Franklin BSP Realty Trust, Inc. (NYSE:FBRT) Q3 2024 Earnings Call Transcript

Franklin BSP Realty Trust, Inc. (NYSE:FBRT) Q3 2024 Earnings Call Transcript November 5, 2024

Operator: Good day and welcome to the Franklin BSP Realty Trust Third Quarter 2024 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Lindsey Crabbe, Director of Investor Relations. Please go ahead.

Lindsey Crabbe: Good morning. Thank you, Wyatt, for hosting our call today. And thanks everyone for joining us. 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, November 05, 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 to everyone and thank you for joining us on this Election Day morning. As Lindsey mentioned, our earnings release and supplemental deck were published to our website yesterday. We’re going to begin today’s call on Slide 4 by reviewing our third quarter results and then we’ll as always, open the call to your questions. Also, as always, I will provide a brief overview of the quarter’s key developments and then Jerry will discuss our financial results and Mike will cover market conditions, our watch list and our REO portfolio. So with all that, let me start out with an overarching comment about how we, and probably mostly every CRE lender thinks about the world. When we think about our portfolio, we think about it in two buckets.

Loans originated during the Fed’s zero interest rate policy and loans originated post the unprecedented rise in rates. The underlying metrics of most loans originated pre rate hikes have, as you all know, deteriorated since underwriting as property values have declined and LTVs rose as a result of the dramatic increase in rates. The more serious problem, of course with legacy loans has been and continues to be the significant deterioration in the office sector post COVID. Thankfully, our office exposure is now only 4% of our buck. We received two full payoffs in office loans for 40 million in this quarter and our pre-2024 originated traditional multi-tenant office exposure is now only 147 million or 2.6%. In addition to the notional exposure decreasing meaningfully quarter-over-quarter, the remaining office exposure has already been significantly marked down in prior quarters to reflect current market conditions.

So by contrast to the legacy loans, both office and non-office, the loans we’re originating post rate hikes are among the highest quality lowest loan to value loans we have seen in many years and were originated at some of the highest spreads we’ve seen in years. We continue to make significant progress turning over our book by originating new loans at current interest rates and valuations and cycling through our legacy book. In all, approximately 40%, that’s 4.0% of our portfolio was originated after January 2023. We think this stat will be an extremely important metric for all CRE lenders because it measures the recycling of our book into these new relatively attractive loans set off of remarked property valuations. Our robust origination and repayment activity has resulted in over 1.6 billion of new loan commitments year-to-date.

We are encouraged by repayments on our legacy portfolio this year. We’ve received 1 billion year-to-date and 510 million in the third quarter alone. Of course payoffs are a blessing and a curse, but in the current market environment we are pleased to see the liquidity in our portfolio. Our team has made headway resolving watch list loans and REO assets from our Legacy portfolio. Currently, 154 out of our 157 positions in our book are risk rated 2 or 3 and our overall risk rating of the entire book is 2.2. We reduced our watch list loans from 7 to 3 this quarter with only 1.3 of our book is represented by these watch list loans. Three multifamily properties were upgraded due to credit enhancing modifications and additional borrower equity coming to the table.

One hospitality asset was sold at a price above our debt basis. Our foreclosure REO position portfolio increased in size to 13 positions this quarter, but as Mike will detail, it is likely to decline due to recently negotiated PSAs on four properties. The balance of our foreclosure REO consists of primarily multifamily properties in strong markets. As Mike mentioned last quarter, while we would like to resolve the REO portfolio as quickly as possible, we believe there is value in holding some of these assets until we find the best possible execution. Our liquidity position is robust at the end of the quarter we had 1.1 billion in available liquidity, which was strengthened by our CLO issuance near the end of the third quarter. The balance is higher than the previous quarter due to the timing of repayments and additional space on our warehouse lines, and we expect to deploy much of this liquidity, including 346 million of cash in the relatively near future.

While we did not purchase stock in the third quarter, it is an important part of our capital allocation strategy. We have 31 million remaining on our buyback allocation and our board has extended it through December 31, 2025. FDRT is well positioned. The team is effectively addressing positions, modifying loans, selling REO assets and enhancing our overall credit quality of our loan portfolio through new originations. Our balance sheet features a robust, multifamily focused loan portfolio that we expect to perform well, especially as market conditions stabilize. With all that, let me now turn the call over to Jerry.

Jerry Baglien: Great. Thanks Rich and thanks everybody for being on today. Appreciate it. Moving on to our results, let’s start on Slide 5 if you’re following along. FBRT reported GAAP earnings of $0.30 per diluted common share this quarter and distributable earnings of a negative $0.10 per diluted common share. Distributable earnings excluding realized losses were $0.31 per diluted common share. This excludes 36.4 million of losses realized within the quarter related to our REO Walgreens portfolio, the majority of which was previously disclosed and recognized through GAAP earnings in second quarter. Walgreens is now fully realized with all losses to date through our distributable earnings. Overall, our earnings benefited from higher conduit income and no increase to our CECL reserve in the third quarter.

Net interest income was slightly lower quarter-over-quarter as our loan portfolio size decreased and REO remained relatively constant. We hope to reverse that in future quarters. While GAAP and distributable earnings did not cover our quarterly dividend, we remain confident that our dividend level accurately reflects our portfolio’s long-term stabilized earnings potential and we’re comfortable with the current level. Moving to Slide 7, we can cover our origination activity. We added $380 million in new loan commitments during the quarter. Consistent with our strategy, the these loans were primarily multifamily across the Southeast and Southwest. During the quarter we also received a total of 510 million in loan repayments primarily from the multifamily sector, but as Rich mentioned, also 40 million from office loans.

Moving to slide 8 our average cost of debt on our core portfolio stayed relatively flat at SOFR plus 2.03%. Near the end of the quarter we closed a $1 billion CRE CLO. This is the 11th CLO our real estate platform has issued. We were pleased with the CLO execution with an 86.5% advance rate and a weighted average cost of funds of SOFR+199 before discount transaction costs. Importantly, the transaction featured a 36-month reinvestment period, which is the longest reinvestment period on any of the CLOs that we’ve executed, allowing us to maximize the duration of this accretive liability. Additionally, we added over 100 million of ramp on the transaction to provide further borrowing capacity Going into the fourth quarter. Demand from investors was strong which led to oversubscription across all bond classes.

With the addition of this CLO, 93% of our financings are non-recourse, non-mark-to-market on our core book. We continue to have meaningful space on our warehouse lines and have ample unrestricted cash. Combined with our CLO reinvest, available liquidity at quarter end, as Rich mentioned, totaled $1.1 billion. Our net leverage position remained at 2.7 times with our recourse leverage standing at 0.1 times at the end of the quarter. With that, I’ll turn it over to Mike to give you an update on our portfolio.

Michael Comparato: Thanks, Jerry, and good morning, everyone. Thank you for joining us. I’m going to start on Slide 12. Our $5.2 billion core portfolio consists of 157 loans with an average size of $35 million. 99% of those loans are senior mortgages with 95% of them being floating rate. Our favorite sector remains multifamily, accounting for 74% of our portfolio collateral. During the quarter, we originated 16 loans at a weighted average spread of 421 basis points. The loans were across several different sectors. However, we found several attractive lending opportunities in construction. Our conduit platform had an excellent quarter, contributing generously to our performance. As I previously mentioned, we consider the conduit to be a valuable earnings booster in favorable market conditions.

However, it also serves as a valuable hedge against core balance sheet losses during more challenging times. This quarter, the conduit played its protective role, offsetting a portion of our earnings loss due to non-performing loans in REO. With respect to multifamily, clearly FBRT’s focus, we do see supply-demand dynamics changing for the positive in the coming years at the asset level. New multifamily supply will be cratering shortly and permits for new starts are at decade lows. Declines in new supply and construction starts signal a shift in favor of landlords. As a result, we anticipate not only the burn off of recent rental concessions, but also rent increases in 2026 through 2028. Loan demand and requests were plentiful throughout the quarter.

Investors had convinced themselves the Fed was going to start a new easing cycle, and the 10-year treasury was hitting lower yields not seen in some time, toward the 3.6% level. Unfortunately, after the Fed rate cut, we witnessed the 10-year widen roughly 70 basis points in a relatively short period of time. We believe this may cause a pause in transaction while investors digest the move. We continue to see the bulk of the public mortgage REITs, together with the vast majority of banks, mostly regional and community banks, remain on the sidelines. Legacy loans, specifically office, will plague these groups for a long time to come. The New York Fed in its recently released white paper on extend and pretend believes that these banks are only prolonging the inevitable and ultimately making things worse.

Office continues to be very challenging. We are seeing assets trade at levels that were simply unfathomable a few years ago. We are also hearing anecdotes of lenders unwilling to take title to office assets to avoid the mark-to-market realities. CMBS office delinquency is up 100 basis points just month-over-month, hitting nearly 9.5%. We believe office delinquencies will surpass the all-time high, and perhaps meaningfully, of approximately 10.5% seen in 2012 after the GFC. Unfortunately, things could not be unhealthier in the office sector, and we believe the bottoming process will take another 2 years to 5 years. We see no reason to be active in this space. On the other hand, FBRT has taken the exact opposite position of extend and pretend.

We believe wholeheartedly in acknowledge and address. We’ve written down the assets that needed to be written down and are proactively taking title to other assets in an effort to clean up the balance sheet as quickly as possible. We believe we can resolve REO faster than our borrowers who have seen their equity vanish due to meaningful declines in valuation. Our goal is to get out of the proverbial woods as soon as possible. Addressing our issues head-on and resolving them proactively is the best way to accomplish that goal. And to that end, we made excellent progress this quarter. Slide 14 is a summary of our watch list. Our watch list is down to 3 positions, but given the size, the watch list is truly only 2 loans, both 5-rated office assets that we have written down in previous quarters.

We believe we will be taking title to the Denver office asset in Q4 or Q1 of next year. Moving to Slide 15, we hold 13 foreclosure REO positions at quarter end. The REO book is largely multifamily, and 4 of these properties are already under contract to be sold at or above current market values. Excluding the remaining Walgreens stores, the $18.5 million office building in Portland, and the 4 properties under PSA, the remaining REO portfolio consists of 7 multifamily properties, 4 in North Carolina, 2 in Texas and 1 in Cleveland, Ohio. Our equity asset management team is fully engaged in stabilizing these assets as quickly as possible in order for us to maximize recovery on asset sales. While we are very comfortable owning real estate, and we believe there are positive tailwinds around the corner for fundamentals at the multifamily asset level, our goal is to liquidate the REO portfolio as quickly as possible and reinvest those proceeds into new origination.

I cannot stress enough the exceptional progress the team has made on our watchlist and REO assets. We continue to be laser-focused on resolutions. Lastly, we were happy to see sub-4% tenure as it brought a lot of hope back in the industry and had several visible industry names officially call a bottom. We’ve been in the higher for longer camp for a long time, but still called the multifamily valuation bottom several quarters ago. That said, we simultaneously commented that we do not see a V-shaped recovery in multifamily values and believe we will bounce around these levels for a while. Thus far, that call has been largely on point, and at the moment, we continue to hold that view. As the 10-year blew back out to now over 4.3%, we are concerned about the headlights and the dear meeting once again.

If we have truly averted recession, and we aren’t saying we have, that means we should revert to a normalized positively sloping yield curve. If the Fed is targeting 3% to 3.5% Fed funds, that means a normalized yield curve is going to produce a 10-year treasury yield 100 to 150 basis points wider. We believe a significant decline in long-term interest rates, such as a return to 2 handle yields on the 10-year treasury, is unlikely without a significant banking crisis. For all of those hoping for meaningfully lower rates, we would just say be careful what you wish for. The FBRT team has been busy. We remain diligently focused on improving the credit quality of our portfolio, whether through new loan originations, credit-enhancing loan modifications, or actively managing our REO properties for future sale.

We are fortunate to have one of the largest teams in the industry, which allows us to effectively manage all of the aforementioned tasks, and we are positioning ourselves to be a market leader exiting the woods. With that, I would like to turn it back over to the operator to begin the Q&A session.

Q&A Session

Operator: [Operator Instructions] And our first question comes from Matthew Erdner with Jones Trading. Please go ahead.

Matthew Erdner: Hey good morning guys. Thanks for taking the questions. You touched on it briefly a little bit about the conduit business. I noticed that fixed rate loans increased to 5% from 3% quarter-over-quarter. Could you provide some additional color on what you’re seeing here and kind of the expectation for the conduit business as a whole going forward?

Michael Comparato: Hey Matt, it’s Mike. Thanks for the question. Look, I think the conduit had an exceptional third quarter. Obviously, rates are going to throw a little bit of a wet towel on that for coming quarters. If nothing else, a little bit of time for people to just digest where rates are. The reality is, even with rates going out to current levels, CMBS still is one of the cheapest financing options in the marketplace. This move happened fast. It’s a meaningful move. And I think we just need a little bit more time to digest it to really give better guidance on what it means for the conduit in the coming quarters.

Matthew Erdner: Got you. Yes, that’s helpful there. And then talking about CMBS, kind of the available-for-sale securities, looking at those 10 bonds that you guys kind of have, do you think of that as an additional source of income and liquidity? And how are you going to manage that book going forward?

Michael Comparato: Yes. I mean we’ve opportunistically been bond buyers when we thought the returns made sense versus whole loan origination. We have not been active buyers through the last few months of kind of the very aggressive credit spread tightening that we’ve seen. The returns in that space are fantastic for the bonds that we own. We do view it as some sort of liquidity management. But to be honest, the returns we’re making in that book, there’s just no reason to sell them. We can’t generate the returns in whole loan origination that we can in the existing bond portfolio.

Matthew Erdner: Got it. That’s helpful guys.

Operator: And our next question comes from Stephen Laws with Raymond James. Please go ahead.

Stephen Laws: Hi good morning. Appreciate the comments in the prepared remarks. I wanted to follow up with the — sorry, let me start with Mike. Mike, on the 7 REOs I guess that you mentioned, 4 NC, 2 Texas, 1 Ohio that you guys are holding assets. Can you talk a little bit about [Indiscernible]

Michael Comparato: Excuse me, Stephen, it’s a little choppy.

Stephen Laws: Sorry about that. Let me see if this is better. Mike, can you talk about the sentiment in lease-up and potential timing of those monetizations? Is that a first half event, or is it something that’s more backend loaded next year?

Michael Comparato: Hey Stephen, thanks for the question. As I mentioned, we’ve got four under contract. We’re going to continue to chop away at the Walgreens portfolio. All five of those are on the market for sale right now. One of them is under contract. Would really hope to be done with Walgreens in its totality by the end of Q1 next year, chance maybe a few more selling in Q4 of this year. Of the remaining multifamily, we’ll have two that are going on the market either in December or early January that I would expect to have closed by the end of Q1. And then probably the remaining four or five that will be a little bit longer holds. But as I mentioned in the prepared remarks, it is clearly stabilize as fast as you can, move them as fast as you can.

We are not looking for these to necessarily be profit centers. If profits come out of them, that’s a great byproduct of REO, but we really want to get this cash back and get it redeployed. A little bit more in Q1, a little bit throughout the course of 2025, and then just wrap it up, hopefully, by the end of next year.

Stephen Laws: Great. Appreciate those comments. Jerry, I want to talk NII for a second. A little lower than I expected in Q3. Can you talk about the timing of repayments, which were pretty material, $500 million higher than I was looking for, versus new investments and kind of what a full quarter — you thought full quarter impact there? And then as we look out the next quarter or 2, what are the expectations around repayments? Is it going to take all the originations to keep the portfolio stable? Or do you expect some portfolio growth as we move forward?

Jerry Baglien: Yes. Maybe I’ll just start with expectations. I mean I think we’re tracking to kind of a normalized year in terms of repayments for us, which is turning roughly 1/3 of the portfolio. If you look at what we’re at so far, I mean it’s going to be another $300-plus million would be my guess on kind of the low end. Could be higher from there, which Rich said is great and not great at the same time because we have to redeploy that. I think we keep our projections updated to try and replace what’s paying off. That’s always the goal that we’re not shrinking the portfolio, and we try and line it up as close as we can. In terms of Q3, I don’t think there is a tremendous drag from some of the mismatch on when stuff came back versus when we put it on.

I think more of the drag is just the turnover on the other assets, just the stuff that’s less productive, the stuff that went from loan to REO. That really creates more drag than kind of the natural portfolio repayment, redeployment.

Stephen Laws: Great. Appreciate that color and the comments in the prepared remarks. Certainly not a bad thing that people paying off as expected on time. And then one modeling question. You said you are likely to go REO in Q4, Q1. I think there’s a $27 million specific reserve there. Will that run through DE on the transfer to REO? Or will that not run through DE until that asset is sold?

Jerry Baglien: The answer is, it depends. If we — our policy on DE is if we think that loss is essentially crystallized or unrecoverable at that point, we’ll run it through. Probably a decent likelihood on that one. If that’s the place that we end up, we’ll reassess value, reassess market at that time and come to a conclusion at that point.

Stephen Laws: Great. Appreciate the comments this morning. Thank you.

Jerry Baglien: Thanks, Stephen.

Operator: The next question comes from Steve Delaney with Citizens JMP. Please go ahead.

Steven Delaney: Thanks, good morning everyone. Rich, let me start with you, if I could. Maybe sort of a big picture question on the bridge business as you see it. Obviously, you shrunk in the third quarter, and I know Stephen Laws touched on some of this, but down to the 5.2%, the Fed is probably going to cut Thursday, the outlook for Fed funds futures, maybe we probably get below 4% here some point in late 2025. I mean I would think that would be very constructive for the bridge business. And as we think about your portfolio size and your leverage at 2.7, is it conceivable — 3 turns of leverage is kind of I think, what we normally view as sort of the top, close to the top end of the range. I’d view you as being slightly under-levered.

If you were to move with the benefit of the Fed cuts and if you took your leverage up to three with your current equity base, it should put your portfolio at the $6 billion mark or slightly higher. Is that a realistic outlook for 2025? And I know you’re not going to force your operations to meet — to hit a certain number. But I guess is my outlook realistic in terms of how you and the team see 2025? Thank you. Sorry for the long-winded question.

A – Richard Byrne: No, it’s a good question. Thanks, Steve. I would answer it this way. As you’ve heard us say and we’ve said repeatedly across as many earnings calls as we can, the current vintage of new loans that we see today are amongst the best we’ve seen in years. And literally, every loan we put into our book increases the quality of our book. And the stat we’re showing, we’re going to keep updating it, is that 40% of our book is of these new loans. Without a doubt, if we see attractive new supply, we’re going to put it on, and we have lots of capacity to do so. Before we even start thinking about increasing leverage, and we’ve always given a target, I think, somewhere between 2.25, 2.5 and 3, and we’ve always operated in that range or probably in the low end of that range almost every quarter since our inception.

But remember, Steve, we have $350 million of cash. We also have, as you’ve heard us detail, Mike’s gone through, a lot of REO that we’re cycling through and generating liquidity to put productive earnings power behind once we redeploy that into the current market. We have — I think we have a long time before we need to think about whether or not we want to increase leverage. We just have a lot of added earnings power in the portfolio just without touching leverage. I think that’s how we’re thinking about it. As long as the market produces, which it has pretty consistently, attractive loans, we’re going to put them on. And one of the reasons why these loans are so attractive is because most of the folks that we typically compete against for loans like this, whether it’s banks or some of our public mortgage REIT comps or the private lenders or whoever it is, a lot of them are still on the sidelines given office exposure and other issues.

And we’ve just had a great chance to look at pick of the litter and putting on good risk on our books. I hope that answered the question.

Steven Delaney: Yes, very helpful.

Michael Comparato: And Steve, this is Mike. Let me just add a little something to that because just reading between the lines of your question, the demand for loans is massive right now. There is no shortage of opportunities to write loans. I think you were getting to, if rates come down, loan demand goes up. And I just want to be clear, we have a ton of loan demand right now. There’s no lack of investable or lendable opportunities. And look, the other thing that I would say is perspective matters so much, right? Yes, would a 4% Fed funds certainly be moving in the right direction? Of course. It’s better than Fed funds at 5%. But if I told you three years ago that Fed funds were going to go from 0% to 4%, you would have said that’s an unmitigated disaster. We still aren’t out of any sort of big picture legacy loan problems with Fed funds at 4%. Yes, it’s better, but it is not a panacea.

Steven Delaney: Got it. I appreciate that. And just a quick follow-up, Mike, for you on the conduit business. Could you quantify for us sort of the size of your locked pipeline of conduit commitments at this point? And how effective have your hedges been given the 70-basis point backup in the 10-year?

Michael Comparato: We have really managed that book exceptionally well. And the best way to manage the conduit business is to sell loans. The best hedge is moving the book. We actually have zero rate locked or committed loans as we sit here today. We have sold everything on balance sheet, we have nothing to move, and we’re kind of reloading inventory to get ready for the next transaction. The conduit is largely sitting in as good of a spot as it could from an exposure standpoint.

Steven Delaney: Thank you both for your comments this morning.

Michael Comparato: Thanks, Steve.

Operator: [Operator Instructions] And the next question comes from Tom Catherwood with BTIG.

Thomas Catherwood: Thanks, and good morning. Mike, following up on a comment you made on Steve’s question, your peers have been talking about accelerating transactions in 2025, creating more origination opportunities. Obviously, you’re not waiting until 2025. What’s different about FBRT’s deal flow that allowed you to complete $1.6 billion of originations in 2024? And kind of how much of a pickup could we see in 2025?

Michael Comparato: Thanks, Tom. Yes. Look, I think first and foremost, we didn’t have the legacy issues that I think a lot of the competitive space has had to deal with. We have less than 5% office. A lot of the industry is at 25% plus in office. And we made a very good macro call at kind of the peak of valuations to focus our origination three years ago on nicer, newer vintage assets in large markets, and that call has paid dividends. We just didn’t have to play the amount of defense I think that most of the industry had to play around older vintage multi and certainly office. That let us play offense for most of 2024. In addition to that, I think we have one of the broadest product offerings in the entire industry, certainly within the middle market.

I mean we do everything from CMBS to traditional bridge, occasionally writing mezz loans. We have a construction loan business. I think we’ve got just a really, really interesting product offering that some people don’t that keep us busier than most. And the last thing that I would say is I do think we bought a lot of street credibility over the past few years. COVID hit in March of 2020. We wrote our first post-COVID loan on April 22, 2020, and proceeded to be the only active lender in the market for the next 6 months. In 2023, when everyone went to the sidelines, we closed over $1 billion of loans. I think that the market has come to the realization that when it’s 72 and sunny outside, everybody extends credit. And BSP, when the proverbial hits the fan, stays in business.

Spreads might be wider, leverage might be lower, covenants might be tighter, but we’re still extending credit in those times. And I think the markets realize that maybe we’re a good group to have a relationship with going forward.

Richard Byrne: Tom, it’s Rich. And just to add to all that is, you are right, a number of, listening to earnings calls like you do, a lot of competitors or fellow lenders are increasing or talking about increasing their origination activities or some of them even doing so now. But think about that context, $1.6 trillion of CRE loans are going to come due over the next three years. 50% of our market is bank loans. The banks are largely not participating in this renaissance of new lending. We’ll see how much everybody else does. There’s still, from a macro basis, a great opportunity to be a lender right now. And as Mike said, we’re certainly picking up a lot of new clients from those left behind, whether it’s banks or nonbank lenders.

Thomas Catherwood: Appreciate those thoughts. And then kind of last one for me, maybe on dividend coverage. We understand the lag between repayments and originations and that flowing through to net interest income. But how long do you think it takes to redeploy your capital back into loans to the point where your DE is fully covering dividends?

Jerry Baglien: Yes, Tom. This is really an REO story. As soon as we get the REO gone and get it back into loans, we’re back at coverage. This is — we largely expected there to be a little bit of noise in the numbers as we cycled through kind of this REO and get it sold. But we’re — we could not be more confident in the earnings power of the platform once we get through this and stabilize. The answer is we want to get there as fast as we can. Obviously, the market is going to dictate that timing as much as we are. I would have told you 70 basis points ago on the 10-year that we were going to get through it a little bit faster. Things might slow a little bit here, but we’ll get through it all. We will get back there. And obviously, the goal is to get back there as soon as possible. But this is entirely an REO conversation, not a lack of investable or originate able opportunities.

Richard Byrne: And Tom, sorry to pile on, Mike and I talk about this every day, so we’re all like-minded on this. We and our Board set our dividend policy based on our earnings power look. And we like to look at that not over like a quarter at a time, but what the earnings power of the company is. And so whether that takes one quarter or takes a little longer, not really a consideration. And as far as REO as well, remember, we have $350 million of cash. We have a lot more earnings power than we’re demonstrating now, and we feel confident in the level of our dividend.

Thomas Catherwood: Understood. Appreciate all your thoughts. Thank you everyone.

Operator: And this concludes our question-and-answer session. I would like to turn the conference back over to Lindsey Crabbe for any closing remarks.

Lindsey Crabbe: We appreciate you joining us today. Please reach out if you have any further questions. We look forward to speaking with you soon. Thanks, and have a great day.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.