Franklin BSP Realty Trust(US:FBRT)2025-04-28 20:29PART I - Financial Information Consolidated Financial Statements and Notes (Unaudited) This section presents the unaudited consolidated financial statements for Q1 2025, including balance sheets, statements of operations, cash flows, and related notes Consolidated Balance Sheets Total assets decreased to $5.65 billion from $6.00 billion, while total liabilities decreased to $4.06 billion from $4.39 billion, primarily due to changes in commercial mortgage loans and CLOs Consolidated Balance Sheet Summary (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $215,368 | $184,443 | | Commercial mortgage loans, held for investment, net | $4,739,876 | $4,908,667 | | Real estate securities, available for sale, net | $167,192 | $202,973 | | Real estate owned, net | $112,499 | $113,160 | | Total Assets | $5,654,051 | $6,002,386 | | Liabilities & Equity | | | | Collateralized loan obligations | $3,226,710 | $3,628,270 | | Repurchase agreements and revolving credit facilities | $635,478 | $566,419 | | Total Liabilities | $4,058,992 | $4,392,581 | | Total Equity | $1,505,311 | $1,520,057 | Consolidated Statements of Operations Net income for Q1 2025 decreased to $23.7 million from $35.8 million in Q1 2024, driven by lower net interest income and higher total expenses Consolidated Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net Interest Income | $43,315 | $49,240 | | Total Income | $50,112 | $53,952 | | Total Expenses | $30,340 | $20,626 | | Net Income | $23,705 | $35,827 | | Net Income Applicable to Common Stock | $17,310 | $29,172 | | Basic Earnings Per Share | $0.20 | $0.35 | | Diluted Earnings Per Share | $0.20 | $0.35 | Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased to $116.2 million, while investing activities provided $286.9 million, leading to an overall cash increase of $27.2 million Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $116,238 | $12,970 | | Net cash provided by/(used in) investing activities | $286,943 | $(139,334) | | Net cash (used in)/provided by financing activities | $(375,941) | $30,799 | | Net change in cash, cash equivalents and restricted cash | $27,240 | $(95,565) | Note 3 - Commercial Mortgage Loans The commercial mortgage loan portfolio decreased to $4.74 billion, with improved risk ratings and reduced allowance for credit losses Commercial Mortgage Loans, Held for Investment (in thousands) | Category | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Gross Carrying Value | $4,786,480 | $4,986,750 | | Allowance for Credit Losses | ($46,604) | ($78,083) | | Net Carrying Value | $4,739,876 | $4,908,667 | - The loan portfolio's collateral is primarily composed of Multifamily (71.3%) and Hospitality (14.9%) properties50 - The weighted average risk rating of the loan portfolio improved to 2.2 as of March 31, 2025, from 2.3 at the end of 2024, with 79.9% of the portfolio rated '2 - Low Risk'6467 - Non-performing loans had an amortized cost of $94.0 million as of Q1 2025, down from $133.2 million at year-end 202463 Note 7 - Debt Total debt included $3.23 billion in CLOs and various repurchase agreements, with CLO principal outstanding decreasing and the Barclays Repo Facility maturity extended Debt Summary (in thousands) | Debt Type | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Collateralized loan obligations | $3,226,710 | $3,628,270 | | Repurchase agreements - commercial mortgage loans | $429,314 | $329,811 | | Repurchase agreements - real estate securities | $206,164 | $236,608 | | Unsecured debt | $81,420 | $81,395 | - The company extended the maturity date of the $500 million Barclays Repo Facility to March 14, 202891 - The total principal balance of collateralized mortgage assets in the CLOs was $4.15 billion as of March 31, 2025, down from $4.49 billion at the end of 202498100 Note 10 - Commitments and Contingencies Unfunded loan commitments increased to $380.6 million, and the company entered an agreement to acquire NewPoint Holdings JV LLC for $318.8 million cash and equity units - Unfunded loan commitments to borrowers totaled $380.6 million as of March 31, 2025116 - The company entered into a definitive agreement to acquire NewPoint Holdings JV LLC for $318.8 million in cash and the issuance of 8,385,951 Class A Units of its operating partnership118 Note 15 - Segment Reporting The Real Estate Debt segment generated the majority of Q1 2025 net income at $26.6 million, while the Real Estate Owned segment recorded a net loss - The company conducts its business through four segments: Real Estate Debt, Real Estate Securities, Commercial Real Estate Conduit (TRS), and Real Estate Owned164 Net Income/(Loss) by Segment (in thousands) | Segment | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Real Estate Debt and Other | $26,571 | $28,214 | | Real Estate Securities | $267 | $1,684 | | TRS | $2,840 | $4,232 | | Real Estate Owned | $(5,973) | $1,697 | | Total Net Income | $23,705 | $35,827 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2025 financial performance, highlighting decreased net interest income, portfolio composition, $913 million in near-term liquidity, and a negative Distributable Earnings Portfolio Overview The portfolio's carrying value was primarily $4.74 billion in commercial mortgage loans, with a decrease in non-performing loans and continued concentration in multifamily and hospitality properties Portfolio Composition (Carrying Value, in millions) | Asset Type | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Commercial mortgage loans, held for investment, net | $4,739.9 | $4,908.7 | | Commercial mortgage loans, held for sale | $5.0 | $87.3 | | Real estate securities, available for sale | $167.2 | $203.0 | | Real estate owned, held for investment | $112.5 | $113.2 | | Real estate owned, held for sale | $243.4 | $222.9 | - As of March 31, 2025, there were three non-performing loans with a total amortized cost of $94.0 million, down from $133.2 million at the end of 202418463 Results of Operations Net interest income decreased to $43.3 million due to lower SOFR rates and a smaller portfolio, while total operating expenses increased due to acquisition-related fees and REO costs - Net interest income decreased by $5.9 million YoY, primarily due to a ~99 basis point decrease in average SOFR rates and a $177.9 million decrease in the average balance of real estate debt204205 - Total expenses from operations increased by $9.7 million YoY, driven by higher professional fees for the NewPoint acquisition and increased other expenses for the REO portfolio221222 - A benefit for credit losses of $1.9 million was recorded in Q1 2025, compared to a provision of $2.9 million in Q1 2024, mainly due to portfolio turnover and a partial paydown on a non-performing loan210211212 - A loss on other real estate investments of $2.2 million was recognized in Q1 2025, primarily from the onboarding and sale of REO properties217 Liquidity and Capital Resources Near-term liquidity significantly increased to $913 million, driven by higher unrestricted cash and available financing, while the net debt-to-equity ratio improved to 2.4x Near-Term Liquidity (in millions) | Source | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Unrestricted cash | $215 | $184 | | CLO reinvestment available | $34 | $12 | | Financings available & in progress | $664 | $339 | | Total | $913 | $535 | Leverage Ratios | Ratio | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Net debt-to-equity ratio | 2.4x | 2.6x | | Total leverage ratio | 2.5x | 2.7x | - The board of directors declared a Q1 2025 dividend of $0.355 per common share, $106.216 per Series H preferred share, and $0.46875 per Series E preferred share259 Non-GAAP Financial Measures The company reported a Distributable Earnings loss of $6.2 million for Q1 2025, primarily due to a $38.2 million realized loss adjustment on loans and REO Reconciliation of GAAP Net Income to Distributable Earnings (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | GAAP Net Income (Loss) | $23,705 | $35,827 | | Adjustments (Net) | $8,241 | $5,217 | | Distributable Earnings before realized loss | $31,946 | $41,044 | | Realized gain/(loss) adjustment on loans and REO | $(38,180) | $— | | Distributable Earnings | $(6,234) | $41,044 | | Distributable Earnings to Common | $(11,073) | $36,019 | Per Share Metrics (Fully Converted) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | GAAP net income/(loss) per share | $0.22 | $0.35 | | Distributable earnings per share | $(0.12) | $0.41 | Quantitative and Qualitative Disclosures about Market Risk The company faces credit, capital market, interest rate, and real estate risks, with interest rate fluctuations being the primary market risk impacting net interest income - The company faces significant credit risk, capital market risk, interest rate risk, and real estate risk281282284287 Interest Rate Sensitivity Analysis | Change in Interest Rates | Estimated % Change in Net Interest Income (Mar 31, 2025) | | :--- | :--- | | (+) 50 Basis Points | 2.06% | | (-) 50 Basis Points | (1.36)% | | (-) 100 Basis Points | (0.88)% | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter288 - No material changes were made to the internal control over financial reporting during the quarter ended March 31, 2025289 PART II - Other Information Legal Proceedings The company is involved in routine litigation, including a loan fraud lawsuit related to foreclosed Walgreens properties, but management expects no material financial impact - The company is pursuing civil remedies in a loan fraud lawsuit related to a portfolio of 24 properties net-leased to Walgreens, on which it has foreclosed293 - Management believes that ongoing legal proceedings, in aggregate, will not have a material impact on the company's financial condition, operating results, or cash flows292 Risk Factors No material changes to the company's risk factors were reported for the quarter ended March 31, 2025 - No material changes to risk factors were reported for the quarter294 Unregistered Sales of Equity Securities and Use of Proceeds No common stock was repurchased in Q1 2025, and the company plans to issue 8,385,951 unregistered Class A Units for the NewPoint acquisition - No shares were repurchased in Q1 2025. The company has $31.1 million remaining under its authorized share repurchase program, which runs until December 31, 2025108295 - As part of the NewPoint acquisition, the company will issue 8,385,951 unregistered Class A Units of FBRT OP LLC, which are redeemable for cash or common stock after 12 months297 Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the first quarter of 2025 - No director or officer adopted or terminated a Rule 10b5-1 trading plan during the first quarter of 2025300 Exhibits This section lists the exhibits filed with the Form 10-Q, including the NewPoint acquisition agreement, CEO/CFO certifications, and XBRL data files - Key exhibits filed include the Purchase and Sale Agreement for NewPoint Holdings JV LLC, CEO/CFO certifications (Sections 302 and 906), and XBRL interactive data files303