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Franklin BSP Realty Trust, Inc. Announces Fourth Quarter and Full Year 2022 Results

Franklin BSP Realty Trust, Inc. (NYSE: FBRT) (“FBRT” or the “Company”) today announced financial results for the quarter and full year ended December 31, 2022.

Reported GAAP net income of $27.2 million and $14.2 million for the three and twelve months ended December 31, 2022, respectively. Reported diluted earnings per share ("EPS") to common stockholders of $0.25 and $(0.38) for the three and twelve months ended December 31, 2022, respectively.

Reported Distributable Earnings (a non-GAAP financial measure) of $38.8 million and $116.1 million, or $0.37 and $1.07 per diluted common share on a fully converted basis(1), for the three and twelve months ended December 31, 2022, respectively.

Fourth Quarter 2022 Summary

  • Produced a fourth quarter GAAP and Distributable Earnings ROE (a non-GAAP financial measure) of 6.4% and 9.2%, respectively
  • Book value of $15.78 per diluted common share on a fully converted basis(1)
  • Declared fourth quarter common stock cash dividend of $0.355, representing a 9.0% yield on book value
  • GAAP and Distributable Earnings dividend coverage of 72% and 104%, respectively
  • Closed $209 million of new loan commitments at a weighted average spread of 433 basis points
  • Repurchased 485,316 shares of common stock at an average price of $11.42 per share for an aggregate of $5.5 million

Full Year 2022 Summary

  • Produced a full year GAAP and Distributable Earnings ROE of (0.3)% and 6.6%, respectively
  • Closed $2.3 billion of new loan commitments at a weighted average spread of 462 basis points, ending the year with a core portfolio aggregate principal balance of $5.3 billion
  • Closed two managed Commercial Real Estate Collateralized Loan Obligations for a combined $2.0 billion with two-year re-investment periods and a blended weighted average cost of capital of SOFR+2.15% before transaction costs
  • Repurchased 1,416,369 million shares of common stock at an average price of $11.71 per share for an aggregate of $16.6 million, which represents a $0.07 per share increase to book value
  • Benefit Street Partners L.L.C., the Company's advisor (the "Advisor"), completed its $35 million share purchase program

Richard Byrne, Chairman and Chief Executive Officer of FBRT, said, “FBRT delivered strong fourth quarter results, posting our third consecutive quarter of distributable earnings growth. Our distributable earnings over-covered our fourth quarter dividend despite lower origination volume and a relatively flat portfolio. Importantly, our liquidity position of approximately $1.0 billion coupled with our low leverage of 2.5 times demonstrates our conservative balance sheet and puts us in a position to take advantage of attractive opportunities that may arise."

Further commenting on the Company's results, Michael Comparato, Head of Commercial Real Estate of the Advisor, added, “Similar to the third quarter, we were extremely selective on our fourth quarter originations. While our origination activity was intentionally lower, loan spreads continue to be meaningfully higher than prior quarters. We continue to position ourselves defensively in the current environment, while concurrently looking for opportunities. We are now originating at the most attractive spreads we have seen in recent years, and credit quality on new originations is improving simultaneously. With these levels and the continued benefit from higher SOFR rates, we expect our earnings to continue to perform well in this environment."

1 Fully converted per share information in this press release assumes applicable conversion of the Company's Series H and Series I preferred stock, which pursuant to their terms will automatically convert to common stock in the future, and the vesting of the Company's outstanding equity compensation awards.

Core portfolio: For the quarter ended December 31, 2022, the Company closed $209 million of loan commitments and funded $267 million of principal balance on new and existing loans. The Company received loan repayments of $247 million. The Company's core portfolio at the end of the quarter consisted of 161 loans with an aggregate principal balance of approximately $5.3 billion. The average loan size was approximately $33 million. Over 99% of the aggregate principal balance of the Company's portfolio is in senior mortgage loans with approximately 98% in floating rate loans and approximately 76% of the portfolio is collateralized by multifamily properties. During the quarter, two loans were added to the Company's watch list and three positions were added to foreclosure REO, two of which were previously on watch list. As of year-end, the Company had two non-performing loans.

Conduit: For the quarter ended December 31, 2022, the Company closed $24 million of fixed rate loans that were sold or will be sold through the Company's conduit program. For the same period, the Company sold $52 million of conduit loans.

Asset Current Expected Credit Loss ("CECL") Provision: During the quarter, the Company recognized an incremental increase in the CECL reserve of approximately $5.1 million.

Book Value

As of December 31, 2022, book value was $15.78 per diluted common share on a fully converted basis(1).

Share Repurchase Program

During the quarter, the Company repurchased 485,316 shares of the Company's common stock under the Company's $65 million share repurchase program. These shares were repurchased at an average gross price of $11.42 per share, inclusive of any broker's fees or commissions, for an aggregate of $5.5 million. As of December 31, 2022, the Company's current share repurchase program had $48.4 million of capacity remaining.

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 residential adjustable-rate mortgage pass-through securities ("ARM Agency Securities" or "ARMs"), including CECL reserves and impairments, (iii) non-cash equity compensation expense, (iv) depreciation and amortization, (v) non-cash subordinated performance fee accruals, (vi) loan workout charges, (vii) certain other non-cash items, and (viii) impairments of acquisition assets related to the Capstead merger. 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, which the Company is actively in the process of liquidating 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 published a supplemental earnings presentation for the quarter ended December 31, 2022 on its website to provide additional disclosure and financial information. These materials can be found on the Company’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 Thursday, February 23, 2023 at 9:00 a.m. ET. Participants are encouraged to pre-register for the call and webcast at https://dpregister.com/sreg/10174781/f5951cae6d. 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=XFEkJiua. 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 the Company’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 December 31, 2022, FBRT had approximately $6.2 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, including but not limited to the 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, 2021 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

(In thousands, except share and per share data)

 

 

 

 

 

December 31, 2022

 

December 31, 2021

ASSETS

 

 

Cash and cash equivalents

$

179,314

 

$

154,929

 

Restricted cash

 

11,173

 

 

13,270

 

Commercial mortgage loans, held for investment, net of allowance for credit losses of $40,848 and $15,827 as of December 31, 2022 and December 31, 2021, respectively

 

5,228,928

 

 

4,211,061

 

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

 

15,559

 

 

34,718

 

Real estate securities, trading, measured at fair value

 

235,728

 

 

4,566,871

 

Real estate securities, available for sale, measured at fair value, amortized cost of $220,635 as of December 31, 2022

 

221,025

 

 

 

Derivative instruments, measured at fair value

 

415

 

 

436

 

Other real estate investments, measured at fair value

 

 

 

2,074

 

Receivable for loan repayment (1)

 

42,557

 

 

252,351

 

Accrued interest receivable

 

34,007

 

 

30,109

 

Prepaid expenses and other assets

 

15,795

 

 

13,595

 

Intangible lease asset, net of amortization

 

54,831

 

 

48,472

 

Real estate owned, net of depreciation

 

127,772

 

 

90,048

 

Real estate owned, held for sale

 

36,497

 

 

 

Cash collateral receivable from derivative counterparties

 

 

 

56,767

 

Total assets

$

6,203,601

 

$

9,474,701

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

Collateralized loan obligations

$

3,121,983

 

$

2,162,190

 

Repurchase agreements - commercial mortgage loans

 

680,859

 

 

1,019,600

 

Repurchase agreements - real estate securities

 

440,008

 

 

4,178,784

 

Mortgage note payable

 

23,998

 

 

23,998

 

Other financing and loan participation - commercial mortgage loans

 

76,301

 

 

37,903

 

Unsecured debt

 

98,695

 

 

148,594

 

Derivative instruments, measured at fair value

 

64

 

 

32,295

 

Interest payable

 

12,715

 

 

2,692

 

Distributions payable

 

36,317

 

 

30,346

 

Accounts payable and accrued expenses

 

17,668

 

 

12,705

 

Due to affiliates

 

15,429

 

 

17,538

 

Intangible lease liability, net of depreciation

 

6,428

 

 

 

Total liabilities

$

4,530,465

 

$

7,666,645

 

Redeemable convertible preferred stock:

 

 

Redeemable convertible preferred stock Series C, $0.01 par value, 20,000 authorized and 1,400 issued and outstanding as of December 31, 2021

 

 

 

6,971

 

Redeemable convertible preferred stock Series D, $0.01 par value, 20,000 authorized and 17,950 issued and outstanding as of December 31, 2021

 

 

 

89,684

 

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

 

89,748

 

 

 

Redeemable convertible preferred stock Series I, $0.01 par value, 1,000 authorized and 1,000 issued and outstanding as of December 31, 2022

 

5,000

 

 

 

Total redeemable convertible preferred stock

$

94,748

 

$

96,655

 

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 December 31, 2022 and 2021

 

258,742

 

 

258,742

 

Series F Preferred stock, $0.01 par value, 40,000,000 authorized, 39,733,299 issued and outstanding as of December 31, 2021

 

 

 

710,431

 

Common stock, $0.01 par value, 900,000,000 shares authorized, 82,992,784 and 43,965,928 issued and outstanding as of December 31, 2022 and 2021, respectively

 

826

 

 

441

 

Additional paid-in capital

 

1,602,247

 

 

903,264

 

Accumulated other comprehensive income (loss)

 

390

 

 

(62

)

Accumulated deficit

 

(299,225

)

 

(167,179

)

Total stockholders' equity

$

1,562,980

 

$

1,705,637

 

Noncontrolling interest

 

15,408

 

 

5,764

 

Total equity

$

1,578,388

 

$

1,711,401

 

Total liabilities, redeemable convertible preferred stock and equity

$

6,203,601

 

$

9,474,701

 

(1)

Includes $42.5 million and $187.0 million of cash held by the servicer related to the CLOs as of December 31, 2022 and 2021, respectively, as well as $0.1 million and $65.3 million of RMBS principal paydowns receivable as of December 31, 2022 and 2021, respectively.

FRANKLIN BSP REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)

 

Year Ended December 31,

 

 

2022

 

 

 

2021

 

 

 

2020

 

Income:

 

 

 

 

 

Interest income

$

357,705

 

 

$

216,890

 

 

$

179,872

 

Less: Interest expense

 

165,708

 

 

 

60,835

 

 

 

66,556

 

Net interest income

 

191,997

 

 

 

156,055

 

 

 

113,316

 

Revenue from real estate owned

 

9,655

 

 

 

4,759

 

 

 

4,299

 

Total income

$

201,652

 

 

$

160,814

 

 

$

117,615

 

Expenses:

 

 

 

 

 

Asset management and subordinated performance fee

 

26,157

 

 

 

28,110

 

 

 

15,178

 

Acquisition expenses

 

1,360

 

 

 

1,203

 

 

 

696

 

Administrative services expenses

 

12,928

 

 

 

7,658

 

 

 

13,120

 

Impairment of acquired assets

 

 

 

 

88,282

 

 

 

 

Professional fees

 

22,566

 

 

 

11,650

 

 

 

10,964

 

Share-based compensation expense

 

2,519

 

 

 

 

 

 

 

Real estate owned operating expenses

 

 

 

 

 

 

 

3,653

 

Depreciation and amortization

 

5,408

 

 

 

2,107

 

 

 

2,233

 

Other expenses

 

6,572

 

 

 

3,946

 

 

 

3,312

 

Total expenses

$

77,510

 

 

$

142,956

 

 

$

49,156

 

Other (income)/loss:

 

 

 

 

 

Provision/(benefit) for credit losses

$

36,115

 

 

$

(5,192

)

 

$

13,296

 

Impairment losses on real estate owned assets

 

 

 

 

 

 

 

398

 

Realized (gain)/loss on extinguishment of debt

 

(15

)

 

 

 

 

 

(3,678

)

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

 

354

 

 

 

(26

)

 

 

(184

)

Realized (gain)/loss on sale of real estate owned assets, held for sale

 

 

 

 

(9,809

)

 

 

(1,851

)

Realized (gain)/loss on sale of other real estate investments, measured at fair value

 

33

 

 

 

 

 

 

 

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

 

(2,358

)

 

 

(24,208

)

 

 

(15,931

)

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

 

511

 

 

 

(469

)

 

 

75

 

Unrealized (gain)/loss on other real estate investments, measured at fair value

 

659

 

 

 

19

 

 

 

32

 

Trading (gain)/loss

 

119,220

 

 

 

36,128

 

 

 

10,137

 

Unrealized (gain)/loss on derivatives

 

15,840

 

 

 

(7,402

)

 

 

995

 

Realized (gain)/loss on derivatives

 

(60,033

)

 

 

(484

)

 

 

12,486

 

Total other (income)/loss

$

110,326

 

 

$

(11,443

)

 

$

15,775

 

Income/(loss) before taxes

 

13,816

 

 

 

29,301

 

 

 

52,684

 

Provision/(benefit) for income tax

 

(399

)

 

 

3,599

 

 

 

(2,062

)

Net income/(loss)

$

14,215

 

 

$

25,702

 

 

$

54,746

 

Net (income)/loss attributable to noncontrolling interest

 

216

 

 

 

 

 

 

 

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

$

14,431

 

 

$

25,702

 

 

$

54,746

 

Net income/(loss) attributable to common shareholders

$

(27,310

)

 

$

(7,885

)

 

$

39,826

 

 

 

 

 

 

 

Basic net income per share

$

(0.38

)

 

$

(0.18

)

 

$

0.90

 

Diluted net income per share

$

(0.38

)

 

$

(0.18

)

 

$

0.90

 

Basic weighted average shares outstanding

 

71,628,365

 

 

 

43,419,209

 

 

 

44,384,813

 

Diluted weighted average shares outstanding

 

71,628,365

 

 

 

43,434,731

 

 

 

44,398,879

 

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 for the years ended December 31, 2022, December 31, 2021 and December 31, 2020 (dollars in thousands):

 

 

Year Ended December 31,

 

 

2022

 

 

2021

 

 

2020

 

GAAP Net Income

$

14,215

 

$

25,702

 

$

54,746

 

Adjustments:

 

 

 

Depreciation and amortization

 

5,408

 

 

2,107

 

 

2,234

 

Impairment of Acquired Assets

 

 

 

88,282

 

 

 

CLO amortization acceleration (1)

 

(438

)

 

250

 

 

264

 

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

 

17,010

 

 

(7,853

)

 

1,102

 

Unrealized (gain)/loss - ARMs

 

43,557

 

 

20,670

 

 

 

Subordinated performance fee

 

(8,380

)

 

9,846

 

 

 

Non-Cash Compensation Expense

 

3,485

 

 

 

 

 

Increase/(decrease) in provision for credit losses

 

36,115

 

 

(5,192

)

 

13,296

 

Loan Workout Charges (3)

 

5,104

 

 

 

 

 

Impairment losses on real estate owned assets

 

 

 

 

 

398

 

Realized trading and derivatives (gain)/loss on ARMs

 

21,726

 

 

13,600

 

 

 

Run Rate Distributable Earnings (4)

$

137,802

 

$

147,412

 

$

72,040

 

Realized trading and derivatives gain/(loss) on ARMs

 

(21,726

)

 

(13,600

)

 

 

Distributable Earnings

$

116,076

 

$

133,812

 

$

72,040

 

7.5% Cumulative Redeemable Preferred Stock, Series E Dividend

$

(19,367

)

$

(4,842

)

$

 

Noncontrolling interests in joint ventures net (income)/loss

 

216

 

 

 

 

 

Depreciation and amortization attributed to noncontrolling interests of joint ventures

 

(1,415

)

 

 

 

 

Distributable Earnings attributable to stockholders and noncontrolling interests

 

95,510

 

 

128,970

 

 

72,040

 

Average Common Stock and Common Stock Equivalents

 

1,456,871

 

 

1,146,009

 

 

974,184

 

GAAP Net Income/(Loss) ROE

 

(0.3

) %

 

1.8

%

 

5.6

%

Run-Rate Distributable Earnings ROE

 

8.0

%

 

12.4

%

 

7.4

%

Distributable Earnings ROE

 

6.6

%

 

11.3

%

 

7.4

%

GAAP Net Income/(Loss) Per Share, Diluted

$

(0.38

)

$

(0.18

)

$

0.90

 

GAAP Net Income/(Loss) Per Share, Fully Converted (5)

$

(0.06

)

$

0.33

 

$

0.96

 

Run-Rate Distributable Earnings Per Share, Fully Converted (5)

$

1.31

 

$

2.23

 

$

1.27

 

Distributable Earnings Per Share, Fully Converted (5)

$

1.07

 

$

2.02

 

$

1.27

 

(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 loan workout expenses the Company incurred, which the Company deems likely to be recovered.

(4)

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

(5)

Fully Converted assumes conversion of our Series H and Series I Preferred Stock, which by their terms automatically convert to common stock in the future, and the vesting of the Company's outstanding equity compensation awards.

 

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