Franklin BSP Realty Trust, Inc. - Quarter Report: 2022 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| (Mark One) | |||||
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended March 31, 2022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
Commission file number: 000-55188
FRANKLIN BSP REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
| Maryland | 46-1406086 | |||||||
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |||||||
1345 Avenue of the Americas, Suite 32A New York, New York | 10105 | |||||||
| (Address of Principal Executive Office) | (Zip Code) | |||||||
(212) 588-6770
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Common Stock, par value $0.01 per share | FBRT | New York Stock Exchange | ||||||
| 7.50% Series E Cumulative Redeemable Preferred Stock, par value $0.01 per share | FBRT PRE | New York Stock Exchange | ||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer o | Accelerated filer o | ||||
Non-accelerated filer x | Smaller reporting company ☐ | ||||
Emerging growth filer ☐ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o | |||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of the registrant's common stock, $0.01 par value, outstanding as of April 29, 2022 was 83,691,399.
FRANKLIN BSP REALTY TRUST, INC.
TABLE OF CONTENTS
| Page | ||||||||
i
PART I
Item 1. Consolidated Financial Statements and Notes (unaudited)
1
FRANKLIN BSP REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| March 31, 2022 | December 31, 2021 | ||||||||||
| ASSETS | (Unaudited) | ||||||||||
| Cash and cash equivalents | $ | 117,064 | $ | 154,929 | |||||||
| Restricted cash | 12,467 | 13,270 | |||||||||
Commercial mortgage loans, held for investment, net of allowance of $14,933 and $15,827 as of March 31, 2022 and December 31, 2021, respectively | 4,530,451 | 4,211,061 | |||||||||
| Commercial mortgage loans, held for sale, measured at fair value | 107,978 | 34,718 | |||||||||
| Real estate securities, trading, measured at fair value | 1,949,336 | 4,566,871 | |||||||||
| Derivative instruments, measured at fair value | 478 | 436 | |||||||||
| Other real estate investments, measured at fair value | — | 2,074 | |||||||||
Receivable for loan repayment (1) | 204,833 | 252,351 | |||||||||
| Accrued interest receivable | 24,787 | 30,109 | |||||||||
| Prepaid expenses and other assets | 18,430 | 13,595 | |||||||||
| Intangible lease asset, net of amortization | 47,752 | 48,472 | |||||||||
| Real estate owned, net of depreciation | 89,473 | 90,048 | |||||||||
| Cash collateral receivable from derivative counterparties | 9,106 | 56,767 | |||||||||
| Total assets | $ | 7,112,155 | $ | 9,474,701 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Collateralized loan obligations | $ | 2,883,887 | $ | 2,162,190 | |||||||
| Repurchase agreements - commercial mortgage loans | 522,890 | 1,019,600 | |||||||||
| Repurchase agreements - real estate securities | 1,714,541 | 4,178,784 | |||||||||
| Mortgage note payable | 23,998 | 23,998 | |||||||||
| Other financing and loan participation - commercial mortgage loans | 40,199 | 37,903 | |||||||||
| Unsecured debt | 98,620 | 148,594 | |||||||||
| Derivative instruments, measured at fair value | 3,753 | 32,295 | |||||||||
| Interest payable | 3,309 | 2,692 | |||||||||
| Distributions payable | 36,735 | 30,346 | |||||||||
| Accounts payable and accrued expenses | 12,857 | 12,705 | |||||||||
| Due to affiliates | 21,898 | 17,538 | |||||||||
| Total liabilities | $ | 5,362,687 | $ | 7,666,645 | |||||||
| Commitment and contingencies (See Note 10) | |||||||||||
Redeemable convertible preferred stock Series C, $0.01 par value, 20,000 authorized and 1,400 issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | 6,973 | 6,971 | |||||||||
Redeemable convertible preferred stock Series D, $0.01 par value, 20,000 authorized and 17,950 issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | 89,691 | 89,684 | |||||||||
| Equity: | |||||||||||
Preferred stock, $0.01 par value, 10,000,000 authorized and none issued or outstanding as of March 31, 2022 and December 31, 2021, respectively | — | ||||||||||
Preferred stock, $0.01 par value; 100,000,000 shares authorized, 7.5% Cumulative Redeemable Preferred Stock, Series E, 10,329,039 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | 258,742 | 258,742 | |||||||||
Series F Preferred stock, $0.01 par value, 40,000,000 authorized and 39,733,299 issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | 710,431 | 710,431 | |||||||||
Common stock, $0.01 par value, 900,000,000 shares authorized, 44,471,127 and 43,965,928 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | 441 | 441 | |||||||||
| Additional paid-in capital | 903,855 | 903,264 | |||||||||
| Accumulated other comprehensive income (loss) | — | (62) | |||||||||
| Accumulated deficit | (226,429) | (167,179) | |||||||||
| Total stockholders' equity | $ | 1,647,040 | $ | 1,705,637 | |||||||
| Non-controlling interest | 5,764 | 5,764 | |||||||||
| Total equity | $ | 1,652,804 | $ | 1,711,401 | |||||||
| Total liabilities, redeemable convertible preferred stock and equity | $ | 7,112,155 | $ | 9,474,701 | |||||||
(1) Includes $177.4 million and $187.0 million of cash held by servicer related to the CLOs as of March 31, 2022 and December 31, 2021, respectively, as well as $27.4 million and $65.3 million of RMBS principal paydowns receivable as of March 31, 2022 and December 31, 2021, respectively.
2
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
FRANKLIN BSP REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Income: | |||||||||||
| Interest income | $ | 75,258 | $ | 42,237 | |||||||
| Less: Interest expense | 22,480 | 11,369 | |||||||||
| Net interest income | 52,778 | 30,868 | |||||||||
| Revenue from real estate owned | 2,312 | 716 | |||||||||
| Total income | $ | 55,090 | $ | 31,584 | |||||||
| Expenses: | |||||||||||
| Asset management and subordinated performance fee | 6,745 | 5,416 | |||||||||
| Acquisition expenses | 315 | 153 | |||||||||
| Administrative services expenses | 3,353 | 3,474 | |||||||||
| Professional fees | 6,659 | 1,997 | |||||||||
| Depreciation and amortization | 1,295 | 406 | |||||||||
| Other expenses | 1,762 | 495 | |||||||||
| Total expenses | $ | 20,129 | $ | 11,941 | |||||||
| Other (income)/loss: | |||||||||||
| Provision/(benefit) for credit losses | (955) | (2,331) | |||||||||
| Realized (gain)/loss on sale of real estate securities | — | 1,060 | |||||||||
| Realized (gain)/loss on sale of commercial mortgage loans, held for sale, measured at fair value | (1,889) | (6,630) | |||||||||
| Realized (gain)/loss on other real estate investments, measured at fair value | 33 | — | |||||||||
| Unrealized (gain)/loss on commercial mortgage loans, held for sale, measured at fair value | 939 | (479) | |||||||||
| Unrealized (gain)/loss on other real estate investments, measured at fair value | (4) | (6) | |||||||||
| Trading (gain)/loss | 88,435 | — | |||||||||
| Unrealized (gain)/loss on derivatives | 4,963 | (2,109) | |||||||||
| Realized (gain)/loss on derivatives | (34,030) | (1,978) | |||||||||
| Total other (income)/loss | $ | 57,492 | $ | (12,473) | |||||||
| Income before taxes | (22,531) | 32,116 | |||||||||
| Provision/(benefit) for income tax | (24) | 1,970 | |||||||||
| Net income/(loss) | $ | (22,507) | $ | 30,146 | |||||||
| Net income/(loss) applicable to common stock | $ | (43,518) | $ | 23,408 | |||||||
| Basic earnings per share | $ | (0.99) | $ | 0.53 | |||||||
| Diluted earnings per share | $ | (0.99) | $ | 0.53 | |||||||
| Basic weighted average shares outstanding | 43,956,965 | 44,290,177 | |||||||||
| Diluted weighted average shares outstanding | 43,956,965 | 44,306,065 | |||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
FRANKLIN BSP REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net income/(loss) | $ | (22,507) | $ | 30,146 | |||||||
| Unrealized gain/(loss) on available for sale securities | — | 8,042 | |||||||||
| Amounts related to cash flow hedges: | |||||||||||
| Change in net unrealized gain/(loss) | (220) | — | |||||||||
| Reclassification adjustment for amounts included in net income/(loss) | 282 | — | |||||||||
| $ | 62 | $ | — | ||||||||
| Comprehensive income/(loss) attributable to Franklin BSP Realty Trust, Inc. | $ | (22,445) | $ | 38,188 | |||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
FRANKLIN BSP REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)
| Common Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of Shares | Par Value | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Preferred E | Preferred F | Total Stockholders' Equity | Non-Controlling Interest | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | 43,965,928 | $ | 441 | $ | 903,264 | $ | (62) | $ | (167,179) | $ | 258,742 | $ | 710,431 | $ | 1,705,637 | $ | 5,764 | $ | 1,711,401 | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock repurchases | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued through distribution reinvestment plan | 5,982 | — | 91 | — | — | — | — | 91 | — | 91 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 499,217 | — | 500 | — | — | — | — | 500 | — | 500 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Offering costs | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income/(loss) | — | — | — | — | (22,507) | — | — | (22,507) | — | (22,507) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions declared | — | — | — | — | (36,743) | — | — | (36,743) | — | (36,743) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 62 | — | — | — | 62 | — | 62 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | 44,471,127 | $ | 441 | $ | 903,855 | $ | — | $ | (226,429) | $ | 258,742 | $ | 710,431 | $ | 1,647,040 | $ | 5,764 | $ | 1,652,804 | ||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | 44,510,051 | $ | 446 | $ | 912,725 | $ | (8,256) | $ | (106,471) | $ | — | $ | — | $ | 798,444 | $ | — | $ | 798,444 | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock repurchases | (521,796) | (5) | (9,142) | — | — | — | — | (9,147) | — | (9,147) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued through distribution reinvestment plan | 147,404 | 2 | 2,583 | — | — | — | — | 2,585 | — | 2,585 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 55 | — | — | — | — | 55 | — | 55 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Offering costs | — | — | (21) | — | — | — | — | (21) | — | (21) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income/(loss) | — | — | — | — | 30,146 | — | — | 30,146 | — | 30,146 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions declared | — | — | — | — | (15,644) | — | — | (15,644) | — | (15,644) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 8,042 | — | — | — | 8,042 | — | 8,042 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | 44,135,659 | $ | 443 | $ | 906,200 | $ | (214) | $ | (91,969) | $ | — | $ | — | $ | 814,460 | $ | — | $ | 814,460 | ||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
FRANKLIN BSP REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income/(loss) | $ | (22,507) | $ | 30,146 | |||||||
| Adjustments to reconcile net income to net cash (used in)/provided by operating activities: | |||||||||||
| Premium amortization and (discount accretion), net | $ | (2,542) | $ | (1,169) | |||||||
| Accretion of deferred commitment fees | (2,219) | (1,488) | |||||||||
| Amortization of deferred financing costs | 1,403 | 1,335 | |||||||||
| Share-based compensation | 500 | 55 | |||||||||
| Realized (gain)/loss from sale of real estate securities | — | 1,060 | |||||||||
| Realized (gain)/loss from sale of other real estate investments | 33 | — | |||||||||
| Realized (gain)/loss on swap terminations | (34,378) | — | |||||||||
| Realized and unrealized gain/loss on real estate securities, trading | 88,435 | — | |||||||||
| Unrealized (gain)/loss from commercial mortgage loans, held for sale | 939 | (479) | |||||||||
| Unrealized (gain)/loss from derivative instruments | 4,963 | (2,109) | |||||||||
| Unrealized (gain)/loss from other real estate investments | (4) | (6) | |||||||||
| Depreciation and amortization | 1,295 | 406 | |||||||||
| Provision/(benefit) for credit losses | (955) | (2,331) | |||||||||
| Origination of commercial mortgage loans, held for sale | (150,300) | (166,360) | |||||||||
| Proceeds from sale of commercial mortgage loans, held for sale | 76,100 | 141,372 | |||||||||
| Changes in assets and liabilities: | |||||||||||
| Accrued interest receivable | 7,542 | 308 | |||||||||
| Prepaid expenses and other assets | (5,807) | 1,850 | |||||||||
| Accounts payable and accrued expenses | 239 | 1,570 | |||||||||
| Due to affiliates | 4,360 | 952 | |||||||||
| Interest payable | 617 | (664) | |||||||||
| Net cash (used in)/provided by operating activities | $ | (32,286) | $ | 4,448 | |||||||
| Cash flows from investing activities: | |||||||||||
| Origination and purchase of commercial mortgage loans, held for investment | $ | (636,465) | $ | (520,849) | |||||||
| Principal repayments received on commercial mortgage loans, held for investment | 330,130 | 52,800 | |||||||||
| Proceeds from (purchase)/sale of other real estate investments | 2,045 | — | |||||||||
| Proceeds from sale/repayment of real estate securities | 2,190,143 | 159,254 | |||||||||
| Principal collateral on mortgage investments | 376,857 | — | |||||||||
| Proceeds from (purchase)/sale of derivative instruments | 148 | 973 | |||||||||
| Net cash (used in)/provided by investing activities | $ | 2,262,858 | $ | (307,822) | |||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from issuances of redeemable convertible preferred stock | $ | — | $ | 15,000 | |||||||
| Common stock repurchases | — | (9,147) | |||||||||
| Borrowings on collateralized loan obligations | 960,000 | 573,125 | |||||||||
| Repayments of collateralized loan obligations | (235,139) | (119,425) | |||||||||
| Borrowings on repurchase agreements - commercial mortgage loans | 474,466 | 168,655 | |||||||||
| Repayments of repurchase agreements - commercial mortgage loans | (971,176) | (292,070) | |||||||||
| Borrowings on repurchase agreements - real estate securities | 11,937,334 | 168,550 | |||||||||
| Repayments of repurchase agreements - real estate securities | (14,401,577) | (267,106) | |||||||||
7
FRANKLIN BSP REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Proceeds from other financing and loan participation - commercial mortgage loans | 2,296 | 2,638 | |||||||||
| Borrowings on unsecured debt | — | 100,000 | |||||||||
| Repayments of unsecured debt | (50,000) | — | |||||||||
| Payments of deferred financing costs | (3,595) | (3,944) | |||||||||
| Cash collateral received on interest rate swaps | 47,661 | — | |||||||||
| Proceeds from interest rate swap settlements | 744 | — | |||||||||
| Distributions paid | (30,254) | (14,136) | |||||||||
| Net cash (used in)/provided by financing activities: | $ | (2,269,240) | $ | 322,140 | |||||||
| Net change in cash, cash equivalents and restricted cash | (38,668) | 18,766 | |||||||||
| Cash, cash equivalents and restricted cash, beginning of period | 168,199 | 92,141 | |||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 129,531 | $ | 110,907 | |||||||
| Supplemental disclosures of cash flow information: | |||||||||||
| Taxes paid | $ | — | $ | — | |||||||
| Interest paid | 20,460 | 10,698 | |||||||||
| Supplemental disclosures of non - cash flow information: | |||||||||||
| Distribution payable | $ | 36,735 | $ | 14,585 | |||||||
| Common stock issued through distribution reinvestment plan | 91 | 2,585 | |||||||||
| Real estate owned received in foreclosure | — | 37,523 | |||||||||
| Reconciliation of cash, cash equivalents and restricted cash at end of period: | |||||||||||
| Cash and cash equivalents | $ | 117,064 | $ | 99,099 | |||||||
| Restricted cash | 12,467 | 11,808 | |||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 129,531 | $ | 110,907 | |||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
8
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Note 1 - Organization and Business Operations
Franklin BSP Realty Trust, Inc. (the "Company") is a real estate finance company that primarily originates, acquires and manages a diversified portfolio of commercial real estate debt investments secured by properties located within and outside the United States. The Company is a Maryland corporation and has made tax elections to be treated as a real estate investment trust (a "REIT") for U.S. federal income tax purposes since 2013.
The Company believes that it has qualified as a REIT and intends to continue to meet the requirements for qualification and taxation as a REIT. Substantially all of the Company's business is conducted through Benefit Street Partners Realty Operating Partnership, L.P. (the “OP”), a Delaware limited partnership. The Company is the sole general partner and directly or indirectly holds all of the units of limited partner interests in the OP. In addition, the Company, through one or more subsidiaries which are treated as a taxable REIT subsidiary (a “TRS”), is indirectly subject to U.S. federal, state and local income taxes.
The Company has no employees. Benefit Street Partners L.L.C. serves as the Company's advisor (the "Advisor") pursuant to an advisory agreement, as amended on August 18, 2021 (the "Advisory Agreement"). The Advisor, an investment adviser registered with the SEC, is a credit-focused alternative asset management firm.
Established in 2008, the Advisor's credit platform manages funds for institutions and high-net-worth investors across various credit funds and complementary strategies including high yield, levered loans, private/opportunistic debt, liquid credit, structured credit and commercial real estate debt. These strategies complement each other as they all leverage the sourcing, analytical, compliance, and operational capabilities that encompass the platform. The Advisor manages the Company's affairs on a day-to-day basis. The Advisor receives compensation fees and reimbursements for services related to the investment and management of the Company's assets and the operations of the Company. The advisor is a wholly-owned subsidiary of Franklin Resources, Inc., which together with its various subsidiaries operates as "Franklin Templeton”.
The Company invests in commercial real estate debt investments, which may include first mortgage loans, subordinated mortgage loans, mezzanine loans and participations in such loans. The Company also originates conduit loans which the Company intends to sell through its TRS into commercial mortgage-backed securities ("CMBS") securitization transactions. Historically this business has focused primarily on CMBS, unsecured REIT debt, collateralized debt obligations ("CDOs") and other securities. As a result of the October 2021 acquisition of Capstead Mortgage Corporation ("Capstead"), the Company acquired and continues to hold a significant portfolio of residential mortgage backed securities (“RMBS”) in the form of residential adjustable-rate mortgage pass-through securities ("ARM Agency Securities") issued and guaranteed by government-sponsored enterprises or by an agency of the federal government. The Company also owns real estate acquired by the Company through foreclosure and deed in lieu of foreclosure, and purchased for investment, typically subject to triple net leases.
Note 2 - Summary of Significant Accounting Policies
Basis of Accounting
The Company's unaudited consolidated financial statements and related footnotes have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America ("GAAP") for interim financial statements and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X, as appropriate. Accordingly, the consolidated financial statements may not include all of the information and notes required by GAAP for annual consolidated financial statements.
These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of, and for the year ended December 31, 2021, which are included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on February 25, 2022.
Use of Estimates
GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reported periods. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially. In the opinion of management, the interim data includes all adjustments, of a normal and recurring nature, necessary for a fair statement of the results for the periods presented. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the entire year or any subsequent interim periods.
9
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
The global coronavirus (COVID-19) pandemic has caused economic disruptions and changes to the real estate market. Certain jurisdictions, including those where our corporate headquarters and/or properties that secure our investments, or properties that the Company owns, are located, have at times imposed “stay-at-home” guidelines or orders or other restrictions to help prevent its spread. The effects of COVID-19 may negatively and materially impact significant estimates and assumptions used by the Company including, but not limited to estimates of expected credit losses, valuation of our equity investments and the fair value estimates of the Company's assets and liabilities. Actual results could differ from those estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company, the OP and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. In determining whether the Company has a controlling financial interest in a joint venture and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the other partners or members, as well as whether the entity is a variable interest entity ("VIE") for which the Company is the primary beneficiary.
The Company has determined the OP is a VIE of which the Company is the primary beneficiary. Substantially all of the Company's assets and liabilities are held by the OP.
The Company consolidates all entities that it controls through either majority ownership or voting rights. In addition, the Company consolidates all VIEs of which the Company is considered the primary beneficiary. VIEs are entities in which equity investors (i) do not have the characteristics of a controlling financial interest and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The entity that consolidates a VIE is its primary beneficiary and is generally the entity with (i) the power to direct the activities that most significantly affect the VIE’s economic performance and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE. Non-controlling interest represents the equity of a consolidated joint venture that is not owned by the Company.
The accompanying consolidated financial statements include the accounts of collateralized loan obligations ("CLOs") issued and securitized by wholly owned subsidiaries of the Company. The Company has determined the CLOs are VIEs of which the Company's subsidiary is the primary beneficiary. The assets and liabilities of the CLOs are consolidated in the accompanying consolidated balance sheets in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation.
Acquisition Expenses
The Company capitalizes certain direct costs relating to loan origination activities. The cost is amortized over the life of the loan and recognized in interest income in the Company's consolidated statements of operations. Acquisition expenses paid on future funding amounts are expensed within the acquisition expenses line in the Company's consolidated statements of operations.
Cash and Cash Equivalents
Cash consists of amounts deposited with high quality financial institutions. These deposits are guaranteed by the Federal Deposit Insurance Company up to an insurance limit. Cash equivalents include short-term, liquid investments in money market funds with original maturities of 90 days or less when purchased.
Restricted Cash
Restricted cash primarily consists of cash pledged as margin on repurchase agreements and derivative transactions. The duration of this restricted cash generally matches the duration of the related repurchase agreements or derivative transaction.
Commercial Mortgage Loans
Held for Investment - Commercial mortgage loans that are held for investment purposes and are anticipated to be held until maturity, are carried at cost, net of unamortized acquisition expenses, discounts or premiums and unfunded commitments. Commercial mortgage loans, held for investment purposes, are carried at amortized cost less allowance for credit losses. Interest income is recorded on the accrual basis and related discounts, premiums and acquisition expenses on investments are amortized over the life of the investment using the effective interest method. Amortization is reflected as an adjustment to interest income in the Company’s consolidated statements of operations. Guaranteed loan commitment fees payable by the borrower upon maturity are accreted over the life of the investment using the effective interest method. The accretion of guaranteed loan commitment fees is recognized in interest income in the Company's consolidated statements of operations.
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FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Held for Sale - Commercial mortgage loans that are intended to be sold in the foreseeable future are reported as held for sale and are transferred at fair value and recorded at the lower of cost or fair value with changes recorded through the statements of operations. Unamortized loan origination costs for commercial mortgage loans held for sale that are carried at the lower of cost or fair value are capitalized as part of the carrying value of the loans and recognized upon the sale of such loans. Amortization of origination costs ceases upon transfer of commercial mortgage loans to held for sale.
Held for Sale, Accounted for Under the Fair Value Option - The fair value option provides an option to elect fair value as an alternative measurement for selected financial assets, financial liabilities, and written loan commitments. The Company has elected to measure commercial mortgage loans held for sale in the Company's TRS under the fair value option. These commercial mortgage loans are included in the Commercial mortgage loans, held for sale, measured at fair value in the consolidated balance sheets. Interest income received on commercial mortgage loans, held for sale, measured at fair value is recorded on the accrual basis of accounting and is included in interest income in the consolidated statements of operations. Costs to originate these investments are expensed when incurred.
Real estate owned
The Company classifies its real estate owned as long-lived assets held for investment or as long-lived assets held for sale. Held for investment assets are stated at cost, as adjusted for any impairment loss, less accumulated depreciation.
Real estate owned is classified as held for sale in the period in which the six criteria under ASC Topic 360, "Property, Plant, and Equipment" are met: (1) we commit to a plan and have the authority to sell the asset; (2) the asset is available for sale in its current condition; (3) we have initiated an active marketing plan to locate a buyer for the asset; (4) the sale of the asset is both probable and expected to qualify for full sales recognition within a period of 12 months; (5) the asset is being actively marketed for sale at a price that is reflective of its current fair value; and (6) we do not anticipate changes to our plan to sell the asset. Held for sale assets are carried at the lower of depreciated cost or estimated fair value, less estimated costs to sell.
Amounts capitalized to real estate owned consist of the cost of acquisition or construction, any tenant improvements or major improvements, betterments that extend the useful life of the related asset, and transaction costs associated with the acquisition of an individual asset that does not qualify as a business combination. All repairs and maintenance are expensed as incurred. Additionally, the Company capitalizes interest while the development, or redevelopment, of a real estate owned asset is in progress. No development or redevelopments of real estate owned assets are in progress as of March 31, 2022.
The Company’s real estate owned assets are depreciated or amortized using the straight-line method over the following useful lives:
Buildings | 40 years | ||||
Furniture, fixtures, and equipment | 15 years | ||||
| Site Improvements | 5 - 25 years | ||||
Intangible lease assets | Lease term | ||||
The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of the real estate and related intangible assets of either operating properties or properties under construction in which the Company has an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When indicators of potential impairment are present, management assesses whether the respective carrying values will be recovered from the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition for assets held for use, or from the estimated fair values, less costs to sell, for assets held for sale. In the event that the expected undiscounted future cash flows for assets held for use or the estimated fair value, less costs to sell, for assets held for sale do not exceed the respective asset carrying value, management adjusts such assets to the respective estimated fair values and recognizes an impairment loss. Estimated fair values are calculated based on the following information, depending upon availability, in order of preference: (i) recently quoted market prices, (ii) market prices for comparable properties, or (iii) the present value of undiscounted cash flows, including estimated sales value (which is based on key assumptions such as estimated market rents, lease-up periods, estimated lease terms, and capitalization and discount rates) less estimated selling costs.
Real estate owned assets that are probable to be sold within one year are reported as held for sale. Real estate owned assets classified as held for sale are measured at the lower of its carrying amount or fair value less cost to sell. Real estate owned assets are not depreciated or amortized while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be accrued. Upon the disposition of a real estate owned asset, the Company calculates realized gains and losses as net proceeds received less the carrying value of the real estate owned asset. Net proceeds received are net of direct selling costs associated with the disposition of the real estate owned asset.
11
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Fair Value of Assets and Liabilities of Acquired Properties
Upon the acquisition of real properties, the Company records the fair value of properties (plus any related acquisition costs) allocated based on relative fair value as tangible assets, consisting of land and building, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases and the value of in-place leases, based on their estimated fair values. Substantially all of the Company’s property acquisitions qualify as asset acquisitions under Accounting Standards Codification ("ASC") 805, Business Combinations.
The estimated fair values of the tangible assets of an acquired property are determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land and building based on management’s determination of the estimated fair value of these assets. Management relies on a sales comparison approach using closed land sales and listings in determining the land value, and determines the as-if-vacant estimated fair value of a property using methods similar to those used by independent appraisers. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance, and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates the cost to execute similar leases including leasing commissions, legal, and other related costs.
The estimated fair values of above-market and below-market in-place leases are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of market rates for the corresponding in-place leases, measured over a period equal to the remaining terms of the leases, taking into consideration the probability of renewals for any below-market leases. The capitalized above-market and below-market lease values are recorded as intangible lease assets or liabilities and amortized as an adjustment to rental revenues over the remaining terms of the respective leases.
The estimated fair values of in-place leases include an estimate of the direct costs associated with obtaining the acquired or "in place" tenant and estimates of opportunity costs associated with lost rentals that are avoided by acquiring an in-place lease. The amount capitalized as direct costs associated with obtaining a tenant include commissions, tenant improvements, and other direct costs and are estimated based on management’s consideration of current market costs to execute a similar lease. These direct lease origination costs are included in deferred lease costs in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases. The value of opportunity costs is calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. These lease intangibles are included in intangible lease assets in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases.
Credit Losses
The allowance for credit losses required under Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments Credit Losses, is deducted from the respective loans’ amortized cost basis on the Company’s consolidated balance sheets. The allowance for credit losses attributed to unfunded loan commitments is included in Accounts payable and accrued expenses on the consolidated balance sheets.
Allowance for credit losses
The allowance for credit losses for the Company’s financial instruments carried at amortized cost and off-balance sheet credit exposures, such as loans held for investment and unfunded loan commitments represents a lifetime estimate of expected credit losses. Factors considered by the Company when determining the allowance for credit losses reserve include loan-specific characteristics such as loan-to-value (“LTV”) ratio, vintage year, loan term, property type, occupancy and geographic location, financial performance of the borrower, expected payments of principal and interest, as well as internal or external information relating to past events, current conditions and reasonable and supportable forecasts.
The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist for multiple financial instruments. If similar risk characteristics do not exist, the Company measures the allowance for credit losses on an individual instrument basis. The determination of whether a particular financial instrument should be included in a pool can change over time. If a financial asset’s risk characteristics change, the Company evaluates whether it is appropriate to continue to keep the financial instrument in its existing pool or evaluate it individually.
12
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
In measuring the allowance for credit losses for financial instruments including our unfunded loan commitments that share similar risk characteristics, the Company primarily applies a probability of default (“PD”)/loss given default (“LGD”) model for instruments that are collectively assessed, whereby the allowance for credit losses is calculated as the product of PD, LGD and exposure at default (“EAD”). The Company’s model principally utilizes historical loss rates derived from a commercial mortgage backed securities database with historical losses from 1998 to 2021 provided by a reputable third party, forecasting the loss parameters using a scenario-based statistical approach over a reasonable and supportable forecast period of twelve months, followed by an immediate reversion to average historical losses. For financial instruments assessed on an individual basis, including when it is probable that the Company will be unable to collect the full payment of principal and interest on the instrument, the Company applies a discounted cash flow (“DCF”) methodology.
For financial instruments where the borrower is experiencing financial difficulty based on the Company’s assessment at the reporting date and the repayment is expected to be provided substantially through the operation or sale of the collateral, the Company may elect to use as a practical expedient the fair value of the collateral at the reporting date when determining the allowance for credit losses.
In developing the allowance for credit losses for its loans held for investment, the Company performs a comprehensive analysis of its loan portfolio and assigns risk ratings to loans that incorporate management's current judgments about their credit quality based on all known and relevant internal and external factors that may affect collectability, using similar factors as those in developing the allowance for credit losses. This methodology results in loans being segmented by risk classification into risk rating categories that are associated with estimated probabilities of default and principal loss. Risk rating categories range from "1" to "5" with "1" representing the lowest risk of loss and "5" representing the highest risk of loss with the ratings updated quarterly. At the time of origination or purchase, loans held for investment are ranked as a “2” and will move accordingly going forward based on the ratings which are defined as follows:
1.Very Low Risk- Investment exceeding fundamental performance expectations and/or capital gain expected. Trends and risk factors since time of investment are favorable.
2.Low Risk- Performing consistent with expectations and a full return of principal and interest expected. Trends and risk factors are neutral to favorable.
3.Average Risk- Performing investments requiring closer monitoring. Trends and risk factors show some deterioration.
4.High Risk/Delinquent/Potential for Loss- Underperforming investment with the potential of some interest loss but still expecting a positive return on investment. Trends and risk factors are negative.
5.Impaired/Defaulted/Loss Likely- Underperforming investment with expected loss of interest and some principal.
The Company also considers qualitative and environmental factors, including, but not limited to, economic and business conditions, nature and volume of the loan portfolio, lending terms, volume and severity of past due loans, concentration of credit and changes in the level of such concentrations in its determination of the allowance for credit losses.
Changes in the allowance for credit losses for the Company’s financial instruments are recorded in Provision/(benefit) for credit losses on the consolidated statements of operations with a corresponding offset to the financial instrument’s amortized cost recorded on the consolidated balance sheets, or as a component of Accounts payable and accrued expenses for unfunded loan commitments.
The Company has elected to not measure an allowance for credit losses for accrued interest receivable as it is timely, following three months' time, reversed against interest income when a loan, real estate security or preferred equity investment is placed on nonaccrual status. The Company did not record reversals of accrued interest receivable during the three months ended March 31, 2022. Loans are charged off against the Provision/(benefit) for credit losses when all or a portion of the principal amount is determined to be uncollectible.
Past due and nonaccrual status
Loans are placed on nonaccrual status and considered non-performing when full payment of principal and interest is unpaid for 90 days or more or where reasonable doubt exists as to timely collection, unless the loan is both well secured and in the process of collection. Interest received on nonaccrual status loans are accounted for under the cost-recovery method, until qualifying for return to accrual. Upon restructuring the nonaccrual loan, the Company may return a loan to accrual status when repayment of principal and interest is reasonably assured.
13
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Troubled Debt Restructuring (“TDR”)
The Company classifies an individual financial instrument as a TDR when it has a reasonable expectation that the financial instrument’s contractual terms will be modified in a manner that grants concession to the borrower who is experiencing financial difficulty. Concessions could include term extensions, payment deferrals, interest rate reductions, principal forgiveness, forbearance, or other actions designed to maximize the Company’s collection on the financial instrument. The Company determines the allowance for credit losses for financial instruments that are TDRs individually.
Real Estate Securities
Available For Sale
On the acquisition date, all of the Company’s commercial real estate securities were classified as available for sale ("AFS") and carried at fair value, and subsequently any unrealized gains or losses are recognized as a component of accumulated other comprehensive income or loss. The Company may elect the fair value option for its real estate securities, and as a result, any unrealized gains or losses on such real estate securities will be recorded in the Company’s consolidated statements of operations. No such election was made as of March 31, 2022. Related discounts, premiums and acquisition expenses on investments are amortized over the life of the investment using the effective interest method. Amortization is reflected as an adjustment to interest income in the Company’s consolidated statements of operations. The Company uses the specific identification method in determining the cost relief for real estate securities sold. Realized gains and losses from the sale of real estate securities are included in the Company’s consolidated statements of operations.
AFS real estate securities which have experienced a decline in the fair value below their amortized cost basis (i.e., impairment) are evaluated each reporting period to determine whether the decline in fair value is due to credit-related factors. Any impairment that is not credit-related is recognized in accumulated other comprehensive income, while credit-related impairment is recognized as an allowance on the consolidated balance sheets with a corresponding adjustment on the consolidated statements of operations. If the Company intends to sell an impaired real estate security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount is recognized in the consolidated statements of operations with a corresponding adjustment to the security’s amortized cost basis.
The Company analyzes the AFS security portfolio on a periodic basis for credit losses at the individual security level using the same criteria described above for those amortized cost financial assets subject to an allowance for credit losses including but not limited to; performance of the underlying assets in the security, borrower financial resources and investment in collateral, collateral type, credit ratings, project economics and geographic location as well as national and regional economic factors.
The non-credit loss component of the unrealized loss within the Company’s AFS portfolio is recognized as an adjustment to the individual security’s asset balance with an offsetting entry to accumulated other comprehensive income in the consolidated balance sheets.
Trading
In the merger with Capstead, the Company acquired a portfolio of residential mortgage pass-through securities consisting primarily of adjustable-rate mortgage ("ARM") securities issued and guaranteed by government-sponsored enterprises, either Fannie Mae, Freddie Mac, or by an agency of the federal government, Ginnie Mae. Together these securities are referred to as "ARM Agency Securities" and are classified as "trading".
ARM Agency Securities are recorded at fair value on the balance sheet with trading gains and losses on the paydowns and sales of these securities recorded in the Company's consolidated statements of operations. Fair values fluctuate with current and projected changes in interest rates, prepayment expectations and other factors such as market liquidity conditions and the perceived credit quality of agency securities. Judgment is required to interpret market data and develop estimated fair values, particularly in circumstances of deteriorating credit quality and market liquidity.
Repurchase Agreements
Commercial mortgage loans and real estate securities sold under repurchase agreements have been treated as collateralized financing transactions because the Company maintains effective control over the transferred securities. Commercial mortgage loans and real estate securities financed through a repurchase agreement remain on the Company’s consolidated balance sheets as an asset and cash received from the purchaser is recorded as a liability. Interest paid in accordance with repurchase agreements is recorded in interest expense on the Company's consolidated statements of operations.
14
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Deferred Financing Costs
The deferred financing costs related to the Company's various Master Repurchase Agreements as well as certain prepaid subscription costs are included in Prepaid expenses and other assets on the consolidated balance sheets. Deferred financing cost on the Company's collateralized loan obligations ("CLO") are netted against the Company's CLO payable in the Collateralized loan obligations on the consolidated balance sheets. Deferred financing costs are amortized over the terms of the respective financing agreement using the effective interest method and included in interest expense on the Company's consolidated statements of operations. Unamortized deferred financing costs are generally expensed when the associated debt is refinanced or repaid before maturity.
Share Repurchase Program
Until the merger with Capstead, the Company had a Share Repurchase Program (the "SRP") that enabled stockholders to sell their shares to the Company, subject to certain conditions. Under the SRP, when a stockholder requested a redemption and the redemption was approved by the board of directors, the Company reclassified such obligation from equity to a liability based on the settlement value of the obligation. Shares repurchased under the SRP have the status of authorized but unissued shares.
Offering and Related Costs
Since 2018, the Company has from time to time offered, and may in the future offer, shares of the Company’s common stock or one or more series of its preferred stock, including its Series C convertible preferred stock (the “Series C Preferred Stock,”) and Series D convertible preferred stock (the “Series D Preferred Stock”) in private placements exempt from the registration requirements of the Securities Act of 1933, as amended. In connection with these offerings, the Company incurs various offering costs. These offering costs include but are not limited to legal, accounting, printing, mailing and filing fees, and diligence expenses of broker-dealers. Offering costs for the common stock are recorded in the Company’s stockholders’ equity, while the offering costs for the Series C Preferred Stock and Series D Preferred Stock are included within Series C Preferred Stock and Series D Preferred Stock, respectively, on the Company’s consolidated balance sheets.
Equity Incentive Plan
The Company maintains the Franklin BSP Realty Trust, Inc. 2021 Equity Incentive Plan (the “2021 Incentive Plan”), pursuant to which the Company may, from time to time, grant equity awards to the Company’s directors, officers and employees (if it ever has employees), employees of the Advisor and its affiliates, or certain of the Company’s consultants, advisors or other service providers to the Company or an affiliate of the Company. The 2021 Incentive Plan, which is administered by the Compensation Committee of the Board of Directors, provides for the grant of awards of share options, share appreciation rights, restricted shares, restricted share units, deferred share units, unrestricted shares, dividend equivalent rights, performance shares and other performance-based awards, other equity-based awards, LTIP units and cash bonus awards.
In January 2022, the Company began issuing awards of restricted stock units ("RSUs") to its officers and certain other personnel of the Advisor who provide services to the Company. These awards are service-based and vest in equal annual installments beginning on the anniversary of the date of grant over a period of three years, subject to continuing service. One share of the Company’s common stock will be issued for each unit that vests. These awards also grant non-forfeitable dividend equivalent rights equal to the cash dividend paid in the ordinary course on a common share to the Company's common shareholders. Upon termination for any reason, all unvested RSUs will be forfeited by the grantee, who will be given no further rights to such RSUs.
Restricted Share Plan
The Company also has an Amended and Restated Employee and Director Incentive Restricted Share Plan (the "RSP"), which provides the Company with the ability to grant awards of restricted shares to the Company’s directors, officers and employees (if the Company ever has employees), employees of the Advisor and its affiliates, employees of entities that provide services to the Company, directors of the Advisor or of entities that provide services to the Company, the Advisor and its affiliates. The total number of common shares granted under the RSP shall not exceed 5% of the Company’s authorized common shares, and in any event, will not exceed 4.0 million shares (as such number may be adjusted for stock splits, stock distributions, combinations and similar events). The RSP will expire on February 7, 2023.
Restricted share awards entitle the recipient to receive common shares from the Company under terms that provide for vesting over a specified period of time or upon attainment of pre-established performance objectives. Such awards would typically be forfeited with respect to the unvested shares upon the termination of the recipient’s employment or other relationship with the Company. Restricted shares may not, in general, be sold or otherwise transferred until restrictions are removed and the shares have vested. Holders of restricted shares may receive cash distributions prior to the time that the restrictions on the shares have lapsed. Any distributions payable in common shares shall be subject to the same restrictions as the underlying restricted shares. The fair value of the restricted share awards are expensed over the vesting period.
15
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Distribution Reinvestment Plan
Pursuant to the terms of the Company's distribution reinvestment plan ("DRIP") in effect until December 17, 2021, stockholders had the option to elect to reinvest distributions by purchasing shares of common stock in lieu of receiving cash. No dealer manager fees or selling commissions were paid with respect to shares purchased pursuant to the DRIP. The purchase price for shares purchased through the DRIP was the lesser of (i) the Company’s most recent estimated per share NAV, and (ii) the Company’s GAAP book value per share. The Company had the right to amend any aspect of the DRIP or terminate the DRIP with ten days’ notice to participants. Shares issued under the DRIP were recorded to equity in the consolidated balance sheets in the period distributions are declared.
On December 17, 2021, the Company amended and restated the DRIP (the “Amended DRIP”) in recognition of the listing of the Company’s common stock on the New York Stock Exchange (“NYSE”). Shares of common stock purchased through the Amended DRIP for dividend reinvestments are supplied either directly by the Company as newly issued shares or via purchases by the DRIP administrator of shares of common stock on the open market, at the Company’s option. If the shares are purchased in the open market, the purchase price will be the average price per share of shares purchased; if the shares are purchased directly from the Company, the purchase price will generally be the average of the daily high and low sales prices for a share of common stock reported by the NYSE on the dividend payment date authorized by the Company’s board of directors. The Company may suspend, modify or terminate the Amended DRIP at any time in its sole discretion.
Income Taxes
The Company has conducted its operations to qualify as a REIT for U.S. federal income tax purposes beginning with its taxable year ended December 31, 2013. As a REIT, if the Company meets certain organizational and operational requirements and distributes at least 90% of its "REIT taxable income" (determined before the deduction of dividends paid and excluding net capital gains) to its stockholders in a year, it will not be subject to U.S. federal income tax to the extent of the income that it distributes. However, even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on income in addition to U.S. federal income and excise taxes on its undistributed income. The Company, through its TRSs, is indirectly subject to U.S. federal, state and local income taxes. The Company’s TRSs are not consolidated for U.S. federal income tax purposes, but are instead taxed as C corporations. For financial reporting purposes, the TRSs are consolidated and a provision for current and deferred taxes is established for the portion of earnings recognized by the Company with respect to its interest in its TRSs. Total income tax provision/(benefit) for the three months ended March 31, 2022 and March 31, 2021 was $(24) thousand and $2.0 million, respectively.
The Company uses a more-likely-than-not threshold for recognition and derecognition of tax positions taken or to be taken in a tax return. The Company has assessed its tax positions for all open tax years beginning with December 31, 2017 and concluded that there were no uncertainties to be recognized. The Company’s accounting policy with respect to interest and penalties related to tax uncertainties is to classify these amounts as provision for income taxes.
The Company utilizes the TRSs to reduce the impact of the prohibited transaction tax and to avoid penalty for the holding of assets not qualifying as real estate assets for purposes of the REIT asset tests. Any income associated with a TRS is fully taxable because the TRS is subject to federal and state income taxes as a domestic C corporation based upon its net income.
Derivatives and Hedging Activities
In the normal course of business, the Company is exposed to the effect of interest rate changes and may undertake a strategy to limit these risks through the use of derivatives. The Company uses derivatives primarily to economically hedge against interest rates, CMBS spreads and macro market risk in order to minimize volatility. The Company may use a variety of derivative instruments that are considered conventional, including but not limited to: Treasury note futures and credit derivatives on various indices including CMBX and CDX.
The Company recognizes all derivatives on the consolidated balance sheets at fair value. The Company does not designate derivatives as hedges to qualify for hedge accounting for financial reporting purposes and therefore any net payments under, or fluctuations in the fair value of these derivatives have been recognized currently in unrealized (gain)/loss on derivative instruments in the accompanying consolidated statements of operations. The Company records derivative asset and liability positions on a gross basis with any collateral posted with or received from counterparties recorded separately within Restricted cash on the Company’s consolidated balance sheets. Certain derivatives that the Company has entered into are subject to master netting agreements with its counterparties, allowing for netting of the same transaction, in the same currency, on the same date.
16
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Per Share Data
The Series C Preferred Stock, Series D Preferred Stock and Series F Preferred Stock are each considered a participating security and the Company calculates basic earnings per share using the two-class method. The Company’s dilutive earnings per share calculation is computed using the more dilutive result of the treasury stock method, assuming the participating security is a potential common share, or the two-class method, assuming the participating security is not converted. The Company calculates basic earnings per share by dividing net income applicable to common stock for the period by the weighted-average number of shares of common stock outstanding for that period. Diluted earnings per share reflects the potential dilution that could occur from shares outstanding if potential shares of common stock with a dilutive effect have been issued in connection with the restricted stock plan or upon conversion of the outstanding shares of Series C Preferred Stock and Series D Preferred Stock, except when doing so would be anti-dilutive.
Reportable Segments
The Company has determined that it has four reportable segments based on how the chief operating decision maker reviews and manages the business. The four reporting segments are as follows:
•The real estate debt business which is focused on originating, acquiring and asset managing commercial real estate debt investments, including first mortgage loans, subordinate mortgages, mezzanine loans and participations in such loans.
•The real estate securities business focuses on investing in and asset managing real estate securities. Historically this business has focused primarily on CMBS, unsecured REIT debt, CDO notes and other securities. As a result of the October 2021 acquisition of Capstead, the Company acquired and continues to hold a significant portfolio of RMBS in the form of the ARM Agency Securities. The Company intends to reinvest the cash and proceeds from dividends, interest, repayments and sales of these assets into its other segments and does not intend to continue to invest in ARM Agency Securities or RMBS in general. As of March 31, 2022, all of the real estate securities in this segment were ARM Agency Securities acquired in the Capstead acquisition.
•The commercial conduit business in the Company's TRS, which is focused on originating and subsequently selling fixed-rate commercial real estate loans into the CMBS securitization market.
•The real estate owned business represents real estate acquired by the Company through foreclosure, deed in lieu of foreclosure, or purchase.
See Note 16 - Segment Reporting for further information regarding the Company's segments.
Redeemable Convertible Preferred Stock
The Company’s outstanding Series C and Series D classes of preferred stock are classified outside of permanent equity in the consolidated balance sheets.
Series C Preferred Stock
The Series C Preferred Stock ranks senior to the Common Stock and while it was outstanding, ranked senior to the Company's Series F Convertible Preferred Stock ("Series F Preferred Stock") and on parity with the Series D Preferred Stock and the Company’s 7.50% Series E Cumulative Redeemable Preferred Stock (“Series E Preferred Stock”) with respect to priority in dividends and in the distribution of assets in the event of the liquidation, dissolution or winding-up of the Company. The liquidation preference of each share of Series C Preferred Stock is the greater of (i) $5,000 plus accrued and unpaid dividends, and (ii) the amount that would be received upon a conversion of the Series C Preferred Stock into the Common Stock.
Dividends on the Series C Preferred Stock, which are typically declared and paid quarterly, accrue at a rate equal to the greater of (i) an annual amount equal to 4.0% of the liquidation preference per share and (ii) the dividends that would have been paid had such share of Series C Preferred Stock been converted into a share of common stock on the first day of such quarter, subject to proration in the event the share of Series C preferred stock is not outstanding for the full quarter. Dividends are paid in arrears. Dividends will accumulate and be cumulative from the most recent date to which dividends had been paid.
Each outstanding share of Series C Preferred Stock shall convert into 299.2 shares of common stock (the “Conversion Rate”), subject to anti-dilution adjustments described in the Articles Supplementary for the Series C Preferred Stock, on October 19, 2022 or at any time before then upon the election of the Company with 10 days’ prior notice to the holders.
17
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
In the event of the sale of all or substantially all of the business or assets of the Company (by sale, merger, consolidation or otherwise) or the acquisition by any person of more than 50% of the total economic interests or voting power of all securities of the Company (a “ Change of Control”), in each case prior to the automatic conversion dates set forth above, each holder of Series C Preferred Stock will have the right, prior to consummation of such transaction, to convert its Series C Preferred Stock into common stock at the Conversion Rate. In addition, in the event of a change of control (as defined in the Articles Supplementary of the Series C Preferred Stock) of the Advisor or a Change of Control that is not a "Liquidity Event" and that is related to the removal of the Advisor, both the Company and the holder shall have the right, prior to consummation of the transaction, to require the redemption of the Series C Preferred Stock for the liquidation preference. A "Liquidity Event" is defined as (i) the listing of the Common Stock on a national securities exchange or quotation on an electronic inter-dealer quotation system; (ii) a merger or business combination involving the Company pursuant to which outstanding shares of Common Stock are exchanged for securities of another company which are listed on a national securities exchange or quoted on an electronic inter-dealer quotation system; or (iii) any other transaction or series of transaction that results in all shares of Common Stock being transferred or exchanged for cash or securities which are listed on a national securities exchange or quoted on an electronic inter-dealer quotation system.
Holders of the Series C Preferred Stock (voting as a single class with holders of common stock) are entitled to vote on each matter submitted to a vote of the stockholders of the Company upon which the holders of common stock are entitled to vote. The number of votes applicable to a share of outstanding Series C Preferred Stock will be equal to the number of shares of common stock a share of Series C Preferred Stock could have been converted into as of the record date set for purposes of such stockholder vote (rounded down to the nearest whole number of shares of common stock). In addition, the affirmative vote of the holders of two-thirds of the outstanding shares of Series C Preferred Stock, voting as a single class with other shares of parity preferred stock, is required to approve the issuance of any equity securities senior to the Series C Preferred Stock and to take certain actions materially adverse to the holders of the Series C Preferred Stock.
Series D Preferred Stock
The Series D Preferred Stock is on parity with the Series C Preferred Stock and Series E Preferred Stock with respect to preference on liquidation and dividend rights. The terms of the Series D Preferred Stock are substantially the same as the terms of the Series C Preferred Stock, except that the holders of the Series D Preferred Stock have the option to accelerate the mandatory conversion date, which is October 19, 2022, to a date no earlier than April 19, 2022.
Automatically Convertible Preferred Stock - Series F Preferred Stock
The Series F Preferred Stock ranked junior to all other outstanding classes of the Company’s preferred stock with respect to priority in dividends and in the distribution of assets in the event of the liquidation, dissolution or winding-up of the Company. The liquidation preference of each share of Series F Preferred Stock was $2.00.
Dividends on the Series F Preferred Stock were equal to, and were paid at the same time as, dividends that were authorized and declared on the Company’s common stock. The Series F Preferred Stock ranked senior to the Company’s Common Stock with respect to the distribution of assets upon any liquidation, dissolution or winding up of the Company (other than a liquidation, dissolution or winding up of the Company that results in the automatic conversion of such Series F Preferred Stock into Common Stock).
Each share (or fractional share) of Series F Preferred Stock automatically converted into one share of Common Stock (or equivalent fractional share, as applicable) on April 19, 2022, in accordance with the terms of the Series F Preferred Stock. Following the conversion, there were no shares of Series F Preferred Stock issued or outstanding.
The Series F Preferred Stock had no stated maturity and was not redeemable.
Holders of Series F Preferred Stock (voting as a single class with holders of Common Stock and other series of Company equity securities entitled to vote with the common stockholders) were entitled to vote on each matter submitted to a vote of the stockholders of the Company upon which the holders of Common Stock are entitled to vote. The number of votes applicable to a share of outstanding Series F Preferred Stock would have been equal to the number of shares of Common Stock a share of Series F Preferred Stock could have been converted into as of the record date set for purposes of such stockholder vote (rounded down to the nearest whole number of shares of Common Stock). In addition, the affirmative vote of the holders of two-thirds of the outstanding shares of Series F Preferred Stock would have been required to take certain actions materially adverse to the holders of the Series F Preferred Stock.
18
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Perpetual Preferred Stock—Series E Preferred Stock
The Series E Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption. The Series E Preferred Stock ranks, with respect to rights to the payment of dividends and the distribution of assets upon its liquidation, dissolution or winding up, senior to the common stock and Series F Preferred Stock and on a parity with the Series C Preferred Stock and Series D Preferred Stock. The liquidation preference is $25.00 per share, plus an amount equal to any accumulated and unpaid dividends.
Holders of shares of the Series E Preferred Stock are entitled to receive, when, as and if authorized by our board of directors and declared by the Company, out of funds legally available for the payment of dividends, cumulative cash dividends at the rate of 7.50% of the $25.00 per share liquidation preference per annum (equivalent to $1.875 per annum per share). Dividends on the Series E Preferred Stock are cumulative and payable quarterly in arrears.
Dividends on the Series E Preferred Stock will accumulate whether or not the Company has earnings, whether or not there are funds legally available for the payment of those dividends and whether or not those dividends are declared.
The Company may, at its option, upon not less than 30 nor more than 60 days’ written notice, redeem the Series E Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus any accumulated and unpaid dividends thereon to, but not including, the date fixed for redemption. Upon a change of control of the Company, in the event the Company does not redeem the Series E Preferred Stock, a holder of Series E Preferred Stock will have the right to convert to Common Stock upon the terms set forth in the applicable Articles Supplementary.
The Series E Preferred Stock is listed on the New York Stock Exchange under the symbol “FBRT PRE”.
Summary of Preferred Stock Conversion Terms
The complete terms of the Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock are set forth in the Articles Supplementary applicable to each class, which have been filed as exhibits to the Company’s periodic reports filed pursuant to the Securities Exchange Act of 1934, as amended.
The below table summarizes the timing of the conversion of the Company’s outstanding classes of convertible preferred stock into common stock:
Series/Shares Outstanding at 3/31/22 | Conversion Date | Conversion Amount Per One Share of Preferred* | ||||||
Redeemable Convertible Series C Preferred Stock / 1,400 shares outstanding | October 19, 2022, subject to the Company’s right to accelerate the conversion starting April 19, 2022 | 299.2 shares of Common Stock | ||||||
Redeemable Convertible Series D Preferred Stock / 17,950 shares outstanding | October 19, 2022, subject to the holder’s right to accelerate the conversion starting April 19, 2022 | 299.2 shares of Common Stock | ||||||
Series F Preferred Stock / 39,733,299 shares outstanding | April 19, 2022 | 1 share of Common Stock | ||||||
*Subject to anti-dilution adjustments as set forth in Articles Supplementary.
Accounting Pronouncements Not Yet Adopted
In March 2022, the FASB issued ASU 2022-02 "Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures," or ASU 2022-02. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings and requires disclosure of current-period gross write-offs by year of loan origination. Additionally, ASU 2022-02 updates the accounting for credit losses under ASC 326 and adds enhanced disclosures with respect to loan refinancing and restructuring in the form of principal forgiveness, interest rate concessions, other-than-insignificant payment delays, or term extensions when the borrower is experiencing financial difficulties. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, and early adoption is permitted. The amendments should be applied prospectively, however for the recognition and measurement of troubled debt restructurings, the entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. We are currently evaluating what impact, if any ASU 2022-02 will have on our consolidated financial statements.
19
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company has not adopted any of the optional expedients or exceptions through March 31, 2022, but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve.
Note 3 - Commercial Mortgage Loans
The following table is a summary of the Company's commercial mortgage loans, held for investment, carrying values by class (dollars in thousands):
| March 31, 2022 | December 31, 2021 | ||||||||||
| Senior loans | $ | 4,517,879 | $ | 4,204,464 | |||||||
| Mezzanine loans | 27,505 | 22,424 | |||||||||
| Total gross carrying value of loans | 4,545,384 | 4,226,888 | |||||||||
Less: Allowance for credit losses (1) | 14,933 | 15,827 | |||||||||
| Total commercial mortgage loans, held for investment, net | $ | 4,530,451 | $ | 4,211,061 | |||||||
(1) As of March 31, 2022 and December 31, 2021, there have been no specific reserves for loans in non-performing status.
As of March 31, 2022 and December 31, 2021, the Company's total commercial mortgage loan portfolio, excluding commercial mortgage loans accounted for under the fair value option, was comprised of 166 and 165 loans, respectively.
Allowance for Credit Losses
The following table presents the activity in the Company's allowance for credit losses, excluding the unfunded loan commitments, as of March 31, 2022 (dollars in thousands):
| Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| MultiFamily | Retail | Office | Industrial | Mixed Use | Hospitality | Self-Storage | Manufactured Housing | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning Balance | $ | 9,681 | $ | 288 | $ | 776 | $ | 86 | $ | 169 | $ | 4,597 | $ | 152 | $ | 78 | $ | 15,827 | ||||||||||||||||||||||||||||||||||||||
| Current Period: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision/(benefit) for credit losses | 32 | 234 | (103) | 15 | (108) | (807) | (110) | (47) | (894) | |||||||||||||||||||||||||||||||||||||||||||||||
| Write offs | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Ending Balance | $ | 9,713 | $ | 522 | $ | 673 | $ | 101 | $ | 61 | $ | 3,790 | $ | 42 | $ | 31 | $ | 14,933 | ||||||||||||||||||||||||||||||||||||||
The Company recorded a decrease in its provision for credit losses during the three months ended March 31, 2022 of $0.9 million. The primary driver for the improvement in the reserve balance is the positive economic outlook since the end of the prior year.
20
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
The following table presents the activity in the Company's allowance for credit losses, for the unfunded loan commitments, as of March 31, 2022 (dollars in thousands):
| Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| MultiFamily | Retail | Office | Industrial | Mixed Use | Hospitality | Self-Storage | Manufactured Housing | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning Balance | $ | 137 | $ | 1 | $ | 13 | $ | 3 | $ | 10 | $ | 79 | $ | — | $ | — | $ | 243 | ||||||||||||||||||||||||||||||||||||||
| Current Period: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision/(benefit) for credit losses | (32) | 15 | (4) | (2) | (10) | (28) | — | — | (61) | |||||||||||||||||||||||||||||||||||||||||||||||
| Ending Balance | $ | 105 | $ | 16 | $ | 9 | $ | 1 | $ | — | $ | 51 | $ | — | $ | — | $ | 182 | ||||||||||||||||||||||||||||||||||||||
The following tables represent the composition by loan type and region of the Company's commercial mortgage loans, held for investment portfolio (dollars in thousands):
| March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||
| Loan Type | Par Value | Percentage | Par Value | Percentage | ||||||||||||||||||||||
| Multifamily | $ | 3,264,959 | 71.6 | % | $ | 2,953,938 | 69.6 | % | ||||||||||||||||||
| Hospitality | 542,171 | 11.9 | % | 460,884 | 10.9 | % | ||||||||||||||||||||
| Office | 479,607 | 10.5 | % | 485,575 | 11.4 | % | ||||||||||||||||||||
| Retail | 84,215 | 1.8 | % | 104,990 | 2.5 | % | ||||||||||||||||||||
| Industrial | 69,985 | 1.5 | % | 88,956 | 2.1 | % | ||||||||||||||||||||
| Mixed Use | 52,500 | 1.2 | % | 62,965 | 1.5 | % | ||||||||||||||||||||
| Self Storage | 44,895 | 1.0 | % | 56,495 | 1.3 | % | ||||||||||||||||||||
| Manufactured Housing | 24,152 | 0.5 | % | 29,159 | 0.7 | % | ||||||||||||||||||||
| Total | $ | 4,562,484 | 100.0 | % | $ | 4,242,962 | 100.0 | % | ||||||||||||||||||
| March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||
| Loan Region | Par Value | Percentage | Par Value | Percentage | ||||||||||||||||||||||
| Southwest | $ | 1,784,211 | 39.1 | % | $ | 1,764,905 | 41.6 | % | ||||||||||||||||||
| Southeast | 1,380,246 | 30.1 | % | 1,106,439 | 26.2 | % | ||||||||||||||||||||
| Mideast | 784,182 | 17.2 | % | 646,125 | 15.2 | % | ||||||||||||||||||||
| Far West | 262,728 | 5.8 | % | 301,040 | 7.1 | % | ||||||||||||||||||||
| Great Lakes | 168,114 | 3.7 | % | 183,930 | 4.3 | % | ||||||||||||||||||||
| New England | 67,117 | 1.5 | % | 67,651 | 1.6 | % | ||||||||||||||||||||
| Plains | 60,172 | 1.3 | % | 60,225 | 1.4 | % | ||||||||||||||||||||
| Rocky Mountain | 43,751 | 1.0 | % | 43,751 | 1.0 | % | ||||||||||||||||||||
| Various | 11,963 | 0.3 | % | 68,896 | 1.6 | % | ||||||||||||||||||||
| Total | $ | 4,562,484 | 100.0 | % | $ | 4,242,962 | 100.0 | % | ||||||||||||||||||
As of March 31, 2022 and December 31, 2021, the Company's total commercial mortgage loans, held for sale, measured at fair value were comprised of nine loans and one loan, respectively. As of March 31, 2022 and December 31, 2021, the contractual principal outstanding of commercial mortgage loans, held for sale, measured at fair value was $108.5 million and $34.3 million, respectively. As of March 31, 2022 and December 31, 2021, none of the Company's commercial mortgage loans, held for sale, measured at fair value were in default or greater than ninety days past due.
21
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
The following tables represent the composition by loan type and region of the Company's commercial mortgage loans, held for sale, measured at fair value (dollars in thousands):
| March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||
| Loan Type | Par Value | Percentage | Par Value | Percentage | ||||||||||||||||||||||
| Retail | $ | 54,550 | 50.3 | % | $ | — | — | % | ||||||||||||||||||
| Hospitality | 32,457 | 30.0 | % | — | — | % | ||||||||||||||||||||
| Office | 12,193 | 11.2 | % | 34,250 | 100.0 | % | ||||||||||||||||||||
| Multifamily | 6,500 | 6.0 | % | — | — | % | ||||||||||||||||||||
| Mixed Use | 2,750 | 2.5 | % | — | — | % | ||||||||||||||||||||
| Total | $ | 108,450 | 100.0 | % | $ | 34,250 | 100.0 | % | ||||||||||||||||||
| March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||
| Loan Region | Par Value | Percentage | Par Value | Percentage | ||||||||||||||||||||||
| Far West | $ | 47,300 | 43.6 | % | $ | — | — | % | ||||||||||||||||||
| Southeast | 44,750 | 41.3 | % | 34,250 | 100.0 | % | ||||||||||||||||||||
| Great Lakes | 10,000 | 9.2 | % | — | — | % | ||||||||||||||||||||
| Rocky Mountain | 6,400 | 5.9 | % | — | — | % | ||||||||||||||||||||
| Total | $ | 108,450 | 100.0 | % | $ | 34,250 | 100.0 | % | ||||||||||||||||||
Loan Credit Quality and Vintage
The following tables present the amortized cost of our commercial mortgage loans, held for investment as of March 31, 2022 and December 31, 2021, by loan type, the Company’s internal risk rating and year of origination. The risk ratings are updated as of March 31, 2022.
| As of March 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2019 | 2018 | 2017 | Total | ||||||||||||||||||||||||||||||||||||||
| Multifamily: | ||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating: | ||||||||||||||||||||||||||||||||||||||||||||
| 1-2 internal grade | $ | 388,347 | $ | 2,426,914 | $ | 229,560 | $ | 67,567 | $ | 83,619 | $ | — | $ | 3,196,007 | ||||||||||||||||||||||||||||||
| 3-4 internal grade | — | — | 18,669 | 37,025 | — | 55,694 | ||||||||||||||||||||||||||||||||||||||
| Total Multifamily Loans | $ | 388,347 | $ | 2,426,914 | $ | 248,229 | $ | 67,567 | $ | 120,644 | $ | — | $ | 3,251,701 | ||||||||||||||||||||||||||||||
| Retail: | ||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating: | ||||||||||||||||||||||||||||||||||||||||||||
| 1-2 internal grade | $ | 20,480 | $ | 33,843 | $ | 11,952 | $ | 17,596 | $ | — | $ | — | $ | 83,871 | ||||||||||||||||||||||||||||||
| 3-4 internal grade | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Total Retail Loans | $ | 20,480 | $ | 33,843 | $ | 11,952 | $ | 17,596 | $ | — | $ | — | $ | 83,871 | ||||||||||||||||||||||||||||||
| Office: | ||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating: | ||||||||||||||||||||||||||||||||||||||||||||
| 1-2 internal grade | $ | — | $ | 50,320 | $ | 254,583 | $ | 137,233 | $ | 36,291 | $ | — | $ | 478,427 | ||||||||||||||||||||||||||||||
| 3-4 internal grade | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Total Office Loans | $ | — | $ | 50,320 | $ | 254,583 | $ | 137,233 | $ | 36,291 | $ | — | $ | 478,427 | ||||||||||||||||||||||||||||||
| Industrial: | ||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating: | ||||||||||||||||||||||||||||||||||||||||||||
| 1-2 internal grade | $ | 54,730 | $ | — | $ | 14,931 | $ | — | $ | — | $ | — | $ | 69,661 | ||||||||||||||||||||||||||||||
22
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
| 3-4 internal grade | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Total Industrial Loans | $ | 54,730 | $ | — | $ | 14,931 | $ | — | $ | — | $ | — | $ | 69,661 | ||||||||||||||||||||||||||||||
| Mixed Use: | ||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating: | ||||||||||||||||||||||||||||||||||||||||||||
| 1-2 internal grade | $ | 19,902 | $ | 32,411 | $ | — | $ | — | $ | — | $ | — | $ | 52,313 | ||||||||||||||||||||||||||||||
| 3-4 internal grade | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Total Mixed Use Loans | $ | 19,902 | $ | 32,411 | $ | — | $ | — | $ | — | $ | — | $ | 52,313 | ||||||||||||||||||||||||||||||
| Hospitality: | ||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating: | ||||||||||||||||||||||||||||||||||||||||||||
| 1-2 internal grade | $ | 90,726 | $ | 154,543 | $ | 26,932 | $ | 33,945 | $ | — | $ | — | $ | 306,146 | ||||||||||||||||||||||||||||||
| 3-4 internal grade | — | — | — | 103,130 | 52,234 | 79,041 | 234,405 | |||||||||||||||||||||||||||||||||||||
| Total Hospitality Loans | $ | 90,726 | $ | 154,543 | $ | 26,932 | $ | 137,075 | $ | 52,234 | $ | 79,041 | $ | 540,551 | ||||||||||||||||||||||||||||||
| Self-Storage: | ||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating: | ||||||||||||||||||||||||||||||||||||||||||||
| 1-2 internal grade | $ | — | $ | 14,957 | $ | 29,820 | $ | — | $ | — | $ | — | $ | 44,777 | ||||||||||||||||||||||||||||||
| 3-4 internal grade | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Total Self-Storage Loans | $ | — | $ | 14,957 | $ | 29,820 | $ | — | $ | — | $ | — | $ | 44,777 | ||||||||||||||||||||||||||||||
| Manufactured Housing: | ||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating: | ||||||||||||||||||||||||||||||||||||||||||||
| 1-2 internal grade | $ | — | $ | 6,668 | $ | 17,415 | $ | — | $ | — | $ | — | $ | 24,083 | ||||||||||||||||||||||||||||||
| 3-4 internal grade | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Total Manufactured Housing Loans | $ | — | $ | 6,668 | $ | 17,415 | $ | — | $ | — | $ | — | $ | 24,083 | ||||||||||||||||||||||||||||||
| Total | $ | 574,185 | $ | 2,719,656 | $ | 603,862 | $ | 359,471 | $ | 209,169 | $ | 79,041 | $ | 4,545,384 | ||||||||||||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2019 | 2018 | 2017 | Total | |||||||||||||||||||||||||||||||||
| Multifamily: | ||||||||||||||||||||||||||||||||||||||
| Risk Rating: | ||||||||||||||||||||||||||||||||||||||
| 1-2 internal grade | $ | 2,438,376 | $ | 270,953 | $ | 103,989 | $ | 90,877 | $ | — | $ | 2,904,195 | ||||||||||||||||||||||||||
| 3-4 internal grade | — | — | — | 37,025 | — | 37,025 | ||||||||||||||||||||||||||||||||
| Total Multifamily Loans | $ | 2,438,376 | $ | 270,953 | $ | 103,989 | $ | 127,902 | $ | — | $ | 2,941,220 | ||||||||||||||||||||||||||
| Retail: | ||||||||||||||||||||||||||||||||||||||
| Risk Rating: | ||||||||||||||||||||||||||||||||||||||
| 1-2 internal grade | $ | 33,830 | $ | 11,928 | $ | 29,515 | $ | 29,452 | $ | — | $ | 104,725 | ||||||||||||||||||||||||||
| 3-4 internal grade | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Total Retail Loans | $ | 33,830 | $ | 11,928 | $ | 29,515 | $ | 29,452 | $ | — | $ | 104,725 | ||||||||||||||||||||||||||
| Office: | ||||||||||||||||||||||||||||||||||||||
| Risk Rating: | ||||||||||||||||||||||||||||||||||||||
23
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
| 1-2 internal grade | $ | 50,291 | $ | 253,759 | $ | 136,800 | $ | 43,308 | $ | — | $ | 484,158 | ||||||||||||||||||||||||||
| 3-4 internal grade | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Total Office Loans | $ | 50,291 | $ | 253,759 | $ | 136,800 | $ | 43,308 | $ | — | $ | 484,158 | ||||||||||||||||||||||||||
| Industrial: | ||||||||||||||||||||||||||||||||||||||
| Risk Rating: | ||||||||||||||||||||||||||||||||||||||
| 1-2 internal grade | $ | — | $ | 31,906 | $ | — | $ | — | $ | — | $ | 31,906 | ||||||||||||||||||||||||||
| 3-4 internal grade | — | — | 56,933 | — | — | 56,933 | ||||||||||||||||||||||||||||||||
| Total Industrial Loans | $ | — | $ | 31,906 | $ | 56,933 | $ | — | $ | — | $ | 88,839 | ||||||||||||||||||||||||||
| Mixed Use: | ||||||||||||||||||||||||||||||||||||||
| Risk Rating: | ||||||||||||||||||||||||||||||||||||||
| 1-2 internal grade | $ | 32,395 | $ | 30,325 | $ | — | $ | — | $ | — | $ | 62,720 | ||||||||||||||||||||||||||
| 3-4 internal grade | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Total Mixed Use Loans | $ | 32,395 | $ | 30,325 | $ | — | $ | — | $ | — | $ | 62,720 | ||||||||||||||||||||||||||
| Hospitality: | ||||||||||||||||||||||||||||||||||||||
| Risk Rating: | ||||||||||||||||||||||||||||||||||||||
| 1-2 internal grade | $ | 153,032 | $ | 26,920 | $ | 34,054 | $ | — | $ | — | $ | 214,006 | ||||||||||||||||||||||||||
| 3-4 internal grade | — | — | 113,961 | 52,790 | 79,102 | 245,853 | ||||||||||||||||||||||||||||||||
| Total Hospitality Loans | $ | 153,032 | $ | 26,920 | $ | 148,015 | $ | 52,790 | $ | 79,102 | $ | 459,859 | ||||||||||||||||||||||||||
| Self-Storage: | ||||||||||||||||||||||||||||||||||||||
| Risk Rating: | ||||||||||||||||||||||||||||||||||||||
| 1-2 internal grade | $ | 14,948 | $ | 41,382 | $ | — | $ | — | $ | — | $ | 56,330 | ||||||||||||||||||||||||||
| 3-4 internal grade | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Total Self-Storage Loans | $ | 14,948 | $ | 41,382 | $ | — | $ | — | $ | — | $ | 56,330 | ||||||||||||||||||||||||||
| Manufactured Housing: | ||||||||||||||||||||||||||||||||||||||
| Risk Rating: | ||||||||||||||||||||||||||||||||||||||
| 1-2 internal grade | $ | 6,665 | $ | 22,372 | $ | — | $ | — | $ | — | $ | 29,037 | ||||||||||||||||||||||||||
| 3-4 internal grade | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Total Manufactured Housing Loans | $ | 6,665 | $ | 22,372 | $ | — | $ | — | $ | — | $ | 29,037 | ||||||||||||||||||||||||||
| Total | $ | 2,729,537 | $ | 689,545 | $ | 475,252 | $ | 253,452 | $ | 79,102 | $ | 4,226,888 | ||||||||||||||||||||||||||
24
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Past Due Status
The following table presents an aging summary of the loans amortized cost basis at March 31, 2022 (dollars in thousands):
| Multifamily | Retail | Office | Industrial | Mixed Use | Hospitality | Self-Storage | Manufactured Housing | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Status: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current | $ | 3,251,701 | $ | 83,871 | $ | 478,427 | $ | 69,661 | $ | 52,313 | $ | 483,476 | $ | 44,777 | $ | 24,083 | $ | 4,488,309 | ||||||||||||||||||||||||||||||||||||||
| 1-29 days past due | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| 30-59 days past due | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| 60-89 days past due | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| 90-119 days past due | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
120+ days past due (1) | — | — | — | — | — | 57,075 | — | — | 57,075 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 3,251,701 | $ | 83,871 | $ | 478,427 | $ | 69,661 | $ | 52,313 | $ | 540,551 | $ | 44,777 | $ | 24,083 | $ | 4,545,384 | ||||||||||||||||||||||||||||||||||||||
(1) For the three months ended March 31, 2022, there was no interest income recognized on this loan.
As of March 31, 2022 and December 31, 2021, the Company had one loan with a total cost basis of $57.1 million on non-accrual status for which there was no related allowance for credit losses.
Credit Characteristics
As part of the Company's process for monitoring the credit quality of its commercial mortgage loans, excluding those held for sale, measured at fair value, it performs a quarterly loan portfolio assessment and assigns risk ratings to each of its loans. The loans are scored on a scale of 1 to 5 as follows:
Investment Rating | Summary Description | |||||||
| 1 | Very Low Risk - Investment exceeding fundamental performance expectations and/or capital gain expected. Trends and risk factors since time of investment are favorable. | |||||||
| 2 | Low Risk - Performing consistent with expectations and a full return of principal and interest expected. Trends and risk factors are neutral to favorable. | |||||||
| 3 | Average Risk - Performing investments requiring closer monitoring. Trends and risk factors show some deterioration. | |||||||
| 4 | High Risk/Delinquent/Potential For Loss - Underperforming investment with the potential of some interest loss but still expecting a positive return on investment. Trends and risk factors are negative. | |||||||
| 5 | Impaired/Defaulted/Loss Likely - Underperforming investment with expected loss of interest and some principal. | |||||||
All commercial mortgage loans, excluding loans classified as commercial mortgage loans, held for sale, measured at fair value within the consolidated balance sheets, are assigned an initial risk rating of 2.0. As of March 31, 2022 and December 31, 2021, the weighted average risk rating of the loans was 2.1.
The following table represents the allocation by risk rating for the Company's commercial mortgage loans, held for investment (dollars in thousands):
| March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||
| Risk Rating | Number of Loans | Par Value | Risk Rating | Number of Loans | Par Value | |||||||||||||||||||||||||||
| 1 | — | $ | — | 1 | — | $ | — | |||||||||||||||||||||||||
| 2 | 150 | 4,272,194 | 2 | 148 | 3,903,047 | |||||||||||||||||||||||||||
| 3 | 15 | 233,215 | 3 | 16 | 282,840 | |||||||||||||||||||||||||||
| 4 | 1 | 57,075 | 4 | 1 | 57,075 | |||||||||||||||||||||||||||
| 5 | — | — | 5 | — | — | |||||||||||||||||||||||||||
| 166 | $ | 4,562,484 | 165 | $ | 4,242,962 | |||||||||||||||||||||||||||
25
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
For the three months ended March 31, 2022 and year ended December 31, 2021, the activity in the Company's commercial mortgage loans, held for investment portfolio was as follows (dollars in thousands):
| Three Months Ended March 31, | Year Ended December 31, | ||||||||||
| 2022 | 2021 | ||||||||||
| Balance at Beginning of Year | $ | 4,211,061 | $ | 2,693,848 | |||||||
| Acquisitions and originations | 640,033 | 2,897,002 | |||||||||
| Principal repayments | (320,511) | (1,286,598) | |||||||||
| Discount accretion/premium amortization | 2,542 | 7,038 | |||||||||
| Loans transferred from/(to) commercial real estate loans, held for sale | — | (52,615) | |||||||||
| Net fees capitalized into carrying value of loans | (3,568) | (15,150) | |||||||||
| (Provision)/benefit for credit losses | 894 | 4,770 | |||||||||
| Charge-off from allowance | — | 289 | |||||||||
| Transfer to real estate owned | — | (37,523) | |||||||||
| Balance at End of Period | $ | 4,530,451 | $ | 4,211,061 | |||||||
Note 4 - Real Estate Securities
Real Estate Securities Classified As Trading
The following is a summary of the Company's RMBS classified by collateral type and interest rate characteristics (dollars in thousands):
| Carrying Amount | Average Yield (1) | ||||||||||
| March 31, 2022 | |||||||||||
| Agency Securities: | |||||||||||
| Fannie Mae/Freddie Mac ARMs | $ | 1,678,297 | 2.34 | % | |||||||
| Ginnie Mae ARMs | 271,039 | 2.68 | % | ||||||||
| $ | 1,949,336 | 2.37 | % | ||||||||
| December 31, 2021 | |||||||||||
| Agency Securities: | |||||||||||
| Fannie Mae/Freddie Mac ARMs | $ | 4,246,803 | 2.23 | % | |||||||
| Ginnie Mae ARMs | 320,068 | 2.72 | % | ||||||||
| $ | 4,566,871 | 2.26 | % | ||||||||
________________________
(1) Average yield is presented for the year then ended, and is based on the cash component of interest income expressed as a percentage on average cost basis (the “cash yield”).
The maturity of the Company's ARM Agency Securities is directly affected by prepayments of principal on the underlying mortgage loans. Consequently, actual maturities will be significantly shorter than the portfolio’s weighted average contractual maturity of 278 months.
The Company's ARM Agency Securities are backed by residential mortgage loans that have coupon interest rates that adjust at least annually to more current interest rates or begin doing so after an initial fixed-rate period. After the initial fixed-rate period, if applicable, mortgage loans underlying ARM securities typically either (i) adjust annually based on specified margins over the one-year London interbank offered rate (“LIBOR”) or the one-year Constant Maturity U.S. Treasury Note Rate (“CMT”), (ii) adjust semiannually based on specified margins over six-month LIBOR or the six-month Secured Overnight Financing Rate (“SOFR”), or (iii) adjust monthly based on specified margins over indices such as one-month LIBOR, the Eleventh District Federal Reserve Bank Cost of Funds Index, or over a rolling twelve month average of the one-year CMT index, usually subject to periodic and lifetime limits, or caps, on the amount of such adjustments during any single interest rate adjustment period and over the contractual term of the underlying loans.
26
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
During the first quarter of 2022, the Company sold trading securities using the specific identification method for proceeds totaling $2.2 billion. Subsequent to quarter end, the Company sold trading securities using the same method for proceeds totaling $1.2 billion.
Note 5 - Real Estate Owned
The following table summarizes the Company's real estate owned asset, held for investment, as of March 31, 2022 (dollars in thousands):
| Acquisition Date | Property Type | Primary Location(s) | Land | Building and Improvements | Furniture, Fixtures and Equipment | Accumulated Depreciation | Real Estate Owned, net | |||||||||||||||||||||||||||||||||||||
September 2021 (1) | Industrial | Jeffersonville, GA | $ | 3,436 | $ | 84,259 | $ | 2,928 | $ | (1,150) | $ | 89,473 | ||||||||||||||||||||||||||||||||
| $ | 3,436 | $ | 84,259 | $ | 2,928 | $ | (1,150) | $ | 89,473 | |||||||||||||||||||||||||||||||||||
(1) See Note 2 - Summary of Significant Accounting Policies.
The following table summarizes the Company's real estate owned asset, held for investment, as of December 31, 2021 (dollars in thousands):
| Acquisition Date | Property Type | Primary Location(s) | Land | Building and Improvements | Furniture, Fixtures and Equipment | Accumulated Depreciation | Real Estate Owned, net | |||||||||||||||||||||||||||||||||||||
September 2021 (1) | Industrial | Jeffersonville, GA | $ | 3,436 | $ | 84,259 | $ | 2,928 | $ | (575) | $ | 90,048 | ||||||||||||||||||||||||||||||||
| $ | 3,436 | $ | 84,259 | $ | 2,928 | $ | (575) | $ | 90,048 | |||||||||||||||||||||||||||||||||||
(1) See Note 2 - Summary of Significant Accounting Policies.
Depreciation expense for the three months ended March 31, 2022 and March 31, 2021 totaled $0.6 million and $0.2 million, respectively.
In August 2021 the Company and an affiliate of the Company entered into a joint venture agreement and formed a joint venture entity, Jeffersonville Member, LLC (the "Jeffersonville JV") to acquire a $139.5 million triple net lease property in Jeffersonville, GA. The Company has a 79% interest in the Jeffersonville JV, while the affiliate has a 21% interest. The Company invested a total of $109.8 million, made up of $88.7 million in debt and $21.1 million in equity, representing 79% of the ownership interest in the Jeffersonville JV. The affiliate made up the remaining $29.8 million composed of a $24.0 million mortgage note payable and $5.7 million in equity. The Company has control of Jeffersonville JV with 79% ownership and, therefore, consolidates Jeffersonville JV on its consolidated balance sheet. The Company's $88.7 million mortgage note payable to Jeffersonville JV is eliminated in consolidation (see Note 7 - Debt).
27
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Note 6 - Leases
Intangible Lease Asset
The following table summarizes the Company's intangible lease asset recognized in the consolidated balance sheets as of March 31, 2022 (dollars in thousands):
| Acquisition Date | Property Type | Primary Location(s) | Intangible Lease Asset, Gross | Accumulated Amortization | Intangible Lease Asset, Net of Amortization | |||||||||||||||||||||||||||
| September 2021 | Industrial | Jeffersonville, GA | $ | 49,192 | $ | (1,440) | $ | 47,752 | ||||||||||||||||||||||||
| $ | 49,192 | $ | (1,440) | $ | 47,752 | |||||||||||||||||||||||||||
The following table summarizes the Company's intangible lease asset recognized in the consolidated balance sheets as of December 31, 2021 (dollars in thousands):
| Acquisition Date | Property Type | Primary Location(s) | Intangible Lease Asset, Gross | Accumulated Amortization | Intangible Lease Asset, Net of Amortization | |||||||||||||||||||||||||||
| September 2021 | Industrial | Jeffersonville, GA | $ | 49,192 | $ | (720) | $ | 48,472 | ||||||||||||||||||||||||
| $ | 49,192 | $ | (720) | $ | 48,472 | |||||||||||||||||||||||||||
Rental Income
On September 17, 2021, the Company, through a joint venture, purchased an industrial facility that is subject to an existing triple net lease. The minimum rental amount due under the lease is subject to annual increases of 2.0%. The initial term of the lease expires in 2038 and contains renewal options for four consecutive -year terms. The remaining lease term is 16.5 years. Rental income for this lease for the three months ended March 31, 2022 totaled $2.3 million. Rental income is included in Revenue from real estate owned in the consolidated statements of operations.
The following table summarizes the Company's schedule of future minimum rents to be received under the industrial facility lease (dollars in thousands):
| Minimum Rents | March 31, 2022 | |||||||
| 2022 (April - December) | $ | 5,923 | ||||||
| 2023 | 8,046 | |||||||
| 2024 | 8,207 | |||||||
| 2025 | 8,372 | |||||||
| 2026 | 8,539 | |||||||
| 2027 and beyond | 114,981 | |||||||
| Total minimum rent | $ | 154,068 | ||||||
Amortization Expense
Intangible lease assets are amortized using the straight-line method over the contractual life of the lease, of a period up to 20 years. The weighted average life of the intangible asset as of March 31, 2022 is approximately 16.5 years. Amortization expense for the three months ended March 31, 2022 totaled $0.7 million. Amortization expense for the three months ended March 31, 2021 totaled $0.2 million.
The following table summarizes the Company's expected amortization for intangible assets over the next five years, assuming no further acquisitions or dispositions (dollars in thousands):
| Amortization Expense | March 31, 2022 | |||||||
| 2022 (April - December) | $ | (2,160) | ||||||
| 2023 | (2,880) | |||||||
| 2024 | (2,880) | |||||||
| 2025 | (2,880) | |||||||
| 2026 | (2,880) | |||||||
28
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Note 7 - Debt
Repurchase Agreements - Commercial Mortgage Loans
The Company has entered into repurchase facilities with JPMorgan Chase Bank, National Association (the "JPM Repo Facility"), Barclays Bank PLC (the "Barclays Revolver Facility" and the "Barclays Repo Facility"), Wells Fargo Bank, National Association (the "WF Repo Facility"), and Credit Suisse AG (the "CS Repo Facility" and together with JPM Repo Facility, WF Repo Facility, Barclays Revolver Facility, and Barclays Repo Facility, the "Repo Facilities").
The Repo Facilities are financing sources through which the Company may pledge one or more mortgage loans to the financing entity in exchange for funds typically at an advance rate of between 65% to 80% of the principal amount of the mortgage loan being pledged.
The details of the Company's Repo Facilities at March 31, 2022 and December 31, 2021 are as follows (dollars in thousands):
| As of March 31, 2022 | ||||||||||||||||||||||||||||||||
| Repurchase Facility | Committed Financing | Amount Outstanding | Interest Expense (1) | Ending Weighted Average Interest Rate | Term Maturity | |||||||||||||||||||||||||||
| JPM Repo Facility | $ | 400,000 | $ | 69,757 | $ | 1,474 | 2.80 | % | 10/6/2022 | |||||||||||||||||||||||
CS Repo Facility (2) | 300,000 | 123,259 | 1,138 | 3.01 | % | 9/30/2022 | ||||||||||||||||||||||||||
WF Repo Facility (3) | 450,000 | 201,812 | 1,248 | 2.08 | % | 11/21/2023 | ||||||||||||||||||||||||||
Barclays Revolver Facility (4) | 250,000 | — | 2,027 | N/A | 9/20/2023 | |||||||||||||||||||||||||||
Barclays Repo Facility (5) | 500,000 | 128,062 | 1,490 | 2.08 | % | 3/14/2025 | ||||||||||||||||||||||||||
| Total | $ | 1,900,000 | $ | 522,890 | $ | 7,377 | ||||||||||||||||||||||||||
(1) For the three months ended March 31, 2022. Includes amortization of deferred financing costs.
(2) On August 12, 2021, the Company exercised the extension option upon the satisfaction of certain conditions, and extended the term maturity to September 30, 2022. Additionally, on November 3, 2021 the committed financing amount was amended from $200 million to $300 million with the option to increase to $400 million at the Company's discretion.
(3) On November 19, 2021, the committed financing amount was increased from $275 million to $450 million. There are three more -year extension options available at the Company's discretion.
(4) On September 8, 2021, the Company amended the maturity date to September 20, 2023. On December 1, 2021 the committed financing amount was increased from $100 million to $250 million. The Company may increase the total commitment amount by an amount between $100 million and $150 million for month intervals, on an unlimited basis prior to maturity.
(5) On December 3, 2021 the Company amended the maturity date to March 14, 2025 and the committed financing amount was increased from $300 million to $500 million. There are two -year extension options available at the Company's discretion.
29
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
| As of December 31, 2021 | ||||||||||||||||||||||||||||||||
| Repurchase Facility | Committed Financing | Amount Outstanding | Interest Expense (1) | Ending Weighted Average Interest Rate | Term Maturity | |||||||||||||||||||||||||||
| JPM Repo Facility | $ | 400,000 | $ | 136,470 | $ | 5,178 | 2.13 | % | 10/6/2022 | |||||||||||||||||||||||
CS Repo Facility (2) | 300,000 | 137,364 | 3,446 | 2.43 | % | 9/30/2022 | ||||||||||||||||||||||||||
WF Repo Facility (3) | 450,000 | 186,734 | 2,090 | 1.64 | % | 11/21/2023 | ||||||||||||||||||||||||||
Barclays Revolver Facility (4) | 250,000 | 166,700 | 1,976 | 6.12 | % | 9/20/2023 | ||||||||||||||||||||||||||
Barclays Repo Facility (5) | 500,000 | 392,332 | 4,057 | 1.76 | % | 3/14/2025 | ||||||||||||||||||||||||||
| Total | $ | 1,900,000 | $ | 1,019,600 | $ | 16,747 | ||||||||||||||||||||||||||
(1) For the year ended December 31, 2020. Includes amortization of deferred financing costs.
(2) On August 12, 2021, the Company exercised the extension option upon the satisfaction of certain conditions, and extended the term maturity to September 30, 2022. Additionally, on November 3, 2021 the committed financing amount was amended from $200 million to $300 million with the option to increase to $400 million at the Company's discretion.
(3) On November 19, 2021, the committed financing amount was increased from $275 million to $450 million. There are three more -year extension options available at the Company's discretion.
(4) On September 8, 2021, the Company amended the maturity date to September 20, 2023. On December 1, 2021 the committed financing amount was increased from $100 million to $250 million. The Company may increase the total commitment amount by an amount between $100 million and $150 million for month intervals, on an unlimited basis prior to maturity.
(5) On December 3, 2021 the Company amended the maturity date to March 14, 2025 and the committed financing amount was increased from $300 million to $500 million. There are two -year extension options available at the Company's discretion.
The Company expects to use the advances from the Repo Facilities to finance the acquisition or origination of eligible loans, including first mortgage loans, subordinated mortgage loans, mezzanine loans and participation interests therein.
The Repo Facilities generally provide that in the event of a decrease in the value of the Company's collateral, the lenders can demand additional collateral. As of March 31, 2022 and December 31, 2021, the Company is in compliance with all debt covenants.
Other financing and loan participation - Commercial Mortgage Loans
On March 23, 2020, the Company transferred $15.2 million of its interest in a term loan to Sterling National Bank ("SNB") via a participation agreement. Since inception, the Company's outstanding loan increased as a result of future fundings, leading to an increase in amount outstanding via the participation agreement. The Company incurred $0.2 million of interest expense on the SNB term loan for the three months ended March 31, 2022. As of March 31, 2022 and December 31, 2021 the outstanding participation balance was $37.9 million. The loan accrued interest at an annual rate of one-month LIBOR +2.20% and matures on February 9, 2023.
On February 10, 2022, the Company transferred $38.0 million of its interest in a term loan to Customers Bank via a participation agreement. Since inception, the Company's outstanding loan increased as a result of future fundings, leading to an increase in amount outstanding via the participation agreement. The Company incurred $5,000 of interest expense on the Customers Bank term loan for the three months ended March 31, 2022. As of March 31, 2022 the outstanding participation balance was $2.3 million. The loan accrued interest at an annual rate of one-month SOFR + 4.01% and matures on May 1, 2025.
Mortgage Note Payable
On September 17, 2021, the Company, in connection with the consolidating joint venture (as discussed in Note 5 - Real Estate Owned), originated a $112.7 million mortgage note payable, of which $88.7 million is eliminated in consolidation (see Note 5 - Real Estate Owned). The remaining mortgage note payable of $24.0 million is recorded on the consolidated balance sheet. As of March 31, 2022, the loan accrued interest at an annual rate of 3.1% and matures on October 9, 2024.
30
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Unsecured Debt
As of March 31, 2022, the Company held 30-year junior subordinated notes issued in 2005 and 2006 and maturing in 2035 and 2036, with a total face amount of $100 million. Note balances net of deferred issuance costs, and related weighted average interest rates as of the indicated dates (calculated including issuance cost amortization and adjusted for the effects of related derivatives held as cash flow hedges prior to termination) were as follows (dollars in thousands):
| As of March 31, 2022 | As of December 31, 2021 | |||||||||||||||||||||||||
| Borrowings Outstanding | Average Rate | Borrowings Outstanding | Average Rate | |||||||||||||||||||||||
| Junior subordinated notes maturing in: | ||||||||||||||||||||||||||
October 2035 ($35,000 face amount) | $ | 34,479 | 5.34 | % | $ | 34,470 | 7.86 | % | ||||||||||||||||||
December 2035 ($40,000 face amount) | 39,484 | 5.25 | % | 39,474 | 7.63 | % | ||||||||||||||||||||
September 2036 ($25,000 face amount) | 24,657 | 5.29 | % | 24,650 | 7.67 | % | ||||||||||||||||||||
| $ | 98,620 | 5.29 | % | $ | 98,594 | 7.72 | % | |||||||||||||||||||
The notes are currently redeemable, in whole or in part, without penalty, at the Company’s option.
Pursuant to a lending and security agreement with Security Benefit Life Insurance Company ("SBL"), which was entered into in February 2020 and amended in March and August 2020, the Company may borrow up to $100 million at a rate of one-month LIBOR + 4.5%. The facility has a maturity of February 10, 2023 and is secured by a pledge of equity interests in certain of the Company’s subsidiaries. The Company incurred $0.3 million of interest expense on the lending agreement with SBL for the three months ended March 31, 2022. As of March 31, 2022 there was no outstanding balance.
Repurchase Agreements - Real Estate Securities
The Company has entered into various Master Repurchase Agreements (the "MRAs") that allow the Company to sell real estate securities while providing a fixed repurchase price for the same real estate securities in the future. The repurchase contracts on each security under an MRA generally mature in 30-90 days and terms are adjusted for current market rates as necessary.
Below is a summary of the Company's MRAs as of March 31, 2022 and December 31, 2021 (dollars in thousands):
| Weighted Average | |||||||||||||||||||||||||||||
| Counterparty | Amount Outstanding | Interest Expense | Collateral Pledged (1) | Interest Rate | Days to Maturity | ||||||||||||||||||||||||
| As of March 31, 2022 | |||||||||||||||||||||||||||||
| JP Morgan Securities LLC | $ | 19,283 | $ | 55 | $ | 23,995 | 1.27 | % | 14 | ||||||||||||||||||||
| Goldman Sachs International | — | — | — | N/A | N/A | ||||||||||||||||||||||||
| Barclays Capital Inc. | 35,327 | 75 | 44,284 | 1.40 | % | 7 | |||||||||||||||||||||||
| Citigroup Global Markets, Inc. | — | — | — | N/A | N/A | ||||||||||||||||||||||||
| Total/Weighted Average | $ | 54,610 | $ | 130 | $ | 68,279 | 1.35 | % | 9 | ||||||||||||||||||||
| As of December 31, 2021 | |||||||||||||||||||||||||||||
| JP Morgan Securities LLC | $ | 19,025 | $ | 261 | $ | 24,087 | 1.14 | % | 10 | ||||||||||||||||||||
| Goldman Sachs International | — | 37 | — | N/A | N/A | ||||||||||||||||||||||||
| Barclays Capital Inc. | 15,286 | 526 | 19,131 | 1.21 | % | 14 | |||||||||||||||||||||||
| Citigroup Global Markets, Inc. | — | 81 | — | N/A | N/A | ||||||||||||||||||||||||
| Total/Weighted Average | $ | 34,311 | $ | 905 | $ | 43,218 | 1.71 | % | 12 | ||||||||||||||||||||
(1) Includes $68.3 million and $43.2 million of CLO notes, held by the Company, which are eliminated within the real estate securities, at fair value line in the consolidated balance sheets as of March 31, 2022 and December 31, 2021, respectively.
31
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Repurchase Agreements - Real Estate Securities Classified As Trading
The Company pledges its real estate securities classified as trading as collateral for repurchase agreements with commercial banks and other financial institutions. Repurchase arrangements entered into by the Company involve the sale and a simultaneous agreement to repurchase the transferred assets at a future date and are accounted for as financings. The Company maintains the beneficial interest in the specific securities pledged during the term of each repurchase arrangement and receives the related principal and interest payments.
The terms and conditions of repurchase agreements are negotiated on a transaction-by-transaction basis when each such agreement is initiated or renewed. The amount borrowed is generally equal to the fair value of the securities pledged, as determined by the lending counterparty, less an agreed-upon discount, referred to as a “haircut.” Interest rates are generally fixed based on prevailing rates corresponding to the terms of the borrowings. Interest may be paid monthly or at the termination of an agreement at which time the Company may enter into a new agreement at prevailing haircuts and rates with the same lending counterparty or repay that counterparty and negotiate financing with a different lending counterparty. None of the Company’s lending counterparties are obligated to renew or otherwise enter into new agreements at the conclusion of existing agreements. In response to declines in fair value of pledged securities due to changes in market conditions or the publishing of monthly security pay-down factors, lending counterparties typically require the Company to post additional securities as collateral, pay down borrowings or fund cash margin accounts with the counterparties in order to re-establish the agreed-upon collateral requirements. These actions are referred to as margin calls. Conversely, in response to increases in fair value of pledged securities, the Company routinely margin calls its lending counterparties in order to have previously pledged collateral returned.
Repurchase agreements (and related pledged collateral, including accrued interest receivable), classified by collateral type and remaining maturities, and related weighted average borrowing rates as of the indicated dates were as follows (dollars in thousands):
| Collateral Type | Collateral Carrying Amount | Accrued Interest Receivable | Borrowings Outstanding | Average Borrowing Rates | ||||||||||||||||||||||
| As of March 31, 2022 | ||||||||||||||||||||||||||
| Repurchase arrangements secured by Agency securities with maturities of 30 days or less | $ | 1,733,101 | $ | 3,726 | $ | 1,659,931 | 0.39 | % | ||||||||||||||||||
| $ | 1,733,101 | $ | 3,726 | $ | 1,659,931 | 0.39 | % | |||||||||||||||||||
| As of December 31, 2021 | ||||||||||||||||||||||||||
| Repurchase arrangements secured by Agency securities with maturities of 30 days or less | $ | 4,327,020 | $ | 8,908 | $ | 4,144,473 | 0.13 | % | ||||||||||||||||||
| $ | 4,327,020 | $ | 8,908 | $ | 4,144,473 | 0.13 | % | |||||||||||||||||||
Average repurchase agreements outstanding were $3.06 billion and $3.97 billion during the quarters ended March 31, 2022 and December 31, 2021. Average repurchase agreements outstanding differed from respective quarter-end balances during the indicated periods primarily due to changes in portfolio levels and differences in the timing of portfolio acquisitions relative to portfolio runoff and asset sales.
Collateralized Loan Obligations
As of March 31, 2022 and December 31, 2021 the notes issued by BSPRT 2018-FL4 Issuer, Ltd. and BSPRT 2018-FL4 Co-Issuer, LLC, each wholly owned indirect subsidiaries of the Company, are collateralized by interests in a pool of 24 and 31 mortgage assets having a principal balance of $338.0 million and $503.3 million, respectively (the "2018-FL4 Mortgage Assets"). The sale of the 2018-FL4 Mortgage Assets to BSPRT 2018-FL4 Issuer is governed by a Mortgage Asset Purchase Agreement dated as of October 12, 2018, between the Company and BSPRT 2018-FL4 Issuer.
As of March 31, 2022 and December 31, 2021, the notes issued by BSPRT 2019-FL5 Issuer, Ltd. and BSPRT 2019-FL5 Co-Issuer, LLC, each wholly owned indirect subsidiaries of the Company, are collateralized by interests in a pool of 40 and 48 mortgage assets having a principal balance of $546.4 million and $589.0 million respectively (the "2019-FL5 Mortgage Assets"). The sale of the 2019-FL5 Mortgage Assets to BSPRT 2019-FL5 Issuer is governed by a Mortgage Asset Purchase Agreement dated as of May 30, 2019, between the Company and BSPRT 2019-FL5 Issuer.
32
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
As of March 31, 2022 and December 31, 2021, the notes issued by BSPRT 2021-FL6 Issuer, Ltd. and BSPRT 2021-FL6 Co-Issuer, LLC, each wholly owned indirect subsidiaries of the Company, are collateralized by interests in a pool of 38 and 44 mortgage assets having a principal balance of $636.9 million and $682.32 million respectively (the "2021-FL6 Mortgage Assets"). The sale of the 2021-FL6 Mortgage Assets to BSPRT 2021-FL6 Issuer, Ltd. is governed by a Collateral Interest Purchase Agreement dated as of March 25, 2021, between the Company and BSPRT 2021-FL6 Issuer, Ltd.
As of March 31, 2022 and December 31, 2021, the notes issued by BSPRT 2021-FL7 Issuer, Ltd. and BSPRT 2021-FL7 Co-Issuer, LLC, each wholly owned indirect subsidiaries of the Company, are collateralized by interests in a pool of 45 and 47 mortgage assets having a principal balance of $899.1 million and $871.44 million respectively (the "2021-FL7 Mortgage Assets"). The sale of the 2021-FL7 Mortgage Assets to BSPRT 2021-FL7 Issuer, Ltd. is governed by a Collateral Interest Purchase Agreement dated as of March 25, 2021, between the Company and BSPRT 2021-FL7 Issuer, Ltd.
On February 15, 2022, BSPRT 2022-FL8 Issuer, Ltd. and BSPRT 2022-FL8 Co-Issuer, LLC, both wholly owned indirect subsidiaries of the Company entered into an indenture with the OP, as advancing agent and U.S. Bank National Association, as note administrator and trustee, which governs the issuance of approximately $1.1 billion principal balance secured floating rate notes, of which $960 million were purchased by third party investors and $132 million were purchased by a wholly owned subsidiary of the OP. In addition, concurrently with the issuance of the notes, BSPRT 2022-FL8 Issuer, Ltd. also issued 108,000 preferred shares, par value of $0.001 per share and with an aggregate liquidation preference and notional amount equal to $1,000 per share, which were not offered as part of closing the indenture. For U.S. federal income tax purposes, BSPRT 2022-FL8 Issuer, Ltd. and BSPRT 2022-FL8 Co-Issuer, LLC are disregarded entities.
As of March 31, 2022, the notes issued by BSPRT 2022-FL8 Issuer, Ltd. and BSPRT 2022-FL8 Co-Issuer, LLC, are collateralized by interests in a pool of 32 mortgage assets having a principal balance of $1.2 billion (the "2022-FL8 Mortgage Assets"). The sale of the 2022-FL8 Mortgage Assets to BSPRT 2022-FL8 Issuer, Ltd. is governed by a Collateral Interest Purchase Agreement dated as of December 21, 2021, between the Company and BSPRT 2022-FL8 Issuer, Ltd.
33
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
The Company, through its wholly-owned subsidiaries, holds the preferred equity tranches of the above CLOs of approximately $437.2 million and $329.2 million as of March 31, 2022 and December 31, 2021, respectively. The following table represents the terms of the notes issued by 2018-FL4 Issuer, 2019-FL5 Issuer 2021-FL6 Issuer, 2021-FL7 Issuer and 2022-FL8 Issuer (the "CLOs"), respectively, as of March 31, 2022 (dollars in thousands):
| CLO Facility | Tranche | Par Value Issued | Par Value Outstanding (1) | Interest Rate | Maturity Date | |||||||||||||||||||||||||||
| 2018-FL4 Issuer | Tranche A | $ | 416,827 | $ | — | 1M LIBOR + 105 | 9/15/2035 | |||||||||||||||||||||||||
| 2018-FL4 Issuer | Tranche A-S | 73,813 | 42,998 | 1M LIBOR + 130 | 9/15/2035 | |||||||||||||||||||||||||||
| 2018-FL4 Issuer | Tranche B | 56,446 | 56,446 | 1M LIBOR + 160 | 9/15/2035 | |||||||||||||||||||||||||||
| 2018-FL4 Issuer | Tranche C | 68,385 | 68,385 | 1M LIBOR + 210 | 9/15/2035 | |||||||||||||||||||||||||||
| 2018-FL4 Issuer | Tranche D | 57,531 | 57,531 | 1M LIBOR + 275 | 9/15/2035 | |||||||||||||||||||||||||||
| 2018-FL4 Issuer | Tranche E | 28,223 | 28,223 | 1M LIBOR + 305 | 9/15/2035 | |||||||||||||||||||||||||||
| 2019-FL5 Issuer | Tranche A | 407,025 | 170,467 | 1M LIBOR + 115 | 5/15/2029 | |||||||||||||||||||||||||||
| 2019-FL5 Issuer | Tranche A-S | 76,950 | 76,950 | 1M LIBOR + 148 | 5/15/2029 | |||||||||||||||||||||||||||
| 2019-FL5 Issuer | Tranche B | 50,000 | 50,000 | 1M LIBOR + 140 | 5/15/2029 | |||||||||||||||||||||||||||
| 2019-FL5 Issuer | Tranche C | 61,374 | 61,374 | 1M LIBOR + 200 | 5/15/2029 | |||||||||||||||||||||||||||
| 2019-FL5 Issuer | Tranche D | 48,600 | 5,000 | 1M LIBOR + 240 | 5/15/2029 | |||||||||||||||||||||||||||
| 2019-FL5 Issuer | Tranche E | 20,250 | 20,250 | 1M LIBOR + 285 | 5/15/2029 | |||||||||||||||||||||||||||
| 2021-FL6 Issuer | Tranche A | 367,500 | 367,500 | 1M LIBOR + 110 | 3/15/2036 | |||||||||||||||||||||||||||
| 2021-FL6 Issuer | Tranche A-S | 86,625 | 86,625 | 1M LIBOR + 130 | 3/15/2036 | |||||||||||||||||||||||||||
| 2021-FL6 Issuer | Tranche B | 33,250 | 33,250 | 1M LIBOR + 160 | 3/15/2036 | |||||||||||||||||||||||||||
| 2021-FL6 Issuer | Tranche C | 41,125 | 41,125 | 1M LIBOR + 205 | 3/15/2036 | |||||||||||||||||||||||||||
| 2021-FL6 Issuer | Tranche D | 44,625 | 44,625 | 1M LIBOR + 300 | 3/15/2036 | |||||||||||||||||||||||||||
| 2021-FL6 Issuer | Tranche E | 11,375 | 11,375 | 1M LIBOR + 350 | 3/15/2036 | |||||||||||||||||||||||||||
| 2021-FL7 Issuer | Tranche A | 508,500 | 508,500 | 1M LIBOR + 132 | 12/21/2038 | |||||||||||||||||||||||||||
| 2021-FL7 Issuer | Tranche A-S | 13,500 | 13,500 | 1M LIBOR + 165 | 12/21/2038 | |||||||||||||||||||||||||||
| 2021-FL7 Issuer | Tranche B | 52,875 | 52,875 | 1M LIBOR + 205 | 12/21/2038 | |||||||||||||||||||||||||||
| 2021-FL7 Issuer | Tranche C | 66,375 | 66,375 | 1M LIBOR + 230 | 12/21/2038 | |||||||||||||||||||||||||||
| 2021-FL7 Issuer | Tranche D | 67,500 | 67,500 | 1M LIBOR + 275 | 12/21/2038 | |||||||||||||||||||||||||||
| 2021-FL7 Issuer | Tranche E | 13,500 | 13,500 | 1M LIBOR + 340 | 12/21/2038 | |||||||||||||||||||||||||||
| 2022-FL8 Issuer | Tranche A | 690,000 | 690,000 | 1M LIBOR + 150 | 2/15/2037 | |||||||||||||||||||||||||||
| 2022-FL8 Issuer | Tranche A-S | 66,000 | 66,000 | 1M LIBOR + 185 | 2/15/2037 | |||||||||||||||||||||||||||
| 2022-FL8 Issuer | Tranche B | 55,500 | 55,500 | 1M LIBOR + 205 | 2/15/2037 | |||||||||||||||||||||||||||
| 2022-FL8 Issuer | Tranche C | 67,500 | 67,500 | 1M LIBOR + 230 | 2/15/2037 | |||||||||||||||||||||||||||
| 2022-FL8 Issuer | Tranche D | 81,000 | 81,000 | 1M LIBOR + 350 | 2/15/2037 | |||||||||||||||||||||||||||
| 2022-FL8 Issuer | Tranche E | 25,500 | — | 1M LIBOR + 350 | 2/15/2037 | |||||||||||||||||||||||||||
| $ | 3,657,674 | $ | 2,904,374 | |||||||||||||||||||||||||||||
(1) Excludes $452.6 million of CLO notes, held by the Company, which are eliminated within the collateralized loan obligations line in the consolidated balance sheets as of March 31, 2022.
34
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
The following table represents the terms of the notes issued by 2018-FL4 Issuer, 2019-FL5 Issuer, 2021-FL6 Issuer and 2021-FL7 Issuer, as of December 31, 2021 (dollars in thousands):
| CLO Facility | Tranche | Par Value Issued | Par Value Outstanding (1) | Interest Rate | Maturity Date | |||||||||||||||||||||||||||
| 2018-FL4 Issuer | Tranche A | $ | 416,827 | $ | 75,263 | 1M LIBOR + 105 | 9/15/2035 | |||||||||||||||||||||||||
| 2018-FL4 Issuer | Tranche A-S | 73,813 | 73,813 | 1M LIBOR + 130 | 9/15/2035 | |||||||||||||||||||||||||||
| 2018-FL4 Issuer | Tranche B | 56,446 | 56,446 | 1M LIBOR + 160 | 9/15/2035 | |||||||||||||||||||||||||||
| 2018-FL4 Issuer | Tranche C | 68,385 | 68,385 | 1M LIBOR + 210 | 9/15/2035 | |||||||||||||||||||||||||||
| 2018-FL4 Issuer | Tranche D | 57,531 | 57,531 | 1M LIBOR + 275 | 9/15/2035 | |||||||||||||||||||||||||||
| 2018-FL4 Issuer | Tranche E | 28,223 | 28,223 | 1M LIBOR + 305 | 9/15/2035 | |||||||||||||||||||||||||||
| 2019-FL5 Issuer | Tranche A | 407,025 | 299,529 | 1M LIBOR + 115 | 5/15/2029 | |||||||||||||||||||||||||||
| 2019-FL5 Issuer | Tranche A-S | 76,950 | 76,950 | 1M LIBOR + 148 | 5/15/2029 | |||||||||||||||||||||||||||
| 2019-FL5 Issuer | Tranche B | 50,000 | 50,000 | 1M LIBOR + 140 | 5/15/2029 | |||||||||||||||||||||||||||
| 2019-FL5 Issuer | Tranche C | 61,374 | 61,374 | 1M LIBOR + 200 | 5/15/2029 | |||||||||||||||||||||||||||
| 2019-FL5 Issuer | Tranche D | 48,600 | 5,000 | 1M LIBOR + 240 | 5/15/2029 | |||||||||||||||||||||||||||
| 2019-FL5 Issuer | Tranche E | 20,250 | 20,250 | 1M LIBOR + 285 | 5/15/2029 | |||||||||||||||||||||||||||
| 2021-FL6 Issuer | Tranche A | 367,500 | 367,500 | 1M LIBOR + 110 | 3/15/2036 | |||||||||||||||||||||||||||
| 2021-FL6 Issuer | Tranche A-S | 86,625 | 86,625 | 1M LIBOR + 130 | 3/15/2036 | |||||||||||||||||||||||||||
| 2021-FL6 Issuer | Tranche B | 33,250 | 33,250 | 1M LIBOR + 160 | 3/15/2036 | |||||||||||||||||||||||||||
| 2021-FL6 Issuer | Tranche C | 41,125 | 41,125 | 1M LIBOR + 205 | 3/15/2036 | |||||||||||||||||||||||||||
| 2021-FL6 Issuer | Tranche D | 44,625 | 44,625 | 1M LIBOR + 300 | 3/15/2036 | |||||||||||||||||||||||||||
| 2021-FL6 Issuer | Tranche E | 11,375 | 11,375 | 1M LIBOR + 350 | 3/15/2036 | |||||||||||||||||||||||||||
| 2021-FL7 Issuer | Tranche A | 508,500 | 508,500 | 1M LIBOR + 132 | 12/21/2038 | |||||||||||||||||||||||||||
| 2021-FL7 Issuer | Tranche A-S | 13,500 | 13,500 | 1M LIBOR + 165 | 12/21/2038 | |||||||||||||||||||||||||||
| 2021-FL7 Issuer | Tranche B | 52,875 | 52,875 | 1M LIBOR + 205 | 12/21/2038 | |||||||||||||||||||||||||||
| 2021-FL7 Issuer | Tranche C | 66,375 | 66,375 | 1M LIBOR + 230 | 12/21/2038 | |||||||||||||||||||||||||||
| 2021-FL7 Issuer | Tranche D | 67,500 | 67,500 | 1M LIBOR + 275 | 12/21/2038 | |||||||||||||||||||||||||||
| 2021-FL7 Issuer | Tranche E | 13,500 | 13,500 | 1M LIBOR + 340 | 12/21/2038 | |||||||||||||||||||||||||||
| $ | 2,672,174 | $ | 2,179,514 | |||||||||||||||||||||||||||||
(1) Excludes $320.6 million of CLO notes, held by the Company, which are eliminated within the collateralized loan obligations line in the consolidated balance sheets as of December 31, 2021.
35
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
The below table reflects the total assets and liabilities of the Company's outstanding CLOs. The CLOs are considered VIEs and are consolidated into the Company's consolidated financial statements as of March 31, 2022 and December 31, 2021 as the Company is the primary beneficiary of the VIE. The Company is the primary beneficiary of the CLOs because (i) the Company has the power to direct the activities that most significantly affect the VIE’s economic performance and (ii) the right to receive benefits from the VIEs or the obligation to absorb losses of the VIEs that could be significant to the VIE. The VIE's are non-recourse to the Company.
| Assets (dollars in thousands) | March 31, 2022 | December 31, 2021 | ||||||||||||
Cash (1) | $ | 178,313 | $ | 187,668 | ||||||||||
Commercial mortgage loans, held for investment, net (2) | 3,600,351 | 2,629,431 | ||||||||||||
| Accrued interest receivable | 7,833 | 5,918 | ||||||||||||
| Total Assets | $ | 3,786,497 | $ | 2,823,017 | ||||||||||
| Liabilities | ||||||||||||||
Notes payable (3)(4) | $ | 3,336,459 | $ | 2,482,762 | ||||||||||
| Accrued interest payable | 2,495 | 1,598 | ||||||||||||
| Total Liabilities | $ | 3,338,954 | $ | 2,484,360 | ||||||||||
(1) Includes $177.4 million and $187.0 million of cash held by the servicer related to CLO loan payoffs as of March 31, 2022 and December 31, 2021, respectively.
(2) The balance is presented net of allowance for credit losses of $8.5 million and $8.7 million as of March 31, 2022 and December 31, 2021, respectively.
(3) Includes $452.6 million and $320.6 million of CLO notes, held by the Company, which are eliminated within the collateralized loan obligations line of the consolidated balance sheets as of March 31, 2022 and December 31, 2021, respectively.
(4) The balance is presented net of deferred financing cost and discount of $20.5 million and $17.3 million as of March 31, 2022 and December 31, 2021, respectively.
36
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Note 8 - Earnings Per Share
The Company uses the two-class method in calculating basic and diluted earnings per share. Net income/(loss) is allocated between our common stock and other participating securities based on their participation rights. Diluted net income per share has been computed using the weighted average number of shares of common stock outstanding and other dilutive securities. The following table presents a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations and the calculation of basic and diluted earnings per share for the three months ended March 31, 2022 and March 31, 2021 (in thousands, except share and per share data):
| Three Months Ended March 31, | |||||||||||
| Numerator | 2022 | 2021 | |||||||||
| Net income/(loss) | $ | (22,507) | $ | 30,146 | |||||||
| Less: Preferred stock dividends | 21,011 | 3,511 | |||||||||
| Less: Undistributed earnings allocated to preferred stock | — | 3,227 | |||||||||
| Net income/(loss) attributable to common stockholders (for basic and diluted earnings per share) | $ | (43,518) | $ | 23,408 | |||||||
| Denominator | |||||||||||
| Weighted-average common shares outstanding for basic earnings per share | 43,956,965 | 44,290,177 | |||||||||
Effect of dilutive shares (1): | |||||||||||
| Unvested restricted shares | — | 15,888 | |||||||||
| Weighted-average common shares outstanding for diluted earnings per share | 43,956,965 | 44,306,065 | |||||||||
| Basic earnings per share | $ | (0.99) | $ | 0.53 | |||||||
| Diluted earnings per share | $ | (0.99) | $ | 0.53 | |||||||
(1) The effect of dilutive shares excluded an aggregate of 368,257 weighted average restricted stock units for the three months ended March 31, 2022 as their effect was anti-dilutive.
Note 9 - Stock Transactions
As of March 31, 2022 and December 31, 2021, the Company had 44,471,127 and 43,965,928 shares of common stock outstanding, respectively, including shares issued pursuant to the Company's distribution reinvestment plan (the "DRIP") and unvested restricted shares.
As of each of March 31, 2022 and December 31, 2021, the Company had 1,400 shares of Series C Preferred Stock outstanding, 17,950 shares of Series D Preferred Stock outstanding, 10,329,039 shares of Series E Preferred Stock outstanding and 39,733,299 shares of Series F Preferred Stock outstanding.
37
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
The following tables present the activity in the Company's Series C Preferred Stock for the period ended March 31, 2022 and March 31, 2021 (dollars in thousands, except share amounts):
| Shares | Amount | |||||||||||||
| Balance, December 31, 2021 | 1,400 | $ | 6,971 | |||||||||||
| Issuance of Preferred Stock | — | — | ||||||||||||
| Dividends paid in Preferred Stock | — | — | ||||||||||||
| Offering costs | — | — | ||||||||||||
| Amortization of offering costs | — | 2 | ||||||||||||
| Ending Balance, March 31, 2022 | 1,400 | $ | 6,973 | |||||||||||
| Shares | Amount | |||||||||||||
| Balance, December 31, 2020 | 1,400 | $ | 6,962 | |||||||||||
| Issuance of Preferred Stock | — | — | ||||||||||||
| Dividends paid in Preferred Stock | — | — | ||||||||||||
| Offering costs | — | — | ||||||||||||
| Amortization of offering costs | — | 2 | ||||||||||||
| Ending Balance, March 31, 2021 | 1,400 | $ | 6,964 | |||||||||||
The following table presents the activity in the Company's Series D Preferred Stock for the period ended March 31, 2022 and March 31, 2021 (dollars in thousands, except share amounts):
| Shares | Amount | |||||||||||||
| Balance, December 31, 2021 | 17,950 | $ | 89,684 | |||||||||||
| Issuance of Preferred Stock | — | — | ||||||||||||
| Dividends paid in Preferred Stock | — | — | ||||||||||||
| Offering costs | — | — | ||||||||||||
| Amortization of offering costs | — | 7 | ||||||||||||
| Balance, March 31, 2022 | 17,950 | $ | 89,691 | |||||||||||
| Shares | Amount | |||||||||||||
| Balance, December 31, 2020 | — | $ | — | |||||||||||
| Issuance of Preferred Stock | 17,950 | 89,748 | ||||||||||||
| Dividends paid in Preferred Stock | — | — | ||||||||||||
| Offering costs | — | (26) | ||||||||||||
| Amortization of offering costs | — | — | ||||||||||||
| Ending Balance, March 31, 2021 | 17,950 | $ | 89,722 | |||||||||||
38
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
The following table presents the activity in the Company's Series E Preferred Stock for the period ended March 31, 2022 (dollars in thousands, except share amounts):
| Shares | Amount | |||||||||||||
| Balance, December 31, 2021 | 10,329,039 | $ | 258,742 | |||||||||||
| Issuance of Preferred Stock | — | — | ||||||||||||
| Dividends paid in Preferred Stock | — | — | ||||||||||||
| Offering costs | — | — | ||||||||||||
| Amortization of offering costs | — | — | ||||||||||||
| Balance, March 31, 2022 | 10,329,039 | $ | 258,742 | |||||||||||
As of March 31, 2021 the Company did not have any Series E Preferred Stock outstanding.
The following table presents the activity in the Company's Series F Preferred Stock for the period ended March 31, 2022 (dollars in thousands, except share amounts):
| Shares | Amount | |||||||||||||
| Balance, December 31, 2021 | 39,733,299 | $ | 710,431 | |||||||||||
| Issuance of Preferred Stock | — | — | ||||||||||||
| Dividends paid in Preferred Stock | — | — | ||||||||||||
| Offering costs | — | — | ||||||||||||
| Amortization of offering costs | — | — | ||||||||||||
| Balance, March 31, 2022 | 39,733,299 | $ | 710,431 | |||||||||||
As of March 31, 2021 the Company did not have any Series F Preferred Stock outstanding.
On April 19, 2022, all 39,733,299 shares of Series F Preferred Stock converted to common stock on a one for one ratio.
Distributions
In order to maintain its election to qualify as a REIT, the Company must currently distribute, at a minimum, an amount equal to 90% of its taxable income, without regard to the deduction for distributions paid and excluding net capital gains. The Company must distribute 100% of its taxable income (including net capital gains) to avoid paying corporate U.S. federal income taxes. Distribution payments are dependent on the availability of funds. The Company's board of directors may reduce the amount of distributions paid or suspend distribution payments at any time, and therefore, distributions payments are not assured.
Quarterly distributions are paid at a quarterly rate of $0.355 per share of common stock (equivalent to $1.42 per annum). In March 2022, the Company's board of directors declared the following first quarter 2022 dividends: (i) a quarterly cash dividend of $0.355 per share on the Company's common stock and Series F Preferred Stock (equivalent to $1.42 per annum), (ii) a first quarter 2022 dividend of $106.22 per share on the Company’s Series C Preferred Stock and Series D Preferred Stock, and (iii) a first quarter 2022 dividend of $0.46875 per share on the Company’s Series E Preferred Stock, all which were paid in April 2022 to holders of record on March 31, 2021. Distribution payments are dependent on the availability of funds. The board of directors may reduce the amount of distributions paid or suspend distribution payments at any time, and therefore, distribution payments are not assured. Dividends on the Company’s preferred stock, to the extent not declared by the board of directors quarterly, will accrue, and dividends may not be paid on the Company's common stock to the extent there are accrued and unpaid dividends on the preferred stock. The amount of dividends paid on the Company’s Series C Preferred Stock and Series D Preferred Stock are generally in an amount equal to the dividends a holder of such preferred stock would have received if the preferred stock had been converted into common stock in accordance with its terms, except when the amount of common stock dividends are below the threshold stated in the terms of such preferred stock.
The Company distributed $12.5 million of common stock dividends during the three months ended March 31, 2022, comprised of $12.4 million in cash and $0.1 million in shares of common stock issued under the DRIP. The Company distributed $12.2 million of common stock dividends during the three months ended March 31, 2021, comprised of $9.7 million in cash and $2.6 million in shares of common stock issued under the DRIP.
39
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
As of March 31, 2022 and December 31, 2021, the Company had declared but unpaid common stock distributions of $15.7 million and $12.5 million, respectively. Additionally, as of March 31, 2022 and December 31, 2021, the Company had declared but unpaid Series C Preferred Stock distributions of $0.2 million and $0.1 million, respectively, $1.9 million and $1.5 million of declared but unpaid Series D Preferred stock distributions, respectively, $4.8 million of declared but unpaid Series E Preferred stock distributions and $14.1 million and $11.3 million of declared but unpaid Series F Preferred Stock distributions, respectively. These amounts are included in Distributions payable on the Company’s consolidated balance sheets.
Note 10 - Commitments and Contingencies
Unfunded Commitments Under Commercial Mortgage Loans
As of March 31, 2022 and December 31, 2021, the Company had the below unfunded commitments to the Company's borrowers (dollars in thousands):
| Funding Expiration | March 31, 2022 | December 31, 2021 | ||||||||||||
| 2022 | $ | 17,538 | $ | 25,864 | ||||||||||
| 2023 | 102,288 | 123,860 | ||||||||||||
| 2024 | 245,726 | 271,056 | ||||||||||||
| 2025 and beyond | 35,126 | 37,325 | ||||||||||||
| $ | 400,678 | $ | 458,105 | |||||||||||
The borrowers are required to meet or maintain certain metrics in order to qualify for the unfunded commitment amounts.
Litigation and Regulatory Matters
The Company is not presently involved in any material litigation arising outside the ordinary course of business. However, the Company is involved in routine litigation arising in the ordinary course of business, none of which the Company believes, individually or in the aggregate, will have a material impact on the Company’s financial condition, operating results or cash flows.
Note 11 - Related Party Transactions and Arrangements
Advisory Agreement Fees and Reimbursements
Pursuant to the Advisory Agreement, the Company is required to make the following payments and reimbursements to the Advisor:
•The Company reimburses the Advisor’s costs of providing services pursuant to the Advisory Agreement, except the salaries and benefits paid by the Advisor to the Company’s executive officers.
•The Company pays the Advisor, or its affiliates, a monthly asset management fee equal to one-twelfth of 1.5% of stockholders' equity as calculated pursuant to the Advisory Agreement.
•The Company will pay the Advisor an annual subordinated performance fee calculated on the basis of total return to stockholders, payable monthly in arrears, such that for any year in which total return on stockholders’ capital (as defined in the Advisory Agreement) exceeds 6.0% per annum, our Advisor will be entitled to 15.0% of the excess total return; provided that in no event will the annual subordinated performance fee payable to our Advisor exceed 10.0% of the aggregate total return for such year.
•The Company reimburses the Advisor for insourced expenses incurred by the Advisor on the Company‘s behalf related to selecting, evaluating, originating and acquiring investments in an amount up to 0.5% of the principal amount funded by the Company to originate or acquire commercial mortgage loans and up to 0.5% of the anticipated net equity funded by the Company to acquire real estate securities investments.
40
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
The table below shows the costs incurred due to arrangements with our Advisor and its affiliates during the three months ended March 31, 2022 and 2021 and the associated payable as of March 31, 2022 and December 31, 2021 (dollars in thousands):
| Three Months Ended March 31, | Payable as of | ||||||||||||||||||||||
| 2022 | 2021 | March 31, 2022 | December 31, 2021 | ||||||||||||||||||||
Acquisition expenses (1) | $ | 315 | $ | 153 | $ | — | $ | — | |||||||||||||||
| Administrative services expenses | 3,353 | 3,474 | 3,353 | — | |||||||||||||||||||
| Asset management and subordinated performance fee | 6,745 | 5,416 | 17,586 | 15,595 | |||||||||||||||||||
Other related party expenses (2)(3) | 253 | 29 | 959 | 1,943 | |||||||||||||||||||
| Total related party fees and reimbursements | $ | 10,666 | $ | 9,072 | $ | 21,898 | $ | 17,538 | |||||||||||||||
(1) Total acquisition expenses paid during the three months ended March 31, 2022 were $3.2 million, of which $2.9 million was capitalized within the commercial mortgage loans, held for investment line of the consolidated balance sheets. Total acquisition expenses paid during the three months ended March 31, 2021 were $2.6 million, of which $2.4 million was capitalized within the commercial mortgage loans, held for investment line of the consolidated balance sheets.
(2) These are related to reimbursable costs incurred related to the increase in loan origination activities and are included in Other expenses in the Company's consolidated statements of operations.
(3) As of March 31, 2022 and December 31, 2021 the related party payables include $1.0 million and $1.9 million of payments made by the Advisor to third party vendors on behalf of the Company.
The payables as of March 31, 2022 and December 31, 2021 in the table above are included in Due to affiliates on the Company's consolidated balance sheets.
Other Transactions
Pursuant to a lending and security agreement with SBL, which was entered into in February 2020 and amended in March and August 2020, the Company may borrow up to $100.0 million at a rate of one-month LIBOR + 4.5%. The facility has a maturity of February 10, 2023 and is secured by a pledge of equity interests in certain of the Company’s subsidiaries. The Company incurred $0.3 million in interest expense on the lending agreement with SBL for the three months ended March 31, 2022. As of March 31, 2022 there were no amounts outstanding under the lending agreement.
SBL also holds 17,950 shares of the Company's outstanding shares of Series D Preferred Stock of which, 14,950 shares were acquired in exchange for an equivalent number of shares of Series A Preferred Stock in March 2021. SBL also acquired an additional 3,000 shares of Series D Preferred Stock at the liquidation preference of $15.0 million (net of accrued and unpaid dividends on the exchanged Series A Preferred Stock) in such transaction.
In August 2021 the Company and an affiliate of the Company entered into a joint venture agreement and formed a joint venture entity, Jeffersonville Member, LLC (the "Jeffersonville JV") to acquire a $139.5 million triple net lease property in Jeffersonville, GA. The Company has a 79% interest in the Jeffersonville JV, while the affiliate has a 21% interest. The Company invested a total of $109.8 million, made up of $88.7 million in debt and $21.1 million in equity, representing 79% of the ownership interest in the Jeffersonville JV. The affiliate made up the remaining $29.8 million composed of a $24.0 million mortgage note payable and $5.7 million in equity. The Company has control of Jeffersonville JV with 79% ownership and, therefore, consolidates Jeffersonville JV on its consolidated balance sheet. The Company's $88.7 million mortgage note payable to Jeffersonville JV is eliminated in consolidation (see Note 7 - Debt).
As discussed below, in the first quarter of 2022, pursuant to the 2021 Incentive Plan, the Company issued awards of restricted stock units to its officers and certain other personnel of the Advisor who provide services to the Company under the Advisory Agreement (see Note 12 - Share-based Compensation).
41
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Note 12 - Share-based Compensation
Share Plan
The Company's equity incentive plans provide the Company with the ability to grant equity-based awards to its directors, officers and employees (if the Company ever has employees), employees of the Advisor and its affiliates, or certain of the Company's consultants, employees of entities that provide services to the Company, directors of the Advisor or of entities that provide services to the Company, the Advisor and its affiliates.
Under the Company's RSP, the total number of common shares granted shall not exceed 5% of the Company’s authorized common shares, and in any event, will not exceed 4.0 million shares (as such number may be adjusted for stock splits, stock distributions, combinations and similar events). The RSP will expire on February 7, 2023.
At March 31, 2022, there were 5,007,893 shares of common stock remaining available for issuance under the Company's 2021 Incentive Plan. The Board may amend, suspend or terminate the 2021 Incentive Plan at any time; provided that no amendment, suspension or termination may impair rights or obligations under any outstanding award without the participant’s consent or violate the 2021 Incentive Plan’s prohibition on repricing.
Service-based Restricted Stock Units
In the first quarter of 2022, in accordance with the 2021 Incentive Plan, the Company issued awards of RSUs to its officers and certain other personnel of the Advisor who provide services to the Company under the Advisory Agreement.
RSU activity issued under the 2021 Incentive Plan for the quarter ended March 31, 2022 is summarized below:
| Number of shares | Weighted Avg Grant Date Fair Value | ||||||||||
| Unvested RSU awards outstanding at December 31, 2021 | — | $ | — | ||||||||
| Grants | 492,107 | 14.34 | |||||||||
| Forfeitures | — | — | |||||||||
| Vested | — | — | |||||||||
| Unvested RSU awards outstanding at March 31, 2022 | 492,107 | $ | 14.34 | ||||||||
During the quarter ended March 31, 2022, the company recognized compensation expense associated with the RSUs of $412,000, which is included in Other expenses on the consolidated statements of operations. Unrecognized estimated compensation expense for these awards totaled $4.5 million at March 31, 2022, to be expensed over a weighted average period of 1.8 years.
Note 13 - Fair Value of Financial Instruments
GAAP establishes a hierarchy of valuation techniques based on the observability of inputs used in measuring financial instruments at fair values. GAAP establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The three levels of the hierarchy are described below:
•Level I - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
•Level II - Inputs (other than quoted prices included in Level I) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
•Level III - Unobservable inputs that reflect the entity's own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.
The determination of where an asset or liability falls in the above hierarchy requires significant judgment and factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter.
42
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
The Company has implemented valuation control processes to validate the fair value of the Company's financial instruments measured at fair value including those derived from pricing models. These control processes are designed to assure that the values used for financial reporting are based on observable inputs wherever possible. In the event that observable inputs are not available, the control processes are designed to assure that the valuation approach utilized is appropriate and consistently applied and the assumptions are reasonable.
Financial Instruments Measured at Fair Value on a Recurring Basis
Real estate securities classified as trading, RMBS, are measured at fair value by utilizing a third party pricing service to obtain a current estimated liquid price of the securities. The RMBS are classified in Level II of the fair value hierarchy.
Commercial mortgage loans, held for sale, measured at fair value in the Company's TRS are initially recorded at transaction proceeds, which are considered to be the best initial estimate of fair value. The Company engaged the services of a third party independent valuation firm to determine fair value of certain investments held by the Company. Fair value is determined using a discounted cash flow model that primarily considers changes in interest rates and credit spreads, weighted average life and current performance of the underlying collateral. Commercial mortgage loans, held for sale, measured at fair value that are originated in the last month of the reporting period are held and marked to the transaction proceeds. The Company classified the commercial mortgage loans, held for sale, measured at fair value as Level III.
Other real estate investments, measured at fair value on the consolidated balance sheets are valued using unobservable inputs. The Company engaged the services of a third party independent valuation firm to determine fair value of certain investments, including preferred equity investments, held by the Company. Fair value is determined using a discounted cash flow model that primarily considers changes in interest rates and credit spreads, weighted average life and current performance of the underlying collateral. The Company classified the other real estate investments, measured at fair value as Level III.
The fair value for Treasury note futures is derived using market prices. Treasury note futures trade on the Chicago Mercantile Exchange (“CME”). The instruments are a variety of recently issued 10-year U.S. Treasury notes. The future contracts are liquid and are centrally cleared through the CME. Treasury note futures are generally categorized in Level II of the fair value hierarchy.
The fair value for credit default swaps and interest rate swaps contracts are derived using pricing models that are widely accepted by marketplace participants. Credit default swaps and interest rate swaps are traded in the OTC market. The pricing models take into account multiple inputs including specific contract terms, interest rate yield curves, interest rates, credit curves, recovery rates, and/or current credit spreads obtained from swap counterparties and other market participants. Most inputs into the models are not subjective as they are observable in the marketplace or set per the contract. Valuation is primarily determined by the difference between the contract spread and the current market spread. The contract spread (or rate) is generally fixed and the market spread is determined by the credit risk of the underlying debt or reference entity. If the underlying indices are liquid and the OTC market for the current spread is active, credit default swaps and interest rate swaps are categorized in Level II of the fair value hierarchy. If the underlying indices are illiquid and the OTC market for the current spread is not active, credit default swaps are categorized in Level III of the fair value hierarchy. The credit default swaps and interest rate swaps are generally categorized in Level II of the fair value hierarchy.
The fair value of exchange-traded swap agreements hedging RMBS repurchase agreements are calculated using the net discounted future fixed cash payments and the discounted future variable cash receipts which are based on expected future interest rates derived from observable market interest rate curves. The Company also incorporates both its own nonperformance risk and its counterparties’ nonperformance risk in determining fair value. In considering the effect of nonperformance risk, the Company considered the impact of netting and credit enhancements, such as collateral postings and guarantees, and has concluded that counterparty risk is not significant to the overall valuation. Interest rate swap agreements hedging the Company's RMBS repurchase agreements are measured at fair value on a recurring basis primarily using Level II inputs. The fair value of these derivatives are calculated including accrued interest and net of variation margin amounts received or paid through the exchange, resulting in separately presenting on the balance sheet a significantly reduced fair value amount representing the unsettled fair value of these derivatives.
A review of the fair value hierarchy classification is conducted on a quarterly basis. Changes in the type of inputs may result in a reclassification for certain assets or liabilities. The Company's policy with respect to transfers between levels of the fair value hierarchy is to recognize transfers into and out of each level as of the beginning of the reporting period. There were no material transfers between levels within the fair value hierarchy for the period ended March 31, 2022 and December 31, 2021.
43
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
The following table presents the Company's financial instruments carried at fair value on a recurring basis in the consolidated balance sheets by its level in the fair value hierarchy as of March 31, 2022 and December 31, 2021 (dollars in thousands):
| Total | Level I | Level II | Level III | ||||||||||||||||||||
| March 31, 2022 | |||||||||||||||||||||||
| Assets, at fair value | |||||||||||||||||||||||
| Real estate securities, trading, measured at fair value | $ | 1,949,336 | $ | — | $ | 1,949,336 | $ | — | |||||||||||||||
| Commercial mortgage loans, held for sale, measured at fair value | 107,978 | — | — | 107,978 | |||||||||||||||||||
| Other real estate investments, measured at fair value | — | — | — | — | |||||||||||||||||||
| Credit default swaps | 104 | — | 104 | — | |||||||||||||||||||
| Interest rate swaps | 374 | — | 374 | — | |||||||||||||||||||
| Total assets, at fair value | $ | 2,057,792 | $ | — | $ | 1,949,814 | $ | 107,978 | |||||||||||||||
| Liabilities, at fair value | |||||||||||||||||||||||
| Credit default swaps | $ | 1,493 | $ | — | $ | 1,493 | $ | — | |||||||||||||||
| Interest rate swaps | 2,260 | — | 2,260 | — | |||||||||||||||||||
| Total liabilities, at fair value | $ | 3,753 | $ | — | $ | 3,753 | $ | — | |||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||
| Assets, at fair value | |||||||||||||||||||||||
| Real estate securities, trading, measured at fair value | $ | 4,566,871 | $ | — | $ | 4,566,871 | $ | — | |||||||||||||||
| Commercial mortgage loans, held for sale, measured at fair value | 34,718 | — | — | 34,718 | |||||||||||||||||||
| Other real estate investments, measured at fair value | 2,074 | — | — | 2,074 | |||||||||||||||||||
| Interest rate swaps | 312 | — | 312 | — | |||||||||||||||||||
| Treasury note futures | 124 | — | 124 | — | |||||||||||||||||||
| Total assets, at fair value | $ | 4,604,099 | $ | — | $ | 4,567,307 | $ | 36,792 | |||||||||||||||
| Liabilities, at fair value | |||||||||||||||||||||||
| Credit default swaps | $ | 1,142 | $ | — | $ | 1,142 | $ | — | |||||||||||||||
| Unsecured debt-related interest rate swap agreements | 31,153 | — | 31,153 | — | |||||||||||||||||||
| Total liabilities, at fair value | $ | 32,295 | $ | — | $ | 32,295 | $ | — | |||||||||||||||
44
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level III category. As a result, the unrealized gains and losses for assets and liabilities within the Level III category may include changes in fair value that were attributable to both observable and unobservable inputs. The following table summarizes the valuation method and significant unobservable inputs used for the Company’s financial instruments that are categorized within Level III of the fair value hierarchy as of March 31, 2022 and December 31, 2021 (dollars in thousands):
| Asset Category | Fair Value | Valuation Methodologies | Unobservable Inputs (1) | Weighted Average (2) | Range | ||||||||||||||||||||||||
| March 31, 2022 | |||||||||||||||||||||||||||||
| Commercial mortgage loans, held for sale, measured at fair value | $ | 107,978 | Discounted Cash Flow | Yield | 2.3% | 1.6% - 5.6% | |||||||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||||||||
| Commercial mortgage loans, held for sale, measured at fair value | $ | 34,718 | Discounted Cash Flow | Yield | 3.4% | 3.2% - 4.2% | |||||||||||||||||||||||
| Other real estate investments, measured at fair value | 2,074 | Discounted Cash Flow | Yield | 10.9% | 9.9% - 11.9% | ||||||||||||||||||||||||
(1) In determining certain inputs, the Company evaluates a variety of factors including economic conditions, industry and market developments, market valuations of comparable companies and company specific developments including exit strategies and realization opportunities. The Company has determined that market participants would take these inputs into account when valuing the investments.
(2) Inputs were weighted based on the fair value of the investments included in the range.
45
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Increases or decreases in any of the above unobservable inputs in isolation would result in a lower or higher fair value measurement for such assets. The following table presents additional information about the Company’s financial instruments which are measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021 for which the Company has used Level III inputs to determine fair value (dollars in thousands):
| March 31, 2022 | ||||||||||||||
| Commercial Mortgage Loans, held for sale, measured at fair value | Other Real Estate Investments, measured at fair value | |||||||||||||
| Beginning balance, January 1, 2022 | $ | 34,718 | $ | 2,074 | ||||||||||
Transfers into Level III (1) | — | — | ||||||||||||
| Total realized and unrealized gain/(loss) included in earnings: | ||||||||||||||
| Realized gain/(loss) on sale of commercial mortgage loans, held for sale, and other real estate investments | 1,889 | (33) | ||||||||||||
| Unrealized gain/(loss) on commercial mortgage loans, held for sale and other real estate investments | (939) | 4 | ||||||||||||
| Net accretion | — | — | ||||||||||||
| Purchases | 150,300 | — | ||||||||||||
| Sales / paydowns | (77,990) | (2,045) | ||||||||||||
Transfers out of Level III (1) | — | — | ||||||||||||
| Ending Balance, March 31, 2022 | $ | 107,978 | $ | — | ||||||||||
| December 31, 2021 | ||||||||||||||
| Commercial Mortgage Loans, held for sale, measured at fair value | Other Real Estate Investments, measured at fair value | |||||||||||||
| Beginning balance, January 1, 2021 | $ | 67,649 | $ | 2,522 | ||||||||||
Transfers into Level III (1) | — | — | ||||||||||||
| Total realized and unrealized gain/(loss) included in earnings: | ||||||||||||||
| Realized gain/(loss) on sale of commercial mortgage loans, held for sale | 24,208 | — | ||||||||||||
| Unrealized gain/(loss) on commercial mortgage loans, held for sale and other real estate investments | 469 | (19) | ||||||||||||
| Net accretion | — | (3) | ||||||||||||
| Purchases | 420,673 | — | ||||||||||||
| Sales / paydowns | (478,281) | (426) | ||||||||||||
Transfers out of Level III (1) | — | — | ||||||||||||
| Ending Balance, December 31, 2021 | $ | 34,718 | $ | 2,074 | ||||||||||
(1) Transfers in and transfers out include transfers between Commercial mortgage loans, held for sale and Commercial mortgage loans, held for investment.
46
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
The fair value of cash and cash equivalents and restricted cash are measured using observable quoted market prices, or Level I inputs and their carrying value approximates their fair value. The fair value of borrowings under repurchase agreements approximate their carrying value on the consolidated balance sheets due to their short-term nature, and are measured using Level II inputs.
Financial Instruments Not Measured at Fair Value
The fair values of the Company's commercial mortgage loans, held for investment and collateralized loan obligations, which are not reported at fair value on the consolidated balance sheets are reported below as of March 31, 2022 and December 31, 2021 (dollars in thousands):
| Level | Carrying Amount (1) | Fair Value | |||||||||||||||||||||
| March 31, 2022 | |||||||||||||||||||||||
| Commercial mortgage loans, held for investment | Asset | III | $ | 4,545,384 | $ | 4,568,380 | |||||||||||||||||
| Collateralized loan obligations | Liability | III | 2,883,887 | 2,879,415 | |||||||||||||||||||
| Mortgage note payable | Liability | III | 23,998 | 23,998 | |||||||||||||||||||
| Other financing and loan participation - commercial mortgage loans | Liability | III | 40,199 | 40,199 | |||||||||||||||||||
| Unsecured debt | Liability | III | 98,620 | 79,000 | |||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||
| Commercial mortgage loans, held for investment | Asset | III | $ | 4,226,888 | $ | 4,249,118 | |||||||||||||||||
| Collateralized loan obligation | Liability | III | 2,162,190 | 2,181,571 | |||||||||||||||||||
| Mortgage Note Payable | Liability | III | 23,998 | 23,998 | |||||||||||||||||||
| Other financing and loan participation - commercial mortgage loans | Liability | III | 37,903 | 37,903 | |||||||||||||||||||
| Unsecured Debt | Liability | III | 148,594 | 125,400 | |||||||||||||||||||
(1) The carrying value is gross of $14.9 million and $15.8 million of allowance for credit losses as of March 31, 2022 and December 31, 2021, respectively.
The fair value of the commercial mortgage loans, held for investment is estimated using a discounted cash flow analysis, based on the Advisor's experience with similar types of investments. The Company estimates the fair value of the collateralized loan obligations using external broker quotes. The fair value of the other financing and loan participation-commercial mortgage loans is generally estimated using a discounted cash flow analysis. At March 31, 2022, the Mortgage note payable was recorded at transaction proceeds, which are considered to be the best initial estimate of fair value. The fair value of the unsecured debt is based on discounted cash flows using Company estimates for market yields on similarly structured debt instruments.
47
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Note 14 - Derivative Instruments
The Company uses derivative instruments primarily to manage the fair value variability of fixed rate assets caused by interest rate fluctuations and overall portfolio market risk.
As of March 31, 2022, the net premiums received on derivative instrument assets were $0.8 million.
The following derivative instruments were outstanding as of March 31, 2022 and December 31, 2021 (dollars in thousands):
| Fair Value | ||||||||||||||||||||
| Contract type | Notional | Assets | Liabilities | |||||||||||||||||
| March 31, 2022 | ||||||||||||||||||||
| Credit default swaps | $ | 98,000 | $ | 104 | $ | 1,493 | ||||||||||||||
Interest rate swaps (1) | 1,588,000 | 374 | 2,260 | |||||||||||||||||
| Interest rate swaps on unsecured debt | — | — | — | |||||||||||||||||
| Treasury note futures | — | — | — | |||||||||||||||||
| Total | $ | 1,686,000 | $ | 478 | $ | 3,753 | ||||||||||||||
| December 31, 2021 | ||||||||||||||||||||
| Credit default swaps | $ | 47,000 | $ | — | $ | 1,142 | ||||||||||||||
| Interest rate swaps | 3,649,500 | 312 | — | |||||||||||||||||
| Interest rate swaps on unsecured debt | 100,000 | — | 31,153 | |||||||||||||||||
| Treasury note futures | 360 | 124 | — | |||||||||||||||||
| Total | $ | 3,796,860 | $ | 436 | $ | 32,295 | ||||||||||||||
(1) As of March 31, 2022, asset vs. liability notional breakout for interest rate swaps assets was $1,499.5 million and $88.5 million, respectively.
The following table indicates the net realized and unrealized gains and losses on derivatives, by primary underlying risk exposure, as included in loss on derivative instruments in the consolidated statements of operations for the three months ended March 31, 2022 and March 31, 2021:
| Three Months Ended March 31, 2022 | |||||||||||
| Contract type | Unrealized (Gain)/Loss | Realized (Gain)/Loss | |||||||||
| Credit default swaps | $ | 99 | $ | (104) | |||||||
| Interest rate swaps | 4,740 | (32,987) | |||||||||
| Treasury note futures | 124 | (939) | |||||||||
| Total | $ | 4,963 | $ | (34,030) | |||||||
| Three Months Ended March 31, 2021 | |||||||||||
| Contract type | Unrealized (Gain)/Loss | Realized (Gain)/Loss | |||||||||
| Credit default swaps | $ | (163) | $ | 455 | |||||||
| Interest rate swaps | (865) | (921) | |||||||||
| Treasury note futures | (1,081) | (1,512) | |||||||||
| Total | $ | (2,109) | $ | (1,978) | |||||||
48
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
The following table includes information regarding components of unsecured debt-related effects on interest expense and other comprehensive income for the three months ended March 31, 2022 and March 31, 2021:
| Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |||||||||||||
| Related to the statement of operations | ||||||||||||||
Amount of net loss reclassified from other comprehensive income (1) | $ | (282) | $ | — | ||||||||||
| Related to other comprehensive income | ||||||||||||||
| Amount of gain/(loss) recognized in other comprehensive income | $ | (220) | $ | — | ||||||||||
(1) Included in interest expense in the consolidated statements of operations
The Company's portfolio of derivatives additionally hedges the variability of the underlying benchmark interest rate of current and forecasted 30- to 90-day repurchase agreements. The Company attempts to mitigate exposure to higher interest rates primarily by entering into pay-fixed, receive-variable, interest rate swap agreements for terms between eighteen months and three years. From an economic perspective, this hedge relationship establishes a relatively stable fixed rate on related debt because the variable-rate payments received on the swap agreements offset a significant portion of the interest accruing on the debt, leaving the fixed-rate swap payments as the Company’s effective borrowing rate. Additionally, changes in fair value of these derivatives tend to offset opposing changes in fair value of the Company’s residential mortgage investments that can occur in response to changes in market interest rates.
During the first quarter of 2022, the Company entered into swap agreements with notional amounts totaling $1.1 billion requiring fixed-rate interest payments averaging 1.10%. No swaps had matured during this time. In the first quarter of 2022, the Company terminated $3.3 billion notional amount of swaps related to the ARM portfolio requiring fixed-rate interest payments averaging 0.25%. Subsequent to March 31, 2022, the Company terminated $0.8 billion notional amount of swaps requiring fixed-rate interest payments averaging 0.28%.
At March 31, 2022, the Company’s trading securities portfolio financing-related swap positions, all of which were either SOFR or OIS-indexed, had the following characteristics (dollars in thousands):
| Period of Contract Expiration | Swap Notional Amounts | Average Fixed Rates | ||||||||||||
| Third quarter 2022 | $ | 300,000 | 0.03 | % | ||||||||||
| Fourth quarter 2022 | 400,000 | 0.07 | % | |||||||||||
| First quarter 2023 | 525,000 | 0.77 | % | |||||||||||
| Fourth quarter 2023 | 174,500 | 0.11 | % | |||||||||||
| First quarter 2024 | 100,000 | 2.28 | % | |||||||||||
| $ | 1,499,500 | |||||||||||||
In January 2022, the Company terminated the entirety of its three-month LIBOR-indexed, pay-fixed, receive-variable, interest rate swap agreements with notional amounts totaling $100 million and average fixed rates of 4.09% with 20-year payment terms coinciding with the floating-rate terms of the Company’s unsecured debt that mature in 2035 and 2036.
Interest rate swap agreements are measured at fair value on a recurring basis primarily using Level Two Inputs in accordance with ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820). In determining fair value estimates for swaps, The Company utilizes the standard methodology of netting the discounted future fixed cash payments and the discounted future variable cash receipts which are based on expected future interest rates derived from observable market interest rate curves. The Company also incorporates both its own nonperformance risk and its counterparties’ nonperformance risk in determining fair value. In considering the effect of nonperformance risk, the Company considered the impact of netting and credit enhancements, such as collateral postings and guarantees, and has concluded that counterparty risk is not significant to the overall valuation.
49
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
The fair value of exchange-traded swap agreements hedging repurchase agreements is calculated including accrued interest and net of variation margin amounts received or paid through the exchange, resulting in separately presenting on the balance sheet a fair value amount representing the unsettled fair value of these derivatives. Non-exchange traded swap agreements held as cash flow hedges of unsecured debt are reported at fair value calculated excluding accrued interest. At March 31, 2022, cash collateral receivable from derivative counterparties includes initial margin for all derivatives and variation margin for non-exchange traded derivatives. Accrued interest for non-exchange traded swap agreements is included in accounts payable and accrued expenses.
50
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Note 15 - Offsetting Assets and Liabilities
The Company's consolidated balance sheets used a gross presentation of repurchase agreements and collateral pledged. The table below provides a gross presentation, the effects of offsetting and a net presentation of the Company's derivative instruments and repurchase agreements within the scope of ASC 210-20, Balance Sheet—Offsetting, as of March 31, 2022 and December 31, 2021 (dollars in thousands):
Gross Amounts Not Offset on the Balance Sheet | ||||||||||||||||||||||||||||||||||||||
| Assets | Gross Amounts of Recognized Assets | Gross Amounts Offset on the Balance Sheet | Net Amount of Assets Presented on the Balance Sheet | Financial Instruments | Cash Collateral (1) | Net Amount | ||||||||||||||||||||||||||||||||
| March 31, 2022 | ||||||||||||||||||||||||||||||||||||||
| Derivative instruments, at fair value | $ | 478 | $ | — | $ | 478 | $ | — | $ | — | $ | 478 | ||||||||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||||||||||||||||
| Derivative instruments, at fair value | $ | 436 | $ | — | $ | 436 | $ | — | $ | — | $ | 436 | ||||||||||||||||||||||||||
Gross Amounts Not Offset on the Balance Sheet | ||||||||||||||||||||||||||||||||||||||
| Liabilities | Gross Amounts of Recognized Liabilities | Gross Amounts Offset on the Balance Sheet | Net Amount of Liabilities Presented on the Balance Sheet | Financial Instruments | Cash Collateral (1) | Net Amount | ||||||||||||||||||||||||||||||||
| March 31, 2022 | ||||||||||||||||||||||||||||||||||||||
| Repurchase agreements - commercial mortgage loans | $ | 522,890 | $ | — | $ | 522,890 | $ | 813,303 | $ | 5,010 | $ | — | ||||||||||||||||||||||||||
| Repurchase agreements - real estate securities | 1,714,541 | — | 1,714,541 | 1,801,381 | — | — | ||||||||||||||||||||||||||||||||
| Derivative instruments, at fair value | 3,753 | — | 3,753 | — | 7,069 | — | ||||||||||||||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||||||||||||||||
| Repurchase agreements - commercial mortgage loans | $ | 1,019,600 | $ | — | $ | 1,019,600 | $ | 1,460,317 | $ | 5,015 | $ | — | ||||||||||||||||||||||||||
| Repurchase agreements - real estate securities | 4,178,784 | — | 4,178,784 | 4,370,239 | — | — | ||||||||||||||||||||||||||||||||
| Derivative instruments, at fair value | 32,295 | — | 32,295 | — | 64,393 | — | ||||||||||||||||||||||||||||||||
(1) These cash collateral amounts are recorded within the Restricted cash balance on the consolidated balance sheets.
51
FRANKLIN BSP REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
Note 16 - Segment Reporting
The Company conducts its business through the following reporting segments:
•The real estate debt business focuses on originating, acquiring and asset managing commercial real estate debt investments, including first mortgage loans, subordinate mortgages, mezzanine loans and participations in such loans.
•The real estate securities business focuses on investing in and asset managing real estate securities. Historically this business has focused primarily on CMBS, unsecured REIT debt, CDO notes and other securities. As a result of the October 2021 acquisition of Capstead, the Company acquired and continues to hold a significant portfolio of ARM Agency Securities. As of March 31, 2022, all of the real estate securities in this segment were ARM Agency Securities acquired in the Capstead acquisition.
•The commercial real estate conduit business operated through the Company's TRS, which is focused on generating risk-adjusted returns by originating and subsequently selling fixed-rate commercial real estate loans into the CMBS securitization market at a profit.
•The real estate owned business represents real estate acquired by the Company through foreclosure, deed in lieu of foreclosure, or purchase.
The following table represents the Company's operations by segment for the three and three months ended March 31, 2022 and March 31, 2021 (dollars in thousands):
| Three Months Ended March 31, 2022 | Total | Real Estate Debt and Other Real Estate Investments | Real Estate Securities | TRS | Real Estate Owned | |||||||||||||||||||||||||||
| Interest income | $ | 75,258 | $ | 55,687 | $ | 18,885 | $ | 686 | $ | — | ||||||||||||||||||||||
| Revenue from real estate owned | 2,312 | — | — | — | 2,312 | |||||||||||||||||||||||||||
| Interest expense | 22,480 | 19,464 | 2,616 | 206 | 194 | |||||||||||||||||||||||||||
| Net income/(loss) | (22,507) | 22,092 | (45,311) | (107) | 819 | |||||||||||||||||||||||||||
| Total assets as of March 31, 2022 | 7,112,155 | 4,346,668 | 2,496,732 | 127,392 | 141,363 | |||||||||||||||||||||||||||
| Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||||||||
| Interest income | $ | 42,237 | $ | 40,757 | $ | 424 | $ | 1,056 | $ | — | ||||||||||||||||||||||
| Revenue from real estate owned | 716 | — | — | — | 716 | |||||||||||||||||||||||||||
| Interest expense | 11,369 | 10,574 | 182 | 332 | 281 | |||||||||||||||||||||||||||
| Net income/(loss) | 30,146 | 23,033 | (454) | 7,538 | 29 | |||||||||||||||||||||||||||
| Total assets as of December 31, 2021 | 9,474,701 | 4,205,883 | 5,054,394 | 72,840 | 141,584 | |||||||||||||||||||||||||||
For the purposes of the table above, any expenses not associated with a specific segment have been allocated to the business segments using a percentage derived by using the sum of commercial mortgage loans originated during the year as the denominator and commercial mortgage loans, held for investment, net of allowance and commercial mortgage loans, held for sale, measured at fair value as numerator.
Note 17 - Subsequent Events
The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q.
On April 19, 2022, all of the 39,733,299 outstanding shares of the Company’s Series F Preferred Stock automatically converted on a one-for-one basis into an equal amount of shares of common stock, pursuant to the terms of the Articles Supplementary of the Series F Preferred Stock. The shares of common stock issued upon conversion of the Series F Preferred Stock are freely tradable by the holders on the New York Stock Exchange. There are no shares of Series F Preferred Stock outstanding following the conversion.
52
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the accompanying financial statements of Franklin BSP Realty Trust, Inc. the notes thereto and other financial information included elsewhere in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the U.S. Securities and Exchange Commission (the "SEC") on February 25, 2022.
As used herein, the terms "the Company," "we," "our" and "us" refer to Franklin BSP Realty Trust, Inc., a Maryland corporation and, as required by context, to Benefit Street Partners Realty Operating Partnership, L.P., a Delaware limited partnership, which we refer to as the "OP," and to its subsidiaries. We are externally managed by Benefit Street Partners L.L.C. (our "Advisor").
Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of the Company and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "plans," "intends," "should" or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.
Our forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements, and thus our investors should not place undue reliance on these statements. We believe these factors include but are not limited to those described under the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, as such factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission (the “SEC”), which are accessible on the SEC’s website at http://www.sec.gov. These factors include:
•our business and investment strategy;
•our ability to make investments in a timely manner or on acceptable terms;
•the impact of the COVID-19 pandemic;
•current credit market conditions and our ability to obtain long-term financing for our investments in a timely manner and on terms that are consistent with what we project when we invest;
•the effect of general market, real estate market, economic and political conditions, including changing interest rate environments and inflation;
•our ability to make scheduled payments on our debt obligations;
•our ability to generate sufficient cash flows to make distributions to our stockholders;
•our ability to generate sufficient debt and equity capital to fund additional investments;
•our ability to refinance our existing financing arrangements;
•our ability to successfully and in a timely matter reinvest the dividend, interest, principal and sales proceeds from the assets acquired in the merger with Capstead Mortgage Corporation in a manner consistent with our investment strategies;
•adverse changes in the value of the assets acquired in the merger with Capstead Mortgage Corporation prior to the time such assets are monetized and reinvested in in a manner consistent with our investment strategies;
•the degree and nature of our competition;
•the availability of qualified personnel;
•we may be deemed to be an investment company under the Investment Company Act of 1940, as amended (the "Investment Company Act"), and thus subject to regulation under the Investment Company Act;
•our ability to maintain our qualification as a real estate investment trust ("REIT"); and
•other factors set forth under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021.
Currently, one of the most significant factors that could cause actual outcomes to differ materially from our forward-looking statements is the continuing adverse effect of the current pandemic of the novel coronavirus, or COVID-19, on the financial condition, operating results and cash flows of the Company, its borrowers, the real estate market, the global economy and the financial markets. The extent to which the COVID-19 pandemic continues to impact us and our borrowers will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, including resurgences of the virus and its variants, the speed, effectiveness and adoption of vaccine (including boosters) and treatment developments and the direct and indirect economic effects of the pandemic and containment measures, among others.
53
Overview
The Company is a Maryland corporation and has made tax elections to be treated as a REIT for U.S. federal income tax purposes since 2013. The Company, through one or more subsidiaries which are each treated as a taxable REIT subsidiary ("TRS"), is indirectly subject to U.S. federal, state and local income taxes. We commenced business in May 2013. We primarily originate, acquire and manage a diversified portfolio of commercial real estate debt investments secured by properties located within and outside of the United States. Commercial real estate debt investments may include first mortgage loans, subordinated mortgage loans, mezzanine loans and participations in such loans. Substantially all of our business is conducted through the OP, a Delaware limited partnership. We are the sole general partner and directly or indirectly hold all of the units of limited partner interests in the OP.
The Company has no employees. We are managed by our Advisor pursuant to an Advisory Agreement, as amended on August 18, 2021 (the "Advisory Agreement"). Our Advisor manages our affairs on a day-to-day basis. The Advisor receives compensation and fees for services related to the investment and management of our assets and our operations.
The Advisor, an SEC-registered investment adviser, is a credit-focused alternative asset management firm. The Advisor manages funds for institutions and high-net-worth investors across various credit funds and complementary strategies including high yield, levered loans, private / opportunistic debt, liquid credit, structured credit and commercial real estate debt. These strategies complement each other as they all leverage the sourcing, analytical, compliance, and operational capabilities that encompass the Advisor’s robust platform. The Advisor is a wholly-owned subsidiary of Franklin Resources, Inc., which together with its various subsidiaries operates as “Franklin Templeton.”
The Company invests in commercial real estate debt investments, which may include first mortgage loans, subordinated mortgage loans, mezzanine loans and participations in such loans. The Company also originates conduit loans which the Company intends to sell through its TRS into commercial mortgage-backed securities ("CMBS") securitization transactions at a profit. Historically this business has focused primarily on CMBS, unsecured REIT debt, collateralized debt obligations ("CDOs") and other securities. As a result of the October 2021 acquisition of Capstead Mortgage Corporation (“Capstead”), the Company acquired and continues to hold a significant portfolio of residential mortgage backed securities (“RMBS”) in the form of residential adjustable-rate mortgage pass-through securities (“ARM Agency Securities”) issued and guaranteed by government-sponsored enterprises or by an agency of the federal government. The Company also owns real estate which it acquires through foreclosure and deed in lieu of foreclosure, and which it purchases for investment, typically subject to triple net leases.
Book Value Per Share
The following table calculates our book value per share as of March 31, 2022 and December 31, 2021 ($ in thousands, except per share data):
| March 31, 2022 | December 31, 2021 | |||||||||||||
| Stockholders' equity applicable to common stock | $ | 677,867 | $ | 736,464 | ||||||||||
| Shares | ||||||||||||||
| Common stock | 43,957,363 | 43,951,382 | ||||||||||||
| Restricted stock | 513,764 | 14,546 | ||||||||||||
| Total outstanding | 44,471,127 | 43,965,928 | ||||||||||||
| Book value per share | $ | 15.24 | $ | 16.75 | ||||||||||
The following table calculates our fully-converted book value per share as of March 31, 2022 and December 31, 2021 ($ in thousands, except per share data):
| March 31, 2022 | December 31, 2021 | |||||||||||||
| Stockholders' equity applicable to convertible common stock | $ | 1,484,962 | $ | 1,543,550 | ||||||||||
| Shares | ||||||||||||||
| Common stock | 43,957,363 | 43,951,382 | ||||||||||||
| Restricted stock | 513,764 | 14,546 | ||||||||||||
| Series C convertible preferred stock | 418,880 | 418,880 | ||||||||||||
| Series D convertible preferred stock | 5,370,640 | 5,370,640 | ||||||||||||
| Series F convertible preferred stock | 39,733,299 | 39,733,299 | ||||||||||||
| Total outstanding | 89,993,946 | 89,488,747 | ||||||||||||
| Fully-converted book value per share | $ | 16.50 | $ | 17.25 | ||||||||||
54
Critical Accounting Estimates
Our financial statements are prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"), which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting estimates are those that require the application of management’s most difficult, subjective or complex judgments on matters that are inherently uncertain and that may change in subsequent periods. In preparing the financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. In preparing the financial statements, management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses.
During the three months ended March 31, 2022, there were no material changes to our critical accounting estimates as compared to the critical accounting estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021.
Portfolio
As of March 31, 2022 and December 31, 2021, our portfolio consisted of 166 and 165 commercial mortgage loans, respectively, excluding commercial mortgage loans accounted for under the fair value option. The commercial mortgage loans, held for investment as of March 31, 2022 and December 31, 2021 had a total carrying value, net of allowance for credit losses, of $4,530.5 million and $4,211.1 million, respectively. As of March 31, 2022 and December 31, 2021, our total commercial mortgage loans, held for sale, measured at fair value comprised of nine loans with total fair value of $108.0 million and one loan with total fair value of $34.7 million, respectively. As of March 31, 2022 and December 31, 2021 we had real estate securities, trading, measured at fair value of $1,949.3 million and $4,566.9 million, respectively. As of March 31, 2022 we had no other real estate investments, measured at fair value. As of December 31, 2021, our other real estate investments, measured at fair value, were comprised of one investment with a total fair value of $2.1 million. As of March 31, 2022 and December 31, 2021, our real estate owned, held for investment portfolio comprised of one investment with a carrying value of $89.5 million and $90.0 million, respectively.
As of March 31, 2022, we had one loan with unpaid contractual principal balance for a total carrying value of $57.1 million that had interest past due for greater than 90 days. We did not take any asset specific reserves for this loan. As of December 31, 2021, we had two loans with an aggregate unpaid contractual principal balance and carrying value of $114.0 million, one with interest past due for greater than 90 days and the other which was current.
As of March 31, 2022 and December 31, 2021 our commercial mortgage loans, excluding commercial mortgage loans accounted for under the fair value option, had a weighted average coupon of 4.4% and 4.3%, and a weighted average remaining life of 1.9 years and 2.1 years, respectively.
As of March 31, 2022, the value of the Company’s residential ARM Agency Securities portfolio was $1.9 billion, compared to $4.6 billion as of December 31, 2021. The reduction in the value of this portfolio in the first quarter is due in part to (i) $339 million of principal paydowns and (ii) $2.2 billion of sales. During that period, the Company experienced trading losses of $88.4 million related to these assets. As of May 3, 2022, the value of the Company’s residential ARM Agency Securities portfolio was $649 million. From April 1, 2022 to May 3, 2022, the Company experienced losses of $6.9 million related to the ARM Agency Securities portfolio as a result of net trading losses totaling $15.4 million related to principal paydowns, changes in market price and losses on sales of securities, net of portfolio related derivative gains of $8.6 million.
55
The following charts summarize our commercial mortgage loans, held for investment, by coupon rate type, collateral type and geographical region as of March 31, 2022 and December 31, 2021:
56
57
An investments region classification is defined according to the below map based on the location of investments secured property.
58
The following charts show the par value by contractual maturity year for the commercial mortgage loans held for investments (excluding commercial mortgage loans in principal default) in our portfolio as of March 31, 2022 and December 31, 2021:
59
The following table shows selected data from our commercial mortgage loans, held for investment in our portfolio as of March 31, 2022 (dollars in thousands):
| Loan Type | Property Type | Par Value | Interest Rate (1) | Effective Yield | Loan to Value (2) | ||||||||||||
| Senior Debt 1 | Hospitality | $4,849 | 1 month LIBOR + 4.00% | 5.0% | 77.0% | ||||||||||||
| Senior Debt 2 | Hospitality | 57,075 | 1 month LIBOR + 5.19% | 6.2% | 51.8% | ||||||||||||
| Senior Debt 3 | Multifamily | 20,343 | 1 month LIBOR + 4.50% | 5.5% | 22.4% | ||||||||||||
| Senior Debt 4 | Hospitality | 22,094 | 1 month LIBOR + 6.00% | 6.5% | 48.1% | ||||||||||||
| Senior Debt 5 | Multifamily | 35,883 | 1 month LIBOR + 3.00% | 3.8% | 63.7% | ||||||||||||
| Senior Debt 6 | Multifamily | 37,025 | 1 month LIBOR + 3.00% | 4.5% | 83.6% | ||||||||||||
| Senior Debt 7 | Hospitality | 22,355 | 1 month LIBOR + 3.50% | 4.8% | 68.8% | ||||||||||||
| Senior Debt 8 | Office | 20,622 | 1 month LIBOR + 3.75% | 5.8% | 70.0% | ||||||||||||
| Senior Debt 9 | Office | 15,669 | 1 month LIBOR + 3.40% | 5.3% | 67.5% | ||||||||||||
| Senior Debt 10 | Multifamily | 27,392 | 1 month LIBOR + 3.35% | 5.3% | 73.0% | ||||||||||||
| Senior Debt 11 | Hospitality | 7,785 | 1 month SOFR + 4.85% | 6.8% | 62.5% | ||||||||||||
| Senior Debt 12 | Office | 7,103 | 1 month LIBOR + 3.90% | 6.0% | 67.6% | ||||||||||||
| Senior Debt 13 | Hospitality | 13,943 | 1 month LIBOR + 4.47% | 6.7% | 44.8% | ||||||||||||
| Senior Debt 14 | Office | 43,012 | 1 month LIBOR + 3.50% | 5.8% | 71.0% | ||||||||||||
| Senior Debt 15 | Retail | 8,203 | 1 month LIBOR + 8.00% | 8.5% | 51.6% | ||||||||||||
| Senior Debt 16 | Hospitality | 10,580 | 1 month LIBOR + 4.50% | 6.8% | 68.7% | ||||||||||||
| Senior Debt 17 | Hospitality | 19,900 | 1 month LIBOR + 4.15% | 6.5% | 61.8% | ||||||||||||
| Senior Debt 18 | Office | 39,650 | 1 month LIBOR + 4.11% | 6.4% | 68.2% | ||||||||||||
| Senior Debt 19 | Hospitality | 20,930 | 1 month LIBOR + 3.75% | 6.1% | 62.6% | ||||||||||||
| Senior Debt 20 | Hospitality | 13,000 | 1 month LIBOR + 2.94% | 5.4% | 56.4% | ||||||||||||
| Senior Debt 21 | Hospitality | 4,988 | 1 month LIBOR + 4.25% | 6.5% | 47.7% | ||||||||||||
| Senior Debt 22 | Hospitality | 12,750 | 1 month LIBOR + 4.45% | 6.9% | 62.9% | ||||||||||||
| Senior Debt 23 | Retail | 9,400 | 1 month LIBOR + 4.20% | 6.3% | 77.1% | ||||||||||||
| Senior Debt 24 | Hospitality | 33,945 | 1 month LIBOR + 3.99% | 5.7% | 31.0% | ||||||||||||
| Senior Debt 25 | Office | 21,825 | 1 month LIBOR + 3.50% | 5.4% | 70.9% | ||||||||||||
| Senior Debt 26 | Hospitality | 7,100 | 1 month LIBOR + 4.00% | 5.8% | 70.3% | ||||||||||||
| Senior Debt 27 | Multifamily | 15,575 | 1 month LIBOR + 2.75% | 4.3% | 71.7% | ||||||||||||
| Senior Debt 28 | Multifamily | 27,553 | 1 month LIBOR + 3.15% | 5.0% | 71.6% | ||||||||||||
| Senior Debt 29 | Multifamily | 24,500 | 1 month SOFR + 3.30% | 4.8% | 75.5% | ||||||||||||
| Senior Debt 30 | Office | 25,802 | 1 month LIBOR + 4.35% | 6.1% | 64.9% | ||||||||||||
| Senior Debt 31 | Office | 58,714 | 1 month LIBOR + 3.70% | 5.0% | 65.7% | ||||||||||||
| Senior Debt 32 | Multifamily | 11,694 | 1 month LIBOR + 3.15% | 4.8% | 72.4% | ||||||||||||
| Senior Debt 33 | Office | 29,317 | 1 month LIBOR + 2.70% | 3.2% | 71.4% | ||||||||||||
| Senior Debt 34 | Manufactured Housing | 1,352 | 5.50% | 5.5% | 62.8% | ||||||||||||
| Senior Debt 35 | Multifamily | 7,038 | 1 month LIBOR + 4.75% | 5.8% | 62.6% | ||||||||||||
| Senior Debt 36 | Multifamily | 4,300 | 1 month LIBOR + 5.50% | 6.5% | 87.4% | ||||||||||||
| Senior Debt 37 | Manufactured Housing | 7,680 | 1 month LIBOR + 4.50% | 5.0% | 66.7% | ||||||||||||
| Senior Debt 38 | Hospitality | 27,000 | 1 month LIBOR + 6.50% | 7.0% | 62.7% | ||||||||||||
| Senior Debt 39 | Multifamily | 50,000 | 1 month LIBOR + 6.69% | 7.4% | 80.0% | ||||||||||||
| Senior Debt 40 | Self Storage | 29,895 | 1 month LIBOR + 5.00% | 5.5% | 58.8% | ||||||||||||
| Senior Debt 41 | Multifamily | 14,183 | 1 month LIBOR + 4.75% | 5.3% | 70.0% | ||||||||||||
| Senior Debt 42 | Manufactured Housing | 3,400 | 1 month LIBOR + 5.00% | 5.5% | 58.6% | ||||||||||||
| Senior Debt 43 | Multifamily | 27,550 | 1 month LIBOR + 5.75% | 6.2% | 69.8% | ||||||||||||
| Senior Debt 44 | Manufactured Housing | 5,020 | 1 month LIBOR + 5.25% | 5.7% | 65.9% | ||||||||||||
| Senior Debt 45 | Office | 18,503 | 1 month LIBOR + 4.50% | 5.3% | 47.9% | ||||||||||||
| Senior Debt 46 | Office | 67,117 | 5.15% | 5.2% | 52.5% | ||||||||||||
| Senior Debt 47 | Office | 30,990 | 1 month LIBOR + 5.20% | 5.7% | 66.0% | ||||||||||||
| Senior Debt 48 | Office | 12,750 | 1 month LIBOR + 5.00% | 5.5% | 67.8% | ||||||||||||
| Senior Debt 49 | Multifamily | 44,036 | 1 month LIBOR + 4.35% | 4.8% | 73.2% | ||||||||||||
| Senior Debt 50 | Multifamily | 38,019 | 1 month LIBOR + 4.45% | 4.9% | 66.5% | ||||||||||||
| Senior Debt 51 | Retail | 11,963 | 1 month LIBOR + 4.87% | 5.3% | 75.0% | ||||||||||||
| Senior Debt 52 | Multifamily | 5,730 | 1 month LIBOR + 5.00% | 5.5% | 73.5% | ||||||||||||
| Senior Debt 53 | Multifamily | 18,800 | 1 month LIBOR + 4.00% | 4.5% | 79.7% | ||||||||||||
| Senior Debt 54 | Industrial | 14,985 | 1 month LIBOR + 4.50% | 5.0% | 66.3% | ||||||||||||
60
| Loan Type | Property Type | Par Value | Interest Rate (1) | Effective Yield | Loan to Value (2) | ||||||||||||
| Senior Debt 55 | Office | 11,981 | 1 month LIBOR + 5.50% | 6.0% | 68.8% | ||||||||||||
| Senior Debt 56 | Multifamily | 11,918 | 1 month LIBOR + 4.55% | 5.0% | 73.0% | ||||||||||||
| Senior Debt 57 | Multifamily | 21,000 | 1 month LIBOR + 4.60% | 5.1% | 66.7% | ||||||||||||
| Senior Debt 58 | Office | 26,000 | 1 month LIBOR + 5.00% | 5.5% | 63.9% | ||||||||||||
| Senior Debt 59 | Multifamily | 11,672 | 1 month LIBOR + 3.50% | 4.0% | 60.1% | ||||||||||||
| Senior Debt 60 | Multifamily | 21,000 | 1 month LIBOR + 4.95% | 5.4% | 84.2% | ||||||||||||
| Senior Debt 61 | Office | 43,751 | 1 month LIBOR + 3.94% | 4.4% | 53.9% | ||||||||||||
| Senior Debt 62 | Multifamily | 3,295 | 1 month LIBOR + 7.25% | 7.7% | —% | ||||||||||||
| Senior Debt 63 | Multifamily | 5,400 | 1 month LIBOR + 5.25% | 5.7% | 83.1% | ||||||||||||
| Senior Debt 64 | Hospitality | 23,000 | 1 month LIBOR + 5.79% | 6.3% | 57.2% | ||||||||||||
| Senior Debt 65 | Multifamily | 34,750 | 1 month LIBOR + 6.75% | 7.2% | 78.2% | ||||||||||||
| Senior Debt 66 | Multifamily | 12,325 | 1 month LIBOR + 4.50% | 5.0% | 83.3% | ||||||||||||
| Senior Debt 67 | Multifamily | 6,300 | 1 month LIBOR + 5.35% | 5.8% | 84.0% | ||||||||||||
| Senior Debt 68 | Multifamily | 31,354 | 1 month LIBOR + 3.00% | 3.5% | 74.3% | ||||||||||||
| Senior Debt 69 | Multifamily | 12,038 | 1 month LIBOR + 4.25% | 4.7% | 76.4% | ||||||||||||
| Senior Debt 70 | Multifamily | 5,575 | 1 month LIBOR + 4.50% | 5.0% | 83.6% | ||||||||||||
| Senior Debt 71 | Multifamily | 53,557 | 1 month LIBOR + 3.00% | 3.5% | 71.6% | ||||||||||||
| Senior Debt 72 | Multifamily | 14,045 | 1 month LIBOR + 3.39% | 3.9% | 70.6% | ||||||||||||
| Senior Debt 73 | Multifamily | 8,447 | 1 month LIBOR + 3.80% | 4.3% | 69.9% | ||||||||||||
| Senior Debt 74 | Multifamily | 13,582 | 1 month LIBOR + 4.50% | 5.0% | 76.7% | ||||||||||||
| Senior Debt 75 | Multifamily | 18,653 | 1 month LIBOR + 5.25% | 5.7% | 67.0% | ||||||||||||
| Senior Debt 76 | Multifamily | 18,273 | 1 month LIBOR + 3.60% | 4.1% | 70.8% | ||||||||||||
| Senior Debt 77 | Multifamily | 42,170 | 1 month LIBOR + 2.95% | 3.4% | 71.6% | ||||||||||||
| Senior Debt 78 | Hospitality | 25,785 | 1 month LIBOR + 5.60% | 6.1% | 61.0% | ||||||||||||
| Senior Debt 79 | Mixed Use | 32,500 | 1 month LIBOR + 3.70% | 4.2% | 69.7% | ||||||||||||
| Senior Debt 80 | Multifamily | 12,997 | 1 month LIBOR + 3.75% | 4.2% | 63.2% | ||||||||||||
| Senior Debt 81 | Multifamily | 71,334 | 1 month LIBOR + 2.95% | 3.4% | 72.6% | ||||||||||||
| Senior Debt 82 | Multifamily | 20,427 | 1 month LIBOR + 3.35% | 3.8% | 67.7% | ||||||||||||
| Senior Debt 83 | Multifamily | 29,033 | 1 month LIBOR + 2.95% | 3.4% | 70.4% | ||||||||||||
| Senior Debt 84 | Multifamily | 35,307 | 1 month LIBOR + 2.95% | 3.4% | 71.7% | ||||||||||||
| Senior Debt 85 | Multifamily | 32,557 | 1 month LIBOR + 2.95% | 3.4% | 72.2% | ||||||||||||
| Senior Debt 86 | Hospitality | 25,771 | 1 month LIBOR + 9.00% | 9.5% | 74.2% | ||||||||||||
| Senior Debt 87 | Self Storage | 15,000 | 1 month LIBOR + 4.26% | 4.7% | 74.6% | ||||||||||||
| Senior Debt 88 | Multifamily | 24,579 | 1 month LIBOR + 3.25% | 3.7% | 70.8% | ||||||||||||
| Senior Debt 89 | Office | 6,800 | 1 month LIBOR + 5.25% | 5.7% | 67.3% | ||||||||||||
| Senior Debt 90 | Multifamily | 45,202 | 1 month LIBOR + 6.50% | 7.0% | —% | ||||||||||||
| Senior Debt 91 | Multifamily | 10,591 | 1 month LIBOR + 3.15% | 3.6% | 75.6% | ||||||||||||
| Senior Debt 92 | Hospitality | 18,859 | 1 month LIBOR + 5.35% | 5.8% | 56.8% | ||||||||||||
| Senior Debt 93 | Hospitality | 28,000 | 1 month LIBOR + 6.25% | 6.7% | 59.2% | ||||||||||||
| Senior Debt 94 | Multifamily | 32,213 | 1 month LIBOR + 3.15% | 3.6% | 73.0% | ||||||||||||
| Senior Debt 95 | Multifamily | 37,393 | 1 month LIBOR + 3.40% | 3.9% | 75.6% | ||||||||||||
| Senior Debt 96 | Multifamily | 3,063 | 1 month LIBOR + 8.00% | 8.5% | —% | ||||||||||||
| Senior Debt 97 | Multifamily | 29,500 | 1 month LIBOR + 2.88% | 3.3% | 68.0% | ||||||||||||
| Senior Debt 98 | Multifamily | 14,193 | 1 month LIBOR + 3.75% | 4.2% | 76.9% | ||||||||||||
| Senior Debt 99 | Multifamily | 29,250 | 1 month LIBOR + 3.00% | 3.5% | 73.5% | ||||||||||||
| Senior Debt 100 | Multifamily | 35,207 | 1 month LIBOR + 3.15% | 3.6% | 71.0% | ||||||||||||
| Senior Debt 101 | Multifamily | 42,850 | 1 month LIBOR + 3.40% | 3.9% | 79.9% | ||||||||||||
| Senior Debt 102 | Multifamily | 35,823 | 1 month LIBOR + 3.64% | 4.1% | 66.0% | ||||||||||||
| Senior Debt 103 | Multifamily | 8,500 | 1 month LIBOR + 3.75% | 4.2% | 79.4% | ||||||||||||
| Senior Debt 104 | Multifamily | 14,200 | 1 month LIBOR + 3.15% | 3.6% | 79.8% | ||||||||||||
| Senior Debt 105 | Multifamily | 13,350 | 1 month LIBOR + 3.75% | 4.2% | 64.2% | ||||||||||||
| Senior Debt 106 | Multifamily | 66,650 | 1 month LIBOR + 3.25% | 3.7% | 77.1% | ||||||||||||
| Senior Debt 107 | Multifamily | 18,853 | 1 month LIBOR + 2.95% | 3.4% | 72.1% | ||||||||||||
| Senior Debt 108 | Multifamily | 9,099 | 1 month LIBOR + 3.75% | 4.2% | 70.0% | ||||||||||||
| Senior Debt 109 | Hospitality | 34,012 | 1 month SOFR + 6.73% | 7.0% | 55.8% | ||||||||||||
| Senior Debt 110 | Multifamily | 26,340 | 1 month LIBOR + 3.20% | 3.7% | 77.3% | ||||||||||||
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| Loan Type | Property Type | Par Value | Interest Rate (1) | Effective Yield | Loan to Value (2) | ||||||||||||
| Senior Debt 111 | Hospitality | 17,370 | 1 month LIBOR + 5.25% | 5.7% | 61.0% | ||||||||||||
| Senior Debt 112 | Hospitality | 16,500 | 1 month LIBOR + 7.10% | 7.6% | 73.0% | ||||||||||||
| Senior Debt 113 | Multifamily | 13,168 | 1 month LIBOR + 3.40% | 3.9% | 78.2% | ||||||||||||
| Senior Debt 114 | Multifamily | 88,500 | 1 month LIBOR + 2.75% | 3.2% | 50.3% | ||||||||||||
| Senior Debt 115 | Multifamily | 56,150 | 1 month LIBOR + 3.10% | 3.6% | 78.9% | ||||||||||||
| Senior Debt 116 | Multifamily | 37,051 | 1 month LIBOR + 2.90% | 3.4% | 72.2% | ||||||||||||
| Senior Debt 117 | Multifamily | 52,576 | 1 month LIBOR + 3.10% | 3.6% | 67.2% | ||||||||||||
| Senior Debt 118 | Multifamily | 37,100 | 1 month LIBOR + 2.90% | 3.4% | 72.0% | ||||||||||||
| Senior Debt 119 | Multifamily | 62,225 | 1 month LIBOR + 2.85% | 3.3% | 70.6% | ||||||||||||
| Senior Debt 120 | Multifamily | 30,600 | 1 month LIBOR + 2.65% | 3.1% | 59.1% | ||||||||||||
| Senior Debt 121 | Multifamily | 30,650 | 1 month LIBOR + 3.25% | 3.7% | 80.0% | ||||||||||||
| Senior Debt 122 | Multifamily | 62,850 | 1 month LIBOR + 3.35% | 3.8% | 78.0% | ||||||||||||
| Senior Debt 123 | Multifamily | 43,228 | 1 month LIBOR + 3.00% | 3.5% | 74.8% | ||||||||||||
| Senior Debt 124 | Multifamily | 46,080 | 1 month LIBOR + 2.75% | 3.2% | 68.1% | ||||||||||||
| Senior Debt 125 | Multifamily | 86,000 | 1 month SOFR + 3.24% | 3.5% | 60.0% | ||||||||||||
| Senior Debt 126 | Multifamily | 28,880 | 1 month LIBOR + 2.90% | 3.4% | 74.2% | ||||||||||||
| Senior Debt 127 | Manufactured Housing | 6,700 | 1 month LIBOR + 4.50% | 5.0% | 77.9% | ||||||||||||
| Senior Debt 128 | Multifamily | 58,680 | 1 month LIBOR + 3.45% | 3.9% | 74.8% | ||||||||||||
| Senior Debt 129 | Multifamily | 26,600 | 1 month LIBOR + 2.90% | 3.4% | 72.1% | ||||||||||||
| Senior Debt 130 | Multifamily | 12,478 | 1 month LIBOR + 3.20% | 3.7% | 62.4% | ||||||||||||
| Senior Debt 131 | Multifamily | 35,996 | 1 month LIBOR + 3.00% | 3.5% | 73.3% | ||||||||||||
| Senior Debt 132 | Multifamily | 32,250 | 1 month LIBOR + 3.20% | 3.7% | 74.5% | ||||||||||||
| Senior Debt 133 | Multifamily | 38,631 | 1 month LIBOR + 2.90% | 3.4% | 71.7% | ||||||||||||
| Senior Debt 134 | Multifamily | 64,281 | 1 month LIBOR + 2.88% | 3.3% | 74.8% | ||||||||||||
| Senior Debt 135 | Multifamily | 62,003 | 1 month LIBOR + 2.88% | 3.3% | 75.5% | ||||||||||||
| Senior Debt 136 | Multifamily | 16,570 | 1 month SOFR + 3.50% | 3.8% | 71.7% | ||||||||||||
| Senior Debt 137 | Multifamily | 56,930 | 1 month LIBOR + 2.75% | 3.2% | 73.9% | ||||||||||||
| Senior Debt 138 | Multifamily | 65,000 | 1 month SOFR + 5.14% | 5.4% | 74.7% | ||||||||||||
| Senior Debt 139 | Multifamily | 22,240 | 1 month SOFR + 2.96% | 3.3% | 79.4% | ||||||||||||
| Senior Debt 140 | Multifamily | 25,573 | 1 month SOFR + 2.96% | 3.3% | 72.9% | ||||||||||||
| Senior Debt 141 | Multifamily | 31,678 | 1 month SOFR + 3.20% | 3.5% | 74.2% | ||||||||||||
| Senior Debt 142 | Multifamily | 78,050 | 1 month SOFR + 3.45% | 3.8% | 78.8% | ||||||||||||
| Senior Debt 143 | Multifamily | 77,870 | 1 month SOFR + 3.21% | 3.5% | 76.1% | ||||||||||||
| Senior Debt 144 | Multifamily | 24,000 | 1 month SOFR + 3.10% | 3.4% | 72.7% | ||||||||||||
| Senior Debt 145 | Retail | 31,000 | 1 month SOFR + 3.29% | 3.6% | 42.5% | ||||||||||||
| Senior Debt 146 | Multifamily | 22,301 | 1 month SOFR + 2.95% | 3.3% | 65.6% | ||||||||||||
| Senior Debt 147 | Multifamily | 10,600 | 1 month SOFR + 3.30% | 3.6% | 75.7% | ||||||||||||
| Senior Debt 148 | Multifamily | 47,444 | 1 month SOFR + 2.86% | 3.2% | 68.2% | ||||||||||||
| Senior Debt 149 | Multifamily | 36,824 | 1 month SOFR + 2.86% | 3.2% | 69.7% | ||||||||||||
| Senior Debt 150 | Hospitality | 10,300 | 1 month SOFR + 5.30% | 5.6% | 68.2% | ||||||||||||
| Senior Debt 151 | Retail | 20,650 | 1 month SOFR + 4.95% | 5.3% | 63.3% | ||||||||||||
| Senior Debt 152 | Multifamily | 82,000 | 1 month SOFR + 3.20% | 3.5% | 74.5% | ||||||||||||
| Senior Debt 153 | Industrial | 55,000 | 1 month SOFR + 3.50% | 3.8% | 70.1% | ||||||||||||
| Senior Debt 154 | Multifamily | 38,320 | 1 month SOFR + 3.10% | 3.4% | 74.1% | ||||||||||||
| Senior Debt 155 | Multifamily | 34,000 | 1 month SOFR + 2.95% | 3.3% | 63.1% | ||||||||||||
| Senior Debt 156 | Mixed Use | 19,000 | 1 month SOFR + 3.42% | 3.7% | 65.1% | ||||||||||||
| Senior Debt 157 | Multifamily | 85,500 | 1 month SOFR + 3.15% | 3.5% | 69.6% | ||||||||||||
| Senior Debt 158 | Multifamily | 31,095 | 1 month SOFR + 3.30% | 3.6% | 76.9% | ||||||||||||
| Senior Debt 159 | Hospitality | 43,051 | 1 month SOFR + 4.90% | 5.2% | 61.1% | ||||||||||||
| Senior Debt 160 | Hospitality | 17,117 | 5.99% | 6.0% | 52.9% | ||||||||||||
| Mezzanine Loan 1 | Multifamily | 6,500 | 1 month LIBOR + 10.25% | 11.0% | 90.4% | ||||||||||||
| Mezzanine Loan 2 | Multifamily | 3,000 | 1 month LIBOR + 9.20% | 10.0% | 62.2% | ||||||||||||
| Mezzanine Loan 3 | Multifamily | 10,000 | 1 month SOFR + 15.29% | 15.6% | 86.2% | ||||||||||||
| Mezzanine Loan 4 | Retail | 3,000 | 1 month SOFR + 12.00% | 12.3% | 46.6% | ||||||||||||
| Mezzanine Loan 5 | Hospitality | 4,113 | 1 month SOFR + 14.45% | 14.8% | 62.5% | ||||||||||||
| Mezzanine Loan 6 | Mixed Use | 1,000 | 1 month SOFR + 11.00% | 11.3% | 68.5% | ||||||||||||
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| Loan Type | Property Type | Par Value | Interest Rate (1) | Effective Yield | Loan to Value (2) | ||||||||||||
| $4,562,484 | 4.5% | 68.2% | |||||||||||||||
(1) Our floating rate loan agreements contain the contractual obligation for the borrower to maintain an interest rate cap to protect against rising interest rates. In a simple interest rate cap, the borrower pays a premium for a notional principal amount based on a capped interest rate (the “cap rate”). When the floating rate exceeds the cap rate, the borrower receives a payment from the cap counterparty equal to the difference between the floating rate and the cap rate on the same notional principal amount for a specified period of time. When interest rates rise, the value of an interest rate cap will increase, thereby reducing the borrower's exposure to rising interest rates.
(2) Loan to value percentage is from metrics at origination. Predevelopment construction loans at origination will not have an LTV and therefore is nil.
The following table shows selected data from our commercial mortgage loans, measured at fair value as of March 31, 2022 (dollars in thousands):
| Loan Type | Property Type | Par Value | Interest Rate | Effective Yield | Loan to Value (1) | ||||||||||||
| TRS Senior Debt 1 | Retail | $10,000 | 4.0% | 4.0% | 64.5% | ||||||||||||
| TRS Senior Debt 2 | Hospitality | 6,400 | 4.9% | 4.9% | 52.9% | ||||||||||||
| TRS Senior Debt 3 | Retail | 4,300 | 4.5% | 4.5% | 59.3% | ||||||||||||
| TRS Senior Debt 4 | Multifamily | 6,500 | 4.6% | 4.6% | 52.0% | ||||||||||||
| TRS Senior Debt 5 | Hospitality | 13,100 | 5.1% | 5.1% | 62.4% | ||||||||||||
| TRS Senior Debt 6 | Mixed Use | 2,750 | 5.4% | 5.4% | 51.9% | ||||||||||||
| TRS Senior Debt 7 | Retail | 40,250 | 4.8% | 4.8% | 62.9% | ||||||||||||
| TRS Senior Debt 8 | Office | 12,193 | 3.6% | 3.6% | 63.2% | ||||||||||||
| TRS Senior Debt 9 | Hospitality | 12,957 | 3.3% | 3.3% | 44.7% | ||||||||||||
| $108,450 | 4.4% | 59.2% | |||||||||||||||
(1) Loan to value percentage is from metrics at origination. Predevelopment construction loans at origination will not have an LTV at origination and therefore is nil.
The following table shows selected data from our real estate owned asset in our portfolio as of March 31, 2022 (dollars in thousands):
| Type | Property Type | Carrying Value | ||||||
| Real Estate Owned 1 | Industrial | $ | 89,473 | |||||
| $ | 89,473 | |||||||
The following is a summary of the Company's RMBS, all of which were ARM Agency Securities, classified by collateral type and interest rate characteristics as of March 31, 2022 (dollars in thousands):
| Type | Carrying Amount | Average Yield (1) | |||||||||
| Agency Securities: | |||||||||||
| Fannie Mae/Freddie Mac ARMs | $ | 1,678 | 2.34 | % | |||||||
| Ginnie Mae ARMs | 271 | 2.68 | % | ||||||||
| $ | 1,949 | 2.37 | % | ||||||||
________________________
(1) Average yield is presented for the period then ended, and is based on the cash component of interest income expressed as a percentage on average cost basis (the “cash yield”).
Results of Operations
We conduct our business through the following segments:
•The real estate debt business focuses on originating, acquiring and asset managing commercial real estate debt investments, including first mortgage loans, subordinate mortgages, mezzanine loans and participations in such loans.
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•The real estate securities business focuses on investing in and asset managing real estate securities. Historically this business has focused primarily on CMBS, unsecured REIT debt, CDO notes and other securities. As a result of the October 2021 acquisition of Capstead, the Company acquired and continues to hold a significant portfolio of ARM Agency Securities. The Company intends to reinvest the cash and proceeds from dividends, interest, repayments and sales of these assets into its other segments and does not intend to continue to invest in ARM Agency Securities or RMBS in general. As of March 31, 2022, all of the real estate securities in this segment were ARM Agency Securities acquired in the Capstead acquisition.
•The Conduit business operated through the Company's TRS, which is focused on generating superior risk-adjusted returns by originating and subsequently selling fixed-rate commercial real estate loans into the CMBS securitization market at a profit.
•The real estate owned business represents real estate acquired by the Company through foreclosure, deed in lieu of foreclosure, or purchase.
Comparison of the Three Months Ended March 31, 2022 to the Three Months Ended March 31, 2021
Net Interest Income
Net interest income is generated on our interest-earning assets less related interest-bearing liabilities and is recorded as part of our real estate debt, real estate securities and TRS segments.
The following table presents the average balance of interest-earning assets less related interest-bearing liabilities, associated interest income and expense and corresponding yield earned and incurred for the three months ended March 31, 2022 and March 31, 2021 (dollars in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||||||||||||||
Average Carrying Value (1) | Interest Income/Expense (2) | WA Yield/Financing Cost (3)(4) | Average Carrying Value (1) | Interest Income/Expense (2) | WA Yield/Financing Cost (3)(4) | |||||||||||||||||||||||||||||||||
| Interest-earning assets: | ||||||||||||||||||||||||||||||||||||||
| Real estate debt | $ | 4,361,119 | $ | 55,687 | 5.1% | $ | 2,723,798 | $ | 40,757 | 6.0% | ||||||||||||||||||||||||||||
| Real estate conduit | 92,071 | 686 | 3.0% | 116,781 | 1,056 | 3.6% | ||||||||||||||||||||||||||||||||
| Real estate securities | 3,199,826 | 18,885 | 2.4% | 79,668 | 424 | 2.1% | ||||||||||||||||||||||||||||||||
| Total | $ | 7,653,016 | $ | 75,258 | 3.9% | $ | 2,920,247 | $ | 42,237 | 5.8% | ||||||||||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||
| Repurchase Agreements - commercial mortgage loans | $ | 813,144 | $ | 7,605 | 3.7% | $ | 340,485 | $ | 2,830 | 3.3% | ||||||||||||||||||||||||||||
| Other financing and loan participation - commercial mortgage loans | 38,344 | 376 | 3.9% | 44,939 | 527 | 4.7% | ||||||||||||||||||||||||||||||||
| Repurchase Agreements - real estate securities | 3,100,157 | 1,391 | 0.2% | 123,322 | 1,246 | 4.0% | ||||||||||||||||||||||||||||||||
| Collateralized loan obligations | 2,513,330 | 11,774 | 1.9% | 1,598,532 | 6,766 | 1.7% | ||||||||||||||||||||||||||||||||
| Unsecured debt | 105,829 | 1,334 | 5.0% | — | — | — | ||||||||||||||||||||||||||||||||
| Total | $ | 6,570,804 | $ | 22,480 | 1.4% | $ | 2,107,278 | $ | 11,369 | 2.2% | ||||||||||||||||||||||||||||
| Net interest income/spread | $ | 52,778 | 2.5% | $ | 30,868 | 3.6% | ||||||||||||||||||||||||||||||||
Average leverage % (5) | 85.9 | % | 72.2 | % | ||||||||||||||||||||||||||||||||||
Weighted average levered yield (6) | 19.5 | % | 15.2 | % | ||||||||||||||||||||||||||||||||||
(1) Based on amortized cost for real estate debt and real estate securities and principal amount for repurchase agreements. Amounts are calculated based on daily averages for the three months ended March 31, 2022 and March 31, 2021, respectively.
(2) Includes the effect of amortization of premium or accretion of discount and deferred fees.
(3) Calculated as interest income or expense divided by average carrying value.
(4) Annualized.
(5) Calculated by dividing total average interest-bearing liabilities by total average interest-earning assets.
(6) Calculated by dividing net interest income/spread by the net average interest-earning assets and average interest-bearing liabilities.
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Interest income
Interest income for the three months ended March 31, 2022 and March 31, 2021 totaled $75.3 million and $42.2 million, respectively, an increase of $33.1 million. This was primarily due to (i) $14.9 million of higher interest income attributed to an increase of $1,637.3 million in the average carrying value of our real estate debt assets and (ii) $18.5 million of higher interest income attributed to an increase of $3,120.2 million in the average carrying value of our real estate securities portfolio. As of March 31, 2022, our portfolio consisted of 166 commercial mortgage loans, held for investment, nine commercial mortgage loans, held for sale, measured at fair value and RMBS securities.
Interest expense
Interest expense for the three months ended March 31, 2022 and March 31, 2021 totaled $22.5 million and $11.4 million, respectively, an increase of $11.1 million. This was primarily due to (i) $4.8 million of higher interest expense attributed to an increase of $472.7 million in the average carrying value of our repurchase agreements on commercial mortgage loans and (ii) $5.0 million of higher interest expense attributed to an increase of $914.8 million in the average carrying value of our real estate debt assets.
Realized Gain/Loss on Commercial Mortgage Loans Held for Sale
Realized gain on commercial mortgage loans, held for sale, measured at fair value at the TRS for the three months ended March 31, 2022 was $1.9 million compared to a realized gain of $6.6 million for the three months ended March 31, 2021. The $4.7 million decrease in realized gain was due to the difference in proceeds received between the one sale of fixed-rate commercial real estate loans into the CMBS securitization market during the three months ended March 31, 2022 compared to the one sale during the three months ended March 31, 2021. Proceeds from sale were $77.8 million for the three months ended March 31, 2022 compared to $147.9 million for the three months ended March 31, 2021.
Realized Gain/Loss on Real Estate Securities Available for Sale
For the three months ended March 31, 2022 there was no realized gain/loss on our real estate securities, available for sale, measured at fair value. For the three months ended March 31, 2021 our real estate securities, available for sale, measured at fair value had a realized loss of $1.1 million, included within the consolidated statements of operations. The loss is attributable to 8 sales of CMBS securities during the three months ended March 31, 2021.
Expenses from operations
Expenses from operations for the three months ended March 31, 2022 and March 31, 2021 consisted of the following (dollars in thousands):
| Three Months Ended March 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Asset management and subordinated performance fee | $ | 6,745 | $ | 5,416 | ||||||||||
| Administrative services expenses | 3,353 | 3,474 | ||||||||||||
| Acquisition expenses | 315 | 153 | ||||||||||||
| Professional fees | 6,659 | 1,997 | ||||||||||||
| Depreciation and amortization | 1,295 | 406 | ||||||||||||
| Other expenses | 1,762 | 495 | ||||||||||||
| Total expenses from operations | $ | 20,129 | $ | 11,941 | ||||||||||
Overall, our operating expenses increased during the three months ended March 31, 2022, compared to March 31, 2021 due to an increase in our total portfolio size as a result of the Capstead acquisition. Professional fees saw a much higher increase due to legal cost incurred on recovery of an asset.
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Comparison of the Three Months Ended March 31, 2022 to the Three Months Ended December 31, 2021
Net Interest Income
Net interest income is generated on our interest-earning assets less related interest-bearing liabilities and is recorded as part of our real estate debt, real estate securities and TRS segments.
The following table presents the average balance of interest-earning assets less related interest-bearing liabilities, associated interest income and expense and corresponding yield earned and incurred for the three months ended March 31, 2022 and December 31, 2021 (dollars in thousands):
| Three Months Ended | ||||||||||||||||||||||||||||||||||||||
| March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||||||||
Average Carrying Value (1) | Interest Income/Expense (2) | WA Yield/Financing Cost (3)(4) | Average Carrying Value (1) | Interest Income/Expense (2) | WA Yield/Financing Cost (3)(4) | |||||||||||||||||||||||||||||||||
| Interest-earning assets: | ||||||||||||||||||||||||||||||||||||||
| Real estate debt | $ | 4,361,119 | $ | 55,687 | 5.1% | $ | 3,631,346 | $ | 53,145 | 5.9% | ||||||||||||||||||||||||||||
| Real estate conduit | 92,071 | 686 | 3.0% | 36,447 | 497 | 5.5% | ||||||||||||||||||||||||||||||||
| Real estate securities | 3,199,826 | 18,885 | 2.4% | 3,482,245 | 24,279 | 2.8% | ||||||||||||||||||||||||||||||||
| Total | $ | 7,653,016 | $ | 75,258 | 3.9% | $ | 7,150,038 | $ | 77,921 | 4.4% | ||||||||||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||
| Repurchase Agreements - commercial mortgage loans | $ | 813,144 | $ | 7,605 | 3.7% | $ | 959,729 | $ | 9,069 | 3.8% | ||||||||||||||||||||||||||||
| Other financing and loan participation - commercial mortgage loans | 38,344 | 376 | 3.9% | 37,770 | 386 | 4.1% | ||||||||||||||||||||||||||||||||
| Repurchase Agreements - real estate securities | 3,100,157 | 1,391 | 0.2% | 3,233,599 | 1,361 | 0.2% | ||||||||||||||||||||||||||||||||
| Collateralized loan obligations | 2,513,330 | 11,774 | 1.9% | 1,714,736 | 11,922 | 2.8% | ||||||||||||||||||||||||||||||||
| Unsecured debt | 105,829 | 1,334 | 5.0 | 101,064 | 2,103 | 8.3% | ||||||||||||||||||||||||||||||||
| Total | $ | 6,570,804 | $ | 22,480 | 1.4% | $ | 6,046,898 | $ | 24,841 | 1.6% | ||||||||||||||||||||||||||||
| Net interest income/spread | $ | 52,778 | 2.5% | $ | 53,080 | 2.8% | ||||||||||||||||||||||||||||||||
Average leverage % (5) | 85.9 | % | 84.6 | % | ||||||||||||||||||||||||||||||||||
Weighted average levered yield (6) | 19.5 | % | 19.2 | % | ||||||||||||||||||||||||||||||||||
(1) Based on amortized cost for real estate debt and real estate securities and principal amount for repurchase agreements. Amounts are calculated based on daily averages for the three months ended March 31, 2022 and December 31, 2021, respectively.
(2) Includes the effect of amortization of premium or accretion of discount and deferred fees.
(3) Calculated as interest income or expense divided by average carrying value.
(4) Annualized.
(5) Calculated by dividing total average interest-bearing liabilities by total average interest-earning assets.
(6) Calculated by dividing net interest income/spread by the net average interest-earning assets and average interest-bearing liabilities.
Interest Income
Interest income for the three months ended March 31, 2022 and December 31, 2021 totaled $75.3 million and $77.9 million, respectively, a decrease of $2.6 million. This was primarily due to (i) $5.4 million of lower interest income attributed to a decrease of $282.4 million in the average carrying value of our real estate securities portfolio and partially offset by (ii) $2.5 million of higher interest income attributed to an increase of $729.8 million in the average carrying value of our real estate debt assets. As of March 31, 2022, our portfolio consisted of 166 commercial mortgage loans, held for investment, 9 commercial mortgage loans, held for sale, measured at fair value and RMBS securities.
Interest expense
Interest expense for the three months ended March 31, 2022 and December 31, 2021 totaled $22.5 million and $24.8 million, respectively, a decrease of $2.3 million. This was primarily due to $1.5 million of lower interest expense attributed to a decrease of $146.6 million in the average carrying value of our repurchase agreements on commercial mortgage loans.
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Realized Gain/Loss on Commercial Mortgage Loans Held for Sale
Realized gain on commercial mortgage loans, held for sale, measured at fair value at the TRS for the three months ended March 31, 2022 was $1.9 million compared to a realized gain of $2.0 million for the three months ended December 31, 2021. The realized gains were consistent quarter over quarter. Total proceeds from the sales of fixed-rate commercial real estate loans into the CMBS securitization market during the three months ended March 31, 2022 and December 31, 2021 were $77.8 million and $67.1 million, respectively.
Trading Gain/Loss
For the three months ended March 31, 2022 we had a trading loss of $88.4 million included within the consolidated statements of operations compared to a trading loss of $34.8 million for the three months ended December 31, 2021. During the three months ended March 31, 2022, the loss was attributable to $51.2 million of losses due to sales of the ARM Agency Securities, $27.5 million of losses due to change in market values of these securities and $9.7 million of losses due to mortgage prepayments. For the three months ended December 31, 2021, the loss was attributable to $20.9 million of losses due to change in market values of the ARM Agency Securities and $14.0 million of losses due to mortgage prepayments, net of $0.1 million in realized gains on sales of securities.
Expenses from operations
Expenses from operations for the three months ended March 31, 2022 and December 31, 2021 consisted of the following (dollars in thousands):
| Three Months Ended | ||||||||||||||
| March 31, 2022 | December 31, 2021 | |||||||||||||
| Asset management and subordinated performance fee | $ | 6,745 | $ | 8,428 | ||||||||||
| Administrative services expenses | 3,353 | (1,874) | ||||||||||||
| Acquisition expenses | 315 | 191 | ||||||||||||
| Impairment of acquired assets | — | 88,282 | ||||||||||||
| Professional fees | 6,659 | 4,388 | ||||||||||||
| Depreciation and amortization | 1,295 | 1,295 | ||||||||||||
| Other expenses | 1,762 | 1,831 | ||||||||||||
| Total expenses from operations | $ | 20,129 | $ | 102,541 | ||||||||||
The decrease in our expenses from operations was primarily related to the merger with Capstead, which resulted in impairment of acquired assets during the three months ended December 31, 2021. This is coupled with the decrease in asset management and subordinated performance fee of $1.7 million, which was primarily attributable to no incentive fee incurred during the three months ended March 31, 2022 compared to $1.8 million incurred during the three months ended December 31, 2021.
Liquidity and Capital Resources
Overview
Our expected material cash requirements over the next twelve months and thereafter are comprised of (i) contractually obligated expenditures, including payments of principal and interest and contractually-obligated fundings on our loans; (ii) other essential expenditures, including operating and administrative expenses and dividends paid in accordance with REIT distribution requirements; and (iii) opportunistic expenditures, including new loans.
Our contractually obligated expenditures primarily consist of payment obligations under the debt financing arrangements which are set forth below, including in the table under “Contractual Obligations and Commitments.”
We expect to use additional debt and equity financing as a source of capital. Our board of directors currently intends to operate at a leverage level of between one to three times book value of equity. However, our board of directors may change this target without shareholder approval. We believe that the recent listing of our common stock will improve our access to capital through public offerings of our securities. We anticipate that our debt and equity financing sources and our anticipated cash generated from operations will be adequate to fund our anticipated uses of capital.
In addition to our current mix of financing sources, we may also access additional forms of financings, including credit facilities, securitizations, public and private, secured and unsecured debt issuances by us or our subsidiaries, or through capital recycling initiatives whereby we sell certain assets in our portfolio and reinvest the proceeds in assets with more attractive risk-adjusted returns.
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Collateralized Loan Obligations
During the three months ended March 31, 2022, the Company raised $1.2 billion of capital through the issuance of BSPRT 2022-FL8 Issuer, Ltd. Additionally, as of March 31, 2022, the Company had $177.4 million reinvestment capital available across all outstanding collateralized loan obligations.
Repurchase Agreements, Commercial Mortgage Loans
As of March 31, 2022 we have repurchase facilities with JPMorgan Chase Bank, National Association (the "JPM Repo Facility"), Barclays Bank PLC (the "Barclays Revolver Facility" and the "Barclays Repo Facility"), Wells Fargo Bank, National Association (the "WF Repo Facility"), and Credit Suisse AG (the "CS Repo Facility" and together with JPM Repo Facility, WF Repo Facility, Barclays Revolver Facility and Barclays Repo Facility, the "Repo Facilities").
The Repo Facilities are financing sources through which we may pledge one or more mortgage loans to the financing entity in exchange for funds typically at an advance rate of between 65% to 80% of the principal amount of the mortgage loan being pledged.
We expect to use the advances from these Repo Facilities to finance the acquisition or origination of eligible loans, including first mortgage loans, subordinated mortgage loans, mezzanine loans and participation interests therein.
The Repo Facilities generally provide that in the event of a decrease in the value of our collateral, the lenders can demand additional collateral. Should the value of our collateral decrease as a result of deteriorating credit quality, resulting margin calls may cause an adverse change in our liquidity position.
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The details of our Repo Facilities at March 31, 2022 and December 31, 2021 are as follows (dollars in thousands):
| As of March 31, 2022 | ||||||||||||||||||||||||||||||||
| Repurchase Facility | Committed Financing | Amount Outstanding | Interest Expense (1) | Ending Weighted Average Interest Rate | Maturity | |||||||||||||||||||||||||||
| JPM Repo Facility | $ | 400,000 | $ | 69,757 | $ | 1,474 | 2.80 | % | 10/6/2022 | |||||||||||||||||||||||
CS Repo Facility (2) | 300,000 | 123,259 | 1,138 | 3.01 | % | 9/30/2022 | ||||||||||||||||||||||||||
WF Repo Facility (3) | 450,000 | 201,812 | 1,248 | 2.08 | % | 11/21/2023 | ||||||||||||||||||||||||||
Barclays Revolver Facility (4) | 250,000 | — | 2,027 | N/A | 9/20/2023 | |||||||||||||||||||||||||||
Barclays Repo Facility (5) | 500,000 | 128,062 | 1,490 | 2.08 | % | 3/14/2025 | ||||||||||||||||||||||||||
| Total | $ | 1,900,000 | $ | 522,890 | $ | 7,377 | ||||||||||||||||||||||||||
(1) For the three months ended March 31, 2022. Includes amortization of deferred financing costs.
(2) On August 12, 2021, the Company exercised the extension option upon the satisfaction of certain conditions, and extended the term maturity to September 30, 2022. Additionally, on November 3, 2021 the committed financing amount was amended from $200 million to $300 million with the option to increase to $400 million at the Company's discretion.
(3) On November 19, 2021, the committed financing amount was increased from $275 million to $450 million. There are 3 more one-year extension options available at the Company's discretion.
(4) On September 8, 2021, the Company amended the maturity date to September 20, 2023. On December 1, 2021 the committed financing amount was increased from $100 million to $250 million. The Company may increase the total commitment amount by an amount between $100 million and $150 million for three month intervals, on an unlimited basis prior to maturity.
(5) On December 3, 2021 the Company amended the maturity date to March 14, 2025 and the committed financing amount was increased from $300 million to $500 million. There are two one-year extension options available at the Company's discretion.
| As of December 31, 2021 | ||||||||||||||||||||||||||||||||
| Repurchase Facility | Committed Financing | Amount Outstanding | Interest Expense (1) | Ending Weighted Average Interest Rate | Term Maturity | |||||||||||||||||||||||||||
| JPM Repo Facility | $ | 400,000 | $ | 136,470 | $ | 5,178 | 2.13 | % | 10/6/2022 | |||||||||||||||||||||||
CS Repo Facility (2) | 300,000 | 137,364 | 3,446 | 2.43 | % | 9/30/2022 | ||||||||||||||||||||||||||
WF Repo Facility (3) | 450,000 | 186,734 | 2,090 | 1.64 | % | 11/21/2023 | ||||||||||||||||||||||||||
Barclays Revolver Facility (4) | 250,000 | 166,700 | 1,976 | 6.12 | % | 9/20/2023 | ||||||||||||||||||||||||||
Barclays Repo Facility (5) | 500,000 | 392,332 | 4,057 | 1.76 | % | 3/14/2025 | ||||||||||||||||||||||||||
| Total | $ | 1,900,000 | $ | 1,019,600 | $ | 16,747 | ||||||||||||||||||||||||||
(1) For the year ended December 31, 2020. Includes amortization of deferred financing costs.
(2) On August 12, 2021, the Company exercised the extension option upon the satisfaction of certain conditions, and extended the term maturity to September 30, 2022. Additionally, on November 3, 2021 the committed financing amount was amended from $200 million to $300 million with the option to increase to $400 million at the Company's discretion.
(3) On November 19, 2021, the committed financing amount was increased from $275 million to $450 million. There are 3 more one-year extension options available at the Company's discretion.
(4) On September 8, 2021, the Company amended the maturity date to September 20, 2023. On December 1, 2021 the committed financing amount was increased from $100 million to $250 million. The Company may increase the total commitment amount by an amount between $100 million and $150 million for three month intervals, on an unlimited basis prior to maturity.
(5) On December 3, 2021 the Company amended the maturity date to March 14, 2025 and the committed financing amount was increased from $300 million to $500 million. There are two one-year extension options available at the Company's discretion.
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Other financing and loan participation - Commercial Mortgage Loans
On March 23, 2020, the Company transferred $15.2 million of its interest in a term loan to Sterling National Bank ("SNB") via a participation agreement. Since inception, the Company's outstanding loan increased as a result of future fundings, leading to an increase in amount outstanding via the participation agreement. The Company incurred $0.2 million of interest expense on the SNB term loan for the three months ended March 31, 2022. As of March 31, 2022 and December 31, 2021 the outstanding participation balance was $37.9 million and $37.9 million, respectively. The loan accrued interest at an annual rate of one-month LIBOR + 2.20% and matures on February 9, 2023.
On February 10, 2022, the Company transferred $37.95 million of its interest in a term loan to Customers Bank via a participation agreement. Since inception, the Company's outstanding loan increased as a result of future fundings, leading to an increase in amount outstanding via the participation agreement. The Company incurred $5 thousand of interest expense on the Customers Bank term loan for the three months ended March 31, 2022. As of March 31, 2022 the outstanding participation balance was $2.3 million. The loan accrued interest at an annual rate of one-month SOFR + 4.01% and matures on May 1, 2025.
Mortgage Note Payable
On September 17, 2021, the Company, in connection with the consolidating joint venture (as discussed in Note 5 - Real Estate Owned), originated a $112.7 million mortgage note payable, of which $88.7 million is eliminated in consolidation (see Note 5 - Real Estate Owned). The remaining mortgage note payable of $24.0 million is disclosed on the consolidated balance sheet. As of March 31, 2022, the loan accrued interest at an annual rate of 3.1% and matures on October 9, 2024.
Unsecured Debt
At March 31, 2022, the Company held 30-year junior subordinated notes issued in 2005 and 2006 and maturing in 2035 and 2036, with a total face amount of $100.0 million. Note balances net of deferred issuance costs, and related weighted average interest rates as of the indicated dates (calculated including issuance cost amortization and adjusted for the effects of related derivatives held as cash flow hedges) were as follows (dollars in thousands):
| As of March 31, 2022 | As of December 31, 2021 | |||||||||||||||||||||||||
| Borrowings Outstanding | Average Rate | Borrowings Outstanding | Average Rate | |||||||||||||||||||||||
| Junior subordinated notes maturing in: | ||||||||||||||||||||||||||
October 2035 ($35,000 face amount) | $ | 34,479 | 5.34 | % | $ | 34,470 | 7.86 | % | ||||||||||||||||||
December 2035 ($40,000 face amount) | 39,484 | 5.25 | % | 39,474 | 7.63 | % | ||||||||||||||||||||
September 2036 ($25,000 face amount) | 24,657 | 5.29 | % | 24,650 | 7.67 | % | ||||||||||||||||||||
| $ | 98,620 | 5.29 | % | $ | 98,594 | 7.72 | % | |||||||||||||||||||
The notes are currently redeemable, in whole or in part, without penalty, at the Company’s option. Interest paid on unsecured debt, including related derivative cash flows, totaled $1.8 million for the twelve months ended March 31, 2022.
Pursuant to a lending and security agreement with Security Benefit Life Insurance Company ("SBL"), which was entered into in February 2020 and amended in March and August 2020, the Company may borrow up to $100.0 million at a rate of one-month LIBOR + 4.5%. The facility has a maturity of February 10, 2023 and is secured by a pledge of equity interests in certain of the Company’s subsidiaries. The Company incurred $0.3 million of interest expense on the lending agreement with SBL for the three months ended March 31, 2022. As of March 31, 2022 there was no outstanding balance.
Repurchase Agreements - Real Estate Securities
The Company has entered into various Master Repurchase Agreements (the "MRAs") that allow the Company to sell real estate securities while providing a fixed repurchase price for the same real estate securities in the future. The repurchase contracts on each security under an MRA generally mature in 30-90 days and terms are adjusted for current market rates as necessary.
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Below is a summary of the Company's MRAs as of March 31, 2022 and December 31, 2021 (dollars in thousands):
| Weighted Average | |||||||||||||||||||||||||||||
| Counterparty | Amount Outstanding | Interest Expense | Collateral Pledged (1) | Interest Rate | Days to Maturity | ||||||||||||||||||||||||
| As of March 31, 2022 | |||||||||||||||||||||||||||||
| JP Morgan Securities LLC | $ | 19,283 | $ | 55 | $ | 23,995 | 1.27 | % | 14 | ||||||||||||||||||||
| Wells Fargo Securities, LLC | — | — | — | N/A | N/A | ||||||||||||||||||||||||
| Goldman Sachs International | — | — | — | N/A | N/A | ||||||||||||||||||||||||
| Barclays Capital Inc. | 35,327 | 75 | 44,284 | 1.40 | % | 7 | |||||||||||||||||||||||
| Credit Suisse AG | — | — | — | N/A | N/A | ||||||||||||||||||||||||
| Citigroup Global Markets, Inc. | — | — | — | N/A | N/A | ||||||||||||||||||||||||
| Total/Weighted Average | $ | 54,610 | $ | 130 | $ | 68,279 | 1.35 | % | 9 | ||||||||||||||||||||
| As of December 31, 2021 | |||||||||||||||||||||||||||||
| JP Morgan Securities LLC | $ | 19,025 | $ | 261 | $ | 24,087 | 1.14 | % | 10 | ||||||||||||||||||||
| Wells Fargo Securities, LLC | — | — | — | N/A | N/A | ||||||||||||||||||||||||
| Goldman Sachs International | — | 37 | — | N/A | N/A | ||||||||||||||||||||||||
| Barclays Capital Inc. | 15,286 | 526 | 19,131 | 1.21 | % | 14 | |||||||||||||||||||||||
| Credit Suisse AG | — | — | — | N/A | N/A | ||||||||||||||||||||||||
| Citigroup Global Markets, Inc. | — | 81 | — | N/A | N/A | ||||||||||||||||||||||||
| Total/Weighted Average | $ | 34,311 | $ | 905 | $ | 43,218 | 1.71 | % | 12 | ||||||||||||||||||||
(1) Includes $68.3 million and $43.2 million of CLO notes, held by the Company, which are eliminated within the real estate securities, at fair value line in the consolidated balance sheets as of March 31, 2022 and December 31, 2021, respectively.
Repurchase Agreements - Real Estate Securities Classified As Trading
As a result of the Capstead merger which closed on October 19, 2021, the Company acquired a significant portfolio of ARM Agency Securities which the Company accounts for as real estate securities classified as trading. The Company pledges its real estate securities classified as trading as collateral for repurchase agreements with commercial banks and other financial institutions. Repurchase arrangements entered into by the Company involve the sale and a simultaneous agreement to repurchase the transferred assets at a future date and are accounted for as financings. The Company maintains the beneficial interest in the specific securities pledged during the term of each repurchase arrangement and receives the related principal and interest payments.
The terms and conditions of repurchase agreements are negotiated on a transaction-by-transaction basis when each such agreement is initiated or renewed. The amount borrowed is generally equal to the fair value of the securities pledged, as determined by the lending counterparty, less an agreed-upon discount, referred to as a “haircut.” Interest rates are generally fixed based on prevailing rates corresponding to the terms of the borrowings. Interest may be paid monthly or at the termination of an agreement at which time the Company may enter into a new agreement at prevailing haircuts and rates with the same lending counterparty or repay that counterparty and negotiate financing with a different lending counterparty. None of the Company’s lending counterparties are obligated to renew or otherwise enter into new agreements at the conclusion of existing agreements. In response to declines in fair value of pledged securities due to changes in market conditions or the publishing of monthly security pay-down factors, lending counterparties typically require the Company to post additional securities as collateral, pay down borrowings or fund cash margin accounts with the counterparties in order to re-establish the agreed-upon collateral requirements. These actions are referred to as margin calls. Conversely, in response to increases in fair value of pledged securities, the Company routinely margin calls its lending counterparties in order to have previously pledged collateral returned.
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Repurchase agreements (and related pledged collateral, including accrued interest receivable), classified by collateral type and remaining maturities, and related weighted average borrowing rates as of the indicated dates were as follows (dollars in thousands):
| Collateral Type | Collateral Carrying Amount | Accrued Interest Receivable | Borrowings Outstanding | Average Borrowing Rates | ||||||||||||||||||||||
| As of March 31, 2022 | ||||||||||||||||||||||||||
| Repurchase arrangements secured by Agency securities with maturities of 30 days or less | $ | 1,733,101 | $ | 3,726 | $ | 1,659,931 | 0.39 | % | ||||||||||||||||||
| $ | 1,733,101 | $ | 3,726 | $ | 1,659,931 | 0.39 | % | |||||||||||||||||||
| As of December 31, 2021 | ||||||||||||||||||||||||||
| Repurchase arrangements secured by Agency securities with maturities of 30 days or less | $ | 4,327,020 | $ | 8,908 | $ | 4,144,473 | 0.13 | % | ||||||||||||||||||
| $ | 4,327,020 | $ | 8,908 | $ | 4,144,473 | 0.13 | % | |||||||||||||||||||
As of March 31, 2022, the Company’s repurchase agreements collateralized by RMBS totaled $1.66 billion with 9 counterparties at average rates of 0.39%, before the effects of currently-paying interest rate swap agreements. Average repurchase agreements outstanding were $3.06 billion in the first quarter of 2022. Average repurchase agreements outstanding differed from respective year-end balances during the indicated periods primarily due to changes in portfolio levels and differences in the timing of portfolio acquisitions relative to portfolio runoff and asset sales. Interest paid on repurchase agreements, including related Derivative cash flows, totaled $1.26 million during the three months ended March 31, 2022.
The Company finances its residential mortgage investments primarily by borrowing under repurchase arrangements, the terms and conditions of which are negotiated on a transaction-by-transaction basis, when each such agreement is initiated or renewed.
Future agreements are dependent upon the willingness of lenders to participate in the financing of mortgage investments, lender collateral requirements and the lenders’ determination of the fair value of the investments pledged as collateral, which fluctuates with changes in interest rates and liquidity conditions within the commercial banking and mortgage finance industries. None of our repurchase agreement counterparties are obligated to renew or otherwise enter into new agreements at the conclusion of existing borrowings. Repurchase agreements averaged $3.06 billion during the first quarter of 2022 and ended the year at $1.66 billion, all maturing within 90 days. Average repurchase agreements can differ from period-end balances for a number of reasons including portfolio growth or contraction, as well as differences in the timing of portfolio acquisitions relative to portfolio runoff.
To help mitigate exposure to rising short-term interest rates, we economically hedge the portfolio of repurchase agreements using derivatives supplemented with longer-maturity repurchase agreements when available at attractive rates and terms. At March 31, 2022, the Company held $1.50 billion notional amount of portfolio financing-related interest rate swap agreements with contract expirations occurring at various dates through the First quarter 2024 and a weighted average expiration of 10.6 months. At March 31, 2022, we expect to have no net cash obligations related to repurchase agreement-related interest rate swap agreements after considering the variable-rate payments owed to us under the agreements’ terms based on market interest rate expectations as of quarter-end.
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The following tables summarize our Repurchase Agreements, Commercial Mortgage Loans and our MRAs for the three months ended March 31, 2022, 2020 and 2019, respectively:
| As of March 31, 2022 | ||||||||
| Amount Outstanding | Average Outstanding Balance | |||||||
| Q1 | Q1 | |||||||
| Repurchase Agreements, Commercial Mortgage Loans | $ | 522,890 | $ | 813,144 | ||||
| Repurchase Agreements, Real Estate Securities | $ | 54,610 | $ | 44,744 | ||||
| Repurchase Agreements, Real Estate Securities held as trading | $ | 1,659,931 | $ | 3,055,413 | ||||
| As of March 31, 2021 | ||||||||
| Amount Outstanding | Average Outstanding Balance | |||||||
| Q1 | Q1 | |||||||
| Repurchase Agreements, Commercial Mortgage Loans | $ | 152,925 | $ | 340,485 | ||||
| Repurchase Agreements, Real Estate Securities | $ | 88,272 | $ | 123,322 | ||||
| As of March 31, 2020 | ||||||||
| Amount Outstanding | Average Outstanding Balance | |||||||
| Q1 | Q1 | |||||||
| Repurchase Agreements, Commercial Mortgage Loans | $ | 234,524 | $ | 282,282 | ||||
| Repurchase Agreements, Real Estate Securities | $ | 496,880 | $ | 412,809 | ||||
The use of our warehouse lines is dependent upon a number of factors including but not limited to: origination volume, loan repayments and prepayments, our use of other financing sources such as collateralized loan obligations, our liquidity needs and types of loan assets and underlying collateral that we hold.
During the three months ended March 31, 2022, the maximum average outstanding balance was $5.3 billion, of which $1.1 billion was related to repurchase agreements on our commercial mortgage loans and $4.2 billion for repurchase agreements on our real estate securities.
During the three months ended March 31, 2021, the maximum average outstanding balance was $475.5 million, of which $363.6 million was related to repurchase agreements on our commercial mortgage loans and $111.9 million for repurchase agreements on our real estate securities.
During the three months ended March 31, 2020, the maximum average outstanding balance was $721.0 million, of which $452.8 million was related to repurchase agreements on our commercial mortgage loans and $268.2 million for repurchase agreements on our real estate securities.
Distributions
In order to maintain our election to qualify as a REIT, we must currently distribute, at a minimum, an amount equal to 90% of our taxable income, without regard to the deduction for distributions paid and excluding net capital gains. The Company must distribute 100% of its taxable income (including net capital gains) to avoid paying corporate U.S. federal income taxes.
Distributions on our common stock and Series F Preferred Stock are payable when authorized and declared by our board of directors.
Dividends payable on each share of Series C and Series D Preferred Stock are generally equal to the quarterly dividend that would have been paid had such share of preferred stock been converted to a share of common stock, except to the extent common stock dividends have been reduced below certain specified levels. To the extent dividends on shares of preferred stock are not authorized and declared by our board of directors and paid by the Company monthly, the dividend amounts will accrue.
Holders of shares of the Series E Preferred Stock are entitled to receive, when, as and if authorized by our board of directors and declared by the Company, out of funds legally available for the payment of dividends, cumulative cash dividends at the rate of 7.50% of the $25.00 per share liquidation preference per annum (equivalent to $1.875 per annum per share).
In March 2022, the Company's board of directors declared the following first quarter 2022 dividends: (i) a quarterly cash dividend of $0.355 per share on the Company's common stock and Series F Preferred Stock (equivalent to $1.42 per annum), (ii) a first quarter 2022 dividend of $106.22 per share on the Company’s Series C Preferred Stock and Series D Preferred Stock, and (iii) a first quarter 2022 dividend of $0.46875 per share on the Company’s Series E Preferred Stock, all which were paid in April 2022 to holders of record on March 31, 2021.
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The below table shows the distributions paid on shares outstanding of common stock during the three months ended March 31, 2022 and March 31, 2021 (dollars in thousands):
| Three months ended March 31, 2022 | ||||||||||||||
| Payment Date | Amount Paid in Cash | Amount Issued under DRIP | ||||||||||||
| January 7, 2022 | $ | 12,435 | $ | 91 | ||||||||||
| Total | $ | 12,435 | $ | 91 | ||||||||||
| Three Months Ended March 31, 2021 | ||||||||||||||
| Payment Date | Amount Paid in Cash | Amount Issued under DRIP | ||||||||||||
| January 4, 2021 | $ | 9,652 | $ | 2,584 | ||||||||||
| Total | $ | 9,652 | $ | 2,584 | ||||||||||
Cash Flows
Cash Flows for the Three months ended March 31, 2022
Net cash used in operating activities for the three months ended March 31, 2022 was $32.3 million. Cash outflows were primarily driven by net loss of $22.5 million, coupled with net outflows of $74.2 million related to originations of and proceeds from sales of commercial mortgage loans, measured at fair value and realized gains of $34.4 million on swap terminations. This is partially offset by a non-cash adjustment of $88.4 million related to trading losses on real estate securities.
Net cash provided by investing activities for the three months ended March 31, 2022 was $2,262.9 million. Cash inflows were primarily driven by the sale of real estate securities of $2,190.1 million, principal repayments on commercial mortgage loans, held for investment of $330.1 million and $376.9 million in principal collateral received on mortgage investments. Inflows were offset by proceeds for originations and purchases of $636.5 million of commercial mortgage loans, held for investment.
Net cash used in financing activities for the three months ended March 31, 2022 was $2,269.2 million. Cash outflows were primarily driven by our net repayments on CMBS MRAs of $2,464.2 million, net repayments from borrowings on repurchase agreements - commercial mortgage loans and unsecured debt of $496.7 million and $50.0 million, respectively, and $30.3 million was used for cash distributions to stockholders. Outflows were offset by net borrowings on CLOs of $724.9 million.
Cash Flows for the Three months ended March 31, 2021
Net cash provided by operating activities for the three months ended March 31, 2021 was $4.4 million. Cash inflows were primarily driven by net income of $30.1 million, partially offset by the payment of $25.0 million related to originations of and proceeds from sales of commercial mortgage loans, measured at fair value.
Net cash used in investing activities for the three months ended March 31, 2021 was $307.8 million. Cash inflows were primarily driven by origination and purchase of $520.8 million of commercial mortgage loans, held for investment. Outflows were offset by proceeds from the sale/repayment of real estate securities of $159.3 million and principal repayments on commercial mortgage loans, held for investment of $52.8 million.
Net cash provided by financing activities for the three months ended March 31, 2021 was $322.1 million. Cash inflows were primarily driven by proceeds from net borrowing on CLOs of $453.7 million, borrowings from other financing and loan participation and unsecured debt of $102.6 million and proceeds from issuances of redeemable convertible preferred stock of $15.0 million. Inflows were offset by net repayments on our Repo Facilities of $123.4 million and CMBS MRAs of $98.6 million.
Election as a REIT
We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with the taxable year ended December 31, 2013. As a REIT, if we meet certain organizational and operational requirements and distribute at least 90% of our "REIT taxable income" (determined before the deduction of dividends paid and excluding net capital gains) to our stockholders in a year, we will not be subject to U.S. federal income tax to the extent of the income that we distribute. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and U.S. federal income and excise taxes on our undistributed income.
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Contractual Obligations and Commitments
Our contractual obligations, excluding interest obligations (as amounts are not fixed or determinable), as of March 31, 2022 are summarized as follows (dollars in thousands):
| Less than 1 year | 1 to 3 years | 3 to 5 years | More than 5 years | Total | |||||||||||||||||||||||||
Unfunded loan commitments (1) | $ | 17,538 | $ | 348,014 | $ | 35,126 | $ | — | 400,678 | ||||||||||||||||||||
| Repurchase agreements - commercial mortgage loans | 193,016 | 329,874 | — | — | 522,890 | ||||||||||||||||||||||||
| Repurchase agreements - real estate securities | 1,714,541 | — | — | — | 1,714,541 | ||||||||||||||||||||||||
CLOs (2) | — | — | — | 2,904,374 | 2,904,374 | ||||||||||||||||||||||||
| Mortgage Note Payable | — | — | — | 23,998 | 23,998 | ||||||||||||||||||||||||
| Unsecured debt | — | — | — | 98,620 | 98,620 | ||||||||||||||||||||||||
| Other financing and loan participation - commercial mortgage loans | — | 37,903 | 2,296 | — | 40,199 | ||||||||||||||||||||||||
| Total | $ | 1,925,095 | $ | 715,791 | $ | 37,422 | $ | 3,026,992 | $ | 5,705,300 | |||||||||||||||||||
(1) The allocation of our unfunded loan commitments is based on the earlier of the commitment expiration date or the loan maturity date.
(2) Excludes $452.6 million of CLO notes, held by the Company, which are eliminated within the collateralized loan obligations line of the consolidated balance sheet as of March 31, 2022.
In addition to its cash requirements, the Company pays a quarterly dividend and has an existing share repurchase authorization. As of March 31, 2022, the Company’s quarterly cash dividend was $0.355 per share of common stock (which was paid on an as-converted basis on the Company’s shares of Series C Preferred Stock, Series D Preferred Stock and Series F Preferred Stock), and $0.46875 per share on the Company’s shares of Series E Preferred Stock. The payment of future dividends is subject to declaration by the Board of Directors. The Company’s Board of Directors also has authorized a $65.0 million share repurchase program, that will be operative following the conclusion of the $35.0 million open market share purchase program the Advisor agreed to implement in connection with the Company’s merger with Capstead. The authorization does not obligate the Company to acquire any specific number of shares.
Related Party Arrangements
Amended Advisory Agreement
Refer to “Note 11 - Related Party Transactions and Arrangements” for a summary of the Company’s Advisory Agreement with the Advisor and amounts paid to the Advisor pursuant to the Advisory Agreement for the three months ended March 31, 2022 and 2021.
Lending Agreement with Stockholder
Pursuant to a lending and security agreement with Security Benefit Life Insurance Company ("SBL"), which was entered into in February 2020 and amended in March and August 2020, the Company may borrow up to $100.0 million at a rate of one-month LIBOR + 4.5%. The facility has a maturity of February 10, 2023 and is secured by a pledge of equity interests in certain of the Company’s subsidiaries. The Company incurred $0.3 million interest expense on the lending agreement with SBL for the three months ended March 31, 2022. As of March 31, 2022 there were no amounts outstanding under the lending agreement.
SBL also holds 17,950 shares of the Company's outstanding shares of Series D Preferred Stock, of which 14,950 shares were acquired in exchange for an equivalent number of shares of Series A Preferred Stock in March 2021. SBL also acquired an additional 3,000 shares of Series D Preferred Stock at the liquidation preference of $15.0 million (net of accrued and unpaid dividends on the exchanged Series A Preferred Stock) in such transaction.
Other Related Party Arrangement
In August 2021 the Company and an affiliate of the Company entered into a joint venture agreement and formed a joint venture entity, Jeffersonville Member, LLC (the "Jeffersonville JV") to acquire a $139.5 million triple net lease property in Jeffersonville, GA. The Company has a 79% interest in the Jeffersonville JV, while the affiliate has a 21% interest. The Company invested a total of $109.8 million, made up of $88.7 million in debt and $21.1 million in equity, representing 79% of the ownership interest in the Jeffersonville JV. The affiliate made up the remaining $29.8 million composed of a $24.0 million mortgage note payable and $5.7 million in equity. The Company has control of Jeffersonville JV with 79% ownership and, therefore, consolidates Jeffersonville JV on its consolidated balance sheet. The Company's $88.7 million mortgage note payable to Jeffersonville JV is eliminated in consolidation (see Note 7 - Debt).
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During the first quarter of 2022, pursuant to the 2021 Incentive Plan, the Company issued awards of restricted stock units to its officers and certain other personnel of the Advisor who provide services to the Company under the Advisory Agreement (see Note 12 - Share-based Compensation).
Non-GAAP Financial Measures
Distributable Earnings and Run-Rate Distributable Earnings
Beginning in the third quarter of 2021 to more appropriately reflect the principal purpose of the measure, "modified funds from operations ("MFFO")" or "funds from operations ("FFO")" was relabeled "Distributable Earnings", a non-GAAP financial measure. Distributable Earnings is a non-GAAP measure, which we define as GAAP net income (loss), adjusted for (i) non-cash CLO amortization acceleration and amortization over our expected useful life of our CLOs, (ii) unrealized gains and losses on loans, derivatives and ARMs, including CECL reserves and impairments, (iii) non-cash equity compensation expense, (iv) depreciation and amortization, (v) non-cash incentive fee accruals, (vi) certain other non-cash items, and (vii) impairments of acquisition assets related to the Capstead merger. Further, Run-Rate Distributable Earnings, a non-GAAP measure, presents Distributable Earnings before trading and derivative gain/loss on residential adjustable-rate mortgage securities.
We believe that Distributable Earnings and Run-Rate Distributable Earnings provides meaningful information to consider in addition to our GAAP results. We believe Distributable Earnings is a useful financial metric for existing and potential future holders of our common stock as historically, overtime, Distributable Earnings has been an indicator of our dividends per share. As a REIT, we generally must distribute annually at least 90% of our net taxable income, subject to certain adjustments, and therefore we believe our dividends are one of the principal reasons stockholders may invest in our common stock. Further, Distributable Earnings helps us to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan portfolio and operations and is one of the performance metrics we consider when declaring our dividends. We believe Run-Rate Distributable Earnings is a useful financial metric because it presents the Distributable Earnings of our core businesses, net of the impacts of the trading and derivative gain/loss on the residential adjustable-rate mortgage securities we acquired from Capstead that we are currently in the process of liquidating from our portfolio.
Distributable Earnings does not represent net income (loss) and should not be considered as an alternative to GAAP net income (loss). Our methodology for calculating Distributable Earnings may differ from the methodologies employed by other companies and thus may not be comparable to the Distributable Earnings reported by other companies.
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The following table provides a reconciliation of GAAP net income to Distributable Earnings as of March 31, 2022 and March 31, 2021 (amounts in thousands, except share and per share data):
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| GAAP Net Income | $ | (22,507) | $ | 30,146 | |||||||
| Adjustments: | |||||||||||
CLO amortization acceleration (1) | (977) | (695) | |||||||||
Unrealized (gain)/loss on financial instruments (2) | 5,898 | (2,594) | |||||||||
| Unrealized gain/(loss) reversal - ARMs | 27,462 | — | |||||||||
| Incentive fees | — | 1,661 | |||||||||
| Depreciation and amortization | 1,295 | 406 | |||||||||
| Increase/(decrease) in provision for credit losses | (955) | (2,331) | |||||||||
Loan Workout Charges (3) | 1,900 | — | |||||||||
| Realized trading and derivatives gain/loss on ARMs | 28,029 | — | |||||||||
Run Rate Distributable Earnings (4) | $ | 40,145 | $ | 26,593 | |||||||
| Realized trading and derivatives gain/loss on ARMs | (28,029) | — | |||||||||
| Distributable Earnings | $ | 12,116 | $ | 26,593 | |||||||
| Average Equity | $ | 1,519,569 | $ | 1,023,213 | |||||||
| 7.5% Cumulative Redeemable Preferred Stock, Series E Dividend | $ | 4,842 | $ | — | |||||||
| GAAP Common ROE | (7.2)% | 11.8% | |||||||||
| Run-Rate Distributable Earnings ROE | 9.3% | 10.4% | |||||||||
| Distributable Earnings ROE | 1.9% | 10.4% | |||||||||
| GAAP Net Income Per Share, Fully Converted | $ | (0.30) | $ | 0.53 | |||||||
| Run-Rate Distributable Earnings Per Share, Fully Converted | $ | 0.39 | $ | 0.47 | |||||||
| Distributable Earnings Per Share, Fully Converted | $ | 0.08 | $ | 0.47 | |||||||
(1) Adjusted for non-cash CLO amortization acceleration to effectively amortize issuance costs of our CLOs over the expected lifetime of the CLOs. We assume our CLOs will be outstanding for four years and amortized the financing costs over four years in our distributable earnings as compared to effective yield methodology in our GAAP earnings.
(2) Adjusted for unrealized gains and losses on loans and derivatives.
(3) Represents loan workout expenses the Company incurred, which the Company deems likely to be recovered and is non-recurring in nature.
(4) Distributable Earnings before trading and derivative gain/loss on residential adjustable-rate mortgage securities (“Run-Rate Distributable Earnings”) (a non-GAAP financial measure).
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Credit Risk
Our investments are subject to a high degree of credit risk. Credit risk is the exposure to loss from loan defaults. Default rates are subject to a wide variety of factors, including, but not limited to, borrower financial condition, property performance, property management, supply/demand factors, construction trends, consumer behavior, regional economics, interest rates, the strength of the U.S. economy, and other factors beyond our control. All loans are subject to a certain probability of default. We manage credit risk through the underwriting process, acquiring our investments at the appropriate discount to face value, if any, and establishing loss assumptions. We also carefully monitor the performance of the loans, as well as external factors that may affect their value.
Capital Market Risk
We are exposed to risks related to the debt capital markets, and our related ability to finance our business through borrowings under repurchase obligations or other debt instruments. As a REIT, we are required to distribute a significant portion of our taxable income annually, which constrains our ability to accumulate operating cash flow and therefore requires us to utilize debt or equity capital to finance our business. We seek to mitigate these risks by monitoring the debt capital markets to inform our decisions on the amount, timing and terms of capital we raise.
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The COVID-19 pandemic has resulted in extreme volatility in a variety of global markets, including the real estate-related debt markets. We have and may continue to receive margin calls from our lenders as a result of the decline in the market value of the assets pledged by us to our lenders under our repurchase agreements and warehouse credit facilities, and if we fail to resolve such margin calls when due by payment of cash or delivery of additional collateral, the lenders may exercise remedies including demanding payment by us of our aggregate outstanding financing obligations and/or taking ownership of the loans or other assets securing the applicable obligations and liquidating them at inopportune prices.
Market Risk
As a result of the closing of the Capstead merger on October 19, 2021 we hold a significant amount of ARM Agency securities. Changes in the level of interest rates and spreads can significantly impact the value of these assets. We may utilize a variety of financial instruments in order to limit the adverse effects of interest rates on our results.
Interest Rate Risk
Our market risk arises primarily from interest rate risk relating to interest rate fluctuations. Many factors including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control contribute to interest rate risk. To meet our short and long-term liquidity requirements, we may borrow funds at fixed and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes in earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates. We do not have any foreign denominated investments, and thus, we are not exposed to foreign currency fluctuations.
As of March 31, 2022 and December 31, 2021, our portfolio included 163 and 161 variable rate investments, respectively, based on LIBOR and SOFR (or "indexing rates") for various terms. Borrowings under our repurchase agreements are also based on LIBOR. The following table quantifies the potential changes in interest income net of interest expense should interest rates increase by 50 or 100 basis points or decrease by 25 basis points, assuming that our current balance sheet was to remain constant and no actions were taken to alter our existing interest rate sensitivity. The changes in the portfolio for each basis points increase/decrease is a change from the base scenario.
| Estimated Percentage Change in Interest Income Net of Interest Expense | ||||||||||||||
| Change in Interest Rates | March 31, 2022 | December 31, 2021 | ||||||||||||
| (-) 25 Basis Points | 0.12 | % | 2.08 | % | ||||||||||
| Base Interest Rate | — | % | — | % | ||||||||||
| (+) 50 Basis Points | 1.01 | % | (1.74) | % | ||||||||||
| (+) 100 Basis Points | 2.72 | % | (1.64) | % | ||||||||||
Real Estate Risk
The market values of commercial mortgage assets are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, the impacts of the COVID-19 pandemic, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; and demographic factors. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loans, which could also cause us to suffer losses.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded, as of the end of such period, that our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in our reports that we file or submit under the Exchange Act.
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Changes in Internal Control Over Financial Reporting
During the quarter ended March 31, 2022, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
Item 1. Legal Proceedings.
Refer to “Litigation and Regulatory Proceedings” in “Note 10 - Commitments and Contingencies”. The Company believes that these matters, individually or in the aggregate, will not have a material impact on the Company’s financial condition, operating results or cash flows.
Item 1A. Risk Factors.
Our potential risks and uncertainties are presented in the section entitled "Risk Factors" contained in our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes from these risk factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The Company’s board of directors has authorized a $65 million share repurchase program that will become operative following the conclusion of the $35 million open market share purchase program the Advisor agreed to implement in connection with the Capstead acquisition. The Company’s share repurchase program authorizes share repurchases at prices below the most recently reported book value per share as determined in accordance with GAAP. Purchases made under the Company’s program may be made through open market, block, and privately negotiated transactions, including Rule 10b5-1 plans, as permitted by securities laws and other legal requirements. The timing, manner, price and amount of any purchases by the Company and the Advisor will be determined by the respective teams responsible at the Company and the Advisor, as applicable, in their reasonable business judgment and consistent with the exercise of their legal duties and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The Company share repurchase program does not obligate the Company to acquire any particular amount of common stock. The Company’s and the Advisor’s share purchase programs will remain open until at least November 2022 or until the capital committed to the applicable repurchase program has been exhausted, whichever is sooner. Repurchases under the Company’s share repurchase program may be suspended from time to time at the Company’s discretion without prior notice.
The following table sets forth purchases of the Company's common stock under the Advisor's purchase program for the three months ended March 31, 2022:
| Total number of shares purchased | Average price paid per share (2) | Total number of shares purchased as part of publicly announced plans or programs (1) | Approximate dollar value of shares that may yet be purchased under the plans or programs (1) | ||||||||||||||||||||
| January 1, 2022 - January 31, 2022 | — | $ | — | — | $ | — | |||||||||||||||||
| February 1, 2022 - February 28, 2022 | — | — | — | — | |||||||||||||||||||
| March 1, 2022 - March 31, 2022 | 572,940 | 13.15 | 572,940 | 27,466,738 | |||||||||||||||||||
| Total | 572,940 | $ | 13.15 | 572,940 | $ | 27,466,738 | |||||||||||||||||
_______________________
(1) All of the purchases listed in the table above were made in the open market by the Advisor under the Advisor’s share purchase program announced on July 26, 2021, including under a Rule 10b5-1 plan adopted by the Advisor. No shares were repurchased under the Company’s share repurchase program during the three months ended March 31, 2022.
(2) The average price paid per share represents the average of the gross purchase price per share, inclusive of any broker’s fees or commissions.
Subsequent to March 31, 2022, the Advisor purchased an aggregate of 900,098 shares of the Company’s common stock at an average price of $13.45 per share. As of May 3, 2022, there was a $15.4 million remaining balance under the Advisor’s purchase plan and $65.0 million remaining under the Company’s share repurchase program.
Item 3. Defaults upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
EXHIBITS INDEX
The following exhibits are included in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 (and are numbered in accordance with Item 601 of Regulation S-K).
| Exhibit No. | Description | |||||||
| 10.1 | ||||||||
| 10.2* | ||||||||
| 10.3* | ||||||||
31.1* | ||||||||
31.2* | ||||||||
32* | ||||||||
101* | XBRL (eXtensible Business Reporting Language). The following materials from Benefit Street Partners Realty Trust, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) the Consolidated Statement of Changes in Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements. | |||||||
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |||||||
*Filed herewith.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Franklin BSP Realty Trust, Inc. | |||||||||||
| Dated: | May 4, 2022 | By | /s/ Richard J. Byrne | ||||||||
| Name: Richard J. Byrne | |||||||||||
| Title: Chief Executive Officer and President | |||||||||||
| (Principal Executive Officer) | |||||||||||
| Dated: | May 4, 2022 | By | /s/ Jerome S. Baglien | ||||||||
| Name: Jerome S. Baglien | |||||||||||
| Title: Chief Financial Officer, Chief Operating Officer and Treasurer | |||||||||||
| (Principal Financial and Accounting Officer) | |||||||||||
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