FS CREDIT REAL ESTATE INCOME TRUST, INC.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 000-56163
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| |
||
(Address of principal executive offices) |
(Zip Code) | |
(215 ) 495-1150
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: None.
| Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
| N/A | N/A | N/A |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Yes ☒ No ☐
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). Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, 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 | ☐ | Accelerated filer | ☐ | |||
| ☒ | Smaller reporting company | |||||
| Emerging growth company | ||||||
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 ☒
Indicate by check mark whether the registrant is a shell company (as defined in ☒
Rule 12b-2
of the Exchange Act). Yes ☐ No Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
As of August 5, 2022 there were
outstanding shares of Class F common stock,
TABLE OF CONTENTS
Page |
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| PART I—FINANCIAL INFORMATION |
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ITEM 1. |
1 |
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1 |
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2 |
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3 |
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4 |
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6 |
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7 |
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ITEM 2. |
41 |
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ITEM 3. |
56 |
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ITEM 4. |
58 |
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| PART II—OTHER INFORMATION |
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ITEM 1. |
58 |
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ITEM 1A. |
58 |
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ITEM 2. |
59 |
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ITEM 3. |
59 |
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ITEM 4. |
59 |
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ITEM 5. |
59 |
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ITEM 6. |
60 |
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62 |
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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
FS Credit Real Estate Income Trust, Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
June 30, 2022 (Unaudited) |
December 31, 2021 |
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| Assets |
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| Cash and cash equivalents |
$ | $ | ||||||
| Restricted cash |
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| Loans receivable, held-for-investment |
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| Mortgage-backed securities held-to-maturity |
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| Mortgage-backed securities available-for-sale, |
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| Investment in real estate, net |
— | |||||||
| Receivable for investments sold and repaid |
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| Interest receivable |
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| Deferred financing costs |
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| Other assets |
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| Total assets (1) |
$ | $ | ||||||
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| Liabilities |
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| Collateralized loan obligations (net of deferred financing costs of $ |
$ | $ | ||||||
| Repurchase agreements payable (net of deferred financing costs of $ |
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| Credit facilities payable (net of deferred financing costs of $ |
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| Mortgage note payable (net of deferred financing costs of $ |
— | |||||||
| Due to related party |
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| Interest payable |
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| Payable for shares repurchased |
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| Other liabilities |
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| Total liabilities (1) |
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| Commitments and contingencies (See Note 11) |
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| Stockholders’ equity |
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| Preferred stock, $ |
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| Class F common stock, $ |
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| Class Y common stock, $ |
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| Class T common stock, $ |
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| Class S common stock, $ |
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| Class D common stock, $ |
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| Class M common stock, $ |
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| Class I common stock, $ |
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| Additional paid-in capital |
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| Accumulated other comprehensive income (loss) |
( |
) | ||||||
| Retained earnings |
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| Total stockholders’ equity |
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| Total liabilities and stockholders’ equity |
$ | $ | ||||||
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| (1) | The June 30, 2022 and December 31, 2021 consolidated balance sheets include assets of consolidated variable interest entities, or VIEs, that can only be used to settle obligations of the VIEs, and liabilities of consolidated VIEs for which creditors do not have recourse to the Company. As of June 30, 2022 and December 31, 2021, assets of the VIEs totaled $ |
See notes to unaudited consolidated financial statements.
1
FS Credit Real Estate Income Trust, Inc.
Unaudited Consolidated Statements of Operations
(in thousands, except share and per share amounts)
Three Months Ended June 30, |
Six Months Ended June 30, |
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2022 |
2021 |
2022 |
2021 |
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Net interest income |
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| Interest income |
$ | $ | $ | $ | ||||||||||||
| Less: Interest expense |
( |
) | ( |
) | ( |
) | ( |
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| Net interest income |
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Other expenses |
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| Management and performance fees |
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| General and administrative expenses |
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| Less: Expense limitation |
— | — | — | ( |
) | |||||||||||
| Add: Expense recoupment to sponsor |
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| Net other expenses |
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Other income (loss) |
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| Net change in unrealized gain (loss) on interest rate cap |
( |
) | — | ( |
) | — | ||||||||||
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| Total other income (loss) |
( |
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) | — | ||||||||||
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| Net income |
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| Preferred stock dividends |
( |
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) | ( |
) | ( |
) | ||||||||
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| Net income attributable to FS Credit Real Estate Income Trust, Inc. |
$ | $ | $ | $ | ||||||||||||
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| Per share information—basic and diluted |
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| Net income per share of common stock (earnings per share) |
$ | $ | $ | $ | ||||||||||||
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| Weighted average common stock outstanding |
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See notes to unaudited consolidated financial statements.
2
FS Credit Real Estate Income Trust, Inc.
Unaudited Consolidated Statements of Comprehensive Income
(in thousands)
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
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Net income |
$ | $ | $ | $ | ||||||||||||
Other comprehensive income |
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Net change in unrealized gain (loss) on mortgage-backed securities available-for-sale |
( |
) | ( |
) | ||||||||||||
Total other comprehensive income (loss) |
( |
) | ( |
) | ||||||||||||
Comprehensive income |
$ | $ | $ | $ | ||||||||||||
See notes to unaudited consolidated financial statements.
3
FS Credit Real Estate Income Trust, Inc.
Unaudited Consolidated Statements of Changes in Equity
(in thousands)
Par Value |
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Common Stock Class F |
Common Stock Class Y |
Common Stock Class T |
Common Stock Class S |
Common Stock Class D |
Common Stock Class M |
Common Stock Class I |
Additional Paid-In Capital |
Accumulated Other Comprehensive Income (Loss) (1) |
Retained Earnings (Accumulated Deficit) |
Total Stockholders’ Equity |
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| Three Months Ended June 30, 2022 |
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| Balance as of March 31, 2022 |
$ | $ | $ | $ | $ | $ | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||||||
| Common stock issued |
— | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Distributions declared |
— | — | — | — | — | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||
| Proceeds from distribution reinvestment plan |
— | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Redemptions of common stock |
— | — | — | ( |
) | — | ( |
) | ( |
) | ( |
) | — | — | ( |
) | ||||||||||||||||||||||||||||
| Stockholder servicing fees |
— | — | — | — | — | — | — | ( |
) | — | — | ( |
) | |||||||||||||||||||||||||||||||
| Offering costs |
— | — | — | — | — | — | — | ( |
) | — | — | ( |
) | |||||||||||||||||||||||||||||||
| Performance contingent rights issued |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Net income |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Dividends on preferred stock |
— | — | — | — | — | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||
| Other comprehensive loss |
— | — | — | — | — | — | — | — | ( |
) | — | ( |
) | |||||||||||||||||||||||||||||||
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| Balance as of June 30, 2022 |
$ | $ | $ | $ | $ | $ | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||||||
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| Three Months Ended June 30, 2021 |
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| Balance as of March 31, 2021 |
$ | $ | $ | $ | $ | $ | $ | $ | $ | — | $ | $ | ||||||||||||||||||||||||||||||||
| Common stock issued |
— | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Distributions declared |
— | — | — | — | — | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||
| Proceeds from distribution reinvestment plan |
— | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Redemptions of common stock |
— | ( |
) | — | — | — | ( |
) | — | ( |
) | — | — | ( |
) | |||||||||||||||||||||||||||||
| Stockholder servicing fees |
— | — | — | — | — | — | — | ( |
) | — | — | ( |
) | |||||||||||||||||||||||||||||||
| Offering costs |
— | — | — | — | — | — | — | ( |
) | — | — | ( |
) | |||||||||||||||||||||||||||||||
| Net income |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Dividends on preferred stock |
— | — | — | — | — | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||
| Other comprehensive income |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
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| Balance as of June 30, 2021 |
$ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
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| (1) | Comprised solely of unrealized gain (loss) on mortgage-backed securities, available for sale. |
See notes to unaudited consolidated financial statements.
4
Par Value |
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Common Stock Class F |
Common Stock Class Y |
Common Stock Class T |
Common Stock Class S |
Common Stock Class D |
Common Stock Class M |
Common Stock Class I |
Additional Paid-In Capital |
Accumulated Other Comprehensive Income (Loss) (1) |
Retained Earnings (Accumulated Deficit) |
Total Stockholders’ Equity |
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| Six Months Ended June 30, 2022 |
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| Balance as of December 31, 2021 |
$ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
| Common stock issued |
— | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Distributions declared |
— | — | — | — | — | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||
| Proceeds from distribution reinvestment plan |
— | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Redemptions of common stock |
— | — | — | ( |
) | — | ( |
) | ( |
) | ( |
) | — | — | ( |
) | ||||||||||||||||||||||||||||
| Stockholder servicing fees |
— | — | — | — | — | — | — | ( |
) | — | — | ( |
) | |||||||||||||||||||||||||||||||
| Offering costs |
— | — | — | — | — | — | — | ( |
) | — | — | ( |
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| Performance contingent rights issued |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Net income |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Dividends on preferred stock |
— | — | — | — | — | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||
| Other comprehensive loss |
— | — | — | — | — | — | — | — | ( |
) | — | ( |
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| Balance as of June 30, 2022 |
$ | $ | $ | $ | $ | $ | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||||||
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| Six Months Ended June 30, 2021 |
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| Balance as of December 31, 2020 |
$ | $ | $ | $ | $ | $ | $ | $ | $ | — | $ | $ | ||||||||||||||||||||||||||||||||
| Common stock issued |
— | — | — | |||||||||||||||||||||||||||||||||||||||||
| Distributions declared |
— | — | — | — | — | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||
| Proceeds from distribution reinvestment plan |
— | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Redemptions of common stock |
— | ( |
) | — | — | — | ( |
) | — | ( |
) | — | — | ( |
) | |||||||||||||||||||||||||||||
| Stockholder servicing fees |
— | — | — | — | — | — | — | ( |
) | — | — | ( |
) | |||||||||||||||||||||||||||||||
| Offering costs |
— | — | — | — | — | — | — | ( |
) | — | — | ( |
) | |||||||||||||||||||||||||||||||
| Net income |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Dividends on preferred stock |
— | — | — | — | — | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||
| Other comprehensive income |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
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| Balance as of June 30, 2021 |
$ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
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(1) |
Comprised solely of unrealized gain (loss) on mortgage-backed securities, available for sale. |
See notes to unaudited consolidated financial statements.
5
FS Credit Real Estate Income Trust, Inc.
Unaudited Consolidated Statements of Cash Flows
(in thousands)
Six Months Ended June 30, |
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2022 |
2021 |
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| Cash flows from operating activities |
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| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities |
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| Performance contingent rights issued |
— | |||||||
| Amortization of deferred fees on loans and debt securities |
( |
) | ( |
) | ||||
| Amortization of deferred financing costs and discount |
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| Net change in unrealized loss on interest rate cap |
— | |||||||
| Changes in assets and liabilities |
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| Reimbursement due from sponsor |
— | |||||||
| Interest receivable |
( |
) | ( |
) | ||||
| Other assets |
( |
) | ||||||
| Due to related party |
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| Interest payable |
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| Other liabilities |
( |
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| Net cash provided by (used in) operating activities |
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| Cash flows used in investing activities |
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| Origination and fundings of loans receivable, held-for-investment |
( |
) | ( |
) | ||||
| Principal collections from loans receivable, held-for-investment |
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| Exit and extension fees received on loans receivable, held-for-investment |
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| Purchases of mortgage-backed securities available-for-sale |
( |
) | ( |
) | ||||
| Principal repayments of mortgage-backed securities available-for-sale |
— | |||||||
| Purchases of mortgage-backed securities held-to-maturity |
( |
) | — | |||||
| Acquisition of real estate |
( |
) | — | |||||
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| Net cash provided by (used in) investing activities |
( |
) | ( |
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| Cash flows from financing activities |
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| Issuance of common stock |
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| Redemptions of common stock |
( |
) | ( |
) | ||||
| Stockholder distributions paid |
( |
) | ( |
) | ||||
| Stockholder servicing fees |
( |
) | ( |
) | ||||
| Offering costs paid |
( |
) | ( |
) | ||||
| Borrowing under mortgage note payable |
— | |||||||
| Borrowings under repurchase agreements |
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| Repayments under repurchase agreements |
( |
) | ( |
) | ||||
| Borrowings under credit facilities |
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| Repayments under credit facilities |
( |
) | ( |
) | ||||
| Proceeds from issuance of collateralized loan obligations |
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| Repayment of collateralized loan obligations |
( |
) | — | |||||
| Payment of deferred financing costs |
( |
) | ( |
) | ||||
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| Net cash provided by (used in) financing activities |
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| Total increase (decrease) in cash, cash equivalents and restricted cash |
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| Cash, cash equivalents and restricted cash at beginning of period |
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| Cash, cash equivalents and restricted cash at end of period |
$ | $ | ||||||
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| Supplemental disclosure of cash flow information and non-cash financial activities |
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| Payments of interest |
$ | $ | ||||||
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| Accrued stockholder servicing fee |
$ | $ | ||||||
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| Distributions payable |
$ | $ | ||||||
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| Reinvestment of stockholder distributions |
$ | $ | ||||||
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| Payable for shares repurchased |
$ | $ | ||||||
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| Loan principal payments held by servicer |
$ | $ | — | |||||
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| Loan transferred from loans receivable, held-for-investment held-for-sale |
$ | — | $ | |||||
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See notes to unaudited consolidated financial statements.
6
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements
(in thousands, except share and per share amounts)
Note 1. Principal Business and Organization
FS Credit Real Estate Income Trust, Inc., or the Company, was incorporated under the general corporation laws of the State of Maryland on November 7, 2016 and formally commenced investment operations on September 13, 2017. The Company is currently conducting a public offering of up to $2,750,000 of its Class T, Class S, Class D, Class M and Class I shares of common stock pursuant to a registration statement on Form 2,500,000 in shares in its primary offering and up to $250,000 in shares pursuant to its distribution reinvestment plan. The Company also previously conducted private offerings of its Class F common stock and Class Y common stock. The Company is managed by FS Real Estate Advisor, LLC, or FS Real Estate Advisor, a subsidiary of the Company’s sponsor, Franklin Square Holdings, L.P., which does business as FS Investments, or FS Investments, a national sponsor of alternative investment funds designed for the individual investor. FS Real Estate Advisor has engaged Rialto Capital Management, LLC, or Rialto, to act as its
S-11
filed with the Securities and Exchange Commission, or SEC, consisting of up to $sub-adviser.
The Company has elected to be taxed as a real estate investment trust, or REIT, for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2017. The Company intends to be an investment vehicle of indefinite duration focused on real estate debt investments and other real estate-related assets. The shares of common stock are generally intended to be sold and repurchased by the Company on a continuous basis. The Company intends to conduct its operations so that it is not required to register under the Investment Company Act of 1940, as amended, or the 1940 Act.
The Company’s primary investment objectives are to: provide current income in the form of regular, stable cash distributions to achieve an attractive dividend yield; preserve and protect invested capital; realize appreciation in net asset value, or NAV, from proactive investment management and asset management; and provide an investment alternative for stockholders seeking to allocate a portion of their long-term investment portfolios to commercial real estate debt with lower volatility than public real estate companies.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation:
Reclassifications:
Use of Estimates:
7
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 2. Summary of Significant Accounting Policies (continued)
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation:
The Company consolidates VIEs in which it is considered to be the primary beneficiary. The primary beneficiary is defined as the entity having both of the following characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the VIE’s performance; and (2) the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE. The Company determines whether it is the primary beneficiary of an entity subject to consolidation based on a qualitative assessment of the VIE’s capital structure, contractual terms, nature of the VIE’s operations and purpose and the Company’s relative exposure to the related risks of the VIE on the date it becomes initially involved in the VIE. The Company reassesses its VIE determination with respect to an entity on an ongoing basis. Refer to Note 10 for additional discussion of the Company’s VIEs.
Cash, Cash Equivalents and Restricted Cash:
The following table provides a reconciliation of cash, cash equivalents and restricted cash in the Company’s consolidated balance sheets to the total amount shown in the Company’s unaudited consolidated statements of cash flows:
June 30, |
||||||||
2022 |
2021 |
|||||||
Cash and cash equivalents |
$ | $ | ||||||
Restricted cash |
||||||||
Total cash, cash equivalents and restricted cash |
$ | $ | ||||||
Loans Receivable and Provision for Loan Losses:
8
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 2. Summary of Significant Accounting Policies (continued)
through a charge to the provision for loan losses. Impairment of these loans, which are collateral dependent, is measured 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, leasing, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, loan sponsorship, actions of other lenders, and other factors deemed necessary by FS Real Estate Advisor and Rialto. Actual losses, if any, could ultimately differ from these estimates.
Loans that the Company originates or purchases that the Company is unable to hold, or intends to sell or otherwise dispose of, in the foreseeable future are classified as and are carried at the lower of amortized cost or fair value.
held-for-sale
FS Real Estate Advisor and Rialto perform a quarterly review of the Company’s portfolio of loans. In connection with this review, FS Real Estate Advisor and Rialto assess the risk factors of each loan and assign a risk rating based on a variety of factors, including, without limitation, ratio, or LTV, debt yield, property type, geographic and local market dynamics, physical condition, cash flow volatility, leasing and tenant profile, loan structure and exit plan, and project sponsorship. Based on a
loan-to-value
5-point
scale, the Company’s loans are rated “1” through “5,” from less risk to greater risk, which ratings are defined as follows: | Loan Risk Rating |
Summary Description | |
| 1 | Very Low Risk | |
| 2 | Low Risk | |
| 3 | Medium Risk | |
| 4 | High Risk/Potential for Loss: A loan that has a risk of realizing a principal loss | |
| 5 | Impaired/Loss Likely: A loan that has a very high risk of realizing a principal loss or has otherwise incurred a principal loss |
Mortgage-backed Securities:
held-to-maturity
available-for-sale
held-to-maturity
Held-to-maturity
available-for
sale and are reported at fair value on the consolidated balance sheets with changes in fair value recorded in other comprehensive income. The Company regularly monitors its mortgage-backed securities to ensure investments that may be other-than-temporarily impaired are timely identified, properly valued and charged against earnings in the proper period. The determination that a security has incurred an other-than-temporary decline in value requires the judgment of management. Assessment factors include, but are not limited to, the length of time and the extent to which the market value has been less than amortized cost, the financial condition and rating of the issuer, and the intent to sell or whether it is more likely than not that the Company will be required to sell.
Real Estate:
9
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 2. Summary of Significant Accounting Policies (continued)
identifiable assets, the asset or set of assets is not a business. The one property acquisition to date has been accounted for as an asset acquisition.
Upon the acquisition of a property, the Company assesses the fair value of acquired tangible and intangible assets (including land, buildings, tenant improvements, “above-market” and “below-market” leases, acquired
in-place
leases, other identified intangible assets and assumed liabilities) and allocates the purchase price to the acquired assets and assumed liabilities. The Company assesses and considers fair value based on estimated cash flow projections that utilize discount and/or capitalization rates that it deems appropriate, as well as other available market information. Estimates of future cash flows are based on several factors including the historical operating results, known and anticipated trends and market and economic conditions. The Company capitalizes acquisition-related costs associated with asset acquisitions. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant. The Company records acquired
in-place
lease values based on the Company’s evaluation of the specific characteristics of each tenant’s lease. The Company will record acquired above-market and below-market leases at their fair values which represents the present value of the difference between contractual rents of acquired leases and market rents at the time of the acquisition for the remaining lease term, discounted for tenant credit risks. The Company also considers an allocation of purchase price of other acquired intangibles, including acquired in-place
leases that may have a customer relationship intangible value, including (but not limited to) the nature and extent of the existing relationship with the tenants, the tenants’ credit quality and expectations of lease renewals. Based on its acquisition to date, the Company’s allocation to customer relationship intangible assets has not been material. Intangible assets and intangible liabilities are recorded as a component of other assets and other liabilities, respectively, on the Company’s consolidated balance sheets. The amortization of acquired above-market and below-market leases is recorded as an adjustment to rental revenue on the Company’s Consolidated statements of operations. The amortization of
in-place
leases is recorded as an adjustment to depreciation and amortization expense on the Company’s consolidated statements of operations. The cost of buildings and improvements includes the purchase price of the Company’s properties and any acquisition-related costs, along with any subsequent improvements to such properties. The Company’s investments in real estate are stated at cost and are generally depreciated on a straight-line basis over the estimated useful lives of the assets as follows:
| Description |
Depreciable Life | |
| Building | ||
| Building and land improvements | ||
| Furniture, fixtures and equipment | ||
| Tenant improvements | ||
| Lease intangibles |
The Company’s management reviews its real estate properties for impairment each quarter or when there is an event or change in circumstances that indicates an impaired value. Since cash flows on real estate properties are considered to be “long-lived assets to be held and used” on an undiscounted basis to determine whether an asset has been impaired, the Company’s strategy of holding properties over the long term directly decreases the likelihood of recording an impairment loss. If the Company’s strategy changes or market conditions otherwise
10
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 2. Summary of Significant Accounting Policies (continued)
dictate an earlier sale date, an impairment loss may be recognized and such loss could be material to the Company’s results. If the Company determines that an impairment has occurred, the affected assets must be reduced to their fair value. During the periods presented, no such impairment occurred.
Fair Value of Financial Instruments:
Fair Value Measurements and Disclosures
ASC Topic 820 also establishes a fair value hierarchy that prioritizes and ranks the level of market price observability used in measuring financial instruments. Market price observability is affected by a number of factors, including the type of financial instrument, the characteristics specific to the financial instrument, and the state of the marketplace, including the existence and transparency of transactions between market participants. Financial instruments with readily available quoted prices in active markets generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Financial instruments measured and reported at fair value are classified and disclosed based on the observability of inputs used in the determination, as follows:
Level 1: |
Generally includes only unadjusted quoted prices that are available in active markets for identical financial instruments as of the reporting date. |
Level 2: |
Pricing inputs include quoted prices in active markets for similar instruments, quoted prices in less active or inactive markets for identical or similar instruments where multiple price quotes can be obtained, and other observable inputs, such as interest rates, yield curves, credit risks, and default rates. |
Level 3: |
Pricing inputs are unobservable for the financial instruments and include situations where there is little, if any, market activity for the financial instrument. These inputs require significant judgment or estimation by management or third parties when determining fair value and generally represent anything that does not meet the criteria of Levels 1 and 2. |
The estimated value of each asset reported at fair value using Level 3 inputs is determined by an internal committee composed of members of senior management of FS Real Estate Advisor.
Certain of the Company’s assets are reported at fair value either (i) on a recurring basis, as of each
quarter-end,
or (ii) on a nonrecurring basis, as a result of impairment or other events. The Company generally values its assets recorded at fair value by either (i) discounting expected cash flows based on assumptions regarding the collection of principal and interest and estimated market rates, or (ii) obtaining assessments from third-party dealers. For collateral-dependent loans that are identified as impaired, the Company measures impairment by comparing FS Real Estate Advisor’s estimation of fair value of the underlying collateral, less costs to sell, to the book value of the respective loan. These valuations may require significant judgments, which include assumptions regarding capitalization rates, leasing, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, loan sponsorship, actions of other lenders, and other factors deemed necessary by FS Real Estate Advisor and Rialto. The Company is also required by GAAP to disclose fair value information about financial instruments that are not otherwise reported at fair value in the Company’s consolidated balance sheets, to the extent it is
11
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 2. Summary of Significant Accounting Policies (continued)
practicable to estimate a fair value for those instruments. These disclosure requirements exclude certain financial instruments and all
non-financial
instruments. The following methods and assumptions are used to estimate the fair value of other classes of financial instruments, for which it is practicable to estimate that value:
| • | Cash and cash equivalents: The carrying amount of cash on deposit and in money market funds approximates fair value. |
| • | Restricted cash: The carrying amount of restricted cash approximates fair value. |
| • | Loans receivable held-for-investment, |
| • | Mortgage-backed securities available-for-sale: |
| • | Mortgage-backed securities held-to-maturity: |
| • | Collateralized loan obligations, repurchase agreements payable, credit facilities payable, and mortgage note payable: The fair values for these instruments were estimated based on the rate at which similar credit facilities would have currently been priced. |
Deferred Financing Costs:
Revenue Recognition:
ex-dividend
date. Any loan origination fees to which the Company is entitled, loan exit fees, original issue discount and market discount are capitalized and such amounts are amortized as interest income over the respective term of the investment. Upon the prepayment of a loan or 12
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 2. Summary of Significant Accounting Policies (continued)
security, any unamortized loan origination fees to which the Company is entitled are recorded as fee income. The Company records prepayment premiums on loans and securities as fee income when it receives such amounts.
Loans are considered past due when payments are not made in accordance with the contractual terms. The Company does not accrue as receivable interest on loans if it is not probable that such income will be collected. Loans are placed on
non-accrual
status when full repayment of principal and interest is in doubt, which generally occurs when principal or interest is 120 days or more past due unless the loan is both well secured and in the process of collection. Interest payments received on non-accrual
loans are generally recognized as interest income on a cash basis. Recognition of interest income on non-performing
loans on an accrual basis is resumed when it is probable that the Company will be able to collect amounts due according to the contractual terms. Rental revenue primarily consists of base rent arising from tenant leases at the Company’s properties. Base rent is recognized on a straight-line basis over the life of the lease, including any rent increases or rent abatement. The Company begins to recognize revenue upon the acquisition of the related property or when a tenant takes possession of the leased space. Other rental revenues include amounts due from tenants for costs related to common area maintenance, real estate taxes, and other recoverable costs included in lease agreements.
The Company evaluates the collectability of receivables related to rental revenue on an individual lease basis. In making this determination, the Company considers the length of time a receivable has been outstanding, tenant credit-worthiness, payment history, available information about the financial condition of the tenant, and current economic trends, among other factors. Tenant receivables that are deemed uncollectible are recognized as a reduction to rental revenue.
Organization Costs:
Offering Costs:
paid-in
capital on the consolidated balance sheets as it raises proceeds in its continuous public offering in excess of $Income Taxes:
13
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 2. Summary of Significant Accounting Policies (continued)
Company generally will not be subject to federal income tax on income that it distributes to stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the Internal Revenue Service grants the Company relief under certain statutory provisions.
Uncertainty in Income Taxes
Stockholder Servicing Fees:
Liabilities
paid-in
capital and records the related liability in an amount equal to its best estimate of the fees payable in relation to the shares of Class T, Class S, Class D and Class M common stock on the date such shares are issued. The liability will be reduced over time, as the fees are paid to the dealer manager, or adjusted if the fees are no longer payable. Derivative Instruments
The valuation of the Company’s interest rate caps is determined based on assumptions that management believes market participants would use in pricing, using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivative. This analysis reflects the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with those derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparties. However, as of June 30, 2022, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of the Company’s derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
Recent Accounting Pronouncements:
2016-13,
Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326)
2016-13.
ASU 2016-13
significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13
will replace the “incurred loss” 14
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 2. Summary of Significant Accounting Policies (continued)
available-for-sale
2019-10,
Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instrument (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) Effective Dates,
2016-13
for smaller reporting companies until fiscal years beginning after December 15, 2022. While the Company, as a smaller reporting company, continues to evaluate the impact of this update on its unaudited consolidated financial statements, the Company expects that the adoption will result in an increased amount of provisions for potential loan losses as well as the recognition of such provisions earlier in the credit cycle. The Company currently does not have any provision for loan losses recorded on the consolidated financial statements.Note 3. Loans Receivable
The following table details overall statistics for the Company’s loans receivable portfolio as of June 30, 2022 and December 31, 2021:
June 30, 2022 (Unaudited) |
December 31, 2021 |
|||||||
Number of loans |
||||||||
Principal balance |
$ | $ | ||||||
Net book value |
$ | $ | ||||||
Unfunded loan commitments (1) |
$ | $ | ||||||
Weighted-average cash coupon (2) |
+ |
% | + |
% | ||||
Weighted-average all-in yield(2) |
+ |
% | + |
% | ||||
Weighted-average maximum maturity (years) (3) |
||||||||
| (1) | The Company may be required to provide funding when requested by the borrowers in accordance with the terms of the underlying agreements. |
| (2) | The Company’s floating rate loans are indexed to the London Interbank Offered Rate, or LIBOR, and the Secured Overnight Financing Rate, or SOFR. In addition to cash coupon, all-in yield includes accretion of discount (amortization of premium) and accrual of exit fees. |
| (3) | Maximum maturity assumes all extension options are exercised by the borrowers; however, loans may be repaid prior to such date. |
15
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 3. Loans Receivable (continued)
For the six months ended June 30, 2022 and 2021, the activity in the Company’s loan portfolio, was as follows:
For the Six Months Ended June 30, |
||||||||
2022 |
2021 |
|||||||
Balance at beginning of period |
$ | $ | ||||||
Loan fundings |
||||||||
Loan repayments |
( |
) | ( |
) | ||||
Amortization of deferred fees on loans |
||||||||
Exit and extension fees received on loans |
( |
) | ( |
) | ||||
Balance at end of period |
$ | $ | ||||||
The following tables detail the property type and geographic location of the properties securing the loans in the Company’s loans receivable, portfolio as of June 30, 2022 and December 31, 2021:
held-for-investment
June 30, 2022 (Unaudited) |
December 31, 2021 |
|||||||||||||||
Property Type |
Net Book Value |
Percentage |
Net Book Value |
Percentage |
||||||||||||
Multifamily |
$ | % | $ | % | ||||||||||||
Office |
% | % | ||||||||||||||
Hospitality |
% | % | ||||||||||||||
Retail |
% | % | ||||||||||||||
Industrial |
% | % | ||||||||||||||
Self Storage |
% | % | ||||||||||||||
Various |
% | % | ||||||||||||||
Mixed Use |
% | % | ||||||||||||||
Total |
$ | % | $ | % | ||||||||||||
June 30, 2022 (Unaudited) |
December 31, 2021 |
|||||||||||||||
Geographic Location (1) |
Net Book Value |
Percentage |
Net Book Value |
Percentage |
||||||||||||
South |
$ | % | $ | % | ||||||||||||
West |
% | % | ||||||||||||||
Northeast |
% | % | ||||||||||||||
Various |
% | % | ||||||||||||||
Midwest |
% | % | ||||||||||||||
Total |
$ | % | $ | % | ||||||||||||
| (1) | As defined by the United States Department of Commerce, Bureau of the Census. |
Loan Risk Rating
As further described in Note 2, FS Real Estate Advisor and Rialto assess the risk factors of each loan and assign a risk rating based on a variety of factors, including, without limitation, ratio, or LTV, debt
loan-to-value
16
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 3. Loans Receivable (continued)
yield, property type, geographic and local market dynamics, physical condition, cash flow volatility, leasing and tenant profile, loan structure and exit plan, and project sponsorship. Based on a
5-point
scale, the Company’s loans are rated “1” through “5”, from less risk to greater risk, which ratings are defined in Note 2. The following table allocates the net book value of the Company’s loans receivable, portfolio based on the Company’s internal risk ratings:
held-for-investment
June 30, 2022 (Unaudited) |
December 31, 2021 |
|||||||||||||||||||||||
Risk Rating |
Number of Loans |
Net Book Value |
Percentage |
Number of Loans |
Net Book Value |
Percentage |
||||||||||||||||||
1 |
— | $ | — | — | — | $ | — | — | ||||||||||||||||
2 |
— | — | — | — | — | — | ||||||||||||||||||
3 |
% | % | ||||||||||||||||||||||
4 |
— | — | — | — | — | — | ||||||||||||||||||
5 |
— | — | — | — | — | — | ||||||||||||||||||
Total |
$ | % | $ | % | ||||||||||||||||||||
The Company did not have any impaired loans, portfolio as of June 30, 2022 and December 31, 2021.
non-accrual
loans, or loans in maturity default within the loans receivable, held-for-investment
Note 4. Mortgage Backed Securities
Mortgage-backed securities,
available-for-sale
Commercial mortgage-backed securities, or CMBS, classified as are reported at fair value on the consolidated balance sheets with changes in fair value recorded in other comprehensive income.
available-for-sale
The table below summarizes various attributes of the Company’s investments in CMBS as of June 30, 2022 and December 31, 2021, respectively.
available-for-sale
Gross Unrealized |
Weighted Average |
|||||||||||||||||||||||||||
Outstanding Face Amount |
Amortized Cost Basis |
Gains |
Losses |
Fair Value |
Coupon |
Remaining Duration (years) |
||||||||||||||||||||||
June 30, 2022 (Unaudited) |
||||||||||||||||||||||||||||
CMBS, available-for-sale |
$ | $ | $ | $ | ( |
) | $ | % | ||||||||||||||||||||
December 31, 2021 |
||||||||||||||||||||||||||||
CMBS, available-for-sale |
$ | $ | $ | $ | ( |
) | $ | % | ||||||||||||||||||||
17
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 4. Mortgage Backed Securities (continued)
The following table presents the gross unrealized losses and estimated fair value of any securities that were in an unrealized loss position as of June 30, 2022 and December 31, 2021, respectively.
available-for-sale
Estimated Fair Value |
Unrealized Losses |
|||||||||||||||
Securities with a loss less than 12 months |
Securities with a loss greater than 12 months |
Securities with a loss less than 12 months |
Securities with a loss greater than 12 months |
|||||||||||||
June 30, 2022 (Unaudited) |
||||||||||||||||
CMBS, available-for-sale |
$ | $ | $ | ( |
) | $ | ||||||||||
December 31, 2021 |
||||||||||||||||
CMBS, available-for-sale |
$ | $ | $ | ( |
) | $ | ||||||||||
As of June 30, 2022 and December 31, 2021, there were twelve securities and one security, respectively, with unrealized losses reflected in the table above. After evaluating the securities and recording adjustments for credit losses, the Company concluded that the remaining unrealized losses reflected above were noncredit-related and would be recovered from the securities’ estimated future cash flows. The Company considered a number of factors in reaching this conclusion, including that it did not intend to sell the securities, it was not considered more likely than not that the Company would be forced to sell the securities prior to recovering its amortized cost, and there were no material credit events that would have caused the Company to otherwise conclude that it would not recover the cost of the securities.
Mortgage-backed securities,
held-to-maturity
The table below summarizes various attributes of the Company’s investments in CMBS as of June 30, 2022 and December 31, 2021, respectively.
held-to-maturity
Net Carrying Amount (Amortized Cost) |
Gross Unrecognized Holding Gains |
Gross Unrecognized Holding Losses |
Fair Value |
|||||||||||||
June 30, 2022 (Unaudited) |
||||||||||||||||
CMBS, held-to-maturity |
$ | $ | ||||||||||||||
December 31, 2021 |
||||||||||||||||
CMBS, held-to-maturity |
$ | $ | ||||||||||||||
The table below summarizes the maturities of the Company’s investments in CMBS as of June 30, 2022 and December 31, 2021, respectively:
held-to-maturity
Total |
Less than 1 year |
1-3 years |
3-5 years |
More than 5 years |
||||||||||||||||
June 30, 2022 (Unaudited) |
||||||||||||||||||||
CMBS, held-to-maturity |
$ | $ | $ | |||||||||||||||||
December 31, 2021 |
||||||||||||||||||||
CMBS, held-to-maturity |
$ | $ | ||||||||||||||||||
18
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 5. Real Estate
Investment in real estate, net, consisted of the following as of June 30, 2022:
June 30, 2022 (Unaudited) |
||||
Building and building improvements |
$ | |||
Land and land improvements |
||||
Furniture, fixtures and equipment |
||||
Real estate, net |
$ | |||
No real estate was owned as of December 31, 2021.
Acquisition
On June 23, 2022, the Company acquired 555 Aviation, a 260,000 100 % leased to three tenants. The following table details the purchase price allocation for the property acquired. As of June 30, 2022, this was the only property held by the Company.
square foot creative office building located in El Segundo, California. The property was built in 1966 and was renovated in 2017 to convert the property into a creative office building, including LEED Gold certification, a glass façade and an interior open-air atrium. The property sits on 13 acres and is located in a growing Los Angeles sub-market of El Segundo near Los Angeles International Airport. The property is currently
Amount |
||||
Building and building improvements |
$ | |||
Land and land improvements |
||||
Furniture, fixtures and equipment |
||||
In-place lease intangibles |
||||
Net purchase price |
$ | |||
The weighted average amortization period for the acquired nine years .
in-place
lease intangibles for the property acquired during the three months ended June 30, 2022 was approximately 19
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 6. Financing Arrangements
The following tables present summary information with respect to the Company’s outstanding financing arrangements as of June 30, 2022 and December 31, 2021.
As of June 30, 2022 (Unaudited) |
||||||||||||||||||||||||
Arrangement (1) |
Rate (2) |
Amount Outstanding |
Amount Available |
Maturity Date |
Carrying Amount of Collateral |
Fair Value of Collateral |
||||||||||||||||||
Collateralized Loan Obligations |
||||||||||||||||||||||||
2019-FL1 Notes |
(3) |
$ | $ | — | $ | $ | ||||||||||||||||||
2021-FL2 Notes |
(3) |
— | ||||||||||||||||||||||
2021-FL3 Notes |
(3) |
— | ||||||||||||||||||||||
2022-FL4 Notes |
( 6 ) |
— | ||||||||||||||||||||||
2022-FL5 Notes |
( 6 ) |
— | ||||||||||||||||||||||
| — | ||||||||||||||||||||||||
Repurchase Agreements |
||||||||||||||||||||||||
WF-1 Facility |
( 4 ) |
|||||||||||||||||||||||
GS-1 Facility |
( 5 ) |
|||||||||||||||||||||||
BB-1 Facility |
( 6 ) |
|||||||||||||||||||||||
RBC Facility |
— | N/A | — | — | ||||||||||||||||||||
Revolving Credit Facility |
||||||||||||||||||||||||
CNB Facility |
( 7 ) |
— | — | |||||||||||||||||||||
MM-1 Facility |
( 8 )(9 ) |
|||||||||||||||||||||||
Mortgage Loan |
||||||||||||||||||||||||
Natixis Loan |
( 8 ) |
|||||||||||||||||||||||
Total |
$ |
$ |
$ |
$ |
||||||||||||||||||||
| (1) | The carrying amount outstanding under the facilities approximates their fair value. |
| (2) | The rates are expressed over the relevant floating benchmark rates, which include USD LIBOR, Term SOFR, and SOFR Average (compounded average of SOFR over a rolling 30-day period). |
| (3) | USD LIBOR is subject to a |
(4) |
Benchmark rate is subject to a |
(5) |
Term SOFR is subject to a GS-1 and Goldman Sachs may mutually agree on rates outside this range or a different floor on an asset by asset basis. |
| ( 6 ) |
USD LIBOR, Term SOFR or SOFR Average (compounded average of SOFR over a rolling 30-day period), subject to a |
(7) |
Term SOFR is subject to a floor. The CNB Facility is subject to a credit spread adjustment of |
(8) |
Term SOFR is subject to a |
(9) |
The MM-1 Facility is subject to a credit spread adjustment of |
20
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 6. Financing Arrangements (continued)
As of December 31, 2021 |
||||||||||||||||||||||||
Arrangement (1) |
Rate (2) |
Amount Outstanding |
Amount Available |
Maturity Date |
Carrying Amount of Collateral |
Fair Value of Collateral |
||||||||||||||||||
Collateralized Loan Obligation |
||||||||||||||||||||||||
2019-FL1 Notes |
(3) |
$ | $ | — | $ | $ | ||||||||||||||||||
2021-FL2 Notes |
(3) |
— | ||||||||||||||||||||||
2021-FL3 Notes |
(3) |
— | ||||||||||||||||||||||
| — | ||||||||||||||||||||||||
Repurchase Agreements |
||||||||||||||||||||||||
WF-1 Facility |
( 4 ) |
|||||||||||||||||||||||
GS-1 Facility |
( 5 ) |
|||||||||||||||||||||||
BB-1 Facility |
||||||||||||||||||||||||
RBC Facility |
— | N/A | — | — | ||||||||||||||||||||
Revolving Credit Facility |
||||||||||||||||||||||||
CNB Facility |
( 6 ) |
— | — | |||||||||||||||||||||
MM-1 Facility |
(3) |
|||||||||||||||||||||||
Total |
$ |
$ |
$ |
$ |
||||||||||||||||||||
| (1) | The carrying amount outstanding under the facilities approximates their fair value. |
| (2) | The rates are expressed over the relevant floating benchmark rates, which include USD LIBOR. |
| (3) | USD LIBOR is subject to a |
(4) |
USD LIBOR is subject to a WF-1 facility are using term SOFR as the reference rate, subject to the rates specified in their applicable transaction confirmations. |
(5) |
USD LIBOR is subject to a GS-1 and Goldman Sachs, may mutually agree on rates outside this range or a different LIBOR floor on an asset by asset basis. |
| ( 6 ) |
USD LIBOR is subject to a |
The Company’s average borrowings and weighted average interest rate, including the effect of 3,672,968 and 2.22 %, respectively. The Company’s average borrowings and weighted average interest rate, including the effect of 1,346,445 and 1.69 %, respectively.
non-usage
fees, for the six months ended June 30, 2022 were $non-usage
fees, for the year ended December 31, 2021 were $Under its financing arrangements, the Company has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar financing arrangements. The Company was in compliance with all covenants required by its financing arrangements as of June 30, 2022 and December 31, 2021.
21
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 6. Financing Arrangements (continued)
Maturities
The Company generally requires the amount outstanding on debt obligations to be paid down before the financing arrangement’s respective maturity date. The following table sets forth the Company’s repayment schedule for secured financings based on the maturity date of each financing arrangement:
Collateralized Loan Obligations |
Repurchase Agreements |
Revolving Credit Facility |
Mortgage Loan |
Total |
||||||||||||||||
2022 |
$ | $ | $ | $ | $ | |||||||||||||||
2023 |
||||||||||||||||||||
2024 |
||||||||||||||||||||
2025 |
||||||||||||||||||||
2026 |
||||||||||||||||||||
Thereafter |
||||||||||||||||||||
Total |
$ | $ | $ | $ | $ | |||||||||||||||
Collateralized Loan Obligations
The Company financed certain pools of loans through collateralized loan obligations, which include
2019-FL1,
2021-FL2,
2021-FL3,
2022-FL4,
and 2022-FL5,
or collectively, the CLOs. The following table outlines the number of loans and the principal balance of the collateralized pool of interests for each CLO. As of June 30, 2022 (Unaudited) |
||||||||
Collateralized Loan Obligation |
Total Loans |
Principal |
||||||
2019-FL1 Notes |
$ | |||||||
2021-FL2 Notes |
||||||||
2021-FL3 Notes |
||||||||
2022-FL4 Notes |
||||||||
2022-FL5 Notes |
||||||||
Total |
$ | |||||||
The Company incurred issuance costs and discount related to the collateralization of the CLO Notes, which are amortized to interest expense over the remaining life of the loans. The following table outlines the issuance costs and discount to be amortized.
As of June 30, 2022 (Unaudited) |
||||
Collateralized Loan Obligation |
Issuance Costs and Discount to be Amortized |
|||
2019-FL1 Notes |
$ | |||
2021-FL2 Notes |
||||
2021-FL3 Notes |
||||
2022-FL4 Notes |
||||
2022-FL5 Notes |
||||
Total |
$ | |||
22
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 6. Financing Arrangements (continued)
2022-FL5
NotesOn June 16, 2022, the Company issued $570,112 of collateralized loan obligation notes, or the CLO5 Transaction, through the
Sub-REIT
and a wholly-owned financing subsidiary of the Sub-REIT,
FS Rialto 2022-FL5
Issuer, LLC, a Delaware limited liability company, as issuer. Repurchase Agreements
WF-1
Facility On August 30, 2017, the Company’s indirect wholly owned, special-purpose financing subsidiary, FS CREIT Finance 650,000 . Each transaction under the 350,000 to $650,000 until May 11, 2022. On May 12, 2022, the 650,000
WF-1
LLC, or WF-1,
as seller, entered into a Master Repurchase and Securities Contract, or, as amended, the WF-1
Repurchase Agreement, and together with the related transaction documents, the WF-1
Facility, with Wells Fargo, as buyer, to finance the acquisition and origination of commercial real estate whole loans or senior controlling participation interests in such loans. The maximum amount of financing available under the WF-1
Facility as of June 30, 2022 is $WF-1
Facility has its own specific terms, such as identification of the assets subject to the transaction, sale price, repurchase price and rate. On February 11, 2022, the WF-1
Repurchase Agreement was amended to temporarily increase the maximum amount of financing available from $WF-1
Repurchase Agreement was amended to extend the temporary increase of $
maximum amount of financing available until September 30, 2022 and to extend the maturity date and availability period, in each case, from August 30, 2022 to August 30, 2023.
The Company incurred deferred financing costs, which are being amortized to interest expense over the life of the facility. As of June 30, 2022, $1,367 of deferred financing costs had yet to be amortized to interest expense.
GS-1
Facility On January 26, 2018, the Company’s indirect wholly-owned, special-purpose financing subsidiary, FS CREIT Finance 350,000 . Each transaction under the
GS-1
LLC, or GS-1,
as seller, entered into an Uncommitted Master Repurchase and Securities Contract Agreement, or, as amended, the GS-1
Repurchase Agreement, and together with the related transaction documents, the GS-1
Facility with Goldman Sachs, as buyer, to finance the acquisition and origination of whole, performing senior commercial or multifamily floating-rate mortgage loans secured by first liens on office, retail, industrial, hospitality, multifamily or other commercial properties. The maximum amount of financing available under the GS-1
Facility as of June 30, 2022 is $GS-1
Facility has its own specific terms, such as identification of the assets subject to the transaction, sale price, repurchase price and rate. On January 26, 2022, the 250,000 to $350,000 with a temporary additional increase to $500,000 that was available until the closing of the CLO4 Transaction.
GS-1
Repurchase Agreement was amended to extend the availability period to January 26, 2023, with an option to extend one additional year to January 26, 2024. After the end of the availability period, GS-1
may exercise an option to commence a one-year
amortization period, so long as certain conditions are met. During the amortization period, certain changes to the terms of the GS-1
Facility would apply, including an increase to the rate charged on each asset financed under the GS-1
Facility. The maximum amount of financing available increased from $The Company incurred deferred financing costs, which are being amortized to interest expense over the life of the facility. As of June 30, 2022, $335 of deferred financing costs had yet to be amortized to interest expense.
23
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 6. Financing Arrangements (continued)
BB-1
Facility On February 22, 2021, the Company’s indirect wholly owned, special-purpose financing subsidiary, FS CREIT Finance 700,000 . Each transaction under the 700,000 .
BB-1
LLC, or BB-1,
entered into a Master Repurchase Agreement, or the BB-1
Repurchase Agreement, and together with the related transaction documents, the BB-1
Facility, as seller, with Barclays Bank PLC, or Barclays, as purchaser, to finance the acquisition and origination of whole, performing senior commercial or multifamily floating-rate mortgage loans secured by first liens on office, retail, industrial, hospitality, multifamily, self-storage and manufactured housing property (or a combination of the foregoing, including associated parking structures). The maximum amount of financing available under the BB-1 Facility as of June 30, 2022 was $BB-1
Facility has its own specific terms, such as identification of the assets subject to the transaction, sale price, repurchase price and rate. On June 7, 2022, the BB-1
Loan Agreement was amended to, among other things, increase the maximum committed facility amount to $The initial availability period of the three years . may exercise an option to commence a
BB-1
Facility is BB-1
may extend the availability period for a one-year
term extension, so long as certain conditions are met. After the end of the availability period, BB-1
one-year
amortization period up to two times, so long as certain conditions are met. During the amortization period, certain of the terms of the BB-1
Facility will be modified, including a requirement to pay down a certain amount of the outstanding purchase price of each asset financed under the BB-1
Facility.The Company incurred deferred financing costs, which are being amortized to interest expense over the life of the facility. As of June 30, 2022, $1,576 of deferred financing costs had yet to be amortized to interest expense.
RBC Facility
On March 2, 2020, the Company’s wholly-owned subsidiary, FS CREIT Investments LLC, or FS CREIT Investments, as seller, entered into a Master Repurchase Agreement, or the RBC Facility, with Royal Bank of Canada, or RBC, as buyer, to enable FS CREIT Investments to execute repurchase transactions of securities and financial instruments on an basis. Each transaction under the RBC Facility has its own specific terms, such as identification of the assets subject to the transaction, sale price, repurchase price and pricing rate.
asset-by-asset
Revolving Credit Facilities
CNB Facility
On August 22, 2019, the Company and FS CREIT Finance Holdings LLC, or Finance Holdings, a direct wholly owned subsidiary of the Company, each as a borrower, entered into a Loan and Security Agreement, or the CNB Loan Agreement, and together with the related transaction documents, the CNB Facility, with City National Bank, or CNB, as administrative agent and lender. The maximum committed facility amount under the CNB Facility as of June 30, 2022 was $100,000 . Borrowings under the CNB Facility are subject to compliance with a borrowing base calculated based on the Company’s stockholder subscriptions and certain cash and assets held directly by the Company.
Borrowed amounts under the CNB facility must be repaid no later than 180 days after the funding date of such borrowing. In addition, the borrowers pay a
non-utilization
fee quarterly in arrears in an amount equal to24
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 6. Financing Arrangements (continued)
On May 5, 2022, the CNB Loan Agreement was amended to, among other things, (i) increase the maximum committed facility amount from $55,000 to $100,000 , (ii) introduce a new borrowing condition requiring collateral coverage of 1.4 times for each dollar borrowed in excess of $50,000, and (iii) transition the benchmark rate from LIBOR to SOFR, resulting in an interest rate of SOFR plus a spread of 2.25% plus a credit spread adjustment of 0.10%.
The Company incurred deferred financing costs, which are being amortized to interest expense over the life of the facility. As of June 30, 2022, $647 of deferred financing costs had yet to be amortized to interest expense.
MM-1
Facility On September 20, 2021, FS CREIT Finance Agreement, and together with the related transaction documents, the 1,000,000 .
MM-1
LLC, or MM-1,
an indirect wholly-owned, special-purpose financing subsidiary of the Company, entered into a Loan and Servicing Agreement, or the MM-1
LoanMM-1
Facility, by and among Finance Holdings, MM-1,
as borrower and portfolio asset servicer, Massachusetts Mutual Life Insurance Company, or Mass Mutual, and the other lenders from time to time party thereto, or the Lenders, Wells Fargo Bank, N.A., as administrative agent and as collateral custodian, and Mass Mutual, as facility servicer. The maximum committed facility amount under the MM-1
Facility as of June 30, 2022 is $Borrowings under the 85 % of the commitments, or the Minimum Usage Amount, regardless of usage. The 200,000 to $250,000 . On March 4, 2022 the 250,000 to $500,000 , and reduce the applicable interest spread from 2.10 % to 2.05 % per annum.
MM-1
Facility are subject to compliance with a borrowing base calculated based on advance rates applied to the value of MM-1’s
assets. The MM-1
Facility provides for a three-year availability period for borrowings, extendable for one additional year (for an additional fee of 0.25%) and an eight-year final maturity. Under the MM-1
Facility, starting 18 months after the initial closing date, the full interest rate on outstanding loans will be payable on MM-1
Facility also has an unused commitment fee of 0.30% per annum payable on: (i) during the first 18 months after the closing date, the unused commitment amounts and (ii) thereafter, the unused commitment amounts in excess of the Minimum Usage Amount. On February 23, 2022, the MM-1
Repurchase Agreement was amended to exercise the accordion option to increase the maximum committed facility amount from $MM-1
Repurchase Agreement was further amended to increase the maximum committed facility amount from $On April 27, 2022, the 500,000 to $1,000,000 , and a change of interest rate from LIBOR plus a spread of 2.05% to Term SOFR plus a spread of 2.025% plus a credit spread adjustment of 0.11%.
MM-1
Repurchase Agreement was amended and restated to provide for an increase of the maximum committed facility amount from $The Company incurred deferred financing costs, which are being amortized to interest expense over the life of the facility. As of June 30, 2022, $8,666 of deferred financing costs had yet to be amortized to interest expense.
25
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 6. Financing Arrangements (continued)
Mortgage Loan
Natixis Loan
On June 23, 2022, FS CREIT 555 Aviation LLC, an indirect wholly-owned subsidiary of the Company, entered into a mortgage loan related to its purchase of 555 Aviation (see Note 5). The maximum amount of financing under the facility as of June 30, 2022 is $
Note 7. Related Party Transactions
Compensation of FS Real Estate Advisor and the Dealer Manager
Pursuant to the third amended and restated advisory agreement dated as of December 15, 2021 or the advisory agreement, FS Real Estate Advisor
is entitled to a base management feeequal to 1.25 % of the NAV for the Company’s Class T, Class S, Class D, Class M and Class I shares, payable quarterly in arrears. The payment of all or any portion of the base management fee accrued with respect to any quarter may be deferred by FS Real
Estate Advisor, without interest, and may be taken in any such other quarter as FS Real Estate Advisor may determine. In calculating the Company’s
base management fee, the Company will use its NAV before giving effect to accruals for such fee, stockholder servicing fees or distributions payable on its shares. The base management fee is a class-specific expense. No base management fee is paid on the Company’s Class F or Class Y shares.
is entitled to a base management fee
Estate Advisor, without interest, and may be taken in any such other quarter as FS Real Estate Advisor may determine. In calculating the Company’s
base management fee, the Company will use its NAV before giving effect to accruals for such fee, stockholder servicing fees or distributions payable on its shares. The base management fee is a class-specific expense. No base management fee is paid on the Company’s Class F or Class Y shares.
FS
for any quarter until the Company’s Core Earnings for such quarter exceed the hurdle rate of
non-liquidating
dispositions of the Company’s investments paid to stockholders and amounts paid for share repurchases pursuant to the Company’s share repurchase plan. Once the Company’s Core Earnings in any quarter exceed the hurdle rate, FS Real Estate Advisor will be entitled to a “catch-up”
fee equal to the amount of Core Earnings in excess of the hurdle rate, until the Company’s Core Earnings for such quarter equal For purposes of calculating the performance fee, “Core Earnings” means: the net income (loss) attributable to stockholders of Class Y, Class T, Class S, Class D, Class M and Class I shares, computed in accordance with GAAP (provided that net income (loss) attributable to Class Y stockholders shall be reduced by an amount equal to the base management fee that would have been paid if Class Y shares were subject to such fee), including realized gains (losses) not otherwise included in GAAP net income (loss) and excluding
(i) non-cash
equity compensation expense, (ii) the performance fee, (iii) depreciation and amortization, (iv) any unrealized gains or losses or other similar non-cash
items that are included in net income for the applicable reporting period, regardless of whether such items are included in other comprehensive income or loss, or in net income, and (v) one-time
events pursuant to changes in GAAP and certain material non-cash
income or expense items, in each case after discussions between FS Real Estate Advisor and the Company’s independent directors and2
6
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 7. Related Party Transactions (continued)
approved
Pursuant to the advisory agreement, the base management fee and performance fee may be paid, at FS Real Estate Advisor’s election, in (i) cash, (ii) Class I shares, (iii) performance-contingent rights Class I share awards, or Class I PCRs, or (iv) any combination of cash, Class I shares or Class I PCRs.
Under the form of Class I PCR agreement to be entered into between the Company, FS Real Estate Advisor and Rialto, or the Adviser Entities, the PCR Agreement, management and performance fees may be payable to the Adviser Entities in the form of Class I PCRs to the extent that distributions paid to stockholders in the applicable fiscal quarter exceed the Company’s Adjusted Core Earnings. “Adjusted Core Earnings” means: the net income (loss) attributable to stockholders, computed in accordance with GAAP, including (A) realized gains (losses) not otherwise included in GAAP net
income (loss), (B) stockholder servicing fees, and (C) reimbursements for organization and offering expenses, and excluding
issuable in the
income (loss), (B) stockholder servicing fees, and (C) reimbursements for organization and offering expenses, and excluding
(i) non-cash
equity compensation expense, (ii) depreciation and amortization, (iii) any unrealized gains or losses or other similar non-cash
items that are included in net income for the applicable reporting period, regardless of whether such items are included in other comprehensive income or loss, or in net income, and (iv) one-time
events pursuant to changes in GAAP and certain material non-cash
income or expense items. Thereafter, Class I PCRs may become issuable in the
form of Class I shares upon the achievement of the following conditions in any fiscal quarter following the initial issuance of the Class I PCRs, together, the Performance Conditions: (a) Adjusted Core Earnings for the quarter exceed distributions paid to stockholders during such quarter (such difference, the “Excess Distributable Income”) and (b) the annualized distribution yield on the Class I Shares (measured over such quarter) is at least at the yield target determined by management given then-current market conditions, the Yield Target. The initial Yield Target will be a 6.0% annualized yield on the Class I shares.
On the last day of any fiscal quarter in which the Company achieves the Performance Conditions (the “Performance Achievement Date”), the Company will issue to the Adviser Entities the number of Class I shares equal in value to the Excess Distributable Income for such quarter in respect of any outstanding Class I PCRs. The Adviser Entities, and their respective affiliates and employees, may not request repurchase by the Company of any Class I shares issued under the PCR Agreement for a period of six (6) months from the date of issuance. Thereafter, upon ten days’ written notice to the Company by the Adviser Entities, the Company must repurchase any Class I shares requested to be repurchased by the Adviser Entities at the most recently published transaction price per Class I share; provided that no repurchase shall be permitted that would jeopardize the Company’s qualification as a REIT or violate Maryland law. If, prior to the Performance Achievement Date, (i) the New Advisory Agreement is terminated in accordance with Section 12(b) of the New Advisory Agreement (other than Section 12(b)(iii) thereof) or (ii) the
sub-advisory
agreement is terminated in accordance with Section 9(b) thereof (other than Section 9(b)(v) thereof), any rights related to the Class I PCRs evidenced thereby by the terminated party as of the date of such termination shall immediately vest and the Company shall issue the number of Class I shares issuable upon such vesting. If, prior to the Performance Achievement Date, either of the Adviser Entities resigns as the adviser or sub-adviser,
respectively, of the Company, then any rights related to the Class I PCRs evidenced thereby as of the date of such resignation shall remain outstanding and Class I shares issuable in respect thereof shall be issued upon achievement of the Performance Conditions. FS Real Estate Advisor has engaged Rialto as
sub-adviser
to originate loans and other investments on behalf of the Company, and FS Real Estate Advisor oversees the
sub-adviser’s
origination activities. In connection with these activities, origination fees of up to 1.0% of the loan amount for first lien, subordinated or mezzanine debt or preferred equity financing may be retained by the
sub-adviser
or FS Real Estate Advisor. Such origination fees
27
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 7. Related Party Transactions (continued)
will be retained only to the extent they are paid by the borrower, either directly to Rialto or FS Real Estate Advisor or indirectly through the Company. During the six months ended June 30, 2022 and 2021, $24,328 and $9,682, respectively, in origination fees were paid directly by the borrowers to FS Real Estate Advisor or Rialto and not to the Company.
The Company reimburses FS Real Estate Advisor and Rialto for their actual costs incurred in providing administrative services to the Company. FS Real Estate Advisor and Rialto are required to allocate the cost of such services to the Company based on objective factors such as total assets, revenues and/or time allocations. At least annually, the Company’s board of directors reviews the amount of the administrative services expenses reimbursable to FS Real Estate Advisor and Rialto to determine whether such amounts are reasonable in relation to the services provided. The Company will not reimburse FS Real Estate Advisor or Rialto for any services for which it receives a separate fee or for any administrative expenses allocated to employees to the extent they serve as executive officers of the Company.
FS Investments funded the Company’s organization and offering costs in the amount of $18,737 for the period from November 7, 2016
(Inception) to June 30, 2022. These expenses include legal, accounting, printing, mailing and filing fees and expenses, due diligence expenses of participating broker-dealers supported by detailed and itemized invoices, costs in connection with preparing sales materials, design and website expenses, fees and expenses of the Company’s transfer agent, fees to attend retail seminars sponsored by participating broker-dealers and reimbursements for customary travel, lodging, and meals, but excluding selling commissions, dealer manager fees and stockholder servicing fees. Under the advisory agreement, FS Real Estate Advisor agreed to advance all of the Company’s organization and offering expenses on the Company’s behalf until it raised $250,000 of gross proceeds from its public offering.
(Inception) to June 30, 2022. These expenses include legal, accounting, printing, mailing and filing fees and expenses, due diligence expenses of participating broker-dealers supported by detailed and itemized invoices, costs in connection with preparing sales materials, design and website expenses, fees and expenses of the Company’s transfer agent, fees to attend retail seminars sponsored by participating broker-dealers and reimbursements for customary travel, lodging, and meals, but excluding selling commissions, dealer manager fees and stockholder servicing fees. Under the advisory agreement, FS Real Estate Advisor agreed to advance all of the Company’s organization and offering expenses on the Company’s behalf until it raised $
FS
Real Estate Advisor and Rialto agreed to defer the recoupment of any organization and offering expenses that may be reimbursable by the Company under the advisory agreement with respect to gross proceeds raised in the offering in excess of $250,000 until FS Real Estate Advisor, in its
sole discretion, determined that the Company had achieved economies of scale sufficient to ensure that it could bear a reasonable level of expenses in relation to its income. The Company began reimbursing FS Real Estate Advisor in September 2020 and, as such, FS Real Estate Advisor may be reimbursed for any organization and offering expenses that it or Rialto has incurred on the Company’s behalf, up to a cap of0.75 % of gross proceeds raised after such time. During the six months ended June 30, 2022, the Company paid $6,999 to FS Real Estate Advisor for offering costs previously funded. As of June 30, 2022, $9,076 of offering expenses previously funded remained subject to reimbursement to FS Real Estate Advisor and Rialto.
sole discretion, determined that the Company had achieved economies of scale sufficient to ensure that it could bear a reasonable level of expenses in relation to its income. The Company began reimbursing FS Real Estate Advisor in September 2020 and, as such, FS Real Estate Advisor may be reimbursed for any organization and offering expenses that it or Rialto has incurred on the Company’s behalf, up to a cap of
The following table describes the fees and expenses accrued under the advisory agreement during the six months ended June 30, 2022 and 2021:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||||||
| Related Party |
Source Agreement |
Description |
2022 |
2021 |
2022 |
2021 |
||||||||||||||
| FS Real Estate Advisor |
Advisory Agreement | Base Management Fee (1) |
$ | $ | $ | $ | ||||||||||||||
| FS Real Estate Advisor |
Advisory Agreement | Performance Fee (2) |
$ | $ | $ | $ | ||||||||||||||
| FS Real Estate Advisor |
Advisory Agreement | Administrative Services Expenses (3) |
$ | $ | $ | $ | ||||||||||||||
| (1) | During the six months ended June 30, 2022, FS Real Estate Advisor received $ |
28
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 7. Related Party Transactions (continued)
June 30, 2022 and 2021, $ |
| (2) | During the six months ended June 30, 2022 and 2021, $ |
| (3) | During the six months ended June 30, 2022 and 2021, $ |
The dealer manager
for the Company’s continuous public offering is FS Investment Solutions, LLC, or FS Investment Solutions, which is an affiliate of FS Real Estate Advisor. Under the amended and restated dealer manager agreement dated as of August 17, 2018, or the dealer manager agreement, FS Investment Solutions is entitled to receive upfront selling commissions of up to
%, and upfront dealer manager fees of
% of the transaction price of each Class T share sold in the primary offering, however such amounts may vary at certain participating broker-dealers provided
that the sum will not exceed
% of the transaction price (subject to reductions for certain categories of purchasers). FS Investment Solutions is entitled to receive upfront selling commissions of up to
of the transaction price per Class S share sold in the primary offering (subject to reductions for certain categories of purchasers). The dealer manager anticipates that all of the selling commissions and dealer manager fees will be re-allowed to participating broker-dealers, unless a particular broker-dealer declines to accept some portion of the dealer manager fee they are otherwise eligible to receive. Pursuant to the dealer manager agreement, the Company also reimburses FS Investment Solutions or participating broker-dealers for bona fide due diligence expenses, provided that total organization and offering expenses shall not exceed
% of the gross proceeds in the Company’s public offering.
Subject to the limitations described below, the Company pays FS Investment Solutions stockholder servicing fees for ongoing services rendered to stockholders by participating broker-dealers or by broker-dealers servicing stockholders’ accounts, referred to as servicing broker-dealers:
| • | with respect to the Company’s outstanding Class T shares equal to |
| • | with respect to the Company’s outstanding Class S shares equal to |
| • | with respect to the Company’s outstanding Class D shares equal to |
| • | with respect to the Company’s outstanding Class M shares equal to |
29
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 7. Related Party Transactions (continued)
The Company does not pay a stockholder servicing fee with respect to its Class I, Class F or Class Y shares. The dealer manager reallows some or all of the stockholder servicing fees to participating broker-dealers, servicing broker-dealers and financial institutions (including bank trust departments) for ongoing stockholder services performed by such broker-dealers, and waives (pays back to the Company) stockholder servicing fees to the extent a broker-dealer or financial institution is not eligible or otherwise declines to receive all or a portion of such fees.
The Company will cease paying stockholder servicing fees with respect to any Class D, Class M, Class S and Class T shares held in a stockholder’s account at the end of the month in which the total underwriting compensation from the upfront selling commissions, dealer manager fees and stockholder servicing fees, as applicable, paid with respect to such account would exceed 1.25 %, 7.25 %, 8.75 % and 8.75 %, respectively (or a lower limit for shares sold by certain participating broker-dealers or financial institutions) of the gross proceeds from the sale of shares in such account. These amounts are referred to as the sales charge cap. At the end of such month that the sales charge cap is reached, each Class D, Class M, Class S or Class T share in such account will
convert into a number of Class I shares (including any fractional shares) with an equivalent aggregate NAV as such share.
In
addition, the Company will cease paying stockholder servicing fees on each Class D share, Class M share, Class S share and Class T share held in a stockholder’s account and each such share will convert to Class I shares on the earlier to occur of the following: (i) a listing of Class I shares on a national securities exchange; (ii) the sale or other disposition of all or substantially all of the Company’s assets or the Company’s merger or
consolidation with or into another entity in a transaction in which holders of Class D, Class M, Class S or Class T shares receive cash and/or shares of stock that are listed on a national securities exchange; or (iii) the date following the completion of the Company’s public offering on which, in the aggregate, underwriting compensation from all sources in connection with the Company’s public offering, including selling commissions, dealer
manager fees, stockholder servicing fees and other underwriting compensation, is equal to10 % of the gross proceeds from its primary offering.
consolidation with or into another entity in a transaction in which holders of Class D, Class M, Class S or Class T shares receive cash and/or shares of stock that are listed on a national securities exchange; or (iii) the date following the completion of the Company’s public offering on which, in the aggregate, underwriting compensation from all sources in connection with the Company’s public offering, including selling commissions, dealer
manager fees, stockholder servicing fees and other underwriting compensation, is equal to
The Company accrues future stockholder servicing fees in an amount equal to its best estimate of fees payable to FS Investment Solutions at the time such shares are sold. As of June 30, 2022 and December 31, 2021, the Company accrued $91,206 and $48,514 , respectively, of stockholder servicing fees payable to FS Investment Solutions. FS Investment Solutions has entered into agreements with selected dealers distributing the Company’s shares in the public offering, which provide, among other things, for the
re-allowance
of the full amount of the selling commissions and dealer manager fee and all or a portion of the stockholder servicing fees received by FS Investment Solutions to such selected dealers. FS Investment Solutions also serves or served as the placement agent for the Company’s private offerings of Class F and Class Y shares pursuant to placement agreements. FS Investment Solutions does not receive any compensation pursuant to these agreements.
Expense Limitation
The Company has entered into an amended and restated expense limitation agreement with FS Real Estate Advisor and Rialto, or the expense limitation agreement, pursuant to which FS Real Estate Advisor and Rialto have agreed to waive reimbursement of or pay, on a quarterly basis, the Company’s annualized ordinary operating expenses for such quarter to the extent such expenses exceed 1.5 % per annum of its average net
assets
30
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 7. Related Party Transactions (continued)
a
ttributable to each of its classes of common stock. The Company will repay FS Real Estate Advisor or Rialto on a quarterly basis any ordinary operating expenses previously waived or paid, but only if the reimbursement would not cause the then-current expense limitation, if any, to be exceeded. In addition, the reimbursement of expenses will be made only if payable not more than FS Real Estate Advisor and Rialto each agreed to waive the recoupment of any amounts that may be subject to conditional reimbursement during the quarterly period ended March 31, 2020. To the extent that the conditions to recoupment are satisfied in a future quarter (prior to the expiration of the three-year period for reimbursement set forth in the expense limitation agreement), such expenses may be subject to conditional recoupment in accordance with the terms of the expense limitation agreement.
During the period from September 13, 2017 (Commencement of Operations) to June 30, 2022, the Company accrued $5,839 for reimbursement of expenses that FS Real Estate Advisor and Rialto paid or waived, including
$0 in reimbursements for the six months ended June 30, 2022. During the
period from September 13, 2017 (Commencement of Operations) to June 30, 2022, the Company received $5,839 in cash reimbursements from FS Real Estate Advisor.
period from September 13, 2017 (Commencement of Operations) to June 30, 2022, the Company received $
During the six months ended June 30, 2022, $482 of expense recoupments were paid to FS Real Estate Advisor and Rialto. As of June 30, 2022 and December 31, 2021, $1,460 and $62 , respectively, of expense recoupments were payable to FS Real Estate Advisor and Rialto and $257 of expense reimbursements received from FS Real Estate Advisor and Rialto were eligible for recoupment.
31
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 7. Related Party Transactions (continued)
The following table reflects the amounts paid or waived by FS Real Estate Advisor and Rialto under the expense limitation agreement and the expiration date for future possible reimbursements by the Company:
For the Three Months Ended |
Amount of Expense Reimbursement |
Recoupable Amount |
Recoupment paid or payable to sponsor |
Expired Amount |
Recoupment eligibility expiration |
|||||||||||||||
June 30, 2022 |
$ | $ | $ | $ | N/A | |||||||||||||||
March 31, 2022 |
— | — | — | — | N/A | |||||||||||||||
December 31, 2021 |
— | — | — | — | N/A | |||||||||||||||
September 30, 2021 |
— | — | — | — | N/A | |||||||||||||||
June 30, 2021 |
— | — | — | — | N/A | |||||||||||||||
March 31, 2021 |
— | — | ||||||||||||||||||
December 31, 2020 |
— | |||||||||||||||||||
September 30, 2020 |
— | — | ||||||||||||||||||
June 30, 2020 |
— | — | ||||||||||||||||||
March 31, 2020 |
— | — | — | — | N/A | |||||||||||||||
December 31, 2019 |
— | — | ||||||||||||||||||
September 30, 2019 |
— | — | ||||||||||||||||||
June 30, 2019 |
— | — | Expired |
|||||||||||||||||
March 31, 2019 |
— | — | Expired |
|||||||||||||||||
December 31, 2018 |
— | Expired |
||||||||||||||||||
September 30, 2018 |
— | Expired |
||||||||||||||||||
June 30, 2018 |
— | Expired |
||||||||||||||||||
March 31, 2018 |
— | — | Expired |
|||||||||||||||||
December 31, 2017 |
— | — | Expired |
|||||||||||||||||
September 30, 2017 |
— | — | Expired |
|||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||
Capital Contributions and Commitments
In December 2016, pursuant to a private placement, Michael C. Forman and David J. Adelman, principals of FS Investments, contributed an aggregate of $200 to purchase 8,000 Class F shares at the price of $25.00 per share. These individuals will not tender these shares of common stock for repurchase as long as FS Real Estate Advisor remains the Company’s adviser. FS Investments is controlled by Mr. Forman, the Company’s president and chief executive officer, and Mr. Adelman.
As of June 30, 2022, the ownership in the Company’s Class F Shares by FS Real Estate Advisor and Rialto (and each of their respective affiliates and designees) was $22,221 and $388 , respectively.
RIAL
2022-FL8
Transaction In the second quarter of 2022, the Company purchased $36,000 of the Class E Notes mortgage-backed securities in a transaction in which an affiliate of Rialto is the issuer of the notes. These securities are accounted for as available-for-sale.
32
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 8. Stockholders’ Equity
Below is a summary of transactions with respect to shares of the Company’s common stock during the six months ended June 30, 2022 and 2021:
Shares |
||||||||||||||||||||||||||||||||
Class F |
Class Y |
Class T |
Class S |
Class D |
Class M |
Class I |
Total |
|||||||||||||||||||||||||
| Balance as of December 31, 2021 |
||||||||||||||||||||||||||||||||
| Issuance of common stock |
||||||||||||||||||||||||||||||||
| Reinvestment of distributions |
||||||||||||||||||||||||||||||||
| Redemptions of common stock |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Transfers in or out |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance as of June 30, 2022 |
||||||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Amount |
||||||||||||||||||||||||||||||||
Class F |
Class Y |
Class T |
Class S |
Class D |
Class M |
Class I |
Total |
|||||||||||||||||||||||||
| Balance as of December 31, 2021 |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Issuance of common stock |
||||||||||||||||||||||||||||||||
| Reinvestment of distributions |
||||||||||||||||||||||||||||||||
| Redemptions of common stock |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Transfers in or out |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Accrued stockholder servicing fees (1) |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance as of June 30, 2022 |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Shares |
||||||||||||||||||||||||||||||||
Class F |
Class Y |
Class T |
Class S |
Class D |
Class M |
Class I |
Total |
|||||||||||||||||||||||||
| Balance as of December 31, 2020 |
||||||||||||||||||||||||||||||||
| Issuance of common stock |
||||||||||||||||||||||||||||||||
| Reinvestment of distributions |
||||||||||||||||||||||||||||||||
| Redemptions of common stock |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Transfers in or out |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance as of June 30, 2021 |
||||||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
33
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 8. Stockholders’ Equity (continued)
Amount |
||||||||||||||||||||||||||||||||
Class F |
Class Y |
Class T |
Class S |
Class D |
Class M |
Class I |
Total |
|||||||||||||||||||||||||
| Balance as of December 31, 2020 |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Issuance of common stock |
||||||||||||||||||||||||||||||||
| Reinvestment of distributions |
||||||||||||||||||||||||||||||||
| Redemptions of common stock |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Transfers in or out |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
| Accrued stockholder servicing fees (1) |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance as of June 30, 2021 |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| (1) | Stockholder servicing fees only apply to Class T, Class S, Class D and Class M shares. Under GAAP, the Company accrues future stockholder servicing fees in an amount equal to its best estimate of fees payable to FS Investment Solutions at the time such shares are sold. For purposes of NAV, the Company recognizes the stockholder servicing fee as a reduction of NAV on a monthly basis. As a result, the estimated liability for the future stockholder servicing fees, which are accrued at the time each share is sold, will have no effect on the NAV of any class. |
Share Repurchase Plan
The Company has adopted an amended and restated share repurchase plan, or share repurchase plan, whereby on a monthly basis, stockholders may request that the Company repurchase all or any portion of their shares. The repurchase of shares is limited to no more than 2 % of the Company’s aggregate NAV per month of all classes of shares then participating in the share repurchase plan and no more than 5 % of the Company’s aggregate
NAV per calendar quarter of all classes of shares then participating in the share repurchase plan, which
means that in any NAV per calendar quarter of all classes of shares then participating in the share repurchase plan, which
12-month
period, the Company limits repurchases to approximately
Distribution Reinvestment Plan
Pursuant to the Company’s distribution reinvestment plan, holders of shares of any class of the Company’s common stock may elect to have their cash distributions reinvested in additional shares of the Company’s common stock. The purchase price for shares pursuant to the distribution reinvestment plan will be equal to the transaction price for such shares at the time the distribution is payable.
Distributions
The Company generally intends to distribute substantially all of its taxable income, which does not necessarily equal net income as calculated in accordance with GAAP, to its stockholders each year to comply with the REIT provisions of the Code. Dividends are paid first to the holders of the Company’s Series A preferred stock at the rate of 12.0 % per annum plus all accumulated and unpaid dividends thereon, and then to the holders of the Company’s common stock. All distributions will be made at the discretion of the Company’s
34
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 8. Stockholders’ Equity (continued)
board of directors and will depend upon its taxable income, financial condition, maintenance of REIT status, applicable law, and other factors that the Company’s board of directors deems relevant.
The following table reflects the cash distributions per share that the Company paid on its common stock during the six months ended June 30, 2022:
Record Date |
Class F |
Class Y |
Class T |
Class S |
Class D |
Class M |
Class I |
|||||||||||||||||||||
January 28, 2022 |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
February 25, 2022 |
||||||||||||||||||||||||||||
March 30, 2022 |
||||||||||||||||||||||||||||
April 28, 2022 |
||||||||||||||||||||||||||||
May 27, 2022 |
||||||||||||||||||||||||||||
June 29, 2022 |
||||||||||||||||||||||||||||
Total |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
The following table reflects the amount of cash distributions that the Company paid on its common stock during the six months ended June 30, 2022, and 2021:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
Distributions: |
||||||||||||||||
Paid or payable in cash |
$ | $ | $ | $ | ||||||||||||
Reinvested in shares |
||||||||||||||||
Total distributions |
$ | $ | $ | $ | ||||||||||||
Source of distributions: |
||||||||||||||||
Cash flows from operating activities |
$ | $ | $ | $ | ||||||||||||
Offering proceeds |
||||||||||||||||
Total sources of distributions |
$ | $ | $ | $ | ||||||||||||
Net cash provided by (used in) operating activities (1) |
$ | $ | $ | $ | ||||||||||||
| (1) | Cash flows from operating activities are supported by expense support payments from FS Real Estate Advisor and Rialto pursuant to the Company’s expense limitation agreement. See Note 7 for additional information regarding the Company’s expense limitation agreement. |
The Company currently declares and pays regular cash distributions on a monthly basis. The Company’s board of directors previously authorized regular monthly cash distributions for July 2022 for each class of its outstanding common stock in the net distribution amounts per share set forth below:
Class F |
Class Y |
Class T |
Class S |
Class D |
Class M |
Class I |
||||||||||||||||||
| $ |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
The distributions for each class of outstanding common stock have been or will be paid monthly to stockholders of record as of the monthly record dates previously determined by the Company’s board of
35
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 8. Stockholders’ Equity (continued)
directors. These distributions have been or will be paid in cash or reinvested in shares of the Company’s common stock for stockholders participating in the Company’s distribution reinvestment plan.
Note 9. Fair Value of Financial Instruments
The following table presents the Company’s financial assets carried at fair value in the consolidated balance sheets by its level in the fair value hierarchy:
June 30, 2022 (Unaudited) |
December 31, 2021 |
|||||||||||||||||||||||||||||||
Total |
Level 1 |
Level 2 |
Level 3 |
Total |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||||||||||||||
Mortgage-backed securities available-for-sale |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Interest rate cap |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
As discussed in Note 2, GAAP requires disclosure of fair value information about financial instruments, whether or not recognized in the statement of financial position, for which it is practicable to estimate that value. The following table details the carrying amount, face amount, and fair value of the financial instruments described in Note 2:
June 30, 2022 (Unaudited) |
December 31, 2021 |
|||||||||||||||||||||||
Book Value |
Face Amount |
Fair Value |
Book Value |
Face Amount |
Fair Value |
|||||||||||||||||||
Financial Assets |
||||||||||||||||||||||||
Cash, cash equivalents and restricted cash |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Loans receivable—held-for-investment (1) |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Mortgage-backed securities held-to-maturity |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Financial Liabilities |
||||||||||||||||||||||||
Repurchase agreements (2) |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Credit facilities |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Collateralized loan obligations (2) |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Mortgage note payable (2) |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
| (1) | Book value of loans receivable represents the face amount, net of unamortized loan fees and costs and accrual of exit fees, as applicable. |
| (2) | Book value represents the face amount, net of deferred financing costs. |
Estimates of fair value for cash, cash equivalents and restricted cash are measured using observable, quoted market prices, or Level 1 inputs. Estimates of fair value for loans receivable, mortgage-backed securities repurchase obligations, credit facility obligations and the collateralized loan obligations are measured using unobservable inputs, or Level 3 inputs.
held-to-maturity,
36
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 10. Variable Interest Entities
Consolidated Variable Interest Entities
The Company has financed a portion of its loans through CLOs, which are considered VIEs. The Company has a controlling financial interest in the CLOs and, therefore, consolidates them on its balance sheets because the Company has both (i) the power to direct activities of the CLOs that most significantly affect the CLOs’ economic performance and (ii) the obligation to absorb losses and the right to receive benefits of the CLOs that could potentially be significant to the CLOs.
The following table details the assets and liabilities of the Company’s consolidated CLOs as of June 30, 2022 and December 31, 2021:
June 30, 2022 (Unaudited) |
December 31, 2021 |
|||||||
Assets: |
||||||||
Restricted cash |
$ | $ | ||||||
Loans receivable, held-for-investment |
||||||||
Interest receivable |
||||||||
Other assets |
||||||||
Total assets |
$ | $ | ||||||
Liabilities |
||||||||
Collateralized loan obligations (net of deferred financing costs of $ |
$ | $ | ||||||
Interest payable |
||||||||
Other liabilities |
||||||||
Total liabilities |
$ | $ | ||||||
Assets held by the CLOs are restricted and can be used only to settle obligations of the CLOs. The liabilities are
non-recourse
to the Company and can only be satisfied from the assets of the CLOs. Non-Consolidated
Variable Interest Entities The Company invested $67,005 in subordinated positions of CMBS trusts which are considered VIEs. The Company is not the primary beneficiary of the VIEs because it does not have the power to direct the activities that most significantly affect the VIEs’ economic performance, nor does it provide guarantees or recourse to the VIEs other than standard representations and warranties and, therefore, does not consolidate the VIEs on its balance sheets. The Company has classified its investment in the CMBS as debt securities that are included on the Company’s consolidated balance sheets and are part of the Company’s ongoing other-than-temporary impairment review. The Company’s maximum exposure to loss of the securities are limited to its book value of $78,942 as of June 30, 2022.
held-to-maturity
The Company is not obligated to provide, nor has it provided financial support to these consolidated and
non-consolidated
VIEs.37
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 11. Commitments and Contingencies
The Company enters into contracts that contain a variety of indemnification provisions. The Company’s maximum exposure under these arrangements is unknown; however, the Company has not had prior claims or losses pursuant to these contracts. Management of FS Real Estate Advisor has reviewed the Company’s existing contracts and expects the risk of loss to the Company to be remote.
The Company is not currently subject to any material legal proceedings and, to the Company’s knowledge, no material legal proceedings are threatened against the Company. From time to time, the Company may be party to certain legal proceedings in the ordinary course of business. While the outcome of any legal proceedings cannot be predicted with certainty, the Company does not expect that any such proceedings will have a material effect on its financial condition or results of operations.
See Note 7 for a discussion of the Company’s commitments to FS Real Estate Advisor and its affiliates (including FS Investments) for the reimbursement of organization and offering costs funded by FS Investments and for the reimbursement of amounts paid or waived by FS Real Estate Advisor and Rialto under the expense limitation agreement.
Note 12. Intangibles
The gross carrying amount and accumulated amortization of the Company’s real estate related intangible assets consisted of the following as of June 30, 2022:
June 30, 2022 |
||||
Intangible assets (1) |
||||
In-place lease intangibles |
$ | |||
Total intangible assets |
$ | |||
| (1) | Included in Other assets in the Company’s consolidated balance sheets. |
No intangible assets or liabilities related to the Company’s real estate investments existed as of December 31, 2021.
The following table details the Company’s future amortization of intangible assets for each of the next five years and thereafter:
Amortization |
||||
2022 (remaining) |
$ | |||
2023 |
||||
2024 |
||||
2025 |
||||
2026 |
||||
2027 |
||||
Thereafter |
||||
Total |
$ | |||
38
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 13. Derivative Instrument
The Company has entered into an interest rate cap contract in order to limit its exposure against the variability of future interest rates on its variable interest rate borrowing. The Company has not designated this derivative as a hedge for accounting purposes. The Company has not entered into a master netting arrangement with its third-party counterparty and does not offset on its consolidated balance sheets the fair value amount recorded for its derivative instrument. The table below provides additional information regarding the
Company’s derivative instrument as of June 30, 2022. The Company did not hold any interest rate caps as of December 31, 2021.
Type of Derivative |
Notional Amount |
Strike |
Effective Date |
Maturity Date |
Fair Value (1) |
|||||||||||||||
Interest Rate Cap |
$ | % | $ | |||||||||||||||||
| (1) | Included in Other assets in the Company’s consolidated balance sheets. |
The following table details the fair value of the Company’s derivative financial instrument:
Type of Derivative |
Realized/Unrealized Gain (Loss) |
Location of Gain (Loss) Recognized in Net Income |
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||||||||||
Interest Rate Cap |
Unrealized Loss | (1 | ) | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||
| (1) | Included in Other income (loss) in the Company’s consolidated statements of operations |
Note 14. Subsequent Events
The following is a discussion of material events that have occurred subsequent to June 30, 2022 through the issuance of the unaudited consolidated financial statements.
Barclay Revolving Credit Facility
On August 1, 2022, the Company, as borrower, entered into a senior secured revolving credit facility, or the Senior Secured Revolving Credit Facility with Barclays, as administrative agent, and the lenders party thereto.
The Senior Secured Revolving Credit Facility provides for borrowings, subject to a borrowing base calculation, in an aggregate maximum committed amount of up to $310,000 , with an option for the Company to request, at one or more times, that existing and/or new lenders, at their election, provide up to $155,000 of additional commitments. The Senior Secured Revolving Credit Facility will mature on August 1, 2025 , subject to options for the Company to request that lenders, at their election, provide up to two one-year maturity extensions. In connection with the closing of the Senior Secured Revolving Credit Facility, the Company repaid all outstanding borrowings and all other obligations under, and concurrently terminated, the CNB Facility.
Borrowings under the Senior Secured Revolving Credit Facility bear interest, at the Company’s election, at either a base rate plus a spread of 1.25 % 2.25 % 0.25 % on the 30th day any loan remains outstanding and an additional
per annum or one-, three- or six-month Term SOFR plus a spread of
per annum and a credit spread adjustment of 0.10% per annum. In each case, the spread will increase by
0.25
% on the 60th day any loan remains outstanding. The Company will pay a commitment fee of 0.25 % per annum on undrawn availability for each day on which over 50 % of the maximum committed amount is undrawn and 0.35 % per annum on undrawn availability for each day on which 50 % or less of the maximum committed amount is undrawn.
39
FS Credit Real Estate Income Trust, Inc.
Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Note 14. Subsequent Events (continued)
In connection with the Senior Secured Revolving Credit Facility, the Company has made certain representations and warranties and must comply with various covenants and reporting requirements customary for facilities of this type. In addition, the Company must comply with the following financial covenants, in each case, measured as of the last day of each fiscal quarter: (a) a minimum fixed charge coverage ratio for the prior four fiscal quarters of not less than 1.50 to 1.00 , (b) minimum tangible net worth not less than the sum of (i) $1,367,009 plus (ii) 75 % of net cash proceeds from any offering of the Company’s capital stock after the closing date of the Senior Secured Revolving Credit Facility minus (iii) 50 % of any cash used by the Company to repurchase any of its capital stock after the closing date of the Senior Secured Revolving Credit Facility, (c) minimum liquidity not less than $10,000 , (d) a maximum debt to equity ratio for the prior four fiscal quarters of not greater than 3.50 to 1.00 , and (e) an interest coverage ratio (calculated using earnings of assets contributing to the borrowing base) for the prior four fiscal quarters of not less than 1.50 to 1.00 .
The Senior Secured Revolving Credit Facility contains events of default customary for facilities of this type. Upon the occurrence of an event of default, Barclays, at the instruction of the lenders, may terminate the commitments and declare outstanding borrowings and all other obligations under the Senior Secured Revolving Credit Facility immediately due and payable.
The Company’s obligations under the Senior Secured Revolving Credit Facility are guaranteed by certain of the Company’s subsidiaries. The Company’s obligations under the Senior Secured Revolving Credit Facility are secured by a first priority security interest in substantially all of the assets of the Company and the subsidiary guarantors thereunder.
Status of Offerings
As of August 92,410,687 shares of common stock (consisting of 2,629,044 shares of Class F common stock, 1,036,671 shares of Class Y common stock, 1,685,871 shares of Class T common stock, 51,221,317 shares of Class S common stock, 783,331 shares of Class D common stock, 4,502,874 shares of Class M common stock and 30,551,579 shares of Class I common stock), including shares issued pursuant to its distribution reinvestment plan, for gross proceeds of $2,306,777 .
5
2022, the Company has issued ,
40
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations (in thousands, except share and per share amounts). |
The information contained in this section should be read in conjunction with the unaudited consolidated financial statements and related notes thereto appearing elsewhere in this Quarterly Report on
Form 10-Q. In
this report, “we,” “us” and “our” refer to FS Credit Real Estate Income Trust, Inc. Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on
Form 10-Q contains
forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), regarding, among other things, our business, including, in particular, statements about our plans, strategies and objectives. You can generally identify forward-looking statements by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue” or other similar words. These statements include our plans and objectives for future operations, including plans and objectives relating to future growth and availability of funds, and are based on current expectations that involve numerous risks and uncertainties. Assumptions relating to these statements involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to accurately predict and many of which are beyond our control. Although we believe the assumptions underlying the forward-looking statements, and the forward-looking statements themselves, are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that these forward-looking statements will prove to be accurate and our actual results, performance and achievements may be materially different from that expressed or implied by these forward-looking statements. In light of the significant uncertainties inherent in these forward-looking statements, the inclusion of this information should not be regarded as a representation by us or any other person that our objectives and plans, which we consider to be reasonable, will be achieved. We undertake no duty to update or revise forward-looking statements, except as required by law. Introduction
We were incorporated under the general corporation laws of the State of Maryland on November 7, 2016 and formally commenced investment operations on September 13, 2017. We are currently conducting a public offering of up to $2,750,000 of our Class T, Class S, Class D, Class M and Class I shares of common stock pursuant to a registration statement on Form
S-11
filed with the SEC consisting of up to $2,500,000 in shares in our primary offering and up to $250,000 in shares pursuant to our distribution reinvestment plan. We also previously conducted private offerings of our Class F common stock and Class Y common stock. We are managed by FS Real Estate Advisor pursuant to an advisory agreement between us and FS Real Estate Advisor. FS Real Estate Advisor is a subsidiary of our sponsor, FS Investments, a national sponsor of alternative investment funds designed for the individual investor. FS Real Estate Advisor has engaged Rialto to act as its sub-adviser.
We have elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2017. We intend to be an investment vehicle of indefinite duration focused on real estate debt investments and other real estate-related assets. The shares of common stock are generally intended to be sold and repurchased by us on a continuous basis. We intend to conduct our operations so that we are not required to register under the 1940 Act.
Our primary investment objectives are to: provide current income in the form of regular, stable cash distributions to achieve an attractive dividend yield; preserve and protect invested capital; realize appreciation in net asset value, or NAV, from proactive management and asset management; and provide an investment alternative for stockholders seeking to allocate a portion of their long-term investment portfolios to commercial real estate debt with lower volatility than public real estate companies.
41
Our investment strategy is to originate, acquire and manage a portfolio of senior loans secured by commercial real estate primarily in the United States. We are focused on senior floating-rate mortgage loans, but we may also invest in other real estate-related assets, including: (i) other commercial real estate mortgage loans, including fixed-rate loans, subordinated loans,
B-Notes,
mezzanine loans and participations in commercial mortgage loans; and (ii) commercial real estate securities, including commercial mortgage-backed securities, or CMBS, unsecured debt of listed and non-listed
REITs, collateralized debt obligations and equity or equity-linked securities. To a lesser extent we may invest in warehouse loans secured by commercial or residential mortgages, credit loans to commercial real estate companies, residential mortgage-backed securities, or RMBS, and portfolios of single family home mortgages. Portfolio Overview
Loan Portfolio Overview
The following table details activity in our loans receivable portfolio for the six months ended June 30, 2022 and 2021:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Loan fundings (1) |
$ | 2,042,818 | $ | 793,678 | $ | 3,084,586 | $ | 1,018,208 | ||||||||
| Loan repayments |
(154,561 | ) | (72,182 | ) | (389,036 | ) | (96,067 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total net fundings |
$ | 1,888,257 | $ | 721,496 | $ | 2,695,550 | $ | 922,141 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| (1) | Includes new loan originations and additional fundings made under existing loans. |
The following table details overall statistics for our loans receivable portfolio as of June 30, 2022 and December 31, 2021:
June 30, 2022 (Unaudited) |
December 31, 2021 |
|||||||
| Number of loans |
135 | 102 | ||||||
| Principal balance |
$ | 6,539,424 | $ | 3,843,110 | ||||
| Net book value |
$ | 6,538,370 | $ | 3,841,868 | ||||
| Unfunded loan commitments (1) |
$ | 610,703 | $ | 414,818 | ||||
| Weighted-average cash coupon (2) |
+3.82 | % | +3.68 | % | ||||
| Weighted-average all-in yield(2) |
+3.87 | % | +3.73 | % | ||||
| Weighted-average maximum maturity (years) (3) |
4.4 | 4.5 | ||||||
| (1) | We may be required to provide funding when requested by the borrower in accordance with the terms of the underlying agreements. |
| (2) | Our floating-rate loans are indexed to LIBOR and SOFR. In addition to cash coupon, all-in yield includes accretion of discount (amortization of premium) and accrual of exit fees. |
| (3) | Maximum maturity assumes all extension options are exercised by the borrower; however loans may be repaid prior to such date. |
42
The following table provides details of our loan receivable, portfolio, on a basis, as of June 30, 2022:
held-for-investment
loan-by-loan
Loan Type |
Origination Date (1) |
Total Loan |
Principal Balance |
Net Book Value |
Cash Coupon (2) |
All-in Yield (2) |
Maximum Maturity (3) |
Location |
Property Type |
LTV (1) |
||||||||||||||||||||||||||||
| 1 |
Senior Loan | 6/9/2022 | $ | 365,611 | $ | 336,733 | $ | 336,683 | +3.30 | % | +3.30 | % | 6/9/2027 | Various | Multifamily | 74 | % | |||||||||||||||||||||
| 2 |
Senior Loan | 4/28/2022 | 195,000 | 195,000 | 194,980 | +4.65 | % | +4.76 | % | 5/9/2027 | New York, NY | Hospitality | 70 | % | ||||||||||||||||||||||||
| 3 |
Senior Loan | 12/7/2021 | 175,000 | 150,783 | 150,767 | +3.60 | % | +3.60 | % | 12/9/2026 | Miami, FL | Retail | 38 | % | ||||||||||||||||||||||||
| 4 |
Mezz Loan | 10/1/2021 | 150,000 | 99,949 | 99,295 | 10.00 | % | 10.26 | % | 4/1/2026 | Various | Various | 93 | % | ||||||||||||||||||||||||
| 5 |
Senior Loan | 6/8/2022 | 144,160 | 144,160 | 144,175 | +3.89 | % | +4.14 | % | 6/9/2027 | New York, NY | Multifamily | 73 | % | ||||||||||||||||||||||||
| 6 |
Senior Loan | 10/12/2021 | 130,747 | 130,747 | 130,747 | +3.00 | % | +3.00 | % | 6/9/2026 | Philadelphia, PA | Multifamily | 69 | % | ||||||||||||||||||||||||
| 7 |
Senior Loan | 3/31/2022 | 120,470 | 81,979 | 81,962 | +4.30 | % | +4.31 | % | 4/9/2027 | Addison, TX | Office | 67 | % | ||||||||||||||||||||||||
| 8 |
Senior Loan | 9/9/2021 | 118,265 | 118,265 | 118,250 | +3.20 | % | +3.20 | % | 9/9/2026 | Various, NY | Self Storage | 70 | % | ||||||||||||||||||||||||
| 9 |
Senior Loan | 6/14/2022 | 111,100 | 97,500 | 97,475 | +3.80 | % | +3.81 | % | 6/9/2027 | San Jose, CA | Office | 39 | % | ||||||||||||||||||||||||
| 10 |
Senior Loan | 3/10/2022 | 110,150 | 90,577 | 90,549 | +5.00 | % | +5.01 | % | 4/9/2027 | Santa Clara, CA | Office | 62 | % | ||||||||||||||||||||||||
| 11 |
Senior Loan | 5/26/2022 | 108,500 | 97,172 | 97,157 | +3.40 | % | +3.59 | % | 6/9/2027 | Mesa, AZ | Multifamily | 67 | % | ||||||||||||||||||||||||
| 12 |
Senior Loan | 6/30/2022 | 106,000 | 100,000 | 99,985 | +4.15 | % | +4.15 | % | 7/9/2027 | Lynwood, CA | Retail | 61 | % | ||||||||||||||||||||||||
| 13 |
Senior Loan | 5/18/2022 | 105,000 | 105,000 | 105,000 | +3.50 | % | +3.50 | % | 6/9/2027 | New Rochelle, NY | Multifamily | 61 | % | ||||||||||||||||||||||||
| 14 |
Senior Loan | 1/13/2022 | 103,600 | 91,942 | 91,915 | +3.55 | % | +3.56 | % | 1/9/2027 | Austin, TX | Multifamily | 80 | % | ||||||||||||||||||||||||
| 15 |
Senior Loan | 6/28/2022 | 100,000 | 100,000 | 99,975 | +3.15 | % | +3.16 | % | 7/9/2027 | Fayetteville, NC | Multifamily | 76 | % | ||||||||||||||||||||||||
| 16 |
Senior Loan | 12/30/2021 | 95,000 | 95,000 | 94,983 | +4.20 | % | +4.21 | % | 1/9/2027 | San Diego, CA | Hospitality | 58 | % | ||||||||||||||||||||||||
| 17 |
Senior Loan | 12/21/2021 | 93,900 | 72,888 | 72,873 | +3.80 | % | +3.81 | % | 1/9/2027 | Houston, TX | Multifamily | 76 | % | ||||||||||||||||||||||||
| 18 |
Senior Loan | 5/13/2022 | 93,500 | 84,327 | 84,308 | +4.25 | % | +4.40 | % | 5/9/2027 | New York, NY | Multifamily | 60 | % | ||||||||||||||||||||||||
| 19 |
Senior Loan | 4/29/2022 | 90,000 | 90,000 | 90,000 | +3.55 | % | +3.55 | % | 5/6/2027 | Reseda, CA | Multifamily | 69 | % | ||||||||||||||||||||||||
| 20 |
Senior Loan | 5/13/2022 | 89,500 | 76,173 | 76,153 | +4.25 | % | +4.40 | % | 5/9/2027 | New York, NY | Multifamily | 58 | % | ||||||||||||||||||||||||
| 21 |
Senior Loan | 2/4/2022 | 89,000 | 89,000 | 89,180 | +3.75 | % | +3.75 | % | 2/1/2025 | Temecula, CA | Multifamily | 75 | % | ||||||||||||||||||||||||
| 22 |
Senior Loan | 12/15/2021 | 85,000 | 81,800 | 81,779 | +3.35 | % | +3.36 | % | 12/9/2026 | Sunny Isles, FL | Multifamily | 74 | % | ||||||||||||||||||||||||
| 23 |
Senior Loan | 5/12/2021 | 85,000 | 85,000 | 85,036 | 3.00 | % | +3.05 | % | 5/9/2026 | Detroit, MI | Industrial | 73 | % | ||||||||||||||||||||||||
| 24 |
Senior Loan | 3/9/2022 | 84,000 | 78,077 | 78,077 | +3.55 | % | +3.55 | % | 3/9/2027 | Temple Hills, MD | Multifamily | 75 | % | ||||||||||||||||||||||||
| 25 |
Senior Loan | 12/23/2021 | 83,400 | 73,028 | 73,005 | +4.45 | % | +4.46 | % | 1/9/2027 | Westminster, CO | Retail | 65 | % | ||||||||||||||||||||||||
| 26 |
Senior Loan | 12/22/2021 | 81,500 | 54,000 | 54,049 | +4.75 | % | +4.93 | % | 1/9/2027 | Farmers Branch, TX | Office | 62 | % | ||||||||||||||||||||||||
| 27 |
Senior Loan | 2/28/2022 | 75,000 | 72,250 | 72,250 | +3.85 | % | +3.85 | % | 3/9/2027 | Atlanta, GA | Multifamily | 68 | % | ||||||||||||||||||||||||
| 28 |
Senior Loan | 9/10/2021 | 71,201 | 66,900 | 66,879 | +3.25 | % | +3.26 | % | 10/9/2026 | Richardson, TX | Multifamily | 68 | % | ||||||||||||||||||||||||
| 29 |
Senior Loan | 4/26/2022 | 69,350 | 63,340 | 63,309 | +3.72 | % | +3.74 | % | 5/9/2027 | Tucson, AZ | Multifamily | 68 | % | ||||||||||||||||||||||||
| 30 |
Senior Loan | 4/26/2021 | 68,100 | 66,000 | 65,984 | +3.15 | % | +3.16 | % | 5/9/2026 | North Las Vegas, NV | Multifamily | 72 | % | ||||||||||||||||||||||||
| 31 |
Senior Loan | 4/27/2022 | 67,940 | 57,720 | 57,702 | +4.00 | % | +4.06 | % | 5/9/2027 | Indianapolis, IN | Multifamily | 79 | % | ||||||||||||||||||||||||
| 32 |
Senior Loan | 12/21/2021 | 65,450 | 65,450 | 65,433 | +4.35 | % | +4.36 | % | 1/9/2027 | Dallas, TX | Hospitality | 58 | % | ||||||||||||||||||||||||
| 33 |
Senior Loan | 4/15/2021 | 64,460 | 62,657 | 62,641 | +2.80 | % | +2.81 | % | 5/9/2026 | Lawrenceville, GA | Multifamily | 75 | % | ||||||||||||||||||||||||
| 34 |
Senior Loan | 5/20/2022 | 63,001 | 62,039 | 62,031 | 4.15 | % | +4.15 | % | 5/9/2027 | Montauk, NY | Hospitality | 80 | % | ||||||||||||||||||||||||
| 35 |
Senior Loan | 4/13/2022 | 62,650 | 53,400 | 53,369 | +3.90 | % | +3.92 | % | 5/9/2027 | Houston, TX | Multifamily | 78 | % | ||||||||||||||||||||||||
| 36 |
Senior Loan | 7/29/2021 | 62,500 | 62,500 | 62,497 | +3.10 | % | +3.10 | % | 8/9/2026 | Maitland, FL | Multifamily | 72 | % | ||||||||||||||||||||||||
| 37 |
Senior Loan | 7/22/2021 | 62,100 | 60,100 | 60,082 | +3.30 | % | +3.31 | % | 8/9/2026 | Nashville, TN | Multifamily | 75 | % | ||||||||||||||||||||||||
| 38 |
Senior Loan | 8/2/2021 | 60,130 | 58,445 | 58,425 | +2.80 | % | +2.81 | % | 8/9/2026 | Austin, TX | Multifamily | 73 | % | ||||||||||||||||||||||||
| 39 |
Senior Loan | 2/15/2022 | 58,750 | 56,020 | 55,998 | +3.50 | % | +3.51 | % | 3/9/2027 | Antioch, TN | Multifamily | 79 | % | ||||||||||||||||||||||||
| 40 |
Senior Loan | 5/12/2022 | 58,165 | 53,885 | 53,870 | +3.35 | % | +3.36 | % | 5/9/2027 | Denver, CO | Multifamily | 80 | % | ||||||||||||||||||||||||
| 41 |
Senior Loan | 1/7/2022 | 58,000 | 53,275 | 53,321 | +4.25 | % | +4.43 | % | 11/9/2026 | Miami, FL | Hospitality | 49 | % | ||||||||||||||||||||||||
| 42 |
Senior Loan | 8/13/2021 | 57,500 | 51,311 | 51,292 | +3.10 | % | +3.19 | % | 9/9/2026 | Various, FL | Industrial | 68 | % | ||||||||||||||||||||||||
| 43 |
Senior Loan | 6/23/2022 | 57,000 | 48,498 | 48,475 | +4.75 | % | +4.85 | % | 7/9/2027 | Seattle, WA | Multifamily | 68 | % | ||||||||||||||||||||||||
| 44 |
Senior Loan | 6/18/2021 | 56,000 | 56,000 | 55,992 | +3.50 | % | +3.51 | % | 7/9/2026 | Chicago, IL | Multifamily | 77 | % | ||||||||||||||||||||||||
| 45 |
Senior Loan | 11/5/2021 | 55,960 | 48,644 | 48,636 | +3.10 | % | +3.10 | % | 11/9/2026 | Houston, TX | Industrial | 74 | % | ||||||||||||||||||||||||
| 46 |
Senior Loan | 2/17/2022 | 55,400 | 46,186 | 46,180 | +4.10 | % | +4.20 | % | 3/9/2027 | Indianapolis, IN | Multifamily | 80 | % | ||||||||||||||||||||||||
| 47 |
Senior Loan | 11/10/2021 | 54,476 | 45,522 | 45,531 | +3.75 | % | +4.10 | % | 11/9/2026 | Fayetteville, AR | Multifamily | 70 | % | ||||||||||||||||||||||||
| 48 |
Senior Loan | 3/7/2022 | 53,885 | 46,879 | 46,879 | +3.50 | % | +3.59 | % | 3/9/2027 | Humble, TX | Multifamily | 75 | % | ||||||||||||||||||||||||
| 49 |
Senior Loan | 8/9/2021 | 53,160 | 51,333 | 51,315 | +3.15 | % | +3.16 | % | 8/9/2026 | Philadelphia, PA | Multifamily | 79 | % | ||||||||||||||||||||||||
| 50 |
Senior Loan | 6/16/2022 | 52,280 | 44,280 | 44,270 | +3.80 | % | +3.81 | % | 7/9/2027 | Jacksonville, FL | Multifamily | 71 | % | ||||||||||||||||||||||||
| 51 |
Senior Loan | 3/12/2021 | 52,250 | 30,961 | 30,946 | +5.75 | % | +5.75 | % | 3/9/2026 | San Francisco, CA | Office | 65 | % | ||||||||||||||||||||||||
| 52 |
Senior Loan | 7/7/2021 | 52,200 | 44,970 | 44,952 | +3.00 | % | +3.00 | % | 7/9/2026 | Austin, FL | Multifamily | 74 | % | ||||||||||||||||||||||||
| 53 |
Senior Loan | 3/22/2022 | 50,750 | 50,750 | 50,750 | +3.60 | % | +3.60 | % | 4/9/2027 | Humble, TX | Multifamily | 72 | % | ||||||||||||||||||||||||
| 54 |
Senior Loan | 2/18/2022 | 49,240 | 33,480 | 33,458 | +3.90 | % | +3.92 | % | 3/9/2027 | Atlanta, GA | Office | 60 | % | ||||||||||||||||||||||||
| 55 |
Senior Loan | 4/26/2022 | 49,125 | 43,525 | 43,508 | +4.05 | % | +4.15 | % | 5/9/2027 | Decatur, GA | Multifamily | 72 | % | ||||||||||||||||||||||||
| 56 |
Senior Loan | 12/15/2021 | 49,000 | 49,000 | 48,979 | +3.45 | % | +3.46 | % | 12/9/2026 | Ladson, SC | Multifamily | 77 | % | ||||||||||||||||||||||||
| 57 |
Senior Loan | 6/23/2021 | 48,944 | 45,421 | 45,403 | +2.80 | % | +2.80 | % | 7/9/2026 | Roswell, GA | Multifamily | 75 | % | ||||||||||||||||||||||||
43
Loan Type |
Origination Date (1) |
Total Loan |
Principal Balance |
Net Book Value |
Cash Coupon (2) |
All-in Yield (2) |
Maximum Maturity (3) |
Location |
Property Type |
LTV (1) |
||||||||||||||||||||||||||||
| 58 |
Senior Loan | 11/1/2021 | $ | 48,907 | $ | 44,798 | $ | 44,778 | +3.70 | % | +3.71 | % | 11/9/2026 | Fort Lauderdale, FL | Office | 67 | % | |||||||||||||||||||||
| 59 |
Senior Loan | 11/23/2021 | 47,600 | 39,401 | 39,388 | +3.05 | % | +3.06 | % | 12/9/2026 | Dallas, TX | Multifamily | 69 | % | ||||||||||||||||||||||||
| 60 |
Senior Loan | 7/29/2021 | 47,500 | 47,500 | 47,497 | +3.10 | % | +3.10 | % | 8/9/2026 | Clearwater, FL | Multifamily | 79 | % | ||||||||||||||||||||||||
| 61 |
Senior Loan | 8/3/2021 | 46,500 | 46,500 | 46,490 | +3.10 | % | +3.11 | % | 8/9/2026 | San Antonio, TX | Multifamily | 72 | % | ||||||||||||||||||||||||
| 62 |
Senior Loan | 4/6/2022 | 46,500 | 44,000 | 43,976 | +3.50 | % | +3.52 | % | 4/9/2027 | Atlanta, GA | Multifamily | 79 | % | ||||||||||||||||||||||||
| 63 |
Senior Loan | 12/17/2021 | 46,100 | 36,500 | 36,499 | +4.30 | % | +4.40 | % | 1/9/2027 | Seattle, WA | Office | 53 | % | ||||||||||||||||||||||||
| 64 |
Senior Loan | 6/4/2021 | 45,000 | 45,000 | 44,981 | +3.20 | % | +3.21 | % | 6/9/2026 | Dallas, TX | Multifamily | 69 | % | ||||||||||||||||||||||||
| 65 |
Senior Loan | 1/28/2022 | 43,650 | 34,045 | 34,051 | +4.00 | % | +4.15 | % | 2/9/2027 | Milwaukee, WI | Office | 59 | % | ||||||||||||||||||||||||
| 66 |
Senior Loan | 7/28/2021 | 43,350 | 41,420 | 41,402 | +3.00 | % | +3.01 | % | 8/9/2026 | Sandy Springs, GA | Multifamily | 77 | % | ||||||||||||||||||||||||
| 67 |
Senior Loan | 8/19/2021 | 43,000 | 43,000 | 42,981 | +3.10 | % | +3.11 | % | 9/9/2026 | Omaha, NE | Multifamily | 75 | % | ||||||||||||||||||||||||
| 68 |
Senior Loan | 8/9/2021 | 42,660 | 37,695 | 37,684 | +3.05 | % | +3.06 | % | 8/9/2026 | Southaven, MS | Multifamily | 57 | % | ||||||||||||||||||||||||
| 69 |
Senior Loan | 11/1/2021 | 42,300 | 40,006 | 39,986 | +3.50 | % | +3.52 | % | 11/9/2026 | Doraville, GA | Multifamily | 82 | % | ||||||||||||||||||||||||
| 70 |
Senior Loan | 3/14/2022 | 42,000 | 40,200 | 40,206 | +3.50 | % | +3.67 | % | 4/9/2027 | Dallas, TX | Multifamily | 76 | % | ||||||||||||||||||||||||
| 71 |
Senior Loan | 8/25/2021 | 41,395 | 40,404 | 40,385 | +3.15 | % | +3.17 | % | 9/9/2026 | Cypress, TX | Multifamily | 69 | % | ||||||||||||||||||||||||
| 72 |
Senior Loan | 7/21/2021 | 41,300 | 38,954 | 38,943 | +2.80 | % | +2.81 | % | 8/9/2026 | Evanston, IL | Multifamily | 77 | % | ||||||||||||||||||||||||
| 73 |
Senior Loan | 10/28/2021 | 40,200 | 36,351 | 36,330 | +3.00 | % | +3.02 | % | 11/9/2026 | Dallas, TX | Multifamily | 74 | % | ||||||||||||||||||||||||
| 74 |
Senior Loan | 4/27/2021 | 39,050 | 35,177 | 35,167 | +3.15 | % | +3.16 | % | 5/9/2026 | Jamaica, NY | Industrial | 61 | % | ||||||||||||||||||||||||
| 75 |
Senior Loan | 8/31/2021 | 38,700 | 35,207 | 35,188 | +3.10 | % | +3.10 | % | 9/9/2026 | Colorado Springs, CO | Multifamily | 68 | % | ||||||||||||||||||||||||
| 76 |
Senior Loan | 6/24/2021 | 38,600 | 36,000 | 35,983 | +3.75 | % | +3.77 | % | 7/9/2026 | Austin, TX | Multifamily | 76 | % | ||||||||||||||||||||||||
| 77 |
Senior Loan | 8/3/2021 | 38,500 | 38,500 | 38,490 | +3.10 | % | +3.11 | % | 8/9/2026 | San Antonio, TX | Multifamily | 72 | % | ||||||||||||||||||||||||
| 78 |
Senior Loan | 11/30/2021 | 38,310 | 34,418 | 34,468 | +4.45 | % | +4.70 | % | 12/9/2026 | Memphis, TN | Office | 70 | % | ||||||||||||||||||||||||
| 79 |
Senior Loan | 4/9/2019 | 38,000 | 38,000 | 37,998 | +3.75 | % | +3.75 | % | 4/9/2024 | New York City, NY | Mixed Use | 75 | % | ||||||||||||||||||||||||
| 80 |
Senior Loan | 11/4/2021 | 37,300 | 35,920 | 35,920 | +3.35 | % | +3.85 | % | 11/1/2024 | Boca Raton, FL | Multifamily | 81 | % | ||||||||||||||||||||||||
| 81 |
Senior Loan | 4/29/2022 | 37,136 | 34,136 | 34,126 | +3.75 | % | +3.85 | % | 5/9/2027 | Euless, TX | Multifamily | 80 | % | ||||||||||||||||||||||||
| 82 |
Senior Loan | 11/5/2021 | 36,325 | 32,675 | 32,654 | +3.10 | % | +3.12 | % | 11/9/2026 | Mesquite, TX | Multifamily | 73 | % | ||||||||||||||||||||||||
| 83 |
Senior Loan | 12/21/2021 | 36,000 | 36,000 | 35,979 | +3.45 | % | +3.47 | % | 1/9/2027 | Hackensack, NJ | Multifamily | 68 | % | ||||||||||||||||||||||||
| 84 |
Senior Loan | 1/7/2022 | 36,000 | 36,000 | 36,000 | +3.80 | % | +3.80 | % | 1/9/2027 | Jupiter, FL | Office | 72 | % | ||||||||||||||||||||||||
| 85 |
Senior Loan | 3/29/2021 | 35,880 | 33,939 | 33,923 | +3.60 | % | +3.60 | % | 4/9/2026 | Arlington, TX | Multifamily | 80 | % | ||||||||||||||||||||||||
| 86 |
Senior Loan | 5/28/2021 | 35,785 | 31,085 | 31,068 | +5.00 | % | +5.02 | % | 6/9/2026 | Austin, TX | Office | 57 | % | ||||||||||||||||||||||||
| 87 |
Senior Loan | 2/27/2020 | 35,641 | 33,521 | 33,524 | +3.15 | % | +3.15 | % | 3/9/2025 | Various, SC | Industrial | 72 | % | ||||||||||||||||||||||||
| 88 |
Senior Loan | 6/22/2021 | 34,500 | 31,328 | 31,317 | +3.60 | % | +3.60 | % | 7/9/2026 | Tallahassee, FL | Multifamily | 74 | % | ||||||||||||||||||||||||
| 89 |
Senior Loan | 12/3/2021 | 34,327 | 34,327 | 34,318 | +3.45 | % | +3.46 | % | 12/9/2026 | Various, NY | Self Storage | 63 | % | ||||||||||||||||||||||||
| 90 |
Senior Loan | 12/16/2021 | 33,000 | 30,796 | 30,775 | +3.55 | % | +3.57 | % | 1/9/2027 | Fort Worth, TX | Multifamily | 72 | % | ||||||||||||||||||||||||
| 91 |
Senior Loan | 11/23/2021 | 32,000 | 26,379 | 26,367 | +3.05 | % | +3.07 | % | 12/9/2026 | Dallas, TX | Multifamily | 69 | % | ||||||||||||||||||||||||
| 92 |
Senior Loan | 3/11/2021 | 32,000 | 30,000 | 29,991 | +4.50 | % | +4.51 | % | 3/9/2026 | Colleyville, TX | Retail | 58 | % | ||||||||||||||||||||||||
| 93 |
Senior Loan | 4/27/2022 | 31,800 | 22,800 | 22,786 | +4.30 | % | +4.32 | % | 5/9/2027 | Morrow, GA | Industrial | 62 | % | ||||||||||||||||||||||||
| 94 |
Senior Loan | 1/28/2022 | 31,229 | 31,229 | 31,233 | +3.70 | % | +3.81 | % | 9/9/2026 | Dallas, TX | Multifamily | 82 | % | ||||||||||||||||||||||||
| 95 |
Senior Loan | 12/29/2020 | 31,128 | 28,191 | 28,344 | +3.75 | % | +3.93 | % | 1/9/2026 | Brooklyn, NY | Multifamily | 60 | % | ||||||||||||||||||||||||
| 96 |
Senior Loan | 5/4/2021 | 30,000 | 19,659 | 19,652 | +5.55 | % | +5.56 | % | 5/9/2026 | Richardson, TX | Office | 65 | % | ||||||||||||||||||||||||
| 97 |
Senior Loan | 6/28/2019 | 28,500 | 28,500 | 28,641 | +5.35 | % | +5.52 | % | 7/9/2024 | Davis, CA | Hospitality | 72 | % | ||||||||||||||||||||||||
| 98 |
Senior Loan | 12/18/2020 | 28,440 | 24,738 | 24,735 | +4.50 | % | +4.50 | % | 1/9/2026 | Rockville, MD | Office | 69 | % | ||||||||||||||||||||||||
| 99 |
Senior Loan | 12/15/2021 | 28,400 | 26,199 | 26,187 | +3.30 | % | +3.32 | % | 12/9/2026 | Arlington, TX | Multifamily | 79 | % | ||||||||||||||||||||||||
| 100 |
Senior Loan | 11/18/2021 | 27,387 | 27,387 | 27,375 | +3.60 | % | +3.61 | % | 12/9/2026 | Brooklyn, NY | Self Storage | 70 | % | ||||||||||||||||||||||||
| 101 |
Senior Loan | 1/20/2021 | 25,250 | 22,563 | 22,551 | +4.75 | % | +4.75 | % | 2/9/2026 | Laguna Hills, CA | Office | 63 | % | ||||||||||||||||||||||||
| 102 |
Senior Loan | 3/31/2021 | 25,250 | 25,250 | 25,238 | +3.20 | % | +3.22 | % | 4/9/2026 | Tempe, AZ | Multifamily | 77 | % | ||||||||||||||||||||||||
| 103 |
Senior Loan | 6/25/2021 | 25,000 | 23,898 | 23,887 | +3.05 | % | +3.06 | % | 7/9/2026 | Austin, TX | Multifamily | 68 | % | ||||||||||||||||||||||||
| 104 |
Senior Loan | 5/28/2021 | 24,700 | 23,087 | 23,077 | +3.50 | % | +3.52 | % | 6/9/2026 | Jacksonville, FL | Industrial | 61 | % | ||||||||||||||||||||||||
| 105 |
Senior Loan | 1/28/2022 | 24,489 | 24,489 | 24,490 | +3.70 | % | +3.81 | % | 9/9/2026 | Mesquite, TX | Multifamily | 78 | % | ||||||||||||||||||||||||
| 106 |
Senior Loan | 7/18/2018 | 22,650 | 22,650 | 22,712 | +5.25 | % | +5.37 | % | 8/9/2023 | Gaithersburg, MD | Hospitality | 80 | % | ||||||||||||||||||||||||
| 107 |
Senior Loan | 12/10/2020 | 22,300 | 17,183 | 17,172 | +5.25 | % | +5.25 | % | 1/9/2026 | Fox Hills, CA | Office | 55 | % | ||||||||||||||||||||||||
| 108 |
Senior Loan | 1/28/2022 | 22,149 | 22,149 | 22,149 | +3.70 | % | +3.81 | % | 9/9/2026 | Dallas, TX | Multifamily | 85 | % | ||||||||||||||||||||||||
| 109 |
Senior Loan | 8/26/2021 | 21,805 | 20,009 | 19,990 | +3.10 | % | +3.13 | % | 9/9/2026 | Seattle, WA | Multifamily | 69 | % | ||||||||||||||||||||||||
| 110 |
Senior Loan | 7/13/2021 | 21,350 | 21,350 | 21,332 | +3.40 | % | +3.43 | % | 8/9/2026 | Grand Prairie, TX | Multifamily | 72 | % | ||||||||||||||||||||||||
| 111 |
Senior Loan | 7/20/2021 | 21,136 | 18,259 | 18,257 | +3.25 | % | +3.36 | % | 8/9/2026 | Las Vegas, NV | Multifamily | 72 | % | ||||||||||||||||||||||||
| 112 |
Senior Loan | 8/6/2021 | 20,000 | 20,000 | 20,013 | +3.10 | % | +3.25 | % | 8/9/2026 | Sandy Springs, GA | Multifamily | 74 | % | ||||||||||||||||||||||||
| 113 |
Senior Loan | 5/10/2021 | 19,200 | 17,776 | 17,760 | +3.50 | % | +3.53 | % | 5/9/2026 | University City, PA | Multifamily | 70 | % | ||||||||||||||||||||||||
| 114 |
Senior Loan | 12/3/2021 | 18,828 | 18,828 | 18,820 | +3.45 | % | +3.46 | % | 12/9/2026 | Various, NY | Self Storage | 63 | % | ||||||||||||||||||||||||
| 115 |
Senior Loan | 2/26/2021 | 18,589 | 17,491 | 17,482 | +3.25 | % | +3.25 | % | 3/9/2026 | Newark, NJ | Industrial | 57 | % | ||||||||||||||||||||||||
| 116 |
Mezz Loan | 2/21/2020 | 18,102 | 18,102 | 18,101 | 10.00 | % | 10.00 | % | 3/1/2030 | Various, SC | Industrial | 70 | % | ||||||||||||||||||||||||
| 117 |
Senior Loan | 2/19/2020 | 18,000 | 14,400 | 14,406 | +3.50 | % | +3.49 | % | 3/9/2025 | Los Angeles, CA | Mixed Use | 71 | % | ||||||||||||||||||||||||
44
Loan Type |
Origination Date (1) |
Total Loan |
Principal Balance |
Net Book Value |
Cash Coupon (2) |
All-in Yield (2) |
Maximum Maturity (3) |
Location |
Property Type |
LTV (1) |
||||||||||||||||||||||||||||||||
| 118 |
Senior Loan | 6/16/2021 | $ | 17,500 | $ | 16,376 | $ | 16,366 | +3.25 | % | +3.25 | % | 7/9/2026 | Everett, WA | Multifamily | 69 | % | |||||||||||||||||||||||||
| 119 |
Senior Loan | 10/22/2019 | 17,500 | 15,643 | 15,730 | +4.50 | % | +4.66 | % | 11/9/2024 | Oakland, CA | Mixed Use | 70 | % | ||||||||||||||||||||||||||||
| 120 |
Senior Loan | 9/23/2021 | 16,300 | 14,828 | 14,844 | +4.25 | % | +4.56 | % | 9/9/2026 | Various, NJ | Multifamily | 77 | % | ||||||||||||||||||||||||||||
| 121 |
Senior Loan | 1/28/2021 | 16,100 | 16,100 | 16,127 | +4.50 | % | +4.63 | % | 2/9/2026 | Philadelphia, PA | Self Storage | 79 | % | ||||||||||||||||||||||||||||
| 122 |
Mezz Loan | 6/8/2022 | 15,840 | 15,840 | 15,842 | +7.50 | % | +7.75 | % | 6/9/2027 | New York, NY | Multifamily | 81 | % | ||||||||||||||||||||||||||||
| 123 |
Senior Loan | 6/16/2021 | 15,406 | 14,780 | 14,770 | +3.25 | % | +3.25 | % | 7/9/2026 | Everett, WA | Multifamily | 71 | % | ||||||||||||||||||||||||||||
| 124 |
Mezz Loan | 2/14/2020 | 15,000 | 15,000 | 15,000 | +7.50 | % | +7.50 | % | 12/5/2026 | Queens, NY | Multifamily | 75 | % | ||||||||||||||||||||||||||||
| 125 |
Senior Loan | 11/17/2020 | 14,550 | 13,548 | 13,543 | +4.00 | % | +4.00 | % | 12/9/2025 | Vista, CA | Industrial | 54 | % | ||||||||||||||||||||||||||||
| 126 |
Senior Loan | 3/25/2021 | 13,405 | 12,019 | 12,024 | +3.25 | % | +3.36 | % | 4/9/2026 | Lithonia, GA | Multifamily | 67 | % | ||||||||||||||||||||||||||||
| 127 |
Senior Loan | 3/19/2021 | 12,718 | 12,718 | 12,736 | +3.95 | % | +4.14 | % | 4/9/2026 | Brooklyn, NY | Multifamily | 85 | % | ||||||||||||||||||||||||||||
| 128 |
Senior Loan | 1/28/2022 | 12,092 | 12,092 | 12,088 | +3.70 | % | +3.82 | % | 9/9/2026 | Duncanville, TX | Multifamily | 83 | % | ||||||||||||||||||||||||||||
| 129 |
Senior Loan | 3/7/2018 | 12,050 | 12,050 | 12,080 | +5.00 | % | +5.17 | % | 9/7/2022 | Las Vegas, NV | Hospitality | 71 | % | ||||||||||||||||||||||||||||
| 130 |
Senior Loan | 11/17/2020 | 11,010 | 10,636 | 10,631 | +4.00 | % | +4.02 | % | 12/9/2025 | Miramar, CA | Industrial | 65 | % | ||||||||||||||||||||||||||||
| 131 |
Senior Loan | 6/11/2018 | 8,000 | 8,000 | 8,040 | 4.50 | % | +4.61 | % | 3/9/2024 | Miami, FL | Retail | 68 | % | ||||||||||||||||||||||||||||
| 132 |
Senior Loan | 2/17/2021 | 7,000 | 7,000 | 7,010 | +3.85 | % | +4.04 | % | 3/9/2026 | Brooklyn, NY | Multifamily | 81 | % | ||||||||||||||||||||||||||||
| 133 |
Senior Loan | 6/11/2018 | 6,750 | 6,750 | 6,767 | +4.25 | % | +4.35 | % | 6/9/2023 | Miami, FL | Retail | 61 | % | ||||||||||||||||||||||||||||
| 134 |
Mezz Loan | 5/12/2022 | 5,785 | 5,785 | 5,785 | +10.50 | % | +10.50 | % | 5/9/2027 | Denver, CO | Multifamily | 86 | % | ||||||||||||||||||||||||||||
| 135 |
Mezz Loan | 4/6/2022 | 5,049 | 5,049 | 5,049 | +11.00 | % | +11.00 | % | 4/9/2027 | Atlanta, GA | Multifamily | 88 | % | ||||||||||||||||||||||||||||
| |
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| Total/Weighted Average |
|
$ | 7,150,123 | $ | 6,539,424 | $ | 6,538,370 | +3.82 | % | +3.87 | % | |||||||||||||||||||||||||||||||
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| (1) | Date loan was originated or acquired by us, and the loan-to-value, |
| (2) | The weighted-average cash coupon and all-in yield are expressed as a spread over the relevant floating benchmark rates, which include USD LIBOR and SOFR. In addition to cash coupon, all-in yield include accretion of discount (amortization of premium) and accrual of exit fees. |
| (3) | Maximum maturity assumes all extension options are exercised by the borrower, however loans may be repaid prior to such date. |
Real Estate Portfolio Overview
On June 23, 2022, we acquired 555 Aviation, a 260,000 square foot creative office building located in El Segundo, California. The property was built in 1966 and was renovated in 2017 to convert the property into a creative office building, including LEED Gold certification, a glass façade and an interior
open-air
atrium. The property sits on 13 acres and is located in a growing Los Angeles sub-market
of El Segundo near Los Angeles International Airport. The property is currently 100% leased to three tenants. Subsequent Activity
During the period from July 1, 2022 through August 5, 2022, we closed on four senior floating-rate mortgage loans of which $309,225 was funded at closing.
45
Results of Operations
The following table sets forth information regarding our consolidated results of operations for the three and six months ended June 30, 2022 and 2021:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Net interest income |
||||||||||||||||
| Interest income |
$ | 68,877 | $ | 16,039 | $ | 114,861 | $ | 27,755 | ||||||||
| Less: Interest expense |
(29,184 | ) | (4,981 | ) | (45,399 | ) | (7,810 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net interest income |
39,693 | 11,058 | 69,462 | 19,945 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Other expenses |
||||||||||||||||
| Management and performance fees |
5,351 | 1,708 | 9,348 | 3,281 | ||||||||||||
| General and administrative expenses |
5,783 | 1,394 | 9,326 | 2,799 | ||||||||||||
| Less: Expense limitation |
— | — | — | (56 | ) | |||||||||||
| Add: Expense recoupment to sponsor |
1,460 | 390 | 2,770 | 390 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net other expenses |
12,594 | 3,492 | 21,444 | 6,414 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Other income (loss) |
||||||||||||||||
| Net change in unrealized gain (loss) on interest rate cap |
(1,449 | ) | — | (1,449 | ) | — | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total other income (loss) |
(1,449 | ) | — | (1,449 | ) | — | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net income |
25,650 | 7,566 | 46,569 | 13,531 | ||||||||||||
| Preferred stock dividends |
(4 | ) | (4 | ) | (8 | ) | (8 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net income attributable to FS Credit Real Estate Income Trust, Inc. |
$ | 25,646 | $ | 7,562 | $ | 46,561 | $ | 13,523 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
Net Interest Income
Net interest income is generated on our interest-earning assets less related interest-bearing liabilities. The increase in interest income was attributable to debt investments acquired or originated in our portfolio and
non-recurring
prepayment fee income. The increase in interest expense was attributable to an increase in borrowings in order to support our investment activities. Other Expenses
Other expenses include management and performance fees payable to FS Real Estate Advisor and general and administrative expenses. General and administrative expenses include administrative services expenses, auditing and professional fees, independent director fees, transfer agent fees, loan servicing expenses and other costs associated with operating our business. The increase in other expenses can primarily be attributed to the increase of our management fee and various general and administrative expenses related to the growth of our net assets.
Expense Limitation
We have entered into an expense limitation agreement with FS Real Estate Advisor and Rialto pursuant to which FS Real Estate Advisor and Rialto have agreed to waive reimbursement of or pay, on a quarterly basis, our annualized ordinary operating expenses for such quarter to the extent such expenses exceed 1.5% per annum of our average net assets attributable to each of our classes of common stock. Ordinary operating expenses for each class of common stock consist of all ordinary expenses attributable to such class, including administration fees,
46
transfer agent fees, fees paid to our board of directors, loan servicing expenses, administrative services expenses, and related costs associated with legal, regulatory compliance and investor relations, but excluding the following: (a) advisory fees, (b) interest expense and other financing costs, (c) taxes, (d) distribution or shareholder servicing fees and (e) unusual, unexpected and/or nonrecurring expenses. We will repay FS Real Estate Advisor or Rialto on a quarterly basis any ordinary operating expenses previously waived or paid, but only if the reimbursement would not cause the then-current expense limitation, if any, to be exceeded. In addition, the reimbursement of expenses will be made only if payable not more than three years from the end of the fiscal quarter in which the expenses were paid or waived.
FS Real Estate Advisor and Rialto each agreed to waive the recoupment of any amounts that may be subject to conditional reimbursement during the quarterly period ended June 30, 2022. To the extent that the conditions to recoupment are satisfied in a future quarter (prior to the expiration of the three-year period for reimbursement set forth in the expense limitation agreement), such expenses may be subject to conditional recoupment in accordance with the terms of the expense limitation agreement.
During the period from September 13, 2017 (Commencement of Operations) to June 30, 2022, we accrued $5,839 for reimbursement of expenses that FS Real Estate Advisor and Rialto paid or waived, including $0 in reimbursements for the six months ended June 30, 2022. During the period from September 13, 2017 (Commencement of Operations) to June 30, 2022, we received $5,839 in cash reimbursements from FS Real Estate Advisor.
During the six months ended June 30, 2022, $482 of expense recoupments were paid to FS Real Estate Advisor and Rialto. As of June 30, 2022 and December 31, 2021, $1,460 and $0, respectively, of expense recoupments were payable to FS Real Estate Advisor and Rialto and $257 of expense reimbursements received from FS Real Estate Advisor and Rialto were eligible for recoupment.
Valuation of mortgage debt
Commercial real estate debt and mortgage-backed securities are valued at amortized cost, consistent with how they are recorded in accordance with GAAP, as these instruments are intended to be Liabilities are valued at amortized cost as these obligations are expected to be satisfied at their carrying value. See Note 8 to our unaudited consolidated financial statements included herein for additional information regarding a comparison of our carrying value and an estimate of the fair value of our commercial real estate debt, mortgage-backed securities repurchase agreements payable, credit facility payable, and collateralized loan obligations.
held-to-maturity
held-to-maturity.
held-to-maturity,
Non-GAAP
Financial Measures Funds from Operations and Modified Funds from Operations
We use Funds from Operations, or FFO, a widely accepted
non-GAAP
financial metric, to evaluate our performance. FFO provides a supplemental measure to compare our performance and operations to other REITs. Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or NAREIT, has promulgated a standard known as FFO, which it believes more accurately reflects the operating performance of a REIT. As defined by NAREIT, FFO means net income computed in accordance with GAAP, excluding gains (or losses) from sales of operating property, plus depreciation and amortization and after adjustments for unconsolidated entities. In addition, NAREIT has further clarified the FFO definition to add-back
impairment write-downs of depreciable real estate or of investments in unconsolidated entities that are driven by measurable decreases in the fair value of depreciable real estate and to exclude the earnings impacts of cumulative effects of accounting changes. We have adopted the NAREIT definition for computing FFO. Due to the unique features of publicly registered,
non-listed
REITs, the Institute for Portfolio Alternatives, or IPA, an industry trade group, published a standardized non-GAAP
financial measure known as Modified 47
Funds from Operations, or MFFO, which the IPA has promulgated as a supplemental measure for publicly registered
non-listed
REITs and which may be another appropriate supplemental measure to reflect the operating performance of a non-listed
REIT. The IPA defines MFFO as FFO adjusted for acquisition fees and expenses, amounts relating to straight line rents and amortization of premiums or accretion of discounts on debt investments, adjustments included in net income,
non-recurring
impairments of real estate-related investments, mark-to-market
non-recurring
gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures. Because MFFO may be a recognized measure of operating performance within the
non-listed
REIT industry, MFFO and the adjustments used to calculate it may be useful in order to evaluate our performance against other non-listed
REITs. Like FFO, MFFO is not equivalent to our net income or loss as determined under GAAP, as detailed in the table below, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we continue to acquire a significant amount of investments. Our presentation of FFO and MFFO may not be comparable to other similarly titled measures presented by other REITs. We believe that the use of FFO and MFFO provides a more complete understanding of our operating performance to stockholders and to management, and when compared year over year, reflects the impact on our operations from trends in operating costs, general and administrative expenses, and interest costs. Neither FFO nor MFFO is intended to be an alternative to “net income” or to “cash flows from operating activities” as determined by GAAP as a measure of our capacity to pay distributions. Management uses FFO and MFFO to compare our operating performance to that of other REITs and to assess our operating performance.
Neither the SEC, any other regulatory body nor NAREIT has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, another regulatory body or NAREIT may decide to standardize the allowable adjustments across the
non-listed
REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO. Our FFO and MFFO are calculated for the three and six months ended June 30, 2022 and 2021 as follows:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Net income (GAAP) |
$ | 25,650 | $ | 7,566 | $ | 46,569 | $ | 13,531 | ||||||||
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| Funds from operations |
$ | 25,650 | $ | 7,566 | $ | 46,569 | $ | 13,531 | ||||||||
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| Adjustments to arrive at modified funds from operations: |
||||||||||||||||
| Accretion of discount on mortgage-backed securities held-to-maturity |
(152) | (137) | (299) | (271) | ||||||||||||
| Net unrealized loss on interest rate cap |
(1,449) | — | (1,449) | — | ||||||||||||
| |
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|
|
|
|
|||||||||
| Modified funds from operations |
$ | 24,049 | $ | 7,429 | $ | 44,821 | $ | 13,260 | ||||||||
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NAV per Share
FS Real Estate Advisor calculates our NAV per share in accordance with the valuation guidelines approved by our board of directors for the purposes of establishing a price for shares sold in our public offering as well as establishing a repurchase price for shares repurchased pursuant to our share repurchase plan.
48
In general, our investments are valued by FS Real Estate Advisor based on market quotations, at amortized cost or at fair value determined in accordance with GAAP. In accordance with the valuation guidelines approved by our board of directors, FS Real Estate Advisor calculates our NAV per share for each class of our common stock as of the last calendar day of each month. For purposes of calculating our NAV, FS Real Estate Advisor uses the following valuation methods:
| • | Commercial real estate debt classified as held-for-investment sub-adviser, evaluates for impairment each loan classified as held-for-investment. |
| • | Mortgage-backed securities are classified as held-to-maturity |
| • | Mortgage-backed securities that we do not hold for the purpose of selling in the near-term or may dispose of prior to maturity, are classified as available-for-sale mid-point of the average bid and ask prices obtained from such sources. |
| • | Investments in real estate will initially be valued at cost, which is expected to represent fair value at that time. FS Real Estate Advisor, with assistance from our sub-adviser, expects to receive an appraisal performed by an independent third-party appraisal firm on each property prior to or upon acquisition. Each property will then be valued by an independent third-party appraisal firm no less frequently than annually. FS Real Estate Advisor will update the valuations of our properties for each month in which we do not receive an appraisal report from a third-party appraisal firm. Such monthly update valuations will be based on the then most recent appraisals provided by a third-party appraisal firm, current market data and other relevant information. |
| • | Liabilities include repurchase agreements payable, credit facility payable, collateralized loan obligations, fees payable to FS Real Estate Advisor and the dealer manager, accounts payable, accrued operating expenses, any portfolio-level credit facilities, and other liabilities. All liabilities are valued at amounts payable, net of unamortized premium or discount, and net of unamortized debt issuance costs. Liabilities related to stockholder servicing fees allocable to Class T, Class S, Class D and Class M shares are only included in the NAV calculation for those classes. Liabilities related to advisory fees allocable to Class T, Class S, Class D, Class M, Class I and Class Y shares are only included in the NAV calculation for those classes. |
Commercial real estate debt and mortgage-backed securities are valued at amortized cost, consistent with how they are recorded in accordance with GAAP, as these instruments are intended to be Liabilities are valued at amortized cost as these obligations are expected to be satisfied at their carrying value. See Note 8 to our unaudited consolidated financial statements included herein for additional information including a comparison of our carrying value and an estimate of the fair value of our commercial real estate debt, mortgage-backed securities repurchase agreements payable, credit facility payable, and collateralized loan obligations.
held-to-maturity
held-to-maturity.
held-to-maturity,
49
The following table provides a breakdown of the major components of our total NAV as of June 30, 2022:
| Components of NAV |
June 30, 2022 |
|||
| Cash and cash equivalents |
$ | 75,659 | ||
| Restricted cash |
19,111 | |||
| Loans receivable |
6,538,370 | |||
| Mortgage-backed securities held-to-maturity |
78,942 | |||
| Mortgage-backed securities available-for-sale, |
153,274 | |||
| Interest receivable |
14,904 | |||
| Deferred financing costs |
647 | |||
| Investment in real estate |
160,711 | |||
| Receivable for investment sold and repaid |
52,959 | |||
| Other assets |
42,284 | |||
| Repurchase agreements payable, net of deferred financing costs |
(1,175,651 | ) | ||
| Credit facility payable |
(692,472 | ) | ||
| Collateralized loan obligations, net of deferred financing costs |
(3,193,515 | ) | ||
| Mortgage note, net of deferred financing costs |
(122,568 | ) | ||
| Accrued servicing fees (1) |
(831 | ) | ||
| Other liabilities |
(38,894 | ) | ||
| |
|
|||
| Net asset value |
$ | 1,912,930 | ||
| |
|
|||
| (1) | See Reconciliation of Stockholders’ Equity to NAV below for an explanation of the differences between the stockholder servicing fees accrued for purposes of NAV and the amount accrued under GAAP. |
The following table provides a breakdown of our total NAV and NAV per share by share class as of June 30, 2022:
| NAV per Share |
Class F |
Class Y |
Class T |
Class S |
Class D |
Class M |
Class I |
Total |
||||||||||||||||||||||||
| Net asset value |
$ | 22,599 | $ | 22,082 | $ | 37,627 | $ | 1,122,659 | $ | 17,168 | $ | 92,705 | $ | 598,090 | $ | 1,912,930 | ||||||||||||||||
| Number of outstanding shares |
904,792 | 906,648 | 1,508,682 | 44,602,788 | 680,347 | 3,701,528 | 24,516,086 | 76,820,871 | ||||||||||||||||||||||||
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| NAV per share as of June 30, 2022 |
$ | 24.9767 | $ | 24.3557 | $ | 24.9404 | $ | 25.1698 | $ | 24.9734 | $ | 25.0450 | $ | 24.4031 | ||||||||||||||||||
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The following table sets forth a reconciliation of our stockholders’ equity to our NAV as of June 30, 2022:
| Reconciliation of Stockholders’ Equity to NAV |
June 30, 2022 |
|||
| Total stockholders’ equity under GAAP |
$ | 1,821,230 | ||
| Preferred stock |
(125 | ) | ||
| |
|
|||
| Total stockholders’ equity, net of preferred stock, under GAAP |
1,821,105 | |||
| Adjustments: |
||||
| Accrued stockholder servicing fees (1) |
90,376 | |||
| Net change in unrealized (gain) loss on interest rate cap |
1,449 | |||
| |
|
|||
| Net asset value |
$ | 1,912,930 | ||
| |
|
|||
50
| (1) | Stockholder servicing fees only apply to Class T, Class S, Class D and Class M shares. Under GAAP, we accrue future stockholder servicing fees in an amount equal to our best estimate of fees payable to FS Investment Solutions at the time such shares are sold. For purposes of NAV, we recognize the stockholder servicing fee as a reduction of NAV on a monthly basis. As a result, the estimated liability for the future stockholder servicing fees, which are accrued at the time each share is sold, will have no effect on the NAV of any class. |
Limits on the Calculation of Our Per Share NAV
Although our primary goal in establishing our valuation guidelines is to produce a valuation that represents a fair and accurate estimate of the value of our investments, the methodologies used are based on judgments, assumptions and opinions about future events that may or may not prove to be correct, and if different judgments, assumptions or opinions were used, a different estimate would likely result. Furthermore, our published per share NAV may not fully reflect certain extraordinary events because we may not be able to immediately quantify the financial impact of such events on our portfolio. FS Real Estate Advisor monitors our portfolio between valuations to determine whether there have been any extraordinary events that may have materially changed the estimated market value of the portfolio, such as significant market events or disruptions or force majeure events. If required by applicable securities law, we will promptly disclose the occurrence of such event in a prospectus supplement and FS Real Estate Advisor will analyze the impact of such extraordinary event on our portfolio and determine, in coordination with third-party valuation services, the appropriate adjustment to be made to our NAV. We will not, however, retroactively adjust NAV. To the extent that the extraordinary events may result in a material change in value of a specific investment, FS Real Estate Advisor will order a new valuation of the investment, which will be prepared by a third-party valuation service. It is not known whether any resulting disparity will benefit stockholders whose shares are or are not being repurchased or purchasers of our common stock. Further, in determining the number of shares outstanding used in the calculation of our NAV per share for each
month-end
that coincides with the end of a fiscal quarter, we include the number of Class I shares that have been or will be issued to the adviser and sub-adviser
for the quarter with respect to any outstanding Class I PCRs (see Note 7 to our unaudited consolidated financial statements included herein) based on the achievement of certain performance criteria. For each month-end
that is not the end of a fiscal quarter, solely for purposes of calculating NAV per share, we include an estimated number of Class I shares, if any, that would have been issued to the adviser and sub-adviser
in connection with any outstanding Class I PCRs based on our estimated Excess Distributable Income as of such date. We include no discounts to our NAV for the illiquid nature of our shares, including the limitations on the ability to sell shares under our share repurchase plan and our ability to suspend or terminate our share repurchase plan at any time. Our NAV generally does not consider exit costs that would likely be incurred if our assets and liabilities were liquidated or sold. While we may use market pricing concepts to value individual components of our NAV, our per share NAV is not derived from the market pricing information of
open-end
real estate funds listed on stock exchanges. We do not represent, warranty or guarantee that:
| • | a stockholder would be able to realize the NAV per share for the class of shares a stockholder owns if the stockholder attempts to sell its shares; |
| • | a stockholder would ultimately realize distributions per share equal to per share NAV upon a liquidation of our assets and settlement of our liabilities or upon any other liquidity event; |
| • | shares of our common stock would trade at per share NAV on a national securities exchange; |
| • | a third party in an arm’s-length transaction would offer to purchase all or substantially all of our shares of common stock at NAV; |
| • | NAV would equate to a market price for an open-end real estate fund; and |
| • | NAV would represent the fair value of our assets less liabilities under GAAP. |
51
Review of our Policies
Our board of directors, including our independent directors, has reviewed our policies described in this Quarterly Report on Form
10-Q
and our registration statement and determined that they are in the best interests of our stockholders because: (i) they increase the likelihood that we will be able to originate, acquire and manage a diversified portfolio of senior loans secured by commercial real estate, thereby reducing risk in our portfolio; (ii) there are sufficient loan underwriting opportunities with the attributes that we seek; (iii) our executive officers, director, affiliates of our adviser and sub-adviser
have expertise with the type of real estate investments we seek; and (iv) our borrowings will enable us to originate and acquire loan assets and earn revenue more quickly, thereby increasing our likelihood of generating income for our stockholders and preserving stockholder capital. Liquidity and Capital Resources
As of June 30, 2022, we had $75,659 in cash and cash equivalents, which we and our wholly owned subsidiaries held in custodial accounts. In addition, as of June 30, 2022, we had $996,232 in borrowings available under our financing arrangements, subject to certain limitations. As of June 30, 2022, we had unfunded loan commitments of $610,703. We maintain sufficient cash on hand and available borrowings to fund such unfunded commitments should the need arise.
We will obtain the funds required to purchase or originate investments and conduct our operations from the net proceeds of our public offering, the private placement of our Class Y shares and any future offerings we may conduct, from secured and unsecured borrowings from banks and other lenders, and from any undistributed funds from operations. Our principal demands for funds will be for asset acquisitions/originations, the payment of operating expenses and distributions, the payment of interest on any outstanding indebtedness and repurchases of our common stock pursuant to our share repurchase plan. Generally, cash needs for items other than asset acquisitions/originations will be met from operations, and cash needs for asset acquisitions/originations will be funded by public offerings of our shares and debt financings. However, there may be a delay between the sale of our shares and our purchase/originations of assets, which could result in a delay in the benefits to our stockholders of returns generated from our investment operations. Our leverage may not exceed 300% of our total net assets (as defined in our charter) as of the date of any borrowing unless a majority of our independent directors vote to approve any borrowing in excess of this amount.
As of June 30, 2022, our ratio of leverage to total net assets was 280%. Our board of directors will continue to review our ratio of leverage to total net assets on a quarterly basis, as required by our charter.
If we are unable to continue to raise substantial funds in our public offering, we will make fewer investments resulting in less diversification in terms of the type, number and size of investments we make and the value of an investment in us will fluctuate with the performance of the specific assets we acquire. We will have certain fixed operating expenses, including certain expenses as a publicly offered REIT, regardless of whether we are able to raise substantial funds in our public offering. Our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income, reducing our net income and limiting our ability to make distributions.
Potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders or proceeds from the sale of assets or collection of loans receivable.
In addition to making investments in accordance with our investment objectives, we expect to use our capital resources to make certain payments to FS Real Estate Advisor and FS Investment Solutions, the dealer manager for our public offering. During the offering stage of our public offering, these payments will include payments to FS Real Estate Advisor and its affiliates for reimbursement of certain organization and offering expenses. We will reimburse FS Real Estate Advisor for the organization and offering costs it or Rialto incurs on
52
our behalf only to the extent that the reimbursement would not cause the selling commissions, dealer manager fees, accountable due diligence expenses, stockholder servicing fees and the other organization and offering expenses borne by us to exceed 15.0% of the gross offering proceeds from the primary offering as the amount of proceeds increases. FS Real Estate Advisor has agreed to advance all of our organization and offering expenses on our behalf until we had raised $250,000 of gross proceeds in our public offering. In April 2020, FS Real Estate Advisor and Rialto agreed to defer the recoupment of any organization and offering expenses that may be reimbursable by us under the advisory agreement with respect to gross proceeds raised in the offering in excess of $250,000 until FS Real Estate Advisor, in its sole discretion, determined that we have achieved economies of scale sufficient to ensure that we could bear a reasonable level of expenses in relation to our income. We began reimbursing FS Real Estate Advisor in September 2020 and, as such, FS Real Estate Advisor may be reimbursed for any organization and offering expenses that it or Rialto has incurred on our behalf, up to a cap of 0.75% of gross proceeds raised after such time. As of June 30, 2022, we reimbursed $9,418 to FS Real Estate Advisor for organization and offering expenses previously funded.
During our acquisition and development stage, subject to the limitations in the advisory agreement and
sub-advisory
agreement, we expect to make payments to FS Real Estate Advisor in connection with the management of our assets and costs incurred by FS Real Estate Advisor and Rialto in providing services to us. The advisory agreement has a one-year
term but may be renewed for an unlimited number of successive one-year
periods upon the mutual consent of FS Real Estate Advisor and our board of directors. On August 12, 2021, our board of directors approved the renewal of the advisory agreement effective as of August 17, 2021 for an additional one-year
term expiring August 17, 2022. For a discussion of the compensation to be paid to FS Real Estate Advisor and FS Investment Solutions, see Note 7 to our unaudited consolidated financial statements included herein. Cash Flows
The following table provides a breakdown of the net change in our cash and cash equivalents and restricted cash ($ in thousands):
Six Months Ended June 30, 2022 |
||||||||
2022 |
2021 |
|||||||
| Cash flows from operating activities |
$ | 48,925 | $ | 33,038 | ||||
| Cash flows used in investing activities |
(3,087,732 | ) | (941,381 | ) | ||||
| Cash flows from financing activities |
3,047,769 | 922,471 | ||||||
| |
|
|
|
|||||
| Net increase (decrease) in cash and cash equivalents and restricted cash |
$ | 8,962 | $ | 14,128 | ||||
| |
|
|
|
|||||
Cash flows provided by operating activities increased $15,887 during the six months ended June 30, 2022 compared to the corresponding period in 2021 due to increased performance contingent rights and increased interest payable.
Cash flows used in investing activities increased $2,146,351 during the six months ended June 30, 2022 compared to the corresponding period in 2021 primarily due to the net increase of $2,066,378 in origination and fundings of loans receivables offset by a net increase in principal collections from loans receivable, of $246,635. Purchases of mortgage-backed securities increased $92,498. During the six months ended June 30, 2022, we also acquired real estate and related intangibles for $193,802.
held-for-investment
available-for-sale
Cash flows provided by financing activities increased $2,125,298 during the six months ended June 30, 2022 compared to the corresponding period in 2021 primarily due to a net increase in borrowings of $1,458,471 and the increase in issuance of common stock of $742,227.
53
COVID-19
Developments The novel coronavirus, or
COVID-19,
pandemic has evolved from its emergence in early 2020, so has its global impact. Many countries have re-instituted,
or strongly encouraged, varying levels of quarantines and restrictions on travel and in some cases have at times limited operations of certain businesses and taken other restrictive measures designed to help slow the spread of COVID-19
and its variants. Governments and businesses have also instituted vaccine mandates and testing requirements for employees. While vaccine availability and uptake has increased, the longer-term macro-economic effects on global supply chains, inflation, labor shortages and wage increases continue to impact many industries. Moreover, with the potential for new strains of COVID-19
to emerge, governments and businesses may re-impose
aggressive measures to help slow its spread in the future. For this reason, among others, as the COVID-19
pandemic continues, the potential global impacts are uncertain and difficult to assess. Portfolio Update
As of June 30, 2022, our portfolio continues to perform, generating consistent current income with low volatility; further, we had not recorded any impairments in our loan portfolio. In addition, 100% of our loan portfolio was current as of June 30, 2022.
Our portfolio remains well diversified by geography and property type, with multifamily and industrial representing 69% of the portfolio compared to 14% for hospitality and retail as of June 30, 2022. The pipeline for new deal activity remains strong, backed by a diverse mix of property types.
Broadly, our lending strategy focused on originating short-term (2–3 years), floating-rate, senior loans has helped preserve investor capital while providing a natural turnover of the portfolio. The short-term nature of our typical loans allows us to regularly adjust the portfolio to current market conditions. As of June 30, 2022, approximately 97% of our portfolio consisted of investments sourced after July 2020.
Critical Accounting Estimates
Our financial statements are prepared in conformity with GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting policies are those that require the application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In preparing the financial statements, management also will utilize 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. As we execute our expected operating plans, we will describe additional critical accounting policies in the notes to our financial statements in addition to those discussed below.
Loans Receivable and Provision for Loan Losses:
54
other factors deemed necessary by FS Real Estate Advisor and Rialto. Actual losses, if any, could ultimately differ from these estimates. FS Real Estate Advisor and Rialto perform a quarterly review of our portfolio of loans.
In connection with this review, FS Real Estate Advisor and Rialto assess the risk factors of each loan and assign a risk rating based on a variety of factors, including, without limitation, LTV, debt yield, property type, geographic and local market dynamics, physical condition, cash flow volatility, leasing and tenant profile, loan structure and exit plan, and project sponsorship. Based on a
5-point
scale, our loans are rated “1” through “5”, from less risk to greater risk, which ratings are defined as follows: | Loan Risk Rating |
Summary Description | |
| 1 | Very Low Risk | |
| 2 | Low Risk | |
| 3 | Medium Risk | |
| 4 | High Risk/Potential for Loss: A loan that has a risk of realizing a principal loss | |
| 5 | Impaired/Loss Likely: A loan that has a very high risk of realizing a principal loss or has otherwise incurred a principal loss |
Revenue Recognition:
ex-dividend
date. Loans are considered past due when payments are not made in accordance with the contractual terms. We do not accrue as receivable interest on loans if it is not probable that such income will be collected. Management places loans on
non-accrual
status when full repayment of principal and interest is in doubt, which generally occurs when principal or interest is 120 days or more past due unless the loan is both well secured and in the process of collection. Interest payments received on non-accrual
loans are generally recognized as interest income on a cash basis. Recognition of interest income on non-performing
loans on an accrual basis is resumed when it is probable that we will be able to collect amounts due according to the contractual terms. See Note 2 to our unaudited consolidated financial statements included herein for additional information regarding our significant accounting estimates.
Related Party Transactions
Compensation of FS Real Estate Advisor and the Dealer Manager
Pursuant to the advisory agreement, FS Real Estate Advisor is entitled to an annual base management fee equal to 1.25% of the NAV for our Class T, Class S, Class D, Class M and Class I shares and a performance fee based on our performance. We also reimburse FS Real Estate Advisor and Rialto for their actual cost incurred on providing administrative services to us, including the allocable portion of compensation and related expenses of certain personnel providing such administrative services. Pursuant to the advisory agreement, we will reimburse FS Real Estate Advisor and its affiliates for expenses incurred relating to our organization and continuous public offering, including the allocable portion of compensation and related expenses of certain personnel of FS Investments related thereto. FS Real Estate Advisor previously agreed to advance all of our organization and offering expenses until we raised $250,000 of gross proceeds from our public offering. In April 2020, FS Real Estate Advisor and Rialto agreed to defer the recoupment of any organization and offering expenses that may be reimbursable by us under the advisory agreement with respect to gross proceeds raised in the offering in excess
55
of $250,000 until FS Real Estate Advisor, in its sole discretion, determined that we had achieved economies of scale sufficient to ensure that we could bear a reasonable level of expenses in relation to our income. We began reimbursing FS Real Estate Advisor in September 2020 and, as such, FS Real Estate Advisor may be reimbursed for any organization and offering expenses that it or Rialto has incurred on our behalf, up to a cap of 0.75% of gross proceeds raised after such time.
The dealer manager for our continuous public offering is FS Investment Solutions, which is an affiliate of FS Real Estate Advisor. Under the dealer manager agreement, FS Investment Solutions is entitled to receive upfront selling commissions and dealer manager fees in connection with the sale of shares of common stock in our continuous public offering. FS Investment Solutions anticipates that all of the selling commissions and dealer manager fees will be reallowed to participating broker-dealers, unless a particular broker-dealer declines to accept some portion of the dealer manager fee they are otherwise eligible to receive. FS Investment Solutions is also entitled to receive stockholder servicing fees, which accrue daily and are paid on a monthly basis. FS Investment Solutions will reallow such stockholder servicing fees to participating broker-dealers, servicing broker-dealers and financial institutions (including bank trust departments) and will waive (pay back to us) stockholder servicing fees to the extent a broker-dealer or financial institution is not eligible or otherwise declines to receive all or a portion of such fees.
See Note 7 to our unaudited consolidated financial statements included herein for additional information regarding our related party transactions and relationships, including a description of the fees and amounts due to FS Real Estate Advisor, compensation of FS Investment Solutions, capital contributions by FS Investments and Rialto, our expense limitation agreement with FS Investments and our purchase of a mortgage loan from an affiliate of Rialto.
FS Investment Solutions also serves or served as the placement agent for our private offerings of Class F and Class Y shares pursuant to placement agreements. FS Investment Solutions does not receive any compensation pursuant to these agreements.
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk. |
We are subject to financial market risks, including changes in interest rates. As of June 30, 2022, 97% of the outstanding principal of our debt investments were floating-rate investments. A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to any variable rate investments we may hold and to declines in the value of any fixed rate investments we may hold. However, many of our variable rate investments provide for an interest rate floor, which may prevent our interest income from increasing until benchmark interest rates increase beyond a threshold amount. To the extent that a substantial portion of our investments may be in variable rate investments, an increase in interest rates beyond this threshold would make it easier for us to meet or exceed our performance fee hurdle rate and may result in a substantial increase in our net investment income and the amount of performance fees payable to FS Real Estate Advisor.
Pursuant to the terms of the FS Rialto
2019-FL1
Notes, 2021-FL2
Notes, 2021-FL3
Notes, 2022-FL4
Notes, 2022-FL5
Notes, WF-1
Facility, the GS-1
Facility, the BB-1
Facility, the CNB Facility, the Natixis loan, and the MM-1
Facility, borrowings are at a floating-rate based on LIBOR, and the pricing rate for any specific transaction executed under the RBC Facility may be charged, pursuant to the terms agreed for that transaction, at a floating-rate based on LIBOR. To the extent that any present or future credit facilities or other financing arrangements that we or any of our subsidiaries enter into are based on a floating interest rate, we will be subject to risks relating to changes in market interest rates. In periods of rising interest rates, when we have debt outstanding, our cost of funds would increase, which could reduce our net investment income, especially to the extent we hold fixed rate investments. We may seek to limit the impact of rising interest rates on earnings and cash flows through the use of derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our assets.
56
The following table shows the effect over a twelve-month period of changes in interest rates on our interest income, interest expense, and net interest income, assuming no changes in the composition of our investment portfolio, including the accrual status of our investments, and our financing arrangements in effect as of June 30, 2022:
| Basis Point Changes in Interest Rates |
Increase (Decrease) in Interest Income |
Increase (Decrease) in Interest Expense |
Increase (Decrease) in Net Interest Income |
Percentage Change in Net Interest Income |
||||||||||||
| Down 50 basis points (1) |
$ | (32,026 | ) | $ | (25,628 | ) | $ | (6,398 | ) | (3.1 |
)% | |||||
| Down 25 basis points (1) |
$ | (16,157 | ) | $ | (12,839 | ) | $ | (3,318 | ) | (1.6 |
)% | |||||
| No change |
— | — | — | — | ||||||||||||
| Up 25 basis points |
$ | 16,305 | $ | 12,839 | $ | 3,466 | 1.7 |
% | ||||||||
| Up 50 basis points |
$ | 32,682 | $ | 25,678 | $ | 7,004 | 3.4 |
% | ||||||||
| (1) | Decrease in rates assumes the applicable benchmark rate does not decrease below 0%. |
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Item 4. |
Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
As required by under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2022.
Rule 13a-15(b)
Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that we would meet our disclosure obligations.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Exchange Act or that occurred during the three-month period ended June 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Rules 13a-15(f)
15d-15(f))
PART II—OTHER INFORMATION
Item 1. |
Legal Proceedings. |
We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of any legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material adverse effect upon our financial condition or results of operations.
Item 1A. |
Risk Factors. |
In addition to the other information set forth in this Quarterly Report on Form you should carefully consider the risk factors that appeared under Item 1A. “Risk Factors” in our most recent Annual Report on as supplemented by our quarterly report on Form Except as disclosed below, there are no material changes from the risk factors included within our most recent Annual Report on Form for the year ended December 31, 2021.
10-Q,
Form 10-K,
10-Q.
10-K
Risks Related to Investments in Real Property
Lease terminations or tenant defaults at our real property investments could adversely affect the income produced by these properties, which could harm our operating performance and ability to pay distributions to our stockholders.
The success of our real property investments will depend in large part on the financial viability of our tenants, and accordingly, any change in their business, including as a result of economic events, financial markets, natural disasters or public health or pandemic crises, could adversely affect the income produced by our properties. Our tenants may terminate the lease, fail to make rental payments, decline to extend or renew their lease upon expiration, or declare bankruptcy, any such action would result in loss of rental payments. In addition, in the case of termination or default, we may be unable to attract desirable tenants or lease the property for the amount previously collected. The expenses associated with owning such properties, including debt payments, real estate taxes, maintenance, and insurance, are generally fixed and do not decrease when revenues decrease.
58
Economic and regulatory changes that impact the real estate market could adversely affect our real property investments and overall financial performance.
We are subject to risks generally attributable to the ownership of real property, including a downturn in market conditions, adverse real estate trends such as increasing vacancy rates and declining rental rates, financial instability by our tenants, and changes in government rules and regulations. Any of these factors could have an adverse effect on our investments in real property and our financial performance.
We may be adversely affected by trends in the office real estate sector.
Driven in part by the
COVID-19
pandemic, many companies are moving toward telecommuting policies and there may be a decline for the demand for office space in the future. The continuation of work-from-home and other policies could lead to an overall decrease in demand for office spaces, and thereby impact the financial performance of our investments in office properties. This would have an adverse effect on our financial condition and ability to make expected distributions to our stockholders. Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds. |
Share Repurchase Program
We have adopted a share repurchase plan, whereby on a monthly basis, stockholders may request that we repurchase all or any portion of their shares. The repurchase of shares is limited to no more than 2% of our aggregate NAV per month of all classes of shares then participating in our share repurchase plan and no more than 5% of our aggregate NAV per calendar quarter of all classes of shares then participating in our share repurchase plan, which means that in
any 12-month
period, we limit repurchases to approximately 20% of the total NAV of all classes of shares then participating in the share repurchase plan. During the three months ended June 30, 2022, we repurchased shares of our common stock in the following amounts, which represented all of the share repurchase requested received for the same period:
| Period |
Total Number of Shares Purchased |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
||||||||||||
| April 1 - April 30, 2022 |
202,898 | $ | 25.10 | 202,898 | — | |||||||||||
| May 1 - May 31, 2022 |
465,115 | $ | 25.00 | 465,115 | — | |||||||||||
| June 1 - June 30, 2022 |
637,024 | $ | 24.92 | 637,024 | — | |||||||||||
| |
|
|
|
|
|
|||||||||||
| Total |
1,305,037 | 1,305,037 | — | |||||||||||||
| |
|
|
|
|
|
|||||||||||
| (1) | Repurchases are limited as described above. |
Item 3. Defaults |
upon Senior Securities. |
Not applicable.
Item 4. |
Mine Safety Disclosures. |
Not applicable.
Item 5. |
Other Information. |
Not applicable.
59
Item 6. |
Exhibits. |
60
| 31.2* | Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1+ | Certification of Chief Executive Officer and Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS* | Inline XBRL Instance Document. | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.LAB* | Inline XBRL Taxonomy Extension Labels Linkbase Document. | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 104* | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |
| * | Filed herewith |
| + | This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act or the Exchange Act. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized on August 15, 2022.
| FS CREDIT REAL ESTATE INCOME TRUST, INC. | ||
| By: | /s/ MICHAEL C. FORMAN | |
| Michael C. Forman Chief Executive Officer (Principal Executive Officer) | ||
| By: | /s/ EDWARD T. GALLIVAN, JR. | |
| Edward T. Gallivan, Jr. Chief Financial Officer (Principal Accounting and Financial Officer) | ||
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TABLE OF CONTENTS
Part I Financial InformationItem 1. Financial StatementsNote 1. Principal Business and OrganizationNote 2. Summary Of Significant Accounting PoliciesNote 2. Summary Of Significant Accounting Policies (continued)Note 3. Loans ReceivableNote 3. Loans Receivable (continued)Note 4. Mortgage Backed SecuritiesNote 4. Mortgage Backed Securities (continued)Note 5. Real EstateNote 6. Financing ArrangementsNote 6. Financing Arrangements (continued)Note 7. Related Party TransactionsNote 7. Related Party Transactions (continued)Note 8. Stockholders EquityNote 8. Stockholders Equity (continued)Note 9. Fair Value Of Financial InstrumentsNote 10. Variable Interest EntitiesNote 11. Commitments and ContingenciesNote 12. IntangiblesNote 13. Derivative InstrumentNote 14. Subsequent EventsNote 14. Subsequent Events (continued)Item 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 3. DefaultsItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits