Franklin BSP Realty Trust(FBRT) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Consolidated Financial Statements and Notes (unaudited) The unaudited consolidated financial statements for Franklin BSP Realty Trust, Inc. as of June 30, 2025, show a decrease in total assets to $5.63 billion from $6.00 billion at year-end 2024, primarily due to a reduction in commercial mortgage loans, with net income for the six months ended June 30, 2025, significantly increasing to $48.1 million from $32.1 million in the prior-year period, driven by a benefit for credit losses Consolidated Balance Sheets As of June 30, 2025, total assets decreased to $5.63 billion from $6.00 billion at December 31, 2024, primarily due to a reduction in commercial mortgage loans, while total liabilities also decreased to $4.04 billion from $4.39 billion, mainly from lower collateralized loan obligations Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $5,630,218 | $6,002,386 | | Commercial mortgage loans, held for investment, net | $4,482,201 | $4,908,667 | | Cash and cash equivalents | $414,085 | $184,443 | | Total Liabilities | $4,044,832 | $4,392,581 | | Collateralized loan obligations | $3,043,604 | $3,628,270 | | Total Stockholders' Equity | $1,488,720 | $1,512,562 | Consolidated Statements of Operations For the three months ended June 30, 2025, the company reported a net income of $24.4 million, a significant turnaround from a net loss of $3.8 million in the same period of 2024, primarily due to a $1.5 million benefit for credit losses versus a $32.2 million provision in the prior year, resulting in diluted earnings per share of $0.40 for the six-month period Consolidated Statements of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $40,958 | $46,813 | $84,273 | $96,053 | | Total Income | $49,294 | $50,885 | $99,406 | $104,837 | | (Provision)/Benefit for Credit Losses | $1,487 | $(32,178) | $3,385 | $(35,059) | | Net Income/(Loss) | $24,384 | $(3,765) | $48,089 | $32,062 | | Net Income/(Loss) Applicable to Common Stock | $16,453 | $(8,923) | $33,763 | $20,248 | | Diluted Earnings Per Share | $0.19 | $(0.11) | $0.40 | $0.24 | Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash provided by operating activities significantly increased to $128.1 million from $14.9 million in the prior year, while net cash provided by investing activities reversed to $525.8 million from a $529.2 million use of cash, primarily due to higher principal repayments on loans Consolidated Statements of Cash Flows Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $128,057 | $14,884 | | Net cash provided by/(used in) investing activities | $525,814 | $(529,245) | | Net cash (used in)/provided by financing activities | $(427,955) | $276,410 | | Net change in cash, cash equivalents and restricted cash | $225,916 | $(237,951) | | Cash, cash equivalents and restricted cash, end of period | $422,780 | $105,736 | Notes to Consolidated Financial Statements The notes detail the company's accounting policies, commercial mortgage loan portfolio composition, debt structure, fair value measurements, related party transactions, segment reporting, and the significant subsequent acquisition of NewPoint Holdings JV LLC - The company primarily originates, acquires, and manages a diversified portfolio of commercial real estate debt investments and is externally managed by Benefit Street Partners L.L.C., a subsidiary of Franklin Templeton[25][27][28] - The commercial mortgage loan portfolio, held for investment, decreased to a carrying value of $4.48 billion as of June 30, 2025, from $4.91 billion at year-end 2024, consisting of 145 loans, down from 155[47] - The allowance for credit losses decreased to $43.2 million from $78.1 million, primarily due to a decrease in the overall portfolio size and charge-offs related to foreclosed properties[47][53][60] - Total debt is primarily composed of $3.04 billion in Collateralized Loan Obligations (CLOs) and $573.1 million in repurchase agreements for commercial mortgage loans as of June 30, 2025[8][102] - On July 1, 2025, subsequent to the quarter-end, the company completed the acquisition of NewPoint Holdings JV LLC for approximately $428.2 million, consisting of cash and Class A Units of a subsidiary[175] Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights a decrease in the commercial mortgage loan portfolio to $4.48 billion and a book value per share of $14.70 as of June 30, 2025, with the acquisition of NewPoint on July 1, 2025, expected to add an agency mortgage origination and servicing business segment, while net interest income decreased due to lower SOFR rates and a smaller portfolio, offset by a significant benefit for credit losses - The company completed the acquisition of NewPoint, a commercial real estate finance company focused on originating and servicing agency mortgage loans, on July 1, 2025, which will add a new business segment and is expected to be complimentary to the existing bridge loan business[189][191] Book Value Per Share | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Book value per share | $14.70 | $15.09 | | Fully-converted book value per share | $14.82 | $15.19 | - The commercial mortgage loan portfolio held for investment had a carrying value of $4.48 billion as of June 30, 2025, down from $4.91 billion at year-end 2024, primarily composed of multifamily (74.0%) and hospitality (13.7%) properties[196][50] - For the six months ended June 30, 2025, net interest income decreased by $11.8 million year-over-year, primarily due to a ~100 basis point decrease in average SOFR rates and a smaller average loan portfolio[218][221][222] Leverage Ratios | Ratio | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Net debt-to-equity ratio | 2.2x | 2.6x | | Total leverage ratio | 2.5x | 2.7x | - The company reported Distributable Earnings to Common of $0.15 per fully converted share for the six months ended June 30, 2025, a decrease from $0.72 in the prior-year period, primarily due to a significant realized loss adjustment on loans and REO[298] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to credit, capital market, and real estate risks, with interest rate risk being primary due to its variable-rate portfolio, where a 50 basis point increase in rates would increase net interest income by an estimated 1.42%, while the NewPoint acquisition introduces additional credit risk through risk-sharing obligations and market risk related to Mortgage Servicing Rights - The company's primary market risk is interest rate risk, as its portfolio is predominantly composed of variable-rate loans indexed to SOFR[304][305] Interest Rate Sensitivity Analysis | Change in Interest Rates | Estimated % Change in Net Interest Income (June 30, 2025) | | :--- | :--- | | (-) 100 Basis Points | 0.93% | | (-) 50 Basis Points | (0.56)% | | (+) 50 Basis Points | 1.42% | - The acquisition of NewPoint introduces new risks, including credit risk from risk-sharing requirements on agency mortgage loans and market risk affecting the fair value of Mortgage Servicing Rights (MSRs)[301][307] - The company faces capital market risk due to its reliance on debt financing and the potential for margin calls on its repurchase agreements if the market value of pledged collateral declines[302][303] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report (June 30, 2025)[309] - No material changes were made to the company's internal control over financial reporting during the quarter ended June 30, 2025[310] PART II - OTHER INFORMATION Legal Proceedings The company is involved in routine litigation not expected to have a material impact, while actively pursuing civil remedies related to a 2022 loan involving sponsor fraud that led to the foreclosure of 24 Walgreens-net-leased properties, with the collectability of any judgments currently undeterminable - The company is pursuing civil remedies related to loan fraud from a 2022 origination secured by a portfolio of Walgreens properties, on which it has since foreclosed, with the outcome and potential recovery uncertain[314] - Other than the Walgreens-related matter, the company states that its ongoing legal proceedings are routine and not expected to have a material impact on its financial condition or results[313] Risk Factors The company identifies additional risks resulting from the acquisition of NewPoint, including those related to its relationships with government-sponsored entities (GSEs), risk-sharing requirements on agency loans, GSE-imposed liquidity requirements, potential changes in GSE policies, and the tax implications of operating the new business through a taxable REIT subsidiary (TRS) - The acquisition of NewPoint introduces new risk factors, primarily related to the agency mortgage business[316] - Key new risks include dependency on relationships with GSEs (Fannie Mae, Freddie Mac), potential losses from risk-sharing agreements on agency loans, and adverse impacts from changes in GSE regulations or pricing[320] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any shares during the three months ended June 30, 2025, with $31.1 million remaining available under its $65 million share repurchase program, and on July 1, 2025, issued 8,385,951 Class A Units of its subsidiary in an unregistered sale as part of the NewPoint acquisition - No shares were repurchased under the company's share repurchase program during the three months ended June 30, 2025, with $31.1 million remaining available under the program[317][318] - On July 1, 2025, the company issued 8,385,951 Class A Units of a subsidiary in a private placement as part of the NewPoint acquisition consideration, which are redeemable for cash or common stock after 12 months[321] Defaults Upon Senior Securities Not applicable - There were no defaults upon senior securities during the reporting period[322] Mine Safety Disclosures Not applicable - The company has no mine safety disclosures to report[323] Other Information During the quarter ended June 30, 2025, no director or officer of the company adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 trading plan during the quarter[324] Exhibits This section lists the exhibits filed with the Form 10-Q, including the Second Amended and Restated Limited Liability Company Agreement of FBRT OP LLC, the Purchase and Sale Agreement for the NewPoint acquisition, officer certifications, and XBRL data files - Key exhibits filed include the updated LLC agreement for the operating partnership (FBRT OP LLC) and the purchase agreement for the NewPoint acquisition[327]