Q3 2024 Franklin BSP Realty Trust Inc Earnings Call
[music].
Good day and welcome to the Franklin D. S. P Realty Trust's third quarter 2024 earnings conference call.
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Speaker Change: Now like to turn the conference over to Lindsey Crabbe director of Investor Relations. Please go ahead.
Speaker Change: Good morning, Thank you for hosting our call today and thanks, everyone for joining us.
Speaker Change: With me on the call today are Richard Burton, Chairman and CEO of that'd be Archie Gary Bachman, Chief Financial Officer, and Chief operating Officer, and Michael Colorado, President That'd be Archie.
Speaker Change: Before we begin I want to mention that some of today's comments are forward looking statements and are based on certain assumptions. That's commented assumptions are subject to inherent risks and uncertainties as described to our most recently filed periodic reports on actual future results may differ materially the information conveyed on this call is current only as of the date of this call in November.
Speaker Change: For 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.
Speaker Change: We will refer to certain non-GAAP financial measures, which are reconciled to GAAP figures in our earnings release and supplementary slides each of which are available on our website at www Dot FBR T. Dot com, we will refer to the supplementary slide deck on today's call with that I'll turn the call over to rich Barton.
Rich Barton: Great. Thanks, Lindsay and good morning to everyone and thank you for joining us on this election day morning.
Rich Barton: Lindsey mentioned, our earnings release, and the supplemental deck, where published to our website yesterday, we're going to begin todays call on slide four by reviewing our third quarter results and then we'll as always open the call for your.
Question also as always I will provide a brief overview of the quarter's key developments and then Jerry will discuss our financial results and Mike will cover market conditions, Our watch list and our Oreo portfolio.
Rich Barton: So with all that let me start out with an overarching comment about how we and probably mostly every see CRE lender thinks about the world.
Speaker Change: When we think about our portfolio, we think about it in two buckets loans originated during the zero interest rate policy.
Speaker Change: And loans originated post the unprecedented rise in rates.
Speaker Change: The underlying metrics are most loans originated pre rate hikes.
Speaker Change: As you all know deteriorated since underwriting as property values have declined and Ltvs rose as a result of the dramatic increase in rates.
Speaker Change: The more serious problem of course with legacy loans has been and continues to be the significant deterioration in the office sector post COVID-19. Thanks.
Speaker Change: Thankfully our office exposure is now only 4% of our book.
Speaker Change: We received two full payoffs in office loans for 40 million in this quarter and our pre 2024 originated traditional multi tenant office exposure is now only $147 million or two 6%.
Speaker Change: In addition to the notional exposure decreasing meaningfully quarter over quarter. The remaining office exposure has already been significantly marked down in prior quarters to reflect current market conditions.
Speaker Change: So by contrast to the legacy loans, both office and that office. The loans, we're originating post rate hikes are among the highest quality lowest loan to value loans, we have seen in many years.
Speaker Change: And were originated at some of the highest spreads we've seen in years.
Speaker Change: We continue to make significant progress turning over our book by originating new loans at current interest rates and valuations.
Speaker Change: And cycling through our legacy book.
Speaker Change: In all approximately 40% that's four 1% of our portfolio was originated after January 2023.
Speaker Change: We think this that will be an extremely important metric for all CRE lenders because it measures the recycling of our book into these new relatively attractive loan set off up remarks.
Speaker Change: Pretty valuations.
Speaker Change: Our robust origination and repayment activity has resulted in over 1.6 billion of new loan commitments year to date.
Speaker Change: We are encouraged by repayments on our legacy portfolio. This year, we've received 1 billion year to date and $510 million in the third quarter rollout.
Speaker Change: Of course payoffs are a blessing and a curse.
Speaker Change: But in the current market environment, we are pleased to see the liquidity in our portfolio.
Speaker Change: Our team has made headway resolving watch list loans and Oreo assets from our legacy portfolio currently.
Speaker Change: 154 out of our 157 positions in our book a risk rated two or three and our overall risk rating of the entire book is to point to.
Speaker Change: We reduced our watch list loans from seven to three this quarter.
Speaker Change: With only 1.3 of our book is represented by these watchlist loans.
Speaker Change: Three multifamily properties were upgraded due to credit enhancing modifications and additional BARDA borrower equity coming in coming to the table one hospitality asset was sold at a price above our debt basis.
Speaker Change: Our foreclosure Oreo position our portfolio increased in size with 13 positions this quarter, but as Mike will detail it is likely to decline due to a.
Speaker Change: Recently negotiated P. S. A's on four properties the balance of our foreclosure Oreo consists of primarily multifamily properties in strong markets.
Speaker Change: As Mike mentioned last quarter, while we would like to resolve the Oreo portfolio as quickly as possible.
Speaker Change: We believe there is value in holding some of these assets until we find the best possible execution.
Speaker Change: Our liquidity position is robust at the end of the quarter, we had $1 1 billion in available liquidity, which was strengthened by our CLO issuance near the end of the third quarter.
Speaker Change: The balance is higher than the previous quarter due to the timing of repayments and additional space on our warehouse lines and we expect to deploy much of this liquidity.
Speaker Change: Liquidity, including 346 million of cash.
Speaker Change: In the relatively near future.
Speaker Change: We did not purchase stock.
Speaker Change: In the third quarter. It is important part of our capital allocation strategy, we have $31 million remaining on our buyback allocation.
Speaker Change: And our board has extended it through December 31 2025.
Speaker Change: F D. R. T is well positioned the team is effectively addressing positions modifying loans, selling oreo assets and enhancing our overall credit quality of our loan portfolio through new originations on our balance sheet features a robust multifamily focused loan portfolio that we expect to perform well.
Speaker Change: And the as especially as market conditions stabilize.
Jerry: With all that let me now turn the call over to Jerry.
Jerry: Great. Thanks, rich and thanks, everybody for being on today appreciate it.
Jerry: Moving onto our results, let's start on slide five if you're following along.
Jerry: <unk> reported GAAP earnings of 30 cents per diluted common share this quarter and distributable earnings of a negative 10 cents per diluted common share.
Speaker Change: Distributable earnings excluding realized losses or.
Speaker Change: There were 31 cents per diluted common share.
Speaker Change: Excludes $36 4 million of losses realized within the quarter related to our Oreo Walgreens portfolio.
Speaker Change: The majority of which was previously disclosed and recognized through GAAP earnings and second quarter Walgreens.
Speaker Change: Walgreens is now fully realized with all losses to date through our distributable earnings.
Speaker Change: Overall, our earnings benefited from higher conduit income and no increase to our seasonal reserve in the third quarter.
Speaker Change: Net interest income was slightly lower quarter over quarter as our loan portfolio size decreased and Oreo remained relatively constant.
Speaker Change: We hope to reverse that in future quarters.
Speaker Change: While GAAP and distributable earnings did not cover our quarterly dividend, we remain confident that our dividend level accurately reflects our portfolio's long term stabilized earnings potential and we're comfortable with the current level.
Speaker Change: Moving to slide seven we.
Speaker Change: And we can cover our origination activity.
Speaker Change: We added $380 million in new loan commitments during the quarter consistent with our strategy. These loans were primarily multifamily across the southeast and southwest.
Speaker Change: During the quarter. We also received a total of $510 million in loan repayments, primarily from the multifamily sector, but as rich mentioned also a $40 million from office loans.
Speaker Change: Moving to slide eight our average cost of debt on our core portfolio stayed relatively flat at sofa, plus two point or 3%.
Speaker Change: Near the end of the quarter, we closed a $1 billion CRE CLO. This is the 11th CLO, our real estate platform has issued.
Speaker Change: We were pleased with the CLO execution with an 86, 5% advance rate and a weighted average cost of funds of silver plus 199 before discount transaction costs <unk>.
Speaker Change: Importantly, the transaction featured a 36 month reinvestment period, which is the longest reinvestment period on any of the CLO is that we've executed, allowing us to maximize the duration of this accretive liability.
Speaker Change: Additionally, we added over $100 million of ramp on the transaction transaction to provide further borrowing capacity going into the fourth quarter.
Speaker Change: Demand from investors was strong which led to oversubscription across all bond classes.
Speaker Change: With the addition of the CLO, 93% of our financings are nonrecourse non mark to market on a core book.
Speaker Change: We continue to have meaningful space on our warehouse lines and have ample unrestricted cash.
Speaker Change: Combined with our CLO reinvest available liquidity at quarter end as rich mentioned totaled $1 1 billion.
Speaker Change: Our net leverage position remained at 2.7 times with our recourse leverage standing at 0.1 times at the end of the quarter.
Speaker Change: With that I'll turn it over to Mike to give you an update on our portfolio.
Speaker Change: Yeah.
Mike: Thanks, Gerry and good morning, everyone. Thank you for joining us I'm going to start on slide 12.
Speaker Change: Our 5.2 billion core portfolio consists of 157 loans with an average size of $35 billion 19.
Speaker Change: 99% of those loans are senior mortgages with 95% of them being floating rate.
Speaker Change: Our favorite sector remains multifamily accounting for 74% of our portfolio collateral.
Speaker Change: During the quarter, we originated 16 loans at a weighted average spread of 421 basis points. The loans were across several different sectors. How however, we found several attractive lending opportunities in construction.
Speaker Change: Our conduit platform had an excellent quarter contributing generously to our performance.
Speaker Change: As I previously mentioned, we consider the conduit to be a valuable earnings booster and favorable market conditions. However, it also serves as a valuable hedge against core balance sheet losses during more challenging times. This.
Speaker Change: This quarter the conduit played as protective role offsetting a portion of our earnings loss due to nonperforming loans and Oreo.
Speaker Change: With respect to multifamily clearly FBR cheese focus we do see supply demand dynamics changing for the positive in the coming years at the asset level.
Speaker Change: New multifamily supply will be cratering, shortly and permits for new starts are at decade lows <unk>.
Speaker Change: Declines in new supply and construction starts signal a shift in favor for in favor of landlords.
Speaker Change: As a result, we anticipate not only the burn off of recent rental concessions, but also rent increases in 2026 through 2028.
Speaker Change: Loan demand and requests were plentiful throughout the quarter.
Speaker Change: Investors had convinced themselves the fed was going to start a new easing cycle and the 10 year Treasury was hitting lower yields not seen in some time towards the 3.6% level.
Speaker Change: Unfortunately after the fed rate cut we witnessed the 10 year widen roughly 70 point 70 basis points in a relatively short period of time.
Speaker Change: We believe this may cause a pause in transaction, while investors digest the move.
Speaker Change: We continue to see the bulk of the public mortgage Reits together with the vast majority of banks, mostly regional and community banks remain on the sidelines.
Speaker Change: Legacy loans, specifically office will plague these groups for a long time to come.
Speaker Change: The New York Fed in its recently released white paper on extend and pretend believes that these banks are only prolonging the inevitable and ultimately making things worse office continues to be very challenging we're seeing assets trade at levels that were simply unfathomable. A few years ago. We're also hearing anecdotes of lenders unwilling to take tie.
Speaker Change: It'll to office assets to avoid the mark to market realities.
Speaker Change: D M. B S office delinquency is up 100 basis points, just month over month, hitting nearly nine 5%.
Speaker Change: We believe office delinquencies will surpass the all time high and perhaps meaningfully of approximately 10, 5% seen in 2012 after the G F C.
Speaker Change: Unfortunately things could not be unhealthy or in the office sector and we believe the bottoming process will take another two to five years, we see no reason to be active in this space.
Speaker Change: On the other hand S. P. A R. T has taken the exact opposite position of extend and pretend we believe wholeheartedly and acknowledge and address.
Speaker Change: We've written down the assets that needed to be written down and are proactively taking title to other assets in an effort to clean up the balance sheet as quickly as possible we.
Speaker Change: We believe we can resolve oreo faster than our borrowers who have seen their equity vanish due to meaningful declines in valuation.
Speaker Change: Our goal is to get out of the proverbial woods as soon as possible.
Speaker Change: Dressing or issues head on and resolving them proactively as the best way to accomplish that goal and to that end, we made excellent progress this quarter.
Speaker Change: Slide 14 is a summary of our watch list. Our watch list is down to three positions, but given the size. The watch. This is truly only two loans. Both five rated office assets that we have written down in previous quarters. We believe we will be taking title to the Denver office asset in Q4 or Q1 of next year.
Speaker Change: Moving to slide 15, we hold 13 foreclosure Oreo positions at quarter end.
Speaker Change: The Oreo book is largely multifamily and four of these properties are already under contract to be sold at or above current market values.
Speaker Change: Excluding the remaining Walgreens stores, the 18, and a half million office building in Portland, and the four properties under PSA the remaining Oreo portfolio consists of seven multifamily properties for.
Speaker Change: North Carolina, two in Texas, and one in Cleveland, Ohio.
Speaker Change: Our equity asset management team is fully engaged and stabilizing these assets as quickly as possible in order for us to maximize recovery on asset sales.
Speaker Change: While we are very comfortable owning real estate and we believe there are positive tailwind is around the corner for fundamentals at the multifamily asset level. Our goal is to liquidate the Oreo portfolio as quickly as possible and reinvest those proceeds into new origination.
Speaker Change: I cannot stress enough the exceptional progress the team has made on our watch list and Oreo assets, we continue to be laser focused on resolutions.
Speaker Change: Lastly, we were happy to see sub 4% tenure is it brought a lot of hope back in the industry and had several visible industry names officially call a bottom we.
Speaker Change: We've been in the higher for longer camp for a long time, but still called the multifamily valuation bottomed several quarters ago that said, we simultaneously commented that we do not see a V shaped V shaped recovery in multifamily values and believe we will bounce around these levels for a while.
Speaker Change: As far as that call has been largely on point and at the moment, we continue to hold that view.
Speaker Change: As the 10 year blue back out to now over 4.3% we are concerned about the headlights and the deer meeting once again.
Speaker Change: If we are truly averted recession, and we arent, saying we have that means we should revert to a normalized positively sloping yield curve.
Speaker Change: If the fed is targeting 3% to 3.5% fed funds that means a normalized yield curve is going to produce the 10 year treasury yield 100 to 150 basis points wider.
Speaker Change: We believe a significant decline in long term interest rates such as a return to chew handle yields on the 10 year Treasury is unlikely without a significant banking crisis. So.
Speaker Change: So for all of those hoping for meaningfully lower rates, we would just say be careful what you wish for.
Speaker Change: The F. B R. A T team has been busy we remain diligently focused on improving the credit quality of our portfolio, whether through new loan originations credit enhancing loan modifications or actively managing our Oreo properties for future sale.
Speaker Change: We are fortunate to have one of the largest teams in the industry, which allows us to effectively manage all of the aforementioned tasks and we are positioning ourselves to be a market leader exiting the woods with that I would like to turn it back over to the operator to begin the Q&A session.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Speaker Change: If you're using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Yeah.
Speaker Change: And our first question comes from Matthew <unk> with Jones trading. Please go ahead.
Speaker Change: Yeah.
Matthew: Hey, good morning, guys. Thanks for taking the question you touched on it briefly a little bit about the conduit business I noticed the fixed rate loans increased two 5% from 3% quarter over quarter could you provide some additional color on what youre seeing here and kind of the expectation for the conduit business as a whole going forward.
Speaker Change: Yeah.
Speaker Change: Hey, Matt it's Mike Thanks for the question.
Speaker Change: Look I think the.
Speaker Change: Conduit had an exceptional third quarter, obviously rates are are going to spur a little bit of a wet towel on that four for coming quarters.
Speaker Change: If if nothing else a little bit of time for people to just digest where rates are.
Speaker Change: The reality is even with rates are going out to current levels C. M. B S. Still is one of the cheapest financing financing options in the marketplace. So.
Speaker Change: This move happened fast, it's a meaningful move and I think we just need a little bit more time to digest it to really give better guidance on what it means for the conduit in the coming quarters.
Speaker Change: Gotcha, Yeah. That's helpful. There and then talking about <unk> kind of available for sale securities.
Speaker Change: Looking at those 10 bonds that you guys kind of have you think of that as an additional source of income and liquidity.
Speaker Change: How are you going to manage that book going forward.
Speaker Change: Yeah, I mean, we've opportunistically been bond buyers are when we thought the returns made sense versus whole loan origination.
Speaker Change: We have not been active buyers through the last few months of kind of the the very aggressive credit spread tightening that we've seen so the returns in that space are fantastic for the bonds that we own.
Speaker Change: We do view it as you know some sort of liquidity management, but to be honest. The returns we're making in that book there. There's just no reason to sell them, we can't generate the returns and whole loan origination that we can and in the existing bond portfolio.
Speaker Change: Got it that's helpful. Thank you guys.
Speaker Change: Yeah.
Speaker Change: And our next question comes from Stephen Laws with Raymond James. Please go ahead.
Stephen Laws: Hi, good morning.
Speaker Change: I appreciate the color.
Speaker Change: In the prepared remarks.
Speaker Change: Follow up with the Ah.
Speaker Change: Sorry, let me start with Mike Mike.
Speaker Change: Senate RVO is I guess that you mentioned for NC, two Texas one of them.
Speaker Change: That's right thing assets.
Speaker Change: Can you talk a little bit about that.
Speaker Change: A little choppy.
Speaker Change: Sorry about that.
Speaker Change: See if this is better.
Speaker Change: Yeah, Mike can you talk about the puts.
Speaker Change: That's in lease up.
Speaker Change: The timing of those monetization is that first of all is that something that's more back end loaded next year.
Speaker Change: Hey, Stephen Thanks for the question.
Speaker Change: So as I mentioned, we've got four under contract are you know, we're going to continue to chop away at the Walgreens portfolio. All five of those are on the market for sale right. Now one of them is under contract would really hope to be done with Walgreens.
Speaker Change: Greens in its totality.
Speaker Change: By the end of Q1 next year chance, maybe a few more selling in Q4 of this year.
Speaker Change: Of the remaining multifamily.
Speaker Change: We'll have two that are going on the market either in December or early January that I would expect to have closed by the end of Q1.
Speaker Change: And then probably remaining four five that'll be a little bit longer holds them.
Speaker Change: But you know as I mentioned in the prepared remarks. It is it is clearly stabilized as fast as you can move them as fast as you can we are not looking for these to necessarily be profit centers, if profits come out of them. That's a great byproduct of Oreo AR, but we re.
Speaker Change: Really want to get this cash back and get it redeployed so a little bit more in Q1, a little bit throughout the course of 2025.
Speaker Change: And then just just wrap it up hopefully by the end of next year.
Speaker Change: Great I appreciate those comments.
Speaker Change: Gerry I wanted to talk for a second.
Speaker Change: A little lower than I expected in Q3 can you talk about the timing of repayments, which were you know.
Speaker Change: Pretty material, a 500 million higher than ours.
Speaker Change: Versus new investments and kind of what a full quarter.
Speaker Change: He felt the full quarter impact there and then as we look out the next quarter or two.
Speaker Change: What are the expectations around repayments.
Speaker Change: Is it going to take all originations to keep the portfolio is stable or do you expect some portfolio growth as we move forward.
Speaker Change: Yeah, maybe I'll just start with expectations I mean, I think we're tracking to kind of a normalized year in terms of repayments for us which is turning roughly a third of the portfolio.
Speaker Change: So.
Speaker Change: If you look at what were at so far I mean, it's going to be you know another 300 plus million would be my guess on kind of the low end could be higher from there.
Speaker Change: Which rich that is.
Speaker Change: Great and not great at the same time, because we have to redeploy that so I think we keep we keep our projections updated try and replace what's paying off that's always the goal that we're not shrinking the portfolio and we try and landed up as close as we can.
Speaker Change:
Speaker Change: Yeah in terms of Q3, I don't think there was a tremendous drag from from some of the mismatch on the wind stuff came back versus when we put it on.
Speaker Change: I think more of the drag is just the turnover on the other assets just the stuff that's less productive to stuff that went from low into Oreo that really creates more drags in kind of the natural portfolio repayment redeployment.
Speaker Change: Great appreciate that color.
Speaker Change: Some of the prepared remarks, certainly not a bad thing people.
Speaker Change: As expected on time.
Speaker Change: And then one modeling question Denver are likely to go Oreo in Q4, Q1, I think Theres, a 27 million specific reserve there will that run through D. E on the transfer to Oreo not run through D well that asset sold.
Speaker Change: The answer is depends if we or our policy on DS and we think that losses, essentially crystallize or unrecoverable at that point, we'll run it through.
Speaker Change: So.
Speaker Change: Probably a decent likelihood on that one if that's the place that we ended up we'll reassess value reassess market at that time and come to a conclusion at that point.
Speaker Change: I appreciate the comments this morning. Thank you.
Speaker Change: Thanks, David.
Speaker Change: Thanks.
Speaker Change: The next question comes from Steve Delaney with citizens JMP. Please go ahead.
Steve DeLaney: Thanks, Good morning, everyone Rich, let me start with you if I could maybe sort of a big picture question on the bridge business as you see it.
Speaker Change: Obviously, you've shrunk in the third quarter and then as Steven.
Speaker Change: Touched on some of this but down to the five point too.
Speaker Change: But that's probably going to cut Thursday, the outlook for fed funds futures you know maybe.
Speaker Change: Maybe we'd probably get below 4% here.
Speaker Change: Some point in late 2025, I mean, I would think that would be.
Speaker Change: Very constructive for the bridge business and as we think about your portfolio size and your leverage at 2.7.
Speaker Change: Is it conceivable.
Speaker Change: Three three turns the leverages kind of I think what we normally do is sort of the top close to near the top end of the range. So I view, you as being slightly under Levered.
Speaker Change: If you were to move with the benefit of the fed cuts and if you took your leverage up to three with.
Speaker Change: With your current equity base it should with your portfolio.
Speaker Change: The $6 billion, mark or slightly higher.
Speaker Change: Is that a realistic outlook for 2025, and I know you're not going to force.
Speaker Change: Your operations to meet to hit a certain number but I guess as my outlook realistic any.
Speaker Change: In terms of how you and the team in 2025.
Speaker Change: Sorry for that along with your question.
Speaker Change: No. It's a good question. Thanks, Thanks, Thanks, Steve.
Speaker Change:
Speaker Change: I would answer it this way as you've heard us say and we've said repeatedly across you know as many earnings calls as we can.
Speaker Change: The current vintage of new loans that we see today are amongst the best we've seen in years and literally every loan that we put into our book increases the quality of our book and you know the stat, we've showing we're going to keep updating it as if 40% of our book is of these new loans, so without a doubt.
Speaker Change: If we see attractive new supply, we're going to we're going to put it on and we have lots of capacity to do so before we even start thinking about increasing leverage and we've always.
Speaker Change: Given a target I think you know somewhere between two and a quarter or two and a half and three and we've always operated in that range or probably in the low end of that range. You know almost every quarter since our inception, but remember, Steve we have $350 million of cash.
Speaker Change: Yes, we also have as you've heard us detail Mike has gone through.
Speaker Change: A lot of our REO that you know where were cycling through and you know and generating liquidity to put put productive earnings power behind once we redeploy that into the current market.
Speaker Change: So we have a I think we have a long time before we need to think about whether or not we want to increase leverage. We just have a lot of added earnings power in the portfolio. Just you know without touching leverage so I think that's how we're thinking about it as long as the market produces which it has pretty consistently attractive loans, we're going to put them on and one of the.
Speaker Change: The reasons.
Speaker Change: [noise] why these loans are so attractive is because most of the folks that we typically compete against you know fort loans like this whether it's banks or some of our public mortgage REIT.
Speaker Change: <unk> comps or the private lenders whoever it is a you know a lot of them are still on the sidelines given office exposure and other issues and we've just had a great chance look at pick of the litter and and putting on good good risk on our book So.
Speaker Change: Hope that answered the question no.
Speaker Change: No very helpful. Yeah.
Speaker Change: And Steve This is Mike Let me, let me just add a little something to that because I just reading between the lines of your question. The demand for loans is is massive right. Now there is no shortage of opportunities to write loans. So I think you were getting to if rates come down and loan demand goes up and I.
Speaker Change: Just want to be clear, we have a ton of loan demand right now so there's no lack of investable or lendable opportunities.
Speaker Change: And look the other thing that I would say is.
Speaker Change: Prospective matters, so much right, yes would a 4% fed funds certainly be moving in the right direction.
Speaker Change: Of course, it's better than fed funds at five but if I told you three years ago that fed funds. We're gonna go from zero to 4% you would have said that's an unmitigated disaster. So we still we still arent out of any sort of big picture legacy loan problems with with fed funds at four yeah, its better but its.
Speaker Change: It is not a panacea.
Speaker Change: Okay I appreciate that and just a quick follow up Mike for you on the on the conduit business could you quantify.
Speaker Change: Bob for us sort of the size of your locked pipeline of conduit commitments at this point and how effective your hedges been given the 70.
Speaker Change: Basis point backup in the tenure.
Speaker Change: We we have really managed that book exceptionally well are in the best way to manage the conduit business is to sell loans are the best hedges is moving the ball.
Speaker Change: We actually have zero rate locked or committed loans as we sit here today. So we have sold everything on balance sheet we.
Speaker Change: We have nothing to move and.
Speaker Change: And we're kind of reloading our inventory to get ready for the next transaction. So the conduit is is largely sitting in.
Speaker Change: As good of a spot as it could from an exposure standpoint.
Speaker Change: Thank you both for your comments this morning.
Speaker Change: Thanks, Dave.
Speaker Change: And if you have a question. Please press Star then one.
Speaker Change: And the next question comes from Tom Catherwood with BTG. Please go ahead.
Tom Catherwood: Thanks, and good morning, Mike following up on a comment.
Tom Catherwood: Have you made on Steve's question your peers have been talking about accelerating transactions in 2025, creating more origination opportunities you know obviously, you're not waiting till 2025, so what's different about F. B. Our Ts deal flow that has allowed you to complete $1 6 billion of origination.
Speaker Change: In 2024, and kind of how much of a pick up could we see in 2025.
Speaker Change: Thanks, Tom.
Speaker Change: Yeah look I think first and foremost we didn't have the legacy issues that I think a lot of the competitive space has had to deal with.
Speaker Change: Right, we have less than 5% office a lot of the industry is at 25% plus in office.
Speaker Change: And we made a very good macro call it kind of the peak evaluations to focus our origination three years ago, a nicer newer vintage assets in large markets and in that that call has paid dividends.
Speaker Change: We just didn't have to play the amount of defense I think that most of the industry had to play around older vintage multi and certainly office, so that let us play offense for form most of 24.
Speaker Change: In addition to that I think we have one of the broadest product offerings in the entire industry certainly within the middle market right. I mean, we do everything from C. M. B S to traditional bridge occasionally writing Mezz loans, we have a construction loan business. So.
Speaker Change: I think we've got just a really really interesting a product offering that that some people don't that keep us busier than most.
Speaker Change: And the last thing that I would say is I do think we've bought a lot of street credibility Ah over the past few years.
Speaker Change: Does it hit in March of 2020, we wrote our first post Covid loan on April 22nd of 2020 and proceeded to be the only active lender in the market for the next six months.
Speaker Change: In 2023, when everyone went to the sidelines, we closed over $1 billion of loans. So I think that the market has come to the realization that when its 72 and sunny outside everybody extends credit N. D. S. P. You know when the proverbial hits the fan stays in business, Oh spreads might be wider leverage might.
Speaker Change: Lower covenants might be tighter, but we're still extending credit in those times and I think the market's realized that maybe were a good group to have a relationship with going forward.
Rich Barton: Hey, Tom it's rich just just to add.
Speaker Change: So all of that is you know you're right a number of listening.
Speaker Change: Listening to earnings calls like you do a lot of competitors are or fellow lenders are increasing or talking about increasing their origination activities.
Speaker Change: Some of them we've been doing so now but think about that context that trillion six of CRE loans are going to come due over the next three years, 50% of our market is bank.
Speaker Change: Bank loans, you know the banks are largely not participating in this renaissance of new lending will see how much everybody else does there still from a macro basis a great opportunity.
Speaker Change: To be a lender right now and as Mike said, we're we're certainly picking up a lot of.
Speaker Change: New.
Speaker Change: New.
Speaker Change: Clients from you know from those left behind whether it's banks or non bank lenders.
Speaker Change: I appreciate those thoughts.
Speaker Change: And then kind of last one for me maybe on dividend coverage and we understand the lag between repayments and originations and that flowing through.
Speaker Change: Net interest income, but how long do you think it takes to redeploy your capital back into loans to the point, where your D. He's fully covering dividends.
Speaker Change: Yeah, Tom that this is really an Oreo story.
Speaker Change:
Speaker Change: As soon as we get the Oreo gone and get it back into loans, we're back at coverage.
Speaker Change: So this is we largely expected there to be a little bit of noise in the numbers as we cycled through kind of this oreo in and get it sold.
Speaker Change: But were we could not be more confident in the earnings power of the platform once we get through this and stabilize them. So.
Speaker Change: The answer is we want to get there as fast as we can obviously the market's going to dictate that timing as much as we are I would've told you 70 basis points to go on the 10 year that we were going to get through it a little bit faster you know things might slow a little bit here, but we'll get through it all so.
Speaker Change: We will get back there and obviously the goal is to get back there as soon as possible. But this is this is entirely an oreo conversation not a lack of investable or originated <unk> opportunities.
Speaker Change: And Tom sorry to pile on Mike and I talk about this every day is so where we're all like minded on this we and our board set our dividend policy based on our earnings power you know look and we like to look at that not over like a quarter at a time, but what the earnings power of the company is.
Speaker Change: And so whether that takes one quarter it takes a little longer a not.
Speaker Change: Really a consideration and you know as.
Speaker Change: As far as Oreo as well remember, we have 350 million of cash.
Speaker Change: So we have a lot more earnings power then we're demonstrating now in and we feel confident in.
Speaker Change: The level of our dividend.
Speaker Change: Understood I appreciate all your thoughts thank everyone and thank you everyone.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Lindsey Crabbe for any closing remarks.
Lindsey Crabbe: We appreciate you joining us today. Please reach out if you have any further questions. That's part of it gets noticed him thanks and have a great day.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.
Speaker Change: [music].