Franklin BSP Realty Trust, Inc.

Good day, and welcome to the Franklin VSP Realty Trust First Quarter 2022 Financial Results Conference Call. All participants will be in a listed-only mode. Should you need assistance, please signal a 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 on a touch-tone phone. To withdraw yourself from the question queue, press star, then two. Please also note this event is being recorded. And now I would like to turn the conference over to Lindsay Crabb. Please go ahead.

Good morning. Thank you, Tom, for hosting our call today. Welcome to the Franklin BSP Realty Trust First Quarter Earnings Conference Call. As the operator mentioned, I'm Lindsay Crabb, Director of Investor Relations. With me on the call today are Richard Byrne, Chairman and CEO of SBRT, Jerome Baglian, Chief Financial Officer and Chief Operating Officer, Michael Comparato, Head of Commercial Real Estate, and Roy Kim, Managing Director of our Capital Markets Group. Before we start today's conversation, I want to mention that some of today's comments from the team are forward-looking statements and are based on certain assumptions. Those comments and assumptions are subject to inherent risks and uncertainties, as described in our most recently filed Form 10Q and 10K filed with the SEC, and actual future results may differ materially. The information conveyed on this call is current only as of the date of this call, May 5th, 2022. The company assumes no obligation to update any statements made during this call, including any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Additionally, we will refer to certain non-GAAP financial measures, which are reconciled to GAAP figures in our earnings release and supplementary slide deck, which are available on our website at www.fbrtread.com. we will refer to the supplementary slide deck on today's call. With that, I'll turn the call over to Richard Burns.

Terrific. Thanks, Lindsay. Good morning, everyone, and happy Cinco de Mayo. Most importantly, thank you all for joining our call. I'm Rich Burns. I'm Chairman and CEO of SBRT. As Lindsay mentioned, our earnings release and supplemental deck were published on our website yesterday evening. So for this call – We're going to review first quarter results and walk you through the current status of the portfolio. We'll also give you an up-to-the-minute update on our residential arms portfolio. Then we're going to open up the call for questions. The supplemental deck that we're going to be referencing, and you hopefully are seeing on your screen, contains more information than we can cover today, but we hope and we think you'll find it useful as you evaluate the quarter. After my initial remarks, Jerry, our CFO, will cover our financial highlights, then Mike will discuss the portfolio in more detail and provide some really good general market color. But first, I want to go through FBRT's current position and the progress we've made in the first quarter of 2022. I'll start on slide four. We are very pleased with how our commercial real estate strategy has performed this quarter. FBRT produced distributable earnings, that's distributable earnings before trading and derivatives gains and losses on our arms portfolio, of $40.1 million, or 39 cents a share. This equates to a 9.3 ROE on our core strategy. We view this distributable earnings number as our run rate distributable earnings. and is indicative of the performance of our core commercial real estate portfolio. Importantly, our 9.3% ROE was attributable to our strong net interest margin, which in turn was the product of the high-quality loans we underwrote and the low-cost and flexible balance sheet we have. We did not achieve this by using high external leverage. In fact, the leverage on our core book is only approximately 2.5 times. This, as I'm sure you'll see, is amongst the lowest in our commercial mortgage repair group, and we did not achieve this by investing in MES. Our portfolio almost entirely consists of high-quality first lien loans. Our run rate distributable earnings more than covered our first quarter dividend of 35.5 cents. So based on our 331 book value of $1,650 per share, this is an 8.6% dividend yield. The dividend yield at our current stock price is approximately 10%. Just our opinion, but we think this is very high as compared to the same peers I referenced. Turning to originations, we took a more conservative posture this quarter, choosing to hold back a bit and wait for spreads to widen. So far, this strategy has worked out well. Mike will give you much more detail on this. Our total core portfolio ended the quarter at $4.6 billion. We have a well-diversified book with only one loan on watch list and a very strong backlog. Mike will cover all that as well later in the call. We continue to be an active issuer in the CLO market. This quarter we closed on our largest deal to date. a $1.2 billion CLO, further increasing our non-recourse, non-mark-to-market liability structure. Now, importantly, I want to give you an update on our residential arms portfolio, where Fed rate hikes have made this market very tough. I'm sure most of you are well aware of this. The good news is that we made great progress on transitioning these assets into our core commercial real estate strategy. we reduced our arms exposure by another $2.6 billion in the quarter. We ended the quarter with a principal balance of $1.9 billion. This compares to $4.6 billion at year end and $7.1 billion in Q3 when we took over the company. As an additional update, in Q2, our progress in reducing the arms portfolio has continued to accelerate. The portfolio has decreased by another $1.3 billion since the Q3 numbers came out and is now only $649 million in size. In all, we have sold over $6.4 billion in arms since we acquired the portfolio in the fourth quarter, which represents a 91% increase. We have been extremely disciplined in our execution of these sales. We have transacted at or around the bid-ask spreads at the time of sale for mostly all of these bonds. Our objective is to continue the rapid pace of transition from residential arms to commercial loans, and we continue to be ahead of schedule. We feel confident that we will fully liquidate our arms portfolio well ahead of the original 12 to 15-month estimate that we gave all of you at the time of our merger. Our chief motivation for this transition is the higher earnings potential, lower volatility, and lower historical leverage of our commercial portfolio. Lastly, I'd like to provide a quick update on the company and the manager stock purchase program. Our manager, Benefit Street Partners, or BSP, has been actively buying shares since our blackout restrictions were lifted in late February. Through May 3rd, BSP has spent approximately $21 million purchasing roughly 1.5 million shares of FBRT common stock. BSP will continue to be in the market until it has acquired all shares covered by its $35 million program. At that point, the company's $65 million program will be initiated. Before I turn it over to Jerry, I want to underscore the strong performance of our commercial real estate strategy. We are well positioned to continue to generate distributable earnings in excess of our current dividend level. We are excited that the transition of our legacy residential arms assets into our higher yielding commercial real estate lending opportunities is nearly complete and that our future results will be more indicative of our core strategy. In other words, we will soon be a pure play commercial mortgage REIT. Now I'll turn it over to Jerry to focus on the financial highlights in the quarter. Take it over, Jerry.