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Operator
Good day and welcome to the Franklin BSP Realty Trust fourth quarter 2023 earnings conference call. All participants will be in listen-only mode. 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 touchtone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would like now to turn the conference over to Lindsay Crabb, Director of Investor Relations. Please go ahead.
Lindsay Crabb
Good morning. Thank you, Alan, for hosting our call today. Welcome to the Franklin VST Realty Trust Fourth Quarter and Full Year 2023 Earnings Conference Call. With me on the call today are Richard Byrne, Chairman and CEO of SBRT, Jerry Baglian, Chief Financial Officer and Chief Operating Officer of SBRT, and Michael Camperato, President of SBRT. Before we begin, I want to mention that some of today's comments are forward-looking statements and are based on certain assumptions. Those comments and assumptions are subject to inherent risks and uncertainties, as described in our most recently filed SEC periodic report, and actual future results may differ materially. The information conveyed on this call is current only as of the date of this call, February 15th, 2024. The company assumes no obligation to update any statements made during this call, including any forward-looking statements, whether as a result of new information future events or otherwise, except as required by law. Additionally, we will refer to certain non-GAAP financial measures which are reconciled to GAAP figures in our earnings release and supplementary slide deck, each of which are available on our website at www.SBRTREIT.com. We will refer to the supplementary slide deck on today's call. With that, I'll turn the call over to Rich Byrne.
Alan
Perfect. Thanks, Lindsay. And good morning, everyone, and thank you for joining us today. I'm Rich Byrne, Chairman and CEO of FBRT. As Lindsay mentioned, our earnings release and supplemental deck were published to our website yesterday. So we're going to begin today's call by reviewing our fourth quarter results, and then we're going to open up the call for your questions. I'm going to begin on slide four. For the year end of 2023, FBRT had distributable earnings per fully converted share of $1.92. This is a 79% year-over-year increase and equates to a 12.1% distributable earnings return on common equity. Our distributable earnings dividend coverage for 2023 for the full year was 135%. In the fourth quarter, FDRT had distributable earnings of $0.39 per fully converted share, representing an almost 10% return on common equity. Our distributable earnings dividend coverage was 109% for the quarter. Our earnings were modestly lower in the fourth quarter versus the third quarter of this past year. The difference was due to the timing of minimum interest payments. Our portfolio ended the year at $5 billion. reflecting net portfolio growth of 84 million in Q4. We have been steadily originating in every quarter throughout 2023. And in total, we originated 818 million of new loan commitments for the year. And our portfolio remains heavily focused in multifamily with 77% of our exposure in this sector. We ended the quarter with 1.5 billion in available liquidity. unrestricted cash decreased slightly to $338 million due to our net origination activity. With 5.7% of our total assets in unrestricted cash, we are not just playing defense. We are actively working to deploy capital, and we are originating very attractive investments that we believe will be meaningfully accretive to our earnings. With many other lenders on the sideline, we have been able to build a robust pipeline, which you will hear more about shortly from Mike. An area we want to provide more details on today is our watch list and general CECL reserve. We ended the quarter with six loans on our watch list versus three loans at the end of Q3. Each watch list loan is rated a four. Subsequent to quarter end, we took title to one of the watch list loans, and have already liquidated it at a modest gain to our basis, meaning that our six watch list loans are now down to five, or 4.3% of our total portfolio. Mike will provide more watch list detail in his comments, including our definition of how we characterize a four rated loan, which may be more conservative versus many of our peers. The risk profile of our portfolio is relatively low, with almost 95% of our loans rated a three or better, and an average overall risk rating of 2.3 at the end of the quarter. Our focus on originating newer, vintage, high-quality multifamily loans continues to deliver stable performance for the vast majority of our portfolio. At quarter end, we held three foreclosure REO positions, representing 2% of our total assets. Most of the balance of our foreclosure REO was our Walgreens retail portfolio, which we are marketing for sale. Mike will also provide some detail on our REO positions during his commentary. No asset-specific CECL charges were incurred in Q4, but we increased our general CECL reserve by $5.4 million. Overall, our CECL reserve is 96 basis points of our total portfolio and which we believe is conservative given our portfolio's strong credit quality and the multifamily focus that we have. Gary will provide more details on the calculation of our CECL estimate in a section which we'll get up to shortly. Finally, FBRT's buyback authorization had under 36 million remaining at the end of the quarter. We purchased 3.3 million of FBRT common stock during the fourth quarter and 12.5 million throughout 2023. In total, since our program began, the company and its advisor purchased 64 million of FVRT common stock. We continue to be active in the first quarter of 2024 of this year. We're purchasing approximately 1.6 million of our common stock through February 13th. Our company buyback is authorized through the end of 2024. Lastly, we are pleased with FDRT's strong performance in 2023. Our earnings comfortably covered our dividend and produced a competitive risk-adjusted return, and we expect our earnings power to be enhanced as we grow our portfolio in 2024. We remain confident in the resilience of our assets in our portfolio. We have ample liquidity, and we are singularly focused on delivering long-term shareholder value. With that, I'll stop there, and I'll turn things over to Jerry to discuss our financial results. Over to you, Jerry.
Lindsay
Great. Thanks, Rich. I'm Jerry Baglian, the Chief Financial Officer and Chief Operating Officer of FBRT. I appreciate everyone being on the call today. Moving on to our results, let's start on slide five. FBRT generated GAAP earnings of $30 million, which is $0.28 per share. on a diluted common share calculation. That represents a 7.2% return on common equity in the fourth quarter. Our general CECL reserved increased to $48.3 million this quarter, reflecting an increase of $5.4 million and a $0.06 per share reduction to gap earnings. For our fourth quarter CECL calculation, we adopted a more conservative economic scenario to determine the reserve. The calculation is largely driven by economic conditions and the state of the real estate market. It is also influenced by the movement of our assets in our internal risk ratings. We earned $39.3 million in distributable earnings in the fourth quarter, and a walkthrough of our distributable earnings to GapNet income can be found in the earnings release. Book value was down in the fourth quarter to $15.77 from $15.82. Our increase to the general CISO provision was the largest driver at this decline, resulting in a $0.06 per share reduction to book value. This reduction was partially offset by distributable earnings in excess of our common distributions. Slide 7 summarizes our portfolio progression. As Rich mentioned, our portfolio grew this quarter, with our originations outpacing our repayments. However, when looking at the entirety of 2023, our repayments exceeded originations. This resulted in a modestly smaller portfolio size year over year. Despite the smaller portfolio, we are encouraged by the consistency in our prepayments. The repayments speak to the credit quality of our assets and the liquidity in the market for certain asset classes. In aggregate, seven loans were repaid in a quarter. Most of our repayments were for multifamily and hospitality loans, contributing 80% and 15% of the balance respectively. Slide 8 provides a high-level snapshot of our capitalization. Our average cost of debt during the quarter increased modestly to 7.9%. The increase in our cost of debt is a combination of the issuance of FL-10 at the end of the third quarter and the increase in SOFR over the period. 89% of our financing on our core book is non-recourse, non-mark-to-market. With reinvest available on four of our CLOs and newly issued FL-10, we do not have an immediate need to go to market with another issuance. That said, we are always watching the CLO markets and will engage in new issuance when the levels are attracted to us. Our net leverage position remained modest at roughly 2.3 times this quarter. We are deliberate in our use of leverage and view it as a structural highlight. With that, I'll turn it over to Mike to give you an update on our portfolio.
Rich
Thanks, Jerry. Good morning, everyone, and thank you for joining us. I'm Mike Comperato, president of FBRT, and I'm going to start on slide 12. Our portfolio ended the quarter at $5 billion, spread across 144 loans with an average size of $35 million. As Rich mentioned, our exposure is now 77% in the multifamily sector. Our multifamily exposure is in newer vintage assets. Almost one-third of our multifamily exposure was built between 2020 and 2023. Forty percent of our exposure was built between 1990 and 2020. Importantly, our exposure is in population centers with meaningful employment bases. Across our entire portfolio, the weighted average five-mile population size is approximately 240,000 people. There's been talk in the market about current weakness in multifamily properties. We continue to believe this weakness is more a reflection of over-leveraged borrowers likely taking losses on late 2021 and early 2022 acquisitions, and is not reflective of weakness at the asset level. In other words, it's a story of good assets and broken balance sheets. While there will be equity losses in multifamily, I do not believe FBRT is likely to experience any meaningful losses in our current multifamily book. To be clear, that view is in the context of a 425 10-year treasury yield. In addition, we have an integrated equity asset management team and believe we may even have the opportunity to turn some potential future REO situations into profitable transactions over time. We are long-term bullish on the fundamentals of multifamily at the asset level and will continue our focus on our portfolio originations on newer vintage assets and larger market. There continues to be an exceptional amount of liquidity in the multifamily market as evidenced by the robust levels of repayments that we have been receiving and by the endless inquiries we are receiving from investors looking to acquire loans as a mean to obtaining title. This liquidity was especially evident in a transaction that recently went into maturity default. After an extensive negotiation to extend a loan, a borrower offered an unexpected deed of loan foreclosure last December. We made five phone calls to the local market participants, all who were extremely interested in acquiring the property. One investor even offered to sign a PSA that week with a non-refundable deposit. Conversations like these rarely occur in any other asset class within the commercial real estate universe. We took title to the property and less than a week later closed on the disposition at a price above our outstanding balance. Slide 13 highlights our origination activity specific to the fourth quarter. We originated seven loans at a weighted average spread of 391 basis points. These transactions were primarily in multifamily and hospitality and were located across the Sunbelt. Turning to 2024, we've seen transactional volume pick up across multiple product lines. We expect to see substantially more transactions in the middle market. Competition remains thinned out and the regional bank bid has not returned. Quarter to date, FBRT has committed to $155 million of new loans and funded $122 million. We anticipate funding another $78 million tomorrow and have a robust pipeline through the remainder of the quarter. We are also seeing green shoots in the conduit market, which has historically been an earnings enhancer. In Q1 of 2024, we project to generate approximately $3 million in conduit revenue, which would be our highest quarterly conduit revenue in over two years. CMBS has again become one of the lower-cost financing options in the markets. so we are cautiously optimistic that Conduit revenue could pick up in 2024. Borrower behavior remains difficult to predict. We are being proactive in getting ahead of issues with our borrowers and are in constant contact with borrowers where constant contact is needed. Our real estate team's experience is deep and is equipped to handle a wide range of outcomes. We've been successful in resolving loans and extending or modifying when appropriate. In the fourth quarter, we modified 13 loans. Ten of those 13 modifications, the borrowers contributed additional equity, and in eight of those 13 modifications, we were able to reduce our total loan exposure. We will continue to be laser focused on improving our existing book when the opportunities present themselves. Even though we already have one of the lowest office loan exposures in the industry, we continue to shrink that exposure. We received one full office repayment in Q4 and another in early January of this year. Excluding our long-term net leased corporate headquarters and distribution facility, our office exposure is now comfortably under 5% of the portfolio. Moving to slide 14, you will see a summary of our watch list activity. We ended the quarter with six loans on our watch list, all four rated, with an aggregate value of $272 million. As already mentioned, one of those six has been fully repaid and resolved. Risk ratings vary company to company, and we review our entire portfolio every quarter and re-rate each loan. Certain characteristics warrant us rating a loan a 4. Our quarterly and annual filings define each investment rating, but for the purpose of our current watch list, I'll describe a 4 rating. For us, a 4-rated asset is one that is an underperforming investment with the potential of some interest loss, but still expecting a positive return on investment. Trends and risk factors are negative, but it is not indicative of expected loss and a future loss to our basis. During our quarterly review process in the fourth quarter, loans were downgraded to a four based on the measurements I just described. However, today we already have positive updates on several of those loans. The six loans on our watch list are a CBD high-rise office building in Denver, Colorado. This loan was added to watch list in Q3 of 23, and we are in the process of amending this loan with the borrower. We also have a Class A office building in Alpharetta, Georgia. This loan was added to watch list as well in Q3 last year. We have reduced our basis in this asset meaningfully in 2023 and recently entered into another loan amendment, which included additional repayments on principal. We have a 279 key hotel in Dallas, Texas. This loan was added in Q4. It has since been extended and is being actively marketed for sale. The 352 unit apartment community in San Antonio is one we previously mentioned. This asset was sold yesterday at a gain to our basis and therefore will be removed from watch lists. We have a 471 unit apartment community in Raleigh, North Carolina that was added in Q4. We are in active dialogue with the borrower and we have received extensive interest from the market to acquire the loan at par. And lastly, a two property apartment portfolio in Mooresville and Chapel Hill in North Carolina. This loan was lastly added in Q4, and we are in active dialogue with the borrower and reviewing potential options. Our total foreclosure REO positions at quarter end stood at three. As we discussed on our last call, one asset was removed from our watch list in Q4 and taken as REO. This is a small multifamily position in Lubbock, Texas. Our asset management team has meaningfully improved the asset quality in a short period of time, and the property has positive leasing momentum. It is currently held for investment as we improve the asset. The other two assets remaining as foreclosure REO are the Portland office building and the Walgreens portfolio. As it pertains to the Portland office property, we received a meaningful payment from one of the property tenants. However, big picture, we do not believe exiting the asset in the current market environment for office buildings is the proper decision. Lastly is our REO Walgreens portfolio. We did not sell any stores in the fourth quarter Our intention remains to liquidate the portfolio as the market permits, but we are not for sellers. We are comfortable holding these assets until we reach pricing levels that we feel are appropriate. In aggregate, our foreclosure REO balance ended the quarter at $122 million, which is approximately 2% of total assets. In closing, it's clear that our industry is dealing with significant headwinds. However, we are actually quite bullish about the market opportunity for FBRT right now, given our substantial liquidity position and our limited office exposure. Also, we remain confident in the continued outperformance of our existing portfolio given our relatively outsized exposure, not only to just multifamily, but newer vintage, higher quality multifamily in larger liquid markets. We believe this will provide us with a competitive advantage in 2024 and continue to play offense when most other lenders are on the sidelines. With that, I would like to turn it back to the operator to begin the Q&A session.
Operator
We will now begin the question and answer session. To ask a question, you may press star then 1 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 it, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Sarah Barcom of BTIG. Please go ahead.
Sarah Barcom
Hey, good morning, everyone. So I just wanted to narrow in on this San Antonio foreclosure. You know, I think the key takeaway here is that you guys got a full recovery. But can you talk a bit more about what led the sponsor to walk away here and how you might view this property differently compared to the broader multi-portfolio? You know, this is a higher LTV peak of Sunbelt multifamily cap rates vintage asset. And that new valuation you disclosed implied nearly a full equity wipeout. Is this a standard outcome for an asset like this where maybe you get the keys back, but at the senior mortgage lender basis, you know, you see a full recovery? And I'm also curious if you think this could represent a peak to trough valuation for this cycle. I'd appreciate any color there. Thanks.
Rich
Hey, sir. Good morning, and thank you for the question. This was a fairly frustrating process, but as you alluded, all's well that ends well. I do think it's representative of a lot of transactions that closed in late 21 and early 22. The borrower had an extension option, and the only condition to exercising that extension was buying a new interest rate cap. They told us they were going to buy a new interest rate cap. Then they told us they weren't going to buy a new interest rate cap. They offered us a proposal. We negotiated a proposal. They agreed to the proposal. And then when all was said and done, they couldn't raise the additional money from their LPs to move forward at all. So It was very surprising to us, but as I've talked about for several quarters and even again today, borrower behavior, it's very, very difficult to predict. So as frustrating as it is for you guys, it's frustrating for us as well. But again, we took the asset. These assets are very liquid right now in the market, and we're able to sell it for a gain. But generally speaking, yes, I do think this is probably representative of what we will see for those late 21, early 22 acquisitions where, again, as I alluded to in my comments today, I don't foresee us having any meaningful losses in the multifamily book given where the market is today. I think if borrowers elect not to move forward and extend or continue their business plans, I believe we have the ability to move most of our positions above our current debt basis.
Sarah Barcom
Okay, great. And then, you know, and you've already touched on this, but my follow-up is related to that risk rating migration. You know, you've repeatedly highlighted before this call as well that borrower behavior is very difficult to predict. You know, so to recover that full basis, you know, we saw this migrate from a two in Q3 to a foreclosure in this print. Can you just talk about how you're thinking about risk rankings going forward?
Rich
I mean, it's an imperfect world, right? And it's an imperfect, illiquid asset class. So the only information we can gather is the actual quantitative data at the property level and then our conversations with the borrower. They had been implementing the business plan. They were renovating units. They were improving the asset. They were doing the things that they told us they were going to do. And as always, our asset management team engaged with them probably four to six months in advance of their loan maturing. And every conversation was, we're moving forward, we're moving forward, we're going to amend, we're going to do what we need to do. And it was literally days before maturity. We had a fully negotiated, documented extension papered with the attorneys, and they just called us a few days before and said, can't do it. So I'm not sure what we could do differently within the context of that set of facts. I think we've got a very good process. I believe our rankings are as accurate as they can possibly be given the information we have, and we'll just continue to do our best to give you guys as much transparency as we can.
Sarah Barcom
Yeah, yeah, no, I appreciate the color there. You know, again, it's good to see this come back as effectively a full repay. So thanks for taking my question.
Operator
Thank you. The next question comes from Steven Laws of Raymond James. Please go ahead.
Steven Laws
Hi, good morning. First, I want to thank you for the detail and the color on the watch list in REO. It's nice to have that level of discussion. One follow up on Sarah's question around San Antonio. You know, I know you're able to exit at your basis. Can you talk about what the original loan balance was? And then did you provide financing to the new player? And if so, you know, what type of LTV did you look at on the new valuation as far as setting the new loan?
Rich
Hey Stephen, good morning. Thanks for the question. I'll start backwards. So yes, we did provide financing to the new buyer. uh their anticipation is to flip this to agency financing very quickly the asset was you know largely stabilized i think it was like 92 percent least or 93 percent least for the past few months um so we provided just a one-year acquisition facility uh 38 million dollars roughly uh or maybe 30 36 to 38 million dollars in in that range um And it was just a one-year loan fixed at 9% with a one-point origination fee. So we thought based on how much interest there was in the asset at the $43 million level, we felt very good back another 10 to 15 points on only one year of exposure. And it's a very, very top shelf middle market operator who we historically have not provided financing to. So we're very happy to also get a new client out of the opportunity. And I apologize, Stephen. What was the first part of the question again?
Steven Laws
The original loan balance as opposed to I think you provided the carrying value, but the original loan balance.
Rich
I believe it was about $1.5 million back of where our ending balance was. I think we had about $1.5 million in future fundings to effectuate the business plan.
Steven Laws
Thanks for the color. They really appreciate the details as a follow-up kind of bigger picture on multi You know you mentioned I can't find it exactly my notes, but I think of the modifications I think you said ten maybe put new equity maybe it was eight But the majority put new equity into the transaction is that is that equity coming from the sponsor are they going to third parties and getting mezz or prep loans to do those kind of recaps and pay down kind of can you talk about where they're getting that capital and general thoughts around multi and the ability of other borrowers to do the same.
Rich
Yeah, so I think largely the capital that was infused into those extensions was from the existing investors, the existing LPs. I think there has been a lot of conversation in the market about prep equity and that is available to sponsors in these over levered positions. And I'm just not sure at the end of the day, if it makes a whole lot of sense, right? It's very expensive. It's dilutive in, you know, if, if they're taking a piece of the common, um, we have not seen a lot of it. So there's a lot of banter around it in the market, but we actually haven't seen it solve any problems really, because I'm not sure it really does solve any problems. So I think generally these outcomes have been fairly binary thus far. It's either we're going to keep our existing investors, our existing investors want to bridge to brighter days, or it's we're out, we'll sell it ourselves and get 10 or 20 cents back, or we'll just hand it off to you guys and deal with it that way. But we've seen Off the top of my head, I think only one transaction that I can think of where a new LP has stepped in or a new equity provider has stepped in to provide meaningful dollars.
Steven Laws
Great. And then one last question, if you don't mind, on the competitive front. You mentioned in the prepared remarks that you really haven't seen the banks come back. you know, can you talk about the competitive landscape, kind of where spreads on new multi deals, you know, who are you competing against there? And then, you know, what, what do you think needs to happen in the market for banks to, to return?
Rich
Um, so, you know, I, I would say that what we're seeing on the origination front is probably some of the highest quality credits that we've seen maybe in the 10 years that I've been at benefit street. Um, There's a very, very limited bid out there. As you know, the bank bid is gone. The publicly traded mortgage REIT space, I mean, I think of the 15 players that are out there, only three wrote a loan all of 2023. So they're largely on the sideline. The competition that we're seeing is really only in the multifamily sector. I would say there's a handful of debt funds, and obviously the agency bid never goes away that we're competing with. But on all other asset classes, it's fairly thinned out. And as you get higher in loan size, believe it or not, as loans get bigger, they're getting meaningfully tougher to do. So anything in the $7,500, $125 million range, there is really not a deep bid there at all for anything. So We're seeing really interesting opportunities in the larger loan side of things. Pricing has tightened over the past, I would say, 30 to 60 days. You've seen an incredible spread rally across the world for the past four months. That's been on the screen. Real world usually delays 60 to 90 days, so we're starting to see that come through in our spreads on loans. But I would say, you know, generic multifamily today is probably pricing around so for 300, 325, you know, really high quality stuff has a two handle, a little spicier stuff could be in the high threes. Fantastic.
Steven Laws
Appreciate the call this morning. Thanks a lot.
Jerry
Thanks.
Operator
The next question comes from Matthew Erdner of Jones Trading. Please go ahead.
Matthew Erdner
Hey, good morning, guys. Thanks for taking the questions. Can you expand on the hospitality loans that you originated this quarter in terms of LTV, geography, and then what your overall thought is on that sector going forward, given the migration of the Dallas loan to a fort?
Rich
Yeah, the Dallas loan, that was a pre-COVID origination. we repeat client of ours that we've done probably close to a dozen loans with. They had done the right thing through the totality of COVID. I mean, paid us down substantially along the way, contributed equity, kept going into their pockets. They just kind of said no mas. I think that the The issue that we're dealing with on that specific asset is more a micro market locational issue than it is a broader commentary on the hospitality market. Generally speaking, I think we've seen hospitality perform exceptionally well. We've seen leisure oriented hotels kind of blow through peak rev par numbers from 2019. Performance has been great. The business-oriented travel segment is still slow to recover. It's still moving in the right direction, but it is a very, very slow move in the right direction. I would say overall, we're fairly bullish on the sector. I think more importantly, we're bullish on the credits that we're writing in the sector because a lot of them are generally lower leverage. lower leverage loans that are either acquisition loans or cash-in refis. For example, I think one of the loans that we originated in Q4 was like a 35 LTV in Tampa, Florida. Great institutional sponsor. We had a great MES loan subordinate to us, and we just wrote a very, very low leverage hotel loan. Again, pretty positive on the sector and even more positive on the lower leverage credits that we've been writing.
Matthew Erdner
That's helpful. Thanks for that. And then can you talk about conduit again? I kind of missed the numbers that you threw out there. And then if any conduit deals were done in 4Q, can you tell me what that was? Thanks.
Rich
Jerry, do you have the Q4 revenue number? Well, I'll give Jerry a second to look that up if he doesn't know it. But I had mentioned in the remarks that we anticipate 3 million of revenue, approximately 3 million of revenue in Q1 of 24. And we've seen a real pickup in demand for that product right now. So again, cautiously optimistic that 2024 could be the best year we've had in a few years as it pertains to conduit revenue.
Jerry
Thank you. Jerry, I don't know if you had the Q4 revenue number or not.
Lindsay
Yeah, I'll mention it in a second. Let me just pull it up.
Alan
Operator, Alan, any more questions?
Operator
Certainly. Our next question comes from Steve Delaney of Citizens JMP. Please go ahead.
Steve Delaney
Thank you. Good morning, everyone, and congratulations on a strong year. You know, we look at the balance sheet at year-end with $350 million of cash. Leverage is 2.3 times. You know, 3.0 is kind of a standard, I guess we call it. I mean, when you think about 2024, it looks like you're poised for portfolio growth if you want it and you can find it. So I guess compared to about $800 million in new originations and a $5 billion portfolio, what might those numbers look like in 2024? Thanks.
Alan
Hey, Steve, maybe I'll start off and then Mike can get some more detail. Hey, Rich.
Steve
Thank you.
Alan
Hey, Steve. You're right to point out, I would almost rephrase that as like the untapped earnings power that we have. I mean, we have over 300 million of cash. You know, our Walgreens holdings alone, which are kind of earning barely even cash, that's another 90 million of equity that's tied up in those properties that, you know, we could redeploy. As you pointed out, our leverage is low. So, you know, we've got a, And we're in this nice position. I know most of the space is because of the rise in interest rates that we're over covering our dividend, even though we're not even close to fully deployed. I think the difference for us is that we're not building a war chest. You know, you've seen, like you said, throughout the year, we've originated pretty consistently every quarter. We're not building a, I don't know what the word is, war chest or, you know, reserve fund for bailing out of maybe some outside tail risk. I think just as you heard from the nature of our portfolio, we feel relatively good. I understand the market's choppy and we're going to see maturities of everybody's book over the next four to six quarters. So we want to have some capital in reserve to protect against any issues, but we certainly don't need the amount of liquidity that we have. And I think people will look back on this vintage, as Mike sort of alluded to, of deal flow that we're seeing now as being one of the best vintages that's come around in a long time, mostly because there isn't a lot of people competing with us to underwrite these loans. So I think that's the big picture backdrop is that it would make a lot of sense to be active if we find the right deal flow. And I think the only missing piece that's starting to come together, as Mike alluded to from the backlog that we have in Q1, is just volume of transactions. It's obviously been light. But to the extent we can see good deals, you're going to see us originating and growing our earnings power.
Steve Delaney
I appreciate that, Rich. And you've got your conduit business, which is sort of a follow-on. I don't know how much conversion you get from bridge to conduit, but I assume that's one of the synergies and benefits of having that product. Crazy question, I guess, but 77% multifamily. I mean, would you guys ever consider buying a small dust lender just to kind of have that same conversion opportunity between bridge and permanent financing?
Rich
Thanks, Stevie. I mean, it's something we talk about more often than not. It is easier said than done. If the right opportunity presented itself, we would certainly be interested in looking at that. But, yes, the more products that we can have that complement each other and we can cross-sell, you know, the better experience that we're giving to our client base. So we're always looking to do that.
Steve Delaney
Great. I appreciate the comments.
Operator
Thanks. As a reminder, if you have a question, please press star, then 1. Our next question comes from Matthew Howlett of B Riley. Please go ahead.
Matthew Howlett
Oh, Hey, thanks everybody. Thanks for taking my question. Uh, strong, uh, way to end of the year. My question first is to you, Jerry on, on Cecil on the general Cecil reserve. I realize you're not taking anything as a specific last quarter, but how do we think about that going forward? I know it's, it's a lot of noise and I know you look at sort of forward economic inputs. I mean, could that begin to subside towards the back half of the year? Or if you're growing, if you're really growing the portfolio, will that still be kind of a headwind for gap earnings? I realize you're back at that core. Just curious on how to think about the noise that's created that over the course of 24.
Lindsay
Yeah, good question. I mean, in terms of portfolio growth, I would assume you're taking – that number of basis points against what you're originating going forward, give or take a little bit, I just think as a, as a proxy. So yeah, it's going to create, you know, some, some gap offset as we grow the book. Um, and I don't, I don't expect a big change in the economic scenario throughout the year. It's possible, but I mean, you've, you've heard our opinion on how we think the market is going to go. We've taken a pretty conservative approach to the economic forecast that we use. Um, And I don't see us switching that to a rosier picture in 24. So I think you're going to have, you know, it'll move around a little bit, just depending on what those future scenarios are. But I think we would expect to keep a pretty conservative approach to how we think about that portfolio reserve. And the only other factor is just how our risk ratings kind of move, because that'll drive a little bit of the totality of that number as well. But I'm not expecting big relief from some sort of decline in general throughout the year at this point. I think the base case is we've run relatively similar to where we are now.
Matthew Howlett
Great. You know, I know investors do look at the adjusted book, and I think you said 96 dips in it, but it's just something to, you know, I think the conservatism, you know, I think investors appreciate, but certainly it's a headwind and noise to that adjusted book value number any given quarter. But I appreciate the color and the sense of like, It's good to hear there wasn't really any asset-specific CISO reserve this quarter, so it certainly speaks to your underwriting. The second question, I guess on the funding side, I think I heard you mention you did the CLO in the quarter. You're sort of monitoring that market. You got, what, six outstanding CLOs with the 10 or five outstanding today. They're a cost of debt, so obviously – How do you look at that market going forward when you want to begin growing the portfolio? Would you like to keep the predominant reliance on the CLOs given their non-recourse? You get great advance rates. Or would you want to expand into – would you want to use more bank lines going forward? And just talk to me about the liability. As you begin to really start growing the portfolio, will the liability mix change at FBRT?
Lindsay
I can start and others jump in.
Jerry
Go ahead.
Lindsay
I think our perspective on this is all things being equal, it's hard to beat CLO financing. I mean, we can get a match term, non-mark to market financing. It's a pretty good solution. So, you know, once we have a nice pool of assets built up to do another deal and the market makes sense, you know, it's equal to or better than what we can get on a bank line. I think we generally prefer that. particularly if we can get, you know, the reinvestment components that we like to have on those deals, which makes them useful for really a couple years. And then you've got a couple years of runoff, depending on how the portfolio sits after that. So if the market's open and accretive, I don't expect this to stop going out. You know, that said, I think we've built the book with a lot of optionality. I mean, right now, virtually all of our book is in CLOs. So it means we're in absolutely no rush to do a deal. I think we're well positioned to be, you know, a very choosy issuer. You know, we don't have to rush the market and we've got tons of capacity with our bank partners right now. So I kind of like where we're at, you know, it's total flexibility with our balance sheet at the moment. So would we do a deal? I think so, but we're certainly not in any rush, nor do we have any impetus to have to go out and issue. So, I'm very comfortable with how we're positioned on that going forward.
Matthew Howlett
Great. And then just last final one, if I may, on capital management, clearly you're buying back stock. I'm sure you're frustrated with the 20 plus percent discount of stock, you know, training it to adjust it, but you're also training at what over 11% dividend yield with run rate earnings above the dividend and clearly probably going much higher. I mean, Rich, bigger pitch question, bigger picture question. Would you like to raise the dividend or, if you continue the growth in the portfolio this year, or is the focus just buying back stock if you're going to trade at this discount? Thank you.
Alan
All right. Hey, Matt. Yeah, thanks, Matt.
Rich
Oh, okay. Go ahead, Rich.
Alan
Go ahead. All right, Mike. Yeah, first of all, they're not mutually exclusive concepts. We have, you know, Since our public market debut, we've been pretty consistent in buying back our shares when our shares get cheap. So I think as long as we have liquidity, that's always an attractive use of capital if the market trades our stock poorly. And the conversation about dividend is one that we have frequently. We have it with ourselves and we have it with our board. I think our dividend policy, or I don't think, clearly our dividend policy is to pay what we earn or what we think we're going to earn. That crystal ball is sometimes a little difficult to interpret. You're right. As you commented, we have lots of untapped earnings potential as we deploy our excess cash and as we put additional capital to work and possibly even increase leverage modestly. So that would portend some real earnings power. You know, the timing of our new deal flow is a little bit trickier to predict. And then, of course, there's things on the other side of the ledger. Probably the biggest benefit everybody has had over the last year and change has been the rise in rates as far as, you know, earnings power. It hasn't helped asset quality in many cases, but it certainly has helped our earnings power. Who the heck knows where rates are going? Probably the trajectory is more likely down than up. And then, you know, many others are cutting dividends or certainly not having an increasing dividend conversation because of potential asset problems. So I think, you know, I think all these factors weigh together and, you know, we're going to continue to analyze things, but the end conclusion we will always reach is paying what we earn or certainly doing our best to predict what we're going to earn and paying a dividend level there. So, you know, that's my best way of saying, you know, we're going to continue to monitor it. And, but we, your point's not wrong. We certainly have a lot of earnings power that's been untapped. Just, just want to wait in the context of all the other things I said.
Rich
I really appreciate it. And Matt, let, let, let me just add quickly to that. Just Chris. I mean, I think we clearly have upside in earnings power. I think that does lead to upside and potential dividend, uh, I think the key there is when we raise, if we raise, it is going to be in the context of giving the all clear on not only a backward-looking legacy portfolio basis, but also a forward-looking earnings power basis. We don't want to be in a position where we're moving dividends every quarter or two. If we raise, it will be in the context of Things feel really, really strong. It will be with a strong message to the market, but I do think the potential is there in the future.
Matthew Howlett
I appreciate it. I just think you guys are certainly in the camp to potentially raising the dividend this year, and I know that's counter to some of the other peers that we've seen out there, but certainly it's a nice conversation to be having, and I figure I'd bring it up. I appreciate it. Thank you. Great. Thanks, Matt.
Operator
This concludes our question and answer session. I would like to turn the conference back over to Lindsay Crabb for any closing remarks.
Lindsay Crabb
Thanks, Alan. We appreciate everyone joining us today. If you have any further questions, please reach out to me or the team. Thank you.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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