Franklin BSP Realty Trust (FBRT) Financial Report Summaries

Risks

• We have a significant amount of indebtedness and may need to incur more in the future.
• We may not be able to earn returns on loans we make in excess of the interest we pay on our borrowings.
• We rely on the availability of collateralized debt and loan obligation securitization markets to provide long-term financing for our loans and investments.
• Lenders often require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions.
• During periods of rising interest rates, our interest expense increases may outpace any increases in interest we earn on our assets, and the value of our assets may decrease.
• We may not be able to access financing sources on attractive terms, if at all, which could adversely affect our ability to fund and grow our business, or result in dilution to our existing stockholders.
• Our short-term borrowings often require us to provide additional collateral when the fair market value of our collateral decreases, and these calls for collateral could significantly impact our liquidity position.
• Our commercial real estate debt investments are subject to the risks typically associated with ownership of commercial real estate.
• Loans on properties in transition will involve a greater risk of loss than conventional mortgage loans.
• Our success depends on the availability of attractive investment opportunities.
• Delays in liquidating defaulted commercial real estate debt investments could reduce our investment returns.
• Operating and disposing of properties acquired through foreclosure subject us to additional risks that could harm our results of operations.
• Subordinate commercial real estate debt that we originate or acquire could expose us to greater losses.
• We may be subject to risks associated with construction lending, such as declining real estate values, cost overruns and delays in completion.
• Jurisdictions with one action or security first rules or anti-deficiency legislation may limit the ability to foreclose on a property or to realize the obligation secured by the property by obtaining a deficiency judgment.
• Insurance may not cover all potential losses on the properties underlying our investments, which may harm the value of our assets.
• We invest in CMBS and CMBS bonds, which may include subordinate securities, which entails certain risks.
• We may not control the special servicing of the mortgage loans underlying the CMBS and CMBS bonds in which we invest and, in such cases, the special servicer may take actions that could adversely affect our interests.
• We invest in CDOs and such investments involve significant risks.
• Most of our investments are illiquid and we may not be able to vary our portfolio in response to changes in economic and other conditions, which may result in losses to us.
• Some of our investments will be carried at estimated fair value as determined by us and, as a result, there may be uncertainty as to the value of these investments.
• Competition with third parties for originating and acquiring investments may reduce our profitability.
• Our due diligence may not reveal all material issues relating to our origination or acquisition of a particular investment.
• We may be unable to restructure loans in a manner that we believe maximizes value, particularly if we are one of multiple creditors in large capital structures.
• We may be subject to risks associated with future advance obligations, such as declining real estate values and operating performance.
• We may not be successful in our attempts to align the maturities of our liabilities with the maturities on our assets, which could harm our operating results and financial condition.
• Provision for credit losses is difficult to estimate.
• Any credit ratings assigned to our investments will be subject to ongoing evaluations and revisions and we cannot assure you that those ratings will not be downgraded.
• When we acquire companies, we face risks related to integrating the acquired company in a manner that allows us to achieve the synergies and other benefits of the acquisition or do so within the anticipated time frame.
• We use warehouse facilities that may limit our ability to acquire assets, and we may incur losses if the collateral is liquidated.
• We directly and indirectly utilize non‑recourse securitizations, and such structures expose us to risks that could result in losses to us.
• The securitization market is subject to a regulatory environment that may affect certain aspects of these activities.
• We enter into hedging transactions that could expose us to contingent liabilities in the future.
• Hedging against interest rate exposure may adversely affect our income, limit our gains or result in losses, which could adversely affect cash available for distribution to our stockholders.
• The Advisor faces conflicts of interest relating to purchasing commercial real estate-related investments, and such conflicts may not be resolved in our favor, which could adversely affect our investment opportunities.
• The Advisor and its employees face competing demands relating to their time, and this may cause our operating results to suffer.
• The fee structure set forth in the Advisory Agreement may not create proper incentives for the Advisor.
• Our Advisor manages our portfolio pursuant to broad investment guidelines and is not required to seek the approval of our board of directors for each investment, financing, asset allocation or hedging decision made by it, which may result in our making riskier loans and other investments and which could materially and adversely affect us.
• Our Advisor maintains a contractual as opposed to a fiduciary relationship with us. Our Advisor’s liability is limited under our Advisory Agreement, and we have agreed to indemnify our Advisor against certain liabilities.
• Termination of our Advisory Agreement would be difficult and costly.
• The limit on the number of shares a person may own may discourage a takeover that could otherwise result in a premium price to our stockholders.
• Certain provisions of Maryland law could inhibit a change in control of our Company.
• Our failure to qualify as a REIT could have significant adverse consequences to us and the value of our common stock.
• The failure of a mezzanine loan to qualify as a real estate asset could adversely affect our ability to qualify as a REIT.
• Even if we qualify as a REIT, we may be subject to tax liabilities that reduce our cash flow for distribution to our stockholders.
• The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to qualify as a REIT.
• The prohibited transactions tax may limit our ability to engage in transactions, including certain methods of securitizing mortgage loans that would be treated as sales for U.S. federal income tax purposes.
• Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
• Liquidation of assets may jeopardize our REIT qualification.
• Modification of the terms of our debt investments and mortgage loans underlying our CMBS in conjunction with reductions in the value of the real property securing such loans could cause us to fail to qualify as a REIT.
• Changes to the U.S. federal income tax laws, including the enactment of certain tax reform measures, could have a material and adverse effect on us.
• Public health crises have adversely impacted, and may in the future adversely impact, our business and the business of many of our borrowers.
• We may be unable to maintain or increase cash distributions over time, or may decide to reduce the amount of distributions for business reasons.
• Our business could suffer in the event our Advisor or any other party that provides us with services essential to our operations experiences system failures or cyber-incidents or a deficiency in cybersecurity.
• We are subject to risks from natural disasters such as earthquakes and severe weather, including as the result of global climate changes, which may result in damage to the properties securing our loans.