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DATE
Oct. 30, 2025 at 9 a.m. ET
CALL PARTICIPANTS
President and Chief Executive Officer — Richard Byrne
Chief Financial Officer — Jerome S. Baglien
President, Real Estate Investments — Michael Comparato
Managing Director, Investor Relations — Lindsey Crabbe
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RISKS
Dividend Under Coverage — The decline in book value per share in Q3 2025 was due to dividend under coverage and the impact of the NewPoint acquisition.
Legacy Portfolio Markdown — A position on the watch list was marked down by $2.3 million due to expectations for a short sale in the fourth quarter.
Large Transaction Margin — Management noted, "There is slight margin tightening" on the large NewPoint transaction that drove record origination volume.
TAKEAWAYS
NewPoint Acquisition Impact -- NewPoint contributed $9.3 million to distributable earnings (non-GAAP) in Q3 2025, with a record $2.2 billion in originations and a $1.8 billion increase in the agency servicing portfolio.
Total Distributable Earnings -- $26.7 million, or $0.22 per fully converted share, including $1.7 million of realized losses from an REO sale; excluding this loss, distributable earnings were $0.23 per share.
Book Value Per Share -- Book value was $14.29 per fully converted share, with the decrease attributed to dividend under coverage and the NewPoint acquisition.
GAAP Net Income -- Reported net income of $17.6 million, or $0.13 per fully converted common share.
Available Liquidity -- $522 million as of quarter end, with subsequent completion of a twelfth CRE CLO refinancing older CLOs and expanding origination capacity by approximately $1 billion.
CRE CLO Issuance -- Closed an approximately $1.1 billion CRE CLO post-quarter-end (settled on October 15) with an 88% initial advance rate, a thirty-month reinvestment period, and a weighted average interest cost of SOFR plus 161 basis points.
Financing Cost Reduction -- Transactionally driven cost savings are expected to lower financing cost by about 65 basis points and generate approximately $0.05 to $0.07 per share in incremental quarterly earnings once cash is deployed beginning early 2026.
Quarterly Loan Activity -- Originated approximately $304 million in new loan commitments and funded $196 million, primarily in multifamily; received $275 million in loan repayments.
Core Portfolio Size -- Ended at $4.4 billion, with management targeting a return to at least $5 billion in coming quarters.
Share Repurchases -- Repurchases resumed in Q4, with 540,000 shares bought for approximately $6 million through October 24 and $25.6 million remaining on the authorization, which was expanded through year-end.
Watch List Dynamics -- Ten positions remain on the watch list at quarter end, with three new additions and one removal due to full repayment; management expects several positions to be removed in Q4 2025 via loan modifications or asset sales.
REO Asset Sales -- Sold two REO properties, with four assets under purchase and sale agreement (PSA) and closing expected for two within two weeks post-call.
Office Loan Exposure -- Now $70 million across four loans, representing 1.6% of the portfolio, with further reduction anticipated in Q4.
Post-Interest Rate Hike Originations -- These comprise approximately 60% of the loan book.
Core Portfolio Average Risk Rating -- The core portfolio's average risk rating held steady at 2.3.
Cost of Debt -- The average cost of debt on the core portfolio was SOFR plus 2.31%.
Leverage Metrics -- Net leverage stood at 2.55 times, and recourse leverage at 0.84 times.
MSR (Mortgage Servicing Rights) Metrics -- Reported $19.7 million of MSR income at a 91-basis-point rate and a total MSR portfolio value of $221 million with an implied life of 6.6 years; MSR value changes provided a $0.04 per share book value increase.
Financing Structure -- Approximately 75% of the core portfolio is financed through non-recourse, non-mark-to-market structures, with reinvestment capacity on two CLOs.
Multifamily Portfolio Composition -- Multifamily constitutes 75% of the core portfolio; of legacy loans, $1.6 billion (80%) is multifamily and $178 million (10%) is hospitality.
Loan Origination Spreads -- Eleven loans were originated at a weighted average spread of 447 basis points and one mezzanine loan at just over 1,300 basis points, with a combined average spread of 511 basis points.
CMBS & Conduit Business -- Management noted "Our conduit business had a very strong quarter," and Q4 CMBS performance "could be one of the strongest quarters in the history of the company" if current market conditions persist.
REO Portfolio Detail -- Nine foreclosure REO positions remained at quarter end, with the largest asset in Raleigh, North Carolina, at 91% occupancy and options for sale or joint venture being explored in Q1 2026.
NewPoint Integration & Future Earnings -- Management projects NewPoint will be accretive to GAAP earnings, book value, and distributable earnings in 2026, with the completed loan servicing migration expected to contribute $0.04 to $0.06 per fully converted share annually.
SUMMARY
Franklin BSP Realty Trust (FBRT 3.85%) emphasized that the acquisition and integration of NewPoint drove distributable earnings (non-GAAP), MSR income, and agency origination volume to historic highs during Q3 2025. Management indicated the successful closing of a $1.1 billion CRE CLO is expected to enhance future origination capacity by $1 billion, deliver an accretive liability structure, and meaningfully lower financing costs. The company reported that share repurchase activity has resumed, with an expanded authorization aimed at capitalizing on perceived undervaluation. Portfolio repositioning continued with REO asset sales, material reduction in office exposure, and ongoing progress resolving watch list and legacy loan positions. Liquidity and reinvestment capacity were reinforced through CLO issuance and strategic asset recycling, setting up conditions for incremental earnings growth expected to begin in early 2026.
Michael Comparato described the current quarter as a "construction zone" and stated the company is now "highly focused on playing offense" as integration proceeds, expressing excitement to continue the path toward dividend coverage.
The migration of loan servicing to NewPoint is expected to generate additional recurring earnings of $0.04 to $0.06 per fully converted share annually once fully completed in 2026.
Management noted lender and borrower asset pricing is adjusting, and although origination spreads have tightened, the company continues to target differentiated deal flow and alternative investments to maintain risk-adjusted returns.
Personnel investments and compensation expenses are expected to scale with originations, exhibiting variability across quarters depending on volume and performance targets.
INDUSTRY GLOSSARY
CRE CLO: Commercial real estate collateralized loan obligation—a securitization backed by a pool of commercial mortgages, commonly used to finance a lender's loan portfolio.
CMBS: Commercial mortgage-backed securities—bonds secured by pools of commercial real estate loans, often issued via conduits.
REO: Real estate owned—property acquired by the lender through foreclosure or deed-in-lieu that remains on the balance sheet awaiting resolution or sale.
MSR: Mortgage servicing rights—the contractual right to service a mortgage for a fee, frequently recognized as a separate asset on the balance sheet.
PSA: Purchase and sale agreement—the contract outlining terms for the disposition of property assets.
Full Conference Call Transcript
Richard Byrne: Great. Thanks, Lindsey, and good morning, everyone. I am going to start on Slide four by reviewing our third quarter results, and then, as always, we will open the call up for everyone's questions. I'll begin with key developments from the third quarter. Jerome S. Baglien is going to walk through our financial results, including NewPoint's strong contribution to its first full quarter with us at Franklin BSP Realty Trust. And Michael Comparato is going to provide updates on several more topics, including market conditions, our watch list, and our REO activity. But to start, as we previously said, the third quarter was a transitional period for Franklin BSP Realty Trust.
It was highlighted by the successful closing, as I said, of our acquisition of NewPoint, which occurred on the first day of the quarter, July 1. The NewPoint integration so far is going exceptionally well. NewPoint had a record volume quarter, which was actually the highest in its history, with $2.2 billion of originations. This resulted in a $1.8 billion increase in the agency servicing portfolio. In total, NewPoint contributed $9.3 million to distributable earnings in its first full quarter as part of our company. Overall, our distributable earnings were $0.22 per fully converted share. Jerome S. Baglien is going to provide additional details on distributable earnings as well as NewPoint.
As expected, maintaining liquidity for the acquisition limited our new loan originations early in the quarter. As such, our core portfolio size declined slightly. We originated approximately $304 million in new loan commitments in the quarter and funded $196 million of those, primarily in multifamily, with the bulk of our origination activity occurring mid-quarter or later. And we received $275 million in loan repayments. We expect our core portfolio to return to its target size of at least $5 billion over the next few quarters. At quarter end, we had $522 million of available liquidity, but following quarter end, we closed our twelfth CRE CLO, which refinanced several older CLOs past their reinvestment periods.
While these CLO calls will result in some non-cash extinguishment debt charges in the fourth quarter, the transaction lowers our interest expense and adds approximately $1 billion of origination capacity to our total loan portfolio. Our average risk rating held steady at 2.3. We continue to make progress on the legacy portfolio and actively manage our watch list and REO assets. Three new loans were added to the watch list this quarter, while one was removed following full repayment. We expect to remove several watch list loans in Q4 via loan modifications or asset sales. On the REO front, we sold two properties this quarter and have a few more slated to close in Q4.
You'll hear a lot more about that moment. As these legacy issues are resolved, additional capital will be available for us to deploy into our core portfolio. Post-interest rate hike originations now represent approximately 60% of our book. Importantly, we have resumed share repurchases in Q4. We view our stock as significantly discounted and believe it's an important activity supported at these levels. Through October 24, we have repurchased 540,000 shares for approximately $6 million and have $25.6 million remaining on our buyback allocation. Our Board of Directors expanded our buyback authorization through December. While this was a transitional quarter, we view it as one that set the stage for stronger results ahead.
We are focused on integrating NewPoint, redeploying liquidity, and leveraging our expanded capabilities to grow earnings and book value as we move through the remainder of this year and well beyond. With that, I'll pass things over to Jerome S. Baglien.
Jerome S. Baglien: Great. Thanks, Rich. I appreciate everyone being on the call today. I'll continue to walk through the third quarter financial results, and I'm going to start on Slide six. Franklin BSP Realty Trust reported GAAP net income of $17.6 million or $0.13 per fully converted common share. Distributable earnings for the quarter were $26.7 million or $0.22 per fully converted share. Distributable earnings for this quarter include $1.7 million of realized losses related to a REO sale. Excluding this realized loss, distributable earnings were $0.23 per fully converted share.
Book value at quarter end was $14.29 per fully converted share, and the decrease in book value per share was caused by under coverage of the dividend and by the NewPoint acquisition. In regards to the dividend under coverage, the key drivers we outlined last quarter to move toward coverage remain intact, and I'll highlight some of the progress we've made on those fronts. At the end of the third quarter, we issued an approximately $1.1 billion CRE CLO, which settled on October 15. The transaction carries an initial advance rate of 88% and a weighted average interest cost of SOFR plus 161.
Before accounting for discount and transaction costs, the CLO has a thirty-month reinvestment period, meaning it should be an accretive liability for us for three to five years. In conjunction with the new CLO, we also financed approximately $500 million of assets with the Money Center Bank. Together, these financings allowed us to call several older CLOs, generating roughly $250 million of cash and reducing our financing cost by about 65 basis points. Combined, these transactions are expected to add an incremental $0.05 to $0.07 per share quarterly earnings once this cash is deployed into new assets. We expect to begin realizing this benefit in early 2026.
Michael Comparato will provide more details on our REO portfolio, but we did reduce our REO balance this quarter through an additional asset sale. We continue to sell REO and redeploy that capital into new originations. We estimate this activity can contribute approximately $0.08 to $0.12 per share per quarter to distributable earnings over time. We also saw a strong contribution from NewPoint in its first full quarter as part of Franklin BSP Realty Trust, generating $9.3 million of distributable earnings, or $0.09 per fully converted share.
Beyond the immediate earnings contribution, NewPoint is already driving meaningful intangible benefits, including increased deal flow for balance sheet lending, stronger customer relationships, additional CMBS opportunities, and access to a much larger real estate platform we can leverage both operationally and strategically across our business. Moving to slide eight, our average cost of debt on our core portfolio was SOFR plus $2.31. As I mentioned, FL-twelve closed shortly after quarter end on October 15. We've been a consistent leader and repeat issuer in the CRE CLO market, and this transaction was met with very strong investor demand. With the addition of FL-twelve, approximately 75% of our core book is now financed through non-recourse, non-mark-to-market structures.
We have reinvestment capacity available on two of our CLOs. Our net leverage position ended the quarter at 2.55 times, with our recourse leverage standing at 0.84 times. Turning to slide 11 for updates on NewPoint. With the acquisition closing on July 1, we now have a full quarter of results to share, along with progress on our integration efforts. Agency volume came in at the high end of our range at $2.2 billion of new loan origination in the quarter. You can see the breakdown of those volumes by agency on the slide. We now expect full-year originations to come in toward the upper end of our initial guidance.
We recorded $19.7 million of MSR income in the third quarter, representing an average MSR rate of approximately 91 basis points. At September 30, our MSR portfolio was valued at approximately $221 million, with an implied life of 6.6 years. The change in value of the MSR portfolio provided a $0.04 increase to book value this quarter. NewPoint managed its servicing portfolio that was $47.3 billion at quarter end. Integration work is well underway across our business. The migration of BSP loan servicing began during the third quarter, with full completion expected by 2026.
Once complete, the full migration of Franklin BSP Realty Trust's loan servicing book is expected to generate $0.04 to $0.06 per fully converted share annually to earnings. We expect NewPoint's earning contribution to Franklin BSP Realty Trust to grow meaningfully over time, as income is directly linked to cumulative agency and FHA origination volume and the expansion of the servicing portfolio. We continue to expect NewPoint to be accretive to GAAP earnings and book value per share in 2026 and accretive to distributable earnings in 2026. With that, I'll turn it over to Michael Comparato to give you an update on our portfolio.
Michael Comparato: Thanks, Jerry, and good morning, everybody. I'm going to start on Slide 13. Our core portfolio ended the quarter at $4.4 billion across 147 loans, with multifamily assets making up 75% of the portfolio. More broadly across the CRE market, we are seeing a continuation of the trend we noted last quarter. After years of pause, borrowers and lenders are finally resetting, marking assets somewhat realistically, with the exception of office, and moving capital again. It's a necessary step towards a healthier market. Spreads on whole loan origination have tightened to levels that are less than compelling at the moment.
Leverage returns are still in an acceptable range, but they are no longer at the euphoric levels we enjoyed in 2023 and 2024. While we have capital to deploy, we are being thoughtful as to pacing given the spread environment. We're confident in our ability to continue to underwrite attractive and differentiated deal flow. In addition, we are also considering additional investment opportunities outside of the whole loan space, ranging from CMBS B pieces, horizontal risk retention investments, as well as FASB and CRE CLO bond investments. As always, we are trying to find the best risk-adjusted returns for our capital. Multifamily fundamentals continue to improve.
New supply is slowing, concessions are generally burning off, and rent growth is reappearing in some markets. Quality assets are leasing well. Differentiation is back, and higher quality assets and stronger markets are outperforming, as they should. Even with the increased competition and tighter spread environment, we continue to find attractive opportunities for Franklin BSP Realty Trust. During the quarter, we originated 11 loans at a weighted average spread of 447 basis points, and one mezzanine loan at a spread just over 1,300 basis points, resulting in a combined weighted average spread of 511 basis points on all loans originated in this quarter.
These spreads were achieved due to a focus on construction financing, given the tightening of spreads in the traditional bridge loan market. We're encouraged by the strength of our fourth quarter pipeline, and we've already closed approximately $120 million of new loan commitments through today's call. Our conduit business had a very strong quarter, reflecting improved CMBS market liquidity and healthy investor demand. If market conditions hold, our CMBS performance in the fourth quarter could be one of the strongest quarters in the history of the company. Loans originated prior to the interest rate hikes now represent approximately 40% of our total loan commitments.
The majority of this collateral is multifamily, totaling $1.6 billion, or approximately 80%, followed by hospitality at $178 million, or approximately 10%. At quarter end, 82% of these legacy loans were risk-rated at two or three, largely consistent with last quarter. The overall composition and performance of this group remains stable, and we continue to make progress addressing these positions requiring additional attention, which are reflected on our watch list. Notably, post-quarter end, our net lease headquarter office asset paid off in full. The remaining office loan exposure is now only $70 million across four loans, with an average loan size of $17.6 million.
Office loan exposure is now only 1.6% of our entire portfolio, and we expect this figure to shrink again in the fourth quarter. Slide 17 summarizes our watch list. We had 10 positions on our watch list at the end of the quarter, and we continue to actively manage each, and borrower engagement remains high. One multifamily loan originated in July 2021 paid off in full this quarter. Within the remaining positions, one is a Georgia office building that was extended in January and has remained current on all payments. A 307-unit student housing property in Norfolk, Virginia, has now been stabilized at approximately 92% occupancy, and the sponsor is looking to liquidate the asset in the coming quarters.
The Phoenix office building is under contract with a meaningful non-refundable deposit, and we expect to be repaid in full in early November. The remaining watch list loans are multifamily assets originated in 2021 and 2022, and we remain in active dialogue with the borrowers. We expect two assets to be sold in Q4. Unfortunately, one appears it will be a short sale, and we have accordingly marked down the position by $2.3 million this quarter. Reiterating last quarter's call, while the watch list count ticked up slightly, requests for modifications continue to slow, which is another sign that Franklin BSP Realty Trust is in the later innings of this cycle.
While we are not completely out of the woods, we get closer to the edge of the woods with every passing quarter. Slide 18 covers our foreclosure REO portfolio, which has nine foreclosure REO positions at quarter end compared to 10 last quarter. We sold one multifamily asset during the quarter at our debt basis and have four additional assets under PSA. Two PSAs are non-refundable, and we are expecting closing in the next two weeks. Our team continues to work diligently to enhance value and optimize execution before bringing properties to market. Our largest REO asset in Raleigh, North Carolina, is now operating at 91% occupancy. We will be exploring options for this asset in Q1 next year.
This could be an outright sale, but we will also explore joint venture opportunities. We think this is a very unique asset. Finally, I'll spend a minute on NewPoint. The acquisition of NewPoint has made us one of, if not the largest, middle-market lenders in the country, with over 300 employees. We are extremely encouraged by the origination activity we saw in the third quarter. We are already seeing meaningful cross-selling and collaboration between the platforms, and my confidence and conviction on the acquisition continues to grow.
As we have spent more time with the company, it is clear that we have some of the most talented people in the industry, including but not limited to Jerry Borger, our President of Agency Lending; Rob Rozak, the President of Affordable; and Eric Lindenhauer, our Head of Healthcare and FHA Lending. These leaders are bringing new products to our platform and give us yet another offering to our clients from what we've already believed to be a market-leading product offering. This is truly just the beginning of what NewPoint can bring to Franklin BSP Realty Trust. As Richard Byrne mentioned, the third quarter was very much a construction zone for Franklin BSP Realty Trust.
We are now highly focused on playing offense. Our integration plan with NewPoint is on track, and we firmly believe Franklin BSP Realty Trust has more tailwinds than headwinds. We are excited to continue the path toward dividend coverage. And with that, I'd like to turn the call back to the operator to begin the Q&A session.
Operator: Our first question comes from Matthew Erdner of JonesTrading. Go ahead, please.
Matthew Erdner: Hey, good morning, guys. Thanks for the question and appreciate the comments as always. I'd like to kind of touch on the origination volumes and what led to the higher end of your range. And then also what's going to lead to the higher end of the range in Q4? Is it just a matter of you guys kind of winning the deals and being more competitive there? Is the market really starting to open up?
Michael Comparato: Hey, Matt. Good morning. Yeah. I think, you know, we've just been able to cultivate the balance sheet. We've been able to convert a handful of loans from a floating rate basis into our CMBS product. And that usually has incrementally less competition than a widely marketed deal. So I think, again, subject to market conditions holding, if we can execute where we stand today or close, Q4 will be a monster quarter for us in the CMBS group.
Matthew Erdner: Got it. That's good color there. And then I'm guessing that kind of plays into what you were saying about alternative investments and kind of, I guess, not necessarily going away from the core portfolio, but while spreads are tight, explore those other options.
Michael Comparato: Yes. I don't want to mislead. We are actively, actively originating in our core business, which is originating, you know, whole loans for the balance sheet. I think we're seeing some opportunities in markets where things haven't tightened as much as they have on the traditional bridge lending side of things. So if we can find better returns with the same or better overall credit and liquidity profile, we're going to explore those things. And I think, again, that's always been kind of the pitch of what differentiates BSP. We're not a one-hit wonder. We literally can do anything and everything within the capital stack and along the life cycle of an asset.
So we're just waking up every day, looking to find what we think are the best risk-adjusted returns and focusing our efforts in those areas.
Matthew Erdner: Great. That's helpful. And then, Jerry, I have one quick one for you, and then I'll step out. As it relates to the comp and benefits expense line item, what should we expect there kind of going forward? And how should we think about that overall?
Jerome S. Baglien: It's going to be variable for one. So think of it trending with volume. Right? A lot of our volume drives the comps since directly tied to profit share on what we're originating. So you can, to some extent, flex off what you're seeing. I will say that it'll be a little bit trickier than that because you'll kind of scale throughout the year in terms of people hitting hurdles and stuff like that. In terms of volume targets and things like that, you might scale into a greater share in the second half of the year than the first half. So it won't be easy to extrapolate just off what you see in Q3.
I think you're going to need to see a few quarters to kind of get the normal range. But you can kind of back end this quarter to see the general share on that in terms of how it's going to wait.
Matthew Erdner: Okay. Awesome. Thank you, guys. Appreciate it.
Operator: The next question comes from Timothy Agostino of B. Riley Securities. Go ahead, please.
Timothy Agostino: Good morning. Thanks for taking the question. The first one just on repayments, $275 million in the quarter. I was wondering if in the fourth quarter you are still seeing elevated repayments as of October? Jerry, do we have a quarter-to-date repayment summary? I feel like we've...
Jerome S. Baglien: I would expect repayments are relatively in line with what we've seen throughout the year. In terms of kind of pace, I don't think we've been markedly off what we've seen throughout the earlier portion of the year. I would say the fourth quarter is also one of the tougher ones to predict because you get more variability in people trying to close things out before the end of the year. So it could certainly change because we still have two full months left, but I would say if your run rate in wouldn't be too far off.
Timothy Agostino: Okay, great. Thank you. And then just a quick follow-up. On the core portfolio, is there like a target size that you are aiming for? I think right now the portfolio is about $4.4 billion. I was wondering if throughout 2026 or later on if there's a level you would like to reach? Thank you.
Michael Comparato: Yeah. I think, overall, we're targeting a stabilized portfolio side on the whole loan basis of between $5 and $5.5 billion.
Timothy Agostino: Okay, great. Thank you. That's all for me.
Operator: The next question comes from Chris Muller of Citizens Capital Markets. Go ahead, please.
Chris Muller: Hey, guys, thanks for taking the question and congrats on a nice quarter here. So great to hear the record quarter for NewPoint. And I guess even though it was a record quarter for them, do you guys view this as a good run rate going forward? Or could there be some further upside to volumes with the NewPoint acquisition?
Michael Comparato: Hey, Chris. Thanks for the question. Look, we had a very large transaction that closed in Q3. We're always out whale hunting for large transactions when we can find them. I don't think it's repeatable every single quarter. So I think I wouldn't, as Jerry just said, I wouldn't use one quarter to extrapolate forward. We do not have any expectation that NewPoint is going to put up $8 billion of origination in 2026. So it was a great quarter. Again, we're very excited about the cross-selling that's going on. They're originating bridge loans for our balance sheet. We're originating any agency loans for their agency execution.
In early days, it really could not be going better than how it's gone. But, no, this is probably a bit of an outlier, and I would look to the kind of the overall total annual guidance that Jerry shared historically.
Chris Muller: Got it. And given the large transaction was in there, those usually have lower margins with them. Was that the case here so we could see some margin improvement going forward?
Michael Comparato: Yes. There is slight margin tightening on that individual transaction.
Chris Muller: Got it. And then I guess just the other one I have here is more of a broader question. With all the talk of the GSEs coming out of conservatorship, can you guys share your thoughts on that? And if it does happen, what type of impacts to the market would you expect?
Michael Comparato: Yeah. I mean, we've been getting that question for a while. I think it's obviously difficult to answer overall. So this is completely just personal speculation. Several administrations have talked about doing this. It is untangling a very complicated web. Where I do feel very confident is that this administration is not going to do something that is going to disrupt the mortgage market and mess with people's homes and mess with the market overall. My guess would be, if this is figured out, that the solution there could be an explicit guarantee rather than the implicit guarantee. I think that's the easiest way to solve any sort of volatility or concern.
But again, I'm still skeptical that this happens or happens quickly because I do think it's a very, very complicated web to untangle.
Chris Muller: Got it. Very helpful. Appreciate you guys taking the questions today.
Operator: This concludes our question and answer session.
Lindsey Crabbe: We appreciate you joining our call today. Thank you and have a great day.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.