Franklin BSP Realty Trust(FBRT) - 2020 Q3 - Quarterly Report

PART I - Financial Information Consolidated Financial Statements and Notes This section presents unaudited consolidated financial statements, detailing assets, liabilities, operations, and cash flows, including the impact of adopting the CECL model Consolidated Balance Sheets Total assets and liabilities decreased to $3.11 billion and $2.12 billion respectively, driven by reductions in commercial mortgage loans and debt repayments Consolidated Balance Sheet Highlights (in thousands) | Metric | September 30, 2020 (Unaudited) | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $3,110,968 | $3,540,620 | | Commercial mortgage loans, held for investment, net | $2,598,921 | $2,762,042 | | Real estate securities, available for sale | $169,803 | $386,316 | | Total Liabilities | $2,124,312 | $2,514,705 | | Collateralized loan obligations | $1,657,559 | $1,803,185 | | Repurchase agreements - real estate securities | $177,545 | $394,359 | | Total Stockholders' Equity | $777,415 | $816,805 | Consolidated Statements of Operations Net income for Q3 2020 was $21.5 million, with the nine-month net income significantly decreasing to $21.9 million due to increased credit loss provisions Key Operating Results (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $29,301 | $28,285 | $80,769 | $76,786 | | Total Income | $30,318 | $29,349 | $84,243 | $77,850 | | Increase/(decrease) in provision for credit losses | $(3,710) | $(245) | $14,929 | $2,823 | | Net Income | $21,497 | $25,913 | $21,911 | $60,329 | | Net Income applicable to common stock | $16,739 | $20,460 | $10,466 | $48,409 | | Diluted EPS | $0.38 | $0.48 | $0.24 | $1.17 | Consolidated Statements of Cash Flows Net cash from operations for the nine-month period was $195.4 million, a significant increase from the prior year, while financing activities used $437.9 million Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash (used in)/provided by operating activities | $195,395 | $(35,821) | | Net cash (used in)/provided by investing activities | $237,889 | $(621,921) | | Net cash (used in)/provided by financing activities | $(437,902) | $506,054 | | Net change in cash, cash equivalents and restricted cash | $(4,618) | $(151,688) | Notes to Consolidated Financial Statements Key disclosures include the adoption of the CECL standard, which increased the credit loss allowance by $7.8 million, and details on the company's four operating segments - The company adopted ASU 2016-13 (CECL) on January 1, 2020, resulting in a transition adjustment that increased the allowance for credit losses for loans and unfunded commitments by $7.8 million, recorded as an adjustment to accumulated deficit58 59 - The company operates through four reportable segments: real estate debt, real estate securities, commercial conduit (in a TRS), and real estate owned (REO)93 94 95 - Subsequent to the quarter end, on November 2, 2020, the board of directors determined an estimated Net Asset Value (NAV) per share of $17.88 as of September 30, 2020266 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the adverse impact of the COVID-19 pandemic on results, portfolio risk, liquidity, and non-GAAP financial measures like FFO and MFFO - The COVID-19 pandemic significantly impacted results in the first nine months of 2020, leading to a $14.9 million increase in the provision for credit losses and $10.1 million in realized losses on the real estate securities portfolio280 - The weighted average risk rating of the loan portfolio increased from 2.1 at year-end 2019 to 2.2 as of September 30, 2020, and the amortized cost basis of past-due loans increased by $12.5 million to $69.6 million280 - On November 2, 2020, the board established an estimated NAV per share of $17.88 as of September 30, 2020, based on independent third-party valuations285 FFO and MFFO Reconciliation (in thousands) | Metric | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net income/(loss) | $21,497 | $25,913 | $21,911 | $60,329 | | Funds from operations (FFO) | $22,088 | $25,913 | $24,074 | $60,329 | | Modified funds from operations (MFFO) | $11,140 | $19,728 | $35,689 | $57,383 | Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate risk from its variable-rate portfolio, with sensitivity analysis showing varied impacts from LIBOR changes - The portfolio's return increases with a decrease in LIBOR due to LIBOR floors on most commercial mortgage loans, which are not present on the majority of the company's financing instruments405 Interest Rate Sensitivity Analysis (as of Sep 30, 2020) | Change in Interest Rates | Estimated Percentage Change in Net Interest Income | | :--- | :--- | | (-) 25 Basis Points | 1.87% | | (+) 50 Basis Points | (6.17)% | | (+) 100 Basis Points | (11.39)% | Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2020407 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls408 PART II - Other Information Legal Proceedings The company is not currently involved in any material litigation outside the ordinary course of business - The Company is not presently involved in any material litigation arising outside the ordinary course of business411 Risk Factors The primary update to risk factors involves the significant and ongoing adverse effects of the COVID-19 pandemic on markets, borrowers, and valuations - The primary update to risk factors is the material and adverse impact of the COVID-19 pandemic on the company's financial condition, operating results, and the performance of its borrowers412 - Specific pandemic-related risks include financial market disruption leading to margin calls, declines in commercial real estate values, increased borrower defaults, and reduced availability of debt capital414 415 416 417 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 579,467 shares under its Share Repurchase Program, though a significant number of redemption requests went unfulfilled - For the first semester of 2020, 206,332 shares were repurchased in July, but redemption requests for 1,677,268 shares were unfulfilled due to SRP limitations206 423 - For the second semester of 2019 (processed in early 2020), 373,135 shares were repurchased in January, but redemption requests for 1,986,803 shares were unfulfilled206 423 Other Information There is no other information to report for this item - None427 Exhibits This section lists the exhibits filed with the report, including required certifications and XBRL data files