FSK Q3 2023 Updates By Scott Kennedy

Introduction section by Colorado Wealth Management Fund.

Article section by Scott Kennedy.

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Disclosures

Related to the stocks in this article:

CWMF is long: RITM-D, GPMT-A, DX-C, EFC-A, MFA-C, RITM-C, EFC-B, PMT-C, PMT-B, CIM-B, AGNCP, CIM-D, RITM, SLRC, MFA, GPMT, RC.

Scott Kennedy is long: RITM, RC, SLRC, GPMT, ARCC, TSLX, FSK, MFA, RITM-D, MITT-B, MITT-C, GAINL, RCB, ECCC, ECCW.

The rest of this post is from Scott Kennedy.

Summary

• This 15th earnings assessment article reviews FSK’s NAV and adjusted NII performance during Q3 2023.

• This article also discusses how FSK’s quarterly change in NAV and adjusted NII “matched up” to expectations. Earnings remain a key driver to stock performance.

• FSK’s NAV was a minor outperformance while its adjusted NII was nearly an exact match-very minor outperformance.

• No change in FSK’s percentage recommendation ranges or risk rating.  FSK is currently deemed appropriately valued (HOLD).

• FSK reported a good quarter.  However, prior to an upgrade, I want FSK to resolve some troubled loans/portfolio companies (minimize write-offs) and to modestly lower the company's PIK/deferred income percentage.

Introduction:

Hi subscribers. For new members, my name is Scott Kennedy and currently I fully cover 20 mortgage real estate investment trust (mREIT) and 15 business development company (“BDC”) common stocks within this Investing Group regarding research/data, subscriber questions, weekly projected book values/net asset values (BV/NAV), and common stock recommendation ranges. Colorado (“CO”) Wealth Management handles the mREIT preferred stocks and he and his team handles all other applicable REIT sectors outside the mREIT sector. CO also provides some mREIT common stock and BDC articles from time-to-time which are more of an “overview/introduction” discussion; typically based either on my or our combined research/data. This also includes some macroeconomic trends and data. My name is always attached to all Investing Group articles I personally wrote so there is no confusion for subscribers.

This REIT Forum article is part of a series of articles over a span of 6-7 weeks which will analyze my previously projected BV/NAV and core earnings (or core earnings equivalent)/net investment income (“NII”) figures and compare these metrics to each mREIT’s and BDC’s actual reported results, respectively. For readers who are familiar with my public mREIT and/or BDC articles, these types of articles are beneficial to readers who desire to pursue a more active investing strategy and/or want more “real time” thoughts/analysis.

I hope my services/contributions ultimately help enhance a subscriber’s total investment returns or minimize their total investment losses within the mREIT and BDC sectors. At the very least, I hope subscribers will gain more insight into the mREIT and BDC sectors by reading my/our exclusive REIT Forum articles.

1) FSK’s NAV and Adjusted NII Q3 2023 Performance (Projected Versus Actual Results):

On 11/6/2023, FS KKR Capital Corp. (FSK) reported the company’s earnings results for the third quarter of 2023. Table 1 below provides FSK’s NAV and earnings summary.

Table 1 – FSK Q3 2023 NAV and Earnings Summary

Source: Taken Directly from the REIT Forum’s © Analytical Spreadsheets/Data

Hi subscribers. I was able to review FSK’s Q3 2023 earnings results. FSK's Q3 2023 adjusted NII of $0.800 per share (NII of $0.836 per share) was nearly an exact match - very minor outperformance versus my projection of $0.785 per share (range $0.745 - $0.825 per share). FSK’s Q2 2023 adjusted NII was $0.782 per share. As such, I projected an adjusted NII increase of $0.003 per share. In actuality, FSK reported an adjusted NII increase of $0.018 per share. The institutional analysts’ consensus average was adjusted NII of $0.762 per share. My preference is to use adjusted NII as this indicates FSK’s “truer” operational performance during the quarter (backs out discount accretion from the prior affiliated merger and adds back excise tax; better indication of net investment company taxable income [ICTI]).

First, let us discuss the change in FSK’s investment portfolio size. Including fair market value (“FMV”) fluctuations, FSK reduced the company’s investment portfolio size by ($0.1) billion during the third quarter of 2023.