Franklin BSP Realty Trust, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. The company is an externally managed commercial real estate finance REIT focused primarily on originating, acquiring and managing commercial real estate loans, with additional securities, conduit lending and owned-property activities. Amounts below are in U.S. dollars.
Financial results and key metrics
| Metric | Q1 2024 | Q1 2023 / prior period |
|---|---|---|
| Total income | $54.0 million | $62.8 million, down 14% |
| Interest income | $130.6 million | $130.5 million |
| Interest expense | $81.3 million | $71.1 million |
| Net interest income | $49.2 million | $59.5 million |
| Net income | $35.8 million | $43.8 million, down 18% |
| Net income applicable to common stock | $29.2 million | $37.1 million |
| Basic and diluted EPS | $0.35 | $0.44 |
| Operating cash flow | $13.0 million | $33.3 million |
| Investing cash flow | $(139.3) million | $422.8 million |
| Financing cash flow | $30.8 million | $(409.3) million |
Management reported a 1.9% net interest spread for Q1 2024, compared with 2.9% a year earlier. Average financing cost increased to 7.9% from 6.7%; higher interest expense, including on CLOs, offset largely stable interest income. Operating expenses declined to $20.6 million from $22.3 million. The company recorded a $2.9 million credit-loss provision.
At March 31, total assets were $6.03 billion and total equity was $1.59 billion. Cash and cash equivalents were $240.0 million. Consolidated borrowings across CLOs, repurchase financing, mortgage debt, other financing and unsecured debt totaled approximately $4.26 billion. Net debt-to-equity was 2.4x, versus 2.3x at year-end; total leverage was 2.5x. Management reported $1.04 billion of near-term liquidity sources, including $787 million of financing available or in progress; the comparable year-end total was $1.52 billion.
The loan portfolio held for investment comprised 145 loans with a net carrying value of $5.18 billion. Multifamily collateral represented 74.9% of portfolio par value. The weighted-average coupon, excluding non-performing loans, was 9.2%, and weighted-average remaining contractual maturity was 1.0 year. The company also held $217.9 million of CRE CLO bonds and three held-for-investment properties with a net carrying value of $115.2 million.
Material changes and notable items
- Four loans, all secured by multifamily properties, were designated non-performing at quarter-end, with amortized cost of $307.5 million; there were two such loans at December 31, 2023. Three were on non-accrual and one on cost recovery. The company recognized $3.4 million of interest proceeds from non-performing loans during the quarter.
- The allowance for credit losses on held-for-investment loans rose to $49.2 million from $47.2 million. A $0.7 million specific reserve related to a North Carolina multifamily loan; management also cited a more pessimistic macroeconomic outlook and portfolio growth.
- Q1 included a $5.5 million realized gain from selling $100.7 million of conduit loan principal into the CMBS market. No comparable sales occurred in Q1 2023. Q1 2023 results also included a $4.8 million debt-extinguishment gain, which did not recur.
- Held-for-investment loan originations and purchases were $488.3 million, while principal repayments were $280.3 million. Investment activity contributed to the larger loan portfolio.
- Book value per share was $15.61, down from $15.71 at year-end; fully converted book value per share was $15.68, down from $15.77.
Outlook, risks and contingencies
The filing provides no numerical earnings or portfolio guidance. Management said it believes current liquidity and access to additional liquidity are sufficient to meet obligations over the next 12 months and beyond, and expects financing sources and operating cash flow to fund anticipated capital needs. Its stated target leverage range is one to three times book equity, subject to change.
Key disclosed risks include borrower defaults and property-value declines, sustained high interest rates, refinancing and capital-market access, lender margin calls on pledged collateral, and the ability to recover principal on non-performing loans. Financing lines can require additional collateral if collateral values decline. The $387.9 million of unfunded loan commitments are subject to borrower conditions. The company reported covenant compliance at quarter-end.
The company declared a common dividend of $0.355 per share for Q1, paid in April, and a Series E preferred dividend of $0.46875 per share. Series H preferred stock’s mandatory conversion date was extended to January 21, 2025. The company repurchased 151,123 common shares for $1.9 million during the quarter. It reported no material change to its previously disclosed risk factors and no material subsequent events through filing.
The company continues to market 23 Walgreens retail properties held for sale and pursue civil remedies following alleged sponsor fraud and loan default. It said the collectability of legal judgments is not currently determinable and believes routine litigation will not materially affect financial condition, results or cash flows. Related-party loans to Advisor affiliates had a $123.6 million carrying value; the company earned $2.6 million of interest income on them during Q1.
Most important facts for investors to verify
- Developments, recoveries and collateral valuations for the four non-performing multifamily loans, and whether additional loans move to non-accrual or cost recovery.
- How the company’s available liquidity changes as financing capacity, CLO reinvestment periods and loan maturities evolve; verify assumptions behind the reported $1.04 billion liquidity figure.
- Whether higher funding costs and the narrower net interest spread continue to pressure earnings and common-dividend coverage.
- Progress and realized proceeds from the Walgreens portfolio sale process and related legal recovery efforts.
- Performance and credit exposure in the multifamily-heavy portfolio, including the concentration of loans in the Southeast and Southwest and the short remaining contractual maturity.