FBRT 10-Q Quarterly Report Sept. 30, 2022

FRANKLIN BSP REALTY TRUST, INC.

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bsprt-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-40923

FRANKLIN BSP REALTY TRUST, INC.

(Exact name of registrant as specified in its charter)


Maryland						46-1406086
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

1345 Avenue of the Americas , Suite 32A New York , New York						10105
(Address of Principal Executive Office)						(Zip Code)

( 212 ) 588-6770

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	FBRT	New York Stock Exchange
7.50% Series E Cumulative Redeemable Preferred Stock, par value $0.01 per share	FBRT PRE	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:


Large accelerated filer o			Accelerated filer o
Non-accelerated filer x			Smaller reporting company ☐
			Emerging growth filer ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant's common stock, $0.01 par value, outstanding as of October 31, 2022 was 82,479,743 .

FRANKLIN BSP REALTY TRUST, INC.

TABLE OF CONTENTS


PART I						Page
Item 1. Consolidated Financial Statements and Notes (unaudited)						1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations						54
Item 3. Quantitative and Qualitative Disclosures about Market Risk						84
Item 4. Controls and Procedures						86
PART II

Item 1. Legal Proceedings						87
Item 1A. Risk Factors						87
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						87
Item 3. Defaults Upon Senior Securities						88
Item 4. Mine Safety Disclosures						88
Item 5. Other Information						88
Item 6. Exhibits						89
Signatures						90

Table of Contents

PART I. Item 1. Consolidated Financial Statements and Notes (unaudited)

FRANKLIN BSP REALTY TRUST, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)


	September 30, 2022		December 31, 2021
ASSETS	(Unaudited)
Cash and cash equivalents	$	216,985	$	154,929
Restricted cash	45,013		13,270
Commercial mortgage loans, held for investment, net of allowance of $ 46,815 and $ 15,827 as of September 30, 2022 and December 31, 2021, respectively	5,281,458		4,211,061
Commercial mortgage loans, held for sale, measured at fair value	41,342		34,718
Real estate securities, trading, measured at fair value	252,491		4,566,871
Real estate securities, available for sale, measured at fair value, amortized cost of $ 74,998 as of September 30, 2022	74,625		—
Derivative instruments, measured at fair value	3,546		436
Other real estate investments, measured at fair value	—		2,074
Receivable for loan repayment (1)	87,356		252,351
Accrued interest receivable	26,287		30,109
Prepaid expenses and other assets	14,383		13,595
Intangible lease asset, net of amortization	46,313		48,472
Real estate owned, net of depreciation	88,322		90,048

Cash collateral receivable from derivative counterparties	—		56,767

Total assets	$	6,178,121	$	9,474,701
LIABILITIES AND STOCKHOLDERS' EQUITY
Collateralized loan obligations	$	3,174,530	$	2,162,190
Repurchase agreements - commercial mortgage loans	699,408		1,019,600
Repurchase agreements - real estate securities	337,613		4,178,784
Mortgage note payable	23,998		23,998
Other financing and loan participation - commercial mortgage loans	53,167		37,903
Unsecured debt	98,670		148,594
Derivative instruments, measured at fair value	12		32,295
Interest payable	8,472		2,692
Distributions payable	36,546		30,346
Accounts payable and accrued expenses	52,731		12,705
Due to affiliates	16,444		17,538

Total liabilities	$	4,501,591	$	7,666,645
Commitment and contingencies (See Note 10)
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 September 30, 2022 and December 31, 2021	$	6,976	$	6,971
Redeemable convertible preferred stock Series D, $ 0.01 par value, none authorized and outstanding as of September 30, 2022, 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 September 30, 2022, none authorized and outstanding as of December 31, 2021	89,748		—
Total redeemable convertible preferred stock	$	96,724	$	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 September 30, 2022 and December 31, 2021	$	258,742	$	258,742
Series F Convertible Preferred stock, $ 0.01 par value, none authorized or outstanding as of September 30, 2022, and 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, 83,362,351 and 43,965,928 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively	830		441
Additional paid-in capital	1,605,120		903,264
Accumulated other comprehensive income (loss)	( 373 )		( 62 )
Accumulated deficit	( 290,277 )		( 167,179 )
Total stockholders' equity	$	1,574,042	$	1,705,637
Non-controlling interest	5,764		5,764
Total equity	$	1,579,806	$	1,711,401
Total liabilities, redeemable convertible preferred stock and equity	$	6,178,121	$	9,474,701

_________________________________________________________

(1) Includes $ 86.9 million and $ 187.0 million of cash held by servicer related to the CLOs as of September 30, 2022 and December 31, 2021, respectively, as well as $ 0.4 million and $ 65.3 million of RMBS principal paydowns receivable as of September 30, 2022 and December 31, 2021, respectively.

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

FRANKLIN BSP REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Income:
Interest income	$	94,131	$	47,747	$	239,602	$	138,969
Less: Interest expense	46,157		11,988		101,444		35,994
Net interest income	47,974		35,759		138,158		102,975
Revenue from real estate owned	2,312		1,015		6,936		2,447
Total income	$	50,286	$	36,774	$	145,094	$	105,422
Expenses:
Asset management and subordinated performance fee	$	6,430	$	8,265	$	19,776	$	19,682
Acquisition expenses	362		690		996		1,012
Administrative services expenses	3,001		2,980		9,402		9,532
Professional fees	4,743		2,488		20,138		7,262

Depreciation and amortization	1,295		—		3,886		812
Other expenses	1,424		709		4,849		2,115
Total expenses	$	17,255	$	15,132	$	59,047	$	40,415
Other (income)/loss:
Provision/(benefit) for credit losses	$	( 599 )	$	( 1,613 )	$	30,976	$	( 5,452 )

Realized (gain)/loss on extinguishment of debt	—		—		( 15 )		—

Realized (gain)/loss on sale of commercial mortgage loans, held for sale	( 9 )		( 206 )		( 48 )		( 206 )
Realized (gain)/loss on sale of real estate owned assets, held for sale	—		( 8,698 )		—		( 9,810 )
Realized (gain)/loss on sale of commercial mortgage loans, held for sale, measured at fair value	( 4,782 )		( 9,061 )		( 4,838 )		( 22,211 )
Realized (gain)/loss on other real estate investments, measured at fair value	—		—		33		—
Unrealized (gain)/loss on commercial mortgage loans, held for sale, measured at fair value	( 58 )		1,104		3,678		—
Unrealized (gain)/loss on other real estate investments, measured at fair value	—		( 1 )		( 4 )		( 27 )
Trading (gain)/loss	2,744		—		113,717		1,375
Unrealized (gain)/loss on derivatives	( 1,566 )		( 1,428 )		12,824		( 374 )
Realized (gain)/loss on derivatives	1,624		1,902		( 57,599 )		( 357 )
Total other (income)/loss	$	( 2,646 )	$	( 18,001 )	$	98,724	$	( 37,062 )
Income/(loss) before taxes	35,677		39,643		( 12,677 )		102,069
Provision/(benefit) for income tax	419		1,148		281		3,418
Net income/(loss)	$	35,258	$	38,495	$	( 12,958 )	$	98,651


Net income/(loss) applicable to common stock	$	28,359	$	29,490	$	( 47,823 )	$	75,905

Basic earnings per share	$	0.34	$	0.67	$	( 0.70 )	$	1.72
Diluted earnings per share	$	0.34	$	0.67	$	( 0.70 )	$	1.71
Basic weighted average shares outstanding	83,665,250		44,185,241		67,965,397		44,245,733
Diluted weighted average shares outstanding	83,665,250		44,200,564		67,965,397		44,261,470

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

FRANKLIN BSP REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income/(loss)	$	35,258	$	38,495	$	( 12,958 )	$	98,651

Unrealized gain/(loss) on available for sale securities	$	( 373 )	$	—	$	( 373 )	$	8,256
Amounts related to cash flow hedges:
Change in net unrealized gain/(loss)	$	—	$	—	$	( 220 )	$	—
Reclassification adjustment for amounts included in net income/(loss)	—		—		282		—
	$	—	$	—	$	62	$	—
Comprehensive income/(loss) attributable to Franklin BSP Realty Trust, Inc.	$	34,885	$	38,495	$	( 13,269 )	$	106,907

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

FRANKLIN BSP REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(In thousands, except share data)

(Unaudited)


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income/(Loss)		Accumulated Deficit		Preferred E		Preferred F		Total Stockholders' Equity		Non-Controlling Interest		Total Equity
	Number of Shares	Par Value
Balance, December 31, 2021	43,965,928	$	441	$	903,264	$	( 62 )	$	( 167,179 )	$	258,742	$	710,431	$	1,705,637	$	5,764	$	1,711,401
Issuance of common stock	—	—		—		—		—		—		—		—		—		—
Common stock repurchases	—	—		—		—		—		—		—		—		—		—
Common stock issued through distribution reinvestment plan	5,982	—		91		—		—		—		—		91		—		91
Share-based compensation	499,217	—		500		—		—		—		—		500		—		500
Offering costs	—	—		—		—		—		—		—		—		—		—
Net income/(loss)	—	—		—		—		( 22,507 )		—		—		( 22,507 )		—		( 22,507 )
Distributions declared	—	—		—		—		( 36,743 )		—		—		( 36,743 )		—		( 36,743 )
Other comprehensive income/(loss)	—	—		—		62		—		—		—		62		—		62
Balance, March 31, 2022	44,471,127	$	441	$	903,855	$	—	$	( 226,429 )	$	258,742	$	710,431	$	1,647,040	$	5,764	$	1,652,804
Issuance of common stock	—	—		—		—		—		—		—		—		—		—
Common stock repurchases	743	—		—		—		—		—		—		—		—		—
Common stock issued through distribution reinvestment plan	—	—		—		—		—		—		—		—		—		—
Share-based compensation	21,459	—		721		—		—		—		—		721		—		721
Preferred F exchanged for common stock	39,733,299	397		710,034		—		—		—		( 710,431 )		—		—		—
Offering costs	—	—		—		—		—		—		—		—		—		—
Net income/(loss)	—	—		—		—		( 25,709 )		—		—		( 25,709 )		—		( 25,709 )
Distributions declared	—	—		—		—		( 36,848 )		—		—		( 36,848 )		—		( 36,848 )
Other comprehensive income/(loss)	—	—		—		—		—		—		—		—		—		—
Balance, June 30, 2022	84,226,628	$	838	$	1,614,610	$	—	$	( 288,986 )	$	258,742	$	—	$	1,585,204	$	5,764	$	1,590,968
Issuance of common stock	—	—		—		—		—		—		—		—		—		—
Common stock repurchases	( 931,053 )	( 9 )		( 11,026 )		—		—		—		—		( 11,035 )		—		( 11,035 )
Common stock issued through distribution reinvestment plan	66,776	1		906		—		—		—		—		907		—		907
Share-based compensation	—	—		630		—		—		—		—		630		—		630
Offering costs	—	—		—		—		—		—		—		—		—		—
Net income/(loss)	—	—		—		—		35,258		—		—		35,258		—		35,258
Distributions declared	—	—		—		—		( 36,549 )		—		—		( 36,549 )		—		( 36,549 )
Other comprehensive income/(loss)	—	—		—		( 373 )		—		—		—		( 373 )		—		( 373 )
Non-controlling interest	—	—		—		—		—		—		—		—		—		—
Balance, September 30, 2022	83,362,351	$	830	$	1,605,120	$	( 373 )	$	( 290,277 )	$	258,742	$	—	$	1,574,042	$	5,764	$	1,579,806

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

FRANKLIN BSP REALTY TRUST, INC.

THE ACCOMPANYING CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(In thousands, except share data)

(Unaudited)


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income/(Loss)		Accumulated Deficit		Preferred E		Preferred F		Total Stockholders' Equity		Non-Controlling Interest		Total Equity
	Number of Shares	Par Value
Balance, December 31, 2020	44,510,051	$	446	$	912,725	$	( 8,256 )	$	( 106,471 )	$	—	$	—	$	798,444	$	—	$	798,444
Issuance of common stock	—	—		—		—		—		—		—		—		—		—
Common stock repurchases	( 521,796 )	( 5 )		( 9,142 )		—		—		—		—		( 9,147 )		—		( 9,147 )
Common stock issued through distribution reinvestment plan	147,404	2		2,583		—		—		—		—		2,585		—		2,585
Share-based compensation	—	—		55		—		—		—		—		55		—		55
Offering costs	—	—		( 21 )		—		—		—		—		( 21 )		—		( 21 )
Net income/(loss)	—	—		—		—		30,146		—		—		30,146		—		30,146
Distributions declared	—	—		—		—		( 15,644 )		—		—		( 15,644 )		—		( 15,644 )
Other comprehensive income/(loss)	—	—		—		8,042		—		—		—		8,042		—		8,042
Balance, March 31, 2021	44,135,659	$	443	$	906,200	$	( 214 )	$	( 91,969 )	$	—	$	—	$	814,460	$	—	$	814,460
Issuance of common stock	504	—		—		—		—		—		—		—		—		—
Common stock repurchases	( 3,784 )	—		( 66 )		—		—		—		—		( 66 )		—		( 66 )
Common stock issued through distribution reinvestment plan	141,270	1		2,523		—		—		—		—		2,524		—		2,524
Share-based compensation	11,184	—		53		—		—		—		—		53		—		53
Offering costs	—	—		( 21 )		—		—		—		—		( 21 )		—		( 21 )
Net income/(loss)	—	—		—		—		30,010		—		—		30,010		—		30,010
Distributions declared	—	—		—		—		( 15,898 )		—		—		( 15,898 )		—		( 15,898 )
Other comprehensive income/(loss)	—	—		—		214		—		—		—		214		—		214
Balance, June 30, 2021	44,284,833	$	444	$	908,689	$	—	$	( 77,857 )	$	—	$	—	$	831,276	$	—	$	831,276
Issuance of common stock	—	—		—		—		—		—		—		—		—		—
Common stock repurchases	( 123,257 )	( 1 )		( 2,203 )		—		—		—		—		( 2,204 )		—		( 2,204 )
Common stock issued through distribution reinvestment plan	1,081	—		1		—		—		—		—		1		—		1
Share-based compensation	—	—		52		—		—		—		—		52		—		52
Offering costs	—	—		( 22 )		—		—		—		—		( 22 )		—		( 22 )
Net income/(loss)	—	—		—		—		38,495		—		—		38,495		—		38,495
Distributions declared	—	—		—		—		( 20,482 )		—		—		( 20,482 )		—		( 20,482 )
Other comprehensive income/(loss)	—	—		—		—		—		—		—		—		—		—
Non-controlling interest	—	—		—		—		—		—		—				5,764		5,764
Balance, September 30, 2021	44,162,657	$	443	$	906,517	$	—	$	( 59,844 )	$	—	$	—	$	847,116	$	5,764	$	852,880

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

FRANKLIN BSP REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net income/(loss)	$	( 12,958 )	$	98,651
Adjustments to reconcile net income to net cash (used in)/provided by operating activities:
Premium amortization and (discount accretion), net	$	( 8,780 )	$	( 4,421 )
Accretion of deferred commitment fees	( 6,795 )		( 6,429 )
Amortization of deferred financing costs	9,737		3,820
Share-based compensation	1,850		160

Realized (gain)/loss from sale of real estate owned, held for sale	—		( 9,810 )
Realized (gain)/loss from sale of other real estate investments	33		—
Realized (gain)/loss on extinguishment of debt	( 15 )		—
Realized (gain)/loss on swap terminations	( 55,301 )		—
Trading (gain)/loss	113,717		1,375
Unrealized (gain)/loss from commercial mortgage loans, held for sale	3,678		—
Unrealized (gain)/loss from derivative instruments	12,824		( 374 )
Unrealized (gain)/loss from other real estate investments	( 4 )		( 27 )
Depreciation and amortization	3,886		812

Provision/(benefit) for credit losses	30,976		( 5,452 )

Origination of commercial mortgage loans, held for sale, measured at fair value	( 343,096 )		( 321,278 )
Proceeds from sale of commercial mortgage loans, held for sale, measured at fair value	332,794		388,828
Changes in assets and liabilities:
Accrued interest receivable	7,336		4,593
Prepaid expenses and other assets	( 4,047 )		1,434
Accounts payable and accrued expenses	40,114		4,547
Due to affiliates	( 1,094 )		7,615
Interest payable	5,780		( 1,005 )
Net cash (used in)/provided by operating activities	$	130,635	$	163,039
Cash flows from investing activities:
Origination and purchase of commercial mortgage loans, held for investment	$	( 1,964,212 )	$	( 1,388,777 )
Principal repayments received on commercial mortgage loans, held for investment	965,681		771,878
Proceeds from (purchase)/sale of other real estate investments	2,045		—
Purchase of real estate owned and capital expenditures	—		( 134,052 )
Proceeds from sale of real estate owned, held for sale	—		29,914
Purchase of real estate securities, available for sale	( 74,998 )		—
Proceeds from sale of commercial mortgage loans, held for sale	9,296		38,161
Proceeds from sale/(repayment) of real estate securities	3,731,716		178,017
Principal collateral on mortgage investments	533,852		—
Payments of derivative instruments	( 1,333 )		( 4 )
Net cash (used in)/provided by investing activities	$	3,202,047	$	( 504,863 )
Cash flows from financing activities:

Proceeds from issuances of redeemable convertible preferred stock	$	—	$	15,000
Payments for common stock repurchases	( 11,035 )		( 11,417 )
Borrowings on collateralized loan obligations	1,630,639		612,723
Repayments of collateralized loan obligations	( 609,530 )		( 442,672 )
Borrowings on repurchase agreements - commercial mortgage loans	1,791,951		812,528
Repayments of repurchase agreements - commercial mortgage loans	( 2,112,143 )		( 538,712 )
Borrowings on repurchase agreements - real estate securities	17,711,125		175,822

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FRANKLIN BSP REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


Repayments of repurchase agreements - real estate securities	( 21,552,296 )		( 316,118 )
Proceeds from other financing and loan participation - commercial mortgage loans	15,264		6,055
Borrowings on unsecured debt	—		160,000
Repayments of unsecured debt	( 50,000 )		( 100,000 )
Borrowing on mortgage note payable	—		23,940
Payments of deferred financing costs	( 15,163 )		( 4,497 )
Cash collateral received on interest rate swaps	56,767		—
Proceeds from interest rate swap settlements	8,479		—
Distributions paid	( 102,941 )		( 42,064 )
Net cash (used in)/provided by financing activities:	$	( 3,238,883 )	$	350,588
Net change in cash, cash equivalents and restricted cash	93,799		8,764
Cash, cash equivalents and restricted cash, beginning of period	168,199		92,141
Cash, cash equivalents and restricted cash, end of period	$	261,998	$	100,905

Supplemental disclosures of cash flow information:
Cash payments for income taxes	$	1,199	$	80
Cash payments for interest	85,927		33,312


Supplemental disclosures of non - cash flow information:
Distribution payable	$	36,546	$	20,447
Common stock issued through distribution reinvestment plan	998		5,110


Loans transferred to commercial real estate loans, held for sale	9,296		—
Conversion of Series F Preferred Stock to Common Stock	710,431		—
Conversion of Series D Preferred Stock to Series H Preferred Stock	89,748		—

Reconciliation of cash, cash equivalents and restricted cash at end of period:
Cash and cash equivalents	$	216,985	$	91,374
Restricted cash	45,013		9,531
Cash, cash equivalents and restricted cash, end of period	$	261,998	$	100,905

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Note 1 - Organization and Business Operations

Franklin BSP Realty Trust, Inc. (the "Company") is a real estate finance company that primarily originates, acquires and manages a diversified portfolio of commercial real estate debt investments secured by properties located within and outside the United States. The Company is a Maryland corporation and has made tax elections to be treated as a real estate investment trust (a "REIT") for U.S. federal income tax purposes since 2013.

The Company believes that it has qualified as a REIT and intends to continue to meet the requirements for qualification and taxation as a REIT. Substantially all of the Company's business is conducted through Benefit Street Partners Realty Operating Partnership, L.P. (the “OP”), a Delaware limited partnership. The Company is the sole general partner and directly or indirectly holds all of the units of limited partner interests in the OP. In addition, the Company, through one or more subsidiaries which are treated as a taxable REIT subsidiary (a “TRS”), is indirectly subject to U.S. federal, state and local income taxes.

The Company has no employees. Benefit Street Partners L.L.C. serves as the Company's advisor (the "Advisor") pursuant to an advisory agreement, as amended on August 18, 2021 (the "Advisory Agreement"). The Advisor, an investment adviser registered with the SEC, is a credit-focused alternative asset management firm.

Established in 2008, the Advisor's credit platform manages funds for institutions and high-net-worth investors across various credit funds and complementary strategies including high yield, levered loans, private/opportunistic debt, liquid credit, structured credit and commercial real estate debt. These strategies complement each other as they all leverage the sourcing, analytical, compliance, and operational capabilities that encompass the platform. The Advisor manages the Company's affairs on a day-to-day basis. The Advisor receives compensation fees and reimbursements for services related to the investment and management of the Company's assets and the operations of the Company. The advisor is a wholly-owned subsidiary of Franklin Resources, Inc., which together with its various subsidiaries operates as "Franklin Templeton”.

The Company invests in commercial real estate debt investments, which may include first mortgage loans, subordinated mortgage loans, mezzanine loans and participations in such loans. The Company also originates conduit loans which the Company intends to sell through its TRS into commercial mortgage-backed securities ("CMBS") securitization transactions. Historically this business has focused primarily on CMBS, commercial real estate collateralized loan obligation bonds ("CRE CLO bonds"), unsecured REIT debt, collateralized debt obligations ("CDOs") and other securities. As a result of the October 2021 acquisition of Capstead Mortgage Corporation ("Capstead"), the Company acquired a portfolio of residential mortgage backed securities (“RMBS”) in the form of residential adjustable-rate mortgage pass-through securities ("ARM Agency Securities") issued and guaranteed by government-sponsored enterprises or by an agency of the federal government. Although the Company continues to hold a small portion of this portfolio it does not intend to do so long-term and intends to reinvest proceeds from this portfolio in its other businesses . The Company also owns real estate that was either acquired by the Company through foreclosure or deed in lieu of foreclosure, or that was purchased for investment, typically subject to triple net leases.

Note 2 - Summary of Significant Accounting Policies

Basis of Accounting

The Company's unaudited consolidated financial statements and related footnotes have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America ("GAAP") for interim financial statements and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X, as appropriate. Accordingly, the consolidated financial statements may not include all of the information and notes required by GAAP for annual consolidated financial statements.

These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of, and for the year ended December 31, 2021, which are included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on February 25, 2022.

Use of Estimates

GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reported periods. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially. In the opinion of management, the interim data includes all adjustments, of a normal and recurring nature, necessary for a fair statement of the results for the periods presented. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the entire year or any subsequent interim periods.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, the OP and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. In determining whether the Company has a controlling financial interest in a joint venture and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the other partners or members, as well as whether the entity is a variable interest entity ("VIE") for which the Company is the primary beneficiary.

The Company has determined the OP is a VIE of which the Company is the primary beneficiary. Substantially all of the Company's assets and liabilities are held by the OP.

The Company consolidates all entities that it controls through either majority ownership or voting rights. In addition, the Company consolidates all VIEs of which the Company is considered the primary beneficiary. VIEs are entities in which equity investors (i) do not have the characteristics of a controlling financial interest and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The entity that consolidates a VIE is its primary beneficiary and is generally the entity with (i) the power to direct the activities that most significantly affect the VIE’s economic performance and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE. Non-controlling interest represents the equity of a consolidated joint venture that is not owned by the Company.

The accompanying consolidated financial statements include the accounts of collateralized loan obligations ("CLOs") issued and securitized by wholly owned subsidiaries of the Company. The Company has determined the CLOs are VIEs of which the Company's subsidiary is the primary beneficiary. The assets and liabilities of the CLOs are consolidated in the accompanying consolidated balance sheets in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation.

Acquisition Expenses

The Company capitalizes certain direct costs relating to loan origination activities. The cost is amortized over the life of the loan and recognized in interest income in the Company's consolidated statements of operations. Acquisition expenses paid on future funding amounts are expensed within the acquisition expenses line in the Company's consolidated statements of operations.

Cash and Cash Equivalents

Cash consists of amounts deposited with high quality financial institutions. These deposits are guaranteed by the Federal Deposit Insurance Company up to an insurance limit. Cash equivalents include short-term, liquid investments in money market funds with original maturities of 90 days or less when purchased.

Restricted Cash

Restricted cash primarily consists of cash pledged as margin on repurchase agreements and derivative transactions. The duration of this restricted cash generally matches the duration of the related repurchase agreements or derivative transaction.

Commercial Mortgage Loans

Held for Investment - Commercial mortgage loans that are held for investment purposes and are anticipated to be held until maturity, are carried at cost, net of unamortized acquisition expenses, discounts or premiums and unfunded commitments. Commercial mortgage loans, held for investment purposes, are carried at amortized cost less allowance for credit losses. Interest income is recorded on the accrual basis and related discounts, premiums and acquisition expenses on investments are amortized over the life of the investment using the effective interest method. Amortization is reflected as an adjustment to interest income in the Company’s consolidated statements of operations. Guaranteed loan commitment fees payable by the borrower upon maturity are accreted over the life of the investment using the effective interest method. The accretion of guaranteed loan commitment fees is recognized in interest income in the Company's consolidated statements of operations.

Held for Sale - Commercial mortgage loans that are intended to be sold in the foreseeable future are reported as held for sale and are transferred at fair value and recorded at the lower of cost or fair value with changes recorded through the statements of operations. Unamortized loan origination costs for commercial mortgage loans held for sale that are carried at the lower of cost or fair value are capitalized as part of the carrying value of the loans and recognized upon the sale of such loans. Amortization of origination costs ceases upon transfer of commercial mortgage loans to held for sale.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Held for Sale, Accounted for Under the Fair Value Option - The fair value option provides an option to elect fair value as an alternative measurement for selected financial assets, financial liabilities, and written loan commitments. The Company has elected to measure commercial mortgage loans held for sale in the Company's TRS under the fair value option. These commercial mortgage loans are included in the Commercial mortgage loans, held for sale, measured at fair value in the consolidated balance sheets. Interest income received on commercial mortgage loans, held for sale, measured at fair value is recorded on the accrual basis of accounting and is included in interest income in the consolidated statements of operations. Costs to originate these investments are expensed when incurred.

Real estate owned

The Company classifies its real estate owned as long-lived assets held for investment or as long-lived assets held for sale. Held for investment assets are stated at cost, as adjusted for any impairment loss, less accumulated depreciation.

Real estate owned is classified as held for sale in the period in which the six criteria under ASC Topic 360, "Property, Plant, and Equipment" are met: (1) we commit to a plan and have the authority to sell the asset; (2) the asset is available for sale in its current condition; (3) we have initiated an active marketing plan to locate a buyer for the asset; (4) the sale of the asset is both probable and expected to qualify for full sales recognition within a period of 12 months; (5) the asset is being actively marketed for sale at a price that is reflective of its current fair value; and (6) we do not anticipate changes to our plan to sell the asset. Held for sale assets are carried at the lower of depreciated cost or estimated fair value, less estimated costs to sell.

Amounts capitalized to real estate owned consist of the cost of acquisition or construction, any tenant improvements or major improvements, betterments that extend the useful life of the related asset, and transaction costs associated with the acquisition of an individual asset that does not qualify as a business combination. All repairs and maintenance are expensed as incurred. Additionally, the Company capitalizes interest while the development, or redevelopment, of a real estate owned asset is in progress. No development or redevelopments of real estate owned assets are in progress as of September 30, 2022.

The Company’s real estate owned assets are depreciated or amortized using the straight-line method over the following useful lives:


Buildings			40 years
Furniture, fixtures, and equipment			15 years
Site Improvements			5 - 25 years
Intangible lease assets			Lease term

The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of the real estate and related intangible assets of either operating properties or properties under construction in which the Company has an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When indicators of potential impairment are present, management assesses whether the respective carrying values will be recovered from the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition for assets held for use, or from the estimated fair values, less costs to sell, for assets held for sale. In the event that the expected undiscounted future cash flows for assets held for use or the estimated fair value, less costs to sell, for assets held for sale do not exceed the respective asset carrying value, management adjusts such assets to the respective estimated fair values and recognizes an impairment loss. Estimated fair values are calculated based on the following information, depending upon availability, in order of preference: (i) recently quoted market prices, (ii) market prices for comparable properties, or (iii) the present value of undiscounted cash flows, including estimated sales value (which is based on key assumptions such as estimated market rents, lease-up periods, estimated lease terms, and capitalization and discount rates) less estimated selling costs.

Real estate owned assets that are probable to be sold within one year are reported as held for sale. Real estate owned assets classified as held for sale are measured at the lower of its carrying amount or fair value less cost to sell. Real estate owned assets are not depreciated or amortized while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be accrued. Upon the disposition of a real estate owned asset, the Company calculates realized gains and losses as net proceeds received less the carrying value of the real estate owned asset. Net proceeds received are net of direct selling costs associated with the disposition of the real estate owned asset.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Fair Value of Assets and Liabilities of Acquired Properties

Upon the acquisition of real properties, the Company records the fair value of properties (plus any related acquisition costs) allocated based on relative fair value as tangible assets, consisting of land and building, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases and the value of in-place leases, based on their estimated fair values. Substantially all of the Company’s property acquisitions qualify as asset acquisitions under Accounting Standards Codification ("ASC") 805, Business Combinations.

The estimated fair values of the tangible assets of an acquired property are determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land and building based on management’s determination of the estimated fair value of these assets. Management relies on a sales comparison approach using closed land sales and listings in determining the land value, and determines the as-if-vacant estimated fair value of a property using methods similar to those used by independent appraisers. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance, and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates the cost to execute similar leases including leasing commissions, legal, and other related costs.

The estimated fair values of above-market and below-market in-place leases are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of market rates for the corresponding in-place leases, measured over a period equal to the remaining terms of the leases, taking into consideration the probability of renewals for any below-market leases. The capitalized above-market and below-market lease values are recorded as intangible lease assets or liabilities and amortized as an adjustment to rental revenues over the remaining terms of the respective leases.

The estimated fair values of in-place leases include an estimate of the direct costs associated with obtaining the acquired or "in place" tenant and estimates of opportunity costs associated with lost rentals that are avoided by acquiring an in-place lease. The amount capitalized as direct costs associated with obtaining a tenant include commissions, tenant improvements, and other direct costs and are estimated based on management’s consideration of current market costs to execute a similar lease. These direct lease origination costs are included in deferred lease costs in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases. The value of opportunity costs is calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. These lease intangibles are included in intangible lease assets in the accompanying consolidated balance sheets and are amortized to expense over the remaining terms of the respective leases.

Credit Losses

The allowances for credit losses required under Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments Credit Losses, are deducted from the respective loans’ amortized cost basis on the Company’s consolidated balance sheets. The allowance for credit losses attributed to unfunded loan commitments is included in Accounts payable and accrued expenses on the consolidated balance sheets.

General allowance for credit losses

The general allowance for credit losses for the Company’s financial instruments carried at amortized cost and off-balance sheet credit exposures, such as loans held for investment and unfunded loan commitments represents a lifetime estimate of expected credit losses. Factors considered by the Company when determining the general allowance for credit losses reserve include loan-specific characteristics such as loan-to-value (“LTV”) ratio, vintage year, loan term, property type, occupancy and geographic location, financial performance of the borrower, expected payments of principal and interest, as well as internal or external information relating to past events, current conditions and reasonable and supportable forecasts.

The general allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist for multiple financial instruments. If similar risk characteristics do not exist, the Company measures the general allowance for credit losses on an individual instrument basis. The determination of whether a particular financial instrument should be included in a pool can change over time. If a financial asset’s risk characteristics change, the Company evaluates whether it is appropriate to continue to keep the financial instrument in its existing pool or evaluate it individually.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

In measuring the general allowance for credit losses for financial instruments including our unfunded loan commitments that share similar risk characteristics, the Company primarily applies a probability of default (“PD”)/loss given default (“LGD”) model for instruments that are collectively assessed, whereby the allowance for credit losses is calculated as the product of PD, LGD and exposure at default (“EAD”). The Company’s model principally utilizes historical loss rates derived from a commercial mortgage backed securities database with historical losses from 1998 to 2022 provided by a reputable third party, forecasting the loss parameters using a scenario-based statistical approach over a reasonable and supportable forecast period of twelve months, followed by an immediate reversion to average historical losses. For financial instruments assessed on an individual basis, including when it is probable that the Company will be unable to collect the full payment of principal and interest on the instrument, the Company applies a discounted cash flow (“DCF”) methodology.

Specific allowance for credit losses

For financial instruments where, based on the Company’s assessment at the reporting date, the repayment is expected to be provided substantially through the operation or sale of the collateral, the Company may elect to use as a practical expedient the fair value of the collateral as of the reporting date when determining a specific allowance for credit losses.

For financial instruments which the Company identifies reasonable doubt as to whether the collection of contractual components can be satisfied, a loan specific allowance analysis is performed. Determining whether a specific allowance for a loan is required entails significant judgment from management and is based on several factors including (i) the underlying collateral performance, (ii) discussions with the borrower, (iii) borrower events of default, and (iv) other facts that impact the borrower’s ability to pay the contractual amounts due under the terms of the loan. If a loan is determined to have a specific allowance, the specific allowance is recorded as a component of our Current Expected Credit Loss ("CECL") reserve by applying the practical expedient for collateral dependent loans. The CECL reserve is assessed on an individual basis for such loans by comparing the estimated fair value of the underlying collateral, less costs to sell, to the book value of the respective loan. These valuations require significant judgments, which include assumptions regarding capitalization rates, discount rates, leasing, creditworthiness of major tenants, occupancy rates, availability and cost of financing, exit plans, loan sponsorship, actions of other lenders, and other factors deemed relevant by the Company. Actual losses, if any, could ultimately differ materially from these estimates. The Company only expects to write-off specific allowances if and when such amounts are deemed non-recoverable. Non-recoverability is generally determined at the time a loan is settled, or in the case of foreclosure, when the underlying asset is sold. Non-recoverability may also be concluded if, in the Company's determination, it is deemed certain that all amounts due will not be collected. If a loan is determined to be impaired based on the above considerations, management records a write-off through a charge to the "Specific allowance for credit losses" and the respective loan balance.

Risk Rating

In developing the allowances for credit losses for its loans held for investment, the Company performs a comprehensive analysis of its loan portfolio and assigns risk ratings to loans that incorporate management's current judgments about their credit quality based on all known and relevant internal and external factors that may affect collectability, using similar factors as those in developing the allowance for credit losses. This methodology results in loans being segmented by risk classification into risk rating categories that are associated with estimated probabilities of default and principal loss. Risk rating categories range from "1" to "5" with "1" representing the lowest risk of loss and "5" representing the highest risk of loss with the ratings updated quarterly. At the time of origination or purchase, loans held for investment are ranked as a “2” and will move accordingly going forward based on the ratings which are defined as follows:

1. Very Low Risk- Investment exceeding fundamental performance expectations and/or capital gain expected. Trends and risk factors since time of investment are favorable.

2. Low Risk- Performing consistent with expectations and a full return of principal and interest expected. Trends and risk factors are neutral to favorable.

3. Average Risk- Performing investments requiring closer monitoring. Trends and risk factors show some deterioration.

4. High Risk/Delinquent/Defaulted/Potential for Loss- Underperforming investment with the potential of some interest loss but still expecting a positive return on investment. Trends and risk factors are negative.

5. Impaired/Loss Likely- Underperforming investment with expected loss of interest and some principal.

The Company also considers qualitative and environmental factors, including, but not limited to, economic and business conditions, nature and volume of the loan portfolio, lending terms, volume and severity of past due loans, concentration of credit and changes in the level of such concentrations in its determination of the allowance for credit losses.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Changes in the allowances for credit losses for the Company’s financial instruments are recorded in Provision/(benefit) for credit losses on the consolidated statements of operations with a corresponding offset to the financial instrument’s amortized cost recorded on the consolidated balance sheets, or as a component of Accounts payable and accrued expenses for unfunded loan commitments.

The Company has elected to not measure an allowance for credit losses for accrued interest receivable as balances are written off in a timely manner when loans, real estate securities or preferred equity investments are designated as non-performing and placed on non-accrual or cost recovery status within 90 days of becoming past due.

Non-performing status

The Company designates loans as non-performing when (i) full payment of principal and coupon interest components become 90-days past due ("non-accrual status"); or (ii) the Company has reasonable doubt as to whether the collection of contractual components can be satisfied ("cost recovery status"). When a loan is designated as non-performing and placed on non-accrual status, interest is only recognized as income when payment has been received. Loans designated as non-performing and placed on non-accrual status are removed from their non-performing designation when collection of principal and coupon interest components have been satisfied. When a loan is designated as non-performing and placed on cost recovery status, the cost-recovery method is applied to which receipt of principal or coupon interest is recorded as a reduction to the amortized cost until collection of all contractual components are reasonably assured.

Troubled Debt Restructuring (“TDR”)

The Company classifies an individual financial instrument as a TDR when it has a reasonable expectation that the financial instrument’s contractual terms will be modified in a manner that grants concession to the borrower who is experiencing financial difficulty. Concessions could include term extensions, payment deferrals, interest rate reductions, principal forgiveness, forbearance, or other actions designed to maximize the Company’s collection on the financial instrument. The Company determines the allowance for credit losses for financial instruments that are TDRs individually.

Real Estate Securities

Available For Sale

On the acquisition date, all of the Company’s commercial real estate securities were classified as available for sale ("AFS") and carried at fair value, and subsequently any unrealized gains or losses are recognized as a component of accumulated other comprehensive income or loss. The Company focuses on investing in and asset managing real estate securities. Historically this business has focused primarily on CMBS, CRE CLO bonds, unsecured REIT debt, CDO notes and other securities. Related discounts, premiums and acquisition expenses on investments are amortized over the life of the investment using the effective interest method. Amortization is reflected as an adjustment to interest income in the Company’s consolidated statements of operations. The Company uses the specific identification method in determining the cost relief for real estate securities sold. Realized gains and losses from the sale of real estate securities are included in the Company’s consolidated statements of operations.

AFS real estate securities which have experienced a decline in the fair value below their amortized cost basis (i.e., impairment) are evaluated each reporting period to determine whether the decline in fair value is due to credit-related factors. Any impairment that is not credit-related is recognized in accumulated other comprehensive income, while credit-related impairment is recognized as an allowance on the consolidated balance sheets with a corresponding adjustment on the consolidated statements of operations. If the Company intends to sell an impaired real estate security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount is recognized in the consolidated statements of operations with a corresponding adjustment to the security’s amortized cost basis.

The Company analyzes the AFS security portfolio on a periodic basis for credit losses at the individual security level using the same criteria described above for those amortized cost financial assets subject to an allowance for credit losses including but not limited to; performance of the underlying assets in the security, borrower financial resources and investment in collateral, collateral type, credit ratings, project economics and geographic location as well as national and regional economic factors.

The non-credit loss component of the unrealized loss within the Company’s AFS portfolio is recognized as an adjustment to the individual security’s asset balance with an offsetting entry to accumulated other comprehensive income in the consolidated balance sheets.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Trading

In the merger with Capstead, the Company acquired a portfolio of residential mortgage pass-through securities consisting primarily of ARM Agency Securities issued and guaranteed by government-sponsored enterprises, either Fannie Mae, Freddie Mac, or by an agency of the federal government, Ginnie Mae. ARM Agency Securities and are classified as "trading".

ARM Agency Securities are recorded at fair value on the balance sheet with trading gains and losses on the paydowns and sales of these securities recorded in the Company's consolidated statements of operations. Fair values fluctuate with current and projected changes in interest rates, prepayment expectations and other factors such as market liquidity conditions and the perceived credit quality of agency securities. Judgment is required to interpret market data and develop estimated fair values, particularly in circumstances of deteriorating credit quality and market liquidity.

Repurchase Agreements

Commercial mortgage loans and real estate securities sold under repurchase agreements have been treated as collateralized financing transactions because the Company maintains effective control over the transferred securities. Commercial mortgage loans and real estate securities financed through a repurchase agreement remain on the Company’s consolidated balance sheets as an asset and cash received from the purchaser is recorded as a liability. Interest paid in accordance with repurchase agreements is recorded in interest expense on the Company's consolidated statements of operations.

Deferred Financing Costs

The deferred financing costs related to the Company's various Master Repurchase Agreements as well as certain prepaid subscription costs are included in Prepaid expenses and other assets on the consolidated balance sheets. Deferred financing cost on the Company's collateralized loan obligations ("CLO") are netted against the Company's CLO payable in the Collateralized loan obligations on the consolidated balance sheets. Deferred financing costs are amortized over the terms of the respective financing agreement using the effective interest method and included in interest expense on the Company's consolidated statements of operations. Unamortized deferred financing costs are generally expensed when the associated debt is refinanced or repaid before maturity.

Offering and Related Costs

Since 2018, the Company has from time to time offered, and may in the future offer, shares of the Company’s common stock or one or more series of its preferred stock, including its Series C convertible preferred stock (the “Series C Preferred Stock,”), former Series D convertible preferred stock (the “Series D Preferred Stock”), and Series H convertible preferred stock (the “Series H Preferred Stock”) in private placements exempt from the registration requirements of the Securities Act of 1933, as amended. In connection with these offerings, the Company incurs various offering costs. These offering costs include but are not limited to legal, accounting, printing, mailing and filing fees, and diligence expenses of broker-dealers. Offering costs for the common stock are recorded in the Company’s stockholders’ equity, while the offering costs for the Series C Preferred Stock and Series D Preferred Stock are included within Series C Preferred Stock and Series D Preferred Stock, respectively, on the Company’s consolidated balance sheets. Offering costs for the Series H Preferred Stock were expensed to the Company's consolidated statement of operations.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Equity Incentive Plan

The Company maintains the Franklin BSP Realty Trust, Inc. 2021 Equity Incentive Plan (the “2021 Incentive Plan”), pursuant to which the Company may, from time to time, grant equity awards to the Company’s directors, officers and employees (if it ever has employees), employees of the Advisor and its affiliates, or certain of the Company’s consultants, advisors or other service providers to the Company or an affiliate of the Company. The 2021 Incentive Plan, which is administered by the Compensation Committee of the board of directors, provides for the grant of awards of share options, share appreciation rights, restricted shares, restricted share units, deferred share units, unrestricted shares, dividend equivalent rights, performance shares and other performance-based awards, other equity-based awards, LTIP units and cash bonus awards.

In January 2022, the Company issued for the first time under the 2021 Incentive Plan awards of restricted stock units ("RSUs") to its officers and certain other personnel of the Advisor who provide services to the Company. These awards are service-based and vest in equal annual installments beginning on the anniversary of the date of grant over a period of three years , subject to continuing service. One share of the Company’s common stock will be issued for each unit that vests. These awards also grant non-forfeitable dividend equivalent rights equal to the cash dividend paid in the ordinary course on a common share to the Company's common shareholders. Upon termination for any reason, all unvested RSUs will be forfeited by the grantee, who will be given no further rights to such RSUs.

Restricted Share Plan

The Company also has an Amended and Restated Employee and Director Incentive Restricted Share Plan (the "RSP"), which provides the Company with the ability to grant awards of restricted shares to the Company’s directors, officers and employees (if the Company ever has employees), employees of the Advisor and its affiliates, employees of entities that provide services to the Company, directors of the Advisor or of entities that provide services to the Company, the Advisor and its affiliates. The total number of common shares granted under the RSP shall not exceed 5 % of the Company’s authorized common shares, and in any event, will not exceed 4.0 million shares (as such number may be adjusted for stock splits, stock distributions, combinations and similar events). The RSP will expire on February 7, 2023.

Restricted share awards entitle the recipient to receive common shares from the Company under terms that provide for vesting over a specified period of time or upon attainment of pre-established performance objectives. Such awards would typically be forfeited with respect to the unvested shares upon the termination of the recipient’s employment or other relationship with the Company. Restricted shares may not, in general, be sold or otherwise transferred until restrictions are removed and the shares have vested. Holders of restricted shares may receive cash distributions prior to the time that the restrictions on the shares have lapsed. Any distributions payable in common shares shall be subject to the same restrictions as the underlying restricted shares. The fair value of the restricted share awards are expensed over the vesting period.

Distribution Reinvestment Plan

Pursuant to the terms of the Company's distribution reinvestment plan ("DRIP") in effect until December 17, 2021, stockholders had the option to elect to reinvest distributions by purchasing shares of common stock in lieu of receiving cash. No dealer manager fees or selling commissions were paid with respect to shares purchased pursuant to the DRIP. The purchase price for shares purchased through the DRIP was the lesser of (i) the Company’s most recent estimated per share NAV, and (ii) the Company’s GAAP book value per share. The Company had the right to amend any aspect of the DRIP or terminate the DRIP with ten days’ notice to participants. Shares issued under the DRIP were recorded to equity in the consolidated balance sheets in the period distributions are declared.

On December 17, 2021, the Company amended and restated the DRIP (the “Amended DRIP”) in recognition of the listing of the Company’s common stock on the New York Stock Exchange (“NYSE”). Shares of common stock purchased through the Amended DRIP for dividend reinvestments are supplied either directly by the Company as newly issued shares or via purchases by the DRIP administrator of shares of common stock on the open market, at the Company’s option. If the shares are purchased in the open market, the purchase price is the average price per share of shares purchased; if the shares are purchased directly from the Company, the purchase price is generally the average of the daily high and low sales prices for a share of common stock reported by the NYSE on the dividend payment date authorized by the Company’s board of directors. The Company may suspend, modify or terminate the Amended DRIP at any time in its sole discretion.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Income Taxes

The Company has conducted its operations to qualify as a REIT for U.S. federal income tax purposes beginning with its taxable year ended December 31, 2013. As a REIT, if the Company meets certain organizational and operational requirements and distributes at least 90 % of its "REIT taxable income" (determined before the deduction of dividends paid and excluding net capital gains) to its stockholders in a year, it will not be subject to U.S. federal income tax to the extent of the income that it distributes. However, even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on income in addition to U.S. federal income and excise taxes on its undistributed income. The Company, through its TRSs, is indirectly subject to U.S. federal, state and local income taxes. The Company’s TRSs are not consolidated for U.S. federal income tax purposes, but are instead taxed as C corporations. For financial reporting purposes, the TRSs are consolidated and a provision for current and deferred taxes is established for the portion of earnings recognized by the Company with respect to its interest in its TRSs. Total income tax (benefit)/provision for the three months ended September 30, 2022 and September 30, 2021 was $ 0.4 million and $ 1.1 million, respectively.

The Company uses a more-likely-than-not threshold for recognition and derecognition of tax positions taken or to be taken in a tax return. The Company has assessed its tax positions for all open tax years beginning with December 31, 2017 and concluded that there were no uncertainties to be recognized. The Company’s accounting policy with respect to interest and penalties related to tax uncertainties is to classify these amounts as provision for income taxes.

The Company utilizes the TRSs to reduce the impact of the prohibited transaction tax and to avoid penalty for the holding of assets not qualifying as real estate assets for purposes of the REIT asset tests. Any income associated with a TRS is fully taxable because the TRS is subject to federal and state income taxes as a domestic C corporation based upon its net income.

Derivatives and Hedging Activities

In the normal course of business, the Company is exposed to the effect of interest rate changes and may undertake a strategy to limit these risks through the use of derivatives. The Company uses derivatives primarily to economically hedge against interest rates, CMBS spreads and macro market risk in order to minimize volatility. The Company may use a variety of derivative instruments that are considered conventional, including but not limited to: Treasury note futures and credit derivatives on various indices including CMBX and CDX.

The Company recognizes all derivatives on the consolidated balance sheets at fair value. The Company does not designate derivatives as hedges to qualify for hedge accounting for financial reporting purposes and therefore any net payments under, or fluctuations in the fair value of these derivatives have been recognized currently in unrealized (gain)/loss on derivative instruments in the accompanying consolidated statements of operations. The Company records derivative asset and liability positions on a gross basis with any collateral posted with or received from counterparties recorded separately within Restricted cash on the Company’s consolidated balance sheets. Certain derivatives that the Company has entered into are subject to master netting agreements with its counterparties, allowing for netting of the same transaction, in the same currency, on the same date.

Per Share Data

The Series C Preferred Stock, Series D Preferred Stock (when it was outstanding), and Series H Preferred Stock are each considered a participating security and the Company calculates basic earnings per share using the two-class method. The Company’s dilutive earnings per share calculation is computed using the more dilutive result of the treasury stock method, assuming the participating security is a potential common share, or the two-class method, assuming the participating security is not converted. The Company calculates basic earnings per share by dividing net income applicable to common stock for the period by the weighted-average number of shares of common stock outstanding for that period. Diluted earnings per share reflects the potential dilution that could occur from shares outstanding if potential shares of common stock with a dilutive effect have been issued in connection with the restricted stock plan or upon conversion of the outstanding shares of Series C Preferred Stock, Series D Preferred Stock (when it was outstanding) and Series H Preferred Stock, except when doing so would be anti-dilutive.

Reportable Segments

The Company has determined that it has four reportable segments based on how the chief operating decision maker reviews and manages the business. The four reporting segments are as follows:

• The real estate debt business which is focused on originating, acquiring and asset managing commercial real estate debt investments, including first mortgage loans, subordinate mortgages, mezzanine loans and participations in such loans.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

• The real estate securities business focuses on investing in and asset managing real estate securities. Historically this business has focused primarily on CMBS, CRE CLO bonds, unsecured REIT debt, CDO notes and other securities. As a result of the October 2021 acquisition of Capstead, the Company acquired and continues to hold a portfolio of RMBS in the form of the ARM Agency Securities. The Company has, and intends to reinvest the cash and proceeds from dividends, interest, repayments and sales of these assets into its other segments and does not intend to continue to invest in ARM Agency Securities or RMBS in general.

• The commercial conduit business in the Company's TRS, which is focused on originating and subsequently selling fixed-rate commercial real estate loans into the CMBS securitization market.

• The real estate owned business represents real estate acquired by the Company through foreclosure, deed in lieu of foreclosure, or purchase.

See Note 16 - Segment Reporting for further information regarding the Company's segments.

Redeemable Convertible Preferred Stock

The Company’s outstanding Series C and Series H classes of preferred stock are classified outside of permanent equity in the consolidated balance sheets.

Series C Preferred Stock

The Series C Preferred Stock ranks senior to the Common Stock and on parity with the Series H Preferred Stock and the Company’s 7.50 % Series E Cumulative Redeemable Preferred Stock (“Series E Preferred Stock”) with respect to priority in dividends and in the distribution of assets in the event of the liquidation, dissolution or winding-up of the Company. The liquidation preference of each share of Series C Preferred Stock is the greater of (i) $ 5,000 plus accrued and unpaid dividends, and (ii) the amount that would be received upon a conversion of the Series C Preferred Stock into the Common Stock.

Dividends on the Series C Preferred Stock, which are typically declared and paid quarterly, accrue at a rate equal to the greater of (i) an annual amount equal to 4.0 % of the liquidation preference per share and (ii) the dividends that would have been paid had such share of Series C Preferred Stock been converted into a share of common stock on the first day of such quarter, subject to proration in the event the share of Series C preferred stock is not outstanding for the full quarter. Dividends are paid in arrears. Dividends will accumulate and be cumulative from the most recent date to which dividends had been paid.

Pursuant to the terms of the Series C Preferred Stock, 400 outstanding shares of Series C Preferred Stock each converted into 299.2 shares of common stock on October 19, 2022, while 1,000 shares of Series C Preferred Stock were exchanged for an equal number of shares of the Company’s newly created Series I Convertible Preferred Stock, $ 0.01 par value per share (the “Series I Preferred Stock”), on October 20, 2022.

Holders of the Series C Preferred Stock (voting as a single class with holders of common stock) are entitled to vote on each matter submitted to a vote of the stockholders of the Company upon which the holders of common stock are entitled to vote. The number of votes applicable to a share of outstanding Series C Preferred Stock will be equal to the number of shares of common stock a share of Series C Preferred Stock could have been converted into as of the record date set for purposes of such stockholder vote (rounded down to the nearest whole number of shares of common stock). In addition, the affirmative vote of the holders of two-thirds of the outstanding shares of Series C Preferred Stock, voting as a single class with other shares of parity preferred stock, is required to approve the issuance of any equity securities senior to the Series C Preferred Stock and to take certain actions materially adverse to the holders of the Series C Preferred Stock.

Series D Preferred Stock

All of the shares of the Series D Preferred Stock were exchanged for an equivalent number of shares of Series H Preferred Stock on June 24, 2022.

Series H Preferred Stock

On June 24, 2022, the Company issued 17,950 shares of Series H Preferred Stock to the holder of the Series D Preferred Stock in exchange for an equal amount of shares of Series D Preferred Stock.

The exchange was undertaken to accommodate the holder’s request to extend the mandatory conversion date set forth in the terms of the Series D Preferred Stock, which was set to occur on October 19, 2022, to January 19, 2023. There are no other material differences between the terms of the Series D Preferred Stock and Series H Preferred Stock. The Company received no consideration for the exchange.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

The Series H Preferred Stock is on parity with the Series C Preferred Stock and Series E Preferred Stock with respect to preference on liquidation and dividend rights. The terms of the Series H Preferred Stock are substantially the same as the Series C Preferred Stock, except that the holders of the Series H Preferred Stock have the option to accelerate the mandatory conversion date, which is January 23, 2022, upon at least 10 days' written notice.

Automatically Convertible Preferred Stock - Series F Preferred Stock

On April 19, 2022, all of the 39,733,299 outstanding shares of the Company’s Series F Preferred Stock automatically converted on a one -for-one basis into an equal amount of shares of Common Stock, pursuant to the terms of the Articles Supplementary of the Series F Preferred Stock. There are no shares of Series F Preferred Stock outstanding.

Perpetual Preferred Stock—Series E Preferred Stock

The Series E Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption. The Series E Preferred Stock ranks, with respect to rights to the payment of dividends and the distribution of assets upon its liquidation, dissolution or winding up, senior to the common stock and on a parity with the Series C Preferred Stock and Series H Preferred Stock. The liquidation preference is $ 25.00 per share, plus an amount equal to any accumulated and unpaid dividends.

Holders of shares of the Series E Preferred Stock are entitled to receive, when, as and if authorized by our board of directors and declared by the Company, out of funds legally available for the payment of dividends, cumulative cash dividends at the rate of 7.50 % of the $ 25.00 per share liquidation preference per annum (equivalent to $ 1.875 per annum per share). Dividends on the Series E Preferred Stock are cumulative and payable quarterly in arrears.

Dividends on the Series E Preferred Stock will accumulate whether or not the Company has earnings, whether or not there are funds legally available for the payment of those dividends and whether or not those dividends are declared.

The Company may, at its option, upon not less than 30 nor more than 60 days’ written notice, redeem the Series E Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price of $ 25.00 per share, plus any accumulated and unpaid dividends thereon to, but not including, the date fixed for redemption. Upon a change of control of the Company, in the event the Company does not redeem the Series E Preferred Stock, a holder of Series E Preferred Stock will have the right to convert to Common Stock upon the terms set forth in the applicable Articles Supplementary.

The Series E Preferred Stock is listed on the New York Stock Exchange under the symbol “FBRT PRE”.

Accounting Pronouncements Not Yet Adopted

In March 2022, the FASB issued ASU 2022-02 "Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures," or ASU 2022-02. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings and requires disclosure of current-period gross write-offs by year of loan origination. Additionally, ASU 2022-02 updates the accounting for credit losses under ASC 326 and adds enhanced disclosures with respect to loan refinancing and restructuring in the form of principal forgiveness, interest rate concessions, other-than-insignificant payment delays, or term extensions when the borrower is experiencing financial difficulties. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, and early adoption is permitted. The amendments should be applied prospectively, however for the recognition and measurement of troubled debt restructurings, the entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. We are currently evaluating what impact, if any ASU 2022-02 will have on our consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company has not adopted any of the optional expedients or exceptions through September 30, 2022, but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Note 3 - Commercial Mortgage Loans

The following table is a summary of the Company's commercial mortgage loans, held for investment, carrying values by class (dollars in thousands):


	September 30, 2022		December 31, 2021
Senior loans	$	5,311,315	$	4,204,464
Mezzanine loans	16,958		22,424
Total amortized cost of loans	5,328,273		4,226,888
General allowance for credit losses	19,195		15,827
Specific allowance for credit losses (1)	27,620		—
Less: Total Allowance for Credit Losses	46,815		15,827
Total commercial mortgage loans, held for investment, net	$	5,281,458	$	4,211,061

_________________________________________________________

(1) As of September 30, 2022, the Company recorded a specific reserve with respect to a retail loan designated as non-performing.

As of September 30, 2022 and December 31, 2021, the Company's total commercial mortgage loan portfolio, held for investment, was comprised of 166 and 165 loans, respectively.

Allowance for Credit Losses

The following table presents the activity in the Company's allowance for credit losses, excluding the unfunded loan commitments, as of September 30, 2022 (dollars in thousands):


	MultiFamily		Retail		Office		Industrial		Mixed Use		Hospitality		Self-Storage		Manufactured Housing		Total
December 31, 2021	$	9,681	$	288	$	776	$	86	$	169	$	4,597	$	152	$	78	$	15,827
Changes:
General provision/(benefit) for credit losses	32		234		( 103 )		15		( 108 )		( 807 )		( 110 )		( 47 )		( 894 )
March 31, 2022	$	9,713	$	522	$	673	$	101	$	61	$	3,790	$	42	$	31	$	14,933
Changes:
General provision/(benefit) for credit losses	4,595		( 128 )		( 48 )		( 18 )		( 22 )		( 687 )		( 23 )		( 8 )		3,661
Specific provision/(benefit) for credit losses	—		28,431		—		—		—		—		—		—		28,431
June 30, 2022	$	14,308	$	28,825	$	625	$	83	$	39	$	3,103	$	19	$	23	$	47,025
Changes:
General provision/(benefit) for credit losses	( 41 )		( 25 )		( 181 )		49		6		793		( 13 )		13		601
Specific provision/(benefit) for credit losses	—		( 811 )		—		—		—		—		—		—		( 811 )
September 30, 2022	$	14,267	$	27,989	$	444	$	132	$	45	$	3,896	$	6	$	36	$	46,815

The Company recorded an increase in its general provision for credit losses during the three and nine months ended September 30, 2022 of $ 0.6 million and $ 3.4 million, respectively. The primary driver for the higher reserve balance is the change in economic outlook since the end of the prior year.

During the nine months ended September 30, 2022, the Company identified a commercial mortgage loan, held for investment secured by a portfolio of 24 retail properties, that was assigned a risk rating of “5” due to certain conditions that negatively impacted the underlying collateral property’s cash flows. Since the loan was considered a collateral-dependent asset under GAAP, as of September 30, 2022 a specific allowance for credit losses of $ 27.6 million was recorded based on the difference between the Company’s estimation of the fair value of the underlying collateral property, less costs to sell, and the loan’s amortized cost basis. As of September 30, 2022, the loan has a fully funded outstanding principal balance of $ 109.2 million, and carrying value of $ 77.9 million. The significant unobservable inputs to the discounted cash flow model used to estimate the fair value of the loan included a capitalization rate, which ranged from 4.75 %- 6.50 %.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

The following table presents the activity in the Company's allowance for credit losses, for the unfunded loan commitments, as of September 30, 2022 (dollars in thousands):


	MultiFamily		Retail		Office		Industrial		Mixed Use		Hospitality		Self-Storage		Manufactured Housing		Total
December 31, 2021	$	137	$	1	$	13	$	3	$	10	$	79	$	—	$	—	$	243
Changes:
General provision/(benefit) for credit losses	( 32 )		15		( 4 )		( 2 )		( 10 )		( 28 )		—		—		( 61 )
March 31, 2022	$	105	$	16	$	9	$	1	$	—	$	51	$	—	$	—	$	182
Changes:
General provision/(benefit) for credit losses	443		( 1 )		1		( 1 )		—		( 4 )		—		—		438
June 30, 2022	$	548	$	15	$	10	$	—	$	—	$	47	$	—	$	—	$	620
Changes:
General provision/(benefit) for credit losses	( 403 )		—		( 1 )		2		—		11		—		2		( 389 )
September 30, 2022	$	145	$	15	$	9	$	2	$	—	$	58	$	—	$	2	$	231

The following tables represent the composition by loan collateral type and region of the Company's commercial mortgage loans, held for investment portfolio (dollars in thousands):


	September 30, 2022				December 31, 2021
Loan Collateral Type	Par Value		Percentage		Par Value		Percentage
Multifamily	$	3,992,990	74.7	%	$	2,953,938	69.6	%
Hospitality	503,251		9.4	%	460,884		10.9	%
Office	456,866		8.6	%	485,575		11.4	%
Retail	172,503		3.2	%	104,990		2.5	%
Industrial	93,035		1.7	%	88,956		2.1	%
Mixed Use	52,500		1.0	%	62,965		1.5	%
Self Storage	44,895		0.8	%	56,495		1.3	%
Manufactured Housing	34,688		0.6	%	29,159		0.7	%

Total	$	5,350,728	100.0	%	$	4,242,962	100.0	%


	September 30, 2022				December 31, 2021
Loan Region	Par Value		Percentage		Par Value		Percentage
Southeast	$	2,158,660	40.4	%	$	1,106,439	26.2	%
Southwest	1,757,121		32.9	%	1,764,905		41.6	%
Mideast	781,379		14.6	%	646,125		15.2	%
Far West	232,734		4.3	%	301,040		7.1	%
Great Lakes	169,191		3.2	%	183,930		4.3	%
Various	109,230		2.0	%	68,896		1.6	%
New England	66,065		1.2	%	67,651		1.6	%
Rocky Mountain	43,751		0.8	%	43,751		1.0	%
Plains	32,597		0.6	%	60,225		1.4	%
Total	$	5,350,728	100.0	%	$	4,242,962	100.0	%

As of September 30, 2022 and December 31, 2021, the Company's total commercial mortgage loans, held for sale, measured at fair value were comprised of three loans and one loan, respectively. As of September 30, 2022 and December 31, 2021, the contractual principal outstanding of commercial mortgage loans, held for sale, measured at fair value was $ 44.5 million and $ 34.3 million, respectively. As of September 30, 2022 and December 31, 2021, none of the Company's commercial mortgage loans, held for sale, measured at fair value were in default or greater than ninety days past due.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

The following tables represent the composition by loan collateral type and region of the Company's commercial mortgage loans, held for sale, measured at fair value (dollars in thousands):


	September 30, 2022				December 31, 2021
Loan Collateral Type	Par Value		Percentage		Par Value		Percentage
Retail	$	25,000	56.1	%	$	—	—	%
Hospitality	19,546		43.9	%	—		—	%
Office	—		—	%	34,250		100.0	%




Total	$	44,546	100.0	%	$	34,250	100.0	%


	September 30, 2022				December 31, 2021
Loan Region	Par Value		Percentage		Par Value		Percentage
Southeast	$	37,996	85.3	%	$	34,250	100.0	%
Mideast	6,550		14.7	%	—		—	%





Total	$	44,546	100.0	%	$	34,250	100.0	%

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Loan Credit Quality and Vintage

The following tables present the amortized cost of our commercial mortgage loans, held for investment as of September 30, 2022 and December 31, 2021, by loan collateral type, the Company’s internal risk rating and year of origination. The risk ratings are updated as of September 30, 2022.


As of September 30, 2022
	2022		2021		2020		2019		2018		2017		Total

Multifamily:
Risk Rating:
1-2 internal grade	$	1,402,934	$	2,276,836	$	92,829	$	—	$	37,851	$	—	$	3,810,450
3-4 internal grade	—		95,036		10,852		24,058		37,025		—		166,971
Total Multifamily Loans	$	1,402,934	$	2,371,872	$	103,681	$	24,058	$	74,876	$	—	$	3,977,421

Retail:
Risk Rating:
1-2 internal grade	$	20,941	$	33,870	$	—	$	8,203	$	—	$	—	$	63,014
3-4 internal grade	—		—		—		—		—		—		—
5 internal grade	105,498		—		—		—		—		—		105,498
Total Retail Loans	$	126,439	$	33,870	$	—	$	8,203	$	—	$	—	$	168,512

Office:
Risk Rating:
1-2 internal grade	$	—	$	50,343	$	203,840	$	108,152	$	18,746	$	—	$	381,081
3-4 internal grade	—		—		36,343		25,736		12,977		—		75,056
Total Office Loans	$	—	$	50,343	$	240,183	$	133,888	$	31,723	$	—	$	456,137

Industrial:
Risk Rating:
1-2 internal grade	$	77,712	$	—	$	14,946	$	—	$	—	$	—	$	92,658
3-4 internal grade	—		—		—		—		—		—		—
Total Industrial Loans	$	77,712	$	—	$	14,946	$	—	$	—	$	—	$	92,658

Mixed Use:
Risk Rating:
1-2 internal grade	$	19,926	$	32,446	$	—	$	—	$	—	$	—	$	52,372
3-4 internal grade	—		—		—		—		—		—		—
Total Mixed Use Loans	$	19,926	$	32,446	$	—	$	—	$	—	$	—	$	52,372

Hospitality:
Risk Rating:
1-2 internal grade	$	129,645	$	155,287	$	26,956	$	58,814	$	22,195	$	—	$	392,897
3-4 internal grade	—		—		—		29,966		—		78,928		108,894
Total Hospitality Loans	$	129,645	$	155,287	$	26,956	$	88,780	$	22,195	$	78,928	$	501,791

Self-Storage:
Risk Rating:
1-2 internal grade	$	—	$	14,976	$	29,846	$	—	$	—	$	—	$	44,822
3-4 internal grade	—		—		—		—		—		—		—
Total Self-Storage Loans	$	—	$	14,976	$	29,846	$	—	$	—	$	—	$	44,822

Manufactured Housing:
Risk Rating:
1-2 internal grade	$	10,469	$	6,674	$	17,417	$	—	$	—	$	—	$	34,560
3-4 internal grade	—		—		—		—		—		—		—
Total Manufactured Housing Loans	$	10,469	$	6,674	$	17,417	$	—	$	—	$	—	$	34,560

Total	$	1,767,125	$	2,665,468	$	433,029	$	254,929	$	128,794	$	78,928	$	5,328,273

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)


As of December 31, 2021
	2021		2020		2019		2018		2017		Total

Multifamily:
Risk Rating:
1-2 internal grade	$	2,438,376	$	270,953	$	103,989	$	90,877	$	—	$	2,904,195
3-4 internal grade	—		—		—		37,025		—		37,025
Total Multifamily Loans	$	2,438,376	$	270,953	$	103,989	$	127,902	$	—	$	2,941,220

Retail:
Risk Rating:
1-2 internal grade	$	33,830	$	11,928	$	29,515	$	29,452	$	—	$	104,725
3-4 internal grade	—		—		—		—		—		—
Total Retail Loans	$	33,830	$	11,928	$	29,515	$	29,452	$	—	$	104,725

Office:
Risk Rating:
1-2 internal grade	$	50,291	$	253,759	$	136,800	$	43,308	$	—	$	484,158
3-4 internal grade	—		—		—		—		—		—
Total Office Loans	$	50,291	$	253,759	$	136,800	$	43,308	$	—	$	484,158

Industrial:
Risk Rating:
1-2 internal grade	$	—	$	31,906	$	—	$	—	$	—	$	31,906
3-4 internal grade	—		—		56,933		—		—		56,933
Total Industrial Loans	$	—	$	31,906	$	56,933	$	—	$	—	$	88,839

Mixed Use:
Risk Rating:
1-2 internal grade	$	32,395	$	30,325	$	—	$	—	$	—	$	62,720
3-4 internal grade	—		—		—		—		—		—
Total Mixed Use Loans	$	32,395	$	30,325	$	—	$	—	$	—	$	62,720

Hospitality:
Risk Rating:
1-2 internal grade	$	153,032	$	26,920	$	34,054	$	—	$	—	$	214,006
3-4 internal grade	—		—		113,961		52,790		79,102		245,853
Total Hospitality Loans	$	153,032	$	26,920	$	148,015	$	52,790	$	79,102	$	459,859

Self-Storage:
Risk Rating:
1-2 internal grade	$	14,948	$	41,382	$	—	$	—	$	—	$	56,330
3-4 internal grade	—		—		—		—		—		—
Total Self-Storage Loans	$	14,948	$	41,382	$	—	$	—	$	—	$	56,330

Manufactured Housing:
Risk Rating:
1-2 internal grade	$	6,665	$	22,372	$	—	$	—	$	—	$	29,037
3-4 internal grade	—		—		—		—		—		—
Total Manufactured Housing Loans	$	6,665	$	22,372	$	—	$	—	$	—	$	29,037

Total	$	2,729,537	$	689,545	$	475,252	$	253,452	$	79,102	$	4,226,888

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Past Due Status

The following table presents an aging summary of the loans amortized cost basis as of September 30, 2022 (dollars in thousands):


	Multifamily		Retail		Office		Industrial		Mixed Use		Hospitality		Self-Storage		Manufactured Housing		Total
Status:
Current	$	3,977,421	$	63,014	$	456,137	$	92,658	$	52,372	$	444,716	$	44,822	$	34,560	$	5,165,700
1-29 days past due	—		—		—		—		—		—				—		—
30-59 days past due	—		—		—		—		—		—		—		—		—
60-89 days past due	—		—		—		—		—		—		—		—		—
90-119 days past due	—		—		—		—		—		—		—		—		—
120+ days past due (1)	—		105,498		—		—		—		57,075		—		—		162,573
Total	$	3,977,421	$	168,512	$	456,137	$	92,658	$	52,372	$	501,791	$	44,822	$	34,560	$	5,328,273

_________________________________________________________

(1) For the three and nine months ended September 30, 2022, there was no interest income recognized on these loans.

Non-performing Status

The following table presents the amortized cost basis of the loans on nonaccrual status as of September 30, 2022 and December 31, 2021 (dollars in thousands):


	September 30, 2022		December 31, 2021
Non-performing loan amortized cost at beginning of year, January 1	$	57,075	$	94,887
Addition of non-performing loan amortized cost	105,498		—
Less: Removal of non-performing loan amortized cost	—		37,812
Non-performing loan amortized cost at end of period	$	162,573	$	57,075

As of September 30, 2022, the Company had two loans with a total amortized cost basis of $ 162.6 million designated as non-performing status. One loan is for a hotel property located in New York, NY, which was placed on non-accrual status in 2019 and had an amortized cost basis of $ 57.1 million as of September 30, 2022. No specific allowance for credit losses has been recorded on the loan. The Company did no t recognize any interest income on the non-accrual loan during the three and nine months ended September 30, 2022. The second loan relates to a commercial mortgage loan with a fully funded outstanding principal balance of $ 109.2 million collateralized by a portfolio of retail properties in various locations throughout the United States. The loan has been assigned a risk rating of “5” and concurrently, the Company elected to apply a practical expedient for collateral dependent assets in which the allowance for credit losses is calculated as the difference between the estimated fair value of the underlying collateral, less estimated cost to sell, and the amortized cost basis of the individual loan. As of September 30, 2022, the Company has recorded a specific allowance for credit losses of $ 27.6 million on this loan. Further, the Company has designated the loan as non-performing and placed the loan on cost recovery status by ceasing the recognition of interest income. Any contractual amounts received are accounted for under the cost-recovery method, until the loan qualifies for return to accrual status. As of September 30, 2022, the Company has received $ 6.4 million in cost recovery proceeds, which reduced the amortized cost of the loan.

As of December 31, 2021, the Company had one loan, the hotel property in New York City, with a carrying value of $ 57.1 million, designated as non-performing, which had no specific allowance for credit losses.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Credit Characteristics

As part of the Company's process for monitoring the credit quality of its commercial mortgage loans, excluding those held for sale, measured at fair value, it performs a quarterly loan portfolio assessment and assigns risk ratings to each of its loans. The loans are scored on a scale of 1 to 5 as follows:


Investment Rating						Summary Description
1						Very Low Risk - Investment exceeding fundamental performance expectations and/or capital gain expected. Trends and risk factors since time of investment are favorable.
2						Low Risk - Performing consistent with expectations and a full return of principal and interest expected. Trends and risk factors are neutral to favorable.
3						Average Risk - Performing investments requiring closer monitoring. Trends and risk factors show some deterioration.
4						High Risk/Defaulted/Potential For Loss - Underperforming investment with the potential of some interest loss but still expecting a positive return on investment. Trends and risk factors are negative.
5						Impaired/Loss Likely - Underperforming investment with expected loss of interest and some principal.

All commercial mortgage loans, excluding loans classified as commercial mortgage loans, held for sale, measured at fair value within the consolidated balance sheets, are assigned an initial risk rating of 2 . As of September 30, 2022 and December 31, 2021, the weighted average risk rating of the loans was 2.1 .

The following table represents the allocation by risk rating for the Company's commercial mortgage loans, held for investment (dollars in thousands):


September 30, 2022				December 31, 2021
Risk Rating	Number of Loans	Par Value		Risk Rating	Number of Loans	Par Value
1	—	$	—	1	—	$	—
2	148	4,890,312		2	148	3,903,047
3	14	244,109		3	16	282,840
4	3	107,077		4	1	57,075
5	1	109,230		5	—	—
	166	$	5,350,728		165	$	4,242,962

For the nine months ended September 30, 2022 and year ended December 31, 2021, the activity in the Company's commercial mortgage loans, held for investment portfolio was as follows (dollars in thousands):


	Nine Months Ended September 30, 2022		Year Ended December 31, 2021
Balance at Beginning of Year	$	4,211,061	$	2,693,848
Acquisitions and originations	1,980,296		2,897,002
Principal repayments	( 863,186 )		( 1,286,598 )
Discount accretion/premium amortization	8,780		7,038
Loans transferred from/(to) commercial real estate loans, held for sale	( 9,296 )		( 52,615 )
Net fees capitalized into carrying value of loans	( 12,803 )		( 15,150 )
General (provision)/benefit for credit losses	( 3,368 )		4,770
Specific (provision)/benefit for credit losses	( 27,620 )		—
Cost recovery	( 2,406 )		—
Charge-off from allowance	—		289
Transfer to real estate owned	—		( 37,523 )
Balance at End of Period	$	5,281,458	$	4,211,061

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Note 4 - Real Estate Securities

Real Estate Securities Classified As Trading

The following is a summary of the Company's RMBS classified by collateral type and interest rate characteristics (dollars in thousands):


	Carrying Amount		Average Yield (1)
September 30, 2022
Agency Securities:
Fannie Mae/Freddie Mac ARMs	$	252,491	2.48	%



December 31, 2021
Agency Securities:
Fannie Mae/Freddie Mac ARMs	$	4,246,803	2.23	%
Ginnie Mae ARMs	320,068		2.72	%
	$	4,566,871	2.26	%

________________________________________________________

(1) Average yield is presented for the period then ended, and is based on the cash component of interest income expressed as a percentage on average cost basis (the “cash yield”).

The maturity of the Company's ARM Agency Securities is directly affected by prepayments of principal on the underlying mortgage loans. Consequently actual maturities may be significantly shorter than the portfolio’s September 30, 2022 weighted average contractual maturity of 184 months.

The Company's ARM Agency Securities are backed by residential mortgage loans that have coupon interest rates that adjust at least annually to more current interest rates or begin doing so after an initial fixed-rate period. After the initial fixed-rate period, if applicable, mortgage loans underlying ARM securities typically either (i) adjust annually based on specified margins over the one-year London interbank offered rate (“LIBOR”) or the one-year Constant Maturity U.S. Treasury Note Rate (“CMT”), (ii) adjust semiannually based on specified margins over six-month LIBOR or the six-month Secured Overnight Financing Rate (“SOFR”), or (iii) adjust monthly based on specified margins over indices such as one-month LIBOR, the Eleventh District Federal Reserve Bank Cost of Funds Index, or over a rolling twelve month average of the one-year CMT index, usually subject to periodic and lifetime limits, or caps, on the amount of such adjustments during any single interest rate adjustment period and over the contractual term of the underlying loans.

No trading securities were sold during the three months ended September 30, 2022. During the nine months ended September 30, 2022, the Company sold trading securities using the specific identification method for proceeds totaling $ 3.8 billion, respectively.

Real Estate Securities Classified As Available For Sale

The following is a summary of the Company's real estate securities, CRE CLO bonds, as of September 30, 2022 (in thousands):


September 30, 2022
Type	Interest Rate	Maturity	Par Value		Fair Value
CRE CLO bond 1	5.8 %	8/19/2035	$	40,000	$	39,800
CRE CLO bond 2	6.3 %	8/19/2035	25,000		24,875
CRE CLO bond 3	7.1 %	8/19/2035	10,000		9,950
			$	75,000	$	74,625

The Company classified its CRE CLO bonds as available for sale and reported them at fair value in the consolidated balance sheets with changes in fair value recorded in accumulated other comprehensive income/(loss) as of September 30, 2022. The weighted average contractual maturity for CLO investments included within the CRE CLO bonds portfolio as of September 30, 2022 was 13 years. As of December 31, 2021, the Company did not hold any Real Estate Securities classified as Available for Sale.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

The following table shows the amortized cost, allowance for expected credit losses, unrealized gain/(loss) and fair value of the Company's CRE CLO bonds by investment type as of September 30, 2022 (dollars in thousands):


	Amortized Cost		Credit Loss Allowance		Unrealized Gain		Unrealized Loss		Fair Value




September 30, 2022
CLOs	$	74,998	$	—	$	—	$	( 373 )	$	74,625

As of September 30, 2022, the Company held 3 CRE CLO bonds with an amortized cost basis of $ 75.0 million and an unrealized loss of $ 0.4 million, of which no positions had an unrealized loss for a period greater than twelve months. As of September 30, 2022, the fair value of the Company's CRE CLO bonds that were in an unrealized loss position for less than twelve months, and for which an allowance for credit loss has not been recorded was $ 74.6 million.

Note 5 - Real Estate Owned

The following table summarizes the Company's real estate owned asset, held for investment, as of September 30, 2022 (dollars in thousands):


Acquisition Date	Property Type	Primary Location(s)	Land		Building and Improvements		Furniture, Fixtures and Equipment		Accumulated Depreciation		Real Estate Owned, net
September 2021	Industrial	Jeffersonville, GA	$	3,436	$	84,259	$	2,928	$	( 2,301 )	$	88,322

The following table summarizes the Company's real estate owned asset, held for investment, as of December 31, 2021 (dollars in thousands):


Acquisition Date	Property Type	Primary Location(s)	Land		Building and Improvements		Furniture, Fixtures and Equipment		Accumulated Depreciation		Real Estate Owned, net
September 2021	Industrial	Jeffersonville, GA	$	3,436	$	84,259	$	2,928	$	( 575 )	$	90,048

Depreciation expense for the three and nine months ended September 30, 2022 totaled $ 0.6 million and $ 1.7 million, respectively. Depreciation expense for the nine months ended September 30, 2021, totaled $ 0.4 million. There was no depreciation expense for the three months ended September 30, 2021.

In August 2021 the Company and an affiliate of the Company entered into a joint venture agreement and formed a joint venture entity, Jeffersonville Member, LLC (the "Jeffersonville JV") to acquire a $ 139.5 million triple net lease property in Jeffersonville, GA. The Company has a 79 % interest in the Jeffersonville JV, while the affiliate has a 21 % interest. The Company invested a total of $ 109.8 million, made up of $ 88.7 million in debt and $ 21.1 million in equity, representing 79 % of the ownership interest in the Jeffersonville JV. The affiliate made up the remaining $ 29.8 million composed of a $ 24.0 million mortgage note payable and $ 5.7 million in equity. The Company has control of Jeffersonville JV with 79 % ownership and, therefore, consolidates Jeffersonville JV on its consolidated balance sheet. The Company's $ 88.7 million mortgage note payable to Jeffersonville JV is eliminated in consolidation (see Note 7 - Debt).

Note 6 - Leases

Intangible Lease Asset

The following table summarizes the Company's intangible lease asset recognized in the consolidated balance sheets as of September 30, 2022 (dollars in thousands):


Acquisition Date	Property Type	Primary Location(s)	Intangible Lease Asset, Gross		Accumulated Amortization		Intangible Lease Asset, Net of Amortization
September 2021	Industrial	Jeffersonville, GA	$	49,192	$	( 2,879 )	$	46,313

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

The following table summarizes the Company's intangible lease asset recognized in the consolidated balance sheets as of December 31, 2021 (dollars in thousands):


Acquisition Date	Property Type	Primary Location(s)	Intangible Lease Asset, Gross		Accumulated Amortization		Intangible Lease Asset, Net of Amortization
September 2021	Industrial	Jeffersonville, GA	$	49,192	$	( 720 )	$	48,472

Rental Income

On September 17, 2021, the Company, through the joint venture described in Note 5 - Real Estate Owned, purchased an industrial facility that is subject to an existing triple net lease. The minimum rental amount due under the lease is subject to annual increases of 2.0 %. The initial term of the lease expires in 2038 and contains renewal options for four consecutive five-year terms. The remaining lease term is 16.1 years. Rental income for this lease totaled $ 2.3 million and $ 0.3 million for the three months ended September 30, 2022 and 2021, respectively, and $ 6.9 million and $ 0.3 million for the nine months ended September 30, 2022 and 2021, respectively. Rental income is included in Revenue from real estate owned in the consolidated statements of operations.

On October 15, 2019, the Company purchased an office building that was subject to an existing triple net lease. The minimum rental amount due under the lease was subject to annual increases of 1.5 %. The initial term of the lease expires in 2037 and contained renewal options for four consecutive five-year terms. The Company sold the real estate owned asset during the three months ended September 30, 2021. Rental income for this lease for each of the three and nine months ended September 30, 2021 totaled $ 0.7 million and $ 2.1 million, respectively. Rental income is included in Revenue from real estate owned in the consolidated statements of operations.

The following table summarizes the Company's schedule of future minimum rents to be received under the lease as described above (dollars in thousands):


Future Minimum Rents	September 30, 2022
2022 (October - December)	$	1,992
2023	8,046
2024	8,207
2025	8,372
2026	8,539
2027 and beyond	114,981
Total future minimum rent	$	150,137

Amortization Expense

Intangible lease assets are amortized using the straight-line method over the shorter of the contractual life of the lease and 20 years. The weighted average life of the intangible asset as of September 30, 2022 is approximately 16.1 years. Amortization expense totaled $ 0.7 million for the three months ended September 30, 2022. There was no amortization expense incurred during the three months ended September 30, 2021. Amortization expense totaled $ 2.2 million and $ 0.4 million for the nine months ended September 30, 2022 and 2021, respectively. Amortization expense is included within Depreciation and amortization expense in the consolidated statements of operations.

The following table summarizes the Company's expected amortization for intangible assets over the next five years, assuming no further acquisitions or dispositions (dollars in thousands):


Amortization Expense	September 30, 2022
2022 (October - December)	$	( 720 )
2023	( 2,880 )
2024	( 2,880 )
2025	( 2,880 )
2026	( 2,880 )

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Note 7 - Debt

Repurchase Agreements - Commercial Mortgage Loans

The Company has entered into repurchase facilities with JPMorgan Chase Bank, National Association (the "JPM Repo Facility"), Barclays Bank PLC (the "Barclays Revolver Facility" and the "Barclays Repo Facility"), Wells Fargo Bank, National Association (the "WF Repo Facility"), and Credit Suisse AG (the "CS Repo Facility" and together with JPM Repo Facility, WF Repo Facility, Barclays Revolver Facility, and Barclays Repo Facility, the "Repo Facilities").

The Repo Facilities are financing sources through which the Company may pledge one or more mortgage loans to the financing entity in exchange for funds typically at an advance rate of between 65 % to 75 % of the principal amount of the mortgage loan being pledged.

The details of the Company's Repo Facilities as of September 30, 2022 and December 31, 2021 are as follows (dollars in thousands):


As of September 30, 2022
Repurchase Facility	Committed Financing		Amount Outstanding		Interest Expense (1)		Ending Weighted Average Interest Rate		Term Maturity
JPM Repo Facility (2)	$	500,000	$	235,548	$	6,857	5.78	%	10/6/2023

CS Repo Facility (3)	600,000		265,801		5,048		5.61	%	7/11/2023
WF Repo Facility (4)	500,000		40,476		6,027		5.17	%	11/21/2023
Barclays Revolver Facility (5)	250,000		—		1,109		N/A		9/20/2023
Barclays Repo Facility (6)	500,000		157,583		6,102		5.19	%	3/14/2025
Total	$	2,350,000	$	699,408	$	25,143

________________________________________________________

(1) For the nine months ended September 30, 2022. Includes amortization of deferred financing costs.

(2) With one-year extension option available at the Company's discretion. On July 7, 2022, the committed financing was increased from $ 400 million to $ 500 million . Additionally, on September 29, 2022, the Company extended the maturity date to October 6, 2023

(3) O n July 12, 2022, the maturity date was extended to July 11, 2023 and the committed financing was increased from $ 300 million to $ 600 million .

(4) On May 12, 2022, the committed financing amount was increased from $ 450 million to $ 500 million. There are three more one-year extension options available at the Company's discretion.

(5) The Company may increase the total commitment amount by an amount between $ 100 million and $ 150 million for three month intervals, on an unlimited basis prior to maturity.

(6) There are two one-year extension options available at the Company's discretion.


As of December 31, 2021
Repurchase Facility	Committed Financing		Amount Outstanding		Interest Expense (1)		Ending Weighted Average Interest Rate		Term Maturity
JPM Repo Facility	$	400,000	$	136,470	$	5,178	2.13	%	10/6/2022

CS Repo Facility	300,000		137,364		3,446		2.43	%	9/30/2022
WF Repo Facility	450,000		186,734		2,090		1.64	%	11/21/2023
Barclays Revolver Facility	250,000		166,700		1,976		6.12	%	9/20/2023
Barclays Repo Facility	500,000		392,332		4,057		1.76	%	3/14/2025
Total	$	1,900,000	$	1,019,600	$	16,747

________________________________________________________

(1) For the year ended December 31, 2021. Includes amortization of deferred financing costs.

The Company expects to use the advances from the Repo Facilities to finance the acquisition or origination of eligible loans, including first mortgage loans, subordinated mortgage loans, mezzanine loans and participation interests therein.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

The Repo Facilities generally provide that in the event of a decrease in the value of the Company's collateral, the lenders can demand additional collateral. As of September 30, 2022 and December 31, 2021, the Company is in compliance with all debt covenants.

Other financing and loan participation - Commercial Mortgage Loans

On March 23, 2020, the Company transferred $ 15.2 million of its interest in a term loan to Webster Bank (formerly Sterling National Bank) via a participation agreement. Since inception, the Company's outstanding loan increased as a result of future fundings, leading to an increase in amount outstanding via the participation agreement. The Company incurred $ 0.5 million and $ 1.0 million of interest expense on the Webster Bank term loan for the three and nine months ended September 30, 2022, respectively. As of September 30, 2022 the outstanding participation balance was $ 40.7 million. The loan accrued interest at an annual rate of one-month LIBOR + 2.20 % and matures on February 9, 2023.

On February 10, 2022, the Company transferred $ 38.0 million of its interest in a term loan to a regional bank via a participation agreement. Since inception, the Company's outstanding loan increased as a result of future fundings, leading to an increase in amount outstanding via the participation agreement. The Company incurred $ 0.1 million and $ 0.2 million of interest expense on the regional bank term loan for the three and nine months ended September 30, 2022, respectively. As of September 30, 2022 the outstanding participation balance was $ 12.5 million. The loan accrued interest at an annual rate of one-month SOFR + 4.01 % and matures on May 1, 2025.

Mortgage Note Payable

On September 17, 2021, the Company, in connection with the consolidated joint venture (as discussed in Note 5 - Real Estate Owned), originated a $ 112.7 million mortgage note payable, of which $ 88.7 million is eliminated in consolidation (see Note 5 - Real Estate Owned). The remaining mortgage note payable of $ 24.0 million is recorded on the consolidated balance sheet. As of September 30, 2022, the loan accrued interest at an annual rate of 3.1 % and matures on October 9, 2024.

Unsecured Debt

As of September 30, 2022, the Company had outstanding 30-year junior subordinated notes issued in 2005 and 2006 and maturing in 2035 and 2036, respectively, with a total face amount of $ 100.0 million. Note balances net of deferred issuance costs, and related weighted average interest rates as of the indicated dates (calculated including issuance cost amortization and adjusted for the effects of related derivatives held as cash flow hedges prior to termination) were as follows (dollars in thousands):


	As of September 30, 2022				As of December 31, 2021
	Borrowings Outstanding		Weighted Average Rate		Borrowings Outstanding		Weighted Average Rate
Junior subordinated notes maturing in:
October 2035 ($ 35,000 face amount)	$	34,499	3.72	%	$	34,470	7.86	%
December 2035 ($ 40,000 face amount)	39,503		3.49	%	39,474		7.63	%
September 2036 ($ 25,000 face amount)	24,668		3.49	%	24,650		7.67	%
	$	98,670	3.57	%	$	98,594	7.72	%

The notes are currently redeemable, in whole or in part, without penalty, at the Company’s option.

Pursuant to a lending and security agreement with Security Benefit Life Insurance Company ("SBL"), which was entered into in February 2020 and amended in March and August 2020, the Company may borrow up to $ 100.0 million at a rate of one-month LIBOR + 4.5 %. The facility has a maturity of February 10, 2023 and is secured by a pledge of equity interests in certain of the Company’s subsidiaries. The Company incurred $ 0.2 million and $ 0.7 million of interest expense on the lending agreement with SBL for the three and nine months ended September 30, 2022, respectively. As of September 30, 2022, there was no outstanding balance. As of December 31, 2021, the outstanding balance was $ 50.0 million.

Repurchase Agreements - Real Estate Securities

The Company has entered into various Master Repurchase Agreements (the "MRAs") that allow the Company to sell real estate securities while providing a fixed repurchase price for the same real estate securities in the future. The repurchase contracts on each security under an MRA generally mature in 30 - 90 days and terms are adjusted for current market rates as necessary.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Below is a summary of the Company's MRAs as of September 30, 2022 and December 31, 2021 (dollars in thousands):


							Weighted Average
Counterparty	Amount Outstanding		Interest Expense		Collateral Pledged (1)		Interest Rate		Days to Maturity
As of September 30, 2022
JP Morgan Securities LLC	$	48,817	$	301	$	57,468	3.95	%	27

Goldman Sachs International	—		—		—		N/A		N/A
Barclays Capital Inc.	63,796		513		80,331		3.78	%	19

Citigroup Global Markets, Inc.	—		—		—		N/A		N/A
Total/Weighted Average	$	112,613	$	814	$	137,799	3.85	%	23

As of December 31, 2021
JP Morgan Securities LLC	$	19,025	$	261	$	24,087	1.14	%	10

Goldman Sachs International	—		37		—		N/A		N/A
Barclays Capital Inc.	15,286		526		19,131		1.21	%	14

Citigroup Global Markets, Inc.	—		81		—		N/A		N/A
Total/Weighted Average	$	34,311	$	905	$	43,218	1.71	%	12

________________________________________________________

(1) Includes $ 62.9 million and $ 43.2 million of CLO notes, held by the Company, which are eliminated within the real estate securities, at fair value line in the consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively.

Repurchase Agreements - Real Estate Securities Classified As Trading

The Company pledges its real estate securities classified as trading as collateral for repurchase agreements with commercial banks and other financial institutions. Repurchase arrangements entered into by the Company involve the sale and a simultaneous agreement to repurchase the transferred assets at a future date and are accounted for as financings. The Company maintains the beneficial interest in the specific securities pledged during the term of each repurchase arrangement and receives the related principal and interest payments.

The terms and conditions of repurchase agreements are negotiated on a transaction-by-transaction basis when each such agreement is initiated or renewed. The amount borrowed is generally equal to the fair value of the securities pledged, as determined by the lending counterparty, less an agreed-upon discount, referred to as a “haircut.” Interest rates are generally fixed based on prevailing rates corresponding to the terms of the borrowings. Interest may be paid monthly or at the termination of an agreement at which time the Company may enter into a new agreement at prevailing haircuts and rates with the same lending counterparty or repay that counterparty and negotiate financing with a different lending counterparty. None of the Company’s lending counterparties are obligated to renew or otherwise enter into new agreements at the conclusion of existing agreements. In response to declines in fair value of pledged securities due to changes in market conditions or the publishing of monthly security pay-down factors, lending counterparties typically require the Company to post additional securities as collateral, pay down borrowings or fund cash margin accounts with the counterparties in order to re-establish the agreed-upon collateral requirements. These actions are referred to as margin calls. Conversely, in response to increases in fair value of pledged securities, the Company routinely margin calls its lending counterparties in order to have previously pledged collateral returned.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Repurchase agreements (and related pledged collateral, including accrued interest receivable), classified by remaining maturities, and related weighted average borrowing rates as of the indicated dates were as follows (dollars in thousands):


	Collateral Carrying Amount		Accrued Interest Receivable		Borrowings Outstanding		Weighted Average Borrowing Rates
As of September 30, 2022
Repurchase arrangements secured by Agency securities with maturities of 30 days or less	$	235,563	$	528	$	225,000	3.16	%

As of December 31, 2021
Repurchase arrangements secured by Agency securities with maturities of 30 days or less	$	4,327,020	$	8,908	$	4,144,473	0.13	%

Average repurchase agreements outstanding were $ 230.0 million and $ 4.0 billion during the three months ended September 30, 2022 and December 31, 2021, respectively. Average repurchase agreements outstanding differed from respective quarter-end balances during the indicated periods primarily due to changes in portfolio levels and differences in the timing of portfolio acquisitions relative to portfolio runoff and asset sales.

Collateralized Loan Obligations

On May 13, 2022, the Company called all of the outstanding notes issued by BSPRT 2018-FL4 Issuer, Ltd., a wholly owned indirect subsidiary of the Company. The outstanding principal of the notes on the date of the call was $ 69.5 million. The Company recognized all the remaining unamortized deferred financing costs of $ 5.2 million recorded within the Interest expense line of the consolidated statements of operations, which was a non-cash charge.

As of September 30, 2022 and December 31, 2021, the notes issued by BSPRT 2019-FL5 Issuer, Ltd. and BSPRT 2019-FL5 Co-Issuer, LLC, each wholly owned indirect subsidiaries of the Company, are collateralized by interests in a pool of 30 and 48 mortgage assets having a principal balance of $ 452.2 million and $ 589.0 million respectively (the "2019-FL5 Mortgage Assets"). The sale of the 2019-FL5 Mortgage Assets to BSPRT 2019-FL5 Issuer is governed by a Mortgage Asset Purchase Agreement dated as of May 30, 2019, between the Company and BSPRT 2019-FL5 Issuer.

As of September 30, 2022 and December 31, 2021 , the notes issued by BSPRT 2021-FL6 Issuer, Ltd. and BSPRT 2021-FL6 Co-Issuer, LLC, each wholly owned indirect subsidiaries of the Company , are collateralized by interests in a pool of 58 and 44 mortgage assets having a principal balance of $ 695.8 million and $ 682.3 million respectively (the "2021-FL6 Mortgage Assets"). The sale of the 2021-FL6 Mortgage Assets to BSPRT 2021-FL6 Issuer, Ltd. is governed by a Collateral Interest Purchase Agreement dated as of March 25, 2021, between the Company and BSPRT 2021-FL6 Issuer, Ltd.

As of September 30, 2022 and December 31, 2021 , the notes issued by BSPRT 2021-FL7 Issuer, Ltd. and BSPRT 2021-FL7 Co-Issuer, LLC, each wholly owned indirect subsidiaries of the Company , are collateralized by interests in a pool of 38 and 47 mortgage assets having a principal balance of $ 859.6 million and $ 871.4 million respectively (the "2021-FL7 Mortgage Assets"). The sale of the 2021-FL7 Mortgage Assets to BSPRT 2021-FL7 Issuer, Ltd. is governed by a Collateral Interest Purchase Agreement dated as of March 25, 2021, between the Company and BSPRT 2021-FL7 Issuer, Ltd.

On February 15, 2022, BSPRT 2022-FL8 Issuer, Ltd. and BSPRT 2022-FL8 Co-Issuer, LLC, both wholly owned indirect subsidiaries of the Company entered into an indenture with the OP, as advancing agent and U.S. Bank National Association, as note administrator and trustee, which governs the issuance of approximately $ 1.1 billion principal balance secured floating rate notes, of which $ 960.0 million were purchased by third party investors and $ 132.0 million were purchased by a wholly owned subsidiary of the OP. In addition, concurrently with the issuance of the notes, BSPRT 2022-FL8 Issuer, Ltd. also issued 108,000 preferred shares, par value of $ 0.001 per share and with an aggregate liquidation preference and notional amount equal to $ 1,000 per share, which were not offered as part of closing the indenture. For U.S. federal income tax purposes, BSPRT 2022-FL8 Issuer, Ltd. and BSPRT 2022-FL8 Co-Issuer, LLC are disregarded entities.

As of September 30, 2022 , the notes issued by BSPRT 2022-FL8 Issuer, Ltd. and BSPRT 2022-FL8 Co-Issuer, LLC, are collateralized by interests in a pool of 31 mortgage assets having a principal balance of $ 1.2 billion (the "2022-FL8 Mortgage Assets"). The sale of the 2022-FL8 Mortgage Assets to BSPRT 2022-FL8 Issuer, Ltd. is governed by a Collateral Interest Purchase Agreement dated as of December 21, 2021, between the Company and BSPRT 2022-FL8 Issuer, Ltd.

Table of Contents

FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

On June 29, 2022, BSPRT 2022-FL9 Issuer, LLC, a wholly-owned indirect subsidiary of the Company, entered into an indenture with the OP, as advancing agent, U.S. Bank Trust Company, National Association, as trustee and note administrator, and U.S. Bank National Association, as custodian and in other capacities, which governs the issuance of approximately $ 740.9 million principal balance secured floating rate notes, of which $ 670.6 million were purchased by third party investors and $ 70.3 million were purchased by a wholly-owned subsidiary of the OP. In addition, concurrently with the issuance of the notes, BSPRT 2022-FL9 Issuer, LLC also issued 62,246 preferred shares, par value of $ 0.001 per share and with an aggregate liquidation preference and notional amount equal to $ 1,000 per share, which were not offered as part of closing the indenture. For U.S. federal income tax purposes, BSPRT 2022-FL9 Issuer, LLC is a disregarded entity.

As of September 30, 2022, the notes issued by BSPRT 2022-FL9 Issuer, LLC are collateralized by interests in a pool of 34 mortgage assets having a principal balance of $ 767.8 million (the "2022-FL9 Mortgage Assets"). The sale of the 2022-FL9 Mortgage Assets to BSPRT 2022-FL9 Issuer, LLC is governed by a Collateral Interest Purchase Agreement, dated as of June 29, 2022, by and among FBRT Sub REIT, BSPRT 2022-FL9 Issuer, LLC, the OP, and BSPRT 2022-FL9 Seller, LLC.

Table of Contents

FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

The Company, through its wholly-owned subsidiaries, holds the preferred equity tranches of the above CLOs of approximately $ 401.8 million and $ 329.2 million as of September 30, 2022 and December 31, 2021, respectively. The following table represents the terms of the notes issued by 2019-FL5 Issuer 2021-FL6 Issuer, 2021-FL7 Issuer, 2022-FL8 Issuer and 2022-FL9 Issuer (the "CLOs"), respectively, as of September 30, 2022 (dollars in thousands):

CLO Facility

Tranche

Par Value Issued

Par Value Outstanding (1)

Interest Rate

Maturity Date

2019-FL5 Issuer

Tranche A

407,025

49,645

1M LIBOR + 115

5/15/2029

2019-FL5 Issuer

Tranche A-S

76,950

1M LIBOR + 148

5/15/2029

2019-FL5 Issuer

Tranche B

50,000

1M LIBOR + 140

5/15/2029

2019-FL5 Issuer

Tranche C

61,374

1M LIBOR + 200

5/15/2029

2019-FL5 Issuer

Tranche D

48,600

5,000

1M LIBOR + 240

5/15/2029

2019-FL5 Issuer

Tranche E

20,250

1M LIBOR + 285

5/15/2029

2021-FL6 Issuer

Tranche A

367,500

1M LIBOR + 110

3/15/2036

2021-FL6 Issuer

Tranche A-S

86,625

1M LIBOR + 130

3/15/2036

2021-FL6 Issuer

Tranche B

33,250

1M LIBOR + 160

3/15/2036

2021-FL6 Issuer

Tranche C

41,125

1M LIBOR + 205

3/15/2036

2021-FL6 Issuer

Tranche D

44,625

1M LIBOR + 300

3/15/2036

2021-FL6 Issuer

Tranche E

11,375

1M LIBOR + 350

3/15/2036

2021-FL7 Issuer

Tranche A

508,500

1M LIBOR + 132

12/21/2038

2021-FL7 Issuer

Tranche A-S

13,500

1M LIBOR + 165

12/21/2038

2021-FL7 Issuer

Tranche B

52,875

1M LIBOR + 205

12/21/2038

2021-FL7 Issuer

Tranche C

66,375

1M LIBOR + 230

12/21/2038

2021-FL7 Issuer

Tranche D

67,500

1M LIBOR + 275

12/21/2038

2021-FL7 Issuer

Tranche E

13,500

1M LIBOR + 340

12/21/2038

2022-FL8 Issuer

Tranche A

690,000

1M LIBOR + 150

2/15/2037

2022-FL8 Issuer

Tranche A-S

66,000

1M LIBOR + 185

2/15/2037

2022-FL8 Issuer

Tranche B

55,500

1M LIBOR + 205

2/15/2037

2022-FL8 Issuer

Tranche C

67,500

1M LIBOR + 230

2/15/2037

2022-FL8 Issuer

Tranche D

81,000

1M LIBOR + 350

2/15/2037

2022-FL9 Issuer

Tranche A

423,667

1M LIBOR + 255

5/15/2039

2022-FL9 Issuer

Tranche A-S

96,380

1M LIBOR + 310

5/15/2039

2022-FL9 Issuer

Tranche B

42,166

1M LIBOR + 360

5/15/2039

2022-FL9 Issuer

Tranche C

48,189

1M LIBOR + 415

5/15/2039

2022-FL9 Issuer

Tranche D

49,194

1M LIBOR + 505

5/15/2039

2022-FL9 Issuer

Tranche E

11,041

1M LIBOR + 565

5/15/2039

3,601,586

3,200,606

________________________________________________________

(1) Excludes $ 453.4 million of CLO notes, held by the Company, which are eliminated within the collateralized loan obligations line in the consolidated balance sheet as of September 30, 2022.

Table of Contents

FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

The following table represents the terms of the notes issued by 2018-FL4 Issuer, 2019-FL5 Issuer, 2021-FL6 Issuer and 2021-FL7 Issuer, as of December 31, 2021 (dollars in thousands):

CLO Facility

Tranche

Par Value Issued

Par Value Outstanding (1)

Interest Rate

Maturity Date

2018-FL4 Issuer

Tranche A

416,827

75,263

1M LIBOR + 105

9/15/2035

2018-FL4 Issuer

Tranche A-S

73,813

1M LIBOR + 130

9/15/2035

2018-FL4 Issuer

Tranche B

56,446

1M LIBOR + 160

9/15/2035

2018-FL4 Issuer

Tranche C

68,385

1M LIBOR + 210

9/15/2035

2018-FL4 Issuer

Tranche D

57,531

1M LIBOR + 275

9/15/2035

2018-FL4 Issuer

Tranche E

28,223

1M LIBOR + 305

9/15/2035

2019-FL5 Issuer

Tranche A

407,025

299,529

1M LIBOR + 115

5/15/2029

2019-FL5 Issuer

Tranche A-S

76,950

1M LIBOR + 148

5/15/2029

2019-FL5 Issuer

Tranche B

50,000

1M LIBOR + 140

5/15/2029

2019-FL5 Issuer

Tranche C

61,374

1M LIBOR + 200

5/15/2029

2019-FL5 Issuer

Tranche D

48,600

5,000

1M LIBOR + 240

5/15/2029

2019-FL5 Issuer

Tranche E

20,250

1M LIBOR + 285

5/15/2029

2021-FL6 Issuer

Tranche A

367,500

1M LIBOR + 110

3/15/2036

2021-FL6 Issuer

Tranche A-S

86,625

1M LIBOR + 130

3/15/2036

2021-FL6 Issuer

Tranche B

33,250

1M LIBOR + 160

3/15/2036

2021-FL6 Issuer

Tranche C

41,125

1M LIBOR + 205

3/15/2036

2021-FL6 Issuer

Tranche D

44,625

1M LIBOR + 300

3/15/2036

2021-FL6 Issuer

Tranche E

11,375

1M LIBOR + 350

3/15/2036

2021-FL7 Issuer

Tranche A

508,500

1M LIBOR + 132

12/21/2038

2021-FL7 Issuer

Tranche A-S

13,500

1M LIBOR + 165

12/21/2038

2021-FL7 Issuer

Tranche B

52,875

1M LIBOR + 205

12/21/2038

2021-FL7 Issuer

Tranche C

66,375

1M LIBOR + 230

12/21/2038

2021-FL7 Issuer

Tranche D

67,500

1M LIBOR + 275

12/21/2038

2021-FL7 Issuer

Tranche E

13,500

1M LIBOR + 340

12/21/2038

2,672,174

2,179,514

________________________________________________________

(1) Excludes $ 320.6 million of CLO notes, held by the Company, which are eliminated within the collateralized loan obligations line in the consolidated balance sheet as of December 31, 2021.

Table of Contents

FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

The below table reflects the total assets and liabilities of the Company's outstanding CLOs. The CLOs are considered VIEs and are consolidated into the Company's consolidated financial statements as of September 30, 2022 and December 31, 2021 as the Company is the primary beneficiary of the VIE. The Company is the primary beneficiary of the CLOs because (i) the Company has the power to direct the activities that most significantly affect the VIE’s economic performance and (ii) the right to receive benefits from the VIEs or the obligation to absorb losses of the VIEs that could be significant to the VIE. The VIE's are non-recourse to the Company.


Assets (dollars in thousands)	September 30, 2022		December 31, 2021
Cash (1)	$	87,747	$	187,668
Commercial mortgage loans, held for investment, net (2)	3,954,397		2,629,431
Accrued interest receivable	11,253		5,918
Total Assets	$	4,053,397	$	2,823,017

Liabilities (dollars in thousands)
Notes payable (3)(4)	$	3,634,459	$	2,482,762
Accrued interest payable	8,357		1,598
Total Liabilities	$	3,642,816	$	2,484,360

________________________________________________________

(1) Includes $ 86.9 million and $ 187.0 million of cash held by the servicer related to CLO loans as of September 30, 2022 and December 31, 2021, respectively.

(2) The balance is presented net of allowance for credit losses of $ 7.4 million and $ 8.7 million as of September 30, 2022 and December 31, 2021, respectively.

(3) Includes $ 453.4 million and $ 320.6 million of CLO notes, held by the Company, which are eliminated within the collateralized loan obligations line of the consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively.

(4) The balance is presented net of deferred financing cost and discount of $ 19.5 million and $ 17.3 million as of September 30, 2022 and December 31, 2021, respectively.

Table of Contents

FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Note 8 - Earnings Per Share

The Company uses the two-class method in calculating basic and diluted earnings per share. Net income/(loss) is allocated between our common stock and other participating securities based on their participation rights. Diluted net income per share has been computed using the weighted average number of shares of common stock outstanding and other dilutive securities. The following table presents a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations and the calculation of basic and diluted earnings per share for the three and nine months ended September 30, 2022 and September 30, 2021 (in thousands, except share and per share data):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Numerator
Net income/(loss)	$	35,258	$	38,495	$	( 12,958 )	$	98,651
Less: Preferred stock dividends	6,899		4,804		34,865		12,040

Less: Undistributed earnings allocated to preferred stock	—		4,201		—		10,706
Net income/(loss) attributable to common stockholders (basic and diluted earnings per share)	$	28,359	$	29,490	$	( 47,823 )	$	75,905

Denominator
Weighted-average common shares outstanding for basic earnings per share	83,665,250		44,185,241		67,965,397		44,245,733
Effect of dilutive shares (1) :
Unvested restricted shares	—		15,323		—		15,737
Weighted-average common shares outstanding for diluted earnings per share	83,665,250		44,200,564		67,965,397		44,261,470

Basic earnings per share	$	0.34	$	0.67	$	( 0.70 )	$	1.72
Diluted earnings per share	$	0.34	$	0.67	$	( 0.70 )	$	1.71

_______________________

(1) The effect of dilutive shares excluded an aggregate of 516,830 and 465,237 weighted average restricted stock units for the three and nine months ended September 30, 2022, respectively, as their effect was anti-dilutive. Additionally, the effect of dilutive shares excluded an aggregate of 5,789,378 and 21,508,045 weighted average common equivalent of convertible preferred shares for the three and nine months ended September 30, 2022, respectively, as the effect was anti-dilutive.

Table of Contents

FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Note 9 - Equity Transactions

The following table presents the summary of the Company's outstanding shares of Common Stock and Preferred Stock as of September 30, 2022 and December 31, 2021 (dollars in thousands, except share amounts):


	Balance as of				Shares Outstanding as of		Third Quarter Dividend/Distribution Per Share (6)
	September 30, 2022		December 31, 2021		September 30, 2022	December 31, 2021
Common Stock - at par value (1)(2)	$	830	$	441	83,362,351	43,965,928	$	0.355
Redeemable Convertible Preferred Stock
Series C Preferred Stock (3)	$	6,976	$	6,971	1,400	1,400	$	106.22
Series D Preferred Stock (4)	$	—	$	89,684	—	17,950	n/a
Series H Preferred Stock (4)	$	89,748	$	—	17,950	—	$	106.22
Perpetual Preferred Stock
Series E Preferred Stock	$	258,742	$	258,742	10,329,039	10,329,039	$	0.46875
Automatically Convertible Preferred Stock
Series F Preferred Stock (5)	$	—	$	710,431	—	39,733,299	n/a

_________________________________________________________

(1) Common Stock shares include shares issued pursuant to the Company's distribution reinvestment plan (the "DRIP") and unvested restricted shares.

(2) During the nine months ended September 30, 2022, the Company repurchased 931,053 shares of Common Stock at an average price of $ 11.85 per share, for a total of $ 11.0 million. All of these shares were retired upon settlement, reducing the total outstanding shares as of September 30, 2022. See discussion in the "Stock Repurchases" section below.

(3) On October 19, 2022, 400 shares of the Company's Series C Preferred Stock each automatically converted into 299.2 shares of Common Stock, pursuant to the terms of the Series C Preferred Stock, resulting in the issuance of 119,538 shares of Common Stock. The remaining 1,000 outstanding shares of Series C Preferred Stock were exchanged by the holder for an equal number of the Company's newly created Series I Preferred Stock.

(4) 17,950 shares of Series D Preferred Stock were issued in March 2021, all of which were exchanged for an equal number of shares of Series H Preferred Stock in June 2022.

(5) On April 19, 2022, all of the 39,733,299 outstanding shares of the Company’s Series F Preferred Stock automatically converted on a one -for-one basis into an equal amount of shares of Common Stock, pursuant to the terms of the Articles Supplementary of the Series F Preferred Stock.

(6) As declared by the Company's board of directors.

Distributions

In order to maintain its election to qualify as a REIT, the Company must currently distribute, at a minimum, an amount equal to 90 % of its taxable income, without regard to the deduction for distributions paid and excluding net capital gains. The Company must distribute 100 % of its taxable income (including net capital gains) to avoid paying corporate U.S. federal income taxes. Distribution payments are dependent on the availability of funds. The Company's board of directors may reduce the amount of distributions paid or suspend distribution payments at any time, and therefore, distributions payments are not assured.

Distribution payments are dependent on the availability of funds. The board of directors may reduce the amount of distributions paid or suspend distribution payments at any time, and therefore, distribution payments are not assured. Dividends on the Company’s outstanding shares of preferred stock, to the extent not declared by the board of directors quarterly, will accrue, and dividends may not be paid on the Company's common stock to the extent there are accrued and unpaid dividends on the preferred stock. The amount of dividends paid on the Company’s Series C Preferred Stock and Series H Preferred Stock are generally in an amount equal to the dividends a holder of such preferred stock would have received if the preferred stock had been converted into common stock in accordance with its terms, except when the amount of common stock dividends are below the threshold stated in the terms of such preferred stock.

The Company distributed $ 58.1 million of common stock dividends during the nine months ended September 30, 2022, comprised of $ 57.0 million in cash and $ 1.1 million in shares of common stock issued under the DRIP. The Company distributed $ 36.5 million of common stock dividends during the nine months ended September 30, 2021, comprised of $ 31.4 million in cash and $ 5.1 million in shares of common stock issued under the DRIP.

Table of Contents

FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

As of September 30, 2022 and December 31, 2021, the Company had declared but unpaid common stock distributions of $ 29.6 million and $ 12.5 million, respectively, declared but unpaid Series C Preferred Stock distributions of $ 0.2 million and $ 0.1 million, respectively, and $ 4.8 million of declared but unpaid Series E Preferred Stock distributions. Additionally, as of September 30, 2022 the Company had declared but unpaid Series H Preferred stock distributions of $ 1.9 million. As of December 31, 2021, the Company had $ 1.5 million of declared but unpaid Series D Preferred Stock distributions and $ 11.3 million of declared but unpaid Series F Preferred Stock distributions. These amounts are included in Distributions payable on the Company’s consolidated balance sheets.

Preferred Stock

The following tables present the activity in the Company's Series C Preferred Stock for the nine-month periods ended September 30, 2022 and 2021 (dollars in thousands, except share amounts):


	For the Nine Months Ended
	September 30, 2022			September 30, 2021
	Shares	Amount		Shares	Amount
Balance at Beginning of Period	1,400	$	6,971	1,400	$	6,962



Amortization of offering costs	—	5		—	7
Balance at End of Period	1,400	$	6,976	1,400	$	6,969

The following table presents the activity in the Company's Series D Preferred Stock for the nine-month periods ended September 30, 2022 and 2021 (dollars in thousands, except share amounts):


	For the Nine Months Ended
	September 30, 2022			September 30, 2021
	Shares	Amount		Shares	Amount
Balance at Beginning of Period	17,950	$	89,684	—	$	—
Issuance of Preferred Stock	—	—		17,950	89,748

Exchanged for Series H Preferred Stock	( 17,950 )	( 89,748 )		—	—
Offering costs	—	—		—	( 83 )
Amortization of offering costs	—	64		—	12
Balance at End of Period	—	$	—	17,950	$	89,677

The following table presents the activity in the Company's Series E Preferred Stock for the nine-month period ended September 30, 2022 (dollars in thousands, except share amounts):


	For the Nine Months Ended
	September 30, 2022			September 30, 2021
	Shares	Amount		Shares	Amount
Balance at Beginning of Period	10,329,039	$	258,742	—	$	—




Balance at End of Period	10,329,039	$	258,742	—	$	—

The following table presents the activity in the Company's Series F Preferred Stock for the nine-month period ended September 30, 2022 (dollars in thousands, except share amounts):


	For the Nine Months Ended
	September 30, 2022			September 30, 2021
	Shares	Amount		Shares	Amount
Balance at Beginning of Period	39,733,299	$	710,431	—	$	—


Automatically converted into Common Stock	( 39,733,299 )	( 710,431 )		—	—


Balance at End of Period	—	$	—	—	$	—

Table of Contents

FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

The following table presents the activity in the Company's Series H Preferred Stock for the nine-month period ended September 30, 2022 (dollars in thousands, except share amounts):


	For the Nine Months Ended
	September 30, 2022			September 30, 2021
	Shares	Amount		Shares	Amount
Balance at Beginning of Period	—	$	—	—	$	—
Issuance of Series H Preferred Stock in exchange for Series D Preferred Stock	17,950	89,748		—	—



Balance at End of Period	17,950	$	89,748	—	$	—

Stock Repurchases

The Company’s board of directors has authorized a $ 65 million share repurchase program of the Company’s common stock. The Company’s share repurchase program authorizes share repurchases at prices below the most recently reported book value per share as determined in accordance with GAAP. Purchases made under the program may be made through open market, block, and privately negotiated transactions, including Rule 10b5-1 plans, as permitted by securities laws and other legal requirements. The timing, manner, price and amount of any purchases by the Company will be determined by the Company in its reasonable business judgment and consistent with the exercise of its legal duties and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The share repurchase program does not obligate the Company to acquire any particular amount of common stock. The Company share repurchase program will remain open until at least December 31, 2023 or until the capital committed to the applicable repurchase program has been exhausted, whichever is sooner. Repurchases under the Company’s share repurchase program may be suspended from time to time at the Company’s discretion without prior notice.

The following table is a summary of the Company’s repurchase activity of its common stock during the three and nine months ended September 30, 2022:


	For the Three and Nine Months Ended September 30, 2022
	Shares	Amount (2)
Authorized repurchase amount (1)	—	$	65,000
Repurchases paid	774,653	( 9,359 )
Repurchases unsettled (3)	156,400	( 1,677 )
Remaining as of September 30, 2022		$	53,964

_________________________________________________________

(1) Amount includes commissions paid associated with share repurchases .

(2) For the period ended September 30, 2022, the average purchase price was $ 11.85 per share.

(3) Represents repurchases for which an order had been placed before the end of the quarter but had not yet settled by September 30, 2022.

As of September 30, 2022, the Company had $ 54.0 million remaining under the share repurchase program.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Accumulated Other Comprehensive Income/(Loss)

The following tables set forth the changes in accumulated other comprehensive income/(loss) by component.


(dollars in thousands)	Total		Available for Sale Securities		Cash Flow Hedges
For the Three Months Ended September 30, 2022:
Balance as of June 30, 2022	$	—	$	—	$	—
Other comprehensive (loss) income	( 373 )		( 373 )		—
Balance as of September 30, 2022	$	( 373 )	$	( 373 )	$	—

For the Three Months Ended September 30, 2021:
Balance as of June 30, 2021	$	—	$	—	$	—
Other comprehensive (loss) income	—		—		—
Balance as of September 30, 2021	$	—	$	—	$	—

For the Nine Months Ended September 30, 2022:
Balance as of December 31, 2021	$	( 62 )	$	—	$	( 62 )
Other comprehensive (loss) income	( 593 )		( 373 )		( 220 )
Reclassification adjustment for amounts included in net income/(loss)	282		—		282
Balance as of September 30, 2022	$	( 373 )	$	( 373 )	$	—

For the Nine Months Ended September 30, 2021:
Balance as of December 31, 2020	$	( 8,256 )	$	( 8,256 )	$	—
Other comprehensive (loss) income	8,256		8,256		—
Balance as of September 30, 2021	$	—	$	—	$	—

Note 10 - Commitments and Contingencies

Unfunded Commitments Under Commercial Mortgage Loans

As of September 30, 2022 and December 31, 2021, the Company had the below unfunded commitments to the Company's borrowers (dollars in thousands):


Funding Expiration	September 30, 2022		December 31, 2021
2022	$	8,000	$	25,864
2023	90,093		123,860
2024	359,735		271,056
2025 and beyond	74,755		37,325
	$	532,583	$	458,105

The borrowers are generally required to meet or maintain certain metrics in order to qualify for the unfunded commitment amounts.

Litigation and Regulatory Matters

The Company is not presently involved in any material litigation arising outside the ordinary course of business. However, the Company is involved in routine litigation arising in the ordinary course of business, none of which the Company believes, individually or in the aggregate, will have a material impact on the Company’s financial condition, operating results or cash flows.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Note 11 - Related Party Transactions and Arrangements

Advisory Agreement Fees and Reimbursements

Pursuant to the Advisory Agreement, the Company is required to make the following payments and reimbursements to the Advisor:

• The Company reimburses the Advisor’s costs of providing services pursuant to the Advisory Agreement, except the salaries and benefits paid by the Advisor to the Company’s executive officers.

• The Company pays the Advisor, or its affiliates, a monthly asset management fee equal to one-twelfth of 1.5% of stockholders' equity as calculated pursuant to the Advisory Agreement.

• The Company will pay the Advisor an annual subordinated performance fee calculated on the basis of total return to stockholders, payable monthly in arrears, such that for any year in which total return on stockholders’ capital (as defined in the Advisory Agreement) exceeds 6.0 % per annum, our Advisor will be entitled to 15.0 % of the excess total return; provided that in no event will the annual subordinated performance fee payable to our Advisor exceed 10.0 % of the aggregate total return for such year.

• The Company reimburses the Advisor for insourced expenses incurred by the Advisor on the Company‘s behalf related to selecting, evaluating, originating and acquiring investments in an amount up to 0.5 % of the principal amount funded by the Company to originate or acquire commercial mortgage loans and up to 0.5 % of the anticipated net equity funded by the Company to acquire real estate securities investments.

The table below shows the costs incurred due to arrangements with our Advisor and its affiliates during the three and nine months ended September 30, 2022 and 2021 and the associated payable as of September 30, 2022 and December 31, 2021 (dollars in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,				Payable as of
	2022		2021		2022		2021		September 30, 2022		December 31, 2021
Acquisition expenses (1)	$	362	$	690	$	996	$	1,012	$	373	$	—
Administrative services expenses	3,001		2,980		9,402		9,532		3,001		—
Asset management and subordinated performance fee	6,430		8,265		19,776		19,682		11,353		15,595
Other related party expenses (2)(3)	226		146		706		182		1,717		1,943
Total related party fees and reimbursements	$	10,019	$	12,081	$	30,880	$	30,408	$	16,444	$	17,538

_________________________________________________________

(1) Total acquisition expenses paid during the three months ended September 30, 2022 and 2021 were $ 2.5 million and $ 2.9 million, respectively, of which $ 2.1 million and $ 2.2 million were capitalized within the commercial mortgage loans, held for investment and real estate securities, available for sale, measured at fair value lines of the consolidated balance sheets. Total acquisition expenses paid during the nine months ended September 30, 2022 and 2021 were $ 9.7 million and $ 7.5 million, respectively, of which $ 8.7 million and $ 6.5 million were capitalized within the commercial mortgage loans, held for investment and real estate securities, available for sale, measured at fair value lines of the consolidated balance sheets.

(2) These are related to reimbursable costs incurred related to the increase in loan origination activities and are included in Other expenses in the Company's consolidated statements of operations.

(3) As of September 30, 2022 and December 31, 2021, the related party payables include $ 1.7 million and $ 1.9 million of payments made by the Advisor to third party vendors on behalf of the Company.

The payables as of September 30, 2022 and December 31, 2021, in the table above are included in Due to affiliates on the Company's consolidated balance sheets.

Other Transactions

Pursuant to a lending and security agreement with SBL, which was entered into in February 2020 and amended in March and August 2020, the Company may borrow up to $ 100.0 million at a rate of one-month LIBOR + 4.5 %. The facility has a maturity of February 10, 2023 and is secured by a pledge of equity interests in certain of the Company’s subsidiaries. The Company incurred $ 0.2 million and $ 0.7 million in interest expense on the lending agreement with SBL for the three and nine months ended September 30, 2022, respectively. As of September 30, 2022 there were no amounts outstanding under the lending agreement. As of December 31, 2021 the outstanding balance was $ 50.0 million.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

As of the beginning of 2022, SBL held 17,950 shares of the Company's outstanding shares of Series D Preferred Stock. On June 24, 2022, all 17,950 outstanding shares of Series D Preferred Stock were exchanged for an equal amount of shares of Series H Preferred Stock for no consideration (see Note 2 - Summary of Significant Accounting Policies).

In August 2021 the Company and an affiliate of the Company entered into a joint venture agreement and formed a joint venture entity, Jeffersonville Member, LLC (the "Jeffersonville JV") to acquire a $ 139.5 million triple net lease property in Jeffersonville, GA. The Company has a 79 % interest in the Jeffersonville JV, while the affiliate has a 21 % interest. The Company invested a total of $ 109.8 million, made up of $ 88.7 million in debt and $ 21.1 million in equity, representing 79 % of the ownership interest in the Jeffersonville JV. The affiliate made up the remaining $ 29.8 million composed of a $ 24.0 million mortgage note payable and $ 5.7 million in equity. The Company has control of Jeffersonville JV with 79 % ownership and, therefore, consolidates Jeffersonville JV on its consolidated balance sheets. The Company's $ 88.7 million mortgage note payable to Jeffersonville JV is eliminated in consolidation (see Note 7 - Debt).

As discussed below, in the first quarter of 2022, pursuant to the 2021 Incentive Plan, the Company issued awards of restricted stock units to its officers and certain other personnel of the Advisor who provide services to the Company under the Advisory Agreement (see Note 12 - Share-based Compensation).

As of September 30, 2022, our commercial mortgage loans, held for investment, includes an aggregate of $ 122.5 million carrying value of loans to affiliates of our Advisor. The Company recognized $ 1.6 million and $ 3.4 million of interest income from these loans for the three and nine months ended September 30, 2022, respectively, in the Company’s consolidated statements of operations.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Note 12 - Share-based Compensation

Share Plans

The Company's equity incentive plans provide the Company with the ability to grant equity-based awards to its directors, officers and employees (if the Company ever has employees), employees of the Advisor and its affiliates, or certain of the Company's consultants, employees of entities that provide services to the Company, directors of the Advisor or of entities that provide services to the Company, the Advisor and its affiliates.

Under the Company's RSP, the total number of common shares granted shall not exceed 5 % of the Company’s authorized common shares, and in any event, will not exceed 4.0 million shares (as such number may be adjusted for stock splits, stock distributions, combinations and similar events). The RSP will expire on February 7, 2023.

Under the Company's 2021 Incentive Plan, as of September 30, 2022, there were 5,007,893 shares of common stock remaining available for issuance. The Board may amend, suspend or terminate the 2021 Incentive Plan at any time; provided that no amendment, suspension or termination may impair rights or obligations under any outstanding award without the participant’s consent or violate the 2021 Incentive Plan’s prohibition on repricing.

Service-based Restricted Stock and Restricted Stock Units

During the nine months ended September 30, 2022 , in accordance with the Company's RSP, the Company issued awards of restricted stock to its non-employee directors, and in accordance with the 2021 Incentive Plan, the Company issued awards of RSUs to its officers and certain other personnel of the Advisor who provide services to the Company under the Advisory Agreement.

Restricted Stock and RSU activity issued under the RSP and 2021 Incentive Plan for the nine months ended September 30, 2022 is summarized below:


	Shares Outstanding
	RSP	2021 Incentive Plan	Weighted Average Grant Date Fair Value
Unvested equity awards outstanding as of December 31, 2021	11,184	—	$	17.88
Grants	28,245	492,107	14.05
Forfeitures	—	—	—
Vested	( 18,393 )	—	16.14
Unvested equity awards outstanding as of September 30, 2022	21,036	492,107	$	14.06

During the three and nine months ended September 30, 2022, the Company recognized compensation expense associated with the equity awards of $ 0.7 and $ 1.9 million, respectively, which is included in Other expenses on the consolidated statements of operations. Unrecognized estimated compensation expense for these awards totaled $ 6.4 million as of September 30, 2022, to be expensed over a weighted average period of 1.6 years.

Note 13 - Fair Value of Financial Instruments

GAAP establishes a hierarchy of valuation techniques based on the observability of inputs used in measuring financial instruments at fair values. GAAP establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The three levels of the hierarchy are described below:

• Level I - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

• Level II - Inputs (other than quoted prices included in Level I) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

• Level III - Unobservable inputs that reflect the entity's own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

The determination of where an asset or liability falls in the above hierarchy requires significant judgment and factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter.

The Company has implemented valuation control processes to validate the fair value of the Company's financial instruments measured at fair value including those derived from pricing models. These control processes are designed to assure that the values used for financial reporting are based on observable inputs wherever possible. In the event that observable inputs are not available, the control processes are designed to assure that the valuation approach utilized is appropriate and consistently applied and the assumptions are reasonable.

Financial Instruments Measured at Fair Value on a Recurring Basis

CRE CLO bonds, recorded in real estate securities, available for sale, measured at fair value on the consolidated balance sheets are valued utilizing both observable and unobservable market inputs. These factors include projected future cash flows, ratings, subordination levels, vintage, remaining lives, credit issues, and recent trades of similar real estate securities. Depending upon the significance of the fair value inputs used in determining these fair values, these real estate securities are classified in either Level II or Level III of the fair value hierarchy. The Company utilizes a third party pricing service to obtain a current estimated liquid price of the securities, resulting in a Level II classification.

Real estate securities classified as trading, RMBS, are measured at fair value by utilizing a third party pricing service to obtain a current estimated liquid price of the securities. The RMBS are classified in Level II of the fair value hierarchy.

Commercial mortgage loans, held for sale, measured at fair value in the Company's TRS are initially recorded at transaction proceeds, which are considered to be the best initial estimate of fair value. The Company engaged the services of a third party independent valuation firm to determine fair value of certain investments held by the Company. Fair value is determined using a discounted cash flow model that primarily considers changes in interest rates and credit spreads, weighted average life and current performance of the underlying collateral. Commercial mortgage loans, held for sale, measured at fair value that are originated in the last month of the reporting period are held and marked to the transaction proceeds. The Company classified the commercial mortgage loans, held for sale, measured at fair value as Level III.

Other real estate investments, measured at fair value on the consolidated balance sheets are valued using unobservable inputs. The Company engaged the services of a third party independent valuation firm to determine fair value of certain investments, including preferred equity investments, held by the Company. Fair value is determined using a discounted cash flow model that primarily considers changes in interest rates and credit spreads, weighted average life and current performance of the underlying collateral. The Company classified the other real estate investments, measured at fair value as Level III.

The fair value for Treasury note futures is derived using market prices. Treasury note futures trade on the Chicago Mercantile Exchange (“CME”). The instruments are a variety of recently issued 10-year U.S. Treasury notes. The future contracts are liquid and are centrally cleared through the CME. Treasury note futures are generally categorized in Level II of the fair value hierarchy.

The fair value for credit default swaps and interest rate swaps contracts are derived using pricing models that are widely accepted by marketplace participants. Credit default swaps and interest rate swaps are traded in the OTC market. The pricing models take into account multiple inputs including specific contract terms, interest rate yield curves, interest rates, credit curves, recovery rates, and/or current credit spreads obtained from swap counterparties and other market participants. Most inputs into the models are not subjective as they are observable in the marketplace or set per the contract. Valuation is primarily determined by the difference between the contract spread and the current market spread. The contract spread (or rate) is generally fixed and the market spread is determined by the credit risk of the underlying debt or reference entity. If the underlying indices are liquid and the OTC market for the current spread is active, credit default swaps and interest rate swaps are categorized in Level II of the fair value hierarchy. If the underlying indices are illiquid and the OTC market for the current spread is not active, credit default swaps are categorized in Level III of the fair value hierarchy. The credit default swaps and interest rate swaps are generally categorized in Level II of the fair value hierarchy.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

The fair value of exchange-traded swap agreements hedging RMBS repurchase agreements are calculated using the net discounted future fixed cash payments and the discounted future variable cash receipts which are based on expected future interest rates derived from observable market interest rate curves. The Company also incorporates both its own nonperformance risk and its counterparties’ nonperformance risk in determining fair value. In considering the effect of nonperformance risk, the Company considered the impact of netting and credit enhancements, such as collateral postings and guarantees, and has concluded that counterparty risk is not significant to the overall valuation. Interest rate swap agreements hedging the Company's RMBS repurchase agreements are measured at fair value on a recurring basis primarily using Level II inputs. The fair value of these derivatives are calculated including accrued interest and net of variation margin amounts received or paid through the exchange, resulting in separately presenting on the balance sheet a significantly reduced fair value amount representing the unsettled fair value of these derivatives.

A review of the fair value hierarchy classification is conducted on a quarterly basis. Changes in the type of inputs may result in a reclassification for certain assets or liabilities. The Company's policy with respect to transfers between levels of the fair value hierarchy is to recognize transfers into and out of each level as of the beginning of the reporting period. There were no material transfers between levels within the fair value hierarchy for the periods ended September 30, 2022 and December 31, 2021.

The following table presents the Company's financial instruments carried at fair value on a recurring basis in the consolidated balance sheets by its level in the fair value hierarchy as of September 30, 2022 and December 31, 2021 (dollars in thousands):


	Total		Level I		Level II		Level III
September 30, 2022
Assets, at fair value
Real estate securities, available for sale, measured at fair value	$	74,625	$	—	$	74,625	$	—
Real estate securities, trading, measured at fair value	252,491		—		$	252,491	$	—
Commercial mortgage loans, held for sale, measured at fair value	41,342		—		—		41,342
Derivatives instruments, measured at fair value:
Credit default swaps	—		—		—		—
Interest rate swaps	3,546		—		3,546		—
Total assets, at fair value	$	372,004	$	—	$	330,662	$	41,342

Liabilities, at fair value
Derivatives instruments, measured at fair value:
Interest rate swaps	$	8	$	—	$	8	$	—
Credit default swaps	$	4	$	—	$	4	$	—

Total liabilities, at fair value	$	12	$	—	$	12	$	—

December 31, 2021
Assets, at fair value

Real estate securities, trading, measured at fair value	$	4,566,871	$	—	$	4,566,871	$	—
Commercial mortgage loans, held for sale, measured at fair value	34,718		—		—		34,718
Other real estate investments, measured at fair value	2,074		—		—		2,074

Derivatives instruments, measured at fair value:
Interest rate swaps	312		—		312		—
Treasury note futures	124		—		124		—
Total assets, at fair value	$	4,604,099	$	—	$	4,567,307	$	36,792

Liabilities, at fair value
Derivatives instruments, measured at fair value:
Credit default swaps	$	1,142	$	—	$	1,142	$	—


Unsecured debt-related interest rate swap agreements	31,153		—		31,153		—
Total liabilities, at fair value	$	32,295	$	—	$	32,295	$	—

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

The following table contains the Level 3 inputs used to value assets and liabilities on a recurring and nonrecurring basis or where the Company discloses fair value as of September 30, 2022:

Asset Category

Fair Value

Valuation Methodologies

Unobservable Inputs (1)

Weighted Average (2)

Range

September 30, 2022

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

41,342

Discounted Cash Flow

Yield

3.4 %

3.1 % - 7.3 %

December 31, 2021

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

34,718

Discounted Cash Flow

Yield

3.4 %

3.2 % - 4.2 %

Other real estate investments, measured at fair value

2,074

Discounted Cash Flow

Yield

10.9 %

9.9 % - 11.9 %

________________________________________________________

(1) In determining certain inputs, the Company evaluates a variety of factors including economic conditions, industry and market developments, market valuations of comparable companies and company specific developments including exit strategies and realization opportunities. The Company has determined that market participants would take these inputs into account when valuing the investments.

(2) Inputs were weighted based on the fair value of the investments included in the range.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Increases or decreases in any of the above unobservable inputs in isolation would result in a lower or higher fair value measurement for such assets. The following table presents additional information about the Company’s financial instruments which are measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 for which the Company has used Level III inputs to determine fair value (dollars in thousands):


	September 30, 2022
	Commercial Mortgage Loans, held for sale, measured at fair value		Other Real Estate Investments, measured at fair value
Beginning balance, January 1, 2022	$	34,718	$	2,074
Transfers into Level III (1)	—		—
Total realized and unrealized gain/(loss) included in earnings:
Realized gain/(loss) on sale of commercial mortgage loans, held for sale, and other real estate investments	4,838		( 33 )
Unrealized gain/(loss) on commercial mortgage loans, held for sale and other real estate investments	( 3,678 )		4
Net accretion	—		—
Purchases	343,096		—
Sales / paydowns	( 337,632 )		( 2,045 )

Transfers out of Level III (1)	—		—
Ending Balance, September 30, 2022	$	41,342	$	—

	December 31, 2021
	Commercial Mortgage Loans, held for sale, measured at fair value		Other Real Estate Investments, measured at fair value
Beginning balance, January 1, 2021	$	67,649	$	2,522
Transfers into Level III (1)	—		—
Total realized and unrealized gain/(loss) included in earnings:
Realized gain/(loss) on sale of commercial mortgage loans, held for sale	24,208		—
Unrealized gain/(loss) on commercial mortgage loans, held for sale and other real estate investments	469		( 19 )
Net accretion	—		( 3 )
Purchases	420,673		—
Sales / paydowns	( 478,281 )		( 426 )

Transfers out of Level III (1)	—		—
Ending Balance, December 31, 2021	$	34,718	$	2,074

________________________________________________________

(1) Transfers in and transfers out include transfers between Commercial mortgage loans, held for sale and Commercial mortgage loans, held for investment.

The fair value of cash and cash equivalents and restricted cash are measured using observable quoted market prices, or Level I inputs and their carrying value approximates their fair value. The fair value of borrowings under repurchase agreements approximate their carrying value on the consolidated balance sheets due to their short-term nature, and are measured using Level II inputs.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Financial Instruments Not Measured at Fair Value

The fair values of the Company's commercial mortgage loans, held for investment and collateralized loan obligations, which are not reported at fair value on the consolidated balance sheets are reported below as of September 30, 2022 and December 31, 2021 (dollars in thousands):


			September 30, 2022				December 31, 2021
		Level	Carrying Amount (1)		Fair Value		Carrying Amount (1)		Fair Value
Commercial mortgage loans, held for investment	Asset	III	$	5,328,273	$	5,331,258	$	4,226,888	$	4,249,118
Collateralized loan obligations	Liability	III	3,174,530		3,097,531		2,162,190		2,181,571
Mortgage note payable	Liability	III	23,998		23,998		23,998		23,998
Other financing and loan participation - commercial mortgage loans	Liability	III	53,167		53,167		37,903		37,903
Unsecured debt	Liability	III	98,670		73,700		148,594		125,400

________________________________________________________

(1) The carrying value is gross of $ 46.8 million and $ 15.8 million of allowance for credit losses as of September 30, 2022 and December 31, 2021, respectively.

The fair value of the commercial mortgage loans, held for investment is estimated using a discounted cash flow analysis, based on the Advisor's experience with similar types of investments. The Company estimates the fair value of the collateralized loan obligations using external broker quotes. The fair value of the other financing and loan participation-commercial mortgage loans is generally estimated using a discounted cash flow analysis. As of September 30, 2022, the Mortgage note payable was recorded at transaction proceeds, which are considered to be the best initial estimate of fair value. The fair value of the unsecured debt is based on discounted cash flows using Company estimates for market yields on similarly structured debt instruments.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Note 14 - Derivative Instruments

The Company uses derivative instruments primarily to manage the fair value variability of fixed rate assets caused by interest rate fluctuations and overall portfolio market risk.

As of September 30, 2022, the net premiums received on derivative instrument assets were $ 0.5 million.

The following derivative instruments were outstanding as of September 30, 2022 and December 31, 2021 (dollars in thousands):


	September 30, 2022						December 31, 2021
			Fair Value						Fair Value
Contract type	Notional		Assets		Liabilities		Notional		Assets		Liabilities
Credit default swaps	$	44,750	$	710	$	4	$	47,000	$	—	$	1,142
Interest rate swaps (1)	37,000		2,836		8		3,649,500		312		—
Interest rate swaps on unsecured debt	—		—		—		100,000		—		31,153
Treasury note futures	—		—		—		360		124		—
Total	$	81,750	$	3,546	$	12	$	3,796,860	$	436	$	32,295

________________________________________________________

(1) As of September 30, 2022, asset vs. liability notional breakout for interest rate swaps assets was $ 35.2 million and $ 1.8 million, respectively.

The following table indicates the net realized and unrealized gains and losses on derivatives, by primary underlying risk exposure, as included in loss on derivative instruments in the consolidated statements of operations for the three and nine months ended September 30, 2022 and September 30, 2021:


	Three Months Ended September 30, 2022				Three Months Ended September 30, 2021
Contract type	Unrealized (Gain)/Loss		Realized (Gain)/Loss		Unrealized (Gain)/Loss		Realized (Gain)/Loss
Credit default swaps	$	40	$	254	$	( 111 )	$	32
Interest rate swaps	( 1,606 )		1,370		( 1,282 )		1,692
Treasury note futures	—		—		( 35 )		145
Options	—		—		—		33
Total	$	( 1,566 )	$	1,624	$	( 1,428 )	$	1,902

	Nine Months Ended September 30, 2022				Nine Months Ended September 30, 2021
Contract type	Unrealized (Gain)/Loss		Realized (Gain)/Loss		Unrealized (Gain)/Loss		Realized (Gain)/Loss
Credit default swaps	$	( 515 )	$	301	$	( 289 )	$	675
Interest rate swaps	13,215		( 56,961 )		22		414
Treasury note futures	124		( 939 )		( 107 )		( 1,479 )
Options	—		—		—		33
Total	$	12,824	$	( 57,599 )	$	( 374 )	$	( 357 )

The Company did not hold any unsecured-debt related swaps at quarter-end September 30, 2022.

The Company's portfolio of derivatives additionally hedges the variability of the underlying benchmark interest rate of current and forecasted 30- to 90-day repurchase agreements. The Company attempts to mitigate exposure to higher interest rates primarily by entering into pay-fixed, receive-variable, interest rate swap agreements for terms between eighteen months and three years . From an economic perspective, this hedge relationship establishes a relatively stable fixed rate on related debt because the variable-rate payments received on the swap agreements offset a significant portion of the interest accruing on the debt, leaving the fixed-rate swap payments as the Company’s effective borrowing rate. Additionally, changes in fair value of these derivatives tend to offset opposing changes in fair value of the Company’s residential mortgage investments that can occur in response to changes in market interest rates.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

The Company did not trade any new ARM portfolio-related swaps during the three months ended September 30, 2022. During the nine months ended September 30, 2022, the Company traded swap agreements with notional amounts totaling $ 1.3 billion, respectively, requiring fixed-rate interest payments averaging 1.36 %. During the three and nine months ended September 30, 2022, the Company terminated $ 100 million and $ 5.5 billion notional amount of derivatives related to the ARM portfolio, respectively, requiring fixed-rate interest payments averaging 3.08 % and 0.62 %. As of September 30, 2022, the Company did not hold any trading securities portfolio financing-related swap positions.

Interest rate swap agreements are measured at fair value on a recurring basis primarily using Level Two Inputs in accordance with ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820). In determining fair value estimates for swaps, The Company utilizes the standard methodology of netting the discounted future fixed cash payments and the discounted future variable cash receipts which are based on expected future interest rates derived from observable market interest rate curves. The Company also incorporates both its own nonperformance risk and its counterparties’ nonperformance risk in determining fair value. In considering the effect of nonperformance risk, the Company considered the impact of netting and credit enhancements, such as collateral postings and guarantees, and has concluded that counterparty risk is not significant to the overall valuation.

The fair value of exchange-traded swap agreements hedging repurchase agreements is calculated including accrued interest and net of variation margin amounts received or paid through the exchange, resulting in separately presenting on the balance sheet a fair value amount representing the unsettled fair value of these derivatives. Non-exchange traded swap agreements held as cash flow hedges of unsecured debt are reported at fair value calculated excluding accrued interest. As of September 30, 2022, cash collateral receivable from derivative counterparties includes initial margin for all derivatives and variation margin for non-exchange traded derivatives. Accrued interest for non-exchange traded swap agreements is included in accounts payable and accrued expenses in the Company's consolidated balance sheets.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

Note 15 - Offsetting Assets and Liabilities

The Company's consolidated balance sheets used a gross presentation of repurchase agreements and collateral pledged. The table below provides a gross presentation, the effects of offsetting and a net presentation of the Company's derivative instruments and repurchase agreements within the scope of ASC 210-20, Balance Sheet—Offsetting , as of September 30, 2022 and December 31, 2021 (dollars in thousands):


	Gross Amounts of		Gross Amounts Offset on the		Net Amount of Assets Presented on the		Gross Amounts Not Offset on the Balance Sheet
Assets	Recognized Assets		Balance Sheet		Balance Sheet			Financial Instruments		Cash Collateral (1)		Net Amount
September 30, 2022
Derivative instruments, at fair value	$	3,546	$	—	$	3,546		$	—	$	—	$	3,546
December 31, 2021
Derivative instruments, at fair value	$	436	$	—	$	436		$	—	$	—	$	436


	Gross Amounts of		Gross Amounts Offset on the		Net Amount of Liabilities Presented on the		Gross Amounts Not Offset on the Balance Sheet
Liabilities	Recognized Liabilities		Balance Sheet		Balance Sheet		Financial Instruments		Cash Collateral (1)		Net Amount
September 30, 2022
Repurchase agreements - commercial mortgage loans	$	699,408	$	—	$	699,408	$	707,900	$	5,010	$	—
Repurchase agreements - real estate securities	337,613		—		337,613		373,363		—		—
Derivative instruments, at fair value	12		—		12		—		68		—
December 31, 2021
Repurchase agreements - commercial mortgage loans	$	1,019,600	$	—	$	1,019,600	$	1,460,317	$	5,015	$	—
Repurchase agreements - real estate securities	4,178,784		—		4,178,784		4,370,239		—		—
Derivative instruments, at fair value	32,295		—		32,295		—		64,393		—

_________________________________________________________

(1) Included in Restricted cash in the Company's consolidated balance sheets.

Note 16 - Segment Reporting

The Company conducts its business through the following reporting segments:

• The real estate debt business focuses on originating, acquiring and asset managing commercial real estate debt investments, including first mortgage loans, subordinate mortgages, mezzanine loans and participations in such loans.

• The commercial real estate conduit business operated through the Company's TRS, which is focused on generating risk-adjusted returns by originating and subsequently selling fixed-rate commercial real estate loans into the CMBS securitization market at a profit.

• The real estate owned business represents real estate acquired by the Company through foreclosure, deed in lieu of foreclosure, or purchase.

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FRANKLIN BSP REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

The following table represents the Company's operations by segment for the three and nine months ended September 30, 2022 and September 30, 2021 (dollars in thousands):















Three Months Ended September 30, 2022	Total		Real Estate Debt and Other Real Estate Investments		Real Estate Securities		TRS		Real Estate Owned
Interest income	$	94,131	$	91,097	$	1,648	$	1,386	$	—
Revenue from real estate owned	2,312		—		—		—		2,312
Interest expense	46,157		43,260		1,779		786		332
Net income/(loss)	35,258		35,778		( 3,309 )		2,107		682
Total assets as of September 30, 2022	6,178,121		5,551,679		398,684		87,825		139,933
Three Months Ended September 30, 2021
Interest income	$	47,747	$	47,166	$	—	$	581	$	—
Revenue from real estate owned	1,015		—		—		—		1,015
Interest expense	11,988		11,263		148		232		345
Net income/(loss)	38,495		25,056		( 148 )		3,984		9,603
Total assets as of December 31, 2021	9,474,701		4,205,883		5,054,394		72,840		141,584

Nine Months Ended September 30, 2022	Total		Real Estate Debt and Other Real Estate Investments		Real Estate Securities		TRS		Real Estate Owned
Interest income	$	239,602	$	209,585	$	25,424	$	4,593	$	—
Revenue from real estate owned	6,936		—		—		—		6,936
Interest expense	101,444		92,704		6,853		1,123		764
Net income/(loss)	( 12,958 )		46,306		( 63,533 )		1,995		2,274
Total assets as of September 30, 2022	6,178,121		5,551,679		398,684		87,825		139,933
Nine Months Ended September 30, 2021
Interest income	$	138,969	$	135,945	$	461	$	2,563	$	—
Revenue from real estate owned	2,447		—		—		—		2,447
Interest expense	35,994		34,887		( 720 )		812		1,014
Net income/(loss)	98,651		74,745		( 196 )		13,434		10,667
Total assets as of December 31, 2021	9,474,701		4,205,883		5,054,394		72,840		141,584

For the purposes of the table above, management fees have been allocated to the business segments using an agreed upon percentage of each respective segment's prior period equity. Administrative fees have been allocated to the business segments using a percentage derived from taking the respective business segment's prior period equity as a percent of consolidated equity and multiplying it by the Company's total administrative fee.

Note 17 - Subsequent Events

Subsequent to the quarter ended September 30, 2022, the following events took place:

Realization on Collateral - On September 6, 2018, the Company originated a $ 17.9 million committed first mortgage collateralized by an office property in St. Louis, MO. As of September 30, 2022, $ 13.0 million was outstanding and the loan was in maturity default. On October 7, 2022, the Company took ownership of the property through a voluntary conveyance from the borrower, subject to the loan from the Company. The Company intends to sell the office property and is currently evaluating the impact of this transaction on our consolidated financial statements in the fourth quarter of 2022.

Foreclosure - We are engaged in ongoing litigation relating to a loan secured by 24 Walgreens properties located throughout the United States, as more fully described in Part II, Item 1 "Legal Proceedings". Subsequent to the end of the quarter, we foreclosed on and took ownership of a total of seven properties. The Company is currently evaluating the impact of this transaction on our consolidated financial statements in the fourth quarter of 2022.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the accompanying financial statements of Franklin BSP Realty Trust, Inc. the notes thereto and other financial information included elsewhere in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the U.S. Securities and Exchange Commission (the "SEC") on February 25, 2022.

As used herein, the terms "the Company," "we," "our" and "us" refer to Franklin BSP Realty Trust, Inc., a Maryland corporation and, as required by context, to Benefit Street Partners Realty Operating Partnership, L.P., a Delaware limited partnership, which we refer to as the "OP," and to its subsidiaries. We are externally managed by Benefit Street Partners L.L.C. (our "Advisor").

Certain statements included in this Quarterly Report on Form 10-Q 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.

Our forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements, and thus our investors should not place undue reliance on these statements. We believe these factors include but are not limited to those described under the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, as such factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission (the “SEC”), which are accessible on the SEC’s website at http://www.sec.gov. These factors include:

• our business and investment strategy;

• our ability to make investments in a timely manner or on acceptable terms;

• the impact of the COVID-19 pandemic;

• current credit market conditions and our ability to obtain long-term financing for our investments in a timely manner and on terms that are consistent with what we project when we invest;

• the effect of general market, real estate market, economic and political conditions, including changing interest rate environments and inflation;

• our ability to make scheduled payments on our debt obligations;

• our ability to generate sufficient cash flows to make distributions to our stockholders;

• our ability to generate sufficient debt and equity capital to fund additional investments;

• our ability to refinance our existing financing arrangements;

• our ability to recover unpaid principal on defaulted loans;

• the degree and nature of our competition;

• the availability of qualified personnel;

• our ability to recover or mitigate estimated losses on non-performing assets;

• we may be deemed to be an investment company under the Investment Company Act of 1940, as amended (the "Investment Company Act"), and thus subject to regulation under the Investment Company Act;

• our ability to maintain our qualification as a real estate investment trust ("REIT"); and

• other factors set forth under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021.

Overview

The Company is a Maryland corporation and has made tax elections to be treated as a REIT for U.S. federal income tax purposes since 2013. The Company, through one or more subsidiaries which are each treated as a taxable REIT subsidiary ("TRS"), is indirectly subject to U.S. federal, state and local income taxes. We commenced business in May 2013. We primarily originate, acquire and manage a diversified portfolio of commercial real estate debt investments secured by properties located within and outside of the United States. Commercial real estate debt investments may include first mortgage loans, subordinated mortgage loans, mezzanine loans and participations in such loans. Substantially all of our business is conducted through the OP, a Delaware limited partnership. We are the sole general partner and directly or indirectly hold all of the units of limited partner interests in the OP.

The Company has no employees. We are managed by our Advisor pursuant to an Advisory Agreement, as amended on August 18, 2021 (the "Advisory Agreement"). Our Advisor manages our affairs on a day-to-day basis. The Advisor receives compensation and fees for services related to the investment and management of our assets and our operations.

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The Advisor, an SEC-registered investment adviser, is a credit-focused alternative asset management firm. The Advisor manages funds for institutions and high-net-worth investors across various credit funds and complementary strategies including high yield, levered loans, private / opportunistic debt, liquid credit, structured credit and commercial real estate debt. These strategies complement each other as they all leverage the sourcing, analytical, compliance, and operational capabilities that encompass the Advisor’s robust platform. The Advisor is a wholly-owned subsidiary of Franklin Resources, Inc., which together with its various subsidiaries operates as “Franklin Templeton.”

The Company invests in commercial real estate debt investments, which may include first mortgage loans, subordinated mortgage loans, mezzanine loans and participations in such loans. The Company also originates conduit loans which the Company intends to sell through its TRS into commercial mortgage-backed securities ("CMBS") securitization transactions at a profit. Historically this business has focused primarily on CMBS, CRE CLO bonds, unsecured REIT debt, collateralized debt obligations ("CDOs") and other securities. As a result of the October 2021 acquisition of Capstead Mortgage Corporation (“Capstead”), the Company acquired and continues to hold a portfolio of residential mortgage backed securities (“RMBS”) in the form of residential adjustable-rate mortgage pass-through securities (“ARM Agency Securities”) issued and guaranteed by government-sponsored enterprises or by an agency of the federal government. The Company also owns real estate which it acquires through foreclosure and deed in lieu of foreclosure, and which it purchases for investment, typically subject to triple net leases.

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Book Value Per Share

The following table calculates our book value per share as of September 30, 2022 and December 31, 2021 ($ in thousands, except per share data):


	September 30, 2022		December 31, 2021
Stockholders' equity applicable to common stock	$	1,315,300	$	736,464

Shares:
Common stock	82,845,521		43,951,382
Restricted stock	516,830		14,546
Total outstanding	83,362,351		43,965,928
Book value per share	$	15.78	$	16.75

The following table calculates our fully-converted book value per share as of September 30, 2022 and December 31, 2021 ($ in thousands, except per share data):


	September 30, 2022		December 31, 2021
Stockholders' equity applicable to convertible common stock	$	1,412,024	$	1,543,550

Shares:
Common stock	82,845,521		43,951,382
Equity compensation awards (restricted stock and restricted stock units)	516,830		14,546
Series C convertible preferred stock	418,880		418,880
Series D convertible preferred stock	—		5,370,640
Series F convertible preferred stock	—		39,733,299
Series H convertible preferred stock	5,370,640		—
Total outstanding	89,151,871		89,488,747
Fully-converted book value per share (1) (2)	$	15.84	$	17.25

___________________________________________________________

(1) Fully-converted book value per share reflects full conversion of our series of convertible preferred stock and vesting of our outstanding equity compensation awards.

(2) Excluding the amounts for accumulated depreciation and amortization of real property of $5.2 million and $1.3 million as of September 30, 2022 and December 31, 2021, respectively, would result in a fully-converted book value per share of $15.90 and $17.26 as of September 30, 2022 and December 31, 2021, respectively.

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Critical Accounting Estimates

Our financial statements are prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"), which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting estimates are those that require the application of management’s most difficult, subjective or complex judgments on matters that are inherently uncertain and that may change in subsequent periods. In preparing the financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. In preparing the financial statements, management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses.

During the nine months ended September 30, 2022, there were no material changes to our critical accounting estimates as compared to the critical accounting estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021.

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Portfolio

As of September 30, 2022 and December 31, 2021, our portfolio consisted of 166 and 165 commercial mortgage loans, respectively, excluding commercial mortgage loans accounted for under the fair value option. The commercial mortgage loans, held for investment as of September 30, 2022 and December 31, 2021 had a total carrying value, net of allowance for credit losses, of $5,281.5 million and $4,211.1 million, respectively. As of September 30, 2022 and December 31, 2021, our total commercial mortgage loans, held for sale, measured at fair value, were comprised of three loans with total fair value of $41.3 million and one loan with total fair value of $34.7 million, respectively. As of September 30, 2022 and December 31, 2021 we had real estate securities, trading, measured at fair values of $252.5 million and $4.6 billion, respectively, due to the Company's progress in selling down the ARM Agency Securities portfolio acquired from Capstead. As of September 30, 2022, we had $74.6 million of real estate securities, available for sale, measured at fair value. As of December 31, 2021, our other real estate investments, measured at fair value, was comprised of one investment with a total fair value of $2.1 million. As of September 30, 2022 and December 31, 2021, our real estate owned, held for investment portfolio was comprised of one investment with a carrying value of $88.3 million and $90.0 million, respectively.

As of September 30, 2022, the Company had two loans with a total amortized cost basis of $162.6 million designated as non-performing status. One loan is for a hotel property located in New York, NY, which was placed on non-accrual status in 2019 and had an amortized cost basis of $57.1 million as of September 30, 2022. No specific allowance for credit losses has been recorded on the loan. The Company did not recognize any interest income on the non-accrual loan during the three months ended September 30, 2022. The second loan relates to a commercial mortgage loan with a fully funded outstanding principal balance of $109.2 million collateralized by a portfolio of retail properties in various locations throughout the United States. As of September 30, 2022, the Company has recorded a specific allowance for credit losses of $27.6 million on this loan. Further, the Company designated the loan as non-performing and placed the loan on cost recovery status by ceasing the recognition of interest income. As of September 30, 2022, the Company has received $6.4 million in cost recovery, which reduced the amortized cost of the loan. During the quarter ended September 30, 2022, the net change in specific reserve was due to cost recovery proceeds received during the quarter, offset by a wider cap rate on the assumed value of the assets. As of September 30, 2022, the amortized cost of the loan was $77.9 million, net of the specific allowance for credit losses. See "Part II, Item 1. Legal Proceedings" of this Quarterly Report on Form 10-Q for more information about this loan and related litigation. Future developments relating to these legal proceedings could have a material impact on our future results.

As of September 30, 2022 and December 31, 2021 our commercial mortgage loans, held for investment excluding commercial mortgage loans on non-performing status, had a weighted average coupon of 7.1% and 4.3%, and a weighted average remaining life of 1.5 years and 2.1 years, respectively.

As of September 30, 2022, the value of the Company’s residential ARM Agency Securities portfolio was $252.5 million, compared to $4.6 billion as of December 31, 2021. The reduction in the value of this portfolio during the nine months ended September 30, 2022, is due in part to (i) $468.9 million of principal paydowns and (ii) $3.7 billion of sales. During that period, the Company experienced trading losses of $113.7 million related to these assets.

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The following charts summarize our commercial mortgage loans, held for investment, by coupon rate type, collateral type and geographical region as of September 30, 2022 and December 31, 2021:

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An investments region classification is defined according to the below map based on the location of investments secured property.

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The following charts show the par value by contractual maturity year for the commercial mortgage loans held for investments (excluding commercial mortgage loans in principal default) in our portfolio as of September 30, 2022 and December 31, 2021:

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The following table shows selected data from our commercial mortgage loans, held for investment in our portfolio as of September 30, 2022 (dollars in thousands):


Loan Type	Property Type	Par Value	Interest Rate (1)	Effective Yield	Loan to Value
Senior Debt 1	Hospitality	$4,830	1 month LIBOR + 4.00%	7.1%	77.0%
Senior Debt 2	Hospitality	57,075	1 month LIBOR + 5.19%	8.3%	51.8%
Senior Debt 3	Multifamily	3,044	1 month LIBOR + 4.50%	7.6%	22.4%
Senior Debt 4	Multifamily	34,806	1 month SOFR + 3.03%	6.1%	63.7%
Senior Debt 5	Multifamily	37,025	1 month LIBOR + 3.00%	6.1%	83.6%
Senior Debt 6	Hospitality	22,195	1 month LIBOR + 3.50%	6.6%	68.8%
Senior Debt 7	Office	18,746	1 month SOFR + 4.75%	7.8%	70.0%
Senior Debt 8	Office	12,977	1 month LIBOR + 3.40%	6.5%	67.5%
Senior Debt 9	Office	7,057	1 month LIBOR + 3.90%	7.0%	67.6%
Senior Debt 10	Office	43,986	1 month SOFR + 3.56%	6.6%	71.0%
Senior Debt 11	Retail	8,203	1 month LIBOR + 8.00%	11.1%	51.6%
Senior Debt 12	Hospitality	10,555	1 month LIBOR + 4.50%	8.6%	68.7%
Senior Debt 13	Office	36,150	1 month SOFR + 5.50%	8.5%	68.2%
Senior Debt 14	Hospitality	19,410	1 month SOFR + 3.84%	6.9%	62.6%
Senior Debt 15	Hospitality	13,000	1 month LIBOR + 2.94%	6.1%	56.4%
Senior Debt 16	Hospitality	4,988	1 month LIBOR + 4.25%	7.4%	47.7%
Senior Debt 17	Hospitality	33,730	1 month LIBOR + 3.96%	7.1%	31.0%
Senior Debt 18	Office	20,968	1 month LIBOR + 3.50%	6.6%	70.9%
Senior Debt 19	Hospitality	7,100	1 month LIBOR + 4.00%	7.1%	70.3%
Senior Debt 20	Multifamily	24,058	1 month SOFR + 3.30%	6.3%	75.5%
Senior Debt 21	Office	25,802	1 month LIBOR + 4.35%	7.5%	64.9%
Senior Debt 22	Office	62,762	1 month LIBOR + 3.70%	6.8%	65.7%
Senior Debt 23	Multifamily	10,853	1 month SOFR + 4.25%	7.3%	72.4%
Senior Debt 24	Office	36,362	1 month LIBOR + 2.70%	5.8%	71.4%
Senior Debt 25	Manufactured Housing	1,338	5.50%	5.5%	62.8%
Senior Debt 26	Manufactured Housing	7,680	1 month LIBOR + 4.50%	7.6%	66.7%
Senior Debt 27	Hospitality	27,000	1 month LIBOR + 6.50%	9.6%	62.7%
Senior Debt 28	Self Storage	29,895	1 month LIBOR + 5.00%	8.1%	58.8%
Senior Debt 29	Multifamily	14,600	1 month SOFR + 4.83%	7.9%	70.0%
Senior Debt 30	Manufactured Housing	3,400	1 month LIBOR + 5.00%	8.1%	58.6%
Senior Debt 31	Manufactured Housing	5,020	1 month LIBOR + 5.25%	8.4%	65.9%
Senior Debt 32	Office	18,303	1 month LIBOR + 4.50%	7.6%	47.9%
Senior Debt 33	Office	66,065	5.15%	5.2%	52.5%
Senior Debt 34	Office	31,451	1 month LIBOR + 5.20%	8.4%	66.0%
Senior Debt 35	Office	12,750	1 month LIBOR + 5.00%	8.1%	67.8%
Senior Debt 36	Multifamily	38,669	1 month LIBOR + 4.45%	7.6%	66.5%
Senior Debt 37	Multifamily	18,800	1 month LIBOR + 4.00%	7.1%	79.7%
Senior Debt 38	Industrial	14,985	1 month LIBOR + 4.50%	7.6%	66.3%
Senior Debt 39	Multifamily	11,997	1 month LIBOR + 4.55%	7.7%	73.0%
Senior Debt 40	Multifamily	21,000	1 month LIBOR + 4.60%	7.7%	66.7%
Senior Debt 41	Office	12,971	1 month LIBOR + 5.00%	8.1%	63.9%
Senior Debt 42	Office	43,751	1 month LIBOR + 3.94%	7.1%	53.9%
Senior Debt 43 (2)	Multifamily	10,536	1 month LIBOR + 7.25%	10.4%	—%
Senior Debt 44	Multifamily	5,400	1 month LIBOR + 5.25%	8.4%	83.1%

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Loan Type	Property Type	Par Value	Interest Rate (1)	Effective Yield	Loan to Value
Senior Debt 45	Hospitality	23,000	1 month LIBOR + 5.79%	8.9%	57.2%
Senior Debt 46	Multifamily	34,750	1 month LIBOR + 6.75%	9.9%	78.2%
Senior Debt 47	Multifamily	12,325	1 month LIBOR + 4.50%	7.6%	83.3%
Senior Debt 48	Multifamily	5,097	1 month LIBOR + 5.35%	8.5%	84.0%
Senior Debt 49	Multifamily	5,575	1 month LIBOR + 4.50%	7.6%	83.6%
Senior Debt 50	Multifamily	54,196	1 month LIBOR + 3.00%	6.1%	71.6%
Senior Debt 51	Multifamily	14,237	1 month LIBOR + 3.39%	6.5%	70.6%
Senior Debt 52	Multifamily	8,569	1 month LIBOR + 3.80%	6.9%	69.9%
Senior Debt 53	Multifamily	13,582	1 month LIBOR + 4.50%	7.6%	76.7%
Senior Debt 54	Multifamily	18,653	1 month LIBOR + 5.25%	8.4%	67.0%
Senior Debt 55	Multifamily	18,992	1 month LIBOR + 3.60%	6.7%	70.8%
Senior Debt 56	Multifamily	42,699	1 month LIBOR + 2.95%	6.1%	71.6%
Senior Debt 57	Hospitality	25,785	1 month LIBOR + 5.60%	8.7%	61.0%
Senior Debt 58	Mixed Use	32,500	1 month LIBOR + 3.70%	6.8%	69.7%
Senior Debt 59	Multifamily	74,246	1 month LIBOR + 2.95%	6.1%	72.6%
Senior Debt 60	Multifamily	20,960	1 month LIBOR + 3.35%	6.5%	67.7%
Senior Debt 61	Multifamily	30,231	1 month LIBOR + 2.95%	6.1%	70.4%
Senior Debt 62	Multifamily	35,466	1 month LIBOR + 2.95%	6.1%	71.7%
Senior Debt 63	Multifamily	33,221	1 month LIBOR + 2.95%	6.1%	72.2%
Senior Debt 64	Hospitality	25,771	1 month LIBOR + 9.00%	12.1%	74.2%
Senior Debt 65	Self Storage	15,000	1 month LIBOR + 4.26%	7.4%	74.6%
Senior Debt 66	Multifamily	24,853	1 month LIBOR + 3.25%	6.4%	70.8%
Senior Debt 67	Office	6,764	1 month LIBOR + 5.25%	8.4%	67.3%
Senior Debt 68 (2)	Multifamily	96,148	1 month LIBOR + 6.50%	9.6%	—%
Senior Debt 69	Multifamily	10,844	1 month LIBOR + 3.15%	6.3%	75.6%
Senior Debt 70	Hospitality	19,640	1 month LIBOR + 5.35%	8.5%	56.8%
Senior Debt 71	Hospitality	28,000	1 month LIBOR + 6.25%	9.4%	59.2%
Senior Debt 72 (2)	Multifamily	16,685	1 month LIBOR + 8.00%	11.1%	—%
Senior Debt 73	Multifamily	29,500	1 month LIBOR + 2.88%	6.0%	68.0%
Senior Debt 74	Multifamily	15,450	1 month LIBOR + 3.75%	6.9%	76.9%
Senior Debt 75	Multifamily	30,420	1 month LIBOR + 3.00%	6.1%	73.5%
Senior Debt 76	Multifamily	37,582	1 month LIBOR + 3.15%	6.3%	71.0%
Senior Debt 77	Multifamily	42,850	1 month LIBOR + 3.40%	6.5%	79.9%
Senior Debt 78	Multifamily	36,760	1 month LIBOR + 3.64%	6.8%	66.0%
Senior Debt 79	Multifamily	8,500	1 month LIBOR + 3.75%	6.9%	79.4%
Senior Debt 80	Multifamily	14,200	1 month LIBOR + 3.15%	6.3%	79.8%
Senior Debt 81	Multifamily	13,667	1 month LIBOR + 3.75%	6.9%	64.2%
Senior Debt 82	Multifamily	66,650	1 month LIBOR + 3.25%	6.4%	77.1%
Senior Debt 83	Multifamily	19,023	1 month LIBOR + 2.95%	6.1%	72.1%
Senior Debt 84	Multifamily	10,001	1 month LIBOR + 3.75%	6.9%	70.0%
Senior Debt 85	Hospitality	34,013	1 month SOFR + 6.73%	9.8%	55.8%
Senior Debt 86	Multifamily	26,530	1 month LIBOR + 3.20%	6.3%	77.3%
Senior Debt 87	Hospitality	17,122	1 month LIBOR + 5.25%	8.4%	61.0%
Senior Debt 88	Hospitality	16,500	1 month LIBOR + 7.10%	10.2%	73.0%
Senior Debt 89	Multifamily	13,168	1 month LIBOR + 3.40%	6.5%	78.2%

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Loan Type	Property Type	Par Value	Interest Rate (1)	Effective Yield	Loan to Value
Senior Debt 90	Multifamily	88,500	1 month LIBOR + 2.75%	5.9%	50.3%
Senior Debt 91	Multifamily	56,150	1 month LIBOR + 3.10%	6.2%	78.9%
Senior Debt 92	Multifamily	37,546	1 month LIBOR + 2.90%	6.0%	72.2%
Senior Debt 93	Multifamily	53,438	1 month LIBOR + 3.10%	6.2%	67.2%
Senior Debt 94	Multifamily	37,373	1 month LIBOR + 2.90%	6.0%	72.0%
Senior Debt 95	Multifamily	64,266	1 month LIBOR + 2.85%	6.0%	70.6%
Senior Debt 96	Multifamily	30,600	1 month LIBOR + 2.65%	5.8%	59.1%
Senior Debt 97	Multifamily	31,348	1 month LIBOR + 3.25%	6.4%	80.0%
Senior Debt 98	Multifamily	62,850	1 month LIBOR + 3.35%	6.5%	78.0%
Senior Debt 99	Multifamily	43,561	1 month LIBOR + 3.00%	6.1%	74.8%
Senior Debt 100	Multifamily	46,221	1 month LIBOR + 2.75%	5.9%	68.1%
Senior Debt 101	Multifamily	86,000	1 month SOFR + 3.24%	6.3%	60.0%
Senior Debt 102	Multifamily	29,438	1 month LIBOR + 2.90%	6.0%	74.2%
Senior Debt 103	Manufactured Housing	6,700	1 month LIBOR + 4.50%	7.6%	77.9%
Senior Debt 104	Multifamily	58,680	1 month LIBOR + 3.45%	6.6%	74.8%
Senior Debt 105	Multifamily	26,600	1 month LIBOR + 2.90%	6.0%	72.1%
Senior Debt 106	Multifamily	13,217	1 month LIBOR + 3.20%	6.3%	62.4%
Senior Debt 107	Multifamily	36,444	1 month LIBOR + 3.00%	6.1%	73.3%
Senior Debt 108	Multifamily	32,721	1 month LIBOR + 3.20%	6.3%	74.5%
Senior Debt 109	Multifamily	39,741	1 month LIBOR + 2.90%	6.0%	71.7%
Senior Debt 110	Multifamily	66,202	1 month LIBOR + 2.88%	6.0%	74.8%
Senior Debt 111	Multifamily	62,994	1 month LIBOR + 2.88%	6.0%	75.5%
Senior Debt 112	Multifamily	16,570	1 month SOFR + 3.50%	6.5%	71.7%
Senior Debt 113	Multifamily	57,660	1 month LIBOR + 2.75%	5.9%	73.9%
Senior Debt 114	Multifamily	65,321	1 month SOFR + 6.03%	9.1%	74.7%
Senior Debt 115	Multifamily	22,240	1 month SOFR + 2.96%	6.0%	79.4%
Senior Debt 116	Multifamily	25,746	1 month SOFR + 2.96%	6.0%	72.9%
Senior Debt 117	Multifamily	31,678	1 month SOFR + 3.20%	6.2%	74.2%
Senior Debt 118	Multifamily	78,050	1 month SOFR + 3.45%	6.5%	78.8%
Senior Debt 119	Multifamily	79,948	1 month SOFR + 3.21%	6.3%	76.1%
Senior Debt 120	Multifamily	24,000	1 month SOFR + 3.10%	6.1%	72.7%
Senior Debt 121	Retail	31,000	1 month SOFR + 3.29%	6.3%	42.5%
Senior Debt 122	Multifamily	36,950	1 month SOFR + 3.55%	6.6%	66.2%
Senior Debt 123	Multifamily	22,728	1 month SOFR + 2.95%	6.0%	65.6%
Senior Debt 124	Multifamily	10,669	1 month SOFR + 3.30%	6.3%	75.7%
Senior Debt 125	Multifamily	47,444	1 month SOFR + 2.86%	5.9%	68.2%
Senior Debt 126	Multifamily	36,824	1 month SOFR + 2.86%	5.9%	69.7%
Senior Debt 127	Hospitality	10,300	1 month SOFR + 5.30%	8.3%	68.2%
Senior Debt 128	Retail	21,070	1 month SOFR + 4.95%	8.0%	63.3%
Senior Debt 129	Multifamily	82,000	1 month SOFR + 3.20%	6.2%	74.5%
Senior Debt 130	Industrial	55,000	1 month SOFR + 3.50%	6.5%	70.1%
Senior Debt 131	Multifamily	38,710	1 month SOFR + 3.10%	6.1%	74.1%
Senior Debt 132	Multifamily	34,616	1 month SOFR + 2.95%	6.0%	63.1%
Senior Debt 133	Mixed Use	19,000	1 month SOFR + 3.42%	6.5%	65.1%
Senior Debt 134	Multifamily	85,500	1 month SOFR + 3.15%	6.2%	69.6%

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Loan Type	Property Type	Par Value	Interest Rate (1)	Effective Yield	Loan to Value
Senior Debt 135	Multifamily	31,095	1 month SOFR + 3.30%	6.3%	76.9%
Senior Debt 136 (2) (4)	Hospitality	—	1 month SOFR + 7.05%	10.1%	—%
Senior Debt 137 (2) (4)	Multifamily	—	1 month SOFR + 6.75%	9.8%	—%
Senior Debt 138	Hospitality	43,160	1 month SOFR + 4.90%	7.9%	61.1%
Senior Debt 139	Multifamily	3,485	1 month SOFR + 7.02%	10.1%	15.9%
Senior Debt 140	Multifamily	25,361	1 month SOFR + 6.05%	9.1%	62.4%
Senior Debt 141	Multifamily	56,616	1 month SOFR + 3.95%	7.0%	73.2%
Senior Debt 142	Multifamily	44,499	1 month SOFR + 6.70%	9.7%	46.5%
Senior Debt 143	Multifamily	11,996	1 month SOFR + 3.55%	6.6%	67.7%
Senior Debt 144 (3)	Retail	109,230	1 month SOFR + 4.50%	7.5%	N/A
Senior Debt 145	Industrial	23,050	1 month SOFR + 4.90%	7.9%	64.6%
Senior Debt 146	Multifamily	19,348	1 month SOFR + 3.50%	6.5%	64.5%
Senior Debt 147	Multifamily	17,600	1 month SOFR + 4.55%	7.6%	67.2%
Senior Debt 148	Multifamily	27,763	1 month SOFR + 3.65%	6.7%	71.0%
Senior Debt 149	Multifamily	16,843	1 month SOFR + 3.65%	6.7%	73.9%
Senior Debt 150	Multifamily	70,750	1 month SOFR + 3.80%	6.8%	77.9%
Senior Debt 151	Multifamily	80,866	1 month SOFR + 3.95%	7.0%	71.8%
Senior Debt 152	Multifamily	43,434	1 month SOFR + 3.95%	7.0%	75.9%
Senior Debt 153	Multifamily	56,334	1 month SOFR + 3.95%	7.0%	73.7%
Senior Debt 154	Multifamily	20,240	1 month SOFR + 3.95%	7.0%	75.1%
Senior Debt 155	Multifamily	126,600	1 month SOFR + 3.95%	7.0%	67.8%
Senior Debt 156	Multifamily	56,000	1 month SOFR + 3.80%	6.8%	73.8%
Senior Debt 157	Multifamily	69,200	1 month SOFR + 3.45%	6.5%	71.6%
Senior Debt 158	Multifamily	235,000	1 month SOFR + 6.52%	9.6%	39.7%
Senior Debt 159	Hospitality	29,644	1 month SOFR + 6.94%	10.0%	60.5%
Senior Debt 160	Hospitality	13,410	1 month SOFR + 5.75%	8.8%	62.1%
Senior Debt 161	Manufactured Housing	10,550	1 month SOFR + 4.75%	7.8%	53.8%
Senior Debt 162	Hospitality	17,022	5.99%	6.0%	52.9%
Mezzanine Loan 1	Multifamily	3,000	1 month SOFR + 9.23%	12.3%	62.2%
Mezzanine Loan 2	Multifamily	10,000	1 month SOFR + 16.29%	19.3%	86.2%
Mezzanine Loan 3	Retail	3,000	1 month SOFR + 12.00%	15.0%	46.6%
Mezzanine Loan 4	Mixed Use	1,000	1 month SOFR + 11.00%	14.0%	68.5%
		$5,350,728		7.1%	64.7%

__________________________________________________________

(1) Our floating rate loan agreements generally contain the contractual obligation for the borrower to maintain an interest rate cap to protect against rising interest rates. In a simple interest rate cap, the borrower pays a premium for a notional principal amount based on a capped interest rate (the “cap rate”). When the floating rate exceeds the cap rate, the borrower receives a payment from the cap counterparty equal to the difference between the floating rate and the cap rate on the same notional principal amount for a specified period of time. When interest rates rise, the value of an interest rate cap will increase, thereby reducing the borrower's exposure to rising interest rates.

(2) Loan to value percentage is from metrics at origination. Predevelopment construction loans at origination will not have an LTV and therefore is nil.

(3) Loan was designated as non-performing and placed on cost recovery status. In this instance, the assumed collateral value was less than the value of the loan, therefore the LTV at origination is not relevant.

(4) Commitment on the loan was unfunded as of September 30, 2022.

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The following table shows selected data from our commercial mortgage loans, measured at fair value as of September 30, 2022 (dollars in thousands):


Loan Type	Property Type	Par Value	Interest Rate	Effective Yield	Loan to Value (1)
TRS Senior Debt 1	Hospitality	$12,996	5.1%	5.1%	62.4%
TRS Senior Debt 2	Retail	25,000	5.9%	5.9%	59.6%
TRS Senior Debt 3	Hospitality	6,550	6.9%	6.9%	59.6%
		$44,546		5.8%	60.4%

__________________________________________________________

(1) Loan to value percentage is from metrics at origination.

The following table shows selected data from our real estate owned asset in our portfolio as of September 30, 2022 (dollars in thousands):

Type

Property Type

Carrying Value

Real Estate Owned 1

Industrial

88,322

The following is a summary of the Company's RMBS, all of which were ARM Agency Securities, classified by collateral type and interest rate characteristics as of September 30, 2022 (dollars in thousands):


Type	Carrying Amount		Average Yield (1)
Agency Securities:
Fannie Mae/Freddie Mac ARMs	$	252,491	2.48	%

___________________________________________________________

(1) Average yield is presented for the period then ended, and is based on the cash component of interest income expressed as a percentage on average cost basis (the “cash yield”).

The following table shows selected data from our real estate securities, CRE CLO bonds, measured at fair value as of September 30, 2022 (dollars in thousands):


Type	Par Value	Interest Rate	Effective Yield
CRE CLO bond 1	$40,000	1 month SOFR + 2.78%	5.8%
CRE CLO bond 2	25,000	1 month SOFR + 3.23%	6.3%
CRE CLO bond 3	10,000	1 month SOFR + 4.03%	7.1%
	$75,000

Results of Operations

The Company conducts its business through the following reporting segments:

• The real estate owned business represents real estate acquired by the Company through foreclosure, deed in lieu of foreclosure, or purchase.

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Comparison of the Three Months Ended September 30, 2022 to the Three Months Ended September 30, 2021

Net Interest Income

Net interest income is generated on our interest-earning assets less related interest-bearing liabilities and is recorded as part of our real estate debt, real estate securities and TRS segments.

The following table presents the average balance of interest-earning assets less related interest-bearing liabilities, associated interest income and expense and corresponding yield earned and incurred for the three months ended September 30, 2022 and September 30, 2021 (dollars in thousands):


	Three Months Ended September 30,
	2022							2021
	Average Carrying Value (1)			Interest Income/Expense (2)		WA Yield/Financing Cost (3)(4)		Average Carrying Value (1)			Interest Income/Expense (2)		WA Yield/Financing Cost (3)(4)
Interest-earning assets:
Real estate debt	$	5,194,777		$	91,097	7.0%		$	3,118,201		$	47,166	6.1%
Real estate conduit	103,641			1,386		5.4%		61,157			581		3.8%
Real estate securities	266,388			1,648		2.5%		—			—		N/A
Total	$	5,564,806		$	94,131	6.8%		$	3,179,358		$	47,747	6.0%
Interest-bearing liabilities:
Repurchase Agreements - commercial mortgage loans	$	709,679		$	9,763	5.5%		$	331,871		$	3,095	3.7%
Other financing and loan participation - commercial mortgage loans	47,774			590		4.9%		49,145			350		2.8%
Repurchase Agreements - real estate securities	283,699			1,779		2.5%		46,527			148		1.3%
Collateralized loan obligations	3,223,925			32,432		4.0%		1,906,402			8,395		1.8%
Unsecured debt	98,657			1,593		6.5%		—			—		—
Total	$	4,363,734		$	46,157	4.2%		$	2,333,945		$	11,988	2.1%
Net interest income/spread				$	47,974	2.6%					$	35,759	3.9%
Average leverage % (5)	78.4		%					73.4		%
Weighted average levered yield (6)						16.0	%						16.9	%

_________________________________________________

(1) Based on amortized cost for real estate debt and real estate securities and principal amount for repurchase agreements. Amounts are calculated based on daily averages for the three months ended September 30, 2022 and September 30, 2021, respectively.

(2) Includes the effect of amortization of premium or accretion of discount and deferred fees.

(3) Calculated as interest income or expense divided by average carrying value.

(4) Annualized.

(5) Calculated by dividing total average interest-bearing liabilities by total average interest-earning assets.

(6) Calculated by dividing net interest income/spread by the net average interest-earning assets and average interest-bearing liabilities.

Interest Income

Interest income for the three months ended September 30, 2022 and September 30, 2021 totaled $94.1 million and $47.7 million, respectively, an increase of $46.4 million. This was primarily due to an increase of $2,385.4 million in the average carrying value of our interest-earning assets coupled with more than a 200 basis point increase in average LIBOR/SOFR rates. As of September 30, 2022, our portfolio consisted of (i) 166 commercial mortgage loans, held for investment, (ii) three commercial mortgage loans, held for sale, measured at fair value, (iii) three real estate securities, available for sale, measured at fair value and (iv) RMBS investments.

Interest Expense

Interest expense for the three months ended September 30, 2022 and September 30, 2021 totaled $46.2 million and $12.0 million, respectively, an increase of $34.2 million. This was primarily due to an increase of $2,029.8 million in the average carrying value of our interest-bearing liabilities coupled with more than a 200 basis point increase in average LIBOR/SOFR rates.

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Realized Gain/Loss on Commercial Mortgage Loans Held for Sale

Realized gain on commercial mortgage loans, held for sale, measured at fair value for the three months ended September 30, 2022 was $4.8 million compared to a realized gain of $9.1 million for the three months ended September 30, 2021. The $4.3 million decrease is primarily due to the difference in proceeds received between the one $78.5 million notional sale of fixed-rate commercial real estate loans into the CMBS securitization market during the three months ended September 30, 2022 compared to the two $144.9 million total notional sales during the three months ended September 30, 2021. Total proceeds received for the three months ended September 30, 2022 were $82.3 million compared to $154.0 million for the three months ended September 30, 2021.

Trading Gain/Loss

Trading loss for the three months ended September 30, 2022 of $2.7 million was primarily attributable to losses due to change in market values on the ARM Agency Securities. There had been no trading gains or losses for the three months ended September 30, 2021.

Provision / Benefit for Credit losses - Current Expected Credit Loss ("CECL") allowance, net

Our CECL allowance decreased by $0.6 million during the three months ended September 30, 2022 compared to a decrease of $1.6 million during three months ended September 30, 2021. The following paragraphs set forth explanations for changes in the general and specific reserves for the three months ended September 30, 2022 and 2021.

For the three months ended September 30, 2022, the increase in general reserve of $0.2 million is primarily due to an increase in our portfolio and our more pessimistic view of the macroeconomic scenario utilized for the CECL model. Comparatively, for quarter ended September 30, 2021, the decrease in general reserve of $1.6 million was driven by new loan originations that were partially offset by portfolio seasoning and accelerated loan repayments.

For the three months ended September 30, 2022, the decrease in specific reserve of $0.8 million is due to cost recovery proceeds received during the quarter, offset by a wider cap rate on the assumed value of the Walgreens properties. Comparatively, for the quarter ended September 30, 2021, there had been no specific reserve.

Expenses from operations

Expenses from operations for the three months ended September 30, 2022 and September 30, 2021 consisted of the following (dollars in thousands):


	Three Months Ended September 30,
	2022		2021
Asset management and subordinated performance fee	$	6,430	$	8,265
Administrative services expenses	3,001		2,980
Acquisition expenses	362		690
Professional fees	4,743		2,488

Depreciation and amortization	1,295		—
Other expenses	1,424		709
Total expenses from operations	$	17,255	$	15,132

Overall, our operating expenses increased during the three months ended September 30, 2022, compared to September 30, 2021, primarily due to an increase in our total portfolio size as a result of the Capstead acquisition. Asset management and subordinated performance fee decreased due to no incentive fees incurred for the quarter ended September 30, 2022, partially offset by higher asset management fees. The increase in professional fees is primarily related to legal costs associated with our recovery efforts related to a hotel loan and the Walgreens properties.

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Comparison of the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021

Net Interest Income

Net interest income is generated on our interest-earning assets less related interest-bearing liabilities and is recorded as part of our real estate debt, real estate securities and TRS segments.

The following table presents the average balance of interest-earning assets less related interest-bearing liabilities, associated interest income and expense and corresponding yield earned and incurred for the nine months ended September 30, 2022 and September 30, 2021 (dollars in thousands):


	Nine Months Ended September 30,
	2022							2021
	Average Carrying Value (1)			Interest Income/Expense (2)		WA Yield/Financing Cost (3)(4)		Average Carrying Value (1)			Interest Income/Expense (2)		WA Yield/Financing Cost (3)(4)
Interest-earning assets:
Real estate debt	$	4,801,389		$	209,585	5.8%		$	2,996,468		$	135,945	6.0%
Real estate conduit	114,588			4,593		5.3%		88,839			2,563		3.8%
Real estate securities	1,467,367			25,424		2.3%		28,500			461		2.2%
Total	$	6,383,344		$	239,602	5.0%		$	3,113,807		$	138,969	6.0%
Interest-bearing liabilities:
Repurchase Agreements - commercial mortgage loans	$	785,341		$	26,042	4.4%		$	314,507		$	8,229	3.5%
Other financing and loan participation - commercial mortgage loans	43,073			1,177		3.6%		48,559			1,489		4.1%
Repurchase Agreements - real estate securities	1,334,911			4,500		0.4%		75,436			2,278		4.0%
Collateralized loan obligations	2,818,305			65,441		3.1%		1,858,139			23,998		1.7%
Unsecured debt	102,662			4,284		5.6%		—			—		—
Total	$	5,084,292		$	101,444	2.7%		$	2,296,641		$	35,994	2.1%
Net interest income/spread				$	138,158	2.3%					$	102,975	3.9%
Average leverage % (5)	79.6		%					73.8		%
Weighted average levered yield (6)						14.2	%						16.8	%

_________________________________________________

(1) Based on amortized cost for real estate debt and real estate securities and principal amount for repurchase agreements. Amounts are calculated based on daily averages for the nine months ended September 30, 2022 and September 30, 2021, respectively.

(2) Includes the effect of amortization of premium or accretion of discount and deferred fees.

(3) Calculated as interest income or expense divided by average carrying value.

(4) Annualized.

(5) Calculated by dividing total average interest-bearing liabilities by total average interest-earning assets.

(6) Calculated by dividing net interest income/spread by the net average interest-earning assets and average interest-bearing liabilities.

Interest Income

Interest income for the nine months ended September 30, 2022 and September 30, 2021 totaled $239.6 million and $139.0 million, respectively, an increase of $100.6 million. This was primarily due to an increase of $3,269.5 million in the average carrying value of our interest-bearing assets coupled with more than a 100 basis point increase in average LIBOR/SOFR rates. As of September 30, 2022, our portfolio consisted of (i)166 commercial mortgage loans, held for investment, (ii) three commercial mortgage loans, held for sale, (iii) three real estate securities, available for sale, measured at fair value and (iv) RMBS investments.

Interest Expense

Interest expense for the nine months ended September 30, 2022 and September 30, 2021 totaled $101.4 million and $36.0 million, respectively, an increase of $65.4 million. This was primarily due to an increase of $2,787.7 million in the average carrying balance of our interest-bearing liabilities coupled with more than a 100 basis point increase in average LIBOR/SOFR rates.

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Realized Gain/Loss on Commercial Mortgage Loans Held for Sale

Realized gain on commercial mortgage loans, held for sale, measured at fair value for the nine months ended September 30, 2022 was $4.8 million compared to a realized gain of $22.2 million for the nine months ended September 30, 2021. The $17.4 million decrease in realized gain was due to the difference in proceeds received between the four $316.4 million total notional sales of fixed-rate commercial real estate loans into the CMBS securitization market during the nine months ended September 30, 2022 compared to the four $388.5 million total notional sales during the nine months ended September 30, 2021. Total proceeds from sale were $320.2 million for the nine months ended September 30, 2022 compared to $410.7 million for the nine months ended September 30, 2021.

Trading Gain/Loss

Trading loss for the nine months ended September 30, 2022 of $113.7 million was attributable to $36.8 million of losses due to sales of the ARM Agency Securities, $65.1 million of losses due to change in market values of these securities, and $11.8 million of losses due to mortgage prepayments. Trading loss for the nine months ended September 30, 2021 of $1.4 million was attributable to nine sales of CRE CLO bonds.

Provision / Benefit for Credit losses - CECL allowance, net

Our CECL allowance increased by $31.0 million during the nine months ended September 30, 2022 compared to a decrease of $5.5 million during nine months ended September 30, 2021. The following paragraphs set forth explanations for changes in the general and specific reserves for the nine months ended September 30, 2022 and 2021.

For the nine months ended September 30, 2022, the $3.4 million increase in general reserve is primarily due to an increase in our portfolio and our more pessimistic view of the macroeconomic scenario utilized for the CECL model. Comparatively, for the nine months ended September 30, 2021, the $5.5 million decrease in general reserve was driven by a positive macroeconomic scenario utilized for the CECL model.

For the nine months ended September 30, 2022, the increase in specific allowance is primarily due to $27.6 million of specific reserve on the Walgreens properties, as more fully described in Part II, Item 1 "Legal Proceedings". Comparatively, for the nine months ended September 30, 2021, there was no specific reserve.

Expenses from operations

Expenses from operations for the nine months ended September 30, 2022 and September 30, 2021 consisted of the following (dollars in thousands):


	Nine Months Ended September 30,
	2022		2021
Asset management and subordinated performance fee	$	19,776	$	19,682
Administrative services expenses	9,402		9,532
Acquisition expenses	996		1,012
Professional fees	20,138		7,262

Depreciation and amortization	3,886		812
Other expenses	4,849		2,115
Total expenses from operations	$	59,047	$	40,415

Overall, our operating expenses increased during the nine months ended September 30, 2022, compared to September 30, 2021, primarily due to an increase in our total portfolio size as a result of the Capstead acquisition. Professional fees had a much higher increase due to legal cost incurred, during previous quarters of 2022, associated with the ongoing recovery efforts related to a hotel loan.

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Comparison of the Three Months Ended September 30, 2022 to the Three Months Ended June 30, 2022

Net Interest Income

Net interest income is generated on our interest-earning assets less related interest-bearing liabilities and is recorded as part of our real estate debt, real estate securities and TRS segments.


	Three Months Ended
	September 30, 2022							June 30, 2022
	Average Carrying Value (1)			Interest Income/Expense (2)		WA Yield/Financing Cost (3)(4)		Average Carrying Value (1)			Interest Income/Expense (2)		WA Yield/Financing Cost (3)(4)
Interest-earning assets:
Real estate debt	$	5,194,777		$	91,097	7.0%		$	4,839,568		$	62,801	5.2%
Real estate conduit	103,641			1,386		5.4%		148,608			2,521		6.8%
Real estate securities	266,388			1,648		2.5%		815,977			4,891		2.4%
Total	$	5,564,806		$	94,131	6.8%		$	5,804,153		$	70,213	4.8%
Interest-bearing liabilities:
Repurchase Agreements - commercial mortgage loans	$	709,679		$	9,763	5.5%		$	834,337		$	8,674	4.2%
Other financing and loan participation - commercial mortgage loans	47,774			590		4.9%		42,996			360		3.3%
Repurchase Agreements - real estate securities	283,699			1,779		2.5%		786,495			1,330		0.7%
Collateralized loan obligations	3,223,925			32,432		4.0%		2,709,853			21,086		3.1%
Unsecured debt	98,657			1,593		6.5%		103,577			1,357		5.2%
Total	$	4,363,734		$	46,157	4.2%		$	4,477,258		$	32,807	2.9%
Net interest income/spread				$	47,974	2.6%					$	37,406	1.9%
Average leverage % (5)	78.4		%					77.1		%
Weighted average levered yield (6)						16.0	%						11.3	%

_________________________________________________

(2) Includes the effect of amortization of premium or accretion of discount and deferred fees.

(3) Calculated as interest income or expense divided by average carrying value.

(4) Annualized.

(5) Calculated by dividing total average interest-bearing liabilities by total average interest-earning assets.

(6) Calculated by dividing net interest income/spread by the net average interest-earning assets and average interest-bearing liabilities.

Interest Income

Interest income for the three months ended September 30, 2022 and June 30, 2022 totaled $94.1 million and $70.2 million, respectively, an increase of $23.9 million. This was primarily due to more than a 100 basis point increase in average LIBOR/SOFR rates partially offset by a decrease of $239.3 million in the average carrying value of our interest-earning assets. As of September 30, 2022, our portfolio consisted of (i) 166 commercial mortgage loans, held for investment, (ii) three commercial mortgage loans, held for sale, (iii) three real estate securities, available for sale, measured at fair value and (iv) RMBS investments.

Interest Expense

Interest expense for the three months ended September 30, 2022 and June 30, 2022 totaled $46.2 million and $32.8 million, respectively, an increase of $13.4 million. This was primarily due to more than a 100 basis point increase in average LIBOR/SOFR rates partially offset by a decrease of $113.5 million in the average carrying balance of our interest-bearing liabilities. Interest expense on our repurchase agreements on real estate securities increased despite a decrease of $502.8 million in the average carrying value due to sales of securities within the ARM Agency Securities portfolio totaling $1.5 billion in principal balance during the three months ended June 30, 2022 offset by a 174 basis point increase in average borrowing rates on the ARM Agency Securities portfolio.

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Realized Gain/Loss on Commercial Mortgage Loans Held for Sale

Realized gain on commercial mortgage loans, held for sale, measured at fair value for the three months ended September 30, 2022 was $4.8 million compared to a realized loss of $1.8 million for the three months ended June 30, 2022. The $6.6 million increase was due to the difference in weighted average price between the one sale of fixed-rate commercial real estate loans into the CMBS securitization market during the three months ended September 30, 2022 compared to the two sales during the three months ended June 30, 2022. The weighted average price from sales was 104.9% for the three months ended September 30, 2022 compared to 98.9% for the three months ended June 30, 2022.

Trading Gain/Loss

Trading loss for the three months ended September 30, 2022 of $2.7 million was primarily attributable to losses due to change in market values on the ARM Agency Securities. Trading loss for the three months ended June 30, 2022 of $22.5 million was attributable to $12.8 million of losses due to sales of the ARM Agency Securities, $7.6 million of losses due to change in market values of these securities, and $2.1 million of losses due to mortgage prepayments.

Provision / Benefit for Credit losses - CECL allowance, net

Our CECL allowance decreased by $0.6 million during the three months ended September 30, 2022 compared to an increase of $32.5 million during three months ended June 30, 2022. The following paragraphs set forth explanations for changes in the general and specific reserves for the three months ended September 30, 2022 and June 30, 2022.

For the three months ended September 30, 2022 and June 30, 2022, the increase in general reserve of $0.2 million and $4.1 million, respectively, is primarily due to an increase in our portfolio and our more pessimistic view of the macroeconomic scenario utilized for the CECL model.

For the three months ended September 30, 2022, the decrease in specific reserve of $0.8 million is due to cost recovery proceeds received during the quarter, offset by a wider cap rate on the assumed value of the Walgreens properties. Comparatively, for quarter ended June 30, 2022, the increase in specific reserve was primarily due to $28.4 million for specific reserve on the same asset, as more fully described in Part II, Item 1 "Legal Proceedings".

Expenses from operations

Expenses from operations for the three months ended September 30, 2022 and June 30, 2022 consisted of the following (dollars in thousands):


	Three Months Ended
	September 30, 2022		June 30, 2022
Asset management and subordinated performance fee	$	6,430	$	6,601
Administrative services expenses	3,001		3,048
Acquisition expenses	362		319

Professional fees	4,743		8,736
Depreciation and amortization	1,295		1,296
Other expenses	1,424		1,663
Total expenses from operations	$	17,255	$	21,663

The decrease in our expenses from operations was primarily related to the decrease in professional fees of $4.0 million due to lower legal costs incurred associated with the ongoing recovery of a hotel asset.

Liquidity and Capital Resources

Overview

Our expected material cash requirements over the next twelve months and thereafter are comprised of (i) contractually obligated expenditures, including payments of principal and interest and contractually-obligated fundings on our loans; (ii) other essential expenditures, including operating and administrative expenses and dividends paid in accordance with REIT distribution requirements; and (iii) opportunistic expenditures, including new loans.

Our contractually obligated expenditures primarily consist of payment obligations under the debt financing arrangements which are set forth below, including in the table under “Contractual Obligations and Commitments.”

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We expect to use additional debt and equity financing as a source of capital. Our board of directors currently intends to operate at a leverage level of between one to three times book value of equity. However, our board of directors may change this target without shareholder approval. We believe that the recent listing of our common stock will improve our access to capital through public offerings of our securities. We anticipate that our debt and equity financing sources and our anticipated cash generated from operations will be adequate to fund our anticipated uses of capital.

In addition to our current mix of financing sources, we may also access additional forms of financings, including credit facilities, securitizations, public and private, secured and unsecured debt issuances by us or our subsidiaries, or through capital recycling initiatives whereby we sell certain assets in our portfolio and reinvest the proceeds in assets with more attractive risk-adjusted returns.

Coll ateralized Loan Obligations

During the nine months ended September 30, 2022, the Company raised $1.2 billion of capital through the issuance of BSPRT 2022-FL8 Issuer, Ltd. and $767.8 million of capital through the issuance of BSPRT 2022-FL9 Issuer, LLC. Additionally, as of September 30, 2022, the Company had $82.2 million of reinvestment capital available across all outstanding collateralized loan obligations.

Repurchase Agreements, Commercial Mortgage Loans

As of September 30, 2022 we have repurchase facilities with JPMorgan Chase Bank, National Association (the "JPM Repo Facility"), Barclays Bank PLC (the "Barclays Revolver Facility" and the "Barclays Repo Facility"), Wells Fargo Bank, National Association (the "WF Repo Facility"), and Credit Suisse AG (the "CS Repo Facility" and together with JPM Repo Facility, WF Repo Facility, Barclays Revolver Facility and Barclays Repo Facility, the "Repo Facilities").

The Repo Facilities are financing sources through which we may pledge one or more mortgage loans to the financing entity in exchange for funds typically at an advance rate of between 65% to 75% of the principal amount of the mortgage loan being pledged.

We expect to use the advances from these Repo Facilities to finance the acquisition or origination of eligible loans, including first mortgage loans, subordinated mortgage loans, mezzanine loans and participation interests therein.

The Repo Facilities generally provide that in the event of a decrease in the value of our collateral, the lenders can demand additional collateral. Should the value of our collateral decrease as a result of deteriorating credit quality, resulting margin calls may cause an adverse change in our liquidity position.

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The details of our Repo Facilities as of September 30, 2022 and December 31, 2021 are as follows (dollars in thousands):


As of September 30, 2022
Repurchase Facility	Committed Financing		Amount Outstanding		Interest Expense (1)		Ending Weighted Average Interest Rate		Maturity
JPM Repo Facility (2)	$	500,000	$	235,548	$	6,857	5.78	%	10/6/2023

CS Repo Facility (3)	600,000		265,801		5,048		5.61	%	7/11/2023
WF Repo Facility (4)	500,000		40,476		6,027		5.17	%	11/21/2023
Barclays Revolver Facility (5)	250,000		—		1,109		N/A		9/20/2023
Barclays Repo Facility (6)	500,000		157,583		6,102		5.19	%	3/14/2025
Total	$	2,350,000	$	699,408	$	25,143

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(1) For the nine months ended September 30, 2022. Includes amortization of deferred financing costs.

(2) With one-year extension option available at the Company's discretion. On July 7, 2022, the committed financing was increased from $400 million to $500 million . Additionally, on September 29, 2022, the Company extended the maturity date to October 6, 2023

(3) O n July 12, 2022, the maturity date was extended to July 11, 2023 and the committed financing was increased from $300 million to $600 million .

(4) On May 12, 2022, the committed financing amount was increased from $450 million to $500 million. There are three more one-year extension options available at the Company's discretion.

(5) The Company may increase the total commitment amount by an amount between $100 million and $150 million for three month intervals, on an unlimited basis prior to maturity.

(6) There are two one-year extension options available at the Company's discretion.


As of December 31, 2021
Repurchase Facility	Committed Financing		Amount Outstanding		Interest Expense (1)		Ending Weighted Average Interest Rate		Term Maturity
JPM Repo Facility	$	400,000	$	136,470	$	5,178	2.13	%	10/6/2022

CS Repo Facility	300,000		137,364		3,446		2.43	%	9/30/2022
WF Repo Facility	450,000		186,734		2,090		1.64	%	11/21/2023
Barclays Revolver Facility	250,000		166,700		1,976		6.12	%	9/20/2023
Barclays Repo Facility	500,000		392,332		4,057		1.76	%	3/14/2025
Total	$	1,900,000	$	1,019,600	$	16,747

________________________________________________________

(1) For the year ended December 31, 2021. Includes amortization of deferred financing costs.

Other financing and loan participation - Commercial Mortgage Loans

On March 23, 2020, the Company transferred $15.2 million of its interest in a term loan to Webster Bank (formerly Sterling National Bank) via a participation agreement. Since inception, the Company's outstanding loan increased as a result of future fundings, leading to an increase in amount outstanding via the participation agreement. The Company incurred $0.5 million and $1.0 million of interest expense on the Webster Bank term loan for the three and nine months ended September 30, 2022, respectively. As of September 30, 2022 the outstanding participation balance was $40.7 million. The loan accrued interest at an annual rate of one-month LIBOR +2.20% and matures on February 9, 2023.

On February 10, 2022, the Company transferred $38.0 million of its interest in a term loan to a regional bank via a participation agreement. Since inception, the Company's outstanding loan increased as a result of future fundings, leading to an increase in amount outstanding via the participation agreement. The Company incurred $0.1 million and $0.2 million of interest expense on the regional bank term loan for the three and nine months ended September 30, 2022, respectively. As of September 30, 2022 the outstanding participation balance was $12.5 million. The loan accrued interest at an annual rate of one-month SOFR + 4.01% and matures on May 1, 2025.

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Mortgage Note Payable

On September 17, 2021, the Company, in connection with the consolidating joint venture (as discussed in Note 5 - Real Estate Owned), originated a $112.7 million mortgage note payable, of which $88.7 million is eliminated in consolidation (see Note 5 - Real Estate Owned). The remaining mortgage note payable of $24.0 million is disclosed on the consolidated balance sheet. As of September 30, 2022, the loan accrued interest at an annual rate of 3.1% and matures on October 9, 2024.

Unsecured Debt

As of September 30, 2022, the Company held 30-year junior subordinated notes issued in 2005 and 2006 and maturing in 2035 and 2036, respectively, with a total face amount of $100.0 million. Note balances net of deferred issuance costs, and related weighted average interest rates as of the indicated dates (calculated including issuance cost amortization and adjusted for the effects of related derivatives held as cash flow hedges) were as follows (dollars in thousands):


	As of September 30, 2022				As of December 31, 2021
	Borrowings Outstanding		Weighted Average Rate		Borrowings Outstanding		Weighted Average Rate
Junior subordinated notes maturing in:
October 2035 ($35,000 face amount)	$	34,499	3.72	%	$	34,470	7.86	%
December 2035 ($40,000 face amount)	39,503		3.49	%	39,474		7.63	%
September 2036 ($25,000 face amount)	24,668		3.49	%	24,650		7.67	%
	$	98,670	3.57	%	$	98,594	7.72	%

The notes are currently redeemable, in whole or in part, without penalty, at the Company’s option. Interest paid on unsecured debt, including related derivative cash flows, totaled $4.1 million during the nine months ended September 30, 2022.

Pursuant to a lending and security agreement with Security Benefit Life Insurance Company ("SBL"), which was entered into in February 2020 and amended in March and August 2020, the Company may borrow up to $100.0 million at a rate of one-month LIBOR + 4.5%. The facility has a maturity of February 10, 2023 and is secured by a pledge of equity interests in certain of the Company’s subsidiaries. The Company incurred $0.2 million and $0.7 million of interest expense on the lending agreement with SBL for the three and nine months ended September 30, 2022. As of September 30, 2022 there was no outstanding balance. As of December 31, 2021 the outstanding balance was $50.0 million.

Repurchase Agreements - Real Estate Securities

The Company has entered into various Master Repurchase Agreements (the "MRAs") that allow the Company to sell real estate securities while providing a fixed repurchase price for the same real estate securities in the future. The repurchase contracts on each security under an MRA generally mature in 30-90 days and terms are adjusted for current market rates as necessary.

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Below is a summary of the Company's MRAs as of September 30, 2022 and December 31, 2021 (dollars in thousands):


							Weighted Average
Counterparty	Amount Outstanding		Interest Expense		Collateral Pledged (1)		Interest Rate		Days to Maturity
As of September 30, 2022
JP Morgan Securities LLC	$	48,817	$	301	$	57,468	3.95	%	27

Goldman Sachs International	—		—		—		N/A		N/A
Barclays Capital Inc.	63,796		513		80,331		3.78	%	19

Citigroup Global Markets, Inc.	—		—		—		N/A		N/A
Total/Weighted Average	$	112,613	$	814	$	137,799	3.85	%	23

As of December 31, 2021
JP Morgan Securities LLC	$	19,025	$	261	$	24,087	1.14	%	10

Goldman Sachs International	—		37		—		N/A		N/A
Barclays Capital Inc.	15,286		526		19,131		1.21	%	14

Citigroup Global Markets, Inc.	—		81		—		N/A		N/A
Total/Weighted Average	$	34,311	$	905	$	43,218	1.71	%	12

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(1) Includes $62.9 million and $43.2 million of CLO notes, held by the Company, which are eliminated within the real estate securities, at fair value line in the consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively.

Repurchase Agreements - Real Estate Securities Classified As Trading

As a result of the Capstead merger which closed on October 19, 2021, the Company acquired a significant portfolio of ARM Agency Securities which the Company accounts for as real estate securities classified as trading. The Company pledges its real estate securities classified as trading as collateral for repurchase agreements with commercial banks and other financial institutions. Repurchase arrangements entered into by the Company involve the sale and a simultaneous agreement to repurchase the transferred assets at a future date and are accounted for as financings. The Company maintains the beneficial interest in the specific securities pledged during the term of each repurchase arrangement and receives the related principal and interest payments.

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Repurchase agreements (and related pledged collateral, including accrued interest receivable), classified by collateral type and remaining maturities, and related weighted average borrowing rates as of the indicated dates were as follows (dollars in thousands):


	Collateral Carrying Amount		Accrued Interest Receivable		Borrowings Outstanding		Weighted Average Borrowing Rates
As of September 30, 2022
Repurchase arrangements secured by Agency securities with maturities of 30 days or less	$	235,563	$	528	$	225,000	3.16	%

As of December 31, 2021
Repurchase arrangements secured by Agency securities with maturities of 30 days or less	$	4,327,020	$	8,908	$	4,144,473	0.13	%

As of September 30, 2022, the Company’s repurchase agreements collateralized by RMBS totaled $225.0 million with 3 counterparties at average rates of 3.16%. Average repurchase agreements outstanding were $230.0 million in the third quarter of 2022. Average repurchase agreements outstanding differed from respective period-end balances during the indicated periods primarily due to changes in portfolio levels and differences in the timing of portfolio acquisitions relative to portfolio runoff and asset sales. Interest paid on repurchase agreements, including related derivative cash flows, totaled $7.0 million during the nine months ended September 30, 2022.

The Company finances its residential mortgage investments primarily by borrowing under repurchase arrangements, the terms and conditions of which are negotiated on a transaction-by-transaction basis, when each such agreement is initiated or renewed. Future agreements are dependent upon the willingness of lenders to participate in the financing of mortgage investments, lender collateral requirements and the lenders’ determination of the fair value of the investments pledged as collateral, which fluctuates with changes in interest rates and liquidity conditions within the commercial banking and mortgage finance industries. None of our repurchase agreement counterparties are obligated to renew or otherwise enter into new agreements at the conclusion of existing borrowings.

To help mitigate exposure to rising short-term interest rates, we may economically hedge the portfolio of repurchase agreements using derivatives supplemented with longer-maturity repurchase agreements when available at attractive rates and terms. As of September 30, 2022, the Company did not hold any RMBS portfolio financing-related interest rate swap agreements. As of September 30, 2022, we expect to have no net cash obligations related to repurchase agreement-related interest rate swap agreements after considering the variable-rate payments owed to us under the agreements’ terms based on market interest rate expectations as of quarter-end.

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The following tables summarize our Repurchase Agreements, Commercial Mortgage Loans and our MRAs for the nine months ended September 30, 2022, 2021, and 2020, respectively:


	As of September 30, 2022
	Amount Outstanding		Average Outstanding Balance
	Q1		Q2		Q3		Q1		Q2		Q3
Repurchase Agreements, Commercial Mortgage Loans	$	522,890	$	832,034	$	699,408	$	813,144	$	834,337	$	709,679
Repurchase Agreements, Real Estate Securities	$	54,610	$	53,288	$	112,613	$	44,744	$	54,033	$	53,688
Repurchase Agreements, Real Estate Securities held as trading	$	1,659,931	$	240,000	$	225,000	$	3,055,413	$	1,818,495	$	230,011

	As of September 30, 2021
	Amount Outstanding		Average Outstanding Balance
	Q1		Q2		Q3		Q1		Q2		Q3
Repurchase Agreements, Commercial Mortgage Loans	$	152,925	$	287,462	$	550,156	$	340,485	$	282,891	$	331,871
Repurchase Agreements, Real Estate Securities	$	88,272	$	46,510	$	46,531	$	123,322	$	57,301	$	46,527

	As of September 30, 2020
	Amount Outstanding		Average Outstanding Balance
	Q1		Q2		Q3		Q1		Q2		Q3
Repurchase Agreements, Commercial Mortgage Loans	$	234,524	$	226,224	$	187,033	$	282,282	$	238,280	$	197,632
Repurchase Agreements, Real Estate Securities	$	496,880	$	333,256	$	177,541	$	412,809	$	351,202	$	316,229

The use of our warehouse lines is dependent upon a number of factors including but not limited to: origination volume, loan repayments and prepayments, our use of other financing sources such as collateralized loan obligations, our liquidity needs and types of loan assets and underlying collateral that we hold.

During the nine months ended September 30, 2022, the maximum average outstanding balance was $5.3 billion, of which $1.1 billion was related to repurchase agreements on our commercial mortgage loans and $4.2 billion for repurchase agreements on our real estate securities.

During the nine months ended September 30, 2021, the maximum average outstanding balance was $475.5 million, of which $363.6 million was related to repurchase agreements on our commercial mortgage loans and $111.9 million for repurchase agreements on our real estate securities.

During the nine months ended September 30, 2020, the maximum average outstanding balance was $721.0 million, of which $452.8 million was related to repurchase agreements on our commercial mortgage loans and $268.2 million for repurchase agreements on our real estate securities.

Distributions

In order to maintain our election to qualify as a REIT, we must currently distribute, at a minimum, an amount equal to 90% of our taxable income, without regard to the deduction for distributions paid and excluding net capital gains. The Company must distribute 100% of its taxable income (including net capital gains) to avoid paying corporate U.S. federal income taxes.

Distributions on our common stock are payable when declared by our board of directors.

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Dividends payable on each share of Series C Preferred Stock and Series H Preferred Stock are generally equal to the quarterly dividend that would have been paid had such share of preferred stock been converted to a share of common stock, except to the extent common stock dividends have been reduced below certain specified levels. To the extent dividends on shares of preferred stock are not authorized and declared by our board of directors and paid by the Company monthly, the dividend amounts will accrue.

Holders of shares of the Series E Preferred Stock are entitled to receive, when, as and if authorized by our board of directors and declared by the Company, out of funds legally available for the payment of dividends, cumulative cash dividends at the rate of 7.50% of the $25.00 per share liquidation preference per annum (equivalent to $1.875 per annum per share).

In September 2022, the Company's board of directors declared the following third quarter 2022 dividends: (i) a quarterly cash dividend of $0.355 per share on the Company's common stock (equivalent to $1.42 per annum), (ii) a third quarter 2022 dividend of $106.22 per share on the Company’s Series C Preferred Stock and Series H Preferred Stock, and (iii) a third quarter 2022 dividend of $0.46875 per share on the Company’s Series E Preferred Stock, all of which were paid in October 2022 to holders of record on September 30, 2022.

The below table shows the distributions paid on shares outstanding of common stock during the nine months ended September 30, 2022 and September 30, 2021 (dollars in thousands):


	Nine Months Ended September 30, 2022
Payment Date	Amount Paid in Cash		Amount Issued under DRIP
January 7, 2022	$	12,435	$	91
April 11, 2022	15,616		112
July 11, 2022	28,979		907
Total	$	57,030	$	1,110


	Nine Months Ended September 30, 2021
Payment Date	Amount Paid in Cash		Amount Issued under DRIP
January 4, 2021	$	9,652	$	2,584
April 1, 2021	9,603		2,530
July 8, 2021	12,170		—


Total	$	31,425	$	5,114

Cash Flows

Cash Flows for the Nine Months Ended September 30, 2022

Net cash provided by operating activities for the nine months ended September 30, 2022 was $130.6 million. This was driven by net loss of $13.0 million, which when excluding the following non-cash items, (i) $113.7 million related to trading losses on real estate securities, (ii) $12.8 million related to derivative instruments and (iii) $31.0 million increase in provision for credit losses, results in net cash inflow. This inflow is coupled with $48.1 million net changes of assets and liabilities, partially offset by net outflows of $10.3 million related to originations of and proceeds from sales of commercial mortgage loans, measured at fair value and realized gains of $55.3 million on swap terminations.

Net cash provided by investing activities for the nine months ended September 30, 2022 was $3,202.0 million. Cash inflows were primarily driven by the sale of real estate securities of $3,731.7 million, principal repayments on commercial mortgage loans, held for investment of $965.7 million, principal collateral received on mortgage investments of $533.9 million and $9.3 million received from sale of commercial mortgage loans, held for sale. Inflows were offset by proceeds for originations and purchases of $1,964.2 million of commercial mortgage loans, held for investment and $75.0 million for the purchase of real estate securities.

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Net cash used in financing activities for the nine months ended September 30, 2022 was $3,238.9 million. Cash outflows were primarily driven by our net repayments on CMBS MRAs of $3,841.2 million, net repayments from borrowings on repurchase agreements - commercial mortgage loans and unsecured debt of $320.2 million and $50.0 million, respectively, the $102.9 million used for cash distributions to stockholders and the $11.0 million paid for common stock repurchases. Outflows were offset by net borrowings on CLOs of $1,021.1 million and a total of $65.2 million of cash collateral and proceeds received on interest rate swaps and settlements.

Cash Flows for the Nine Months Ended September 30, 2021

Net cash provided by operating activities for the nine months ended September 30, 2021 was $163.0 million. Cash inflows were primarily driven by net income of $98.7 million, coupled with net inflows of $67.6 million related to originations of and proceeds from sales of commercial mortgage loans, measured at fair value.

Net cash used in investing activities for the nine months ended September 30, 2021 was $504.9 million. Cash outflows were primarily driven by origination and purchase of $1,388.8 million of commercial mortgage loans, held for investment and net purchase/sale of real estate owned assets of $104.1 million. Outflows were offset by proceeds from the sale of real estate securities of $178.0 million, principal repayments on commercial mortgage loans, held for investment of $771.9 million and proceeds from sale of commercial mortgage loans, held for sale of $38.2 million.

Net cash provided by financing activities for the nine months ended September 30, 2021 was $350.6 million. Cash inflows were primarily driven by net proceeds from borrowings on CLOs and repurchase agreements - commercial mortgage loans of $170.1 million and $273.8 million, respectively, net borrowings on unsecured debt and mortgage note payable of $60.0 million and $23.9 million, respectively, and proceeds from issuances of redeemable convertible preferred stock of $15.0 million. Inflows were offset by net repayments on our CMBS MRAs of $140.3 million. Additionally, $42.1 million was used in cash distributions to stockholders and $11.4 million was used for stock repurchases.

Election as a REIT

We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with the taxable year ended December 31, 2013. As a REIT, if we meet certain organizational and operational requirements and distribute at least 90% of our "REIT taxable income" (determined before the deduction of dividends paid and excluding net capital gains) to our stockholders in a year, we will not be subject to U.S. federal income tax to the extent of the income that we distribute. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and U.S. federal income and excise taxes on our undistributed income.

Contractual Obligations and Commitments

Our contractual obligations, excluding interest obligations (as amounts are not fixed or determinable), as of September 30, 2022 are summarized as follows (dollars in thousands):


	Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years		Total
Unfunded loan commitments (1)	$	8,000	$	449,828	$	74,755	$	—	$	532,583
Repurchase agreements - commercial mortgage loans	423,384		276,024		—		—		699,408
Repurchase agreements - real estate securities	337,613		—		—		—		337,613
CLOs (2)	—		—		—		3,200,606		3,200,606
Mortgage Note Payable	—		—		—		23,998		23,998
Unsecured debt	—		—		—		98,670		98,670
Other financing and loan participation - commercial mortgage loans	40,652		—		12,515		—		53,167
Total	$	809,649	$	725,852	$	87,270	$	3,323,274	$	4,946,045

________________________________________________________

(1) The allocation of our unfunded loan commitments is based on the earlier of the commitment expiration date or the loan maturity date.

(2) Excludes $453.4 million of CLO notes, held by the Company, which are eliminated within the collateralized loan obligations line of the consolidated balance sheet as of September 30, 2022.

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In addition to its cash requirements, the Company pays a quarterly dividend and has an existing share repurchase authorization. As of September 30, 2022, the Company’s quarterly cash dividend was $0.355 per share of common stock (which was paid on an as-converted basis on the Company’s shares of Series C Preferred Stock and Series H Preferred Stock), and $0.46875 per share on the Company’s shares of Series E Preferred Stock. The payment of future dividends is subject to declaration by the board of directors. The Company’s board of directors also has authorized a $65.0 million share repurchase program, that is currently operative following the conclusion of the $35.0 million open market share purchase program the Advisor implemented in connection with the Company’s merger with Capstead. The authorization does not obligate the Company to acquire any specific number of shares.

Related Party Arrangements

Refer to “Note 11 - Related Party Transactions and Arrangements” for a summary of the Company’s related party arrangements.

Non-GAAP Financial Measures

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 ARMs, including CECL reserves and impairments, (iii) non-cash equity compensation expense, (iv) depreciation and amortization, (v) non-cash incentive fee accruals, (vi) certain other non-cash items, and (vii) 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 residential adjustable-rate mortgage securities.

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 net 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 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.

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The following table provides a reconciliation of GAAP net income to Distributable Earnings and Run-Rate Distributable Earnings as of September 30, 2022 and September 30, 2021 (amounts in thousands, except share and per share data):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
GAAP Net Income	$	35,258	$	38,495	$	(12,958)	$	98,651
Adjustments:
CLO amortization acceleration (1)	(1,226)		(867)		999		(2,401)
Unrealized (gain)/loss on financial instruments (2)	(1,624)		(325)		16,498		(401)
Unrealized (gain)/loss reversal - ARMs	2,742		—		37,862		—
Incentive fees	(2,461)		4,280		(5,917)		8,046
Non-Cash Compensation Expense	833		—		833		—
Depreciation and amortization	1,295		—		3,886		812
Increase/(decrease) in provision for credit losses	(599)		(1,613)		30,976		(5,452)
Loan Workout Charges (3)	205		—		5,105		—
Realized trading and derivatives (gain)/loss on ARMs	(155)		—		21,927		—
Run Rate Distributable Earnings (4)	$	34,268	$	39,970	$	99,211	$	99,255
Realized trading and derivatives gain/(loss) on ARMs	155		—		(21,927)		—
Distributable Earnings	$	34,423	$	39,970	$	77,284	$	99,255
Average Common & Common Equivalents	$	1,422,040	$	1,063,428	$	1,470,751	$	1,044,583
7.5% Cumulative Redeemable Preferred Stock, Series E Dividend	$	4,842	$	—	$	14,525	$	—
GAAP Net Income (Loss) ROE	8.6%		14.5%		(2.5)%		12.6%
Run-Rate Distributable Earnings ROE	8.3%		15.0%		7.7%		12.7%
Distributable Earnings ROE	8.3%		15.0%		5.7%		12.7%
GAAP Net Income Per Share, Fully Converted	$	0.34	$	0.67	$	(0.31)	$	1.72
Run-Rate Distributable Earnings Per Share, Fully Converted	$	0.33	$	0.69	$	0.94	$	1.73
Distributable Earnings Per Share, Fully Converted	$	0.33	$	0.69	$	0.70	$	1.73

____________________________________________________________

(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 and Run-Rate Distributable Earnings as compared to effective yield methodology in our GAAP earnings.

(2) Adjusted for unrealized gain/loss on commercial mortgage loans, held for sale, measured at fair value and unrealized gain/loss on derivatives.

(3) Represents loan workout expenses the Company incurred, which the Company deems likely to be recovered and is non-recurring in nature.

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Credit Risk

Our investments are subject to a high degree of credit risk. Credit risk is the exposure to loss from loan defaults. Default rates are subject to a wide variety of factors, including, but not limited to, borrower financial condition, property performance, property management, supply/demand factors, construction trends, consumer behavior, regional economics, interest rates, the strength of the U.S. economy, and other factors beyond our control. All loans are subject to a certain probability of default. We manage credit risk through the underwriting process, acquiring our investments at the appropriate discount to face value, if any, and establishing loss assumptions. We also carefully monitor the performance of the loans, as well as external factors that may affect their value.

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Capital Market Risk

We are exposed to risks related to the debt capital markets, and our related ability to finance our business through borrowings under repurchase obligations or other debt instruments. As a REIT, we are required to distribute a significant portion of our taxable income annually, which constrains our ability to accumulate operating cash flow and therefore requires us to utilize debt or equity capital to finance our business. We seek to mitigate these risks by monitoring the debt capital markets to inform our decisions on the amount, timing and terms of capital we raise.

Market uncertainty and volatility may cause fluctuation in market value of certain asset classes within our portfolio. We have and may continue to receive margin calls from our lenders as a result of the decline in the market value of the assets pledged by us to our lenders under our repurchase agreements and warehouse credit facilities, and if we fail to resolve such margin calls when due by payment of cash or delivery of additional collateral, the lenders may exercise remedies including demanding payment by us of our aggregate outstanding financing obligations and/or taking ownership of the loans or other assets securing the applicable obligations and liquidating them at inopportune prices.

Market Risk

As a result of the closing of the Capstead merger on October 19, 2021 we hold ARM Agency Securities. Changes in the level of interest rates and spreads can significantly impact the value of these assets. We may utilize a variety of financial instruments in order to limit the adverse effects of interest rates on our results.

Interest Rate Risk

Our market risk arises primarily from interest rate risk relating to interest rate fluctuations. Many factors including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control contribute to interest rate risk. To meet our short and long-term liquidity requirements, we may borrow funds at fixed and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes in earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates. We do not have any foreign denominated investments, and thus, we are not exposed to foreign currency fluctuations.

As of September 30, 2022 and December 31, 2021, our portfolio included 163 and 161 variable rate investments, respectively, based on LIBOR and SOFR (or "indexing rates") for various terms. Borrowings under our financing arrangements are also based on LIBOR and SOFR. The following table quantifies the potential changes in interest income net of interest expense should interest rates increase by 50 or 100 basis points or decrease by 25 basis points, assuming that our current balance sheet was to remain constant and no actions were taken to alter our existing interest rate sensitivity. The changes in the portfolio for each basis points increase/decrease is a change from the base scenario.


	Estimated Percentage Change in Interest Income Net of Interest Expense
Change in Interest Rates	September 30, 2022		December 31, 2021
(-) 25 Basis Points	(1.73)	%	2.08	%
Base Interest Rate	—	%	—	%
(+) 50 Basis Points	3.41	%	(1.74)	%
(+) 100 Basis Points	6.81	%	(1.64)	%

Real Estate Risk

The market values of commercial mortgage assets are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, the impacts of the COVID-19 pandemic, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; and demographic factors. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loans, which could also cause us to suffer losses.

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Item 4. Controls and Procedures.

Disclosure Controls and Procedures

In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded, as of the end of such period, that our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in our reports that we file or submit under the Exchange Act.

Changes in Internal Control Over Financial Reporting

During the quarter ended September 30, 2022, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

Item 1. Legal Proceedings.

Please refer to “Litigation and Regulatory Proceedings” in “Note 10 - Commitments and Contingencies” to the consolidated financial statements included in this report. The Company believes that these proceedings, individually or in the aggregate, will not have a material impact on the Company’s financial condition, operating results or cash flows.

Loan Fraud Lawsuit

On July 26, 2022, the Company (through a subsidiary) filed a lawsuit in the District Court of Dallas County, Texas, against, among others, the borrower, the individual sponsor of the borrower, and the guarantors under a first priority mortgage loan that the Company, along with a separate fund affiliated with the Company's external manager, originated in April 2022. The original principal balance of the Company’s loan is $113.2 million. The loan is secured by a portfolio of twenty-four properties that are net leased to Walgreens (the “Collateral Properties”). As described in more detail in the complaint filed in Dallas County, in July 2022, the Company determined that the borrower had provided the Company with numerous falsified and forged documents in connection with the underwriting of the loan. Such documentation significantly and fraudulently inflated the purported value of the Collateral Properties by misrepresenting the rent rates and maturity dates of the Walgreens leases at the Collateral Properties, among other things. On July 27, 2022, the court issued a temporary restraining order freezing the assets of the borrower, the borrower’s sponsor and his parents, and any proceeds from our loan, pending the next scheduled legal proceeding in August 2022. The Company has also reported the fraud to criminal authorities and is assisting such authorities with their consideration of the matter. On October 10, 2022, the District Court of Dallas County entered a judgment in favor of the Company and its affiliated fund against the Borrower, the sponsor and certain of his family members, and certain related companies involved in the fraud, in the amount of $158.6 million, with $1.0 million of additional exemplary damages against the Borrower and $3 million of additional exemplary damages against the sponsor. In addition, the Company has commenced foreclosure proceedings against its collateral properties. As of the date of this filing, the Company has taken title to seven collateral properties in Alabama, Tennessee and Mississippi. The Company intends to continue to pursue all available legal remedies as set forth in the complaint against any party determined to have been involved in, or that improperly benefited from, the scheme. The collectability, if any, of amounts of legal judgments we have achieved to date and that we may achieve in the future is not currently determinable.

Item 1A. Risk Factors.

Our potential risks and uncertainties are presented in the section entitled "Risk Factors" contained in our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes from these risk factors.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The Advisor committed to a $35 million open market share purchase program in connection with the Capstead acquisition. As of July 8, 2022, the Advisor had purchased its entire $35 million commitment. The Company’s board of directors has authorized a $65 million share repurchase program that has now become operative following the conclusion of the Advisor's purchase program. The Company’s share repurchase program authorizes share repurchases at prices below the most recently reported book value per share as determined in accordance with GAAP. Purchases made under the Company’s program may be made through open market, block, and privately negotiated transactions, including Rule 10b5-1 plans, as permitted by securities laws and other legal requirements. The timing, manner, price and amount of any purchases by the Company will be determined by the Company in its reasonable business judgment and consistent with the exercise of their legal duties and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The Company share repurchase program does not obligate the Company to acquire any particular amount of common stock. The Company’s share repurchase program will remain open until at least December 31, 2023 or until the capital committed to the applicable repurchase program has been exhausted, whichever is sooner. Repurchases under the Company’s share repurchase program may be suspended from time to time at the Company’s discretion without prior notice.

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The following table sets forth purchases of the Company's common stock under the share purchase programs for the quarter ended September 30, 2022:


	Total number of shares purchased	Average price paid per share (2)		Total number of shares purchased as part of publicly announced plans or programs (1)	Approximate dollar value of shares that may yet be purchased under the plans or programs (1)






July 1, 2022 - July 31, 2022 (3)	190,199	13.33		190,199	—
August 1, 2022 - August 31, 2022	—	—		—	—
September 1, 2022 - September 30, 2022	931,053	11.85		931,053	53,964,248



Total	1,121,252	$	12.10	1,121,252	$	53,964,248

_______________________

(1) Except as noted in footnote (3) , all of the purchases listed in the table above were made in the open market under the Company's share purchase program announced on July 26, 2021, including under a Rule 10b5-1 plan adopted by the Company.

(2) The average price paid per share represents the average of the gross purchase price per share, inclusive of any broker’s fees or commissions.

(3) All of these shares were purchased under the Advisor’s purchase program.

Subsequent to September 30, 2022, the Company repurchased 485,316 additional shares of common stock at an average price of $11.42 for an aggregate of $5.5 million. As of November 4, 2022, $48.4 million remains available under the Company’s share repurchase program.

Unregistered Sales of Equity Securities

None.

Item 3. Defaults upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

EXHIBITS INDEX

The following exhibits are included in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 (and are numbered in accordance with Item 601 of Regulation S-K).


Exhibit No.						Description
3.1						Articles Supplementary of Franklin BSP Realty Trust, Inc., dated October 13, 2022, relating to Series I Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 14, 2022).
10.1 *						Amendment No. 12 to Pricing Side Letter, dated as of July 12, 2022, between the Company, Column Financial, Inc. and Credit Suisse AG.
10.2 *						Amendment No. 9 to Amended and Restated Uncommitted Master Repurchase Agreement and Amendment to No. 3 to Amended and Restated Fee and Pricing Letter, dated as of July 7, 2022, between the Company, JPM Loan, LLC and JPMorgan Chase Bank,National Association.
31.1 *						Certification of the Principal Executive Officer of the Company pursuant to Securities Exchange Act Rule 13a - 14(a) or 15(d) - 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 *						Certification of the Principal Financial Officer of the Company pursuant to Securities Exchange Act Rule 13a - 14(a) or 15(d) - 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 *						Written statements of the Principal Executive Officer and Principal Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 *						XBRL (eXtensible Business Reporting Language). The following materials from Benefit Street Partners Realty Trust, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) the Consolidated Statement of Changes in Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements.
104*						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

____________________________________________

*Filed herewith.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Franklin BSP Realty Trust, Inc.
November 9, 2022	By	/s/ Richard J. Byrne
		Name: Richard J. Byrne
		Title: Chief Executive Officer and President
		(Principal Executive Officer)

November 9, 2022	By	/s/ Jerome S. Baglien
		Name: Jerome S. Baglien
		Title: Chief Financial Officer, Chief Operating Officer and Treasurer
		(Principal Financial and Accounting Officer)

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Part I. Item 1. Consolidated Financial Statements and Notes (unaudited)Note 1 - Organization and Business Operations Note 2 - Summary Of Significant Accounting Policies Note 3 - Commercial Mortgage Loans Note 4 - Real Estate Securities Note 5 - Real Estate Owned Note 6 - Leases Note 7 - Debt Note 8 - Earnings Per Share Note 9 - Equity Transactions Note 10 - Commitments and Contingencies Note 11 - Related Party Transactions and Arrangements Note 12 - Share-based Compensation Note 13 - Fair Value Of Financial Instruments Note 14 - Derivative Instruments Note 15 - Offsetting Assets and Liabilities Note 16 - Segment Reporting Note 17 - Subsequent Events Item 2. Management's Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

Exhibits

3.1 Articles Supplementary of Franklin BSP Realty Trust, Inc., dated October 13, 2022, relating to Series I Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Registrants Current Report on Form 8-K filed with the SEC on October 14, 2022). 10.1* Amendment No. 12 to Pricing Side Letter, dated as of July 12, 2022, between the Company, Column Financial, Inc. and Credit Suisse AG. 10.2* Amendment No. 9toAmended and Restated Uncommitted Master Repurchase Agreement and Amendment to No. 3 to Amended and Restated Fee and Pricing Letter, dated as of July 7, 2022, between the Company, JPM Loan, LLC and JPMorgan Chase Bank,National Association. 31.1* Certification of the Principal Executive Officer of the Company pursuant to Securities Exchange Act Rule 13a - 14(a) or 15(d) - 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of the Principal Financial Officer of the Company pursuant to Securities Exchange Act Rule 13a - 14(a) or 15(d) - 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32* Written statements of the Principal Executive Officer and Principal Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

FBRT 10-Q Quarter ended Sept. 30, 2022

Exhibits