Franklin BSP Realty Trust (FBRT) has announced its first-quarter earnings for 2024, showcasing an increase in distributable earnings and a growing core portfolio. The company reported distributable earnings per fully converted share of $0.41, a slight rise from the $0.39 seen in the previous quarter. FBRT's core portfolio experienced growth, reaching $5.2 billion, largely due to robust origination activity in the multifamily sector. The company remains confident in the resilience of its multifamily-focused portfolio, despite acknowledging market challenges such as rising borrowing costs and softer asset values.
Key Takeaways
- Distributable earnings per fully converted share increased to $0.41 from $0.39 in the previous quarter.
- Core portfolio expanded to $5.2 billion, driven by strong origination activity in multifamily properties.
- Only six loans are on the company's watch list, representing about 5% of the total portfolio.
- FBRT repurchased $3.8 million of its common stock in the first quarter.
- The company remains optimistic about the market opportunity and its capacity to grow the portfolio.
Company Outlook
- FBRT benefits from being part of BSP's real estate platform and possesses a strong team to manage loan-related issues.
- The company is actively originating new loans and securitizing them, expecting conduit revenue to contribute to earnings.
- FBRT plans to finalize the sale of certain assets in the second quarter and is optimistic about future growth potential.
- The company has over $200 million in cash to spend and is considering raising dividends in the future after addressing its legacy portfolio.
Bearish Highlights
- FBRT acknowledged challenges in the market, including increased borrowing costs and softening asset values.
- The inefficiency of capital deployment for construction loans was recognized as an ongoing issue.
Bullish Highlights
- FBRT successfully worked through problem loans and achieved positive outcomes.
- The company expressed confidence in the resilience of its multifamily-focused portfolio and the ability to address any loan issues.
- FBRT has the capacity to grow its portfolio and is optimistic about the market opportunity.
Misses
- FBRT noted that it would be challenging to repeat the profit margin achieved in Q1 throughout the rest of 2024.
Q&A Highlights
- Michael Comparato suggested that $2 million per quarter would be a satisfactory target for conduit revenue for the remainder of 2024.
- The company is actively working on selling its Walgreens portfolio, with some stores under contract and a letter of intent, aiming to provide a detailed update in the next quarter.
- FBRT emphasized the importance of cleaning up their legacy portfolio and ensuring no surprises before addressing the dividend.
FBRT's earnings call provided a comprehensive overview of the company's performance and strategic outlook. Despite market headwinds, the company's focus on the multifamily sector and active management of its loan portfolio positions it to navigate the challenges ahead. With a strong balance sheet and the potential for asset sales, FBRT is poised to continue its growth trajectory and explore opportunities for shareholder returns. The company's ticker, FBRT, is one to watch as it continues to execute its strategic initiatives and capitalizes on its robust real estate platform.
InvestingPro Insights
Franklin BSP Realty Trust (FBRT) has demonstrated a notable performance in the first quarter of 2024, and the "InvestingPro Insights" provide additional context to the company's financial health and future prospects. With a market capitalization of $1.02 billion and a strong revenue growth of 22.16% over the last twelve months as of Q1 2024, FBRT shows a promising trajectory in the real estate investment trust (REIT) sector.
InvestingPro Data:
- P/E Ratio (Adjusted) as of Q1 2024: 9.44
- Dividend Yield as of March 2024: 11.37%
- Fair Value (Analyst Targets) as of March 2024: $15 USD
The adjusted P/E ratio indicates that FBRT is trading at a reasonable valuation relative to its earnings, which could appeal to value-oriented investors. Furthermore, the substantial dividend yield of 11.37% underscores the company's commitment to returning value to shareholders, aligning with the first InvestingPro Tip that FBRT pays a significant dividend.
InvestingPro Tips:
1. FBRT's liquid assets exceed its short-term obligations, which suggests a strong liquidity position enabling the company to manage its liabilities effectively.
2. Analysts predict that FBRT will be profitable this year, reinforcing the positive outlook shared during the company's earnings call and aligning with the company's profitability over the last twelve months.
For investors looking to delve deeper into FBRT's financials and future earnings potential, InvestingPro offers additional insights and tips. By using the coupon code PRONEWS24, readers can get an extra 10% off a yearly or biyearly Pro and Pro+ subscription and access an extensive list of 4 additional InvestingPro Tips for FBRT. These tips could provide valuable information for making informed investment decisions.
Full transcript - Capstead Mortgage Corp (NYSE:FBRT) Q1 2024:
Operator: Good day and welcome to the Franklin BSP Realty Trust First Quarter 2024 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms. Lindsey Crabbe. Please go ahead, ma’am.
Lindsey Crabbe: Good morning. Thank you, Chuck, for hosting our call today. Welcome to the Franklin BSP Realty Trust first quarter 2024 earnings conference call. As the operator mentioned, I'm Lindsey Crabbe. With me on the call today are Richard Byrne, Chairman and CEO of FBRT; Jerry Baglien, Chief Financial Officer and Chief Operating Officer of FBRT; and Michael Comparato, President of FBRT. 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, April 30, 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.fbrtreit.com. We will refer to the supplementary slide deck on today’s call. With that, I will turn the call over to Rich Byrne.
Richard Byrne: Great. Thanks, Lindsey and good morning, everyone. Thank you for joining us today. As Lindsey mentioned, our earnings release and supplemental deck were published to our website yesterday. We will begin today's call on slide four, and I'm going to review our first quarter results and then open the call up, as always, for your questions. First, we were pleased with our first quarter results. FBRT's distributable earnings increased to $0.41 per fully converted share compared to $0.39 in the prior quarter. This equates to a 10.4% distributable earnings return on common equity. Our distributable earnings dividend coverage for the quarter was a 115%. Our strong earnings are the result of stable portfolio size throughout most of the quarter, which had the continued benefit of higher base rates as well as a strong contribution from our conduit business. Our conduit is an alternative business line that can be an earnings enhancer. CMBS has again become one of the lower cost financing options in the market, so we remain cautiously optimistic that conduit revenues will continue to benefit our earnings in future quarters. Our core portfolio ended the quarter at $5.2 billion of principal balance, which is an increase from the last quarter. This was due to very strong originations in Q1. In fact, Q1 was our fourth largest origination quarter since the inception of our company. We added $591 million of new loan commitments in the quarter and committed to $756 million of originations through the entire year-to-date as of yesterday. Most of our Q1 portfolio growth happened towards the back half of the quarter. So, we did not see the full benefit of the larger portfolio in our first quarter net interest margin. We expect to enjoy this positive impact in future quarters. Multifamily continues to be our main sector. This represents 75% of our commercial real estate loan portfolio. We closed the quarter with $1 billion in available liquidity, including $240 million of unrestricted cash. Our cash balance decreased by $98 million in the quarter versus Q4 due to our active deployment into new originations. Our strong liquidity position allows us to capitalize on the current abundance of attractive new investment opportunities and provides us flexibility to resolve credit issues to the extent they arise. Turning to our watch list, we ended the quarter with six loans with a risk rating of four on our watch list. Our watch list represents approximately 5% of our core portfolio. As previously disclosed, one asset was removed from our watch list during this quarter, taken as REO and then liquidated at a modest gain. We have been successful in working through problem loans and achieving positive outcomes. While, there will continue to be changes to our watch list each quarter with loans potentially being added and/or removed, we are optimistic about our team's ability to continue to manage this process. Mike will provide more watch list detail in his comments, including promising feedback on several assets. The risk profile of our portfolio remains low with an average overall risk rating of 2.3 at quarter-end, unchanged from the prior quarter, and 95% of our loans are risk rated three or better. Our foreclosure REO positions also remains unchanged, sitting at three at quarter-end. The Walgreens retail portfolio continues to make up most of this balance. And as we have said previously, the portfolio is being actively marketed for sale. In aggregate, our foreclosure REO positions represent 2.2% of our total assets. Lastly, I want to mention that we purchased 1.9 million of FDRT common stock during the first quarter. We continue to be active in the second quarter. And so far, we've repurchased an additional 2.0 million of our common stock through April 19th, 2024. This totals 3.8 million year-to-date. In total, since our program began, the company and its advisor purchased 68 million of FBRT common stock. Our company buyback program is authorized through the end of 2024. Finally, FBRT's first quarter was a strong start to 2024. Our distributable earnings once again comfortably exceeded our dividend level and we were able to grow our loan portfolio, adding what we would call a new vintage of loans that offers strong credit quality, which will also enhance FBRT's earnings power. While we continue to see a challenging environment for commercial real estate, especially as many loans reach initial maturity this year, we are confident in the resilience of our multifamily focused portfolio and our ability to effectively resolve challenging loans. Now, with all that, Jerry, I'm going to turn things over to you to cover our financial results.
Jerry Baglien: Great. Thanks, Rich. And I appreciate everyone being on the call today. Moving on to our results, let's start on slide five. FBRT generated GAAP earnings of $35.8 million or $0.35 per diluted common share. That's an increase of $0.07 from the prior quarter. And this earnings level represents an 8.9% return on common equity in the first quarter. We earned $41 million in distributable earnings in the first quarter and a walkthrough of our distributable earnings to GAAP net income can be found in the earnings release. Our CECL reserve increased by $2.9 million during the quarter, which includes an asset-specific reserve of $700,000 on one of our watchlist loans. The CECL increase resulted in a $0.03 per share reduction to GAAP earnings. This also impacted our first quarter book value, which ended the quarter at $15.68 per share. Slide seven summarizes our portfolio progression. As Rich said, our core portfolio ended the quarter with $5.2 billion in principal balance. New commitments, future funding on existing loans and repayments this quarter resulted in a net increase of $199 million from last quarter. Nine loans were repaid in full during the quarter. Multifamily made up 70% of our repayments with hospitality, self-storage, and office contributing to the remaining balance. We expect the pace of repayments to be similar in the coming quarters. Turning to slide eight. This provides a high-level snapshot of our capitalization. Our average cost of debt during the quarter was modestly lower at 7.8%. Our liability structure provides us with optionality. A large portion of our portfolio is financed through our CLOs. At quarter-end, 87% of our financing on our core book is non-recourse and non-mark-to-market. The reinvestment period is still available on two of our five CLOs. And despite limited issuance, the CRE/CLO market has seen some activity and offerings since our last deal in September. Our current funding position is strong. However, we will remain opportunistic in accessing the capital markets when necessary in future quarters. We can strategically tap into CLO financing when market conditions are attractive and align with our future funding needs. Our liability structure is further enhanced by our warehouse facilities. We maintain strong relationships with a diverse group of six lenders, each demonstrating a healthy appetite for our loans. This strong demand underscores the credit quality of our entire portfolio, encompassing both legacy assets and our recent originations. Notably, our new loans boast some of the highest credit quality we've seen in several years. We maintained a net leverage position of 2.4 times at quarter-end. Importantly, we have consistently delivered relatively strong distributable earnings return on our equity without taking what we believe to be an outsized risk. With that, I'll turn it over to Mike to give you an update on our portfolio.
Michael Comparato: Thanks, Jerry. And good morning, everybody. Thank you for joining us. I'm going to start on slide 12. Our core portfolio ended the quarter at $5.2 billion, spread across 145 loans with an average size of $36 million. As you can see, 99% of our loans are senior secured, and our exposure is 75% in the multifamily sector. We continue to be long-term bullish on the fundamentals of multifamily. As previously discussed, the asset class offers compelling advantages to do its superior credit quality and robust liquidity profile. We're strategically concentrated on the southeast and southwest U.S. Given the positive macroeconomic trends of the major metros within those geographies, these areas continue to be a focus for new investments. Slide 13 highlights our origination activity in the first quarter. We originated 11 loans at a weighted average spread of 464 basis points. While we had several unique transactions this quarter, this spread is indicative of the market opportunity previously mentioned. The quality of the deal flow we are seeing is very attractive with strong terms, including higher debt yields and lower loan to values off revalued asset levels. This quarter, we originated loans in the multifamily, industrial, hospitality, and office sectors. And while we remain extremely bearish on office, the office loan we closed in March was a unique credit opportunity that came with very attractive economics. However, inclusive of this new loan, our office exposure still stands at only 6% across our entire portfolio, and excluding our long-term, net least corporate headquarters and distribution facility, our office exposure is under 5% of the portfolio. Our conduit program platform had an excellent quarter closing five transactions. Echoing Rich's earlier remarks, we are encouraged by the conduit's momentum, and in Q1, we securitized $101 million of loans with a weighted average profit margin of 5.5 points. We looked to conduit revenue to continue to contribute to earnings in the coming quarter, but this is historically lumpy revenue and difficult to model. We believe this is the first quarter in quite some time that we can say that all businesses within FBRT were hitting on all cylinders. That said, we recognize the current market presents challenges with increased borrowing costs and softening asset values. Fortunately, FBRT benefits from being a part of BSP's broader real estate platform and can leverage a team we believe is among the industry's best. Our asset and senior management teams are actively working with borrowers to develop solutions and address any loan-related issues that may arise. 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 $264 million. Last quarter, I provided detailed information on our risk rating process, and I'll remind you today that a four-rated asset is one that is an asset with an underperforming business plan with the potential of some interest loss, but still expecting a positive return on investment. The six loans on our watch list are a CBD high-rise office building in Denver, Colorado. This loan was amended and extended maturity by two years and requires a $2 million principal paydown later in 2024. We have a Class A suburban office building in Alpharetta, Georgia. This loan was also recently amended to extend maturity by one year. The borrowers were paid down the loan by approximately $1.4 million in 2023 and paid down an additional $1 million in the first quarter of 2024. A full-service, 279-Key hotel in Dallas, Texas. This property is finalizing its sale process and should pay-off at or very close to our outstanding debt balance based on offers received to date. A 426-Unit apartment property in Cleveland, Ohio is a new ad this quarter and we are in active dialogue with the borrower. And the last two watch list loans are a 471-Unit apartment community in Raleigh, North Carolina and a two-property portfolio of apartment assets in Mooresville & Chapel Hill, North Carolina. We are in the process of foreclosing on these assets and as of today, we expect to finalize their sale to third parties at or above our basis in the second quarter. With respect to non-accruals, we will highlight the four loans. One is a newly built multifamily asset in Las Vegas where subsequent to quarter-end, a mezzanine lender has taken control of the asset and the loan is now current. Another two assets are the two last watch list loans I just discussed. And lastly, we have a cross-portfolio of multifamily assets that are also in the process of being sold. It is important to note that while we place these assets on non-accrual in Q1, we have been receiving payments and recognizing them on a cash basis. All-in-all, I believe we are making good progress through our watch list loans and we are hopeful the three remaining non-accruals will be resolved in the second quarter. With respect to modifications in Q1, we close 17 credit-positive loan modifications and negotiated paydowns on nine loans, representing 4.1% of their respective loan balance on average. Our borrowers contributed nearly $30 million of incremental equity related to extensions and modifications in the first quarter. Moving to slide 15. We had three foreclosure REO positions at quarter-end. Those positions are a Portland office building, which we continue to believe is not the right time to exit the asset. A multifamily asset in Lubbock, Texas, where our asset management team continues to meaningfully improve the asset and increased occupancy. It is still classified as held for investment through our improvements in retenanting. And our last REO is our Walgreens portfolio. We hold 23 retail stores as part of this portfolio at quarter-end, all assets around the market for sale, and we are actively attempting to liquidate the entire portfolio. In aggregate, our foreclosure REO balance ended the quarter $122 million, which is approximately 2.2% of our total assets. Wrapping up, we are very bullish about the market opportunity for FBRT. We have a legacy loan portfolio that will continue to require our focused attention, but at the same time, a combination of factors are leading to compelling new origination opportunities, which we are taking advantage of. Every new loan we originate improves the overall credit quality of our portfolio, and we will continue to be a market leader on new originations. With that, I would like to turn the call back to the operator and begin the Q&A session.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question will come from Stephen Laws with Raymond James. Please go ahead.
Stephen Laws: Hi, good morning. I guess to start, Mike, I appreciate all the comments on the portfolio. Can you touch on the non-performing loans and what type of sponsors those are? Are there any similarities or multiple loans to the same sponsor? And just generally, what you're seeing in multifamily around sponsor stress, especially given kind of this higher for longer rate outlook and decisions that the sponsors are making, whether to protect or walk away from assets.
Michael Comparato: Sure. Thanks, Stephen, for the question. And thanks for joining this morning. I would say generally we're seeing more stress in the syndicated borrower structure than anything else. The typical GP/LP 95.5, 90.10 syndicated equity where there's less control by the underlying sponsor and some of the decisions on capital calls are being made at the LP level. Again, I think, we've seen our borrowers generally trying to work things out in a positive way. And I think strangely one of the strongest positives is we're not even on negative outcomes having many fights, which is really helpful through the workout process. I think that a lot of borrowers, if they have decided, the time has come, they are ready willing and generally able to work with us quickly to resolve things. And we're not ending up in court, which is a positive for everybody.
Stephen Laws: Great. Appreciate the color there. And one quick follow-up. Jerry, you mentioned the financing facilities and noticed, I think one with Atlas (NYSE:ATCO), the capacity was trimmed a bit. Can you talk to that decision and kind of how those discussions are with your financing line providers?
Jerry Baglien: Yeah. I mean, just generally in terms of how the conversations are, I think they've been very positive for us, because we're primarily using those facilities to finance the new originations that we're closing today. So, in terms of credits that we're putting to the banks today, they're all brand new reset prices, as clean as you're going to get and some of the best credits we've seen in a long time. So all that's well received. In terms of sizing, some of that's just rebalancing to where we want and where we're using capacity more and where we're using it less. We don't want to carry more than we need, with certain counterparties. So, we always assess kind of size and dispersion of availability across the set that we hold on our books. That's all.
Stephen Laws: Great. And then, I guess, one last one. Mike, I think the Q1 originations were about 465 over, I believe. Can you talk about the spreads you've generated on the 165 million originations quarter-to-date?
Michael Comparato: I don't have the number on the quarter-to-date spreads. They're going to be tighter, Stephen. As I mentioned, we close that office loan in Q1. That was priced at [indiscernible] 938. So that's really offsetting our Q1 type number. So, I can be comfortable in saying that we'll be inside of where it is for Q1.
Stephen Laws: Okay, understood. Appreciate the comments this morning. Thank you.
Operator: The next question will come from Steve DeLaney with Citizens JMP. Please go ahead.
Steve DeLaney: Thanks. Congratulations on a solid start to 2024 everyone. Rich, there's a old saying among bankers that the only problem with making good loans is they pay-off too fast. I'm just curious if you feel when you look at the portfolio today, do you think there's enough solid demand out there that you can maintain the portfolio above $5 billion. And on the other hand, with respect to potential new CLO, is there any chance to see net portfolio growth with your existing capital base? Thank you.
Richard Byrne: Well, since you called me out, Steve, I'll start that answer. I agree. What the whole industry is dealing with now is all those loans that record origination quarters across the street all occurred in late 2020, mostly 2021 and beginning at 2022, all that stuff's coming due. So, first problem is just resolving all that and then getting on to the next vintage. We're really excited about this vintage, because as Mike said, you're resetting asset values and making new loans there, and there isn't a lot of competition. Banks are on the sidelines. A lot of our peers are on the sidelines, and we're getting looks at great loans, maybe some loans we may never have seen at better terms. So, I think that's the opportunity. As far as being able to continue to grow the portfolio, yeah, I mean, we have over $200 million of cash. We have a Walgreens book that's another $100 million that's really earning something resembling cash that, when those assets get sold, we can redeploy. And we're only running at 2.4 times leverage. We never really go much higher than that, but certainly provide us with some capacity to grow the book from there. So, as we've said, I mean, I think people are going to look on this vintage of deals as one being one of the best, I think when you look back on it that we've ever seen, or certainly that we've seen in a long time, and we're going to continue to actively originate into this opportunity.
Steve DeLaney: Appreciate that color. Mike, one for you. First quarter, obviously we're here. We've seen CMBS triple A spread, tighten in. Seems that is encouraging, more people to refi and go into fixed rate conduit loans. After a slow 2023, is sort of the light green and pedal to the metal on conduit, and obviously 5% is probably not replicable every quarter. Just give us some sense for whether conduit lending this year could come close to the $384 million you did in 2022. And what kind of a range, a tighter range might you suggest to us for gain on sale. Thank you very much.
Michael Comparato: Thanks, Steve. Yeah. I mean, first, it's a double green light. We are originating as much as we can, as fast as we can, and more importantly, securitizing it as fast as we can. Because as tight as spreads can go in, they can go the other way. So, we want them to be touch and go on the balance sheet. But no, the group is very active in the space. I do think the Q1 on a profit margin basis is hard to repeat and hard to repeat in scale. I think generally speaking where I would be very happy is if we could do just $2 million a quarter for the rest of 2024 in the conduit, that would be really great. And if we can exceed that in any given quarter, that's just a cherry on top. But an additional $5 million, $6 million, $7 million of conduit revenue through the balance of 2024, I think would be a really good earning stabilizer for us.
Steve DeLaney: That's great. That's helpful. And we can pick and choose their volume and margin on numbers. That's very helpful guidance for us on what you expect from the group for the year. I appreciate both of your comments today. Thank you.
Michael Comparato: Thanks, Steve.
Operator: The next question will come from Matthew Erdner with JonesTrading. Please go ahead.
Matthew Erdner: Hey, good morning, guys. Thanks for the question. Could you talk a little bit about cap rates and what you're underwriting to going in and exiting on these new deals?
Jerry Baglien: Sure, Matt. I mean, do you want it across all asset classes or specific to multi?
Matthew Erdner: Yeah. I mean, the more color you're willing to give, I think that'd be great.
Michael Comparato: Sure. So, multifamily is kind of a tale of two worlds today. And I would say that that's stabilized multifamily and non-stabilized multifamily. Stabilized multifamily, generally speaking for the past several quarters, we're seeing cap rates pretty much on top of where 10-year Fannie, Freddie coupons are. So, if you can borrow from Fannie, Freddie on a 60 LTV LTC IO 10-year loan at 5.5, you're going to see cap rates generally 5.5%. I think on the non-stabilized multi-front where we're -- those aren't being bought on a cap rate basis. We're seeing people generally look at them as cost versus replacement cost. I'm buying an asset that was built in 2020 for 225,000 a key and to rebuild that asset today would cost me 300. So, they're not really trading on cap rate basis. They're more just gross exposure or basis on a per unit basis. I would say industrial is probably just a few ticks wider than multifamily on a stabilized basis. Retail, if you want to add another maybe 100 basis points to that. Again, depending on what it is, grocery anchored is going to trade inside of power center on anchored strip. Hospitality, we're still seeing kind of 7.5 to 8.5 depending on asset quality and market. And then office, I don't think office is trading based on a cap rate at all. That's just -- the few trades that we are seeing, it's price per pound and market and basically just a long-term bet that you're buying. It's so cheap that you'll be okay, 5 or 10 years from now.
Matthew Erdner: Yeah. Right. That makes sense. And that's very helpful and good color there. And then, are you guys still seeing opportunities for construction loans? And what's your appetite going forward on that?
Michael Comparato: We are. I think the stress at the bank level really hasn't abated. And with rates, generally higher for longer, it doesn't appear that it's going to abate anytime soon. So, I think there's squarely on the sidelines for the balance of 2024. And perhaps, a decent part of 2025, right? Banks don't typically jump into the pool cannonball style. When they come back in, it's going to be a toe then an ankle, then a knee, and it's going to take some time. So, we do view it as an opportunity. We continue to close construction loans in Q1. I think some of our best risk returns are in our construction book. The issue is they're just inefficient assets for us, because they dribble capital out, little pieces over an extended period of time. So, love them from a risk return standpoint. Not so great in terms of efficiency of capital deployment. But overall, continuing to see opportunities and will continue to be active in the space provided those opportunities persist.
Matthew Erdner: Awesome. Thank you, guys. Appreciate it.
Operator: The next question will come from Matthew Howlett with B. Riley. Please go ahead.
Matthew Howlett: Thanks for taking my question. Just ROEs, I mean, if I could kind of ask you in terms of targets this year. It looks like clearly the 8.9% was under you sort of -- that was some drags on that artificial drags, going forward with the portfolio growth, with the buyback, with potentially some of the cash freed up from real estate sales. I mean, what's not to prevent that from going to say 12%, 13%, in that case, would you raise the dividend?
Michael Comparato: Hey, Matt. Good morning. And thank you for such a direct question. I think we've all -- Rich, Jerry and myself have been pretty open that we do think the future is bright. We do think that we've got investable capital and are growing the portfolio. We grew it in Q1. And I think we're one of the most active originators in the market today. So, we clearly want to continue to grow the portfolio. We have a path to grow the portfolio. There doesn't appear to be any massive walls preventing us from growing the portfolio. So, the short answer is yes to everything you said. We would like to grow the portfolio. We would like to enhance ROE. And at the appropriate time, obviously in conjunction with conversations with the Board, if we feel we've adequately addressed the legacy portfolio and feel like we're comfortable, could we address the dividend going higher in the future? Absolutely. Do I think that's a 2024 event? Probably not. But I do think that it is a very, very real possibility. And one we talk about fairly regularly.
Matthew Howlett: Again, I'm not asking for guys, but you look at the second quarter number clearly with the late-stage portfolio growth in the first quarter, the drag from some of those one-time-ish non-accruals, and then with the buyback accelerating, clearly it's got distributed [indiscernible] pace to be up in the second quarter from the first quarter.
Michael Comparato: Yeah. I mean, look, I think this is really -- my focus is less on looking at the windshield and more through the review mirror. And I think we've got a meaningful portfolio that we think we need to work through the rest of this year. And we just want to make sure that the legacy book has been cleaned up to a level where we don't have surprises, right? There just wants to be a very, very -- we want to have a high conviction rate if we're going to address the dividend. And I think the legacy portfolio plays more of a role in that conversation than forward-looking origination.
Jerry Baglien: Yeah. Matt, as does rates, I think the whole world is now convinced on higher for longer, which is making us skeptical, but a lot of factors at play.
Michael Comparato: Right. And then obviously the rates are part of that legacy book that come together.
Matthew Howlett: Yeah. And the last thing, the Walgreens, I think, us analysts, I'm not sure how to model that. That could be significant if you can reinvest, if you can get out of that and reinvest those into -- today's new originations, what you said are the best you've seen in years. I mean, just an update. What can you tell us to expect anything this year? Is it just going to be opportunistic? Is someone hits your bid? Any color and how that process is going would be appreciated.
Michael Comparato: Yeah. I mean, we're actively working on selling the portfolio. We recognize exactly what you recognize, right? We've got roughly $100 million of capital locked up as Rich pointed out, making cash like returns when -- we historically are originating loans that much better than cash type return. So, we see the opportunity. We have a few stores under contract today. We have a few stores under letter of intent today. I'm hoping next quarter we can give you guys a more robust summary of where those stand, but not -- we're still in the process of getting these contracts on refundable actually closing. So, we thought it was premature to address that today, but this is a front-burner issue for us. It is clearly a place that we can improve the portfolio fastest and easiest, and we are very, very focused on getting as much of Walgreens as all than 2024 as we can.
Matthew Howlett: Great.
Jerry Baglien: Matt, the good news is we 20 -- over $200 million, $240 million of cash to spend first, so it's not like we're missing an opportunity now. We have plenty of liquidity even without it. So, we're trying to be, as Mike pointed out, as disciplined as possible. We want to sell into strength. So -- but with an eye towards sooner rather than later.
Matthew Howlett: And there's no debt on that REO. There's no financing on that at all. You own those free and clear, right? That's going to be all cash back to you.
Michael Comparato: That's correct.
Matthew Howlett: Great. We look forward to the update.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Lindsey Crabbe for any closing remarks. Please go ahead, ma'am.
End of Q&A:
Lindsey Crabbe: We appreciate you joining us today. If you have any further questions, please reach out to me or our team. Thank you.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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