Franklin BSP Realty Trust, Inc. Announces Third Quarter 2023 Results

Franklin BSP Realty Trust, Inc. (NYSE: FBRT) (“FBRT” or the “Company”) today announced financial results for the quarter ended September 30, 2023.

Reported GAAP net income of $31.0 million, or $0.30 per diluted common share for the three months ended September 30, 2023, respectively, compared to $39.6 million, or $0.39 per diluted common share for the three months ended June 30, 2023, respectively.

Reported Distributable Earnings (a non-GAAP financial measure) of $42.0 million, or $0.43 per diluted common share on a fully converted basis(1) for the three months ended September 30, 2023, respectively, compared to $63.5 million, or $0.66 per diluted common share on a fully converted basis(1) for the three months ended June 30, 2023, respectively. Distributable Earnings for three months ended June 30, 2023 included approximately $15.0 million, or $0.17 per diluted common share on a fully converted basis, from the sale of the Williamsburg Hotel.

Third Quarter 2023 Summary

Produced a third quarter GAAP and Distributable Earnings ROE (a non-GAAP financial measure) of 7.7% and 10.7%, respectively
Book value of $15.82 per diluted common share on a fully converted basis(1), a decrease of $0.03 from the prior quarter
Declared a third quarter common stock cash dividend of $0.355, representing a 9.0% yield on book value
GAAP and Distributable Earnings dividend coverage of 86% and 120%, respectively
Closed $153 million of new loan commitments at a weighted average spread of 398 basis points
Closed BSPRT 2023-FL10 ("FL10 CRE CLO"), a $897 million managed Commercial Real Estate Collateralized Loan Obligation ("CLO") with an advance rate of 76%, weighted average interest rate of SOFR+229 and an 18 month reinvestment period(2)
Total liquidity of $1.8 billion, which includes $411 million in cash and cash equivalents and $25 million in CLO reinvest available
Fully disposed of the remaining $122.8 million of ARM Agency Securities and sold a real estate owned office property located in St. Louis, Missouri for $12.0 million

Richard Byrne, Chairman and Chief Executive Officer of FBRT, said, “FBRT is generating a double-digit Distributable Earnings ROE while maintaining a substantial liquidity position. We continue to view our asset allocation of nearly 80% multifamily credits as industry-leading, and that allocation should assist us in successfully navigating what are clearly difficult market conditions.”

Further commenting on the Company's results, Michael Comparato, President of FBRT, added, “We strengthened our balance sheet this quarter, issuing our tenth CRE CLO. We believe that liability structure and liquidity are paramount in times of choppy markets. Also, we continue to actively pursue new originations as the credit quality of our underwriting is currently among the best we've seen in recent years.”

Core portfolio: For the quarter ended September 30, 2023, the Company closed $153 million of new loan commitments and funded $197 million of principal balance on new and existing loans. FBRT received loan repayments of $290 million for a net decrease in our loan portfolio of $92 million in the quarter. The Company's core portfolio at the end of the quarter consisted of 145 loans with an aggregate principal balance of approximately $5.0 billion. The average loan size was approximately $34 million. Over 99% of the aggregate principal balance of FBRT's portfolio is in senior mortgage loans, with approximately 98% in floating rate loans. Approximately 78% of the portfolio is collateralized by multifamily properties. The Company's exposure to office loans is 6%. As of September 30, 2023, the Company had three loans on its watch list (risk rating of four or five). Additionally, subsequent to September 30, 2023, the Company closed $138 million of new loan commitments which consisted of four loans.

Conduit: For the quarter ended September 30, 2023, the Company closed a $17 million fixed rate loan that will be sold through FBRT's conduit program. For the same period, the Company sold $34.3 million of conduit loans for a gain of $0.9 million, gross of related derivatives.

Allowance for credit losses: During the quarter, FBRT recognized an incremental provision for credit losses of approximately $2.4 million.

Financing: On July 17, 2023, the Company called all of the outstanding notes issued by BSPRT 2019-FL5 Issuer, Ltd., a wholly owned indirect subsidiary of the Company. The outstanding principal of the notes on the date of the call was $122.0 million. The Company recognized all the remaining unamortized deferred financing costs of $2.9 million recorded within the Realized gain/(loss) on extinguishment of debt line of the consolidated statements of operations.

On September 28, 2023, the Company closed the $897 million managed FL10 CRE CLO with an 18 month re-investment period, advance rate of 76% and a weighted average interest rate of SOFR+229 before accounting for discount and transaction cost(2).

Book Value

As of September 30, 2023, book value was $15.82 per diluted common share on a fully converted basis(1).

Fully converted per share information in this press release assumes applicable conversion of the Company's series of outstanding convertible preferred stock into common stock and full vesting of the Company's outstanding equity compensation awards.

Includes the BSPRT 2023-FL10 AS tranche (~$143 million) that we retained and that was levered to a repo counterparty in conjunction with the CLO closing for ~$104 million of debt

Share Repurchase Program

The Company has a $65 million share repurchase program. The Company did not repurchase any shares of FBRT's common stock during the three months ended September 30, 2023. Subsequent to September 30, 2023, the Company repurchased 137,444 shares of common stock at a weighted average cost of $12.55 per share. As of October 25, 2023, $37.5 million remains available under the $65 million share repurchase program. FBRT's Board of Directors has extended the share repurchase authorization through December 31, 2024.

Subsequent Event

Subsequent to September 30, 2023, the Company foreclosed upon one multifamily property located in Texas. The loan had an amortized cost basis of $12.0 million as of September 30, 2023.

Distributable Earnings and Run-Rate Distributable Earnings

Distributable Earnings is a non-GAAP measure, which the Company defines as GAAP net income (loss), adjusted for (i) non-cash CLO amortization acceleration and amortization over the expected useful life of the Company's 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) subordinated performance fee accruals/(reversal), (vi) loan workout charges, (vii) realized gains and losses on debt extinguishment and CLO calls, and (viii) certain other non-cash items. Further, Run-Rate Distributable Earnings, a non-GAAP measure, presents Distributable Earnings before trading and derivative gain/loss on ARMs.

The Company believes that Distributable Earnings and Run-Rate Distributable Earnings provide meaningful information to consider in addition to the disclosed GAAP results. The Company believes Distributable Earnings is a useful financial metric for existing and potential future holders of its common stock as historically, over time, Distributable Earnings has been an indicator of dividends per share. As a REIT, the Company generally must distribute annually at least 90% of its taxable income, subject to certain adjustments, and therefore believes dividends are one of the principal reasons stockholders may invest in its common stock. Further, Distributable Earnings helps investors evaluate performance excluding the effects of certain transactions and GAAP adjustments that the Company does not believe are necessarily indicative of current loan portfolio performance and the Company's operations and is one of the performance metrics the Company's board of directors considers when dividends are declared. The Company believes Run-Rate Distributable Earnings is a useful financial metric because it presents the Distributable Earnings of its core businesses, net of the impacts of the realized trading and derivative gain/loss on the residential adjustable-rate mortgage securities acquired from Capstead Mortgage Corporation, which the Company has liquidated from its portfolio.

Distributable Earnings and Run-Rate Distributable Earnings do not represent net income (loss) and should not be considered as an alternative to GAAP net income (loss). The methodology for calculating Distributable Earnings and Run-Rate 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.

Please refer to the financial statements and reconciliation of GAAP Net Income to Distributable Earnings and Run-Rate Distributable Earnings included at the end of this release for further information.

Supplemental Information

The Company has published a supplemental earnings presentation for the quarter ended September 30, 2023 on its website to provide additional disclosure and financial information. These materials can be found on FBRT’s website at http://www.fbrtreit.com under the Presentations tab.

Conference Call and Webcast

The Company will host a conference call and live audio webcast to discuss its financial results on Tuesday, October 31, 2023, at 9:00 a.m. ET. Participants are encouraged to pre-register for the call and webcast at https://dpregister.com/sreg/10182930/fa8ad39034. If you are unable to pre-register, the conference call may be accessed by dialing (844) 701-1166 (Domestic) or (412) 317-5795 (International). Ask to join the Franklin BSP Realty Trust conference call. Participants should call in at least five minutes prior to the start of the call.

The call will also be accessible via live webcast at https://ccmediaframe.com?id=cLosDJ7M. Please allow extra time prior to the call to download and install audio software, if needed. A slide presentation containing supplemental information may also be accessed through FBRT's website in advance of the call.

An audio replay of the live broadcast will be available approximately one hour after the end of the conference call on FBRT’s website. The replay will be available for 90 days on the Company’s website.

About Franklin BSP Realty Trust, Inc.

Franklin BSP Realty Trust, Inc. (NYSE: FBRT) is a real estate investment trust that originates, acquires and manages a diversified portfolio of commercial real estate debt secured by properties located in the United States. As of September 30, 2023, FBRT had approximately $5.9 billion of assets. FBRT is externally managed by Benefit Street Partners L.L.C., a wholly owned subsidiary of Franklin Resources, Inc. For further information, please visit www.fbrtreit.com.

Forward-Looking Statements

Certain statements included in this press release 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.

The Company's forward-looking statements are subject to various risks and uncertainties. Factors that could cause actual outcomes to differ materially from our forward-looking statements include macroeconomic factors in the United States including inflation, changing interest rates and economic contraction, the extent of any recoveries on delinquent loans, the financial stability of our borrowers and the other, risks and important factors contained and identified in the Company’s filings with the Securities and Exchange Commission (“SEC”), including its Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and its subsequent filings with the SEC, any of which could cause actual results to differ materially from the forward-looking statements. The forward-looking statements included in this communication are made only as of the date hereof.

FRANKLIN BSP REALTY TRUST, INC. CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands, except share and per share data)

September 30, 2023

December 31, 2022

ASSETS

Cash and cash equivalents

411,437

179,314

Restricted cash

6,655

11,173

Commercial mortgage loans, held for investment, net of allowance for credit losses of $37,512 and $40,848 as of September 30, 2023 and December 31, 2022, respectively

4,913,644

5,228,928

Commercial mortgage loans, held for sale, measured at fair value

17,000

15,559

Real estate securities, trading, measured at fair value (includes pledged assets of $227,610 as of December 31, 2022)

—

235,728

Real estate securities, available for sale, measured at fair value, amortized cost of $194,171 and $220,635 as of September 30, 2023 and December 31, 2022, respectively (includes pledged assets of $153,648 and $198,429 as of September 30, 2023 and December 31, 2022, respectively)

193,072

221,025

Derivative instruments, measured at fair value

415

Receivable for loan repayment (1)

25,937

42,557

Accrued interest receivable

38,297

34,007

Prepaid expenses and other assets

17,501

15,795

Intangible lease asset, net of amortization

43,604

54,831

Real estate owned, net of depreciation

104,616

127,772

Real estate owned, held for sale

103,657

36,497

Total assets

5,875,455

6,203,601

LIABILITIES AND STOCKHOLDERS' EQUITY

Collateralized loan obligations

3,477,444

3,121,983

Repurchase agreements and revolving credit facilities - commercial mortgage loans

249,345

680,859

Repurchase agreements - real estate securities

240,010

440,008

Mortgage note payable

23,998

Other financings

23,669

76,301

Unsecured debt

81,270

98,695

Derivative instruments, measured at fair value

258

Interest payable

11,504

12,715

Distributions payable

36,224

36,317

Accounts payable and accrued expenses

16,884

17,668

Due to affiliates

16,836

15,429

Intangible lease liability, held for sale

12,297

—

Intangible lease liability, net of amortization

—

6,428

Total liabilities

4,189,739

4,530,465

Commitments and Contingencies

Redeemable convertible preferred stock:

Redeemable convertible preferred stock Series H, $0.01 par value, 20,000 authorized and 17,950 issued and outstanding as of September 30, 2023 and December 31, 2022

89,748

Redeemable convertible preferred stock Series I, $0.01 par value, none authorized and outstanding as of September 30, 2023, 1,000 authorized and 1,000 issued and outstanding as of December 31, 2022

—

5,000

Total redeemable convertible preferred stock

89,748

94,748

Equity:

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 September 30, 2023 and December 31, 2022

258,742

Common stock, $0.01 par value, 900,000,000 shares authorized, 83,019,881 and 82,992,784 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

822

826

Additional paid-in capital

1,601,282

1,602,247

Accumulated other comprehensive income (loss)

(1,099

)

390

Accumulated deficit

(292,833

)

(299,225

)

Total stockholders' equity

1,566,914

1,562,980

Non-controlling interest

29,054

15,408

Total equity

1,595,968

1,578,388

Total liabilities, redeemable convertible preferred stock and equity

5,875,455

6,203,601

______________________________________________________________________

(1)

Includes $25.9 million and $42.5 million of cash held by servicer related to the CLOs as of September 30, 2023 and December 31, 2022, respectively. The Company no longer holds a residential mortgage backed securities principal paydown receivable as of September 30, 2023. The Company held a residential mortgage backed securities principal paydown receivable of $0.1 million as of December 31, 2022.

FRANKLIN BSP REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) (Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2023

2022

2023

2022

Income

Interest income

137,042

94,131

420,470

239,602

Less: Interest expense

77,973

46,157

224,347

96,262

Net interest income

59,069

47,974

196,123

143,340

Revenue from real estate owned

3,317

2,312

13,067

6,936

Total income

62,386

50,286

209,190

150,276

Expenses

Asset management and subordinated performance fee

7,908

6,430

24,893

19,776

Acquisition expenses

316

362

977

996

Administrative services expenses

3,566

3,001

10,993

9,402

Professional fees

4,153

4,074

11,761

18,287

Share-based compensation

1,255

669

3,505

1,851

Depreciation and amortization

1,513

1,295

5,514

3,886

Other expenses

2,856

1,424

9,323

4,849

Total expenses

21,567

17,255

66,966

59,047

Other income/(loss)

(Provision)/benefit for credit losses

(2,379

)

599

(28,363

)

(30,976

)

Realized gain/(loss) on extinguishment of debt

(2,836

)

—

2,201

(5,167

)

Realized gain/(loss) on sale of available for sale trading securities

(486

)

—

110

—

Realized gain/(loss) on sale of commercial mortgage loans, held for sale

—

Realized gain/(loss) on sale of commercial mortgage loans, held for sale, measured at fair value

933

4,782

3,027

4,838

Unrealized gain/(loss) on commercial mortgage loans, held for sale, measured at fair value

—

(3,678

)

Gain/(loss) on other real estate investments

(4,112

)

—

(7,142

)

(29

)

Trading gain/(loss)

(2,627

)

(2,744

)

(605

)

(113,717

)

Unrealized gain/(loss) on derivatives

(183

)

1,566

(110

)

(12,824

)

Realized gain/(loss) on derivatives

(1,624

)

684

57,599

Total other income/(loss)

(11,623

)

2,646

(30,154

)

(103,906

)

Income/(loss) before taxes

29,196

35,677

112,070

(12,677

)

(Provision)/benefit for income tax

1,799

(419

)

2,408

(281

)

Net income/(loss)

30,995

35,258

114,478

(12,958

)

Net (income)/loss attributable to non-controlling interest

772

—

722

—

Net income/(loss) attributable to Franklin BSP Realty Trust, Inc.

31,767

35,258

115,200

(12,958

)

Less: Preferred stock dividends

6,748

6,899

20,245

34,865

Net income/(loss) applicable to common stock

25,019

28,359

94,955

(47,823

)

Basic earnings per share

0.30

0.34

1.14

(0.70

)

Diluted earnings per share

0.30

0.34

1.14

(0.70

)

Basic weighted average shares outstanding

82,210,624

83,665,250

82,410,725

67,965,397

Diluted weighted average shares outstanding

82,210,624

83,665,250

82,410,725

67,965,397

FRANKLIN BSP REALTY TRUST, INC. |RECONCILIATION OF GAAP NET INCOME TO DISTRIBUTABLE EARNINGS (In thousands, except share and per share data) (Unaudited)

The following table provides a reconciliation of GAAP net income to Distributable Earnings and Run-Rate Distributable Earnings as of the three and nine months ended September 30, 2023 and 2022 (amounts in thousands, except share and per share data):

Three Months Ended September 30,

Nine Months Ended September 30,

2023

2022

2023

2022

GAAP Net Income (Loss)

30,995

35,258

114,478

(12,958

)

Adjustments:

CLO amortization acceleration (1)

(1,294

)

(1,226

)

(3,959

)

(4,168

)

Unrealized (gain)/loss on financial instruments (2)

4,295

(1,624

)

7,208

16,498

Unrealized (gain)/loss - ARMs

—

2,742

415

37,862

(Reversal of)/Provision for credit losses

2,379

(599

)

28,363

30,976

Non-Cash Compensation Expense

1,256

833

3,506

833

Depreciation and amortization

1,513

1,295

5,514

3,886

Subordinated performance fee (3)

1,579

(2,461

)

3,599

(5,917

)

Loan workout charges/(loan workout recoveries) (4)

—

205

(5,105

)

5,105

Realized (gain)/loss on debt extinguishment / CLO call

2,836

—

(2,201

)

5,167

Realized trading and derivatives (gain)/loss on ARMs

3,113

(155

)

677

21,927

Run-Rate Distributable Earnings (5)

46,672

34,268

152,495

99,211

Realized Cash Gain/(Loss) Adjustment on REO

(1,571

)

—

(1,571

)

—

Realized trading and derivatives gain/(loss) on ARMs

(3,113

)

155

(677

)

(21,927

)

Distributable Earnings

41,988

34,423

150,247

77,284

7.5% Cumulative Redeemable Preferred Stock, Series E Dividend

(4,842

)

(4,842

)

(14,525

)

(14,525

)

Noncontrolling interests in joint ventures net income/(loss)

(276

)

—

(326

)

—

Depreciation and amortization attributed to noncontrolling interests of joint ventures

772

—

(15

)

—

Distributable Earnings to Common

37,642

29,581

135,381

62,759

Average Common Stock & Common Stock Equivalents

1,402,370

1,422,040

1,406,481

1,470,393

GAAP Net Income/(Loss) ROE

7.7

8.6

7.1

(1.9

Run-Rate Distributable Earnings ROE

12.1

8.3

9.8

5.8

Distributable Earnings ROE

10.7

8.3

9.6

4.3

GAAP Net Income/(Loss) Per Share, Diluted

0.30

0.34

1.14

(0.70

)

GAAP Net Income/(Loss) Per Share, Fully Converted (6)

0.30

0.34

1.12

(0.31

)

Run-Rate Distributable Earnings Per Share, Fully Converted (6)

0.48

0.33

1.55

0.94

Distributable Earnings Per Share, Fully Converted (6)

0.43

0.33

1.53

0.70

___________________________________________________________________

(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)

Represents unrealized gains and losses on (i) commercial mortgage loans, held for sale, measured at fair value, (ii) other real estate investments, measured at fair value and (iii) derivatives.

(3)

Represents accrued and unpaid subordinated performance fee. In addition, reversal of subordinated performance fee represents cash payments of the subordinated performance fee made during the period.

(4)

Represents loan workout charges the Company incurred, which the Company deemed likely to be recovered. Reversal of loan workout charges represent recoveries received. During the second quarter of 2023, the Company recovered $5.1 million of loan workout charges, in aggregate, related to the loan workout charges incurred in the first, second, and third quarters of 2022 amounting to $1.9 million, $3.0 million, and $0.2 million, respectively.

(5)

Distributable Earnings before realized trading and derivative gain/loss on residential adjustable-rate mortgage securities (“Run-Rate Distributable Earnings”) (a non-GAAP financial measure).

(6)

Fully Converted assumes conversion of our series of convertible preferred stock and full vesting of our outstanding equity compensation awards.

View source version on businesswire.com: https://www.businesswire.com/news/home/20231030274061/en/

Investor Relations Contact: Lindsey Crabbe l.crabbe@benefitstreetpartners.com (214) 874-2339

Franklin BSP Realty (NYSE:FBRT)
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