Franklin BSP Realty Trust, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. The filing registrant’s name was Benefit Street Partners Realty Trust, Inc. The company is an externally managed REIT focused primarily on originating, acquiring, and managing commercial real estate debt, with additional conduit lending, securities, and real estate owned businesses.
Key financial results and position
| Metric | Q1 2021 | Comparable period |
|---|---|---|
| Total income | $31.6 million | $25.0 million in Q1 2020 |
| Net interest income | $30.9 million | $23.4 million in Q1 2020 |
| Net income (loss) | $30.1 million | $(7.4) million in Q1 2020 |
| Net income applicable to common stock | $23.4 million | $(11.9) million in Q1 2020 |
| Basic and diluted EPS | $0.53 | $(0.27) in Q1 2020 |
| Net cash from operating activities | $4.4 million | $37.4 million in Q1 2020 |
- Interest and margins: Interest income declined to $42.2 million from $47.9 million, while interest expense fell to $11.4 million from $24.5 million. Net interest spread increased to 3.6% from 2.0%; average asset yield was 5.8% versus 6.0%, and average financing cost was 2.2% versus 4.0%.
- Balance sheet and liquidity: Total assets were $3.55 billion at March 31, up from $3.19 billion at year-end. Cash and cash equivalents were $99.1 million, plus $11.8 million of restricted cash. The filing also reports $216.0 million of CLO-related cash held by a servicer within receivables for loan repayment.
- Portfolio: Net commercial mortgage loans held for investment were $3.01 billion, compared with $2.69 billion at year-end. The portfolio included 146 held-for-investment loans; multifamily represented 49.9% of par value and hospitality 14.0%. The weighted-average loan coupon was 5.3%, and weighted-average remaining life was 1.7 years.
- Debt and capital: Total liabilities were $2.51 billion, including $2.08 billion of CLO liabilities, $152.9 million of mortgage-loan repurchase agreements, $88.3 million of securities repurchase agreements, and $100.0 million of unsecured debt. The board’s stated target leverage range was 1–3 times book equity. Management reported compliance with debt covenants.
- Cash flows and distributions: Investing activities used $307.8 million, principally for $520.8 million of loan originations and purchases; financing activities provided $322.1 million. The company declared a $0.275-per-share common dividend for Q1, paid in April. Q1 common distributions totaled $12.2 million, including $2.6 million issued through the reinvestment plan.
Material changes versus prior periods
- Net income improved from a loss to profit. Lower funding costs and reduced credit-loss provision contributed: the company recorded a $2.3 million credit-loss benefit versus a $14.6 million provision in Q1 2020.
- Interest income fell, reflecting lower average interest-earning assets and lower LIBOR; interest expense fell more sharply, reflecting lower average liabilities and lower LIBOR.
- The company sold or repaid most of its real estate securities portfolio: fair value fell to $18.9 million from $171.1 million at year-end, following eight CMBS sales. Securities-related other comprehensive income was positive $8.0 million, versus a loss of $67.6 million in Q1 2020.
- Held-for-investment loans grew, while repurchase-agreement balances declined from year-end. CLO liabilities increased after issuance of the 2021-FL6 securitization.
- The company exchanged 14,949 Series A preferred shares for Series D shares and issued an additional 3,000 Series D shares to Security Benefit Life Insurance Company (SBL), raising $15.0 million net of accrued unpaid dividends. It also repurchased 521,796 common shares under its share repurchase program.
Outlook, risks, and unusual items
- The filing provides no specific earnings or portfolio guidance. Management said it expected debt and equity financing and operating cash flows to meet anticipated capital needs, and may pursue additional financings or asset sales and reinvestments.
- Management identified continuing COVID-19 effects on borrowers, real estate markets, asset valuations, credit-loss estimates, and financial markets as a material uncertainty. The company also warned that repo lenders may demand additional collateral after collateral-value declines, potentially affecting liquidity.
- One $57.1 million hospitality loan was more than 120 days past due and on nonaccrual at quarter-end; no interest income was recognized on it during the quarter, and no specific credit-loss allowance was recorded. A January foreclosure transferred a loan with a $37.8 million carrying value into real estate owned valued at $37.5 million; the acquired property was classified as held for sale.
- Unfunded loan commitments were $269.7 million. The company reported no material litigation outside ordinary-course matters and no material changes to the risk factors in its prior annual report.
- Distributions are not assured and may be reduced or suspended by the board. Share repurchases are limited by program terms and available DRIP proceeds; 1,885,340 requests were unfulfilled for the second half of 2020.
Important facts for investors to verify
- Performance and collectability of the delinquent $57.1 million hospitality loan, and the expected disposition and recovery from the foreclosed property held for sale.
- Liquidity available after accounting for restricted cash, servicer-held CLO cash, unfunded commitments, and potential repo margin calls.
- Terms, collateral, retained interests, and refinancing or repayment risks associated with the CLOs and other borrowings, including the new 2021-FL6 securitization.
- Sustainability of common and preferred distributions relative to cash generation, REIT distribution requirements, and preferred-stock obligations.
- Preferred-stock conversion, redemption, and dilution terms, as well as the practical limits on common-share repurchases and share liquidity; the common stock was not exchange-listed.