expect to finalize their sale to third parties at or above our basis in the second quarter. With respect to non-accruals, we will highlight the four

Mike: It is important to note that while we place these assets on non accrual in Q1.

Mike: We have been receiving payments and recognize that recognizing them on a cash basis.

Mike: All in all I believe we're making good progress through our watch list loans and we are hopeful the three remaining non accruals will be resolved in the second quarter.

Michael Comparato: One is a newly built multifamily asset in Las Vegas, where subsequent to Quarter End, a mezzanine lender has taken control of the asset, and the loan is now current. The other two assets are the two last watchlist loans I just discussed. And lastly, we have a cross-portfolio of multifamily assets that are also in the process of being sold. It is important to note that while we placed these assets on non-accrual in Q1, we have been receiving payments and recognizing them on a cash-based basis.

Mike: With respect to modifications in Q1, we closed 17 credit positive loan modifications and negotiated paydowns on nine loans, representing four 1% of the respective loan balance on an average our borrowers contributed nearly $30 million of incremental equity related to extensions and modifications in the first.

Mike: Order.

Mike: Moving to slide 15, we had three foreclosure oreo positions at quarter end.

Mike: Those positions are a Portland, Portland office building, which we continue to believe is not the right time to exit the asset.

Michael Comparato: All in all, I believe we are making good progress on our watchlist loans, and we are hopeful the three remaining non-accruals will be resolved in the second quarter. With respect to modifications in Q1, we closed 17 credit-positive loan modifications and negotiated paydowns on 9 loans, representing 4.1% of the respective loan balance on average. Additionally, our borrowers contributed nearly $30 million of incremental equity related to extensions and modifications in the first quarter.

Mike: A multifamily asset in Lubbock, Texas, where our asset management team continues to meaningfully improve the asset and increase occupancy. It is still classified as held for investment Jordan, but through our improvements and re tenant thing.

Mike: And our last Oreo is our Walgreens portfolio, we hold 23 retail stores as part of this portfolio quarter end all assets are out of the market for sale and we are actively attempting to liquidate the entire portfolio and.

Mike: In aggregate, our foreclosure Oreo balance ended the quarter of 122 million, which is approximately 2.2% of our total assets.

Michael Comparato: Moving to slide 15, we had three foreclosure REO positions at quarter end. Those positions are a Portland office building, which we continue to believe is not the right time to exit the asset; and a multifamily asset in Lubbock, Texas, where our asset management team continues to meaningfully improve the asset and increase occupancy. It is still classified as healthcare or investment through our improvements and retenants.

Mike: Wrapping up we are very bullish about the market opportunity for F. B R. A T.

Mike: We have a legacy loan portfolio that will continue to require our focused attention, but at the same time a combination of factors are leading to compelling new origination opportunities, which we are taking advantage of every new loan we originate improves the overall credit quality of our portfolio and we will continue to be a market leader on new originations.

Michael Comparato: And our last REO is our Walgreens portfolio. We hold 23 retail stores as part of this portfolio at quarter end. All assets are on the market for sale, and we are actively attempting to liquidate the entire portfolio. In aggregate, our foreclosure REO balance ended the quarter at $122 million, which is approximately 2.2% of our total assets. Wrapping up, we are very bullish about the market opportunity for FBRT. We have a legacy loan portfolio that will continue to require our focused attention, but at the same time, a combination of factors is leading to compelling new origination opportunities, which we are taking advantage of.

Speaker Change: With that I would like to turn the call back to the operator and begin the Q&A session. Thank.

Speaker Change: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're 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. Your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.

Speaker Change: Sure.

Speaker Change: And the first question will come from Stephen laws with Raymond James. Please go ahead.

Stephen Laws: Hi, good morning.

Stephen Laws: I guess to start Mike appreciate all the comments on the portfolio can you touch on the nonperforming loans and what type of sponsors those are there any similarities or a multiple loans to the same sponsor and.

Michael Comparato: Every new loan we originate improves the overall credit quality of our portfolio, and we will continue to be a market leader on new origination. With that, I would like to turn the call back to the operator and begin the Q&A session. Thank you.

Stephen Laws: And just generally what youre seeing in multifamily around sponsor stress, especially given kind of this higher for longer rate outlook and decisions that the sponsors are making whether to protect or walk away from lots of assets.

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're 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 your question, please press star then 2. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Steven Laws with Raymond James. Please go ahead.

Mike: Sure. Thanks, Stephen for the question and thanks for joining this morning.

Speaker Change: I would say generally we're seeing more stress in the syndicated borrowers structure than anything else you know the typical G. P. L. P 95, 590 10 syndicated equity.

Speaker Change: Where there's less control by the underlying sponsor and some of the decisions on capital calls are being made at the LP level again, I think you know we've we've seen our borrowers generally trying to work things out and in a positive way and I think strange.

Michael Comparato: Hi, good morning. I guess to start, Mike, I appreciate all the comments on the portfolio. Can you touch on the non-performing loans and what type of sponsors those are? Are there any similarities or multiple loans to the same sponsor? And just generally, you know, what you're seeing in multifamily around sponsor stress, especially given kind of this hire for longer rate outlook and decisions that the sponsors are making, whether to protect or walk away from that.

Speaker Change: One of the strongest positives is we're not even a negative outcomes, having many fights.

Speaker Change: <unk>, which is really helpful through the workout process I think that a lot of borrowers if they have decided the time has come they are ready willing and generally able to work with US quickly at you to resolve things and you know where.

Speaker Change: Not ending up in court, which is a positive for everybody.

Speaker Change: Great I appreciate the color there and one quick follow up Jerry you mentioned that a fifth.

Michael Comparato: Sure. Thanks Steven for the question and thanks for joining us this morning. I would say, generally, we're seeing more stress in the syndicated borrower structure than anything else. You know, the typical GPLP, 95-5, 90-10 syndicated equity, where there's, you know, less control by the underlying sponsor, and some of the decisions on capital calls are being made, you know, at the LP level. Again, I think, you know, we've seen our borrowers generally trying to work things out in a positive way, and I think, Strangely, one of the strongest positives is that we're not even on negative outcomes having many fights, which is really helpful during the workout process.

Speaker Change: Financing facility has been noticed I think one with Atlas the capacity was was trend.

Speaker Change: Can you talk to that decision and kind of how those discussions are with.

Speaker Change: With your financing providers.

Jerry: Yeah, I mean, just generally in terms of how the conversations are I think they've been very positive for us because you know, we're primarily using those facilities to finance the new originations that were closing today.

Jerry: So in terms of credits that were putting to the banks today.

Jerry: They're all brand new lease at prices.

Jerry: You know as clean as you're going to get some of the best clubs. We've seen in a long time. So all of that is well received in terms of size and some of that's just rebalancing as to where.

Michael Comparato: I think that a lot of borrowers, if they have decided the time has come, are ready, willing, and generally able to work with us quickly to resolve things, and we're not ending up in court, which is a positive for everybody.

Jerry: Where we want and where we're using capacity more than what we're using it less you know we don't want to carry.

Jerry: More than we need.

Jerry: You know with certain Counterparties. So we always suggest kind of size and dispersion of availability across the you know the set that we hold on our books that's all.

Jerome S. Baglien: Great, appreciate the color there. And one quick follow-up, Jerry, you mentioned the financing facilities and noticed, I think, the one with Atlas, the capacity was trimmed a bit. Can you talk about that decision and kind of how those discussions are going with your financing line providers?

Speaker Change: Great and then I guess, one last one Mike I think the Q1 originations were about 465 over I believe they talk about the the spreads you've generated on the.

Speaker Change: 165 million of originations quarter to date.

Mike: I don't have the number on the quarter to date spreads are there going to be tighter Steven yeah. We as I mentioned, we we close that office alone in Q1 that was priced at so for 938, So that's really offsetting our.

Jerome S. Baglien: Yeah, I mean, just generally in terms of how the conversations are going, I think they've been very positive for us because, you know, we're primarily using those facilities to finance the new originations that we're closing today. So in terms of the credits that we're putting into the banks today, you know, they're all brand new reset prices, you know, as clean as you're going to get some of the best credits we've seen in a long time. So all that's well received.

Steven: Our Q1 type number so I can be comfortable in saying that we'll be inside of of where it is for Q1.

Speaker Change: Okay understood I appreciate the comments this morning. Thank you.

Speaker Change: The next question will come from Steve Delaney with citizens JMP. Please go ahead.

Jerome S. Baglien: In terms of sizing, some of that's just rebalancing to where we want and where we're using capacity more and where we're using it less. You know, we don't want to carry more than we need with certain counterparties. So we always assess the kind of size and dispersion of availability across the set that we hold on our book, that's all.

Steven DeLaney: Thanks, Congratulations on a solid start to 2020 for everyone rich.

Steven DeLaney: Rich.

Steven DeLaney: Old, saying among bankers that the only problem with making good loans as they pay off too fast.

Steven DeLaney: I'm just curious if you feel when you look at the portfolio today.

Steven DeLaney: You think theres enough solid demand out there that you can maintain the portfolio above $5 billion and on the other hand with respect to potential new CLO is there any chance to see net portfolio growth with your existing capital base. Thank you.

Michael Comparato: http://TheBusinessProfessor.com Great. And then I guess one last one. Mike, you know, I think the Q1 originations were about 465 over. I believe. Can you talk about the spreads you've generated on the 165 million originations quarter today?

Speaker Change: Well since you called me out Steve I'll start that answer I agree.

Michael Comparato: I don't have the numbers on the quarter-to-date spreads. But they're going to be tighter, Steven.

Speaker Change: But what the whole industry is dealing with now is all of those loans that record origination quarters across the street.

Michael Comparato: You know, as I mentioned, we closed that office loan in Q1. That was priced at SOFR 938. So that's, you know, really offsetting our Q1-type number. So I can be comfortable in saying that we'll be inside of where it is for Q1. Okay.

Speaker Change: All occurred in late 2020, mostly 2021 and beginning of 2022 all that stuff's coming due.

Steven DeLaney: So our first.

Steven DeLaney: First problem is you know just resolving all of that and then getting onto the next vintage where except really excited about this vintage.

Stephen Laws: Okay, understood. I appreciate the comments this morning. Thank you.

Operator: The next question will come from Steve DeLaney with Citizens JMP. Please go ahead.

Steven DeLaney: Because as Mike said, you know youre resetting asset values, and making new loans, there and there isn't a lot of competition banks around the sidelines a lot of our peers are on the sidelines and we're getting looks at great loans, maybe some months or maybe never reviewed have seen them at better better terms. So.

Steven DeLaney: Thanks. Congratulations on a solid start to 2024, everyone. Rich, there's an old saying among bankers that the only problem with making good loans is that they pay off too fast. I'm just curious if you feel, when you look at the portfolio today, do you think there's enough solid demand out there that you can maintain the portfolio above $5 billion? And on the other hand, with respect to potential new CLOs, is there any chance to see net portfolio growth with your existing capital base?

Steven DeLaney: I think that's the opportunity as far as.

Steven DeLaney: Being able to continue to grow the portfolio, Yeah, I mean, we have over $200 million of cash.

Steven DeLaney: We have Walgreens book, that's another hundred million, that's really earning something resembling cash that.

Steven DeLaney: When those assets get sold we can redeploy and we're only running at 2.4 times leverage you know, we don't we never really got much higher than that but certainly provides us with some capacity to grow the book from there. So as we've said I mean, I think people are going to look on this vintage of deals as one being one of the best.

Richard Jan Byrne: Well, since you called me out, Steve, I'll start with that answer. I agree.

Richard Jan Byrne: You know, what the whole industry is dealing with now is all those loans that recorded origination quarters across the street all occurred in late 2020, mostly 2021 and the beginning of 2022. All that stuff's coming due. So, the first problem is, you know, just resolving all that and then getting on to the next vintage.

Steven DeLaney: You know I think when you look back on it are that we've ever seen.

Steven DeLaney: Certainly that we've seen in a long time, and we're going to continue to actively originate into this opportunity.

Speaker Change: Great I appreciate that color Mike one for you you know first quarter.

Speaker Change: Obviously, we're here we've seen see MBS AAA spreads tightened in.

Richard Jan Byrne: We're really excited about this vintage because, as Mike said, you're resetting asset values and making new loans there, and there isn't a lot of competition. Banks are on the sidelines, a lot of our peers are on the sidelines, and we're getting looks at great loans, maybe some loans we may never have seen at better terms. So, I think that's the opportunity. As far as being able to continue to grow the portfolio, yeah, I mean, we have over $200 million in cash.

Steven DeLaney: It seems that is encouraging.

Steven DeLaney: More people to refi and go into fixed rate conduit loans.

Steven DeLaney: After a slow 2023.

Steven DeLaney: <unk>.

Steven DeLaney: Is it sort of the lights green and and pedal to the metal on car do it and you know obviously, 5% is probably not replicable every quarter just give us some sense for you know.

Steven DeLaney: Whether conduit lending this year could come close to the 384 million you did in 2022, and what kind of a range of tighter range might you suggest to us for gain on sale. Thank you very much.

Richard Jan Byrne: We have a Walgreens book that's another $100 million. That's really earning something resembling cash that, you know, when those assets get sold, we can redeploy. And we're only running at 2.4 times leverage. You know, we never really go much higher than that, but it certainly provides us with some capacity to grow the book from there. So, as we've said, I think people are going to look back on this vintage of deals as one of the best. You know, I think when you look back on it, it will be the best we've ever seen, or certainly that we've seen in a long time, and we're going to continue to actively originate into this opportunity.

Speaker Change: Thanks, Steve Yeah, I mean first it's it's a it's a double green light we are originating as much as we can as fast as we can and and more importantly, securitizing it as fast as we can.

Steven DeLaney: Yeah, because it is tightest spreads can go in they can can go the other way. So we want them to be touch and go on the balance sheet, but no. The group is very active in this space.

Speaker Change:

Speaker Change: I do think that Q1 on a profit margin basis is harder or repeat and hard to repeat and scale.

Michael Comparato: I appreciate that caller. Mike, one for you, you know, first quarter. Obviously, we're here.

Steven DeLaney: We've seen CNBS, AAA spreads, Titan NAN, things that are encouraging, you know, more people to refi and go into, you know, fixed rate time-debt loans. After a slow start, 2023 is sort of the lights green and pedal to the metal on Conduit and, you know, obviously, 5% is probably not replicable every quarter. Just give us some sense of whether Conduit lending this year could come close to the $384 million you did in 2022 and what kind of a range, a tighter range, might you suggest to us for gain on sale?

Speaker Change: Generally speaking where I would be very happy if we could do you know just $2 million a quarter for the rest of 2024 and the conduit that would be really great and if we can.

Speaker Change: Exceed that in any given quarter that that's just a cherry on top but.

Speaker Change: You know an additional $567 million of conduit revenue through the balance of 'twenty 'twenty four I think would be a really good earnings stabilizer for us.

Speaker Change: That's great. That's helpful and we can we can pick and choose their volume and margin numbers. You. That's that's very helpful guidance for us on would you expect from the group for the year I appreciate both of your comments today.

Michael Comparato: Thank you very much.

Speaker Change: Thanks, Steve.

Speaker Change: The next question will come from Matthew <unk> with Jones trading. Please go ahead.

Michael Comparato: Thanks, Steve. Yeah, I mean, first, it's it's a double green light.

Matthew: Hey, good morning, guys. Thanks for the question.

Michael Comparato: We are originating as much as we can, as fast as we can. And, more importantly, securitizing it as fast as we can. You know, because as tight as spreads can go in, they can go the other way. So we want them to be, you know, touch and go on the balance sheet. But no, the group is very active in the space.

Matthew: Could you talk a little bit about cap rates, and what you're underwriting to going in and exiting on these new deals.

Matthew: Sure, Matt I mean do you on that across all asset classes are specific to multi yes, I mean, the more color you're willing to give I think that'd be great.

Speaker Change: Sure so.

Matthew: Multifamily is kind of a tale of two worlds today, and I would say that that's stabilized multifamily and non stabilized multifamily REIT stabilized multifamily generally speaking for the past several quarters, we're seeing cap rates pretty much on top of where 10 year Fannie Freddie coupon.

Michael Comparato: You know, I do think Q1 on a profit margin basis is hard to repeat and hard to repeat in scale. I think, generally speaking, where I would be very happy is if we could do, you know, just $2 million a quarter for the rest of 2024 in the conduit. That would be really great. And if we can, you know, exceed that in any given quarter, that's just a cherry on top. But, you know, an additional $5, $6, $7 million of conduit revenue through the balance of 2024, I think would be a really good earning stabilizer for us.

Matthew: Our so if you can borrow from Fannie Freddie on 60 L. T V L. T C I.

Matthew: Oh 10 year loan at five and a half youre going to see cap rates generally a five 5%.

Matthew: I think on the non stabilized multi front, where we are you know those aren't being bought on a cap rate basis.

Matthew: We're seeing people generally we look at them as you know.

Matthew: Cost versus replacement cost.

Matthew: Yeah on buying an asset that was built in 'twenty 'twenty four 225000, a key and to rebuild that asset today would cost me 300, so that they're not really trading on cap rate basis, they're more just yo gross exposure or basis on a per unit on a per unit basis.

Steven DeLaney: That's great, that's helpful, and we can pick and choose their volume and margin on numbers. Yeah, that's very helpful guidance for us on what you expect from the group for the year. Appreciate both of your comments today. Thank you.

Operator: The next question will come from Matthew Erdner with Jones Trading. Please go ahead.

Matthew: I would say industrial is probably just a few ticks wider than multifamily on stabilized basis.

Matthew Erdner: Hey, good morning guys. Thanks for the question. Could you talk a little bit about cap rates and what you're underwriting going in and exiting?

Matthew: Retail you know if you want to add another maybe 100 basis points of that again, depending on what it is grocery anchored is gonna trade inside of power center anchored strip.

Michael Comparato: Sure, Matt. But do you want it across all asset classes or specific to multi? Yeah, I mean, the more color you're willing to give, I think that'd be great. Sure, so, multifamily is kind of a tale of two worlds today, and I would say that that's, you know, stabilized multifamily and non-stabilized multifamily, right? Stabilized multifamily. Generally speaking, for the past several quarters, we're seeing cap rates pretty much on top of where 10-year Fannie and Freddie coupons are.

Matthew: Hospitality, we're still seeing kind of seven and a half to eight and a half depending on asset quality and market.

Matthew: And then office Ah I don't think office is trading based on a cap rate at all that's just you know.

Matthew: The few trades that we are seeing it's price per pound and market and basically just a long term bet that you're buying it's so cheap that youll be okay. You know five or 10 years from now.

Michael Comparato: So if you can borrow from Fannie or Freddie on a 60 LTV LTC IO 10-year loan at 5.5, you're going to see cap rates generally at 5.5. I think on the non-stabilized multi-front, where we're, you know, those aren't being bought on a cap rate basis, we're seeing people generally look at them as, you know, cost versus replacement cost. You know, I'm buying an asset that was built in 2020 for 225,000 a key, and to rebuild that asset today would cost me 300.

Speaker Change: Yeah, Alright that makes sense and that's very helpful.

Speaker Change: Good color there and then are you guys still seeing opportunities for construction loans and you know what's your appetite going forward on that.

Speaker Change: We are yeah, I think the stress at the bank level really hasn't abated.

Speaker Change: And with rates generally higher for longer it doesn't appear that it's going to abate anytime soon so I think there is squarely on the sidelines for the balance of 'twenty 'twenty four and perhaps you know a decent part of 2025 right banks don't typically jump into the pool Cannonball style when they come back in.

Michael Comparato: So they're not really trading on a cap rate basis. They're more just, you know, gross exposure or basis on a per unit basis. I would say industrial is probably just a few ticks wider than multifamily on a stabilized basis. Retail, you know, if you want to add another maybe 100 basis points to that, again, depending on what it is, grocery anchored is going to trade inside of, you know, power centers on

Speaker Change: It's gonna be a tow than an ankle than a knee and it's going to take some time. So we do view it as an opportunity. We continued to close construction loans in Q1, I think some of our best risk returns are in our construction book.

Speaker Change: The issue is they're just inefficient assets for us because they dribble capital out little pieces over an extended period of time, so loved them from a risk return standpoint, not so great in terms of the efficiency of capital deployment.

Michael Comparato: Hospitality, we're still seeing kind of seven and a half to eight and a half, depending on asset quality and market. And then office, I don't think office is trading based on a cap rate at all. That's just, you know, the few trades that we are seeing; it's price per pound and market and basically just a long-term bet that you're buying it so cheaply that you'll be okay, you know, five or 10 years from now.

Speaker Change: But overall, you know continuing to see opportunities and we'll continue to be active in this space are provided those opportunities persist.

Speaker Change: Awesome. Thank you guys I appreciate it.

Speaker Change: The next question will come come from Matthew Howlett with B Riley. Please go ahead.

Michael Comparato: Yeah, that makes sense, and that's very helpful and gives good color there. And then, are you guys still seeing opportunities for construction loans, and you know what your appetite is going forward on that?

Matthew Philip Howlett: Oh, Thanks for taking my question just on <unk> I mean.

Matthew Philip Howlett: But you're kind of you're asking in terms of targets. This year. It looks like clearly the eight 9% was under you sort of there was some drags on that artificial drags this quarter going forward with the portfolio growth, but the buyback with potentially some of the cash freed up from real estate sales I mean, what's not to prevent them from going to say, 12% to 18% in that case would you raise the dividend.

Michael Comparato: We are. I think the stress at the bank level really hasn't abated. And with rates generally higher for longer, it doesn't appear that they're going to abate anytime soon. So I think they're squarely on the sidelines for the balance of 2024 and perhaps a decent part of 2025. Banks don't typically jump into the pool cannonball style. When they come back in, it's going to be a toe, then an ankle, then a knee, and it's going to take some time.

Speaker Change: Hey, Matt Good morning, and thank you for such a direct question [laughter]. So I think I think we've all you know rich Jerry I myself have been pretty open that we do think the future is bright.

Matt: We do think that we've got investable capital Ah and are growing the portfolio I regret we grew it in Q1 and I think we're one of the most active originators in the market today. So we clearly want to continue to grow the portfolio. We have a path to grow the portfolio there doesn't appear to be any massive walls preventing us from.

Michael Comparato: So we do view it as an opportunity. We will continue to close construction loans in Q1. I think some of our best risk returns are in our construction book. The issue is they're just inefficient assets for us because they dribble capital out in little pieces over an extended period of time. So love them from a risk return standpoint, not so great in terms of efficiency of capital deployment. But overall, continuing to see opportunities, and we'll continue to be active in the space provided those opportunities persist.

Matt: From growing the portfolio.

Speaker Change: So the short answer is yes to everything you said, we would like to grow the portfolio, we would like to enhance Roe.

Speaker Change: And at the appropriate time, obviously in conjunction with conversations with the board if we feel we've.

Matthew Erdner: Awesome. Thank you guys. I appreciate it.

Operator: The next question will come from Matthew Howlett with B Riley. Please go ahead. Oh, thank you.

Speaker Change: Adequately address the legacy portfolio and feel like we're comfortable could we addressed the dividend going higher in the future absolutely.

Matthew Philip Howlett: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host.

Speaker Change: Do I think that that's a 2024 event.

Matthew Philip Howlett: Hey Mac, good morning.

Michael Comparato: And thank you for such a direct question. So, I think we've all, you know, Rich, Jerry, and myself have been, you know, pretty open that we do think the future is bright. We do think that we've got investable capital and are growing the portfolio, right? We grew it in Q1.

Speaker Change: Robley not.

Speaker Change: But I do think that is a very very real possibility in and when we talk about fairly regularly.

Speaker Change: And then.

Speaker Change: Again, I'm not asking for guidance, but if you look at the second quarter number clearly with.

Speaker Change: The late stage portfolio growth in the first quarter or the the drag from some of those not one time ish non accruals.

Speaker Change: Then with the buyback accelerating clearly it's got distributed B S is on pace to be up in the second quarter from the first quarter.

Michael Comparato: And I think we're one of the most active originators in the market today. So, we clearly want to continue to grow our portfolio. We have a path to grow the portfolio. There doesn't appear to be any massive walls preventing us from growing the portfolio. So, the short answer is yes to everything you said. We would like to grow our portfolio. We would like to enhance ROE. And at the appropriate time, obviously, in conjunction with conversations with the board, you know, if we feel we've adequately addressed the legacy portfolio and feel like we're comfortable.

Speaker Change: Yeah, Yeah, I mean look I think it's I think this is really <unk>.

Speaker Change: My focus is less on on looking out the windshield and more through the rearview mirror.

Speaker Change: And I think we've got a meaningful portfolio that we think we need to to work through the rest of this year and we just wanted to make sure that the legacy book has been cleaned up to a level, where we don't have surprises right. There. They're just wants to be a very very yeah. We want to have a high conviction rate if we're going to address the dividend.

Speaker Change: And I think the legacy portfolio plays more of a role in that conversation.

Michael Comparato: Could we address the dividend going higher in the future? Absolutely. Do I think that that's a 2024 event? Probably not, but I do think that is a very, very real possibility and one we talk about fairly regularly.

Speaker Change: And then forward looking origination.

Speaker Change: Yeah, Matt as does rates.

Speaker Change: Think the whole world is now convinced on higher for longer which is making a skeptical but right.

Speaker Change: Yeah, a lot a lot of factors at play.

Speaker Change: Right and then obviously the rates are a part of that legacy book.

Michael Comparato: Again, I'm not asking for guys, but if you look at the second-quarter number, clearly with the late-stage portfolio growth in the first quarter, the drag from some of those one-time-ish non-accruals, and then with the buyback accelerating, clearly, the Shibboleth ES is on pace to be up in the second quarter from the first.

Speaker Change: Got it come together.

Speaker Change: Yeah, and the last thing I mean, the Walgreens I mean, I think you know what.

Speaker Change: S analysts I'm not sure how to model that that could be significant if you can you.

Speaker Change: Reinvested he can get out of that and reinvest those into.

Michael Comparato: Yeah, I mean, look, I think this is really my focus is less on looking at the windshield and more through the rearview mirror. And I think we've got a meaningful portfolio that we think we need to work through the rest of this year. And we just want to make sure that the legacy book has been cleaned up to a level where we don't have surprises right there.

Speaker Change: Today's new originations like you said are the best you've seen in years I mean, just an update we can you can you tell us to expect anything this year or is it just going to be opportunistic if someone hits your bad any color on how that process is going would be appreciated.

Speaker Change: Yeah, I mean, we're we're actively working on selling the portfolio we.

Michael Comparato: There just wants to be a very, very, we want to have a high conviction rate if we're going to address the dividend. And I think the legacy portfolio plays more of a role in that conversation than forward looking originally.

Speaker Change: We recognize exactly what you recognize right now we've got roughly $100 million of capital locked up as rich pointed out making cash like returns when we historically.

Michael Comparato: Yeah, Matt, as does rates. I think the whole world is now convinced that hire for longer is the right thing to do, which is making us skeptical, but. Right. A lot of factors. Right, and then obviously the rates are part of that, you know, legacy book that come together.

Speaker Change: Our originating loans at much better than cash type return, so we see the opportunity we.

Speaker Change: We have a few stores under contract today we.

Speaker Change: We have a few stores under letter of intent today I'm, hoping next quarter, we can give you guys more.

Matthew Philip Howlett: And the last thing, I mean, the Walgreens, I mean, I think, you know, us analysts, I'm not sure how to model, and that's going to be significant if you can, you know, reinvest. If you can get out of that and reinvest those into, you know, we will. Today's new originations, what you said, are the best you've seen in years. I mean, just an update, we, what, can you, can you tell us to expect anything this year? Is it just going to be opportunistic if someone hits your bid? Any color on how that process is going would be appreciated.

Speaker Change: Robust.

Speaker Change: A summary of where those stand, but not you know what.

Speaker Change: We're still in the process of getting these contracts nonrefundable actually closing so we thought it was premature to address that today, but you know this is a front burner issue for us. It is clearly a place that we can improve the portfolio our fastest and easiest and we are we are very very focused on getting as.

Speaker Change: Much of Walgreens resolved in 'twenty 'twenty four as we can.

Michael Comparato: Yeah, I mean, we're actively working on selling the portfolio. We recognize exactly what you say, right?

Speaker Change: The good news is we want.

Speaker Change: Two on over 200 and $240 million of cash to spend first so it's not like we're missing an opportunity now we have plenty of liquidity even without it. So we're trying to be as Mike pointed out and as disciplined as possible.

Michael Comparato: You know, we've got roughly $100 million of capital locked up, as Rich pointed out, making cash-like returns. But, when you know, we historically are originating loans at much better than cash-type returns. So we see the opportunity. We have a few stores under contract today. We have a few stores under letter of intent today. I'm hoping next quarter we can give you guys a more robust, a summary of where those stand.

Speaker Change: We want to sell into strength.

Speaker Change: So but you.

Speaker Change: With an eye towards sooner rather than later.

Speaker Change: And there is no debt on that there's no financing on it at all you're free and clear right that's going to be all cash back to you.

Speaker Change: That's correct.

Speaker Change: Great well look forward to the update.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to MS. Lindsey Crabbe for any closing remarks. Please go ahead ma'am.

Michael Comparato: But not, you know, we're still in the process of getting these contracts non-refundable and actually closing. So we thought it was premature to address that today. But, you know, this is a front burner issue for us. It is clearly a place that we can improve the portfolio fastest and easiest. And we are we are very, very focused on getting as much of Walgreens gone in 2024 as we can.

Lindsey Crabbe: We appreciate you joining us today, if you have any further questions. Please reach out.

Lindsey Crabbe: Thank you.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Lindsey Crabbe: Yeah.

Lindsey Crabbe: Yeah.

Lindsey Crabbe: Yeah.

Lindsey Crabbe: [music].

Richard Jan Byrne: Matt, the good news is we have over $200-$240 million of cash to spend first, so it's not like we're missing an opportunity now. We have plenty of liquidity even without it. So we're trying to be, as Mike pointed out, as disciplined as possible. We want to sell into strength. But, you know, with an eye toward sooner rather than later.

Lindsey Crabbe: Yeah.

Lindsey Crabbe: [music].

Matthew Philip Howlett: And there's no debt on that REL. There's no financing on that at all. You own those free and clear, right? That's going to be all cash back. That's correct. Great, we look forward to the update.

Lindsey Crabbe: This concludes our question and answer session. I would like to turn the conference back over to Ms. Lindsey Crabbe for any closing remarks. Please go ahead, ma'am.

Operator: We appreciate you joining us today. If you have any further questions, please reach out to me or our team. Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now go.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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