Franklin BSP Has $300 Million Tied Up in Troubled Assets and Buys Back Shares
Key Facts
Franklin BSP Realty Trust management said about $300 million of equity was tied up at the end of the third quarter in non-performing or underperforming loans and properties the company had acquired through foreclosure. It said its priority was to work through those assets and recycle capital, pointing to a distressed portfolio that needs to be managed alongside investment activity. The amount does not represent an announced settlement transaction, but the value of equity tied up in those loans and properties. Meanwhile, the company repurchased 7,433,748 shares during the quarter at an average of $8.14 per share, for a total of $60.5 million. It said the buybacks added $0.55 to book value per diluted share on a fully converted basis.
Management linked the share repurchases to addressing legacy assets, saying the increase in book value resulting from the purchases gives it greater flexibility to work through those assets. Proceeds from asset sales allow the company to redeploy capital, while it may accept a reasonable discount to accelerate a sale when the proceeds are reinvested. Ten assets from equity investments and real estate owned after foreclosure were actively being marketed for sale at the time of the earnings call. Management expected to make progress in addressing the assets over the coming quarters. The chief financial officer also said the company redeployed about $300 million of proceeds from collateralized loan obligations into new investments during the quarter, alongside the share repurchases.
The buybacks came amid credit pressures reflected in third-quarter results, with the company recording a net provision for credit losses of $43.1 million. The provision included $37.7 million for the core portfolio and $5.4 million for the agency business. The company attributed the core portfolio provision to specific reserves for older multifamily assets whose fundamentals had deteriorated. Distributable earnings were $3.3 million, or a loss of $0.02 per diluted share on a fully converted basis. Before realized losses, distributable earnings were $25.8 million, or $0.24 per share.
Book value per share on a fully converted basis was $14.26 on September 30, up $0.02 from the previous quarter. The core portfolio balance reached $4.1 billion across 175 loans, with multifamily properties accounting for more than 83% of it. The company closed $249.3 million in new loan commitments and funded $284.8 million in new and existing loans during the quarter. Over the same period, it received $405.5 million in loan repayments, and total liquidity was $407.2 million, including $100.8 million in cash and equivalents. It also declared a quarterly cash distribution of $0.20 per share.
The company placed 13 loans with an aggregate original balance of $333.6 million on its watchlist as of September 30; 6 were rated risk grade 4 and 7 were rated 5. The portfolio's average risk rating remained at 2.4, unchanged from the previous quarter. In the agency business, the loan servicing portfolio grew by $1.4 billion to $61.3 billion, and the book value of mortgage servicing rights was $201.2 million. On buybacks, the board extended the program on October 27 through December 31, 2027. The stock closed at $6.34 on October 29, down 16.47% over 3 months and 40.53% over 12 months, while quarterly revenue exceeded the consensus estimate of $72.66 million, coming in at $74.93 million.