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EX-32 - EXHIBIT 32 - Benefit Street Partners Realty Trust, Inc.bsprt-2017q2xexhibit32.htm
EX-31.2 - EXHIBIT 31.2 - Benefit Street Partners Realty Trust, Inc.bsprt-2017q2xexhibit312.htm
EX-31.1 - EXHIBIT 31.1 - Benefit Street Partners Realty Trust, Inc.bsprt-2017q2xexhibit311.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2017
 OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-55188
BENEFIT STREET PARTNERS REALTY TRUST, INC.
(Exact name of registrant as specified in its charter) 
Maryland
 
46-1406086
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
9 West 57th Street, Suite #4920
New York, New York
 
10019
(Address of Principal Executive Office)
 
(Zip Code)

(212) 588-6770
(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated filer o
Accelerated filer o
Non-accelerated filer (Do not check if a smaller reporting company) x
Smaller reporting company o
 
Emerging growth filer o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

The number of shares of the registrant's common stock, $0.01 par value, outstanding as of July 31, 2017 was 31,481,921.



TABLE OF CONTENTS



i


PART I
Item 1. Consolidated Financial Statements.

BENEFIT STREET PARTNERS REALTY TRUST, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)

 
June 30, 2017
 
December 31, 2016
ASSETS
(Unaudited)
 
 
Cash and cash equivalents
$
133,258

 
$
118,048

Restricted cash
5,544

 
5,021

Commercial mortgage loans, held for investment, net of allowance of $2,600 and $2,181
1,248,333

 
1,046,556

Commercial mortgage loans, held-for-sale, measured at fair value
9,388

 
21,179

Real estate securities, available-for-sale, at fair value
15,294

 
49,049

Receivable for loan repayment

 
401

Accrued interest receivable
6,230

 
5,955

Prepaid expenses and other assets
3,783

 
1,916

Total assets
$
1,421,830

 
$
1,248,125

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Collateralized loan obligations
$
530,833

 
$
278,450

Repurchase agreements - commercial mortgage loans
177,494

 
257,664

Other financing - commercial mortgage loans
35,609

 

Repurchase agreements - real estate securities
49,071

 
66,639

Interest payable
987

 
897

Distributions payable
5,432

 
5,591

Accounts payable and accrued expenses
2,105

 
1,170

Due to affiliates
3,861

 
4,064

Total liabilities
$
805,392

 
$
614,475

Commitment and Contingencies (See Note 8)


 


Preferred stock, $0.01 par value, 50,000,000 authorized, none issued and outstanding as of June 30, 2017 and December 31, 2016

 

Common stock, $0.01 par value, 949,999,000 shares authorized, 31,957,913 and 31,884,631 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
319

 
319

Additional paid-in capital
706,459

 
704,500

Accumulated other comprehensive income (loss)
448

 
(500
)
Accumulated deficit
(90,788
)
 
(70,669
)
Total stockholders' equity
616,438

 
633,650

Total liabilities and stockholders' equity
$
1,421,830

 
$
1,248,125


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

-1


BENEFIT STREET PARTNERS REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for share and per share data)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Interest income:
 
 
 
 
 
 
 
Interest income
$
20,843

 
$
20,222

 
$
39,722

 
$
40,513

Less: Interest expense
7,717

 
5,393

 
13,145

 
10,161

Net interest income
13,126

 
14,829

 
26,577

 
30,352

Operating expenses:
 
 
 
 
 
 
 
Asset management and subordinated performance fee
2,341

 
3,015

 
4,653

 
6,025

Acquisition fees and acquisition expenses
1,866

 
223

 
2,490

 
380

Administrative services expenses
950

 
539

 
1,805

 
1,355

Professional fees
1,205

 
811

 
1,972

 
2,072

Other expenses
756

 
712

 
1,362

 
1,406

Total Operating Expenses
7,118

 
5,300

 
12,282

 
11,238

 
 
 
 
 
 
 
 
Loan loss provision
(193
)
 
669

 
419

 
834

Realized loss on loans sold
1,718

 

 
1,965

 

Realized (gain) loss on sale of real estate securities
(201
)
 

 
(172
)
 

Unrealized (Gain) Loss on loans held-for-sale
(1,597
)
 

 
(247
)
 

Net income
$
6,281

 
$
8,860

 
$
12,330

 
$
18,280

 
 
 
 
 
 
 
 
Basic net income per share
$
0.20

 
$
0.28

 
$
0.39

 
$
0.58

Diluted net income per share
$
0.20

 
$
0.28

 
$
0.39

 
$
0.58

Basic weighted average shares outstanding
31,850,897

 
31,802,261

 
31,796,504

 
31,676,513

Diluted weighted average shares outstanding
31,860,444

 
31,807,927

 
31,806,170

 
31,682,402


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



-2


BENEFIT STREET PARTNERS REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
 
Net income
$
6,281

 
$
8,860

 
$
12,330

 
$
18,280

 
Unrealized gain/(loss) on available-for-sale securities
(440
)
 
2,391

 
948

 
(2,573
)
 
Comprehensive income attributable to Benefit Street Partners Realty Trust, Inc.
$
5,841

 
$
11,251

 
$
13,278

 
$
15,707

 

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



-3


BENEFIT STREET PARTNERS REALTY TRUST, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except for share data)
(Unaudited)

 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
Number of Shares
 
Par Value
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Income
 
Accumulated Deficit
 
Total Stockholders' Equity
Balance, December 31, 2016
 
31,884,631

 
$
319

 
$
704,500

 
$
(500
)
 
$
(70,669
)
 
$
633,650

Common stock repurchases
 
(497,005
)
 
(5
)
 
(9,444
)
 

 

 
(9,449
)
Common stock issued through distribution reinvestment plan
 
570,287

 
5

 
11,388

 

 

 
11,393

Share-based compensation
 

 

 
15

 

 

 
15

Net income
 

 

 

 

 
12,330

 
12,330

Distributions declared
 

 

 

 

 
(32,449
)
 
(32,449
)
Other comprehensive income
 

 

 

 
948

 

 
948

Balance, June 30, 2017
 
31,957,913

 
$
319

 
$
706,459

 
$
448

 
$
(90,788
)
 
$
616,438



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



-4

BENEFIT STREET PARTNERS REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)



 
Six Months Ended June 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income
$
12,330

 
$
18,280

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Premium amortization and (discount accretion), net
(1,159
)
 
(1,143
)
Accretion of deferred commitment fees
(1,124
)
 
(765
)
Amortization of deferred financing costs
2,366

 
1,333

Share-based compensation
15

 
18

Change in unrealized losses on loans held for sale
(247
)
 

Change in unrealized losses on real estate securities

 

Loan loss provision
419

 
834

Changes in assets and liabilities:
 
 
 
Accrued interest receivable
849

 
877

Prepaid expenses and other assets
1,799

 
(20
)
Accounts payable and accrued expenses
935

 
52

Due to affiliates
(203
)
 
(278
)
Interest payable
90

 
16

Net cash provided by operating activities
$
16,070

 
$
19,204

Cash flows from investing activities:
 
 
 
Origination and purchase of commercial mortgage loans
$
(395,929
)
 
$
(25,194
)
Proceeds from sale of real estate securities
34,888

 

Proceeds from sale of commercial mortgage loans
67,586

 

Principal repayments received on commercial mortgage loans
137,767

 
22,401

Principal repayments received on real estate securities

 
2,213

Net cash provided by investing activities
$
(155,688
)
 
$
(580
)
Cash flows from financing activities:
 
 
 
Common stock repurchases
$
(9,449
)
 
$
(6,013
)
Borrowings under collateralized loan obligations
339,500

 

Repayments of collateralized loan obligations
(81,270
)
 

Borrowings on repurchase agreements - commercial mortgage loans
266,579

 
104,626

Repayments of repurchase agreements - commercial mortgage loans
(346,748
)
 
(48,809
)
Borrowings on repurchase agreements - real estate securities
245,532

 
715,666

Repayments of repurchase agreements - real estate securities
(263,100
)
 
(713,597
)
Other financing - commercial mortgage loans
36,200

 

Increase in restricted cash related to financing activities
(523
)
 
(1,132
)
Payments of deferred financing costs
(10,678
)
 
(816
)
Distributions paid
(21,215
)
 
(19,703
)
Net cash (used in) provided by financing activities
$
154,828

 
$
30,222

Net change in cash and cash equivalents
$
15,210

 
$
48,846

Cash and cash equivalents, beginning of period
118,048

 
14,807

Cash and cash equivalents, end of period
$
133,258

 
$
63,653


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


-5


BENEFIT STREET PARTNERS REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
(Unaudited)



 
Six Months Ended June 30,
 
2017
 
2016
Supplemental disclosures of cash flow information:
 
 
 
Interest paid
$
12,258

 
$
8,811

Supplemental disclosures of non-cash flow information:
 
 
 
Distributions payable
$
5,432

 
$
5,392

Common stock issued through distribution reinvestment plan
11,393

 
12,950

Loans transferred to commercial real estate loans, held-for-sale, transferred
at fair value
57,513

 


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

-6

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)


Note 1 - Organization and Business Operations
Benefit Street Partners Realty Trust, Inc. (the "Company"), formerly known as Realty Finance Trust, Inc., is a real estate finance company that primarily originates, acquires and manages a diversified portfolio of commercial real estate debt secured by properties located within the United States. The Company was incorporated in Maryland on November 15, 2012. The Company made a tax election to be treated as a real estate investment trust ("REIT") for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2013. The Company believes that it has qualified as a REIT and intends to continue to meet the requirements for qualification and taxation as a REIT. On May 14, 2013, the Company commenced business operations after raising in excess of $2.0 million of equity, the amount required for the Company to release equity proceeds from escrow. Substantially all of the Company's business is conducted through Benefit Street Partners Realty Operating Partnership, L.P. (the “OP”), a Delaware limited partnership. The Company is the sole general partner and directly or indirectly holds all of the units of limited partner interests in the OP.
The Company has no direct employees. Benefit Street Partners L.L.C. serves as the Company's advisor (the "Advisor") pursuant to an advisory agreement executed on September 29, 2016 (the “Advisory Agreement”). The Advisor, an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”), is a credit-focused alternative asset management firm. Established in 2008, the Advisor's credit platform manages funds for institutions and high-net-worth investors across various credit funds and complementary strategies including high yield, levered loans, private / opportunistic debt, liquid credit, structured credit and commercial real estate debt. These strategies complement each other as they all leverage the sourcing, analytical, compliance, and operational capabilities that encompass the platform. The Advisor is in partnership with Providence Equity Partners L.L.C., a global private equity firm. The Advisor manages the Company's affairs on a day-to-day basis. The Advisor receives compensation and fees for services related to the investment and management of the Company's assets and the operations of the Company. Prior to September 29, 2016, Realty Finance Advisor, LLC ("Former Advisor") was the Company's advisor. The Former Advisor was controlled by AR Global Investments, LLC ("AR Global").
The Company invests in commercial real estate debt investments, which may include first mortgage loans, subordinated mortgage loans, mezzanine loans and participations in such loans. The Company also invests in commercial real estate securities. Real estate securities may include commercial mortgage-backed securities ("CMBS"), senior unsecured debt of publicly traded REITs, debt or equity securities of other publicly traded real estate companies and collateralized debt obligations ("CDOs").
Realty Capital Securities, LLC, (the “Former Dealer Manager”) served as the dealer manager of the Offering. The Former Advisor and Former Dealer Manager are under common control with AR Global, the parent of American Realty Capital VIII, LLC (the "Former Sponsor"). As a result they are related parties and each of them received compensation and fees for services related to the Offering, the investment and management of the Company's assets and the operations of the Company.

Note 2 - Summary of Significant Accounting Policies
Basis of Accounting
The accompanying consolidated financial statements and related footnotes are unaudited and have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X, as appropriate. Accordingly, the consolidated financial statements may not include all of the information and notes required by GAAP for annual consolidated financial statements. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reported periods. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially. In the opinion of management, the interim data includes all adjustments, of a normal and recurring nature, necessary for a fair statement of the results for the periods presented. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the entire year or any subsequent interim periods.
These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of, and for the year ended December 31, 2016, which are included in the Company's Annual Report on Form 10-K filed with the SEC on March 29, 2017. There have been no significant changes to the Company's significant accounting policies during the three months ended June 30, 2017.

-7

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)

Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company, the OP and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. In determining whether the Company has a controlling financial interest in a joint venture and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the other partners or members as well as whether the entity is a variable interest entity ("VIE") for which the Company is the primary beneficiary. The Company has determined the OP is a VIE of which the Company is the primary beneficiary. Substantially all of the Company's assets and liabilities are held by the OP.
The Company consolidates all entities that it controls through either majority ownership or voting rights. In addition, the Company consolidates all VIEs of which the Company is considered the primary beneficiary. VIEs are entities in which equity investors (i) do not have the characteristics of a controlling financial interest and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The entity that consolidates a VIE is its primary beneficiary and is generally the entity with (i) the power to direct the activities that most significantly affect the VIE’s economic performance and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE.
The accompanying consolidated financial statements include the accounts of collateralized loan obligations ("CLOs") issued and securitized by wholly owned subsidiaries of the Company. The Company has determined the CLOs are VIEs of which the Company's subsidiary is the primary beneficiary. The assets and liabilities of the CLOs are consolidated in the accompanying consolidated balance sheet in accordance with ASC 810 - Consolidation.
Acquisition Fees and Acquisition Expenses
The Company incurs acquisition fees and acquisition expenses payable to the Advisor. The Company pays the Advisor an acquisition fee based on the principal amount funded by the Company to originate or acquire commercial mortgage loan investments or on the anticipated net equity funded by the Company to acquire real estate securities. Acquisition fees and acquisition expenses paid to the Company's Advisor in connection with the origination and acquisition of commercial mortgage loan investments and acquisition of real estate securities are evaluated based on the nature of the expense to determine if they should be expensed in the period incurred or capitalized and amortized over the life of the investment. The Company capitalizes certain direct costs relating to the loan origination activities and the cost is amortized over the life of the loan. The Advisor receives an acquisition fee of 1.0% of the principal amount funded by the Company to originate or acquire commercial mortgage loans (or anticipated net equity funded by the Company in the case of acquisitions of real estate securities) and receives reimbursement for insourced acquisition expenses of 0.5%; provided, however, that if and when the aggregate purchase price for all investments acquired after the date of the Advisory Agreement reaches $600,000,000, the Company’s obligation to pay acquisition fees to the Advisor shall terminate. There is no such limitation on the acquisition expense reimbursements.
Commercial Mortgage Loans
Commercial mortgage loans that are held for investment purposes and are anticipated to be held until maturity, are carried at cost, net of unamortized acquisition expenses, discounts or premiums and unfunded commitments. Commercial mortgage loans, held for investment purposes that are deemed to be impaired are carried at amortized cost less a specific allowance for loan losses. Interest income is recorded on the accrual basis and related discounts, premiums and acquisition expenses on investments are amortized over the life of the investment using the effective interest method. Amortization is reflected as an adjustment to interest income in the Company’s consolidated statements of operations. Guaranteed loan exit fees payable by the borrower upon maturity are accreted over the life of the investment using the effective interest method. The accretion of guaranteed loan exit fees is recognized in interest income in the Company's consolidated statements of operation.
Commercial loans that are intended to be sold in the foreseeable future are reported as held-for-sale and are transferred at fair value and recorded at the lower of cost or fair value with changes recorded through the statement of operations. Unamortized loan origination costs for commercial loans held-for-sale are capitalized as part of the carrying value of the loans and recognized upon the sale of such loans. Amortization of origination costs ceases upon transfer of commercial loans to held-for-sale.
Allowance for Loan Losses
The allowance for loan losses reflects management's estimate of loan losses inherent in the loan portfolio as of the balance sheet date. The reserve is increased through the loan loss provision on the Company's consolidated statement of operations and is decreased by charge-offs when losses are confirmed through the receipt of assets, such as cash in a pre-foreclosure sale or

-8

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)

upon ownership control of the underlying collateral in full satisfaction of the loan upon foreclosure or when significant collection efforts have ceased. The Company uses a uniform process for determining its allowance for loan losses. The allowance for loan losses includes a general, formula-based component and an asset-specific component.
General reserves are recorded when (i) available information as of each balance sheet date indicates that it is probable a loss has occurred in the portfolio and (ii) the amount of the loss can be reasonably estimated. The Company estimates loss rates based on historical realized losses experienced in the industry, given the fact the Company has not experienced any losses, and takes into account current collateral and economic conditions affecting the probability and severity of losses when establishing the allowance for loan losses. The Company performs a comprehensive analysis of its loan portfolio and assigns risk ratings to loans that incorporate management's current judgments about their credit quality based on all known and relevant internal and external factors that may affect collectability. The Company considers, among other things, payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographic location as well as national and regional economic factors. This methodology results in loans being segmented by risk classification into risk rating categories that are associated with estimated probabilities of default and principal loss. Ratings range from "1" to "5" with "1" representing the lowest risk of loss and "5" representing the highest risk of loss.
The asset-specific reserve component relates to reserves for losses on individual impaired loans. The Company considers a loan to be impaired when, based upon current information and events, it believes that it is probable that the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. This assessment is made on an individual loan basis each quarter based on such factors as payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographical location as well as national and regional economic factors. A reserve is established for an impaired loan when the present value of payments expected to be received, observable market prices or the estimated fair value of the collateral (for loans that are dependent on the collateral for repayment) is lower than the carrying value of that loan.
For collateral dependent impaired loans, impairment is measured using the estimated fair value of collateral less the estimated cost to sell. Valuations are performed or obtained at the time a loan is determined to be impaired and designated non-performing, and they are updated if circumstances indicate that a significant change in value has occurred. The Advisor generally will use the income approach through internally developed valuation models to estimate the fair value of the collateral for such loans. In more limited cases, the Advisor will obtain external "as is" appraisals for loan collateral, generally when third party participations exist.
A loan is also considered impaired if its terms are modified in a troubled debt restructuring ("TDR"). A TDR occurs when a concession is granted and the debtor is experiencing financial difficulties. Impairments on TDR loans are generally measured based on the present value of expected future cash flows discounted at the effective interest rate of the original loans.
The Company designates non-performing loans at such time as (i) loan payments become 90-days past due; (ii) the loan has a maturity default; or (iii) in the opinion of the Company, it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan. Income recognition will be suspended when a loan is designated non-performing and resumed only when the suspended loan becomes contractually current and performance is demonstrated to have resumed. A loan will be written off when it is no longer realizable and legally discharged.
Per Share Data
The Company calculates basic earnings per share by dividing net income attributable to the Company for the period by the weighted-average number of shares of common stock outstanding for that period. Diluted earnings per share reflects the potential dilution that could occur from shares issuable in connection with the restricted stock plan and if convertible shares were exercised, except when doing so would be anti-dilutive.
Reportable Segments
The Company conducts its business through the following segments:
The real estate debt business which is focused on originating, acquiring and asset managing commercial real estate debt investments, including first mortgage loans, subordinate mortgages, mezzanine loans and participations in such loans.
The real estate securities business which is focused on investing in and asset managing commercial real estate securities primarily consisting of CMBS and may include unsecured REIT debt, CDO notes and other securities.
See Note 12 - Segment Reporting for further information regarding the Company's segments.

-9

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)

Recently Issued Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board ("FASB") issued guidance which requires an entity to determine whether the nature of its promise to provide goods or services to a customer is performed in a principal or agent capacity and to recognize revenue in a gross or net manner based on its principal/agent designation. This guidance is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance.
In June 2016, the FASB issued guidance that changes how entities measure credit losses for financial assets carried at amortized cost. The update eliminates the requirement that a credit loss must be probable before it can be recognized and instead requires an entity to recognize the current estimate of all expected credit losses. Additionally, the update requires credit losses on available-for-sale debt securities to be carried as an allowance rather than as a direct write-down of the asset. The amendments become effective for reporting periods beginning after December 15, 2019. The amendments may be adopted early for reporting periods beginning after December 15, 2018. The Company is currently evaluating the impact of this new guidance.
In August 2016, the FASB issued guidance on how certain transactions should be classified and presented in the statement of cash flows as either operating, investing or financing activities. Among other things, the update provides specific guidance on where to classify debt prepayment and extinguishment costs, payments for contingent consideration made after a business combination and distributions received from equity method investments. The revised guidance is effective for reporting periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance.
In October 2016, the FASB issued guidance where a reporting entity will need to evaluate if it should consolidate a VIE. The amendments change the evaluation of whether a reporting entity is the primary beneficiary of a VIE by changing how a single decision maker of a VIE treats indirect interests in the entity held through related parties that are under common control with the reporting entity. The revised guidance is effective for reporting periods beginning after December 15, 2016. The Company adopted this revised guidance this reporting period which did not have any effect on the Company’s consolidated financial statements.
In November 2016, the FASB issued guidance on the classification of restricted cash in the statement of cash flows. The amendment requires restricted cash to be included in the beginning-of-period and end-of-period total cash amounts. Therefore, transfers between cash and restricted cash will no longer be shown on the statement of cash flows. The guidance is effective for reporting periods beginning after December 15, 2017. Early adoption is permitted. We do not expect this guidance to have a material impact on the Company’s consolidated financial statements.
Note 3 - Commercial Mortgage Loans
The following table is a summary of the Company's commercial mortgage loans, held for investment, carrying values by class (in thousands):
 
June 30, 2017
 
December 31, 2016
Senior loans
$
1,179,548

 
$
901,907

Mezzanine loans
71,385

 
136,830

Subordinated loans

 
10,000

Total gross carrying value of loans
1,250,933

 
1,048,737

Less: Allowance for loan losses
2,600

 
2,181

Total commercial mortgage loans, held for investment, net
$
1,248,333

 
$
1,046,556

The following table presents the activity in the Company's allowance for loan losses (in thousands):
 
Six Months Ended June 30, 2017
 
Six Months Ended June 30, 2016
Beginning of period
$
2,181

 
$
888

Provision for loan losses
419

 
834

Charge-offs

 

Recoveries

 

Ending allowance for loan losses
$
2,600

 
$
1,722


-10

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)

As of June 30, 2017 and December 31, 2016, the Company's total commercial mortgage loan portfolio, including loans held-for-sale, comprised of 70 and 71 loans, respectively.
 
 
June 30, 2017
 
December 31, 2016
Loan Type
 
Par Value
 
Percentage
 
Par Value
 
Percentage
Office
 
$
399,402

 
31.6
%
 
$
340,944

 
31.6
%
Multifamily
 
420,891

 
33.2
%
 
329,203

 
30.6
%
Hospitality
 
117,135

 
9.3
%
 
143,582

 
13.3
%
Retail
 
229,980

 
18.2
%
 
154,684

 
14.4
%
Mixed Use
 
45,235

 
3.6
%
 
56,136

 
5.2
%
Industrial
 
53,208

 
4.2
%
 
52,688

 
4.9
%
 
 
$
1,265,851

 
100.0
%
 
$
1,077,237

 
100.0
%
Credit Characteristics
As part of the Company's process for monitoring the credit quality of its loans, it performs a quarterly loan portfolio assessment and assigns risk ratings to each of its loans. The loans are rated on a 5-point scale as follows:
Investment Rating
 
Summary Description
1
 
Investment exceeding fundamental performance expectations and/or capital gain expected. Trends and risk factors since time of investment are favorable.
2
 
Performing consistent with expectations and a full return of principal and interest expected. Trends and risk factors are neutral to favorable.
3
 
Performing investments requiring closer monitoring. Trends and risk factors show some deterioration.
4
 
Underperforming investment with the potential of some interest loss but still expecting a positive return on investment. Trends and risk factors are negative.
5
 
Underperforming investment with expected loss of interest and some principal.
All commercial mortgage loans are assigned an initial risk rating of 2.0. As of June 30, 2017 and December 31, 2016, the weighted average risk rating of loans was 2.2 and 2.1, respectively. As of June 30, 2017 and December 31, 2016, the Company did not have any loans that were past due on their payments, in non-accrual status or impaired.
For the six months ended June 30, 2017 and June 30, 2016, the activity in the Company's loan portfolio was as follows (in thousands):
 
Six Months Ended June 30, 2017
 
Six Months Ended June 30, 2016
Balance at Beginning of Year
$
1,046,556

 
$
1,124,201

Acquisitions and originations
396,920

 
25,194

Principal repayments
(137,366
)
 
(22,690
)
Discount accretion and premium amortization*
1,146

 
1,124

Loans transferred to commercial real estate loans, held-for-sale, at fair value
(57,513
)
 

Fees capitalized into carrying value of loans
(991
)
 

Provision for loan losses
(419
)
 
(834
)
Balance at End of Period
$
1,248,333

 
$
1,126,995

________________________
* Includes amortization of capitalized acquisition fees and expenses.


-11

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)

Note 4 - Real Estate Securities
The following is a summary of the Company's real estate securities, CMBS (in thousands):
 
 
 
 
Weighted Average
 
 
 
 
 
 
Number of Investments
 
Interest Rate
 
Maturity
 
Par Value
 
Fair Value
June 30, 2017
 
1

 
8.1
%
 
May 2032
 
$
15,000

 
$
15,294

December 31, 2016
 
6

 
5.8
%
 
February 2020
 
50,000

 
49,049

The Company classified its CMBS as available-for-sale as of June 30, 2017 and December 31, 2016. These investments are reported at fair value in the consolidated balance sheet with changes in fair value recorded in "accumulated other comprehensive income or loss". The following table shows the amortized cost, unrealized gains/losses and fair value of the Company's CMBS investments as of June 30, 2017 and December 31, 2016 (in thousands):
 
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
June 30, 2017
 
$
14,846

 
$
448

 
$

 
$
15,294

December 31, 2016
 
49,548

 

 
(499
)
 
49,049

As of June 30, 2017, the Company held 1 CMBS position with an aggregate carrying value of $14.8 million, with an unrealized gain of $0.4 million. As of December 31, 2016, the Company held 6 CMBS positions with an aggregate carrying value of $49.5 million, with an unrealized loss of $0.5 million, of which 2 positions had a total unrealized loss of $0.2 million for a period greater than 12 months.
The Company has recognized a gain of $0.2 million and $0.2 million for the three and six months ended June 30, 2017, respectively, recorded within the realized (gain) loss on sale of real estate securities in the consolidated statement of operations. The Company did not have any realized gains or losses during the three and six months ended June 30, 2016.

The following table provides information on the amounts of gains (losses) on the Company's real estate securities, CMBS, available-for-sale:
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Unrealized gains (losses) available-for-sale securities
$
(570
)
 
$
2,391

 
$
467

 
$
(2,573
)
Reclassification adjustment for net (gains) losses on available-for-sale included in net income (loss)
130

 

 
481

 

Net Reclass
$
(440
)
 
$
2,391

 
$
948

 
$
(2,573
)
 
 
 
 
 
 
 
 
The amounts reclassified for net (gain) loss on available-for-sale securities are included in the realized (gain) loss on sale of real estate securities in the Company's consolidated statements of operations.
 
 
 
 
 
 
 
 


Note 5 - Debt
Repurchase Agreements - Commercial Mortgage Loans
The Company entered into repurchase facilities with JPMorgan Chase Bank, National Association (the "JPM Repo Facility"), Goldman Sachs Bank USA (the "GS Repo Facility") and U.S. Bank National Association (the "USB Repo Facility"), collectively (the "Repo Facilities"). The JPM Repo Facility matured on June 12, 2017 and a new extension occurred on the same day, with an initial maturity date of June 12, 2019 and a one-year extension at the Company's option. The outstanding balances as of June 12, 2017 rolled into the new repurchase agreement and provides up to $300.0 million in advances. The GS

-12

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)

Repo Facility initially matures on December 27, 2018, with a one-year extension at the Company’s option, which may be exercised upon the satisfaction of certain conditions, and provides up to $250.0 million in advances. The USB Repo Facility initially matures on July 15, 2020, with two one-year extensions at the option of the Company, which may be exercised upon the satisfaction of certain conditions, and provides up to $100.0 million in advances. The JPM Repo Facility, GS Repo Facility and USB Repo Facility are subject to various adjustments.
Advances under the JPM Repo Facility currently accrue interest at per annum rates generally equal to the sum of (i) the applicable LIBOR index rate plus (ii) a margin of 2.40%. Borrowings under the GS Repo Facility accrue interest at per annum rates generally equal to the sum of (i) a spread over LIBOR of between 2.35% to 2.85%, depending on the attributes of the purchased asset, and (ii) 0.50%. Borrowings under the USB Repo Facility accrue interest at per annum rates generally equal to the sum of (i) the applicable LIBOR index rate plus (ii) a margin between 2.25% to 3.00%, depending on the attributes of the purchased assets.
We expect to use advances from these repo facilities to finance the acquisition or origination of eligible loans, including first mortgage loans, subordinated mortgage loans, mezzanine loans and participation interests therein.
As of June 30, 2017 and December 31, 2016, the Company had $115.5 million and $257.7 million outstanding under the JPM Repo Facility with weighted average interest rates on advances of 3.48% and 3.08%, respectively. The Company incurred $5.5 million and $2.2 million in interest expense on the JPM Repo Facility for the six months ended June 30, 2017 and 2016, respectively, including amortization of deferred financing cost.
As of June 30, 2017, the Company had $62.0 million outstanding under the GS Repo Facility with a weighted average interest rate on advances of 3.74%. The Company incurred $2.2 million of interest expense on the GS Repo Facility for the six months ended June 30, 2017, including amortization of deferred financing cost. The Company had no advances under the GS Repo Facility as of December 31, 2016. The Company did not incur any interest expense on the GS Repo Facility during the six months ended June 30, 2016.
As of June 30, 2017, the Company had no draws under the USB Repo Facility. The Company incurred $19.6 thousand of interest expense on the USB Repo Facility for the six months ended June 30, 2017, comprising solely of amortization of deferred financing cost.
The Repo Facilities generally provide that in the event of a decrease in the value of the Company's collateral, the lenders can demand additional collateral. Should the value of the Company’s collateral decrease as a result of deteriorating credit quality, resulting margin calls may cause an adverse change in the Company’s liquidity position. As of June 30, 2017 and December 31, 2016, the Company is in compliance with all debt covenants.
The Company entered into a financing arrangement with Pacific Western Bank for term financing (“PWB Financing”) on May 17, 2017. The PWB Financing provided the Company with $36.2 million and is collateralized by a portfolio asset of $54.2 million. The PWB Financing currently accrues interest at per annum rates equal to the sum of (i) the applicable LIBOR index rate plus (ii) a margin of 4.00%. The PWB Financing initially matures on June 9, 2019, with two one-year extension options at the Company’s option. The Company incurred $0.2 million of interest expense on the PWB Financing for the six months ended June 30, 2017, including amortization of deferred financing cost.

Repurchase Agreements - Real Estate Securities
The Company has entered into various Master Repurchase Agreements (the "MRAs") that allow the Company to sell real estate securities while providing a fixed repurchase price for the same real estate securities in the future. The repurchase contracts on each security under an MRA generally mature in 30 to 90 days and terms are adjusted for current market rates as necessary. Below is a summary of the Company's MRAs as of June 30, 2017 and December 31, 2016 (in thousands):

-13

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)

 
 
 
 
 
 
 
 
Weighted Average
Counterparty
 
Amount Outstanding
 
Accrued Interest
 
Collateral Pledged (*)
 
Interest Rate
 
Days to Maturity
As of June 30, 2017
 
 
 
 
 
 
 
 
 
 
J.P. Morgan Securities LLC
 
$
49,071

 
$
96

 
$
71,058

 
3.09
%
 
39
Total/Weighted Average
 
$
49,071

 
$
96

 
$
71,058

 
3.09
%
 
39
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2016
 
 
 
 
 
 
 
 
 
 
J.P. Morgan Securities LLC
 
$
59,122

 
$
96

 
$
92,658

 
2.55
%
 
6
Citigroup Global Markets, Inc.
 
3,879

 
1

 
4,850

 
2.11
%
 
26
Wells Fargo Securities, LLC
 
3,638

 
4

 
4,850

 
2.05
%
 
13
Total/Weighted Average
 
$
66,639

 
$
101

 
$
102,358

 
2.50
%
 
8
* Includes $55.8 and $53.3 Tranche C of Company issued CLO held by the Company, which eliminates within the real estate securities, at fair value line of the consolidated balance sheets as of June 30, 2017 and December 31, 2016, respectively.
Collateralized Loan Obligation
On October 19, 2015, RFT 2015-FL1 Issuer, Ltd. (the “Issuer”) and RFT 2015-FL1 Co-Issuer, LLC (the “Co-Issuer”), both wholly owned indirect subsidiaries of the Company, entered into an indenture with the OP, as advancing agent, U.S. Bank National Association as note administrator and U.S. Bank National Association as trustee, which governs the issuance of approximately $350.2 million principal balance secured floating rate notes (the “Notes”). In addition, concurrently with the issuance of the Notes, the Issuer also issued 78,188,494 Preferred Shares, par value of $0.001 per share and with an aggregate liquidation preference and notional amount equal to $1,000 per share (the “Preferred Shares”), which were not offered as part of closing the indenture. For U.S. federal income tax purposes, the Issuer and Co-Issuer are disregarded entities.
On June 29, 2017, BSPRT 2017-FL1 Issuer, Ltd. (the “Issuer”) and BSPRT 2017-FL1 Co-Issuer, LLC (the “Co-Issuer”), both wholly owned indirect subsidiaries of the Company, entered into an indenture with the OP, as advancing agent, U.S. Bank National Association as note administrator and U.S. Bank National Association as trustee, which governs the issuance of approximately $339.5 million principal balance secured floating rate notes (the “Notes”). In addition, concurrently with the issuance of the Notes, the Issuer also issued 78,561,345 Preferred Shares, par value of $0.001 per share and with an aggregate liquidation preference and notional amount equal to $1,000 per share (the “Preferred Shares”), which were not offered as part of closing the indenture. For U.S. federal income tax purposes, the Issuer and Co-Issuer are disregarded entities.
As of June 30, 2017 and December 31, 2016, the CLO Notes issued in 2015 are collateralized by interests in a pool of 20 and 27 mortgage assets having a total principal balance of $338.0 million and $419.3 million, respectively, (the “Mortgage Assets”) originated by a subsidiary of the Company. The sale of the Mortgage Assets to the Issuer is governed by a Mortgage Asset Purchase Agreement dated as of October 19, 2015, between the Company and the Issuer. In connection with the securitization, the Issuer and Co-Issuer offered and sold the following classes of Notes to third parties: Class A, Class B and Class C. A wholly owned subsidiary of the Company retained approximately $56.0 million of the total $76.0 million of Class C and all of the preferred equity in the Issuer. The retained Class C and its related interest income and the preferred equity are eliminated in the Company's consolidated financial statements. The Company, as the holder of preferred equity in the Issuer, will absorb the first losses of the CLO, which may have a negative impact to the Company's result of operations. The issuance of the CLO also results in an increase in interest expense within the consolidated statement of operations.
As of June 30, 2017 the CLO Notes issued in 2017 are collateralized by interests in a pool of 24 mortgage assets having a total principal balance of $418.1 million (the “Mortgage Assets”) originated by a subsidiary of the Company. The sale of the Mortgage Assets to the Issuer is governed by a Mortgage Asset Purchase Agreement dated as of June 29, 2017, between the Company and the Issuer. In connection with the securitization, the Issuer and Co-Issuer offered and sold the following classes of Notes to third parties: Class A, Class B and Class C. A wholly owned subsidiary of the Company retained all of the preferred equity in the Issuer. The Company, as the holder of preferred equity in the Issuer, will absorb the first losses of the CLO, which may have a negative impact to the Company's result of operations. The issuance of the CLO also results in an increase in interest expense within the consolidated statement of operations.
The following tables represent the terms of the 2015 and 2017 CLOs issued, respectively.

-14

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)

2015 Facility ($000s)
 
Par Value Issued
 
Par Value Outstanding (*)
 
Interest Rate
 
Maturity Date
As of June 30, 2017
 
 
 
 
 
 
 
 
Tranche A
 
$
231,345

 
$
140,890

 
1M LIBOR + 175
 
8/1/2030
Tranche B
 
42,841

 
42,841

 
1M LIBOR + 388
 
8/1/2030
Tranche C
 
76,044

 
20,000

 
1M LIBOR + 525
 
8/1/2030
 
 
$
350,230

 
$
203,731

 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2016
 
 
 
 
 
 
 
 
Tranche A
 
$
231,345

 
$
222,195

 
1M LIBOR + 175
 
8/1/2030
Tranche B
 
42,841

 
42,841

 
1M LIBOR + 388
 
8/1/2030
Tranche C
 
76,044

 
20,000

 
1M LIBOR + 525
 
8/1/2030
 
 
$
350,230

 
$
285,036

 
 
 
 
________________________
* Excludes $56.0 million and $56.0 million of Tranche C of Company issued CLO held by the Company, which eliminates within the collateralized loan obligation line of the consolidated balance sheets as of June 30, 2017 and December 31, 2016, respectively.

2017 Facility ($000s)
 
Par Value Issued
 
Par Value Outstanding
 
Interest Rate
 
Maturity Date
As of June 30, 2017
 
 
 
 
 
 
 
 
Tranche A
 
$
223,600

 
$
223,600

 
1M LIBOR + 135
 
7/1/2027
Tranche B
 
48,000

 
48,000

 
1M LIBOR + 240
 
7/1/2027
Tranche C
 
67,900

 
67,900

 
1M LIBOR + 425
 
7/1/2027
 
 
$
339,500

 
$
339,500

 
 
 
 
 
 
 
 
 
 
 
 
 

The below table reflects the total assets and liabilities of the Company's two CLOs. The CLOs are considered VIEs and are consolidated into the Company's consolidated financial statements as of June 30, 2017 and December 31, 2016 as the Company is the primary beneficiary of the VIEs. The Company is the primary beneficiary of the CLOs because (i) the Company has the power to direct the activities that most significantly affect the VIEs' economic performance and (ii) the right to receive benefits from the VIEs or the obligation to absorb losses of the VIEs that could be significant to the VIEs.
Assets ($000s)
 
June 30, 2017
 
December 31, 2016
Cash
 
$
160

 
$
5

Commercial mortgage loans, held for investment, net of allowance of $2,406 and $1,017 (1)
 
752,277

 
417,057

Accrued interest receivable
 
2,036

 
1,101

Total assets
 
$
754,473

 
$
418,163

 
 
 
 
 
Liabilities
 
 
 
 
Notes payable (2)(3)
 
$
586,635

 
$
334,246

Interest payable
 
557

 
564

Total liabilities
 
$
587,192

 
$
334,810

________________________

-15

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)

(1) The balance is presented net of allowance for loan loss of $2.4 million and $1.0 million as of June 30, 2017 and December 31, 2016, respectively.
(2) Includes $55.8 million and $55.8 million of Tranche C of Company issued CLO held by the Company, which eliminates within the Collateral loan obligations line of the consolidated balance sheets as of June 30, 2017 and December 31, 2016, respectively.
(3) The balance is presented net of deferred financing cost and discount of $12.6 million and $6.8 million as of June 30, 2017 and December 31, 2016, respectively.

Note 6 - Net Income Per Share
The following table is a summary of the basic and diluted net income per share computation for the three and six months ended June 30, 2017 and 2016, respectively:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Net income (in thousands)
$
6,281

 
$
8,860

 
$
12,330

 
$
18,280

Basic weighted average shares outstanding
31,850,897

 
31,802,261

 
31,796,504

 
31,676,513

Unvested restricted shares
9,547

 
5,666

 
9,666

 
5,889

Diluted weighted average shares outstanding
31,860,444

 
31,807,927

 
31,806,170

 
31,682,402

Basic net income per share
$
0.20

 
$
0.28

 
$
0.39

 
$
0.58

Diluted net income per share
$
0.20

 
$
0.28

 
$
0.39

 
$
0.58

Note 7 - Common Stock
As of June 30, 2017 and December 31, 2016, the Company had 31,957,913 and 31,884,631 shares of common stock outstanding, respectively, including shares issued pursuant to the Dividend Reinvestment Plan ("DRIP") and unvested restricted shares.
On December 30, 2014, the Company filed with the Maryland State Department of Assessments and Taxation articles supplementary to its charter that reclassified 1,000 authorized but unissued shares of the Company’s common stock as shares of convertible stock and set the terms of such convertible shares. The Company then issued 1,000 convertible shares to the Former Advisor for $1.00 per share. The convertible shares automatically converted to shares of common stock upon the first occurrence of certain triggering events, including the termination of the Advisory Agreement with the Former Advisor and the Company, with payouts dependent on the achievement of certain stockholder total return thresholds. Subsequent to September 30, 2016, the Company determined that as a result of the termination of the advisory agreement between the Former Advisor and the Company a triggering event had occurred. Based on the Company’s determination of the enterprise value of the Company on the date of the triggering event, the total distributions paid to the Company’s stockholders through the date of the triggering event, and the sum of the Company's stockholders’ invested capital as of the date of the triggering event, that the convertible shares converted into a number of common shares equal to zero. As a result, the convertible shares that were issued to the Former Advisor have been extinguished and no common shares were issued in connection with the conversion and the par value of the shares was transferred to Additional Paid In Capital upon extinguishment.
Distributions
In order to maintain its election to qualify as a REIT, the Company must currently distribute, at a minimum, an amount equal to 90% of its taxable income, without regard to the deduction for distributions paid and excluding net capital gains. The Company must distribute 100% of its taxable income (including net capital gains) to avoid paying corporate U.S. federal income taxes.
On May 13, 2013, the Company's board of directors authorized and declared a distribution calculated daily at a rate of $0.00565068493 per day, which is equivalent to $2.0625 per annum, per share of common stock. In March 2016, the Company's board of directors ratified the existing distribution amount equivalent to $2.0625 per annum for calendar year 2016. On November 10, 2016 the Company’s board of directors changed the DRIP offer price to $20.05, which is equal to the estimated per-share NAV as of September 30, 2016 approved by the board of directors. The price change was applied to the reinvestment of distributions commencing with the October 2016 distributions. On May 10, 2017, the Company’s board of

-16

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)

directors changed the methodology used to determine the DRIP offer price to be the lesser of (i) the Company’s most recent estimated per-share NAV, as approved by the Company’s board of directors from time to time, and (ii) the Company’s book value per share, computed in accordance with GAAP. Based on this new methodology, the DRIP offer price for May 2017, June 2017 and July 2017 was $19.62 per share, which was the GAAP book value per share as of March 31, 2017. Starting August 2017 the DRIP offer price will be $19.29 per share, which is the GAAP book value per share as of June 30, 2017
On March 28, 2017, the Company's board of directors authorized and declared a distribution calculated daily at a rate of $0.00565068493 per day, which is equivalent to $2.0625 per annum, per share of common stock. The Company's distributions are payable by the fifth day following each month end to stockholders of record at the close of business each day during the prior month. Distribution payments are dependent on the availability of funds. The Company's board of directors may reduce the amount of distributions paid or suspend distribution payments at any time, and therefore, distributions payments are not assured. The Company distributed $32.6 million during the six months ended June 30, 2017, comprised of $21.2 million in cash and $11.4 million in shares of common stock issued under the DRIP. The Company distributed $32.6 million during the six months ended June 30, 2016, comprised of $19.7 million in cash and $13.0 million in shares of common stock issued under the DRIP.
Share Repurchase Program
The Company's board of directors unanimously approved an amended and restated share repurchase program (the “SRP”), which became effective on February 28, 2016. The SRP enables stockholders to sell their shares to the Company. Subject to certain conditions, stockholders that purchased shares of the Company's common stock or received their shares from us (directly or indirectly) through one or more non-cash transactions and have held their shares for a period of at least one year may request that the Company repurchase their shares of common stock so long as the repurchase otherwise complies with the provisions of Maryland law. Repurchase requests made following the death or qualifying disability of a stockholder will not be subject to any minimum holding period.
On August 10, 2017, the Company's board of directors amended the SRP to provide that the repurchase price per share for requests will be equal to the lesser of (i) the Company’s most recent estimated per-share NAV, as approved by the Company’s board of directors from time to time, and (ii) the Company’s book value per share, computed in accordance with GAAP, multiplied by a percentage equal to (i) 92.5%, if the person seeking repurchase has held his or her shares for a period greater than one year and less than two years; (ii) 95%, if the person seeking repurchase has held his or her shares for a period greater than two years and less than three years; (iii) 97.5%, if the person seeking repurchase has held his or her shares for a period greater than three years and less than four years; or (iv) 100%, if the person seeking repurchase has held his or her shares for a period greater than four years or in the case of requests for death or qualifying disability.
The Company’s most recent estimated per-share NAV is $20.05 and the Company’s GAAP book value per share as of June 30, 2017 is $19.29. These amendments will begin to apply to repurchases made pursuant to the SRP for the fiscal semester ended December 31, 2017.
      
Repurchase requests related to death or a qualifying disability must satisfy certain conditions, each of which are assessed by and at the sole discretion of the Company, including the following conditions. In the case of death, the shareholder must be a natural person (or a revocable grantor trust) and the Company must receive a written notice from the estate of the shareholder, the recipient of the shares through bequest or inheritance, or the trustee in the case of a revocable grantor trust. In the case of a “qualifying disability”, the shareholder must be a natural person (or a revocable grantor trust) and the Company must receive a written notice from the shareholder, or the trustee in the case of a revocable grantor trust, that the condition was not pre-existing on the date the shares were acquired. In order for a disability to be considered a “qualifying disability”, the shareholder must receive and provide evidence (the shareholder application and the notice of final determination) of disability based upon a physical or mental condition or impairment made by a government agency responsible for reviewing and determining disability retirement benefits (e.g. the Social Security Administration).
Repurchases pursuant to the SRP, when requested, generally will be made semiannually (each six-month period ending June 30 or December 31, a “fiscal semester”). Repurchases for any fiscal semester will be limited to a maximum of 2.5% of the weighted average number of shares of common stock outstanding during the previous fiscal year, with a maximum for any fiscal year of 5.0% of the weighted average number of shares of common stock outstanding during the previous fiscal year. Funding for repurchases pursuant to the SRP for any given fiscal semester will be limited to proceeds received during that same fiscal semester through the issuance of common stock pursuant to any DRIP in effect from time to time, provided that the Company's board of directors has the power, in its sole discretion, to determine the amount of shares repurchased during any fiscal semester as well as the amount of funds to be used for that purpose. Any repurchase requests received during such fiscal

-17

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)

semester will be paid at the price, computed as described above on the last day of such fiscal semester. Due to these limitations, the Company cannot guarantee that the Company will be able to accommodate all repurchase requests made during any fiscal semester or fiscal year. However, a stockholder may withdraw its request at any time or ask that the Company honors the request when funds are available. Pending repurchase requests will be honored on a pro rata basis. The Company will generally pay repurchase proceeds, less any applicable tax or other withholding required by law, by the 31st day following the end of the fiscal semester during which the repurchase request was made.
When a stockholder requests redemption and the redemption is approved, the Company will reclassify such obligation from equity to a liability based on the settlement value of the obligation. Shares repurchased under the SRP will have the status of authorized but unissued shares.

The following table reflects the number of shares repurchased under the SRP cumulatively through June 30, 2017:

 
 
Number of Requests
 
Number of Shares Repurchased
 
Average Price per Share
Cumulative as of December 31, 2016
 
985

 
918,683

 
$
23.94

January 1 - March 31, 2017
 
502

 
496,678

 
19.04

April 1 - June 30, 2017
 
2

 
327

 
20.08

Cumulative as of June 30, 2017
 
1,489

 
1,415,688

 
$
22.22

Note 8 - Commitments and Contingencies
Unfunded Commitments for Commercial Mortgage Loans
As of June 30, 2017 and December 31, 2016, the Company had the below unfunded commitments to the Company's borrowers.
Funding Expiration
 
June 30, 2017
 
December 31, 2016
2016
 
$

 
$

2017
 
7,367

 
7,794

2018
 
52,023

 
62,368

2019
 
25,521

 
9,072

2020
 
17,356

 

Total
 
$
102,267

 
$
79,234


Litigation and Regulatory Matters
In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. Except as noted below, the Company has no knowledge of material legal or regulatory proceedings pending or known to be contemplated against the Company at this time.  On June 6, 2016, an action was filed against the Company and two of its directors in the United States District Court for the Southern District of New York and styled Rurode v. Realty Finance Trust, Inc., et. al., No. 1:16-cv-04553.  The plaintiff’s individual and derivative complaint alleged that the Company made material misstatements in the proxy statement for its 2016 annual stockholder’s meeting related to an alleged planned merger transaction between the Company and an affiliate of its Former advisor.  The plaintiff alleged violations of Section 14(a) of the Securities Exchange Act of 1934 and sought to enjoin the Company’s 2016 annual meeting.  On June 28, 2016, the parties filed, and the court subsequently entered, a stipulation and order of dismissal of the action, but provided that the court would retain jurisdiction to consider any application by plaintiff for an award of attorneys’ fees.  On October 20, 2016, the plaintiff submitted a request for $0.75 million in fees and expenses. On November 14, 2016, the defendants filed a memorandum of law in opposition to that fee request. On July 19, 2017, the Company and the plaintiff entered into an agreement pursuant to which the Company paid $245,000 in attorneys’ fees and expenses and the plaintiff agreed to withdraw its October 20, 2016 fee request to the court and to release the Company from any further claims related to such fee request.
The Company recorded an accrual of $245,000 in the June 30, 2017 financial statements for the related settlement.

-18

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)

Note 9 - Related Party Transactions and Arrangements
The Company entered into the Advisory Agreement with the Advisor on September 29, 2016.
The Advisor receives an acquisition fee of 1.0% of the principal amount funded by the Company to originate or acquire commercial mortgage loans (or anticipated net equity funded by the Company in the case of acquisitions of real estate securities) and receives reimbursement for insourced acquisition expenses of 0.5%; provided, however, that if and when the aggregate purchase price for all investments acquired after the date of the Advisory Agreement reaches $600,000,000, the Company’s obligation to pay acquisition fees to the Advisor shall terminate. In no event will the total of all acquisition fees and acquisition expenses exceed 4.5% of the principal amount funded with respect to the Company's total portfolio including subsequent funding to investments in the Company's portfolio.
The Company pays the Advisor, or its affiliates, a monthly asset management fee equal to one-twelfth of 1.5% of stockholder’s equity as calculated pursuant to the Advisory Agreement. The Company will pay the Advisor, an annual subordinated performance fee calculated on the basis of total return to stockholders, payable monthly in arrears, such that for any year in which total return on stockholders’ capital exceeds 6.0% per annum, the Advisor will be entitled to 15.0% of the excess total return; provided that in no event will the annual subordinated performance fee payable to the Advisor exceed 10.0% of the aggregate total return for such year. The Company will reimburse the Advisor for expenses incurred related to administrative services such as accounting, legal and other services in accordance with the advisory agreement.
Until September 29, 2016, the Former Advisor served as the Company’s advisor and the Company paid the Former Advisor certain fees and expense reimbursements pursuant to its advisory agreement with the Former Advisor.
During the three and six months ended June 30, 2017, the Company paid acquisition fees and expenses of $4.5 million and $6.0 million respectively, of which $1.9 million and $2.5 million respectively, have been recognized in Acquisition fees on the Company's consolidated statement of operations. In addition, during the three and six months ended June 30, 2017, the Company capitalized $2.6 million and $3.5 million, respectively of acquisition expenses included in Commercial mortgage loans within the Company's consolidated balance sheets, which is amortized over the life of each investment using the effective interest method.
During the three and six months ended June 30, 2016, the Company paid acquisition fees and expenses of $0.2 million and $0.4 million respectively, and recognized the same amounts respectively, in Acquisition fees on the Company's consolidated statement of operations. The Company did not capitalize any acquisitions expenses for the three and six months ended June 30, 2016.
The Company paid the Former Advisor, or its affiliates, a monthly asset management fee equal to one-twelfth of 0.75% of the cost of the Company's assets. The asset management fee was based on the lower of the cost of the Company's assets and the fair value of the Company's assets (fair value consist of the market value of each portfolio investment as determined by the Former Advisor in accordance with the Company's valuation guidelines).
During the three and six months ended June 30, 2017, the Company incurred $2.3 million and $4.7 million in asset management fees, respectively. During the three and six months ended June 30, 2016, the Company incurred $2.4 million and $4.7 million in asset management fees, respectively. These asset management fees are recorded in "Asset management and subordinated performance fee" within the consolidated statements of operations.
The Company is required to pay the Advisor an annual subordinated performance fee calculated on the basis of total return to stockholders, payable monthly in arrears, such that for any year in which total return on stockholders’ capital exceeds 6.0% per annum, the Former Advisor will be entitled to 15.0% of the excess total return; provided that in no event will the annual subordinated performance fee payable to the Former Advisor exceed 10.0% of the aggregate total return for such year. This fee will be payable only upon the sale of assets, distributions or other event which results in the Company's return on stockholders’ capital exceeding 6.0% per annum.
The Company did not incur an annual subordinated performance fee during the three and six months ended June 30, 2017. During the three and six months ended June 30, 2016, the Company incurred an annual subordinated performance fee of $0.6 million and $1.3 million, respectively. The subordinated performance fee is recorded in "Asset management and subordinated performance fees" within the Company's consolidated statements of operations.
The table below depicts related party fees and reimbursements in connection with the operations of the Company for the three and six months ended June 30, 2017 and 2016 and the associated payable as of June 30, 2017 and December 31, 2016 (in thousands):

-19

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Payable as of
 
 
2017
 
2016
 
2017
 
2016
 
June 30, 2017
 
December 31, 2016
Total compensation and reimbursement for services provided by the Former Advisor, its affiliates, entities under common control with the Former Advisor and the Former Dealer Manager

 
$

 
$

 
$

 
$

 
$
480

 
$
480

Acquisition fees and expenses
 
$
4,542

 
$
223

 
5,954

 
380

 

 

Administrative services expenses
 
950


539

 
1,805

 
1,355

 
950

 
1,000

Advisory and investment banking fee
 

 

 

 
6

 

 

Asset management and subordinated performance fee
 
2,341

 
3,015

 
4,653

 
6,025

 
2,341

 
2,439

Other related party expenses
 
48

 
24

 
96

 
50

 
90

 
145

Total related party fees and reimbursements
 
$
7,881

 
$
3,801

 
$
12,508

 
$
7,816

 
$
3,861

 
$
4,064

The payables as of June 30, 2017 and December 31, 2016 in the table above are included in "Due to affiliates" in the Company's consolidated balance sheets.
Subject to the limitations outlined below, the Company reimbursed the Former Advisor's cost of providing administrative services and personnel costs in connection with other services provided, in addition to paying an asset management fee; however, the Company did not reimburse the Former Advisor for personnel costs in connection with services for which the Former Advisor received acquisition fees or disposition fees. For the three and six months ended June 30, 2017, the Company incurred $1.0 million and $1.8 million of administrative costs in connection with the operations of the Company, which is included in "Administrative services expenses" in the consolidated statements of operations. For the three and six months ended June 30, 2016, the Company incurred $0.5 million and $1.4 million of administrative costs in connection with the operations of the Company, which is included in "Administrative services expenses" in the consolidated statements of operations.
The Advisor is required to pay any expenses in which the Company's operating expenses as defined by North American Securities Administrators Association at the end of the four preceding fiscal quarters exceeds the greater of (i) 2.0% of average invested assets or (ii) 25.0% of net income for such expense year. For the preceding four fiscal quarters, the Company did not exceed the greater of the two aforementioned criteria as of June 30, 2017.
The Company has also established a restricted share plan for the benefit of employees, directors, employees of the Advisor and its affiliates.
Note 10 - Fair Value of Financial Instruments
GAAP establishes a hierarchy of valuation techniques based on the observability of inputs used in measuring financial instruments at fair values. GAAP establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The three levels of the hierarchy are described below:
Level I - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level II - Inputs (other than quoted prices included in Level I) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level III - Unobservable inputs that reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.

-20

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)

The determination of where an asset or liability falls in the above hierarchy requires significant judgment and factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter.
The Company has implemented valuation control processes to validate the fair value of the Company's financial instruments measured at fair value including those derived from pricing models. These control processes are designed to assure that the values used for financial reporting are based on observable inputs wherever possible. In the event that observable inputs are not available, the control processes are designed to assure that the valuation approach utilized is appropriate and consistently applied and the assumptions are reasonable.
CMBS are valued utilizing both observable and unobservable market inputs. These factors include projected future cash flows, ratings, subordination levels, vintage, remaining lives, credit issues, recent trades of similar real estate securities and the spreads used in the prior valuation. Depending upon the significance of the fair value inputs used in determining these fair
values, these real estate securities are classified in either Level II or Level III of the fair value hierarchy. The Company obtains current market spread information where available and uses this information in evaluating and validating the market price of all CMBS. Depending upon the significance of the fair value inputs used in determining these fair values, these real estate securities are classified in either Level II or Level III of the fair value hierarchy. As of June 30, 2017 and December 31, 2016, the Company obtained broker quotes for determining the fair value of each CMBS investment used. As the broker quotes were both limited and non-binding, the Company has classified the CMBS as level III.
The following table presents the Company's financial instruments carried at fair value on a recurring basis in the consolidated balance sheets by its level in the fair value hierarchy as of June 30, 2017 and December 31, 2016 (in thousands):
 
Total
 
Level I
 
Level II
 
Level III
June 30, 2017
 
 
 
 
 
 
 
Real estate securities
$
15,294

 
$

 
$

 
$
15,294

December 31, 2016

 
 
 
 
 
 
Real estate securities
49,049

 

 

 
49,049

The following table presents additional information about CMBS investments which are measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016 for which the Company has used Level 3 inputs to determine fair value (dollars in thousands):
 
 
June 30, 2017
 
December 31, 2016
Beginning balance
 
$
49,049

 
$

Transfers into Level III
 

 
57,639

Total realized and unrealized gains (losses)
 
 
 
 
included in earnings:
 
 
 
 
Realized gain (loss) on sale of real estate securities
 
172

 
(874
)
Impairment losses on real estate securities
 

 
(310
)
Net accretion
 
13

 

Unrealized gains (losses) included in OCI (1)
 
948

 
1,719

Purchases
 

 

Sales
 
(34,888
)
 
(9,125
)
Cash repayments/receipts
 

 

Transfers out of Level III
 

 

Ending balance
 
$
15,294

 
$
49,049

________________________

-21

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)

(1) - Unrealized gains included in Other comprehensive income ("OCI") are attributable to assets still held at June 30, 2017 and December 31, 2016.

Financial Instruments Measured at Fair Value on a Non-Recurring Basis
The following table presents the Company's financial instruments carried at fair value on a non-recurring basis in the consolidated balance sheets by its level in the fair value hierarchy as of June 30, 2017 and December 31, 2016 (in thousands):
 
Total
 
Level I
 
Level II
 
Level III
June 30, 2017(*)
 
 
 
 
 
 
 
Commercial mortgage loans, held-for-sale, measured at fair value
$
9,388

 
$

 
$

 
$
9,388

December 31, 2016(*)
 
 
 
 
 
 
 
Commercial mortgage loans, held-for-sale, measured at fair value
21,179

 

 

 
21,179

________________________
* As of June 30, 2017 and December 31, 2016, the Company's portfolio of commercial real estate loans held-for-sale were carried at the lower of cost or market value. The fair value of certain held-for-sale loans were adjusted to reflect fair value of the assets based on the sales price received from a potential buyer.
A review of the fair value hierarchy classification is conducted on a quarterly basis. Changes in the type of inputs may result in a reclassification for certain assets. The Company's policy with respect to transfers between levels of the fair value hierarchy is to recognize transfers into and out of each level as of the beginning of the reporting period. There were no transfers between levels within fair value hierarchy during the three and six months ended June 30, 2017.
The fair value of cash and cash equivalents and restricted cash are measured using observable quoted market prices, or Level I inputs and their carrying value approximates their fair value. The fair value of borrowings under repurchase agreements approximate their carrying value on the consolidated balance sheets due to their short-term nature, and are measured using Level II inputs.

Financial Instruments Not Measured at Fair Value
The fair values of the Company's commercial mortgage loans and collateralized loan obligations, which are not reported at fair value on the consolidated balance sheets are reported below as of June 30, 2017 and December 31, 2016 (in thousands):
 
 
 
Level
 
Carrying Amount
 
Fair Value
June 30, 2017
 
 
 
 
 
 
 
Commercial mortgage loans (1)
Asset
 
III
 
$
1,250,933

 
$
1,248,569

Collateralized loan obligation
Liability
 
II
 
530,833

 
543,131

December 31, 2016
 
 
 
 
 
 
 
Commercial mortgage loans(1)
Asset
 
III
 
1,048,737

 
1,029,756

Collateralized loan obligation
Liability
 
II
 
278,450

 
282,001

________________________
1 The carrying value is gross of $2.6 million and $2.2 million of allowance for loan losses as of June 30, 2017 and December 31, 2016, respectively.
The fair value of the commercial mortgage loans is estimated using a discounted cash flow analysis, based on the Advisor's experience with similar types of investments. The Company received broker quotes for each tranche of the CLO issued in 2015 to determine the fair value of the debt. The CLO issued in 2017 closed on June 29, 2017, hence Company estimated the fair value of each tranche of the CLO issued at par.

-22

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)

Note 11 - Offsetting Assets and Liabilities
The Company's consolidated balance sheets used a gross presentation of repurchase agreements and collateral pledged. The table below provides a gross presentation, the effects of offsetting and a net presentation of the Company's repurchase agreements within the scope of ASC 210-20, Balance Sheet—Offsetting, as of June 30, 2017 and December 31, 2016, (in thousands):
 
 
 
 
 
 
 
 
Gross Amounts Not Offset on the Balance Sheet
 
 
Repurchase Agreements
 
Gross Amounts of Recognized Liabilities
 
Gross Amounts Offset on the Balance Sheet
 
Net Amount of Liabilities Presented on the Balance Sheet
 
Financial Instruments as Collateral Pledged (*)
 
Cash Collateral Pledged
 
Net Amount
June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Commercial mortgage loans
 
$
177,494

 
$

 
$
177,494

 
$
761,968

 
$
5,005

 
$

Real estate securities
 
49,071

 

 
49,071

 
71,058

 
389

 

December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Commercial mortgage loans
 
257,664

 

 
257,664

 
399,914

 
5,000

 

Real estate securities
 
66,639

 

 
66,639

 
102,358

 
21

 

* Includes $55.8 million and $53.3 million Tranche C of Company issued CLO held by the Company, which eliminates within the real estate securities, at fair value line of the consolidated balance sheets as of June 30, 2017 and December 31, 2016, respectively.
Note 12 - Segment Reporting
The Company conducts its business through the following segments:
The real estate debt business focuses on originating, acquiring and asset managing commercial real estate debt investments, including first mortgage loans, subordinate mortgages, mezzanine loans and participations in such loans.
The real estate securities business focuses on investing in and asset managing commercial real estate securities primarily consisting of CMBS and may include unsecured REIT debt, CDO notes and other securities.
The following table represents the Company's operations by segment for the three months ended June 30, 2017 and 2016 (in thousands):
Three Months Ended June 30, 2017
 
Total
 
Real Estate Debt
 
Real Estate Securities
Interest income
 
$
20,843

 
$
20,432

 
$
411

Interest expense
 
7,717

 
7,307

 
410

Net income
 
6,281

 
6,090

 
191

Three Months Ended June 30, 2016
 
 
 
 
 
 
Interest income
 
20,222

 
18,615

 
1,607

Interest expense
 
5,393

 
4,710

 
683

Net income
 
8,860

 
8,451

 
409










-23

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)

The following table represents the Company's operations by segment for the six months ended June 30, 2017 and 2016 (in thousands):
Six Months Ended June 30, 2017
 
Total
 
Real Estate Debt
 
Real Estate Securities
Interest income
 
$
39,722

 
$
38,640

 
$
1,082

Interest expense
 
13,145

 
12,300

 
845

Net income
 
12,330

 
12,039

 
291

Six Months Ended June 30, 2016
 
 
 
 
 
 
Interest income
 
40,513

 
37,291

 
3,222

Interest expense
 
10,161

 
8,801

 
1,360

Net income
 
18,280

 
17,510

 
770


The following table represents the Company's total assets by segment as of June 30, 2017 and December 31, 2016 (in
thousands):
As of June 30, 2017
 
Total
 
Real Estate Debt
 
Real Estate Securities
Total Assets
 
$
1,421,830

 
$
1,406,049

 
$
15,781

As of December 31, 2016
 
 
 
 
 
 
Total Assets
 
1,248,125

 
1,198,806

 
49,319


For the purposes of the table above, any expenses not associated with a specific segment have been allocated to the business segments using a percentage derived by using the sum of commercial mortgage loans, net and real estate securities, at fair value as the denominator and commercial mortgage loans, net and real estate securities, at fair value as the numerators.
Note 13 - Subsequent Events
Settlement of Legal Matter
On June 6, 2016, an action was filed against the Company and two of its directors in the United States District Court for the Southern District of New York and styled Rurode v. Realty Finance Trust, Inc., et. al., No. 1:16-cv-04553.  The plaintiff’s individual and derivative complaint alleged that the Company made material misstatements in the proxy statement for its 2016 annual stockholder’s meeting related to an alleged planned merger transaction between the Company and an affiliate of its Former advisor.  The plaintiff alleged violations of Section 14(a) of the Securities Exchange Act of 1934 and sought to enjoin the Company’s 2016 annual meeting.  On June 28, 2016, the parties filed, and the court subsequently entered, a stipulation and order of dismissal of the action, but provided that the court would retain jurisdiction to consider any application by plaintiff for an award of attorneys’ fees.  On October 20, 2016, the plaintiff submitted a request for $0.75 million in fees and expenses. On November 14, 2016, the defendants filed a memorandum of law in opposition to that fee request.
On July 19, 2017, the Company and the plaintiff entered into an agreement pursuant to which the Company paid $245,000 in attorneys’ fees and expenses and the plaintiff agreed to withdraw its October 20, 2016 fee request to the court and to release the Company from any further claims related to such fee request.

Distributions Paid
On July 3, 2017, the Company paid a distribution of $5.4 million to stockholders of record during the month of June 2017. The Company paid $3.6 million of the distribution in cash, while $1.8 million was used to purchase 92,183 shares through the DRIP.


-24


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the accompanying consolidated financial statements of Benefit Street Partners Realty Trust, Inc. The notes thereto and other financial information included elsewhere in this Quarterly Report on Form 10-Q as well as our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the U.S. Securities and Exchange Commission (the "SEC") on March 29, 2017.
As used herein, the terms "we," "our" and "us" refer to Benefit Street Partners Realty Trust, Inc., a Maryland corporation, and, as required by context, to Benefit Street Partners Realty Operating Partnership, L.P., a Delaware limited partnership, which we refer to as the "OP," and to its subsidiaries. We are externally managed by Benefit Street Partners L.L.C. (our "Advisor").
The forward-looking statements contained in this Quarterly Report on Form 10-Q may include, but are not limited to, statements as to:
our business and investment strategy;
our ability to make investments in a timely manner or on acceptable terms;
current credit market conditions and our ability to obtain long-term financing for our investments in a timely manner and on terms that are consistent with what we project when we invest;
the effect of general market, real estate market, economic and political conditions, including the recent economic slowdown and dislocation in the global credit markets;
our ability to make scheduled payments on our debt obligations;
our ability to generate sufficient cash flows to make distributions to our stockholders;
our ability to generate sufficient debt and equity capital to fund additional investments;
our ability to refinance our existing financing arrangements;
the degree and nature of our competition;
the availability of qualified personnel;
our ability to maintain our qualification as a real estate investment trust ("REIT"); and
other factors set forth under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2016.
In addition, words such as "anticipate," "believe," "expect" and "intend" indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this Quarterly Report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason.
Our investors should not place undue reliance on these forward-looking statements. The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.
Overview
We were incorporated in Maryland on November 15, 2012 and conduct our operations to qualify as a REIT for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2013. On May 14, 2013, we commenced business operations after raising in excess of $2.0 million of equity, the amount required for us to release equity proceeds from escrow. We are in business to originate, acquire and manage a diversified portfolio of commercial real estate debt secured by properties located both within and outside of the United States. We also invest in commercial real estate securities. Commercial real estate debt investments may include first mortgage loans, subordinated mortgage loans, mezzanine loans and participations in such loans. Commercial real estate securities may include CMBS, senior unsecured debt of publicly traded REITs, debt or equity securities of other publicly traded real estate companies and CDOs.
We have no employees. On September 29, 2016 we terminated our advisory agreement with our former advisor and entered into the Advisory Agreement with our Advisor. Our Advisor manages our affairs on a day-to-day basis. The Advisor receives compensation and fees for services related to the investment and management of our assets and our operations.
The Advisor, an SEC-registered investment adviser, is a credit-focused alternative asset management firm. The Advisor manages assets across a broad range of complementary credit strategies, including high yield, levered loans, private/opportunistic debt, liquid credit, structured credit and commercial real estate debt. The Advisor is affiliated with Providence Equity Partners L.L.C.

-25


On November 10, 2016, our board of directors unanimously determined an estimated NAV per share of our common stock of $20.05 as of September 30, 2016. The estimated NAV per share is based upon the estimated value of our assets less our liabilities as of September 30, 2016. With the unanimous approval of the board of directors, we engaged Duff & Phelps, LLC, an independent third-party real estate advisory firm, who performed appraisals of our real estate assets. Our Advisor calculated the estimated NAV per share, and our board of directors, unanimously, approved the estimated NAV per share calculated by our Advisor. The valuation was performed in accordance with the provisions of Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs, issued by the Investment Program Association in April 2013. Commencing with the reinvestment of our October 2016 monthly dividends in November 2016, the per share price for our DRIP offering will be equal to our new estimated per share NAV.
Significant Accounting Policies and Use of Estimates
A summary of our significant accounting policies is set forth in Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements included in this Quarterly Report on Form 10-Q. A full disclosure of our significant accounting polices is disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.
Portfolio
As of June 30, 2017 and December 31, 2016, our portfolio consisted of 70 and 71 loans (the "Loans") and 1 and 6 investments in CMBS, respectively. The Loans held for investment had a total carrying value, net of allowance for loan losses, of $1,248.3 million and $1,046.6 million, and our CMBS investments had a fair value of $15.3 million and $49.0 million as of June 30, 2017 and December 31, 2016, respectively. For our loans, we currently estimate loss rates based on historical realized losses experienced in the industry and take into account current collateral and economic conditions affecting the probability or severity of losses when establishing the allowance for loan losses. We recorded a general allowance for loan losses as of June 30, 2017 and December 31, 2016 in the amount of $2.6 million and $2.2 million, respectively. There were no impaired or specifically reserved loans in the portfolio as of June 30, 2017 and December 31, 2016.
As of June 30, 2017 and December 31, 2016, our Loans had a weighted average coupon of 6.2% and 6.1%, and a weighted average life of 1.7 and 1.9 years, respectively. Our CMBS investments had a weighted average coupon of 8.2% and 5.8% and a remaining life of 14.9 and 3.1 years as of June 30, 2017 and December 31, 2016, respectively. The following charts summarize our portfolio as a percentage of par value, including CMBS, by the collateral type, geographical region and coupon rate type as of June 30, 2017 and December 31, 2016:

-26


bsprt-2017_chartx20956.jpg bsprt-2017_chartx22137.jpg
                                                              

bsprt-2017_chartx23336.jpg bsprt-2017_chartx24774.jpg



-27


bsprt-2017_chartx26032.jpgbsprt-2017_chartx28437.jpg

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

-28


map.jpg

The following charts show the par value by maturity year for the investments in our portfolio as of June 30, 2017 and December 31, 2016.

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bsprt-2017_chartx32237.jpg

The following table shows selected data from our commercial mortgage loans portfolio as of June 30, 2017 (in thousands):
Loan Type
Property Type
Par Value
Interest Rate (1)
Effective Yield
Loan to Value (2)
Senior 1
 Office
$6,290
1M LIBOR + 4.90%
6.1%
80.0%
Senior 2
 Office
31,250
1M LIBOR + 4.50%
5.9%
75.0%
Senior 3
 Retail
9,450
1M LIBOR + 4.90%
6.2%
69.2%
Senior 4
 Hospitality
7,660
1M LIBOR + 5.50%
7.1%
55.3%
Senior 5
 Retail
7,460
1M LIBOR + 4.75%
6.1%
78.0%
Senior 6
 Retail
11,800
1M LIBOR + 4.75%
6.1%
79.4%
Senior 7
 Office
33,734
1M LIBOR + 4.65%
6.1%
80.0%
Senior 8
 Office
41,201
1M LIBOR + 5.25%
6.6%
75.0%
Senior 9
 Office
13,440
1M LIBOR + 5.00%
6.4%
75.0%
Senior 10
 Office
29,806
1M LIBOR + 4.60%
5.9%
65.0%
Senior 11
 Retail
11,684
1M LIBOR + 4.50%
5.8%
74.8%
Senior 12
 Multifamily
14,546
1M LIBOR + 5.00%
6.4%
76.7%
Senior 13
 Retail
9,950
1M LIBOR + 5.25%
6.6%
80.0%
Senior 14
 Multifamily
10,922
1M LIBOR + 4.75%
6.0%
75.0%
Senior 15
 Hospitality
16,800
1M LIBOR + 4.90%
6.2%
74.0%
Senior 16
 Multifamily
26,410
1M LIBOR + 4.25%
5.6%
79.7%
Senior 17
 Multifamily
14,852
1M LIBOR + 4.50%
5.9%
76.0%
Senior 18
 Retail
14,600
1M LIBOR + 4.25%
5.6%
65.0%
Senior 19
 Retail
27,249
1M LIBOR + 4.75%
6.0%
67.4%
Senior 20
 Office
8,784
1M LIBOR + 4.65%
6.1%
70.8%
Senior 21
 Industrial
19,553
1M LIBOR + 4.25%
5.6%
68.0%
Senior 22
 Multifamily
18,941
1M LIBOR + 4.20%
5.5%
76.4%
Senior 23
 Hospitality
10,350
1M LIBOR + 5.50%
6.9%
69.9%
Senior 24
 Hospitality
15,375
1M LIBOR + 5.30%
6.6%
73.5%
Senior 25
 Mixed Use
45,235
1M LIBOR + 5.50%
6.9%
72.6%
Senior 26
 Retail
7,500
1M LIBOR + 5.00%
6.5%
59.0%
Senior 27
 Retail
4,725
1M LIBOR + 5.50%
7.0%
72.0%
Senior 28
 Multifamily
44,595
1M LIBOR + 4.25%
5.7%
77.0%
Senior 29
 Multifamily
18,075
1M LIBOR + 4.50%
5.8%
75.0%

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Loan Type
Property Type
Par Value
Interest Rate (1)
Effective Yield
Loan to Value (2)
Senior 30
 Office
13,986
1M LIBOR + 4.75%
6.0%
74.4%
Senior 31
 Multifamily
24,387
1M LIBOR + 4.25%
5.5%
69.6%
Senior 32
 Multifamily
44,192
1M LIBOR + 4.00%
5.3%
77.0%
Senior 33
 Multifamily
25,200
1M LIBOR + 3.85%
5.0%
76.8%
Senior 34
 Multifamily
8,707
1M LIBOR + 3.95%
5.1%
77.5%
Senior 35
 Multifamily
13,120
1M LIBOR + 3.95%
5.1%
78.2%
Senior 36
 Multifamily
5,894
1M LIBOR + 4.05%
5.2%
80.0%
Senior 37
 Industrial
33,655
1M LIBOR + 4.00%
5.2%
65.0%
Senior 38
 Office
12,000
1M LIBOR + 4.75%
6.0%
54.1%
Senior 39
 Office
35,000
1M LIBOR + 5.00%
6.2%
79.0%
Senior 40
 Office
19,979
1M LIBOR + 4.55%
5.8%
70.0%
Senior 41
 Office
28,489
1M LIBOR + 4.25%
5.5%
73.3%
Senior 42
 Office
15,030
1M LIBOR + 5.35%
6.7%
47.1%
Senior 43
 Multifamily
14,000
1M LIBOR + 5.00%
6.2%
56.3%
Senior 44
 Office
16,300
1M LIBOR + 6.00%
7.5%
74.8%
Senior 45
 Retail
13,700
1M LIBOR + 4.75%
6.1%
62.6%
Senior 46
 Retail
28,500
1M LIBOR + 4.73%
6.0%
73.1%
Senior 47
 Retail
12,700
1M LIBOR + 5.00%
6.3%
73.3%
Senior 48
 Multifamily
23,150
1M LIBOR + 5.00%
6.3%
71.7%
Senior 49
 Multifamily
54,200
1M LIBOR + 6.75%
8.0%
83.4%
Senior 50
 Retail
15,750
1M LIBOR + 5.25%
6.5%
70.5%
Senior 51
 Retail
25,000
1M LIBOR + 4.40%
5.7%
71.4%
Senior 52
 Multifamily
13,444
1M LIBOR + 7.10%
8.3%
76.4%
Senior 53
 Hospitality
12,600
1M LIBOR + 5.50%
6.9%
61.6%
Senior 54
 Hospitality
11,750
1M LIBOR + 5.50%
6.9%
71.2%
Senior 55
 Retail
20,450
1M LIBOR + 5.00%
6.3%
60.9%
Senior 56
 Retail
7,500
1M LIBOR + 5.25%
6.6%
70.5%
Senior 57
 Office
62,040
1M LIBOR + 4.50%
5.9%
69.2%
Senior 58
 Multifamily
38,775
1M LIBOR + 4.50%
5.7%
73.8%
Mezzanine 1
 Multifamily
4,000
12.00%
11.9%
74.5%
Mezzanine 2
 Hospitality
11,000
1M LIBOR + 7.05%
8.2%
70.0%
Mezzanine 3
 Office
7,000
12.00%
11.9%
78.3%
Mezzanine 4
 Retail
1,963
13.00%
13.0%
85.0%
Mezzanine 5
 Multifamily
3,480
9.50%
9.5%
84.5%
Mezzanine 6
 Office
5,073
3M LIBOR + 10.00%
11.2%
79.5%
Mezzanine 7
 Office
10,000
10.00%
10.4%
79.0%
Mezzanine 8
 Office
10,000
1M LIBOR + 10.75%
15.4%
80.0%
Mezzanine 9
 Hospitality
7,140
10.00%
10.6%
73.9%
Mezzanine 10
 Hospitality
3,900
10.00%
10.6%
73.9%
Mezzanine 11
 Hospitality
12,510
10.00%
10.6%
73.9%
Mezzanine 12
 Hospitality
8,050
10.00%
10.6%
73.9%
 
 
$1,265,851
 
6.4%
72.8%
________________________
(1) Our floating rate loan agreements contain the contractual obligation for the borrower to maintain an interest rate cap to protect against rising interest rates. In a simple interest rate cap, the borrower pays a premium for a notional principal amount based on a capped interest rate (the "cap rate"). When the floating rate exceeds the cap rate, the borrower receives a payment from the cap counterparty equal to the difference between the floating rate and the cap rate on the same notional principal amount for a specified period of time. When interest rates rise, the value of an interest rate cap will increase, thereby reducing the borrower's exposure to rising interest rates.
(2) Loan to value percentage is from metrics at origination.
Results of Operations
We conduct our business through the following segments:

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